Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three months ended March 31, 2016. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 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, 2016 (this “Report”).
Forward-Looking Statements
Some of the statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, 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, developments regarding our capital plans, plans and objectives of management for future operations, strategic alternatives for a possible business combination, merger or sale transactions, and other similar forecasts and statements of expectation and statements of assumption underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement. These factors include the following: failure to maintain adequate levels of capital and liquidity to support our operations; the effect of potential future supervisory action against us or Hanmi Bank; general economic and business conditions internationally, nationally and in those areas in which we operate, including, but not limited to, California, Illinois and Texas; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital from private and government sources; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread; risks of natural disasters related to our real estate portfolio; risks associated with Small Business Administration loans; failure to attract or retain key employees; changes in governmental regulation; enforcement actions against us and litigation we may become a party to; ability of Hanmi Bank to make distributions to Hanmi Financial, which is restricted by certain factors, including Hanmi Bank's retained earnings, net income, prior distributions made, and certain other financial tests; ability to successfully and efficiently integrate the operations of banks and other institutions we acquire; adequacy of our allowance for loan losses; credit quality and the effect of credit quality on our provision for loan losses and allowance for loan 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; and changes in securities markets. In addition, for a discussion of some of the other factors that might cause such a difference, see the discussion contained in this Report under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Also see “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Interest Rate Risk Management”
and “Capital Resources and Liquidity” in our 2015 Annual Report on Form 10-K, as well as other factors we identify from time to time in our periodic reports, including our Quarterly Reports on Form 10-Q, filed pursuant to the Exchange Act. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date, on which such statements were made, except as required by law.
Critical Accounting Policies
We have established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to Consolidated Financial Statements in our 2015 Annual Report on Form 10-K. We had no significant changes in our accounting policies since the filing of our 2015 Annual Report on Form 10-K.
Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our 2015 Annual Report on Form 10-K. We use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ
significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of Hanmi Financial’s Board of Directors.
Selected Financial Data
The following table sets forth certain selected financial data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
As of or For the
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in thousands, except share and per share data)
|
Summary balance sheets:
|
|
|
|
Cash and due from banks
|
$
|
137,464
|
|
|
$
|
182,054
|
|
Securities
|
675,032
|
|
|
858,064
|
|
Loans receivable
(1)
|
3,265,453
|
|
|
2,767,080
|
|
Assets
|
4,310,748
|
|
|
4,084,015
|
|
Deposits
|
3,499,992
|
|
|
3,552,676
|
|
Liabilities
|
3,799,888
|
|
|
3,616,545
|
|
Stockholders’ equity
|
510,860
|
|
|
467,470
|
|
Tangible equity
|
509,241
|
|
|
465,485
|
|
Average loans receivable
|
3,192,832
|
|
|
2,821,616
|
|
Average securities
|
682,370
|
|
|
971,440
|
|
Average interest-earning assets
|
3,949,788
|
|
|
3,901,818
|
|
Average assets
|
4,221,076
|
|
|
4,181,524
|
|
Average deposits
|
3,482,986
|
|
|
3,526,663
|
|
Average borrowings
|
200,590
|
|
|
146,773
|
|
Average interest-bearing liabilities
|
2,544,754
|
|
|
2,642,501
|
|
Average stockholders’ equity
|
499,469
|
|
|
459,784
|
|
Average tangible equity
|
497,797
|
|
|
457,738
|
|
Per share data:
|
|
|
|
Earnings per share – basic
(2)
|
$
|
0.46
|
|
|
$
|
0.35
|
|
Earnings per share – diluted
(2)
|
$
|
0.46
|
|
|
$
|
0.35
|
|
Book value per share
(3)
|
$
|
15.84
|
|
|
$
|
14.64
|
|
Tangible book value per share
(4)
|
$
|
15.79
|
|
|
$
|
14.58
|
|
Cash dividends per share
|
$
|
0.14
|
|
|
$
|
0.11
|
|
Common shares outstanding
|
32,249,512
|
|
|
31,933,634
|
|
Performance ratios:
|
|
|
|
Return on average assets
(5) (6)
|
1.41
|
%
|
|
1.07
|
%
|
Return on average stockholders’ equity
(5) (7)
|
11.92
|
%
|
|
9.75
|
%
|
Return on average tangible equity
(5) (8)
|
11.96
|
%
|
|
9.79
|
%
|
Net interest margin
(9)
|
3.98
|
%
|
|
3.89
|
%
|
Net interest margin excluding acquisition accounting
(9)
|
3.68
|
%
|
|
3.28
|
%
|
Efficiency ratio
(10)
|
57.25
|
%
|
|
64.98
|
%
|
Efficiency ratio excluding merger and integration costs
(10)
|
57.25
|
%
|
|
61.65
|
%
|
Dividend payout ratio
(11)
|
30.28
|
%
|
|
31.43
|
%
|
Average stockholders’ equity to average assets
|
11.83
|
%
|
|
11.00
|
%
|
Capital ratios
(15)
:
|
|
|
|
Total risk-based capital:
|
|
|
|
Hanmi Financial
|
14.87
|
%
|
|
15.23
|
%
|
Hanmi Bank
|
14.66
|
%
|
|
15.15
|
%
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital:
|
|
|
|
Hanmi Financial
|
13.61
|
%
|
|
13.97
|
%
|
Hanmi Bank
|
13.40
|
%
|
|
13.89
|
%
|
Common equity Tier 1 capital:
|
|
|
|
Hanmi Financial
|
13.61
|
%
|
|
13.97
|
%
|
Hanmi Bank
|
13.40
|
%
|
|
13.89
|
%
|
Tier 1 leverage:
|
|
|
|
Hanmi Financial
|
11.26
|
%
|
|
10.29
|
%
|
Hanmi Bank
|
11.25
|
%
|
|
10.23
|
%
|
Asset quality ratios:
|
|
|
|
Nonperforming Non-PCI loans to loans
(12)
|
0.50
|
%
|
|
1.05
|
%
|
Nonperforming assets to assets
(13)
|
0.60
|
%
|
|
1.01
|
%
|
Net loan charge-offs (recoveries) to average loans
|
0.05
|
%
|
|
(0.28
|
)%
|
Allowance for loan losses to loans
|
1.24
|
%
|
|
1.88
|
%
|
Allowance for loan losses to non-performing Non-PCI loans
(12)
(14)
|
217.38
|
%
|
|
176.07
|
%
|
Acquired loans:
|
|
|
|
PCI loans, net of discounts
|
$
|
19,834
|
|
|
$
|
41,105
|
|
Allowance for loan losses on PCI loans
|
$
|
5,645
|
|
|
$
|
1,435
|
|
Non-PCI loans, net of discounts
|
$
|
139,869
|
|
|
$
|
206,460
|
|
Unamortized acquisition discounts on Non-PCI loans
|
$
|
9,021
|
|
|
$
|
18,185
|
|
|
|
(1)
|
Loans receivable, net of allowance for loan losses
|
|
|
(2)
|
Calculation based on net income allocated to common shares
|
|
|
(3)
|
Stockholders’ equity divided by common shares outstanding
|
|
|
(4)
|
Tangible equity divided by common shares outstanding
|
|
|
(5)
|
Calculation based on annualized net income
|
|
|
(6)
|
Net income divided by average assets
|
|
|
(7)
|
Net income divided by average stockholders’ equity
|
|
|
(8)
|
Net income divided by average tangible equity
|
|
|
(9)
|
Net interest income before provision for loan losses divided by average interest-earning assets
|
|
|
(10)
|
Noninterest expenses divided by the sum of net interest income before provision for loan losses and noninterest income
|
|
|
(11)
|
Dividend declared per share divided by basic earnings per share
|
|
|
(13)
|
Nonperforming assets consist of nonperforming loans (see footnote (12) above) and OREO.
|
|
|
(14)
|
Excludes allowance for loan losses allocated to PCI loans
|
|
|
(15)
|
Basel III rules, including certain transitional provisions, became effective January 1, 2015.
|
Non-GAAP Financial Measures
Tangible Stockholders’ Equity to Tangible Assets Ratio
The Company calculates certain supplemental financial information determined by methods other than in accordance with U.S. GAAP including tangible stockholders' equity to tangible assets ratio, core interest income and yield, and net interest income and margin excluding acquisition accounting.These non-GAAP measures are used by management in analyzing Hanmi Financial’s capital strength, core loan interest income and yield, and net interest income and margin without the impact of our acquisition.
Tangible equity is calculated by subtracting goodwill and core deposit intangible from stockholders’ equity. Banking and financial institution regulators also exclude goodwill and core deposit intangible from stockholders’ equity when assessing the capital adequacy of a financial institution. Core loan interest income and yield are calculated by subtracting accretion of discount on purchased loans. Net interest income and net interest margin are calculated by adjusting the reported amounts and rates for the impact of the CBI acquisition including accretion of discount on purchased loans, accretion of time deposit premium and amortization of subordinated debentures discount.
Management believes the presentation of these financial measures excluding the impact of items described in the preceding paragraph provide useful supplemental information that are essential to a proper understanding of the capital strength
of Hanmi Financial and our core interest income and margin. These disclosures should not be viewed as a substitution for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
The following table reconciles this non-GAAP performance measure to the GAAP performance measure as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2016
|
|
2015
|
|
(in thousands, except share and per share data)
|
Assets
|
$
|
4,310,748
|
|
|
$
|
4,084,015
|
|
Less core deposit intangible
|
(1,619
|
)
|
|
(1,985
|
)
|
Tangible assets
|
$
|
4,309,129
|
|
|
$
|
4,082,030
|
|
Stockholders’ equity
|
$
|
510,860
|
|
|
$
|
467,470
|
|
Less core deposit intangible
|
(1,619
|
)
|
|
(1,985
|
)
|
Tangible stockholders' equity
|
$
|
509,241
|
|
|
$
|
465,485
|
|
Book value per share
|
$
|
15.84
|
|
|
$
|
14.64
|
|
Effect of core deposit intangible
|
(0.05
|
)
|
|
(0.06
|
)
|
Tangible book value per share
|
$
|
15.79
|
|
|
$
|
14.58
|
|
Core Loan Yield and Net Interest Margin
The impact of acquisition accounting adjustments on core loan yield and net interest margin are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2016
|
|
March 31, 2015
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
(in thousands)
|
Core loan interest income and yield
|
$
|
37,036
|
|
|
4.67
|
%
|
|
$
|
32,680
|
|
|
4.70
|
%
|
Accretion of discount on purchased loans
|
2,031
|
|
|
0.25
|
%
|
|
4,354
|
|
|
0.62
|
%
|
As reported
|
$
|
39,067
|
|
|
4.92
|
%
|
|
$
|
37,034
|
|
|
5.32
|
%
|
|
|
|
|
|
|
|
|
Net interest income and net interest margin excluding acquisition accounting
(1)
|
$
|
36,164
|
|
|
3.68
|
%
|
|
$
|
31,546
|
|
|
3.28
|
%
|
Accretion of discount on Non-PCI loans
|
1,754
|
|
|
0.18
|
%
|
|
3,511
|
|
|
0.36
|
%
|
Accretion of discount on PCI loans
|
277
|
|
|
0.03
|
%
|
|
843
|
|
|
0.09
|
%
|
Accretion of time deposits premium
|
942
|
|
|
0.10
|
%
|
|
1,606
|
|
|
0.16
|
%
|
Amortization of subordinated debentures discount
|
(56
|
)
|
|
(0.01
|
)%
|
|
(38
|
)
|
|
—
|
%
|
Net impact
|
2,917
|
|
|
0.30
|
%
|
|
5,922
|
|
|
0.61
|
%
|
As reported on a fully taxable equivalent basis
|
$
|
39,081
|
|
|
3.98
|
%
|
|
$
|
37,468
|
|
|
3.89
|
%
|
|
|
(1)
|
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
|
Executive Overview
For the three months ended March 31, 2016, net income was $14.8 million, or $0.46 per diluted share, up 33.9 percent from $11.1 million, or $0.35 per diluted share, for the three months ended March 31, 2015. The increase in net income was primarily due to lower noninterest expenses and a lower effective income tax rate, offset by lower noninterest income. Noninterest expenses declined $5.3 million, or 17.0 percent, from the elimination of expenses incurred a year ago related to the CBI acquisition, as well as branch consolidations completed in the third quarter of 2015. The effective income tax rate of 29.5 percent for the 2016 first quarter, compared with 40.5 percent for the 2015 first quarter, declined due to the finalization of 2014 amended income tax returns. Noninterest income decreased $3.9 million, or 35.8 percent, because there were no securities transactions in the first quarter of 2016 and due to lower gains from the disposition or resolution of PCI loans and lower gains on sales of SBA loans. Other financial highlights include the following:
|
|
•
|
Loans receivable, before the allowance for loan losses, were $3.31 billion at the end of the first quarter of 2016, up $123.2 million or 3.9 percent, from $3.18 billion at the end of 2015.
|
|
|
•
|
Noninterest-bearing deposits at March 31, 2016 were $1.17 billion, an increase of $16.9 million or 1.5 percent, from $1.16 billion at December 31, 2015.
|
|
|
•
|
Asset quality at the end of the first quarter of 2016 improved with non-performing assets of $25.7 million, or 0.60 percent of total assets, compared with $27.6 million, or 0.65 percent of total assets at the end of 2015.
|
Results of Operations
Net Interest Income
Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes 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 are affected principally by changes to interest rates, the demand for such loans, 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.
The following table shows the average balances 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, 2016
|
|
March 31, 2015
|
|
Average
Balance
|
|
Interest
Income /
Expense
|
|
Average
Yield /
Rate
|
|
Average
Balance
|
|
Interest
Income /
Expense
|
|
Average
Yield /
Rate
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(1)
|
$
|
3,192,832
|
|
|
$
|
39,067
|
|
|
4.92
|
%
|
|
$
|
2,821,616
|
|
|
$
|
37,034
|
|
|
5.32
|
%
|
Securities
(2)
|
682,370
|
|
|
3,529
|
|
|
2.07
|
%
|
|
971,440
|
|
|
3,885
|
|
|
1.60
|
%
|
FRB and FHLB stock
|
30,497
|
|
|
542
|
|
|
7.11
|
%
|
|
30,267
|
|
|
482
|
|
|
6.37
|
%
|
Interest-bearing deposits in other banks
|
44,089
|
|
|
48
|
|
|
0.44
|
%
|
|
78,495
|
|
|
48
|
|
|
0.25
|
%
|
Total interest-earning assets
|
3,949,788
|
|
|
43,186
|
|
|
4.40
|
%
|
|
3,901,818
|
|
|
41,449
|
|
|
4.31
|
%
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
114,664
|
|
|
|
|
|
|
86,313
|
|
|
|
|
|
Allowance for loan losses
|
(42,519
|
)
|
|
|
|
|
|
(53,319
|
)
|
|
|
|
|
Other assets
|
199,143
|
|
|
|
|
|
|
246,712
|
|
|
|
|
|
Total noninterest-earning assets
|
271,288
|
|
|
|
|
|
|
279,706
|
|
|
|
|
|
Total assets
|
$
|
4,221,076
|
|
|
|
|
|
|
$
|
4,181,524
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
Demand: interest-bearing
|
$
|
95,560
|
|
|
$
|
19
|
|
|
0.08
|
%
|
|
$
|
81,961
|
|
|
$
|
27
|
|
|
0.13
|
%
|
Money market and savings
|
902,037
|
|
|
1,084
|
|
|
0.48
|
%
|
|
820,725
|
|
|
972
|
|
|
0.48
|
%
|
Time deposits
|
1,346,567
|
|
|
2,624
|
|
|
0.78
|
%
|
|
1,593,042
|
|
|
2,781
|
|
|
0.71
|
%
|
FHLB advances
|
181,868
|
|
|
195
|
|
|
0.43
|
%
|
|
127,778
|
|
|
56
|
|
|
0.18
|
%
|
Rescinded stock obligation
|
—
|
|
|
—
|
|
|
—
|
%
|
|
438
|
|
|
—
|
|
|
—
|
%
|
Subordinated debentures
|
18,722
|
|
|
183
|
|
|
3.93
|
%
|
|
18,557
|
|
|
145
|
|
|
3.17
|
%
|
Total interest-bearing liabilities
|
2,544,754
|
|
|
4,105
|
|
|
0.65
|
%
|
|
2,642,501
|
|
|
3,981
|
|
|
0.61
|
%
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits: noninterest-bearing
|
1,138,822
|
|
|
|
|
|
|
1,030,935
|
|
|
|
|
|
Other liabilities
|
38,031
|
|
|
|
|
|
|
48,304
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
1,176,853
|
|
|
|
|
|
|
1,079,239
|
|
|
|
|
|
Total liabilities
|
3,721,607
|
|
|
|
|
|
|
3,721,740
|
|
|
|
|
|
Stockholders’ equity
|
499,469
|
|
|
|
|
|
|
459,784
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
$
|
4,221,076
|
|
|
|
|
|
|
$
|
4,181,524
|
|
|
|
|
|
Net interest income (taxable equivalent)
|
|
|
$
|
39,081
|
|
|
|
|
|
|
$
|
37,468
|
|
|
|
Cost of deposits
(3)
|
|
|
|
|
0.43
|
%
|
|
|
|
|
|
0.43
|
%
|
Net interest spread
(4)
|
|
|
|
|
3.75
|
%
|
|
|
|
|
|
3.70
|
%
|
Net interest margin
(5)
|
|
|
|
|
3.98
|
%
|
|
|
|
|
|
3.89
|
%
|
|
|
(1)
|
Loans include LHFS and exclude the allowance for loan losses. Nonaccrual loans are included in the average loan balance.
|
|
|
(2)
|
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
|
|
|
(3)
|
Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-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.
|
The table below shows changes in interest income (on a tax equivalent basis) and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2016 vs. March 31, 2015
|
|
Increases (Decreases) Due to Change In
|
|
Volume
|
|
Rate
|
|
Total
|
|
(in thousands)
|
Interest and dividend income:
|
|
|
|
|
|
Loans receivable
|
$
|
4,875
|
|
|
$
|
(2,842
|
)
|
|
$
|
2,033
|
|
Securities
|
(1,325
|
)
|
|
969
|
|
|
(356
|
)
|
FRB and FHLB stock
|
4
|
|
|
56
|
|
|
60
|
|
Interest-bearing deposits in other banks
|
(27
|
)
|
|
27
|
|
|
—
|
|
Total interest and dividend income
|
$
|
3,527
|
|
|
$
|
(1,790
|
)
|
|
$
|
1,737
|
|
Interest expense:
|
|
|
|
|
|
Demand: interest-bearing
|
$
|
3
|
|
|
$
|
(11
|
)
|
|
$
|
(8
|
)
|
Money market and savings
|
112
|
|
|
—
|
|
|
112
|
|
Time deposits
|
(435
|
)
|
|
278
|
|
|
(157
|
)
|
FHLB advances
|
32
|
|
|
107
|
|
|
139
|
|
Subordinated debentures
|
1
|
|
|
37
|
|
|
38
|
|
Total interest expense
|
$
|
(287
|
)
|
|
$
|
411
|
|
|
$
|
124
|
|
Change in net interest income
|
$
|
3,814
|
|
|
$
|
(2,201
|
)
|
|
$
|
1,613
|
|
Interest income, on a taxable equivalent basis, increased $1.7 million, or 4.2 percent, to $43.2 million for the three months ended March 31, 2016 from $41.4 million for the same period in 2015. Interest expense increased $0.1 million or 3.1 percent, to $4.1 million for the three months ended March 31, 2016 from $4.0 million for the same period in 2015. For the three months ended March 31, 2016 and 2015, net interest income, on a taxable equivalent basis, was $39.1 million and $37.5 million, respectively. The increase in net interest income was primarily attributable to the growth in average loans and the higher percentage of loans in the mix of interest-earning assets. The net interest spread and net interest margin, on a taxable equivalent basis, for the three months ended March 31, 2016 were 3.75 percent and 3.98 percent, respectively, compared with 3.70 percent and 3.89 percent, respectively, for the same period in 2015. Excluding the effects of acquisition accounting adjustments, net interest margin was 3.68 percent and 3.28 percent for the three months ended March 31, 2016 and 2015, respectively.
Average loans increased $371.2 million, or 13.2 percent, to $3.19 billion for the three months ended March 31, 2016 from $2.82 billion for the same period in 2015. Average securities decreased $289.1 million, or 29.8 percent, to $682.4 million for the three months ended March 31, 2016 from $971.4 million for the same period in 2015. Average interest-earning assets increased $48.0 million, or 1.2 percent, to $3.95 billion for the three months ended March 31, 2016 from $3.90 billion for the same period in 2015. The increase in average loans, funded principally from the sale of securities acquired in the CBI acquisition, was due mainly to new loan production. Average loans were 80.8 percent of average interest-earning assets for 2016 first quarter, up from 72.3 percent for the 2015 first quarter. Average interest-bearing liabilities decreased $97.7 million, or 3.7 percent, to $2.54 billion for the three months ended March 31, 2016, compared to $2.64 billion for the same period in 2015. The decrease in average interest-bearing liabilities resulted primarily from maturing high-cost time deposits assumed in the CBI acquisition offset by the growth in money market, savings and interest-bearing demand deposits. In addition, average noninterest-bearing demand deposits increased $107.9 million, or 10.5 percent, to $1.14 billion for the 2016 first quarter from $1.03 billion for the 2015 first quarter.
The average yield on loans decreased to 4.92 percent for the three months ended March 31, 2016 from 5.32 percent for the same period in 2015, primarily due to a 37 basis point decrease in discount accretion on purchased loans. The average yield on securities, on a taxable equivalent basis, increased to 2.07 percent for the three months ended March 31, 2016 from 1.60 percent for the same period in 2015, attributable primarily to increases in tax-exempt municipal securities. The average yield on interest-earning assets, on a taxable equivalent basis, increased 9 basis points to 4.40 percent for the three months ended March 31, 2016 from 4.31 percent for the same period in 2015, due mainly to the higher percentage of loans in the mix of interest-
earning assets. The average cost of interest-bearing liabilities increased by 4 basis points to 0.65 percent for the three months ended March 31, 2016 from 0.61 percent for the same period in 2015. The increase was due to
increases in the cost of borrowings.
Provision for Loan Losses
In anticipation of credit risks inherent in our lending business, we set aside an allowance for loan losses through charges to earnings. These charges are made not only for our outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credit, or letters of credit. The provisions for loan losses, whether a charge or a credit, made for our outstanding loan portfolio are recorded to the allowance for loan losses, whereas charges or credits to other noninterest expense for off-balance sheet items are recorded to the allowance for off-balance sheet items, and are presented as a component of other liabilities.
The negative provision for loan losses was $1.5 million for the first three months of 2016, which included a $0.2 million positive provision for losses on PCI loans. For the first three months of 2015, the negative provision for loans losses was $1.7 million, which included a $0.1 million positive provision for losses on PCI loans. The charge to other noninterest expense for losses on off-balance sheet items was $0.2 million for the 2016 first quarter compared to a credit of $0.3 million for the 2015 first quarter.
See also “Allowance for Loan Losses and Allowance for 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)
|
|
2016
|
|
2015
|
|
Amount
|
|
Percentage
|
|
(in thousands)
|
Service charges on deposit accounts
|
$
|
3,001
|
|
|
$
|
3,211
|
|
|
$
|
(210
|
)
|
|
(6.5
|
)%
|
Trade finance and other service charges and fees
|
1,044
|
|
|
1,267
|
|
|
(223
|
)
|
|
(17.6
|
)%
|
Other operating income
|
1,399
|
|
|
1,282
|
|
|
117
|
|
|
9.1
|
%
|
Subtotal service charges, fees and other income
|
5,444
|
|
|
5,760
|
|
|
(316
|
)
|
|
(5.5
|
)%
|
Gain on sale of SBA loans
|
858
|
|
|
1,684
|
|
|
(826
|
)
|
|
(49.0
|
)%
|
Disposition gains on PCI loans
|
659
|
|
|
1,222
|
|
|
(563
|
)
|
|
(46.1
|
)%
|
Net gain on sales of securities
|
—
|
|
|
2,184
|
|
|
(2,184
|
)
|
|
(100.0
|
)%
|
Total noninterest income
|
$
|
6,961
|
|
|
$
|
10,850
|
|
|
$
|
(3,889
|
)
|
|
(35.8
|
)%
|
For the three months ended March 31, 2016, noninterest income was $7.0 million, a decrease of $3.9 million, or 35.8 percent, compared to $10.9 million for the same period in 2015. The decrease was primarily attributable to securities transactions, lower gains from the resolution or disposition of PCI loans and lower gains from the sales of the guaranteed portion of SBA loans. There were no securities transactions for the 2016 first quarter compared to gains of $2.2 million for the 2015 first quarter. When a PCI loan is removed from a loan pool and the cash proceeds or assets received from the settlement of the loan are in excess of its carrying amount, we recognize such as disposition gains. Disposition gains on PCI loans were $0.7 million for the first three months of 2016 compared with $1.2 million for the first three months of 2015 as PCI loans declined $0.2 million for the 2016 first quarter compared with $3.0 million for the 2015 first quarter. Gains on SBA loan sales for the first quarter of 2016 were $0.9 million on $12.4 million of loan sales compared with $1.7 million of gains on $19.9 million of loan sales for the year ago period.
Noninterest Expense
The following table sets forth the breakdown of noninterest expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Increase (Decrease)
|
|
2016
|
|
2015
|
|
Amount
|
|
Percentage
|
|
(in thousands)
|
Salaries and employee benefits
|
$
|
15,698
|
|
|
$
|
16,384
|
|
|
$
|
(686
|
)
|
|
-4.2
|
%
|
Occupancy and equipment
|
3,496
|
|
|
4,303
|
|
|
(807
|
)
|
|
-18.8
|
%
|
Data processing
|
1,436
|
|
|
2,132
|
|
|
(696
|
)
|
|
-32.6
|
%
|
Professional fees
|
1,464
|
|
|
2,341
|
|
|
(877
|
)
|
|
-37.5
|
%
|
Supplies and communications
|
736
|
|
|
830
|
|
|
(94
|
)
|
|
-11.3
|
%
|
Advertising and promotion
|
522
|
|
|
523
|
|
|
(1
|
)
|
|
-0.2
|
%
|
OREO expense
|
465
|
|
|
417
|
|
|
48
|
|
|
11.5
|
%
|
Merger and integration costs
|
—
|
|
|
1,611
|
|
|
(1,611
|
)
|
|
-100.0
|
%
|
Other operating expenses
|
2,251
|
|
|
2,851
|
|
|
(600
|
)
|
|
-21.0
|
%
|
Total noninterest expense
|
$
|
26,068
|
|
|
$
|
31,392
|
|
|
$
|
(5,324
|
)
|
|
-17.0
|
%
|
For the three months ended March 31, 2016, noninterest expense was $26.1 million, a decrease of $5.3 million or 17.0 percent, compared with $31.4 million for the same period in 2015. The decrease was due primarily to reductions in merger and integration costs, professional fees and data processing fees related to the CBI acquisition, along with lower salaries and employee benefits and occupancy and equipment expense from the branch closures and consolidations completed in the third quarter 2015.
Income Tax Expense
Income tax expense was $6.2 million for the three months ended March 31, 2016, compared with $7.5 million for the same period in 2015. The effective income tax rate was 29.5 percent for the three months ended March 31, 2016, compared with 40.5 percent for the same period in 2015. Income tax expense for the first quarter of 2016 included a $1.8 million benefit arising from the finalization of the 2014 amended income tax returns. The effective income tax rate for the first quarter of 2016 would have been 38.0 percent without this benefit, lower than the year ago period primarily due to the increase in tax-exempt municipal securities.
Financial Condition
Securities
Securities are classified as held to maturity, available for sale, or trading in accordance with GAAP. There were no held to maturity or trading securities as of March 31, 2016 and December 31, 2015. Securities classified as available for sale are stated at fair value. The composition of our securities portfolio reflects our securities strategy of providing a relatively stable source of interest income while maintaining an appropriate level of liquidity. Our securities portfolio also provides a source of liquidity by pledging as collateral or through repurchase agreement and collateral for certain public funds deposits.
As of March 31, 2016, our securities portfolio was composed primarily of mortgage-backed securities, collateralized mortgage obligations and tax exempt municipal bonds. Most of the securities carried fixed interest rates. Other than holdings of U.S. government agency securities, there were no securities of any one issuer exceeding 10 percent of stockholders’ equity as of March 31, 2016 and December 31, 2015.
The following table summarizes the amortized cost, estimated fair value and unrealized gain (loss) on securities as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Amortized
Cost
|
|
Estimated
Fair
Value
|
|
Unrealized
Gain
(Loss)
|
|
Amortized
Cost
|
|
Estimated
Fair
Value
|
|
Unrealized
Gain
(Loss)
|
|
(in thousands)
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
(1) (2)
|
$
|
271,395
|
|
|
$
|
273,590
|
|
|
$
|
2,195
|
|
|
$
|
286,450
|
|
|
$
|
284,381
|
|
|
$
|
(2,069
|
)
|
Collateralized mortgage obligations
(1)
|
91,947
|
|
|
92,129
|
|
|
182
|
|
|
97,904
|
|
|
96,986
|
|
|
(918
|
)
|
U.S. government agency securities
|
39,982
|
|
|
40,040
|
|
|
58
|
|
|
48,478
|
|
|
47,822
|
|
|
(656
|
)
|
SBA loan pool securities
|
60,811
|
|
|
60,607
|
|
|
(204
|
)
|
|
63,670
|
|
|
63,266
|
|
|
(404
|
)
|
Municipal bonds-tax exempt
|
161,527
|
|
|
166,126
|
|
|
4,599
|
|
|
162,101
|
|
|
163,902
|
|
|
1,801
|
|
Municipal bonds-taxable
|
13,888
|
|
|
14,313
|
|
|
425
|
|
|
13,932
|
|
|
14,033
|
|
|
101
|
|
Corporate bonds
|
5,016
|
|
|
4,998
|
|
|
(18
|
)
|
|
5,017
|
|
|
4,993
|
|
|
(24
|
)
|
U.S. treasury securities
|
158
|
|
|
160
|
|
|
2
|
|
|
159
|
|
|
160
|
|
|
1
|
|
Mutual funds
|
22,916
|
|
|
23,069
|
|
|
153
|
|
|
22,916
|
|
|
22,753
|
|
|
(163
|
)
|
Total securities available for sale
|
$
|
667,640
|
|
|
$
|
675,032
|
|
|
$
|
7,392
|
|
|
$
|
700,627
|
|
|
$
|
698,296
|
|
|
$
|
(2,331
|
)
|
|
|
(1)
|
Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
|
|
|
(2)
|
Include securities collateralized by home equity conversion mortgages with total estimated fair value of $56.9 million and $58.6 million
as of March 31, 2016 and December 31, 2015, respectively.
|
As of March 31, 2016, securities available for sale decreased 3.3 percent to $675.0 million, compared to $698.3 million as of December 31, 2015, due mainly to principal payments offset by an increase in unrealized gains. As of March 31, 2016, securities available for sale had a net unrealized gain of $7.4 million, comprised of $8.4 million of unrealized gains and $1.0 million of unrealized losses. As of December 31, 2015, securities available for sale had a net unrealized loss of $2.3 million, comprised of $2.5 million of unrealized gains and $4.8 million of unrealized losses.
The following table summarizes the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After One Year But
|
|
After Five Years But
|
|
|
|
|
|
|
|
|
|
Within One Year
|
|
Within Five Years
|
|
Within Ten Years
|
|
After Ten Years
|
|
Total
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
$
|
1
|
|
|
1.63
|
%
|
|
$
|
50,039
|
|
|
1.63
|
%
|
|
$
|
89,278
|
|
|
2.07
|
%
|
|
$
|
132,077
|
|
|
1.73
|
%
|
|
$
|
271,395
|
|
|
1.82
|
%
|
Collateralized mortgage obligations
|
24
|
|
|
2.49
|
%
|
|
21,482
|
|
|
1.43
|
%
|
|
49,433
|
|
|
1.89
|
%
|
|
21,008
|
|
|
1.43
|
%
|
|
91,947
|
|
|
1.68
|
%
|
U.S. government agency securities
|
—
|
|
|
—
|
%
|
|
6,000
|
|
|
1.35
|
%
|
|
30,984
|
|
|
2.05
|
%
|
|
2,998
|
|
|
2.29
|
%
|
|
39,982
|
|
|
1.96
|
%
|
SBA loan pool securities
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
49,426
|
|
|
1.36
|
%
|
|
11,385
|
|
|
1.55
|
%
|
|
60,811
|
|
|
1.40
|
%
|
Municipal bonds-tax exempt
(1)
|
—
|
|
|
—
|
%
|
|
721
|
|
|
2.82
|
%
|
|
70,741
|
|
|
3.07
|
%
|
|
90,065
|
|
|
4.04
|
%
|
|
161,527
|
|
|
3.61
|
%
|
Municipal bonds-taxable
|
—
|
|
|
—
|
%
|
|
3,742
|
|
|
3.99
|
%
|
|
10,146
|
|
|
3.99
|
%
|
|
—
|
|
|
—
|
%
|
|
13,888
|
|
|
3.99
|
%
|
Corporate bonds
|
—
|
|
|
—
|
%
|
|
5,016
|
|
|
1.99
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
5,016
|
|
|
1.09
|
%
|
U.S. treasury securities
|
—
|
|
|
—
|
%
|
|
158
|
|
|
1.19
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
158
|
|
|
1.19
|
%
|
Mutual funds
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
22,916
|
|
|
2.14
|
%
|
|
22,916
|
|
|
2.14
|
%
|
Total securities available for sale
|
$
|
25
|
|
|
2.45
|
%
|
|
$
|
87,158
|
|
|
1.64
|
%
|
|
$
|
300,008
|
|
|
2.22
|
%
|
|
$
|
280,449
|
|
|
2.48
|
%
|
|
$
|
667,640
|
|
|
2.25
|
%
|
|
|
(1)
|
The yield on municipal bonds has been computed on a federal tax-equivalent basis of 35 percent.
|
Loans Receivable, Net
The following table shows the loan composition by type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
(in thousands)
|
Real estate loans:
|
|
|
|
Commercial property
(1)
|
|
|
|
Retail
|
$
|
776,718
|
|
|
$
|
740,350
|
|
Hospitality
|
548,807
|
|
|
543,425
|
|
Gas station
|
318,184
|
|
|
323,655
|
|
Other
(2)
|
1,058,801
|
|
|
978,662
|
|
Construction
|
27,017
|
|
|
23,387
|
|
Residential property
|
256,488
|
|
|
236,035
|
|
Total real estate loans
|
2,986,015
|
|
|
2,845,514
|
|
Commercial and industrial loans:
|
|
|
|
Commercial term
|
140,720
|
|
|
152,773
|
|
Commercial lines of credit
|
124,962
|
|
|
128,224
|
|
International loans
|
29,950
|
|
|
31,879
|
|
Total commercial and industrial loans
|
295,632
|
|
|
312,876
|
|
Consumer loans
(3)
|
24,832
|
|
|
24,926
|
|
Loans receivable
|
3,306,479
|
|
|
3,183,316
|
|
Allowance for loan losses
|
(41,026
|
)
|
|
(42,935
|
)
|
Loans receivable, net
|
$
|
3,265,453
|
|
|
$
|
3,140,381
|
|
|
|
(1)
|
Includes owner-occupied property loans of $1.23 billion and $1.20 billion as of March 31, 2016 and December 31, 2015, respectively.
|
|
|
(2)
|
Includes, among other property types, mixed-use, apartment, office, industrial, faith-based facilities and warehouse; the remaining real estate categories represents less than one percent of the Bank's total loans.
|
|
|
(3)
|
Consumer loans include home equity lines of credit of $21.7 million and $21.8 million as of March 31, 2016 and December 31, 2015, respectively.
|
As of March 31, 2016 and December 31, 2015, loans receivable (excluding loans held for sale and net of deferred loan cost, discounts and the allowance for loan losses) were $3.27 billion and $3.14 billion, respectively, representing an increase of $125.1 million, or 4.0 percent. The increase in loans as of March 31, 2016 compared with December 31, 2015 was primarily attributable to new loan production of $208.8 million and residential mortgage loan purchases of $30.7 million, offset by loan pay-offs and pay-downs of $59.9 million and SBA loan sales of $12.4 million.
During the three months ended March 31, 2016, new loan production was comprised of $174.4 million in commercial real estate loans, $15.3 million in commercial and industrial loans, $17.6 million in SBA loans, and $1.6 million in consumer loans.
Our loan portfolio included the following concentrations of loans to one type of industry that were greater than 10 percent of loans outstanding (includes real estate loans and commercial and industrial loans):
|
|
|
|
|
|
|
|
|
Balance as of
March 31, 2016
|
|
Percentage of Loans
Outstanding
|
|
|
Industry
|
(in thousands)
|
Lessor of nonresidential buildings
|
$
|
1,004,466
|
|
|
30.4
|
%
|
Hospitality
|
$
|
573,292
|
|
|
17.3
|
%
|
Gas station
|
$
|
343,490
|
|
|
10.4
|
%
|
There was no other concentration of loans to any one type of industry exceeding 10.0 percent of loans outstanding.
Nonperforming Loans and Nonperforming Assets
Nonperforming loans (excluding PCI loans) consist of loans on nonaccrual status and loans 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and OREO. Non-purchased credit impaired (“Non-PCI”) 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 an asset 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 assets 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 that management intends to offer for sale.
Except for nonperforming loans set forth below and PCI loans, we are not aware of any loans as of March 31, 2016 and December 31, 2015 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 repayment terms, or any known events that would result in the loan being designated as nonperforming at some future date. We cannot, however, predict the extent to which a deterioration in general economic conditions, real estate values, increases in general rates of interest, or changes in the financial condition or business of borrower may adversely affect a borrower’s ability to pay.
The following table provides information with respect to the components of nonperforming assets (excluding PCI loans) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Increase (Decrease)
|
|
|
|
Amount
|
|
Percentage
|
|
|
|
(in thousands)
|
|
|
Nonperforming Non-PCI loans:
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
Retail
|
$
|
1,271
|
|
|
$
|
946
|
|
|
$
|
325
|
|
|
34.4
|
%
|
Hospitality
|
5,277
|
|
|
5,790
|
|
|
(513
|
)
|
|
-8.9
|
%
|
Gas station
|
2,531
|
|
|
2,774
|
|
|
(243
|
)
|
|
-8.8
|
%
|
Other
|
3,565
|
|
|
4,068
|
|
|
(503
|
)
|
|
-12.4
|
%
|
Residential property
|
546
|
|
|
1,386
|
|
|
(840
|
)
|
|
-60.6
|
%
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
Commercial term
|
2,557
|
|
|
2,193
|
|
|
364
|
|
|
16.6
|
%
|
Commercial lines of credit
|
108
|
|
|
450
|
|
|
(342
|
)
|
|
-76.0
|
%
|
Consumer loans
|
421
|
|
|
1,511
|
|
|
(1,090
|
)
|
|
-72.1
|
%
|
Total nonperforming Non-PCI loans
|
16,276
|
|
|
19,118
|
|
|
(2,842
|
)
|
|
-14.9
|
%
|
Loans 90 days or more past due and still accruing
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total nonperforming Non-PCI loans
(1)
|
16,276
|
|
|
19,118
|
|
|
(2,842
|
)
|
|
-14.9
|
%
|
OREO
|
9,411
|
|
|
8,511
|
|
|
900
|
|
|
10.6
|
%
|
Total nonperforming assets
|
$
|
25,687
|
|
|
$
|
27,629
|
|
|
$
|
(1,942
|
)
|
|
-7.0
|
%
|
|
|
|
|
|
|
|
|
Nonperforming Non-PCI loans as a percentage of Non-PCI loans
|
0.50
|
%
|
|
0.60
|
%
|
|
|
|
|
Nonperforming assets as a percentage of assets
|
0.60
|
%
|
|
0.65
|
%
|
|
|
|
|
Troubled debt restructured performing Non-PCI loans
|
$
|
10,319
|
|
|
$
|
10,299
|
|
|
|
|
|
|
|
(1)
|
Includes nonperforming TDRs of $5.9 million and $6.9 million as of March 31, 2016 and December 31, 2015, respectively.
|
Nonaccrual Non-PCI loans were $16.3 million as of March 31, 2016, compared with $19.1 million as of December 31, 2015, representing a decrease of $2.8 million, or 14.9 percent. There were no Non-PCI loans past due 90 days or more and still accruing as of March 31, 2016 and December 31, 2015. During the three months ended March 31, 2016, $2.1 million of loans were placed on nonaccrual status. These additions to nonaccrual loans were mainly offset by $2.1 million of nonaccrual loans restored to accrual status, $1.6 million in principal payoffs and paydowns and $0.6 million in charge-offs.
Delinquent Non-PCI loans (defined as 30 to 89 days or more past due and still accruing) were $6.0 million as of March 31, 2016, compared with $4.1 million as of December 31, 2015.
The ratio of nonperforming Non-PCI loans to Non-PCI loans decreased to 0.50 percent at March 31, 2016 from 0.60 percent at December 31, 2015. Of the $16.3 million nonperforming Non-PCI loans, approximately $15.1 million were impaired based on the definition contained in ASC 310,
Receivables
, which resulted in aggregate impairment reserve of $3.6 million as of March 31, 2016. The allowance for collateral-dependent loans is calculated as the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals less estimated costs to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as nonperforming. We continue to monitor the collateral coverage, based on recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly.
As of March 31, 2016, OREO consisted of 17 properties with a combined carrying value of $9.4 million, as compared to 14 properties with a combined carrying value of $8.5 million as of December 31, 2015.
Impaired Loans
We evaluate loan impairment in accordance with GAAP. With the exception of PCI loans, loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established. Additionally, impaired loans are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan losses required for the period.
The following table provides information on impaired loans (excluding PCI loans) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Recorded
Investment
|
|
Percentage
|
|
Recorded
Investment
|
|
Percentage
|
|
(in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
Retail
|
$
|
2,838
|
|
|
8.7
|
%
|
|
$
|
2,597
|
|
|
7.2
|
%
|
Hospitality
|
6,666
|
|
|
20.4
|
%
|
|
7,168
|
|
|
20.0
|
%
|
Gas station
|
5,063
|
|
|
15.5
|
%
|
|
5,393
|
|
|
15.0
|
%
|
Other
|
8,187
|
|
|
25.0
|
%
|
|
9,288
|
|
|
25.9
|
%
|
Residential property
|
2,841
|
|
|
8.7
|
%
|
|
2,895
|
|
|
8.1
|
%
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
Commercial term
|
5,144
|
|
|
15.7
|
%
|
|
5,257
|
|
|
14.7
|
%
|
Commercial lines of credit
|
38
|
|
|
0.1
|
%
|
|
381
|
|
|
1.1
|
%
|
International loans
|
1,259
|
|
|
3.8
|
%
|
|
1,215
|
|
|
3.4
|
%
|
Consumer loans
|
700
|
|
|
2.1
|
%
|
|
1,665
|
|
|
4.6
|
%
|
Total Non-PCI loans
|
$
|
32,736
|
|
|
100.0
|
%
|
|
$
|
35,859
|
|
|
100.0
|
%
|
Total impaired loans decreased $3.2 million, or 8.9 percent, to $32.7 million as of March 31, 2016, as compared to $35.9 million at December 31, 2015. Specific reserve allocations associated with impaired loans were $4.1 million and $4.4 million as of March 31, 2016 and December 31, 2015, respectively.
During the three months ended March 31, 2016 and 2015, interest income that would have been recognized had impaired loans performed in accordance with their original terms totaled $0.9 million and $0.7 million, respectively. Of these amounts, actual interest recognized on impaired loans was both $0.7 million for the three months ended March 31, 2016 and 2015.
The following table provides information on TDRs (excluding PCI loans) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Nonaccrual TDRs
|
|
Accrual TDRs
|
|
Total
|
|
Nonaccrual TDRs
|
|
Accrual TDRs
|
|
Total
|
|
(in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
348
|
|
|
$
|
1,225
|
|
|
$
|
1,573
|
|
|
$
|
344
|
|
|
$
|
1,227
|
|
|
$
|
1,571
|
|
Hospitality
|
1,198
|
|
|
411
|
|
|
1,609
|
|
|
1,244
|
|
|
414
|
|
|
1,658
|
|
Gas station
|
917
|
|
|
—
|
|
|
917
|
|
|
959
|
|
|
—
|
|
|
959
|
|
Other
|
1,723
|
|
|
4,466
|
|
|
6,189
|
|
|
1,525
|
|
|
5,237
|
|
|
6,762
|
|
Residential property
|
—
|
|
|
1,097
|
|
|
1,097
|
|
|
689
|
|
|
299
|
|
|
988
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial term
|
1,708
|
|
|
2,743
|
|
|
4,451
|
|
|
1,721
|
|
|
2,872
|
|
|
4,593
|
|
Commercial lines of credit
|
38
|
|
|
—
|
|
|
38
|
|
|
280
|
|
|
—
|
|
|
280
|
|
Consumer loans
|
—
|
|
|
377
|
|
|
377
|
|
|
116
|
|
|
250
|
|
|
366
|
|
Total Non-PCI loans
|
$
|
5,932
|
|
|
$
|
10,319
|
|
|
$
|
16,251
|
|
|
$
|
6,878
|
|
|
$
|
10,299
|
|
|
$
|
17,177
|
|
For the three months ended March 31, 2016, we restructured monthly payments for three loans, with a net carrying value of $0.2 million at the time of modification, which we subsequently classified them as TDRs. Temporary payment structure modifications included, but were not limited to, extending the maturity date, reducing the amount of principal and/or interest due monthly, and/or allowing for interest only monthly payments for nine months or less.
As of March 31, 2016, TDRs on accrual status were $10.3 million, all of which were temporary interest rate and payment reductions or extensions of maturity, and a $0.4 million allowance relating to these loans was included in the allowance for loan losses. For the TDRs on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms is probable. As of March 31, 2016, TDRs on nonaccrual status were $5.9 million, and a $0.5 million allowance relating to these loans was included in the allowance for loan losses.
As of December 31, 2015, TDRs on accrual status were $10.3 million, all of which were temporary interest rate and payment reductions or extensions of maturity, and a $0.9 million allowance reserve relating to these loans was included in the allowance for loan losses. For the TDRs on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms is probable. As of December 31, 2015, TDRs on nonaccrual status were $6.9 million, and a $0.1 million allowance relating to these loans was included in the allowance for loan losses.
Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
The Bank charges or credits operating expenses for provisions to the allowance for loan losses and the allowance for off-balance sheet items at least quarterly based upon the allowance need. The allowance is determined through an analysis involving quantitative calculations based on historic loss rates and qualitative adjustments for general reserves and individual impairment calculations for specific allocations. The Bank charges the allowance for actual losses and credits the allowance for recoveries on loans previously charged-off.
The Bank evaluates the allowance methodology at least annually. In the fourth quarter of 2015, based upon an evaluation of the look-back periods, the loss-emergence periods and the qualitative adjustments, the Bank utilized a 20-quarter look-back period with equal weighting to all quarters in order to reflect the lengthening of the business cycle and to capture sufficient loss observations for the estimate of a reliable loss rate. In addition, the Bank determined that there were no indications that the loss migration analysis changed significantly; however, these factors do not materially affect the estimated loss rates. In addition, the Bank re-evaluated the qualitative adjustments, reducing their affect in light of the lengthening of the business cycle and the continued improvement in credit metrics. Improving credit metrics included, among other things, net loan recoveries, a low level of nonperforming, non-PCI loans to loans and a low level of classified loans to loans.
From first quarter of 2014 to the third quarter of 2015, based upon a similar evaluation, the Bank utilized a 16-quarter look-back period, weighing the loss factors 46 percent for the most recent four-quarter period and 31 percent, 15 percent and 8 percent for each of the following four-quarter periods, respectively.
To determine general reserve requirements, existing loans are divided into fourteen general loan pools of risk-rated loans, as well as three homogeneous loan pools. For risk-rated loans, migration analysis allocates historical losses by loan pool and risk grade to determine risk factors for potential loss inherent in the current outstanding loan portfolio. As three homogeneous loans are bulk graded, the risk grade is not factored into the historical loss analysis. In addition, specific reserves are allocated for loans deemed “impaired.”
When determining the appropriate level for allowance for loan losses, management considers qualitative adjustments for any factors that are likely to cause estimated loan losses associated with the Bank’s current portfolio to differ from historical
loss experience, including, but not limited to, national and local economic and business conditions, volume and geographic
concentrations, and problem loan trends.
To systematically quantify the credit risk impact of trends and changes within the loan portfolio, a credit risk matrix is
utilized. The qualitative factors are considered on a loan pool by loan pool basis subsequent to, and in conjunction with, a loss
migration analysis. The credit risk matrix provides various scenarios with positive or negative impact on the portfolio along
with corresponding basis points for qualitative adjustments.
The following tables reflect our allocation of allowance for loan losses by loan category as well as the loans receivable for each loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Allowance
Amount
|
|
Percentage
|
|
Non- PCI Loans
|
|
Allowance
Amount
|
|
Percentage
|
|
Non- PCI Loans
|
|
(in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
5,090
|
|
|
14.4
|
%
|
|
$
|
772,454
|
|
|
$
|
5,164
|
|
|
13.8
|
%
|
|
$
|
735,501
|
|
Hospitality
|
7,407
|
|
|
20.9
|
%
|
|
544,708
|
|
|
8,175
|
|
|
21.8
|
%
|
|
539,345
|
|
Gas station
|
2,447
|
|
|
6.9
|
%
|
|
313,571
|
|
|
2,631
|
|
|
7.0
|
%
|
|
319,363
|
|
Other
|
9,620
|
|
|
27.4
|
%
|
|
1,053,306
|
|
|
9,977
|
|
|
26.6
|
%
|
|
973,243
|
|
Construction
|
1,416
|
|
|
4.0
|
%
|
|
27,017
|
|
|
1,732
|
|
|
4.6
|
%
|
|
23,387
|
|
Residential property
|
2,298
|
|
|
6.5
|
%
|
|
255,334
|
|
|
2,121
|
|
|
5.7
|
%
|
|
234,879
|
|
Total real estate loans
|
28,278
|
|
|
80.1
|
%
|
|
2,966,390
|
|
|
29,800
|
|
|
79.5
|
%
|
|
2,825,718
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial term
|
4,474
|
|
|
12.6
|
%
|
|
140,559
|
|
|
4,734
|
|
|
12.6
|
%
|
|
152,602
|
|
Commercial lines of credit
|
1,421
|
|
|
4.0
|
%
|
|
124,962
|
|
|
1,954
|
|
|
5.2
|
%
|
|
128,224
|
|
International loans
|
394
|
|
|
1.1
|
%
|
|
29,950
|
|
|
393
|
|
|
1.0
|
%
|
|
31,879
|
|
Total commercial and industrial loans
|
6,289
|
|
|
17.7
|
%
|
|
295,471
|
|
|
7,081
|
|
|
18.8
|
%
|
|
312,705
|
|
Consumer loans
|
255
|
|
|
0.7
|
%
|
|
24,783
|
|
|
242
|
|
|
0.6
|
%
|
|
24,879
|
|
Unallocated
|
559
|
|
|
1.5
|
%
|
|
—
|
|
|
371
|
|
|
1.1
|
%
|
|
—
|
|
Total
|
$
|
35,381
|
|
|
100.0
|
%
|
|
$
|
3,286,644
|
|
|
$
|
37,494
|
|
|
100.0
|
%
|
|
$
|
3,163,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Allowance
Amount
|
|
Percentage
|
|
PCI Loans
|
|
Allowance
Amount
|
|
Percentage
|
|
PCI Loans
|
|
(in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
421
|
|
|
7.5
|
%
|
|
$
|
4,264
|
|
|
$
|
269
|
|
|
4.9
|
%
|
|
$
|
4,849
|
|
Hospitality
|
—
|
|
|
—
|
%
|
|
4,099
|
|
|
88
|
|
|
1.6
|
%
|
|
4,080
|
|
Gas station
|
484
|
|
|
8.6
|
%
|
|
4,613
|
|
|
477
|
|
|
8.8
|
%
|
|
4,292
|
|
Other
|
4,497
|
|
|
79.6
|
%
|
|
5,495
|
|
|
4,412
|
|
|
81.1
|
%
|
|
5,419
|
|
Residential property
|
197
|
|
|
3.5
|
%
|
|
1,154
|
|
|
151
|
|
|
2.8
|
%
|
|
1,156
|
|
Total real estate loans
|
5,599
|
|
|
99.2
|
%
|
|
19,625
|
|
|
5,397
|
|
|
99.2
|
%
|
|
19,796
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial term
|
44
|
|
|
0.8
|
%
|
|
161
|
|
|
42
|
|
|
0.8
|
%
|
|
171
|
|
Consumer loans
|
2
|
|
|
—
|
%
|
|
49
|
|
|
2
|
|
|
—
|
%
|
|
47
|
|
Total
|
$
|
5,645
|
|
|
100.0
|
%
|
|
$
|
19,835
|
|
|
$
|
5,441
|
|
|
100.0
|
%
|
|
$
|
20,014
|
|
The following table sets forth certain information regarding allowance for loan losses and allowance for off-balance sheet items for the periods presented. Allowance for off-balance sheet items is determined by applying reserve factors according to loan pool and grade as well as actual current commitment usage figures by loan type to existing contingent liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended,
|
|
March 31, 2016
|
|
December 31, 2015
|
|
March 31, 2015
|
|
Non-PCI Loans
|
|
PCI Loans
|
|
Total
|
|
Non-PCI Loans
|
|
PCI Loans
|
|
Total
|
|
Non-PCI Loans
|
|
PCI Loans
|
|
Total
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
37,494
|
|
|
$
|
5,441
|
|
|
$
|
42,935
|
|
|
$
|
43,222
|
|
|
$
|
3,138
|
|
|
$
|
46,360
|
|
|
$
|
51,640
|
|
|
$
|
1,026
|
|
|
$
|
52,666
|
|
Actual charge-offs
|
(637
|
)
|
|
—
|
|
|
(637
|
)
|
|
(527
|
)
|
|
—
|
|
|
(527
|
)
|
|
(34
|
)
|
|
(52
|
)
|
|
(86
|
)
|
Recoveries on loans previously charged off
|
253
|
|
|
—
|
|
|
253
|
|
|
937
|
|
|
—
|
|
|
937
|
|
|
1,692
|
|
|
352
|
|
|
2,044
|
|
Net loan recoveries
|
(384
|
)
|
|
—
|
|
|
(384
|
)
|
|
410
|
|
|
—
|
|
|
410
|
|
|
1,658
|
|
|
300
|
|
|
1,958
|
|
(Negative provision) provision
|
(1,729
|
)
|
|
204
|
|
|
(1,525
|
)
|
|
(6,138
|
)
|
|
2,303
|
|
|
(3,835
|
)
|
|
(1,783
|
)
|
|
110
|
|
|
(1,673
|
)
|
Balance at end of period
|
$
|
35,381
|
|
|
$
|
5,645
|
|
|
$
|
41,026
|
|
|
$
|
37,494
|
|
|
$
|
5,441
|
|
|
$
|
42,935
|
|
|
$
|
51,515
|
|
|
$
|
1,436
|
|
|
$
|
52,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for off-balance sheet items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
986
|
|
|
$
|
—
|
|
|
$
|
986
|
|
|
$
|
556
|
|
|
$
|
—
|
|
|
$
|
556
|
|
|
$
|
1,366
|
|
|
$
|
—
|
|
|
$
|
1,366
|
|
(Negative provision) provision
|
234
|
|
|
—
|
|
|
234
|
|
|
430
|
|
|
—
|
|
|
430
|
|
|
(312
|
)
|
|
—
|
|
|
(312
|
)
|
Balance at end of period
|
$
|
1,220
|
|
|
$
|
—
|
|
|
$
|
1,220
|
|
|
$
|
986
|
|
|
$
|
—
|
|
|
$
|
986
|
|
|
$
|
1,054
|
|
|
$
|
—
|
|
|
$
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs (recoveries) to average loans
(1)
|
0.05
|
%
|
|
—
|
%
|
|
0.05
|
%
|
|
(0.06
|
)%
|
|
—
|
%
|
|
(0.05
|
)%
|
|
(0.24
|
)%
|
|
(2.81
|
)%
|
|
(0.28
|
)%
|
Net loan charge-offs (recoveries) to loans
(1)
|
0.05
|
%
|
|
—
|
%
|
|
0.05
|
%
|
|
(0.06
|
)%
|
|
—
|
%
|
|
(0.05
|
)%
|
|
(0.24
|
)%
|
|
(2.93
|
)%
|
|
(0.28
|
)%
|
Allowance for loan losses to average loans
|
1.1
|
%
|
|
28.33
|
%
|
|
1.28
|
%
|
|
1.27
|
%
|
|
18.14
|
%
|
|
1.41
|
%
|
|
1.87
|
%
|
|
3.36
|
%
|
|
1.88
|
%
|
Allowance for loan losses to loans
|
1.08
|
%
|
|
28.46
|
%
|
|
1.24
|
%
|
|
1.19
|
%
|
|
27.18
|
%
|
|
1.35
|
%
|
|
1.86
|
%
|
|
3.51
|
%
|
|
1.88
|
%
|
Net loan charge-offs (recoveries) to allowance for loan losses
(1)
|
4.34
|
%
|
|
—
|
%
|
|
3.74
|
%
|
|
(5.05
|
)%
|
|
—
|
%
|
|
(3.82
|
)%
|
|
(12.87
|
)%
|
|
(83.57
|
)%
|
|
(14.79
|
)%
|
Allowance for loan losses to nonperforming loans
|
217.38
|
%
|
|
—
|
%
|
|
252.06
|
%
|
|
196.12
|
%
|
|
—
|
%
|
|
224.58
|
%
|
|
176.07
|
%
|
|
0.00
|
%
|
|
180.98
|
%
|
Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans during period
|
$
|
3,224,973
|
|
|
$
|
19,925
|
|
|
$
|
3,192,832
|
|
|
$
|
3,091,615
|
|
|
$
|
22,580
|
|
|
$
|
3,049,544
|
|
|
$
|
2,758,188
|
|
|
$
|
42,721
|
|
|
$
|
2,821,616
|
|
Loans at end of period
|
$
|
3,286,644
|
|
|
$
|
19,835
|
|
|
$
|
3,306,479
|
|
|
$
|
3,163,302
|
|
|
$
|
20,014
|
|
|
$
|
3,183,316
|
|
|
$
|
2,775,616
|
|
|
$
|
40,941
|
|
|
$
|
2,816,557
|
|
Nonperforming loans at end of period
|
$
|
16,276
|
|
|
$
|
—
|
|
|
$
|
16,276
|
|
|
$
|
19,118
|
|
|
$
|
—
|
|
|
$
|
19,118
|
|
|
$
|
29,258
|
|
|
$
|
—
|
|
|
$
|
29,258
|
|
|
|
(1)
|
Net loan charge-offs (recoveries) are annualized to calculate the ratios.
|
Allowance for loan losses was $41.0 million, $42.9 million and $53.0 million, as of March 31, 2016, December 31, 2015, and March 31, 2015, respectively. The decrease of $1.9 million, or 4.4 percent in the allowance for loan losses as of March 31, 2016, compared with December 31, 2015 was due primarily to the decline in estimated loss factors and improvements in classified loans. Accordingly, the non-PCI loan loss allowance decreased by $2.1 million to $35.4 million as of March 31, 2016, compared with December 31, 2015. However, the PCI loan loss allowance increased by $0.2 million to $5.6 million as of March 31, 2016, compared with December 31, 2015, due to deteriorating loans condition determined individually on PCI loans.
An allowance for off-balance sheet exposure, primarily unfunded loan commitments, as of March 31, 2016, December 31, 2015 and March 31, 2015 was $1.2 million, $1.0 million and $1.1 million, respectively. 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 are adequate for losses inherent in the loan portfolio and for off-balance sheet exposures as of March 31, 2016.
The following table presents a summary of net recoveries (charge-offs) by the loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended
|
|
Charge-offs
|
|
Recoveries
|
|
Net Recoveries (Charge-offs)
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
Retail
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Hospitality
|
(535
|
)
|
|
—
|
|
|
(535
|
)
|
Gas station
|
—
|
|
|
81
|
|
|
81
|
|
Other
|
—
|
|
|
9
|
|
|
9
|
|
Commercial and industrial loans:
|
|
|
|
|
|
Commercial term
|
(2
|
)
|
|
154
|
|
|
152
|
|
Commercial lines of credit
|
(100
|
)
|
|
6
|
|
|
(94
|
)
|
Total Non-PCI loans
|
$
|
(637
|
)
|
|
$
|
253
|
|
|
$
|
(384
|
)
|
|
|
|
|
|
|
March 31, 2015
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
Retail
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
8
|
|
Other
|
—
|
|
|
24
|
|
|
24
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
Commercial term
|
(34
|
)
|
|
1,614
|
|
|
1,580
|
|
Commercial lines of credit
|
—
|
|
|
31
|
|
|
31
|
|
International loans
|
—
|
|
|
15
|
|
|
15
|
|
Total Non-PCI loans
|
$
|
(34
|
)
|
|
$
|
1,692
|
|
|
$
|
1,658
|
|
For the three months ended March 31, 2016, total charge-offs were $0.6 million, an increase of $0.6 million from $34,000 for the same period in 2015, and total recoveries were $0.3 million, an decrease of $1.4 million, or 85.0 percent, from $1.7 million for the same period in 2015.
Deposits
The following table shows the composition of deposits by type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Balance
|
|
Percent
|
|
Balance
|
|
Percent
|
|
(in thousands)
|
Demand – noninterest-bearing
|
$
|
1,172,444
|
|
|
33.5
|
%
|
|
$
|
1,155,518
|
|
|
33.0
|
%
|
interest-bearing
|
99,141
|
|
|
2.8
|
%
|
|
94,583
|
|
|
2.7
|
%
|
Interest-bearing:
|
|
|
|
|
|
|
|
Money market and savings
|
931,915
|
|
|
26.6
|
%
|
|
871,863
|
|
|
24.8
|
%
|
Time deposits of $100,000 or more
(1)
|
836,305
|
|
|
23.9
|
%
|
|
881,082
|
|
|
25.1
|
%
|
Other time deposits
|
460,187
|
|
|
13.2
|
%
|
|
506,931
|
|
|
14.4
|
%
|
Total deposits
|
$
|
3,499,992
|
|
|
100.0
|
%
|
|
$
|
3,509,977
|
|
|
100.0
|
%
|
|
|
(1)
|
Includes $348.1 million and $377.1 million of time deposits of $250,000 or more as of March 31, 2016 and December 31, 2015, respectively.
|
Deposits decreased $10.0 million, or 0.3 percent, to $3.50 billion as of March 31, 2016 from $3.51 billion as of December 31, 2015. The decrease in deposits was mainly attributable to the $91.5 million decrease in time deposits, offset by a $60.1 million increase in money market and savings deposits as well as a $16.9 million increase in noninterest-bearing demand deposits. The decrease in time deposits were primarily due to maturities of higher rate time deposits assumed from CBI acquisition.
Core deposits (defined as demand, money market and savings and other time deposits) increased $35.3 million, or 1.3 percent, to $2.66 billion at March 31, 2016 from $2.63 billion at December 31, 2015. Noninterest-bearing demand deposits as a percentage of deposits increased to 33.5 percent at March 31, 2016 from 32.9 percent at December 31, 2015.
Borrowings
At March 31, 2016 and December 31, 2015, there were $250.0 million and $170.0 million overnight advances from the FHLB, respectively. The increase in FHLB advances supported loan growth for the 2016 first quarter. In addition, subordinated debentures were $18.8 and $18.7 million, respectively, at March 31, 2016 and December 31, 2015, the change representing the accretion of acquisition discount.
Interest Rate Risk Management
Interest rate risk indicates our exposure to market interest rate fluctuations. The movement of interest rates directly and inversely affects the economic value of fixed-income assets, which is the present value of future cash flow discounted by the current interest rate; under the same conditions, the higher the current interest rate, the higher the denominator of discounting. Interest rate risk management is intended to decrease or increase the level of our exposure to market interest rates. The level of interest rate risk can be managed through such means as the changing of gap positions and the volume of fixed-income assets. For successful management of interest rate risk, we use various methods to measure existing and future interest rate risk exposures, giving effect to historical attrition rates of core deposits. In addition to regular reports used in business operations, repricing gap analysis, stress testing and simulation modeling are the main measurement techniques used to quantify interest rate risk exposure.
The following table shows the status of our gap position as of March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Than
Three
Months
|
|
More Than
Three
Months But
Less Than
One Year
|
|
More Than
One
Year But
Less Than
Five Years
|
|
More Than
Five Years
|
|
Noninterest-
Sensitive
|
|
Total
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
111,366
|
|
|
$
|
111,366
|
|
Interest-bearing deposits in other banks
|
26,098
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,098
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
30,858
|
|
|
53,816
|
|
|
206,947
|
|
|
258,031
|
|
|
—
|
|
|
549,652
|
|
Floating rate
|
113,636
|
|
|
4,499
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
118,135
|
|
Fair value adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,245
|
|
|
7,245
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
70,653
|
|
|
152,184
|
|
|
615,712
|
|
|
32,832
|
|
|
—
|
|
|
871,381
|
|
Floating rate
|
955,283
|
|
|
231,750
|
|
|
1,223,130
|
|
|
19,609
|
|
|
—
|
|
|
2,429,772
|
|
Nonaccrual
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,831
|
|
|
30,831
|
|
Deferred loan costs, discount, and allowance for loan losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63,948
|
)
|
|
(63,948
|
)
|
FHLB and FRB stock
|
—
|
|
|
—
|
|
|
—
|
|
|
30,808
|
|
|
—
|
|
|
30,808
|
|
Other assets
|
48,612
|
|
|
—
|
|
|
—
|
|
|
18,011
|
|
|
132,785
|
|
|
199,408
|
|
Total assets
|
$
|
1,245,140
|
|
|
$
|
442,249
|
|
|
$
|
2,045,789
|
|
|
$
|
359,291
|
|
|
$
|
218,279
|
|
|
$
|
4,310,748
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
Demand – noninterest-bearing
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,172,444
|
|
|
$
|
1,172,444
|
|
– interest-bearing
|
4,626
|
|
|
8,557
|
|
|
27,265
|
|
|
58,692
|
|
|
—
|
|
|
99,140
|
|
Money market and savings
|
71,799
|
|
|
154,139
|
|
|
409,747
|
|
|
296,230
|
|
|
—
|
|
|
931,915
|
|
Time deposits
|
268,025
|
|
|
838,233
|
|
|
186,818
|
|
|
3,417
|
|
|
—
|
|
|
1,296,493
|
|
FHLB advances
|
250,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
Subordinated debentures
|
18,759
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,759
|
|
Other liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,137
|
|
|
31,137
|
|
Stockholders’ equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
510,860
|
|
|
510,860
|
|
Total liabilities and stockholders’ equity
|
$
|
613,209
|
|
|
$
|
1,000,929
|
|
|
$
|
623,830
|
|
|
$
|
358,339
|
|
|
$
|
1,714,441
|
|
|
$
|
4,310,748
|
|
Repricing gap
|
631,931
|
|
|
(558,680
|
)
|
|
1,421,959
|
|
|
952
|
|
|
(1,496,162
|
)
|
|
|
Cumulative repricing gap
|
631,931
|
|
|
73,251
|
|
|
1,495,210
|
|
|
1,496,162
|
|
|
—
|
|
|
|
Cumulative repricing gap as a percentage of assets
|
14.66
|
%
|
|
1.70
|
%
|
|
34.69
|
%
|
|
34.71
|
%
|
|
—
|
|
|
|
Cumulative repricing gap as a percentage of interest-earning assets
|
15.67
|
%
|
|
1.82
|
%
|
|
37.07
|
%
|
|
37.09
|
%
|
|
—
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
$
|
4,033,381
|
|
The repricing gap analysis measures the static timing of repricing risk of assets and liabilities (i.e., a point-in-time analysis measuring the difference between assets maturing or repricing in a period and liabilities maturing or repricing within the same period). Assets are assigned to maturity and repricing categories based on their expected repayment or repricing dates, and liabilities are assigned based on their repricing or maturity dates. Interest-bearing core deposits that have no maturity dates (savings, and money market checking and NOW accounts) are assigned to categories based on expected decay rates.
As of March 31, 2016, the cumulative repricing gap for the three-month period was at an asset-sensitive position and was 15.67 percent of interest-earning assets, which increased from 13.56 percent as of December 31, 2015. This increase was due mainly to a a $143.4 million increase in floating rate loans, a $35.7 million increase in floating rate securities and a $43.5 million decrease in time deposits, mainly offset by a $80.0 million increase in FHLB advances and a $49.9 million decrease in interest-bearing deposits in other banks.
As of March 31, 2016, the cumulative repricing gap for the twelve-month period was at an asset-sensitive position and was 1.82 percent of interest-earning assets, which increased from 1.79 percent of an asset-sensitive position as of December 31, 2015. This increase was due mainly to a $51.8 million increase in fixed rate loans and $51.8 million decrease in time deposits, mainly offset by a $80.0 million increase in FHLB advances and a $49.9 million decrease in interest-bearing deposits in other banks.
The following table summarizes the status of the cumulative gap position as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Three Months
|
|
Less Than Twelve Months
|
|
March 31, 2016
|
|
December 31, 2015
|
|
March 31, 2016
|
|
December 31, 2015
|
|
(in thousands)
|
Cumulative repricing gap
|
$
|
631,931
|
|
|
$
|
533,628
|
|
|
$
|
73,251
|
|
|
$
|
70,573
|
|
Percentage of assets
|
14.66
|
%
|
|
12.68
|
%
|
|
1.70
|
%
|
|
1.68
|
%
|
Percentage of interest-earning assets
|
15.67
|
%
|
|
13.56
|
%
|
|
1.82
|
%
|
|
1.79
|
%
|
The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings rather than maximizing yield. 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.
To supplement traditional gap analysis, we perform 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 market value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated below). This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a one-year horizon, given the basis point adjustment in interest rates reflected below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Changes
|
|
Change in Amount
|
Change in
Interest
Rate
|
Net
Interest
Income
|
|
Economic
Value of
Equity
|
|
Net
Interest
Income
|
|
Economic
Value of
Equity
|
|
(in thousands)
|
300%
|
2.71%
|
|
(5.89)%
|
|
$
|
4,368
|
|
|
$
|
(29,861
|
)
|
200%
|
1.78%
|
|
(3.60)%
|
|
$
|
2,866
|
|
|
$
|
(18,227
|
)
|
100%
|
1.07%
|
|
(0.50)%
|
|
$
|
1,732
|
|
|
$
|
(2,519
|
)
|
-100%
|
(1)
|
|
(1)
|
|
(1)
|
|
(1)
|
|
|
(1)
|
Results are not meaningful in a low interest rate environment.
|
The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
Capital Resources
Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, the Board continually assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs.
At March 31, 2016, the Bank’s total risk-based capital ratio of 14.78 percent, Tier 1 risk-based capital ratio of 13.56 percent, common equity Tier 1 capital ratio of 13.56 percent and Tier 1 leverage capital ratio of 11.22 percent, placed the Bank in the “well capitalized” category pursuant to new capital rule, which is defined as institutions with total risk-based capital ratio equal to or greater than 10.00 percent, Tier 1 risk-based capital ratio equal to or greater than 8.00 percent, common equity Tier 1 capital ratios equal to or greater than 6.50 percent and Tier 1 leverage capital ratio equal to or greater than 5.00 percent.
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 Note 9 - Regulatory Matters of Notes to Consolidated Financial Statements (Unaudited) in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
For a discussion of off-balance sheet arrangements, see Note 12 - Off-Balance Sheet Commitments of Notes to Consolidated Financial Statements (Unaudited) in this Quarterly Report on Form 10-Q and “Item 1. Business - Off-Balance Sheet Commitments” in our 2015 Annual Report on Form 10-K.
Contractual Obligations
There have been no material changes to the contractual obligations described in our 2015 Annual Report on Form 10-K.
Recently Issued Accounting Standards
In January, 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updated ("ASU") 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU 2016-01). Changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The classification and measurement guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. All entities can early adopt the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. Early adoption of these provisions can be elected for all financial statements of fiscal years and interim periods that have not yet been issued (for public business entities) or that have not yet been made available for issuance. The classification and measurement guidance is the first ASU issued under the FASB’s financial instruments project. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
In February, 2016, the FASB issued ASU 2016-02,
Leases
. While both lessees and lessors are affected by the new guidance, the effects on the lessees are much more significant. The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases. By definition, a short-term lease is one in which: (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which right-of-use assets and lease liabilities are not recognized and lease payments are generally recognized as expense over the lease term on a straight-line basis. Adoption of this ASU will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under existing lease accounting guidance. For many entities, this could significantly affect the financial ratios they use for external reporting and other purposes, such as debt covenant compliance. Examples of changes in the new guidance affecting both lessees and lessors include: (a) defining initial direct costs to only include those incremental costs that would not have been incurred if the lease had not been entered into, (b) requiring related party leases to be accounted for based on their legally enforceable terms and conditions, (c) eliminating the additional requirements that currently must be applied to leases involving real estate and (d) revising the circumstances under which the transfer contract in a sale-leaseback transaction should be accounted for as the sale of an asset by the seller-lessee and the purchase of an asset by the buyer-lessor. In addition, both lessees and lessors are subject to new disclosure requirements. ASU 2016-02 is effective for public entities for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, to reduce the complexity of certain aspects of the accounting for employee share-based payment transactions. As a result of this ASU, changes applicable to all entities include: 1) minimum statutory
withholding requirements;
under the ASU, the threshold to qualify for equity classification would permit withholding up to the maximum individual statutory tax rate in the applicable jurisdictions. Also, the ASU provides that cash paid by an employer when directly withholding shares for tax-withholding purposes would be classified as a financing activity on the statement of cash flows; 2) accounting
for forfeitures;
the ASU would allow an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur; 3) accounting for income taxes; under the ASU, all excess tax benefits and tax deficiencies would be recognized as income tax expense or benefit in the income statement. An entity also would recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Further, excess tax benefits would not be separated from other income tax cash flows and thus would be classified along with other cash flows as an operating activity.
ASU 2016-09 is effective for public entities for interim and annual periods beginning after December 15, 2016. The Company adopted this ASU effective January 1, 2016 and it did not have a material impact on its consolidated financial statements.