19 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 eighteen branch offices, including seven in Northern Virginia, six in Suburban Maryland, and five in Washington, D.C.
+Added: The Bank currently has a total of seventeen branch offices, including six in Northern Virginia, six in Suburban Maryland, and five in Washington, D.C.
The Bank also operates five lending offices, with one in Northern Virginia, three in Suburban Maryland and one in Washington, D.C.
4 unchanged sentences
The residential mortgage loans are originated for sale to third-party investors, generally large mortgage and banking companies, under best efforts and/or mandatory delivery commitments with the investors to purchase the loans subject to compliance with pre-established criteria.
−Removed: 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 closing operational considerations, pricing differentials between the two methods, and availability and pricing of various interest rate hedging strategies associated with the mortgage origination
+Added: 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 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.
7 unchanged sentences
Impact of COVID-19
−Removed: 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 three quarters 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, 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.
−Removed: 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's non-branch personnel returned to work on a "hybrid" basis on November 1, 2021.
−Removed: 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.
−Removed: 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.
−Removed: We are monitoring jurisdictional guidelines and will continue to respond as appropriate.
−Removed: On March 27, 2020, the CARES Act was signed into law.
−Removed: It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.
−Removed: The CARES Act created the Paycheck Protection Program (the "PPP"), a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks.
−Removed: 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 has been participating in the PPP program, which is winding down as loans complete the forgiveness process.
−Removed: As of September 30, 2021, the Bank had an outstanding balance of PPP loans remaining of $67.3 million.
−Removed: 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 additional relief in the form of testing and vaccination sites along with direct stimulus checks.
−Removed: 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.
−Removed: The efficacy and ultimate effect of these actions is not known.
−Removed: In response to the COVID-19 pandemic, we had previously implemented a short-term loan modification program to provide temporary payment relief to certain borrowers who meet the program's qualifications.
−Removed: Initial modifications under the program have predominantly been for 90 days, with a second 90 day modification if warran ted.
−Removed: These types of loan modifications are no longer being granted at this time.
−Removed: 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 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.
−Removed: Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e.
−Removed: performing loans) due to the provision of the CARES Act that permits U.S.
−Removed: financial institutions to temporarily suspend the U.S.
−Removed: GAAP requirements to treat such short-term loan modifications as troubled debt restructurings ("TDRs").
−Removed: Some of these deferrals may have met the criteria for treatment under U.S.
−Removed: generally accepted accounting principles ("GAAP") as troubled debt restructurings ("TDRs").
−Removed: 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: We continue to monitor the impact of COVID-19 closely even as economic forecasts improve.
−Removed: 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 and in 2022 is uncertain.
+Added: The spread of COVID-19 created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the U.S.
+Added: and globally, including the markets that we serve.
+Added: As the COVID-19 pandemic is still ongoing and dynamic in nature, there are many uncertainties, including its severity, duration, impact to our customers, employees and vendors, impact to the financial services and banking industry, impact to the economy as a whole and the level of governmental intervention (both economic and health-related).
+Added: COVID-19 has negatively affected, and may continue to negatively affect the Company.
+Added: Furthermore, the sustainability of the economic recovery remains unclear and significant volatility could continue for a prolonged period as the potential exists for additional variants of COVID-19 to impede the economic recovery.
CRITICAL ACCOUNTING POLICIES
8 unchanged sentences
There have been no significant changes to the Company's accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 except as indicated below and in "Accounting Standards Adopted in 2021" in Note 1 to the Consolidated Financial Statements in this report.
−Removed: Provision for Credit Losses and Provision for Unfunded Commitments
−Removed: A consequence of lending activities is that we may incur credit losses, so we record an allowance for credit losses ("ACL") with respect to loan receivables and a reserve for unfunded commitments (“RUC”) as estimates of those losses.
−Removed: The amount of such losses will vary depending upon the risk characteristics of the loan portfolio as affected by economic conditions such as changes in interest rates, the financial performance of borrowers and regional unemployment rates, which management estimates by using a national forecast and estimating a regional adjustment based on historical differences between the two.
−Removed: CECL requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures).
−Removed: The Provision for Unfunded Commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit.
−Removed: The RUC is determined by estimating future draws and applying the expected loss rates on those draws.
−Removed: Management has significant discretion in making the judgments inherent in the determination of the provisions for credit loss, ACL, and the RUC.
−Removed: Our determination of these amounts requires significant reliance on estimates and significant judgment as to the amount and timing of expected future cash flows on loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts.
−Removed: The Provision for Credit Losses ("PCL") represents the periodic expense for expected credit losses arising from the Company's loan and AFS securities portfolios.
−Removed: The Company uses a loan-level probability of default ("PD")/ loss given default ("LGD") cash flow method with an exposure at default ("EAD") model to estimate expected credit losses for the commercial, income producing – commercial real estate, owner occupied – commercial real estate, real estate mortgage - residential, construction – commercial and residential, construction – C&I (owner occupied), home equity, and other consumer loan pools.
−Removed: For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, probability of default, and loss given default.
−Removed: The modeling of expected prepayment speeds is based on historical internal data.
−Removed: PPP loans are included in the model but do not carry a reserve, as these loans are fully guaranteed by the
−Removed: SBA, whose guarantee is backed by the full faith and credit of the U.S.
−Removed: The Company uses regression analysis of historical internal and peer data (as Company loss data is insufficient) to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default.
−Removed: This analysis also determines how expected probability of default will react to forecasted levels of the loss drivers.
−Removed: 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: Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period.
−Removed: The ACL also includes an amount for inherent risks not reflected in the historical analyses.
−Removed: Relevant factors include, but are not limited to, concentrations of credit risk, changes in underwriting standards, experience and depth of lending staff, and trends in delinquencies.
−Removed: While our methodology in establishing the reserve for credit losses attributes portions of the ACL and RUC to the commercial and consumer portfolio segments, the entire ACL and RUC is available to absorb credit losses expected in the total loan portfolio and total amount of unfunded credit commitments, respectively.
−Removed: Under CECL, reserve for credit losses are significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.
−Removed: Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.
−Removed: See Notes 1 and 5 to the Consolidated Financial Statements for more information on the provision for credit losses.
−Removed: Goodwill and Other Intangibles
−Removed: Goodwill is subject to impairment testing at the reporting unit level and must be conducted at least annually.
−Removed: The Company performs impairment testing during the fourth quarter of each year or when events or changes in circumstances indicate the assets might be impaired.
−Removed: Determining the fair value of a reporting unit under the goodwill impairment test involves judgment and often involves the use of significant estimates and assumptions.
−Removed: Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions.
−Removed: These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables.
−Removed: Future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss.
−Removed: Any resulting impairment loss could have a material adverse impact on the Company's financial condition and results of operations.
−Removed: Annual impairment testing of intangibles and goodwill as required by GAAP will be performed in the fourth quarter of 2021.
+Added: Investment Securities Available-for-Sale and Held-to-Maturity:
+Added: The Company recognizes acquired securities on the trade date.
+Added: Investment securities comprise debt securities, which are classified depending on the Company's intent and ability to hold the securities to maturity.
+Added: Debt securities are classified as available-for-sale when management may have the intent to sell them prior to maturity.
+Added: Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity.
+Added: Premiums and discounts on investment securities held-to-maturity, and available-for-sale, are amortized or accreted to the earlier of call or maturity based on expected lives, which include prepayment adjustments and call optionality.
+Added: The Company separately evaluates its investment securities held-to-maturity for any credit losses.
+Added: The Company pools like securities and calculates expected credit losses through an estimate based on a security's credit rating, which is recognized as part of the allowance for credit losses for held-to-maturity securities and included in the balance of investment securities held-to-maturity on the Consolidated Balance Sheets.
+Added: If the Company determines that a security indicates evidence of deteriorated credit quality, the security is individually-evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis of the security to estimate any credit losses.
+Added: The Company excludes accrued interest receivable from the balance of amortized cost on its investment securities held-to-maturity as it would be written off in the event that an allowance for credit losses would be required.
RESULTS OF OPERATIONS
Earnings Summary
−Removed: Three Months Ended September 30, 2021 vs.
−Removed: Three Months Ended September 30, 2020
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: Three Months Ended March 31, 2022 vs.
+Added: Three Months Ended March 31, 2021
+Added: Net income for the three months ended March 31, 2022 was $45.7 million compared to $43.5 million for the same period in 2021, an increase of $2.3 million, or 5.2%.
+Added: The increase in net income of $2.3 million for the three months ended March 31, 2022 relative to the same period in 2021 was due primarily to a decrease in noninterest expenses of $7.0 million, partially offset by a decrease in noninterest income of $3.1 million and a decrease in net interest income of $2.2 million.
+Added: Noninterest expenses decreased due primarily to an accrual reduction of $5.0 million related to stock-based compensation awards and deferred compensation to our former CEO and Chairman.
+Added: Additional detail on the accrual reduction is provided in "Noninterest Expense" section below.
+Added: Noninterest income decreased due to decreases in gain on sale of residential loans.
+Added: Net interest income decreased due to average loans being lower by $673 million and average yield on loans fell 30 basis points while cost of funds fell just 16 basis points.
Total revenue (i.e.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: net interest income plus noninterest income) was $87.9 million for the three months ended March 31, 2022 as compared to $93.2 million for the same period in 2021.
+Added: The most significant portion of revenue is net interest income, which was $80.5 million for the three months ended March 31, 2022, compared to $82.7 million for the same period in 2021.
+Added: Net interest income was down due to lower average loans and lower average yield on loans, offset by an increase in average earning assets other than loans.
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 2.73% for the three months ended September 30, 2021 and 3.08% for the same period in 2020.
+Added: net interest income) as a percentage of earning assets, was 2.65% for the three months ended March 31, 2022 and 2.98% for the same period in 2021.
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 was 22 basis points for the three months ended September 30, 2021 as compared to 33 basis points for the same period in 2020.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The decrease was primarily due to lower gain on sale of loans, which were entirely of residential mortgage loans.
−Removed: Other income also fell on lower FHA trade premiums.
+Added: Total noninterest income for the three months ended March 31, 2022 decreased to $7.5 million from $10.6 million for the same period in 2021, a 30% decrease.
+Added: Noninterest income was lower due to decreases in gain on sale of residential loans.
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 September 30, 2021 was $3.3 million compared to $12.2 million for the same period in 2020, an decrease of 73%.
−Removed: 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.
−Removed: This increase in mortgage volume abated as mortgage rates started to increase at the beginning of 2021.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: Gain on sale of loans for the three months ended March 31, 2022 was $1.5 million compared to $5.2 million for the same period in 2021, a decrease of 71%.
+Added: The rise in interest rates for residential mortgages in the first quarter of 2022 had a substantial negative impact on the volume of residential mortgage originations (down 73.4% since the first quarter of 2021) and in turn the sale of residential mortgages declined.
+Added: Other income for the three months ended March 31, 2022 increased to $4.1 million from $3.8 million for the same period in 2021, a 6.6% increase.
+Added: This increase was primarily attributable to higher loan fees in the first quarter of 2022 and a $911 thousand gain in the first quarter of 2021 from the cancellation of an FHLB borrowing.
+Added: Noninterest expenses totaled $31.0 million for the three months ended March 31, 2022, as compared to $38.0 million for same period in 2021, a 18% decrease.
See the "Noninterest Expense" section for further detail on the components and drivers of the change.
−Removed: 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.
+Added: Income tax expenses were $13.9 million for the three months ended March 31, 2022, a decrease of 4.3%, compared to the same period in 2021.
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 41.7% for the three months ended September 30, 2021, as compared to 38.1% the same period in 2020.
−Removed: 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.
−Removed: 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.
−Removed: PPP loans represented $67.3 million of total loans at September 30, 2021, compared to $456.1 million a year earlier.
−Removed: 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.
−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 third quarter of 2020.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The ratio of common equity to total assets was 11.49% at September 30, 2021.
−Removed: 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%.
−Removed: 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 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.
−Removed: Total shareholders’ equity was $1.33 billion at September 30, 2021, compared to $1.22 billion a year earlier.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 35.28% for the three months ended March 31, 2022, as compared to 40.74% the same period in 2021.
+Added: The improvement in the efficiency ratio was driven by the $5 million accrual reduction which reduced noninterest expenses.
Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
−Removed: Nine Months Ended September 30, 2021 vs.
−Removed: Nine Months Ended September 30, 2020
−Removed: 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).
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−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 nine months of 2021, versus increases to both of these accounts for the same period in 2020.
+Added: For the three months ended March 31, 2022, the Company reported an annualized return on average assets ("ROAA") of 1.46%, as compared to 1.53% for the same period in 2021.
+Added: Total shareholders' equity was $1.3 billion at March 31, 2022, compared to $1.3 billion a year earlier.
+Added: The annualized return on average common equity ("ROACE") for the three months ended March 31, 2022 was 13.83% as compared to 14.05% for the same period in 2021.
+Added: The annualized return on average tangible common equity ("ROATCE") for the three months ended March 31, 2022 was 14.99% as compared to 15.33% for the same period in 2021.
+Added: The slight decline in returns is attributable to the increase average assets which was $12.7 billion for the three months ended March 31, 2022 as compared to $11.5 billion for the same period a year earlier.
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 2.91% for the nine months ended September 30, 2021 and 3.27% for the same period in 2020.
−Removed: 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.
−Removed: 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.
−Removed: 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%).
−Removed: 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.
−Removed: 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 nine months ended September 30, 2021.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The increase in deposits has come from certain financial intermediary relationships that are also experiencing increased liquidity.
−Removed: 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.
−Removed: 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.
−Removed: Average investment securities for the nine months ended September 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 21% and 11% of average earning assets for the first nine months of 2021 and 2020, respectively.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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).
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−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 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.
−Removed: The primary decreases were in loan service fees and gain on sale of OREO.
−Removed: Gains on sale of investments were $2.1 million and $1.7 million for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: For the first nine months of 2021, the efficiency ratio was 39.8% as compared to 39.6% for the same period in 2020.
−Removed: 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.
−Removed: The increase in noninterest expense is primarily from increased salaries and employee benefits, partially offset by a reduction in legal costs.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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 .
−Removed: The reasons for the noninterest expense results described above are further discussed in the “Noninterest Expense” section.
−Removed: 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.
−Removed: The components and drivers of the change are discussed in the "Income Tax Expense" section below.
−Removed: 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.
−Removed: The earnings are is discussed in the “Earnings Summary” above.
−Removed: As discussed later in “Capital Resources and Adequacy,” the regulatory capital ratios of the Bank and Company remain above well capitalized levels.
Net Interest Income and Net Interest Margin
4 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 $79.0 million for the three months ended September 30, 2021, unchanged from the $79.0 million for the same period in 2020.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The net interest margin was 2.91% for the nine months ended September 30, 2021 and 3.27% for the same period in 2020.
−Removed: 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 nin e months of 2021 as compared to the same period in 2020, average U.S.
−Removed: 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.
−Removed: 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% ).
−Removed: 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%).
−Removed: Average liquidity was $2.7 billion for the third quarter of 2021 and $1.3 billion for the third quarter of 2020.
−Removed: 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.
−Removed: 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 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.
−Removed: 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.
−Removed: 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%).
−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 September 30, 2021 and 2020 and also the nine months ended September 30, 2021 and 2020.
−Removed: Included in the tables are measurements of interest rate spread and margin.
+Added: Net interest income was $80.5 million for the three months ended March 31, 2022, as compared to $82.7 million for the same period in 2021.
+Added: Net interest income decreased for the three months ended March 31, 2022 due to a decline in average loans and a lower rate environment, partially offset by a 9.7% increase in average earning assets, as compared to March 31, 2021.
+Added: The net interest margin was 2.65% for the three months ended March 31, 2022 and 2.98% for the same period in 2021.
+Added: The decline reflects the impact of a decline in the average balance of the loan portfolio, which are higher-earning assets, as capital has been deployed into lower interest-earning deposits and investment securities.
+Added: In the first three months of 2022 as compared to the same period in 2021, average U.S.
+Added: Treasury rates in the two-to-five year range increased by approximately 133 basis points and the average yield curve flattened as the average two-to-ten year spread went from an average of 119 basis points to an average of 49 basis points.
+Added: The Company exper ienced 33 b asis points of net interest margin compression between the first three months of 2021 as compared to the first three months of 2022 (from 2.98% to 2.65%).
+Added: In addition, our cost of funds declined 16 basis points (from 0.42% to 0.26%), while the yield on earning assets declined by 49 basis points (from 3.40% to 2.91%).
+Added: Average liquidity was $2.4 billion for the first quarter of 2022 and $2.1 billion for the first quarter of 2021.
+Added: While overall rates moved higher in the first quarter of 2022, yield on loans was down as higher rate loans were paid off or paid down, and were replaced by loans with lower rates.
+Added: A substantial portion of the variable rate loan portfolio remain at their interest rate floors.
+Added: The table below presents the average balances and rates of the major categories of the Company's assets and liabilities for the three months ended March 31, 2022 and 2021.
+Added: Included in the table 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.
5 unchanged sentences
(dollars in thousands)
−Removed: Three Months Ended September 30,
+Added: Three Months Ended March 31,
Balance Interest Average
9 unchanged sentences
2,794,681 11,280 1.64 % 1,268,952 4,395 1.40 %
+Added: Investment securities held-to-maturity (2)
+Added: 24,011 150 2.53 % — — — %
Federal funds sold 24,176 4 0.07 % 32,309 8 0.10 %
25 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 $6.3 million and $5.
−Removed: 4 million for the three months ended September 30, 2021 and 2020, respectively.
+Added: Net loan fees and late charges included in interest income on loans totaled $3.7 million and $7.8 million for the three months ended March 31, 2022 and 2021, respectively.
(2) Interest and fees on loans and investments exclude tax equivalent adjustments.
−Removed: Nine Months Ended September 30,
−Removed: Balance Interest Average
−Removed: Yield/Rate Average
−Removed: Balance Interest Average
−Removed: Interest earning assets:
−Removed: Interest bearing deposits with other banks and other short-term investments $ 2,288,660 $ 2,239 0.13 % $ 990,051 $ 2,104 0.28 %
−Removed: Loans held for sale (1)
−Removed: 79,264 1,936 3.26 % 66,158 1,605 3.23 %
+Added: Rate/Volume Analysis of Net Interest Income
+Added: The rate/volume table below presents the composition of the change in net interest income for the period indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities, and the changes in net interest income due to changes in interest rates.
+Added: Three Months Ended March 31, 2022 Compared With Three Months Ended March 31, 2021
+Added: (dollars in thousands) Change
+Added: Volume Change
+Added: Interest earned on
Loans $ (7,708) $ (5,180) $ (12,888)
−Removed: 7,385,733 258,188 4.67 % 7,859,188 277,374 4.71 %
+Added: Loans held for sale (549) 29 (520)
Investment securities available-for-sale 5,284 1,601 6,885
−Removed: 1,506,996 15,878 1.41 % 865,484 14,139 2.18 %
+Added: Investment securities held-to-maturity 84 66 150
+Added: Interest bearing bank deposits 79 425 504
Federal funds sold (2) (2) (4)
−Removed: Total interest earning assets 11,292,799 278,266 3.29 % 9,814,305 295,306 4.02 %
−Removed: Total noninterest earning assets 408,167 368,974
−Removed: allowance for credit losses 100,756 99,198
−Removed: Total noninterest earning assets 307,411 269,776
−Removed: TOTAL ASSETS $ 11,600,210 $ 10,084,081
−Removed: LIABILITIES AND SHAREHOLDERS’ EQUITY
−Removed: Interest bearing liabilities:
+Added: Total interest income (2,812) (3,061) (5,873)
+Added: Interest paid on
Interest bearing transaction (9) (96) (105)
1 unchanged sentence
Time deposits (754) (434) (1,188)
−Removed: Total interest bearing deposits 6,488,444 21,288 0.44 % 5,738,485 44,055 1.03 %
Customer repurchase agreements 3 (1) 2
−Removed: Other short-term borrowings 300,003 1,502 0.67 % 273,452 1,363 0.66 %
−Removed: Long-term borrowings 197,090 9,114 6.17 % 257,265 9,486 4.84 %
−Removed: Total interest bearing liabilities 7,007,777 31,938 0.61 % 6,298,912 55,161 1.17 %
−Removed: Noninterest bearing liabilities:
−Removed: Noninterest bearing demand 3,206,250 2,519,867
−Removed: Other liabilities 93,960 71,314
−Removed: Total noninterest bearing liabilities 3,300,210 2,591,181
−Removed: Shareholders’ Equity 1,292,223 1,193,988
−Removed: TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 11,600,210 $ 10,084,081
+Added: Other borrowings (2,313) 177 (2,136)
+Added: Total interest expense (2,550) (1,124) (3,674)
Net interest income $ (262) $ (1,937) $ (2,199)
−Removed: Net interest spread 2.68 % 2.85 %
−Removed: Net interest margin 2.91 % 3.27 %
−Removed: Cost of funds 0.38 % 0.75 %
−Removed: (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 $26.3 million and $16.1 million for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: (2) Interest and fees on loans and investments exclude tax equivalent adjustments.
Provision for Credit Losses
12 unchanged sentences
Also, refer to the table on the next page which reflects activity in the allowance for credit losses.
−Removed: 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.
−Removed: 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 third 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 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.
−Removed: 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.
−Removed: 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.
−Removed: The provision for credit losses on loans was $40.7 million for the nine months ended September 30, 2020.
−Removed: 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.
+Added: During the three months ended March 31, 2022, the ACL on loans reflected a reversal of $3.0 million in the provision and $459 thousand in net charge-offs.
+Added: The provision for credit losses on loans for the same period in 2021 was a reversal of $2.3 million.
+Added: The first quarter 2022 reversal was primarily driven by improvements in the economic environment, and related adjustments to the quantitative components of the CECL model, in particular the lower modeled probability of default, as well as improvements in asset quality.
+Added: The reversal in the same period in 2021 was driven by the improved macroeconomic outlook, improvement of credits in the loan portfolio and a reduction in total loans.
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: Nine Months Ended
−Removed: September 30,
+Added: Three Months Ended
(dollars in thousands) 2022 2021
Balance at beginning of period $ 74,965 $ 109,579
−Removed: Impact of adopting CECL — 10,614
Commercial (514) 4,150
Income producing - commercial real estate — 1,000
−Removed: Owner occupied - commercial real estate — 20
−Removed: Real estate mortgage - residential — —
Construction - commercial and residential — 206
−Removed: Construction - C&I (owner occupied) — —
−Removed: Home equity — 92
Other consumer — 1
1 unchanged sentence
Commercial 54 96
−Removed: Income producing - commercial real estate 97 —
−Removed: Owner occupied - commercial real estate — —
−Removed: Real estate mortgage - residential — —
−Removed: Construction - commercial and residential 499 —
−Removed: Construction - C&I (owner occupied) — —
−Removed: Home equity — —
Other consumer 1 13
1 unchanged sentence
Net charge-offs (459) 5,248
−Removed: Provision for Credit Losses- Loans (14,498) 40,498
+Added: Reversal of credit losses- loans (3,001) (2,261)
Balance at end of period $ 71,505 $ 102,070
2 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: September 30, 2021 December 31, 2020
−Removed: (dollars in thousands) ACL - Loans % of Total ACL % of Total Loans ACL - Loans % of Total ACL % of Total Loans
+Added: March 31, 2022 December 31, 2021
+Added: (dollars in thousands) Amount % of Total ACL % of Total Loans Amount % of Total ACL % of Total Loans
Commercial $ 12,946 18 % 19 % $ 14,475 19 % 19 %
9 unchanged sentences
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 $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.
−Removed: At September 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 comprise loans delinquent 90 days or more, and nonaccrual loans, which includes the nonperforming portion of TDRs and OREO, totaled $25.4 million at March 31, 2022 representing 0.23% of total assets, as compared to $30.8 million of nonperforming assets, or 0.26% of total assets, at December 31, 2021.
+Added: At March 31, 2022, 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 1.21% of total loans at September 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 1.01% of total loans at March 31, 2022, 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 C ompany had seven TDRs at September 30, 2021 totaling approximately $16.5 million.
+Added: The C ompany had seven TDRs at March 31, 2022 totaling approximately $16.5 million.
Five of these loans totaling approximately $10.1 million are performing under their modified terms.
−Removed: In the first nine months of 2020, two
−Removed: performing TDR loans, with a balance of $6.3 million , defaulted on its modified terms and was placed on nonaccrual status.
−Removed: A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.
+Added: For the first three months of 2022 there were two performing TDR loans, with a total balance of $6.3 million, that defaulted on their modified terms.
+Added: For the first three months of 2021, one performing TDR loan, with a balance of $101 thousand, defaulted on its modified terms and was placed on nonaccrual status.
Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.
1 unchanged sentence
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.
−Removed: For both the nine months ended September 30, 2021 and 2020, there were no loans modified in a TDR.
−Removed: 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.
−Removed: Management has been working with customers on payment deferrals to assist companies in managing through this crisis.
−Removed: Some of these deferrals may have met the criteria for treatment under GAAP as TDRs.
−Removed: 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.
−Removed: 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.
−Removed: financial institutions to temporarily suspend the GAAP requirements to treat such short-term loan modifications as TDRs.
−Removed: 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 $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).
−Removed: Included in nonperforming assets are OREO properties, which at September 30, 2021 was $5.1 million for five foreclosed properties.
−Removed: As of December 31, 2020, OREO was $5.0 million.
+Added: For both the three months ended March 31, 2022 and 2021, there were no loans modified in a TDR.
+Added: Total nonperforming loans amounted to $23.8 million at March 31, 2022 (0.33% of total loans) compared to $29.2 million at December 31, 2021 (0.41% of total loans).
+Added: Included in nonperforming assets are OREO properties, which were each $1.6 million for three foreclosed properties at March 31, 2022 and December 31, 2021.
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 nine months of 2021 or 2020.
−Removed: The following table shows the amounts of nonperforming assets at the dates indicated for September 30, 2021.
−Removed: (dollars in thousands) September 30, 2021 December 31, 2020
+Added: There were no sales of an OREO property during the first three months of 2022 or 2021.
+Added: The following table shows the amounts of nonperforming assets at the dates indicated.
+Added: (dollars in thousands) March 31, 2022 December 31, 2021
Nonaccrual Loans:
Commercial $ 7,991 $ 8,876
+Added: PPP loans 106 1,365
Income producing - commercial real estate 13,331 13,456
2 unchanged sentences
Construction - commercial and residential — 3,093
−Removed: Construction - C&I (owner occupied) — —
Home equity 365 366
−Removed: Other consumer — —
Accruing loans-past due 90 days — —
Total nonperforming loans (1)
+Added: 23,752 29,208
Other real estate owned 1,635 1,635
3 unchanged sentences
Ratio of nonperforming assets to total assets 0.23 % 0.26 %
−Removed: ________________________________________________________
(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 nine months ended September 30, 2021, there were no loans that migrated from a performing TDR
−Removed: During the nine months ended September 30, 2020 there were two loans totaling $6.3 million that migrated from a performing TDR.
+Added: During the three months ended March 31, 2022, there were two loans totaling $6.3 million that migrated from a performing TDR status.
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 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.
−Removed: Potential problem loan s were $91.2 million at December 31, 2020.
−Removed: The Company has taken a conservative yet proactive approach with respect to risk rating its loan portfolio.
+Added: At March 31, 2022, there wer e $106.2 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.
+Added: Potential problem loans were $91.2 million at December 31, 2021.
Based upon their status as potential problem loans, these loans receive heightened scrutiny and ongoing intensive risk management.
Noninterest Income
−Removed: 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 September 30, 2021 decreased to $8.3 million from $17.8 million for the three months ended September 30, 2020, a 53% decrease.
−Removed: 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;
−Removed: a decrease in gains on the sale of residential mortgage comprised the entire $8.9 million difference between the two periods.
−Removed: 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.
+Added: Total noninterest income includes service charges on deposits, gain on sale of loans, gain on sale of investment securities, FHA multi-family income, income from bank owned life insurance ("BOLI") and other income.
+Added: Total noninterest income for the three months ended March 31, 2022 decreased to $7.5 million from $10.6 million for the three months ended March 31, 2021, a 30% decrease.
+Added: Gain on sale of loans for the three months ended March 31, 2022 decreased to $1.5 million from $5.2 million for the three months ended March 31, 2021, a 71% decrease;
+Added: a decrease in gains on the sale of residential mortgage drove the decline between the two periods.
+Added: Residential mortgage loan locked commitments were $136.7 million for the three months ended March 31, 2022 as compared to $303.3 million for the same period in 2021, a 55% decrease.
+Added: The rise in interest rates for residential mortgages in the first quarter of 2022 had a substantial negative impact on the volume of mortgage originations and in turn the sale of residential mortgages declined.
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: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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;
−Removed: the decrease was driven by lower gains on the sale of residential mortgage loans.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−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 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.
−Removed: The primary decreases were in loan service fees and gain on sale of OREO.
−Removed: 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: Other income for the three months ended March 31, 2022 increased to $4.1 million from $3.8 million for the three months ended March 31, 2021, a 7% increase.
+Added: This increase was primarily attributable to higher loan fees and the first quarter of 2021 included a $911 thousand gain from the cancellation of an FHLB borrowing.
+Added: Service charges on deposits for the three months ended March 31, 2022 increased to $1.3 million from $1.0 million for the three months ended March 31, 2021.
+Added: Losses on sales of investment securities were $25 thousand for the three months ended March 31, 2022 compared to a $221 thousand net gain on sale of investment securities for the same period in 2021.
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 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 nine months ended September 30, 2021.
−Removed: The reserve amounted to $89 thousand at September 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 three months ended March 31, 2022.
+Added: The reserve amounted to $82 thousand at March 31, 2022 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 $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.
+Added: There was $181 thousand of income from this source for the three months ended March 31, 2022 compared to $223 thousand for the same period in 2021.
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 $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.
−Removed: 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:
−Removed: 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%.
−Removed: 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%.
−Removed: 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.
−Removed: At September 30, 2021, the Company’s full time equivalent staff numbered 509 as compared to 515 at September 30, 2020.
−Removed: 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.
−Removed: Premises and equipment expenses were $11.1 million for the nine months ended September 30, 2021, of which $9.3 million were premises expenses.
−Removed: For the nine months ended September 30, 2020 premises and equipment expenses were $12.4 million, of which $10.3 million were premises expenses.
−Removed: 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.
−Removed: Sublease revenue is accounted for as a reduction to premises and equipment expenses.
−Removed: 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.
−Removed: 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.
−Removed: The decrease was due to lower advertising, promotions and sponsorships.
−Removed: 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.
−Removed: 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.
−Removed: 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 $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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: See Part II, Item 1 - "Legal Proceedings" for more information.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: Total noninterest expenses totaled $31.0 million for the three months ended March 31, 2022, as compared to $38.0 million for the three months ended March 31, 2021, a 18.4% decrease due substantially to the followin g:
+Added: Salaries and employee benefits were $17.0 million for the three months ended March 31, 2022, as compared to $21.8 million for the same period in 2021, a decrease of $4.8 million or 22%.
+Added: For the three month period, the decrease was primarily due to the reduction of the $5.0 million accrual related to stock-based compensation awards and deferred compensation for our former CEO and Chairman in the first quarter of 2022, because we believe any compensation related claims are now time barred under Maryland law.
+Added: The accrual was originally recorded in the first quarter of 2019.
+Added: Absent the accrual reduction, adjusted salaries and employee benefits were down $2.6 million from the fourth quarter of 2021, primarily on lower incentive bonus accruals offset by increases in stock-based compensation (up 62.4% since the first quarter of 2021) and payroll taxes (up 13.7% since the first quarter of 2021).
+Added: Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
+Added: At March 31, 2022, the Company's full time equivalent staff numbered 509 as compared to 508 at March 31, 2021.
+Added: Premises and equipment for the three months ended March 31, 2022 and 2021, were $3.1 million and $3.6 million, respectively, of which premises expenses were $2.5 million and $3.1 million respectively.
+Added: Marketing and advertising expenses totaled $1.1 million for the three months ended March 31, 2022 and $886 thousand for the same period in 2021.
+Added: The increase was due to additional advertising, promotions and sponsorships.
+Added: Data processing expenses were $2.9 million for the three months ended March 31, 2022 compared to $2.8 million for the same period in 2021.
+Added: The increase was related to an increase in communication expenses.
+Added: Legal, accounting and professional fees were $1.6 million for the three months ended March 31, 2022, compared to $3.0 million for the three months ended March 31, 2021, a decrease of $1.4 million.
+Added: Legal fees and expenditures were $205 thousand and $964 thousand for the three months ended March 31, 2022 and 2021, 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: The amount of legal fees and expenditures reported for the three months ended March 31, 2022 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: See "Part I, Item 1 - "Note 12 - Legal Contingencies" for more information.
+Added: FDIC expenses were $1.1 million for the three months ended March 31, 2022 compared to $2.4 million for the same period in 2021, a 56% decrease.
+Added: The decrease for the first three months of 2022 compared to the same period in 2021 were due to a change in institution size which 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 $2.9 million for the three months ended September 30, 2021 from $3.5 million for the same period in 2020, an 18% decrease.
−Removed: 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 .
−Removed: 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.
−Removed: For the first nine months of 2021, the efficiency ratio was 39.8% as compared to 39.6% for the same period in 2020.
−Removed: The increase in the third quarter of 2021 over the third quarter of 2020 was primarily due to an decrease in noninterest income.
−Removed: 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.
−Removed: 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.
+Added: Other expenses increased to $4.3 million for the three months ended March 31, 2022 from $3.5 million for the same period in 2021 a 24% increase, primarily due to director compensation.
+Added: The efficiency ratio, which measures the ratio of n oninterest expense to total revenue, was 35.28% for the first quarter of 2022, as compared to 40.74% for the first quarter of 2021.
+Added: Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
+Added: The improvement in the first quarter of 2022 over the first quarter of 2021 was primarily due to a decrease in noninterest expense from the $5.0 million accrual reduction.
+Added: As a percentage of average assets, total noninterest expense (annualized) was 0.99% for the three months ended March 31, 2022 as compared to 1.34% for the same period in 2021.
+Added: The improvement in the first quarter of 2022 over the first quarter of 2021 was primarily due to a decrease in noninterest expense from the $5.0 million accrual reduction related to share-based compensation awards and deferred compensation.
Income Tax Expense
−Removed: 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%.
−Removed: 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.
−Removed: The effective income tax rate for the nine months ended September 30, 2021 and 2020 was 25.4%.
−Removed: 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.
−Removed: 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's ratio of income tax expense to pre-tax income ("effective tax rate") for the three months ended March 31, 2022 and 2021 was 23.4% down from 25.1% the prior quarter.
+Added: The total tax provision for the three months ended March 31, 2022 was $13.9 million, compared to $14.6 million for the three months ended March 31, 2021.
+Added: The decrease was primarily due to a decrease in noninterest expense from the $5.0 million accrual reduction related to share-based compensation awards and deferred compensation.
The Company remains subject to periodic audits and reviews by the taxing authorities, and the Company's returns for the years 2019-2021 remain open for examination.
FINANCIAL CONDITION
−Removed: Total assets at September 30, 2021 was $11.6 billion and at December 31, 2020 was $11.1 billion .
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Total deposits at September 30, 2021 were $9.7 billion and at December 31, 2020 were $9.2 billion.
−Removed: 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 $369.6 million at September 30, 2021, as compared to $568.1 million at December 31, 2020.
−Removed: 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.
−Removed: 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, .
−Removed: 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.
−Removed: The ratio of common equity to total assets was 11.49% at September 30, 2021, as compared to 11.16% at December 31, 2020.
−Removed: Book value per share was $41.68 at September 30, 2021, a 6.7% increase over $39.05 at December 31, 2020.
−Removed: In addition, the tangible common equity ratio was 10.68% at September 30, 2021, as compared to 10.31% at December 31, 2020.
−Removed: Tangible book value per share was $38.39 at September 30, 2021, a 7.4% increase over $35.74 at December 31, 2020.
+Added: Total assets at March 31, 2022 and December 31, 2021 were $11.2 billion and $11.8 billion, respectively.
+Added: The largest component of assets, total loans (excluding loans held for sale), had an amortized cost basis of $7.1 billion at March 31, 2022, a 0.7% increase from the balance at December 31, 2021.
+Added: The increase in loans over the three months ended March 31, 2022, was driven by growth from CRE loans and C&I loans.
+Added: Additionally, the Bank reduced its PPP loans from $51.1 million at December 31, 2021 to $35.7 million at March 31, 2022 through the forgiveness process.
+Added: Loans held for sale were $25.5 million at March 31, 2022, compared to $47.2 million at December 31, 2021, a 46.0% decrease.
+Added: Investment securities, at amortized cost net of the allowance for credit losses, totaled $3.0 billion at March 31, 2022 as compared to $2.6 billion at December 31, 2021, an increase of 14.6%, primarily due to excess liquidity being invested at greater amounts in higher earning assets in response to higher rates on investments available in the market during the quarter.
+Added: During the quarter, we evaluated our securities portfolio and determined that certain securities will be maintained for the life of the instrument and made a decision to transfer $1.1 billion of securities designated as available-for-sale ("AFS") to held-to-maturity ("HTM"), including $237.0 million of securities acquired in the first quarter of 2022 for which the intention to hold to maturity was finalized.
+Added: The transferred securities had unrealized losses of $66.2 million, which are included in the book value of the positions post-transfer and will be accreted ratably over the remaining lives of the securities through accumulated other comprehensive loss.
+Added: The securities transferred were generally municipal bonds, corporate bonds, bonds that qualify for CRA credit, and mortgage-backed securities with longer final maturity dates.
+Added: Additionally, during the quarter, a portion of securities purchased were designated as securities HTM.
+Added: At quarter-end, $1.2 billion, or 38.1% of the securities portfolio, was classified as securities HTM.
+Added: In terms of funding, total deposits at March 31, 2022 were $9.6 billion down from $10.0 billion at December 31, 2021, a decline of 4.0%.
+Added: While deposits were down from prior quarter-end, average deposits for the quarter were up, as average deposits for the three months ended March 31, 2022 were $10.9 billion, compared to $10.7 billion the prior quarter.
+Added: Total borrowed funds (excluding customer repurchase agreements) were $219.7 million and $369.7 million at March 31, 2022 and December 31, 2021, respectively, the decrease of which was driven by the repayment of an FHLB advance of $150 million in the first quarter of 2022.
+Added: Total shareholders' equity was $1.3 billion as of March 31, 2022 compared to $1.4 billion as of December 31, 2021, a decrease of $71.2 million.
+Added: The decrease in shareholders' equity from the prior quarter-end was primarily as a result of the increase in the overall interest rate environment, which created unrealized losses in investment securities available-for-sale, which are recorded in accumulated other comprehensive income (loss).
+Added: For the three months ended March 31, 2022, other comprehensive income was reduced by $107.5 million.
+Added: This reduction was partially offset by retained earnings which included earnings of $45.7 million less dividends declared of $12.7 million.
+Added: The Company's capital ratios remain substantially in excess of regulatory minimum and buffer requirements.
+Added: Regulatory ratios based on risk-weighted assets declined from the prior quarter as non-risk weighted cash was moved into risk-weighted securities and loans.
+Added: The total risk based capital ratio was 15.86% at March 31, 2022, as compared to 16.15% at December 31, 2021.
+Added: The common equity tier 1 ("CET1") risk based capital ratio was 14.74% at March 31, 2022, as compared to 15.02% at December 31, 2021.
+Added: The tier 1 risk based capital ratio was 14.74% at March 31, 2022, as compared to 15.02% at December 31, 2021.
+Added: The tier 1 leverage ratio was 9.93% at March 31, 2022, as compared to 10.19% at December 31, 2021.
+Added: Capital ratios based on common equity also declined as rising rates created unrealized losses on securities AFS, which negatively impacted common equity and tangible common equity.
+Added: The ratio of common equity to total assets was 11.40% at March 31, 2022, as compared to 11.40% at December 31, 2021.
+Added: Book value per share was $39.89 at March 31, 2022, a 5.7% decrease over $42.28 at December 31, 2021.
+Added: In addition, the tangible common equity ratio was 10.57% at March 31, 2022, as compared to 10.60% at December 31, 2021.
+Added: Tangible book value per share was $36.19 at March 31, 2022, a 7.1% decrease over $38.97 at December 31, 2021.
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 September 30, 2021 and December 31, 2020 by major category are summarized below.
−Removed: September 30, 2021 December 31, 2020
+Added: Loan Portfolio
+Added: Loans, net of amortized deferred fees and costs, at March 31, 2022 and December 31, 2021 by major category are summarized below.
+Added: March 31, 2022 December 31, 2021
(dollars in thousands) Amount % Amount %
12 unchanged sentences
$ 7,042,302 $ 6,990,633
−Removed: (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.
+Added: (1) Excludes accrued interest receivable of $36.9 million and $38.6 million at March 31, 2022 and December 31, 2021 , 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 $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.
−Removed: 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.
−Removed: 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.
−Removed: PPP loans accounted for approximately 42.6% total decrease in loans outstanding over the nine months ended September 30, 2021.
+Added: Loans outstanding were $7.1 billion at March 31, 2022, an increase of $48.2 million, or 0.7%, from the balance at December 31, 2021.
+Added: PPP loans outstanding were $35.7 million at March 31, 2022, a decrease of $15.4 million, or 30%, from the $51.1 million at December 31, 2021.
+Added: With PPP loans excluded, loans outstanding were $7.1 billion at March 31, 2022, an increase of $63.6 million from December 31, 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: Loan balances have incrementally fallen since the second quarter of 2021.
−Removed: 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: After decreases in the loans outstanding over the year ended December 31, 2021, the loan portfolio in total has stabilized to some degree.
+Added: The modest increases in the portfolio in the first quarter of 2022 were primarily attributable to our CRE and C&I loans.
+Added: Market interest rates have increased in connection with rate increases implemented by the Federal Reserve.
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.
−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 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 there will be more opportunities to originate loans for large commercial projects and grow the loan portfolio as economic conditions improve.
−Removed: The potential impact from the COVID-19 pandemic may not yet have been fully reflected in the market across all asset types.
−Removed: Please refer to the COVID-19 risk factor in Item 1A below.
−Removed: Loan Portfolio Exposures - COVID-19:
−Removed: Industry segments within the Loan Portfolio as of September 30, 2021 that we believe may have heightened risk from the COVID-19 pandemic include:
−Removed: Industry Principal Balance
−Removed: (in 000’s) % of Loan Portfolio
−Removed: Accommodation & Food Services $ 623,813 (1 )
−Removed: Retail Trade 79,078 (2 )
−Removed: Commercial Real Estate exposure (not included above)
−Removed: Restaurant 35,043 0.5 %
−Removed: Hotel 61,150 0.9 %
−Removed: Retail 376,342 5.5 %
−Removed: Total $ 1,175,426 17.2 %
−Removed: 1 Includes $31.3 million of PPP loans.
−Removed: 2 Includes $64 thousand of PPP loans.
−Removed: 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 9.1% of the Bank’s loan portfolio as of September 30, 2021 .
−Removed: Retail Trade exposure represents 1.2% of the Bank’s loan portfolio.
−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 adapt to the evolving landscape of the COVID-19 pandemic.
−Removed: 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 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.
−Removed: The Bank is working with CRE investor borrowers and monitoring rent collections as part of our portfolio management oversight.
+Added: We believe that there are opportunities for growth in the commercial real estate market, as evidenced by the increase in CRE and C&I loans over the quarter.
+Added: The following table sets forth the time to contractual maturity of the loan portfolio as of March 31, 2022:
+Added: As of March 31, 2022
+Added: (dollars in thousands) Total One Year or Less Over One Year to Five Years Over Five Years to Fifteen Years Over Fifteen Years
+Added: Commercial $ 1,377,615 $ 459,701 $ 756,826 $ 155,689 $ 5,399
+Added: PPP loans 35,744 6,444 29,300 — —
+Added: Income producing - commercial real estate 3,543,795 1,307,051 1,755,623 481,121 —
+Added: Owner occupied - commercial real estate 1,104,982 79,768 367,049 517,878 140,287
+Added: Real estate mortgage - residential 72,238 13,992 43,198 2,926 12,122
+Added: Construction - commercial and residential 783,101 414,363 341,140 21,008 6,590
+Added: Construction - C&I (owner occupied) 140,282 13,015 38,609 61,903 26,755
+Added: Home equity 54,804 5,642 7,455 751 40,956
+Added: Other consumer 1,246 873 — — 373
+Added: Total loans $ 7,113,807 $ 2,300,849 $ 3,339,200 $ 1,241,276 $ 232,482
+Added: Predetermined fixed interest rate $ 3,004,806 $ 651,545 $ 1,488,081 $ 761,563 $ 103,617
+Added: Floating or Adjustable interest rate 4,109,001 1,649,304 1,851,119 479,713 128,865
+Added: Total loans $ 7,113,807 $ 2,300,849 $ 3,339,200 $ 1,241,276 $ 232,482
Deposits and Other Borrowings
2 unchanged sentences
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 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.
+Added: For the three months ended March 31, 2022, noninterest bearing deposits decreased by $326.4 million as compared to December 31, 2021, while interest bearing deposits decreased by $68.9 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.
1 unchanged sentence
The Bank also is able to obtain one-way CDARS deposits and participates in IntraFi's Insured Network Deposit ("IND").
−Removed: 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.
+Added: At March 31, 2022, total deposits included $2.5 billion of brokered deposits (excluding the CDARS and ICS two-way) which represented 26.1% of total deposits.
At December 31, 2021, total brokered deposits (excluding the CDARS and ICS two-way) were $2.6 billion, or 26.5% of total deposits.
−Removed: 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.
+Added: The CDARS and ICS two-way component represented $694.0 million, or 7.2%, of total deposits and $701.5 million, or 7.0%, of total deposits at March 31, 2022 and December 31, 2021, 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
−Removed: 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 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 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.
−Removed: Average noninterest bearing deposits of total deposits for the nine months ended September 30, 2021 and 2020 were 33% and 31%.
+Added: At March 31, 2022, the Company had $2.95 billion in noninterest bearing demand deposits, representing 31% of total deposits, compared to $3.3 billion of noninterest bearing demand deposits at December 31, 2021, or 33% of total deposits.
+Added: Average noninterest bearing deposits of total deposits for the three months ended March 31, 2022 and 2021 were 36% and 34%.
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 $29.4 million at September 30, 2021 compared to $26.7 million at December 31, 2020.
+Added: The balances in these accounts were $28.3 million at March 31, 2022 compared to $23.9 million at December 31, 2021.
Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S.
4 unchanged sentences
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 September 30, 2021 the Company had $751.5 million in time deposits.
−Removed: Time deposits decreased by $226.3 million from year end December 31, 2020.
+Added: At March 31, 2022 the Company had $698.5 million in time deposits a decrease of $30.6 million from year end December 31, 2021.
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 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.
−Removed: 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.
+Added: In March, the Bank raised rates in most of its time deposit accounts in response to the raising rate environment and the desire to lock in some term funding.
+Added: At March 31, 2022 and December 31, 2021, the Company had time deposits that were in excess of the FDIC's $250 thousand insurance limit totaling $493.5 million and $152.5 million, respectively.
+Added: The Company h ad no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at March 31, 2022 and December 31, 2021.
+Added: At March 31, 2022 and December 31, 2021, the Company had $150 million and $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 September 30, 2021 included the Company’s August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024.
−Removed: On August 2, 2021, the Company redeemed $150 million of subordinated debt issued on July 26, 2016.
−Removed: The redemption accelerated deferred financing costs of $1.3 million, which is included in interest income for the third quarter of 2021.
−Removed: For additional information on the subordinated notes, please refer to Notes 8 and 13 to the Consolidated Financial Statements included in this report.
+Added: Long-term borrowings outstanding at March 31, 2022 included the Company's August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024.
Liquidity Management
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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 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.
−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 $1.65 billion at September 30, 2021.
−Removed: 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.
+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 March 31, 2022, and can obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.7 billion, against which there was $362 thousand outstanding at March 31, 2022.
+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 $1.5 billion at March 31, 2022.
+Added: At March 31, 2022, the Bank was also eligible to make advances from the FHLB up to $1.3 billion based on loans pledged as collateral to the FHLB, of which there was $150 million outstanding at March 31, 2022.
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
−Removed: specific loan assets identified to the Federal Reserve Bank.
+Added: This facility, which amounts to approximately $639 million, is collateralized with 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.
11 unchanged sentences
Our primary and secondary sources of liquidity remain strong.
−Removed: Average deposits increased 17.4% for the first nine months of 2021 as compared to the same period in 2020.
−Removed: However, we still maintain a very liquid investment portfolio, including significant overnight liquidity.
−Removed: 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.
−Removed: At September 30, 2021, under the Bank’s liquidity formula, it had $6.6 billion of primary and secondary liquidity sources.
+Added: Average deposits increased 13.3% for the first three months of 2022 as compared to the same period in 2021.
+Added: We also still maintain a very liquid investment portfolio, including significant overnight liquidity.
+Added: In the first quarter of 2022, average short term liquidity was $2.4 billion, which is above EagleBank's average needs, and secondary sources of liquidity at March 31, 2022 were $3.4 billion.
+Added: At March 31, 2022, under the Bank's liquidity formula, it had $5.6 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 September 30, 2021 are as follows:
+Added: Loan commitments outstanding and lines and letters of credit at March 31, 2022 are as follows:
(dollars in thousands)
7 unchanged sentences
Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements.
−Removed: 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: As of March 31, 2022, unfunded loan commitments included $44.3 million related to interest rate lock commitments on residential mortgage loans and were of a short-term nature.
The pipeline of loan commitments remains strong.
6 unchanged sentences
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
−Removed: 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 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 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 .
−Removed: 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.
−Removed: 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.
+Added: During the three months ended March 31, 2022, the Company was able to produce a net interest margin of 2.65% as compared to 2.98% during the same period in 2021, and continue to manage its overall interest rate risk position .
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.
3 unchanged sentences
agency investment portfolio.
−Removed: 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: At March 31, 2022, the investment portfolio increased by $1.6 billion, or 114%, as compared to balance at March of 2021.
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.
−Removed: The percentage mix of municipal securities was 7% of total investments at September 30, 2021 and 9% at December 31, 2020.
−Removed: The portion of the portfolio invested in mortgage backed secur ities was 67% and 72% at September 30, 2021 and December 31, 2020, respectively.
+Added: The percentage mix of municipal securities was 5% of total investments at March 31, 2022 and 6% at December 31, 2021 .
+Added: The portion of the portfolio invested in residential mortgage-backed secur ities was 65% at March 31, 2022 and 64% at December 31, 2021.
The portion of the portfolio invested in U.S.
−Removed: agency investments was 20% at September 30, 2021 and 16% at December 31, 2020.
−Removed: 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.
−Removed: The duration of the investment portfolio increased to 4.2 years at September 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 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.
−Removed: 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.
−Removed: 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.
+Added: agency investments was 24% at March 31, 2022 and December 31, 2021.
+Added: Shorter duration floating rate corporate bonds were 5% of total investments at March 31, 2022 and December 31, 2021 .
+Added: treasury bonds were 2% of total investments at March 31, 2022 and December 31, 2021.
+Added: The duration of the investment portfolio increased to 4.9 years at March 31, 2022 from 4.3 years at December 31, 2021 .
+Added: The re-pricing duration of the loan portfolio wa s 15 mo nths at March 31, 2022 and 18 months at December 31, 2021 with fixed rate loans amounting to 42% of total loans at March 31, 2022 and 43% at December 31, 2021 .
+Added: Variable and adjustable rate loans comprised 58% of total loans at March 31, 2022 and 57% at December 31, 2021 , respectively.
+Added: Variable rate loans are generally indexed to either the one month LIBOR interest rate, SOFR, or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S.
Treasu ry interest rate.
−Removed: 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.
−Removed: 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 .
−Removed: This change is primarily due to higher interest rates.
−Removed: At September 30, 2021, the net unrealized loss posit ion represented 0.1% of the investment portfolio’s book value.
+Added: The duration of the deposit portfolio decreased as rates rose, measuring 33 mo nths at March 31, 2022 and 41 months at December 31, 2021.
+Added: The net unrealized loss before income tax on the investment securities available-for-sale portfolio was $97.8 million and $18.6 million at March 31, 2022 and December 31, 2021, respectively.
+Added: The change is primarily due to higher interest rates.
+Added: At March 31, 2022, the net unrealized loss posit ion represented 3% 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 September 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 March 31, 2022.
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 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: For the analysis presented below, at March 31, 2022, 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 March 31, 2021), 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.
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.
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.
−Removed: 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: The Company's analysis at March 31, 2022 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.
This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative dura tions.
−Removed: 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.
−Removed: The following table reflects the result of simulation analysis on the September 30, 2021 asset and liabilities balances:
+Added: The repricing duration of the investment portfolio at March 31, 2022 is 4.9 years, the loan portfolio 1.3 years, the interest bearing deposit portfolio 2.8 years, and the borrowed funds portfolio 5.7 years.
+Added: The following table reflects the result of simulation analysis on the March 31, 2022 asset and liabilities balances:
Change in interest
12 unchanged sentences
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 three quarters 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 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.
−Removed: 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.
+Added: Management has determined that due to the level of market rates at March 31, 2022, 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 March 31, 2022 are not considered to be excessive.
The impact of 1.9% in net interest income and 3.0 % 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 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.
−Removed: The interest rate risk position at September 30, 2021, was relatively
−Removed: 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.
+Added: In the first quarter of 2022 , 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 March 31, 2022, was relatively similar to the December 31, 2021 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.
3 unchanged sentences
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 three quarters 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 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.
−Removed: As compared to the second quarter of 2021 the third quarter average two-year U.S.
−Removed: Treasury rate increased by 5 basis points from 0.17% to 0.22%, the average five year U.S.
−Removed: Treasury rate decreased by 5 basis points from 0.84% to 0.79% and the average ten year U.S.
−Removed: Treasury rate decreased by 27 basis p oints from 1.59% to 1.32% .
−Removed: The Company’s net interest margin was 2.73% for the third quarter of 2021 and 3.08% in the third quarter of 2020.
−Removed: 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.
+Added: During the first quarter of 2022 , average market interest rates increased across the yield curve as compared to the 2021 year end.
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 87% of the Company’s revenue for the first three quarters of 2021 and 2020, respectively.
+Added: Net interest income represented 92% and 89% of the Company's revenue for the first quarter of 2022 and 2021, 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.
4 unchanged sentences
While a positive gap indicates the degree to which the volume of repriceable assets exceeds repriceable liabilities in given time periods.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: At March 31, 2022, the Company had a negative gap position of approximately $1,174 million or 10.5% of total assets, out to three months, and a negative cumulative gap position of $648 million, or 5.78% of total assets out to twelve months.
+Added: At December 31, 2021 , the Company had a negative gap position of approximately $267 million or 2.25% of total assets out to three months and a positive cumulative gap position of $102 million or .86% of tot al assets out to 12 months.
+Added: The change in the gap position at March 31, 2022 as compared to December 31, 2021 was due to reduction in cash relative to securities holdings.
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.
3 unchanged sentences
These factors have been discussed with the ALCO and management believes that current strategies remain appropriate to current economic and interest rate trends.
−Removed: If interest rates increase by 100 basis points, the Company’s net interest income and net interest margin are expected to increase modestly due to the impact of significant volumes of variable rate assets more than offsetting the assumption of an increase in money market interest rates by 70% of the change in market interest rates.
+Added: If interest rates increase by 100 basis points, the Company's net interest income and net interest margin are expected to increase modestly due to the impact of significant volumes of variable rate assets more than offsetting the assumption of an increase in money market interest rates.
If interest rates decline by 100 basis points, the Company's net interest income and margin are expected to decline modestly as the impact of lower market rates on a large amount of liquid assets more than offsets the ability to lower interest rates on interest bearing liabilities.
1 unchanged sentence
If this were to occur, the effects of a declining interest rate environment may not be in accordance with management's expectations.
−Removed: September 30, 2021
+Added: March 31, 2022
(dollars in thousands)
19 unchanged sentences
Cumulative gap as percent of total assets (10.47) % (5.78) % 4.09 % 11.19 % 9.38 %
−Removed: OFF BALANCE-SHEET:
−Removed: Interest Rate Swaps - LIBOR based $ — $ — $ — $ — $ — $ —
−Removed: Interest Rate Swaps - Fed Funds based — — — — — —
−Removed: Total $ — $ — $ — $ — $ — $ — $ —
−Removed: GAP $ 426,127 $ 260,032 $ 805,135 $ 514,937 $ (836,400) $ 1,169,831
−Removed: Cumulative GAP $ 426,127 $ 686,159 $ 1,491,294 $ 2,006,231 $ 1,169,831
−Removed: Cumulative gap as percent of total assets 3.68 % 5.92 % 12.87 % 17.32 % 10.10 %
(1) Excludes loans held for sale
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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
−Removed: 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 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 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: At March 31, 2022, 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.
Construction, land and land development loans represent 110% of total risk based capital.
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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 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.
−Removed: During the fourth quarter of 2020, the Company started a new stock repurchase plan .
−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), commencing January 1, 2021 through December 31, 2021, subject to earlier termination by the Board of Directors (the “2021 Stock Repurchase Plan”).
−Removed: 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.
−Removed: No stock repurchases took place during the second quarter of 2021.
−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 2021 Stock Repurchase Plan.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: At March 31, 2022, 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: The Company announced a regular quarterly cash dividend on March 21, 2022 of $0.40 per share to shareholders of record on April 11, 2022 and payable on April 29, 2022.
+Added: The actual capital amounts and ratios for the Company and Bank as of March 31, 2022 and December 31, 2021 are presented in the table below.
Company Bank Minimum
2 unchanged sentences
(dollars in thousands) Amount Ratio Amount Ratio Purposes Regulations*
−Removed: As of September 30, 2021
+Added: As of March 31, 2022
CET1 capital (to risk weighted assets) $ 1,257,274 14.74 % $ 1,250,807 14.75 % 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 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.
+Added: At March 31, 2022 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.
2 unchanged sentences
We have elected to adopt the March 2020 interim final rule.
−Removed: On August 2, 2021, the Company paid in full $150.0 million of subordinated debt due 2026 and accelerated deferred financing costs of $1.3 million on that date.
−Removed: Refer to Note 8 for additional detail.
Use of Non-GAAP Financial Measures
7 unchanged sentences
The efficiency ratio measures a bank's overhead as a percentage of its revenue.
−Removed: The Company considers this information important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes,
−Removed: which excludes intangible assets from the calculation of risk based ratios and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.
+Added: The Company considers this information important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.
GAAP Reconciliation
−Removed: (dollars in thousands except per share data)
−Removed: September 30, 2021 December 31, 2020 September 30, 2020
+Added: (dollars in thousands except per share data) March 31, 2022 December 31, 2021
Common shareholders' equity $ 1,279,554 $ 1,350,775
8 unchanged sentences
Tangible common equity ratio 10.57 % 10.60 %
−Removed: September 30, 2021 December 31, 2020 September 30, 2020
−Removed: Three Months Ended Nine Months Ended Year Ended Three Months Ended (1)
−Removed: Nine Months Ended
+Added: Three Months Ended March 31,
+Added: (dollars in thousands) 2022 2021
Average common shareholders' equity 1,341,785 $ 1,254,780
4 unchanged sentences
Annualized return on average tangible common equity 14.99 % 15.33 %
−Removed: Three Months Ended September 30, Nine Months Ended September 30,
−Removed: 2021 2020 2021 2020
+Added: Three Months Ended March 31,
+Added: (dollars in thousands except per share data) 2022 2021
Net interest income $ 80,452 $ 82,651
3 unchanged sentences
Efficiency ratio 35.28 % 40.74 %
−Removed: (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.
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.
−Removed: The Company considers this information important to shareholders as total loans, excluding loans
−Removed: 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: September 30, 2021 December 31, 2020 September 30, 2020
+Added: 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.
+Added: (dollars in thousands) March 31, 2022 December 31, 2021
Total loans, excluding loans held for sale (GAAP) $ 7,042,302 $ 6,990,633
1 unchanged sentence
Total loans, excluding loans held for sale and PPP loans (Non-GAAP) $ 7,006,558 $ 6,939,528
+Added: Adjusted Salaries and Employee Benefits is a non-GAAP financial measure derived from GAAP based amounts.
+Added: The Company calculates Adjusted Salaries and Employee Benefits by subtracting from total salaries and employee benefits the one-time accrual reduction of $5.0 million related to share-based compensation awards and deferred compensation for the Company's former CEO and Chairman in the first quarter of 2022.
+Added: The Company considers this information important to shareholders because the accrual reduction was a one-time event that occurred during the first quarter of 2022.
+Added: The Adjusted Salaries and Employee Benefits non-GAAP measure provides investors insight into how salaries and employee benefits changed during the first quarter of 2022 exclusive of the one-time accrual reduction, and allows investors to better compare the Company's performance against historical periods.
+Added: Three Months Ended March 31,
+Added: (dollars in thousands) 2022 2021
+Added: Salaries and employee benefits $ 17,019 $ 24,608
+Added: Accrual reduction for former CEO and Chairman 5,018 —
+Added: Adjusted salaries and employee benefits (non-GAAP) $ 22,037 $ 24,608
Quantitative and Qualitative Disclosures about Market Risk
1 unchanged sentence
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.