UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 20222023
o | 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: 000-51018
(Exact name of registrant as specified in its charter)
Delaware | 23-3016517 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
409 Silverside Road, Wilmington, DE 19809 | (302) 385-5000 | |
(Address of principal executive offices and zip code) | (Registrant's telephone number, including area code) |
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, par value $1.00 per share | TBBK | Nasdaq Global Select |
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 x No o
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
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”,filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o |
Smaller reporting company o | Emerging growth company o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 3, 2022,April 28, 2023, there were 56,572,31854,691,405 outstanding shares of common stock, $1.00 par value.
THE BANCORP, INC
Form 10-Q Index
Page | ||
Part I Financial Information | ||
Item 1. | 3 | |
Consolidated Balance Sheets – March 31, | 3 | |
Unaudited Consolidated Statements of Operations – Three months ended March 31, | 4 | |
5 | ||
6 | ||
Unaudited Consolidated Statements of Cash Flows – Three months ended March 31, | 8 | |
9 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Part II Other Information | ||
Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
THE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | March 31, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(in thousands, except share data) | (unaudited) | |||||||||
(unaudited) | ||||||||||
(in thousands, except share data) | ||||||||||
ASSETS | ||||||||||
Cash and cash equivalents | ||||||||||
Cash and due from banks | $ | 11,399 | $ | 5,382 | $ | 13,736 | $ | 24,063 | ||
Interest earning deposits at Federal Reserve Bank | 662,827 | 596,402 | ||||||||
Interest-earning deposits at Federal Reserve Bank | 773,446 | 864,126 | ||||||||
Total cash and cash equivalents | 674,226 | 601,784 | 787,182 | 888,189 | ||||||
Investment securities, available-for-sale, at fair value | 907,338 | 953,709 | 787,429 | 766,016 | ||||||
Commercial loans, at fair value (includes $0 and $61.6 million of loans held for sale at lower of cost or fair value at March 31, 2022 and December 31, 2021, respectively) | 1,180,885 | 1,388,416 | ||||||||
Commercial loans, at fair value | 493,334 | 589,143 | ||||||||
Loans, net of deferred loan fees and costs | 4,164,298 | 3,747,224 | 5,354,347 | 5,486,853 | ||||||
Allowance for credit losses | (19,051) | (17,806) | (23,794) | (22,374) | ||||||
Loans, net | 4,145,247 | 3,729,418 | 5,330,553 | 5,464,479 | ||||||
Federal Home Loan Bank and Atlantic Central Bankers Bank stock | 1,663 | 1,663 | ||||||||
Federal Home Loan Bank, Atlantic Central Bankers Bank, and Federal Reserve Bank stock | 12,629 | 12,629 | ||||||||
Premises and equipment, net | 16,314 | 16,156 | 21,319 | 18,401 | ||||||
Accrued interest receivable | 17,284 | 17,871 | 33,729 | 32,005 | ||||||
Intangible assets, net | 2,348 | 2,447 | 1,950 | 2,049 | ||||||
Other real estate owned | 18,873 | 18,873 | 21,117 | 21,210 | ||||||
Deferred tax asset, net | 18,521 | 12,667 | 18,290 | 19,703 | ||||||
Assets held-for-sale from discontinued operations | — | 3,268 | ||||||||
Other assets | 99,961 | 96,967 | 99,427 | 89,176 | ||||||
Total assets | $ | 7,082,660 | $ | 6,843,239 | $ | 7,606,959 | $ | 7,903,000 | ||
LIABILITIES | ||||||||||
Deposits | ||||||||||
Demand and interest checking | $ | 5,506,083 | $ | 5,561,365 | $ | 6,607,767 | $ | 6,559,617 | ||
Savings and money market | 722,240 | 415,546 | 96,890 | 140,496 | ||||||
Time deposits, $100,000 and over | — | 330,000 | ||||||||
Total deposits | 6,228,323 | 5,976,911 | 6,704,657 | 7,030,113 | ||||||
Securities sold under agreements to repurchase | 42 | 42 | 42 | 42 | ||||||
Senior debt | 98,774 | 98,682 | 99,142 | 99,050 | ||||||
Subordinated debentures | 13,401 | 13,401 | 13,401 | 13,401 | ||||||
Other long-term borrowings | 39,318 | 39,521 | 9,972 | 10,028 | ||||||
Other liabilities | 50,507 | 62,228 | 54,597 | 56,335 | ||||||
Total liabilities | 6,430,365 | 6,190,785 | 6,881,811 | 7,208,969 | ||||||
SHAREHOLDERS' EQUITY | ||||||||||
Common stock - authorized, 75,000,000 shares of $1.00 par value; 57,155,028 and 57,370,563 | ||||||||||
shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 57,155 | 57,371 | ||||||||
Common stock - authorized, 75,000,000 shares of $1.00 par value; 55,329,629 and 55,689,627 | ||||||||||
shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | 55,330 | 55,690 | ||||||||
Additional paid-in capital | 336,604 | 349,686 | 277,814 | 299,279 | ||||||
Retained earnings | 268,072 | 239,106 | 418,441 | 369,319 | ||||||
Accumulated other comprehensive (loss) income | (9,536) | 6,291 | ||||||||
Accumulated other comprehensive loss | (26,437) | (30,257) | ||||||||
Total shareholders' equity | 652,295 | 652,454 | 725,148 | 694,031 | ||||||
Total liabilities and shareholders' equity | $ | 7,082,660 | $ | 6,843,239 | $ | 7,606,959 | $ | 7,903,000 |
The accompanying notes are an integral part of these consolidated statements.
THE BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, | For the three months ended March 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||
(in thousands, except per share data) | (Dollars in thousands, except per share data) | |||||||||
Interest income | ||||||||||
Loans, including fees | $ | 50,591 | $ | 47,904 | $ | 106,259 | $ | 50,591 | ||
Investment securities: | ||||||||||
Taxable interest | 4,891 | 8,808 | 9,300 | 4,891 | ||||||
Tax-exempt interest | 25 | 28 | 32 | 25 | ||||||
Interest earning deposits | 347 | 183 | ||||||||
Interest-earning deposits | 6,585 | 347 | ||||||||
55,854 | 56,923 | 122,176 | 55,854 | |||||||
Interest expense | ||||||||||
Deposits | 1,606 | 1,766 | 34,460 | 1,606 | ||||||
Short-term borrowings | — | 8 | 234 | — | ||||||
Long-term borrowings | 126 | — | ||||||||
Senior debt | 1,279 | 1,279 | 1,279 | 1,279 | ||||||
Subordinated debentures | 116 | 113 | 261 | 116 | ||||||
3,001 | 3,166 | 36,360 | 3,001 | |||||||
Net interest income | 52,853 | 53,757 | 85,816 | 52,853 | ||||||
Provision for credit losses | 1,507 | 822 | 1,903 | 1,507 | ||||||
Net interest income after provision for credit losses | 51,346 | 52,935 | 83,913 | 51,346 | ||||||
Non-interest income | ||||||||||
ACH, card and other payment processing fees | 1,984 | 1,796 | 2,171 | 1,984 | ||||||
Prepaid, debit card and related fees | 18,652 | 19,208 | 23,323 | 18,652 | ||||||
Net realized and unrealized gains | ||||||||||
on commercial loans, at fair value | 3,383 | 1,996 | 1,725 | 3,383 | ||||||
Leasing related income | 973 | 965 | 1,490 | 973 | ||||||
Other | 120 | 109 | 280 | 120 | ||||||
Total non-interest income | 25,112 | 24,074 | 28,989 | 25,112 | ||||||
Non-interest expense | ||||||||||
Salaries and employee benefits | 23,848 | 25,658 | 29,785 | 23,848 | ||||||
Depreciation and amortization | 795 | 709 | 721 | 795 | ||||||
Rent and related occupancy cost | 1,289 | 1,250 | 1,394 | 1,289 | ||||||
Data processing expense | 1,189 | 1,126 | 1,321 | 1,189 | ||||||
Printing and supplies | 86 | 66 | 145 | 86 | ||||||
Audit expense | 362 | 363 | 392 | 362 | ||||||
Legal expense | 794 | 2,054 | 958 | 794 | ||||||
Amortization of intangible assets | 99 | 99 | 99 | 99 | ||||||
FDIC insurance | 974 | 2,380 | 955 | 974 | ||||||
Software | 3,864 | 3,684 | 4,237 | 3,864 | ||||||
Insurance | 1,064 | 745 | 1,306 | 1,064 | ||||||
Telecom and IT network communications | 374 | 405 | 376 | 374 | ||||||
Consulting | 303 | 264 | 322 | 303 | ||||||
Writedown on other real estate owned | 1,019 | — | ||||||||
Other | 3,311 | 3,080 | 5,000 | 3,311 | ||||||
Total non-interest expense | 38,352 | 41,883 | 48,030 | 38,352 | ||||||
Income from continuing operations before income taxes | 38,106 | 35,126 | ||||||||
Income before income taxes | 64,872 | 38,106 | ||||||||
Income tax expense | 9,140 | 9,066 | 15,750 | 9,140 | ||||||
Net income from continuing operations | $ | 28,966 | $ | 26,060 | ||||||
Discontinued operations | ||||||||||
Loss from discontinued operations before income taxes | — | (124) | ||||||||
Income tax benefit | — | (29) | ||||||||
Loss from discontinued operations, net of tax | — | (95) | ||||||||
Net income | $ | 28,966 | $ | 25,965 | $ | 49,122 | $ | 28,966 | ||
Net income per share from continuing operations - basic | $ | 0.51 | $ | 0.45 | ||||||
Net income (loss) per share from discontinued operations - basic | $ | — | $ | — | ||||||
Net income per share - basic | $ | 0.51 | $ | 0.45 | $ | 0.89 | $ | 0.51 | ||
Net income per share from continuing operations - diluted | $ | 0.50 | $ | 0.44 | ||||||
Net income (loss) per share from discontinued operations - diluted | $ | — | $ | — | ||||||
Net income per share - diluted | $ | 0.50 | $ | 0.44 | $ | 0.88 | $ | 0.50 | ||
The accompanying notes are an integral part of these consolidated statements.
THE BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, | For the three months ended March 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||
(in thousands) | (Dollars in thousands) | |||||||||
Net income | $ | 28,966 | $ | 25,965 | $ | 49,122 | $ | 28,966 | ||
Other comprehensive loss, net of reclassifications into net income: | ||||||||||
Other comprehensive income (loss), net of reclassifications into net income: | ||||||||||
Other comprehensive loss | ||||||||||
Other comprehensive income (loss) | ||||||||||
Securities available-for-sale: | ||||||||||
Change in net unrealized losses during the period | (21,686) | (4,243) | 5,229 | (21,686) | ||||||
Reclassification adjustments for losses included in income | 6 | 7 | 4 | 6 | ||||||
Other comprehensive loss | (21,680) | (4,236) | ||||||||
Other comprehensive income (loss) | 5,233 | (21,680) | ||||||||
Income tax benefit related to items of other comprehensive loss | ||||||||||
Income tax benefit related to items of other comprehensive income (loss) | ||||||||||
Securities available-for-sale: | ||||||||||
Change in net unrealized losses during the period | (5,855) | (1,147) | 1,412 | (5,855) | ||||||
Reclassification adjustments for losses included in income | 2 | 2 | 1 | 2 | ||||||
Income tax benefit related to items of other comprehensive loss | (5,853) | (1,145) | ||||||||
Income tax expense (benefit) related to items of other comprehensive loss | 1,413 | (5,853) | ||||||||
Other comprehensive loss, net of tax and reclassifications into net income | (15,827) | (3,091) | ||||||||
Other comprehensive income (loss), net of tax and reclassifications into net income | 3,820 | (15,827) | ||||||||
Comprehensive income | $ | 13,139 | $ | 22,874 | $ | 52,942 | $ | 13,139 |
The accompanying notes are an integral part of these consolidated statements.
THE BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2023 | For the three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||
(Dollars in thousands, except share data) | (Dollars in thousands, except share data) | |||||||||||||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||
Common | Additional | other | Common | Additional | other | |||||||||||||||||||||||||||||
stock | Common | paid-in | Retained | comprehensive | stock | Common | paid-in | Retained | comprehensive | |||||||||||||||||||||||||
shares | stock | capital | earnings | loss | Total | shares | stock | capital | earnings | (loss) income | Total | |||||||||||||||||||||||
Balance at January 1, 2022 | 57,370,563 | $ | 57,371 | $ | 349,686 | $ | 239,106 | $ | 6,291 | $ | 652,454 | |||||||||||||||||||||||
Balance at January 1, 2023 | 55,689,627 | $ | 55,690 | $ | 299,279 | $ | 369,319 | $ | (30,257) | $ | 694,031 | |||||||||||||||||||||||
Net income | — | — | — | 28,966 | — | 28,966 | — | — | — | 49,122 | — | 49,122 | ||||||||||||||||||||||
Common stock issued from option exercises, | ||||||||||||||||||||||||||||||||||
net of tax benefits | 27,818 | 27 | 57 | — | — | 84 | 13,158 | 13 | 92 | — | — | 105 | ||||||||||||||||||||||
Common stock issued from restricted units, | ||||||||||||||||||||||||||||||||||
net of tax benefits | 284,040 | 284 | (284) | — | — | — | 405,286 | 405 | (405) | — | — | — | ||||||||||||||||||||||
Stock-based compensation | — | — | 1,618 | — | — | 1,618 | — | — | 3,169 | — | — | 3,169 | ||||||||||||||||||||||
Common stock repurchases | (527,393) | (527) | (14,473) | — | — | (15,000) | ||||||||||||||||||||||||||||
Other comprehensive loss net of | ||||||||||||||||||||||||||||||||||
Common stock repurchases and excise tax | (778,442) | (778) | (24,321) | — | — | (25,099) | ||||||||||||||||||||||||||||
Other comprehensive income net of | ||||||||||||||||||||||||||||||||||
reclassification adjustments and tax | — | — | — | — | (15,827) | (15,827) | — | — | — | — | 3,820 | 3,820 | ||||||||||||||||||||||
Balance at March 31, 2022 | 57,155,028 | $ | 57,155 | $ | 336,604 | $ | 268,072 | $ | (9,536) | $ | 652,295 | |||||||||||||||||||||||
Balance at March 31, 2023 | 55,329,629 | $ | 55,330 | $ | 277,814 | $ | 418,441 | $ | (26,437) | $ | 725,148 | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated statements.
THE BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 2021 | ||||||||||||||||||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2022 | For the three months ended March 31, 2022 | |||||||||||||||||||||||||||||||||
(Dollars in thousands, except share data) | (Dollars in thousands, except share data) | |||||||||||||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||
Common | Additional | other | Common | Additional | other | |||||||||||||||||||||||||||||
stock | Common | paid-in | Retained | comprehensive | stock | Common | paid-in | Retained | comprehensive | |||||||||||||||||||||||||
shares | stock | capital | earnings | income | Total | shares | stock | capital | earnings | income (loss) | Total | |||||||||||||||||||||||
Balance at January 1, 2021 | 57,550,629 | $ | 57,551 | $ | 377,452 | $ | 128,453 | $ | 17,708 | $ | 581,164 | |||||||||||||||||||||||
Balance at January 1, 2022 | 57,370,563 | $ | 57,371 | $ | 349,686 | $ | 239,106 | $ | 6,291 | $ | 652,454 | |||||||||||||||||||||||
Net income | — | — | — | 25,965 | — | 25,965 | — | — | — | 28,966 | — | 28,966 | ||||||||||||||||||||||
Common stock issued from option exercises, | ||||||||||||||||||||||||||||||||||
net of tax benefits | 61,500 | 61 | 404 | — | — | 465 | 27,818 | 27 | 57 | — | — | 84 | ||||||||||||||||||||||
Common stock issued from restricted units, | ||||||||||||||||||||||||||||||||||
net of tax benefits | 230,212 | 230 | (230) | — | — | — | 284,040 | 284 | (284) | — | — | — | ||||||||||||||||||||||
Stock-based compensation | — | — | 2,261 | — | — | 2,261 | — | — | 1,618 | — | — | 1,618 | ||||||||||||||||||||||
Common stock repurchases | (594,428) | (594) | (9,406) | — | — | (10,000) | (527,393) | (527) | (14,473) | — | — | (15,000) | ||||||||||||||||||||||
Other comprehensive loss net of | ||||||||||||||||||||||||||||||||||
reclassification adjustments and tax | — | — | — | — | (3,091) | (3,091) | — | — | — | — | (15,827) | (15,827) | ||||||||||||||||||||||
Balance at March 31, 2021 | 57,247,913 | $ | 57,248 | $ | 370,481 | $ | 154,418 | $ | 14,617 | $ | 596,764 | |||||||||||||||||||||||
Balance at March 31, 2022 | 57,155,028 | $ | 57,155 | $ | 336,604 | $ | 268,072 | $ | (9,536) | $ | 652,295 | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated statements.
THE BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months | For the three months | |||||||||
ended March 31, | ended March 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||
(in thousands) | (Dollars in thousands) | |||||||||
Operating activities | ||||||||||
Net income from continuing operations | $ | 28,966 | $ | 26,060 | ||||||
Net loss from discontinued operations, net of tax | — | (95) | ||||||||
Net income | $ | 49,122 | $ | 28,966 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||
Depreciation and amortization | 894 | 808 | 820 | 894 | ||||||
Provision for credit losses | 1,507 | 822 | 1,903 | 1,507 | ||||||
Net amortization of investment securities discounts/premiums | 547 | 880 | 309 | 547 | ||||||
Stock-based compensation expense | 1,618 | 2,261 | 3,169 | 1,618 | ||||||
Gain on commercial loans, at fair value | (3,337) | (1,353) | (2,407) | (3,337) | ||||||
Gain from discontinued operations | — | (126) | ||||||||
Writedown of other real estate owned | 830 | — | ||||||||
Change in fair value of commercial loans, at fair value | 1,202 | 658 | 603 | 1,202 | ||||||
Change in fair value of derivatives | (1,068) | (1,121) | 79 | (1,068) | ||||||
Loss on sales of investment securities | 6 | 7 | 4 | 6 | ||||||
Decrease in accrued interest receivable | 587 | 294 | ||||||||
(Increase) decrease in accrued interest receivable | (1,724) | 587 | ||||||||
Increase in other assets | (1,369) | (6,037) | (7,835) | (1,369) | ||||||
Decrease in other liabilities | (11,168) | (3,320) | (1,738) | (11,168) | ||||||
Net cash provided by operating activities | 18,385 | 19,738 | 43,135 | 18,385 | ||||||
Investing activities | ||||||||||
Purchase of investment securities available-for-sale | (7,418) | (56,662) | (39,788) | (7,418) | ||||||
Proceeds from redemptions and prepayments of securities available-for-sale | 31,647 | 125,456 | 23,387 | 31,647 | ||||||
Sale of repossessed assets | 284 | 528 | 1,527 | 284 | ||||||
Net increase in loans | (353,817) | (175,204) | ||||||||
Net decrease in discontinued loans held-for-sale | — | 6,079 | ||||||||
Commercial loans, at fair value originated or drawn during the period | (5,826) | (30,025) | ||||||||
Net decrease (increase) in loans | 128,036 | (353,817) | ||||||||
Commercial loans, at fair value drawn during the period | (35,962) | (5,826) | ||||||||
Payments on commercial loans, at fair value | 153,709 | 60,578 | 132,782 | 153,709 | ||||||
Purchases of premises and equipment | (1,018) | (331) | (3,674) | (1,018) | ||||||
Change in receivable from investment in unconsolidated entity | — | (10) | ||||||||
Return of investment in unconsolidated entity | — | 247 | ||||||||
Decrease in discontinued assets held-for-sale | — | 772 | ||||||||
Net cash used in investing activities | (182,439) | (68,572) | ||||||||
Net cash provided by (used in) investing activities | 206,308 | (182,439) | ||||||||
Financing activities | ||||||||||
Net increase in deposits | 251,412 | 1,459,441 | ||||||||
Net (decrease) increase in deposits | (325,456) | 251,412 | ||||||||
Proceeds from the issuance of common stock | 84 | 465 | 105 | 84 | ||||||
Repurchases of common stock | (15,000) | (10,000) | ||||||||
Net cash provided by financing activities | 236,496 | 1,449,906 | ||||||||
Repurchases of common stock and excise tax | (25,099) | (15,000) | ||||||||
Net cash (used in) provided by financing activities | (350,450) | 236,496 | ||||||||
Net increase in cash and cash equivalents | 72,442 | 1,401,072 | ||||||||
Net (decrease) increase in cash and cash equivalents | (101,007) | 72,442 | ||||||||
Cash and cash equivalents, beginning of period | 601,784 | 345,515 | 888,189 | 601,784 | ||||||
Cash and cash equivalents, end of period | $ | 674,226 | $ | 1,746,587 | $ | 787,182 | $ | 674,226 | ||
Supplemental disclosure: | ||||||||||
Interest paid | $ | 4,208 | $ | 4,768 | $ | 38,248 | $ | 4,208 | ||
Taxes paid | $ | 1,946 | $ | 1,159 | $ | 1,944 | $ | 1,946 | ||
Non-cash investing and financing activities | ||||||||||
Transfer of loans from discontinued operations | $ | 61,580 | $ | — | $ | — | $ | 61,580 | ||
Transfer of real estate owned from discontinued operations | $ | 17,343 | $ | — | $ | — | $ | 17,343 | ||
Leased vehicles transferred to repossessed assets | $ | 687 | $ | 429 | $ | 4,022 | $ | 687 |
The accompanying notes are an integral part of these consolidated statements.
THE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. StructureOrganization and Nature of CompanyOperations
The Bancorp, Inc., or (“the Company”), is a Delaware corporation and a registered financial holding company. Its primary, wholly-owned subsidiary is The Bancorp Bank, orNational Association (“the Bank”), which is wholly owned by the Company.. The Bank is a Delawarenationally chartered commercial bank located in Wilmington, DelawareSioux Falls, South Dakota and is a Federal Deposit Insurance Corporation (“FDIC”) insured institution. As a nationally chartered institution, its primary regulator is the Office of the Comptroller of the Currency (“OCC”). The Bank has 4two primary lines of business consisting of its national specialty lending:finance segment and its payments segment.
In the national specialty lending segment, the Bank makes the following types of loans: securities-backed lines of credit (“SBLOC”) and cash value of insurance-backed lines of credit (“IBLOC”), leasingleases (direct lease financing), Small Business Administration (“SBA”) loans and non-SBA commercial real estate (“CRE”) bridge loans (“CRE loans”). Prior to 2020, the Company generated non-SBA CRE bridge loans for sale into capital markets primarily through loan securitizations which issued commercial mortgage backed securities (“CMBS”). In the third quarter of 2020, the Company decided to retain the CMBS loans on its balance sheet and no future securitizations are currently planned. In the third quarter of 2021, the Company resumed originating non-SBA CRE bridge loans (primarily apartment buildings), after suspending the origination of such loans for most of 2020 and the first half of 2021. These originations are classified as real estate bridge loans (“REBL”). Additionally, in 2020,
While the Company began originating advisor financing loans to investment advisors for debt refinance, acquisitionnational specialty finance segment generates the majority of other advisory firms or internal succession. Through the Bank,Company’s revenues, the payments segment also contributes significant revenues. In its payments segment, the Company also provides payment and deposit services nationally, which includesinclude prepaid and debit cards,card accounts, private label banking, deposit accounts to investment advisors’ customers, card payment and other payment processing.processing services. Payments segment deposits fund the majority of the Company’s loans and securities and may result in lower costs than other funding sources. Most of the payments segment’s revenues and deposits, and SBLOC and IBLOC loans, result from relationships with third parties which market such products. Concentrations of loans and deposits are based upon the cumulative account balances generated by those third parties. Similar concentrations result in revenues in prepaid, debit card and related fees. These concentrations may also be reflected in a lower cost of funds compared to other funding sources. The Company sweeps certain deposits off its balance sheet to other institutions through intermediaries. Such sweeps are utilized to optimize diversity within its funding structure by managing the percentage of individual client deposits to total deposits.
The Company and the Bank are subject to regulation by certain state and federal agencies and, accordingly, they are examined periodically by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Company’s and the Bank’s businesses may be affected by state and federal legislation and regulations.
Note 2. Significant Accounting Policies
Basis of Presentation
The financial statements of the Company, as of March 31, 20222023 and for the three month periods ended March 31, 20222023 and 2021,2022, are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”(the “SEC”). However, in the opinion of management, these interim financial statements include all necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 (the “2021“2022 Form 10-K”). The results of operations for the three month period ended March 31, 20222023 may not necessarily be indicative of the results of operations for the full year ending December 31, 2022. In the first quarter of 2021, the Company changed its presentation of treasury stock acquired through common stock repurchases. To simplify presentation, common stock repurchases previously shown separately as treasury stock, are now shown as reductions in common stock and additional paid-in capital.2023.
There have been no significant changes to the Significant Accounting PoliciesCompany’s significant accounting policies as described in the 20212022 Form 10-K.The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its Philadelphia commercial lending operations to focus on its specialty finance lending. The Company has since disposed of the vast majority of related loans and other real estate owned. While in the process of disposition, financial results of the commercial lending operations were presented as separate from continuing operations on the consolidated statements of operations and assets of the commercial lending operations to be disposed of were presented as assets held-for-sale on the consolidated balance sheets. As disposition efforts were winding down, discontinued loans of $61.6 million were reclassified to loans held for investment in the first quarter of 2022. Accordingly, these loans will be accounted for as such, and included in related tables. On the December 31, 2021 consolidated balance sheet, these discontinued loans were reclassified as loans held for sale in continuing operations and included within “Commercial loans, at fair value”. Discontinued other real estate owned of $17.3 million which constituted the remainder of discontinued assets was reclassified to the other real estate owned caption on the balance sheet.
OurThe Company’s non-SBA commercial real estate bridge loans, at fair value, are primarily collateralized by multi-family properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations. In 2020, wethe Company decided to retain these loans on ourits balance sheet as interest earninginterest-earning assets and have resumed originating such loans.loans in 2021. These new originations are identified as REBL and are held for investment in the loan portfolio. Prior originations initially intended for securitizations continue to be accounted for at fair value, and are included in the balance sheet in “Commercial loans, at fair value.”
The Company recognizes compensation expense for stock options in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 718 Stock Based Compensation(“ASC”ASC 718”) 718, “Stock Based Compensation”. The expense of the option is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is typically the vesting period. For
grants subject to a service condition, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant. The Black-Scholes model takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. In accordance with ASC 718, the Company estimates the number of options for which the requisite service is expected to be rendered. At March 31, 2022,2023, the Company had 3two active stock-based compensation plans.
During the three months ended March 31, 2023, the Company granted 57,573 stock options with a vesting period of four years and a weighted average grant-date fair value of $17.37. During the three months ended March 31, 2022, the Company granted 100,000 stock options with a vesting period of four years and a weighted average grant-date fair value of $14.01. During the three months ended March 31, 2021, the Company granted 100,000 stock options with a vesting period of four years and a weighted average grant-date fair value of $8.51. There were 27,81813,158 common stock options exercised in the three month period ended March 31, 2022.2023. There were 61,50027,818 common stock options exercised in the three month period ended March 31, 2021.2022.
A summary of the Company’s stock options is presented below.
Weighted average | Weighted average | |||||||||||||||||
remaining | remaining | |||||||||||||||||
Weighted average | contractual | Aggregate | Weighted average | contractual | Aggregate | |||||||||||||
Options | exercise price | term (years) | intrinsic value | Options | exercise price | term (years) | intrinsic value | |||||||||||
Outstanding at January 1, 2022 | 550,104 | $ | 9.67 | 7.17 | $ | 8,603,191 | ||||||||||||
Outstanding at January 1, 2023 | 580,104 | $ | 13.25 | 7.48 | $ | 8,968,660 | ||||||||||||
Granted | 100,000 | 30.32 | 9.87 | — | 57,573 | 35.17 | 9.87 | — | ||||||||||
Exercised | (27,818) | 8.50 | — | 733,400 | (13,158) | 10.45 | — | 278,450 | ||||||||||
Expired | — | — | — | — | — | — | — | — | ||||||||||
Forfeited | (7,182) | — | — | — | (1,842) | — | — | — | ||||||||||
Outstanding at March 31, 2022 | 615,104 | $ | 13.09 | 7.81 | $ | 9,570,455 | ||||||||||||
Exercisable at March 31, 2022 | 198,828 | $ | 9.69 | 4.35 | $ | 3,706,341 | ||||||||||||
Outstanding at March 31, 2023 | 622,677 | $ | 15.35 | 7.66 | $ | 8,453,205 | ||||||||||||
Exercisable at March 31, 2023 | 290,104 | $ | 11.33 | 7.13 | $ | 4,854,205 |
TheDuring the three months ended March 31, 2023, the Company granted 219,311514,785 restricted stock units (“RSUs”) in the first three months of 2022 all of which have a vesting period of three years. At issuance, the 219,311 RSUs granted in the first three months of 2022 had a fair value of $30.32 per unit. In the first three months of 2021, the Company granted 313,697 RSUs of which 261,073 havewith a vesting period of three years and 52,624 havea weighted average fair value of $35.17 per unit. During the three months ended March 31, 2022, the Company granted 219,311 RSUs with a vesting period of one year. At issuance, the 313,697 RSUs granted in the first three months of 2021 hadyears and a weighted average fair value of $18.81$30.32 per unit.
A summary of the status of the Company’s RSUs is presented below.
Weighted average | Average remaining | Weighted average | Average remaining | |||||||||
grant date | contractual | grant date | contractual | |||||||||
RSUs | fair value | term (years) | RSUs | fair value | term (years) | |||||||
Outstanding at January 1, 2022 | 1,030,124 | $ | 10.49 | 1.17 | ||||||||
Outstanding at January 1, 2023 | 671,696 | $ | 17.78 | 1.00 | ||||||||
Granted | 219,311 | 30.32 | 2.86 | 514,785 | 35.17 | 2.87 | ||||||
Vested | (284,040) | 13.51 | — | (405,286) | 13.12 | — | ||||||
Forfeited | (23,220) | 13.29 | — | — | — | — | ||||||
Outstanding at March 31, 2022 | 942,175 | $ | 14.25 | 1.50 | ||||||||
Outstanding at March 31, 2023 | 781,195 | $ | 31.66 | 2.32 |
As of March 31, 20222023, there was a total of $13.4$24.0 million of unrecognized compensation cost related to unvested awards under share-basedstock-based compensation plans. This cost is expected to be recognized over a weighted average period of approximately 1.92.0 years. Related compensation expense for the three months ended March 31, 20222023 and 20212022 was $1.6$3.2 million and $2.3$1.6 million, respectively. The total issuance date fair value of RSUs vested and options exercised during the three months ended March 31, 20222023 and 20212022 was $4.0$5.4 million and $2.4$4.0 million, respectively. The total intrinsic value of the options exercised and RSUs vested in those respective periods was $9.4$15.0 million and $5.1$9.4 million, respectively.
For the periods ended March 31, 20222023 and 2021,2022, the Company estimated the fair value of each stock option grant on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions:
March 31, | March 31, | |||||
2022 | 2021 | 2023 | 2022 | |||
Risk-free interest rate | 1.94% | 1.19% | 3.67% | 1.94% | ||
Expected dividend yield | — | — | — | — | ||
Expected volatility | 45.14% | 45.61% | 45.21% | 45.14% | ||
Expected lives (years) | 6.3 | 6.3 | 6.3 | 6.3 |
Expected volatility is based on the historical volatility of the Company’s stock and peer group comparisons over the expected life of the grant.option. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury strip rate in effect at the time of the grant. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior
and employee terminations. In accordance with ASC 718,Stock Based Compensation, stock based compensation expense for the period ended March 31, 20222023 is based on awards that are ultimately expected to vest and has been reduced for estimated forfeitures. The Company estimatedestimates forfeitures using historical data based upon the groups identified by management.or acceptable expedients.
The Company calculates earnings per share in accordance with ASC 260, “EarningsEarnings Per Share”Share. Basic earnings per share excludeexcludes dilution and areis computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities, including stock options and restricted stock units (“RSUs”)RSUs or other contracts to issue common stock were exercised and converted into common stock. Stock options are dilutive if their exercise prices are less than the current stock prices.price. RSUs are dilutive because they represent grants over vesting periods which do not require employees to pay exercise prices. The dilution shown in the tables below includes the potential dilution from both stock options and RSUs.
The following tables show the Company’s earnings per share for the periods presented:
For the three months ended | For the three months ended | |||||||||||||||
March 31, 2022 | March 31, 2023 | |||||||||||||||
Income | Shares | Per share | Income | Shares | Per share | |||||||||||
(numerator) | (denominator) | amount | (numerator) | (denominator) | amount | |||||||||||
(dollars in thousands except share and per share data) | (Dollars in thousands except share and per share data) | |||||||||||||||
Basic earnings per share | ||||||||||||||||
Net earnings available to common shareholders | $ | 28,966 | 57,115,903 | $ | 0.51 | $ | 49,122 | 55,452,815 | $ | 0.89 | ||||||
Effect of dilutive securities | ||||||||||||||||
Common stock options and restricted stock units | — | 980,077 | (0.01) | |||||||||||||
Common stock options and RSUs | — | 595,327 | (0.01) | |||||||||||||
Diluted earnings per share | ||||||||||||||||
Net earnings available to common shareholders | $ | 28,966 | 58,095,980 | $ | 0.50 | $ | 49,122 | 56,048,142 | $ | 0.88 |
Stock options for 465,104 shares, exercisable at prices between $6.87 and $18.81 per share, were outstanding at March 31, 2023, and included in the diluted earnings per share computation because the exercise price per share was less than the average market price. Stock options for 157,573 shares were anti-dilutive and not included in the earnings per share calculation.
For the three months ended | ||||||||
March 31, 2022 | ||||||||
Income | Shares | Per share | ||||||
(numerator) | (denominator) | amount | ||||||
(Dollars in thousands except share and per share data) | ||||||||
Basic earnings per share | ||||||||
Net earnings available to common shareholders | $ | 28,966 | 57,115,903 | $ | 0.51 | |||
Effect of dilutive securities | ||||||||
Common stock options and RSUs | — | 980,077 | (0.01) | |||||
Diluted earnings per share | ||||||||
Net earnings available to common shareholders | $ | 28,966 | 58,095,980 | $ | 0.50 |
Stock options for 515,104 shares, exercisable at prices between $6.87 and $18.81 per share, were outstanding at March 31, 2022, and included in the diluted earnings per share computation because the exercise price per share was less than the average market price.price. Stock options for 100,000 shares were anti-dilutive and not included in the earnings per share calculation.
For the three months ended | ||||||||
March 31, 2021 | ||||||||
Income | Shares | Per share | ||||||
(numerator) | (denominator) | amount | ||||||
(dollars in thousands except share and per share data) | ||||||||
Basic earnings per share from continuing operations | ||||||||
Net earnings available to common shareholders | $ | 26,060 | 57,372,337 | $ | 0.45 | |||
Effect of dilutive securities | ||||||||
Common stock options and restricted stock units | — | 1,921,744 | (0.01) | |||||
Diluted earnings per share | ||||||||
Net earnings available to common shareholders | $ | 26,060 | 59,294,081 | $ | 0.44 |
For the three months ended | ||||||||
March 31, 2021 | ||||||||
Income | Shares | Per share | ||||||
(numerator) | (denominator) | amount | ||||||
(dollars in thousands except share and per share data) | ||||||||
Basic loss per share from discontinued operations | ||||||||
Net loss | $ | (95) | 57,372,337 | $ | — | |||
Effect of dilutive securities | ||||||||
Common stock options and restricted stock units | — | 1,921,744 | — | |||||
Diluted loss per share | ||||||||
Net loss | $ | (95) | 59,294,081 | $ | — |
For the three months ended | ||||||||
March 31, 2021 | ||||||||
Income | Shares | Per share | ||||||
(numerator) | (denominator) | amount | ||||||
(dollars in thousands except share and per share data) | ||||||||
Basic earnings per share | ||||||||
Net earnings available to common shareholders | $ | 25,965 | 57,372,337 | $ | 0.45 | |||
Effect of dilutive securities | ||||||||
Common stock options and restricted stock units | — | 1,921,744 | (0.01) | |||||
Diluted earnings per share | ||||||||
Net earnings available to common shareholders | $ | 25,965 | 59,294,081 | $ | 0.44 |
Stock options for 1,100,104 shares, exercisable at prices between $6.75 and $18.81 per share, were outstanding at March 31, 2021, and included in the diluted earnings per share computation because the exercise price per share was less than the average market price. Stock options for 100,000 were anti-dilutive and not included in the earnings per share calculation.
Note 5. Investment Securities
The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities classified as available-for-sale at March 31, 20222023 and December 31, 20212022 are summarized as follows (in thousands):
Available-for-sale | March 31, 2022 | March 31, 2023 | ||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||
Amortized | unrealized | unrealized | Fair | Amortized | unrealized | unrealized | Fair | |||||||||||||||
cost | gains | losses | value | cost | gains | losses | value | |||||||||||||||
U.S. Government agency securities | $ | 30,583 | $ | 30 | $ | (407) | $ | 30,206 | $ | 37,907 | $ | 69 | $ | (1,247) | $ | 36,729 | ||||||
Asset-backed securities * | 358,550 | 12 | (2,223) | 356,339 | ||||||||||||||||||
Asset-backed securities(1) | 341,240 | — | (8,182) | 333,058 | ||||||||||||||||||
Tax-exempt obligations of states and political subdivisions | 3,559 | 28 | (4) | 3,583 | 5,200 | 48 | (38) | 5,210 | ||||||||||||||
Taxable obligations of states and political subdivisions | 45,750 | 453 | — | 46,203 | 45,426 | 48 | (1,287) | 44,187 | ||||||||||||||
Residential mortgage-backed securities | 169,062 | 761 | (2,724) | 167,099 | 174,161 | 161 | (9,629) | 164,693 | ||||||||||||||
Collateralized mortgage obligation securities | 54,252 | 60 | (486) | 53,826 | 41,909 | — | (1,669) | 40,240 | ||||||||||||||
Commercial mortgage-backed securities | 248,765 | 162 | (5,535) | 243,392 | 167,278 | — | (11,766) | 155,512 | ||||||||||||||
Corporate debt securities | 10,000 | — | (3,310) | 6,690 | 10,000 | — | (2,200) | 7,800 | ||||||||||||||
$ | 920,521 | $ | 1,506 | $ | (14,689) | $ | 907,338 | $ | 823,121 | $ | 326 | $ | (36,018) | $ | 787,429 |
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||
Amortized | unrealized | unrealized | Fair | Amortized | unrealized | unrealized | Fair | |||||||||||||||
* Asset-backed securities as shown above | cost | gains | losses | value | ||||||||||||||||||
(1)Asset-backed securities as shown above | cost | gains | losses | value | ||||||||||||||||||
Federally insured student loan securities | $ | 21,351 | $ | 3 | $ | (92) | $ | 21,262 | $ | 7,662 | $ | — | $ | (110) | $ | 7,552 | ||||||
Collateralized loan obligation securities | 337,199 | 9 | (2,131) | 335,077 | 333,578 | — | (8,072) | 325,506 | ||||||||||||||
$ | 358,550 | $ | 12 | $ | (2,223) | $ | 356,339 | $ | 341,240 | $ | — | $ | (8,182) | $ | 333,058 |
Available-for-sale | December 31, 2021 | December 31, 2022 | ||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||
Amortized | unrealized | unrealized | Fair | Amortized | unrealized | unrealized | Fair | |||||||||||||||
cost | gains | losses | value | cost | gains | losses | value | |||||||||||||||
U.S. Government agency securities | $ | 36,182 | $ | 1,167 | $ | (47) | $ | 37,302 | $ | 29,859 | $ | 17 | $ | (1,495) | $ | 28,381 | ||||||
Asset-backed securities * | 360,332 | 327 | (241) | 360,418 | ||||||||||||||||||
Asset-backed securities(1) | 343,885 | — | (9,876) | 334,009 | ||||||||||||||||||
Tax-exempt obligations of states and political subdivisions | 3,559 | 172 | — | 3,731 | 3,560 | — | (61) | 3,499 | ||||||||||||||
Taxable obligations of states and political subdivisions | 45,984 | 2,422 | — | 48,406 | 45,668 | 52 | (1,709) | 44,011 | ||||||||||||||
Residential mortgage-backed securities | 179,778 | 4,804 | (281) | 184,301 | 150,135 | 148 | (10,463) | 139,820 | ||||||||||||||
Collateralized mortgage obligation securities | 60,778 | 1,083 | — | 61,861 | 43,858 | — | (2,075) | 41,783 | ||||||||||||||
Commercial mortgage-backed securities | 248,599 | 4,106 | (1,629) | 251,076 | 179,977 | — | (13,164) | 166,813 | ||||||||||||||
Corporate debt securities | 10,000 | — | (3,386) | 6,614 | 10,000 | — | (2,300) | 7,700 | ||||||||||||||
$ | 945,212 | $ | 14,081 | $ | (5,584) | $ | 953,709 | $ | 806,942 | $ | 217 | $ | (41,143) | $ | 766,016 |
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||
Amortized | unrealized | unrealized | Fair | Amortized | unrealized | unrealized | Fair | |||||||||||||||
* Asset-backed securities as shown above | cost | gains | losses | value | ||||||||||||||||||
(1)Asset-backed securities as shown above | cost | gains | losses | value | ||||||||||||||||||
Federally insured student loan securities | $ | 22,518 | $ | 13 | $ | (73) | $ | 22,458 | $ | 8,488 | $ | — | $ | (144) | $ | 8,344 | ||||||
Collateralized loan obligation securities | 337,814 | 314 | (168) | 337,960 | 335,397 | — | (9,732) | 325,665 | ||||||||||||||
$ | 360,332 | $ | 327 | $ | (241) | $ | 360,418 | $ | 343,885 | $ | — | $ | (9,876) | $ | 334,009 |
Investments in Federal Home Loan Bank (“FHLB”) andstock, Atlantic Central Bankers Bank (“ACBB”) stock, and Federal Reserve Bank stock are recorded at cost and amounted to $1.7$12.6 million and $1.7$12.6 million at March 31, 20222023 and December 31, 2021,2022, respectively.At each of those dates, ACBB stock amounted to $40,000. The Bank’s conversion to a national charter required the purchase of $11.0 million of Federal Reserve Bank stock in September 2022. The amount of FHLB stock required to be held is based on the amount of borrowings, and after repayment thereof, the stock may be redeemed.
The amortized cost and fair value of the Company’s investment securities at March 31, 2022,2023, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-sale | Available-for-sale | |||||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||||
cost | value | cost | value | |||||||||||||||
Due before one year | $ | 20,665 | $ | 20,797 | $ | 12,325 | $ | 12,157 | ||||||||||
Due after one year through five years | 142,703 | 142,324 | 149,952 | 144,275 | ||||||||||||||
Due after five years through ten years | 220,456 | 218,540 | 256,556 | 249,466 | ||||||||||||||
Due after ten years | 536,697 | 525,677 | 404,288 | 381,531 | ||||||||||||||
$ | 920,521 | $ | 907,338 | $ | 823,121 | $ | 787,429 |
At In 2020, the Company began pledging loans to collateralize its line of credit with the FHLB, as described in “Note 6. Loans.” The Company had no securities pledged against that line at March 31, 20222023 and December 31, 2021, 0 investment securities were encumbered through pledging or otherwise, as there2022. There were no borrowings at those dates.gross realized gains on sales of securities for the three months ended March 31, 2023 and the year ended December 31, 2022. Realized losses on securities sales were $4,000 and $6,000, respectively, for the three months ended March 31, 2023 and the year ended December 31, 2022.
Fair values of available-for-sale securities are based on the fair market values supplied by a third-party market data provider, or where such third-party market data is not available, fair values are based on discounted cash flows. The third-party market data provider uses a pricing matrix which it creates daily, taking into consideration actual trade data, projected prepayments, and when relevant, projected credit defaults and losses.
The table below indicates the length of time individual securities had been in a continuous unrealized loss position at March 31, 20222023 (dollars in thousands):
Available-for-sale | Less than 12 months | 12 months or longer | Total | Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||
Number of securities | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Number of securities | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Fair Value | Unrealized losses | |||||||||||||||||||||||||||
Description of Securities | ||||||||||||||||||||||||||||||||||||||||
U.S. Government agency securities | 12 | $ | 25,675 | $ | (363) | $ | 2,456 | $ | (44) | $ | 28,131 | $ | (407) | 13 | $ | 2,875 | $ | (31) | $ | 19,825 | $ | (1,216) | $ | 22,700 | $ | (1,247) | ||||||||||||||
Asset-backed securities | 55 | 310,173 | (2,044) | 29,190 | (179) | 339,363 | (2,223) | 55 | 526 | (2) | 332,532 | (8,180) | 333,058 | (8,182) | ||||||||||||||||||||||||||
Tax-exempt obligations of states and | ||||||||||||||||||||||||||||||||||||||||
political subdivisions | 1 | 1,156 | (4) | — | — | 1,156 | (4) | 4 | 2,069 | (5) | 1,126 | (33) | 3,195 | (38) | ||||||||||||||||||||||||||
Taxable obligations of states and | ||||||||||||||||||||||||||||||||||||||||
political subdivisions | 26 | 10,453 | (343) | 29,436 | (944) | 39,889 | (1,287) | |||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | 100 | 92,267 | (2,397) | 5,937 | (327) | 98,204 | (2,724) | 136 | 42,243 | (860) | 111,919 | (8,769) | 154,162 | (9,629) | ||||||||||||||||||||||||||
Collateralized mortgage obligation securities | 18 | 45,203 | (486) | — | — | 45,203 | (486) | 22 | 2,658 | (78) | 37,582 | (1,591) | 40,240 | (1,669) | ||||||||||||||||||||||||||
Commercial mortgage-backed securities | 34 | 107,595 | (1,647) | 88,949 | (3,888) | 196,544 | (5,535) | 40 | 19,144 | (158) | 136,369 | (11,608) | 155,513 | (11,766) | ||||||||||||||||||||||||||
Corporate debt securities | 1 | — | — | 6,690 | (3,310) | 6,690 | (3,310) | 1 | — | — | 7,800 | (2,200) | 7,800 | (2,200) | ||||||||||||||||||||||||||
Total unrealized loss position | ||||||||||||||||||||||||||||||||||||||||
investment securities | 221 | $ | 582,069 | $ | (6,941) | $ | 133,222 | $ | (7,748) | $ | 715,291 | $ | (14,689) | 297 | $ | 79,968 | $ | (1,477) | $ | 676,589 | $ | (34,541) | $ | 756,557 | $ | (36,018) |
The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 20212022 (dollars in thousands):
Available-for-sale | Less than 12 months | 12 months or longer | Total | Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||
Number of securities | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Number of securities | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Fair Value | Unrealized losses | |||||||||||||||||||||||||||
Description of Securities | ||||||||||||||||||||||||||||||||||||||||
U.S. Government agency securities | 2 | $ | — | $ | — | $ | 2,700 | $ | (47) | $ | 2,700 | $ | (47) | 12 | $ | 19,523 | $ | (1,461) | $ | 2,269 | $ | (34) | $ | 21,792 | $ | (1,495) | ||||||||||||||
Asset-backed securities | 42 | 243,598 | (235) | 1,197 | (6) | 244,795 | (241) | 55 | 125,938 | (3,027) | 208,071 | (6,849) | 334,009 | (9,876) | ||||||||||||||||||||||||||
Tax-exempt obligations of states and | ||||||||||||||||||||||||||||||||||||||||
political subdivisions | 4 | 3,499 | (61) | — | — | 3,499 | (61) | |||||||||||||||||||||||||||||||||
Taxable obligations of states and | ||||||||||||||||||||||||||||||||||||||||
political subdivisions | 26 | 39,710 | (1,709) | — | — | 39,710 | (1,709) | |||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | 30 | 21,640 | (159) | 5,160 | (122) | 26,800 | (281) | 135 | 101,685 | (6,198) | 28,843 | (4,265) | 130,528 | (10,463) | ||||||||||||||||||||||||||
Collateralized mortgage obligation securities | 22 | 41,456 | (2,057) | 327 | (18) | 41,783 | (2,075) | |||||||||||||||||||||||||||||||||
Commercial mortgage-backed securities | 12 | 3,334 | (43) | 91,355 | (1,586) | 94,689 | (1,629) | 43 | 124,953 | (7,683) | 41,860 | (5,481) | 166,813 | (13,164) | ||||||||||||||||||||||||||
Corporate debt securities | 1 | — | — | 6,614 | (3,386) | 6,614 | (3,386) | 1 | — | — | 7,700 | (2,300) | 7,700 | (2,300) | ||||||||||||||||||||||||||
Total unrealized loss position | ||||||||||||||||||||||||||||||||||||||||
investment securities | 87 | $ | 268,572 | $ | (437) | $ | 107,026 | $ | (5,147) | $ | 375,598 | $ | (5,584) | 298 | $ | 456,764 | $ | (22,196) | $ | 289,070 | $ | (18,947) | $ | 745,834 | $ | (41,143) |
The Company owns 1one single issuer trust preferred security issued by an insurance company. The security is not rated by any bond rating service. At March 31, 2022, it2023, this security had a book value of $10.0 million and a fair value of $6.7$7.8 million. This security is presented in the corporate debt securities classification in the tables above.
The Company has evaluated the securities in the above tables as of March 31, 20222023 and has concluded that 0nenone of these securities required an allowance for credit loss.losses (“ACL”). The Company previously evaluated the securities in the above tables as of December 31, 2022 and concluded that none of these securities required an ACL. The Company evaluates whether an allowance for credit lossACL is required by considering primarily the following factors: (a) the extent to which the fair value is less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral and (e) the payment structure of the security. The Company’s determination of the best estimate of expected future cash flows, which is used to determine the credit loss amount, is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments regarding the future performance of the security. The Company concluded that the securities that are in an unrealized loss position are in a loss position because of changes in market interest rates after the securities were purchased. The Company’s unrealized loss for othercorporate debt securities, which includeresulted from one single issuer trust preferred security, and is primarily related to general market conditions, including a lack of liquidity in the market. The severity of the impact of fair value in relation to the carrying amounts of the individual investments is consistent with market developments. The Company’s analysis of each investment is performed at the security level. As a result of its review, the Company concluded that an allowance was not required to recognize credit losses.
Note 6. Loans
The Company has several lending lines of business including: small business loans (“SBLs”), comprised primarily of SBA loans; direct lease financing primarily for commercial vehicles and to a lesser extent equipment; SBLOC collateralized by marketable securities; IBLOC collateralized by the cash value of eligible life insurance policies; and investment advisor financing for purposes of debt refinance, acquisition of another firm or internal succession. Prior to 2020, the Company also originated commercial real estate bridge loans for sale into securitizations. At origination, the Company elected fair value treatment for these loans as they were originally held-for-sale, to better reflect the economics of the transactions. Currently,In 2020, the Company intendsdecided to holdretain these loans on its balance sheet and thuscurrently intends to continue to do so. Therefore, these loans are no longer accountsaccounted for these loans as held-for-sale. Theheld-for-sale, but the Company continues to present these loansthem at fair value. At March 31, 2022,2023, such loans comprised $352.4 million of the $493.3 million of commercial loans, at fair value, with the balance comprised of theseSBA loans was $1.18 billion, andalso previously held for sale. The amortized cost of the unpaid principal balance$493.3 million commercial loans at fair value was $1.18 billion.$494.6 million. Included in “Net realized and unrealized gains (losses) on commercial loans, at fair value” in the consolidated statements of operations wereare changes in the fair value of such loans.For the three months ended March 31, 2023, related net unrealized losses recognized for changes in fair value were $603,000, none of which reflected losses attributable to credit weaknesses. For the three months ended March 31, 2022, net unrealized losses recognized for such changes in fair value were $1.20$1.2 million, which reflected $164,000 of loss attributable to credit weaknesses. For the three months ended March 31, 2021, unrealized losses recognized for such changes in fair value were $478,000 of which $246,000 was attributable to credit weaknesses. In the third quarter of 2021, the Company resumed the origination of suchcommercial real estate bridge loans which it also intends to hold for investment and which are accounted for at amortized cost. They are captioned as REBLs as they are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which already have cash flow.
The Bank has pledged the majority of its loans held for investment at amortized cost and commercial loans at fair value to either the Federal Home Loan BankFHLB or the Federal Reserve Bank for lines of credit with those institutions. The Federal Home Loan BankFHLB line is periodically utilized to manage liquidity, but the Federal Reserve Bank line haswas not generally been used.used prior to the pandemic. However, in light of the impact ofresponse to the COVID-19 pandemic, the Federal Reserve Bank has encouraged banks to utilize their lines to maximize the amount of funding available for credit markets. Accordingly, the Bank has periodically borrowed against its Federal Reserve Bank line on an overnight basis. The amount of loans pledged varies and the collateral may be unpledged at any time to the extent the collateral exceeds advances. The lines are maintained consistent with the Bank’s liquidity policy which maximizes potential liquidity. At March 31, 2022, $1.812023, $2.84 billion of loans were pledged to the Federal Reserve Bank and $1.39$1.25 billion of loans were pledged to the Federal Home Loan Bank. AtFHLB. There were no balances against these lines at March 31, 2022, there were 0 amounts outstanding against the Federal Reserve line and Federal Home Loan Bank line.2023.
Prior to 2020, the Company sponsored the structuring of commercial mortgage loan securitizations, and in 2020, the Company decided not to pursue additional securitizations. The loans previously sold to the commercial mortgage-backed securitizations were transitional commercial mortgage loans made to improve and rehabilitate existing properties which already havehad cash flow. Servicing rights were not retained. Each of the securitizations is considered a variable interest entity of which the Company is not the primary beneficiary. Further, true sale accounting has been applicable to each of the securitizations, as supported by a review performed by an independent third-party consultant. In each of the securitizations, the Company obtained a tranche of certificates which are accounted for as available-for-sale debt securities. The securities were recorded at fair value at acquisition, which was determined by an independent third-party based on the discounted cash flow method using unobservable (level 3) inputs. The securitized loans were structured with some prepayment protection and with extension options which are common for rehabilitation loans. It was expected that those factors would generally offset the impact of prepayments which would therefore not be significant. Accordingly, prepayments on CRE securities were not originally assumed in the first four securitizations. However, as a result of higher than expected prepayments on CRE2, annual prepayments of 15% on CRE5 were assumed, beginning after the first-year anniversary of the CRE5 securitization. For CRE6, there was no premium or discount associated with the tranche purchased and prepayments were accordingly not estimated. Of the six securities resulting from our securitizations all have been repaid except those from CRE-2 and CRE-6. Payments on CRE-6 are on schedule.that issued by CRE-2. As of March 31, 2022,2023, the principal balance of the Company’s CRE-2-issued security we own issued by CRE-2 was $12.6 million. Repayment is expected from the workout or disposition of commercial real estate collateral, after repayment of moreone remaining senior tranches.tranche. The Company’s $12.6 million CRE-2 security has 47%50% excess credit support; thus, losses of 47%50% of remaining security balances would have to be incurred, prior to any loss on our security.it. Additionally, the commercial real estate collateral supporting the three ofremaining loans which collateralize the remaining four loansCRE-2 security balances was re-appraised inbetween 2020 and 2021.2022. The updated appraised value is approximately $70.3$56.9 million, which is net of $3.5$2.1 million due to the servicer. The remaining principal to be repaid on all securities is approximately $66.2$58.1 million and, as noted, the Company’s security is scheduled to be repaid prior to 47%50% of the outstanding securities. However, any future reappraisals could result in further decreases in collateral valuation.credit enhancement, and if such decreases exceed such credit enhancements, losses could result. While available information indicates that the value of existing collateral will be adequate to repay the Company’s security, there can be no assurance that such valuations will be realized upon loan resolutions, and that deficiencies will not exceed the 47%50% credit support.
Because of credit enhancements Of the remaining three loans, the property collateral for each security, cash flows were not reduced by expected losses. For each of the securitizations, the Company has recorded a gain which is comprised of (i) the excess of consideration received by the Company in the transaction over the carrying valuetwo of the loans is expected to be liquidated through sale. The third loan was originally extended two years to June 2022 and terms have not yet been reached for another extension, thus putting the loan in maturity default. If not extended by the special servicer, the property will be foreclosed and sold. The property was appraised at securitization, less related transactions costs incurred; and (ii)$25.9 million in July 2022 with total exposure in the recognitionsecurity of previously deferred origination and exit fees.$25.0 million. A recent broker opinion of property liquidation value was $20.9 million. The existing 50% credit enhancement continues to provide repayment protection for the Bank owned tranche.
The Company analyzes credit risk prior to making loans on an individual loan basis. The Company considers relevant aspects of the borrowers’ financial position and cash flow, past borrower performance, management’s knowledge of market conditions, collateral and the ratio of loan amounts to estimated collateral value in making its credit determinations.
Major classifications of loans, excluding commercial loans at fair value, are as follows (in thousands):
March 31, | December 31, | March 31, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
SBL non-real estate | $ | 122,387 | $ | 147,722 | $ | 114,334 | $ | 108,954 | ||
SBL commercial mortgage | 385,559 | 361,171 | 492,798 | 474,496 | ||||||
SBL construction | 31,432 | 27,199 | 33,116 | 30,864 | ||||||
Small business loans | 539,378 | 536,092 | ||||||||
SBLs | 640,248 | 614,314 | ||||||||
Direct lease financing | 538,616 | 531,012 | 652,541 | 632,160 | ||||||
SBLOC / IBLOC * | 2,067,233 | 1,929,581 | ||||||||
Advisor financing ** | 146,461 | 115,770 | ||||||||
SBLOC / IBLOC(1) | 2,053,450 | 2,332,469 | ||||||||
Advisor financing(2) | 189,425 | 172,468 | ||||||||
Real estate bridge loans | 803,477 | 621,702 | 1,752,322 | 1,669,031 | ||||||
Other loans *** | 61,096 | 5,014 | ||||||||
Other loans(3) | 60,210 | 61,679 | ||||||||
4,156,261 | 3,739,171 | 5,348,196 | 5,482,121 | |||||||
Unamortized loan fees and costs | 8,037 | 8,053 | 6,151 | 4,732 | ||||||
Total loans, including unamortized loan fees and costs | $ | 4,164,298 | $ | 3,747,224 | $ | 5,354,347 | $ | 5,486,853 |
March 31, | December 31, | ||||
2022 | 2021 | ||||
SBL loans, including costs net of deferred fees of $6,084 and $5,345 | |||||
for March 31, 2022 and December 31, 2021, respectively | $ | 545,462 | $ | 541,437 | |
SBL loans included in commercial loans, at fair value | 183,408 | 199,585 | |||
Total small business loans **** | $ | 728,870 | $ | 741,022 |
March 31, | December 31, | ||||
2023 | 2022 | ||||
SBLs, including costs net of deferred fees of $8,610 and $7,327 | |||||
for March 31, 2023 and December 31, 2022, respectively | $ | 648,858 | $ | 621,641 | |
SBLs included in commercial loans, at fair value | 140,909 | 146,717 | |||
Total SBLs(4) | $ | 789,767 | $ | 768,358 |
* Securities Backed Lines of Credit, or (1)SBLOC are collateralized by marketable securities, while Insurance Backed Lines of Credit, or IBLOC are collateralized by the cash surrender value of insurance policies. At March 31, 20222023 and December 31, 2021,2022, respectively, IBLOC loans amounted to $907.1$921.3 million and $788.3 million.$1.12 billion.
** (2)In 2020 the Company began originating loans to investment advisors for purposes of debt refinance,refinancing, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third-party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.
*** (3)Includes demand deposit overdrafts reclassified as loan balances totaling $310,000$4.8 million and $322,000$2.6 million at March 31, 20222023 and December 31, 2021,2022, respectively. Estimated overdraft charge-offs and recoveries are reflected in the allowance for credit lossesACL and have been immaterial.
****(4)The small business loansSBLs held at fair value are comprised of the government guaranteed portion of SBA 7a7(a) Program (as defined below) loans at the dates indicated.A reduction in SBL non-real estate from $147.7 million to $122.4 million in the first quarter of 2022 resulted from U.S. government repayments of $21.1 million of Paycheck Protection Program
(“PPP”) loans authorized by The Consolidated Appropriations Act, 2021. PPP loans totaled $23.7 million at March 31, 2022 and $44.8 million at December 31, 2021, respectively.
The following table provides information about loans individually evaluated for credit loss at March 31, 20222023 and December 31, 20212022 (in thousands):. Legacy commercial real estate is comprised of commercial loans made by the Philadelphia commercial loan division which was discontinued.
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||
Recorded | Unpaid | Related | Average | Interest | Recorded | Unpaid | Related | Average | Interest | |||||||||||||||||||
Without an allowance recorded | ||||||||||||||||||||||||||||
Without an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | $ | 529 | $ | 3,278 | $ | — | $ | 469 | $ | 2 | $ | 241 | $ | 2,787 | $ | — | $ | 250 | $ | — | ||||||||
SBL commercial mortgage | — | — | — | 111 | — | 456 | 456 | — | 298 | — | ||||||||||||||||||
Direct lease financing | 8 | 8 | — | 131 | — | 53 | 53 | — | 27 | — | ||||||||||||||||||
Other loans | 4,171 | 4,171 | — | 4,171 | 29 | |||||||||||||||||||||||
Legacy commercial real estate | 3,552 | 3,552 | — | 3,552 | — | |||||||||||||||||||||||
Consumer - home equity | 312 | 312 | — | 316 | 3 | 286 | 286 | — | 290 | 2 | ||||||||||||||||||
With an allowance recorded | ||||||||||||||||||||||||||||
With an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | 1,817 | 1,817 | (1,338) | 1,648 | 10 | 919 | 919 | (458) | 947 | 1 | ||||||||||||||||||
SBL commercial mortgage | 589 | 589 | (116) | 589 | — | 2,492 | 2,492 | (481) | 1,957 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 710 | — | 3,385 | 3,385 | (44) | 3,385 | — | ||||||||||||||||||
Direct lease financing | 1,328 | 1,977 | (689) | 2,439 | — | |||||||||||||||||||||||
Other loans | 550 | 550 | (12) | 621 | — | |||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
SBL non-real estate | 2,346 | 5,095 | (1,338) | 2,117 | 12 | 1,160 | 3,706 | (458) | 1,197 | 1 | ||||||||||||||||||
SBL commercial mortgage | 589 | 589 | (116) | 700 | — | 2,948 | 2,948 | (481) | 2,255 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 710 | — | 3,385 | 3,385 | (44) | 3,385 | — | ||||||||||||||||||
Direct lease financing | 8 | 8 | — | 131 | — | 1,381 | 2,030 | (689) | 2,466 | — | ||||||||||||||||||
Other loans | 4,171 | 4,171 | — | 4,171 | 29 | |||||||||||||||||||||||
Legacy commercial real estate and Other loans | 4,102 | 4,102 | (12) | 4,173 | — | |||||||||||||||||||||||
Consumer - home equity | 312 | 312 | — | 316 | 3 | 286 | 286 | — | 290 | 2 | ||||||||||||||||||
$ | 8,136 | $ | 10,885 | $ | (1,488) | $ | 8,145 | $ | 44 | $ | 13,262 | $ | 16,457 | $ | (1,684) | $ | 13,766 | $ | 3 |
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||||||||
Recorded | Unpaid | Related | Average | Interest | Recorded | Unpaid | Related | Average | Interest | |||||||||||||||||||
Without an allowance recorded | ||||||||||||||||||||||||||||
Without an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | $ | 409 | $ | 3,414 | $ | — | $ | 412 | $ | 5 | $ | 400 | $ | 2,762 | $ | — | $ | 388 | $ | — | ||||||||
SBL commercial mortgage | 223 | 246 | — | 1,717 | — | — | — | — | 45 | — | ||||||||||||||||||
Direct lease financing | 254 | 254 | — | 430 | — | — | — | — | 52 | — | ||||||||||||||||||
Legacy commercial real estate | 3,552 | 3,552 | — | 1,421 | 150 | |||||||||||||||||||||||
Consumer - home equity | 320 | 320 | — | 458 | 8 | 295 | 295 | — | 306 | 9 | ||||||||||||||||||
With an allowance recorded | ||||||||||||||||||||||||||||
With an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | 1,478 | 1,478 | (829) | 2,267 | 13 | 974 | 974 | (525) | 1,237 | 7 | ||||||||||||||||||
SBL commercial mortgage | 589 | 589 | (115) | 2,634 | — | 1,423 | 1,423 | (441) | 1,090 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 711 | — | 3,386 | 3,386 | (153) | 1,245 | — | ||||||||||||||||||
Direct lease financing | — | — | — | 132 | — | 3,550 | 3,550 | (933) | 710 | — | ||||||||||||||||||
Consumer - other | — | — | — | 5 | — | |||||||||||||||||||||||
Other loans | 692 | 692 | (15) | 1,923 | — | |||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
SBL non-real estate | 1,887 | 4,892 | (829) | 2,679 | 18 | 1,374 | 3,736 | (525) | 1,625 | 7 | ||||||||||||||||||
SBL commercial mortgage | 812 | 835 | (115) | 4,351 | — | 1,423 | 1,423 | (441) | 1,135 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 711 | — | 3,386 | 3,386 | (153) | 1,245 | — | ||||||||||||||||||
Direct lease financing | 254 | 254 | — | 562 | — | 3,550 | 3,550 | (933) | 762 | — | ||||||||||||||||||
Consumer - other | — | — | — | 5 | — | |||||||||||||||||||||||
Legacy commercial real estate and Other loans | 4,244 | 4,244 | (15) | 3,344 | 150 | |||||||||||||||||||||||
Consumer - home equity | 320 | 320 | — | 458 | 8 | 295 | 295 | — | 306 | 9 | ||||||||||||||||||
$ | 3,983 | $ | 7,011 | $ | (978) | $ | 8,766 | $ | 26 | $ | 14,272 | $ | 16,634 | $ | (2,067) | $ | 8,417 | $ | 166 |
The loan review department recommends non-accrual status for loans to the surveillance committee, where interest income appears to be uncollectible or a protracted delay in collection becomes evident. The surveillance committee further vets and approves the non-accrual status.
The following table summarizes non-accrual loans with and without an allowance for credit losses (“ACL”)ACL as of the periods indicated
(in thousands):
March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||||||||
Non-accrual loans with a related ACL | Non-accrual loans without a related ACL | Total non-accrual loans | Total non-accrual loans | Non-accrual loans with a related ACL | Non-accrual loans without a related ACL | Total non-accrual loans | Total non-accrual loans | |||||||||||||||
SBL non-real estate | $ | 1,251 | $ | 388 | $ | 1,639 | $ | 1,313 | $ | 831 | $ | 241 | $ | 1,072 | $ | 1,249 | ||||||
SBL commercial mortgage | 589 | — | 589 | 812 | 2,492 | 456 | 2,948 | 1,423 | ||||||||||||||
SBL construction | 710 | — | 710 | 710 | 3,385 | — | 3,385 | 3,386 | ||||||||||||||
Direct leasing | — | 8 | 8 | 254 | 1,328 | 53 | 1,381 | 3,550 | ||||||||||||||
Consumer - home equity | — | 68 | 68 | 72 | — | 50 | 50 | 56 | ||||||||||||||
Other loans | — | 607 | 607 | — | ||||||||||||||||||
Legacy commercial real estate and Other loans | 550 | 3,552 | 4,102 | 692 | ||||||||||||||||||
$ | 2,550 | $ | 1,071 | $ | 3,621 | $ | 3,161 | $ | 8,586 | $ | 4,352 | $ | 12,938 | $ | 10,356 |
The Company had $18.9 million of other real estate owned at March 31, 2022 and $18.9$21.1 million of other real estate owned (“OREO”) at March 31, 2023 and $21.2 million of OREO at December 31, 2021.2022. The following table summarizes the Company’s non-accrual loans, loans past due 90 days or more, and other real estate ownedOREO at March 31, 20222023 and December 31, 2021,2022, respectively:
March 31, | December 31, | March 31, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(in thousands) | (Dollars in thousands) | |||||||||
Non-accrual loans | ||||||||||
SBL non-real estate | $ | 1,639 | $ | 1,313 | $ | 1,072 | $ | 1,249 | ||
SBL commercial mortgage | 589 | 812 | 2,948 | 1,423 | ||||||
SBL construction | 710 | 710 | 3,385 | 3,386 | ||||||
Direct leasing | 8 | 254 | 1,381 | 3,550 | ||||||
Other loans | 607 | — | ||||||||
Legacy commercial real estate and Other loans | 4,102 | 692 | ||||||||
Consumer - home equity | 68 | 72 | 50 | 56 | ||||||
Total non-accrual loans | 3,621 | 3,161 | 12,938 | 10,356 | ||||||
Loans past due 90 days or more and still accruing | 4,597 | 461 | 873 | 7,775 | ||||||
Total non-performing loans | 8,218 | 3,622 | 13,811 | 18,131 | ||||||
Other real estate owned | 18,873 | 18,873 | ||||||||
OREO | 21,117 | 21,210 | ||||||||
Total non-performing assets | $ | 27,091 | $ | 22,495 | $ | 34,928 | $ | 39,341 |
Interest which would have been earned on loans classified as non-accrual for the three months ended March 31, 2023 and 2022, was $194,000 and 2021, was $41,000 and $162,000,$49,000, respectively. NaNNo income on non-accrual loans was recognized during the three months ended March 31, 2022.2023. In the three months ended March 31, 2023, $89,000 of legacy commercial real estate, $89,000 of SBL commercial real estate, $3,000 of SBL non-real estate, and $26,000 of direct leasing were reversed from interest income, which represented interest accrued on loans placed into non-accrual status during the period. In the three months ended March 31, 2022, and 2021 a total$55,000 of $55,000 and $10,000, respectively,SBL non-real estate was reversed from interest income, which represented interest accrued on loans placed into non-accrual status during the period.Material amounts of non-accrual interest reversals are charged to the ACL, but such amounts were not material in either the three months ended March 31, 2023 or 2022.
Effective January 1, 2023 loan modifications to borrowers experiencing financial difficulty are required to be disclosed by type of modification and by type of loan. Prior accounting guidance classified loans which were modified as troubled debt restructurings only if the modification reflected a concession from the lender in the form of a below market interest rate or other concession in addition to borrower financial difficulty. Under the new guidance, loans with modifications will be reported whether a concession is made or not. Loans previously classified as troubled debt restructurings will continue to be reported in the following tables and loans with modifications made after January 1, 2023 will be reported under the new loan modification guidance. In the quarter ended March 31, 2023 there were no loan modifications reportable under the new guidance.
The Company’s loans that were modified as of March 31, 20222023 and December 31, 20212022 and considered troubled debt restructurings are as follows (dollars in thousands):
March 31, 2023 | December 31, 2022 | ||||||||||||||||
Number | Pre-modification recorded investment | Post-modification recorded investment | Number | Pre-modification recorded investment | Post-modification recorded investment | ||||||||||||
SBL non-real estate | 7 | $ | 610 | $ | 610 | 8 | $ | 650 | $ | 650 | |||||||
SBL commercial mortgage | 1 | 834 | 834 | 1 | 834 | 834 | |||||||||||
Legacy commercial real estate | 1 | 3,552 | 3,552 | 1 | 3,552 | 3,552 | |||||||||||
Consumer - home equity | 1 | 236 | 236 | 1 | 239 | 239 | |||||||||||
Total(1) | 10 | $ | 5,232 | $ | 5,232 | 11 | $ | 5,275 | $ | 5,275 |
March 31, 2022 | December 31, 2021 | ||||||||||||||||
Number | Pre-modification recorded investment | Post-modification recorded investment | Number | Pre-modification recorded investment | Post-modification recorded investment | ||||||||||||
SBL non-real estate | 12 | $ | 1,451 | $ | 1,451 | 9 | $ | 1,231 | $ | 1,231 | |||||||
Other loans | 1 | 3,564 | 3,564 | — | — | — | |||||||||||
Consumer - home equity | 1 | 245 | 245 | 1 | 248 | 248 | |||||||||||
Total(1) | 14 | $ | 5,260 | $ | 5,260 | 10 | $ | 1,479 | $ | 1,479 |
(1)Troubled debt restructurings include non-accrual loans of $745,000$4.9 million and $656,000$1.4 million at March 31, 20222023 and December 31, 2021,2022, respectively.
The balances below provide information as to how the loans were modified as troubled debt restructuring loans as of March 31, 20222023 and December 31, 20212022 (in thousands):
March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
Adjusted interest rate | Extended maturity | Combined rate and maturity | Adjusted interest rate | Extended maturity | Combined rate and maturity | Adjusted interest rate | Extended maturity | Combined rate and maturity | Adjusted interest rate | Extended maturity | Combined rate and maturity | |||||||||||||||||||||||
SBL non-real estate | $ | — | $ | — | $ | 1,451 | $ | — | $ | — | $ | 1,231 | $ | — | $ | — | $ | 610 | $ | — | $ | — | $ | 650 | ||||||||||
Other loans | — | — | 3,564 | — | — | — | ||||||||||||||||||||||||||||
SBL commercial mortgage | — | — | 834 | — | — | 834 | ||||||||||||||||||||||||||||
Legacy commercial real estate | — | — | 3,552 | — | — | 3,552 | ||||||||||||||||||||||||||||
Consumer - home equity | — | — | 245 | — | — | 248 | — | — | 236 | — | — | 239 | ||||||||||||||||||||||
Total(1) | $ | — | $ | — | $ | 5,260 | $ | — | $ | — | $ | 1,479 | $ | — | $ | — | $ | 5,232 | $ | — | $ | — | $ | 5,275 |
(1)Troubled debt restructurings include non-accrual loans of $745,000$4.9 million and $656,000$1.4 million at March 31, 20222023 and December 31, 2021,2022, respectively.
The Company had 0no commitments to extend additional credit to loans classified as troubled debt restructurings as of March 31, 20222023 or December 31, 2021.2022.
WhenUnder the previous accounting guidance explained above, when loans arewere classified as troubled debt restructurings, the Company estimatesestimated the value of underlying collateral and repayment sources. A specific reserve in the allowance for credit losses isACL was established if the collateral valuation, less estimated disposition costs, iswas lower than the recorded loan value. The amount of the specific reserve servesserved to increase the provision for credit losses in the quarter the loan iswas classified as a troubled debt restructuring. As of March 31, 20222023, there were 14ten troubled debt restructured loans with aan aggregate balance of $5.2 million which had specific reserves of $587,000. As of December 31, 2022, there were eleven troubled debt restructured loans with an aggregate balance of $5.3 million which had specific reserves of $655,000. As of December 31, 2021, there were 10 troubled debt restructured loans with a balance of $1.5 million which had specific reserves of $476,000.$637,000. Substantially all of these reserves related to the non-guaranteed portion of SBA loans for start-up businesses. While the new guidance eliminates the troubled debt restructuring classification, loans previously classified as such will now be reported as loans with modifications, whether or not the modification reflected a lender concession. Specific reserves for loans with balances which exceed collateral values will continue to be required in the ACL.
The following table summarizes loans that were restructured within the 12twelve months ended March 31, 20222023 that have subsequently defaulted (in thousands):
March 31, 2022 | ||||
Number | Pre-modification recorded investment | |||
SBL non-real estate | 1 | $ | 334 | |
Total | 1 | $ | 334 |
March 31, 2023 | ||||
Number | Pre-modification recorded investment | |||
SBL non-real estate | 2 | $ | 174 | |
Legacy commercial real estate | 1 | 3,552 | ||
Total | 3 | $ | 3,726 |
Management estimates the allowance for credit lossesACL using relevant available internal and external historical loan performance information, current economic conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the initial basis for the estimation of expected credit losses over the estimated remaining life of the loans. The methodology used in the estimation of the allowance,ACL, which is performed at least quarterly, is also designed to be responsive to changes in portfolio credit quality and the impact of current and future economic conditions on loan performance. The review of the appropriateness of the allowanceACL is performed by the Chief Credit Officer and presented to the Audit Committee of the Company’s Board of Directors (the “Board”) for their review. With the exception of SBLOC and IBLOC, which utilize probability of loss/loss given default, and the other loan category, which uses discounted cash flow to determine a reserve, the allowancesACLs for other categories are determined by establishing reserves on loan pools with similar risk characteristics based on a lifetime loss-rate model, or vintage analysis, as described in the following paragraph. Loans that do not share risk characteristics are evaluated on an individual basis. If foreclosure is believed to be probable or repayment is expected from the sale of the collateral, a reserve for deficiency is established within the allowance.ACL. Those reserves are estimated based on the difference between loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs.
ForExcept for SBLOC, IBLOC and other loans as noted above, for purposes of determining the pool-basis reserve, the loans not assigned an individual reserve are segregated by product type, to recognize differing risk characteristics within portfolio segments. Ansegments, and an average historical loss rate is calculated for each product type, except SBLOC and IBLOC, which utilize probability of loss/loss given default considerations.type. Loss rates are computed by classifying net charge-offs by year of loan origin, and dividing into total originations for that specific year. This methodology is referred to as vintage analysis. The average loss rate is then projected over the estimated remaining loan lives unique to each loan pool, to determine estimated lifetime losses. For SBLOC and IBLOC, since losses have not been incurred, probability of loss/loss given default considerations are utilized. For the other loan category discounted cash flow is utilized to determine a reserve. For all loan pools the Company considers the need for an additional allowanceACL based upon qualitative factors such as the Company’s current loan performance statistics as determined by pool. These qualitative factors are intended to account for forward looking expectations over a twelve to eighteen month period not reflected in historical loss rates and otherwise unaccounted for in the quantitative process. Accordingly, such factors may increase or decrease the allowance compared to historical
loss rates.rates as the Company’s forward looking expectations change. The qualitative factor percentages are applied against the pool balances as of the end of the period. Aside from the qualitative adjustments to account for forward looking expectations of loss over a twelve to eighteen month projection period, the balance of the allowanceACL reverts directly to the Company’s quantitative analysis derived from its historical loss rates. The qualitative and historical loss rate component, together with the allowances on specific loans, comprise the total ACL.
A similar process is employed to calculate an allowanceACL assigned to off-balance sheet commitments, which are comprised of unfunded loan commitments and letters of credit. That allowanceACL for unfunded commitments is recorded in other liabilities. Even though portions of the allowanceACL may be allocated to loans that have been individually measured for credit deterioration, the entire allowanceACL is available for any credit that, in management’s judgment, should be charged off.
At March 31, 2023, the ACL for off-balance sheet commitments amounted to $2.5 million and the ACL for outstanding loans amounted to $23.8 million for total allowances of $26.3 million. Of the $26.3 million, $11.3 million of allowances resulted from the Company’s historical charge-off ratios, $1.7 million from reserves on specific loans, with the balance comprised of the qualitative component. The $11.3 million resulted primarily from SBA non-real estate and leasing charge-offs. The higher proportion of qualitative reserve compared to charge-off history related reserves reflects that charge-offs have not been experienced in the Company’s largest loan portfolios consisting of SBLOC and IBLOC and real estate bridge lending. The absence of significant charge-offs reflects, at least in part, the nature of related collateral respectively consisting of marketable securities, the cash value of life insurance and workforce apartment buildings. As charge-offs are nonetheless possible, significant subjectivity is required to consider qualitative factors to derive the related component of the allowance.
The Company ranks its qualitative factors in five levels: minimal, low, moderate, moderate-high and high risk. The individual qualitative factors for each portfolio segment have their own scale based on an analysis of that segment. A high risk ranking has the greatest impact on the allowanceACL calculation with each level below having a lesser impact on a sliding scale.scale. The qualitative factors used for each portfolio are described below in the description of each portfolio segment. When the Company adopted CECLcurrent expected credit loss accounting (“CECL”) methodology as of January 1, 2020, the management assumption was that some degree of economic slowdown should be considered over the next eighteen months. That belief reflected the length of the current economic expansion and the relatively high level of unsustainable U.S. government deficit spending. Accordingly, certain of the Company’s qualitative factors were set at moderate as of January 1, 2020. Based on the uncertainty as to how the COVID-19 pandemic would impact the Company’s loan pools, the Company increased other qualitative factors to moderate and moderate high in 2020. In the second quarter of 2021, the Company reassessed these factors and reversed increases to moderate-high for certain pools, based upon increased vaccination rates and significant reopening of the economy. As a result of continuing economic uncertainty, including heightened inflation and increased risks of recession, the qualitative factors which had been set in anticipation of a downturn at January 1, 2020, were maintained through the third quarter of 2022. In the fourth quarter of 2022, as risks of a recession increased, the economic qualitative risk factor was increased for non-real estate SBL and leasing. Those higher qualitative allocations were retained in the first quarter of 2023, as negative economic indications persisted. The Company has not increased qualitative risk levels for SBLOC or IBLOC because of the nature of related collateral. SBLOC loans are subject to maximum loan to marketable securities value, and notwithstanding historic drops in the stock market in recent years, losses have not been realized. IBLOC loans are limited to borrowers with insurance companies which exceed credit requirements, and are limited to life insurance cash values. The Company also decided not to increase the economic factor for real estate bridge lending. While Federal Reserve rate increases directly increase real estate bridge loan floating rate borrowing costs, those borrowers are required to purchase interest rate caps that will partially limit the increase in borrowing costs during the term of the loan. Additionally, there continues to be several additional mitigating factors within the multifamily sector that will continue to fuel demand. Higher interest rates are increasing the cost to purchase a home, which in turn is increasing the number of renters and subsequent demand for multifamily. The softening demand for new homes should continue to exacerbate the current housing shortage, and therefore continue to fuel demand for multifamily apartment homes. Additionally, higher rents in the multifamily sector are causing renters to be more price sensitive, which is driving demand for most of the apartment buildings within the company’s loan portfolio which management considers “workforce” housing. As a result, the REBL qualitative economic factor was not increased. Officers and lenders have considered potential risks resulting from inflation and identified a risk specific to the leasing function. Inflation in fuel prices poses a risk to the Company’s vehicle fleet leases, specifically for less fuel efficient vehicles for which demand and values may decrease. However, used vehicle prices are anticipated to be sustained for an additional twelve to eighteen months, impacted by chip shortages which may persist into 2024.
The economic qualitative factor is based on the estimated impact of economic conditions on the loan pools, as distinguished from the economic factors themselves, for the following reasons. The Company has not experienced multi-family (apartment building) loan charge-offs, for either real estate bridge lending or similarly underwritten loans in its predecessor commercial loans, at fair value portfolio, despite stressed economic conditions. Additionally, there have been no losses for multi-family (apartment buildings) in the Company’s securitizations. Accordingly, the estimated credit losses for this pool were derived purely from industry loss information for multi-family housing was utilized inhousing. The estimated reserve on the multi-family portfolio is currently derived from that industry qualitative factors.factor. Similarly, the Company’s charge-offs have been virtually non-existent for SBLOC and IBLOC notwithstanding stressed economic periods. Investment advisor loans were first offered in 2020 with limited performance history.history, during which charge-offs have not been experienced. For investment advisor loans, the nature of the underlying ultimate repayment source was considered, namely the fee-based advisory income streams resulting from investment portfolios under management and the impact changes in economic conditions would
have on those payment streams. Additionally, the Company’s charge-off histories for small business loans,SBLs, primarily SBA, and leases have not correlated with economic conditions.conditions, including trends in unemployment. While specific economic factors did not correlate with actual historical losses, multiple economic factors are considered. For the non-guaranteed portion of SBA loans, leases, real estate bridge lending and
investment advisor financing the Company’s loss forecasting analysis included a review of industry statistics. However, the Company’s own charge-off history and average life estimates, for categories in which the Company has experienced charge-offs, was the primary quantitatively derived element in the forecasts. The qualitative component results from management’s qualitative assessments. In the firstsecond quarter of 2022, the Company did not make significant changesadjusted its collateral qualitative factor for SBLs downward to its qualitative factors.account for a greater percentage of government guaranteed balances in applicable pools as compared to prior periods. Additionally, in the second quarter of 2022, allowances on credit deteriorated loans were reduced. The largest reduction was $1.0 million which resulted when single family units from a construction loan were sold for higher than expected prices. That loan had been included in discontinued loans prior to first quarter 2022, when discontinued assets were reclassified to continuing operations. The Company no longer engages in new construction residential lending.
Below are the portfolio segments used to pool loans with similar risk characteristics and align with the Company’s methodology for measuring expected credit losses. These pools have similar risk and collateral characteristics, and certain of these pools are broken down further in determining and applying the vintage loss estimates previously discussed. For instance, within the direct lease financing pool, government and public institution leases are considered separately. Additionally, the Company evaluates its loans under an internal loan risk rating system as a means of identifying problem loans. The special mention classification indicates weaknesses that may, if not cured, threaten the borrower’s future repayment ability. A substandard classification reflects an existing weakness indicating the possible inadequacy of net worth and other repayment sources. These classifications are used both by regulators and peers, as they have been correlated with an increased probability of credit losses. A summary of the Company’s primary portfolio pools and loans accordingly classified, by year of origination, at March 31, 20222023 and December 31, 20212022 are as follows (in thousands):
As of March 31, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving loans at amortized cost | Total | ||||||||||||||||||||||||||||||||||||||
As of March 31, 2023 | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving loans at amortized cost | Total | ||||||||||||||||||||||||||||||||||||||
SBL non real estate | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated* | $ | — | $ | 20,020 | $ | 3,626 | $ | — | $ | — | $ | — | $ | — | $ | 23,646 | ||||||||||||||||||||||||||||||
Non-rated(1) | $ | 2,301 | $ | — | $ | 3,771 | $ | 240 | $ | — | $ | — | $ | — | $ | 6,312 | ||||||||||||||||||||||||||||||
Pass | 1,526 | 33,779 | 15,256 | 8,242 | 8,505 | 12,974 | — | 80,282 | 3,953 | 37,634 | 29,569 | 12,550 | 5,410 | 7,538 | — | 96,654 | ||||||||||||||||||||||||||||||
Special mention | — | — | — | 99 | 645 | 491 | — | 1,235 | — | — | 267 | 51 | — | 906 | — | 1,224 | ||||||||||||||||||||||||||||||
Substandard | — | — | 246 | — | 134 | 3,477 | — | 3,857 | — | — | — | 320 | 241 | 586 | — | 1,147 | ||||||||||||||||||||||||||||||
Total SBL non-real estate | 1,526 | 53,799 | 19,128 | 8,341 | 9,284 | 16,942 | — | 109,020 | 6,254 | 37,634 | 33,607 | 13,161 | 5,651 | 9,030 | — | 105,337 | ||||||||||||||||||||||||||||||
SBL commercial mortgage | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated | 15,426 | 2,091 | — | — | — | — | — | 17,517 | 14,996 | — | — | — | — | — | — | 14,996 | ||||||||||||||||||||||||||||||
Pass | 12,224 | 91,308 | 56,969 | 74,628 | 43,139 | 80,528 | — | 358,796 | 10,061 | 127,815 | 95,091 | 63,592 | 64,364 | 106,558 | — | 467,481 | ||||||||||||||||||||||||||||||
Special mention | — | — | 141 | 1,853 | — | 464 | — | 2,458 | — | — | — | — | — | 453 | — | 453 | ||||||||||||||||||||||||||||||
Substandard | — | — | — | — | — | 589 | — | 589 | — | — | — | 456 | 1,853 | 2,492 | — | 4,801 | ||||||||||||||||||||||||||||||
Total SBL commercial mortgage | 27,650 | 93,399 | 57,110 | 76,481 | 43,139 | 81,581 | — | 379,360 | 25,057 | 127,815 | 95,091 | 64,048 | 66,217 | 109,503 | — | 487,731 | ||||||||||||||||||||||||||||||
SBL construction | ||||||||||||||||||||||||||||||||||||||||||||||
Pass | — | 9,119 | 14,183 | 2,000 | 5,419 | — | — | 30,721 | — | 4,832 | 11,733 | 9,806 | 3,360 | — | — | 29,731 | ||||||||||||||||||||||||||||||
Substandard | — | — | — | — | — | 710 | — | 710 | — | — | 2,675 | — | — | 710 | — | 3,385 | ||||||||||||||||||||||||||||||
Total SBL construction | — | 9,119 | 14,183 | 2,000 | 5,419 | 710 | — | 31,431 | — | 4,832 | 14,408 | 9,806 | 3,360 | 710 | — | 33,116 | ||||||||||||||||||||||||||||||
Direct lease financing | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated | 43,382 | 41,790 | 11,682 | 1,717 | 877 | 329 | — | 99,777 | 450 | — | — | — | — | — | — | 450 | ||||||||||||||||||||||||||||||
Pass | 54,636 | 178,087 | 124,279 | 50,899 | 21,301 | 7,929 | — | 437,131 | 88,720 | 300,253 | 140,497 | 69,563 | 33,495 | 13,286 | — | 645,814 | ||||||||||||||||||||||||||||||
Special mention | 8 | — | — | — | 12 | 35 | — | 55 | — | 1,450 | 232 | 357 | 41 | 63 | — | 2,143 | ||||||||||||||||||||||||||||||
Substandard | 432 | 266 | 942 | — | 8 | 5 | — | 1,653 | — | 2,180 | 918 | 294 | 435 | 307 | — | 4,134 | ||||||||||||||||||||||||||||||
Total direct lease financing | 98,458 | 220,143 | 136,903 | 52,616 | 22,198 | 8,298 | — | 538,616 | 89,170 | 303,883 | 141,647 | 70,214 | 33,971 | 13,656 | — | 652,541 | ||||||||||||||||||||||||||||||
SBLOC | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated | — | — | — | — | — | — | 3,724 | 3,724 | — | — | — | — | — | — | 16,298 | 16,298 | ||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | — | 1,156,417 | 1,156,417 | — | — | — | — | — | — | 1,115,868 | 1,115,868 | ||||||||||||||||||||||||||||||
Total SBLOC | — | — | — | — | — | — | 1,160,141 | 1,160,141 | — | — | — | — | — | — | 1,132,166 | 1,132,166 | ||||||||||||||||||||||||||||||
IBLOC | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated | — | — | — | — | — | — | 412,878 | 412,878 | — | — | — | — | — | — | 806 | 806 | ||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | — | 494,214 | 494,214 | — | — | — | — | — | — | 920,478 | 920,478 | ||||||||||||||||||||||||||||||
Total IBLOC | — | — | — | — | — | — | 907,092 | 907,092 | — | — | — | — | — | — | 921,284 | 921,284 | ||||||||||||||||||||||||||||||
Advisor financing | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated | 23,156 | 969 | — | — | — | — | — | 24,125 | 8,500 | 1,647 | 889 | — | — | — | — | 11,036 | ||||||||||||||||||||||||||||||
Pass | 10,413 | 69,728 | 42,195 | — | — | — | — | 122,336 | 20,103 | 67,157 | 60,001 | 31,128 | — | — | — | 178,389 | ||||||||||||||||||||||||||||||
Total advisor financing | 33,569 | 70,697 | 42,195 | — | — | — | — | 146,461 | 28,603 | 68,804 | 60,890 | 31,128 | — | — | — | 189,425 | ||||||||||||||||||||||||||||||
Real estate bridge loans | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated | 104 | — | — | — | — | — | — | 104 | ||||||||||||||||||||||||||||||||||||||
Pass | 179,070 | 624,407 | — | — | — | — | — | 803,477 | 94,753 | 1,011,665 | 645,800 | — | — | — | — | 1,752,218 | ||||||||||||||||||||||||||||||
Total real estate bridge loans | 179,070 | 624,407 | — | — | — | — | — | 803,477 | 94,857 | 1,011,665 | 645,800 | — | — | — | — | 1,752,322 | ||||||||||||||||||||||||||||||
Other loans | ||||||||||||||||||||||||||||||||||||||||||||||
Non-rated | 478 | 63 | 118 | — | — | 14,611 | 601 | 15,871 | 5,723 | — | 23 | 21 | — | 14,315 | 466 | 20,548 | ||||||||||||||||||||||||||||||
Pass | — | 371 | 113 | 2,895 | 4,253 | 51,717 | 1,204 | 60,553 | — | 263 | 364 | 2,610 | 2,632 | 42,536 | 1,219 | 49,624 | ||||||||||||||||||||||||||||||
Special mention | — | — | — | — | — | 3,564 | — | 3,564 | ||||||||||||||||||||||||||||||||||||||
Substandard | — | — | — | — | — | 607 | 68 | 675 | — | — | — | — | — | 4,102 | — | 4,102 | ||||||||||||||||||||||||||||||
Total other loans** | 478 | 434 | 231 | 2,895 | 4,253 | 70,499 | 1,873 | 80,663 | ||||||||||||||||||||||||||||||||||||||
Total other loans(2) | 5,723 | 263 | 387 | 2,631 | 2,632 | 60,953 | 1,685 | 74,274 | ||||||||||||||||||||||||||||||||||||||
$ | 340,329 | $ | 1,072,420 | $ | 269,750 | $ | 142,333 | $ | 84,293 | $ | 178,030 | $ | 2,069,106 | $ | 4,156,261 | $ | 249,664 | $ | 1,554,896 | $ | 991,830 | $ | 190,988 | $ | 111,831 | $ | 193,852 | $ | 2,055,135 | $ | 5,348,196 | |||||||||||||||
Unamortized loan fees and costs | — | — | — | — | — | — | — | 8,037 | — | — | — | — | — | — | — | 6,151 | ||||||||||||||||||||||||||||||
Total | $ | 4,164,298 | $ | 5,354,347 |
*The
(1)Included in the SBL non real estate non-rated total of $23.6$6.3 million is substantially all comprisedwas $4.0 million of PPPSBA Paycheck Protection Program (“PPP”) loans, which are government guaranteed.guaranteed by the U.S. government.
(2)
**Included in Other loans are $19.6$14.1 million of SBA loans purchased for Community Reinvestment Act (“CRA”) purposes as of March 31, 2023. These loans are classified as SBL in the Company’s loan table, which classifies loans by type, as opposed to risk characteristics.
As of December 31, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving loans at amortized cost | Total | ||||||||||||||||
SBL non real estate | ||||||||||||||||||||||||
Non-rated(1) | $ | 2,075 | $ | 4,266 | $ | 273 | $ | — | $ | — | $ | — | $ | — | $ | 6,614 | ||||||||
Pass | 32,402 | 30,388 | 13,432 | 5,599 | 3,931 | 4,555 | — | 90,307 | ||||||||||||||||
Special mention | — | — | — | — | 585 | 284 | — | 869 | ||||||||||||||||
Substandard | — | — | 320 | 242 | 15 | 642 | — | 1,219 | ||||||||||||||||
Total SBL non-real estate | 34,477 | 34,654 | 14,025 | 5,841 | 4,531 | 5,481 | — | 99,009 | ||||||||||||||||
SBL commercial mortgage | ||||||||||||||||||||||||
Non-rated | 10,600 | — | — | — | — | — | — | 10,600 | ||||||||||||||||
Pass | 116,647 | 97,968 | 64,388 | 64,692 | 42,461 | 68,193 | — | 454,349 | ||||||||||||||||
Special mention | — | — | — | 1,853 | — | 630 | — | 2,483 | ||||||||||||||||
Substandard | — | — | 141 | — | 834 | 589 | — | 1,564 | ||||||||||||||||
Total SBL commercial mortgage | 127,247 | 97,968 | 64,529 | 66,545 | 43,295 | 69,412 | — | 468,996 | ||||||||||||||||
SBL construction | ||||||||||||||||||||||||
Pass | 3,153 | 11,650 | 9,712 | 2,964 | — | — | — | 27,479 | ||||||||||||||||
Substandard | — | 2,676 | — | — | — | 710 | — | 3,386 | ||||||||||||||||
Total SBL construction | 3,153 | 14,326 | 9,712�� | 2,964 | — | 710 | — | 30,865 | ||||||||||||||||
. | ||||||||||||||||||||||||
Direct lease financing | ||||||||||||||||||||||||
Non-rated | 73,424 | 30,900 | 8,245 | 1,153 | 429 | 108 | — | 114,259 | ||||||||||||||||
Pass | 254,063 | 129,763 | 71,043 | 38,038 | 13,722 | 4,291 | — | 510,920 | ||||||||||||||||
Special mention | — | — | 61 | — | — | — | — | 61 | ||||||||||||||||
Substandard | 2,854 | 2,324 | 1,658 | 84 | — | — | — | 6,920 | ||||||||||||||||
Total direct lease financing | 330,341 | 162,987 | 81,007 | 39,275 | 14,151 | 4,399 | — | 632,160 | ||||||||||||||||
SBLOC | ||||||||||||||||||||||||
Non-rated | — | — | — | — | — | — | 4,284 | 4,284 | ||||||||||||||||
Pass | — | — | — | — | — | — | 1,205,098 | 1,205,098 | ||||||||||||||||
Total SBLOC | — | — | — | — | — | — | 1,209,382 | 1,209,382 | ||||||||||||||||
IBLOC | ||||||||||||||||||||||||
Non-rated | — | — | — | — | — | — | 555,219 | 555,219 | ||||||||||||||||
Pass | — | — | — | — | — | — | 567,868 | 567,868 | ||||||||||||||||
Total IBLOC | — | — | — | — | — | — | 1,123,087 | 1,123,087 | ||||||||||||||||
Advisor financing | ||||||||||||||||||||||||
Non-rated | 3,318 | 909 | — | — | — | — | — | 4,227 | ||||||||||||||||
Pass | 68,078 | 64,498 | 35,665 | — | — | — | — | 168,241 | ||||||||||||||||
Total advisor financing | 71,396 | 65,407 | 35,665 | — | — | — | — | 172,468 | ||||||||||||||||
Real estate bridge loans | ||||||||||||||||||||||||
Pass | 1,009,708 | 659,323 | — | — | — | — | — | 1,669,031 | ||||||||||||||||
Total real estate bridge loans | 1,009,708 | 659,323 | — | — | — | — | — | 1,669,031 | ||||||||||||||||
Other loans | ||||||||||||||||||||||||
Non-rated | 4,374 | 29 | 37 | — | — | 16,326 | 488 | 21,254 | ||||||||||||||||
Pass | 264 | 366 | 2,611 | 2,750 | 2,820 | 41,571 | 1,187 | 51,569 | ||||||||||||||||
Special mention | — | — | — | — | — | 3,552 | — | 3,552 | ||||||||||||||||
Substandard | — | — | — | — | — | 692 | 56 | 748 | ||||||||||||||||
Total other loans(2) | 4,638 | 395 | 2,648 | 2,750 | 2,820 | 62,141 | 1,731 | 77,123 | ||||||||||||||||
Total | $ | 1,580,960 | $ | 1,035,060 | $ | 207,586 | $ | 117,375 | $ | 64,797 | $ | 142,143 | $ | 2,334,200 | $ | 5,482,121 | ||||||||
Unamortized loan fees and costs | — | — | — | — | — | — | — | 4,732 | ||||||||||||||||
Total | $ | 5,486,853 |
(1)Included in the SBL non real estate non-rated total of $6.6 million was $4.5 million of SBA PPP loans, which are guaranteed by the U.S. government.
(2)Included in Other loans are $15.4 million of SBA loans purchased for CRA purposes as of December 31, 2022. These loans are classified as SBL in the Company’s loan table, which classifyclassifies loans by type, as opposed to risk characteristics.
As of December 31, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving loans at amortized cost | Total | ||||||||||||||||
SBL non real estate | ||||||||||||||||||||||||
Non-rated* | $ | 39,318 | $ | 7,257 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 46,575 | ||||||||
Pass | 34,172 | 15,934 | 8,794 | 8,988 | 5,088 | 9,809 | — | 82,785 | ||||||||||||||||
Special mention | — | — | 99 | 666 | — | 859 | — | 1,624 | ||||||||||||||||
Substandard | — | — | — | 18 | 848 | 895 | — | 1,761 | ||||||||||||||||
Total SBL non-real estate | 73,490 | 23,191 | 8,893 | 9,672 | 5,936 | 11,563 | — | 132,745 | ||||||||||||||||
SBL commercial mortgage | ||||||||||||||||||||||||
Non-rated | 10,963 | — | — | — | — | — | — | 10,963 | ||||||||||||||||
Pass | 79,166 | 57,554 | 75,290 | 43,820 | 37,607 | 46,016 | — | 339,453 | ||||||||||||||||
Special mention | — | 141 | 1,853 | — | — | 247 | — | 2,241 | ||||||||||||||||
Substandard | — | — | — | — | — | 812 | — | 812 | ||||||||||||||||
Total SBL commercial mortgage | 90,129 | 57,695 | 77,143 | 43,820 | 37,607 | 47,075 | — | 353,469 | ||||||||||||||||
SBL construction | ||||||||||||||||||||||||
Pass | 6,869 | 12,629 | 1,880 | 5,111 | — | — | — | 26,489 | ||||||||||||||||
Substandard | — | — | — | — | — | 710 | — | 710 | ||||||||||||||||
Total SBL construction | 6,869 | 12,629 | 1,880 | 5,111 | — | 710 | — | 27,199 | ||||||||||||||||
. | ||||||||||||||||||||||||
Direct lease financing | ||||||||||||||||||||||||
Non-rated | 56,152 | 13,271 | 1,933 | 1,115 | 355 | 104 | — | 72,930 | ||||||||||||||||
Pass | 214,780 | 145,256 | 58,337 | 26,662 | 8,574 | 2,105 | — | 455,714 | ||||||||||||||||
Special mention | — | — | — | 22 | 38 | — | — | 60 | ||||||||||||||||
Substandard | 526 | 1,679 | 38 | 22 | 31 | 12 | — | 2,308 | ||||||||||||||||
Total direct lease financing | 271,458 | 160,206 | 60,308 | 27,821 | 8,998 | 2,221 | — | 531,012 | ||||||||||||||||
SBLOC | ||||||||||||||||||||||||
Non-rated | — | — | — | — | — | — | 3,176 | 3,176 | ||||||||||||||||
Pass | — | — | — | — | — | — | 1,138,140 | 1,138,140 | ||||||||||||||||
Total SBLOC | — | — | — | — | — | — | 1,141,316 | 1,141,316 | ||||||||||||||||
IBLOC | ||||||||||||||||||||||||
Non-rated | — | — | — | — | — | — | 346,604 | 346,604 | ||||||||||||||||
Pass | — | — | — | — | — | — | 441,661 | 441,661 | ||||||||||||||||
Total IBLOC | — | — | — | — | — | — | 788,265 | 788,265 | ||||||||||||||||
Advisor financing | ||||||||||||||||||||||||
Non-rated | 38,330 | 258 | — | — | — | — | — | 38,588 | ||||||||||||||||
Pass | 33,776 | 43,406 | — | — | — | — | — | 77,182 | ||||||||||||||||
Total advisor financing | 72,106 | 43,664 | — | — | — | — | — | 115,770 | ||||||||||||||||
Real estate bridge loans | ||||||||||||||||||||||||
Pass | 621,702 | — | — | — | — | — | — | 621,702 | ||||||||||||||||
Total real estate bridge loans | 621,702 | — | — | — | — | — | — | 621,702 | ||||||||||||||||
Other loans | ||||||||||||||||||||||||
Non-rated | 396 | 152 | — | — | — | 216 | 656 | 1,420 | ||||||||||||||||
Pass | 373 | 113 | 3,081 | 4,553 | 5,212 | 11,604 | 1,264 | 26,200 | ||||||||||||||||
Substandard | — | — | — | — | — | — | 73 | 73 | ||||||||||||||||
Total other loans** | 769 | 265 | 3,081 | 4,553 | 5,212 | 11,820 | 1,993 | 27,693 | ||||||||||||||||
Total | $ | 1,136,523 | $ | 297,650 | $ | 151,305 | $ | 90,977 | $ | 57,753 | $ | 73,389 | $ | 1,931,574 | $ | 3,739,171 | ||||||||
Unamortized loan fees and costs | — | — | — | — | — | — | — | 8,053 | ||||||||||||||||
Total | $ | 3,747,224 |
*Included in the SBL non real estate non-rated total of $46.6 million, were $44.8 million of PPP loans which are government guaranteed.
**Included in Other loans are $22.7 million of SBA loans purchased for CRA purposes as of December 31, 2021. These loans are classified as SBL in the Company’s loan table which classify loans by type, as opposed to risk characteristics.
SBL. Substantially all small business loansSBLs consist of SBA loans. The Bank participates in loan programs established by the SBA, including the 7(a) Loan Guarantee Program (the “7(a) Program”), the 504 Fixed Asset Financing Program (the “504 Program”), and a temporary program, the discontinued PPP. The 7(a) Loan Guarantee Program is designed to help small business borrowers start or expand their businesses by providing partial guarantees of loans made by banks and non-bank lending institutions for specific business purposes, including long or short term working capital; funds for the purchase of equipment, machinery, supplies and materials; funds for the purchase, construction or renovation of real estate; and funds to acquire, operate or expand an existing business or refinance existing debt, all under conditions established by the SBA. The 504 Fixed Asset Financing Program includes the financing of real estate and commercial mortgages. In 2020 and 2021, the Company also participated in the PPP, which providesprovided short-term loans to small businesses. PPP loans are fully guaranteed by the U.S. government. This program was a specific response to the COVID-19 pandemic, and the vast majority of these loans are expected to behave been reimbursed by the U.S. government, within one yearwith $4.0 million remaining to be reimbursed as of their origination. March 31, 2023. The Company segments the SBL portfolio into four pools: non realnon-real estate, commercial mortgage and construction to capture the risk characteristics of each pool, and the PPP loans discussed above. PPP loans are not included in the risk pools because they have inherently different risk characteristics due to the U.S. government guarantee. In the table above, the PPP loans are included in non-rated SBL non realnon-real estate. The qualitative factors for SBL loans focus on pool loan performance, underlying collateral for collateral dependent loans and changes in economic conditions. Additionally, the construction segment adds a qualitative factor for general construction risk, such as construction delays. The U.S. government guaranteed portiondelays resulting from labor shortages or availability/pricing of 7a loans and PPP loans, which are fully guaranteed, are not included in the risk pools because they have inherently different risk characteristics, because of the U.S. government guarantee.construction materials.
Direct lease financing. The Company provides lease financing for commercial and government vehicle fleets and, to a lesser extent, provides lease financing for other equipment. Leases are either open-end or closed-end. An open-end lease is one in which, at the end of the lease term, the lessee must pay the difference between the amount at which the Company sells the leased asset and the stated termination value. Termination value is a contractual value agreed to by the parties at the inception of a lease as to the value of the leased asset at the end of the lease term. A closed-end lease is one for which no such payment is due on lease termination. In a closed-end lease, the risk that the amount received on a sale of the leased asset will be less than the residual value is assumed by the Bank, as lessor. The qualitative factors for direct lease financing focus on underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.
SBLOC. SBLOC loans are made to individuals, trusts and entities and are secured by a pledge of marketable securities maintained in one or more accounts for which the Company obtains a securities account control agreement. The securities pledged may be either debt or equity securities or a combination thereof, but all such securities must be listed for trading on a national securities exchange or automated inter-dealer quotation system. SBLOCs are typically payable on demand. Maximum SBLOC line amounts are calculated by applying a standard ‘advance rate’“advance rate” calculation against the eligible security type depending on asset class: typically, up to 50% for equity securities and mutual fund securities and 80% for investment grade (Standard & Poor’s rating of BBB- or higher, or Moody’s rating of Baa3 or higher) municipal or corporate debt securities. Substantially all SBLOCs have full recourse to the borrower. The underlying securities collateral for SBLOC loans is monitored on a daily basis to confirm the composition of the client portfolio and its daily market value. The primary qualitative factor in the SBLOC analysis is the ratio of loans outstanding to market value. This factor has been maintained at low levels, which has remained appropriate as losses have not materialized despite the historic declines in the equity markets during 2020, during which there were 0no losses. Significant losses have not been incurred since inception of this line of business. Additionally, the advance rates noted above were established to provide the Company with protection from declines in market conditions from the origination date of the lines of credit.
IBLOC. IBLOC loans are collateralized by the cash surrender value of eligible insurance policies. Should a loan default, the primary risks for IBLOCs are if the insurance company issuing the policy were to become insolvent, or if that company would fail to recognize the Bank’s assignment of policy proceeds. To mitigate these risks, insurance company ratings are periodically evaluated for compliance with Bank standards. Additionally, the Bank utilizes assignments of cash surrender value, which legal counsel has concluded are enforceable. The qualitative factors for IBLOC primarily focus on the concentration risk with insurance companies.
Investment advisor financing. In 2020, the Bank began originating loans to investment advisors for purposes of debt refinance,refinancing, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate. As credit losses have not been experienced, the allowanceACL is determined by qualitative factors. The qualitative factors for investment advisor financing focus on historical industry losses, changes in lending policies and procedures, portfolio performance and economic conditions.
Real estate bridge loans. Real estate bridge loans are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which already have cash flow, and which are securitized by those properties. The portfolio is comprised primarily of apartment buildings. Prior to 2020, such loans were originated for securitization and loans which had been originated but not securitized
continue to be accounted for at fair value in commercial“Commercial loans, at fair value,value”, on the balance sheet. In 2021, originations resumed and are being held for investment in loans,“Loans, net of deferred fees and costs,costs”, on the balance sheet. As credit losses have not been experienced
for multi-family (apartment building loans) which comprise the allowanceREBL portfolio, the ACL is determined by qualitative factors. Qualitative factors focus on historical industry losses, changes in economic conditions, underlying collateral and portfolio performance.
Other loans. Other loans include commercial and consumer loans including home equity lines of credit of the typewhich the Company generally no longer offers. The qualitativeQualitative factors for all other specialty lending and consumer loans focus on changes in the underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.
Expected credit losses are estimated over the estimated remaining lives of loans. The estimate excludes possible extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation that a loan will be restructured, or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable by us.
The Company does not measure an allowance for credit lossesACL on accrued interest receivable balances, because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status.
Allowance for credit lossesACL on off-balance sheet credit exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit lossesACL on off-balance sheet credit exposures is adjusted through the provision for credit losses. The estimate considers the likelihood that funding will occur over the estimated life of the commitment. The amount of the allowance in the liabilityACL account as of March 31, 20222023 and as of December 31, 20212022 was $1.4 million.$2.5 million and $2.8 million, respectively.
A detail of the changes in the allowance for credit lossesACL by loan category and summary of loans evaluated individually and collectively for credit deterioration is as follows (in thousands):
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | Unallocated** | Total | SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | Deferred fees and costs | Total | |||||||||||||||||||||||||||||||||||||||
Beginning 1/1/2022 | $ | 5,415 | $ | 2,952 | $ | 432 | $ | 5,817 | $ | 964 | $ | 868 | $ | 1,181 | $ | 177 | $ | — | $ | 17,806 | ||||||||||||||||||||||||||||||||||||||
Beginning 1/1/2023 | $ | 5,028 | $ | 2,585 | $ | 565 | $ | 7,972 | $ | 1,167 | $ | 1,293 | $ | 3,121 | $ | 643 | $ | — | $ | 22,374 | ||||||||||||||||||||||||||||||||||||||
Charge-offs | (98) | — | — | (191) | — | — | — | — | — | (289) | (214) | — | — | (905) | — | — | — | (3) | — | (1,122) | ||||||||||||||||||||||||||||||||||||||
Recoveries | 12 | — | — | 19 | — | — | — | — | — | 31 | 202 | 75 | — | 67 | — | — | — | — | — | 344 | ||||||||||||||||||||||||||||||||||||||
Provision (credit)* | 323 | 176 | 63 | 319 | 70 | 230 | 346 | (24) | — | 1,503 | ||||||||||||||||||||||||||||||||||||||||||||||||
Provision (credit)(1) | 290 | (179) | (75) | 2,054 | (140) | 128 | 156 | (36) | — | 2,198 | ||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 5,652 | $ | 3,128 | $ | 495 | $ | 5,964 | $ | 1,034 | $ | 1,098 | $ | 1,527 | $ | 153 | $ | — | $ | 19,051 | $ | 5,306 | $ | 2,481 | $ | 490 | $ | 9,188 | $ | 1,027 | $ | 1,421 | $ | 3,277 | $ | 604 | $ | — | $ | 23,794 | ||||||||||||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 1,338 | $ | 116 | $ | 34 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,488 | $ | 458 | $ | 481 | $ | 44 | $ | 689 | $ | — | $ | — | $ | — | $ | 12 | $ | — | $ | 1,684 | ||||||||||||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 4,314 | $ | 3,012 | $ | 461 | $ | 5,964 | $ | 1,034 | $ | 1,098 | $ | 1,527 | $ | 153 | $ | — | $ | 17,563 | $ | 4,848 | $ | 2,000 | $ | 446 | $ | 8,499 | $ | 1,027 | $ | 1,421 | $ | 3,277 | $ | 592 | $ | — | $ | 22,110 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance** | $ | 122,387 | $ | 385,559 | $ | 31,432 | $ | 538,616 | $ | 2,067,233 | $ | 146,461 | $ | 803,477 | $ | 61,096 | $ | 8,037 | $ | 4,164,298 | ||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 114,334 | $ | 492,798 | $ | 33,116 | $ | 652,541 | $ | 2,053,450 | $ | 189,425 | $ | 1,752,322 | $ | 60,210 | $ | 6,151 | $ | 5,354,347 | ||||||||||||||||||||||||||||||||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 2,346 | $ | 589 | $ | 710 | $ | 8 | $ | — | $ | — | $ | — | $ | 4,483 | $ | — | $ | 8,136 | $ | 1,160 | $ | 2,948 | $ | 3,385 | $ | 1,381 | $ | — | $ | — | $ | — | $ | 4,388 | $ | — | $ | 13,262 | ||||||||||||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 120,041 | $ | 384,970 | $ | 30,722 | $ | 538,608 | $ | 2,067,233 | $ | 146,461 | $ | 803,477 | $ | 56,613 | $ | 8,037 | $ | 4,156,162 | $ | 113,174 | $ | 489,850 | $ | 29,731 | $ | 651,160 | $ | 2,053,450 | $ | 189,425 | $ | 1,752,322 | $ | 55,822 | $ | 6,151 | $ | 5,341,085 |
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | Unallocated** | Total | SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | Deferred fees and costs | Total | |||||||||||||||||||||||||||||||||||||||
Beginning balance 1/1/2021 | $ | 5,060 | $ | 3,315 | $ | 328 | $ | 6,043 | $ | 775 | $ | 362 | $ | — | $ | 199 | $ | — | $ | 16,082 | ||||||||||||||||||||||||||||||||||||||
Beginning 1/1/2022 | $ | 5,415 | $ | 2,952 | $ | 432 | $ | 5,817 | $ | 964 | $ | 868 | $ | 1,181 | $ | 177 | $ | — | $ | 17,806 | ||||||||||||||||||||||||||||||||||||||
Charge-offs | (1,138) | (417) | — | (412) | (15) | — | — | (24) | — | (2,006) | (885) | — | — | (576) | — | — | — | — | — | (1,461) | ||||||||||||||||||||||||||||||||||||||
Recoveries | 51 | 9 | — | 58 | — | — | — | 1,099 | — | 1,217 | 140 | — | — | 124 | — | — | — | 24 | — | 288 | ||||||||||||||||||||||||||||||||||||||
Provision (credit)* | 1,442 | 45 | 104 | 128 | 204 | 506 | 1,181 | (1,097) | — | 2,513 | ||||||||||||||||||||||||||||||||||||||||||||||||
Provision (credit)(1) | 358 | (367) | 133 | 2,607 | 203 | 425 | 1,940 | 442 | — | 5,741 | ||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 5,415 | $ | 2,952 | $ | 432 | $ | 5,817 | $ | 964 | $ | 868 | $ | 1,181 | $ | 177 | $ | — | $ | 17,806 | $ | 5,028 | $ | 2,585 | $ | 565 | $ | 7,972 | $ | 1,167 | $ | 1,293 | $ | 3,121 | $ | 643 | $ | — | $ | 22,374 | ||||||||||||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 829 | $ | 115 | $ | 34 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 978 | $ | 525 | $ | 441 | $ | 153 | $ | 933 | $ | — | $ | — | $ | — | $ | 15 | $ | — | $ | 2,067 | ||||||||||||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 4,586 | $ | 2,837 | $ | 398 | $ | 5,817 | $ | 964 | $ | 868 | $ | 1,181 | $ | 177 | $ | — | $ | 16,828 | $ | 4,503 | $ | 2,144 | $ | 412 | $ | 7,039 | $ | 1,167 | $ | 1,293 | $ | 3,121 | $ | 628 | $ | — | $ | 20,307 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance** | $ | 147,722 | $ | 361,171 | $ | 27,199 | $ | 531,012 | $ | 1,929,581 | $ | 115,770 | $ | 621,702 | $ | 5,014 | $ | 8,053 | $ | 3,747,224 | ||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 108,954 | $ | 474,496 | $ | 30,864 | $ | 632,160 | $ | 2,332,469 | $ | 172,468 | $ | 1,669,031 | $ | 61,679 | $ | 4,732 | $ | 5,486,853 | ||||||||||||||||||||||||||||||||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 1,887 | $ | 812 | $ | 710 | $ | 254 | $ | — | $ | — | $ | — | $ | 320 | $ | — | $ | 3,983 | $ | 1,374 | $ | 1,423 | $ | 3,386 | $ | 3,550 | $ | — | $ | — | $ | — | $ | 4,539 | $ | — | $ | 14,272 | ||||||||||||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 145,835 | $ | 360,359 | $ | 26,489 | $ | 530,758 | $ | 1,929,581 | $ | 115,770 | $ | 621,702 | $ | 4,694 | $ | 8,053 | $ | 3,743,241 | $ | 107,580 | $ | 473,073 | $ | 27,478 | $ | 628,610 | $ | 2,332,469 | $ | 172,468 | $ | 1,669,031 | $ | 57,140 | $ | 4,732 | $ | 5,472,581 | ||||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||
SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Other loans | Unallocated** | Total | ||||||||||||||||||
Beginning 1/1/2021 | $ | 5,060 | $ | 3,315 | $ | 328 | $ | 6,043 | $ | 775 | $ | 362 | $ | 199 | — | $ | 16,082 | |||||||||
Charge-offs | (144) | — | — | (97) | (15) | — | — | — | (256) | |||||||||||||||||
Recoveries | 4 | — | — | 2 | — | — | — | — | 6 | |||||||||||||||||
Provision (credit)* | 330 | 176 | 6 | (163) | 51 | 80 | 107 | — | 587 | |||||||||||||||||
Ending balance | $ | 5,250 | $ | 3,491 | $ | 334 | $ | 5,785 | $ | 811 | $ | 442 | $ | 306 | — | $ | 16,419 | |||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 1,871 | $ | 1,027 | $ | 34 | $ | 29 | $ | — | $ | — | $ | — | $ | — | $ | 2,961 | ||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 3,379 | $ | 2,464 | $ | 300 | $ | 5,756 | $ | 811 | $ | 442 | $ | 306 | $ | — | $ | 13,458 | ||||||||
Loans: | ||||||||||||||||||||||||||
Ending balance** | $ | 305,446 | $ | 320,013 | $ | 20,692 | $ | 484,316 | $ | 1,622,359 | $ | 58,919 | $ | 6,452 | $ | 8,879 | $ | 2,827,076 | ||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 3,115 | $ | 7,305 | $ | 711 | $ | 738 | $ | — | $ | — | $ | 550 | $ | — | $ | 12,419 | ||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 302,331 | $ | 312,708 | $ | 19,981 | $ | 483,578 | $ | 1,622,359 | $ | 58,919 | $ | 5,902 | $ | 8,879 | $ | 2,814,657 | ||||||||
March 31, 2022 | |||||||||||||||||||||||||||||
SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | Deferred fees and costs | Total | ||||||||||||||||||||
Beginning 1/1/2022 | $ | 5,415 | $ | 2,952 | $ | 432 | $ | 5,817 | $ | 964 | $ | 868 | $ | 1,181 | $ | 177 | $ | — | $ | 17,806 | |||||||||
Charge-offs | (98) | — | — | (191) | — | — | — | — | — | (289) | |||||||||||||||||||
Recoveries | 12 | — | — | 19 | — | — | — | — | — | 31 | |||||||||||||||||||
Provision (credit)(1) | 323 | 176 | 63 | 319 | 70 | 230 | 346 | (24) | — | 1,503 | |||||||||||||||||||
Ending balance | $ | 5,652 | $ | 3,128 | $ | 495 | $ | 5,964 | $ | 1,034 | $ | 1,098 | $ | 1,527 | 153 | $ | — | $ | 19,051 | ||||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 1,338 | $ | 116 | $ | 34 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,488 | |||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 4,314 | $ | 3,012 | $ | 461 | $ | 5,964 | $ | 1,034 | $ | 1,098 | $ | 1,527 | $ | 153 | $ | — | $ | 17,563 | |||||||||
Loans: | |||||||||||||||||||||||||||||
Ending balance | $ | 122,387 | $ | 385,559 | $ | 31,432 | $ | 538,616 | $ | 2,067,233 | $ | 146,461 | $ | 803,477 | $ | 61,096 | $ | 8,037 | $ | 4,164,298 | |||||||||
Ending balance: Individually evaluated for expected credit loss | $ | 2,346 | $ | 589 | $ | 710 | $ | 8 | $ | — | $ | — | $ | — | $ | 4,483 | $ | — | $ | 8,136 | |||||||||
Ending balance: Collectively evaluated for expected credit loss | $ | 120,041 | $ | 384,970 | $ | 30,722 | $ | 538,608 | $ | 2,067,233 | $ | 146,461 | $ | 803,477 | $ | 56,613 | $ | 8,037 | $ | 4,156,162 | |||||||||
*(1)The amount shown as the provision for credit losses for the period reflects the provision on credit losses for loans, while the income statementconsolidated statements of operations provision for credit losses includes the provisionprovisions for unfunded commitments as follows: a $295,000 provision reversal and provisions of $4,000 and $235,000$1.4 million, respectively, for the three months ended March 31, 20222023 and March 31, 2021, respectively. The income statement provision2022, and for credit losses includesfull year 2022.
A summary of the provision for unfunded commitments Company’s net charge-offs accordingly classified, by year of $597,000 for the year endedorigination, at March 31, 2023 and December 31, 20212022 are as follows (in thousands):
.
As of March 31, 2023 | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | ||||||||||||||
SBL non-real estate | |||||||||||||||||||||
Current period charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (214) | $ | (214) | |||||||
Current period recoveries | — | — | — | — | — | 202 | 202 | ||||||||||||||
Current period SBL non-real estate net charge-offs | — | — | — | — | — | (12) | (12) | ||||||||||||||
SBL commercial mortgage | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | 75 | 75 | ||||||||||||||
Current period SBL commercial mortgage net charge-offs | — | — | — | — | — | 75 | 75 | ||||||||||||||
SBL construction | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period SBL construction net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Direct lease financing | |||||||||||||||||||||
Current period charge-offs | — | (363) | (350) | (154) | (38) | — | (905) | ||||||||||||||
Current period recoveries | — | 5 | 20 | 42 | — | — | 67 | ||||||||||||||
Current period direct lease financing net charge-offs | — | (358) | (330) | (112) | (38) | — | (838) | ||||||||||||||
SBLOC | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period SBLOC net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
IBLOC | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period IBLOC net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Advisor financing | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period advisor financing net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Real estate bridge loans | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period real estate bridge loans net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Other loans | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | (3) | (3) | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period other loans net recoveries | — | — | — | — | — | (3) | (3) | ||||||||||||||
Total | |||||||||||||||||||||
Current period charge-offs | — | (363) | (350) | (154) | (38) | (217) | (1,122) | ||||||||||||||
Current period recoveries | — | 5 | 20 | 42 | — | 277 | 344 | ||||||||||||||
Current period net charge-offs | $ | — | $ | (358) | $ | (330) | $ | (112) | $ | (38) | $ | 60 | $ | (778) |
** The ending balance for loans in the unallocated column represents deferred costs and fees.
As of December 31, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | ||||||||||||||
SBL non-real estate | |||||||||||||||||||||
Current period charge-offs | $ | — | $ | — | $ | (17) | $ | — | $ | — | $ | (868) | $ | (885) | |||||||
Current period recoveries | — | — | 2 | — | 8 | 130 | 140 | ||||||||||||||
Current period SBL non-real estate net charge-offs | — | — | (15) | — | 8 | (738) | (745) | ||||||||||||||
SBL commercial mortgage | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period SBL commercial mortgage net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
SBL construction | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period SBL construction net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Direct lease financing | |||||||||||||||||||||
Current period charge-offs | (93) | (308) | (150) | (25) | — | — | (576) | ||||||||||||||
Current period recoveries | — | 1 | 117 | 6 | — | — | 124 | ||||||||||||||
Current period direct lease financing net charge-offs | (93) | (307) | (33) | (19) | — | — | (452) | ||||||||||||||
SBLOC | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period SBLOC net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
IBLOC | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period IBLOC net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Advisor financing | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period advisor financing net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Real estate bridge loans | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | — | ||||||||||||||
Current period real estate bridge loans net charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Other loans | |||||||||||||||||||||
Current period charge-offs | — | — | — | — | — | — | — | ||||||||||||||
Current period recoveries | — | — | — | — | — | 24 | 24 | ||||||||||||||
Current period other loans net charge-offs | — | — | — | — | — | 24 | 24 | ||||||||||||||
Total | |||||||||||||||||||||
Current period charge-offs | (93) | (308) | (167) | (25) | — | (868) | (1,461) | ||||||||||||||
Current period recoveries | — | 1 | 119 | 6 | 8 | 154 | 288 | ||||||||||||||
Current period net charge-offs | $ | (93) | $ | (307) | $ | (48) | $ | (19) | $ | 8 | $ | (714) | $ | (1,173) |
The Company did 0tnot have loans acquired with deteriorated credit quality at either March 31, 20222023 or December 31, 2021.2022. In the first quarter of 2023, the Company purchased $1.5 million of lease receivables and $15.7 million of SBLs, none of which were credit deteriorated. Additionally, in the first quarter of 2023 the Company participated in SBLs with other institutions in the amount of $3.0 million.
The delinquent loans in the following table are treated as collateral dependent to the extent they have resulted from borrower financial difficulty (and not from administrative delays or other mitigating factors), and are not brought current. For loans 90 days or more delinquent and non-accrual loans, the Company establishes a reserve in the allowance for credit losses for deficiencies between estimated collateral and loan carrying values. During the three months ended March 31, 2023, the Company did not have any significant changes to the extent to which collateral secures its collateral dependent loans due to general collateral deterioration or from other factors. SBL non-real estate are collateralized by business assets, which may include certain real estate. SBL commercial mortgage and construction are collateralized by real estate for small businesses, while real estate bridge lending is primarily collateralized by apartmentbuildings, or other commercial real estate. SBLOC is collateralized by marketable investment securities while IBLOC is collateralized by the cash value of life insurance. Advisor financing is collateralized by investment advisors’ business franchises. Direct lease financing is collateralized primarily by vehicles, or equipment.
A detail of the Company’s delinquent loans by loan category is as follows (in thousands):
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Total | Total | 30-59 Days | 60-89 Days | 90+ Days | Total | Total | |||||||||||||||||||||||||||||||
past due | past due | still accruing | Non-accrual | past due | Current | loans | past due | past due | still accruing | Non-accrual | past due | Current | loans | |||||||||||||||||||||||||||
SBL non-real estate | $ | 2,551 | $ | 1,135 | $ | 420 | $ | 1,639 | $ | 5,745 | $ | 116,642 | $ | 122,387 | $ | 513 | $ | 601 | $ | 395 | $ | 1,072 | $ | 2,581 | $ | 111,753 | $ | 114,334 | ||||||||||||
SBL commercial mortgage | 283 | 215 | — | 589 | 1,087 | 384,472 | 385,559 | — | 3 | 355 | 2,948 | 3,306 | 489,492 | 492,798 | ||||||||||||||||||||||||||
SBL construction | — | — | — | 710 | 710 | 30,722 | 31,432 | — | — | — | 3,385 | 3,385 | 29,731 | 33,116 | ||||||||||||||||||||||||||
Direct lease financing | 734 | 652 | 613 | 8 | 2,007 | 536,609 | 538,616 | 3,312 | 854 | 94 | 1,381 | 5,641 | 646,900 | 652,541 | ||||||||||||||||||||||||||
SBLOC / IBLOC | 1,706 | — | — | — | 1,706 | 2,065,527 | 2,067,233 | 25,599 | 5,509 | — | — | 31,108 | 2,022,342 | 2,053,450 | ||||||||||||||||||||||||||
Advisor financing | — | — | — | — | — | 146,461 | 146,461 | — | — | — | — | — | 189,425 | 189,425 | ||||||||||||||||||||||||||
Real estate bridge loans | — | — | — | — | — | 803,477 | 803,477 | — | — | — | — | — | 1,752,322 | 1,752,322 | ||||||||||||||||||||||||||
Other loans | 274 | — | 3,564 | 675 | 4,513 | 56,583 | 61,096 | 240 | 41 | 29 | 4,152 | 4,462 | 55,748 | 60,210 | ||||||||||||||||||||||||||
Unamortized loan fees and costs | — | — | — | — | — | 8,037 | 8,037 | — | — | — | — | — | 6,151 | 6,151 | ||||||||||||||||||||||||||
$ | 5,548 | $ | 2,002 | $ | 4,597 | $ | 3,621 | $ | 15,768 | $ | 4,148,530 | $ | 4,164,298 | $ | 29,664 | $ | 7,008 | $ | 873 | $ | 12,938 | $ | 50,483 | $ | 5,303,864 | $ | 5,354,347 |
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Total | Total | 30-59 Days | 60-89 Days | 90+ Days | Total | Total | |||||||||||||||||||||||||||||||
past due | past due | still accruing | Non-accrual | past due | Current | loans | past due | past due | still accruing | Non-accrual | past due | Current | loans | |||||||||||||||||||||||||||
SBL non-real estate | $ | 1,375 | $ | 3,138 | $ | 441 | $ | 1,313 | $ | 6,267 | $ | 141,455 | $ | 147,722 | $ | 1,312 | $ | 543 | $ | 346 | $ | 1,249 | $ | 3,450 | $ | 105,504 | $ | 108,954 | ||||||||||||
SBL commercial mortgage | — | 220 | — | 812 | 1,032 | 360,139 | 361,171 | 1,853 | 5 | 297 | 1,423 | 3,578 | 470,918 | 474,496 | ||||||||||||||||||||||||||
SBL construction | — | — | — | 710 | 710 | 26,489 | 27,199 | — | — | — | 3,386 | 3,386 | 27,478 | 30,864 | ||||||||||||||||||||||||||
Direct lease financing | 1,833 | 692 | 20 | 254 | 2,799 | 528,213 | 531,012 | 4,035 | 2,053 | 539 | 3,550 | 10,177 | 621,983 | 632,160 | ||||||||||||||||||||||||||
SBLOC / IBLOC | 5,985 | 289 | — | — | 6,274 | 1,923,307 | 1,929,581 | 14,782 | 343 | 2,869 | — | 17,994 | 2,314,475 | 2,332,469 | ||||||||||||||||||||||||||
Advisor financing | — | — | — | — | — | 115,770 | 115,770 | — | — | — | — | — | 172,468 | 172,468 | ||||||||||||||||||||||||||
Real estate bridge loans | — | — | — | — | — | 621,702 | 621,702 | — | — | — | — | — | 1,669,031 | 1,669,031 | ||||||||||||||||||||||||||
Other loans | — | — | — | 72 | 72 | 4,942 | 5,014 | 330 | 90 | 3,724 | 748 | 4,892 | 56,787 | 61,679 | ||||||||||||||||||||||||||
Unamortized loan fees and costs | — | — | — | — | — | 8,053 | 8,053 | — | — | — | — | — | 4,732 | 4,732 | ||||||||||||||||||||||||||
$ | 9,193 | $ | 4,339 | $ | 461 | $ | 3,161 | $ | 17,154 | $ | 3,730,070 | $ | 3,747,224 | $ | 22,312 | $ | 3,034 | $ | 7,775 | $ | 10,356 | $ | 43,477 | $ | 5,443,376 | $ | 5,486,853 |
The scheduled maturities of the direct financing leases reconciled to the total lease receivables in the consolidated balance sheet, are as follows (in thousands):
Remaining 2022 | $ | 125,319 | ||
2023 | 126,635 | |||
Remaining 2023 | $ | 149,735 | ||
2024 | 105,958 | 148,560 | ||
2025 | 53,809 | 131,877 | ||
2026 | 25,044 | 68,981 | ||
2027 and thereafter | 6,311 | |||
2027 | 33,114 | |||
2028 and thereafter | 6,040 | |||
Total undiscounted cash flows | 443,076 | 538,307 | ||
Residual value * | 149,653 | |||
Residual value(1) | 189,636 | |||
Difference between undiscounted cash flows and discounted cash flows | (54,113) | (75,402) | ||
Present value of lease payments recorded as lease receivables | $ | 538,616 | $ | 652,541 |
*(1)Of the $149,653,000, $30,472,000$189,636,000, $31,855,000 is not guaranteed by the lessee or other guarantors.
Note 7. Transactions with Affiliates
The Bank did 0tnot maintain any deposits for various affiliated companies as of March 31, 20222023 and December 31, 2021,2022, respectively.
The Bank has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons. All loans were made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to the lender. At March 31, 2022,2023, these loans were current as to principal and interest payments and did not involve more than normal risk of collectability. Loans to these related parties amounted to $4.5 million at March 31, 20222023 and $5.2$5.5 million at December 31, 2021.2022.
Mr. Hersh Kozlov, a director of the Company, is a partner at Duane Morris LLP, an international law firm. The Company paid Duane Morris LLP $356,000$2,700 and $775,000$356,000 for legal services for the three months ended March 31, 20222023 and 2021,2022, respectively.
Note 8. Fair Value Measurements
ASC 825, “Financial Instruments”Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. However, many such instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Accordingly, estimated fair values are determined by the Company using the best available data and an estimation methodology it believes to be suitable for each category of financial instruments. Also, it is the Company’s general practice and intent to hold its financial instruments to maturity whether or not categorized as “available-for-sale”available-for-sale and not to engage in trading or sales activities although it has sold loans in the past and may do so in the future. For fair value disclosure purposes, the Company utilized certain value measurement criteria required in accordance with ASC 820, “FairFair Value Measurements and Disclosures”Disclosures (“ASC 820”), as discussed below.
Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
Cash and cash equivalents, which are comprised of cash and due from banks and the Company’s balance at the Federal Reserve Bank, and securities purchased under agreements to resell, had recorded values of $674.2$787.2 million and $601.8$888.2 million as of March 31, 20222023 and December 31, 2021,2022, respectively, which approximated fair values.
The estimated fair values of investment securities are based on quoted market prices, if available, or estimated using a methodology based on management’s inputs. Level 3 investment security fair values are based on the present valuing of cash flows, which discounts expected cash flows from principal and interest using yield to maturity, or yield to call as appropriate, at the measurement date. In the first quarter of 20222023 and 2021,2022, there were no transfers between the three levels.
FHLB stock, ACBB stock and Atlantic Central BankersFederal Reserve Bank stock isare held as required by those respective institutions and isare carried at cost. Federal law requires a member institutionEach of the FHLB to hold stock according to predetermined formulas. Atlantic Central Bankers Bank requires itsthese institutions require their correspondent banking institutions to hold stock as a condition of membership. While a fixed stock amount is required by each of these institutions, the FHLB stock requirement increases or decreases with the level of borrowing activity.
Commercial loans held at fair value are comprised primarily of commercial real estate bridge loans and SBA loans which had been originated for sale or securitization in the secondary market, and which are now being held on the balance sheet. Commercial real estate bridge loans and SBA loans are valued using a discounted cash flow analysis based upon pricing for similar loans where market indications of the sales price of such loans are not available, on a pooled basis.
TheLoans, net loan portfolio is valuedhave an estimated fair value using the present value of discountedfuture cash flow where market prices were not available.flows. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. Accrued interest receivable has a carrying value that approximates fair value.
Assets held-for-sale from discontinued operations were recorded at the lower of cost basis or market value. For loans, market value was determined using the discounted cash flow approach which converts expected cash flows from the loan portfolio by unit of measurement to a present value estimate. Unit of measurement was determined by loan type and for significant loans on an individual loan basis. Loan fair values are based on “unobservable inputs” that are based on available information. Level 3 fair values are based on the present value of cash flows by unit of measurement. In the first quarter of 2022, discontinued loans were reclassified to loans held for investment, as efforts to sell the loans have been winding down.had concluded. Accordingly, these loans will beare accounted for as such, and included in related tables. Discontinued other real estate ownedOREO, which constituted the remainder of discontinued assets, was reclassified to the other real estate ownedOREO caption on the consolidated balance sheet.
For other real estate owned,OREO, market value is based upon appraisals of the underlying collateral by third-party appraisers, reduced by 7% to 10% for estimated selling costs.
The estimated fair values of demand deposits (comprised of interest and non-interest bearing checking accounts, savings accounts, and certain types of money market accounts) are equal to the amount payable on demand at the reporting date (generally, their carrying amounts). The fair values of securities sold under agreements to repurchase and short-term borrowings, when outstanding, are equal to their carrying amounts as they are short-term borrowings.
Time deposits, when outstanding, senior debt and subordinated debentures have a fair value estimated using a discounted cash flow calculation that applies current interest rates to discount expected cash flows. The carrying amount of accrued interest payable approximates its fair value. Long term borrowings resulted from sold loans which did not qualify for true sale accounting. They are presented in the amount of the principal of such loans.
The fair values of interest rate swaps, recorded in other assets or other liabilities, are determined using models that use readily observable market inputs and a market standard methodology applied to the contractual terms of the derivatives, including the period to maturity and interest rate indices.
The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments, including commitments to extend credit, and the fair value of letters of credit are considered immaterial.
The following tables provide information regarding carrying amounts and estimated fair values (in thousands) as of the dates indicated:
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||
Quoted prices in | Significant other | Significant | Quoted prices in | Significant other | Significant | |||||||||||||||||||||||
active markets for | observable | unobservable | active markets for | observable | unobservable | |||||||||||||||||||||||
Carrying | Estimated | identical assets | inputs | inputs | Carrying | Estimated | identical assets | inputs | inputs | |||||||||||||||||||
amount | fair value | (Level 1) | (Level 2) | (Level 3) | amount | fair value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||
Investment securities, available-for-sale | $ | 907,338 | $ | 907,338 | $ | — | $ | 888,326 | $ | 19,012 | $ | 787,429 | $ | 787,429 | $ | — | $ | 767,306 | $ | 20,123 | ||||||||
Federal Home Loan Bank and Atlantic Central Bankers Bank stock | 1,663 | 1,663 | — | — | 1,663 | |||||||||||||||||||||||
FHLB, ACBB, and Federal Reserve Bank stock | 12,629 | 12,629 | — | — | 12,629 | |||||||||||||||||||||||
Commercial loans, at fair value | 1,180,885 | 1,180,885 | — | — | 1,180,885 | 493,334 | 493,334 | — | — | 493,334 | ||||||||||||||||||
Loans, net of deferred loan fees and costs | 4,164,298 | 4,152,755 | — | — | 4,152,755 | 5,354,347 | 5,336,504 | — | — | 5,336,504 | ||||||||||||||||||
Interest rate swaps, asset | 515 | 515 | — | 515 | — | 329 | 329 | — | 329 | — | ||||||||||||||||||
Demand and interest checking | 5,506,083 | 5,506,083 | — | 5,506,083 | — | 6,607,767 | 6,607,767 | — | 6,607,767 | — | ||||||||||||||||||
Savings and money market | 722,240 | 722,240 | — | 722,240 | — | 96,890 | 96,890 | — | 96,890 | — | ||||||||||||||||||
Senior debt | 98,774 | 103,853 | — | 103,853 | — | 99,142 | 95,084 | — | 95,084 | — | ||||||||||||||||||
Subordinated debentures | 13,401 | 8,914 | — | — | 8,914 | 13,401 | 10,579 | — | — | 10,579 | ||||||||||||||||||
Securities sold under agreements to repurchase | 42 | 42 | 42 | — | — | 42 | 42 | 42 | — | — |
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||||||||
Quoted prices in | Significant other | Significant | Quoted prices in | Significant other | Significant | |||||||||||||||||||||||
active markets for | observable | unobservable | active markets for | observable | unobservable | |||||||||||||||||||||||
Carrying | Estimated | identical assets | inputs | inputs | Carrying | Estimated | identical assets | inputs | inputs | |||||||||||||||||||
amount | fair value | (Level 1) | (Level 2) | (Level 3) | amount | fair value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||
Investment securities, available-for-sale | $ | 953,709 | $ | 953,709 | $ | — | $ | 934,678 | $ | 19,031 | $ | 766,016 | $ | 766,016 | $ | — | $ | 745,993 | $ | 20,023 | ||||||||
Federal Home Loan Bank and Atlantic Central Bankers Bank stock | 1,663 | 1,663 | — | — | 1,663 | |||||||||||||||||||||||
FHLB, ACBB, and Federal Reserve Bank stock | 12,629 | 12,629 | — | — | 12,629 | |||||||||||||||||||||||
Commercial loans, at fair value | 1,388,416 | 1,388,416 | — | — | 1,388,416 | 589,143 | 589,143 | — | — | 589,143 | ||||||||||||||||||
Loans, net of deferred loan fees and costs | 3,747,224 | 3,745,548 | — | — | 3,745,548 | 5,486,853 | 5,462,948 | — | — | 5,462,948 | ||||||||||||||||||
Assets held-for-sale from discontinued operations | 3,268 | 3,268 | — | — | 3,268 | |||||||||||||||||||||||
Interest rate swaps, liability | 553 | 553 | — | 553 | — | |||||||||||||||||||||||
Interest rate swaps, asset | 408 | 408 | — | 408 | — | |||||||||||||||||||||||
Demand and interest checking | 5,561,365 | 5,561,365 | — | 5,561,365 | — | 6,559,617 | 6,559,617 | — | 6,559,617 | — | ||||||||||||||||||
Savings and money market | 415,546 | 415,546 | — | 415,546 | — | 140,496 | 140,496 | — | 140,496 | — | ||||||||||||||||||
Time deposits | 330,000 | 330,000 | — | 330,000 | — | |||||||||||||||||||||||
Senior debt | 98,682 | 101,980 | — | 101,980 | — | 99,050 | 93,871 | — | 93,871 | — | ||||||||||||||||||
Subordinated debentures | 13,401 | 8,815 | — | — | 8,815 | 13,401 | 10,067 | — | — | 10,067 | ||||||||||||||||||
Securities sold under agreements to repurchase | 42 | 42 | 42 | — | — | 42 | 42 | 42 | — | — |
TheOther assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy, are summarized below (in thousands) as of the dates indicated:
Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||
Quoted prices in | Significant other | Significant | Quoted prices in | Significant other | Significant | |||||||||||||||||
active markets for | observable | unobservable | active markets for | observable | unobservable | |||||||||||||||||
Fair value | identical assets | inputs | inputs | Fair value | identical assets | inputs | inputs | |||||||||||||||
March 31, 2022 | (Level 1) | (Level 2) | (Level 3) | March 31, 2023 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
Investment securities, available-for-sale | ||||||||||||||||||||||
U.S. Government agency securities | $ | 30,206 | $ | — | $ | 30,206 | $ | — | $ | 36,729 | $ | — | $ | 36,729 | $ | — | ||||||
Asset-backed securities | 356,339 | — | 356,339 | — | 333,058 | — | 333,058 | — | ||||||||||||||
Obligations of states and political subdivisions | 49,786 | — | 49,786 | — | 49,397 | — | 49,397 | — | ||||||||||||||
Residential mortgage-backed securities | 167,099 | — | 167,099 | — | 164,693 | — | 164,693 | — | ||||||||||||||
Collateralized mortgage obligation securities | 53,826 | — | 53,826 | — | 40,240 | — | 40,240 | — | ||||||||||||||
Commercial mortgage-backed securities | 243,392 | — | 231,070 | 12,322 | 155,512 | — | 143,189 | 12,323 | ||||||||||||||
Corporate debt securities | 6,690 | — | — | 6,690 | 7,800 | — | — | 7,800 | ||||||||||||||
Total investment securities, available-for-sale | 907,338 | — | 888,326 | 19,012 | 787,429 | — | 767,306 | 20,123 | ||||||||||||||
Commercial loans, at fair value | 1,180,885 | — | — | 1,180,885 | 493,334 | — | — | 493,334 | ||||||||||||||
Interest rate swaps, asset | 515 | — | 515 | — | 329 | — | 329 | — | ||||||||||||||
$ | 2,088,738 | $ | — | $ | 888,841 | $ | 1,199,897 | $ | 1,281,092 | $ | — | $ | 767,635 | $ | 513,457 |
Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||
Quoted prices in | Significant other | Significant | Quoted prices in | Significant other | Significant | |||||||||||||||||
active markets for | observable | unobservable | active markets for | observable | unobservable | |||||||||||||||||
Fair value | identical assets | inputs | inputs | Fair value | identical assets | inputs | inputs | |||||||||||||||
December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | December 31, 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
Investment securities, available-for-sale | ||||||||||||||||||||||
U.S. Government agency securities | $ | 37,302 | $ | — | $ | 37,302 | $ | — | $ | 28,381 | $ | — | $ | 28,381 | $ | — | ||||||
Asset-backed securities | 360,418 | — | 360,418 | — | 334,009 | — | 334,009 | — | ||||||||||||||
Obligations of states and political subdivisions | 52,137 | — | 52,137 | — | 47,510 | — | 47,510 | — | ||||||||||||||
Residential mortgage-backed securities | 184,301 | — | 184,301 | — | 139,820 | — | 139,820 | — | ||||||||||||||
Collateralized mortgage obligation securities | 61,861 | — | 61,861 | — | 41,783 | — | 41,783 | — | ||||||||||||||
Commercial mortgage-backed securities | 251,076 | — | 238,659 | 12,417 | 166,813 | — | 154,490 | 12,323 | ||||||||||||||
Corporate debt securities | 6,614 | — | — | 6,614 | 7,700 | — | — | 7,700 | ||||||||||||||
Total investment securities, available-for-sale | 953,709 | — | 934,678 | 19,031 | 766,016 | — | 745,993 | 20,023 | ||||||||||||||
Commercial loans, at fair value | 1,388,416 | — | — | 1,388,416 | 589,143 | — | — | 589,143 | ||||||||||||||
Assets held-for-sale from discontinued operations | 3,268 | — | — | 3,268 | ||||||||||||||||||
Interest rate swaps, liability | 553 | — | 553 | — | ||||||||||||||||||
Interest rate swaps, asset | 408 | — | 408 | — | ||||||||||||||||||
$ | 2,344,840 | $ | — | $ | 934,125 | $ | 1,410,715 | $ | 1,355,567 | $ | — | $ | 746,401 | $ | 609,166 |
In addition, ASC 820 establishes a common definition for fair value to be applied to assets and liabilities. It clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a framework for measuring fair value and expands disclosures concerning fair value measurements. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 valuation is based on quoted market prices for identical assets or liabilities to which the Company has access at the measurement date. Level 2 valuation is based on other observable inputs for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets in active or inactive markets, inputs other than quoted prices that are observable for the asset or liability such as yield curves, volatilities, prepayment speeds, credit risks, default rates, or inputs that are derived principally from, or corroborated through, observable market data by market-corroborated reports. Level 3 valuation is based on “unobservable inputs” which the Company believes is the best information available in the circumstances. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The Company’s Level 3 asset activity for the categories shown are summarized below (in thousands):
Fair Value Measurements Using | |||||||||||
Significant Unobservable Inputs | |||||||||||
(Level 3) | |||||||||||
Available-for-sale | Commercial loans, | ||||||||||
securities | at fair value | ||||||||||
March 31, 2023 | December 31, 2022 | March 31, 2023 | December 31, 2022 | ||||||||
Beginning balance | $ | 20,023 | $ | 19,031 | $ | 589,143 | $ | 1,388,416 | |||
Transfers to OREO | — | — | (737) | (61,580) | |||||||
Total net (losses) or gains (realized/unrealized) | |||||||||||
Included in earnings | — | — | 1,804 | 12,570 | |||||||
Included in other comprehensive income/(loss) | 100 | 992 | — | — | |||||||
Purchases, issuances, sales and settlements | |||||||||||
Issuances | — | — | 35,962 | 66,067 | |||||||
Settlements | — | — | (132,838) | (816,330) | |||||||
Ending balance | $ | 20,123 | $ | 20,023 | $ | 493,334 | $ | 589,143 | |||
Total losses year to date included | |||||||||||
in earnings attributable to the change in | |||||||||||
unrealized gains or losses relating to assets still | |||||||||||
held at the reporting date as shown above. | $ | — | $ | — | $ | (603) | $ | (3,492) |
The Company’s Level 3 asset activity for the categories shown are summarized below (in thousands):
Fair Value Measurements Using | |||||||||||
Significant Unobservable Inputs | |||||||||||
(Level 3) | |||||||||||
Available-for-sale | Commercial loans, | ||||||||||
securities | at fair value | ||||||||||
March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | ||||||||
Beginning balance | $ | 19,031 | $ | 178,951 | $ | 1,388,416 | $ | 1,810,812 | |||
Transfers from investment in unconsolidated entity | — | — | — | 22,926 | |||||||
Transfers from assets held-for-sale from discontinued operations | — | — | 61,580 | ||||||||
Transfers to loans, net | — | — | (61,580) | — | |||||||
Total (losses) or gains (realized/unrealized) | |||||||||||
Included in earnings | — | (44) | 2,135 | 13,214 | |||||||
Included in other comprehensive loss | (19) | (1,422) | — | — | |||||||
Purchases, issuances, sales and settlements | |||||||||||
Issuances | — | — | 5,826 | 127,765 | |||||||
Settlements | — | (158,454) | (153,912) | (647,881) | |||||||
Ending balance | $ | 19,012 | $ | 19,031 | $ | 1,180,885 | $ | 1,388,416 | |||
Total losses year to date included | |||||||||||
in earnings attributable to the change in | |||||||||||
unrealized gains or losses relating to assets still | |||||||||||
held at the reporting date as shown above. | $ | — | $ | — | $ | (1,202) | $ | (2,133) |
Fair Value Measurements Using | |||||
Significant Unobservable Inputs | |||||
(Level 3) | |||||
Assets held-for-sale | |||||
from discontinued operations | |||||
March 31, 2023 | December 31, 2022 | ||||
Beginning balance | $ | — | $ | 3,268 | |
Settlements | — | (3,268) | |||
Ending balance | $ | — | $ | — | |
Total losses year to date included | |||||
in earnings attributable to the change in | |||||
unrealized gains or losses relating to assets still | |||||
held at the reporting date as shown above. | $ | — | $ | — |
The Company’s Level 3 asset activity for the categories shown are summarized below (in thousands):
Fair Value Measurements Using | |||||||||||
Significant Unobservable Inputs | |||||||||||
(Level 3) | |||||||||||
Investment in | Assets held-for-sale | ||||||||||
unconsolidated entity | from discontinued operations | ||||||||||
March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | ||||||||
Beginning balance | $ | — | $ | 31,294 | $ | 3,268 | $ | 113,650 | |||
Transfers to commercial loans, at fair value | — | (22,926) | — | (61,580) | |||||||
Transfers to other real estate owned | — | (2,145) | — | (17,343) | |||||||
Total (losses) or gains (realized/unrealized) | |||||||||||
Included in earnings | — | — | — | 1,102 | |||||||
Purchases, issuances, sales, settlements and charge-offs | |||||||||||
Issuances | — | — | — | 5,222 | |||||||
Sales | — | — | — | (2,020) | |||||||
Settlements | — | (6,223) | (3,268) | (35,750) | |||||||
Charge-offs | — | — | — | (13) | |||||||
Ending balance | $ | — | $ | — | $ | — | $ | 3,268 | |||
Total losses year to date included | |||||||||||
in earnings attributable to the change in | |||||||||||
unrealized gains or losses relating to assets still | |||||||||||
held at the reporting date as shown above. | $ | — | $ | — | $ | — | $ | 566 |
The Company’s other real estate ownedOREO activity is summarized below (in thousands) as of the dates indicated:
March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||
Beginning balance | $ | 18,873 | $ | 0 | $ | 21,210 | $ | 18,873 | ||
Transfers from investment in unconsolidated entity | 0 | 2,145 | ||||||||
Transfer from commercial loans, at fair value | 737 | — | ||||||||
Writedowns | (830) | — | ||||||||
Sales | 0 | (615) | — | (2,343) | ||||||
Transfers from discontinued operations | 0 | 17,343 | ||||||||
Transfers from commercial loans, at fair value | — | 4,680 | ||||||||
Ending balance | $ | 18,873 | $ | 18,873 | $ | 21,117 | $ | 21,210 |
Information related to fair values of levelLevel 3 balance sheet categories is as follows(dollars in thousands):
Level 3 instruments only | Level 3 instruments only | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Fair value at | Range at | average at | Fair value at | Range at | average at | |||||||||||||||||||
March 31, 2022 | Valuation techniques | Unobservable inputs | March 31, 2022 | March 31, 2022 | March 31, 2023 | Valuation techniques | Unobservable inputs | March 31, 2023 | March 31, 2023 | |||||||||||||||
Commercial mortgage-backed investment | ||||||||||||||||||||||||
security | $ | 12,322 | Discounted cash flow | Discount rate | 8.95% | 8.95% | $ | 12,323 | Discounted cash flow | Discount rate | 13.00% | 13.00% | ||||||||||||
Insurance liquidating trust preferred security | 6,690 | Discounted cash flow | Discount rate | 7.75% | 7.75% | 7,800 | Discounted cash flow | Discount rate | 11.00% | 11.00% | ||||||||||||||
Federal Home Loan Bank and Atlantic | ||||||||||||||||||||||||
Central Bankers Bank stock | 1,663 | Cost | N/A | N/A | N/A | |||||||||||||||||||
FHLB, ACBB, | ||||||||||||||||||||||||
and Federal Reserve Bank stock | 12,629 | Cost | N/A | N/A | N/A | |||||||||||||||||||
Loans, net of deferred loan fees and costs | 4,152,755 | Discounted cash flow | Discount rate | 1.00% - 7.00% | 3.76% | 5,336,504 | Discounted cash flow | Discount rate | 5.40%-13.00% | 7.52% | ||||||||||||||
Commercial - SBA | 183,408 | Discounted cash flow | Discount rate | 1.78% - 3.20% | 3.02% | 140,909 | Discounted cash flow | Discount rate | 5.91%-6.64% | 6.57% | ||||||||||||||
Non-SBA CRE - fixed (e) | 76,558 | Discounted cash flow | Discount rate | 6.99%-10.92% | 8.64% | |||||||||||||||||||
Non-SBA CRE - floating (f) | 920,919 | Discounted cash flow | Discount rate | 3.5%-11.90% | 4.96% | |||||||||||||||||||
Non-SBA commercial real estate - fixed(5) | 125,899 | Discounted cash flow | Discount rate | 8.00%-11.90% | 8.75% | |||||||||||||||||||
Non-SBA commercial real estate - floating(6) | 226,526 | Discounted cash flow | Discount rate | 7.68%-17.30% | 9.30% | |||||||||||||||||||
Commercial loans, at fair value | 1,180,885 | 493,334 | ||||||||||||||||||||||
Subordinated debentures | 8,914 | Discounted cash flow | Discount rate | 7.75% | 7.75% | 10,579 | Discounted cash flow | Discount rate | 11.00% | 11.00% | ||||||||||||||
Other real estate owned (h) | 18,873 | Appraised value | N/A | N/A | N/A | |||||||||||||||||||
OREO(8) | 21,117 | Appraised value | N/A | N/A | N/A |
Level 3 instruments only | |||||||||||
Weighted | |||||||||||
Fair value at | Range at | average at | |||||||||
December 31, 2021 | Valuation techniques | Unobservable inputs | December 31, 2021 | December 31, 2021 | |||||||
Commercial mortgage-backed investment | |||||||||||
security | $ | 12,417 | Discounted cash flow | Discount rate | 8.00% | 8.00% | |||||
Insurance liquidating trust preferred security | 6,614 | Discounted cash flow | Discount rate | 7.00% | 7.00% | ||||||
Federal Home Loan Bank and Atlantic | |||||||||||
Central Bankers Bank stock | 1,663 | Cost | N/A | N/A | N/A | ||||||
Loans, net of deferred loan fees and costs | 3,745,548 | Discounted cash flow | Discount rate | 1.00% - 7.00% | 3.70% | ||||||
Commercial - SBA | 199,585 | Discounted cash flow | Discount rate | 1.04% - 2.12% | $103.40 | ||||||
Non-SBA CRE - fixed | 79,864 | Discounted cash flow | Discount rate | 5.31%-7.43% | 6.26% | ||||||
Non-SBA CRE - floating | 1,047,387 | Discounted cash flow | Discount rate | 3.96%-10.20% | 4.96% | ||||||
Other loans | 61,580 | Discounted cash flow | Discount rate | 3.18%-6.80% | 4.36% | ||||||
Commercial loans, at fair value | 1,388,416 | ||||||||||
Assets held-for-sale from discontinued operations | 3,268 | Discounted cash flow | Discount rate | 3.18%-6.80% | 4.36% | ||||||
Subordinated debentures | 8,815 | Discounted cash flow | Discount rate | 7.00% | 7.00% | ||||||
Other real estate owned | 18,873 | Appraised value | N/A | N/A | N/A |
Level 3 instruments only | |||||||||||
Weighted | |||||||||||
Fair value at | Range at | average at | |||||||||
December 31, 2022 | Valuation techniques | Unobservable inputs | December 31, 2022 | December 31, 2022 | |||||||
Commercial mortgage-backed investment | |||||||||||
security | $ | 12,323 | Discounted cash flow | Discount rate | 12.71% | 12.71% | |||||
Insurance liquidating trust preferred security | 7,700 | Discounted cash flow | Discount rate | 11.50% | 11.50% | ||||||
FHLB, ACBB, | |||||||||||
and Federal Reserve Bank stock | 12,629 | Cost | N/A | N/A | N/A | ||||||
Loans, net of deferred loan fees and costs | 5,462,948 | Discounted cash flow | Discount rate | 5.65% - 11.00% | 6.86% | ||||||
Commercial - SBA | 146,717 | Discounted cash flow | Discount rate | 5.57%-6.25% | 6.17% | ||||||
Non-SBA commercial real estate - fixed | 28,695 | Discounted cash flow and appraisal | Discount rate | 8.36%-11.65% | 10.31% | ||||||
Non-SBA commercial real estate - floating | 413,731 | Discounted cash flow | Discount rate | 7.07%-17.20% | 7.90% | ||||||
Commercial loans, at fair value | 589,143 | ||||||||||
Subordinated debentures | 10,067 | Discounted cash flow | Discount rate | 11.50% | 11.50% | ||||||
OREO | 21,210 | Appraised value | N/A | N/A | N/A |
The valuations for each of the instruments above, as of the balance sheet date, are subject to judgments, assumptions and uncertainties, changes in which could have a significant impact on such valuations. Weighted averages were calculated by using the discount rate for each individual security or loan weighted by its market value, except for SBA loans. For SBA loans, the yields derived from market pricing indications for pools determined by date of loan origination were weighted. For commercial loans recorded at fair value, changes in fair value are reflected in the income statement. Changes in the fair value of securities which are unrelated to credit are recorded through equity. Changes in the fair value of loans recorded at amortized cost which are unrelated to credit are a disclosure item, without impact on the financial statements. The notes below refer to the March 31, 20222023 table.
a)(1)Commercial mortgage-backed investment security, consisting of a single Bank issuedBank-issued CRE security, is valued using discounted cash flow analysis. The discount rate and prepayment rate applied are based upon market observations and actual experience for comparable securities and implicitly assume market averages for defaults and loss severities. The CRE-2 security has significant credit enhancement, or protection from other tranches in the issue, which limits the valuation exposure to credit losses.
Nonetheless, increases in expected default rates or loss severities on the loans underlying the issue could reduce its value. In market environments in which investors demand greater yield compensation for credit risk, the discount rate applied would ordinarily be higher and the valuation lower. Changes in prepayments and loss experience could also change the interest earned on this holding in future periods and impact its fair value. As a single security, the weighted average rate shown is the actual rate applied to the CRE-2 security.
b)(2)Insurance liquidating trust preferred security is a single debenture which is valued using discounted cash flow analysis. The discount rate used is based on the market rate on comparable relatively illiquid instruments and credit analysis. A change in the liquidating trust’s ability to repay the note, or an increase in interest rates, particularly for privately placed debentures, would affect the discount rate and thus the valuation. As a single security, the weighted average rate shown is the actual rate applied to the security.
c)(3)Loans, net of deferred loan fees and costs are valued using discounted cash flow analysis. Discount rates are based upon available information for estimated current origination rates for each loan type. Origination rates may fluctuate based upon changes in the risk free (Treasury) rate and credit experience for each loan type. At March 31, 2022, the balance included $23.7 million of Paycheck Protection Program loans, which bear interest at 1%, but also earn fees.
d)(4)Commercial-SBACommercial – SBA Loans are comprised of the government guaranteed portion of SBA insuredSBA-insured loans. Their valuation is based upon the yield derived from dealer pricing indications for guaranteed pools, adjusted for seasoning and prepayments. A limited number of broker/dealers originate the pooled securities for which the loans are purchased and as a result, prices can fluctuate based on such limited market demand, although the government guarantee has resulted in consistent historical demand. Valuations are impacted by prepayment assumptions resulting from both voluntary payoffs and defaults. Such assumptions for both poolable and seasoned loans are based on a seasoning vector for constant prepayment rates from 3% to 30% over life.
e)
(5)Non-SBA CRE-fixedcommercial real estate – fixed are fixed rate non-SBA commercial real estate mortgages. Discount rates used in applying discounted cash flow analysis utilize input from an independent valuation consultant based upon loan terms, the general level of interest rates and the quality of the credit. Certain of theseThese loans are fair valued by a third party, based upon discounting at market rates for similar loans. Discount rates used in applying discounted cash flow analysis utilize input based upon loan terms, the general level of interest rates and the quality of the credit. Deterioration in loan performance or other credit weaknesses could result in fair value ranges which would be dependent upon potential buyers’ tolerance for such weaknesses and are difficult to estimate.
f)(6)Non-SBA CRE-floatingcommercial real estate – floating are floating rate non-SBA loans, the vast majority of which are secured by multi-family properties (apartments). These are bridge loans designed to provide owners time and funding for property improvements and are generally valued internally using discounted cash flow analysis. The discount rate for the vast majority of these loans was based upon current origination rates for similar loans. Deterioration in loan performance or other credit weaknesses could result in fair value ranges which would be dependent upon potential buyers’ tolerance for such weaknesses and are difficult to estimate. Certain ofAt March 31, 2023, these loans arewere fair valued by a third party, based upon discounting at market rates for similar loans.
g)
(7)Subordinated debentures are comprised of 2two subordinated notes issued by the Company, maturing in 2038 with a floating rate of 3-month LIBORthree-month London Inter-Bank Offered Rate (“LIBOR”) plus 3.25%. These notes are valued using discounted cash flow analysis. The discount rate is based on the market rate for comparable relatively illiquid instruments. Changes in those market rates, or the credit of the Company could result in changes in the valuation.
h)(8)For other real estate owned,OREO, fair value is based upon appraisals of the underlying collateral by third party appraisers, reduced by 7% to 10% for estimated selling costs. Such appraisals reflect estimates of amounts realizable upon property sales based on the sale of comparable properties and other factors. Actual sales prices may vary based upon the identification of potential purchasers, changing conditions in local real estate markets and the level of interest rates required to finance purchases.
Assets measured at fair value on a nonrecurring basis, segregated by fair value hierarchy, during the periods shown are summarized below (in thousands):
Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||
Quoted prices in active | Significant other | Significant | Quoted prices in active | Significant other | Significant | |||||||||||||||||
markets for identical | observable | unobservable | markets for identical | observable | unobservable | |||||||||||||||||
Fair value | assets | inputs | inputs(1) | Fair value | assets | inputs | inputs (1) | |||||||||||||||
Description | March 31, 2022 | (Level 1) | (Level 2) | (Level 3) | March 31, 2023 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Collateral dependent loans(1) | $ | 6,648 | $ | — | $ | — | $ | 6,648 | $ | 11,578 | $ | — | $ | — | $ | 11,578 | ||||||
Other real estate owned | 18,873 | — | — | 18,873 | ||||||||||||||||||
OREO | 21,117 | — | — | 21,117 | ||||||||||||||||||
Intangible assets | 2,348 | — | — | 2,348 | 1,950 | — | — | 1,950 | ||||||||||||||
$ | 27,869 | $ | — | $ | — | $ | 27,869 | $ | 34,645 | $ | — | $ | — | $ | 34,645 |
Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||
Quoted prices in active | Significant other | Significant | Quoted prices in active | Significant other | Significant | |||||||||||||||||
markets for identical | observable | unobservable | markets for identical | observable | unobservable | |||||||||||||||||
Fair value | assets | inputs | inputs(1) | Fair value | assets | inputs | inputs (1) | |||||||||||||||
Description | December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | December 31, 2022 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Collateral dependent loans(1) | $ | 3,005 | $ | — | $ | — | $ | 3,005 | $ | 12,205 | $ | — | $ | — | $ | 12,205 | ||||||
Other real estate owned | 18,873 | — | — | 18,873 | ||||||||||||||||||
OREO | 21,210 | — | — | 21,210 | ||||||||||||||||||
Intangible assets | 2,447 | — | — | 2,447 | 2,049 | — | — | 2,049 | ||||||||||||||
$ | 24,325 | $ | — | $ | — | $ | 24,325 | $ | 35,464 | $ | — | $ | — | $ | 35,464 |
(1)The method of valuation approach for the loans evaluated for an allowance for credit losses on an individual loan basis and also for other real estate ownedOREO was the market approach based upon appraisals of the underlying collateral by external appraisers, reduced by 7% to 10% for estimated selling costs. Intangible assets are valued based upon internal analyses.
At March 31, 2022,2023, principal on collateral dependent loans and troubled debt restructurings, which is accounted for on the basis of the value of underlying collateral, is shown at estimated fair value of $6.6$11.6 million. To arrive at that fair value, related loan principal of $8.1$13.3 million was reduced by specific reserves of $1.5$1.7 million within the allowance for credit lossesACL as of that date, representing the deficiency between principal and estimated collateral values, which were reduced by estimated costs to sell. When the deficiency is deemed uncollectible, it is charged off by reducing the specific reserve and decreasing principal. Included in the collateral dependent loans at March 31, 2023 were 10 troubled debt restructured loans with a balance of $5.2 million, which had specific reserves of $587,000. Included in the collateral dependent loans at December 31, 2022, were 1411 troubled debt restructured loans with a balance of $5.3 million which had specific reserves of $655,000. Included in the collateral dependent loans at December 31, 2021, were 10 troubled debt restructured loans with a balance of $1.5 million which had specific allowances of $476,000.$637,000. Valuation techniques consistent with the market and/or cost approach were used to measure fair value and primarily included observable inputs for the individual collateral dependent loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs. In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy.
Note 9. Derivatives
The Company utilizes derivative instruments to assist in the management of interest rate sensitivity by modifying the repricing, maturity and option characteristics on certain non-SBA CREcommercial estate loans held at fair value. These instruments are not accounted for as effective hedges. As of March 31, 2022,2023, the Company had entered into threeone interest rate swap agreementsagreement with an aggregate notional amount of $21.3$6.8 million. TheseUnder that swap agreements provide foragreement the Company to receivereceives an adjustable rate of interest based upon the three-month LIBOR. The
Company recorded a net gainloss of $1.1 million$79,000 for the three months ended March 31, 20222023 to recognize the fair value of the derivative instrumentsinstrument which is reported in net realized and unrealized gains (losses) on commercial loans, at fair value, in the consolidated statements of operations. The amount receivable by the Company under thesethis swap agreementsagreement was $515,000$329,000 at March 31, 2022,2023, which is reported in other assets. The Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted cash collateral of $2.3 million$527,000 as of March 31, 2022.2023.
The maturity dates,date, notional amounts,amount, interest ratesrate paid and received and fair value of the Company’s remaining interest rate swap agreementsagreement as of March 31, 2022 are2023 is summarized below (dollars in thousands):
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||
Maturity date | Notional amount | Interest rate paid | Interest rate received | Fair value | Notional amount | Interest rate paid | Interest rate received | Fair value | ||||||||||||||
December 23, 2025 | 6,800 | 2.16% | 0.96% | 107 | 6,800 | 2.16% | 5.02% | 329 | ||||||||||||||
December 24, 2025 | 8,200 | 2.17% | 0.95% | 124 | ||||||||||||||||||
July 20, 2026 | 6,300 | 1.44% | 0.25% | 284 | ||||||||||||||||||
Total | $ | 21,300 | $ | 515 | $ | 6,800 | $ | 329 |
Note 10. Other Identifiable Intangible Assets
In May 2016, the Company purchased approximately $60.0 million of lease receivables which resulted in a customer list intangible of $3.4 million that is being amortized over a 10ten year period. Amortization expense is $340,000 per year ($1.41.0 million over the next five years). The gross carrying amount of the customer list intangible is $3.4 million, and as of March 31, 20222023 and December 31, 2021,2022, respectively, the accumulated amortization expense was $2.0$2.4 million and $1.9$2.3 million.
In January 2020, the Company purchased McMahon Leasing and subsidiaries for approximately $8.7 million which resulted in $1.1 million of intangibles. The gross carrying value of $1.1 million of intangibles was comprised of a customer list intangible of $689,000, goodwill of $263,000 and a trade name valuation of $135,000. The customer list intangible is being amortized over a 12twelve year period and accumulated amortization expense was $129,000$187,000 at March 31, 2023 and $172,000 at December 31, 2022. Amortization expense is $57,000 per year ($287,000 over the next five years). The gross carrying value and accumulated amortization related to the Company’s intangibles at March 31, 20222023 and December 31, 20212022 are presented below.
March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | Amount | Amortization | |||||||||||||||||
(in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
Customer list intangibles | $ | 4,093 | $ | 2,143 | $ | 4,093 | $ | 2,044 | $ | 4,093 | $ | 2,541 | $ | 4,093 | $ | 2,442 | ||||||||
Goodwill | 263 | — | 263 | — | 263 | — | 263 | — | ||||||||||||||||
Trade Name | 135 | — | 135 | — | 135 | — | 135 | — | ||||||||||||||||
Total | $ | 4,491 | $ | 2,143 | $ | 4,491 | $ | 2,044 | $ | 4,491 | $ | 2,541 | $ | 4,491 | $ | 2,442 |
Note 11. Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update (“ASU” or “Update”) 2020-04,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform in Financial Reporting, which addressed optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, resulting from the phase-out of the London Inter-Bank Offered Rate (“LIBOR”)LIBOR reference rate. To maximize management and accounting flexibility for holders of instruments using LIBOR as a benchmark, the guidance permitted a one-time transfer of such instruments from held-to-maturity to available-for-sale. The Company made such a transfer of four LIBOR-based securities, which comprised its held-to-maturity portfolio, in the first quarter of 2020. The Company discontinued LIBOR-based originations in 2021; however, certain financial instruments outstanding are indexed to LIBOR, including non-SBA commercial loans, at fair value, which amounted to $1.00 billion$159.6 million at March 31, 2022.2023. However, these loans are short-term and are generally expected to be repaid by the June 2023 LIBOR end date. At March 31, 2022,2023, the Company owned $12.6$12.3 million of LIBOR basedLIBOR-based securities purchased from previous securitizations, which are also expected to mature before June 2023. When the Company resumed originating non-SBA commercial loans in the third quarter of 2021, which are identified separately under real estate bridge loans, it utilized the secured overnight financing rate (“SOFR”) as the index. In addition, the Company owns collateralized loan obligations (“CLOs”) and U.S. government agency adjustable-rate mortgages which utilize LIBOR basedLIBOR-based pricing. CLOs, which amounted to $337.2$325.6 million at March 31, 2022,2023, generally have language regarding an index alternative should LIBOR no longer be available. U.S. government agencies generally have the ability to adjust interest rate indices as necessary on impacted LIBOR based securities, which amounted to $73.9$65.4 million at March 31, 2022.2023. There is less clarity for the Company’s student loan securities of $21.3$7.6 million and its subordinated debentures payable of $13.4 million at that date,March 31, 2023, and for which industry standards continue to be considered by trustees and other governing bodies. The Company’s derivatives,derivative, the notional amount forof which totaled $21.3$6.8 million at March 31, 2022, are2023, is an interest rate swapsswap that areis documented under a bilateral agreementsagreement which containcontains LIBOR fallback provisions by virtue of counterparty adherence to the 2020 International Swaps and Derivatives Association, Inc.’s LIBOR Fallbacks Protocol.Protocol. The Bank also owns $10$10.0 million of a Floating Rate Junior Subordinated Deferrable Interest Debenture,with a market value of $7.8 million at March 31, 2023, issued by an insurance holding company in liquidation for which the rate index is three monththree-month LIBOR. The indenture
contains terms for a substitution of the index when LIBOR quotes become unavailable. The Company continues to assess the potential impact of the phase-out of LIBOR on all affected accounts and any other potential impacts, and related accounting guidance.
In August 2021,December 2022, the FASB issued ASU 2021-06. ThisNo. 2022-06, which extended the original transition period end date referenced in ASU adds new quarterly disclosures and expands certain annual disclosuresNo. 2020-04 to quarterly reporting. Amendments within this ASU are effective for fiscal years ending after December 15, 2021 and the Company is presenting the quarterly disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as specified.31, 2024.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic(Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made withmodifications. The Company adopted ASU 2022-02 on January 1, 2023. Effective January 1, 2023 loan modifications to borrowers experiencing financial difficulty are required to be disclosed by type of modification and by type of loan. Prior accounting guidance classified loans which were modified as troubled debt restructurings only if the modification reflected a concession from the lender in the form of a below market interest rate or other concession in addition to borrower financial difficulty. The effective dateUnder the new guidance, loans with modifications will be reported whether a concession is January 1, 2023. The Company does not expect it will have a material impact onmade or not. In the consolidated financial statements.first quarter of 2023, there were no loan modifications which were subject to the new reporting.
On March 31, 2022, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin Number 121 (“SAB 121”). In SAB 121, the SEC staff expressed the views of its staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for platform users. As the Company does not currently hold crypto-assets this release will not impact its consolidated financial statements or disclosures.
Note 12. Shareholder’sShareholders’ Equity
In 2020, the Company’s Board of Directors (“the Board”) authorized a common stock repurchase program (the “2021 Common Stock Repurchase Program”). Under the 2021 Common Stock Repurchase Program, repurchased shares may be reissued for various corporate purposes. The Company repurchased $10.0 million in each quarter of 2021.
On October 20, 2021, the Board approved a revised common stock repurchase program for the 2022 fiscal year (the “2022 Common Stock Repurchase Plan”Program”). Under the 2022 Common Stock Repurchase Program, the Company is authorized to repurchase up torepurchased $15.0 million in value of the Company’s common stock in each quarter of 20222022.
On October 26, 2022, the Board approved a common stock repurchase program for the 2023 fiscal year (the “2023 Repurchase Program”), which authorizes the Company to repurchase $25.0 million in value of the Company’s common stock per fiscal quarter in 2023, for a maximum amount of $60.0 million, depending on$100.0 million. Under the share price,2023 Repurchase Program, the Company intends to repurchase shares through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, and stock exchange rules which regulate such repurchases. This planincluding Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The 2023 Repurchase Program may be modified or terminated at any time.During the three months ended March 31, 2022,2023, the Company repurchased 527,393778,442 shares of its common stock in the open market under the 2022 Common Stock2023 Repurchase PlanProgram at an average costprice of $28.44$32.12 per share. In the first quarter of 2021, the Company changed its presentation of treasury stock acquired through common stock repurchases. To simplify presentation, common stock repurchases previously shown separately as treasury stock are now shown as reductions in common stock and additional paid-in capital.
Note 13. Regulatory Matters
Various federal and state statutory provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval. Under Delaware banking law,Without the Bank’s directorsprior approval of the OCC, a dividend may declarenot be paid if the total of all dividends on common or preferred stockdeclared by a bank in any calendar year is in excess of so muchthe current year’s net income combined with the retained net income of its net profits as they judge expedient, but the Bank must, before the declarationtwo preceding years. Additionally, a dividend may not be paid in excess of a bank’s retained earnings. Moreover, an insured depository institution may not pay a dividend if the payment would cause it to be less than “adequately capitalized” under the prompt corrective action framework as defined in the Federal Deposit Insurance Act or if the institution is in default in the payment of an assessment due to the FDIC. Similarly, a banking organization that fails to satisfy regulatory minimum capital conservation buffer requirements will be subject to certain limitations, which include restrictions on common stock from net profits, carry 50% of its net profits from the preceding period for which the dividend is paid to its surplus fund until its surplus fund amounts to 50% of its capital stock and thereafter must carry 25% of its net profits for the preceding period for which the dividend is paid to its surplus fund until its surplus fund amounts to 100% of its capital stock.distributions.
In addition to these explicit limitations, federal and state regulatory agencies are authorized to prohibit a banking subsidiary or financial holding company from engaging in an unsafe or unsound practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice.
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Moreover, capital requirements may be modified based upon regulatory rules or by regulatory discretion at any time reflecting a variety of factors including deterioration in asset quality.
The following table sets forth our regulatory capital amounts and ratios for the periods indicated:
Tier 1 capital | Tier 1 capital | Total capital | Common equity | ||||
to average | to risk-weighted | to risk-weighted | tier 1 to risk | ||||
assets ratio | assets ratio | assets ratio | weighted assets | ||||
As of March 31, 2022 | |||||||
The Bancorp, Inc. | 9.47% | 14.15% | 14.56% | 14.15% | |||
The Bancorp Bank | 10.19% | 15.23% | 15.64% | 15.23% | |||
"Well capitalized" institution (under FDIC regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% | |||
As of December 31, 2021 | |||||||
The Bancorp, Inc. | 10.40% | 14.72% | 15.13% | 14.72% | |||
The Bancorp Bank | 10.98% | 15.48% | 15.88% | 15.48% | |||
"Well capitalized" institution (under FDIC regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% |
Tier 1 capital | Tier 1 capital | Total capital | Common equity | ||||
to average | to risk-weighted | to risk-weighted | tier 1 to risk | ||||
assets ratio | assets ratio | assets ratio | weighted assets | ||||
As of March 31, 2023 | |||||||
The Bancorp, Inc. | 9.88% | 14.34% | 14.84% | 14.34% | |||
The Bancorp Bank, National Association | 11.00% | 15.94% | 16.44% | 15.94% | |||
"Well capitalized" institution (under federal regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% | |||
As of December 31, 2022 | |||||||
The Bancorp, Inc. | 9.63% | 13.40% | 13.87% | 13.40% | |||
The Bancorp Bank, National Association | 10.73% | 14.95% | 15.42% | 14.95% | |||
"Well capitalized" institution (under federal regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% |
Note 14. Legal
On June 12, 2019, the Bank was served with a qui tam lawsuit filed in the Superior Court of the State of Delaware, New Castle County. The Delaware Department of Justice intervened in the litigation. The case is titled The State of Delaware, Plaintiff, Ex rel. Russell S. Rogers, Plaintiff-Relator, v. The Bancorp Bank, Interactive Communications International, Inc., and InComm Financial Services, Inc., Defendants. The lawsuit alleges that the defendants violated the Delaware False Claims Act by not paying balances on certain open-loop “Vanilla” prepaid cards to the State of Delaware as unclaimed property. The complaint seeks actual and treble damages, statutory penalties, and attorneys’ fees. The Bank has filed an answer denying the allegations and continues to vigorously defend against the claims. The Bank and other defendants previously filed a motion to dismiss the action, but the motion was denied and the case is in preliminary stages of discovery. At this time, the Company is unable to determine whether the ultimate resolution of the matter will have a material adverse effect on the Company’s financial condition or operations.
TheAs previously disclosed, the Company has received and is respondingresponded to twoa non-public fact-finding inquiriesinquiry from the SEC, which in each case is seekingseeks to determine if violations of the federal securities laws have occurred. The Company refers to these inquiries collectively as the SEC matters. On October 9, 2019, the Company received a subpoena seeking records related generally to the Bank’s debit card issuance activity and gross dollar volume data, among other things. The Company responded to the subpoena and subsequent subpoenas issued to the Company. UnrelatedBy letter dated May 9, 2023, the SEC staff notified the Company that the SEC staff does not intend to recommend an enforcement action by the SEC against the Company. The Company now considers the matter closed. As a result, certain costs to the firstCompany related to this inquiry on April 10, 2020,will cease, including the Company received a subpoena in connectionlegal costs of the investigation, compliance with the Bank’s CMBS business seeking records related to various offerings as well as CMBS securities held by the Bank. Since inception of these SEC matters to the present, the Company has been cooperating fullySEC’s subpoena, and cooperation with the SEC. The SEC has not made any findings, or alleged any
wrongdoings, with respect to the SEC matters. The costs related to responding to and cooperating with the SEC staff may be material, and could continue to be material at least through the completion of the SEC matters.
On June 2, 2020, the Bank was served with a complaint filed in the Supreme Court of the State of New York, titled Cascade Funding, LP – Series 6, Plaintiff v. The Bancorp Bank, Defendant. The lawsuit arises from a Purchase and Sale Agreement between Cascade Funding, LP – Series 6 (“Cascade”) and the Bank, pursuant to which Cascade was to purchase certain mortgage loan assets from the Bank for securitization. When Cascade failed to close the transaction, the Bank terminated the agreement and retained Cascade’s deposit of approximately $12.5 million. The complaint asserts three causes of action: (i) breach of contract; (ii) injunction and specific performance; and (iii) declaratory judgment. In addition, it seeks the return of Cascade’s deposit plus interest and attorneys’ fees and costs. On October 4, 2021, Cascade filed a motion for summary judgment. The court granted Cascade’s motion on April 21, 2022. In lieu of filing an appeal, the Bank entered into a settlement agreement with Cascade, dated May 6 , 2022, which included the return of the deposit with an additional payment to Cascade of approximately $1.1 million. The $1.1 million will be recognized as expense in the second quarter of 2022.
On January 12, 2021, three former employees of the Bank filed separate complaints against the Company in the Supreme Court of the State of New York, New York County. The Company subsequently removed all three lawsuits to the United States District Court for the Southern District of New York. The cases are captioned: John Edward Barker, Plaintiff v. The Bancorp, Inc., Defendant; Alexander John Kamai, Plaintiff v. The Bancorp, Inc., Defendant; and John Patrick McGlynn III, Plaintiff v. The Bancorp, Inc., Defendant. The lawsuits arise from the Bank’s termination of the plaintiffs’ employment in connection with the restructuring of its CMBS business. The plaintiffs sought damages in the following amounts: $4,135,142 (Barker), $901,088 (Kamai) and $2,909,627 (McGlynn). On June 11, 2021, the Company filed a consolidated motion to dismiss in each case. On February 25, 2022, the court granted the Company’s motion in part, dismissing McGlynn’s claims in entirety and most of Barker and Kamai’s claims. The sole claims remaining are Barker and Kamai’s breach of implied contract claims related to an unpaid bonus, for which they seek $2,000,000 and $300,000, respectively.The Company is vigorously defending against these claims. GivenOn September 29, 2022, the early stage ofCompany filed a motion for summary judgment in both matters, which is still pending before the lawsuits, thecourt. The Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.
On September 14, 2021, Cachet Financial Services (“Cachet”) filed an adversary proceeding against the Bank in the United States Bankruptcy Court for the Central District of California, titled Cachet Financial Services, Plaintiff v. The Bancorp Bank.Bank, et al., Defendants. The case was filed within the context of Cachet’s pending Chapter 11 bankruptcy case. The Bank previously served as the Originating Depository Financial Institution (“ODFI”) for ACHautomated clearing house (“ACH”) transactions in connection with Cachet’s payroll services business. The complaint in the matter primarily arises from the Bank’s termination of its Payroll Processing ODFI Agreement with Cachet on October 23, 2019, for safety and soundness reasons. The initial complaint alleges eight causes of action: (i) breach of contract; (ii) negligence; (iii) intentional interference with contract; (iv) conversion; (v) express indemnity; (vi) implied indemnity; (vii) accounting; and (viii) objection to the Bank’s proof of claim in the bankruptcy case. Cachet seeks approximately $150 million in damages and disallowance of the Bank’s proof of claim. The Bank has not been served with the complaint to date but intends to vigorously defend against Cachet’s claims. On November 4, 2021, the Bank filed a motion in the United States District Court for the Central District of California to withdraw the reference of the adversary proceeding to the bankruptcy court.court, which was denied in February 2023. On August 3, 2022, Cachet served the Bank with a First Amended Complaint wherein Cachet, among other things, withdraws its implied indemnity claim against the Bank and adds several defendants unaffiliated with the Bank and causes of action related to those parties. As to the Bank, Cachet seeks approximately $150 million in damages, and an accounting and
disallowance of the Bank’s proof of claim. The Bank is vigorously defending against these claims. On September 28, 2022, the Bank filed a partial motion to dismiss, seeking to dispose of the majority of Cachet’s claims against the Bank. The motion is still pending. Givenpending before the early stage of the lawsuit, thebankruptcy court. The Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.
On March 27, 2023, the Bank received a Civil Investigative Demand (“CID”) from the Consumer Financial Protection Bureau (“CFPB”) seeking documents and information related to the Bank’s escheatment practices in connection with certain accounts offered through one of the Bank’s program partners. The Bank is cooperating with the CFPB in connection with the CID. The costs related to responding to and cooperating with CFPB staff may be material and could continue to be material at least through the completion of the investigation.
In addition, the Company iswe are a party to various routine legal proceedings arising out of the ordinary course of our business. The CompanyManagement believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Company’sour financial condition or operations.
Note 15. Segment Financials
The Company performed a strategic evaluation of its businesses in the third quarter of 2014. As a result of the evaluation, the Company decided to discontinue its commercial lending operations, as described in Note 16, Discontinued Operations. The shift from a traditional bank balance sheet led the Company to evaluate its continuing operations. Based on the continuing operations of the Company, it was determined that there would be 4 segments of the business:operates under three segments: specialty finance, payments corporate and discontinued operations.corporate. The chief operating decision maker for these segments is the Chief Executive Officer. Specialty finance includes the origination of non-SBA CREcommercial real estate loans, SBA loans, direct lease financing, and security-backed lines of credit, cash value insurance policy-backed lines of credit and deposits generated by those business lines. Payments include prepaid card accounts, card payments, ACH processing and deposits generated by those business lines. Corporate includes the Company’s investment portfolio, corporate overhead and non-allocated expenses. Investment income is reallocatedIn the third quarter of 2022, the Company began allocating interest expense between segments and has adjusted prior period presentation to the payments segment.reflect such allocation. These operating segments reflect the way the Company views its current operations.
The following tables provide segment information for the periods indicated:
For the three months ended March 31, 2022 | For the three months ended March 31, 2023 | ||||||||||||||||||||||||
Specialty finance | Payments | Corporate | Discontinued operations | Total | Specialty finance | Payments | Corporate | Total | |||||||||||||||||
(in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||
Interest income | $ | 49,939 | $ | — | $ | 5,915 | $ | — | $ | 55,854 | $ | 105,392 | $ | 18 | $ | 16,766 | $ | 122,176 | |||||||
Interest allocation | — | 5,915 | (5,915) | — | — | (32,935) | 34,851 | (1,916) | — | ||||||||||||||||
Interest expense | 261 | 1,124 | 1,616 | — | 3,001 | 1,486 | 30,504 | 4,370 | 36,360 | ||||||||||||||||
Net interest income (loss) | 49,678 | 4,791 | (1,616) | — | 52,853 | ||||||||||||||||||||
Net interest income | 70,971 | 4,365 | 10,480 | 85,816 | |||||||||||||||||||||
Provision for credit losses | 1,507 | — | — | — | 1,507 | 1,903 | — | — | 1,903 | ||||||||||||||||
Non-interest income | 4,260 | 20,673 | 179 | — | 25,112 | 3,417 | 25,528 | 44 | 28,989 | ||||||||||||||||
Non-interest expense | 17,496 | 17,160 | 3,696 | — | 38,352 | 21,479 | 19,217 | 7,334 | 48,030 | ||||||||||||||||
Income (loss) before taxes | 34,935 | 8,304 | (5,133) | — | 38,106 | ||||||||||||||||||||
Income before taxes | 51,006 | 10,676 | 3,190 | 64,872 | |||||||||||||||||||||
Income tax expense | — | — | 9,140 | — | 9,140 | — | — | 15,750 | 15,750 | ||||||||||||||||
Net income (loss) | $ | 34,935 | $ | 8,304 | $ | (14,273) | $ | — | $ | 28,966 | $ | 51,006 | $ | 10,676 | $ | (12,560) | $ | 49,122 |
For the three months ended March 31, 2022 | |||||||||||
Specialty finance | Payments | Corporate | Total | ||||||||
(Dollars in thousands) | |||||||||||
Interest income | $ | 49,939 | $ | — | $ | 5,915 | $ | 55,854 | |||
Interest allocation | (3,528) | 3,987 | (459) | — | |||||||
Interest expense | 261 | 1,124 | 1,616 | 3,001 | |||||||
Net interest income | 46,150 | 2,863 | 3,840 | 52,853 | |||||||
Provision for credit losses | 1,507 | — | — | 1,507 | |||||||
Non-interest income | 4,260 | 20,673 | 179 | 25,112 | |||||||
Non-interest expense | 17,496 | 17,160 | 3,696 | 38,352 | |||||||
Income before taxes | 31,407 | 6,376 | 323 | 38,106 | |||||||
Income tax expense | — | — | 9,140 | 9,140 | |||||||
Net income (loss) | $ | 31,407 | $ | 6,376 | $ | (8,817) | $ | 28,966 |
For the three months ended March 31, 2021 | ||||||||||||||
Specialty finance | Payments | Corporate | Discontinued operations | Total | ||||||||||
(in thousands) | ||||||||||||||
Interest income | $ | 47,830 | $ | — | $ | 9,093 | $ | — | $ | 56,923 | ||||
Interest allocation | — | 9,093 | (9,093) | — | — | |||||||||
Interest expense | 237 | 1,223 | 1,706 | — | 3,166 | |||||||||
Net interest income (loss) | 47,593 | 7,870 | (1,706) | — | 53,757 | |||||||||
Provision for credit losses | 822 | — | — | — | 822 | |||||||||
Non-interest income | 3,019 | 21,043 | 12 | — | 24,074 | |||||||||
Non-interest expense | 17,350 | 18,053 | 6,480 | — | 41,883 | |||||||||
Income (loss) from continuing operations before taxes | 32,440 | 10,860 | (8,174) | — | 35,126 | |||||||||
Income tax expense | — | — | 9,066 | — | 9,066 | |||||||||
Income (loss) from continuing operations | 32,440 | 10,860 | (17,240) | — | 26,060 | |||||||||
Loss from discontinued operations | — | — | — | (95) | (95) | |||||||||
Net income (loss) | $ | 32,440 | $ | 10,860 | $ | (17,240) | $ | (95) | $ | 25,965 |
March 31, 2023 | |||||||||||
Specialty finance | Payments | Corporate | Total | ||||||||
(Dollars in thousands) | |||||||||||
Total assets | $ | 5,820,871 | $ | 48,598 | $ | 1,737,490 | $ | 7,606,959 | |||
Total liabilities | $ | 281,523 | $ | 6,158,133 | $ | 442,155 | $ | 6,881,811 |
December 31, 2022 | |||||||||||
Specialty finance | Payments | Corporate | Total | ||||||||
(Dollars in thousands) | |||||||||||
Total assets | $ | 6,042,765 | $ | 57,894 | $ | 1,802,341 | $ | 7,903,000 | |||
Total liabilities | $ | 321,335 | $ | 6,101,539 | $ | 786,095 | $ | 7,208,969 |
March 31, 2022 | ||||||||||||||
Specialty finance | Payments | Corporate | Discontinued operations | Total | ||||||||||
(in thousands) | ||||||||||||||
Total assets | $ | 5,316,997 | $ | 49,164 | $ | 1,716,499 | $ | — | $ | 7,082,660 | ||||
Total liabilities | $ | 353,831 | $ | 5,567,105 | $ | 509,429 | $ | — | $ | 6,430,365 |
December 31, 2021 | ||||||||||||||
Specialty finance | Payments | Corporate | Discontinued operations | Total | ||||||||||
(in thousands) | ||||||||||||||
Total assets | $ | 5,099,388 | $ | 41,593 | $ | 1,698,990 | $ | 3,268 | $ | 6,843,239 | ||||
Total liabilities | $ | 329,372 | $ | 5,312,115 | $ | 549,298 | $ | — | $ | 6,190,785 |
Note 16. Discontinued Operations
The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its Philadelphia commercial lending operations to focus on its specialty finance lending. The Company has since disposed of the vast majority of related loans and other real estate owned. While in the process of disposition, financial results of the commercial lending operations were presented as separate from continuing operations on the consolidated statements of operations and assets of the commercial lending operations to be disposed of were presented as assets held-for-sale on the consolidated balance sheets. As disposition efforts were winding down, discontinued loans of $61.6 million were reclassified to loans held for investment in the first quarter of 2022. These loans will accordingly be accounted for as such, and included in related tables as management continues related collections. Discontinued other real estate owned of $17.3 million which constituted the remainder of discontinued assets was reclassified to the other real estate owned caption on the balance sheet.
The following table presents financial results of the commercial lending business included in net loss from discontinued operations for the three months ended March 31, 2022 and 2021 (in thousands):
For the three months ended March 31, | |||||
2022 | 2021 | ||||
Interest income | $ | — | $ | 853 | |
Interest expense | — | — | |||
Net interest income | — | 853 | |||
Non-interest income | — | 2 | |||
Non-interest expense | — | 979 | |||
Loss before taxes | — | (124) | |||
Income tax benefit | — | (29) | |||
Net loss | $ | — | $ | (95) |
The following table presents assets held-for-sale from discontinued operations at March 31, 2022 and December 31, 2021 (in thousands):
March 31, | December 31, | ||||
2022 | 2021 | ||||
Commercial loans, at fair value | $ | — | $ | 2,907 | |
Other real estate owned | — | 361 | |||
Total assets | $ | — | $ | 3,268 | |
Non-interest expense for the three months ended March 31, 2021 reflected $126,000 of recoveries of prior losses on loans. It also reflected respective expenses and losses of $606,000 related to other real estate owned.Discontinued operations loans are recorded at the lower of their cost or fair value. Fair value is determined using a discontinued cash flow analysis where projections of cash flows are developed in consideration of internal loan review analysis and default/prepayment assumptions for smaller pools of loans. These credit and collateral related assumptions are subject to uncertainty.
Note 17. Subsequent Events
The Company evaluated its March 31, 20222023 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. Pursuant to a stock repurchase planthe 2023 Repurchase Program, described in Note 12,“Note 12. Shareholders’ Equity,” between April 1, 2023 and May 3, 2023, the Company repurchased 577,926364,393 shares of its common shares in April of 2022,stock, at a total cost of $15.0$10.2 million and an average price of $25.95$27.87 per share.
Part I -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information about the Company’s results of operations, financial condition, liquidity and asset quality. This information is intended to facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. This MD&A should be read in conjunction with our financial information in our 2022 Form 10-K and the unaudited interim consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q.
Important Note Regarding Forward-Looking Statements
When used in this Quarterly Report on Form 10-Q, the words “believes”, “anticipates”, “expects”“believes,” “anticipates,” “expects,” “intends,” “should,” “will,” “could,” “estimates,” “plans” or the negative versions of those words or other comparable words and similar expressions are intended to identify forward-looking statements. Such statements, as such term is defined in the Private Securities Litigation Reform Act of 1995. Factors that could cause results to differ from those expressed in these forward-looking statements include, but are subjectnot limited to, certainthe risks and uncertainties more particularly described or referenced in Part I, Item 1A, under the caption1A. “Risk Factors,” in our Annual Report onthe 2022 Form 10-K for the year ended December 31, 2021 and in other of our public filings with the SecuritiesSEC, as well as the following:
continued movement in interest rates and Exchange Commission. These risksthe resulting impact on net interest income;
changes in the monetary and uncertainties could causefiscal policies of the federal government and its agencies;
the impacts of recent volatility in the banking sector and actual resultsor perceived concerns regarding the liquidity and soundness of other financial institutions;
adverse changes in general economic and business conditions, including the impact of such conditions on the market value of real estate securing certain of our loans;
impacts of the phase-out of LIBOR or other changes involving LIBOR;
levels of net charge-offs and the adequacy of the ACL in covering expected losses;
any significant increase in the level of the Bank’s deposits that are uninsured by the FDIC;
any failure to differ materially from those expressedmaintain or implied in this Form 10-Q. enhance our competitive position with respect to new products, services and technology and achieve our strategic priorities, such as growing payments-related deposit accounts;
weather events, natural disasters, geopolitical events, public health crises and other catastrophic events beyond our control;
the outcome of regulatory matters or investigations, litigation, and other legal actions; and
our ability to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware intrusion, or other attacks.
We caution readers not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.hereof and are based on information presently available to the management of the Company. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q except as required by applicable law.
In the following discussion we provide information about our results of operations, financial condition, liquidity and asset quality. We intend that this information facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Key Performance Indicators
We use a number of key performance indicators to measure our overall financial performance. We describe how we calculate and use a number of these performance indicators and analyze their results below.
Return on assets and return on equity. Two performance indicators we believe are commonly used within the banking industry to measure overall financial performance are return on assets and return on equity. Return on assets measures the amount of earnings compared to the level of assets utilized to generate those earnings. It is derived by dividing net income by average assets. Return on equity measures the amount of earnings compared to the equity utilized to generate those earnings. It is derived by dividing net income by average shareholders’ equity.
Net interest margin and credit losses. The largest component of our earnings is net interest income, or the difference between the interest earned on our interest-earning assets consisting of loans and investments, less the interest on our funding, consisting primarily of deposits. The key performance indicator for net interest income is net interest margin, derived by dividing net interest income by average interest-earning assets. Higher levels of earnings and net interest income, on lower levels of assets, equity and interest-earning assets are generally desirable. However, these indicators must be considered in light of regulatory capital requirements which impact equity, and credit risk inherent in loans. Accordingly, the magnitude of credit losses is an additional key performance indicator.Overview
Other performance indicators. Other performance indicators we use include loan growth, non-interest income growth, the levelNature of non-interest expense and various capital measures.
Results of performance indicators. Our strategies continue to target loan niches which we believe are lower risk than certain other forms of lending. These include: multi-family (apartment) loans in selected national regions; loans collateralized by securities (“SBLOC”) and the cash value of life insurance (“IBLOC”); SBA loans, a significant portion of which are government guaranteed or must have loan-to-value ratios lower than other forms of lending; and leasing to which we have access to underlying vehicles. Loan balances in these categories have grown significantly in recent years, which we believe has contributed generally to increases in key performance indicators.
A 12% increase in net income, to $29.0 million in the first quarter of 2022, from $26.0 million in the first quarter of 2021, was reflected in increases in return on assets and equity. In the first quarter of 2022, return on assets and return on equity amounted to 1.68% and 18.01% (annualized), respectively, compared to 1.56% and 17.88% (annualized) in the first quarter of 2021. Net interest income decreased $904,000, reflecting a $3.4 million decrease in Payroll Protection Program (“PPP”) related interest and fees, and a $3.9 million decrease in securities interest. The reduction in securities interest reflected lower balances and lower yields resulting from the continuing lower rate environment. Increased returns on assets and equity in 2022 also reflected higher non-interest income including higher fees related to non-SBA commercial bridge loan repayments. Lower non-interest expense also contributed to higher net income, as salaries and employee benefits decreased $1.8 million reflecting lower incentive compensation expense while FDIC insurance expense decreased $1.4 million reflecting the impact of the reclassification of certain deposits to non-brokered. Net interest margin was 3.12% in the first quarter of 2022 versus 3.34% in the first quarter of 2021. The reduction in 2022 reflects lower yields on securities resulting from the aforementioned lower rate environment which also resulted in lower loan yields. One capital measure utilized in the banking industry is the ratio of equity to assets, which is derived by dividing period-end shareholders’ equity by period-end total assets. At March 31, 2022, that ratio was 9.21%, compared to 7.70% a year earlier. The increase reflected higher levels of capital from retained earnings while assets, after increasing temporarily due to stimulus payments at March 31, 2021, decreased in subsequent periods due to related outflows.
OverviewOperations
We are a Delaware financial holding company and our primary, wholly-owned subsidiary which we wholly own, is The Bancorp Bank, which we refer to asNational Association, or the Bank. The vast majority of our revenue and income is currently generated through the Bank. In our continuing operations, we have four primary lines of specialty lending:
SBLOC, IBLOC, and investment advisor financing;
leasing (direct lease financing);
small business loans,SBLs, primarily SBA loans, and
non-SBA commercial real estate bridge (“CRE”) loans.loans.
SBLOCs and IBLOCs are loans which are generated through affinity groups and are respectively collateralized by marketable securities and the cash value of insurance policies. SBLOCs are typically offered in conjunction with brokerage accounts and are offered nationally. IBLOC loans are typically viewed as an alternative to standard policy loans from insurance companies and are utilized by our existing advisor base as well as insurance agents throughout the country. Investment advisor financing are loans made to investment advisors for purposes of debt refinance, acquisition of another investment firm or internal succession. Vehicle fleet and, to a lesser extent, other equipment leases are generated in a number of Atlantic Coast and other states and are collateralized primarily by vehicles. SBA loans are madegenerated nationally and are collateralized by commercial properties and other types of collateral. Our non-SBA commercial real estate bridge loans, at fair value, are primarily collateralized by multi-family properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations. In 2020, we decided to retain these loans on our balance sheet as interest earninginterest-earning assets and resumed originating such loans in the third quarter of 2021. These new originations are identified as real estate bridge loans and are held for investment in the loan portfolio. Prior originations originally intended for securitizations continue to be accounted for at fair value, and are included inon the balance sheet in “Commercial loans, at fair value.”
The majority of our deposit accounts and non-interest income are generated in our payments business line, or the name for which has been changed to Fintech Solutions Group, which consists of consumer deposit accounts accessed by prepaid or debit cards, or issuing automated clearing house, ordeposit accounts, ACH accounts, other payments such as rapid funds transfer and the collection of payments through credit
card companies on behalf of merchants. The issuing deposit accounts are comprised of debit and prepaid card accounts that are generated by independent companies that market directly to end users. Our issuing deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, business payment accounts and others. Our ACH accounts facilitate bill payments, and our acquiring accounts provide clearing and settlementcollection services for payments made to merchants consist of those which must be settled through associations such as Visa or MasterCard. We also provide banking services to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers.customers, known as “affinity banking.” These services include loan and deposit accounts for investment advisory companies through our institutional banking department. We typically provide these services under the name and through the facilities of each organization with whom we develop a relationship. We refer to this, generally, as affinity banking.
The increase in ourPerformance Summary
Our net income increased to $49.1 million for the first quarter of 2023, from $29.0 million for the first quarter of 2022, from $26.0primarily reflecting a $33.0 million forincrease in net interest income and a $3.9 million increase in non-interest income, partially offset by a $9.7 million increase in non-interest expense. Higher rates, and to a lesser extent loan growth, resulted in increases in net interest income, with higher rates also offsetting the impact of lower securities balances on securities interest. Our cost of funds rose to 2.15% in the first quarter of 2021, resulted2023, driven primarily from an increase in non-interest income and decreases in net interest income and non-interest expense. The $904,000 decrease in net interest income reflected reductions in securities interest partially offset by increases in loan interest, including interest from loan growth. Increases in loan interest were offset by a $3.9 million decrease in securities interest resulting from lower securities balances and the impacttiming of the lower rate environment. Excluding the impactadjustment of PPP, small business loans (“SBL”), primarily SBA, totaled $705.2 million compared to $692.1 million at March 31, 2022 and 2021, respectively, an increase of 1.9%. However, the impact of SBL growth on interest income was more than offset by a $3.4 million reduction in PPP related fees and interest, which resulted in a $2.9 million reduction in SBL loan interest. SBLOC, IBLOC and investment advisor loans totaled $2.21 billion at March 31, 2022, compared to $1.68 billion at March 31, 2021, reflecting 31.7% annual growth. Related interest increased $3.8 million. Interest expense decreased $165,000. Our largest funding sources, prepaid and debit card account deposits contractuallyto Federal Reserve rate increases. See “Asset and Liability Management” in this MD&A for further discussion of how our funding sources and loans adjust to only a portion of increases or decreases in market rates, as reflected in a 19 basis point cost of funds in the first quarter of 2022. A $1.5 million provision for credit losses in first quarter 2022, compared to an $822,000 provision in the first quarter of 2021, reflecting the impact of higher allowances on specific loans. Federal Reserve rate adjustments.
Prepaid, debit card and relatedother payment fees, including ACH, are the largest driverdrivers of non-interest income. Such fees for the first quarter of 2022 decreased $556,0002023 increased $4.9 million over the comparable 20212022 period. LeasingThe first quarter of 2023 included approximately $600,000 of non-interest income increased $8,000 overrelated to the prior year quarter. Both periods reflected vehicle sales at relatively higher market prices due to vehicle shortages. For those periods,fourth quarter of 2022, and a $1.4 million termination fee from a client which formed its own bank.
First quarter 2023 non-interest expense decreased $3.5increased $9.7 million which reflected a $1.8an increase of $5.9 million decrease in salaries and employee benefits,benefits. There was a $1.4$1.9 million reductionprovision for credit losses in Federal Deposit Insurance Corporationthe first quarter of 2023, compared to a provision for credit losses of $1.5 million in the first quarter of 2022.
Recent Developments
On February 1, 2023, the Bank relocated its main office from Wilmington, Delaware to Sioux Falls, South Dakota. The new headquarters houses many of the Bank’s payments operations and other core business and internal control functions, and is more geographically proximate to many fintech-related entities and their regulators than the prior main office location.
Key Performance Indicators
We use a number of key performance indicators (“FDIC”KPIs”) insurance expenseto measure our overall financial performance and believe they are useful to investors because they provide additional information about our underlying operational performance and trends. We describe how we calculate and use a $1.3 million decrease in legal expense. At December 31, 2021 discontinuednumber of these KPIs and analyze their results below.
Return on assets consistedand return on equity. Two KPIs commonly used within the banking industry to measure overall financial performance are return on assets and return on equity. Return on assets measures the amount of $61.6 millionearnings compared to the level of assets utilized to generate those earnings and is derived by dividing net income by average assets. Return on equity measures the amount of earnings compared to the equity utilized to generate those earnings and is derived by dividing net income by average shareholders’ equity.
Ratio of equity to assets. Ratio of equity to assets is another KPI frequently utilized within the banking industry and is derived by dividing period-end shareholders’ equity by period-end total assets.
Net interest margin and credit losses. Net interest margin is a KPI associated with net interest income, which is the largest component of our earnings and is the difference between the interest earned on our interest-earning assets consisting of loans and $17.3 millioninvestments, less the interest on our funding, consisting primarily of other real estate owned. deposits. Net interest margin is derived by dividing net interest income by average interest-earning assets. Higher levels of earnings and net interest income on lower levels of assets, equity and interest-earning assets are generally desirable. However, these indicators must be considered in light of regulatory capital requirements, which impact equity, and credit risk inherent in loans. Accordingly, the magnitude of credit losses is an additional KPI.
Other KPIs. Other KPIs we use from time to time include growth in average loans and leases, non-interest income growth, the level of non-interest expense and various capital measures.
Results of KPIs
In the first quarter 2023, return on assets and return on equity amounted to 2.63% and 28.07% (annualized), respectively, compared to 1.68% and 18.01% (annualized) in the first quarter of 2022.
At March 31, 2023, ratio of equity to assets was 9.53%, compared to 9.21% at March 31, 2022, reflecting an increase in equity capital from retained earnings, partially offset by fair value adjustments to investment securities and share repurchases.
Net interest margin was 4.67% in the first quarter of 2023 versus 3.12% in the first quarter of 2022 discontinued loans were reclassified to loans held for investment, as efforts to sell, reflecting a $33.0 million increase in net interest income in the loans have been winding down. These loans will accordingly be accounted for as such, and included in related tables. Discontinued other real estate owned which constituted the remainderfirst quarter of discontinued assets was reclassified2023 compared to the other real estate owned caption onfirst quarter of 2022. Average loans and leases grew to $5.99 billion in first quarter 2023 compared to $5.14 billion in first quarter 2022. Increases in these KPIs in 2023 reflected the balance sheet.impact of higher rates as a result of Federal Reserve rate increases, and to a lesser extent, loan growth. The provision for credit losses was $1.9 million in the first quarter of 2023 compared to $1.5 million in the first quarter of 2022. Non-interest expense increased more than in prior periods, driven mostly by salary expense.
Critical Accounting Policies and Estimates
Our accounting and reporting policies conform with accounting principles generally accepted in the United StatesGAAP and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United StatesGAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We believeview critical accounting estimates as those estimates made in accordance with GAAP that the determination of our allowance for credit losses on loans, leases and securities, our determination of the fair value of financial instruments and the level in which an instrument is placed within the valuation hierarchy, and stock compensation and income tax accounting involve a higher degreesignificant level of judgmentestimation uncertainty and complexity thanhave had or are reasonably likely to have a material impact on our other significantfinancial condition or results of operations. Our critical accounting policies.policies and estimates as of March 31, 2023 remain unchanged from those presented in the 2022 Form 10-K under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
LIBOR Transition
We determine our allowance for credit losses using the current expected credit losses method, or CECL, with the objective of maintaining a reserve level we believediscontinued LIBOR-based originations in 2021; however, certain financial instruments outstanding are indexed to be sufficient to absorb our estimated probable credit losses. We base our determination of the adequacy of the allowance on periodic evaluations of our loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates,LIBOR, including among others, expected default probabilities, the amount of loss we may incur on a defaulted loan, expected commitment usage, the amounts and timing of expected future cash flows on credit deterioratednon-SBA commercial loans, value of collateral, estimated losses on consumer loans, and historical loss experience. We also evaluate economic conditions and uncertainties in estimating losses and inherent risks in our loan portfolio. To the extent actual outcomes differ from our estimates, we may need additional provisions for credit losses. Any such additional provisions for credit losses will be a direct charge to our earnings. See “Allowance for Credit Losses”.
Theat fair value, of a financial instrument is defined as the amountwhich amounted to $159.6 million at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of a financial instrument using a variety of valuation methods. Where financial instrumentsMarch 31, 2023. However, these loans are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. Our valuation methods and inputs consider factors such as types of underlying assets or liabilities, rates of estimated credit losses, interest rate or discount rate and collateral. Our best estimate of fair value involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios and the possibility of obligor refinancing.
short-term and are generally expected to be repaid by the June 2023 LIBOR end date. At March 31, 2023, we owned $12.3 million of LIBOR based securities purchased from previous securitizations, which are also expected to mature before June 2023. When we resumed originating non-SBA commercial loans in the third quarter of 2021, which are identified separately under real estate bridge loans, it utilized the secured overnight financing rate (“SOFR”) as the index. In addition, we own collateralized loan obligations (“CLOs”) and U.S. government agency adjustable-rate mortgages which utilize LIBOR based pricing. CLOs, which amounted to $325.6 million at March 31, 2023, generally have language regarding an index alternative should LIBOR no longer be available. U.S. government agencies generally have the ability to adjust interest rate indices as necessary on impacted LIBOR based securities, which amounted to $65.4 million at March 31, 2023. There is less clarity for our student loan securities of $7.6 million and its subordinated debentures payable of $13.4 million at that date, and for which industry standards continue to be considered by trustees and other governing bodies. Our derivative, the notional amount for which totaled $6.8 million at March 31, 2023, is an interest rate swap that is documented under a bilateral agreement which contains LIBOR fallback provisions by virtue of counterparty adherence to the 2020 International Swaps and Derivatives Association, Inc.’s LIBOR Fallbacks Protocol. We also own $10.0 million of a Floating Rate Junior Subordinated Deferrable Interest Debenture, with a market value of $7.8 million at March 31, 2023, issued by an insurance holding company in liquidation for which the rate index is three month LIBOR. The indenture contains terms for a substitution of the index when LIBOR quotes become unavailable. We continue to assess the potential impact of the phase-out of LIBOR on all affected accounts and any other potential impacts, and related accounting guidance.
At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period.
We periodically review our investment portfolio to determine whether unrealized losses on securities result from credit, based on evaluations of the creditworthiness of the issuers or guarantors, and underlying collateral, as applicable. In addition, we consider the continuing performance of the securities. We recognize credit losses through the Consolidated Statements of Operations. If management believes market value losses are not credit related, we recognize the reduction in other comprehensive income, through equity. We evaluate whether a credit loss exists by considering primarily the following factors: (a) the extent to which the fair value has been less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral and (e) the payment structure of the security. If a credit loss is determined, we estimate expected future cash flows to estimate the credit loss amount with a quantitative and qualitative process that incorporates information received from first-party sources and internal assumptions and judgments regarding the future performance of the security.
We account for our stock-based compensation plans based on the fair value of the awards made, which include stock options, restricted stock, and performance based shares. To assess the fair value of the awards made, management makes assumptions as to expected stock price volatility, option terms, forfeiture rates and dividend rates. All these estimates and assumptions may be susceptible to significant change that may impact earnings in future periods.
We account for income taxes under the liability method whereby we determine deferred tax assets and liabilities based on the difference between the carrying values on our consolidated financial statements and the tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.
Results of Operations
FirstComparison of first quarter 20222023 to first quarter 20212022
Net Income:Income
Income from continuing operations before income taxes was $38.1 million in the first quarter of 2022 compared to $35.1 million in the first quarter of 2021.
Net income from continuing operations for the first quarter of 20222023 was $29.0$49.1 million, or $0.50$0.88 per diluted share, compared to $26.1$29.0 million, or $0.44$0.50 per diluted share, for the first quarter of 2021.2022. Income before income taxes was $64.9 million in the first quarter of 2023 compared to $38.1 million in the first quarter of 2022. Income increased between those respective periods primarily as a result of higher non-interest income and lower non-interest expense. After discontinued operations, net income for the first quarter of 2022 amounted to $29.0 million, compared to $26.0 million for the first quarter of 2021. Net interest income, for the first quarter of 2022 decreased 1.7%, to $52.9 million from $53.8 million in the first quarter of 2021. The decrease reflected reductions in securities interest resulting from lower balances, and lower yields which reflectedwas primarily driven by the impact of Federal Reserve rate reductions. Such decreases were partially offset by increases inon the loan interest asand securities portfolios. Variable rate loans and securities comprise the majority of the Company’s earning assets, and while they reprice on a result of higher loan balances. The provision for credit losses increased $685,000lagged basis, they adjust more fully than deposits to $1.5 millionFederal Reserve rate increases.
Diluted income per share was $0.88 in the first quarter of 20222023 compared to an $822,000 provision in the first quarter of 2021 reflecting the impact of higher allowances on specific loans. Non-interest income (excluding security gains and losses) increased $1.0 million, reflecting an increase in net realized and unrealized gains on non-SBA CRE bridge loans, at fair value of $1.4 million which resulted primarily from increases of fees related to related repayments in 2022. The vast majority of non-SBA CRE bridge loans at fair value are comprised of multi-family (apartment) loans. Prepaid, debit card and related fees are the primary driver of non-interest income and decreased $556,000, or 2.9% to $18.7 million in the first quarter of 2022, compared to $19.2 million for the first quarter of 2021. Non-interest expense decreased $3.5 million, or 8.4%, to $38.4 million in the first quarter of 2022, compared to $41.9 million in the first quarter of 2021, reflecting a $1.8 million decrease in salary expense, a $1.4 million decrease in our FDIC insurance expense and a $1.3 million decrease in legal expense. Additionally, the 2022 effective tax rate was lower compared to other recent periods. Diluted income per share was $0.50 in the first quarter of 2022 compared to $0.44 diluted income per share in the first quarter of 20212022, The increase resulted primarily from higher net interest income, reflecting the above factors.
aforementioned impact of Federal Reserve rate increases on variable rate loans and securities. The increase also reflected the impact of loan growth.
Net Interest Income:Income
Our net interest income for the first quarter of 2022 decreased $904,000,2023 increased $33.0 million, or 1.7%62.4%, to $52.9$85.8 million, from $53.8$52.9 million in the first quarter of 2021.2022. Our interest income for the first quarter of 2022 decreased2023 increased to $55.9$122.2 million, a decreasean increase of $1.1$66.3 million, or 1.9%118.7%, from $56.9$55.9 million for the first quarter of 2021.2022. The decreaseincrease in interest income resulted primarily from reductionsthe impact an increase in securities interest resulting from lower balances, and lowerloan yields which reflected the impactas a result of Federal Reserve rate reductions. Those decreases were partially offset by the impact of higherincreases, and to a lesser extent, loan balances. growth.
Our average loans and leases increased to $5.99 billion for the first quarter of 2023 from $5.14 billion for the first quarter of 2022, from $4.48 billion for the first quarter of 2021, an increase of $656.8$850.1 million, or 14.6%16.5%. Related interest income increased $2.7$55.7 million on a tax equivalent basis. The increase in average loans reflected growth in SBLOC, IBLOC, investment advisor loans, small business, direct lease financing, and real estate bridge loansloans. In the first quarter of 2023, net paydowns of IBLOC were experienced, which partially offset bythe impact of higher rates and loan growth in other categories. At March 31, 2023, the balance of IBLOC loans was $921.3 million compared to $1.12 billion at December 31, 2022. Continuing decreases in PPP loans. Small business loans which also grew, have generally been comprised of SBA loans; however,these balances will result in 2021 they reflected largerlower interest income, to the extent net decreases in IBLOC balances of pandemic-related PPP loans guaranteedare not replaced by loan growth in other categories. Additionally, overall net interest income may be reduced from current levels should the U.S. government, the majority of which have been repaid, accounting for the decrease.Federal Reserve begin lowering interest rates. The balance of our commercial loans, at fair value also decreased, as a result of non-SBA CREcommercial real estate bridge loan payoffs. repayments. In the third quarter of 2021, we resumed originating
such loans, referred to as real estate bridge loans.
Of the total $2.7$55.7 million increase in loan interest income on a tax equivalent basis, the largest increases were $3.8$22.6 million for SBLOC, IBLOC and investment advisor financing, and $1.3$24.8 million for all real estate bridge loans. SBA loan interest decreasedloans, $2.9 million which reflected a $3.4for leasing, and $3.6 million decrease in PPP related interest and fees. While March 31, 2022 leasing balances were 11.2% higher than a year earlier, related interest grew only $165,000 as a result of lower yields. for SBA loans. Our average investment securities of $777.4 million for the first quarter of 2023 decreased $165.7 million from $943.1 million for the first quarter of 2022 decreased $254.0 million from $1.20 billion for the first quarter of 2021.2022. Related tax equivalent interest income decreased $3.9increased $4.4 million, primarily reflecting a decreasean increase in yields. Higher yields and secondarily reflecting a decrease in balances. Yields on loans and securities decreasedreflected the continuing impact of Federal Reserve rate increases as a result of the lower rate environment, which resulted in lower rates on new loans while highervariable rate loans continuedand securities repriced to repay, partially offset by thehigher rates. Federal Reserve rate had an immediate impact on cost of weighted average 4.8% interestfunds, while their impact on variable rate floors on the non-SBA CRE bridge loans at fair value. While interest income decreased by $1.1 million,lags. Generally, interest expense decreased by $165,000.is contractually adjusted daily. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years.
Our net interest margin (calculated by dividing net interest income by average interest earninginterest-earning assets) for the first quarter of 20222023 was 3.12%4.67% compared to 3.34%3.12% for the first quarter of 2021, a decrease2022, an increase of 22155 basis points. While the yield on interest earninginterest-earning assets decreased 24increased 335 basis points, the cost of deposits and interest bearing liabilities decreased 2increased 196 basis points, or a net change of 22139 basis points. The more pronounced increase in the net interest margin compared to the net change reflected the impact of higher rates on assets funded by equity. Balances at the Federal Reserve earn lower rates of interest than loans and securities. Average interest earninginterest-earning deposits at the Federal Reserve Bank decreased $61.2$106.6 million, or 8.2%15.5%, to $580.1 million in the first quarter of 2023 from $686.6 million in the first quarter of 2022 from $747.8 million in the first quarter of 2021. In 2021, the net interest margin benefited from interest and fees related to PPP loans, which were $3.4 million higher than those in 2022, and which did not proportionately increase average interest earning assets. The net interest margin also reflected the impact of 4.8% weighted average floors on non-SBA CRE bridge loans, at fair value. Yields on variable rate loans generally fell as a result of the Federal Reserve rate reductions in 2020, and continued to decrease as new loans were made at lower rates while higher rate loans repaid.2022. In the first quarter of 2022,2023, the average yield on our loans decreasedincreased to 3.93%7.10% from 4.27%3.93% for the first quarter of 2021, a decrease2022, an increase of 34317 basis points.
Yields on taxable investment securities in the first quarter of 2022 decreased2023 increased to 2.08%4.81% compared to 2.95%2.08% for the first quarter of 2021, a decrease2022, an increase of 87273 basis points. The cost of total deposits and interest bearing liabilities decreased 2increased 196 basis points to 0.19%2.15% for the first quarter of 20222023 compared to 0.21%0.19% in the first quarter of 2021. In March 2022, the Federal Reserve began raising rates, with an initial hike of .25%, and additional hikes projected going forward. While the majority of our loans and securities are rate sensitive and should increase as rates increase, those cumulative hikes must exceed the difference between current loan rates and rate floors on certain loans. Accordingly, cumulative rate hikes approaching 2% might be required to increase net interest income. Please see “Asset and Liability Management.”2022.
Average Daily Balances. Balances
The following table presents the average daily balances of assets, liabilities and shareholders’ equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated:
Three months ended March 31, | Three months ended March 31, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | Average | Average | ||||||||||||||||||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest(1) | Rate | Balance | Interest(1) | Rate | Due to Volume | Due to Rate | Total | |||||||||||||||||||||||||||||
(dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||||||||||||||
Interest earning assets: | |||||||||||||||||||||||||||||||||||||||||||
Loans, net of deferred loan fees and costs ** | $ | 5,136,377 | $ | 50,508 | 3.93% | $ | 4,476,617 | $ | 47,811 | 4.27% | |||||||||||||||||||||||||||||||||
Leases-bank qualified* | 4,015 | 105 | 10.46% | 6,982 | 118 | 6.76% | |||||||||||||||||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||
Loans, net of deferred loan fees and costs(2) | $ | 5,987,179 | $ | 106,204 | 7.10% | $ | 5,136,377 | $ | 50,508 | 3.93% | $ | 9,515 | $ | 46,181 | $ | 55,696 | |||||||||||||||||||||||||||
Leases-bank qualified(3) | 3,361 | 69 | 8.21% | 4,015 | 105 | 10.46% | (16) | (20) | (36) | ||||||||||||||||||||||||||||||||||
Investment securities-taxable | 939,511 | 4,891 | 2.08% | 1,193,009 | 8,808 | 2.95% | 774,055 | 9,300 | 4.81% | 939,511 | 4,891 | 2.08% | (1,988) | 6,397 | 4,409 | ||||||||||||||||||||||||||||
Investment securities-nontaxable* | 3,559 | 32 | 3.60% | 4,042 | 35 | 3.46% | |||||||||||||||||||||||||||||||||||||
Interest earning deposits at Federal Reserve Bank | 686,614 | 347 | 0.20% | 747,845 | 183 | 0.10% | |||||||||||||||||||||||||||||||||||||
Net interest earning assets | 6,770,076 | 55,883 | 3.30% | 6,428,495 | 56,955 | 3.54% | |||||||||||||||||||||||||||||||||||||
Investment securities-nontaxable(3) | 3,343 | 41 | 4.91% | 3,559 | 32 | 3.60% | (2) | 11 | 9 | ||||||||||||||||||||||||||||||||||
Interest-earning deposits at Federal Reserve Bank | 580,058 | 6,585 | 4.54% | 686,614 | 347 | 0.20% | (45) | 6,283 | 6,238 | ||||||||||||||||||||||||||||||||||
Net interest-earning assets | 7,347,996 | 122,199 | 6.65% | 6,770,076 | 55,883 | 3.30% | |||||||||||||||||||||||||||||||||||||
Allowance for credit losses | (17,810) | (16,069) | (22,533) | (17,810) | |||||||||||||||||||||||||||||||||||||||
Assets held-for-sale from discontinued operations | — | — | — | 109,128 | 853 | 3.13% | |||||||||||||||||||||||||||||||||||||
Other assets | 224,312 | 214,171 | 237,721 | 224,312 | |||||||||||||||||||||||||||||||||||||||
$ | 6,976,578 | $ | 6,735,725 | $ | 7,563,184 | $ | 6,976,578 | 7,464 | 58,852 | 66,316 | |||||||||||||||||||||||||||||||||
Liabilities and shareholders' equity: | |||||||||||||||||||||||||||||||||||||||||||
Deposits: | |||||||||||||||||||||||||||||||||||||||||||
Demand and interest checking | $ | 5,575,228 | $ | 1,406 | 0.10% | $ | 5,501,697 | $ | 1,617 | 0.12% | $ | 6,406,834 | $ | 32,383 | 2.02% | $ | 5,575,228 | $ | 1,406 | 0.10% | 241 | 30,736 | 30,977 | ||||||||||||||||||||
Savings and money market | 532,047 | 200 | 0.15% | 407,186 | 149 | 0.15% | 132,279 | 1,219 | 3.69% | 532,047 | 200 | 0.15% | (34) | 1,053 | 1,019 | ||||||||||||||||||||||||||||
Time | 84,333 | 858 | 4.07% | — | — | — | 858 | — | 858 | ||||||||||||||||||||||||||||||||||
Total deposits | 6,107,275 | 1,606 | 0.11% | 5,908,883 | 1,766 | 0.12% | 6,623,446 | 34,460 | 2.08% | 6,107,275 | 1,606 | 0.11% | |||||||||||||||||||||||||||||||
Short-term borrowings | 555 | — | — | 13,055 | 8 | 0.25% | 20,500 | 234 | 4.57% | 555 | — | — | 234 | — | 234 | ||||||||||||||||||||||||||||
Repurchase agreements | 41 | — | — | 41 | — | — | 42 | — | — | 41 | — | — | — | — | — | ||||||||||||||||||||||||||||
Long-term borrowings | 9,998 | 126 | 5.04% | — | — | — | 126 | — | 126 | ||||||||||||||||||||||||||||||||||
Subordinated debt | 13,401 | 116 | 3.46% | 13,401 | 113 | 3.37% | 13,401 | 261 | 7.79% | 13,401 | 116 | 3.46% | — | 145 | 145 | ||||||||||||||||||||||||||||
Senior debt | 98,724 | 1,279 | 5.18% | 100,140 | 1,279 | 5.11% | 99,092 | 1,279 | 5.16% | 98,724 | 1,279 | 5.18% | — | — | — | ||||||||||||||||||||||||||||
Total deposits and liabilities | 6,219,996 | 3,001 | 0.19% | 6,035,520 | 3,166 | 0.21% | 6,766,479 | 36,360 | 2.15% | 6,219,996 | 3,001 | 0.19% | |||||||||||||||||||||||||||||||
Other liabilities | 104,207 | 111,241 | 87,116 | 104,207 | |||||||||||||||||||||||||||||||||||||||
Total liabilities | 6,324,203 | 6,146,761 | 6,853,595 | 6,324,203 | 1,425 | 31,934 | 33,359 | ||||||||||||||||||||||||||||||||||||
Shareholders' equity | 652,375 | 588,964 | 709,589 | 652,375 | |||||||||||||||||||||||||||||||||||||||
$ | 6,976,578 | $ | 6,735,725 | $ | 7,563,184 | $ | 6,976,578 | ||||||||||||||||||||||||||||||||||||
Net interest income on tax equivalent basis * | $ | 52,882 | $ | 54,642 | |||||||||||||||||||||||||||||||||||||||
Net interest income on tax equivalent basis(3) | $ | 85,839 | $ | 52,882 | $ | 6,039 | $ | 26,918 | $ | 32,957 | |||||||||||||||||||||||||||||||||
Tax equivalent adjustment | 29 | 32 | 23 | 29 | |||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 52,853 | $ | 54,610 | $ | 85,816 | $ | 52,853 | |||||||||||||||||||||||||||||||||||
Net interest margin * | 3.12% | 3.34% | |||||||||||||||||||||||||||||||||||||||||
Net interest margin(3) | 4.67% | 3.12% | |||||||||||||||||||||||||||||||||||||||||
* Full taxable equivalent basis, using 21% statutory Federal tax rates in 2022 and 2021. | |||||||||||||||||||||||||||||||||||||||||||
** Includes commercial loans, at fair value. All periods include non-accrual loans. | |||||||||||||||||||||||||||||||||||||||||||
NOTE: In the table above, the 2021 interest on loans reflects $1.4 million of interest and fees which were earned on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average loans or assets and which are not expected to recur. Interest on loans for 2022 and 2021 includes $440,000 and $2.4 million, respectively, of interest and fees on PPP loans. | |||||||||||||||||||||||||||||||||||||||||||
(1)Interest on loans for 2023 and 2022 includes $10,000 and $440,000, respectively, of interest and fees on PPP loans. | (1)Interest on loans for 2023 and 2022 includes $10,000 and $440,000, respectively, of interest and fees on PPP loans. | ||||||||||||||||||||||||||||||||||||||||||
(2)Includes commercial loans, at fair value. All periods include non-accrual loans. | (2)Includes commercial loans, at fair value. All periods include non-accrual loans. | ||||||||||||||||||||||||||||||||||||||||||
(3)Full taxable equivalent basis, using 21% respective statutory federal tax rates in 2023 and 2022. | (3)Full taxable equivalent basis, using 21% respective statutory federal tax rates in 2023 and 2022. |
For the first quarter of 2022,2023, average interest earninginterest-earning assets increased to $6.77$7.35 billion, an increase of $341.6$577.9 million, or 5.3%8.5%, from $6.43$6.77 billion in the first quarter of 2021.2022. The increase reflected increased average balances of loans and leases of $656.8$850.1 million, or 14.6%16.5%, partially offset by decreased average investment securities of $254.0$165.7 million, or 21.2%17.6%. For those respective periods, average demand and interest checking deposits increased $73.5$831.6 million, or 1.3%, primarily as a result of deposit growth in prepaid and debit card accounts. The $124.914.9%. A $399.8 million increasedecrease in average savings and money market balances between these respective periods reflected growth in interest bearing accounts offeredthe sweeping of deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by our affinity group clientsmanaging the percentage of individual client deposits to prepaid and debit card account customers. A portion of the 2021 deposits resulted from economic stimulus payments related to the pandemic, and was temporary.total deposits. The interest expense
shown for demand and interest checking is primarily comprised of interest paid to our affinity groups. Additionally in the first quarter of 2023, average short-term borrowings increased $20.5 million and time deposits increased $84.3 million. The time deposits were short term and matured in the first quarter of 2023 and the borrowings mature on a daily basis.
Provision for Credit Losses
.
Our provision for credit losses was $1.9 million for the first quarter of 2023 compared to $1.5 million for the first quarter of 2022 compared to $822,0002022. Of the $1.9 million for the first quarter of 2021. The increase reflected higher allowances on specific loans while both periods reflected2023, $1.3 million resulted from the impact of loan growth onhistorical net charge-offs applied to the CECL model.estimated remaining lives of outstanding loans. The allowance for credit lossesbalance of the $1.9 million resulted primarily from charge-offs during the first quarter of 2023.
The ACL was $19.1$23.8 million, or 0.46%,0.44% of total loans, at March 31, 2022,2023, compared to $17.8$22.4 million, or 0.48%,0.41% of total loans, at December 31, 2021.2022. The higher ratio at March 31, 2023 reflected an increase in the ACL resulting from the impact of charge-offs as noted above, while total loans outstanding decreased. We believe that our allowanceACL is adequate to cover expected losses. For more information about our provision and allowance for credit lossesACL and our loss experience, see “Financial Condition-AllowanceCondition – Allowance for
credit losses”, “-Net charge-offs, Credit Losses,” “– Net Charge-offs,” and “-Non-performing loans, loans“– Non-performing Loans, Loans 90 days delinquentDelinquent and still accruing,Still Accruing, OREO and troubled debt restructurings,Troubled Debt Restructurings,” below and Note 6“Note 6. Loans” to the unaudited consolidated financial statements.statements herein.
Non-Interest Income.Income
Non-interest income was $29.0 million in the first quarter of 2023 compared to $25.1 million in the first quarter of 2022 compared to $24.1 million in the first quarter of 2021.2022. The $1.0$3.9 million, or 4.3%15.4%, increase between those respective periods was primarily the result of an increasereflected a decrease in net realized and unrealized gains on non-SBA CRE bridgecommercial loans, at fair value. Net realized and unrealized gains onvalue to $1.7 million from $3.4 million. The $1.7 million change reflected a decrease in income recognized when such loans increased toare repaid, as a gain of $3.4 million from a gain of $2.0 million. The $1.4 million change was primarily the result of fees relatedfewer repayments as that portfolio continues to repaymentsrun off. The $1.7 million was comprised of $2.4 million of non-SBA CRE bridge loans. The gain in 2022 also included a gain on hedgescommercial real estate loan repayment related to those loans, partially offset by $1.2 millionincome, $603,000 of fair value losses. Thelosses and $79,000 of hedge fair value losses reflected the increase in market interest rates on fixed rate loans. adjustments.
Prepaid, debit card and related fees decreased $556,000,increased $4.7 million, or 2.9%25.0%, to $18.7$23.3 million for the first quarter of 20222023 compared to $19.2$18.7 million in the first quarter of 2021.2022. The decreasefirst quarter of 2023 included approximately $600,000 of non-interest income related to the fourth quarter of 2022, and a $1.4 million termination fee from a client which formed its own bank. The increase also reflected lowerhigher transaction volume resultingreflecting the impact of new clients and organic growth from an affinity client relationship transitioning to its own bank, which offset growth in other debit and prepaid card account programs.existing clients. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders. ACH, card and other payment processing fees, increased $188,000,$187,000, or 10.5%9.4%, to $2.0$2.2 million for the first quarter of 20222023 compared to $1.8$2.0 million in the first quarter of 2021,2022, reflecting an increased ACH volume. volume of real time payments (“RTP”) and related fees. RTPs reflect transfers for payments between deposit accounts.
Leasing related income increased $8,000,$517,000, or 0.8%53.1%, to $1.5 million for the first quarter of 2023 from $973,000 for the first quarter of 2022 from $965,000 for the first quarter2022. The increase reflected higher volumes of 2021.vehicle sales. Both periods reflected vehicle sales at relatively higher market prices due to vehicle shortages.
Other non-interest income increased $11,000,$160,000, or 10.1%133.3%, to $120,000$280,000 for the first quarter of 20222023 from $109,000$120,000 in the first quarter of 2021.2022 primarily reflecting increased prepayment fees on SBL.
Non-Interest Expense
.
Total non-interest expense was $48.0 million for the first quarter of 2023, an increase of $9.7 million, or 25.2%, compared to $38.4 million for the first quarter of 2022, a decrease2022. The majority of $3.5 million, or 8.4%, comparedthe increase resulted from higher salaries and employee benefits expense, which reflected higher numbers of staff in financial crimes, compliance and information technology (“IT”) due to $41.9increases in deposit transaction volume and the development of new products. The increase also reflected higher stock compensation expense.
The following table presents the principal categories of non-interest expense for the periods indicated:
For the three months ended March 31, | |||||||||||
2023 | 2022 | Increase (Decrease) | Percent Change | ||||||||
(Dollars in thousands) | |||||||||||
Salaries and employee benefits | $ | 29,785 | $ | 23,848 | $ | 5,937 | 24.9% | ||||
Depreciation and amortization | 721 | 795 | (74) | (9.3) | |||||||
Rent and related occupancy cost | 1,394 | 1,289 | 105 | 8.1 | |||||||
Data processing expense | 1,321 | 1,189 | 132 | 11.1 | |||||||
Printing and supplies | 145 | 86 | 59 | 68.6 | |||||||
Audit expense | 392 | 362 | 30 | 8.3 | |||||||
Legal expense | 958 | 794 | 164 | 20.7 | |||||||
Amortization of intangible assets | 99 | 99 | — | — | |||||||
FDIC insurance | 955 | 974 | (19) | (2.0) | |||||||
Software | 4,237 | 3,864 | 373 | 9.7 | |||||||
Insurance | 1,306 | 1,064 | 242 | 22.7 | |||||||
Telecom and IT network communications | 376 | 374 | 2 | 0.5 | |||||||
Consulting | 322 | 303 | 19 | 6.3 | |||||||
Writedown on OREO | 1,019 | — | 1,019 | 100.0 | |||||||
Other | 5,000 | 3,311 | 1,689 | 51.0 | |||||||
Total non-interest expense | $ | 48,030 | $ | 38,352 | $ | 9,678 | 25.2% |
Changes in categories of non-interest expense were as follows:
Salaries and employee benefits expense increased to $29.8 million for the first quarter of 2021. Salaries and employee benefits decreased to2023, an increase of $5.9 million, or 24.9%, from $23.8 million for the first quarter of 2022, a decrease of $1.8 million,2022.
Depreciation and amortization expense decreased $74,000, or 7.1%9.3%, from $25.7 million forto $721,000 in the first quarter of 2021. Lower salary expense in 2022 reflected lower incentive compensation expense, including equity compensation expense. Depreciation and amortization increased $86,000, or 12.1%, to2023 from $795,000 in the first quarter of 2022 from $709,0002022.
Rent and related occupancy cost increased $105,000, or 8.1%, to $1.4 million in the first quarter of 2021, primarily as a result2023 from $1.3 million in the first quarter of 2022, reflecting increased IT-related equipment additions related to a new data center and a new telephone system. Rent and occupancyexpense.
Data processing expense increased $39,000,$132,000, or 3.1%11.1%, to $1.3 million in the first quarter of 20222023 from $1.3 million in the first quarter of 2021. Data processing increased $63,000, or 5.6%, to $1.2 million in the first quarter of 2022, from $1.1 millionreflecting higher transaction volume.
Printing and supplies expense increased $59,000, or 68.6%, to $145,000 in the first quarter of 2021. Printing and supplies increased $20,000, or 30.3%, to2023 from $86,000 in the first quarter of 2022 from $66,0002022.
Audit expense increased $30,000, or 8.3%, to $392,000 in the first quarter of 2021. Audit expense decreased $1,000, or 0.3%, to2023 from $362,000 in the first quarter of 2022 from $363,0002022.
Legal expense increased $164,000, or 20.7%, to $958,000 in the first quarter of 2021. Legal expense decreased $1.3 million, or 61.3%, to2023 from $794,000 in the first quarter of 2022 reflecting increased legal costs related to the matters discussed in “Note 14. Legal” to the unaudited consolidated financial statements herein.
FDIC insurance expense decreased $19,000, or 2.0%, to $955,000 for the first quarter of 2023 from $2.1$974,000 in the first quarter of 2022. The cost of resolving several recent bank failures may result in future increased premiums, or special assessments, which would serve to increase expense in the period assessed.
Software expense increased $373,000, or 9.7%, to $4.2 million in the first quarter of 2021, reflecting decreased costs associated with the Cascade matter and two fact-finding inquiries by the SEC as described in Note 14 to the consolidated financial statements. Amortization of intangible assets decreased by $0, or 0.0%, to $99,000 in the first quarter of 20222023 from $99,000 in the first quarter of 2021. FDIC insurance expense decreased $1.4 million, or 59.1%, to $974,000 for the first quarter of 2022 from $2.4 million in the first quarter of 2021 primarily due to a reduction in the Bank’s assessment rate resulting from the reclassification of certain of our deposits from brokered to non-brokered. The assessment rate is subject to multiple factors which may significantly change the amount assessed. Accordingly, we cannot assure you that reduced rates will continue. Software expense increased $180,000, or 4.9%, to $3.9 million in the first quarter of 20222022. The largest component of the increase were expenditures related to compliance with anti-money laundering and other financial crimes regulations from $3.7deposit account activity.
Insurance expense increased $242,000, or 22.7%, to $1.3 million in the first quarter of 2021. The increase reflected expenditures for information technology to improve efficiency and scalability, including expenses related to cybersecurity. Insurance expense increased $319,000, or 42.8%,2023 compared to $1.1 million in the first quarter of 2022, comparedreflecting higher rates, especially on cyber insurance.
Telecom and IT network communications expense increased $2,000, or 0.5%, to $745,000$376,000 in the first quarter of 2021, reflecting higher rates. Telecom and IT network communications decreased $31,000, or 7.7%, to2023 from $374,000 in the first quarter of 2022 from $405,0002022.
Consulting expense increased $19,000, or 6.3%, to $322,000 in the first quarter of 2021. Consulting increased $39,000, or 14.8%, to2023 from $303,000 in the first quarter of 2022.
The $1.0 million writedown on OREO resulted from a pending sale of a movie theater property as described in Note E to the December 31, 2022 from $264,000consolidated financial statements. The property had previously been recorded at appraised value, which was adjusted to the proposed sales price in the first quarter of 2021. 2023.
Other non-interest expense increased $231,000,$1.7 million, or 7.5%51.0%, to $5.0 million in the first quarter of 2023 from $3.3 million in the first quarter of 2022 from $3.12022. The $1.7 million inincrease primarily reflected the first quarterfollowing increases: a. exam assessment fees of 2021. The $231,000$476,000, b. OREO expense of $308,000 and c. an increase reflected a $162,000 increaseof $153,000 in travel expenses.expenses, as travel increased post-pandemic.
Income Taxes.Taxes
Income tax expense for continuing operations was $9.1$15.8 million for the first quarter of 20222023 compared to $9.1 million in the first quarter of 2021.2022. The increase resulted primarily from an increase in income, substantially all of which is subject to income tax. A 24.3% effective tax rate in 2023 and a 24.0% effective tax rate in 2022 and a 25.8% effective tax rate in 2021 primarily reflected a 21% federal tax rate and the impact of various state income taxes. The reduction in effective tax rate for 2022 reflected the impact of a tax deduction related to stock-based compensation recorded as a discrete item in 2021. The large deduction and tax benefit resulted from the increase in the Company’s stock price as compared to the original grant date of the stock compensation.
Liquidity and Capital Resources
Liquidity defines our ability to generate funds to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. We invest the funds we do not need for daily operations primarily in overnight federal funds or in our interest-bearing account at the Federal Reserve.
Our primary source of funding has been deposits. Average total deposits increased by $198.4$516.2 million, or 3.4%8.5%, to $6.11$6.62 billion for the first quarter of 20222023 compared to the first quarter of 2021.2022. Federal Reserve average balances decreased to $686.6$580.1 million in the first quarter 20222023 from $747.8$686.6 million in the first quarter of 2021. First2022. In the first quarter deposit balances are temporarily increased as a result of account holders’ tax refunds.2023, we averaged $84.3 million of time deposits with terms of 90 days and less. Overnight borrowings are also periodically utilized as a funding source to facilitate cash management, but average balances have generally not been significant.
Our primaryOne source of contingent liquidity is available-for-sale securities, which amounted to $907.3$787.4 million at March 31, 2022,2023, compared to $953.7$766.0 million at December 31, 2021. 2022. The majority of these securities can be pledged to facilitate extensions of credit in addition to loans already pledged against lines of credit, as discussed later in this section. Loan repayments, also aanother source of funds, werehave historically been exceeded by disbursements associated with new loan disbursementsoriginations, a use of funds. However, loan repayments during the first quarter 2022.of 2023 exceeded originations, and the excess of repayments over originations provided additional liquidity. As a result of such higher loan repayments, at March 31, 20222023, outstanding loans amounted to $4.16$5.35 billion, compared to $3.75$5.49 billion at the prior year end, an increasea decrease of $417.1 million, which was funded by deposits and securities repayments.$132.5 million. Commercial loans, at fair value, decreased to $1.18 billion$493.3 million from $1.39 billion$589.1 million between those respective dates, a decrease of $207.5$95.8 million, which also provided funding for other loan categories.funding. In 2019 and previous years, these loans were generally originated for securitization and sale, into securitizations at six month intervals, but in 2020 we decided to retain such loans on the balance sheet. While we suspended originating such loans after the first quarter of 2020, we resumed originations, which consist primarily of non-SBA CREcommercial real estate bridge loans, in the third quarter of 2021.2021. Such originations are held for investment and are included in “Loans, net of deferred loan fees and costs” on the balance sheet. Accordingly, commercial loans, at fair value will continue to run off. Our liquidity planning has not previously placed undue reliance on securitizations, and while our future planning excludes the impact of securitizations, other liquidity sources, primarily deposits, are determined to be adequate.
While we do not have a traditional branch system, we believe that our core deposits, which include our demand, interest checking, savings and money market accounts, have similar characteristics to those of a bank with a branch system. The majority of our deposit accounts are obtained with the assistance of third-parties and as a result have historically been classified as brokered by the FDIC. Prior to December 2020, FDIC guidance for classification of deposit accounts as brokered was relatively broad, and generally included accounts which were referred to or “placed” with the institution by other companies. If the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over any of its deposits classified as brokered deposits without the consent of the FDIC. In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could effectively restrict or eliminate the ability of the Bank to operate its business lines as presently conducted. In December 2020, the FDIC issued a new regulation which, in the third quarter of 2021, resulted in the majority of our deposits being reclassified from brokered to non-brokered. Certain accounts currently remain classified as brokered and require applications to the FDIC for reclassification. As of March 31, 2022, approximately $2.04 billion2023, an estimated $643.9 million of our total deposit accounts of $6.23$6.70 billion were not insured by FDIC insurance, which requires identification of the depositor and is limited to $250,000 per identified depositor. Uninsured accounts may represent a greater liquidity risk than FDIC-insured accounts should large depositors withdraw funds as a result of negative financial developments either at the Bank or in the economy. Significant amounts of our uninsured deposits are comprised of small balances, such as anonymous gift cards and corporate incentive cards for which there is no identified depositor. We do not believe that such uninsured accounts present a significant liquidity risk.
We focus on customer service which we believe has resulted in a history of customer loyalty. Certain components of our deposits do experience seasonality, creating greater excess liquidity at certain times. The largest deposit inflows occur in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S. Treasury.
While consumer deposit accounts, including prepaid and debit card accounts, comprise the vast majority of our funding needs, we maintain secured borrowing lines with the Federal Home Loan Bank (“FHLB”)FHLB and the Federal Reserve. As of March 31, 2022,2023, we had a line of credit with the Federal Reserve which exceeded one$1 billion dollars, whichand may be collateralized by various types of loans, but which we generally havedid not used. To mitigateuse prior to the impact ofCOVID-19 pandemic. In response to the COVID-19 pandemic, the Federal Reserve has encouraged banks to utilize their lines to maximize the amount of funding available for credit markets. Accordingly, the Bank has borrowed on its line on an overnight basis and may do so in the future. The amount of loans pledged varies and the collateral may be unpledged at any time to the extent the collateral exceeds advances. We have pledged in excess of $1.3$1.25 billion of multi-family loans to the FHLB. As a result, we have approximately $1.1 billion of availability on our line of credit which we can access at any time. Additionally, in excessOur collateralized line of $400credit with the Federal Reserve
Bank was $2.1 billion as of March 31, 2023. As of March 31, 2023, there were no amounts outstanding on either of these lines of credit. We expect to continue to maintain our facilities with the FHLB and Federal Reserve.
Another source of contingent liquidity is available-for-sale securities, which amounted to $787.4 million at March 31, 2023, compared to $766.0 million at December 31, 2022. Approximately $375 million of our available-for-sale securities are U.S. government agency securities which are highly liquid and may be immediately pledged as additional collateral. Our collateralized line of credit with the Federal Reserve Bank (“FRB”) is $1.3 billion as of March 31, 2022. No amounts are outstanding on either line at March 31, 2022. We expect to continue to maintain our facilities with the FHLB and Federal Reserve. We actively monitor our positions and contingent funding sources daily.
As a holding company conducting substantially all our business through our subsidiaries, our near termthe Company’s near-term need for liquidity consists principally of cash for required interest payments on our trust preferred securitiessubordinated debentures, consisting of $13.4 million of debentures bearing interest at three-month LIBOR plus 3.25% and maturing in March 2038 (the “2038 Debentures”), and senior debt. Ourdebt, consisting of $100.0 million senior notes with an interest rate of 4.75% and maturing in August 2025 (the “2025 Senior Notes”). Semi-annual interest payments on the 2025 Senior Notes are approximately $2.4 million, and quarterly interest payments on the 2038 Debentures are approximately $300,000. As of March 31, 2023, we had cash reserves of approximately $16.0 million at the holding company. During the first quarter of 2023, $25.0 million of common stock repurchases were funded by a dividend from the Bank, as are interest payments on the above debt instruments. Stock repurchases may be terminated at any time. The holding company’s sources of liquidity are primarily comprised of dividends frompaid by the Bank to the holding company,Company, and the issuance of debt. In the third quarter of 2020, holding company cash was increased by approximately $98.2 million as a result of the net proceeds of a senior debt offering. As of March 31, 2022, we had cash reserves of approximately $50.2 million at the holding company. A reduction from the prior quarter end reflected the impact of $15.0 million of common stock repurchases. The biannual interest payments on the $100.0 million of senior debt are approximately $2.4 million based on a fixed rate of 4.75%. Current quarterly interest payments on the $13.4 million of subordinated debentures are approximately $150,000 based on a floating rate of 3.25% over London Inter-bank Offered Rate (“LIBOR”). The senior debt matures in August 2025 and the subordinated debentures mature in March 2038. In lieu of repayment of debt from Bank dividends, industry practice includes the issuance of new debt to repay maturing debt.
Included in our cash and cash-equivalents at March 31, 20222023 were $662.8$773.4 million of interest earninginterest-earning deposits which primarily consisted of deposits with the Federal Reserve.
In the first quarter of 2022,2023, purchases of $7.4$39.8 million of securities were exceededpartially offset by $31.6$23.4 million of redemptions. We had outstanding commitments to fund loans, including unused lines of credit, of $2.12$1.94 billion and $2.15$1.98 billion as of March 31, 20222023 and December 31,
2021, 2022, respectively. The majority of our commitments are variable rate and originate with security backed lines of credit.SBLOC. The recorded amount of such commitments has, for many accounts, been based on the full amount of collateral in a customer’s investment account. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth. Additionally, these loans are “demand” loans and as such, represent a contingencycontingent source of funding.
Capital Resources and Requirements
We must comply with capital adequacy guidelines issued by the FDIC.our regulators. A bank must, in general, have a Tier 1 leverage ratio of 5.00%, a ratio of Tier I capital to risk-weighted assets of 8.0%, a ratio of total capital to risk-weighted assets of 10.0% and a ratio of common equity tier 1 to risk weighted assets of 6.5% to be considered “well capitalized.” The Tier I leverage ratio is the ratio of Tier 1 capital to average assets for the quarter. “Tier I capital” includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles. At March 31, 2022, we2023, both the Company and the Bank were “well capitalized” under banking regulations.
The reduction in the leverage ratio, which is based on average quarterly assets, from the prior quarter, reflected deposit inflows in the first quarter of 2022, which resulted primarily from tax refunds deposited into customer accounts, a significant amount of which is temporary until those funds are spent.
The following table sets forth our regulatory capital amounts and ratios for the periods indicated:
Tier 1 capital | Tier 1 capital | Total capital | Common equity | ||||
to average | to risk-weighted | to risk-weighted | tier 1 to risk | ||||
assets ratio | assets ratio | assets ratio | weighted assets | ||||
As of March 31, 2022 | |||||||
The Bancorp, Inc. | 9.47% | 14.15% | 14.56% | 14.15% | |||
The Bancorp Bank | 10.19% | 15.23% | 15.64% | 15.23% | |||
"Well capitalized" institution (under FDIC regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% | |||
As of December 31, 2021 | |||||||
The Bancorp, Inc. | 10.40% | 14.72% | 15.13% | 14.72% | |||
The Bancorp Bank | 10.98% | 15.48% | 15.88% | 15.48% | |||
"Well capitalized" institution (under FDIC regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% |
Tier 1 capital | Tier 1 capital | Total capital | Common equity | ||||
to average | to risk-weighted | to risk-weighted | tier 1 to risk | ||||
assets ratio | assets ratio | assets ratio | weighted assets | ||||
As of March 31, 2023 | |||||||
The Bancorp, Inc. | 9.88% | 14.34% | 14.84% | 14.34% | |||
The Bancorp Bank, National Association | 11.00% | 15.94% | 16.44% | 15.94% | |||
"Well capitalized" institution (under federal regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% | |||
As of December 31, 2022 | |||||||
The Bancorp, Inc. | 9.63% | 13.40% | 13.87% | 13.40% | |||
The Bancorp Bank, National Association | 10.73% | 14.95% | 15.42% | 14.95% | |||
"Well capitalized" institution (under federal regulations-Basel III) | 5.00% | 8.00% | 10.00% | 6.50% |
Asset and Liability Management
The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. Interest rate sensitivity measures the relative volatility of an institution’s interest margin resulting from changes in market interest rates. While it is difficult to predict the impact of inflation and responsive Federal Reserve rate changes on our net interest income, the Federal Reserve has historically utilized interest rate increases in the overnight federal funds rate as one tool in fighting inflation. As a result of high rates of inflation, the Federal Reserve raised rates in each quarter of 2022 and in the first quarter of 2023. Our largest funding source, prepaid and debit card deposit accounts, contractually adjustadjusts to only a portion of increases or decreases in
rates which are largely determined by such Federal Reserve actions. That pricing has generally supported the maintenance of a balance sheet for which net interest income tends to increase with increases in rates. While deposits reprice to only a portion of Federal Reserve rate increases, interest earningchanges, such changes are immediate. Interest-earning assets, comprised primarily of loans and securities, tend to adjust more fully to rate increases at lagged contractual pricing intervals which may be monthly or up to several years. Mostintervals. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over longer periods.several years. Additionally, the impact of loan interest rate floors which must be exceeded before rates on certain loans increase, may result in decreases in net interest income with lesser increases in rates. Primarily as a result of the impact of such interest rate floors, cumulativeCumulative 2022 Federal Reserve interest rate increases approaching 200 basis points might be requiredresulted in contractual rates on loans generally exceeding rate floors in the second quarter of 2022.
We have adopted policies designed to increasemanage net interest income.income and preserve capital over a broad range of interest rate movements. To effectively administer the policies and to monitor our exposure to fluctuations in interest rates, we maintain an asset/liability committee, consisting of the Bank’s Chief Executive Officer, Chief Accounting Officer, Chief Financial Officer, Chief Credit Officer and others. This committee meets quarterly to review our financial results, develop strategies to optimize margins and to respond to market conditions. The primary goal of our policies is to optimize margins and manage interest rate risk, subject to overall policy constraints for prudent management of interest rate risk.
We monitor, manage and control interest rate risk through a variety of techniques, including the use of traditional interest rate sensitivity analysis (also known as “gap analysis”) and an interest rate risk management model. With the interest rate risk management model, we project future net interest income and then estimate the effect of various changes in interest rates on that projected net interest income. We also use the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios. Traditional gap analysis involves arranging our interest earninginterest-earning assets and interest bearing liabilities by repricing periods and then computing the difference (or “interest rate sensitivity gap”) between the assets and liabilities that we estimate will reprice during each time period and cumulatively through the end of each time period.
Both interest rate sensitivity modeling and gap analysis are done at a specific point in time and involve a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest earninginterest-earning assets and interest bearing liabilities will respond to general changes in market rates, future cash flows and discount rates. Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other
pressures. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds interest rate sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income, while a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely.
The following table sets forth the estimated maturity or repricing structure of our interest earninginterest-earning assets and interest bearing liabilities at March 31, 2022.2023. Except as stated below, the amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability. The majority of demand and interest bearing demand depositstransaction and savings depositsbalances are assumed to be “core” deposits, or deposits that will generally remain with us regardless of market interest rates. We estimate the repricing characteristics of these deposits based on historical performance, past experience, judgmental predictions and other deposit behavior assumptions. However, we may choose not to reprice liabilities proportionally to changes in market interest rates for competitive or other reasons. Additionally, although non-interest bearing demandtransaction accounts are not paid interest, we estimate certain of the balances will reprice as a result of the contractual fees that are paid to the affinity groups which are based upon a rate index, and therefore are included in interest expense. We have adjusted the demand and interest checkingtransaction account balances in the table downward, to better reflect the impact of their partial adjustment to changes in rates. Loans and security balances, which adjust more fully to market rate changes, are based upon actual balances. The rates on the vast majority of commercial loans, at fair value, totaling approximately $1.18 billion at March 31, 2022, were at their floors. Additionally, the rates on the vast majority ofand IBLOC loans totaling approximately $907.1$352.4 million and $921.3 million at March 31, 2022, were2023, respectively, generally exceeded their floors at their floors.that date. The table does not assume any prepayment of fixed-rate loans and mortgage-backed securities are scheduled based on their anticipated cash flow, including prepayments based on historical data and current market trends. The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities is beyond our control as, for(for example, prepayments of loans and withdrawal of deposits.deposits) is beyond our control. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different rate levels.
1-90 | 91-364 | 1-3 | 3-5 | Over 5 | ||||||||||
Days | Days | Years | Years | Years | ||||||||||
(dollars in thousands) | ||||||||||||||
Interest earning assets: | ||||||||||||||
Commercial loans, at fair value | $ | 1,057,763 | $ | 11,365 | $ | 23,675 | $ | 81,312 | $ | 6,770 | ||||
Loans, net of deferred loan fees and costs | 3,163,600 | 110,915 | 303,960 | 376,503 | 209,320 | |||||||||
Investment securities | 488,023 | 78,077 | 122,057 | 138,081 | 81,100 | |||||||||
Interest earning deposits | 662,827 | — | — | — | — | |||||||||
Total interest earning assets | 5,372,213 | 200,357 | 449,692 | 595,896 | 297,190 | |||||||||
Interest bearing liabilities: | ||||||||||||||
Demand and interest checking | 3,600,418 | 52,494 | 52,494 | — | — | |||||||||
Savings and money market | 180,560 | 361,120 | 180,560 | — | — | |||||||||
Securities sold under agreements to repurchase | 42 | — | — | — | — | |||||||||
Senior debt and subordinated debentures | 13,401 | — | 98,774 | — | — | |||||||||
Total interest bearing liabilities | 3,794,421 | 413,614 | 331,828 | — | — | |||||||||
Gap | $ | 1,577,792 | $ | (213,257) | $ | 117,864 | $ | 595,896 | $ | 297,190 | ||||
Cumulative gap | $ | 1,577,792 | $ | 1,364,535 | $ | 1,482,399 | $ | 2,078,295 | $ | 2,375,485 | ||||
Gap to assets ratio | 22% | (3)% | 2% | 8% | 5% | |||||||||
Cumulative gap to assets ratio | 22% | 19% | 21% | 29% | 34% |
1-90 | 91-364 | 1-3 | 3-5 | Over 5 | ||||||||||
Days | Days | Years | Years | Years | ||||||||||
(Dollars in thousands) | ||||||||||||||
Interest earning assets: | ||||||||||||||
Commercial loans, at fair value | $ | 323,224 | $ | 16,674 | $ | 17,120 | $ | 136,316 | $ | — | ||||
Loans, net of deferred loan fees and costs | 4,078,468 | 128,048 | 319,535 | 618,861 | 209,435 | |||||||||
Investment securities | 410,018 | 38,244 | 136,384 | 102,564 | 100,219 | |||||||||
Interest earning deposits | 773,446 | — | — | — | — | |||||||||
Total interest earning assets | 5,585,156 | 182,966 | 473,039 | 857,741 | 309,654 | |||||||||
Interest bearing liabilities: | ||||||||||||||
Transaction accounts as adjusted(1) | 3,303,884 | — | — | — | — | |||||||||
Savings and money market | 96,890 | — | — | — | — | |||||||||
Securities sold under agreements to repurchase | 42 | — | — | — | — | |||||||||
Senior debt and subordinated debentures | 13,401 | — | 99,142 | — | — | |||||||||
Total interest bearing liabilities | 3,414,217 | — | 99,142 | — | — | |||||||||
Gap | $ | 2,170,939 | $ | 182,966 | $ | 373,897 | $ | 857,741 | $ | 309,654 | ||||
Cumulative gap | $ | 2,170,939 | $ | 2,353,905 | $ | 2,727,802 | $ | 3,585,543 | $ | 3,895,197 | ||||
Gap to assets ratio | 29% | 2% | 5% | 11% | 4% | |||||||||
Cumulative gap to assets ratio | 29% | 31% | 36% | 47% | 51% |
*(1)Transaction accounts are comprised primarily of demand deposits. While demand deposits are non-interest bearing, related fees paid to affinity groups may reprice according to specified indices.
The methods used to analyze interest rate sensitivity in this table have a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods. The interest rates on certain assets and liabilities may change at different times than market interest rates, with some changing in advance of changes in market rates and some lagging behind changes in market rates. Additionally, the actual prepayments and withdrawals we experience when interest rates change may deviate significantly from those assumed in calculating the data shown in the table. Accordingly, actual results can and often do differ from projections. While
We believe that the gapassumptions utilized in evaluating our estimated net interest income are reasonable; however, the interest rate sensitivity of our assets, liabilities and off-balance sheet financial instruments, as well as the estimated effect of changes in interest rates on estimated net interest income, could vary substantially if different assumptions are used or actual experience differs from presumed behavior of various deposit and loan categories. The following table above shows a positive gap, cumulative Federal Reservethe effects of interest rate shocks on our net portfolio value described as Market Value of Portfolio Equity (“MVPE”) and net interest income. Rate shocks assume that current interest rates change immediately and sustain parallel shifts. For interest rate increases approachingor decreases of 100 and 200 basis points, might be required to increaseour policy includes a guideline that our MVPE ratio should not decrease more than 10% and 15%, respectively, and that net interest income primarily asshould not decrease more than 10% and 15%, respectively. As illustrated in the following table, we complied with our asset/liability policy guidelines at March 31, 2023, except for a slight deviation in the 200 basis point decrease scenario. While our modeling suggests that rate increases of 100 and 200 basis points will have a positive impact on net interest income (as shown in the table below), the actual amount of such increase cannot be determined, and there can be no assurance any increase will be realized. Because the Company has emphasized variable rate instruments in its loan and investment portfolios, it tends to benefit from higher interest rate environments. As a result of the Federal Reserve rate increases in 2022 and 2023, net interest income has increased and exceeded prior period levels. Future Federal Reserve rate floors.reductions may result in a return to lower net interest income levels.
Net portfolio value at | Net interest income | |||||||||||
March 31, 2023 | March 31, 2023 | |||||||||||
Percentage | Percentage | |||||||||||
Rate scenario | Amount | change | Amount | change | ||||||||
(Dollars in thousands) | ||||||||||||
+200 basis points | $ | 1,364,190 | 8.04% | $ | 418,481 | 14.05% | ||||||
+100 basis points | 1,312,198 | 3.92% | 392,728 | 7.04% | ||||||||
Flat rate | 1,262,706 | — | 366,912 | — | ||||||||
-100 basis points | 1,209,016 | (4.25)% | 340,897 | (7.09)% | ||||||||
-200 basis points | 1,151,319 | (8.82)% | 314,872 | (14.18)% |
Financial Condition
General. Our total assets at March 31, 20222023 were $7.08$7.61 billion, of which our total loans were $4.16$5.35 billion, and our commercial loans, at fair value, were $1.18 billion.$493.3 million. At December 31, 2021,2022, our total assets were $6.84$7.90 billion, of which our total loans were $3.75$5.49 billion, and our commercial loans, at fair value were $1.39 billion.$589.1 million. The increasedecrease in assets reflected an increasedecreases both in deposits which reflected the seasonal deposit inflows resulting from federal tax refunds.IBLOC loan balances and in commercial loans, at fair value as that portfolio continues to run off, partially offset by increases in securities.
Interest earning deposits and federal funds sold. Interest-earning Deposits
At March 31, 2022,2023, we had a total of $662.8$773.4 million of interest earninginterest-earning deposits compared to $596.4$864.1 million at December 31, 2021, an increase2022, a decrease of $66.4$90.7 million. These deposits were comprised primarily of balances at the Federal Reserve, which reflected the elevated seasonal tax refund deposits noted above.Reserve.
Investment portfolio. Portfolio
For detailed information on the composition and maturity distribution of our investment portfolio, see “Note 55. Investment Securities” to the unaudited consolidated financial statements.statements herein. Total investment securities decreasedincreased to $907.3$787.4 million at March 31, 2022, a decrease2023, an increase of $46.4$21.4 million, or 4.9%2.8%, from December 31, 2021. The decrease reflected securities repayments.2022.
Under the accounting guidance related to CECL, changes in fair value of securities unrelated to credit losses continue to be recognized through equity. However, credit-related losses are recognized through an allowance, rather than through a reduction in the amortized cost of the security. CECL accounting guidance also permits the reversal of allowances for credit deterioration in future periods based on improvements in credit, which was not included in previous guidance. Generally, a security’s credit-related loss is the difference between its amortized cost basis and the best estimate of its expected future cash flows discounted at the security’s effective yield. That difference is recognized through the income statement, as with prior guidance, but is renamed a provision for credit loss. For the three months ended March 31, 20222023 and 2021,2022, we recognized no credit-related losses on our portfolio.
Investments in FHLB, ACBB and Federal Home Loan and Atlantic Central BankersReserve Bank stock are recorded at cost and amounted to $1.7$12.6 million at each of March 31, 20222023 and $1.7 million at December 31, 2021. Federal Home Loan Bank stock purchases are required in order to borrow from the Federal Home Loan Bank. Both the FHLB and Atlantic Central Bankers Bank2022. Each of these institutions require itstheir correspondent banking institutions to hold stock as a condition of membership. The Bank’s conversion to a national charter required the purchase of $11.0 million of Federal Reserve Bank stock in September 2022. While a fixed stock amount is required by each of these institutions, the FHLB stock requirement increases or decreases with the level of borrowing activity.
At March 31, 20222023 and December 31, 20212022 no investment securities were encumbered, as therelines of credit established for borrowings were no borrowings as of those dates.
Of the six securities we purchased from our securitizations, all have been repaid except those from CRE-2 and CRE-6. Payments on CRE-6 are on schedule. As of March 31, 2022, the principal balance of the security we owned issuedcollateralized by CRE-2 was $12.6 million. Repayment is expected from the workout or disposition of commercial real estate collateral, after repayment of more senior tranches. Our $12.6 million security has 47% excess credit support; thus, losses of 47% of remaining security balances would have to be incurred, prior to any loss on our security. Additionally, the commercial real estate collateral supporting three of the remaining four loans was re-appraised in 2020 and 2021. The updated appraised value is approximately $70.3 million, which is net of $3.5 million due to the servicer. The remaining principal to be repaid on all securities is approximately $66.2 million and, as noted, our security is scheduled to be repaid prior to 47% of the outstanding securities. However, any future reappraisals could result in further decreases in collateral valuation. While available information indicates that the value of existing collateral will be adequate to repay our security, there can be no assurance that such valuations will be realized upon loan resolutions, and that deficiencies will not exceed the 47% credit support. loans.
The following table shows the contractual maturity distribution and the weighted average yield of our investment portfolio securitysecurities as of March 31, 2022 (in2023 (dollars in thousands). The weighted average yield was calculated by dividing the amount of individual securities to total securities in each category, multiplying by the yield of the individual security and adding the results of those individual computations.
After | After | After | After | |||||||||||||||||||||||||||||||||||||||||||
Zero | one to | five to | Over | Zero | one to | five to | Over | |||||||||||||||||||||||||||||||||||||||
to one | Average | five | Average | ten | Average | ten | Average | to one | Average | five | Average | ten | Average | ten | Average | |||||||||||||||||||||||||||||||
Available-for-sale | year | yield | years | yield | years | yield | years | yield | Total | year | yield | years | yield | years | yield | years | yield | Total | ||||||||||||||||||||||||||||
U.S. Government agency securities | $ | — | — | $ | 3,025 | 2.27% | $ | 14,269 | 2.72% | $ | 12,912 | 2.32% | $ | 30,206 | $ | — | — | $ | 8,968 | 2.59% | $ | 17,416 | 4.85% | $ | 10,345 | 3.67% | $ | 36,729 | ||||||||||||||||||
Asset-backed securities | — | — | 6,158 | 1.91% | 139,976 | 1.85% | 210,205 | 2.03% | 356,339 | 4,883 | 6.17% | — | — | 161,259 | 6.40% | 166,916 | 6.58% | 333,058 | ||||||||||||||||||||||||||||
Tax-exempt obligations of states and political subdivisions * | — | — | 3,583 | 2.77% | — | — | — | — | 3,583 | |||||||||||||||||||||||||||||||||||||
Tax-exempt obligations of states and political subdivisions(1) | 340 | 2.60% | 2,856 | 2.81% | 577 | 3.80% | 1,437 | 3.90% | 5,210 | |||||||||||||||||||||||||||||||||||||
Taxable obligations of states and political subdivisions | — | — | 39,745 | 3.18% | 6,458 | 4.28% | — | — | 46,203 | 6,934 | 3.48% | 36,089 | 3.26% | 1,164 | 4.33% | — | — | 44,187 | ||||||||||||||||||||||||||||
Residential mortgage-backed securities | — | — | 41,521 | 2.45% | 17,608 | 3.01% | 107,970 | 1.67% | 167,099 | — | — | 45,704 | 2.67% | 35,293 | 3.94% | 83,696 | 3.28% | 164,693 | ||||||||||||||||||||||||||||
Collateralized mortgage obligation securities | — | — | 452 | 1.83% | 8,151 | 2.41% | 45,223 | 1.98% | 53,826 | — | — | 6,155 | 2.71% | 762 | 2.38% | 33,323 | 3.74% | 40,240 | ||||||||||||||||||||||||||||
Commercial mortgage-backed securities | 20,797 | 2.58% | 47,840 | 2.61% | 32,078 | 1.21% | 142,677 | 2.94% | 243,392 | — | — | 44,503 | 2.65% | 32,995 | 3.45% | 78,014 | 3.72% | 155,512 | ||||||||||||||||||||||||||||
Corporate debt securities | — | — | — | — | — | — | 6,690 | 3.68% | 6,690 | — | — | — | — | — | — | 7,800 | 7.75% | 7,800 | ||||||||||||||||||||||||||||
Total | $ | 20,797 | $ | 142,324 | $ | 218,540 | $ | 525,677 | $ | 907,338 | $ | 12,157 | $ | 144,275 | $ | 249,466 | $ | 381,531 | $ | 787,429 | ||||||||||||||||||||||||||
Weighted average yield | 2.58% | 2.69% | 2.00% | 2.21% | 4.54% | 2.81% | 5.53% | 4.96% | ||||||||||||||||||||||||||||||||||||||
* (1)If adjusted to their taxable equivalents, yields would approximate 3.51%3.29%, 3.56%, 4.81%, and 4.94% for zero to one year, one to five years, five to ten years, and over ten years, respectively, at a Federalfederal tax rate of 21%.
Commercial loans,Loans, at fair valueFair Value.
Commercial loans, at fair value are comprised of non-SBA CREcommercial real estate loans and SBA loans which had been originated for sale or securitization through first quarter 2020, and which are now being held on the balance sheet. Non-SBA CREcommercial real estate loans and SBA loans are valued using a discounted cash flow analysis based upon pricing for similar loans, where market indications of the sales price of such loans are not available, on a pooled basis. Commercial loans, at fair value decreased to $1.18 billion$493.3 million at March 31, 20222023 from $1.39 billion$589.1 million at December 31, 20212022, primarily reflecting the impact of loan repayments. as this portfolio runs off. These loans continue to be accounted for at
fair value. In the third quarter of 2021 we resumed originating non-SBA CREcommercial real estate loans, after suspending such originations in the first quarter of 2020. These originations reflect lending criteria similar to the existing loan portfolio and are primarily comprised of multi-family (apartment
(apartment buildings) collateral. The new originations, which are intended to be held for investment, are accounted for at amortized cost. Interest rates shown in that table represent rate floors, set at origination. Rates on new loans will vary with market rates for such loans.
Loan portfolio.Portfolio. Total loans increaseddecreased to $4.16$5.35 billion at March 31, 20222023 from $3.75$5.49 billion at December 31, 2021.2022.
The following table summarizes our loan portfolio, excluding loans held at fair value, by loan category for the periods indicated (in
thousands):
March 31, | December 31, | March 31, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
SBL non-real estate | $ | 122,387 | $ | 147,722 | $ | 114,334 | $ | 108,954 | ||
SBL commercial mortgage | 385,559 | 361,171 | 492,798 | 474,496 | ||||||
SBL construction | 31,432 | 27,199 | 33,116 | 30,864 | ||||||
Small business loans | 539,378 | 536,092 | ||||||||
SBLs | 640,248 | 614,314 | ||||||||
Direct lease financing | 538,616 | 531,012 | 652,541 | 632,160 | ||||||
SBLOC / IBLOC * | 2,067,233 | 1,929,581 | ||||||||
Advisor financing ** | 146,461 | 115,770 | ||||||||
SBLOC / IBLOC(1) | 2,053,450 | 2,332,469 | ||||||||
Advisor financing(2) | 189,425 | 172,468 | ||||||||
Real estate bridge loans | 803,477 | 621,702 | 1,752,322 | 1,669,031 | ||||||
Other loans *** | 61,096 | 5,014 | ||||||||
Other loans(3) | 60,210 | 61,679 | ||||||||
4,156,261 | 3,739,171 | 5,348,196 | 5,482,121 | |||||||
Unamortized loan fees and costs | 8,037 | 8,053 | 6,151 | 4,732 | ||||||
Total loans, including unamortized loan fees and costs | $ | 4,164,298 | $ | 3,747,224 | $ | 5,354,347 | $ | 5,486,853 |
March 31, | December 31, | ||||
2022 | 2021 | ||||
SBL loans, including costs net of deferred fees of $6,084 and $5,345 | |||||
for March 31, 2022 and December 31, 2021, respectively | $ | 545,462 | $ | 541,437 | |
SBL loans included in commercial loans, at fair value | 183,408 | 199,585 | |||
Total small business loans **** | $ | 728,870 | $ | 741,022 |
March 31, | December 31, | ||||
2023 | 2022 | ||||
SBLs, including costs net of deferred fees of $8,610 and $7,327 | |||||
for March 31, 2023 and December 31, 2022, respectively | $ | 648,858 | $ | 621,641 | |
SBLs included in commercial loans, at fair value | 140,909 | 146,717 | |||
Total SBLs(4) | $ | 789,767 | $ | 768,358 |
(1)* Securities Backed Lines of Credit, or SBLOC are collateralized by marketable securities, while Insurance Backed Lines of Credit, or IBLOC, are collateralized by the cash surrender value of insurance policies. At March 31, 20222023 and December 31, 2021,2022, respectively, IBLOC loans amounted to $907.1$921.3 million and $788.3 million.$1.12 billion.
** (2)In 2020 the Company began originating loans to investment advisors for purposes of debt refinance,refinancing, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value (“LTV”) ratios of 70%, based on third-party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.
*** (3)Includes demand deposit overdrafts reclassified as loan balances totaling $310,000$4.8 million and $322,000$2.6 million at March 31, 20222023 and December 31, 2021,2022, respectively. Estimated overdraft charge-offs and recoveries are reflected in the allowance for credit lossesACL and have been immaterial.
****(4)The small business loansSBLs held at fair value are comprised of the government guaranteed portion of SBA 7a7(a) Program loans at the dates indicated.A reduction in SBL non-real estate from $147.7 million to $122.4 million in the first quarter of 2022 resulted from U.S. government repayments of $21.1 million of PPP loans authorized by The Consolidated Appropriations Act, 2021. PPP loans totaled $23.7 million at March 31, 2022 and $44.8 million at December 31, 2021, respectively.
The following table summarizes our small business loanSBL portfolio, including loans held at fair value, by loan category as of March 31, 20222023 (in thousands):
Loan principal | ||
U.S. government guaranteed portion of SBA loans | $ |
|
|
| |
Commercial mortgage SBA |
| |
Construction SBA |
| |
Non-guaranteed portion of U.S. government guaranteed 7(a) Program loans |
| |
Non-SBA |
| |
Total principal | $ |
|
Unamortized fees and costs |
| |
Total | $ |
|
(a)(1)This isIncludes the portion of SBA 7a7(a) Program loans (7a) and PPP loans which have been guaranteed by the U.S. government, and therefore are assumed to have no credit risk.
(b)(2)Substantially all these loans are made under the SBA 504 Fixed Asset Financing program (504)Program, which dictates origination date loan-to-valueLTV percentages, (“LTV”), generally 50-60%, to which the Bank adheres.
(c)(3)Of the $18.6Includes $9.0 million in Construction SBA loans, $15.8 million are 504 Program first mortgages with an origination date LTV of 50-60% and $2.8$1.7 million arein SBA interim loans with an approved SBA post-construction full takeout/payoff.
(d)(4)The $100.5 million representsIncludes the unguaranteed portion of 7a7(a) Program loans which are 70% or more guaranteed by the U.S. government. 7aSBA 7(a) Program loans are not made on the basis of real estate LTV; however, they are subject to SBA's "All Available Collateral" rule which mandates that to the extent a borrower or its 20% or greater principals have available collateral (including personal residences), the collateral must be pledged to fully collateralize the loan, after applying SBA-determined liquidation rates. In addition, all 7a7(a) Program loans and 504 Program loans require the personal guaranty of all 20% or greater owners.
(e)The $16.7 million of non-SBA loans is comprised of approximately 20 conventional coffee/doughnut/carryout franchisee note purchases. The majority of purchased notes were made to multi-unit operators, are considered seasoned and have performed as agreed.
The following table summarizes our small business loanSBL portfolio, excluding the government guaranteed portion of SBA 7a7(a) Program loans and PPP loans, by loan type as of March 31, 20222023 (dollars in thousands):
SBL commercial mortgage* | SBL construction* | SBL non-real estate | Total | % Total | |||||||||
Hotels (except casino hotels) and motels | $ | 65,808 | $ | 5,490 | $ | 21 | $ | 71,319 | 22% | ||||
Full-service restaurants | 12,641 | 1,999 | 2,370 | 17,010 | 5% | ||||||||
Outpatient mental health and substance abuse centers | 14,713 | — | — | 14,713 | 4% | ||||||||
Child day care services | 12,278 | — | 962 | 13,240 | 4% | ||||||||
Baked goods stores | 4,382 | — | 8,727 | 13,109 | 4% | ||||||||
Car washes | 10,357 | 746 | 119 | 11,222 | 3% | ||||||||
Offices of lawyers | 9,310 | — | — | 9,310 | 3% | ||||||||
Assisted living facilities for the elderly | 8,844 | — | — | 8,844 | 3% | ||||||||
Funeral homes and funeral services | 8,233 | — | — | 8,233 | 3% | ||||||||
Gasoline stations with convenience stores | 8,219 | — | — | 8,219 | 3% | ||||||||
Lessors of nonresidential buildings (except miniwarehouses) | 7,943 | — | — | 7,943 | 2% | ||||||||
General warehousing and storage | 7,036 | — | — | 7,036 | 2% | ||||||||
Fitness and recreational sports centers | 456 | 4,507 | 1,561 | 6,524 | 2% | ||||||||
Limited-service restaurants | 1,129 | 1,820 | 3,040 | 5,989 | 2% | ||||||||
All other amusement and recreation industries | 4,581 | 33 | 1,069 | 5,683 | 2% | ||||||||
Other technical and trade schools | 44 | 4,867 | — | 4,911 | 1% | ||||||||
Other spectator sports | 4,790 | — | — | 4,790 | 1% | ||||||||
Other warehousing and storage | 3,200 | — | — | 3,200 | 1% | ||||||||
Plumbing, heating, and air-conditioning contractors | 2,893 | — | 267 | 3,160 | 1% | ||||||||
Offices of dentists | 2,595 | 372 | 91 | 3,058 | 1% | ||||||||
All other miscellaneous wood product manufacturing | 2,987 | — | — | 2,987 | 1% | ||||||||
Offices of physicians | 2,743 | — | 8 | 2,751 | 1% | ||||||||
Elementary and secondary schools | 2,464 | — | — | 2,464 | 1% | ||||||||
Landscaping services | 1,055 | 144 | 1,251 | 2,450 | 1% | ||||||||
Lessors of other real estate property | 2,416 | — | — | 2,416 | 1% | ||||||||
All other miscellaneous general purpose machinery manufacturing | 2,416 | — | — | 2,416 | 1% | ||||||||
Sewing, needlework, and piece goods stores | 2,311 | — | — | 2,311 | 1% | ||||||||
Automotive body, paint, and interior repair and maintenance | 1,720 | — | 577 | 2,297 | 1% | ||||||||
Pet care (except veterinary) services | 1,895 | — | 345 | 2,240 | 1% | ||||||||
Amusement arcades | 2,208 | — | — | 2,208 | 1% | ||||||||
Caterers | 2,097 | — | 105 | 2,202 | 1% | ||||||||
Offices of real estate agents and brokers | 2,155 | — | — | 2,155 | 1% | ||||||||
Vocational rehabilitation services | 2,016 | — | — | 2,016 | 1% | ||||||||
Other** | 44,061 | 1,450 | 23,491 | 69,002 | 18% | ||||||||
$ | 261,996 | $ | 21,428 | $ | 44,004 | $ | 327,428 | 100% |
SBL commercial mortgage(1) | SBL construction(1) | SBL non-real estate | Total | % Total | |||||||||
Hotels and motels | $ | 74,299 | $ | 71 | $ | 20 | $ | 74,390 | 19% | ||||
Full-service restaurants | 15,698 | 3,359 | 1,742 | 20,799 | 5% | ||||||||
Lessors of nonresidential buildings | 19,247 | — | — | 19,247 | 5% | ||||||||
Car washes | 16,750 | 1,618 | 106 | 18,474 | 5% | ||||||||
Child day care services | 13,715 | 470 | 1,435 | 15,620 | 4% | ||||||||
Homes for the elderly | 15,531 | — | 75 | 15,606 | 4% | ||||||||
Outpatient mental health and substance abuse centers | 15,428 | — | — | 15,428 | 4% | ||||||||
Funeral homes and funeral services | 14,814 | — | 47 | 14,861 | 4% | ||||||||
Gasoline stations with convenience stores | 12,504 | — | 147 | 12,651 | 3% | ||||||||
Fitness and recreational sports centers | 7,681 | — | 2,228 | 9,909 | 3% | ||||||||
Offices of lawyers | 9,202 | — | — | 9,202 | 2% | ||||||||
Lessors of other real estate property | 8,075 | — | — | 8,075 | 2% | ||||||||
General warehousing and storage | 6,767 | — | — | 6,767 | 2% | ||||||||
Plumbing, heating, and air-conditioning companies | 5,658 | — | 967 | 6,625 | 2% | ||||||||
Limited-service restaurants | 1,061 | 2,086 | 2,575 | 5,722 | 1% | ||||||||
Lessors of residential buildings and dwellings | 4,865 | — | — | 4,865 | 1% | ||||||||
Miscellaneous durable goods merchants | 4,834 | — | 2 | 4,836 | 1% | ||||||||
Technical and trade schools | — | 4,781 | — | 4,781 | 1% | ||||||||
Packaged frozen food merchant wholesalers | 4,772 | — | — | 4,772 | 1% | ||||||||
Other amusement and recreation industry | 4,227 | 44 | 285 | 4,556 | 1% | ||||||||
Offices of dentists | 2,469 | 650 | 69 | 3,188 | 1% | ||||||||
Other warehousing and storage | 3,122 | — | — | 3,122 | 1% | ||||||||
Vocational rehabilitation services | 3,090 | — | — | 3,090 | 1% | ||||||||
Miscellaneous wood product manufacturing | 2,922 | — | — | 2,922 | 1% | ||||||||
Other(2) | 76,395 | 1,567 | 27,451 | 105,413 | 26% | ||||||||
$ | 343,126 | $ | 14,646 | $ | 37,149 | $ | 394,921 | 100% |
* (1)Of the SBL commercial mortgage and SBL construction loans, $73.2$90.1 million represents the total of the non-guaranteed portion of SBA 7a7(a) Program loans and non-SBA loans. The balance of those categories represents SBA 504 Program loans with 50%-60% origination date loan-to-values.LTVs.
** (2)Loan types of less than $2.0$3.0 million are spread over aapproximately one hundred different classifications such as Commercial Printing, Petcommercial printing, pet and Pet Supplies Stores, Securities Brokerage,pet supplies stores, securities brokerage, etc.
The following table summarizes our small business loanSBL portfolio, excluding the government guaranteed portion of SBA 7a7(a) Program loans and PPP loans, by state as of March 31, 20222023 (dollars in thousands):
SBL commercial mortgage* | SBL construction* | SBL non-real estate | Total | % Total | SBL commercial mortgage(1) | SBL construction(1) | SBL non-real estate | Total | % Total | |||||||||||||||||
California | $ | 70,741 | $ | 3,359 | $ | 3,227 | $ | 77,327 | 20% | |||||||||||||||||
Florida | $ | 62,188 | $ | 383 | $ | 5,316 | $ | 67,887 | 21% | 66,408 | 531 | 3,540 | 70,479 | 18% | ||||||||||||
California | 44,204 | 1,999 | 4,034 | 50,237 | 15% | |||||||||||||||||||||
North Carolina | 23,625 | 6,854 | 2,438 | 32,917 | 10% | 33,722 | 7,086 | 2,006 | 42,814 | 11% | ||||||||||||||||
New York | 25,839 | 71 | 5,052 | 30,962 | 8% | |||||||||||||||||||||
Pennsylvania | 28,802 | — | 2,561 | 31,363 | 10% | 20,921 | — | 708 | 21,629 | 5% | ||||||||||||||||
New York | 17,678 | 5,490 | 2,917 | 26,085 | 8% | |||||||||||||||||||||
Georgia | 14,810 | — | 1,510 | 16,320 | 4% | |||||||||||||||||||||
New Jersey | 11,922 | 267 | 3,583 | 15,772 | 4% | |||||||||||||||||||||
Illinois | 14,824 | — | 2,176 | 17,000 | 5% | 14,486 | — | 1,279 | 15,765 | 4% | ||||||||||||||||
Texas | 12,277 | — | 3,718 | 15,995 | 5% | 11,719 | — | 3,771 | 15,490 | 4% | ||||||||||||||||
New Jersey | 7,097 | — | 6,712 | 13,809 | 4% | |||||||||||||||||||||
Colorado | 4,093 | 5,513 | 1,382 | 10,988 | 3% | |||||||||||||||||||||
Virginia | 9,302 | — | 1,456 | 10,758 | 3% | |||||||||||||||||||||
Tennessee | 8,189 | — | 383 | 8,572 | 3% | |||||||||||||||||||||
Georgia | 3,017 | — | 1,340 | 4,357 | 1% | |||||||||||||||||||||
Ohio | 3,672 | — | 516 | 4,188 | 1% | |||||||||||||||||||||
Michigan | 3,301 | — | 796 | 4,097 | 1% | |||||||||||||||||||||
Washington | 2,767 | — | 193 | 2,960 | 1% | |||||||||||||||||||||
Other States | 16,960 | 1,189 | 8,066 | 26,215 | 9% | |||||||||||||||||||||
Other States <$10 million | 72,558 | 3,332 | 12,473 | 88,363 | 22% | |||||||||||||||||||||
$ | 261,996 | $ | 21,428 | $ | 44,004 | $ | 327,428 | 100% | $ | 343,126 | $ | 14,646 | $ | 37,149 | $ | 394,921 | 100% |
* (1)Of the SBL commercial mortgage and SBL construction loans, $73.2$90.1 million represents the total of the non-guaranteed portion of SBA 7a7(a) Program loans and non-SBA loans. The balance of those categories represents SBA 504 Programloans with 50%-60% origination date loan-to-values.LTVs.
The following table summarizes the 10ten largest loans in our small business loanSBL portfolio, including loans held at fair value, as of March 31, 20222023 (in thousands):
| State | SBL commercial | ||||
Mental health and substance abuse center | Florida | $ |
| |||
Hotel | Florida |
| ||||
| California |
| ||||
Hotel | North Carolina | 6,769 | ||||
General warehousing and storage | Pennsylvania |
| ||||
Hotel | Florida | 5,809 | ||||
Hotel | New York | 5,787 | ||||
Hotel | North Carolina |
| ||||
|
|
| ||||
|
|
| ||||
|
|
| ||||
|
|
| ||||
Mental health and substance abuse center |
|
| ||||
Lessor of residential building | North Carolina | 4,912 | ||||
Total | $ |
| ||||
* (1)All the top 10ten largest loans in our SBL portfolio are SBA 504 SBAProgram loans with 50%-60% origination date loan-to-value.LTVs. The top 10 loan table above does not include loans to the extent that they are U.S. government guaranteed.
Commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, arewere as follows including LTV at origination as of March 31, 20222023 (dollars in thousands):
# Loans | Balance | Weighted average origination date LTV | Weighted average interest rate | # Loans | Balance | Weighted average origination date LTV | Weighted average interest rate | |||||||||||||
Real estate bridge loans (multi-family apartment loans recorded at book value)* | 74 | $ | 803,477 | 74% | 3.99% | |||||||||||||||
Real estate bridge loans (multi-family apartment loans recorded at book value)(1) | 133 | $ | 1,752,322 | 72% | 8.40% | |||||||||||||||
Non-SBA commercial real estate loans, at fair value: | ||||||||||||||||||||
Multi-family (apartment bridge loans)* | 67 | $ | 858,200 | 76% | 4.71% | |||||||||||||||
Multi-family (apartment bridge loans)(1) | 19 | $ | 302,615 | 76% | 8.20% | |||||||||||||||
Hospitality (hotels and lodging) | 9 | 70,600 | 65% | 5.68% | 3 | 30,255 | 65% | 8.50% | ||||||||||||
Retail | 5 | 59,233 | 71% | 4.28% | 2 | 12,295 | 72% | 7.30% | ||||||||||||
Other | 6 | 15,914 | 73% | 5.13% | 2 | 9,601 | 73% | 5.20% | ||||||||||||
87 | 1,003,947 | 75% | 4.76% | 26 | 354,766 | 75% | 8.11% | |||||||||||||
Fair value adjustment | (6,470) | (2,341) | ||||||||||||||||||
Total non-SBA commercial real estate loans, at fair value | 997,477 | 352,425 | ||||||||||||||||||
Total commercial real estate loans | $ | 1,800,954 | 75% | 4.43% | $ | 2,104,747 | 73% | 8.36% |
*
(1)In the third quarter of 2021, we resumed the origination of multi-family apartment loans. These are similar to the multi-family apartment loans carried at fair value, but at origination are intended to be held on the balance sheet, so are not accounted for at fair value.
The following table summarizes our commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, by state as of March 31, 2023 (dollars in thousands):
Balance | Origination date LTV | ||||
Texas | $ | 782,591 | 73% | ||
Florida | 241,699 | 71% | |||
Georgia | 239,363 | 70% | |||
Tennessee | 98,612 | 72% | |||
Ohio | 90,083 | 69% | |||
Michigan | 67,964 | 70% | |||
Alabama | 66,427 | 72% | |||
Other States each <$55 million | 518,008 | 75% | |||
Total | $ | 2,104,747 | 74% |
The following table summarizes our commercial real estate loans, primarily bridge loans excluding SBA loans, by state as of March 31, 2022 (dollars in thousands):
Balance | Origination date LTV | ||||
Texas | $ | 708,304 | 76% | ||
Georgia | 171,385 | 74% | |||
Ohio | 122,573 | 72% | |||
Alabama | 89,835 | 74% | |||
Florida | 80,089 | 73% | |||
Tennessee | 64,583 | 68% | |||
Arizona | 55,319 | 74% | |||
Other States each <$55 million | 508,866 | 74% | |||
Total | $ | 1,800,954 | 74% |
The following table summarizes our 15fifteen largest commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, as of March 31, 20222023 (dollars in thousands). All of these loans are multi-family loans.
Balance | Origination date LTV | Balance | Origination date LTV | |||||||
Texas | $ | 41,040 | 75% | $ | 41,544 | 75% | ||||
Texas | 39,345 | 79% | 40,271 | 72% | ||||||
Texas | 37,283 | 75% | 39,400 | 75% | ||||||
Texas | 36,992 | 80% | 39,344 | 79% | ||||||
Tennessee | 30,361 | 62% | 37,380 | 72% | ||||||
Missouri | 30,000 | 72% | ||||||||
Texas | 29,962 | 75% | 37,258 | 80% | ||||||
Mississippi | 28,853 | 79% | ||||||||
Michigan | 36,443 | 62% | ||||||||
Florida | 32,550 | 72% | ||||||||
Texas | 28,500 | 77% | 32,237 | 67% | ||||||
North Carolina | 27,969 | 77% | ||||||||
Michigan | 31,520 | 79% | ||||||||
Texas | 27,481 | 77% | 30,576 | 62% | ||||||
New Jersey | 26,800 | 77% | ||||||||
Oklahoma | 26,800 | 78% | ||||||||
Tennessee | 30,361 | 71% | ||||||||
Indiana | 29,410 | 76% | ||||||||
Ohio | 26,403 | 74% | 29,150 | 74% | ||||||
Texas | 25,850 | 77% | 28,651 | 77% | ||||||
15 Largest loans | $ | 463,639 | 76% | |||||||
15 largest commercial real estate loans | $ | 516,095 | 73% |
The following table summarizes our institutional banking portfolio by type as of March 31, 20222023 (dollars in thousands):
Type | Principal | % of total | Principal | % of total | ||||
Securities backed lines of credit (SBLOC) | $ | 1,160,141 | 52% | |||||
Insurance backed lines of credit (IBLOC) | 907,092 | 41% | ||||||
SBLOC | $ | 1,132,166 | 50% | |||||
IBLOC | 921,284 | 41% | ||||||
Advisor financing | 146,461 | 7% | 189,425 | 9% | ||||
Total | $ | 2,213,694 | 100% | $ | 2,242,875 | 100% | ||
For SBLOC, we generally lend up to 50% of the value of equities and 80% for investment grade securities. While equities have fallen in excess of 30% in recent years, the reduction in collateral value of brokerage accounts collateralizing SBLOCs generally has been less, for two reasons. First,less. This is because many collateral accounts are “balanced” and accordingly, have a component of debt securities, which have either not decreased in value as much as equities, or in some cases may have increased in value. Secondly,Further, many of these accounts have the benefit of professional investment advisors who provided some protection against market downturns, through diversification and other means. Additionally, borrowers often utilize only a portion of collateral value, which lowers the percentage of principal to the market value of collateral.
The following table summarizes our top 10ten largest SBLOC loans as of March 31, 20222023 (dollars in thousands):
Principal amount | % Principal to collateral | ||||
$ | 17,506 | 38% | |||
14,428 | 29% | ||||
9,465 | 33% | ||||
9,376 | 61% | ||||
9,034 | 38% | ||||
8,441 | 72% | ||||
7,907 | 67% | ||||
7,496 | 74% | ||||
6,690 | 35% | ||||
6,492 | 13% | ||||
Total and weighted average | $ | 96,835 | 45% |
Principal amount | % Principal to collateral | ||||
$ | 20,268 | 54% | |||
18,000 | 40% | ||||
12,466 | 28% | ||||
9,465 | 35% | ||||
9,376 | 65% | ||||
9,034 | 43% | ||||
8,577 | 61% | ||||
7,905 | 68% | ||||
6,936 | 69% | ||||
6,096 | 38% | ||||
Total and weighted average | $ | 108,123 | 49% |
IBLOC loans are backed by the cash value of life insurance policies which have been assigned to us. We generally lend up to 100%95% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, eightnine insurance companies have been approved and, as of January 26, 2022,March 31, 2023, all were rated A (excellentA- or better)better by AM BEST.Best.
The following table summarizes our direct lease financing portfolio*portfolio by type as of March 31, 20222023 (dollars in thousands):
Principal balance | % Total | Principal balance(1) | % Total | |||||||
Construction | $ | 98,638 | 18% | $ | 112,115 | 17% | ||||
Government agencies and public institutions** | 82,090 | 15% | ||||||||
Waste management and remediation services | 63,823 | 12% | 85,461 | 13% | ||||||
Government agencies and public institutions(2) | 81,267 | 12% | ||||||||
Real estate and rental and leasing | 55,856 | 10% | 66,559 | 10% | ||||||
Retail trade | 45,615 | 8% | 46,658 | 7% | ||||||
Wholesale purchase | 43,324 | 8% | ||||||||
Finance and insurance | 40,281 | 6% | ||||||||
Health care and social assistance | 30,494 | 6% | 31,110 | 5% | ||||||
Transportation and warehousing | 28,913 | 5% | ||||||||
Manufacturing | 22,364 | 3% | ||||||||
Professional, scientific, and technical services | 19,485 | 4% | 21,673 | 3% | ||||||
Wholesale trade | 16,558 | 3% | 17,688 | 3% | ||||||
Manufacturing | 16,406 | 3% | ||||||||
Transportation and warehousing | 11,525 | 2% | ||||||||
Educational services | 8,154 | 2% | 9,244 | 1% | ||||||
Mining, quarrying, and oil and gas extraction | 8,446 | 1% | ||||||||
Other | 29,260 | 6% | 98,150 | 17% | ||||||
Total | $ | 538,616 | 100% | $ | 652,541 | 100% | ||||
* (1)Of the total $538.6$652.5 million of direct lease financing, $476.9$574.9 million consisted of vehicle leases with the remaining balance consisting of equipment leases.
** (2)Includes public universities and school districts.
The following table summarizes our direct lease financing portfolio by state as of March 31, 20222023 (dollars in thousands):
Principal balance | % Total | Principal balance | % Total | |||||||
Florida | $ | 91,293 | 17% | $ | 91,182 | 14% | ||||
California | 68,107 | 10% | ||||||||
Utah | 47,354 | 9% | 64,053 | 10% | ||||||
California | 46,693 | 9% | ||||||||
Pennsylvania | 40,637 | 6% | ||||||||
New Jersey | 39,061 | 7% | 39,991 | 6% | ||||||
Pennsylvania | 34,417 | 6% | ||||||||
New York | 30,535 | 6% | 32,857 | 5% | ||||||
North Carolina | 25,473 | 5% | 31,277 | 5% | ||||||
Texas | 29,453 | 5% | ||||||||
Maryland | 23,543 | 4% | 27,806 | 4% | ||||||
Texas | 21,873 | 4% | ||||||||
Connecticut | 16,175 | 3% | 26,431 | 4% | ||||||
Washington | 15,599 | 3% | 16,130 | 2% | ||||||
Georgia | 12,873 | 2% | 15,600 | 2% | ||||||
Idaho | 10,569 | 2% | 15,481 | 2% | ||||||
Alabama | 10,111 | 2% | ||||||||
Tennessee | 9,827 | 2% | ||||||||
Ohio | 12,590 | 2% | ||||||||
Illinois | 11,781 | 2% | ||||||||
Other States | 103,220 | 19% | 129,165 | 21% | ||||||
Total | $ | 538,616 | 100% | $ | 652,541 | 100% |
The following table presents loan categories by maturity for the period indicated. Actual repayments historically have, and will likely in the future, continue to differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties. Please seeSee “Asset and Liability Management” which addressesin this MD&A for a discussion of interest rate risk.
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||
Within | One to five | After five but | Within | One to five | After five but | |||||||||||||||||||||||
one year | years | within 15 years | After 15 years | Total | one year | years | within 15 years | After 15 years | Total | |||||||||||||||||||
(in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||
SBL non-real estate | $ | 14,930 | $ | 62,709 | $ | 126,676 | $ | 1,394 | $ | 205,709 | $ | 7,705 | $ | 35,089 | $ | 122,535 | $ | 1,364 | $ | 166,693 | ||||||||
SBL commercial mortgage | 18,045 | 3,083 | 96,485 | 373,782 | 491,395 | 20,395 | 15,158 | 145,220 | 408,814 | 589,587 | ||||||||||||||||||
SBL construction | 3,856 | — | — | 27,910 | 31,766 | 2,080 | — | — | 31,407 | 33,487 | ||||||||||||||||||
Leasing | 79,548 | 427,027 | 25,731 | 6,310 | 538,616 | 122,984 | 503,448 | 26,109 | — | 652,541 | ||||||||||||||||||
SBLOC/IBLOC | 2,067,233 | — | — | — | 2,067,233 | 2,053,450 | — | — | — | 2,053,450 | ||||||||||||||||||
Advisor financing | — | 771 | 145,690 | — | 146,461 | — | 35,474 | 153,951 | — | 189,425 | ||||||||||||||||||
Real estate bridge lending | — | 803,477 | — | — | 803,477 | — | 1,752,322 | — | — | 1,752,322 | ||||||||||||||||||
Other loans | 23,261 | 20,531 | 2,333 | 16,924 | 63,049 | 28,025 | 4,486 | 7,521 | 17,719 | 57,751 | ||||||||||||||||||
Loans at fair value excluding SBL | 696,770 | 296,958 | — | 3,749 | 997,477 | 334,994 | 17,431 | — | — | 352,425 | ||||||||||||||||||
$ | 2,903,643 | $ | 1,614,556 | $ | 396,915 | $ | 430,069 | $ | 5,345,183 | $ | 2,569,633 | $ | 2,363,408 | $ | 455,336 | $ | 459,304 | $ | 5,847,681 | |||||||||
Loan maturities after one year with: | ||||||||||||||||||||||||||||
Fixed rates | ||||||||||||||||||||||||||||
SBL non-real estate | $ | 23,713 | $ | — | $ | — | $ | 23,713 | $ | 4,011 | $ | — | $ | — | $ | 4,011 | ||||||||||||
Leasing | 427,027 | 25,731 | 6,310 | 459,068 | 503,448 | 26,109 | — | 529,557 | ||||||||||||||||||||
Advisor financing | 771 | 145,690 | — | 146,461 | 35,474 | 153,951 | — | 189,425 | ||||||||||||||||||||
Other loans | 2,419 | 320 | 16,606 | 19,345 | 3,703 | 392 | 17,719 | 21,814 | ||||||||||||||||||||
Loans at fair value excluding SBL | 65,397 | — | — | 65,397 | 17,431 | — | — | 17,431 | ||||||||||||||||||||
Total loans at fixed rates | 519,327 | 171,741 | 22,916 | 713,984 | $ | 564,067 | $ | 180,452 | $ | 17,719 | $ | 762,238 | ||||||||||||||||
Variable rates | ||||||||||||||||||||||||||||
SBL non-real estate | 38,996 | 126,676 | 1,394 | 167,066 | $ | 31,078 | $ | 122,535 | $ | 1,364 | $ | 154,977 | ||||||||||||||||
SBL commercial mortgage | 3,083 | 96,485 | 373,782 | 473,350 | 15,158 | 145,220 | 408,814 | 569,192 | ||||||||||||||||||||
SBL construction | — | — | 27,910 | 27,910 | — | — | 31,407 | 31,407 | ||||||||||||||||||||
Real estate bridge lending | 803,477 | — | — | 803,477 | 1,752,322 | — | — | 1,752,322 | ||||||||||||||||||||
Other loans | 18,112 | 2,013 | 318 | 20,443 | 783 | 7,129 | — | 7,912 | ||||||||||||||||||||
Loans at fair value excluding SBL | 231,561 | — | 3,749 | 235,310 | — | — | — | — | ||||||||||||||||||||
Total at variable rates | 1,095,229 | 225,174 | 407,153 | 1,727,556 | $ | 1,799,341 | $ | 274,884 | $ | 441,585 | $ | 2,515,810 | ||||||||||||||||
Total | $ | 1,614,556 | $ | 396,915 | $ | 430,069 | $ | 2,441,540 | $ | 2,363,408 | $ | 455,336 | $ | 459,304 | $ | 3,278,048 | ||||||||||||
Allowance for credit losses.Credit Losses
We review the adequacy of our allowance for credit lossesACL on at least a quarterly basis to determine a provision for credit losses to maintain our allowanceACL at a level we believe is appropriate to recognize current expected credit losses. Our Chief Credit Officer oversees the loan review department, which measures the adequacy of the allowance for credit lossesACL independently of loan production officers. For detailed information on the allowance for credit lossACL methodology, please see “Note 66. Loans” to the unaudited consolidated financial statements.statements herein.
At March 31, 2022,2023, the allowance for credit lossesACL amounted to $19.1$23.8 million, which represented a $1.2$1.4 million increase compared to the $17.8$22.4 million ACL at December 31, 2021.2022. The increase reflected the impact of loan growth on the CECL model and higher allowances on specific loans at March 31, 2022. Troubled debt restructured loans are individually considered by comparing collateral values with principal outstanding and establishing specific reserves within the allowance. At March 31, 2022, there were 14 troubled debt restructured loans with a balance of $5.3 million which had specific reserves of $655,000. These reserves related primarilyhistorical net charge-offs applied to the non-guaranteed portionestimated remaining lives of SBA loans for start-up businesses.outstanding loans.
A description of loan review coverage targets is set forth below.
The following loan review percentages are performed over periods of eighteen to twenty-four months. At March 31, 2022,2023, in excess of 50% of the total continuing loan portfolio was reviewed by the loan review department or, for small business loans,SBLs, rated internally by that department. In addition to the review of all classified loans, the targeted coverages and scope of the reviews are risk-based and vary according to each portfolio as follows:
SBLOCSecurities Backed Lines of Credit (SBLOC) – The targeted review threshold for 2022 is 40%, including a sample focusing on the largest 25% of SBLOCs by commitment. A random sample of at least twenty loans will be reviewed each quarter. At March 31, 2022,2023, approximately 51%46% of the SBLOC portfolio had been reviewed.
Insurance Backed Lines of Credit (IBLOC) – The targeted review threshold for 2022 is 40%, including a sample focusing on the largest 25% of IBLOCs by commitment. A random sample of at least twenty loans will be reviewed each quarter. At March 31, 2022,2023, approximately 55%48% of the IBLOC portfolio had been reviewed.
Advisor Financing – The targeted review threshold for 2022 is 50%. At March 31, 2022,2023, approximately 83%92% of the advisor financing portfolio had been reviewed. The loan balance review threshold is $1.0 million.
Small Business LoansSBLs – The targeted review threshold for 2022 is 60%, to be rated and/or reviewed within 90 days of funding, excluding fully guaranteed loans purchased for CRA purposes, and fully guaranteed PPP loans. The loan balance review threshold is $1.5 million and additionally includes any classified loans. At March 31, 2022,2023, approximately 66%72% of the non-government guaranteed SBL loan portfolio had been reviewed.
Direct Lease Financing – The targeted review threshold for 2022 is 35%. At March 31, 2022,2023, approximately 42% of the leasing portfolio had been reviewed. The loan balance review threshold is $1.5 million.
Commercial Real Estate Bridge Loans, at fair value and Commercial Real Estate Bridge Loans, held for investment (floatingat amortized cost(floating rate, excluding SBA, which are included in Small Business LoansSBLs above) – The targeted review threshold for 2022 is 60%. Floating rate loans will be reviewed initially within 90 days of funding and will be monitored on an ongoing basis as to payment status. Subsequent reviews will be performed for relationships over $10$10.0 million. At March 31, 2022,2023, approximately 100% of the non-SBA CRE floating rate, non-SBA commercial real estate bridge loans outstanding for more than 90 days had been reviewed.
Commercial Real Estate Loans, at fair value (fixed(fixed rate, excluding SBA, which are included in Small Business LoansSBLs above) – The targeted review threshold for 2022 is 100%. At March 31, 2022,2023, approximately 100% of the non-SBA CRE fixed rate, non-SBA commercial real estate loan portfolio had been reviewed.
Specialty Lending – Specialty Lending,lending, defined as commercial loans unique in nature that do not fit into other established categories, will havehas a targeted review coverage threshold of 100% for non-CRA loans. At March 31, 2022,2023, approximately 100% of the non-CRA loans had been reviewed.
Home Equity Lines of Credit or HELOC(“HELOC”) – Due to the small number and outstanding balances of HELOCs, only the largest loans will be subject to review. The remaining loans are monitored and, if necessary, adversely classified under the Uniform Retail Credit Classification and Account Management Policy. At March 31, 2022,2023, approximately 68%72% of the HELOC portfolio had been reviewed.
Other minor loan categories are reviewed at the discretion of the loan review department.
The following tables present delinquencies by type of loan as of the dates specified (in thousands):
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Total | Total | 30-59 Days | 60-89 Days | 90+ Days | Total | Total | |||||||||||||||||||||||||||||||
past due | past due | still accruing | Non-accrual | past due | Current | loans | past due | past due | still accruing | Non-accrual | past due | Current | loans | |||||||||||||||||||||||||||
SBL non-real estate | $ | 2,551 | $ | 1,135 | $ | 420 | $ | 1,639 | $ | 5,745 | $ | 116,642 | $ | 122,387 | $ | 513 | $ | 601 | $ | 395 | $ | 1,072 | $ | 2,581 | $ | 111,753 | $ | 114,334 | ||||||||||||
SBL commercial mortgage | 283 | 215 | — | 589 | 1,087 | 384,472 | 385,559 | — | 3 | 355 | 2,948 | 3,306 | 489,492 | 492,798 | ||||||||||||||||||||||||||
SBL construction | — | — | — | 710 | 710 | 30,722 | 31,432 | — | — | — | 3,385 | 3,385 | 29,731 | 33,116 | ||||||||||||||||||||||||||
Direct lease financing | 734 | 652 | 613 | 8 | 2,007 | 536,609 | 538,616 | 3,312 | 854 | 94 | 1,381 | 5,641 | 646,900 | 652,541 | ||||||||||||||||||||||||||
SBLOC / IBLOC | 1,706 | — | — | — | 1,706 | 2,065,527 | 2,067,233 | 25,599 | 5,509 | — | — | 31,108 | 2,022,342 | 2,053,450 | ||||||||||||||||||||||||||
Advisor financing | — | — | — | — | — | 146,461 | 146,461 | — | — | — | — | — | 189,425 | 189,425 | ||||||||||||||||||||||||||
Real estate bridge loans | — | — | — | — | — | 803,477 | 803,477 | — | — | — | — | — | 1,752,322 | 1,752,322 | ||||||||||||||||||||||||||
Other loans | 274 | — | 3,564 | 675 | 4,513 | 56,583 | 61,096 | 240 | 41 | 29 | 4,152 | 4,462 | 55,748 | 60,210 | ||||||||||||||||||||||||||
Unamortized loan fees and costs | — | — | — | — | — | 8,037 | 8,037 | — | — | — | — | — | 6,151 | 6,151 | ||||||||||||||||||||||||||
$ | 5,548 | $ | 2,002 | $ | 4,597 | $ | 3,621 | $ | 15,768 | $ | 4,148,530 | $ | 4,164,298 | $ | 29,664 | $ | 7,008 | $ | 873 | $ | 12,938 | $ | 50,483 | $ | 5,303,864 | $ | 5,354,347 |
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Total | Total | 30-59 Days | 60-89 Days | 90+ Days | Total | Total | |||||||||||||||||||||||||||||||
past due | past due | still accruing | Non-accrual | past due | Current | loans | past due | past due | still accruing | Non-accrual | past due | Current | loans | |||||||||||||||||||||||||||
SBL non-real estate | $ | 1,375 | $ | 3,138 | $ | 441 | $ | 1,313 | $ | 6,267 | $ | 141,455 | $ | 147,722 | $ | 1,312 | $ | 543 | $ | 346 | $ | 1,249 | $ | 3,450 | $ | 105,504 | $ | 108,954 | ||||||||||||
SBL commercial mortgage | — | 220 | — | 812 | 1,032 | 360,139 | 361,171 | 1,853 | 5 | 297 | 1,423 | 3,578 | 470,918 | 474,496 | ||||||||||||||||||||||||||
SBL construction | — | — | — | 710 | 710 | 26,489 | 27,199 | — | — | — | 3,386 | 3,386 | 27,478 | 30,864 | ||||||||||||||||||||||||||
Direct lease financing | 1,833 | 692 | 20 | 254 | 2,799 | 528,213 | 531,012 | 4,035 | 2,053 | 539 | 3,550 | 10,177 | 621,983 | 632,160 | ||||||||||||||||||||||||||
SBLOC / IBLOC | 5,985 | 289 | — | — | 6,274 | 1,923,307 | 1,929,581 | 14,782 | 343 | 2,869 | — | 17,994 | 2,314,475 | 2,332,469 | ||||||||||||||||||||||||||
Advisor financing | — | — | — | — | — | 115,770 | 115,770 | — | — | — | — | — | 172,468 | 172,468 | ||||||||||||||||||||||||||
Real estate bridge loans | — | — | — | — | — | 621,702 | 621,702 | — | — | — | — | — | 1,669,031 | 1,669,031 | ||||||||||||||||||||||||||
Other loans | — | — | — | 72 | 72 | 4,942 | 5,014 | 330 | 90 | 3,724 | 748 | 4,892 | 56,787 | 61,679 | ||||||||||||||||||||||||||
Unamortized loan fees and costs | — | — | — | — | — | 8,053 | 8,053 | — | — | — | — | — | 4,732 | 4,732 | ||||||||||||||||||||||||||
$ | 9,193 | $ | 4,339 | $ | 461 | $ | 3,161 | $ | 17,154 | $ | 3,730,070 | $ | 3,747,224 | $ | 22,312 | $ | 3,034 | $ | 7,775 | $ | 10,356 | $ | 43,477 | $ | 5,443,376 | $ | 5,486,853 |
Although we consider our allowance for credit lossesACL to be adequate based on information currently available, future additions to the allowanceACL may be necessary due to changes in economic conditions, our ongoing loss experience and that of our peers, changes in
management’s assumptions as to future delinquencies, recoveries and losses, deterioration of specific credits and management’s intent with regard to the disposition of loans and leases.
The following table summarizes select asset quality ratios for each of the periods indicated:
For the three months ended | ||||
or as of March 31, | ||||
2022 | 2021 | |||
Ratio of: | ||||
Allowance for credit losses to total loans | 0.46% | 0.58% | ||
Allowance for credit losses to non-performing loans * | 231.82% | 119.65% | ||
Non-performing loans to total loans* | 0.20% | 0.49% | ||
Non-performing assets to total assets * | 0.38% | 0.40% | ||
Net charge-offs to average loans | 0.01% | 0.01% | ||
* Includes loans 90 days past due still accruing interest. | ||||
For the three months ended | For the year ended | |||||
or as of March 31, | or as of December 31, | |||||
2023 | 2022 | 2022 | ||||
Ratio of: | ||||||
ACL to total loans | 0.44% | 0.46% | 0.41% | |||
ACL to non-performing loans(1) | 172.28% | 231.82% | 123.40% | |||
Non-performing loans to total loans(1) | 0.26% | 0.20% | 0.33% | |||
Non-performing assets to total assets(1) | 0.46% | 0.38% | 0.50% | |||
Net charge-offs to average loans | 0.01% | 0.01% | 0.03% | |||
(1)Includes loans 90 days past due still accruing interest. | ||||||
The ratio of the allowance for credit lossesACL to total loans decreased to 0.46%0.44% as of March 31, 20222023 from 0.58%0.46% at March 31, 2021.2022. The reduction reflected a decreaseresulted from an increase in allowances on specific loans whilewhich was proportionately greater than the increase in the ACL. SBLOC, IBLOC and real estate bridge loans have allowance allocations lower than the overall percentage of ACL to total loans, outstanding betweendue to the periods increased significantly. nature of the collateral, which serves to reduce that percentage.
The ratio of the allowance for credit lossesACL to non-performing loans increaseddecreased to 172.28% at March 31, 2023, from 231.82% at March 31, 2022, from 119.65% at March 31, 2021, primarily as a result of a decreasethe increase in non-performing SBA loans. That decrease was also reflectedloans which proportionately exceeded the increase in the lowerACL. As a result of the increase in non-performing loans, the ratio of non-performing loans to total loans also increased to 0.26% at March 31, 2023 from 0.20% at March 31, 2022.
The ratio of non-performing assets to total assets which decreasedincreased to 0.46% at March 31, 2023 from 0.38% at March 31, 2022, from 0.40%again reflecting the increase in non-performing loans. The higher non-performing assets total at March 31, 2021,2023 included OREO of $3.9 million for a movie theater property as described in Note E to the impactconsolidated financial statements in the 2022 Form 10-K.
The ratio of which was partially offset by a decrease in assets. Netnet charge-offs to average loans remained constant atwas 0.01% for the three months ended March 31, 2022 compared to2023 and 0.01% for the three months ended March 31, 2021.2022. While net charge-offs increased between those periods, increases in average loans partially offset the impact of such increases.
Net charge-offs. Charge-offs
Net charge-offs were $258,000$778,000 for the three months ended March 31, 2022,2023, an increase of $8,000$520,000 from net charge-offs of $250,000$258,000 during the comparable period of 2021.three months ended March 31, 2022. Charge-offs in both periods resulted primarily from direct lease financingnon-real estate SBL and non- real estate SBLleasing charge-offs. SBL charge-offs resultresulted primarily from the non-government guaranteed portion of SBA loans.
The following tables reflect the relationship of year-to-date average loan volumeloans outstanding, based upon quarter end balances, and net charge-offs by segmentloan category (dollars in thousands):
March 31, 2022 | March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | ||||||||||||||||||||||||||||||||||
Charge-offs | $ | 98 | $ | — | $ | — | $ | 191 | $ | — | $ | — | $ | — | $ | — | $ | 214 | $ | — | $ | — | $ | 905 | $ | — | $ | — | $ | — | $ | 3 | |||||||||||||||||
Recoveries | 12 | — | — | 19 | — | — | — | — | (202) | (75) | — | (67) | — | — | — | — | |||||||||||||||||||||||||||||||||
Net charge-offs | $ | 86 | $ | — | $ | — | $ | 172 | $ | — | $ | — | $ | — | $ | — | $ | 12 | $ | (75) | $ | — | $ | 838 | $ | — | $ | — | $ | — | $ | 3 | |||||||||||||||||
Average loan balance | $ | 135,055 | $ | 373,365 | $ | 29,316 | $ | 534,814 | $ | 1,998,407 | $ | 131,116 | $ | 712,589 | $ | 33,055 | $ | 111,644 | $ | 483,647 | $ | 31,990 | $ | 642,351 | $ | 2,192,960 | $ | 180,947 | $ | 1,710,677 | $ | 60,945 | |||||||||||||||||
Ratio of net charge-offs during the period to average loans during the period | 0.06% | — | — | 0.03% | — | — | — | — | 0.01% | — | — | 0.13% | — | — | — | — |
March 31, 2021 | ||||||||||||||||||||
SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Other loans | ||||||||||||||
Charge-offs | $ | 144 | $ | — | $ | — | $ | 97 | $ | 15 | $ | — | $ | — | ||||||
Recoveries | 4 | — | — | 2 | — | — | — | |||||||||||||
Net charge-offs | $ | 140 | $ | — | $ | — | $ | 95 | $ | 15 | $ | — | $ | — | ||||||
Average loan balance | $ | 280,382 | $ | 310,415 | $ | 20,483 | $ | 473,249 | $ | 1,586,223 | $ | 53,601 | $ | 6,439 | ||||||
Ratio of net charge-offs during the period to average loans during the period | 0.05% | — | — | 0.02% | — | — | — |
March 31, 2022 | |||||||||||||||||||||||
SBL non-real estate | SBL commercial mortgage | SBL construction | Direct lease financing | SBLOC / IBLOC | Advisor financing | Real estate bridge loans | Other loans | ||||||||||||||||
Charge-offs | $ | 98 | $ | — | $ | — | $ | 191 | $ | — | $ | — | $ | — | $ | — | |||||||
Recoveries | (12) | — | — | (19) | — | — | — | — | |||||||||||||||
Net charge-offs | $ | 86 | $ | — | $ | — | $ | 172 | $ | — | $ | — | $ | — | $ | — | |||||||
Average loan balance | $ | 135,055 | $ | 373,365 | $ | 29,316 | $ | 534,814 | $ | 1,998,407 | $ | 131,116 | $ | 712,589 | $ | 33,055 | |||||||
Ratio of net charge-offs during the period to average loans during the period | 0.06% | — | — | 0.03% | — | — | — | — |
We review charge-offs at least quarterly in loan surveillance meetings which include the chief credit officer, the loan review department and other senior credit officers in a process which includes identifying any trends or other factors impacting portfolio management. In recent periods charge-offs have been primarily comprised of the non-guaranteed portion of SBA 7a loans and leases. The charge-offs have resulted from individual borrower or business circumstances as opposed to overall trends or other factors.
Non-accrual Loans, Loans 90 Days Delinquent and Still Accruing, Other Real Estate OwnedOREO and Troubled Debt Restructurings.
Loans are considered to be non-performing if they are on a non-accrual basis or they are past due 90 days or more and still accruing interest. A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and interest, and is in the process of collection. Troubled debt restructurings are loans with terms that have been renegotiated to provide a reduction or deferral of interest or principal, because of a weakening in the financial positions of the borrowers. We had $18.9$21.1 million of other real estate owned (“OREO”)OREO at March 31, 20222023 and $18.9$21.2 million of OREO at December 31, 2021.2022. The following tables summarize our non-performing loans, OREO, and loans past due 90 days or more still accruing interest.
March 31, | December 31, | March 31, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(in thousands) | (Dollars in thousands) | |||||||||
Non-accrual loans | ||||||||||
SBL non-real estate | $ | 1,639 | $ | 1,313 | $ | 1,072 | $ | 1,249 | ||
SBL commercial mortgage | 589 | 812 | 2,948 | 1,423 | ||||||
SBL construction | 710 | 710 | 3,385 | 3,386 | ||||||
Direct leasing | 8 | 254 | 1,381 | 3,550 | ||||||
Other loans | 607 | — | ||||||||
Legacy commercial real estate and Other loans | 4,102 | 692 | ||||||||
Consumer - home equity | 68 | 72 | 50 | 56 | ||||||
Total non-accrual loans | 3,621 | 3,161 | 12,938 | 10,356 | ||||||
Loans past due 90 days or more and still accruing | 4,597 | 461 | 873 | 7,775 | ||||||
Total non-performing loans | 8,218 | 3,622 | 13,811 | 18,131 | ||||||
Other real estate owned | 18,873 | 18,873 | ||||||||
OREO | 21,117 | 21,210 | ||||||||
Total non-performing assets | $ | 27,091 | $ | 22,495 | $ | 34,928 | $ | 39,341 |
LoansThe Company’s loans that were modified as of March 31, 20222023 and December 31, 20212022 and considered troubled debt restructurings are as follows (dollars in thousands):
dollars in thousands):
March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
Number | Pre-modification recorded investment | Post-modification recorded investment | Number | Pre-modification recorded investment | Post-modification recorded investment | Number | Pre-modification recorded investment | Post-modification recorded investment | Number | Pre-modification recorded investment | Post-modification recorded investment | |||||||||||||||||||||||
SBL non-real estate | 12 | $ | 1,451 | $ | 1,451 | 9 | $ | 1,231 | $ | 1,231 | 7 | $ | 610 | $ | 610 | 8 | $ | 650 | $ | 650 | ||||||||||||||
Other loans | 1 | 3,564 | 3,564 | — | — | — | ||||||||||||||||||||||||||||
SBL commercial mortgage | 1 | 834 | 834 | 1 | 834 | 834 | ||||||||||||||||||||||||||||
Legacy commercial real estate | 1 | 3,552 | 3,552 | 1 | 3,552 | 3,552 | ||||||||||||||||||||||||||||
Consumer - home equity | 1 | 245 | 245 | 1 | 248 | 248 | 1 | 236 | 236 | 1 | 239 | 239 | ||||||||||||||||||||||
Total(1) | 14 | $ | 5,260 | $ | 5,260 | 10 | $ | 1,479 | $ | 1,479 | 10 | $ | 5,232 | $ | 5,232 | 11 | $ | 5,275 | $ | 5,275 |
(1)Troubled debt restructurings include non-accrual loans of $745,000$4.9 million and $656,000$1.4 million at March 31, 20222023 and December 31, 2021,2022, respectively.
The balances below provide information as to how the loans were modified as troubled debt restructuringsrestructuring loans atas of March 31, 20222023 and December 31, 20212022 (in thousands):
March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
Adjusted interest rate | Extended maturity | Combined rate and maturity | Adjusted interest rate | Extended maturity | Combined rate and maturity | Adjusted interest rate | Extended maturity | Combined rate and maturity | Adjusted interest rate | Extended maturity | Combined rate and maturity | |||||||||||||||||||||||
SBL non-real estate | $ | — | $ | — | $ | 1,451 | $ | — | $ | — | $ | 1,231 | $ | — | $ | — | $ | 610 | $ | — | $ | — | $ | 650 | ||||||||||
Other loans | — | — | 3,564 | — | — | — | ||||||||||||||||||||||||||||
SBL commercial mortgage | — | — | 834 | — | — | 834 | ||||||||||||||||||||||||||||
Legacy commercial real estate | — | — | 3,552 | — | — | 3,552 | ||||||||||||||||||||||||||||
Consumer - home equity | — | — | 245 | — | — | 248 | — | — | 236 | — | — | 239 | ||||||||||||||||||||||
Total(1) | $ | — | $ | — | $ | 5,260 | $ | — | $ | — | $ | 1,479 | $ | — | $ | — | $ | 5,232 | $ | — | $ | — | $ | 5,275 |
(1)Troubled debt restructurings include non-accrual loans of $745,000$4.9 million and $656,000$1.4 million at March 31, 20222023 and December 31, 2021,2022, respectively.
The tables above do not include loans which are reported at fair value. A $30.0 million credit, collateralized by a commercial retail property with multiple tenants, is included in commercial loans, at fair value. The underlying collateral consists of a multi-tenant shopping center and the loan value had been previously written down as a result of a decreased occupancy rate. By December 31, 2020 the center had been substantially all leased and previous write-downs had been reversed. On March 13, 2019, we renewed this loan for four years and reduced the interest rate to the following: LIBOR plus 2% in year one, increasing 0.5% each year until the fourth year when the rate will be LIBOR plus 3.5% which will also be the rate for a one year extension, if exercised. The loan is performing in accordance with those restructured terms.
We had no commitments to extend additional credit to loans classified as troubled debt restructurings as of March 31, 20222023 or December 31, 2021.2022.
The following table summarizes loans that were restructured within the 12twelve months ended March 31, 20222023 that have subsequently defaulted (in(dollars in thousands):
March 31, 2022 | March 31, 2023 | |||||||
Number | Pre-modification recorded investment | Number | Pre-modification recorded investment | |||||
SBL non-real estate | 1 | $ | 334 | 2 | $ | 174 | ||
Legacy commercial real estate | 1 | 3,552 | ||||||
Total | 1 | $ | 334 | 3 | $ | 3,726 |
The following table provides information about credit deteriorated loans at March 31, 20222023 and December 31, 2021 (dollars in2022 (in thousands):
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||
Recorded | Unpaid | Related | Average | Interest | Recorded | Unpaid | Related | Average | Interest | |||||||||||||||||||
Without an allowance recorded | ||||||||||||||||||||||||||||
Without an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | $ | 529 | $ | 3,278 | $ | — | $ | 469 | $ | 2 | $ | 241 | $ | 2,787 | $ | — | $ | 250 | $ | — | ||||||||
SBL commercial mortgage | — | — | — | 111 | — | 456 | 456 | — | 298 | — | ||||||||||||||||||
Direct lease financing | 8 | 8 | — | 131 | — | 53 | 53 | — | 27 | — | ||||||||||||||||||
Other loans | 4,171 | 4,171 | — | 4,171 | 29 | |||||||||||||||||||||||
Legacy commercial real estate | 3,552 | 3,552 | — | 3,552 | — | |||||||||||||||||||||||
Consumer - home equity | 312 | 312 | — | 316 | 3 | 286 | 286 | — | 290 | 2 | ||||||||||||||||||
With an allowance recorded | ||||||||||||||||||||||||||||
With an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | 1,817 | 1,817 | (1,338) | 1,648 | 10 | 919 | 919 | (458) | 947 | 1 | ||||||||||||||||||
SBL commercial mortgage | 589 | 589 | (116) | 589 | — | 2,492 | 2,492 | (481) | 1,957 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 710 | — | 3,385 | 3,385 | (44) | 3,385 | — | ||||||||||||||||||
Direct lease financing | 1,328 | 1,977 | (689) | 2,439 | — | |||||||||||||||||||||||
Other loans | 550 | 550 | (12) | 621 | — | |||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
SBL non-real estate | 2,346 | 5,095 | (1,338) | 2,117 | 12 | 1,160 | 3,706 | (458) | 1,197 | 1 | ||||||||||||||||||
SBL commercial mortgage | 589 | 589 | (116) | 700 | — | 2,948 | 2,948 | (481) | 2,255 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 710 | — | 3,385 | 3,385 | (44) | 3,385 | — | ||||||||||||||||||
Direct lease financing | 8 | 8 | — | 131 | — | 1,381 | 2,030 | (689) | 2,466 | — | ||||||||||||||||||
Other loans | 4,171 | 4,171 | — | 4,171 | 29 | |||||||||||||||||||||||
Legacy commercial real estate and Other loans | 4,102 | 4,102 | (12) | 4,173 | — | |||||||||||||||||||||||
Consumer - home equity | 312 | 312 | — | 316 | 3 | 286 | 286 | — | 290 | 2 | ||||||||||||||||||
$ | 8,136 | $ | 10,885 | $ | (1,488) | $ | 8,145 | $ | 44 | $ | 13,262 | $ | 16,457 | $ | (1,684) | $ | 13,766 | $ | 3 |
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||||||||
Recorded | Unpaid | Related | Average | Interest | Recorded | Unpaid | Related | Average | Interest | |||||||||||||||||||
Without an allowance recorded | ||||||||||||||||||||||||||||
Without an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | $ | 409 | $ | 3,414 | $ | — | $ | 412 | $ | 5 | $ | 400 | $ | 2,762 | $ | — | $ | 388 | $ | — | ||||||||
SBL commercial mortgage | 223 | 246 | — | 1,717 | — | — | — | — | 45 | — | ||||||||||||||||||
Direct lease financing | 254 | 254 | — | 430 | — | — | — | — | 52 | — | ||||||||||||||||||
Legacy commercial real estate | 3,552 | 3,552 | — | 1,421 | 150 | |||||||||||||||||||||||
Consumer - home equity | 320 | 320 | — | 458 | 8 | 295 | 295 | — | 306 | 9 | ||||||||||||||||||
With an allowance recorded | ||||||||||||||||||||||||||||
With an ACL recorded | ||||||||||||||||||||||||||||
SBL non-real estate | 1,478 | 1,478 | (829) | 2,267 | 13 | 974 | 974 | (525) | 1,237 | 7 | ||||||||||||||||||
SBL commercial mortgage | 589 | 589 | (115) | 2,634 | — | 1,423 | 1,423 | (441) | 1,090 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 711 | — | 3,386 | 3,386 | (153) | 1,245 | — | ||||||||||||||||||
Direct lease financing | — | — | — | 132 | — | 3,550 | 3,550 | (933) | 710 | — | ||||||||||||||||||
Consumer - other | — | — | — | 5 | — | |||||||||||||||||||||||
Other loans | 692 | 692 | (15) | 1,923 | — | |||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
SBL non-real estate | 1,887 | 4,892 | (829) | 2,679 | 18 | 1,374 | 3,736 | (525) | 1,625 | 7 | ||||||||||||||||||
SBL commercial mortgage | 812 | 835 | (115) | 4,351 | — | 1,423 | 1,423 | (441) | 1,135 | — | ||||||||||||||||||
SBL construction | 710 | 710 | (34) | 711 | — | 3,386 | 3,386 | (153) | 1,245 | — | ||||||||||||||||||
Direct lease financing | 254 | 254 | — | 562 | — | 3,550 | 3,550 | (933) | 762 | — | ||||||||||||||||||
Consumer - other | — | — | — | 5 | — | |||||||||||||||||||||||
Legacy commercial real estate and Other loans | 4,244 | 4,244 | (15) | 3,344 | 150 | |||||||||||||||||||||||
Consumer - home equity | 320 | 320 | — | 458 | 8 | 295 | 295 | — | 306 | 9 | ||||||||||||||||||
$ | 3,983 | $ | 7,011 | $ | (978) | $ | 8,766 | $ | 26 | $ | 14,272 | $ | 16,634 | $ | (2,067) | $ | 8,417 | $ | 166 |
We had $3.6$12.9 million of non-accrual loans at March 31, 20222023, compared to $3.2$10.4 million of non-accrual loans at December 31, 2021.2022. The $460,000$2.5 million increase in non-accrual loans was primarily due to $576,000$6.8 million of loans placed on non-accrual status, partially offset by $98,000$2.9 million transferred to repossessed vehicle inventory, $1.0 million of charge-offs.charge-offs, and $342,000 of payments. Loans past due 90 days or more still accruing interest amounted to $4.6 million$873,000 at March 31, 20222023 and $461,000$7.8 million at December 31, 2021.2022. The $4.1$6.9 million increasedecrease reflected $614,000$1.4 million of additions $44,000partially offset by $3.8 million of loan payments, and $3.6 million transferred to non-accrual loans $737,000 transferred to OREO, and $207,000 of loans reclassified from discontinued operations.charge-offs.
We had $18.9$21.1 million of OREO at March 31, 20222023 and $18.9$21.2 million of OREO at December 31, 2021 after the reclassification2022. The change in balance reflected $737,000 transferred from loans past due 90 days or more still accruing interest, and $830,000 of $17.3 million from discontinued operations. There was no other significant activity during the quarter.charge-offs.
We evaluate loans under an internal loan risk rating system as a means of identifying problem loans. At March 31, 20222023 and December 31, 20212022, classified loans accordingly classified were segregated by year of origination and are shown in “Note 66. Loans” to the unaudited consolidated financial statements herein.
Premises and equipment, net. Equipment, Net
Premises and equipment amounted to $16.3$21.3 million at March 31, 20222023, compared to $16.2$18.4 million at December 31, 2021.2022. The decreaseincrease reflected depreciation.
Assets held-for-sale from discontinued operations. Assets held-for-sale from discontinued operations were reclassified to continuing operations asthe acquisition of March 31, 2022 and as of prior period reporting dates. Those assets had consisted primarily of commercial, commercial
mortgage and construction loans, and OREO, which consisted primarily ofequipment for a Florida mall which has been written down to $15.0 million. We expect to continue our efforts to disposeof the mall, which was appraised in December 2021 for $21.4 million.new data center.
Deposits
.
Our primary source of funding is deposit acquisition. We offer a variety of deposit accounts with a range of interest rates and terms, including demand, checking and money market accounts. The majority of our deposits are generated through prepaid and debit card and other payments related deposit accounts. One of our strategic focusfocuses is growing these accounts through affinity groups. At March 31, 2022,2023, we had total deposits of $6.23$6.70 billion compared to $5.98$7.03 billion at December 31, 2021, an increase2022, a decrease of $251.4$325.5 million, or 4.2%4.6%. The increasechange reflected tax refunds deposited into customer accounts, a significant amount$330.0 million decrease in short term time deposits. Those time deposits matured in the first quarter of which is temporary until those funds are spent.2023.
The following table presents the average balance and rates paid on deposits for the periods indicated (dollars in thousands):
For the three months ended | For the year ended | |||||||||
March 31, 2022 | December 31, 2021 | |||||||||
Average | Average | Average | Average | |||||||
balance | rate | balance | rate | |||||||
Demand and interest checking * | $ | 5,575,228 | 0.10% | $ | 5,321,283 | 0.09% | ||||
Savings and money market | 532,047 | 0.15% | 427,708 | 0.14% | ||||||
Total deposits | $ | 6,107,275 | 0.11% | $ | 5,748,991 | 0.10% | ||||
For the three months ended | For the year ended | |||||||||
March 31, 2023 | December 31, 2022 | |||||||||
Average | Average | Average | Average | |||||||
balance | rate | balance | rate | |||||||
Demand and interest checking(1) | $ | 6,406,834 | 2.02% | $ | 5,670,818 | 0.70% | ||||
Savings and money market | 132,279 | 3.69% | 510,370 | 1.67% | ||||||
Time | 84,333 | 4.07% | 86,907 | 3.15% | ||||||
Total deposits | $ | 6,623,446 | 2.08% | $ | 6,268,095 | 0.82% | ||||
* (1)Non-interest bearing demand accounts are not paid interest. The amount shown as interest reflects the fees paid to affinity groups, which are based upon a rate index, and therefore classified as interest expense.
Short-term borrowingsBorrowings.
Short-term borrowings consist of amounts borrowed on our linelines of credit with the FRBFederal Reserve Bank or FHLB. There were no borrowings on either line at March 31, 20222023 or December 31, 2021.2022. We generally utilize overnight borrowings to manage our daily reserve requirements at the Federal Reserve. Period-end and year-to-date information for the dates shown is as follows.
March 31, | December 31, | March 31, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(dollars in thousands) | (Dollars in thousands) | |||||||||
Short-term borrowings | ||||||||||
Balance at period end | $ | — | $ | — | $ | — | $ | — | ||
Average for the three months ended March 31, 2022 | 555 | na | ||||||||
Average for the three months ended March 31, 2023 | 20,500 | N/A | ||||||||
Average during the year | 555 | 19,958 | 20,500 | 60,312 | ||||||
Maximum month-end balance | — | 300,000 | 450,000 | 495,000 | ||||||
Weighted average rate during the period | 0.25% | 0.25% | 4.57% | 2.55% | ||||||
Rate at period end | 0.25% | 0.25% | — | — |
Senior debtDebt.
On August 13, 2020, we issued $100.0 million of senior debtthe 2025 Senior Notes, with a maturity date of August 15, 2025, and a 4.75% interest rate, with interest paid semi-annually on March 15 and September 15. The 2025 Senior Notes are the Company’s direct, unsecured and unsubordinated obligations and rank equal in priority with all our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all our existing and future subordinated indebtedness. In lieu of repayment of debt from dividends paid by the Bank dividends,to the Company, industry practice includes the issuance of new debt to repay maturing debt.
Borrowings.
At March 31, 2022,2023, we had other long-term borrowings of $39.3$10.0 million, compared to $39.5unchanged from $10.0 million at December 31, 2021.2022. The borrowings consisted of sold loans which were accounted for as a secured borrowing because they did not qualify for true sale accounting. We do not have any policy prohibiting us from incurring debt. Subordinated debentures of
The 2038 Debentures, which total $13.4 million, mature in March 2038 and bear interest at three-month LIBOR plus 3.25%, are grandfathered to qualify as tier 1 capital at the Bank, mature in March 2038 and carry a floating rate of 3-Month LIBOR plus 3.25%.Bank.
Other liabilities. Liabilities
Other liabilities amounted to $50.5$54.6 million at March 31, 20222023, compared to $62.2$56.3 million at December 31, 2021.
The difference reflected changes in taxes payable.2022.
Off-balance sheet arrangements
.
There were no off-balance sheet arrangements during the three months ended March 31, 20222023 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
Contractual Obligations and Other Commitments
Our contractual obligations at March 31, 2022, with the exception of minimum annual rentals on noncancelable operating leases, did not significantly change from our contractual obligations at December 31, 2021, which are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. On January 28, 2022, the Company signed a lease for approximately 52,000 square feet to relocate its Sioux Falls office to a new Sioux Falls location, for a minimum period of 10 years, which can be extended. Estimated occupancy is mid-2023 when rent payments, which begin at $24 per square foot, will increase throughout that 10 year period and amount to $28.68 in year 10.
The approximate future minimum annual rental payments, including any additional rents for escalation clauses, as of March 31, 2022 (in thousands), are as follows:
Payments due by period | |||||||||||||||
Less than | One to | Three to | After | ||||||||||||
Contractual obligation | Total | one year | three years | five years | five years | ||||||||||
Minimum annual rentals on | |||||||||||||||
noncancelable operating leases | $ | 31,709 | $ | 2,450 | $ | 7,124 | $ | 4,284 | $ | 17,851 | |||||
Total | $ | 31,709 | $ | 2,450 | $ | 7,124 | $ | 4,284 | $ | 17,851 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except as discussedInformation about market risk for the quarter ended March 31, 2023 is included under “Asset and Liability Management” in Part I, Item 2,2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations” of this Quarterly Report on Form 10-Q. Except for such information, there has been no material change into our assessment of our sensitivity to market risk since our presentationas discussed in our Annual Report onthe 2022 Form 10-K for the year ended December 31, 2021.10-K.
Information with respect to quantitative and qualitative disclosures about market risk is includedAs noted under the section entitled “Asset and Liability Management”Management,” the Company’s exposure to interest rate risk is managed through the use of guidelines which limit interest rate exposure to higher interest rates. Because the Company has emphasized variable rate instruments in Part 1 Item 2 “Management’s Discussionits loan and Analysisinvestment portfolios, it tends to benefit from higher interest rate environments. As a result of Financial Conditionthe Federal Reserve rate increases in 2022 and Results of Operations”. 2023, net interest income has increased and exceeded prior period levels. Future Federal Reserve rate reductions may result in a return to lower net interest income levels. In addition to the aforementioned guidelines which the Company uses to manage interest rate risk, the Company utilizes an asset liability committee to provide oversight by multiple departments and senior officers.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure. MembersBecause of our operational management and internal audit meet regularly to provide an established structure to report any weaknesses or other issues with controls, or any matter that has not been reported previously, to our Chief Executive Officer and Chief Financial Officer, and, in turn to the Audit Committee of our Board of Directors. In designing and evaluating theinherent limitations, disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possibledisclosure controls and procedures.procedures are met.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, we haveour management carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures arewere effective at thea reasonable level of assurance level.as of March 31, 2023.
Changes in Internal Control Over Financial Reporting
There has beenwere no changechanges in our internal control over financial reporting that occurred(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 20222023 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
.
PART II – OTHER INFORMATIONINFORMATION
Item 1. Legal Proceedings
For a discussion of Legal Proceedings,our material pending legal proceedings, see Part I, Financial Information, “Notes“Note 14. Legal” to Unaudited Consolidated Financial Statements, Note 14--Legal.”the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
Our business, financial condition, operating results and cash flows could be impactedare subject to various risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in the 2022 Form 10-K and additionally by the factors in Item 1A. Risk Factorsfollowing risk factor.
Recent developments in the Form 10-K forbanking industry related to specific problem banks could have a negative impact on the year ended December 31, 2021.industry as a whole and may negatively impact stock prices and result in additional regulations that could increase our expenses and otherwise affect our operations.
There
Recent high-profile bank failures have been nogenerated market volatility among publicly traded bank holding companies, unrelated to the Company, and industry commentary through social media and other outlets has negatively impacted confidence in depository institutions and created uncertainty with respect to the health of the U.S. banking system. If such levels of financial market volatility continue, or if rumored or actual events occur which further erode the actual or perceived stability of the banking system and financial markets, this could trigger additional regulatory scrutiny, increased FDIC insurance premiums or assessments, and new or amended regulations which may adversely affect the Company. While the underlying causes of these recent market events are not apparent within the Company or the Bank, these recent events and regulatory agency responses, including increased FDIC insurance premiums or assessments, could have a material changes from the risk factors previously disclosed in the Company’s Annual Reportimpact on Form 10-K for the year ended December 31, 2021.our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Information on Stock Repurchases
In October 2021,The following table sets forth information regarding the Company’s repurchases of its common stock during the quarter ended March 31, 2023:
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs(1) | Approximate dollar value of shares that may yet be purchased under the plans or programs(2) | ||||||
(Dollars in thousands, except per share data) | ||||||||||
January 1, 2023 - January 31, 2023 | 321,653 | $ | 29.65 | 321,653 | $ | 90,462 | ||||
February 1, 2023 - February 28, 2023 | 275,552 | 35.14 | 275,552 | 80,778 | ||||||
March 1, 2023 - March 31, 2023 | 181,237 | 31.88 | 181,237 | 75,000 | ||||||
Total | 778,442 | 32.12 | 778,442 | 75,000 |
(1)During the first quarter of 2023, all shares of common stock were repurchased pursuant to the 2023 Repurchase Program, which was approved by the Board approved a revised common stock repurchase program for theon October 26, 2022 fiscal year (the “2022 Common Stock Repurchase Plan”).and publicly announced on October 27, 2022. Under the 2022 Common Stock2023 Repurchase Program, the Company is authorized to repurchase shares of its common stock totaling up to $15.0$25.0 million in eachper quarter of 2022, for a maximum amount of $60.0$100.0 million in 2023 depending on the share price, securities laws and stock exchange rules which regulate such repurchases. Under the stock repurchase program, the. The Company intends tomay repurchase shares through open market purchases, including through written trading plans under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934 (“Exchange Act”). The Board also authorized the Company to enter into written trading plans under Rule 10b5-1 of the Exchange Act.
(2)The 2023 Repurchase Program may be suspended, amended or discontinued at any time and has an expiration date of December 31, 2023. With respect to further repurchases, in subsequent quarters under this program, the Company cannot predict if, or when, it will repurchase any shares of common stock, and the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors.
The following table sets forth information regarding the Company’s purchases of its common stock during the quarter ended March 31, 2022:
Period | Total number of shares purchased(1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs(1) | ||||||
(dollars in thousands except per share data) | ||||||||||
January 1, 2022 - January 31, 2022 | 499,458 | $ | 28.33 | 499,458 | $ | 45,851 | ||||
February 1, 2022 - February 28, 2022 | 27,935 | 30.45 | 27,935 | 45,000 | ||||||
March 1, 2022 - March 31, 2022 | — | — | — | 45,000 | ||||||
Total | 527,393 | 28.44 | 527,393 | 45,000 |
(1)On October 20, 2021, the Company’s Board of Directors approved a stock repurchase plan, under which the Company was authorized to purchase shares for up to $15.0 million in each quarter through December 31, 2022, at which date the current plan terminates.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit No. | Description | |
3.1.1 | Certificate of Incorporation filed July 20, 1999, amended July 27, 1999, amended June 7, 2001, and amended October 8, 2002 | |
3.1.2 | Amendment to Certificate of Incorporation filed July 30, 2009 | |
3.1.3 | Amendment to Certificate of Incorporation filed May 18, 2016 | |
3.2 | Amended and Restated Bylaws | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document ** | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document * | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document * | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document * | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document * | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document * | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * | |
* | Filed herewith | |
** | The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
(1)Filed previously as an exhibit to our Registration Statement on Form S-4, registration number 333-117385, and by this reference incorporated herein.
(2)Filed previously as an exhibit to our quarterly report on Form 10-Q filed November 9, 2016, and by this reference incorporated herein (File No. 000-51018).
(3)Filed previously as an exhibit to our annual report on Form 10-K filed March 16, 2017, and by this reference incorporated herein (File No. 000-51018).
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.
10 | ||
THE BANCORP, INC. | ||
(Registrant) | ||
May 10, | /S/ DAMIAN KOZLOWSKI | |
Date | Damian Kozlowski | |
Chief Executive Officer | ||
May 10, | /S/ PAUL FRENKIEL | |
Date | Paul Frenkiel Chief Financial Officer and Secretary | |