hafc-10q_20210331.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

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, 2021

☐	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.)

900 Wilshire Boulevard, Suite 1250
Los Angeles, California		90017
(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.

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 3, 2021, there were 30,694,659 outstanding shares of the Registrant’s Common Stock.

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

Three Months Ended March 31, 2021

Table of Contents


	Part I – Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at March 31, 2021 (unaudited) and December 31, 2020	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	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	53

	Part II – Other Information

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	54

Item 4.	Mine Safety Disclosures	54

Item 5.	Other Information	54

Item 6.	Exhibits	55

Signatures		56

Part I — Financial Information

Item 1. Financial Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

	March 31,			December 31,
	2021			2020
	(Unaudited)
Assets
Cash and due from banks	$	646,445		$	391,849
Securities available for sale, at fair value (amortized cost of $787,675 as of March 31, 2021 and $749,458 as of December 31, 2020)		780,114			753,781
Loans held for sale, at the lower of cost or fair value		32,674			8,568
Loans receivable, net of allowance for credit losses of $88,392 as of March 31, 2021 and $90,426 as of December 31, 2020		4,728,759			4,789,742
Accrued interest receivable		14,806			16,363
Premises and equipment, net		26,398			26,431
Customers' liability on acceptances		735			1,319
Servicing assets		6,150			6,212
Goodwill and other intangible assets, net		11,558			11,612
Federal Home Loan Bank ("FHLB") stock, at cost		16,385			16,385
Income tax assets		42,665			42,704
Bank-owned life insurance		54,150			53,894
Prepaid expenses and other assets		77,562			83,028
Total assets	$	6,438,401		$	6,201,888

Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	2,174,624		$	1,898,766
Interest-bearing		3,335,199			3,376,242
Total deposits		5,509,823			5,275,008
Accrued interest payable		2,352			4,564
Bank's liability on acceptances		735			1,319
Borrowings		150,000			150,000
Subordinated debentures ($126,800 face amount less unamortized discount and debt issuance costs of $7,676 and $7,828 as of March 31, 2021 and December 31, 2020, respectively)		119,124			118,972
Accrued expenses and other liabilities		74,545			74,981
Total liabilities		5,856,579			5,624,844
Stockholders' equity:
Preferred Stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of March 31, 2021 and December 31, 2020		—			—
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,585,181 shares (30,682,533 shares outstanding) as of March 31, 2021 and issued 33,560,801 shares (30,717,835 shares outstanding) as of December 31, 2020		33			33
Additional paid-in capital		578,958			578,360
Accumulated other comprehensive (loss) income, net of tax benefit of $2,268 as of March 31, 2021 and net of tax expense of $1,247 as of December 31, 2020		(5,293	)		3,076
Retained earnings		128,211			114,621
Less treasury stock; 2,902,648 shares as of March 31, 2021 and 2,842,966 shares as of December 31, 2020		(120,087	)		(119,046	)
Total stockholders' equity		581,822			577,044
Total liabilities and stockholders' equity	$	6,438,401		$	6,201,888

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)

	Three Months Ended March 31,
	2021		2020
Interest and dividend income:
Interest and fees on loans receivable	$	50,614	$	54,648
Interest on securities		1,140		3,655
Dividends on FHLB stock		206		289
Interest on deposits in other banks		96		333
Total interest and dividend income		52,056		58,925
Interest expense:
Interest on deposits		3,958		12,742
Interest on borrowings		478		496
Interest on subordinated debentures		1,619		1,712
Total interest expense		6,055		14,950
Net interest income before credit loss expense		46,001		43,975
Credit loss expense		2,109		15,739
Net interest income after credit loss expense		43,892		28,236
Noninterest income:
Service charges on deposit accounts		2,357		2,400
Trade finance and other service charges and fees		1,034		986
Gain on sale of Small Business Administration ("SBA") loans		4,125		1,154
Net gain on sales of securities		99		—
Other operating income		2,193		1,683
Total noninterest income		9,808		6,223
Noninterest expense:
Salaries and employee benefits		16,820		17,749
Occupancy and equipment		4,595		4,475
Data processing		2,926		2,669
Professional fees		1,447		1,915
Supplies and communications		757		781
Advertising and promotion		359		734
Other operating expenses		2,631		2,745
Total noninterest expense		29,535		31,068
Income before tax		24,165		3,391
Income tax expense		7,506		1,041
Net income	$	16,659	$	2,350
Basic earnings per share	$	0.54	$	0.08
Diluted earnings per share	$	0.54	$	0.08
Weighted-average shares outstanding:
Basic		30,461,681		30,469,022
Diluted		30,473,970		30,472,899

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2021			2020
Net income	$	16,659		$	2,350
Other comprehensive income (loss), net of tax:
Unrealized gain on securities:
Unrealized holding gain arising during period		(11,785	)		11,924
Less: reclassification adjustment for net gain included in net income		(99	)		—
Income tax benefit (expense) related to items of other comprehensive income		3,515			(3,439	)
Other comprehensive income (loss), net of tax		(8,369	)		8,485
Comprehensive income	$	8,290		$	10,835

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2021 and March 31, 2020

(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, 2020		33,475,402			(2,675,778	)		30,799,624		$	33	$	575,816	$	3,382		$	100,552		$	(116,515	)	$	563,268
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 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

Balance at January 1, 2021		33,560,801			(2,842,966	)		30,717,835		$	33	$	578,360	$	3,076		$	114,621		$	(119,046	)	$	577,044
Restricted stock awards, net of forfeitures		24,380			—			24,380			—		—		—			—			—			—
Share-based compensation expense		—			—			—			—		598		—			—			—			598
Restricted stock surrendered due to employee tax liability		—			(4,682	)		(4,682	)		—		—		—			—			(95	)		(95	)
Repurchase of common stock		—			(55,000	)		(55,000	)		—		—		—			—			(946	)		(946	)
Cash dividends declared (common stock, $0.10/share)		—			—			—			—		—		—			(3,069	)		—			(3,069	)
Net income		—			—			—			—		—		—			16,659			—			16,659
Change in unrealized gain on securities available for sale, net of income taxes		—			—			—			—		—		(8,369	)		—			—			(8,369	)
Balance at March 31, 2021		33,585,181			(2,902,648	)		30,682,533		$	33	$	578,958	$	(5,293	)	$	128,211		$	(120,087	)	$	581,822

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	16,659		$	2,350
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,850			2,317
Share-based compensation expense		598			769
Credit loss expense		2,109			15,739
Gain on sales of securities		(99	)		—
Gain on sales of SBA loans		(4,125	)		(1,154	)
Origination of SBA loans held for sale		(146,670	)		(12,197	)
Proceeds from sales of SBA loans		126,690			19,366
Change in bank-owned life insurance		(256	)		(276	)
Change in prepaid expenses and other assets		4,945			(4,905	)
Change in income tax assets		3,554			4,098
Change in accrued expenses and other liabilities		(652	)		(1,846	)
Net cash provided by (used in) operating activities		6,602			24,262
Cash flows from investing activities:
Purchases of securities available for sale		(116,026	)		(26,423	)
Proceeds from matured, called and repayment of securities		67,729			49,987
Proceeds from sales of securities available for sale		8,035			—
Purchases of loans receivable		(298	)		—
Purchases of premises and equipment		(1,011	)		(1,244	)
Proceeds from disposition of premises and equipment		—			44
Proceeds from sales of other real estate owned ("OREO")		589			—
Change in loans receivable, excluding purchases		58,271			38,884
Net cash provided by (used in) investing activities		17,289			61,248
Cash flows from financing activities:
Change in deposits		234,815			(116,894	)
Change in overnight borrowings		—			135,000
Proceeds from borrowings		—			75,000
Cash paid for surrender of vested shares due to employee tax liability		(95	)		(171	)
Repurchase of common stock		(946	)		(2,196	)
Cash dividends paid		(3,069	)		(7,380	)
Net cash provided by (used in) financing activities		230,705			83,359
Net increase (decrease) in cash and due from banks		254,596			168,869
Cash and due from banks at beginning of year		391,849			121,678
Cash and due from banks at end of period	$	646,445		$	290,546

Supplemental disclosures of cash flow information:
Interest expense paid	$	8,267		$	16,472
Income taxes paid	$	125		$	93
Non-cash activities:
Transfer of loans receivable to other real estate owned	$	1		$	—
Income tax benefit (expense) related to items of other comprehensive income	$	3,515		$	(3,439	)
Change in right-of-use asset obtained in exchange for lease liability	$	—		$	1,287

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2021 and 2020

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 periods ended March 31, 2021, 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, 2020 (the “2020 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.

The outbreak of COVID-19 has resulted in restrictions on travel and gatherings and restricted business activities. As a result, the operations and business results of the Company could be materially adversely affected. The extent to which the COVID-19 crisis may impact business activity or financial results will depend on future developments, including new information which may emerge concerning the severity of the coronavirus and the actions required to contain the coronavirus or treat its impact, among others, which are highly uncertain and cannot be predicted. This uncertainty may impact the accuracy of our significant estimates, which includes the allowance for credit losses, the allowance for credit losses related to off-balance sheet items, and the valuation of intangible assets including deferred tax assets, goodwill, and servicing assets.

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 2020 Annual Report on Form 10-K.

Recently Issued Accounting Standards Not Yet Effective

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, On March 12, 2020, the FASB issued ASU 2020-04 to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new guidance provided several optional expedients that reduce costs and complexity of accounting for reference rate reform, including measures to simplify or modify accounting issues resulting from reference rate reform for contract modifications, hedges, and debt securities.

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of ASU 2020-04. An entity may elect to apply the amendments prospectively through December 31, 2022.

The adoption of this standard is not expected to have material effect on the Company’s operating results or financial condition.

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, 2021
U.S. Treasury securities	$	9,998	$	77	$	—		$	10,075
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		579,209		87		(7,216	)		572,080
Collateralized mortgage obligations		112,808		145		(210	)		112,743
Debt securities		85,660		31		(475	)		85,216
Total U.S. government agency and sponsored agency obligations		777,677		263		(7,901	)		770,039
Total securities available for sale	$	787,675	$	340	$	(7,901	)	$	780,114

December 31, 2020
U.S. Treasury securities	$	9,997	$	135	$	—		$	10,132
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		515,169		4,260		(188	)		519,241
Collateralized mortgage obligations		133,632		186		(217	)		133,601
Debt securities		90,660		148		(1	)		90,807
Total U.S. government agency and sponsored agency obligations		739,461		4,594		(406	)		743,649
Total securities available for sale	$	749,458	$	4,729	$	(406	)	$	753,781

The amortized cost and estimated fair value of securities as of March 31, 2021 and December 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.

	March 31, 2021				December 31, 2020
	Available for Sale				Available for Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Within one year	$	12,963	$	13,045	$	13,305	$	13,435
Over one year through five years		90,083		89,890		139,876		140,100
Over five years through ten years		50,135		49,990		25,764		25,768
Over ten years		634,494		627,189		570,513		574,478
Total	$	787,675	$	780,114	$	749,458	$	753,781

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2021 and December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position:

	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, 2021
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities	$	(7,216	)	$	562,136		87	$	—	$	—		—	$	(7,216	)	$	562,136		87
Collateralized mortgage obligations		(210	)		78,602		18		—		—		—		(210	)		78,602		18
Debt securities		(475	)		55,525		9		—		—		—		(475	)		55,525		9
Total U.S. government agency and sponsored agency obligations		(7,901	)		696,263		114		—		—		—		(7,901	)		696,263		114
Total	$	(7,901	)	$	696,263		114	$	—	$	—		—	$	(7,901	)	$	696,263		114

December 31, 2020
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities	$	(188	)	$	76,023		10	$	—	$	—		—	$	(188	)	$	76,023		10
Collateralized mortgage obligations		(217	)		97,659		21		—		—		—		(217	)		97,659		21
Debt securities		(1	)		4,999		1		—		—		—		(1	)		4,999		1
Total U.S. government agency and sponsored agency obligations		(406	)		178,681		32		—		—		—		(406	)		178,681		32
Total	$	(406	)	$	178,681		32	$	—	$	—		—	$	(406	)	$	178,681		32

The Company evaluates its available-for-sale securities portfolio for impairment on an at least quarterly basis. 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, all of which have the backing of the U.S. government, no credit impairment had occurred.

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,
	2021		2020
	(in thousands)
Gross realized gains on sales of securities	$	99	$	—
Gross realized losses on sales of securities		—		—
Net realized gains on sales of securities	$	99	$	—
Proceeds from sales of securities	$	8,035	$	—

During the three months ended March 31, 2021 and 2020, there were $99,000 and $0 in gains or losses, respectively, in earnings resulting from the sale of securities.

Securities available for sale with market values of $32.6 million and $27.3 million as of March 31, 2021 and December 31, 2020, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount Window.

At March 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies in an amount greater than 10 percent of shareholders’ equity.

Note 3 — Loans

Loans Receivable

Loans consisted of the following as of the dates indicated:

	March 31, 2021			December 31, 2020
	(in thousands)
Real estate loans:
Commercial property
Retail	$	811,583		$	824,606
Hospitality		842,014			859,953
Other ⁽¹⁾		1,656,065			1,610,377
Total commercial property loans		3,309,662			3,294,936
Construction		62,626			58,882
Residential/consumer loans		328,228			345,831
Total real estate loans		3,700,516			3,699,649
Commercial and industrial loans		707,073			757,255
Leases receivable		409,562			423,264
Loans receivable		4,817,151			4,880,168
Allowance for credit losses		(88,392	)		(90,426	)
Loans receivable, net	$	4,728,759		$	4,789,742

⁽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.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allows financial institutions to assist customers in dealing with financial hardship by (a) providing federal funding so that financial institutions can originate SBA loans to borrowers at a low interest rate under the Paycheck Protection Program (“PPP”) loans with eventual debt forgiveness should the borrower continue to meet certain criteria; and (b) allowing financial institutions to temporarily modify loan terms by deferring loan payments, loan fees, etc. without considering them Troubled Debt Restructurings (“TDRs”).

At March 31, 2021, there were $256.5 million of PPP loans included in commercial and industrial loans in the table above. In addition, at March 31, 2021, there were $116.4 million of loans modified under Section 4013 of the CARES Act.

Accrued interest on loans was $13.6 million and $15.2 million at March 31, 2021 and December 31, 2020, respectively. Accrued interest at March 31, 2021 and December 31, 2020 included unpaid deferred interest receivable for loans currently or previously modified under the CARES Act of $5.2 million and $7.5 million, net of a $1.2 million and $1.7 million valuation allowance, respectively.

At March 31, 2021 and December 31, 2020, loans of $2.34 billion and $2.17 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

The following is the activity for loans held for sale for the three months ended March 31, 2021 and 2020:

	Real Estate			Commercial and Industrial			Total
	(in thousands)
March 31, 2021
Balance at beginning of period	$	8,042		$	526		$	8,568
Originations and transfers		16,283			130,387			146,670
Sales		(13,395	)		(109,169	)		(122,564	)
Principal paydowns and amortization		—			—			—
Balance at end of period	$	10,930		$	21,744		$	32,674

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	$	—		$	—		$	—

Loans held for sale was comprised of $10.9 million of the guaranteed portion of SBA 7(a) loans and $21.7 million in second draw PPP loans at March 31, 2021. During the quarter ended March 31, 2021, the Company recognized $2.5 million of gains on the sale of $108.5 million second draw PPP loans.

Allowance for Credit Losses

The following table details the information on the allowance for credit losses by portfolio segment for the periods indicated:

	Real Estate			Commercial and Industrial			Leases Receivable			Total
	(in thousands)
March 31, 2021
Balance at beginning of period		51,877		$	21,410		$	17,139		$	90,426
Less loans charged off		1,509			93			1,903			3,505
Recoveries on loans receivable previously charged off		(273	)		(99	)		(135	)		(507	)
Provision for credit losses		7,121			(5,029	)		(1,128	)		964
Ending balance	$	57,762		$	16,387		$	14,243		$	88,392
Individually evaluated	$	11		$	7,584		$	4,561		$	12,156
Collectively evaluated	$	57,751		$	8,803		$	9,682		$	76,236

Loans receivable	$	3,700,516		$	707,073		$	409,562		$	4,817,151
Individually evaluated	$	39,144		$	14,297		$	10,025		$	63,466
Collectively evaluated	$	3,661,372		$	692,777		$	399,537		$	4,753,686

March 31, 2020
Balance at beginning of period	$	36,435		$	16,206		$	8,767		$	61,408
Adjustment related to adoption of ASU 2016-13		14,028			(2,497	)		5,902			17,433
Adjusted balance as of January 1, 2020		50,463			13,709			14,669			78,841
Less loans charged off		14,143			12,150			1,181			27,474
Recoveries on loans receivable previously charged off		(58	)		(84	)		(74	)		(216	)
Provision for credit losses		2,754			9,945			2,218			14,917
Ending balance	$	39,132		$	11,588		$	15,780		$	66,500
Individually evaluated	$	81		$	147		$	1,671		$	1,899
Collectively evaluated	$	39,051		$	11,441		$	14,109		$	64,601

Loans receivable	$	3,578,395		$	472,714		$	492,527		$	4,543,636
Individually evaluated	$	35,459		$	5,444		$	6,393		$	47,296
Collectively evaluated	$	3,542,936		$	467,270		$	486,134		$	4,496,340

The table below illustrates the allowance for credit losses by loan portfolio segment and each loan portfolio segment as a percentage of total loans.

	March 31, 2021							December 31, 2020
	Allowance Amount		Total Loans		Percentage of Total Loans			Allowance Amount		Total Loans		Percentage of Total Loans
	(in thousands)
Real estate loans:
Commercial property
Retail	$	3,962	$	811,583		16.8	%	$	4,855	$	824,606		16.9	%
Hospitality		38,251		842,014		17.5	%		28,801		859,953		17.6	%
Other		11,121		1,656,065		34.4	%		13,991		1,610,377		32.9	%
Total commercial property loans		53,334		3,309,662		68.7	%		47,647		3,294,936		67.4	%
Construction		3,670		62,626		1.3	%		2,876		58,882		1.2	%
Residential/consumer loans		758		328,228		6.8	%		1,353		345,831		7.1	%
Total real estate loans		57,762		3,700,516		76.8	%		51,876		3,699,649		75.8	%
Commercial and industrial loans		16,387		707,073		14.7	%		21,410		757,255		15.5	%
Leases receivable		14,243		409,562		8.5	%		17,140		423,264		8.7	%
Total	$	88,392	$	4,817,151		100.0	%	$	90,426	$	4,880,168		100.0	%

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2021 and December 31, 2020, for which repayment is expected to be obtained through the sale of the underlying collateral.

	March 31, 2021		December 31, 2020
	Amortized Cost		Amortized Cost
	(in thousands)
Real estate loans:
Commercial property
Retail	$	6,270	$	6,330
Hospitality		8,941		20,612
Other ⁽¹⁾		8,137		8,410
Total commercial property loans		23,348		35,352
Construction		11,046		24,854
Residential/consumer loans		2,832		2,867
Total real estate loans		37,226		63,073
Commercial and industrial loans		—		41
Total	$	37,226	$	63,114

⁽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.

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.

Loans by Vintage Year and Risk Rating

	Term Loans
	Amortized Cost Basis by Origination Year ⁽¹⁾
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(in thousands)
March 31, 2021
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	248,282	$	824,943	$	499,488	$	457,893	$	333,986	$	757,814	$	40,720	$	3,163,126
Special Mention		—		6,390		18,559		11,023		1,660		38,335		260		76,227
Classified		—		—		5,510		12,572		4,665		47,562		—		70,309
Total commercial property		248,282		831,333		523,557		481,488		340,311		843,711		40,980		3,309,662

Construction
Risk Rating
Pass / Pass Watch		11,659		27,263		—		—		—		—		—		38,922
Special Mention		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		23,704		—		23,704
Total construction		11,659		27,263		—		—		—		23,704		—		62,626

Residential/consumer loans
Risk Rating
Pass / Pass-Watch		12,640		26,795		947		33,026		117,121		121,431		7,093		319,053
Special Mention		—		—		—		930		378		5,299		—		6,607
Classified		—		—		—		—		2,245		323		—		2,568
Total residential/consumer loans		12,640		26,795		947		33,956		119,744		127,053		7,093		328,228

Total real estate loans
Risk Rating
Pass / Pass-Watch		272,581		879,001		500,435		490,919		451,107		879,245		47,813		3,521,101
Special Mention		—		6,390		18,559		11,953		2,038		43,634		260		82,834
Classified		—		—		5,510		12,572		6,910		71,589		—		96,581
Total real estate loans		272,581		885,391		524,504		515,444		460,055		994,468		48,073		3,700,516

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		75,769		327,677		54,566		50,755		16,844		12,987		114,431		653,029
Special Mention		—		3,446		4,690		4,429		75		68		515		13,223
Classified		456		—		15,272		5,070		9,247		6,587		4,189		40,821
Total commercial and industrial loans		76,225		331,123		74,528		60,254		26,166		19,642		119,135		707,073

Leases receivable:
Risk Rating
Pass / Pass-Watch		34,174		107,408		148,514		79,816		24,719		4,906		—		399,537
Special Mention		—		—		—		—		—		—		—		—
Classified		—		488		5,826		2,267		595		849		—		10,025
Total leases receivable		34,174		107,896		154,340		82,083		25,314		5,755		—		409,562

Total loans receivable:
Risk Rating
Pass / Pass-Watch		382,524		1,314,086		703,515		621,490		492,670		897,138		162,244		4,573,667
Special Mention		—		9,836		23,249		16,382		2,113		43,702		775		96,057
Classified		456		488		26,608		19,909		16,752		79,025		4,189		147,427
Total loans receivable	$	382,980	$	1,324,410	$	753,372	$	657,781	$	511,535	$	1,019,865	$	167,208	$	4,817,151

	Term Loans
	Amortized Cost Basis by Origination Year ⁽¹⁾
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total

December 31, 2020
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	920,876	$	513,962	$	479,221	$	343,659	$	418,361	$	459,367	$	31,283	$	3,166,729
Special Mention		13,680		2,484		8,630		1,671		14,971		11,907		—		53,343
Classified		—		3,528		7,303		4,712		21,351		37,840		130		74,864
Total commercial property		934,556		519,974		495,154		350,042		454,683		509,114		31,413		3,294,936

Construction
Risk Rating
Pass / Pass-Watch		33,415		613		—		—		—		—		—		34,028
Special Mention		—		—		—		—		—		—		—		—
Classified		—		—		—		—		24,854		—		—		24,854
Total construction		33,415		613		—		—		24,854		—		—		58,882

Residential/consumer loans
Risk Rating
Pass / Pass-Watch		27,997		962		37,123		127,987		82,124		54,003		7,353		337,549
Special Mention		—		—		930		829		537		2,782		—		5,078
Classified		—		—		—		2,259		301		644		—		3,204
Total residential/consumer loans		27,997		962		38,053		131,075		82,962		57,429		7,353		345,831

Total real estate loans
Risk Rating
Pass / Pass-Watch		982,288		515,537		516,344		471,646		500,485		513,370		38,636		3,538,306
Special Mention		13,680		2,484		9,560		2,500		15,508		14,689		—		58,421
Classified		—		3,528		7,303		6,971		46,506		38,484		130		102,922
Total real estate loans		995,968		521,549		533,207		481,117		562,499		566,543		38,766		3,699,649

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		406,486		73,159		54,110		17,834		4,464		9,910		146,722		712,685
Special Mention		6,950		4,509		4,436		1,110		31		1,074		447		18,557
Classified		—		890		5,115		9,465		4,380		1,519		4,644		26,013
Total commercial and industrial loans		413,436		78,558		63,661		28,409		8,875		12,503		151,813		757,255

Leases receivable:
Risk Rating
Pass / Pass-Watch		113,712		165,242		91,408		30,405		10,096		1,167		—		412,030
Special Mention		—		—		—		—		—		—		—		—
Classified		452		5,728		3,137		876		804		237		—		11,234
Total leases receivable		114,164		170,970		94,545		31,281		10,900		1,404		—		423,264

Total loans receivable:
Risk Rating
Pass / Pass-Watch		1,502,486		753,938		661,862		519,885		515,045		524,447		185,358		4,663,021
Special Mention		20,630		6,993		13,996		3,610		15,539		15,763		447		76,978
Classified		452		10,146		15,555		17,312		51,690		40,240		4,774		140,169
Total loans receivable	$	1,523,568	$	771,077	$	691,413	$	540,807	$	582,274	$	580,450	$	190,579	$	4,880,168

⁽¹⁾	Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision. Certain prior period amounts have been reclassified to conform to current period presentation.

Loans by Vintage Year and Payment Performance

	Term Loans
	Amortized Cost Basis by Origination Year ⁽¹⁾
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(in thousands)
March 31, 2021
Real estate loans:
Commercial property
Payment performance
Performing	$	248,282	$	831,333	$	523,557	$	481,467	$	337,960	$	828,069	$	40,980	$	3,291,648
Nonperforming		—		—		—		21		2,351		15,642		—		18,014
Total commercial property		248,282		831,333		523,557		481,488		340,311		843,711		40,980		3,309,662

Construction
Payment performance
Performing		11,659		27,263		—		—		—		12,658		—		51,580
Nonperforming		—		—		—		—		—		11,046		—		11,046
Total construction		11,659		27,263		—		—		—		23,704		—		62,626

Residential/consumer loans
Payment performance
Performing		12,640		26,795		947		33,956		118,347		126,730		7,093		326,508
Nonperforming		—		—		—		—		1,397		323		—		1,720
Total residential/consumer loans		12,640		26,795		947		33,956		119,744		127,053		7,093		328,228

Total real estate loans
Payment performance
Performing		272,581		885,391		524,504		515,423		456,307		967,457		48,073		3,669,736
Nonperforming		—		—		—		21		3,748		27,011		—		30,780
Total real estate loans		272,581		885,391		524,504		515,444		460,055		994,468		48,073		3,700,516

Commercial and industrial loans:
Payment performance
Performing		76,225		331,123		73,638		56,348		16,967		19,384		119,135		692,820
Nonperforming		—		—		890		3,906		9,199		258		—		14,253
Total commercial and industrial loans		76,225		331,123		74,528		60,254		26,166		19,642		119,135		707,073

Leases receivable:
Payment performance
Performing		34,174		107,408		148,515		79,816		24,719		4,906		—		399,538
Nonperforming		—		488		5,825		2,267		595		849		—		10,024
Total leases receivable		34,174		107,896		154,340		82,083		25,314		5,755		—		409,562

Total loans receivable:
Payment performance
Performing		382,980		1,323,922		746,657		651,587		497,993		991,747		167,208		4,762,094
Nonperforming		—		488		6,715		6,194		13,542		28,118		—		55,057
Total loans receivable	$	382,980	$	1,324,410	$	753,372	$	657,781	$	511,535	$	1,019,865	$	167,208	$	4,817,151

	Term Loans
	Amortized Cost Basis by Origination Year ⁽¹⁾
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total

December 31, 2020
Real estate loans:
Commercial property
Payment performance
Performing	$	934,556	$	519,582	$	495,132	$	347,656	$	437,230	$	499,410	$	31,283	$	3,264,849
Nonperforming		—		392		22		2,386		17,453		9,704		130		30,087
Total commercial property		934,556		519,974		495,154		350,042		454,683		509,114		31,413		3,294,936

Construction
Payment performance
Performing		33,415		613		—		—		—		—		—		34,028
Nonperforming		—		—		—		—		24,854		—		—		24,854
Total construction		33,415		613		—		—		24,854		—		—		58,882

Residential/consumer loans
Payment performance
Performing		27,997		962		38,053		129,670		82,661		56,785		7,353		343,481
Nonperforming		—		—		—		1,405		301		644		—		2,350
Total residential/consumer loans		27,997		962		38,053		131,075		82,962		57,429		7,353		345,831

Total real estate loans
Payment performance
Performing		995,968		521,157		533,185		477,326		519,891		556,195		38,636		3,642,358
Nonperforming		—		392		22		3,791		42,608		10,348		130		57,291
Total real estate loans		995,968		521,549		533,207		481,117		562,499		566,543		38,766		3,699,649

Commercial and industrial loans:
Payment performance
Performing		413,436		77,668		59,726		19,002		8,875		12,227		151,813		742,747
Nonperforming		—		890		3,935		9,407		—		276		—		14,508
Total commercial and industrial loans		413,436		78,558		63,661		28,409		8,875		12,503		151,813		757,255

Leases receivable:
Payment performance
Performing		113,712		165,242		91,408		30,405		10,096		1,167		—		412,030
Nonperforming		452		5,728		3,137		876		804		237		—		11,234
Total leases receivable		114,164		170,970		94,545		31,281		10,900		1,404		—		423,264

Total loans receivable:
Payment performance
Performing		1,523,116		764,067		684,319		526,733		538,862		569,589		190,449		4,797,135
Nonperforming		452		7,010		7,094		14,074		43,412		10,861		130		83,033
Total loans receivable	$	1,523,568	$	771,077	$	691,413	$	540,807	$	582,274	$	580,450	$	190,579	$	4,880,168

⁽²⁾	Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision. Certain prior period amounts have been reclassified to conform to current period presentation.

At March 31, 2021, of the $116.4 million of loans modified in accordance with the provision of the CARES Act, $47.4 million were in pass and pass-watch, $50.8 million were special mention, and $18.2 million were classified. At December 31, 2020, of the $155.6 million of loans modified in accordance with the provision of the CARES Act, $99.9 million were in pass and pass-watch, $31.3 million were special mention, and $24.4 million were classified.

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, 2021
Real estate loans:
Commercial property
Retail	$	1,517	$	—	$	—	$	1,517	$	810,066	$	811,583	$	—
Hospitality		—		—		5,873		5,873		836,141		842,014		—
Other		162		—		877		1,039		1,655,026		1,656,065		—
Total commercial property loans		1,679		—		6,750		8,429		3,301,233		3,309,662		—
Construction		—		—		—		—		62,626		62,626		—
Residential/consumer loans		1,548		—		562		2,110		326,118		328,228		—
Total real estate loans		3,227		—		7,312		10,539		3,689,977		3,700,516		—
Commercial and industrial loans		119		890		12,905		13,914		693,159		707,073