Loans and Leases | Note 3 — Loans and Leases The Board of Directors and management review and approve the Bank’s loan and lease policy and procedures on a regular basis to reflect matters such as regulatory and organizational structure changes, strategic planning revisions, concentrations of credit, loan and lease delinquencies and nonperforming loans and leases, and problem loans and leases. Real estate loans are loans secured by liens or interest in real estate, to provide purchase, construction, and refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit, Small Business Administration (“SBA”) and international loans. Leases receivable include equipment finance agreements, which are typically secured by the business assets being financed. Consumer loans consist of auto loans, personal loans, and home equity lines of credit. We maintain management loan review and monitoring departments that review and monitor pass graded loans as well as problem loans to prevent further deterioration. Concentrations of Credit: The majority of the Bank’s loan and lease portfolio consists of commercial real estate loans. Loans and leases receivable, net Loans and leases receivable consisted of the following as of the dates indicated: December 31, 2019 2018 (in thousands) Real estate loans: Commercial property Retail $ 869,302 $ 906,260 Hospitality 922,288 830,679 Other (1) 1,358,432 1,449,270 Total commercial property loans 3,150,022 3,186,209 Construction 76,455 71,583 Residential property 402,028 500,563 Total real estate loans 3,628,505 3,758,355 Commercial and industrial loans: Commercial term 227,652 206,691 Commercial lines of credit 228,033 194,032 International loans 28,409 29,180 Total commercial and industrial loans 484,093 429,903 Leases receivable 483,879 398,858 Consumer loans (2) 13,670 13,424 Loans and leases receivable 4,610,147 4,600,540 Allowance for loan and lease losses (61,408 ) (31,974 ) Loans and leases receivable, net $ 4,548,739 $ 4,568,566 (1) (2) Consumer loans include home equity lines of credit of $8.2 million and $10.3 million as of December 31, 2019 and 2018, respectively. Accrued interest on loans and leases receivable was $10.0 million and $10.9 million at December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, $1.35 billion and $1.10 billion of loans and leases receivable, respectively, were pledged to secure advances from the FHLB. Loans Held for Sale The following table details the information on SBA loans held for sale by portfolio segment for the years ended December 31, 2019 and 2018: Real Estate Commercial and Industrial Total (in thousands) December 31, 2019 Balance at beginning of period $ 5,194 $ 4,196 $ 9,390 Originations 43,001 33,764 76,765 Sales (45,251 ) (34,865 ) (80,116 ) Principal paydowns and amortization (1 ) (18 ) (19 ) Balance at end of period $ 2,943 $ 3,077 $ 6,020 December 31, 2018 Balance at beginning of period $ 3,746 $ 2,648 $ 6,394 Originations 39,243 39,903 79,146 Sales (37,790 ) (38,161 ) (75,951 ) Principal paydowns and amortization (5 ) (194 ) (199 ) Balance at end of period $ 5,194 $ 4,196 $ 9,390 Allowance for Loan and Lease Losses Activity in the allowance for loan and lease losses was as follows for the periods indicated: As of and for the Year Ended December 31, 2019 2018 2017 (in thousands) Allowance for loan losses: Balance at beginning of period $ 31,974 $ 31,043 $ 32,429 Loans and leases charged off (4,588 ) (7,310 ) (5,899 ) Recoveries on loans and leases previously charged off 3,852 4,251 3,682 Net charge-offs (736 ) (3,059 ) (2,217 ) Loan and lease loss provision 30,170 3,990 831 Balance at end of period $ 61,408 $ 31,974 $ 31,043 The following table details the information on the allowance for loan and lease losses by portfolio segment for the years ended December 31, 2019 and 2018: Real Estate Commercial and Industrial Leases Receivable Consumer Unallocated Total (in thousands) December 31, 2019 Allowance for loan and lease losses: Beginning balance $ 18,384 $ 7,162 $ 6,303 $ 98 $ 27 $ 31,974 Less loans and leases charged off (131 ) (1,293 ) (3,162 ) (1 ) — (4,588 ) Recoveries on loans and leases previously charged off 2,190 1,241 422 0 — 3,852 Loan and lease loss provision 15,913 9,097 5,205 (17 ) (27 ) 30,170 Ending balance $ 36,355 $ 16,206 $ 8,767 $ 80 $ — $ 61,408 Individually evaluated for impairment $ 14,028 $ 8,885 $ 2,863 $ 1 $ — $ 25,778 Collectively evaluated for impairment $ 22,327 $ 7,321 $ 5,904 $ 79 $ — $ 35,631 Loans and leases receivable $ 3,628,505 $ 484,093 $ 483,879 $ 13,670 $ — $ 4,610,147 Individually evaluated for impairment $ 43,867 $ 13,700 $ 5,902 $ 1,297 $ — $ 64,766 Collectively evaluated for impairment $ 3,584,638 $ 470,393 $ 477,977 $ 12,373 $ — $ 4,545,382 December 31, 2018 Allowance for loan and lease losses: Beginning balance $ 17,012 $ 7,400 $ 6,279 $ 122 $ 230 $ 31,043 Less loans and leases charged off (3,897 ) (815 ) (2,598 ) — — (7,310 ) Recoveries on loans and leases previously charged off 2,512 1,369 368 2 — 4,251 Loan and lease loss provision 2,757 (792 ) 2,254 (26 ) (203 ) 3,990 Ending balance $ 18,384 $ 7,162 $ 6,303 $ 98 $ 27 $ 31,974 Individually evaluated for impairment $ 1 $ 428 $ 1,383 $ — $ — $ 1,812 Collectively evaluated for impairment $ 18,383 $ 6,734 $ 4,920 $ 98 $ 27 $ 30,162 Loans and leases receivable $ 3,758,355 $ 429,903 $ 398,858 $ 13,424 $ — $ 4,600,540 Individually evaluated for impairment $ 14,761 $ 4,396 $ 5,129 $ 839 $ — $ 25,125 Collectively evaluated for impairment $ 3,743,594 $ 425,507 $ 393,729 $ 12,585 $ — $ 4,575,415 Loan and Lease Quality Indicators As part of the on-going monitoring of the quality of our loan and lease portfolio, we utilize an internal loan and lease grading system to identify credit risk and assign an appropriate grade (from 0 to 8) for each and every loan or lease in our loan and lease portfolio. A third-party loan review is required on an annual basis. Additional adjustments are made when determined to be necessary. The loan and lease grade definitions are as follows: Pass and Pass-Watch: Pass and Pass-Watch loans and leases, grades (0-4), are in compliance with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention,” “Substandard” or “Doubtful.” This category is the strongest level of the Bank’s loan and lease grading system. It consists of all performing loans and leases with no identified credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans. Special Mention: A Special Mention loan or lease, grade (5), has potential weaknesses that deserve management’s close attention. If not corrected, these potential weaknesses may result in deterioration of the repayment of the debt and result in a Substandard classification. Loans and leases that have significant actual, not potential, weaknesses are considered more severely classified. Substandard: A Substandard loan or lease, grade (6), has a well-defined weakness that jeopardizes the liquidation of the debt. A loan or lease graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan or lease, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected. Doubtful: A Doubtful loan or lease, grade (7), is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the loan or lease, and therefore the amount or timing of a possible loss cannot be determined at the current time. Loss: A loan or lease classified as Loss, grade (8), is considered uncollectible and of such little value that their continuance as active bank assets is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be possible in the future. Loans and leases classified as Loss will be charged off in a timely manner. As of December 31, 2019 and 2018, the recorded investment in pass/pass-watch, special mention and classified (substandard, doubtful and loss) loans and leases, disaggregated by loan class, were as follows: Pass/Pass- Watch Special Mention Classified Total (in thousands) December 31, 2019 Real estate loans: Commercial property Retail $ 859,739 $ 2,835 $ 6,728 $ 869,302 Hospitality 915,834 939 5,515 922,288 Other 1,329,817 7,807 20,809 1,358,432 Total commercial property loans 3,105,390 11,580 33,052 3,150,022 Construction 36,956 1,613 37,886 76,455 Residential property 398,737 2,512 779 402,028 Total real estate loans 3,541,082 15,705 71,718 3,628,505 Commercial and industrial loans: Commercial term 210,026 2,139 15,487 227,652 Commercial lines of credit 222,348 5,485 200 228,033 International loans 25,810 2,598 — 28,409 Total commercial and industrial loans 458,184 10,222 15,687 484,093 Leases receivable 477,977 — 5,902 483,879 Consumer loans 12,247 705 718 13,670 Total loans and leases receivable $ 4,489,491 $ 26,632 $ 94,025 $ 4,610,147 December 31, 2018 Real estate loans: Commercial property Retail $ 901,354 $ 16 $ 4,890 $ 906,260 Hospitality 821,542 168 8,969 830,679 Other 1,441,219 2,723 5,328 1,449,270 Total commercial property loans 3,164,115 2,907 19,187 3,186,209 Construction 71,583 — — 71,583 Residential property 500,424 — 139 500,563 Total real estate loans 3,736,122 2,907 19,326 3,758,355 Commercial and industrial loans: Commercial term 197,992 4,977 3,722 206,691 Commercial lines of credit 172,338 21,107 587 194,032 International loans 29,180 — — 29,180 Total commercial and industrial loans 399,510 26,084 4,309 429,903 Leases receivable 393,729 — 5,129 398,858 Consumer loans 12,454 191 779 13,424 Total loans and leases receivable $ 4,541,815 $ 29,182 $ 29,543 $ 4,600,540 The following is an aging analysis of recorded investment in loans and leases, disaggregated by loan class, as of the dates indicated: 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total (in thousands) December 31, 2019 Real estate loans: Commercial property Retail $ 6 $ 132 $ 111 $ 249 $ 869,053 $ 869,302 Hospitality 907 — — 907 921,381 922,288 Other 51 — 38 89 1,358,344 1,358,432 Total commercial property loans 964 132 149 1,245 3,148,778 3,150,022 Construction — — — — 76,455 76,455 Residential property 540 1,627 309 2,477 399,551 402,028 Total real estate loans 1,504 1,759 458 3,721 3,624,784 3,628,505 Commercial and industrial loans: Commercial term 635 133 143 911 226,742 227,652 Commercial lines of credit — — — — 228,033 228,033 International loans — — — — 28,409 28,409 Total commercial and industrial loans 635 133 143 911 483,183 484,093 Leases receivable 5,358 2,138 3,493 10,990 472,889 483,879 Consumer loans — 30 — 30 13,639 13,670 Total loans and leases receivable $ 7,497 $ 4,060 $ 4,094 $ 15,652 $ 4,594,496 $ 4,610,147 December 31, 2018 Real estate loans: Commercial property Retail $ 221 $ — $ 986 $ 1,207 $ 905,053 $ 906,260 Hospitality 65 1,203 1,893 3,161 827,518 830,679 Other 816 206 1,205 2,227 1,447,043 1,449,270 Total commercial property loans 1,102 1,409 4,084 6,595 3,179,614 3,186,209 Construction — — — — 71,583 71,583 Residential property 3,947 273 44 4,264 496,299 500,563 Total real estate loans 5,049 1,682 4,128 10,859 3,747,496 3,758,355 Commercial and industrial loans: Commercial term 334 49 1,117 1,500 205,191 206,691 Commercial lines of credit — — 587 587 193,445 194,032 International loans — — — — 29,180 29,180 Total commercial and industrial loans 334 49 1,704 2,087 427,816 429,903 Leases receivable 4,681 845 3,737 9,263 389,595 398,858 Consumer loans 146 — — 146 13,278 13,424 Total loans and leases receivable $ 10,210 $ 2,576 $ 9,569 $ 22,355 $ 4,578,185 $ 4,600,540 There were no loans that were 90 days or more past due and accruing interest as of December 31, 2019 and $4,000 of loans that were 90 days or more past due and accruing interest as of December 31, 2018. Impaired Loans and Leases Loans and leases are considered impaired when: they are classified as nonaccrual and principal or interest payments have been contractually past due for 90 days or more, unless the loan is both well-collateralized and in the process of collection; they are classified as TDR loans to offer terms not typically granted by the Bank; current information or events make it unlikely to collect in full according to the contractual terms of the loan or lease agreements; there is a deterioration in the borrower’s financial condition that raises uncertainty as to timely collection of either principal or interest; or full payment of both interest and principal is in doubt according to the original contractual terms. We evaluate loan and lease impairment in accordance with GAAP. Impaired loans and leases are measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan or lease, or, as a practical expedient, at the observable market price or the fair value of the collateral if the loan or lease is collateral dependent, less costs to sell. If the measure of the impaired loan or lease is less than the recorded investment, the deficiency will be charged off against the allowance for loan and lease receivable losses or, alternatively, a specific allocation will be established. Additionally, loans or leases that are considered impaired are specifically excluded from the analysis when determining the amount of the general allowance for loan and lease losses required for the period. The allowance for collateral-dependent loans and leases is determined by calculating the difference between the recorded investment and the value of the collateral as determined by recent appraisals. The allowance for collateral-dependent loans and leases varies from loan to loan based on the collateral coverage of the loan or lease at the time of designation as nonperforming. We continue to monitor the collateral coverage, using recent appraisals, on these loans and leases on a quarterly basis and adjust the allowance accordingly. The following table provides information on impaired loans and leases, disaggregated by loan class, as of the dates indicated: Recorded Investment Unpaid Principal Balance With No Related Allowance Recorded With an Allowance Recorded Related Allowance Average Recorded Investment Interest Income Recognized (in thousands) December 31, 2019 Real estate loans: Commercial property Retail $ 434 $ 459 $ 111 $ 323 $ 19 $ 894 $ 13 Hospitality 244 400 22 223 24 1,683 — Other 14,864 15,151 14,696 167 12 10,619 168 Total commercial property loans 15,542 16,010 14,829 713 55 13,196 181 Construction 27,201 28,000 — 27,201 13,973 18,421 249 Residential property 1,124 1,163 1,089 35 — 1,356 29 Total real estate loans 43,867 45,173 15,918 27,949 14,028 32,973 459 Commercial and industrial loans 13,700 14,090 143 13,557 8,885 19,361 512 Leases receivable 5,902 5,909 1,112 4,790 2,863 4,854 44 Consumer loans 1,297 1,588 1,220 77 1 1,489 37 Total $ 64,766 $ 66,760 $ 18,393 $ 46,373 $ 25,778 $ 58,677 $ 1,052 December 31, 2018 Real estate loans: Commercial property Retail $ 2,166 $ 2,207 $ 1,894 $ 272 $ — $ 2,001 $ 183 Hospitality 4,282 5,773 4,032 250 — 7,285 482 Other 7,525 8,016 6,253 1,272 1 7,978 601 Total commercial property loans 13,973 15,996 12,179 1,794 1 17,264 1,266 Construction — — — — — — — Residential property 788 929 788 — — 1,932 91 Total real estate loans 14,761 16,925 12,967 1,794 1 19,196 1,357 Commercial and industrial loans 4,396 4,601 1,644 2,752 428 3,568 211 Leases receivable 5,129 5,162 1,256 3,873 1,383 5,229 46 Consumer loans 839 1,073 746 93 — 1,020 60 Total $ 25,125 $ 27,761 $ 16,613 $ 8,512 $ 1,812 $ 29,013 $ 1,674 December 31, 2017 Real estate loans: Commercial property Retail $ 1,403 $ 1,423 $ 1,246 $ 157 $ 1 $ 1,528 $ 106 Hospitality 6,184 7,220 2,144 4,040 1,677 6,080 431 Other 8,513 9,330 7,569 944 394 9,551 842 Total commercial property loans 16,100 17,973 10,959 5,141 2,072 17,159 1,379 Construction — — — — — — — Residential property 2,563 2,728 824 1,739 21 2,771 122 Total real estate loans 18,663 20,701 11,783 6,880 2,093 19,930 1,501 Commercial and industrial loans 3,040 3,081 1,069 1,971 441 4,214 208 Leases receivable 4,452 4,626 455 3,997 3,334 4,464 47 Consumer loans 1,029 1,215 919 110 10 982 33 Total $ 27,184 $ 29,623 $ 14,226 $ 12,958 $ 5,878 $ 29,590 $ 1,789 The following is a summary of interest foregone on impaired loans and leases for the periods indicated: Year Ended December 31, 2019 2018 2017 (in thousands) Interest income that would have been recognized had impaired loans and leases performed in accordance with their original terms $ 3,439 $ 2,808 $ 2,575 Less: Interest income recognized on impaired loans and leases (1,279 ) (1,674 ) (1,790 ) Interest foregone on impaired loans and leases $ 2,160 $ 1,134 $ 785 There were no commitments to lend additional funds to borrowers whose loans or leases are included above. Nonaccrual Loans and Leases The following table details the recorded investment in nonaccrual loans and leases, disaggregated by loan class, as of the dates indicated: As of December 31, 2019 2018 (in thousands) Real estate loans: Commercial property Retail $ 277 $ 865 Hospitality 225 3,625 Other 14,864 1,641 Total commercial property loans 15,366 6,131 Construction 27,201 — Residential property 1,124 182 Total real estate loans 43,691 6,313 Commercial and industrial loans 13,479 3,337 Leases receivable 5,902 5,129 Consumer loans 689 746 Total nonaccrual loans and leases $ 63,761 $ 15,525 The following table details the recorded investment in nonperforming assets as of the dates indicated: As of December 31, 2019 2018 (in thousands) Nonaccrual loans and leases $ 63,761 $ 15,525 Loans and leases 90 days or more past due and still accruing — 4 Total nonperforming loans and leases 63,761 15,529 Other real estate owned ("OREO") 63 663 Total nonperforming assets $ 63,824 $ 16,192 OREO consisted of two properties with a combined carrying value of $63,000 as of December 31, 2019, and seven properties with a combined carrying value of $663,000 as of December 31, 2018. Troubled Debt Restructuring The following table details the recorded investment in TDRs, disaggregated by concession type and by loan type, as of December 31, 2019 and 2018: Nonaccrual TDRs Accrual TDRs Deferral of Principal Deferral of Principal and/or Interest Reduction of Principal and/or Interest Extension of Maturity Total Deferral of Principal Deferral of Principal and/or Interest Reduction of Principal and/or Interest Extension of Maturity Total (in thousands) December 31, 2019 Real estate loans $ — $ 132 $ 27,740 $ 13,926 $ 41,798 $ — $ — $ — $ — $ — Commercial and industrial loans — 153 12,527 312 12,991 — 36 71 114 222 Consumer loans 689 — — — 689 531 — 77 — 608 Total loans $ 689 $ 285 $ 40,266 $ 14,238 $ 55,478 $ 531 $ 36 $ 148 $ 114 $ 830 December 31, 2018 Real estate loans $ 462 $ 1,423 $ 174 $ — $ 2,059 $ 3,345 $ — $ 1,148 $ 741 $ 5,234 Commercial and industrial loans 265 107 669 430 1,471 — 166 386 150 702 Consumer loans 746 — — — 746 — — 93 — 93 Total loans $ 1,473 $ 1,530 $ 843 $ 430 $ 4,276 $ 3,345 $ 166 $ 1,627 $ 891 $ 6,029 As of December 31, 2019 and 2018, total TDRs were $56.3 million, and $10.3 million, respectively. A debt restructuring is considered a TDR if we grant a concession that we would not have otherwise considered to the borrower, for economic or legal reasons related to the borrower’s financial difficulties. Loans are considered to be TDRs if they were restructured through payment structure modifications such as reducing the amount of principal and interest due monthly and/or allowing for interest only monthly payments for six months or less. All TDRs are impaired and are individually evaluated for specific impairment using one of these three criteria: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. The following table presents the number of loans by class modified as troubled debt restructurings that occurred during the year ending December 31, 2019, 2018, and 2017 with their pre- and post-modification recorded amounts. December 31, 2019 December 31, 2018 December 31, 2017 Number of Loans Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Number of Loans Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Number of Loans Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment (in thousands except for number of loans) Real estate loans 5 $ 40,743 $ 41,798 - $ - $ - 2 $ 182 $ 184 Commercial and industrial loans 2 12,779 12,562 2 684 664 1 123 123 Consumer loans 1 549 531 - - - 1 820 811 Total loans 8 $ 54,071 $ 54,892 2 $ 684 $ 664 4 $ 1,125 $ 1,118 At December 31, 2019 and 2018, TDRs were subjected to specific impairment analysis. We determined impairment allowances of $22.7 million and $300,000, respectively, related to these loans and such allowances were included in the allowance for loan and lease losses. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. During the years ended December 31, 2019 and 2018, only one loan in the amount of $132,000, defaulted within the twelve-month period following modification in the year 2019. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. |