ITEM 1. FINANCIAL STATEMENTS
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
|
$
|
341
|
|
$
|
341
|
|
|
Interest-earning deposits with other institutions
|
518,002
|
|
429,639
|
|
|
Federal funds sold
|
11,110
|
|
5,462
|
|
|
Cash and cash equivalents
|
529,453
|
|
435,442
|
|
|
Debt securities available-for-sale, at fair value
|
311,129
|
|
617,570
|
|
|
Debt securities held-to-maturity, at amortized cost, net
|
1,014,712
|
|
211,691
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
11,817
|
|
13,284
|
|
|
Total investment securities
|
1,337,658
|
|
842,545
|
|
|
|
|
|
|
Loans and leases held-for-investment
|
9,282,922
|
|
8,237,418
|
|
|
Allowance for credit losses on loans and leases
|
(32,577)
|
|
(34,630)
|
|
|
Loans and leases held-for-investment, net
|
9,250,345
|
|
8,202,788
|
|
|
Accrued interest receivable
|
19,814
|
|
18,783
|
|
|
Investment management fees receivable, net
|
8,580
|
|
7,935
|
|
|
Goodwill
|
41,660
|
|
41,660
|
|
|
Intangible assets, net of accumulated amortization of $13,336 and $12,381, respectively
|
21,295
|
|
22,251
|
|
|
Office properties and equipment, net of accumulated depreciation of $17,622 and $16,241, respectively
|
15,398
|
|
12,369
|
|
|
Operating lease right-of-use asset
|
22,416
|
|
21,294
|
|
|
|
|
|
|
Bank owned life insurance
|
97,695
|
|
71,787
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
196,858
|
|
219,962
|
|
|
Total assets
|
$
|
11,541,172
|
|
$
|
9,896,816
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
Deposits
|
$
|
10,191,433
|
|
$
|
8,489,089
|
|
|
Borrowings, net
|
345,600
|
|
400,493
|
|
|
Accrued interest payable on deposits and borrowings
|
1,832
|
|
3,057
|
|
|
Deferred tax liability, net
|
6,815
|
|
5,676
|
|
|
|
|
|
|
Operating lease liability
|
23,959
|
|
22,958
|
|
|
Other accrued expenses and other liabilities
|
176,965
|
|
218,398
|
|
|
Total liabilities
|
10,746,604
|
|
9,139,671
|
|
|
|
|
|
|
Shareholders’ Equity:
|
|
|
|
Preferred stock, no par value; Shares authorized - 150,000;
Series A Shares issued and outstanding - 40,250 and 40,250, respectively
|
38,468
|
|
38,468
|
|
|
Series B Shares issued and outstanding - 80,500 and 80,500, respectively
|
77,611
|
|
77,611
|
|
|
Series C Shares issued and outstanding - 661 and 650, respectively
|
63,264
|
|
61,064
|
|
|
Common stock voting, no par value; Shares authorized - 47,770,083;
Shares issued -35,553,911 and 34,919,572, respectively;
Shares outstanding - 33,176,934 and 32,620,150, respectively
|
332,307
|
|
331,098
|
|
|
Common stock non- voting, no par value; Shares authorized - 6,653,347;
Shares issued - none
|
—
|
|
—
|
|
|
Additional paid-in capital
|
38,496
|
|
33,824
|
|
|
Retained earnings
|
282,898
|
|
254,054
|
|
|
Accumulated other comprehensive loss, net
|
(632)
|
|
(2,697)
|
|
|
Treasury stock (2,376,977 and 2,299,422 shares, respectively)
|
(37,844)
|
|
(36,277)
|
|
|
Total shareholders’ equity
|
794,568
|
|
757,145
|
|
|
Total liabilities and shareholders’ equity
|
$
|
11,541,172
|
|
$
|
9,896,816
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands, except per share data)
|
2021
|
2020
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
Loans and leases
|
$
|
51,702
|
|
$
|
47,377
|
|
|
$
|
100,888
|
|
$
|
106,295
|
|
|
Investments
|
3,737
|
|
3,940
|
|
|
6,383
|
|
7,841
|
|
|
Interest-earning deposits
|
116
|
|
344
|
|
|
276
|
|
1,727
|
|
|
Total interest income
|
55,555
|
|
51,661
|
|
|
107,547
|
|
115,863
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
Deposits
|
10,106
|
|
15,953
|
|
|
20,860
|
|
43,197
|
|
|
Borrowings
|
2,537
|
|
2,224
|
|
|
5,119
|
|
4,260
|
|
|
Total interest expense
|
12,643
|
|
18,177
|
|
|
25,979
|
|
47,457
|
|
|
Net interest income
|
42,912
|
|
33,484
|
|
|
81,568
|
|
68,406
|
|
|
Provision for credit losses
|
96
|
|
6,005
|
|
|
320
|
|
8,998
|
|
|
Net interest income after provision for credit losses
|
42,816
|
|
27,479
|
|
|
81,248
|
|
59,408
|
|
|
Non-interest income:
|
|
|
|
|
|
|
Investment management fees
|
9,451
|
|
7,738
|
|
|
18,451
|
|
15,376
|
|
|
Service charges on deposits
|
325
|
|
315
|
|
|
641
|
|
528
|
|
|
Net gain on the sale and call of debt securities
|
98
|
|
14
|
|
|
97
|
|
71
|
|
|
Swap fees
|
3,913
|
|
3,853
|
|
|
6,624
|
|
8,226
|
|
|
Commitment and other loan fees
|
564
|
|
462
|
|
|
890
|
|
881
|
|
|
Bank owned life insurance income
|
480
|
|
429
|
|
|
909
|
|
857
|
|
|
Other income
|
13
|
|
186
|
|
|
883
|
|
374
|
|
|
Total non-interest income
|
14,844
|
|
12,997
|
|
|
28,495
|
|
26,313
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
Compensation and employee benefits
|
20,937
|
|
16,569
|
|
|
40,858
|
|
34,015
|
|
|
Premises and equipment expense
|
1,173
|
|
1,515
|
|
|
2,579
|
|
2,901
|
|
|
Professional fees
|
2,124
|
|
1,109
|
|
|
3,448
|
|
2,579
|
|
|
FDIC insurance expense
|
1,125
|
|
2,560
|
|
|
2,250
|
|
4,730
|
|
|
General insurance expense
|
341
|
|
278
|
|
|
639
|
|
540
|
|
|
State capital shares tax expense
|
777
|
|
366
|
|
|
1,427
|
|
749
|
|
|
Travel and entertainment expense
|
639
|
|
279
|
|
|
1,080
|
|
1,143
|
|
|
Technology and data services
|
3,687
|
|
2,414
|
|
|
6,787
|
|
4,717
|
|
|
Intangible amortization expense
|
478
|
|
486
|
|
|
956
|
|
988
|
|
|
|
|
|
|
|
|
|
Marketing and advertising
|
898
|
|
686
|
|
|
1,582
|
|
1,300
|
|
|
Other operating expenses
|
2,246
|
|
1,834
|
|
|
4,097
|
|
3,578
|
|
|
Total non-interest expense
|
34,425
|
|
28,096
|
|
|
65,703
|
|
57,240
|
|
|
Income before tax
|
23,235
|
|
12,380
|
|
|
44,040
|
|
28,481
|
|
|
Income tax expense
|
4,455
|
|
1,979
|
|
|
9,060
|
|
5,185
|
|
|
Net income
|
$
|
18,780
|
|
$
|
10,401
|
|
|
$
|
34,980
|
|
$
|
23,296
|
|
|
Preferred stock dividends
|
3,077
|
|
1,962
|
|
|
6,136
|
|
3,924
|
|
|
Net income available to common shareholders
|
$
|
15,703
|
|
$
|
8,439
|
|
|
$
|
28,844
|
|
$
|
19,372
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
Basic
|
$
|
0.42
|
|
$
|
0.30
|
|
|
$
|
0.78
|
|
$
|
0.69
|
|
|
Diluted
|
$
|
0.41
|
|
$
|
0.30
|
|
|
$
|
0.76
|
|
$
|
0.68
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Net income
|
$
|
18,780
|
|
$
|
10,401
|
|
|
$
|
34,980
|
|
$
|
23,296
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on debt securities, net of tax expense (benefit) of $(88), $(2,791), $(216) and $206, respectively
|
273
|
|
8,375
|
|
|
(681)
|
|
(1,048)
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for losses (gains) included in net income on debt securities, net of tax benefit (expense) of $24, $(2), $24 and $(5), respectively
|
75
|
|
(5)
|
|
|
74
|
|
(16)
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on derivatives, net of tax expense (benefit) of $(98), $(379), $466 and $(2,223), respectively
|
(311)
|
|
(1,200)
|
|
|
1,372
|
|
(7,067)
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for losses included in net income on derivatives, net of tax benefit of $209, $111, $413 and $150, respectively
|
658
|
|
349
|
|
|
1,300
|
|
469
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
695
|
|
7,519
|
|
|
2,065
|
|
(7,662)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
$
|
19,475
|
|
$
|
17,920
|
|
|
$
|
37,045
|
|
$
|
15,634
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Preferred Stock
|
Common
Stock
|
Additional
Paid-in-Capital
|
Retained Earnings
|
Accumulated Other Comprehensive Income (Loss), Net
|
Treasury Stock
|
Total Shareholders’ Equity
|
|
Balance, March 31, 2020
|
$
|
116,079
|
|
$
|
295,587
|
|
$
|
22,783
|
|
$
|
229,382
|
|
$
|
(14,049)
|
|
$
|
(35,402)
|
|
$
|
614,380
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
10,401
|
|
—
|
|
—
|
|
10,401
|
|
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
7,519
|
|
—
|
|
7,519
|
|
|
Preferred stock dividends
|
—
|
|
—
|
|
—
|
|
(1,962)
|
|
—
|
|
—
|
|
(1,962)
|
|
|
Exercise of stock options
|
—
|
|
233
|
|
(113)
|
|
—
|
|
—
|
|
—
|
|
120
|
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(155)
|
|
(155)
|
|
|
Treasury stock reissuance
|
—
|
|
—
|
|
—
|
|
(25)
|
|
—
|
|
135
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
2,418
|
|
—
|
|
—
|
|
—
|
|
2,418
|
|
|
Balance, June 30, 2020
|
$
|
116,079
|
|
$
|
295,820
|
|
$
|
25,088
|
|
$
|
237,796
|
|
$
|
(6,530)
|
|
$
|
(35,422)
|
|
$
|
632,831
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
$
|
178,243
|
|
$
|
332,070
|
|
$
|
35,853
|
|
$
|
267,195
|
|
$
|
(1,327)
|
|
$
|
(37,748)
|
|
$
|
774,286
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
18,780
|
|
—
|
|
—
|
|
18,780
|
|
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
695
|
|
—
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
1,100
|
|
—
|
|
—
|
|
(3,077)
|
|
—
|
|
—
|
|
(1,977)
|
|
|
Exercise of stock options
|
—
|
|
237
|
|
(145)
|
|
—
|
|
—
|
|
—
|
|
92
|
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(96)
|
|
(96)
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
2,788
|
|
—
|
|
—
|
|
—
|
|
2,788
|
|
|
Balance, June 30, 2021
|
$
|
179,343
|
|
$
|
332,307
|
|
$
|
38,496
|
|
$
|
282,898
|
|
$
|
(632)
|
|
$
|
(37,844)
|
|
$
|
794,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Preferred Stock
|
Common
Stock
|
Additional
Paid-in-Capital
|
Retained Earnings
|
Accumulated Other Comprehensive Income (Loss), Net
|
Treasury Stock
|
Total Shareholders’ Equity
|
|
Balance, December 31, 2019
|
$
|
116,079
|
|
$
|
295,349
|
|
$
|
23,095
|
|
$
|
218,449
|
|
$
|
1,132
|
|
$
|
(32,823)
|
|
$
|
621,281
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
23,296
|
|
—
|
|
—
|
|
23,296
|
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(7,662)
|
|
—
|
|
(7,662)
|
|
|
Preferred stock dividends
|
—
|
|
—
|
|
—
|
|
(3,924)
|
|
—
|
|
—
|
|
(3,924)
|
|
|
Exercise of stock options
|
—
|
|
471
|
|
(260)
|
|
—
|
|
—
|
|
—
|
|
211
|
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,734)
|
|
(2,734)
|
|
|
Treasury stock reissuance
|
—
|
|
—
|
|
—
|
|
(25)
|
|
—
|
|
135
|
|
110
|
|
|
Cancellation of stock options
|
—
|
|
—
|
|
(2,484)
|
|
—
|
|
—
|
|
—
|
|
(2,484)
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
4,737
|
|
—
|
|
—
|
|
—
|
|
4,737
|
|
|
Balance, June 30, 2020
|
$
|
116,079
|
|
$
|
295,820
|
|
$
|
25,088
|
|
$
|
237,796
|
|
$
|
(6,530)
|
|
$
|
(35,422)
|
|
$
|
632,831
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
$
|
177,143
|
|
$
|
331,098
|
|
$
|
33,824
|
|
$
|
254,054
|
|
$
|
(2,697)
|
|
$
|
(36,277)
|
|
$
|
757,145
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
34,980
|
|
—
|
|
—
|
|
34,980
|
|
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
2,065
|
|
—
|
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
2,200
|
|
—
|
|
—
|
|
(6,136)
|
|
—
|
|
—
|
|
(3,936)
|
|
|
Exercise of stock options
|
—
|
|
1,209
|
|
(722)
|
|
—
|
|
—
|
|
—
|
|
487
|
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,567)
|
|
(1,567)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
5,394
|
|
—
|
|
—
|
|
—
|
|
5,394
|
|
|
Balance, June 30, 2021
|
$
|
179,343
|
|
$
|
332,307
|
|
$
|
38,496
|
|
$
|
282,898
|
|
$
|
(632)
|
|
$
|
(37,844)
|
|
$
|
794,568
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
34,980
|
|
$
|
23,296
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and intangible amortization expense
|
2,336
|
|
2,022
|
|
|
Amortization of deferred financing costs
|
108
|
|
33
|
|
|
Provision for credit losses
|
320
|
|
8,998
|
|
|
Stock-based compensation expense
|
5,394
|
|
4,737
|
|
|
Net gain on the sale or call of debt securities available-for-sale
|
(97)
|
|
(22)
|
|
|
Net gain on the call of debt securities held-to-maturity
|
—
|
|
(49)
|
|
|
|
|
|
|
Gains from debt securities trading
|
(105)
|
|
(239)
|
|
|
Purchase of debt securities trading
|
(9,440)
|
|
(20,932)
|
|
|
Proceeds from the sale of debt securities trading
|
9,545
|
|
21,171
|
|
|
Net amortization of premiums and discounts on debt securities
|
6,438
|
|
295
|
|
|
Decrease (increase) in investment management fees receivable, net
|
(645)
|
|
653
|
|
|
Decrease (increase) in accrued interest receivable
|
(1,031)
|
|
3,792
|
|
|
Decrease in accrued interest payable
|
(1,225)
|
|
(1,719)
|
|
|
Bank owned life insurance income
|
(909)
|
|
(857)
|
|
|
Increase in income taxes payable
|
4,137
|
|
455
|
|
|
Decrease in prepaid income taxes
|
1,186
|
|
3,941
|
|
|
Deferred tax provision
|
452
|
|
482
|
|
|
Decrease in accounts payable and other accrued expenses
|
(4,999)
|
|
(9,388)
|
|
|
|
|
|
|
|
|
|
|
Cash received for reimbursement of leasehold improvements
|
—
|
|
2,196
|
|
|
Other, net
|
(9,152)
|
|
(1,701)
|
|
|
Net cash provided by operating activities
|
37,293
|
|
37,164
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchase of debt securities available-for-sale
|
(294,277)
|
|
(400,451)
|
|
|
Purchase of debt securities held-to-maturity
|
(481,630)
|
|
(287,826)
|
|
|
|
|
|
|
Proceeds from the sale of debt securities available-for-sale
|
74,710
|
|
56,038
|
|
|
|
|
|
|
Principal repayments and maturities of debt securities available-for-sale
|
44,104
|
|
27,993
|
|
|
Principal repayments and maturities of debt securities held-to-maturity
|
153,451
|
|
248,714
|
|
|
Purchase of bank owned life insurance
|
(25,000)
|
|
—
|
|
|
Investment in low income housing and historic tax credits
|
(5,487)
|
|
(6,194)
|
|
|
Investment in small business investment companies
|
(582)
|
|
(150)
|
|
|
Net redemption of Federal Home Loan Bank stock
|
1,467
|
|
11,043
|
|
|
Net increase in loans and leases
|
(1,047,956)
|
|
(593,041)
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of other real estate owned
|
—
|
|
1,527
|
|
|
Additions to office properties and equipment
|
(4,410)
|
|
(2,285)
|
|
|
|
|
|
|
Net cash used in investing activities
|
(1,585,610)
|
|
(944,632)
|
|
|
Cash flows from financing activities:
|
|
|
|
Net increase in deposit accounts
|
1,702,344
|
|
1,196,858
|
|
|
Net decrease in Federal Home Loan Bank advances
|
(50,000)
|
|
(55,000)
|
|
|
Net decrease in line of credit advances
|
(5,000)
|
|
—
|
|
|
Net proceeds from issuance of subordinated notes payable
|
—
|
|
95,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from exercise of stock options
|
487
|
|
211
|
|
|
Cancellation of stock options
|
—
|
|
(2,484)
|
|
|
|
|
|
|
Purchase of treasury stock
|
(1,567)
|
|
(2,624)
|
|
|
|
|
|
|
Dividends paid on preferred stock
|
(3,936)
|
|
(3,924)
|
|
|
Net cash provided by financing activities
|
1,642,328
|
|
1,228,555
|
|
|
Net change in cash and cash equivalents during the period
|
94,011
|
|
321,087
|
|
|
Cash and cash equivalents at beginning of the period
|
435,442
|
|
403,855
|
|
|
Cash and cash equivalents at end of the period
|
$
|
529,453
|
|
$
|
724,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
Cash paid during the period for:
|
|
|
|
Interest expense
|
$
|
27,096
|
|
$
|
49,274
|
|
|
Income taxes
|
$
|
3,254
|
|
$
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-cash activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of debt securities available-for-sale to held-to-maturity
|
$
|
480,769
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Series C dividend distributable
|
$
|
2,200
|
|
$
|
—
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
[1] BASIS OF INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATION
TriState Capital Holdings, Inc. (“we,” “us,” “our,” the “holding company,” the “parent company,” or the “Company”) is a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended. The Company has three wholly owned subsidiaries: TriState Capital Bank, a Pennsylvania-chartered state bank (the “Bank”); Chartwell Investment Partners, LLC, a registered investment adviser (“Chartwell”); and Chartwell TSC Securities Corp., a registered broker-dealer (“CTSC Securities”).
The Bank was established to serve the commercial banking needs of middle-market businesses and financial services providers and focused private banking needs of high-net-worth individuals nation-wide. The Bank has two wholly owned subsidiaries: TSC Equipment Finance LLC (“TSC Equipment Finance”), established to hold and manage loans and leases of our equipment finance business, and Meadowood Asset Management, LLC (“Meadowood”), established to hold and manage other real estate owned by the Bank and/or foreclosed properties for the Bank.
Chartwell provides investment management services primarily to institutional investors, mutual funds and individual investors. CTSC Securities supports marketing efforts for the proprietary investment products provided by Chartwell, including shares of mutual funds advised and/or administered by Chartwell.
The Company and the Bank are subject to regulatory examination and supervision by the Federal Deposit Insurance Corporation (“FDIC”), the Pennsylvania Department of Banking and Securities and the Board of Governors of the Federal Reserve System (“Federal Reserve”). In addition, if the Bank’s consolidated total assets exceed $10 billion for four consecutive quarters, the Company and the Bank will become subject to the regulatory examination and supervision of the Consumer Financial Protection Bureau (“CFPB”) with respect to certain consumer protection laws. The Bank’s quarter-end consolidated assets exceeded $10 billion for two consecutive quarters as of June 30, 2021. Chartwell is a registered investment adviser regulated by the U.S. Securities and Exchange Commission (“SEC”). CTSC Securities is regulated by the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”).
The Bank conducts business through its main office located in Pittsburgh, Pennsylvania, as well as its four additional representative offices in Cleveland, Ohio; Philadelphia, Pennsylvania; Edison, New Jersey; and New York, New York. Chartwell conducts business through its office located in Berwyn, Pennsylvania, and CTSC Securities conducts business through its office located in Pittsburgh, Pennsylvania.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of related revenues and expenses during the reporting period. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than those anticipated in the estimates, which could materially affect the financial results of our operations and financial condition.
Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for credit losses on loans and leases, valuation of goodwill and other intangible assets and their evaluation for impairment, fair value measurements and deferred income taxes and their related recoverability, each of which is discussed later in this section.
CONSOLIDATION
Our consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the Bank, Chartwell and CTSC Securities, after elimination of inter-company accounts and transactions. The accounts of the Bank, in turn, include its wholly owned subsidiaries, TSC Equipment Finance and Meadowood, after elimination of inter-company accounts and transactions. The unaudited condensed consolidated financial statements of the Company presented herein have been prepared pursuant to SEC rules for Quarterly Reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for a full year presentation. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying unaudited condensed consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the related notes for the fiscal year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company has defined cash and cash equivalents as cash, interest-earning deposits with other institutions, federal funds sold and short-term investments that have an original maturity of 90 days or less. Under agreements with certain of its derivative counterparties, the Company is required to maintain minimum cash collateral posting thresholds with such counterparties. The cash subject to these agreements is considered restricted for these purposes.
BUSINESS COMBINATIONS
The Company accounts for business combinations using the acquisition method of accounting. Under this method of accounting, the acquired company’s net assets are recorded at fair value as of the date of acquisition, and the results of operations of the acquired company are combined with our results from that date forward. Acquisition costs are expensed when incurred. The difference between the purchase price, which includes an initial measurement of any contingent earn out, and the fair value of the net assets acquired (including identified intangibles) is recorded as goodwill in the consolidated statements of financial condition. A change in the initial estimate of any contingent earn out amount is recorded to non-interest expense in the consolidated statements of income.
INVESTMENT SECURITIES
The Company’s investments are classified as either: (1) held-to-maturity, which are debt securities that the Company intends to hold until maturity and are reported at amortized cost; (2) trading, which are debt securities bought and held principally for the purpose of selling them in the near term and reported at fair value, with unrealized gains and losses included in non-interest income; (3) available-for-sale, which are debt securities not classified as either held-to-maturity or trading securities and reported at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss), on an after-tax basis; or (4) equity securities, which are reported at fair value, with unrealized gains and losses included in non-interest income.
The cost of securities sold is determined on a specific identification basis. Amortization of premiums and accretion of discounts are recorded to interest income on investments over the estimated life of the security utilizing the level yield method. Management evaluates expected credit losses on held-to-maturity debt securities on a collective or pool basis, by investment category and credit rating. The Company measures credit losses by comparing the present value of cash flows expected to be collected to the amortized cost basis of the security that considers historical credit loss information, adjusted for current conditions and reasonable and supportable economic forecasts. The Company’s investment securities can be classified into the following pools based on similar risk characteristics: (1) U.S. government agencies, (2) state and local municipalities, (3) domestic corporations, including trust preferred securities, and (4) non-agency securitizations. The Company’s U.S. government agency securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. For the remaining pools of securities, the credit rating of the issuers, the investment’s cash flow characteristics and the underlying instruments securitizing certain bonds are the most relevant risk characteristics of the investment portfolio. The Company’s investment policy only allows for purchases of investments with investment grade credit ratings and the Company continuously monitors for changes in credit ratings. Probability of default and loss given default rates are based on historical averages for each investment pool, adjusted to reflect the impact of a single, forward-looking forecast of certain macroeconomic variables, such as unemployment rates and interest rate spreads, which management considers to be both reasonable and supportable. The forecast of these macroeconomic variables is applied over a period of two years and reverts to historical averages over a three-year reversion period.
Management evaluates available-for-sale debt securities in an unrealized loss position quarterly for expected credit losses. Management first determines whether it intends to sell or if it is more likely than not that it will be required to sell the impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements, and securities portfolio management. If the Company intends to sell an available-for-sale security with a fair value below amortized cost or if it is more likely than not that it will be required to sell such a security before recovery, the security’s amortized cost is written down to fair value through current period earnings. For available-for-sale debt securities that the Company does not intend to sell or it is more likely than not that it will not be required to sell before recovery, a provision for credit losses is recorded through current period earnings for the amount of the valuation decline below amortized cost that is attributable to credit losses. Management considers the extent to which fair value is less than amortized cost, credit ratings and other factors related to the security in assessing whether credit loss exists. The Company measures credit loss by comparing the present value of cash flows expected to be collected to the amortized cost basis of the security. An allowance for credit losses is recorded by the difference that the present value of cash flows expected to be collected is less than the amortized cost basis, limited by the amount that the fair value is less than the amortized cost basis. The remaining difference between the security’s fair value and amortized cost (that is, the decline in fair value not attributable to credit losses) is recognized in other comprehensive income (loss), in the consolidated statements of comprehensive income and the shareholders’ equity section of the consolidated statements of financial condition, on an after-tax basis. Changes in the allowance for credit losses are recorded as provision for credit losses. Losses are
charged against the allowance when management believes the security is uncollectible or management intends to sell or is required to sell the security.
The recognition of interest income on a debt security is discontinued when any principal or interest payment becomes 90 days past due, at which time the debt security is placed on non-accrual status. All accrued and unpaid interest on such debt security is then reversed. Accrued interest receivable is excluded from the estimate of expected credit losses.
FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Pittsburgh. Member institutions are required to invest in FHLB stock. The stock is carried at cost, which approximates its liquidation value, and it is evaluated for impairment based on the ultimate recoverability of the par value. The following matters are considered by management when evaluating the FHLB stock for impairment: the ability of the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; the impact of legislative and regulatory changes on the institution and its customer base; and the Company’s intent and ability to hold its FHLB stock for the foreseeable future. Management believes the Company’s holdings in the FHLB stock were recoverable at par value as of June 30, 2021 and December 31, 2020. Cash and stock dividends are reported as interest income on investments in the consolidated statements of income.
LOANS AND LEASES
Loans and leases held-for-investment are stated at amortized cost. Amortized cost is the unpaid principal balance, net of deferred loan fees and costs. Loans held-for-sale are stated at the lower of cost or fair value. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. Deferred loan fees and costs are amortized to interest income over the estimated life of the loan, taking into consideration scheduled payments and prepayments.
The Company considers a loan to be a troubled debt restructuring (“TDR”) when there is a concession made to a financially troubled borrower without adequate consideration provided to the Company. The Company evaluates any loan reasonably expected to become a TDR, regardless of whether the loan is on accrual or non-accrual status. Once a loan is deemed to be a TDR, the Company considers whether the loan should be placed on non-accrual status. In assessing accrual status, the Company considers the likelihood that repayment and performance according to the original contractual terms will be achieved, as well as the borrower’s historical payment performance. A loan is designated and reported as a TDR until such loan is either paid off or sold unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement.
The recognition of interest income on a loan is discontinued when, in management’s opinion, it is probable the borrower is unable to meet payments as they become due or when the loan becomes 90 days past due, whichever occurs first, at which time the loan is placed on non-accrual status. All accrued and unpaid interest on such loans is then reversed. The interest ultimately collected is applied to reduce principal if there is doubt about the collectability of principal. If a borrower brings a loan current for which accrued interest has been reversed, then the recognition of interest income on the loan is resumed once the loan has been current for a period of six consecutive months or greater.
The Company is a party to financial instruments with off-balance sheet risk, such as commitments to extend credit, in the normal course of business to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the lending agreement with such customer. Commitments generally have fixed expiration dates or other termination clauses (e.g., loans due on demand) and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the unfunded commitment amount does not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis using the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Company upon extension of a commitment, is based on management’s credit evaluation of the borrower.
OTHER REAL ESTATE OWNED
Real estate owned, other than bank premises, is recorded at fair value less estimated selling costs. Fair value is determined based on an independent appraisal. Expenses related to holding the property are charged against earnings when incurred. Depreciation is not recorded on other real estate owned (“OREO”) properties.
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans and leases to present management’s best estimate of the net amount expected to be collected. Adjustments to the allowance for credit losses are established through provisions for credit losses that are recorded in the consolidated statements of income. Loans and leases are charged off against the allowance for credit losses when management believes that the principal is uncollectible. If, at a later
time, amounts are recovered with respect to loans and leases previously charged off, the recovered amount is credited to allowance for credit losses. Accrued interest receivable is excluded from the estimate of expected credit losses.
The allowance for credit losses represent estimates of expected credit losses for homogeneous loan pools that share similar risk characteristics such as commercial and industrial (“C&I”) loans and leases, commercial real estate (“CRE”) loans, and private banking loans which include consumer lines of credit and residential mortgages. The Company periodically reassesses each loan pool to ensure that the loans within the pool continue to share similar risk characteristics. Non-accrual loans and loans designated as TDRs are assessed individually using a discounted cash flow method or, where a loan is collateral dependent, based upon the fair value of the collateral less estimated selling costs.
The collateral on our private banking loans that is secured by cash, marketable securities and/or cash value life insurance is monitored daily and requires borrowers to continually replenish collateral as a result of fair value changes. Therefore, it is expected that the fair value of the collateral securing each loan will exceed the loan’s amortized cost basis and no allowance for the off-balance sheet exposure would be required under Accounting Standard Codification (“ASC”) 326-20-35-6, “Financial Assets Secured by Collateral Maintenance Provisions.”
In estimating the general allowance for credit losses for loans evaluated on a collective or pool basis, management considers past events, current conditions, and reasonable and supportable economic forecasts, including historical charge-offs and subsequent recoveries. Management also considers qualitative factors that influence our credit quality, including, but not limited to, delinquency and non-performing loan trends, changes in loan underwriting guidelines and credit policies, and the results of internal loan reviews. Finally, management considers the impact of changes in current and forecasted local and regional economic conditions in the markets that we serve.
Management bases the computation of the general allowance for credit losses on two factors: the primary factor and the secondary factor. The primary factor is based on the inherent risk identified by management within each of the Company’s three loan portfolios based on the historical loss experience of each loan portfolio. Management has developed a methodology that is applied to each of the three primary loan portfolios: C&I loans and leases, CRE loans and private banking loans (other than those secured by cash, marketable securities and/or cash value life insurance).
For each portfolio, management estimates expected credit losses over the life of each loan utilizing lifetime or cumulative loss rate methodology, which identifies macroeconomic factors and asset-specific characteristics that are correlated with credit loss experience, including loan age, loan type, leverage, risk rating, interest rate spread and industry. The lifetime loss rate is applied to the amortized cost of the loan. This methodology builds on default and recovery probabilities by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for a forecast of certain macroeconomic variables, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time the Company measures expected credit losses, the Company assesses the relevancy of historical loss information and considers any necessary adjustments to address any differences in asset-specific characteristics.
The allowance for credit losses represents management’s current estimate of expected credit losses in the loan and lease portfolio. Expected credit losses are estimated over the contractual term of the loans, which includes extension or renewal options that are not unconditionally cancellable by the Company and are adjusted for expected prepayments when appropriate. Management’s judgment takes into consideration past events, current conditions and reasonable and supportable economic forecasts including general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral. Although management believes it has used the best information available in making such determinations, and that the present allowance for credit losses represents management’s best estimate of current expected credit losses, future adjustments to the allowance may be necessary, and net income may be adversely affected if circumstances differ substantially from the assumptions used in determining the level of the allowance.
The lifetime loss rates are estimated by analyzing a combination of internal and external data related to historical performance of each loan pool over a complete economic cycle. Loss rates are based on historical averages for each loan pool, adjusted to reflect the impact of a single, forward-looking forecast of certain macroeconomic variables such as gross domestic product (“GDP”), unemployment rates, corporate bond credit spreads and commercial property values, which management considers to be both reasonable and supportable. The single, forward-looking forecast of these macroeconomic variables is applied over the remaining life of the loan pools. The development of the reasonable and supportable forecast incorporates an assumption that each macroeconomic variable will revert to a long-term expectation starting in years two to four of the forecast and largely completing within the first five years of the forecast.
The secondary factor is intended to capture additional risks related to events and circumstances that management believes have an impact on the performance of the loan portfolio that are not considered as part of the primary factor. Although this factor is more
subjective in nature, the methodology focuses on internal and external trends in pre-specified categories, or risk factors, and applies a quantitative percentage that drives the secondary factor. Nine risk factors have been identified and each risk factor is assigned an allowance level based on management’s judgment as to the expected impact of each risk factor on each loan portfolio and is monitored on a quarterly basis. As the trend in any risk factor changes, management evaluates the need for a corresponding change to occur in the allowance associated with each respective risk factor to provide the most appropriate estimate of allowance for credit losses on loans and leases.
The Company also maintains an allowance for credit losses on off-balance sheet credit exposures for unfunded loan commitments. This allowance is reflected as a component of other liabilities which represents management’s current estimate of expected losses in the unfunded loan commitments. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life based on management’s consideration of past events, current conditions and reasonable and supportable economic forecasts. Management tracks the level and trends in unused commitments and takes into consideration the same factors as those considered for purposes of the allowance for credit losses on outstanding loans. Unconditionally cancellable loans are excluded from the calculation of allowance for credit losses on off-balance sheet credit exposures.
Results for the six months ended June 30, 2021 are presented under the current expected credit loss (“CECL”) methodology, in accordance with ASC Topic 326, while prior period amounts continue to be reported in accordance with ASC Topic 450, “Contingencies,” and specific reserves based upon ASC Topic 310, “Receivables.” ASC Topic 450 applies to homogeneous loan pools such as commercial loans, consumer lines of credit and residential mortgages that are not individually evaluated for impairment. ASC Topic 310 is applied to commercial and consumer loans that are individually evaluated for impairment.
INVESTMENT MANAGEMENT FEES
The Company recognizes investment management fee revenue when advisory services are performed. Fees are based on assets under management and are calculated pursuant to individual client contracts. Investment management fees are generally received on a quarterly basis. Certain incremental costs incurred to acquire some of our investment management contracts are deferred and amortized to non-interest expense over the estimated life of the contract.
Investment management fees receivable represent amounts due for contractual investment management services provided to the Company’s clients, primarily institutional investors, mutual funds and individual investors. Management performs credit evaluations of its customers’ financial condition when it is deemed to be necessary and does not require collateral. The Company provides an allowance for uncollectible accounts based on specifically identified receivables. The Company has not experienced any losses on receivables for investment management fees for the six months ended June 30, 2021, and 2020. The Company had no allowance for credit losses on investment management fees as of June 30, 2021 and December 31, 2020.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized and is subject to at least annual assessments for impairment by applying a fair value-based test. The Company reviews goodwill annually and again at any quarter-end if a material event occurs during the quarter that may affect goodwill. If goodwill testing is required, an assessment of qualitative factors can be completed before performing a goodwill impairment test. If an assessment of qualitative factors determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then a goodwill impairment test is not required.
Other intangible assets represent purchased assets that may lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. The Company has determined that certain of its acquired mutual fund client relationships meet the criteria to be considered indefinite-lived assets because the Company expects both the renewal of these contracts and the cash flows generated by these assets to continue indefinitely. Accordingly, the Company does not amortize these intangible assets, but instead reviews these assets annually or more frequently whenever events or circumstances occur indicating that the recorded indefinite-lived assets may be impaired. Each reporting period, the Company assesses whether events or circumstances have occurred which indicate that the indefinite life criteria are no longer met. If the indefinite life criteria are no longer met, the Company assesses whether the carrying value of these assets exceeds its fair value. If the carrying value exceeds the fair value of the assets, an impairment loss is recorded in an amount equal to any such excess and the assets are reclassified to finite-lived. Other intangible assets that the Company has determined to have finite lives, such as its trade names, client lists and non-compete agreements are amortized over their estimated useful lives. These finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from four to 25 years. Finite-lived intangibles are evaluated for impairment on an annual basis or more frequently whenever events or circumstances occur indicating that the carrying amount of such assets may not be recoverable.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are stated at cost less accumulated depreciation. Office properties include furniture, fixtures and leasehold improvements. Equipment includes computer equipment and internal use software. Depreciation is computed utilizing the straight-line method over the estimated useful lives of the related assets, except for leasehold improvements, which are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Estimated useful lives are dependent upon the nature and condition of the asset and range from three to 10 years. Repairs and maintenance are charged to expense as incurred, while improvements that extend the useful life of the assets are capitalized and depreciated to non-interest expense over the estimated remaining life of the asset.
OPERATING LEASES
The Company is a lessee in noncancellable operating leases, primarily for its office spaces and other office equipment. The Company accounts for leases in accordance with ASC Topic 842, “Leases,” and records operating leases as a right-of-use asset and an offsetting lease liability in the consolidated statements of financial condition at the present value of the unpaid lease payments. The Company generally uses its incremental borrowing rate as the discount rate for operating leases. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
BANK OWNED LIFE INSURANCE
Bank owned life insurance (“BOLI”) policies on certain officers and employees are recorded at net cash surrender value on the consolidated statements of financial condition. Upon termination of a BOLI policy, the Company receives the cash surrender value. BOLI benefits are payable to the Company upon the death of the insured. Changes in net cash surrender value are recognized as non-interest income in the consolidated statements of income.
DEPOSITS
Deposits are stated at principal outstanding. Interest on deposits is accrued and charged to interest expense daily and is paid or credited in accordance with the terms of the respective accounts.
BORROWINGS
The Company records FHLB advances, line of credit borrowings and subordinated notes payable at their principal amount net of debt issuance costs. Interest expense is recognized based on the coupon rate of the obligations. Costs associated with the acquisition of subordinated notes payable are amortized to interest expense over the expected term of the borrowing.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities with regard to a change in tax rates is recognized in income in the period that includes the enactment date. Management assesses all available evidence to determine the amount of deferred tax assets that are more likely than not to be realized. The available evidence used in connection with the assessments includes taxable income in prior periods, projected taxable income, potential tax planning strategies and projected reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo significant change. Changes to the evidence used in the assessments could have a material adverse effect on the Company’s results of operations in the period in which they occur. The Company considers uncertain tax positions that it has taken or expects to take on a tax return. Any interest and penalties related to unrecognized tax benefits would be recognized in income tax expense in the consolidated statements of income.
EARNINGS PER COMMON SHARE
Earnings per common share (“EPS”) is computed using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities, according to dividends and participation rights in undistributed earnings. Under this method, net earnings is reduced by the amount of dividends declared in the current period for common shareholders and participating security holders. The remaining earnings or “undistributed earnings” are allocated between common stock and participating securities to the extent that each security may share in earnings as if all the earnings for the period had been distributed.
The two-class method requires that the Company’s Series C perpetual non-cumulative convertible non-voting preferred stock (the “Series C Preferred Stock”) and outstanding warrants to be treated as participating classes of securities in the computation of EPS. In addition, net income is reduced by dividends declared on all series of preferred stock to derive net income available to common
shareholders. Basic EPS is computed by dividing net income allocable to common shareholders by the weighted average number of the Company’s common shares outstanding for the period, excluding non-vested restricted stock. Diluted EPS reflects the potential dilution upon the exercise of stock options and warrants, and the vesting of restricted stock awards granted utilizing the treasury stock method.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation awards based on estimated fair values of stock-based awards made to employees and directors. Compensation cost for all stock-based payments is based on the estimated grant-date fair value. The value of the portion of the award that is ultimately expected to vest is included in compensation and employee benefits expense in the consolidated statements of income and recorded as a component of additional paid-in capital. Compensation expense for all awards is recognized on a straight-line basis over the requisite service period for the entire grant.
DERIVATIVES AND HEDGING ACTIVITIES
All derivatives are evaluated at inception as to whether they are hedging or non-hedging activities. All derivatives are recognized as either assets or liabilities on the consolidated statements of financial condition and measured at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item. For derivatives designated as cash flow hedges, changes in fair value of the effective portion of the cash flow hedges are reported in accumulated other comprehensive income (loss). When the cash flows associated with the hedged item are realized, the gain or loss included in accumulated other comprehensive income (loss) is recognized in the consolidated statements of income. The Company also has interest rate derivative positions that are not designated as hedging instruments. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. The Company is required to have minimum collateral posting thresholds with certain of its derivative counterparties, and this collateral is considered restricted cash.
The Company executes interest rate derivatives with its commercial banking customers to facilitate their respective risk management strategies. The Company generates swap fee income through these transactions. These derivatives are simultaneously and economically hedged by offsetting derivatives that the Company executes with a third party, such that the Company generally eliminates its interest rate exposure resulting from such transactions and these derivatives are not designated as hedging instruments. Swap fees are based on the notional amount and weighted maturity of each individual transaction and are collected and recorded to non-interest income in the consolidated statements of income when the transaction is executed.
FAIR VALUE MEASUREMENT
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in a principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date, using assumptions market participants would use when pricing such an asset or liability. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale. Fair value measurement and disclosure guidance provides a three-level hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into three broad categories:
•Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2 – Observable inputs such as quoted prices for similar assets and liabilities in active markets, quoted prices for similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
Fair value must be recorded for certain assets and liabilities every reporting period on a recurring basis or, under certain circumstances, on a non-recurring basis.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains and the non-credit component of unrealized losses on the Company’s debt securities available-for-sale are included in accumulated other comprehensive income (loss), net of applicable income taxes. Also included in accumulated other comprehensive income (loss) is the remaining unamortized balance of the unrealized holding gains (non-credit losses), net of applicable income taxes, that existed on the transfer date for debt securities reclassified into the held-to-maturity category from the available-for-sale category.
Unrealized holding gains (losses) on the effective portion of the Company’s cash flow hedge derivatives are included in accumulated other comprehensive income (loss), net of applicable income taxes, which will be reclassified to interest expense as interest payments are made on the Company’s debt.
Income tax effects in accumulated other comprehensive income (loss) are released as investments are sold or mature and as liabilities are extinguished.
TREASURY STOCK
The repurchase of the Company’s common stock is recorded at cost. At the time of reissuance, the treasury stock account is reduced using the average cost method. Gains and losses on the reissuance of common stock are recorded in additional paid-in capital, to the extent additional paid-in capital from any previous net gains on treasury share transactions exists. Any net deficiency is charged to retained earnings.
RECLASSIFICATION
Certain items previously reported have been reclassified to conform with the current year’s reporting presentation and are considered immaterial.
[2] INVESTMENT SECURITIES
Debt securities available-for-sale and held-to-maturity were comprised of the following as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Allowance for Credit Losses (1)
|
Estimated
Fair Value
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
135,853
|
|
$
|
1,606
|
|
$
|
289
|
|
$
|
—
|
|
$
|
137,170
|
|
|
Residential mortgage-backed securities
|
97,572
|
|
78
|
|
99
|
|
—
|
|
97,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities
|
18,300
|
|
312
|
|
186
|
|
—
|
|
18,426
|
|
|
Agency collateralized mortgage obligations
|
19,050
|
|
86
|
|
—
|
|
—
|
|
19,136
|
|
|
Agency mortgage-backed securities
|
25,263
|
|
30
|
|
1
|
|
—
|
|
25,292
|
|
|
Agency debentures
|
7,598
|
|
748
|
|
—
|
|
—
|
|
8,346
|
|
|
Municipal bonds
|
5,204
|
|
4
|
|
—
|
|
—
|
|
5,208
|
|
|
Total debt securities available-for-sale
|
$
|
308,840
|
|
$
|
2,864
|
|
$
|
575
|
|
$
|
—
|
|
$
|
311,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Available-for-sale securities are recorded on the consolidated statements of financial condition at estimated fair value, net of allowance for credit losses, if applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Estimated
Fair Value
|
|
Allowance for Credit Losses (1)
|
|
Debt securities held-to-maturity:
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
30,670
|
|
$
|
1,051
|
|
$
|
27
|
|
31,694
|
|
|
$
|
47
|
|
|
Agency debentures
|
129,998
|
|
816
|
|
11
|
|
130,803
|
|
|
—
|
|
|
Municipal bonds
|
4,778
|
|
10
|
|
—
|
|
4,788
|
|
|
—
|
|
|
Residential mortgage-backed securities
|
230,913
|
|
285
|
|
1,710
|
|
229,488
|
|
|
23
|
|
|
Agency mortgage-backed securities
|
579,374
|
|
798
|
|
5,480
|
|
574,692
|
|
|
—
|
|
|
U.S. treasury notes
|
39,049
|
|
29
|
|
409
|
|
38,669
|
|
|
—
|
|
|
Total debt securities held-to-maturity
|
$
|
1,014,782
|
|
$
|
2,989
|
|
$
|
7,637
|
|
$
|
1,010,134
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
(1)Held-to-maturity securities are recorded on the consolidated statements of financial condition at amortized cost, net of allowance for credit losses.
During the first quarter of 2021, the Company transferred $480.8 million fair value of previously designated available-for-sale agency mortgage-backed securities to held-to-maturity designation.
Debt securities available-for-sale and held-to-maturity were comprised of the following as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Allowance for Credit Losses (1)
|
Estimated
Fair Value
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
157,452
|
|
$
|
1,538
|
|
$
|
526
|
|
—
|
|
$
|
158,464
|
|
|
Trust preferred securities
|
18,228
|
|
57
|
|
198
|
|
—
|
|
18,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency collateralized mortgage obligations
|
22,058
|
|
36
|
|
5
|
|
—
|
|
22,089
|
|
|
Agency mortgage-backed securities
|
406,741
|
|
3,595
|
|
209
|
|
—
|
|
410,127
|
|
|
Agency debentures
|
8,013
|
|
790
|
|
—
|
|
—
|
|
8,803
|
|
|
Total debt securities available-for-sale
|
$
|
612,492
|
|
$
|
6,016
|
|
$
|
938
|
|
—
|
|
$
|
617,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Available-for-sale securities are recorded on the consolidated statements of financial condition at estimated fair value, net of allowance for credit losses, if applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Estimated
Fair Value
|
|
Allowance for Credit Losses (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities held-to-maturity:
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
28,672
|
|
$
|
566
|
|
$
|
1
|
|
$
|
29,237
|
|
|
$
|
79
|
|
|
Agency debentures
|
48,130
|
|
1,051
|
|
—
|
|
49,181
|
|
|
—
|
|
|
Municipal bonds
|
6,577
|
|
45
|
|
—
|
|
6,622
|
|
|
—
|
|
|
Residential mortgage-backed securities
|
124,152
|
|
237
|
|
217
|
|
124,172
|
|
|
70
|
|
|
Agency mortgage-backed securities
|
4,309
|
|
778
|
|
—
|
|
5,087
|
|
|
—
|
|
|
Total debt securities held-to-maturity
|
$
|
211,840
|
|
$
|
2,677
|
|
$
|
218
|
|
$
|
214,299
|
|
|
$
|
149
|
|
|
|
|
|
|
|
|
|
(1)Held-to-maturity securities are recorded on the consolidated statements of financial condition at amortized cost, net of allowance for credit losses.
Interest income on investment securities was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Taxable interest income
|
$
|
3,552
|
|
$
|
3,609
|
|
|
$
|
5,990
|
|
$
|
7,001
|
|
|
Non-taxable interest income
|
31
|
|
26
|
|
|
57
|
|
137
|
|
|
Dividend income
|
154
|
|
305
|
|
|
336
|
|
703
|
|
|
Total interest income on investment securities
|
$
|
3,737
|
|
$
|
3,940
|
|
|
$
|
6,383
|
|
$
|
7,841
|
|
As of June 30, 2021, the contractual maturities of the debt securities were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Estimated
Fair Value
|
|
Amortized
Cost
|
Estimated
Fair Value
|
|
Due in less than one year
|
$
|
27,499
|
|
$
|
27,622
|
|
|
$
|
1,911
|
|
$
|
1,915
|
|
|
Due from one to five years
|
46,189
|
|
46,953
|
|
|
14,287
|
|
14,814
|
|
|
Due from five to ten years
|
71,638
|
|
72,292
|
|
|
198,863
|
|
199,664
|
|
|
Due after ten years
|
163,514
|
|
164,262
|
|
|
799,721
|
|
793,741
|
|
|
Total debt securities
|
$
|
308,840
|
|
$
|
311,129
|
|
|
$
|
1,014,782
|
|
$
|
1,010,134
|
|
The $164.3 million fair value of debt securities available-for-sale with a contractual maturity due after 10 years as of June 30, 2021, included $29.2 million, or 17.8%, that are floating-rate securities. The $198.9 million amortized cost of debt securities held-to-maturity with a contractual maturity due from five to 10 years as of June 30, 2021, included $19.3 million that have call provisions within the next five years that would either mature, if called, or become floating-rate securities after the call date.
Prepayments may shorten the contractual lives of the collateralized mortgage obligations, mortgage-backed securities and collateralized loan obligations.
Proceeds from the sale and call of debt securities available-for-sale and held-to-maturity and related gross realized gains and losses were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
|
Proceeds from sales
|
$
|
74,710
|
|
$
|
6,071
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
74,710
|
|
$
|
56,038
|
|
|
$
|
—
|
|
$
|
—
|
|
|
Proceeds from calls
|
1,000
|
|
3,580
|
|
|
40,000
|
|
125,405
|
|
|
13,000
|
|
3,580
|
|
|
43,555
|
|
247,758
|
|
|
Total proceeds
|
$
|
75,710
|
|
$
|
9,651
|
|
|
$
|
40,000
|
|
$
|
125,405
|
|
|
$
|
87,710
|
|
$
|
59,618
|
|
|
$
|
43,555
|
|
$
|
247,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains
|
$
|
98
|
|
$
|
6
|
|
|
$
|
—
|
|
$
|
8
|
|
|
$
|
98
|
|
$
|
21
|
|
|
$
|
—
|
|
$
|
50
|
|
|
Gross realized losses
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
1
|
|
—
|
|
|
—
|
|
—
|
|
|
Net realized gains
|
$
|
98
|
|
$
|
6
|
|
|
$
|
—
|
|
$
|
8
|
|
|
$
|
97
|
|
$
|
21
|
|
|
$
|
—
|
|
$
|
50
|
|
Debt securities available-for-sale of $2.2 million as of June 30, 2021, were held in safekeeping at the FHLB and were included in the calculation of the Company’s borrowing capacity. Additionally, there were $38.7 million of debt securities held-to-maturity that were pledged as collateral for certain deposit relationships.
The following tables show a roll-forward of the allowance for credit losses on held-to-maturity securities for the three and six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
(Dollars in thousands)
|
Corporate bonds
|
Residential mortgage-backed securities
|
Municipal bonds
|
Agency debentures and mortgage-backed securities
|
U.S. treasury notes
|
Total
|
|
Balance, beginning of period
|
$
|
55
|
|
$
|
105
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
Provision (credit)
|
(8)
|
|
(82)
|
|
—
|
|
—
|
|
—
|
|
(90)
|
|
|
Charge-offs
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Recoveries
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Balance, end of period
|
$
|
47
|
|
$
|
23
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
(Dollars in thousands)
|
Corporate bonds
|
Residential mortgage-backed securities
|
Municipal bonds
|
Agency debentures and mortgage-backed securities
|
U.S. treasury notes
|
Total
|
|
Balance, beginning of period
|
$
|
79
|
|
$
|
70
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
149
|
|
|
|
|
|
|
|
|
|
|
Provision (credit)
|
(32)
|
|
(47)
|
|
—
|
|
—
|
|
—
|
|
(79)
|
|
|
Charge-offs
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Recoveries
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Balance, end of period
|
$
|
47
|
|
$
|
23
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
70
|
|
The following tables show the fair value and gross unrealized losses on debt securities available-for-sale, by investment category and length of time that the individual securities have been in a continuous unrealized loss position as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
(Dollars in thousands)
|
Fair value
|
Unrealized losses
|
|
Fair value
|
Unrealized losses
|
|
Fair value
|
Unrealized losses
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
9,531
|
|
$
|
93
|
|
|
$
|
9,804
|
|
$
|
196
|
|
|
$
|
19,335
|
|
$
|
289
|
|
|
Residential mortgage-backed securities
|
57,494
|
|
99
|
|
|
—
|
|
—
|
|
|
57,494
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities
|
—
|
|
—
|
|
|
4,304
|
|
186
|
|
|
4,304
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
—
|
|
—
|
|
|
92
|
|
1
|
|
|
92
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities available-for-sale (1)
|
$
|
67,025
|
|
$
|
192
|
|
|
$
|
14,200
|
|
$
|
383
|
|
|
$
|
81,225
|
|
$
|
575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The number of investment positions with unrealized losses totaled 11 for available-for-sale securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
(Dollars in thousands)
|
Fair value
|
Unrealized losses
|
|
Fair value
|
Unrealized losses
|
|
Fair value
|
Unrealized losses
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
28,796
|
|
$
|
277
|
|
|
$
|
9,751
|
|
$
|
249
|
|
|
$
|
38,547
|
|
$
|
526
|
|
|
Trust preferred securities
|
13,313
|
|
198
|
|
|
—
|
|
—
|
|
|
13,313
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency collateralized mortgage obligations
|
—
|
|
—
|
|
|
9,863
|
|
5
|
|
|
9,863
|
|
5
|
|
|
Agency mortgage-backed securities
|
89,931
|
|
209
|
|
|
—
|
|
—
|
|
|
89,931
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities available-for-sale (1)
|
$
|
132,040
|
|
$
|
684
|
|
|
$
|
19,614
|
|
$
|
254
|
|
|
$
|
151,654
|
|
$
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The number of investment positions with unrealized losses totaled 33 for available-for-sale securities.
The changes in the fair values of our agency collateralized mortgage obligations and agency mortgage-backed securities are primarily the result of interest rate fluctuations. These agency securities are either explicitly or implicitly guaranteed by the U.S. government, highly rated, and have a long history of no credit losses. To assess for credit losses on debt securities available-for-sale in unrealized loss position, management evaluates the underlying issuer’s financial performance and the related credit rating information through a review of publicly available financial statements and other publicly available information. The most recent assessment for credit
losses did not identify any issues related to the ultimate repayment of principal and interest on these debt securities. In addition, the Company has the ability and intent to hold debt securities in an unrealized loss position until recovery of their amortized cost. Based on this, no allowance for credit losses has been recognized on debt securities available-for-sale in an unrealized loss position.
The Company monitors the credit quality of debt securities held-to-maturity including credit ratings quarterly. The following tables present the amortized costs basis of debt securities held-to-maturity by Moody’s bond credit rating.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Aaa
|
Aa
|
A
|
Baa
|
Ba
|
Total
|
|
Debt securities held-to-maturity:
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
30,670
|
|
$
|
—
|
|
$
|
30,670
|
|
|
Agency debentures
|
129,998
|
|
—
|
|
—
|
|
—
|
|
—
|
|
129,998
|
|
|
Municipal bonds
|
—
|
|
3,988
|
|
790
|
|
—
|
|
—
|
|
4,778
|
|
|
Residential mortgage-backed securities
|
230,913
|
|
—
|
|
—
|
|
—
|
|
—
|
|
230,913
|
|
|
Agency mortgage-backed securities
|
579,374
|
|
—
|
|
—
|
|
—
|
|
—
|
|
579,374
|
|
|
U.S. treasury notes
|
39,049
|
|
—
|
|
—
|
|
—
|
|
—
|
|
39,049
|
|
|
Total debt securities held-to-maturity
|
$
|
979,334
|
|
$
|
3,988
|
|
$
|
790
|
|
$
|
30,670
|
|
$
|
—
|
|
$
|
1,014,782
|
|
Accrued interest receivable of $2.0 million and $697,000 on debt securities held-to-maturity as of June 30, 2021 and December 31, 2020, respectively, was excluded from the amortized cost used in the allowance for credit losses. The Company had no debt securities held-to-maturity that were past due as of June 30, 2021.
There were no outstanding debt securities classified as trading as of June 30, 2021 and December 31, 2020.
There was $11.8 million and $13.3 million in FHLB stock outstanding as of June 30, 2021 and December 31, 2020, respectively.
[3] LOANS AND LEASES
The Company generates loans through the private banking and middle-market banking channels. The private banking channel primarily includes loans made to high-net-worth individuals, trusts and businesses that are typically secured by cash, marketable securities and/or cash value life insurance. The middle-market banking channel consists of the Company’s C&I loan and lease portfolio and CRE loan portfolio, which serve middle-market businesses and real estate developers in our primary markets.
Loans and leases held-for-investment were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Loans and leases held-for-investment, before deferred fees and costs
|
$
|
5,701,419
|
|
$
|
1,236,054
|
|
$
|
2,334,051
|
|
$
|
9,271,524
|
|
|
Net deferred loan costs (fees)
|
12,143
|
|
4,863
|
|
(5,608)
|
|
11,398
|
|
|
Loans and leases held-for-investment, net of deferred fees and costs
|
5,713,562
|
|
1,240,917
|
|
2,328,443
|
|
9,282,922
|
|
|
Allowance for credit losses on loans and leases
|
(2,107)
|
|
(8,969)
|
|
(21,501)
|
|
(32,577)
|
|
|
Loans and leases held-for-investment, net
|
$
|
5,711,455
|
|
$
|
1,231,948
|
|
$
|
2,306,942
|
|
$
|
9,250,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Loans and leases held-for-investment, before deferred fees and costs
|
$
|
4,797,881
|
|
$
|
1,269,248
|
|
$
|
2,160,784
|
|
$
|
8,227,913
|
|
|
Net deferred loan costs (fees)
|
9,919
|
|
4,904
|
|
(5,318)
|
|
9,505
|
|
|
Loans and leases held-for-investment, net of deferred fees and costs
|
4,807,800
|
|
1,274,152
|
|
2,155,466
|
|
8,237,418
|
|
|
Allowance for credit losses on loans and leases
|
(2,047)
|
|
(5,254)
|
|
(27,329)
|
|
(34,630)
|
|
|
Loans and leases held-for-investment, net
|
$
|
4,805,753
|
|
$
|
1,268,898
|
|
$
|
2,128,137
|
|
$
|
8,202,788
|
|
The Company’s customers have unused loan commitments based on the availability of eligible collateral or other terms and conditions under their loan agreements. Included in unused loan commitments are unused availability under demand loans for our private
banking lines secured by cash, marketable securities and/or cash value life insurance, as well as commitments to fund loans secured by residential properties, commercial real estate, construction loans, business lines of credit and other unused commitments of loans in various stages of funding. Not all commitments will fund or fully fund as customers often only draw on a portion of their available credit. The amount of unfunded commitments, including standby letters of credit, as of June 30, 2021 and December 31, 2020, was $8.51 billion and $6.73 billion, respectively. The interest rate for each commitment is based on the prevailing market conditions at the time of funding. The total unfunded commitments above included loans in the process of origination totaling approximately $48.0 million and $39.6 million as of June 30, 2021 and December 31, 2020, respectively, which extend over varying periods of time.
The Company issues standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. The Company would be required to perform under a standby letter of credit when drawn upon by the guaranteed party in the case of non-performance by the Company’s customer. Collateral may be obtained based on management’s credit assessment of the customer. The amount of unfunded commitments related to standby letters of credit as of June 30, 2021 and December 31, 2020, included in the total unfunded commitments above, was $74.7 million and $82.0 million, respectively. Should the Company be obligated to perform under any standby letters of credit, the Company will seek repayment from the customer for amounts paid. During the six months ended June 30, 2021 and 2020, there were draws on letters of credit totaling $5,000 and $45,000, respectively, which were repaid by the borrowers. Most of these commitments are expected to expire without being drawn upon and the total amount does not necessarily represent future cash requirements.
The allowance for credit losses on off-balance-sheet credit exposures was $3.0 million and $3.4 million as of June 30, 2021 and December 31, 2020, respectively, which includes allowance for credit losses on unfunded loan commitments and standby letters of credit. The Company recorded a credit to provision on off-balance sheet exposures as liabilities of $364,000 and provision expense of $396,000 for the six months ended June 30, 2021 and 2020, respectively.
[4] ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
Our allowance for credit losses represents our current estimate of expected credit losses in the portfolio at a specific point in time. This estimate includes credit losses associated with loans and leases evaluated on a collective or pool basis, as well as expected credit losses of the individually evaluated loans and leases that do not share similar risk characteristics. Management evaluates the adequacy of the allowance at least quarterly, and in doing so relies on various factors including, but not limited to, assessment of historical loss experience, delinquency and non-accrual trends, portfolio growth, underlying collateral coverage and current economic conditions, and economic forecasts over a reasonable and supportable period of time. This evaluation is subjective and requires material estimates that may change over time. The calculation of the allowance for credit losses on loans and leases takes into consideration the inherent risk identified within each of the Company’s three primary loan portfolios. The lifetime loss rates are estimated by analyzing a combination of internal and external data related to historical performance of each loan pool over a complete economic cycle. Results for the six months ended June 30, 2021, are presented under CECL methodology while prior period amounts continue to be reported in accordance with previously applicable GAAP. Refer to Note 1, Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements for more details on the Company’s policy on allowance for credit losses on loans and leases.
The following discusses key characteristics and risks within each primary loan portfolio:
Private Banking Loans
Our private banking lending business is conducted on a national basis. This loan portfolio primarily includes loans made to high-net-worth individuals, trusts and businesses that are typically secured by marketable securities, cash, and/or cash value life insurance. The Company actively monitors the value of the collateral securing these loans on a daily basis and requires borrowers to continually replenish collateral as a result of fair value changes. Therefore, it is expected that the fair value of the collateral value securing each loan will exceed the loan’s amortized cost basis and no allowance for credit loss is required under ASC 326-20-35-6, “Financial Assets Secured by Collateral Maintenance Provisions.”
This portfolio also has some loans that are secured by residential real estate or other financial assets and unsecured loans. The primary sources of repayment for these loans are the income and/or assets of the borrower. The underlying collateral is the most important indicator of risk for this loan portfolio. The overall lower risk profile of this portfolio is driven by loans secured by cash, marketable securities and/or cash value life insurance, which were 98.7% and 98.6% of total private banking loans as of June 30, 2021 and December 31, 2020, respectively.
Commercial Banking: Commercial and Industrial Loans and Leases
This loan and lease portfolio primarily include loans and leases made to financial services and other service and/or manufacturing companies generally for the purposes of financing production, operating capacity, accounts receivable, inventory, equipment,
acquisitions and/or recapitalizations. Cash flow from the borrower’s operations is the primary source of repayment for these loans and leases; however, most loans are collateralized by marketable securities or commercial assets.
The borrower’s industry and local and regional economic conditions are important indicators of risk for this loan portfolio. Collateral for these types of loans at times does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. C&I loans collateralized by marketable securities are treated the same as private banking loans for purposes of the calculation of the allowance for credit losses on loans and leases.
Commercial Banking: Commercial Real Estate Loans
This loan portfolio includes loans secured by commercial purpose real estate, including both owner-occupied properties and investment properties for various purposes including office, industrial, multifamily, retail, hospitality, healthcare and self-storage. The primary source of repayment for CRE loans secured by owner-occupied properties is cash flow from the borrower’s operations. Individual project cash flows, global cash flows and liquidity from the developer, or the sale of the property are the primary sources of repayment for CRE loans secured by investment properties. Also included are commercial construction loans to finance the construction or renovation of structures as well as to finance the acquisition and development of raw land for various purposes. The increased level of risk for these loans is generally confined to the construction period. If problems arise, the project may not be completed and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal.
The underlying purpose and collateral of the loans are important indicators of risk for this loan portfolio. Additional risks exist and are dependent on several factors such as the condition of the local and regional economies, whether or not the project is owner-occupied, the type of project, and the experience and resources of the developer.
On a monthly basis, management monitors various credit quality indicators for the loan portfolio, including delinquency, non-performing status, changes in risk ratings, changes in the underlying performance of the borrowers and other relevant factors. On a daily basis, the Company monitors the collateral of loans secured by cash, marketable securities and/or cash value life insurance within the private banking portfolio which further reduces the risk profile of that portfolio. Refer to Note 1, Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements for the Company’s policy for determining past due status of loans.
Loan risk ratings are assigned based upon the creditworthiness of the borrower and the quality of the collateral for loans secured by marketable securities. Loan risk ratings are reviewed on an ongoing basis according to internal policies and applicable regulatory guidance. Loans within the pass rating are believed to have a lower risk of loss than loans that are risk rated as special mention, substandard or doubtful, which are believed to have an increasing risk of loss. Management also monitors the loan portfolio through a formal periodic review process. All non-pass rated loans are reviewed monthly and higher risk-rated loans within the pass category are reviewed three times a year.
The Company’s risk ratings are consistent with regulatory guidance and are as follows:
Pass – A pass loan is currently performing in accordance with its contractual terms.
Special Mention – A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in our credit position at some future date. Economic and market conditions beyond the customer’s control may in the future necessitate this classification.
Substandard – A substandard loan is not adequately protected by the net worth and/or paying capacity of the obligor or by the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – A doubtful loan has all the weaknesses inherent in a loan categorized as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
The following table presents the amortized cost basis of loans by portfolio, risk rating and year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
(Dollars in thousands)
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
Revolving
Loans (1)
|
Total
|
|
Private Banking:
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
21,999
|
|
$
|
60,956
|
|
$
|
32,371
|
|
$
|
54,986
|
|
$
|
7,213
|
|
$
|
54,610
|
|
$
|
5,480,937
|
|
$
|
5,713,072
|
|
|
Special Mention
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Substandard
|
—
|
|
—
|
|
490
|
|
—
|
|
—
|
|
—
|
|
—
|
|
490
|
|
|
Doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total Private Banking Loans
|
21,999
|
|
60,956
|
|
32,861
|
|
54,986
|
|
7,213
|
|
54,610
|
|
5,480,937
|
|
5,713,562
|
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
Pass
|
93,243
|
|
201,555
|
|
219,185
|
|
69,098
|
|
40,412
|
|
27,868
|
|
575,213
|
|
1,226,574
|
|
|
Special Mention
|
—
|
|
1,653
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,941
|
|
5,594
|
|
|
Substandard
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
124
|
|
124
|
|
|
Doubtful
|
—
|
|
750
|
|
—
|
|
7,875
|
|
—
|
|
—
|
|
—
|
|
8,625
|
|
|
Total Commercial and Industrial Loans
|
93,243
|
|
203,958
|
|
219,185
|
|
76,973
|
|
40,412
|
|
27,868
|
|
579,278
|
|
1,240,917
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
Pass
|
254,610
|
|
549,228
|
|
572,712
|
|
404,876
|
|
200,338
|
|
299,341
|
|
28,100
|
|
2,309,205
|
|
|
Special Mention
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,409
|
|
—
|
|
2,409
|
|
|
Substandard
|
—
|
|
198
|
|
5,395
|
|
26
|
|
2,399
|
|
8,811
|
|
—
|
|
16,829
|
|
|
Doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total Commercial Real Estate Loans
|
254,610
|
|
549,426
|
|
578,107
|
|
404,902
|
|
202,737
|
|
310,561
|
|
28,100
|
|
2,328,443
|
|
|
Loans and leases held-for-investment
|
$
|
369,852
|
|
$
|
814,340
|
|
$
|
830,153
|
|
$
|
536,861
|
|
$
|
250,362
|
|
$
|
393,039
|
|
$
|
6,088,315
|
|
$
|
9,282,922
|
|
(1)The Company had no revolving loans which were converted to term loans included in loans and leases held-for-investment at June 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
(Dollars in thousands)
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Revolving
Loans (1)
|
Total
|
|
Private Banking:
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
64,829
|
|
$
|
44,210
|
|
$
|
57,081
|
|
$
|
7,736
|
|
$
|
12,040
|
|
$
|
55,092
|
|
$
|
4,566,296
|
|
$
|
4,807,284
|
|
|
Special Mention
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Substandard
|
—
|
|
516
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
516
|
|
|
Doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total Private Banking Loans
|
64,829
|
|
44,726
|
|
57,081
|
|
7,736
|
|
12,040
|
|
55,092
|
|
4,566,296
|
|
4,807,800
|
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
Pass
|
216,459
|
|
223,189
|
|
88,212
|
|
44,575
|
|
9,383
|
|
20,709
|
|
651,900
|
|
1,254,427
|
|
|
Special Mention
|
1,795
|
|
—
|
|
5,416
|
|
—
|
|
—
|
|
—
|
|
3,431
|
|
10,642
|
|
|
Substandard
|
750
|
|
—
|
|
7,875
|
|
—
|
|
—
|
|
—
|
|
458
|
|
9,083
|
|
|
Doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total Commercial and Industrial Loans
|
219,004
|
|
223,189
|
|
101,503
|
|
44,575
|
|
9,383
|
|
20,709
|
|
655,789
|
|
1,274,152
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
Pass
|
514,920
|
|
617,120
|
|
435,708
|
|
202,001
|
|
181,108
|
|
134,700
|
|
38,802
|
|
2,124,359
|
|
|
Special Mention
|
446
|
|
5,395
|
|
4,308
|
|
—
|
|
1,186
|
|
145
|
|
—
|
|
11,480
|
|
|
Substandard
|
91
|
|
—
|
|
6,296
|
|
2,926
|
|
7,054
|
|
3,260
|
|
—
|
|
19,627
|
|
|
Doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total Commercial Real Estate Loans
|
515,457
|
|
622,515
|
|
446,312
|
|
204,927
|
|
189,348
|
|
138,105
|
|
38,802
|
|
2,155,466
|
|
|
Loans and leases held-for-investment
|
$
|
799,290
|
|
$
|
890,430
|
|
$
|
604,896
|
|
$
|
257,238
|
|
$
|
210,771
|
|
$
|
213,906
|
|
$
|
5,260,887
|
|
$
|
8,237,418
|
|
(1)The Company had no revolving loans which were converted to term loans included in loans and leases held-for-investment at December 31, 2020.
Accrued interest receivable of $16.6 million and $16.4 million on loans and leases as of June 30, 2021 and December 31, 2020, respectively, was excluded from the amortized cost used in the allowance for credit losses.
Changes in the allowance for credit losses on loans and leases were as follows for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Balance, beginning of period
|
$
|
1,767
|
|
$
|
8,156
|
|
$
|
24,721
|
|
$
|
34,644
|
|
|
Provision (credit) for credit losses
|
340
|
|
700
|
|
(854)
|
|
186
|
|
|
Charge-offs
|
—
|
|
—
|
|
(2,366)
|
|
(2,366)
|
|
|
Recoveries
|
—
|
|
113
|
|
—
|
|
113
|
|
|
Balance, end of period
|
$
|
2,107
|
|
$
|
8,969
|
|
$
|
21,501
|
|
$
|
32,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Balance, beginning of period
|
$
|
2,174
|
|
$
|
6,685
|
|
$
|
8,445
|
|
$
|
17,304
|
|
|
Provision for credit losses
|
148
|
|
723
|
|
5,134
|
|
6,005
|
|
|
Charge-offs
|
(171)
|
|
—
|
|
—
|
|
(171)
|
|
|
Recoveries
|
—
|
|
138
|
|
—
|
|
138
|
|
|
Balance, end of period
|
$
|
2,151
|
|
$
|
7,546
|
|
$
|
13,579
|
|
$
|
23,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Balance, beginning of period
|
$
|
2,047
|
|
$
|
5,254
|
|
$
|
27,329
|
|
$
|
34,630
|
|
|
Provision (credit) for credit losses
|
60
|
|
3,801
|
|
(3,462)
|
|
399
|
|
|
Charge-offs
|
—
|
|
(199)
|
|
(2,366)
|
|
(2,565)
|
|
|
Recoveries
|
—
|
|
113
|
|
—
|
|
113
|
|
|
Balance, end of period
|
$
|
2,107
|
|
$
|
8,969
|
|
$
|
21,501
|
|
$
|
32,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Balance, beginning of period
|
$
|
1,973
|
|
$
|
5,262
|
|
$
|
6,873
|
|
$
|
14,108
|
|
|
Provision for credit losses
|
349
|
|
1,943
|
|
6,706
|
|
8,998
|
|
|
Charge-offs
|
(171)
|
|
—
|
|
—
|
|
(171)
|
|
|
Recoveries
|
—
|
|
341
|
|
—
|
|
341
|
|
|
Balance, end of period
|
$
|
2,151
|
|
$
|
7,546
|
|
$
|
13,579
|
|
$
|
23,276
|
|
The following tables present the age analysis of past due loans and leases segregated by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
30-59 Days
Past Due
|
60-89 Days
Past Due
|
90 Days or More Past Due
|
Total Past Due
|
Current
|
Total
|
|
Private banking
|
$
|
425
|
|
$
|
—
|
|
$
|
43
|
|
$
|
468
|
|
$
|
5,713,094
|
|
$
|
5,713,562
|
|
|
Commercial and industrial
|
—
|
|
—
|
|
8,749
|
|
8,749
|
|
1,232,168
|
|
1,240,917
|
|
|
Commercial real estate
|
2,399
|
|
—
|
|
26
|
|
2,425
|
|
2,326,018
|
|
2,328,443
|
|
|
Loans and leases held-for-investment
|
$
|
2,824
|
|
$
|
—
|
|
$
|
8,818
|
|
$
|
11,642
|
|
$
|
9,271,280
|
|
$
|
9,282,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
30-59 Days Past Due
|
60-89 Days Past Due
|
90 Days or More Past Due
|
Total Past Due
|
Current
|
Total
|
|
Private banking
|
$
|
250
|
|
$
|
—
|
|
$
|
—
|
|
$
|
250
|
|
$
|
4,807,550
|
|
$
|
4,807,800
|
|
|
Commercial and industrial
|
—
|
|
—
|
|
458
|
|
458
|
|
1,273,694
|
|
1,274,152
|
|
|
Commercial real estate
|
2,926
|
|
—
|
|
6,296
|
|
9,222
|
|
2,146,244
|
|
2,155,466
|
|
|
Loans and leases held-for-investment
|
$
|
3,176
|
|
$
|
—
|
|
$
|
6,754
|
|
$
|
9,930
|
|
$
|
8,227,488
|
|
$
|
8,237,418
|
|
Individually Evaluated Loans
Management monitors the delinquency status of the Company’s loan portfolio on a monthly basis. Loans are considered non-performing when interest and principal are 90 days or more past due or management has determined that it is probable the borrower is unable to meet payments as they become due. The risk of loss is generally highest for non-performing loans.
The following tables present the Company’s amortized cost basis of individually evaluated loans and related information on those loans for the six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Six Months Ended June 30, 2021
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Unpaid Principal Balance
|
Related Allowance
|
Average Recorded Investment
|
Interest Income Recognized
|
|
With a related allowance recorded:
|
|
|
|
|
|
|
Private banking
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Commercial and industrial
|
8,750
|
|
8,748
|
|
5,297
|
|
9,028
|
|
—
|
|
|
Commercial real estate
|
2,425
|
|
4,637
|
|
289
|
|
9,176
|
|
—
|
|
|
Total with a related allowance recorded
|
11,175
|
|
13,385
|
|
5,586
|
|
18,204
|
|
—
|
|
|
Without a related allowance recorded:
|
|
|
|
|
|
|
Private banking
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Commercial and industrial
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total without a related allowance recorded
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total:
|
|
|
|
|
|
|
Private banking
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Commercial and industrial
|
8,750
|
|
8,748
|
|
5,297
|
|
9,028
|
|
—
|
|
|
Commercial real estate
|
2,425
|
|
4,637
|
|
289
|
|
9,176
|
|
—
|
|
|
Total
|
$
|
11,175
|
|
$
|
13,385
|
|
$
|
5,586
|
|
$
|
18,204
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Twelve Months Ended December 31, 2020
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Unpaid Principal Balance
|
Related Allowance
|
Average Recorded Investment
|
Interest Income Recognized
|
|
With a related allowance recorded:
|
|
|
|
|
|
|
Private banking
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Commercial and industrial
|
458
|
|
457
|
|
103
|
|
458
|
|
—
|
|
|
Commercial real estate
|
9,222
|
|
9,251
|
|
1,885
|
|
9,222
|
|
—
|
|
|
Total with a related allowance recorded
|
9,680
|
|
9,708
|
|
1,988
|
|
9,680
|
|
—
|
|
|
Without a related allowance recorded:
|
|
|
|
|
|
|
Private banking
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Commercial and industrial
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total without a related allowance recorded
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total:
|
|
|
|
|
|
|
Private banking
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Commercial and industrial
|
458
|
|
457
|
|
103
|
|
458
|
|
—
|
|
|
Commercial real estate
|
9,222
|
|
9,251
|
|
1,885
|
|
9,222
|
|
—
|
|
|
Total
|
$
|
9,680
|
|
$
|
9,708
|
|
$
|
1,988
|
|
$
|
9,680
|
|
$
|
—
|
|
Individually evaluated loans were $11.2 million and $9.7 million as of June 30, 2021 and December 31, 2020, respectively. There was no interest income recognized on individually evaluated loans that were also on non-accrual status for the six months ended June 30, 2021, and the twelve months ended December 31, 2020. As of June 30, 2021, there was a loan for $43,000 that was 90 days or more past due and still accruing interest income, which was fully secured. As of December 31, 2020, there were no loans 90 days or more past due and still accruing interest income.
The Company estimates allowance for credit losses individually for loans that do not share similar risk characteristics, including non-accrual loans and loans designated as TDRs, using a discounted cash flow method or based on the fair value of the collateral less estimated selling costs. Based on those evaluations, there were specific reserves totaling $5.6 million and $2.0 million as of June 30, 2021 and December 31, 2020, respectively. Refer to Note 1, Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements for the Company’s policy on evaluating loans for expected credit losses and interest income.
The following tables present the allowance for credit losses on loans and leases and amortized costs basis of individually evaluated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Allowance for credit losses on loans and leases:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
$
|
5,297
|
|
$
|
289
|
|
$
|
5,586
|
|
|
Collectively evaluated for impairment
|
2,107
|
|
3,672
|
|
21,212
|
|
26,991
|
|
|
Total allowance for credit losses on loans and leases
|
$
|
2,107
|
|
$
|
8,969
|
|
$
|
21,501
|
|
$
|
32,577
|
|
|
Loans and leases held-for-investment:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
$
|
8,750
|
|
$
|
2,425
|
|
$
|
11,175
|
|
|
Collectively evaluated for impairment
|
5,713,562
|
|
1,232,167
|
|
2,326,018
|
|
9,271,747
|
|
|
Loans and leases held-for-investment
|
$
|
5,713,562
|
|
$
|
1,240,917
|
|
$
|
2,328,443
|
|
$
|
9,282,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Private
Banking
|
Commercial
and
Industrial
|
Commercial
Real Estate
|
Total
|
|
Allowance for credit losses on loans and leases:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
$
|
103
|
|
$
|
1,885
|
|
$
|
1,988
|
|
|
Collectively evaluated for impairment
|
2,047
|
|
5,151
|
|
25,444
|
|
32,642
|
|
|
Total allowance for credit losses on loans and leases
|
$
|
2,047
|
|
$
|
5,254
|
|
$
|
27,329
|
|
$
|
34,630
|
|
|
Loans and leases held-for-investment:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
$
|
458
|
|
$
|
9,222
|
|
$
|
9,680
|
|
|
Collectively evaluated for impairment
|
4,807,800
|
|
1,273,694
|
|
2,146,244
|
|
8,227,738
|
|
|
Loans and leases held-for-investment
|
$
|
4,807,800
|
|
$
|
1,274,152
|
|
$
|
2,155,466
|
|
$
|
8,237,418
|
|
Troubled Debt Restructuring
The aggregate recorded investment of impaired loans with terms modified through a troubled debt restructuring was $2.4 million and $2.9 million as of June 30, 2021 and December 31, 2020, respectively, which were also on non-accrual status. There were no unused commitments on loans designated as TDRs as of June 30, 2021 and December 31, 2020, respectively.
The modifications made to restructured loans typically consist of an extension of the payment terms or the deferral of principal payments. There were no loans modified as TDRs within 12 months of the corresponding balance sheet date with payment defaults during the six months ended June 30, 2021 and 2020.
There were no loans newly designated as TDRs during the three months ended June 30, 2021. The financial effects of our modifications made to loans newly designated as TDRs during the six months ended June 30, 2021, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
(Dollars in thousands)
|
Count
|
Recorded Investment at the time of Modification
|
Current Recorded Investment
|
Allowance for Credit Losses on Loans and Leases at the time of Modification
|
Current Allowance for Credit Losses on Loans and Leases
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
Extended term, deferred principal
|
2
|
$
|
4,454
|
|
$
|
—
|
|
$
|
445
|
|
$
|
—
|
|
|
Total
|
2
|
$
|
4,454
|
|
$
|
—
|
|
$
|
445
|
|
$
|
—
|
|
There were no loans newly designated as TDRs during the three and six months ended June 30, 2020.
Other Real Estate Owned
As of June 30, 2021 and December 31, 2020, the balance of OREO was $2.6 million and $2.7 million, respectively. The change in the OREO balance from December 31, 2020 was attributable to a $155,000 write-down on an OREO property. There were no residential mortgage loans that were in the process of foreclosure as of June 30, 2021.
[5] DEPOSITS
As of June 30, 2021 and December 31, 2020, deposits were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
Range
|
|
Weighted Average
Interest Rate
|
|
Balance
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
June 30,
2021
|
December 31,
2020
|
|
June 30,
2021
|
December 31,
2020
|
|
Demand and savings accounts:
|
|
|
|
|
|
|
|
|
Noninterest-bearing checking accounts
|
—
|
|
—
|
—
|
|
$
|
513,529
|
|
$
|
456,426
|
|
|
Interest-bearing checking accounts
|
0.05 to 1.70%
|
|
0.37%
|
0.38%
|
|
4,371,659
|
|
3,068,834
|
|
|
Money market deposit accounts
|
0.09 to 3.25%
|
|
0.48%
|
0.56%
|
|
4,383,597
|
|
3,927,797
|
|
|
Total demand and savings accounts
|
|
|
|
|
|
9,268,785
|
|
7,453,057
|
|
|
Certificates of deposit
|
0.02 to 3.22%
|
|
0.48%
|
1.08%
|
|
922,648
|
|
1,036,032
|
|
|
Total deposits
|
|
|
|
|
|
$
|
10,191,433
|
|
$
|
8,489,089
|
|
|
Weighted average rate on interest-bearing accounts
|
|
|
0.43%
|
0.56%
|
|
|
|
As of June 30, 2021 and December 31, 2020, the Bank had total brokered deposits of $1.07 billion and $753.3 million, respectively. Reciprocal deposits through Certificate of Deposit Account Registry Service® (“CDARS®”) and Insured Cash Sweep® (“ICS®”) totaled $2.01 billion and $1.72 billion as of June 30, 2021 and December 31, 2020, respectively, and were not considered brokered deposits.
As of June 30, 2021 and December 31, 2020, certificates of deposit with balances of $100,000 or more, excluding brokered and reciprocal deposits, totaled $570.8 million and $534.3 million, respectively. As of June 30, 2021 and December 31, 2020, certificates of deposit with balances of $250,000 or more, excluding brokered and reciprocal deposits, totaled $174.3 million and $159.6 million.
The contractual maturity of certificates of deposit was as follows:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
12 months or less
|
$
|
752,274
|
|
$
|
892,427
|
|
|
12 months to 24 months
|
150,995
|
|
132,443
|
|
|
24 months to 36 months
|
19,379
|
|
11,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
922,648
|
|
$
|
1,036,032
|
|
Interest expense on deposits was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Interest-bearing checking accounts
|
$
|
3,214
|
|
$
|
2,719
|
|
|
$
|
6,008
|
|
$
|
7,933
|
|
|
Money market deposit accounts
|
5,636
|
|
7,377
|
|
|
11,600
|
|
22,031
|
|
|
Certificates of deposit
|
1,256
|
|
5,857
|
|
|
3,252
|
|
13,233
|
|
|
Total interest expense on deposits
|
$
|
10,106
|
|
$
|
15,953
|
|
|
$
|
20,860
|
|
$
|
43,197
|
|
[6] BORROWINGS
As of June 30, 2021 and December 31, 2020, borrowings were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Interest Rate
|
Ending Balance
|
Maturity Date
|
|
Interest Rate
|
Ending Balance
|
Maturity Date
|
|
FHLB borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued 6/21/2021
|
0.32%
|
$
|
50,000
|
|
9/20/2021
|
|
—%
|
$
|
—
|
|
|
|
Issued 6/2/2021
|
0.29%
|
50,000
|
|
9/2/2021
|
|
—%
|
—
|
|
|
|
Issued 6/1/2021
|
0.29%
|
150,000
|
|
9/1/2021
|
|
—%
|
—
|
|
|
|
Issued 12/21/2020
|
—%
|
—
|
|
|
|
0.39%
|
50,000
|
|
3/22/2021
|
|
Issued 12/2/2020
|
—%
|
—
|
|
|
|
0.33%
|
50,000
|
|
3/2/2021
|
|
Issued 12/1/2020
|
—%
|
—
|
|
|
|
0.33%
|
150,000
|
|
3/1/2021
|
|
Issued 10/8/2020
|
—%
|
—
|
|
|
|
0.39%
|
50,000
|
|
1/8/2021
|
|
Line of credit borrowings
|
—%
|
—
|
|
|
|
4.25%
|
5,000
|
|
10/17/2021
|
|
Subordinated notes payable (net of debt issuance costs of $1,900 and $2,007, respectively)
|
5.75%
|
95,600
|
|
5/15/2030
|
|
5.75%
|
95,493
|
|
5/15/2030
|
|
Total borrowings, net
|
|
$
|
345,600
|
|
|
|
|
$
|
400,493
|
|
|
In 2020, the Company completed underwritten public offerings of subordinated notes due 2030, raising aggregate proceeds of $97.5 million. The subordinated notes have a term of 10 years at a fixed-to-floating rate of 5.75%. The subordinated notes constitute Tier 2 capital for the Company under federal regulatory capital rules.
The Bank’s FHLB borrowing capacity is based on the collateral value of certain securities held in safekeeping at the FHLB and loans pledged to the FHLB. The Bank submits a quarterly Qualifying Collateral Report (“QCR”) to the FHLB to update the value of the loans pledged. As of June 30, 2021, the Bank’s borrowing capacity is based on the information provided in its March 31, 2021 QCR filing. As of June 30, 2021, the Bank had securities held in safekeeping at the FHLB with a fair value of $2.2 million, combined with pledged loans of $1.37 billion, for a gross borrowing capacity of $977.3 million, of which $250.0 million was outstanding in advances. As of December 31, 2020, there was $300.0 million outstanding in advances from the FHLB. When the Bank borrows from the FHLB, interest is charged at the FHLB’s posted rates at the time of the borrowing.
The Bank maintains an unsecured line of credit of $10.0 million with M&T Bank and an unsecured line of credit of $20.0 million with Texas Capital Bank. As of June 30, 2021 and December 31, 2020, there were no outstanding borrowings under these lines of credit, and they are available to the Bank at the lenders’ discretion. In addition, the Bank maintains an $8.0 million unsecured line of credit with PNC Bank for private label credit card facilities for certain existing commercial clients of the Bank, of which $3.2 million in notional value of credit cards have been issued. The clients of the Bank are responsible for repaying any balances due on these credit cards directly to PNC; however, if the customer fails to repay PNC, the Bank could be required to satisfy the obligation to PNC and initiate collection from its customer as part of the existing credit facility of that customer.
The Company maintains an unsecured line of credit of $75.0 million with The Huntington National Bank. As of June 30, 2021, there was no outstanding balance under this line of credit. As of December 31, 2020, the Company held an unsecured line of credit of $75.0 million with Texas Capital Bank and had $5.0 million in outstanding borrowings under this line of credit. The Company repaid these borrowings at Texas Capital Bank and subsequently terminated this line of credit on February 18, 2021.
Interest expense on borrowings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
FHLB borrowings
|
$
|
1,082
|
|
$
|
1,284
|
|
|
$
|
2,154
|
|
$
|
3,319
|
|
|
Line of credit borrowings
|
—
|
|
260
|
|
|
55
|
|
261
|
|
|
Subordinated notes payable
|
1,455
|
|
680
|
|
|
2,910
|
|
680
|
|
|
Total interest expense on borrowings
|
$
|
2,537
|
|
$
|
2,224
|
|
|
$
|
5,119
|
|
$
|
4,260
|
|
[7] STOCK TRANSACTIONS
On December 30, 2020, the Company completed the private placement of securities pursuant to an Investment Agreement, dated October 10, 2020 and amended December 9, 2020, with T-VIII PubOpps LP (“T-VIII PubOpps”), an affiliate of investment funds managed by Stone Point Capital LLC. Pursuant to the Investment Agreement, the Company sold to T-VIII PubOpps (i) 2,770,083 shares of voting common stock for $40.0 million, (ii) 650 shares of Series C Preferred Stock for $65.0 million, and (iii) warrants to purchase up to 922,438 shares of voting common stock, or non-voting common stock at an exercise price of $17.50 per share. After two years, the Series C Preferred Stock is convertible into shares of non-voting common stock or, when transferred under certain limited circumstances to a holder other than an affiliate of Stone Point Capital LLC, voting common stock, at a price of 13.75 per share. The Series C Preferred Stock has a liquidation preference of $100,000 per share, and pays a quarterly dividend at an annualized rate of 6.75%. The Company received gross proceeds of $105.0 million at closing, and may receive up to an additional $16.1 million if the warrants are exercised in full. The net proceeds were recorded to shareholders’ equity at December 31, 2020 and allocated to the three equity instruments issued using the relative fair value method applied to common stock, preferred stock, and warrants issued, which were recorded to additional paid-in capital. The net proceeds constitute Tier 1 capital for the Company under federal regulatory capital rules.
During the six months ended June 30, 2021, the Company paid dividends of $3.9 million on its 6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock, no par value (the “Series A Preferred Stock”) and its 6.375% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock, no par value (the “Series B Preferred Stock”), and dividends on its Series C Preferred Stock of 11 shares of Series C Preferred Stock, paid in kind, and cash paid in lieu of a fractional share. During the six months ended June 30, 2020, the Company paid dividends of $3.9 million on its Series A Preferred Stock and Series B Preferred Stock.
Under authorization by the Board of Directors of the Company (“Board”), the Company is permitted to repurchase its common stock up to prescribed amounts, of which $9.8 million remained available as of June 30, 2021. The Board also authorized the Company to utilize some of the share repurchase program authorizations to cancel certain options to purchase shares of its common stock granted by the Company.
During the six months ended June 30, 2021, treasury shares increased 77,555, or approximately $1.6 million, in connection with the net settlement of equity awards exercised or vested. During the six months ended June 30, 2020, the Company repurchased 40,000 shares of common stock for approximately $670,000, at an average cost of $16.76 per share, which shares are held as treasury stock. In addition to the shares purchased in the market, treasury shares increased 83,988, or approximately $2.1 million, in connection with the net settlement of equity awards exercised or vested during the six months ended June 30, 2020.
Under prior authorization of the Board, stock option cancellation programs were approved to allow for certain outstanding and vested stock option awards to be canceled by the option holder at a price based on the closing day’s stock price less the option exercise price. During the six months ended June 30, 2020, there were 212,447 options canceled for approximately $2.5 million, which was recorded as a reduction to additional paid-in capital.
The tables below show the changes in the Company’s preferred and common shares outstanding during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Preferred Shares Outstanding
|
Number of
Common Shares
Outstanding
|
Number of
Treasury Shares
|
|
Balance, December 31, 2019
|
120,750
|
|
29,355,986
|
|
2,126,422
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock
|
—
|
|
597,070
|
|
—
|
|
|
Forfeitures of restricted common stock
|
—
|
|
(11,018)
|
|
—
|
|
|
Exercise of stock options
|
—
|
|
25,000
|
|
—
|
|
|
Purchase of treasury stock
|
—
|
|
(40,000)
|
|
40,000
|
|
|
Increase in treasury stock related to equity awards
|
—
|
|
(83,988)
|
|
83,988
|
|
|
Reissuance of treasury stock
|
—
|
|
8,500
|
|
(8,500)
|
|
|
Balance, June 30, 2020
|
120,750
|
|
29,851,550
|
|
2,241,910
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
121,400
|
|
32,620,150
|
|
2,299,422
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock
|
—
|
|
595,386
|
|
—
|
|
|
Forfeitures of restricted common stock
|
—
|
|
(10,547)
|
|
—
|
|
|
Preferred stock dividend
|
11
|
|
—
|
|
—
|
|
|
Exercise of stock options
|
—
|
|
49,500
|
|
—
|
|
|
|
|
|
|
|
Increase in treasury stock related to equity awards
|
—
|
|
(77,555)
|
|
77,555
|
|
|
|
|
|
|
|
Balance, June 30, 2021
|
121,411
|
|
33,176,934
|
|
2,376,977
|
|
[8] REGULATORY CAPITAL
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the tables below) of Common Equity Tier 1 (“CET 1”) capital, capital Tier 1 and Total capital (each as defined in the regulations) to risk-weighted assets (as defined in the regulations), and of Tier 1 capital to average assets (as defined in the regulations). As of June 30, 2021 and December 31, 2020, TriState Capital Holdings, Inc. and TriState Capital Bank exceeded all capital adequacy requirements to which they were subject.
Insured depository institutions are categorized as well capitalized if they meet minimum capital ratios as set forth in the tables below. The Bank exceeded the capital ratios necessary to be well capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since the filing of the most recent Call Report for the period ending June 30, 2021 that management believes have materially changed the Bank’s capital, as presented in the tables below.
A banking organization is also subject to certain limitations on capital distributions and discretionary bonus payments to executive officers if the organization does not maintain the necessary capital conservation buffer of CET 1 capital to risk-weighted assets ratio of 2.5% or more, in addition to the minimum risk-based capital adequacy levels shown in the tables below. Both the Company and the Bank were above the levels required to avoid limitations on capital distributions and discretionary bonus payments.
In 2020, U.S. federal regulatory authorities issued a final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay the impact of CECL on regulatory capital for up to two years, beginning January 1, 2020, followed by a three-year transition period. The Company elected to utilize the two-year delay of CECL’s impact on its regulatory capital, from January 1, 2020 through December 31, 2021, followed by the three-year transition period of CECL impact on regulatory capital, from January 1, 2022 through December 31, 2024.
The following tables set forth certain information concerning the Company’s and the Bank’s regulatory capital as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Actual
|
|
For Capital Adequacy Purposes
|
|
To be Well Capitalized Under Prompt Corrective Action Provisions
|
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Total risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
868,225
|
|
13.94
|
%
|
|
$
|
498,423
|
|
8.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
823,458
|
|
13.26
|
%
|
|
$
|
496,642
|
|
8.00
|
%
|
|
$
|
620,802
|
|
10.00
|
%
|
|
Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
743,882
|
|
11.94
|
%
|
|
$
|
373,817
|
|
6.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
794,715
|
|
12.80
|
%
|
|
$
|
372,481
|
|
6.00
|
%
|
|
$
|
496,642
|
|
8.00
|
%
|
|
Common equity tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
564,539
|
|
9.06
|
%
|
|
$
|
280,363
|
|
4.50
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
794,715
|
|
12.80
|
%
|
|
$
|
279,361
|
|
4.50
|
%
|
|
$
|
403,521
|
|
6.50
|
%
|
|
Tier 1 leverage ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
743,882
|
|
6.86
|
%
|
|
$
|
433,567
|
|
4.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
794,715
|
|
7.34
|
%
|
|
$
|
432,885
|
|
4.00
|
%
|
|
$
|
541,106
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Actual
|
|
For Capital Adequacy Purposes
|
|
To be Well Capitalized Under Prompt Corrective Action Provisions
|
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Total risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
833,819
|
|
14.12
|
%
|
|
$
|
472,267
|
|
8.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
789,273
|
|
13.41
|
%
|
|
$
|
470,820
|
|
8.00
|
%
|
|
$
|
588,525
|
|
10.00
|
%
|
|
Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
707,711
|
|
11.99
|
%
|
|
$
|
354,200
|
|
6.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
758,658
|
|
12.89
|
%
|
|
$
|
353,115
|
|
6.00
|
%
|
|
$
|
470,820
|
|
8.00
|
%
|
|
Common equity tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
530,568
|
|
8.99
|
%
|
|
$
|
265,650
|
|
4.50
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
758,658
|
|
12.89
|
%
|
|
$
|
264,836
|
|
4.50
|
%
|
|
$
|
382,542
|
|
6.50
|
%
|
|
Tier 1 leverage ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
707,711
|
|
7.29
|
%
|
|
$
|
388,408
|
|
4.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
758,658
|
|
7.83
|
%
|
|
$
|
387,626
|
|
4.00
|
%
|
|
$
|
484,533
|
|
5.00
|
%
|
[9] EARNINGS PER COMMON SHARE
The computation of basic and diluted earnings per common share for the periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands, except per share data)
|
2021
|
2020
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
Net income
|
$
|
18,780
|
|
$
|
10,401
|
|
|
$
|
34,980
|
|
$
|
23,296
|
|
|
Less: Preferred dividends on Series A and Series B
|
$
|
1,962
|
|
$
|
1,962
|
|
|
3,924
|
|
3,924
|
|
|
Less: Preferred dividends on Series C
|
$
|
1,115
|
|
$
|
—
|
|
|
2,212
|
|
—
|
|
|
Net income available to common shareholders
|
$
|
15,703
|
|
$
|
8,439
|
|
|
$
|
28,844
|
|
$
|
19,372
|
|
|
|
|
|
|
|
|
|
Allocation of net income available:
|
|
|
|
|
|
|
Common shareholders
|
$
|
13,272
|
|
$
|
8,439
|
|
|
$
|
24,375
|
|
$
|
19,372
|
|
|
Series C convertible preferred shareholders
|
$
|
2,040
|
|
$
|
—
|
|
|
3,749
|
|
—
|
|
|
Warrant shareholders
|
$
|
391
|
|
$
|
—
|
|
|
720
|
|
—
|
|
|
Total
|
$
|
15,703
|
|
$
|
8,439
|
|
|
$
|
28,844
|
|
$
|
19,372
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding:
|
|
|
|
|
|
|
Basic common shares
|
31,280,481
|
|
28,223,085
|
|
|
31,252,632
|
|
28,201,837
|
|
|
Series C convertible preferred stock, as-if converted
|
4,807,272
|
|
—
|
|
|
4,807,272
|
|
—
|
|
|
Warrants, as-if exercised
|
922,438
|
|
—
|
|
|
922,438
|
|
—
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.42
|
|
$
|
0.30
|
|
|
$
|
0.78
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
Income available to common shareholders after allocation
|
$
|
13,272
|
|
$
|
8,439
|
|
|
$
|
24,375
|
|
$
|
19,372
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding:
|
|
|
|
|
|
|
Basic common shares
|
31,280,481
|
|
28,223,085
|
|
|
31,252,632
|
|
28,201,837
|
|
|
Restricted stock - dilutive
|
719,504
|
|
221,456
|
|
|
871,255
|
|
324,498
|
|
|
Stock options - dilutive
|
147,773
|
|
83,420
|
|
|
154,395
|
|
161,469
|
|
|
Diluted common shares
|
32,147,758
|
|
28,527,961
|
|
|
32,278,282
|
|
28,687,804
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
$
|
0.41
|
|
$
|
0.30
|
|
|
$
|
0.76
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Anti-dilutive shares:
|
2021
|
2020
|
|
2021
|
2020
|
|
Restricted stock
|
10,750
|
|
864,246
|
|
|
12,000
|
|
566,498
|
|
|
Stock options
|
—
|
|
5,500
|
|
|
—
|
|
—
|
|
|
Series C convertible preferred stock, as-if converted
|
4,807,272
|
|
—
|
|
|
4,807,272
|
|
—
|
|
|
Warrants, as-if exercised
|
922,438
|
|
—
|
|
|
922,438
|
|
—
|
|
|
Total anti-dilutive shares
|
5,740,460
|
|
869,746
|
|
869746
|
5,741,710
|
|
566,498
|
|
The Series C convertible preferred stock and warrants are anti-dilutive under the treasury stock method compared to the basic EPS calculation under the two-class method.
[10] DERIVATIVES AND HEDGING ACTIVITY
RISK MANAGEMENT OBJECTIVE OF USING DERIVATIVES
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments related to certain of the Company’s FHLB borrowings and to manage the volatility of the change in fair value related to certain of the Company’s equity investments. The Company also has derivatives that are a result of a service the Company provides to certain qualifying customers.
When providing this service, the Company generally enters into an offsetting derivative transaction in order to eliminate its interest rate risk exposure resulting from such transactions.
FAIR VALUES OF DERIVATIVE INSTRUMENTS ON THE STATEMENTS OF FINANCIAL CONDITION
The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the unaudited condensed consolidated statements of financial condition as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
as of June 30, 2021
|
|
as of June 30, 2021
|
|
(Dollars in thousands)
|
Balance Sheet Location
|
Fair Value
|
|
Balance Sheet Location
|
Fair Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate products
|
Other assets
|
$
|
218
|
|
|
Other liabilities
|
$
|
5,554
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate products
|
Other assets
|
109,156
|
|
|
Other liabilities
|
109,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
Other assets
|
$
|
109,374
|
|
|
Other liabilities
|
$
|
114,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
as of December 31, 2020
|
|
as of December 31, 2020
|
|
(Dollars in thousands)
|
Balance Sheet Location
|
Fair Value
|
|
Balance Sheet Location
|
Fair Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate products
|
Other assets
|
$
|
—
|
|
|
Other liabilities
|
$
|
9,082
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate products
|
Other assets
|
144,333
|
|
|
Other liabilities
|
144,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
Other assets
|
$
|
144,333
|
|
|
Other liabilities
|
$
|
153,433
|
|
The following tables show the impact legally enforceable master netting agreements had on the Company’s derivative financial instruments as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Assets
|
|
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Statement of Financial Position
|
|
Net Amounts of Assets
presented in the Statement of Financial Position
|
|
Gross Amounts Not Offset in the Statement of Financial Position
|
|
Net Amount
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
Financial Instruments
|
|
Cash Collateral Received
|
|
|
June 30, 2021
|
$
|
109,374
|
|
|
$
|
—
|
|
|
$
|
109,374
|
|
|
$
|
(8,179)
|
|
|
$
|
—
|
|
|
$
|
101,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
$
|
144,333
|
|
|
$
|
—
|
|
|
$
|
144,333
|
|
|
$
|
(94)
|
|
|
$
|
—
|
|
|
$
|
144,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Liabilities
|
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Statement of Financial Position
|
|
Net Amounts of Liabilities
presented in the Statement of Financial Position
|
|
Gross Amounts Not Offset in the Statement of Financial Position
|
|
Net Amount
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
Financial Instruments
|
|
Cash Collateral Posted
|
|
|
June 30, 2021
|
$
|
114,769
|
|
|
$
|
—
|
|
|
$
|
114,769
|
|
|
$
|
(8,179)
|
|
|
$
|
(95,293)
|
|
|
$
|
11,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
$
|
153,433
|
|
|
$
|
—
|
|
|
$
|
153,433
|
|
|
$
|
(94)
|
|
|
$
|
(150,238)
|
|
|
$
|
3,101
|
|
CASH FLOW HEDGES OF INTEREST RATE RISK
The Company’s objectives in using certain interest rate derivatives are to add stability to net interest income and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. The Company has entered into derivative contracts to hedge the variable cash flows associated with certain FHLB borrowings. These interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company effectively making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company’s cash flow hedge derivatives did not have any hedge ineffectiveness recognized in earnings during the six months ended June 30, 2021.
Characteristics of the Company’s interest rate derivative transactions designated as cash flow hedges of interest rate risk as of June 30, 2021, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Notional
Amount
|
Effective
Rate (1)
|
Estimated Increase/
(Decrease) to Interest
Expense in the Next
Twelve Months
|
Maturity
Date
|
Remaining Term
(in Months)
|
|
Interest rate products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued 5/30/2019
|
$
|
50,000
|
|
2.05%
|
$
|
871
|
|
6/1/2022
|
11
|
|
Issued 5/30/2019
|
50,000
|
|
2.03%
|
938
|
|
6/1/2023
|
23
|
|
Issued 5/30/2019
|
50,000
|
|
2.04%
|
944
|
|
6/1/2024
|
35
|
|
Issued 3/2/2020
|
50,000
|
|
0.98%
|
406
|
|
3/2/2025
|
44
|
|
Issued 3/20/2020
|
50,000
|
|
0.60%
|
214
|
|
3/20/2025
|
45
|
|
Total
|
$
|
250,000
|
|
|
$
|
3,373
|
|
|
|
(1)The effective rate is adjusted for the difference between the three-month FHLB advance rate and three-month LIBOR.
The tables below present the effective portion of the Company’s cash flow hedge instruments in the unaudited condensed consolidated statements of income and accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
(Dollars in thousands)
|
|
|
2021
|
2020
|
|
2021
|
2020
|
|
Derivatives designated as hedging instruments:
|
Location of Gain (Loss) Recognized in Income on Derivatives
|
|
Realized Gain (Loss) Recognized in Income on Derivatives
|
|
Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income on Derivatives
|
|
Interest rate products
|
Interest expense
|
|
$
|
(867)
|
|
$
|
(460)
|
|
|
$
|
(409)
|
|
$
|
(1,578)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
|
|
2021
|
2020
|
|
2021
|
2020
|
|
Derivatives designated as hedging instruments:
|
Location of Gain (Loss) Recognized in Income on Derivatives
|
|
Realized Gain (Loss) Recognized in Income on Derivatives
|
|
Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income on Derivatives
|
|
Interest rate products
|
Interest expense
|
|
$
|
(1,713)
|
|
$
|
(619)
|
|
|
$
|
1,807
|
|
$
|
(9,290)
|
|
NON-DESIGNATED HEDGES
The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate derivatives with its commercial banking customers to facilitate their respective risk management strategies. Those derivatives are simultaneously and economically hedged by offsetting derivatives that the Company executes with a third party, such that the Company generally eliminates its interest rate exposure resulting from such transactions. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of June 30, 2021, the Company had interest rate derivative transactions with an aggregate notional amount of $4.33 billion related to this program.
The table below presents the effect of the Company’s non-designated hedge instruments in the unaudited condensed consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
|
|
2021
|
2020
|
|
2021
|
2020
|
|
Derivatives not designated as hedging instruments:
|
Location of Gain (Loss) Recognized in Income on Derivatives
|
|
Amount of Gain (Loss) Recognized in Income on Derivatives
|
|
Amount of Gain (Loss) Recognized in Income on Derivatives
|
|
Interest rate products
|
Non-interest income
|
|
$
|
(8)
|
|
$
|
(4)
|
|
|
$
|
23
|
|
$
|
(66)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CREDIT-RISK-RELATED CONTINGENT FEATURES
The Company has agreements with each of its derivative counterparties that contain a provision where, if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
The Company has agreements with certain of its derivative counterparties that contain a provision where, if either the Company or the counterparty fails to maintain its status as a well capitalized or adequately capitalized institution, then the Company or the counterparty could be required to terminate any outstanding derivative positions and settle its obligations under the agreement.
As of June 30, 2021, the termination value of derivatives for which the Company had master netting arrangements with the counterparty and in a net liability position was $95.6 million, including accrued interest. As of June 30, 2021, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $100.9 million which is considered restricted cash. If the Company had breached any of these provisions as of June 30, 2021, it could have been required to settle its obligations under the agreements at their termination value.
[11] DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments are based on the present value of expected future cash flows, quoted market prices of similar financial instruments, if available, and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realized in an immediate settlement of instruments. Accordingly, the aggregate fair value amounts presented below do not represent the underlying value of the Company.
FAIR VALUE MEASUREMENTS
In accordance with U.S. GAAP, the Company must account for certain financial assets and liabilities at fair value on a recurring and non-recurring basis. The Company utilizes a three-level fair value hierarchy of valuation techniques to estimate the fair value of its financial assets and liabilities based on whether the inputs to those valuation techniques are observable or unobservable. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within multiple levels of the fair value hierarchy, the lowest level input that has a significant impact on fair value measurement is used.
Financial assets and liabilities are categorized based upon the following characteristics or inputs to the valuation techniques:
•Level 1 – Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in actively traded markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.
•Level 2 – Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets or liabilities that are actively traded. Level 2 also includes pricing models in which the inputs are corroborated by market data, for example, matrix pricing.
•Level 3 – Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include assumptions of a source independent of the reporting entity or the reporting entity’s own assumptions that are supported by little or no market activity or observable inputs.
The Company is responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. The Company performs due diligence to understand the inputs used or how the data was calculated or derived and corroborates the reasonableness of external inputs in the valuation process.
RECURRING FAIR VALUE MEASUREMENTS
The following tables represent assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total Assets /
Liabilities
at Fair Value
|
|
Financial assets:
|
|
|
|
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
—
|
|
$
|
137,170
|
|
$
|
—
|
|
$
|
137,170
|
|
|
Residential mortgage-backed securities
|
—
|
|
97,551
|
|
—
|
|
97,551
|
|
|
Trust preferred securities
|
—
|
|
18,426
|
|
—
|
|
18,426
|
|
|
Agency collateralized mortgage obligations
|
—
|
|
19,136
|
|
—
|
|
19,136
|
|
|
Agency mortgage-backed securities
|
—
|
|
25,292
|
|
—
|
|
25,292
|
|
|
Agency debentures
|
—
|
|
8,346
|
|
—
|
|
8,346
|
|
|
Municipal bonds
|
—
|
|
5,208
|
|
—
|
|
5,208
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
109,374
|
|
—
|
|
109,374
|
|
|
|
|
|
|
|
|
Total financial assets
|
—
|
|
420,503
|
|
—
|
|
420,503
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
114,769
|
|
—
|
|
114,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
$
|
—
|
|
$
|
114,769
|
|
$
|
—
|
|
$
|
114,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total Assets /
Liabilities
at Fair Value
|
|
Financial assets:
|
|
|
|
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
—
|
|
$
|
158,464
|
|
$
|
—
|
|
$
|
158,464
|
|
|
Trust preferred securities
|
—
|
|
18,087
|
|
—
|
|
18,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency collateralized mortgage obligations
|
—
|
|
22,089
|
|
—
|
|
22,089
|
|
|
Agency mortgage-backed securities
|
—
|
|
410,127
|
|
—
|
|
410,127
|
|
|
Agency debentures
|
—
|
|
8,803
|
|
—
|
|
8,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
144,333
|
|
—
|
|
144,333
|
|
|
|
|
|
|
|
|
Total financial assets
|
—
|
|
761,903
|
|
—
|
|
761,903
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
153,433
|
|
—
|
|
153,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
$
|
—
|
|
$
|
153,433
|
|
$
|
—
|
|
$
|
153,433
|
|
INVESTMENT SECURITIES
Generally, debt securities are valued using pricing for similar securities, recently executed transactions, and other pricing models utilizing observable inputs and therefore are classified as Level 2.
INTEREST RATE SWAPS
The fair value of interest rate swaps is estimated using inputs that are observable or that can be corroborated by observable market data and therefore are classified as Level 2. These fair value estimations include primarily market observable inputs such as the forward LIBOR swap curve.
NON-RECURRING FAIR VALUE MEASUREMENTS
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The following tables represent the balances of assets measured at fair value on a non-recurring basis as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total Assets
at Fair Value
|
|
Loans measured for impairment, net
|
$
|
—
|
|
$
|
—
|
|
$
|
5,589
|
|
$
|
5,589
|
|
|
Other real estate owned
|
—
|
|
—
|
|
2,568
|
|
2,568
|
|
|
Total assets
|
$
|
—
|
|
$
|
—
|
|
$
|
8,157
|
|
$
|
8,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total Assets
at Fair Value
|
|
Loans measured for impairment, net
|
$
|
—
|
|
$
|
—
|
|
$
|
7,692
|
|
$
|
7,692
|
|
|
Other real estate owned
|
—
|
|
—
|
|
2,724
|
|
2,724
|
|
|
Total assets
|
$
|
—
|
|
$
|
—
|
|
$
|
10,416
|
|
$
|
10,416
|
|
As of June 30, 2021 and December 31, 2020, the Company recorded $5.6 million and $2.0 million, respectively, of specific reserves to allowance for credit losses on loans and leases as a result of adjusting the fair value of impaired loans.
INDIVIDUALLY EVALUATED LOANS
The Company evaluates individually loans that do not share similar risk characteristics, including non-accrual loans and loans designated as TDRs. Specific allowance for credit losses is measured based on a market approach, discounted cash flow of ongoing operations, discounted at the loan’s original effective interest rate, or a calculation of the fair value of the underlying collateral less estimated selling costs. Our policy is to obtain appraisals on collateral supporting individually evaluated loans on an annual basis, unless circumstances dictate a shorter time frame. Appraisals are reduced by estimated costs to sell the collateral, and, under certain circumstances, additional factors that may arise and cause us to believe our recoverable value may be less than the independent appraised value. Accordingly, individually evaluated loans are classified as Level 3.
OTHER REAL ESTATE OWNED
OREO is comprised of property acquired through foreclosure or voluntarily conveyed by borrowers. These assets are recorded on the date acquired at fair value, less estimated disposition costs, with the fair value being determined by appraisal. Our policy is to obtain appraisals on collateral supporting OREO on an annual basis, unless circumstances dictate a shorter time frame. Appraisals are reduced by estimated costs to sell the collateral and, under certain circumstances, additional factors that may arise and cause us to believe our recoverable value may be less than the independent appraised value. Accordingly, OREO is classified as Level 3.
LEVEL 3 VALUATION
The following tables present additional quantitative information about assets measured at fair value on a recurring and non-recurring basis and for which we have utilized Level 3 inputs to determine fair value as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Fair Value
|
|
Valuation Techniques (1)(2)
|
|
Significant Unobservable Inputs
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans measured for impairment, net
|
$
|
2,139
|
|
|
Collateral
|
|
Appraisal value and discount due to salability conditions
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
Loans measured for impairment, net
|
$
|
3,450
|
|
|
Market Approach
|
|
Market value and discount due to salability conditions
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
$
|
2,568
|
|
|
Collateral
|
|
Appraisal value and discount due to salability conditions
|
|
17%
|
(1)Fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow of ongoing operations if the loan is not collateral dependent.
(2)The collateral which is used in the valuation of these loans is commercial real estate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Fair Value
|
|
Valuation Techniques (1)(2)
|
|
Significant Unobservable Inputs
|
|
Weighted Average
Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans measured for impairment, net
|
$
|
7,692
|
|
|
Collateral
|
|
Appraisal value and discount due to salability conditions
|
|
23%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
$
|
2,724
|
|
|
Collateral
|
|
Appraisal value and discount due to salability conditions
|
|
12%
|
(1)Fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow of ongoing operations if the loan is not collateral dependent.
(2)The collateral which is used in the valuation of these loans is commercial real estate.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the carrying amounts and estimated fair values of financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Fair Value
Level
|
|
Carrying
Amount
|
Estimated
Fair Value
|
|
Carrying
Amount
|
Estimated
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
1
|
|
$
|
529,453
|
|
$
|
529,453
|
|
|
$
|
435,442
|
|
$
|
435,442
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale
|
2
|
|
311,129
|
|
311,129
|
|
|
617,570
|
|
617,570
|
|
|
Debt securities held-to-maturity
|
2
|
|
1,014,712
|
|
1,010,135
|
|
|
211,691
|
|
214,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
2
|
|
11,817
|
|
11,817
|
|
|
13,284
|
|
13,284
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases held-for-investment, net
|
3
|
|
9,250,345
|
|
9,241,724
|
|
|
8,202,788
|
|
8,199,922
|
|
|
Accrued interest receivable
|
2
|
|
19,814
|
|
19,814
|
|
|
18,783
|
|
18,783
|
|
|
Investment management fees receivable, net
|
2
|
|
8,580
|
|
8,580
|
|
|
7,935
|
|
7,935
|
|
|
Bank owned life insurance
|
2
|
|
97,695
|
|
97,695
|
|
|
71,787
|
|
71,787
|
|
|
Other real estate owned
|
3
|
|
2,568
|
|
2,568
|
|
|
2,724
|
|
2,724
|
|
|
Interest rate swaps
|
2
|
|
109,374
|
|
109,374
|
|
|
144,333
|
|
144,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
2
|
|
$
|
10,191,433
|
|
$
|
10,204,889
|
|
|
$
|
8,489,089
|
|
$
|
8,510,799
|
|
|
Borrowings, net
|
2
|
|
345,600
|
|
354,653
|
|
|
400,493
|
|
402,714
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
2
|
|
114,769
|
|
114,769
|
|
|
153,433
|
|
153,433
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2021 and 2020, there were no transfers between fair value Levels 1, 2 or 3.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of June 30, 2021 and December 31, 2020:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value.
INVESTMENT SECURITIES
The fair values of debt securities available-for-sale, debt securities held-to-maturity, debt securities trading and equity securities are based on quoted market prices for the same or similar securities, recently executed transactions and pricing models.
FEDERAL HOME LOAN BANK STOCK
The carrying value of our FHLB stock, which is carried at cost, approximates fair value.
LOANS AND LEASES HELD-FOR-INVESTMENT
The fair value of loans and leases held-for-investment is estimated by discounting the future cash flows using market rates (utilizing both unobservable and certain observable inputs when applicable) at which similar loans would be made to borrowers with similar credit ratings over the estimated remaining maturities. Impaired loans are generally valued at the fair value of the associated collateral.
ACCRUED INTEREST RECEIVABLE
The carrying amount approximates fair value.
INVESTMENT MANAGEMENT FEES RECEIVABLE
The carrying amount approximates fair value.
BANK OWNED LIFE INSURANCE
The fair value of general account BOLI is based on the insurance contract net cash surrender value.
OTHER REAL ESTATE OWNED
OREO is carried at fair value less estimated selling costs.
DEPOSITS
The fair value of demand deposits is the amount payable on demand as of the reporting date, i.e., their carrying amounts. The fair value of fixed maturity deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
BORROWINGS
The fair value of borrowings is calculated by discounting scheduled cash flows through the estimated maturity using period end market rates for borrowings of similar remaining maturities.
INTEREST RATE SWAPS
The fair value of interest rate swaps is estimated through the assistance of an independent third party and compared to the fair value determined by the swap counterparty to establish reasonableness.
OFF-BALANCE SHEET INSTRUMENTS
Fair values for the Company’s off-balance sheet instruments, which consist of lending commitments, standby letters of credit and risk participation agreements related to interest rate swap agreements, are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Management believes that the fair value of these off-balance sheet instruments is not significant.
[12] CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables show the changes in accumulated other comprehensive income (loss) net of tax, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Debt Securities
|
Derivatives
|
Total
|
|
Debt Securities
|
Derivatives
|
Total
|
|
Balance, beginning of period
|
$
|
2,879
|
|
$
|
(4,206)
|
|
$
|
(1,327)
|
|
|
$
|
(6,678)
|
|
$
|
(7,371)
|
|
$
|
(14,049)
|
|
|
Change in unrealized holding gains (losses)
|
273
|
|
(311)
|
|
(38)
|
|
|
8,375
|
|
(1,200)
|
|
7,175
|
|
|
Losses (gains) reclassified from other comprehensive income
|
75
|
|
658
|
|
733
|
|
|
(5)
|
|
349
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
348
|
|
347
|
|
695
|
|
|
8,370
|
|
(851)
|
|
7,519
|
|
|
Balance, end of period
|
$
|
3,227
|
|
$
|
(3,859)
|
|
$
|
(632)
|
|
|
$
|
1,692
|
|
$
|
(8,222)
|
|
$
|
(6,530)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Debt Securities
|
Derivatives
|
Total
|
|
Debt Securities
|
Derivatives
|
Total
|
|
Balance, beginning of period
|
$
|
3,834
|
|
$
|
(6,531)
|
|
$
|
(2,697)
|
|
|
$
|
2,756
|
|
$
|
(1,624)
|
|
$
|
1,132
|
|
|
Change in unrealized holding gains (losses)
|
(681)
|
|
1,372
|
|
691
|
|
|
(1,048)
|
|
(7,067)
|
|
(8,115)
|
|
|
Losses (gains) reclassified from other comprehensive income
|
74
|
|
1,300
|
|
1,374
|
|
|
(16)
|
|
469
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
(607)
|
|
2,672
|
|
2,065
|
|
|
(1,064)
|
|
(6,598)
|
|
(7,662)
|
|
|
Balance, end of period
|
$
|
3,227
|
|
$
|
(3,859)
|
|
$
|
(632)
|
|
|
$
|
1,692
|
|
$
|
(8,222)
|
|
$
|
(6,530)
|
|
[13] CONTINGENT LIABILITIES
From time to time the Company is a party to various litigation matters incidental to the conduct of its business. The Company is not aware of any material unasserted claims. In the opinion of management, there are no potential claims that would have a material adverse effect on the Company’s financial position, liquidity or results of operations.
[14] SEGMENTS
The Company operates two reportable segments: Bank and Investment Management.
•The Bank segment provides commercial banking services to middle-market businesses and private banking services to high-net-worth individuals through the Bank subsidiary.
•The Investment Management segment provides advisory and sub-advisory investment management services primarily to institutional investors, mutual funds and individual investors through the Chartwell subsidiary. It also supports marketing efforts for Chartwell’s proprietary investment products through the CTSC Securities subsidiary.
The following tables provide financial information for the two segments of the Company as of and for the periods indicated. The information provided under the caption “Parent and Other” represents general operating activity of the Company not considered to be a reportable segment, which includes parent company activity as well as eliminations and adjustments that are necessary for purposes of reconciliation to the consolidated amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
Assets:
|
|
|
Bank
|
$
|
11,461,329
|
|
$
|
9,819,719
|
|
|
Investment management
|
87,221
|
|
86,150
|
|
|
Parent and other
|
(7,378)
|
|
(9,053)
|
|
|
Total assets
|
$
|
11,541,172
|
|
$
|
9,896,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Three Months Ended June 30, 2020
|
|
(Dollars in thousands)
|
Bank
|
Investment
Management
|
Parent
and Other
|
Consolidated
|
|
Bank
|
Investment
Management
|
Parent
and Other
|
Consolidated
|
|
Income statement data:
|
|
|
|
|
Interest income
|
$
|
55,555
|
|
$
|
—
|
|
$
|
—
|
|
$
|
55,555
|
|
|
$
|
51,661
|
|
$
|
—
|
|
$
|
—
|
|
$
|
51,661
|
|
|
Interest expense
|
11,199
|
|
—
|
|
1,444
|
|
12,643
|
|
|
17,251
|
|
—
|
|
926
|
|
18,177
|
|
|
Net interest income (loss)
|
44,356
|
|
—
|
|
(1,444)
|
|
42,912
|
|
|
34,410
|
|
—
|
|
(926)
|
|
33,484
|
|
|
Provision for credit losses
|
96
|
|
—
|
|
—
|
|
96
|
|
|
6,005
|
|
—
|
|
—
|
|
6,005
|
|
|
Net interest income (loss) after provision for credit losses
|
44,260
|
|
—
|
|
(1,444)
|
|
42,816
|
|
|
28,405
|
|
—
|
|
(926)
|
|
27,479
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
—
|
|
9,774
|
|
(323)
|
|
9,451
|
|
|
—
|
|
7,897
|
|
(159)
|
|
7,738
|
|
|
Net gain on the sale and call of debt securities
|
98
|
|
—
|
|
—
|
|
98
|
|
|
14
|
|
—
|
|
—
|
|
14
|
|
|
Other non-interest income
|
5,283
|
|
12
|
|
—
|
|
5,295
|
|
|
5,215
|
|
30
|
|
—
|
|
5,245
|
|
|
Total non-interest income (loss)
|
5,381
|
|
9,786
|
|
(323)
|
|
14,844
|
|
|
5,229
|
|
7,927
|
|
(159)
|
|
12,997
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
Intangible amortization expense
|
—
|
|
478
|
|
—
|
|
478
|
|
|
—
|
|
486
|
|
—
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-interest expense
|
25,570
|
|
7,826
|
|
551
|
|
33,947
|
|
|
19,967
|
|
7,003
|
|
640
|
|
27,610
|
|
|
Total non-interest expense
|
25,570
|
|
8,304
|
|
551
|
|
34,425
|
|
|
19,967
|
|
7,489
|
|
640
|
|
28,096
|
|
|
Income (loss) before tax
|
24,071
|
|
1,482
|
|
(2,318)
|
|
23,235
|
|
|
13,667
|
|
438
|
|
(1,725)
|
|
12,380
|
|
|
Income tax expense (benefit)
|
4,565
|
|
286
|
|
(396)
|
|
4,455
|
|
|
2,173
|
|
102
|
|
(296)
|
|
1,979
|
|
|
Net income (loss)
|
$
|
19,506
|
|
$
|
1,196
|
|
$
|
(1,922)
|
|
$
|
18,780
|
|
|
$
|
11,494
|
|
$
|
336
|
|
$
|
(1,429)
|
|
$
|
10,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2020
|
|
(Dollars in thousands)
|
Bank
|
Investment
Management
|
Parent
and Other
|
Consolidated
|
|
Bank
|
Investment
Management
|
Parent
and Other
|
Consolidated
|
|
Income statement data:
|
|
|
|
|
Interest income
|
$
|
107,547
|
|
$
|
—
|
|
$
|
—
|
|
$
|
107,547
|
|
|
$
|
115,863
|
|
$
|
—
|
|
$
|
—
|
|
$
|
115,863
|
|
|
Interest expense
|
23,038
|
|
—
|
|
2,941
|
|
25,979
|
|
|
46,547
|
|
—
|
|
910
|
|
47,457
|
|
|
Net interest income (loss)
|
84,509
|
|
—
|
|
(2,941)
|
|
81,568
|
|
|
69,316
|
|
—
|
|
(910)
|
|
68,406
|
|
|
Provision for credit losses
|
320
|
|
—
|
|
—
|
|
320
|
|
|
8,998
|
|
—
|
|
—
|
|
8,998
|
|
|
Net interest income (loss) after provision for credit losses
|
84,189
|
|
—
|
|
(2,941)
|
|
81,248
|
|
|
60,318
|
|
—
|
|
(910)
|
|
59,408
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
—
|
|
19,009
|
|
(558)
|
|
18,451
|
|
|
—
|
|
15,662
|
|
(286)
|
|
15,376
|
|
|
Net gain on the sale and call of debt securities
|
97
|
|
—
|
|
—
|
|
97
|
|
|
71
|
|
—
|
|
—
|
|
71
|
|
|
Other non-interest income
|
9,915
|
|
32
|
|
—
|
|
9,947
|
|
|
10,866
|
|
—
|
|
—
|
|
10,866
|
|
|
Total non-interest income (loss)
|
10,012
|
|
19,041
|
|
(558)
|
|
28,495
|
|
|
10,937
|
|
15,662
|
|
(286)
|
|
26,313
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
Intangible amortization expense
|
—
|
|
956
|
|
—
|
|
956
|
|
|
—
|
|
988
|
|
—
|
|
988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-interest expense
|
48,225
|
|
15,268
|
|
1,254
|
|
64,747
|
|
|
41,000
|
|
13,630
|
|
1,622
|
|
56,252
|
|
|
Total non-interest expense
|
48,225
|
|
16,224
|
|
1,254
|
|
65,703
|
|
|
41,000
|
|
14,618
|
|
1,622
|
|
57,240
|
|
|
Income (loss) before tax
|
45,976
|
|
2,817
|
|
(4,753)
|
|
44,040
|
|
|
30,255
|
|
1,044
|
|
(2,818)
|
|
28,481
|
|
|
Income tax expense (benefit)
|
9,294
|
|
596
|
|
(830)
|
|
9,060
|
|
|
5,521
|
|
130
|
|
(466)
|
|
5,185
|
|
|
Net income (loss)
|
$
|
36,682
|
|
$
|
2,221
|
|
$
|
(3,923)
|
|
$
|
34,980
|
|
|
$
|
24,734
|
|
$
|
914
|
|
$
|
(2,352)
|
|
$
|
23,296
|
|
[15] SUBSEQUENT EVENTS
On July 13, 2021 the Board declared a dividend payable of approximately $679,000, or $0.42 per depositary share, on the Company’s Series A Preferred Stock and a dividend payable of approximately $1.3 million, or $0.40 per depositary share, on the Company’s Series B Preferred Stock, each of which is payable on October 1, 2021, to preferred shareholders of record as of the close of business on September 15, 2021. The Board also declared a dividend payable of 11 shares of the Company’s Series C Preferred Stock per share, and cash paid in lieu of a fractional share, which is payable on October 1, 2021, to preferred shareholders of record of the Series C Preferred Stock as of the close of business on September 15, 2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents management’s perspective on our financial condition and results of operations and highlights material changes to our financial condition and results of operations as of and for the three and six months ended June 30, 2021. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes contained in Item 1 of this Quarterly Report on Form 10-Q and our consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2021.
To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this document and “Item 1A. Risk Factors.”
General
TriState Capital Holdings, Inc. (“we,” “us,” “our,” the “holding company,” the “parent company,” or the “Company”) is a bank holding company that operates through two reportable segments: Bank and Investment Management. Through TriState Capital Bank, a Pennsylvania chartered bank (the “Bank”), the Bank segment provides commercial banking services to middle-market and financial services businesses and private banking services to high-net-worth individuals and trusts. The Bank segment generates most of its revenue from interest on loans and investments, swap fees, loan fees, and liquidity and treasury management related fees. Its primary source of funding for loans is deposits and its secondary source of funding is borrowings. The Bank’s largest expenses are interest on these deposits and borrowings, and salaries and related employee benefits. Through Chartwell Investment Partners, LLC, an SEC-registered investment adviser (“Chartwell”), the Investment Management segment provides advisory and sub-advisory investment management services primarily to institutional investors, mutual funds and individual investors. It also supports marketing efforts for Chartwell’s proprietary investment products through Chartwell TSC Securities Corp., our registered broker-dealer subsidiary (“CTSC Securities”). The Investment Management segment generates its revenue from investment management fees earned on assets under management, and its largest expenses are salaries and related employee benefits.
This discussion and analysis present our financial condition and results of operations on a consolidated basis, except where significant segment disclosures are necessary to better explain the operations of each segment and related variances. In particular, the discussion and analysis of non-interest income and non-interest expense is reported by segment.
We measure our performance primarily through our net income available to common shareholders, earnings per common share (“EPS”) and total revenue (which is a non-GAAP financial measure). Other salient metrics include the ratio of allowance for credit losses on loans and leases to loans and leases; net interest margin; the efficiency ratio of the Bank segment (which is a non-GAAP financial measure); return on average assets; return on average common equity; regulatory leverage and risk-based capital ratios, assets under management and EBITDA of the Investment Management segment (which is a non-GAAP financial measure).
Executive Overview
We are a bank holding company headquartered in Pittsburgh, Pennsylvania. The Company has three wholly owned subsidiaries: the Bank, Chartwell and CTSC Securities. Through the Bank, we serve middle-market and financial services businesses in our primary markets throughout the states of Pennsylvania, Ohio, New Jersey and New York. We also serve high-net-worth individuals and trusts on a national basis through our private banking channel. We market and distribute our products and services through a scalable, branchless banking model, which creates significant operating leverage throughout our business as we continue to grow. Through Chartwell, our investment management subsidiary, we provide investment management services primarily to institutional investors, mutual funds and individual investors on a national basis. Chartwell’s assets under management were $11.51 billion as of June 30, 2021. CTSC Securities, our broker-dealer subsidiary, supports marketing efforts for Chartwell’s proprietary investment products and is regulated by the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”).
Developments Related to COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic. This public health crisis has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. In response to the crisis, the Board of Governors of the Federal Reserve (the “Federal Reserve”) cut benchmark federal fund interest rates to near zero. In addition, in
March 2020, the CARES Act was enacted. The CARES Act, as well as subsequent economic stimulus legislation, contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.
At the onset of the pandemic, we continually assessed its impact on our businesses. The impacts to Chartwell and private banking were relatively short-term in nature given the rapid recovery in equity markets. For commercial banking, we proactively conducted outreach to all loan customers to understand the potential impact that COVID-19 could have on their business. We implemented deferral arrangements with some of these customers in accordance with the CARES Act and bank regulatory guidance. The majority of our deferrals have already resumed payment. Only four loans representing $41.0 million, or 0.4% of total loans, have not yet resumed payment at June 30, 2021, which was ahead of our previous forecasts. While this crisis may have substantial impact on many businesses, we have maintained our disciplined approach of focusing primarily on commercial lending opportunities within our four-state Mid-Atlantic region and with financial services companies where our team has deep experience and relationships. Additionally, we have worked to keep our commercial loan sizes predominately below our preferred hold level of $10.0 million. The Bank is not a qualified lender or additional lender registered with the Small Business Administration and is not participating in the Paycheck Protection Program, established by the CARES Act.
Performance
For the three months ended June 30, 2021, our net income available to common shareholders was $15.7 million compared to $8.4 million for the same period in 2020, an increase of $7.3 million, or 86.1%. This increase in net income available to common shareholders from the same period in 2020 was due to: an increase in net interest income of $9.4 million, or 28.2%, an increase in non-interest income of $1.8 million, or 14.2%, and lower provision for credit losses of $5.9 million. The increase was partially offset by an increase of $6.3 million, or 22.5%, in non-interest expense, an increase of $2.5 million in income tax expense, and an increase in preferred stock dividends of $1.1 million.
For the six months ended June 30, 2021, our net income available to common shareholders was $28.8 million compared to $19.4 million for the same period in 2020, an increase of $9.5 million, or 48.9%. The increase in net income available to common shareholders from the same period in 2020 was due to an increase in net interest income of $13.2 million, or 19.2%, an increase in non-interest income of $2.2 million, or 8.3%, and lower provision for credit losses of $8.7 million, which were partially offset by an increase of $8.5 million, or 14.8%, in non-interest expense, an increase of $3.9 million in income tax expense, and an increase in preferred stock dividends of $2.2 million.
Our diluted EPS was $0.41 for the three months ended June 30, 2021, compared to $0.30 for the same period in 2020, an increase of $0.11 per share, or 36.7%. Our diluted EPS was $0.76 for the six months ended June 30, 2021, compared to $0.68 for the same period in 2020, an increase of $0.08 per share, or 11.8%. Results for the three and six months ended June 30, 2021, include a higher number of diluted shares outstanding and an increase in preferred dividends compared to 2020 results due to the effect of our December 30, 2020 private placement of $105 million of common stock, convertible preferred stock and warrants. EPS is computed using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends accumulated or declared and participation rights in undistributed earnings. For more information on the Company’s calculation of EPS, refer to Note 1, Summary of Significant Accounting Policies and Note 9, Earnings per Common Share, to our unaudited condensed consolidated financial statements.
Net interest income and non-interest income, excluding net gains and losses on the sale of securities, combined to generate total revenue of $57.7 million for the three months ended June 30, 2021, an increase of 24.1% from $46.5 million for the same period in 2020. For the six months ended June 30, 2021, total revenue increased $15.3 million, or 16.2%, to $110.0 million from $94.6 million for the same period in 2020. The increase in total revenue for the three and six months ended June 30, 2021, was driven largely by higher net interest income due to decreased funding costs and loan growth and increased investment management fees from Chartwell for both periods.
Our annualized net interest margin was 1.63% and 1.52% for the three months ended June 30, 2021 and 2020, respectively, and 1.61% and 1.67% for the six months ended June 30, 2021 and 2020, respectively. The increase in net interest margin for the three months ended June 30, 2021, was driven by a decrease of 34 basis points in the yield on loans, which was more than offset by a decrease of 38 basis points in the cost of interest-bearing liabilities. The decrease in net interest margin for the six months ended June 30, 2021, was driven by a decrease of 73 basis points in the yield on loans, which was partially offset by a decrease of 72 basis points in the cost of interest-bearing liabilities.
The significant reduction in interest rates by the Federal Reserve in response to the COVID-19 pandemic impacted our interest-earning assets and interest-bearing liabilities. Our loans are predominantly variable rate loans. Many are indexed to one-month LIBOR. At the end of the first quarter 2020, we placed interest rate floors on the majority of our floating rate loans, particularly our private banking loans, and we have continued to implement floors on newly originated loans. As a result, approximately 50% of our total loans have floors that are currently benefiting the Bank compared to their contractual index. While we continue to implement floors
on most newly originated loans, we have transitioned our pricing strategy to focus on wider spreads to achieve loan yield and implement lower floor rates to manage our interest rate sensitivity. Our deposits are a combination of fixed-rate time deposits and variable rate deposits, many of which are indexed to the Effective federal funds rate and others that are priced at the Bank’s discretion. The majority of the floating rate deposits were initially repriced in March 2020, in line with the Federal Reserve rate reduction.
Our non-interest income is largely comprised of investment management fees for Chartwell, which totaled $9.5 million for the three months ended June 30, 2021, as compared to $7.7 million for the same period in 2020, and $18.5 million for the six months ended June 30, 2021, as compared to $15.4 million for the same period in 2020. Assets under management were $11.51 billion as of June 30, 2021, an increase of $2.26 billion from June 30, 2020, driven by net inflows of $553.0 million and market appreciation of $1.70 billion. Chartwell’s annual run-rate revenue increased to $39.9 million for the six months ended June 30, 2021, compared to $32.0 million for the same period in 2020. For the three months ended June 30, 2021, investment fees have grown $1.9 million, or 23%, while expenses have grown at almost half this rate at $815,000, or just over 10%, generating significant operating leverage. Similarly, for the six months ended June 30, 2021, investment fees have grown $3.4 million, or 22%, while expenses have grown $1.6 million, or just over 10%.
Another large component of our non-interest income is swap fees at the Bank, which totaled $3.9 million for the three months ended June 30, 2021, and $3.9 million for the same period in 2020. Swap fees totaled $6.6 million for the six months ended June 30, 2021, as compared to $8.2 million for the same period in 2020. The decrease in swap fees for the six months ended June 30, 2021, was due to a decrease in demand from customers for interest rate protection through swaps given recent movement in the yield curve. Although swap fees have decreased for the six months ended June 30, 2021, we have seen increased demand for interest rate protection through swaps from our private banking clients. The number of swaps executed from our private banking clients increased almost 40% for the three months ended June 30, 2021, as a result of our sales efforts. The average maturity of our back-to-back swap portfolio on both our commercial and private banking executed swaps was approximately eight years for the three months ended June 30, 2021, compared to 10 years for the same period in 2020.
Our annualized ratio of non-interest expense to average assets was 1.27% and 1.22% for the three months ended June 30, 2021 and 2020, respectively, and 1.26% and 1.34% for the six months ended June 30, 2021 and 2020, respectively. The Bank’s efficiency ratio was 51.51% and 50.39% for the three months ended June 30, 2021 and 2020, respectively, and 51.07% and 51.13% for the six months ended June 30, 2021 and 2020, respectively. The Bank’s efficiency ratio reflects growth in the Bank’s total revenue of 17.8%, partially offset by the growth in the Bank’s non-interest expense of 17.6% for the six months ended June 30, 2021. The Bank’s efficiency ratio improved for the six months ended June 30, 2021, despite the increase in non-interest expense of 17.6%, demonstrating that we are making worthwhile investments in the technology and people necessary to drive responsible growth.
Our annualized return on average assets (net income to average total assets) was 0.69% and 0.45% for the three months ended June 30, 2021 and 2020, respectively, and 0.67% and 0.54% for the six months ended June 30, 2021 and 2020, respectively. Our annualized return on average common equity (net income available to common shareholders to average common equity) was 10.37% and 6.62% for the three months ended June 30, 2021 and 2020, respectively, and 9.73% and 7.60% for the six months ended June 30, 2021 and 2020, respectively. The increase in the annualized return on common equity is a result of the productive deployment of capital that was raised in December 2020. Given the recent deployment of new capital and the significant balance sheet growth, return on average assets will lag the improvement in return on equity until those loans and investments are able to generate income for a full reporting period.
Our total assets were $11.54 billion as of June 30, 2021, an increase of $1.64 billion, or 33.5% on an annualized basis, from December 31, 2020, primarily due to an increase in cash and cash equivalents, growth in our loan and lease portfolio and growth in our investment portfolio. Loans and leases held-for-investment grew by $1.05 billion to $9.28 billion as of June 30, 2021, an annualized increase of 25.6% from December 31, 2020, as a result of growth in our commercial and private banking loan portfolios. Cash and cash equivalents increased $94.0 million, or 43.5% on an annualized basis, to $529.5 million as of June 30, 2021, from December 31, 2020. Total investment securities increased $495.1 million, or 118.5% on an annualized basis, to $1.34 billion as of June 30, 2021, from December 31, 2020. Total deposits increased $1.70 billion, or 40.4% on an annualized basis, to $10.19 billion as of June 30, 2021, from December 31, 2020. We focus on high quality loan growth and we aim to increase our assets through adding to our investment portfolio as part of our strategy to build greater on-balance sheet liquidity, funded through our deposits.
Our ratio of adverse rated credits to total loans declined to 0.37% at June 30, 2021, from 0.62% at December 31, 2020, primarily due to the reduction in criticized assets of $17.3 million. Our ratio of allowance for credit losses on loans and leases to loans and leases was 0.35% and 0.42% as of June 30, 2021 and December 31, 2020, respectively. We recorded provision for credit losses of $320,000 for the six months ended June 30, 2021, compared to $9.0 million for the six months ended June 30, 2020.
Our book value per common share increased $0.76 to $18.54 as of June 30, 2021, from $17.78 as of December 31, 2020, largely as a result of an increase in our net income available to common shareholders, which was partially offset by the issuance of restricted stock during the six months ended June 30, 2021.
Non-GAAP Financial Measures
We report certain financial information determined by methods other than in accordance with GAAP. These non-GAAP financial measures are “tangible common equity,” “tangible book value per common share,” “tangible assets,” “tangible assets excluding private banking loans,” “tangible common equity ratio,” “tangible common equity ratio excluding private banking loans,” “total revenue,” “pre-tax, pre-provision net revenue,” “efficiency ratio” and “EBITDA.” These non-GAAP financial measures are supplemental measures that we believe provide management and our investors with a more detailed understanding of our performance, although these measures are not necessarily comparable to similar measures that may be presented by other companies. These disclosures should not be viewed as a substitute for financial measures in accordance with GAAP.
The non-GAAP financial measures presented herein are calculated as follows:
“Tangible common equity” is defined as common shareholders’ equity reduced by intangible assets, including goodwill. We believe this measure is important to management and investors so that they can better understand and assess changes from period to period in common shareholders’ equity exclusive of changes in intangible assets associated with prior acquisitions. Intangible assets are created when we buy businesses that add relationships and revenue to our Company. Intangible assets have the effect of increasing both equity and assets, while not increasing our tangible equity or tangible assets.
“Tangible book value per common share” is defined as common shareholders’ equity reduced by intangible assets, including goodwill, divided by common shares outstanding. We believe this measure is important to many investors who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets associated with prior acquisitions.
“Tangible assets” is defined as total assets reduced by intangible assets, including goodwill. We believe this measure is important to many investors who are interested in changes from period to period in total assets exclusive of changes in intangible assets.
“Tangible assets excluding private banking loans” is defined as total assets reduced by intangible assets, including goodwill, and private banking loans. We believe this measure is important to many investors who are interested in changes from period to period in total assets exclusive of changes in intangible assets and private banking loans.
“Tangible common equity ratio” is defined as (i) common shareholders’ equity reduced by intangible assets, including goodwill, divided by (ii) total assets reduced by intangible assets, including goodwill. We believe this measure is important to many investors who are interested in changes from period to period in the ratio of common shareholders’ equity to total assets exclusive of changes in intangible assets.
“Tangible common equity ratio excluding private banking loans” is defined as (i) common shareholders’ equity reduced by intangible assets, including goodwill, divided by (ii) total assets reduced by intangible assets, including goodwill, and private banking loans. We believe this measure is important to many investors who are interested in changes from period to period in the ratio of common shareholders’ equity to total assets exclusive of changes in intangible assets and private banking loans.
“Total revenue” is defined as net interest income and total non-interest income, excluding gains and losses on the sale and call of debt securities. We believe adjustments made to our operating revenue allow management and investors to better assess our core operating revenue by removing the volatility that is associated with certain items that are unrelated to our core business.
“Pre-tax, pre-provision net revenue” is defined as net interest income and non-interest income, excluding gains and losses on the sale and call of debt securities and total non-interest expense. We believe this measure is important because it allows management and investors to better assess our performance in relation to our core operating revenue, excluding the volatility that is associated with provision for credit losses on loans and leases and changes in our tax rates and other items that are unrelated to our core business.
“Efficiency ratio” is defined as total non-interest expense divided by our total revenue. We believe this measure allows management and investors to better assess our operating expenses in relation to our core operating revenue, particularly at the Bank.
“EBITDA” is defined as net income before interest expense, income tax expense, depreciation expense and intangible amortization expense. We use EBITDA particularly to assess the strength of our investment management business. We believe this measure is important because it allows management and investors to better assess our investment management performance in relation to our core operating earnings by excluding certain non-cash items and the volatility that is associated with certain discrete items that are unrelated to our core business.
The following tables present the financial measures calculated and presented in accordance with GAAP that are most directly comparable to the non-GAAP financial measures and a reconciliation of the differences between the GAAP financial measures and the non-GAAP financial measures.
TRISTATE CAPITAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data)
|
June 30,
2021
|
December 31,
2020
|
|
Tangible common equity and tangible book value per common share:
|
|
|
|
Common shareholders’ equity
|
$
|
615,225
|
|
$
|
580,002
|
|
|
Less: goodwill and intangible assets
|
62,955
|
|
63,911
|
|
|
Tangible common equity (numerator)
|
$
|
552,270
|
|
$
|
516,091
|
|
|
Common shares outstanding (denominator)
|
33,176,934
|
|
32,620,150
|
|
|
Tangible book value per common share
|
$
|
16.65
|
|
$
|
15.82
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
Tangible common equity ratio excluding private banking channel loans:
|
|
|
|
Common shareholders' equity
|
$
|
615,225
|
|
$
|
580,002
|
|
|
Less: goodwill and intangible assets
|
62,955
|
|
63,911
|
|
|
Tangible common equity (numerator)
|
$
|
552,270
|
|
$
|
516,091
|
|
|
Total assets
|
11,541,172
|
|
9,896,816
|
|
|
Less: goodwill and intangible assets
|
62,955
|
|
63,911
|
|
|
Tangible assets
|
$
|
11,478,217
|
|
$
|
9,832,905
|
|
|
Tangible common equity ratio
|
4.81
|
%
|
5.25
|
%
|
|
Less: private banking loans
|
5,713,562
|
|
4,807,800
|
|
|
Tangible assets excluding private banking loans (denominator)
|
$
|
5,764,655
|
|
$
|
5,025,105
|
|
|
Tangible common equity ratio excluding private banking loans
|
9.58
|
%
|
10.27
|
%
|
TRISTATE CAPITAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Total revenue and pre-tax, pre-provision net revenue:
|
|
|
|
|
|
|
Net interest income
|
$
|
42,912
|
|
$
|
33,484
|
|
|
$
|
81,568
|
|
$
|
68,406
|
|
|
Total non-interest income
|
14,844
|
|
12,997
|
|
|
28,495
|
|
26,313
|
|
|
Less: net gain on the sale and call of debt securities
|
98
|
|
14
|
|
|
97
|
|
71
|
|
|
Total revenue
|
$
|
57,658
|
|
$
|
46,467
|
|
|
$
|
109,966
|
|
$
|
94,648
|
|
|
Less: total non-interest expense
|
34,425
|
|
28,096
|
|
|
65,703
|
|
57,240
|
|
|
Pre-tax, pre-provision net revenue
|
$
|
23,233
|
|
$
|
18,371
|
|
|
$
|
44,263
|
|
$
|
37,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BANK SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Bank total revenue:
|
|
|
|
|
|
|
Net interest income
|
$
|
44,356
|
|
$
|
34,410
|
|
|
$
|
84,509
|
|
$
|
69,316
|
|
|
Total non-interest income
|
5,381
|
|
5,229
|
|
|
10,012
|
|
10,937
|
|
|
Less: net gain on the sale and call of debt securities
|
98
|
|
14
|
|
|
97
|
|
71
|
|
|
Bank total revenue
|
$
|
49,639
|
|
$
|
39,625
|
|
|
$
|
94,424
|
|
$
|
80,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank efficiency ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense (numerator)
|
$
|
25,570
|
|
$
|
19,967
|
|
|
$
|
48,225
|
|
$
|
41,000
|
|
|
Total revenue (denominator)
|
$
|
49,639
|
|
$
|
39,625
|
|
|
$
|
94,424
|
|
$
|
80,182
|
|
|
Bank efficiency ratio
|
51.51
|
%
|
50.39
|
%
|
|
51.07
|
%
|
51.13
|
%
|
INVESTMENT MANAGEMENT SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Investment Management EBITDA:
|
|
|
|
|
|
|
Net income
|
$
|
1,196
|
|
$
|
336
|
|
|
$
|
2,221
|
|
$
|
914
|
|
|
Interest expense
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Income tax expense
|
286
|
|
102
|
|
|
596
|
|
130
|
|
|
Depreciation expense
|
103
|
|
107
|
|
|
206
|
|
216
|
|
|
Intangible amortization expense
|
478
|
|
486
|
|
|
956
|
|
988
|
|
|
EBITDA
|
$
|
2,063
|
|
$
|
1,031
|
|
|
$
|
3,979
|
|
$
|
2,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
Net Interest Income
Net interest income represents the difference between the interest received on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities and changes in interest yields earned and interest rates paid. Net interest income comprised 74.2% and 72.3% of total revenue for the six months ended June 30, 2021 and 2020, respectively.
The table below reflects an analysis of net interest income, on a fully taxable equivalent basis, for the periods indicated. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 21% for 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Interest income
|
$
|
55,555
|
|
$
|
51,661
|
|
|
$
|
107,547
|
|
$
|
115,863
|
|
|
Fully taxable equivalent adjustment
|
8
|
|
6
|
|
|
15
|
|
36
|
|
|
Interest income adjusted
|
55,563
|
|
51,667
|
|
|
107,562
|
|
115,899
|
|
|
Less: interest expense
|
12,643
|
|
18,177
|
|
|
25,979
|
|
47,457
|
|
|
Net interest income adjusted
|
$
|
42,920
|
|
$
|
33,490
|
|
|
$
|
81,583
|
|
$
|
68,442
|
|
|
|
|
|
|
|
|
|
Yield on earning assets (1) (2)
|
2.11
|
%
|
2.35
|
%
|
|
2.13
|
%
|
2.83
|
%
|
|
Cost of interest-bearing liabilities (1)
|
0.54
|
%
|
0.92
|
%
|
|
0.57
|
%
|
1.29
|
%
|
|
Net interest spread (1) (2)
|
1.57
|
%
|
1.43
|
%
|
|
1.56
|
%
|
1.54
|
%
|
|
Net interest margin (1) (2)
|
1.63
|
%
|
1.52
|
%
|
|
1.61
|
%
|
1.67
|
%
|
(1)Annualized.
(2)Calculated on a fully taxable equivalent basis.
The following table provides information regarding the average balances and yields earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities for the three months ended June 30, 2021 and 2020. Non-accrual loans are included in the calculation of average loan balances, while interest collected on non-accrual loans is recorded as a reduction to principal. Where applicable, interest income and yield are reflected on a fully taxable equivalent basis and have been adjusted based on the statutory federal income tax rate of 21% for 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Average
Balance
|
Interest Income (1)/
Expense
|
Average
Yield/
Rate (2)
|
|
Average
Balance
|
Interest Income (1)/
Expense
|
Average
Yield/
Rate (2)
|
|
Assets
|
|
|
|
|
|
|
|
|
Interest-earning deposits
|
$
|
407,627
|
|
$
|
114
|
|
0.11
|
%
|
|
$
|
1,098,510
|
|
$
|
342
|
|
0.13
|
%
|
|
Federal funds sold
|
11,502
|
|
2
|
|
0.07
|
%
|
|
7,883
|
|
1
|
|
0.05
|
%
|
|
Debt securities available-for-sale
|
266,264
|
|
886
|
|
1.33
|
%
|
|
329,015
|
|
2,026
|
|
2.48
|
%
|
|
Debt securities held-to-maturity
|
1,040,658
|
|
2,705
|
|
1.04
|
%
|
|
292,898
|
|
1,616
|
|
2.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB stock
|
11,776
|
|
154
|
|
5.25
|
%
|
|
13,269
|
|
305
|
|
9.24
|
%
|
|
Total loans and leases
|
8,808,775
|
|
51,702
|
|
2.35
|
%
|
|
7,094,744
|
|
47,377
|
|
2.69
|
%
|
|
Total interest-earning assets
|
10,546,602
|
|
55,563
|
|
2.11
|
%
|
|
8,836,319
|
|
51,667
|
|
2.35
|
%
|
|
Other assets
|
347,923
|
|
|
|
|
408,950
|
|
|
|
|
Total assets
|
$
|
10,894,525
|
|
|
|
|
$
|
9,245,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
$
|
3,852,078
|
|
$
|
3,214
|
|
0.33
|
%
|
|
$
|
2,327,513
|
|
$
|
2,719
|
|
0.47
|
%
|
|
Money market deposit accounts
|
4,316,946
|
|
5,636
|
|
0.52
|
%
|
|
3,862,068
|
|
7,377
|
|
0.77
|
%
|
|
Certificates of deposit
|
929,906
|
|
1,256
|
|
0.54
|
%
|
|
1,389,984
|
|
5,857
|
|
1.69
|
%
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
FHLB borrowings
|
250,000
|
|
1,082
|
|
1.74
|
%
|
|
300,000
|
|
1,284
|
|
1.72
|
%
|
|
Line of credit borrowings
|
—
|
|
—
|
|
—
|
%
|
|
22,747
|
|
260
|
|
4.60
|
%
|
|
Subordinated notes payable, net
|
95,565
|
|
1,455
|
|
6.11
|
%
|
|
44,417
|
|
680
|
|
6.16
|
%
|
|
Total interest-bearing liabilities
|
9,444,495
|
|
12,643
|
|
0.54
|
%
|
|
7,946,729
|
|
18,177
|
|
0.92
|
%
|
|
Noninterest-bearing deposits
|
460,601
|
|
|
|
|
417,732
|
|
|
|
|
Other liabilities
|
203,033
|
|
|
|
|
252,303
|
|
|
|
|
Shareholders’ equity
|
786,396
|
|
|
|
|
628,505
|
|
|
|
|
Total liabilities and shareholders’ equity
|
$
|
10,894,525
|
|
|
|
|
$
|
9,245,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (1)
|
|
$
|
42,920
|
|
|
|
|
$
|
33,490
|
|
|
|
Net interest spread (1)
|
|
|
1.57
|
%
|
|
|
|
1.43
|
%
|
|
Net interest margin (1)
|
|
|
1.63
|
%
|
|
|
|
1.52
|
%
|
(1)Calculated on a fully taxable equivalent basis.
(2)Annualized.
Net Interest Income for the Three Months Ended June 30, 2021 and 2020. Net interest income, calculated on a fully taxable equivalent basis, increased $9.4 million, or 28.2%, to $42.9 million for the three months ended June 30, 2021, from $33.5 million for the same period in 2020. The increase in net interest income for the three months ended June 30, 2021, was comprised of an increase of $3.9 million, or 7.5%, in interest income and a decrease of $5.5 million, or 30.4%, in interest expense. Net interest margin increased to 1.63% for the three months ended June 30, 2021, as compared to 1.52% for the same period in 2020, driven by lower cost of funds and higher volume of loans.
The increase in interest income on interest-earning assets was primarily the result of an increase in average total loans, which are our primary earning assets, of $1.71 billion, or 24.2%, partially offset by a decrease of 34 basis points in yield on our loans, for the three months ended June 30, 2021, compared to the same period in 2020. The most significant factors driving the yield on our loan portfolio was the impact of the decreases to the Federal Reserve’s target federal funds rate in 2020 on our floating-rate loans as well as increased on-balance sheet liquidity. The change in yield is also attributable to our lower-risk, lower-yielding marketable-securities-
backed private banking loans and commercial loans. The overall yield on interest-earning assets declined 24 basis points to 2.11% for the three months ended June 30, 2021, as compared to 2.35% for the same period in 2020, primarily due to the lower yield on loans.
The decrease in interest expense on interest-bearing liabilities was primarily the result of a decrease of 38 basis points in the average rate paid on our interest-bearing liabilities, partially offset by an increase of $1.50 billion, or 18.8%, in average interest-bearing liabilities for the three months ended June 30, 2021, compared to the same period in 2020. The decrease in the average rate paid on our interest-bearing liabilities reflected decreases in rates paid in all deposit categories, which was largely driven by the decreases of the Federal Reserve’s target federal funds rate in 2020, which impacted our variable-rate liabilities. The change in yield is also a result of our increased on-balance sheet liquidity. The increase in average interest-bearing liabilities was driven primarily by an increase of $1.52 billion in average interest-bearing checking accounts and an increase of $454.9 million in average money market deposit accounts, partially offset by a decrease of $460.1 million in average certificates of deposits. The ongoing success of our treasury management business contributed to our growth in our checking account deposit categories.
The following table analyzes the dollar amount of the changes in interest income and interest expense with respect to the primary components of interest-earning assets and interest-bearing liabilities. The table shows the amount of the change in interest income or interest expense caused by either changes in outstanding balances or changes in interest rates for the three months ended June 30, 2021, compared to the same period in 2020. The effect of a change in balances is measured by applying the average rate during the first period to the balance (“volume”) change between the two periods. The effect of changes in interest rate is measured by applying the change in rate between the two periods to the average volume during the first period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2021 over 2020
|
|
(Dollars in thousands)
|
Yield/Rate
|
|
Volume
|
|
Change(1)
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
Interest-earning deposits
|
$
|
(32)
|
|
|
$
|
(196)
|
|
|
$
|
(228)
|
|
|
Federal funds sold
|
—
|
|
|
1
|
|
|
1
|
|
|
Debt securities available-for-sale
|
(806)
|
|
|
(334)
|
|
|
(1,140)
|
|
|
Debt securities held-to-maturity
|
(1,229)
|
|
|
2,318
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB stock
|
(120)
|
|
|
(31)
|
|
|
(151)
|
|
|
Total loans
|
(6,198)
|
|
|
10,523
|
|
|
4,325
|
|
|
Total increase (decrease) in interest income
|
(8,385)
|
|
|
12,281
|
|
|
3,896
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
(932)
|
|
|
1,427
|
|
|
495
|
|
|
Money market deposit accounts
|
(2,535)
|
|
|
794
|
|
|
(1,741)
|
|
|
Certificates of deposit
|
(3,094)
|
|
|
(1,507)
|
|
|
(4,601)
|
|
|
Borrowings:
|
|
|
|
|
|
|
FHLB borrowings
|
14
|
|
|
(216)
|
|
|
(202)
|
|
|
Line of credit borrowings
|
—
|
|
|
(260)
|
|
|
(260)
|
|
|
Subordinated notes payable, net
|
(4)
|
|
|
779
|
|
|
775
|
|
|
Total increase (decrease) in interest expense
|
(6,551)
|
|
|
1,017
|
|
|
(5,534)
|
|
|
Total increase (decrease) in net interest income
|
$
|
(1,834)
|
|
|
$
|
11,264
|
|
|
$
|
9,430
|
|
(1)The change in interest income and interest expense due to changes in both composition and applicable yields/rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
The following table provides information regarding the average balances and yields earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities for the six months ended June 30, 2021 and 2020. Non-accrual loans are included in the calculation of average loan balances, while interest payments collected on non-accrual loans are recorded as a reduction to principal. Where applicable, interest income and yield are reflected on a fully taxable equivalent basis and have been adjusted based on the statutory federal income tax rate of 21% for 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Average
Balance
|
Interest Income (1)/
Expense
|
Average
Yield/
Rate (2)
|
|
Average
Balance
|
Interest Income (1)/
Expense
|
Average
Yield/
Rate (2)
|
|
Assets
|
|
|
|
|
|
|
|
|
Interest-earning deposits
|
$
|
481,119
|
|
$
|
272
|
|
0.11
|
%
|
|
$
|
781,406
|
|
$
|
1,705
|
|
0.44
|
%
|
|
Federal funds sold
|
11,032
|
|
4
|
|
0.07
|
%
|
|
7,491
|
|
21
|
|
0.56
|
%
|
|
Debt securities available-for-sale
|
307,322
|
|
1,456
|
|
0.96
|
%
|
|
305,442
|
|
4,070
|
|
2.68
|
%
|
|
Debt securities held-to-maturity
|
840,302
|
|
4,605
|
|
1.11
|
%
|
|
247,326
|
|
3,104
|
|
2.52
|
%
|
|
Debt securities trading
|
156
|
|
1
|
|
1.29
|
%
|
|
115
|
|
1
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
|
FHLB stock
|
11,664
|
|
336
|
|
5.81
|
%
|
|
16,724
|
|
703
|
|
8.45
|
%
|
|
Total loans and leases
|
8,543,889
|
|
100,888
|
|
2.38
|
%
|
|
6,883,718
|
|
106,295
|
|
3.11
|
%
|
|
Total interest-earning assets
|
10,195,484
|
|
107,562
|
|
2.13
|
%
|
|
8,242,222
|
|
115,899
|
|
2.83
|
%
|
|
Other assets
|
361,594
|
|
|
|
|
360,699
|
|
|
|
|
Total assets
|
$
|
10,557,078
|
|
|
|
|
$
|
8,602,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
$
|
3,461,202
|
|
$
|
6,008
|
|
0.35
|
%
|
|
$
|
1,900,563
|
|
$
|
7,933
|
|
0.84
|
%
|
|
Money market deposit accounts
|
4,331,121
|
|
11,600
|
|
0.54
|
%
|
|
3,705,517
|
|
22,031
|
|
1.20
|
%
|
|
Certificates of deposit
|
971,155
|
|
3,252
|
|
0.68
|
%
|
|
1,386,510
|
|
13,233
|
|
1.92
|
%
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
FHLB borrowings
|
251,933
|
|
2,154
|
|
1.72
|
%
|
|
360,962
|
|
3,319
|
|
1.85
|
%
|
|
Line of credit borrowings
|
2,282
|
|
55
|
|
4.86
|
%
|
|
12,115
|
|
261
|
|
4.33
|
%
|
|
Subordinated notes payable, net
|
95,538
|
|
2,910
|
|
6.14
|
%
|
|
22,208
|
|
680
|
|
6.16
|
%
|
|
Total interest-bearing liabilities
|
9,113,231
|
|
25,979
|
|
0.57
|
%
|
|
7,387,875
|
|
47,457
|
|
1.29
|
%
|
|
Noninterest-bearing deposits
|
442,668
|
|
|
|
|
383,909
|
|
|
|
|
Other liabilities
|
225,223
|
|
|
|
|
202,755
|
|
|
|
|
Shareholders’ equity
|
775,956
|
|
|
|
|
628,382
|
|
|
|
|
Total liabilities and shareholders’ equity
|
$
|
10,557,078
|
|
|
|
|
$
|
8,602,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (1)
|
|
$
|
81,583
|
|
|
|
|
$
|
68,442
|
|
|
|
Net interest spread (1)
|
|
|
1.56
|
%
|
|
|
|
1.54
|
%
|
|
Net interest margin (1)
|
|
|
1.61
|
%
|
|
|
|
1.67
|
%
|
(1)Calculated on a fully taxable equivalent basis.
(2)Annualized.
Net Interest Income for the Six Months Ended June 30, 2021 and 2020. Net interest income, calculated on a fully taxable equivalent basis, increased $13.1 million, or 19.2%, to $81.6 million for the six months ended June 30, 2021, from $68.4 million for the same period in 2020. This increase in net interest income for the six months ended June 30, 2021 was comprised of a decrease of $8.3 million, or 7.2%, in interest income, which was more than offset by a decrease of $21.5 million, or 45.3%, in interest expense. Net interest margin was 1.61% for the six months ended June 30, 2021, compared to 1.67% for the same period in 2020, driven by a lower yield on our loan portfolio, partially offset by a lower cost of funds. Our compressed net interest margin for the six months ended June 30, 2021, resulted from the Federal Reserve interest rate cuts in 2020 and higher average balances of lower-earning assets.
The decrease in interest income on interest-earning assets was primarily the result of an increase in average total loans, which are our primary earning assets, of $1.66 billion, or 24.1%, more than offset by a decrease of 73 basis points in yield on our loans, for the six months ended June 30, 2021, compared to the same period in 2020. The most significant factor driving the yield on our loan portfolio was the impact of the decreases to the Federal Reserve’s target federal funds rate in 2020 on our floating-rate loans. The change in
yield is also attributable to an increased portion of our portfolio comprised of our lower-risk, lower-yielding marketable securities backed private banking loans. The overall yield on interest-earning assets declined 70 basis points to 2.13% for the six months ended June 30, 2021, as compared to 2.83% for the same period in 2020, primarily due to the lower loan yields. Our loans are predominantly variable rate loans indexed to one-month LIBOR.
The decrease in interest expense on interest-bearing liabilities was primarily the result of a decrease of 72 basis points in the average rate paid on our interest-bearing liabilities, partially offset by an increase of $1.73 billion, or 23.4%, in average interest-bearing liabilities for the six months ended June 30, 2021, compared to the same period in 2020. The decrease in average rate paid on our interest-bearing liabilities reflected decreases in rates paid in all deposit categories and our FHLB borrowings, which was largely driven by the impact of the decreases to the Federal Reserve’s target Federal funds rate in 2020 on our variable-rate liabilities. The change in expense is also a result of our increased on-balance sheet liquidity. The increase in average interest-bearing liabilities was driven primarily by an increase of $1.56 billion in average interest-bearing checking accounts and an increase of $625.6 million in average money market deposit accounts, partially offset by a decrease of $415.4 million in average certificates of deposit.
The following table analyzes the dollar amount of the changes in interest income and interest expense with respect to the primary components of interest-earning assets and interest-bearing liabilities. The table shows the amount of the change in interest income or interest expense caused by either changes in outstanding balances or changes in interest rates for the six months ended June 30, 2021, compared to the same period in 2020. The effect of a change in balances is measured by applying the average rate during the first period to the balance (“volume”) change between the two periods. The effect of changes in interest rate is measured by applying the change in rate between the two periods to the average volume during the first period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021 over 2020
|
|
(Dollars in thousands)
|
Yield/Rate
|
|
Volume
|
|
Change(1)
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
Interest-earning deposits
|
$
|
(943)
|
|
|
$
|
(490)
|
|
|
$
|
(1,433)
|
|
|
Federal funds sold
|
(24)
|
|
|
7
|
|
|
(17)
|
|
|
Debt securities available-for-sale
|
(2,639)
|
|
|
25
|
|
|
(2,614)
|
|
|
Debt securities held-to-maturity
|
(2,522)
|
|
|
4,023
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB stock
|
(186)
|
|
|
(181)
|
|
|
(367)
|
|
|
Total loans
|
(27,595)
|
|
|
22,188
|
|
|
(5,407)
|
|
|
Total increase (decrease) in interest income
|
(33,909)
|
|
|
25,572
|
|
|
(8,337)
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
(6,172)
|
|
|
4,247
|
|
|
(1,925)
|
|
|
Money market deposit accounts
|
(13,624)
|
|
|
3,193
|
|
|
(10,431)
|
|
|
Certificates of deposit
|
(6,823)
|
|
|
(3,158)
|
|
|
(9,981)
|
|
|
Borrowings:
|
|
|
|
|
|
|
FHLB borrowings
|
(206)
|
|
|
(959)
|
|
|
(1,165)
|
|
|
Line of credit borrowings
|
29
|
|
|
(235)
|
|
|
(206)
|
|
|
Subordinated notes payable, net
|
—
|
|
|
2,230
|
|
|
2,230
|
|
|
Total increase (decrease) in interest expense
|
(26,796)
|
|
|
5,318
|
|
|
(21,478)
|
|
|
Total increase (decrease) in net interest income
|
$
|
(7,113)
|
|
|
$
|
20,254
|
|
|
$
|
13,141
|
|
(1)The change in interest income and interest expense due to changes in both composition and applicable yields/rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Provision for Credit Losses on Loans and Leases
The provision for credit losses on loans and leases represent our determination of the amount necessary to be recorded against the current period’s earnings to maintain the allowance for credit loss at a level that is consistent with management’s assessment of credit losses in the loan and lease portfolio at a specific point in time under the methodology required by CECL. Results for the three and six months ended June 30, 2021, are presented under CECL methodology while prior period amounts continue to be reported in accordance with previously applicable GAAP. For additional information regarding our allowance for credit losses on loans and leases, see “Allowance for Credit Losses on Loans and Leases.”
Provision for Loan and Lease Losses for the Three Months Ended June 30, 2021 and 2020. We recorded provision expense for loan and lease losses of $186,000 for the three months ended June 30, 2021, compared to provision expense of $6.0 million for the three months ended June 30, 2020. The provision expense for loan and lease losses for the three months ended June 30, 2021, was comprised of a net decrease in general reserves of $857,000 largely due to adjustments to the qualitative risk factors related to consensus forecasts of an economic recovery and reductions in modeled losses, and a decrease in specific reserves on non-performing loans of $1.3 million, more than offset by charge-offs in our commercial real estate portfolio of $2.4 million, all of which were previously reserved. The provision expense for loan and lease losses for the three months ended June 30, 2020, was comprised of a net increase in general reserves of $5.0 million largely due to adjustments to the qualitative risk factors in response to economic uncertainty around the COVID-19 pandemic and a net increase of $1.0 million in specific reserves on non-performing loans, largely driven by a new non-accrual loan in our commercial loan portfolio.
Provision for Credit Losses on Loans and Leases for the Six Months Ended June 30, 2021 and 2020. We recorded provision expense for loan and lease losses of $399,000 for the six months ended June 30, 2021, compared to $9.0 million for the six months ended June 30, 2020. The provision expense for credit losses on loans and leases for the six months ended June 30, 2021, was comprised of a net decrease in general reserves of $5.8 million largely due to adjustments to the qualitative risk factors related to consensus forecasts of an economic recovery and reductions in modeled losses, partially offset by an increase of $3.6 million in specific reserves on non-performing loans, largely driven by two new non-accrual loans and charge-offs of $2.6 million, all in our commercial loan portfolio, most of which was previously reserved. The provision expense for loan and lease losses for the six months ended June 30, 2020, was comprised of an increase in general reserves of $8.3 million largely due to adjustments to the qualitative risk factors in response to economic uncertainty around the COVID-19 pandemic, in addition to a net increase of $1.0 million in specific reserves on non-performing loans, largely driven by a new non-accrual loan in our commercial loan portfolio, which were partially offset by recoveries of $342,000 in our commercial and industrial portfolio.
Non-Interest Income
Non-interest income is an important component of our total revenue and is comprised largely of investment management fees from Chartwell coupled with fees generated from loan and deposit relationships with our Bank customers, including swap transactions. The information provided in the table below under the caption “Parent and Other” represents general operating activity of the Company not considered to be a reportable segment, which includes parent company activity as well as eliminations and adjustments that are necessary for purposes of reconciliation to the consolidated amounts.
The following table presents the components of our non-interest income by operating segment for the three months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Three Months Ended June 30, 2020
|
|
|
|
Investment
|
Parent
|
|
|
|
Investment
|
Parent
|
|
|
(Dollars in thousands)
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Investment management fees
|
$
|
—
|
|
$
|
9,774
|
|
$
|
(323)
|
|
$
|
9,451
|
|
|
$
|
—
|
|
$
|
7,897
|
|
$
|
(159)
|
|
$
|
7,738
|
|
|
Service charges on deposits
|
325
|
|
—
|
|
—
|
|
325
|
|
|
315
|
|
—
|
|
—
|
|
315
|
|
|
Net gain on the sale and call of debt securities
|
98
|
|
—
|
|
—
|
|
98
|
|
|
14
|
|
—
|
|
—
|
|
14
|
|
|
Swap fees
|
3,913
|
|
—
|
|
—
|
|
3,913
|
|
|
3,853
|
|
—
|
|
—
|
|
3,853
|
|
|
Commitment and other loan fees
|
564
|
|
—
|
|
—
|
|
564
|
|
|
462
|
|
—
|
|
—
|
|
462
|
|
|
Bank owned life insurance income
|
480
|
|
—
|
|
—
|
|
480
|
|
|
429
|
|
—
|
|
—
|
|
429
|
|
|
Other income (1)
|
1
|
|
12
|
|
—
|
|
13
|
|
|
156
|
|
30
|
|
—
|
|
186
|
|
|
Total non-interest income
|
$
|
5,381
|
|
$
|
9,786
|
|
$
|
(323)
|
|
$
|
14,844
|
|
|
$
|
5,229
|
|
$
|
7,927
|
|
$
|
(159)
|
|
$
|
12,997
|
|
(1)Other income is largely comprised of items such as change in fair value on swaps and equity securities, gains on the sale of loans or OREO, and other general operating income.
Non-Interest Income for the Three Months Ended June 30, 2021 and 2020. Our non-interest income was $14.8 million for the three months ended June 30, 2021, an increase of $1.8 million, or 14.2%, from $13.0 million for the same period in 2020. This increase was primarily related to an increase in investment management fees and commitment and other loan fees, partially offset by lower other income, as follows:
Bank Segment:
•Commitment and other loan fees for the three months ended June 30, 2021 increased $102,000 compared to the same period in 2020, primarily due to an increase in letter of credit fee income.
•Other income for the three months ended June 30, 2021 decreased $155,000 compared to the same period in 2020, primarily due to a prior year net gain on the sale of OREO.
Investment Management Segment:
•Investment management fees increased $1.9 million for the three months ended June 30, 2021, compared to the same period in 2020, due to higher assets under management of $11.51 billion as of June 30, 2021, an increase of $2.26 billion from June 30, 2020. The increase was driven by net inflows of $553.0 million and market appreciation of $1.70 billion. The weighted average fee rate was 0.35% for the three months ended June 30, 2021 and 2020.
The following table presents the components of our non-interest income by operating segment for the six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2020
|
|
|
|
Investment
|
Parent
|
|
|
|
Investment
|
Parent
|
|
|
(Dollars in thousands)
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Investment management fees
|
$
|
—
|
|
$
|
19,009
|
|
$
|
(558)
|
|
$
|
18,451
|
|
|
$
|
—
|
|
$
|
15,662
|
|
$
|
(286)
|
|
$
|
15,376
|
|
|
Service charges on deposits
|
641
|
|
—
|
|
—
|
|
641
|
|
|
528
|
|
—
|
|
—
|
|
528
|
|
|
Net gain on the sale and call of debt securities
|
97
|
|
—
|
|
—
|
|
97
|
|
|
71
|
|
—
|
|
—
|
|
71
|
|
|
Swap fees
|
6,624
|
|
—
|
|
—
|
|
6,624
|
|
|
8,226
|
|
—
|
|
—
|
|
8,226
|
|
|
Commitment and other loan fees
|
890
|
|
—
|
|
—
|
|
890
|
|
|
881
|
|
—
|
|
—
|
|
881
|
|
|
Bank owned life insurance income
|
909
|
|
—
|
|
—
|
|
909
|
|
|
857
|
|
—
|
|
—
|
|
857
|
|
|
Other income (1)
|
851
|
|
32
|
|
—
|
|
883
|
|
|
374
|
|
—
|
|
—
|
|
374
|
|
|
Total non-interest income
|
$
|
10,012
|
|
$
|
19,041
|
|
$
|
(558)
|
|
$
|
28,495
|
|
|
$
|
10,937
|
|
$
|
15,662
|
|
$
|
(286)
|
|
$
|
26,313
|
|
(1)Other income is largely comprised of items such as change in fair value on swaps, gains on the sale of loans or OREO, and other general operating income.
Non-Interest Income for the Six Months Ended June 30, 2021 and 2020. Our non-interest income was $28.5 million for the six months ended June 30, 2021, an increase of $2.2 million, or 8.3%, from $26.3 million for the same period in 2020. This increase was primarily related to an increase in investment management fees and other income, partially offset by a decrease in swap fees, as follows:
Bank Segment:
•Swap fees decreased $1.6 million for the six months ended June 30, 2021, compared to the same period in 2020, due to a decrease in demand by customers for interest rate protection through swaps given recent movement in the yield curve. While level and frequency of income associated with swap transactions can vary materially from period to period based on customers’ expectations of market conditions and term loan originations, there is customer demand for long-term interest rate protection in the current interest rate environment.
•Other income increased $477,000 for the six months ended June 30, 2021, compared to the same period in 2020, primarily due to an early payoff of a customer’s equipment lease and resulting gain on the sale of leased equipment within our commercial banking portfolio, which was partially offset by lower gains in our debt trading portfolio.
Investment Management Segment:
•Investment management fees increased $3.3 million for the six months ended June 30, 2021, compared to the same period in 2020, due to higher assets under management. Assets under management were $11.51 billion as of June 30, 2021, an increase of $2.26 billion from June 30, 2020. This was driven by net inflows of $553.0 million and market appreciation of $1.70 billion. The weighted average fee rate was 0.35% for the six months ended June 30, 2021 and 2020.
Non-Interest Expense
Our non-interest expense represents the operating cost of maintaining and growing our business. The largest portion of non-interest expense for each segment is compensation and employee benefits, which include employee payroll expense as well as the cost of incentive compensation, benefit plans, health insurance and payroll taxes, all of which are impacted by the growth in our employee base, coupled with increases in the level of compensation and benefits of our existing employees. The information provided in the table below under the caption “Parent and Other” represents general operating activity of the Company not considered to be a reportable segment, which includes parent company activity as well as eliminations and adjustments that are necessary for purposes of reconciliation to the consolidated amounts.
The following table presents the components of our non-interest expense by operating segment for the three months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Three Months Ended June 30, 2020
|
|
|
|
Investment
|
Parent
|
|
|
|
Investment
|
Parent
|
|
|
(Dollars in thousands)
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Compensation and employee benefits
|
$
|
14,713
|
|
$
|
5,908
|
|
$
|
316
|
|
$
|
20,937
|
|
|
$
|
11,370
|
|
$
|
4,877
|
|
$
|
322
|
|
$
|
16,569
|
|
|
Premises and equipment expense
|
1,003
|
|
170
|
|
—
|
|
1,173
|
|
|
1,131
|
|
384
|
|
—
|
|
1,515
|
|
|
Professional fees
|
1,990
|
|
216
|
|
(82)
|
|
2,124
|
|
|
755
|
|
333
|
|
21
|
|
1,109
|
|
|
FDIC insurance expense
|
1,125
|
|
—
|
|
—
|
|
1,125
|
|
|
2,560
|
|
—
|
|
—
|
|
2,560
|
|
|
General insurance expense
|
267
|
|
74
|
|
—
|
|
341
|
|
|
209
|
|
69
|
|
—
|
|
278
|
|
|
State capital shares tax
|
777
|
|
—
|
|
—
|
|
777
|
|
|
366
|
|
—
|
|
—
|
|
366
|
|
|
Travel and entertainment expense
|
575
|
|
64
|
|
—
|
|
639
|
|
|
250
|
|
29
|
|
—
|
|
279
|
|
|
Technology and data services
|
2,905
|
|
782
|
|
—
|
|
3,687
|
|
|
1,711
|
|
703
|
|
—
|
|
2,414
|
|
|
Intangible amortization expense
|
—
|
|
478
|
|
—
|
|
478
|
|
|
—
|
|
486
|
|
—
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and advertising
|
526
|
|
372
|
|
—
|
|
898
|
|
|
311
|
|
375
|
|
—
|
|
686
|
|
|
Other operating expenses (1)
|
1,689
|
|
240
|
|
317
|
|
2,246
|
|
|
1,304
|
|
233
|
|
297
|
|
1,834
|
|
|
Total non-interest expense
|
$
|
25,570
|
|
$
|
8,304
|
|
$
|
551
|
|
$
|
34,425
|
|
|
$
|
19,967
|
|
$
|
7,489
|
|
$
|
640
|
|
$
|
28,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full-time equivalent employees (2)
|
283
|
|
58
|
|
—
|
|
341
|
|
|
229
|
|
58
|
|
—
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Other operating expenses include items such as organizational dues and subscriptions, charitable contributions, investor relations fees, sub-advisory fees, employee-related expenses, provision for unfunded commitments and other general operating expenses.
(2)Full-time equivalent employees shown are as of the end of the periods presented.
Non-Interest Expense for the Three Months Ended June 30, 2021 and 2020. Our non-interest expense for the three months ended June 30, 2021, increased $6.3 million, or 22.5%, as compared to the same period in 2020, which included a $5.6 million increase in expenses of the Bank segment and an $815,000 increase in expenses of the Investment Management segment. Notable changes in each segment’s expenses are as follows:
Bank Segment:
•The Bank’s compensation and employee benefits costs for the three months ended June 30, 2021, increased by $3.3 million compared to the same period in 2020, primarily due to an increase in the number of full-time equivalent employees, increases in the overall annual wage and benefits costs of our existing employees, and increases in incentive and stock-based compensation expenses. Due to the uncertainty of the pandemic in 2020, we minimized hiring efforts beginning in the second quarter of 2020, and have now front-loaded that hiring. These increases are a result of our investment in talent to support scalable growth and client experience.
•Professional fees increased $1.2 million for the three months ended June 30, 2021 compared to the same period in 2020 primarily due to higher audit and accounting fees related to routine accounting and regulatory compliance.
•Federal Deposit Insurance Corporation (“FDIC”) insurance expense decreased $1.4 million for the three months ended June 30, 2021 compared to the same period in 2020 due to a lower assessment rate as the Bank began to quality for the FDIC’s large bank assessment methodology.
•Technology and data services for the three months ended June 30, 2021 increased by $1.2 million compared to the same period in 2020, primarily due to increased software licensing fees and software depreciation expense as a result of our
enhancements in technology and product innovation to support scalable growth. Similarly, due to the uncertainty of the pandemic in 2020, we delayed the spending on investments in innovation and development. As we gained more certainty around the pandemic and the economic environment in the second half of 2020 and continuing into 2021, we again have made meaningful investments in innovation and development.
Investment Management Segment:
•Chartwell’s compensation and employee benefits costs for the three months ended June 30, 2021, increased by $1.0 million compared to the same period in 2020, primarily due to an increase in variable incentive compensation expense as a function of increased revenue.
•Premises and equipment expense for three months ended June 30, 2021 decreased by $214,000 compared to the same period in 2020, primarily due to lower rent expense as a result of a new lease amendment effective April 1, 2021.
•Professional fees for the three months ended June 30, 2021 decreased by $117,000 compared to the same period in 2020, primarily due to lower legal fees related to the mutual fund complex in 2021.
The following table presents the components of our non-interest expense by operating segment for the six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2020
|
|
|
|
Investment
|
Parent
|
|
|
|
Investment
|
Parent
|
|
|
(Dollars in thousands)
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Bank
|
Management
|
and Other
|
Consolidated
|
|
Compensation and employee benefits
|
$
|
28,906
|
|
$
|
11,356
|
|
$
|
596
|
|
$
|
40,858
|
|
|
$
|
23,761
|
|
$
|
9,645
|
|
$
|
609
|
|
$
|
34,015
|
|
|
Premises and equipment expense
|
2,038
|
|
541
|
|
—
|
|
2,579
|
|
|
2,123
|
|
778
|
|
—
|
|
2,901
|
|
|
Professional fees
|
3,088
|
|
388
|
|
(28)
|
|
3,448
|
|
|
1,644
|
|
439
|
|
496
|
|
2,579
|
|
|
FDIC insurance expense
|
2,250
|
|
—
|
|
—
|
|
2,250
|
|
|
4,730
|
|
—
|
|
—
|
|
4,730
|
|
|
General insurance expense
|
496
|
|
143
|
|
—
|
|
639
|
|
|
403
|
|
137
|
|
—
|
|
540
|
|
|
State capital shares tax
|
1,427
|
|
—
|
|
—
|
|
1,427
|
|
|
749
|
|
—
|
|
—
|
|
749
|
|
|
Travel and entertainment expense
|
991
|
|
89
|
|
—
|
|
1,080
|
|
|
920
|
|
223
|
|
—
|
|
1,143
|
|
|
Technology and data services
|
5,206
|
|
1,581
|
|
—
|
|
6,787
|
|
|
3,319
|
|
1,398
|
|
—
|
|
4,717
|
|
|
Intangible amortization expense
|
—
|
|
956
|
|
—
|
|
956
|
|
|
—
|
|
988
|
|
—
|
|
988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and advertising
|
920
|
|
662
|
|
—
|
|
1,582
|
|
|
693
|
|
607
|
|
—
|
|
1,300
|
|
|
Other operating expenses (1)
|
2,903
|
|
508
|
|
686
|
|
4,097
|
|
|
2,658
|
|
403
|
|
517
|
|
3,578
|
|
|
Total non-interest expense
|
$
|
48,225
|
|
$
|
16,224
|
|
$
|
1,254
|
|
$
|
65,703
|
|
|
$
|
41,000
|
|
$
|
14,618
|
|
$
|
1,622
|
|
$
|
57,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Other operating expenses include items such as organizational dues and subscriptions, charitable contributions, investor relations fees, sub-advisory fees, employee-related expenses, provision for unfunded commitments and other general operating expenses.
Non-Interest Expense for the Six Months Ended June 30, 2021 and 2020. Our non-interest expense for the six months ended June 30, 2021, increased $8.5 million, or 14.8%, as compared to the same period in 2020, which included a $7.2 million increase in expenses of the Bank segment and a $1.6 million increase in expenses of the Investment Management segment. Notable changes in each segment’s expenses are as follows:
Bank Segment:
•The Bank’s compensation and employee benefits costs for the six months ended June 30, 2021, increased by $5.1 million compared to the same period in 2020, primarily due to an increase in the number of full-time equivalent employees, increases in the overall annual wage and benefits costs of our existing employees, and increases in incentive and stock-based compensation expenses. Due to the uncertainty of the pandemic in 2020, we minimized hiring efforts beginning in the second quarter of 2020, and have now front-loaded that hiring. These increases are a result of our investment in talent to support scalable growth and client experience.
•Professional fees for the six months ended June 30, 2021 increased $1.4 million compared to the same period in 2020, primarily due to higher audit and accounting fees related to routine accounting and regulatory compliance.
•FDIC insurance expense for the six months ended June 30, 2021 decreased $2.5 million compared to the same period in 2020, due to a lower assessment rate as the Bank began to quality for the FDIC’s large bank assessment methodology.
•Technology and data services for the six months ended June 30, 2021, increased $1.9 million compared to the same period in 2020, primarily due to increased software licensing fees and software depreciation expense as a result of our enhancements in technology and product innovation to support scalable growth. Similarly, due to the uncertainty of the pandemic in 2020, we delayed the spending on investments in innovation and development. As we gained more certainty around the pandemic and the economic environment in the second half of 2020 and continuing into 2021, we again have made meaningful investments in innovation and development.
Investment Management Segment:
•Chartwell’s compensation and employee benefits costs for the six months ended June 30, 2021, increased by $1.7 million compared to the same period in 2020, primarily due to an increase in variable incentive compensation expense as a function of increased revenue.
•Premises and equipment expense for six months ended June 30, 2021 decreased by $237,000 compared to the same period in 2020, primarily due to lower rent expense primarily due to lower rent expense as a result of a new lease amendment effective April 1, 2021.
•Travel and entertainment expense for the six months ended June 30, 2021 decreased by $134,000 compared to the same period in 2020, primarily due to decreased travel and events as a result of the COVID-19 pandemic.
•Technology and data services for the six months ended June 30, 2021 increased by $183,000 compared to the same period in 2020, primarily due to higher information and data services fees as a result of efforts to align Chartwell with the Bank information technology new website in 2021, which were partially offset by lower investment research fees.
•Other operating expenses for the six months ended June 30, 2021, increased by $105,000 compared to the same period in 2020, primarily due to higher mutual fund platform distribution expenses.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities with regard to a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate whether it is more likely than not that we will be able to realize the benefit of identified deferred tax assets.
Income Taxes for the Three Months Ended June 30, 2021 and 2020. For the three months ended June 30, 2021, we recognized income tax expense of $4.5 million, or 19.2% of income before tax, as compared to income tax expense of $2.0 million, or 16.0% of income before tax, for the same period in 2020. Our effective tax rate of 19.2% for the three months ended June 30, 2021, increased compared to the same period in the prior year primarily due to the amount and timing of tax credits recognized in 2021 compared to 2020.
Income Taxes for the Six Months Ended June 30, 2021 and 2020. For the six months ended June 30, 2021, we recognized income tax expense of $9.1 million, or 20.6% of income before tax, as compared to income tax expense of $5.2 million, or 18.2% of income before tax, for the same period in 2020. Our effective tax rate of 20.6% for the six months ended June 30, 2021, increased compared to the same period in the prior year primarily due to the amount and timing of tax credits recognized in 2021 compared to 2020.
Financial Condition
Our total assets as of June 30, 2021, were $11.54 billion, an increase of $1.64 billion, or 33.5% on an annualized basis, from December 31, 2020, driven primarily by growth in our loan and investment portfolio. As of June 30, 2021, our loan portfolio totaled $9.28 billion, an increase of $1.05 billion, or 25.6% on an annualized basis, from December 31, 2020. Total investment securities increased $495.1 million, or 118.5% on an annualized basis, to $1.34 billion as of June 30, 2021, from December 31, 2020. We focus on high quality loan growth and we aim to increase our assets through adding to our investment portfolio as part of our strategy to build greater on-balance sheet liquidity, funded through our deposits.
As of June 30, 2021, our total deposits were $10.19 billion, an increase of $1.70 billion, or 40.4% annualized, from December 31, 2020. Net borrowings decreased $54.9 million to $345.6 million as of June 30, 2021, from December 31, 2020. Our shareholders’
equity increased $37.4 million to $794.6 million as of June 30, 2021, from December 31, 2020, primarily due to net income of $35.0 million, $5.4 million in stock-based compensation and an increase of $2.1 million in accumulated other comprehensive income, partially offset by preferred stock dividends paid of $3.9 million, and the increase of $1.6 million in treasury stock related to the net settlement of equity awards exercised or vested.
Loans and Leases
Our loan and lease portfolio, which represents our largest earning asset, primarily consists of loans to our private banking clients, commercial and industrial loans and leases, and real estate loans secured by commercial properties. As of June 30, 2021, 94.3% of our loans had a floating interest rate.
The following table presents the composition of our loan portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Outstanding
|
Percent of
Loans
|
|
Outstanding
|
Percent of
Loans
|
|
Private banking loans
|
$
|
5,713,562
|
|
61.5
|
%
|
|
$
|
4,807,800
|
|
58.4
|
%
|
|
Middle-market banking loans:
|
|
|
|
|
|
|
Commercial and industrial
|
1,240,917
|
|
13.4
|
%
|
|
1,274,152
|
|
15.5
|
%
|
|
Commercial real estate
|
2,328,443
|
|
25.1
|
%
|
|
2,155,466
|
|
26.1
|
%
|
|
Total middle-market banking loans
|
3,569,360
|
|
38.5
|
%
|
|
3,429,618
|
|
41.6
|
%
|
|
Loans and leases held-for-investment
|
$
|
9,282,922
|
|
100.0
|
%
|
|
$
|
8,237,418
|
|
100.0
|
%
|
Loans and Leases Held-for-Investment. Loans and leases held-for-investment increased by $1.05 billion, or 25.6% on an annualized basis, to $9.28 billion as of June 30, 2021, from December 31, 2020. Our growth for the six months ended June 30, 2021, was comprised of an increase in private banking loans of $905.8 million and an increase in commercial real estate loans of $173.0 million, partially offset by a decrease in commercial and industrial loans and leases of $33.2 million.
Primary Loan Categories
Private Banking Loans. Our private banking loans include personal and commercial loans that are sourced through our private banking channel (which operates on a national basis), including referral relationships with financial intermediaries. These loans primarily consist of loans made to high-net-worth individuals, trusts and businesses that are secured by cash and marketable securities. We also originate loans that are secured by cash value life insurance and to a lesser extent residential property or other financial assets. The primary source of repayment for these loans is the income and assets of the borrower. We also have a limited number of unsecured loans and lines of credit in our private banking loan portfolio.
As of June 30, 2021, $5.64 billion, or 98.7%, of our private banking loans were secured by cash, marketable securities and/or cash value life insurance as compared to $4.74 billion, or 98.6%, as of December 31, 2020. Our private banking lines of credit are typically due on demand. We expect the growth in these loans to continue as a result of our focus on this portion of our banking business. We believe we have strong competitive advantages in this line of business given our robust distribution channel relationships and proprietary technology. These loans usually have a lower risk profile and are an efficient use of capital because they typically are zero percent risk-weighted for regulatory capital purposes. On a daily basis, we monitor the collateral of the loans secured by cash, marketable securities and/or cash value life insurance, which further reduces the risk profile of the private banking portfolio. Since inception, we have had no charge-offs related to our loans secured by cash, marketable securities and/or cash value life insurance.
Loans sourced through our private banking channel also include loans that are classified for regulatory purposes as commercial, most of which are also secured by cash, marketable securities and/or cash value life insurance. The table below includes all loans made through our private banking channel, by collateral type, as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
Private banking loans:
|
|
|
|
Secured by cash, marketable securities and/or cash value life insurance
|
$
|
5,638,485
|
|
$
|
4,738,594
|
|
|
Secured by real estate
|
43,325
|
|
45,014
|
|
|
Other
|
31,752
|
|
24,192
|
|
|
Total private banking loans
|
$
|
5,713,562
|
|
$
|
4,807,800
|
|
As of June 30, 2021, there were $5.64 billion of total private banking loans with a floating interest rate and $77.1 million with a fixed interest rate, compared to $4.73 billion and $77.1 million, respectively, as of December 31, 2020.
Commercial Banking - Commercial and Industrial Loans and Leases. Our commercial and industrial loan and lease portfolio primarily includes loans and equipment leases made to financial and other service companies or manufacturers generally for the purposes of financing production, operating capacity, accounts receivable, inventory, equipment, acquisitions and recapitalizations. Cash flow from the borrower’s operations is the primary source of repayment for these loans and leases, except for certain commercial loans that are secured by marketable securities.
As of June 30, 2021, there were $914.3 million of total commercial and industrial loans with a floating interest rate and $326.6 million with a fixed interest rate, compared to $966.6 million and $307.6 million, respectively, as of December 31, 2020.
Commercial Banking - Commercial Real Estate Loans. Our commercial real estate loan portfolio includes loans secured by commercial purpose real estate, including both owner-occupied properties and investment properties for various purposes including office, industrial, multifamily, retail, hospitality, healthcare and self-storage. Also included are commercial construction loans to finance the construction or renovation of structures as well as to finance the acquisition and development of raw land for various purposes. Individual project cash flows, global cash flows and liquidity from the developer, or the sale of the property are the primary sources of repayment for commercial real estate loans secured by investment properties. The primary source of repayment for commercial real estate loans secured by owner-occupied properties is cash flow from the borrower’s operations. There were $220.0 million and $220.8 million of owner-occupied commercial real estate loans as of June 30, 2021 and December 31, 2020, respectively.
As of June 30, 2021, there were $2.21 billion of total commercial real estate loans with a floating interest rate and $120.8 million with a fixed interest rate, as compared to $2.03 billion and $123.3 million, respectively, as of December 31, 2020.
Loan and Lease Maturities and Interest Rate Sensitivity
The following table presents the contractual maturity ranges and the amount of such loans and leases with fixed and adjustable rates in each maturity range as of the date indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Due on Demand
|
One Year
or Less
|
One to
Five Years
|
Greater Than
Five Years
|
Total
|
|
Maturity:
|
|
|
|
|
|
|
Private banking
|
$
|
5,461,025
|
|
$
|
43,512
|
|
$
|
112,255
|
|
$
|
96,770
|
|
$
|
5,713,562
|
|
|
Commercial and industrial
|
8,861
|
|
337,510
|
|
703,091
|
|
191,455
|
|
1,240,917
|
|
|
Commercial real estate
|
—
|
|
403,916
|
|
913,572
|
|
1,010,955
|
|
2,328,443
|
|
|
Loans and leases held-for-investment
|
$
|
5,469,886
|
|
$
|
784,938
|
|
$
|
1,728,918
|
|
$
|
1,299,180
|
|
$
|
9,282,922
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity:
|
|
|
|
|
|
|
Fixed interest rates
|
$
|
57,184
|
|
$
|
45,183
|
|
$
|
233,906
|
|
$
|
188,279
|
|
$
|
524,552
|
|
|
Floating or adjustable interest rates
|
5,412,702
|
|
739,755
|
|
1,495,012
|
|
1,110,901
|
|
8,758,370
|
|
|
Loans and leases held-for-investment
|
$
|
5,469,886
|
|
$
|
784,938
|
|
$
|
1,728,918
|
|
$
|
1,299,180
|
|
$
|
9,282,922
|
|
Interest Reserve Loans
As of June 30, 2021, loans with interest reserves totaled $454.4 million, which represented 4.9% of loans and leases held-for-investment, compared to $389.1 million, or 4.7%, as of December 31, 2020. Certain loans reserve a portion of the proceeds to be used to pay interest due on the loan. These loans with interest reserves are common for construction and land development loans. The use of interest reserves is based on the project budget and schedule for completion, the feasibility of the project, the creditworthiness of the borrower and guarantors, and the loan to value coverage of the collateral. The interest reserve may be used by the borrower, when certain financial conditions are met, to draw loan funds to pay interest charges on the outstanding balance of the loan. When drawn, the interest is capitalized and added to the loan balance, subject to conditions specified during the initial underwriting and at the time the credit is approved. We have procedures and controls for monitoring compliance with loan covenants, advancing funds and determining default conditions.
Allowance for Credit Losses on Loans and Leases
Our allowance for credit losses on loans and leases represent our current estimate of expected credit losses in the loan and lease portfolio at a specific point in time. This estimate includes credit losses associated with individually evaluated loans and leases that do
not share similar risk characteristics. Additions are made to the allowance through both periodic provisions recorded in the consolidated statements of income and recoveries of losses previously incurred. Reductions to the allowance occur as loans and lease are charged off or when the current estimate of expected credit losses in of any of the three loan portfolios decreases. Results for the three and six months ended June 30, 2021, are presented under CECL methodology while prior period amounts continue to be reported in accordance with previously applicable GAAP. Refer to Note 1, Summary of Significant Accounting Policies and Note 4, Allowance for Credit Losses on Loans and Leases, to our unaudited condensed consolidated financial statements for more details on the Company’s allowance for credit losses on loans and leases.
The following table summarizes the allowance for loan and lease losses, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
General reserves
|
$
|
26,991
|
|
$
|
32,642
|
|
|
Specific reserves
|
5,586
|
|
1,988
|
|
|
Total allowance for credit losses on loans and leases
|
$
|
32,577
|
|
$
|
34,630
|
|
|
Allowance for credit losses on loans and leases to loans and leases
|
0.35
|
%
|
0.42
|
%
|
As of June 30, 2021, we had specific reserves totaling $5.6 million related to impaired loans with an aggregated total outstanding balance of $11.2 million. As of December 31, 2020, we had specific reserves totaling $2.0 million related to impaired loans with an aggregated total outstanding balance of $9.7 million. These loans were on non-accrual status as of June 30, 2021 and December 31, 2020, respectively.
The following table summarizes allowance for credit losses on loans and leases and the percentage of loans and leases by category, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Reserve
|
|
Percent of Loans and Leases
|
|
Reserve
|
|
Percent of Loans and Leases
|
|
Private banking
|
$
|
2,107
|
|
|
61.5
|
%
|
|
$
|
2,047
|
|
|
58.4
|
%
|
|
Commercial and industrial
|
8,969
|
|
|
13.4
|
%
|
|
5,254
|
|
|
15.5
|
%
|
|
Commercial real estate
|
21,501
|
|
|
25.1
|
%
|
|
27,329
|
|
|
26.1
|
%
|
|
Total allowance for credit losses on loans and leases
|
$
|
32,577
|
|
|
100.0
|
%
|
|
$
|
34,630
|
|
|
100.0
|
%
|
Allowance for Credit Losses on Loans and Leases as of June 30, 2021 and December 31, 2020. Our allowance for credit losses on loans and leases was $32.6 million, or 0.35% of loans as of June 30, 2021, compared to $34.6 million, or 0.42% of loans, as of December 31, 2020. Our allowance for credit losses on loans and leases decreased to 0.91% of commercial loans (excluding private banking loans primarily collateralized by liquid, marketable securities) as of June 30, 2021, compared to 1.0% of commercial loans as of December 31, 2020. Our allowance for credit losses decreased $2.1 million from December 31, 2020, driven by a decrease of $5.7 million in general reserves, partially offset by an increase of $3.6 million in specific reserves. Our allowance for credit losses related to private banking loans increased $60,000 from December 31, 2020 to June 30, 2021. Our allowance for credit losses related to commercial and industrial loans increased $3.7 million from December 31, 2020 to June 30, 2021, which was attributable to higher specific reserves due to the addition of non-accrual loans, partially offset by a decrease in general reserves. Our allowance for credit losses related to commercial real estate loans decreased by $5.8 million from December 31, 2020 to June 30, 2021, due to decreased general reserves. The decrease in general reserves in our commercial loan portfolio was primarily driven by qualitative adjustments in the model related to assumptions around economic recovery and modeled loss forecasts. We applied a management overlay to our allowance for credit loss model to provide a reserve level that supports management’s best estimate of current expected credit losses within the loan portfolio. The management overlay includes scenarios with near-term economic stress and other factors based upon management judgement. The consensus forecast within our model provided for a greater reserve release based on optimism around the economic environment and loss forecasts, which we believe may be an overreaction to the early onset of historically high level and rate of changes in the forecast and transactional values within commercial asset types. We would only release reserves to the extent suggested by our model if there is a sustained trend in the economic recovery data and continued progress overcoming the COVID-19 pandemic.
Charge-Offs and Recoveries
Our charge-off policy for commercial and private banking loans and leases requires that obligations that are not collectible be promptly charged off in the month the loss becomes probable, regardless of the delinquency status of the loan or lease. We recognize a partial charge-off when we have determined that the value of the collateral is less than the remaining ledger balance at the time of the evaluation. An obligation is not required to be charged off, regardless of delinquency status, if we have determined there exists
sufficient collateral to protect the remaining loan or lease balance and there exists a strategy to liquidate the collateral. We may also consider a number of other factors to determine when a charge-off is appropriate, including: the status of a bankruptcy proceeding, the value of collateral and probability of successful liquidation, and the status of adverse proceedings or litigation that may result in collection.
The following table provides an analysis of the allowance for credit losses on loans and leases, charge-offs, recoveries and provision for credit losses on loans and leases for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Beginning balance
|
$
|
34,644
|
|
$
|
17,304
|
|
|
$
|
34,630
|
|
$
|
14,108
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
Private banking
|
—
|
|
(171)
|
|
|
—
|
|
(171)
|
|
|
Commercial and industrial
|
—
|
|
—
|
|
|
(199)
|
|
—
|
|
|
Commercial real estate
|
(2,366)
|
|
—
|
|
|
(2,366)
|
|
—
|
|
|
Total charge-offs
|
(2,366)
|
|
(171)
|
|
|
(2,565)
|
|
(171)
|
|
|
Recoveries:
|
|
|
|
|
|
|
Private banking
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Commercial and industrial
|
113
|
|
138
|
|
|
113
|
|
341
|
|
|
Commercial real estate
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Total recoveries
|
113
|
|
138
|
|
|
113
|
|
341
|
|
|
Net recoveries (charge-offs)
|
(2,253)
|
|
(33)
|
|
|
(2,452)
|
|
170
|
|
|
Provision for credit losses on loans and leases
|
186
|
|
6,005
|
|
|
399
|
|
8,998
|
|
|
Ending balance
|
$
|
32,577
|
|
$
|
23,276
|
|
|
$
|
32,577
|
|
$
|
23,276
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs to average total loans and leases, annualized
|
0.10
|
%
|
—
|
%
|
|
0.06
|
%
|
—
|
%
|
|
Provision for credit losses on loans and leases to average total loans and leases, annualized
|
0.01
|
%
|
0.34
|
%
|
|
0.01
|
%
|
0.26
|
%
|
Non-Performing Assets
Non-performing assets consist of non-performing loans and OREO. Non-performing loans are loans that are on non-accrual status. OREO is real property acquired through foreclosure on the collateral underlying defaulted loans and includes in-substance foreclosures. We record OREO at fair value, less estimated costs to sell the assets.
Our policy is to place loans in all categories on non-accrual status when collection of interest or principal is doubtful, or when interest or principal payments are 90 days or more past due. There was no interest income recognized on loans while on non-accrual status for the six months ended June 30, 2021 and 2020. As of June 30, 2021, there was a loan for $43,000 that was 90 days or more past due and still accruing interest, which was fully secured. As of December 31, 2020, there were no loans 90 days or more past due and still accruing income. As of June 30, 2021, non-performing loans were $11.2 million, or 0.12% of total loans, compared to $9.7 million, or 0.12% of total loans, as of December 31, 2020. We had specific reserves of $5.6 million and $2.0 million as of June 30, 2021 and December 31, 2020, respectively, on these non-performing loans. The net loan balance of our non-performing loans was 41.8% and 79.2% of the customer’s outstanding balance after payments, charge-offs and specific reserves as of June 30, 2021 and December 31, 2020, respectively.
For additional information on our non-performing loans as of June 30, 2021 and December 31, 2020, refer to Note 4, Allowance for Credit Losses on Loans and Leases, to our unaudited condensed consolidated financial statements.
Once the determination is made that a foreclosure is necessary, the loan is reclassified as “in-substance foreclosure” until a sale date and title to the property is finalized. Once we own the property, it is maintained, marketed, and rented or sold to repay the original loan. Historically, foreclosure trends in our loan portfolio have been low due to the credit quality of the real estate portfolio. Any loans that are modified or extended are reviewed for potential classification as a troubled debt restructuring (“TDR”) loan. For borrowers that are experiencing financial difficulty, we complete a process that outlines the terms of the modification, the reasons for the proposed modification, and documents the current status of the borrower.
In response to the COVID-19 pandemic and its economic impact on our customers, we implemented a short-term loan modification program in compliance with the CARES Act and applicable regulatory guidance to provide temporary payment relief to those borrowers directly impacted by COVID-19. As of June 30, 2021, only four loans representing $41.0 million, or 0.4% of loans, were
still in deferral status. Under the applicable guidance, these loan modifications were not considered TDRs. These loans that are still in deferral status are in our commercial real estate loan portfolio and are primarily secured by office, retail, or hotel properties.
We had non-performing assets of $13.7 million, or 0.12% of total assets, as of June 30, 2021, as compared to $12.4 million, or 0.13% of total assets, as of December 31, 2020. The increase in non-performing assets was the result of $13.1 million in additions, partially offset by $11.7 million in reductions to non-performing assets. As of June 30, 2021 and December 31, 2020, we had OREO properties totaling $2.6 million and $2.7 million, respectively. The change in the OREO balance from December 31, 2020, was attributable to a $155,000 write-down on an OREO property.
The following table summarizes our non-performing assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
Non-performing loans:
|
|
|
|
Private banking
|
$
|
—
|
|
$
|
—
|
|
|
Commercial and industrial
|
8,749
|
|
458
|
|
|
Commercial real estate
|
2,426
|
|
9,222
|
|
|
Total non-performing loans
|
$
|
11,175
|
|
$
|
9,680
|
|
|
Other real estate owned
|
2,568
|
|
2,724
|
|
|
Total non-performing assets
|
$
|
13,743
|
|
$
|
12,404
|
|
|
|
|
|
|
Non-performing troubled debt restructured loans
|
$
|
2,399
|
|
$
|
2,926
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
0.12
|
%
|
0.12
|
%
|
|
Allowance for credit losses on loans and leases to non-performing loans
|
291.52
|
%
|
357.75
|
%
|
|
Non-performing assets to total assets
|
0.12
|
%
|
0.13
|
%
|
Potential Problem Loans
Potential problem loans are those loans that are not categorized as non-performing loans, but where current information indicates that the borrower may not be able to comply with repayment terms in the future. Among other factors, we monitor past due status as an indicator of credit deterioration and potential problem loans. A loan is considered past due when the contractual principal and/or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. To the extent that loans become past due, we assess the potential for loss on such loans individually as we would with other problem loans and consider the effect of any potential loss in determining any additional provision for credit losses on loans and leases. We also assess alternatives to maximize collection of any past due loans, including and without limitation, restructuring loan terms, requiring additional loan guarantee(s) or collateral, or other planned action.
For additional information on the age analysis of past due loans segregated by class of loan for June 30, 2021 and December 31, 2020, refer to Note 4, Allowance for Credit Losses on Loans and Leases, to our unaudited condensed consolidated financial statements.
On a monthly basis, we monitor various credit quality indicators for our loan portfolio, including delinquency, non-performing status, changes in risk ratings, changes in the underlying performance of the borrowers and other relevant factors. On a daily basis, we monitor the collateral of loans secured by cash, marketable securities and/or cash value life insurance within the private banking portfolio, which further reduces the risk profile of that portfolio.
Loan risk ratings are assigned based on the creditworthiness of the borrower and the quality of the collateral for loans secured by marketable securities. Loan risk ratings are reviewed on an ongoing basis according to internal policies. Loans within the pass rating are believed to have a lower risk of loss than loans that are risk rated as special mention, substandard or doubtful, which are believed to have an increasing risk of loss. Our internal risk ratings are consistent with regulatory guidance. We also monitor the loan portfolio through a formal periodic review process. All non-pass rated loans are reviewed monthly and higher risk-rated loans within the pass category are reviewed three times a year.
For additional information on the definitions of our internal risk rating and the amortized cost basis of loans by credit quality indicator for June 30, 2021 and December 31, 2020, refer to Note 4, Allowance for Credit Losses on Loans and Leases, to our unaudited condensed consolidated financial statements.
Investment Securities
We utilize investment activities to enhance net interest income while supporting liquidity management and interest rate risk management. Our securities portfolio consists of available-for-sale debt securities, held-to-maturity debt securities and, from time to time, debt securities held for trading purposes. Also included in our investment securities is FHLB stock. For additional information on FHLB stock, refer to Note 2, Investment Securities, to our unaudited condensed consolidated financial statements. Debt securities purchased with the intent to sell under trading activity are recorded at fair value and changes to fair value are recognized in the consolidated statements of income. Debt securities categorized as available-for-sale are recorded at fair value and changes in the fair value of these securities are recognized as a component of total shareholders’ equity, within accumulated other comprehensive income (loss), net of deferred taxes. Debt securities categorized as held-to-maturity are securities that the Company intends to hold until maturity and are recorded at amortized cost.
The Bank has engaged Chartwell to provide securities portfolio advisory services, subject to the investment parameters set forth in our investment policy.
As of June 30, 2021 and December 31, 2020, we reported debt securities in available-for-sale and held-to-maturity categories. In general, fair value is based on quoted market prices of identical assets, when available. Where sufficient data is not available to produce a fair valuation, fair value is based on broker quotes for similar assets. We validate the prices received from these third parties on a quarterly basis by comparing them to prices provided by a different independent pricing service. We have also reviewed the valuation methodologies provided to us by our pricing services. Broker quotes may be adjusted to ensure that financial instruments are recorded at fair value. Adjustments may include unobservable parameters, among other things. Securities, like loans, are subject to interest rate risk and credit risk. In addition, by their nature, debt securities classified as available-for-sale, and trading securities are also subject to fair value risks that could negatively affect the level of liquidity available to us, as well as shareholders’ equity.
Our available-for-sale debt securities portfolio consists of U.S. government agency obligations, mortgage-backed securities, collateralized mortgage obligations, corporate bonds, single-issuer trust preferred securities, and certain municipal bonds, all with varying contractual maturities. Our held-to-maturity debt securities consists of certain municipal bonds, agency obligations, mortgage-backed securities, U.S. treasury notes and corporate bonds while our trading portfolio, when active, typically consists of U.S. treasury notes, also with varying contractual maturities. However, these maturities do not necessarily represent the expected life of certain securities as the securities may be called or paid down without penalty prior to their stated maturities. The effective duration of our debt securities portfolio as of June 30, 2021, was approximately 4.2, where duration is defined as the approximate percentage change in price for a 100-basis point change in rates. No investment in any of these securities exceeds any applicable limitation imposed by law or regulation. Our Asset and Liability Committee (“ALCO”) reviews the investment portfolio on an ongoing basis to ensure that the investments conform to our investment policy.
Available-for-Sale Debt Securities. We held $311.1 million and $617.6 million in debt securities available-for-sale as of June 30, 2021 and December 31, 2020, respectively. The decrease of $306.4 million was primarily attributable to the transfer of $480.8 million fair value of agency mortgage-backed securities to held-to-maturity designation, and purchases of $294.3 million, net of prepayments, calls and maturities of $44.1 million during the six months ended June 30, 2021.
On a fair value basis, 42.9% of our available-for-sale debt securities as of June 30, 2021, were floating-rate securities, for which yields increase or decrease based on changes in market interest rates. As of December 31, 2020, floating-rate securities comprised 23.8% of our available-for-sale debt securities.
On a fair value basis, 17.0% of our available-for-sale debt securities as of June 30, 2021, were U.S. government and agency securities, which tend to have a lower risk profile than certain corporate bonds and single-issuer trust preferred securities, which comprised the remainder of the portfolio. As of December 31, 2020, agency securities comprised 71.4% of our available-for-sale debt securities. The decrease was due to the transfer of the agency mortgage-backed securities to held-to-maturity designation.
Held-to-Maturity Debt Securities. We held $1.01 billion and $211.8 million in debt securities held-to-maturity as of June 30, 2021 and December 31, 2020, respectively. The increase of $802.9 million was primarily attributable to the transfer of $480.8 million of previously designated available-for-sale agency mortgage-backed securities to held-to-maturity designation, purchases of $481.6 million for certain securities, net of calls and maturities of $153.5 million, during the six months ended June 30, 2021. As part of our asset and liability management strategy, we determined that we have the intent and ability to hold these bonds until maturity, and these securities were reported at amortized cost as of June 30, 2021 and December 31, 2020.
Trading Debt Securities. We held no trading debt securities as of June 30, 2021 and December 31, 2020.
The following tables summarize the amortized cost and fair value of debt securities available-for-sale and held-to-maturity, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Allowance for Credit Losses (1)
|
Estimated
Fair Value
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
135,853
|
|
1,606
|
|
289
|
|
—
|
|
137,170
|
|
|
Residential mortgage-backed securities
|
97,572
|
|
78
|
|
99
|
|
—
|
|
97,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities
|
18,300
|
|
312
|
|
186
|
|
—
|
|
18,426
|
|
|
Agency collateralized mortgage obligations
|
19,050
|
|
86
|
|
—
|
|
—
|
|
19,136
|
|
|
Agency mortgage-backed securities
|
25,263
|
|
30
|
|
1
|
|
—
|
|
25,292
|
|
|
Agency debentures
|
7,598
|
|
748
|
|
—
|
|
—
|
|
8,346
|
|
|
Municipal bonds
|
5,204
|
|
4
|
|
—
|
|
—
|
|
5,208
|
|
|
Total debt securities available-for-sale
|
$
|
308,840
|
|
$
|
2,864
|
|
$
|
575
|
|
$
|
—
|
|
$
|
311,129
|
|
(1)Available-for-sale securities are recorded on the consolidated statements of financial condition at estimated fair value, net of allowance for credit losses, if applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Estimated
Fair Value
|
|
Allowance for Credit Losses (1)
|
|
Debt securities held-to-maturity:
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
30,670
|
|
$
|
1,051
|
|
$
|
27
|
|
$
|
31,694
|
|
|
$
|
47
|
|
|
Agency debentures
|
129,998
|
|
816
|
|
11
|
|
130,803
|
|
|
—
|
|
|
Municipal bonds
|
4,778
|
|
10
|
|
—
|
|
4,788
|
|
|
—
|
|
|
Residential mortgage-backed securities
|
230,913
|
|
285
|
|
1,710
|
|
229,488
|
|
|
23
|
|
|
Agency mortgage-backed securities
|
579,374
|
|
798
|
|
5,480
|
|
574,692
|
|
|
—
|
|
|
U.S. treasury notes
|
39,049
|
|
29
|
|
409
|
|
38,669
|
|
|
—
|
|
|
Total debt securities held-to-maturity
|
$
|
1,014,782
|
|
$
|
2,989
|
|
$
|
7,637
|
|
$
|
1,010,134
|
|
|
$
|
70
|
|
(1)Held-to-maturity securities are recorded on the consolidated statements of financial condition at amortized cost, net of allowance for credit losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Allowance for Credit Losses (1)
|
Estimated
Fair Value
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
157,452
|
|
$
|
1,538
|
|
$
|
526
|
|
$
|
—
|
|
$
|
158,464
|
|
|
Trust preferred securities
|
18,228
|
|
57
|
|
198
|
|
—
|
|
18,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency collateralized mortgage obligations
|
22,058
|
|
36
|
|
5
|
|
—
|
|
22,089
|
|
|
Agency mortgage-backed securities
|
406,741
|
|
3,595
|
|
209
|
|
—
|
|
410,127
|
|
|
Agency debentures
|
8,013
|
|
790
|
|
—
|
|
—
|
|
8,803
|
|
|
Total debt securities available-for-sale
|
612,492
|
|
6,016
|
|
938
|
|
—
|
|
617,570
|
|
(1)Available-for-sale securities are recorded on the statement of financial condition at estimated fair value, net of allowance for credit losses, if applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Amortized
Cost
|
Gross Unrealized
Appreciation
|
Gross Unrealized
Depreciation
|
Estimated
Fair Value
|
|
Allowance for Credit Losses (1)
|
|
Debt securities held-to-maturity:
|
|
|
|
|
|
|
|
Corporate bonds
|
28,672
|
|
566
|
|
1
|
|
29,237
|
|
|
79
|
|
|
Agency debentures
|
48,130
|
|
1,051
|
|
—
|
|
49,181
|
|
|
—
|
|
|
Municipal bonds
|
6,577
|
|
45
|
|
—
|
|
6,622
|
|
|
—
|
|
|
Residential mortgage-backed securities
|
124,152
|
|
237
|
|
217
|
|
124,172
|
|
|
70
|
|
|
Agency mortgage-backed securities
|
4,309
|
|
778
|
|
—
|
|
5,087
|
|
|
—
|
|
|
Total debt securities held-to-maturity
|
211,840
|
|
2,677
|
|
218
|
|
214,299
|
|
|
149
|
|
(1)Held-to-maturity securities are recorded on the statement of financial condition at amortized cost, net of allowance for credit losses.
The changes in the fair values of our municipal bonds, agency debentures, agency collateralized mortgage obligations, agency mortgage-backed securities, and U.S. treasury notes are primarily the result of interest rate fluctuations. To assess for credit impairment, management evaluates the underlying issuer’s financial performance and the related credit rating information through a review of publicly available financial statements and other publicly available information. The most recent assessment for credit impairment did not identify any issues related to the ultimate repayment of principal and interest on these debt securities. In addition, the Company has the ability and intent to hold debt securities in an unrealized loss position until recovery of their amortized cost. Based on this, no allowance for credit losses has been recognized on debt securities available-for-sale in an unrealized loss position.
Debt securities available-for-sale of $2.2 million as of June 30, 2021, were held in safekeeping at the FHLB and were included in the calculation of borrowing capacity. Additionally, there were $38.7 million of debt securities held-to-maturity that were pledged as collateral for certain deposit relationships.
The following table sets forth the fair value, contractual maturities and approximated weighted average yield, calculated on a fully taxable equivalent basis, of our available-for-sale and held-to-maturity debt securities portfolios as of June 30, 2021, based on estimated annual income divided by the average amortized cost of these securities. Contractual maturities may differ from expected maturities because issuers and/or borrowers may have the right to call or prepay obligations with or without penalties, which would also impact the corresponding yield.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Less Than
One Year
|
|
One to
Five Years
|
|
Five to
10 Years
|
|
Greater Than
10 Years
|
|
Total
|
|
(Dollars in thousands)
|
Amount
|
Yield
|
|
Amount
|
Yield
|
|
Amount
|
Yield
|
|
Amount
|
Yield
|
|
Amount
|
Yield
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
27,622
|
|
0.72
|
%
|
|
$
|
46,953
|
|
1.17
|
%
|
|
$
|
62,595
|
|
1.48
|
%
|
|
$
|
—
|
|
—
|
%
|
|
$
|
137,170
|
|
1.22
|
%
|
|
Residential mortgage-backed securities
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
0
|
—
|
|
—
|
%
|
|
97,551
|
|
2.16
|
%
|
|
97,551
|
|
2.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
9,697
|
|
2.01
|
%
|
|
8,729
|
|
1.90
|
%
|
|
18,426
|
|
1.96
|
%
|
|
Agency collateralized mortgage obligations
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
19,136
|
|
0.52
|
%
|
|
19,136
|
|
0.52
|
%
|
|
Agency mortgage-backed securities
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
25,292
|
|
1.89
|
%
|
|
25,292
|
|
1.89
|
%
|
|
Agency debentures
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
8,346
|
|
3.01
|
%
|
|
8,346
|
|
3.01
|
%
|
|
Municipal bonds
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
0
|
—
|
|
—
|
%
|
|
5,208
|
|
—
|
%
|
|
5,208
|
|
—
|
%
|
|
Total debt securities available-for-sale
|
27,622
|
|
|
|
46,953
|
|
|
|
72,292
|
|
|
|
164,262
|
|
|
|
311,129
|
|
|
|
Weighted average yield
|
|
0.72
|
%
|
|
|
1.17
|
%
|
|
|
1.55
|
%
|
|
|
1.88
|
%
|
|
|
1.59
|
%
|
|
Debt securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
—
|
|
—
|
%
|
|
11,941
|
|
5.19
|
%
|
|
19,753
|
|
5.15
|
%
|
|
—
|
|
—
|
%
|
|
31,694
|
|
5.17
|
%
|
|
Agency debentures
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
122,547
|
|
1.49
|
%
|
|
8,256
|
|
3.09
|
%
|
|
130,803
|
|
1.59
|
%
|
|
Municipal bonds
|
1,915
|
|
3.62
|
%
|
|
2,873
|
|
3.02
|
%
|
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
4,788
|
|
3.26
|
%
|
|
Residential mortgage-backed securities
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
229,488
|
|
1.98
|
%
|
|
229,488
|
|
1.98
|
%
|
|
Agency mortgage-backed securities
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
18,695
|
|
1.76
|
%
|
|
555,997
|
|
1.64
|
%
|
|
574,692
|
|
1.64
|
%
|
|
U.S. treasury notes
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
38,669
|
|
1.33
|
%
|
|
—
|
|
—
|
%
|
|
38,669
|
|
1.33
|
%
|
|
Total debt securities held-to-maturity
|
1,915
|
|
|
|
14,814
|
|
|
|
199,664
|
|
|
|
793,741
|
|
|
|
1,010,134
|
|
|
|
Weighted average yield
|
|
3.62
|
%
|
|
|
4.76
|
%
|
|
|
1.84
|
%
|
|
|
1.75
|
%
|
|
|
1.81
|
%
|
|
Total debt securities
|
$
|
29,537
|
|
|
|
$
|
61,767
|
|
|
|
$
|
271,956
|
|
|
|
$
|
958,003
|
|
|
|
$
|
1,321,263
|
|
|
|
Weighted average yield
|
|
0.91
|
%
|
|
|
2.01
|
%
|
|
|
1.76
|
%
|
|
|
1.77
|
%
|
|
|
1.76
|
%
|
For additional information regarding our investment securities portfolios, refer to Note 2, Investment Securities, to our unaudited condensed consolidated financial statements.
Assets Under Management
Chartwell’s total assets under management of $11.51 billion increased $1.25 billion, or 12.2%, as of June 30, 2021, from $10.26 billion as of December 31, 2020.
The following table shows the changes of our assets under management by investment style for the six months ended June 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
(Dollars in thousands)
|
Beginning
Balance
|
Inflows (1)
|
Outflows (2)
|
Market Appreciation (Depreciation)
|
Ending
Balance
|
|
|
Equity investment styles
|
$
|
4,042,000
|
|
$
|
258,000
|
|
$
|
(534,000)
|
|
$
|
629,000
|
|
$
|
4,395,000
|
|
|
|
Fixed income investment styles
|
5,663,000
|
|
1,130,000
|
|
(269,000)
|
|
55,000
|
|
6,579,000
|
|
|
|
Balanced investment styles
|
558,000
|
|
27,000
|
|
(76,000)
|
|
28,000
|
|
537,000
|
|
|
|
Total assets under management
|
$
|
10,263,000
|
|
$
|
1,415,000
|
|
$
|
(879,000)
|
|
$
|
712,000
|
|
$
|
11,511,000
|
|
|
(1)Inflows consist of new business and contributions to existing accounts.
(2)Outflows consist of business lost as well as distributions from existing accounts.
Deposits
Deposits are our primary source of funds to support our earning assets. We have focused on creating and growing diversified, stable, and lower all-in cost deposit channels without operating through a traditional branch network. We market liquidity and treasury management products, payment processing products, and other deposit products to high-net-worth individuals, family offices, trust companies, wealth management firms, municipalities, endowments and foundations, broker/dealers, futures commission merchants, investment management firms, property management firms, payroll providers and other financial institutions. We believe that our deposit base is stable and diversified. We further believe we have the ability to attract new deposits, which is the primary source of funding our projected loan growth. With respect to our treasury management business, we utilize hybrid interest-bearing accounts that provide our clients with certainty around their fee structures and returns for their total cash position while enhancing our ability to obtain their full liquidity relationship and still meeting our cost of funds expectations, rather than the more traditional combination of separate non-interest bearing and interest-bearing accounts, which have reduced transparency and increased client burden.
We continue to enhance our liquidity and treasury management capabilities and team to support our efforts to grow this source of funding. Treasury management deposit accounts totaled $2.27 billion as of June 30, 2021, an increase of $807.6 million, or 55.4%, from December 31, 2020. Treasury management deposit accounts contributed to almost 50% of our total deposit growth for the six months ended June 30, 2021. As of June 30, 2021, we had approximately 480 treasury management clients, the majority of which were payment processors, lending client-operating accounts, bankruptcy, and real estate accounts. As of June 30, 2020, we had approximately 400 treasury management clients, mostly comprised of payment processors, lending client-operating accounts, and real estate accounts.
The table below depicts average balances of, and rates paid on our deposit portfolio by major deposit category for the three months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Average Amount
|
Average Rate Paid (1)
|
|
Average Amount
|
Average Rate Paid (1)
|
|
Interest-bearing checking accounts
|
$
|
3,852,078
|
|
0.33
|
%
|
|
$
|
2,327,513
|
|
0.47
|
%
|
|
Money market deposit accounts
|
4,316,946
|
|
0.52
|
%
|
|
3,862,068
|
|
0.77
|
%
|
|
Certificates of deposit
|
929,906
|
|
0.54
|
%
|
|
1,389,984
|
|
1.69
|
%
|
|
Total average interest-bearing deposits
|
9,098,930
|
|
0.45
|
%
|
|
7,579,565
|
|
0.85
|
%
|
|
Noninterest-bearing deposits
|
460,601
|
|
—
|
|
|
417,732
|
|
—
|
|
|
Total average deposits
|
$
|
9,559,531
|
|
0.42
|
%
|
|
$
|
7,997,297
|
|
0.80
|
%
|
(1)Annualized
Average Deposits for the Three Months Ended June 30, 2021 and 2020. For the three months ended June 30, 2021, our average total deposits were $9.56 billion, representing an increase of $1.56 billion, or 19.5%, from the same period in 2020. The deposit growth was driven by increases in our interest-bearing checking account, money market deposit account and noninterest-bearing deposit account categories as we continue to attract clients to our treasury management business and grow our deposit product offerings. Our average cost of interest-bearing deposits decreased 40 basis points to 0.45% for the three months ended June 30, 2021, from 0.85% for the same period in 2020, as average rates paid were lower in all interest-bearing deposit categories, which was primarily driven by the decreases to the Federal Reserve’s target federal funds rate in 2020, which impacted our variable-rate deposits. Another driver of the combination of higher average deposits and lower rates are our continued addition of meaningful and long-term client relationships that support our efforts to manage deposit costs through variable rate and discretionary pricing in the economic environment. Average
interest-bearing checking accounts increased to 42.3% of total average interest-bearing deposits for the three months ended June 30, 2021, compared to 30.7% for the same period in 2020. Average money market deposits decreased to 47.5% of total average interest-bearing deposits for the three months ended June 30, 2021, from 51.0% for the same period in 2020. Average certificates of deposit decreased to 10.2% of total average interest-bearing deposits for the three months ended June 30, 2021, compared to 18.3% for the same period in 2020. Average noninterest-bearing deposits increased $42.9 million, or 10.3%, in the three months ended June 30, 2021, from the three months ended June 30, 2020, and the average cost of total deposits decreased 38 basis points to 0.42% for the three months ended June 30, 2021, from 0.80% for the same period in 2020. We focus on high quality loan growth and we aim to increase our assets through adding to our investment portfolio as part of our strategy to build greater on-balance sheet liquidity, funded through our deposits.
The table below depicts average balances of, and rates paid on, our deposit portfolio by deposit type for the six months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Average Amount
|
Average Rate Paid (1)
|
|
Average Amount
|
Average Rate Paid (1)
|
|
Interest-bearing checking accounts
|
$
|
3,461,202
|
|
0.35
|
%
|
|
$
|
1,900,563
|
|
0.84
|
%
|
|
Money market deposit accounts
|
4,331,121
|
|
0.54
|
%
|
|
3,705,517
|
|
1.20
|
%
|
|
Certificates of deposit
|
971,155
|
|
0.68
|
%
|
|
1,386,510
|
|
1.92
|
%
|
|
Total average interest-bearing deposits
|
8,763,478
|
|
0.48
|
%
|
|
6,992,590
|
|
1.24
|
%
|
|
Noninterest-bearing deposits
|
442,668
|
|
—
|
|
|
383,909
|
|
—
|
|
|
Total average deposits
|
$
|
9,206,146
|
|
0.46
|
%
|
|
$
|
7,376,499
|
|
1.18
|
%
|
(1) Annualized
Average Deposits for the Six Months Ended June 30, 2021 and 2020. For the six months ended June 30, 2021, our average total deposits were $9.21 billion, representing an increase of $1.83 billion, or 24.8%, from the same period in 2020. The average deposit growth was driven by increases in our interest-bearing checking account, money market deposit account and noninterest-bearing deposit account categories. The deposit growth was driven by increases in our interest-bearing checking account, money market deposit account and noninterest-bearing deposit account categories as we continue to attract clients to our treasury management business and grow our deposit product offerings. Our average cost of interest-bearing deposits decreased 76 basis points to 0.48% for the six months ended June 30, 2021, from 1.24% for the same period in 2020, as average rates paid were lower in all interest-bearing deposit categories, driven by the decreases in the Federal Reserve’s target federal funds rate in 2020, which impacted our variable-rate deposits. Another driver of the combination of higher average deposits and lower rates are our continued addition of meaningful and long-term client relationships that support our efforts to manage deposit costs through variable rate and discretionary pricing in the economic environment. Average interest-bearing checking accounts increased to 39.5% of total average interest-bearing deposits for the six months ended June 30, 2021, compared to 27.2% for the same period in 2020. Average money market deposits decreased to 49.4% of total average interest-bearing deposits for the six months ended June 30, 2021, from 53.0% for the same period in 2020. Average certificates of deposit decreased to 11.1% of total average interest-bearing deposits for the six months ended June 30, 2021, compared to 19.8% for the same period in 2020. Average noninterest-bearing deposits increased 15.3%, in the six months ended June 30, 2021, from the six months ended June 30, 2020, and the average cost of total deposits decreased 72 basis points to 0.46% for the six months ended June 30, 2021, from 1.18% for the same period in 2020. We focus on high quality loan growth and we aim to increase our assets through adding to our investment portfolio as part of our strategy to build greater on-balance sheet liquidity, funded through our deposits.
Certificates of Deposit
Maturities of certificates of deposit of $100,000 or more outstanding are summarized below, as of June 30, 2021.
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30, 2021
|
|
Months to maturity:
|
|
|
Three months or less
|
$
|
388,510
|
|
|
Over three to six months
|
131,414
|
|
|
Over six to 12 months
|
197,679
|
|
|
Over 12 months
|
148,068
|
|
|
Total
|
$
|
865,671
|
|
Reciprocal and Brokered Deposits
As of June 30, 2021, we consider approximately 89% of our total deposits to be relationship-based deposits, which include reciprocal certificates of deposit placed through CDARS® and reciprocal demand deposits placed through ICS®. As of June 30, 2021, the Bank had CDARS® and ICS® reciprocal deposits totaling $2.01 billion, which were not classified as brokered deposits. We continue to utilize brokered deposits as a tool for us to manage our cost of funds and to efficiently match changes in our liquidity needs based on our loan growth with our deposit balances. As of June 30, 2021, brokered deposits were approximately 11% of total deposits. For additional information on our deposits, refer to Note 5, Deposits, to our unaudited condensed consolidated financial statements.
Borrowings
Deposits are the primary source of funds for our lending and investment activities, as well as the Bank’s general business purposes. As an alternative source of liquidity, we may obtain advances from the FHLB of Pittsburgh, sell investment securities subject to our obligation to repurchase them, purchase federal funds or engage in overnight borrowings from the FHLB or our correspondent banks.
The following table presents certain information with respect to our outstanding borrowings, as of June 30, 2021 and December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Amount
|
Interest Rate
|
Maximum Balance at Any Month End
|
Average
Balance During the Period
|
Maximum
Original Term
|
|
Amount
|
Interest Rate
|
Maximum Balance at Any Month End
|
Average
Balance During the Period
|
Maximum
Original Term
|
|
FHLB borrowings
|
$
|
250,000
|
|
0.30%
|
$
|
250,000
|
|
$
|
251,933
|
|
12 months
|
|
$
|
300,000
|
|
0.35%
|
$
|
480,000
|
|
$
|
330,314
|
|
12 months
|
|
Line of credit borrowings
|
—
|
|
—%
|
5,200
|
|
2,282
|
|
12 months
|
|
5,000
|
|
4.25%
|
30,000
|
|
6,243
|
|
12 months
|
|
Subordinated notes payable
|
97,500
|
|
5.75%
|
97,500
|
|
97,500
|
|
10 years
|
|
97,500
|
|
5.75%
|
97,500
|
|
60,246
|
|
10 years
|
|
Total borrowings outstanding
|
$
|
347,500
|
|
1.83%
|
$
|
352,700
|
|
$
|
351,715
|
|
|
|
$
|
402,500
|
|
1.71%
|
$
|
607,500
|
|
$
|
396,803
|
|
|
In 2020, the Company completed underwritten public offerings of subordinated notes due 2030, raising aggregate proceeds of $97.5 million. The subordinated notes have a term of 10 years at a fixed-to-floating rate of 5.75%. The subordinated notes constitute Tier 2 capital for the Company under federal regulatory capital rules.
The Company previously entered into cash flow hedge transactions to establish the interest rate paid on $250.0 million of its FHLB borrowings at varying effective rates and maturities. For additional information on the detail of each cash flow hedge transaction, refer to Note 10, Derivatives and Hedging Activity, to our unaudited condensed consolidated financial statements.
Liquidity
We evaluate liquidity both at the holding company level and at the Bank level. As of June 30, 2021, the Bank and Chartwell represent our only material assets. Our primary sources of funds at the parent company level are cash on hand, dividends paid to us from Chartwell, availability on our line of credit, and the net proceeds from the issuance of our debt and/or equity securities. As of June 30, 2021, our primary liquidity needs at the parent company level were the quarterly dividends on our preferred stock, interest payments on our subordinated debt and other borrowings, and share repurchases related to the net settlement of equity awards exercised or vested. All other liquidity needs were minimal and related to reimbursing the Bank for management, accounting and financial reporting services provided by Bank personnel. During the six months ended June 30, 2021, the parent company paid $3.9 million related to our preferred stock dividends, $2.8 million related to interest payments on our subordinated notes payable and other borrowings, and $1.6 million in purchases of treasury shares in connection with the net settlement of equity awards exercised or vested. During the six months ended June 30, 2020, the parent company paid $5.2 million related to our share repurchase and stock cancellation programs and $3.9 million related to our preferred stock dividends. We believe that our cash on hand at the parent company level, coupled with the dividend paying capacity of the Bank and Chartwell, were adequate to fund any foreseeable parent company obligations as of June 30, 2021. In addition, we maintain an unsecured line of credit with Huntington National Bank. As of June 30, 2021, the unsecured line was $75.0 million, of which the full amount was available for borrowing.
Our primary goal in liquidity management at the Bank level is to satisfy the cash flow requirements of depositors and borrowers, as well as our operating cash needs. These requirements include the payment of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, the payment of our ordinary business obligations, the ability to fund new and existing loans and other funding commitments or arrangements, and the ability to take advantage of new business opportunities. Our ALCO, which
includes members of executive management, has established an asset/liability management policy designed to achieve and maintain earnings performance consistent with long-term goals while maintaining acceptable levels of interest rate risk, well capitalized regulatory status and adequate levels of liquidity. The ALCO has also established a contingency funding plan to address liquidity stress conditions. The ALCO is designated as the body responsible for the monitoring and implementation of these policies. The ALCO reviews liquidity on a frequent basis and approves significant changes in strategies that affect balance sheet or cash flow positions.
Sources of asset liquidity are cash, interest-earning deposits with other banks, federal funds sold, certain unpledged debt and equity securities, loan repayments (scheduled and unscheduled) and future earnings. Sources of liability liquidity include a stable deposit base, the ability to renew maturing certificates of deposit, borrowing availability at the FHLB of Pittsburgh, unsecured lines with other financial institutions, access to reciprocal CDARS® and ICS® deposits and brokered deposits, and the ability to raise debt and equity. Customer deposits, which are an important source of liquidity, depend on the confidence of customers in us. Deposits are supported by our capital position and, up to applicable limits, the protection provided by FDIC insurance.
We measure and monitor liquidity on an ongoing basis, which allows us to more effectively understand and react to trends in our balance sheet. In addition, the ALCO uses a variety of methods to monitor our liquidity position and liquidity needs, including a liquidity gap, which measures potential sources and uses of funds over future periods. We have established policy guidelines for a variety of liquidity-related performance metrics, such as net loans to deposits, brokered funding composition, cash to total loans and duration of certificates of deposit, among others, all of which are utilized in measuring and managing our liquidity position. The ALCO performs contingency funding and capital stress analyses at least annually to determine our ability to meet potential liquidity and capital needs under various stress scenarios.
Our strong liquidity position is due to our ability to generate strong growth in deposits, which is evidenced by our ratio of total deposits to total assets of 88.3% and 85.8% as of June 30, 2021 and December 31, 2020, respectively. Our ratio of average deposits to average assets increased to 87.2% for the six months ended June 30, 2021, from 85.7% for the same period in 2020. As of June 30, 2021, we had available liquidity of $2.49 billion, or 21.6% of total assets. These sources consisted of available cash totaling $418.1 million, unpledged investment securities totaling $1.24 billion, or 10.8% of total assets, and the ability to borrow from the FHLB and correspondent bank lines totaling $826.3 million, or 7.2% of total assets. Available cash excludes cash posted as collateral for derivative and letter of credit transactions and the reserve balance requirement at the Federal Reserve.
The following table shows our available liquidity, by source, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
|
Available cash
|
$
|
418,090
|
|
$
|
271,090
|
|
|
Certain unpledged debt securities
|
1,243,938
|
|
793,658
|
|
|
Net borrowing capacity
|
826,292
|
|
704,082
|
|
|
Total liquidity
|
$
|
2,488,320
|
|
$
|
1,768,830
|
|
Investing activities resulted in a net cash outflow of $1.59 billion for the six months ended June 30, 2021, as compared to a net cash outflow of $944.6 million for the same period in 2020. The outflows for the six months ended June 30, 2021, were primarily due to net loan growth of $1.05 billion and purchases of investment securities totaling $775.9 million, partially offset by the proceeds from the sale, principal repayments and maturities from investment securities totaling $272.3 million. The outflows for the six months ended June 30, 2020, included net loan growth of $593.0 million and purchases of investment securities totaling $688.3 million, partially offset by the proceeds from the sale, principal repayments and maturities from investment securities totaling $332.7 million.
Financing activities resulted in a net inflow of $1.64 billion for the six months ended June 30, 2021, compared to a net inflow of $1.23 billion for the same period in 2020. The inflows for the six months ended June 30, 2021, were primarily a result of a net increase in deposits of $1.70 billion, partially offset by a net decrease in FHLB borrowings of $50.0 million. The inflows for the six months ended June 30, 2020, included a net increase in deposits of $1.20 billion and net proceeds of $95.5 million from the issuance of subordinated notes payable, partially offset by a net decrease in FHLB borrowings of $55.0 million.
Capital Resources
The access to and cost of funding for new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance costs and the level and nature of regulatory oversight depend, in part, on our capital position. The Company filed a registration statement on Form S-3 with the SEC on December 26, 2019, which provides a means to allow us to issue registered securities to finance our growth objectives.
The assessment of capital adequacy depends on a number of factors, including loan composition, asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to our current operations and to promote public confidence in our Company.
Shareholders’ Equity. Shareholders’ equity was $794.6 million as of June 30, 2021, compared to $757.1 million as of December 31, 2020. The $37.4 million increase during the six months ended June 30, 2021, was primarily attributable to net income of $35.0 million, $5.4 million in stock-based compensation and $2.1 million in accumulated other comprehensive income, partially offset by preferred stock dividends of $3.9 million and an increase of $1.6 million in treasury stock related to the net settlement of equity awards exercised or vested.
On December 30, 2020, the Company completed the private placement of securities pursuant to an Investment Agreement, dated October 10, 2020 and amended December 9, 2020, with T-VIII PubOpps LP (“T-VIII PubOpps”), an affiliate of investment funds managed by Stone Point Capital LLC. Pursuant to the Investment Agreement, the Company sold to T-VIII PubOpps (i) 2,770,083 shares of voting common stock for $40.0 million, (ii) 650 shares of Series C Preferred Stock for $65.0 million, and (iii) warrants to purchase up to 922,438 shares of voting common stock or non-voting common stock at an exercise price of $17.50 per share. After two years, the Series C Preferred Stock is convertible into shares of non-voting common stock or, when transferred under certain limited circumstances to a holder other than an affiliate of Stone Point Capital LLC, voting common stock, at a price of $13.75 per share. The Series C Preferred Stock has a liquidation preference of $100,000 per share, and is entitled to receive, when, as and if declared by the Board of Directors of the Company (“Board”), dividends at a rate of 6.75% per annum for each quarterly dividend period, payable in arrears in cash or additional shares of Series C Preferred Stock. The Company does not have redemption rights with respect to the Series C Preferred Stock.
The Company received gross proceeds of $105.0 million at the closing of the private placement, and may receive up to an additional $16.1 million if the warrants are exercised in full. The net proceeds were recorded to shareholders’ equity at December 31, 2020, and allocated to the three equity instruments issued using the relative fair value method applied to the common stock, and the preferred stock, and to the warrants issued which were recorded to additional paid-in capital. The net proceeds constitute Tier 1 capital for the Company under federal regulatory capital rules.
Regulatory Capital. As of June 30, 2021 and December 31, 2020, TriState Capital Holdings, Inc. and TriState Capital Bank were in compliance with all applicable regulatory capital requirements, and TriState Capital Bank was categorized as well capitalized for purposes of the FDIC’s prompt corrective action regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease. However, we will monitor our capital in order to remain categorized as well capitalized under the applicable regulatory guidelines and in compliance with all regulatory capital standards applicable to us. The capital conservation buffer requirement is a CET 1 capital to risk-weighted assets ratio of 2.5% or more, in addition to the minimum risk-based capital adequacy levels shown in the tables below. As of June 30, 2021 and December 31, 2020, both the Company and the Bank were above the capital conservation buffer levels required to avoid limitations on capital distributions and discretionary bonus payments.
In 2020, U.S. federal regulatory authorities issued a final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay the impact of CECL on regulatory capital for up to two years, beginning January 1, 2020, followed by a three-year transition period. The Company elected to utilize the two-year delay of CECL’s impact on its regulatory capital, from January 1, 2020 through December 31, 2021, followed by the three-year transition period of CECL impact on regulatory capital, from January 1, 2022 through December 31, 2024.
The following tables present the actual capital amounts and regulatory capital ratios for the Company and the Bank as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Actual
|
|
For Capital Adequacy Purposes
|
|
To be Well Capitalized Under Prompt Corrective Action Provisions
|
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Total risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
868,225
|
|
13.94
|
%
|
|
$
|
498,423
|
|
8.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
823,458
|
|
13.26
|
%
|
|
$
|
496,642
|
|
8.00
|
%
|
|
$
|
620,802
|
|
10.00
|
%
|
|
Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
743,882
|
|
11.94
|
%
|
|
$
|
373,817
|
|
6.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
794,715
|
|
12.80
|
%
|
|
$
|
372,481
|
|
6.00
|
%
|
|
$
|
496,642
|
|
8.00
|
%
|
|
Common equity tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
564,539
|
|
9.06
|
%
|
|
$
|
280,363
|
|
4.50
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
794,715
|
|
12.80
|
%
|
|
$
|
279,361
|
|
4.50
|
%
|
|
$
|
403,521
|
|
6.50
|
%
|
|
Tier 1 leverage ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
743,882
|
|
6.86
|
%
|
|
$
|
433,567
|
|
4.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
794,715
|
|
7.34
|
%
|
|
$
|
432,885
|
|
4.00
|
%
|
|
$
|
541,106
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Actual
|
|
For Capital Adequacy Purposes
|
|
To be Well Capitalized Under Prompt Corrective Action Provisions
|
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Total risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
833,819
|
|
14.12
|
%
|
|
$
|
472,267
|
|
8.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
789,273
|
|
13.41
|
%
|
|
$
|
470,820
|
|
8.00
|
%
|
|
$
|
588,525
|
|
10.00
|
%
|
|
Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
707,711
|
|
11.99
|
%
|
|
$
|
354,200
|
|
6.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
758,658
|
|
12.89
|
%
|
|
$
|
353,115
|
|
6.00
|
%
|
|
$
|
470,820
|
|
8.00
|
%
|
|
Common equity tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
530,568
|
|
8.99
|
%
|
|
$
|
265,650
|
|
4.50
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
758,658
|
|
12.89
|
%
|
|
$
|
264,836
|
|
4.50
|
%
|
|
$
|
382,542
|
|
6.50
|
%
|
|
Tier 1 leverage ratio
|
|
|
|
|
|
|
|
|
|
Company
|
$
|
707,711
|
|
7.29
|
%
|
|
$
|
388,408
|
|
4.00
|
%
|
|
N/A
|
N/A
|
|
Bank
|
$
|
758,658
|
|
7.83
|
%
|
|
$
|
387,626
|
|
4.00
|
%
|
|
$
|
484,533
|
|
5.00
|
%
|
Contractual Obligations and Commitments
There were no material changes to contractual obligations during the six months ended June 30, 2021, that were outside the ordinary course of business.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various transactions that are not included in our consolidated balance sheets in accordance with GAAP. These transactions include commitments to extend credit in the ordinary course of business to approved customers.
Unfunded loan commitments and demand line of credit availability, including standby letters of credit, are recorded on our statement of financial condition as they are funded. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Our measure of unfunded loan commitments and demand line of credit availability include unused availability under demand loans for our private banking lines secured by cash, marketable securities and/or cash value life insurance, as well as commitments to fund loans secured by residential properties, commercial real estate, construction loans, business lines of credit and other unused commitments of loans in various stages of funding. Not all commitments will fund or fully fund as customers
often only draw on a portion of their available credit and we continuously monitor utilization of our unfunded lines of credit and on both commercial and private banking loans. We believe that we maintain sufficient liquidity or otherwise have the ability to generate the liquidity necessary to fund anticipated draws under unused loan commitments of demand lines of credit.
Standby letters of credit are written conditional commitments issued by us to guarantee the performance of our customer to a third party. In the event our customer does not perform in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer.
We minimize our exposure to loss under loan commitments and standby letters of credit and unfunded demand lines of credit by subjecting them to credit approval and monitoring procedures. The effect on our revenues, expenses, cash flows and liquidity of the unused portions of these commitments cannot be reasonably predicted because, while the borrower has the ability to draw upon these commitments at any time under certain contractual agreements, these commitments often expire without being drawn. There is no guarantee that the lines of credit will be used.
The following table is a summary of the total notional amount of unused loan commitments and standby letters of credit commitments and unfunded demand lines of credit availability, based on the values of eligible collateral or other terms under the loan agreement, by contractual maturities outstanding as of the date indicated.