NOTES TO UNAUDITED 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, mortgage banking, 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. Most recently, the Company added to these capabilities with the acquisition of AmeriHome on April 7, 2021, a leading national business-to-business mortgage platform. In addition, the Company has two non-bank subsidiaries, which are 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.
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.
Recently adopted accounting guidance
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 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: 1) the determination of the allowance for credit losses; 2) certain assets and liabilities carried at fair value; and 3) accounting for income taxes.
Principles of consolidation
As of June 30, 2021, 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.
WAB has the following significant wholly-owned subsidiaries: 1) WABT, which holds certain investment securities, municipal and nonprofit loans, and leases; 2) WA PWI, which holds interests in certain limited partnerships invested primarily in low income housing tax credits and small business investment corporations; 3) Helios Prime, which holds interests in certain limited partnerships invested in renewable energy projects; 4) BW Real Estate, Inc., which operates as a real estate investment trust and holds certain of WAB's real estate loans and related securities; and 5) Western Alliance Equipment Finance, which purchases and originates equipment finance leases and, as of April 7, 2021, provides mortgage banking services through its wholly-owned subsidiary, AmeriHome Mortgage.
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.
Interim financial information
The accompanying Unaudited Consolidated Financial Statements as of and for the three and six months ended June 30, 2021 and 2020 have been prepared in condensed format and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company's audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company's audited Consolidated Financial Statements.
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. Assets acquired and liabilities assumed from contingencies are also recognized at fair value if the fair value can be determined during the measurement period. 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.
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, Measurement of Credit Losses on Financial Instruments, 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 and
private label residential MBS. Low income housing tax-exempt bonds 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.
Write-offs are made through reversal of the allowance for credit losses and direct write-off of the amortized cost basis of the AFS security. The Company considers the following events to be indicators that a write-off 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
The Company acquired loans HFS as part of the AMH acquisition, which are reported at fair value or the lower of cost or fair value, depending on the acquisition source. The Company has elected to record loans purchased from correspondent sellers or originated directly to consumers at fair value to more timely reflect the Company's performance. Changes in fair value of loans HFS are reported in current period income as a component of Net gain on loan origination and sale activities in the Consolidated Income Statement. Loans repurchased from investors are reported at the lower of cost or fair value. For loans HFS reported at the lower of cost or fair value, the amount by which cost exceeds fair value is accounted for as a valuation allowance. Changes in the valuation allowance are included in Net gain on loan origination and sale activities in the Consolidated Income Statement.
The Company recognizes a transfer of loans as a sale when it surrenders control over the transferred loans. Control is considered to be surrendered when the transferred loans have been legally isolated from the Company, the transferee has the
right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred loans, and the Company does not maintain effective control over the transferred loans through either an agreement that entitles or obligates the Company to repurchase or redeem the loans before their maturity or the ability to unilaterally cause the holder to return loans. If the transfer of loans qualifies as a sale, the Company derecognizes such loans and records the gain or loss as a component of Net gain on loan origination and sale activities in the Consolidated Income Statement. If the transfer of loans does not qualify as a sale, the proceeds from the transfer are accounted for as secured borrowings.
Loan acquisition and origination fees on loans HFS consist of fees earned by the Company for purchasing and originating loans and are recognized at the time the loans are purchased or originated. These fees generally represent flat, per loan fee amounts and are included as part of Net gain on loan origination and sale activities in the Consolidated Income Statement.
Recognition of interest income on non-government guaranteed or insured loans HFS is suspended and accrued unpaid interest receivable is reversed against interest income when loans become 90 days delinquent or when recovery of income and principal becomes doubtful. Loans return to accrual status when the principal and interest become current and it is probable that the amounts are fully collectible. For government guaranteed or insured loans HFS that are 90 days delinquent, the Company continues to recognize interest income at the debenture rate for FHA loans and at the note rate for VA and USDA loans, adjusted for probability of default.
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 write-offs. 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, and number of times past due. 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 5. Loans, Leases and Allowance for Credit Losses" of these Notes to Unaudited 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 HFI 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, permitted 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 was made between March 1, 2020 and December 31, 2020 and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, extends these provisions through January 1, 2022. In addition, federal bank regulatory authorities issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and 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 HFI loans
On January 1, 2020, the Company adopted the amendments within ASU 2016-13, 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. With the exception of residential loans, all accruing loans graded substandard or worse with a total commitment of $1.0 million or more, 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 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 charge-off, 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. For revolving lines of credit, the Company incorporates an expectation of increased line utilization for a higher EAD on defaulted loans based on historical experience. For term loans, EAD 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 on loans for each of the loan portfolio segments identified:
Warehouse lending
The warehouse lending portfolio segment consists of mortgage warehouse lines, mortgage servicing rights financing facilities, and note finance loans, which 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, risk transfer resulting from credit linked notes, 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.
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.
Mortgage servicing rights
The Company acquired MSRs as part of the AMH acquisition. When AMH sells mortgage loans in the secondary market and retains the right to service these loans, a servicing right asset is capitalized at the time of sale when the benefits of servicing are deemed to be greater than adequate compensation for performing the servicing activities. MSRs represent the then current fair value of future net cash flows expected to be realized from performing servicing activities. The Company has elected to subsequently measure MSRs at fair value and report changes in fair value in current period income as a component of Net loan servicing revenue in the Consolidated Income Statement.
The Company may from time to time sell MSRs and will recognize, as of the trade date, a gain or loss on the sale equal to the difference between the carrying value of the transferred MSRs and the value of the assets received as consideration. The Company subsequently derecognizes MSRs when substantially all of the risks and rewards of ownership are irrevocably passed to the transferee and any protection provisions retained by the Company are minor and can be reasonably estimated, which typically occurs on the settlement date. Protection provisions are considered to be minor if the obligation created by such provisions is estimated to be no more than 10 percent of the sales price and the Company retains the risk of prepayment for no more than 120 days. The Company records a liability for retained protection provisions that can be reasonably estimated. In addition, fees to transfer loans associated with the sold MSRs to a new servicer are also incurred on the settlement date. Gains or losses on sales of MSRs, net of retained protection provisions, and transfer fees are included in Net loan servicing revenue in the Consolidated Income Statement.
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.
Prior to the acquisition of AmeriHome, the Company’s intangible assets consisted primarily of core deposit intangible assets that are amortized over periods ranging from five to 10 years. See "Note 2. Mergers, Acquisitions and Dispositions" for discussion of the intangible assets acquired as part of the AmeriHome acquisition.
The Company considers the remaining useful lives of its 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 intangible assets during the three and six months ended June 30, 2021 or 2020.
Stock compensation plans
The Company has the Incentive Plan, as amended, which is described more fully in "Note 9. Stockholders' Equity" of these Notes to Unaudited 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 9. Stockholders' Equity" of these Notes to Unaudited 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.
Sales of Common Stock Under ATM Program
On June 3, 2021, the Company entered into a distribution agency agreement with J.P. Morgan Securities LLC, under which the Company may sell up to 4,000,000 shares of its common stock on the New York Stock Exchange. The Company pays J.P. Morgan Securities LLC a mutually agreed rate, not to exceed 2% of the gross offering proceeds of the shares sold pursuant to the distribution agency agreement. The common stock will be sold at prevailing market prices at the time of the sale or at negotiated prices and, as a result, prices will vary. Sales under the ATM program are being made pursuant to a prospectus dated May 14, 2021 and a prospectus supplement filed with the SEC on June 3, 2021, in connection with one or more offerings of
shares from the Company's shelf registration statement on Form S-3 (No. 333-256120). See "Note 13. Stockholders' Equity" of these Notes to Unaudited Consolidated Financial Statements for further discussion of this program.
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. With the acquisition of AmeriHome, the Company's economic hedging volume has substantially increased. AmeriHome enters into commitments to purchase mortgage loans that will be held for sale. These loan commitments, described as IRLCs, qualify as derivative instruments, except those that are originated and intended for HFI classification. As of June 30, 2021, all IRLCs qualify as derivative instruments. Changes in fair value associated with changes in interest rates are economically hedged by utilizing forward sale commitments and interest rate futures. These hedging instruments are typically entered into contemporaneously with IRLCs. Loans that have been or will be purchased or originated may be used to satisfy the Company's forward sale commitments. In addition, derivative financial instruments are also used to economically hedge the Company's MSR portfolio. Changes in the fair value of derivative financial instruments that hedge IRLCs and loans HFS are included in Net gain on loan origination and sale activities in the Consolidated Income Statement. Changes in the fair value of derivative financial instruments that hedge MSRs are included in Net loan servicing revenue in the Consolidated Income Statement.
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 11. Derivatives and Hedging Activities" of these Notes to Unaudited Consolidated Financial Statements for further discussion.
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 consider 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 June 30, 2021 and December 31, 2020. The estimated fair value amounts for June 30, 2021 and December 31, 2020 have been measured as of period-end, and have not been re-evaluated or updated for purposes of these Unaudited 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 15. Fair Value Accounting" of these Notes to Unaudited 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.
Investment securities
The fair values of U.S. treasury and certain other debt securities as well as publicly-traded CRA investments and exchange-listed preferred stock 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. In addition to matrix pricing, the Company uses other pricing sources, including observed prices on publicly traded securities and dealer quotes, to estimate the fair value of debt securities, which are also categorized as Level 2 in the fair value hierarchy.
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, HFS
Government-insured or guaranteed and agency-conforming loans HFS are salable into active markets. Accordingly, the fair value of these loans is based on quoted market or contracted selling prices or a market price equivalent, which are categorized as Level 2 in the fair value hierarchy.
The fair value of non-agency loans HFS as well as certain loans that become nonsalable into active markets due to the identification of a defect is determined based on valuation techniques that utilize Level 3 inputs.
Loans, HFI
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.
Mortgage servicing rights
The fair value of MSRs is estimated based on a discounted cash flow model that incorporates assumptions that a market participant would use in estimating the fair value of servicing rights, including, but not limited to, option adjusted spread, conditional prepayment rate, servicing fee rate, and cost to service. As a result, the fair value for MSRs 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 valuation methodologies used to estimate the fair value of derivative instruments varies by type. Treasury futures and options, Eurodollar futures, and swap futures are measured based on valuation techniques using Level 1 Inputs from exchange-provided daily settlement quotes. Interest rate swaps and forward purchase and sales contracts are measured based on valuation techniques using Level 2 inputs, such as quoted market price, contracted selling price, or market price equivalent. IRLCs are measured based on valuation techniques using Level 3 inputs, such as loan type, underlying loan amount, note rate, loan program, and expected settlement date. These measurements are adjusted at the loan level to consider the servicing release premium and loan pricing adjustment specific to each loan. The base value is then adjusted for the pull-through rate. The pull-through rate and servicing fee multiple are unobservable inputs based on historical experience.
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.
Credit linked notes
The fair value of credit linked notes is based on observable inputs, when available, and as such credit linked notes are categorized as Level 2 liabilities. Because the notes are variable rate debt, the fair value approximates carrying value.
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 13. Income Taxes" of these Notes to Unaudited Consolidated Financial Statements for further discussion on income taxes.
Non-interest income
Non-interest income includes revenue associated with mortgage banking and commercial banking activities, investment securities, equity investments, and bank owned life insurance. As there is specific accounting guidance applicable to income generated by different types of financial instruments, most of the Company's non-interest income is not within the scope of ASC 606, Revenue from Contracts with Customers.
Non-interest income amounts within the scope of ASC 606 include service charges and fees, success fees related to equity investments, and debit and credit card interchange fees. 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. Success fees are one-time fees detailed as part of certain loan agreements and are earned immediately upon occurrence of a triggering event. 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. See "Note 17. Revenue from Contracts with Customers" of these Notes to Unaudited 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. MERGERS, ACQUISITIONS AND DISPOSITIONS
On April 7, 2021, the Company completed its acquisition of Aris, the parent company of AMH, and certain other parties, pursuant to which, Aris merged with and into an indirect subsidiary of WAB. As a result of the merger, AMH is now a wholly-owned indirect subsidiary of the Company and will continue to operate as AmeriHome Mortgage, a Western Alliance Bank company. AMH is a leading national business-to-business mortgage acquirer and servicer. The acquisition of AMH complements the Company’s national commercial businesses with a national mortgage franchise that allows the Company to expand mortgage-related offerings to existing clients and diversifies the Company’s revenue profile by expanding sources of non-interest income.
Based on AMH's closing balance sheet and a $275.0 million premium, total cash consideration of $1.2 billion was paid in exchange for all of the issued and outstanding membership interests of Aris. AMH's results of operations have been included in the Company's results beginning April 7, 2021 and are reported as part of its Consumer Related segment. Acquisition/restructure expenses related to the AMH acquisition of $16.1 million for the six months ended June 30, 2021 were included as a component of non-interest expense in the consolidated income statement, of which approximately $3.4 million are acquisition related costs as defined by ASC 805.
This transaction is accounted for as a business combination under the acquisition method of accounting. Assets purchased and liabilities assumed were recorded at their respective acquisition date estimated fair values. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. As the Company is still in the process of reviewing the fair value methodology associated with acquired assets and assumed liabilities as well as the assumptions used in the valuation of identifiable intangible assets, the fair values are considered provisional.
The Company merged AMH into WAB effective April 7, 2021. The provisional estimated fair value amounts of identifiable assets acquired and liabilities assumed are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 7, 2021
|
|
|
|
($ in millions)
|
|
Assets acquired:
|
|
|
|
Cash and cash equivalents
|
|
$
|
207.2
|
|
|
Loans held for sale
|
|
3,553.7
|
|
|
Mortgage servicing rights
|
|
1,376.3
|
|
|
Premises and equipment, net
|
|
11.3
|
|
|
Operating right of use asset
|
|
19.0
|
|
|
Identified intangible assets
|
|
139.5
|
|
|
Loans eligible for repurchase
|
|
2,744.7
|
|
|
Deferred tax asset
|
|
6.5
|
|
|
Other assets
|
|
240.6
|
|
|
Total assets
|
|
$
|
8,298.8
|
|
|
Liabilities assumed:
|
|
|
|
Other borrowings
|
|
$
|
3,633.9
|
|
|
Operating lease liability
|
|
19.0
|
|
|
Liability for loans eligible for repurchase
|
|
2,744.7
|
|
|
Other liabilities
|
|
157.4
|
|
|
Total liabilities
|
|
6,555.0
|
|
|
Net assets acquired
|
|
$
|
1,743.8
|
|
|
Consideration paid
|
|
|
|
Cash
|
|
1,220.6
|
|
|
Elimination of pre-existing debt and other
|
|
$
|
698.2
|
|
|
Total consideration
|
|
$
|
1,918.8
|
|
|
Goodwill
|
|
$
|
175.0
|
|
Loans acquired in the AMH acquisition consist of loans held for sale that were recorded at fair value. In contemplation of the acquisition and the regulatory capital impact of MSRs on the Company's capital ratios, in March 2021, AMH entered into commitments to sell certain MSRs and related servicing advances. See "Note 6. Mortgage Servicing Rights" for further discussion of these sales. The sale of these MSRs also reduced the balance of loans eligible for repurchase as the Company no longer has the right to repurchase these loans when it is not the servicer. Subsequent to the acquisition, the Company repurchased substantially all of the remaining loans eligible for repurchase and as of June 30, 2021, these repurchased loans
were included as part of the loans held for sale balance. See "Note 4. Loans Held for Sale" of these Notes to Unaudited Consolidated Financial Statements for additional detail related to acquired loans.
In connection with the AMH acquisition, the Company acquired identifiable intangible assets totaling $139.5 million, consisting of correspondent relationships, operating licenses, and trade name. The correspondent relationships and trade name intangibles will be amortized over a 20-year estimated useful life. The operating licenses intangible asset will be amortized over a 40-year estimated useful life.
Goodwill in the amount of $175.0 million was recognized and allocated entirely to the Consumer Related segment. Goodwill represents the strategic, operational, and financial benefits expected from the AMH acquisition, including expansion of the Company's mortgage offerings, diversification of its revenue sources, and post-acquisition synergies from integrating AMH’s operating platform, as well as the value of the workforce. Approximately $150.0 million of goodwill is expected to be deductible for tax purposes.
The following table presents pro forma information as if the AMH acquisition was completed on January 1, 2020. The pro forma information includes adjustments for interest income and interest expense on existing loan agreements between WAL and AMH prior to acquisition, the impact of MSR sales contemplated in connection with the acquisition, amortization of intangible assets arising from the acquisition, recognition of stock compensation expense for awards issued to certain AMH executives, transaction costs, and related income tax effects. The pro forma information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
($ in millions, except per share amounts)
|
|
Interest income
|
|
$
|
400.5
|
|
|
$
|
331.4
|
|
|
$
|
753.8
|
|
|
$
|
661.9
|
|
|
Non-interest income
|
|
132.4
|
|
|
304.8
|
|
|
222.0
|
|
|
425.1
|
|
|
Net income
|
|
243.8
|
|
|
253.1
|
|
|
424.0
|
|
|
389.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. INVESTMENT SECURITIES
The carrying amounts and fair values of investment securities at June 30, 2021 and December 31, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized (Losses)
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
738.5
|
|
|
$
|
46.1
|
|
|
$
|
(2.1)
|
|
|
$
|
782.5
|
|
|
Private label residential MBS
|
|
230.2
|
|
|
—
|
|
|
—
|
|
|
230.2
|
|
|
Total HTM securities
|
|
$
|
968.7
|
|
|
$
|
46.1
|
|
|
$
|
(2.1)
|
|
|
$
|
1,012.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
CLO
|
|
$
|
936.8
|
|
|
$
|
0.6
|
|
|
$
|
(0.3)
|
|
|
$
|
937.1
|
|
|
Commercial MBS issued by GSEs
|
|
81.2
|
|
|
1.7
|
|
|
(1.4)
|
|
|
81.5
|
|
|
Corporate debt securities
|
|
361.9
|
|
|
10.3
|
|
|
(8.8)
|
|
|
363.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Private label residential MBS
|
|
1,712.3
|
|
|
8.3
|
|
|
(10.2)
|
|
|
1,710.4
|
|
|
Residential MBS issued by GSEs
|
|
2,112.9
|
|
|
20.9
|
|
|
(28.1)
|
|
|
2,105.7
|
|
|
Tax-exempt
|
|
1,260.7
|
|
|
87.2
|
|
|
(0.5)
|
|
|
1,347.4
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
Other
|
|
54.1
|
|
|
10.8
|
|
|
(4.5)
|
|
|
60.4
|
|
|
Total AFS debt securities
|
|
$
|
6,529.2
|
|
|
$
|
139.8
|
|
|
$
|
(53.8)
|
|
|
$
|
6,615.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
57.2
|
|
|
$
|
—
|
|
|
$
|
(0.2)
|
|
|
$
|
57.0
|
|
|
Preferred stock
|
|
127.8
|
|
|
9.0
|
|
|
—
|
|
|
136.8
|
|
|
Total equity securities
|
|
$
|
185.0
|
|
|
$
|
9.0
|
|
|
$
|
(0.2)
|
|
|
$
|
193.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
54.1
|
|
|
7.3
|
|
|
(5.5)
|
|
|
55.9
|
|
|
Total AFS debt securities
|
|
$
|
4,586.4
|
|
|
$
|
137.6
|
|
|
$
|
(15.5)
|
|
|
$
|
4,708.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
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)
|
|
|
$
|
167.3
|
|
Securities with carrying amounts of approximately $2.4 billion and $778.0 million at June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
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
|
$
|
2.1
|
|
|
$
|
110.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
110.1
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO
|
$
|
0.3
|
|
|
$
|
147.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
147.7
|
|
|
Commercial MBS issued by GSEs
|
1.4
|
|
|
45.9
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
45.9
|
|
|
Corporate debt securities
|
8.8
|
|
|
91.2
|
|
|
—
|
|
|
—
|
|
|
8.8
|
|
|
91.2
|
|
|
Private label residential MBS
|
10.2
|
|
|
851.8
|
|
|
0.1
|
|
|
7.5
|
|
|
10.3
|
|
|
859.3
|
|
|
Residential MBS issued by GSEs
|
28.1
|
|
|
1,019.3
|
|
|
—
|
|
|
—
|
|
|
28.1
|
|
|
1,019.3
|
|
|
Tax-exempt
|
0.5
|
|
|
88.5
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
88.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
0.1
|
|
|
1.9
|
|
|
4.4
|
|
|
27.6
|
|
|
4.5
|
|
|
29.5
|
|
|
Total AFS securities
|
$
|
49.4
|
|
|
$
|
2,246.3
|
|
|
$
|
4.5
|
|
|
$
|
35.1
|
|
|
$
|
53.9
|
|
|
$
|
2,281.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
5.5
|
|
|
26.5
|
|
|
5.5
|
|
|
26.5
|
|
|
Total AFS securities
|
$
|
4.4
|
|
|
$
|
398.9
|
|
|
$
|
11.1
|
|
|
$
|
120.8
|
|
|
$
|
15.5
|
|
|
$
|
519.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total number of AFS securities in an unrealized loss position at June 30, 2021 is 130, compared to 49 at December 31, 2020.
On a quarterly basis, the Company performs an impairment analysis on its AFS debt securities that are in an unrealized loss position at the end of the period to determine whether credit losses should be recognized on these securities. Qualitative considerations made by the Company in its impairment analysis are further discussed below.
Government Issued Securities
Commercial and 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. Further, principal and interest payments on these securities continue to be made on a timely basis.
Non-Government Issued Securities
Qualitative factors used in the Company's credit loss assessment of its securities that are not issued and guaranteed by the U.S. government include 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 and tax-exempt securities, the Company also considers 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. 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. The Company continues to receive timely principal and interest payments on its tax-exempt securities and the majority of these issuers have revenues pledged for payment of debt service prior to payment of other types of expenses.
For the Company's private label residential MBS, which consist of non-agency collateralized mortgage obligations that are secured by pools of residential mortgage loans, the Company also considers 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. These securities primarily carry investment grade credit ratings, principal and interest payments on these securities continue to be made on a timely basis, and credit support for these securities is considered adequate.
The Company's CLO portfolio consists of highly rated securitization tranches, containing pools of medium to large-sized corporate, high yield bank loans. These are floating rate securities that have an investment grade rating of Single-A or better. The Company has been increasing its investment in these securities over the past several months and unrealized losses on these securities is primarily a function of the differential from the offer price and the valuation mid-market price.
Unrealized losses on the Company's Other securities portfolio relate to taxable municipal and trust preferred securities. The Company is continuing to receive timely principal and interest payments on its taxable municipal securities, these securities continue to be highly rated and the number of days of cash on hand is strong. 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 noted above 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 the securities prior to their anticipated recovery, no credit losses have been recognized on these securities during the three and six months ended June 30, 2021 and 2020. In addition, as of June 30, 2021 and December 31, 2020, no allowance for credit losses on the Company's AFS securities has been recognized.
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 table presents a rollforward by major security type of the allowance for credit losses on the Company's HTM debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
|
|
Balance,
March 31, 2021
|
|
|
|
Recovery of Credit Losses
|
|
Write-offs
|
|
Recoveries
|
|
Balance,
June 30, 2021
|
|
|
|
(in millions)
|
|
Held-to-maturity debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
9.2
|
|
|
|
|
$
|
(3.2)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
Balance,
December 31, 2020
|
|
|
|
Recovery of Credit Losses
|
|
Write-offs
|
|
Recoveries
|
|
Balance,
June 30, 2021
|
|
|
|
(in millions)
|
|
Held-to-maturity debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
6.8
|
|
|
|
|
$
|
(0.8)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020:
|
|
|
|
Balance,
March 31, 2020
|
|
|
|
Provision for Credit Losses
|
|
Write-offs
|
|
Recoveries
|
|
Balance
June 30, 2020
|
|
|
|
(in millions)
|
|
Held-to-maturity debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
3.0
|
|
|
|
|
$
|
4.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020:
|
|
|
|
Balance,
January 1, 2020
|
|
|
|
Provision for Credit Losses
|
|
Write-offs
|
|
Recoveries
|
|
Balance
June 30, 2020
|
|
|
|
(in millions)
|
|
Held-to-maturity debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
|
$
|
2.6
|
|
|
|
|
$
|
5.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.6
|
|
No allowance has been recognized on the Company's HTM private label residential MBS as the Company holds a senior position, whereby a subordinated tranche assumes up to 5% of any losses, and losses in excess of 5% are not expected.
Accrued interest receivable on HTM securities totaled $2.6 million and $2.0 million at June 30, 2021 and December 31, 2020, respectively, 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 June 30, 2021 and December 31, 2020, which are updated quarterly and used to monitor the credit quality of the Company's securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
738.5
|
|
|
$
|
738.5
|
|
|
Private label residential MBS
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
230.2
|
|
|
230.2
|
|
|
Total HTM securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
968.7
|
|
|
$
|
968.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO
|
|
$
|
40.0
|
|
|
$
|
—
|
|
|
$
|
577.4
|
|
|
$
|
319.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
937.1
|
|
|
Commercial MBS issued by GSEs
|
|
—
|
|
|
81.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81.5
|
|
|
Corporate debt securities
|
|
—
|
|
|
—
|
|
|
18.6
|
|
|
26.8
|
|
|
299.0
|
|
|
19.0
|
|
|
—
|
|
|
363.4
|
|
|
Private label residential MBS
|
|
1,621.5
|
|
|
—
|
|
|
87.7
|
|
|
0.1
|
|
|
0.3
|
|
|
0.8
|
|
|
—
|
|
|
1,710.4
|
|
|
Residential MBS issued by GSEs
|
|
—
|
|
|
2,105.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,105.7
|
|
|
Tax-exempt
|
|
43.5
|
|
|
59.2
|
|
|
522.0
|
|
|
692.9
|
|
|
—
|
|
|
—
|
|
|
29.8
|
|
|
1,347.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
12.1
|
|
|
—
|
|
|
30.3
|
|
|
9.4
|
|
|
8.6
|
|
|
60.4
|
|
|
Total AFS securities (1)
|
|
$
|
1,714.3
|
|
|
$
|
2,246.4
|
|
|
$
|
1,217.8
|
|
|
$
|
1,039.5
|
|
|
$
|
329.6
|
|
|
$
|
29.2
|
|
|
$
|
38.4
|
|
|
$
|
6,615.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
—
|
|
|
$
|
27.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29.5
|
|
|
$
|
57.0
|
|
|
Preferred stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81.7
|
|
|
39.6
|
|
|
15.5
|
|
|
136.8
|
|
|
Total equity securities (1)
|
|
$
|
—
|
|
|
$
|
27.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81.7
|
|
|
$
|
39.6
|
|
|
$
|
45.0
|
|
|
$
|
193.8
|
|
(1)Where ratings differ, the Company uses an average of the available ratings by major credit agencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
12.3
|
|
|
—
|
|
|
29.1
|
|
|
6.9
|
|
|
7.6
|
|
|
55.9
|
|
|
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.
A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. As of June 30, 2021, 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 as of June 30, 2021.
The amortized cost and fair value of the Company's debt securities as of June 30, 2021, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Amortized Cost
|
|
Estimated Fair Value
|
|
|
|
(in millions)
|
|
Held-to-maturity
|
|
|
|
|
|
Due in one year or less
|
|
$
|
35.8
|
|
|
$
|
35.8
|
|
|
After one year through five years
|
|
17.7
|
|
|
18.0
|
|
|
|
|
|
|
|
|
After ten years
|
|
685.0
|
|
|
728.7
|
|
|
Mortgage-backed securities
|
|
230.2
|
|
|
230.2
|
|
|
Total HTM securities
|
|
$
|
968.7
|
|
|
$
|
1,012.7
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
Due in one year or less
|
|
$
|
9.3
|
|
|
$
|
9.3
|
|
|
After one year through five years
|
|
45.3
|
|
|
46.7
|
|
|
After five years through ten years
|
|
829.9
|
|
|
831.4
|
|
|
After ten years
|
|
1,738.3
|
|
|
1,830.2
|
|
|
Mortgage-backed securities
|
|
3,906.4
|
|
|
3,897.6
|
|
|
Total AFS securities
|
|
$
|
6,529.2
|
|
|
$
|
6,615.2
|
|
During the three and six months ended June 30, 2021 and 2020, the Company did not have significant sales of investments securities.
4. LOANS HELD FOR SALE
The Company acquired loans held for sale as part of the AMH acquisition. The following is a summary of loans held for sale by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
(in millions)
|
|
Government-insured or guaranteed:
|
|
|
|
|
|
EBO (1)
|
|
$
|
2,208.7
|
|
|
|
|
Non-EBO
|
|
905.9
|
|
|
|
|
Total government-insured or guaranteed
|
|
3,114.6
|
|
|
|
|
Agency-conforming
|
|
1,350.6
|
|
|
|
|
|
|
|
|
|
|
Total loans HFS
|
|
$
|
4,465.2
|
|
|
|
(1) EBO loans are delinquent loans repurchased under the terms of the Ginnie Mae MBS program that can be resold when loans are brought current.
As of June 30, 2021, there were no loans held for sale that were pledged to secure warehouse borrowings.
The following is a summary of the Net gain on loan purchase, origination, and sale activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 7, 2021
through
June 30,2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Mortgage servicing rights capitalized upon sale of loans
|
|
$
|
282.3
|
|
|
|
|
|
|
|
|
Net proceeds from sale of loans (1)
|
|
(143.6)
|
|
|
|
|
|
|
|
|
Provision for and change in estimate of liability for losses under representations and warranties, net
|
|
(0.7)
|
|
|
|
|
|
|
|
|
Change in fair value of loans held for sale
|
|
13.2
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives related to loans HFS:
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
(55.2)
|
|
|
|
|
|
|
|
|
Realized gain on derivatives
|
|
9.4
|
|
|
|
|
|
|
|
|
Total change in fair value of derivatives
|
|
(45.8)
|
|
|
|
|
|
|
|
|
Net gain on loans held for sale
|
|
$
|
105.4
|
|
|
|
|
|
|
|
|
Loan acquisition and origination fees
|
|
26.6
|
|
|
|
|
|
|
|
|
Net gain on loan origination and sale activities
|
|
$
|
132.0
|
|
|
|
|
|
|
|
(1) Represents the difference between cash proceeds received upon settlement and loan basis.
5. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES
The composition of the Company's held for investment loan portfolio is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
(in millions)
|
|
Warehouse lending
|
|
$
|
4,434.7
|
|
|
$
|
4,340.2
|
|
|
Municipal & nonprofit
|
|
1,716.3
|
|
|
1,728.8
|
|
|
Tech & innovation
|
|
2,600.3
|
|
|
2,548.3
|
|
|
Other commercial and industrial
|
|
5,736.1
|
|
|
5,911.2
|
|
|
CRE - owner occupied
|
|
1,789.9
|
|
|
1,909.3
|
|
|
Hotel franchise finance
|
|
1,997.6
|
|
|
1,983.9
|
|
|
Other CRE - non-owned occupied
|
|
3,663.9
|
|
|
3,640.2
|
|
|
Residential
|
|
5,071.3
|
|
|
2,378.5
|
|
|
Construction and land development
|
|
2,853.6
|
|
|
2,429.4
|
|
|
Other
|
|
162.7
|
|
|
183.2
|
|
|
Total loans HFI
|
|
30,026.4
|
|
|
27,053.0
|
|
|
Allowance for credit losses
|
|
(232.9)
|
|
|
(278.9)
|
|
|
Total loans HFI, net of allowance
|
|
$
|
29,793.5
|
|
|
$
|
26,774.1
|
|
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 $81.5 million and $75.4 million reduced the carrying value of loans as of June 30, 2021 and December 31, 2020, respectively. Net unamortized purchase premiums on acquired and purchased loans of $84.3 million and $26.0 million increased the carrying value of loans as of June 30, 2021 and December 31, 2020, respectively.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
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
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Tech & innovation
|
|
9.0
|
|
|
10.8
|
|
|
19.8
|
|
|
—
|
|
|
Other commercial and industrial
|
|
7.4
|
|
|
6.7
|
|
|
14.1
|
|
|
—
|
|
|
CRE - owner occupied
|
|
30.7
|
|
|
—
|
|
|
30.7
|
|
|
—
|
|
|
Hotel franchise finance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other CRE - non-owned occupied
|
|
18.6
|
|
|
—
|
|
|
18.6
|
|
|
—
|
|
|
Residential
|
|
9.9
|
|
|
—
|
|
|
9.9
|
|
|
—
|
|
|
Construction and land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
0.3
|
|
|
2.9
|
|
|
3.2
|
|
|
—
|
|
|
Total
|
|
$
|
75.9
|
|
|
$
|
20.4
|
|
|
$
|
96.3
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
The reduction in interest income associated with loans on nonaccrual status was approximately $1.5 million and $1.7 million for the three months ended June 30, 2021 and 2020, respectively, and $3.0 million and $2.4 million for the six months ended June 30, 2021 and 2020, respectively.
The following table presents an aging analysis of past due loans by loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Current
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Over 90 days
Past Due
|
|
Total
Past Due
|
|
Total
|
|
|
|
(in millions)
|
|
Warehouse lending
|
|
$
|
4,434.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,434.7
|
|
|
Municipal & nonprofit
|
|
1,716.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,716.3
|
|
|
Tech & innovation
|
|
2,600.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,600.3
|
|
|
Other commercial and industrial
|
|
5,735.3
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|
5,736.1
|
|
|
CRE - owner occupied
|
|
1,789.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,789.9
|
|
|
Hotel franchise finance
|
|
1,997.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,997.6
|
|
|
Other CRE - non-owned occupied
|
|
3,663.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,663.9
|
|
|
Residential
|
|
5,062.4
|
|
|
8.5
|
|
|
0.4
|
|
|
—
|
|
|
8.9
|
|
|
5,071.3
|
|
|
Construction and land development
|
|
2,853.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,853.6
|
|
|
Other
|
|
162.6
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
162.7
|
|
|
Total loans
|
|
$
|
30,016.6
|
|
|
$
|
8.6
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
9.8
|
|
|
$
|
30,026.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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 by loan portfolio segment and origination year. The origination year is the year of origination or renewal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan Amortized Cost Basis by Origination Year
|
|
Revolving Loans Amortized Cost Basis
|
|
Total
|
|
June 30, 2021
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
Prior
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse lending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
230.4
|
|
|
$
|
54.5
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
4,147.6
|
|
|
$
|
4,434.7
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Classified
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
230.4
|
|
|
$
|
54.5
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
4,147.6
|
|
|
$
|
4,434.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal & nonprofit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
44.6
|
|
|
$
|
216.5
|
|
|
$
|
140.7
|
|
|
$
|
81.5
|
|
|
$
|
226.5
|
|
|
$
|
1,003.0
|
|
|
$
|
3.5
|
|
|
$
|
1,716.3
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Classified
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
44.6
|
|
|
$
|
216.5
|
|
|
$
|
140.7
|
|
|
$
|
81.5
|
|
|
$
|
226.5
|
|
|
$
|
1,003.0
|
|
|
$
|
3.5
|
|
|
$
|
1,716.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tech & innovation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
348.3
|
|
|
$
|
336.2
|
|
|
$
|
144.9
|
|
|
$
|
50.4
|
|
|
$
|
2.3
|
|
|
$
|
0.5
|
|
|
$
|
1,675.5
|
|
|
$
|
2,558.1
|
|
|
Special mention
|
—
|
|
|
11.2
|
|
|
6.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17.2
|
|
|
Classified
|
16.9
|
|
|
5.1
|
|
|
2.0
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.0
|
|
|
Total
|
$
|
365.2
|
|
|
$
|
352.5
|
|
|
$
|
152.9
|
|
|
$
|
51.4
|
|
|
$
|
2.3
|
|
|
$
|
0.5
|
|
|
$
|
1,675.5
|
|
|
$
|
2,600.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
1,588.6
|
|
|
$
|
784.0
|
|
|
$
|
605.6
|
|
|
$
|
353.6
|
|
|
$
|
191.2
|
|
|
$
|
124.7
|
|
|
$
|
1,968.5
|
|
|
$
|
5,616.2
|
|
|
Special mention
|
0.1
|
|
|
2.5
|
|
|
26.1
|
|
|
17.2
|
|
|
29.8
|
|
|
0.6
|
|
|
2.2
|
|
|
78.5
|
|
|
Classified
|
—
|
|
|
0.6
|
|
|
19.2
|
|
|
3.5
|
|
|
1.8
|
|
|
10.3
|
|
|
6.0
|
|
|
41.4
|
|
|
Total
|
$
|
1,588.7
|
|
|
$
|
787.1
|
|
|
$
|
650.9
|
|
|
$
|
374.3
|
|
|
$
|
222.8
|
|
|
$
|
135.6
|
|
|
$
|
1,976.7
|
|
|
$
|
5,736.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE - owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
192.4
|
|
|
$
|
232.1
|
|
|
$
|
269.7
|
|
|
$
|
227.8
|
|
|
$
|
348.2
|
|
|
$
|
377.2
|
|
|
$
|
16.3
|
|
|
$
|
1,663.7
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
3.0
|
|
|
9.2
|
|
|
23.3
|
|
|
14.4
|
|
|
24.3
|
|
|
74.2
|
|
|
Classified
|
1.9
|
|
|
2.8
|
|
|
10.9
|
|
|
4.7
|
|
|
3.2
|
|
|
28.4
|
|
|
0.1
|
|
|
52.0
|
|
|
Total
|
$
|
194.3
|
|
|
$
|
234.9
|
|
|
$
|
283.6
|
|
|
$
|
241.7
|
|
|
$
|
374.7
|
|
|
$
|
420.0
|
|
|
$
|
40.7
|
|
|
$
|
1,789.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel franchise finance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
163.4
|
|
|
$
|
182.4
|
|
|
$
|
642.4
|
|
|
$
|
399.0
|
|
|
$
|
132.1
|
|
|
$
|
63.1
|
|
|
$
|
158.8
|
|
|
$
|
1,741.2
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
116.4
|
|
|
30.3
|
|
|
27.2
|
|
|
10.1
|
|
|
—
|
|
|
184.0
|
|
|
Classified
|
—
|
|
|
—
|
|
|
56.8
|
|
|
—
|
|
|
12.4
|
|
|
3.2
|
|
|
—
|
|
|
72.4
|
|
|
Total
|
$
|
163.4
|
|
|
$
|
182.4
|
|
|
$
|
815.6
|
|
|
$
|
429.3
|
|
|
$
|
171.7
|
|
|
$
|
76.4
|
|
|
$
|
158.8
|
|
|
$
|
1,997.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other CRE - non-owned occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
621.5
|
|
|
$
|
985.8
|
|
|
$
|
744.2
|
|
|
$
|
452.9
|
|
|
$
|
259.7
|
|
|
$
|
287.6
|
|
|
$
|
271.9
|
|
|
$
|
3,623.6
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
|
2.4
|
|
|
6.9
|
|
|
0.5
|
|
|
13.0
|
|
|
Classified
|
—
|
|
|
0.4
|
|
|
5.5
|
|
|
2.7
|
|
|
0.3
|
|
|
18.4
|
|
|
—
|
|
|
27.3
|
|
|
Total
|
$
|
621.5
|
|
|
$
|
986.2
|
|
|
$
|
749.7
|
|
|
$
|
458.8
|
|
|
$
|
262.4
|
|
|
$
|
312.9
|
|
|
$
|
272.4
|
|
|
$
|
3,663.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
2,663.9
|
|
|
$
|
1,258.4
|
|
|
$
|
600.0
|
|
|
$
|
283.9
|
|
|
$
|
79.8
|
|
|
$
|
138.9
|
|
|
$
|
36.5
|
|
|
$
|
5,061.4
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Classified
|
—
|
|
|
1.3
|
|
|
5.4
|
|
|
3.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
9.9
|
|
|
Total
|
$
|
2,663.9
|
|
|
$
|
1,259.7
|
|
|
$
|
605.4
|
|
|
$
|
287.0
|
|
|
$
|
79.8
|
|
|
$
|
139.0
|
|
|
$
|
36.5
|
|
|
$
|
5,071.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan Amortized Cost Basis by Origination Year
|
|
Revolving Loans Amortized Cost Basis
|
|
Total
|
|
June 30, 2021
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
Prior
|
|
|
|
|
(in millions)
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
417.5
|
|
|
$
|
656.5
|
|
|
$
|
632.9
|
|
|
$
|
260.3
|
|
|
$
|
3.7
|
|
|
$
|
0.8
|
|
|
$
|
841.2
|
|
|
$
|
2,812.9
|
|
|
Special mention
|
—
|
|
|
10.4
|
|
|
—
|
|
|
22.0
|
|
|
5.3
|
|
|
—
|
|
|
—
|
|
|
37.7
|
|
|
Classified
|
1.0
|
|
|
1.4
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
|
Total
|
$
|
418.5
|
|
|
$
|
668.3
|
|
|
$
|
633.5
|
|
|
$
|
282.3
|
|
|
$
|
9.0
|
|
|
$
|
0.8
|
|
|
$
|
841.2
|
|
|
$
|
2,853.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
14.1
|
|
|
$
|
16.8
|
|
|
$
|
12.5
|
|
|
$
|
5.5
|
|
|
$
|
4.6
|
|
|
$
|
74.5
|
|
|
$
|
30.9
|
|
|
$
|
158.9
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.2
|
|
|
Classified
|
2.9
|
|
|
—
|
|
|
0.1
|
|
|
0.2
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
3.6
|
|
|
Total
|
$
|
17.0
|
|
|
$
|
16.8
|
|
|
$
|
12.6
|
|
|
$
|
5.8
|
|
|
$
|
4.6
|
|
|
$
|
75.0
|
|
|
$
|
30.9
|
|
|
$
|
162.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total by Risk Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
6,284.7
|
|
|
$
|
4,723.2
|
|
|
$
|
3,792.9
|
|
|
$
|
2,115.7
|
|
|
$
|
1,249.5
|
|
|
$
|
2,070.3
|
|
|
$
|
9,150.7
|
|
|
$
|
29,387.0
|
|
|
Special mention
|
0.1
|
|
|
24.1
|
|
|
151.5
|
|
|
82.0
|
|
|
88.0
|
|
|
32.1
|
|
|
27.0
|
|
|
404.8
|
|
|
Classified
|
22.7
|
|
|
11.6
|
|
|
100.5
|
|
|
15.2
|
|
|
17.7
|
|
|
60.8
|
|
|
6.1
|
|
|
234.6
|
|
|
Total
|
$
|
6,307.5
|
|
|
$
|
4,758.9
|
|
|
$
|
4,044.9
|
|
|
$
|
2,212.9
|
|
|
$
|
1,355.2
|
|
|
$
|
2,163.2
|
|
|
$
|
9,183.8
|
|
|
$
|
30,026.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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.
The Company's TDR loans totaled $60.5 million and $61.6 million as of June 30, 2021 and December 31, 2020, respectively, and had an allowance for credit losses on these loans of $6.3 million and $2.7 million, respectively. As of June 30, 2021 and December 31, 2020, commitments outstanding on TDR loans totaled $0.4 million and $0.6 million, respectively.
The following table presents TDR loans as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
Number of Loans
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tech & innovation
|
4
|
|
|
$
|
17.2
|
|
|
|
|
|
|
|
|
|
|
Other commercial and industrial
|
11
|
|
|
25.1
|
|
|
|
|
|
|
|
|
|
|
CRE - owner occupied
|
3
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
Hotel franchise finance
|
2
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
Other CRE - non-owned occupied
|
3
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
23
|
|
|
$
|
60.5
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2021, the Company had 6 new TDR loans with a recorded investment of $9.7 million. During the six months ended June 30, 2021, the Company had 9 new TDR loans with a recorded investment of $14.4 million. No principal amounts were forgiven and there were no waived fees or other expenses resulting from these TDR loans. As of June 30, 2020, the Company's TDR loans totaled $36.7 million, two of which were new TDR loans that were modified during the three and six months ended June 30, 2020, with a recorded investment of $10.8 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 three and six months ended June 30, 2021, there was one commercial and industrial loan with a recorded investment of $5.9 million for which there was a payment default within 12 months following the modification, which resulted in a charge-off of $2.0 million. During the three months ended June 30, 2020, there were no loans for which there was a payment default within 12 months following the modification. During the six months ended June 30, 2020, there was one CRE, owner occupied loan with a recorded investment of $0.7 million for which there was a payment default. There was no increase to the allowance for credit losses or a charge-off that resulted from this TDR redefault during the six months ended June 30, 2020.
The CARES Act, signed into law on March 27, 2020, permitted 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 was made between March 1, 2020 and December 31, 2020 and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, extends these provisions through January 1, 2022. In addition, federal bank regulatory authorities issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and 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. As of June 30, 2021, the Company has outstanding modifications on HFI loans that met these conditions with a net balance of $228.4 million, none of which involve loan payment deferrals. Further, residential HFI mortgage loans in forbearance have a net balance of $49.8 million as of June 30, 2021.
Collateral-Dependent Loans
The following table presents the amortized cost basis of collateral-dependent loans as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Real Estate Collateral
|
|
Other Collateral
|
|
Total
|
|
|
|
(in millions)
|
|
Warehouse lending
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Municipal & nonprofit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Tech & innovation
|
|
—
|
|
|
5.0
|
|
|
5.0
|
|
|
Other commercial and industrial
|
|
—
|
|
|
11.3
|
|
|
11.3
|
|
|
CRE - owner occupied
|
|
36.8
|
|
|
—
|
|
|
36.8
|
|
|
Hotel franchise finance
|
|
72.4
|
|
|
—
|
|
|
72.4
|
|
|
Other CRE - non-owned occupied
|
|
26.3
|
|
|
—
|
|
|
26.3
|
|
|
Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction and land development
|
|
3.0
|
|
|
—
|
|
|
3.0
|
|
|
Other
|
|
—
|
|
|
3.1
|
|
|
3.1
|
|
|
Total
|
|
$
|
138.5
|
|
|
$
|
19.4
|
|
|
$
|
157.9
|
|
The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended June 30, 2021.
Allowance for Credit Losses
The allowance for credit losses consists of the allowance for credit losses on loans and an allowance for credit losses on unfunded loan commitments. The allowance for credit losses on HTM securities and servicing advances are estimated separately from loans, see "Note 3. Investment Securities" and "Note 6. Mortgage Servicing Rights," respectively, for further discussion. 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 June 30, 2021.
The below tables reflect the activity in the allowance for credit losses on loans held for investment by loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
|
|
Balance,
March 31, 2021
|
|
Provision for (Recovery of) Credit Losses
|
|
|
|
Write-offs
|
|
Recoveries
|
|
Balance,
June 30, 2021
|
|
|
|
(1)
|
|
|
|
|
|
|
(1)
|
|
|
|
(in millions)
|
|
Warehouse lending
|
|
$
|
3.6
|
|
|
$
|
(0.4)
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.2
|
|
|
Municipal & nonprofit
|
|
15.2
|
|
|
0.7
|
|
|
|
|
—
|
|
|
—
|
|
|
15.9
|
|
|
Tech & innovation
|
|
23.9
|
|
|
(0.4)
|
|
|
|
|
2.0
|
|
|
(0.1)
|
|
|
21.6
|
|
|
Other commercial and industrial
|
|
78.4
|
|
|
(2.0)
|
|
|
|
|
0.3
|
|
|
(0.3)
|
|
|
76.4
|
|
|
CRE - owner occupied
|
|
9.7
|
|
|
(0.4)
|
|
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
Hotel franchise finance
|
|
49.4
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
49.4
|
|
|
Other CRE - non-owned occupied
|
|
32.7
|
|
|
(4.1)
|
|
|
|
|
—
|
|
|
(1.2)
|
|
|
29.8
|
|
|
Residential
|
|
3.2
|
|
|
4.8
|
|
|
|
|
—
|
|
|
(0.1)
|
|
|
8.1
|
|
|
Construction and land development
|
|
25.9
|
|
|
(11.8)
|
|
|
|
|
—
|
|
|
—
|
|
|
14.1
|
|
|
Other
|
|
5.1
|
|
|
(0.5)
|
|
|
|
|
—
|
|
|
(0.5)
|
|
|
5.1
|
|
|
Total
|
|
$
|
247.1
|
|
|
$
|
(14.1)
|
|
|
|
|
$
|
2.3
|
|
|
$
|
(2.2)
|
|
|
$
|
232.9
|
|
(1)Includes an estimate of future recoveries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
Balance,
December 31, 2020
|
|
Provision for (Recovery of) Credit Losses
|
|
|
|
Write-offs
|
|
Recoveries
|
|
Balance,
June 30, 2021
|
|
|
|
(1)
|
|
|
|
|
|
|
(1)
|
|
|
|
(in millions)
|
|
Warehouse lending
|
|
$
|
3.4
|
|
|
$
|
(0.2)
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.2
|
|
|
Municipal & nonprofit
|
|
15.9
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
15.9
|
|
|
Tech & innovation
|
|
35.3
|
|
|
(12.0)
|
|
|
|
|
2.0
|
|
|
(0.3)
|
|
|
21.6
|
|
|
Other commercial and industrial
|
|
94.7
|
|
|
(18.5)
|
|
|
|
|
0.4
|
|
|
(0.6)
|
|
|
76.4
|
|
|
CRE - owner occupied
|
|
18.6
|
|
|
(9.3)
|
|
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
Hotel franchise finance
|
|
43.3
|
|
|
6.1
|
|
|
|
|
—
|
|
|
—
|
|
|
49.4
|
|
|
Other CRE - non-owned occupied
|
|
39.9
|
|
|
(9.5)
|
|
|
|
|
2.0
|
|
|
(1.4)
|
|
|
29.8
|
|
|
Residential
|
|
0.8
|
|
|
7.2
|
|
|
|
|
—
|
|
|
(0.1)
|
|
|
8.1
|
|
|
Construction and land development
|
|
22.0
|
|
|
(7.9)
|
|
|
|
|
—
|
|
|
—
|
|
|
14.1
|
|
|
Other
|
|
5.0
|
|
|
(0.4)
|
|
|
|
|
—
|
|
|
(0.5)
|
|
|
5.1
|
|
|
Total
|
|
$
|
278.9
|
|
|
$
|
(44.5)
|
|
|
|
|
$
|
4.4
|
|
|
$
|
(2.9)
|
|
|
$
|
232.9
|
|
(1)Includes an estimate of future recoveries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Balance,
March 31, 2020
|
|
Provision for (Recovery of) Credit Losses
|
|
|
|
Write-offs
|
|
Recoveries
|
|
Balance,
June 30, 2020
|
|
|
|
(1)
|
|
|
|
|
|
|
(1)
|
|
|
|
(in millions)
|
|
Warehouse lending
|
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
Municipal & nonprofit
|
|
16.2
|
|
|
0.9
|
|
|
|
|
—
|
|
|
—
|
|
|
17.1
|
|
|
Tech & innovation
|
|
39.8
|
|
|
17.6
|
|
|
|
|
2.8
|
|
|
—
|
|
|
54.6
|
|
|
Other commercial and industrial
|
|
120.3
|
|
|
(9.0)
|
|
|
|
|
1.9
|
|
|
(0.5)
|
|
|
109.9
|
|
|
CRE - owner occupied
|
|
10.5
|
|
|
5.1
|
|
|
|
|
—
|
|
|
—
|
|
|
15.6
|
|
|
Hotel franchise finance
|
|
18.8
|
|
|
17.0
|
|
|
|
|
—
|
|
|
—
|
|
|
35.8
|
|
|
Other CRE - non-owned occupied
|
|
14.2
|
|
|
19.8
|
|
|
|
|
0.9
|
|
|
0.4
|
|
|
32.7
|
|
|
Residential
|
|
1.3
|
|
|
0.4
|
|
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
Construction and land development
|
|
7.1
|
|
|
28.7
|
|
|
|
|
—
|
|
|
—
|
|
|
35.8
|
|
|
Other
|
|
6.7
|
|
|
(0.1)
|
|
|
|
|
0.1
|
|
|
(0.1)
|
|
|
6.6
|
|
|
Total
|
|
$
|
235.3
|
|
|
$
|
80.7
|
|
|
|
|
$
|
5.7
|
|
|
$
|
(0.2)
|
|
|
$
|
310.5
|
|
(1)Includes an estimate of future recoveries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Balance,
January 1, 2020
|
|
Provision for (Recovery of) Credit Losses
|
|
|
|
Write-offs
|
|
Recoveries
|
|
Balance,
June 30, 2020
|
|
|
|
(1)
|
|
|
|
|
|
|
(1)
|
|
|
|
(in millions)
|
|
Warehouse lending
|
|
$
|
0.2
|
|
|
$
|
0.5
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
Municipal & nonprofit
|
|
17.4
|
|
|
(0.3)
|
|
|
|
|
—
|
|
|
—
|
|
|
17.1
|
|
|
Tech & innovation
|
|
22.4
|
|
|
35.0
|
|
|
|
|
2.8
|
|
|
—
|
|
|
54.6
|
|
|
Other commercial and industrial
|
|
95.8
|
|
|
14.3
|
|
|
|
|
2.0
|
|
|
(1.8)
|
|
|
109.9
|
|
|
CRE - owner occupied
|
|
10.4
|
|
|
5.2
|
|
|
|
|
—
|
|
|
—
|
|
|
15.6
|
|
|
Hotel franchise finance
|
|
14.1
|
|
|
21.7
|
|
|
|
|
—
|
|
|
—
|
|
|
35.8
|
|
|
Other CRE - non-owned occupied
|
|
10.5
|
|
|
21.5
|
|
|
|
|
0.9
|
|
|
(1.6)
|
|
|
32.7
|
|
|
Residential
|
|
3.8
|
|
|
(2.1)
|
|
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
Construction and land development
|
|
6.2
|
|
|
29.6
|
|
|
|
|
—
|
|
|
—
|
|
|
35.8
|
|
|
Other
|
|
6.1
|
|
|
0.5
|
|
|
|
|
0.1
|
|
|
(0.1)
|
|
|
6.6
|
|
|
Total
|
|
$
|
186.9
|
|
|
$
|
125.9
|
|
|
|
|
$
|
5.8
|
|
|
$
|
(3.5)
|
|
|
$
|
310.5
|
|
(1)Includes an estimate of future recoveries.
Accrued interest receivable on loans totaled $189.1 million and $142.1 million at June 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses.
In addition to the allowance for credit losses on loans held for investment, the Company maintains a separate allowance for credit losses related to off-balance sheet credit exposures, including unfunded loan commitments. This allowance 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(in millions)
|
|
Balance, beginning of period
|
|
$
|
32.6
|
|
|
$
|
29.7
|
|
|
$
|
37.0
|
|
|
$
|
9.0
|
|
|
Beginning balance adjustment from adoption of CECL
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.1
|
|
|
(Recovery of) provision for credit losses
|
|
(1.3)
|
|
|
6.6
|
|
|
(5.7)
|
|
|
12.2
|
|
|
Balance, end of period
|
|
$
|
31.3
|
|
|
$
|
36.3
|
|
|
$
|
31.3
|
|
|
$
|
36.3
|
|
The following tables disaggregate the Company's allowance for credit losses on loans held for investment and loan balances by measurement methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
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
|
|
$
|
4,434.7
|
|
|
$
|
—
|
|
|
$
|
4,434.7
|
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
$
|
3.2
|
|
|
Municipal & nonprofit
|
|
1,716.3
|
|
|
—
|
|
|
1,716.3
|
|
|
15.9
|
|
|
—
|
|
|
15.9
|
|
|
Tech & innovation
|
|
2,575.8
|
|
|
24.5
|
|
|
2,600.3
|
|
|
16.4
|
|
|
5.2
|
|
|
21.6
|
|
|
Other commercial and industrial
|
|
5,696.2
|
|
|
39.9
|
|
|
5,736.1
|
|
|
71.7
|
|
|
4.7
|
|
|
76.4
|
|
|
CRE - owner occupied
|
|
1,740.4
|
|
|
49.5
|
|
|
1,789.9
|
|
|
9.3
|
|
|
—
|
|
|
9.3
|
|
|
Hotel franchise finance
|
|
1,904.3
|
|
|
93.3
|
|
|
1,997.6
|
|
|
41.6
|
|
|
7.8
|
|
|
49.4
|
|
|
Other CRE - non-owned occupied
|
|
3,625.7
|
|
|
38.2
|
|
|
3,663.9
|
|
|
29.8
|
|
|
—
|
|
|
29.8
|
|
|
Residential
|
|
5,061.4
|
|
|
9.9
|
|
|
5,071.3
|
|
|
8.1
|
|
|
—
|
|
|
8.1
|
|
|
Construction and land development
|
|
2,850.6
|
|
|
3.0
|
|
|
2,853.6
|
|
|
14.1
|
|
|
—
|
|
|
14.1
|
|
|
Other
|
|
159.3
|
|
|
3.4
|
|
|
162.7
|
|
|
3.6
|
|
|
1.5
|
|
|
5.1
|
|
|
Total
|
|
$
|
29,764.7
|
|
|
$
|
261.7
|
|
|
$
|
30,026.4
|
|
|
$
|
213.7
|
|
|
$
|
19.2
|
|
|
$
|
232.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Loan Purchases and Sales
The following table presents loan purchases by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30, 2021
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(in millions)
|
|
Warehouse lending
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
99.4
|
|
|
Municipal & nonprofit
|
—
|
|
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
Tech & innovation
|
103.0
|
|
|
83.6
|
|
|
137.9
|
|
|
260.8
|
|
|
Other commercial and industrial
|
256.8
|
|
|
39.8
|
|
|
474.4
|
|
|
151.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other CRE - non-owned occupied
|
14.9
|
|
|
—
|
|
|
14.9
|
|
|
—
|
|
|
Residential
|
2,303.6
|
|
|
405.7
|
|
|
3,320.2
|
|
|
685.2
|
|
|
Construction and land development
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
6.2
|
|
|
—
|
|
|
38.1
|
|
|
—
|
|
|
Total
|
$
|
2,684.5
|
|
|
$
|
530.7
|
|
|
$
|
3,985.5
|
|
|
$
|
1,198.3
|
|
There were no loans purchased with more-than-insignificant deterioration in credit quality during the three and six months ended June 30, 2021 and 2020.
The Company did not have significant sales of HFI loans during the three and six months ended June 30, 2021 and 2020.
6. MORTGAGE SERVICING RIGHTS
The Company acquired MSRs as part of the AMH acquisition. MSRs result from the sale of loans to the secondary market for which AMH retains the right to service the loans. The following table presents the changes in fair value of the Company's MSR assets and other information related to its servicing portfolio:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
|
|
|
(in millions)
|
|
Balance, March 31, 2021
|
$
|
—
|
|
|
|
|
Acquired in AMH acquisition
|
1,376.3
|
|
|
|
|
Additions from loans sold with servicing rights retained
|
282.3
|
|
|
|
|
Reductions from sales
|
(871.5)
|
|
|
|
|
Change in fair value
|
6.6
|
|
|
|
|
Realization of cash flows
|
(67.5)
|
|
|
|
|
Balance, June 30, 2021
|
$
|
726.2
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance of mortgage loans serviced for others
|
$
|
57,088.9
|
|
|
|
In contemplation of the acquisition and the regulatory capital impact of MSRs on the Company's capital ratios, in March 2021, AMH entered into commitments to sell certain MSRs and related servicing advances. These sales had an aggregate net sales price of $871.5 million and were completed during the three months ended June 30, 2021. The UPB of loans underlying these sales totaled $65.3 billion. As of June 30, 2021, the Company has a remaining receivable balance related to holdbacks on these sales for pending servicing transfers of $93.9 million, which was recorded as part of Other assets on the Consolidated Balance Sheet.
The Company receives loan servicing fees, net of subservicing costs, based on the UPB of the underlying loans. Loan servicing fees are collected from payments made by borrowers. The Company may receive other remuneration from rights to various borrower contracted fees, such as late charges, collateral reconveyance charges, and non-sufficient funds fees. The Company is generally entitled to retain the interest earned on funds held pending remittance related to its collection of borrower principal, interest, tax and insurance payments. Contractually specified servicing fees, late fees, and ancillary income associated with the Company's MSR portfolio totaled $61.0 million for the period from the acquisition date through June 30, 2021, which are recorded as part of Net loan servicing revenue in the Consolidated Income Statement.
In accordance with its contractual loan servicing obligations, the Company is required to advance funds to or on behalf of investors when borrowers do not make payments. The Company advances property taxes and insurance premiums for borrowers who have insufficient funds in escrow accounts, plus any other costs to preserve real estate properties. The Company may also advance funds to maintain, repair, and market foreclosed real estate properties. The Company is entitled to recover all or a portion of the advances from borrowers of reinstated and performing loans, from the proceeds of liquidated properties or from the investors of charged-off loans. Servicing advances are charged-off when they are deemed to be uncollectible. A provision for credit losses on servicing advances of $4.0 million was recognized for the period from acquisition through June 30, 2021, resulting in an ending allowance for credit losses on servicing advances of $4.0 million as of June 30, 2021, which is recorded as part of other assets on the Consolidated Balance Sheet.
The following presents the effect of hypothetical changes in the fair value of MSRs caused by assumed immediate changes in interest rates, discount rates, and prepayment speeds that are used to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
(in millions)
|
|
Fair value of mortgage servicing rights
|
|
$
|
726.2
|
|
|
|
|
Increase (decrease) in fair value resulting from:
|
|
|
|
|
|
Interest rate change of 50 basis points
|
|
|
|
|
|
Adverse change
|
|
(70.8)
|
|
|
|
|
Favorable change
|
|
38.8
|
|
|
|
|
Discount rate change of 50 basis points
|
|
|
|
|
|
Increase
|
|
(14.1)
|
|
|
|
|
Decrease
|
|
14.7
|
|
|
|
|
Conditional prepayment rate change of 1%
|
|
|
|
|
|
Increase
|
|
(24.6)
|
|
|
|
|
Decrease
|
|
26.9
|
|
|
|
|
Cost to service change of 10%
|
|
|
|
|
|
Increase
|
|
(10.9)
|
|
|
|
|
Decrease
|
|
10.9
|
|
|
|
Sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of changes in assumptions to changes in fair value may not be linear. In addition, the offsetting effect of hedging activities are not contemplated in these results and further, the effect of a variation in a particular assumption is calculated without changing any other assumptions, whereas a change in one factor may result in changes to another. Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates. As a result, actual future changes in MSR values may differ significantly from those reported.
7. OTHER BORROWINGS
The following table summarizes the Company’s short-term and long-term borrowings as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
(in millions)
|
|
Short-Term:
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
$
|
—
|
|
|
$
|
5.0
|
|
|
|
|
|
|
|
|
Customer repurchase agreements
|
|
20.2
|
|
|
16.0
|
|
|
Other short-term borrowings
|
|
37.4
|
|
|
—
|
|
|
Total short-term borrowings
|
|
$
|
57.6
|
|
|
$
|
21.0
|
|
|
Long-Term:
|
|
|
|
|
|
|
|
|
|
|
|
AmeriHome senior notes, net of fair value adjustment
|
|
$
|
318.7
|
|
|
$
|
—
|
|
|
Credit linked notes, net of debt issuance costs
|
|
239.1
|
|
|
—
|
|
|
Total long-term borrowings
|
|
$
|
557.8
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Total other borrowings
|
|
$
|
615.4
|
|
|
$
|
21.0
|
|
Short-Term Borrowings
Federal Funds Lines of Credit
The Company maintains federal fund lines of credit totaling $3.0 billion as of June 30, 2021, which have rates comparable to the federal funds effective rate plus 0.10% to 0.20%. As of June 30, 2021 and December 31, 2020, there were no outstanding balances on the Company's federal fund lines of credit.
FHLB Advances
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 $864.8 million in additional credit. The amount of available credit under the PPP lending facility will decline each period as these loans are paid down. At June 30, 2021, the Company had no amounts outstanding under its line of credit or its PPP lending facility with the FRB and had no borrowings under its lines of credit with the FHLB. As of June 30, 2021 and December 31, 2020, the Company had additional available credit with the FHLB of approximately $6.0 billion and $4.0 billion, respectively, and with the FRB of approximately $2.8 billion and $2.7 billion, respectively.
Secured Borrowings
Transfers of AMH loans HFS, not qualifying for sales accounting treatment, resulted in recognition of secured borrowings of $37.4 million at June 30, 2021.
Warehouse Borrowings
The Company assumed warehouse borrowings as part of the AMH acquisition, which are used to finance the acquisition of loans through the use of repurchase agreements. Repurchase agreements operate as financings under which the Company transfers loans to secure borrowings. The borrowing amounts are based on the attributes of the collateralized loans and are defined in the repurchase agreement of each warehouse lender. The Company retains beneficial ownership of the transferred loans and will receive the loans from the lender upon full repayment of the borrowing. The repurchase agreements may require the Company to transfer additional assets to the lender in the event the estimated fair value of the existing transferred loans declines.
As of June 30, 2021, the Company had access to approximately $1.0 billion in uncommitted warehouse funding, of which no amounts were drawn.
Repurchase Agreements
Other short-term borrowing sources available to the Company include customer repurchase agreements, which totaled $20.2 million and $16.0 million at June 30, 2021 and December 31, 2020, respectively. The weighted average rate on customer repurchase agreements was 0.14% and 0.15% as of June 30, 2021 and December 31, 2020, respectively.
Long-Term Borrowings
AmeriHome Senior Notes
Prior to the Company's acquisition of AmeriHome, in October 2020, AmeriHome issued senior notes with an aggregate principal amount of $300.0 million, maturing on October 26, 2028. The senior notes accrue interest at a rate of 6.50% per annum, paid semiannually. The senior notes contain provisions that allow for redemption of up to 40% of the original aggregate principal amount of the notes during the first three years after issuance at a price equal to 106.50%, plus accrued and unpaid interest. After this three-year period, AmeriHome may redeem some or all of the senior notes at a price equal to 103.25% of the outstanding principal amount, plus accrued and unpaid interest. In 2025, the redemption price of these senior notes declines to 100% of the outstanding principal balance. The carrying amount of the senior notes includes a fair value adjustment (premium) of $19.3 million recognized as of the acquisition date and will be amortized over the term of the notes. As of June 30, 2021, the carrying value of these notes totaled $318.7 million.
Credit Linked Notes
On June 28, 2021, the Company issued $242.0 million aggregate principal amount of senior unsecured credit linked notes, which were recorded net of $2.9 million in debt issuance costs. The notes mature on December 30, 2024 and accrue interest at a rate equal to three-month LIBOR plus 5.50%, payable quarterly. The notes effectively transfer the risk of first losses on a $1.9 billion reference pool of the Company's warehouse loans to the purchasers of the notes. In the event of a failure to pay by the relevant mortgage originator, insolvency of the relevant mortgage originator, or restructuring of such loans that results in a loss on a loan included in the reference pool, the principal balance of the notes will be reduced to the extent of such loss and recognized as a debt extinguishment gain within non-interest income in the Consolidated Income Statement. The purchasers of the notes have the option to acquire the underlying mortgage loan collateralizing the reference warehouse line of credit in the event of obligor default. Losses on the warehouse lines of credit have not generally been significant. As of June 30, 2021, the carrying value of these notes totaled $239.1 million.
8. QUALIFYING DEBT
Subordinated Debt
The Company's subordinated debt consists of four separate issuances, as detailed in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Description
|
|
Issuance Date
|
|
Maturity Date
|
|
Interest Rate
|
|
Principal
|
|
Debt Issuance Costs at Origination
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
WAL fixed-rate (1)
|
|
June 2016
|
|
July 1, 2056
|
|
6.25
|
%
|
|
$
|
175.0
|
|
|
$
|
5.5
|
|
|
WAL fixed-to-floating-rate (2)
|
|
June 2021
|
|
June 15, 2031
|
|
3.00
|
%
|
|
600.0
|
|
|
7.7
|
|
|
WAB fixed-to-variable-rate (3)
|
|
June 2015
|
|
July 15, 2025
|
|
3.38
|
%
|
|
75.0
|
|
|
1.8
|
|
|
WAB fixed-to-floating-rate (4)
|
|
May 2020
|
|
June 1, 2030
|
|
5.25
|
%
|
|
225.0
|
|
|
3.1
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
1,075.0
|
|
|
$
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Description
|
|
Issuance Date
|
|
Maturity Date
|
|
Interest Rate
|
|
Principal
|
|
Debt Issuance Costs at Origination
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
WAL fixed-rate (1)
|
|
June 2016
|
|
July 1, 2056
|
|
6.25
|
%
|
|
$
|
175.0
|
|
|
$
|
5.5
|
|
|
WAB fixed-to-variable-rate (3)
|
|
June 2015
|
|
July 15, 2025
|
|
3.44
|
%
|
|
75.0
|
|
|
1.8
|
|
|
WAB fixed-to-floating-rate (4)
|
|
May 2020
|
|
June 1, 2030
|
|
5.25
|
%
|
|
225.0
|
|
|
3.1
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
475.0
|
|
|
$
|
10.4
|
|
(1) Debentures are redeemable, in whole or in part, beginning on or after July 1, 2021 at their principal amount plus any accrued and unpaid interest.
(2) Notes are redeemable, in whole or in part, beginning on June 15, 2026 at their principal amount plus accrued and unpaid interest. The notes also convert to a floating rate on this date, which is expected to be three-month SOFR plus 225 basis points.
(3) Debt is currently redeemable, in whole or in part, at its principal amount plus accrued and unpaid interest and has converted to a variable rate of 3.20% plus three-month LIBOR through maturity. Subsequent to June 30, 2021, the remaining $75.0 million was redeemed in full.
(4) Debt is redeemable, in whole or in part, on or after June 1, 2025 at its principal amount plus accrued and unpaid interest and has a fixed interest rate of 5.25% through June 1, 2025 and then converts to a floating rate per annum equal to three-month SOFR plus 512 basis points
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 $1.0 billion and $469.8 million at June 30, 2021 and December 31, 2020, 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.
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 carrying value of junior subordinated debt was $79.6 million and $78.9 million as of June 30, 2021 and December 31, 2020, respectively. The weighted average interest rate of all junior subordinated debt as of June 30, 2021 was 2.48%, which is three-month LIBOR plus the contractual spread of 2.34%, compared to a weighted average interest rate of 2.58% at December 31, 2020.
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.
9. STOCKHOLDERS' EQUITY
Stock-Based Compensation
Restricted Stock Awards
Restricted stock awards granted to employees generally vest over a 3-year period. Stock grants made to non-employee WAL directors in 2021 will be fully vested on July 1, 2021. 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. The aggregate grant date fair value for the restricted stock awards granted during the three and six months ended June 30, 2021 was $11.1 million and $34.8 million, respectively. 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 three and six months ended June 30, 2021, the Company recognized $6.6 million and $12.2 million, respectively, in stock-based compensation expense related to these stock grants, compared to $5.9 million and $10.8 million for the three and six months ended June 30, 2020, respectively.
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 three and six months ended June 30, 2021 and 2020, however expense was still being recognized through June 30, 2021 for a grant made in 2017 with a four-year vesting period. For the three months ended June 30, 2021 and 2020, the Company recognized $0.3 million in stock-based compensation expense related to these performance-based restricted stock grants and $0.6 million for the six months ended June 30, 2021 and 2020.
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 three and six months ended June 30, 2021, the Company recognized $2.5 million and $4.6 million, respectively, in stock-based compensation expense related to these performance stock units, compared to $1.8 million and $3.5 million for the three and six months ended June 30, 2020, 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 became fully vested and were distributed to executive management in the first quarter of 2021.
Common Stock Issuances
Pursuant to ATM Distribution Agreement
On June 3, 2021, the Company entered into a distribution agency agreement with J.P. Morgan Securities LLC, under which the Company may sell up to 4,000,000 shares of its common stock on the New York Stock Exchange. The Company pays J.P. Morgan Securities LLC a mutually agreed rate, not to exceed 2% of the gross offering proceeds of the shares sold pursuant to the distribution agency agreement. The common stock will be sold at prevailing market prices at the time of the sale or at negotiated prices and, as a result, prices will vary. Sales under the ATM program are being made pursuant to a prospectus dated May 14, 2021 and a prospectus supplement filed with the SEC on June 3, 2021, in an offering of shares from the Company's shelf registration statement on Form S-3 (No. 333-256120). During the three and six months ended June 30, 2021, the Company sold 700,000 shares under the ATM program at a weighted-average selling price of $100.59 per share for gross proceeds of $70.4 million. Total related offering costs were $0.6 million, of which $0.4 million relates to compensation costs paid to J.P. Morgan Securities LLC.
Registered Direct Offering
The Company sold 2.3 million shares of its common stock in a registered direct offering during the three months ended March 31, 2021. The shares were sold for $91.00 per share for aggregate net proceeds of $209.2 million.
Common Stock Repurchase
The Company's common stock repurchase program, which expired on December 31, 2020, authorized the Company to repurchase up to $250.0 million of its outstanding common stock. During the three and six months ended June 30, 2020, the Company repurchased 297,000 and 2,066,479 shares of its common stock at a weighted average price of $30.77 and $34.65 for a total payment of $9.2 million and $71.7 million, respectively.
Cash Dividend
During the six months ended June 30, 2021, the Company declared and paid two quarterly cash dividends of $0.25 per share, for a total dividend payment to shareholders of $51.1 million. During the six months ended June 30, 2020, the Company declared and paid two quarterly cash dividends of $0.25 per share, for a total payment to shareholders of $50.8 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 three and six months ended June 30, 2021, the Company purchased treasury shares of 2,256 and 156,419, respectively, at a weighted average price of $106.23 and $83.89 per share. During the three and six months ended June 30, 2020, the Company purchased treasury shares of 11,055 and 150,166 at a weighted average price of $35.96 and $52.31 per share, respectively.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated other comprehensive income by component, net of tax, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Unrealized holding gains (losses) on AFS
|
|
Unrealized holding gains (losses) on SERP
|
|
Unrealized holding gains (losses) on junior subordinated debt
|
|
|
|
Total
|
|
|
|
(in millions)
|
|
Balance, March 31, 2021
|
|
$
|
20.0
|
|
|
$
|
(0.3)
|
|
|
$
|
0.2
|
|
|
|
|
$
|
19.9
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
44.8
|
|
|
—
|
|
|
(0.2)
|
|
|
|
|
44.6
|
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Net current-period other comprehensive income (loss)
|
|
44.8
|
|
|
—
|
|
|
(0.2)
|
|
|
|
|
44.6
|
|
|
Balance, June 30, 2021
|
|
$
|
64.8
|
|
|
$
|
(0.3)
|
|
|
$
|
—
|
|
|
|
|
$
|
64.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
$
|
27.6
|
|
|
$
|
(0.3)
|
|
|
$
|
10.2
|
|
|
|
|
$
|
37.5
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
39.3
|
|
|
0.0
|
|
|
(3.0)
|
|
|
|
|
36.3
|
|
|
Amounts reclassified from AOCI
|
|
(0.1)
|
|
|
—
|
|
|
—
|
|
|
|
|
(0.1)
|
|
|
Net current-period other comprehensive income (loss)
|
|
39.2
|
|
|
0.0
|
|
|
(3.0)
|
|
|
|
|
36.2
|
|
|
Balance, June 30, 2020
|
|
$
|
66.8
|
|
|
$
|
(0.3)
|
|
|
$
|
7.2
|
|
|
|
|
$
|
73.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Unrealized holding gains (losses) on AFS
|
|
Unrealized holding gains (losses) on SERP
|
|
Unrealized holding gains (losses) on junior subordinated debt
|
|
|
|
Total
|
|
|
|
(in millions)
|
|
Balance, December 31, 2020
|
|
$
|
92.1
|
|
|
$
|
(0.3)
|
|
|
$
|
0.5
|
|
|
|
|
$
|
92.3
|
|
|
Other comprehensive (loss) income before reclassifications
|
|
(27.2)
|
|
|
—
|
|
|
(0.5)
|
|
|
|
|
(27.7)
|
|
|
Amounts reclassified from AOCI
|
|
(0.1)
|
|
|
—
|
|
|
—
|
|
|
|
|
(0.1)
|
|
|
Net current-period other comprehensive (loss) income
|
|
(27.3)
|
|
|
—
|
|
|
(0.5)
|
|
|
|
|
(27.8)
|
|
|
Balance, June 30, 2021
|
|
$
|
64.8
|
|
|
$
|
(0.3)
|
|
|
$
|
—
|
|
|
|
|
$
|
64.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
21.4
|
|
|
$
|
0.0
|
|
|
$
|
3.6
|
|
|
|
|
$
|
25.0
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
45.6
|
|
|
(0.3)
|
|
|
3.6
|
|
|
|
|
48.9
|
|
|
Amounts reclassified from AOCI
|
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
|
|
(0.2)
|
|
|
Net current-period other comprehensive income (loss)
|
|
45.4
|
|
|
(0.3)
|
|
|
3.6
|
|
|
|
|
48.7
|
|
|
Balance, June 30, 2020
|
|
$
|
66.8
|
|
|
$
|
(0.3)
|
|
|
$
|
7.2
|
|
|
|
|
$
|
73.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents reclassifications out of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
Income Statement Classification
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
(in millions)
|
|
|
|
Gain on sales of investment securities, net
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
|
|
Income tax expense
|
|
—
|
|
|
0.0
|
|
|
0.0
|
|
|
0.0
|
|
|
|
|
Net of tax
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
|
11. DERIVATIVES AND HEDGING ACTIVITIES
The Company is a party to various derivative instruments, including those derivative instruments assumed from the AMH acquisition. 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, forward purchase and sale commitments, and interest rate futures. Generally, these instruments are used to help manage the Company's exposure to interest rate risk related to IRLCs and its inventory of loans HFS and MSRs and also to 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.
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 is 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 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.
With the acquisition of AMH, the Company uses derivative financial instruments to manage exposure to interest rate risk related to IRLCs, and its inventory of loans HFS and MSRs. The Company economically hedges the changes in fair value associated with changes in interest rates generally by utilizing forward sale commitments and interest rate futures.
Fair Value Hedges
As of June 30, 2021 and December 31, 2020, the following amounts are reflected on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
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)
|
|
$
|
1,551.6
|
|
|
$
|
57.3
|
|
|
$
|
1,587.1
|
|
|
$
|
85.5
|
|
|
Qualifying debt
|
|
(244.8)
|
|
|
(0.8)
|
|
|
(247.6)
|
|
|
(2.7)
|
|
(1)Included in the carrying value of the hedged assets/(liabilities).
(2)Includes last-of-layer derivative instrument. The Company designated $1.0 billion as the hedged amount (from a closed portfolio of prepayable fixed rate loans with a carrying value of $1.5 billion and $1.9 billion as of June 30, 2021 and December 31, 2020, respectively) 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 $8.1 million and $0.6 million as of June 30, 2021 and December 31, 2020, respectively.
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 items is included in interest expense, as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
Income Statement Classification
|
|
Gain/(Loss) on Swaps
|
|
Gain/(Loss) on Hedged Item
|
|
Gain/(Loss) on Swaps
|
|
Gain/(Loss) on Hedged Item
|
|
|
|
(in millions)
|
|
Interest income
|
|
$
|
(10.8)
|
|
|
$
|
10.8
|
|
|
$
|
(6.2)
|
|
|
$
|
6.2
|
|
|
Interest expense
|
|
3.7
|
|
|
(3.7)
|
|
|
1.6
|
|
|
(1.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
Income Statement Classification
|
|
Gain/(Loss) on Swaps
|
|
Gain/(Loss) on Hedged Item
|
|
Gain/(Loss) on Swaps
|
|
Gain/(Loss) on Hedged Item
|
|
|
|
(in millions)
|
|
Interest income
|
|
$
|
27.9
|
|
|
$
|
(27.9)
|
|
|
$
|
(48.0)
|
|
|
$
|
48.0
|
|
|
Interest expense
|
|
(1.9)
|
|
|
1.9
|
|
|
6.4
|
|
|
(6.4)
|
|
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 basis as of June 30, 2021, December 31, 2020, and June 30, 2020. The change in the notional amounts of these derivatives from June 30, 2020 to June 30, 2021 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
June 30, 2020
|
|
|
|
|
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)
|
$
|
1,681.9
|
|
|
$
|
8.8
|
|
|
$
|
65.7
|
|
|
$
|
1,689.9
|
|
|
$
|
3.3
|
|
|
$
|
86.1
|
|
|
$
|
856.9
|
|
|
$
|
6.0
|
|
|
$
|
101.3
|
|
|
Total
|
1,681.9
|
|
|
8.8
|
|
|
65.7
|
|
|
1,689.9
|
|
|
3.3
|
|
|
86.1
|
|
|
856.9
|
|
|
6.0
|
|
|
101.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
131.7
|
|
|
$
|
1.2
|
|
|
$
|
0.9
|
|
|
$
|
119.2
|
|
|
$
|
0.7
|
|
|
$
|
1.2
|
|
|
$
|
25.0
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
Forward purchase contracts
|
7,293.0
|
|
|
21.5
|
|
|
3.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forward sales contracts
|
12,155.6
|
|
|
10.1
|
|
|
33.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Futures contracts
|
478,999.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate lock commitments
|
3,753.3
|
|
|
31.5
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
|
3.5
|
|
|
0.2
|
|
|
0.2
|
|
|
3.5
|
|
|
0.2
|
|
|
0.2
|
|
|
2.9
|
|
|
0.2
|
|
|
0.2
|
|
|
Options contracts
|
650.0
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
502,986.1
|
|
|
66.9
|
|
|
38.1
|
|
|
122.7
|
|
|
0.9
|
|
|
1.4
|
|
|
27.9
|
|
|
0.5
|
|
|
0.5
|
|
(1)Interest rate swap amounts include a notional amount of $1.0 billion related to the last-of-layer hedges.
(2)Relate to economic hedging arrangements.
The fair value of derivative contracts, after taking into account the effects of master netting agreements, is included in other assets or other liabilities on the Consolidated Balance Sheets, as summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
June 30, 2020
|
|
|
Gross amount of recognized assets (liabilities)
|
|
Gross offset
|
|
Net assets (liabilities)
|
|
Gross amount of recognized assets (liabilities)
|
|
Gross offset
|
|
Net assets (liabilities)
|
|
Gross amount of recognized assets (liabilities)
|
|
Gross offset
|
|
Net assets (liabilities)
|
|
|
($ in millions)
|
|
Derivatives subject to master netting arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts
|
$
|
21.2
|
|
|
$
|
(15.5)
|
|
|
$
|
5.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Forward sales contracts
|
10.1
|
|
|
(8.7)
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
|
8.8
|
|
|
(7.1)
|
|
|
1.7
|
|
|
3.3
|
|
|
(0.6)
|
|
|
2.7
|
|
|
6.0
|
|
|
—
|
|
|
6.0
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts
|
$
|
(3.4)
|
|
|
$
|
15.5
|
|
|
$
|
12.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Forward sales contracts
|
(32.6)
|
|
|
8.7
|
|
|
(23.9)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
|
(65.7)
|
|
|
7.1
|
|
|
(58.6)
|
|
|
(86.1)
|
|
|
0.6
|
|
|
(85.5)
|
|
|
(101.3)
|
|
|
—
|
|
|
(101.3)
|
|
|
Derivatives not subject to master netting arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Forward purchase contracts
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate lock commitments
|
31.5
|
|
|
—
|
|
|
31.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options contracts
|
2.4
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
(0.9)
|
|
|
$
|
—
|
|
|
$
|
(0.9)
|
|
|
$
|
(1.2)
|
|
|
$
|
—
|
|
|
$
|
(1.2)
|
|
|
$
|
(0.3)
|
|
|
$
|
—
|
|
|
$
|
(0.3)
|
|
|
Forward sales contracts
|
(0.4)
|
|
|
—
|
|
|
(0.4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate lock commitments
|
(0.6)
|
|
|
—
|
|
|
(0.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
|
(0.2)
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
—
|
|
|
(0.2)
|
|
|
Total derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
75.7
|
|
|
(31.3)
|
|
|
44.4
|
|
|
4.2
|
|
|
(0.6)
|
|
|
3.6
|
|
|
6.5
|
|
|
—
|
|
|
6.5
|
|
|
Liabilities
|
(103.8)
|
|
|
31.3
|
|
|
(72.5)
|
|
|
(87.5)
|
|
|
0.6
|
|
|
(86.9)
|
|
|
(101.8)
|
|
|
—
|
|
|
(101.8)
|
|
The following table summarizes net gains (losses) on derivatives included in income for the three and six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Six Months Ended June 30, 2021
|
|
|
|
|
|
($ in millions)
|
|
Net gain (loss) on loan origination and sale activities:
|
|
|
|
|
|
Interest rate lock commitments
|
|
$
|
19.6
|
|
|
|
|
Forward contracts
|
|
(67.7)
|
|
|
|
|
|
|
|
|
|
|
Other contracts
|
|
2.3
|
|
|
|
|
Total loss
|
|
$
|
(45.8)
|
|
|
|
|
Net loan servicing revenue:
|
|
|
|
|
|
Forward contracts
|
|
$
|
12.7
|
|
|
|
|
Options contracts
|
|
(1.0)
|
|
|
|
|
Futures contracts
|
|
24.6
|
|
|
|
|
Total gain
|
|
$
|
36.3
|
|
|
|
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 as of June 30, 2021, December 31, 2020, and June 30, 2020, totaled $103.6 million, $117.8 million and $117.2 million, respectively. Total collateral pledged by counterparties to the Company totaled $0.8 million as of June 30, 2021 and zero as of December 31, 2020, and June 30, 2020.
12. EARNINGS PER SHARE
Diluted EPS is based on the weighted average outstanding common shares during each 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(in millions, except per share amounts)
|
|
Weighted average shares - basic
|
|
102.7
|
|
|
99.8
|
|
|
101.8
|
|
|
100.6
|
|
|
Dilutive effect of stock awards
|
|
0.7
|
|
|
0.2
|
|
|
0.6
|
|
|
0.2
|
|
|
Weighted average shares - diluted
|
|
103.4
|
|
|
100.0
|
|
|
102.4
|
|
|
100.8
|
|
|
Net income
|
|
$
|
223.8
|
|
|
$
|
93.3
|
|
|
$
|
416.3
|
|
|
$
|
177.2
|
|
|
Earnings per share - basic
|
|
2.18
|
|
|
0.93
|
|
|
4.09
|
|
|
1.76
|
|
|
Earnings per share - diluted
|
|
2.17
|
|
|
0.93
|
|
|
4.07
|
|
|
1.76
|
|
The Company had no anti-dilutive stock options outstanding at each of the periods ended June 30, 2021 and 2020.
13. INCOME TAXES
The Company's effective tax rate was 19.0% and 17.4% for the three months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, the Company's effective tax rate was 18.5% and 17.7%, respectively. The increase in the three and six month effective tax rate is primarily due to an increase in projected pretax book income for the year.
As of June 30, 2021, the net DTA balance totaled $36.5 million, an increase of $5.2 million from the year end 2020 DTA balance of $31.3 million and includes adjustments related to the AmeriHome acquisition.
Although realization is not assured, the Company believes that the realization of the recognized deferred tax asset of $36.5 million at June 30, 2021 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.
At June 30, 2021 and December 31, 2020, the Company had no deferred tax valuation allowance.
LIHTC and renewable energy projects
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.
Investments in LIHTC and renewable energy total $490.1 million and $405.6 million as of June 30, 2021 and December 31, 2020, respectively. Unfunded LIHTC and renewable energy obligations are included as part of other liabilities on the Consolidated Balance Sheets and total $217.8 million and $151.7 million as of June 30, 2021 and December 31, 2020, respectively. For the three months ended June 30, 2021 and 2020, $8.2 million and $12.3 million, respectively, of amortization related to LIHTC investments was recognized as a component of income tax expense. For the six months ended June 30, 2021 and 2020, $23.7 million and $19.7 million, respectively, of amortization related to LIHTC investments was recognized as a component of income tax expense.
14. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
(in millions)
|
|
Commitments to extend credit, including unsecured loan commitments of $1,045.4 at June 30, 2021 and $1,077.2 at December 31, 2020
|
|
$
|
10,536.3
|
|
|
$
|
9,425.2
|
|
|
Credit card commitments and financial guarantees
|
|
295.2
|
|
|
291.5
|
|
|
Letters of credit, including unsecured letters of credit of $5.9 at June 30, 2021 and $9.9 at December 31, 2020
|
|
164.4
|
|
|
186.9
|
|
|
Total
|
|
$
|
10,995.9
|
|
|
$
|
9,903.6
|
|
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 5. Loans, Leases and Allowance for Credit Losses" of these Unaudited Consolidated Financial Statements. This loss contingency for unfunded loan commitments and letters of credit was $31.3 million and $37.0 million as of June 30, 2021 and December 31, 2020, respectively. Changes to this liability are adjusted through the provision for credit losses in the Consolidated Income Statement.
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 each of the periods ended June 30, 2021 and December 31, 2020, CRE related loans accounted for approximately 35% and 38% 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 26% and 28% of these CRE loans, excluding construction and land loans, were owner-occupied at June 30, 2021 and December 31, 2020, 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.
Lease Commitments
The Company has operating leases under which it leases its branch offices, corporate headquarters, other offices, and data facility centers. Operating lease costs totaled $4.4 million and $8.1 million during the three and six months ended June 30, 2021, respectively, compared to $3.5 million and $6.9 million for the three and six months ended June 30, 2020 respectively. Other lease costs, which include common area maintenance, parking, and taxes, and were included as part of occupancy expense, totaled $0.9 million and $1.9 million during the three and six months ended June 30, 2021, respectively, compared to $0.9 million and $2.0 million for the three and six months ended June 30, 2020, respectively.
15. 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 Unaudited 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 three and six months ended June 30, 2021 and 2020, unrealized gains and losses from fair value changes on junior subordinated debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(in millions)
|
|
Unrealized (losses) gains
|
|
$
|
(0.2)
|
|
|
$
|
(4.0)
|
|
|
$
|
(0.6)
|
|
|
$
|
4.7
|
|
|
Changes included in OCI, net of tax
|
|
(0.2)
|
|
|
(3.0)
|
|
|
(0.5)
|
|
|
3.6
|
|
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 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.
Loans held for sale: Government-insured or guaranteed and agency-conforming loans HFS are salable into active markets. Accordingly, the fair value of these loans is based on quoted market or contracted selling prices or a market price equivalent, which are categorized as Level 2 in the fair value hierarchy.
The fair value of non-agency loans HFS as well as certain loans that become nonsalable into active markets due to the identification of a defect is determined based on valuation techniques that utilize Level 3 inputs.
Mortgage servicing rights: MSRs are measured based on valuation techniques using Level 3 inputs. The Company uses a discounted cash flow model that incorporates assumptions that market participants would use in estimating the fair value of servicing rights, including, but not limited to, option adjusted spread, conditional prepayment rate, servicing fee rate, and cost to service.
Derivative financial instruments: Treasury futures and options, Eurodollar futures, and swap futures are measured based on valuation techniques using Level 1 Inputs from exchange-provided daily settlement quotes. Forward purchase and sales contracts are measured based on valuation techniques using Level 2 inputs, such as quoted market price, contracted selling price, or market price equivalent. Interest rate swaps are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations to value its interest rate swaps. IRLCs are measured based on valuation techniques using Level 3 inputs, such as loan type, underlying loan amount, note rate, loan program, and expected settlement date. These measurements are adjusted at the loan level to consider the servicing release premium and loan pricing adjustment specific to each loan. The base value is then adjusted for the pull-through rate. The pull-through rate and servicing fee multiple are unobservable inputs based on historical experience.
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)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
CLO
|
|
$
|
—
|
|
|
$
|
937.1
|
|
|
$
|
—
|
|
|
$
|
937.1
|
|
|
Commercial MBS issued by GSEs
|
|
—
|
|
|
81.5
|
|
|
—
|
|
|
81.5
|
|
|
Corporate debt securities
|
|
—
|
|
|
363.4
|
|
|
—
|
|
|
363.4
|
|
|
Private label residential MBS
|
|
—
|
|
|
1,710.4
|
|
|
—
|
|
|
1,710.4
|
|
|
Residential MBS issued by GSEs
|
|
—
|
|
|
2,105.7
|
|
|
—
|
|
|
2,105.7
|
|
|
Tax-exempt
|
|
—
|
|
|
1,347.4
|
|
|
—
|
|
|
1,347.4
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
Other
|
|
27.6
|
|
|
32.8
|
|
|
—
|
|
|
60.4
|
|
|
Total AFS debt securities
|
|
$
|
36.9
|
|
|
$
|
6,578.3
|
|
|
$
|
—
|
|
|
$
|
6,615.2
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
CRA investments
|
|
$
|
27.5
|
|
|
$
|
29.5
|
|
|
$
|
—
|
|
|
$
|
57.0
|
|
|
Preferred stock
|
|
136.8
|
|
|
—
|
|
|
—
|
|
|
136.8
|
|
|
Total equity securities
|
|
$
|
164.3
|
|
|
$
|
29.5
|
|
|
$
|
—
|
|
|
$
|
193.8
|
|
|
Loans - HFS
|
|
$
|
—
|
|
|
$
|
2,251.9
|
|
|
$
|
0.7
|
|
|
$
|
2,252.6
|
|
|
Mortgage servicing rights
|
|
—
|
|
|
—
|
|
|
726.2
|
|
|
726.2
|
|
|
Derivative assets (1)
|
|
2.4
|
|
|
41.8
|
|
|
31.5
|
|
|
75.7
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66.5
|
|
|
$
|
66.5
|
|
|
Derivative liabilities (1)
|
|
—
|
|
|
103.2
|
|
|
0.6
|
|
|
103.8
|
|
(1)See "Note 11. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $57.3 million and the net carrying value of subordinated debt is increased by $0.8 million as of June 30, 2021 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, 2020
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
CLO
|
|
$
|
—
|
|
|
$
|
146.9
|
|
|
$
|
—
|
|
|
$
|
146.9
|
|
|
Commercial MBS issued by GSEs
|
|
—
|
|
|
84.6
|
|
|
—
|
|
|
84.6
|
|
|
Corporate debt securities
|
|
—
|
|
|
270.2
|
|
|
—
|
|
|
270.2
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
26.5
|
|
|
29.4
|
|
|
—
|
|
|
55.9
|
|
|
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)See "Note 11. 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.
For the three and six months ended June 30, 2021 and 2020, the change in Level 3 liabilities measured at fair value on a recurring basis included in OCI was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Subordinated Debt
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(in millions)
|
|
Beginning balance
|
|
$
|
(66.3)
|
|
|
$
|
(53.0)
|
|
|
$
|
(65.9)
|
|
|
$
|
(61.7)
|
|
|
Change in fair value (1)
|
|
(0.2)
|
|
|
(4.0)
|
|
|
(0.6)
|
|
|
4.7
|
|
|
Ending balance
|
|
$
|
(66.5)
|
|
|
$
|
(57.0)
|
|
|
$
|
(66.5)
|
|
|
$
|
(57.0)
|
|
(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 $(0.2) million and $(3.0) million for three months ended June 30, 2021 and 2020, respectively, and $(0.5) million and $3.6 million for the six months ended June 30, 2021 and 2020, respectively.
The significant unobservable inputs used in the fair value measurements of these Level 3 liabilities were as follows:
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|
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|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Input Value
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Junior subordinated debt
|
|
$
|
66.5
|
|
|
Discounted cash flow
|
|
Implied credit rating of the Company
|
|
2.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
The significant unobservable inputs used in the fair value measurement of the Company’s junior subordinated debt as of June 30, 2021 and December 31, 2020 was the implied credit risk for the Company. As of June 30, 2021 and 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 June 30, 2021, the Company estimates the discount rate at 2.71%, which represents an implied credit spread of 2.56% plus three-month LIBOR (0.15%). As of December 31, 2020, the Company estimated the discount rate at 2.87%, which was a 2.64% credit spread plus three-month LIBOR (0.24%).
For the three months ended June 30, 2021, the change in Level 3 liabilities measured at fair value on a recurring basis included in income was as follows:
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|
|
Three Months Ended June 30, 2021
|
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|
|
Loans held for sale
|
|
Mortgage servicing rights
|
|
Net interest rate lock commitments (1)
|
|
|
|
(in millions)
|
|
Fair value, March 31, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Acquired in AMH acquisition
|
|
0.7
|
|
|
1,376.3
|
|
|
23.7
|
|
|
Purchases and additions
|
|
—
|
|
|
282.3
|
|
|
6,338.3
|
|
|
Sales and payments
|
|
(1.1)
|
|
|
(871.5)
|
|
|
—
|
|
|
Transfers from Level 2 to Level 3
|
|
1.1
|
|
|
—
|
|
|
—
|
|
|
Transfers from Level 3 to Level 2
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlement of interest rate lock commitments upon acquisition or origination of loans HFS
|
|
—
|
|
|
—
|
|
|
(6,324.4)
|
|
|
Change in fair value
|
|
—
|
|
|
6.6
|
|
|
(6.7)
|
|
|
Realization of cash flows
|
|
—
|
|
|
(67.5)
|
|
|
—
|
|
|
Fair value, June 30, 2021
|
|
$
|
0.7
|
|
|
$
|
726.2
|
|
|
$
|
30.9
|
|
|
Unrealized gains (losses) included in income related to assets held at period end
|
|
$
|
—
|
|
|
$
|
(31.3)
|
|
|
$
|
30.9
|
|
(1) Interest rate lock commitment asset and liability positions are presented net.
The significant unobservable inputs used in the fair value measurements of these Level 3 assets and liabilities were as follows:
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|
|
|
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
Asset/liability
|
|
Key inputs
|
|
Range
|
|
Weighted average
|
|
|
|
|
|
Mortgage servicing rights:
|
|
Option adjusted spread (in basis points)
|
|
(86) - 386
|
|
189
|
|
|
|
|
|
|
Conditional prepayment rate (1)
|
|
8.6% - 21.5%
|
|
14.5%
|
|
|
|
|
|
|
Servicing fee rate (in basis points)
|
|
25.0 - 56.5
|
|
30.2
|
|
|
|
|
|
|
Cost to service
|
|
$84 - $91
|
|
$86
|
|
|
|
|
|
Loans held for sale:
|
|
Whole loan spread to TBA price (in basis points)
|
|
(3.2) - (2.0)
|
|
(2.5)
|
|
|
|
|
|
Interest rate lock commitments:
|
|
Servicing fee multiple
|
|
3.7 - 6.1
|
|
5.0
|
|
|
|
|
|
|
Pull-through rate
|
|
69% - 100%
|
|
90%
|
|
|
|
|
(1) Lifetime total prepayment speed annualized.
The following is a summary of the difference between the aggregate fair value and the aggregate UPB of loans HFS for which the fair value option has been elected:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Fair value
|
|
Unpaid principal balance
|
|
Difference
|
|
|
|
(in millions)
|
|
Loans held for sale:
|
|
|
|
|
|
|
|
Current through 89 days delinquent
|
|
$
|
2,251.9
|
|
|
$
|
2,148.7
|
|
|
$
|
103.2
|
|
|
90 days or more delinquent
|
|
0.7
|
|
|
0.8
|
|
|
(0.1)
|
|
|
Total
|
|
$
|
2,252.6
|
|
|
$
|
2,149.5
|
|
|
$
|
103.1
|
|
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:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2021:
|
|
|
|
|
|
|
|
|
|
Loans, HFI
|
|
$
|
144.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
144.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets acquired through foreclosure
|
|
3.9
|
|
|
—
|
|
|
—
|
|
|
3.9
|
|
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
Loans, HFI
|
|
$
|
187.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
187.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets acquired through foreclosure
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
For Level 3 assets measured at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Valuation Technique(s)
|
|
Significant Unobservable Inputs
|
|
Range
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Loans, HFI
|
$
|
144.6
|
|
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets acquired through foreclosure
|
3.9
|
|
|
Collateral method
|
|
Third party appraisal
|
|
Costs to sell
|
|
4.0% to 10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Valuation Technique(s)
|
|
Significant Unobservable Inputs
|
|
Range
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Loans, HFI
|
$
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets acquired through foreclosure
|
1.4
|
|
|
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 $144.6 million and $187.3 million at June 30, 2021 and December 31, 2020, respectively, net of a specific valuation allowance of $13.3 million and $8.9 million at June 30, 2021 and December 31, 2020, 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 $3.9 million and $1.4 million of such assets at June 30, 2021 and December 31, 2020, respectively.
Fair Value of Financial Instruments
The estimated fair value of the Company’s financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
HTM
|
|
$
|
968.7
|
|
|
$
|
—
|
|
|
$
|
1,012.7
|
|
|
$
|
—
|
|
|
$
|
1,012.7
|
|
|
AFS
|
|
6,615.2
|
|
|
36.9
|
|
|
6,578.3
|
|
|
—
|
|
|
6,615.2
|
|
|
Equity
|
|
193.8
|
|
|
164.3
|
|
|
29.5
|
|
|
—
|
|
|
193.8
|
|
|
Derivative assets
|
|
75.7
|
|
|
2.4
|
|
|
41.8
|
|
|
31.5
|
|
|
75.7
|
|
|
Loans, HFS
|
|
4,465.2
|
|
|
—
|
|
|
2,251.9
|
|
|
2,263.2
|
|
|
4,515.1
|
|
|
Loans, net
|
|
29,793.5
|
|
|
—
|
|
|
—
|
|
|
30,231.7
|
|
|
30,231.7
|
|
|
Mortgage servicing rights
|
|
726.2
|
|
|
—
|
|
|
—
|
|
|
726.2
|
|
|
726.2
|
|
|
Accrued interest receivable
|
|
221.7
|
|
|
—
|
|
|
221.7
|
|
|
—
|
|
|
221.7
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
41,921.0
|
|
|
$
|
—
|
|
|
$
|
41,924.9
|
|
|
$
|
—
|
|
|
$
|
41,924.9
|
|
|
Other borrowings
|
|
615.4
|
|
|
—
|
|
|
597.8
|
|
|
—
|
|
|
597.8
|
|
|
Qualifying debt
|
|
1,140.0
|
|
|
—
|
|
|
1,103.8
|
|
|
80.1
|
|
|
1,183.9
|
|
|
Derivative liabilities
|
|
103.8
|
|
|
—
|
|
|
103.2
|
|
|
0.6
|
|
|
103.8
|
|
|
Accrued interest payable
|
|
14.6
|
|
|
—
|
|
|
14.6
|
|
|
—
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
21.0
|
|
|
—
|
|
|
21.0
|
|
|
—
|
|
|
21.0
|
|
|
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
|
|
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 June 30, 2021 and December 31, 2020 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 June 30, 2021 and December 31, 2020.
16. SEGMENTS
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 consumer banking services, such as residential mortgage banking, and commercial banking services to enterprises in consumer-related sectors.
•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 20% 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 information for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet:
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
|
At June 30, 2021:
|
|
(in millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and investment securities
|
|
$
|
11,240.8
|
|
|
$
|
13.4
|
|
|
$
|
79.5
|
|
|
$
|
11,147.9
|
|
|
Loans held for sale
|
|
4,465.2
|
|
|
—
|
|
|
4,465.2
|
|
|
—
|
|
|
Loans, net of deferred loan fees and costs
|
|
30,026.4
|
|
|
20,642.9
|
|
|
9,387.0
|
|
|
(3.5)
|
|
|
Less: allowance for credit losses
|
|
(232.9)
|
|
|
(212.1)
|
|
|
(20.8)
|
|
|
—
|
|
|
Total loans
|
|
29,793.5
|
|
|
20,430.8
|
|
|
9,366.2
|
|
|
(3.5)
|
|
|
Other assets acquired through foreclosure, net
|
|
3.9
|
|
|
3.9
|
|
|
—
|
|
|
—
|
|
|
Goodwill and other intangible assets, net
|
|
610.7
|
|
|
295.4
|
|
|
315.3
|
|
|
—
|
|
|
Other assets
|
|
2,954.9
|
|
|
254.3
|
|
|
1,165.4
|
|
|
1,535.2
|
|
|
Total assets
|
|
$
|
49,069.0
|
|
|
$
|
20,997.8
|
|
|
$
|
15,391.6
|
|
|
$
|
12,679.6
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
41,921.0
|
|
|
$
|
26,262.3
|
|
|
$
|
14,841.8
|
|
|
$
|
816.9
|
|
|
Borrowings and qualifying debt
|
|
1,735.2
|
|
|
—
|
|
|
355.8
|
|
|
1,379.4
|
|
|
Other liabilities
|
|
1,378.3
|
|
|
302.9
|
|
|
143.9
|
|
|
931.5
|
|
|
Total liabilities
|
|
45,034.5
|
|
|
26,565.2
|
|
|
15,341.5
|
|
|
3,127.8
|
|
|
Allocated equity:
|
|
4,034.5
|
|
|
2,178.7
|
|
|
1,348.7
|
|
|
507.1
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
49,069.0
|
|
|
$
|
28,743.9
|
|
|
$
|
16,690.2
|
|
|
$
|
3,634.9
|
|
|
Excess funds provided (used)
|
|
—
|
|
|
7,746.1
|
|
|
1,298.6
|
|
|
(9,044.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021:
|
|
(in millions)
|
|
Net interest income
|
|
$
|
370.5
|
|
|
$
|
280.7
|
|
|
$
|
139.5
|
|
|
$
|
(49.7)
|
|
|
(Recovery of) provision for credit losses
|
|
(14.5)
|
|
|
(18.6)
|
|
|
7.2
|
|
|
(3.1)
|
|
|
Net interest income (expense) after provision for credit losses
|
|
385.0
|
|
|
299.3
|
|
|
132.3
|
|
|
(46.6)
|
|
|
Non-interest income
|
|
136.0
|
|
|
13.9
|
|
|
116.9
|
|
|
5.2
|
|
|
Non-interest expense
|
|
244.8
|
|
|
104.1
|
|
|
135.6
|
|
|
5.1
|
|
|
Income (loss) before income taxes
|
|
276.2
|
|
|
209.1
|
|
|
113.6
|
|
|
(46.5)
|
|
|
Income tax expense (benefit)
|
|
52.4
|
|
|
50.4
|
|
|
27.5
|
|
|
(25.5)
|
|
|
Net income (loss)
|
|
$
|
223.8
|
|
|
$
|
158.7
|
|
|
$
|
86.1
|
|
|
$
|
(21.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021:
|
|
(in millions)
|
|
Net interest income
|
|
$
|
687.8
|
|
|
$
|
544.5
|
|
|
$
|
247.5
|
|
|
$
|
(104.2)
|
|
|
(Recovery of) provision for credit losses
|
|
(46.9)
|
|
|
(54.8)
|
|
|
8.9
|
|
|
(1.0)
|
|
|
Net interest income (expense) after provision for credit losses
|
|
734.7
|
|
|
599.3
|
|
|
238.6
|
|
|
(103.2)
|
|
|
Non-interest income
|
|
155.7
|
|
|
33.1
|
|
|
117.4
|
|
|
5.2
|
|
|
Non-interest expense
|
|
379.8
|
|
|
202.4
|
|
|
170.9
|
|
|
6.5
|
|
|
Income (loss) before income taxes
|
|
510.6
|
|
|
430.0
|
|
|
185.1
|
|
|
(104.5)
|
|
|
Income tax expense (benefit)
|
|
94.3
|
|
|
103.2
|
|
|
44.9
|
|
|
(53.8)
|
|
|
Net income (loss)
|
|
$
|
416.3
|
|
|
$
|
326.8
|
|
|
$
|
140.2
|
|
|
$
|
(50.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet:
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate
|
|
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 loan 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statements:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020:
|
|
(in millions)
|
|
Net interest income
|
|
$
|
298.4
|
|
|
$
|
254.9
|
|
|
$
|
72.4
|
|
|
$
|
(28.9)
|
|
|
Provision for (recovery of) credit losses
|
|
92.0
|
|
|
98.0
|
|
|
(10.5)
|
|
|
4.5
|
|
|
Net interest income (expense) after provision for credit losses
|
|
206.4
|
|
|
156.9
|
|
|
82.9
|
|
|
(33.4)
|
|
|
Non-interest income
|
|
21.3
|
|
|
9.6
|
|
|
0.4
|
|
|
11.3
|
|
|
Non-interest expense
|
|
114.8
|
|
|
71.2
|
|
|
21.2
|
|
|
22.4
|
|
|
Income (loss) before income taxes
|
|
112.9
|
|
|
95.3
|
|
|
62.1
|
|
|
(44.5)
|
|
|
Income tax expense (benefit)
|
|
19.6
|
|
|
22.9
|
|
|
14.7
|
|
|
(18.0)
|
|
|
Net income (loss)
|
|
$
|
93.3
|
|
|
$
|
72.4
|
|
|
$
|
47.4
|
|
|
$
|
(26.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020:
|
|
(in millions)
|
|
Net interest income
|
|
$
|
567.4
|
|
|
$
|
483.4
|
|
|
$
|
128.1
|
|
|
$
|
(44.1)
|
|
|
Provision for (recovery of) credit losses
|
|
143.2
|
|
|
145.8
|
|
|
(7.5)
|
|
|
4.9
|
|
|
Net interest income (expense) after provision for credit losses
|
|
424.2
|
|
|
337.6
|
|
|
135.6
|
|
|
(49.0)
|
|
|
Non-interest income
|
|
26.4
|
|
|
21.0
|
|
|
0.8
|
|
|
4.6
|
|
|
Non-interest expense
|
|
235.3
|
|
|
153.6
|
|
|
47.0
|
|
|
34.7
|
|
|
Income (loss) before income taxes
|
|
215.3
|
|
|
205.0
|
|
|
89.4
|
|
|
(79.1)
|
|
|
Income tax expense (benefit)
|
|
38.1
|
|
|
48.9
|
|
|
21.1
|
|
|
(31.9)
|
|
|
Net income (loss)
|
|
$
|
177.2
|
|
|
$
|
156.1
|
|
|
$
|
68.3
|
|
|
$
|
(47.2)
|
|
17. 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 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
|
|
Three Months Ended June 30, 2021
|
|
(in millions)
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
7.4
|
|
|
$
|
6.9
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
Debit and credit card interchange (1)
|
|
1.6
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
|
Success fees (2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other income
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
Total revenue from contracts with customers
|
|
$
|
9.2
|
|
|
$
|
8.7
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
Revenues outside the scope of ASC 606 (3)
|
|
126.8
|
|
|
5.2
|
|
|
116.4
|
|
|
5.2
|
|
|
Total non-interest income
|
|
$
|
136.0
|
|
|
$
|
13.9
|
|
|
$
|
116.9
|
|
|
$
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
|
Six Months Ended June 30, 2021
|
|
(in millions)
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
14.1
|
|
|
$
|
13.2
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
Debit and credit card interchange (1)
|
|
2.9
|
|
|
2.9
|
|
|
—
|
|
|
—
|
|
|
Success fees (2)
|
|
1.0
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
Other income
|
|
0.4
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
Total revenue from contracts with customers
|
|
$
|
18.4
|
|
|
$
|
17.5
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
Revenues outside the scope of ASC 606 (3)
|
|
20.8
|
|
|
15.6
|
|
|
—
|
|
|
5.2
|
|
|
Total non-interest income
|
|
$
|
155.7
|
|
|
$
|
33.1
|
|
|
$
|
117.4
|
|
|
$
|
5.2
|
|
(1)Included as part of Commercial banking related 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."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
|
Three Months Ended June 30, 2020
|
|
(in millions)
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
5.1
|
|
|
$
|
4.8
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
Debit and credit card interchange (1)
|
|
0.9
|
|
|
0.9
|
|
|
—
|
|
|
—
|
|
|
Success fees (2)
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
Other income
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
Total revenue from contracts with customers
|
|
$
|
6.4
|
|
|
$
|
6.1
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
Revenues outside the scope of ASC 606 (3)
|
|
14.9
|
|
|
3.5
|
|
|
0.1
|
|
|
11.3
|
|
|
Total non-interest income
|
|
$
|
21.3
|
|
|
$
|
9.6
|
|
|
$
|
0.4
|
|
|
$
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Company
|
|
Commercial
|
|
Consumer Related
|
|
Corporate & Other
|
|
Six Months Ended June 30, 2020
|
|
(in millions)
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
11.5
|
|
|
$
|
10.9
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
Debit and credit card interchange (1)
|
|
2.3
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
|
Success fees (2)
|
|
0.4
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
Other income
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
Total revenue from contracts with customers
|
|
$
|
14.4
|
|
|
$
|
13.8
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
Revenues outside the scope of ASC 606 (3)
|
|
12.0
|
|
|
7.2
|
|
|
0.2
|
|
|
4.6
|
|
|
Total non-interest income
|
|
$
|
26.4
|
|
|
$
|
21.0
|
|
|
$
|
0.8
|
|
|
$
|
4.6
|
|
(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 June 30, 2021. 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, 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 totals $2.0 million and $1.6 million as of June 30, 2021 and December 31, 2020, respectively, and are presented in Other assets on the Consolidated Balance Sheets.
