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 OF1934 |
For the Quarterly Period Ended SeptemberJune 30, 2017
or
☐ | |
TRANSITION REPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIES EXCHANGE ACT OF1934 |
For the TransitionPeriodFrom
___________ ToCommission File Number:
000-30421HANMI FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware | 95-4788120 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
3660 Wilshire Boulevard, PenthouseSuiteA | ||
Los Angeles, California | 90010 | |
(Address of PrincipalExecutiveOffices) | (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 ofeach 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 90days. Yes
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post suchfiles). Yes
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“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes
As of November 4, 2017,August 3, 2020, there were 32,409,17430,656,746 outstanding shares of the Registrant’s CommonStock.
Hanmi Financial Corporation and Subsidiaries
Three and Nine Months Ended SeptemberJune 30, 2017
Table of Contents
Part I – Financial Information | ||||
Item 1. | 3 | |||
Consolidated Balance Sheets | 3 | |||
4 | ||||
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | 5 | |||
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) | 6 | |||
8 | ||||
9 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 42 | ||
Item 3. | 66 | |||
Item 4. | 66 | |||
Part II – Other Information | ||||
Item 1. | 67 | |||
Item 1A. | 67 | |||
Item 2. | 68 | |||
Item 3. | 68 | |||
Item 4. | 68 | |||
Item 5. | 68 | |||
Item 6. | 69 | |||
70 |
Part I — Financial Information
Item 1. Financial Statements
Hanmi Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 546,048 |
|
| $ | 121,678 |
|
Securities available for sale, at fair value (amortized cost of $655,500, as of June 30, 2020 and $629,725 as of December 31, 2019) |
|
| 655,971 |
|
|
| 634,477 |
|
Loans held for sale, at the lower of cost or fair value |
|
| 17,942 |
|
|
| 6,020 |
|
Loans receivable, net of allowance for credit losses of $86,330 as of June 30, 2020 and $61,408 as of December 31, 2019 |
|
| 4,739,312 |
|
|
| 4,548,739 |
|
Accrued interest receivable |
|
| 21,372 |
|
|
| 11,742 |
|
Premises and equipment, net |
|
| 26,412 |
|
|
| 26,070 |
|
Customers' liability on acceptances |
|
| — |
|
|
| 66 |
|
Servicing assets |
|
| 6,187 |
|
|
| 6,956 |
|
Goodwill and other intangible assets, net |
|
| 11,742 |
|
|
| 11,873 |
|
Federal Home Loan Bank ("FHLB") stock, at cost |
|
| 16,385 |
|
|
| 16,385 |
|
Income tax assets |
|
| 43,286 |
|
|
| 36,787 |
|
Bank-owned life insurance |
|
| 53,334 |
|
|
| 52,782 |
|
Prepaid expenses and other assets |
|
| 80,172 |
|
|
| 64,610 |
|
Total assets |
| $ | 6,218,163 |
|
| $ | 5,538,184 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
| $ | 1,865,213 |
|
| $ | 1,391,624 |
|
Interest-bearing |
|
| 3,344,568 |
|
|
| 3,307,338 |
|
Total deposits |
|
| 5,209,781 |
|
|
| 4,698,962 |
|
Accrued interest payable |
|
| 8,655 |
|
|
| 11,215 |
|
Bank's liability on acceptances |
|
| — |
|
|
| 66 |
|
Borrowings |
|
| 251,808 |
|
|
| 90,000 |
|
Subordinated debentures ($126,800 face amount less unamortized discount and debt issuance costs of $8,130) as of June 30, 2020 and ($126,800 face amount less unamortized discount and debt issuance costs of $8,423) as of December 31, 2019 |
|
| 118,670 |
|
|
| 118,377 |
|
Accrued expenses and other liabilities |
|
| 81,813 |
|
|
| 56,297 |
|
Total liabilities |
|
| 5,670,727 |
|
|
| 4,974,917 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value; authorized 10,000,000 shares; 0 shares issued as of June 30, 2020 and December 31, 2019 |
|
| — |
|
|
| — |
|
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,495,913 shares (30,657,629 shares outstanding) as of June 30, 2020 and issued 33,475,402 shares (30,799,624 shares outstanding) as of December 31, 2019 |
|
| 33 |
|
|
| 33 |
|
Additional paid-in capital |
|
| 577,211 |
|
|
| 575,816 |
|
Accumulated other comprehensive income, net of tax expense of $136 as of June 30, 2020 and $1,370 as of December 31, 2019 |
|
| 335 |
|
|
| 3,382 |
|
Retained earnings |
|
| 88,859 |
|
|
| 100,551 |
|
Less treasury stock; 2,838,284 shares as of June 30, 2020 and 2,675,778 shares as of December 31, 2019 |
|
| (119,002 | ) |
|
| (116,515 | ) |
Total stockholders' equity |
|
| 547,436 |
|
|
| 563,267 |
|
Total liabilities and stockholders' equity |
| $ | 6,218,163 |
|
| $ | 5,538,184 |
|
(Unaudited) September 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and due from banks | $ | 138,139 | $ | 147,235 | |||
Securities available for sale, at fair value (amortized cost of $597,944 as of September 30, 2017 and $521,053 as of December 31, 2016) | 598,440 | 516,964 | |||||
Loans held for sale, at the lower of cost or fair value | 6,469 | 9,316 | |||||
Loans and leases receivable, net of allowance for loan and lease losses of $32,492 as of September 30, 2017 and $32,429 as of December 31, 2016 | 4,162,863 | 3,812,340 | |||||
Accrued interest receivable | 12,098 | 10,987 | |||||
Premises and equipment, net | 26,648 | 28,698 | |||||
Other real estate owned ("OREO"), net | 1,946 | 7,484 | |||||
Customers’ liability on acceptances | 647 | 978 | |||||
Servicing assets | 10,428 | 10,564 | |||||
Goodwill and other intangible assets, net | 12,628 | 12,889 | |||||
Federal Home Loan Bank ("FHLB") stock, at cost | 16,385 | 16,385 | |||||
Income tax asset, net | 46,210 | 48,047 | |||||
Bank-owned life insurance | 50,268 | 49,440 | |||||
Prepaid expenses and other assets | 28,227 | 30,019 | |||||
Total assets | $ | 5,111,396 | $ | 4,701,346 | |||
Liabilities and stockholders’ equity | |||||||
Liabilities: | |||||||
Deposits: | |||||||
Noninterest-bearing | $ | 1,293,538 | $ | 1,203,240 | |||
Interest-bearing | 3,005,472 | 2,606,497 | |||||
Total deposits | 4,299,010 | 3,809,737 | |||||
Accrued interest payable | 4,071 | 2,567 | |||||
Bank’s liability on acceptances | 657 | 978 | |||||
FHLB advances | 110,000 | 315,000 | |||||
Subordinated debentures | 117,140 | 18,978 | |||||
Accrued expenses and other liabilities | 21,271 | 23,061 | |||||
Total liabilities | 4,552,149 | 4,170,321 | |||||
Stockholders’ equity: | |||||||
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,059,166 shares (32,413,082 shares outstanding) as of September 30, 2017 and issued 32,946,197 shares (32,330,747 shares outstanding) as of December 31, 2016 | 33 | 33 | |||||
Additional paid-in capital | 564,787 | 562,446 | |||||
Accumulated other comprehensive income (loss), net of tax expense of $207 as of September 30, 2017 and tax benefit of $1,696 as of December 31, 2016 | 290 | (2,394 | ) | ||||
Retained earnings | 65,858 | 41,726 | |||||
Less: treasury stock, at cost; 646,084 shares as of September 30, 2017 and 615,450 shares as of December 31, 2016 | (71,721 | ) | (70,786 | ) | |||
Total stockholders’ equity | 559,247 | 531,025 | |||||
Total liabilities and stockholders’ equity | $ | 5,111,396 | $ | 4,701,346 |
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 June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans receivable |
| $ | 52,230 |
|
| $ | 56,872 |
|
| $ | 106,878 |
|
| $ | 115,206 |
|
Interest on securities |
|
| 3,225 |
|
|
| 3,770 |
|
|
| 6,880 |
|
|
| 7,226 |
|
Dividends on FHLB stock |
|
| 203 |
|
|
| 283 |
|
|
| 492 |
|
|
| 572 |
|
Interest on deposits in other banks |
|
| 78 |
|
|
| 557 |
|
|
| 411 |
|
|
| 892 |
|
Total interest and dividend income |
|
| 55,736 |
|
|
| 61,482 |
|
|
| 114,661 |
|
|
| 123,896 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
| 8,889 |
|
|
| 16,728 |
|
|
| 21,631 |
|
|
| 32,410 |
|
Interest on borrowings |
|
| 760 |
|
|
| — |
|
|
| 1,256 |
|
|
| 72 |
|
Interest on subordinated debentures |
|
| 1,645 |
|
|
| 1,764 |
|
|
| 3,357 |
|
|
| 3,536 |
|
Total interest expense |
|
| 11,294 |
|
|
| 18,492 |
|
|
| 26,244 |
|
|
| 36,018 |
|
Net interest income before credit loss expense |
|
| 44,442 |
|
|
| 42,990 |
|
|
| 88,417 |
|
|
| 87,878 |
|
Credit loss expense |
|
| 24,594 |
|
|
| 16,699 |
|
|
| 40,333 |
|
|
| 17,816 |
|
Net interest income after credit loss expense |
|
| 19,848 |
|
|
| 26,291 |
|
|
| 48,084 |
|
|
| 70,062 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 2,032 |
|
|
| 2,486 |
|
|
| 4,432 |
|
|
| 4,844 |
|
Trade finance and other service charges and fees |
|
| 961 |
|
|
| 1,204 |
|
|
| 1,948 |
|
|
| 2,328 |
|
Gain on sale of Small Business Administration ("SBA") loans |
|
| — |
|
|
| 1,060 |
|
|
| 1,154 |
|
|
| 1,986 |
|
Net gain on sales of securities |
|
| 15,712 |
|
|
| 570 |
|
|
| 15,712 |
|
|
| 1,295 |
|
Other operating income |
|
| 2,226 |
|
|
| 2,409 |
|
|
| 3,908 |
|
|
| 3,530 |
|
Total noninterest income |
|
| 20,931 |
|
|
| 7,729 |
|
|
| 27,154 |
|
|
| 13,983 |
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 14,701 |
|
|
| 16,881 |
|
|
| 32,450 |
|
|
| 32,619 |
|
Occupancy and equipment |
|
| 4,508 |
|
|
| 3,468 |
|
|
| 8,983 |
|
|
| 7,989 |
|
Data processing |
|
| 2,804 |
|
|
| 2,140 |
|
|
| 5,473 |
|
|
| 4,223 |
|
Professional fees |
|
| 1,545 |
|
|
| 1,983 |
|
|
| 3,460 |
|
|
| 3,632 |
|
Supplies and communications |
|
| 858 |
|
|
| 649 |
|
|
| 1,639 |
|
|
| 1,493 |
|
Advertising and promotion |
|
| 456 |
|
|
| 945 |
|
|
| 1,190 |
|
|
| 1,705 |
|
Other operating expenses |
|
| 2,266 |
|
|
| 4,078 |
|
|
| 5,011 |
|
|
| 7,549 |
|
Total noninterest expense |
|
| 27,138 |
|
|
| 30,144 |
|
|
| 58,206 |
|
|
| 59,210 |
|
Income before tax |
|
| 13,641 |
|
|
| 3,876 |
|
|
| 17,032 |
|
|
| 24,835 |
|
Income tax expense |
|
| 4,466 |
|
|
| 1,220 |
|
|
| 5,506 |
|
|
| 7,507 |
|
Net income |
| $ | 9,175 |
|
| $ | 2,656 |
|
| $ | 11,526 |
|
| $ | 17,328 |
|
Basic earnings per share |
| $ | 0.30 |
|
| $ | 0.09 |
|
| $ | 0.38 |
|
| $ | 0.56 |
|
Diluted earnings per share |
| $ | 0.30 |
|
| $ | 0.09 |
|
| $ | 0.38 |
|
| $ | 0.56 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 30,426,967 |
|
|
| 30,685,301 |
|
|
| 30,447,984 |
|
|
| 30,688,698 |
|
Diluted |
|
| 30,426,967 |
|
|
| 30,727,681 |
|
|
| 30,450,231 |
|
|
| 30,729,020 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest and dividend income: | |||||||||||||||
Interest and fees on loans and leases | $ | 50,265 | $ | 41,150 | $ | 143,614 | $ | 120,862 | |||||||
Interest on securities | 3,188 | 2,701 | 8,657 | 8,604 | |||||||||||
Dividends on Federal Reserve Bank ("FRB") and FHLB stock | 286 | 419 | 943 | 1,540 | |||||||||||
Interest on deposits in other banks | 123 | 55 | 323 | 152 | |||||||||||
Total interest and dividend income | 53,862 | 44,325 | 153,537 | 131,158 | |||||||||||
Interest expense: | |||||||||||||||
Interest on deposits | 7,071 | 4,358 | 18,687 | 11,769 | |||||||||||
Interest on FHLB advances | 198 | 179 | 714 | 673 | |||||||||||
Interest on subordinated debentures | 1,667 | 206 | 3,677 | 584 | |||||||||||
Total interest expense | 8,936 | 4,743 | 23,078 | 13,026 | |||||||||||
Net interest income before provision for loan and lease losses | 44,926 | 39,582 | 130,459 | 118,132 | |||||||||||
Loan and lease loss provision (income) | 269 | (1,450 | ) | 611 | (4,490 | ) | |||||||||
Net interest income after provision for loan and lease losses | 44,657 | 41,032 | 129,848 | 122,622 | |||||||||||
Noninterest income: | |||||||||||||||
Service charges on deposit accounts | 2,678 | 2,883 | 7,667 | 8,782 | |||||||||||
Trade finance and other service charges and fees | 1,133 | 992 | 3,449 | 3,099 | |||||||||||
Gain on sales of Small Business Administration ("SBA") loans | 2,546 | 1,616 | 6,678 | 4,247 | |||||||||||
Disposition gains on Purchased Credit Impaired ("PCI") loans | 979 | 789 | 1,702 | 3,411 | |||||||||||
Net gain on sales of securities | 267 | 46 | 1,473 | 46 | |||||||||||
Other operating income | 1,213 | 2,348 | 4,764 | 5,423 | |||||||||||
Total noninterest income | 8,816 | 8,674 | 25,733 | 25,008 | |||||||||||
Noninterest expense: | |||||||||||||||
Salaries and employee benefits | 16,947 | 15,950 | 50,674 | 47,710 | |||||||||||
Occupancy and equipment | 3,883 | 3,917 | 11,743 | 11,351 | |||||||||||
Data processing | 1,779 | 1,330 | 5,148 | 4,219 | |||||||||||
Professional fees | 1,210 | 1,090 | 3,912 | 4,063 | |||||||||||
Supplies and communications | 755 | 821 | 2,135 | 2,266 | |||||||||||
Advertising and promotion | 1,147 | 1,153 | 2,964 | 2,769 | |||||||||||
OREO expense (income) | (16 | ) | 73 | 402 | 721 | ||||||||||
Merger and integration costs (income) | — | — | (40 | ) | — | ||||||||||
Other operating expenses | 2,955 | 4,003 | 7,905 | 9,170 | |||||||||||
Total noninterest expense | 28,660 | 28,337 | 84,843 | 82,269 | |||||||||||
Income before income tax expense | 24,813 | 21,369 | 70,738 | 65,361 | |||||||||||
Income tax expense | 9,890 | 8,248 | 27,576 | 23,288 | |||||||||||
Net income | $ | 14,923 | $ | 13,121 | $ | 43,162 | $ | 42,073 | |||||||
Basic earnings per share | $ | 0.46 | $ | 0.41 | $ | 1.34 | $ | 1.31 | |||||||
Diluted earnings per share | $ | 0.46 | $ | 0.41 | $ | 1.33 | $ | 1.31 | |||||||
Weighted-average shares outstanding: | |||||||||||||||
Basic | 32,095,286 | 31,912,470 | 32,058,705 | 31,880,466 | |||||||||||
Diluted | 32,255,814 | 32,088,233 | 32,230,319 | 32,031,295 |
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net income |
| $ | 9,175 |
|
| $ | 2,656 |
|
| $ | 11,526 |
|
| $ | 17,328 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) arising during period |
|
| (493 | ) |
|
| 6,548 |
|
|
| 11,431 |
|
|
| 13,167 |
|
Less: reclassification adjustment for net gain included in net income |
|
| (15,712 | ) |
|
| (570 | ) |
|
| (15,712 | ) |
|
| (1,295 | ) |
Income tax expense (benefit) related to items of other comprehensive income |
|
| 4,673 |
|
|
| (1,721 | ) |
|
| 1,234 |
|
|
| (3,418 | ) |
Other comprehensive income (loss), net of tax |
|
| (11,532 | ) |
|
| 4,257 |
|
|
| (3,047 | ) |
|
| 8,454 |
|
Comprehensive income (loss) |
| $ | (2,357 | ) |
| $ | 6,913 |
|
| $ | 8,479 |
|
| $ | 25,782 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 14,923 | $ | 13,121 | $ | 43,162 | $ | 42,073 | |||||||
Other comprehensive income, net of tax: | |||||||||||||||
Unrealized gain on securities: | |||||||||||||||
Unrealized holding gain (loss) arising during period | 529 | (2,629 | ) | 6,059 | 13,518 | ||||||||||
Less: reclassification adjustment for net gain included in net income | (267 | ) | (46 | ) | (1,473 | ) | (46 | ) | |||||||
Unrealized loss on interest-only strip of servicing assets | — | — | — | (9 | ) | ||||||||||
Income tax expense related to items of other comprehensive income | (109 | ) | 1,109 | (1,902 | ) | (5,593 | ) | ||||||||
Other comprehensive income, net of tax | 153 | (1,566 | ) | 2,684 | 7,870 | ||||||||||
Comprehensive income | $ | 15,076 | $ | 11,555 | $ | 45,846 | $ | 49,943 |
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
Hanmi Financial Corporation and Subsidiaries
ConsolidatedStatementsofChangesinStockholders’Equity(Unaudited)
For the Three Months Ended June 30, 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 April 1, 2019 |
|
| 33,153,888 |
|
|
| (2,293,355 | ) |
|
| 30,860,533 |
|
| $ | 33 |
|
| $ | 570,432 |
|
| $ | (1,882 | ) |
| $ | 104,771 |
|
| $ | (109,062 | ) |
| $ | 564,292 |
|
Stock options exercised |
|
| 1,250 |
|
|
| — |
|
|
| 1,250 |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
Restricted stock awards, net of forfeitures |
|
| 116,694 |
|
|
| — |
|
|
| 116,694 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 660 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 660 |
|
Restricted stock surrendered due to employee tax liability |
|
| — |
|
|
| (3,314 | ) |
|
| (3,314 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
|
| (14 | ) |
Cash dividends declared (common stock, $0.24/share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,406 | ) |
|
| — |
|
|
| (7,406 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,656 |
|
|
| — |
|
|
| 2,656 |
|
Change in unrealized gain (loss) on securities available for sale, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,257 |
|
|
| — |
|
|
| — |
|
|
| 4,257 |
|
Balance at June 30, 2019 |
|
| 33,271,832 |
|
|
| (2,296,669 | ) |
|
| 30,975,163 |
|
| $ | 33 |
|
| $ | 571,105 |
|
| $ | 2,375 |
|
| $ | 100,021 |
|
| $ | (109,076 | ) |
| $ | 564,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2020 |
|
| 33,448,214 |
|
|
| (2,825,473 | ) |
|
| 30,622,741 |
|
| $ | 33 |
|
| $ | 576,585 |
|
| $ | 11,867 |
|
| $ | 83,355 |
|
| $ | (118,882 | ) |
| $ | 552,958 |
|
Restricted stock awards, net of forfeitures |
|
| 47,699 |
|
|
| — |
|
|
| 47,699 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 626 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 626 |
|
Restricted stock surrendered due to employee tax liability |
|
| — |
|
|
| (12,811 | ) |
|
| (12,811 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (120 | ) |
|
| (120 | ) |
Cash dividends declared (common stock, $0.12/share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,671 | ) |
|
| — |
|
|
| (3,671 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,175 |
|
|
| — |
|
|
| 9,175 |
|
Change in unrealized gain (loss) on securities available for sale, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,532 | ) |
|
| — |
|
|
| — |
|
|
| (11,532 | ) |
Balance at June 30, 2020 |
|
| 33,495,913 |
|
|
| (2,838,284 | ) |
|
| 30,657,629 |
|
| $ | 33 |
|
| $ | 577,211 |
|
| $ | 335 |
|
| $ | 88,859 |
|
| $ | (119,002 | ) |
| $ | 547,436 |
|
Common Stock - Number of Shares | Stockholders’ Equity | |||||||||||||||||||||||||||||||
Shares Issued | Treasury Shares | Shares Outstanding | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock, at Cost | Total Stockholders’ Equity | ||||||||||||||||||||||||
Balance at January 1, 2016 | 32,566,522 | (592,163 | ) | 31,974,359 | $ | 257 | $ | 557,761 | $ | (315 | ) | $ | 6,422 | $ | (70,207 | ) | $ | 493,918 | ||||||||||||||
Correction of accounting for the 2011 1-for-8 stock split | — | — | — | (224 | ) | 224 | — | — | — | — | ||||||||||||||||||||||
Stock options exercised | 42,584 | — | 42,584 | — | 592 | — | — | — | 592 | |||||||||||||||||||||||
Restricted stock awards, net of forfeitures | 256,287 | — | 256,287 | — | — | — | — | — | — | |||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 2,329 | — | — | — | 2,329 | |||||||||||||||||||||||
Restricted stock surrendered due to employee tax liability | — | (20,456 | ) | (20,456 | ) | — | — | — | — | (502 | ) | (502 | ) | |||||||||||||||||||
Cash dividends declared | — | — | — | — | — | — | (15,082 | ) | — | (15,082 | ) | |||||||||||||||||||||
Net income | — | — | — | — | — | — | 42,073 | — | 42,073 | |||||||||||||||||||||||
Change in unrealized gain (loss) on securities available for sale, net of income taxes | — | — | — | — | — | 7,870 | — | — | 7,870 | |||||||||||||||||||||||
Balance at September 30, 2016 | 32,865,393 | (612,619 | ) | 32,252,774 | $ | 33 | $ | 560,906 | $ | 7,555 | $ | 33,413 | $ | (70,709 | ) | $ | 531,198 | |||||||||||||||
Balance at January 1, 2017 | 32,946,197 | (615,450 | ) | 32,330,747 | $ | 33 | $ | 562,446 | $ | (2,394 | ) | $ | 41,726 | $ | (70,786 | ) | $ | 531,025 | ||||||||||||||
Stock options exercised | 22,125 | — | 22,125 | — | 270 | — | — | — | 270 | |||||||||||||||||||||||
Restricted stock awards, net of forfeitures | 90,844 | — | 90,844 | — | — | — | — | — | — | |||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 2,071 | — | — | — | 2,071 | |||||||||||||||||||||||
Restricted stock surrendered due to employee tax liability | — | (30,634 | ) | (30,634 | ) | — | — | — | — | (935 | ) | (935 | ) | |||||||||||||||||||
Cash dividends declared | — | — | — | — | — | — | (19,030 | ) | — | (19,030 | ) | |||||||||||||||||||||
Net income | — | — | — | — | — | — | 43,162 | — | 43,162 | |||||||||||||||||||||||
Change in unrealized gain (loss) on securities available for sale, net of income taxes | — | — | — | — | — | 2,684 | — | — | 2,684 | |||||||||||||||||||||||
Balance at September 30, 2017 | 33,059,166 | (646,084 | ) | 32,413,082 | $ | 33 | $ | 564,787 | $ | 290 | $ | 65,858 | $ | (71,721 | ) | $ | 559,247 |
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
Hanmi Financial Corporation and Subsidiaries
ConsolidatedStatementsof Cash Flows ChangesinStockholders’Equity(Unaudited)
For the Six Months Ended June 30, 2020
(in thousands)thousands, except share data)
|
| Common Stock - Number of Shares |
|
| Stockholders' Equity |
| ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
| Treasury |
|
| Total |
| ||||
|
| Shares |
|
| Treasury |
|
| Shares |
|
| Common |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Stock, |
|
| Stockholders' |
| |||||||||
|
| Issued |
|
| Shares |
|
| Outstanding |
|
| Stock |
|
| Capital |
|
| Income (Loss) |
|
| Earnings |
|
| at Cost |
|
| Equity |
| |||||||||
Balance at January 1, 2019 |
|
| 33,202,369 |
|
|
| (2,273,932 | ) |
|
| 30,928,437 |
|
| $ | 33 |
|
| $ | 569,712 |
|
| $ | (6,079 | ) |
| $ | 97,539 |
|
| $ | (108,637 | ) |
| $ | 552,568 |
|
Stock options exercised |
|
| 1,900 |
|
|
| — |
|
|
| 1,900 |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
Restricted stock awards, net of forfeitures |
|
| 67,563 |
|
|
| — |
|
|
| 67,563 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,371 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,371 |
|
Restricted stock surrendered due to employee tax liability |
|
| — |
|
|
| (22,737 | ) |
|
| (22,737 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (439 | ) |
|
| (439 | ) |
Repurchase of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
Cash dividends declared (common stock, $0.48/share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,846 | ) |
|
| — |
|
|
| (14,846 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,328 |
|
|
| — |
|
|
| 17,328 |
|
Change in unrealized gain (loss) on securities available for sale, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,454 |
|
|
| — |
|
|
| — |
|
|
| 8,454 |
|
Balance at June 30, 2019 |
|
| 33,271,832 |
|
|
| (2,296,669 | ) |
|
| 30,975,163 |
|
| $ | 33 |
|
| $ | 571,105 |
|
| $ | 2,375 |
|
| $ | 100,021 |
|
| $ | (109,076 | ) |
| $ | 564,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020 |
|
| 33,475,402 |
|
|
| (2,675,778 | ) |
|
| 30,799,624 |
|
| $ | 33 |
|
| $ | 575,816 |
|
| $ | 3,382 |
|
| $ | 100,551 |
|
| $ | (116,515 | ) |
| $ | 563,267 |
|
Adjustment related to adopting of new accounting standards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASU 2016-13 (See Notes 1 and 3) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,167 | ) |
|
| — |
|
|
| (12,167 | ) |
Adjusted balance at January 1, 2020 |
|
| 33,475,402 |
|
|
| (2,675,778 | ) |
|
| 30,799,624 |
|
|
| 33 |
|
|
| 575,816 |
|
|
| 3,382 |
|
|
| 88,385 |
|
|
| (116,515 | ) |
|
| 551,101 |
|
Restricted stock awards, net of forfeitures |
|
| 20,511 |
|
|
| — |
|
|
| 20,511 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,395 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,395 |
|
Restricted stock surrendered due to employee tax liability |
|
| — |
|
|
| (27,106 | ) |
|
| (27,106 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (291 | ) |
|
| (291 | ) |
Repurchase of common stock |
|
| — |
|
|
| (135,400 | ) |
|
| (135,400 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,196 | ) |
|
| (2,196 | ) |
Cash dividends declared (common stock, $0.36/share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,052 | ) |
|
| — |
|
|
| (11,052 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,526 |
|
|
| — |
|
|
| 11,526 |
|
Change in unrealized gain (loss) on securities available for sale, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,047 | ) |
|
| — |
|
|
| — |
|
|
| (3,047 | ) |
Balance at June 30, 2020 |
|
| 33,495,913 |
|
|
| (2,838,284 | ) |
|
| 30,657,629 |
|
| $ | 33 |
|
| $ | 577,211 |
|
| $ | 335 |
|
| $ | 88,859 |
|
| $ | (119,002 | ) |
| $ | 547,436 |
|
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 43,162 | $ | 42,073 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 9,353 | 10,848 | |||||
Share-based compensation expense | 2,071 | 2,329 | |||||
Loan and lease loss provision (income) | 611 | (4,490 | ) | ||||
Gain on sales of securities | (1,473 | ) | (46 | ) | |||
Gain on sales of SBA loans | (6,678 | ) | (4,247 | ) | |||
Loss (gain) on sale of premises and equipment | — | (1,053 | ) | ||||
Disposition gains on PCI loans | (1,702 | ) | (3,411 | ) | |||
Gain on sales of OREO | (482 | ) | — | ||||
Valuation adjustment on OREO | 884 | 721 | |||||
Origination of SBA loans held for sale | (81,716 | ) | (60,248 | ) | |||
Proceeds from sales of SBA loans | 92,715 | 61,494 | |||||
Change in accrued interest receivable | (1,111 | ) | (659 | ) | |||
Change in bank-owned life insurance | (828 | ) | (809 | ) | |||
Change in prepaid expenses and other assets | 1,894 | 3,791 | |||||
Change in income tax asset | (65 | ) | 1,436 | ||||
Change in accrued interest payable | 1,504 | (733 | ) | ||||
Change in accrued expenses and other liabilities | (2,316 | ) | (10,121 | ) | |||
Net cash provided by operating activities | 55,823 | 36,875 | |||||
Cash flows from investing activities: | |||||||
Proceeds from redemption of FRB stock | — | 14,423 | |||||
Proceeds from matured, called and repayment of securities | 51,117 | 98,771 | |||||
Proceeds from sales of securities available for sale | 70,333 | 78,282 | |||||
Proceeds from sales of OREO | 5,710 | 2,306 | |||||
Change in loans and leases receivable, excluding purchases | (191,594 | ) | (229,063 | ) | |||
Purchases of securities | (201,398 | ) | (19,992 | ) | |||
Purchases of premises and equipment | (147 | ) | 982 | ||||
Purchases of loans receivable | (161,253 | ) | (143,189 | ) | |||
Purchases of FRB stock | — | (325 | ) | ||||
Net cash used in investing activities | (427,232 | ) | (197,805 | ) | |||
Cash flows from financing activities: | |||||||
Change in deposits | 489,273 | 261,231 | |||||
Change in overnight FHLB borrowings | (205,000 | ) | (115,000 | ) | |||
Issuance of subordinated debentures | 97,735 | — | |||||
Proceeds from exercise of stock options | 270 | 592 | |||||
Cash paid for treasury shares acquired in respect of share-based compensation | (935 | ) | (502 | ) | |||
Cash dividends paid | (19,030 | ) | (19,558 | ) | |||
Net cash provided by financing activities | 362,313 | 126,763 | |||||
Net decrease in cash and cash equivalents | (9,096 | ) | (34,167 | ) | |||
Cash and cash equivalents at beginning of year | 147,235 | 164,364 | |||||
Cash and cash equivalents at end of period | $ | 138,139 | $ | 130,197 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid (received) during the period for: | |||||||
Interest | $ | 23,078 | $ | 13,759 | |||
Income taxes | $ | 25,146 | $ | 21,654 | |||
Non-cash activities: | |||||||
Transfer of loans receivable to OREO | $ | 143 | $ | 4,318 | |||
Income tax expense related to items in other comprehensive income | $ | (1,902 | ) | $ | (5,593 | ) | |
Change in unrealized gain in accumulated other comprehensive income | $ | (6,059 | ) | $ | (13,518 | ) | |
Cash dividends declared | $ | (19,030 | ) | $ | (15,082 | ) |
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
| Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 11,526 |
|
| $ | 17,328 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 5,018 |
|
|
| 4,694 |
|
Share-based compensation expense |
|
| 1,395 |
|
|
| 1,371 |
|
Credit loss expense |
|
| 40,333 |
|
|
| 17,816 |
|
Gain on sales of securities |
|
| (15,712 | ) |
|
| (1,295 | ) |
Gain on sales of SBA loans |
|
| (1,154 | ) |
|
| (1,986 | ) |
Origination of SBA loans held for sale |
|
| (30,139 | ) |
|
| (27,523 | ) |
Proceeds from sales of SBA loans |
|
| 19,366 |
|
|
| 32,856 |
|
Change in bank-owned life insurance |
|
| (552 | ) |
|
| (561 | ) |
Change in prepaid expenses and other assets |
|
| (34,409 | ) |
|
| (3,267 | ) |
Change in income tax assets |
|
| 4,930 |
|
|
| — |
|
Change in accrued expenses and other liabilities |
|
| 23,324 |
|
|
| (1,501 | ) |
Net cash provided by operating activities |
|
| 23,926 |
|
|
| 37,932 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
| (615,454 | ) |
|
| (230,112 | ) |
Proceeds from matured, called and repayment of securities |
|
| 108,444 |
|
|
| 63,528 |
|
Proceeds from sales of securities available for sale |
|
| 495,566 |
|
|
| 113,306 |
|
Purchases of premises and equipment |
|
| (2,279 | ) |
|
| (515 | ) |
Proceeds from disposition of premises and equipment |
|
| 51 |
|
|
| 3,055 |
|
Proceeds from sales of other real estate owned ("OREO") |
|
| — |
|
|
| 22 |
|
Change in loans receivable, excluding purchases |
|
| (244,973 | ) |
|
| 43,689 |
|
Net cash provided by (used in) investing activities |
|
| (258,645 | ) |
|
| (7,027 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Change in deposits |
|
| 510,819 |
|
|
| 14,833 |
|
Change in overnight borrowings |
|
| (15,000 | ) |
|
| (55,000 | ) |
Proceeds from borrowings |
|
| 176,808 |
|
|
| — |
|
Proceeds from exercise of stock options |
|
| — |
|
|
| 22 |
|
Cash paid for surrender of vested shares due to employee tax liability |
|
| (291 | ) |
|
| (439 | ) |
Repurchase of common stock |
|
| (2,196 | ) |
|
| — |
|
Cash dividends paid |
|
| (11,052 | ) |
|
| (14,846 | ) |
Net cash provided by (used in) financing activities |
|
| 659,088 |
|
|
| (55,430 | ) |
Net increase (decrease) in cash and due from banks |
|
| 424,370 |
|
|
| (24,525 | ) |
Cash and due from banks at beginning of year |
|
| 121,678 |
|
|
| 155,376 |
|
Cash and due from banks at end of period |
| $ | 546,048 |
|
| $ | 130,851 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Interest expense paid |
| $ | 28,804 |
|
| $ | 35,959 |
|
Income taxes paid |
| $ | 99 |
|
| $ | (3,587 | ) |
Non-cash activities: |
|
|
|
|
|
|
|
|
Transfer of loans receivable to other real estate owned |
| $ | 85 |
|
| $ | — |
|
Income tax (expense) benefit related to items of other comprehensive income |
| $ | 1,234 |
|
| $ | (3,418 | ) |
Change in unrealized (gain) loss in accumulated other comprehensive income |
| $ | 4,281 |
|
| $ | (11,872 | ) |
Change in right-of-use asset obtained in exchange for lease liability |
| $ | 17,333 |
|
| $ | 43,110 |
|
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
Hanmi Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Six Months Ended SeptemberJune 30, 20172020 and 2016
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 periodperiods ended SeptemberJune 30, 2017,2020, but are not necessarily indicative of the results that will be reported for the entire year or any other interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The aforementioned unaudited consolidated financial statements are prepared in conformity with GAAP. Such interim consolidated financial statements have been preparedGAAP 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 fiscal year ended December 31, 20162019 (the “2016“2019 Annual Report on Form 10-K”).
The preparation of interim unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. ActualThese estimates and assumptions affect the amounts reported in the unaudited financial statements and disclosures provided, and actual results could differ from those estimates. Material estimates subject to change include, among other items, the determination of allowance for loan and lease losses and various other assets and liabilities measured at fair value.
Descriptions of our significant accounting policies are included in Note 1
-Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements inFASB ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASU 2016-13 made changes to the accounting for available-for sale debt securities.
The Company adopted ASU 2016-13 using the prospective transition approach for debt securities for which the Company would have recognized other-than-temporary impairment prior to January 1, 2020. However, the Company had no such securities and as a result, there was no effect on the balance sheet related to securities from the adoption of ASU 2016-13. As a result, the amortized cost basis remained the same before and after the effective date of ASU 2016-13.
The adoption of ASU 2016-13 resulted in a $17.4 million increase to the beginning balance of the allowance for credit losses, a $0.3 million decrease to the beginning balance of the allowance for off-balance sheet items, and an after-tax charge of $12.2 million to the beginning balance of retained earnings.
According to ASU 2016-13, the Bank was required to measure its expected credit losses of financial assets on a collective (pool) basis when similar risk characteristic(s) exist. The Bank segmented the loans primarily by loan types, considering that the same type of loans share considerable similar risk characteristics, including the collateral type, loan purpose, contract term, amortization and payment structure.
The Company measured expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company used a discounted cash flow (“DCF”) method, Probability of Default / Loss Given Default method (“PD/LGD”), or a Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses.
The Company’s methodologies for estimating the allowance for credit losses considered available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies applied historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that were reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert to historical loss information on a straight-line basis over twelve quarters when it can no longer develop reasonable and supportable forecasts.
The Company has disaggregated the portfolios of financial assets into the following material segments of like-kind loans or leases with similar risk characteristics using the following methodologies:
The Company used the discounted cash flow (DCF) method to estimate allowances for credit losses for the commercial property, construction, and residential real estate loan portfolios, the commercial and industrial loan portfolio, and the consumer loan portfolio. For all loan pools utilizing the DCF method, the Company utilized and forecasted the national unemployment rate as the primary loss driver. The Company also utilized and forecasted either the annualized average return rate from the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index for commercial real estate loans or the one-year percentage change in the S&P/Case-Shiller U.S National Home Price Index (NHPI) for residential real estate loans as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.
For all DCF models at January 1, 2020, the Company determined that four-quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis. The Company leveraged economic projections from the quarterly Federal Open Market Committee (FOMC) and the Federal Reserve Economic Database (FRED) to inform its loss driver forecasts over the four-quarter forecast period. For each of these loan segments, the Company applied an expected loss ratio based on the discounted cash flows adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in the underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, nonperforming and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
The Company used the Probability of Default/Loss Given Default (PD/LGD) method for the SBA portfolio to accommodate the unique nature of these loans. Although the PD/LGD methodology is an element of the DCF model, the stand-alone PD/LGD methodology minimizes complications related to the characteristics of SBA loans. A uniqueness of the SBA portfolio is that the U.S. Small Business Administration policy requires servicers to undertake all reasonable collection efforts before charging-off the loan. As a result, the recovery rate for SBA loans tend to be more volatile and not intuitively correlated to economic factors.
The Company used a Weighted Average Remaining Maturity (WARM) method to estimate expected credit losses for equipment financing agreements or the equipment lease receivables portfolio. The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors. The Company's evaluation of market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated leases, and reasonable and supportable forecasts of economic conditions informed the estimate of qualitative factors.
As allowed by ASU 2016-13, the Company elected to maintain pools of loans accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption.
The Company estimated the allowance for credit losses on loans based on the underlying assets’ amortized cost basis, which was the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of allowance for credit losses.
Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written off and the allowance for credit losses is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the allowance for credit losses when received.
The following table illustrates the allowance for credit losses and the related impact under ASU 2016-13 to the Company as of January 1, 2020.
|
| As Reported Under ASU 2016-13 |
|
| Pre-ASU 2016-13 Adoption |
|
| Impact of ASU 2016-13 Adoption |
| |||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 6,785 |
|
| $ | 4,911 |
|
| $ | 1,873 |
|
Hospitality |
|
| 12,387 |
|
|
| 6,686 |
|
|
| 5,702 |
|
Other |
|
| 13,415 |
|
|
| 8,060 |
|
|
| 5,355 |
|
Total commercial property loans |
|
| 32,587 |
|
|
| 19,657 |
|
|
| 12,930 |
|
Construction loans |
|
| 15,590 |
|
|
| 15,003 |
|
|
| 587 |
|
Residential property loans |
|
| 2,150 |
|
|
| 1,695 |
|
|
| 455 |
|
Total real estate loans |
|
| 50,327 |
|
|
| 36,355 |
|
|
| 13,972 |
|
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial term loans |
|
| 12,175 |
|
|
| 14,077 |
|
|
| (1,903 | ) |
Commercial lines of credit |
|
| 1,358 |
|
|
| 1,887 |
|
|
| (529 | ) |
International loans |
|
| 176 |
|
|
| 242 |
|
|
| (65 | ) |
Total commercial loans |
|
| 13,709 |
|
|
| 16,206 |
|
|
| (2,497 | ) |
Leases receivable |
|
| 14,669 |
|
|
| 8,767 |
|
|
| 5,902 |
|
Consumer loans |
|
| 135 |
|
|
| 80 |
|
|
| 55 |
|
Allowance for credit losses on loans receivable |
| $ | 78,841 |
|
| $ | 61,408 |
|
| $ | 17,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses on off-balance sheet items |
| $ | 2,062 |
|
| $ | 2,398 |
|
| $ | (336 | ) |
The Company used the methodologies described above in the implementation of CECL at January 1, 2020 and through March 31, 2020. The Company, however, adjusted the methodologies for the commercial property, construction, and residential real estate portfolios during the three months ended June 30, 2020 to reflect better the forecast of potential losses arising from the more unstable economic environment due to the COVID-19 pandemic. See Note 3 - Loans for a more detailed description of the changes in the allowance for credit losses methodologies.
FASB ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, Effective January 1, 2020, the Company adopted this standard, which simplifies the subsequent measurement of goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., the current Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Under this ASU, the impairment test is simply the comparison of the fair value of a reporting unit with its carrying amount (the current Step 1), with the impairment charge being the deficit in fair value but not exceeding the total amount of goodwill allocated to that reporting unit. The simplified one-step impairment test applies to all reporting units (including those with zero or negative carrying amounts). An entity was to apply the amendments in this ASU on a prospective basis and was required to disclose the nature of and reason for the change in accounting principle upon transition. The Company’s goodwill arose from the purchase of an equipment leasing portfolio in 2016. The equipment leasing portfolio has grown since acquisition, and the Company has concluded no impairment has occurred.
The outbreak of the novel coronavirus, also known as COVID-19 has resulted in orders for individuals to shelter-in place 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 investment results will depend on future developments, which are highly uncertain and cannot be predicted, 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. 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.
Note 2 — Securities
The following is a summary of securities available for sale as of September 30, 2017 and December 31, 2016:
|
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| |||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gain |
|
| Loss |
|
| Value |
| ||||
|
| (in thousands) |
| |||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 44,982 |
|
| $ | 280 |
|
| $ | — |
|
| $ | 45,262 |
|
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| 413,278 |
|
|
| 422 |
|
|
| (437 | ) |
|
| 413,263 |
|
Collateralized mortgage obligations |
|
| 120,080 |
|
|
| 390 |
|
|
| (176 | ) |
|
| 120,294 |
|
Debt securities |
|
| 77,160 |
|
|
| 9 |
|
|
| (17 | ) |
|
| 77,152 |
|
Total U.S. government agency and sponsored agency obligations |
|
| 610,518 |
|
|
| 821 |
|
|
| (630 | ) |
|
| 610,709 |
|
Total securities available for sale |
| $ | 655,500 |
|
| $ | 1,101 |
|
| $ | (630 | ) |
| $ | 655,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 34,947 |
|
| $ | 259 |
|
| $ | — |
|
|
| 35,206 |
|
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| 406,813 |
|
|
| 4,334 |
|
|
| (347 | ) |
| $ | 410,800 |
|
Collateralized mortgage obligations |
|
| 164,232 |
|
|
| 792 |
|
|
| (432 | ) |
|
| 164,592 |
|
Debt securities |
|
| 23,733 |
|
|
| 168 |
|
|
| (22 | ) |
|
| 23,879 |
|
Total U.S. government agency and sponsored agency obligations |
|
| 594,778 |
|
|
| 5,294 |
|
|
| (801 | ) |
|
| 599,271 |
|
Total securities available for sale |
| $ | 629,725 |
|
| $ | 5,553 |
|
| $ | (801 | ) |
| $ | 634,477 |
|
Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Estimated Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
September 30, 2017 | |||||||||||||||
Mortgage-backed securities (1) (2) | $ | 310,111 | $ | 793 | $ | 1,154 | $ | 309,750 | |||||||
Collateralized mortgage obligations (1) | 107,052 | 16 | 944 | 106,124 | |||||||||||
U.S. government agency securities | 7,499 | — | 42 | 7,457 | |||||||||||
SBA loan pool securities | 4,036 | — | 140 | 3,896 | |||||||||||
Municipal bonds-tax exempt | 146,177 | 2,424 | 77 | 148,524 | |||||||||||
U.S. treasury securities | 153 | — | — | 153 | |||||||||||
Mutual funds | 22,916 | — | 380 | 22,536 | |||||||||||
Total securities available for sale | $ | 597,944 | $ | 3,233 | $ | 2,737 | $ | 598,440 | |||||||
December 31, 2016 | |||||||||||||||
Mortgage-backed securities (1) (2) | $ | 230,489 | $ | 598 | $ | 1,457 | $ | 229,630 | |||||||
Collateralized mortgage obligations (1) | 77,447 | 6 | 1,002 | 76,451 | |||||||||||
U.S. government agency securities | 7,499 | — | 58 | 7,441 | |||||||||||
SBA loan pool securities | 4,356 | — | 210 | 4,146 | |||||||||||
Municipal bonds-tax exempt | 159,789 | 236 | 1,995 | 158,030 | |||||||||||
Municipal bonds-taxable | 13,391 | 319 | 9 | 13,701 | |||||||||||
Corporate bonds | 5,010 | 5 | — | 5,015 | |||||||||||
U.S. treasury securities | 156 | — | — | 156 | |||||||||||
Mutual funds | 22,916 | — | 522 | 22,394 | |||||||||||
Total securities available for sale | $ | 521,053 | $ | 1,164 | $ | 5,253 | $ | 516,964 |
The amortized cost and estimated fair value of securities as of SeptemberJune 30, 2017,2020, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. Mutual funds do not have contractual maturities. However, they are included in the table shown below as over ten years since the Company intends to hold these securities for at least this duration. All other securities are included based on their contractual maturities.
|
| Available for Sale |
| |||||
|
| Amortized |
|
| Estimated |
| ||
|
| Cost |
|
| Fair Value |
| ||
|
| (in thousands) |
| |||||
Within one year |
| $ | 45,358 |
|
| $ | 45,379 |
|
Over one year through five years |
|
| 121,596 |
|
|
| 122,202 |
|
Over five years through ten years |
|
| 48,702 |
|
|
| 48,812 |
|
Over ten years |
|
| 439,844 |
|
|
| 439,578 |
|
Total |
| $ | 655,500 |
|
| $ | 655,971 |
|
CECL (ASU 2016-13) requires the Company to assess its available-for-sales securities portfolio for impairment on an at least quarterly basis. The Company performed an impairment assessment of the Bank’s investment in debt securities in accordance with this standard. This assessment took into account the credit quality of these debt securities and determined that since all were U.S. Treasury obligations, U.S. government agency securities, and U.S. government sponsored agency securities, they all have the backing of the U.S. government, and thus no credit impairment is expected.
Available for Sale | |||||||
Amortized Cost | Estimated Fair Value | ||||||
(in thousands) | |||||||
Within one year | $ | 24,537 | $ | 24,452 | |||
Over one year through five years | 64,646 | 64,519 | |||||
Over five years through ten years | 256,367 | 257,279 | |||||
Over ten years | 252,394 | 252,190 | |||||
Total | $ | 597,944 | $ | 598,440 |
Gross unrealized losses on securities available for sale, the estimated fair value of the related securities and the number of securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of SeptemberJune 30, 20172020 and December 31, 2016:2019:
|
| Holding Period |
| |||||||||||||||||||||||||||||||||
|
| Less than 12 Months |
|
| 12 Months or More |
|
| Total |
| |||||||||||||||||||||||||||
|
| Gross |
|
| Estimated |
|
| Number |
|
| Gross |
|
| Estimated |
|
| Number |
|
| Gross |
|
| Estimated |
|
| Number |
| |||||||||
|
| Unrealized |
|
| Fair |
|
| of |
|
| Unrealized |
|
| Fair |
|
| of |
|
| Unrealized |
|
| Fair |
|
| of |
| |||||||||
|
| Loss |
|
| Value |
|
| Securities |
|
| Loss |
|
| Value |
|
| Securities |
|
| Loss |
|
| Value |
|
| Securities |
| |||||||||
|
| (in thousands, except number of securities) |
| |||||||||||||||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | — |
|
| $ | 29,988 |
|
|
| 4 |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 29,988 |
|
|
| 4 |
|
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| (437 | ) |
|
| 192,403 |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (437 | ) |
|
| 192,403 |
|
|
| 23 |
|
Collateralized mortgage obligations |
|
| (176 | ) |
|
| 46,693 |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
| �� | — |
|
|
| (176 | ) |
|
| 46,693 |
|
|
| 12 |
|
Debt securities |
|
| (17 | ) |
|
| 32,483 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| 32,483 |
|
|
| 5 |
|
Total U.S. government agency and sponsored agency obligations |
|
| (630 | ) |
|
| 271,579 |
|
|
| 40 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (630 | ) |
|
| 271,579 |
|
|
| 40 |
|
Total |
| $ | (630 | ) |
| $ | 301,567 |
|
|
| 44 |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | (630 | ) |
| $ | 301,567 |
|
|
| 44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | (186 | ) |
| $ | 51,261 |
|
|
| 17 |
|
| $ | (161 | ) |
| $ | 18,757 |
|
|
| 14 |
|
| $ | (347 | ) |
| $ | 70,018 |
|
|
| 31 |
|
Collateralized mortgage obligations |
|
| (112 | ) |
|
| 41,419 |
|
|
| 14 |
|
|
| (320 | ) |
|
| 39,936 |
|
|
| 36 |
|
|
| (432 | ) |
|
| 81,355 |
|
|
| 50 |
|
Debt securities |
|
| (20 | ) |
|
| 8,235 |
|
|
| 2 |
|
|
| (3 | ) |
|
| 2,997 |
|
|
| 1 |
|
|
| (22 | ) |
|
| 11,233 |
|
|
| 3 |
|
Total U.S. government agency and sponsored agency obligations |
|
| (318 | ) |
|
| 100,916 |
|
|
| 33 |
|
|
| (483 | ) |
|
| 61,690 |
|
|
| 51 |
|
|
| (801 | ) |
|
| 162,606 |
|
|
| 84 |
|
Total |
| $ | (318 | ) |
| $ | 100,916 |
|
|
| 33 |
|
| $ | (483 | ) |
| $ | 61,690 |
|
|
| 51 |
|
| $ | (801 | ) |
| $ | 162,606 |
|
|
| 84 |
|
Holding Period | ||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||
Gross Unrealized Loss | Estimated Fair Value | Number of Securities | Gross Unrealized Loss | Estimated Fair Value | Number of Securities | Gross Unrealized Loss | Estimated Fair Value | Number of Securities | ||||||||||||||||||||||||
(in thousands, except number of securities) | ||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 787 | $ | 171,919 | 53 | $ | 367 | $ | 21,430 | 9 | $ | 1,154 | $ | 193,349 | 62 | |||||||||||||||||
Collateralized mortgage obligations | 320 | 62,309 | 23 | 624 | 38,940 | 24 | 944 | 101,249 | 47 | |||||||||||||||||||||||
U.S. government agency securities | 42 | 7,457 | 3 | — | — | — | 42 | 7,457 | 3 | |||||||||||||||||||||||
SBA loan pool securities | — | — | — | 140 | 3,896 | 2 | 140 | 3,896 | 2 | |||||||||||||||||||||||
Municipal bonds-tax exempt | 60 | 3,459 | 3 | 17 | 1,704 | 4 | 77 | 5,163 | 7 | |||||||||||||||||||||||
U.S. treasury securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Mutual funds | 254 | 20,632 | 2 | 126 | 1,899 | 4 | 380 | 22,531 | 6 | |||||||||||||||||||||||
Total | $ | 1,463 | $ | 265,776 | 84 | $ | 1,274 | $ | 67,869 | 43 | $ | 2,737 | $ | 333,645 | 127 | |||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 1,345 | $ | 102,647 | 38 | $ | 112 | $ | 11,350 | 3 | $ | 1,457 | $ | 113,997 | 41 | |||||||||||||||||
Collateralized mortgage obligations | 676 | 60,786 | 27 | 326 | 10,579 | 7 | 1,002 | 71,365 | 34 | |||||||||||||||||||||||
U.S. government agency securities | 58 | 7,441 | 3 | — | — | — | 58 | 7,441 | 3 | |||||||||||||||||||||||
SBA loan pool securities | — | — | — | 210 | 4,146 | 2 | 210 | 4,146 | 2 | |||||||||||||||||||||||
Municipal bonds-tax exempt | 1,995 | 125,004 | 54 | — | — | — | 1,995 | 125,004 | 54 | |||||||||||||||||||||||
Municipal bonds-taxable | 9 | 2,904 | 2 | — | — | — | 9 | 2,904 | 2 | |||||||||||||||||||||||
Mutual funds | 413 | 21,478 | 4 | 109 | 916 | 3 | 522 | 22,394 | 7 | |||||||||||||||||||||||
Total | $ | 4,496 | $ | 320,260 | 128 | $ | 757 | $ | 26,991 | 15 | $ | 5,253 | $ | 347,251 | 143 |
The unrealized losses in the U.S. government agency and sponsored agency obligations, were caused by fluctuations in interest rates. These securities thatare not deemed to have been in a continuous unrealized loss position for 12 months or longer as of September 30, 2017 and December 31, 2016 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securitiescredit risk due to their long history with no credit losses, and the various rating agencies have reaffirmed these securities’ long-term investment grade status asexplicit guarantee of September 30, 2017the U.S. government of timely payment of principal and December 31, 2016. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.
Realized gains and losses on sales of securities and proceeds from sales of securities were as follows for the periods indicated:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Gross realized gains on sales of securities |
| $ | 15,712 |
|
| $ | 634 |
|
| $ | 15,712 |
|
| $ | 1,359 |
|
Gross realized losses on sales of securities |
|
| — |
|
|
| (64 | ) |
|
| — |
|
|
| (64 | ) |
Net realized gains on sales of securities |
| $ | 15,712 |
|
| $ | 570 |
|
| $ | 15,712 |
|
| $ | 1,295 |
|
Proceeds from sales of securities |
| $ | 495,566 |
|
|
| 44,119 |
|
| $ | 495,566 |
|
|
| 113,306 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands) | |||||||||||||||
Gross realized gains on sales of securities | $ | 267 | $ | 396 | $ | 1,473 | $ | 396 | |||||||
Gross realized losses on sales of securities | — | (350 | ) | — | (350 | ) | |||||||||
Net realized gains on sales of securities | $ | 267 | $ | 46 | $ | 1,473 | $ | 46 | |||||||
Proceeds from sales of securities | $ | 17,644 | $ | 78,282 | $ | 70,333 | $ | 78,282 |
During the three months ended SeptemberJune 30, 2017,2020 and 2019, there was a $267,000$15.7 million and $570,000 net gain in earnings resulting from salesthe sale of securities. Netsecurities, respectively. A net unrealized gainsgain of $227,000$15.3 million and $792,000 related to these sold securities had previously been recorded in accumulated other comprehensive income as of the beginning of the period. There was a $46,000period in 2020 and 2019, respectively.
During the six months ended June 30, 2020, there were $15.7 million securities sales transactions in net gaingains in earnings resulting from sales of securities during$15.3 million previously recorded for unrealized gains in accumulated other comprehensive income. During the threesix months ended SeptemberJune 30, 2016, that had previously been recorded as2019, there were $1.3 million in net unrealized gains of $321,000 in comprehensive income.
Securities available for sale with market values of $130.7$50.0 million and $133.0$30.2 million as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
Note 3 — Loans and leases
Loans and Leases Receivable Net
Loans and leases receivable consisted of the following as of the dates indicated:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
| (in thousands) |
| |||||
Real estate loans: |
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
Retail |
| $ | 808,157 |
|
| $ | 869,302 |
|
Hospitality |
|
| 882,812 |
|
|
| 922,288 |
|
Other (1) |
|
| 1,504,916 |
|
|
| 1,358,432 |
|
Total commercial property loans |
|
| 3,195,885 |
|
|
| 3,150,022 |
|
Construction |
|
| 70,357 |
|
|
| 76,455 |
|
Residential property |
|
| 354,064 |
|
|
| 402,028 |
|
Total real estate loans |
|
| 3,620,306 |
|
|
| 3,628,505 |
|
Commercial and industrial loans |
|
| 730,399 |
|
|
| 484,093 |
|
Leases receivable |
|
| 462,811 |
|
|
| 483,879 |
|
Consumer loans (2) |
|
| 12,126 |
|
|
| 13,670 |
|
Loans receivable |
|
| 4,825,642 |
|
|
| 4,610,147 |
|
Allowance for credit losses |
|
| (86,330 | ) |
|
| (61,408 | ) |
Loans receivable, net |
| $ | 4,739,312 |
|
| $ | 4,548,739 |
|
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
Non-PCI Loans and Leases | PCI Loans | Total | Non-PCI Loans and Leases | PCI Loans | Total | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Real estate loans: | |||||||||||||||||||||||
Commercial property | |||||||||||||||||||||||
Retail | $ | 916,236 | $ | 1,587 | $ | 917,823 | $ | 857,629 | $ | 2,324 | $ | 859,953 | |||||||||||
Hospitality | 731,562 | 1,664 | 733,226 | 649,540 | 1,618 | 651,158 | |||||||||||||||||
Gas station | 245,042 | 2,388 | 247,430 | 260,187 | 2,692 | 262,879 | |||||||||||||||||
Other (1) | 1,144,176 | 2,013 | 1,146,189 | 1,107,589 | 2,067 | 1,109,656 | |||||||||||||||||
Construction | 64,263 | — | 64,263 | 55,962 | — | 55,962 | |||||||||||||||||
Residential property | 429,669 | 958 | 430,627 | 337,791 | 976 | 338,767 | |||||||||||||||||
Total real estate loans | 3,530,948 | 8,610 | 3,539,558 | 3,268,698 | 9,677 | 3,278,375 | |||||||||||||||||
Commercial and industrial loans: | |||||||||||||||||||||||
Commercial term | 170,891 | 51 | 170,942 | 138,032 | 136 | 138,168 | |||||||||||||||||
Commercial lines of credit | 149,937 | — | 149,937 | 136,231 | — | 136,231 | |||||||||||||||||
International loans | 43,577 | — | 43,577 | 25,821 | — | 25,821 | |||||||||||||||||
Total commercial and industrial loans | 364,405 | 51 | 364,456 | 300,084 | 136 | 300,220 | |||||||||||||||||
Leases receivable | 272,271 | — | 272,271 | 243,294 | — | 243,294 | |||||||||||||||||
Consumer loans (2) | 19,027 | 43 | 19,070 | 22,830 | 50 | 22,880 | |||||||||||||||||
Loans and leases receivable | 4,186,651 | 8,704 | 4,195,355 | 3,834,906 | 9,863 | 3,844,769 | |||||||||||||||||
Allowance for loan and lease losses | (31,698 | ) | (794 | ) | (32,492 | ) | (31,458 | ) | (971 | ) | (32,429 | ) | |||||||||||
Loans and leases receivable, net | $ | 4,154,953 | $ | 7,910 | $ | 4,162,863 | $ | 3,803,448 | $ | 8,892 | $ | 3,812,340 |
(1) | |
Includes, among other types, mixed-use, apartment, office, industrial, gas stations, faith-based facilities and warehouse; all other property types |
(2) | Consumer loans include home equity lines of credit of |
The CARES Act (the Coronavirus Aid, Relief, and Economic Security Act) was passed by Congress and signed into law by President Trump on March 27, 2020. Among other benefits, 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 after the COVID-19 crisis has abated; and (b) allowing financial institutions to temporarily modify loan terms by deferring loan payments, loan fees, etc. on a short-term basis without considering them Troubled Debt Restructures.
At June 30, 2020, there were $301.8 million of PPP loans included in commercial and industrial loans in the table above. In addition, at June 30, 2020, there were $1.4 billion of loans modified under Section 4013 of the CARES Act.
Accrued interest on loans and leases receivable was $9.5$20.3 million and $8.2$10.0 million at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. At SeptemberJune 30, 20172020 and December 31, 2016,2019, loans receivable of $1.1$2.4 billion and $1.0$1.4 billion, respectively, were pledged to secure borrowing facilitiesadvances from the FHLB.
Loans Held for Sale
The following is the activity for SBA loans held for sale for the three months ended SeptemberJune 30, 20172020 and 2016:2019:
|
| Real Estate |
|
| Commercial and Industrial |
|
| Total |
| |||
|
| (in thousands) |
| |||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Originations and transfers |
|
| 12,661 |
|
|
| 5,281 |
|
|
| 17,942 |
|
Balance at end of period |
| $ | 12,661 |
|
| $ | 5,281 |
|
| $ | 17,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 6,500 |
|
| $ | 640 |
|
| $ | 7,140 |
|
Originations |
|
| 6,650 |
|
|
| 7,650 |
|
|
| 14,300 |
|
Sales |
|
| (10,474 | ) |
|
| (4,937 | ) |
|
| (15,411 | ) |
Balance at end of period |
| $ | 2,676 |
|
| $ | 3,353 |
|
| $ | 6,029 |
|
SBA Loans Held for Sale | |||||||||||
Real Estate | Commercial and Industrial | Total | |||||||||
(in thousands) | |||||||||||
September 30, 2017 | |||||||||||
Balance at beginning of period | $ | 8,817 | $ | 2,132 | $ | 10,949 | |||||
Originations | 16,326 | 11,723 | 28,049 | ||||||||
Sales | (20,593 | ) | (11,926 | ) | (32,519 | ) | |||||
Principal payoffs and amortization | (4 | ) | (6 | ) | (10 | ) | |||||
Balance at end of period | $ | 4,546 | $ | 1,923 | $ | 6,469 | |||||
September 30, 2016 | |||||||||||
Balance at beginning of period | $ | 9,293 | $ | 3,540 | $ | 12,833 | |||||
Originations | 11,272 | 6,417 | 17,689 | ||||||||
Sales | (15,968 | ) | (8,122 | ) | (24,090 | ) | |||||
Principal payoffs and amortization | (2 | ) | (5 | ) | (7 | ) | |||||
Balance at end of period | $ | 4,595 | $ | 1,830 | $ | 6,425 |
The following is the activity for SBA loans held for sale for the ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:
|
| Real Estate |
|
| Commercial and Industrial |
|
| Total |
| |||
|
| (in thousands) |
| |||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 2,943 |
|
| $ | 3,077 |
|
| $ | 6,020 |
|
Originations and transfers |
|
| 19,155 |
|
|
| 10,984 |
|
|
| 30,139 |
|
Sales |
|
| (9,432 | ) |
|
| (8,780 | ) |
|
| (18,212 | ) |
Principal payoffs and amortization |
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Balance at end of period |
| $ | 12,661 |
|
| $ | 5,281 |
|
| $ | 17,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 5,194 |
|
| $ | 4,196 |
|
| $ | 9,390 |
|
Originations |
|
| 15,713 |
|
|
| 11,810 |
|
|
| 27,523 |
|
Sales |
|
| (18,229 | ) |
|
| (12,641 | ) |
|
| (30,870 | ) |
Principal payoffs and amortization |
|
| (2 | ) |
|
| (12 | ) |
|
| (14 | ) |
Balance at end of period |
| $ | 2,676 |
|
| $ | 3,353 |
|
| $ | 6,029 |
|
SBA Loans Held for Sale | |||||||||||
Real Estate | Commercial and Industrial | Total | |||||||||
(in thousands) | |||||||||||
September 30, 2017 | |||||||||||
Balance at beginning of period | $ | 7,410 | $ | 1,906 | $ | 9,316 | |||||
Originations | 51,090 | 30,626 | 81,716 | ||||||||
Sales | (53,930 | ) | (30,586 | ) | (84,516 | ) | |||||
Principal payoffs and amortization | (24 | ) | (23 | ) | (47 | ) | |||||
Balance at end of period | $ | 4,546 | $ | 1,923 | $ | 6,469 | |||||
September 30, 2016 | |||||||||||
Balance at beginning of period | $ | 840 | $ | 2,034 | $ | 2,874 | |||||
Originations | 40,120 | 20,128 | 60,248 | ||||||||
Sales | (36,361 | ) | (20,304 | ) | (56,665 | ) | |||||
Principal payoffs and amortization | (4 | ) | (28 | ) | (32 | ) | |||||
Balance at end of period | $ | 4,595 | $ | 1,830 | $ | 6,425 |
Allowance for Loan and LeaseCredit Losses
The Company’s estimate of the allowance for loan and leasecredit losses was as followsat June 30, 2020 reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.
At June 30, 2020, the Company used the discounted cash flow (DCF) method to estimate allowances for credit losses for the periods indicated:
As of and for the Three Months Ended | |||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||
Non-PCI Loans and Leases | PCI Loans | Total | Non-PCI Loans and Leases | PCI Loans | Total | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Allowance for loan and lease losses: | |||||||||||||||||||||||
Balance at beginning of period | $ | 33,038 | $ | 720 | $ | 33,758 | $ | 34,259 | $ | 5,448 | $ | 39,707 | |||||||||||
Charge-offs | (2,405 | ) | — | (2,405 | ) | (111 | ) | (5 | ) | (116 | ) | ||||||||||||
Recoveries on loans and leases previously charged off | 871 | — | 871 | 831 | — | 831 | |||||||||||||||||
Net loan and lease (charge-offs) recoveries | (1,534 | ) | — | (1,534 | ) | 720 | (5 | ) | 715 | ||||||||||||||
Loan and lease loss provision (income) | 194 | 74 | 268 | (1,540 | ) | 90 | (1,450 | ) | |||||||||||||||
Balance at end of period | $ | 31,698 | $ | 794 | $ | 32,492 | $ | 33,439 | $ | 5,533 | $ | 38,972 |
Management determined that, due to model limitations, the regression model that supports the DCF calculation for the SBA and commercial property, construction, and residential real estate portfolios does not take into account the volatile nature of
As of and for the Nine Months Ended | |||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||
Non-PCI Loans and Leases | PCI Loans | Total | Non-PCI Loans and Leases | PCI Loans | Total | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Allowance for loan and lease losses: | |||||||||||||||||||||||
Balance at beginning of period | $ | 31,458 | $ | 971 | $ | 32,429 | $ | 37,494 | $ | 5,441 | $ | 42,935 | |||||||||||
Charge-offs | (3,256 | ) | — | (3,256 | ) | (1,410 | ) | (142 | ) | (1,552 | ) | ||||||||||||
Recoveries on loans and leases previously charged off | 2,709 | — | 2,709 | 2,079 | — | 2,079 | |||||||||||||||||
Net loan and lease (charge-offs) recoveries | (547 | ) | — | (547 | ) | 669 | (142 | ) | 527 | ||||||||||||||
Loan and lease loss provision (income) | 787 | (177 | ) | 610 | (4,724 | ) | 234 | (4,490 | ) | ||||||||||||||
Balance at end of period | $ | 31,698 | $ | 794 | $ | 32,492 | $ | 33,439 | $ | 5,533 | $ | 38,972 |
COVID-19 on these portfolios, as well as the government assistance programs based on the maturities. As a result, at June 30, 2020, the Company utilized the Probability of Default/Loss Given Default (PD/LGD) method for the SBA and commercial property, construction, and residential real estate portfolios. The Company previously applied the DCF method to the real estate secured portfolios in the implementation of CECL at January 1, 2020 and through March 31, 2020 and determined that the change from DCF to PD/LGD was not material. See Note 1 – Organization and Basis of Presentation for a further description of the methodologies applied at the inception of CECL and during the three months ended March 31, 2020. The Company used historical periods that included an economic downturn to derive historical losses for better alignment in the estimation of expected losses. The Company leveraged Frye-Jacobs modeled LGD rates for loan segments with no historical losses. In addition, for those loans granted a loan modification due to COVID-19, the Company used historical periods under PD/LGD as of March 31, 2020 to reflect the moratorium on TDRs under Section 4013 of the CARES Act. The PD/LGD method incorporates a forecast into loss estimates using a qualitative adjustment. Qualitative loss factors were based on the Company's judgment of company, market, industry or business specific data, changes in the underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, nonperforming and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
The Company used a Weighted Average Remaining Maturity (WARM) method to estimate expected credit losses for equipment financing agreements or the equipment lease receivables portfolio. The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors. The Company's evaluation of market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated leases, and reasonable and supportable forecasts of economic conditions inform the estimate of qualitative factors.
Management believes the allowance for loan and leasecredit losses is appropriate to provide for probableestimated losses inherent in the loan and leaseloans receivable portfolio. However, the allowance is an estimate that is inherently uncertain and depends on the outcome of future events. Management’s methodologies for determining such estimates are basedconsists of measuring expected credit losses of financial assets on previous loss experience; volume, growtha collective (pool) basis when similar risk characteristic(s) exist. The Bank segments the loans primarily by loan types, considering that the same type of loans share considerable similar risk characteristics, including the collateral type, loan purpose, contract term, amortization and composition of the loan and lease portfolio; the value of collateral; and current economic conditions.payment structure. Our lending is concentrated generally in real estate loans, commercial loans and leases and SBA and trade finance lendingloans to small and middle market businesses primarily in California, Texas, Illinois and Illinois.
The following tables detailtable details the information on the allowance for loan and leasecredit losses by portfolio segment as of and for the three and nine months ended SeptemberJune 30, 20172020 and 2016:
|
| Real Estate |
|
| Commercial and Industrial |
|
| Leases Receivable |
|
| Consumer |
|
| Unallocated |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 38,983 |
|
| $ | 11,588 |
|
| $ | 15,780 |
|
| $ | 149 |
|
| $ | — |
|
|
| 66,500 |
|
Less loans charged off |
|
| 91 |
|
|
| 438 |
|
|
| 1,044 |
|
|
| — |
|
|
| — |
|
|
| 1,573 |
|
Recoveries on loans receivable previously charged off |
|
| (98 | ) |
|
| (60 | ) |
|
| (114 | ) |
|
| — |
|
|
| — |
|
|
| (272 | ) |
Provision for credit losses |
|
| 17,226 |
|
|
| 2,178 |
|
|
| 1,674 |
|
|
| 53 |
|
|
| — |
|
|
| 21,131 |
|
Ending balance |
| $ | 56,216 |
|
| $ | 13,388 |
|
| $ | 16,524 |
|
| $ | 202 |
|
| $ | — |
|
| $ | 86,330 |
|
Individually evaluated for impairment |
| $ | 2,807 |
|
| $ | 123 |
|
| $ | 2,262 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 5,194 |
|
Collectively evaluated for impairment |
| $ | 53,409 |
|
| $ | 13,265 |
|
| $ | 14,262 |
|
| $ | 200 |
|
| $ | — |
|
| $ | 81,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
| $ | 3,620,306 |
|
| $ | 730,399 |
|
| $ | 462,811 |
|
| $ | 12,126 |
|
| $ | — |
|
| $ | 4,825,642 |
|
Individually evaluated for impairment |
| $ | 48,302 |
|
| $ | 13,771 |
|
| $ | 8,456 |
|
| $ | 1,280 |
|
| $ | — |
|
| $ | 71,809 |
|
Collectively evaluated for impairment |
| $ | 3,572,004 |
|
| $ | 716,628 |
|
| $ | 454,355 |
|
| $ | 10,846 |
|
| $ | — |
|
| $ | 4,753,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 18,306 |
|
| $ | 8,711 |
|
| $ | 5,580 |
|
| $ | 89 |
|
| $ | 210 |
|
| $ | 32,896 |
|
Less loans charged off |
|
| — |
|
|
| 562 |
|
|
| 974 |
|
|
| — |
|
|
| — |
|
|
| 1,536 |
|
Recoveries on loans receivable previously charged off |
|
| (1,133 | ) |
|
| (89 | ) |
|
| (105 | ) |
|
| — |
|
|
| — |
|
|
| (1,327 | ) |
Provision for credit losses |
|
| 14,565 |
|
|
| 997 |
|
|
| 1,357 |
|
|
| (10 | ) |
|
| (210 | ) |
|
| 16,699 |
|
Ending balance |
| $ | 34,004 |
|
| $ | 9,235 |
|
| $ | 6,068 |
|
| $ | 79 |
|
| $ | — |
|
| $ | 49,386 |
|
Individually evaluated for impairment |
| $ | 14,724 |
|
| $ | 3,072 |
|
| $ | 662 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 18,459 |
|
Collectively evaluated for impairment |
| $ | 19,280 |
|
| $ | 6,163 |
|
| $ | 5,406 |
|
| $ | 78 |
|
| $ | — |
|
| $ | 30,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
| $ | 3,671,463 |
|
| $ | 409,502 |
|
| $ | 460,519 |
|
| $ | 14,318 |
|
| $ | — |
|
| $ | 4,555,802 |
|
Individually evaluated for impairment |
| $ | 39,885 |
|
| $ | 21,706 |
|
| $ | 3,233 |
|
| $ | 1,351 |
|
| $ | — |
|
| $ | 66,175 |
|
Collectively evaluated for impairment |
| $ | 3,631,578 |
|
| $ | 387,796 |
|
| $ | 457,286 |
|
| $ | 12,967 |
|
| $ | — |
|
| $ | 4,489,627 |
|
The following table details the information on the allowance for credit losses by portfolio segment as of and for the six months ended June 30, 2020 and 2019:
Real Estate | Commercial and Industrial | Leases Receivable | Consumer | Unallocated | Total | ||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
As of and for the Three Months Ended September 30, 2017 | |||||||||||||||||||||||
Allowance for loan and lease losses on non-PCI loans and leases: | |||||||||||||||||||||||
Beginning balance | $ | 22,762 | $ | 6,979 | 2,033 | $ | 87 | $ | 1,177 | $ | 33,038 | ||||||||||||
Charge-offs | (146 | ) | (1,976 | ) | (283 | ) | — | — | (2,405 | ) | |||||||||||||
Recoveries on loans and leases previously charged off | 343 | 308 | 220 | — | — | 871 | |||||||||||||||||
Loan and lease loss provision (income) | (3,374 | ) | 1,183 | 2,867 | (23 | ) | (459 | ) | 194 | ||||||||||||||
Ending balance | $ | 19,585 | $ | 6,494 | $ | 4,837 | $ | 64 | $ | 718 | $ | 31,698 | |||||||||||
Ending balance: individually evaluated for impairment | $ | 3,882 | $ | 531 | $ | 2,008 | $ | — | $ | — | $ | 6,421 | |||||||||||
Ending balance: collectively evaluated for impairment | $ | 15,703 | $ | 5,963 | $ | 2,829 | $ | 64 | $ | 718 | $ | 25,277 | |||||||||||
Non-PCI loans and leases receivable: | |||||||||||||||||||||||
Ending balance | $ | 3,530,948 | $ | 364,405 | $ | 272,271 | $ | 19,027 | $ | — | $ | 4,186,651 | |||||||||||
Ending balance: individually evaluated for impairment | $ | 19,466 | $ | 3,610 | $ | 3,378 | $ | 1,045 | $ | — | $ | 27,499 | |||||||||||
Ending balance: collectively evaluated for impairment | $ | 3,511,482 | $ | 360,795 | $ | 268,893 | $ | 17,982 | $ | — | $ | 4,159,152 | |||||||||||
Allowance for loan losses on PCI loans: | |||||||||||||||||||||||
Beginning balance | $ | 671 | $ | 41 | $ | — | $ | 8 | $ | — | $ | 720 | |||||||||||
Charge-offs | — | — | — | — | — | — | |||||||||||||||||
Loan loss provision (income) | 81 | — | — | (7 | ) | — | 74 | ||||||||||||||||
Ending balance | $ | 752 | $ | 41 | $ | — | $ | 1 | $ | — | $ | 794 | |||||||||||
PCI loans receivable: | |||||||||||||||||||||||
Ending balance: acquired with deteriorated credit quality | $ | 8,610 | $ | 51 | $ | — | $ | 43 | $ | — | $ | 8,704 |
|
| Real Estate |
|
| Commercial and Industrial |
|
| Leases Receivable |
|
| Consumer |
|
| Unallocated |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 36,355 |
|
| $ | 16,206 |
|
| $ | 8,767 |
|
| $ | 80 |
|
| $ | — |
|
| $ | 61,408 |
|
Adjustment related to adoption of ASU 2016-13 |
|
| 13,972 |
|
|
| (2,497 | ) |
|
| 5,902 |
|
|
| 56 |
|
|
| — |
|
|
| 17,433 |
|
Adjusted balance as of January 1, 2020 |
|
| 50,327 |
|
|
| 13,709 |
|
|
| 14,669 |
|
|
| 136 |
|
|
| — |
|
|
| 78,841 |
|
Less loans charged off |
|
| 14,233 |
|
|
| 12,589 |
|
|
| 2,224 |
|
|
| — |
|
|
| — |
|
|
| 29,046 |
|
Recoveries on loans receivable previously charged off |
|
| (156 | ) |
|
| (144 | ) |
|
| (188 | ) |
|
| — |
|
|
| — |
|
|
| (488 | ) |
Provision for credit losses |
|
| 19,966 |
|
|
| 12,124 |
|
|
| 3,891 |
|
|
| 66 |
|
|
| — |
|
|
| 36,047 |
|
Ending balance |
| $ | 56,216 |
|
| $ | 13,388 |
|
| $ | 16,524 |
|
| $ | 202 |
|
| $ | — |
|
| $ | 86,330 |
|
Individually evaluated for impairment |
| $ | 2,807 |
|
| $ | 123 |
|
| $ | 2,262 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 5,194 |
|
Collectively evaluated for impairment |
| $ | 53,409 |
|
| $ | 13,265 |
|
| $ | 14,262 |
|
| $ | 200 |
|
| $ | — |
|
| $ | 81,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
| $ | 3,620,306 |
|
| $ | 730,399 |
|
| $ | 462,811 |
|
| $ | 12,126 |
|
| $ | — |
|
| $ | 4,825,642 |
|
Individually evaluated for impairment |
| $ | 48,302 |
|
| $ | 13,771 |
|
| $ | 8,456 |
|
| $ | 1,280 |
|
| $ | — |
|
| $ | 71,809 |
|
Collectively evaluated for impairment |
| $ | 3,572,004 |
|
| $ | 716,628 |
|
| $ | 454,355 |
|
| $ | 10,846 |
|
| $ | — |
|
| $ | 4,753,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 18,384 |
|
| $ | 7,162 |
|
| $ | 6,303 |
|
| $ | 98 |
|
| $ | 27 |
|
| $ | 31,974 |
|
Less loans charged off |
|
| 113 |
|
|
| 695 |
|
|
| 1,826 |
|
|
| — |
|
|
| — |
|
|
| 2,634 |
|
Recoveries on loans receivable previously charged off |
|
| (1,563 | ) |
|
| (471 | ) |
|
| (196 | ) |
|
| — |
|
|
| — |
|
|
| (2,230 | ) |
Provision for credit losses |
|
| 14,170 |
|
|
| 2,297 |
|
|
| 1,395 |
|
|
| (19 | ) |
|
| (27 | ) |
|
| 17,816 |
|
Ending balance |
| $ | 34,004 |
|
| $ | 9,235 |
|
| $ | 6,068 |
|
| $ | 79 |
|
| $ | — |
|
| $ | 49,386 |
|
Individually evaluated for impairment |
| $ | 14,724 |
|
| $ | 3,072 |
|
| $ | 662 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 18,459 |
|
Collectively evaluated for impairment |
| $ | 19,280 |
|
| $ | 6,163 |
|
| $ | 5,406 |
|
| $ | 78 |
|
| $ | — |
|
| $ | 30,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
| $ | 3,671,463 |
|
| $ | 409,502 |
|
| $ | 460,519 |
|
| $ | 14,318 |
|
| $ | — |
|
| $ | 4,555,802 |
|
Individually evaluated for impairment |
| $ | 39,885 |
|
| $ | 21,706 |
|
| $ | 3,233 |
|
| $ | 1,351 |
|
| $ | — |
|
| $ | 66,175 |
|
Collectively evaluated for impairment |
| $ | 3,631,578 |
|
| $ | 387,796 |
|
| $ | 457,286 |
|
| $ | 12,967 |
|
| $ | — |
|
| $ | 4,489,627 |
|
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.
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
| Allowance |
|
|
|
|
|
| Total |
|
|
|
|
|
| Allowance |
|
|
|
|
|
| Total |
|
|
|
|
| ||||
|
| Amount |
|
| Percentage |
|
| Loans |
|
| Percentage |
|
| Amount |
|
| Percentage |
|
| Loans |
|
| Percentage |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 7,341 |
|
|
| 8.5 | % |
| $ | 808,157 |
|
|
| 16.7 | % |
| $ | 4,911 |
|
|
| 8.0 | % |
| $ | 869,302 |
|
|
| 18.9 | % |
Hospitality |
|
| 11,984 |
|
|
| 13.9 | % |
|
| 882,812 |
|
|
| 18.3 | % |
|
| 6,686 |
|
|
| 10.9 | % |
|
| 922,288 |
|
|
| 20.0 | % |
Other |
|
| 24,920 |
|
|
| 28.9 | % |
|
| 1,504,916 |
|
|
| 31.2 | % |
|
| 8,060 |
|
|
| 13.1 | % |
|
| 1,358,432 |
|
|
| 29.4 | % |
Total commercial property loans |
|
| 44,245 |
|
|
| 51.3 | % |
|
| 3,195,885 |
|
|
| 66.2 | % |
|
| 19,657 |
|
|
| 32.0 | % |
|
| 3,150,022 |
|
|
| 68.3 | % |
Construction |
|
| 9,331 |
|
|
| 10.8 | % |
|
| 70,357 |
|
|
| 1.5 | % |
|
| 15,003 |
|
|
| 24.4 | % |
|
| 76,455 |
|
|
| 1.7 | % |
Residential property |
|
| 2,640 |
|
|
| 3.1 | % |
|
| 354,064 |
|
|
| 7.3 | % |
|
| 1,695 |
|
|
| 2.8 | % |
|
| 402,028 |
|
|
| 8.7 | % |
Total real estate loans |
|
| 56,216 |
|
|
| 65.2 | % |
|
| 3,620,306 |
|
|
| 75.0 | % |
|
| 36,355 |
|
|
| 59.2 | % |
|
| 3,628,505 |
|
|
| 78.7 | % |
Commercial and industrial loans |
|
| 13,387 |
|
|
| 15.5 | % |
|
| 730,399 |
|
|
| 15.1 | % |
|
| 16,206 |
|
|
| 26.4 | % |
|
| 484,093 |
|
|
| 10.5 | % |
Leases receivable |
|
| 16,525 |
|
|
| 19.1 | % |
|
| 462,811 |
|
|
| 9.6 | % |
|
| 8,767 |
|
|
| 14.3 | % |
|
| 483,879 |
|
|
| 10.5 | % |
Consumer loans |
|
| 202 |
|
|
| 0.2 | % |
|
| 12,126 |
|
|
| 0.3 | % |
|
| 80 |
|
|
| 0.1 | % |
|
| 13,670 |
|
|
| 0.3 | % |
Total |
| $ | 86,330 |
|
|
| 100.0 | % |
| $ | 4,825,642 |
|
|
| 100.0 | % |
| $ | 61,408 |
|
|
| 100.0 | % |
| $ | 4,610,147 |
|
|
| 100.0 | % |
Real Estate | Commercial and Industrial | Leases Receivable | Consumer | Unallocated | Total | ||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||
As of and for the Three Months Ended September 30, 2016 | |||||||||||||||||||||||||
Allowance for loan and lease losses on non-PCI loans and leases: | |||||||||||||||||||||||||
Beginning balance | $ | 28,116 | $ | 5,502 | — | $ | 242 | $ | 399 | $ | 34,259 | ||||||||||||||
Charge-offs | (18 | ) | (93 | ) | — | — | — | (111 | ) | ||||||||||||||||
Recoveries on loans and leases previously charged off | 337 | 494 | — | — | — | 831 | |||||||||||||||||||
Loan and lease loss provision (income) | (479 | ) | (622 | ) | — | (40 | ) | (399 | ) | (1,540 | ) | ||||||||||||||
Ending balance | $ | 27,956 | $ | 5,281 | $ | — | $ | 202 | $ | — | $ | 33,439 | |||||||||||||
Ending balance: individually evaluated for impairment | $ | 2,723 | $ | 495 | $ | — | $ | — | $ | — | $ | 3,218 | |||||||||||||
Ending balance: collectively evaluated for impairment | $ | 25,233 | $ | 4,786 | $ | — | $ | — | $ | 202 | $ | — | $ | 30,221 | |||||||||||
Non-PCI loans and leases receivable: | |||||||||||||||||||||||||
Ending balance | $ | 3,195,332 | $ | 319,521 | $ | — | $ | 22,266 | $ | — | $ | 3,537,119 | |||||||||||||
Ending balance: individually evaluated for impairment | $ | 18,522 | $ | 4,705 | $ | — | $ | 680 | $ | — | $ | 23,907 | |||||||||||||
Ending balance: collectively evaluated for impairment | $ | 3,176,810 | $ | 314,816 | $ | — | $ | 21,586 | $ | — | $ | 3,513,212 | |||||||||||||
Allowance for loan losses on PCI loans: | |||||||||||||||||||||||||
Beginning balance | $ | 5,400 | $ | 41 | $ | — | $ | 7 | $ | — | $ | 5,448 | |||||||||||||
Charge-offs | (5 | ) | — | — | — | — | (5 | ) | |||||||||||||||||
Loan loss provision (income) | 89 | 1 | — | — | — | 90 | |||||||||||||||||||
Ending balance | $ | 5,484 | $ | 42 | $ | — | $ | 7 | $ | — | $ | 5,533 | |||||||||||||
PCI loans receivable: | |||||||||||||||||||||||||
Ending balance: acquired with deteriorated credit quality | $ | 15,355 | $ | 135 | $ | — | $ | 50 | $ | — | $ | 15,540 |
Real Estate | Commercial and Industrial | Leases Receivable | Consumer | Unallocated | Total | ||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
As of and for the Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
Allowance for loan and lease losses on non-PCI loans and leases: | |||||||||||||||||||||||
Beginning balance | $ | 25,212 | $ | 5,582 | 307 | $ | 191 | $ | 166 | $ | 31,458 | ||||||||||||
Charge-offs | (289 | ) | (2,017 | ) | (950 | ) | — | — | (3,256 | ) | |||||||||||||
Recoveries on loans and leases previously charged off | 1,434 | 1,021 | 239 | 15 | — | 2,709 | |||||||||||||||||
Loan and lease loss provision (income) | (6,772 | ) | 1,908 | 5,241 | (142 | ) | 552 | 787 | |||||||||||||||
Ending balance | $ | 19,585 | $ | 6,494 | $ | 4,837 | $ | 64 | $ | 718 | $ | 31,698 | |||||||||||
Ending balance: individually evaluated for impairment | $ | 3,882 | $ | 531 | $ | 2,008 | $ | — | $ | — | $ | 6,421 | |||||||||||
Ending balance: collectively evaluated for impairment | $ | 15,703 | $ | 5,963 | $ | 2,829 | $ | 64 | $ | 718 | $ | 25,277 | |||||||||||
Non-PCI loans and leases receivable: | |||||||||||||||||||||||
Ending balance | $ | 3,530,948 | $ | 364,405 | $ | 272,271 | $ | 19,027 | $ | — | $ | 4,186,651 | |||||||||||
Ending balance: individually evaluated for impairment | $ | 19,466 | $ | 3,610 | $ | 3,378 | $ | 1,045 | $ | — | $ | 27,499 | |||||||||||
Ending balance: collectively evaluated for impairment | $ | 3,511,482 | $ | 360,795 | $ | 268,893 | $ | 17,982 | $ | — | $ | 4,159,152 | |||||||||||
Allowance for loan losses on PCI loans: | |||||||||||||||||||||||
Beginning balance | $ | 922 | $ | 41 | $ | — | $ | 8 | $ | — | $ | 971 | |||||||||||
Charge-offs | — | — | — | — | — | — | |||||||||||||||||
Loan loss provision (income) | (170 | ) | — | — | (7 | ) | — | (177 | ) | ||||||||||||||
Ending balance | $ | 752 | $ | 41 | $ | — | $ | 1 | $ | — | $ | 794 | |||||||||||
PCI loans receivable: | |||||||||||||||||||||||
Ending balance: acquired with deteriorated credit quality | $ | 8,610 | $ | 51 | $ | — | $ | 43 | $ | — | $ | 8,704 |
Real Estate | Commercial and Industrial | Leases Receivable | Consumer | Unallocated | Total | ||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
As of and for the Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
Allowance for loan and lease losses on non-PCI loans and leases: | |||||||||||||||||||||||
Beginning balance | $ | 29,800 | $ | 7,081 | — | $ | 242 | $ | 371 | $ | 37,494 | ||||||||||||
Charge-offs | (709 | ) | (701 | ) | — | — | — | (1,410 | ) | ||||||||||||||
Recoveries on loans and leases previously charged off | 527 | 1,499 | — | 53 | — | 2,079 | |||||||||||||||||
Loan and lease loss provision (income) | (1,662 | ) | (2,598 | ) | — | (93 | ) | (371 | ) | (4,724 | ) | ||||||||||||
Ending balance | $ | 27,956 | $ | 5,281 | $ | — | $ | 202 | $ | ��� | $ | 33,439 | |||||||||||
Ending balance: individually evaluated for impairment | $ | 2,723 | $ | 495 | $ | — | $ | — | $ | — | $ | 3,218 | |||||||||||
Ending balance: collectively evaluated for impairment | $ | 25,233 | $ | 4,786 | $ | — | $ | 202 | $ | — | $ | 30,221 | |||||||||||
Non-PCI loans and leases receivable: | |||||||||||||||||||||||
Ending balance | $ | 3,195,332 | $ | 319,521 | $ | — | $ | 22,266 | $ | — | $ | 3,537,119 | |||||||||||
Ending balance: individually evaluated for impairment | $ | 18,522 | $ | 4,705 | $ | — | $ | 680 | $ | — | $ | 23,907 | |||||||||||
Ending balance: collectively evaluated for impairment | $ | 3,176,810 | $ | 314,816 | $ | — | $ | 21,586 | $ | — | $ | 3,513,212 | |||||||||||
Allowance for loan losses on PCI loans: | |||||||||||||||||||||||
Beginning balance | $ | 5,397 | $ | 42 | $ | — | $ | 2 | $ | — | $ | 5,441 | |||||||||||
Charge-offs | (142 | ) | — | — | — | — | (142 | ) | |||||||||||||||
Loan loss provision (income) | 229 | — | — | 5 | — | 234 | |||||||||||||||||
Ending balance | $ | 5,484 | $ | 42 | $ | — | $ | 7 | $ | — | $ | 5,533 | |||||||||||
PCI loans receivable: | |||||||||||||||||||||||
Ending balance: acquired with deteriorated credit quality | $ | 15,355 | $ | 135 | $ | — | $ | 50 | $ | — | $ | 15,540 |
The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2020, for which repayment is expected to be obtained through the sale of the underlying collateral and Leaseany collateral dependent loans that are still accruing but are considered impaired.
|
| Amortized Cost |
| |
June 30, 2020 |
| (in thousands) |
| |
Real estate loans: |
|
|
|
|
Commercial property |
| $ | 16,796 |
|
Construction |
|
| 25,854 |
|
Residential property |
|
| 2,761 |
|
Total real estate loans |
|
| 45,411 |
|
Commercial and industrial loans |
|
| 288 |
|
Consumer Loans |
|
| 1,208 |
|
Total (1) |
| $ | 46,907 |
|
(1) | All loans are secured by real estate, except for one commercial term loan secured by $264,000 in cash. |
Loan Quality Indicators
As part of the on-going monitoring of the credit quality of our loan and leaseloans portfolio, we utilize an internal loan and lease grading system to identify credit risk and assign an appropriate grade from(from 0 to 8,8) for each loan or lease in our portfolio. A third-party loan and lease portfolio. Third party loan reviews arereview is performed throughout the year.at least on an annual basis. Additional adjustments are made when determined to be necessary. The loan and lease grade definitions are as follows:
Pass and Pass-Watch:
Pass andSpecial Mention:
ASubstandard:
ADoubtful:
ALoss:
A loanUnder regulatory guidance, loans and leases graded special mention or worse are considered criticized loans, and leases, and loans and leases graded substandard or worse are considered classified loans and leases.
The tables below provide a comparison as of SeptemberJune 30, 20172020 and December 31, 2016,2019 of the pass/pass-watch, special mention and classified loans, and leases (excluding PCI loans), disaggregated by loan class, were as follows:
|
| Pass/Pass- Watch |
|
| Special Mention |
|
| Classified |
|
| Total |
| ||||
|
| (in thousands) |
| |||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 800,437 |
|
| $ | 1,182 |
|
| $ | 6,538 |
|
| $ | 808,157 |
|
Hospitality |
|
| 879,131 |
|
|
| — |
|
|
| 3,681 |
|
|
| 882,812 |
|
Other |
|
| 1,469,272 |
|
|
| 6,059 |
|
|
| 29,585 |
|
|
| 1,504,916 |
|
Total commercial property |
|
| 3,148,840 |
|
|
| 7,241 |
|
|
| 39,804 |
|
|
| 3,195,885 |
|
Construction |
|
| 44,503 |
|
|
| — |
|
|
| 25,854 |
|
|
| 70,357 |
|
Residential property |
|
| 350,520 |
|
|
| 784 |
|
|
| 2,760 |
|
|
| 354,064 |
|
Total real estate loans |
|
| 3,543,863 |
|
|
| 8,025 |
|
|
| 68,418 |
|
|
| 3,620,306 |
|
Commercial and industrial loans |
|
| 702,443 |
|
|
| 12,423 |
|
|
| 15,533 |
|
|
| 730,399 |
|
Leases receivable |
|
| 453,528 |
|
|
| — |
|
|
| 9,283 |
|
|
| 462,811 |
|
Consumer loans |
|
| 10,752 |
|
|
| 686 |
|
|
| 688 |
|
|
| 12,126 |
|
Total loans receivable |
| $ | 4,710,586 |
|
| $ | 21,134 |
|
| $ | 93,922 |
|
| $ | 4,825,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 859,739 |
|
| $ | 2,835 |
|
| $ | 6,728 |
|
| $ | 869,302 |
|
Hospitality |
|
| 915,834 |
|
|
| 939 |
|
|
| 5,515 |
|
|
| 922,288 |
|
Other |
|
| 1,329,817 |
|
|
| 7,807 |
|
|
| 20,809 |
|
|
| 1,358,432 |
|
Total commercial property |
|
| 3,105,390 |
|
|
| 11,580 |
|
|
| 33,052 |
|
|
| 3,150,022 |
|
Construction |
|
| 36,956 |
|
|
| 1,613 |
|
|
| 37,886 |
|
|
| 76,455 |
|
Residential property |
|
| 398,737 |
|
|
| 2,512 |
|
|
| 779 |
|
|
| 402,028 |
|
Total real estate loans |
|
| 3,541,082 |
|
|
| 15,705 |
|
|
| 71,718 |
|
|
| 3,628,505 |
|
Commercial and industrial loans |
|
| 458,184 |
|
|
| 10,222 |
|
|
| 15,687 |
|
|
| 484,093 |
|
Leases receivable |
|
| 477,977 |
|
|
| — |
|
|
| 5,902 |
|
|
| 483,879 |
|
Consumer loans |
|
| 12,247 |
|
|
| 705 |
|
|
| 718 |
|
|
| 13,670 |
|
Total loans receivable |
| $ | 4,489,491 |
|
| $ | 26,632 |
|
| $ | 94,025 |
|
| $ | 4,610,147 |
|
Loans by Vintage Year and Risk Rating
|
| Term Loans |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Revolving Loans Amortized Cost Basis |
|
| Total |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
| $ | 438,577 |
|
| $ | 539,598 |
|
| $ | 555,748 |
|
| $ | 429,415 |
|
| $ | 483,511 |
|
| $ | 671,096 |
|
| $ | 30,895 |
|
| $ | 3,148,840 |
|
Special Mention |
|
| — |
|
|
| 2,757 |
|
|
| 455 |
|
|
| 2,351 |
|
|
| 1,271 |
|
|
| 407 |
|
|
| — |
|
|
| 7,241 |
|
Classified |
|
| 15,592 |
|
|
| 1,113 |
|
|
| 2,965 |
|
|
| 709 |
|
|
| 3,992 |
|
|
| 15,433 |
|
|
| — |
|
|
| 39,804 |
|
Total commercial property |
|
| 454,169 |
|
|
| 543,468 |
|
|
| 559,168 |
|
|
| 432,475 |
|
|
| 488,774 |
|
|
| 686,936 |
|
|
| 30,895 |
|
|
| 3,195,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
|
| 18,025 |
|
|
| 5,633 |
|
|
| — |
|
|
| — |
|
|
| 20,845 |
|
|
| — |
|
|
| — |
|
|
| 44,503 |
|
Special Mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Classified |
|
| — |
|
|
| 12,808 |
|
|
| 13,046 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,854 |
|
Total construction |
|
| 18,025 |
|
|
| 18,441 |
|
|
| 13,046 |
|
|
| — |
|
|
| 20,845 |
|
|
| — |
|
|
| — |
|
|
| 70,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
|
| 274 |
|
|
| 954 |
|
|
| 40,468 |
|
|
| 149,532 |
|
|
| 100,367 |
|
|
| 58,925 |
|
|
| — |
|
|
| 350,520 |
|
Special Mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 784 |
|
|
| — |
|
|
| 784 |
|
Classified |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,890 |
|
|
| 754 |
|
|
| 116 |
|
|
| — |
|
|
| 2,760 |
|
Total residential property |
|
| 274 |
|
|
| 954 |
|
|
| 40,468 |
|
|
| 151,422 |
|
|
| 101,121 |
|
|
| 59,825 |
|
|
| — |
|
|
| 354,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
|
| 456,876 |
|
|
| 546,185 |
|
|
| 596,216 |
|
|
| 578,947 |
|
|
| 604,723 |
|
|
| 730,021 |
|
|
| 30,895 |
|
|
| 3,543,863 |
|
Special Mention |
|
| — |
|
|
| 2,757 |
|
|
| 455 |
|
|
| 2,351 |
|
|
| 1,271 |
|
|
| 1,191 |
|
|
| — |
|
|
| 8,025 |
|
Classified |
|
| 15,592 |
|
|
| 13,921 |
|
|
| 16,011 |
|
|
| 2,599 |
|
|
| 4,746 |
|
|
| 15,549 |
|
|
| — |
|
|
| 68,418 |
|
Total real estate loans |
|
| 472,468 |
|
|
| 562,863 |
|
|
| 612,682 |
|
|
| 583,897 |
|
|
| 610,740 |
|
|
| 746,761 |
|
|
| 30,895 |
|
|
| 3,620,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
|
| 369,101 |
|
|
| 124,141 |
|
|
| 60,742 |
|
|
| 21,613 |
|
|
| 5,586 |
|
|
| 14,952 |
|
|
| 106,308 |
|
|
| 702,443 |
|
Special Mention |
|
| 4,281 |
|
|
| 800 |
|
|
| 503 |
|
|
| 78 |
|
|
| 1,733 |
|
|
| 1,585 |
|
|
| 3,443 |
|
|
| 12,423 |
|
Classified |
|
| 8,969 |
|
|
| 3,894 |
|
|
| 568 |
|
|
| 148 |
|
|
| 140 |
|
|
| 1,614 |
|
|
| 200 |
|
|
| 15,533 |
|
Total commercial and industrial loans |
|
| 382,351 |
|
|
| 128,835 |
|
|
| 61,813 |
|
|
| 21,839 |
|
|
| 7,459 |
|
|
| 18,151 |
|
|
| 109,951 |
|
|
| 730,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
|
| 67,994 |
|
|
| 203,034 |
|
|
| 119,213 |
|
|
| 44,150 |
|
|
| 18,292 |
|
|
| 845 |
|
|
| — |
|
|
| 453,528 |
|
Special Mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Classified |
|
| 11 |
|
|
| 3,554 |
|
|
| 2,807 |
|
|
| 1,191 |
|
|
| 1,299 |
|
|
| 421 |
|
|
| — |
|
|
| 9,283 |
|
Total leases receivable |
|
| 68,005 |
|
|
| 206,588 |
|
|
| 122,020 |
|
|
| 45,341 |
|
|
| 19,591 |
|
|
| 1,266 |
|
|
| — |
|
|
| 462,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
|
| 121 |
|
|
| 25 |
|
|
| 15 |
|
|
| 86 |
|
|
| 7 |
|
|
| 2,610 |
|
|
| 7,888 |
|
|
| 10,752 |
|
Special Mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 686 |
|
|
| — |
|
|
| 686 |
|
Classified |
|
| — |
|
|
| — |
|
|
| 661 |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 688 |
|
Total commercial term loans |
|
| 121 |
|
|
| 25 |
|
|
| 676 |
|
|
| 113 |
|
|
| 7 |
|
|
| 3,296 |
|
|
| 7,888 |
|
|
| 12,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass / Pass Watch |
|
| 894,092 |
|
|
| 873,385 |
|
|
| 776,186 |
|
|
| 644,796 |
|
|
| 628,608 |
|
|
| 748,428 |
|
|
| 145,091 |
|
|
| 4,710,586 |
|
Special Mention |
|
| 4,281 |
|
|
| 3,557 |
|
|
| 958 |
|
|
| 2,429 |
|
|
| 3,004 |
|
|
| 3,462 |
|
|
| 3,443 |
|
|
| 21,134 |
|
Classified |
|
| 24,572 |
|
|
| 21,369 |
|
|
| 20,047 |
|
|
| 3,965 |
|
|
| 6,185 |
|
|
| 17,584 |
|
|
| 200 |
|
|
| 93,922 |
|
Total loans receivable |
| $ | 922,945 |
|
| $ | 898,311 |
|
| $ | 797,191 |
|
| $ | 651,190 |
|
| $ | 637,797 |
|
| $ | 769,474 |
|
| $ | 148,734 |
|
| $ | 4,825,642 |
|
Pass/Pass-Watch | Special Mention | Classified | Total | ||||||||||||
(in thousands) | |||||||||||||||
September 30, 2017 | |||||||||||||||
Real estate loans: | |||||||||||||||
Commercial property | |||||||||||||||
Retail | $ | 910,890 | $ | 1,577 | $ | 3,769 | $ | 916,236 | |||||||
Hospitality | 718,244 | 4,979 | 8,339 | 731,562 | |||||||||||
Gas station | 240,952 | 2,274 | 1,816 | 245,042 | |||||||||||
Other | 1,131,423 | 8,840 | 3,913 | 1,144,176 | |||||||||||
Construction | 64,263 | — | — | 64,263 | |||||||||||
Residential property | 429,048 | 326 | 295 | 429,669 | |||||||||||
Total real estate loans | 3,494,820 | 17,996 | 18,132 | 3,530,948 | |||||||||||
Commercial and industrial loans: | |||||||||||||||
Commercial term | 167,492 | 1,623 | 1,776 | 170,891 | |||||||||||
Commercial lines of credit | 149,646 | 110 | 181 | 149,937 | |||||||||||
International loans | 43,577 | — | — | 43,577 | |||||||||||
Total commercial and industrial loans | 360,715 | 1,733 | 1,957 | 364,405 | |||||||||||
Leases receivable | 268,893 | — | 3,378 | 272,271 | |||||||||||
Consumer loans | 17,930 | — | 1,097 | 19,027 | |||||||||||
Total Non-PCI loans and leases | $ | 4,142,358 | $ | 19,729 | $ | 24,564 | $ | 4,186,651 | |||||||
December 31, 2016 | |||||||||||||||
Real estate loans: | |||||||||||||||
Commercial property | |||||||||||||||
Retail | $ | 851,147 | $ | 2,275 | $ | 4,207 | $ | 857,629 | |||||||
Hospitality | 634,397 | 5,497 | 9,646 | 649,540 | |||||||||||
Gas station | 252,123 | 1,911 | 6,153 | 260,187 | |||||||||||
Other | 1,100,070 | 1,645 | 5,874 | 1,107,589 | |||||||||||
Construction | 55,962 | — | — | 55,962 | |||||||||||
Residential property | 337,227 | — | 564 | 337,791 | |||||||||||
Total real estate loans | 3,230,926 | 11,328 | 26,444 | 3,268,698 | |||||||||||
Commercial and industrial loans: | |||||||||||||||
Commercial term | 133,811 | 2,060 | 2,161 | 138,032 | |||||||||||
Commercial lines of credit | 135,699 | 464 | 68 | 136,231 | |||||||||||
International loans | 23,406 | 2,415 | — | 25,821 | |||||||||||
Total commercial and industrial loans | 292,916 | 4,939 | 2,229 | 300,084 | |||||||||||
Leases receivable | 242,393 | — | 901 | 243,294 | |||||||||||
Consumer loans | 22,139 | — | 691 | 22,830 | |||||||||||
Total Non-PCI loans and leases | $ | 3,788,374 | $ | 16,267 | $ | 30,265 | $ | 3,834,906 |
(1) | Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision. |
Loans by Vintage Year and Payment Performance
|
| Term Loans |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Revolving Loans Amortized Cost Basis |
|
| Total |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
| $ | 453,569 |
|
| $ | 543,468 |
|
| $ | 559,015 |
|
| $ | 432,475 |
|
| $ | 488,673 |
|
| $ | 681,933 |
|
| $ | 30,895 |
|
| $ | 3,190,028 |
|
Nonperforming |
|
| 600 |
|
|
| — |
|
|
| 153 |
|
|
| — |
|
|
| 101 |
|
|
| 5,003 |
|
|
| — |
|
|
| 5,857 |
|
Total commercial property |
|
| 454,169 |
|
|
| 543,468 |
|
|
| 559,168 |
|
|
| 432,475 |
|
|
| 488,774 |
|
|
| 686,936 |
|
|
| 30,895 |
|
|
| 3,195,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
| 18,025 |
|
|
| 5,633 |
|
|
| — |
|
|
| — |
|
|
| 20,845 |
|
|
| — |
|
|
| — |
|
| $ | 44,503 |
|
Nonperforming |
|
| — |
|
|
| 12,808 |
|
|
| 13,046 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,854 |
|
Total construction |
|
| 18,025 |
|
|
| 18,441 |
|
|
| 13,046 |
|
|
| — |
|
|
| 20,845 |
|
|
| — |
|
|
| — |
|
|
| 70,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
| 274 |
|
|
| 954 |
|
|
| 40,468 |
|
|
| 149,532 |
|
|
| 100,366 |
|
|
| 59,677 |
|
|
| — |
|
|
| 351,271 |
|
Nonperforming |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,890 |
|
|
| 755 |
|
|
| 148 |
|
|
| — |
|
|
| 2,793 |
|
Total residential property |
|
| 274 |
|
|
| 954 |
|
|
| 40,468 |
|
|
| 151,422 |
|
|
| 101,121 |
|
|
| 59,825 |
|
|
| — |
|
|
| 354,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
| 471,868 |
|
|
| 550,055 |
|
|
| 599,483 |
|
|
| 582,007 |
|
|
| 609,884 |
|
|
| 741,610 |
|
|
| 30,895 |
|
|
| 3,585,802 |
|
Nonperforming |
|
| 600 |
|
|
| 12,808 |
|
|
| 13,199 |
|
|
| 1,890 |
|
|
| 856 |
|
|
| 5,151 |
|
|
| — |
|
|
| 34,504 |
|
Total real estate loans |
|
| 472,468 |
|
|
| 562,863 |
|
|
| 612,682 |
|
|
| 583,897 |
|
|
| 610,740 |
|
|
| 746,761 |
|
|
| 30,895 |
|
|
| 3,620,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
| 373,382 |
|
|
| 124,940 |
|
|
| 61,377 |
|
|
| 21,691 |
|
|
| 7,459 |
|
|
| 18,015 |
|
|
| 109,751 |
|
|
| 716,615 |
|
Nonperforming |
|
| 8,969 |
|
|
| 3,895 |
|
|
| 436 |
|
|
| 148 |
|
|
| — |
|
|
| 136 |
|
|
| 200 |
|
|
| 13,784 |
|
Total commercial and industrial loans |
|
| 382,351 |
|
|
| 128,835 |
|
|
| 61,813 |
|
|
| 21,839 |
|
|
| 7,459 |
|
|
| 18,151 |
|
|
| 109,951 |
|
|
| 730,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
| 67,994 |
|
|
| 203,034 |
|
|
| 119,213 |
|
|
| 44,150 |
|
|
| 18,292 |
|
|
| 846 |
|
|
| — |
|
|
| 453,529 |
|
Nonperforming |
|
| 11 |
|
|
| 3,554 |
|
|
| 2,807 |
|
|
| 1,191 |
|
|
| 1,299 |
|
|
| 420 |
|
|
| — |
|
|
| 9,282 |
|
Total leases receivable |
|
| 68,005 |
|
|
| 206,588 |
|
|
| 122,020 |
|
|
| 45,341 |
|
|
| 19,591 |
|
|
| 1,266 |
|
|
| — |
|
|
| 462,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
| 121 |
|
|
| 25 |
|
|
| 15 |
|
|
| 86 |
|
|
| 7 |
|
|
| 3,296 |
|
|
| 7,888 |
|
|
| 11,438 |
|
Nonperforming |
|
| — |
|
|
| — |
|
|
| 661 |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 688 |
|
Total commercial term loans |
|
| 121 |
|
|
| 25 |
|
|
| 676 |
|
|
| 113 |
|
|
| 7 |
|
|
| 3,296 |
|
|
| 7,888 |
|
|
| 12,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
| 913,365 |
|
|
| 878,054 |
|
|
| 780,088 |
|
|
| 647,934 |
|
|
| 635,642 |
|
|
| 763,767 |
|
|
| 148,534 |
|
|
| 4,767,384 |
|
Nonperforming |
|
| 9,580 |
|
|
| 20,257 |
|
|
| 17,103 |
|
|
| 3,256 |
|
|
| 2,155 |
|
|
| 5,707 |
|
|
| 200 |
|
|
| 58,258 |
|
Total loans receivable |
| $ | 922,945 |
|
| $ | 898,311 |
|
| $ | 797,191 |
|
| $ | 651,190 |
|
| $ | 637,797 |
|
| $ | 769,474 |
|
| $ | 148,734 |
|
| $ | 4,825,642 |
|
(1) | Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision. |
The following is an aging analysis of loans, and leases (excluding PCI 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) |
| |||||||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 808,157 |
|
| $ | 808,157 |
|
| $ | — |
|
Hospitality |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 882,812 |
|
|
| 882,812 |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| 1,645 |
|
|
| 1,645 |
|
|
| 1,503,271 |
|
|
| 1,504,916 |
|
|
| — |
|
Total commercial property loans |
|
| — |
|
|
| — |
|
|
| 1,645 |
|
|
| 1,645 |
|
|
| 3,194,240 |
|
|
| 3,195,885 |
|
|
| — |
|
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70,357 |
|
|
| 70,357 |
|
|
| — |
|
Residential property |
|
| 2,682 |
|
|
| — |
|
|
| 2,645 |
|
|
| 5,327 |
|
|
| 348,737 |
|
|
| 354,064 |
|
|
| — |
|
Total real estate loans |
|
| 2,682 |
|
|
| — |
|
|
| 4,290 |
|
|
| 6,972 |
|
|
| 3,613,334 |
|
|
| 3,620,306 |
|
|
| — |
|
Commercial and industrial loans |
|
| 212 |
|
|
| — |
|
|
| 12,632 |
|
|
| 12,844 |
|
|
| 717,555 |
|
|
| 730,399 |
|
|
| — |
|
Leases receivable |
|
| 3,684 |
|
|
| 5,095 |
|
|
| 5,113 |
|
|
| 13,893 |
|
|
| 448,918 |
|
|
| 462,811 |
|
|
| — |
|
Consumer loans |
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| 27 |
|
|
| 12,099 |
|
|
| 12,126 |
|
|
| — |
|
Total loans receivable |
| $ | 6,578 |
|
| $ | 5,095 |
|
| $ | 22,062 |
|
| $ | 33,736 |
|
| $ | 4,791,906 |
|
| $ | 4,825,642 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 6 |
|
| $ | 132 |
|
| $ | 111 |
|
| $ | 249 |
|
| $ | 869,053 |
|
| $ | 869,302 |
|
| $ | — |
|
Hospitality |
|
| 907 |
|
|
| — |
|
|
| — |
|
|
| 907 |
|
|
| 921,381 |
|
|
| 922,288 |
|
|
| — |
|
Other |
|
| 51 |
|
|
| — |
|
|
| 38 |
|
|
| 89 |
|
|
| 1,358,344 |
|
|
| 1,358,432 |
|
|
| — |
|
Total commercial property loans |
|
| 964 |
|
|
| 132 |
|
|
| 149 |
|
|
| 1,245 |
|
|
| 3,148,778 |
|
|
| 3,150,022 |
|
|
| — |
|
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 76,455 |
|
|
| 76,455 |
|
|
| — |
|
Residential property |
|
| 540 |
|
|
| 1,627 |
|
|
| 309 |
|
|
| 2,477 |
|
|
| 399,551 |
|
|
| 402,028 |
|
|
| — |
|
Total real estate loans |
|
| 1,504 |
|
|
| 1,759 |
|
|
| 458 |
|
|
| 3,721 |
|
|
| 3,624,784 |
|
|
| 3,628,505 |
|
|
| — |
|
Commercial and industrial loans |
|
| 635 |
|
|
| 133 |
|
|
| 143 |
|
|
| 911 |
|
|
| 483,183 |
|
|
| 484,093 |
|
|
| — |
|
Leases receivable |
|
| 5,358 |
|
|
| 2,138 |
|
|
| 3,493 |
|
|
| 10,990 |
|
|
| 472,889 |
|
|
| 483,879 |
|
|
| — |
|
Consumer loans |
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| 30 |
|
|
| 13,639 |
|
|
| 13,670 |
|
|
| — |
|
Total loans receivable |
| $ | 7,497 |
|
| $ | 4,060 |
|
| $ | 4,094 |
|
| $ | 15,652 |
|
| $ | 4,594,496 |
|
| $ | 4,610,147 |
|
| $ | — |
|
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||
Real estate loans: | |||||||||||||||||||||||
Commercial property | |||||||||||||||||||||||
Retail | $ | 7 | $ | 1 | $ | 223 | $ | 231 | $ | 916,005 | $ | 916,236 | |||||||||||
Hospitality | 1,869 | — | 975 | 2,844 | 728,718 | 731,562 | |||||||||||||||||
Gas station | 43 | 63 | 128 | 234 | 244,808 | 245,042 | |||||||||||||||||
Other | 1,043 | 280 | 739 | 2,062 | 1,142,114 | 1,144,176 | |||||||||||||||||
Construction | — | — | — | — | 64,263 | 64,263 | |||||||||||||||||
Residential property | 500 | — | 326 | 826 | 428,843 | �� | 429,669 | ||||||||||||||||
Total real estate loans | 3,462 | 344 | 2,391 | 6,197 | 3,524,751 | 3,530,948 | |||||||||||||||||
Commercial and industrial loans: | |||||||||||||||||||||||
Commercial term | 236 | 53 | 510 | 799 | 170,092 | 170,891 | |||||||||||||||||
Commercial lines of credit | — | — | 181 | 181 | 149,756 | 149,937 | |||||||||||||||||
International loans | — | — | — | — | 43,577 | 43,577 | |||||||||||||||||
Total commercial and industrial loans | 236 | 53 | 691 | 980 | 363,425 | 364,405 | |||||||||||||||||
Leases receivable | 3,042 | 476 | 2,033 | 5,551 | 266,720 | 272,271 | |||||||||||||||||
Consumer loans | — | — | — | — | 19,027 | 19,027 | |||||||||||||||||
Total Non-PCI loans and leases | $ | 6,740 | $ | 873 | $ | 5,115 | $ | 12,728 | $ | 4,173,923 | $ | 4,186,651 | |||||||||||
December 31, 2016 | |||||||||||||||||||||||
Real estate loans: | |||||||||||||||||||||||
Commercial property | |||||||||||||||||||||||
Retail | $ | 9 | $ | 137 | $ | 234 | $ | 380 | $ | 857,249 | $ | 857,629 | |||||||||||
Hospitality | 1,037 | 46 | 600 | 1,683 | 647,857 | 649,540 | |||||||||||||||||
Gas station | 245 | 643 | 137 | 1,025 | 259,162 | 260,187 | |||||||||||||||||
Other | 432 | 79 | 1,100 | 1,611 | 1,105,978 | 1,107,589 | |||||||||||||||||
Construction | — | — | — | — | 55,962 | 55,962 | |||||||||||||||||
Residential property | 730 | 89 | 423 | 1,242 | 336,549 | 337,791 | |||||||||||||||||
Total real estate loans | 2,453 | 994 | 2,494 | 5,941 | 3,262,757 | 3,268,698 | |||||||||||||||||
Commercial and industrial loans: | |||||||||||||||||||||||
Commercial term | 484 | 42 | 111 | 637 | 137,395 | 138,032 | |||||||||||||||||
Commercial lines of credit | — | — | — | — | 136,231 | 136,231 | |||||||||||||||||
International loans | 80 | — | — | 80 | 25,741 | 25,821 | |||||||||||||||||
Total commercial and industrial loans | 564 | 42 | 111 | 717 | 299,367 | 300,084 | |||||||||||||||||
Leases receivable | 2,090 | 1,043 | 385 | 3,518 | 239,776 | 243,294 | |||||||||||||||||
Consumer loans | 170 | — | — | 170 | 22,660 | 22,830 | |||||||||||||||||
Total Non-PCI loans and leases | $ | 5,277 | $ | 2,079 | $ | 2,990 | $ | 10,346 | $ | 3,824,560 | $ | 3,834,906 |
As of June 30, 2020 and December 31, 2019, there were no0 loans that were 90 days or more past due and accruing interest as of September 30, 2017 and 2016.
Individually Evaluated Loans and Leases
Prior to the financial difficultiesadoption of the borrowers, we have granted concessions to the borrowers we would not otherwise consider; or when current information or events make it unlikely to collect in full according to the contractual terms of the loan or lease agreements; or there is a deterioration in the borrower’s financial condition that raises uncertainty as to timely collection of either principal or interest; or full payment of both interest and principal is in doubt according to the original contractual terms.
We continue to monitor the collateral coverage, using recent appraisals, on thesereview, under ASU 2016-13, all loans on a quarterlyan individual basis and adjust the allowance accordingly.
The following tables provide information on individually evaluated loans receivable as of June 30, 2020 and impaired loans and leases (excluding PCI loans),receivable as of December 31, 2019 disaggregated by loan class, as of the dates indicated:
|
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| With No Related Allowance Recorded |
|
| With an Allowance Recorded |
|
| Related Allowance |
| |||||
|
| (in thousands) |
| |||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 1,355 |
|
| $ | 1,355 |
|
| $ | 1,355 |
|
| $ | — |
|
| $ | — |
|
Other |
|
| 18,299 |
|
|
| 19,725 |
|
|
| 17,679 |
|
|
| 620 |
|
|
| 20 |
|
Total commercial property loans |
|
| 19,654 |
|
|
| 21,080 |
|
|
| 19,034 |
|
|
| 620 |
|
|
| 20 |
|
Construction |
|
| 25,854 |
|
|
| 27,330 |
|
|
| 13,046 |
|
|
| 12,808 |
|
|
| 2,787 |
|
Residential property |
|
| 2,794 |
|
|
| 2,770 |
|
|
| 2,761 |
|
|
| 33 |
|
|
| — |
|
Total real estate loans |
|
| 48,302 |
|
|
| 51,180 |
|
|
| 34,841 |
|
|
| 13,461 |
|
|
| 2,807 |
|
Commercial and industrial loans |
|
| 13,771 |
|
|
| 14,589 |
|
|
| 12,877 |
|
|
| 893 |
|
|
| 123 |
|
Leases receivable |
|
| 8,456 |
|
|
| 8,521 |
|
|
| 1,797 |
|
|
| 6,660 |
|
|
| 2,262 |
|
Consumer loans |
|
| 1,280 |
|
|
| 1,599 |
|
|
| 1,208 |
|
|
| 72 |
|
|
| 2 |
|
Total |
| $ | 71,809 |
|
| $ | 75,889 |
|
| $ | 50,723 |
|
| $ | 21,086 |
|
| $ | 5,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 434 |
|
| $ | 459 |
|
| $ | 111 |
|
| $ | 323 |
|
| $ | 19 |
|
Hospitality |
|
| 244 |
|
|
| 400 |
|
|
| 22 |
|
|
| 223 |
|
|
| 24 |
|
Other |
|
| 14,864 |
|
|
| 15,151 |
|
|
| 14,696 |
|
|
| 167 |
|
|
| 12 |
|
Total commercial property loans |
|
| 15,542 |
|
|
| 16,010 |
|
|
| 14,829 |
|
|
| 713 |
|
|
| 55 |
|
Construction |
|
| 27,201 |
|
|
| 28,000 |
|
|
| — |
|
|
| 27,201 |
|
|
| 13,973 |
|
Residential property |
|
| 1,124 |
|
|
| 1,163 |
|
|
| 1,089 |
|
|
| 35 |
|
|
| — |
|
Total real estate loans |
|
| 43,867 |
|
|
| 45,173 |
|
|
| 15,918 |
|
|
| 27,949 |
|
|
| 14,028 |
|
Commercial and industrial loans |
|
| 13,700 |
|
|
| 14,090 |
|
|
| 143 |
|
|
| 13,557 |
|
|
| 8,885 |
|
Leases receivable |
|
| 5,902 |
|
|
| 5,909 |
|
|
| 1,112 |
|
|
| 4,790 |
|
|
| 2,863 |
|
Consumer loans |
|
| 1,297 |
|
|
| 1,588 |
|
|
| 1,220 |
|
|
| 77 |
|
|
| 1 |
|
Total |
| $ | 64,766 |
|
| $ | 66,760 |
|
| $ | 18,393 |
|
| $ | 46,373 |
|
| $ | 25,778 |
|
Recorded Investment | Unpaid Principal Balance | With No Related Allowance Recorded | With an Allowance Recorded | Related Allowance | |||||||||||||||
(in thousands) | |||||||||||||||||||
September 30, 2017 | |||||||||||||||||||
Real estate loans: | |||||||||||||||||||
Commercial property | |||||||||||||||||||
Retail | $ | 1,475 | $ | 1,495 | $ | 124 | $ | 1,351 | $ | 61 | |||||||||
Hospitality | 6,288 | 7,233 | 2,165 | 4,123 | 3,057 | ||||||||||||||
Gas station | 4,260 | 4,732 | 4,155 | 105 | — | ||||||||||||||
Other | 4,777 | 5,170 | 1,881 | 2,897 | 764 | ||||||||||||||
Residential property | 2,666 | 2,812 | 2,666 | — | — | ||||||||||||||
Total real estate loans | 19,466 | 21,442 | 10,991 | 8,476 | 3,882 | ||||||||||||||
Commercial and industrial loans: | |||||||||||||||||||
Commercial term | 3,429 | 3,482 | 361 | 3,068 | 531 | ||||||||||||||
Commercial lines of credit | 181 | 181 | 181 | — | — | ||||||||||||||
Total commercial and industrial loans | 3,610 | 3,663 | 542 | 3,068 | 531 | ||||||||||||||
Leases receivable | 3,378 | 3,482 | 658 | 2,720 | 2,008 | ||||||||||||||
Consumer loans | 1,045 | 1,221 | 1,045 | — | — | ||||||||||||||
Total Non-PCI loans and leases | $ | 27,499 | $ | 29,808 | $ | 13,236 | $ | 14,264 | $ | 6,421 | |||||||||
December 31, 2016 | |||||||||||||||||||
Real estate loans: | |||||||||||||||||||
Commercial property | |||||||||||||||||||
Retail | $ | 1,678 | $ | 1,684 | $ | 151 | $ | 1,527 | $ | 120 | |||||||||
Hospitality | 6,227 | 6,823 | 2,243 | 3,984 | 3,078 | ||||||||||||||
Gas station | 4,984 | 5,092 | 4,984 | — | — | ||||||||||||||
Other | 6,070 | 6,808 | 3,127 | 2,943 | 782 | ||||||||||||||
Residential property | 2,798 | 2,851 | 2,798 | — | — | ||||||||||||||
Total real estate loans | 21,757 | 23,258 | 13,303 | 8,454 | 3,980 | ||||||||||||||
Commercial and industrial loans: | |||||||||||||||||||
Commercial term | 4,106 | 4,171 | 1,229 | 2,877 | 347 | ||||||||||||||
Commercial lines of credit | 68 | 68 | 68 | — | — | ||||||||||||||
Total commercial and industrial loans | 4,174 | 4,239 | 1,297 | 2,877 | 347 | ||||||||||||||
Consumer loans | 419 | 489 | 419 | — | — | ||||||||||||||
Total Non-PCI loans and leases | $ | 26,350 | $ | 27,986 | $ | 15,019 | $ | 11,331 | $ | 4,327 |
Nonaccrual Loans and Nonperforming Assets
The following table represents the amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of June 30, 2020.
|
| June 30, 2020 |
| |||||||||||||
|
| Nonaccrual Loans With No Allowance for Credit Losses |
|
| Nonaccrual Loans With Allowance for Credit Losses |
|
| Loans Past Due 90 Days Still Accruing |
|
| Total Nonperforming Loans |
| ||||
|
| (in thousands) |
| |||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 1,355 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,355 |
|
Other |
|
| 3,883 |
|
|
| 620 |
|
|
| — |
|
|
| 4,503 |
|
Commercial property loans |
|
| 5,238 |
|
|
| 620 |
|
|
| — |
|
|
| 5,858 |
|
Construction loans |
|
| 13,046 |
|
|
| 12,808 |
|
|
| — |
|
|
| 25,854 |
|
Residential property loans |
|
| 2,761 |
|
|
| 33 |
|
|
| — |
|
|
| 2,794 |
|
Total real estate loans |
|
| 21,045 |
|
|
| 13,461 |
|
|
| — |
|
|
| 34,506 |
|
Commercial and industrial loans |
|
| 12,878 |
|
|
| 907 |
|
|
| — |
|
|
| 13,785 |
|
Leases receivable |
|
| 1,797 |
|
|
| 7,488 |
|
|
| — |
|
|
| 9,285 |
|
Consumer loans |
|
| 688 |
|
|
| — |
|
|
| — |
|
|
| 688 |
|
Total |
| $ | 36,408 |
|
| $ | 21,856 |
|
| $ | — |
|
| $ | 58,264 |
|
Three Months Ended | Nine Months Ended | ||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||||||
(in thousands) | |||||||||||||||
September 30, 2017 | |||||||||||||||
Real estate loans: | |||||||||||||||
Commercial property | |||||||||||||||
Retail | $ | 1,487 | $ | 24 | $ | 1,551 | $ | 85 | |||||||
Hospitality | 6,476 | 143 | 6,268 | 309 | |||||||||||
Gas station | 4,603 | 85 | 4,764 | 297 | |||||||||||
Other | 4,886 | 117 | 4,917 | 304 | |||||||||||
Residential property | 2,794 | 26 | 2,797 | 87 | |||||||||||
Total real estate loans | 20,246 | 395 | 20,297 | 1,082 | |||||||||||
Commercial and industrial loans: | |||||||||||||||
Commercial term | 3,495 | 54 | 3,739 | 165 | |||||||||||
Commercial lines of credit | 1,060 | — | 853 | 16 | |||||||||||
Total commercial and industrial loans | 4,555 | 54 | 4,592 | 181 | |||||||||||
Leases receivable | 3,560 | 12 | 4,044 | 36 | |||||||||||
Consumer loans | 1,201 | 15 | 917 | 21 | |||||||||||
Total Non-PCI loans and leases | $ | 29,562 | $ | 476 | $ | 29,850 | $ | 1,320 | |||||||
September 30, 2016 | |||||||||||||||
Real estate loans: | |||||||||||||||
Commercial property | |||||||||||||||
Retail | $ | 1,985 | $ | 31 | $ | 2,430 | $ | 117 | |||||||
Hospitality | 3,222 | 66 | 4,429 | 367 | |||||||||||
Gas station | 4,557 | 134 | 4,772 | 395 | |||||||||||
Other | 6,541 | 138 | 7,438 | 533 | |||||||||||
Residential property | 2,512 | 28 | 2,606 | 85 | |||||||||||
Total real estate loans | 18,817 | 397 | 21,675 | 1,497 | |||||||||||
Commercial and industrial loans: | |||||||||||||||
Commercial term | 4,792 | 71 | 5,032 | 235 | |||||||||||
Commercial lines of credit | 15 | 3 | 29 | 12 | |||||||||||
International loans | — | — | 420 | — | |||||||||||
Total commercial and industrial loans | 4,807 | 74 | 5,481 | 247 | |||||||||||
Consumer loans | 682 | 7 | 688 | 22 | |||||||||||
Total Non-PCI loans and leases | $ | 24,306 | $ | 478 | $ | 27,844 | $ | 1,766 |
The following is a summary of interest foregone on impairednonaccrual loans and leases (excluding PCI loans) for the periods indicated:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Interest income that would have been recognized had impaired loans performed in accordance with their original terms |
| $ | 1,386 |
|
| $ | 1,120 |
|
| $ | 2,998 |
|
| $ | 2,009 |
|
Less: Interest income recognized on impaired loans |
|
| (508 | ) |
|
| (696 | ) |
|
| (1,085 | ) |
|
| (1,378 | ) |
Interest foregone on impaired loans |
| $ | 878 |
|
| $ | 424 |
|
| $ | 1,913 |
|
| $ | 631 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands) | |||||||||||||||
Interest income that would have been recognized had impaired loans and leases performed in accordance with their original terms | $ | 696 | $ | 695 | $ | 1,934 | $ | 2,306 | |||||||
Less: Interest income recognized on impaired loans and leases | (476 | ) | (478 | ) | (1,320 | ) | (1,766 | ) | |||||||
Interest foregone on impaired loans and leases | $ | 220 | $ | 217 | $ | 614 | $ | 540 |
There were no commitments to lend additional funds to borrowers whose loans are included in the table above.
The following table details nonaccrual loans, and leases (excluding PCI loans), disaggregated by loan class, as of the dates indicated:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
| (in thousands) |
| |||||
Real estate loans: |
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
Retail |
| $ | 1,355 |
|
| $ | 277 |
|
Hospitality |
|
| — |
|
|
| 225 |
|
Other |
|
| 4,503 |
|
|
| 14,864 |
|
Total Commercial property loans |
|
| 5,858 |
|
|
| 15,366 |
|
Construction |
|
| 25,854 |
|
|
| 27,201 |
|
Residential property |
|
| 2,794 |
|
|
| 1,124 |
|
Total real estate loans |
|
| 34,506 |
|
|
| 43,691 |
|
Commercial and industrial loans |
|
| 13,785 |
|
|
| 13,479 |
|
Leases receivable |
|
| 9,285 |
|
|
| 5,902 |
|
Consumer loans |
|
| 688 |
|
|
| 689 |
|
Total nonaccrual loans |
| $ | 58,264 |
|
| $ | 63,761 |
|
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Real estate loans: | |||||||
Commercial property | |||||||
Retail | $ | 253 | $ | 404 | |||
Hospitality | 5,368 | 5,266 | |||||
Gas station | 742 | 1,025 | |||||
Other | 2,097 | 2,033 | |||||
Residential property | 621 | 564 | |||||
Total real estate loans | 9,081 | 9,292 | |||||
Commercial and industrial loans: | |||||||
Commercial term | 984 | 824 | |||||
Commercial lines of credit | 181 | — | |||||
Total commercial and industrial loans | 1,165 | 824 | |||||
Leases receivable | 3,378 | 901 | |||||
Consumer loans | 934 | 389 | |||||
Total nonaccrual Non-PCI loans and leases | $ | 14,558 | $ | 11,406 |
The following table details nonperforming assets (excluding PCI loans) as of the dates indicated:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
| (in thousands) |
| |||||
Nonaccrual loans |
| $ | 58,264 |
|
| $ | 63,761 |
|
Loans receivable 90 days or more past due and still accruing |
|
| — |
|
|
| — |
|
Total nonperforming loans receivable |
|
| 58,264 |
|
|
| 63,761 |
|
Other real estate owned ("OREO") |
|
| 148 |
|
|
| 63 |
|
Total nonperforming assets |
| $ | 58,412 |
|
| $ | 63,824 |
|
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Nonaccrual Non-PCI loans and leases | $ | 14,558 | $ | 11,406 | |||
Loans and leases 90 days or more past due and still accruing | — | — | |||||
Total nonperforming Non-PCI loans and leases | 14,558 | 11,406 | |||||
OREO | 1,946 | 7,484 | |||||
Total nonperforming assets | $ | 16,504 | $ | 18,890 |
OREO consisted of six properties with a combined carrying value of $1.9 million, five of which with a combined carrying value of $1.8 million were acquiredis included in prepaid expenses and other assets in the Central Bancorp Inc. ("CBI") acquisition on August 31, 2014, or were obtained as a result of PCI loan collateral foreclosures subsequent to the acquisition date. As of December 31, 2016, OREO consisted of 12 properties with a combined carrying value of $7.5 million, including $5.7 million OREO acquired in the CBI acquisition or obtained as a result of PCI loan collateral foreclosures subsequent to the acquisition date.
Nonaccrual TDRs | Accrual TDRs | ||||||||||||||||||||||||||||||||||||||
Deferral of Principal | Deferral of Principal and Interest | Reduction of Principal and Interest | Extension of Maturity | Total | Deferral of Principal | Deferral of Principal and Interest | Reduction of Principal and Interest | Extension of Maturity | Total | ||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||||||||||||||||||
Real estate loans | $ | 1,959 | $ | 3,836 | $ | 67 | $ | — | $ | 5,862 | $ | 3,389 | $ | — | $ | 1,399 | $ | 1,245 | $ | 6,033 | |||||||||||||||||||
Commercial and industrial loans | 132 | 186 | 48 | 109 | 475 | 10 | 184 | 1,667 | 485 | 2,346 | |||||||||||||||||||||||||||||
Consumer loans | 820 | — | — | — | 820 | — | — | 111 | — | 111 | |||||||||||||||||||||||||||||
Total Non-PCI TDR loans | $ | 2,911 | $ | 4,022 | $ | 115 | $ | 109 | $ | 7,157 | $ | 3,399 | $ | 184 | $ | 3,177 | $ | 1,730 | $ | 8,490 | |||||||||||||||||||
December 31, 2016 | |||||||||||||||||||||||||||||||||||||||
Real estate loans | $ | 1,679 | $ | 4,373 | $ | 143 | $ | — | $ | 6,195 | $ | 4,795 | $ | — | $ | 1,514 | $ | 1,633 | $ | 7,942 | |||||||||||||||||||
Commercial and industrial loans | 149 | 71 | 69 | 419 | 708 | 22 | 198 | 2,135 | 730 | 3,085 | |||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | 119 | — | 119 | |||||||||||||||||||||||||||||
Total Non-PCI TDR loans | $ | 1,828 | $ | 4,444 | $ | 212 | $ | 419 | $ | 6,903 | $ | 4,817 | $ | 198 | $ | 3,768 | $ | 2,363 | $ | 11,146 |
Troubled Debt Restructurings
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, total TDRs were $15.6$31.6 million and $18.0$56.3 million, respectively. A debt restructuring is considered a TDR if we grant a concession that we would not have otherwise considered, to the borrower for economic or legal reasons related to the borrower’s financial difficulties. Loans are considered to be TDRs if they were restructured, through payment structure modifications such as reducing the amount of principal and interest due monthly, and/or allowing for interest only monthly payments for three months or more. more or other payment structure modifications.
The following table details TDRs as of June 30, 2020 and December 31, 2019:
|
| Nonaccrual TDRs |
|
| Accrual TDRs |
| ||||||||||||||||||||||||||||||||||
|
| Deferral of Principal |
|
| Deferral of Principal and/or Interest |
|
| Reduction of Principal and/or Interest |
|
| Extension of Maturity |
|
| Total |
|
| Deferral of Principal |
|
| Deferral of Principal and/or Interest |
|
| Reduction of Principal and/or Interest |
|
| Extension of Maturity |
|
| Total |
| ||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans |
| $ | — |
|
| $ | 1,483 |
|
| $ | 13,548 |
|
| $ | 618 |
|
| $ | 15,649 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 13,796 |
|
| $ | 13,796 |
|
Commercial and industrial loans |
|
| — |
|
|
| 181 |
|
|
| 247 |
|
|
| 296 |
|
|
| 724 |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| 85 |
|
|
| 136 |
|
Consumer loans |
|
| 661 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 661 |
|
|
| 521 |
|
|
| — |
|
|
| 71 |
|
|
| — |
|
|
| 592 |
|
Total |
| $ | 661 |
|
| $ | 1,664 |
|
| $ | 13,795 |
|
| $ | 914 |
|
| $ | 17,034 |
|
| $ | 521 |
|
| $ | — |
|
| $ | 122 |
|
| $ | 13,881 |
|
| $ | 14,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans |
| $ | — |
|
| $ | 132 |
|
| $ | 27,740 |
|
| $ | 13,926 |
|
| $ | 41,798 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Commercial and industrial loans |
|
| — |
|
|
| 153 |
|
|
| 12,527 |
|
|
| 312 |
|
|
| 12,991 |
|
|
| — |
|
|
| 36 |
|
|
| 71 |
|
|
| 114 |
|
|
| 222 |
|
Consumer loans |
|
| 689 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 689 |
|
|
| 531 |
|
|
| — |
|
|
| 77 |
|
|
| — |
|
|
| 608 |
|
Total |
| $ | 689 |
|
| $ | 285 |
|
| $ | 40,266 |
|
| $ | 14,238 |
|
| $ | 55,478 |
|
| $ | 531 |
|
| $ | 36 |
|
| $ | 148 |
|
| $ | 114 |
|
| $ | 830 |
|
The following table presents the number of loans by class modified as troubled debt restructurings that occurred during the periods indicated, with their pre- and post-modification recorded amounts.
|
| Three Months ended |
|
| Twelve Months ended |
| ||||||||||||||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
| Number of Loans |
|
| Pre- Modification Outstanding Recorded Investment |
|
| Post- Modification Outstanding Recorded Investment |
|
| Number of Loans |
|
| Pre- Modification Outstanding Recorded Investment |
|
| Post- Modification Outstanding Recorded Investment |
| ||||||
|
| (in thousands except for number of loans) |
| |||||||||||||||||||||
Real estate loans |
|
| 2 |
|
| $ | 2,002 |
|
| $ | 1,973 |
|
|
| 5 |
|
| $ | 40,743 |
|
| $ | 41,798 |
|
Commercial and industrial loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 12,779 |
|
|
| 12,562 |
|
Consumer loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 549 |
|
|
| 531 |
|
Total |
|
| 2 |
|
| $ | 2,002 |
|
| $ | 1,973 |
|
|
| 8 |
|
| $ | 54,071 |
|
| $ | 54,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months ended |
|
| Twelve Months ended |
| ||||||||||||||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
| Number of Loans |
|
| Pre- Modification Outstanding Recorded Investment |
|
| Post- Modification Outstanding Recorded Investment |
|
| Number of Loans |
|
| Pre- Modification Outstanding Recorded Investment |
|
| Post- Modification Outstanding Recorded Investment |
| ||||||
|
| (in thousands except for number of loans) |
| |||||||||||||||||||||
Real estate loans |
|
| 2 |
|
| $ | 2,002 |
|
| $ | 1,973 |
|
|
| 5 |
|
| $ | 40,743 |
|
| $ | 41,798 |
|
Commercial and industrial loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 12,779 |
|
|
| 12,562 |
|
Consumer loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 549 |
|
|
| 531 |
|
Total |
|
| 2 |
|
| $ | 2,002 |
|
| $ | 1,973 |
|
|
| 8 |
|
| $ | 54,071 |
|
| $ | 54,891 |
|
All TDRs are impaired and are individually evaluated for specific impairmentanalyzed using one of these three criteria: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. At SeptemberJune 30, 20172020 and December 31, 2016, $2.22019, TDRs were subjected to specific impairment analysis. We determined impairment allowances of $0.1 million and $3.4$22.7 million, respectively, of allowance relatingrelated to these loans and such allowances were included in the allowance for credit losses.
A loan and lease losses.
Carrying Amount | Accretable Yield | ||||||
(in thousands) | |||||||
Balance at January 1, 2017 | $ | 8,892 | $ | (5,677 | ) | ||
Accretion | 501 | 501 | |||||
Payments received | (1,770 | ) | — | ||||
Disposal/transfer to OREO | 110 | — | |||||
Change in expected cash flows, net | — | (306 | ) | ||||
Loan loss (provision) income | 177 | — | |||||
Balance at September 30, 2017 | $ | 7,910 | $ | (5,482 | ) | ||
Balance at January 1, 2016 | $ | 14,573 | $ | (5,944 | ) | ||
Accretion | 933 | 933 | |||||
Payments received | (6,408 | ) | — | ||||
Disposal/transfer to OREO | 1,143 | — | |||||
Change in expected cash flows, net | — | (900 | ) | ||||
Loan loss (provision) income | (234 | ) | — | ||||
Balance at September 30, 2016 | $ | 10,007 | $ | (5,911 | ) |
Pass/Pass-Watch | Special Mention | Classified | Total | Allowance | Total | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||
Real estate loans | $ | 1,257 | $ | 357 | $ | 6,996 | $ | 8,610 | $ | 752 | $ | 7,858 | |||||||||||
Commercial and industrial loans | — | — | 51 | 51 | 41 | 10 | |||||||||||||||||
Consumer loans | — | — | 43 | 43 | 1 | 42 | |||||||||||||||||
Total PCI loans | $ | 1,257 | $ | 357 | $ | 7,090 | $ | 8,704 | $ | 794 | $ | 7,910 | |||||||||||
December 31, 2016 | |||||||||||||||||||||||
Real estate loans | $ | 1,153 | $ | 1,180 | $ | 7,344 | $ | 9,677 | $ | 922 | $ | 8,755 | |||||||||||
Commercial and industrial loans | — | — | 136 | 136 | 41 | 95 | |||||||||||||||||
Consumer loans | — | — | 50 | 50 | 8 | 42 | |||||||||||||||||
Total PCI loans | $ | 1,153 | $ | 1,180 | $ | 7,530 | $ | 9,863 | $ | 971 | $ | 8,892 |
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total | Allowance Amount | Total | ||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||||||||||
Real estate loans | $ | 689 | $ | — | $ | 579 | $ | 1,268 | $ | 7,342 | $ | 8,610 | $ | 752 | $ | 7,858 | |||||||||||||||
Commercial and industrial loans | — | — | 5 | 5 | 46 | 51 | 41 | 10 | |||||||||||||||||||||||
Consumer loans | — | — | — | — | 43 | 43 | 1 | 42 | |||||||||||||||||||||||
Total PCI loans | $ | 689 | $ | — | $ | 584 | $ | 1,273 | $ | 7,431 | $ | 8,704 | $ | 794 | $ | 7,910 | |||||||||||||||
December 31, 2016 | |||||||||||||||||||||||||||||||
Real estate loans | $ | 975 | $ | — | $ | 361 | $ | 1,336 | $ | 8,341 | $ | 9,677 | $ | 922 | $ | 8,755 | |||||||||||||||
Commercial and industrial loans | — | — | 6 | 6 | 130 | 136 | 41 | 95 | |||||||||||||||||||||||
Consumer loans | — | — | 50 | 50 | — | 50 | 8 | 42 | |||||||||||||||||||||||
Total PCI loans | $ | 975 | $ | — | $ | 417 | $ | 1,392 | $ | 8,471 | $ | 9,863 | $ | 971 | $ | 8,892 |
Pooled PCI Loans | Non-pooled PCI Loans | |||||||||||||||||||||||||
Number of Loans | Number of Pools | Carrying Amount (in thousands) | Percentage of Total | Number of Loans | Carrying Amount (in thousands) | Percentage of Total | Total PCI Loans (in thousands) | |||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||||
Commercial property | 41 | 6 | $ | 6,788 | 88.7 | % | 1 | $ | 864 | 11.3 | % | $ | 7,652 | |||||||||||||
Residential property | — | — | — | — | % | 1 | 958 | 100.0 | % | $ | 958 | |||||||||||||||
Total real estate loans | 41 | 6 | 6,788 | 78.8 | % | 2 | 1,822 | 21.2 | % | 8,610 | ||||||||||||||||
Commercial and industrial loans | 3 | 3 | 51 | 100.0 | % | — | — | — | % | 51 | ||||||||||||||||
Consumer loans | 1 | 1 | 4 | 9.3 | % | 1 | 39 | 90.4 | % | 43 | ||||||||||||||||
Total acquired loans | 45 | 10 | 6,843 | 78.6 | % | 3 | 1,861 | 21.4 | % | 8,704 | ||||||||||||||||
Allowance for loan losses | (378 | ) | (416 | ) | (794 | ) | ||||||||||||||||||||
Total carrying amount | $ | 6,465 | $ | 1,445 | $ | 7,910 |
Pooled PCI Loans | Non-pooled PCI Loans | |||||||||||||||||||||||||
Number of Loans | Number of Pools | Carrying Amount (in thousands) | Percentage of Total | Number of Loans | Carrying Amount (in thousands) | Percentage of Total | Total PCI Loans (in thousands) | |||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||||
Commercial property | 45 | 6 | $ | 7,780 | 89.4 | % | 1 | $ | 921 | 10.6 | % | $ | 8,701 | |||||||||||||
Residential property | — | — | — | — | % | 2 | 976 | 100.0 | % | $ | 976 | |||||||||||||||
Total real estate loans | 45 | 6 | 7,780 | 80.4 | % | 3 | 1,897 | 19.6 | % | 9,677 | ||||||||||||||||
Commercial and industrial loans | 6 | 3 | 136 | 100.0 | % | — | — | — | % | 136 | ||||||||||||||||
Consumer loans | 1 | 1 | 50 | 100.0 | % | — | — | — | % | 50 | ||||||||||||||||
Total acquired loans | 52 | 10 | 7,966 | 80.8 | % | 3 | 1,897 | 19.2 | % | 9,863 | ||||||||||||||||
Allowance for loan losses | (617 | ) | (354 | ) | (971 | ) | ||||||||||||||||||||
Total carrying amount | $ | 7,349 | $ | 1,543 | $ | 8,892 |
Note 4 — Servicing Assets and Liabilities
The changes in servicing assets and liabilities for the ninethree months ended SeptemberJune 30, 20172020 and 20162019 were as follows:
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Servicing assets: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 6,727 |
|
| $ | 7,978 |
|
Addition related to sale of SBA loans |
|
| — |
|
|
| 344 |
|
Amortization |
|
| (540 | ) |
|
| (755 | ) |
Balance at end of period |
| $ | 6,187 |
|
| $ | 7,567 |
|
The changes in servicing assets for the six months ended June 30, 2020 and 2019 were as follows:
|
| Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Servicing assets: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 6,956 |
|
| $ | 8,520 |
|
Addition related to sale of SBA loans |
|
| 354 |
|
|
| 659 |
|
Amortization |
|
| (1,123 | ) |
|
| (1,612 | ) |
Balance at end of period |
| $ | 6,187 |
|
| $ | 7,567 |
|
2017 | 2016 | ||||||
(in thousands) | |||||||
Servicing assets: | |||||||
Balance at beginning of period | $ | 10,564 | $ | 11,744 | |||
Addition related to sale of SBA loans | 1,949 | 1,452 | |||||
Amortization | (2,415 | ) | (2,363 | ) | |||
Reversal of allowance | 330 | — | |||||
Balance at end of period | $ | 10,428 | $ | 10,833 | |||
Servicing liabilities: | |||||||
Balance at beginning of period | $ | 3,143 | $ | 4,784 | |||
Amortization | (706 | ) | (1,358 | ) | |||
Reversal of allowance | (67 | ) | — | ||||
Balance at end of period | $ | 2,370 | $ | 3,426 |
At SeptemberJune 30, 20172020 and 2016,December 31, 2019, we serviced loans sold to unaffiliated parties in the amounts of $482.0$412.3 million and $485.1$422.3 million, respectively. These represented loans that have been sold for which the Bank continues to provide servicing. These loans are maintained off balanceoff-balance sheet and are not included in the loans receivable balance. All of the loans serviced were SBA loans.
The Company recorded servicing fee income of $1.2 million for each of the three-month periods ended September 30, 2017 and 2016, and $3.5 million and $3.6$1.1 million for the ninethree months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The Company recorded servicing fee income of $2.3 million and $2.2 million for the six months ended June 30, 2020 and 2019, respectively. Servicing fee income, net of the amortization of servicing assets, and liabilities, is included in other operating income in the consolidated statements of income. Net amortizationAmortization expense was $624,000$433,000 and $598,000$573,000 for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively and $1.7 million$969,000 and $1.0$1.3 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
Note 5 — Income Taxes
The Company’s income tax expense was $9.9$4.5 million and $8.2$1.2 million for the three months ended September 30, 2017 and 2016, respectively. Therepresenting an effective income tax rate was 39.9of 32.7 percent and 38.631.5 percent for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The Company’s income tax expense was $27.6$5.5 million and $23.3$7.5 million for the nine months ended September 30, 2017 and 2016, respectively. Therepresenting an effective income tax rate was 39.0of 32.3 percent and 35.630.2 percent for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. Income tax expense for the nine months ended September 30, 2016 includes a $1.8 million tax benefit recorded as a result of finalization of the Company's 2014 amended income tax returns.
Management concluded that as of SeptemberJune 30, 20172020 and December 31, 2016,2019, a valuation allowance of $1.0$4.9 million was appropriate against certain state net operating losses.
The Company is subject to examination by various federal and state tax authorities for thecertain years ended December 31, 20082015 through 2016. As of September 30, 2017, the Company was subject to audit or examination by Internal Revenue Service for the 2014 tax year and California Franchise Tax Board for the 2008 and 2009 tax years.2019. Management does not anticipate any material changes in our consolidated financial statements which may arise as a result of these audits or examinations.
The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law on March 27, 2020. The tax package is broad, with provisions for tax payment relief, significant business incentives, and certain corrections to the 2017 Tax Cuts and Jobs Act, or the Tax Act. The tax relief measures for entities includes a five-year net operating loss carry back, increases in interest expense deduction limits, accelerates alternative minimum tax credit refunds, provides payroll tax relief, and provides a technical correction to allow accelerated deductions for qualified improvement property. ASC Topic 740, Income Taxes, requires the effect of changes in tax law be recognized in the period in which new legislation is enacted. The enactment of the CARES Act is not material to the Company’s income taxes for the three and six months ended June 30, 2020, and is not expected to have a material impact on its financial statements for the full year ended December 31, 2020.
Note 6 — DebtGoodwill and other intangibles
The third-party originators intangible of $483,000 and goodwill of $11.0 million were recorded as a result of the acquisition of a leasing portfolio in 2016. The core deposit intangible of $2.2 million was recognized for the core deposits acquired in a 2014 acquisition. The Company’s intangible assets were as follows for the periods indicated:
|
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
| Amortization Period |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||
|
|
|
| (in thousands) |
| |||||||||||||||||||||
Core deposit intangible |
| 10 years |
| $ | 2,213 |
|
| $ | (1,657 | ) |
| $ | 556 |
|
| $ | 2,213 |
|
| $ | (1,567 | ) |
| $ | 646 |
|
Third-party originators intangible |
| 7 years |
|
| 483 |
|
|
| (328 | ) |
|
| 155 |
|
|
| 483 |
|
|
| (287 | ) |
|
| 196 |
|
Goodwill |
| N/A |
|
| 11,031 |
|
|
| — |
|
|
| 11,031 |
|
|
| 11,031 |
|
|
| — |
|
|
| 11,031 |
|
Total intangible assets |
|
|
| $ | 13,727 |
|
| $ | (1,985 | ) |
| $ | 11,742 |
|
| $ | 13,727 |
|
| $ | (1,854 | ) |
| $ | 11,873 |
|
Intangible assets amortization expense for the three-month periods ended June 30, 2020 and 2019 was $65,000 and $65,000, respectively, and for the six-month periods ended June 30, 2020 and 2019 was $131,000 and $155,000, respectively. During the first quarter of 2020, the Company performed an impairment analysis on its goodwill and other intangible assets and determined there was 0 impairment.
Note 7 — Deposits
Time deposits at or exceeding the FDIC insurance limit of $250,000 at June 30, 2020 and December 31, 2019 were $308.5 million and $299.9 million, respectively.
The scheduled maturities of time deposits are as follows for the periods indicated:
At June 30, 2020 |
| Time Deposits of $250,000 or More |
|
| Other Time Deposits |
|
| Total |
| |||
|
| (in thousands) |
| |||||||||
2020 |
| $ | 213,200 |
|
| $ | 549,973 |
|
| $ | 763,174 |
|
2021 |
|
| 94,456 |
|
|
| 514,553 |
|
|
| 609,009 |
|
2022 |
|
| — |
|
|
| 59,134 |
|
|
| 59,134 |
|
2023 |
|
| 796 |
|
|
| 1,841 |
|
|
| 2,636 |
|
2024 and thereafter |
|
| — |
|
|
| 1,062 |
|
|
| 1,062 |
|
Total |
| $ | 308,453 |
|
| $ | 1,126,562 |
|
| $ | 1,435,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
| $ | 291,940 |
|
| $ | 1,098,666 |
|
| $ | 1,390,606 |
|
2021 |
|
| 7,186 |
|
|
| 130,331 |
|
|
| 137,517 |
|
2022 |
|
| — |
|
|
| 25,155 |
|
|
| 25,155 |
|
2023 |
|
| 789 |
|
|
| 1,185 |
|
|
| 1,974 |
|
2024 and thereafter |
|
| — |
|
|
| 669 |
|
|
| 669 |
|
Total |
| $ | 299,914 |
|
| $ | 1,256,005 |
|
| $ | 1,555,919 |
|
Accrued interest payable on deposits was $8.6 million and $11.2 million at June 30, 2020 and December 31, 2019, respectively. Total deposits reclassified to loans due to overdrafts at June 30, 2020 and December 31, 2019 were $442,000 and $1.5 million, respectively.
Note 8 — Borrowings
At June 30, 2020, the Bank had 0 overnight advances and $150.0 million in term advances outstanding with the FHLB Borrowings
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Outstanding Balance |
|
| Weighted Average Rate |
|
| Outstanding Balance |
|
| Weighted Average Rate |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Overnight advances |
| $ | — |
|
|
| 0.00 | % |
| $ | 15,000 |
|
|
| 1.66 | % |
Advances due with 12 months |
|
| 50,000 |
|
|
| 1.66 | % |
|
| 25,000 |
|
|
| 1.75 | % |
Advances due over 12 months through 24 months |
|
| 50,000 |
|
|
| 1.59 | % |
|
| 25,000 |
|
|
| 1.66 | % |
Advances due over 24 months through 36 months |
|
| 50,000 |
|
|
| 1.63 | % |
|
| 25,000 |
|
|
| 1.72 | % |
Outstanding advances |
| $ | 150,000 |
|
|
| 1.63 | % |
| $ | 90,000 |
|
|
| 1.70 | % |
The following is financial data pertaining to FHLB advances was $714,000 and $673,000, respectively, and the weighted-average interest rate was 0.80 percent and 0.44 percent, respectively.advances:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
| (dollars in thousands) |
| |||||
Weighted-average interest rate at end of period |
|
| 1.63 | % |
|
| 1.70 | % |
Weighted-average interest rate during the period |
|
| 1.39 | % |
|
| 1.89 | % |
Average balance of FHLB advances |
| $ | 163,269 |
|
| $ | 40,374 |
|
Maximum amount outstanding at any month-end |
| $ | 300,000 |
|
| $ | 285,000 |
|
The Bank maintains a secured credit facility with the FHLB, allowing the Bank to borrow on an overnight and term basis. The Bank had $1.1$2.4 billion and $1.4 billion of loans pledged as collateral with the FHLB which provides $808.9 million inas of June 30, 2020 and December 31, 2019, respectively. Remaining available borrowing capacity was $1.5 billion, subject to the FHLB statutory lending limit of which $698.9$1.4 billion, and $878.4 million remained available at SeptemberJune 30, 2017.
The Bank also hashad securities with market values of $9.3$50.0 million and $30.2 million at June 30, 2020 and December 31, 2019, respectively, pledged with the FRB,Federal Reserve Bank (“FRB”), which provides $9.2provided $47.9 million and $29.6 million in available borrowing capacity through the Fed Discount Window. There were no outstanding borrowings with the FRBWindow as of SeptemberJune 30, 20172020 and December 31, 2016.
Note 79 — Earnings Per Share
Earnings per share (“EPS”) is calculated on both a basic and a diluted basis. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that then shared in earnings, excluding common shares in treasury.
Unvested restricted stock containing rights to non-forfeitable dividends are considered participating securities prior to vesting and have been included in the earnings allocation in computing basic and diluted EPS under the two-class method. Basic EPS is computed by dividing net income, net of income allocated to participating securities, by the weighted-average number of common shares. For diluted EPS, weighted-average number of common shares include the diluted effect of stock options.
The following table is a reconciliation of the components used to derive basic and diluted EPS for the periods indicated:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 9,175 |
|
| $ | 2,656 |
|
| $ | 11,526 |
|
| $ | 17,328 |
|
Less: income allocated to unvested restricted stock |
|
| 55 |
|
|
| 16 |
|
|
| 80 |
|
|
| 99 |
|
Income allocated to common shares |
| $ | 9,120 |
|
| $ | 2,640 |
|
| $ | 11,446 |
|
| $ | 17,229 |
|
Weighted-average shares for basic EPS |
|
| 30,426,967 |
|
|
| 30,685,301 |
|
|
| 30,447,984 |
|
|
| 30,688,698 |
|
Basic EPS (1) |
| $ | 0.30 |
|
| $ | 0.09 |
|
| $ | 0.38 |
|
| $ | 0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options |
|
| — |
|
|
| 42,380 |
|
|
| 2,247 |
|
|
| 40,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income allocated to common shares |
| $ | 9,120 |
|
| $ | 2,640 |
|
| $ | 11,446 |
|
| $ | 17,229 |
|
Weighted-average shares for diluted EPS |
|
| 30,426,967 |
|
|
| 30,727,681 |
|
|
| 30,450,231 |
|
|
| 30,729,020 |
|
Diluted EPS (1) |
| $ | 0.30 |
|
| $ | 0.09 |
|
| $ | 0.38 |
|
| $ | 0.56 |
|
(1) | Per share amounts may not be able to be recalculated using net income and weighted-average shares presented above due torounding. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands, except for share and per share data) | |||||||||||||||
Basic EPS: | |||||||||||||||
Net income | $ | 14,923 | $ | 13,121 | $ | 43,162 | $ | 42,073 | |||||||
Less: income allocated to unvested restricted shares | 93 | 81 | 270 | 258 | |||||||||||
Income allocated to common shares | $ | 14,830 | $ | 13,040 | $ | 42,892 | $ | 41,815 | |||||||
Weighted-average shares for basic EPS | 32,095,286 | 31,912,470 | 32,058,705 | 31,880,466 | |||||||||||
Basic EPS | $ | 0.46 | $ | 0.41 | $ | 1.34 | $ | 1.31 | |||||||
Effect of dilutive securities - options and unvested restricted stock | 160,528 | 175,763 | 171,614 | 150,829 | |||||||||||
Diluted EPS: | |||||||||||||||
Income allocated to common shares | $ | 14,830 | $ | 13,040 | $ | 42,892 | $ | 41,815 | |||||||
Weighted-average shares for diluted EPS | 32,255,814 | 32,088,233 | 32,230,319 | 32,031,295 | |||||||||||
Diluted EPS | $ | 0.46 | $ | 0.41 | $ | 1.33 | $ | 1.31 |
There were no0 anti-dilutive stock options with an anti-dilutive effectoutstanding for the three and ninesix months ended SeptemberJune 30, 2017. For2020 or 2019.
Note 10 — Regulatory Matters
Federal bank regulatory agencies require bank holding companies and banks to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.0 percent and a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0 percent. In addition to the threerisk-based guidelines, federal bank regulatory agencies require bank holding companies and nine months ended Septemberbanks to maintain a minimum ratio of Tier 1 capital to average assets, referred to as the leverage ratio, of 4.0 percent.
In order for banks to be considered “well capitalized,” federal bank regulatory agencies require a minimum ratio of qualifying total capital to risk-weighted assets of 10.0 percent and a minimum ratio of Tier 1 capital to risk-weighted assets of 8.0 percent. In addition to the risk-based guidelines, federal bank regulatory agencies require depository institutions to maintain a minimum ratio of Tier 1 capital to average assets, referred to as the leverage ratio, of 5.0 percent.
At June 30, 2016, 12,034 and 74,389 stock options, respectively, were not included in2020, the computation of diluted EPS because their effect was anti-dilutive.
Unrealized Gains and Losses on Available for Sale Securities | Tax Benefit (Expense) | Total | |||||||||
(in thousands) | |||||||||||
September 30, 2017 | |||||||||||
Balance at beginning of period | $ | 235 | $ | (98 | ) | $ | 137 | ||||
Other comprehensive income before reclassification | 529 | (109 | ) | 420 | |||||||
Reclassification from accumulated other comprehensive income | (267 | ) | — | (267 | ) | ||||||
Period change | 262 | (109 | ) | 153 | |||||||
Balance at end of period | $ | 497 | $ | (207 | ) | $ | 290 | ||||
September 30, 2016 | |||||||||||
Balance at beginning of period | $ | 13,816 | $ | (4,695 | ) | $ | 9,121 | ||||
Other comprehensive income before reclassification | (2,629 | ) | 1,109 | (1,520 | ) | ||||||
Reclassification from accumulated other comprehensive income | (46 | ) | — | (46 | ) | ||||||
Period change | (2,675 | ) | 1,109 | (1,566 | ) | ||||||
Balance at end of period | $ | 11,141 | $ | (3,586 | ) | $ | 7,555 |
Unrealized Gains and Losses on Available for Sale Securities | Unrealized Gains and Losses on Interest-Only Strip | Tax Benefit (Expense) | Total | ||||||||||||
(in thousands) | |||||||||||||||
September 30, 2017 | |||||||||||||||
Balance at beginning of period | $ | (4,089 | ) | $ | — | $ | 1,695 | $ | (2,394 | ) | |||||
Other comprehensive income before reclassification | 6,059 | — | (1,902 | ) | 4,157 | ||||||||||
Reclassification from accumulated other comprehensive income | (1,473 | ) | — | — | (1,473 | ) | |||||||||
Period change | 4,586 | — | (1,902 | ) | 2,684 | ||||||||||
Balance at end of period | $ | 497 | $ | — | $ | (207 | ) | $ | 290 | ||||||
September 30, 2016 | |||||||||||||||
Balance at beginning of period | $ | (2,331 | ) | $ | 9 | $ | 2,007 | $ | (315 | ) | |||||
Other comprehensive income before reclassification | 13,518 | (9 | ) | (5,593 | ) | 7,916 | |||||||||
Reclassification from accumulated other comprehensive income | (46 | ) | — | — | (46 | ) | |||||||||
Period change | 13,472 | (9 | ) | (5,593 | ) | 7,870 | |||||||||
Balance at end of period | $ | 11,141 | $ | — | $ | (3,586 | ) | $ | 7,555 |
A capital conservation buffer of 2.5% began to be phased in2.5 percent became effective January 1, 2016 throughon January 1, 2019, and must be met to avoid limitations on the ability of the Bank to pay dividends, repurchase shares or pay
In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the impact on regulatory capital arising from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company and the Bank adopted the capital transition relief over the permissible five-year period.
The capital ratios of Hanmi Financial and the Bank as of SeptemberJune 30, 20172020 and December 31, 20162019 were as follows:
|
|
|
|
|
|
|
|
|
| Minimum |
|
| Minimum to Be |
| ||||||||||
|
|
|
|
|
|
|
|
|
| Regulatory |
|
| Categorized as |
| ||||||||||
|
| Actual |
|
| Requirement |
|
| “Well Capitalized” |
| |||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 717,493 |
|
|
| 14.04 | % |
| $ | 408,870 |
|
|
| 8.00 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 695,899 |
|
|
| 13.62 | % |
| $ | 408,716 |
|
|
| 8.00 | % |
| $ | 510,895 |
|
|
| 10.00 | % |
Tier 1 capital (to risk-weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 554,813 |
|
|
| 10.86 | % |
| $ | 306,652 |
|
|
| 6.00 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 631,681 |
|
|
| 12.36 | % |
| $ | 306,537 |
|
|
| 6.00 | % |
| $ | 408,716 |
|
|
| 8.00 | % |
Common equity Tier 1 capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 534,582 |
|
|
| 10.46 | % |
| $ | 229,989 |
|
|
| 4.50 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 631,681 |
|
|
| 12.36 | % |
| $ | 229,903 |
|
|
| 4.50 | % |
| $ | 332,082 |
|
|
| 6.50 | % |
Tier 1 capital (to average assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 554,813 |
|
|
| 9.69 | % |
| $ | 229,116 |
|
|
| 4.00 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 631,681 |
|
|
| 11.03 | % |
| $ | 229,017 |
|
|
| 4.00 | % |
| $ | 286,271 |
|
|
| 5.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 714,288 |
|
|
| 15.11 | % |
| $ | 378,059 |
|
|
| 8.00 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 691,024 |
|
|
| 14.64 | % |
| $ | 377,516 |
|
|
| 8.00 | % |
| $ | 471,895 |
|
|
| 10.00 | % |
Tier 1 capital (to risk-weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 556,820 |
|
|
| 11.78 | % |
| $ | 283,544 |
|
|
| 6.00 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 631,978 |
|
|
| 13.39 | % |
| $ | 283,137 |
|
|
| 6.00 | % |
| $ | 377,516 |
|
|
| 8.00 | % |
Common equity Tier 1 capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 536,781 |
|
|
| 11.36 | % |
| $ | 212,658 |
|
|
| 4.50 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 631,978 |
|
|
| 13.39 | % |
| $ | 212,353 |
|
|
| 4.50 | % |
| $ | 306,732 |
|
|
| 6.50 | % |
Tier 1 capital (to average assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
| $ | 556,820 |
|
|
| 10.15 | % |
| $ | 219,367 |
|
|
| 4.00 | % |
| N/A |
|
| N/A |
| ||
Hanmi Bank |
| $ | 631,978 |
|
|
| 11.56 | % |
| $ | 218,748 |
|
|
| 4.00 | % |
| $ | 273,435 |
|
|
| 5.00 | % |
Actual | Minimum Regulatory Requirement | Minimum to Be Categorized as “Well Capitalized” | ||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||
Hanmi Financial | $ | 677,024 | 15.58 | % | $ | 347,757 | 8.00 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 666,298 | 15.32 | % | $ | 347,949 | 8.00 | % | $ | 434,936 | 10.00 | % | ||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||
Hanmi Financial | $ | 545,698 | 12.56 | % | $ | 260,818 | 6.00 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 632,891 | 14.55 | % | $ | 260,962 | 6.00 | % | $ | 347,949 | 8.00 | % | ||||||||
Common equity Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||
Hanmi Financial | $ | 530,347 | 12.20 | % | $ | 195,613 | 4.50 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 632,891 | 14.55 | % | $ | 195,721 | 4.50 | % | $ | 282,709 | 6.50 | % | ||||||||
Tier 1 capital (to average assets): | ||||||||||||||||||||
Hanmi Financial | $ | 545,698 | 10.92 | % | $ | 199,818 | 4.00 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 632,891 | 12.66 | % | $ | 199,897 | 4.00 | % | $ | 249,871 | 5.00 | % | ||||||||
December 31, 2016 | ||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||
Hanmi Financial | $ | 554,089 | 13.86 | % | $ | 319,901 | 8.00 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 544,759 | 13.64 | % | $ | 319,520 | 8.00 | % | $ | 399,399 | 10.00 | % | ||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||
Hanmi Financial | $ | 520,477 | 13.02 | % | $ | 239,926 | 6.00 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 511,146 | 12.80 | % | $ | 239,640 | 6.00 | % | $ | 319,520 | 8.00 | % | ||||||||
Common equity Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||
Hanmi Financial | $ | 509,239 | 12.73 | % | $ | 179,944 | 4.50 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 511,146 | 12.80 | % | $ | 179,730 | 4.50 | % | $ | 259,610 | 6.50 | % | ||||||||
Tier 1 capital (to average assets): | ||||||||||||||||||||
Hanmi Financial | $ | 520,477 | 11.53 | % | $ | 180,581 | 4.00 | % | N/A | N/A | ||||||||||
Hanmi Bank | $ | 511,146 | 11.33 | % | $ | 180,411 | 4.00 | % | $ | 225,514 | 5.00 | % |
Note 1011 — Fair Value Measurements
Fair Value Measurements
ASC 820,
Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:• | Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
• | Level 2 - Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. |
• | Level 3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes.
We record securities available for sale at fair value on a recurring basis. Certain other assets, such as loans held for sale, impaired loans, OREO, and core deposit intangible, are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument below:
Securities available for sale - The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curve, prepayment speeds, and default rates. Level 1 securities include U.S. treasuryTreasury securities and mutual funds that are traded on an active exchange or by dealers or brokers in active over-the-counter markets. The fair value of these securities is determined by quoted prices on an active exchange or over-the-counter market. Level 2 securities primarily include U.S. government agency and sponsored agency mortgage-backed securities, collateralized mortgage obligations U.S. government agencyand debt securities SBA loan pool securities,as well as municipal bonds and corporate bonds in markets that are active. In determining the fair value of the securities categorized as Level 2, we obtain reports from nationally recognized broker-dealers detailing the fair value of each investment security held as of each reporting date. The broker-dealers use prices obtained from nationally recognized pricing services to value our fixed income securities. The fair value of the municipal securities is determined based on pricing data provided by nationally recognized pricing services. We review the prices obtained for reasonableness based on our understanding of the marketplace, and also consider any credit issues related to the bonds. As we have not made any adjustments to the market quotes provided to us and as they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy. Level 3 securities are instruments that are not traded in the market. As such, no observable market data for the instrument is available, which necessitates the use of significant unobservable inputs.
Loans held for sale - Loans held for sale are all SBA loans and carried at the lower of cost or fair value. Management obtains quotes, bids or pricing indication sheets on all or part of these loans directly from the purchasing financial institutions. Premiums received or to be received on the quotes, bids or pricing indication sheets are indicative of the fact that cost is lower than fair value. At SeptemberJune 30, 2017,2020 and December 31, 2019, the entire balance of SBA loans held for sale was recorded at its cost. We record SBA loans held for sale on a nonrecurring basis with Level 2 inputs.
Individually analyzed loans (excluding PCI loans)receivable - Nonaccrual loans receivable and performing restructured loans receivable are considered impairedindividually analyzed for reporting purposes and are measured and recorded at fair value on a non-recurring basis. Nonaccrual Non-PCIbasis to determine if they exhibit credit risk characteristics. All such loans receivable with an unpaid principala carrying balance over $100,000 and all performing restructured loans$250,000 are reviewedanalyzed individually for the amount of impairment,to determine if a reserve is required, if any. Nonaccrual Non-PCIAll such loans with an unpaid principala carrying balance of $100,000$250,000 or less are evaluated for impairment collectively.analyzed in pools to determine if they exhibit any credit risk characteristics requiring reserves. The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral dependentcollateral-dependent impaired loans are recorded based on either the current appraised value of the collateral, a Level 2 measurement, or management’s judgment and estimation of value reported on older appraisals that are then adjusted based on recent market trends, a Level 3 measurement.
OREO - Fair value of OREO is based primarily on third party appraisals, less costs to sell and result in a Level 23 classification of the inputs for determining fair value. Appraisals are required annually and may be updated more frequently as circumstances require and the fair value adjustments are made to OREO based on the updated appraised value of the property.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, assets and liabilities measured at fair value on a recurring basis are as follows:
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
|
|
|
| |||
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Observable |
|
|
|
|
|
|
|
|
| |
|
| Quoted Prices in |
|
| Inputs with No |
|
|
|
|
|
|
|
|
| ||
|
| Active Markets |
|
| Active Market |
|
| Significant |
|
|
|
|
| |||
|
| for Identical |
|
| with Identical |
|
| Unobservable |
|
|
|
|
| |||
|
| Assets |
|
| Characteristics |
|
| Inputs |
|
| Total Fair Value |
| ||||
|
| (in thousands) |
| |||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 45,262 |
|
| $ | — |
|
| $ | — |
|
| $ | 45,262 |
|
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| — |
|
|
| 413,263 |
|
|
| — |
|
|
| 413,263 |
|
Collateralized mortgage obligations |
|
| — |
|
|
| 120,294 |
|
|
| — |
|
|
| 120,294 |
|
Debt securities |
|
| — |
|
|
| 77,152 |
|
|
| — |
|
|
| 77,152 |
|
Total U.S. government agency and sponsored agency obligations |
|
| — |
|
|
| 610,709 |
|
|
| — |
|
|
| 610,709 |
|
Total securities available for sale |
| $ | 45,262 |
|
| $ | 610,709 |
|
| $ | — |
|
| $ | 655,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 35,205 |
|
| $ | — |
|
| $ | — |
|
| $ | 35,205 |
|
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| — |
|
|
| 410,800 |
|
|
| — |
|
|
| 410,800 |
|
Collateralized mortgage obligations |
|
| — |
|
|
| 164,592 |
|
|
| — |
|
|
| 164,592 |
|
Debt securities |
|
| — |
|
|
| 23,879 |
|
|
| — |
|
|
| 23,879 |
|
Total U.S. government agency and sponsored agency obligations |
|
| — |
|
|
| 599,271 |
|
|
| — |
|
|
| 599,271 |
|
Total securities available for sale |
| $ | 35,205 |
|
| $ | 599,271 |
|
| $ | — |
|
| $ | 634,477 |
|
Level 1 | Level 2 | Level 3 | |||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs with No Active Market with Identical Characteristics | Significant Unobservable Inputs | Balance | ||||||||||||
(in thousands) | |||||||||||||||
September 30, 2017 | |||||||||||||||
Assets: | |||||||||||||||
Securities available for sale: | |||||||||||||||
Mortgage-backed securities | $ | — | $ | 309,750 | $ | — | $ | 309,750 | |||||||
Collateralized mortgage obligations | — | 106,124 | — | 106,124 | |||||||||||
U.S. government agency securities | — | 7,457 | — | 7,457 | |||||||||||
SBA loan pools securities | — | 3,896 | — | 3,896 | |||||||||||
Municipal bonds-tax exempt | — | 148,524 | — | 148,524 | |||||||||||
U.S. treasury securities | 153 | — | — | 153 | |||||||||||
Mutual funds | 22,536 | — | — | 22,536 | |||||||||||
Total securities available for sale | $ | 22,689 | $ | 575,751 | $ | — | $ | 598,440 | |||||||
December 31, 2016 | |||||||||||||||
Assets: | |||||||||||||||
Securities available for sale: | |||||||||||||||
Mortgage-backed securities | $ | — | $ | 229,630 | $ | — | $ | 229,630 | |||||||
Collateralized mortgage obligations | — | 76,451 | — | 76,451 | |||||||||||
U.S. government agency securities | — | 7,441 | — | 7,441 | |||||||||||
SBA loan pools securities | — | 4,146 | — | 4,146 | |||||||||||
Municipal bonds-tax exempt | — | 158,030 | — | 158,030 | |||||||||||
Municipal bonds-taxable | — | 13,701 | — | 13,701 | |||||||||||
Corporate bonds | — | 5,015 | — | 5,015 | |||||||||||
U.S. treasury securities | 156 | — | — | 156 | |||||||||||
Mutual funds | 22,394 | — | — | 22,394 | |||||||||||
Total securities available for sale | $ | 22,550 | $ | 494,414 | $ | — | $ | 516,964 |
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, assets and liabilities measured at fair value on a non-recurring basis are as follows:
|
|
|
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
|
|
|
|
|
|
|
|
|
| Significant |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Observable |
|
|
|
|
| |
|
|
|
|
|
| Quoted Prices in |
|
| Inputs With No |
|
|
|
|
| ||
|
|
|
|
|
| Active Markets |
|
| Active Market |
|
| Significant |
| |||
|
|
|
|
|
| for Identical |
|
| With Identical |
|
| Unobservable |
| |||
|
| Total |
|
| Assets |
|
| Characteristics |
|
| Inputs |
| ||||
|
| (in thousands) |
| |||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral dependent impaired loans (1) |
| $ | 44,120 |
|
| $ | — |
|
| $ | — |
|
| $ | 44,120 |
|
Other real estate owned |
|
| 148 |
|
|
| — |
|
|
| — |
|
|
| 148 |
|
Bank-owned premises |
|
| 1,900 |
|
|
| — |
|
|
| — |
|
|
| 1,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral dependent impaired loans (2) |
| $ | 31,049 |
|
| $ | — |
|
| $ | — |
|
| $ | 31,049 |
|
Other real estate owned |
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
Bank-owned premises |
|
| 1,900 |
|
|
| — |
|
|
| — |
|
|
| 1,900 |
|
Level 1 | Level 2 | Level 3 | |||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs With No Active Market With Identical Characteristics | Significant Unobservable Inputs | Loss During the Nine Months Ended September 30, 2017 | ||||||||||||
(in thousands) | |||||||||||||||
September 30, 2017 | |||||||||||||||
Assets: | |||||||||||||||
Impaired loans (excluding PCI loans) (1) | $ | — | $ | 4,920 | $ | 2,269 | $ | 149 | |||||||
OREO (2) | — | 1,946 | — | — | |||||||||||
Level 1 | Level 2 | Level 3 | |||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs With No Active Market With Identical Characteristics | Significant Unobservable Inputs | Loss During the Twelve Months Ended December 31, 2016 | ||||||||||||
(in thousands) | |||||||||||||||
December 31, 2016 | |||||||||||||||
Assets: | |||||||||||||||
Impaired loans (excluding PCI loans) (3) | $ | — | $ | 15,257 | $ | 6,767 | $ | 868 | |||||||
OREO (4) | — | 7,484 | — | — |
(1) | Consisted of real estate loans of |
(2) | Consisted of real estate loans of $27.2 million and commercial and industrial loans of |
The following table represents quantitative information about Level 3 fair value comments for assets measured at fair value on a non-recurring basis at June 30, 2020 and December 31, 2019:
|
| Fair Value |
|
| Valuation Techniques |
| Unobservable Input(s) |
| Range (Weighted Average) |
| |
|
| (in thousands) |
| ||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Collateral dependent impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 1,355 |
|
| Market approach |
| Market data comparison |
| (30)% to (3)% /(17%) |
|
Other |
|
| 15,441 |
|
| Market approach |
| Market data comparison |
| (18)% to 42% / 18% (2) |
|
Construction |
|
| 23,067 |
|
| Market approach |
| Market data comparison |
| (18)% to 43% / 21% (2) |
|
Residential property |
|
| 2,761 |
|
| Market approach |
| Market data comparison |
| (13)% to 15% / 6% (2) |
|
Total real estate loans |
|
| 42,624 |
|
|
|
|
|
|
|
|
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
Commercial term |
|
| 288 |
|
| Market approach |
| Market data comparison |
| (9)% to 11% / 1% (2) (3) |
|
Consumer loans |
|
| 1,208 |
|
| Market approach |
| Market data comparison |
| (13)% to 15% / 6% (2) |
|
Total |
| $ | 44,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank-owned premises |
|
| 1,900 |
|
| Market approach |
| Market data comparison |
| (30)% to 55% /(2)% (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
Collateral dependent impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
Other |
| $ | 13,926 |
|
| Market approach |
| Market data comparison |
| (1) |
|
Construction |
|
| 13,228 |
|
| Market approach |
| Market data comparison |
| (3)% to 43% /21% (2) |
|
Total real estate loans |
|
| 27,154 |
|
|
|
|
|
|
|
|
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
Commercial lines of credit |
|
| 3,895 |
|
| Market approach |
| Market data comparison |
| (8)% to 42% /18% (2) |
|
Total |
| $ | 31,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank-owned premises |
|
| 1,900 |
|
| Market approach |
| Market data comparison |
| (30)% to 55% /(2)% (2) |
|
(1) | The values were estimated by current market data comparison, supplemented by cost information. The properties compared when possible, with others for sale and that have sold in the general time period. Adjustments are made for differences in equipment, mileage, cosmetics, conversions, originality, condition as well as sale terms and current economic conditions at time of sale. |
(2) | Appraisal reports utilize a combination of valuation techniques including a market approach, where prices and other relevant information generated by market transactions involving similar or comparable properties |
(3) | Includes 1 loan secured by cash collateral. |
The fair value of the Level 3 loans receivable demonstrating credit risk characteristics at June 30, 2020 were determined utilizing the fair value measurement methodology for assets measured on a non-recurring basis. Such loans receivable measured at fair value at June 30, 2020 consisted of 7 commercial real estate loans with a fair value of $16.8 million, 2 construction
loans with a fair value of $23.1 million, 5 residential mortgages with a fair value of $2.8 million, 1 commercial term loan with a fair value of $41,000, 1 commercial term loan fully secured by cash with a fair value of $247,000, and 3 consumer loans with a fair value of $1.2 million. The fair value of collateral dependent loans is determined on a non-recurring basis using either the sales comparison approach or the income approach by obtaining third party appraisals.
ASC 825,
Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured on a recurring basis or non-recurring basis are discussed above.The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Effective January 1, 2018, the Company adopted ASU 2016-01, Recognition and Measurement of financial instruments were as follows:
September 30, 2017 | |||||||||||
Carrying | Fair Value | ||||||||||
Amount | Level 1 | Level 2 | Level 3 | ||||||||
(in thousands) | |||||||||||
Financial assets: | |||||||||||
Cash and due from banks | 138,139 | 138,139 | — | — | |||||||
Securities available for sale | 598,440 | 22,689 | 575,751 | — | |||||||
Loans and leases receivable, net of allowance for loan and lease losses | 4,162,863 | — | — | 4,124,666 | |||||||
Loans held for sale | 6,469 | — | 6,469 | — | |||||||
Accrued interest receivable | 12,098 | 12,098 | — | — | |||||||
FHLB stock | 16,385 | — | 16,385 | — | |||||||
Financial liabilities: | |||||||||||
Noninterest-bearing deposits | 1,293,538 | — | 1,293,538 | — | |||||||
Interest-bearing deposits | 3,005,472 | — | — | 2,956,667 | |||||||
Borrowings | 227,140 | — | — | 227,140 | |||||||
Accrued interest payable | 4,071 | 4,071 | — | — | |||||||
Off-balance sheet items: | |||||||||||
Commitments to extend credit | 301,049 | — | — | 301,049 | |||||||
Standby letters of credit | 19,521 | — | — | 19,521 | |||||||
Commercial letters of credit | 6,833 | — | — | 6,833 |
December 31, 2016 | |||||||||||||||
Carrying | Fair Value | ||||||||||||||
Amount | Level 1 | Level 2 | Level 3 | ||||||||||||
(in thousands) | |||||||||||||||
Financial assets: | |||||||||||||||
Cash and due from banks | $ | 147,235 | $ | 147,235 | $ | — | $ | — | |||||||
Securities available for sale | 516,964 | 22,550 | 494,414 | — | |||||||||||
Loans and leases receivable, net of allowance for loan and lease losses | 3,812,340 | — | — | 3,789,579 | |||||||||||
Loans held for sale | 9,316 | — | 9,316 | — | |||||||||||
Accrued interest receivable | 10,987 | 10,987 | — | — | |||||||||||
FHLB stock | 16,385 | — | 16,385 | — | |||||||||||
Financial liabilities: | |||||||||||||||
Noninterest-bearing deposits | 1,203,240 | — | 1,203,240 | — | |||||||||||
Interest-bearing deposits | 2,606,497 | — | — | 2,541,929 | |||||||||||
Borrowings | 333,978 | — | — | 333,978 | |||||||||||
Accrued interest payable | 2,567 | 2,567 | — | — | |||||||||||
Off-balance sheet items: | |||||||||||||||
Commitments to extend credit | 310,987 | — | — | 310,987 | |||||||||||
Standby letters of credit | 15,669 | — | — | 15,669 | |||||||||||
Commercial letters of credit | 4,215 | — | — | 4,215 |
The estimated fair values of financial instruments were as follows:
|
| June 30, 2020 |
| |||||||||||||
|
| Carrying |
|
| Fair Value |
| ||||||||||
|
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
| (in thousands) |
| |||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 546,048 |
|
| $ | 546,048 |
|
| $ | — |
|
| $ | — |
|
Securities available for sale |
|
| 655,971 |
|
|
| 45,262 |
|
|
| 610,709 |
|
|
| — |
|
Loans held for sale |
|
| 17,942 |
|
|
| — |
|
|
| 17,942 |
|
|
| — |
|
Loans receivable, net of allowance for credit losses |
|
| 4,739,312 |
|
|
| — |
|
|
| — |
|
|
| 4,690,692 |
|
Accrued interest receivable |
|
| 21,372 |
|
|
| 21,372 |
|
|
| — |
|
|
| — |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
| 1,865,213 |
|
|
| — |
|
|
| 1,865,213 |
|
|
| — |
|
Interest-bearing deposits |
|
| 3,344,568 |
|
|
| — |
|
|
| — |
|
|
| 3,353,585 |
|
Borrowings and subordinated debentures |
|
| 370,478 |
|
|
| — |
|
|
| 254,116 |
|
|
| 120,139 |
|
Accrued interest payable |
|
| 8,655 |
|
|
| 8,655 |
|
|
| — |
|
|
| — |
|
|
| December 31, 2019 |
| |||||||||||||
|
| Carrying |
|
| Fair Value |
| ||||||||||
|
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
| (in thousands) |
| |||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 121,678 |
|
| $ | 121,678 |
|
| $ | — |
|
| $ | — |
|
Securities available for sale |
|
| 634,477 |
|
|
| 35,205 |
|
|
| 599,272 |
|
|
| — |
|
Loans held for sale |
|
| 6,020 |
|
|
| — |
|
|
| 6,382 |
|
|
| — |
|
Loans receivable, net of allowance for credit losses |
|
| 4,548,739 |
|
|
| ��� |
|
|
| — |
|
|
| 4,520,322 |
|
Accrued interest receivable |
|
| 11,742 |
|
|
| 11,742 |
|
|
| — |
|
|
| — |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
| 1,391,624 |
|
|
| — |
|
|
| 1,391,624 |
|
|
| — |
|
Interest-bearing deposits |
|
| 3,307,338 |
|
|
| — |
|
|
| — |
|
|
| 3,317,867 |
|
Borrowings and subordinated debentures |
|
| 208,377 |
|
|
| — |
|
|
| 89,831 |
|
|
| 118,807 |
|
Accrued interest payable |
|
| 11,215 |
|
|
| 11,215 |
|
|
| — |
|
|
| — |
|
Unrecognized Expense | Average Expected Recognition Period | ||||
(in thousands) | |||||
Stock option awards | $ | 19 | 0.9 years | ||
Restricted stock awards | 4,751 | 2.3 years | |||
Total unrecognized share-based compensation expense | $ | 4,770 | 2.3 years |
Number of Shares | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life | Aggregate Intrinsic Value of In-the- Money Options | ||||||||||
(in thousands) | |||||||||||||
Options outstanding at beginning of period | 376,401 | $ | 17.68 | 6.3 years | $ | 4,168 | (1) | ||||||
Options exercised | (10,625 | ) | $ | 12.21 | 4.5 years | — | |||||||
Options outstanding at end of period | 365,776 | $ | 17.84 | 6.1 years | $ | 4,797 | (2) | ||||||
Options exercisable at end of period | 348,105 | $ | 17.62 | 6.1 years | $ | 4,641 | (2) |
Number of Shares | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life | Aggregate Intrinsic Value of In-the- Money Options | ||||||||||
(in thousands) | |||||||||||||
Options outstanding at beginning of period | 387,901 | $ | 17.49 | 6.8 years | $ | 6,752 | (1) | ||||||
Options exercised | (22,125 | ) | $ | 12.19 | 4.5 years | — | |||||||
Options outstanding at end of period | 365,776 | $ | 17.84 | 6.1 years | $ | 4,797 | (2) | ||||||
Options exercisable at end of period | 348,105 | $ | 17.62 | 6.1 years | $ | 4,641 | (2) |
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||||||||
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | Number of Shares | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
Restricted stock at beginning of period | 305,951 | $ | 20.21 | 343,958 | $ | 16.60 | |||||||
Restricted stock granted | 13,173 | 28.79 | 104,179 | 31.04 | |||||||||
Restricted stock vested | (2,666 | ) | 20.52 | (122,010 | ) | 18.12 | |||||||
Restricted stock forfeited | (3,667 | ) | 28.60 | (13,336 | ) | 24.73 | |||||||
Restricted stock at end of period | 312,791 | 20.47 | 312,791 | 20.47 |
Note 12 — Off-Balance Sheet Commitments
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved with on-balance sheet items recognized in the consolidated balance sheets.
The Bank’s exposure to losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank
The following table shows the distribution of undisbursed loan commitments as of the dates indicated:
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Commitments to extend credit |
| $ | 486,852 |
|
| $ | 371,287 |
|
Standby letters of credit |
|
| 45,574 |
|
|
| 31,372 |
|
Commercial letters of credit |
|
| 12,335 |
|
|
| 11,133 |
|
Total undisbursed loan commitments |
| $ | 544,761 |
|
| $ | 413,792 |
|
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Commitments to extend credit | $ | 301,049 | $ | 310,987 | |||
Standby letters of credit | 19,521 | 15,669 | |||||
Commercial letters of credit | 6,833 | 4,215 | |||||
Total undisbursed loan commitments | $ | 327,403 | $ | 330,871 |
The allowance for credit losses related to off-balance sheet items is maintained at a level believed to be sufficient to absorb probable losses related to these unfunded credit facilities. The determination of the allowance adequacy is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. Net adjustments to the allowance for off-balance sheet items are included in other operating expenses.
Activity in the allowance for loancredit losses related to off-balance sheet items was as follows for the periods indicated:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Balance at beginning of period |
| $ | 2,885 |
|
| $ | 1,100 |
|
| $ | 2,397 |
|
| $ | 1,439 |
|
Adjustment related to adoption of ASU 2016-13 |
|
| — |
|
|
| — |
|
|
| (335 | ) |
|
| — |
|
Adjusted balance at beginning of period |
|
| 2,885 |
|
|
| 1,100 |
|
|
| 2,062 |
|
|
| 1,439 |
|
Provision expense (income) for credit losses |
|
| 3,462 |
|
|
| 233 |
|
|
| 4,285 |
|
|
| (106 | ) |
Balance at end of period |
| $ | 6,347 |
|
| $ | 1,333 |
|
| $ | 6,347 |
|
| $ | 1,333 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands) | |||||||||||||||
Balance at beginning of period | $ | 1,135 | $ | 1,475 | $ | 1,184 | $ | 986 | |||||||
Provision (income) | (220 | ) | 16 | (269 | ) | 505 | |||||||||
Balance at end of period | $ | 915 | $ | 1,491 | $ | 915 | $ | 1,491 |
Note 13 — Leases
The Company adopted ASU 2016-02, Leases (Topic 842), effective January 1, 2019. We had approximately 44 operating leases for real estate and other assets at June 30, 2020. These included various leases for our branch and office locations as well as those for postage and copier machines and an advertising billboard. Our leases had initial lease terms of two to twenty-five years. Most leases included one or more options to renew, with renewal terms that can extend the lease term from two to twelve years.
For leases where we were reasonably certain to renew, those option periods were included within the lease term and, therefore, the measurement of the right-of-use asset and lease liability. Certain leases included options to terminate the lease, which allows the contract parties to terminate their obligations under the lease contract, typically in return for an agreed financial consideration. The terms and conditions of the termination options vary by contract. Leases with an initial term of 12 months or less were not recognized on the balance sheet. We recognized lease expense for these leases on a straight- line basis over the lease term. Certain lease agreements included payments based on Consumer Price Index (CPI) on which variable lease payments were determined and included in the right-of-use asset and liability. Variable lease payments that were not based on CPI were excluded from the right-of-use asset and lease liability and recognized in the period in which the obligations for those payments were incurred. Our lease agreements did not contain any material residual value guarantees, restrictions or covenants.
In determining whether a contract contained a lease, we determined whether an arrangement was or included a lease at contract inception. Operating lease right-of-use asset and liability were recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. The opening balance for both our right-of-use asset and lease liability were $40.9 million as of the adoption date of January 1, 2019.
We had real estate lease agreements with lease and non-lease components, which are generally accounted for separately. However, we elected the practical expedient to not separate non-lease components from lease components for all classes of underlying assets. For certain equipment leases, such as machine equipment, we accounted for the lease and associated non-lease components as a single lease component.
In determining the discount rates, since most of our leases do not provide an implicit rate, we used our incremental borrowing rate provided by the FHLB of San Francisco based on the information available at the commencement date to calculate the present value of lease payments. In order to apply the incremental borrowing rate, a portfolio approach with a collateralized rate was utilized. Assets were grouped based on similar lease terms and economic environments in a manner whereby the Company reasonably expects that the application does not differ materially from a lease-by-lease approach.
The Company's right-of-use asset is included in prepaid expenses and other assets and our lease liability is included in accrued expenses and other liabilities in the accompanying consolidated balance sheet.
As of June 30, 2020, the right-of-use asset and lease liability balances were $50.4 million and $51.4 million, respectively. As of December 31, 2019, the right-of-use asset and lease liability were $36.5 million and $37.2 million, respectively. For the three-month period ended June 30, 2020 and 2019, net lease expense recorded under such leases amounted to $2.0 million and $1.9 million, respectively. For the six-month period ended June 30, 2020 and 2019, net lease expense recorded under such leases amounted to $4.1 million and $3.8 million, respectively.
The following table presents the Company's remaining lease liability by maturity as of June 30, 2020:
|
| Amount |
| |
|
| (in thousands) |
| |
2020 |
| $ | 6,975 |
|
2021 |
|
| 6,733 |
|
2022 |
|
| 6,631 |
|
2023 |
|
| 6,485 |
|
2024 |
|
| 6,075 |
|
Thereafter |
|
| 24,825 |
|
Remaining lease commitments |
|
| 57,725 |
|
Interest |
|
| (6,306 | ) |
Present value of lease liability |
| $ | 51,419 |
|
Weighted average remaining lease terms for the Company's operating leases were 8.07 and 8.57 years as of June 30, 2020 and December 31, 2019, respectively.WeightedaveragediscountratesusedfortheCompany'soperatingleaseswas2.56percent and 3.23 percent asofJune 30, 2020 and 2019, respectively.The Company chose the practical expedients and reviewed the lease
and non-lease components for any impairment or otherwise, subsequently determining that no cumulative-effect adjustment to equity was necessary as part of implementing the modified retrospective approach for its adoption of ASC842.
Cash paid and included in cash flows from operating activities for amounts used in the measurement of the lease liability of the Company's operating leases was $1.8 million and $3.7 million for the three and six months ended June 30, 2020 and 2019, respectively.
Note 14 — Liquidity
Hanmi Financial
As of June 30, 2020, Hanmi Financial had $20.3 million in cash on deposit with its bank subsidiary. Management believes that Hanmi Financial, on a stand-alone basis, had adequate liquid assets to meet its current debt obligations.
Hanmi Bank
The principal objective of our liquidity management program is to maintain the Bank’s ability to meet the day-to-day cash flow requirements of our customers who wish either to withdraw funds or to draw upon credit facilities to meet their cash needs. Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originating from its branch platform. The Bank’s wholesale funds historically consisted of FHLB advances and brokered deposits. As of June 30, 2020 and December 31, 2019, the Bank had $150.0 million and $90.0 million of FHLB advances and $235.2 million and $264.2 million, respectively, of brokered deposits.The Bank had $101.8 million of 0.35 percent advances with the FRB under the Paycheck Protection Program Lending Facility as of June 30, 2020. These advances were repaid subsequent to the end of the second quarter. There were 0 outstanding borrowings with the FRB as of December 31, 2019.
We monitor the sources and uses of funds on a regular basis to maintain an acceptable liquidity position. The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 30.0 percent of its assets. As of June 30, 2020, the remaining available borrowing capacity was $1.5 billion compared with $878.4 million, as of December 31, 2019.
The amount that the FHLB is willing to advance differs based on the quality and character of qualifying collateral pledged by the Bank, and the FHLB may adjust the advance rates for qualifying collateral upwards or downwards from time to time. To the extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, leases and securities, and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.
Note 15 — Derivatives and Hedging Activities
Accounting Policy for Derivative Instruments and Hedging Activities
FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.
Non-Designated Hedges
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2020. NaN such instruments were outstanding as of December 31, 2019.
|
| Derivative Assets |
| Derivative Liabilities | ||||||||||||||||||||||||
|
|
|
|
|
| As of June 30, 2020 |
|
| As of December 31, 2019 |
|
|
|
|
| As of June 30, 2020 |
|
| As of December 31, 2019 | ||||||||||
|
| Notional Amount |
|
| Balance Sheet Location |
| Fair Value |
|
| Balance Sheet Location |
| Fair Value |
| Notional Amount |
|
| Balance Sheet Location |
| Fair Value |
|
| Balance Sheet Location |
| Fair Value | ||||
|
| (in thousands) | ||||||||||||||||||||||||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate products |
| $ | 29,492 |
|
| Other Assets |
| $ | 1,085 |
|
| Other Assets |
| N/A |
| $ | 29,492 |
|
| Other Liabilities |
| $ | 1,183 |
|
| Other Liabilities |
| N/A |
Total derivatives not designated as hedging instruments |
|
|
|
|
|
|
| $ | 1,085 |
|
|
|
| N/A |
|
|
|
|
|
|
| $ | 1,183 |
|
|
|
| N/A |
The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Income Statement as of June 30, 2020. NaN such instruments were outstanding as of December 31, 2019.
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 |
| Location of Gain or (Loss) Recognized in Income on Derivative |
| Amount of Gain or (Loss) Recognized in Income on Derivative |
| |
|
|
|
| Quarter Ended June 30, 2020 |
| |
|
|
|
| (in thousands) |
| |
Interest rate products |
| Other income |
| $ | (98 | ) |
Total |
|
|
| $ | (98 | ) |
Fee income recognized from the Company's derivative financial instruments for the three and six months ended June 30, 2020 was $512,000.
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2020. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Balance Sheet.
Offsetting of Derivative Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Position |
| |||||||||
|
| Gross Amounts of Recognized Assets |
|
| Gross Amounts Offset in the Statement of Financial Position |
|
| Net Amounts of Assets presented in the Statement of Financial Position |
|
| Financial Instruments |
|
| Cash Collateral Received |
|
| Net Amount |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Derivatives |
| $ | 1,085 |
|
| $ | — |
|
| $ | 1,085 |
|
| $ | 1,085 |
|
| $ | — |
|
| $ | 1,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Position |
| |||||||||
|
| Gross Amounts of Recognized Liabilities |
|
| Gross Amounts Offset in the Statement of Financial Position |
|
| Net Amounts of Liabilities presented in the Statement of Financial Position |
|
| Financial Instruments |
|
| Cash Collateral Provided |
|
| Net Amount |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Derivatives |
| $ | 1,183 |
|
| $ | — |
|
| $ | 1,183 |
|
| $ | — |
|
| $ | 1,120 |
|
| $ | 63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. In addition, these agreements may also require the Company to post additional collateral should it fail to maintain its status as a well- or adequately- capitalized institution.
As of June 30, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.2 million. As of June 30, 2020, the Company had posted $1.1 million of collateral related to these agreements and is essentially over-collateralized since its net liability position is $98,000 ($1.1 million fair value of assets less $1.2 million fair value of liabilities) as of the end of the period. If the Company had breached any of these provisions at June 30, 2020, it could have been required to settle its obligations under the agreements at their termination value of $1.2 million.
Note 16 — Subsequent Events
At the date of issuance of the financial data included herein. There have beenthis report, no subsequent events that occurred during such period that would require disclosure in this Quarterly Report on Form 10-Q for the period ended September 30, 2017, or would be required to be recognized in the Consolidated Financial Statements (Unaudited) as of September 30, 2017.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and ninesix months ended SeptemberJune 30, 2017.2020. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20162019 (the “2016“2019 Annual Report on Form 10-K”) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the period ended SeptemberJune 30, 20172020 (this “Report”).
The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity, a dramatic increase in unemployment and extreme volatility in the stock market, and in particular, bank stocks, have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark Federal funds rate to a target range of 0 percent to 0.25 percent, and the yields on 10- and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.
Forward-Looking Statements
Some of the statements under this item and elsewherecontained in this Report constituteare forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Report other than statements of historical fact are “forward-looking“forward–looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs, and availability, developments regarding our capital plans, plans and objectives of management for future operations, strategic alternatives for a possible business combination, merger or sale transactions, and other similar forecasts and statements of expectation and statements of assumptionassumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, strategies, outlook, needs, plans, objectives or achievements to differ from those expressed or implied by the forward-looking statement. These factors include the following: failure to maintain adequate levels of capital and liquidity to support our operations; the effect of potential future supervisory action against us or Hanmi Bank; general economic and business conditions internationally, nationally and in those areas in which we operate, including, but not limited to, California, Illinois and Texas;operate; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital from private and government sources; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread; risks of natural disasters relateddisasters; a failure in or breach of our operational or security systems or infrastructure, including cyber-attacks; the failure to maintain current technologies; inability to successfully implement future information technology enhancements; difficult business and economic conditions that can adversely affect our real estate portfolio;industry and business, including competition, fraudulent activity and negative publicity; risks associated with Small Business Administration ("SBA") loans; failure to attract or retain key employees; our ability to access cost-effective funding; fluctuations in real estate values; changes in accounting policies and practices; the imposition of tariffs or other domestic or international governmental policies impacting the value of the products of our borrowers; changes in governmental regulation; enforcement actions against us and litigation we may become a party to;regulation, including, but not limited to, any increase in Federal Deposit Insurance Corporation insurance premiums; the ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank'sBank’s retained earnings, net income, prior distributions made, and certain other financial tests; ability to successfully and efficiently integrate the operations of banks and other institutions we acquire;identify a suitable strategic partner or to consummate a strategic transaction; adequacy of our allowance for loan and leasecredit losses; credit quality and the effect of credit quality on our provision for loan and leasecredit losses expense and allowance for loan and leasecredit losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and leases and other terms of credit agreements; our ability to control expenses; and changes in securities markets. In addition, for a discussionmarkets; and risks as it relates to cyber security against our information technology infrastructure and those of someour third party providers and vendors.
Given the ongoing and dynamic nature of the other factors that mightcircumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause suchcredit loss expense to increase; our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a difference, seegreater extent than the discussion containeddecline in our 2016cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend; our cyber security risks are increased as the result of an increase in the number of employees working remotely; we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs; potential goodwill impairment charges could result if acquired assets and operations are adversely affected and remain at reduced levels; due to recent legislation and government action limiting foreclosure of real property and reduced governmental capacity to effect business transactions and property transfers, we may have more difficulty taking possession of collateral supporting our loans, which may negatively impact our ability to minimize our losses, which could adversely impact our financial results; and we face litigation, regulatory enforcement and reputation risk as a result of our participation in the Paycheck Participation Program (“PPP”) and the risk that the Small Business Administration may not fund some or all PPP loan guaranties. Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
For additional information concerning risks we face, see “Part II, Item 1A. Risk Factors” in this Report and “Item 1A. Risk Factors” in Part I of the 2019 Annual Report on Form 10-K, as well as other factors we identify from time to time in our filings with the SEC.10-K. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.
Critical Accounting Policies
We have established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to Consolidated Financial Statementsconsolidated financial statements in our 20162019 Annual Report on Form 10-K. We had no significant changes in our accounting policies since the filing of our 20162019 Annual Report on Form 10-K.
Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our 20162019 Annual Report on Form 10-K. We use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the developmentandselectionofthesecriticalaccountingpolicieswiththeAuditCommitteeof Hanmi Financial’s theCompany’sBoardofDirectors.
Selected Financial Data
The following table sets forth certain selected financial data for the periods indicated:
|
| As of or for the Three Months Ended June 30, |
|
| As of or for the Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands, except per share data) |
| |||||||||||||
Summary balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 546,048 |
|
| $ | 130,851 |
|
| $ | 546,048 |
|
| $ | 130,851 |
|
Securities |
|
| 655,971 |
|
|
| 639,995 |
|
|
| 655,971 |
|
|
| 639,995 |
|
Loans receivable, net (1) |
|
| 4,739,312 |
|
|
| 4,506,416 |
|
|
| 4,739,312 |
|
|
| 4,506,416 |
|
Assets |
|
| 6,218,163 |
|
|
| 5,511,752 |
|
|
| 6,218,163 |
|
|
| 5,511,752 |
|
Deposits |
|
| 5,209,781 |
|
|
| 4,762,068 |
|
|
| 5,209,781 |
|
|
| 4,762,068 |
|
Liabilities |
|
| 5,670,727 |
|
|
| 4,947,294 |
|
|
| 5,670,727 |
|
|
| 4,947,294 |
|
Stockholders’ equity |
|
| 547,436 |
|
|
| 564,458 |
|
|
| 547,436 |
|
|
| 564,458 |
|
Tangible stockholders' equity (4) |
|
| 535,694 |
|
|
| 552,430 |
|
|
| 535,694 |
|
|
| 552,430 |
|
Average loans receivable (2) |
|
| 4,680,048 |
|
|
| 4,491,377 |
|
|
| 4,599,222 |
|
|
| 4,512,134 |
|
Average securities |
|
| 589,932 |
|
|
| 629,062 |
|
|
| 606,821 |
|
|
| 609,414 |
|
Average assets |
|
| 5,895,445 |
|
|
| 5,499,649 |
|
|
| 5,700,549 |
|
|
| 5,467,208 |
|
Average deposits |
|
| 4,817,776 |
|
|
| 4,746,777 |
|
|
| 4,722,082 |
|
|
| 4,731,585 |
|
Average stockholders’ equity |
|
| 548,338 |
|
|
| 568,753 |
|
|
| 554,147 |
|
|
| 563,411 |
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic |
| $ | 0.30 |
|
| $ | 0.09 |
|
| $ | 0.38 |
|
| $ | 0.56 |
|
Earnings per share – diluted |
| $ | 0.30 |
|
| $ | 0.09 |
|
| $ | 0.38 |
|
| $ | 0.56 |
|
Book value per share (3) |
| $ | 17.86 |
|
| $ | 18.22 |
|
| $ | 17.86 |
|
| $ | 18.22 |
|
Tangible book value per share (4) |
| $ | 17.47 |
|
| $ | 17.83 |
|
| $ | 17.47 |
|
| $ | 17.83 |
|
Cash dividends per share |
| $ | 0.12 |
|
| $ | 0.24 |
|
| $ | 0.36 |
|
| $ | 0.48 |
|
Common shares outstanding |
|
| 30,657,629 |
|
|
| 30,975,163 |
|
|
| 30,657,629 |
|
|
| 30,975,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (5) (12) |
|
| 0.63 | % |
|
| 0.19 | % |
|
| 0.41 | % |
|
| 0.64 | % |
Return on average stockholders’ equity (6) (12) |
|
| 6.73 | % |
|
| 1.87 | % |
|
| 4.18 | % |
|
| 6.20 | % |
Net interest margin (7) |
|
| 3.15 | % |
|
| 3.30 | % |
|
| 3.25 | % |
|
| 3.41 | % |
Efficiency ratio (8) |
|
| 41.51 | % |
|
| 59.43 | % |
|
| 50.36 | % |
|
| 58.13 | % |
Dividend payout ratio (9) |
|
| 40.00 | % |
|
| 266.67 | % |
|
| 94.74 | % |
|
| 85.71 | % |
Average stockholders’ equity to average assets |
|
| 9.30 | % |
|
| 10.34 | % |
|
| 9.72 | % |
|
| 10.31 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset quality ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to loans (10) |
|
| 1.21 | % |
|
| 1.40 | % |
|
| 1.21 | % |
|
| 1.40 | % |
Non-performing assets to assets (11) |
|
| 0.94 | % |
|
| 1.15 | % |
|
| 0.94 | % |
|
| 1.15 | % |
Net loan charge-offs (recoveries) to average loans, annualized |
|
| 0.11 | % |
|
| 0.02 | % |
|
| 1.24 | % |
|
| 0.02 | % |
Allowance for credit losses to loans |
|
| 1.79 | % |
|
| 1.08 | % |
|
| 1.79 | % |
|
| 1.08 | % |
Allowance for credit losses to nonperforming loans |
|
| 148.17 | % |
|
| 78.35 | % |
|
| 148.17 | % |
|
| 78.35 | % |
Capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
|
| 14.04 | % |
|
| 14.99 | % |
|
| 14.04 | % |
|
| 14.99 | % |
Hanmi Bank |
|
| 13.62 | % |
|
| 14.62 | % |
|
| 13.62 | % |
|
| 14.62 | % |
Tier 1 risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
|
| 10.86 | % |
|
| 11.83 | % |
|
| 10.86 | % |
|
| 11.83 | % |
Hanmi Bank |
|
| 12.36 | % |
|
| 13.54 | % |
|
| 12.36 | % |
|
| 13.54 | % |
Common equity tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
|
| 10.46 | % |
|
| 11.41 | % |
|
| 10.46 | % |
|
| 11.41 | % |
Hanmi Bank |
|
| 12.36 | % |
|
| 13.54 | % |
|
| 12.36 | % |
|
| 13.54 | % |
Tier 1 leverage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial |
|
| 9.69 | % |
|
| 10.20 | % |
|
| 9.69 | % |
|
| 10.20 | % |
Hanmi Bank |
|
| 11.03 | % |
|
| 11.67 | % |
|
| 11.03 | % |
|
| 11.67 | % |
As of or for the | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(dollars in thousands, except per share data) | |||||||||||||||
Summary balance sheets: | |||||||||||||||
Cash and due from banks | $ | 138,139 | $ | 130,197 | $ | 138,139 | $ | 130,197 | |||||||
Securities | 598,440 | 548,961 | 598,440 | 548,961 | |||||||||||
Loans and leases receivable, net (1) | 4,162,863 | 3,513,687 | 4,162,863 | 3,513,687 | |||||||||||
Assets | 5,111,396 | 4,402,180 | 5,111,396 | 4,402,180 | |||||||||||
Deposits | 4,299,010 | 3,771,207 | 4,299,010 | 3,771,207 | |||||||||||
Liabilities | 4,552,149 | 3,870,982 | 4,552,149 | 3,870,982 | |||||||||||
Stockholders’ equity | 559,247 | 531,198 | 559,247 | 531,198 | |||||||||||
Tangible equity | 546,619 | 529,742 | 546,619 | 529,742 | |||||||||||
Average loans and leases receivable (1) | 4,092,131 | 3,447,428 | 3,976,021 | 3,333,419 | |||||||||||
Average securities | 611,538 | 589,832 | 574,801 | 643,125 | |||||||||||
Average interest-earning assets | 4,759,035 | 4,130,145 | 4,608,870 | 4,045,480 | |||||||||||
Average assets | 5,027,704 | 4,397,703 | 4,881,527 | 4,315,062 | |||||||||||
Average deposits | 4,260,349 | 3,669,419 | 4,101,640 | 3,544,389 | |||||||||||
Average borrowings | 185,000 | 171,779 | 207,340 | 222,889 | |||||||||||
Average interest-bearing liabilities | 3,187,395 | 2,651,505 | 3,084,094 | 2,600,851 | |||||||||||
Average stockholders’ equity | 551,763 | 528,581 | 543,503 | 515,403 | |||||||||||
Average tangible equity | 539,087 | 527,072 | 530,740 | 513,813 | |||||||||||
Per share data: | |||||||||||||||
Earnings per share – basic (2) | $ | 0.46 | $ | 0.41 | $ | 1.34 | $ | 1.31 | |||||||
Earnings per share – diluted (2) | $ | 0.46 | $ | 0.41 | $ | 1.33 | $ | 1.31 | |||||||
Book value per share (3) | $ | 17.25 | $ | 16.47 | $ | 17.25 | $ | 16.47 | |||||||
Tangible book value per share (4) | $ | 16.86 | $ | 16.42 | $ | 16.86 | $ | 16.42 | |||||||
Cash dividends per share | $ | 0.21 | $ | 0.19 | $ | 0.59 | $ | 0.47 | |||||||
Common shares outstanding | 32,413,082 | 32,252,774 | 32,413,082 | 32,252,774 | |||||||||||
Performance ratios: | |||||||||||||||
Return on average assets (5) (6) | 1.18 | % | 1.19 | % | 1.18 | % | 1.30 | % | |||||||
Return on average stockholders’ equity (5) (7) | 10.73 | % | 9.88 | % | 10.62 | % | 10.90 | % | |||||||
Return on average tangible equity (5) (8) | 10.98 | % | 9.90 | % | 10.87 | % | 10.94 | % | |||||||
Net interest margin (9) | 3.79 | % | 3.86 | % | 3.83 | % | 3.95 | % | |||||||
Net interest margin excluding acquisition accounting (9) | 3.76 | % | 3.75 | % | 3.79 | % | 3.76 | % | |||||||
Efficiency ratio (10) | 53.33 | % | 58.72 | % | 54.32 | % | 57.47 | % | |||||||
Dividend payout ratio (11) | 45.45 | % | 46.50 | % | 53.66 | % | 35.83 | % | |||||||
Average stockholders’ equity to average assets | 10.97 | % | 12.02 | % | 11.13 | % | 11.94 | % | |||||||
Capital ratios (15): | |||||||||||||||
Total risk-based capital: | |||||||||||||||
Hanmi Financial | 15.58 | % | 14.99 | % | 15.58 | % | 14.99 | % | |||||||
Hanmi Bank | 15.32 | % | 14.61 | % | 15.32 | % | 14.61 | % | |||||||
Tier 1 risk-based capital: | |||||||||||||||
Hanmi Financial | 12.56 | % | 13.89 | % | 12.56 | % | 13.89 | % | |||||||
Hanmi Bank | 14.55 | % | 13.50 | % | 14.55 | % | 13.50 | % | |||||||
Common equity Tier 1 capital: | |||||||||||||||
Hanmi Financial | 12.20 | % | 13.73 | % | 12.20 | % | 13.73 | % | |||||||
Hanmi Bank | 14.55 | % | 13.50 | % | 14.55 | % | 13.50 | % | |||||||
Tier 1 leverage: | |||||||||||||||
Hanmi Financial | 10.92 | % | 11.68 | % | 10.92 | % | 11.68 | % | |||||||
Hanmi Bank | 12.66 | % | 11.36 | % | 12.66 | % | 11.36 | % | |||||||
Asset quality ratios: | |||||||||||||||
Nonperforming Non-PCI loans and leases to loans and leases (12) | 0.35 | % | 0.31 | % | 0.35 | % | 0.31 | % | |||||||
Nonperforming assets to assets (13) | 0.32 | % | 0.50 | % | 0.32 | % | 0.50 | % | |||||||
Net loan and lease charge-offs (recoveries) to average loans and leases | 0.15 | % | (0.08 | )% | — | % | (0.02 | )% | |||||||
Allowance for loan lease losses to loans and leases | 0.77 | % | 1.10 | % | 0.77 | % | 1.10 | % | |||||||
Allowance for loan and lease losses to non-performing loans and leases (12) (14) | 217.74 | % | 305.43 | % | 217.74 | % | 305.43 | % | |||||||
Acquired loans: | |||||||||||||||
PCI loans, net of discounts | $ | 8,704 | $ | 15,540 | $ | 8,704 | $ | 15,540 | |||||||
Allowance for loan losses on PCI loans | 794 | 5,533 | 794 | 5,533 | |||||||||||
Non-PCI loans, net of discounts | 91,013 | 108,434 | 91,013 | 108,434 | |||||||||||
Unamortized acquisition discounts on Non-PCI loans | 4,999 | 7,087 | 4,999 | 7,087 |
(1) | Excludes loans held for sale and |
(2) | Includes loans held for sale and |
(3) | |
Stockholders’ equity divided by shares of common |
(4) | |
Tangible stockholder’s equity divided by common shares |
(5) |
Net income divided by average |
(6) | |
Net income divided by average stockholders’ |
(7) | |
Net interest income divided by average |
(8) | |
Noninterest |
(9) | |
Dividends declared per share divided by basic earnings per |
(10) | |
Nonperforming loans receivable, excluding loans held for sale, consist of nonaccrual loans receivable, and loans receivable past due 90 days or more still accruing interest. |
(11) | |
Nonperforming assets consist of nonperforming loans receivable and |
(12) | |
Amounts calculated on annualized net income. |
Non-GAAP Financial Measures
The Company calculatesprovides certain supplemental financial information determined by methods other than in accordance with U.S. GAAP, including tangible assets, tangible stockholders' equity and tangible book value per share, core interest income and yield, and net interest income and margin excluding acquisition accounting.share. These non-GAAP measures are used by management in analyzing Hanmi Financial’s capital strength, core loan and lease interest income and yield, and net interest income and margin without the impact of the CBI acquisition.
Tangible equity is calculated by subtracting goodwill created from acquisition of the Commercial Equipment Leasing Division and other intangible assets (principally core deposit intangibleintangibles) from stockholders’ equity. Banking and financial institution regulators also exclude goodwill and core deposit intangibleintangibles from stockholders’ equity when assessing the capital adequacy of a financialinstitution. Core loan and lease interest income and yield are calculated by subtracting accretion of discount on purchased loans. Net interest income and net interest margin are calculated by adjusting the reported amounts and rates for the impact of the CBI acquisition, including accretion of discount on purchased loans, accretion of time deposit premium and amortization of subordinated debentures discount.
Management believes the presentation of these financial measures excluding the impact of the items described in the preceding paragraph provide useful supplemental information that are essential to a proper understanding of the capital strength of Hanmi Financial and our core interest income and margin.Financial. These disclosures should not be viewed as a substitution for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Tangible Assets, Tangible Stockholders’ Equity and Tangible Book Value Per Share
The following table reconciles these non-GAAP performance measures to the most comparable GAAP performance measures as of the dates indicated:
|
| As of |
| |||||||||
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| December 31, 2019 |
| |||
|
| (in thousands, except per share data) |
| |||||||||
Total assets |
| $ | 6,218,163 |
|
| $ | 5,511,752 |
|
| $ | 5,538,184 |
|
Less goodwill and other intangible assets |
|
| (11,742 | ) |
|
| (12,028 | ) |
|
| (11,873 | ) |
Tangible assets |
| $ | 6,206,421 |
|
| $ | 5,499,724 |
|
| $ | 5,526,311 |
|
Total stockholders' equity |
| $ | 547,436 |
|
| $ | 564,458 |
|
| $ | 563,267 |
|
Less goodwill and other intangible assets |
|
| (11,742 | ) |
|
| (12,028 | ) |
|
| (11,873 | ) |
Tangible stockholders' equity |
| $ | 535,694 |
|
| $ | 552,430 |
|
| $ | 551,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to assets |
|
| 8.80 | % |
|
| 10.24 | % |
|
| 10.17 | % |
Tangible common equity to tangible assets (1) |
|
| 8.63 | % |
|
| 10.04 | % |
|
| 9.98 | % |
Common shares outstanding |
|
| 30,657,629 |
|
|
| 30,975,163 |
|
|
| 30,799,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share |
| $ | 17.86 |
|
| $ | 18.22 |
|
| $ | 18.29 |
|
Effect of goodwill and other intangible assets |
|
| (0.38 | ) |
|
| (0.39 | ) |
|
| (0.39 | ) |
Tangible common equity per common share (1) |
| $ | 17.47 |
|
| $ | 17.83 |
|
| $ | 17.90 |
|
September 30, | |||||||
2017 | 2016 | ||||||
(in thousands, except per share data) | |||||||
Total assets | $ | 5,111,396 | $ | 4,402,180 | |||
Less goodwill | (11,031 | ) | — | ||||
Less other intangible assets, net | (1,597 | ) | (1,456 | ) | |||
Tangible assets | $ | 5,098,768 | $ | 4,400,724 | |||
Total stockholders’ equity | $ | 559,247 | $ | 531,198 | |||
Less goodwill | (11,031 | ) | — | ||||
Less other intangible assets, net | (1,597 | ) | (1,456 | ) | |||
Tangible stockholders' equity | $ | 546,619 | $ | 529,742 | |||
Book value per share | $ | 17.25 | $ | 16.47 | |||
Effect of goodwill | (0.34 | ) | — | ||||
Effect of other intangible assets | (0.05 | ) | (0.05 | ) | |||
Tangible book value per share | $ | 16.86 | $ | 16.42 |
(1) | There were no preferred shares outstanding at the periods indicated. |
Three Months Ended | |||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||
Amount | Rate | Amount | Rate | ||||||||||
(dollars in thousands) | |||||||||||||
Core loan and lease interest income and yield | $ | 49,924 | 4.84 | % | $ | 40,476 | 4.63 | % | |||||
Accretion of discount on purchased loans | 341 | 0.03 | % | 674 | 0.08 | % | |||||||
As reported | $ | 50,265 | 4.87 | % | $ | 41,150 | 4.71 | % | |||||
Net interest income and net interest margin excluding acquisition accounting (1) | $ | 45,048 | 3.76 | % | $ | 38,874 | 3.75 | % | |||||
Accretion of discount on Non-PCI loans and leases | 303 | 0.03 | % | 648 | 0.06 | % | |||||||
Accretion of discount on PCI loans and leases | 38 | — | % | 26 | — | % | |||||||
Accretion of time deposits premium | 116 | 0.01 | % | 610 | 0.06 | % | |||||||
Amortization of subordinated debentures discount | (85 | ) | (0.01 | )% | (67 | ) | (0.01 | )% | |||||
Net impact | 372 | 0.03 | % | 1,217 | 0.11 | % | |||||||
As reported on a fully taxable equivalent basis | $ | 45,420 | 3.79 | % | $ | 40,091 | 3.86 | % |
Nine Months Ended | |||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||
Amount | Rate | Amount | Rate | ||||||||||
(dollars in thousands) | |||||||||||||
Core loan and lease interest income and yield | $ | 142,183 | 4.78 | % | $ | 117,066 | 4.69 | % | |||||
Accretion of discount on purchased loans | 1,431 | 0.05 | % | 3,796 | 0.15 | % | |||||||
As reported | $ | 143,614 | 4.83 | % | $ | 120,862 | 4.84 | % | |||||
Net interest income and net interest margin excluding acquisition accounting (1) | $ | 130,409 | 3.79 | % | $ | 113,710 | 3.76 | % | |||||
Accretion of discount on Non-PCI loans and leases | 1,287 | 0.04 | % | 3,396 | 0.11 | % | |||||||
Accretion of discount on PCI loans and leases | 144 | — | % | 400 | 0.01 | % | |||||||
Accretion of time deposits premium | 358 | 0.01 | % | 2,343 | 0.08 | % | |||||||
Amortization of subordinated debentures discount | (243 | ) | (0.01 | )% | (185 | ) | (0.01 | )% | |||||
Net impact | 1,546 | 0.04 | % | 5,954 | 0.19 | % | |||||||
As reported on a fully taxable equivalent basis | $ | 131,955 | 3.83 | % | $ | 119,664 | 3.95 | % |
Executive Overview
Net income was $14.9$9.2 million, or $0.46 per diluted share, compared with $13.1 million, or $0.41$0.30 per diluted share, for the three months ended SeptemberJune 30, 2016. Net income for the third quarter of 2017 increased 13.7%, or $1.8 million. Income before the provision for income taxes for the third quarter of 2017 increased 16.1%, or $3.4 million principally because of the 13.5%, or $5.3 million, increase in net interest income driven by an increase in loans and leases receivable. The increase in net interest income however was partially offset by an increase in the loan and lease loss provision of $1.7 million and a $0.3 million increase in non-interest expenses.
Net income for the first ninesix months ended June 30, 2020 and 2019 was $11.5 million, or $0.38 per diluted share and $17.3 million, or $0.56 per diluted share, respectively. The decline in net income for the 2020 six-month period reflects primarily an increase in credit loss expense offset by the gain on the sale of 2017 increased 2.6%, or $1.1 million. Income beforesecurities.
The Company adopted effective January 1, 2020, Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses, which replaced the incurred loss methodology for estimating credit losses with a forward-looking current expected credit losses (“CECL”) methodology. The adoption resulted in a $17.4 million increase to the beginning balance of the allowance for credit losses, a $0.3 million decrease to the beginning balance of the allowance for off-balance sheet-items and an after-tax charge of $12.2 million to the beginning balance of retained earnings.
For the second quarter of 2020, credit loss expense was $24.6 million compared with $16.7 million for the second quarter of 2019. The 2020 second quarter credit loss expense included a $21.1 million provision for loan losses and a $3.5 million provision for off-balance sheet items. The 2020 second quarter credit loss expense reflects the change in the macroeconomic assumptions in determining the allowance for credit losses including a higher unemployment rate for the subsequent four quarters and a lower projected annual GDP growth rate.
For the six months ended 2020, credit loss expense was $40.3 million compared with loan loss provision of $17.8 million for the same period in 2019. The credit loss expense for the six-months ended June 30, 2020 included a $36.0 million provision for loan losses and a $4.3 million provision for off-balance sheet items.
Second quarter noninterest income taxesincreased to $20.9 million from $6.2 million for the first nine monthsquarter, primarily due to $479.9 million in sales of 2017 increased 8.2%, or $5.4securities resulting in $15.7 million principally becausein gains. The gains on sales of securities reflect the repositioning of the 10.4%, or $12.3 million, increase in net interest income driven by an increase in loanssecurities portfolio to capture the high-level of unrealized gains arising from the very low rate environment. Hanmi reinvested the proceeds into U.S. Treasuries and leases receivable. The increase in net interest income however was partially offset by an increase in the loanU.S. Government agencies mortgage-backed securities, collateralized mortgage obligations, and lease loss provision of $5.1 million and a $2.6 million increase in non-interest expenses.
Other financial highlights include the following:
Cash and leasesdue from banks increased $424.4 million to $546.0 million as of June 30, 2020 from $121.7 million at December 31, 2019, primarily from a higher volume of non-interest bearing deposits and increased borrowings. The increase in borrowings was largely intended to boost bank liquidity amid disruptions caused to businesses and individuals by the outbreak of COVID-19. The increase in deposits reflects depositors placing proceeds from PPP loans and proceeds from other government assistance programs with the Bank, as well as an increase from our marketing efforts and depositors seeking safety for their funds.
Loans receivable, before the allowance for loan and leasecredit losses, were $4.20$4.83 billion at June 30, 2020 compared with $4.61 billion at December 31, 2019. The increase reflects strong loan production which included $308.8 million of PPP loans and $225.3 million in new loan production. Loans held for sale, representing the endguaranteed portion of SBA 7(a) loans, were $17.9 million and $6.0 million at June 30, 2020 and December 31, 2019, respectively. We did not sell any SBA loans during the second quarter because of the third quarter of 2017, up $350.6 million, or 9.1 percent,disruptions in the secondary market resulting from $3.84the COVID-19 crisis. Secondary market activity resumed late in the second quarter.
Deposits were $5.21 billion at the end of 2016.
Return on average assets were $16.5 million, or 0.32for the three months ended June 30, 2020 and 2019 was 0.63 percent ofand 0.19 percent respectively, while the return on average stockholders’ equity was 6.73 percent and 1.87 percent for the same respective periods. Return on average assets for the six months ended June 30, 2020 and 2019 was 0.41 percent and 0.64 percent, respectively, while the return on average stockholders’ equity was 4.18 percent and 6.20 percent for the same respective periods.
Tangible book value per share was $17.47 at the end of the third quarter of 2017June 30, 2020 compared with $18.9 million, or 0.40$17.90 at December 31, 2019; tangible stockholders’ equity to tangible assets was 8.63 percent of total assets at the end of 2016.
The Bank continues to be well-capitalized at June 30, 2020 with a Total risk-based capital ratio of 13.62 percent, a Tier-1 risk-based capital ratio of 12.36 percent, a Common Equity Tier 1 capital ratio of 12.36 percent and a Tier 1 leverage ratio of 11.03 percent.
Results of Operations
Net Interest Income
Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes inthe level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on loans and leasesreceivable are affected principally by changes to interest rates, the demand for such loans and leases,receivable, the supply of money available for lending purposes, and other competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the FederalReserve.
The following tables showtable shows: the average balancesbalance of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax-equivalent basis, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
|
| Three Months Ended |
| |||||||||||||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||||||||||||
|
|
|
|
|
| Interest |
|
| Average |
|
|
|
|
|
| Interest |
|
| Average |
| ||||
|
| Average |
|
| Income / |
|
| Yield / |
|
| Average |
|
| Income / |
|
| Yield / |
| ||||||
|
| Balance |
|
| Expense |
|
| Rate |
|
| Balance |
|
| Expense |
|
| Rate |
| ||||||
Assets |
| (in thousands) |
| |||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) |
| $ | 4,680,048 |
|
| $ | 52,230 |
|
|
| 4.49 | % |
| $ | 4,491,377 |
|
| $ | 56,872 |
|
|
| 5.08 | % |
Securities (2) |
|
| 589,932 |
|
|
| 3,225 |
|
|
| 2.19 | % |
|
| 629,062 |
|
|
| 3,774 |
|
|
| 2.40 | % |
FHLB stock |
|
| 16,385 |
|
|
| 203 |
|
|
| 5.00 | % |
|
| 16,385 |
|
|
| 283 |
|
|
| 6.93 | % |
Interest-bearing deposits in other banks |
|
| 386,956 |
|
|
| 78 |
|
|
| 0.08 | % |
|
| 92,753 |
|
|
| 557 |
|
|
| 2.41 | % |
Total interest-earning assets |
|
| 5,673,321 |
|
|
| 55,736 |
|
|
| 3.95 | % |
|
| 5,229,577 |
|
|
| 61,486 |
|
|
| 4.72 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
| 69,667 |
|
|
|
|
|
|
|
|
|
|
| 100,916 |
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
| (66,926 | ) |
|
|
|
|
|
|
|
|
|
| (34,714 | ) |
|
|
|
|
|
|
|
|
Other assets |
|
| 219,383 |
|
|
|
|
|
|
|
|
|
|
| 203,870 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 5,895,445 |
|
|
|
|
|
|
|
|
|
| $ | 5,499,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand: interest-bearing |
| $ | 92,676 |
|
| $ | 18 |
|
|
| 0.08 | % |
| $ | 83,932 |
|
| $ | 32 |
|
|
| 0.15 | % |
Money market and savings |
|
| 1,677,081 |
|
|
| 2,309 |
|
|
| 0.55 | % |
|
| 1,541,976 |
|
|
| 6,083 |
|
|
| 1.58 | % |
Time deposits |
|
| 1,458,351 |
|
|
| 6,562 |
|
|
| 1.81 | % |
|
| 1,863,685 |
|
|
| 10,613 |
|
|
| 2.28 | % |
Total interest-bearing deposits |
|
| 3,228,108 |
|
|
| 8,889 |
|
|
| 1.11 | % |
|
| 3,489,593 |
|
|
| 16,728 |
|
|
| 1.92 | % |
Borrowings |
|
| 342,437 |
|
|
| 760 |
|
|
| 0.89 | % |
|
| 59 |
|
|
| — |
|
|
| 0.00 | % |
Subordinated debentures |
|
| 118,583 |
|
|
| 1,645 |
|
|
| 5.55 | % |
|
| 118,007 |
|
|
| 1,764 |
|
|
| 5.96 | % |
Total interest-bearing liabilities |
|
| 3,689,128 |
|
|
| 11,294 |
|
|
| 1.23 | % |
|
| 3,607,659 |
|
|
| 18,492 |
|
|
| 2.06 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits: noninterest-bearing |
|
| 1,589,668 |
|
|
|
|
|
|
|
|
|
|
| 1,257,184 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 68,311 |
|
|
|
|
|
|
|
|
|
|
| 66,053 |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
| 548,338 |
|
|
|
|
|
|
|
|
|
|
| 568,753 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 5,895,445 |
|
|
|
|
|
|
|
|
|
| $ | 5,499,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable equivalent basis) |
|
|
|
|
| $ | 44,442 |
|
|
|
|
|
|
|
|
|
| $ | 42,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of deposits (3) |
|
|
|
|
|
|
|
|
|
| 0.74 | % |
|
|
|
|
|
|
|
|
|
| 1.41 | % |
Net interest spread (taxable equivalent basis) (4) |
|
|
|
|
|
|
|
|
|
| 2.72 | % |
|
|
|
|
|
|
|
|
|
| 2.66 | % |
Net interest margin (taxable equivalent basis) (5) |
|
|
|
|
|
|
|
|
|
| 3.15 | % |
|
|
|
|
|
|
|
|
|
| 3.30 | % |
Three Months Ended | |||||||||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||||||||
Average Balance | Interest Income / Expense | Average Yield / Rate | Average Balance | Interest Income / Expense | Average Yield / Rate | ||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||
Assets | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Loans and leases receivable (1) | $ | 4,092,131 | $ | 50,265 | 4.87 | % | $ | 3,477,428 | $ | 41,150 | 4.71 | % | |||||||||
Securities (2) | 611,538 | 3,683 | 2.41 | % | 589,832 | 3,210 | 2.18 | % | |||||||||||||
FRB and FHLB stock | 16,385 | 286 | 6.93 | % | 19,207 | 419 | 8.73 | % | |||||||||||||
Interest-bearing deposits in other banks | 38,981 | 123 | 1.25 | % | 43,678 | 55 | 0.50 | % | |||||||||||||
Total interest-earning assets | 4,759,035 | 54,357 | 4.53 | % | 4,130,145 | 44,834 | 4.32 | % | |||||||||||||
Noninterest-earning assets: | |||||||||||||||||||||
Cash and due from banks | 114,108 | 116,779 | |||||||||||||||||||
Allowance for loan and lease losses | (34,252 | ) | (40,214 | ) | |||||||||||||||||
Other assets | 188,813 | 190,993 | |||||||||||||||||||
Total assets | $ | 5,027,704 | $ | 4,397,703 | |||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Deposits: | |||||||||||||||||||||
Demand: interest-bearing | $ | 90,720 | $ | 18 | 0.08 | % | $ | 93,852 | $ | 19 | 0.08 | % | |||||||||
Money market and savings | 1,526,951 | 3,311 | 0.86 | % | 1,141,747 | 1,834 | 0.64 | % | |||||||||||||
Time deposits | 1,384,724 | 3,742 | 1.07 | % | 1,244,127 | 2,505 | 0.80 | % | |||||||||||||
Total interest-bearing deposits | 3,002,395 | 7,071 | 0.93 | % | 2,479,726 | 4,358 | 0.70 | % | |||||||||||||
FHLB advances | 67,935 | 198 | 1.16 | % | 152,935 | 179 | 0.47 | % | |||||||||||||
Subordinated debentures | 117,065 | 1,667 | 5.68 | % | 18,844 | 206 | 4.35 | % | |||||||||||||
Total interest-bearing liabilities | 3,187,395 | 8,936 | 1.11 | % | 2,651,505 | 4,743 | 0.71 | % | |||||||||||||
Noninterest-bearing liabilities and equity: | |||||||||||||||||||||
Demand deposits: noninterest-bearing | 1,257,954 | 1,189,693 | |||||||||||||||||||
Other liabilities | 30,592 | 27,924 | |||||||||||||||||||
Stockholders’ equity | 551,763 | 528,581 | |||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 5,027,704 | $ | 4,397,703 | |||||||||||||||||
Net interest income (taxable equivalent) | $ | 45,421 | $ | 40,091 | |||||||||||||||||
Cost of deposits (3) | 0.66 | % | 0.47 | % | |||||||||||||||||
Net interest spread (4) | 3.42 | % | 3.61 | % | |||||||||||||||||
Net interest margin (5) | 3.79 | % | 3.86 | % |
(1) | |
Loans |
(2) | |
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. |
(3) | |
Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearingdeposits. |
(4) | |
Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearingliabilities. |
(5) | |
Represents net interest income as a percentage of average interest-earningassets. |
The table below shows changes in interest income (on a tax equivalent basis) and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
|
| Three Months Ended |
| |||||||||
|
| June 30, 2020 vs June 30, 2019 |
| |||||||||
|
| Increases (Decreases) Due to Change In |
| |||||||||
|
| Volume |
|
| Rate |
|
| Total |
| |||
|
| (in thousands) |
| |||||||||
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) |
| $ | 2,273 |
|
| $ | (6,915 | ) |
| $ | (4,642 | ) |
Securities (2) |
|
| (228 | ) |
|
| (321 | ) |
|
| (549 | ) |
FHLB stock |
|
| — |
|
|
| (80 | ) |
|
| (80 | ) |
Interest-bearing deposits in other banks |
|
| 458 |
|
|
| (937 | ) |
|
| (479 | ) |
Total interest and dividend income |
|
| 2,503 |
|
|
| (8,253 | ) |
|
| (5,750 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand: interest-bearing |
| $ | 3 |
|
| $ | (17 | ) |
| $ | (14 | ) |
Money market and savings |
|
| 493 |
|
|
| (4,267 | ) |
|
| (3,774 | ) |
Time deposits |
|
| (2,073 | ) |
|
| (1,978 | ) |
|
| (4,051 | ) |
Borrowings |
|
| 761 |
|
|
| (1 | ) |
|
| 760 |
|
Subordinated debentures |
|
| 9 |
|
|
| (128 | ) |
|
| (119 | ) |
Total interest expense |
|
| (807 | ) |
|
| (6,391 | ) |
|
| (7,198 | ) |
Change in net interest income |
| $ | 3,310 |
|
| $ | (1,862 | ) |
| $ | 1,448 |
|
(1) | Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loansreceivable are included in the average loans receivablebalance. |
(2) | Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. |
Three Months Ended | |||||||||||
September 30, 2017 vs. September 30, 2016 | |||||||||||
Increases (Decreases) Due to Change In | |||||||||||
Volume | Rate | Total | |||||||||
(in thousands) | |||||||||||
Interest and dividend income: | |||||||||||
Loans and leases receivable | $ | 7,646 | $ | 1,469 | $ | 9,115 | |||||
Securities | 122 | 351 | 473 | ||||||||
FRB and FHLB stock | (55 | ) | (78 | ) | (133 | ) | |||||
Interest-bearing deposits in other banks | (7 | ) | 75 | 68 | |||||||
Total interest and dividend income | $ | 7,706 | $ | 1,817 | $ | 9,523 | |||||
Interest expense: | |||||||||||
Demand: interest-bearing | $ | (1 | ) | $ | — | $ | (1 | ) | |||
Money market and savings | 732 | 745 | 1,477 | ||||||||
Time deposits | 310 | 927 | 1,237 | ||||||||
FHLB advances | (140 | ) | 159 | 19 | |||||||
Subordinated debentures | 1,380 | 81 | 1,461 | ||||||||
Total interest expense | $ | 2,281 | $ | 1,912 | $ | 4,193 | |||||
Change in net interest income (taxable equivalent) | $ | 5,425 | $ | (95 | ) | $ | 5,330 |
Interest and dividend income, on a taxable equivalent basis, increased $9.5decreased $5.7 million, or 21.29.4 percent, to $54.4$55.7 million for the three months ended SeptemberJune 30, 20172020 from $44.8$61.5 million for the same period in 2016.2019. Interest expense increased $4.2decreased $7.2 million, or 88.438.9 percent, to $8.9$11.3 million for the three months ended SeptemberJune 30, 20172020 from $4.7$18.5 million for the same period in 2016.2019. For the three months ended SeptemberJune 30, 20172020 and 2016,2019, net interest income, on a taxable equivalent basis, was $45.4$44.4 million and $40.1$43.0 million, respectively. The increase in netNet interest income was primarily attributableincreased during the three months ended June 30, 2020 compared with the same period in 2019 mainly due to the 17.7 percent growthdecreases in average loans and leases and the change in the mix of interest earning assets with average loans and leases at 86.0 percent of average interest-earning assets for the third quarter of 2017, up from 84.2 percent for the third quarter of 2016, offset by higher rates paid on interest-bearing depositmoney market, savings, and increasestime deposits, offset by decreases in other borrowings balances and rates.yields earned on loans. The net interest spread and net interest margin, on a taxable equivalent basis, for the three months ended SeptemberJune 30, 20172020 were 3.422.72 percent and 3.793.15 percent, respectively, compared with 3.612.66 percent and 3.863.30 percent, respectively, for the same period in 2016. Excluding the effects2019.
The average balance of acquisition accounting adjustments, net interest margin was 3.76 percent and 3.75 percent for the three months ended September 30, 2017 and 2016, respectively.
The average yield on interest-earning assets, on a taxable equivalent basis, increased 21decreased 77 basis points to 4.533.95 percent for the three months ended SeptemberJune 30, 20172020 from 4.324.72 percent for the same period in 2016,2019, primarily due mainly to the higher percentage of loansdecrease in the mixgeneral level of interest-earning assets.interest rates but was partially offset by higher volume in interest-bearing deposits at other banks. The average cost of interest-bearing liabilities increaseddecreased by 4083 basis points to 1.111.23 percent for the three months ended SeptemberJune 30, 20172020 from 0.712.06 percent for the same period in 2016.
The following tables showtable shows: the average balancesbalance of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax-equivalent basis, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
|
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
|
|
|
|
|
| Interest |
|
| Average |
|
|
|
|
|
| Interest |
|
| Average |
| ||||
|
| Average |
|
| Income / |
|
| Yield / |
|
| Average |
|
| Income / |
|
| Yield / |
| ||||||
|
| Balance |
|
| Expense |
|
| Rate |
|
| Balance |
|
| Expense |
|
| Rate |
| ||||||
Assets |
| (in thousands) |
| |||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) |
| $ | 4,599,222 |
|
| $ | 106,878 |
|
|
| 4.67 | % |
| $ | 4,512,134 |
|
| $ | 115,206 |
|
|
| 5.15 | % |
Securities (2) |
|
| 606,821 |
|
|
| 6,880 |
|
|
| 2.27 | % |
|
| 609,414 |
|
|
| 7,371 |
|
|
| 2.42 | % |
FHLB stock |
|
| 16,385 |
|
|
| 492 |
|
|
| 6.05 | % |
|
| 16,385 |
|
|
| 572 |
|
|
| 7.04 | % |
Interest-bearing deposits in other banks |
|
| 245,734 |
|
|
| 411 |
|
|
| 0.34 | % |
|
| 72,997 |
|
|
| 892 |
|
|
| 2.46 | % |
Total interest-earning assets |
|
| 5,468,162 |
|
|
| 114,661 |
|
|
| 4.22 | % |
|
| 5,210,930 |
|
|
| 124,041 |
|
|
| 4.80 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
| 83,782 |
|
|
|
|
|
|
|
|
|
|
| 104,932 |
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
| (63,990 | ) |
|
|
|
|
|
|
|
|
|
| (33,356 | ) |
|
|
|
|
|
|
|
|
Other assets |
|
| 212,595 |
|
|
|
|
|
|
|
|
|
|
| 184,702 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 5,700,549 |
|
|
|
|
|
|
|
|
|
| $ | 5,467,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand: interest-bearing |
| $ | 87,805 |
|
| $ | 39 |
|
|
| 0.09 | % |
| $ | 84,608 |
|
| $ | 61 |
|
|
| 0.15 | % |
Money market and savings |
|
| 1,682,047 |
|
|
| 7,088 |
|
|
| 0.85 | % |
|
| 1,534,385 |
|
|
| 11,760 |
|
|
| 1.55 | % |
Time deposits |
|
| 1,490,548 |
|
|
| 14,504 |
|
|
| 1.96 | % |
|
| 1,858,155 |
|
|
| 20,589 |
|
|
| 2.23 | % |
Total interest-bearing deposits |
|
| 3,260,400 |
|
|
| 21,631 |
|
|
| 1.33 | % |
|
| 3,477,148 |
|
|
| 32,410 |
|
|
| 1.88 | % |
Borrowings |
|
| 236,548 |
|
|
| 1,256 |
|
|
| 1.07 | % |
|
| 5,306 |
|
|
| 72 |
|
|
| 2.74 | % |
Subordinated debentures |
|
| 118,513 |
|
|
| 3,357 |
|
|
| 5.67 | % |
|
| 117,935 |
|
|
| 3,536 |
|
|
| 5.99 | % |
Total interest-bearing liabilities |
|
| 3,615,461 |
|
|
| 26,244 |
|
|
| 1.46 | % |
|
| 3,600,389 |
|
|
| 36,018 |
|
|
| 2.02 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits: noninterest-bearing |
|
| 1,461,682 |
|
|
|
|
|
|
|
|
|
|
| 1,254,437 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 69,259 |
|
|
|
|
|
|
|
|
|
|
| 48,971 |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
| 554,147 |
|
|
|
|
|
|
|
|
|
|
| 563,411 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 5,700,549 |
|
|
|
|
|
|
|
|
|
| $ | 5,467,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable equivalent basis) |
|
|
|
|
| $ | 88,417 |
|
|
|
|
|
|
|
|
|
| $ | 88,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of deposits (3) |
|
|
|
|
|
|
|
|
|
| 0.92 | % |
|
|
|
|
|
|
|
|
|
| 1.38 | % |
Net interest spread (taxable equivalent basis) (4) |
|
|
|
|
|
|
|
|
|
| 2.76 | % |
|
|
|
|
|
|
|
|
|
| 2.78 | % |
Net interest margin (taxable equivalent basis) (5) |
|
|
|
|
|
|
|
|
|
| 3.25 | % |
|
|
|
|
|
|
|
|
|
| 3.41 | % |
Nine Months Ended | |||||||||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||||||||
Average Balance | Interest Income / Expense | Average Yield / Rate | Average Balance | Interest Income / Expense | Average Yield / Rate | ||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||
Assets | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Loans and leases receivable (1) | $ | 3,976,021 | $ | 143,614 | 4.83 | % | $ | 3,333,419 | $ | 120,862 | 4.84 | % | |||||||||
Securities (2) | 574,801 | 10,153 | 2.36 | % | 643,125 | 10,136 | 2.10 | % | |||||||||||||
FRB and FHLB stock | 16,385 | 943 | 7.69 | % | 26,809 | 1,540 | 7.66 | % | |||||||||||||
Interest-bearing deposits in other banks | 41,663 | 323 | 1.04 | % | 42,127 | 152 | 0.48 | % | |||||||||||||
Total interest-earning assets | 4,608,870 | 155,033 | 4.50 | % | 4,045,480 | 132,690 | 4.38 | % | |||||||||||||
Noninterest-earning assets: | |||||||||||||||||||||
Cash and due from banks | 116,206 | 115,235 | |||||||||||||||||||
Allowance for loan and lease losses | (33,550 | ) | (41,401 | ) | |||||||||||||||||
Other assets | 190,001 | 195,748 | |||||||||||||||||||
Total assets | $ | 4,881,527 | $ | 4,315,062 | |||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Deposits: | |||||||||||||||||||||
Demand: interest-bearing | $ | 94,040 | $ | 56 | 0.08 | % | $ | 95,264 | $ | 56 | 0.08 | % | |||||||||
Money market and savings | 1,489,302 | 9,200 | 0.83 | % | 996,578 | 4,130 | 0.55 | % | |||||||||||||
Time deposits | 1,293,412 | 9,431 | 0.97 | % | 1,286,120 | 7,583 | 0.79 | % | |||||||||||||
Total interest-bearing deposits | 2,876,754 | 18,687 | 0.87 | % | 2,377,962 | 11,769 | 0.66 | % | |||||||||||||
FHLB advances | 118,736 | 714 | 0.80 | % | 204,106 | 673 | 0.44 | % | |||||||||||||
Subordinated debentures | 88,604 | 3,677 | 5.52 | % | 18,783 | 584 | 4.15 | % | |||||||||||||
Total interest-bearing liabilities | 3,084,094 | 23,078 | 1.00 | % | 2,600,851 | 13,026 | 0.67 | % | |||||||||||||
Noninterest-bearing liabilities and equity: | |||||||||||||||||||||
Demand deposits: noninterest-bearing | 1,224,886 | 1,166,427 | |||||||||||||||||||
Other liabilities | 29,044 | 32,381 | |||||||||||||||||||
Stockholders’ equity | 543,503 | 515,403 | |||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 4,881,527 | $ | 4,315,062 | |||||||||||||||||
Net interest income (taxable equivalent) | $ | 131,955 | $ | 119,664 | |||||||||||||||||
Cost of deposits (3) | 0.61 | % | 0.44 | % | |||||||||||||||||
Net interest spread (4) | 3.50 | % | 3.71 | % | |||||||||||||||||
Net interest margin (5) | 3.83 | % | 3.95 | % |
(1) | |
Loans |
(2) | |
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. |
(3) | |
Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearingdeposits. |
(4) | |
Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearingliabilities. |
(5) | |
Represents net interest income as a percentage of average interest-earningassets. |
The table below shows changes in interest income (on a tax equivalent basis) and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
|
| Six Months Ended June 30, |
| |||||||||
|
| June 30, 2020 vs June 30, 2019 |
| |||||||||
|
| Increases (Decreases) Due to Change In |
| |||||||||
|
| Volume |
|
| Rate |
|
| Total |
| |||
|
| (in thousands) |
| |||||||||
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) |
| $ | 2,272 |
|
| $ | (10,600 | ) |
| $ | (8,328 | ) |
Securities (2) |
|
| (31 | ) |
|
| (460 | ) |
|
| (491 | ) |
FHLB stock |
|
| — |
|
|
| (80 | ) |
|
| (80 | ) |
Interest-bearing deposits in other banks |
|
| 781 |
|
|
| (1,262 | ) |
|
| (481 | ) |
Total interest and dividend income |
|
| 3,022 |
|
|
| (12,402 | ) |
|
| (9,380 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand: interest-bearing |
| $ | 2 |
|
| $ | (24 | ) |
| $ | (22 | ) |
Money market and savings |
|
| 1,052 |
|
|
| (5,724 | ) |
|
| (4,672 | ) |
Time deposits |
|
| (3,754 | ) |
|
| (2,331 | ) |
|
| (6,085 | ) |
Borrowings |
|
| 1,255 |
|
|
| (71 | ) |
|
| 1,184 |
|
Subordinated debentures |
|
| 16 |
|
|
| (195 | ) |
|
| (179 | ) |
Total interest expense |
|
| (1,429 | ) |
|
| (8,345 | ) |
|
| (9,774 | ) |
Change in net interest income |
| $ | 4,451 |
|
| $ | (4,057 | ) |
| $ | 394 |
|
(1) | Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loansreceivable are included in the average loans receivablebalance. |
(2) | Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. |
Nine Months Ended | |||||||||||
September 30, 2017 vs. September 30, 2016 | |||||||||||
Increases (Decreases) Due to Change In | |||||||||||
Volume | Rate | Total | |||||||||
(in thousands) | |||||||||||
Interest and dividend income: | |||||||||||
Loans and leases receivable | $ | 23,006 | $ | (254 | ) | $ | 22,752 | ||||
Securities | (1,152 | ) | 1,169 | 17 | |||||||
FRB and FHLB stock | (603 | ) | 6 | (597 | ) | ||||||
Interest-bearing deposits in other banks | (2 | ) | 173 | 171 | |||||||
Total interest and dividend income | $ | 21,249 | $ | 1,094 | $ | 22,343 | |||||
Interest expense: | |||||||||||
Money market and savings | $ | 2,499 | $ | 2,571 | $ | 5,070 | |||||
Time deposits | 44 | 1,804 | 1,848 | ||||||||
FHLB advances | (110 | ) | 151 | 41 | |||||||
Subordinated debentures | 2,840 | 253 | 3,093 | ||||||||
Total interest expense | $ | 5,273 | $ | 4,779 | $ | 10,052 | |||||
Change in net interest income (taxable equivalent) | $ | 15,976 | $ | (3,685 | ) | $ | 12,291 |
Interest and dividend income, on a taxable equivalent basis, increased $22.3decreased $9.4 million, or 16.87.6 percent, to $155.0$114.7 million for the ninesix months ended SeptemberJune 30, 20172020 from $132.7$124.0 million for the same period in 2016.2019. Interest expense increased $10.1decreased $9.8 million, or 77.227.1 percent, to $23.1$26.2 million for the ninesix months ended SeptemberJune 30, 20172020 from $13.0$36.0 million for the same period in 2016.2019. For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, net interest income, on a taxable equivalent basis, was $132.0$88.4 million and $119.7$88.0 million, respectively. The increase in netNet interest income was primarily attributable toincreased during the 19.3 percent growth in average loans and leases and the change in the mix of interest earning assetssix months ended June 30, 2020 compared with average loans and leases at 86.3 percent of average interest-earning assets for the first nine months of 2017, up from 82.4 percent for the same period in 2016.2019 mainly due to decreases on rates paid for money market, savings and time deposits, as well as lower average balances on time deposits, offset by decreases in the average yields on loans receivable. The net interest spread and net interest margin, on a taxable equivalent basis, for the ninesix months ended SeptemberJune 30, 20172020 were 3.502.76 percent and 3.833.25 percent, respectively, compared with 3.712.78 percent and 3.953.41 percent, respectively, for the same period in 2016. Excluding the effects2019.
The average balance of acquisition accounting adjustments, net interest margin was 3.79 percent and 3.76 percent for the nine months ended September 30, 2017 and 2016, respectively.
The average yield on interest-earning assets, on a taxable equivalent basis, increased 12decreased 58 basis points to 4.504.22 percent for the ninesix months ended SeptemberJune 30, 20172020 from 4.384.80 percent for the same period in 2016,2019, primarily due mainly to the higher percentage of loansdecrease in the mixgeneral level of interest rates of interest-earning assets.assets partially offset by an increase in the average balance of interest-bearing deposits at other banks. The average cost of interest-bearing liabilities increaseddecreased by 3356 basis points to 1.001.46 percent for the ninesix months ended SeptemberJune 30, 20172020 from 0.672.02 percent for the same period in 2016.
Credit Loss Expense
For the three months ended June 30, 2020, credit loss expense was $24.6 million, comprised of credit risks inherent in our lending business, we set aside an allowancea $21.1 million provision for loan losses and lease losses through charges to earnings. These charges are made not only for our outstanding loan and lease portfolio, but alsoa $3.5 million provision for off-balance sheet items such as commitments to extend credit, or letters of credit. The provisions, whether a charge or a credit, made for our outstanding loan and lease portfolio are recorded to the allowance for loan and lease losses, whereas charges or credits to other noninterest expense for off-balance sheet items are recorded to the allowance for off-balance sheet items, and are presented as a component of other liabilities.
The credit loss expense for the six months ended June 30, 2020 and 2019 was $40.3 million and $17.8 million. Included in credit loss expense was the provision for loan losses of $36.0 million and provision for off-balance sheet items of $4.3 million for the six months ended June 30, 2020. The loan loss provision for the six months ended June 30, 2019 was $17.8 million, and the provision for off-balance sheet items was a credit to expense of $0.1 million.
See also “Allowance for Loan and LeaseCredit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items"Items” for further details.
Noninterest Income
The following table sets forth the various components of noninterest income for the periods indicated:
|
| Three Months Ended June 30, |
|
| Increase (Decrease) |
| ||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
| |||
|
| (in thousands) |
| |||||||||
Service charges on deposit accounts |
| $ | 2,032 |
|
| $ | 2,486 |
|
| $ | (454 | ) |
Trade finance and other service charges and fees |
|
| 961 |
|
|
| 1,204 |
|
|
| (243 | ) |
Servicing income |
|
| 855 |
|
|
| 600 |
|
|
| 255 |
|
Bank-owned life insurance income |
|
| 276 |
|
|
| 281 |
|
|
| (5 | ) |
All other operating income |
|
| 1,095 |
|
|
| 293 |
|
|
| 802 |
|
Service charges, fees & other |
|
| 5,219 |
|
|
| 4,864 |
|
|
| 355 |
|
Gain on sale of SBA loans |
|
| — |
|
|
| 1,060 |
|
|
| (1,060 | ) |
Net gain (loss) on sales of securities |
|
| 15,712 |
|
|
| 570 |
|
|
| 15,142 |
|
Gain on sale of bank premises |
|
| — |
|
|
| 1,235 |
|
|
| (1,235 | ) |
Total noninterest income |
| $ | 20,931 |
|
| $ | 7,729 |
|
| $ | 13,202 |
|
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percentage | |||||||||||
(dollars in thousands) | ||||||||||||||
Service charges on deposit accounts | $ | 2,678 | $ | 2,883 | $ | (205 | ) | (7.1 | )% | |||||
Trade finance and other service charges and fees | 1,133 | 992 | 141 | 14.2 | % | |||||||||
Other operating income | 1,213 | 2,348 | (1,135 | ) | (48.3 | )% | ||||||||
Subtotal service charges, fees and other income | 5,024 | 6,223 | (1,199 | ) | (19.3 | )% | ||||||||
Gain on sale of SBA loans | 2,546 | 1,616 | 930 | 57.5 | % | |||||||||
Disposition gains on PCI loans | 979 | 789 | 190 | 24.1 | % | |||||||||
Net gain on sales of securities | 267 | 46 | 221 | 480.4 | % | |||||||||
Total noninterest income | $ | 8,816 | $ | 8,674 | $ | 142 | 1.6 | % |
For the three months ended SeptemberJune 30, 2017,2020, noninterest income was $8.8$20.9 million, an increase of $0.1$13.2 million, or 1.6170.8 percent, compared with $8.7$7.7 million for the same period in 2016. The2019. Most of the increase was primarily attributable to increased$15.7 million in gains on sale of $479.9 million of securities reflecting the repositioning of the securities portfolio to capture the high level of unrealized gains arising from the very low rate environment. Securities transactions for the year ago period resulted in gains of $0.5 million as we sold the remaining tax-exempt municipal bonds during the three months ended June 30, 2019. There were no gains on sale of SBA loans and securities transactions offset by lower other operating income. Gains on SBA loan sales were $2.5 million forduring the third quarter of 2017, an increase of $0.9 million from the third quarter of 2016 as the volume of loan sales increased to $32.5 million from $24.1 million in the same quarter last year. Sales of securities resulted in a net gain of $267,000 for the third quarter of 2017three months ended June 30, 2020 compared with $46,000$1.1 million for the same period in 2016. Other operating income was $1.2 million for the third quarter of 2017, a decrease of $1.1 million, or 48.3%, compared with $2.3 million for the third quarter of 2016. The decrease in other operating income was due to the gain from the sale of a branch facility in the third quarter of 2016.
The following table sets forth the various components of noninterest income for the periods indicated:
|
| Six Months Ended June 30, |
|
| Increase (Decrease) |
| ||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
| |||
|
| (in thousands) |
| |||||||||
Service charges on deposit accounts |
| $ | 4,432 |
|
| $ | 4,844 |
|
| $ | (412 | ) |
Trade finance and other service charges and fees |
|
| 1,948 |
|
|
| 2,328 |
|
|
| (380 | ) |
Servicing income |
|
| 1,416 |
|
|
| 1,083 |
|
|
| 333 |
|
Bank-owned life insurance income |
|
| 553 |
|
|
| 533 |
|
|
| 20 |
|
All other operating income |
|
| 1,939 |
|
|
| 679 |
|
|
| 1,260 |
|
Service charges, fees & other |
|
| 10,288 |
|
|
| 9,467 |
|
|
| 821 |
|
Gain on sale of SBA loans |
|
| 1,154 |
|
|
| 1,986 |
|
|
| (832 | ) |
Net gain (loss) on sales of securities |
|
| 15,712 |
|
|
| 1,295 |
|
|
| 14,417 |
|
Gain on sale of bank premises |
|
| — |
|
|
| 1,235 |
|
|
| (1,235 | ) |
Total noninterest income |
| $ | 27,154 |
|
| $ | 13,983 |
|
| $ | 13,171 |
|
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percentage | |||||||||||
(dollars in thousands) | ||||||||||||||
Service charges on deposit accounts | $ | 7,667 | $ | 8,782 | $ | (1,115 | ) | (12.7 | )% | |||||
Trade finance and other service charges and fees | 3,449 | 3,099 | 350 | 11.3 | % | |||||||||
Other operating income | 4,764 | 5,423 | (659 | ) | (12.2 | )% | ||||||||
Subtotal service charges, fees and other income | 15,880 | 17,304 | (1,424 | ) | (8.2 | )% | ||||||||
Gain on sale of SBA loans | 6,678 | 4,247 | 2,431 | 57.2 | % | |||||||||
Disposition gains on PCI loans | 1,473 | 3,411 | (1,938 | ) | (56.8 | )% | ||||||||
Net gain on sales of securities | 1,702 | 46 | 1,656 | 3,600.0 | % | |||||||||
Total noninterest income | $ | 25,733 | $ | 25,008 | $ | 725 | 2.9 | % |
For the ninesix months ended SeptemberJune 30, 2017,2020, noninterest income was $25.7$27.2 million, an increase of $0.7$13.2 million, or 2.994.2 percent, compared with $25.0$14.0 million for the same period in 2016. The increase2019. Increase in noninterest income for the six months ended June 30, 2020 was primarily attributablemostly attributed to $15.7 million in gains on sales of securities. Securities transactions for the same period a year ago resulted in gains of $1.3 million as we sold all of our tax-exempt municipal bonds during the six months ended June 30, 2019. In addition, other operating income increased from $512,000 of fees relating to back-to-back swap contracts with a notional amount of $29.5 million and higher levels of bank interchange fees of $699,000. These were partially offset by lower gains on sales of SBA loans which were $1.2 million for the six months ended June 30, 2020 compared with $2.0 million for the same period a year ago, and the absence of a gain on the sale of SBA loans and securities transactions offset by lower gains from the resolution or disposition of PCI loans and service charges on deposit accounts. Gains on SBA loan sales were $6.7bank premises in 2020 compared to a $1.2 million gain for the first nine months of 2017, an increase of $2.4 million from the first nine months of 2016 as the volume of loan sales increased to $84.5 million from $55.9 million in the same quarter last year. Sales of securities resulted in a net gain of $1.7 million for the first nine months of 2017 compared with $46,000 for the same period in 2016. Disposition gains on PCI loans were $1.5 million for the ninesix months ended SeptemberJune 30, 2107 compared with $3.4 million the same period in 2016.
Noninterest Expense
The following table sets forth the components of noninterest expense for the periods indicated:
|
| Three Months Ended June 30, |
|
| Increase (Decrease) |
| ||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
| |||
|
| (in thousands) |
| |||||||||
Salaries and employee benefits |
| $ | 14,701 |
|
| $ | 16,881 |
|
| $ | (2,180 | ) |
Occupancy and equipment |
|
| 4,508 |
|
|
| 3,468 |
|
|
| 1,040 |
|
Data processing |
|
| 2,804 |
|
|
| 2,140 |
|
|
| 664 |
|
Professional fees |
|
| 1,545 |
|
|
| 1,983 |
|
|
| (438 | ) |
Supplies and communications |
|
| 858 |
|
|
| 649 |
|
|
| 209 |
|
Advertising and promotion |
|
| 456 |
|
|
| 945 |
|
|
| (489 | ) |
All other operating expenses |
|
| 2,457 |
|
|
| 3,687 |
|
|
| (1,230 | ) |
Subtotal |
|
| 27,329 |
|
|
| 29,753 |
|
|
| (2,424 | ) |
Provision expense (income) for losses on off-balance sheet items (1) |
|
| — |
|
|
| 233 |
|
|
| (233 | ) |
Other real estate owned expense |
|
| (191 | ) |
|
| 158 |
|
|
| (349 | ) |
Total noninterest expense |
| $ | 27,138 |
|
| $ | 30,144 |
|
| $ | (3,006 | ) |
(1) | Provision expense (income) for losses on off-balance sheet items is now included in credit loss expense; the provision for losses on off-balance sheet items was $3.5 million for the six months ended June 30, 2020. |
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percentage | |||||||||||
(dollars in thousands) | ||||||||||||||
Salaries and employee benefits | $ | 16,947 | $ | 15,950 | $ | 997 | 6.3 | % | ||||||
Occupancy and equipment | 3,883 | 3,917 | (34 | ) | -0.9 | % | ||||||||
Data processing | 1,779 | 1,330 | 449 | 33.8 | % | |||||||||
Professional fees | 1,210 | 1,090 | 120 | 11.0 | % | |||||||||
Supplies and communications | 755 | 821 | (66 | ) | -8.0 | % | ||||||||
Advertising and promotion | 1,147 | 1,153 | (6 | ) | -0.5 | % | ||||||||
OREO expense | (16 | ) | 73 | (89 | ) | -121.9 | % | |||||||
Other operating expenses | 2,955 | 4,003 | (1,048 | ) | -26.2 | % | ||||||||
Total noninterest expense | $ | 28,660 | $ | 28,337 | $ | 323 | 1.1 | % |
For the three months ended SeptemberJune 30, 2017,2020, noninterest expense was $28.7$27.1 million, an increasea decrease of $0.3$3.0 million, or 1.110.0 percent, compared with $28.3$30.1 million for the same period in 2016.2019. The increasedecrease was primarily due primarily to increases inlower salaries and employee benefits OREO and data processing, offset by a decreaseexpense from $3.1 million in other operating expenses. The increase inhigher capitalized salaries and employee benefits is largely due to personnel added with the commencement of the Commercial Equipment Leasing Division and annual merit increases compared to the same period in 2016. The decrease in other operating expenses is mainly due to a $1.4 million charge for the three months ended September 30, 2016 related to the finalizationorigination of prior year FDIC loss share claims.
The following table sets forth the components of noninterest expense for the periods indicated:
|
| Six Months Ended June 30, |
|
| Increase (Decrease) |
| ||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
| |||
|
| (in thousands) |
| |||||||||
Salaries and employee benefits |
| $ | 32,450 |
|
| $ | 32,619 |
|
| $ | (169 | ) |
Occupancy and equipment |
|
| 8,983 |
|
|
| 7,989 |
|
|
| 994 |
|
Data processing |
|
| 5,473 |
|
|
| 4,223 |
|
|
| 1,250 |
|
Professional fees |
|
| 3,460 |
|
|
| 3,632 |
|
|
| (172 | ) |
Supplies and communications |
|
| 1,639 |
|
|
| 1,493 |
|
|
| 146 |
|
Advertising and promotion |
|
| 1,190 |
|
|
| 1,705 |
|
|
| (515 | ) |
Merger and integration costs |
|
| — |
|
|
| 641 |
|
|
| (641 | ) |
All other operating expenses |
|
| 5,200 |
|
|
| 7,089 |
|
|
| (1,889 | ) |
Subtotal |
|
| 58,395 |
|
|
| 59,391 |
|
|
| (996 | ) |
Provision expense (income) for losses on off-balance sheet items (1) |
|
| — |
|
|
| (106 | ) |
|
| 106 |
|
Other real estate owned expense |
|
| (189 | ) |
|
| (75 | ) |
|
| (114 | ) |
Total noninterest expense |
| $ | 58,206 |
|
| $ | 59,210 |
|
| $ | (1,004 | ) |
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percentage | |||||||||||
(dollars in thousands) | ||||||||||||||
Salaries and employee benefits | $ | 50,674 | $ | 47,710 | $ | 2,964 | 6.2 | % | ||||||
Occupancy and equipment | 11,743 | 11,351 | 392 | 3.5 | % | |||||||||
Data processing | 5,148 | 4,219 | 929 | 22.0 | % | |||||||||
Professional fees | 3,912 | 4,063 | (151 | ) | -3.7 | % | ||||||||
Supplies and communications | 2,135 | 2,266 | (131 | ) | -5.8 | % | ||||||||
Advertising and promotion | 2,964 | 2,769 | 195 | 7.0 | % | |||||||||
OREO expense | 402 | 721 | (319 | ) | -44.2 | % | ||||||||
Merger and integration costs (income) | (40 | ) | — | (40 | ) | -100.0 | % | |||||||
Other operating expenses | 7,905 | 9,170 | (1,265 | ) | -13.8 | % | ||||||||
Total noninterest expense | $ | 84,843 | $ | 82,269 | $ | 2,574 | 3.1 | % |
(1) | Provision expense (income) for losses on off-balance sheet items is now included in credit loss expense; the provision for losses on off-balance sheet items was $4.3 million for the six months ended June 30, 2020. |
For the ninesix months ended SeptemberJune 30, 2017,2020, noninterest expense was $84.8$58.2 million, an increasea decrease of $2.6$1.0 million, or 3.11.7 percent, compared with $82.3$59.2 million for the same period in 2016.2019. The decrease was primarily due to a reduction of other operating expenses from gains on sales and disposals of repossessed assets, offset by an increase was due primarily to increases in salaries and employee benefits, data processing and occupancy and equipment costs.
Income Tax Expense
Income tax expense offset by a decrease in other operating expense.was $4.5 million and $1.2 million representing an effective income tax rate of 32.7 percent and 31.5 percent for the three months ended June 30, 2020 and 2019, respectively. The increase in salaries and employee benefits is largely due to personnel added with the commencement ofeffective tax rate for the Commercial Equipment Leasing Division and annual merit increasesthree months ended June 30, 2020, compared to the same period in 2016. The decrease in other operating expenses is mainly2019 was principally due to a $1.4 million charge forhigher pre-tax income during the three months ended September 30, 2016 related to the finalization of prior year FDIC loss share claims.
Income tax expense was $9.9$5.5 million and $7.5 million representing an effective income tax rate of 32.3 percent and 30.2 percent for the threesix months ended SeptemberJune 30, 2017,2020 and 2019, respectively. The increase in the effective tax rate for the six months ended June 30, 2020, compared with $8.2 million forto the same period in 2016. The effective income tax rate2019 was 39.9 percent for the three months ended September 30, 2017principally due to lower tax-exempt interest and 38.6 percent for the same period in 2016.
Financial Condition
Securities
As of SeptemberJune 30, 2017,2020, our securities portfolio was composed primarilyconsisted of U.S. government agency and sponsored agency mortgage-backed securities, and collateralized mortgage obligations as well as tax exempt municipal bonds.and, to a lesser extent, U.S. Treasury securities. Most of thethese securities carriedcarry fixed interest rates. Other than holdings of U.S. government agency securities,and sponsored agency obligations, there were no securities of any one issuer exceeding 10 percent of stockholders’ equity as of SepemberJune 30, 20172020 and December 31, 2016.
The following table summarizes the amortized cost, estimated fair value and unrealized gain (loss) on securities as of the dates indicated:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
|
|
|
|
| Estimated |
|
| Unrealized |
|
|
|
|
|
| Estimated |
|
| Unrealized |
| ||||
|
| Amortized |
|
| Fair |
|
| Gain |
|
| Amortized |
|
| Fair |
|
| Gain |
| ||||||
|
| Cost |
|
| Value |
|
| (Loss) |
|
| Cost |
|
| Value |
|
| (Loss) |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 44,982 |
|
| $ | 45,262 |
|
| $ | 280 |
|
| $ | 34,947 |
|
| $ | 35,206 |
|
| $ | 259 |
|
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| 413,278 |
|
|
| 413,263 |
|
|
| (15 | ) |
|
| 406,813 |
|
|
| 410,800 |
|
|
| 3,987 |
|
Collateralized mortgage obligations |
|
| 120,080 |
|
|
| 120,294 |
|
|
| 214 |
|
|
| 164,232 |
|
|
| 164,592 |
|
|
| 360 |
|
Debt securities |
|
| 77,160 |
|
|
| 77,152 |
|
|
| (8 | ) |
|
| 23,733 |
|
|
| 23,879 |
|
|
| 146 |
|
Total U.S. government agency and sponsored agency obligations |
|
| 610,518 |
|
|
| 610,709 |
|
|
| 191 |
|
|
| 594,778 |
|
|
| 599,271 |
|
|
| 4,493 |
|
Total securities available for sale |
| $ | 655,500 |
|
| $ | 655,971 |
|
| $ | 471 |
|
| $ | 629,725 |
|
| $ | 634,477 |
|
| $ | 4,752 |
|
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
Amortized Cost | Estimated Fair Value | Unrealized Gain (Loss) | Amortized Cost | Estimated Fair Value | Unrealized Gain (Loss) | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Securities available for sale: | |||||||||||||||||||||||
Mortgage-backed securities (1) (2) | $ | 310,111 | $ | 309,750 | $ | (361 | ) | $ | 230,489 | $ | 229,630 | $ | (859 | ) | |||||||||
Collateralized mortgage obligations (1) | 107,052 | 106,124 | (928 | ) | 77,447 | 76,451 | (996 | ) | |||||||||||||||
U.S. government agency securities | 7,499 | 7,457 | (42 | ) | 7,499 | 7,441 | (58 | ) | |||||||||||||||
SBA loan pool securities | 4,036 | 3,896 | (140 | ) | 4,356 | 4,146 | (210 | ) | |||||||||||||||
Municipal bonds-tax exempt | 146,177 | 148,524 | 2,347 | 159,789 | 158,030 | (1,759 | ) | ||||||||||||||||
Municipal bonds-taxable | — | — | — | 13,391 | 13,701 | 310 | |||||||||||||||||
Corporate bonds | — | — | — | 5,010 | 5,015 | 5 | |||||||||||||||||
U.S. treasury securities | 153 | 153 | — | 156 | 156 | — | |||||||||||||||||
Mutual funds | 22,916 | 22,536 | (380 | ) | 22,916 | 22,394 | (522 | ) | |||||||||||||||
Total securities available for sale | $ | 597,944 | $ | 598,440 | $ | 496 | $ | 521,053 | $ | 516,964 | $ | (4,089 | ) |
As of SeptemberJune 30, 2017,2020, securities available for sale increased 15.8$21.5 million, or 3.4 percent, to $598.4$656.0 million, compared with $517.0$634.5 million as of December 31, 2016, due mainly to security purchases. As2019. The increase reflects partial utilization of September 30, 2017, securities available for sale had a net unrealized gain of $496,000, comprised of $3.2 million of unrealized gains and $2.7 million of unrealized losses. As of December 31, 2016, securities available for sale had a net unrealized loss of $4.1 million, comprised of $1.2 million of unrealized gains and $5.3 million of unrealized losses.
The following table summarizes the contractual maturity schedule for securities, at amortized cost, and their weighted-average yieldsweighted- average yield as of SeptemberJune 30, 2017:2020:
|
|
|
|
|
|
|
|
|
| After One Year But |
|
| After Five Years But |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Within One Year |
|
| Within Five Years |
|
| Within Ten Years |
|
| After Ten Years |
|
| Total |
| |||||||||||||||||||||||||
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
| ||||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 34,988 |
|
|
| 0.51 | % |
| $ | 9,996 |
|
|
| 2.67 | % |
| $ | — |
|
|
| 0.00 | % |
| $ | — |
|
|
| 0.00 | % |
| $ | 44,984 |
|
|
| 0.99 | % |
U.S. government agency and sponsored agency obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| 7,083 |
|
|
| 1.95 | % |
|
| 4,685 |
|
|
| 2.10 | % |
|
| — |
|
|
| 0.00 | % |
|
| 401,510 |
|
|
| 1.54 | % |
|
| 413,278 |
|
|
| 1.56 | % |
Collateralized mortgage obligations |
|
| 11 |
|
|
| 1.68 | % |
|
| 1,411 |
|
|
| 1.48 | % |
|
| 1,813 |
|
|
| 1.42 | % |
|
| 116,843 |
|
|
| 1.02 | % |
|
| 120,078 |
|
|
| 1.03 | % |
Debt securities |
|
| — |
|
|
| 0.00 | % |
|
| 67,160 |
|
|
| 0.54 | % |
|
| 10,000 |
|
|
| 0.85 | % |
|
| — |
|
|
| 0.00 | % |
|
| 77,160 |
|
|
| 0.58 | % |
Total U.S. government agency and sponsored agency obligations |
|
| 7,094 |
|
|
| 1.95 | % |
|
| 73,256 |
|
|
| 0.66 | % |
|
| 11,813 |
|
|
| 0.94 | % |
|
| 518,353 |
|
|
| 1.43 | % |
|
| 610,516 |
|
|
| 1.33 | % |
Total securities available for sale |
| $ | 42,082 |
|
|
| 0.75 | % |
| $ | 83,252 |
|
|
| 0.90 | % |
| $ | 11,813 |
|
|
| 0.94 | % |
| $ | 518,353 |
|
|
| 1.43 | % |
| $ | 655,500 |
|
|
| 1.31 | % |
After One Year But | After Five Years But | |||||||||||||||||||||||||||||||||
Within One Year | Within Five Years | Within Ten Years | After Ten Years | Total | ||||||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 23,222 | 1.76 | % | $ | 37,312 | 2.01 | % | $ | 92,049 | 2.21 | % | $ | 157,528 | 2.28 | % | $ | 310,111 | 2.19 | % | ||||||||||||||
Collateralized mortgage obligations | 21 | — | % | 1,935 | 1.55 | % | 17,941 | 1.71 | % | 87,155 | 1.86 | % | 107,052 | 1.83 | % | |||||||||||||||||||
U.S. government agency securities | — | — | % | 6,000 | 1.35 | % | 1,499 | 2.20 | % | — | — | % | 7,499 | 1.52 | % | |||||||||||||||||||
SBA loan pool securities | — | — | % | — | — | % | — | — | % | 4,036 | 1.72 | % | 4,036 | 1.72 | % | |||||||||||||||||||
Municipal bonds-tax exempt (1) | — | — | % | 5,296 | 2.64 | % | 85,104 | 3.20 | % | 55,777 | 4.18 | % | 146,177 | 3.55 | % | |||||||||||||||||||
Municipal bonds-taxable | — | — | % | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||
Corporate bonds | — | — | % | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||
U.S. treasury securities | 153 | 1.20 | % | — | — | % | — | — | % | — | — | % | 153 | 1.20 | % | |||||||||||||||||||
Mutual funds (2) | — | — | % | — | — | % | — | — | % | 22,916 | 2.46 | % | 22,916 | 2.46 | % | |||||||||||||||||||
Total securities available for sale | $ | 23,396 | 1.75 | % | $ | 50,543 | 1.98 | % | $ | 196,593 | 2.59 | % | $ | 327,412 | 2.50 | % | $ | 597,944 | 2.46 | % |
Loans and Leases Receivable Net
The following table shows the loan and leaseloans portfolio composition by type as of the dates indicated:indicated, excluding loans held for sale:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
| (in thousands) |
| |||||
Real estate loans: |
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
Retail |
| $ | 808,157 |
|
| $ | 869,302 |
|
Hospitality |
|
| 882,812 |
|
|
| 922,288 |
|
Other (1) |
|
| 1,504,916 |
|
|
| 1,358,432 |
|
Total commercial property loans |
|
| 3,195,885 |
|
|
| 3,150,022 |
|
Construction |
|
| 70,357 |
|
|
| 76,455 |
|
Residential property |
|
| 354,064 |
|
|
| 402,028 |
|
Total real estate loans |
|
| 3,620,306 |
|
|
| 3,628,505 |
|
Commercial and industrial loans |
|
| 730,399 |
|
|
| 484,093 |
|
Leases receivable |
|
| 462,811 |
|
|
| 483,879 |
|
Consumer loans (2) |
|
| 12,126 |
|
|
| 13,670 |
|
Loans receivable |
|
| 4,825,642 |
|
|
| 4,610,147 |
|
Allowance for credit losses |
|
| (86,330 | ) |
|
| (61,408 | ) |
Loans receivable, net |
| $ | 4,739,312 |
|
| $ | 4,548,739 |
|
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Real estate loans: | |||||||
Commercial property | |||||||
Retail | $ | 917,823 | $ | 859,953 | |||
Hospitality | 733,226 | 651,158 | |||||
Gas station | 247,430 | 262,879 | |||||
Other (1) | 1,146,189 | 1,109,656 | |||||
Total commercial real estate loans | 3,044,668 | 2,883,646 | |||||
Construction | 64,263 | 55,962 | |||||
Residential property | 430,627 | 338,767 | |||||
Total real estate loans | 3,539,558 | 3,278,375 | |||||
Commercial and industrial loans: | |||||||
Commercial term | 170,942 | 138,168 | |||||
Commercial lines of credit | 149,937 | 136,231 | |||||
International loans | 43,577 | 25,821 | |||||
Total commercial and industrial loans | 364,456 | 300,220 | |||||
Leases receivable | 272,271 | 243,294 | |||||
Consumer loans (2) | 19,070 | 22,880 | |||||
Loans and leases receivable | 4,195,355 | 3,844,769 | |||||
Allowance for loan and lease losses | (32,492 | ) | (32,429 | ) | |||
Loans and leases receivable, net | $ | 4,162,863 | $ | 3,812,340 |
(1) | |
Includes, among other types, mixed-use, apartment, office, industrial, gas stations, faith-based facilities and warehouse; all other property types |
(2) | |
Consumer loans include home equity lines of credit of |
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, net loans and leases receivable were $4.16was $4.74 billion and $3.81$4.55 billion, respectively, representing an increase of $350.5$190.6 million, or 9.24.2 percent. The increase in net loans and leasesreceivable as of September
Industry
Our loan and leaseloans receivable portfolio included the following concentrations of loans to one type of industry that were greater than 1010.0 percent of loans and leasesreceivable outstanding:
|
|
|
|
|
| Percentage of |
| |
|
| Balance as of |
|
| Loans Receivable |
| ||
|
| June 30, 2020 |
|
| Outstanding |
| ||
|
| (in thousands) |
| |||||
Lessor of nonresidential buildings |
| $ | 1,384,992 |
|
|
| 28.7 | % |
Hospitality |
|
| 944,923 |
|
|
| 19.6 | % |
Balance at September 30, 2017 | Percentage of Loans and Leases Outstanding | |||||
Industry | (in thousands) | |||||
Lessor of nonresidential buildings | $ | 1,262,200 | 30.1 | % | ||
Hospitality | $ | 739,401 | 17.6 | % |
There was no other concentration of loans and leasesreceivable to any one type of industry exceeding 10.0 percent of loans and leasesreceivable outstanding.
Loan Quality Indicators
As of June 30, 2020 and December 31, 2019, pass/pass-watch, special mention and classified loans, disaggregated by loan class, were as follows:
|
| Pass/Pass- Watch |
|
| Special Mention |
|
| Classified |
|
| Total |
| ||||
|
| (in thousands) |
| |||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 800,437 |
|
| $ | 1,182 |
|
| $ | 6,538 |
|
| $ | 808,157 |
|
Hospitality |
|
| 879,131 |
|
|
| — |
|
|
| 3,681 |
|
|
| 882,812 |
|
Other |
|
| 1,469,272 |
|
|
| 6,059 |
|
|
| 29,585 |
|
|
| 1,504,916 |
|
Total commercial property loans |
|
| 3,148,840 |
|
|
| 7,241 |
|
|
| 39,804 |
|
|
| 3,195,885 |
|
Construction |
|
| 44,503 |
|
|
| — |
|
|
| 25,854 |
|
|
| 70,357 |
|
Residential property |
|
| 350,520 |
|
|
| 784 |
|
|
| 2,760 |
|
|
| 354,064 |
|
Total real estate loans |
|
| 3,543,863 |
|
|
| 8,025 |
|
|
| 68,418 |
|
|
| 3,620,306 |
|
Commercial and industrial loans |
|
| 702,443 |
|
|
| 12,423 |
|
|
| 15,533 |
|
|
| 730,399 |
|
Leases receivable |
|
| 453,528 |
|
|
| — |
|
|
| 9,283 |
|
|
| 462,811 |
|
Consumer loans |
|
| 10,752 |
|
|
| 686 |
|
|
| 688 |
|
|
| 12,126 |
|
Total loans receivable |
| $ | 4,710,586 |
|
| $ | 21,134 |
|
| $ | 93,922 |
|
| $ | 4,825,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 property |
|
| 398,737 |
|
|
| 2,512 |
|
|
| 779 |
|
|
| 402,028 |
|
Total real estate loans |
|
| 3,541,082 |
|
|
| 15,705 |
|
|
| 71,718 |
|
|
| 3,628,505 |
|
Commercial and industrial loans |
|
| 458,184 |
|
|
| 10,222 |
|
|
| 15,687 |
|
|
| 484,093 |
|
Leases receivable |
|
| 477,977 |
|
|
| — |
|
|
| 5,902 |
|
|
| 483,879 |
|
Consumer loans |
|
| 12,247 |
|
|
| 705 |
|
|
| 718 |
|
|
| 13,670 |
|
Total loans receivable |
| $ | 4,489,491 |
|
| $ | 26,632 |
|
| $ | 94,025 |
|
| $ | 4,610,147 |
|
Classified loans were $93.9 million at June 30, 2020 compared with $94.0 million at the end of 2019, while special mention loans were $21.1 million at the end of the second quarter compared with $26.6 million at December 31, 2019. The decrease in classified loans primarily reflects the $25.2 million charge-off of the previously identified troubled loan relationship, offset by the addition of two film-tax credit loans totaling $12.6 million and one construction loan totaling $12.8 million.
Nonperforming Loans and Leases and Nonperforming Assets
Nonperforming loans and leases (excluding PCI loans) consist of loans and leasesreceivable on nonaccrual status and loans and leases 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and leases and OREO. Non-purchased credit impaired (“Non-PCI”) loans and leasesLoans are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless we believe the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular receivableloan on nonaccrual status earlier, depending upon the individual circumstances surrounding the receivable'sloan's delinquency. When an asseta loan is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual assetsloans may be restored to accrual status when principal and interest become current and full repayment is expected. Interest income is recognized on the accrual basis for impaired loans and leases not meeting the criteria for nonaccrual. OREO consists of properties acquired by foreclosure or similar means that management intends to offer for sale.
Except for nonperforming loans and leases set forth in the table belowand PCI loans, the matters described in the following paragraph, we are not aware of any other loans or leases as of SeptemberJune 30, 2017 and December 31, 20162020 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present repayment terms, or any known events that would result in the receivableloan being designated as nonperforming at some future date. We cannot, however, predict the extent to which a deterioration ingeneral economic conditions, real estate values, increases in general rates of interest, or changes in the financial condition or business of borrower may adversely affect a borrower’s ability to pay.
On March 22, 2020, banking regulators issued a statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 and until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. Accordingly, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 90 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. As of June 30, 2020, the Bank approved 2,443modification requests representing $1.4 billion of loans and leases, or 29.0 percent of the loan portfolio, of which 698 or $1.3 billion represented loan modifications and 1,745 or $1.0 million represented lease modifications.
The following table provides information with respect to the components of nonperforming assets (excluding PCI loans) as of the dates indicated:
|
|
|
|
|
|
|
|
|
| Increase (Decrease) |
| |||||
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| Amount |
|
| Percentage |
| ||||
|
| (in thousands) |
| |||||||||||||
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 1,355 |
|
| $ | 277 |
|
| $ | 1,078 |
|
|
| 388.9 | % |
Hospitality |
|
| — |
|
|
| 225 |
|
|
| (225 | ) |
|
| -100.0 | % |
Other |
|
| 4,503 |
|
|
| 14,864 |
|
|
| (10,361 | ) |
|
| -69.7 | % |
Total commercial property loans |
|
| 5,858 |
|
|
| 15,366 |
|
|
| (9,508 | ) |
|
| -61.9 | % |
Construction |
|
| 25,854 |
|
|
| 27,201 |
|
|
| (1,347 | ) |
|
| -5.0 | % |
Residential property |
|
| 2,794 |
|
|
| 1,124 |
|
|
| 1,670 |
|
|
| 148.5 | % |
Total real estate loans |
|
| 34,506 |
|
|
| 43,691 |
|
|
| (9,185 | ) |
|
| -21.0 | % |
Commercial and industrial loans |
|
| 13,785 |
|
|
| 13,479 |
|
|
| 306 |
|
|
| 2.3 | % |
Leases receivable |
|
| 9,285 |
|
|
| 5,902 |
|
|
| 3,383 |
|
|
| 57.3 | % |
Consumer loans |
|
| 688 |
|
|
| 689 |
|
|
| (1 | ) |
|
| -0.1 | % |
Total nonaccrual loans |
|
| 58,264 |
|
|
| 63,761 |
|
|
| (5,497 | ) |
|
| -8.6 | % |
Loans 90 days or more past due and still accruing |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100.0 | % |
Total nonperforming loans (1) |
|
| 58,264 |
|
|
| 63,761 |
|
|
| (5,497 | ) |
|
| -8.6 | % |
Other real estate owned |
|
| 148 |
|
|
| 63 |
|
|
| 85 |
|
|
| 134.9 | % |
Total nonperforming assets |
| $ | 58,412 |
|
| $ | 63,824 |
|
| $ | (5,412 | ) |
|
| -8.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans |
|
| 1.21 | % |
|
| 1.38 | % |
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of assets |
|
| 0.94 | % |
|
| 1.15 | % |
|
|
|
|
|
|
|
|
Performing troubled debt restructured loans |
| $ | 14,524 |
|
| $ | 830 |
|
|
|
|
|
|
|
|
|
September 30, 2017 | December 31, 2016 | Increase (Decrease) | ||||||||||||
Amount | Percentage | |||||||||||||
(dollars in thousands) | ||||||||||||||
Nonperforming Non-PCI loans and leases: | ||||||||||||||
Real estate loans: | ||||||||||||||
Commercial property | ||||||||||||||
Retail | $ | 253 | $ | 404 | $ | (151 | ) | -37.4 | % | |||||
Hospitality | 5,368 | 5,266 | 102 | 1.9 | % | |||||||||
Gas station | 742 | 1,025 | (283 | ) | -27.6 | % | ||||||||
Other | 2,097 | 2,033 | 64 | 3.1 | % | |||||||||
Total commercial real estate loans | 8,460 | 8,728 | (268 | ) | -3.1 | % | ||||||||
Residential property | 621 | 564 | 57 | 10.1 | % | |||||||||
Commercial and industrial loans | 1,165 | 824 | 341 | 41.4 | % | |||||||||
Leases receivable | 3,378 | 901 | 2,477 | 274.9 | % | |||||||||
Consumer loans | 934 | 389 | 545 | 140.1 | % | |||||||||
Total nonperforming Non-PCI loans | 14,558 | 11,406 | 3,152 | 27.6 | % | |||||||||
Loans 90 days or more past due and still accruing | — | — | — | — | ||||||||||
Total nonperforming Non-PCI loans and leases(1) | 14,558 | 11,406 | 3,152 | 27.6 | % | |||||||||
OREO | 1,946 | 7,484 | (5,538 | ) | -74.0 | % | ||||||||
Total nonperforming assets | $ | 16,504 | $ | 18,890 | $ | (2,386 | ) | -12.6 | % | |||||
Nonperforming Non-PCI loans and leases as a percentage of Non-PCI loans and leases | 0.35 | % | 0.30 | % | ||||||||||
Nonperforming assets as a percentage of assets | 0.32 | % | 0.40 | % | ||||||||||
Troubled debt restructured performing Non-PCI loans and leases | $ | 8,490 | $ | 11,146 |
(1) | Includes nonperforming TDRs of |
Nonperforming loans were $58.3 million and leases were $14.6$63.8 million as of SeptemberJune 30, 2017, compared with $11.4 million as of December 31, 2016, representing an increase of $3.2 million, or 27.6 percent, primarily due to lease receivables. There were no Non-PCI loans or leases past due 90 days or more and still accruing as of September 30, 20172020 and December 31, 2016. During2019, respectively. The decrease reflects principally the nine months ended September 30, 2017, $8.8$25.2 million charge-off of the troubled loan relationship, the pay-off of a $5.5 million past due film-tax credit loan, as well as two other loans totaling $14.1 million returning to accruing status offset by the addition of three loans totaling $22.9 million and leases were placed on nonaccrual status. These additions to nonaccrual loans and leases were partially offset by $1.1 million of nonaccrual loans and leases restored to accrual status and $2.1 million in principal payoffs and pay downs and $0.2 million in OREO transfers.
Delinquent Non-PCI loans and leases (defined as 30 to 89 days past due and still accruing) were $7.6$10.0 million as of SeptemberJune 30, 2017,2020 compared with $7.4$10.3 million as of December 31, 2016.
As of SeptemberJune 30, 2017,2020, OREO consisted of 6three properties with a combined carrying value of $1.9$0.1 million as compared with 12to two properties with a combined carrying value of $7.5$0.01 million as of December 31, 2016.
The following table provides information with GAAP. With the exception of PCI loans, loans and leases are considered impaired when it is probable that we will be unable to collect all amounts due accordingrespect to the contractual termsamortized cost basis of nonperforming loans:
|
| June 30, 2020 |
| |||||||||||||
|
| Nonaccrual Loans With No Allowance for Credit Losses |
|
| Nonaccrual Loans With Allowance for Credit Losses |
|
| Loans Past Due 90 Days Still Accruing |
|
| Total Nonperforming Loans |
| ||||
|
| (in thousands) |
| |||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property loans |
| $ | 5,238 |
|
| $ | 620 |
|
| $ | — |
|
| $ | 5,858 |
|
Construction loans |
|
| 13,046 |
|
|
| 12,808 |
|
|
| — |
|
|
| 25,854 |
|
Residential property loans |
|
| 2,761 |
|
|
| 33 |
|
|
| — |
|
|
| 2,794 |
|
Total real estate loans |
|
| 21,045 |
|
|
| 13,461 |
|
|
| — |
|
|
| 34,506 |
|
Commercial and industrial loans |
|
| 12,878 |
|
|
| 907 |
|
|
| — |
|
|
| 13,785 |
|
Leases receivable |
|
| 1,797 |
|
|
| 7,488 |
|
|
| — |
|
|
| 9,285 |
|
Consumer loans |
|
| 688 |
|
|
| — |
|
|
| — |
|
|
| 688 |
|
Total nonperforming loans |
| $ | 36,408 |
|
| $ | 21,856 |
|
| $ | — |
|
| $ | 58,264 |
|
Individually Evaluated Loans
Prior to the loan and lease agreement, including scheduled interest payments. Impairedadoption of ASU 2016-13, impaired loans and leases arewere measured based on the present value of expected future cash flows discounted at the receivable'sloan's effective interest rate or, as ana practical expedient, at the receivable'sloan's observable market price or the fair value of the collateral if the loan iswas collateral dependent, less estimated costs to sell. If the measureestimated value of the impaired receivable isloan was less than the recorded investment in the receivable,loan, we charged-off the deficiency will be charged off against the allowance for loan and leasecredit losses or alternatively,we established a specific allocation will be established.allowance in the allowance for credit losses. Additionally, impaired loans and leases are specificallywe excluded from the quarterly migration analysis impaired loans when determining the amount of the allowance for loan and leasecredit losses required for theperiod.
We review, under ASU 2016-13, all loans on an individual basis when they do not share similar risk characteristics with loan pools.
The following table provides information on individually evaluated loans as of June 30, 2020 and impaired loans and lease (excluding PCI loans) as of the dates indicated:December 31, 2019:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Recorded Investment |
|
| Percentage |
|
| Recorded Investment |
|
| Percentage |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 1,355 |
|
|
| 1.9 | % |
| $ | 434 |
|
|
| 0.7 | % |
Hospitality |
|
| — |
|
|
| 0.0 | % |
|
| 244 |
|
|
| 0.4 | % |
Other |
|
| 18,299 |
|
|
| 25.5 | % |
|
| 14,864 |
|
|
| 22.9 | % |
Total commercial property loans |
|
| 19,654 |
|
|
| 27.4 | % |
|
| 15,542 |
|
|
| 24.0 | % |
Construction |
|
| 25,854 |
|
|
| 36.0 | % |
|
| 27,201 |
|
|
| 42.0 | % |
Residential property |
|
| 2,794 |
|
|
| 3.9 | % |
|
| 1,124 |
|
|
| 1.7 | % |
Total real estate loans |
|
| 48,302 |
|
|
| 67.3 | % |
|
| 43,867 |
|
|
| 67.7 | % |
Commercial and industrial loans |
|
| 13,771 |
|
|
| 19.1 | % |
|
| 13,700 |
|
|
| 21.2 | % |
Leases receivable |
|
| 8,456 |
|
|
| 11.8 | % |
|
| 5,902 |
|
|
| 9.1 | % |
Consumer loans |
|
| 1,280 |
|
|
| 1.8 | % |
|
| 1,297 |
|
|
| 2.0 | % |
Total |
| $ | 71,809 |
|
|
| 100.0 | % |
| $ | 64,766 |
|
|
| 100.0 | % |
September 30, 2017 | December 31, 2016 | ||||||||||||
Recorded Investment | Percentage | Recorded Investment | Percentage | ||||||||||
(dollars in thousands) | |||||||||||||
Real estate loans: | |||||||||||||
Commercial property | |||||||||||||
Retail | $ | 1,475 | 5.4 | % | $ | 1,678 | 6.4 | % | |||||
Hospitality | 6,288 | 22.9 | % | 6,227 | 23.6 | % | |||||||
Gas station | 4,260 | 15.5 | % | 4,984 | 18.9 | % | |||||||
Other | 4,777 | 17.3 | % | 6,070 | 23.0 | % | |||||||
Total commercial real estate loans | 16,800 | 61.1 | % | 18,959 | 71.9 | % | |||||||
Residential property | 2,666 | 9.7 | % | 2,798 | 10.6 | % | |||||||
Commercial and industrial loans | 3,610 | 13.1 | % | 4,174 | 15.9 | % | |||||||
Leases Receivable | 3,378 | 12.3 | % | — | — | % | |||||||
Consumer loans | 1,045 | 3.8 | % | 419 | 1.6 | % | |||||||
Total Non-PCI loans and leases | $ | 27,499 | 100.0 | % | $ | 26,350 | 100.0 | % |
Individually evaluated loans and leases increased $1.1$7.0 million, or 4.410.9 percent, to $27.5$71.8 million as of SeptemberJune 30, 2017,2020, from $26.4$64.8 million at December 31, 2016.2019, principally due to the addition of two film-tax credits totaling $12.6 million, one construction loan totaling $12.8 million, and one commercial real estate loan totaling $1.4 million, offset by a charge-off of $25.2 million of a $40.0 million troubled loan relationship (comprised of $13.5 million construction/land loan charge off and an $11.7 million commercial business loan charge-off). Specific allowances associated with impairedindividually evaluated loans and leases were $6.4 million and $4.3$5.2 million as of SeptemberJune 30, 2017 and2020 compared with $25.8 million as of December 31, 2016, respectively.
During the three months ended SeptemberJune 30, 2017 and 2016,2020, we would have recognized $1.4 million of interest income that would have been recognized had impaired loans and leasesindividually evaluated performed in accordance with their original terms totaled $0.2terms. During the three months ended June 30, 2019, we would have recognized $1.1 million and $0.2 million, respectively.of interest income had impaired loans receivable performed in accordance with their original terms. Of these amounts, actualwe actually recognized interest recognized on impaired loans and leases wasincome of $0.5 million and $0.5$0.7 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
During the ninesix months ended SeptemberJune 30, 2017 and 2016,2020, we would have recognized $3.0 million of interest income that would have been recognized had impaired loans and leasesindividually evaluated performed in accordance with their original terms totaled $0.6terms. During the six months ended June 30, 2019, we would have recognized $2.0 million and $0.5 million, respectively.of interest income had impaired loans receivable performed in accordance with their original terms. Of these amounts, actualwe actually recognized interest recognized on impaired loans and leases was $1.3income of $1.1 million and $1.8$1.4 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
Troubled Debt Restructurings (TDRs)
The following table provides information on TDRs (excluding PCI loans) as of the dates indicated:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
| Nonaccrual TDRs |
|
| Accrual TDRs |
|
| Total |
|
| Nonaccrual TDRs |
|
| Accrual TDRs |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Real estate loans |
| $ | 15,649 |
|
| $ | 13,796 |
|
| $ | 29,445 |
|
| $ | 41,798 |
|
| $ | — |
|
| $ | 41,798 |
|
Commercial and industrial loans |
|
| 724 |
|
|
| 136 |
|
|
| 860 |
|
|
| 12,991 |
|
|
| 222 |
|
|
| 13,213 |
|
Consumer loans |
|
| 661 |
|
|
| 592 |
|
|
| 1,253 |
|
|
| 689 |
|
|
| 608 |
|
|
| 1,297 |
|
Total |
| $ | 17,034 |
|
| $ | 14,524 |
|
| $ | 31,558 |
|
| $ | 55,478 |
|
| $ | 830 |
|
| $ | 56,308 |
|
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
Nonaccrual TDRs | Accrual TDRs | Total | Nonaccrual TDRs | Accrual TDRs | Total | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Real estate loans | |||||||||||||||||||||||
Commercial property | $ | 5,862 | $ | 5,114 | $ | 10,976 | $ | 6,195 | $ | 6,870 | $ | 13,065 | |||||||||||
Residential property | — | 919 | 919 | — | 1,072 | 1,072 | |||||||||||||||||
Commercial and industrial loans | 475 | 2,346 | 2,821 | 708 | 3,085 | 3,793 | |||||||||||||||||
Consumer loans | 820 | 111 | 931 | — | 119 | 119 | |||||||||||||||||
Total Non-PCI loans and leases | $ | 7,157 | $ | 8,490 | $ | 15,647 | $ | 6,903 | $ | 11,146 | $ | 18,049 |
For the three months and six months ended SeptemberJune 30, 2017, four2020, we restructured two loans were restructured and subsequentlyfor $2.0 million classified as TDRs. Temporary payment structure modifications included, but were not limited to, reducing the amount of principal and/or interest due monthly and/or allowing for interest only monthly payments for nine months or less.
As of SeptemberJune 30, 2017,2020, TDRs on an accrual status were $8.5$14.5 million, all of which were temporary interest rate and payment reductions orand extensions of maturity andof which a $0.2$0.01 million allowance relating to these loans was included in the allowance for loan and leasecredit losses. For the TDRs on an accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms is probable. As of SeptemberJune 30, 2017,2020, TDRs on a nonaccrual status were $7.2$17.0 million, and a $2.0$0.1 million allowance relating to these loans was included in the allowance for loan and leasecredit losses.
As of December 31, 2016,2019, TDRs on an accrual status were $11.1$0.8 million, all of which were temporary interest rate and payment reductions, or extensions of maturity, andor principal deferrals of which a $0.7$0.03 million allowance relating to these loans was included in the allowance for loan and leasecredit losses. As of December 31, 2016,2019, TDRs on a nonaccrual status were $6.9$55.5 million, and a $2.6$22.7 million allowance relating to these loans was included in the allowance for loan and leasecredit losses.
Allowance for Loan and LeaseCredit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items
The Bank charges or credits operating expenses for provisions toCompany’s estimate of the allowance for credit losses at June 30, 2020 reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.
At June 30, 2020, the Company used the discounted cash flow (DCF) method to estimate allowances for credit losses for the commercial and industrial loan and lease lossesportfolio and the allowanceconsumer loan portfolio. For all loan pools utilizing the DCF method, the Company utilizes and forecasts the national unemployment rate as the primary loss driver. In addition, the Company determined that four-quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis. As of and for off-balance sheet items at least quarterly based upon the allowance need.quarter ended June 30, 2020, the Company leveraged the economic projections from Moody’s Analytics Economic Scenarios and Forecasts to inform its loss driver forecasts over the four-quarter forecast period. For each of these loan segments, the Company applied an annualized historical PD/LGD using all available historical periods. The allowance
reason for the change from relying on the FRED economic data to Moody’s data was because Moody’s data is determined through an analysis involving quantitative calculationsupdated more frequently and timely than FOMC or FRED, and thus provides a better forecast for PD/LGD models. Since reasonable and supportable forecasts of economic conditions are imbedded directly to DCF model, qualitative adjustments are reduced but considered. Qualitative adjustments were based on historic loss rates and qualitative adjustments for general reserves and individual impairment calculations forthe Company's judgment of company, market, industry or business specific allocations. The Bank charges the allowance for actual losses and credits the allowance for recoveries on loans and leases previously charged-off.
Management determined that, due to model limitations, the first nine monthsregression model that supports the DCF calculation for the SBA and commercial property, construction, and residential real estate portfolios does not take into account the volatile nature of 2017, the Bank utilized a 24-quarter look-back period with equal weighting to all quarters. For the first nine months of 2016, the Bank utilized a 20-quarter look-back period.
The Company used a Weighted Average Remaining Maturity (WARM) method to estimate expected credit losses for loans deemed “impaired.”
The allowance for credit losses was $86.3 million at June 30, 2020 compared with $61.4 million at December 31, 2019. The allowance attributed to loans individually evaluated for impairment was $5.2 million at June 30, 2020 compared with $25.8 million at December 31, 2019, the decline primarily reflecting the $25.2 million charge-off of the previously identified troubled loan relationship during the first quarter of 2020. The allowance attributed to loans collectively evaluated for impairment was $81.1 million at June 30, 2020 compared with $35.6 million at December 31, 2019. The increase principally reflects the adoption of ASU 2016-13 as well as the change from January 1, 2020 to June 30, 2020 in the macroeconomic assumptions including a higher projected average unemployment rate for the subsequent four quarters and leasea lower projected GDP growth rate. The Company recognizes the inherent uncertainties in the estimate of the allowance for credit losses management considers qualitative adjustments for any factors that are likely to cause estimated loan and lease losses associated with the Bank’s current portfolio to differ from historical loss experience, including, but not limited to, national and local economic and business conditions, volume and geographic concentrations, and problem loan trends.
The following tables reflect our allocation of the allowance for loan and leasecredit losses by category as well as the receivable for each loan type:category:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
| Allowance |
|
|
|
|
|
| Total |
|
|
|
|
|
| Allowance |
|
|
|
|
|
| Total |
|
|
|
|
| ||||
|
| Amount |
|
| Percentage |
|
| Loans |
|
| Percentage |
|
| Amount |
|
| Percentage |
|
| Loans |
|
| Percentage |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 7,341 |
|
|
| 8.5 | % |
| $ | 808,157 |
|
|
| 16.7 | % |
| $ | 4,911 |
|
|
| 8.0 | % |
| $ | 869,302 |
|
|
| 18.9 | % |
Hospitality |
|
| 11,984 |
|
|
| 13.9 | % |
|
| 882,812 |
|
|
| 18.3 | % |
|
| 6,686 |
|
|
| 10.9 | % |
|
| 922,288 |
|
|
| 20.0 | % |
Other |
|
| 24,920 |
|
|
| 28.9 | % |
|
| 1,504,916 |
|
|
| 31.2 | % |
|
| 8,060 |
|
|
| 13.1 | % |
|
| 1,358,432 |
|
|
| 29.4 | % |
Total commercial property loans |
|
| 44,245 |
|
|
| 51.3 | % |
|
| 3,195,885 |
|
|
| 66.2 | % |
|
| 19,657 |
|
|
| 32.0 | % |
|
| 3,150,022 |
|
|
| 68.3 | % |
Construction |
|
| 9,331 |
|
|
| 10.8 | % |
|
| 70,357 |
|
|
| 1.5 | % |
|
| 15,003 |
|
|
| 24.4 | % |
|
| 76,455 |
|
|
| 1.7 | % |
Residential property |
|
| 2,640 |
|
|
| 3.1 | % |
|
| 354,064 |
|
|
| 7.3 | % |
|
| 1,695 |
|
|
| 2.8 | % |
|
| 402,028 |
|
|
| 8.7 | % |
Total real estate loans |
|
| 56,216 |
|
|
| 65.2 | % |
|
| 3,620,306 |
|
|
| 75.0 | % |
|
| 36,355 |
|
|
| 59.2 | % |
|
| 3,628,505 |
|
|
| 78.7 | % |
Commercial and industrial loans |
|
| 13,387 |
|
|
| 15.5 | % |
|
| 730,399 |
|
|
| 15.1 | % |
|
| 16,206 |
|
|
| 26.4 | % |
|
| 484,093 |
|
|
| 10.5 | % |
Leases receivable |
|
| 16,525 |
|
|
| 19.1 | % |
|
| 462,811 |
|
|
| 9.6 | % |
|
| 8,767 |
|
|
| 14.3 | % |
|
| 483,879 |
|
|
| 10.5 | % |
Consumer loans |
|
| 202 |
|
|
| 0.2 | % |
|
| 12,126 |
|
|
| 0.3 | % |
|
| 80 |
|
|
| 0.1 | % |
|
| 13,670 |
|
|
| 0.3 | % |
Total |
| $ | 86,330 |
|
|
| 100.0 | % |
| $ | 4,825,642 |
|
|
| 100.0 | % |
| $ | 61,408 |
|
|
| 100.0 | % |
| $ | 4,610,147 |
|
|
| 100.0 | % |
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||
Allowance Amount | Percentage | Non- PCI Loans and Leases | Allowance Amount | Percentage | Non- PCI Loans and Leases | ||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||
Real estate loans: | |||||||||||||||||||||
Commercial property | |||||||||||||||||||||
Retail | $ | 3,442 | 10.9 | % | $ | 916,236 | $ | 4,172 | 13.3 | % | $ | 857,629 | |||||||||
Hospitality | 7,760 | 24.5 | % | 731,562 | 9,171 | 29.2 | % | 649,540 | |||||||||||||
Gas station | 1,136 | 3.6 | % | 245,042 | 1,438 | 4.6 | % | 260,187 | |||||||||||||
Other | 5,606 | 17.6 | % | 1,144,176 | 7,448 | 23.7 | % | 1,107,589 | |||||||||||||
Total commercial real estate loans | 17,944 | 56.6 | % | 3,037,016 | 22,229 | 70.8 | % | 2,874,945 | |||||||||||||
Construction | 659 | 2.1 | % | 64,263 | 1,916 | 6.1 | % | 55,962 | |||||||||||||
Residential property | 982 | 3.1 | % | 429,669 | 1,067 | 3.4 | % | 337,791 | |||||||||||||
Total real estate loans | 19,585 | 61.8 | % | 3,530,948 | 25,212 | 80.3 | % | 3,268,698 | |||||||||||||
Commercial and industrial loans: | |||||||||||||||||||||
Commercial term | 5,338 | 16.8 | % | 170,891 | 3,961 | 12.6 | % | 138,032 | |||||||||||||
Commercial lines of credit | 894 | 2.8 | % | 149,937 | 1,297 | 4.1 | % | 136,231 | |||||||||||||
International loans | 262 | 0.8 | % | 43,577 | 324 | 1.0 | % | 25,821 | |||||||||||||
Total commercial and industrial loans | 6,494 | 20.4 | % | 364,405 | 5,582 | 17.7 | % | 300,084 | |||||||||||||
Leases receivable | 64 | 0.2 | % | 272,271 | 307 | 1.0 | % | 243,294 | |||||||||||||
Consumer loans | 4,837 | 15.3 | % | 19,027 | 191 | 0.6 | % | 22,830 | |||||||||||||
Unallocated | 718 | 2.3 | % | — | 166 | 0.4 | % | — | |||||||||||||
Total | $ | 31,698 | 100.0 | % | $ | 4,186,651 | $ | 31,458 | 100.0 | % | $ | 3,834,906 |
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||
Allowance Amount | Percentage | PCI Loans | Allowance Amount | Percentage | PCI Loans | ||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||
Real estate loans: | |||||||||||||||||||||
Commercial property | |||||||||||||||||||||
Retail | $ | 97 | 12.2 | % | $ | 1,587 | $ | 122 | 12.6 | % | $ | 2,324 | |||||||||
Hospitality | 132 | 16.6 | % | 1,664 | 138 | 14.2 | % | 1,618 | |||||||||||||
Gas station | 369 | 46.5 | % | 2,388 | 589 | 60.7 | % | 2,692 | |||||||||||||
Other | 8 | 1.0 | % | 2,013 | 1 | 0.1 | % | 2,067 | |||||||||||||
Total commercial real estate loans | 606 | 76.3 | % | 7,652 | 850 | 87.6 | % | 8,701 | |||||||||||||
Residential property | 146 | 18.4 | % | 958 | 72 | 7.4 | % | 976 | |||||||||||||
Total real estate loans | 752 | 94.7 | % | 8,610 | 922 | 95.0 | % | 9,677 | |||||||||||||
Commercial and industrial loans: | |||||||||||||||||||||
Commercial term | 41 | 5.2 | % | 51 | 41 | 4.2 | % | 136 | |||||||||||||
Consumer loans | 1 | 0.1 | % | 43 | 8 | 0.8 | % | 50 | |||||||||||||
Total | $ | 794 | 100.0 | % | $ | 8,704 | $ | 971 | 100.0 | % | $ | 9,863 |
The following tablestable set forth certain information regarding the allowance for loan and leasecredit losses and the allowance for credit losses related to off-balance sheet items for the periods presented. Allowance
|
| As of and For the Three Months Ended |
|
| As of and For the Six Months Ended |
| ||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 66,500 |
|
| $ | 32,896 |
|
| $ | 61,408 |
|
| $ | 31,974 |
|
Adjustment related to adoption of ASU 2016-13 |
|
| — |
|
|
| — |
|
|
| 17,433 |
|
|
| — |
|
Adjusted balance as of January 1, 2020 |
|
| 66,500 |
|
|
| 32,896 |
|
|
| 78,841 |
|
|
| 31,974 |
|
Less loans receivable charged off |
|
| 1,573 |
|
|
| 1,536 |
|
|
| 29,046 |
|
|
| 2,634 |
|
Recoveries on loans receivable previously charged-off |
|
| (272 | ) |
|
| (1,327 | ) |
|
| (488 | ) |
|
| (2,230 | ) |
Provision for credit losses |
|
| 21,131 |
|
|
| 16,699 |
|
|
| 36,047 |
|
|
| 17,816 |
|
Ending balance |
| $ | 86,330 |
|
| $ | 49,386 |
|
| $ | 86,330 |
|
| $ | 49,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses related to off-balance sheet items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 2,885 |
|
| $ | 1,100 |
|
| $ | 2,397 |
|
| $ | 1,439 |
|
Adjustment related to adoption of ASU 2016-13 |
|
| — |
|
|
| — |
|
|
| (335 | ) |
|
| — |
|
Adjusted balance as of January 1, 2020 |
|
| 2,885 |
|
|
| 1,100 |
|
|
| 2,062 |
|
|
| 1,439 |
|
Provision (income) for off-balance sheet items |
|
| 3,462 |
|
|
| 233 |
|
|
| 4,285 |
|
|
| (106 | ) |
Ending balance |
| $ | 6,347 |
|
| $ | 1,333 |
|
| $ | 6,347 |
|
| $ | 1,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs (recoveries) to average loans, annualized |
|
| 0.11 | % |
|
| 0.02 | % |
|
| 1.24 | % |
|
| 0.02 | % |
Allowance for credit losses to loans receivable |
|
| 1.79 | % |
|
| 1.08 | % |
|
| 1.79 | % |
|
| 1.08 | % |
Net loan charge-offs (recoveries) to allowance for credit losses, annualized |
|
| 6.03 | % |
|
| 1.69 | % |
|
| 66.16 | % |
|
| 1.64 | % |
Allowance for credit losses to nonperforming loans |
|
| 148.17 | % |
|
| 78.35 | % |
|
| 148.17 | % |
|
| 78.35 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans receivable during period |
| $ | 4,680,048 |
|
| $ | 4,491,377 |
|
| $ | 4,599,222 |
|
| $ | 4,512,134 |
|
Loans receivable at end of period |
|
| 4,825,642 |
|
|
| 4,555,802 |
|
|
| 4,825,642 |
|
|
| 4,555,802 |
|
Nonperforming loans at end of period |
|
| 58,264 |
|
|
| 63,031 |
|
|
| 58,264 |
|
|
| 63,031 |
|
The allowance for credit losses was $86.3 million as of June 30, 2020 generating an allowance for credit losses to loans receivable of 1.79 percent compared with 1.08 percent at June 30, 2019. The increase principally reflects the change in the accounting for the allowance for credit losses previously described and the effect of the COVID-19 pandemic.
The allowance for credit losses at June 30, 2020 included a $25.7 million specific qualitative amount for the uncertainties arising from the COVID-19 crisis. The Company analyzed the segments of the portfolio believed to be the most vulnerable to the crisis at this time – hospitality, food service, and retail – representing approximately $1.69 billion, or 35.0 percent of the portfolio. For these segments, the Company used varying revenue shocks to identify post-stressed real estate secured loans with debt-service-coverage ratios of one or less and compared those to estimated post-stressed real estate valuations as well as peak historical loss rates for unsecured loans in developing this estimate. The Company recognizes the inherent uncertainties in this estimate and the effects this crisis may have on our borrowers. The Company expects the estimate of the allowance for credit losses will change in future periods because of changes in economic conditions, economic forecasts, and other factors.
The allowance for credit losses related to off-balance sheet items, is determined by applying reserve factors according to pool and grade as well as actual current commitment usage figures by type to existing contingent liabilities.
As of and for the Three Months Ended | |||||||||||||||||||||||||||||||||||
September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||||||||||||||||||||||||||||
Non-PCI Loans and Leases | PCI Loans | Total | Non-PCI Loans and Leases | PCI Loans | Total | Non-PCI Loans and Leases | PCI Loans | Total | |||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||||||||
Allowance for loan and Lease losses: | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | 33,038 | $ | 720 | $ | 33,758 | $ | 33,439 | $ | 5,533 | $ | 38,972 | $ | 34,259 | $ | 5,448 | $ | 39,707 | |||||||||||||||||
Charge-offs | (2,405 | ) | — | (2,405 | ) | (2,326 | ) | (4,991 | ) | (7,317 | ) | (111 | ) | (5 | ) | (116 | ) | ||||||||||||||||||
Recoveries on loans previously charged off | 871 | — | 871 | 623 | — | 623 | 831 | — | 831 | ||||||||||||||||||||||||||
Net loan (charge-offs) recoveries | (1,534 | ) | — | (1,534 | ) | (1,703 | ) | (4,991 | ) | (6,694 | ) | 720 | (5 | ) | 715 | ||||||||||||||||||||
Loan and lease loss provision (income) | 194 | 74 | 268 | (278 | ) | 429 | 151 | (1,540 | ) | 90 | (1,450 | ) | |||||||||||||||||||||||
Balance at end of period | $ | 31,698 | $ | 794 | $ | 32,492 | $ | 31,458 | $ | 971 | $ | 32,429 | $ | 33,439 | $ | 5,533 | $ | 38,972 | |||||||||||||||||
Allowance for off-balance sheet items: | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | 1,135 | $ | — | $ | 1,135 | $ | 1,491 | $ | — | $ | 1,491 | $ | 1,475 | $ | — | $ | 1,475 | |||||||||||||||||
Provision (income) | (220 | ) | — | (220 | ) | (307 | ) | — | (307 | ) | 16 | — | 16 | ||||||||||||||||||||||
Balance at end of period | $ | 915 | $ | — | $ | 915 | $ | 1,184 | $ | — | $ | 1,184 | $ | 1,491 | $ | — | $ | 1,491 | |||||||||||||||||
Ratios: | |||||||||||||||||||||||||||||||||||
Net loan and lease charge-offs (recoveries) to average loans and leases (1) | 0.15 | % | — | % | 0.15 | % | 0.18 | % | 157.18 | % | 0.73 | % | (0.08 | )% | 0.13 | % | (0.08 | )% | |||||||||||||||||
Net loan and lease charge-offs (recoveries) to loans and leases (1) | 0.15 | % | — | % | 0.15 | % | 0.18 | % | 202.41 | % | 0.70 | % | (0.08 | )% | 0.13 | % | (0.08 | )% | |||||||||||||||||
Allowance for loan and lease losses to average loans and leases | 0.78 | % | 9.08 | % | 0.79 | % | 0.85 | % | 7.64 | % | 0.88 | % | 0.96 | % | 36.21 | % | 1.12 | % | |||||||||||||||||
Allowance for loan and lease losses to loans and leases | 0.76 | % | 9.12 | % | 0.77 | % | 0.82 | % | 9.84 | % | 0.84 | % | 0.95 | % | 35.60 | % | 1.10 | % | |||||||||||||||||
Net loan and lease charge-offs (recoveries) to allowance for loan and lease losses (1) | 19.36 | % | — | % | 18.88 | % | 21.65 | % | 2056.02 | % | 82.57 | % | (8.61 | )% | 0.36 | % | (7.34 | )% | |||||||||||||||||
Allowance for loan and lease losses to nonperforming loans and leases | 217.74 | % | — | % | 223.19 | % | 275.80 | % | — | % | 284.32 | % | 305.43 | % | — | % | 355.97 | % | |||||||||||||||||
Balance: | |||||||||||||||||||||||||||||||||||
Average loans and leases during period | $ | 4,125,465 | $ | 8,744 | $ | 4,092,131 | $ | 3,686,013 | $ | 12,702 | $ | 3,690,955 | $ | 3,485,705 | $ | 15,280 | $ | 3,477,428 | |||||||||||||||||
Loans and leases at end of period | $ | 4,186,651 | $ | 8,704 | $ | 4,195,355 | $ | 3,834,906 | $ | 9,863 | $ | 3,844,769 | $ | 3,537,119 | $ | 15,540 | $ | 3,552,659 | |||||||||||||||||
Nonperforming loans and leases at end of period | $ | 14,558 | $ | — | $ | 14,558 | $ | 11,406 | $ | — | $ | 11,406 | $ | 10,948 | $ | — | $ | 10,948 |
As of and for the Nine Months Ended | |||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||
Non-PCI Loans | PCI Loans | Total | Non-PCI Loans | PCI Loans | Total | ||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||
Balance at beginning of period | $ | 31,458 | $ | 971 | $ | 32,429 | $ | 37,494 | $ | 5,441 | $ | 42,935 | |||||||||||
Charge-offs | (3,256 | ) | — | (3,256 | ) | (1,410 | ) | (142 | ) | (1,552 | ) | ||||||||||||
Recoveries on loans previously charged off | 2,709 | — | 2,709 | 2,079 | — | 2,079 | |||||||||||||||||
Net loan (charge-offs) recoveries | (547 | ) | — | (547 | ) | 669 | (142 | ) | 527 | ||||||||||||||
Loan and lease loss provision (income) | 787 | (177 | ) | 610 | (4,724 | ) | 234 | (4,490 | ) | ||||||||||||||
Balance at end of period | $ | 31,698 | $ | 794 | $ | 32,492 | $ | 33,439 | $ | 5,533 | $ | 38,972 | |||||||||||
Allowance for off-balance sheet items: | |||||||||||||||||||||||
Balance at beginning of period | $ | 1,184 | $ | — | $ | 1,184 | $ | 986 | $ | — | $ | 986 | |||||||||||
Provision (income) | (269 | ) | — | (269 | ) | 505 | — | 505 | |||||||||||||||
Balance at end of period | $ | 915 | $ | — | $ | 915 | $ | 1,491 | $ | — | $ | 1,491 | |||||||||||
Ratios: | |||||||||||||||||||||||
Net loan charge-offs (recoveries) to average loans (1) | 0.02 | % | — | % | 0.02 | % | (0.03 | )% | 1.07 | % | (0.02 | )% | |||||||||||
Net loan charge-offs (recoveries) to loans (1) | 0.02 | % | — | % | 0.02 | % | (0.03 | )% | 1.22 | % | (0.02 | )% | |||||||||||
Allowance for loan losses to average loans | 0.79 | % | 8.55 | % | 0.82 | % | 1.00 | % | 31.12 | % | 1.17 | % | |||||||||||
Allowance for loan losses to loans | 0.76 | % | 9.12 | % | 0.77 | % | 0.95 | % | 35.60 | % | 1.10 | % | |||||||||||
Net loan charge-offs (recoveries) to allowance for loan losses (1) | 2.30 | % | — | % | 2.24 | % | (2.67 | )% | 3.42 | % | (1.80 | )% | |||||||||||
Allowance for loan losses to nonperforming loans | 217.75 | % | — | % | 223.2 | % | 305.43 | % | — | % | 355.97 | % | |||||||||||
Balance: | |||||||||||||||||||||||
Average loans during period | $ | 4,010,779 | $ | 9,283 | $ | 3,976,021 | $ | 3,350,211 | $ | 17,777 | $ | 3,333,419 | |||||||||||
Loans at end of period | $ | 4,186,651 | $ | 8,704 | $ | 4,195,355 | $ | 3,537,119 | $ | 15,540 | $ | 3,552,659 | |||||||||||
Nonperforming loans at end of period | $ | 14,558 | $ | — | $ | 14,558 | $ | 10,948 | $ | — | $ | 10,948 |
The following table presents a summary of net charge-offs (recoveries):and recoveries:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| Charge- offs |
|
| Recoveries |
|
| Net Charge- Offs (Recoveries) |
|
| Charge- offs |
|
| Recoveries |
|
| Net Charge- Offs (Recoveries) |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans |
| $ | 91 |
|
| $ | (98 | ) |
| $ | (7 | ) |
| $ | 14,233 |
|
| $ | (156 | ) |
| $ | 14,077 |
|
Commercial and industrial loans |
|
| 438 |
|
|
| (60 | ) |
|
| 378 |
|
|
| 12,589 |
|
|
| (144 | ) |
|
| 12,445 |
|
Leases receivable |
|
| 1,044 |
|
|
| (114 | ) |
|
| 930 |
|
|
| 2,224 |
|
|
| (188 | ) |
|
| 2,036 |
|
Total |
| $ | 1,573 |
|
| $ | (272 | ) |
| $ | 1,301 |
|
| $ | 29,046 |
|
| $ | (488 | ) |
| $ | 28,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans |
| $ | — |
|
| $ | (1,133 | ) |
| $ | (1,133 | ) |
| $ | 113 |
|
| $ | (1,563 | ) |
| $ | (1,450 | ) |
Commercial and industrial loans |
|
| 562 |
|
|
| (89 | ) |
|
| 473 |
|
|
| 695 |
|
|
| (471 | ) |
|
| 224 |
|
Leases receivable |
|
| 974 |
|
|
| (105 | ) |
|
| 869 |
|
|
| 1,826 |
|
|
| (196 | ) |
|
| 1,630 |
|
Total |
| $ | 1,536 |
|
| $ | (1,327 | ) |
| $ | 209 |
|
| $ | 2,634 |
|
| $ | (2,230 | ) |
| $ | 404 |
|
As of and for the Three Months Ended | As of and for the Nine Months Ended | ||||||||||||||||||||||
Charge-offs | Recoveries | Net Charge-offs (Recoveries) | Charge-offs | Recoveries | Net Charge-offs (Recoveries) | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||
Real estate loans | $ | 146 | $ | 343 | $ | (197 | ) | $ | 289 | $ | 1,434 | $ | (1,145 | ) | |||||||||
Commercial and industrial loans | 1,976 | 308 | 1,668 | 2,015 | 1,021 | 994 | |||||||||||||||||
Leases receivable | 283 | 220 | 63 | 952 | 239 | 713 | |||||||||||||||||
Consumer loans | — | — | — | 15 | (15 | ) | |||||||||||||||||
Total Non-PCI loans | $ | 2,405 | $ | 871 | $ | 1,534 | $ | 3,256 | $ | 2,709 | $ | 547 | |||||||||||
September 30, 2016 | |||||||||||||||||||||||
Real estate loans | $ | 18 | $ | 337 | (319 | ) | $ | 709 | $ | 527 | 182 | ||||||||||||
Commercial and industrial loans | 93 | 494 | (401 | ) | 701 | 1,499 | (798 | ) | |||||||||||||||
Consumer loans | — | — | — | — | 53 | (53 | ) | ||||||||||||||||
Total Non-PCI loans | $ | 111 | $ | 831 | $ | (720 | ) | $ | 1,410 | $ | 2,079 | $ | (669 | ) |
For the three months ended SeptemberJune 30, 2017 and 2016,2020, total charge-offs were $2.4 million and $0.1 million, respectively. For the three months ended September 30, 2017, total recoveries were $871,000, an increase of $40,000, or 4.8 percent, from $831,000 for the same period in 2016. For the nine months ended September 30, 2017, total charge-offs were $3.3$1.6 million, an increase of $1.8$0.1 million, or 131.0 percent from $1.4$1.5 million for the same period in 2016, and total2019. Charge-offs were offset by recoveries were $2.7during the three months ended June 30, 2020 of $0.3 million, an increasea decrease of $0.6$1.0 million, or 30.3 percent from $2.1$1.3 million for the same period in 2016.
Deposits
The following table shows the composition of deposits by type as of the dates indicated:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Balance |
|
| Percent |
|
| Balance |
|
| Percent |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Demand – noninterest-bearing |
| $ | 1,865,213 |
|
|
| 35.8 | % |
| $ | 1,391,624 |
|
|
| 29.6 | % |
Interest-bearing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand |
|
| 96,941 |
|
|
| 1.9 | % |
|
| 84,323 |
|
|
| 1.8 | % |
Money market and savings |
|
| 1,812,612 |
|
|
| 34.8 | % |
|
| 1,667,096 |
|
|
| 35.5 | % |
Time deposits of $100,000 or more (1) |
|
| 1,307,496 |
|
|
| 25.1 | % |
|
| 1,402,063 |
|
|
| 29.8 | % |
Other time deposits |
|
| 127,519 |
|
|
| 2.5 | % |
|
| 153,856 |
|
|
| 3.3 | % |
Total deposits |
| $ | 5,209,781 |
|
|
| 100.0 | % |
| $ | 4,698,962 |
|
|
| 100.0 | % |
September 30, 2017 | December 31, 2016 | ||||||||||||
Balance | Percent | Balance | Percent | ||||||||||
(dollars in thousands) | |||||||||||||
Demand – noninterest-bearing | $ | 1,293,538 | 30.1 | % | $ | 1,203,240 | 31.6 | % | |||||
Interest-bearing: | — | ||||||||||||
Demand | 90,734 | 2.1 | % | 96,856 | 2.5 | % | |||||||
Money market and savings | 1,534,457 | 35.7 | % | 1,329,324 | 34.9 | % | |||||||
Time deposits of $100,000 or more (1) | 1,074,870 | 25.0 | % | 844,386 | 22.2 | % | |||||||
Other time deposits | 305,411 | 7.1 | % | 335,931 | 8.8 | % | |||||||
Total deposits | $ | 4,299,010 | 100.0 | % | $ | 3,809,737 | 100.0 | % |
(1) | Includes |
Deposits increased $489.3$510.8 million, or 12.810.9 percent, to $4.30$5.21 billion as of SeptemberJune 30, 20172020 from $3.81$4.70 billion as of December 31, 2016.2019. The increase in deposits was mainly attributable to the $205.1$473.6 million increase in demand – noninterest-bearing deposits and $200.0increase of $145.5 million increase in money market and savings deposits and time deposits, respectively.
Borrowings
At SeptemberJune 30, 2017 and December 31, 2016, there were $110.0 million and $315.02020, the Bank had $150.0 million in overnightterm advances from the FHLB respectively. The reduction in FHLBcompared with $75.0 million at December 31, 2019. There were no overnight advances was supported by the increase in deposits for the first nine months of 2017.at June 30, 2020, compared to $15.0 million at December 31, 2019. In addition, subordinated debentures were $117.1the Bank had $101.8 million and $19.0 million at September 30, 2017 and December 31, 2016, respectively.in PPPLF advances during the second quarter. The change representsBank repaid the proceeds fromPPPLF advance subsequent to the subordinated note offering that closed on March 21, 2017.
Interest Rate Risk Management
The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings rather than maximizing yield.earnings. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.
The Company performs simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated below). This sensitivity analysis is comparedThe Company compares this stress simulation to policy limits, which specify the maximum tolerance level for net interest income exposure over a 1- to 12-month and a 13- to 24-month24- month horizon, given the basis point adjustment in interest rates reflected below.
|
|
|
| Net Interest Income Simulation |
| |||||||||||||
Change in |
|
| 1- to 12-Month Horizon |
|
| 13- to 24-Month Horizon |
| |||||||||||
Interest |
|
| Dollar |
|
| Percentage |
|
| Dollar |
|
| Percentage |
| |||||
Rate |
|
| Change |
|
| Change |
|
| Change |
|
| Change |
| |||||
|
|
|
| (dollars in thousands) |
| |||||||||||||
300% |
|
| $ | 21,993 |
|
|
| 11.42 | % |
| $ | 37,241 |
|
|
| 19.43 | % | |
200% |
|
| $ | 14,389 |
|
|
| 7.47 | % |
| $ | 24,798 |
|
|
| 12.94 | % | |
100% |
|
| $ | 7,261 |
|
|
| 3.77 | % |
| $ | 13,206 |
|
|
| 6.89 | % | |
(100%) |
|
| $ | (713 | ) |
|
| (0.37 | %) |
| $ | (675 | ) |
|
| (0.35 | %) |
Change in |
|
|
|
|
|
| Economic Value of Equity (EVE) |
| ||||||
Interest |
|
|
|
|
|
| Dollar |
|
| Percentage |
| |||
Rate |
|
|
|
|
|
| Change |
|
| Change |
| |||
|
|
|
|
|
|
|
| (dollars in thousands) |
| |||||
300% |
|
|
|
|
|
| $ | 155,509 |
|
|
| 40.17 | % | |
200% |
|
|
|
|
|
| $ | 117,882 |
|
|
| 30.45 | % | |
100% |
|
|
|
|
|
| $ | 71,973 |
|
|
| 18.59 | % | |
(100%) |
|
|
|
|
|
| $ | (94,600 | ) |
|
| (24.43 | %) |
Net Interest Income Simulation | |||||||||||
1- to 12-Month Horizon | 13- to 24-Month Horizon | ||||||||||
Change in Interest Rate | Dollar Change | Percentage Change | Dollar Change | Percentage Change | |||||||
(dollars in thousands) | |||||||||||
300% | $ | (2,297 | ) | (1.25)% | $ | 5,326 | 2.89% | ||||
200% | $ | (1,547 | ) | (0.84)% | $ | 3,582 | 1.94% | ||||
100% | $ | (395 | ) | (0.21)% | $ | 2,728 | 1.48% | ||||
(100)% | $ | (12,406 | ) | (6.74)% | $ | (21,438 | ) | (11.63)% |
Economic Value of Equity (EVE) | |||||||||
Change in Interest Rate | Dollar Change | Percentage Change | |||||||
(dollars in thousands) | |||||||||
300% | $ | (20,246 | ) | (3.53)% | |||||
200% | $ | (12,411 | ) | (2.16)% | |||||
100% | $ | 788 | 0.14% | ||||||
(100)% | $ | (45,610 | ) | (7.94)% |
The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including the nature and timing of interest rate levels including yield curve shape, prepayments on loans and leasesreceivable and securities, pricing strategies on loans and leasesreceivable and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
Capital Resources and Liquidity
Capital Resources
Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate capital levels, of capital, the Board regularly assesses projected sources and uses of capital, in conjunction withexpected loan growth, anticipated strategic actions (such as stock repurchases and dividends), and projected increases in assetscapital thresholds under adverse and levels of risk. Managementseverely adverse economic conditions. In addition, the Board considers among other things, earnings generated from operations, andthe Company’s access to capital from financial markets through the issuance of additional debt and securities, including common stock or notes, to meet ourits capital needs.
In response to the uncertainty surrounding the COVID-19 pandemic, the Board reduced the quarterly cash dividend paid on common stock for the second and third quarter of 2020 to $0.12 and $0.08 per share, respectively, from $0.24 per share paid in the first quarter of 2020. The Board believes these actions were the most prudent course of action as it continues to monitor the results of operations and financial condition of the Company and expects to continue to re-evaluate quarterly the level of any subsequent regular quarterly dividend. We cannot assure you that future dividends will not be reduced or eliminated based on such re-evaluation.
The Company’s ability to pay dividends to shareholders depends in part upon dividends it receives from the Bank. California law restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the DBO, in an amount not exceeding the greatest of: (1) retained earnings of the bank; (2) net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year. As of July 1, 2020, after giving effect to the 2020 third quarter dividend declared by the Company, the Bank has the ability to pay $6.8 million of dividends without the prior approval of the Commissioner of Business Oversight.
At SeptemberJune 30, 2017,2020, the Bank’s total risk-based capital ratio of 15.3213.62 percent, Tier 1 risk-based capital ratio of 14.5512.36 percent, common equity Tier 1 capital ratio of 14.5512.36 percent and Tier 1 leverage capital ratio of 12.6611.03 percent, placed the
At SeptemberJune 30, 2017,2020, the Company's total risk-based capital ratio was 15.5814.04 percent, Tier 1 risk-based capital ratio was 12.5610.86 percent, common equity Tier 1 capital ratio was 12.2010.46 percent and Tier 1 leverage capital ratio was 10.929.69 percent.
For a discussion of implemented changes to the capital adequacy framework prompted by Basel III and the Dodd-FrankDodd- Frank Wall Street Reform and Consumer Protection Act, see our 20162019 Annual Report on Form 10-K.
Liquidity
Hanmi Financial
At June 30, 2020, Hanmi Financial had $20.3 million in cash on deposit with its bank subsidiary. Management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets to meet its current obligations.
Hanmi Bank
The principal objective of our liquidity management program is to maintain the Bank’s ability to meet the day-to-day cash flow requirements of our customers who wish either wish to withdraw funds or to draw upon credit facilities to meet their cash needs. Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originating from its branch platform. The Bank’s wholesale funds historically consisted of FHLB advances and brokered deposits. As of SeptemberJune 30, 2017,2020, the Bank had $145.2$150.0 million in advances from the FHLB, and $235.2 million of brokered deposits.
We monitor the sources and useduses of funds on a regular basis to maintain an acceptable liquidity position. The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 30%30 percent of its assets. As of SeptemberJune 30, 2017,2020, the total borrowing capacity available based on pledged collateral and remaining available borrowing capacity were $808.9 million and $698.9 million, respectively, compared to $736.6 million and $421.6 million, respectively as of December 31, 2016.
As a means of augmenting its liquidity, the Bank had an available borrowing source of $8.9$47.9 million from the Federal Reserve Discount Window, to which the Bank pledged securities with a carrying value of $9.5$50.0 million, and had no borrowings under this source as of SeptemberJune 30, 2017.
Off-Balance Sheet Arrangements
For a discussion of off-balance sheet arrangements, see Note 12 - Off-Balance Sheet Commitments included in the Notesnotes to Consolidated Financial Statements (Unaudited)unaudited consolidated financial statements in this Report and “Item 1. Business - Off-Balance Sheet Commitments” in our 20162019 Annual Report on Form 10-K.
Contractual Obligations
There have been no material changes to the contractual obligations described in our 20162019 Annual Report on Form 10-K.
Recently Issued Accounting Standards
No newly issued ASU 2015-14 which defers the original effective date for all entities by one year. Public business entities should apply the guidance in ASU 2015-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures regarding market risks in Hanmi Bank’s portfolio, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk Management” and “- Capital Resources” in this Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
During the three months ended June 30, 2020, pursuant to Rule 13a-15 of September 30, 2017, Hanmi Financial carried outthe Securities Exchange Act of 1934, as amended, (the “Exchange Act”), our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness and design of our disclosure controls and procedures as(as that term is defined in Rules 13a-15(e) and 15d-15(e) underof the Exchange Act, underAct) and have concluded that the supervision and with the participation of our senior management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer). The purpose of theCompany’s disclosure controls and procedures is to ensureare effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Remediation of Material Weakness
During the fourth quarter of 2019 and the first quarter of 2020, the Company identified a material weakness in internal controls over financial reporting resulting in a conclusion that information required to be disclosed in the reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management with the oversight of the Audit Committee, was actively engaged in addressing this material weakness beginning in the fourth quarter of 2019 and continuing through the first half of 2020. Management reviewed this material weakness with the Audit Committee and continued to update the Audit Committee as to the status of the remediation efforts. Management implemented enhanced IT controls, including but not limited to, strengthening user access controls, training personnel around changes in our IT environment, and augmenting systemic controls related to the segregation of duties within the financial systems. During the second quarter of 2020, Management completed its testing of the operating effectiveness of the implemented controls, and concluded they were effective. As a result, we have concluded that the material weakness previously identified had been remediated as of SeptemberJune 30, 2017.
Changes in Internal Control Over Financial Reporting
Other than described above, during the most recent fiscal quarter, there has been no change in our internal controlcontrols over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that hashave materially affected or isare reasonably likely to materially affect Hanmi Financial'sFinancial’s internal controlcontrols over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings
From time to time, Hanmi Financial and its subsidiaries are parties to litigation that arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of Hanmi Financial and its subsidiaries. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial condition, results of operations, or liquidity of Hanmi Financial or its subsidiaries.
Item 1A. Risk Factors
In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material changes inupdates and additions to the risk factors previously disclosed under Part I, Item 1A, "Risk Factors" ofin our 2016 Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2019 as filed with the SEC. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.
The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.
The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity, a dramatic increase in unemployment and extreme volatility in the stock market, and in particular, bank stocks, have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark Federal funds rate to a target range of 0 percent to 0.25 percent, and the yields on 10- and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
• | demand for our products and services may decline, making it difficult to grow assets and income; |
• | if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; |
• | collateral for loans, especially real estate, may decline in value, which could cause credit loss expense to increase; |
• | our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; |
• | the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; |
• | as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; |
• | a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend; |
• | our cyber security risks are increased as the result of an increase in the number of employees working remotely; |
• | we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; |
• | Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs; |
• | potential goodwill impairment charges could result if acquired assets and operations are adversely affected and remain at reduced levels; |
• | due to recent legislation and government action limiting foreclosure of real property and reduced governmental capacity to effect business transactions and property transfers, we may have more difficulty taking possession of collateral supporting our loans, which may negatively impact our ability to minimize our losses, which could adversely impact our financial results; and |
• | we face litigation, regulatory enforcement and reputation risk as a result of our participation in the Paycheck Participation Program (“PPP”) and the risk that the Small Business Administration may not fund some or all PPP loan guaranties. |
Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 24, 2019, the Company announced a stock repurchase program that authorized the repurchase of up to 5 percent of its outstanding shares or approximately 1.5 million shares of common stock. As of June 30, 2020, approximately 1.0 million shares remained available for future purchases under that stock repurchase program. Shortly following the federal proclamation declaring a national emergency concerning the COVID-19 outbreak, Hanmi suspended its share repurchase program and does not anticipate it will consider resumption of share repurchases until the rescission of the national emergency. During the three months ended June 30, 2020, the Company acquired 12,811 shares from employees in connection with the satisfaction of employee tax withholding obligations incurred through vesting of Company stock awards.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit Number | Document | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document* | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document * | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document * | |
101.PRE | InlineXBRLTaxonomyExtensionPresentationLinkbaseDocument* | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in InlineXBRL |
* | Attached as Exhibit 101 to this report are documents formatted in Inline XBRL (Extensible BusinessReporting Language). |
† | Constitutes a management contract or compensatory plan or arrangement. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Hanmi Financial Corporation | ||||||
Date: | August 10, 2020 | By: | /s/ | |||
Bonita I. Lee | ||||||
President and Chief Executive Officer |
Date: | August 10, 2020 | |||||
By: | /s/ Romolo C. Santarosa | |||||
Romolo C. Santarosa | ||||||
Senior Executive Vice President and Chief Financial Officer |
70