NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operation
WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of deposit, lending, treasury management, international banking, and online banking products and services through its wholly-owned banking subsidiary, WAB.
WAB operates the following full-service banking divisions: ABA, BON, FIB, Bridge, and TPB. The Company also serves business customers through a national platform of specialized financial services. In addition, the Company has two non-bank subsidiaries LVSP, which held and managed certain OREO properties, and CSI, a captive insurance company formed and licensed under the laws of the State of Arizona and established as part of the Company's overall enterprise risk management strategy.
Basis of presentation
The accounting and reporting policies of the Company are in accordance with GAAP and conform to practices within the financial services industry. The accounts of the Company and its consolidated subsidiaries are included in the Consolidated Financial Statements.
Recent accounting pronouncements
Convertible Debt and Derivatives and Hedging
In August 2020, the FASB issued guidance within ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update affect entities that issue convertible instruments and/or contracts indexed to and potentially settled in an entity’s own equity. The new ASU simplifies the convertible accounting framework through elimination of the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments to Subtopics 470 and 815 are effective for interim and annual reporting periods beginning after December 15, 2021 and are not expected to have a material impact on the Company’s Consolidated Financial Statements.
Reference Rate Reform
In March 2020, the FASB issued guidance within ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the scheduled discontinuation of LIBOR on December 31, 2021. Since the issuance of this guidance, the publication cessation of U.S. dollar LIBOR has been extended to June 30, 2023. The amendments in this Update provide optional guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform.
The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under this Topic for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging- Embedded Derivatives; and 4) for other Topics or Industry Subtopics in the Codification, the amendments in this Update also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. An entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in order to clarify that certain optional expedients and exceptions in Topic 848 apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discount, or contract price alignment that is modified as a result of reference rate reform.
The amendments in these Updates are effective immediately for all entities and apply to contract modifications through December 31, 2022. The adoption of this accounting guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
Income Taxes
In December 2019, the FASB issued guidance within ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are intended to reduce the cost and complexity of applying ASC 740. The amendments that are applicable to the Company address: 1) franchise and other taxes partially based on income; 2) step-up in basis of goodwill in a business combination; 3) allocation of tax expense in separate entity financial statements; and 4) interim recognition of enactment of tax laws or rate changes. The amendments to Topic 740 are effective for interim and annual reporting periods beginning after December 15, 2020 and are not expected to have a material impact on the Company’s Consolidated Financial Statements.
Recently adopted accounting guidance
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance within ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The new standard significantly changes the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to an expected loss model. The amendments in ASU 2016-13 to Topic 326, Financial Instruments - Credit Losses, require that an organization measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosures, including qualitative and quantitative disclosures that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on AFS debt securities and purchased financial assets with credit deterioration.
The Company adopted the amendments within ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company's financial results for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326, while prior-period amounts continue to be reported in accordance with legacy GAAP. The Company recorded a cumulative effect adjustment to retained earnings, which resulted in a total decrease to retained earnings of $24.9 million as of January 1, 2020. This adjustment was due primarily to expected total losses under the new model in the Company's loan portfolio and, to a lesser extent, its off-balance sheet credit exposures.
The Company applied the prospective transition approach for loans purchased with credit deterioration that were previously classified as PCI and previously accounted for under ASC 310-30. In accordance with the new standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. As of January 1, 2020, the amortized cost basis of the PCD loans was adjusted to reflect an allowance for credit losses of $3.3 million. The remaining noncredit discount (based on the adjusted amortized cost basis) related to PCD loans of $1.1 million will be accreted into interest income at the loan's effective interest rate as of January 1, 2020. The Company has elected not to maintain its pools of loans accounted for under ASC 310-30.
The Company applied the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date. The effective interest rate on these debt securities was not changed. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received.
The following table summarizes the estimated allowance for credit losses related to financial assets and off-balance sheet credit exposures and the corresponding impacts on the deferred tax asset and retained earnings upon adoption of ASC 326:
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January 1, 2020
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Pre-ASC 326 Adoption
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Post-ASC 326 Adoption
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Impact of ASC 326 Adoption
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(in millions)
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Assets:
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Allowance for credit losses on HTM securities
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$
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—
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$
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2.6
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$
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2.6
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Allowance for credit losses on loans
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167.8
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186.9
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19.1
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Deferred tax asset
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18.0
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26.7
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8.7
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Liabilities:
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Off-balance sheet credit exposures
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$
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9.0
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$
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24.0
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$
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15.1
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Equity:
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Retained earnings
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$
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1,680.3
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$
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1,655.4
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$
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(24.9)
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Management has elected to take advantage of the capital relief option that delays the estimated impact of the adoption of ASC 326 on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.
In April 2019, the FASB issued guidance within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in ASU 2019-04 clarify or correct the guidance in these Topics. With respect to Topic 326, ASU 2019-04 addresses a number of issues as it relates to the CECL standard including consideration of accrued interest, recoveries, variable-rate financial instruments, prepayments, and extension and renewal options, among other things, in the measurement of expected credit losses. The amendments to Topic 326 were adopted concurrently with ASU 2016-13 and did not have a significant impact on the Company’s Consolidated Financial Statements. With respect to Topic 815, Derivatives and Hedging, ASU 2019-04 clarifies issues related to partial-term hedges, hedged debt securities, and transitioning from a quantitative method of assessing hedge effectiveness to a more simplified method. The Company does not have partial-term hedges or any hedged debt securities and the transition issues discussed in the ASU 2019-04 are not applicable to the Company. Accordingly, the amendments to Topic 815 did not have an impact on the Company's Consolidated Financial Statements. With respect to Topic 825, Financial Instruments, on recognizing and measuring financial instruments, ASU 2019-04 addresses: 1) the scope of the guidance; 2) the requirement for remeasurement under ASC 820 when using the measurement alternative for equity securities without readily determinable fair values; 3) certain disclosure requirements; and 4) which equity securities have to be remeasured at historical exchange rates. The amendments to Topic 825 were effective January 1, 2020 and did not have a material impact on the Company’s Consolidated Financial Statements.
In May 2019, the FASB issued guidance within ASU 2019-05, Financial Instruments - Credit Losses, to provide entities with an option to irrevocably elect the fair value option for eligible financial assets measured at amortized cost. The election is to be applied on an instrument-by-instrument basis upon adoption of Topic 326 and is not available for either AFS or HTM debt securities. The amendments in ASU 2019-05 should be applied on a modified-retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings as of the date that an entity adopts the amendments in ASU 2016-13. The Company did not elect this fair value option as part of its adoption of ASU 2016-13 on January 1, 2020.
In November 2019, the FASB issued guidance within ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in ASU 2019-11 clarify or address specific issues about certain aspects of the amendments in ASU 2016-13. These issues include measurement and reporting requirements related to: 1) the allowance for credit losses for purchased assets with credit deterioration; 2) prepayment assumptions on existing troubled debt restructurings; 3) extension of disclosure relief for accrued interest receivable balances; and 4) expected credit losses on collateralized financial assets. The adoption of ASU 2019-11 is concurrent with ASU 2016-13 and, adoption of these amendments on January 1, 2020, did not have a significant impact on the Company's Consolidated Financial Statements.
Fair Value Measurements
In August 2018, the FASB issued guidance within ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments within ASU 2018-13 remove, modify, and supplement the disclosure requirements for fair value measurements. Disclosure requirements that were removed include: 1) the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; 2) the policy for timing of transfers between levels; and 3) the valuation processes for Level 3 fair value measurements. The amendments clarify that the measurement uncertainty disclosure is intended to communicate information about the uncertainty in measurement as of the reporting date. Additional disclosure requirements include: 1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and 2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. With the exception of the above additional disclosure requirements, which will be applied prospectively, all other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments in this ASU did not have a significant impact on the Company's Consolidated Financial Statements.
Internal-Use Software
In August 2018, the FASB issued guidance within ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments in this Update require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments in this Update also require that the capitalized implementation costs of a hosting arrangement that is a service contract be expensed over the term of the hosting arrangement. Presentation requirements include: 1) expense related to the capitalized implementation costs should be presented in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement; 2) payments for capitalized implementation costs in the statement of cash flows should be classified in the same manner as payments made for fees associated with the hosting element; and 3) capitalized implementation costs in the statement of financial position should be presented in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The adoption of this guidance did not have a significant impact on the Company's Consolidated Financial Statements.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management's estimates and judgments are ongoing and are based on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from those estimates and assumptions used in the Consolidated Financial Statements and related notes. Material estimates that are susceptible to significant changes in the near term, particularly to the extent that economic conditions worsen or persist longer than expected in an adverse state, relate to: the determination of the allowance for credit losses; certain assets and liabilities carried at fair value; and accounting for income taxes.
Principles of consolidation
As of December 31, 2020, WAL has the following significant wholly-owned subsidiaries: WAB and eight unconsolidated subsidiaries used as business trusts in connection with the issuance of trust-preferred securities.
The Bank has the following significant wholly-owned subsidiaries: WABT, which holds certain investment securities, municipal and nonprofit loans, and leases; WA PWI, which holds interests in certain limited partnerships invested primarily in low income housing tax credits and small business investment corporations; Helios Prime, which holds interests in certain limited partnerships invested in renewable energy projects; and BW Real Estate, Inc., which operates as a real estate investment trust and holds certain of WAB's real estate loans and related securities.
The Company does not have any other significant entities that should be consolidated. All significant intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts reported in prior periods may have been reclassified in the Consolidated Financial Statements to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks (including cash items in process of clearing), and federal funds sold. Cash flows from loans originated by the Company and customer deposit accounts are reported net.
The Company maintains deposit accounts with other banks, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Cash reserve requirements
Effective on March 26, 2020, the Board of Governors of the Federal Reserve System reduced the reserve requirement ratios to zero percent. Prior to this decision, depository institutions were required by law to maintain reserves against their transaction deposits. The Company's total reserve balance was approximately $164.1 million as of December 31, 2019.
Investment securities
Investment securities include debt and equity securities. Debt securities may be classified as HTM, AFS, or trading. The appropriate classification is initially decided at the time of purchase. Securities classified as HTM are those debt securities that the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or general economic conditions. The sale of an HTM security within three months of its maturity date or after the majority of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure. Securities classified as AFS are securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.
HTM securities are carried at amortized cost. AFS securities are carried at their estimated fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. When AFS debt securities are sold, the unrealized gains or losses are reclassified from OCI to non-interest income. Trading securities are carried at their estimated fair value, with changes in fair value reported in earnings as part of non-interest income.
Equity securities are carried at their estimated fair value, with changes in fair value reported in earnings as part of non-interest income.
Interest income is recognized based on the coupon rate and includes the amortization of purchase premiums and the accretion of purchase discounts. Premiums and discounts on investment securities are generally amortized or accreted over the contractual life of the security using the interest method. For the Company's mortgage-backed securities, amortization or accretion of premiums or discounts are adjusted for anticipated prepayments. Gains and losses on the sale of investment securities are recorded on the trade date and determined using the specific identification method.
A debt security is placed on nonaccrual status at the time its principal or interest payments become 90 days past due. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.
Allowance for credit losses on investment securities
On January 1, 2020, the Company adopted the amendments within ASU 2016-13, which replaces the legacy US GAAP OTTI model with a credit loss model. The credit loss model under ASC 326-20, applicable to HTM debt securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased. The Company measures expected credit losses on its HTM debt securities on a collective basis by major security type. The Company's HTM securities portfolio consists of low income housing tax-exempt bonds, which share similar risk characteristics with the Company's CRE, non-owner occupied or construction and land loan pools, given the similarity in underlying assets or collateral. Accordingly, expected credit losses on HTM securities are estimated using the same models and approaches as these loan pools, which utilize risk parameters (probability of default, loss given default, and exposure at default) in the measurement of expected credit losses. The historical data used to estimate probability of default and severity of loss in the event of default is derived or obtained from internal and external sources and adjusted for the expected effects of reasonable and supportable
forecasts over the expected lives of the securities on those historical losses. Accrued interest receivable on the HTM securities, which is included in other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses.
The credit loss model under ASC 326-30, applicable to AFS debt securities, requires recognition of credit losses through an allowance account, but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. For AFS debt securities, a decline in fair value due to credit loss results in recognition of an allowance for credit losses. Impairment may result from credit deterioration of the issuer or collateral underlying the security. The assessment of determining if a decline in fair value resulted from a credit loss is performed at the individual security level. Among other factors, the Company considers: 1) the extent to which the fair value is less than the amortized cost basis; 2) the financial condition and near term prospects of the issuer, including consideration of relevant financial metrics or ratios of the issuer; 3) any adverse conditions related to an industry or geographic area of an issuer; 4) any changes to the rating of the security by a rating agency; and 5) any past due principal or interest payments from the issuer. If an assessment of the above factors indicates that a credit loss exists, the Company records an allowance for credit losses for the excess of the amortized cost basis over the present value of cash flows expected to be collected, limited to the amount that the security's fair value is less than its amortized cost basis. Subsequent changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized in earnings. Any interest received after the security has been placed on nonaccrual status is recognized on a cash basis. Accrued interest receivable on AFS securities, which is included in other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses.
For each AFS security in an unrealized loss position, the Company also considers: 1) its intent to retain the security until anticipated recovery of the security's fair value; and 2) whether it is more-likely-than not that the Company would be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security is written down to its fair value and the write-down is charged against the allowance for credit losses with any incremental impairment recorded in earnings.
Writeoffs are made through reversal of the allowance for credit losses and direct writeoff of the amortized cost basis of the AFS security. The Company considers the following events to be indicators that a writeoff should be taken: 1) bankruptcy of the issuer; 2) significant adverse event(s) affecting the issuer in which it is improbable for the issuer to make its remaining payments on the security; and 3) significant loss of value of the underlying collateral behind a security. Recoveries on debt securities, if any, are recorded in the period received.
Restricted stock
WAB is a member of the Federal Reserve System and, as part of its membership, is required to maintain stock in the FRB in a specified ratio to its capital. In addition, WAB is a member of the FHLB system and, accordingly, maintains an investment in capital stock of the FHLB based on the borrowing capacity used. These investments are considered equity securities with no actively traded market. Therefore, the shares are considered restricted investment securities. These investments are carried at cost, which is equal to the value at which they may be redeemed. The dividend income received from the stock is reported in interest income. The Company conducts a periodic review and evaluation of its restricted stock to determine if any impairment exists. No impairment has been recorded to date.
Loans held for sale
Loans held for sale consist of loans that the Company originates (or acquires) and intends to sell. These loans are carried at the lower of aggregate cost or fair value. Fair value is determined based on quoted fair market values or, when not available, discounted cash flows or appraisals of underlying collateral or the credit quality of the borrower. Gains and losses on the sale of loans are recognized pursuant to ASC 860, Transfers and Servicing. Interest income on these loans is accrued daily and loan origination fees and costs are deferred and included in the cost basis of the loan. The Company issues various representations and warranties associated with these loan sales. The Company has not experienced any losses as a result of these representations and warranties.
Loans held for investment
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the amount of unpaid principal, adjusted for unamortized net deferred fees and costs, premiums and discounts, and writeoffs. In addition, the amortized cost of loans subject to a fair value hedge are adjusted for changes in value attributable to the effective portion of the hedged benchmark interest rate risk.
The Company may also purchase loans or acquire loans through a business combination. At the purchase or acquisition date, loans are evaluated to determine if there has been more than insignificant credit deterioration since origination. Loans that have
experienced more than insignificant credit deterioration since origination are referred to as PCD loans. In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, the Company takes into consideration loan grades, loan-to-values greater than policy limits, past due and nonaccrual status, and TDR loans. The Company may also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or band, probability of default levels, number of times past due, and standard deviations corresponding to FICO score or band. The initial estimate of credit losses on PCD loans is added to the purchase price on the acquisition date to establish the initial amortized cost basis of the loan; accordingly, the initial recognition of expected credit losses has no impact on net income. When the initial measurement of expected credit losses on PCD loans are calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool. Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan. Subsequent changes to the allowance for credit losses on PCD loans are recorded through the provision for credit losses. For purchased loans that are not deemed to have experienced more than insignificant credit deterioration since origination, any discounts or premiums included in the purchase price are accreted (or amortized) over the contractual life of the individual loan. For additional information, see "Note 3. Loans, Leases and Allowance for Credit Losses" of these Notes to Consolidated Financial Statements.
In applying the effective yield method to loans, the Company generally applies the contractual method whereby loan fees collected for the origination of loans less direct loan origination costs (net of deferred loan fees), as well as premiums and discounts and certain purchase accounting adjustments, are amortized over the contractual life of the loan through interest income. If a loan has scheduled payments, the amortization of the net deferred loan fee is calculated using the interest method over the contractual life of the loan. If a loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan commitment. Commitment fees based on a percentage of a customer’s unused line of credit and fees related to standby letters of credit are recognized over the commitment period. When loans are repaid, any remaining unamortized balances of premiums, discounts, or net deferred fees are recognized as interest income.
Conversely, with respect to loans originated under the PPP, the Company incorporates projected prepayments in calculating effective yield. As a result, net deferred fees are accreted into interest income faster than would be the case when applying the contractual method based upon the timing and amount of estimated forgiven loan balances. The Company expects that a majority of PPP loans will qualify for forgiveness under the SBA program, based on requested loan amounts largely representing qualifying expenses at the time of application.
Nonaccrual loans
When a borrower discontinues making payments as contractually required by the note, the Company must determine whether it is appropriate to continue to accrue interest. The Company ceases accruing interest income when the loan has become delinquent by more than 90 days or when management determines that the full repayment of principal and collection of interest according to contractual terms is no longer likely. Past due status is based on the contractual terms of the loan. The Company may decide to continue to accrue interest on certain loans more than 90 days delinquent if the loans are well secured by collateral and in the process of collection.
For all loan types, when a loan is placed on nonaccrual status, all interest accrued but uncollected is reversed against interest income in the period in which the status is changed, and the Company makes a loan-level decision to apply either the cash basis or cost recovery method. The Company may recognize income on a cash basis when a payment is received and only for those nonaccrual loans for which the collection of the remaining principal balance is not in doubt. Under the cost recovery method, subsequent payments received from the customer are applied to principal and generally no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Troubled Debt Restructured Loans
A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The evaluation is performed under the Company's internal underwriting policy. The loan terms that may be modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. A TDR loan may be returned to accrual status when the loan is brought current, has performed in accordance with the contractual
restructured terms for a reasonable period of time (generally six months), and the ultimate collectability of the total contractual restructured principal and interest is no longer in doubt. Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.
The CARES Act, signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.
Credit quality indicators
Loans are regularly reviewed to assess credit quality indicators and to determine appropriate loan classification and grading in accordance with applicable bank regulations. The Company’s risk rating methodology assigns risk ratings ranging from 1 to 9, where a higher rating represents higher risk. The Company differentiates its loan segments based on shared risk characteristics for which expected credit loss is measured on a pool basis.
The nine risk rating categories can be generally described by the following groupings for loans:
"Pass" (grades 1 through 5): The Company has five pass risk ratings, which represent a level of credit quality that ranges from no well-defined deficiency or weakness to some noted weakness; however, the risk of default on any loan classified as pass is expected to be remote. The five pass risk ratings are described below:
Minimal risk. These consist of loans that are fully secured either with cash held in a deposit account at the Bank or by readily marketable securities with an acceptable margin based on the type of security pledged.
Low risk. These consist of loans with a high investment grade rating equivalent.
Modest risk. These consist of loans where the credit facility greatly exceeds all policy requirements or with policy exceptions that are appropriately mitigated. A secondary source of repayment is verified and considered sustainable. Collateral coverage on these loans is sufficient to fully cover the debt as a tertiary source of repayment. Debt of the borrower is low relative to borrower’s financial strength and ability to pay.
Average risk. These consist of loans where the credit facility meets or exceeds all policy requirements or with policy exceptions that are appropriately mitigated. A secondary source of repayment is available to service the debt. Collateral coverage is more than adequate to cover the debt. The borrower exhibits acceptable cash flow and moderate leverage.
Acceptable risk. These consist of loans with an acceptable primary source of repayment, but a less than preferable secondary source of repayment. Cash flow is adequate to service debt, but there is minimal excess cash flow. Leverage is moderate or high.
"Special mention" (grade 6): Generally these are assets that possess potential weaknesses that warrant management's close attention. These loans may involve borrowers with adverse financial trends, higher debt-to-equity ratios, or weaker liquidity positions, but not to the degree of being considered a “problem loan” where risk of loss may be apparent. Loans in this category are usually performing as agreed, although there may be non-compliance with financial covenants.
"Substandard" (grade 7): These assets are characterized by well-defined credit weaknesses and carry the distinct possibility that the Company will sustain some loss if such weakness or deficiency is not corrected. All loans 90 days or more past due and all loans on nonaccrual status are considered at least "Substandard," unless extraordinary circumstances would suggest otherwise.
"Doubtful" (grade 8): These assets have all the weaknesses inherent in those classified as "Substandard" with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable, but because of certain known factors that may work to the advantage and strengthening of the asset (for example, capital injection, perfecting liens on additional collateral and refinancing plans), classification as an estimated loss is deferred until a more precise status may be determined. Due to the high probability of loss, loans classified as "Doubtful" are placed on nonaccrual status.
"Loss" (grade 9): These assets are considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.
Allowance for credit losses on loans
Prior to January 1, 2020, the allowance for credit losses on loans was based on incurred credit losses in accordance with accounting policies disclosed in "Note 1. Summary of Significant Accounting Policies" in the accompanying Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
On January 1, 2020, the Company adopted the amendments within ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets carried at amortized cost from an incurred loss model to an expected loss model. The discussion below reflects the current expected credit loss model methodology. Credit risk is inherent in the business of extending loans and leases to borrowers and is continuously monitored by management and reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of life-of-loan losses for the Company's loans held for investment. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of a loan to present the net amount expected to be collected on the loan. Accrued interest receivable on loans, which is included in other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses. Expected recoveries of amounts previously written off and expected to be written off are included in the valuation account and may not exceed the aggregate of amounts previously written off and expected to be written off. The Company formally re-evaluates and establishes the appropriate level of the allowance for credit losses on a quarterly basis.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio or particular segments of the loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance for credit losses and credit loss expense in those future periods. The allowance level is influenced by loan volumes, mix, loan performance metrics, asset quality characteristics, delinquency status, historical credit loss experience, and the inputs and assumptions in economic forecasts, such as macroeconomic inputs, length of reasonable and supportable forecast periods, and reversion methods. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans and; second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.
Loans that do not share risk characteristics with other loans
Loans that do not share risk characteristics with other loans are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. These loans consist of loans with unique features or loans that no longer share risk characteristics with other pooled loans. The process for determining whether a loan should be evaluated on an individual basis begins with determination of credit rating. All loans graded substandard or worse and all PCD loans, irrespective of credit rating, are assigned a reserve based on an individual evaluation. For these loans, the allowance is based primarily on the fair value of the underlying collateral, utilizing independent third-party appraisals.
Loans that share similar risk characteristics with other loans
In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan segments. The Company's primary portfolio segments have changed due to adoption of the amendments within ASU 2016-13 to align with the methodology applied in estimating the allowance for credit losses under CECL. Loans are designated into loan segments based on loans pooled by product types, business lines, and similar risk characteristics or areas of risk concentration. Accordingly, the loan portfolio segments discussed below are based upon CECL-defined shared risk characteristics and are not comparable to the segments reported prior to adoption of the new accounting guidance.
In determining the allowance for credit losses, the Company derives an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters (probability of default, loss given default, and exposure at default), which are derived from various vendor models, internally-developed statistical models, or non-statistical estimation approaches. Probability of default is projected in these models or estimation approaches using multiple economic scenarios, whose outcomes are weighted based on the Company's economic outlook and were developed to incorporate relevant information about past events, current conditions, and reasonable and supportable forecasts. With the exception of the Company's residential loan segment, the Company's PD models share a common definition of default, which include loans that are 90 days past due, on nonaccrual status, have a writeoff, or obligor bankruptcy. Input reversion is used for all loan segment models, except for the
commercial and industrial and CRE, owner-occupied loan segments. Output reversion is used for the commercial and industrial and CRE, owner-occupied segments by incorporating, after the forecast period, a one-year linear reversion to the long-term reversion rate in year three through the remaining life of the loans within the respective segments. LGDs are typically derived from the Company's historical loss experience. However, for the residential, warehouse lending, and municipal and nonprofit loan segments, where the Company has either zero (or near zero) losses, or has a limited loss history through the last economic downturn, certain non-modeled methodologies are employed. Factors utilized in calculating average LGD vary for each loan segment and are further described below. Exposure at default refers to the Company's exposure to loss at the time of borrower default and is calculated using an amortization schedule based on contractual loan terms, adjusted for a prepayment rate assumption. Prepayment trends are sensitive to interest rates and the macroeconomic environment. Fixed rate loans are more influenced by interest rates, whereas variable rate loans are more influenced by the macroeconomic environment. After the quantitative expected loss estimates are calculated, management then adjusts these estimates to incorporate considerations of current trends and conditions that are not captured in the quantitative loss estimates, through the use of qualitative and/or environmental factors.
The following provides credit quality indicators and risk elements most relevant in monitoring and measuring the allowance for credit losses for each of the loan portfolio segments identified:
Warehouse lending
The warehouse lending portfolio segment consists of loans that have a monitored borrowing base to mortgage companies and similar lenders and are primarily structured as commercial and industrial loans. These loans are collateralized by real estate notes and mortgages or mortgage servicing rights and the borrowing base of these loans is tightly monitored and controlled by the Company. The primary support for the loan takes the form of pledged collateral, with secondary support provided by the capacity of the financial institution. The collateral-driven nature of these loans distinguish them from traditional commercial and industrial loans. These loans are impacted by interest rate shocks, residential lending rates, prepayment assumptions, and general real estate stress. As a result of the unique loan characteristics, limited historical default and loss experience, and the collateral nature of this loan portfolio segment, the Company uses a non-modeled approach to estimate expected credit losses, leveraging grade information, grade migration history, and management judgment.
Municipal and nonprofit
The municipal and nonprofit portfolio segment consists of loans to local governments, government-operated utilities, special assessment districts, hospitals, schools and other nonprofits. These loans are generally, but not exclusively, entered into for the purpose of financing real estate investment or for refinancing existing debt and are primarily structured as commercial and industrial loans. Loans are supported by taxes or utility fees, and in some cases tax liens on real estate, operating revenue of the institution, or other collateral support the loans. Unemployment rates and the market valuation of residential properties have an effect on the tax revenues supporting these loans; however, these loans tend to be less cyclical in comparison to similar commercial loans as these loans rely on diversified tax bases. The Company uses a non-modeled approach to estimate expected credit losses, leveraging grade information and historical municipal default rates.
Tech & Innovation
The Tech & Innovation portfolio segment is comprised of commercial loans that are originated within this business line and not collateralized by real estate. The source of repayment of these loans is generally expected to be the income that is generated from the business. The models used to estimate expected credit losses for this loan segment include a combination of a vendor model and an internally-developed model. These models incorporate both market level and company-specific factors such as financial statement variables, adjusted for the current stage of the credit cycle and for the Company's loan performance data such as delinquency, utilization, maturity, and size of the loan commitment under specific macroeconomic scenarios to produce a probability of default. Macroeconomic variables include the Dow Jones Index, credit spread between the BBB Bond Yield and 10-Year Treasury Bond Yield, unemployment rate, and CBOE VIX Index quarterly high. LGD and the prepayment rate assumption for EAD for this loan segment are driven by unemployment levels.
Other commercial and industrial
The other commercial and industrial segment is comprised of commercial and industrial loans that are not originated within the Company's specialty business lines and are not collateralized by real estate. The models used to estimate expected credit losses for this loan segment is the same as those used for the Tech & Innovation portfolio segment.
Commercial real estate, owner-occupied
The CRE, owner-occupied portfolio segment is comprised of commercial loans that are collateralized by real estate, where the primary source of repayment is the business that occupies the property. These loans are typically entered into for the purpose of providing real estate finance or improvement. The primary source of repayment of these loans is the income generated by the business and where rental or sale of the property may provide secondary support for the loan. These loans are sensitive to general economic conditions as well as the market valuation of CRE properties. The probability of default estimate for this loan segment is modeled using the same model as the commercial and industrial loan segment. LGD for this loan segment is driven by property appreciation and the prepayment rate assumption for EAD is driven by unemployment levels.
Hotel Franchise Finance
The Hotel Franchise Finance segment is comprised of loans that are originated within this business line and are collateralized by real estate, where the owner is not the primary tenant. These loans are typically entered into for the purpose of financing or the improvement of commercial investment properties. The primary source of repayment of these loans are the rents paid by tenants and where the sale of the property may provide secondary support for the loan. These loans are sensitive to the market valuation of CRE properties, rental rates, and general economic conditions. The vendor model used to estimate expected credit losses for this loan segment projects probabilities of default and exposure at default based on multiple macroeconomic scenarios by modeling how macroeconomic conditions affect the commercial real estate market. Real estate market factors utilized in this model include vacancy rate, rental growth rate, net operating income growth rate, and commercial property price changes for each specific property type. The model then incorporates loan and property-level characteristics including debt coverage, leverage, collateral size, seasoning, and property type. LGD for this loan segment is derived from a non-modeled approach that is driven by property appreciation and the prepayment rate assumption for EAD is driven by the property appreciation for fixed rate loans and unemployment levels for variable rate loans.
Other commercial real estate, non-owner occupied
The other commercial real estate, non-owner occupied segment is comprised of loans that are not originated within the Company's specialty business lines and are collateralized by real estate, where the owner is not the primary tenant. The model used to estimate expected credit losses for this loan segment is the same as the model used for the Hotel Franchise Finance portfolio segment.
Residential
The residential loan portfolio segment is comprised of loans collateralized primarily by first liens on 1-4 residential family properties and home equity lines of credit that are collateralized by either first liens or junior liens on residential properties. The primary source of repayment of these loans is the value of the property and the capacity of the owner to make payments on the loan. Unemployment rates and the market valuation of residential properties will impact the ultimate repayment of these loans. The residential mortgage loan model is a vendor model that projects probability of default, loss given default severity, prepayment rate, and exposure at default to calculate expected losses. The model is intended to capture the borrower's payment behavior during the lifetime of the residential loan by incorporating loan level characteristics such as loan type, coupon, age, loan-to-value, and credit score and economic conditions such as Home Price Index, interest rate, and unemployment rate. A default event for residential loans is defined as 60 days or more past due, with property appreciation as the driver for LGD results. The prepayment rate assumption for exposure at default for residential loans is based on industry prepayment history.
Probability of default for HELOCs is derived from an internally-developed model that projects PD by incorporating loan level information such as FICO score, lien position, balloon payments, and macroeconomic conditions such as property appreciation. LGD for this loan segment is driven by property appreciation and lien position. Exposure at default for HELOCs is calculated based on utilization rate assumptions using a non-modeled approach and incorporates management judgment.
Construction and land development
The construction and land portfolio segment is comprised of loans collateralized by land or real estate, which are entered into for the purpose of real estate development. The primary source of repayment of loans is the eventual sale or refinance of the completed project and where claims on the property provide secondary support for the loan. These loans are impacted by the market valuation of CRE and residential properties and general economic conditions that have a higher sensitivity to real estate markets compared to other real estate loans. Default risk of a property is driven by loan-specific drivers, including loan-to-value, maturity, origination date, and the MSA in which the property is located, among other items. The variables used in the internally-developed model include loan level drivers such as origination loan-to-value, loan maturity, and macroeconomic drivers such as property appreciation, MSA level unemployment rate, and national GDP growth. LGD for this loan segment is
driven by property appreciation. The prepayment rate assumption for EAD is driven by the property appreciation for fixed rate loans and unemployment levels for variable rate loans.
Other
This portfolio consists of those loans not already captured in one of the aforementioned loan portfolio segments, which include, but may not be limited to, overdraft lines for treasury services, credit cards, consumer loans not collateralized by real estate, and small business loans collateralized by residential real estate. The consumer and small business loans are supported by the capacity of the borrower and the valuation of any collateral. General economic factors such as unemployment will have an effect on these loans. The Company uses a non-modeled approach to estimate expected credit losses, leveraging average historical default rates. LGD for this loan segment is driven by unemployment levels and lien position. The prepayment rate assumption for EAD is driven by the BBB corporate spread for fixed rate loans and unemployment levels for variable rate loans.
Transfers of financial assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed surrendered when the: 1) assets have been isolated from the Company; 2) transferee obtains the right to pledge or exchange the transferred assets; and 3) Company no longer maintains effective control over the transferred assets through an agreement to repurchase the transferred assets before maturity.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the term of the lease or the estimated life of the improvement, whichever is shorter. Depreciation and amortization is computed using the following estimated lives:
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Years
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Bank premises
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31
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Furniture, fixtures, and equipment
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3 - 10
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Leasehold improvements (1)
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3 - 10
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(1)Depreciation is recorded over the lesser of the relevant 3 to 10-year term or the remaining life of the lease.
Management periodically reviews premises and equipment in order to determine if facts and circumstances suggest that the value of an asset is not recoverable.
Off-balance sheet credit exposures, including unfunded loan commitments
The Company maintains a separate allowance for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, financial guarantees, and letters of credit, which is classified in other liabilities on the Consolidated Balance Sheet. The allowance for credit losses on off-balance sheet credit exposures is adjusted through increases or decreases to the provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, an estimate of exposure at default that is derived from utilization rate assumptions using a non-modeled approach, and PD and LGD estimates that are derived from the same models and approaches for the Company's other loan portfolio segments described above as these unfunded commitments share similar risk characteristics with these loan portfolio segments. No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.
Leases (lessee)
At inception, contracts are evaluated to determine whether the contract constitutes a lease agreement. For contracts that are determined to be an operating lease, a corresponding ROU asset and operating lease liability are recorded in separate line items on the Consolidated Balance Sheet. A ROU asset represents the Company’s right to use an underlying asset during the lease term and a lease liability represents the Company’s commitment to make contractually obligated lease payments. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease and are based on the present value of lease payments over the lease term. The measurement of the operating lease ROU asset includes any lease payments made and is reduced by lease incentives that are paid or are payable to the Company. Variable lease payments that depend on an index or rate such as the Consumer Price Index are included in lease payments based on the rate in effect at the commencement date of the lease. Lease payments are recognized on a straight-line basis as part of occupancy expense over the lease term.
As the rate implicit in the lease is not readily determinable, the Company's incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable FHLB collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s Consolidated Balance Sheet, but rather, lease expense is recognized over the lease term on a straight-line basis. The Company’s lease agreements may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the options will be exercised.
In addition to the package of practical expedients, the Company also elected the practical expedient that allows lessees to make an accounting policy election to not separate non-lease components from the associated lease component, and instead account for them all together as part of the applicable lease component. This practical expedient can be elected separately for each underlying class of asset. The majority of the Company’s non-lease components such as common area maintenance, parking, and taxes are variable, and are expensed as incurred. Variable payment amounts are determined in arrears by the landlord depending on actual costs incurred.
Goodwill and other intangible assets
The Company records as goodwill the excess of the purchase price in a business combination over the fair value of the identifiable net assets acquired in accordance with applicable guidance. The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable. The Company can first elect to assess, through qualitative factors, whether it is more likely than not that goodwill is impaired. If the qualitative assessment indicates potential impairment, a quantitative impairment test is necessary. If, based on the quantitative test, a reporting unit's carrying amount exceeds its fair value, a goodwill impairment charge for this difference is recorded to current period earnings as non-interest expense.
The Company’s intangible assets consist primarily of core deposit intangible assets that are amortized over periods ranging from five to 10 years. The Company considers the remaining useful lives of its core deposit intangible assets each reporting period, as required by ASC 350, Intangibles—Goodwill and Other, to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible asset’s remaining useful life has changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company has not revised its estimates of the useful lives of its core deposit intangibles during the years ended December 31, 2020, 2019, or 2018.
Low income housing and renewable energy tax credits
The Company holds ownership interests in limited partnerships and limited liability companies that invest in affordable housing and renewable energy projects. These investments are designed to generate a return primarily through the realization of federal tax credits and deductions, which may be subject to recapture by taxing authorities if compliance requirements are not met. The Company accounts for its low income housing investments using the proportional amortization method. Renewable energy projects are accounted for under the deferral method, whereby the investment tax credits are reflected as an immediate reduction in income taxes payable and the carrying value of the asset in the period that the investment tax credits are claimed. See "Note 14. Income Taxes" of these Notes to Consolidated Financial Statements for further discussion.
The Company evaluates its interests in these entities to determine if it has a variable interest and whether it is required to consolidate these entities. A variable interest is an investment or other interest that will absorb portions of an entity's expected losses or receive portions of the entity's expected residual returns. If the Company determines that it has a variable interest in an entity, it evaluates whether such interest is in a variable interest entity. A VIE is broadly defined as an entity where either: 1) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance or 2) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support. The Company is required to consolidate any VIE when it is determined to be the primary beneficiary of the VIE's operations.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has both the power to direct the activities of a VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company’s assessment of whether it is the primary beneficiary of a VIE includes consideration of various factors such as: 1) the Company's ability to direct the activities that most significantly impact the entity's economic performance; 2) its form of ownership interest; 3) its representation on the entity's governing body; 4) the size and seniority of its investment; and 5) its ability and the rights of other investors to participate in policy making decisions and to replace the manager of and/or liquidate the entity. The Company is required to evaluate whether to consolidate a VIE both at inception and on an ongoing basis as changes in circumstances require reconsideration.
The Company’s investments in qualified affordable housing and renewable energy projects meet the definition of a VIE as the entities are structured such that the limited partner investors lack substantive voting rights. The general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Accordingly, as a limited partner, the Company is not the primary beneficiary and is not required consolidate these entities.
Bank owned life insurance
BOLI is carried at its cash surrender value with changes recorded in other non-interest income in the Consolidated Income Statements. The face amount of the underlying policies including death benefits was $465.8 million and $359.0 million as of December 31, 2020 and 2019, respectively. There are no loans offset against cash surrender values, and there are no restrictions as to the use of proceeds.
Customer repurchase agreements
The Company enters into repurchase agreements with customers, whereby it pledges securities against overnight investments made from the customer’s excess collected funds. The Company records these at the amount of cash received in connection with the transaction.
Stock compensation plans
The Company has the Incentive Plan, as amended, which is described more fully in "Note 10. Stockholders' Equity" of these Notes to Consolidated Financial Statements. Compensation expense on non-vested restricted stock awards is based on the fair value of the award on the measurement date which, for the Company, is the date of the grant and is recognized ratably over the service period of the award. Forfeitures are estimated at the time of the award grant and revised in subsequent periods if actual forfeitures differ from those estimates. The fair value of non-vested restricted stock awards is the market price of the Company’s stock on the date of grant.
The Company's performance stock units have a cumulative EPS target and a TSR performance measure component. The TSR component is a market-based performance condition that is separately valued as of the date of the grant. A Monte Carlo valuation model is used to determine the fair value of the TSR performance metric, which simulates potential TSR outcomes over the performance period and determines the payouts that would occur in each scenario. The resulting fair value of the TSR component is based on the average of these results. Compensation expense related to the TSR component is based on the fair value determination on the date of the grant and is not subsequently revised based on actual performance. Compensation expense on the EPS component for these awards is based on the fair value (market price of the Company's stock on the date of the grant) of the award. Compensation expense related to both the TSR and EPS components is recognized ratably over the service period of the award.
See "Note 10. Stockholders' Equity" of these Notes to Consolidated Financial Statements for further discussion of stock awards.
Dividends
WAL is a legal entity separate and distinct from its subsidiaries. As a holding company with limited significant assets other than the capital stock of its subsidiaries, WAL's ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from its subsidiaries. The Company's subsidiaries' ability to pay dividends to WAL is subject to, among other things, their individual earnings, financial condition, and need for funds, as well as federal and state governmental policies and regulations applicable to WAL and each of those subsidiaries, which limit the amount that may be paid as dividends without prior approval. In addition, the terms and conditions of other securities the Company issues may restrict its ability to pay dividends to holders of the Company's common stock. For example, if any required payments on outstanding trust preferred securities are not made, WAL would be prohibited from paying cash dividends on its common stock.
Treasury shares
The Company separately presents treasury shares, which represent shares surrendered to the Company equal in value to the statutory payroll tax withholding obligations arising from the vesting of employee restricted stock awards. Treasury shares are carried at cost.
Common stock repurchases
The Company has previously adopted common stock repurchase programs pursuant to which the Company has repurchased shares of its outstanding common stock, the most recent of which expired in December 2020. All shares repurchased under the plan were retired upon settlement. The Company has elected to allocate the excess of the repurchase price over the par value of its common stock between APIC and retained earnings, with the portion allocated to APIC limited to the amount of APIC that was recorded at the time that the shares were initially issued, which was calculated on a last-in, first-out basis.
Derivative financial instruments
The Company uses interest rate swaps to mitigate interest-rate risk associated with changes to the fair value of certain fixed-rate financial instruments (fair value hedges).
The Company recognizes derivatives as assets or liabilities on the Consolidated Balance Sheet at their fair value in accordance with ASC 815, Derivatives and Hedging. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk, are considered fair value hedges.
Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of derivatives not considered to be highly effective in hedging the change in fair value of the hedged item are recognized in earnings as non-interest income during the period of the change.
The Company documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction after the derivative contract is executed. At inception, the Company performs a quantitative assessment to determine whether the derivatives used in hedging transactions are highly effective (as defined in the guidance) in offsetting changes in the fair value of the hedged item. Retroactive effectiveness is assessed, as well as the continued expectation that the hedge will remain effective prospectively. After the initial quantitative assessment is performed, on a quarterly basis, the Company performs a qualitative hedge effectiveness assessment. This assessment takes into consideration any adverse developments related to the counterparty's risk of default and any negative events or circumstances that affect the factors that originally enabled the Company to assess that it could reasonably support, qualitatively, an expectation that the hedging relationship was and will continue to be highly effective. The Company discontinues hedge accounting prospectively when it is determined that a hedge is no longer highly effective. When hedge accounting is discontinued on a fair value hedge that no longer qualifies as an effective hedge, the derivative instrument continues to be reported at fair value on the Consolidated Balance Sheet, but the carrying amount of the hedged item is no longer adjusted for future changes in fair value. The adjustment to the carrying amount of the hedged item that existed at the date hedge accounting is discontinued is amortized over the remaining life of the hedged item into earnings.
Derivative instruments that are not designated as hedges, so called free-standing derivatives, are reported on the Consolidated Balance Sheet at fair value and the changes in fair value are recognized in earnings as non-interest income during the period of change.
The Company may in the normal course of business purchase a financial instrument or originate a loan that contains an embedded derivative instrument. Upon purchasing the instrument or originating the loan, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value. However, in cases where the host contract is measured at fair value, with changes in fair value reported in current earnings, or the Company is unable to reliably identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the Consolidated Balance Sheet at fair value and is not designated as a hedging instrument.
Off-balance sheet instruments
In the ordinary course of business, the Company has entered into off-balance sheet financial instrument arrangements consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the Consolidated Financial Statements when they are funded. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the Consolidated Balance Sheet. Losses could be experienced when the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and, in certain instances, may be unconditionally cancelable. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.
The Company also has off-balance sheet arrangements related to its derivative instruments. Derivative instruments are recognized in the Consolidated Financial Statements at fair value and their notional values are carried off-balance sheet. See "Note 8. Derivatives and Hedging Activities" of these Notes to Consolidated Financial Statements for further discussion.
Business combinations
Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes all of the acquired assets and assumed liabilities at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including identified intangible assets, exceeds the purchase price, a bargain purchase gain is recognized. Changes to estimated fair values from a business combination are recognized as an adjustment to goodwill during the measurement period and are recognized in the proper reporting period in which the adjustment amounts are determined. Results of operations of an acquired business are included in the Consolidated Income Statement from the date of acquisition. Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred.
Fair values of financial instruments
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. ASC 820, Fair Value Measurement, establishes a framework for measuring fair value and a three-level valuation hierarchy for disclosure of fair value measurement, and also sets forth disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The Company uses various valuation approaches, including market, income, and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would consider in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, as follows:
•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
•Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, volatilities, etc.) or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market.
•Level 3 - Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models, and similar techniques.
The availability of observable inputs varies based on the nature of the specific financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires
more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair value is a market-based measure considered from the perspective of a market participant who may purchase the asset or assume the liability, rather than an entity-specific measure. When market assumptions are available, ASC 820 requires that the Company make assumptions regarding the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.
ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at December 31, 2020 and 2019. The estimated fair value amounts for December 31, 2020 and 2019 have been measured as of period-end, and have not been re-evaluated or updated for purposes of these Consolidated Financial Statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at period-end.
The information in "Note 16. Fair Value Accounting" of these Notes to Consolidated Financial Statements should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.
Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be meaningful.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash, cash equivalents, and restricted cash
The carrying amounts reported on the Consolidated Balance Sheet for cash and due from banks approximate their fair value.
Money market investments
The carrying amounts reported on the Consolidated Balance Sheet for money market investments approximate their fair value.
Investment securities
The fair values of CRA investments, exchange-listed preferred stock, trust preferred securities, and certain corporate debt securities are based on quoted market prices and are categorized as Level 1 in the fair value hierarchy.
The fair values of debt securities are primarily determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, for example, yield curves, credit ratings, and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy. For a small subset of securities, other pricing sources are used, including observed prices on publicly-traded securities and dealer quotes.
Restricted stock
WAB is a member of the Federal Reserve System and the FHLB and, accordingly, maintains investments in the capital stock of the FRB and the FHLB. These investments are carried at cost since no ready market exists for them, and they have no quoted market value. The Company conducts a periodic review and evaluation of its restricted stock to determine if any impairment exists. The fair values of these investments have been categorized as Level 2 in the fair value hierarchy.
Loans
The fair value of loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality and adjustments that the Company believes a market participant would consider in determining fair value based on a third-party independent valuation. As a result, the fair value for loans is categorized as Level 3 in the fair value hierarchy.
Accrued interest receivable and payable
The carrying amounts reported on the Consolidated Balance Sheet for accrued interest receivable and payable approximate their fair values.
Derivative financial instruments
All derivatives are recognized on the Consolidated Balance Sheets at their fair value. The fair value for derivatives is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters. As a result, the fair values have been categorized as Level 2 in the fair value hierarchy.
Deposits
The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (that is, their carrying amount), as these deposits do not have a contractual term. The carrying amount for variable rate deposit accounts approximates their fair value. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on these deposits. The fair value measurement of the deposit liabilities is categorized as Level 2 in the fair value hierarchy.
FHLB advances and customer repurchase agreements
The fair values of the Company’s borrowings are estimated using discounted cash flow analyses, based on the market rates for similar types of borrowing arrangements. The FHLB advances and customer repurchase agreements have been categorized as Level 2 in the fair value hierarchy due to their short durations.
Subordinated debt
The fair value of subordinated debt is based on the market rate for the respective subordinated debt security. Subordinated debt has been categorized as Level 2 in the fair value hierarchy.
Junior subordinated debt
Junior subordinated debt is valued based on a discounted cash flow model which uses as inputs Treasury Bond rates and the 'BB' and 'BBB' rated financial indexes. Junior subordinated debt has been categorized as Level 3 in the fair value hierarchy.
Off-balance sheet instruments
The fair value of the Company’s off-balance sheet instruments (lending commitments and letters of credit) is based on quoted fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, and the counterparties’ credit standing.
Income taxes
The Company is subject to income taxes in the United States and files a consolidated federal income tax return with all of its subsidiaries, with the exception of BW Real Estate, Inc. Deferred income taxes are recorded to reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their income tax bases using enacted tax rates that are expected to be in effect when the taxes are actually paid or recovered. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Net deferred tax assets are recorded to the extent that these assets will more-likely-than-not be realized. In making these determinations, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, tax planning strategies, projected future taxable income, and recent operating results. If it is determined that deferred income tax assets to be realized in the future are in excess of their net recorded amount, an adjustment to the valuation allowance will be recorded, which will reduce the Company's provision for income taxes.
A tax benefit from an unrecognized tax benefit may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including related appeals or litigation, based on technical merits. Income tax benefits must meet a more-likely-than-not recognition threshold at the effective date to be recognized.
Interest and penalties related to unrecognized tax benefits are recognized as part of the provision for income taxes in the Consolidated Income Statement. Accrued interest and penalties are included in the related tax liability line with other liabilities on the Consolidated Balance Sheet. See "Note 14. Income Taxes" of these Notes to Consolidated Financial Statements for further discussion on income taxes.
Non-interest income
Non-interest income includes service charges and fees, income from equity investments, card income, foreign currency income, income from bank owned life insurance, lending related income, net gain or loss on sales of investment securities, net fair value gain or loss adjustments on assets measured at fair value, and other income. Service charges and fees consist of fees earned from performance of account analysis, general account services, and other deposit account services. These fees are recognized as the related services are provided in accordance with ASC 606, Revenue from Contracts with Customers. Income from equity investments includes gains on equity warrant assets, SBIC equity income, and success fees. Card income includes fees earned from customer use of debit and credit cards, interchange income from merchants, and international charges. Card income is generally within the scope of ASC 310, Receivables; however, certain processing transactions for merchants, such as interchange fees, are within the scope of ASC 606. Foreign currency income represents fees earned on the differential between purchases and sales of foreign currency on behalf of the Company’s clients. Income from bank owned life insurance is accounted for in accordance with ASC 325, Investments - Other. Lending related income includes fees earned from gains or losses on the sale of loans, SBA income, and letter of credit fees. Gains and losses on the sale of loans and SBA income are recognized pursuant to ASC 860, Transfers and Servicing. Net unrealized gains or losses on assets measured at fair value represent fair value changes in equity securities and are accounted for in accordance with ASC 321, Investments - Equity Securities. Fees related to standby letters of credit are accounted for in accordance with ASC 440, Commitments. Other income includes operating lease income, which is recognized on a straight-line basis over the lease term in accordance with ASC 842, Leases. Net gain or loss on sales/valuations of repossessed and other assets is presented as a component of non-interest expense, but may also be presented as a component of non-interest income in the event that a net gain is recognized. Net gain or loss on sales of repossessed and other assets are accounted for in accordance with ASC 610, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. See "Note 22. Revenue from Contracts with Customers" of these Notes to Consolidated Financial Statements for further details related to the nature and timing of revenue recognition for non-interest income revenue streams within the scope of the standard.
2. INVESTMENT SECURITIES
The carrying amounts and fair values of investment securities at December 31, 2020 and 2019 are summarized as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized (Losses)
|
|
Fair Value
|
|
|
(in millions)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
568.8
|
|
|
$
|
43.0
|
|
|
$
|
—
|
|
|
$
|
611.8
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
CDO
|
|
$
|
0.1
|
|
|
$
|
6.8
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
CLO
|
|
146.9
|
|
|
—
|
|
|
—
|
|
|
146.9
|
|
Commercial MBS issued by GSEs
|
|
80.8
|
|
|
3.8
|
|
|
—
|
|
|
84.6
|
|
Corporate debt securities
|
|
271.1
|
|
|
4.8
|
|
|
(5.7)
|
|
|
270.2
|
|
Municipal (taxable) securities
|
|
22.0
|
|
|
0.5
|
|
|
—
|
|
|
22.5
|
|
Private label residential MBS
|
|
1,461.7
|
|
|
15.7
|
|
|
(0.5)
|
|
|
1,476.9
|
|
Residential MBS issued by GSEs
|
|
1,462.5
|
|
|
27.9
|
|
|
(3.8)
|
|
|
1,486.6
|
|
Tax-exempt
|
|
1,109.3
|
|
|
78.1
|
|
|
—
|
|
|
1,187.4
|
|
Trust preferred securities
|
|
32.0
|
|
|
—
|
|
|
(5.5)
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|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS debt securities
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|
$
|
4,586.4
|
|
|
$
|
137.6
|
|
|
$
|
(15.5)
|
|
|
$
|
4,708.5
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
CRA investments
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|
$
|
53.1
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
53.4
|
|
Preferred stock
|
|
107.0
|
|
|
7.3
|
|
|
(0.4)
|
|
|
113.9
|
|
Total equity securities
|
|
$
|
160.1
|
|
|
$
|
7.6
|
|
|
$
|
(0.4)
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|
|
$
|
167.3
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized (Losses)
|
|
Fair Value
|
|
|
(in millions)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
485.1
|
|
|
$
|
31.3
|
|
|
$
|
(0.1)
|
|
|
$
|
516.3
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
CDO
|
|
$
|
—
|
|
|
$
|
10.1
|
|
|
$
|
—
|
|
|
$
|
10.1
|
|
Commercial MBS issued by GSEs
|
|
95.1
|
|
|
0.4
|
|
|
(1.2)
|
|
|
94.3
|
|
Corporate debt securities
|
|
105.0
|
|
|
0.1
|
|
|
(5.2)
|
|
|
99.9
|
|
Municipal (taxable) securities
|
|
7.5
|
|
|
0.3
|
|
|
—
|
|
|
7.8
|
|
Private label residential MBS
|
|
1,130.0
|
|
|
3.5
|
|
|
(4.3)
|
|
|
1,129.2
|
|
Residential MBS issued by GSEs
|
|
1,406.6
|
|
|
9.3
|
|
|
(3.8)
|
|
|
1,412.1
|
|
Tax-exempt
|
|
530.7
|
|
|
24.6
|
|
|
(0.4)
|
|
|
554.9
|
|
Trust preferred securities
|
|
32.0
|
|
|
—
|
|
|
(5.0)
|
|
|
27.0
|
|
U.S. government sponsored agency securities
|
|
10.0
|
|
|
—
|
|
|
—
|
|
|
10.0
|
|
U.S. treasury securities
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Total AFS debt securities
|
|
$
|
3,317.9
|
|
|
$
|
48.3
|
|
|
$
|
(19.9)
|
|
|
$
|
3,346.3
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
52.8
|
|
|
$
|
—
|
|
|
$
|
(0.3)
|
|
|
$
|
52.5
|
|
Preferred stock
|
|
82.5
|
|
|
3.9
|
|
|
(0.2)
|
|
|
86.2
|
|
Total equity securities
|
|
$
|
135.3
|
|
|
$
|
3.9
|
|
|
$
|
(0.5)
|
|
|
$
|
138.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with carrying amounts of approximately $778.0 million and $962.5 million at December 31, 2020 and 2019, respectively, were pledged for various purposes as required or permitted by law.
The following tables summarize the Company's AFS debt securities in an unrealized loss position at December 31, 2020 and 2019, aggregated by major security type and length of time in a continuous unrealized loss position:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Less Than Twelve Months
|
|
More Than Twelve Months
|
|
Total
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
0.1
|
|
|
$
|
17.3
|
|
|
$
|
5.6
|
|
|
$
|
94.3
|
|
|
$
|
5.7
|
|
|
$
|
111.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private label residential MBS
|
0.5
|
|
|
149.7
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
149.7
|
|
Residential MBS issued by GSEs
|
3.8
|
|
|
231.9
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
|
231.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
5.5
|
|
|
26.5
|
|
|
5.5
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS securities
|
$
|
4.4
|
|
|
$
|
398.9
|
|
|
$
|
11.1
|
|
|
$
|
120.8
|
|
|
$
|
15.5
|
|
|
$
|
519.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Less Than Twelve Months
|
|
More Than Twelve Months
|
|
Total
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
(in millions)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
$
|
0.1
|
|
|
$
|
24.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
24.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
Commercial MBS issued by GSEs
|
$
|
0.1
|
|
|
$
|
9.0
|
|
|
$
|
1.1
|
|
|
$
|
54.6
|
|
|
$
|
1.2
|
|
|
$
|
63.6
|
|
Corporate debt securities
|
—
|
|
|
—
|
|
|
5.2
|
|
|
94.8
|
|
|
5.2
|
|
|
94.8
|
|
Private label residential MBS
|
1.8
|
|
|
337.3
|
|
|
2.5
|
|
|
258.8
|
|
|
4.3
|
|
|
596.1
|
|
Residential MBS issued by GSEs
|
1.7
|
|
|
385.7
|
|
|
2.1
|
|
|
150.4
|
|
|
3.8
|
|
|
536.1
|
|
Tax-exempt
|
0.4
|
|
|
67.2
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
67.2
|
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
5.0
|
|
|
27.0
|
|
|
5.0
|
|
|
27.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS securities
|
$
|
4.0
|
|
|
$
|
799.2
|
|
|
$
|
15.9
|
|
|
$
|
585.6
|
|
|
$
|
19.9
|
|
|
$
|
1,384.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total number of AFS securities in an unrealized loss position at December 31, 2020 is 49, compared to 158 at December 31, 2019.
On January 1, 2020, the Company adopted the amendments within ASU 2016-13, which replaces the legacy US GAAP OTTI model with a credit loss model. The credit loss model under ASC 326-30, applicable to AFS debt securities, requires recognition of credit losses through an allowance account, but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. For a detailed discussion of the impact of adoption of ASU 2016-13 and information related to investment securities, including accounting policies and methodologies used to estimate the allowance for credit losses on securities, see "Note 1. Summary of Significant Accounting Policies."
Residential MBS issued by GSEs held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities prior to their anticipated recovery, no credit losses have been recognized on these securities during the year ended December 31, 2020.
Qualitative factors used in the Company's credit loss assessment of its securities that are not guaranteed by the U.S. government included consideration of any adverse conditions related to a specific security, industry, or geographic region of its securities, any credit ratings below investment grade, the payment structure of the security and the likelihood of the issuer to be able to make payments that increase in the future, and failure of the issuer to make any scheduled principal or interest payments. For the Company's corporate debt, municipal, and tax-exempt securities, the Company also considered various metrics of the issuer including days of cash on hand, the ratio of long-term debt to total assets, the net change in cash between reporting periods, and consideration of any breach in covenant requirements. For the Company's private label residential MBS, the Company also considered metrics such as securitization risk weight factor, current credit support, whether there were any mortgage principal losses resulting from defaults in payments on the underlying mortgage collateral, and the credit default rate over the last twelve months.
As of December 31, 2020, no credit losses on the Company's corporate debt securities have been recognized. The Company's corporate debt securities continue to be highly rated, issuers continue to make timely principal and interest payments, and the unrealized losses on these security portfolios primarily relate to changes in interest rates and other market conditions that are not considered to be credit-related issues. Further, the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities prior to their anticipated recovery.
The Company's private label residential MBS are non-agency collateralized mortgage obligations and primarily carry investment grade credit ratings as of December 31, 2020. These securities are secured by pools of residential mortgage loans. Credit losses have not been recognized on these securities as of December 31, 2020 as principal and interest payments on these securities continue to be made on a timely basis, credit support for these securities is considered adequate, and as the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities prior to their anticipated recovery.
The Company's trust preferred securities are investment grade and the issuers continue to make timely principal and interest payments.
Based on the qualitative factors discussed above, no allowance for credit losses for the Company's AFS debt securities has been recognized as of December 31, 2020. Prior to adoption of ASC 326, no impairment charges on the Company's AFS securities were recognized during the years ended December 31, 2019 and 2018.
The credit loss model under ASC 326-20, applicable to HTM debt securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased. The following tables present a rollforward by major security type of the allowance for credit losses for the Company's HTM debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
Balance,
|
|
|
|
Provision for Credit Losses
|
|
Writeoffs
|
|
Recoveries
|
|
Balance,
|
|
|
January 1, 2020
|
|
|
|
|
|
December 31, 2020
|
|
|
(in millions)
|
Held-to-maturity debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
2.7
|
|
|
|
|
$
|
4.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.8
|
|
Accrued interest receivable on HTM securities totaled $2.0 million at December 31, 2020 and is excluded from the estimate of credit losses.
The following tables summarize the carrying amount of the Company’s investment ratings position as of December 31, 2020 and 2019, which are updated quarterly and used to monitor the credit quality of the Company's securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
AAA
|
|
Split-rated AAA/AA+
|
|
AA+ to AA-
|
|
A+ to A-
|
|
BBB+ to BBB-
|
|
BB+ and below
|
|
Unrated
|
|
Totals
|
|
|
(in millions)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
568.8
|
|
|
$
|
568.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
CLO
|
|
—
|
|
|
—
|
|
|
139.6
|
|
|
7.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
146.9
|
|
Commercial MBS issued by GSEs
|
|
—
|
|
|
84.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84.6
|
|
Corporate debt securities
|
|
—
|
|
|
—
|
|
|
19.2
|
|
|
28.1
|
|
|
194.5
|
|
|
28.4
|
|
|
—
|
|
|
270.2
|
|
Municipal (taxable) securities
|
|
—
|
|
|
—
|
|
|
12.3
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
7.6
|
|
|
22.5
|
|
Private label residential MBS
|
|
1,385.5
|
|
|
—
|
|
|
90.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.9
|
|
|
—
|
|
|
1,476.9
|
|
Residential MBS issued by GSEs
|
|
—
|
|
|
1,486.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,486.6
|
|
Tax-exempt
|
|
44.3
|
|
|
57.3
|
|
|
454.7
|
|
|
599.3
|
|
|
—
|
|
|
—
|
|
|
31.8
|
|
|
1,187.4
|
|
Trust preferred securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26.5
|
|
|
—
|
|
|
—
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS securities (1)
|
|
$
|
1,429.8
|
|
|
$
|
1,628.5
|
|
|
$
|
715.9
|
|
|
$
|
634.8
|
|
|
$
|
223.9
|
|
|
$
|
36.2
|
|
|
$
|
39.4
|
|
|
$
|
4,708.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
—
|
|
|
$
|
27.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25.6
|
|
|
$
|
53.4
|
|
Preferred stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73.2
|
|
|
39.0
|
|
|
1.7
|
|
|
113.9
|
|
Total equity securities (1)
|
|
$
|
—
|
|
|
$
|
27.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73.2
|
|
|
$
|
39.0
|
|
|
$
|
27.3
|
|
|
$
|
167.3
|
|
(1)Where ratings differ, the Company uses an average of the available ratings by major credit agencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
AAA
|
|
Split-rated AAA/AA+
|
|
AA+ to AA-
|
|
A+ to A-
|
|
BBB+ to BBB-
|
|
BB+ and below
|
|
Unrated
|
|
Totals
|
|
|
(in millions)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
485.1
|
|
|
$
|
485.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10.1
|
|
|
$
|
—
|
|
|
$
|
10.1
|
|
Commercial MBS issued by GSEs
|
|
—
|
|
|
94.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
94.3
|
|
Corporate debt securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66.5
|
|
|
33.4
|
|
|
—
|
|
|
—
|
|
|
99.9
|
|
Municipal (taxable) securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.8
|
|
|
7.8
|
|
Private label residential MBS
|
|
1,096.9
|
|
|
—
|
|
|
30.7
|
|
|
0.1
|
|
|
0.3
|
|
|
1.2
|
|
|
—
|
|
|
1,129.2
|
|
Residential MBS issued by GSEs
|
|
—
|
|
|
1,412.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,412.1
|
|
Tax-exempt
|
|
52.6
|
|
|
2.8
|
|
|
327.6
|
|
|
171.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
554.9
|
|
Trust preferred securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27.0
|
|
|
—
|
|
|
—
|
|
|
27.0
|
|
U.S. government sponsored agency securities
|
|
—
|
|
|
10.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.0
|
|
U.S. treasury securities
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Total AFS securities (1)
|
|
$
|
1,149.5
|
|
|
$
|
1,520.2
|
|
|
$
|
358.3
|
|
|
$
|
238.5
|
|
|
$
|
60.7
|
|
|
$
|
11.3
|
|
|
$
|
7.8
|
|
|
$
|
3,346.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
—
|
|
|
$
|
25.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27.1
|
|
|
$
|
52.5
|
|
Preferred stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
82.8
|
|
|
2.1
|
|
|
1.3
|
|
|
86.2
|
|
Total equity securities (1)
|
|
$
|
—
|
|
|
$
|
25.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82.8
|
|
|
$
|
2.1
|
|
|
$
|
28.4
|
|
|
$
|
138.7
|
|
(1)Where ratings differ, the Company uses an average of the available ratings by major credit agencies.
A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. As of December 31, 2020, there were no investment securities that were past due. In addition, the Company does not have a
significant amount of investment securities on nonaccrual status or securities that are considered to be collateral-dependent as of December 31, 2020.
The amortized cost and fair value of the Company's debt securities as of December 31, 2020, by contractual maturities, are shown below. MBS are shown separately as individual MBS are comprised of pools of loans with varying maturities. Therefore, these securities are listed separately in the maturity summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Amortized Cost
|
|
Estimated Fair Value
|
|
|
(in millions)
|
Held-to-maturity
|
|
|
|
|
Due in one year or less
|
|
$
|
7.3
|
|
|
$
|
7.3
|
|
After one year through five years
|
|
17.1
|
|
|
17.5
|
|
|
|
|
|
|
After ten years
|
|
544.4
|
|
|
587.0
|
|
Total HTM securities
|
|
$
|
568.8
|
|
|
$
|
611.8
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
After one year through five years
|
|
$
|
10.0
|
|
|
$
|
10.3
|
|
After five years through ten years
|
|
425.1
|
|
|
425.1
|
|
After ten years
|
|
1,146.3
|
|
|
1,225.0
|
|
Mortgage-backed securities
|
|
3,005.0
|
|
|
3,048.1
|
|
Total AFS securities
|
|
$
|
4,586.4
|
|
|
$
|
4,708.5
|
|
The following table presents gross gains and losses on sales of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Available-for-sale securities
|
|
|
|
|
|
|
Gross gains
|
|
$
|
0.4
|
|
|
$
|
3.1
|
|
|
$
|
8.1
|
|
Gross losses
|
|
(0.2)
|
|
|
—
|
|
|
(7.7)
|
|
Net gains on AFS securities
|
|
$
|
0.2
|
|
|
$
|
3.1
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
Gross gains
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Gross losses
|
|
—
|
|
|
—
|
|
|
(8.0)
|
|
Net losses on equity securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8.0)
|
|
During the year ended December 31, 2020, the Company did not have significant investment security sale activity.
During the year ended December 31, 2019, the Company sold certain AFS securities as part of a portfolio re-balancing initiative. These securities had a carrying value of $147.2 million and a net gain of $3.1 million was recognized on the sale of these securities. In addition, the Company also sold one of its securities classified as HTM. The security had a par value of $10.0 million and no gain or loss was realized upon the sale. The sale of this HTM security was made as a result of significant deterioration in the issuer’s creditworthiness, representative of a change in circumstance contemplated in ASC 320-10-25 that would not call into question the Company’s intent to hold other debt securities to maturity in the future. Accordingly, management concluded that the Company’s remaining HTM securities continue to be appropriately classified as such.
During the year ended December 31, 2018, the Company sold certain AFS securities with a carrying value of $119.8 million and recognized a loss on sale of these securities of $7.7 million. The sales resulted from management’s review of its investment portfolio, which led to its decision to sell lower yielding securities and reinvest in securities with higher yields and shorter durations.
3. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES
On January 1, 2020, the Company adopted the amendments within ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Accordingly, the Company's financial results for 2020 are presented in accordance with ASC 326 while prior period amounts have not been adjusted and continue to be reported in accordance with legacy GAAP. For a detailed discussion of the impact of adoption of ASU 2016-13 and information related to loans and credit quality, including accounting policies and methodologies used to estimate the allowance for credit losses on loans, see "Note 1. Summary of Significant Accounting Policies."
The Company's primary portfolio segments have changed to align with the methodology applied in estimating the allowance for credit losses under CECL. In addition, as the concept of impaired loans does not exist under CECL, disclosures that related solely to impaired loans have been removed.
The composition of the Company's held for investment loan portfolio is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
(in millions)
|
|
|
Warehouse lending
|
|
$
|
4,340.2
|
|
|
|
Municipal & nonprofit
|
|
1,728.8
|
|
|
|
Tech & Innovation
|
|
2,548.3
|
|
|
|
Other commercial and industrial
|
|
5,911.2
|
|
|
|
CRE - owner occupied
|
|
1,909.3
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
|
1,983.9
|
|
|
|
Other CRE - non-owned occupied
|
|
3,640.2
|
|
|
|
Residential
|
|
2,378.5
|
|
|
|
Construction and land development
|
|
2,429.4
|
|
|
|
Other
|
|
183.2
|
|
|
|
Total loans HFI
|
|
27,053.0
|
|
|
|
Allowance for credit losses
|
|
(278.9)
|
|
|
|
Total loans HFI, net of allowance
|
|
$
|
26,774.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(in millions)
|
|
|
Commercial and industrial
|
|
|
|
$
|
9,382.0
|
|
|
|
Commercial real estate - non-owner occupied
|
|
|
|
5,245.6
|
|
|
|
Commercial real estate - owner occupied
|
|
|
|
2,316.9
|
|
|
|
Construction and land development
|
|
|
|
1,952.2
|
|
|
|
Residential real estate
|
|
|
|
2,147.7
|
|
|
|
Consumer
|
|
|
|
57.1
|
|
|
|
Loans, net of deferred loan fees and costs
|
|
|
|
21,101.5
|
|
|
|
Allowance for credit losses
|
|
|
|
(167.8)
|
|
|
|
Total loans HFI
|
|
|
|
$
|
20,933.7
|
|
|
|
Loans that are held for investment are stated at the amount of unpaid principal, adjusted for net deferred fees and costs, premiums and discounts on acquired and purchased loans, and an allowance for credit losses. Net deferred loan fees of $75.4 million and $47.7 million reduced the carrying value of loans as of December 31, 2020 and 2019, respectively. Net unamortized purchase premiums on acquired and purchased loans of $26.0 million and $19.6 million increased the carrying value of loans as of December 31, 2020 and 2019, respectively.
As of December 31, 2019, the Company also had $21.8 million of HFS loans.
Nonaccrual and Past Due Loans
Loans are placed on nonaccrual status when management determines that the full repayment of principal and collection of interest according to contractual terms is no longer likely, generally when the loan becomes 90 days or more past due.
The following tables present nonperforming loan balances by loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Nonaccrual with No Allowance for Credit Loss
|
|
Nonaccrual with an Allowance for Credit Loss
|
|
Total Nonaccrual
|
|
Loans Past Due 90 Days or More and Still Accruing
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
Warehouse lending
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Municipal & nonprofit
|
|
1.9
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
|
|
|
Tech & Innovation
|
|
9.6
|
|
|
3.9
|
|
|
13.5
|
|
|
—
|
|
|
|
|
|
Other commercial and industrial
|
|
10.9
|
|
|
6.3
|
|
|
17.2
|
|
|
—
|
|
|
|
|
|
CRE - owner occupied
|
|
34.5
|
|
|
—
|
|
|
34.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Other CRE - non-owned occupied
|
|
36.5
|
|
|
—
|
|
|
36.5
|
|
|
—
|
|
|
|
|
|
Residential
|
|
11.4
|
|
|
—
|
|
|
11.4
|
|
|
—
|
|
|
|
|
|
Construction and land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Other
|
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
—
|
|
|
|
|
|
Total
|
|
$
|
104.9
|
|
|
$
|
10.3
|
|
|
$
|
115.2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans
|
|
Loans past due 90 days or more and still accruing
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Past Due/
Delinquent
|
|
Total
Non-accrual
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
19.1
|
|
|
$
|
5.4
|
|
|
$
|
24.5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
4.4
|
|
|
0.1
|
|
|
4.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Non-owner occupied
|
|
7.3
|
|
|
11.9
|
|
|
19.2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Land
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
1.2
|
|
|
4.4
|
|
|
5.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34.2
|
|
|
$
|
21.8
|
|
|
$
|
56.0
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
The reduction in interest income associated with loans on nonaccrual status was approximately $5.0 million, $2.2 million, and $2.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.
The following table presents an aging analysis of past due loans by loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Current
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Over 90 days
Past Due
|
|
Total
Past Due
|
|
Total
|
|
|
(in millions)
|
Warehouse lending
|
|
$
|
4,340.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,340.2
|
|
Municipal & nonprofit
|
|
1,728.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,728.8
|
|
Tech & Innovation
|
|
2,548.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,548.3
|
|
Other commercial and industrial
|
|
5,911.0
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
5,911.2
|
|
CRE - owner occupied
|
|
1,909.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,909.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
|
1,983.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,983.9
|
|
Other CRE - non-owned occupied
|
|
3,640.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,640.2
|
|
Residential
|
|
2,368.0
|
|
|
9.1
|
|
|
1.4
|
|
|
—
|
|
|
10.5
|
|
|
2,378.5
|
|
Construction and land development
|
|
2,429.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,429.4
|
|
Other
|
|
182.7
|
|
|
0.4
|
|
|
0.1
|
|
|
—
|
|
|
0.5
|
|
|
183.2
|
|
Total loans
|
|
$
|
27,041.8
|
|
|
$
|
9.7
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
11.2
|
|
|
$
|
27,053.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Current
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Over 90 days
Past Due
|
|
Total
Past Due
|
|
Total
|
|
|
(in millions)
|
Commercial and industrial
|
|
$
|
9,376.3
|
|
|
$
|
2.5
|
|
|
$
|
0.7
|
|
|
$
|
2.5
|
|
|
$
|
5.7
|
|
|
$
|
9,382.0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
2,316.2
|
|
|
0.6
|
|
|
—
|
|
|
0.1
|
|
|
0.7
|
|
|
2,316.9
|
|
Non-owner occupied
|
|
5,007.6
|
|
|
4.7
|
|
|
—
|
|
|
11.9
|
|
|
16.6
|
|
|
5,024.2
|
|
Multi-family
|
|
221.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221.4
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
1,177.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,177.0
|
|
Land
|
|
775.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
775.2
|
|
Residential real estate
|
|
2,134.4
|
|
|
7.6
|
|
|
1.7
|
|
|
4.0
|
|
|
13.3
|
|
|
2,147.7
|
|
Consumer
|
|
57.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57.1
|
|
Total loans
|
|
$
|
21,065.2
|
|
|
$
|
15.4
|
|
|
$
|
2.4
|
|
|
$
|
18.5
|
|
|
$
|
36.3
|
|
|
$
|
21,101.5
|
|
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The risk rating categories are described in "Note 1. Summary of Significant Accounting Policies." The following tables present risk ratings as of December 31, 2020 by loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan Amortized Cost Basis by Origination Year
|
|
Revolving Loans Amortized Cost Basis
|
|
Total
|
|
December 31, 2020
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse lending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
135.2
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
1.6
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
4,202.4
|
|
|
$
|
4,340.2
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Classified
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
135.2
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
1.6
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
4,202.4
|
|
|
$
|
4,340.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal & nonprofit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
219.3
|
|
|
$
|
156.6
|
|
|
$
|
81.6
|
|
|
$
|
231.2
|
|
|
$
|
129.1
|
|
|
$
|
905.6
|
|
|
$
|
3.5
|
|
|
$
|
1,726.9
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Classified
|
—
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
219.3
|
|
|
$
|
156.6
|
|
|
$
|
81.6
|
|
|
$
|
233.1
|
|
|
$
|
129.1
|
|
|
$
|
905.6
|
|
|
$
|
3.5
|
|
|
$
|
1,728.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tech & Innovation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
609.7
|
|
|
$
|
207.4
|
|
|
$
|
76.9
|
|
|
$
|
2.0
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
1,608.8
|
|
|
$
|
2,505.7
|
|
|
Special mention
|
10.7
|
|
|
4.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.3
|
|
|
Classified
|
25.2
|
|
|
2.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
645.6
|
|
|
$
|
214.0
|
|
|
$
|
76.9
|
|
|
$
|
2.0
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
1,608.9
|
|
|
$
|
2,548.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
2,069.5
|
|
|
$
|
819.8
|
|
|
$
|
447.7
|
|
|
$
|
250.7
|
|
|
$
|
99.7
|
|
|
$
|
114.6
|
|
|
$
|
1,935.7
|
|
|
$
|
5,737.7
|
|
|
Special mention
|
2.2
|
|
|
52.1
|
|
|
32.1
|
|
|
22.1
|
|
|
1.7
|
|
|
0.2
|
|
|
34.3
|
|
|
144.7
|
|
|
Classified
|
0.9
|
|
|
8.4
|
|
|
3.2
|
|
|
1.6
|
|
|
9.7
|
|
|
0.8
|
|
|
4.2
|
|
|
28.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,072.6
|
|
|
$
|
880.3
|
|
|
$
|
483.0
|
|
|
$
|
274.4
|
|
|
$
|
111.1
|
|
|
$
|
115.6
|
|
|
$
|
1,974.2
|
|
|
$
|
5,911.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE - owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
252.2
|
|
|
$
|
307.1
|
|
|
$
|
302.1
|
|
|
$
|
402.4
|
|
|
$
|
148.4
|
|
|
$
|
323.5
|
|
|
$
|
39.5
|
|
|
$
|
1,775.2
|
|
|
Special mention
|
0.9
|
|
|
12.4
|
|
|
9.3
|
|
|
24.3
|
|
|
4.4
|
|
|
10.5
|
|
|
22.4
|
|
|
84.2
|
|
|
Classified
|
1.4
|
|
|
7.5
|
|
|
4.8
|
|
|
8.5
|
|
|
6.2
|
|
|
19.5
|
|
|
2.0
|
|
|
49.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
254.5
|
|
|
$
|
327.0
|
|
|
$
|
316.2
|
|
|
$
|
435.2
|
|
|
$
|
159.0
|
|
|
$
|
353.5
|
|
|
$
|
63.9
|
|
|
$
|
1,909.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
161.6
|
|
|
$
|
792.0
|
|
|
$
|
464.1
|
|
|
$
|
139.9
|
|
|
$
|
—
|
|
|
$
|
101.5
|
|
|
$
|
162.6
|
|
|
$
|
1,821.7
|
|
|
Special mention
|
—
|
|
|
32.7
|
|
|
56.9
|
|
|
27.3
|
|
|
—
|
|
|
18.2
|
|
|
—
|
|
|
135.1
|
|
|
Classified
|
8.9
|
|
|
—
|
|
|
—
|
|
|
12.6
|
|
|
2.1
|
|
|
3.5
|
|
|
—
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
170.5
|
|
|
$
|
824.7
|
|
|
$
|
521.0
|
|
|
$
|
179.8
|
|
|
$
|
2.1
|
|
|
$
|
123.2
|
|
|
$
|
162.6
|
|
|
$
|
1,983.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other CRE - non-owned occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
1,032.6
|
|
|
$
|
912.5
|
|
|
$
|
560.8
|
|
|
$
|
384.3
|
|
|
$
|
164.7
|
|
|
$
|
208.4
|
|
|
$
|
281.0
|
|
|
$
|
3,544.3
|
|
|
Special mention
|
1.4
|
|
|
—
|
|
|
7.0
|
|
|
5.4
|
|
|
1.0
|
|
|
7.4
|
|
|
—
|
|
|
22.2
|
|
|
Classified
|
7.4
|
|
|
26.4
|
|
|
—
|
|
|
20.3
|
|
|
6.5
|
|
|
13.1
|
|
|
—
|
|
|
73.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,041.4
|
|
|
$
|
938.9
|
|
|
$
|
567.8
|
|
|
$
|
410.0
|
|
|
$
|
172.2
|
|
|
$
|
228.9
|
|
|
$
|
281.0
|
|
|
$
|
3,640.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
759.5
|
|
|
$
|
869.3
|
|
|
$
|
402.0
|
|
|
$
|
108.9
|
|
|
$
|
113.8
|
|
|
$
|
74.1
|
|
|
$
|
39.5
|
|
|
$
|
2,367.1
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Classified
|
—
|
|
|
4.4
|
|
|
5.9
|
|
|
1.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
759.5
|
|
|
$
|
873.7
|
|
|
$
|
407.9
|
|
|
$
|
110.0
|
|
|
$
|
113.8
|
|
|
$
|
74.1
|
|
|
$
|
39.5
|
|
|
$
|
2,378.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan Amortized Cost Basis by Origination Year
|
|
Revolving Loans Amortized Cost Basis
|
|
Total
|
|
December 31, 2020
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
|
|
|
(in millions)
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
677.8
|
|
|
$
|
704.2
|
|
|
$
|
429.6
|
|
|
$
|
15.4
|
|
|
$
|
1.2
|
|
|
$
|
15.0
|
|
|
$
|
537.4
|
|
|
$
|
2,380.6
|
|
|
Special mention
|
8.5
|
|
|
0.4
|
|
|
38.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
47.3
|
|
|
Classified
|
—
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
686.3
|
|
|
$
|
704.6
|
|
|
$
|
469.1
|
|
|
$
|
15.4
|
|
|
$
|
1.2
|
|
|
$
|
15.0
|
|
|
$
|
537.8
|
|
|
$
|
2,429.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
21.1
|
|
|
$
|
15.6
|
|
|
$
|
14.5
|
|
|
$
|
5.8
|
|
|
$
|
1.8
|
|
|
$
|
75.8
|
|
|
$
|
45.7
|
|
|
$
|
180.3
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
0.1
|
|
|
1.7
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
2.3
|
|
|
Classified
|
—
|
|
|
0.1
|
|
|
0.2
|
|
|
—
|
|
|
0.1
|
|
|
0.2
|
|
|
—
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
21.1
|
|
|
$
|
15.7
|
|
|
$
|
14.8
|
|
|
$
|
7.5
|
|
|
$
|
1.9
|
|
|
$
|
76.5
|
|
|
$
|
45.7
|
|
|
$
|
183.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total by Risk Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
5,938.5
|
|
|
$
|
4,784.5
|
|
|
$
|
2,780.2
|
|
|
$
|
1,542.2
|
|
|
$
|
659.7
|
|
|
$
|
1,818.5
|
|
|
$
|
8,856.1
|
|
|
$
|
26,379.7
|
|
|
Special mention
|
23.7
|
|
|
102.2
|
|
|
143.4
|
|
|
80.8
|
|
|
7.1
|
|
|
36.8
|
|
|
57.1
|
|
|
451.1
|
|
|
Classified
|
43.8
|
|
|
48.8
|
|
|
15.6
|
|
|
46.0
|
|
|
24.6
|
|
|
37.1
|
|
|
6.3
|
|
|
222.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
6,006.0
|
|
|
$
|
4,935.5
|
|
|
$
|
2,939.2
|
|
|
$
|
1,669.0
|
|
|
$
|
691.4
|
|
|
$
|
1,892.4
|
|
|
$
|
8,919.5
|
|
|
$
|
27,053.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
|
(in millions)
|
Commercial and industrial
|
|
$
|
9,265.8
|
|
|
$
|
65.9
|
|
|
$
|
49.9
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
9,382.0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
2,265.5
|
|
|
9.6
|
|
|
41.8
|
|
|
—
|
|
|
—
|
|
|
2,316.9
|
|
Non-owner occupied
|
|
4,913.0
|
|
|
64.2
|
|
|
47.0
|
|
|
—
|
|
|
—
|
|
|
5,024.2
|
|
Multi-family
|
|
221.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221.4
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
1,157.3
|
|
|
17.6
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
1,177.0
|
|
Land
|
|
773.8
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
775.2
|
|
Residential real estate
|
|
2,141.3
|
|
|
0.4
|
|
|
6.0
|
|
|
—
|
|
|
—
|
|
|
2,147.7
|
|
Consumer
|
|
57.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57.1
|
|
Total
|
|
$
|
20,795.2
|
|
|
$
|
159.1
|
|
|
$
|
146.8
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
21,101.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
|
(in millions)
|
Current (up to 29 days past due)
|
|
$
|
20,785.1
|
|
|
$
|
159.0
|
|
|
$
|
120.9
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
21,065.2
|
|
Past due 30 - 59 days
|
|
8.2
|
|
|
0.1
|
|
|
7.1
|
|
|
—
|
|
|
—
|
|
|
15.4
|
|
Past due 60 - 89 days
|
|
1.5
|
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
Past due 90 days or more
|
|
0.4
|
|
|
—
|
|
|
17.9
|
|
|
0.2
|
|
|
—
|
|
|
18.5
|
|
Total
|
|
$
|
20,795.2
|
|
|
$
|
159.1
|
|
|
$
|
146.8
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
21,101.5
|
|
Troubled Debt Restructurings
A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. The majority of the Company's modifications are extensions in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued interest. Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.
As of December 31, 2020, the Company's TDR loans totaled $61.6 million. During the year ended December 31, 2020, the Company had 17 new TDR loans with a recorded investment of $37.3 million. No principal amounts were forgiven and there were no waived fees or other expenses resulting from these TDR loans. The Company has an allowance of $2.7 million allocated to these loans as of December 31, 2020 and has committed to lend additional amounts totaling $0.6 million.
The following table presents TDR loans for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Number of Loans
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tech & Innovation
|
4
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
Other commercial and industrial
|
9
|
|
|
22.9
|
|
|
|
|
|
|
|
|
|
CRE - owner occupied
|
4
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
2
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
Other CRE - non-owned occupied
|
3
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
22
|
|
|
$
|
61.6
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2019, the Company had nine new TDR loans with a recorded investment of $42.0 million. No principal amounts were forgiven and there were no waived fees or other expenses resulting from these TDR loans. As of December 31, 2019, commitments outstanding on TDR loans totaled $0.2 million.
A TDR loan is deemed to have a payment default when it becomes past due 90 days under the modified terms, goes on nonaccrual status, or is restructured again. Payment defaults, along with other qualitative indicators, are considered by management in the determination of the allowance for credit losses. During the year ended December 31, 2020, there were three loans, two CRE owner occupied and one CRE non-owner occupied, with a recorded investment of $5.8 million for which there was a payment default within 12 months following the modification. There was no increase to the allowance for credit losses or a writeoff that resulted from these TDR redefaults during the year ended December 31, 2020. During the year ended December 31, 2019, there were two TDR loans with a recorded investment of $0.4 million for which there was a payment default.
The CARES Act, signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications. The types of loan modifications granted to borrowers include extensions of loan maturity dates, covenant waivers, interest only payments for a specified period of time, and loan payment deferrals. As of December 31, 2020, the Company has outstanding modifications meeting these conditions on loans with a net balance of $538.3 million as of December 31, 2020, of which, modifications involving loan payment deferrals total $190.0 million. Further, residential mortgage loans in forbearance have a net balance of $77.1 million as of December 31, 2020.
The terms of certain other loans were modified during the year ended December 31, 2020 that did not meet the definition of a TDR. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties prior to the pandemic or a delay in a payment that was considered to be insignificant.
Collateral-Dependent Loans
The following table presents the amortized cost basis of collateral-dependent loans as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Real Estate Collateral
|
|
Other Collateral
|
|
Total
|
|
|
(in millions)
|
Warehouse lending
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Municipal & nonprofit
|
|
—
|
|
|
—
|
|
|
—
|
|
Tech & Innovation
|
|
—
|
|
|
27.3
|
|
|
27.3
|
|
Other commercial and industrial
|
|
—
|
|
|
23.6
|
|
|
23.6
|
|
CRE - owner occupied
|
|
42.6
|
|
|
—
|
|
|
42.6
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
|
27.1
|
|
|
—
|
|
|
27.1
|
|
Other CRE - non-owned occupied
|
|
73.7
|
|
|
—
|
|
|
73.7
|
|
Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction and land development
|
|
1.5
|
|
|
—
|
|
|
1.5
|
|
Other
|
|
—
|
|
|
0.4
|
|
|
0.4
|
|
Total
|
|
$
|
144.9
|
|
|
$
|
51.3
|
|
|
$
|
196.2
|
|
The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether because of a general deterioration or some other reason during the period ended December 31, 2020.
Allowance for Credit Losses
Management considers the level of allowance for credit losses to be a reasonable and supportable estimate of expected credit losses inherent within the Company's loans held for investment portfolio as of December 31, 2020.
The below tables reflect the activity in the allowance for credit losses for loans held for investment by loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
Balance,
|
|
Provision for (Reversal of) Credit Losses
|
|
|
|
Writeoffs
|
|
Recoveries
|
|
Balance,
|
|
|
January 1, 2020
|
|
|
|
|
|
|
December 31, 2020
|
|
|
(1)
|
|
|
|
|
|
|
(1)
|
|
|
(in millions)
|
Warehouse lending
|
|
$
|
0.2
|
|
|
$
|
3.2
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
Municipal & nonprofit
|
|
17.4
|
|
|
(1.5)
|
|
|
|
|
—
|
|
|
—
|
|
|
15.9
|
|
Tech & Innovation
|
|
22.4
|
|
|
24.0
|
|
|
|
|
11.1
|
|
|
—
|
|
|
35.3
|
|
Other commercial and industrial
|
|
95.8
|
|
|
1.8
|
|
|
|
|
6.4
|
|
|
(3.5)
|
|
|
94.7
|
|
CRE - owner occupied
|
|
10.4
|
|
|
8.3
|
|
|
|
|
0.2
|
|
|
(0.1)
|
|
|
18.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
|
14.1
|
|
|
29.2
|
|
|
|
|
—
|
|
|
—
|
|
|
43.3
|
|
Other CRE - non-owned occupied
|
|
10.5
|
|
|
29.8
|
|
|
|
|
2.1
|
|
|
(1.7)
|
|
|
39.9
|
|
Residential
|
|
3.8
|
|
|
(3.1)
|
|
|
|
|
0.3
|
|
|
(0.4)
|
|
|
0.8
|
|
Construction and land development
|
|
6.2
|
|
|
15.7
|
|
|
|
|
—
|
|
|
(0.1)
|
|
|
22.0
|
|
Other
|
|
6.1
|
|
|
(0.9)
|
|
|
|
|
0.3
|
|
|
(0.1)
|
|
|
5.0
|
|
Total
|
|
$
|
186.9
|
|
|
$
|
106.5
|
|
|
|
|
$
|
20.4
|
|
|
$
|
(5.9)
|
|
|
$
|
278.9
|
|
(1)Includes an estimate of future recoveries.
Accrued interest receivable on loans totaled $142.1 million at December 31, 2020 and is excluded from the estimate of credit losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
December 31, 2018
|
|
Charge-offs
|
|
Recoveries
|
|
Provision for (Reversal of) Credit Losses
|
|
December 31, 2019
|
|
|
(in millions)
|
Construction and land development
|
|
$
|
22.5
|
|
|
$
|
0.1
|
|
|
$
|
(0.1)
|
|
|
$
|
1.4
|
|
|
$
|
23.9
|
|
Commercial real estate
|
|
34.8
|
|
|
0.1
|
|
|
(0.9)
|
|
|
11.7
|
|
|
47.3
|
|
Residential real estate
|
|
11.3
|
|
|
0.6
|
|
|
(0.4)
|
|
|
2.6
|
|
|
13.7
|
|
Commercial and industrial
|
|
83.1
|
|
|
8.1
|
|
|
(4.3)
|
|
|
3.0
|
|
|
82.3
|
|
Consumer
|
|
1.0
|
|
|
0.1
|
|
|
—
|
|
|
(0.3)
|
|
|
0.6
|
|
Total
|
|
$
|
152.7
|
|
|
$
|
9.0
|
|
|
$
|
(5.7)
|
|
|
$
|
18.4
|
|
|
$
|
167.8
|
|
In addition to the allowance for credit losses on funded loan balances, the Company maintains a separate allowance for credit losses related to off-balance sheet credit exposures, including unfunded loan commitments, and this amount is included in other liabilities on the consolidated balance sheets.
The below tables reflect the activity in the allowance for credit losses on unfunded loan commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
(in millions)
|
Balance, beginning of period
|
|
|
|
|
$
|
9.0
|
|
|
$
|
8.2
|
|
Beginning balance adjustment from adoption of CECL
|
|
|
|
|
15.1
|
|
|
—
|
|
Provision for credit losses
|
|
|
|
|
12.9
|
|
|
0.8
|
|
Balance, end of period
|
|
|
|
|
$
|
37.0
|
|
|
$
|
9.0
|
|
The following tables disaggregate the Company's allowance for credit losses and loan balance by measurement methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Loans
|
|
Allowance
|
|
|
Collectively Evaluated for Credit Loss
|
|
Individually Evaluated for Credit Loss
|
|
Total
|
|
Collectively Evaluated for Credit Loss
|
|
Individually Evaluated for Credit Loss
|
|
Total
|
|
|
(in millions)
|
Warehouse lending
|
|
$
|
4,340.2
|
|
|
$
|
—
|
|
|
$
|
4,340.2
|
|
|
$
|
3.4
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
Municipal & nonprofit
|
|
1,726.9
|
|
|
1.9
|
|
|
1,728.8
|
|
|
15.9
|
|
|
—
|
|
|
15.9
|
|
Tech & Innovation
|
|
2,521.1
|
|
|
27.2
|
|
|
2,548.3
|
|
|
31.4
|
|
|
3.9
|
|
|
35.3
|
|
Other commercial and industrial
|
|
5,883.1
|
|
|
28.1
|
|
|
5,911.2
|
|
|
90.3
|
|
|
4.4
|
|
|
94.7
|
|
CRE - owner occupied
|
|
1,857.9
|
|
|
51.4
|
|
|
1,909.3
|
|
|
18.6
|
|
|
—
|
|
|
18.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Franchise Finance
|
|
1,927.0
|
|
|
56.9
|
|
|
1,983.9
|
|
|
40.4
|
|
|
2.9
|
|
|
43.3
|
|
Other CRE - non-owned occupied
|
|
3,553.6
|
|
|
86.6
|
|
|
3,640.2
|
|
|
39.9
|
|
|
—
|
|
|
39.9
|
|
Residential
|
|
2,367.1
|
|
|
11.4
|
|
|
2,378.5
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
Construction and land development
|
|
2,427.9
|
|
|
1.5
|
|
|
2,429.4
|
|
|
22.0
|
|
|
—
|
|
|
22.0
|
|
Other
|
|
182.6
|
|
|
0.6
|
|
|
183.2
|
|
|
5.0
|
|
|
—
|
|
|
5.0
|
|
Total
|
|
$
|
26,787.4
|
|
|
$
|
265.6
|
|
|
$
|
27,053.0
|
|
|
$
|
267.7
|
|
|
$
|
11.2
|
|
|
$
|
278.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate-Owner Occupied
|
|
Commercial Real Estate-Non-Owner Occupied
|
|
Commercial and Industrial
|
|
Residential Real Estate
|
|
Construction and Land Development
|
|
Consumer
|
|
Total Loans
|
|
|
(in millions)
|
Loans as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
—
|
|
|
$
|
11.9
|
|
|
$
|
6.9
|
|
|
$
|
—
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
21.0
|
|
Impaired loans with no allowance recorded
|
|
17.7
|
|
|
23.6
|
|
|
42.1
|
|
|
5.6
|
|
|
6.3
|
|
|
—
|
|
|
95.3
|
|
Total loans individually evaluated for impairment
|
|
17.7
|
|
|
35.5
|
|
|
49.0
|
|
|
5.6
|
|
|
8.5
|
|
|
—
|
|
|
116.3
|
|
Loans collectively evaluated for impairment
|
|
2,296.4
|
|
|
5,159.9
|
|
|
9,333.0
|
|
|
2,142.1
|
|
|
1,943.7
|
|
|
57.1
|
|
|
20,932.2
|
|
Loans acquired with deteriorated credit quality
|
|
2.8
|
|
|
50.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53.0
|
|
Total recorded investment
|
|
$
|
2,316.9
|
|
|
$
|
5,245.6
|
|
|
$
|
9,382.0
|
|
|
$
|
2,147.7
|
|
|
$
|
1,952.2
|
|
|
$
|
57.1
|
|
|
$
|
21,101.5
|
|
Unpaid Principal Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
—
|
|
|
$
|
12.0
|
|
|
$
|
9.8
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
|
$
|
—
|
|
|
$
|
24.1
|
|
Impaired loans with no allowance recorded
|
|
18.7
|
|
|
24.7
|
|
|
43.8
|
|
|
5.7
|
|
|
6.4
|
|
|
0.1
|
|
|
99.4
|
|
Total loans individually evaluated for impairment
|
|
18.7
|
|
|
36.7
|
|
|
53.6
|
|
|
5.7
|
|
|
8.7
|
|
|
0.1
|
|
|
123.5
|
|
Loans collectively evaluated for impairment
|
|
2,297.1
|
|
|
5,177.5
|
|
|
9,312.1
|
|
|
2,113.9
|
|
|
1,963.1
|
|
|
57.4
|
|
|
20,921.1
|
|
Loans acquired with deteriorated credit quality
|
|
3.6
|
|
|
60.2
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
63.9
|
|
Total unpaid principal balance
|
|
$
|
2,319.4
|
|
|
$
|
5,274.4
|
|
|
$
|
9,365.7
|
|
|
$
|
2,119.7
|
|
|
$
|
1,971.8
|
|
|
$
|
57.5
|
|
|
$
|
21,108.5
|
|
Related Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
2.8
|
|
Impaired loans with no allowance recorded
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans individually evaluated for impairment
|
|
—
|
|
|
1.2
|
|
|
1.1
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
2.8
|
|
Loans collectively evaluated for impairment
|
|
13.8
|
|
|
32.1
|
|
|
81.3
|
|
|
13.7
|
|
|
23.4
|
|
|
0.6
|
|
|
164.9
|
|
Loans acquired with deteriorated credit quality
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Total allowance for credit losses
|
|
$
|
13.8
|
|
|
$
|
33.4
|
|
|
$
|
82.4
|
|
|
$
|
13.7
|
|
|
$
|
23.9
|
|
|
$
|
0.6
|
|
|
$
|
167.8
|
|
Loan Purchases and Sales
The following tables present loan purchases by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
|
|
(in millions)
|
Warehouse lending
|
|
$
|
99.4
|
|
Municipal & nonprofit
|
|
50.6
|
|
Tech & Innovation
|
|
808.5
|
|
Other commercial and industrial
|
|
382.4
|
|
|
|
|
|
|
|
|
|
|
Other CRE - non-owned occupied
|
|
44.0
|
|
Residential
|
|
1,317.5
|
|
|
|
|
Other
|
|
6.0
|
|
Total
|
|
$
|
2,708.4
|
|
There were no loans purchased with more-than-insignificant deterioration in credit quality during the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Commercial and industrial
|
|
$
|
1,014.9
|
|
|
$
|
690.1
|
|
Commercial real estate - non-owner occupied
|
|
49.2
|
|
|
—
|
|
|
|
|
|
|
Construction and land development
|
|
34.5
|
|
|
27.5
|
|
Residential real estate
|
|
1,434.8
|
|
|
883.2
|
|
Total
|
|
$
|
2,533.4
|
|
|
$
|
1,600.8
|
|
The following table presents loan sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
(in millions)
|
Carrying value
|
|
|
|
|
$
|
77.3
|
|
|
$
|
99.0
|
|
|
$
|
66.5
|
|
Gain on sale
|
|
|
|
|
1.7
|
|
|
0.7
|
|
|
2.6
|
|
4. PREMISES AND EQUIPMENT
The following is a summary of the major categories of premises and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Bank premises
|
|
$
|
92.0
|
|
|
$
|
91.6
|
|
Land and improvements
|
|
33.0
|
|
|
32.9
|
|
Furniture, fixtures, and equipment
|
|
68.2
|
|
|
53.6
|
|
Leasehold improvements
|
|
29.7
|
|
|
28.5
|
|
Construction in progress
|
|
17.4
|
|
|
10.4
|
|
Total
|
|
240.3
|
|
|
217.0
|
|
Accumulated depreciation and amortization
|
|
(106.2)
|
|
|
(91.2)
|
|
Premises and equipment, net
|
|
$
|
134.1
|
|
|
$
|
125.8
|
|
5. LEASES
The Company has operating leases under which it leases its branch offices, corporate headquarters, other offices, and data facility centers. As of December 31, 2020, the Company's operating lease ROU asset and operating lease liability totaled $72.5 million and $79.9 million, respectively. A weighted average discount rate of 2.80% was used in the measurement of the ROU asset and lease liability as of December 31, 2020.
The Company's leases have remaining lease terms of one to 10 years, with a weighted average lease term of 7.7 years at December 31, 2020. Some leases include multiple five-year renewal options. The Company’s decision to exercise these renewal options is based on an assessment of its current business needs and market factors at the time of the renewal. Currently, the Company has no leases for which the option to renew is reasonably certain and therefore, options to renew were not factored into the calculation of its ROU asset and lease liability as of December 31, 2020.
The following is a schedule of the Company's operating lease liabilities by contractual maturity as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2021
|
|
$
|
12.5
|
|
2022
|
|
11.3
|
|
2023
|
|
12.0
|
|
2024
|
|
11.1
|
|
2025
|
|
10.6
|
|
Thereafter
|
|
32.3
|
|
Total lease payments
|
|
$
|
89.8
|
|
Less: imputed interest
|
|
9.9
|
|
Total present value of lease liabilities
|
|
$
|
79.9
|
|
The Company also has additional operating leases for increased space at its corporate headquarters and another office location that have not yet commenced as of December 31, 2020. The aggregate future commitment related to the additional leases total $13.3 million. These operating leases will commence within the next 12 months and will have lease terms between six and ten years.
Total operating lease costs of $14.0 million and other lease costs of $3.9 million, which include common area maintenance, parking, and taxes during the year ended December 31, 2020, were included as part of occupancy expense. Short-term lease costs were not material for the year ended December 31, 2020. For the years ended December 31, 2019 and 2018, rent expense associated with the Company's operating leases totaled $12.9 million and $11.0 million, respectively.
The below table shows the supplemental cash flow information related to the Company's operating leases for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
13.0
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
11.8
|
|
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess consideration paid for net assets acquired in a business combination over their fair value. Goodwill and other intangible assets acquired in a business combination that are determined to have an indefinite useful life are not subject to amortization, but are subsequently evaluated for impairment at least annually. The Company has goodwill of $289.9 million as of December 31, 2020.
The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable. While the Company’s stock price has experienced volatility and periodic declines in value during the pandemic, management did not consider this decline to be a triggering event that would indicate that an interim goodwill impairment test was necessary during 2020. Based on the Company's annual goodwill and intangibles impairment tests as of October 1 during the years ended December 31, 2020, 2019, and 2018, it was determined that goodwill and intangible assets are not impaired.
The following is a summary of the Company's acquired intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
(in millions)
|
Subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
14.6
|
|
|
$
|
8.8
|
|
|
$
|
5.8
|
|
|
$
|
14.6
|
|
|
$
|
7.3
|
|
|
$
|
7.3
|
|
Customer relationship intangibles
|
|
2.5
|
|
0.1
|
|
2.4
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
17.1
|
|
|
$
|
8.9
|
|
|
$
|
8.2
|
|
|
$
|
14.6
|
|
|
$
|
7.3
|
|
|
$
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Gross Carrying Amount
|
|
Impairment
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Impairment
|
|
Net Carrying Amount
|
|
|
(in millions)
|
Not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
As of December 31, 2020, the Company's core deposit and customer relationship intangible assets had a weighted average estimated useful life of 4.6 years. The Company's core deposit intangible assets consist of those acquired in the acquisition of Bridge and are being amortized using an accelerated amortization method over a period of 10 years. The Company's customer relationship intangible assets relates to the purchase of a residential mortgage conduit platform during 2020 that is being amortized on a straight-line basis over a period of five years. Amortization expense recognized on amortizable intangibles totaled $1.6 million for each of the years ended December 31, 2020, 2019, and 2018.
Below is a summary of future estimated aggregate amortization expense:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
(in millions)
|
2021
|
|
$
|
1.9
|
|
2022
|
|
1.9
|
|
2023
|
|
1.8
|
|
2024
|
|
1.7
|
|
2025
|
|
0.9
|
|
|
|
|
Total
|
|
$
|
8.2
|
|
7. DEPOSITS
The table below summarizes deposits by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Non-interest-bearing demand deposits
|
|
$
|
13,463.3
|
|
|
$
|
8,537.9
|
|
Interest-bearing transaction accounts
|
|
4,396.4
|
|
|
2,760.9
|
|
Savings and money market accounts
|
|
12,413.4
|
|
|
9,120.8
|
|
Time certificates of deposit ($250,000 or more)
|
|
602.0
|
|
|
1,426.1
|
|
Other time deposits
|
|
1,055.4
|
|
|
950.8
|
|
Total deposits
|
|
$
|
31,930.5
|
|
|
$
|
22,796.5
|
|
The summary of the contractual maturities for all time deposits as of December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
(in millions)
|
2021
|
|
$
|
1,515.8
|
|
2022
|
|
131.8
|
|
2023
|
|
6.5
|
|
2024
|
|
2.4
|
|
2025
|
|
0.9
|
|
|
|
|
Total
|
|
$
|
1,657.4
|
|
WAB is a participant in the Promontory Interfinancial Network, a network that offers deposit placement services such as CDARS and ICS, which offer products that qualify large deposits for FDIC insurance. Federal banking law and regulation places restrictions on depository institutions regarding brokered deposits because of the general concern that these deposits are not relationship-based and are at a greater risk of being withdrawn, thus posing liquidity risk for institutions that gather brokered deposits in significant amounts. At December 31, 2020 and 2019, the Company had $496.4 million and $407.7 million, respectively, of reciprocal CDARS deposits and $1.3 billion and $661.8 million, respectively, of ICS deposits. At December 31, 2020 and 2019, the Company had $554.8 million and $1.1 billion, respectively, of wholesale brokered deposits. In addition, non-interest-bearing deposits for which the Company provides account holders with earnings credits or referral fees totaled $5.9 billion and $3.1 billion at December 31, 2020 and 2019, respectively. The Company incurred $17.0 million and $30.5 million in deposit related costs on these deposits during the years ended December 31, 2020 and 2019, respectively.
8. OTHER BORROWINGS
The following table summarizes the Company’s borrowings as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Short-Term:
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
$
|
—
|
|
|
$
|
—
|
|
FHLB advances
|
|
5.0
|
|
|
—
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
5.0
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company maintains federal fund lines of credit totaling $2.5 billion as of December 31, 2020, which have rates comparable to the federal funds effective rate plus 0.10% to 0.20%. As of December 31, 2020, and 2019 there were no outstanding balances on the Company's federal fund lines of credit.
The Company also maintains secured lines of credit with the FHLB and the FRB. The Company’s borrowing capacity is determined based on collateral pledged, generally consisting of investment securities and loans, at the time of the borrowing. The Company has a PPP lending facility with the FRB that allows the Company to pledge loans originated under the PPP in return for dollar for dollar funding from the FRB, which would provide up to $1.5 billion in additional credit. The amount of available credit under the PPP lending facility will decline each period as these loans are paid down. At December 31, 2020, the Company had no amounts outstanding under its line of credit or its PPP lending facility with the FRB and had $5.0 million in borrowings under its lines of credit with the FHLB. As of December 31, 2020 and 2019, the Company had additional available credit with the FHLB of approximately $4.0 billion and $4.5 billion, respectively, and with the FRB of approximately $2.7 billion and $1.1 billion, respectively.
Other short-term borrowing sources available to the Company include customer repurchase agreements, which totaled $16.0 million and $16.7 million as of December 31, 2020 and 2019, respectively. The weighted average rate on customer repurchase agreements was 0.15% as of December 31, 2020 and 2019, respectively.
9. QUALIFYING DEBT
Subordinated Debt
The Company's subordinated debt consists of three separate issuances. The Parent issued $175.0 million of subordinated debentures in June 2016, which were recorded net of issuance costs of $5.5 million, and mature July 1, 2056. Beginning on or after July 1, 2021, the Company may redeem the debentures, in whole or in part, at their principal amount plus any accrued and unpaid interest. The debentures have a fixed interest rate of 6.25% per annum.
In June 2015, WAB issued $150.0 million of subordinated debt, which was recorded net of debt issuance costs of $1.8 million, and matures July 15, 2025. The subordinated debt is currently redeemable by WAB, in whole or in part, for a price equal to the principal amount plus accrued and unpaid interest. The subordinated debt had a fixed interest rate of 5.00% through June 30, 2020, which then converted to a variable rate of 3.20% plus three-month LIBOR through maturity. On October 15, 2020, WAB redeemed $75 million of this subordinated debt issuance.
In May 2020, WAB issued $225.0 million of subordinated debt, which was recorded net of debt issuance costs of $3.1 million, and matures June 1, 2030. The subordinated debt is redeemable by WAB, in whole or in part, on or after June 1, 2025 and on every interest payment date thereafter, at a redemption price equal to the principal amount plus accrued and unpaid interest. The subordinated debt has a fixed interest rate of 5.25% through June 1, 2025 and then converts to a floating rate per annum equal to the three-month SOFR plus 512 basis points for each quarterly interest period during the floating rate period.
To hedge the interest rate risk on the Company's 2015 and 2016 subordinated debt issuances, the Company entered into fair value interest rate hedges with receive fixed/pay variable swaps.
The carrying value of all subordinated debt issuances, which includes the fair value of the related hedges, totals $469.8 million and $319.2 million at December 31, 2020 and 2019, respectively.
Junior Subordinated Debt
The Company has formed or acquired through acquisition eight statutory business trusts, which exist for the exclusive purpose of issuing Cumulative Trust Preferred Securities.
The Company's junior subordinated debt has contractual balances and maturity dates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Name of Trust
|
|
Maturity
|
|
2020
|
|
2019
|
At fair value
|
|
|
|
(in millions)
|
BankWest Nevada Capital Trust II
|
|
2033
|
|
$
|
15.5
|
|
|
$
|
15.5
|
|
Intermountain First Statutory Trust I
|
|
2034
|
|
10.3
|
|
|
10.3
|
|
First Independent Statutory Trust I
|
|
2035
|
|
7.2
|
|
|
7.2
|
|
WAL Trust No. 1
|
|
2036
|
|
20.6
|
|
|
20.6
|
|
WAL Statutory Trust No. 2
|
|
2037
|
|
5.2
|
|
|
5.2
|
|
WAL Statutory Trust No. 3
|
|
2037
|
|
7.7
|
|
|
7.7
|
|
Total contractual balance
|
|
|
|
66.5
|
|
|
66.5
|
|
FVO on junior subordinated debt
|
|
|
|
(0.6)
|
|
|
(4.8)
|
|
Junior subordinated debt, at fair value
|
|
|
|
$
|
65.9
|
|
|
$
|
61.7
|
|
At amortized cost
|
|
|
|
|
|
|
Bridge Capital Holdings Trust I
|
|
2035
|
|
$
|
12.4
|
|
|
$
|
12.4
|
|
Bridge Capital Holdings Trust II
|
|
2036
|
|
5.1
|
|
|
5.1
|
|
Total contractual balance
|
|
|
|
17.5
|
|
|
17.5
|
|
Purchase accounting adjustment, net of accretion (1)
|
|
|
|
(4.5)
|
|
|
(4.8)
|
|
Junior subordinated debt, at amortized cost
|
|
|
|
$
|
13.0
|
|
|
$
|
12.7
|
|
|
|
|
|
|
|
|
Total junior subordinated debt
|
|
|
|
$
|
78.9
|
|
|
$
|
74.4
|
|
(1)The purchase accounting adjustment is being accreted over the remaining life of the trusts, pursuant to accounting guidance.
With the exception of debt issued by Bridge Capital Trust I and Bridge Capital Trust II, junior subordinated debt is recorded at fair value at each reporting date due to the FVO election made by the Company under ASC 825. The Company did not make the FVO election for the junior subordinated debt acquired as part of the Bridge acquisition. Accordingly, the carrying value of these trusts does not reflect the current fair value of the debt and includes a fair market value adjustment established at acquisition that is being accreted over the remaining life of the trusts.
The weighted average interest rate of all junior subordinated debt as of December 31, 2020 was 2.58%, which is three-month LIBOR plus the contractual spread of 2.34%, compared to a weighted average interest rate of 4.25% at December 31, 2019.
In the event of certain changes or amendments to regulatory requirements or federal tax rules, the debt is redeemable in whole. The obligations under these instruments are fully and unconditionally guaranteed by the Company and rank subordinate and junior in right of payment to all other liabilities of the Company. Based on guidance issued by the FRB, the Company's securities continue to qualify as Tier 1 Capital.
10. STOCKHOLDERS' EQUITY
Stock-Based Compensation
Restricted Stock Awards
The Incentive Plan, as amended, gives the BOD the authority to grant up to $11.8 million in stock awards consisting of unrestricted stock, stock units, dividend equivalent rights, stock options (incentive and non-qualified), stock appreciation rights, restricted stock, and performance and annual incentive awards. The Incentive Plan limits the maximum number of shares of common stock that may be awarded to any person eligible for an award to 300,000 per calendar year and also limits the total compensation (cash and stock) that can be awarded to a non-employee director to $600,000 in any calendar year. Stock awards available for grant at December 31, 2020 were $3.4 million.
Restricted stock awards granted to employees generally vest over a 3-year period. Stock grants made to non-employee WAL directors in 2020 were fully vested on July 1, 2020. The Company estimates the compensation cost for stock grants based upon the grant date fair value. Stock compensation expense is recognized on a straight-line basis over the requisite service period for the entire award. Stock compensation expense related to restricted stock awards granted to employees are included in Salaries and employee benefits in the Consolidated Income Statement. For restricted stock awards granted to WAL directors, related stock compensation expense is included in Legal, professional, and directors' fees. For the year ended December 31, 2020, the Company recognized $20.3 million in stock-based compensation expense related to these stock grants, compared to $17.4 million in 2019, and $16.6 million in 2018.
In addition, the Company previously granted shares of restricted stock to certain members of executive management that had both performance and service conditions that affect vesting. There were no such grants made during the years ended December 31, 2020 and 2019, however expense is still being recognized for a grant made in 2017 with a four-year vesting period. For the year ended December 31, 2020, the Company recognized $1.2 million in stock-based compensation expense related to these performance-based restricted stock grants, compared to $1.9 million in 2019, and $2.5 million in 2018.
A summary of the status of the Company’s unvested shares of restricted stock and changes during the years then ended is presented below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
|
(in millions, except per share amounts)
|
Balance, beginning of period
|
|
1.0
|
|
|
$
|
49.98
|
|
|
1.0
|
|
|
$
|
47.53
|
|
Granted
|
|
0.4
|
|
|
51.53
|
|
|
0.5
|
|
|
46.04
|
|
Vested
|
|
(0.4)
|
|
|
51.86
|
|
|
(0.4)
|
|
|
39.60
|
|
Forfeited
|
|
0.0
|
|
|
49.79
|
|
|
(0.1)
|
|
|
50.80
|
|
Balance, end of period
|
|
1.0
|
|
|
$
|
50.12
|
|
|
1.0
|
|
|
$
|
49.98
|
|
The total weighted average grant date fair value of all stock awards, including the performance-based restricted stock awards, granted during the years ended December 31, 2020, 2019, and 2018 was $22.7 million, $23.7 million, and $24.7 million, respectively. The total fair value of restricted stock that vested during the years ended December 31, 2020, 2019, and 2018 was $19.6 million, $21.3 million, and $27.4 million, respectively.
As of December 31, 2020, there was $21.5 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Incentive Plan. That cost is expected to be recognized over a weighted average period of 1.7 years.
Performance Stock Units
The Company grants performance stock units to members of its executive management that do not vest unless the Company achieves a specified cumulative EPS target and a TSR performance measure over a three-year performance period. The number of shares issued will vary based on the cumulative EPS target and relative TSR performance factor that is achieved. The Company estimates the cost of performance stock units based upon the grant date fair value and expected vesting percentage over the three-year performance period. For the year ended December 31, 2020, the Company recognized $7.1 million in stock-based compensation expense related to these performance stock units, compared to $6.9 million and $6.4 million in stock-based compensation expense for such units in 2019 and 2018, respectively.
The three-year performance period for the 2018 grant ended on December 31, 2020, and the Company's cumulative EPS and TSR performance measure for the performance period exceeded the level required for a maximum award under the terms of the grant. As a result, 152,418 shares will become fully vested and distributed to executive management in the first quarter of 2021.
The three-year performance period for the 2017 grant ended on December 31, 2019, and the Company's cumulative EPS and TSR performance measure for the performance period exceeded the level required for a maximum award under the terms of the grant. As a result, 136,334 shares became fully vested and was distributed to executive management in the first quarter of 2020.
Common Stock Repurchase
The Company's common stock repurchase program was renewed through December 2020, authorizing the Company to repurchase up to $250.0 million of its outstanding common stock. Effective April 17, 2020, the Company temporarily suspended its stock repurchase program. Prior to this decision and pursuant to the repurchase plan, the Company repurchased 2,066,479 shares of its common stock at a weighted average price of $34.65 for a total payment of $71.6 million. During the year ended December 31, 2019, the Company repurchased 2,822,402 shares of its common stock at a weighted average price of $42.53 for a total payment of $120.2 million.
Cash Dividend
During the year ended December 31, 2020, the Company declared and paid a quarterly cash dividend of $0.25 per share, for a total dividend payment to shareholders of $101.3 million. During the year ended December 31, 2019, the Company declared and paid two quarterly cash dividend of $0.25 per share, for a total dividend payment to shareholders of $51.3 million.
Treasury Shares
Treasury share purchases represent shares surrendered to the Company equal in value to the statutory payroll tax withholding obligations arising from the vesting of employee restricted stock awards. During the year ended December 31, 2020, the Company purchased treasury shares of 165,489 at a weighted average price of $50.80 per share, compared to 210,657 shares at a weighted average price per share of $45.80 in 2019, and 223,125 shares at a weighted average price per share of $57.88 in 2018.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component, net of tax, for the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on AFS
|
|
Unrealized holding gains (losses) on SERP
|
|
Unrealized holding gains (losses) on junior subordinated debt
|
|
Impairment loss on securities
|
|
Total
|
|
|
|
|
|
|
|
|
(in millions)
|
Balance, December 31, 2017
|
|
$
|
(10.0)
|
|
|
$
|
0.4
|
|
|
$
|
6.4
|
|
|
$
|
0.1
|
|
|
$
|
(3.1)
|
|
|
|
|
|
|
|
Balance, January 1, 2018 (1)
|
|
(12.5)
|
|
|
0.5
|
|
|
7.7
|
|
|
0.1
|
|
|
(4.2)
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
(40.8)
|
|
|
(0.1)
|
|
|
5.7
|
|
|
—
|
|
|
(35.2)
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI
|
|
5.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
(35.0)
|
|
|
(0.1)
|
|
|
5.7
|
|
|
—
|
|
|
(29.4)
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
$
|
(47.5)
|
|
|
$
|
0.4
|
|
|
$
|
13.4
|
|
|
$
|
0.1
|
|
|
$
|
(33.6)
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications
|
|
71.2
|
|
|
(0.4)
|
|
|
(9.8)
|
|
|
—
|
|
|
61.0
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
(2.3)
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
(2.4)
|
|
|
|
|
|
|
|
Net current-period other comprehensive (loss) income
|
|
68.9
|
|
|
(0.4)
|
|
|
(9.8)
|
|
|
(0.1)
|
|
|
58.6
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
21.4
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
$
|
—
|
|
|
$
|
25.0
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
70.9
|
|
|
(0.3)
|
|
|
(3.1)
|
|
|
—
|
|
|
67.5
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI
|
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
70.7
|
|
|
(0.3)
|
|
|
(3.1)
|
|
|
—
|
|
|
67.3
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
92.1
|
|
|
$
|
(0.3)
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
92.3
|
|
|
|
|
|
|
|
(1) As adjusted for adoption of ASU 2016-01 and ASU 2018-02. The cumulative effect of adoption of this guidance at January 1, 2018 resulted in an increase to retained earnings of $1.1 million and a corresponding decrease to accumulated other comprehensive income.
The following table presents reclassifications out of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Income Statement Classification
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Gain (loss) on sales of investment securities, net
|
|
$
|
0.2
|
|
|
$
|
3.1
|
|
|
$
|
(7.6)
|
|
Income tax (expense) benefit
|
|
—
|
|
|
(0.7)
|
|
|
1.8
|
|
Net of tax
|
|
$
|
0.2
|
|
|
$
|
2.4
|
|
|
$
|
(5.8)
|
|
12. DERIVATIVES AND HEDGING ACTIVITIES
The Company is a party to various derivative instruments. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require a small or no initial investment, and allow for the net settlement of positions. A derivative’s notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. A derivative’s underlying variable is a specified interest rate, security price, commodity price, foreign exchange rate, index, or other variable. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the fair value of the derivative contract.
The primary type of derivatives that the Company uses are interest rate swaps. Generally, these instruments are used to help manage the Company's exposure to interest rate risk and meet client financing and hedging needs.
Derivatives are recorded at fair value on the Consolidated Balance Sheets, after taking into account the effects of bilateral collateral and master netting agreements. These agreements allow the Company to settle all derivative contracts held with the same counterparty on a net basis, and to offset net derivative positions with related cash collateral, where applicable.
As of December 31, 2020, 2019, and 2018, the Company does not have any outstanding cash flow hedges.
Derivatives Designated in Hedge Relationships
The Company utilizes derivatives that have been designated as part of a hedge relationship in accordance with the applicable accounting guidance to minimize the exposure to changes in benchmark interest rates and volatility of net interest income and EVE to interest rate fluctuations. The primary derivative instruments used to manage interest rate risk are interest rate swaps, which convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) from either a fixed rate to a floating rate, or from a floating rate to a fixed rate.
The Company has entered into pay fixed/receive variable interest rate swaps designated as fair value hedges of certain fixed rate loans. As a result, the Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts.
During the year ended December 31, 2020, the Company entered into interest rate swap contracts, designated as fair value hedges using the last-of-layer method to manage the exposure to changes in fair value associated with fixed rate loans, resulting from changes in the designated benchmark interest rate (Federal Funds rate). These last-of-layer hedges provide the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio of assets is identified as the hedged item. Under these interest rate swap contracts, the Company receives a floating rate and pays a fixed rate on the outstanding notional amount.
The Company has also entered into receive fixed/pay variable interest rate swaps, designated as fair value hedges on its fixed rate 2015 and 2016 subordinated debt offerings. As a result, the Company was paying a floating rate of three-month LIBOR plus 3.16% and was receiving semi-annual fixed payments of 5.00% to match the payments on the $150.0 million subordinated debt. In July 2020, the interest payment on this subordinated debt issuance converted from a fixed rate to a floating rate, at which time, the Company unwound this swap. For the fair value hedge on the Parent's $175.0 million subordinated debentures issued on June 16, 2016, the Company is paying a floating rate of three-month LIBOR plus 3.25% and is receiving quarterly fixed payments of 6.25% to match the payments on the debt.
Derivatives Not Designated in Hedge Relationships
Management also enters into certain foreign exchange derivative contracts and back-to-back interest rate swaps which are not designated as accounting hedges. Foreign exchange derivative contracts include spot, forward, forward window, and swap contracts. The purpose of these derivative contracts is to mitigate foreign currency risk on transactions entered into, or on behalf of customers. Contracts with customers, along with the related derivative trades that the Company places, are both remeasured at fair value, and are referred to as economic hedges since they economically offset the Company's exposure. The Company's back-to-back interest rate swaps are used to manage long-term interest rate risk.
As of December 31, 2020 and 2019, the following amounts are reflected on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Carrying Value of Hedged Assets/(Liabilities)
|
|
Cumulative Fair Value Hedging Adjustment (1)
|
|
Carrying Value of Hedged Assets/(Liabilities)
|
|
Cumulative Fair Value Hedging Adjustment (1)
|
|
|
(in millions)
|
Loans - HFI, net of deferred loan fees and costs (2)
|
|
$
|
1,587.1
|
|
|
$
|
85.5
|
|
|
$
|
578.1
|
|
|
$
|
53.3
|
|
Qualifying debt
|
|
(247.6)
|
|
|
(2.7)
|
|
|
(319.2)
|
|
|
0.4
|
|
(1) Included in the carrying value of the hedged assets/(liabilities)
(2) The Company designated $1.0 billion as the hedged amount (from a closed portfolio of prepayable fixed rate loans with a carrying value of $1.9 billion as of December 31, 2020) in this last-of-layer hedging relationship, which commenced in the fourth quarter of 2020.The cumulative basis adjustment included in the carrying value of these hedged items totaled $0.6 million as of December 31, 2020.
For the Company's derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings in the same line item as the offsetting loss or gain on the related interest rate swaps. For loans, the gain or loss on the hedged item is included in interest income and for subordinated debt, the gain or loss on the hedged item is included in interest expense, as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Income Statement Classification
|
|
Gain/(Loss) on Swaps
|
|
Gain/(Loss) on Hedged Item
|
|
Gain/(Loss) on Swaps
|
|
Gain/(Loss) on Hedged Item
|
|
Gain/(Loss) on Swaps
|
|
Gain/(Loss) on Hedged Item
|
|
|
(in millions)
|
Interest income
|
|
$
|
(32.2)
|
|
|
$
|
32.2
|
|
|
$
|
(30.3)
|
|
|
$
|
30.3
|
|
|
$
|
18.8
|
|
|
$
|
(18.8)
|
|
Interest expense
|
|
3.1
|
|
|
(3.1)
|
|
|
19.3
|
|
|
(19.3)
|
|
|
(9.7)
|
|
|
9.7
|
|
Fair Values, Volume of Activity, and Gain/Loss Information Related to Derivative Instruments
The following table summarizes the fair values of the Company's derivative instruments on a gross and net basis as of December 31, 2020, 2019, and 2018. The change in the notional amounts of these derivatives from December 31, 2018 to December 31, 2020 indicates the volume of the Company's derivative transaction activity during these periods. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow the Company to settle all derivative contracts with the same counterparty on a net basis and to offset the net derivative position with the related collateral. Where master netting agreements are not in effect or are not enforceable under bankruptcy laws, the Company does not adjust those derivative amounts with counterparties. The fair value of derivative contracts, after taking into account the effects of master netting agreements, is included in other assets or other liabilities on the Consolidated Balance Sheets, as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
Notional
Amount
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Notional
Amount
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Notional
Amount
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
(in millions)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (1)
|
$
|
1,689.9
|
|
|
$
|
3.3
|
|
|
$
|
86.1
|
|
|
$
|
863.0
|
|
|
$
|
1.8
|
|
|
$
|
55.5
|
|
|
$
|
965.7
|
|
|
$
|
2.2
|
|
|
$
|
44.9
|
|
Total
|
1,689.9
|
|
|
3.3
|
|
|
86.1
|
|
|
863.0
|
|
|
1.8
|
|
|
55.5
|
|
|
965.7
|
|
|
2.2
|
|
|
44.9
|
|
Netting adjustments (2)
|
—
|
|
|
0.6
|
|
|
0.6
|
|
|
—
|
|
|
0.0
|
|
|
0.0
|
|
|
—
|
|
|
2.2
|
|
|
2.2
|
|
Net derivatives in the balance sheet
|
$
|
1,689.9
|
|
|
$
|
2.7
|
|
|
$
|
85.5
|
|
|
$
|
863.0
|
|
|
$
|
1.8
|
|
|
$
|
55.5
|
|
|
$
|
965.7
|
|
|
$
|
—
|
|
|
$
|
42.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
119.2
|
|
|
$
|
0.7
|
|
|
$
|
1.2
|
|
|
$
|
6.7
|
|
|
$
|
0.0
|
|
|
$
|
0.0
|
|
|
$
|
49.7
|
|
|
$
|
0.5
|
|
|
$
|
0.2
|
|
Interest rate swaps
|
3.5
|
|
|
0.2
|
|
|
0.2
|
|
|
2.9
|
|
|
0.1
|
|
|
0.1
|
|
|
2.4
|
|
|
0.0
|
|
|
0.0
|
|
Total
|
$
|
122.7
|
|
|
$
|
0.9
|
|
|
$
|
1.4
|
|
|
$
|
9.6
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
52.1
|
|
|
$
|
0.5
|
|
|
$
|
0.2
|
|
(1)Interest rate swap amounts include a notional amount of $1.0 billion related to the last-of-layer hedges.
(2)Netting adjustments represent the amounts recorded to convert the Company's derivative balances from a gross basis to a net basis in accordance with the applicable accounting guidance.
Counterparty Credit Risk
Like other financial instruments, derivatives contain an element of credit risk. This risk is measured as the expected replacement value of the contracts. Management enters into bilateral collateral and master netting agreements that provide for the net settlement of all contracts with the same counterparty. Additionally, management monitors counterparty credit risk exposure on each contract to determine appropriate limits on the Company's total credit exposure across all product types, which may require the Company to post collateral to counterparties when these contracts are in a net liability position and conversely, for counterparties to post collateral to the Company when these contracts are in a net asset position. Management reviews the Company's collateral positions on a daily basis and exchanges collateral with counterparties in accordance with standard ISDA documentation and other related agreements. The Company generally posts or holds collateral in the form of cash deposits or highly rated securities issued by the U.S. Treasury or government-sponsored enterprises, such as GNMA, FNMA, and FHLMC. The total collateral pledged by the Company to counterparties exceeded its net derivative liabilities as of December 31, 2020, December 31, 2019, and December 31, 2018, resulting in excess collateral postings of $31.7 million, $29.2 million, and $7.6 million, respectively.
The following table summarizes the Company's largest exposure to an individual counterparty at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Largest gross exposure (derivative asset) to an individual counterparty
|
|
$
|
2.7
|
|
|
$
|
1.8
|
|
|
$
|
1.4
|
|
Collateral posted by this counterparty
|
|
—
|
|
|
1.6
|
|
|
—
|
|
Derivative liability with this counterparty
|
|
—
|
|
|
—
|
|
|
23.9
|
|
Collateral pledged to this counterparty
|
|
—
|
|
|
—
|
|
|
25.8
|
|
Net exposure after netting adjustments and collateral
|
|
$
|
2.7
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
13. EARNINGS PER SHARE
Diluted EPS is based on the weighted average outstanding common shares during the period, including common stock equivalents. Basic EPS is based on the weighted average outstanding common shares during the period.
The following table presents the calculation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions, except per share amounts)
|
Weighted average shares - basic
|
|
100.2
|
|
|
102.7
|
|
|
104.7
|
|
Dilutive effect of stock awards
|
|
0.3
|
|
|
0.4
|
|
|
0.7
|
|
Weighted average shares - diluted
|
|
100.5
|
|
|
103.1
|
|
|
105.4
|
|
Net income
|
|
$
|
506.6
|
|
|
$
|
499.2
|
|
|
$
|
435.8
|
|
Earnings per share - basic
|
|
5.06
|
|
|
4.86
|
|
|
4.16
|
|
Earnings per share - diluted
|
|
5.04
|
|
|
4.84
|
|
|
4.14
|
|
The Company had no anti-dilutive stock options outstanding as of December 31, 2020 and 2019.
14. INCOME TAXES
The provision for income taxes charged to operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Current
|
|
$
|
141.0
|
|
|
$
|
110.1
|
|
|
$
|
91.2
|
|
Deferred
|
|
(25.1)
|
|
|
(5.1)
|
|
|
(16.7)
|
|
Total tax provision
|
|
$
|
115.9
|
|
|
$
|
105.0
|
|
|
$
|
74.5
|
|
The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Income tax at statutory rate
|
|
$
|
130.7
|
|
|
$
|
126.9
|
|
|
$
|
107.2
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
State income taxes, net of federal benefits
|
|
13.9
|
|
|
11.0
|
|
|
9.0
|
|
|
|
|
|
|
|
|
Tax-exempt income
|
|
(21.7)
|
|
|
(19.6)
|
|
|
(18.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal NOL and other carryback items
|
|
—
|
|
|
—
|
|
|
(15.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment tax credits
|
|
(13.9)
|
|
|
(15.0)
|
|
|
(6.7)
|
|
|
|
|
|
|
|
|
Other, net
|
|
6.9
|
|
|
1.7
|
|
|
(1.3)
|
|
Total tax provision
|
|
$
|
115.9
|
|
|
$
|
105.0
|
|
|
$
|
74.5
|
|
For the years ended December 31, 2020, 2019, and 2018 the Company's effective tax rate was 18.62%, 17.39%, and 14.61%, respectively. The increase in the effective tax rate from 2019 to 2020 is due primarily to tax expense associated with the surrender of bank owned life insurance, no valuation allowance release in 2020, and return to provision adjustments. The increase in the effective tax rate from 2018 to 2019 is due primarily to management's decision during the third quarter of 2018 to carryback its 2017 federal NOLs.
The cumulative tax effects of the primary temporary differences are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Deferred tax assets:
|
|
|
Allowance for credit losses (1)
|
|
$
|
84.6
|
|
|
$
|
44.8
|
|
Lease liability
|
|
21.1
|
|
|
20.3
|
|
Stock-based compensation
|
|
6.9
|
|
|
7.4
|
|
Net operating loss carryovers
|
|
4.8
|
|
|
5.6
|
|
|
|
|
|
|
Insurance premiums
|
|
18.9
|
|
|
—
|
|
Passthrough income
|
|
8.4
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
21.0
|
|
|
15.9
|
|
Total gross deferred tax assets
|
|
165.7
|
|
|
97.4
|
|
Deferred tax asset valuation allowance
|
|
—
|
|
|
—
|
|
Total deferred tax assets
|
|
165.7
|
|
|
97.4
|
|
Deferred tax liabilities:
|
|
|
|
|
Right of use asset
|
|
(19.2)
|
|
|
(18.8)
|
|
Unrealized gain on AFS securities
|
|
(31.2)
|
|
|
(7.3)
|
|
|
|
|
|
|
Deferred loan costs
|
|
(12.8)
|
|
|
(10.8)
|
|
Insurance premiums
|
|
—
|
|
|
(4.5)
|
|
Unearned premiums
|
|
(16.8)
|
|
|
—
|
|
Leasing basis differences
|
|
(11.1)
|
|
|
—
|
|
|
|
|
|
|
Premises and equipment
|
|
(7.6)
|
|
|
(8.4)
|
|
Estimated loss reserve
|
|
(17.5)
|
|
|
(14.9)
|
|
50(d) income
|
|
(9.8)
|
|
|
(6.8)
|
|
Other
|
|
(8.4)
|
|
|
(7.9)
|
|
Total deferred tax liabilities
|
|
(134.4)
|
|
|
(79.4)
|
|
Deferred tax assets, net
|
|
$
|
31.3
|
|
|
$
|
18.0
|
|
(1)Upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on January 1, 2020, the Company recognized an increase to the DTA of $8.7 million, resulting from an increase in the allowance for credit losses.
Deferred tax assets and liabilities are included in the Consolidated Financial Statements at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be reversed. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Net deferred tax assets increased $13.3 million to $31.3 million from December 31, 2019. This overall increase in net deferred tax assets was primarily the result of increases in the allowance for credit losses under the new CECL accounting guidance and deferred insurance premiums deduction which were not fully offset by additional unrealized gains on AFS securities and increases to unearned insurance premiums. Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset of $31.3 million at December 31, 2020 is more-likely-than-not based on expectations as to future taxable income and based on available tax planning strategies that could be implemented if necessary to prevent a carryover from expiring.
As of December 31, 2020 and 2019, the Company has no deferred tax valuation allowance.
As of December 31, 2020, the Company’s gross federal NOL carryovers, all of which are subject to limitations under Section 382 of the IRC, totaled $42.9 million, for which a deferred tax asset of $4.8 million has been recorded, reflecting the expected benefit of these federal NOL carryovers remaining after application of the Section 382 limitation. The Company does not currently have any remaining state NOL carryovers. The Company files income tax returns in the U.S. federal jurisdiction and in various states. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years before 2016.
When tax returns are filed, it is highly certain that most positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the Consolidated Financial Statements in the period in which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits on the accompanying Consolidated Balance Sheets along with any associated interest and penalties payable to the taxing authorities upon examination.
The total gross activity of unrecognized tax benefits related to the Company's uncertain tax positions are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(in millions)
|
Beginning balance
|
$
|
1.7
|
|
|
$
|
0.5
|
|
Gross increases
|
|
|
|
Tax positions in prior periods
|
—
|
|
|
—
|
|
Current period tax positions
|
2.2
|
|
|
1.2
|
|
Gross decreases
|
|
|
|
Tax positions in prior periods
|
—
|
|
|
—
|
|
Settlements
|
(0.1)
|
|
|
—
|
|
Lapse of statute of limitations
|
(0.4)
|
|
|
—
|
|
Ending balance
|
$
|
3.4
|
|
|
$
|
1.7
|
|
During the year ended December 31, 2020, the Company added a new current year position, which resulted in a tax detriment of $1.1 million, inclusive of interest and penalties. The Company also settled a prior period position and removed positions due to lapse of statute which resulted in net tax benefits of $0.3 million, inclusive of interest and penalties.
As of December 31, 2020 and 2019, the total amount of unrecognized tax benefits, net of associated deferred tax benefits, that would impact the effective tax rate, if recognized, is $2.1 million and $1.1 million, respectively. The Company does not anticipate that the unrecognized tax benefits will be resolved within the next 12 months.
During the years ended December 31, 2020, 2019, and 2018, the Company recognized no additional amounts for interest and penalties. As of December 31, 2020 and 2019, the Company has accrued total liabilities of less than $0.1 million for penalties, and no amounts for interest.
LIHTC and renewable energy projects
As discussed in "Note 1. Summary of Significant Accounting Policies," the Company holds ownership interests in limited partnerships and limited liability companies that invest in affordable housing and renewable energy projects. These investments are designed to generate a return primarily through the realization of federal tax credits and deductions. The limited liability entities are considered to be VIEs; however, as a limited partner, the Company is not the primary beneficiary and is not required to consolidate these entities.
At December 31, 2020, the Company’s exposure to loss as a result of its involvement in these entities was limited to $538.8 million, which reflects the Company’s recorded investment in these projects, net of certain unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities. During the years ended December 31, 2020, 2019, and 2018, the Company did not provide financial or other support to these entities that was not contractually required.
Investments in LIHTC and renewable energy total $405.6 million and $409.4 million as of December 31, 2020 and 2019, respectively. Unfunded LIHTC and renewable energy obligations are included as part of other liabilities on the Consolidated Balance Sheet and total $151.7 million and $191.0 million as of December 31, 2020 and 2019, respectively. For the years ended December 31, 2020, 2019, and 2018, $49.2 million, $41.5 million, and $35.9 million of amortization related to LIHTC investments was recognized as a component of income tax expense, respectively.
15. COMMITMENTS AND CONTINGENCIES
Unfunded Commitments and Letters of Credit
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the Consolidated Balance Sheets.
Lines of credit are obligations to lend money to a borrower. Credit risk arises when the borrower's current financial condition may indicate less ability to pay than when the commitment was originally made. In the case of letters of credit, the risk arises from the potential failure of the customer to perform according to the terms of a contract. In such a situation, the third party might draw on the letter of credit to pay for completion of the contract and the Company would look to its customer to repay these funds with interest. To minimize the risk, the Company uses the same credit policies in making commitments and conditional obligations as it would for a loan to that customer.
Letters of credit and financial guarantees are commitments issued by the Company to guarantee the performance of a customer to a third party in borrowing arrangements. The Company generally has recourse to recover from the customer any amounts paid under the guarantees. Typically, letters of credit issued have expiration dates within one year.
A summary of the contractual amounts for unfunded commitments and letters of credit are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Commitments to extend credit, including unsecured loan commitments of $1,077.2 at December 31, 2020 and $895.2 at December 31, 2019
|
|
$
|
9,425.2
|
|
|
$
|
8,348.4
|
|
Credit card commitments and financial guarantees
|
|
291.5
|
|
|
302.9
|
|
Letters of credit, including unsecured letters of credit of $9.9 at December 31, 2020 and $5.9 at December 31, 2019
|
|
186.9
|
|
|
175.8
|
|
Total
|
|
$
|
9,903.6
|
|
|
$
|
8,827.1
|
|
The following table represents the contractual commitments for lines and letters of credit by maturity at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration per Period
|
|
|
Total Amounts Committed
|
|
Less Than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
After 5 Years
|
|
|
(in millions)
|
Commitments to extend credit
|
|
$
|
9,425.2
|
|
|
$
|
2,369.4
|
|
|
$
|
4,070.1
|
|
|
$
|
1,737.8
|
|
|
$
|
1,247.9
|
|
Credit card commitments and financial guarantees
|
|
291.5
|
|
|
291.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Letters of credit
|
|
186.9
|
|
|
145.3
|
|
|
32.9
|
|
|
8.7
|
|
|
—
|
|
Total
|
|
$
|
9,903.6
|
|
|
$
|
2,806.2
|
|
|
$
|
4,103.0
|
|
|
$
|
1,746.5
|
|
|
$
|
1,247.9
|
|
Commitments to extend credit are agreements to lend to a customer provided that there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.
The Company has exposure to credit losses from unfunded commitments and letters of credit. As funds have not been disbursed on these commitments, they are not reported as loans outstanding. Credit losses related to these commitments are included in other liabilities as a separate loss contingency and are not included in the allowance for credit losses reported in "Note 3. Loans, Leases and Allowance for Credit Losses" of these Consolidated Financial Statements. This loss contingency for unfunded loan commitments and letters of credit was $37.0 million and $9.0 million as of December 31, 2020 and 2019, respectively. Changes to this liability are adjusted through the provision for credit losses in the Consolidated Income Statement. In addition, upon adoption of ASU 2016-13 on January 1, 2020, the Company recorded an increase of $15.1 million to this liability, which was recorded as an adjustment to retained earnings, net of tax.
Concentrations of Lending Activities
The Company does not have a single external customer from which it derives 10% or more of its revenues. The Company monitors concentrations within three broad categories: industry, product, and collateral. The Company's loan portfolio includes significant credit exposure to the CRE market. As of December 31, 2020 and 2019, CRE related loans accounted for approximately 38% and 45% of total loans, respectively. Substantially all of these loans are secured by first liens with an initial loan-to-value ratio of generally not more than 75%. Approximately 28% and 31% of these CRE loans, excluding construction and land loans, were owner-occupied as of December 31, 2020 and 2019, respectively.
Contingencies
The Company is involved in various lawsuits of a routine nature that are being handled and defended in the ordinary course of the Company’s business. Expenses are being incurred in connection with these lawsuits, but in the opinion of management, based in part on consultation with outside legal counsel, the resolution of these lawsuits and associated defense costs will not have a material impact on the Company’s financial position, results of operations, or cash flows.
16. FAIR VALUE ACCOUNTING
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC 825 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 825 are described in "Note 1. Summary of Significant Accounting Policies" of these Notes to Consolidated Financial Statements.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally-developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below.
Under ASC 825, the Company elected the FVO treatment for junior subordinated debt issued by WAL. This election is irrevocable and results in the recognition of unrealized gains and losses on these items at each reporting date. These unrealized gains and losses are recognized as part of other comprehensive income rather than earnings. The Company did not elect FVO treatment for the junior subordinated debt assumed in the Bridge Capital Holdings acquisition.
For the years ended December 31, 2020, 2019, and 2018, unrealized gains and losses from fair value changes on junior subordinated debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Unrealized (losses)/gains
|
|
$
|
(4.2)
|
|
|
$
|
(13.0)
|
|
|
$
|
7.6
|
|
Changes included in OCI, net of tax
|
|
(3.1)
|
|
|
(9.8)
|
|
|
5.7
|
|
Fair value on a recurring basis
Financial assets and financial liabilities measured at fair value on a recurring basis include the following:
AFS securities: Securities classified as AFS are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include quoted prices in active markets, dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.
Equity securities: Preferred stock and CRA investments are reported at fair value primarily utilizing Level 1 inputs.
Independent pricing service: The Company's independent pricing service provides pricing information on the majority of the Company's Level 1 and level 2 AFS and equity securities. For a small subset of securities, other pricing sources are used, including observed prices on publicly-traded securities and dealer quotes. Management independently evaluates the fair value measurements received from the Company's third-party pricing service through multiple review steps. First, management reviews what has transpired in the marketplace with respect to interest rates, credit spreads, volatility, and mortgage rates, among other things, and develops an expectation of changes to the securities' valuations from the previous quarter. Then, management selects a sample of investment securities and compares the values provided by its primary third-party pricing service to the market values obtained from secondary sources, including other pricing services and safekeeping statements, and evaluates those with notable variances. In instances where there are discrepancies in pricing from various sources and management expectations, management may manually price securities using currently observed market data to determine whether they can develop similar prices or may utilize bid information from broker dealers. Any remaining discrepancies between management's review and the prices provided by the vendor are discussed with the vendor and/or the Company's other valuation advisors.
Interest rate swaps: Interest rate swaps are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations to value its interest rate swaps.
Junior subordinated debt: The Company estimates the fair value of its junior subordinated debt using a discounted cash flow model which incorporates the effect of the Company’s own credit risk in the fair value of the liabilities (Level 3). The Company’s cash flow assumptions are based on contractual cash flows as the Company anticipates that it will pay the debt according to its contractual terms.
The fair value of assets and liabilities measured at fair value on a recurring basis was determined using the following inputs as of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at the End of the Reporting Period Using:
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Fair Value
|
|
|
(in millions)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
CDO
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
CLO
|
|
—
|
|
|
146.9
|
|
|
—
|
|
|
146.9
|
|
Commercial MBS issued by GSEs
|
|
—
|
|
|
84.6
|
|
|
—
|
|
|
84.6
|
|
Corporate debt securities
|
|
—
|
|
|
270.2
|
|
|
—
|
|
|
270.2
|
|
Municipal (taxable) securities
|
|
—
|
|
|
22.5
|
|
|
—
|
|
|
22.5
|
|
Private label residential MBS
|
|
—
|
|
|
1,476.9
|
|
|
—
|
|
|
1,476.9
|
|
Residential MBS issued by GSEs
|
|
—
|
|
|
1,486.6
|
|
|
—
|
|
|
1,486.6
|
|
Tax-exempt
|
|
—
|
|
|
1,187.4
|
|
|
—
|
|
|
1,187.4
|
|
Trust preferred securities
|
|
26.5
|
|
|
—
|
|
|
—
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS debt securities
|
|
$
|
26.5
|
|
|
$
|
4,682.0
|
|
|
$
|
—
|
|
|
$
|
4,708.5
|
|
Equity securities
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
27.8
|
|
|
$
|
25.6
|
|
|
$
|
—
|
|
|
$
|
53.4
|
|
Preferred stock
|
|
113.9
|
|
|
—
|
|
|
—
|
|
|
113.9
|
|
Total equity securities
|
|
$
|
141.7
|
|
|
$
|
25.6
|
|
|
$
|
—
|
|
|
$
|
167.3
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (1)
|
|
$
|
—
|
|
|
$
|
4.2
|
|
|
$
|
—
|
|
|
$
|
4.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Junior subordinated debt (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65.9
|
|
|
$
|
65.9
|
|
Derivative liabilities (1)
|
|
—
|
|
|
87.5
|
|
|
—
|
|
|
87.5
|
|
(1)Derivative assets and liabilities relate primarily to interest rate swaps on loans and subordinated debt, see "Note 12. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $85.5 million and the net carrying value of subordinated debt is increased by $2.7 million as of December 31, 2020 for the effective portion of the hedge, which relates to the fair value of the hedges put in place to mitigate against fluctuations in interest rates.
(2)Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at the End of the Reporting Period Using:
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Fair
Value
|
|
|
(in millions)
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
CDO
|
|
$
|
—
|
|
|
$
|
10.1
|
|
|
$
|
—
|
|
|
$
|
10.1
|
|
Commercial MBS issued by GSEs
|
|
—
|
|
|
94.3
|
|
|
—
|
|
|
94.3
|
|
Corporate debt securities
|
|
5.1
|
|
|
94.8
|
|
|
—
|
|
|
99.9
|
|
Municipal (taxable) securities
|
|
—
|
|
|
7.8
|
|
|
—
|
|
|
7.8
|
|
Private label residential MBS
|
|
—
|
|
|
1,129.2
|
|
|
—
|
|
|
1,129.2
|
|
Residential MBS issued by GSEs
|
|
—
|
|
|
1,412.1
|
|
|
—
|
|
|
1,412.1
|
|
Tax-exempt
|
|
—
|
|
|
554.9
|
|
|
—
|
|
|
554.9
|
|
Trust preferred securities
|
|
27.0
|
|
|
—
|
|
|
—
|
|
|
27.0
|
|
U.S. government sponsored agency securities
|
|
—
|
|
|
10.0
|
|
|
—
|
|
|
10.0
|
|
U.S. treasury securities
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
1.0
|
|
Total AFS debt securities
|
|
$
|
32.1
|
|
|
$
|
3,314.2
|
|
|
$
|
—
|
|
|
$
|
3,346.3
|
|
Equity securities
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
52.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52.5
|
|
Preferred stock
|
|
86.2
|
|
|
—
|
|
|
—
|
|
|
86.2
|
|
Total equity securities
|
|
$
|
138.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
138.7
|
|
Loans - HFS
|
|
$
|
—
|
|
|
$
|
21.8
|
|
|
$
|
—
|
|
|
$
|
21.8
|
|
Derivative assets (1)
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
1.9
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Junior subordinated debt (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61.7
|
|
|
$
|
61.7
|
|
Derivative liabilities (1)
|
|
—
|
|
|
55.6
|
|
|
—
|
|
|
55.6
|
|
(1)Derivative assets and liabilities relate primarily to interest rate swaps on loans and subordinated debt, see "Note 12. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $53.3 million and the net carrying value of subordinated debt is decreased by $0.4 million as of December 31, 2019, which relates to the effective portion of the hedges put in place to mitigate against fluctuations in interest rates.
(2)Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.
For the years ended December 31, 2020, 2019, and 2018, the change in Level 3 liabilities measured at fair value on a recurring basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Subordinated Debt
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Beginning balance
|
|
$
|
(61.7)
|
|
|
$
|
(48.7)
|
|
|
$
|
(56.2)
|
|
Change in fair value (1)
|
|
(4.2)
|
|
|
(13.0)
|
|
|
7.5
|
|
Ending balance
|
|
$
|
(65.9)
|
|
|
$
|
(61.7)
|
|
|
$
|
(48.7)
|
|
(1)Unrealized gains/(losses) attributable to changes in the fair value of junior subordinated debt are recorded as part of OCI, net of tax, and totaled $(3.1) million, $(9.8) million, and $5.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.
For Level 3 liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Input Value
|
|
|
(in millions)
|
|
|
|
|
|
|
Junior subordinated debt
|
|
$
|
65.9
|
|
|
Discounted cash flow
|
|
Implied credit rating of the Company
|
|
2.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Input Value
|
|
|
(in millions)
|
|
|
|
|
|
|
Junior subordinated debt
|
|
$
|
61.7
|
|
|
Discounted cash flow
|
|
Implied credit rating of the Company
|
|
5.09
|
%
|
The significant unobservable inputs used in the fair value measurement of the Company’s junior subordinated debt as of December 31, 2020 and 2019 consist of the implied credit risk for the Company. As of December 31, 2020, the implied credit risk spread was calculated as the difference between the average of the 15-year 'BB' and 'BBB' rated financial indexes over the corresponding swap index. As of December 31, 2019, the implied credit risk spread was calculated as the difference between the 15-year 'BB' rated financial index over the corresponding swap index.
As of December 31, 2020, the Company estimates the discount rate at 2.87%, which represents an implied credit spread of 2.64% plus three-month LIBOR (0.24%). As of December 31, 2019, the Company estimated the discount rate at 5.09%, which was a 3.18% credit spread plus three-month LIBOR (1.91%).
Fair value on a nonrecurring basis
Certain assets are measured at fair value on a nonrecurring basis. That is, the assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of credit deterioration). The following table presents such assets carried on the Consolidated Balance Sheet by caption and by level within the ASC 825 hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at the End of the Reporting Period Using
|
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Active Markets for Similar Assets
(Level 2)
|
|
Unobservable Inputs
(Level 3)
|
|
|
(in millions)
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
187.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
187.3
|
|
Other assets acquired through foreclosure
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
110.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110.3
|
|
Other assets acquired through foreclosure
|
|
13.9
|
|
|
—
|
|
|
—
|
|
|
13.9
|
|
For Level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2020 and 2019, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Valuation Technique(s)
|
|
Significant Unobservable Inputs
|
|
Range
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Loans
|
$
|
187.3
|
|
|
Collateral method
|
|
Third party appraisal
|
|
Costs to sell
|
|
4.0% to 10.0%
|
|
Discounted cash flow method
|
|
Discount rate
|
|
Contractual loan rate
|
|
2.0% to 7.0%
|
|
|
Scheduled cash collections
|
|
Probability of default
|
|
0% to 20.0%
|
|
|
Proceeds from non-real estate collateral
|
|
Loss given default
|
|
0% to 70.0%
|
Other assets acquired through foreclosure
|
1.4
|
|
|
Collateral method
|
|
Third party appraisal
|
|
Costs to sell
|
|
4.0% to 10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Valuation Technique(s)
|
|
Significant Unobservable Inputs
|
|
Range
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Loans
|
$
|
110.3
|
|
|
Collateral method
|
|
Third party appraisal
|
|
Costs to sell
|
|
4.0% to 10.0%
|
|
Discounted cash flow method
|
|
Discount rate
|
|
Contractual loan rate
|
|
4.0% to 7.0%
|
|
|
Scheduled cash collections
|
|
Probability of default
|
|
0% to 20.0%
|
|
|
Proceeds from non-real estate collateral
|
|
Loss given default
|
|
0% to 70.0%
|
Other assets acquired through foreclosure
|
13.9
|
|
|
Collateral method
|
|
Third party appraisal
|
|
Costs to sell
|
|
4.0% to 10.0%
|
Loans: Loans measured at fair value on a nonrecurring basis include collateral dependent loans held for investment. The specific reserves for these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. In addition, when adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable and the fair value measurement is categorized as a Level 3 measurement. Internal discounted cash flow analyses are also utilized to estimate the fair value of these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity.
Total Level 3 collateral dependent loans had an estimated fair value of $187.3 million and $110.3 million at December 31, 2020 and 2019, respectively, net of a specific valuation allowance of $8.9 million and $2.8 million at December 31, 2020 and 2019, respectively.
Other assets acquired through foreclosure: Other assets acquired through foreclosure consist of properties acquired as a result of, or in-lieu-of, foreclosure. These assets are initially reported at the fair value determined by independent appraisals using appraised value less estimated cost to sell. Such properties are generally re-appraised every twelve months. There is risk for subsequent volatility. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense.
Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. When significant adjustments are based on unobservable inputs, such as when a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement. The Company had $1.4 million and $13.9 million of such assets at December 31, 2020 and 2019, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company’s financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Carrying Amount
|
|
Fair Value
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in millions)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
HTM
|
|
$
|
568.8
|
|
|
$
|
—
|
|
|
$
|
611.8
|
|
|
$
|
—
|
|
|
$
|
611.8
|
|
AFS
|
|
4,708.5
|
|
|
26.5
|
|
|
4,682.0
|
|
|
—
|
|
|
4,708.5
|
|
Equity securities
|
|
167.3
|
|
|
141.7
|
|
|
25.6
|
|
|
—
|
|
|
167.3
|
|
Derivative assets
|
|
4.2
|
|
|
—
|
|
|
4.2
|
|
|
—
|
|
|
4.2
|
|
Loans, net
|
|
26,774.1
|
|
|
—
|
|
|
—
|
|
|
27,231.0
|
|
|
27,231.0
|
|
Accrued interest receivable
|
|
166.1
|
|
|
—
|
|
|
166.1
|
|
|
—
|
|
|
166.1
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
31,930.5
|
|
|
$
|
—
|
|
|
$
|
31,935.9
|
|
|
$
|
—
|
|
|
$
|
31,935.9
|
|
Customer repurchase agreements
|
|
16.0
|
|
|
—
|
|
|
16.0
|
|
|
—
|
|
|
16.0
|
|
Other borrowings
|
|
5.0
|
|
|
—
|
|
|
5.0
|
|
|
—
|
|
|
5.0
|
|
Qualifying debt
|
|
548.7
|
|
|
—
|
|
|
488.1
|
|
|
79.3
|
|
|
567.4
|
|
Derivative liabilities
|
|
87.5
|
|
|
—
|
|
|
87.5
|
|
|
—
|
|
|
87.5
|
|
Accrued interest payable
|
|
11.0
|
|
|
—
|
|
|
11.0
|
|
|
—
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Carrying Amount
|
|
Fair Value
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in millions)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
HTM
|
|
$
|
485.1
|
|
|
$
|
—
|
|
|
$
|
516.3
|
|
|
$
|
—
|
|
|
$
|
516.3
|
|
AFS
|
|
3,346.3
|
|
|
32.2
|
|
|
3,314.1
|
|
|
—
|
|
|
3,346.3
|
|
Equity securities
|
|
138.7
|
|
|
138.7
|
|
|
—
|
|
|
—
|
|
|
138.7
|
|
Derivative assets
|
|
1.9
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
1.9
|
|
Loans, net
|
|
20,955.5
|
|
|
—
|
|
|
—
|
|
|
21,256.5
|
|
|
21,256.5
|
|
Accrued interest receivable
|
|
108.7
|
|
|
—
|
|
|
108.7
|
|
|
—
|
|
|
108.7
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
22,796.5
|
|
|
$
|
—
|
|
|
$
|
22,813.3
|
|
|
$
|
—
|
|
|
$
|
22,813.3
|
|
Customer repurchase agreements
|
|
16.7
|
|
|
—
|
|
|
16.7
|
|
|
—
|
|
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying debt
|
|
393.6
|
|
|
—
|
|
|
332.6
|
|
|
74.2
|
|
|
406.8
|
|
Derivative liabilities
|
|
55.6
|
|
|
—
|
|
|
55.6
|
|
|
—
|
|
|
55.6
|
|
Accrued interest payable
|
|
24.7
|
|
|
—
|
|
|
24.7
|
|
|
—
|
|
|
24.7
|
|
Interest rate risk
The Company assumes interest rate risk (the risk to the Company’s earnings and capital from changes in interest rate levels) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments, as well as its future net interest income, will change when interest rate levels change and that change may be either favorable or unfavorable to the Company.
Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the Company's change in EVE and net interest income resulting from hypothetical changes in interest rates. If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the BOD, the BOD may direct management to adjust the asset and liability mix to bring interest rate risk within BOD-approved limits.
WAB has an ALCO charged with managing interest rate risk within the BOD-approved limits. Limits are structured to preclude an interest rate risk profile that does not conform to both management and BOD risk tolerances without ALCO approval. There is also ALCO reporting at the Parent level for reviewing interest rate risk for the Company, which gets reported to the BOD and its Finance and Investment Committee.
Fair value of commitments
The estimated fair value of standby letters of credit outstanding at December 31, 2020 and 2019 approximates zero as there have been no significant changes in borrower creditworthiness. Loan commitments on which the committed interest rates are less than the current market rate are insignificant at December 31, 2020 and 2019.
17. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could trigger certain mandatory or discretionary actions that, if undertaken, could have a direct material effect on the Company’s business and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
In March 2020, the federal bank regulatory authorities issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. The Company has elected the five-year CECL transition option in connection with its adoption of CECL on January 1, 2020. As a result, capital ratios and amounts as of December 31, 2020 exclude the impact of the increased allowance for credit losses related to the adoption of ASC 326.
As of December 31, 2020 and 2019, the Company and the Bank's capital ratios exceeded the well-capitalized thresholds, as defined by the federal banking agencies. The actual capital amounts and ratios for the Company and the Bank are presented in the following tables as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
Tier 1 Capital
|
|
Risk-Weighted Assets
|
|
Tangible Average Assets
|
|
Total Capital Ratio
|
|
Tier 1 Capital Ratio
|
|
Tier 1 Leverage Ratio
|
|
Common Equity
Tier 1
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAL
|
|
$
|
3,872.0
|
|
|
$
|
3,158.2
|
|
|
$
|
31,015.4
|
|
|
$
|
34,349.3
|
|
|
12.5
|
%
|
|
10.2
|
%
|
|
9.2
|
%
|
|
9.9
|
%
|
WAB
|
|
3,619.4
|
|
|
3,078.2
|
|
|
31,140.6
|
|
|
34,367.0
|
|
|
11.6
|
|
|
9.9
|
|
|
9.0
|
|
|
9.9
|
|
Well-capitalized ratios
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
8.0
|
|
|
5.0
|
|
|
6.5
|
|
Minimum capital ratios
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
6.0
|
|
|
4.0
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAL
|
|
$
|
3,257.9
|
|
|
$
|
2,775.4
|
|
|
$
|
25,390.1
|
|
|
$
|
26,110.3
|
|
|
12.8
|
%
|
|
10.9
|
%
|
|
10.6
|
%
|
|
10.6
|
%
|
WAB
|
|
3,030.3
|
|
|
2,703.5
|
|
|
25,452.3
|
|
|
26,134.4
|
|
|
11.9
|
|
|
10.6
|
|
|
10.3
|
|
|
10.6
|
|
Well-capitalized ratios
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
8.0
|
|
|
5.0
|
|
|
6.5
|
|
Minimum capital ratios
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
6.0
|
|
|
4.0
|
|
|
4.5
|
|
18. EMPLOYEE BENEFIT PLANS
The Company has a qualified 401(k) employee benefit plan for all eligible employees. Participants are able to defer between 1% and 75% (up to a maximum of $19,500 for those under 50 years of age and up to a maximum of $26,000 for those over 50 years of age in 2020) of their annual compensation. The Company may elect to match a discretionary amount each year, which is 75% of the first 6% of the participant’s compensation deferred into the plan. The Company’s contributions to this plan total $7.1 million, $6.2 million, and $5.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.
In addition, the Company maintains a non-qualified 401(k) restoration plan for the benefit of executives of the Company and certain affiliates. Participants are able to defer a portion of their annual salary and receive a matching contribution based primarily on the contribution structure in effect under the Company’s 401(k) plan, but without regard to certain statutory limitations applicable under the 401(k) plan. The Company’s total contribution to the restoration plan was $0.2 million for each of the years ended December 31, 2020 and $0.1 million for the years ended December 31, 2019 and 2018.
In connection with the Bridge acquisition, the Company assumed Bridge's SERP, an unfunded noncontributory defined benefit pension plan. The SERP provides retirement benefits to certain Bridge officers based on years of service and final average salary. The Company uses a December 31 measurement date for this plan.
The following table reflects the accumulated benefit obligation and funded status of the SERP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Change in benefit obligation
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
11.7
|
|
|
$
|
10.0
|
|
Service cost
|
|
0.6
|
|
|
0.6
|
|
Interest cost
|
|
0.6
|
|
|
0.6
|
|
Actuarial losses/(gains)
|
|
1.1
|
|
|
0.8
|
|
Expected benefits paid
|
|
(0.4)
|
|
|
(0.3)
|
|
Projected benefit obligation at end of year
|
|
$
|
13.6
|
|
|
$
|
11.7
|
|
Unfunded projected/accumulated benefit obligation
|
|
(13.6)
|
|
|
(11.7)
|
|
Additional liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Weighted average assumptions to determine benefit obligation
|
|
|
|
|
Discount rate
|
|
5.25
|
%
|
|
5.25
|
%
|
Rate of compensation increase
|
|
3.00
|
%
|
|
3.00
|
%
|
The components of net periodic benefit cost recognized for the year ended December 31, 2020 and 2019 and the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost during 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2021
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
Interest cost
|
|
0.6
|
|
|
0.6
|
|
|
0.6
|
|
Amortization of prior service cost
|
|
0.0
|
|
|
0.0
|
|
|
0.1
|
|
Amortization of actuarial (gains)/losses
|
|
0.0
|
|
|
(0.1)
|
|
|
(0.2)
|
|
Net periodic benefit cost
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
Other comprehensive income (cost)
|
|
$
|
0.0
|
|
|
$
|
(0.1)
|
|
|
$
|
(0.1)
|
|
19. RELATED PARTY TRANSACTIONS
Principal stockholders, directors, and executive officers of the Company, their immediate family members, and companies they control or own more than a 10% interest in, are considered to be related parties. In the ordinary course of business, the Company engages in various related party transactions, including extending credit and bank service transactions. All related party transactions are subject to review and approval pursuant to the Company's Related Party Transactions policy.
Federal banking regulations require that any extensions of credit to insiders and their related interests not be offered on terms more favorable than would be offered to non-related borrowers of similar creditworthiness. The following table summarizes the aggregate activity in such loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Balance, beginning
|
|
$
|
3.8
|
|
|
$
|
4.6
|
|
New loans
|
|
—
|
|
|
—
|
|
Advances
|
|
—
|
|
|
0.3
|
|
Repayments and other
|
|
(0.5)
|
|
|
(1.1)
|
|
Balance, ending
|
|
$
|
3.3
|
|
|
$
|
3.8
|
|
None of these loans are past due, on non-accrual status or have been restructured to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. There were no loans to a related party that were considered classified loans at December 31, 2020 or 2019. The interest income associated with these loans was approximately $0.2 million, $0.2 million and $0.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Loan commitments outstanding with related parties totaled approximately $10.3 million and $10.6 million at December 31, 2020 and 2019, respectively.
The Company also accepts deposits from related parties, which totaled $156.9 million and $100.1 million at December 31, 2020 and 2019, respectively, with related interest expense totaling approximately $0.2 million, $0.3 million and $0.2 million during the year ended December 31, 2020, 2019, and 2018, respectively.
Donations, sponsorships, and other payments to related parties totaled less than $1.0 million during the years ended December 31, 2020, 2019 and totaled $8.1 million during the year ended December 31, 2018. Total related party payments of $8.1 million for the year ended December 31, 2018 include a donation to the Company's charitable foundation of $7.6 million, which consisted of a non-cash donation of OREO property of $6.9 million and a cash donation of $0.7 million.
During the year ended December 31, 2018, the Company sold an OREO property to a related party with a carrying value of $0.9 million and recognized a loss of $0.2 million on the sale.
20. PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements of the holding company are presented in the following tables:
WESTERN ALLIANCE BANCORPORATION
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
ASSETS:
|
|
|
Cash and cash equivalents
|
|
$
|
55.5
|
|
|
$
|
75.9
|
|
|
|
|
|
|
Investment securities - AFS
|
|
5.1
|
|
|
12.8
|
|
Investment securities - equity
|
|
49.8
|
|
|
47.1
|
|
Investment in bank subsidiaries
|
|
3,493.5
|
|
|
3,063.4
|
|
Investment in non-bank subsidiaries
|
|
49.9
|
|
|
52.3
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
18.0
|
|
|
22.5
|
|
Total assets
|
|
$
|
3,671.8
|
|
|
$
|
3,274.0
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
Qualifying debt
|
|
$
|
251.5
|
|
|
$
|
242.0
|
|
Accrued interest and other liabilities
|
|
6.8
|
|
|
15.3
|
|
Total liabilities
|
|
258.3
|
|
|
257.3
|
|
Total stockholders’ equity
|
|
3,413.5
|
|
|
3,016.7
|
|
Total liabilities and stockholders’ equity
|
|
$
|
3,671.8
|
|
|
$
|
3,274.0
|
|
WESTERN ALLIANCE BANCORPORATION
Condensed Income Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Income:
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
160.0
|
|
|
$
|
134.0
|
|
|
$
|
152.1
|
|
Interest income
|
|
3.1
|
|
|
2.8
|
|
|
2.9
|
|
Non-interest income
|
|
4.7
|
|
|
5.1
|
|
|
0.8
|
|
Total income
|
|
167.8
|
|
|
141.9
|
|
|
155.8
|
|
Expense:
|
|
|
|
|
|
|
Interest expense
|
|
10.6
|
|
|
14.6
|
|
|
13.9
|
|
Non-interest expense
|
|
19.7
|
|
|
19.5
|
|
|
19.0
|
|
Total expense
|
|
30.3
|
|
|
34.1
|
|
|
32.9
|
|
Income before income taxes and equity in undistributed earnings of subsidiaries
|
|
137.5
|
|
|
107.8
|
|
|
122.9
|
|
Income tax benefit
|
|
4.5
|
|
|
5.7
|
|
|
10.4
|
|
Income before equity in undistributed earnings of subsidiaries
|
|
142.0
|
|
|
113.5
|
|
|
133.3
|
|
Equity in undistributed earnings of subsidiaries
|
|
364.6
|
|
|
385.7
|
|
|
302.5
|
|
Net income
|
|
$
|
506.6
|
|
|
$
|
499.2
|
|
|
$
|
435.8
|
|
Western Alliance Bancorporation
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions)
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
506.6
|
|
|
$
|
499.2
|
|
|
$
|
435.8
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Equity in net undistributed earnings of subsidiaries
|
(364.6)
|
|
|
(385.7)
|
|
|
(302.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating activities, net
|
8.0
|
|
|
9.9
|
|
|
(5.9)
|
|
Net cash provided by operating activities
|
150.0
|
|
|
123.4
|
|
|
127.4
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of securities
|
(6.9)
|
|
|
(10.8)
|
|
|
(44.4)
|
|
Principal pay downs, calls, maturities, and sales proceeds of securities
|
7.7
|
|
|
19.0
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investing activities, net
|
1.2
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
2.0
|
|
|
8.2
|
|
|
(33.0)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
(71.6)
|
|
|
(120.2)
|
|
|
(35.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on common stock
|
(101.3)
|
|
|
(51.3)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financing activities, net
|
0.5
|
|
|
0.1
|
|
|
0.5
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
(172.4)
|
|
|
(171.4)
|
|
|
(35.2)
|
|
Net (decrease) increase in cash and cash equivalents
|
(20.4)
|
|
|
(39.8)
|
|
|
59.2
|
|
Cash and cash equivalents at beginning of year
|
75.9
|
|
|
115.7
|
|
|
56.5
|
|
Cash and cash equivalents at end of year
|
$
|
55.5
|
|
|
$
|
75.9
|
|
|
$
|
115.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21. SEGMENTS
The Company has made changes to its reportable segments, which have been reflected in the Company's operating segment results as and for the year ended December 31, 2020. The Company's reportable segments are aggregated with a focus on products and services offered and consist of three reportable segments:
•Commercial segment: provides commercial banking and treasury management products and services to small and middle-market businesses, specialized banking services to sophisticated commercial institutions and investors within niche industries, as well as financial services to the real estate industry.
•Consumer Related segment: offers both commercial banking services to enterprises in consumer-related sectors and consumer banking services, such as residential mortgage banking.
•Corporate & Other segment: consists of the Company's investment portfolio, Corporate borrowings and other related items, income and expense items not allocated to our other reportable segments, and inter-segment eliminations.
The Company's segment reporting process begins with the assignment of all loan and deposit accounts directly to the segments where these products are originated and/or serviced. Equity capital is assigned to each segment based on the risk profile of their assets and liabilities. With the exception of goodwill, which is assigned a 100% weighting, equity capital allocations ranged from 0% to 12% during the year. Any excess or deficient equity not allocated to segments based on risk is assigned to the Corporate & Other segment.
Net interest income, provision for credit losses, and non-interest expense amounts are recorded in their respective segments to the extent that the amounts are directly attributable to those segments. Net interest income is recorded in each segment on a TEB with a corresponding increase in income tax expense, which is eliminated in the Corporate & Other segment.
Further, net interest income of a reportable segment includes a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Using this funds transfer pricing methodology, liquidity is transferred between users and providers. A net user of funds has lending/investing in excess of deposits/borrowings and a net provider of funds has deposits/borrowings in excess of lending/investing. A segment that is a user of funds is charged for the use of funds, while a provider of funds is credited through funds transfer pricing, which is determined based on the average life of the assets or liabilities in the portfolio. Residual funds transfer pricing mismatches are allocable to the Corporate & Other segment and presented as part of net interest income.
The net income amount for each reportable segment is further derived by the use of expense allocations. Certain expenses not directly attributable to a specific segment are allocated across all segments based on key metrics, such as number of employees, number of transactions processed for loans and deposits, and average loan and deposit balances. These types of expenses include information technology, operations, human resources, finance, risk management, credit administration, legal, and marketing.
Income taxes are applied to each segment based on the effective tax rate for the geographic location of the segment. Any difference in the corporate tax rate and the aggregate effective tax rates in the segments are adjusted in the Corporate & Other segment.
The following is a summary of operating segment balance sheet information for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
At December 31, 2020:
|
|
(in millions)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and investment securities
|
|
$
|
8,176.5
|
|
|
$
|
12.0
|
|
|
$
|
45.6
|
|
|
$
|
8,118.9
|
|
Loans, net of deferred loan fees and costs
|
|
27,053.0
|
|
|
20,245.8
|
|
|
6,798.2
|
|
|
9.0
|
|
Less: allowance for credit losses
|
|
(278.9)
|
|
|
(263.4)
|
|
|
(15.4)
|
|
|
(0.1)
|
|
Total loans
|
|
26,774.1
|
|
|
19,982.4
|
|
|
6,782.8
|
|
|
8.9
|
|
Other assets acquired through foreclosure, net
|
|
1.4
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
Goodwill and other intangible assets, net
|
|
298.5
|
|
|
296.1
|
|
|
2.4
|
|
|
—
|
|
Other assets
|
|
1,210.5
|
|
|
257.0
|
|
|
96.6
|
|
|
856.9
|
|
Total assets
|
|
$
|
36,461.0
|
|
|
$
|
20,548.9
|
|
|
$
|
6,927.4
|
|
|
$
|
8,984.7
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
31,930.5
|
|
|
$
|
21,448.0
|
|
|
$
|
9,936.8
|
|
|
$
|
545.7
|
|
Borrowings and qualifying debt
|
|
553.7
|
|
|
—
|
|
|
—
|
|
|
553.7
|
|
Other liabilities
|
|
563.3
|
|
|
170.4
|
|
|
3.3
|
|
|
389.6
|
|
Total liabilities
|
|
33,047.5
|
|
|
21,618.4
|
|
|
9,940.1
|
|
|
1,489.0
|
|
Allocated equity:
|
|
3,413.5
|
|
|
1,992.2
|
|
|
579.1
|
|
|
842.2
|
|
Total liabilities and stockholders' equity
|
|
$
|
36,461.0
|
|
|
$
|
23,610.6
|
|
|
$
|
10,519.2
|
|
|
$
|
2,331.2
|
|
Excess funds provided (used)
|
|
—
|
|
|
3,061.7
|
|
|
3,591.8
|
|
|
(6,653.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
At December 31, 2019:
|
|
(in millions)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and investment securities
|
|
$
|
4,471.2
|
|
|
$
|
15.4
|
|
|
$
|
10.1
|
|
|
$
|
4,445.7
|
|
Loans, net of deferred loan fees and costs
|
|
21,123.3
|
|
|
16,767.3
|
|
|
4,352.5
|
|
|
3.5
|
|
Less: allowance for credit losses
|
|
(167.8)
|
|
|
(134.2)
|
|
|
(33.6)
|
|
|
—
|
|
Total loans
|
|
20,955.5
|
|
|
16,633.1
|
|
|
4,318.9
|
|
|
3.5
|
|
Other assets acquired through foreclosure, net
|
|
13.9
|
|
|
13.9
|
|
|
—
|
|
|
—
|
|
Goodwill and other intangible assets, net
|
|
297.6
|
|
|
297.6
|
|
|
—
|
|
|
—
|
|
Other assets
|
|
1,083.7
|
|
|
202.6
|
|
|
40.1
|
|
|
841.0
|
|
Total assets
|
|
$
|
26,821.9
|
|
|
$
|
17,162.6
|
|
|
$
|
4,369.1
|
|
|
$
|
5,290.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
22,796.5
|
|
|
$
|
17,067.6
|
|
|
$
|
4,644.7
|
|
|
$
|
1,084.2
|
|
Borrowings and qualifying debt
|
|
393.6
|
|
|
—
|
|
|
—
|
|
|
393.6
|
|
Other liabilities
|
|
615.1
|
|
|
95.4
|
|
|
9.2
|
|
|
510.5
|
|
Total liabilities
|
|
23,805.2
|
|
|
17,163.0
|
|
|
4,653.9
|
|
|
1,988.3
|
|
Allocated equity:
|
|
3,016.7
|
|
|
2,060.0
|
|
|
446.8
|
|
|
509.9
|
|
Total liabilities and stockholders' equity
|
|
$
|
26,821.9
|
|
|
$
|
19,223.0
|
|
|
$
|
5,100.7
|
|
|
$
|
2,498.2
|
|
Excess funds provided (used)
|
|
—
|
|
|
2,060.4
|
|
|
731.6
|
|
|
(2,792.0)
|
|
The following is a summary of operating segment income statement information for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
Year Ended December 31, 2020:
|
|
(in millions)
|
Net interest income
|
|
$
|
1,166.9
|
|
|
$
|
999.7
|
|
|
$
|
302.5
|
|
|
$
|
(135.3)
|
|
Provision for (recovery of) credit losses
|
|
123.6
|
|
|
128.6
|
|
|
(9.0)
|
|
|
4.0
|
|
Net interest income after provision for credit losses
|
|
1,043.3
|
|
|
871.1
|
|
|
311.5
|
|
|
(139.3)
|
|
Non-interest income
|
|
70.8
|
|
|
50.5
|
|
|
1.6
|
|
|
18.7
|
|
Non-interest expense
|
|
491.6
|
|
|
308.9
|
|
|
92.6
|
|
|
90.1
|
|
Income (loss) before income taxes
|
|
622.5
|
|
|
612.7
|
|
|
220.5
|
|
|
(210.7)
|
|
Income tax expense (benefit)
|
|
115.9
|
|
|
147.6
|
|
|
52.3
|
|
|
(84.0)
|
|
Net income
|
|
$
|
506.6
|
|
|
$
|
465.1
|
|
|
$
|
168.2
|
|
|
$
|
(126.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
Year Ended December 31, 2019:
|
|
(in millions)
|
Net interest income
|
|
$
|
1,040.4
|
|
|
$
|
837.2
|
|
|
$
|
209.0
|
|
|
$
|
(5.8)
|
|
Provision for credit losses
|
|
19.3
|
|
|
11.1
|
|
|
7.4
|
|
|
0.8
|
|
Net interest income (expense) after provision for credit losses
|
|
1,021.1
|
|
|
826.1
|
|
|
201.6
|
|
|
(6.6)
|
|
Non-interest income
|
|
65.1
|
|
|
50.4
|
|
|
1.4
|
|
|
13.3
|
|
Non-interest expense
|
|
482.0
|
|
|
320.6
|
|
|
96.7
|
|
|
64.7
|
|
Income (loss) before income taxes
|
|
604.2
|
|
|
555.9
|
|
|
106.3
|
|
|
(58.0)
|
|
Income tax expense (benefit)
|
|
105.0
|
|
|
134.7
|
|
|
24.8
|
|
|
(54.5)
|
|
Net income
|
|
$
|
499.2
|
|
|
$
|
421.2
|
|
|
$
|
81.5
|
|
|
$
|
(3.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
Year Ended December 31, 2018:
|
|
(in millions)
|
Net interest income
|
|
$
|
915.9
|
|
|
$
|
741.7
|
|
|
$
|
162.0
|
|
|
$
|
12.2
|
|
Provision for credit losses
|
|
25.0
|
|
|
18.9
|
|
|
4.2
|
|
|
1.9
|
|
Net interest income (expense) after provision for credit losses
|
|
890.9
|
|
|
722.8
|
|
|
157.8
|
|
|
10.3
|
|
Non-interest income
|
|
43.1
|
|
|
48.3
|
|
|
1.4
|
|
|
(6.6)
|
|
Non-interest expense
|
|
423.7
|
|
|
309.5
|
|
|
72.6
|
|
|
41.6
|
|
Income (loss) before income taxes
|
|
510.3
|
|
|
461.6
|
|
|
86.6
|
|
|
(37.9)
|
|
Income tax expense (benefit)
|
|
74.5
|
|
|
112.1
|
|
|
20.5
|
|
|
(58.1)
|
|
Net income
|
|
$
|
435.8
|
|
|
$
|
349.5
|
|
|
$
|
66.1
|
|
|
$
|
20.2
|
|
22. REVENUE FROM CONTRACTS WITH CUSTOMERS
ASC 606, Revenue from Contracts with Customers, requires revenue to be recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. ASC 606 applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. The majority of the Company’s revenue streams including interest income, credit and debit card fees, income from equity investments including warrants and SBIC equity income, income from bank owned life insurance, foreign currency income, lending related income, and gains and losses on sales of investment securities are outside the scope of ASC 606. Revenue streams including service charges and fees, interchange fees on credit and debit cards, and success fees are within the scope of ASC 606.
Disaggregation of Revenue
The following table represents a disaggregation of revenue from contracts with customers for the periods indicated along with the reportable segment for each revenue category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
Year Ended December 31, 2020
|
|
(in millions)
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
23.3
|
|
|
$
|
21.7
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
Debit and credit card interchange (1)
|
|
5.2
|
|
|
5.2
|
|
|
—
|
|
|
—
|
|
Success fees (2)
|
|
0.8
|
|
|
0.8
|
|
|
—
|
|
|
—
|
|
Other income
|
|
0.6
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
Total revenue from contracts with customers
|
|
$
|
29.9
|
|
|
$
|
28.3
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
Revenues outside the scope of ASC 606 (3)
|
|
40.9
|
|
|
22.2
|
|
|
—
|
|
|
18.7
|
|
Total non-interest income
|
|
$
|
70.8
|
|
|
$
|
50.5
|
|
|
$
|
1.6
|
|
|
$
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
Year Ended December 31, 2019
|
|
(dollars in millions)
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
23.3
|
|
|
$
|
21.9
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
Debit and credit card interchange (1)
|
|
5.9
|
|
|
5.8
|
|
|
0.1
|
|
|
—
|
|
Success fees (2)
|
|
1.6
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
Other income
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Total revenue from contracts with customers
|
|
$
|
31.1
|
|
|
$
|
29.6
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
Revenues outside the scope of ASC 606 (3)
|
|
34.0
|
|
|
20.8
|
|
|
(0.1)
|
|
|
13.3
|
|
Total non-interest income
|
|
$
|
65.1
|
|
|
$
|
50.4
|
|
|
$
|
1.4
|
|
|
$
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
Year Ended December 31, 2018
|
|
(dollars in millions)
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
22.3
|
|
|
$
|
21.0
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
Debit and credit card interchange (1)
|
|
6.5
|
|
|
6.8
|
|
|
—
|
|
|
(0.3)
|
|
Success fees (2)
|
|
3.3
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
Other income
|
|
0.6
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
Total revenue from contracts with customers
|
|
$
|
32.7
|
|
|
$
|
31.7
|
|
|
$
|
1.3
|
|
|
$
|
(0.3)
|
|
Revenues outside the scope of ASC 606 (3)
|
|
10.4
|
|
|
16.6
|
|
|
0.1
|
|
|
(6.3)
|
|
Total non-interest income
|
|
$
|
43.1
|
|
|
$
|
48.3
|
|
|
$
|
1.4
|
|
|
$
|
(6.6)
|
|
(1)Included as part of Card income in the Consolidated Income Statement.
(2)Included as part of Income from equity investments in the Consolidated Income Statement.
(3)Amounts are accounted for under separate guidance. Refer to discussion of revenue sources not subject to ASC 606 under the Non-interest income section in "Note 1. Summary of Significant Accounting Policies."
Performance Obligations
Many of the services the Company performs for its customers are ongoing, and either party may cancel at any time. The fees for these contracts are dependent upon various underlying factors, such as customer deposit balances, and as such may be considered variable. The Company’s performance obligations for these services are satisfied as the services are rendered and payment is collected on a monthly, quarterly, or semi-annual basis. Other contracts with customers are for services to be provided at a point in time, and fees are recognized at the time such services are rendered. The Company had no material unsatisfied performance obligations as of December 31, 2020. The revenue streams within the scope of ASC 606 are described in further detail below.
Service Charges and Fees
The Company performs deposit account services for its customers, which include analysis and treasury management services, use of safe deposit boxes, check upcharges, and other ancillary services. The depository arrangements the Company holds with its customers are considered day-to-day contracts with ongoing renewals and optional purchases, and as such, the contract duration does not extend beyond the services performed. Due to the short-term nature of such contracts, the Company generally recognizes revenue for deposit related fees as services are rendered. From time to time, the Company may waive certain fees for its customers. The Company considers historical experience when recognizing revenue from contracts with customers, and may reduce the transaction price to account for fee waivers or refunds.
Debit and Credit Card Interchange
When a credit or debit card issued by the Company is used to purchase goods or services from a merchant, the Company earns an interchange fee. The Company considers the merchant its customer in these transactions as the Company provides the merchant with the service of enabling the cardholder to purchase the merchant’s goods or services with increased convenience, and it enables the merchants to transact with a class of customer that may not have access to sufficient funds at the time of purchase. The Company acts as an agent to the payment network by providing nightly settlement services between the network and the merchant. This transmission of data and funds represents the Company’s performance obligation and is performed nightly. As the payment network is in direct control of setting the rates and the Company is acting as an agent, the interchange fee is recorded net of expenses as the services are provided.
Success Fees
Success fees are one-time fees detailed as part of certain loan agreements and are earned immediately upon occurrence of a triggering event. Examples of triggering events include: a borrower obtaining its next round of funding, an acquisition, or completion of a public offering. Success fees are variable consideration as the transaction price can vary and is contingent on the occurrence or non-occurrence of a future event. As the consideration is highly susceptible to factors outside of the Company’s influence and uncertainty about the amount of consideration is not expected to be resolved for an extended period of time, the variable consideration is constrained and is not recognized until the achievement of the triggering event.
Principal versus Agent Considerations
When more than one party is involved in providing goods or services to a customer, ASC 606 requires the Company to determine whether it is the principal or an agent in these transactions by evaluating the nature of its promise to the customer. An entity is a principal, and therefore records revenue on a gross basis, if it controls a promised good or service before transferring that good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services. The Company most commonly acts as a principal and records revenue on a gross basis, except in certain circumstances. As an example, revenues earned from interchange fees, in which the Company acts as an agent, are recorded as non-interest income, net of the related expenses paid to the principal.
Contract Balances
The timing of revenue recognition may differ from the timing of cash settlements or invoicing to customers. The Company records contract liabilities, or deferred revenue, when payments from customers are received or due in advance of providing services to customers. The Company generally receives payments for its services during the period or at the time services are provided and, therefore, does not have material contract liability balances at period end. The Company records contract assets or receivables when revenue is recognized prior to receipt of cash from the customer. Accounts receivable total $1.6 million as of December 31, 2020 and December 31, 2019, respectively, and are presented in Other assets on the Consolidated Balance Sheets.
23. QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
|
|
|
(in millions, except per share amounts)
|
|
Interest income
|
|
$
|
331.6
|
|
|
$
|
304.8
|
|
|
$
|
318.2
|
|
|
$
|
307.2
|
|
|
Interest expense
|
|
16.8
|
|
|
20.1
|
|
|
19.8
|
|
|
38.2
|
|
|
Net interest income
|
|
314.8
|
|
|
284.7
|
|
|
298.4
|
|
|
269.0
|
|
|
(Recovery of) provision for credit losses
|
|
(34.2)
|
|
|
14.6
|
|
|
92.0
|
|
|
51.2
|
|
|
Net interest income after provision for credit losses
|
|
349.0
|
|
|
270.1
|
|
|
206.4
|
|
|
217.8
|
|
|
Non-interest income
|
|
23.8
|
|
|
20.6
|
|
|
21.3
|
|
|
5.1
|
|
|
Non-interest expense
|
|
(132.2)
|
|
|
(124.1)
|
|
|
(114.8)
|
|
|
(120.5)
|
|
|
Income before provision for income taxes
|
|
240.6
|
|
|
166.6
|
|
|
112.9
|
|
|
102.4
|
|
|
Income tax expense
|
|
47.0
|
|
|
30.8
|
|
|
19.6
|
|
|
18.5
|
|
|
Net income
|
|
$
|
193.6
|
|
|
$
|
135.8
|
|
|
$
|
93.3
|
|
|
$
|
83.9
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.94
|
|
|
$
|
1.36
|
|
|
$
|
0.93
|
|
|
$
|
0.83
|
|
|
Diluted
|
|
$
|
1.93
|
|
|
$
|
1.36
|
|
|
$
|
0.93
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
|
|
(in millions, except per share amounts)
|
Interest income
|
|
$
|
315.4
|
|
|
$
|
315.6
|
|
|
$
|
302.9
|
|
|
$
|
291.1
|
|
Interest expense
|
|
43.4
|
|
|
49.2
|
|
|
48.2
|
|
|
43.8
|
|
Net interest income
|
|
272.0
|
|
|
266.4
|
|
|
254.7
|
|
|
247.3
|
|
Provision for credit losses
|
|
4.0
|
|
|
3.8
|
|
|
7.0
|
|
|
4.5
|
|
Net interest income after provision for credit losses
|
|
268.0
|
|
|
262.6
|
|
|
247.7
|
|
|
242.8
|
|
Non-interest income
|
|
16.0
|
|
|
19.3
|
|
|
14.4
|
|
|
15.4
|
|
Non-interest expense
|
|
(129.7)
|
|
|
(126.1)
|
|
|
(114.3)
|
|
|
(111.9)
|
|
Income before provision for income taxes
|
|
154.3
|
|
|
155.8
|
|
|
147.8
|
|
|
146.3
|
|
Income tax expense
|
|
26.2
|
|
|
28.5
|
|
|
24.8
|
|
|
25.5
|
|
Net income
|
|
$
|
128.1
|
|
|
$
|
127.3
|
|
|
$
|
123.0
|
|
|
$
|
120.8
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.26
|
|
|
$
|
1.25
|
|
|
$
|
1.19
|
|
|
$
|
1.16
|
|
Diluted
|
|
$
|
1.25
|
|
|
$
|
1.24
|
|
|
$
|
1.19
|
|
|
$
|
1.16
|
|
24. SUBSEQUENT EVENTS
On February 16, 2021, the Company entered into a definitive agreement with Aris Mortgage Holding Company, LLC ("Aris"), the parent company of AmeriHome Mortgage Company, LLC (“AmeriHome”), and certain other parties, pursuant to which Aris will merge with an indirect subsidiary of the Bank. Following the merger, AmeriHome will continue to use its trade name, continuing to operate as AmeriHome, a Western Alliance Bank company. Pursuant to the agreement, WAB will pay cash consideration of $275 million plus the adjusted tangible book value of Aris at closing, for an estimated aggregate cash consideration of $1.0 billion (inclusive of certain transaction expenses and management bonus payments) based on December 31, 2020 financial statements of Aris. James Furash, Chief Executive Officer of AmeriHome, and other founding management team members of AmeriHome will continue in their roles following the merger. The merger, which remains subject to required regulatory approvals, is expected to close in the second quarter of 2021.