NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The Consolidated Financial Statements (the “financial statements”) of Berkshire Hills Bancorp, Inc. and its subsidiaries (the “Company” or “Berkshire”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is a Delaware corporation, headquartered in Boston, Massachusetts, and the holding company for Berkshire Bank (the “Bank”), a Massachusetts-chartered trust company headquartered in Pittsfield, Massachusetts, and Berkshire Insurance Group, Inc. These financial statements include the accounts of the Company, its wholly-owned subsidiaries and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless GAAP requires otherwise.
The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these financial statements were issued.
These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to GAAP have been omitted.
The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and disclosures Berkshire Hills Bancorp, Inc. previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates.
Refer to Note 10 – Other Commitments, Contingencies, and Off-Balance Sheet Activities for pandemic related risks and uncertainties.
Recently Adopted Accounting Principles
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. As ASU No. 2018-14 only revises disclosure requirements, the adoption did not have a material impact on the Company’s Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU No. 2019-12 removes specific exceptions to the general principles in FASB ASC Topic 740. It eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also improves financial statement preparers’ application of income tax-related guidance and simplifies: (1) franchise taxes that are partially based on income; (2) transactions with a government that result in a step up in the tax basis of goodwill; (3) separate financial statements of legal entities that are not subject to tax; and (4) enacted changes in tax laws in interim periods. The adoption of ASU No. 2019-12 did not have a material impact on the Company's Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2020, the FASB issued ASU No. 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)”. ASU No. 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, this ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. The amendments are to be applied prospectively. The adoption of ASU No. 2020-01 did not have a material impact on the Company's Consolidated Financial Statements.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU No. 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU No. 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact the Company’s Consolidated Financial Statements.
Future Application of Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. For instance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. Finally, entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. It is anticipated that this ASU will simplify any modifications that are executed between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. DISCONTINUED OPERATIONS AND HELD FOR SALE
During the first quarter of 2019, the Company reached the decision to pursue the sale of the national mortgage banking operations of First Choice Loan Services, Inc. (“FCLS”), – a subsidiary of the Bank. The decision was based on a number of strategic priorities and other factors, including the competitiveness of the mortgage industry. FCLS continued to operate and serve its customers as the Company initiated the process of identifying a buyer. As a result of these actions, the Company classified the operations of FCLS as discontinued under ASC 205-20. The Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows present discontinued operations retrospectively for current and prior periods.
On May 7, 2020, the Company completed a transaction to sell certain assets and liabilities related to the operations of FCLS. During the fourth quarter of 2020, the Company completed the final wind-down of the operations of FCLS. Operating results for the year ended December 31, 2020, include expenses related to the wind-down of operations.
As of March 31, 2021 and December 31, 2020, there were no assets or liabilities related to the discontinued operations of FCLS.
The following presents operating results of the discontinued operations of FCLS for the three months ended March 31, 2021 and March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
Interest income
|
|
$
|
—
|
|
|
$
|
729
|
|
|
|
|
Interest expense
|
|
—
|
|
|
282
|
|
|
|
|
Net interest income
|
|
—
|
|
|
447
|
|
|
|
|
Non-interest income
|
|
—
|
|
|
1,358
|
|
|
|
|
Total net revenue
|
|
—
|
|
|
1,805
|
|
|
|
|
Non-interest expense
|
|
—
|
|
|
12,434
|
|
|
|
|
(Loss) from discontinued operations before income taxes
|
|
—
|
|
|
(10,629)
|
|
|
|
|
Income tax (benefit)
|
|
—
|
|
|
(2,831)
|
|
|
|
|
Net (loss) from discontinued operations
|
|
$
|
—
|
|
|
$
|
(7,798)
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mid-Atlantic Branch Sale
The Company has entered into an agreement to sell its eight Mid-Atlantic branches to Investors Bank of Short Hills, New Jersey, subject to customary regulatory approvals. The transfer is targeted for completion in the first half of 2021. The branch sale includes loans with a total balance of $284 million and deposit accounts with a total balance of $647 million as of March 31, 2021. These balances are included in assets held for sale and liabilities held for sale on the Consolidated Balance Sheets. The buyer has agreed to pay a premium equal to 3.0% of the final deposit balance transferred. The sale includes all branch premises and equipment, and the agreement provides that the buyer intends to offer employment to all associated staff. Berkshire expects to complete the net transfer with funds from short-term investments. The branch sale will have no effect on Berkshire’s Mid-Atlantic specialized commercial lending operations, including SBA lending at its 44 Business Capital Division and its asset-based lending relationships.
The following is a summary of the assets and liabilities related to the branch sale at March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2021
|
|
December 31, 2020
|
Assets
|
|
|
|
|
Loans
|
|
$
|
283,769
|
|
|
$
|
300,599
|
|
Other assets
|
|
19,928
|
|
|
16,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
303,697
|
|
|
$
|
317,304
|
|
Liabilities
|
|
|
|
|
Deposits
|
|
$
|
646,622
|
|
|
$
|
617,377
|
|
Other liabilities
|
|
12,688
|
|
|
12,688
|
|
Total liabilities
|
|
$
|
659,310
|
|
|
$
|
630,065
|
|
NOTE 3. TRADING SECURITY
The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $8.5 million and $8.7 million, and a fair value of $9.3 million and $9.7 million, at March 31, 2021 and December 31, 2020, respectively. As discussed further in Note 8 - Derivative Financial Instruments and Hedging Activities, the Company entered into a swap contract to swap-out the fixed rate of the security in exchange for a variable rate. The Company does not purchase securities with the intent of selling them in the near term, and there were no other securities in the trading portfolio at March 31, 2021 or December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SECURITIES AVAILABLE FOR SALE, HELD TO MATURITY, AND MARKETABLE
EQUITY SECURITIES
The following is a summary of securities available for sale, held to maturity, and marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Allowance
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
$
|
83,922
|
|
|
$
|
6,378
|
|
|
$
|
—
|
|
|
$
|
90,300
|
|
|
$
|
—
|
|
Agency collateralized mortgage obligations
|
|
713,215
|
|
|
14,922
|
|
|
(3,583)
|
|
|
724,554
|
|
|
—
|
|
Agency mortgage-backed securities
|
|
453,042
|
|
|
2,813
|
|
|
(8,659)
|
|
|
447,196
|
|
|
—
|
|
Agency commercial mortgage-backed securities
|
|
267,596
|
|
|
4,020
|
|
|
(3,101)
|
|
|
268,515
|
|
|
—
|
|
Corporate bonds
|
|
44,294
|
|
|
729
|
|
|
(9)
|
|
|
45,014
|
|
|
—
|
|
Other bonds and obligations
|
|
50,691
|
|
|
1,068
|
|
|
(8)
|
|
|
51,751
|
|
|
—
|
|
Total securities available for sale
|
|
1,612,760
|
|
|
29,930
|
|
|
(15,360)
|
|
|
1,627,330
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
266,609
|
|
|
16,884
|
|
|
(592)
|
|
|
282,901
|
|
|
71
|
|
Agency collateralized mortgage obligations
|
|
151,092
|
|
|
4,764
|
|
|
(1,054)
|
|
|
154,802
|
|
|
—
|
|
Agency mortgage-backed securities
|
|
65,052
|
|
|
155
|
|
|
(1,682)
|
|
|
63,525
|
|
|
—
|
|
Agency commercial mortgage-backed securities
|
|
124,379
|
|
|
398
|
|
|
(2,288)
|
|
|
122,489
|
|
|
—
|
|
Tax advantaged economic development bonds
|
|
3,210
|
|
|
75
|
|
|
—
|
|
|
3,285
|
|
|
40
|
|
Other bonds and obligations
|
|
295
|
|
|
—
|
|
|
—
|
|
|
295
|
|
|
—
|
|
Total securities held to maturity
|
|
610,637
|
|
|
22,276
|
|
|
(5,616)
|
|
|
627,297
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
15,707
|
|
|
218
|
|
|
(124)
|
|
|
15,801
|
|
|
—
|
|
Total
|
|
$
|
2,239,104
|
|
|
$
|
52,424
|
|
|
$
|
(21,100)
|
|
|
$
|
2,270,428
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Allowance
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
$
|
90,273
|
|
|
$
|
7,530
|
|
|
$
|
—
|
|
|
$
|
97,803
|
|
|
$
|
—
|
|
Agency collateralized mortgage obligations
|
|
740,225
|
|
|
16,836
|
|
|
(235)
|
|
|
756,826
|
|
|
—
|
|
Agency mortgage-backed securities
|
|
433,311
|
|
|
4,954
|
|
|
(133)
|
|
|
438,132
|
|
|
—
|
|
Agency commercial mortgage-backed securities
|
|
278,990
|
|
|
9,835
|
|
|
(175)
|
|
|
288,650
|
|
|
—
|
|
Corporate bonds
|
|
59,098
|
|
|
942
|
|
|
(10)
|
|
|
60,030
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Other bonds and obligations
|
|
52,080
|
|
|
1,719
|
|
|
(8)
|
|
|
53,791
|
|
|
—
|
|
Total securities available for sale
|
|
1,653,977
|
|
|
41,816
|
|
|
(561)
|
|
|
1,695,232
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
246,520
|
|
|
20,106
|
|
|
—
|
|
|
266,626
|
|
|
64
|
|
Agency collateralized mortgage obligations
|
|
153,561
|
|
|
5,989
|
|
|
(171)
|
|
|
159,379
|
|
|
—
|
|
Agency mortgage-backed securities
|
|
35,865
|
|
|
198
|
|
|
(29)
|
|
|
36,034
|
|
|
—
|
|
Agency commercial mortgage-backed securities
|
|
25,481
|
|
|
590
|
|
|
(12)
|
|
|
26,059
|
|
|
—
|
|
Tax advantaged economic development bonds
|
|
3,369
|
|
|
93
|
|
|
—
|
|
|
3,462
|
|
|
40
|
|
Other bonds and obligations
|
|
295
|
|
|
—
|
|
|
—
|
|
|
295
|
|
|
—
|
|
Total securities held to maturity
|
|
465,091
|
|
|
26,976
|
|
|
(212)
|
|
|
491,855
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
18,061
|
|
|
767
|
|
|
(315)
|
|
|
18,513
|
|
|
—
|
|
Total
|
|
$
|
2,137,129
|
|
|
$
|
69,559
|
|
|
$
|
(1,088)
|
|
|
$
|
2,205,600
|
|
|
$
|
104
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Municipal bonds and obligations
|
|
Tax advantaged economic development bonds
|
|
Total
|
Balance at December 31, 2020
|
$
|
64
|
|
|
$
|
40
|
|
|
$
|
104
|
|
Provision for credit losses
|
7
|
|
|
—
|
|
|
7
|
|
Balance at March 31, 2021
|
$
|
71
|
|
|
$
|
40
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Municipal bonds and obligations
|
|
Tax advantaged economic development bonds
|
|
Total
|
Balance at December 31, 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Impact of ASC 326 adoption
|
83
|
|
|
226
|
|
|
309
|
|
Provision for credit losses - reversal
|
—
|
|
|
(168)
|
|
|
(168)
|
|
Balance at March 31, 2020
|
$
|
83
|
|
|
$
|
58
|
|
|
$
|
141
|
|
Credit Quality Information
The Company monitors the credit quality of held to maturity securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization.
As of March 31, 2021, none of the Company's investment securities were delinquent or in non-accrual status.
The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at March 31, 2021 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
Held to maturity
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
31,134
|
|
|
$
|
31,147
|
|
|
$
|
1,872
|
|
|
$
|
1,874
|
|
Over 1 year to 5 years
|
|
7,206
|
|
|
7,331
|
|
|
4,270
|
|
|
4,317
|
|
Over 5 years to 10 years
|
|
51,953
|
|
|
53,260
|
|
|
23,311
|
|
|
24,210
|
|
Over 10 years
|
|
88,614
|
|
|
95,327
|
|
|
240,661
|
|
|
256,080
|
|
Total bonds and obligations
|
|
178,907
|
|
|
187,065
|
|
|
270,114
|
|
|
286,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
1,433,853
|
|
|
1,440,265
|
|
|
340,523
|
|
|
340,816
|
|
Total
|
|
$
|
1,612,760
|
|
|
$
|
1,627,330
|
|
|
$
|
610,637
|
|
|
$
|
627,297
|
|
During the three months ended March 31, 2021, purchases of AFS securities totaled $103.9 million. During the three months ended March 31, 2021, there were no sales of AFS securities. During the three months ended March 31, 2020, purchases of AFS securities totaled $160.9 million and the proceeds from the sale of AFS securities totaled $3.5 million. During the three months ended March 31, 2021, there were no gross gains or losses on AFS securities. During the three months ended March 31,2020, there were no gross gains on AFS securities and gross losses totaled $1 thousand. These gains and losses are included in gain/(loss) on securities, net on the consolidated statements of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities available for sale and held to maturity with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months
|
|
Over Twelve Months
|
|
Total
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency collateralized mortgage obligations
|
|
$
|
3,583
|
|
|
$
|
150,110
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,583
|
|
|
$
|
150,110
|
|
Agency mortgage-backed securities
|
|
8,654
|
|
|
346,395
|
|
|
5
|
|
|
384
|
|
|
8,659
|
|
|
346,779
|
|
Agency commercial mortgage-backed securities
|
|
3,101
|
|
|
132,234
|
|
|
—
|
|
|
—
|
|
|
3,101
|
|
|
132,234
|
|
Corporate bonds
|
|
—
|
|
|
—
|
|
|
9
|
|
|
4,876
|
|
|
9
|
|
|
4,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other bonds and obligations
|
|
—
|
|
|
—
|
|
|
8
|
|
|
981
|
|
|
8
|
|
|
981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
15,338
|
|
|
$
|
628,739
|
|
|
$
|
22
|
|
|
$
|
6,241
|
|
|
$
|
15,360
|
|
|
$
|
634,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
$
|
592
|
|
|
$
|
23,359
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
592
|
|
|
$
|
23,359
|
|
Agency collateralized mortgage obligations
|
|
1,054
|
|
|
83,449
|
|
|
—
|
|
|
—
|
|
|
1,054
|
|
|
83,449
|
|
Agency mortgage-backed securities
|
|
1,682
|
|
|
59,167
|
|
|
—
|
|
|
—
|
|
|
1,682
|
|
|
59,167
|
|
Agency commercial mortgage-backed securities
|
|
2,288
|
|
|
103,015
|
|
|
—
|
|
|
—
|
|
|
2,288
|
|
|
103,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
5,616
|
|
|
268,990
|
|
|
—
|
|
|
—
|
|
|
5,616
|
|
|
268,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,954
|
|
|
$
|
897,729
|
|
|
$
|
22
|
|
|
$
|
6,241
|
|
|
$
|
20,976
|
|
|
$
|
903,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency collateralized mortgage obligations
|
|
$
|
235
|
|
|
$
|
77,898
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
235
|
|
|
$
|
77,898
|
|
Agency mortgage-backed securities
|
|
131
|
|
|
39,939
|
|
|
2
|
|
|
256
|
|
|
133
|
|
|
40,195
|
|
Agency commercial mortgage-backed securities
|
|
175
|
|
|
51,435
|
|
|
—
|
|
|
—
|
|
|
175
|
|
|
51,435
|
|
Corporate bonds
|
|
10
|
|
|
4,875
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
4,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other bonds and obligations
|
|
—
|
|
|
—
|
|
|
8
|
|
|
1,030
|
|
|
8
|
|
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
551
|
|
|
$
|
174,147
|
|
|
$
|
10
|
|
|
$
|
1,286
|
|
|
$
|
561
|
|
|
$
|
175,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency collateralized mortgage obligations
|
|
$
|
171
|
|
|
$
|
25,048
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171
|
|
|
$
|
25,048
|
|
Agency mortgage-backed securities
|
|
29
|
|
|
20,710
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
20,710
|
|
Agency commercial mortgage-backed securities
|
|
12
|
|
|
10,216
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
10,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
212
|
|
|
55,974
|
|
|
—
|
|
|
—
|
|
|
212
|
|
|
55,974
|
|
Total
|
|
$
|
763
|
|
|
$
|
230,121
|
|
|
$
|
10
|
|
|
$
|
1,286
|
|
|
$
|
773
|
|
|
$
|
231,407
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Securities
The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of March 31, 2021, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.
The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at March 31, 2021:
AFS collateralized mortgage obligations
At March 31, 2021, 25 of the 256 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 2.2% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s collateralized mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
AFS commercial and residential mortgage-backed securities
At March 31, 2021, 33 of the 125 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 2.4% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
AFS corporate bonds
At March 31, 2021, 1 of the 14 securities in the Company’s portfolio of AFS corporate bonds was in an unrealized loss position. Aggregate unrealized losses represents 0.2% of the amortized cost of the bond in an unrealized loss position. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities.
AFS other bonds and obligations
At March 31, 2021, 3 of the 6 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 0.9% of the amortized cost of securities in unrealized loss positions. The securities are all investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.
HTM municipal bonds and obligations
At March 31, 2021, 15 of the 207 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 2.5% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
HTM collateralized mortgage obligations
At March 31, 2021, 5 of the 13 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 1.3% of the amortized cost of the securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM commercial and residential mortgage-backed securities
At March 31, 2021, 12 out of 14 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 2.3% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following is a summary of total loans by regulatory call report code with sub-segmentation based on underlying collateral for certain loan types:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2021
|
|
December 31, 2020
|
Construction
|
|
$
|
454,388
|
|
|
$
|
454,513
|
|
Commercial multifamily
|
|
483,646
|
|
|
483,350
|
|
Commercial real estate owner occupied
|
|
556,286
|
|
|
552,413
|
|
Commercial real estate non-owner occupied
|
|
2,129,572
|
|
|
2,119,263
|
|
Commercial and industrial
|
|
1,719,304
|
|
|
1,943,164
|
|
|
|
|
|
|
Residential real estate
|
|
1,774,504
|
|
|
1,931,681
|
|
Home equity
|
|
279,017
|
|
|
293,981
|
|
Consumer other
|
|
262,061
|
|
|
303,154
|
|
Total loans
|
|
$
|
7,658,778
|
|
|
$
|
8,081,519
|
|
|
|
|
|
|
Allowance for credit losses
|
|
123,800
|
|
|
127,302
|
|
Net loans
|
|
$
|
7,534,978
|
|
|
$
|
7,954,217
|
|
As of March 31, 2021, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $444.2 million. These loans are 100% guaranteed by the SBA and the full principal amount of the loan may qualify for forgiveness. These loans are included in commercial and industrial.
During the three months ended March 31, 2021, the Company reclassified $9.5 million of commercial loans, reflecting its intent to sell these loans. These loans are not contained in the balances within this note and are accounted for at the lower of carrying value or fair market value.
Risk characteristics relevant to each portfolio segment are as follows:
Construction - Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property or long term financing at completion. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions
Commercial real estate multifamily, owner occupied and non-owner - Loans in these segments are primarily owner-occupied or income-producing properties throughout New England and Northeastern New York. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans.
Commercial and industrial loans - Loans in this segment are made to businesses and are generally secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Repayment is expected from the cash flows of the business. Loans in this segment include asset based loans which generally have no scheduled repayment and which are closely monitored against formula based collateral advance ratios. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Residential real estate - All loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
Home equity and other consumer loans - Loans in this segment are primarily home equity lines of credit, automobile loans and other consumer loans. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
Allowance for Credit Losses for Loans
The Allowance for Credit Losses for Loans (“ACLL”) is comprised of the allowance for loan losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACLL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company uses a static pool migration analysis method, applying expected historical loss trend and observed economic metrics. The level of the ACLL is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past and current events, utilizing a 7 quarter reasonable and supportable forecast period with a 1 year reversion period. The ACLL reserve is overlaid with qualitative factors based upon:
•the existence and growth of concentrations of credit;
•the volume and severity of past due financial assets, including nonaccrual assets;
•the institutions lending and credit review as well as the experience and ability of relevant management and staff and;
•the effect of other external factors such as regulatory, competition, regional market conditions, legal and technological environment and other events such as natural disasters;
•the effect of other economic factors such as economic stimulus and customer forbearance programs.
The allowance for unfunded commitments is maintained at a level by the Company to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit).
The Company’s activity in the allowance for credit losses for loans for the three months ended March 31, 2021 and March 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at Beginning of Period
|
|
Impact of Adopting ASC 326
|
|
Sub-total
|
|
Charge-offs
|
|
Recoveries
|
|
Provision for Credit Losses
|
|
Balance at End of Period
|
Three months ended March 31, 2021
|
Construction
|
|
$
|
5,111
|
|
|
$
|
—
|
|
|
$
|
5,111
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(714)
|
|
|
$
|
4,397
|
|
Commercial multifamily
|
|
5,916
|
|
|
—
|
|
|
5,916
|
|
|
(124)
|
|
|
62
|
|
|
497
|
|
|
6,351
|
|
Commercial real estate owner occupied
|
|
12,380
|
|
|
—
|
|
|
12,380
|
|
|
(376)
|
|
|
12
|
|
|
2,241
|
|
|
14,257
|
|
Commercial real estate non-owner occupied
|
|
35,850
|
|
|
—
|
|
|
35,850
|
|
|
(6,658)
|
|
|
126
|
|
|
5,243
|
|
|
34,561
|
|
Commercial and industrial
|
|
25,013
|
|
|
—
|
|
|
25,013
|
|
|
(3,320)
|
|
|
644
|
|
|
3,734
|
|
|
26,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
28,491
|
|
|
—
|
|
|
28,491
|
|
|
(377)
|
|
|
437
|
|
|
(2,751)
|
|
|
25,800
|
|
Home equity
|
|
6,482
|
|
|
—
|
|
|
6,482
|
|
|
(77)
|
|
|
24
|
|
|
(680)
|
|
|
5,749
|
|
Consumer other
|
|
8,059
|
|
|
—
|
|
|
8,059
|
|
|
(528)
|
|
|
160
|
|
|
(1,077)
|
|
|
6,614
|
|
Total allowance for credit losses
|
|
$
|
127,302
|
|
|
$
|
—
|
|
|
$
|
127,302
|
|
|
$
|
(11,460)
|
|
|
$
|
1,465
|
|
|
$
|
6,493
|
|
|
$
|
123,800
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at Beginning of Period
|
|
Impact of Adopting ASC 326
|
|
Sub-total
|
|
Charge-offs
|
|
Recoveries
|
|
Provision for Credit Losses
|
|
Balance at End of Period
|
Three months ended March 31, 2020
|
Construction
|
|
$
|
2,713
|
|
|
$
|
(342)
|
|
|
$
|
2,371
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,202
|
|
|
$
|
4,573
|
|
Commercial multifamily
|
|
4,413
|
|
|
(1,842)
|
|
|
2,571
|
|
|
—
|
|
|
—
|
|
|
1,882
|
|
|
4,453
|
|
Commercial real estate owner occupied
|
|
4,880
|
|
|
6,062
|
|
|
10,942
|
|
|
(6,376)
|
|
|
258
|
|
|
6,783
|
|
|
11,607
|
|
Commercial real estate non-owner occupied
|
|
16,344
|
|
|
11,201
|
|
|
27,545
|
|
|
(135)
|
|
|
47
|
|
|
1,406
|
|
|
28,863
|
|
Commercial and industrial
|
|
20,099
|
|
|
(2,189)
|
|
|
17,910
|
|
|
(4,916)
|
|
|
1,402
|
|
|
10,106
|
|
|
24,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
9,970
|
|
|
6,799
|
|
|
16,769
|
|
|
(171)
|
|
|
70
|
|
|
9,389
|
|
|
26,057
|
|
Home equity
|
|
1,470
|
|
|
4,884
|
|
|
6,354
|
|
|
(77)
|
|
|
2
|
|
|
1,501
|
|
|
7,780
|
|
Consumer other
|
|
3,686
|
|
|
861
|
|
|
4,547
|
|
|
(758)
|
|
|
180
|
|
|
1,706
|
|
|
5,675
|
|
Total allowance for credit losses
|
|
$
|
63,575
|
|
|
$
|
25,434
|
|
|
$
|
89,009
|
|
|
$
|
(12,433)
|
|
|
$
|
1,959
|
|
|
$
|
34,975
|
|
|
$
|
113,510
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liability on consolidated balance sheet), with adjustments to the reserve recognized in other noninterest expense in the consolidated statement of operations. The Company’s activity in the allowance for credit losses on unfunded commitments for the three months ended March 31, 2021 and March 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(In thousands)
|
|
2021
|
2020
|
Balance at beginning of period
|
|
$
|
7,629
|
|
$
|
100
|
|
Impact of adopting ASC 326
|
|
—
|
|
7,993
|
|
Sub-Total
|
|
7,629
|
|
8,093
|
|
Expense for credit losses
|
|
200
|
|
330
|
|
Balance at end of period
|
|
$
|
7,829
|
|
$
|
8,423
|
|
Credit Quality Information
The Company monitors the credit quality of its portfolio by using internal risk ratings that are based on regulatory guidance. Loans that are given a Pass rating are not considered a problem credit. Loans that are classified as Special Mention loans are considered to have potential weaknesses and are evaluated closely by management. Substandard, including non-accruing loans, are loans for which a definitive weakness has been identified and which may make full collection of contractual cash flows questionable. Doubtful loans are those with identified weaknesses that make full collection of contractual cash flows, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
For commercial credits, the Company assigns an internal risk rating at origination and reviews the rating annual, semiannually, or quarterly depending on the risk rating. The rating is also reassessed at any point in time when management becomes aware of information that may affect the borrower’s ability to fulfill their obligations.
The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention, and Substandard. Loans that are current within 59 days are rated Pass. Residential mortgages that are 60-89 days delinquent are rated Special Mention. Loans delinquent for 90 days or greater are rated Substandard and generally placed on non-accrual status.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s loans by risk category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|
|
|
(In thousands)
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
Revolving Loans Amortized Cost Basis
|
Revolving Loans Converted to Term
|
Total
|
As of March 31, 2021
|
Construction
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
25,422
|
|
$
|
43,662
|
|
$
|
275,525
|
|
$
|
65,371
|
|
$
|
27,177
|
|
$
|
2,501
|
|
$
|
1,000
|
|
$
|
—
|
|
$
|
440,658
|
|
Special Mention
|
—
|
|
—
|
|
—
|
|
313
|
|
—
|
|
—
|
|
—
|
|
—
|
|
313
|
|
Substandard
|
—
|
|
—
|
|
—
|
|
9,429
|
|
3,988
|
|
—
|
|
—
|
|
—
|
|
13,417
|
|
Total
|
$
|
25,422
|
|
$
|
43,662
|
|
$
|
275,525
|
|
$
|
75,113
|
|
$
|
31,165
|
|
$
|
2,501
|
|
$
|
1,000
|
|
$
|
—
|
|
$
|
454,388
|
|
|
|
|
|
|
|
|
|
|
|
Commercial multifamily:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
17,100
|
|
$
|
31,295
|
|
$
|
55,210
|
|
$
|
74,123
|
|
$
|
78,148
|
|
$
|
219,175
|
|
$
|
61
|
|
$
|
—
|
|
$
|
475,112
|
|
Special Mention
|
—
|
|
—
|
|
2,187
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,187
|
|
Substandard
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,204
|
|
143
|
|
—
|
|
6,347
|
|
Total
|
$
|
17,100
|
|
$
|
31,295
|
|
$
|
57,397
|
|
$
|
74,123
|
|
$
|
78,148
|
|
$
|
225,379
|
|
$
|
204
|
|
$
|
—
|
|
$
|
483,646
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
13,652
|
|
$
|
53,164
|
|
$
|
81,473
|
|
$
|
99,224
|
|
$
|
63,148
|
|
$
|
218,342
|
|
$
|
1,506
|
|
$
|
—
|
|
$
|
530,509
|
|
Special Mention
|
—
|
|
535
|
|
3,389
|
|
1,136
|
|
1,966
|
|
2,432
|
|
—
|
|
—
|
|
9,458
|
|
Substandard
|
—
|
|
—
|
|
1,266
|
|
3,333
|
|
1,627
|
|
10,093
|
|
—
|
|
—
|
|
16,319
|
|
Total
|
$
|
13,652
|
|
$
|
53,699
|
|
$
|
86,128
|
|
$
|
103,693
|
|
$
|
66,741
|
|
$
|
230,867
|
|
$
|
1,506
|
|
$
|
—
|
|
$
|
556,286
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
77,638
|
|
$
|
174,898
|
|
$
|
292,528
|
|
$
|
469,718
|
|
$
|
218,525
|
|
$
|
725,223
|
|
$
|
17,394
|
|
$
|
—
|
|
$
|
1,975,924
|
|
Special Mention
|
—
|
|
231
|
|
270
|
|
2,971
|
|
6,904
|
|
58,403
|
|
1,059
|
|
—
|
|
69,838
|
|
Substandard
|
—
|
|
7,804
|
|
3,529
|
|
3,730
|
|
20,135
|
|
48,418
|
|
194
|
|
—
|
|
83,810
|
|
Total
|
$
|
77,638
|
|
$
|
182,933
|
|
$
|
296,327
|
|
$
|
476,419
|
|
$
|
245,564
|
|
$
|
832,044
|
|
$
|
18,647
|
|
$
|
—
|
|
$
|
2,129,572
|
|
|
Commercial and industrial:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
25,240
|
|
$
|
563,757
|
|
$
|
131,781
|
|
$
|
203,153
|
|
$
|
110,240
|
|
$
|
182,949
|
|
$
|
372,075
|
|
$
|
—
|
|
$
|
1,589,195
|
|
Special Mention
|
—
|
|
1,952
|
|
9,887
|
|
7,477
|
|
3,881
|
|
4,011
|
|
10,806
|
|
—
|
|
38,014
|
|
Substandard
|
146
|
|
8,807
|
|
37,772
|
|
22,909
|
|
6,826
|
|
7,857
|
|
7,456
|
|
—
|
|
91,773
|
|
Doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
322
|
|
—
|
|
322
|
|
Total
|
$
|
25,386
|
|
$
|
574,516
|
|
$
|
179,440
|
|
$
|
233,539
|
|
$
|
120,947
|
|
$
|
194,817
|
|
$
|
390,659
|
|
$
|
—
|
|
$
|
1,719,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
55,071
|
|
$
|
148,622
|
|
$
|
127,817
|
|
$
|
218,785
|
|
$
|
273,160
|
|
$
|
931,322
|
|
$
|
3,261
|
|
$
|
—
|
|
$
|
1,758,038
|
|
Special Mention
|
—
|
|
—
|
|
—
|
|
—
|
|
284
|
|
814
|
|
—
|
|
—
|
|
1,098
|
|
Substandard
|
—
|
|
700
|
|
31
|
|
1,836
|
|
2,434
|
|
10,367
|
|
—
|
|
—
|
|
15,368
|
|
Total
|
$
|
55,071
|
|
$
|
149,322
|
|
$
|
127,848
|
|
$
|
220,621
|
|
$
|
275,878
|
|
$
|
942,503
|
|
$
|
3,261
|
|
$
|
—
|
|
$
|
1,774,504
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|
|
|
(In thousands)
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Revolving Loans Amortized Cost Basis
|
Revolving Loans Converted to Term
|
Total
|
As of December 31, 2020
|
Construction
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
38,374
|
|
$
|
255,377
|
|
$
|
114,690
|
|
$
|
28,474
|
|
$
|
9,519
|
|
$
|
2,766
|
|
$
|
1,000
|
|
$
|
—
|
|
$
|
450,200
|
|
Special Mention
|
—
|
|
—
|
|
313
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
313
|
|
Substandard
|
—
|
|
—
|
|
—
|
|
4,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,000
|
|
Total
|
$
|
38,374
|
|
$
|
255,377
|
|
$
|
115,003
|
|
$
|
32,474
|
|
$
|
9,519
|
|
$
|
2,766
|
|
$
|
1,000
|
|
$
|
—
|
|
$
|
454,513
|
|
|
|
|
|
|
|
|
|
|
|
Commercial multifamily:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
31,438
|
|
$
|
57,659
|
|
$
|
74,932
|
|
$
|
77,746
|
|
$
|
81,066
|
|
$
|
153,818
|
|
$
|
20
|
|
$
|
—
|
|
$
|
476,679
|
|
Special Mention
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Substandard
|
—
|
|
—
|
|
—
|
|
—
|
|
47
|
|
6,479
|
|
145
|
|
—
|
|
6,671
|
|
Total
|
$
|
31,438
|
|
$
|
57,659
|
|
$
|
74,932
|
|
$
|
77,746
|
|
$
|
81,113
|
|
$
|
160,297
|
|
$
|
165
|
|
$
|
—
|
|
$
|
483,350
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
58,327
|
|
$
|
84,839
|
|
$
|
104,797
|
|
$
|
64,693
|
|
$
|
44,300
|
|
$
|
169,197
|
|
$
|
1,194
|
|
$
|
—
|
|
$
|
527,347
|
|
Special Mention
|
535
|
|
2,569
|
|
1,136
|
|
1,009
|
|
800
|
|
2,579
|
|
—
|
|
—
|
|
8,628
|
|
Substandard
|
—
|
|
1,266
|
|
3,597
|
|
1,685
|
|
1,439
|
|
8,451
|
|
—
|
|
—
|
|
16,438
|
|
Total
|
$
|
58,862
|
|
$
|
88,674
|
|
$
|
109,530
|
|
$
|
67,387
|
|
$
|
46,539
|
|
$
|
180,227
|
|
$
|
1,194
|
|
$
|
—
|
|
$
|
552,413
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
180,520
|
|
$
|
292,386
|
|
$
|
435,440
|
|
$
|
223,935
|
|
$
|
303,221
|
|
$
|
497,066
|
|
$
|
15,393
|
|
$
|
—
|
|
$
|
1,947,961
|
|
Special Mention
|
—
|
|
279
|
|
2,068
|
|
6,958
|
|
11,798
|
|
44,961
|
|
1,068
|
|
—
|
|
67,132
|
|
Substandard
|
7,804
|
|
3,529
|
|
4,235
|
|
19,632
|
|
2,124
|
|
66,651
|
|
195
|
|
—
|
|
104,170
|
|
Total
|
$
|
188,324
|
|
$
|
296,194
|
|
$
|
441,743
|
|
$
|
250,525
|
|
$
|
317,143
|
|
$
|
608,678
|
|
$
|
16,656
|
|
$
|
—
|
|
$
|
2,119,263
|
|
|
Commercial and industrial:
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
754,260
|
|
$
|
159,046
|
|
$
|
205,651
|
|
$
|
130,985
|
|
$
|
48,326
|
|
$
|
148,222
|
|
$
|
368,769
|
|
$
|
—
|
|
$
|
1,815,259
|
|
Special Mention
|
1,467
|
|
5,753
|
|
5,267
|
|
2,851
|
|
1,601
|
|
65
|
|
12,408
|
|
—
|
|
29,412
|
|
Substandard
|
7,392
|
|
39,822
|
|
24,951
|
|
7,765
|
|
3,504
|
|
5,630
|
|
9,099
|
|
—
|
|
98,163
|
|
Doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
330
|
|
—
|
|
330
|
|
Total
|
$
|
763,119
|
|
$
|
204,621
|
|
$
|
235,869
|
|
$
|
141,601
|
|
$
|
53,431
|
|
$
|
153,917
|
|
$
|
390,606
|
|
$
|
—
|
|
$
|
1,943,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
Risk rating
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
150,583
|
|
$
|
146,142
|
|
$
|
272,399
|
|
$
|
320,384
|
|
$
|
333,159
|
|
$
|
691,078
|
|
$
|
3,281
|
|
$
|
—
|
|
$
|
1,917,026
|
|
Special Mention
|
384
|
|
—
|
|
454
|
|
1,430
|
|
—
|
|
362
|
|
—
|
|
—
|
|
2,630
|
|
Substandard
|
991
|
|
39
|
|
703
|
|
902
|
|
417
|
|
8,964
|
|
9
|
|
—
|
|
12,025
|
|
Total
|
$
|
151,958
|
|
$
|
146,181
|
|
$
|
273,556
|
|
$
|
322,716
|
|
$
|
333,576
|
|
$
|
700,404
|
|
$
|
3,290
|
|
$
|
—
|
|
$
|
1,931,681
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For home equity and consumer other loan portfolio segments, Berkshire evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an ongoing basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost based on payment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|
|
|
(In thousands)
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
Revolving Loans Amortized Cost Basis
|
Revolving Loans Converted to Term
|
Total
|
As of March 31, 2021
|
Home equity:
|
|
|
|
|
|
|
|
|
|
Payment performance
|
|
|
|
|
|
|
|
|
|
Performing
|
$
|
703
|
|
$
|
2,623
|
|
$
|
1,469
|
|
$
|
309
|
|
$
|
1,829
|
|
$
|
2,234
|
|
$
|
267,103
|
|
$
|
—
|
|
$
|
276,270
|
|
Nonperforming
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,747
|
|
—
|
|
2,747
|
|
Total
|
$
|
703
|
|
$
|
2,623
|
|
$
|
1,469
|
|
$
|
309
|
|
$
|
1,829
|
|
$
|
2,234
|
|
$
|
269,850
|
|
$
|
—
|
|
$
|
279,017
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other:
|
|
|
|
|
|
|
|
|
|
Payment performance
|
|
|
|
|
|
|
|
|
|
Performing
|
$
|
4,870
|
|
$
|
14,084
|
|
$
|
30,924
|
|
$
|
87,205
|
|
$
|
57,753
|
|
$
|
54,399
|
|
$
|
7,965
|
|
$
|
—
|
|
$
|
257,200
|
|
Nonperforming
|
—
|
|
69
|
|
381
|
|
1,325
|
|
1,457
|
|
1,619
|
|
10
|
|
—
|
|
4,861
|
|
Total
|
$
|
4,870
|
|
$
|
14,153
|
|
$
|
31,305
|
|
$
|
88,530
|
|
$
|
59,210
|
|
$
|
56,018
|
|
$
|
7,975
|
|
$
|
—
|
|
$
|
262,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|
|
|
(In thousands)
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Revolving Loans Amortized Cost Basis
|
Revolving Loans Converted to Term
|
Total
|
As of December 31, 2020
|
Home equity:
|
|
|
|
|
|
|
|
|
|
Payment performance
|
|
|
|
|
|
|
|
|
|
Performing
|
$
|
2,445
|
|
$
|
1,960
|
|
$
|
316
|
|
$
|
1,859
|
|
$
|
499
|
|
$
|
1,882
|
|
$
|
282,123
|
|
$
|
—
|
|
$
|
291,084
|
|
Nonperforming
|
—
|
|
—
|
|
1
|
|
—
|
|
—
|
|
—
|
|
2,896
|
|
—
|
|
2,897
|
|
Total
|
$
|
2,445
|
|
$
|
1,960
|
|
$
|
317
|
|
$
|
1,859
|
|
$
|
499
|
|
$
|
1,882
|
|
$
|
285,019
|
|
$
|
—
|
|
$
|
293,981
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other:
|
|
|
|
|
|
|
|
|
|
Payment performance
|
|
|
|
|
|
|
|
|
|
Performing
|
$
|
15,193
|
|
$
|
35,317
|
|
$
|
101,730
|
|
$
|
69,366
|
|
$
|
35,421
|
|
$
|
31,327
|
|
$
|
9,339
|
|
$
|
—
|
|
$
|
297,693
|
|
Nonperforming
|
39
|
|
316
|
|
1,511
|
|
1,599
|
|
1,585
|
|
407
|
|
4
|
|
—
|
|
5,461
|
|
Total
|
$
|
15,232
|
|
$
|
35,633
|
|
$
|
103,241
|
|
$
|
70,965
|
|
$
|
37,006
|
|
$
|
31,734
|
|
$
|
9,343
|
|
$
|
—
|
|
$
|
303,154
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans by past due status at March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90 Days or Greater Past Due
|
|
Total Past Due
|
|
Current
|
|
Total Loans
|
March 31, 2021
|
Construction
|
|
$
|
3,988
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,988
|
|
|
$
|
450,400
|
|
|
$
|
454,388
|
|
Commercial multifamily
|
|
—
|
|
|
—
|
|
|
4,068
|
|
|
4,068
|
|
|
479,578
|
|
|
483,646
|
|
Commercial real estate owner occupied
|
|
6,174
|
|
|
487
|
|
|
4,610
|
|
|
11,271
|
|
|
545,015
|
|
|
556,286
|
|
Commercial real estate non-owner occupied
|
|
703
|
|
|
—
|
|
|
21,790
|
|
|
22,493
|
|
|
2,107,079
|
|
|
2,129,572
|
|
Commercial and industrial
|
|
9,479
|
|
|
1,540
|
|
|
9,486
|
|
|
20,505
|
|
|
1,698,799
|
|
|
1,719,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
2,990
|
|
|
1,098
|
|
|
14,476
|
|
|
18,564
|
|
|
1,755,940
|
|
|
1,774,504
|
|
Home equity
|
|
647
|
|
|
159
|
|
|
2,747
|
|
|
3,553
|
|
|
275,464
|
|
|
279,017
|
|
Consumer other
|
|
1,052
|
|
|
248
|
|
|
4,764
|
|
|
6,064
|
|
|
255,997
|
|
|
262,061
|
|
Total
|
|
$
|
25,033
|
|
|
$
|
3,532
|
|
|
$
|
61,941
|
|
|
$
|
90,506
|
|
|
$
|
7,568,272
|
|
|
$
|
7,658,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90 Days or Greater Past Due
|
|
Total Past Due
|
|
Current
|
|
Total Loans
|
December 31, 2020
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
454,513
|
|
|
$
|
454,513
|
|
Commercial multifamily
|
|
—
|
|
|
—
|
|
|
757
|
|
|
757
|
|
|
482,593
|
|
|
483,350
|
|
Commercial real estate owner occupied
|
|
809
|
|
|
631
|
|
|
4,894
|
|
|
6,334
|
|
|
546,079
|
|
|
552,413
|
|
Commercial real estate non-owner occupied
|
|
315
|
|
|
168
|
|
|
38,389
|
|
|
38,872
|
|
|
2,080,391
|
|
|
2,119,263
|
|
Commercial and industrial
|
|
3,016
|
|
|
3,259
|
|
|
12,982
|
|
|
19,257
|
|
|
1,923,907
|
|
|
1,943,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
2,068
|
|
|
2,630
|
|
|
11,115
|
|
|
15,813
|
|
|
1,915,868
|
|
|
1,931,681
|
|
Home equity
|
|
244
|
|
|
284
|
|
|
2,897
|
|
|
3,425
|
|
|
290,556
|
|
|
293,981
|
|
Consumer other
|
|
2,109
|
|
|
777
|
|
|
5,364
|
|
|
8,250
|
|
|
294,904
|
|
|
303,154
|
|
Total
|
|
$
|
8,561
|
|
|
$
|
7,749
|
|
|
$
|
76,398
|
|
|
$
|
92,708
|
|
|
$
|
7,988,811
|
|
|
$
|
8,081,519
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans on nonaccrual status and loans past due 90 days or more and still accruing as of March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Nonaccrual Amortized Cost
|
|
|
|
Nonaccrual With No Related Allowance
|
|
Past Due 90 Days or Greater and Accruing
|
|
Interest Income Recognized on Nonaccrual
|
At or for the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial multifamily
|
|
|
|
4,068
|
|
|
|
|
4,068
|
|
|
—
|
|
|
—
|
|
Commercial real estate owner occupied
|
|
|
|
4,232
|
|
|
|
|
1,832
|
|
|
378
|
|
|
—
|
|
Commercial real estate non-owner occupied
|
|
|
|
18,856
|
|
|
|
|
11,691
|
|
|
2,934
|
|
|
—
|
|
Commercial and industrial
|
|
|
|
9,364
|
|
|
|
|
3,005
|
|
|
122
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
|
11,941
|
|
|
|
|
7,419
|
|
|
2,535
|
|
|
—
|
|
Home equity
|
|
|
|
2,599
|
|
|
|
|
211
|
|
|
148
|
|
|
—
|
|
Consumer other
|
|
|
|
4,757
|
|
|
|
|
8
|
|
|
7
|
|
|
—
|
|
Total
|
|
|
|
$
|
55,817
|
|
|
|
|
$
|
28,234
|
|
|
$
|
6,124
|
|
|
$
|
—
|
|
The commercial and industrial loans nonaccrual amortized cost as of March 31, 2021 included medallion loans with a fair value of $1.4 million and a contractual balance of $45.0 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Nonaccrual Amortized Cost
|
|
|
|
Nonaccrual With No Related Allowance
|
|
Past Due 90 Days or Greater and Accruing
|
|
Interest Income Recognized on Nonaccrual
|
At or for the three months ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial multifamily
|
|
|
|
757
|
|
|
|
|
591
|
|
|
—
|
|
|
—
|
|
Commercial real estate owner occupied
|
|
|
|
4,509
|
|
|
|
|
2,290
|
|
|
385
|
|
|
—
|
|
Commercial real estate non-owner occupied
|
|
|
|
29,572
|
|
|
|
|
13,912
|
|
|
8,817
|
|
|
—
|
|
Commercial and industrial
|
|
|
|
12,441
|
|
|
|
|
4,725
|
|
|
541
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
|
9,711
|
|
|
|
|
5,739
|
|
|
1,404
|
|
|
—
|
|
Home equity
|
|
|
|
2,654
|
|
|
|
|
159
|
|
|
243
|
|
|
—
|
|
Consumer other
|
|
|
|
5,304
|
|
|
|
|
2
|
|
|
60
|
|
|
—
|
|
Total
|
|
|
|
$
|
64,948
|
|
|
|
|
$
|
27,418
|
|
|
$
|
11,450
|
|
|
$
|
—
|
|
The commercial and industrial loans nonaccrual amortized cost as of December 31, 2020 included medallion loans with a fair value of $2.3 million and a contractual balance of $53.9 million.
The following table summarizes information about total loans rated Special Mention or lower at March 31, 2021 and December 31, 2020. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2021
|
|
December 31, 2020
|
Non-Accrual
|
|
$
|
55,817
|
|
|
$
|
64,948
|
|
Substandard Accruing
|
|
179,150
|
|
|
185,207
|
|
Total Classified
|
|
234,967
|
|
|
250,155
|
|
Special Mention
|
|
121,437
|
|
|
109,299
|
|
Total Criticized
|
|
$
|
356,404
|
|
|
$
|
359,454
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of individually analyzed collateral-dependent loans by loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Collateral
|
(In thousands)
|
|
Real Estate
|
|
|
|
Investment Securities/Cash
|
|
|
|
Other
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
Commercial multifamily
|
|
4,070
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Commercial real estate owner occupied
|
|
5,351
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Commercial real estate non-owner occupied
|
|
20,805
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Commercial and industrial
|
|
1,361
|
|
|
|
|
18
|
|
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
7,048
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Home equity
|
|
198
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Consumer other
|
|
34
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Total loans
|
|
$
|
38,867
|
|
|
|
|
$
|
18
|
|
|
|
|
$
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
Commercial multifamily
|
|
591
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Commercial real estate owner occupied
|
|
5,714
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Commercial real estate non-owner occupied
|
|
30,950
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Commercial and industrial
|
|
973
|
|
|
|
|
36
|
|
|
|
|
3,758
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
5,081
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Home equity
|
|
145
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Consumer other
|
|
51
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Total loans
|
|
$
|
43,505
|
|
|
|
|
$
|
36
|
|
|
|
|
$
|
3,758
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Troubled Debt Restructuring Loans
The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.
The following table presents activity in TDRs for the three months ended March 31, 2021 and March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at Beginning of Period
|
|
Principal Payments
|
|
TDR Status Change
|
|
Other Additions/(Reductions)
|
|
Newly Identified TDRs
|
|
Balance at End of Period
|
Three months ended March 31, 2021
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial multifamily
|
|
754
|
|
|
(13)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
741
|
|
Commercial real estate owner occupied
|
|
1,731
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,725
|
|
Commercial real estate non-owner occupied
|
|
13,684
|
|
|
(14)
|
|
|
—
|
|
|
511
|
|
|
544
|
|
|
14,725
|
|
Commercial and industrial
|
|
2,686
|
|
|
(199)
|
|
|
—
|
|
|
—
|
|
|
146
|
|
|
2,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
1,524
|
|
|
(31)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,493
|
|
Home equity
|
|
133
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
130
|
|
Consumer other
|
|
36
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
Total
|
|
$
|
20,548
|
|
|
$
|
(268)
|
|
|
$
|
—
|
|
|
$
|
511
|
|
|
$
|
690
|
|
|
$
|
21,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at Beginning of Period
|
|
Principal Payments
|
|
TDR Status Change
|
|
Other Additions/(Reductions)
|
|
Newly Identified TDRs
|
|
Balance at End of Period
|
Three months ended March 31, 2020
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial multifamily
|
|
793
|
|
|
(14)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
779
|
|
Commercial real estate owner occupied
|
|
13,331
|
|
|
(5,693)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,638
|
|
Commercial real estate non-owner occupied
|
|
1,373
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,373
|
|
Commercial and industrial
|
|
1,449
|
|
|
(37)
|
|
|
—
|
|
|
—
|
|
|
902
|
|
|
2,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
2,045
|
|
|
(22)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,023
|
|
Home equity
|
|
277
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
278
|
|
Consumer other
|
|
48
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44
|
|
Total
|
|
$
|
19,316
|
|
|
$
|
(5,769)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
902
|
|
|
$
|
14,449
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents loans modified as TDRs that occurred during the three months ended March 31, 2021 and March 31, 2020:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
Three months ended March 31, 2021
|
|
|
TDR:
|
|
|
Number of loans
|
|
4
|
|
Pre-modification outstanding recorded investment
|
|
$
|
690
|
|
Post-modification outstanding recorded investment
|
|
$
|
690
|
|
|
|
|
Three months ended March 31, 2020
|
|
|
TDR:
|
|
|
Number of loans
|
|
3
|
|
Pre-modification outstanding recorded investment
|
|
$
|
902
|
|
Post-modification outstanding recorded investment
|
|
$
|
902
|
|
There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended March 31, 2021 and March 31, 2020.
Beginning in March 2020, the Company has offered three-month payment deferrals for customers with a current payment status who were negatively impacted by economic disruption caused by the COVID-19 pandemic. Refer to Note 10 - Other Commitments, Contingencies, and Off-Balance Sheet Activities for more information regarding these modifications.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. DEPOSITS
A summary of time deposits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2021
|
|
December 31,
2020
|
Time less than $100,000
|
|
$
|
630,244
|
|
|
$
|
663,324
|
|
Time $100,000 through $250,000
|
|
999,329
|
|
|
1,219,210
|
|
Time more than $250,000
|
|
473,649
|
|
|
502,551
|
|
Total time deposits
|
|
$
|
2,103,222
|
|
|
$
|
2,385,085
|
|
Included in total deposits are brokered deposits of $431.5 million and $610.6 million at March 31, 2021 and December 31, 2020, respectively. Included in total deposits are reciprocal deposits of $100.7 million and $119.0 million at March 31, 2021 and December 31, 2020, respectively.
NOTE 7. BORROWED FUNDS
Borrowed funds at March 31, 2021 and December 31, 2020 are summarized, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Average
|
(Dollars in thousands)
|
|
Principal
|
|
Rate
|
|
Principal
|
|
Rate
|
Short-term borrowings:
|
|
|
|
|
|
|
|
|
Advances from the FHLB
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
40,000
|
|
|
1.05
|
%
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings:
|
|
—
|
|
|
—
|
|
|
40,000
|
|
|
1.05
|
|
Long-term borrowings:
|
|
|
|
|
|
|
|
|
Advances from the FHLB and other borrowings
|
|
351,354
|
|
|
1.88
|
|
|
434,357
|
|
|
1.89
|
|
|
|
|
|
|
|
|
|
|
Subordinated borrowings
|
|
74,455
|
|
|
7.00
|
|
|
74,411
|
|
|
7.00
|
|
Junior subordinated borrowing - Trust I
|
|
15,464
|
|
|
2.03
|
|
|
15,464
|
|
|
2.06
|
|
Junior subordinated borrowing - Trust II
|
|
7,419
|
|
|
1.88
|
|
|
7,405
|
|
|
1.92
|
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings:
|
|
448,692
|
|
|
2.73
|
|
|
531,637
|
|
|
2.61
|
|
Total
|
|
$
|
448,692
|
|
|
2.73
|
%
|
|
$
|
571,637
|
|
|
2.50
|
%
|
Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one year and a short-term line-of-credit drawdown through a correspondent bank. The Bank also maintains a $3.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was no outstanding balance on the FHLB line of credit for the periods ended March 31, 2021 and December 31, 2020. The Bank's available borrowing capacity with the FHLB was $1.4 billion and $1.6 billion for the periods ended March 31, 2021 and December 31, 2020, respectively.
The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. No borrowings with the Federal Reserve Bank under this arrangement took place for the periods ended March 31, 2021 and December 31, 2020. As a participant in the SBA Paycheck Protection Program ("PPP"), the Bank may pledge originated loans as collateral at face value to the Federal Reserve Bank of Boston for term financings. As of March 31, 2021, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $596.8 million and $815.6 million for the periods ended March 31, 2021 and December 31, 2020, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term FHLB advances consist of advances with an original maturity of more than one year and are subject to prepayment penalties. The advances outstanding at March 31, 2021 included callable advances totaling $10.0 million and amortizing advances totaling $4.8 million. The advances outstanding at December 31, 2020 included callable advances totaling $10.0 million and amortizing advances totaling $5.2 million. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.
A summary of maturities of FHLB advances as of March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
(In thousands, except rates)
|
|
Principal
|
|
Rate
|
|
|
|
|
Fixed rate advances maturing:
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
272,985
|
|
|
1.86
|
%
|
|
|
|
|
2022
|
|
58,270
|
|
|
1.92
|
|
|
|
|
|
2023
|
|
10,659
|
|
|
2.16
|
|
|
|
|
|
2024
|
|
50
|
|
|
—
|
|
|
|
|
|
2025 and beyond
|
|
9,390
|
|
|
1.63
|
|
|
|
|
|
Total FHLB advances
|
|
$
|
351,354
|
|
|
1.88
|
%
|
|
|
|
|
The Company did not have variable-rate FHLB advances for the periods ended March 31, 2021 and December 31, 2020.
In September 2012, the Company issued fifteen year subordinated notes in the amount of $75.0 million at a discount of 1.15%. The interest rate is fixed at 6.875% for the first ten years. After ten years, the notes become callable and convert to an interest rate of three-month LIBOR rate plus 5.113%. The subordinated note includes reduction to the note principal balance of $184 thousand and $215 thousand for unamortized debt issuance costs as of March 31, 2021 and December 31, 2020, respectively.
The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of $0.5 million. The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85% and had a rate of 2.03% and 2.06% at March 31, 2021 and December 31, 2020, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.
The Company holds 100% of the common stock of SI Capital Trust II (“Trust II”) which is included in other assets with a cost of $0.2 million. The sole asset of Trust II is $8.2 million of the Company’s junior subordinated debentures due in 2036. These debentures bear interest at a variable rate equal to LIBOR plus 1.70% and had a rate of 1.88% and 1.92% at March 31, 2021 and December 31, 2020, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust II is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust II is not consolidated into the Company’s financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As of March 31, 2021, the Company held derivatives with a total notional amount of $3.8 billion. The Company had economic hedges totaling $3.8 billion and $10.3 million non-hedging derivatives, which are not designated as hedges for accounting purposes with changes in fair value recorded directly through earnings. Economic hedges included interest rate swaps totaling $3.4 billion, risk participation agreements with dealer banks of $0.3 billion, and $8.7 million in forward commitment contracts.
As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management and Capital Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at March 31, 2021.
The Company pledged collateral to derivative counterparties in the form of cash totaling $70.3 million and securities with an amortized cost of $36.9 million and a fair value of $37.1 million as of March 31, 2021. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.
Information about derivative assets and liabilities at March 31, 2021, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted Average Rate
|
|
Estimated
|
|
Notional
|
|
Average
|
|
|
|
Contract
|
|
Fair Value
|
|
Amount
|
|
Maturity
|
|
Received
|
|
pay rate
|
|
Asset (Liability)
|
|
(In thousands)
|
|
(In years)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic hedges:
|
|
|
|
|
|
|
|
|
|
Interest rate swap on tax advantaged economic development bond
|
$
|
8,463
|
|
|
8.7
|
|
0.48
|
%
|
|
5.09
|
%
|
|
$
|
(1,432)
|
|
Interest rate swaps on loans with commercial loan customers
|
1,720,659
|
|
|
6.0
|
|
4.15
|
%
|
|
1.92
|
%
|
|
101,216
|
|
Offsetting interest rate swaps on loans with commercial loan customers (1)
|
1,720,659
|
|
|
6.0
|
|
1.92
|
%
|
|
4.15
|
%
|
|
(40,670)
|
|
Risk participation agreements with dealer banks
|
341,662
|
|
|
8.8
|
|
|
|
|
|
336
|
|
Forward sale commitments
|
8,661
|
|
|
0.2
|
|
|
|
|
|
326
|
|
Total economic hedges
|
3,800,104
|
|
|
|
|
|
|
|
|
59,776
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging derivatives:
|
|
|
|
|
|
|
|
|
|
Commitments to lend
|
10,316
|
|
|
0.2
|
|
|
|
|
|
185
|
|
Total non-hedging derivatives
|
10,316
|
|
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,810,420
|
|
|
|
|
|
|
|
|
$
|
59,961
|
|
(1) Fair value estimates include the impact of $61.3 million settled to market contract agreements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at December 31, 2020, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted Average Rate
|
|
Estimated
|
|
Notional
|
|
Average
|
|
|
|
Contract
|
|
Fair Value
|
|
Amount
|
|
Maturity
|
|
Received
|
|
pay rate
|
|
Asset (Liability)
|
|
(In thousands)
|
|
(In years)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic hedges:
|
|
|
|
|
|
|
|
|
|
Interest rate swap on tax advantaged economic development bond
|
$
|
8,654
|
|
|
8.9
|
|
0.52
|
%
|
|
5.09
|
%
|
|
$
|
(1,778)
|
|
Interest rate swaps on loans with commercial loan customers
|
1,734,978
|
|
|
6.1
|
|
4.15
|
%
|
|
1.95
|
%
|
|
159,016
|
|
Offsetting interest rate swaps on loans with commercial loan customers (1)
|
1,734,978
|
|
|
6.1
|
|
1.95
|
%
|
|
4.15
|
%
|
|
(64,645)
|
|
Risk participation agreements with dealer banks
|
326,862
|
|
|
8.0
|
|
|
|
|
|
665
|
|
Forward sale commitments
|
11,544
|
|
|
0.2
|
|
|
|
|
|
320
|
|
Total economic hedges
|
3,817,016
|
|
|
|
|
|
|
|
|
93,578
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging derivatives:
|
|
|
|
|
|
|
|
|
|
Commitments to lend
|
40,099
|
|
|
0.2
|
|
|
|
|
|
735
|
|
Total non-hedging derivatives
|
40,099
|
|
|
|
|
|
|
|
|
735
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,857,115
|
|
|
|
|
|
|
|
|
$
|
94,313
|
|
(1) Fair value estimates include the impact of $97.6 million settled to market contract agreements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of March 31, 2021, the Company has an interest rate swap with a $8.5 million notional amount to swap out the fixed rate of interest on an economic development bond bearing a fixed rate of 5.09%, currently within the Company’s trading portfolio under the fair value option, in exchange for a LIBOR-based floating rate. The intent of the economic hedge is to improve the Company’s asset sensitivity to changing interest rates in anticipation of favorable average floating rates of interest over the 21-year life of the bond. The fair value changes of the economic development bond are mostly offset by fair value changes of the related interest rate swap.
The Company also offers certain derivative products directly to qualified commercial borrowers. The Company economically hedges derivative transactions executed with commercial borrowers by entering into mirror-image, offsetting derivatives with third-party financial institutions. The transaction allows the Company’s customer to convert a variable-rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts mostly offset each other in earnings. Credit valuation loss adjustments arising from the difference in credit worthiness of the commercial loan and financial institution counterparties totaled $2.5 million as of March 31, 2021. The interest income and expense on these mirror image swaps exactly offset each other.
The Company has risk participation agreements with dealer banks. Risk participation agreements occur when the Company participates on a loan and a swap where another bank is the lead. The Company gets paid a fee to take on the risk associated with having to make the lead bank whole on Berkshire’s portion of the pro-rated swap should the borrower default. Changes in fair value are recorded in current period earnings.
The Company utilizes forward sale commitments to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings.
The Company uses the following types of forward sale commitments contracts:
•Best efforts loan sales,
•Mandatory delivery loan sales, and
•To Be Announced (“TBA”) mortgage-backed securities sales.
A best efforts contract refers to a loan sale agreement where the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. The Company may enter into a best efforts contract once the price is known, which is shortly after the potential borrower’s interest rate is locked.
A mandatory delivery contract is a loan sale agreement where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly after the loan closes with a customer.
The Company may sell TBA mortgage-backed securities to hedge the changes in fair value of interest rate lock commitments and held for sale loans, which do not have corresponding best efforts or mandatory delivery contracts. These security sales transactions are closed once mandatory contracts are written. On the closing date the price of the security is locked-in, and the sale is paired-off with a purchase of the same security. Settlement of the security purchase/sale transaction is done with cash on a net-basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-hedging derivatives
The Company enters into interest rate lock commitments (“IRLCs”), or commitments to lend, for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in non-interest income in the Company’s consolidated statements of operations. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(In thousands)
|
2021
|
|
2020
|
|
|
|
|
Economic hedges
|
|
|
|
|
|
|
|
Interest rate swap on industrial revenue bond:
|
|
|
|
|
|
|
|
Unrealized gain/(loss) recognized in other non-interest income
|
$
|
346
|
|
|
$
|
(563)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps on loans with commercial loan customers:
|
|
|
|
|
|
|
|
Unrealized (loss)/gain recognized in other non-interest income
|
(60,302)
|
|
|
102,382
|
|
|
|
|
|
Favorable/(unfavorable) change in credit valuation adjustment recognized in other non-interest income
|
2,502
|
|
|
(2,538)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting interest rate swaps on loans with commercial loan customers:
|
|
|
|
|
|
|
|
Unrealized gain/(loss) recognized in other non-interest income
|
60,302
|
|
|
(102,382)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk participation agreements:
|
|
|
|
|
|
|
|
Unrealized (loss)/gain recognized in other non-interest income
|
(329)
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments:
|
|
|
|
|
|
|
|
Unrealized gain/(loss) recognized in other non-interest income
|
6
|
|
|
(4,263)
|
|
|
|
|
|
Realized gain/(loss) in other non-interest income
|
(6)
|
|
|
(1,922)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging derivatives
|
|
|
|
|
|
|
|
Commitments to lend
|
|
|
|
|
|
|
|
Unrealized (loss)/gain recognized in other non-interest income
|
$
|
(550)
|
|
|
$
|
2,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain in other non-interest income
|
1,352
|
|
|
9,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Subject to Enforceable Master Netting Arrangements
Interest Rate Swap Agreements (“Swap Agreements”)
The Company enters into swap agreements to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of marketable securities is received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.
The Company had net asset positions with its financial institution counterparties totaling $1.3 million and $1.0 million as of March 31, 2021 and December 31, 2020, respectively. The Company had net asset positions with its commercial banking counterparties totaling $103.8 million and $159.0 million as of March 31, 2021 and December 31, 2020, respectively. The Company had net liability positions with its financial institution counterparties totaling $43.0 million and $66.8 million as of March 31, 2021 and December 31, 2020, respectively. The Company had net liability positions with its commercial banking counterparties totaling $2.6 million as of March 31, 2021. The Company had no net liability positions with its commercial banking counterparties as of December 31, 2020. The Company has collateral pledged to cover this liability.
The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of March 31, 2021 and December 31, 2020:
Offsetting of Financial Assets and Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Assets
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Assets
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Received
|
|
Net Amount
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
3,086
|
|
|
$
|
(1,832)
|
|
|
$
|
1,254
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,254
|
|
Commercial counterparties
|
|
103,799
|
|
|
—
|
|
|
103,799
|
|
|
—
|
|
|
—
|
|
|
103,799
|
|
Total
|
|
$
|
106,885
|
|
|
$
|
(1,832)
|
|
|
$
|
105,053
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105,053
|
|
Offsetting of Financial Liabilities and Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Liabilities
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Liabilities
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Pledged
|
|
Net Amount
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
(104,770)
|
|
|
$
|
61,750
|
|
|
$
|
(43,020)
|
|
|
$
|
37,116
|
|
|
$
|
70,333
|
|
|
$
|
64,429
|
|
Commercial counterparties
|
|
(2,582)
|
|
|
—
|
|
|
(2,582)
|
|
|
—
|
|
|
—
|
|
|
(2,582)
|
|
Total
|
|
$
|
(107,352)
|
|
|
$
|
61,750
|
|
|
$
|
(45,602)
|
|
|
$
|
37,116
|
|
|
$
|
70,333
|
|
|
$
|
61,847
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Offsetting of Financial Assets and Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Assets
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Assets
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Received
|
|
Net Amount
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
1,124
|
|
|
$
|
(78)
|
|
|
$
|
1,046
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,046
|
|
Commercial counterparties
|
|
159,016
|
|
|
—
|
|
|
159,016
|
|
|
—
|
|
|
—
|
|
|
159,016
|
|
Total
|
|
$
|
160,140
|
|
|
$
|
(78)
|
|
|
$
|
160,062
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
160,062
|
|
Offsetting of Financial Liabilities and Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Liabilities
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Liabilities
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Pledged
|
|
Net Amount
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
(164,543)
|
|
|
$
|
97,740
|
|
|
$
|
(66,803)
|
|
|
$
|
37,815
|
|
|
$
|
75,070
|
|
|
$
|
46,082
|
|
Commercial counterparties
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
(164,543)
|
|
|
$
|
97,740
|
|
|
$
|
(66,803)
|
|
|
$
|
37,815
|
|
|
$
|
75,070
|
|
|
$
|
46,082
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LEASES
Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space. Most of the Company’s leases are classified as operating leases. At March 31, 2021, lease expiration dates ranged from 1 month to 19 years.
The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Lease Right-of-Use Assets
|
|
Classification
|
|
|
|
|
Operating lease right-of-use assets
|
|
Other assets
|
|
$
|
56,704
|
|
|
$
|
60,018
|
|
Finance lease right-of-use assets
|
|
Premises and equipment, net
|
|
7,066
|
|
|
7,197
|
|
Total Lease Right-of-Use Assets
|
|
|
|
$
|
63,770
|
|
|
$
|
67,215
|
|
|
|
|
|
|
|
|
Lease Liabilities
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Other liabilities
|
|
$
|
61,481
|
|
|
$
|
63,894
|
|
Finance lease liabilities
|
|
Other liabilities
|
|
10,252
|
|
|
10,383
|
|
Total Lease Liabilities
|
|
|
|
$
|
71,733
|
|
|
$
|
74,277
|
|
Supplemental information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Weighted-Average Remaining Lease Term (in years)
|
|
|
|
Operating leases
|
9.8
|
|
9.8
|
Finance leases
|
13.6
|
|
13.8
|
|
|
|
|
Weighted-Average Discount Rate
|
|
|
|
Operating leases
|
2.82
|
%
|
|
2.81
|
%
|
Finance leases
|
5.00
|
%
|
|
5.00
|
%
|
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.
The Company does not have any material sub-lease agreements.
Lease expense for operating leases for the three months ended March 31, 2021 was $2.8 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.
Lease expense for operating leases for the three months ended March 31, 2020 was $3.5 million, of which $0.5 million was related to discontinued operations. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
|
March 31, 2021
|
|
March 31, 2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases (1)
|
|
$
|
3,330
|
|
|
$
|
3,628
|
|
Operating cash flows from finance leases
|
|
127
|
|
|
134
|
|
Financing cash flows from finance leases
|
|
131
|
|
|
124
|
|
(1) There were operating cash flows from operating leases related to discontinued operations of $0.5 million at March 31, 2020.
The following table presents a maturity analysis of the Company’s lease liability by lease classification at March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Operating Leases
|
|
Finance Leases
|
2021
|
|
$
|
7,966
|
|
|
$
|
766
|
|
2022
|
|
9,774
|
|
|
1,031
|
|
2023
|
|
8,549
|
|
|
1,037
|
|
2024
|
|
7,414
|
|
|
1,037
|
|
2025
|
|
5,727
|
|
|
1,037
|
|
Thereafter
|
|
31,593
|
|
|
9,223
|
|
Total undiscounted lease payments
|
|
71,023
|
|
|
14,131
|
|
Less amounts representing interest
|
|
(9,542)
|
|
|
(3,879)
|
|
Lease liability
|
|
$
|
61,481
|
|
|
$
|
10,252
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. OTHER COMMITMENTS, CONTINGENCIES, OFF-BALANCE SHEET ACTIVITIES, AND PANDEMIC IMPACT
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in China and has since spread to a number of other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The impact of the COVID-19 pandemic is fluid and continues to evolve, which is adversely affecting some of the Company’s clients. The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets and has had an adverse effect on the Company’s business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets, and our clients, employees, and vendors.
The Company’s business, financial condition and results of operations generally rely upon the ability of the Company’s borrowers to repay their loans, the value of collateral underlying the Company’s secured loans, and demand for loans and other products and services the Company offers, which are highly dependent on the business environment in the Company’s primary markets where it operates and in the United States as a whole.
At this time, it is difficult to quantify the impact COVID-19 will have on the Company during the current year. These circumstances could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, results of operations and prospects. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, loan servicing rights, deferred tax assets, lease right-of-use assets, or counter-party risk derivatives.
Beginning in March 2020, the Company has offered three-month payment deferrals for customers with a current payment status who were negatively impacted by economic disruption caused by the COVID-19 pandemic. As of March 31, 2021, the Company had 337 active modified loans outstanding with a carrying value of $173 million, which excluded loans returning to payment or awaiting evaluation for further deferral. As of December 31, 2020, the Company had 746 active modified loans outstanding with a carrying value of $316 million, which excluded loans returning to payment or awaiting evaluation for further deferral.The Company continues to accrue interest on these loans during the deferral period. In accordance with interagency guidance issued in March 2020 and Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act, these short-term deferrals are not considered troubled debt restructurings (“TDRs”) unless the borrower was previously experiencing financial difficulty. In addition, the risk-ratings on COVID-19 modified loans did not automatically change as a result of payment deferrals, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
The actual and required capital ratios were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Minimum Capital Requirement
|
Company (consolidated)
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
16.6
|
%
|
|
16.1
|
%
|
|
8.0
|
%
|
Common equity tier 1 capital to risk weighted assets
|
|
14.2
|
|
|
13.8
|
|
|
4.5
|
|
Tier 1 capital to risk weighted assets
|
|
14.4
|
|
|
14.1
|
|
|
6.0
|
|
Tier 1 capital to average assets
|
|
9.5
|
|
|
9.4
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Regulatory Minimum to be Adequately Capitalized
|
|
Regulatory
Minimum to be
Well Capitalized
|
Bank
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
15.4
|
%
|
|
15.0
|
%
|
|
8.0
|
%
|
|
10.0
|
%
|
Common equity tier 1 capital to risk weighted assets
|
|
14.2
|
|
|
13.9
|
|
|
4.5
|
|
|
6.5
|
|
Tier 1 capital to risk weighted assets
|
|
14.2
|
|
|
13.9
|
|
|
6.0
|
|
|
8.0
|
|
Tier 1 capital to average assets
|
|
9.3
|
|
|
9.2
|
|
|
4.0
|
|
|
5.0
|
|
The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Failure to meet capital requirements can initiate regulatory action. At each date shown, the Company met the minimum capital requirements and the Bank met the conditions to be classified as “well capitalized” under the relevant regulatory framework. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.
Effective January 1, 2015, the Company and the Bank became subject to the Basel III rule that requires the Company and the Bank to assess their Common equity Tier 1 capital to risk weighted assets. The Bank's Common equity Tier 1 capital to risk weighted assets exceeds the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of Common equity Tier 1 capital, of 2.5% of risk-weighted assets, to be phased in over three years and applied to the Common equity Tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio, and the Total risk-based capital ratio. As of January 1, 2019, banking organizations must maintain a minimum Common equity Tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5%, and a minimum Total risk-based capital ratio of 10.5%. The final capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum capital conservation buffer is not met.
At March 31, 2021, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and the Bank's regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at March 31, 2021 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive income
Components of accumulated other comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2021
|
|
December 31,
2020
|
Other accumulated comprehensive income, before tax:
|
|
|
|
|
Net unrealized holding gain on AFS securities
|
|
$
|
17,975
|
|
|
$
|
44,988
|
|
|
|
|
|
|
Net unrealized holding (loss) on pension plans
|
|
(3,511)
|
|
|
(3,511)
|
|
|
|
|
|
|
Income taxes related to items of accumulated other comprehensive income:
|
|
|
|
|
Net unrealized tax (expense) on AFS securities
|
|
(4,667)
|
|
|
(11,530)
|
|
|
|
|
|
|
Net unrealized tax benefit on pension plans
|
|
924
|
|
|
924
|
|
Accumulated other comprehensive income
|
|
$
|
10,721
|
|
|
$
|
30,871
|
|
The following table presents the components of other comprehensive income for the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
Net unrealized holding gain on AFS securities:
|
|
x
|
|
|
|
|
Net unrealized (losses) arising during the period
|
|
$
|
(27,013)
|
|
|
$
|
6,863
|
|
|
$
|
(20,150)
|
|
Less: reclassification adjustment for gains realized in net income
|
|
—
|
|
|
—
|
|
|
—
|
|
Net unrealized holding (loss) on AFS securities
|
|
(27,013)
|
|
|
6,863
|
|
|
(20,150)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss)
|
|
$
|
(27,013)
|
|
|
$
|
6,863
|
|
|
$
|
(20,150)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
Net unrealized holding gain on AFS securities:
|
|
|
|
|
|
|
Net unrealized gains arising during the period
|
|
$
|
25,613
|
|
|
$
|
(6,590)
|
|
|
$
|
19,023
|
|
Less: reclassification adjustment for (losses) realized in net income
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Net unrealized holding gain on AFS securities
|
|
25,614
|
|
|
(6,590)
|
|
|
19,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
25,614
|
|
|
$
|
(6,590)
|
|
|
$
|
19,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive income, for the three ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Net unrealized
holding loss
on AFS Securities
|
|
|
|
|
|
Net unrealized
holding loss
on pension plans
|
|
Total
|
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
33,458
|
|
|
|
|
|
|
$
|
(2,587)
|
|
|
$
|
30,871
|
|
Other comprehensive income before reclassifications
|
|
(20,150)
|
|
|
|
|
|
|
—
|
|
|
(20,150)
|
|
Less: amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
|
|
|
|
—
|
|
|
—
|
|
Total other comprehensive (loss)
|
|
(20,150)
|
|
|
|
|
|
|
—
|
|
|
(20,150)
|
|
Balance at End of Period
|
|
$
|
13,308
|
|
|
|
|
|
|
$
|
(2,587)
|
|
|
$
|
10,721
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
14,204
|
|
|
|
|
|
|
$
|
(2,211)
|
|
|
$
|
11,993
|
|
Other comprehensive income before reclassifications
|
|
19,023
|
|
|
|
|
|
|
—
|
|
|
19,023
|
|
Less: amounts reclassified from accumulated other comprehensive income
|
|
(1)
|
|
|
|
|
|
|
—
|
|
|
(1)
|
|
Total other comprehensive income
|
|
19,024
|
|
|
|
|
|
|
—
|
|
|
19,024
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
33,228
|
|
|
|
|
|
|
$
|
(2,211)
|
|
|
$
|
31,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amounts reclassified out of each component of accumulated other comprehensive income for the three ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affected Line Item in the
|
|
|
Three Months Ended March 31,
|
|
Statement where Net Income
|
(In thousands)
|
|
2021
|
|
2020
|
|
is Presented
|
Realized gains on AFS securities:
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(1)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
Net of tax
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(In thousands, except per share data)
|
2021
|
|
2020
|
|
|
|
|
Income/(loss) from continuing operations
|
$
|
13,031
|
|
|
$
|
(12,072)
|
|
|
|
|
|
(Loss)/income from discontinued operations
|
—
|
|
|
(7,798)
|
|
|
|
|
|
Net income/(loss)
|
$
|
13,031
|
|
|
$
|
(19,870)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares issued
|
51,903
|
|
|
51,903
|
|
|
|
|
|
Less: average number of treasury shares
|
948
|
|
|
1,744
|
|
|
|
|
|
Less: average number of unvested stock award shares
|
625
|
|
|
488
|
|
|
|
|
|
Plus: average participating preferred shares
|
—
|
|
|
533
|
|
|
|
|
|
Average number of basic shares outstanding
|
50,330
|
|
|
50,204
|
|
|
|
|
|
Plus: dilutive effect of unvested stock award shares
|
235
|
|
|
—
|
|
|
|
|
|
Plus: dilutive effect of stock options outstanding
|
—
|
|
|
—
|
|
|
|
|
|
Average number of diluted shares outstanding
|
50,565
|
|
|
50,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per common share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.26
|
|
|
$
|
(0.24)
|
|
|
|
|
|
Discontinued operations
|
—
|
|
|
(0.16)
|
|
|
|
|
|
Total
|
$
|
0.26
|
|
|
$
|
(0.40)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings/(loss) per common share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.26
|
|
|
$
|
(0.24)
|
|
|
|
|
|
Discontinued operations
|
—
|
|
|
(0.16)
|
|
|
|
|
|
Total
|
$
|
0.26
|
|
|
$
|
(0.40)
|
|
|
|
|
|
For the three months ended March 31, 2021, 390 thousand shares of unvested restricted stock and all options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three months ended March 31, 2020, all unvested restricted stock and options outstanding were considered anti-dilutive and therefore excluded from the earnings per share calculation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. STOCK-BASED COMPENSATION PLANS
A combined summary of activity in the Company’s stock award and stock option plans for the three months ended March 31, 2021 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested Stock Awards Outstanding
|
|
Stock Options Outstanding
|
(Shares in thousands)
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
December 31, 2020
|
|
|
517
|
|
|
$
|
28.35
|
|
|
112
|
|
|
$
|
22.95
|
|
Granted
|
|
|
210
|
|
|
16.58
|
|
|
—
|
|
|
—
|
|
Acquired
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock options exercised
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
13.70
|
|
Stock awards vested
|
|
|
(44)
|
|
|
30.63
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
|
(52)
|
|
|
25.82
|
|
|
—
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
17.46
|
|
March 31, 2021
|
|
|
631
|
|
|
$
|
20.09
|
|
|
97
|
|
|
$
|
24.85
|
|
|
|
|
|
|
During the three months ended March 31, 2021, proceeds from stock option exercises totaled $69 thousand. During the three months ended March 31, 2020, proceeds from stock option exercises totaled $519 thousand. During the three months ended March 31, 2021 and March 31, 2020, there were 44 thousand and 53 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $0.7 million and $1.5 million during the three months ended March 31, 2021 and 2020, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FAIR VALUE MEASUREMENTS
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(In thousands)
|
Inputs
|
|
Inputs
|
|
Inputs
|
|
Fair Value
|
Trading security
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,350
|
|
|
$
|
9,350
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
—
|
|
|
90,300
|
|
|
—
|
|
|
90,300
|
|
Agency collateralized mortgage obligations
|
—
|
|
|
724,554
|
|
|
—
|
|
|
724,554
|
|
Agency residential mortgage-backed securities
|
—
|
|
|
447,196
|
|
|
—
|
|
|
447,196
|
|
Agency commercial mortgage-backed securities
|
—
|
|
|
268,515
|
|
|
—
|
|
|
268,515
|
|
Corporate bonds
|
—
|
|
|
45,014
|
|
|
—
|
|
|
45,014
|
|
|
|
|
|
|
|
|
|
Other bonds and obligations
|
—
|
|
|
51,751
|
|
|
—
|
|
|
51,751
|
|
Marketable equity securities
|
15,129
|
|
|
672
|
|
|
—
|
|
|
15,801
|
|
Loans held for investment at fair value
|
—
|
|
|
—
|
|
|
1,448
|
|
|
1,448
|
|
Loans held for sale
|
—
|
|
|
8,877
|
|
|
—
|
|
|
8,877
|
|
Derivative assets
|
—
|
|
|
106,665
|
|
|
511
|
|
|
107,176
|
|
Capitalized servicing rights
|
—
|
|
|
—
|
|
|
2,968
|
|
|
2,968
|
|
Derivative liabilities
|
—
|
|
|
47,215
|
|
|
—
|
|
|
47,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(In thousands)
|
Inputs
|
|
Inputs
|
|
Inputs
|
|
Fair Value
|
Trading security
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,708
|
|
|
$
|
9,708
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
—
|
|
|
97,803
|
|
|
—
|
|
|
97,803
|
|
Agency collateralized mortgage obligations
|
—
|
|
|
756,826
|
|
|
—
|
|
|
756,826
|
|
Agency residential mortgage-backed securities
|
—
|
|
|
438,132
|
|
|
—
|
|
|
438,132
|
|
Agency commercial mortgage-backed securities
|
—
|
|
|
288,650
|
|
|
—
|
|
|
288,650
|
|
Corporate bonds
|
—
|
|
|
45,030
|
|
|
15,000
|
|
|
60,030
|
|
|
|
|
|
|
|
|
|
Other bonds and obligations
|
—
|
|
|
53,791
|
|
|
—
|
|
|
53,791
|
|
Marketable equity securities
|
17,841
|
|
|
672
|
|
|
—
|
|
|
18,513
|
|
Loans held for investment at fair value
|
—
|
|
|
—
|
|
|
2,265
|
|
|
2,265
|
|
Loans held for sale
|
—
|
|
|
12,992
|
|
|
4,756
|
|
|
17,748
|
|
Derivative assets
|
—
|
|
|
159,016
|
|
|
1,055
|
|
|
160,071
|
|
Capitalized servicing rights
|
—
|
|
|
—
|
|
|
3,033
|
|
|
3,033
|
|
Derivative liabilities
|
—
|
|
|
65,758
|
|
|
—
|
|
|
65,758
|
|
There were no transfers between levels during the three months ended March 31, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trading Security at Fair Value. The Company holds one security designated as a trading security. It is a tax-advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The fair value of this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.
Securities Available for Sale and Marketable Equity Securities. Marketable equity securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. Marketable equity securities classified as Level 2 consist of securities with infrequent trades in active exchange markets, and pricing is primarily sourced from third party pricing services. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 and Level 3 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. Level 3 pricing includes inputs unobservable to market participants.
Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing an $11.2 million fair value write-down charged to Retained Earnings, net of deferred tax impact, as of January 1, 2020. The fair value of this loan portfolio is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable; therefore, the loans meet the definition of Level 3 assets. The discount rate used in the valuation is consistent with assets that have significant credit deterioration. The cash flow assumptions include payment schedules for loans with current payment histories and estimated collateral value for delinquent loans. All of these loans were nonperforming as of March 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Fair Value
|
March 31, 2021
|
|
Aggregate
|
|
Aggregate
|
|
Less Aggregate
|
(In thousands)
|
|
Fair Value
|
|
Unpaid Principal
|
|
Unpaid Principal
|
Loans held for investment at fair value
|
|
$
|
1,448
|
|
|
$
|
44,969
|
|
|
$
|
(43,521)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Fair Value
|
December 31, 2020
|
|
Aggregate
|
|
Aggregate
|
|
Less Aggregate
|
(In thousands)
|
|
Fair Value
|
|
Unpaid Principal
|
|
Unpaid Principal
|
Loans held for investment at fair value
|
|
$
|
2,265
|
|
|
$
|
53,945
|
|
|
$
|
(51,680)
|
|
Loans Held for Sale. The Company elected the fair value option for all loans held for sale (HFS) originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Fair Value
|
March 31, 2021
|
|
Aggregate
|
|
Aggregate
|
|
Less Aggregate
|
(In thousands)
|
|
Fair Value
|
|
Unpaid Principal
|
|
Unpaid Principal
|
Loans held for sale
|
|
$
|
8,877
|
|
|
$
|
8,518
|
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Fair Value
|
December 31, 2020
|
|
Aggregate
|
|
Aggregate
|
|
Less Aggregate
|
(In thousands)
|
|
Fair Value
|
|
Unpaid Principal
|
|
Unpaid Principal
|
Loans held for sale
|
|
$
|
12,992
|
|
|
$
|
12,639
|
|
|
$
|
353
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in fair value of loans held for sale for the three months ended March 31, 2021, were gains of $6 thousand. During the three months ended March 31, 2021, originations of loans held for sale totaled $44.0 million and sales of loans originated for sale totaled $46.9 million.
The changes in fair value of loans held for sale for the three months ended March 31, 2020, were losses of $49 thousand from continuing operations and gains of $0.5 million from discontinued operations. During the three months ended March 31, 2020, originations of loans held for sale from continuing operations totaled $16.6 million and sales of loans originated for sale from continuing operations totaled $21.1 million.
Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.
Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Commitments to Lend. The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments are classified as Level 3 measurements.
Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To Be Announced (“TBA”) mortgage-backed securities forward commitment sales are used as the hedging instrument, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward commitments are classified as Level 3 measurements.
Capitalized Servicing Rights. The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three months ended March 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities)
|
|
|
|
Securities
|
|
Loans
|
|
|
|
|
|
Capitalized
|
|
Trading
|
|
Available
|
|
Held for
|
|
Commitments
|
|
Forward
|
|
Servicing
|
(In thousands)
|
Security
|
|
for Sale
|
|
Investment
|
|
to Lend
|
|
Commitments
|
|
Rights
|
Three Months Ended March 31, 2021
|
December 31, 2020
|
$
|
9,708
|
|
|
$
|
15,000
|
|
|
$
|
2,265
|
|
|
$
|
735
|
|
|
$
|
320
|
|
|
$
|
3,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities, calls, and prepayments of
AFS Security
|
—
|
|
|
(15,000)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss)/gain, net recognized in other non-interest income
|
(166)
|
|
|
—
|
|
|
414
|
|
|
818
|
|
|
6
|
|
|
(65)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paydown of asset
|
(192)
|
|
|
—
|
|
|
(1,231)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to held for sale loans
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,368)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
$
|
9,350
|
|
|
$
|
—
|
|
|
$
|
1,448
|
|
|
$
|
185
|
|
|
$
|
326
|
|
|
$
|
2,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) relating to instruments still held at March 31, 2021
|
$
|
887
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
185
|
|
|
$
|
326
|
|
|
$
|
—
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Loans
|
|
|
|
|
|
Capitalized
|
|
Trading
|
|
Available
|
|
Held for
|
|
Commitments
|
|
|
|
Servicing
|
(In thousands)
|
Security
|
|
for Sale
|
|
Investment
|
|
to Lend (1)
|
|
|
|
Rights (1)
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
$
|
10,769
|
|
|
$
|
42,966
|
|
|
$
|
—
|
|
|
$
|
2,628
|
|
|
|
|
$
|
12,299
|
|
Adoption of ASC 326
|
—
|
|
|
—
|
|
|
7660
|
|
—
|
|
|
|
|
—
|
|
Maturity of AFS security
|
—
|
|
|
(9,000)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Unrealized gain, net recognized in other non-interest income
|
(759)
|
|
|
—
|
|
|
(2,216)
|
|
|
—
|
|
|
|
|
—
|
|
Unrealized gain included in accumulated other comprehensive loss
|
—
|
|
|
538
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Unrealized gain/(loss), net recognized in discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
11,039
|
|
|
|
|
(3,781)
|
|
Paydown of asset
|
(181)
|
|
|
—
|
|
|
(549)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to held for sale loans
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,831)
|
|
|
|
|
—
|
|
Additions to servicing rights
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
March 31, 2020
|
$
|
9,829
|
|
|
$
|
34,504
|
|
|
$
|
4,895
|
|
|
$
|
4,836
|
|
|
|
|
$
|
8,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains relating to instruments still held at March 31,2020
|
$
|
620
|
|
|
$
|
151
|
|
|
$
|
—
|
|
|
$
|
4,836
|
|
|
|
|
$
|
—
|
|
(1) Classified as assets from discontinued operations on the consolidated balance sheets.
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Significant
Unobservable Input
|
(In thousands)
|
|
March 31, 2021
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Value
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
Trading security
|
|
$
|
9,350
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
2.66
|
%
|
|
|
|
|
|
|
|
|
|
Loan held for investment
|
|
1,448
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
25.00
|
%
|
|
|
|
|
|
|
Collateral Value
|
|
$6.7 - $19.7
|
Commitments to lend
|
|
185
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
74.29
|
%
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3
|
|
Forward commitments
|
|
326
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
74.29
|
%
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3
|
|
Capitalized servicing rights
|
|
2,968
|
|
|
Discounted cash flow
|
|
Constant Prepayment Rate (CPR)
|
|
21.07
|
%
|
|
|
|
|
|
|
Discount Rate
|
|
10.00
|
%
|
Total
|
|
$
|
14,277
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Significant
Unobservable Input
|
(In thousands)
|
|
December 31, 2020
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Value
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
Trading security
|
|
$
|
9,708
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
2.72
|
%
|
AFS Securities
|
|
15,000
|
|
|
Indication from Market Maker
|
|
Price
|
|
102.00
|
%
|
Loans held for investment
|
|
2,265
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
30.00
|
%
|
|
|
|
|
|
|
Collateral Value
|
|
$8.1- $21.9
|
Commitments to lend
|
|
735
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
74.54
|
%
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3
|
|
Forward commitments
|
|
320
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
74.54
|
%
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3
|
|
Capitalized servicing rights
|
|
3,033
|
|
|
Discounted Cash Flow
|
|
Constant Prepayment Rate (CPR)
|
|
26.52
|
%
|
|
|
|
|
|
|
Discount Rate
|
|
10.00
|
%
|
Total
|
|
$
|
31,061
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Fair Value Measurement Date as of March 31, 2021
|
|
|
Level 3
|
|
Level 3
|
|
|
|
|
|
Level 3
|
(In thousands)
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Inputs
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated
|
|
$
|
21,762
|
|
|
$
|
28,028
|
|
|
|
|
|
|
March 2021
|
Capitalized servicing rights
|
|
13,763
|
|
|
13,315
|
|
|
|
|
|
|
March 2021
|
Other real estate owned
|
|
149
|
|
|
149
|
|
|
|
|
|
|
March 2021
|
Total
|
|
$
|
35,674
|
|
|
$
|
41,492
|
|
|
|
|
|
|
|
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2021
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Range (Weighted Average) (1)
|
Assets
|
|
|
|
|
|
|
|
|
Individually evaluated
|
|
$
|
21,762
|
|
|
Fair Value of Collateral
|
|
Discounted Cash Flow - Loss Severity
|
|
0.32% to 100.00% (49.39%)
|
|
|
|
|
|
|
Appraised Value
|
|
$0 to $11,842 ($7,827)
|
Capitalized servicing rights
|
|
13,763
|
|
|
Discounted Cash Flow
|
|
Constant Prepayment Rate (CPR)
|
|
11.32% to 19.49% (15.38%)
|
|
|
|
|
|
|
Discount Rate
|
|
8.33% to 11.00% (9.12%)
|
Other Real Estate Owned
|
|
149
|
|
|
Fair Value of Collateral
|
|
Appraised Value
|
|
$182
|
Total
|
|
$
|
35,674
|
|
|
|
|
|
|
|
(1) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2020
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Range (Weighted Average) (1)
|
Assets
|
|
|
|
|
|
|
|
|
Individually evaluated
|
|
$
|
28,028
|
|
|
Fair Value of Collateral
|
|
Discounted Cash Flow - loss severity
|
|
0.07% to 100.00% (46.36%)
|
|
|
|
|
|
|
Appraised Value
|
|
$0 to $11,432 ($9,800)
|
Capitalized servicing rights
|
|
13,315
|
|
|
Discounted Cash Flow
|
|
Constant Prepayment Rate (CPR)
|
|
14.49% to 23.29% (16.98%)
|
|
|
|
|
|
|
Discount Rate
|
|
10.00% to 11.00% (10.56%)
|
Other Real Estate Owned
|
|
149
|
|
|
Fair Value of Collateral
|
|
Appraised Value
|
|
$94 - $182
|
Total
|
|
$
|
41,492
|
|
|
|
|
|
|
|
(1) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended March 31, 2021 and December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Estimated Fair Values of Financial Instruments
The following tables summarize the estimated fair values (represents exit price), and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
Carrying
|
|
Fair
|
|
|
|
|
|
|
(In thousands)
|
|
Amount
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,899,608
|
|
|
$
|
1,899,608
|
|
|
$
|
1,899,608
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Trading security
|
|
9,350
|
|
|
9,350
|
|
|
—
|
|
|
—
|
|
|
9,350
|
|
Marketable equity securities
|
|
15,801
|
|
|
15,801
|
|
|
15,129
|
|
|
672
|
|
|
—
|
|
Securities available for sale
|
|
1,627,330
|
|
|
1,627,330
|
|
|
—
|
|
|
1,627,330
|
|
|
—
|
|
Securities held to maturity
|
|
610,637
|
|
|
627,297
|
|
|
—
|
|
|
624,012
|
|
|
3,285
|
|
FHLB bank stock and restricted securities
|
|
28,680
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Net loans
|
|
7,534,978
|
|
|
7,778,261
|
|
|
—
|
|
|
—
|
|
|
7,778,261
|
|
Loans held for sale
|
|
18,377
|
|
|
18,377
|
|
|
—
|
|
|
8,877
|
|
|
9,500
|
|
Accrued interest receivable
|
|
45,990
|
|
|
45,990
|
|
|
—
|
|
|
45,990
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
107,176
|
|
|
107,176
|
|
|
—
|
|
|
106,665
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
10,244,370
|
|
|
$
|
10,256,878
|
|
|
$
|
—
|
|
|
$
|
10,256,878
|
|
|
$
|
—
|
|
Short-term debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Long-term Federal Home Loan Bank advances and other
|
|
351,354
|
|
|
353,481
|
|
|
—
|
|
|
353,481
|
|
|
—
|
|
Subordinated borrowings
|
|
97,338
|
|
|
95,729
|
|
|
—
|
|
|
95,729
|
|
|
—
|
|
Derivative liabilities
|
|
47,215
|
|
|
47,215
|
|
|
—
|
|
|
47,215
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Carrying
|
|
Fair
|
|
|
|
|
|
|
(In thousands)
|
|
Amount
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,557,875
|
|
|
$
|
1,557,875
|
|
|
$
|
1,557,875
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Trading security
|
|
9,708
|
|
|
9,708
|
|
|
—
|
|
|
—
|
|
|
9,708
|
|
Marketable equity securities
|
|
18,513
|
|
|
18,513
|
|
|
17,841
|
|
|
672
|
|
|
—
|
|
Securities available for sale and other
|
|
1,695,232
|
|
|
1,695,232
|
|
|
—
|
|
|
1,680,232
|
|
|
15,000
|
|
Securities held to maturity
|
|
465,091
|
|
|
491,855
|
|
|
—
|
|
|
488,393
|
|
|
3,462
|
|
FHLB bank stock and restricted securities
|
|
34,873
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Net loans
|
|
7,954,217
|
|
|
8,243,437
|
|
|
—
|
|
|
—
|
|
|
8,243,437
|
|
Loans held for sale
|
|
17,748
|
|
|
17,748
|
|
|
—
|
|
|
12,992
|
|
|
4,756
|
|
Accrued interest receivable
|
|
46,919
|
|
|
46,919
|
|
|
—
|
|
|
46,919
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
160,071
|
|
|
160,071
|
|
|
—
|
|
|
159,016
|
|
|
1,055
|
|
Assets held for sale
|
|
317,304
|
|
|
317,304
|
|
|
—
|
|
|
16,705
|
|
|
300,599
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
10,215,808
|
|
|
$
|
10,230,822
|
|
|
$
|
—
|
|
|
$
|
10,230,822
|
|
|
$
|
—
|
|
Short-term debt
|
|
40,000
|
|
|
40,025
|
|
|
—
|
|
|
40,025
|
|
|
—
|
|
Long-term Federal Home Loan Bank advances
|
|
434,357
|
|
|
438,064
|
|
|
—
|
|
|
438,064
|
|
|
—
|
|
Subordinated borrowings
|
|
97,280
|
|
|
95,178
|
|
|
—
|
|
|
95,178
|
|
|
—
|
|
Derivative liabilities
|
|
65,758
|
|
|
65,758
|
|
|
—
|
|
|
65,758
|
|
|
—
|
|
Liabilities held for sale
|
|
630,065
|
|
|
631,268
|
|
|
—
|
|
|
631,268
|
|
|
—
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
Presented below is net interest income after provision for credit losses for the three months ended March 31, 2021 and 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Net interest income from continuing operations
|
|
$
|
75,093
|
|
|
$
|
86,428
|
|
|
|
|
|
Provision for credit losses
|
|
6,500
|
|
|
34,807
|
|
|
|
|
|
Net interest income from continuing operations after provision for credit losses
|
|
$
|
68,593
|
|
|
$
|
51,621
|
|
|
|
|
|