Annual report pursuant to Section 13 and 15(d)

Loans Receivable

v3.20.4
Loans Receivable
12 Months Ended
Dec. 31, 2020
Receivables [Abstract]  
Loans Receivable

Note 3 — Loans Receivable

The Board of Directors and management review and approve the Bank’s loan policy and procedures on a regular basis to reflect matters such as regulatory and organizational structure changes, strategic planning revisions, concentrations of credit, loan delinquencies and nonperforming loans, and problem loans.

Real estate loans are loans secured by liens or interest in real estate, to provide purchase, construction, and refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit, SBA and international loans. Leases receivable include equipment finance agreements, which are typically secured by the business assets being financed. We maintain management loan review and monitoring departments that review and monitor pass graded loans as well as problem loans to prevent further deterioration.

Concentrations of Credit: The majority of the Bank’s loan portfolio consists of commercial real estate loans.

Loans receivable, net

Loans receivable consisted of the following as of the dates indicated:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

Retail

 

$

824,606

 

 

$

869,302

 

Hospitality

 

 

859,953

 

 

 

922,288

 

Other (1)

 

 

1,610,377

 

 

 

1,358,432

 

Total commercial property loans

 

 

3,294,936

 

 

 

3,150,022

 

Construction

 

 

58,882

 

 

 

76,455

 

Residential/consumer loans

 

 

345,831

 

 

 

415,698

 

Total real estate loans

 

 

3,699,649

 

 

 

3,642,175

 

Commercial and industrial loans

 

 

757,255

 

 

 

484,093

 

Leases receivable

 

 

423,264

 

 

 

483,879

 

Loans receivable

 

 

4,880,168

 

 

 

4,610,147

 

Allowance for credit losses

 

 

(90,426

)

 

 

(61,408

)

Loans receivable, net

 

$

4,789,742

 

 

$

4,548,739

 

 

(1)

Includes, among other property types, mixed-use, gas station, apartment, office, industrial, faith-based facilities and warehouse; the remaining real estate categories represent less than one percent of the Bank's total loans receivable.

The 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 Restructures.

At December 31, 2020, there were $295.7 million of PPP loans included in commercial and industrial loans in the table above.  In addition, during 2020, a total of $1.41 billion of loans entered into payment deferrals under Section 4013 of the CARES Act.

Accrued interest on loans was $15.2 million and $10.0 million at December 31, 2020 and 2019, respectively. Accrued interest at December 31, 2020 included unpaid deferred interest receivable related to loans modified under the CARES Act of $7.5 million, net of a $1.7 million valuation allowance.

At December 31, 2020 and 2019, loans of $2.17 billion and $1.35 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

The following table details the information on SBA loans held for sale by portfolio segment for the years ended December 31, 2020 and 2019:

 

 

 

Real Estate

 

 

Commercial

and Industrial

 

 

Total

 

 

 

(in thousands)

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,943

 

 

$

3,077

 

 

$

6,020

 

Originations and transfers

 

 

44,770

 

 

 

26,922

 

 

 

71,692

 

Sales

 

 

(39,666

)

 

 

(29,386

)

 

 

(69,052

)

Principal paydowns and amortization

 

 

(5

)

 

 

(87

)

 

 

(92

)

Balance at end of period

 

$

8,042

 

 

$

526

 

 

$

8,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

5,194

 

 

$

4,196

 

 

$

9,390

 

Originations and transfers

 

 

43,001

 

 

 

33,764

 

 

 

76,765

 

Sales

 

 

(45,251

)

 

 

(34,865

)

 

 

(80,116

)

Principal paydowns and amortization

 

 

(1

)

 

 

(18

)

 

 

(19

)

Balance at end of period

 

$

2,943

 

 

$

3,077

 

 

$

6,020

 

 

Allowance for credit losses

Activity in the allowance for credit losses was as follows for the periods indicated:

 

 

 

As of and for the Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

61,408

 

 

$

31,974

 

 

$

31,043

 

Adjustment related to adoption of ASU 2016-13

 

 

17,433

 

 

 

 

 

 

 

Adjusted balance

 

 

78,841

 

 

 

31,974

 

 

 

31,043

 

Less loans receivable charged off

 

 

33,952

 

 

 

4,588

 

 

 

7,310

 

Recoveries on loans receivable previously charged off

 

 

(3,063

)

 

 

(3,852

)

 

 

(4,251

)

Provision for credit losses

 

 

42,474

 

 

 

30,170

 

 

 

3,990

 

Balance at end of period

 

$

90,426

 

 

$

61,408

 

 

$

31,974

 

 

 

The following table details the information on the allowance for credit losses by portfolio segment for the years ended December 31, 2020 and 2019:

 

 

 

Real

Estate

 

 

Commercial

and

Industrial

 

 

Leases

Receivable

 

 

Unallocated

 

 

Total

 

 

 

 

(in thousands)

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

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

 

 

50,463

 

 

 

13,709

 

 

 

14,669

 

 

 

 

 

 

78,841

 

 

Less loans charged off

 

 

15,567

 

 

 

13,312

 

 

 

5,073

 

 

 

 

 

 

33,952

 

 

Recoveries on loans receivable previously charged off

 

 

(2,124

)

 

 

(336

)

 

 

(603

)

 

 

 

 

 

(3,063

)

 

Provision for credit losses

 

 

14,856

 

 

 

20,677

 

 

 

6,941

 

 

 

 

 

 

42,474

 

 

Ending balance

 

$

51,876

 

 

$

21,410

 

 

$

17,140

 

 

$

 

 

$

90,426

 

 

Individually evaluated

 

$

20

 

 

$

7,976

 

 

$

6,056

 

 

$

 

 

$

14,052

 

 

Collectively evaluated

 

$

51,855

 

 

$

13,434

 

 

$

11,085

 

 

$

 

 

$

76,374

 

 

Loans receivable

 

$

3,699,649

 

 

$

757,255

 

 

$

423,264

 

 

$

 

 

$

4,880,168

 

 

Individually evaluated

 

$

65,160

 

 

$

14,568

 

 

$

11,234

 

 

$

 

 

$

90,961

 

 

Collectively evaluated

 

$

3,634,489

 

 

$

742,687

 

 

$

412,030

 

 

$

 

 

$

4,789,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

18,482

 

 

$

7,162

 

 

$

6,303

 

 

$

27

 

 

$

31,974

 

 

Less loans charged off

 

 

132

 

 

 

1,293

 

 

 

3,162

 

 

 

 

 

 

4,588

 

 

Recoveries on loans receivable previously charged off

 

 

(2,190

)

 

 

(1,241

)

 

 

(422

)

 

 

 

 

 

(3,852

)

 

Provision for credit losses

 

 

15,896

 

 

 

9,097

 

 

 

5,205

 

 

 

(27

)

 

 

30,170

 

 

Ending balance

 

$

36,435

 

 

$

16,206

 

 

$

8,767

 

 

$

 

 

$

61,408

 

 

Individually evaluated for impairment

 

$

14,029

 

 

$

8,885

 

 

$

2,863

 

 

$

 

 

$

25,777

 

 

Collectively evaluated for impairment

 

$

22,406

 

 

$

7,321

 

 

$

5,904

 

 

$

 

 

$

35,631

 

 

Loans receivable

 

$

3,642,175

 

 

$

484,093

 

 

$

483,879

 

 

$

 

 

$

4,610,147

 

 

Individually evaluated for impairment

 

$

45,163

 

 

$

13,700

 

 

$

5,902

 

 

$

 

 

$

64,765

 

 

Collectively evaluated for impairment

 

$

3,597,012

 

 

$

470,393

 

 

$

477,977

 

 

$

 

 

$

4,545,382

 

 

 

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 for the years ended December 31, 2020 and 2019:

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Allowance

Amount

 

 

Total

Loans

 

 

Percentage

of Total

Loans

 

 

Allowance

Amount

 

 

Total

Loans

 

 

Percentage

of Total

Loans

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

4,855

 

 

$

824,606

 

 

 

16.9

%

 

$

4,911

 

 

$

869,302

 

 

 

18.9

%

Hospitality

 

 

28,801

 

 

 

859,953

 

 

 

17.6

%

 

 

6,686

 

 

 

922,288

 

 

 

20.0

%

Other

 

 

13,991

 

 

 

1,610,377

 

 

 

33.0

%

 

 

8,060

 

 

 

1,358,432

 

 

 

29.4

%

Total commercial property loans

 

 

47,647

 

 

 

3,294,936

 

 

 

67.5

%

 

 

19,657

 

 

 

3,150,022

 

 

 

68.3

%

Construction

 

 

2,876

 

 

 

58,882

 

 

 

1.2

%

 

 

15,003

 

 

 

76,455

 

 

 

1.7

%

Residential/consumer loans

 

 

1,353

 

 

 

345,831

 

 

 

7.1

%

 

 

1,775

 

 

 

415,698

 

 

 

9.0

%

Total real estate loans

 

 

51,876

 

 

 

3,699,649

 

 

 

75.8

%

 

 

36,435

 

 

 

3,642,175

 

 

 

79.0

%

Commercial and industrial loans

 

 

21,410

 

 

 

757,255

 

 

 

15.5

%

 

 

16,206

 

 

 

484,093

 

 

 

10.5

%

Leases receivable

 

 

17,140

 

 

 

423,264

 

 

 

8.7

%

 

 

8,767

 

 

 

483,879

 

 

 

10.5

%

Total

 

$

90,426

 

 

$

4,880,168

 

 

 

100.0

%

 

$

61,408

 

 

$

4,610,147

 

 

 

100.0

%

 

 

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of December 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 nonperforming.

 

 

 

Amortized

Cost

 

 

 

(in thousands)

 

December 31, 2020

 

 

 

 

Real estate loans:

 

 

 

 

Commercial property

 

 

 

 

Retail

 

$

6,330

 

Hospitality

 

 

20,612

 

Other

 

 

8,410

 

Commercial property

 

 

35,352

 

Construction

 

 

24,854

 

Residential/consumer loans

 

 

2,867

 

Total real estate loans

 

 

63,073

 

Commercial and industrial loans

 

 

41

 

Total (1)

 

$

63,114

 

 

(1)

Includes, among other property types, hospitality, retail and other, mixed-use, gas station, apartment, office, industrial, faith-based facilities and warehouse; the remaining real estate categories represent less than one percent of the Bank's total loans receivable.

Loan Quality Indicators

As part of the on-going monitoring of the quality of our loan 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 required 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.

As of December 31, 2020 and 2019, the recorded investment in pass/pass-watch, special mention and classified (substandard, doubtful and loss) loans, disaggregated by loan class, were as follows:

 

 

 

Pass/Pass-

Watch

 

 

Special

Mention

 

 

Classified

 

 

Total

 

 

 

(in thousands)

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

807,348

 

 

$

3,382

 

 

$

13,876

 

 

$

824,606

 

Hospitality

 

 

788,369

 

 

 

26,086

 

 

 

45,498

 

 

 

859,953

 

Other

 

 

1,571,012

 

 

 

23,876

 

 

 

15,489

 

 

 

1,610,377

 

Total commercial property loans

 

 

3,166,729

 

 

 

53,344

 

 

 

74,863

 

 

 

3,294,936

 

Construction

 

 

34,028

 

 

 

 

 

 

24,854

 

 

 

58,882

 

Residential/consumer loans

 

 

337,549

 

 

 

5,078

 

 

 

3,204

 

 

 

345,831

 

Total real estate loans

 

 

3,538,306

 

 

 

58,422

 

 

 

102,921

 

 

 

3,699,649

 

Commercial and industrial loans

 

 

712,685

 

 

 

18,556

 

 

 

26,014

 

 

 

757,255

 

Leases receivable

 

 

412,030

 

 

 

 

 

 

11,234

 

 

 

423,264

 

Total loans receivable

 

$

4,663,021

 

 

$

76,978

 

 

$

140,169

 

 

$

4,880,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 loans

 

 

3,105,390

 

 

 

11,580

 

 

 

33,052

 

 

 

3,150,022

 

Construction

 

 

36,956

 

 

 

1,613

 

 

 

37,886

 

 

 

76,455

 

Residential/consumer loans

 

 

410,984

 

 

 

3,217

 

 

 

1,497

 

 

 

415,698

 

Total real estate loans

 

 

3,553,329

 

 

 

16,410

 

 

 

72,436

 

 

 

3,642,175

 

Commercial and industrial loans

 

 

458,184

 

 

 

10,222

 

 

 

15,687

 

 

 

484,093

 

Leases receivable

 

 

477,977

 

 

 

 

 

 

5,902

 

 

 

483,879

 

Total loans receivable

 

$

4,489,491

 

 

$

26,632

 

 

$

94,025

 

 

$

4,610,147

 

 

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/watch, $31.3 million were special mention, and $24.4 million were classified.

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

$

920,876

 

 

$

513,962

 

 

$

479,221

 

 

$

343,659

 

 

$

418,362

 

 

$

459,366

 

 

$

31,283

 

 

$

3,166,729

 

Special Mention

 

 

23,429

 

 

 

2,484

 

 

 

8,630

 

 

 

1,672

 

 

 

14,971

 

 

 

2,158

 

 

 

 

 

 

53,344

 

Classified

 

 

20,307

 

 

 

4,276

 

 

 

9,239

 

 

 

3,084

 

 

 

18,712

 

 

 

19,115

 

 

 

130

 

 

 

74,863

 

Total commercial property

 

 

964,612

 

 

 

520,722

 

 

 

497,090

 

 

 

348,415

 

 

 

452,045

 

 

 

480,639

 

 

 

31,413

 

 

 

3,294,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

$

33,415

 

 

$

613

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

34,028

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified

 

 

12,808

 

 

 

 

 

 

12,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,854

 

Total construction

 

 

46,223

 

 

 

613

 

 

 

12,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential/consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass Watch

 

$

27,997

 

 

$

962

 

 

$

37,122

 

 

$

127,987

 

 

$

82,124

 

 

$

54,004