Table 5
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2021
|
|
Nine months ended September 30, 2021
|
|
Change from prior year period due to:
|
|
Change from prior year period due to:
|
(Dollars in thousands)
|
Volume(1)
|
|
Yield/Rate(1)
|
|
Total Change
|
|
Volume(1)
|
|
Yield/Rate(1)
|
|
Total Change
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases
|
$
|
(4)
|
|
|
$
|
(17,192)
|
|
|
$
|
(17,196)
|
|
|
$
|
50,823
|
|
|
$
|
(72,300)
|
|
|
$
|
(21,477)
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
(497)
|
|
|
—
|
|
|
(497)
|
|
|
(1,956)
|
|
|
(725)
|
|
|
(2,681)
|
|
Government agency
|
539
|
|
|
202
|
|
|
741
|
|
|
1,718
|
|
|
(2,659)
|
|
|
(941)
|
|
Mortgage-backed securities
|
3,787
|
|
|
(2,967)
|
|
|
820
|
|
|
17,444
|
|
|
(29,983)
|
|
|
(12,539)
|
|
Corporate bonds
|
1,416
|
|
|
(239)
|
|
|
1,177
|
|
|
10,406
|
|
|
60
|
|
|
10,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
75
|
|
|
(270)
|
|
|
(195)
|
|
|
(1,180)
|
|
|
(1,031)
|
|
|
(2,211)
|
|
Total investment securities
|
5,320
|
|
|
(3,274)
|
|
|
2,046
|
|
|
26,432
|
|
|
(34,338)
|
|
|
(7,906)
|
|
Overnight investments
|
1,516
|
|
|
1,122
|
|
|
2,638
|
|
|
13,953
|
|
|
(12,833)
|
|
|
1,120
|
|
Total interest-earning assets
|
$
|
6,832
|
|
|
$
|
(19,344)
|
|
|
$
|
(12,512)
|
|
|
$
|
91,208
|
|
|
$
|
(119,471)
|
|
|
$
|
(28,263)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
Checking with interest
|
$
|
313
|
|
|
$
|
(332)
|
|
|
$
|
(19)
|
|
|
$
|
1,195
|
|
|
$
|
(1,312)
|
|
|
$
|
(117)
|
|
Savings
|
94
|
|
|
(66)
|
|
|
28
|
|
|
294
|
|
|
(239)
|
|
|
55
|
|
Money market accounts
|
800
|
|
|
(2,077)
|
|
|
(1,277)
|
|
|
4,845
|
|
|
(16,607)
|
|
|
(11,762)
|
|
Time deposits
|
1,525
|
|
|
(5,652)
|
|
|
(4,127)
|
|
|
(6,827)
|
|
|
(11,519)
|
|
|
(18,346)
|
|
Total interest-bearing deposits
|
2,732
|
|
|
(8,127)
|
|
|
(5,395)
|
|
|
(493)
|
|
|
(29,677)
|
|
|
(30,170)
|
|
Securities sold under customer repurchase agreements
|
12
|
|
|
(49)
|
|
|
(37)
|
|
|
101
|
|
|
(285)
|
|
|
(184)
|
|
Other short-term borrowings
|
(248)
|
|
|
248
|
|
|
—
|
|
|
(1,052)
|
|
|
—
|
|
|
(1,052)
|
|
Long-term borrowings
|
(271)
|
|
|
(4)
|
|
|
(275)
|
|
|
2,169
|
|
|
(2,389)
|
|
|
(220)
|
|
Total interest-bearing liabilities
|
2,225
|
|
|
(7,932)
|
|
|
(5,707)
|
|
|
725
|
|
|
(32,351)
|
|
|
(31,626)
|
|
Change in net interest income
|
$
|
4,607
|
|
|
$
|
(11,412)
|
|
|
$
|
(6,805)
|
|
|
$
|
90,483
|
|
|
$
|
(87,120)
|
|
|
$
|
3,363
|
|
(1) The rate/volume variance is allocated proportionally between the changes in volume and rate.
|
RESULTS OF OPERATIONS
Net Interest Income and Margin (Taxable-Equivalent Basis)
Third Quarter 2021 compared to Third Quarter 2020
Taxable-equivalent net interest income totaled $347.5 million for the third quarter of 2021, a decrease of $6.8 million, or 1.9%, compared to the third quarter of 2020. The decline in net interest income was driven primarily by a decline in the yield on interest-earning assets due to the sustained low rate environment and a reduction in interest and fee income on SBA-PPP loans. These declines were partially offset by organic loan growth, higher average investment balances as we have deployed some of the excess liquidity on our balance sheet, and a decline in the rate paid on interest bearing deposits. SBA-PPP loans contributed $20.0 million in interest and fee income for the third quarter of 2021 compared to $28.9 million for the same quarter in 2020. While SBA-PPP loans continue to support overall net interest income, the contribution from these loans continues to decline as forgiveness activity continues.
Net interest income increased $0.5 million compared to the linked quarter despite a decline in SBA-PPP income and continued low interest rates. Higher investment and overnight yields and balances, organic loan growth and slightly lower deposit costs more than offset rate pressure on loans and a decline in SBA-PPP income. SBA-PPP loans contributed $27.2 million in interest and fee income for the second quarter of 2021.
The taxable-equivalent NIM was 2.61% in the third quarter of 2021, a decrease of 45 basis points from the comparable quarter of 2020. The margin decline was primarily due to changes in earning asset mix driven by excess liquidity and higher balances in overnight investments as well as declines in loan yields. These declines were partially offset by lower rates paid on interest-bearing deposits and increased yield on SBA-PPP loans. As with prior quarters, we continue to operate with liquidity above normal operating ranges which puts downward pressure on net interest margin. The level of organic loan growth has helped to somewhat protect taxable equivalent NIM from the impacts of the low interest rate environment. We have also opportunistically deployed incremental liquidity of $1 billion into the investment portfolio since the third quarter of 2020.
The taxable-equivalent NIM declined 7 basis points from 2.68% for the linked quarter primarily due to changes in earning asset mix as our overnight investments continued to grow, partially offset by higher investment yields.
Nine Months of 2021 compared to Nine Months of 2020
The taxable-equivalent net interest income for the nine months ended September 30, 2021 was $1.0 billion, an increase of $3.4 million, or 0.3%, compared to the same period in 2020. This increase was primarily due to organic loan growth, an increase in interest and fee income on SBA-PPP loans, and lower rates paid on interest-bearing deposits. These increases were largely offset by a decline in the yield on interest-earning assets. SBA-PPP loans contributed $78.1 million in interest and fee income for the nine months ended September 30, 2021, compared to $47.9 million for the same period in 2020.
The taxable-equivalent NIM was 2.69% for the nine months ended September 30, 2021, a decrease of 54 basis points from the comparable period of 2020. The margin decline was primarily due to changes in earning asset mix and a decline in the yield on interest-earning assets, partially offset by lower rates paid on interest-bearing deposits and increased income on SBA-PPP loans.
Provision for Credit Losses
Provision for credit losses was a benefit of $1.1 million for the third quarter of 2021, compared to an expense of $4.0 million for the comparable quarter in 2020. The third quarter of 2021 was favorably impacted by a $5.9 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors. The comparable quarter in 2020 included a $1.5 million reserve build due to continued uncertainties surrounding the COVID-19 pandemic and net loan growth. Total net charge-offs for the third quarter of 2021 were $4.8 million, an increase from $2.6 million for the comparable quarter in 2020 due to a higher volume of charge-offs and lower recoveries. The net charge-off ratio was 0.06% for the third quarter of 2021 compared to 0.03% for the same quarter in 2020. The impact of SBA-PPP loans on average loan balances did not affect the net charge-off ratio in either three-month period.
For the nine months ended September 30, 2021, provision for credit losses was a benefit of $31.7 million compared to $52.9 million in expense for the first nine months of 2020. Provision for credit losses for the nine months ended September 30, 2021 was favorably impacted by a $41.1 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors. The comparable period in 2020 included $36.1 million reserve build related to uncertainties surrounding the COVID-19 pandemic. Net charge-offs for the nine months ended September 30, 2021 were $9.4 million, a decrease from $17.4 million for the comparable period in 2020 due to a lower volume of charge-offs and stable recoveries. The net charge-off ratio was 0.04% for the nine months ended September 30, 2021 compared to 0.07% for the same period in 2020. The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.
Noninterest Income
Table 6
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Wealth management services
|
$
|
31,935
|
|
|
$
|
26,369
|
|
|
$
|
95,886
|
|
|
$
|
75,152
|
|
Service charges on deposit accounts
|
24,858
|
|
|
20,841
|
|
|
68,277
|
|
|
64,776
|
|
Cardholder services, net
|
22,879
|
|
|
19,756
|
|
|
65,310
|
|
|
55,503
|
|
Other service charges and fees
|
9,205
|
|
|
7,892
|
|
|
26,653
|
|
|
22,829
|
|
Merchant services, net
|
8,409
|
|
|
6,763
|
|
|
25,858
|
|
|
18,014
|
|
Mortgage income
|
6,106
|
|
|
13,106
|
|
|
25,026
|
|
|
28,141
|
|
Insurance commissions
|
4,000
|
|
|
3,576
|
|
|
11,702
|
|
|
10,453
|
|
ATM income
|
1,481
|
|
|
1,537
|
|
|
4,534
|
|
|
4,354
|
|
Realized gains on investment securities available for sale, net
|
8,082
|
|
|
21,425
|
|
|
33,119
|
|
|
54,972
|
|
Marketable equity securities gains (losses), net
|
3,350
|
|
|
(2,701)
|
|
|
31,015
|
|
|
10,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
2,639
|
|
|
2,008
|
|
|
6,363
|
|
|
5,330
|
|
Total noninterest income
|
$
|
122,944
|
|
|
$
|
120,572
|
|
|
$
|
393,743
|
|
|
$
|
349,985
|
|
Noninterest income is an essential component of our total revenue and is critical to our profitability level. The primary sources of noninterest income consist of wealth management services, fees and service charges generated from deposit accounts, cardholder and merchant services, and mortgage lending and servicing.
Noninterest income for the third quarter of 2021 was $122.9 million, compared to $120.6 million for the same period of 2020, an increase of $2.4 million, or 2.0%. The most significant components of the change were as follows:
•A $6.1 million favorable change in the fair market value adjustments on marketable equity securities.
•Wealth management services increased by $5.6 million, primarily due to growth in assets under management driving higher advisory and transaction fees.
•Service charges on deposit accounts increased by $4.0 million due to volume.
•Cardholder services income, net increased by $3.1 million and merchant services, net increased by $1.6 million, primarily due to an increase in transaction volume.
•Realized gains on investment securities available for sale, net declined by $13.3 million.
•Mortgage income decreased by $7.0 million, driven by reductions in gain on sale margins and lower production volume in 2021 due to higher mortgage rates and increased competition.
Noninterest income was $393.7 million for the first nine months of 2021, compared to $350.0 million for the same period of 2020, an increase of $43.8 million, or 12.5%. The most significant components of the change were as follows:
•Wealth management services increased by $20.7 million, primarily due to growth in assets under management driving higher advisory and transaction fees.
•A $20.6 million favorable change in the fair market value adjustments on marketable equity securities.
•Cardholder services income, net increased by $9.8 million and merchant services, net increased by $7.8 million, primarily due to an increase in transaction volume.
•Realized gains on investment securities available for sale declined by $21.9 million.
Noninterest Expense
Table 7
NONINTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Salaries and wages
|
$
|
160,947
|
|
|
$
|
147,297
|
|
|
$
|
462,420
|
|
|
$
|
439,185
|
|
Employee benefits
|
32,146
|
|
|
31,788
|
|
|
103,169
|
|
|
100,663
|
|
Occupancy expense
|
29,101
|
|
|
27,990
|
|
|
87,283
|
|
|
85,026
|
|
Equipment expense
|
30,229
|
|
|
29,430
|
|
|
88,934
|
|
|
86,054
|
|
Processing fees paid to third parties
|
15,602
|
|
|
11,927
|
|
|
43,702
|
|
|
32,485
|
|
FDIC insurance expense
|
3,661
|
|
|
2,167
|
|
|
10,261
|
|
|
9,364
|
|
Collection and foreclosure-related expenses
|
836
|
|
|
2,168
|
|
|
3,207
|
|
|
10,171
|
|
Merger-related expenses
|
7,013
|
|
|
3,507
|
|
|
19,601
|
|
|
12,108
|
|
Telecommunications expense
|
3,111
|
|
|
3,197
|
|
|
9,331
|
|
|
8,985
|
|
Consultant expense
|
3,338
|
|
|
2,936
|
|
|
8,176
|
|
|
9,223
|
|
Advertising expense
|
3,024
|
|
|
2,396
|
|
|
7,210
|
|
|
7,045
|
|
Core deposit intangible amortization
|
2,638
|
|
|
3,468
|
|
|
8,523
|
|
|
10,999
|
|
Other
|
21,172
|
|
|
23,391
|
|
|
58,505
|
|
|
72,004
|
|
Total noninterest expense
|
$
|
312,818
|
|
|
$
|
291,662
|
|
|
$
|
910,322
|
|
|
$
|
883,312
|
|
The primary components of noninterest expense are salaries and related employee benefits, occupancy and equipment expense.
Noninterest expense was $312.8 million during the third quarter of 2021, an increase of $21.2 million, or 7.3%, compared to the same quarter in 2020. The most significant components of the change were as follows:
•Salaries and wages increased $13.7 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs.
•Processing fees paid to third parties increased $3.7 million driven by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.
•Merger-related expenses increased $3.5 million in anticipation of the upcoming merger with CIT.
Noninterest expense was $910.3 million for the first nine months of 2021, compared to $883.3 million for the same period in 2020, an increase of $27.0 million, or 3.1%. The most significant components of the change were as follows:
•Salaries and wages increased $23.2 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs.
•Processing fees paid to third parties increased $11.2 million by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.
•Merger-related expenses increased $7.5 million in anticipation of the upcoming merger with CIT.
•Other expenses decreased $16.5 million primarily due to a decrease in pension expense as a result of higher returns on plan assets, coupled with a reduction in the reserve for unfunded commitments.
•Collection and foreclosure-related expenses declined $7.0 million.
Income Taxes
Income tax expense was $34.1 million and $35.8 million for the third quarter of 2021 and 2020, respectively, representing effective tax rates of 21.5% and 20.1% during the respective periods.
Income tax expense totaled $123.9 million and $89.5 million for the first nine months of 2021 and 2020, respectively, representing effective tax rates of 22.6% and 20.2% for the respective nine month periods.
The effective tax rates during 2020 were favorably impacted by BancShares’ decision to utilize an allowable alternative for computing its federal income tax liability. The allowable alternative provided BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax. Without this alternative, the effective tax rate is materially unchanged for the third quarter and first nine months of 2021 and the effective tax rate for the third quarter and first nine months of 2020 would have been approximately 22.0% and 22.6% respectively.
We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns as well as potential or pending audits or assessments by tax auditors.
INTEREST-EARNING ASSETS
Interest-earning assets include overnight investments, investment securities and loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Riskier investments typically carry a higher interest rate but expose us to higher levels of market risk. We strive to maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum.
Interest-earning assets totaled $53.4 billion and $47.2 billion at September 30, 2021 and December 31, 2020, respectively. The $6.2 billion increase was primarily composed of a $5.5 billion increase in overnight investments and a $952.4 million increase in investment securities, partially offset by a $275.8 million decrease in loans.
Investment Securities
The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities with minimal liquidity and credit risk, and low to moderate interest rate risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares’ objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made largely under a long-term earnings optimization strategy. Changes in the total balance of our investment portfolio result from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio and into overnight investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand. See Note C - Investments to our consolidated financial statements for additional disclosures.
The carrying value of investment securities totaled $10.9 billion at September 30, 2021, an increase of $952.4 million compared to December 31, 2020 attributable to our continued growth in deposits. During the period we had $5.0 billion in investment security purchases, partially offset by sales of $1.4 billion and maturities and paydowns of $2.6 billion.
Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of accumulated other comprehensive income, net of deferred taxes. As of September 30, 2021, investment securities available for sale had a net pre-tax unrealized gain of $26.0 million, compared to a net pre-tax unrealized gain of $102.3 million as of December 31, 2020. Management evaluated the available for sale securities in an unrealized loss position and concluded that the unrealized losses relate to changes in interest rates relative to when the securities were purchased, and therefore, no allowance for credit losses was recorded at September 30, 2021 or December 31, 2020.
BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no allowance for credit losses was needed at September 30, 2021 and December 31, 2020.
Table 8
INVESTMENT SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
(Dollars in thousands)
|
Composition(1)
|
|
Amortized cost
|
|
Fair
value
|
|
Composition(1)
|
|
Amortized cost
|
|
Fair
value
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
—
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
|
5.0
|
%
|
|
$
|
499,832
|
|
|
$
|
499,933
|
|
Government agency
|
7.9
|
|
|
851,860
|
|
|
853,728
|
|
|
7.0
|
|
|
706,241
|
|
|
701,391
|
|
Residential mortgage-backed securities
|
44.3
|
|
|
4,800,194
|
|
|
4,801,646
|
|
|
44.5
|
|
|
4,369,130
|
|
|
4,438,103
|
|
Commercial mortgage-backed securities
|
10.0
|
|
|
1,092,183
|
|
|
1,090,652
|
|
|
7.9
|
|
|
745,892
|
|
|
771,537
|
|
Corporate bonds
|
5.8
|
|
|
600,906
|
|
|
625,103
|
|
|
6.1
|
|
|
590,870
|
|
|
603,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale
|
68.0
|
|
|
7,345,143
|
|
|
7,371,129
|
|
|
70.5
|
|
|
6,911,965
|
|
|
7,014,243
|
|
Investment in marketable equity securities
|
1.1
|
|
|
85,554
|
|
|
123,147
|
|
|
0.9
|
|
|
84,837
|
|
|
91,680
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
19.4
|
|
|
2,122,299
|
|
|
2,112,561
|
|
|
19.1
|
|
|
1,877,692
|
|
|
1,895,381
|
|
Commercial mortgage-backed securities
|
11.4
|
|
|
1,256,771
|
|
|
1,238,509
|
|
|
9.4
|
|
|
937,034
|
|
|
940,862
|
|
Other
|
0.1
|
|
|
2,008
|
|
|
2,008
|
|
|
0.1
|
|
|
2,256
|
|
|
2,256
|
|
Total investment securities held to maturity
|
30.9
|
|
|
3,381,078
|
|
|
3,353,078
|
|
|
28.6
|
|
|
2,816,982
|
|
|
2,838,499
|
|
Total investment securities
|
100.0
|
%
|
|
$
|
10,811,775
|
|
|
$
|
10,847,354
|
|
|
100.0
|
%
|
|
$
|
9,813,784
|
|
|
$
|
9,944,422
|
|
(1) Calculated as a percent of the total fair value of investment securities.
|
|
|
|
|
Table 9 presents the weighted average taxable-equivalent yields for investment securities available for sale and held to maturity at September 30, 2021 segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level yields.
Table 9
WEIGHTED AVERAGE YIELD ON INVESTMENT SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Within
One Year
|
|
One to Five
Years
|
|
Five to 10
Years
|
|
After 10 Years
|
|
Total
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency
|
—
|
%
|
|
2.15
|
%
|
|
1.08
|
%
|
|
1.07
|
%
|
|
1.07
|
%
|
Residential mortgage-backed securities(1)
|
—
|
|
|
—
|
|
|
1.80
|
|
|
1.26
|
|
|
1.27
|
|
Commercial mortgage-backed securities(1)
|
—
|
|
|
—
|
|
|
3.19
|
|
|
2.04
|
|
|
2.09
|
|
Corporate bonds
|
4.05
|
|
|
5.87
|
|
|
5.21
|
|
|
4.76
|
|
|
5.24
|
|
Total investment securities available for sale
|
4.05
|
%
|
|
5.70
|
%
|
|
3.71
|
%
|
|
1.38
|
%
|
|
1.71
|
%
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities(1)
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1.17
|
%
|
|
1.17
|
%
|
Commercial mortgage-backed securities(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
1.46
|
|
|
1.46
|
|
Other investments
|
0.81
|
|
|
1.17
|
|
|
—
|
|
|
—
|
|
|
0.94
|
|
Total investment securities held to maturity
|
0.81
|
%
|
|
1.17
|
%
|
|
—
|
%
|
|
1.28
|
%
|
|
1.28
|
%
|
(1)Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans.
Loans and Leases
Loans held for sale were $98.5 million at September 30, 2021, a net decrease of $26.4 million since December 31, 2020.
At September 30, 2021, loans totaled $32.5 billion, a decrease of $275.8 million, or by 1.1% on an annualized basis since December 31, 2020. Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis since December 31, 2020.
BancShares reports non-PCD and PCD loan portfolios separately, and the non-PCD portfolio is further divided into commercial and consumer segments. Non-PCD loans and leases were $32.1 billion at September 30, 2021 and $32.3 billion at December 31, 2020, representing 98.9% and 98.6% of total loans, respectively. PCD loans at September 30, 2021 were $373.3 million, compared to $462.9 million at December 31, 2020, representing 1.1% and 1.4% of total loans, respectively.
The discount related to acquired non-PCD loans and leases was $13.4 million and $19.5 million at September 30, 2021 and December 31, 2020, respectively. The discount related to PCD loans was $32.6 million and $45.3 million at September 30, 2021 and December 31, 2020, respectively.
During the three months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $1.2 million and $2.8 million, respectively, while interest and accretion income on PCD loans was $10.8 million and $15.0 million, respectively. During the nine months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $6.1 million and $7.8 million, respectively, while interest and accretion income on PCD loans was $34.5 million and $48.0 million, respectively
Table 10
LOANS AND LEASES
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2021
|
|
December 31, 2020
|
Commercial:
|
|
|
|
Construction and land development
|
$
|
1,247,680
|
|
|
$
|
985,424
|
|
Owner occupied commercial mortgage
|
11,625,554
|
|
|
11,165,012
|
|
Non-owner occupied commercial mortgage
|
3,002,928
|
|
|
2,987,689
|
|
|
|
|
|
|
|
|
|
Commercial and industrial and leases
|
5,266,266
|
|
|
5,013,644
|
|
|
|
|
|
SBA-PPP
|
1,086,917
|
|
|
2,406,291
|
|
Total commercial loans
|
22,229,345
|
|
|
22,558,060
|
|
Consumer:
|
|
|
|
Residential mortgage
|
5,701,346
|
|
|
5,561,686
|
|
Revolving mortgage
|
1,834,690
|
|
|
2,052,854
|
|
Construction and land development
|
391,768
|
|
|
348,123
|
|
Consumer auto
|
1,350,377
|
|
|
1,255,402
|
|
Consumer other
|
635,408
|
|
|
552,968
|
|
|
|
|
|
Total consumer loans
|
9,913,589
|
|
|
9,771,033
|
|
Total non-PCD loans and leases
|
32,142,934
|
|
|
32,329,093
|
|
PCD loans
|
373,255
|
|
|
462,882
|
|
Total loans and leases
|
32,516,189
|
|
|
32,791,975
|
|
Less allowance for credit losses
|
(183,194)
|
|
|
(224,314)
|
|
Net loans and leases
|
$
|
32,332,995
|
|
|
$
|
32,567,661
|
|
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses (“ACL”) was $183.2 million at September 30, 2021, representing a decrease of $41.1 million since December 31, 2020. The ACL as a percentage of total loans and leases was 0.56% at September 30, 2021, compared to 0.68% at December 31, 2020. The ACL as a percentage of loans and leases excluding SBA-PPP loans, which have no recorded ACL, was 0.58% at September 30, 2021, compared to 0.74% at December 31, 2020.
The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended September 30, 2021, the ACL change since December 31, 2020 was driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. For most pools, we use a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the September 30, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by our strong credit quality and low net charge-offs.
As of September 30, 2021, the consensus baseline forecast utilized the following significant inputs over the two-year reasonable and supportable forecast period:
Unemployment - Rates are expected to improve to below 4% through the end of 2022 and stabilizing into early 2023.
GDP Growth - Peak growth of just under 7% in the fourth quarter of 2021, decreasing to below 3% in 2022 and thereafter.
Home Pricing Index - Growth rates of over 7% declining to below 4% over the forecast period.
Commercial Real Estate Index - Small forecasted downturn through the first half of 2022 and then improving to over 6% into 2023.
At September 30, 2021, the ACL allocated to non-PCD loans and leases was $164.8 million, or 0.51% of non-PCD loans and leases, compared to $200.3 million, or 0.62%, at December 31, 2020. The decrease of 11 basis points since December 31, 2020 was primarily due to continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. The ACL as a percentage of non-PCD loans and leases excluding SBA-PPP loans was 0.53% at September 30, 2021 compared to 0.67% at December 31, 2020.
At September 30, 2021, the ACL for PCD loans totaled $18.4 million compared to $24.0 million at December 31, 2020. The decrease was due to paydowns and the decline in the portfolio coupled with the impact of improved macroeconomic factors.
In the period ended September 30, 2021, the ACL on our commercial portfolio decreased $8.2 million, with the largest share of the decrease within commercial real estate. The ACL on the consumer portfolio decreased $27.4 million, with decreases across all portfolios with the largest change in residential mortgages. These portfolios were largely impacted by the improvement in macroeconomic factors.
Net charge-offs for loans and leases were $4.8 million during the third quarter of 2021, compared to $2.6 million during the third quarter of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.06% and 0.03% for the third quarter of 2021 and 2020, respectively. The impact of SBA-PPP loans on average loans balances did not affect the net charge-off ratio in either period.
Net charge-offs for loans and leases were $9.4 million during the nine months ended September 30, 2021, compared to $17.4 million during the same period of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.04% and 0.07% for the nine months ended September 30, 2021 and 2020, respectively. The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.
Table 11
ALLOWANCE FOR CREDIT LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2021
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
PCD
|
|
Total
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1
|
|
|
|
|
|
|
|
|
$
|
76,082
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94,272
|
|
|
$
|
18,740
|
|
|
$
|
189,094
|
|
Provision (credit)
|
|
|
|
|
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
(223)
|
|
|
(1,872)
|
|
|
(1,120)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
(5,967)
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,307)
|
|
|
(799)
|
|
|
(11,073)
|
|
Recoveries
|
|
|
|
|
|
|
|
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
|
2,330
|
|
|
2,369
|
|
|
6,293
|
|
Balance at September 30
|
|
|
|
|
|
|
|
|
$
|
72,684
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
92,072
|
|
|
$
|
18,438
|
|
|
$
|
183,194
|
|
Percent of loans in each category to total loans
|
|
|
|
|
|
|
|
|
68.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
30.5
|
%
|
|
1.2
|
%
|
|
100.0
|
%
|
Annualized net charge-off ratio
|
|
|
|
|
|
|
|
|
0.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
0.08
|
%
|
|
(0.55)
|
%
|
|
0.06
|
%
|
Net charge-offs
|
|
|
|
|
|
|
|
|
$
|
4,373
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,977
|
|
|
$
|
(1,570)
|
|
|
$
|
4,780
|
|
Average loans
|
|
|
|
|
|
|
|
|
22,331,889
|
|
|
|
|
|
|
|
|
|
|
|
|
9,891,071
|
|
|
384,673
|
|
|
32,607,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2020
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
PCD
|
|
Total
|
Balance at July 1
|
|
|
|
|
|
|
|
|
$
|
76,177
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119,345
|
|
|
$
|
26,928
|
|
|
$
|
222,450
|
|
Provision (credit)
|
|
|
|
|
|
|
|
|
4,793
|
|
|
|
|
|
|
|
|
|
|
|
|
1,874
|
|
|
(2,625)
|
|
|
4,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
(3,328)
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,109)
|
|
|
(495)
|
|
|
(8,932)
|
|
Recoveries
|
|
|
|
|
|
|
|
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
2,719
|
|
|
1,319
|
|
|
6,376
|
|
Balance at September 30
|
|
|
|
|
|
|
|
|
$
|
79,980
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,829
|
|
|
$
|
25,127
|
|
|
$
|
223,936
|
|
Percent of loans in each category to total loans
|
|
|
|
|
|
|
|
|
68.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
29.6
|
%
|
|
1.5
|
%
|
|
100.0
|
%
|
Annualized net charge-off ratio
|
|
|
|
|
|
|
|
|
0.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
0.10
|
%
|
|
(0.21)
|
%
|
|
0.03
|
%
|
Net charge-offs
|
|
|
|
|
|
|
|
|
$
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,390
|
|
|
$
|
(824)
|
|
|
$
|
2,556
|
|
Average loans
|
|
|
|
|
|
|
|
|
22,361,650
|
|
|
|
|
|
|
|
|
|
|
|
|
9,703,434
|
|
|
512,559
|
|
|
32,577,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2021
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
PCD
|
|
Total
|
Balance at January 1
|
|
|
|
|
|
|
|
|
$
|
80,842
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119,485
|
|
|
$
|
23,987
|
|
|
$
|
224,314
|
|
Provision (credit)
|
|
|
|
|
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,208)
|
|
|
(8,821)
|
|
|
(31,697)
|
|
Initial allowance on PCD loans
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
(12,342)
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,804)
|
|
|
(2,018)
|
|
|
(27,164)
|
|
Recoveries
|
|
|
|
|
|
|
|
|
3,852
|
|
|
|
|
|
|
|
|
|
|
|
|
8,599
|
|
|
5,290
|
|
|
17,741
|
|
Balance at September 30
|
|
|
|
|
|
|
|
|
$
|
72,684
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
92,072
|
|
|
$
|
18,438
|
|
|
$
|
183,194
|
|
Percent of loans in each category to total loans
|
|
|
|
|
|
|
|
|
68.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
30.5
|
%
|
|
1.2
|
%
|
|
100.0
|
%
|
Annualized net charge-off ratio
|
|
|
|
|
|
|
|
|
0.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
0.06
|
%
|
|
(1.05)
|
%
|
|
0.04
|
%
|
Net charge-offs
|
|
|
|
|
|
|
|
|
$
|
8,490
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,205
|
|
|
$
|
(3,272)
|
|
|
$
|
9,423
|
|
Average loans
|
|
|
|
|
|
|
|
|
22,680,602
|
|
|
|
|
|
|
|
|
|
|
|
|
9,773,946
|
|
|
417,536
|
|
|
32,872,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2020
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
PCD
|
|
Total
|
Balance at December 31
|
|
|
|
|
|
|
|
|
$
|
142,369
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75,236
|
|
|
$
|
7,536
|
|
|
$
|
225,141
|
|
Adoption of ASC 326
|
|
|
|
|
|
|
|
|
(87,554)
|
|
|
|
|
|
|
|
|
|
|
|
|
30,629
|
|
|
19,001
|
|
|
(37,924)
|
|
Balance at January 1
|
|
|
|
|
|
|
|
|
54,815
|
|
|
|
|
|
|
|
|
|
|
|
|
105,865
|
|
|
26,537
|
|
|
187,217
|
|
Provision (credit)
|
|
|
|
|
|
|
|
|
32,854
|
|
|
|
|
|
|
|
|
|
|
|
|
25,066
|
|
|
(4,971)
|
|
|
52,949
|
|
Initial allowance on PCD loans
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
1,193
|
|
|
1,193
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
(12,712)
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,535)
|
|
|
(3,010)
|
|
|
(35,257)
|
|
Recoveries
|
|
|
|
|
|
|
|
|
5,023
|
|
|
|
|
|
|
|
|
|
|
|
|
7,433
|
|
|
5,378
|
|
|
17,834
|
|
Balance at September 30
|
|
|
|
|
|
|
|
|
$
|
79,980
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,829
|
|
|
$
|
25,127
|
|
|
$
|
223,936
|
|
Percent of loans in each category to total loans
|
|
|
|
|
|
|
|
|
68.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
29.6
|
%
|
|
1.5
|
%
|
|
100.0
|
%
|
Annualized net charge-off ratio
|
|
|
|
|
|
|
|
|
0.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
0.16
|
%
|
|
(0.60)
|
%
|
|
0.07
|
%
|
Net charge-offs
|
|
|
|
|
|
|
|
|
$
|
7,689
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,102
|
|
|
$
|
(2,368)
|
|
|
$
|
17,423
|
|
Average loans
|
|
|
|
|
|
|
|
|
20,687,348
|
|
|
|
|
|
|
|
|
|
|
|
|
9,838,064
|
|
|
529,819
|
|
|
31,055,231
|
|
The reserve for unfunded loan commitments was $11.5 million and $12.8 million at September 30, 2021 and December 31, 2020, respectively.
Table 12
ALLOWANCE FOR CREDIT LOSSES RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Allowance for credit losses to total loans and leases(1):
|
|
|
|
|
0.56
|
%
|
|
0.68
|
%
|
Allowance for credit losses
|
|
|
|
|
$
|
183,194
|
|
|
$
|
224,314
|
|
Total loans and leases
|
|
|
|
|
32,516,189
|
|
|
32,791,975
|
|
Allowance for credit losses to non-PCD loans and leases(1):
|
|
|
|
|
0.51
|
%
|
|
0.62
|
%
|
Allowance for credit losses on non-PCD loans and leases
|
|
|
|
|
$
|
164,756
|
|
|
$
|
200,327
|
|
Total non-PCD loans and leases
|
|
|
|
|
32,142,934
|
|
|
32,329,093
|
|
Allowance for credit losses to PCD loans:
|
|
|
|
|
4.94
|
%
|
|
5.18
|
%
|
Allowance for credit losses on PCD loans
|
|
|
|
|
$
|
18,438
|
|
|
$
|
23,987
|
|
Total PCD loans
|
|
|
|
|
373,255
|
|
|
462,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Loans originated in relation to the SBA-PPP ($1.1 billion as of September 30, 2021 and $2.4 billion as of December 31, 2020) do not have a recorded ACL. As of September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.53% while the ratio of ACL to total loans excluding SBA-PPP loans was 0.58%. As of December 31, 2020, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.67% while the ratio of ACL to total loans excluding SBA-PPP loans is 0.74%.
|
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans and leases and other real estate owned (“OREO”). At September 30, 2021, BancShares’ nonperforming assets totaled $204.4 million, a decrease of $37.9 million since December 31, 2020.
Nonaccrual loans and leases at September 30, 2021 were $163.8 million, reflecting a decrease of $27.7 million since December 31, 2020. Nonaccrual loans and leases as a percentage of total loans and leases was 0.50% and 0.58% at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, OREO totaled $40.6 million, representing a decrease of $10.2 million since December 31, 2020. Nonperforming assets as a percentage of total loans, leases and OREO was 0.63% as of September 30, 2021 compared to 0.74% as of December 31, 2020.
Table 13
NONPERFORMING ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
(Dollars in thousands)
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
Nonaccrual loans and leases:
|
|
|
|
|
|
|
|
|
|
Non-PCD
|
$
|
118,737
|
|
|
$
|
136,530
|
|
|
$
|
141,369
|
|
|
$
|
136,544
|
|
|
$
|
130,927
|
|
PCD
|
45,038
|
|
|
50,934
|
|
|
53,165
|
|
|
54,939
|
|
|
55,527
|
|
Total nonaccrual loans and leases
|
163,775
|
|
|
187,464
|
|
|
194,534
|
|
|
191,483
|
|
|
186,454
|
|
Other real estate owned
|
40,649
|
|
|
43,685
|
|
|
48,512
|
|
|
50,890
|
|
|
52,789
|
|
Total nonperforming assets
|
$
|
204,424
|
|
|
$
|
231,149
|
|
|
$
|
243,046
|
|
|
$
|
242,373
|
|
|
$
|
239,243
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases 90 days or more past due
|
|
|
|
|
|
|
|
|
|
Non-PCD
|
$
|
3,827
|
|
|
$
|
3,413
|
|
|
$
|
5,945
|
|
|
$
|
5,507
|
|
|
$
|
3,587
|
|
PCD
|
1,787
|
|
|
363
|
|
|
1,432
|
|
|
355
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total nonperforming assets to total loans, leases and other real estate owned
|
0.63
|
%
|
|
0.71
|
%
|
|
0.73
|
%
|
|
0.74
|
%
|
|
0.73
|
%
|
Ratio of nonaccrual loans and leases to total loans and leases
|
0.50
|
|
|
0.57
|
|
|
0.59
|
|
|
0.58
|
|
|
0.57
|
|
Ratio of allowance for credit losses to nonaccrual loans and leases
|
111.9
|
|
|
100.9
|
|
|
108.3
|
|
|
117.1
|
|
|
120.1
|
|
TROUBLED DEBT RESTRUCTURINGS
We selectively agree to modify existing loan terms to provide relief to customers who are experiencing financial difficulties or other circumstances that could affect their ability to meet debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Troubled debt restructurings (“TDRs”) not accruing interest at the time of restructure are included as nonperforming loans. TDRs accruing at the time of restructure and continuing to perform based on the restructured terms are considered performing loans.
Table 14
TROUBLED DEBT RESTRUCTURINGS
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2021
|
|
December 31, 2020
|
Accruing TDRs:
|
|
|
|
Non-PCD
|
$
|
122,810
|
|
|
$
|
139,747
|
|
PCD
|
29,207
|
|
|
17,617
|
|
Total accruing TDRs
|
152,017
|
|
|
157,364
|
|
Nonaccruing TDRs:
|
|
|
|
Non-PCD
|
48,593
|
|
|
43,470
|
|
PCD
|
12,365
|
|
|
7,346
|
|
Total nonaccruing TDRs
|
60,958
|
|
|
50,816
|
|
All TDRs:
|
|
|
|
Non-PCD
|
171,403
|
|
|
183,217
|
|
PCD
|
41,572
|
|
|
24,963
|
|
Total TDRs
|
$
|
212,975
|
|
|
$
|
208,180
|
|
INTEREST-BEARING LIABILITIES
Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, subordinated debt, and other borrowings. Interest-bearing liabilities totaled $30.4 billion at September 30, 2021, compared to $27.3 billion at December 31, 2020. The increase was mostly due to an increase of $3.1 billion in interest-bearing deposits.
Deposits
We strive to maintain a strong liquidity position, and therefore a focus on core deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers, as evidenced by the significant deposit growth the industry has experienced over the past 18 months. As economic conditions improve, we recognize that our liquidity position could be adversely affected as bank deposits are withdrawn. Our ability to fund future loan growth is significantly dependent on our success at retaining existing deposits and generating new deposits at a reasonable cost.
At September 30, 2021, total deposits were $50.1 billion, an increase of $6.6 billion, representing annualized growth of 20.4% since December 31, 2020, driven by organic growth.
Table 15
DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2021
|
|
December 31, 2020
|
Demand
|
$
|
21,514,407
|
|
|
$
|
18,014,029
|
|
Checking with interest
|
11,768,943
|
|
|
10,591,687
|
|
Money market
|
10,145,752
|
|
|
8,632,713
|
|
Savings
|
4,063,092
|
|
|
3,304,167
|
|
Time
|
2,573,568
|
|
|
2,889,013
|
|
Total deposits
|
$
|
50,065,762
|
|
|
$
|
43,431,609
|
|
Borrowings
Total borrowings were relatively unchanged, totaling $1.9 billion at September 30, 2021 and December 31, 2020.
Table 16
BORROWINGS
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2021
|
|
December 31, 2020
|
Securities sold under customer repurchase agreements
|
$
|
663,575
|
|
|
$
|
641,487
|
|
|
|
|
|
Federal Home Loan Bank borrowings
|
645,663
|
|
|
655,175
|
|
Subordinated debt
|
|
|
|
SCB Capital Trust I
|
9,808
|
|
|
9,779
|
|
FCB/SC Capital Trust II
|
17,764
|
|
|
17,664
|
|
FCB/NC Capital Trust III
|
88,145
|
|
|
88,145
|
|
Macon Capital Trust I
|
14,433
|
|
|
14,433
|
|
3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030
|
347,163
|
|
|
346,541
|
|
Other subordinated debt
|
20,114
|
|
|
27,956
|
|
Total subordinated debt
|
497,427
|
|
|
504,518
|
|
Other borrowings
|
76,139
|
|
|
88,470
|
|
Total borrowings
|
$
|
1,882,804
|
|
|
$
|
1,889,650
|
|
BancShares owns four special purpose entities – SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III and Macon Capital Trust I (the “Trusts”), which mature in 2034, 2034, 2036, and 2034, respectively. Subordinated debt included junior subordinated debentures representing obligations to the Trusts, which may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of the Trusts.
SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY
The table below shows Class A common stock repurchase activity for the three and nine months ended September 30, 2021 and 2020. All Class A common stock repurchases completed in 2020 were consummated under previously approved authorizations. There were no repurchases of Class B common stock or the preferred stock during the three and nine months ended September 30, 2021 or 2020.
Table 17
CLASS A COMMON STOCK REPURCHASE ACTIVITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
(Dollars in thousands, expect per share data)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Number of shares repurchased
|
—
|
|
|
117,700
|
|
|
—
|
|
|
813,090
|
|
Total cost
|
$
|
—
|
|
|
$
|
47,060
|
|
|
$
|
—
|
|
|
$
|
333,756
|
|
Average price per share
|
$
|
—
|
|
|
$
|
399.82
|
|
|
$
|
—
|
|
|
$
|
410.48
|
|
Upon expiration of the most recent authorization on July 31, 2020, share repurchase activity ended and will be reevaluated in subsequent periods.
We are committed to effectively managing our capital to protect our depositors, creditors and shareholders. We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements.
In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within shareholders’ equity. These amounts are excluded from shareholders’ equity in the calculation of our capital ratios under current regulatory guidelines.
Table 18
ANALYSIS OF CAPITAL ADEQUACY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Requirements to be well-capitalized
|
|
September 30, 2021
|
|
December 31, 2020
|
(Dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
BancShares
|
|
|
|
|
|
|
|
|
|
Risk-based capital ratios
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
10.00
|
%
|
|
$
|
4,944,822
|
|
|
14.30
|
%
|
|
$
|
4,577,212
|
|
|
13.81
|
%
|
Tier 1 risk-based capital
|
8.00
|
|
|
4,260,729
|
|
|
12.32
|
|
|
3,856,086
|
|
|
11.63
|
|
Common equity Tier 1
|
6.50
|
|
|
3,920,792
|
|
|
11.34
|
|
|
3,516,149
|
|
|
10.61
|
|
Tier 1 leverage ratio
|
5.00
|
|
|
4,260,729
|
|
|
7.68
|
|
|
3,856,086
|
|
|
7.86
|
|
|
|
|
|
|
|
|
|
|
|
FCB
|
|
|
|
|
|
|
|
|
|
Risk-based capital ratios
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
10.00
|
%
|
|
$
|
4,811,214
|
|
|
13.93
|
%
|
|
$
|
4,543,496
|
|
|
13.72
|
%
|
Tier 1 risk-based capital
|
8.00
|
|
|
4,581,621
|
|
|
13.26
|
|
|
4,276,870
|
|
|
12.92
|
|
Common equity Tier 1
|
6.50
|
|
|
4,581,621
|
|
|
13.26
|
|
|
4,276,870
|
|
|
12.92
|
|
Tier 1 leverage ratio
|
5.00
|
|
|
4,581,621
|
|
|
8.27
|
|
|
4,276,870
|
|
|
8.72
|
|
As of September 30, 2021, BancShares and FCB continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines. Trust preferred capital securities continue to be a component of total risk-based capital.
BancShares and FCB had capital conservation buffers of 6.30% and 5.93%, respectively, at September 30, 2021, and resulted in no limit on distributions.
RISK MANAGEMENT
Risk is inherent in any business. BancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy that does not preclude higher risk business activities balanced with acceptable returns while meeting regulatory objectives. Through the comprehensive Enterprise Risk Management Framework and Risk Appetite Framework, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares activities may be exposed, with effective challenge and oversight by management committees. In addition, the Board of Directors strives to ensure that the business culture is integrated with the enterprise risk management program and that policies, procedures and metrics for identifying, assessing, measuring, monitoring and managing risk are part of the decision-making process. The Board of Directors’ role in risk oversight is an integral part of our overall Enterprise Risk Management Framework and Risk Appetite Framework. The Board of Directors administers its risk oversight function primarily through the Board Risk Committee.
The Board Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The Board Risk Committee is directed to monitor and advise the Board of Directors regarding risk exposures, including credit, market, capital, liquidity, operational, compliance, strategic and reputational risks; review, approve, and monitor adherence to the risk appetite and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework. The Board Risk Committee also reviews: reports of examination by and communications from regulatory agencies; the results of internal and third party testing and qualitative and quantitative assessments related to risk management; and any other matters within the scope of the Committee’s oversight responsibilities. The Board Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the Board Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, information security and other areas of joint responsibility.
In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are part of the Risk Management Framework and conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods.
Credit risk management
Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCD or non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an adequate ACL that accounts for expected credit losses in the loan and lease portfolio.
We continue to actively monitor our loan portfolio for areas of increased risk as a result of the COVID-19 pandemic and to date have not seen any significant declines in credit quality. Through September 30, 2021, over 99% of all COVID-19 related loan extensions have begun repayment.
Additionally, we participated in both rounds of funding in the SBA-PPP program, which provided much needed funds to our existing small business customers. At September 30, 2021, BancShares had $1.1 billion in SBA-PPP loans outstanding.
Interest rate risk management
Interest rate risk (“IRR”) results principally from: assets and liabilities maturing or repricing at different points in time, assets and liabilities repricing at the same point in time but in different amounts, and short-term and long-term interest rates changing in different magnitudes.
We assess our short-term IRR by forecasting net interest income over 24 months under various interest rate scenarios and comparing those results to forecasted net interest income, assuming stable rates. IRR scenarios modeled include, but are not limited to, immediate, parallel rate shocks, interest rate ramps, changes in the shape of the yield curve and changes in the relationships of our rates to market rates. Market interest rates have increased since year-end, driven by improving economic conditions.
Table 19 provides the impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios as of September 30, 2021 and December 31, 2020.
Table 19
NET INTEREST INCOME SENSITIVITY ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated percentage (decrease) increase in net interest income
|
Change in interest rate (basis points)
|
|
September 30, 2021
|
|
December 31, 2020
|
-100
|
|
(6.94)
|
%
|
|
(6.24)
|
%
|
+100
|
|
7.42
|
|
|
8.09
|
|
+200
|
|
15.41
|
|
|
14.57
|
|
|
|
|
|
|
Net interest income sensitivity metrics as of September 30, 2021 remain largely unchanged when compared to December 31, 2020.
Long-term interest rate risk exposure is measured using the economic value of equity (“EVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE represents the difference between the sum of the present value of all asset cash flows and the sum of the present value of the liability cash flows. EVE sensitivity analysis involves discounting cash flows of balance sheet items under different interest rate scenarios. Cash flows will vary by interest rate scenario, resulting in variations in EVE. The base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet.
Table 20 presents the EVE profile as of September 30, 2021 and December 31, 2020.
Table 20
ECONOMIC VALUE OF EQUITY MODELING ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated percentage (decrease) increase in EVE
|
Change in interest rate (basis points)
|
|
September 30, 2021
|
|
December 31, 2020
|
-100
|
|
(15.09)
|
%
|
|
(21.20)
|
%
|
+100
|
|
8.32
|
|
|
12.18
|
|
+200
|
|
8.77
|
|
|
15.71
|
|
|
|
|
|
|
The economic value of equity metrics at September 30, 2021 compared to December 31, 2020 were primarily affected by ongoing growth in non-maturity deposits during 2021, coupled with higher market interest rates. We do not typically utilize interest rate swaps, floors, collars or other derivative financial instruments to hedge our overall balance sheet interest rate sensitivity and risk.
LIBOR Transition
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). Subsequent announcements have delayed the potential date for certain LIBOR tenors until June 30, 2023.
We continue to transition away from LIBOR in order to cease issuance of loans indexed to LIBOR by December 31, 2021. Conforming and nonconforming adjustable rate mortgage originations transitioned to alternative rates in 2020. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative to LIBOR. We have introduced SOFR as an alternative rate for other business lines in mid-2021. We do not expect a material financial impact to BancShares or our customers from this transition.
Liquidity risk management
Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient cash or its equivalents on a cost-effective basis to meet commitments as they fall due. The most common sources of liquidity risk arise from mismatches in the timing and value of on-balance sheet and off-balance sheet cash inflows and outflows. In general, on-balance sheet mismatches generate liquidity risk when the effective maturity of assets exceeds the effective maturity of liabilities. A commonly cited example of a balance sheet liquidity mismatch is when long-term loans (assets) are funded with short-term borrowings (liabilities). Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal and reputation risks that can affect an institution’s liquidity risk profile.
We utilize various limit-based measures to monitor, measure and control three different categories of liquidity risk:
•Tactical - Measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon out to nine weeks;
•Structural - Measures the amount by which illiquid assets are supported by long-term funding; and
•Contingent - Measures the risk of having insufficient liquidity sources to support cash needs under potential future stressed market conditions or having an inability to access wholesale funding sources in a timely and cost effective manner.
We aim to maintain a diverse mix of liquidity sources to support the liquidity management function, while aiming to avoid funding concentrations by diversifying our external funding with respect to maturities, counterparties and nature. Our primary funding source is our branch-generated retail deposit portfolio due to the generally stable balances and low cost. Sources of liquidity include cash in excess of our reserve requirement at the Federal Reserve Bank, and various other corresponding bank accounts and unencumbered securities, which totaled $15.1 billion at September 30, 2021 compared to $9.6 billion at December 31, 2020. Another source of available funds is advances from the FHLB of Atlanta. Outstanding FHLB advances were $645.7 million as of September 30, 2021, and we had sufficient collateral pledged to secure $8.5 billion of additional borrowings from the FHLB of Atlanta. Also, at September 30, 2021, $4.6 billion in non-PCD loans with a lendable collateral value of $3.8 billion were used to create additional borrowing capacity at the Federal Reserve Bank. We also maintain Federal Funds lines and other credit lines, which had $556.0 million of available capacity at September 30, 2021.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we are a party to certain financial instruments with off-balance sheet risk, which we enter into in order to meet the financing needs of our customers. These off-balance sheet instruments include commitments to extend credit and standby letters of credit. For more information on these commitments, see Note N - Commitments and Contingencies to our consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
There have been no significant changes in our Critical Accounting Estimates as described in our 2020 Annual Report.
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q and Exhibits relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to, factors discussed in our 2020 Annual Report and in other documents filed by us from time to time with the Securities and Exchange Commission.
Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “projects,” “potential” or “continue,” or similar terms or the negative of these terms, or other statements concerning opinions or judgments of BancShares’ management about future events.
Factors that could influence the accuracy of those forward-looking statements include, but are not limited to, risks, uncertainties and other factors relating to our announced merger with CIT through a series of merger transactions, including the ability to obtain the remaining regulatory approvals and meet other closing conditions to the Transaction, and delay in closing the Transaction, as well as risks, uncertainties and other factors relating to the impact of COVID-19 on our business and the economy, the financial success or changing strategies of our customers, customer acceptance of our services, products and fee structure, the competitive nature of the financial services industry, our ability to compete effectively against other financial institutions in our banking markets, actions of government regulators, the level of market interest rates and our ability to manage our interest rate risk, changes in general economic conditions that affect our loan and lease portfolio, the abilities of our borrowers to repay their loans and leases, the values of real estate and other collateral, the impact of our prior acquisitions, the risks discussed in Part I, Item 1A. Risk Factors of our 2020 Annual Report and other developments or changes in our business that we do not expect. Actual results may differ materially from those expressed in or implied by any forward-looking statements.
Except to the extent required by applicable law or regulation, BancShares undertakes no obligation to revise or update publicly any forward-looking statements for any reason.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values of financial instruments or reduced net interest income in future periods. See the sections entitled “Risk Management” and “Results of Operations” within Item 2. Management’s Discussion and Analysis of Financial Condition of this Quarterly Report for discussion of changes, which are incorporated herein by reference. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.
Item 4. Controls and Procedures
BancShares’ management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of BancShares’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report, in accordance with Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, as of the end of the period covered by this report, the Chief Executive Officer and the Chief Financial Officer concluded that BancShares’ disclosure controls and procedures were effective to provide reasonable assurance that it is able to record, process, summarize and report in a timely manner the information required to be disclosed in the reports it files under the Exchange Act.
No changes in BancShares’ internal control over financial reporting occurred during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial reporting.