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HANMI FINANCIAL CORP - Quarter Report: 2023 March (Form 10-Q)

10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

 

For the Quarterly Period Ended March 31, 2023

or

 

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

 

For the Transition Period From To

Commission File Number: 000-30421

HANMI FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

95-4788120

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

900 Wilshire Boulevard, Suite 1250

 

Los Angeles, California

 

90017

(Address of Principal Executive Offices)

 

(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

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

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

HAFC

 

Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

Emerging Growth Company

 

 

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

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

As of May 3, 2023, there were 30,546,198 outstanding shares of the Registrant’s Common Stock.

 

 


 

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

Three Months Ended March 31, 2023

Table of Contents

 

 

 

Part I – Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2023 (unaudited) and December 31, 2022

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income for the three months ended March 31, 2023 and 2022 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 (unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (unaudited)

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

Item 2.

 

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

 

37

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

52

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

52

 

 

 

 

 

 

 

Part II – Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

53

 

 

 

 

 

Item 1A.

 

Risk Factors

 

53

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

54

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

54

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

54

 

 

 

 

 

Item 5.

 

Other Information

 

54

 

 

 

 

 

Item 6.

 

Exhibits

 

55

 

 

 

Signatures

 

56

 

2


 

Part I — Financial Information

Item 1. Financial Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

386,201

 

 

$

352,421

 

Securities available for sale, at fair value (amortized cost of $990,052 and $978,796 as of March 31, 2023 and December 31, 2022, respectively)

 

 

878,701

 

 

 

853,838

 

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

 

 

3,652

 

 

 

8,043

 

Loans receivable, net of allowance for credit losses of $72,249 and $71,523 as of March 31, 2023 and December 31, 2022, respectively

 

 

5,908,209

 

 

 

5,895,610

 

Accrued interest receivable

 

 

19,004

 

 

 

18,537

 

Premises and equipment, net

 

 

22,625

 

 

 

22,850

 

Customers' liability on acceptances

 

 

41

 

 

 

328

 

Servicing assets

 

 

7,541

 

 

 

7,176

 

Goodwill and other intangible assets, net

 

 

11,193

 

 

 

11,225

 

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

 

 

16,385

 

 

 

16,385

 

Income tax assets

 

 

39,658

 

 

 

51,924

 

Bank-owned life insurance

 

 

55,814

 

 

 

55,544

 

Prepaid expenses and other assets

 

 

85,106

 

 

 

84,381

 

Total assets

 

$

7,434,130

 

 

$

7,378,262

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

2,334,083

 

 

$

2,539,602

 

Interest-bearing

 

 

3,866,955

 

 

 

3,628,470

 

Total deposits

 

 

6,201,038

 

 

 

6,168,072

 

Accrued interest payable

 

 

20,512

 

 

 

7,792

 

Bank's liability on acceptances

 

 

41

 

 

 

328

 

Borrowings

 

 

350,000

 

 

 

350,000

 

Subordinated debentures ($136,800 and $136,800 face amount less unamortized discount and debt issuance costs of $7,242 and $7,391 as of March 31, 2023 and December 31, 2022, respectively)

 

 

129,558

 

 

 

129,409

 

Accrued expenses and other liabilities

 

 

70,816

 

 

 

85,146

 

Total liabilities

 

 

6,771,965

 

 

 

6,740,747

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,827,801 shares (30,555,287 shares outstanding) and 33,708,234 shares (30,485,621 shares outstanding) as of March 31, 2023 and December 31, 2022, respectively

 

 

33

 

 

 

33

 

Additional paid-in capital

 

 

584,884

 

 

 

583,410

 

Accumulated other comprehensive loss, net of tax benefit of $32,292 and $35,973 as of March 31, 2023 and December 31, 2022, respectively

 

 

(79,059

)

 

 

(88,985

)

Retained earnings

 

 

283,910

 

 

 

269,542

 

Less treasury stock; 3,272,514 shares and 3,222,613 shares as of March 31, 2023 and December 31, 2022, respectively

 

 

(127,603

)

 

 

(126,485

)

Total stockholders’ equity

 

 

662,165

 

 

 

637,515

 

Total liabilities and stockholders’ equity

 

$

7,434,130

 

 

$

7,378,262

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

3


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Interest and dividend income:

 

 

 

 

 

 

Interest and fees on loans receivable

 

$

80,923

 

 

$

53,924

 

Interest on securities

 

 

4,025

 

 

 

2,516

 

Dividends on FHLB stock

 

 

289

 

 

 

248

 

Interest on deposits in other banks

 

 

2,066

 

 

 

216

 

Total interest and dividend income

 

 

87,303

 

 

 

56,904

 

Interest expense:

 

 

 

 

 

 

Interest on deposits

 

 

25,498

 

 

 

2,013

 

Interest on borrowings

 

 

2,369

 

 

 

337

 

Interest on subordinated debentures

 

 

1,583

 

 

 

3,598

 

Total interest expense

 

 

29,450

 

 

 

5,948

 

Net interest income before credit loss expense

 

 

57,853

 

 

 

50,956

 

Credit loss expense (recovery)

 

 

2,133

 

 

 

(1,375

)

Net interest income after credit loss expense (recovery)

 

 

55,720

 

 

 

52,331

 

Noninterest income:

 

 

 

 

 

 

Service charges on deposit accounts

 

 

2,579

 

 

 

2,875

 

Trade finance and other service charges and fees

 

 

1,258

 

 

 

1,142

 

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

 

 

1,869

 

 

 

2,521

 

Other operating income

 

 

2,630

 

 

 

1,982

 

Total noninterest income

 

 

8,336

 

 

 

8,520

 

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

 

20,610

 

 

 

17,717

 

Occupancy and equipment

 

 

4,412

 

 

 

4,646

 

Data processing

 

 

3,253

 

 

 

3,236

 

Professional fees

 

 

1,335

 

 

 

1,430

 

Supplies and communications

 

 

676

 

 

 

665

 

Advertising and promotion

 

 

833

 

 

 

817

 

Other operating expenses

 

 

1,672

 

 

 

3,181

 

Total noninterest expense

 

 

32,791

 

 

 

31,692

 

Income before tax

 

 

31,265

 

 

 

29,159

 

Income tax expense

 

 

9,274

 

 

 

8,464

 

Net income

 

$

21,991

 

 

$

20,695

 

Basic earnings per share

 

$

0.72

 

 

$

0.68

 

Diluted earnings per share

 

$

0.72

 

 

$

0.68

 

Weighted-average shares outstanding:

 

 

 

 

 

 

Basic

 

 

30,347,325

 

 

 

30,254,212

 

Diluted

 

 

30,430,745

 

 

 

30,377,580

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

4


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Net income

 

$

21,991

 

 

$

20,695

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Unrealized gain (loss) on securities:

 

 

 

 

 

 

Unrealized holding gain (loss) arising during period

 

 

13,607

 

 

 

(52,163

)

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

 

 

(3,681

)

 

 

15,787

 

Other comprehensive income (loss), net of tax

 

 

9,926

 

 

 

(36,376

)

Comprehensive income (loss)

 

$

31,917

 

 

$

(15,681

)

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

5


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2023 and 2022

(in thousands, except share data)

 

 

 

Common Stock - Number of Shares

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Treasury

 

 

Total

 

 

 

Shares

 

 

Treasury

 

 

Shares

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stock,

 

 

Stockholders'

 

 

 

Issued

 

 

Shares

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

at Cost

 

 

Equity

 

Balance at January 1, 2022

 

 

33,603,839

 

 

 

(3,196,578

)

 

 

30,407,261

 

 

$

33

 

 

$

580,796

 

 

$

(8,443

)

 

$

196,784

 

 

$

(125,753

)

 

$

643,417

 

Restricted stock awards, net of forfeitures

 

 

66,358

 

 

 

 

 

 

66,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

541

 

 

 

 

 

 

 

 

 

 

 

 

541

 

Restricted stock surrendered due to employee tax liability

 

 

 

 

 

(5,161

)

 

 

(5,161

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(134

)

 

 

(134

)

Cash dividends paid (common stock, $0.22/share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,691

)

 

 

 

 

 

(6,691

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,695

 

 

 

 

 

 

20,695

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,376

)

 

 

 

 

 

 

 

 

(36,376

)

Balance at March 31, 2022

 

 

33,670,197

 

 

 

(3,201,739

)

 

 

30,468,458

 

 

$

33

 

 

$

581,337

 

 

$

(44,819

)

 

$

210,788

 

 

$

(125,887

)

 

$

621,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

 

 

33,708,234

 

 

 

(3,222,613

)

 

 

30,485,621

 

 

$

33

 

 

$

583,410

 

 

$

(88,985

)

 

$

269,542

 

 

$

(126,485

)

 

$

637,515

 

Stock options exercised

 

 

50,000

 

 

 

(35,273

)

 

 

14,727

 

 

 

 

 

 

822

 

 

 

 

 

 

 

 

 

(1,003

)

 

 

(181

)

Restricted stock awards, net of forfeitures

 

 

69,567

 

 

 

 

 

 

69,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

652

 

 

 

 

 

 

 

 

 

 

 

 

652

 

Restricted stock surrendered due to employee tax liability

 

 

 

 

 

(11,392

)

 

 

(11,392

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

(40

)

Options surrendered due to employee tax liability

 

 

 

 

 

(3,236

)

 

 

(3,236

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

(75

)

Cash dividends paid (common stock, $0.25/share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,623

)

 

 

 

 

 

(7,623

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,991

 

 

 

 

 

 

21,991

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,926

 

 

 

 

 

 

 

 

 

9,926

 

Balance at March 31, 2023

 

 

33,827,801

 

 

 

(3,272,514

)

 

 

30,555,287

 

 

$

33

 

 

$

584,884

 

 

$

(79,059

)

 

$

283,910

 

 

$

(127,603

)

 

$

662,165

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

6


 

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

21,991

 

 

$

20,695

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,742

 

 

 

6,024

 

Amortization of servicing assets - net

 

 

634

 

 

 

544

 

Share-based compensation expense

 

 

652

 

 

 

541

 

Credit loss expense (recovery)

 

 

2,133

 

 

 

(1,375

)

Gain on sales of SBA loans

 

 

(1,869

)

 

 

(2,521

)

Origination of SBA loans held for sale

 

 

(25,316

)

 

 

(31,853

)

Proceeds from sales of SBA loans

 

 

30,954

 

 

 

32,098

 

Change in bank-owned life insurance

 

 

(270

)

 

 

(244

)

Change in prepaid expenses and other assets

 

 

(3,000

)

 

 

(13,745

)

Change in income tax assets

 

 

8,585

 

 

 

7,908

 

Valuation adjustment on servicing assets

 

 

(384

)

 

 

 

Change in accrued interest payable and other liabilities

 

 

276

 

 

 

2,062

 

Net cash provided by (used in) operating activities

 

 

36,128

 

 

 

20,134

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of securities available for sale

 

 

(29,504

)

 

 

(52,475

)

Proceeds from matured, called and repayment of securities

 

 

17,499

 

 

 

32,730

 

Purchases of loans receivable

 

 

 

 

 

(11,000

)

Purchases of premises and equipment

 

 

(617

)

 

 

(617

)

Change in loans receivable, excluding purchases

 

 

(14,773

)

 

 

(175,522

)

Net cash provided by (used in) investing activities

 

 

(27,395

)

 

 

(206,884

)

Cash flows from financing activities:

 

 

 

 

 

 

Change in deposits

 

 

32,966

 

 

 

(3,099

)

Change in borrowings

 

 

 

 

 

(12,500

)

Redemption of subordinated debentures, net of treasury debentures

 

 

 

 

 

(87,300

)

Proceeds from exercise of stock options

 

 

822

 

 

 

 

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

 

 

(1,118

)

 

 

(134

)

Cash dividends paid

 

 

(7,623

)

 

 

(6,691

)

Net cash provided by (used in) financing activities

 

 

25,047

 

 

 

(109,724

)

Net increase (decrease) in cash and due from banks

 

 

33,780

 

 

 

(296,474

)

Cash and due from banks at beginning of year

 

 

352,421

 

 

 

608,965

 

Cash and due from banks at end of period

 

$

386,201

 

 

$

312,491

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Interest paid

 

$

16,730

 

 

$

6,143

 

Income taxes paid

 

$

334

 

 

$

129

 

Non-cash activities:

 

 

 

 

 

 

Income tax benefit related to items of other comprehensive income

 

$

(3,681

)

 

$

15,787

 

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

 

$

(145

)

 

$

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

7


 

Hanmi Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Organization and Basis of Presentation

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

In management’s opinion, the accompanying unaudited consolidated financial statements of Hanmi Financial and its subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim periods ended March 31, 2023, but are not necessarily indicative of the results that will be reported for the entire year or any other interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The unaudited consolidated financial statements are prepared in conformity with GAAP and in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. The interim information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”).

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

 

The extent to which the COVID-19 pandemic may impact business activity or financial results will depend on future developments, including new variants that may emerge and the actions required to contain the coronavirus or treat its impact, among others, which are highly uncertain and cannot be predicted. This uncertainty may impact the accuracy of our significant estimates, which includes the allowance for credit losses, the allowance for credit losses related to off-balance sheet items, and the valuation of intangible assets, including deferred tax assets, goodwill, and servicing assets.

Recently Issued Accounting Standards

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

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

FASB ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848: In March 2021, it was announced LIBOR would cease on June 30, 2023. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in this ASU will be deferred to December 31, 2024.

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

Accounting Standards Adopted in 2023

FASB ASU 2022-02, Troubled Debt Restructurings ("TDRs") and Vintage Disclosures (Topic 326): The FASB amended the accounting and disclosure requirements for expected credit losses by removing the recognition and measurement guidance on TDRs and enhancing disclosures pertaining to certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this standard requires disclosure of current-period gross write-offs by year of origination for financing receivables.

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

 

Descriptions of our significant accounting policies are included in Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the 2022 Annual Report on Form 10-K.

8


 

Note 2 — Securities

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

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gain

 

 

Loss

 

 

Value

 

 

 

(in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

56,174

 

 

$

79

 

 

$

(1,327

)

 

$

54,926

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

 

532,117

 

 

 

152

 

 

 

(68,164

)

 

 

464,105

 

Mortgage-backed securities - commercial

 

 

61,489

 

 

 

 

 

 

(10,623

)

 

 

50,866

 

Collateralized mortgage obligations

 

 

112,021

 

 

 

69

 

 

 

(11,544

)

 

 

100,546

 

Debt securities

 

 

150,362

 

 

 

 

 

 

(9,994

)

 

 

140,368

 

Total U.S. government agency and sponsored agency obligations

 

 

855,989

 

 

 

221

 

 

 

(100,325

)

 

 

755,885

 

Municipal bonds-tax exempt

 

 

77,889

 

 

 

 

 

 

(9,999

)

 

 

67,890

 

Total securities available for sale

 

$

990,052

 

 

$

300

 

 

$

(111,651

)

 

$

878,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

49,690

 

 

$

 

 

$

(1,664

)

 

$

48,026

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

 

540,590

 

 

 

63

 

 

 

(75,501

)

 

 

465,152

 

Mortgage-backed securities - commercial

 

 

61,799

 

 

 

 

 

 

(10,507

)

 

 

51,292

 

Collateralized mortgage obligations

 

 

98,236

 

 

 

 

 

 

(12,751

)

 

 

85,485

 

Debt securities

 

 

150,338

 

 

 

 

 

 

(11,839

)

 

 

138,499

 

Total U.S. government agency and sponsored agency obligations

 

 

850,963

 

 

 

63

 

 

 

(110,598

)

 

 

740,428

 

Municipal bonds-tax exempt

 

 

78,143

 

 

 

 

 

 

(12,759

)

 

 

65,384

 

Total securities available for sale

 

$

978,796

 

 

$

63

 

 

$

(125,021

)

 

$

853,838

 

 

The amortized cost and estimated fair value of securities as of March 31, 2023 and December 31, 2022, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. All other securities are included based on their contractual maturities.

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Available for Sale

 

 

Available for Sale

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

 

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

Within one year

 

$

35,558

 

 

$

35,134

 

 

$

28,665

 

 

$

28,043

 

Over one year through five years

 

 

187,050

 

 

 

175,950

 

 

 

180,322

 

 

 

167,000

 

Over five years through ten years

 

 

61,568

 

 

 

56,330

 

 

 

39,213

 

 

 

35,318

 

Over ten years

 

 

705,876

 

 

 

611,287

 

 

 

730,596

 

 

 

623,477

 

Total

 

$

990,052

 

 

$

878,701

 

 

$

978,796

 

 

$

853,838

 

 

9


 

 

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2023 and December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position:

 

 

 

Holding Period

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Gross

 

 

Estimated

 

 

Number

 

 

Gross

 

 

Estimated

 

 

Number

 

 

Gross

 

 

Estimated

 

 

Number

 

 

 

Unrealized

 

 

Fair

 

 

of

 

 

Unrealized

 

 

Fair

 

 

of

 

 

Unrealized

 

 

Fair

 

 

of

 

 

 

Loss

 

 

Value

 

 

Securities

 

 

Loss

 

 

Value

 

 

Securities

 

 

Loss

 

 

Value

 

 

Securities

 

 

 

(in thousands, except number of securities)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

(186

)

 

$

24,606

 

 

 

11

 

 

$

(1,141

)

 

$

17,823

 

 

 

5

 

 

$

(1,327

)

 

$

42,429

 

 

 

16

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

 

(989

)

 

 

30,094

 

 

 

16

 

 

 

(67,175

)

 

 

422,817

 

 

 

107

 

 

 

(68,164

)

 

 

452,911

 

 

 

123

 

Mortgage-backed securities - commercial

 

 

(65

)

 

 

4,094

 

 

 

1

 

 

 

(10,558

)

 

 

46,772

 

 

 

14

 

 

 

(10,623

)

 

 

50,866

 

 

 

15

 

Collateralized mortgage obligations

 

 

(426

)

 

 

18,991

 

 

 

5

 

 

 

(11,118

)

 

 

66,075

 

 

 

23

 

 

 

(11,544

)

 

 

85,066

 

 

 

28

 

Debt securities

 

 

(92

)

 

 

13,834

 

 

 

4

 

 

 

(9,902

)

 

 

126,534

 

 

 

26

 

 

 

(9,994

)

 

 

140,368

 

 

 

30

 

Total U.S. government agency and sponsored agency obligations

 

 

(1,572

)

 

 

67,013

 

 

 

26

 

 

 

(98,753

)

 

 

662,198

 

 

 

170

 

 

 

(100,325

)

 

 

729,211

 

 

 

196

 

Municipal bonds-tax exempt

 

 

 

 

 

 

 

 

 

 

 

(9,999

)

 

 

67,890

 

 

 

19

 

 

 

(9,999

)

 

 

67,890

 

 

 

19

 

Total

 

$

(1,758

)

 

$

91,619

 

 

 

37

 

 

$

(109,893

)

 

$

747,911

 

 

 

194

 

 

$

(111,651

)

 

$

839,530

 

 

 

231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

(414

)

 

$

33,812

 

 

 

14

 

 

$

(1,250

)

 

$

14,215

 

 

 

4

 

 

$

(1,664

)

 

$

48,027

 

 

 

18

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

 

(1,712

)

 

 

36,009

 

 

 

18

 

 

 

(73,789

)

 

 

424,302

 

 

 

105

 

 

 

(75,501

)

 

 

460,311

 

 

 

123

 

Mortgage-backed securities - commercial

 

 

(84

)

 

 

4,069

 

 

 

1

 

 

 

(10,423

)

 

 

47,221

 

 

 

14

 

 

 

(10,507

)

 

 

51,290

 

 

 

15

 

Collateralized mortgage obligations

 

 

(1,011

)

 

 

23,606

 

 

 

8

 

 

 

(11,740

)

 

 

61,879

 

 

 

20

 

 

 

(12,751

)

 

 

85,485

 

 

 

28

 

Debt securities

 

 

(1,103

)

 

 

31,714

 

 

 

8

 

 

 

(10,736

)

 

 

106,785

 

 

 

22

 

 

 

(11,839

)

 

 

138,499

 

 

 

30

 

Total U.S. government agency and sponsored agency obligations

 

 

(3,910

)

 

 

95,398

 

 

 

35

 

 

 

(106,688

)

 

 

640,187

 

 

 

161

 

 

 

(110,598

)

 

 

735,585

 

 

 

196

 

Municipal bonds-tax exempt

 

 

 

 

 

 

 

 

 

 

 

(12,759

)

 

 

65,385

 

 

 

19

 

 

 

(12,759

)

 

 

65,385

 

 

 

19

 

Total

 

$

(4,324

)

 

$

129,210

 

 

 

49

 

 

$

(120,697

)

 

$

719,787

 

 

 

184

 

 

$

(125,021

)

 

$

848,997

 

 

 

233

 

 

The Company evaluates its available-for-sale securities portfolio for impairment on a quarterly basis. The Company did not recognize unrealized losses in income because we have the ability and the intent to hold and we do not expect to be required to sell these securities until the recovery of their cost basis. The quarterly impairment assessment takes into account the changes in the credit quality of these debt securities since acquisition and the likelihood of a credit loss occurring over the life of the securities. In the event that a credit loss is expected to occur in the future, an allowance is established and a corresponding credit loss is recognized. Based on this analysis, as of March 31, 2023, the Company determined that no credit losses are expected to be realized on the tax-exempt municipal bond portfolio. The remainder of the portfolio consists of U.S. Treasury obligations, U.S. government agency securities, and U.S. government sponsored agency securities, all of which have the backing of the U.S. government, and are therefore not expected to incur credit losses.

Securities available for sale with market values of $22.9 million and $23.4 million as of March 31, 2023 and December 31, 2022, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount Window and the new Bank Term Funding Program (“BTFP”).

At March 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies in an amount greater than 10% of shareholders’ equity.

10


 

Note 3 — Loans

Loans Receivable

Loans consisted of the following as of the dates indicated:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

Retail

 

$

1,052,353

 

 

$

1,023,608

 

Hospitality

 

 

669,012

 

 

 

646,893

 

Office

 

 

533,703

 

 

 

499,946

 

Other (1)

 

 

1,415,748

 

 

 

1,553,729

 

Total commercial property loans

 

 

3,670,816

 

 

 

3,724,176

 

Construction

 

 

113,360

 

 

 

109,205

 

Residential (2)

 

 

817,917

 

 

 

734,472

 

Total real estate loans

 

 

4,602,093

 

 

 

4,567,853

 

Commercial and industrial loans (3)

 

 

778,149

 

 

 

804,492

 

Equipment financing agreements

 

 

600,216

 

 

 

594,788

 

Loans receivable

 

 

5,980,458

 

 

 

5,967,133

 

Allowance for credit losses

 

 

(72,249

)

 

 

(71,523

)

Loans receivable, net

 

$

5,908,209

 

 

$

5,895,610

 

 

(1)
Includes mixed-use, multifamily, industrial, gas stations, faith-based facilities, medical and warehouse; all other property types represent less than one percent of total loans receivable.
(2)
Includes $2.4 million and $2.4 million of home equity loans and lines, and $6.7 million and $4.6 of personal loans at March 31, 2023 and December 31, 2022, respectively.
(3)
At March 31, 2023 and December 31, 2022, Paycheck Protection Program loans were $0.7 million and $0.9 million, respectively.

Accrued interest on loans was $16.4 million and $16.0 million at March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023 and December 31, 2022, loans of $2.43 billion and $1.99 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

The following is the activity for loans held for sale for the three months ended March 31, 2023 and 2022:

 

 

 

Real Estate

 

 

Commercial and Industrial

 

 

Total

 

 

 

(in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

3,775

 

 

$

4,268

 

 

$

8,043

 

Originations and transfers

 

 

16,387

 

 

 

8,929

 

 

 

25,316

 

Sales

 

 

(19,781

)

 

 

(9,918

)

 

 

(29,699

)

Principal paydowns and amortization

 

 

(2

)

 

 

(6

)

 

 

(8

)

Balance at end of period

 

$

379

 

 

$

3,273

 

 

$

3,652

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

6,954

 

 

$

6,388

 

 

$

13,342

 

Originations and transfers

 

 

20,164

 

 

 

11,689

 

 

 

31,853

 

Sales

 

 

(15,293

)

 

 

(14,284

)

 

 

(29,577

)

Principal paydowns and amortization

 

 

 

 

 

(1

)

 

 

(1

)

Balance at end of period

 

$

11,825

 

 

$

3,792

 

 

$

15,617

 

 

Loans held for sale was comprised of $3.7 million and $8.0 million of the guaranteed portion of SBA 7(a) loans at March 31, 2023 and December 31, 2022, respectively.

11


 

 

Allowance for Credit Losses

 

The following table details the information on the allowance for credit losses by portfolio segment as of and for the three months ended March 31, 2023 and 2022:

 

 

 

Real Estate

 

 

Commercial and Industrial

 

 

Equipment Financing Agreements

 

 

Total

 

 

 

(in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

44,026

 

 

$

15,267

 

 

$

12,230

 

 

$

71,523

 

Charge-offs

 

 

(412

)

 

 

(210

)

 

 

(1,616

)

 

 

(2,238

)

Recoveries

 

 

68

 

 

 

235

 

 

 

480

 

 

 

783

 

Provision (recovery) for credit losses

 

 

(151

)

 

 

41

 

 

 

2,291

 

 

 

2,181

 

Ending balance

 

$

43,531

 

 

$

15,333

 

 

$

13,385

 

 

$

72,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

48,890

 

 

$

12,418

 

 

$

11,249

 

 

$

72,557

 

Charge-offs

 

 

(530

)

 

 

(58

)

 

 

(247

)

 

 

(835

)

Recoveries

 

 

197

 

 

 

317

 

 

 

423

 

 

 

937

 

Provision (recovery) for credit losses

 

 

(2,202

)

 

 

267

 

 

 

788

 

 

 

(1,147

)

Ending balance

 

$

46,355

 

 

$

12,944

 

 

$

12,213

 

 

$

71,512

 

 

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

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Allowance Amount

 

 

Percentage
of Total
Allowance

 

 

Total Loans

 

 

Percentage of Total Loans

 

 

Allowance Amount

 

 

Percentage
of Total
Allowance

 

 

Total Loans

 

 

Percentage of Total Loans

 

 

 

(dollars in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

9,405

 

 

 

13.0

%

 

$

1,052,353

 

 

 

17.6

%

 

$

7,872

 

 

 

11.0

%

 

$

1,023,608

 

 

 

17.2

%

Hospitality

 

 

14,138

 

 

 

19.6

 

 

 

669,012

 

 

 

11.2

 

 

 

13,407

 

 

 

18.7

 

 

 

646,893

 

 

 

10.8

 

Office

 

 

2,509

 

 

 

3.5

 

 

 

533,703

 

 

 

8.9

 

 

 

2,293

 

 

 

3.2

 

 

 

499,946

 

 

 

8.4

 

Other

 

 

9,186

 

 

 

12.7

 

 

 

1,415,748

 

 

 

23.7

 

 

 

13,056

 

 

 

18.3

 

 

 

1,553,729

 

 

 

26.0

 

Total commercial property loans

 

 

35,238

 

 

 

48.8

 

 

 

3,670,816

 

 

 

61.4

 

 

 

36,628

 

 

 

51.2

 

 

 

3,724,176

 

 

 

62.4

 

Construction

 

 

4,003

 

 

 

5.5

 

 

 

113,360

 

 

 

1.9

 

 

 

4,022

 

 

 

5.7

 

 

 

109,205

 

 

 

1.8

 

Residential

 

 

4,290

 

 

 

6.0

 

 

 

817,917

 

 

 

13.7

 

 

 

3,376

 

 

 

4.7

 

 

 

734,472

 

 

 

12.4

 

Total real estate loans

 

 

43,531

 

 

 

60.3

 

 

 

4,602,093

 

 

 

77.0

 

 

 

44,026

 

 

 

61.6

 

 

 

4,567,853

 

 

 

76.6

 

Commercial and industrial loans

 

 

15,333

 

 

 

21.2

 

 

 

778,149

 

 

 

13.0

 

 

 

15,267

 

 

 

21.3

 

 

 

804,492

 

 

 

13.4

 

Equipment financing agreements

 

 

13,385

 

 

 

18.5

 

 

 

600,216

 

 

 

10.0

 

 

 

12,230

 

 

 

17.1

 

 

 

594,788

 

 

 

10.0

 

Total

 

$

72,249

 

 

 

100.0

%

 

$

5,980,458

 

 

 

100.0

%

 

$

71,523

 

 

 

100.0

%

 

$

5,967,133

 

 

 

100.0

%

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2023 and December 31, 2022, for which repayment is expected to be obtained through the sale of the underlying collateral.

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Amortized Cost

 

 

Amortized Cost

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

Retail

 

$

1,883

 

 

$

1,930

 

Hospitality

 

 

 

 

 

 

Office

 

 

 

 

 

 

Other (1)

 

 

259

 

 

 

256

 

Total commercial property loans

 

 

2,142

 

 

 

2,186

 

Residential

 

 

487

 

 

 

508

 

Total real estate loans

 

 

2,629

 

 

 

2,694

 

Commercial and industrial loans

 

 

10,002

 

 

 

 

Total

 

$

12,631

 

 

$

2,694

 

 

12


 

(1)
Includes mixed-use, multifamily, industrial, gas stations, faith-based facilities, medical and warehouse; all other property types represent less than one percent of total loans receivable.

Loan Quality Indicators

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

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

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

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

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

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

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

13


 

Loans by Vintage Year and Risk Rating

 

 

 

Term Loans

 

 

 

 

 

 

 

 

 

Amortized Cost Basis by Origination Year (1)

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

 

 

(in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

`

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

$

194,981

 

 

$

1,064,796

 

 

$

882,494

 

 

$

587,432

 

 

$

393,738

 

 

$

443,388

 

 

$

40,472

 

 

$

3,607,301

 

Special Mention

 

 

 

 

 

1,579

 

 

 

20,228

 

 

 

5,820

 

 

 

1,596

 

 

 

3,793

 

 

 

1,700

 

 

 

34,716

 

Classified

 

 

1,272

 

 

 

9,401

 

 

 

4,846

 

 

 

261

 

 

 

4,289

 

 

 

8,730

 

 

 

 

 

 

28,799

 

Total commercial property

 

 

196,253

 

 

 

1,075,776

 

 

 

907,568

 

 

 

593,513

 

 

 

399,623

 

 

 

455,911

 

 

 

42,172

 

 

 

3,670,816

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

 

 

 

 

 

 

412

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

(67

)

 

 

 

 

 

345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

61,150

 

 

 

5,549

 

 

 

46,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,360

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total construction

 

 

61,150

 

 

 

5,549

 

 

 

46,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,360

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

94,413

 

 

 

400,059

 

 

 

169,111

 

 

 

13,007

 

 

 

228

 

 

 

132,970

 

 

 

7,624

 

 

 

817,412

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

 

 

500

 

Classified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Total residential

 

 

94,413

 

 

 

400,059

 

 

 

169,111

 

 

 

13,007

 

 

 

228

 

 

 

132,975

 

 

 

8,124

 

 

 

817,917

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

350,544

 

 

 

1,470,404

 

 

 

1,098,266

 

 

 

600,439

 

 

 

393,966

 

 

 

576,358

 

 

 

48,096

 

 

 

4,538,073

 

Special Mention

 

 

 

 

 

1,579

 

 

 

20,228

 

 

 

5,820

 

 

 

1,596

 

 

 

3,793

 

 

 

2,200

 

 

 

35,216

 

Classified

 

 

1,272

 

 

 

9,401

 

 

 

4,846

 

 

 

261

 

 

 

4,289

 

 

 

8,735

 

 

 

 

 

 

28,804

 

Total real estate loans

 

 

351,816

 

 

 

1,481,384

 

 

 

1,123,340

 

 

 

606,520

 

 

 

399,851

 

 

 

588,886

 

 

 

50,296

 

 

 

4,602,093

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

 

 

 

 

 

 

412

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

(68

)

 

 

 

 

 

344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

134,247

 

 

 

224,285

 

 

 

102,649

 

 

 

37,591

 

 

 

22,070

 

 

 

17,962

 

 

 

198,428

 

 

 

737,232

 

Special Mention

 

 

 

 

 

 

 

 

8,998

 

 

 

 

 

 

 

 

 

126

 

 

 

20,000

 

 

 

29,124

 

Classified

 

 

 

 

 

940

 

 

 

 

 

 

 

 

 

85

 

 

 

273

 

 

 

10,495

 

 

 

11,793

 

Total commercial and industrial loans

 

 

134,247

 

 

 

225,225

 

 

 

111,647

 

 

 

37,591

 

 

 

22,155

 

 

 

18,361

 

 

 

228,923

 

 

 

778,149

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

190

 

 

 

 

 

 

210

 

YTD net charge-offs

 

 

 

 

 

(13

)

 

 

(2

)

 

 

 

 

 

20

 

 

 

(30

)

 

 

 

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment financing agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

65,243

 

 

 

285,484

 

 

 

146,563

 

 

 

40,374

 

 

 

42,570

 

 

 

13,292

 

 

 

 

 

 

593,526

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified

 

 

 

 

 

1,484

 

 

 

3,130

 

 

 

451

 

 

 

1,143

 

 

 

482

 

 

 

 

 

 

6,690

 

Total equipment financing agreements

 

 

65,243

 

 

 

286,968

 

 

 

149,693

 

 

 

40,825

 

 

 

43,713

 

 

 

13,774

 

 

 

 

 

 

600,216

 

YTD gross charge-offs

 

 

 

 

 

176

 

 

 

935

 

 

 

 

 

 

358

 

 

 

147

 

 

 

 

 

 

1,616

 

YTD net charge-offs

 

 

 

 

 

176

 

 

 

840

 

 

 

(6

)

 

 

154

 

 

 

(28

)

 

 

 

 

 

1,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

550,034

 

 

 

1,980,173

 

 

 

1,347,478

 

 

 

678,404

 

 

 

458,606

 

 

 

607,612

 

 

 

246,524

 

 

 

5,868,831

 

Special Mention

 

 

 

 

 

1,579

 

 

 

29,226

 

 

 

5,820

 

 

 

1,596

 

 

 

3,919

 

 

 

22,200

 

 

 

64,340

 

Classified

 

 

1,272

 

 

 

11,825

 

 

 

7,976

 

 

 

712

 

 

 

5,517

 

 

 

9,490

 

 

 

10,495

 

 

 

47,287

 

Total loans receivable

 

$

551,306

 

 

$

1,993,577

 

 

$

1,384,680

 

 

$

684,936

 

 

$

465,719

 

 

$

621,021

 

 

$

279,219

 

 

$

5,980,458

 

YTD gross charge-offs

 

 

 

 

 

176

 

 

 

935

 

 

 

412

 

 

 

378

 

 

 

337

 

 

 

 

 

 

2,238

 

YTD net charge-offs

 

 

 

 

 

163

 

 

 

838

 

 

 

406

 

 

 

174

 

 

 

(126

)

 

 

 

 

 

1,455

 

 

(1)
Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

14


 

 

 

 

Term Loans

 

 

 

 

 

 

 

 

 

Amortized Cost Basis by Origination Year (1)

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

$

1,184,361

 

 

$

901,029

 

 

$

600,740

 

 

$

404,786

 

 

$

301,950

 

 

$

207,861

 

 

$

50,877

 

 

$

3,651,604

 

Special Mention

 

 

847

 

 

 

13,384

 

 

 

5,857

 

 

 

7,115

 

 

 

 

 

 

6,080

 

 

 

1,701

 

 

 

34,984

 

Classified

 

 

 

 

 

 

 

 

412

 

 

 

4,312

 

 

 

12,304

 

 

 

20,560

 

 

 

 

 

 

37,588

 

Total commercial property

 

 

1,185,208

 

 

 

914,413

 

 

 

607,009

 

 

 

416,213

 

 

 

314,254

 

 

 

234,501

 

 

 

52,578

 

 

 

3,724,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

41,662

 

 

 

67,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109,205

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total construction

 

 

41,662

 

 

 

67,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

405,975

 

 

 

173,236

 

 

 

13,102

 

 

 

232

 

 

 

731

 

 

 

134,766

 

 

 

5,422

 

 

 

733,464

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

 

 

500

 

Classified

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

496

 

 

 

 

 

 

508

 

Total residential

 

 

405,987

 

 

 

173,236

 

 

 

13,102

 

 

 

232

 

 

 

731

 

 

 

135,262

 

 

 

5,922

 

 

 

734,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

1,631,998

 

 

 

1,141,808

 

 

 

613,842

 

 

 

405,018

 

 

 

302,681

 

 

 

342,627

 

 

 

56,299

 

 

 

4,494,273

 

Special Mention

 

 

847

 

 

 

13,384

 

 

 

5,857

 

 

 

7,115

 

 

 

 

 

 

6,080

 

 

 

2,201

 

 

 

35,484

 

Classified

 

 

12

 

 

 

 

 

 

412

 

 

 

4,312

 

 

 

12,304

 

 

 

21,056

 

 

 

 

 

 

38,096

 

Total real estate loans

 

 

1,632,857

 

 

 

1,155,192

 

 

 

620,111

 

 

 

416,445

 

 

 

314,985

 

 

 

369,763

 

 

 

58,500

 

 

 

4,567,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

368,778

 

 

 

100,537

 

 

 

39,577

 

 

 

24,117

 

 

 

7,342

 

 

 

12,282

 

 

 

205,951

 

 

 

758,584

 

Special Mention

 

 

 

 

 

9,285

 

 

 

 

 

 

 

 

 

29

 

 

 

102

 

 

 

34,113

 

 

 

43,529

 

Classified

 

 

 

 

 

 

 

 

171

 

 

 

1,097

 

 

 

81

 

 

 

391

 

 

 

639

 

 

 

2,379

 

Total commercial and industrial loans

 

 

368,778

 

 

 

109,822

 

 

 

39,748

 

 

 

25,214

 

 

 

7,452

 

 

 

12,775

 

 

 

240,703

 

 

 

804,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment financing agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

305,249

 

 

 

165,313

 

 

 

46,970

 

 

 

52,133

 

 

 

17,608

 

 

 

1,798

 

 

 

 

 

 

589,071

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified

 

 

630

 

 

 

2,542

 

 

 

311

 

 

 

1,581

 

 

 

565

 

 

 

88

 

 

 

 

 

 

5,717

 

Total equipment financing agreements

 

 

305,879

 

 

 

167,855

 

 

 

47,281

 

 

 

53,714

 

 

 

18,173

 

 

 

1,886

 

 

 

 

 

 

594,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass / Pass-Watch

 

 

2,306,025

 

 

 

1,407,658

 

 

 

700,389

 

 

 

481,268

 

 

 

327,631

 

 

 

356,707

 

 

 

262,250

 

 

 

5,841,928

 

Special Mention

 

 

847

 

 

 

22,669

 

 

 

5,857

 

 

 

7,115

 

 

 

29

 

 

 

6,182

 

 

 

36,314

 

 

 

79,013

 

Classified

 

 

642

 

 

 

2,542

 

 

 

894

 

 

 

6,990

 

 

 

12,950

 

 

 

21,535

 

 

 

639

 

 

 

46,192

 

Total loans receivable

 

$

2,307,514

 

 

$

1,432,869

 

 

$

707,140

 

 

$

495,373

 

 

$

340,610

 

 

$

384,424

 

 

$

299,203

 

 

$

5,967,133

 

 

(1)
Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

15


 

Loans by Vintage Year and Payment Performance

 

 

 

Term Loans

 

 

 

 

 

 

 

 

 

Amortized Cost Basis by Origination Year (1)

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

 

 

(in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

196,253

 

 

$

1,075,696

 

 

$

907,568

 

 

$

593,252

 

 

$

399,623

 

 

$

453,511

 

 

$

42,172

 

 

$

3,668,075

 

Nonperforming

 

 

 

 

 

80

 

 

 

 

 

 

261

 

 

 

 

 

 

2,400

 

 

 

 

 

 

2,741

 

Total commercial property

 

 

196,253

 

 

 

1,075,776

 

 

 

907,568

 

 

 

593,513

 

 

 

399,623

 

 

 

455,911

 

 

 

42,172

 

 

 

3,670,816

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

 

 

 

 

 

 

412

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

(67

)

 

 

 

 

 

345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

61,150

 

 

 

5,549

 

 

 

46,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,360

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total construction

 

 

61,150

 

 

 

5,549

 

 

 

46,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,360

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

94,413

 

 

 

400,059

 

 

 

169,111

 

 

 

13,007

 

 

 

228

 

 

 

132,483

 

 

 

8,124

 

 

 

817,425

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

492

 

 

 

 

 

 

492

 

Total residential

 

 

94,413

 

 

 

400,059

 

 

 

169,111

 

 

 

13,007

 

 

 

228

 

 

 

132,975

 

 

 

8,124

 

 

 

817,917

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

351,816

 

 

 

1,481,304

 

 

 

1,123,340

 

 

 

606,259

 

 

 

399,851

 

 

 

585,994

 

 

 

50,296

 

 

 

4,598,860

 

Nonperforming

 

 

 

 

 

80

 

 

 

 

 

 

261

 

 

 

 

 

 

2,892

 

 

 

 

 

 

3,233

 

Total real estate loans

 

 

351,816

 

 

 

1,481,384

 

 

 

1,123,340

 

 

 

606,520

 

 

 

399,851

 

 

 

588,886

 

 

 

50,296

 

 

 

4,602,093

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

 

 

 

 

 

 

412

 

YTD net charge-offs

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

(68

)

 

 

 

 

 

344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

134,247

 

 

 

225,225

 

 

 

111,647

 

 

 

37,591

 

 

 

22,149

 

 

 

18,242

 

 

 

218,921

 

 

 

768,022

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

119

 

 

 

10,002

 

 

 

10,127

 

Total commercial and industrial loans

 

 

134,247

 

 

 

225,225

 

 

 

111,647

 

 

 

37,591

 

 

 

22,155

 

 

 

18,361

 

 

 

228,923

 

 

 

778,149

 

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

190

 

 

 

 

 

 

210

 

YTD net charge-offs

 

 

 

 

 

(13

)

 

 

(2

)

 

 

 

 

 

20

 

 

 

(30

)

 

 

 

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment financing agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

65,243

 

 

 

285,484

 

 

 

146,563

 

 

 

40,374

 

 

 

42,570

 

 

 

13,292

 

 

 

 

 

 

593,526

 

Nonperforming

 

 

 

 

 

1,484

 

 

 

3,130

 

 

 

451

 

 

 

1,143

 

 

 

482

 

 

 

 

 

 

6,690

 

Total equipment financing agreements

 

 

65,243

 

 

 

286,968

 

 

 

149,693

 

 

 

40,825

 

 

 

43,713

 

 

 

13,774

 

 

 

 

 

 

600,216

 

YTD gross charge-offs

 

 

 

 

 

176

 

 

 

935

 

 

 

 

 

 

358

 

 

 

147

 

 

 

 

 

 

1,616

 

YTD net charge-offs

 

 

 

 

 

176

 

 

 

840

 

 

 

(6

)

 

 

154

 

 

 

(28

)

 

 

 

 

 

1,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

551,306

 

 

 

1,992,013

 

 

 

1,381,550

 

 

 

684,224

 

 

 

464,570

 

 

 

617,528

 

 

 

269,217

 

 

 

5,960,408

 

Nonperforming

 

 

 

 

 

1,564

 

 

 

3,130

 

 

 

712

 

 

 

1,149

 

 

 

3,493

 

 

 

10,002

 

 

 

20,050

 

Total loans receivable

 

$

551,306

 

 

$

1,993,577

 

 

$

1,384,680

 

 

$

684,936

 

 

$

465,719

 

 

$

621,021

 

 

$

279,219

 

 

$

5,980,458

 

YTD gross charge-offs

 

 

 

 

 

176

 

 

 

935

 

 

 

412

 

 

 

378

 

 

 

337

 

 

 

 

 

 

2,238

 

YTD net charge-offs

 

 

 

 

 

163

 

 

 

838

 

 

 

406

 

 

 

174

 

 

 

(126

)

 

 

 

 

 

1,455

 

 

(1)
Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

16


 

 

 

 

Term Loans

 

 

 

 

 

 

 

 

 

Amortized Cost Basis by Origination Year (1)

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

1,185,208

 

 

$

914,413

 

 

$

606,597

 

 

$

416,213

 

 

$

312,324

 

 

$

233,643

 

 

$

52,578

 

 

$

3,720,976

 

Nonperforming

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

1,930

 

 

 

858

 

 

 

 

 

 

3,200

 

Total commercial property

 

 

1,185,208

 

 

 

914,413

 

 

 

607,009

 

 

 

416,213

 

 

 

314,254

 

 

 

234,501

 

 

 

52,578

 

 

 

3,724,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

41,662

 

 

 

67,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109,205

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total construction

 

 

41,662

 

 

 

67,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

405,975

 

 

 

173,236

 

 

 

13,102

 

 

 

232

 

 

 

731

 

 

 

134,766

 

 

 

5,922

 

 

 

733,964

 

Nonperforming

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

496

 

 

 

 

 

 

508

 

Total residential

 

 

405,987

 

 

 

173,236

 

 

 

13,102

 

 

 

232

 

 

 

731

 

 

 

135,262

 

 

 

5,922

 

 

 

734,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

1,632,845

 

 

 

1,155,192

 

 

 

619,699

 

 

 

416,445

 

 

 

313,055

 

 

 

368,409

 

 

 

58,500

 

 

 

4,564,145

 

Nonperforming

 

 

12

 

 

 

 

 

 

412

 

 

 

 

 

 

1,930

 

 

 

1,354

 

 

 

 

 

 

3,708

 

Total real estate loans

 

 

1,632,857

 

 

 

1,155,192

 

 

 

620,111

 

 

 

416,445

 

 

 

314,985

 

 

 

369,763

 

 

 

58,500

 

 

 

4,567,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

368,778

 

 

 

109,822

 

 

 

39,577

 

 

 

25,199

 

 

 

7,452

 

 

 

12,539

 

 

 

240,703

 

 

 

804,070

 

Nonperforming

 

 

 

 

 

 

 

 

171

 

 

 

15

 

 

 

 

 

 

236

 

 

 

 

 

 

422

 

Total commercial and industrial loans

 

 

368,778

 

 

 

109,822

 

 

 

39,748

 

 

 

25,214

 

 

 

7,452

 

 

 

12,775

 

 

 

240,703

 

 

 

804,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment financing agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

305,249

 

 

 

165,313

 

 

 

46,970

 

 

 

52,133

 

 

 

17,608

 

 

 

1,798

 

 

 

 

 

 

589,071

 

Nonperforming

 

 

630

 

 

 

2,542

 

 

 

311

 

 

 

1,581

 

 

 

565

 

 

 

88

 

 

 

 

 

 

5,717

 

Total equipment financing agreements

 

 

305,879

 

 

 

167,855

 

 

 

47,281

 

 

 

53,714

 

 

 

18,173

 

 

 

1,886

 

 

 

 

 

 

594,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

2,306,872

 

 

 

1,430,327

 

 

 

706,246

 

 

 

493,777

 

 

 

338,115

 

 

 

382,746

 

 

 

299,203

 

 

 

5,957,286

 

Nonperforming

 

 

642

 

 

 

2,542

 

 

 

894

 

 

 

1,596

 

 

 

2,495

 

 

 

1,678

 

 

 

 

 

 

9,847

 

Total loans receivable

 

$

2,307,514

 

 

$

1,432,869

 

 

$

707,140

 

 

$

495,373

 

 

$

340,610

 

 

$

384,424

 

 

$

299,203

 

 

$

5,967,133

 

 

(1)
Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

 

17


 

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

 

 

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days
or More
Past Due

 

 

Total
Past Due

 

 

Current

 

 

Total

 

 

Accruing
90 Days
or More
Past Due

 

 

 

(in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,052,353

 

 

$

1,052,353

 

 

$

 

Hospitality

 

 

158

 

 

 

 

 

 

 

 

 

158

 

 

 

668,854

 

 

 

669,012

 

 

 

 

Office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

533,703

 

 

 

533,703

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,415,748

 

 

 

1,415,748

 

 

 

 

Total commercial property loans

 

 

158

 

 

 

 

 

 

 

 

 

158

 

 

 

3,670,658

 

 

 

3,670,816

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,360

 

 

 

113,360

 

 

 

 

Residential

 

 

1,669

 

 

 

 

 

 

 

 

 

1,669

 

 

 

816,248

 

 

 

817,917

 

 

 

 

Total real estate loans

 

 

1,827

 

 

 

 

 

 

 

 

 

1,827

 

 

 

4,600,266

 

 

 

4,602,093

 

 

 

 

Commercial and industrial loans

 

 

7,038

 

 

 

1

 

 

 

 

 

 

7,039

 

 

 

771,110

 

 

 

778,149

 

 

 

 

Equipment financing agreements

 

 

6,379

 

 

 

1,553

 

 

 

3,553

 

 

 

11,485

 

 

 

588,731

 

 

 

600,216

 

 

 

 

Total loans receivable

 

$

15,244

 

 

$

1,554

 

 

$

3,553

 

 

$

20,351

 

 

$

5,960,107

 

 

$

5,980,458

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,023,608

 

 

$

1,023,608

 

 

$

 

Hospitality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

646,893

 

 

 

646,893

 

 

 

 

Office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

499,946

 

 

 

499,946

 

 

 

 

Other

 

 

 

 

 

494

 

 

 

 

 

 

494

 

 

 

1,553,235

 

 

 

1,553,729

 

 

 

 

Total commercial property loans

 

 

 

 

 

494

 

 

 

 

 

 

494

 

 

 

3,723,682

 

 

 

3,724,176

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109,205

 

 

 

109,205

 

 

 

 

Residential

 

 

313

 

 

 

804

 

 

 

7

 

 

 

1,124

 

 

 

733,348

 

 

 

734,472

 

 

 

 

Total real estate loans

 

 

313

 

 

 

1,298

 

 

 

7

 

 

 

1,618

 

 

 

4,566,235

 

 

 

4,567,853

 

 

 

 

Commercial and industrial loans

 

 

77

 

 

 

79

 

 

 

 

 

 

156

 

 

 

804,336

 

 

 

804,492

 

 

 

 

Equipment financing agreements

 

 

5,825

 

 

 

1,271

 

 

 

2,949

 

 

 

10,045

 

 

 

584,743

 

 

 

594,788

 

 

 

 

Total loans receivable

 

$

6,215

 

 

$

2,648

 

 

$

2,956

 

 

$

11,819

 

 

$

5,955,314

 

 

$

5,967,133

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18


 

Nonaccrual Loans and Nonperforming Assets

 

The following table represents the amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of March 31, 2023 and December 31, 2022.

 

 

 

March 31, 2023

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

2,144

 

 

$

 

 

$

 

 

$

2,144

 

Hospitality

 

 

 

 

 

65

 

 

 

 

 

 

65

 

Office

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

259

 

 

 

273

 

 

 

 

 

 

532

 

Total commercial property loans

 

 

2,403

 

 

 

338

 

 

 

 

 

 

2,741

 

Residential

 

 

487

 

 

 

5

 

 

 

 

 

 

492

 

Total real estate loans

 

 

2,890

 

 

 

343

 

 

 

 

 

 

3,233

 

Commercial and industrial loans

 

 

 

 

 

10,127

 

 

 

 

 

 

10,127

 

Equipment financing agreements

 

 

358

 

 

 

6,332

 

 

 

 

 

 

6,690

 

Total

 

$

3,248

 

 

$

16,802

 

 

$

 

 

$

20,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

1,929

 

 

$

 

 

$

 

 

$

1,929

 

Office

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

540

 

 

 

731

 

 

 

 

 

 

1,271

 

Total commercial property loans

 

 

2,469

 

 

 

731

 

 

 

 

 

 

3,200

 

Residential

 

 

508

 

 

 

 

 

 

 

 

 

508

 

Total real estate loans

 

 

2,977

 

 

 

731

 

 

 

 

 

 

3,708

 

Commercial and industrial loans

 

 

 

 

 

422

 

 

 

 

 

 

422

 

Equipment financing agreements

 

 

215

 

 

 

5,501

 

 

 

 

 

 

5,716

 

Total

 

$

3,192

 

 

$

6,654

 

 

$

 

 

$

9,846

 

 

The Company recognized $104,000 and $27,000 of interest income on nonaccrual loans for the three months ended March 31, 2023 and 2022, respectively.

 

The following table details nonperforming assets as of the dates indicated:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(in thousands)

 

Nonaccrual loans

 

$

20,050

 

 

$

9,846

 

Loans receivable 90 days or more past due and still accruing

 

 

 

 

 

 

Total nonperforming loans receivable

 

 

20,050

 

 

 

9,846

 

Other real estate owned ("OREO")

 

 

117

 

 

 

117

 

Total nonperforming assets

 

$

20,167

 

 

$

9,963

 

 

OREO is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022.

 

19


 

Loan Modifications

 

No loans were modified during the three months ended March 31, 2023 or 2022.

 

Note 4 — Servicing Assets

The changes in servicing assets for the three months ended March 31, 2023 and 2022 were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

7,176

 

 

$

7,080

 

Addition related to sale of SBA loans

 

 

615

 

 

 

667

 

Amortization

 

 

(635

)

 

 

(545

)

Change in valuation allowance

 

 

385

 

 

 

 

Balance at end of period

 

$

7,541

 

 

$

7,202

 

 

At March 31, 2023 and December 31, 2022, we serviced loans sold to unaffiliated parties of $525.5 million and $523.6 million, respectively. These represented loans that were sold for which the Bank continues to provide servicing. These loans are maintained off-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 $1.3 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively. Servicing fee income, net of the amortization of servicing assets, is included in other operating income in the consolidated statements of income. Amortization expense was $0.6 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.

The fair value of servicing rights was $8.6 million at March 31, 2023 and was determined using discount rates ranging from 12.0% to 13.9% and prepayment speeds ranging from 10.9% to 17.2%, depending on the stratification of the specific right. The fair value of servicing rights was $7.1 million at December 31, 2022 and was determined using discount rates ranging from 21.9% to 25.3% and prepayment speeds ranging from 10.8% to 16.7%, depending on the stratification of the specific right.

 

Note 5 — Income Taxes

The Company’s income tax expense was $9.3 million and $8.5 million, representing an effective income tax rate of 29.7% and 29.0% for the three months ended March 31, 2023 and 2022, respectively.

Management concluded that as of March 31, 2023 and December 31, 2022, a valuation allowance of $1.3 million was appropriate against certain state net operating loss carry forwards and certain tax credits. For all other deferred tax assets, management believes it was more likely than not these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. Net income tax assets were $39.7 million and $51.9 million as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the Company was subject to examination by various taxing authorities for its federal and state tax returns for the years ending on or after December 31, 2018. During the quarter ended March 31, 2023, there was no material change to the Company’s uncertain tax positions. The Company does not expect its unrecognized tax positions to change significantly over the next twelve months.

20


 

Note 6 — Goodwill and other Intangibles

The third-party originators intangible of $0.5 million and goodwill of $11.0 million were recorded as a result of the acquisition of an equipment financing agreements 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:

 

 

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

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

 

 

$

(2,060

)

 

$

153

 

 

$

2,213

 

 

$

(2,031

)

 

$

182

 

Third-party originators intangible

 

7 years

 

 

483

 

 

 

(474

)

 

 

9

 

 

 

483

 

 

 

(471

)

 

 

12

 

Goodwill

 

N/A

 

 

11,031

 

 

 

 

 

 

11,031

 

 

 

11,031

 

 

 

 

 

 

11,031

 

Total intangible assets

 

 

 

$

13,727

 

 

$

(2,534

)

 

$

11,193

 

 

$

13,727

 

 

$

(2,502

)

 

$

11,225

 

 

The Company performed an impairment analysis on its goodwill and other intangible assets as of December 31, 2022 and determined there was no impairment. No triggering event has occurred subsequent to December 31, 2022 that would require a reassessment of goodwill and other intangible assets.

Note 7 — Deposits

Time deposits exceeding the FDIC insurance limit of $250,000 as of March 31, 2023 and December 31, 2022 were $1.05 billion and $697.0 million, respectively.

 

The scheduled maturities of time deposits are as follows for the periods indicated:

 

At March 31, 2023

 

Time
Deposits of
$250,000
or More

 

 

Other Time
Deposits

 

 

Total

 

 

 

(in thousands)

 

2023

 

$

645,391

 

 

$

927,402

 

 

$

1,572,793

 

2024

 

 

404,225

 

 

 

395,667

 

 

 

799,892

 

2025

 

 

266

 

 

 

3,860

 

 

 

4,126

 

2026

 

 

263

 

 

 

2,549

 

 

 

2,812

 

2027 and thereafter

 

 

 

 

 

615

 

 

 

615

 

Total

 

$

1,050,145

 

 

$

1,330,093

 

 

$

2,380,238

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2022

 

 

 

 

 

 

 

 

 

2023

 

$

696,470

 

 

$

1,185,020

 

 

$

1,881,490

 

2024

 

 

 

 

 

68,037

 

 

 

68,037

 

2025

 

 

266

 

 

 

3,151

 

 

 

3,417

 

2026

 

 

263

 

 

 

2,430

 

 

 

2,693

 

2027 and thereafter

 

 

 

 

 

570

 

 

 

570

 

Total

 

$

696,999

 

 

$

1,259,208

 

 

$

1,956,207

 

 

Accrued interest payable on deposits was $20.5 million and $7.8 million at March 31, 2023 and December 31, 2022, respectively. Total deposits reclassified to loans due to overdrafts at March 31, 2023 and December 31, 2022 were $1.4 million and $1.2 million, respectively.

21


 

Note 8 — Borrowings and Subordinated Debentures

At March 31, 2023, the Bank had $250.0 million of overnight advances and $100.0 million of term advances outstanding with the FHLB with a weighted average interest rate of 5.11% and 1.60% respectively. At December 31, 2022, the Bank had $250.0 million of overnight advances and $100.0 million of term advances with the FHLB with a weighted average rate of 4.65% and 0.87%, respectively. Interest expense on borrowings for the three months ended March 31, 2023 and 2022 was $2.4 million and $0.3 million, respectively.

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Outstanding
Balance

 

 

Weighted
Average Rate

 

 

Outstanding
Balance

 

 

Weighted
Average Rate

 

 

 

(dollars in thousands)

 

Overnight advances

 

$

250,000

 

 

 

5.11

%

 

$

250,000

 

 

 

4.65

%

Advances due within 12 months

 

 

50,000

 

 

 

0.37

 

 

 

50,000

 

 

 

0.97

 

Advances due over 12 months through 24 months

 

 

25,000

 

 

 

1.22

 

 

 

37,500

 

 

 

0.40

 

Advances due over 24 months through 36 months

 

 

25,000

 

 

 

4.44

 

 

 

12,500

 

 

 

1.90

 

Outstanding advances

 

$

350,000

 

 

 

4.11

%

 

$

350,000

 

 

 

3.57

%

 

The following is financial data pertaining to FHLB advances:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(dollars in thousands)

 

Weighted-average interest rate at end of period

 

 

4.11

%

 

 

3.57

%

Weighted-average interest rate during the period

 

 

3.58

%

 

 

1.52

%

Average balance of FHLB advances

 

$

268,056

 

 

$

148,027

 

Maximum amount outstanding at any month-end

 

$

350,000

 

 

$

350,000

 

 

The Bank maintains a secured credit facility with the FHLB, allowing the Bank to borrow on an overnight and term basis. The Bank had $2.43 billion and $1.99 billion of loans pledged as collateral with the FHLB as of March 31, 2023 and December 31, 2022, respectively. The remaining available borrowing capacity was $1.15 billion and $1.07 billion at March 31, 2023 and December 31, 2022, respectively.

The Bank also had securities with market values of $22.9 million and $23.4 million at March 31, 2023 and December 31, 2022, respectively, pledged with the FRB, which provided $22.2 million and $22.0 million in available borrowing capacity through the Fed Discount Window and the new BTFP of March 31, 2023 and December 31, 2022, respectively.

On August 20, 2021, the Company issued $110.0 million of Fixed-to-Floating Subordinated Notes (“2031 Notes”) with a maturity date of September 1, 2031. The 2031 Notes have an initial fixed interest rate of 3.75% per annum, payable semiannually in arrears on March 1 and September 1 of each year, up to but excluding September 1, 2026. From and including September 1, 2026 and thereafter, the 2031 Notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be the Three-Month Term SOFR) plus 310 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year. If the then current three-month term SOFR rate is less than zero, the three-month SOFR will be deemed to be zero. Debt issuance cost was $2.1 million, which is being amortized through the 2031 Notes’ maturity date. At March 31, 2023 and December 31, 2022, the balance of the 2031 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $108.2 million.

The Company issued $100.0 million of Fixed-to-Floating Subordinated Notes (“2027 Notes”) on March 21, 2017, with a maturity on March 30, 2027. The 2027 Notes had an initial fixed interest rate of 5.45% per annum. From and including March 30, 2022 and thereafter, the 2027 Notes bore interest at a floating rate equal to the then current three-month LIBOR, as calculated on each applicable date of determination, plus 3.315% payable quarterly.

 

On March 30, 2022, the Company redeemed its 2027 Notes. A portion of the redemption was funded with the proceeds from the Company’s 2021 subordinated debt offering. The redemption price for each of the 2027 Notes equaled 100% of the outstanding principal amount redeemed, plus any accrued and unpaid interest thereon. All interest accrued on the 2027 Notes ceased to accrue on and after March 30, 2022. Upon the redemption, the Company recognized a pre-tax charge of $1.1 million for the remaining unamortized debt issuance costs associated with the 2027 Notes.

 

The Company assumed Junior Subordinated Deferrable Interest Debentures (“Subordinated Debentures”) as a result of an acquisition in 2014 with an unpaid principal balance of $26.8 million and an estimated fair value of $18.5 million. The $8.3 million discount is being amortized to interest expense through the debentures’ maturity date of March 15, 2036. A trust was formed in 2005

22


 

which issued $26.0 million of Trust Preferred Securities (“TPS”) at a 6.26% fixed rate for the first five years and a variable rate of three-month LIBOR plus 140 basis points thereafter and invested the proceeds in the Subordinated Debentures. The rate on the TPS at March 31, 2023 was 6.27%. The TPS will be subject to mandatory redemption if the Subordinated Debentures are repaid by the Company. Interest is payable quarterly, and the Company has the option to defer interest payments on the Subordinated Debentures from time to time for a period not to exceed five consecutive years. At March 31, 2023 and December 31, 2022, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $5.5 million and $5.6 million, was $21.3 million and $21.2 million, respectively. The amortization of discount was $104,000 and $102,000 for the three months ended March 31, 2023 and 2022, respectively.

 

Note 9 — 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. For diluted EPS, the weighted-average number of common shares includes the impact of unvested performance stock units (“PSUs”) under the treasury method.

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.

The following table is a reconciliation of the components used to derive basic and diluted EPS for the periods indicated:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands, except per share amounts)

 

Basic EPS

 

 

 

 

 

 

Net income

 

$

21,991

 

 

$

20,695

 

Less: income allocated to unvested restricted stock

 

 

117

 

 

 

124

 

Income allocated to common shares

 

$

21,874

 

 

$

20,571

 

Weighted-average shares for basic EPS

 

 

30,347,325

 

 

 

30,254,212

 

Basic EPS (1)

 

$

0.72

 

 

$

0.68

 

 

 

 

 

 

 

 

Effect of dilutive stock options and unvested performance stock units

 

 

83,420

 

 

 

123,368

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

Income allocated to common shares

 

$

21,874

 

 

$

20,571

 

Weighted-average shares for diluted EPS

 

 

30,430,745

 

 

 

30,377,580

 

Diluted EPS (1)

 

$

0.72

 

 

$

0.68

 

 

(1)
Per share amounts may not be able to be recalculated using net income and weighted-average shares presented above due to rounding.

 

On a weighted-average basis, options to purchase 31,034 shares of common stock were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2023, because their effect would have been anti-dilutive. There were no anti-dilutive stock options for the three months ended March 31, 2022. There were no anti-dilutive unvested PSUs outstanding for the three months ended March 31, 2023 or 2022.

 

During the three months ended March 31, 2023, the Company issued 52,450 PSUs to executive officers from the 2021 Equity Compensation plan with a fair value of $1.1 million on the grant date of March 10, 2023. During the three months ended March 31, 2022, the Company issued 38,036 PSUs to executive officers from the 2021 Equity Compensation Plan with a fair value of $1.0 million on the grant date of March 23, 2022. These units have a three-year cliff vesting period and include dividend equivalent rights. Total PSUs outstanding as of March 31, 2023 were 157,049 with an aggregate grant fair value of $3.1 million. Total PSUs outstanding as of March 31, 2022 were 104,599 with an aggregate grant fair value of $2.0 million.

 

23


 

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% and a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%. In addition to the risk-based guidelines, federal bank regulatory agencies require bank holding companies and banks to maintain a minimum ratio of Tier 1 capital to average assets, referred to as the leverage ratio, of 4.0%.

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% and a minimum ratio of Tier 1 capital to risk-weighted assets of 8.0%. 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%.

At March 31, 2023, the Bank’s capital ratios exceeded the minimum requirements for the Bank to be considered “well capitalized” and the Company exceeded all of its applicable minimum regulatory capital ratio requirements.

A capital conservation buffer of 2.5% must be met to avoid limitations on the ability of the Bank and the Company to pay dividends, repurchase shares or pay discretionary bonuses. The Bank's capital conservation buffer was 6.15% and 5.86% and the Company's capital conservation buffer was 5.94% and 5.71% as of March 31, 2023 and December 31, 2022, respectively.

In March 2020, federal banking agencies 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 March 31, 2023 and December 31, 2022 were as follows:

 

 

 

 

 

 

 

 

 

Minimum

 

 

Minimum to Be

 

 

 

 

 

 

 

 

 

Regulatory

 

 

Categorized as

 

 

 

Actual

 

 

Requirement

 

 

“Well Capitalized”

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(dollars in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

917,551

 

 

 

14.80

%

 

$

495,951

 

 

 

8.00

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

876,961

 

 

 

14.15

%

 

$

495,874

 

 

 

8.00

%

 

$

619,842

 

 

 

10.00

%

Tier 1 capital (to risk-weighted assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

740,064

 

 

 

11.94

%

 

$

371,963

 

 

 

6.00

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

809,474

 

 

 

13.06

%

 

$

371,905

 

 

 

6.00

%

 

$

495,874

 

 

 

8.00

%

Common equity Tier 1 capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

718,717

 

 

 

11.59

%

 

$

278,973

 

 

 

4.50

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

809,474

 

 

 

13.06

%

 

$

278,929

 

 

 

4.50

%

 

$

402,897

 

 

 

6.50

%

Tier 1 capital (to average assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

740,064

 

 

 

10.09

%

 

$

293,509

 

 

 

4.00

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

809,474

 

 

 

11.06

%

 

$

292,658

 

 

 

4.00

%

 

$

365,822

 

 

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

901,239

 

 

 

14.49

%

 

$

497,508

 

 

 

8.00

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

860,503

 

 

 

13.86

%

 

$

496,607

 

 

 

8.00

%

 

$

620,758

 

 

 

10.00

%

Tier 1 capital (to risk-weighted assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

728,344

 

 

 

11.71

%

 

$

373,131

 

 

 

6.00

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

797,608

 

 

 

12.85

%

 

$

372,455

 

 

 

6.00

%

 

$

496,607

 

 

 

8.00

%

Common equity Tier 1 capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

707,101

 

 

 

11.37

%

 

$

279,848

 

 

 

4.50

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

797,608

 

 

 

12.85

%

 

$

279,341

 

 

 

4.50

%

 

$

403,493

 

 

 

6.50

%

Tier 1 capital (to average assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hanmi Financial

 

$

728,344

 

 

 

10.07

%

 

$

289,311

 

 

 

4.00

%

 

N/A

 

 

N/A

 

Hanmi Bank

 

$

797,608

 

 

 

11.07

%

 

$

288,110

 

 

 

4.00

%

 

$

360,137

 

 

 

5.00

%

 

24


 

Note 11 — 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. Treasury securities 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 and debt securities as well as municipal 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.

Derivatives – The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

25


 

Loans held for sale - Loans held for sale includes the guaranteed portion of SBA 7(a) loans carried at the lower of cost or fair value. Management obtains quotes, bids or pricing indication sheets on all or part of the 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 March 31, 2023 and December 31, 2022, the entire balance of loans held for sale was recorded at its cost. We record loans held for sale on a nonrecurring basis with Level 2 inputs.

Nonperforming loans – Nonaccrual loans receivable and loans 90-days past due and still accruing interest are considered nonperforming for reporting purposes and are measured and recorded at fair value on a non-recurring basis. All nonperforming loans with a carrying balance over $250,000 are individually evaluated for the amount of impairment, if any. Nonperforming loans with a carrying balance of $250,000 or less are evaluated collectively. However, from time to time, nonrecurring fair value adjustments to collateral dependent nonperforming loans are recorded based on either the current appraised value of the collateral, or management’s judgment and estimation of value reported on older appraisals that are then adjusted based on recent market trends, and result in 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 3 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.

 

Servicing assets - On a quarterly basis, the Company utilizes a third party service to evaluate servicing assets related to loans sold to unaffiliated parties with servicing retained, and result in a Level 3 classification. Servicing assets are assessed for impairment or increased obligation based on fair value at each reporting date.

Other repossessed assets – Fair value of equipment from equipment financing agreements contracts is based primarily on a third party valuation service, less costs to sell and result in a Level 3 classification of the inputs for determining fair value. Valuations are required at the time the asset is repossessed and may be subsequently updated periodically due to the Company’s short-term possession of the asset prior to sale or as circumstances require and the fair value adjustments are made to the asset based on its value prior to sale.

26


 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of March 31, 2023 and December 31, 2022, 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)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

54,926

 

 

$

 

 

$

 

 

$

54,926

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

 

 

 

 

464,105

 

 

 

 

 

 

464,105

 

Mortgage-backed securities - commercial

 

 

 

 

 

50,866

 

 

 

 

 

 

50,866

 

Collateralized mortgage obligations

 

 

 

 

 

100,546

 

 

 

 

 

 

100,546

 

Debt securities

 

 

 

 

 

140,368

 

 

 

 

 

 

140,368

 

Total U.S. government agency and sponsored agency obligations

 

 

 

 

 

755,885

 

 

 

 

 

 

755,885

 

Municipal bonds-tax exempt

 

 

 

 

 

67,890

 

 

 

 

 

 

67,890

 

Total securities available for sale

 

$

54,926

 

 

$

823,775

 

 

$

 

 

$

878,701

 

Derivative financial instruments

 

$

 

 

$

5,621

 

 

$

 

 

$

5,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

 

$

5,617

 

 

$

 

 

$

5,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

48,026

 

 

$

 

 

$

 

 

$

48,026

 

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

 

 

 

 

465,152

 

 

 

 

 

 

465,152

 

Mortgage-backed securities - commercial

 

 

 

 

 

51,292

 

 

 

 

 

 

51,292

 

Collateralized mortgage obligations

 

 

 

 

 

85,485

 

 

 

 

 

 

85,485

 

Debt securities

 

 

 

 

 

138,499

 

 

 

 

 

 

138,499

 

Total U.S. government agency and sponsored agency obligations

 

 

 

 

 

740,428

 

 

 

 

 

 

740,428

 

Municipal bonds-tax exempt

 

 

 

 

 

65,384

 

 

 

 

 

 

65,384

 

Total securities available for sale

 

$

48,026

 

 

$

805,812

 

 

$

 

 

$

853,838

 

Derivative financial instruments

 

$

 

 

$

7,507

 

 

$

 

 

$

7,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

 

$

7,375

 

 

$

 

 

$

7,375

 

 

27


 

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

As of March 31, 2023 and December 31, 2022, 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)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral dependent loans (1)

 

$

10,191

 

 

$

 

 

$

 

 

$

10,191

 

Other real estate owned

 

 

117

 

 

 

 

 

 

 

 

 

117

 

Repossessed personal property

 

 

629

 

 

 

 

 

 

 

 

 

629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral dependent loans (2)

 

$

2,694

 

 

$

 

 

$

 

 

$

2,694

 

Other real estate owned

 

 

117

 

 

 

 

 

 

 

 

 

117

 

Repossessed personal property

 

 

467

 

 

 

 

 

 

 

 

 

467

 

Servicing assets

 

 

7,176

 

 

 

 

 

 

 

 

 

7,176

 

 

(1)
Consisted of real estate loans of $2.6 million and commercial and industrial loans of $7.6 million, which were secured by real estate and business assets.
(2)
Consisted of real estate loans of $2.7 million.

28


 

The following table represents quantitative information about Level 3 fair value assumptions for assets measured at fair value on a non-recurring basis at March 31, 2023 and December 31, 2022:

 

Fair Value

 

Valuation
Techniques

Unobservable
Input(s)

Range (Weighted
Average)

 

(in thousands)

 

March 31, 2023

 

 

Collateral dependent loans:

 

 

 

 

Real estate loans:

 

 

 

Commercial property

 

 

 

 

Retail

$

1,883

 

Market approach

Adjustments to market data

5% to 25% / 16%

 (1)

Other

 

259

 

Market approach

Adjustments to market data

(35)% to (10)% / (24)%

 (1)

Residential

 

487

 

Market approach

Adjustments to market data

(13)% to 5% / (2)%

 (1)

Total real estate loans

 

2,629

 

 

 

 

 

 

 

Commercial and industrial loans

 

7,562

 

 

Market approach

Adjustments to market data

 

10% to 15% / 11%

 (1)

Total

$

10,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

117

 

 

Market approach

Adjustments to market data

 

(10)% to 5% / (2)%

 (1)

 

 

 

 

 

 

 

 

 

 

 

Repossessed personal property

 

 

629

 

 

Market approach

Adjustments to market data

 

 

 (2)

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

Collateral dependent loans:

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

Retail

$

1,930

 

Market approach

Adjustments to market data

5% to 25% / 16%

 (1)

Other

 

256

 

Market approach

Adjustments to market data

(42)% to 3% / (24)%

 (1)

Residential

 

508

 

Market approach

Adjustments to market data

(15)% to 3% / (1)%

 (1)

Total real estate loans

 

2,694

 

 

 

 

 

 

 

Total

$

2,694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

117

 

 

Market approach

Adjustments to market data

 

(20)% to 20% / (2)%

 (1)

 

 

 

 

 

 

 

 

 

 

 

Repossessed personal property

 

 

467

 

 

Market approach

Adjustments to market data

 

 

 (2)

 

 

 

 

 

 

 

 

 

 

 

Servicing assets

 

 

7,176

 

 

Market approach

Prepayment rate
Discount rate

 

11% to 17% / 16%
22% to 25% / 22%

 (3)

 

(1)
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 are used to determine the appraised value. Appraisals may include an ‘as is’ and ‘upon completion’ valuation scenarios. Adjustments are routinely made in the appraisal process by third-party appraisers to adjust for differences between the comparable sales and income data. Adjustments also result from the consideration of relevant economic and demographic factors with the potential to affect property values. Also, prospective values are based on the market conditions which exist at the date of inspection combined with informed forecasts based on current trends in supply and demand for the property types under appraisal. Positive adjustments disclosed in this table represent increases to the sales comparison and negative adjustments represent decreases.
(2)
The equipment is usually too small in value to use a professional appraisal service. The values are determined internally using a combination of auction values, vendor recommendations and sales comparisons depending on the equipment type. Some highly commoditized equipment, such as commercial trucks have services that provide industry values.
(3)
Fair value is based on a valuation model using the present value of estimated future cash flows, prepayment speeds, default rates, and discount rates. Servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into income over the period of the estimated future net servicing income of the underlying loans.

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.

29


 

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.

Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825), among other provisions, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Other than certain financial instruments for which we had concluded that the carrying amounts approximate fair value, the fair value estimates shown below were based on an exit price notion as of March 31, 2023, as required by ASU 2016-01. The financial instruments for which we had concluded that the carrying amounts approximate fair value include, cash and due from banks, accrued interest receivable and payable, and noninterest-bearing deposits.

The estimated fair values of financial instruments were as follows:

 

 

 

March 31, 2023

 

 

 

Carrying

 

 

Fair Value

 

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

386,201

 

 

$

386,201

 

 

$

 

 

$

 

Securities available for sale

 

 

878,701

 

 

 

54,926

 

 

 

823,775

 

 

 

 

Loans held for sale

 

 

3,652

 

 

 

 

 

 

3,653

 

 

 

 

Loans receivable, net of allowance for credit losses

 

 

5,908,209

 

 

 

 

 

 

 

 

 

5,753,059

 

Accrued interest receivable

 

 

19,004

 

 

 

19,004

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

2,334,083

 

 

 

 

 

 

2,334,083

 

 

 

 

Interest-bearing deposits

 

 

3,866,955

 

 

 

 

 

 

 

 

 

3,870,056

 

Borrowings and subordinated debentures

 

 

479,558

 

 

 

 

 

 

346,689

 

 

 

131,791

 

Accrued interest payable

 

 

20,512

 

 

 

20,512

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

Carrying

 

 

Fair Value

 

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

352,421

 

 

$

352,421

 

 

$

 

 

$

 

Securities available for sale

 

 

853,838

 

 

 

48,026

 

 

 

805,812

 

 

 

 

Loans held for sale

 

 

8,043

 

 

 

 

 

 

8,423

 

 

 

 

Loans receivable, net of allowance for credit losses

 

 

5,895,610

 

 

 

 

 

 

 

 

 

5,808,190

 

Accrued interest receivable

 

 

18,537

 

 

 

18,537

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

2,539,602

 

 

 

 

 

 

2,539,602

 

 

 

 

Interest-bearing deposits

 

 

3,628,470

 

 

 

 

 

 

 

 

 

3,623,827

 

Borrowings and subordinated debentures

 

 

479,409

 

 

 

 

 

 

345,867

 

 

 

126,828

 

Accrued interest payable

 

 

7,792

 

 

 

7,792

 

 

 

 

 

 

 

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value are explained below:

Cash and due from banks – The carrying amounts of cash and due from banks approximate fair value due to the short-term nature of these instruments (Level 1).

Securities – The fair value of securities, consisting of securities available for sale, is generally obtained from market bids for similar or identical securities, from independent securities brokers or dealers, or from other model-based valuation techniques described above (Level 1 and 2).

30


 

Loans held for sale – Loans held for sale, representing the guaranteed portion of SBA loans, are carried at the lower of aggregate cost or fair market value, as determined based upon quotes, bids or sales contract prices (Level 2).

Loans receivable, net of allowance for credit losses – The fair value of loans receivable is estimated based on the discounted cash flow approach. To estimate the fair value of the loans, certain loan characteristics such as account types, remaining terms, annual interest rates or coupons, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-value ratios, loss exposures, and remaining balances are considered. Additionally, the Company’s prior charge-off rates and loss ratios as well as various other assumptions relating to credit, interest, and prepayment risks are used as part of valuing the loan portfolio. Subsequently, the loans were individually evaluated by sorting and pooling them based on loan types, credit risk grades, and payment types. Consistent with the requirements of ASU 2016-01 which was adopted by the Company on January 1, 2018, the fair value of the Company's loans receivable is considered to be an exit price notion as of March 31, 2023 (Level 3).

The fair value of collateral dependent loans is estimated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent loans are recorded based on the current appraised value of the collateral (Level 3).

Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value (Level 1).

Noninterest-bearing deposits – The fair value of noninterest-bearing deposits is the amount payable on demand at the reporting date (Level 2).

Interest-bearing deposits – The fair value of interest-bearing deposits, such as savings accounts, money market checking, and certificates of deposit, is estimated based on discounted cash flows. The cash flows for non-maturity deposits, including savings accounts and money market checking, are estimated based on their historical decaying experiences. The discount rate used for fair valuation is based on interest rates currently being offered by the Bank on comparable deposits as to amount and term (Level 3).

Borrowings and subordinated debentures – Borrowings consist of FHLB advances, subordinated debentures and other borrowings. Discounted cash flows based on current market rates for borrowings with similar remaining maturities are used to estimate the fair value of borrowings (Level 2 and 3).

Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value (Level 1).

31


 

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.

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 evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, was based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, premises and equipment, and income-producing or borrower-occupied properties.

The following table shows the distribution of total loan commitments as of the dates indicated:

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Unused commitments to extend credit

 

$

834,661

 

 

$

780,543

 

Standby letters of credit

 

 

71,518

 

 

 

71,829

 

Commercial letters of credit

 

 

18,192

 

 

 

19,945

 

Total commitments

 

$

924,371

 

 

$

872,317

 

 

The allowance for credit losses related to off-balance sheet items was maintained at a level believed to be sufficient to absorb current expected lifetime losses related to these unfunded credit facilities. The determination of the allowance adequacy was 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.

Activity in the allowance for credit losses related to off-balance sheet items was as follows for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Balance at beginning of period

 

$

3,114

 

 

$

2,586

 

Provision expense (recovery) for credit losses

 

 

(48

)

 

 

(228

)

Balance at end of period

 

$

3,066

 

 

$

2,358

 

 

Note 13 — Leases

 

The Company enters into leases in the normal course of business primarily for bank branch offices, back-office operations locations, business development offices, information technology data centers and information technology equipment. The Company’s leases have remaining terms ranging from one to thirteen years, some of which include renewal or termination options to extend the lease for up to five years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the term of the lease. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term.

As of March 31, 2023, the outstanding balances for our right-of-use asset and lease liability were $38.6 million and $42.4 million, respectively. The outstanding balances of the right-of-use asset and lease liability were $40.4 million and $44.2 million,

32


 

respectively, as of December 31, 2022. The right-of-use asset is reported in prepaid expenses and other assets line item and lease liability is reported in accrued expenses and other liabilities line item on the Consolidated Balance Sheets.

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.

At March 31, 2023, future minimum rental commitments under these non-cancelable operating leases, with initial or remaining terms of one year or more, were as follows:

 

 

 

Amount

 

 

 

(in thousands)

 

2023

 

$

7,995

 

2024

 

 

7,319

 

2025

 

 

6,418

 

2026

 

 

5,275

 

2027

 

 

5,105

 

Thereafter

 

 

14,030

 

Remaining lease commitments

 

 

46,142

 

Interest

 

 

(3,741

)

Present value of lease liability

 

$

42,401

 

 

Weighted average remaining lease terms for the Company's operating leases were 6.91 years and 7.12 years as of March 31, 2023 and December 31, 2022, respectively. Weighted average discount rates used for the Company's operating leases were 2.41% and 2.42% as of March 31, 2023 and December 31, 2022, respectively. Net lease expense recognized for the three months ended March 31, 2023 and 2022 was $2.0 million and $2.1 million, respectively. This included operating lease costs of $2.1 million and $2.0 million for the three months ended March 31, 2023 and 2022, respectively. Sublease income for operating leases was immaterial for both the three months ended March 31, 2023 and 2022.

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 $2.1 million and $2.0 million for the three months ended March 31, 2023 and 2022.

Note 14 — Liquidity

Hanmi Financial

As of March 31, 2023, Hanmi Financial had $13.1 million in cash on deposit with its bank subsidiary and $24.3 million of U.S. Treasury securities at fair value. As of December 31, 2022, the Company had $10.6 million in cash on deposit with its bank subsidiary and $17.7 million of U.S. Treasury securities at fair value. 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 March 31, 2023 and December 31, 2022, the Bank had $350.0 million of FHLB advances, and $83.1 million and $83.3 million, respectively, of brokered deposits.

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% of its assets. As of March 31, 2023 and December 31, 2022, the total borrowing capacity available, based on pledged collateral was $1.62 billion and $1.54 billion, respectively. The remaining available borrowing capacity was $1.15 billion and $1.07 billion as of March 31, 2023 and December 31, 2022, respectively.

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,

33


 

fund existing and future loans, equipment financing agreements and securities, and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.

As a means of augmenting its liquidity, the Bank had an available borrowing source of $22.2 million from the Federal Reserve Discount Window and the new BTFP, to which the Bank pledged securities with a carrying value of $26.6 million, with no borrowings as of March 31, 2023. The Bank also maintains a line of credit for repurchase agreements up to $100.0 million. The Bank also had three unsecured federal funds lines of credit totaling $115.0 million with no outstanding balances as of March 31, 2023.

Note 15 — Derivatives and Hedging Activities

 

The Company’s derivative financial instruments consist entirely of interest rate swap agreements between the Company and its customers and other third party counterparties. The Company enters into “back-to-back swap” arrangements whereby the Company executes interest rate swap agreements with its customers and acquires an offsetting swap position from a third party counterparty. These derivative financial statements are accounted for at fair value, with changes in fair value recognized in the Company’s Consolidated Statements of Income.

The table below presents the fair value of the Company’s derivative financial instruments as well as their location on the Balance Sheet as of March 31, 2023 and December 31, 2022.

 

As of March 31, 2023

 

Derivative Assets

 

 

Derivative Liabilities

 

 

 

Notional Amount

 

 

Balance Sheet Location

 

Fair Value

 

 

Notional Amount

 

 

Balance Sheet Location

 

Fair Value

 

 

 

(in thousands)

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate products

 

$

106,480

 

 

Other Assets

 

$

5,621

 

 

$

106,480

 

 

Other Liabilities

 

$

5,617

 

Total derivatives not designated as hedging instruments

 

 

 

 

 

 

$

5,621

 

 

 

 

 

 

 

$

5,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022

 

Derivative Assets

 

 

Derivative Liabilities

 

 

 

Notional Amount

 

 

Balance Sheet Location

 

Fair Value

 

 

Notional Amount

 

 

Balance Sheet Location

 

Fair Value

 

 

 

(in thousands)

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate products

 

$

61,460

 

 

Other Assets

 

$

7,507

 

 

$

61,460

 

 

Other Liabilities

 

$

7,375

 

Total derivatives not designated as hedging instruments

 

 

 

 

 

 

$

7,507

 

 

 

 

 

 

 

$

7,375

 

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Income Statement for the three months ended March 31, 2023 and 2022.

 

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

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2023

 

 

2022

 

 

 

 

 

(in thousands)

 

Interest rate products

 

Other income

 

$

(128

)

 

$

55

 

Total

 

 

 

$

(128

)

 

$

55

 

The Company recognized $0.6 million of fee income from its derivative financial instruments for the three months ended March 31, 2023. No fee income was earned for the three months ended March 31, 2022.

34


 

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2023 and December 31, 2022. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The derivative assets are located within the prepaid and other assets line item on the Consolidated Balance Sheets and the derivative liabilities are located within the accrued expenses and other liabilities line item on the Consolidated Balance Sheets.

 

Offsetting of Derivative Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets

 

 

 

Gross Amounts of Recognized Assets

 

 

Gross Amounts Offset in the Consolidated Balance Sheets

 

 

Net Amounts of Assets presented in the Consolidated Balance Sheets

 

 

Financial Instruments

 

 

Cash Collateral Received

 

 

Net Amount

 

 

 

(in thousands)

 

Derivatives

 

$

5,621

 

 

$

 

 

$

5,621

 

 

$

5,617

 

 

$

4

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets

 

 

 

Gross Amounts of Recognized Liabilities

 

 

Gross Amounts Offset in the Consolidated Balance Sheets

 

 

Net Amounts of Liabilities presented in the Consolidated Balance Sheets

 

 

Financial Instruments

 

 

Cash Collateral Provided

 

 

Net Amount

 

 

 

(in thousands)

 

Derivatives

 

$

5,617

 

 

$

 

 

$

5,617

 

 

$

5,617

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets

 

 

 

Gross Amounts of Recognized Assets

 

 

Gross Amounts Offset in the Consolidated Balance Sheets

 

 

Net Amounts of Assets presented in the Consolidated Balance Sheets

 

 

Financial Instruments

 

 

Cash Collateral Received

 

 

Net Amount

 

 

 

(in thousands)

 

Derivatives

 

$

7,507

 

 

$

 

 

$

7,507

 

 

$

7,375

 

 

$

132

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets

 

 

 

Gross Amounts of Recognized Liabilities

 

 

Gross Amounts Offset in the Consolidated Balance Sheets

 

 

Net Amounts of Liabilities presented in the Consolidated Balance Sheets

 

 

Financial Instruments

 

 

Cash Collateral Provided

 

 

Net Amount

 

 

 

(in thousands)

 

Derivatives

 

$

7,375

 

 

$

 

 

$

7,375

 

 

$

7,375

 

 

$

 

 

$

 

 

35


 

The Company has agreements with each of its derivative counterparties that contain a provision stating 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 March 31, 2023 and December 31, 2022, the fair value of derivatives in a net asset position for counterparty transactions, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $5.6 million and $7.4 million, respectively. As of March 31, 2023, the Company had not posted any collateral with its counterparties related to these agreements and is adequately collateralized since its net asset position was $4,000 ($5.6 million of fair value of assets less $5.6 million of fair value of liabilities) as of March 31, 2023. As of December 31, 2022, the Company had not posted collateral related to these agreements and was adequately collateralized since its net asset position was $132,000 ($7.5 million of fair value of assets less $7.4 million of fair value of liabilities).

Note 16 — Subsequent Events

Cash Dividend

On April 27, 2023, the Board of Directors of the Company declared a quarterly cash dividend of $0.25 per share to be paid on May 24, 2023 to stockholders of record as of the close of business on May 8, 2023.

 

36


 

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

The following is management’s discussion and analysis of our results of operations and financial condition as of and for the three months ended March 31, 2023. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 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 March 31, 2023 (this “Report”).

Forward-Looking Statements

Some of the statements contained in this Report are 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 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, plans and objectives of management for future operations, developments regarding our capital and strategic plans and other similar forecasts and statements of expectation and statements of assumptions 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.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statements. 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; the effect of our rating under the Community Reinvestment Act and our ability to address any issues raised in our regulatory exams; general economic and business conditions internationally, nationally and in those areas in which we 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; inflation; risks of natural disasters; the current or anticipated impact of military conflict, terrorism or other geopolitical events; a failure in or breach of our operational or security systems or infrastructure, including cyber-attacks; the failure to maintain current technologies; the inability to successfully implement future information technology enhancements; difficult business and economic conditions that can adversely affect our industry and business, including competition, fraudulent activity and negative publicity; risks associated with Small Business Administration loans; failure to attract or retain key employees; our ability to access cost-effective funding; changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio; fluctuations in real estate values; changes in accounting policies and practices; the continuing impact of the COVID-19 pandemic on our business and results of operation; changes in governmental regulation, including, but not limited to, any increase in Federal Deposit Insurance Corporation insurance premiums; changes in the fiscal and monetary policies of the Board of Governors of the Federal Reserve System; the ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank’s retained earnings, net income, prior distributions made, and certain other financial tests; the ability to identify a suitable strategic partner or to consummate a strategic transaction; the adequacy of our allowance for credit losses; our credit quality and the effect of credit quality on our credit losses expense and allowance for credit 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 other terms of credit agreements; our ability to control expenses; changes in securities markets; and risks as it relates to cyber security against our information technology infrastructure and those of our third party providers and vendors.

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 2022 Annual Report on Form 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 the consolidated financial statements in our 2022 Annual Report on Form 10-K. We had no significant changes in our accounting policies since the filing of our 2022 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

37


 

accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our 2022 Annual Report on Form 10-K. 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 development and selection of these critical accounting policies with the Audit Committee of the Company’s Board of Directors.

Executive Overview

Net income was $22.0 million, or $0.72 per diluted share, for the three months ended March 31, 2023 compared with $20.7 million, or $0.68 per diluted share, for the same period a year ago. The increase in net income was primarily driven by an increase in net interest income of $6.9 million, offset by a $1.1 million increase in noninterest expense attributable to higher salaries and employee benefits and an increase in credit loss expense of $3.5 million. The increase in credit loss expense during the first quarter of 2023 was due to $2.1 million in credit loss expense in the first quarter of 2023 and a $1.4 million recovery of credit loss expense in the first quarter of 2022.

Other financial highlights include the following:

Cash and due from banks increased $33.8 million to $386.2 million as of March 31, 2023 from $352.4 million at December 31, 2022.
Securities increased $24.9 million to $878.7 million at March 31, 2023 from $853.8 million at December 31, 2022.
Loans receivable, before the allowance for credit losses, were $5.98 billion at March 31, 2023 compared with $5.97 billion at December 31, 2022.
Deposits were $6.20 billion at March 31, 2023 compared with $6.17 billion at December 31, 2022.
Stockholders’ equity at March 31, 2023 was $662.2 million, compared with $637.5 million at December 31, 2022.
Return on average assets for the quarter ended March 31, 2023 was 1.21% and return on average stockholders' equity was 12.19%.

Results of Operations

Net Interest Income

Our primary source of revenue is net interest income, which is the difference between interest derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the 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 receivable are affected principally by changes to interest rates, the demand for loans 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 Federal Reserve.

38


 

The following table shows the average balance 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

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income /

 

 

Yield /

 

 

Average

 

 

Income /

 

 

Yield /

 

 

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

Assets

 

(dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable (1)

 

$

5,944,399

 

 

$

80,923

 

 

 

5.51

%

 

$

5,231,672

 

 

$

53,924

 

 

 

4.18

%

Securities (2)

 

 

980,712

 

 

 

4,025

 

 

 

1.67

%

 

 

930,505

 

 

 

2,516

 

 

 

1.11

%

FHLB stock

 

 

16,385

 

 

 

289

 

 

 

7.16

%

 

 

16,385

 

 

 

248

 

 

 

6.14

%

Interest-bearing deposits in other banks

 

 

192,902

 

 

 

2,066

 

 

 

4.34

%

 

 

494,887

 

 

 

216

 

 

 

0.18

%

Total interest-earning assets

 

 

7,134,398

 

 

 

87,303

 

 

 

4.96

%

 

 

6,673,449

 

 

 

56,904

 

 

 

3.46

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

65,088

 

 

 

 

 

 

 

 

 

62,968

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(71,452

)

 

 

 

 

 

 

 

 

(73,177

)

 

 

 

 

 

 

Other assets

 

 

239,121

 

 

 

 

 

 

 

 

 

229,952

 

 

 

 

 

 

 

Total assets

 

$

7,367,155

 

 

 

 

 

 

 

 

$

6,893,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand: interest-bearing

 

$

109,391

 

 

$

29

 

 

 

0.11

%

 

$

124,892

 

 

$

17

 

 

 

0.06

%

Money market and savings

 

 

1,453,569

 

 

 

7,315

 

 

 

2.04

%

 

 

2,106,008

 

 

 

1,189

 

 

 

0.23

%

Time deposits

 

 

2,223,615

 

 

 

18,154

 

 

 

3.31

%

 

 

937,044

 

 

 

807

 

 

 

0.35

%

Total interest-bearing deposits

 

 

3,786,575

 

 

 

25,498

 

 

 

2.73

%

 

 

3,167,944

 

 

 

2,013

 

 

 

0.26

%

Borrowings

 

 

268,056

 

 

 

2,369

 

 

 

3.58

%

 

 

130,556

 

 

 

337

 

 

 

1.05

%

Subordinated debentures

 

 

129,483

 

 

 

1,583

 

 

 

4.89

%

 

 

213,171

 

 

 

3,598

 

 

 

6.75

%

Total interest-bearing liabilities

 

 

4,184,114

 

 

 

29,450

 

 

 

2.85

%

 

 

3,511,671

 

 

 

5,948

 

 

 

0.69

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits: noninterest-bearing

 

 

2,324,413

 

 

 

 

 

 

 

 

 

2,634,398

 

 

 

 

 

 

 

Other liabilities

 

 

127,112

 

 

 

 

 

 

 

 

 

88,367

 

 

 

 

 

 

 

Stockholders’ equity

 

 

731,516

 

 

 

 

 

 

 

 

 

658,756

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

7,367,155

 

 

 

 

 

 

 

 

$

6,893,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

57,853

 

 

 

 

 

 

 

 

$

50,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of deposits (3)

 

 

 

 

 

 

 

 

1.69

%

 

 

 

 

 

 

 

 

0.14

%

Net interest spread (taxable equivalent basis) (4)

 

 

 

 

 

 

 

 

2.10

%

 

 

 

 

 

 

 

 

2.77

%

Net interest margin (taxable equivalent basis) (5)

 

 

 

 

 

 

 

 

3.28

%

 

 

 

 

 

 

 

 

3.10

%

 

(1)
Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.
(2)
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%.
(3)
Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearing deposits.
(4)
Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
(5)
Represents net interest income as a percentage of average interest-earning assets.

39


 

The table below shows changes in interest income 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

 

 

 

March 31, 2023 vs March 31, 2022

 

 

 

Increases (Decreases) Due to Change In

 

 

 

Volume

 

 

Rate

 

 

Total

 

 

 

(in thousands)

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Loans receivable (1)

 

$

7,288

 

 

$

19,711

 

 

$

26,999

 

Securities (2)

 

 

136

 

 

 

1,373

 

 

 

1,509

 

FHLB stock

 

 

 

 

 

41

 

 

 

41

 

Interest-bearing deposits in other banks

 

 

(132

)

 

 

1,982

 

 

 

1,850

 

Total interest and dividend income

 

 

7,292

 

 

 

23,107

 

 

 

30,399

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Demand: interest-bearing

 

$

(2

)

 

$

14

 

 

$

12

 

Money market and savings

 

 

(372

)

 

 

6,498

 

 

 

6,126

 

Time deposits

 

 

1,108

 

 

 

16,239

 

 

 

17,347

 

Borrowings

 

 

355

 

 

 

1,677

 

 

 

2,032

 

Subordinated debentures

 

 

(1,415

)

 

 

(600

)

 

 

(2,015

)

Total interest expense

 

 

(326

)

 

 

23,828

 

 

 

23,502

 

Change in net interest income

 

$

7,618

 

 

$

(721

)

 

$

6,897

 

 

(1)
Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.
(2)
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%.

 

For the three months ended March 31, 2023 and 2022, net interest income was $57.9 million and $51.0 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended March 31, 2023, were 2.10% and 3.28%, respectively, compared with 2.77% and 3.10%, respectively, for the same period in 2022. Interest and dividend income increased $30.4 million, or 53.4%, to $87.3 million for the three months ended March 31, 2023 from $56.9 million for the same period in 2022 due to higher average interest-earning asset balances and yields. Interest expense increased $23.5 million, or 395.1%, to $29.5 million for the three months ended March 31, 2023 from $5.9 million for the same period in 2022 primarily due to higher deposit and borrowing rates due to the rising interest rate environment offset by lower subordinated debenture costs.

 

The average balance of interest earning assets increased $460.9 million, or 6.9%, to $7.13 billion for the three months ended March 31, 2023 from $6.67 billion for the three months ended March 31, 2022. The average balance of loans increased $712.7 million, or 13.6%, to $5.94 billion for the three months ended March 31, 2023 from $5.23 billion for the three months ended March 31, 2022 due mainly to lower payoffs and $303.6 million of loan production during the quarter. The average balance of securities increased $50.2 million, or 5.4%, to $980.7 million for the three months ended March 31, 2023 from $930.5 million for the three months ended March 31, 2022. The average balance of interest-bearing deposits at other banks decreased $302.0 million to $192.9 million for the three months ended March 31, 2022, as excess funds were used to fund loan and securities growth.

 

The average yield on interest-earning assets, on a taxable equivalent basis, increased 150 basis points to 4.96% for the three months ended March 31, 2023 from 3.46% for the three months ended March 31, 2022, mainly due to the higher interest rate environment. The average yield on loans increased to 5.51% for the three months ended March 31, 2023 from 4.18% for the three months ended March 31, 2022, driven mainly by the higher interest rate environment. The average yield on securities, on a taxable equivalent basis, increased to 1.67% for the three months ended March 31, 2023 from 1.11% for the three months ended March 31, 2022, reflecting the rising market interest rate environment. The average yield on interest-bearing deposits in other banks increased 416 basis points to 4.34% for the three months ended March 31, 2023 from 0.18% for the three months ended March 31, 2022 mainly due to higher market rates.

 

The average balance of interest-bearing liabilities increased $672.4 million, or 19.1%, to $4.18 billion for the three months ended March 31, 2023 compared to $3.51 billion for the three months ended March 31, 2022. The average balance of time deposits and borrowings increased $1.29 billion and $137.5 million, respectively, offset by decreases in the average balance of money market and savings accounts and subordinated debentures of $652.4 million and $83.7 million, respectively.

40


 

 

The average cost of interest-bearing liabilities was 2.85% and 0.69% for the three months ended March 31, 2023 and 2022, respectively. The average cost of subordinated debentures decreased 186 basis points to 4.89% for the three months ended March 31, 2023 compared to 6.75% for the three months ended March 31, 2022, due to a pre-tax charge of $1.1 million for the three months ended March 31, 2022 for the remaining debt issuance costs due upon redemption on the 2027 Notes. The average cost of borrowings increased 253 basis points to 3.58% for the three months ended March 31, 2023 compared to 1.05% for the three months ended March 31, 2022. The average cost of interest-bearing deposits increased 247 basis points to 2.73% for the three months ended March 31, 2023, compared to 0.26% for the three months ended March 31, 2022. The increased costs were primarily due to increased market interest rates.

 

Credit Loss Expense

For the first quarter of 2023, the Company recorded $2.1 million of credit loss expense, comprised of a $2.2 million credit loss expense for loan losses, and a $48,000 negative provision for off-balance sheet items. For the same period in 2022, the Company recorded a $1.4 million recovery of credit loss expense, comprised of a $1.2 million negative provision for loan losses, and a $0.2 million negative provision for off-balance sheet items. The increase in credit loss expense for the three months ended March 31, 2023 as compared to the same period in 2022 was mainly attributable to a specific reserve allocation of $2.5 million on a nonperforming commercial and industrial loan in the health-care industry. The recovery of credit loss expense for the three months ended March 31, 2022 resulted from a combination of overall improvements in asset quality and economic forecasts, as well as a net reduction in specific qualitative factors allocated to criticized hospitality loans impacted by the pandemic, offset by strong loan growth

See also “Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items” for further details.

Noninterest Income

The following table sets forth the various components of noninterest income for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

Increase
(Decrease)

 

 

Increase
(Decrease)

 

 

 

2023

 

 

2022

 

 

Amount

 

 

Percent

 

 

 

(in thousands)

 

 

 

 

Service charges on deposit accounts

 

$

2,579

 

 

$

2,875

 

 

$

(296

)

 

 

(10.30

)%

Trade finance and other service charges and fees

 

 

1,258

 

 

 

1,142

 

 

 

116

 

 

 

10.16

 

Servicing income

 

 

742

 

 

 

734

 

 

 

8

 

 

 

1.09

 

Bank-owned life insurance income

 

 

270

 

 

 

244

 

 

 

26

 

 

 

10.66

 

All other operating income

 

 

1,618

 

 

 

1,004

 

 

 

614

 

 

 

61.16

 

Service charges, fees & other

 

 

6,467

 

 

 

5,999

 

 

 

468

 

 

 

7.80

 

Gain on sale of SBA loans

 

 

1,869

 

 

 

2,521

 

 

 

(652

)

 

 

(25.86

)

Total noninterest income

 

$

8,336

 

 

$

8,520

 

 

$

(184

)

 

 

(2.16

)%

 

For the three months ended March 31, 2023, noninterest income was $8.3 million, a decrease of $0.2 million, or 2.2%, compared with $8.5 million for the same period in 2022. The decrease was mainly attributable to a $0.7 million decrease in the gain on loan sales resulting from lower volume and net trade premiums, offset by a $0.5 million increase in swap fee income included in other operating income.

41


 

Noninterest Expense

The following table sets forth the components of noninterest expense for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

Increase
(Decrease)

 

 

Increase
(Decrease)

 

 

 

2023

 

 

2022

 

 

Amount

 

 

Percent

 

 

 

(in thousands)

 

 

 

 

Salaries and employee benefits

 

$

20,610

 

 

$

17,717

 

 

$

2,893

 

 

 

16.33

%

Occupancy and equipment

 

 

4,412

 

 

 

4,646

 

 

 

(234

)

 

 

(5.04

)

Data processing

 

 

3,253

 

 

 

3,236

 

 

 

17

 

 

 

0.53

 

Professional fees

 

 

1,335

 

 

 

1,430

 

 

 

(95

)

 

 

(6.64

)

Supplies and communications

 

 

676

 

 

 

665

 

 

 

11

 

 

 

1.65

 

Advertising and promotion

 

 

833

 

 

 

817

 

 

 

16

 

 

 

1.96

 

All other operating expenses

 

 

1,957

 

 

 

3,186

 

 

 

(1,229

)

 

 

(38.58

)

Subtotal

 

 

33,076

 

 

 

31,697

 

 

 

1,379

 

 

 

4.35

 

Other real estate owned expense (income)

 

 

(201

)

 

 

12

 

 

 

(213

)

 

NM

 

Repossessed personal property expense (income)

 

 

(84

)

 

 

(17

)

 

 

(67

)

 

 

394.12

 

Total noninterest expense

 

$

32,791

 

 

$

31,692

 

 

$

1,099

 

 

 

3.47

%

 

For the three months ended March 31, 2023, noninterest expense was $32.8 million, an increase of $1.1 million, or 3.5% compared with $31.7 million for the same period in 2022. Salaries and employee benefits increased $2.9 million due to annual merit and bonus increases, and a 3.3% increase in average full-time equivalent employees. All other operating expenses decreased $1.2 million attributable mainly to a decrease in loan-related expenses.

Income Tax Expense

Income tax expense was $9.3 million and $8.5 million representing an effective income tax rate of 29.7% and 29.0% for the three months ended March 31, 2023 and 2022, respectively. The increase in the effective tax rate for the three months ended March 31, 2023, compared to the same period in 2022 was principally due to an increase in tax charges from the Company’s share-based compensation and an increase in disallowed interest expense.

Financial Condition

Securities

As of March 31, 2023, our securities portfolio consisted of U.S. government agency and sponsored agency mortgage-backed securities, collateralized mortgage obligations and debt securities, tax-exempt municipal bonds and, to a lesser extent, U.S. Treasury securities. Most of these securities carry fixed interest rates. Other than holdings of U.S. government agency and sponsored agency obligations, there were no securities of any one issuer exceeding 10% of stockholders’ equity as of March 31, 2023 or December 31, 2022. Securities increased $24.9 million to $878.7 million at March 31, 2023 from $853.8 million at December 31, 2022, due to $29.5 million in securities purchases and a $13.6 million increase in the fair value of securities at March 31, 2023 compared to December 31, 2022.

42


 

The following table summarizes the contractual maturity schedule for securities, at amortized cost, and their cost weighted average yield, which is calculated using amortized cost as the weight, as of March 31, 2023:

 

 

 

 

 

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

17,347

 

 

 

3.36

%

 

$

38,827

 

 

 

2.97

%

 

$

 

 

 

0.00

%

 

$

 

 

 

0.00

%

 

$

56,174

 

 

 

3.09

%

U.S. government agency and sponsored agency obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

 

1

 

 

 

2.52

 

 

 

114

 

 

 

2.90

 

 

 

5,565

 

 

 

2.85

 

 

 

526,437

 

 

 

1.59

 

 

 

532,117

 

 

 

1.60

 

Mortgage-backed securities - commercial

 

 

 

 

 

 

 

 

7,310

 

 

 

2.44

 

 

 

1,482

 

 

 

1.06

 

 

 

52,697

 

 

 

1.54

 

 

 

61,489

 

 

 

1.64

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

255

 

 

 

1.28

 

 

 

725

 

 

 

2.65

 

 

 

111,041

 

 

 

2.40

 

 

 

112,021

 

 

 

2.40

 

Debt securities

 

 

18,211

 

 

 

1.34

 

 

 

132,151

 

 

 

1.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150,362

 

 

 

1.36

 

Total U.S. government agency and sponsored agency obligations

 

 

18,212

 

 

 

1.34

 

 

 

139,830

 

 

 

1.42

 

 

 

7,772

 

 

 

2.49

 

 

 

690,175

 

 

 

1.72

 

 

 

855,989

 

 

 

1.67

 

Municipal bonds-tax exempt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,985

 

 

 

1.38

 

 

 

57,904

 

 

 

1.32

 

 

 

77,889

 

 

 

1.34

 

Total securities available for sale

 

$

35,559

 

 

 

2.33

%

 

$

178,657

 

 

 

1.75

%

 

$

27,757

 

 

 

1.69

%

 

$

748,079

 

 

 

1.68

%

 

$

990,052

 

 

 

1.72

%

 

Loans Receivable

As of March 31, 2023 and December 31, 2022, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were $5.91 billion and $5.90 billion, respectively. The increase primarily reflected $303.6 million in new loan production, offset by $154.9 million in loan sales and payoffs, and amortization and other reductions of $139.7 million. Loan production primarily consisted of residential mortgages of $97.2 million, commercial real estate of $75.5 million, equipment financing agreements of $69.3 million, SBA loans of $34.5 million and commercial and industrial loans of $27.1 million.

 

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses as of March 31, 2023. In addition, the table shows the distribution of such loans between those with floating or variable interest rates and those with fixed or predetermined interest rates.

 

 

 

Within One
Year

 

 

After One
Year but
Within
Three
Years

 

 

After Three
Years but
Within
Five
Years

 

 

After Five
Years but
Within
Fifteen
Years

 

 

After
Fifteen
Years

 

 

Total

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

100,032

 

 

$

230,151

 

 

$

315,128

 

 

$

369,914

 

 

$

37,128

 

 

$

1,052,353

 

Hospitality

 

 

129,528

 

 

 

229,840

 

 

 

144,816

 

 

 

146,465

 

 

 

18,363

 

 

 

669,012

 

Office

 

 

41,917

 

 

 

184,439

 

 

 

273,115

 

 

 

29,981

 

 

 

4,251

 

 

 

533,703

 

Other

 

 

120,904

 

 

 

393,833

 

 

 

517,131

 

 

 

322,487

 

 

 

61,393

 

 

 

1,415,748

 

Total commercial property loans

 

 

392,381

 

 

 

1,038,263

 

 

 

1,250,190

 

 

 

868,847

 

 

 

121,135

 

 

 

3,670,816

 

Construction

 

 

85,072

 

 

 

28,288

 

 

 

 

 

 

 

 

 

 

 

 

113,360

 

Residential

 

 

6,669

 

 

 

46

 

 

 

15

 

 

 

5,053

 

 

 

806,134

 

 

 

817,917

 

Total real estate loans

 

 

484,122

 

 

 

1,066,597

 

 

 

1,250,205

 

 

 

873,900

 

 

 

927,269

 

 

 

4,602,093

 

Commercial and industrial loans

 

 

316,499

 

 

 

162,837

 

 

 

190,337

 

 

 

108,476

 

 

 

 

 

 

778,149

 

Equipment financing agreements

 

 

23,942

 

 

 

179,185

 

 

 

355,378

 

 

 

41,711

 

 

 

 

 

 

600,216

 

Loans receivable

 

$

824,563

 

 

$

1,408,619

 

 

$

1,795,920

 

 

$

1,024,087

 

 

$

927,269

 

 

$

5,980,458

 

Loans with predetermined interest rates

 

 

360,056

 

 

 

953,702

 

 

 

1,394,647

 

 

 

185,588

 

 

 

254,158

 

 

 

3,148,151

 

Loans with variable interest rates

 

 

464,507

 

 

 

454,917

 

 

 

401,273

 

 

 

838,499

 

 

 

673,111

 

 

 

2,832,307

 

 

43


 

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with fixed or predetermined interest rates due after one year, as of March 31, 2023.

 

 

 

After One
Year but
Within Three
Years

 

 

After Three
Years but
Within Five
Years

 

 

After Five
Years but
Within
Fifteen
Years

 

 

After
Fifteen
Years

 

 

Total

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

203,787

 

 

$

272,471

 

 

$

57,949

 

 

$

 

 

$

534,207

 

Hospitality

 

 

91,464

 

 

 

134,054

 

 

 

6,497

 

 

 

 

 

 

232,015

 

Office

 

 

144,714

 

 

 

217,817

 

 

 

 

 

 

 

 

 

362,531

 

Other

 

 

303,177

 

 

 

408,040

 

 

 

65,111

 

 

 

7,721

 

 

 

784,049

 

Total commercial property loans

 

 

743,142

 

 

 

1,032,382

 

 

 

129,557

 

 

 

7,721

 

 

 

1,912,802

 

Construction

 

 

28,288

 

 

 

 

 

 

 

 

 

 

 

 

28,288

 

Residential

 

 

40

 

 

 

15

 

 

 

2,723

 

 

 

246,437

 

 

 

249,215

 

Total real estate loans

 

 

771,470

 

 

 

1,032,397

 

 

 

132,280

 

 

 

254,158

 

 

 

2,190,305

 

Commercial and industrial loans

 

 

3,047

 

 

 

6,872

 

 

 

11,597

 

 

 

 

 

 

21,516

 

Equipment financing agreements

 

 

179,185

 

 

 

355,378

 

 

 

41,711

 

 

 

 

 

 

576,274

 

Loans receivable

 

$

953,702

 

 

$

1,394,647

 

 

$

185,588

 

 

$

254,158

 

 

$

2,788,095

 

 

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with floating or variable interest rates (including hybrids) due after one year, as of March 31, 2023.

 

 

 

After One
Year but
Within Three
Years

 

 

After Three
Years but
Within Five
Years

 

 

After Five
Years but
Within
Fifteen
Years

 

 

After
Fifteen
Years

 

 

Total

 

 

 

(in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

26,364

 

 

$

42,657

 

 

$

311,965

 

 

$

37,128

 

 

$

418,114

 

Hospitality

 

 

138,377

 

 

 

10,761

 

 

 

139,968

 

 

 

18,363

 

 

 

307,469

 

Office

 

 

39,725

 

 

 

55,298

 

 

 

29,981

 

 

 

4,251

 

 

 

129,255

 

Other

 

 

90,656

 

 

 

109,091

 

 

 

257,375

 

 

 

53,672

 

 

 

510,794

 

Total commercial property loans

 

 

295,122

 

 

 

217,807

 

 

 

739,289

 

 

 

113,414

 

 

 

1,365,632

 

Residential

 

 

5

 

 

 

 

 

 

2,331

 

 

 

559,697

 

 

 

562,033

 

Total real estate loans

 

 

295,127

 

 

 

217,807

 

 

 

741,620

 

 

 

673,111

 

 

 

1,927,665

 

Commercial and industrial loans

 

 

159,790

 

 

 

183,466

 

 

 

96,879

 

 

 

 

 

 

440,135

 

Loans receivable

 

$

454,917

 

 

$

401,273

 

 

$

838,499

 

 

$

673,111

 

 

$

2,367,800

 

Industry

As of March 31, 2023, the loan portfolio included the following concentrations of loans to one type of industry that were greater than 10.0% of loans receivable outstanding:

 

 

 

 

 

 

Percentage of

 

 

 

Balance as of

 

 

Loans Receivable

 

 

 

March 31, 2023

 

 

Outstanding

 

 

 

(in thousands)

 

Lessor of nonresidential buildings

 

$

1,780,674

 

 

 

29.8

%

Hospitality

 

 

704,088

 

 

 

11.8

%

Loan Quality Indicators

Loans 30 to 89 days past due and still accruing were $15.4 million at March 31, 2023, compared with $7.5 million at December 31, 2022, attributable mainly to a $6.7 million past due and accruing loan at March 31, 2023, that resolved its delinquency subsequent to the end of the first quarter.

 

44


 

At March 31, 2023 and December 31, 2022, there were no loans 90 days or more past due and still accruing interest.

 

Special mention loans were $64.3 million at March 31, 2023 compared with $79.0 million at December 31, 2022. The $14.7 million decrease in special mention loans included downgrades to classified loans of $10.0 million, and payoffs of $4.6 million.

 

Classified loans were $47.3 million at March 31, 2023 compared with $46.2 million at December 31, 2022. The $1.1 million increase was primarily driven by the downgrade of one loan in the amount of $10.0 million, offset by loan upgrades of $8.8 million.

 

Activity in criticized loans was as follows for the periods indicated:

 

 

 

Special Mention

 

 

Classified

 

 

 

(in thousands)

 

March 31, 2023

 

 

 

 

 

 

Balance at January 1, 2023

 

$

79,013

 

 

$

46,192

 

Additions

 

 

766

 

 

 

13,808

 

Reductions

 

 

(15,439

)

 

 

(12,713

)

Balance at March 31, 2023

 

$

64,340

 

 

$

47,287

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

Balance at January 1, 2022

 

$

95,294

 

 

$

60,633

 

Additions

 

 

133,134

 

 

 

15,808

 

Reductions

 

 

(149,415

)

 

 

(30,249

)

Balance at December 31, 2022

 

$

79,013

 

 

$

46,192

 

 

Nonperforming Assets

Nonperforming loans consist of loans receivable on nonaccrual status and loans 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and OREO. Loans 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 loan on nonaccrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a 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 loans 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 not meeting the criteria for nonaccrual. OREO consists of properties acquired by foreclosure or similar means, or vacant bank properties for which their usage for operations has ceased and management intends to offer for sale.

Except for nonaccrual loans, management is not aware of any other loans as of March 31, 2023 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan or equipment financing agreement repayment terms, or any known events that would result in a loan or equipment financing agreement being designated as nonperforming at some future date. Management cannot, however, predict the extent to which a deterioration in general economic conditions, real estate values, increases in general rates of interest, inflation or changes in the financial condition or business of borrowers may adversely affect a borrower’s ability to pay.

Nonperforming loans were $20.1 million at March 31, 2023, or 0.34% of loans, compared with $9.8 million at December 31, 2022, or 0.17% of the portfolio. The increase reflects a $10.0 million commercial and industrial loan in the health-care industry secured by real estate and business assets for which there was a specific allowance of $2.5 million.

Nonperforming assets were $20.2 million at March 31, 2023, or 0.27% of total assets, compared with $10.0 million, or 0.14%, at December 31, 2022.

Individually Evaluated Loans

The Company reviews loans on an individual basis when the loan does not share similar risk characteristics with loan pools.

45


 

 

Individually evaluated loans were $20.1 million and $9.8 million as of March 31, 2023 and December 31, 2022, respectively, representing an increase of $10.3 million, or 103.6%. The increase primarily reflects the addition of a $10.0 million nonperforming commercial and industrial loan in the health-care industry. Specific allowances associated with individually evaluated loans increased $2.9 million to $6.2 million as of March 31, 2023 compared with $3.3 million as of December 31, 2022. The increase primarily reflects the addition of a $2.5 million specific allowance on the previously mentioned nonperforming loan in the health-care industry.

 

No loans were modified during the three months ended March 31, 2023 or 2022.

Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items

 

The Company’s estimate of the allowance for credit losses at March 31, 2023 and December 31, 2022 reflected losses expected over the remaining contractual life of the assets based on historical, current, and forward-looking information. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

 

Management selected three loss methodologies for the collective allowance estimation. At March 31, 2023, the Company used the discounted cash flow (“DCF”) method to estimate allowances for credit losses for the commercial and industrial loan portfolio, the Probability of Default/Loss Given Default (“PD/LGD”) method for the commercial real estate, construction, SBA and residential real estate portfolios, and the Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses for the equipment financing agreements portfolio. Loans that do not share similar risk characteristics are individually evaluated for allowances.

 

For the loans utilizing the DCF method, 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. Reasonable and supportable forecasts of economic conditions are imbedded in the DCF model.

 

For each of the loan segments identified above, the Company applied an annualized historical PD/LGD using all available historical periods. The PD/LGD method incorporates a forecast of economic conditions into loss estimates using a qualitative adjustment.

 

The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors when applying the WARM method.

 

As of March 31, 2023 and December 31, 2022, the Company relied on the economic projections from Moody’s to inform its loss driver forecasts over the four-quarter forecast period. For all loan pools, the Company utilizes and forecasts the national unemployment rate as the primary loss driver.

 

To adjust the historical and forecast periods to current conditions, the Company applies various qualitative factors derived from market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated equipment financing agreements, and reasonable and supportable forecasts of economic conditions.

The allowance for credit losses was $72.2 million at March 31, 2023 compared with $71.5 million at December 31, 2022. The allowance attributed to individually evaluated loans was $6.2 million at March 31, 2023 compared with $3.3 million at December 31, 2022. The allowance attributed to collectively evaluated loans was $66.0 million at March 31, 2023 compared with $68.2 million at December 31, 2022, and considered the impact of changes in macroeconomic assumptions, lower average loss rates in the commercial and industrial segment and normalized interest rate forecasts for the subsequent four quarters.

46


 

The following table reflects our allocation of the allowance for credit losses by loan category as well as the amount of loans in each loan category, including related percentages:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Allowance Amount

 

 

Percentage of Total Allowance

 

 

Total Loans

 

 

Percentage of Total Loans

 

 

Allowance Amount

 

 

Percentage of Total Allowance

 

 

Total Loans

 

 

Percentage of Total Loans

 

 

 

(dollars in thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

9,405

 

 

 

13.0

%

 

$

1,052,353

 

 

 

17.6

%

 

$

7,872

 

 

 

11.0

%

 

$

1,023,608

 

 

 

17.2

%

Hospitality

 

 

14,138

 

 

 

19.6

 

 

 

669,012

 

 

 

11.2

 

 

 

13,407

 

 

 

18.7

 

 

 

646,893

 

 

 

10.8

 

Office

 

 

2,509

 

 

 

3.5

 

 

 

533,703

 

 

 

8.9

 

 

 

2,293

 

 

 

3.2

 

 

 

499,946

 

 

 

8.4

 

Other

 

 

9,186

 

 

 

12.7

 

 

 

1,415,748

 

 

 

23.7

 

 

 

13,056

 

 

 

18.3

 

 

 

1,553,729

 

 

 

26.0

 

Total commercial property loans

 

 

35,238

 

 

 

48.8

 

 

 

3,670,816

 

 

 

61.4

 

 

 

36,628

 

 

 

51.2

 

 

 

3,724,176

 

 

 

62.4

 

Construction

 

 

4,003

 

 

 

5.5

 

 

 

113,360

 

 

 

1.9

 

 

 

4,022

 

 

 

5.7

 

 

 

109,205

 

 

 

1.8

 

Residential

 

 

4,290

 

 

 

6.0

 

 

 

817,917

 

 

 

13.7

 

 

 

3,376

 

 

 

4.7

 

 

 

734,472

 

 

 

12.4

 

Total real estate loans

 

 

43,531

 

 

 

60.3

 

 

 

4,602,093

 

 

 

77.0

 

 

 

44,026

 

 

 

61.6

 

 

 

4,567,853

 

 

 

76.6

 

Commercial and industrial loans

 

 

15,333

 

 

 

21.2

 

 

 

778,149

 

 

 

13.0

 

 

 

15,267

 

 

 

21.3

 

 

 

804,492

 

 

 

13.4

 

Equipment financing agreements

 

 

13,385

 

 

 

18.5

 

 

 

600,216

 

 

 

10.0

 

 

 

12,230

 

 

 

17.1

 

 

 

594,788

 

 

 

10.0

 

Total

 

$

72,249

 

 

 

100.0

%

 

$

5,980,458

 

 

 

100.0

%

 

$

71,523

 

 

 

100.0

%

 

$

5,967,133

 

 

 

100.0

%

 

The following table sets forth certain ratios related to our allowance for credit losses at the dates presented:

 

 

 

As of

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(dollars in thousands)

 

Ratios:

 

 

 

 

 

 

Allowance for credit losses to loans receivable

 

 

1.21

%

 

 

1.20

%

Nonaccrual loans to loans

 

 

0.34

%

 

 

0.17

%

Allowance for credit losses to nonaccrual loans

 

 

360.34

%

 

 

726.42

%

 

 

 

 

 

 

 

Balance:

 

 

 

 

 

 

Nonaccrual loans at end of period

 

$

20,050

 

 

$

9,846

 

Nonperforming loans at end of period

 

$

20,050

 

 

$

9,846

 

As of March 31, 2023 and December 31, 2022, the allowance for credit losses related to off-balance sheet items, primarily unfunded loan commitments, was $3.1 million. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized. Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these allowances were adequate for current expected lifetime losses in the loan portfolio and off-balance sheet exposure as of March 31, 2023.

The following table presents a summary of net (charge-offs) recoveries for the loan portfolio:

 

 

 

Three Months Ended

 

 

 

Average Loans

 

 

Net (Charge-Offs) Recoveries

 

 

Net (Charge-Offs) Recoveries to Average Loans (1)

 

 

 

(dollars in thousands)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

$

3,800,499

 

 

$

(412

)

 

 

(0.04

)%

Residential loans

 

 

780,833

 

 

 

68

 

 

 

0.03

 

Commercial and industrial loans

 

 

760,835

 

 

 

25

 

 

 

0.01

 

Equipment financing agreements

 

 

602,232

 

 

 

(1,136

)

 

 

(0.75

)

Total

 

$

5,944,399

 

 

$

(1,455

)

 

 

(0.10

)%

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

$

3,752,658

 

 

$

(335

)

 

 

(0.04

)%

Residential loans

 

 

407,967

 

 

 

2

 

 

 

0.00

 

Commercial and industrial loans

 

 

578,583

 

 

 

259

 

 

 

0.18

 

Equipment financing agreements

 

 

492,464

 

 

 

176

 

 

 

0.14

 

Total

 

$

5,231,672

 

 

$

102

 

 

 

0.01

%

(1)
Annualized

 

For the three months ended March 31, 2023, gross charge-offs were $2.2 million, an increase of $1.4 million, from $0.8 million for the same period in 2022 and gross recoveries were $0.8 million, a decrease of $0.1 million, from $0.9 million for the three

47


 

months ended March 31, 2022. Net loan charge-offs were $1.5 million, or 0.10% of average loans, compared with net loan recoveries of $0.1 million, or 0.01% of average loans, for the three months ended March 31, 2023 and 2022, respectively.

 

Deposits

The following table shows the composition of deposits by type as of the dates indicated:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Balance

 

 

Percent

 

 

Balance

 

 

Percent

 

 

 

(dollars in thousands)

 

Demand – noninterest-bearing

 

$

2,334,083

 

 

 

37.6

%

 

$

2,539,602

 

 

 

41.3

%

Interest-bearing:

 

 

 

 

 

 

 

 

 

 

 

 

Demand

 

 

104,245

 

 

 

1.7

 

 

 

115,573

 

 

 

1.9

 

Money market and savings

 

 

1,382,472

 

 

 

22.3

 

 

 

1,556,690

 

 

 

25.2

 

Uninsured time deposits of more than $250,000:

 

 

 

 

 

 

 

 

 

 

 

 

Three months or less

 

 

96,204

 

 

 

1.6

 

 

 

44,828

 

 

 

0.7

 

Over three months through six months

 

 

94,526

 

 

 

1.5

 

 

 

123,471

 

 

 

2.0

 

Over six months through twelve months

 

 

452,572

 

 

 

7.3

 

 

 

191,248

 

 

 

3.1

 

Over twelve months

 

 

72,093

 

 

 

1.2

 

 

 

138,451

 

 

 

2.2

 

Other time deposits

 

 

1,664,843

 

 

 

26.8

 

 

 

1,458,209

 

 

 

23.6

 

Total deposits

 

$

6,201,038

 

 

 

100.0

%

 

$

6,168,072

 

 

 

100.0

%

Total deposits were $6.20 billion and $6.17 billion as of March 31, 2023 and December 31, 2022, respectively, representing an increase of $33.0 million, or 0.5%. The increase in deposits was primarily driven by an increase of $424.0 million in time deposits, offset by a decrease of $391.0 million in all other deposits due to rising market rates and the shift to time deposits. At March 31, 2023, the loan-to-deposit ratio was 96.4% compared with 96.7% at December 31, 2022.

 

As of March 31, 2023, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.60 billion, of which $1.88 billion were demand, money market and savings deposits and $715.4 million were time deposits. As of December 31, 2022, the aggregate amount of uninsured deposits was $2.65 billion, consisting of $2.15 billion in demand, money market and savings deposits and $498.0 million in time deposits.

 

Borrowings and Subordinated Debentures

Borrowings mostly take the form of advances from the FHLB. At both March 31, 2023 and December 31, 2022, total advances from the FHLB were $350.0 million. The Bank had $250.0 million of overnight advances from the FHLB at both March 31, 2023 and December 31, 2022.

 

The weighted-average interest rate of all FHLB advances at March 31, 2023 and December 31, 2022 was 4.11% and 3.57%, respectively.

 

The FHLB maximum amount outstanding at any month end during each of the year to date periods ended March 31, 2023 and December 31, 2022 was $350.0 million.

The following is a summary of contractual maturities greater than twelve months of FHLB advances:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

FHLB of San Francisco

 

Outstanding
Balance

 

 

Weighted
Average
Rate

 

 

Outstanding
Balance

 

 

Weighted
Average
Rate

 

 

 

(dollars in thousands)

 

Advances due over 12 months through 24 months

 

$

25,000

 

 

 

1.22

%

 

$

37,500

 

 

 

0.40

%

Advances due over 24 months through 36 months

 

 

25,000

 

 

 

4.44

 

 

 

12,500

 

 

 

1.90

 

Outstanding advances over 12 months

 

$

50,000

 

 

 

2.83

%

 

$

50,000

 

 

 

0.78

%

 

48


 

Subordinated debentures were $129.6 million as of March 31, 2023 and $129.4 million as of December 31, 2022. Subordinated debentures are comprised of fixed-to-floating subordinated notes of $108.2 million as of March 31, 2023 and December 31, 2022, and junior subordinated deferrable interest debentures of $21.3 million and $21.2 million as of March 31, 2023 and December 31, 2022, respectively. See “Note 8 – Borrowings and Subordinated Debentures” to the consolidated financial statements for more details.

 

Stockholders' Equity

Stockholders’ equity at March 31, 2023 was $662.2 million, compared with $637.5 million at December 31, 2022. The increase was primarily due to $14.4 million of first quarter net income net of dividends as well as a $9.9 million reduction in unrealized after-tax loss due to changes in the value of the securities portfolio resulting from decreases in intermediate-term interest rates during the first quarter.

 

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. 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) as of March 31, 2023. The 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- 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%

 

$

14,669

 

 

 

6.24

%

 

$

7,822

 

 

 

3.16

%

200%

 

$

9,031

 

 

 

3.84

%

 

$

3,210

 

 

 

1.30

%

100%

 

$

5,337

 

 

 

2.27

%

 

$

3,616

 

 

 

1.46

%

(100%)

 

$

(7,224

)

 

 

(3.07

%)

 

$

(7,704

)

 

 

(3.11

%)

(200%)

 

$

(16,260

)

 

 

(6.92

%)

 

$

(19,522

)

 

 

(7.88

%)

(300%)

 

$

(26,613

)

 

 

(11.32

%)

 

$

(34,516

)

 

 

(13.93

%)

 

Change in

 

Economic Value of Equity (EVE)

 

Interest

 

Dollar

 

 

Percentage

 

Rate

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

300%

 

$

(30,634

)

 

 

(4.05

%)

200%

 

$

(20,334

)

 

 

(2.69

%)

100%

 

$

522

 

 

 

0.07

%

(100%)

 

$

(22,630

)

 

 

(2.99

%)

(200%)

 

$

(69,952

)

 

 

(9.25

%)

(300%)

 

$

(140,113

)

 

 

(18.53

%)

 

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 timing and magnitude of interest rate changes, prepayments on loans receivable and securities, pricing strategies on loans receivable and deposits, and replacement of asset and liability cash flows.

 

49


 

The key assumptions, based upon loans receivable, securities and deposits, are as follows:

 

 

  Conditional prepayment rates*:

 

 

 

 

 

 

     Loans receivable

 

 

 

 

15

%

 

     Securities

 

 

 

 

6

%

 

  Deposit rate betas*:

 

 

 

 

 

 

     NOW, savings, money market demand

 

 

 

 

47

%

 

     Time deposits, retail and wholesale

 

 

 

 

76

%

 

 

 

 

 

 

 

 

* Balance-weighted average

 

 

 

 

 

 

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, the Board regularly assesses projected sources and uses of capital, expected loan growth, anticipated strategic actions (such as stock repurchases and dividends), and projected capital thresholds under adverse and severely adverse economic conditions. In addition, the Board considers the Company’s access to capital from financial markets through the issuance of additional debt and securities, including common stock or notes, to meet its capital needs.

In response to the uncertainty surrounding the COVID-19 pandemic, the Board reduced the quarterly cash dividends paid on common stock beginning in the second quarter of 2020. Due to the continued stabilization of Company results and financial condition, the Board authorized an increase in the quarterly cash dividend to $0.12 per share for the second quarter of 2021 from $0.10 per share for the first quarter of 2021. As the effects of the pandemic continued to subside and the Company’s results and financial condition improved, the Board again increased the dividend to $0.20 per share for the fourth quarter of 2021, to $0.22 per share for the first and second quarters of 2022, and to $0.25 per share for the third and fourth quarters of 2022 and first quarter of 2023. The Board will continue to re-evaluate the level of quarterly dividends in subsequent quarters.

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 Department of Financial Protection and Innovation (“DFPI”), in an amount not exceeding the greater 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 April 1, 2023, the Bank has the ability to pay dividends of approximately $156.1 million, after giving effect to the $0.25 dividend declared for the second quarter of 2023, without the prior approval of the Commissioner of the DFPI.

At March 31, 2023, the Bank’s total risk-based capital ratio of 14.15%, Tier 1 risk-based capital ratio of 13.06%, common equity Tier 1 capital ratio of 13.06% and Tier 1 leverage capital ratio of 11.06%, placed the Bank in the “well capitalized” category pursuant to capital rules, which is defined as institutions with total risk-based capital ratio equal to or greater than 10.00%, Tier 1 risk-based capital ratio equal to or greater than 8.00%, common equity Tier 1 capital ratios equal to or greater than 6.50%, and Tier 1 leverage capital ratio equal to or greater than 5.00%.

At March 31, 2023, the Company's total risk-based capital ratio was 14.80%, Tier 1 risk-based capital ratio was 11.94%, common equity Tier 1 capital ratio was 11.59% and Tier 1 leverage capital ratio was 10.09%.

For a discussion of implemented changes to the capital adequacy framework prompted by Basel III and the Dodd- Frank Wall Street Reform and Consumer Protection Act, see our 2022 Annual Report on Form 10-K.

50


 

Liquidity

For a discussion of liquidity for the Company, see Note 14 - Liquidity included in the notes to unaudited consolidated financial statements in this Report and Note 22 – Liquidity in our 2022 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

For a discussion of off-balance sheet arrangements, see Note 12 - Off-Balance Sheet Commitments included in the notes to unaudited consolidated financial statements in this Report and “Item 1. Business - Off-Balance Sheet Commitments” in our 2022 Annual Report on Form 10-K.

Contractual Obligations

There have been no material changes to the contractual obligations described in our 2022 Annual Report on Form 10-K.

 

51


 

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

 

Evaluation of Disclosure Controls and Procedures

 

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2023.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

52


 

Part II — Other Information

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

Except as provided below, there have been no material changes in risk factors applicable to the Corporation from those described in “Risk Factors” in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Further, if we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation and on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services. In each case, the FDIC was named receiver. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

Rising Interest Rates Have Decreased the Value of the Company’s Securities Portfolio, and the Company Would Realize Losses if it Were Required to Sell Such Securities to Meet Liquidity Needs

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including ours, resulting in unrealized losses embedded in the securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a BTFP available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Recent Negative Developments Affecting the Banking Industry, and Resulting Media Coverage, Have Eroded Customer Confidence in the Banking System

The recent high-profile bank failures involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks. These market developments have negatively impacted customer confidence in the safety and soundness of financial institutions. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

53


 

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% of its outstanding shares or approximately 1.5 million shares of common stock. As of March 31, 2023, 659,972 shares remained available for future purchases under that stock repurchase program.

The following table represents information with respect to repurchases of common stock made by the Company during the three months ended March 31, 2023:

 

Purchase Date:

 

Average Price Paid Per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Program

 

 

Maximum Shares That May Yet Be Purchased Under the Program

 

January 1, 2023 - January 31, 2023

 

$

 

 

 

 

 

 

659,972

 

February 1, 2023 - February 28, 2023

 

 

 

 

 

 

 

 

659,972

 

March 1, 2023 - March 31, 2023

 

 

 

 

 

 

 

 

659,972

 

Total

 

$

 

 

 

 

 

 

659,972

 

The Company acquired 14,628 shares from employees in connection with the satisfaction of employee tax withholding obligations incurred through vesting of Company stock awards for the three months ended March 31, 2023. Shares withheld to cover income taxes upon the vesting of stock awards are repurchased pursuant to the terms of the applicable plan and not under the Company's repurchase program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

54


 

Item 6. Exhibits

 

Exhibit

Number

 

Document

 

 

 

  31.1

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

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

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document *

 

 

 

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 March 31, 2023, formatted in Inline XBRL

 

* Attached as Exhibit 101 to this report are documents formatted in Inline XBRL (Extensible Business Reporting Language).

† Constitutes a management contract or compensatory plan or arrangement.

55


 

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:

 

May 8, 2023

 

By:

 

/s/ Bonita I. Lee

 

 

 

 

 

 

Bonita I. Lee

 

 

 

 

 

 

President and Chief Executive Officer (Principal Executive Officer)

 

Date:

 

May 8, 2023

 

By:

 

/s/ Romolo C. Santarosa

 

 

 

 

 

 

Romolo C. Santarosa

 

 

 

 

 

 

Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56