13 unchanged sentences
Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward looking statement for any reason.
−Removed: The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland, which is currently celebrating twenty-three years of successful operations.
+Added: The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland.
The Company provides general commercial and consumer banking services through EagleBank (the “Bank”), its wholly owned banking subsidiary, a Maryland chartered bank which is a member of the Federal Reserve System.
3 unchanged sentences
The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion.
−Removed: The Bank currently has a total of nineteen branch offices, including eight in Northern Virginia, six in Suburban Maryland, and five in Washington, D.C.
+Added: The Bank currently has a total of eighteen branch offices, including seven in Northern Virginia, six in Suburban Maryland, and five in Washington, D.C.
+Added: The Bank also operates five lending offices, with one in Northern Virginia, three in Suburban Maryland and one in Washington, D.C.
The Bank offers a broad range of commercial banking services to its business and professional clients, as well as full service consumer banking services to individuals living and/or working primarily in the Bank’s market area.
7 unchanged sentences
The Company originates multifamily Federal Housing Administration ("FHA”) loans through the Department of Housing and Urban Development’s Multifamily Accelerated Program (“MAP”).
−Removed: The Company securitizes these loans through the Government National Mortgage Association (“Ginnie Mae”) MBS I program and sells the resulting securities in the open market to authorized dealers in the normal course of business, and periodically bundles and sells the servicing rights.
+Added: The Company securitizes these loans through the Government National Mortgage Association (“Ginnie Mae”) MBS I program and shortly thereafter sells the resulting securities in the open market to authorized dealers in the normal course of business, and periodically bundles and sells the servicing rights.
Bethesda Leasing, LLC, a subsidiary of the Bank, holds title to and manages other real estate owned (“OREO”) assets.
4 unchanged sentences
Since the inception of the COVID-19 pandemic in March of 2020, much progress has been made in reopening economies back up domestically and abroad.
−Removed: In the United States and in other nations around the world, the availability of vaccines ramped up significantly in the first half of 2021.
−Removed: Although management feels we're generally trending in a positive direction and strides have been made in the fight against COVID-19, we remain cautious given the potential for lingering effects of the pandemic, and the uncertainty of vaccination availability and distribution, as well as vaccination efficacy against variants, which could continue to impair some customers' ability to fulfill their financial obligations to the Company.
−Removed: Certain of our business and consumer customers have experienced and continue to experience varying degrees of financial distress.
+Added: In the United States and in other nations around the world, the availability of vaccines ramped up significantly in the first three quarters of 2021.
+Added: Although management feels we're generally trending in a positive direction and strides have been made in the fight against COVID-19, we remain cautious given the potential for lingering effects of the pandemic, including vaccination efficacy against variants and the speed of vaccination adoption around the country, which could continue to impair some customers' ability to fulfill their financial obligations to the Company.
In order to protect the health of our customers and employees, and to comply with applicable government directives, we have modified our business practices, including directing employees to work from home insofar as is possible and implementing our business continuity plans and protocols to the extent necessary.
−Removed: As concerns over the most severe impacts of the pandemic have abated, the Company expects that a partial return to the workplace may be appropriate starting in the Fall.
−Removed: The return to the workplace will seek to have at least half of the Company's employees in the office each day.
−Removed: We have established general guidelines for returning that include having employees maintain safe distances, staggered work schedules to limit the number of employees in a single location, more frequent cleaning of our facilities and other practices encouraging a safe working environment, including required COVID-19 training programs.
−Removed: We are monitoring jurisdictional guidelines and will respond as appropriate.
+Added: As concerns over the most severe impacts of the pandemic have abated, the Company's non-branch personnel returned to work on a "hybrid" basis on November 1, 2021.
+Added: The hybrid workplace allows certain employees to work remotely a portion of the week, but provides that each department has at least 50% of its staff in the office each day.
+Added: We have established general guidelines for returning to the workplace that include having employees maintain safe distances, staggered work schedules to limit the number of employees in a single location, more frequent cleaning of our facilities and other practices encouraging a safe working environment, including required COVID-19 training programs.
+Added: We are monitoring jurisdictional guidelines and will continue to respond as appropriate.
On March 27, 2020, the CARES Act was signed into law.
2 unchanged sentences
These loans are intended to guarantee payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.
−Removed: As an SBA preferred lender, the Bank is participating in the PPP program, and at June 30, 2021, had an outstanding balance of PPP loans of $238.0 million through 537 business loans.
−Removed: The statutory interest rate on these loans is 1.00% and the average yield, which includes fee and cost amortization, was 6.13% for the first six months of 2021.
−Removed: On May 3, 2021, we transacted to sell 849 PPP loans for a total purchase price of $169.0 million.
−Removed: We sold another 16 PPP loans on June 28, 2021 for a total purchase price of $816 thousand, amounting to a total of $169.8 million of sales of PPP loans for the quarter.
−Removed: During the second quarter of 2021, we recognized $4.7 million in accelerated interest income from the sale of PPP loans.
−Removed: Origination of new loans through the PPP has ceased, and the focus going forward will be on forgiveness.
+Added: As an SBA preferred lender, the Bank has been participating in the PPP program, which is winding down as loans complete the forgiveness process.
+Added: As of September 30, 2021, the Bank had an outstanding balance of PPP loans remaining of $67.3 million.
Following the CARES Act, the Consolidated Appropriations Act was signed in to law on December 27, 2020 which expanded and modified the PPP as well as provided additional COVID-19 support.
−Removed: Subsequently, the American Rescue Plan Act of 2021 was signed in to law on March 11, 2021 providing an additional $1.9 trillion in relief in the form of testing and vaccination sites along with direct stimulus checks.
+Added: Subsequently, the American Rescue Plan Act of 2021 was signed in to law on March 11, 2021 providing additional relief in the form of testing and vaccination sites along with direct stimulus checks.
Governmental actions taken in response to the COVID-19 pandemic have not always been coordinated or consistent across jurisdictions but, in general, have been expanding in scope and intensity.
4 unchanged sentences
The de ferred payments along with interest accrued during the deferral period are due and payable on the existing maturity date of the existing loan.
−Removed: As of June 30, 2021, we had ongoing temporary
−Removed: modifications on approximately 31 loans representing approximately $77 million (approximately 1.1% of total loans) in outstanding balances, as compared to 36 loans representing approximately $72 million (approximately 0.9% of total loans) at December 31, 2020.
+Added: As of September 30, 2021, we had ongoing temporary modifications on approximately 6 loans representing approximately $70 million (approximately 1.0% of total loans) in outstanding balances, as compared to 36 loans representing approximately $72 million (approximately 0.9% of total loans) at December 31, 2020.
Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e.
−Removed: non-performing loans) due to the provision of the CARES Act that permits U.S.
+Added: performing loans) due to the provision of the CARES Act that permits U.S.
financial institutions to temporarily suspend the U.S.
3 unchanged sentences
Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board.
−Removed: Steadily improving economic forecasts, improved unemployment numbers, improvement of credits in the portfolio along with a reduction in total loans, higher provisioning in 2020 associated with the implementation of the expected loss methodology for determining our provision for credit losses as required by the Current Expected Credit Loss ("CECL") standard described below, resulted in a negative provision for credit losses for the three months ended June 30, 2021.
We continue to monitor the impact of COVID-19 closely even as economic forecasts improve.
In addition, we continue to monitor the effects that have resulted from the CARES Act and other legislative and regulatory developments related to COVID-19;
−Removed: however, the extent to which the COVID-19 pandemic could impact our operations and financial results during the remainder of 2021 is uncertain.
+Added: however, the extent to which the COVID-19 pandemic could impact our operations and financial results during the remainder of 2021 and in 2022 is uncertain.
CRITICAL ACCOUNTING POLICIES
25 unchanged sentences
For our cash flow model, management utilizes and forecasts regional unemployment by using a national forecast and estimating a regional adjustment based on historical differences between the two as a loss driver over our reasonable and supportable period of 18 months, and reverts back to a historical loss rate over the following twelve months on a straight-line basis.
−Removed: Improved unemployment projections, which materially inform our CECL economic forecast reduced our loss reserve during the three months ended June 30, 2021.
Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period.
16 unchanged sentences
Earnings Summary
−Removed: Three Months Ended June 30, 2021 vs.
−Removed: Three Months Ended June 30, 2020
−Removed: Net income for the three months ended June 30, 2021 was $48.0 million compared to $28.9 million for the three months ended June 30, 2020, a 66% increase.
−Removed: Net income per basic and diluted common share for the three months ended June 30, 2021 was $1.50 compared to $0.90 per basic and diluted common share for the same period in 2020, a 67% increase.
−Removed: Net income increased for the three months ended June 30, 2021 relative to the same period in 2020 due primarily to a $4.6 million reversal of the provision for credit losses and reserve for unfunded commitments, as well as interest income of $4.7 million due to accelerated interest income from the sale of PPP loans.
−Removed: By comparison, the second quarter of 2020 included provisions for credit losses and unfunded commitments of $20.7 million as the Company increased reserves during the COVID-19 pandemic (see "Provision for Credit Losses" section below for further details on drivers of the change).
+Added: Three Months Ended September 30, 2021 vs.
+Added: Three Months Ended September 30, 2020
+Added: Net income for the three months ended September 30, 2021 was $43.6 million compared to $41.3 million for the same period in 2020, a 5% increase.
+Added: Net income per basic and diluted common share for the three months ended September 30, 2021 was $1.36 compared to $1.28 per basic and diluted common share for the same period in 2020, a 6% increase.
+Added: Net income increased for the three months ended September 30, 2021 relative to the same period in 2020 due primarily to a $7.5 million net reversal of the provision for credit losses and reserve for unfunded commitments, partially offset by lower noninterest income (before investment gain) of $6.8 million due primarily to lower gain on sale of loans.
+Added: By comparison, the third quarter of 2020 included net provisions for credit losses and unfunded commitments of $4.5 million and noninterest income (before investment gain) of $17.7 million.
Total revenue (i.e.
−Removed: net interest income plus noninterest income) was $95.6 million for the second quarter of 2021 as compared to $93.9 million in the same period of 2020.
−Removed: The most significant portion of revenue is net interest income, which increased to $84.6 million for the three months ended June 30, 2021 compared to $81.4 million for the same period in 2020.
−Removed: The increase in net interest income was primarily due to the $4.7 million acceleration of net deferred fees and costs associated with the sale of PPP loans, which more than offset the decline in net interest margin.
+Added: net interest income plus noninterest income) was $87.3 million for the three months ended September 30, 2021 as compared to $96.9 million for the same period in 2020.
+Added: The most significant portion of revenue is net interest income, which was $79.0 million for the three months ended September 30, 2021, compared to $79.0 million for the same period in 2020.
+Added: Net interest income was flat due to a 13% increase in average earning assets, offset by a corresponding decline in net interest margin (see next paragraph), when comparing the three months ended September 30, 2021 with the same period in 2020.
The net interest margin, which measures the difference between interest income and interest expense (i.e.
−Removed: net interest income) as a percentage of earning assets, was 3.04% for the three months ended June 30, 2021 and 3.26% for the same period in 2020.
+Added: net interest income) as a percentage of earning assets, was 2.73% for the three months ended September 30, 2021 and 3.08% for the same period in 2020.
The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.
−Removed: The benefit of noninterest sources funding earning assets decreased by 13 basis points to 23 basis points for the three months ended June 30, 2021 as compared to 36 basis points for the same period in 2020, due to significantly lower market interest rates.
−Removed: The combination of a 9 basis point decrease in the net interest spread and a 13 basis point decrease in the value of noninterest sources resulted in a 22 basis point decrease in the net interest margin for the three months ended June 30, 2021 as compared to the same period in 2020.
−Removed: Total noninterest income for the three months ended June 30, 2021 decreased to $10.9 million from $12.5 million for the three months ended June 30, 2020, a 13% decrease.
−Removed: The decrease was primarily due to a decline in loan fees and other fees, which was partially offset by FHA multifamily trade premiums of $2.6 million and $3.5 million in gain on sale from residential mortgage loans.
+Added: The benefit of noninterest sources funding earning assets was 22 basis points for the three months ended September 30, 2021 as compared to 33 basis points for the same period in 2020.
+Added: The decrease in benefit from noninterest sources was due to a 58 basis points reduction in the average yield on interest earning assets, as loans (held for investment) declined and investments and interest bearing deposits with other banks increased, compared to a smaller decline of 34 basis points in total interest bearing liabilities.
+Added: This led to a 35 basis point decrease in the net interest margin for the three months ended September 30, 2021 as compared to the same period in 2020.
+Added: Total noninterest income for the three months ended September 30, 2021 decreased to $8.3 million from $17.8 million for the same period in 2020, a 53% decrease.
+Added: The decrease was primarily due to lower gain on sale of loans, which were entirely of residential mortgage loans.
+Added: Other income also fell on lower FHA trade premiums.
F or further information on the components and drivers of these changes see "Noninterest Income" section below.
−Removed: Gain on sale of loans for the three months ended June 30, 2021 was $3.5 million compared to $3.1 million for the three months ended June 30, 2020, an increase of 13%.
−Removed: Residential lending gains for the second quarter of 2020 include $1.3 million in hedge and mark to market losses incurred during the second quarter of 2020 that were not repeated in 2021.
−Removed: The 2020 losses were attributable to the Federal Reserve’s market actions negatively impacting mortgage backed securities pricing combined with sharp declines in servicing right valuations associated with investor uncertainty surrounding COVID-19 at the end of March 2020.
−Removed: Other income for the three months ended June 30, 2021 decreased to $5.6 million from $6.9 million for the three months ended June 30, 2020, a 19% decrease.
−Removed: Noninterest expenses totaled $35.5 million for the three months ended June 30, 2021, as compared to $34.9 million for the three months ended June 30, 2020, a 2% increase.
+Added: Gain on sale of loans for the three months ended September 30, 2021 was $3.3 million compared to $12.2 million for the same period in 2020, an decrease of 73%.
+Added: Residential mortgage origination and sale volume peaked in the third quarter of 2020 based on a combination of low rates, concerns about rising rates and rising home values.
+Added: This increase in mortgage volume abated as mortgage rates started to increase at the beginning of 2021.
+Added: Other income for the three months ended September 30, 2021 decreased to $1.6 million from $4.0 million for the same period in 2020, a 60% decrease.
+Added: This decrease was attributed to gain on sale of Other Real Estate Owned ("OREO") and FHA trade premiums being negligible for the three months ended September 30, 2021, compared to a combined $2 million for the same period in 2020.
+Added: Noninterest expenses totaled $36.4 million for the three months ended September 30, 2021, as compared to $36.9 million for same period in 2020, a 1% decrease.
See the "Noninterest Expense" section for further detail on the components and drivers of the change.
−Removed: Income tax expenses were $16.7 million for the three months ended June 30, 2021 an increase of 76.9%, compared to the same period in 2020.
+Added: Income tax expenses were $14.8 million for the three months ended September 30, 2021 an increase of 5.4%, compared to the same period in 2020.
The components and drivers of the change are discussed in the "Income Tax Expense" section below.
−Removed: The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 37.14% for the second quarter of 2021, as compared to 37.18% for the second quarter of 2020.
−Removed: The Company believes it has effectively managed the Company over the past twelve months as deposits flowed into the Bank, increasing the balance sheet by maintaining a focus on disciplined pricing of both loans and sources of funding.
−Removed: At June 30, 2021, total loans (including PPP loans) were 6.5% lower than they were at December 31, 2020, and average loans were 7.9% lower in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.
−Removed: PPP loans represented $238.0 million of total loans at the end of the second quarter 2021.
−Removed: Notwithstanding the impact of PPP loans to total loans at June 20, 2021, the decrease in loan balance is mostly attributable to elevated payoffs and prepays due in part to successful completion of construction projects and low nominal interest rates.
−Removed: From a liquidity and funding perspective, the Company continues to benefit from a higher level of both interest bearing and noninterest bearing accounts relative to the second quarter of 2020.
−Removed: At June 30, 2021, total deposits were 1.9% lower than deposits at December 31, 2020, while average deposits were 12.4% higher for the three months ended June 30, 2021 compared with the three months ended June 30, 2020.
−Removed: While deposits declined slightly since December 31.
−Removed: 2020, the large increase from June 30, 2020 has allowed the Company to sustain strong primary and secondary sources of liquidity.
−Removed: On May 3, 2021, the Company sold 849 PPP loans for a total purchase price of $169.0 million.
−Removed: We sold another 16 PPP loans on June 28, 2021 for a total purchase price of $816 thousand, amounting to a total of $169.8 million of sales of PPP loans.
−Removed: After accounting for the forgiveness process and loans granted forgiveness during the quarter, the Company had $238.0 million in PPP loans at June 30, 2021.
−Removed: In terms of the average asset composition or mix, loans, which generally have higher yields than securities and other earning assets, represented 66% and 80% of average earning assets for the three months ended June 30, of 2021 and 2020, respectively.
−Removed: The decline was primarily a result of strong deposit inflows in the second half of 2020, which resulted in a significant increase in cash and securities.
−Removed: The ratio of common equity to total assets decreased to 11.92% at June 30, 2021 from 12.12% at June 30, 2020, as strong deposit inflows significantly increased assets held in cash and securities;
−Removed: average assets increased by 10.9%.
+Added: The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 41.7% for the three months ended September 30, 2021, as compared to 38.1% the same period in 2020.
+Added: Management believes it has effectively managed the Company over the past twelve months as deposits flowed into the Bank, increasing the balance sheet by maintaining a focus on disciplined pricing of both loans and sources of funding.
+Added: At September 30, 2021, total loans (including PPP loans) were 13.1% lower than they were a year earlier, and average loans were 10.8% lower in the three months ended September 30, 2021 as compared to the same period in 2020.
+Added: PPP loans represented $67.3 million of total loans at September 30, 2021, compared to $456.1 million a year earlier.
+Added: Notwithstanding the impact of the reduction of PPP loans (through forgiveness and sales) to total loans, the decrease in loan balance is mostly attributable to elevated payoffs and prepays due in part to successful completion of construction projects, competition to refinance at lower rates with longer amortization periods, and excess liquidity at competing banks as well as many companies and construction project sponsors.
+Added: From a liquidity and funding perspective, the Company continues to benefit from a higher level of both interest bearing and noninterest bearing accounts relative to the third quarter of 2020.
+Added: At September 30, 2021, total deposits were 18.2% higher than deposits a year earlier, while average deposits were 15.8% higher for the three months ended September 30, 2021 compared with the three months ended September 30, 2020.
+Added: In terms of the average asset composition, loans, which generally have higher yields than securities and other earning assets, represented 61% of average earning assets for the three months ended September 30, of 2021, down from 78% for the same period in 2020.
+Added: The decline was primarily a result of strong deposit inflows in the third quarter of 2020, which resulted in a significant increase in cash and securities combined with the aforementioned decline in loans.
+Added: The ratio of common equity to total assets was 11.49% at September 30, 2021.
+Added: This is down from 12.11% a year earlier, as assets increased by 14.6% (supported by strong deposit inflows which significantly increased assets held in cash and securities) and common equity (reduced by dividends and stock repurchases) increased by a smaller 8.9%.
As discussed later in “Capital Resources and Adequacy,” the regulatory capital ratios of the Bank and Company remain above well capitalized levels.
−Removed: For the three months ended June 30, 2021, the Company reported an annualized return on average assets (“ROAA”) of 1.68%, as compared to 1.12% for the three months ended June 30, 2020.
−Removed: Total shareholders’ equity was $1.31 billion and $1.24 billion at June 30, 2021 and December 31, 2020, respectively, an increase of 5.3%.
−Removed: The annualized return on average common equity (“ROACE”) for the three months ended June 30, 2021 was 14.92% as compared to 9.84% for the three months ended June 30, 2020.
−Removed: The annualized return on average tangible common equity (“ROATCE”) for the three months ended June 30, 2021 was 16.25% as compared to 10.80% for the three months ended June 30, 2020.
−Removed: The increase in these ratios was primarily due to reversals from the allowance for credit losses on loans and the reserve for unfunded commitments in the three months ended June 30, 2021, versus increases to both of these accounts in the three months ended June 30, 2020.
+Added: For the three months ended September 30, 2021, the Company reported an annualized return on average assets (“ROAA”) of 1.46%, as compared to 1.57% for the same period in 2020.
+Added: Total shareholders’ equity was $1.33 billion at September 30, 2021, compared to $1.22 billion a year earlier.
+Added: The annualized return on average common equity (“ROACE”) for the three months ended September 30, 2021 was 13.00% as compared to 13.58% for the same period in 2020.
+Added: The annualized return on average tangible common equity (“ROATCE”) for the three months ended September 30, 2021 was 14.11% as compared to 14.87% for the same period in 2020.
+Added: The decrease in these earnings-based ratios, in spite of higher net income for the period ($43.6 million versus $41.3 million), was due to the increase in average assets for the three months ended September 30, 2021, compared to the same period in 2020.
Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
−Removed: Six Months Ended June 30, 2021 vs.
−Removed: Six Months Ended June 30, 2020
−Removed: Net interest income increased by 4% for the six months ended June 30, 2021 over the same period in 2020 ($167.3 million as compared to $161.1 million).
−Removed: This was largely attributable to the acceleration of $4.7 million in net deferred fees and costs associated with the sale of $169.8 million in PPP loans as well as growth in average earning assets mostly offset by a decline in the net interest margin.
−Removed: For the six months ended June 30, 2021, the Company reported an annualized ROAA of 1.61% as compared to 1.06% for the six months ended June 30, 2020.
−Removed: The annualized ROACE for the six months ended June 30, 2021 was 14.49% as compared to 8.82% for the six months ended June 30, 2020.
−Removed: The annualized ROATCE for the six months ended June 30, 2021 was 15.80% as compared to 9.67% for the six months ended June 30, 2020.
−Removed: The increase in these ratios was primarily due to reversals from the allowance for credit losses on loans and the reserve for unfunded commitments in the first half of 2021, versus increases to both of these accounts in the first half of 2020.
+Added: Nine Months Ended September 30, 2021 vs.
+Added: Nine Months Ended September 30, 2020
+Added: Net interest income increased by 3% for the nine months ended September 30, 2021 over the same period in 2020 ($246.3 million as compared to $240.1 million).
+Added: This was largely attributable the decline in the interest paid on deposits outpacing the decline in interest and fees on loans, and a 15.1% increase in average earnings assets compared to an increase of 11.3% for interest bearing liabilities.
+Added: For the nine months ended September 30, 2021, the Company reported an annualized ROAA of 1.56% as compared to 1.24% for the same period in 2020.
+Added: The annualized ROACE for the nine months ended September 30, 2021 was 13.98% as compared to 10.44% for the same period in 2020.
+Added: The annualized ROATCE for the nine months ended September 30, 2021 was 15.21% as compared to 11.45% for the same period in 2020.
+Added: The increase in these ratios was primarily due to reversals from the allowance for credit losses on loans and the reserve for unfunded commitments in the first nine months of 2021, versus increases to both of these accounts for the same period in 2020.
Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
−Removed: The net interest margin was 3.02% for the six months ended June 30, 2021 and 3.36% for the same period in 2020.
−Removed: Average earning asset yields decreased 80 basis points to 3.41% for the six months ended June 30, 2021, as compared to 4.21% for the same period in 2020.
−Removed: The average cost of interest bearing liabilities decreased by 68 basis points (to 0.63% from 1.31%) for the six months ended June 30, 2021 as compared to the same period in 2020.
−Removed: Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased by 12 basis points for the six months ended June 30, 2021 as compared to 2020 (2.78% as compared to 2.90%).
−Removed: The benefit of noninterest sources funding earning assets decreased by 22 basis points to 24 basis points from 46 basis points for the six months ended June 30, 2021 as compared to the same period in 2020 due to rates continuing to move lower.
−Removed: The combination of a 12 basis point decrease in the net interest
−Removed: spread and a 22 basis point decrease in the value of noninterest sources resulted in a 34 basis point decrease in the net interest margin for the six months ended June 30, 2021 as compared to the same period in 2020.
+Added: The net interest margin was 2.91% for the nine months ended September 30, 2021 and 3.27% for the same period in 2020.
+Added: Average earning asset yields decreased 73 basis points to 3.29% for the nine months ended September 30, 2021, as compared to 4.02% for the same period in 2020.
+Added: The average cost of interest bearing liabilities decreased by 56 basis points to 0.61% for the nine months ended September 30, 2021, as compared to 1.17% for the same period in 2020.
+Added: Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased by 17 basis points for the nine months ended September 30, 2021 as compared to the same period in 2020 (2.68% as compared to 2.85%).
+Added: The benefit of noninterest sources funding earning assets decreased by 19 basis points, based on a benefit of 23 basis points for the nine months ended September 30, 2021 as compared to a benefit of 42 basis points for the same period in 2020.
The Company believes it has effectively managed its pricing and interest rate risk over the past twelve months as market interest rates moved lower and have stayed low.
−Removed: This factor has been significant to overall earnings performance over the past twelve months as net interest income represents 89% of the Company's total revenue for the six months ended June 30, 2021.
−Removed: For the six months ended June 30, 2021, total loans decreased 6.5% from December 31, 2020 (from $7.8 billion to $7.3 billion), and average loans were 3.6% lower in the first six months of 2021 as compared to the first six months of 2020.
−Removed: At June 30, 2021, total deposits were 1.9% lower than deposits at December 31, 2020, while average deposits were 18.2% higher for the first six months of 2021 compared with the first six months of 2020.
−Removed: There was decline in average loans from $7.8 billion to $7.6 billion over the six months ended June 30, 2021 as compared to the same period in 2020 but still sustained significant liquidity, the Company has relied on funding from interest bearing accounts primarily as a result of inflows from certain financial intermediary relationships that are also experiencing increased liquidity.
−Removed: In terms of the average asset composition or mix, loans, which generally have higher yields than securities and other earning assets, represented 67% and 81% of average earning assets for the first six months of 2021 and 2020, respectively.
−Removed: For the first six months of 2021, as compared to the same period in 2020, average loans, excluding loans held for sale, decreased $280 million, or 4%, due to the sale of PPP loans, and payoffs/paydowns outpaced loan originations/fundings.
−Removed: Average investment securiti es for the six months ended June 30, 2021 and 2020 amounted to 13% and 9% of average earning assets, respectively.
−Removed: The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale represented 20% and 10% of average earning assets for the first six months of 2021 and 2020, respectively.
−Removed: The provision for credit losses decreased with a reversal of $6.2 million for the six months ended June 30, 2021 as compared to a provision of $34.0 million for the six months ended June 30, 2020.
−Removed: The reversal of provisioning for the six months ended June 30, 2021, as compared to the provisioning for the same period in 2020, is primarily due to by the improved macroeconomic outlook and more significant impacts of COVID-19 during the six months ended June 30, 2020.
−Removed: Net charge-offs of $10.8 million for the six months ended June 30, 2021 represented an annualized 0.29% of average loans, excluding loans held for sale, as compared to $9.4 million, or an annualized 0.24% of average loans, excluding loans held for sale, in the first six months of 2020.
−Removed: Net charge-offs in the first six months of 2021 were attributable to commercial loans ($5.4 million) and commercial real estate loans ($5.4 million).
−Removed: Total noninterest income for the six months ended June 30, 2021 increased to $21.5 million from $18.0 million for the six months ended June 30, 2020, a 20% increase.
−Removed: Service charges on deposits for the six months ended June 30, 2021 decreased to $2.1 million from $2.4 million for the six months ended June 30, 2020, a $0.3 million decrease, due to a decrease in insufficient funds fees.
−Removed: Gain on sale of loans for the six months ended June 30, 2021 increased to $8.7 million from $4.0 million for the six months ended June 30, 2020, a 115% increase, due to higher gains on the sale of residential mortgage loans .
−Removed: Residential mortgage loans locked were $551.6 million for the first six months of 2021 as compared to $840.3 million for the first six months of 2020.
−Removed: Residential lending gains for the first six months of 2020 include $3.9 million in hedge and mark to market losses incurred during the first half of 2020 that were not repeated in 2021.
+Added: This factor has been significant to overall earnings performance over the past twelve months as net interest income represents 89% of the Company's total revenue for the nine months ended September 30, 2021.
+Added: For the nine months ended September 30, 2021, total loans decreased 11.7% from December 31, 2020 (from $7.8 billion to $6.9 billion), and average loans were 6.0% lower in the first nine months of 2021 as compared to the same period in 2020.
+Added: At September 30, 2021, total deposits were 5.2% lower than deposits at December 31, 2020, while average deposits were 17.4% higher for the first nine months of 2021 compared with the same period in 2020.
+Added: There was decline in average loans from $7.9 billion to $7.4 billion over the nine months ended September 30, 2021 as compared to the same period in 2020, but the Bank has significant liquidity as average deposits increased from $8.3 billion to $9.7 billion.
+Added: The increase in deposits has come from certain financial intermediary relationships that are also experiencing increased liquidity.
+Added: In terms of the average asset composition, loans, which generally have higher yields than securities and other earning assets, represented 65% and 80% of average earning assets for the first nine months of 2021 and 2020, respectively.
+Added: For the first nine months of 2021, as compared to the same period in 2020, average loans, excluding loans held for sale, decreased $473 million, or 6%, due to the sale of PPP loans, and payoffs/paydowns outpaced loan originations/fundings.
+Added: Average investment securities for the nine months ended September 30, 2021 and 2020 amounted to 13% and 9% of average earning assets, respectively.
+Added: The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale represented 21% and 11% of average earning assets for the first nine months of 2021 and 2020, respectively.
+Added: The provision for credit losses decreased with a reversal of $14.4 million for the nine months ended September 30, 2021 as compared to a provision of $40.7 million for same period in 2020.
+Added: The primary difference is the during the nine months ended September 30, 2021, the economy was recovering from the COVID-19 pandemic leading to improvement in credit quality and improvement and adjustments in qualitative and environmental factors and corresponding reversals from the Allowance for Credit Losses, versus the same period in 2020 when the onset of the COVID-19 pandemic necessitated increased provisions to the Allowance for Credit Losses.
+Added: Net charge-offs of $12.2 million for the nine months ended September 30, 2021 represented an annualized 0.22% of average loans, excluding loans held for sale, as compared to $14.6 million, or an annualized 0.25% of average loans, excluding loans held for sale, in the first nine months of 2020.
+Added: Net charge-offs in the first nine months of 2021 were attributable to commercial loans ($7.4 million) and commercial real estate loans ($4.8 million).
+Added: Total noninterest income for the nine months ended September 30, 2021 decreased to $29.8 million from $35.8 million for the same period in 2020, a 17% decrease.
+Added: Gain on sale of loans for the nine months ended September 30, 2021 decreased to $12.0 million from $16.2 million for the same period in 2020, a 26% decrease.
+Added: Residential mortgage origination and sale volume rose after a slow first quarter of 2020 and accelerated and peaked in the third quarter of 2020 based on a combination of low rates, concerns about rising rates and rising home values.
+Added: This increase in mortgage volume abated at the beginning of 2021 as mortgage rates started to increase and has remained at a relatively consistent level for the first three quarters of 2021.
+Added: Residential mortgage loans locked were $831.4 million for the first nine months of 2021 as compared to $1,433.3 million for the same period in 2020.
+Added: Residential lending gains for the first nine months of 2020 include $3.9 million in hedge and mark to market losses incurred during the first three quarters of 2020 that were not repeated in 2021.
The 2020 losses were attributable to the Federal Reserve’s market actions negatively impacting mortgage backed securities pricing combined with sharp declines in servicing right valuations associated with investor uncertainty surrounding COVID-19 at the end of March 2020.
−Removed: Other income for the six months ended June 30, 2021 increased to $9.4 million from $8.8 million for the six months ended June 30, 2020, a 7% increase due substantially to a $911 thousand gain associated with the extinguishment of an FHLB borrowing and higher gains associated with the securitization, sale an d servicing of FHA loans ($499 thousand more in 2021) .
−Removed: Gains on sale of investments were $539 thousand and $1.5 million for the six months ended June 30, 2021 and 2020, respectively.
−Removed: For the first six months of 2021, the efficiency ratio was 38.92% as compared to 40.34% for the same period in 2020.
−Removed: Noninterest expenses totaled $73.5 million for the six months ended June 30, 2021, as compared to $72.2 million for the six months ended June 30, 2020, a 1% increase.
−Removed: Noninterest expenses in 2021 period increased slightly from the 2020 amount primarily because of increased salaries and employee benefits, partially offset by a reduction in legal costs.
−Removed: Salaries and employee benefits were $41.6 million for the six months ended June 30, 2021, as compared to $34.9 million for the same period in 2020, an increase of $6.7 million or 19% due to payroll taxes associated with annual vesting, additional restricted stock awards granted and amortization, and higher annual incentive accruals based on performance expectations.
−Removed: Legal, accounting and professional fees decreased $4.5 million for the six months ended June 30, 2021 compared to the six months
−Removed: ended June 30, 2020.
−Removed: The reason for the increase in salaries and employee benefits and decrease in legal, accounting and professional fees for the periods noted above are further discussed in the “Noninterest Expense” section.
−Removed: Data processing expenses were $5.6 million for the six months ended June 30, 2021 compared to $5.3 million for the same period in 2020, a 6% increase.
−Removed: FDIC expenses were $4.0 million for the six months ended June 30, 2021 compared to $3.4 million for the same period in 2020, a 19% increase, due to a larger deposit base and a higher assessment.
−Removed: Other expenses were $6.6 million for the six months ended June 30, 2021 compared to $8.2 million over the same period ended June 30, 2020, a 20% decrease, due primarily to lower broker fees and lower other real estate owned (“OREO”) expense, partially offset by higher real estate taxes-utilities.
−Removed: The ratio of common equity to total assets increased to 11.92% at June 30, 2021 from 11.16% at December 31, 2020.
−Removed: The increase is primarily due to the increase in common equity from earnings of $91.5 million (reduced by dividends of $19.1 million) in the first half of 2021 while assets declined slightly.
−Removed: This is discussed in the “Earnings Summary” above.
+Added: Other income for the nine months ended September 30, 2021 decreased to $11.0 million from $12.8 million for the nine months ended September 30, 2020, a 14% decrease.
+Added: The primary decreases were in loan service fees and gain on sale of OREO.
+Added: Gains on sale of investments were $2.1 million and $1.7 million for the nine months ended September 30, 2021 and 2020, respectively.
+Added: For the first nine months of 2021, the efficiency ratio was 39.8% as compared to 39.6% for the same period in 2020.
+Added: Noninterest expenses totaled $109.9 million for the nine months ended September 30, 2021, as compared to $109.2 million for the same period in 2020, a 1% increase.
+Added: The increase in noninterest expense is primarily from increased salaries and employee benefits, partially offset by a reduction in legal costs.
+Added: Salaries and employee benefits were $63.8 million for the nine months ended September 30, 2021, as compared to $54.3 million for the same period in 2020, an increase of $9.5 million or 18% due to payroll taxes associated with annual vesting, additional restricted stock awards granted and amortization, and higher annual incentive accruals based on performance expectations.
+Added: Legal, accounting and professional fees decreased $5.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
+Added: Data processing expenses were $8.5 million for the nine months ended September 30, 2021 compared to $8.0 million for the same period in 2020, a 6% increase.
+Added: FDIC expenses were $5.59 million for the nine months ended September 30, 2021 compared to $5.56 million for the same period in 2020, a 0.5% increase.
+Added: Other expenses were $9.5 million for the nine months ended September 30, 2021 compared to $11.8 million over the same period ended September 30, 2020, a 19% decrease .
+Added: The reasons for the noninterest expense results described above are further discussed in the “Noninterest Expense” section.
+Added: Income tax expenses were $46 million for the nine months ended September 30, 2021 an increase of 45%, compared to the same period in 2020.
+Added: The components and drivers of the change are discussed in the "Income Tax Expense" section below.
+Added: The ratio of common equity to total assets increased to 11.49% at September 30, 2021 from 11.16% at December 31, 2020 as the increase in common equity (from earnings of $135.1 million, reduced by dividends of $31.9 million and stock purchases of $677 thousand), for the nine months ended September 30, 2021, outweighed the increase in assets increased over that same period.
+Added: The earnings are is discussed in the “Earnings Summary” above.
As discussed later in “Capital Resources and Adequacy,” the regulatory capital ratios of the Bank and Company remain above well capitalized levels.
5 unchanged sentences
Changes in the volume and mix of assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income.
−Removed: Net interest income was $84.6 million for the three months ended June 30, 2021 and $81.4 million for the same period in 2020, which reflects the acceleration of $4.7 million in net deferred fees and costs into interest income as a result of the sale of $169.8 million in PPP loans in the second quarter of 2021, partially offset by a decline in the net interest margin, as explained below.
−Removed: The addition of the PPP loans at an average yield of 9.35% for the three months ended June 30, 2021, positively impacted the overall yield of the total loan portfolio by approximately 27 basis points.
−Removed: For the six months ended June 30, 2021, net interest income increased by $6.2 million, which reflects earnings on a higher level of average earnings assets and the accelerated interest income from the PPP sale.
−Removed: The addition of the PPP loans at an average yield of 6.13% for the six months ended June 30, 2021, positively impacted the overall yield of the total loan portfolio by approximately 10 basis points.
−Removed: The net interest margin was 3.02% for the six months ended June 30, 2021 and 3.36% for the same period in 2020.
+Added: Net interest income was $79.0 million for the three months ended September 30, 2021, unchanged from the $79.0 million for the same period in 2020.
+Added: Net interest income was flat due to a 13% increase in average earnings assets, offset by a corresponding decline in net interest margin, when comparing the three months ended September 30, 2020 with the same period in 2021.
+Added: Additionally, the PPP loans had an average yield of 6.69% (includes fee acceleration from the forgiveness process) for the three months ended September 30, 2021, which positively impacted the overall yield of the total loan portfolio by approximately 5 basis points.
+Added: For the nine months ended September 30, 2021, net interest income increased by $6.2 million, which reflects earnings on a higher level of average earnings assets and $4.7 million of accelerated interest income from the PPP sale in the second quarter of 2021.
+Added: Additionally, the PPP loans had an average yield of 6.22% (includes fee acceleration from the forgiveness process) for the nine months ended September 30, 2021, which positively impacted the overall yield of the total loan portfolio by approximately 7 basis points.
+Added: The net interest margin was 2.91% for the nine months ended September 30, 2021 and 3.27% for the same period in 2020.
The decline reflects the impact of lower rates on increased cash and securities balances and loans balances representing a lower percentage of earning assets, partially offset by the accelerated interest income from the PPP sale.
−Removed: In the first half of 2021 as compared to the first half of 2020, average U.S.
−Removed: Treasury rates in the two to five year range decreased by approximately 29 basis points and the average yield curve steepened as the average two to ten year spread went from 40 basis points in the first half of 2020 to 131 basis points in the first half of 2021.
−Removed: The Company experienced 34 basis points of net interest margin compression between the first half of 2020 as compared to the first half of 2021 (from 3.36% to 3.02% ).
−Removed: In addition, our cost of funds declined 46 basis points (from 0.85% to 0.39%), while the yield on earning assets declined by 80 basis points (from 4.21% to 3.41%).
−Removed: Average liquidity was $2.1 billion for the second quarter of 2021 and $1.1 billion for the second quarter of 2020.
−Removed: The yield on our loan assets was negatively impacted by the low interest rate environment in the first half of 2021 as legacy fixed rate loans originated in higher rate eras matured and paid off or were prepaid off.
+Added: In the first nin e months of 2021 as compared to the same period in 2020, average U.S.
+Added: Treasury rates in the two to five year range decreased by approximately 10 basis points and the average yield curve steepened as the average two to ten year spread went from an average of 43 basis points to an average of 124 basis points.
+Added: The Company exper ienced 36 b asis points of net interest margin compression between the first nine months of 2020 as compared to the first nine months of 2021 (from 3.27% to 2.91% ).
+Added: In addition, our cost of funds de clined 37 basis points (from 0.75% to 0.38%), while the yield on earning assets declined by 73 basis points (from 4.02% to 3.29%).
+Added: Average liquidity was $2.7 billion for the third quarter of 2021 and $1.3 billion for the third quarter of 2020.
+Added: The yield on our loan assets was negatively impacted by the l ow interest rate environment in the first three quarters of 2021 as legacy fixed rate loans originated in higher rate eras matured and paid off or were prepaid off.
A substantial portion of the variable rate loan portfolio has interest rate floors that cushioned the decline in loan yields.
−Removed: Average earning asset yields decreased 80 basis points to 3.41% for the six months ended June 30, 2021, as compared to 4.21% for the same period in 2020.
−Removed: The average cost of interest bearing liabilities decreased by 68 basis points (to 0.63% from 1.31%) for the six months ended June 30, 2021 as compared to the same period in 2020.
−Removed: Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased b y 12 basis points for the six months ended June 30, 2021 as compared to 2020 (2.90% as compared to 2.78%).
−Removed: The tables below presents the average balances and rates of the major categories of the Company’s assets and liabilities for the three months ended June 30, 2021 and 2020 and also the six months ended June 30, 2021 and 2020.
+Added: Average earning asset yields decreased 73 basis points to 3.29% for the nine months ended September 30, 2021, as compared to 4.02% for the same period in 2020.
+Added: The average cost of interest bearing liabilities decreased by 56 basis points (to 0.61% from 1.17%) for the nine months ended September 30, 2021 as compared to the same period in 2020.
+Added: Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased b y 17 basis points for the nine months ended September 30, 2021 as compared to 2020 (2.85% as compared to 2.68%).
+Added: The tables below presents the average balances and rates of the major categories of the Company’s assets and liabilities for the three months ended September 30, 2021 and 2020 and also the nine months ended September 30, 2021 and 2020.
Included in the tables are measurements of interest rate spread and margin.
Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest rate paid on interest bearing liabilities.
−Removed: While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin provides a better measurement of performance.
+Added: While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin, together with net interest income, provides a better measurement of performance.
The net interest margin (as compared to net interest spread) includes the effect of noninterest bearing sources in its calculation.
3 unchanged sentences
(dollars in thousands)
−Removed: Three Months Ended June 30,
+Added: Three Months Ended September 30,
Balance Interest Average
36 unchanged sentences
(1) Loans placed on nonaccrual status are included in average balances.
−Removed: Net loan fees and late charges included in interest income on loans totaled $13.4 million and $6.3 million for the three months ended June 30, 2021 and 2020, respectively.
+Added: Net loan fees and late charges included in interest income on loans totaled $6.3 million and $5.
+Added: 4 million for the three months ended September 30, 2021 and 2020, respectively.
(2) Interest and fees on loans and investments exclude tax equivalent adjustments.
−Removed: Six Months Ended June 30,
+Added: Nine Months Ended September 30,
Balance Interest Average
36 unchanged sentences
(1) Loans placed on nonaccrual status are included in average balances.
−Removed: Net loan fees and late charges included in interest income on loans totaled $21.2 million and $10.7 million for the six months ended June 30, 2021 and 2020, respectively.
+Added: Net loan fees and late charges included in interest income on loans totaled $26.3 million and $16.1 million for the nine months ended September 30, 2021 and 2020, respectively.
(2) Interest and fees on loans and investments exclude tax equivalent adjustments.
9 unchanged sentences
Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors.
−Removed: Refer to additional detail regarding these forecasts in the “Cash Flow Method" section of Note 1 to the Consolidated Financial Statements.
+Added: Refer to additional detail regarding these forecasts in the “Allowance for Credit Losses - Loans" section of Note 1 to the Consolidated Financial Statements.
The results of this process, in combination with conclusions of the Bank’s outside consultants’ review of the risk inherent in the loan portfolio, support management’s assessment as to the adequacy of the allowance at the balance sheet date.
1 unchanged sentence
Also, refer to the table on the next page which reflects activity in the allowance for credit losses.
−Removed: During the three months ended June 30, 2021, the ACL on loans reflected a reversal of $3.9 million in the provision and $5.6 million in net charge-offs, which were attributable primarily to one CRE loan on an office building for $3.5 million with the remaining balance being smaller CRE and C&I loans .
+Added: During the three months ended September 30, 2021, the ACL on loans reflected a reversal of $8.3 million in the provision and $1.3 million in net charge-offs, which were attributable primarily to one commercial loan with a balance of $1 million.
The provision for credit losses on loans for the same period in 2020 was $6.6 million.
−Removed: The high level of provisioning in the second quarter of 2020 was primarily due to the impact of COVID-19 on our actual and expected future credit losses.
−Removed: The reversal in the second quarter of 2021 was driven by the improved macroeconomic outlook, better unemployment rate, improvement of credits in the loan portfolio, and a reduction in total loans.
−Removed: Net charge-offs of $5.6 million in the second quarter of 2021 represented an annualized 0.30% of average loans, excluding loans held for sale, as compared to $7.1 million, or an annualized 0.36% of average loans, excluding loans held for sale, in the second quarter of 2020.
−Removed: During the six months ended June 30, 2021, the ACL on loans reflected a reversal of $6.2 million in the provision, and $10.8 million in net charge-offs during the period.
−Removed: The provision for credit losses on loans was $34.0 million for the six months ended June 30, 2020.
−Removed: Net charge-offs in the first six months of 2021 represented an annualized 0.29% of average loans, excluding loans held for sale, as compared to $9.4 million, or an annualized 0.24% of average loans, excluding loans held for sale, in the first six months of 2020.
+Added: The high level of provisioning in the third quarter of 2020 was primarily due to the impact of COVID-19 on our actual and expected future credit losses.
+Added: The reversal in the third quarter of 2021 was primarily driven by the decline in loans, improvement in credit quality, and improvement and adjustments in qualitative and environmental factors.
+Added: Net charge-offs for the three months ended September 30, 2021, represented an annualized 0.08% of average loans, excluding loans held for sale, as compared to $5.2 million, or an annualized 0.26% of average loans, excluding loans held for sale, for the same period in 2020.
+Added: During the nine months ended September 30, 2021, the ACL on loans reflected a reversal of $14.5 million in the provision, and $12.2 million in net charge-offs during the period.
+Added: The provision for credit losses on loans was $40.7 million for the nine months ended September 30, 2020.
+Added: Net charge-offs in the first nine months of 2021 represented an annualized 0.22% of average loans, excluding loans held for sale, as compared to $14.6 million, or an annualized 0.25% of average loans, excluding loans held for sale, in the first nine months of 2020.
As part of its comprehensive loan review process, internal loan and credit committees carefully evaluate loans that are past-due 30 days or more.
6 unchanged sentences
The following table sets forth activity in the allowance for credit losses for the periods indicated.
−Removed: Six Months Ended
+Added: Nine Months Ended
+Added: September 30,
(dollars in thousands) 2021 2020
25 unchanged sentences
The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the use of the allowance to absorb losses in any category.
−Removed: June 30, 2021 December 31, 2020
−Removed: (dollars in thousands) Amount % (1)
+Added: September 30, 2021 December 31, 2020
+Added: (dollars in thousands) ACL - Loans % of Total ACL % of Total Loans ACL - Loans % of Total ACL % of Total Loans
Commercial $ 16,927 20 % 19 % $ 26,569 24 % 19 %
8 unchanged sentences
Total allowance $ 82,906 100 % 100 % $ 109,579 100 % 100 %
−Removed: (1) Represents the percent of loans in each category to total loans.
Nonperforming Assets
−Removed: As shown in the table below, the Company’s level of nonperforming assets, which is comprised of loans delinquent 90 days or more, and nonaccrual loans, which includes the nonperforming portion of TDRs and OREO, totaled $54.5 million at June 30, 2021 representing 0.50% of total assets, as compared to $65.9 million of nonperforming assets, or 0.59% of total assets, at December 31, 2020.
−Removed: At June 30, 2021, the Company had no accruing loans 90 days or more past due.
+Added: As shown in the table below, the Company’s level of nonperforming assets, which is comprised of loans delinquent 90 days or more, and nonaccrual loans, which includes the nonperforming portion of TDRs and OREO, totaled $36.4 million at September 30, 2021 representing 0.31% of total assets, as compared to $65.9 million of nonperforming assets, or 0.59% of total assets, at December 31, 2020.
+Added: At September 30, 2021, the Company had no accruing loans 90 days or more past due.
Management remains attentive to early signs of deterioration in borrowers’ financial conditions and to taking the appropriate action to mitigate risk.
−Removed: Furthermore, the Company is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its allowance for credit losses, at 1.28% of total loans at June 30, 2021, is adequate to absorb expected credit losses within the loan portfolio at that date.
+Added: Furthermore, the Company is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its allowance for credit losses, at 1.21% of total loans at September 30, 2021, is adequate to absorb expected credit losses within the loan portfolio at that date.
CECL allows for institutions to evaluate individual loans in the event that the asset does not share similar risk characteristics with its original segmentation.
13 unchanged sentences
The determination of whether a restructured loan is a TDR requires c onsideration of all of the facts and circumstances surrounding the change in terms, and the exercise of prudent business judgment.
−Removed: The Company had seven TDRs at June 30, 2021 totaling approximately $16.6 million.
+Added: The C ompany had seven TDRs at September 30, 2021 totaling approximately $16.5 million.
Five of these loans totaling approximately $10.2 million are performing under their modified terms.
−Removed: In the first six months of 2020, one performing TDR loan, with a balance of $5.5 million, defaulted on its modified terms and was placed on nonaccrual status.
+Added: In the first nine months of 2020, two
+Added: performing TDR loans, with a balance of $6.3 million , defaulted on its modified terms and was placed on nonaccrual status.
A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.
1 unchanged sentence
If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment.
−Removed: The allowance
−Removed: may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
−Removed: For both the six months ended June 30, 2021 and 2020, there were no loans modified in a TDR.
+Added: The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
+Added: For both the nine months ended September 30, 2021 and 2020, there were no loans modified in a TDR.
There is uncertainty regarding the region’s overall economic outlook given lack of clarity over how long COVID-19 will continue to impact our region.
1 unchanged sentence
Some of these deferrals may have met the criteria for treatment under GAAP as TDRs.
−Removed: As of June 30, 2021, we had ongoing temporary modifications on approximately 31 loans representing approximately $77 million (approximately 1.1% of total loans) in outstanding balances, as compared to 36 loans representing approximately $72 million (approximately 0.9% of total loans) at December 31, 2020.
+Added: As of September 30, 2021, we had ongoing temporary modifications on approximately 6 loans representing approximately $70 million (approximately 1.0% of total loans) in outstanding balances, as compared to 36 loans representing approximately $72 million (approximately 0.9% of total loans) at December 31, 2020.
Additionally, none of the deferrals are reflected in the Company’s asset quality measures (i.e.
2 unchanged sentences
Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board.
−Removed: Total nonperforming loans amounted to $49.5 million at June 30, 2021 (0.68% of total loans) compared to $60.9 million at December 31, 2020 (0.79% of total loans).
−Removed: Included in nonperforming assets at June 30, 2021 and December 31, 2020 was $5.0 million of OREO consisting of four foreclosed properties.
+Added: Total nonperforming loans amounted to $31.2 million at September 30, 2021 (0.46% of total loans) compared to $60.9 million at December 31, 2020 (0.79% of total loans).
+Added: Included in nonperforming assets are OREO properties, which at September 30, 2021 was $5.1 million for five foreclosed properties.
+Added: As of December 31, 2020, OREO was $5.0 million.
OREO properties are carried at fair value less estimated costs to sell.
1 unchanged sentence
Generally, the Company would obtain updated appraisals or evaluations where it has reason to believe, based upon market indications (such as comparable sales, legitimate offers below carrying value, broker indications and similar factors), that the current appraisal does not accurately reflect current value.
−Removed: There were no sales of an OREO property during the first six months of 2021 or 2020.
−Removed: The following table shows the amounts of nonperforming assets at the dates indicated for June 30, 2021).
−Removed: (dollars in thousands) June 30, 2021 December 31, 2020
+Added: There were no sales of an OREO property during the first nine months of 2021 or 2020.
+Added: The following table shows the amounts of nonperforming assets at the dates indicated for September 30, 2021.
+Added: (dollars in thousands) September 30, 2021 December 31, 2020
Nonaccrual Loans:
16 unchanged sentences
(1) Nonaccrual loans reported in the table above do not include loans that migrated from a performing TDR status during the period.
−Removed: During the six months ended June 30, 2021, there were no loans that migrated from a performing TDR status.
−Removed: During the six months ended June 30, 2020 there was one loan totaling $5.5 million that migrated from a performing TDR.
+Added: During the nine months ended September 30, 2021, there were no loans that migrated from a performing TDR
+Added: During the nine months ended September 30, 2020 there were two loans totaling $6.3 million that migrated from a performing TDR.
Significant variation in the amount of nonperforming loans may occur from period to period because the amount of nonperforming loans depends largely on the condition of a relatively small number of individual credits and borrowers relative to the total loan portfolio.
−Removed: At June 30, 2021, there were $95.5 million of performing loans considered to be potential problem loans, defined as loans that are not included in the 90 days past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms, which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories.
−Removed: Potential problem loans were $91.2 million at December 31, 2020.
+Added: At September 30, 2021, there wer e $87.9 mi llion of performing loans considered to be potential problem loans, defined as loans that are not included in the 90 days past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms, which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories.
+Added: Potential problem loan s were $91.2 million at December 31, 2020.
The Company has taken a conservative yet proactive approach with respect to risk rating its loan portfolio.
2 unchanged sentences
Total noninterest income includes service charges on deposits, gain on sale of loans, gain on sale of investment securities, income from bank owned life insurance (“BOLI”) and other income.
−Removed: Total noninterest income for the three months ended June 30, 2021 decreased to $10.9 million from $12.5 million for the three months ended June 30, 2020, a 13% decrease.
−Removed: Gain on sale of loans for the three months ended June 30, 2021 increased to $3.5 million from $3.1 million for the three months ended June 30, 2020, a 13% increase, due to $399 thousand higher gains on the sale of residential mortgage loans in 2021.
−Removed: Residential mortgage loan locked commitments were $248 million for the second quarter of 2021 as compared to $418 million for the second quarter 2020.
−Removed: Residential lending gains for the second quarter of 2020 include $1.3 million in hedge and mark to market losses incurred during the second quarter of 2020 that were not repeated in 2021.
−Removed: The 2020 losses were attributable to the Federal Reserve’s market actions negatively impacting mortgage backed securities pricing combined with sharp declines in servicing right valuations associated with investor uncertainty surrounding COVID-19 at the end of March 2020.
−Removed: Other income for the three months ended June 30, 2021 decreased to $5.6 million from $6.9 million for the three months ended June 30, 2020, a 19% decrease.
−Removed: Service charges on deposits for the three months ended June 30, 2021 increased to $1.1 million from $942 thousand for the three months ended June 30, 2020, a 19% increase , due to an increase in insufficient funds fees.
+Added: Total noninterest income for the three months ended September 30, 2021 decreased to $8.3 million from $17.8 million for the three months ended September 30, 2020, a 53% decrease.
+Added: Gain on sale of loans for the three months ended September 30, 2021 decreased to $3.3 million from $12.2 million for the three months ended September 30, 2020, a 73% decrease;
+Added: a decrease in gains on the sale of residential mortgage comprised the entire $8.9 million difference between the two periods.
+Added: Residential mortgage loan locked commitments were $280 million for the three months ended September 30, 2021 as compared to $593 million for the same period in 2020.
The decision whether to sell residential mortgage loans on a mandatory or best efforts lock basis is a function of multiple factors, including but not limited to overall market volumes of mortgage loan originations, forecasted “pull-through” rates of origination, loan underwriting and closing operational considerations, pricing differentials between the two methods, and availability and pricing of various interest rate hedging strategies associated with the mortgage origination pipeline.
The Company continually monitors these factors to maximize profitability and minimize operational and interest rate risks.
−Removed: Ga in on sale of investment securities were $318 thousand for the three months ended June 30, 2021 compared to $713 thousand for the same period in 2020.
−Removed: Total noninterest income for the six months ended June 30, 2021 increased to $21.5 million from $18.0 million for the six months ended June 30, 2020, a 20% increase.
−Removed: Service charges on deposits for the six months ended June 30, 2021 decreased to $2.1 million from $2.4 million for the six months ended June 30, 2020, a 11% decrease, due to a decrease in insufficient funds fees.
−Removed: Gain on sale of loans for the six months ended June 30, 2021 increased to $8.7 million from $4.0 million for the six months ended June 30, 2020, a 115% increase, due to higher gains on the sale of residential mortgage loans ($4.5 million).
−Removed: Residential mortgage loans locked commitments wer e $551.6 million for the first six months of 2021 as compared to $840.3 milli on for the first six months of 2020.
−Removed: Residential lending gains for the first six months of 2020 include $3.9 million in hedge and mark to market losses incurred during the first half of 2020 that were not repeated in 2021.
+Added: Other income for the three months ended September 30, 2021 decreased to $1.6 million from $4.0 million for the three months ended September 30, 2020, a 60% decrease.
+Added: Service charges on deposits for the three months ended September 30, 2021 increased to $1.2 million from $1.1 million for the three months ended September 30, 2020, a 13% increase, due to an increase in deposit activity.
+Added: Gain on sale of investment securities were $1.5 million for the three months ended September 30, 2021 compared to $115 thousand for the same period in 2020.
+Added: Total noninterest income for the nine months ended September 30, 2021 decreased to $29.8 million from $35.8 million for the nine months ended September 30, 2020, a 17% decrease.
+Added: Gain on sale of loans for the nine months ended September 30, 2021 decreased to $12.0 million from $16.2 million for the nine months ended September 30, 2020, a 26% decrease;
+Added: the decrease was driven by lower gains on the sale of residential mortgage loans.
+Added: Residential mortgage loans locked commitments were $831 million for the first nine months of 2021 as compared to $1.43 billion for the first nine months of 2020.
+Added: Service charges on deposits for the nine months ended September 30, 2021 decreased to $3.3 million from $3.4 million for the nine months ended September 30, 2020, a 4% decrease.
+Added: Residential lending gains for the first nine months of 2020 include $3.9 million in hedge and mark to market losses incurred during the first three quarters of 2020 that were not repeated in 2021.
The 2020 losses were attributable to the Federal Reserve’s market actions negatively impacting mortgage backed securities pricing combined with sharp declines in servicing right valuations associated with investor uncertainty surrounding COVID-19 at the end of March 2020.
−Removed: Other income for the six months ended June 30, 2021 increased to $9.4 million from $8.8 million for the six months ended June 30, 2020, a 7% increase substantially due to higher gains associated with a $1.0 million increase in FHA trade premiums ($3.2 million), offset by a $764 thousand decrease on FHA servicing fees and other noninterest loan fees.
−Removed: Gain on sale of investment securities were $539 thousand and for the six months ended June 30, 2021 and $1.5 million for the six months ended June 30, 2020.
+Added: Other income for the nine months ended September 30, 2021 decreased to $11.0 million from $12.8 million for the nine months ended September 30, 2020, a 14% decrease.
+Added: The primary decreases were in loan service fees and gain on sale of OREO.
+Added: Gains on sale of investments were $2.1 million and $1.7 million for the nine months ended September 30, 2021 and 2020, respectively.
Servicing agreements relating to the Ginnie Mae mortgage-backed securities program require the Company to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers.
3 unchanged sentences
In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Company would not receive any future servicing income with respect to that loan.
−Removed: At June 30, 2021, the Company had eight loans outstanding under FHA mortgage loan servicing agreements for a total of $150.5 million.
+Added: At September 30, 2021, the Company had eight loans outstanding under FHA mortgage loan servicing agreements for a total of $218.5 million.
To the extent the mortgage loans underlying the Company’s servicing portfolio experience delinquencies, the Company would be requir ed to dedicate cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.
3 unchanged sentences
The Bank considers these potential recourse provisions to be a minimal risk, but has established a reserve under GAAP for possible repurchases.
−Removed: There were no repurchases due to fraud by the borrower during the six months ended June 30, 2021.
−Removed: The reserve amounted to $158 thousand at June 30, 2021 and is included in other liabilities on the Consolidated Balance Sheets.
+Added: There were no repurchases due to fraud by the borrower during the nine months ended September 30, 2021.
+Added: The reserve amounted to $89 thousand at September 30, 2021 and is included in other liabilities on the Consolidated Balance Sheets.
Beyond the participation in the PPP program, the Company is an originator of SBA loans and its practice is to sell the guaranteed portion of those loans at a premium.
−Removed: There was $223 thou sand of income from this source for the six months ended June 30, 2021 compared to $119 thousa nd for the same period in 2020.
+Added: There was $232 thousand of income from this source for the nine months ended September 30, 2021 compared to $288 thousand for the same period in 2020.
Activity in SBA loan sales to secondary markets can vary widely from quarter to quarter.
2 unchanged sentences
Total noninterest expense includes salaries and employee benefits, premises and equipment expenses, marketing and advertising, data processing, legal, accounting and professional, FDIC insurance, and other expenses.
−Removed: Total noninterest expenses totaled $35.5 million for the three months ended June 30, 2021, as compared to $34.9 million for the three months ended June 30, 2020, a 1.7% increase.
−Removed: Total noninterest expenses totaled $73.5 million for the six months ended June 30, 2021, as compared to $72.2 million for the six months ended June 30, 2020, a 1.7% increase due substantially to the followin g:
−Removed: Salaries and employee benefits were $19.9 million for the three months ended June 30, 2021, as compared to $17.1 million for the same period in 2020, an increase of $2.8 million or 16%.
−Removed: Salaries and employee benefits were $41.6 million for the six months ended June 30, 2021, as compared to $34.9 million for the same period in 2020, an increase of $6.7 million or 19%.
−Removed: For both the three month and six month periods, the increase was due to increased incentive bo nus accruals based on economic outlook in the second quarter of 2021 (continued reopening of economy) compared to accruals in the second quarter of 2020 (COVID-19 pandemic continues), and an increase in share based compensation.
−Removed: At June 30, 2021, the Company’s full time equivalent staff numbered 497 as compared to 519 at December 31, 2020 and 506 at June 30, 2020.
−Removed: Premises and equipment expenses were $7.3 million for the six months ended June 30, 2021, of which $6.1 million were premises expenses.
−Removed: For the six months ended June 30, 2020 premises and equipment expenses were $7.3 million, of which $5.8 million were premises expenses.
−Removed: Premises and equipment for the three months ended June 30, 2021 and 2020 were $3.6 million, of which $3.0 million were premise expenses, and $3.5 million, of which $2.8 million were premises expenses.
−Removed: For the six months ended June 30, 2021, the Company recognized $189 thousand of sublease revenue as compared to $224 thousand for the same period in 2020.
+Added: Total noninterest expenses totaled $36.4 million for the three months ended September 30, 2021, as compared to $36.9 million for the three months ended September 30, 2020, a 1.5% decrease.
+Added: Total noninterest expenses totaled $109.9 million for the nine months ended September 30, 2021, as compared to $109.2 million for the nine months ended September 30, 2020, a 0.6% increase due substantially to the followin g:
+Added: Salaries and employee benefits were $22.1 million for the three months ended September 30, 2021, as compared to $19.4 million for the same period in 2020, an increase of $2.8 million or 14%.
+Added: Salaries and employee benefits were $63.8 million for the nine months ended September 30, 2021, as compared to $54.3 million for the same period in 2020, an increase of $9.5 million or 18%.
+Added: For both the three month and nine month periods, the increase was due to increased incentive bo nus accruals based on economic outlook in 2021 (continued reopening of economy) compared to accruals in the third quarter of 2020 (continuation of the COVID-19 pandemic), and an increase in share based compensation.
+Added: At September 30, 2021, the Company’s full time equivalent staff numbered 509 as compared to 515 at September 30, 2020.
+Added: Premises and equipment for the three months ended September 30, 2021 and 2020, respectively, were $3.9 million, of which $3.2 million were premise expenses, and $5.1 million, of which $4.4 million were premises expenses.
+Added: Premises and equipment expenses were $11.1 million for the nine months ended September 30, 2021, of which $9.3 million were premises expenses.
+Added: For the nine months ended September 30, 2020 premises and equipment expenses were $12.4 million, of which $10.3 million were premises expenses.
+Added: For the nine months ended September 30, 2021, the Company recognized $291 thousand of sublease revenue as compared to $261 thousand for the same period in 2020.
Sublease revenue is accounted for as a reduction to premises and equipment expenses.
−Removed: Marketing and advertising expenses totaled $ 980 thousand for the three months ended June 30, 2021 and $1.1 million for the same period in 2020.
−Removed: Marketing and advertising expenses totaled $1.9 million for the six months ended June 30, 2021 and $2.2 million for the same period in 2020.
−Removed: The decrease was due to repurposing of marketing initiatives due to COVID-19, which resulted in a cutback of print, digital and radio advertising as well as a reduction in event-related sponsorships due to cancellations and virtual modifications to event structures.
−Removed: Data processing expenses were $2.8 million for the three months ended June 30, 2021 compared to $2.8 million for the same period in 2020.
−Removed: Data processing expense increased to $5.6 million for the six months ended June 30, 2021 from $5.3 million for the same period in 2020, a 6% increase.
+Added: Marketing and advertising expenses totaled $1.0 million for the three months ended September 30, 2021 and $928 thousand for the same period in 2020.
+Added: Marketing and advertising expenses totaled $2.9 million for the nine months ended September 30, 2021 and $3.1 million for the same period in 2020.
+Added: The decrease was due to lower advertising, promotions and sponsorships.
+Added: Data processing expenses were $2.9 million for the three months ended September 30, 2021 compared to $2.7 million for the same period in 2020.
+Added: Data processing expense increased to $8.5 million for the nine months ended September 30, 2021 from $8.0 million for the same period in 2020, a 6% increase.
The increase, which took place in the first quarter of 2021 was related to an increase in licensing fees.
−Removed: Legal, accounting and professional fees were $3.5 million for the three months ended June 30, 2021, compared to $4.0 million for the three months ended June 30, 2020, a decrease of $0.5 million.
−Removed: Legal fees and expenditures were $1.8 million and $2.6 million for the three months ended June 30, 2021 and 2020, respectively, and were primarily associated with previously disclosed ongoing governmental investigations and related subpoenas and document requests, as well as our defense of the previously disclosed class action lawsuit.
−Removed: Legal, accounting and professional fees for the six months ended June 30, 2021 were $6.5 million compared to $11.0 million for the six months ended June 30, 2020, a decrease of $4.5 million, primarily due to higher legal fees in 2020 versus the same period in 2021.
−Removed: The amount of legal fees and expenditures are net of expected insurance coverage where we believe we have a high likelihood of recovery pursuant to our D&O insurance policies but does not include any offset for potential claims we may have in the future as to which recovery is impossible to predict at this time.
+Added: Legal, accounting and professional fees were $2.0 million for the three months ended September 30, 2021, compared to $3.1 million for the three months ended September 30, 2020, a decrease of $1.1 million.
+Added: Legal fees and expenditures were $357 thousand and $1.8 million for the three months ended September 30, 2021 and 2020, respectively, and were primarily associated with previously disclosed ongoing governmental investigations and related subpoenas and document requests, as well as our defense of the previously disclosed class action lawsuit.
+Added: Legal, accounting and professional fees for the nine months ended September 30, 2021 were $8.5 million compared to $14.1 million for the nine months ended September 30, 2020, a decrease of $5.5 million, primarily due to higher legal fees in 2020 versus the same period in 2021.
+Added: The amount of legal fees and expenditures reported for the three months ended September 30, 2021 are net of expected insurance coverage where we believe we have a high likelihood of recovery pursuant to our D&O insurance policies but does not include any offset for potential claims we may have in the future as to which recovery is impossible to predict at this time.
See Part II, Item 1 - "Legal Proceedings" for more information.
−Removed: FDIC expenses were $1.6 million for the three months ended June 30, 2021 compared to $2.0 million for the same period in 2020, a 19% decrease.
−Removed: FDIC expenses were $4.0 million for the six months ended June 30, 2021 compared to $3.4 million for the same period in 2020, a 19% increase.
−Removed: The increases for the first six months of 2021 compared to the same period in 2020 were due to a higher deposit base.
+Added: FDIC expenses were $1.5 million for the three months ended September 30, 2021 compared to $2.2 million for the same period in 2020, a 28% decrease.
+Added: FDIC expenses were $5.59 million for the nine months ended September 30, 2021 compared to $5.56 million for the same period in 2020, a 0.5% increase.
+Added: The increase for the first nine months of 2021 compared to the same period in 2020 were due to a higher deposit base, offset by improved metrics used in the calculation of fees.
The major components of other expenses include broker fees, franchise taxes, director compensation and insurance expense.
−Removed: Other expenses decreased to $3.1 million for the three months ended June 30, 2021 from $4.5 million for the same period in 2020, a 30% decrease.
−Removed: Other expenses decreased to $6.6 million for the six months ended June 30, 2021 from $8.2 million for the same period June 30, 2020, a 20% decrease, due to an increase in broker fees and OREO expenses in getting a property ready to sell.
−Removed: The efficiency ratio, which measures the ratio of n oninterest expense to total revenue, was 37.14% for the second quarter of 2021, as compared to 37.18% for the second quarter of 2020.
−Removed: For the first six months of 2021, the efficiency ratio was 38.92% as compared to 40.34% for the same period in 2020.
−Removed: The improvement in the second quarter of 2021 over the second quarter of 2020 was due to an increase in net interest income, offset by a decrease in noninterest income and an increase in noninterest expenses.
−Removed: As a percentage of average assets, total noninterest expense (annualized) was 1.24% for the three months ended June 30, 2021 as compared to 1.35% for the same period in 2020.
−Removed: As a percentage of average assets, total noninterest expense (annualized) was 1.28% for the six months ended June 30, 2021 as compared to 1.46% for the same period in 2020.
+Added: Other expenses decreased to $2.9 million for the three months ended September 30, 2021 from $3.5 million for the same period in 2020, an 18% decrease.
+Added: Other expenses decreased to $9.5 million for the nine months ended September 30, 2021 from $11.8 million for the same period September 30, 2020, a 19% decrease, due primarily to lower broker fees and lower OREO expense, partially offset by higher real estate taxes-utilities .
+Added: The efficiency ratio, which measures the ratio of n oninterest expense to total revenue, was 41.6% for the third quarter of 2021, as compared to 38.1% for the third quarter of 2020.
+Added: For the first nine months of 2021, the efficiency ratio was 39.8% as compared to 39.6% for the same period in 2020.
+Added: The increase in the third quarter of 2021 over the third quarter of 2020 was primarily due to an decrease in noninterest income.
+Added: As a percentage of average assets, total noninterest expense (annualized) was 1.23% for the three months ended September 30, 2021 as compared to 1.41% for the same period in 2020.
+Added: As a percentage of average assets, total noninterest expense (annualized) was 1.26% for the nine months ended September 30, 2021 as compared to 1.44% for the same period in 2020.
Income Tax Expense
−Removed: The Company’s ratio of income tax expense to pre-tax income (“effective tax rate”) for the second quarter of 2021 was 25.8% as compared to 24.6% for the second quarter of 2020.
−Removed: The effective income tax rate for the six months ended June 30, 2021 and 2020 was 25.5%.
−Removed: For the second quarter taxes, earnings significantly increased minimizing the impact of favorable permanent differences which increased the effective tax rate.
+Added: The Company’s ratio of income tax expense to pre-tax income (“effective tax rate”) for the three months ended September 30, 2021 and 2020 was 25.4%.
+Added: The total tax provision for the three months ended September 30, 2021 was $14.8 million, compared to $14.1 million for the three months ended September 30, 2020.
+Added: The effective income tax rate for the nine months ended September 30, 2021 and 2020 was 25.4%.
+Added: The total tax provision for the nine months ended September 30, 2021 was $46.1 million, compared to $31.8 million for the nine months ended September 30, 2020.
+Added: The Company's earnings increased for the three and nine months ended September 30, 2021 with a corresponding increase to disallowed expenses giving rise to no incremental change to the effective tax rate.The Company has not recorded any liabilities for uncertain tax positions as of September 30, 2021.
+Added: The Company remains subject to periodic audits and reviews by the taxing authorities, and the Company’s returns for the years 2018-2020 remain open for examination.
FINANCIAL CONDITION
−Removed: Total assets at both June 30, 2021 and December 31, 2020 were $11.0 billion.
−Removed: Total loans (excluding loans held for sale) were $7.3 billion at June 30, 2021, as compared to $7.8 billion at December 31, 2020, a 6.5% decrease.
−Removed: The decrease in loans in the first quarter of 2021 was due to our focus on serving our current loan clients and maintaining credit quality, over expanding the loan portfolio at lower rates and less favorable terms, and in the second quarter of 2021, the decrease was largely attributable to the sale of $169.8 million in PPP loans.
−Removed: Loans held for sale amounted to $55.9 million at June 30, 2021 compared to $88.2 million at December 31, 2020, a 36.6% decrease.
−Removed: The investment portfolio totaled $1.7 billion at June 30, 2021 as compared to $1.2 billion at December 31, 2020, an increase of 46.0%, primarily due to the deployment of cash from deposit inflows into investments.
−Removed: Total deposits at June 30, 2021 were $9.0 billion and at December 31, 2020 were $9.2 billion.
+Added: Total assets at September 30, 2021 was $11.6 billion and at December 31, 2020 was $11.1 billion .
+Added: The largest component of assets, total loans (excluding loans held for sale), were $6.9 billion at September 30, 2021, as compared to $7.8 billion at December 31, 2020, an 11.7% decrease.
+Added: The decrease in loans over the nine months ended September 30, 2021, was driven by the successful completion of projects, and at the outset of the COVID-19 pandemic, our focus on serving existing loan clients and maintaining credit quality.
+Added: More recently, in the second and third quarters of 2021, the decline in loans also has been influenced by the competition to refinance at lower rates for longer amortization periods, and excess liquidity at competing banks as well as many companies and construction project sponsors.
+Added: Additionally, the Bank reduced its PPP loans from $565 million at March 31, 2021 to $67 million at September 30, 2021 though the forgiveness process and loan sales.
+Added: Loans held for sale amounted to $53.4 million at September 30, 2021 compared to $88.2 million at December 31, 2020, a 39.4% decrease.
+Added: The investment portfolio totaled $1.8 billion at September 30, 2021 as compared to $1.2 billion at December 31, 2020, an increase of 55.2%, primarily due to the deployment of cash from deposit inflows into investments.
+Added: Total deposits at September 30, 2021 were $9.7 billion and at December 31, 2020 were $9.2 billion.
We continue to work on expanding the breadth and depth of our existing relationships while we pursue building new relationships.
−Removed: Total borrowed funds (excluding customer repurchase agreements) were $518.3 million at June 30, 2021, as compared to $568.1 million at December 31, 2020.
−Removed: Total shareholders’ equity was $1.31 billion as of June 30, 2021 compared to $1.24 billion as of December 31, 2020, an increase of $65.4 million.
−Removed: This increase was primarily from earnings of $91.5 million and $3.8 million in additional paid-in capital associated with share-based compensation, offset by $19.1 million in dividends declared and $11.0 million in unrealized losses on AFS securities (net of taxes).
−Removed: The Company’s capital ratios remain substantially in excess of regulatory minimum and buffer requirements, with a total risk based capital ratio of 17.98% at June 30, 2021, as compared to 17.04% at December 31, 2020, common equity tier 1 (“CET1”) risk based capital was 14.67% at June 30, 2021 compared to 13.49% at December 31, 2020, tier 1 risk based capital ratios of 14.67% at June 30, 2021, as compared to 13.49% at December 31, 2020, and a tier 1 leverage ratio of 10.65% at June 30, 2021, as compared to 10.31% at December 31, 2020.
−Removed: The ratio of common equity to total assets was 11.92% at June 30, 2021, as compared to 11.16% at December 31, 2020.
−Removed: Book value per share was $40.87 at June 30, 2021, a 4.7% increase over $39.05 at December 31, 2020.
−Removed: In addition, the tangible common equity ratio was 11.07% at June 30, 2021, as compared to 10.31% at December 31, 2020.
−Removed: Tangible book value per share was $37.58 at June 30, 2021, a 5.1% increase over $35.74 at December 31, 2020.
+Added: Total borrowed funds (excluding customer repurchase agreements) were $369.6 million at September 30, 2021, as compared to $568.1 million at December 31, 2020.
+Added: Total shareholders’ equity was $1.33 billion as of September 30, 2021 compared to $1.24 billion as of December 31, 2020, an increase of $90.8 million.
+Added: This increase was primarily from earnings of $135.1 million and $5.8 million in additional paid-in capital associated with share-based compensation, offset by $17.8 million in unrealized losses on AFS securities (net of taxes), $31.9 million in dividends declared and $677 thousand of stock repurchases, .
+Added: The Company’s capital ratios remain substantially in excess of regulatory minimum and buffer requirements, with a total risk based capital ratio of 16.59% at September 30, 2021, as compared to 17.04% at December 31, 2020, common equity tier 1 (“CET1”) risk based capital was 15.33% at September 30, 2021 compared to 13.49% at December 31, 2020, tier 1 risk based capital ratios of 15.33% at September 30, 2021, as compared to 13.49% at December 31, 2020, and a tier 1 leverage ratio of 10.58% at September 30, 2021, as compared to 10.31% at December 31, 2020.
+Added: The ratio of common equity to total assets was 11.49% at September 30, 2021, as compared to 11.16% at December 31, 2020.
+Added: Book value per share was $41.68 at September 30, 2021, a 6.7% increase over $39.05 at December 31, 2020.
+Added: In addition, the tangible common equity ratio was 10.68% at September 30, 2021, as compared to 10.31% at December 31, 2020.
+Added: Tangible book value per share was $38.39 at September 30, 2021, a 7.4% increase over $35.74 at December 31, 2020.
Refer to the “Use of Non-GAAP Financial Measures” section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
2 unchanged sentences
Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses.
−Removed: Loans, net of amortized deferred fees and costs, at June 30, 2021 and December 31, 2020 by major category are summarized below.
−Removed: June 30, 2021 December 31, 2020
+Added: Loans, net of amortized deferred fees and costs, at September 30, 2021 and December 31, 2020 by major category are summarized below.
+Added: September 30, 2021 December 31, 2020
(dollars in thousands) Amount % Amount %
12 unchanged sentences
$ 6,767,957 $ 7,650,633
−Removed: (1) Excludes accrued interest receivable of $43.5 million and $30.8 million at June 30, 2021 and December 31, 2020, respectively, which is recorded in other assets.
+Added: (1) Excludes accrued interest receivable of $40.0 million and $30.8 million at September 30, 2021 and December 31, 2020, respectively, which is recorded in other assets.
In its lending activities, the Company seeks to develop and expand relationships with clients whose businesses and individual banking needs will grow with the Bank.
Superior customer service, local decision making, and accelerated turnaround time from application to closing have been significant factors in growing the loan portfolio and meeting the lending needs in the markets served, while maintaining sound asset quality.
−Removed: Loans outstanding were $7.3 billion at June 30, 2021, a decrease of $500.7 million, or 6.5%, as compared to $7.8 billion at December 31, 2020.
−Removed: If PPP loans are excluded, the balance was $7.0 billion at June 30, 2021, a decrease of 3.9% from December 31, 2020.
−Removed: PPP loans accounted for approximately one-third of the 6% total decrease in loans outstanding at June 30, 2021 as compared to at December 31, 2020.
+Added: Loans outstanding were $6.9 billion at September 30, 2021, a decrease of $909.3 million, or 11.7%, from the $7.8 billion at December 31, 2020.
+Added: PPP loans outstanding were $67.3 million at September 30, 2021, a decrease of $387.5 million, from the $454.8 million at December 31, 2021.
+Added: If PPP loans are excluded, loans outstanding were $6.8 billion at September 30, 2021, a decrease of $521.9 million from December 31, 2020.
+Added: PPP loans accounted for approximately 42.6% total decrease in loans outstanding over the nine months ended September 30, 2021.
Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
−Removed: On May 3, 2021, we transacted to sell 849 PPP loans for a total purchase price of $169.0 million.
−Removed: Immediately following this sale, the principal outstanding on PPP loans totaled approximately $378.4 million across 789 loans.
−Removed: We sold another 16 PPP loans on June 28, 2021 for a total purchase price of $816 thousand, amounting to a total of $169.8 million of sales of PPP loans for the quarter.
−Removed: This past quarter, we saw a modest increase in loans relative to the prior quarter reversing the negative loan growth trend of the past several quarters.
−Removed: The low interest rate environment and extremely competitive landscape remain factors impacting growth in our lending footprint, while the rate of payoff’s has somewhat ameliorated in the second quarter.
−Removed: Notwithstanding an increased supply of residential (rental) units, for sale single family residential properties and multi-family commercial real estate leasing in the Bank’s market area have held up well, particularly for well-located close-in projects.
−Removed: As a general matter, there has been some softening and slow decision making relative to renewals in the office leasing market as tenants evaluate the “new normal” with respect to office.
+Added: Loan balances have incrementally fallen since the second quarter of 2021.
+Added: The low interest rate environment and extremely competitive landscape remain factors impacting growth in our lending efforts, and the rate and amount of payoffs have increased in the third quarter.
+Added: Notwithstanding an increased supply of residential (rental) units, for sale single family residential properties and multi-family commercial real estate leasing in the Bank’s market area have held up well, particularly for well-located projects close to the District of Columbia.
+Added: As a general matter, there has been some softening and slow decision making relative to renewals in the office leasing market as tenants evaluate the “new normal” with respect to office occupancy.
Overall, commercial real estate values have generally held up well, but we continue to be cautious of the capitalization rates at which some assets are trading and as a result we are being cautious with our valuations.
1 unchanged sentence
Valuations associated with the moderately priced housing market have generally been increasing, with well-located, Metro-accessible properties garnering a premium.
−Removed: We believe we are well positioned to continue to originate loans for large commercial projects, and also see a path to growing the loan portfolio as economic conditions improve and more opportunities arise.
+Added: We believe there will be more opportunities to originate loans for large commercial projects and grow the loan portfolio as economic conditions improve.
The potential impact from the COVID-19 pandemic may not yet have been fully reflected in the market across all asset types.
1 unchanged sentence
Loan Portfolio Exposures - COVID-19:
−Removed: Industry segments within the Loan Portfolio as of June 30, 2021 that we believe may have heightened risk from the COVID-19 pandemic include:
+Added: Industry segments within the Loan Portfolio as of September 30, 2021 that we believe may have heightened risk from the COVID-19 pandemic include:
Industry Principal Balance
7 unchanged sentences
Total $ 1,175,426 17.2 %
−Removed: 1 Includes $3,512 of PPP loans.
−Removed: 2 Includes $75,797 of PPP loans.
+Added: 1 Includes $31.3 million of PPP loans.
+Added: 2 Includes $64 thousand of PPP loans.
Concerns over exposures to the Accommodation and Food Service industry and Retail Trade are the most immediate at this time.
−Removed: Accommodation and Food Service exposure represents 9% of the Bank’s loan portfolio as of June 30, 2021 among 423 customers.
−Removed: Retail Trade exposure represents 1% of the Bank’s loan portfolio and represented 134 c ustomers.
−Removed: The Bank has ongoing extensive outreach to these customers and has assisted where necessary with PPP loans and payment deferrals or interest-only periods in the short term while customers work to adopt to the evolving landscape of the COVID-19 pandemic.
+Added: Accommodation and Food Service exposure represents 9.1% of the Bank’s loan portfolio as of September 30, 2021 .
+Added: Retail Trade exposure represents 1.2% of the Bank’s loan portfolio.
+Added: The Bank has ongoing extensive outreach to these customers and has assisted where necessary with PPP loans and payment deferrals or interest-only periods in the short term while customers work to adapt to the evolving landscape of the COVID-19 pandemic.
The uncertain duration and severity of the pandemic and the timing of recovery may impact future credit challenges in these areas.
−Removed: Although not evidenced at June 30, 2021, it is anticipated that some portion of the CRE loans secured by the above property types could be impacted by the tenancies associated with impacted industries.
+Added: Although not evidenced at September 30, 2021, it is anticipated that some portion of the CRE loans secured by the above property types could be impacted by the tenancies associated with impacted industries.
The Bank is working with CRE investor borrowers and monitoring rent collections as part of our portfolio management oversight.
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To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank utilizes alternative funding sources such as secured borrowings from the Federal Home Loan Banks (the “FHLB”), federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms and IntraFi Network, LLC (“IntraFi”).
−Removed: For the six months ended June 30, 2021, noninterest bearing deposits decreased $167.7 million as compared to December 31, 2020, while interest bearing deposits increased by $2.5 million during the same period.
+Added: For the nine months ended September 30, 2021, noninterest bearing deposits increased by $27.1 million as compared to December 31, 2020, while interest bearing deposits increased by $452.2 million during the same period.
From time to time, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from national brokerage networks, including IntraFi.
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The Bank also is able to obtain one-way CDARS deposits and participates in IntraFi’s Insured Network Deposit (“IND”).
−Removed: At June 30, 2021, total deposits included $2.5 billion of brokered deposits (excluding the CDARS and ICS two-way) which represented 27.9% of total deposits.
+Added: At September 30, 2021, total deposits included $2.7 billion of brokered deposits (excluding the CDARS and ICS two-way) which represented 28.3% of total deposits.
At December 31, 2020, total brokered deposits (excluding the CDARS and ICS two-way) were $2.4 billion, or 26.2% of total deposits.
−Removed: The CDARS and ICS two-way component represented $881.7 million, or 9.8%, of total deposits and $790.0 million, or 8.6%, of total deposits at June 30, 2021 and December 31, 2020, respectively.
+Added: The CDARS and ICS two-way component represented $808.1 million, or 8.4%, of total deposits and $790.0 million, or 8.6%, of total deposits at September 30, 2021 and December 31, 2020, respectively.
These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank.
−Removed: However, to the extent that the condition, regulatory position or reputation of the Company or Bank deteriorates, or to the extent that there are significant changes in market interest rates which the Company and Bank do not elect to match, we may experience an outflow of brokered deposits.
+Added: However, to the extent that the condition, regulatory position or reputation of the Company or Bank deteriorates, or to the extent that there are significant
+Added: changes in market interest rates which the Company and Bank do not elect to match, we may experience an outflow of brokered deposits.
In that event, we would be required to obtain alternate sources for funding.
−Removed: At June 30, 2021, the Company had $2.6 billion in noninterest bearing demand deposits, representing 29% of total deposits, compared to $2.8 billion of noninterest bearing demand deposits at December 31, 2020, or 31% of total deposits.
−Removed: Average noninterest bearing deposits of total deposits for the first half of 2021 and 2020 were 33% and 30%.
+Added: At September 30, 2021, the Company had $2.84 billion in noninterest bearing demand deposits, representing 29% of total deposits, compared to $2.81 billion of noninterest bearing demand deposits at December 31, 2020, or 31% of total deposits.
+Added: Average noninterest bearing deposits of total deposits for the nine months ended September 30, 2021 and 2020 were 33% and 31%.
The Bank also offers business NOW accounts and business savings accounts to accommodate those customers who may have excess short term cash to deploy in interest earning assets.
As an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or “customer repurchase agreement,” allowing qualifying businesses to earn interest on short-term excess funds that are not suited for either a certificate of deposit or a money market account.
−Removed: The balances in these accounts were $19.7 million at June 30, 2021 compared to $26.7 million at December 31, 2020.
+Added: The balances in these accounts were $29.4 million at September 30, 2021 compared to $26.7 million at December 31, 2020.
Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S.
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This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts.
−Removed: At June 30, 2021 the Company had $778.0 million in time deposits.
+Added: At September 30, 2021 the Company had $751.5 million in time deposits.
Time deposits decreased by $226.3 million from year end December 31, 2020.
The Bank raises and renews time deposits through its branch network, for its public funds customers, and through brokered certificates of deposits ("CDs") to meet the needs of its community of savers and as part of its interest rate risk management and liquidity planning.
−Removed: The Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at June 30, 2021 and December 31, 2020.
−Removed: At June 30, 2021 and December 31, 2020, the Company had $300 million of FHLB short-term advances borrowed as part of the overall asset liability strategy and to support loan growth.
+Added: The Company h ad no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at September 30, 2021 and December 31, 2020.
+Added: At September 30, 2021 and December 31, 2020, the Company had $300 million of FHLB short-term advances borrowed as part of the overall asset liability strategy and to support loan growth.
Outstanding FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’s commercial mortgage, residential mortgage and home equity loan portfolios.
−Removed: Long-term borrowings outstanding at June 30, 2021 included the Company’s August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024, and the Company’s July 26, 2016 issuance of $150.0 million of subordinated notes, due August 1, 2026 (the "2026 Notes").
−Removed: The Company paid the 2026 Notes in full on August 2, 2021 and accelerated
−Removed: deferred financing costs of $1.3 million on that date.
+Added: Long-term borrowings outstanding at September 30, 2021 included the Company’s August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024.
+Added: On August 2, 2021, the Company redeemed $150 million of subordinated debt issued on July 26, 2016.
+Added: The redemption accelerated deferred financing costs of $1.3 million, which is included in interest income for the third quarter of 2021.
For additional information on the subordinated notes, please refer to Notes 8 and 13 to the Consolidated Financial Statements included in this report.
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These sources of liquidity are considered primary and are supplemented by the ability of the Company and Bank to borrow funds or issue brokered deposits, which are termed secondary sources of liquidity and which are substantial.
−Removed: Additionally, the Bank can purchase up to $155 mil lion in federal funds on an unsecured basis from its correspondents, against which there was no amount outstanding at June 30, 2021, and can obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.6 billion, against which there wa s $438 thousand o utstanding at June 30, 2021.
−Removed: The Bank also has a commitment from IntraFi to place up to $1.8 billion of brokered deposits from its IND program in amounts requested by the Bank, as compared to an actual balance of $1.5 billion a t June 30, 2021.
−Removed: At June 30, 2021, the Bank was also eligible to make advances from the FHLB up to $1.5 billion based on loans pledged as collateral to the FHLB, of which there was $300 millio n outstanding at June 30, 2021.
+Added: Additionally, the Bank c an purchase up to $155 million in federal funds on an unsecured basis from its correspondents, against which there was no amount outstanding at September 30, 2021, and can obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.7 billion, against which there was $77 thousand outstanding at September 30, 2021.
+Added: The Bank also has a commitment from IntraFi to place up to $1.8 billion of brokered deposits from its IND program in amounts requested by the Bank, as compared to an actual balance of $1.65 billion at September 30, 2021.
+Added: At September 30, 2021, the Bank was also eligible to make advances from the FHLB up to $1.0 billion based on loans pledged as collateral to the FHLB, of which there was $300 million outstanding at September 30, 2021.
The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB, provided adequate collateral exists to secure these lending relationships.
The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank of Richmond (“Federal Reserve Bank”).
−Removed: This facility, which amounts to approximately $588 million, is collateralized with specific loan assets identified to the Federal Reserve Bank.
+Added: This facility, which amounts to approximately $588 million, is collateralized with
+Added: specific loan assets identified to the Federal Reserve Bank.
It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only.
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Our primary and secondary sources of liquidity remain strong.
−Removed: Average deposits decreased 18.2% for the first half of 2021 as compared to the first half of 2020.
+Added: Average deposits increased 17.4% for the first nine months of 2021 as compared to the same period in 2020.
However, we still maintain a very liquid investment portfolio, including significant overnight liquidity.
−Removed: Average short term liquidity was $2.1 billio n in first half of 2021, which is above EagleBank’s average needs.
−Removed: Secondary sources of liquidity amount to $4.1 billion.
−Removed: At June 30, 2021, under the Bank’s liquidity formula, it had $6.8 billion of primary and secondary liquidity sources.
+Added: In the third quarter of 2021, average short term liquidity was $2.7 billion, which is above EagleBank’s average needs, and secondary sources of liquidity at September 30, 2021 were $2.9 billion.
+Added: At September 30, 2021, under the Bank’s liquidity formula, it had $6.6 billion of primary and secondary liquidity sources.
The amount is deemed adequate to meet current and projected funding needs.
Commitments and Contractual Obligations
−Removed: Loan commitments outstanding and lines and letters of credit at June 30, 2021 are as follows:
+Added: Loan commitments outstanding and lines and letters of credit at September 30, 2021 are as follows:
(dollars in thousands)
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Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements.
−Removed: As of June 30, 2021, unfunded loan commitments included $109.1 million related to interest rate lock commitments on residential mortgage loans and were of a short-term nature.
+Added: As of September 30, 2021, unfunded loan commitments included $137.0 million related to interest rate lock commitments on residential mortgage loans and were of a short-term nature.
+Added: The pipeline of loan commitments remains strong.
Unfunded lines of credit are agreements to lend to a customer as long as there is no violation of the terms or conditions established in the contract.
1 unchanged sentence
Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements.
−Removed: The pipeline of loan commitments remains strong.
Letters of credit include standby and commercial letters of credit.
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Standby letters of credit are generally not drawn.
−Removed: Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn when the underlying transaction is consummated between the customer and a third party.
+Added: Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn when the underlying transaction is consummated between the
+Added: customer and a third party.
The contractual amount of these letters of credit represents the maximum potential future payments guaranteed by the Bank.
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Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows and to provide net interest income growth consistent with the Company’s profit objectives.
−Removed: During the six months ended June 30, 2021, the Company was able to produce a net interest margin of 3.02% as compared to 3.36% during the same period in 2020, and continue to manage its overall interest rate risk position .
−Removed: The Company, along with many other banks, continues to be challenged in 2021 during a period of extremely low interest rates.
+Added: During the nine months ended September 30, 2021, the Company was able to produce a net interest margin of 2.91% as compared to 3.27% during the same period in 2020, and continue to manage its overall interest rate risk position .
+Added: The Company, along with many other banks, continues to be challenged in 2021 during a period of ongoing low interest rates, lower loan balances and an inflow of deposits.
+Added: This has changed the earning assets mix and increased funds held in investments and interest bearing deposits at other banks, both of which have rates well below those on loans.
The Company, through its ALCO and ongoing financial management practices, monitors the interest rate environment in which it operates and adjusts the rates and maturities of its assets and liabilities to remain competitive and to achieve its overall financial objectives subject to established risk limits.
−Removed: In the current and expected future interest rate environment, the Company has been maintaining its investment portfolio to manage the balance between yield and risk in its portfolio of mortgage backed securities should interest rates remain at current levels.
+Added: In the current and expected future interest rate environment, the Company has been maintaining its investment portfolio to manage the balance between yield and risk in its portfolio o f mortgage backed securities.
Further, the Company has been managing the investment portfolio to provide liquidity and some additional yield over cash.
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agency investment portfolio.
−Removed: During the three months ended June 30, 2021, the average investment portfolio balance increased by $755.6 million, or 92%, as compared to average balance for the three months ended June 30, 2020.
−Removed: The cash received from deposit growth along with cash flows from the investment portfolio were deployed into loans, the purchase of replacement investments and held in cash.
−Removed: The percentage mix of municipal securities was 6% of total investments at June 30, 2021 and 9% at December 31, 2020.
−Removed: The portion of the portfolio invested in mortgage backed securities was 68% and 72% at June 30, 2021 and December 31,
−Removed: 2020, respectively.
+Added: During the three months ended September 30, 2021, the average investment portfolio balance increased by $763.7 million, or 84%, as compared to average balance for the three months ended September 30, 2020.
+Added: The cash received from deposit growth alon g with cash flows from the investment and loan portfolio were deployed primarily into cash and new investments, as loan balances have declined.
+Added: The percentage mix of municipal securities was 7% of total investments at September 30, 2021 and 9% at December 31, 2020.
+Added: The portion of the portfolio invested in mortgage backed secur ities was 67% and 72% at September 30, 2021 and December 31, 2020, respectively.
The portion of the portfolio invested in U.S.
−Removed: agency investments was 17% at June 30, 2021 and 10% at December 31, 2020.
−Removed: Shorter duration floating rate corporate bonds were 5% and 3% of total investments at June 30, 2021 and December 31, 2020, respectively, and SBA bonds, which are included in mortgage backed securities, were 4% and 6% of total investments at June 30, 2021 and December 31, 2020, respectively.
−Removed: The duration of the investment portfolio increased to 4.3 years at June 30, 2021 from 3.2 years at December 31, 2020.
−Removed: The re-pricing duration of the loan portfolio wa s 18 mo nths at June 30, 2021 as compared to 21 mon ths at December 31, 2020 with fixed rate loans amounting to 43 % and 45% of total loans at June 30, 2021 and December 31, 2020, respectively.
−Removed: Variable and adjustable rate loans comprised 57% (offset by 2 % from the dilution impact of PPP loans) and 55% of total loans at June 30, 2021 and December 31, 2020, respectively.
+Added: agency investments was 20% at September 30, 2021 and 16% at December 31, 2020.
+Added: Shorter duration floating rate corporate bonds were 5% and 3% of total investments at September 30, 2021 and December 31, 2020, respectively, and SBA bonds, which are included in mortgage backed securities, were 3% and 6% of total investments at September 30, 2021 and December 31, 2020, respectively.
+Added: The duration of the investment portfolio increased to 4.2 years at September 30, 2021 from 3.2 years at December 31, 2020.
+Added: The re-pricing duration of the loan portfolio wa s 18 mo nths at September 30, 2021 as compared to 21 months at December 31, 2020 with fixed rate loans amounting to 42% and 45% of total loans at September 30, 2021 and December 31, 2020, respectively.
+Added: Variable and adjustable rate loans comprised 58% (offset by 1% from the dilution impact of PPP loans) and 55% of total loans at September 30, 2021 and December 31, 2020, respectively.
Variable rate loans are generally indexed to either the one month LIBOR interest rate, or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S.
−Removed: Treasury interest rate.
−Removed: The duration of the deposit portfolio held steady in this low rate environment, measuring 4 3 mo nths at June 30, 2021 from 42 months at December 31, 2020.
−Removed: The net unrealized gain before income tax on the investment portfolio was $6.7 mill ion at June 30, 2021 as compared to a net unrealized gain before tax of $21.8 million at June 30, 2020.
−Removed: The lower unrealized gain on the investment portfolio was due primarily to higher interest rates at June 30, 2021 along with a changing portfolio mix from mortgage prepayments and calls on agency bonds.
−Removed: At June 30, 2021, the net unrealized gain posit ion represented 0.4% of the investment portfolio’s book value.
+Added: Treasu ry interest rate.
+Added: The duration of the deposit portfolio held steady in this low rate environment, measur ing 45 mo nths at September 30, 2021 from 42 months at December 31, 2020.
+Added: The net unrealized loss before income tax on the investment portfolio was $2.5 million at September 30, 2021 as compared to a net unrealized gain before tax of $22.0 million at December 31, 2020 .
+Added: This change is primarily due to higher interest rates.
+Added: At September 30, 2021, the net unrealized loss posit ion represented 0.1% of the investment portfolio’s book value.
There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, as a result of competitive pressures, customer preferences and the inability to perfectly forecast future interest rates and movements.
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The data is then subjected to a “shock test” which assumes a simultaneous change in interest rates up 100, 200, 300, and 400 basis points or down 100 and 200, along the entire yield curve, but not below zero.
−Removed: The results are analyzed as to the impact on net interest income, net income and the market equity over the next twelve and twenty-four month periods from June 30, 2021.
+Added: The results are analyzed as to the impact on net interest income, net income and the market equity over the next twelve and twenty-four month periods from September 30, 2021.
In addition to analysis of simultaneous changes in interest rates along the yield curve, changes based on interest rate “ramps” is also performed.
This analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes.
−Removed: For the analysis presented below, at June 30, 2021, the simulation assumes a 50 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 0 basis points (compared to a floor 10 basis points in the same analysis as of June 30, 2020), and assumes a 70 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.
−Removed: The floor rate in the analysis was lowered due to the fact that in the current interest rate environment, there are interest bearing accounts with current rates less than 10 basis points.
−Removed: The Company’s analysis at June 30, 2021 shows a moderate effect on net interest income (over the next 12 months) as well as a moderate effect on the economic value of equity when interest rates are shocked both down 100 and 200 basis points and up 100, 200, 300, and 400 basis points.
−Removed: This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative durations.
−Removed: The repricing duration of the investment portfolio at June 30, 2021 is 4.8 years, the loan portfolio 1.5 years, the interest bearing deposit portfolio 3.6 years, and the borrowed funds portfolio 4.9 years.
−Removed: The following table reflects the result of simulation analysis on the June 30, 2021 asset and liabilities balances:
+Added: For the analysis presented below, at September 30, 2021, the simulation assumes a 45 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 0 basis points (compared to a floor 10 basis points in the same analysis as of September 30, 2020), and assumes a 45 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.
+Added: The floor rate in the analysis was lowere d due to the fact that in the current interest rate environment, there are interest bearing accounts with current rates less than 10 basis points.
+Added: The beta factors were lowered from prior period analysis to reflect the Bank's historical experience and the determination that the build-up of excess liquidity would allow the Bank not to raise deposit rates as aggressively as it might under different circumstances.
+Added: The Company’s analysis at September 30, 2021 shows a moderate effect on net interest income (over the next 12 months) as well as a moderate effect on the economic value of equity when interest rates are shocked both down 100 and 200 basis points and up 100, 200, 300, and 400 basis points.
+Added: This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative dura tions.
+Added: The repricing duration of the investment portfolio at September 30, 2021 is 4.9 years, the loan portfolio 1.5 years, the interest bearing deposit portfolio 3.75 years, and the borrowed funds portfolio 6.76 years.
+Added: The following table reflects the result of simulation analysis on the September 30, 2021 asset and liabilities balances:
Change in interest
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For the market value of equity, the Company has adopted a policy limit of -12% for a 100 basis point change, -15% for a 200 basis point change, -25% for a 300 basis point change and -30% for a 400 basis point change.
−Removed: The amounts in the first half of 2021 exceeded these limits due to the already low level of rates on non-maturing deposit instruments.
−Removed: Management has determined that due to the level of market rates at June 30, 2021, interest rate shocks of -100, -200, -300 and -400 basis points leave the Bank with near zero down to negative rate instruments and are not considered practical or informative.
−Removed: The changes in net interest income, net income and the economic value of equity in higher interest rate shock scenarios at June 30, 2021 are not considered to be excessive.
+Added: The amounts in the first three quarters of 2021 exceeded these limits due to the already low level of rates on non-maturing deposit instruments.
+Added: Management has determined that due to the level of market rates at September 30, 2021, interest rate shocks of -100, -200, -300 and -400 basis points leave the Bank with near zero down to negative rate instruments and are not considered practical or informative.
+Added: The changes in net interest income, net income and the economic value of equity in higher interest rate shock scenarios at September 30, 2021 are not considered to be excessive.
The impact of 2.1% in net interest income and 3.6 % in net income given a 100 basis point decrease in market interest rates reflects in large measure the impact of variable rate loans and fed funds sold repricing downward while deposits remain at expected floor rates and are not expected to have lower interest rates.
−Removed: In the first half of 2021, t he Company continued to manage its interest rate sensitivity position to moderate levels of risk, as indicated in the simulation results above.
−Removed: The interest rate risk position at June 30, 2021, was relatively similar to the December 31, 2020 position for both the up and down rate scenarios.
+Added: In the first three quarters of 2021, t he Company continued to manage its interest rate sensitivity position to moderate levels of risk, as indicated in the simulation results above.
+Added: The interest rate risk position at September 30, 2021, was relatively
+Added: similar to the December 31, 2020 position for both the up and down rate scenarios, though we are showing greater asset sensitivity owing from the change in beta factors described above.
Although certain assets and liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest rates.
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Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase.
−Removed: During the first half of 2021, average market interest rates increased across the yield curve as compared to the 2020 year end.
−Removed: In the most recent quarter, however, there was a flattening of the yield curve as compared to the market rates at the end of the first quarter of 2021, with rate decreases being more significant at the longer end of the yield curve.
−Removed: As compared to the first quarter of 2021 the second quarter average two-year U.S.
+Added: During the first three quarters of 2021, average market interest rates increased across the yield curve as compared to the 2020 year end.
+Added: In the most recent quarter, however, there was on average a flattening of the yield curve as compared to the market rates during second quarter of 2021, with rate decreases being more significant at the longer end of the yield curve.
+Added: As compared to the second quarter of 2021 the third quarter average two-year U.S.
Treasury rate increased by 5 basis points from 0.17% to 0.22%, the average five year U.S.
−Removed: Treasury rate increased by 11 basis points from 0.62% to 0.84% and the average ten year U.S.
−Removed: Treasury rate increased by 25 basis points from 1.34% to 1.47%.
−Removed: The Company’s net interest margin was 3.04% for the second quarter of 2021 and 3.26% in the second quarter of 2020.
−Removed: The Company believes that the net interest margin in the most recent quarter as compared to 2020’s first quarter has been consistent with its interest rate risk analysis.
+Added: Treasury rate decreased by 5 basis points from 0.84% to 0.79% and the average ten year U.S.
+Added: Treasury rate decreased by 27 basis p oints from 1.59% to 1.32% .
+Added: The Company’s net interest margin was 2.73% for the third quarter of 2021 and 3.08% in the third quarter of 2020.
+Added: The Company believes that the net interest margin in the most recent quarter as compared to 2020’s third quarter has been consistent with its interest rate risk analysis.
Banks a nd other financial institutions earnings are significantly dependent upon net interest income, which is the difference between interest earned on rate sensitive assets and interest expense on rate sensitive liabilities.
−Removed: Net interest income represented 89% and 90% of the Company’s revenue for the first half of 2021 and 2020, respectively.
+Added: Net interest income represented 89% and 87% of the Company’s revenue for the first three quarters of 2021 and 2020, respectively.
In falling interest rate environments, net interest income is maximized with longer term, higher yielding assets being funded by lower yielding short-term funds, or what is referred to as a negative mismatch or gap.
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While a positive gap indicates the degree to which the volume of repriceable assets exceeds repriceable liabilities in given time periods.
−Removed: At June 30, 2021, the Company had a positive gap position of approximately $38 million or 0.35% of total assets, out to three months, and a positive cumulative gap position of $357 million, or 3.3% of total assets out to twelve months;
−Removed: as compared to a positive gap position of approximately $476 million or 4.86% of total assets out to three months and a positive cumulative gap position of $624 million of 6.37% of total assets out to 12 months at June 30, 2020.
−Removed: T he change in the gap position at June 30, 2021 as compared to June 30, 2020 was due to reduction in time deposits relative to money market demand amount, and the maturity of a $100 million pay fixed balance sheet swap in April 2021.
+Added: At September 30, 2021, the Company had a positive gap position of approximately $426 million or 3.68% of total assets, out to three months, and a positive cumulative gap position of $686 million, or 5.92% of total assets out to twelve months.
+Added: At December 31, 2020, the Company had a positive gap position of approximately $464 million or 4.2% of total assets out to three months and a positive cumulative gap position of $352 million or 3% of tot al assets out to 12 months.
+Added: The change in the gap position at September 30, 2021 as compared to December 31, 2020 was due to reduction in time deposits relative to money market demand amount, and the maturity of a $100 million pay fixed balance sheet swap in April 2021.
Such a change in the gap position is not deemed material to the Company's overall interest rate risk position, which relies more heavily on simulation analysis that captures the full opportunity within the balance sheet.
7 unchanged sentences
If this were to occur, the effects of a declining interest rate environment may not be in accordance with management’s expectations.
−Removed: June 30, 2021
+Added: September 30, 2021
(dollars in thousands)
26 unchanged sentences
Cumulative gap as percent of total assets 3.68 % 5.92 % 12.87 % 17.32 % 10.10 %
−Removed: (1) Includes loans held for sale
+Added: (1) Excludes loans held for sale
(2) Nonaccrual loans are included in the over 60 months category
6 unchanged sentences
or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk.
−Removed: Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.
+Added: Institutions which are deemed to have concentrations in commercial real estate
+Added: lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.
The Company, like many community banks, has focused on commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years.
−Removed: At June 30, 2021, we did not exceed these regulatory concentration thresholds, we continue to monitor our concentration in commercial real estate lending and remain in compliance with the guidance issued by the federal banking regulators.
−Removed: Construction, land and land development loans represen t 96% o f total risk based capital.
−Removed: Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures, and strong underwriting criteria with respect to its commercial real estate portfolio.
+Added: At September 30, 2021, we did exceed the construction, land development, and other land acquisitions regulatory concentration threshold, we continue to monitor our concentration in commercial real estate lending and remain in compliance with the guidance issued by the federal banking regulators.
+Added: Construction, land and land development loans represent 105% of total risk based capital.
+Added: Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures, and strong underwriting criteri a with respect to its commercial real estate portfolio.
Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income.
11 unchanged sentences
Under the Basel III Rules, the Company and Bank are required to maintain, inclusive of the capital conservation buffer of 2.5%, a minimum CET1 ratio of 7.0%, a minimum ratio of Tier 1 capital to risk-weighted assets of 8.5%, a minimum total capital to risk-weighted assets ratio of 10.5%, and a minimum leverage ratio of 4.0%.
−Removed: At June 30, 2021, the Company and the Bank meet all these requirements, and satisfy the requirement to maintain a capital conservation buffer of 2.5% of CET1 capital for capital adequacy purposes.
−Removed: During the fourth quarter of 2020, the Company started a new Repurch ase Program.
−Removed: Under the Board approval in December, the Company may repurchase up to an aggregate of 1,588,848 shares of its common stock (inclusive of shares remaining under the initial authorization), through December 31, 2021, subject to earlier termination by the Board of Directors.
−Removed: In the second quarter of 2021 there were no repurchases of shares under the Repurchase Program.
−Removed: In the first quarter of 2021, the Company completed repurchases of 1,466 shares for a total of $62,000 at an average cost of $42.46 per share u nder the Repurchase Program.
−Removed: The Company announced a regular quarterly cash dividend on June 30, 2021 of $0.35 per share to shareholders of record on July 22, 2021 and payable on August 2, 2021.
−Removed: The actual capital amounts and ratios for the Company and Bank as of June 30, 2021 and December 31, 2020 are presented in the table below.
+Added: At September 30, 2021, the Company and the Bank meet all these requirements, and satisfy the requirement to maintain a capital conservation buffer of 2.5% of CET1 capital for capital adequacy purposes.
+Added: During the fourth quarter of 2020, the Company started a new stock repurchase plan .
+Added: Under the Board approval in December, the Company may repurchase up to an aggregate of 1,588,848 shares of its common stock (inclusive of shares remaining under the initial authorization), commencing January 1, 2021 through December 31, 2021, subject to earlier termination by the Board of Directors (the “2021 Stock Repurchase Plan”).
+Added: In the third quarter of 2021, the Company completed repurchases of 11,609 shares for $614,609 at an average cost of $52.94 per share under the 2021 Stock Repurchase Plan.
+Added: No stock repurchases took place during the second quarter of 2021.
+Added: In the first quarter of 2021, the Company completed repurchases of 1,466 shares for a total of $62,000 at an average cost of $42.46 per share u nder the 2021 Stock Repurchase Plan.
+Added: For the nine months ended September 30, 2021, and since the start of the 2021 Stock Repurchase Plan, the Company has repurchased a total of 13,075 shares for $676,901 at an average cost of $51.77 per share.
+Added: The Company announced a regular quarterly cash dividend on September 29, 2021 of $0.40 per share to shareholders of record on October 21, 2021 and payable on November 1, 2021.
+Added: The actual capital amounts and ratios for the Company and Bank as of September 30, 2021 and December 31, 2020 are presented in the table below.
Company Bank Minimum
2 unchanged sentences
(dollars in thousands) Amount Ratio Amount Ratio Purposes Regulations*
−Removed: As of June 30, 2021
+Added: As of September 30, 2021
CET1 capital (to risk weighted assets) $ 1,240,026 15.33 % $ 1,230,642 15.28 % 7.00 % 6.50 %
9 unchanged sentences
Bank and holding company regulations, as well as Maryland law, impose certain restrictions on dividend payments by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company.
−Removed: At June 30, 2021 the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained the minimum required capital ratios listed in the table above.
+Added: At September 30, 2021 the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained the minimum required capital ratios listed in the table above.
In December 2018, federal banking regulators issued a final rule that provides an optional three-year phase-in period for the adverse regulatory capital effects of adopting the CECL methodology pursuant to new accounting guidance for the recognition of credit losses on certain financial instruments, effective January 1, 2020.
17 unchanged sentences
(dollars in thousands except per share data)
−Removed: Three Months Ended Six Months Ended Year Ended Three Months Ended Six Months Ended
−Removed: June 30, 2021 June 30, 2021 December 31, 2020 June 30, 2020 June 30, 2020
+Added: September 30, 2021 December 31, 2020 September 30, 2020
Common shareholders’ equity $ 1,331,697 $ 1,240,892 $ 1,223,402
8 unchanged sentences
Tangible common equity ratio 10.68 % 10.31 % 11.18 %
+Added: September 30, 2021 December 31, 2020 September 30, 2020
+Added: Three Months Ended Nine Months Ended Year Ended Three Months Ended (1)
+Added: Nine Months Ended
Average common shareholders’ equity $ 1,331,022 $ 1,292,223 $ 1,204,341 $ 1,211,145 $ 1,193,988
4 unchanged sentences
Annualized Return on Average Tangible Common Equity 14.11 % 15.21 % 12.03 % 14.87 % 11.45 %
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
+Added: Net interest income $79,045 $79,038 $246,328 $240,145
+Added: Noninterest income 8,299 17,844 29,811 35,809
+Added: Revenue $87,344 $96,882 $276,139 $275,954
+Added: Noninterest expense $36,375 $36,915 $109,856 $109,154
+Added: Efficiency ratio 41.65 % 38.10 % 39.78 % 39.56 %
+Added: (1)These numbers have been corrected from the original disclosure in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which stated that average common shareholders’ equity was $1,137,826,000, average tangible common equity was $1,032,720,000 and annualized return on average tangible common equity was 15.93%, all for the three months ended September 30, 2020.
Total loans, excluding loans held for sale and PPP loans is a non-GAAP financial measures derived from GAAP-based amounts.
−Removed: The Company calculates total loans, excluding loans held for sale and PPP loans by excluding the balance of the PPP loans from the total loans, excluding loans held for sale.
−Removed: The Company considers this information important to shareholders as total loans, excluding loans held for sale and PPP loans is a measure that removes fluctuations associated with the activity related to the non-core business and management of the PPP portfolio.
−Removed: ($ in thousands) June 30, 2021 December 31, 2020 June 30, 2020
+Added: The Company calculates total loans, excluding loans held for sale and PPP loans by excluding the balance of the PPP loans from the total loans.
+Added: The Company considers this information important to shareholders as total loans, excluding loans
+Added: held for sale and PPP loans is a measure that removes fluctuations associated with the activity related to the non-core business and management of the PPP portfolio.
+Added: September 30, 2021 December 31, 2020 September 30, 2020
Total loans, excluding loans held for sale (GAAP) $ 6,850,863 $ 7,760,212 $ 7,880,255
4 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.