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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From ___________ To _____________

Commission File Number: 000-30421

HANMI FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

95-4788120

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

3660 Wilshire Boulevard, Penthouse Suite A

 

90010

Los Angeles, California

 

 

(Address of Principal Executive Offices)

 

(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

HAFC

 

Nasdaq Global Select Market

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).   Yes  ☒    No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes      No  

As of May 1, 2020, there were 30,617,066 outstanding shares of the Registrant’s Common Stock.

 

 

 

 


 

Hanmi Financial Corporation and Subsidiaries Quarterly Report on Form 10-Q

Three Months Ended March 31, 2020

Table of Contents

 

 

 

Part I – Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2020 (unaudited) and December 31, 2019

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited)

 

7

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

55

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

56

 

 

 

 

 

 

 

Part II – Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

57

 

 

 

 

 

Item 1A.

 

Risk Factors

 

57

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

58

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

58

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

58

 

 

 

 

 

Item 5.

 

Other Information

 

58

 

 

 

 

 

Item 6.

 

Exhibits

 

59

 

 

 

Signatures

 

60

 

2


 

Part I — Financial Information

Item 1. Financial Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

290,546

 

 

$

121,678

 

Securities available for sale, at fair value (amortized cost of $605,530, as of March 31, 2020 and $629,725 as of December 31, 2019)

 

 

622,206

 

 

 

634,477

 

Loans held for sale, at the lower of cost or fair value

 

 

 

 

 

6,020

 

Loans receivable, net of allowance for credit losses of $66,500 as of March 31, 2020 and $61,408 as of December 31, 2019

 

 

4,477,136

 

 

 

4,548,739

 

Accrued interest receivable

 

 

11,536

 

 

 

11,742

 

Premises and equipment, net

 

 

26,374

 

 

 

26,070

 

Customers' liability on acceptances

 

 

102

 

 

 

66

 

Servicing assets

 

 

6,727

 

 

 

6,956

 

Goodwill and other intangible assets, net

 

 

11,808

 

 

 

11,873

 

Federal Home Loan Bank ("FHLB") stock, at cost

 

 

16,385

 

 

 

16,385

 

Income tax assets

 

 

39,445

 

 

 

36,787

 

Bank-owned life insurance

 

 

53,058

 

 

 

52,782

 

Prepaid expenses and other assets

 

 

62,367

 

 

 

64,609

 

Total assets

 

$

5,617,690

 

 

$

5,538,184

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

1,366,270

 

 

$

1,391,624

 

Interest-bearing

 

 

3,215,797

 

 

 

3,307,338

 

Total deposits

 

 

4,582,068

 

 

 

4,698,962

 

Accrued interest payable

 

 

9,693

 

 

 

11,215

 

Bank's liability on acceptances

 

 

102

 

 

 

66

 

FHLB borrowings

 

 

300,000

 

 

 

90,000

 

Subordinated debentures ($126,800 face amount less unamortized discount and debt issuance costs of $8,277)

 

 

118,523

 

 

 

118,377

 

Accrued expenses and other liabilities

 

 

54,347

 

 

 

56,297

 

Total liabilities

 

 

5,064,732

 

 

 

4,974,917

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred Stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,448,214 shares (30,622,741 shares outstanding) as of March 31, 2020 and issued 33,475,402 shares (30,799,624 shares outstanding) as of December 31, 2019

 

 

33

 

 

 

33

 

Additional paid-in capital

 

 

576,585

 

 

 

575,816

 

Accumulated other comprehensive income, net of tax expense of $4,809 as of March 31, 2020 and $1,370 as of December 31, 2019

 

 

11,867

 

 

 

3,382

 

Retained earnings

 

 

83,355

 

 

 

100,551

 

Less treasury stock; 2,825,473 shares as of March 31, 2020 and 2,675,778 shares as of December 31, 2019

 

 

(118,882

)

 

 

(116,515

)

Total stockholders' equity

 

 

552,958

 

 

 

563,267

 

Total liabilities and stockholders' equity

 

$

5,617,690

 

 

$

5,538,184

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

3


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Interest and dividend income:

 

 

 

 

 

 

 

 

Interest and fees on loans receivable

 

$

54,648

 

 

$

58,334

 

Interest on securities

 

 

3,655

 

 

 

3,456

 

Dividends on FHLB stock

 

 

289

 

 

 

289

 

Interest on deposits in other banks

 

 

333

 

 

 

335

 

Total interest and dividend income

 

 

58,925

 

 

 

62,414

 

Interest expense:

 

 

 

 

 

 

 

 

Interest on deposits

 

 

12,742

 

 

 

15,683

 

Interest on borrowings

 

 

496

 

 

 

71

 

Interest on subordinated debentures

 

 

1,712

 

 

 

1,772

 

Total interest expense

 

 

14,950

 

 

 

17,526

 

Net interest income before credit loss expense

 

 

43,975

 

 

 

44,888

 

Credit loss expense

 

 

15,739

 

 

 

1,117

 

Net interest income after credit loss expense

 

 

28,236

 

 

 

43,771

 

Noninterest income:

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

2,400

 

 

 

2,358

 

Trade finance and other service charges and fees

 

 

986

 

 

 

1,124

 

Gain on sale of Small Business Administration ("SBA") loans

 

 

1,154

 

 

 

926

 

Net gain on sales of securities

 

 

 

 

 

725

 

Other operating income

 

 

1,683

 

 

 

1,121

 

Total noninterest income

 

 

6,223

 

 

 

6,254

 

Noninterest expense:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

17,749

 

 

 

15,738

 

Occupancy and equipment

 

 

4,475

 

 

 

4,521

 

Data processing

 

 

2,669

 

 

 

2,083

 

Professional fees

 

 

1,915

 

 

 

1,649

 

Supplies and communications

 

 

781

 

 

 

844

 

Advertising and promotion

 

 

734

 

 

 

760

 

Other operating expenses

 

 

2,745

 

 

 

3,470

 

Total noninterest expense

 

 

31,068

 

 

 

29,065

 

Income before tax

 

 

3,391

 

 

 

20,960

 

Income tax expense

 

 

1,041

 

 

 

6,288

 

Net income

 

$

2,350

 

 

$

14,672

 

Basic earnings per share

 

$

0.08

 

 

$

0.48

 

Diluted earnings per share

 

$

0.08

 

 

$

0.48

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

30,469,022

 

 

 

30,667,378

 

Diluted

 

 

30,472,899

 

 

 

30,720,772

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

4


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net income

 

$

2,350

 

 

$

14,672

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Unrealized gain on securities:

 

 

 

 

 

 

 

 

Unrealized holding gain arising during period

 

 

11,924

 

 

 

6,619

 

Less: reclassification adjustment for net gain included in net income

 

 

 

 

 

(725

)

Income tax expense related to items of other comprehensive income

 

 

(3,439

)

 

 

(1,697

)

Other comprehensive income, net of tax

 

 

8,485

 

 

 

4,197

 

Comprehensive income

 

$

10,835

 

 

$

18,869

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

5


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(in thousands, except share data)

 

 

 

Common Stock - Number of Shares

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Treasury

 

 

Total

 

 

 

Shares

 

 

Treasury

 

 

Shares

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stock,

 

 

Stockholders'

 

 

 

Issued

 

 

Shares

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

at Cost

 

 

Equity

 

Balance at January 1, 2019

 

 

33,202,369

 

 

 

(2,273,932

)

 

 

30,928,437

 

 

$

33

 

 

$

569,712

 

 

$

(6,079

)

 

$

97,539

 

 

$

(108,637

)

 

$

552,568

 

Stock options exercised

 

 

650

 

 

 

 

 

 

650

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Restricted stock awards, net of forfeitures

 

 

(49,131

)

 

 

 

 

 

(49,131

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

712

 

 

 

 

 

 

 

 

 

 

 

 

712

 

Restricted stock surrendered due to employee tax liability

 

 

 

 

 

(19,423

)

 

 

(19,423

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(425

)

 

 

(425

)

Cash dividends declared (common stock, $0.24/share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,440

)

 

 

 

 

 

(7,440

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,672

 

 

 

 

 

 

14,672

 

Change in unrealized gain (loss) on securities available for sale, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,197

 

 

 

 

 

 

 

 

 

4,197

 

Balance at March 31, 2019

 

 

33,153,888

 

 

 

(2,293,355

)

 

 

30,860,533

 

 

$

33

 

 

$

570,432

 

 

$

(1,882

)

 

$

104,771

 

 

$

(109,062

)

 

$

564,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

33,475,402

 

 

 

(2,675,778

)

 

 

30,799,624

 

 

$

33

 

 

$

575,816

 

 

$

3,382

 

 

$

100,551

 

 

$

(116,515

)

 

$

563,267

 

Adjustment related to adopting of new accounting standards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASU 2016-13 (See Notes 1 and 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,167

)

 

 

 

 

 

(12,167

)

Adjusted balance at January 1, 2020

 

 

33,475,402

 

 

 

(2,675,778

)

 

 

30,799,624

 

 

 

33

 

 

 

575,816

 

 

 

3,382

 

 

 

88,385

 

 

 

(116,515

)

 

 

551,101

 

Restricted stock awards, net of forfeitures

 

 

(27,188

)

 

 

 

 

 

(27,188

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

769

 

 

 

 

 

 

 

 

 

 

 

 

769

 

Restricted stock surrendered due to employee tax liability

 

 

 

 

 

(14,295

)

 

 

(14,295

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(171

)

 

 

(171

)

Repurchase of common stock

 

 

 

 

 

(135,400

)

 

 

(135,400

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,196

)

 

 

(2,196

)

Cash dividends declared (common stock, $0.24/share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,380

)

 

 

 

 

 

(7,380

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,350

 

 

 

 

 

 

2,350

 

Change in unrealized gain (loss) on securities available for sale, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,485

 

 

 

 

 

 

 

 

 

8,485

 

Balance at March 31, 2020

 

 

33,448,214

 

 

 

(2,825,473

)

 

 

30,622,741

 

 

$

33

 

 

$

576,585

 

 

$

11,867

 

 

$

83,355

 

 

$

(118,882

)

 

$

552,958

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

6


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

2,350

 

 

$

14,672

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,317

 

 

 

2,622

 

Share-based compensation expense

 

 

769

 

 

 

712

 

Credit loss expense

 

 

15,739

 

 

 

1,117

 

Gain on sales of securities

 

 

 

 

 

(725

)

Gain on sales of SBA loans

 

 

(1,154

)

 

 

(926

)

Origination of SBA loans held for sale

 

 

(12,197

)

 

 

(13,223

)

Proceeds from sales of SBA loans

 

 

19,366

 

 

 

16,608

 

Change in bank-owned life insurance

 

 

(276

)

 

 

(280

)

Change in prepaid expenses and other assets

 

 

(4,905

)

 

 

1,671

 

Change in income tax assets

 

 

4,098

 

 

 

 

Change in accrued expenses and other liabilities

 

 

(1,846

)

 

 

185

 

Net cash provided by operating activities

 

 

24,262

 

 

 

22,433

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of securities available for sale

 

 

(26,423

)

 

 

(130,550

)

Proceeds from matured, called and repayment of securities

 

 

49,987

 

 

 

20,544

 

Proceeds from sales of securities available for sale

 

 

 

 

 

69,187

 

Purchases of premises and equipment

 

 

(1,244

)

 

 

(1,444

)

Proceeds from disposition of premises and equipment

 

 

44

 

 

 

 

Change in loans receivable, excluding purchases

 

 

38,884

 

 

 

24,201

 

Net cash provided by (used in) investing activities

 

 

61,248

 

 

 

(18,062

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Change in deposits

 

 

(116,894

)

 

 

72,940

 

Change in overnight borrowings

 

 

135,000

 

 

 

(55,000

)

Proceeds from borrowings

 

 

75,000

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

8

 

Cash paid for surrender of vested shares due to employee tax liability

 

 

(171

)

 

 

(425

)

Repurchase of common stock

 

 

(2,196

)

 

 

 

Cash dividends paid

 

 

(7,380

)

 

 

(7,440

)

Net cash provided by financing activities

 

 

83,359

 

 

 

10,083

 

Net increase in cash and due from banks

 

 

168,869

 

 

 

14,454

 

Cash and due from banks at beginning of year

 

 

121,678

 

 

 

155,376

 

Cash and due from banks at end of period

 

$

290,546

 

 

$

169,830

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest expense paid

 

$

16,472

 

 

$

14,304

 

Income taxes paid

 

$

93

 

 

$

88

 

Non-cash activities:

 

 

 

 

 

 

 

 

Income tax (expense) benefit related to items of other comprehensive income

 

$

(3,439

)

 

$

(1,697

)

Change in unrealized (gain) loss in accumulated other comprehensive income

 

$

(11,924

)

 

$

(5,894

)

Change in right-of-use asset obtained in exchange for lease liability

 

$

1,287

 

 

$

40,909

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

7


 

Hanmi Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2020 and 2019

Note 1 — Organization and Basis of Presentation

Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) is a bank holding company whose primary subsidiary is Hanmi Bank (the “Bank”). Our primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money through the operation of the Bank. 

In management’s opinion, the accompanying unaudited consolidated financial statements of Hanmi Financial and its subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim period ended March 31, 2020, but are not necessarily indicative of the results that will be reported for the entire year or any other interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The unaudited consolidated financial statements are prepared in conformity with GAAP and in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. The interim information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report on Form 10-K”).

The preparation of interim unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the amounts reported in the unaudited financial statements and disclosures provided, and actual results could differ.

Descriptions of our significant accounting policies are included in Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the 2019 Annual Report on Form 10-K.

FASB ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.  It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.  In addition, ASU 2016-13 made changes to the accounting for available-for sale debt securities.

The Company adopted ASU 2016-13 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. However, the Company had no securities with other-than-temporary impairment as of December 31, 2019, and as a result there was no effect on the balance sheet related to securities from the adoption of ASU 2016-13. As a result, the amortized cost basis remains the same before and after the effective date of ASU 2016-13. The Company also reviewed the credit quality of its available-for-sale debt securities as of March 31, 2020 and recognizing that all securities were either U.S. Treasury, U.S. government agency, or U.S. government sponsored agencies obligations did not identify any impairment within the portfolio which would require an allowance for credit losses to be established during the three-month period ended March 31, 2020.

The Company adopted CECL as of January 1, 2020 using the modified retrospective approach and by leveraging three loss rate methodologies across the Bank’s four major loan segments (real estate loans, commercial and industrial loans, leases receivable, and consumer loans). Risk documentation, policies and procedures associated with CECL to support the ongoing estimation activities and the continuous assessment of risks related to the model, its methodologies, and data governance was also devised.

The adoption resulted in a $17.4 million increase to the beginning balance of the allowance for credit losses, a $0.3 million decrease to the beginning balance of the allowance for off-balance sheet items, and an after-tax charge of $12.2 million to the beginning balance of retained earnings.

 

8


 

According to ASU 2016-13, the Bank is required to measure its expected credit losses of financial assets on a collective (pool) basis when similar risk characteristic(s) exist. The Bank segments the loans primarily by loan types, considering that the same type of loans share considerable similar risk characteristics, including the collateral type, loan purpose, contract term, amortization and payment structure.

 

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method, Probability of Default / Loss Given Default method (“PD/LGD”), or a Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses.

 

The Company’s methodologies for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over twelve quarters when it can no longer develop reasonable and supportable forecasts.

The Company has disaggregated the portfolios of financial assets into the following material segments of like-kind loans or leases with similar risk characteristics using the following methodologies:

The Company used the discounted cash flow (DCF) method to estimate allowances for credit losses for the commercial property, construction, and residential real estate loan portfolios, the commercial and industrial loan portfolio, and the consumer loan portfolio. For all loan pools utilizing the DCF method, the Company utilizes and forecasts the national unemployment rate as the primary loss driver. The Company also utilizes and forecasts either the annualized average return rate from the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index for commercial real estate loans or the one-year percentage change in the S&P/Case-Shiller U.S National Home Price Index (NHPI) for residential real estate loans as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

For all DCF models at March 31, 2020, the Company determined that four-quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over twelve quarters on a straight-line basis. As of and for the quarter ended March 31, 2020, the Company leverages economic projections from the quarterly Federal Open Market Committee (FOMC) and the Federal Reserve Economic Database (FRED) to inform its loss driver forecasts over the four-quarter forecast period. For each of these loan segments, the Company applies an expected loss ratio based on the discounted cash flows adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes the in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, nonperforming and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

The Company used the Probability of Default/Loss Given Default (PD/LGD) method for the SBA portfolio to accommodate the unique nature of these loans. Although the PD/LGD methodology is an element of the DCF model, the stand-alone PD/LGD methodology minimizes complications related to the characteristics of SBA loans. A uniqueness of the SBA portfolio is that the U.S. Small Business Administration policy requires servicers to undertake all reasonable collection efforts before charging-off the loan.  As a result, the recovery rate for SBA loans tend to be more volatile and not intuitively correlated to economic factors.

The Company used a Weighted Average Remaining Maturity (WARM) method to estimate expected credit losses for equipment financing agreements or the equipment lease receivables portfolio. The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors. The Company's evaluation of market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated leases, and reasonable and supportable forecasts of economic conditions inform the estimate of qualitative factors.

As allowed by ASU 2016-13, the Company elected to maintain pools of loans accounted for under ASC 310-30.  In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption.

 

The Company estimates the allowance for credit losses on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of allowance for credit losses.

 

9


 

Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written off and the allowance for credit losses is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the allowance for credit losses when received.

The following table illustrates the allowance for credit losses and the related impact under ASU 2016-13 to the Company as of January 1, 2020.

 

 

 

As Reported

Under ASU

2016-13

 

 

Pre-ASU

2016-13

Adoption

 

 

Impact of

ASU 2016-13

Adoption

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

6,785

 

 

$

4,911

 

 

$

1,873

 

Hospitality

 

 

12,387

 

 

 

6,686

 

 

 

5,702

 

Other

 

 

13,415

 

 

 

8,060

 

 

 

5,355

 

Total commercial property loans

 

 

32,587

 

 

 

19,657

 

 

 

12,930

 

Construction loans

 

 

15,590

 

 

 

15,003

 

 

 

587

 

Residential property loans

 

 

2,150

 

 

 

1,695

 

 

 

455

 

Total real estate loans

 

 

50,327

 

 

 

36,355

 

 

 

13,972

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial term loans

 

 

12,175

 

 

 

14,077

 

 

 

(1,903

)

Commercial lines of credit

 

 

1,358

 

 

 

1,887

 

 

 

(529

)

International loans

 

 

176

 

 

 

242

 

 

 

(65

)

Total commercial loans

 

 

13,709

 

 

 

16,206

 

 

 

(2,497

)

Leases receivable

 

 

14,669

 

 

 

8,767

 

 

 

5,902

 

Consumer loans

 

 

135

 

 

 

80

 

 

 

55

 

Allowance for credit losses on loans receivable

 

$

78,841

 

 

$

61,408

 

 

$

17,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses on off-balance sheet items

 

$

2,062

 

 

$

2,398

 

 

$

(336

)

  

FASB ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment, Effective January 1, 2020, the Company adopted this standard, which simplifies the subsequent measurement of goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., the current Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Under this ASU, the impairment test is simply the comparison of the fair value of a reporting unit with its carrying amount (the current Step 1), with the impairment charge being the deficit in fair value but not exceeding the total amount of goodwill allocated to that reporting unit. The simplified one-step impairment test applies to all reporting units (including those with zero or negative carrying amounts). An entity was to apply the amendments in this ASU on a prospective basis and was required to disclose the nature of and reason for the change in accounting principle upon transition. The Company’s goodwill arose from the purchase of an equipment leasing portfolio in 2017. The equipment leasing portfolio has grown since acquisition, and the Company has concluded no impairment has occurred.

 

10


 

Note 2 — Securities

The following is a summary of securities available for sale as of the dates indicated:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gain

 

 

Loss

 

 

Value

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

24,988

 

 

$

420

 

 

$

 

 

$

25,408

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

413,350

 

 

 

12,023

 

 

 

(17

)

 

$

425,356

 

Collateralized mortgage obligations

 

 

150,950

 

 

 

3,890

 

 

 

(15

)

 

 

154,825

 

Debt securities

 

 

16,242

 

 

 

375

 

 

 

 

 

 

16,617

 

Total U.S. government agency and sponsored agency obligations

 

 

580,542

 

 

 

16,288

 

 

 

(32

)

 

 

596,798

 

Total securities available for sale

 

$

605,530

 

 

$

16,708

 

 

$

(32

)

 

$

622,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

34,947

 

 

$

259

 

 

$

 

 

 

35,206

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

406,813

 

 

 

4,334

 

 

 

(347

)

 

$

410,800

 

Collateralized mortgage obligations

 

 

164,232

 

 

 

792

 

 

 

(432

)

 

 

164,592

 

Debt securities

 

 

23,733

 

 

 

168

 

 

 

(22

)

 

 

23,879

 

Total U.S. government agency and sponsored agency obligations

 

 

594,778

 

 

 

5,294

 

 

 

(801

)

 

 

599,271

 

Total securities available for sale

 

$

629,725

 

 

$

5,553

 

 

$

(801

)

 

$

634,477

 

 

The amortized cost and estimated fair value of securities as of March 31, 2020, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. All other securities are included based on their contractual maturities.

 

 

 

Available for Sale

 

 

 

Amortized

 

 

Estimated

 

 

 

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

Within one year

 

$

25,583

 

 

$

25,700

 

Over one year through five years

 

 

160,801

 

 

 

164,775

 

Over five years through ten years

 

 

172,537

 

 

 

178,879

 

Over ten years

 

 

246,610

 

 

 

252,851

 

Total

 

$

605,530

 

 

$

622,206

 

11


 

 

CECL (ASU 2016-13) requires the Company to assess its available-for-sales securities portfolio for impairment on an at least quarterly basis.  The Company performed an impairment assessment of the Bank’s investment in debt securities in accordance with this standard.  This assessment took into account the credit quality of these debt securities and determined that since all were U.S. Treasury obligations, U.S. government agency securities, and U.S. government sponsored agency securities, they all have the backing of the U.S. government, and thus no credit impairment is expected.

 

Gross unrealized losses on securities available for sale, the estimated fair value of the related securities and the number of securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of March 31, 2020 and December 31, 2019:

 

 

 

Holding Period

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Gross

 

 

Estimated

 

 

Number

 

 

Gross

 

 

Estimated

 

 

Number

 

 

Gross

 

 

Estimated

 

 

Number

 

 

 

Unrealized

 

 

Fair

 

 

of

 

 

Unrealized

 

 

Fair

 

 

of

 

 

Unrealized

 

 

Fair

 

 

of

 

 

 

Loss

 

 

Value

 

 

Securities

 

 

Loss

 

 

Value

 

 

Securities

 

 

Loss

 

 

Value

 

 

Securities

 

 

 

(in thousands, except number of securities)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

(16

)

 

$

11,626

 

 

 

3

 

 

$

(1

)

 

$

1

 

 

 

1

 

 

 

(17

)

 

 

11,627

 

 

 

4

 

Collateralized mortgage obligations

 

 

(14

)

 

 

1,250

 

 

 

1

 

 

 

(1

)

 

 

350

 

 

 

1

 

 

 

(15

)

 

 

1,600

 

 

 

2

 

Total U.S. government agency and sponsored agency obligations

 

 

(30

)

 

 

12,876

 

 

 

4

 

 

 

(2

)

 

 

351

 

 

 

2

 

 

 

(32

)

 

 

13,227

 

 

 

6

 

Total

 

$

(30

)

 

$

12,876

 

 

 

4

 

 

$

(2

)

 

$

351

 

 

 

2

 

 

$

(32

)

 

$

13,227

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

(186

)

 

$

51,261

 

 

 

17

 

 

$

(161

)

 

$

18,757

 

 

 

14

 

 

$

(347

)

 

$

70,018

 

 

 

31

 

Collateralized mortgage obligations

 

 

(112

)

 

 

41,419

 

 

 

14

 

 

 

(320

)

 

 

39,936

 

 

 

36

 

 

 

(432

)

 

 

81,355

 

 

 

50

 

Debt securities

 

 

(20

)

 

 

8,235

 

 

 

2

 

 

 

(3

)

 

 

2,997

 

 

 

1

 

 

 

(22

)

 

 

11,233

 

 

 

3

 

Total U.S. government agency and sponsored agency obligations

 

 

(318

)

 

 

100,916

 

 

 

33

 

 

 

(483

)

 

 

61,690

 

 

 

51

 

 

 

(801

)

 

 

162,606

 

 

 

84

 

Total

 

$

(318

)

 

$

100,916

 

 

 

33

 

 

$

(483

)

 

$

61,690

 

 

 

51

 

 

$

(801

)

 

$

162,606

 

 

 

84

 

 

The unrealized losses in the U.S. government agency and sponsored agency obligations, as it relates to mortgage-backed securities and in the collateralized mortgage obligation securities were caused by fluctuations in interest rates. These securities are not deemed to have credit risk due to their long history with no credit losses, and the explicit guarantee of the U.S. government of timely payment of principal and interest to investors. The Company does not intend to sell the securities and it is not more likely than not that it will be required to sell them before recovery of their amortized cost.

Realized gains and losses on sales of securities and proceeds from sales of securities were as follows for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Gross realized gains on sales of securities

 

$

 

 

$

725

 

Gross realized losses on sales of securities

 

 

 

 

 

 

Net realized gains on sales of securities

 

$

 

 

$

725

 

Proceeds from sales of securities

 

$

 

 

 

69,187

 

 

During the three months ended March 31, 2020, there were no securities sales transactions. During the three months ended March 31, 2019, there was $725,000 in net gains in earnings resulting from the sale of securities. A net unrealized loss of $206,000 related to these securities had previously been recorded in accumulated other comprehensive income as of the beginning of the period in 2019. 

Securities available for sale with market values of $52.7 million and $30.0 million as of March 31, 2020 and 2019, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

12


 

Note 3 — Loans

Loans Receivable

Loans consisted of the following as of the dates indicated:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

Retail

 

$

818,045

 

 

 

869,302

 

Hospitality

 

 

884,511

 

 

 

922,288

 

Other (1)

 

 

1,420,824

 

 

 

1,358,432

 

Total commercial property loans

 

 

3,123,380

 

 

 

3,150,022

 

Construction

 

 

63,809

 

 

 

76,455

 

Residential property

 

 

379,116

 

 

 

402,028

 

Total real estate loans

 

 

3,566,305

 

 

 

3,628,505

 

Commercial and industrial loans

 

 

472,714

 

 

 

484,093

 

Leases receivable

 

 

492,527

 

 

 

483,879

 

Consumer loans (2)

 

 

12,090

 

 

 

13,670

 

Loans receivable

 

 

4,543,636

 

 

 

4,610,147

 

Allowance for credit losses

 

 

(66,500

)

 

 

(61,408

)

Loans receivable, net

 

$

4,477,136

 

 

$

4,548,739

 

 

(1)

Includes, among other types, mixed-use, apartment, office, industrial, gas stations, faith-based facilities and warehouse; all other property types represent less than one percent of total loans receivable.

(2)

Consumer loans include home equity lines of credit of $7.5 million and $8.2 million as of March 31, 2020 and December 31, 2019, respectively.

Accrued interest on loans was $10.0 million at March 31, 2020 and December 31, 2019. At March 31, 2020 and December 31, 2019, loans of $2.4 billion and $1.4 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

The following is the activity for SBA loans held for sale for the three months ended March 31, 2020 and 2019:

 

 

 

Real Estate

 

 

Commercial and

Industrial

 

 

Total

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,943

 

 

$

3,077

 

 

$

6,020

 

Originations

 

 

6,494

 

 

 

5,703

 

 

 

12,197

 

Sales

 

 

(9,432

)

 

 

(8,780

)

 

 

(18,212

)

Principal paydowns and amortization

 

 

(5

)

 

 

 

 

 

(5

)

Balance at end of period

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

5,194

 

 

$

4,196

 

 

$

9,390

 

Originations

 

 

9,064

 

 

 

4,159

 

 

 

13,223

 

Sales

 

 

(7,756

)

 

 

(7,703

)

 

 

(15,459

)

Principal paydowns and amortization

 

 

(2

)

 

 

(12

)

 

 

(14

)

Balance at end of period

 

$

6,500

 

 

$

640

 

 

$

7,140

 

 

13


 

Allowance for Credit Losses

The Company’s estimate of the allowance for credit losses reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

 

The allowance for credit losses as of March 31, 2020 was estimated using the current expected credit loss model. The primary reason for the increase in the allowance for credit losses is significant projected deterioration of the loss drivers that the Company forecasts to calculate expected losses and, to a much lesser extent, increases in qualitative loss factors.

 

The Company used the discounted cash flow (DCF) method to estimate allowances for credit losses for the commercial property, construction, and residential real estate loan portfolios, the commercial and industrial loan portfolio, and the consumer loan portfolio. For all loan pools utilizing the DCF method, the Company utilizes and forecasts the national unemployment rate as the primary loss driver. The Company also utilizes and forecasts either the annualized average return rate from the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index for commercial real estate loans or the one-year percentage change in the S&P/Case-Shiller U.S National Home Price Index (NHPI) for residential real estate loans as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

 

For all DCF models at March 31, 2020, the Company determined that four-quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over twelve quarters on a straight-line basis. As of and for the quarter ended March 31, 2020, the Company leverages economic projections from the quarterly Federal Open Market Committee (FOMC) and the Federal Reserve Economic Database (FRED) to inform its loss driver forecasts over the four-quarter forecast period. For each of these loan segments, the Company applies an expected loss ratio based on the discounted cash flows adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes the in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, nonperforming and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

 

The Company used the Probability of Default/Loss Given Default (PD/LGD) method for the SBA portfolio to accommodate the unique nature of these loans. Although the PD/LGD methodology is an element of the DCF model, the stand-alone PD/LGD methodology minimizes complications related to the characteristics of SBA loans. A uniqueness of the SBA portfolio is that the U.S. Small Business Administration policy requires servicers to undertake all reasonable collection efforts before charging-off the loan.  As a result, the recovery rate for SBA loans tend to be more volatile and not intuitively correlated to economic factors.

 

The Company used a Weighted Average Remaining Maturity (WARM) method to estimate expected credit losses for equipment financing agreements or the equipment lease receivables portfolio. The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors. The Company's evaluation of  market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated leases, and reasonable and supportable forecasts of economic conditions inform the estimate of qualitative factors.

 

Management believes the allowance for credit losses is appropriate to provide for estimated losses inherent in the loans receivable portfolio. However, the allowance is an estimate that is inherently uncertain and depends on the outcome of future events. Management’s methodologies for determining such estimates consists of measuring expected credit losses of financial assets on a collective (pool) basis when similar risk characteristic(s) exist. The Bank segments the loans primarily by loan types, considering that the same type of loans share considerable similar risk characteristics, including the collateral type, loan purpose, contract term, amortization and payment structure. Our lending is concentrated generally in real estate loans, commercial loans and leases and SBA loans to small and middle market businesses primarily in California, Texas, Illinois and New York. Further, our regulators, in reviewing our loans receivable portfolio may require us to increase our allowance for credit losses.

14


 

The following table details the information on the allowance for credit losses by portfolio segment as of and for the three months ended March 31, 2020 and 2019:

 

 

 

Real Estate

 

 

Commercial and

Industrial

 

 

Leases

Receivable

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

36,355

 

 

$

16,206

 

 

$

8,767

 

 

$

80

 

 

$

 

 

$

61,408

 

Adjustment related to adoption of ASU 2016-13

 

 

13,972

 

 

 

(2,497

)

 

 

5,902

 

 

 

55

 

 

 

 

 

 

17,433

 

Adjusted balance as of January 1, 2020

 

 

50,327

 

 

 

13,709

 

 

 

14,669

 

 

 

135

 

 

 

 

 

 

78,841

 

Less loans charged off

 

 

14,142

 

 

 

12,150

 

 

 

1,181

 

 

 

 

 

 

 

 

 

27,473

 

Recoveries on loans receivable previously charged off

 

 

(58

)

 

 

(84

)

 

 

(74

)

 

 

 

 

 

 

 

 

(216

)

Provision for credit losses

 

 

2,740

 

 

 

9,945

 

 

 

2,218

 

 

 

14

 

 

 

 

 

 

14,916

 

Ending balance

 

$

38,983

 

 

$

11,588

 

 

$

15,780

 

 

$

149

 

 

$

 

 

$

66,500

 

Individually evaluated for impairment

 

$

78

 

 

$

147

 

 

$

1,671

 

 

$

3

 

 

$

 

 

$

1,899

 

Collectively evaluated for impairment

 

$

38,905

 

 

$

11,441

 

 

$

14,109

 

 

$

146

 

 

$

 

 

$

64,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

3,566,305

 

 

$

472,714

 

 

$

492,527

 

 

$

12,090

 

 

$

 

 

$

4,543,636

 

Individually evaluated for impairment

 

$

34,161

 

 

$

5,444

 

 

$

6,393

 

 

$

1,298

 

 

$

 

 

$

47,296

 

Collectively evaluated for impairment

 

$

3,532,144

 

 

$

467,270

 

 

$

486,134

 

 

$

10,792

 

 

$

 

 

$

4,496,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

18,384

 

 

$

7,162

 

 

$

6,303

 

 

$

98

 

 

$

27

 

 

$

31,974

 

Less loans charged off

 

 

122

 

 

 

133

 

 

 

852

 

 

 

 

 

 

 

 

 

1,107

 

Recoveries on loans receivable previously charged off

 

 

(440

)

 

 

(382

)

 

 

(90

)

 

 

 

 

 

 

 

 

(912

)

Provision for credit losses

 

 

(396

)

 

 

1,300

 

 

 

39

 

 

 

(9

)

 

 

183

 

 

 

1,117

 

Ending balance

 

$

18,306

 

 

$

8,711

 

 

$

5,580

 

 

$

89

 

 

$

210

 

 

$

32,896

 

Individually evaluated for impairment

 

$

 

 

$

3,269

 

 

$

1,099

 

 

$

 

 

$

 

 

$

4,368

 

Collectively evaluated for impairment

 

$

18,306

 

 

$

5,442

 

 

$

4,481

 

 

$

89

 

 

$

210

 

 

$

28,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

3,714,356

 

 

$

422,502

 

 

$

425,530

 

 

$

13,232

 

 

$

 

 

$

4,575,620

 

Individually evaluated for impairment

 

$

14,015

 

 

$

23,114

 

 

$

4,783

 

 

$

1,370

 

 

$

 

 

$

43,282

 

Collectively evaluated for impairment

 

$

3,700,341

 

 

$

399,388

 

 

$

420,747

 

 

$

11,862

 

 

$

 

 

$

4,532,338

 

 

The table below illustrates the allowance for credit losses by portfolio segment as a percentage of the recorded total allowance for credit losses and as a percentage of the aggregate recorded investment of loans receivable.

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Allowance

 

 

 

 

 

 

Total

 

 

 

 

 

 

Allowance

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Amount

 

 

Percentage

 

 

Loans

 

 

Percentage

 

 

Amount

 

 

Percentage

 

 

Loans

 

 

Percentage

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

6,651

 

 

 

10.0

%

 

$

818,045

 

 

 

18.0

%

 

$

4,911

 

 

 

8.0

%

 

$

869,302

 

 

 

18.9

%

Hospitality

 

 

12,499

 

 

 

18.8

%

 

 

884,511

 

 

 

19.5

%

 

 

6,686

 

 

 

10.9

%

 

 

922,288

 

 

 

20.0

%

Other

 

 

15,664

 

 

 

23.6

%

 

 

1,420,824

 

 

 

31.3

%

 

 

8,060

 

 

 

13.1

%

 

 

1,358,432

 

 

 

29.4

%

Total commercial property loans

 

 

34,814

 

 

 

52.4

%

 

 

3,123,380

 

 

 

68.7

%

 

 

19,657

 

 

 

32.0

%

 

 

3,150,022

 

 

 

68.3

%

Construction

 

 

2,207

 

 

 

3.3

%

 

 

63,809

 

 

 

1.4

%

 

 

15,003

 

 

 

24.4

%

 

 

76,455

 

 

 

1.7

%

Residential property

 

 

1,962

 

 

 

3.0

%

 

 

379,116

 

 

 

8.3

%

 

 

1,695

 

 

 

2.8

%

 

 

402,028

 

 

 

8.7

%

Total real estate loans

 

 

38,983

 

 

 

58.7

%

 

 

3,566,305

 

 

 

78.5

%

 

 

36,355

 

 

 

59.2

%

 

 

3,628,505

 

 

 

78.7

%

Commercial and industrial loans

 

 

11,588

 

 

 

17.4

%

 

 

472,714

 

 

 

10.4

%

 

 

16,206

 

 

 

26.4

%

 

 

484,093

 

 

 

10.5

%

Leases receivable

 

 

15,780

 

 

 

23.7

%

 

 

492,527

 

 

 

10.8

%

 

 

8,767

 

 

 

14.3

%

 

 

483,879

 

 

 

10.5

%

Consumer loans

 

 

149

 

 

 

0.2

%

 

 

12,090

 

 

 

0.3

%

 

 

80

 

 

 

0.1

%

 

 

13,670

 

 

 

0.3

%

Total

 

$

66,500

 

 

 

100.0

%

 

$

4,543,636

 

 

 

100.0

%

 

$

61,408

 

 

 

100.0

%

 

$

4,610,147

 

 

 

100.0

%

15


 

 

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2020, for which repayment is expected to be obtained through the sale of the underlying collateral and any collateral dependent loans that are still accruing but are considered impaired.

 

 

 

Amortized Cost

 

March 31, 2020

 

(in thousands)

 

Real estate loans:

 

 

 

 

Commercial property

 

$

17,600

 

Construction

 

 

13,228

 

Residential property

 

 

2,677

 

Total real estate loans

 

 

33,505

 

Commercial and industrial loans

 

 

596

 

Consumer loans

 

 

1,196

 

Total (1)

 

$

35,297

 

 

(1)

All loans are secured by real estate, except for one commercial term loan secured by $525,000 in cash.

 

Loan Quality Indicators

As part of the on-going monitoring of the quality of our loans portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade (from 0 to 8) for each loan in our portfolio. A third-party loan review is performed at least on an annual basis. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:

Pass and Pass-Watch: Pass and Pass-Watch loans, grades (0-4), are in compliance with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention,” “Substandard” or “Doubtful.” This category is the strongest level of the Bank’s loan grading system. It consists of all performing loans with no identified credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans.

Special Mention: A Special Mention loan, grade (5), has potential weaknesses that deserve management’s close attention. If not corrected, these potential weaknesses may result in deterioration of the repayment of the debt and result in a Substandard classification. Loans that have significant actual, not potential, weaknesses are considered more severely classified.

Substandard: A Substandard loan, grade (6), has a well-defined weakness that jeopardizes the liquidation of the debt. A loan graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected.

Doubtful: A Doubtful loan, grade (7), is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the loan, and therefore the amount or timing of a possible loss cannot be determined at the current time.

Loss: A loan classified as Loss, grade (8), is considered uncollectible and of such little value that their continuance as active bank assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be possible in the future. Loans classified as Loss will be charged off in a timely manner.

Under regulatory guidance, loans graded special mention or worse are considered criticized loans, and loans graded substandard or worse are considered classified loans.

16


 

The tables below provide a comparison as of March 31, 2020 and December 31, 2019 of the pass/pass-watch, special mention and classified loans, disaggregated by loan segment:

 

 

 

Pass/Pass-

Watch

 

 

Special

Mention

 

 

Classified

 

 

Total

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

812,841

 

 

$

 

 

$

5,204

 

 

$

818,045

 

Hospitality

 

 

880,567

 

 

 

 

 

 

3,944

 

 

 

884,511

 

Other

 

 

1,385,625

 

 

 

6,436

 

 

 

28,763

 

 

 

1,420,824

 

Total commercial property

 

 

3,079,033

 

 

 

6,436

 

 

 

37,911

 

 

 

3,123,380

 

Construction

 

 

38,617

 

 

 

 

 

 

25,192

 

 

 

63,809

 

Residential property

 

 

375,655

 

 

 

1,323

 

 

 

2,138

 

 

 

379,116

 

Total real estate loans

 

 

3,493,305

 

 

 

7,759

 

 

 

65,241

 

 

 

3,566,305

 

Commercial and industrial loans

 

 

444,331

 

 

 

12,496

 

 

 

15,887

 

 

 

472,714

 

Leases receivable

 

 

486,134

 

 

 

 

 

 

6,393

 

 

 

492,527

 

Consumer loans

 

 

10,696

 

 

 

690

 

 

 

704

 

 

 

12,090

 

Total loans receivable

 

$

4,434,466

 

 

$

20,945

 

 

$

88,225

 

 

$

4,543,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

859,739

 

 

$

2,835

 

 

$

6,728

 

 

$

869,302

 

Hospitality

 

 

915,834

 

 

 

939

 

 

 

5,515

 

 

 

922,288

 

Other

 

 

1,329,817

 

 

 

7,807

 

 

 

20,809

 

 

 

1,358,432

 

Total commercial property

 

 

3,105,390

 

 

 

11,580

 

 

 

33,052

 

 

 

3,150,022

 

Construction

 

 

36,956

 

 

 

1,613

 

 

 

37,886

 

 

 

76,455

 

Residential property

 

 

398,737

 

 

 

2,512

 

 

 

779

 

 

 

402,028

 

Total real estate loans

 

 

3,541,082

 

 

 

15,705

 

 

 

71,718

 

 

 

3,628,505

 

Commercial and industrial loans

 

 

458,184

 

 

 

10,222

 

 

 

15,687

 

 

 

484,093

 

Leases receivable

 

 

477,977

 

 

 

 

 

 

5,902

 

 

 

483,879

 

Consumer loans

 

 

12,247

 

 

 

705

 

 

 

718

 

 

 

13,670

 

Total loans receivable

 

$

4,489,491

 

 

$

26,632

 

 

$

94,025

 

 

$

4,610,147

 

 

17


 

Loans by Vintage Year and Risk Rating

 

 

 

Term Loans

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost Basis by Origination Year (1)

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Revolving

Loans

Amortized

Cost Basis

 

 

Total

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

$

182,595

 

 

$

542,426

 

 

$

566,021

 

 

$

441,982

 

 

$

537,348

 

 

$

774,381

 

 

$

34,280

 

 

$

3,079,033

 

Special Mention

 

 

 

 

 

3,120

 

 

 

465

 

 

 

2,350

 

 

 

89

 

 

 

412

 

 

 

 

 

 

6,436

 

Classified

 

 

14,668

 

 

 

 

 

 

3,009

 

 

 

712

 

 

 

4,185

 

 

 

15,337

 

 

 

 

 

 

37,911

 

Total commercial property

 

 

197,263

 

 

 

545,546

 

 

 

569,495

 

 

 

445,044

 

 

 

541,621

 

 

 

790,129

 

 

 

34,280

 

 

 

3,123,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

 

8,207

 

 

 

7,936

 

 

 

1,640

 

 

 

 

 

 

20,835

 

 

 

 

 

 

 

 

 

38,617

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified

 

 

 

 

 

11,964

 

 

 

13,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,192

 

Total construction

 

 

8,207

 

 

 

19,900

 

 

 

14,867

 

 

 

 

 

 

20,835

 

 

 

 

 

 

 

 

 

63,809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

 

 

 

 

956

 

 

 

42,842

 

 

 

159,941

 

 

 

108,940

 

 

 

62,976

 

 

 

 

 

 

375,655

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

540

 

 

 

 

 

 

784

 

 

 

 

 

 

1,323

 

Classified

 

 

 

 

 

 

 

 

 

 

 

869

 

 

 

1,149

 

 

 

120

 

 

 

 

 

 

2,138

 

Total residential property

 

 

 

 

 

956

 

 

 

42,842

 

 

 

161,350

 

 

 

110,090

 

 

 

63,879

 

 

 

 

 

 

379,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

 

190,802

 

 

 

551,318

 

 

 

610,502

 

 

 

601,924

 

 

 

667,124

 

 

 

837,356

 

 

 

34,280

 

 

 

3,493,305

 

Special Mention

 

 

 

 

 

3,120

 

 

 

465

 

 

 

2,890

 

 

 

89

 

 

 

1,196

 

 

 

 

 

 

7,759

 

Classified

 

 

14,668

 

 

 

11,964

 

 

 

16,237

 

 

 

1,581

 

 

 

5,334

 

 

 

15,456

 

 

 

 

 

 

65,241

 

Total real estate loans

 

 

205,470

 

 

 

566,402

 

 

 

627,203

 

 

 

606,394

 

 

 

672,546

 

 

 

854,008

 

 

 

34,280

 

 

 

3,566,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

 

40,333

 

 

 

151,462

 

 

 

64,266

 

 

 

25,200

 

 

 

5,942

 

 

 

18,286

 

 

 

138,840

 

 

 

444,331

 

Special Mention

 

 

4,036

 

 

 

820

 

 

 

540

 

 

 

80

 

 

 

1,735

 

 

 

1,651

 

 

 

3,634

 

 

 

12,496

 

Classified

 

 

8,672

 

 

 

4,195

 

 

 

851

 

 

 

188

 

 

 

176

 

 

 

1,807

 

 

 

 

 

 

15,887

 

Total commercial and industrial loans

 

 

53,041

 

 

 

156,476

 

 

 

65,658

 

 

 

25,468

 

 

 

7,853

 

 

 

21,743

 

 

 

142,475

 

 

 

472,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

 

56,055

 

 

 

219,118

 

 

 

133,700

 

 

 

52,086

 

 

 

23,055

 

 

 

2,119

 

 

 

 

 

 

486,134

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified

 

 

 

 

 

2,094

 

 

 

2,001

 

 

 

617

 

 

 

1,257

 

 

 

424

 

 

 

 

 

 

6,393

 

Total leases receivable

 

 

56,055

 

 

 

221,212

 

 

 

135,701

 

 

 

52,704

 

 

 

24,313

 

 

 

2,542

 

 

 

 

 

 

492,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

 

 

 

 

27

 

 

 

19

 

 

 

102

 

 

 

10

 

 

 

2,802

 

 

 

7,737

 

 

 

10,696

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

690

 

 

 

 

 

 

690

 

Classified

 

 

 

 

 

 

 

 

675

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

704

 

Total commercial term loans

 

 

 

 

 

27

 

 

 

695

 

 

 

130

 

 

 

10

 

 

 

3,492

 

 

 

7,737

 

 

 

12,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

 

287,190

 

 

 

921,925

 

 

 

808,488

 

 

 

679,312

 

 

 

696,132

 

 

 

860,562

 

 

 

180,857

 

 

 

4,434,466

 

Special Mention

 

 

4,036

 

 

 

3,940

 

 

 

1,005

 

 

 

2,970

 

 

 

1,824

 

 

 

3,536

 

 

 

3,634

 

 

 

20,945

 

Classified

 

 

23,340

 

 

 

18,253

 

 

 

19,764

 

 

 

2,415

 

 

 

6,766

 

 

 

17,687

 

 

 

 

 

 

88,225

 

Total loans receivable

 

$

314,566

 

 

$

944,118

 

 

$

829,256

 

 

$

684,697

 

 

$

704,722

 

 

$

881,785

 

 

$

184,492

 

 

$

4,543,636

 

 

(1)

Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

18


 

Loans by Vintage Year and Payment Performance

 

 

 

Term Loans

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost Basis by Origination Year (1)

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Revolving

Loans

Amortized

Cost Basis

 

 

Total

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

183,271

 

 

$

545,546

 

 

$

569,312

 

 

$

445,044

 

 

$

541,345

 

 

$

786,514

 

 

$

34,280

 

 

$

3,105,314

 

Nonperforming

 

 

13,992

 

 

 

 

 

 

183

 

 

 

 

 

 

277

 

 

 

3,615

 

 

 

 

 

 

18,066

 

Total commercial property

 

 

197,263

 

 

 

545,546

 

 

 

569,495

 

 

 

445,044

 

 

 

541,621

 

 

 

790,129

 

 

 

34,280

 

 

 

3,123,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

8,207

 

 

 

19,900

 

 

 

1,640

 

 

 

 

 

 

20,835

 

 

 

 

 

 

 

 

$

50,582

 

Nonperforming

 

 

 

 

 

 

 

 

13,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,228

 

Total construction

 

 

8,207

 

 

 

19,900

 

 

 

14,867

 

 

 

 

 

 

20,835

 

 

 

 

 

 

 

 

 

63,809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

 

 

 

956

 

 

 

42,842

 

 

 

159,941

 

 

 

108,940

 

 

 

63,725

 

 

 

 

 

 

376,404

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

1,409

 

 

 

1,149

 

 

 

154

 

 

 

 

 

 

2,711

 

Total residential property

 

 

 

 

 

956

 

 

 

42,842

 

 

 

161,350

 

 

 

110,090

 

 

 

63,879

 

 

 

 

 

 

379,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

191,478

 

 

 

566,402

 

 

 

613,793

 

 

 

604,986

 

 

 

671,121

 

 

 

850,239

 

 

 

34,280

 

 

 

3,532,299

 

Nonperforming

 

 

13,992

 

 

 

 

 

 

13,410

 

 

 

1,409

 

 

 

1,426

 

 

 

3,769

 

 

 

 

 

 

34,005

 

Total real estate loans

 

 

205,470

 

 

 

566,402

 

 

 

627,203

 

 

 

606,394

 

 

 

672,546

 

 

 

854,008

 

 

 

34,280

 

 

 

3,566,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

53,040

 

 

 

146,762

 

 

 

64,944

 

 

 

25,280

 

 

 

7,853

 

 

 

21,559

 

 

 

142,475

 

 

 

461,912

 

Nonperforming

 

 

0

 

 

 

9,714

 

 

 

714

 

 

 

188

 

 

 

 

 

 

185

 

 

 

 

 

 

10,802

 

Total commercial and industrial loans

 

 

53,041

 

 

 

156,476

 

 

 

65,658

 

 

 

25,468

 

 

 

7,853

 

 

 

21,743

 

 

 

142,475

 

 

 

472,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

56,055

 

 

 

219,021

 

 

 

133,566

 

 

 

52,074

 

 

 

23,032

 

 

 

2,062

 

 

 

 

 

 

485,811

 

Nonperforming

 

 

 

 

 

2,191

 

 

 

2,135

 

 

 

629

 

 

 

1,280

 

 

 

480

 

 

 

 

 

 

6,716

 

Total leases receivable

 

 

56,055

 

 

 

221,212

 

 

 

135,701

 

 

 

52,704

 

 

 

24,313

 

 

 

2,542

 

 

 

 

 

 

492,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

 

 

 

27

 

 

 

19

 

 

 

102

 

 

 

10

 

 

 

3,492

 

 

 

7,737

 

 

 

11,386

 

Nonperforming

 

 

 

 

 

 

 

 

675

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

704

 

Total commercial term loans

 

 

 

 

 

27

 

 

 

695

 

 

 

130

 

 

 

10

 

 

 

3,492

 

 

 

7,737

 

 

 

12,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

300,573

 

 

 

932,212

 

 

 

812,322

 

 

 

682,442

 

 

 

702,016

 

 

 

877,351

 

 

 

184,492

 

 

 

4,491,410

 

Nonperforming

 

 

13,992

 

 

 

11,906

 

 

 

16,934

 

 

 

2,255

 

 

 

2,706

 

 

 

4,434

 

 

 

 

 

 

52,226

 

Total loans receivable

 

$

314,566

 

 

$

944,118

 

 

$

829,256

 

 

$

684,697

 

 

$

704,722

 

 

$

881,785

 

 

$

184,492

 

 

$

4,543,636

 

 

(1)

Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

 

19


 

The following is an aging analysis of loans, disaggregated by loan class, as of the dates indicated:

 

 

 

30-59

Days

Past Due

 

 

60-89

Days

Past Due

 

 

90 Days

or More

Past Due

 

 

Total

Past Due

 

 

Current

 

 

Total

 

 

Accruing

90 Days

or More

Past Due

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

 

 

$

 

 

$

 

 

$

 

 

$

818,045

 

 

$

818,045

 

 

$

 

Hospitality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

884,511

 

 

 

884,511

 

 

 

 

Other

 

 

708

 

 

 

1,418

 

 

 

1,101

 

 

 

3,227

 

 

 

1,417,597

 

 

 

1,420,824

 

 

 

 

Total commercial property loans

 

 

708

 

 

 

1,418

 

 

 

1,101

 

 

 

3,227

 

 

 

3,120,153

 

 

 

3,123,380

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,809

 

 

 

63,809

 

 

 

 

Residential property

 

 

531

 

 

 

593

 

 

 

2,164

 

 

 

3,288

 

 

 

375,828

 

 

 

379,116

 

 

 

 

Total real estate loans

 

 

1,239

 

 

 

2,011

 

 

 

3,265

 

 

 

6,515

 

 

 

3,559,790

 

 

 

3,566,306

 

 

 

 

Commercial and industrial loans

 

 

349

 

 

 

318

 

 

 

9,484

 

 

 

10,151

 

 

 

462,563

 

 

 

472,714

 

 

 

5,520

 

Leases receivable

 

 

7,311

 

 

 

1,789

 

 

 

3,748

 

 

 

12,848

 

 

 

479,679

 

 

 

492,527

 

 

 

323

 

Consumer loans

 

 

 

 

 

28

 

 

 

 

 

 

28

 

 

 

12,062

 

 

 

12,090

 

 

 

 

Total loans receivable

 

$

8,899

 

 

$

4,146

 

 

$

16,497

 

 

$

29,542

 

 

$

4,514,094

 

 

$

4,543,636

 

 

$

5,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

6

 

 

$

132

 

 

$

111

 

 

$

249

 

 

$

869,053

 

 

$

869,302

 

 

$

 

Hospitality

 

 

907

 

 

 

 

 

 

 

 

 

907

 

 

 

921,381

 

 

 

922,288

 

 

 

 

Other

 

 

51

 

 

 

 

 

 

38

 

 

 

89

 

 

 

1,358,344

 

 

 

1,358,432

 

 

 

 

Total commercial property loans

 

 

964

 

 

 

132

 

 

 

149

 

 

 

1,245

 

 

 

3,148,778

 

 

 

3,150,022

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,455

 

 

 

76,455

 

 

 

 

Residential property

 

 

540

 

 

 

1,627

 

 

 

309

 

 

 

2,477

 

 

 

399,551

 

 

 

402,028

 

 

 

 

Total real estate loans

 

 

1,504

 

 

 

1,759

 

 

 

458

 

 

 

3,721

 

 

 

3,624,784

 

 

 

3,628,505

 

 

 

 

Commercial and industrial loans

 

 

635

 

 

 

133

 

 

 

143

 

 

 

911

 

 

 

483,183

 

 

 

484,093

 

 

 

 

Leases receivable

 

 

5,358

 

 

 

2,138

 

 

 

3,493

 

 

 

10,990

 

 

 

472,889

 

 

 

483,879

 

 

 

 

Consumer loans

 

 

 

 

 

30

 

 

 

 

 

 

30

 

 

 

13,639

 

 

 

13,670

 

 

 

 

Total loans receivable

 

$

7,497

 

 

$

4,060

 

 

$

4,094

 

 

$

15,652

 

 

$

4,594,496

 

 

$

4,610,147

 

 

$

 

 

As of March 31, 2020, there were $5.8 million of loans that were 90 days or more past due and accruing interest. There were no such loans at December 31, 2019.

Individually Evaluated Loans

Prior to the adoption of ASU 2016-13, impaired loans were measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan was collateral dependent, less estimated costs to sell. If the estimated value of the impaired loan was less than the recorded investment in the loan, we charged-off the deficiency against the allowance for credit losses or we established a specific allowance in the allowance for credit losses. Additionally, we excluded from the quarterly migration analysis impaired loans when determining the amount of the allowance for credit losses required for the period.

We review, under ASU 2016-13, all loans on an individual basis when they do not share similar risk characteristics with loan pools.

20


 

The following tables provide information on individually evaluated loans receivable as of March 31, 2020 and impaired loans receivable as of December 31, 2019 disaggregated by loan class, as of the dates indicated:

 

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

With No Related

Allowance

Recorded

 

 

With an

Allowance

Recorded

 

 

Related

Allowance

 

 

 

(in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

156

 

 

$

149

 

 

$

 

 

$

156

 

 

$

1

 

Other

 

 

18,066

 

 

 

19,371

 

 

 

16,788

 

 

 

1,278

 

 

 

77

 

Total commercial property loans

 

 

18,222

 

 

 

19,520

 

 

 

16,788

 

 

 

1,434

 

 

 

78

 

Construction

 

 

13,228

 

 

 

28,000

 

 

 

13,228

 

 

 

 

 

 

 

Residential property

 

 

2,711

 

 

 

2,713

 

 

 

2,677

 

 

 

34

 

 

 

 

Total real estate loans

 

 

34,161

 

 

 

50,233

 

 

 

32,693

 

 

 

1,468

 

 

 

78

 

Commercial and industrial loans

 

 

5,445

 

 

 

17,853

 

 

 

4,483

 

 

 

962

 

 

 

147

 

Leases receivable

 

 

6,393

 

 

 

6,472

 

 

 

855

 

 

 

5,538

 

 

 

1,671

 

Consumer loans

 

 

1,298

 

 

 

1,606

 

 

 

1,196

 

 

 

102

 

 

 

2

 

Total

 

$

47,297

 

 

$

76,164

 

 

$

39,227

 

 

$

8,070

 

 

$

1,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

434

 

 

$

459

 

 

$

111

 

 

$

323

 

 

$

19

 

Hospitality

 

 

244

 

 

 

400

 

 

 

22

 

 

 

223

 

 

 

24

 

Other

 

 

14,864

 

 

 

15,151

 

 

 

14,696

 

 

 

167

 

 

 

12

 

Total commercial property loans

 

 

15,542

 

 

 

16,010

 

 

 

14,829

 

 

 

713

 

 

 

55

 

Construction

 

 

27,201

 

 

 

28,000

 

 

 

 

 

 

27,201

 

 

 

13,973

 

Residential property

 

 

1,124

 

 

 

1,163

 

 

 

1,089

 

 

 

35

 

 

 

 

Total real estate loans

 

 

43,867

 

 

 

45,173

 

 

 

15,918

 

 

 

27,949

 

 

 

14,028

 

Commercial and industrial loans

 

 

13,700

 

 

 

14,090

 

 

 

143

 

 

 

13,557

 

 

 

8,885

 

Leases receivable

 

 

5,902

 

 

 

5,909

 

 

 

1,112

 

 

 

4,790

 

 

 

2,863

 

Consumer loans

 

 

1,297

 

 

 

1,588

 

 

 

1,220

 

 

 

77

 

 

 

1

 

Total

 

$

64,766

 

 

$

66,760

 

 

$

18,393

 

 

$

46,373

 

 

$

25,778

 

 

Nonaccrual Loans and Nonperforming Assets

 

The following table represents the amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of March 31, 2020.

 

 

 

March 31, 2020

 

 

 

Nonaccrual Loans

Receivable With

No Allowance for

Credit Losses

 

 

Nonaccrual Loans

Receivable With

Allowance for

Credit Losses

 

 

Loans Receivable

Past Due

90 Days Still

Accruing

 

 

Total

Nonperforming

Loans Receivable

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property loans

 

 

16,788

 

 

 

1,278

 

 

 

 

 

 

18,066

 

Construction loans

 

 

13,228

 

 

 

 

 

 

 

 

 

13,228

 

Residential property loans

 

 

2,677

 

 

 

34

 

 

 

 

 

 

2,711

 

Total real estate loans

 

 

32,693

 

 

 

1,313

 

 

 

 

 

 

34,005

 

Commercial and industrial loans

 

 

4,484

 

 

 

798

 

 

 

5,520

 

 

 

10,802

 

Leases receivable

 

 

855

 

 

 

5,538

 

 

 

323

 

 

 

6,716

 

Consumer loans

 

 

675

 

 

 

28

 

 

 

 

 

 

703

 

Total nonperforming loans

 

$

38,707

 

 

$

7,676

 

 

$

5,843

 

 

$

52,226

 

 

21


 

The following is a summary of interest foregone on non-accrual loans for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Interest income that would have been recognized had impaired loans performed in accordance with their original terms

 

$

1,595

 

 

$

888

 

Less: Interest income recognized on impaired loans

 

 

(122

)

 

 

(682

)

Interest foregone on impaired loans

 

$

1,473

 

 

$

206

 

 

There were no commitments to lend additional funds to borrowers whose loans are included above.

The following table details nonaccrual loans, disaggregated by loan class, as of the dates indicated:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

Retail

 

$

 

 

$

277

 

Hospitality

 

 

 

 

 

225

 

Other

 

 

18,066

 

 

 

14,864

 

Total commercial property loans

 

 

18,066

 

 

 

15,366

 

Construction

 

 

13,228

 

 

 

27,201

 

Residential property

 

 

2,711

 

 

 

1,124

 

Total real estate loans

 

 

34,005