hafc-10q_20220331.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, 2022

☐	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 2, 2022, there were 30,467,022 outstanding shares of the Registrant’s Common Stock.

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

Three Months Ended March 31, 2022

Table of Contents


	Part I – Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at March 31, 2022 (unaudited) and December 31, 2021	3

	Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2022 and 2021 (unaudited)	6

	Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	54

	Part II – Other Information

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	56

Signatures		57

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,
	2022			2021
	(Unaudited)
Assets
Cash and due from banks	$	312,491		$	608,965
Securities available for sale, at fair value (amortized cost of $941,007 and $922,654 as of March 31, 2022 and December 31, 2021, respectively)		876,980			910,790
Loans held for sale, at the lower of cost or fair value		15,617			13,342
Loans receivable, net of allowance for credit losses of $71,512 and $72,557 as of March 31, 2022 and December 31, 2021, respectively		5,265,988			5,078,984
Accrued interest receivable		12,289			11,976
Premises and equipment, net		24,410			24,788
Customers' liability on acceptances		182			—
Servicing assets		7,202			7,080
Goodwill and other intangible assets, net		11,353			11,395
Federal Home Loan Bank ("FHLB") stock, at cost		16,385			16,385
Income tax assets		51,939			44,060
Bank-owned life insurance		55,149			54,905
Prepaid expenses and other assets		87,067			75,917
Total assets	$	6,737,052		$	6,858,587

Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	2,678,726		$	2,574,517
Interest-bearing		3,104,444			3,211,752
Total deposits		5,783,170			5,786,269
Accrued interest payable		966			1,161
Bank's liability on acceptances		182			—
Borrowings		125,000			137,500
Subordinated debentures ($136,800 and $224,100 face amount less unamortized discount and debt issuance costs of $7,833 and $9,094 as of March 31, 2022 and December 31, 2021, respectively)		128,967			215,006
Accrued expenses and other liabilities		77,315			75,234
Total liabilities		6,115,600			6,215,170
Stockholders' equity:
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of March 31, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,670,197 shares (30,468,458 shares outstanding) and 33,603,839 shares (30,407,261 shares outstanding) as of March 31, 2022 and December 31, 2021, respectively		33			33
Additional paid-in capital		581,337			580,796
Accumulated other comprehensive (loss) income, net of tax benefit of $19,208 and $3,421 as of March 31, 2022 and December 31, 2021, respectively		(44,819	)		(8,443	)
Retained earnings		210,788			196,784
Less treasury stock; 3,201,739 shares and 3,196,578 shares as of March 31, 2022 and December 31, 2021, respectively		(125,887	)		(125,753	)
Total stockholders' equity		621,452			643,417
Total liabilities and stockholders' equity	$	6,737,052		$	6,858,587

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,
	2022			2021
Interest and dividend income:
Interest and fees on loans receivable	$	53,924		$	50,614
Interest on securities		2,516			1,140
Dividends on FHLB stock		248			206
Interest on deposits in other banks		216			96
Total interest and dividend income		56,904			52,056
Interest expense:
Interest on deposits		2,013			3,958
Interest on borrowings		337			478
Interest on subordinated debentures		3,598			1,619
Total interest expense		5,948			6,055
Net interest income before credit loss expense		50,956			46,001
Credit loss (recovery) expense		(1,375	)		2,109
Net interest income after credit loss (recovery) expense		52,331			43,892
Noninterest income:
Service charges on deposit accounts		2,875			2,357
Trade finance and other service charges and fees		1,142			1,034
Gain on sale of Small Business Administration ("SBA") loans		2,521			4,125
Net gain on sales of securities		—			99
Other operating income		1,982			2,193
Total noninterest income		8,520			9,808
Noninterest expense:
Salaries and employee benefits		17,717			16,820
Occupancy and equipment		4,646			4,595
Data processing		3,236			2,926
Professional fees		1,430			1,447
Supplies and communications		665			757
Advertising and promotion		817			359
Other operating expenses		3,181			2,631
Total noninterest expense		31,692			29,535
Income before tax		29,159			24,165
Income tax expense		8,464			7,506
Net income	$	20,695		$	16,659
Basic earnings per share	$	0.68		$	0.54
Diluted earnings per share	$	0.68		$	0.54
Weighted-average shares outstanding:
Basic		30,254,212			30,461,681
Diluted		30,377,580			30,473,970

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,
	2022			2021
Net income	$	20,695		$	16,659
Other comprehensive income (loss), net of tax:
Unrealized gain on securities:
Unrealized holding (loss) gain arising during period		(52,163	)		(11,785	)
Less: reclassification adjustment for net gain included in net income		—			(99	)
Income tax benefit (expense) related to items of other comprehensive income		15,787			3,515
Other comprehensive income (loss), net of tax		(36,376	)		(8,369	)
Comprehensive income (loss)	$	(15,681	)	$	8,290

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, 2022 and March 31, 2021

(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, 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 paid (common stock, $0.10/share)		—		—			—			—		—		—			(3,069	)		—			(3,069	)
Net income		—		—			—			—		—		—			16,659			—			16,659
Change in unrealized gain (loss) 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

Balance at January 1, 2022		33,603,839		(3,196,578	)		30,407,261		$	33	$	580,796	$	(8,443	)	$	196,784		$	(125,753	)	$	643,417
Restricted stock awards, net of forfeitures		66,358		—			66,358			—		—		—			—			—			—
Share-based compensation expense		—		—			—			—		541		—			—			—			541
Restricted stock surrendered due to employee tax liability		—		(5,161	)		(5,161	)		—		—		—			—			(134	)		(134	)
Cash dividends paid (common stock, $0.22/share)		—		—			—			—		—		—			(6,691	)		—			(6,691	)
Net income		—		—			—			—		—		—			20,695			—			20,695
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		(36,376	)		—			—			(36,376	)
Balance at March 31, 2022		33,670,197		(3,201,739	)		30,468,458		$	33	$	581,337	$	(44,819	)	$	210,788		$	(125,887	)	$	621,452

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,
	2022			2021
Cash flows from operating activities:
Net income	$	20,695		$	16,659
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,568			3,850
Share-based compensation expense		541			598
Credit loss (recovery) expense		(1,375	)		2,109
Gain on sales of securities		—			(99	)
Gain on sales of SBA loans		(2,521	)		(4,125	)
Origination of SBA loans held for sale		(31,853	)		(146,670	)
Proceeds from sales of SBA loans		32,098			126,690
Change in bank-owned life insurance		(244	)		(256	)
Change in prepaid expenses and other assets		(13,745	)		4,945
Change in income tax assets		7,908			3,554
Change in accrued expenses and other liabilities		2,062			(652	)
Net cash provided by (used in) operating activities		20,134			6,602
Cash flows from investing activities:
Purchases of securities available for sale		(52,475	)		(116,026	)
Proceeds from matured, called and repayment of securities		32,730			67,729
Proceeds from sales of securities available for sale		—			8,035
Purchases of loans receivable		(11,000	)		(298	)
Purchases of premises and equipment		(617	)		(1,011	)
Proceeds from sales of other real estate owned ("OREO")		—			589
Change in loans receivable, excluding purchases		(175,522	)		58,271
Net cash provided by (used in) investing activities		(206,884	)		17,289
Cash flows from financing activities:
Change in deposits		(3,099	)		234,815
Repayment of borrowings		(12,500	)		—
Proceeds from repurchased subordinated debentures		12,700			—
Redemption of subordinated debentures		(100,000	)		—
Cash paid for surrender of vested shares due to employee tax liability		(134	)		(95	)
Repurchase of common stock		—			(946	)
Cash dividends paid		(6,691	)		(3,069	)
Net cash provided by (used in) financing activities		(109,724	)		230,705
Net increase (decrease) in cash and due from banks		(296,474	)		254,596
Cash and due from banks at beginning of year		608,965			391,849
Cash and due from banks at end of period	$	312,491		$	646,445
Supplemental disclosures of cash flow information:
Interest paid	$	6,143		$	8,267
Income taxes paid	$	129		$	125
Non-cash activities:
Transfer of loans receivable to other real estate owned	$	—		$	1
Income tax benefit related to items of other comprehensive income	$	15,787		$	3,515
Change in right-of-use asset obtained in exchange for lease liability	$	—		$	—

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 by 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, 2022, 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, 2021 (the “2021 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 COVID-19 pandemic resulted in restrictions on travel and business activities which have yet to return to pre-pandemic levels. 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 2021 Annual Report on Form 10-K.

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, 2022
U.S. Treasury securities	$	18,953	$	—	$	(739	)	$	18,214
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		618,459		5		(41,588	)		576,876
Collateralized mortgage obligations		93,324		4		(6,164	)		87,164
Debt securities		131,370		—		(6,746	)		124,624
Total U.S. government agency and sponsored agency obligations		843,153		9		(54,498	)		788,664
Municipal bonds-tax exempt		78,901		—		(8,799	)		70,102
Total securities available for sale	$	941,007	$	9	$	(64,036	)	$	876,980

December 31, 2021
U.S. Treasury securities	$	15,457	$	1	$	(61	)	$	15,397
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		615,393		18		(7,906	)		607,505
Collateralized mortgage obligations		95,153		41		(1,590	)		93,604
Debt securities		117,499		—		(1,603	)		115,896
Total U.S. government agency and sponsored agency obligations		828,045		59		(11,099	)		817,005
Municipal bonds-tax exempt		79,152		117		(881	)		78,388
Total securities available for sale	$	922,654	$	177	$	(12,041	)	$	910,790

The amortized cost and estimated fair value of securities as of March 31, 2022 and December 31, 2021, 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, 2022				December 31, 2021
	Available for Sale				Available for Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Within one year	$	586	$	587	$	1,103	$	1,108
Over one year through five years		150,937		143,638		126,483		125,069
Over five years through ten years		37,129		35,043		51,338		50,770
Over ten years		752,355		697,712		743,730		733,843
Total	$	941,007	$	876,980	$	922,654	$	910,790

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, 2022 and December 31, 2021, 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, 2022
U.S. Treasury securities	$	(739	)	$	18,215		5	$	—		$	—		—	$	(739	)	$	18,215		5
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		(27,111	)		409,085		86		(14,477	)		167,229		35	$	(41,588	)	$	576,314		121
Collateralized mortgage obligations		(4,544	)		69,210		19		(1,620	)		16,966		5		(6,164	)		86,176		24
Debt securities		(5,057	)		97,814		20		(1,689	)		26,811		5		(6,746	)		124,625		25
Total U.S. government agency and sponsored agency obligations		(36,712	)		576,109		125		(17,786	)		211,006		45		(54,498	)		787,115		170
Municipal bonds-tax exempt		(8,799	)		70,102		19		—			—		—		(8,799	)		70,102		19
Total	$	(46,250	)	$	664,426		149	$	(17,786	)	$	211,006		45	$	(64,036	)	$	875,432		194

December 31, 2021
U.S. Treasury securities	$	(61	)	$	8,391		2	$	—		$	—		—	$	(61	)	$	8,391		2
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		(6,252	)		535,610		102		(1,654	)		59,457		11	$	(7,906	)	$	595,067		113
Collateralized mortgage obligations		(1,256	)		76,894		16		(334	)		12,548		3		(1,590	)		89,442		19
Debt securities		(1,503	)		110,996		21		(100	)		4,900		1		(1,603	)		115,896		22
Total U.S. government agency and sponsored agency obligations		(9,011	)		723,500		139		(2,088	)		76,905		15		(11,099	)		800,405		154
Municipal bonds-tax exempt		(881	)		68,548		17		—					—		(881	)		68,548		17
Total	$	(9,953	)	$	800,439		158	$	(2,088	)	$	76,905		15	$	(12,041	)	$	877,344		173

The Company evaluates its available-for-sale securities portfolio for impairment on a quarterly basis. This assessment takes into account the changes in the credit quality of these debt securities since acquisition and the likelihood of a credit loss occurring over the life of the securities. In the event that a credit loss is expected to occur in the future, an allowance is established and a corresponding credit loss is recognized. Based on this analysis, as of March 31, 2022, the Company determined that no credit losses are expected to be realized on the tax-exempt municipal bond portfolio. The remainder of the portfolio consists of 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, and are therefore not expected to incur credit losses.

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,
	2022		2021
	(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, 2022, there were no sale of securities. During the three months ended March 31, 2021, there were $0.1 million in net gains in earnings resulting from the sale of $8.0 million of securities previously recorded with $0.1 million unrealized gains in accumulated other comprehensive income.

Securities available for sale with market values of $30.1 million and $34.7 million as of March 31, 2022 and December 31, 2021, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount Window.

At March 31, 2022, 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, 2022			December 31, 2021
	(in thousands)
Real estate loans:
Commercial property
Retail	$	990,716		$	970,134
Hospitality		718,721			717,692
Other ⁽¹⁾		1,974,091			1,919,033
Total commercial property loans		3,683,528			3,606,859
Construction		87,925			95,006
Residential/consumer loans		432,805			400,546
Total real estate loans		4,204,258			4,102,411
Commercial and industrial loans		633,107			561,831
Leases receivable		500,135			487,299
Loans receivable		5,337,500			5,151,541
Allowance for credit losses		(71,512	)		(72,557	)
Loans receivable, net	$	5,265,988		$	5,078,984

⁽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.

At March 31, 2022 and December 31, 2021, PPP loans totaling $1.5 million and $3.0 million, respectively, were included in commercial and industrial loans in the table above.

Accrued interest on loans was $10.5 million and $10.1 million at March 31, 2022 and December 31, 2021, respectively. Accrued interest at March 31, 2022 and December 31, 2021 included unpaid deferred interest receivable for loans currently or previously modified under the CARES Act of $2.7 million and $3.4 million, net of a $0 and $1.7 million valuation allowance, respectively.

At March 31, 2022 and December 31, 2021, loans of $2.32 billion and $2.30 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, 2022 and 2021:

	Real Estate			Commercial and Industrial			Total
	(in thousands)
March 31, 2022
Balance at beginning of period	$	6,954		$	6,388		$	13,342
Originations and transfers		20,164			11,689			31,853
Sales		(15,293	)		(14,284	)		(29,577	)
Principal paydowns and amortization		—			(1	)		(1	)
Balance at end of period	$	11,825		$	3,792		$	15,617

March 31, 2021
Balance at beginning of period	$	8,042		$	526		$	8,568
Originations		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

Loans held for sale was comprised of $15.6 million and $13.3 million of the guaranteed portion of SBA 7(a) loans at March 31, 2022 and December 31, 2021, respectively. All second draw PPP loans were sold by the third quarter of 2021. For the three months 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 as of and for the three months ended March 31, 2022 and 2021:

	Real Estate			Commercial and Industrial			Leases Receivable			Total
	(in thousands)
March 31, 2022
Balance at beginning of period	$	48,890		$	12,418		$	11,249		$	72,557
Less loans charged off		530			58			247			835
Recoveries on loans receivable previously charged off		(197	)		(317	)		(423	)		(937	)
Provision (recovery) for credit losses		(2,202	)		267			788			(1,147	)
Ending balance	$	46,355		$	12,944		$	12,213		$	71,512

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 (recovery) for credit losses		7,121			(5,029	)		(1,128	)		964
Ending balance	$	57,762		$	16,387		$	14,243		$	88,392

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, 2022										December 31, 2021
	Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans
	(dollars in thousands)
Real estate loans:
Commercial property
Retail	$	6,827		9.5	%	$	990,716		18.6	%	$	6,579		9.1	%	$	970,134		18.8	%
Hospitality		19,625		27.5	%		718,721		13.5	%		22,670		31.2	%		717,692		13.9	%
Other		15,904		22.2	%		1,974,091		36.9	%		15,065		20.8	%		1,919,033		37.3	%
Total commercial property loans		42,356		59.2	%		3,683,528		69.0	%		44,314		61.1	%		3,606,859		70.0	%
Construction		3,531		4.9	%		87,925		1.6	%		4,078		5.6	%		95,006		1.8	%
Residential/consumer loans		468		0.7	%		432,805		8.1	%		498		0.7	%		400,546		7.8	%
Total real estate loans		46,355		64.8	%		4,204,258		78.7	%		48,890		67.4	%		4,102,411		79.6	%
Commercial and industrial loans		12,944		18.1	%		633,107		11.9	%		12,418		17.1	%		561,831		10.9	%
Leases receivable		12,213		17.1	%		500,135		9.4	%		11,249		15.5	%		487,299		9.5	%
Total	$	71,512		100.0	%	$	5,337,500		100.0	%	$	72,557		100.0	%	$	5,151,541		100.0	%

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2022 and December 31, 2021, for which repayment is expected to be obtained through the sale of the underlying collateral.

	March 31, 2022		December 31, 2021
	Amortized Cost		Amortized Cost
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,708	$	1,917
Hospitality		—		—
Other ⁽¹⁾		482		499
Total commercial property loans		2,190		2,416
Residential/consumer loans		951		982
Total real estate loans		3,141		3,398
Total	$	3,141	$	3,398

⁽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⁾
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
	(in thousands)
March 31, 2022
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	459,277	$	1,036,000	$	664,427	$	462,571	$	365,194	$	517,843	$	44,192	$	3,549,504
Special Mention		—		19,530		16,932		9,720		21,746		18,266		1,702		87,896
Classified		858		—		—		5,875		17,228		22,167		—		46,128
Total commercial property		460,135		1,055,530		681,359		478,166		404,168		558,276		45,894		3,683,528

Construction
Risk Rating
Pass / Pass Watch		1,147		63,764		602		—		—		—		—		65,513
Special Mention		—		—		—		—		—		22,412		—		22,412
Classified		—		—		—		—		—		—		—		—
Total construction		1,147		63,764		602		—		—		22,412		—		87,925

Residential/consumer loans
Risk Rating
Pass / Pass-Watch		60,512		189,043		15,420		243		17,446		141,405		7,483		431,552
Special Mention		—		—		—		—		—		289		—		289
Classified		—		—		—		—		—		964		—		964
Total residential/consumer loans		60,512		189,043		15,420		243		17,446		142,658		7,483		432,805

Total real estate loans
Risk Rating
Pass / Pass-Watch		520,936		1,288,807		680,449		462,814		382,640		659,248		51,675		4,046,569
Special Mention		—		19,530		16,932		9,720		21,746		40,967		1,702		110,597
Classified		858		—		—		5,875		17,228		23,131		—		47,092
Total real estate loans		521,794		1,308,337		697,381		478,409		421,614		723,346		53,377		4,204,258

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		198,803		152,230		51,415		34,109		14,216		12,567		135,207		598,547
Special Mention		—		8,808		—		13,853		—		4,703		2,997		30,361
Classified		—		—		—		283		129		738		3,049		4,199
Total commercial and industrial loans		198,803		161,038		51,415		48,245		14,345		18,008		141,253		633,107

Leases receivable:
Risk Rating
Pass / Pass-Watch		68,511		222,018		69,739		86,682		38,946		8,126		—		494,022
Special Mention		—		—		—		—		—		—		—		—
Classified		—		1,050		492		3,175		1,123		273		—		6,113
Total leases receivable		68,511		223,068		70,231		89,857		40,069		8,399		—		500,135

Total loans receivable:
Risk Rating
Pass / Pass-Watch		788,250		1,663,055		801,603		583,605		435,802		679,941		186,882		5,139,138
Special Mention		—		28,338		16,932		23,573		21,746		45,670		4,699		140,958
Classified		858		1,050		492		9,333		18,480		24,142		3,049		57,404
Total loans receivable	$	789,108	$	1,692,443	$	819,027	$	616,511	$	476,028	$	749,753	$	194,630	$	5,337,500

⁽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.

	Term Loans
	Amortized Cost Basis by Origination Year ⁽¹⁾
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis			Total

December 31, 2021
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	1,203,197	$	706,470	$	488,250	$	406,288	$	277,680	$	384,064	$	41,413		$	3,507,362
Special Mention		—		18,869		7,593		—		6,999		16,879		1,703			52,043
Classified		—		—		5,450		17,247		2,965		21,792		—			47,454
Total commercial property		1,203,197		725,339		501,293		423,535		287,644		422,735		43,116			3,606,859

Construction
Risk Rating
Pass / Pass-Watch		73,808		631		—		—		—		—		—			74,439
Special Mention		—		—		—		—		—		20,567		—			20,567
Classified		—		—		—		—		—		—		—			—
Total construction		73,808		631		—		—		—		20,567		—			95,006

Residential/consumer loans
Risk Rating
Pass / Pass-Watch		194,948		16,975		247		19,813		73,567		82,076		8,381			396,007
Special Mention		—		—		—		930		406		2,221		—			3,557
Classified		—		—		—		—		965		17		—			982
Total residential/consumer loans		194,948		16,975		247		20,743		74,938		84,314		8,381			400,546

Total real estate loans
Risk Rating
Pass / Pass-Watch		1,471,953		724,076		488,497		426,101		351,247		466,140		49,794			3,977,808
Special Mention		—		18,869		7,593		930		7,405		39,667		1,703			76,167
Classified		—		—		5,450		17,247		3,930		21,809		—			48,436
Total real estate loans		1,471,953		742,945		501,540		444,278		362,582		527,616		51,497			4,102,411

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		264,762		55,135		36,937		15,780		10,874		6,016		148,148			537,652
Special Mention		—		274		13,989		—		67		4,802		(5	)		19,127
Classified		—		3		708		145		19		886		3,291			5,052
Total commercial and industrial loans		264,762		55,412		51,634		15,925		10,960		11,704		151,434			561,831

Leases receivable:
Risk Rating
Pass / Pass-Watch		239,738		79,400		101,460		47,485		10,683		1,388		—			480,154
Special Mention		—		—		—		—		—		—		—			—
Classified		716		981		3,575		1,328		347		198		—			7,145
Total leases receivable		240,454		80,381		105,035		48,813		11,030		1,586		—			487,299

Total loans receivable:
Risk Rating
Pass / Pass-Watch		1,976,453		858,611		626,894		489,366		372,804		473,544		197,942			4,995,614
Special Mention		—		19,143		21,582		930		7,472		44,469		1,698			95,294
Classified		716		984		9,733		18,720		4,296		22,893		3,291			60,633
Total loans receivable	$	1,977,169	$	878,738	$	658,209	$	509,016	$	384,572	$	540,906	$	202,931		$	5,151,541

⁽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⁾
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
	(in thousands)
March 31, 2022
Real estate loans:
Commercial property
Payment performance
Performing	$	460,135	$	1,055,530	$	681,359	$	478,166	$	404,168	$	554,596	$	45,894	$	3,679,848
Nonperforming		—		—		—		—		—		3,680		—		3,680
Total commercial property		460,135		1,055,530		681,359		478,166		404,168		558,276		45,894		3,683,528

Construction
Payment performance
Performing		1,147		63,764		602		—		—		22,412		—		87,925
Nonperforming		—		—		—		—		—		—		—		—
Total construction		1,147		63,764		602		—		—		22,412		—		87,925

Residential/consumer loans
Payment performance
Performing		60,512		189,043		15,420		243		17,446		141,457		7,483		431,604
Nonperforming		—		—		—		—		—		1,201		—		1,201
Total residential/consumer loans		60,512		189,043		15,420		243		17,446		142,658		7,483		432,805

Total real estate loans
Payment performance
Performing		521,794		1,308,337		697,381		478,409		421,614		718,465		53,377		4,199,377
Nonperforming		—		—		—		—		—		4,881		—		4,881
Total real estate loans		521,794		1,308,337		697,381		478,409		421,614		723,346		53,377		4,204,258

Commercial and industrial loans:
Payment performance
Performing		198,803		161,038		51,415		48,014		14,345		17,763		141,253		632,631
Nonperforming		—		—		—		231		—		245				476
Total commercial and industrial loans		198,803		161,038		51,415		48,245		14,345		18,008		141,253		633,107

Leases receivable:
Payment performance
Performing		68,511		222,018		69,739		86,682		38,946		8,126		—		494,022
Nonperforming		—		1,050		492		3,175		1,123		273		—		6,113
Total leases receivable		68,511		223,068		70,231		89,857		40,069		8,399		—		500,135

Total loans receivable:
Payment performance
Performing		789,108		1,691,393		818,535		613,105		474,905		744,354		194,630		5,326,030
Nonperforming		—		1,050		492		3,406		1,123		5,399		—		11,470
Total loans receivable	$	789,108	$	1,692,443	$	819,027	$	616,511	$	476,028	$	749,753	$	194,630	$	5,337,500

⁽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.

	Term Loans
	Amortized Cost Basis by Origination Year ⁽¹⁾
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total

December 31, 2021
Real estate loans:
Commercial property
Payment performance
Performing	$	1,203,197	$	725,339	$	501,293	$	423,515	$	286,935	$	419,464	$	43,116	$	3,602,859
Nonperforming		—		—		—		20		709		3,271		—		4,000
Total commercial property		1,203,197		725,339		501,293		423,535		287,644		422,735		43,116		3,606,859

Construction
Payment performance
Performing		73,808		631		—		—		—		20,567		—		95,006
Nonperforming		—		—		—		—		—		—		—		—
Total construction		73,808		631		—		—		—		20,567		—		95,006

Residential/consumer loans
Payment performance
Performing		194,948		16,975		247		20,743		73,973		84,052		8,381		399,319
Nonperforming		—		—		—		—		965		262		—		1,227
Total residential/consumer loans		194,948		16,975		247		20,743		74,938		84,314		8,381		400,546

Total real estate loans
Payment performance
Performing		1,471,953		742,945		501,540		444,258		360,908		524,083		51,497		4,097,184
Nonperforming		—		—		—		20		1,674		3,533		—		5,227
Total real estate loans		1,471,953		742,945		501,540		444,278		362,582		527,616		51,497		4,102,411

Commercial and industrial loans:
Payment performance
Performing		264,762		55,409		50,926		15,925		10,956		11,431		151,434		560,843
Nonperforming		—		3		708		—		4		273		—		988
Total commercial and industrial loans		264,762		55,412		51,634		15,925		10,960		11,704		151,434		561,831

Leases receivable:
Payment performance
Performing		239,738		79,400		101,460		47,484		10,684		1,388		—		480,154
Nonperforming		716		981		3,575		1,329		346		198		—		7,145
Total leases receivable		240,454		80,381		105,035		48,813		11,030		1,586		—		487,299

Total loans receivable:
Payment performance
Performing		1,976,453		877,754		653,926		507,667		382,548		536,902		202,931		5,138,181
Nonperforming		716		984		4,283		1,349		2,024		4,004		—		13,360
Total loans receivable	$	1,977,169	$	878,738	$	658,209	$	509,016	$	384,572	$	540,906	$	202,931	$	5,151,541

⁽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.

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, 2022
Real estate loans:
Commercial property
Retail	$	—	$	—	$	—	$	—	$	990,716	$	990,716	$	—
Hospitality		—		—		—		—		718,721		718,721		—
Other		120		—		482		602		1,973,489		1,974,091		—
Total commercial property loans		120		—		482		602		3,682,926		3,683,528		—
Construction		—		—		—		—		87,925		87,925		—
Residential/consumer loans		1,871		—		534		2,405		430,400		432,805		—
Total real estate loans		1,991		—		1,016		3,007		4,201,251		4,204,258		—
Commercial and industrial loans		64		—		—		64		633,043		633,107		—
Leases receivable		3,414		1,099		1,748		6,261		493,874		500,135		—
Total loans receivable	$	5,469	$	1,099	$	2,764	$	9,332	$	5,328,168	$	5,337,500	$	—

December 31, 2021
Real estate loans:
Commercial property
Retail	$	—	$	—	$	—	$	—	$	970,134	$	970,134	$	—
Hospitality		556		—		—		556		717,136		717,692		—
Other		92