Condensed Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
Washington Trust Bancorp, Inc. (the “Bancorp”) is a publicly-owned registered bank holding company that has elected to be a financial holding company. The Bancorp’s subsidiaries include The Washington Trust Company, of Westerly (the “Bank”), a Rhode Island chartered financial institution founded in 1800, and Weston Securities Corporation (“WSC”). Through its subsidiaries, the Bancorp offers a complete product line of financial services, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, eastern Massachusetts and Connecticut.
The Unaudited Consolidated Financial Statements include the accounts of the Bancorp and its subsidiaries (collectively the “Corporation” or “Washington Trust”). All intercompany balances and transactions have been eliminated in consolidation.
The Bancorp also owns the common stock of two capital trusts, which have issued trust preferred securities. These capital trusts are variable interest entities in which the Bancorp is not the primary beneficiary and, therefore, are not consolidated. The capital trust’s only assets are junior subordinated debentures issued by the Bancorp, which were acquired by the capital trusts using the proceeds from the issuance of the trust preferred securities and common stock. The Bancorp’s equity interest investment in the capital trusts, which is classified in other assets, and the junior subordinated debentures are included in the Unaudited Consolidated Balance Sheets. Interest expense on the junior subordinated debentures is included in the Unaudited Consolidated Statements of Income.
The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices of the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change are the determination of the allowance for credit losses on loans, the valuation of goodwill and identifiable intangible assets and the accounting for defined benefit pension plans.
The Unaudited Consolidated Financial Statements of the Corporation presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying Unaudited Consolidated Financial Statements have been included. Interim results are not necessarily indicative of the results of the entire year. The accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Note 2 - Recently Issued Accounting Pronouncements
Accounting Standards Adopted in 2021
Income Taxes - ASC 745
Accounting Standards Update No. 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), was issued in December 2019 to simplify the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Certain provisions under ASU 2019-12 require prospective application, some require modified retrospective application through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, while other provisions require retrospective application to all periods presented in the consolidated financial statements upon adoption. The Corporation adopted the provisions of ASU 2019-12 effective January 1, 2021 and the adoption did not have a material impact on the Corporation’s consolidated financial statements.
Receivables - ASC 310
Accounting Standards Update No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”), was issued in October 2020 to provide further clarification and update the previously issued guidance in ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20: Premium Amortization on Purchased Callable Debt Securities” (“ASU 2017-08”). ASU 2017-08 shortened the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. The Corporation early adopted the provisions of ASU 2017-08, effective January 1, 2017. ASU 2020-08 requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
repayable by the issuer at the next call date, the excess premium shall be amortized to the next call date. ASU 2020-08 is effective for fiscal years ending after December 15, 2020 and early adoption is not permitted. The provisions under ASU 2020-08 are required to be applied prospectively. The Corporation adopted the provisions of ASU 2020-08 effective January 1, 2020 and the adoption did not have an impact on the Corporation’s consolidated financial statements.
Accounting Standards Pending Adoption
There were no recently issued accounting pronouncements, applicable to the Corporation, that are pending adoption as of June 30, 2021.
Note 3 - Cash and Due from Banks
The Bank maintains certain average reserve balances to meet the requirements of the Federal Reserve Bank of Boston (“FRB”). Some or all of these reserve requirements may be satisfied with vault cash. Effective March 26, 2020, the FRB reduced the reserve requirement ratios to zero percent to eliminate the need for depository institutions, such as the Bank, to maintain balances in accounts at the FRB to satisfy reserve requirements. As a result, there were no reserve balances included in cash and due from banks in the Unaudited Consolidated Balance Sheets at June 30, 2021 and December 31, 2020.
Cash and due from banks included interest-bearing deposits in other banks of $93.9 million and $138.4 million, respectively, at June 30, 2021 and December 31, 2020.
See Note 10 for additional disclosure regarding cash collateral pledged to derivative counterparties.
Note 4 - Securities
Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses, allowance for credit losses (“ACL”) on securities and fair value of securities by major security type and class of security:
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(Dollars in thousands)
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June 30, 2021
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Amortized Cost
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Unrealized Gains
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Unrealized Losses
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Allowance for Credit Losses
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Fair Value
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Available for Sale Debt Securities:
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Obligations of U.S. government-sponsored enterprises
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$186,051
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$248
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($2,044)
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$—
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$184,255
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Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
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841,102
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10,009
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(6,075)
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—
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845,036
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Individual name issuer trust preferred debt securities
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11,360
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—
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(294)
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—
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11,066
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Corporate bonds
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13,148
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—
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(928)
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—
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12,220
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Total available for sale debt securities
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$1,051,661
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$10,257
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($9,341)
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$—
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$1,052,577
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(Dollars in thousands)
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December 31, 2020
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Amortized Cost
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Unrealized Gains
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Unrealized Losses
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Allowance for Credit Losses
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Fair Value
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Available for Sale Debt Securities:
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Obligations of U.S. government-sponsored enterprises
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$131,186
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$628
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($145)
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$—
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$131,669
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Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
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725,890
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14,942
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(527)
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—
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740,305
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Individual name issuer trust preferred debt securities
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13,341
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—
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(672)
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—
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12,669
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Corporate bonds
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11,153
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—
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(1,225)
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—
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9,928
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Total available for sale debt securities
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$881,570
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$15,570
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($2,569)
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$—
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$894,571
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Amortized cost of available for sale debt securities excludes accrued interest receivable of $2.6 million and $2.4 million, respectively, as of June 30, 2021 and December 31, 2020. Accrued interest receivable is included in other assets in the Unaudited Consolidated Balance Sheets.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
As of June 30, 2021 and December 31, 2020, debt securities with a fair value of $333.5 million and $291.9 million, respectively, were pledged as collateral for Federal Home Loan Bank of Boston (“FHLB”) borrowings, potential borrowings with the FRB’s discount window, certain public deposits and for other purposes. See Note 8 for additional disclosure on FHLB borrowings.
The schedule of maturities of available for sale debt securities is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments. All other debt securities are included based on contractual maturities. Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties.
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(Dollars in thousands)
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June 30, 2021
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Amortized Cost
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Fair Value
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Due in one year or less
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$182,321
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$183,170
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Due after one year to five years
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420,900
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422,554
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Due after five years to ten years
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358,203
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356,788
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Due after ten years
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90,237
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90,065
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Total debt securities
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$1,051,661
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$1,052,577
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Included in the above table are debt securities with an amortized cost balance of $209.8 million and a fair value of $206.7 million at June 30, 2021 that are callable at the discretion of the issuers. Final maturities of the callable securities range from 3 years to 16 years, with call features ranging from 1 month to 1 year.
Assessment of Available for Sale Debt Securities for Impairment
Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer. Management evaluates both qualitative and quantitative factors to assess whether an impairment exists.
A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. There were no debt securities on nonaccrual status at June 30, 2021 and 2020 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three and six months ended June 30, 2021 and 2020.
The following tables summarize available for sale debt securities in an unrealized loss position, for which an allowance for credit losses on securities has not been recorded, segregated by length of time that the securities have been in a continuous unrealized loss position:
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(Dollars in thousands)
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Less than 12 Months
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12 Months or Longer
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Total
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June 30, 2021
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#
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Fair
Value
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Unrealized
Losses
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#
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Fair
Value
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Unrealized
Losses
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#
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Fair
Value
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Unrealized
Losses
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Obligations of U.S. government-sponsored enterprises
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10
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$102,856
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($2,044)
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—
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$—
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$—
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10
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$102,856
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($2,044)
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Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
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41
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441,852
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(5,962)
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2
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6,349
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(113)
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43
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448,201
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(6,075)
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Individual name issuer trust preferred debt securities
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—
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—
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—
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4
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11,066
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(294)
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4
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11,066
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(294)
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Corporate bonds
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—
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—
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—
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4
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12,220
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(928)
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4
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12,220
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(928)
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Total
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51
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$544,708
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($8,006)
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10
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$29,635
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($1,335)
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61
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$574,343
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($9,341)
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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
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(Dollars in thousands)
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Less than 12 Months
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12 Months or Longer
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Total
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December 31, 2020
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#
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Fair
Value
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Unrealized
Losses
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#
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Fair
Value
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Unrealized
Losses
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#
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Fair
Value
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Unrealized
Losses
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Obligations of U.S. government-sponsored enterprises
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6
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$63,856
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($145)
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—
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$—
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$—
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6
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$63,856
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($145)
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Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
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16
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107,283
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(527)
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—
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—
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—
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16
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107,283
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(527)
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Individual name issuer trust preferred debt securities
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—
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—
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—
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5
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12,669
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(672)
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5
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12,669
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(672)
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Corporate bonds
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—
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—
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—
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3
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9,928
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(1,225)
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3
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9,928
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(1,225)
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Total
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22
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$171,139
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($672)
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8
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$22,597
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($1,897)
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|
30
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$193,736
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($2,569)
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Deterioration in credit quality of the underlying issuers of the securities, deterioration in the condition of the financial services industry, worsening of the current economic environment, or declines in real estate values, among other things, may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as credit losses, and the Corporation may incur write-downs.
Obligations of U.S. Government Agency and U.S. Government-Sponsored Enterprise Securities, including Mortgage-Backed Securities
The gross unrealized losses on U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities, were primarily attributable to relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at June 30, 2021. Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, no allowance for credits losses on securities was recorded at June 30, 2021.
Individual Name Issuer Trust Preferred Debt Securities
Included in debt securities in an unrealized loss position at June 30, 2021 were four trust preferred securities issued by four individual companies in the banking sector. Based on the information available through the filing date of this report, all individual name issuer trust preferred debt securities held in our portfolio continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information. As of June 30, 2021, there were two individual name issuer trust preferred debt securities with an amortized cost of $4.0 million and unrealized losses of $169 thousand that were rated below investment grade by Standard & Poors, Inc. (“S&P”). We noted no additional downgrades to below investment grade between June 30, 2021 and the filing date of this report. Management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the debt securities. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, no allowance for credit losses on securities was recorded at June 30, 2021.
Corporate Bonds
At June 30, 2021, the Corporation had four corporate bond holdings with unrealized losses totaling $928 thousand. These investment grade corporate bonds were issued by large corporations in the financial services industry. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at June 30, 2021. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information. Management believes the unrealized losses on these debt securities are primarily attributable to changes in
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
the investment spreads and interest rates and not changes in the credit quality of the issuers of the debt securities. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, no allowance for credit losses was recorded at June 30, 2021.
Note 5 - Loans
The following is a summary of loans:
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(Dollars in thousands)
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June 30,
2021
|
December 31, 2020
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Commercial:
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Commercial real estate (1)
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$1,669,624
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$1,633,024
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Commercial & industrial (2)
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764,509
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|
817,408
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Total commercial
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2,434,133
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|
2,450,432
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Residential Real Estate:
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Residential real estate (3)
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1,590,389
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|
1,467,312
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Consumer:
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Home equity
|
254,802
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|
259,185
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Other (4)
|
20,476
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|
19,061
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Total consumer
|
275,278
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|
278,246
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|
Total loans (5)
|
$4,299,800
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|
$4,195,990
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(1)Commercial real estate (“CRE”) consists of commercial mortgages primarily secured by income-producing property, as well as construction and development loans. Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings.
(2)Commercial and industrial (“C&I”) consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by real estate. C&I also includes $147.0 million and $199.8 million, respectively, of PPP loans as of June 30, 2021 and December 31, 2020.
(3)Residential real estate consists of mortgage and homeowner construction loans secured by one- to four-family residential properties.
(4)Other consists of loans to individuals secured by general aviation aircraft and other personal installment loans.
(5)Includes net unamortized loan origination costs of $2.1 million and $1.5 million, respectively, at June 30, 2021 and December 31, 2020 and net unamortized premiums on purchased loans of $558 thousand and $787 thousand, respectively, at June 30, 2021 and December 31, 2020.
Loan balances exclude accrued interest receivable of $11.5 million and $11.3 million, respectively, as of June 30, 2021 and December 31, 2020. Accrued interest receivable is included in other assets in the Unaudited Consolidated Balance Sheets.
As of June 30, 2021 and December 31, 2020, loans amounting to $2.0 billion and $2.1 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB. See Note 8 for additional disclosure regarding borrowings.
Loan Modifications Under the CARES Act
The Corporation has elected to account for eligible loan modifications under Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), as amended by the Coronavirus Response and Relief Supplemental Appropriations Act (the “CRRSA Act”). To be eligible, a loan modification must be (1) related to the COVID-19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”) or (B) January 1, 2022. Eligible loan modifications are not required to be classified as troubled debt restructurings (“TDRs”) and are not reported as past due provided that they are performing in accordance with the modified terms. Interest income will continue to be recognized unless the loan is placed on nonaccrual status in accordance with the nonaccrual loans accounting policy described below.
Washington Trust has processed loan payment deferral modifications, or "deferments", on 654 loans totaling $728 million since the beginning of the second quarter of 2020, in response to the COVID-19 pandemic The majority of these deferments qualified as eligible loan modifications under Section 4013 of the CARES Act, as amended. As of June 30, 2021, we had active deferments on 22 loans totaling $93.4 million, or 2% of total loans excluding Paycheck Protection Program (“PPP”) loans.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Concentrations of Credit Risk
A significant portion of our loan portfolio is concentrated among borrowers in southern New England and a substantial portion of the portfolio is collateralized by real estate in this area. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in the Corporation’s market area.
Past Due Loans
Past due status is based on the contractual payment terms of the loan. The following tables present an age analysis of loans, segregated by class of loans:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Days Past Due
|
|
|
|
|
|
|
June 30, 2021
|
30-59
|
|
60-89
|
|
Over 90
|
|
Total Past Due
|
|
Current
|
|
Total Loans
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$1,669,624
|
|
|
$1,669,624
|
|
Commercial & industrial
|
1
|
|
|
—
|
|
|
539
|
|
|
540
|
|
|
763,969
|
|
|
764,509
|
|
Total commercial
|
1
|
|
|
—
|
|
|
539
|
|
|
540
|
|
|
2,433,593
|
|
|
2,434,133
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
3,055
|
|
|
—
|
|
|
3,601
|
|
|
6,656
|
|
|
1,583,733
|
|
|
1,590,389
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
595
|
|
|
212
|
|
|
424
|
|
|
1,231
|
|
|
253,571
|
|
|
254,802
|
|
Other
|
24
|
|
|
4
|
|
|
—
|
|
|
28
|
|
|
20,448
|
|
|
20,476
|
|
Total consumer
|
619
|
|
|
216
|
|
|
424
|
|
|
1,259
|
|
|
274,019
|
|
|
275,278
|
|
Total loans
|
$3,675
|
|
|
$216
|
|
|
$4,564
|
|
|
$8,455
|
|
|
$4,291,345
|
|
|
$4,299,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Days Past Due
|
|
|
|
|
|
|
December 31, 2020
|
30-59
|
|
60-89
|
|
Over 90
|
|
Total Past Due
|
|
Current
|
|
Total Loans
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$265
|
|
|
$—
|
|
|
$—
|
|
|
$265
|
|
|
$1,632,759
|
|
|
$1,633,024
|
|
Commercial & industrial
|
1
|
|
|
2
|
|
|
—
|
|
|
3
|
|
|
817,405
|
|
|
817,408
|
|
Total commercial
|
266
|
|
|
2
|
|
|
—
|
|
|
268
|
|
|
2,450,164
|
|
|
2,450,432
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
4,466
|
|
|
701
|
|
|
5,172
|
|
|
10,339
|
|
|
1,456,973
|
|
|
1,467,312
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
894
|
|
|
129
|
|
|
644
|
|
|
1,667
|
|
|
257,518
|
|
|
259,185
|
|
Other
|
23
|
|
|
7
|
|
|
88
|
|
|
118
|
|
|
18,943
|
|
|
19,061
|
|
Total consumer
|
917
|
|
|
136
|
|
|
732
|
|
|
1,785
|
|
|
276,461
|
|
|
278,246
|
|
Total loans
|
$5,649
|
|
|
$839
|
|
|
$5,904
|
|
|
$12,392
|
|
|
$4,183,598
|
|
|
$4,195,990
|
|
Included in past due loans as of June 30, 2021 and December 31, 2020, were nonaccrual loans of $5.8 million and $8.5 million, respectively.
All loans 90 days or more past due at June 30, 2021 and December 31, 2020 were classified as nonaccrual.
Nonaccrual Loans
Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management. Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. When loans are placed on nonaccrual status, interest previously accrued but not collected is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible.
The following table presents the carrying value of nonaccrual loans:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Jun 30,
2021
|
Dec 31,
2020
|
Commercial:
|
|
|
Commercial real estate
|
$—
|
|
$—
|
|
Commercial & industrial
|
539
|
|
—
|
|
Total commercial
|
539
|
|
—
|
|
Residential Real Estate:
|
|
|
Residential real estate
|
8,926
|
|
11,981
|
|
Consumer:
|
|
|
Home equity
|
1,016
|
|
1,128
|
|
Other
|
—
|
|
88
|
|
Total consumer
|
1,016
|
|
1,216
|
|
Total nonaccrual loans
|
$10,481
|
|
$13,197
|
|
Accruing loans 90 days or more past due
|
$—
|
|
$—
|
|
Nonaccrual loans of $4.7 million at both June 30, 2021 and December 31, 2020 were current as to the payment of principal and interest.
No ACL was deemed necessary on nonaccrual loans with a carrying value of $3.7 million and $3.0 million, respectively, as of June 30, 2021 and December 31, 2020.
As of June 30, 2021 and December 31, 2020, nonaccrual loans secured by one- to four-family residential property amounting to $2.5 million and $3.4 million, respectively, were in process of foreclosure.
There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2021.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents interest income recognized on nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Three Months
|
|
Six Months
|
|
|
|
|
|
|
Periods ended June 30,
|
2021
|
2020
|
|
2021
|
2020
|
Commercial:
|
|
|
|
|
|
Commercial real estate
|
$—
|
|
$—
|
|
|
$—
|
|
$—
|
|
Commercial & industrial
|
—
|
|
—
|
|
|
5
|
|
—
|
|
Total commercial
|
—
|
|
—
|
|
|
5
|
|
—
|
|
Residential Real Estate:
|
|
|
|
|
|
Residential real estate
|
72
|
|
103
|
|
|
129
|
|
271
|
|
Consumer:
|
|
|
|
|
|
Home equity
|
13
|
|
17
|
|
|
36
|
|
40
|
|
Other
|
—
|
|
—
|
|
|
—
|
|
—
|
|
Total consumer
|
13
|
|
17
|
|
|
36
|
|
40
|
|
Total
|
$85
|
|
$120
|
|
|
$170
|
|
$311
|
|
Troubled Debt Restructurings
A loan that has been modified or renewed is considered to be a TDR when two conditions are met: (1) the borrower is experiencing financial difficulty and (2) concessions are made for the borrower’s benefit that would not otherwise be considered for a borrower or a transaction with similar credit risk characteristics. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection.
The Corporation's ACL reflects the effects of a TDR when management reasonably expects at the reporting date that a TDR will be executed with an individual borrower. A TDR is considered reasonably expected no later than the point when management concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession to avoid a default. Reasonably expected TDRs and executed TDRs are evaluated individually to determine the required ACL. TDRs that did not involve a below-market rate concession and perform in accordance with their modified contractual terms for a reasonable period of time may be included in the Corporation’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.
TDRs are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan. Loans that are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status. Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term and full collection of principal and interest is in doubt.
TDRs are reported as such for at least one year from the date of the restructuring. In years after the restructuring, TDRs are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is performing in accordance with their modified contractual terms for a reasonable period of time.
The recorded investment in TDRs consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs. For accruing TDRs, the recorded investment also includes accrued interest.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents the recorded investment in TDRs and other pertinent information:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Jun 30,
2021
|
Dec 31,
2020
|
Accruing TDRs
|
$8,619
|
|
$13,418
|
|
Nonaccrual TDRs
|
2,278
|
|
2,345
|
|
Total TDRs
|
$10,897
|
|
$15,763
|
|
|
|
|
Specific reserves on TDRs included in the ACL on loans
|
$233
|
|
$159
|
|
Additional commitments to lend to borrowers with TDRs
|
$—
|
|
$—
|
|
The following tables present TDRs occurring during the period indicated and the recorded investment pre- and post- modification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Outstanding Recorded Investment
|
|
# of Loans
|
|
Pre-Modifications
|
|
Post-Modifications
|
Three months ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
—
|
|
|
1
|
|
|
$—
|
|
|
$841
|
|
|
$—
|
|
|
$841
|
|
Commercial & industrial
|
—
|
|
|
2
|
|
|
—
|
|
|
460
|
|
|
—
|
|
|
460
|
|
Total commercial
|
—
|
|
|
3
|
|
|
—
|
|
|
1,301
|
|
|
—
|
|
|
1,301
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
—
|
|
|
6
|
|
|
—
|
|
|
3,512
|
|
|
—
|
|
|
3,512
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
—
|
|
|
3
|
|
|
—
|
|
|
802
|
|
|
—
|
|
|
802
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total consumer
|
—
|
|
|
3
|
|
|
$—
|
|
|
$802
|
|
|
$—
|
|
|
$802
|
|
Total
|
—
|
|
|
12
|
|
|
$—
|
|
|
$5,615
|
|
|
$—
|
|
|
$5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Outstanding Recorded Investment
|
|
# of Loans
|
|
Pre-Modifications
|
|
Post-Modifications
|
Six months ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
—
|
|
|
1
|
|
|
$—
|
|
|
$841
|
|
|
$—
|
|
|
$841
|
|
Commercial & industrial
|
—
|
|
|
2
|
|
|
—
|
|
|
460
|
|
|
—
|
|
|
460
|
|
Total commercial
|
—
|
|
|
3
|
|
|
—
|
|
|
1,301
|
|
|
—
|
|
|
1,301
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
—
|
|
|
6
|
|
|
—
|
|
|
3,512
|
|
|
—
|
|
|
3,512
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
—
|
|
|
3
|
|
|
—
|
|
|
802
|
|
|
—
|
|
|
802
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total consumer
|
—
|
|
|
3
|
|
|
$—
|
|
|
$802
|
|
|
$—
|
|
|
$802
|
|
Total
|
—
|
|
|
12
|
|
|
$—
|
|
|
$5,615
|
|
|
$—
|
|
|
$5,615
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents TDRs occurring during the period indicated by type of modification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Three Months
|
|
Six Months
|
Periods ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Below-market interest rate concession
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
Payment deferral
|
—
|
|
|
5,202
|
|
|
—
|
|
|
5,202
|
|
Maturity / amortization concession
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest only payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Combination (1)
|
—
|
|
|
413
|
|
|
—
|
|
|
413
|
|
|
|
|
|
|
|
|
|
Total
|
$—
|
|
|
$5,615
|
|
|
$—
|
|
|
$5,615
|
|
(1)Loans included in this classification were modified with a combination of any two of the concessions listed in this table.
The following tables present information on TDRs modified within the previous 12 months for which there was a payment default:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
# of Loans
|
|
Recorded Investment
|
Three months ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
TDRs with a Payment Default:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
—
|
|
|
1
|
|
|
$—
|
|
|
$47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
# of Loans
|
|
Recorded Investment
|
Six months ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
TDRs with a Payment Default:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
1
|
|
|
—
|
|
|
$396
|
|
|
$—
|
|
|
|
|
|
|
|
|
|
Home equity
|
—
|
|
|
1
|
|
|
—
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually Analyzed Loans
Individually analyzed loans include nonaccrual commercial loans, reasonably expected TDRs and executed TDRs, as well as certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans. As of June 30, 2021, the carrying value of individually analyzed loans amounted to $13.4 million, of which $4.3 million were considered collateral dependent. As of December 31, 2020, the carrying value of individually analyzed loans amounted to $18.3 million, of which $8.4 million were considered collateral dependent.
For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 11 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents the carrying value of collateral dependent individually analyzed loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Carrying Value
|
Related Allowance
|
|
Carrying Value
|
Related Allowance
|
Commercial:
|
|
|
|
|
|
Commercial real estate (1)
|
$—
|
|
$—
|
|
|
$1,792
|
|
$—
|
|
Commercial & industrial (2)
|
537
|
|
—
|
|
|
451
|
|
—
|
|
Total commercial
|
537
|
|
—
|
|
|
2,243
|
|
—
|
|
Residential Real Estate:
|
|
|
|
|
|
Residential real estate (3)
|
3,325
|
|
57
|
|
|
5,947
|
|
38
|
|
Consumer:
|
|
|
|
|
|
Home equity (3)
|
394
|
|
183
|
|
|
254
|
|
183
|
|
Other
|
—
|
|
—
|
|
|
—
|
|
—
|
|
Total consumer
|
394
|
|
183
|
|
|
254
|
|
183
|
|
Total
|
$4,256
|
|
$240
|
|
|
$8,444
|
|
$221
|
|
(1) Secured by income-producing property.
(2) Secured by business assets.
(3) Secured by one- to four-family residential properties.
Credit Quality Indicators
Commercial
The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan risk rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics. The Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for credit losses on loans. See Note 6 for additional information.
A description of the commercial loan categories is as follows:
Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature. Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality, but may exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, performance or may be in an industry or of a loan type known to have a higher degree of risk. These weaknesses may be mitigated by secondary sources of repayment, including Small Business Administration (“SBA”) guarantees.
Special Mention - Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate and frequent delinquencies.
Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset.
The Corporation’s procedures call for loan risk ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews a watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate, loans with active deferrals resulting from the COVID-19 pandemic, and other selected loans. Management’s review focuses on the current status of the loans, the appropriateness of risk ratings and strategies to improve the credit.
An annual credit review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio.
Residential and Consumer
Management monitors the relatively homogeneous residential real estate and consumer loan portfolios on an ongoing basis using delinquency information by loan type.
In addition, other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and home equity consumer loans. Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (“FICO”) score and an updated estimated loan to value (“LTV”) ratio. LTV is estimated based on such factors as geographic location, the original appraised value and changes in median home prices, and takes into consideration the age of the loan. The results of these analyses and other credit review procedures, including selected targeted internal reviews, are taken into consideration in the determination of qualitative loss factors for residential real estate and home equity consumer credits.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Term Loans Amortized Cost by Origination Year
|
|
|
|
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
Revolving Loans Amortized Cost
|
Revolving Loans Converted to Term Loans
|
Total
|
Commercial:
|
|
|
|
|
|
|
|
|
|
CRE:
|
|
|
|
|
|
|
|
|
|
Pass
|
$186,095
|
|
$256,609
|
|
$330,127
|
|
$214,239
|
|
$208,316
|
|
$348,282
|
|
$7,173
|
|
$2,334
|
|
$1,553,175
|
|
Special Mention
|
6,013
|
|
880
|
|
29,727
|
|
39,019
|
|
16,133
|
|
23,311
|
|
408
|
|
—
|
|
115,491
|
|
Classified
|
—
|
|
958
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
958
|
|
Total CRE
|
192,108
|
|
258,447
|
|
359,854
|
|
253,258
|
|
224,449
|
|
371,593
|
|
7,581
|
|
2,334
|
|
1,669,624
|
|
C&I:
|
|
|
|
|
|
|
|
|
|
Pass
|
137,678
|
|
133,756
|
|
108,668
|
|
92,357
|
|
53,552
|
|
104,976
|
|
102,733
|
|
1,127
|
|
734,847
|
|
Special Mention
|
—
|
|
—
|
|
678
|
|
4,682
|
|
6,528
|
|
13,257
|
|
1,186
|
|
—
|
|
26,331
|
|
Classified
|
—
|
|
537
|
|
—
|
|
—
|
|
—
|
|
2,792
|
|
—
|
|
2
|
|
3,331
|
|
Total C&I
|
137,678
|
|
134,293
|
|
109,346
|
|
97,039
|
|
60,080
|
|
121,025
|
|
103,919
|
|
1,129
|
|
764,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Current
|
386,456
|
|
412,948
|
|
196,129
|
|
117,079
|
|
112,458
|
|
358,663
|
|
—
|
|
—
|
|
1,583,733
|
|
Past Due
|
—
|
|
237
|
|
1,673
|
|
1,206
|
|
793
|
|
2,747
|
|
—
|
|
—
|
|
6,656
|
|
Total residential real estate
|
386,456
|
|
413,185
|
|
197,802
|
|
118,285
|
|
113,251
|
|
361,410
|
|
—
|
|
—
|
|
1,590,389
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
Home equity:
|
|
|
|
|
|
|
|
|
|
Current
|
6,059
|
|
7,919
|
|
5,261
|
|
3,041
|
|
1,260
|
|
4,258
|
|
216,565
|
|
9,208
|
|
253,571
|
|
Past Due
|
—
|
|
—
|
|
—
|
|
29
|
|
—
|
|
133
|
|
205
|
|
864
|
|
1,231
|
|
Total home equity
|
6,059
|
|
7,919
|
|
5,261
|
|
3,070
|
|
1,260
|
|
4,391
|
|
216,770
|
|
10,072
|
|
254,802
|
|
Other:
|
|
|
|
|
|
|
|
|
|
Current
|
4,865
|
|
4,887
|
|
1,508
|
|
1,069
|
|
871
|
|
6,987
|
|
261
|
|
—
|
|
20,448
|
|
Past Due
|
13
|
|
10
|
|
5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
28
|
|
Total other
|
4,878
|
|
4,897
|
|
1,513
|
|
1,069
|
|
871
|
|
6,987
|
|
261
|
|
—
|
|
20,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
$727,179
|
|
$818,741
|
|
$673,776
|
|
$472,721
|
|
$399,911
|
|
$865,406
|
|
$328,531
|
|
$13,535
|
|
$4,299,800
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Term Loans Amortized Cost by Origination Year
|
|
|
|
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Revolving Loans Amortized Cost
|
Revolving Loans Converted to Term Loans
|
Total
|
Commercial:
|
|
|
|
|
|
|
|
|
|
CRE:
|
|
|
|
|
|
|
|
|
|
Pass
|
$283,341
|
|
$353,875
|
|
$260,917
|
|
$236,310
|
|
$136,490
|
|
$249,359
|
|
$10,333
|
|
$2,386
|
|
$1,533,011
|
|
Special Mention
|
756
|
|
20,235
|
|
39,387
|
|
16,222
|
|
11,318
|
|
10,367
|
|
771
|
|
—
|
|
99,056
|
|
Classified
|
957
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
957
|
|
Total CRE
|
285,054
|
|
374,110
|
|
300,304
|
|
252,532
|
|
147,808
|
|
259,726
|
|
11,104
|
|
2,386
|
|
1,633,024
|
|
C&I:
|
|
|
|
|
|
|
|
|
|
Pass
|
293,493
|
|
95,775
|
|
98,146
|
|
56,792
|
|
44,445
|
|
91,128
|
|
95,817
|
|
1,296
|
|
776,892
|
|
Special Mention
|
1,123
|
|
722
|
|
3,210
|
|
6,839
|
|
3,141
|
|
14,853
|
|
3,806
|
|
56
|
|
33,750
|
|
Classified
|
403
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,363
|
|
—
|
|
—
|
|
6,766
|
|
Total C&I
|
295,019
|
|
96,497
|
|
101,356
|
|
63,631
|
|
47,586
|
|
112,344
|
|
99,623
|
|
1,352
|
|
817,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Current
|
463,477
|
|
253,228
|
|
146,839
|
|
155,976
|
|
128,139
|
|
309,314
|
|
—
|
|
—
|
|
1,456,973
|
|
Past Due
|
238
|
|
1,698
|
|
1,310
|
|
886
|
|
110
|
|
6,097
|
|
—
|
|
—
|
|
10,339
|
|
Total residential real estate
|
463,715
|
|
254,926
|
|
148,149
|
|
156,862
|
|
128,249
|
|
315,411
|
|
—
|
|
—
|
|
1,467,312
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
Home equity:
|
|
|
|
|
|
|
|
|
|
Current
|
9,838
|
|
6,771
|
|
3,898
|
|
1,474
|
|
1,217
|
|
3,955
|
|
219,085
|
|
11,280
|
|
257,518
|
|
Past Due
|
—
|
|
35
|
|
24
|
|
—
|
|
—
|
|
186
|
|
310
|
|
1,112
|
|
1,667
|
|
Total home equity
|
9,838
|
|
6,806
|
|
3,922
|
|
1,474
|
|
1,217
|
|
4,141
|
|
219,395
|
|
12,392
|
|
259,185
|
|
Other:
|
|
|
|
|
|
|
|
|
|
Current
|
5,214
|
|
2,241
|
|
1,237
|
|
1,544
|
|
548
|
|
7,850
|
|
308
|
|
1
|
|
18,943
|
|
Past Due
|
19
|
|
1
|
|
—
|
|
—
|
|
88
|
|
7
|
|
3
|
|
—
|
|
118
|
|
Total other
|
5,233
|
|
2,242
|
|
1,237
|
|
1,544
|
|
636
|
|
7,857
|
|
311
|
|
1
|
|
19,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
$1,058,859
|
|
$734,581
|
|
$554,968
|
|
$476,043
|
|
$325,496
|
|
$699,479
|
|
$330,433
|
|
$16,131
|
|
$4,195,990
|
|
Consistent with industry practice, Washington Trust may renew commercial loans at or immediately prior to their maturity. In the tables above, renewals subject to full credit evaluation before being granted are reported as originations in the period renewed.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Note 6 - Allowance for Credit Losses on Loans
The ACL on loans is management’s estimate of expected credit losses over the expected life of the loans at the reporting date. The level of the ACL on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the calculation of loss given default and the estimation of expected credit losses. Qualitative adjustments are made for differences in specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, that may not be reflected in historical loss rates.
In accordance with the ACL policy, the methodology is reviewed no less than annually. In the first quarter of 2021, management updated its ACL methodology for pooled loans to incorporate additional econometric factors in the determination of the probability of default for each loan portfolio segment. Econometric factors are selected based on the correlation of the factor to credit losses for each loan portfolio segment. Effective January 1, 2021, the following econometric factors are utilized in the determination of the probability of default for each loan portfolio segment: the national unemployment rate (“NUR”) and gross domestic product (“GDP”) econometric factors are utilized for the commercial real estate and other consumer loan portfolio segments; the NUR and national home price index (“HPI”) econometric factors are utilized for the residential real estate and home equity portfolio segments; and the NUR econometric factor is utilized for the commercial & industrial loan portfolio segment. Prior to January 1, 2021, solely the NUR was used in the determination of the probability of default for each loan portfolio segment.
The following table presents the activity in the ACL on loans for the three months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$21,297
|
|
$12,389
|
|
$33,686
|
|
$6,469
|
|
$1,431
|
|
$551
|
|
$1,982
|
|
$42,137
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
—
|
|
(303)
|
|
(303)
|
|
—
|
|
—
|
|
(14)
|
|
(14)
|
|
(317)
|
|
Recoveries
|
—
|
|
1
|
|
1
|
|
47
|
|
4
|
|
7
|
|
11
|
|
59
|
|
Provision
|
153
|
|
(370)
|
|
(217)
|
|
361
|
|
(95)
|
|
(49)
|
|
(144)
|
|
—
|
|
Ending Balance
|
$21,450
|
|
$11,717
|
|
$33,167
|
|
$6,877
|
|
$1,340
|
|
$495
|
|
$1,835
|
|
$41,879
|
|
The following table presents the activity in the ACL on loans for the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$22,065
|
|
$12,228
|
|
$34,293
|
|
$8,042
|
|
$1,300
|
|
$471
|
|
$1,771
|
|
$44,106
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
—
|
|
(306)
|
|
(306)
|
|
(50)
|
|
—
|
|
(25)
|
|
(25)
|
|
(381)
|
|
Recoveries
|
—
|
|
3
|
|
3
|
|
80
|
|
6
|
|
16
|
|
22
|
|
105
|
|
Provision
|
(615)
|
|
(208)
|
|
(823)
|
|
(1,195)
|
|
34
|
|
33
|
|
67
|
|
(1,951)
|
|
Ending Balance
|
$21,450
|
|
$11,717
|
|
$33,167
|
|
$6,877
|
|
$1,340
|
|
$495
|
|
$1,835
|
|
$41,879
|
|
The following table presents the activity in the allowance for loan losses for the three months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$19,736
|
|
$10,331
|
|
$30,067
|
|
$7,729
|
|
$1,435
|
|
$434
|
|
$1,869
|
|
$39,665
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
(19)
|
|
(289)
|
|
(308)
|
|
—
|
|
(1)
|
|
(17)
|
|
(18)
|
|
(326)
|
|
Recoveries
|
—
|
|
5
|
|
5
|
|
—
|
|
6
|
|
7
|
|
13
|
|
18
|
|
Provision
|
566
|
|
1,231
|
|
1,797
|
|
324
|
|
(46)
|
|
9
|
|
(37)
|
|
2,084
|
|
Ending Balance
|
$20,283
|
|
$11,278
|
|
$31,561
|
|
$8,053
|
|
$1,394
|
|
$433
|
|
$1,827
|
|
$41,441
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents the activity in the allowance for loan losses for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$14,741
|
|
$3,921
|
|
$18,662
|
|
$6,615
|
|
$1,390
|
|
$347
|
|
$1,737
|
|
$27,014
|
|
Adoption of ASC 326
|
3,405
|
|
3,029
|
|
6,434
|
|
221
|
|
(106)
|
|
(48)
|
|
(154)
|
|
6,501
|
|
Charge-offs
|
(172)
|
|
(583)
|
|
(755)
|
|
—
|
|
(174)
|
|
(32)
|
|
(206)
|
|
(961)
|
|
Recoveries
|
—
|
|
9
|
|
9
|
|
—
|
|
7
|
|
14
|
|
21
|
|
30
|
|
Provision
|
2,309
|
|
4,902
|
|
7,211
|
|
1,217
|
|
277
|
|
152
|
|
429
|
|
8,857
|
|
Ending Balance
|
$20,283
|
|
$11,278
|
|
$31,561
|
|
$8,053
|
|
$1,394
|
|
$433
|
|
$1,827
|
|
$41,441
|
|
Note 7 - Leases
The Corporation has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Operating lease right-of-use (“ROU”) assets amounted to $28.3 million and $29.5 million, respectively, as of June 30, 2021 and December 31, 2020. Operating lease liabilities totaled $30.6 million and $31.7 million, respectively, as of June 30, 2021 and December 31, 2020.
As of June 30, 2021, there was one operating lease that had not yet commenced. As of December 31, 2020, there were no operating leases that had not yet commenced.
Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $1.0 million and $2.0 million respectively, for the three and six months ended June 30, 2021, compared to $973 thousand and $1.9 million, respectively, for the same periods in 2020. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.
The following table presents information regarding the Corporation’s operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun 30, 2021
|
|
Dec 31, 2020
|
Weighted average discount rate
|
3.34
|
%
|
|
3.34
|
%
|
Range of lease expiration dates
|
1 year - 20 years
|
|
7 months - 20 years
|
Range of lease renewal options
|
1 year - 5 years
|
|
1 year - 5 years
|
Weighted average remaining lease term
|
13.1 years
|
|
13.4 years
|
The following table presents the undiscounted annual lease payments under the terms of the Corporation’s operating leases at June 30, 2021, including a reconciliation to the present value of operating lease liabilities recognized in the Unaudited Consolidated Balance Sheets:
|
|
|
|
|
|
(Dollars in thousands)
|
|
July 1, 2021 to December 31, 2021
|
$1,972
|
|
2022
|
3,981
|
|
2023
|
3,881
|
|
2024
|
3,670
|
|
2025
|
2,932
|
|
2026 and thereafter
|
22,099
|
|
Total operating lease payments (1)
|
38,535
|
|
Less: interest
|
7,977
|
|
Present value of operating lease liabilities (2)
|
$30,558
|
|
(1) Includes $1.4 million related to options to extend lease terms that are reasonably certain of being exercised.
(2) Includes short-term operating lease liabilities of $3.0 million.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents the components of total lease expense and operating cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Three Months
|
|
Six Months
|
Periods ended June 30,
|
2021
|
2020
|
|
2021
|
2020
|
Lease Expense:
|
|
|
|
|
|
Operating lease expense
|
$1,006
|
|
$959
|
|
|
$2,011
|
|
$1,909
|
|
Variable lease expense
|
15
|
|
14
|
|
|
30
|
|
28
|
|
Total lease expense (1)
|
$1,021
|
|
$973
|
|
|
$2,041
|
|
$1,937
|
|
Cash Paid:
|
|
|
|
|
|
Cash paid reducing operating lease liabilities
|
$989
|
|
$942
|
|
|
$1,978
|
|
$1,875
|
|
(1) Included in net occupancy expenses in the Unaudited Consolidated Income Statement.
Note 8 - Federal Home Loan Bank Advances
Advances payable to the FHLB amounted to $408.6 million and $593.9 million, respectively, at June 30, 2021 and December 31, 2020.
As of June 30, 2021 and December 31, 2020, the Bank had access to a $40.0 million unused line of credit and also had remaining available borrowing capacity of $1.2 billion and $969.7 million, respectively, with the FHLB. The Bank pledges certain qualified investment securities and loans as collateral to the FHLB.
The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Scheduled
Maturity
|
|
Weighted
Average Rate
|
July 1, 2021 to December 31, 2021
|
$328,450
|
|
|
0.39
|
%
|
2022
|
—
|
|
|
—
|
|
2023
|
35,000
|
|
|
0.45
|
|
2024
|
35,000
|
|
|
2.45
|
|
2025
|
—
|
|
|
—
|
|
2026 and thereafter
|
10,142
|
|
|
3.06
|
|
Balance at June 30, 2021
|
$408,592
|
|
|
0.64
|
%
|
Note 9 - Shareholders' Equity
Stock Repurchase Program
The Corporation’s Stock Repurchase Program adopted on December 1, 2020 (the “2020 Repurchase Program”) authorizes the repurchase of up to 850,000 shares, or approximately 5%, of the Corporation’s outstanding common stock. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The 2020 Repurchase Program expires on October 31, 2021 and may be modified, suspended, or discontinued at any time. As of June 30, 2021, no shares have been repurchased under the 2020 Repurchase Program.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Regulatory Capital Requirements
Capital levels at June 30, 2021 exceeded the regulatory minimum levels to be considered “well capitalized.”
The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios, as well as the corresponding minimum and well capitalized regulatory amounts and ratios that were in effect during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Actual
|
|
For Capital Adequacy Purposes
|
|
To Be “Well Capitalized” Under Prompt Corrective Action Provisions
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
$558,962
|
|
|
13.65
|
%
|
|
$327,648
|
|
|
8.00
|
%
|
|
N/A
|
|
N/A
|
Bank
|
553,127
|
|
|
13.51
|
|
|
327,618
|
|
|
8.00
|
|
|
$409,523
|
|
|
10.00
|
%
|
Tier 1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
524,964
|
|
|
12.82
|
|
|
245,736
|
|
|
6.00
|
|
|
N/A
|
|
N/A
|
Bank
|
519,129
|
|
|
12.68
|
|
|
245,714
|
|
|
6.00
|
|
|
327,618
|
|
|
8.00
|
|
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
502,965
|
|
|
12.28
|
|
|
184,302
|
|
|
4.50
|
|
|
N/A
|
|
N/A
|
Bank
|
519,129
|
|
|
12.68
|
|
|
184,285
|
|
|
4.50
|
|
|
266,190
|
|
|
6.50
|
|
Tier 1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
524,964
|
|
|
9.07
|
|
|
231,541
|
|
|
4.00
|
|
|
N/A
|
|
N/A
|
Bank
|
519,129
|
|
|
8.97
|
|
|
231,460
|
|
|
4.00
|
|
|
289,325
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
539,496
|
|
|
13.51
|
|
|
319,532
|
|
|
8.00
|
|
|
N/A
|
|
N/A
|
Bank
|
534,288
|
|
|
13.38
|
|
|
319,503
|
|
|
8.00
|
|
|
399,379
|
|
|
10.00
|
|
Tier 1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
503,791
|
|
|
12.61
|
|
|
239,649
|
|
|
6.00
|
|
|
N/A
|
|
N/A
|
Bank
|
498,583
|
|
|
12.48
|
|
|
239,627
|
|
|
6.00
|
|
|
319,503
|
|
|
8.00
|
|
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
481,792
|
|
|
12.06
|
|
|
179,737
|
|
|
4.50
|
|
|
N/A
|
|
N/A
|
Bank
|
498,583
|
|
|
12.48
|
|
|
179,721
|
|
|
4.50
|
|
|
259,596
|
|
|
6.50
|
|
Tier 1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
503,791
|
|
|
8.95
|
|
|
225,209
|
|
|
4.00
|
|
|
N/A
|
|
N/A
|
Bank
|
498,583
|
|
|
8.86
|
|
|
225,126
|
|
|
4.00
|
|
|
281,407
|
|
|
5.00
|
|
(1) Leverage ratio.
In addition to the minimum regulatory capital required for capital adequacy purposes outlined in the table above, the Corporation is required to maintain a minimum capital conservation buffer, in the form of common equity, of 2.50% in order to avoid restrictions on capital distributions and discretionary bonuses. The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at June 30, 2021 and December 31, 2020.
The Bancorp owns the common stock of two capital trusts, which have issued trust preferred securities. In accordance with GAAP, the capital trusts are treated as unconsolidated subsidiaries. At both June 30, 2021 and December 31, 2020, $22.0 million in trust preferred securities were included in the Tier 1 Capital of the Corporation for regulatory capital reporting purposes pursuant to the FRB’s capital adequacy guidelines.
In accordance with regulatory capital rules, the Corporation has elected the option to delay the estimated impact of Accounting Standards Codification (“ASC”) 326 on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. As a result, capital ratios and amounts as of June 30, 2021 and December 31, 2020 exclude the impact of the increased ACL on loans and unfunded loan commitments attributed to the adoption of ASC 326, which was effective January 1, 2020, adjusted for an approximation of the after-tax provision for credit losses
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
attributable to ASC 326 relative to the incurred loss methodology during the deferral period. The cumulative difference at the end of the deferral period will then be phased-in to regulatory capital over a three-year transition period beginning in 2022.
Note 10 - Derivative Financial Instruments
The Corporation’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments principally to manage the Corporation’s interest rate risk. Additionally, the Corporation enters into interest rate derivatives to accommodate the business requirements of its customers. All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation.
Interest Rate Risk Management Agreements
Interest rate risk management agreements, such as caps, swaps and floors, are used from time to time as part of the Corporation’s interest rate risk management strategy. Interest rate swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount. Interest rate caps and floors represent options purchased by the Corporation to manage the interest rate paid throughout the term of the option contract. The credit risk associated with these transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure.
Cash Flow Hedging Instruments
As of June 30, 2021 and December 31, 2020, the Corporation had interest rate swap contracts with a total notional amount of $60.0 million that were designated as cash flow hedges to hedge the interest rate risk associated with short-term variable rate FHLB advances. The interest rate swaps on borrowings mature in December of 2021 and December of 2023.
As of June 30, 2021, the Corporation has an interest rate swap with a total notional amount of $300.0 million that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans. The interest rate swap on loans was executed in the second quarter of 2021 and matures in May of 2026.
The changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income and subsequently reclassified to earnings when gains or losses are realized.
Loan Related Derivative Contracts
Interest Rate Swap Contracts with Customers
The Corporation enters into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk. The interest rate swap contracts with commercial loan borrowers allow them to convert variable-rate loan payments to fixed-rate loan payments. When the Corporation enters into an interest rate swap contract with a commercial loan borrower, it simultaneously enters into a “mirror” swap contract with a third party. The third party exchanges the client’s fixed-rate loan payments for variable-rate loan payments. The Corporation retains the risk that is associated with the potential failure of counterparties and the risk inherent in originating loans. As of June 30, 2021 and December 31, 2020, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $993.0 million and $991.0 million, respectively, and equal amounts of “mirror” swap contracts with third party financial institutions. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.
Risk Participation Agreements
The Corporation has entered into risk participation agreements with other banks in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.
Under a risk participation-out agreement, a derivative asset, the Corporation participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Corporation assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
As of June 30, 2021, the notional amounts of risk participation-out agreements and risk participation-in agreements were $67.6 million and $147.7 million, respectively, compared to $61.6 million and $92.7 million, respectively, as of December 31, 2020.
Mortgage Loan Commitments
Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale. To mitigate the interest rate risk and pricing risk associated with rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments. Forward sale commitments are contracts for delayed delivery or net settlement of the underlying instrument, such as a residential real estate mortgage loan, where the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. Both interest rate lock commitments and forward sale commitments are derivative financial instruments, but do not meet criteria for hedge accounting and therefore, the changes in fair value of these commitments are reflected in earnings.
As of June 30, 2021, the notional amounts of interest rate lock commitments and forward sale commitments were $82.1 million and $155.9 million, respectively, compared to $167.7 million and $279.7 million, respectively, as of December 31, 2020.
The following table presents the fair values of derivative instruments in the Unaudited Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Fair Value
|
|
|
Fair Value
|
|
Balance Sheet Location
|
Jun 30, 2021
|
|
Dec 31, 2020
|
|
Balance Sheet Location
|
Jun 30, 2021
|
|
Dec 31, 2020
|
Derivatives Designated as Cash Flow Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
Interest rate risk management contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Other assets
|
$178
|
|
|
$—
|
|
|
Other liabilities
|
$1,475
|
|
|
$1,958
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
Loan related derivative contracts:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps with customers
|
Other assets
|
49,644
|
|
|
75,804
|
|
|
Other liabilities
|
1,269
|
|
|
68
|
|
Mirror swaps with counterparties
|
Other assets
|
1,262
|
|
|
67
|
|
|
Other liabilities
|
49,805
|
|
|
76,248
|
|
Risk participation agreements
|
Other assets
|
2
|
|
|
22
|
|
|
Other liabilities
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments:
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
Other assets
|
2,361
|
|
|
7,202
|
|
|
Other liabilities
|
—
|
|
|
—
|
|
Forward sale commitments
|
Other assets
|
115
|
|
|
—
|
|
|
Other liabilities
|
760
|
|
|
2,914
|
|
Gross amounts
|
|
53,562
|
|
|
83,095
|
|
|
|
53,311
|
|
|
81,190
|
|
Less: amounts offset (1)
|
|
1,440
|
|
|
67
|
|
|
|
1,440
|
|
|
67
|
|
Derivative balances, net of offset
|
|
52,122
|
|
|
83,028
|
|
|
|
51,871
|
|
|
81,123
|
|
Less: collateral pledged (2)
|
|
—
|
|
|
—
|
|
|
|
47,113
|
|
|
74,698
|
|
Net amounts
|
|
$52,122
|
|
|
$83,028
|
|
|
|
$4,758
|
|
|
$6,425
|
|
(1)Interest rate risk management contracts and loan related derivative contracts with counterparties are subject to master netting arrangements.
(2)Collateral pledged to derivative counterparties is in the form of cash. Washington Trust may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents the effect of derivative instruments in the Unaudited Consolidated Statements of Changes in Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Gain (Loss) Recognized in
Other Comprehensive Income, Net of Tax
|
|
Three Months
|
|
Six Months
|
Periods ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Derivatives Designated as Cash Flow Hedging Instruments:
|
|
|
|
|
|
|
|
Interest rate risk management contracts:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$70
|
|
|
$1
|
|
|
$367
|
|
|
($1,323)
|
|
Interest rate caps
|
—
|
|
|
24
|
|
|
—
|
|
|
46
|
|
Interest rate floors
|
—
|
|
|
(17)
|
|
|
—
|
|
|
235
|
|
Total
|
$70
|
|
|
$8
|
|
|
$367
|
|
|
($1,042)
|
|
Interest rate cap and interest rate floor contracts designated as cash flow hedges matured in 2020.
For derivatives designated as cash flow hedging instruments, see Note 16 for additional disclosure pertaining to the amounts and location of reclassifications from accumulated other comprehensive income into earnings.
The following table presents the effect of derivative instruments in the Corporation’s Unaudited Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amount of Gain (Loss)
Recognized in Income on Derivatives
|
|
|
Three Months
|
|
Six Months
|
Periods ended June 30,
|
Statement of Income Location
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Derivatives not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
Loan related derivative contracts:
|
|
|
|
|
|
|
|
|
Interest rate swaps with customers
|
Loan related derivative income
|
$11,665
|
|
|
$7,960
|
|
|
($18,566)
|
|
|
$66,491
|
|
Mirror swaps with counterparties
|
Loan related derivative income
|
(11,068)
|
|
|
(7,964)
|
|
|
19,615
|
|
|
(64,154)
|
|
Risk participation agreements
|
Loan related derivative income
|
578
|
|
|
103
|
|
|
593
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments:
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
Mortgage banking revenues
|
(313)
|
|
|
3,548
|
|
|
(4,842)
|
|
|
7,284
|
|
Forward sale commitments
|
Mortgage banking revenues
|
(1,930)
|
|
|
(2,356)
|
|
|
5,355
|
|
|
(5,990)
|
|
Total
|
|
($1,068)
|
|
|
$1,291
|
|
|
$2,155
|
|
|
$3,848
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Note 11 - Fair Value Measurements
The Corporation uses fair value measurements to record fair value adjustments on certain assets and liabilities and to determine fair value disclosures. Items recorded at fair value on a recurring basis include securities available for sale, mortgage loans held for sale and derivatives. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent individually analyzed loans, property acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets.
Fair value is a market-based measurement, not an entity-specific measurement. Fair value measurements are determined based on the assumptions the market participants would use in pricing the asset or liability. In addition, GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Corporation’s market assumptions. These two types of inputs have created the following fair value hierarchy:
•Level 1 – Quoted prices for identical assets or liabilities in active markets.
•Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
•Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect the Corporation’s market assumptions.
Fair Value Option Election
GAAP allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Corporation has elected the fair value option for mortgage loans held for sale to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them.
The following table presents a summary of mortgage loans held for sale accounted for under the fair value option:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
December 31,
2020
|
Aggregate fair value
|
$31,492
|
|
$61,614
|
|
Aggregate principal balance
|
30,623
|
|
59,313
|
|
Difference between fair value and principal balance
|
$869
|
|
$2,301
|
|
Changes in fair value of mortgage loans held for sale accounted for under the fair value option election (“fair value option adjustments”) are included in mortgage banking revenues in the Unaudited Consolidated Statements of Income. Fair value option adjustments amounted to an increase of $38 thousand for the three months ended June 30, 2021 and a decrease of $1.4 million for the six months ended June 30, 2021, compared to increases of $149 thousand and $1.0 million, respectively, in the three and six months ended June 30, 2020.
There were no mortgage loans held for sale 90 days or more past due as of June 30, 2021 and December 31, 2020.
Valuation Techniques
Debt Securities
Available for sale debt securities are recorded at fair value on a recurring basis. When available, the Corporation uses quoted market prices to determine the fair value of debt securities; such items are classified as Level 1. There were no Level 1 debt securities held at June 30, 2021 and December 31, 2020.
Level 2 debt securities are traded less frequently than exchange-traded instruments. The fair value of these securities is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category includes obligations of U.S. government-sponsored enterprises, including mortgage-backed securities, individual name issuer trust preferred debt securities and corporate bonds.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Debt securities not actively traded whose fair value is determined through the use of cash flows utilizing inputs that are unobservable are classified as Level 3. There were no Level 3 debt securities held at June 30, 2021 and December 31, 2020.
Mortgage Loans Held for Sale
The fair value of mortgage loans held for sale is estimated based on current market prices for similar loans in the secondary market and therefore are classified as Level 2 assets.
Collateral Dependent Individually Analyzed Loans
The fair value of collateral dependent individually analyzed loans is determined based upon the appraised fair value of the underlying collateral. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. For collateral dependent loans that are expected to be repaid substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the collateral. Internal valuations may be utilized to determine the fair value of other business assets. Collateral dependent individually analyzed loans are categorized as Level 3.
Loan Servicing Rights
Loans sold with the retention of servicing result in the recognition of loan servicing rights. Loan servicing rights are included in other assets in the Unaudited Consolidated Balance Sheets and are amortized as an offset to mortgage banking revenues over the estimated period of servicing. Loan servicing rights are evaluated quarterly for impairment based on their fair value. Impairment exists if the carrying value exceeds the estimated fair value. Impairment is measured on an aggregated basis by stratifying the loan servicing rights based on homogeneous characteristics such as note rate and loan type. The fair value is estimated using an independent valuation model that estimates the present value of expected cash flows, incorporating assumptions for discount rates and prepayment rates. Any impairment is recognized through a valuation allowance and as a reduction to mortgage banking revenues. Loan servicing rights are categorized as Level 3.
Derivatives
Interest rate swaps, caps and floors are traded in over-the-counter markets where quoted market prices are not readily available. Fair value measurements are determined using independent valuation software, which considers the present value of future cash flows discounted using market observable inputs such as forward rate assumptions. The Corporation evaluates the credit risk of its counterparties, as well as that of the Corporation. Accordingly, factors such as the likelihood of default by the Corporation and its counterparties, its net exposures and remaining contractual life are considered in determining if any fair value adjustments related to credit risk are required. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position, if any. The Corporation has determined that the majority of the inputs used to value its derivative positions fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments utilize Level 3 inputs. As of June 30, 2021 and December 31, 2020, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Corporation has classified its derivative valuations in their entirety as Level 2.
Fair value measurements of forward loan commitments (interest rate lock commitments and forward sale commitments) are primarily based on current market prices for similar assets in the secondary market for mortgage loans and therefore are classified as Level 2 assets. The fair value of interest rate lock commitments is also dependent on the ultimate closing of the loans. Pull-through rates are based on the Corporation’s historical data and reflect the Corporation’s best estimate of the likelihood that a commitment will result in a closed loan. Although the pull-through rates are Level 3 inputs, the Corporation has assessed the significance of the impact of pull-through rates on the overall valuation of its interest rate lock commitments and has determined that they are not significant to the overall valuation. As a result, the Corporation has classified its interest rate lock commitments as Level 2.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Items Recorded at Fair Value on a Recurring Basis
The following tables present the balances of assets and liabilities reported at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Total
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
June 30, 2021
|
Assets:
|
|
|
|
|
Available for sale debt securities:
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
$184,255
|
|
$—
|
|
$184,255
|
|
$—
|
|
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
|
845,036
|
|
—
|
|
845,036
|
|
—
|
|
|
|
|
|
|
Individual name issuer trust preferred debt securities
|
11,066
|
|
—
|
|
11,066
|
|
—
|
|
|
|
|
|
|
Corporate bonds
|
12,220
|
|
—
|
|
12,220
|
|
—
|
|
Mortgage loans held for sale
|
31,492
|
|
—
|
|
31,492
|
|
—
|
|
Derivative assets
|
52,122
|
|
—
|
|
52,122
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value on a recurring basis
|
$1,136,191
|
|
$—
|
|
$1,136,191
|
|
$—
|
|
Liabilities:
|
|
|
|
|
Derivative liabilities
|
$51,871
|
|
$—
|
|
$51,871
|
|
$—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value on a recurring basis
|
$51,871
|
|
$—
|
|
$51,871
|
|
$—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Total
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
December 31, 2020
|
Assets:
|
|
|
|
|
Available for sale debt securities:
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
$131,669
|
|
$—
|
|
$131,669
|
|
$—
|
|
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
|
740,305
|
|
—
|
|
740,305
|
|
—
|
|
|
|
|
|
|
Individual name issuer trust preferred debt securities
|
12,669
|
|
—
|
|
12,669
|
|
—
|
|
|
|
|
|
|
Corporate bonds
|
9,928
|
|
—
|
|
9,928
|
|
—
|
|
|
|
|
|
|
Mortgage loans held for sale
|
61,614
|
|
—
|
|
61,614
|
|
—
|
|
Derivative assets
|
83,028
|
|
—
|
|
83,028
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value on a recurring basis
|
$1,039,213
|
|
$—
|
|
$1,039,213
|
|
$—
|
|
Liabilities:
|
|
|
|
|
Derivative liabilities
|
$81,123
|
|
$—
|
|
$81,123
|
|
$—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value on a recurring basis
|
$81,123
|
|
$—
|
|
$81,123
|
|
$—
|
|
Items Recorded at Fair Value on a Nonrecurring Basis
The following table presents the carrying value of assets held at June 30, 2021, which were written down to fair value during the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Collateral dependent individually analyzed loans
|
$887
|
|
|
$—
|
|
|
$—
|
|
|
$887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value on a nonrecurring basis
|
$887
|
|
|
$—
|
|
|
$—
|
|
|
$887
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents the carrying value of assets held at December 31, 2020, which were written down to fair value during the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Collateral dependent individually analyzed loans
|
$1,720
|
|
|
$—
|
|
|
$—
|
|
|
$1,720
|
|
Loan servicing rights
|
7,434
|
|
|
—
|
|
|
—
|
|
|
7,434
|
|
|
|
|
|
|
|
|
|
Total assets at fair value on a nonrecurring basis
|
$9,154
|
|
|
$—
|
|
|
$—
|
|
|
$9,154
|
|
The following tables present valuation techniques and unobservable inputs for assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Fair Value
|
Valuation Technique
|
Unobservable Input
|
Range of Inputs Utilized
(Weighted Average)
|
June 30, 2021
|
Collateral dependent individually analyzed loans
|
$887
|
|
Appraisals of collateral
|
Discount for costs to sell
|
10%
|
|
|
|
Appraisal adjustments
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Fair Value
|
Valuation Technique
|
Unobservable Input
|
Range of Inputs Utilized
(Weighted Average)
|
December 31, 2020
|
Collateral dependent individually analyzed loans
|
$1,720
|
|
Appraisals of collateral
|
Discount for costs to sell
|
0% - 25% (11%)
|
|
|
|
Appraisal adjustments
|
0% - 100% (15%)
|
|
|
|
|
|
Loan servicing rights
|
7,434
|
|
Discounted cash flow
|
Discount rates
|
10% - 14% (10%)
|
|
|
|
Prepayment rates
|
18% - 42% (21%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation of Financial Instruments
The estimated fair values and related carrying amounts for financial instruments for which fair value is only disclosed are presented below as of the periods indicated. The tables exclude financial instruments for which the carrying value approximates fair value such as cash and cash equivalents, FHLB stock, accrued interest receivable, bank-owned life insurance, non-maturity deposits and accrued interest payable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
June 30, 2021
|
Carrying Amount
|
Total
Fair Value
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of allowance for credit losses on loans
|
$4,257,921
|
|
$4,208,113
|
|
$—
|
|
$—
|
|
$4,208,113
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
Time deposits
|
$1,409,334
|
|
$1,413,017
|
|
$—
|
|
$1,413,017
|
|
$—
|
|
FHLB advances
|
408,592
|
|
411,303
|
|
—
|
|
411,303
|
|
—
|
|
Junior subordinated debentures
|
22,681
|
|
20,116
|
|
—
|
|
20,116
|
|
—
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
December 31, 2020
|
Carrying Amount
|
Total
Fair Value
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of allowance for credit losses on loans
|
$4,151,884
|
|
$4,114,628
|
|
$—
|
|
$—
|
|
$4,114,628
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
Time deposits
|
$1,296,396
|
|
$1,302,128
|
|
$—
|
|
$1,302,128
|
|
$—
|
|
FHLB advances
|
593,859
|
|
602,000
|
|
—
|
|
602,000
|
|
—
|
|
Junior subordinated debentures
|
22,681
|
|
19,422
|
|
—
|
|
19,422
|
|
—
|
|
Note 12 - Revenue from Contracts with Customers
The following tables summarize total revenues as presented in the Unaudited Consolidated Statements of Income and the related amounts that are from contracts with customers within the scope of ASC 606. As shown below, a substantial portion of our revenues are specifically excluded from the scope of ASC 606.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
2021
|
|
2020
|
(Dollars in thousands)
|
Revenue (1)
|
ASC 606 Revenue (2)
|
|
Revenue (1)
|
ASC 606 Revenue (2)
|
Net interest income
|
$34,754
|
|
$—
|
|
|
$30,945
|
|
$—
|
|
Noninterest income:
|
|
|
|
|
|
Asset-based wealth management revenues
|
9,991
|
|
9,991
|
|
|
8,156
|
|
8,156
|
|
Transaction-based wealth management revenues
|
437
|
|
437
|
|
|
449
|
|
449
|
|
Total wealth management revenues
|
10,428
|
|
10,428
|
|
|
8,605
|
|
8,605
|
|
Mortgage banking revenues
|
5,994
|
|
—
|
|
|
14,851
|
|
—
|
|
Card interchange fees
|
1,316
|
|
1,316
|
|
|
1,031
|
|
1,031
|
|
Service charges on deposit accounts
|
635
|
|
635
|
|
|
517
|
|
517
|
|
Loan related derivative income
|
1,175
|
|
—
|
|
|
99
|
|
—
|
|
Income from bank-owned life insurance
|
607
|
|
—
|
|
|
791
|
|
—
|
|
|
|
|
|
|
|
Other income
|
438
|
|
279
|
|
|
426
|
|
288
|
|
Total noninterest income
|
20,593
|
|
12,658
|
|
|
26,320
|
|
10,441
|
|
Total revenues
|
$55,347
|
|
$12,658
|
|
|
$57,265
|
|
$10,441
|
|
(1)As reported in the Consolidated Statements of Income.
(2)Revenue from contracts with customers in scope of ASC 606.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
2021
|
|
2020
|
(Dollars in thousands)
|
Revenue (1)
|
ASC 606 Revenue (2)
|
|
Revenue (1)
|
ASC 606 Revenue (2)
|
Net interest income
|
$67,625
|
|
$—
|
|
|
$63,547
|
|
$—
|
|
Noninterest income:
|
|
|
|
|
|
Asset-based wealth management revenues
|
19,574
|
|
19,574
|
|
|
16,511
|
|
16,511
|
|
Transaction-based wealth management revenues
|
749
|
|
749
|
|
|
783
|
|
783
|
|
Total wealth management revenues
|
20,323
|
|
20,323
|
|
|
17,294
|
|
17,294
|
|
Mortgage banking revenues
|
17,921
|
|
—
|
|
|
20,947
|
|
—
|
|
Card interchange fees
|
2,449
|
|
2,449
|
|
|
1,978
|
|
1,978
|
|
Service charges on deposit accounts
|
1,244
|
|
1,244
|
|
|
1,377
|
|
1,377
|
|
Loan related derivative income
|
1,642
|
|
—
|
|
|
2,554
|
|
—
|
|
Income from bank-owned life insurance
|
1,163
|
|
—
|
|
|
1,355
|
|
—
|
|
|
|
|
|
|
|
Other income
|
1,825
|
|
1,524
|
|
|
742
|
|
535
|
|
Total noninterest income
|
46,567
|
|
25,540
|
|
|
46,247
|
|
21,184
|
|
Total revenues
|
$114,192
|
|
$25,540
|
|
|
$109,794
|
|
$21,184
|
|
(1)As reported in the Consolidated Statements of Income.
(2)Revenue from contracts with customers in scope of ASC 606.
The Corporation recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), automated teller machine (“ATM”) fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.
The Corporation recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied. Such revenue includes wealth management revenues and service charges on deposit accounts. Wealth management revenues are categorized as either asset-based revenues or transaction-based revenues. Asset-based revenues include trust and investment management fees that are earned based upon a percentage of asset values under administration. Transaction-based revenues include tax preparation fees, commissions and other service fees. Fee revenue from service charges on deposit accounts represent service charges assessed to customers who hold deposit accounts at the Bank.
The following table presents revenue from contracts with customers based on the timing of revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Three Months
|
|
Six Months
|
Periods ended June 30,
|
2021
|
2020
|
|
2021
|
2020
|
Revenue recognized at a point in time:
|
|
|
|
|
|
Card interchange fees
|
$1,316
|
|
$1,031
|
|
|
$2,449
|
|
$1,978
|
|
Service charges on deposit accounts
|
504
|
|
374
|
|
|
985
|
|
1,041
|
|
Other income
|
228
|
|
254
|
|
|
1,431
|
|
454
|
|
Revenue recognized over time:
|
|
|
|
|
|
Wealth management revenues
|
10,428
|
|
8,605
|
|
|
20,323
|
|
17,294
|
|
Service charges on deposit accounts
|
131
|
|
143
|
|
|
259
|
|
336
|
|
Other income
|
51
|
|
34
|
|
|
93
|
|
81
|
|
Total revenues from contracts in scope of Topic 606
|
$12,658
|
|
$10,441
|
|
|
$25,540
|
|
$21,184
|
|
Receivables for revenue from contracts with customers primarily consist of amounts due for wealth management services performed for which the Corporation’s performance obligations have been fully satisfied. Receivables amounted to
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
$5.2 million at June 30, 2021, compared to $4.8 million at December 31, 2020 and were included in other assets in the Unaudited Consolidated Balance Sheets.
Deferred revenues, which are considered contract liabilities under ASC 606, represent advance consideration received from customers for which the Corporation has a remaining performance obligation to fulfill. Contract liabilities are recognized as revenue over the life of the contract as the performance obligations are satisfied. The balances of contract liabilities were insignificant at both June 30, 2021 and June 30, 2020 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.
For commissions and incentives that are in scope of ASC 606, such as those paid to employees in our wealth management services and commercial banking segments in order to obtain customer contracts, contract cost assets are established. The contract cost assets are capitalized and amortized over the estimated useful life that the asset is expected to generate benefits. The carrying value of contract cost assets amounted to $1.5 million at both June 30, 2021 and December 31, 2020 and were included in other assets in the Unaudited Consolidated Balance Sheets. The amortization of contract cost assets is recorded within salaries and employee benefits expense in the Unaudited Consolidated Statements of Income.
Note 13 - Defined Benefit Pension Plans
Washington Trust maintains a qualified pension plan for the benefit of certain eligible employees who were hired prior to October 1, 2007. Washington Trust also has non-qualified retirement plans to provide supplemental retirement benefits to certain employees, as defined in the plans. The defined benefit pension plans were previously amended to freeze benefit accruals after a 10-year transition period ending in December 2023.
The following table presents components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss), on a pre-tax basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Qualified
Pension Plan
|
|
Non-Qualified Retirement Plans
|
|
Three Months
|
|
Six Months
|
|
Three Months
|
|
Six Months
|
Periods ended June 30,
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost (1)
|
$593
|
|
$541
|
|
|
$1,185
|
|
$1,082
|
|
|
$52
|
|
$42
|
|
|
$104
|
|
$85
|
|
Interest cost (2)
|
357
|
|
627
|
|
|
1,002
|
|
1,253
|
|
|
85
|
|
117
|
|
|
169
|
|
233
|
|
Expected return on plan assets (2)
|
(1,204)
|
|
(1,134)
|
|
|
(2,408)
|
|
(2,269)
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss (2)
|
673
|
|
395
|
|
|
1,060
|
|
791
|
|
|
204
|
|
140
|
|
|
362
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$419
|
|
$429
|
|
|
$839
|
|
$857
|
|
|
$341
|
|
$299
|
|
|
$635
|
|
$598
|
|
(1)Included in salaries and employee benefits expense in the Unaudited Consolidated Statements of Income.
(2)Included in other expenses in the Unaudited Consolidated Statements of Income.
The following table presents the measurement date and weighted-average assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Pension Plan
|
|
Non-Qualified Retirement Plans
|
For the six months ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Measurement date
|
Dec 31, 2020
|
|
Dec 31, 2019
|
|
Dec 31, 2020
|
|
Dec 31, 2019
|
Equivalent single discount rate for benefit obligations
|
2.71%
|
|
3.42%
|
|
2.51%
|
|
3.30%
|
Equivalent single discount rate for service cost
|
2.86
|
|
3.54
|
|
2.94
|
|
3.62
|
Equivalent single discount rate for interest cost
|
2.16
|
|
3.07
|
|
1.97
|
|
2.93
|
Expected long-term return on plan assets
|
5.75
|
|
5.75
|
|
N/A
|
|
N/A
|
Rate of compensation increase
|
3.75
|
|
3.75
|
|
3.75
|
|
3.75
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Note 14 - Share-Based Compensation Arrangements
During the six months ended June 30, 2021, the Corporation granted performance share unit awards and nonvested share unit awards.
The Corporation granted performance share unit awards to certain key employees providing the opportunity to earn shares of common stock over a 3-year performance period. The weighted average fair value of the performance share unit awards was $46.15. The number of shares to be vested will be contingent upon the Corporation’s attainment of certain performance measures as detailed in the performance share award agreements. Based on the most recent performance assumption available, it is estimated that 51,156 shares will be earned.
The Corporation granted to certain key employees and non-executive directors 8,360 nonvested share units with 3-year cliff vesting. The weighted average grant date fair value of the nonvested share units was $50.81.
Note 15 - Business Segments
Washington Trust segregates financial information in assessing its results among its Commercial Banking and Wealth Management Services operating segments. The Corporate unit includes activity not allocated to the operating segments.
Management uses certain methodologies to allocate income and expenses to the business lines. The methodologies are periodically reviewed and revised. Results may be restated, when necessary, to reflect changes in organizational structure or allocation methodology. A funds transfer pricing (“FTP”) methodology is used to assign interest income and interest expense to each interest-earning asset and interest-bearing liability on a matched maturity funding basis. The matched maturity funding concept considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated. Loans are assigned a FTP rate for funds used and deposits are assigned a FTP rate for funds provided. Certain indirect expenses are allocated to segments. These include indirect expenses such as technology, operations and other support functions.
Commercial Banking
The Commercial Banking operating segment includes commercial, residential and consumer lending activities; mortgage banking activities; deposit generation; cash management activities; and direct banking activities, which include the operation of ATMs, telephone banking, internet banking and mobile banking services and customer support and sales.
Wealth Management Services
The Wealth Management Services operating segment includes investment management; holistic financial planning services; personal trust and estate services, including services as trustee, personal representative, custodian and guardian; settlement of decedents’ estates; and institutional trust services, including custody and fiduciary services.
Corporate
Corporate includes the Treasury Unit, which is responsible for managing the wholesale investment portfolio and wholesale funding needs. It also includes income from bank-owned life insurance (“BOLI”), as well as administrative and executive expenses not allocated to the operating segments and the residual impact of methodology allocations such as FTP offsets.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The following table presents the statement of operations and total assets for Washington Trust’s reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial Banking
|
|
Wealth Management Services
|
|
Corporate
|
|
Consolidated Total
|
Three months ended June 30,
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
Net interest income (expense)
|
$35,326
|
|
$32,580
|
|
|
($24)
|
|
($26)
|
|
|
($548)
|
|
($1,609)
|
|
|
$34,754
|
|
$30,945
|
|
Provision for credit losses
|
—
|
|
2,200
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
2,200
|
|
Net interest income (expense) after provision for credit losses
|
35,326
|
|
30,380
|
|
|
(24)
|
|
(26)
|
|
|
(548)
|
|
(1,609)
|
|
|
34,754
|
|
28,745
|
|
Noninterest income
|
9,555
|
|
16,910
|
|
|
10,428
|
|
8,605
|
|
|
610
|
|
805
|
|
|
20,593
|
|
26,320
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
665
|
|
611
|
|
|
352
|
|
354
|
|
|
47
|
|
39
|
|
|
1,064
|
|
1,004
|
|
Other noninterest expenses
|
19,984
|
|
17,615
|
|
|
7,018
|
|
6,225
|
|
|
4,946
|
|
3,634
|
|
|
31,948
|
|
27,474
|
|
Total noninterest expenses
|
20,649
|
|
18,226
|
|
|
7,370
|
|
6,579
|
|
|
4,993
|
|
3,673
|
|
|
33,012
|
|
28,478
|
|
Income (loss) before income taxes
|
24,232
|
|
29,064
|
|
|
3,034
|
|
2,000
|
|
|
(4,931)
|
|
(4,477)
|
|
|
22,335
|
|
26,587
|
|
Income tax expense (benefit)
|
5,289
|
|
6,177
|
|
|
748
|
|
457
|
|
|
(1,162)
|
|
(1,087)
|
|
|
4,875
|
|
5,547
|
|
Net income (loss)
|
$18,943
|
|
$22,887
|
|
|
$2,286
|
|
$1,543
|
|
|
($3,769)
|
|
($3,390)
|
|
|
$17,460
|
|
$21,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at period end
|
$4,520,417
|
|
$4,579,720
|
|
|
$75,232
|
|
$74,803
|
|
|
$1,256,331
|
|
$1,222,437
|
|
|
$5,851,980
|
|
$5,876,960
|
|
Expenditures for long-lived assets
|
882
|
|
261
|
|
|
16
|
|
13
|
|
|
19
|
|
23
|
|
|
917
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial Banking
|
|
Wealth Management Services
|
|
Corporate
|
|
Consolidated Total
|
Six months ended June 30,
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
|
2021
|
2020
|
Net interest income (expense)
|
$69,847
|
|
$61,590
|
|
|
($47)
|
|
($93)
|
|
|
($2,175)
|
|
$2,050
|
|
|
$67,625
|
|
$63,547
|
|
Provision for credit losses
|
(2,000)
|
|
9,236
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
(2,000)
|
|
9,236
|
|
Net interest income (expense) after provision for loan losses
|
71,847
|
|
52,354
|
|
|
(47)
|
|
(93)
|
|
|
(2,175)
|
|
2,050
|
|
|
69,625
|
|
54,311
|
|
Noninterest income
|
24,070
|
|
27,575
|
|
|
21,323
|
|
17,294
|
|
|
1,174
|
|
1,378
|
|
|
46,567
|
|
46,247
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
1,322
|
|
1,231
|
|
|
703
|
|
708
|
|
|
93
|
|
78
|
|
|
2,118
|
|
2,017
|
|
Other noninterest expenses
|
39,985
|
|
36,298
|
|
|
13,404
|
|
13,230
|
|
|
12,218
|
|
7,386
|
|
|
65,607
|
|
56,914
|
|
Total noninterest expenses
|
41,307
|
|
37,529
|
|
|
14,107
|
|
13,938
|
|
|
12,311
|
|
7,464
|
|
|
67,725
|
|
58,931
|
|
Income (loss) before income taxes
|
54,610
|
|
42,400
|
|
|
7,169
|
|
3,263
|
|
|
(13,312)
|
|
(4,036)
|
|
|
48,467
|
|
41,627
|
|
Income tax expense (benefit)
|
11,881
|
|
8,941
|
|
|
1,702
|
|
813
|
|
|
(3,047)
|
|
(1,068)
|
|
|
10,536
|
|
8,686
|
|
Net income (loss)
|
$42,729
|
|
$33,459
|
|
|
$5,467
|
|
$2,450
|
|
|
($10,265)
|
|
($2,968)
|
|
|
$37,931
|
|
$32,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at period end
|
$4,520,417
|
|
$4,579,720
|
|
|
$75,232
|
|
$74,803
|
|
|
$1,256,331
|
|
$1,222,437
|
|
|
$5,851,980
|
|
$5,876,960
|
|
Expenditures for long-lived assets
|
1,717
|
|
787
|
|
|
74
|
|
66
|
|
|
37
|
|
72
|
|
|
1,828
|
|
925
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Note 16 - Other Comprehensive Income (Loss)
The following tables present the activity in other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
2021
|
|
2020
|
(Dollars in thousands)
|
Pre-tax Amounts
|
Income Taxes
|
Net of Tax
|
|
Pre-tax Amounts
|
Income Taxes
|
Net of Tax
|
Securities available for sale:
|
|
|
|
|
|
|
|
Changes in fair value of available for sale debt securities
|
$5,440
|
|
$1,306
|
|
$4,134
|
|
|
($2,364)
|
|
($556)
|
|
($1,808)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
Change in fair value of cash flow hedges
|
158
|
|
38
|
|
120
|
|
|
(293)
|
|
(69)
|
|
(224)
|
|
Net cash flow hedge (losses) gains reclassified into earnings (1) (2)
|
(65)
|
|
(15)
|
|
(50)
|
|
|
305
|
|
73
|
|
232
|
|
Net change in fair value of cash flow hedges
|
93
|
|
23
|
|
70
|
|
|
12
|
|
4
|
|
8
|
|
Defined benefit plan obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial losses (3)
|
877
|
|
203
|
|
674
|
|
|
535
|
|
126
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
$6,410
|
|
$1,532
|
|
$4,878
|
|
|
($1,817)
|
|
($426)
|
|
($1,391)
|
|
(1)The pre-tax amounts for the three months ended June 30, 2021 are included in interest expense on FHLB advances and interest and fees on loans in the Unaudited Consolidated Statements of Income.
(2)The pre-tax amounts for the three months ended June 30, 2020 are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Unaudited Consolidated Statements of Income.
(3)The pre-tax amounts are included in other expenses in the Unaudited Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
2021
|
|
2020
|
(Dollars in thousands)
|
Pre-tax Amounts
|
Income Taxes
|
Net of Tax
|
|
Pre-tax Amounts
|
Income Taxes
|
Net of Tax
|
Securities available for sale:
|
|
|
|
|
|
|
|
Changes in fair value of available for sale debt securities
|
($12,085)
|
|
($2,900)
|
|
($9,185)
|
|
|
$14,376
|
|
$3,378
|
|
$10,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
Change in fair value of cash flow hedges
|
267
|
|
64
|
|
203
|
|
|
(1,848)
|
|
(434)
|
|
(1,414)
|
|
Net cash flow hedge gains reclassified into earnings (1) (2)
|
216
|
|
52
|
|
164
|
|
|
485
|
|
113
|
|
372
|
|
Net change in fair value of cash flow hedges
|
483
|
|
116
|
|
367
|
|
|
(1,363)
|
|
(321)
|
|
(1,042)
|
|
Defined benefit plan obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial losses (3)
|
1,422
|
|
341
|
|
1,081
|
|
|
1,071
|
|
252
|
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income
|
($10,180)
|
|
($2,443)
|
|
($7,737)
|
|
|
$14,084
|
|
$3,309
|
|
$10,775
|
|
(1)The pre-tax amounts for the six months ended June 30, 2021 are included in interest expense on FHLB advances and interest and fees on loans in the Unaudited Consolidated Statements of Income.
(2)The pre-tax amounts for the six months ended June 30, 2020 are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Unaudited Consolidated Statements of Income.
(3)The pre-tax amounts are included in other expenses in the Unaudited Consolidated Statements of Income.
The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Net Unrealized (Losses) Gains on Available For Sale Debt Securities
|
|
|
|
Net Unrealized (Losses) Gains on Cash Flow Hedges
|
|
Defined Benefit Pension Plan Adjustment
|
|
Total
|
For the three months ended June 30, 2021
|
|
|
|
|
|
Balance at March 31, 2021
|
($3,438)
|
|
|
|
|
($1,150)
|
|
|
($15,418)
|
|
|
($20,006)
|
|
Other comprehensive income before reclassifications
|
4,134
|
|
|
|
|
120
|
|
|
—
|
|
|
4,254
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
|
|
(50)
|
|
|
674
|
|
|
624
|
|
Net other comprehensive income
|
4,134
|
|
|
|
|
70
|
|
|
674
|
|
|
4,878
|
|
Balance at June 30, 2021
|
$696
|
|
|
|
|
($1,080)
|
|
|
($14,744)
|
|
|
($15,128)
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Net Unrealized Gains (Losses) on Available For Sale Debt Securities
|
|
|
|
Net Unrealized (Losses) Gains on Cash Flow Hedges
|
|
Defined Benefit Pension Plan Adjustment
|
|
Total
|
For the six months ended June 30, 2021
|
|
|
|
|
|
Balance at December 31, 2020
|
$9,881
|
|
|
|
|
($1,447)
|
|
|
($15,825)
|
|
|
($7,391)
|
|
Other comprehensive (loss) income before reclassifications
|
(9,185)
|
|
|
|
|
203
|
|
|
—
|
|
|
(8,982)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
|
|
164
|
|
|
1,081
|
|
|
1,245
|
|
Net other comprehensive (loss) income
|
(9,185)
|
|
|
|
|
367
|
|
|
1,081
|
|
|
(7,737)
|
|
Balance at June 30, 2021
|
$696
|
|
|
|
|
($1,080)
|
|
|
($14,744)
|
|
|
($15,128)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Net Unrealized Gains (Losses) on Available For Sale Debt Securities
|
|
|
|
Net Unrealized (Losses) Gains on Cash Flow Hedges
|
|
Defined Benefit Pension Plan Adjustment
|
|
Total
|
For the three months ended June 30, 2020
|
|
|
|
|
|
Balance at March 31, 2020
|
$16,032
|
|
|
|
|
($1,843)
|
|
|
($13,260)
|
|
|
$929
|
|
Other comprehensive loss before reclassifications
|
(1,808)
|
|
|
|
|
(224)
|
|
|
—
|
|
|
(2,032)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
|
|
232
|
|
|
409
|
|
|
641
|
|
Net other comprehensive (loss) income
|
(1,808)
|
|
|
|
|
8
|
|
|
409
|
|
|
(1,391)
|
|
Balance at June 30, 2020
|
$14,224
|
|
|
|
|
($1,835)
|
|
|
($12,851)
|
|
|
($462)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Net Unrealized Gains on Available For Sale Debt Securities
|
|
|
|
Net Unrealized (Losses) Gains on Cash Flow Hedges
|
|
Defined Benefit Pension Plan Adjustment
|
|
Total
|
For the six months ended June 30, 2020
|
|
|
|
|
|
Balance at December 31, 2019
|
$3,226
|
|
|
|
|
($793)
|
|
|
($13,670)
|
|
|
($11,237)
|
|
Other comprehensive income (loss) before reclassifications
|
10,998
|
|
|
|
|
(1,414)
|
|
|
—
|
|
|
9,584
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
|
|
372
|
|
|
819
|
|
|
1,191
|
|
Net other comprehensive income (loss)
|
10,998
|
|
|
|
|
(1,042)
|
|
|
819
|
|
|
10,775
|
|
Balance at June 30, 2020
|
$14,224
|
|
|
|
|
($1,835)
|
|
|
($12,851)
|
|
|
($462)
|
|
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
Note 17 - Earnings per Common Share
The following table presents the calculation of earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
Periods ended June 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Earnings per common share - basic:
|
|
|
|
|
|
|
|
Net income
|
$17,460
|
|
|
$21,040
|
|
|
$37,931
|
|
|
$32,941
|
|
Less: dividends and undistributed earnings allocated to participating securities
|
(52)
|
|
|
(40)
|
|
|
(108)
|
|
|
(72)
|
|
Net income available to common shareholders
|
$17,408
|
|
|
$21,000
|
|
|
$37,823
|
|
|
$32,869
|
|
Weighted average common shares
|
17,314
|
|
|
17,257
|
|
|
17,295
|
|
|
17,301
|
|
Earnings per common share - basic
|
$1.01
|
|
|
$1.22
|
|
|
$2.19
|
|
|
$1.90
|
|
Earnings per common share - diluted:
|
|
|
|
|
|
|
|
Net income
|
$17,460
|
|
|
$21,040
|
|
|
$37,931
|
|
|
$32,941
|
|
Less: dividends and undistributed earnings allocated to participating securities
|
(52)
|
|
|
(40)
|
|
|
(108)
|
|
|
(72)
|
|
Net income available to common shareholders
|
$17,408
|
|
|
$21,000
|
|
|
$37,823
|
|
|
$32,869
|
|
Weighted average common shares
|
17,314
|
|
|
17,257
|
|
|
17,295
|
|
|
17,301
|
|
Dilutive effect of common stock equivalents
|
122
|
|
|
35
|
|
|
150
|
|
|
76
|
|
Weighted average diluted common shares
|
17,436
|
|
|
17,292
|
|
|
17,445
|
|
|
17,377
|
|
Earnings per common share - diluted
|
$1.00
|
|
|
$1.21
|
|
|
$2.17
|
|
|
$1.89
|
|
Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 87,924 and 149,650, respectively, for the three and six months ended June 30, 2021, compared to 256,721 and 220,305, respectively, for the same periods in 2020.
Note 18 - Commitments and Contingencies
Financial Instruments with Off-Balance Sheet Risk
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the Corporation’s exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.
Financial Instruments Whose Contract Amounts Represent Credit Risk (Unfunded Commitments)
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. Each borrower’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the borrower.
Standby Letters of Credit
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support the financing needs of the Bank’s commercial customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral supporting those commitments is essentially the same as for other commitments. Most standby letters of credit extend for one year. The maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $11.9 million and $11.7 million, respectively, as of June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020, there were no liabilities to beneficiaries resulting from standby letters of credit. Fee income on standby letters of credit was insignificant for the three and six months ended June 30, 2021 and 2020.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
A substantial portion of the standby letters of credit were supported by pledged collateral. The collateral obtained is determined based on management’s credit evaluation of the customer. Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required.
Financial Instruments Whose Notional Amounts Exceed the Amount of Credit Risk
Mortgage Loan Commitments
Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale. To mitigate the interest rate risk and pricing risk associated with these rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments. Both interest rate lock commitments and forward sale commitments are derivative financial instruments.
Loan Related Derivative Contracts
The Corporation’s credit policies with respect to interest rate swap agreements with commercial borrowers are similar to those used for loans. The interest rate swaps with other counterparties are generally subject to bilateral collateralization terms.
The following table presents the contractual and notional amounts of financial instruments with off-balance sheet risk:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Jun 30,
2021
|
|
Dec 31,
2020
|
Financial instruments whose contract amounts represent credit risk (unfunded commitments):
|
|
|
|
Commitments to extend credit:
|
|
|
|
Commercial loans
|
$450,576
|
|
|
$453,493
|
|
Home equity lines
|
345,381
|
|
|
319,744
|
|
Other loans
|
150,123
|
|
|
89,078
|
|
Standby letters of credit
|
11,904
|
|
|
11,709
|
|
Financial instruments whose notional amounts exceed the amounts of credit risk:
|
|
|
|
Mortgage loan commitments:
|
|
|
|
Interest rate lock commitments
|
82,082
|
|
|
167,671
|
|
Forward sale commitments
|
155,905
|
|
|
279,653
|
|
Loan related derivative contracts:
|
|
|
|
Interest rate swaps with customers
|
993,031
|
|
|
991,002
|
|
Mirror swaps with counterparties
|
993,031
|
|
|
991,002
|
|
Risk participation-in agreements
|
147,732
|
|
|
92,717
|
|
|
|
|
|
Interest rate risk management contracts:
|
|
|
|
Interest rate swaps
|
360,000
|
|
|
60,000
|
|
See Note 10 for additional disclosure pertaining to derivative financial instruments.
ACL on Unfunded Commitments
The ACL on unfunded commitments is management’s estimate of expected credit losses over the expected contractual term (or life) in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. Unfunded commitments for home equity lines of credit and commercial demand loans are considered unconditionally cancellable for regulatory capital purposes and, therefore, are excluded from the calculation to estimate the ACL on unfunded commitments. For each portfolio, estimated loss rates and funding factors are applied to the corresponding balance of unfunded commitments. For each portfolio, the estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans. The estimated funding factor applied to unfunded commitments represents the likelihood that the funding will occur and is based upon the Corporation’s average historical utilization rate for each portfolio.
Condensed Notes to Unaudited Consolidated Financial Statements – (continued)
The ACL on unfunded commitments is included in other liabilities in the Unaudited Consolidated Balance Sheets. The ACL on unfunded commitments is adjusted through a provision for credit losses recognized in the Unaudited Consolidated Statements of Income.
The activity in the ACL on unfunded commitments for the three months ended June 30, 2021 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$953
|
|
$1,314
|
|
$2,267
|
|
$46
|
|
$—
|
|
$20
|
|
$20
|
|
$2,333
|
|
|
|
|
|
|
|
|
|
|
Provision
|
261
|
|
(269)
|
|
(8)
|
|
10
|
|
—
|
|
(2)
|
|
(2)
|
|
—
|
|
Ending Balance
|
$1,214
|
|
$1,045
|
|
$2,259
|
|
$56
|
|
$—
|
|
$18
|
|
$18
|
|
$2,333
|
|
The activity in the ACL on unfunded commitments for the six months ended June 30, 2021 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$907
|
|
$1,402
|
|
$2,309
|
|
$54
|
|
$—
|
|
$19
|
|
$19
|
|
$2,382
|
|
|
|
|
|
|
|
|
|
|
Provision
|
307
|
|
(357)
|
|
(50)
|
|
2
|
|
—
|
|
(1)
|
|
(1)
|
|
(49)
|
|
Ending Balance
|
$1,214
|
|
$1,045
|
|
$2,259
|
|
$56
|
|
$—
|
|
$18
|
|
$18
|
|
$2,333
|
|
The activity in the ACL on unfunded commitments for the three months ended June 30, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$1,132
|
|
$847
|
|
$1,979
|
|
$42
|
|
$—
|
|
$18
|
|
$18
|
|
$2,039
|
|
|
|
|
|
|
|
|
|
|
Provision
|
(245)
|
|
360
|
|
115
|
|
—
|
|
—
|
|
1
|
|
1
|
|
116
|
|
Ending Balance
|
$887
|
|
$1,207
|
|
$2,094
|
|
$42
|
|
$—
|
|
$19
|
|
$19
|
|
$2,155
|
|
The activity in the ACL on unfunded commitments for the six months ended June 30, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Commercial
|
|
|
Consumer
|
|
|
|
CRE
|
C&I
|
Total Commercial
|
Residential Real Estate
|
Home Equity
|
Other
|
Total Consumer
|
Total
|
Beginning Balance
|
$136
|
|
$144
|
|
$280
|
|
$6
|
|
$—
|
|
$7
|
|
$7
|
|
$293
|
|
Adoption of Topic 326
|
817
|
|
626
|
|
1,443
|
|
34
|
|
—
|
|
6
|
|
6
|
|
1,483
|
|
Provision
|
(66)
|
|
437
|
|
371
|
|
2
|
|
—
|
|
6
|
|
6
|
|
379
|
|
Ending Balance
|
$887
|
|
$1,207
|
|
$2,094
|
|
$42
|
|
$—
|
|
$19
|
|
$19
|
|
$2,155
|
|
Other Contingencies
Litigation
The Corporation is involved in various claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated balance sheets or statements of income of the Corporation.