NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Business
Cathay General Bancorp (“Bancorp”) is the holding company for Cathay Bank (the “Bank” and, together, with Bancorp, the “Company”), ten limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner, Asia Realty Corp. and GBC Venture Capital, Inc. Bancorp also owns 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities. The Bank was founded in 1962 and offers a wide range of financial services. As of June 30, 2020, the Bank operates 25 branches in Southern California, 13 branches in Northern California, 10 branches in New York State, four in Washington State, three in Illinois, two in Texas, one in Maryland, Massachusetts, Nevada, and New Jersey, one in Hong Kong, and a representative office in Taipei, Beijing, and Shanghai. Deposit accounts at the Hong Kong branch are not insured by the Federal Deposit Insurance Corporation (the “FDIC”).
2. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to the audited Consolidated Financial Statements and Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements. Actual results could differ from those estimates. The Company expects that the most significant estimates subject to change are the allowance for loan losses.
3. Recent Accounting Pronouncements
Accounting Standards Adopted in 2020
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Adoption of this update is on a prospective basis and the amendments in this update are to be applied to annual periods beginning after December 15, 2019. Adoption of ASU 2017-04 did not have a material impact on the Company’s Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. As ASU No. 2018-13 only revises disclosure requirements, there was no material impact on the Company’s Consolidated Financial Statements.
Other Accounting Standards Pending Adoption
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This update requires an entity to use a broader range of reasonable and supportable (“R&S”) forecasts, in addition to historical experience and current conditions, to develop an expected credit loss estimate, referred to as the Current Expected Credit Loss (“CECL”) model, for financial assets and net investments that are not accounted for at fair value through net income. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses to the amount by which fair value is below amortized cost.
The FASB issued additional ASUs containing clarifying guidance, transition relief provisions and minor updates to the original ASU. These include ASU 2018-19 (issued November 2018), ASU 2019-04 (issued April 2019), ASU 2019-05 (issued May 2019), ASU 2019-10 (issued November 2019), ASU 2019-11 (issued November 2019), ASU 2020-02 (issued February 2020) and ASU 2020-03 (issued March 2020). ASU 2016-13 and subsequent ASUs are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This amendment is required to be adopted using a modified retrospective approach with a cumulative-effect adjustment to beginning retained earnings, as of the beginning of the first reporting period in which the guidance is effective.
As previously disclosed, the Company formed a multidisciplinary project team and implementation plan, developed a conceptual framework, and engaged an outside firm to develop econometric regression models for net losses during the R&S forecast period. Our approach for estimating expected life-time credit losses includes, among other things, the following key components for all loan portfolio segments: a. The use of a probability of default/loss given default methodology; b. A number of scenarios based on forecasts from an outside economic forecasting company to develop economic forecasts for the R&S period; c. An initial R&S forecast period of eight quarters for all loan portfolio segments, which reflects management's expectation of losses based on forward-looking economic scenarios over that time; and d. A post-R&S reversion period of four quarters using a linear transition to the historical loss rates for each loan pool. Model back testing, third party model validation and management review of model results are substantially underway, and are nearing completion.
As previously disclosed, the Company has elected to delay its adoption of ASU 2016-13, as provided by the Coronavirus Aid, Relief, and Economic Security (the "CARES Act"), until the date on which the national emergency related to the COVID-19 outbreak is terminated or December 31, 2020, whichever occurs first. Upon adoption of ASU 2016-13, the Company expects to recognize, as of January 1, 2020, a one-time cumulative effect adjustment through retained earnings of between $10 million to $12 million and expects to increase its allowance for credit losses ("ACL") by $15 to $17 million. As of June 30, 2020, the Company’s process for estimation of the ACL under the CECL model is in progress as to the March 31, 2020 ACL and the June 30, 2020 ACL. Based on its preliminary analysis as of June 30, 2020, the Company preliminarily estimates an addition to its provision for credit losses of between $10 to $15 million for the first quarter of 2020 and between $5 million and $10 million for the second quarter of 2020, above the $25 million reported under the incurred loss method for the quarter ended March 31, 2020 and the quarter ended June 30, 2020.
In July 2017, the FASB issued ASU 2017-11, “Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815).” There are two parts to this update. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments that result in the strike price being reduced on the basis of the pricing of future equity offerings. Part II of this update addresses the difficulty in navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in this update are effective for fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in part I of this update should be applied in either of the following ways: (i) Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim periods in which the pending content that links to this paragraph is effective; or (ii) Retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments to Part II of this update do not require any transition guidance because those amendments do not have an accounting effect. The Company does not expect ASU 2017-11 to have a material impact on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740); Simplifying the Accounting for Income Taxes.” This ASU removes specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intra-period tax allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: Franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. This ASU is effective for public business entities, for fiscal years beginning after December 15, 2020 with early adoption permitted for public business entities for periods for which financial statements have not yet been issued. The Company does not expect the adoption of ASU 2019-12 to have a material impact on the Company’s Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, “'Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint-Ventures (Topic 323), and Derivatives and Hedging (Topic 815). Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is permitted, including early adoption in an interim period for public business entities for periods for which financial statements have not yet been issued. An entity should apply ASU No. 2020-01 prospectively at the beginning of the interim period that includes the adoption date. This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options, a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The Company does not expect the adoption of ASU 2020-01 to have a material impact on the Company’s Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. The Company is evaluating the impact of adopting ASU 2020-02 on the Company’s Consolidated Financial Statements.
4. Cash, Cash Equivalents and Restricted Cash
The Company manages its cash and cash equivalents, which consist of cash on hand, amounts due from banks, and short-term investments with original maturity of three months or less, based upon the Company’s operating, investment, and financing activities. For the purpose of reporting cash flows, these same accounts are included in cash and cash equivalents.
The Company is required to maintain reserves with the Federal Reserve Bank. Reserve requirements are based on a percentage of deposit liabilities. The average reserve balances required were $119 thousand and $110 thousand for the six months ended June 30, 2020 and for the year ended December 31, 2019, respectively. As of June 30, 2020 and December 31, 2019, the Bancorp had $13.7 million and $7.1 million, respectively, on deposit in a cash margin account that serves as collateral for the Bancorp’s interest rate swaps. As of June 30, 2020 and December 31, 2019, the Company held $33.5 million and $18.9 million, respectively, in a restricted escrow account with a major bank for its alternative energy investments.
5. Earnings per Share
Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that then shared in earnings. Restricted stock units (“RSUs”) with anti-dilutive effect were not included in the computation of diluted earnings per share. The following table sets forth earnings per common share calculations:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
54,321
|
|
|
$
|
72,244
|
|
|
$
|
101,173
|
|
|
$
|
138,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding
|
|
|
79,581,097
|
|
|
|
80,106,329
|
|
|
|
79,584,587
|
|
|
|
80,279,859
|
|
Dilutive effect of weighted-average outstanding common share equivalents RSUs
|
|
|
101,329
|
|
|
|
196,350
|
|
|
|
171,639
|
|
|
|
221,941
|
|
Diluted weighted-average number of common shares outstanding
|
|
|
79,682,426
|
|
|
|
80,302,679
|
|
|
|
79,756,226
|
|
|
|
80,501,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average restricted stock units with anti-dilutive effect
|
|
|
126,084
|
|
|
|
66,339
|
|
|
|
86,741
|
|
|
|
55,502
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
|
$
|
0.90
|
|
|
$
|
1.27
|
|
|
$
|
1.73
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
0.90
|
|
|
$
|
1.27
|
|
|
$
|
1.73
|
|
6. Stock-Based Compensation
Pursuant to the Company’s 2005 Incentive Plan, as amended and restated, the Company may grant incentive stock options (employees only), non-statutory stock options, common stock awards, restricted stock, RSUs, stock appreciation rights and cash awards to non-employee directors and eligible employees.
RSUs are generally granted at no cost to the recipient. RSUs generally vest ratably over three years or cliff vest after one or three years of continued employment from the date of the grant. While a portion of RSUs may be time-vesting awards, others may vest subject to the attainment of specified performance goals and are referred to as “performance-based RSUs.” All RSUs are subject to forfeiture until vested.
Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum of zero and to a maximum of 150% of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together to determine the total number of performance shares that are eligible to vest. Performance-based RSUs generally cliff vest three years from the date of grant.
Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value, which considers both market and performance conditions. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant.
The following table presents RSU activity during the six months ended June 30, 2020:
|
|
Time-Based RSUs
|
|
|
Performance-Based RSUs
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Balance at December 31, 2019
|
|
|
273,200
|
|
|
$
|
35.90
|
|
|
|
297,744
|
|
|
$
|
32.65
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
75,561
|
|
|
|
21.68
|
|
Vested
|
|
|
(77,464
|
)
|
|
|
25.48
|
|
|
|
(193,240
|
)
|
|
|
21.68
|
|
Forfeited
|
|
|
(3,412
|
)
|
|
|
39.30
|
|
|
|
(14,071
|
)
|
|
|
39.08
|
|
Balance at June 30, 2020
|
|
|
192,324
|
|
|
$
|
40.04
|
|
|
|
165,994
|
|
|
$
|
39.88
|
|
The compensation expense recorded for RSUs was $1.0 million and $1.5 million for the three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, the compensation expense recorded for RSUs was $2.5 million and $3.1 million, respectively. Unrecognized stock-based compensation expense related to RSUs was $6.1 million and $6.8 million as of June 30, 2020 and 2019, respectively. As of June 30, 2020, these costs are expected to be recognized over the next 1.5 years for time-based and performance-based RSUs.
As of June 30, 2020, 2,354,199 shares were available for future grants under the Company’s 2005 Incentive Plan, as amended and restated.
Tax deficiency from share-based payment arrangements increased income tax expense by $0.4 million and a tax benefit from share-based payment arrangements reduced income tax expense by $0.6 million in the six months ended June 30, 2020 and 2019, respectively.
7. Investment Securities
The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of securities available-for-sale as of June 30, 2020, and December 31, 2019:
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
$
|
99,935
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
99,927
|
|
U.S. government agency entities
|
|
|
107,558
|
|
|
|
499
|
|
|
|
664
|
|
|
|
107,393
|
|
Mortgage-backed securities
|
|
|
779,492
|
|
|
|
23,428
|
|
|
|
508
|
|
|
|
802,412
|
|
Collateralized mortgage obligations
|
|
|
314
|
|
|
|
—
|
|
|
|
13
|
|
|
|
301
|
|
Corporate debt securities
|
|
|
135,695
|
|
|
|
385
|
|
|
|
11
|
|
|
|
136,069
|
|
Total
|
|
$
|
1,122,994
|
|
|
$
|
24,313
|
|
|
$
|
1,205
|
|
|
$
|
1,146,102
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
$
|
74,926
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
74,936
|
|
U.S. government agency entities
|
|
|
90,452
|
|
|
|
663
|
|
|
|
319
|
|
|
|
90,796
|
|
U.S. government sponsored entities
|
|
|
225,000
|
|
|
|
—
|
|
|
|
557
|
|
|
|
224,443
|
|
Mortgage-backed securities
|
|
|
880,040
|
|
|
|
8,574
|
|
|
|
824
|
|
|
|
887,790
|
|
Collateralized mortgage obligations
|
|
|
569
|
|
|
|
—
|
|
|
|
17
|
|
|
|
552
|
|
Corporate debt securities
|
|
|
172,743
|
|
|
|
605
|
|
|
|
23
|
|
|
|
173,325
|
|
Total
|
|
$
|
1,443,730
|
|
|
$
|
9,852
|
|
|
$
|
1,740
|
|
|
$
|
1,451,842
|
|
The amortized cost and fair value of securities available-for-sale as of June 30, 2020, by contractual maturities, are set forth in the tables below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties.
|
|
June 30, 2020
|
|
|
|
Securities Available-For-Sale
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
181,868
|
|
|
$
|
182,062
|
|
Due after one year through five years
|
|
|
54,118
|
|
|
|
54,320
|
|
Due after five years through ten years
|
|
|
155,525
|
|
|
|
157,920
|
|
Due after ten years
|
|
|
731,483
|
|
|
|
751,800
|
|
Total
|
|
$
|
1,122,994
|
|
|
$
|
1,146,102
|
|
Equity Securities - The Company recognized a net gain of $5.8 million for the three months ended June 30, 2020, due to the increase in fair value of equity investments with readily determinable fair values compared to a net gain of $3.2 million for the three months ended June 30, 2019. The Company recognized a net loss of $323 thousand for the six months ended June 30, 2020, due to the decrease in fair value of equity investments with readily determinable fair values compared to a net gain of $7.4 million for the six months ended June 30, 2019. Equity securities were $24.6 million and $28.0 million as of June 30, 2020 and December 31, 2019, respectively.
The following tables set forth the gross unrealized losses and related fair value of the Company’s investment portfolio, aggregated by investment category and the length of time that individual security has been in a continuous unrealized loss position, as of June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
$
|
59,969
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,969
|
|
|
$
|
9
|
|
U.S. government agency entities
|
|
|
48,739
|
|
|
|
419
|
|
|
|
15,476
|
|
|
|
245
|
|
|
|
64,215
|
|
|
|
664
|
|
Mortgage-backed securities
|
|
|
1,440
|
|
|
|
10
|
|
|
|
9,921
|
|
|
|
498
|
|
|
|
11,361
|
|
|
|
508
|
|
Collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
301
|
|
|
|
13
|
|
|
|
301
|
|
|
|
13
|
|
Corporate debt securities
|
|
|
38,537
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,537
|
|
|
|
11
|
|
Total
|
|
$
|
148,685
|
|
|
$
|
449
|
|
|
$
|
25,698
|
|
|
$
|
756
|
|
|
$
|
174,383
|
|
|
$
|
1,205
|
|
|
|
December 31, 2019
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency entities
|
|
$
|
48,829
|
|
|
$
|
172
|
|
|
$
|
3,570
|
|
|
$
|
147
|
|
|
$
|
52,399
|
|
|
$
|
319
|
|
U.S. government sponsored entities
|
|
|
—
|
|
|
|
—
|
|
|
|
224,443
|
|
|
|
557
|
|
|
|
224,443
|
|
|
|
557
|
|
Mortgage-backed securities
|
|
|
43,719
|
|
|
|
36
|
|
|
|
120,801
|
|
|
|
788
|
|
|
|
164,520
|
|
|
|
824
|
|
Collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
552
|
|
|
|
17
|
|
|
|
552
|
|
|
|
17
|
|
Corporate debt securities
|
|
|
51,791
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
51,791
|
|
|
|
23
|
|
Total
|
|
$
|
144,339
|
|
|
$
|
231
|
|
|
$
|
349,366
|
|
|
$
|
1,509
|
|
|
$
|
493,705
|
|
|
$
|
1,740
|
|
To the Company’s knowledge, the unrealized losses were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads. The issuers have not, to the Company’s knowledge, established any cause for default on these securities. Management believes the gross unrealized losses detailed in the table above are temporary. The Company expects to recover the amortized cost basis of its securities and has no present intent to sell and will not be required to sell available-for-sale securities that have declined below their cost before their anticipated recovery. Accordingly, no other than temporary impairment write-downs were recorded on the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income in the six months ended June 30, 2020 and 2019.
Securities available-for-sale having a carrying value of $97.0 million and $20.1 million as of June 30, 2020 and December 31, 2019, respectively, were pledged to secure public deposits, other borrowings and treasury tax and loan.
8.Loans
Most of the Company’s business activities are with customers located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan customers in Hong Kong. The Company has no specific industry concentration, and generally its loans are secured by real property or other collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.
The types of loans in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2020, and December 31, 2019, were as follows:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
3,007,966
|
|
|
$
|
2,778,744
|
|
Residential mortgage loans
|
|
|
4,184,721
|
|
|
|
4,088,586
|
|
Commercial mortgage loans
|
|
|
7,391,502
|
|
|
|
7,275,262
|
|
Real estate construction loans
|
|
|
624,199
|
|
|
|
579,864
|
|
Equity lines
|
|
|
399,207
|
|
|
|
347,975
|
|
Installment and other loans
|
|
|
688
|
|
|
|
5,050
|
|
Gross loans
|
|
$
|
15,608,283
|
|
|
$
|
15,075,481
|
|
Allowance for loan losses
|
|
|
(169,680
|
)
|
|
|
(123,224
|
)
|
Unamortized deferred loan fees, net
|
|
|
(4,507
|
)
|
|
|
(626
|
)
|
Total loans, net
|
|
$
|
15,434,096
|
|
|
$
|
14,951,631
|
|
As of June 30, 2020, recorded investment in impaired loans totaled $88.1 million and was comprised of non-accrual loans of $56.4 million and accruing troubled debt restructured loans (“TDRs”) of $31.7 million. As of December 31, 2019, recorded investment in impaired loans totaled $75.9 million and was comprised of non-accrual loans of $40.5 million and accruing TDRs of $35.4 million. For impaired loans, the amounts previously charged off represent 0.3% and 2.1% of the contractual balances for impaired loans as of June 30, 2020 and December 31, 2019, respectively.
The following table presents the average recorded investment and interest income recognized on impaired loans for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
33,695
|
|
|
$
|
71
|
|
|
$
|
46,792
|
|
|
$
|
587
|
|
|
$
|
30,913
|
|
|
$
|
95
|
|
|
$
|
42,388
|
|
|
$
|
820
|
|
Real estate construction loans
|
|
|
4,458
|
|
|
|
49
|
|
|
|
4,726
|
|
|
|
—
|
|
|
|
4,482
|
|
|
|
147
|
|
|
|
4,771
|
|
|
|
—
|
|
Commercial mortgage loans
|
|
|
36,225
|
|
|
|
375
|
|
|
|
54,404
|
|
|
|
448
|
|
|
|
36,225
|
|
|
|
824
|
|
|
|
56,724
|
|
|
|
942
|
|
Residential mortgage loans and equity lines
|
|
|
17,724
|
|
|
|
78
|
|
|
|
12,983
|
|
|
|
81
|
|
|
|
14,547
|
|
|
|
149
|
|
|
|
13,123
|
|
|
|
165
|
|
Total impaired loans
|
|
$
|
92,102
|
|
|
$
|
573
|
|
|
$
|
118,905
|
|
|
$
|
1,116
|
|
|
$
|
86,167
|
|
|
$
|
1,215
|
|
|
$
|
117,006
|
|
|
$
|
1,927
|
|
The following table presents impaired loans and the related allowance for loan losses as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no allocated allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
16,181
|
|
|
$
|
13,391
|
|
|
$
|
—
|
|
|
$
|
20,134
|
|
|
$
|
15,857
|
|
|
$
|
—
|
|
Real estate construction loans
|
|
|
5,776
|
|
|
|
4,433
|
|
|
|
—
|
|
|
|
5,776
|
|
|
|
4,580
|
|
|
|
—
|
|
Commercial mortgage loans
|
|
|
16,274
|
|
|
|
15,867
|
|
|
|
—
|
|
|
|
9,234
|
|
|
|
9,030
|
|
|
|
—
|
|
Residential mortgage loans and equity lines
|
|
|
9,586
|
|
|
|
9,532
|
|
|
|
—
|
|
|
|
6,171
|
|
|
|
6,073
|
|
|
|
—
|
|
Subtotal
|
|
$
|
47,817
|
|
|
$
|
43,223
|
|
|
$
|
—
|
|
|
$
|
41,315
|
|
|
$
|
35,540
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With allocated allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
15,919
|
|
|
$
|
15,863
|
|
|
$
|
6,895
|
|
|
$
|
8,769
|
|
|
$
|
8,739
|
|
|
$
|
2,543
|
|
Commercial mortgage loans
|
|
|
19,806
|
|
|
|
19,762
|
|
|
|
323
|
|
|
|
26,117
|
|
|
|
26,040
|
|
|
|
473
|
|
Residential mortgage loans and equity lines
|
|
|
10,280
|
|
|
|
9,281
|
|
|
|
307
|
|
|
|
6,740
|
|
|
|
5,540
|
|
|
|
220
|
|
Subtotal
|
|
$
|
46,005
|
|
|
$
|
44,906
|
|
|
$
|
7,525
|
|
|
$
|
41,626
|
|
|
$
|
40,319
|
|
|
$
|
3,236
|
|
Total impaired loans
|
|
$
|
93,822
|
|
|
$
|
88,129
|
|
|
$
|
7,525
|
|
|
$
|
82,941
|
|
|
$
|
75,859
|
|
|
$
|
3,236
|
|
The following tables present the aging of the loan portfolio by type as of June 30, 2020, and as of December 31, 2019:
|
|
June 30, 2020
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days or
More Past
Due
|
|
|
Non-accrual
Loans
|
|
|
Total Past
Due
|
|
|
Loans Not
Past Due
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
18,968
|
|
|
$
|
1,706
|
|
|
$
|
18,718
|
|
|
$
|
27,125
|
|
|
$
|
66,517
|
|
|
$
|
2,941,449
|
|
|
$
|
3,007,966
|
|
Real estate construction loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,433
|
|
|
|
4,433
|
|
|
|
619,766
|
|
|
|
624,199
|
|
Commercial mortgage loans
|
|
|
15,556
|
|
|
|
3,003
|
|
|
|
2,228
|
|
|
|
10,896
|
|
|
|
31,683
|
|
|
|
7,359,819
|
|
|
|
7,391,502
|
|
Residential mortgage loans and equity lines
|
|
|
1,715
|
|
|
|
7,816
|
|
|
|
428
|
|
|
|
14,004
|
|
|
|
23,963
|
|
|
|
4,559,965
|
|
|
|
4,583,928
|
|
Installment and other loans
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
684
|
|
|
|
688
|
|
Total loans
|
|
$
|
36,239
|
|
|
$
|
12,529
|
|
|
$
|
21,374
|
|
|
$
|
56,458
|
|
|
$
|
126,600
|
|
|
$
|
15,481,683
|
|
|
$
|
15,608,283
|
|
|
|
December 31, 2019
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days or
More Past
Due
|
|
|
Non-accrual
Loans
|
|
|
Total Past
Due
|
|
|
Loans Not
Past Due
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
24,681
|
|
|
$
|
9,954
|
|
|
$
|
6,409
|
|
|
$
|
19,381
|
|
|
$
|
60,425
|
|
|
$
|
2,718,319
|
|
|
$
|
2,778,744
|
|
Real estate construction loans
|
|
|
5,846
|
|
|
|
6,753
|
|
|
|
—
|
|
|
|
4,580
|
|
|
|
17,179
|
|
|
|
562,685
|
|
|
|
579,864
|
|
Commercial mortgage loans
|
|
|
7,694
|
|
|
|
2,609
|
|
|
|
—
|
|
|
|
9,928
|
|
|
|
20,231
|
|
|
|
7,255,031
|
|
|
|
7,275,262
|
|
Residential mortgage loans and equity lines
|
|
|
26,028
|
|
|
|
965
|
|
|
|
—
|
|
|
|
6,634
|
|
|
|
33,627
|
|
|
|
4,402,934
|
|
|
|
4,436,561
|
|
Installment and other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,050
|
|
|
|
5,050
|
|
Total loans
|
|
$
|
64,249
|
|
|
$
|
20,281
|
|
|
$
|
6,409
|
|
|
$
|
40,523
|
|
|
$
|
131,462
|
|
|
$
|
14,944,019
|
|
|
$
|
15,075,481
|
|
The determination of the amount of the allowance for loan losses for impaired loans is based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for loan losses. The nature of the process by which the Bank determines the appropriate allowance for loan losses requires the exercise of considerable judgment. This allowance evaluation process is also applied to TDRs since they are considered to be impaired loans. The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on management’s process in analyzing the loan portfolio and on management’s assumptions about specific borrowers, underlying collateral, and applicable economic, market and environmental conditions, among other factors. Although the Company took steps to incorporate the impact of the COVID-19 pandemic on the economic forecast and other factors (such as the severity and length of the COVID-19 pandemic and its impacts) utilized to determine the allowance for loan losses, if the economic forecast or other factors worsen relative to the assumptions the Company utilized, the allowance for loan losses will increase accordingly in future periods.
A TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date that causes significant delay in payment.
TDRs on accrual status are comprised of the loans that have, pursuant to the Bank’s policy, performed under the restructured terms and have demonstrated sustained performance under the modified terms for six months before being returned to accrual status. The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructure to set up interest reserves.
As of June 30, 2020, accruing TDRs were $31.7 million and non-accrual TDRs were $12.7 million compared to accruing TDRs of $35.3 million and non-accrual TDRs of $18.0 million as of December 31, 2019. The Company allocated specific reserves of $432 thousand to accruing TDRs and $53 thousand to non-accrual TDRs as of June 30, 2020, and $822 thousand to accruing TDRs and $2.2 million to non-accrual TDRs as of December 31, 2019. The following tables set forth TDRs that were modified during the three and six months ended June 30, 2020 and 2019, their specific reserves as of June 30, 2020 and 2019, and charge-offs for the three and six months ended June 30, 2020 and 2019:
|
|
Three Months Ended June 30, 2020
|
|
|
June 30, 2020
|
|
|
|
No. of
Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
Charge-offs
|
|
|
Specific Reserve
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
1
|
|
|
$
|
1,900
|
|
|
$
|
1,900
|
|
|
$
|
—
|
|
|
$
|
86
|
|
Total
|
|
|
1
|
|
|
$
|
1,900
|
|
|
$
|
1,900
|
|
|
$
|
—
|
|
|
$
|
86
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
June 30, 2019
|
|
|
|
No. of
Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
Charge-offs
|
|
|
Specific Reserve
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
19
|
|
|
$
|
16,405
|
|
|
$
|
15,551
|
|
|
$
|
811
|
|
|
$
|
37
|
|
Total
|
|
|
19
|
|
|
$
|
16,405
|
|
|
$
|
15,551
|
|
|
$
|
811
|
|
|
$
|
37
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
June 30, 2020
|
|
|
|
No. of
Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
Charge-offs
|
|
|
Specific Reserve
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
3
|
|
|
$
|
2,434
|
|
|
$
|
2,434
|
|
|
$
|
—
|
|
|
$
|
86
|
|
Total
|
|
|
3
|
|
|
$
|
2,434
|
|
|
$
|
2,434
|
|
|
$
|
—
|
|
|
$
|
86
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
June 30, 2019
|
|
|
|
No. of
Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
Charge-offs
|
|
|
Specific Reserve
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
20
|
|
|
$
|
18,352
|
|
|
$
|
16,381
|
|
|
$
|
811
|
|
|
$
|
37
|
|
Total
|
|
|
20
|
|
|
$
|
18,352
|
|
|
$
|
16,381
|
|
|
$
|
811
|
|
|
$
|
37
|
|
Modifications of the loan terms in the six months ended June 30, 2020 were in the form of extensions of maturity dates, which ranged generally from three to twelve months from the modification date.
We expect that the TDRs on accruing status as of June 30, 2020, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. A summary of TDRs by type of concession and by type of loan, as of June 30, 2020, and December 31, 2019, is set forth in the table below:
|
|
June 30, 2020
|
|
|
|
Payment
Deferral
|
|
|
Rate
Reduction
|
|
|
Rate Reduction
and Payment
Deferral
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accruing TDRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
2,129
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,129
|
|
Commercial mortgage loans
|
|
|
585
|
|
|
|
5,689
|
|
|
|
18,459
|
|
|
|
24,733
|
|
Residential mortgage loans
|
|
|
2,413
|
|
|
|
299
|
|
|
|
2,097
|
|
|
|
4,809
|
|
Total accruing TDRs
|
|
$
|
5,127
|
|
|
$
|
5,988
|
|
|
$
|
20,556
|
|
|
$
|
31,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
Payment
Deferral
|
|
|
Rate
Reduction
|
|
|
Rate Reduction
and Payment
Deferral
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Non-accrual TDRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
11,371
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,371
|
|
Residential mortgage loans
|
|
|
1,177
|
|
|
|
—
|
|
|
|
122
|
|
|
|
1,299
|
|
Total non-accrual TDRs
|
|
$
|
12,548
|
|
|
$
|
—
|
|
|
$
|
122
|
|
|
$
|
12,670
|
|
|
|
December 31, 2019
|
|
|
|
Payment
Deferral
|
|
|
Rate
Reduction
|
|
|
Rate Reduction
and Payment
Deferral
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accruing TDRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
5,215
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,215
|
|
Commercial mortgage loans
|
|
|
615
|
|
|
|
5,748
|
|
|
|
18,779
|
|
|
|
25,142
|
|
Residential mortgage loans
|
|
|
2,525
|
|
|
|
311
|
|
|
|
2,143
|
|
|
|
4,979
|
|
Total accruing TDRs
|
|
$
|
8,355
|
|
|
$
|
6,059
|
|
|
$
|
20,922
|
|
|
$
|
35,336
|
|
|
|
December 31, 2019
|
|
|
|
Payment
Deferral
|
|
|
Rate
Reduction
|
|
|
Rate Reduction
and Payment
Deferral
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Non-accrual TDRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
16,692
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,692
|
|
Commercial mortgage loans
|
|
|
1,220
|
|
|
|
—
|
|
|
|
136
|
|
|
|
1,356
|
|
Total non-accrual TDRs
|
|
$
|
17,912
|
|
|
$
|
—
|
|
|
$
|
136
|
|
|
$
|
18,048
|
|
The activity within TDRs for the periods indicated is set forth below:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Accruing TDRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
34,364
|
|
|
$
|
62,948
|
|
|
$
|
35,336
|
|
|
$
|
65,071
|
|
New restructurings
|
|
|
1,900
|
|
|
|
13,244
|
|
|
|
2,434
|
|
|
|
15,192
|
|
Payments
|
|
|
(4,593
|
)
|
|
|
(9,998
|
)
|
|
|
(6,099
|
)
|
|
|
(14,069
|
)
|
Restructured loans placed on non-accrual status
|
|
|
—
|
|
|
|
(1,296
|
)
|
|
|
—
|
|
|
|
(1,296
|
)
|
Ending balance
|
|
$
|
31,671
|
|
|
$
|
64,898
|
|
|
$
|
31,671
|
|
|
$
|
64,898
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Non-accrual TDRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
17,889
|
|
|
$
|
23,301
|
|
|
$
|
18,048
|
|
|
$
|
24,189
|
|
New restructurings
|
|
|
—
|
|
|
|
3,160
|
|
|
|
—
|
|
|
|
3,160
|
|
Restructured loans placed on non-accrual status
|
|
|
—
|
|
|
|
1,296
|
|
|
|
—
|
|
|
|
1,296
|
|
Charge-offs
|
|
|
(4,970
|
)
|
|
|
(811
|
)
|
|
|
(4,970
|
)
|
|
|
(1,218
|
)
|
Payments
|
|
|
(249
|
)
|
|
|
(4,489
|
)
|
|
|
(408
|
)
|
|
|
(4,970
|
)
|
Ending balance
|
|
$
|
12,670
|
|
|
$
|
22,457
|
|
|
$
|
12,670
|
|
|
$
|
22,457
|
|
The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company did not have any loans that were modified as a TDR during the previous twelve months and which had subsequently defaulted as of June 30, 2020.
Under the Company’s internal underwriting policy, 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 in order to determine whether a borrower is experiencing financial difficulty.
As of June 30, 2020, there were no commitments to lend additional funds to those borrowers whose loans had been restructured, were considered impaired, or were on non-accrual status.
The CARES Act, signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.
As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. The risk rating categories can be generally described by the following grouping for non-homogeneous loans:
|
●
|
Pass/Watch– These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.
|
|
●
|
Special Mention – Borrower is fundamentally sound, and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.
|
|
●
|
Substandard – These loans are inadequately protected by current sound net worth, paying capacity, or collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.
|
|
●
|
Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan), a loss classification is deferred until the situation is better defined.
|
|
●
|
Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.
|
The following tables set forth the loan portfolio by risk rating as of June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
|
Pass/Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Commercial loans
|
|
$
|
2,760,857
|
|
|
$
|
138,410
|
|
|
$
|
108,699
|
|
|
$
|
—
|
|
|
$
|
3,007,966
|
|
Real estate construction loans
|
|
|
490,388
|
|
|
|
129,378
|
|
|
|
4,433
|
|
|
|
—
|
|
|
|
624,199
|
|
Commercial mortgage loans
|
|
|
7,155,796
|
|
|
|
144,903
|
|
|
|
90,803
|
|
|
|
—
|
|
|
|
7,391,502
|
|
Residential mortgage loans and equity lines
|
|
|
4,558,199
|
|
|
|
889
|
|
|
|
24,840
|
|
|
|
—
|
|
|
|
4,583,928
|
|
Installment and other loans
|
|
|
684
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
688
|
|
Total gross loans
|
|
$
|
14,965,924
|
|
|
$
|
413,580
|
|
|
$
|
228,779
|
|
|
$
|
—
|
|
|
$
|
15,608,283
|
|
|
|
December 31, 2019
|
|
|
|
Pass/Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Commercial loans
|
|
$
|
2,528,944
|
|
|
$
|
166,016
|
|
|
$
|
83,784
|
|
|
$
|
—
|
|
|
$
|
2,778,744
|
|
Real estate construction loans
|
|
|
461,597
|
|
|
|
113,687
|
|
|
|
4,580
|
|
|
|
—
|
|
|
|
579,864
|
|
Commercial mortgage loans
|
|
|
6,992,933
|
|
|
|
196,454
|
|
|
|
85,875
|
|
|
|
—
|
|
|
|
7,275,262
|
|
Residential mortgage loans and equity lines
|
|
|
4,427,205
|
|
|
|
914
|
|
|
|
8,442
|
|
|
|
—
|
|
|
|
4,436,561
|
|
Installment and other loans
|
|
|
5,050
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,050
|
|
Total gross loans
|
|
$
|
14,415,729
|
|
|
$
|
477,071
|
|
|
$
|
182,681
|
|
|
$
|
—
|
|
|
$
|
15,075,481
|
|
The following tables set forth the balance in the allowance for loan losses by portfolio segment and based on impairment method as of June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Commercial
|
|
|
Residential
|
|
|
Installment
|
|
|
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
Mortgage
|
|
|
Mortgage Loans
|
|
|
and
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
and Equity Lines
|
|
|
Other Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Loans individually evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
$
|
6,895
|
|
|
$
|
—
|
|
|
$
|
323
|
|
|
$
|
307
|
|
|
$
|
—
|
|
|
$
|
7,525
|
|
Balance
|
|
$
|
29,254
|
|
|
$
|
4,433
|
|
|
$
|
35,629
|
|
|
$
|
18,813
|
|
|
$
|
—
|
|
|
$
|
88,129
|
|
Loans collectively evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
$
|
75,361
|
|
|
$
|
26,700
|
|
|
$
|
40,809
|
|
|
$
|
19,285
|
|
|
$
|
—
|
|
|
$
|
162,155
|
|
Balance
|
|
$
|
2,978,712
|
|
|
$
|
619,766
|
|
|
$
|
7,355,873
|
|
|
$
|
4,565,115
|
|
|
$
|
688
|
|
|
$
|
15,520,154
|
|
Total allowance
|
|
$
|
82,256
|
|
|
$
|
26,700
|
|
|
$
|
41,132
|
|
|
$
|
19,592
|
|
|
$
|
—
|
|
|
$
|
169,680
|
|
Total balance
|
|
$
|
3,007,966
|
|
|
$
|
624,199
|
|
|
$
|
7,391,502
|
|
|
$
|
4,583,928
|
|
|
$
|
688
|
|
|
$
|
15,608,283
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Commercial
|
|
|
Residential
|
|
|
Installment
|
|
|
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
Mortgage
|
|
|
Mortgage Loans
|
|
|
and
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
and Equity Lines
|
|
|
Other Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Loans individually evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
$
|
2,543
|
|
|
$
|
—
|
|
|
$
|
473
|
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
3,236
|
|
Balance
|
|
$
|
24,596
|
|
|
$
|
4,580
|
|
|
$
|
35,070
|
|
|
$
|
11,613
|
|
|
$
|
—
|
|
|
$
|
75,859
|
|
Loans collectively evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
$
|
54,478
|
|
|
$
|
19,474
|
|
|
$
|
33,129
|
|
|
$
|
12,888
|
|
|
$
|
19
|
|
|
$
|
119,988
|
|
Balance
|
|
$
|
2,754,148
|
|
|
$
|
575,284
|
|
|
$
|
7,240,192
|
|
|
$
|
4,424,948
|
|
|
$
|
5,050
|
|
|
$
|
14,999,622
|
|
Total allowance
|
|
$
|
57,021
|
|
|
$
|
19,474
|
|
|
$
|
33,602
|
|
|
$
|
13,108
|
|
|
$
|
19
|
|
|
$
|
123,224
|
|
Total balance
|
|
$
|
2,778,744
|
|
|
$
|
579,864
|
|
|
$
|
7,275,262
|
|
|
$
|
4,436,561
|
|
|
$
|
5,050
|
|
|
$
|
15,075,481
|
|
The following tables set forth activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2020, and June 30, 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Three months ended June 30, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Commercial
|
|
|
Mortgage Loans
|
|
|
Installment
|
|
|
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
Mortgage
|
|
|
and
|
|
|
and Other
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
Equity Lines
|
|
|
Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 Ending Balance
|
|
$
|
67,799
|
|
|
$
|
23,222
|
|
|
$
|
39,886
|
|
|
$
|
17,366
|
|
|
$
|
—
|
|
|
$
|
148,273
|
|
Provision for possible credit losses
|
|
|
18,213
|
|
|
|
3,478
|
|
|
|
1,151
|
|
|
|
2,158
|
|
|
|
—
|
|
|
|
25,000
|
|
Charge-offs
|
|
|
(5,106
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,106
|
)
|
Recoveries
|
|
|
1,350
|
|
|
|
—
|
|
|
|
95
|
|
|
|
68
|
|
|
|
—
|
|
|
|
1,513
|
|
Net (charge-offs)/recoveries
|
|
|
(3,756
|
)
|
|
|
—
|
|
|
|
95
|
|
|
|
68
|
|
|
|
—
|
|
|
|
(3,593
|
)
|
June 30, 2020 Ending Balance
|
|
$
|
82,256
|
|
|
$
|
26,700
|
|
|
$
|
41,132
|
|
|
$
|
19,592
|
|
|
$
|
—
|
|
|
$
|
169,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Commercial
|
|
|
Mortgage Loans
|
|
|
Installment
|
|
|
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
Mortgage
|
|
|
and
|
|
|
and Other
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
Equity Lines
|
|
|
Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 Ending Balance
|
|
$
|
54,750
|
|
|
$
|
20,723
|
|
|
$
|
33,073
|
|
|
$
|
13,975
|
|
|
$
|
34
|
|
|
$
|
122,555
|
|
(Reversal)/provision for possible credit losses
|
|
|
(100
|
)
|
|
|
257
|
|
|
|
(180
|
)
|
|
|
27
|
|
|
|
(4
|
)
|
|
|
—
|
|
Charge-offs
|
|
|
(1,713
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,713
|
)
|
Recoveries
|
|
|
1,356
|
|
|
|
30
|
|
|
|
261
|
|
|
|
162
|
|
|
|
—
|
|
|
|
1,809
|
|
Net (charge-offs)/recoveries
|
|
|
(357
|
)
|
|
|
30
|
|
|
|
261
|
|
|
|
162
|
|
|
|
—
|
|
|
|
96
|
|
June 30, 2019 Ending Balance
|
|
$
|
54,293
|
|
|
$
|
21,010
|
|
|
$
|
33,154
|
|
|
$
|
14,164
|
|
|
$
|
30
|
|
|
$
|
122,651
|
|
Six months ended June 30, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Commercial
|
|
|
Mortgage Loans
|
|
|
Installment
|
|
|
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
Mortgage
|
|
|
and
|
|
|
and Other
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
Equity Lines
|
|
|
Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Beginning Balance
|
|
$
|
57,021
|
|
|
$
|
19,474
|
|
|
$
|
33,602
|
|
|
$
|
13,108
|
|
|
$
|
19
|
|
|
$
|
123,224
|
|
Provision/(reversal) for possible credit losses
|
|
|
29,104
|
|
|
|
7,226
|
|
|
|
7,280
|
|
|
|
6,409
|
|
|
|
(19
|
)
|
|
|
50,000
|
|
Charge-offs
|
|
|
(6,427
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,427
|
)
|
Recoveries
|
|
|
2,558
|
|
|
|
—
|
|
|
|
250
|
|
|
|
75
|
|
|
|
—
|
|
|
|
2,883
|
|
Net (charge-offs)/recoveries
|
|
|
(3,869
|
)
|
|
|
—
|
|
|
|
250
|
|
|
|
75
|
|
|
|
—
|
|
|
|
(3,544
|
)
|
June 30, 2020 Ending Balance
|
|
$
|
82,256
|
|
|
$
|
26,700
|
|
|
$
|
41,132
|
|
|
$
|
19,592
|
|
|
$
|
—
|
|
|
$
|
169,680
|
|
Reserve for impaired loans
|
|
$
|
6,895
|
|
|
$
|
—
|
|
|
$
|
323
|
|
|
$
|
307
|
|
|
$
|
—
|
|
|
$
|
7,525
|
|
Reserve for non-impaired loans
|
|
$
|
75,361
|
|
|
$
|
26,700
|
|
|
$
|
40,809
|
|
|
$
|
19,285
|
|
|
$
|
—
|
|
|
$
|
162,155
|
|
Reserve for off-balance sheet credit commitments
|
|
$
|
3,581
|
|
|
$
|
666
|
|
|
$
|
117
|
|
|
$
|
297
|
|
|
$
|
2
|
|
|
$
|
4,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Commercial
|
|
|
Mortgage Loans
|
|
|
Installment
|
|
|
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
Mortgage
|
|
|
and
|
|
|
and Other
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
Equity Lines
|
|
|
Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Beginning Balance
|
|
$
|
54,978
|
|
|
$
|
19,626
|
|
|
$
|
33,487
|
|
|
$
|
14,282
|
|
|
$
|
18
|
|
|
$
|
122,391
|
|
Provision/(reversal) for possible credit losses
|
|
|
862
|
|
|
|
310
|
|
|
|
(746
|
)
|
|
|
(438
|
)
|
|
|
12
|
|
|
|
—
|
|
Charge-offs
|
|
|
(2,944
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,944
|
)
|
Recoveries
|
|
|
1,397
|
|
|
|
1,074
|
|
|
|
413
|
|
|
|
320
|
|
|
|
—
|
|
|
|
3,204
|
|
Net (charge-offs)/recoveries
|
|
|
(1,547
|
)
|
|
|
1,074
|
|
|
|
413
|
|
|
|
320
|
|
|
|
—
|
|
|
|
260
|
|
June 30, 2019 Ending Balance
|
|
$
|
54,293
|
|
|
$
|
21,010
|
|
|
$
|
33,154
|
|
|
$
|
14,164
|
|
|
$
|
30
|
|
|
$
|
122,651
|
|
Reserve for impaired loans
|
|
$
|
832
|
|
|
$
|
—
|
|
|
$
|
620
|
|
|
$
|
234
|
|
|
$
|
—
|
|
|
$
|
1,686
|
|
Reserve for non-impaired loans
|
|
$
|
53,461
|
|
|
$
|
21,010
|
|
|
$
|
32,534
|
|
|
$
|
13,930
|
|
|
$
|
30
|
|
|
$
|
120,965
|
|
Reserve for off-balance sheet credit commitments
|
|
$
|
2,090
|
|
|
$
|
2,029
|
|
|
$
|
137
|
|
|
$
|
290
|
|
|
$
|
4
|
|
|
$
|
4,550
|
|
The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets. Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to our business and could cause material disruptions to our business and operations in the future. The Company has continued its efforts to support its customers affected by the pandemic and to maintain asset quality and balance sheet strength, including the following:
|
•
|
Providing loans through the SBA's Paycheck Protection Program, or “PPP”. As of June 30, 2020, 1,381 loans totaling $261.7 million have been approved by the Small Business Administration.
|
|
•
|
The Company has implemented modifications on approximately 723 commercial real estate loans totaling $1.5 billion as of June 30, 2020, which represents 21.0% of the Bank’s commercial real estate loans and 81 commercial loans, totaling $141.6 million, that represented 4.7% of the total commercial loans.
|
|
•
|
Approved forbearance requests on approximately 1,198 residential mortgage loans totaling $518.1 million as of June 30, 2020, which represent 12.4% of total residential mortgages.
|
9. Commitments and Contingencies
From time to time, Bancorp and its subsidiaries are parties to litigation that arise in the ordinary course of business or otherwise are incidental to various aspects of its operations. Based upon information available to the Company and its review of any such litigation with counsel, management presently believes that the liability relating to such litigation, if any, would not be expected to have a material adverse impact on the Company’s consolidated financial condition, results of operations or liquidity taken as a whole. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity taken as a whole.
Although the Company establishes accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, the Company does not have accruals for all legal proceedings where there is a risk of loss. In addition, amounts accrued may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued for legal loss contingencies.
In the normal course of business, the Company from time to time becomes a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans, or through commercial or standby letters of credit and financial guarantees. These instruments represent varying degrees of exposure to risk in excess of the amounts included in the accompanying Condensed Consolidated Balance Sheets. The contractual or notional amount of these instruments indicates a level of activity associated with a particular class of financial instrument and is not a reflection of the level of expected losses, if any.
The Company’s unfunded commitments related to investments in qualified affordable housing and alternative energy partnerships were $114.3 million and $114.5 million as of June 30, 2020 and December 31, 2019, respectively.
10. Leases
The Company determines if a contract arrangement is a lease at inception and primarily enters into operating lease contracts for its branch locations, office space and certain equipment. As part of its property lease agreements, the Company may seek to include options to extend or terminate at lease when it is reasonably certain that the Company will exercise those options. The Right-of-Use (“ROU”) lease asset also includes any lease payments made and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not possess any leases that have variable lease payments or residual value guarantees as of June 30, 2020.
Accounting Policy Elections - The Company has elected the package of practical expedients that permits the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected all of the new standard’s available transition practical expedients, including the short-term lease recognition exemption that includes not recognizing ROU assets or lease liabilities for existing short-term leases, and the practical expedient to not separate lease and non-lease components for all of the Company's leases.
The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate to determine the present value of its lease liabilities.
The following table presents the operating lease related assets and liabilities recorded on the Condensed Consolidated Balance Sheet, and the weighted-average remaining lease terms and discount rates as of June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
($ In millions)
|
|
|
|
|
|
|
|
|
|
|
Operating Leases:
|
|
|
|
|
|
|
|
|
ROU assets
|
|
$
|
34.2
|
|
|
$
|
34.0
|
|
Lease liabilities
|
|
$
|
36.4
|
|
|
$
|
35.9
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (in years)
|
|
|
5.0
|
|
|
|
5.4
|
|
Weighted-average discount rate
|
|
|
2.85
|
%
|
|
|
3.10
|
%
|
Operating lease expense was $2.9 million and $3.4 million for the three months ended June 30, 2020 and June 30, 2019, respectively, and includes short-term leases that were immaterial. Operating lease expense was $5.8 million and $6.8 million for the six months ended June 30, 2020 and June 30, 2019, respectively, and includes short-term leases that were immaterial. Operating cash flows from operating leases were $2.4 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively. Operating cash flows from operating leases were $4.6 million and $4.1 million for the six months ended June 30, 2020 and 2019, respectively.
The following table presents a maturity analysis of the Company’s operating lease liabilities as of June 30, 2020 and December 31, 2019, respectively.
|
|
As of June 30, 2020
|
|
|
|
Operating Leases
|
|
|
|
(In thousands)
|
|
Remaining 2020
|
|
$
|
4,671
|
|
2021
|
|
|
9,120
|
|
2022
|
|
|
7,983
|
|
2023
|
|
|
6,587
|
|
2024
|
|
|
4,464
|
|
Thereafter
|
|
|
6,485
|
|
Total lease payments
|
|
|
39,310
|
|
Less amount of payment representing interest
|
|
|
(2,902
|
)
|
Total present value of lease payments
|
|
$
|
36,408
|
|
|
|
As of December 31, 2019
|
|
|
|
Operating Leases
|
|
|
|
(In thousands)
|
|
2020
|
|
$
|
8,764
|
|
2021
|
|
|
7,923
|
|
2022
|
|
|
6,771
|
|
2023
|
|
|
5,714
|
|
2024
|
|
|
3,852
|
|
Thereafter
|
|
|
6,199
|
|
Total lease payments
|
|
|
39,223
|
|
Less amount of payment representing interest
|
|
|
(3,350
|
)
|
Total present value of lease payments
|
|
$
|
35,873
|
|
11. Borrowed Funds
Borrowings from the Federal Home Loan Bank (“FHLB”) – There were no over-night borrowings from the FHLB as of June 30, 2020, compared to $450 million at an average rate of 1.66% as of December 31, 2019. Advances from the FHLB were $230 million at an average rate of 2.16% as of June 30, 2020 and $220 million at an average rate of 2.26% as of December 31, 2019. As of June 30, 2020, FHLB advances of $5 million will mature in November 2020, $80 million in May 2021, $50 million in June 2021, $75 million in July 2021, and $20 million in May 2023.
Other Borrowings - The Company owes a residual payable balance of $7.8 million to Bank SinoPac Co. related to the Company’s acquisition of SinoPac Bancorp, the parent of Far East National Bank, completed in October 2017. The remaining balance of $7.0 million, due in July 2020, has an interest rate of 1.80% (three-month LIBOR rate plus 150 basis points) as of June 30, 2020.
The Company established three special purpose trusts in 2003 and two in 2007 for the purpose of issuing Guaranteed Preferred Beneficial Interests in their Subordinated Debentures to outside investors (“Capital Securities”). The proceeds from the issuance of the Capital Securities as well as our purchase of the common stock of the special purpose trusts were invested in Junior Subordinated Notes of the Company (“Junior Subordinated Notes”). The trusts exist for the purpose of issuing the Capital Securities and investing in Junior Subordinated Notes. Subject to some limitations, payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts, or the redemption of the Capital Securities, are guaranteed by the Company to the extent the trusts have funds on hand at such time. The obligations of the Company under the guarantees and the Junior Subordinated Notes are subordinate and junior in right of payment to all indebtedness of the Company and are structurally subordinated to all liabilities and obligations of the Company’s subsidiaries. The Company has the right to defer payments of interest on the Junior Subordinated Notes at any time or from time to time for a period of up to twenty consecutive quarterly periods with respect to each deferral period. Under the terms of the Junior Subordinated Notes, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock if it has deferred payment of interest on any Junior Subordinated Notes.
At June 30, 2020, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 2.48%, compared to $119.1 million with a weighted average rate of 4.09% at December 31, 2019. The Junior Subordinated Notes have a stated maturity term of 30 years.
12. Income Taxes
The effective tax rate for the first six months of 2020 was 11.1% compared to 19.2% for the first six months of 2019. The effective tax rate includes the impact of low-income housing and alternative energy investment tax credits. Income tax expense for the first six months of 2020 was increased by $0.4 million related to a tax deficiency from the distribution of restricted stock units.
The Company’s tax returns are open for audit by the Internal Revenue Service back to 2016 and by the California Franchise Tax Board back to 2015. The audit by the Internal Revenue Service for 2017 is substantially complete and is not expected to have an impact on income tax expense.
It is reasonably possible that unrecognized tax benefits could change significantly over the next twelve months. The Company does not expect that any such changes would have a material impact on its annual effective tax rate.
13. Fair Value Measurements
The Company determined the fair values of our financial instruments based on the following:
|
•
|
Level 1 - Quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2 - Observable prices in active markets for similar assets or liabilities; prices for identical or similar assets or liabilities in markets that are not active; directly observable market inputs for substantially the full term of the asset and liability; market inputs that are not directly observable but are derived from or corroborated by observable market data.
|
|
•
|
Level 3 – Unobservable inputs based on the Company’s own judgment about the assumptions that a market participant would use.
|
The Company uses the following methodologies to measure the fair value of its financial assets and liabilities on a recurring basis:
Securities Available for Sale - For certain U.S. Treasury securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement. This category generally includes U.S. Government agency securities, U.S. Government sponsored entities, state and municipal securities, mortgage-backed securities (“MBS”), collateralized mortgage obligations and corporate bonds.
Equity Securities – The Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a level 1 measurement. Equity securities are comprised of mutual funds, preferred stock of government-sponsored entities and other equity securities.
Foreign Exchange Contracts - The Company measures the fair value of foreign exchange contracts based on dealer quotes, a Level 2 measurement.
Warrants - The Company measures the fair value of warrants based on unobservable inputs based on assumptions and management judgment, a Level 3 measurement.
Interest Rate Swaps - Fair value of interest rate swaps is derived from third party models with observable market data, a Level 2 measurement.
Assets measured at estimated fair value on a non-recurring basis:
Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring basis subsequent to initial recognition. Generally, these adjustments are the result of lower-of-cost-or-fair value or other impairment write-downs of individual assets. In determining the estimated fair values during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. For the periods ended June 30, 2020 and December 31, 2019, there were no material adjustments to fair value for the Company’s assets and liabilities measured at fair value on a nonrecurring basis in accordance with GAAP.
The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of June 30, 2020, and December 31, 2019:
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
Total Fair Value
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Measurements
|
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
99,927
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
99,927
|
|
U.S. government agency entities
|
|
|
—
|
|
|
|
107,393
|
|
|
|
—
|
|
|
|
107,393
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
802,412
|
|
|
|
—
|
|
|
|
802,412
|
|
Collateralized mortgage obligations
|
|
|
—
|
|
|
|
301
|
|
|
|
—
|
|
|
|
301
|
|
Corporate debt securities
|
|
|
—
|
|
|
|
136,069
|
|
|
|
—
|
|
|
|
136,069
|
|
Total securities available-for-sale
|
|
$
|
99,927
|
|
|
$
|
1,046,175
|
|
|
$
|
—
|
|
|
$
|
1,146,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
6,431
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,431
|
|
Preferred stock of government sponsored entities
|
|
|
4,868
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,868
|
|
Other equity securities
|
|
|
13,271
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,271
|
|
Total equity securities
|
|
$
|
24,570
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
13
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
3,842
|
|
|
|
—
|
|
|
|
3,842
|
|
Foreign exchange contracts
|
|
|
—
|
|
|
|
1,529
|
|
|
|
—
|
|
|
|
1,529
|
|
Total assets
|
|
$
|
124,497
|
|
|
$
|
1,051,546
|
|
|
$
|
13
|
|
|
$
|
1,176,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option contracts
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
33,760
|
|
|
|
—
|
|
|
|
33,760
|
|
Foreign exchange contracts
|
|
|
—
|
|
|
|
531
|
|
|
|
—
|
|
|
|
531
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
34,297
|
|
|
$
|
—
|
|
|
$
|
34,297
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
Total Fair Value
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Measurements
|
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
74,936
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74,936
|
|
U.S. government agency entities
|
|
|
—
|
|
|
|
90,796
|
|
|
|
—
|
|
|
|
90,796
|
|
U.S. government sponsored entities
|
|
|
—
|
|
|
|
224,443
|
|
|
|
—
|
|
|
|
224,443
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
887,790
|
|
|
|
—
|
|
|
|
887,790
|
|
Collateralized mortgage obligations
|
|
|
—
|
|
|
|
552
|
|
|
|
—
|
|
|
|
552
|
|
Corporate debt securities
|
|
|
—
|
|
|
|
173,325
|
|
|
|
—
|
|
|
|
173,325
|
|
Total securities available-for-sale
|
|
$
|
74,936
|
|
|
$
|
1,376,906
|
|
|
$
|
—
|
|
|
$
|
1,451,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
6,277
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,277
|
|
Preferred stock of government sponsored entities
|
|
|
10,529
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,529
|
|
Other equity securities
|
|
|
11,199
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,199
|
|
Total equity securities
|
|
$
|
28,005
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
39
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
2,181
|
|
|
|
—
|
|
|
|
2,181
|
|
Foreign exchange contracts
|
|
|
—
|
|
|
|
2,411
|
|
|
|
—
|
|
|
|
2,411
|
|
Total assets
|
|
$
|
102,941
|
|
|
$
|
1,381,498
|
|
|
$
|
39
|
|
|
$
|
1,484,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option contracts
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
14,229
|
|
|
|
—
|
|
|
|
14,229
|
|
Foreign exchange contracts
|
|
|
—
|
|
|
|
1,415
|
|
|
|
—
|
|
|
|
1,415
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
15,651
|
|
|
$
|
—
|
|
|
$
|
15,651
|
|
The Company measured the fair value of its warrants on a recurring basis using significant unobservable inputs. The fair value adjustment of warrants was included in other operating income in the first six months of 2020. The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are their expected life ranging from 1 to 5 years, risk-free interest rate from 0.29% to 0.60%, and stock volatility from 16.61% to 23.26%.
For financial assets measured at fair value on a nonrecurring basis that were still reflected in the Condensed Consolidated Balance Sheets as of June 30, 2020, the following tables set forth the level of valuation assumptions used to determine each adjustment, the carrying value of the related individual assets as of June 30, 2020, and December 31, 2019, and the total losses for the periods indicated:
|
|
As of June 30, 2020
|
|
|
Total Losses
|
|
|
|
Fair Value Measurements Using
|
|
|
Total Fair
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
Measurements
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,968
|
|
|
$
|
8,968
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial mortgage loans
|
|
|
—
|
|
|
|
—
|
|
|
|
19,439
|
|
|
|
19,439
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential mortgage loans and equity lines
|
|
|
—
|
|
|
|
—
|
|
|
|
8,974
|
|
|
|
8,974
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total impaired loans
|
|
|
—
|
|
|
|
—
|
|
|
|
37,381
|
|
|
|
37,381
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other real estate owned (1)
|
|
|
—
|
|
|
|
3,405
|
|
|
|
4,238
|
|
|
|
7,643
|
|
|
|
381
|
|
|
|
422
|
|
|
|
717
|
|
|
|
494
|
|
Investments in venture capital and private company stock
|
|
|
—
|
|
|
|
—
|
|
|
|
1,384
|
|
|
|
1,384
|
|
|
|
71
|
|
|
|
16
|
|
|
|
104
|
|
|
|
18
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
3,405
|
|
|
$
|
43,003
|
|
|
$
|
46,408
|
|
|
$
|
452
|
|
|
$
|
438
|
|
|
$
|
821
|
|
|
$
|
512
|
|
(1) Other real estate owned balance of $7.3 million in the condensed consolidated balance sheet is net of estimated disposal costs.
|
|
As of December 31, 2019
|
|
|
Total Losses/(Gains)
|
|
|
|
Fair Value Measurements Using
|
|
|
Total Fair
|
|
|
For the Twelve Months Ended
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
Measurements
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,196
|
|
|
$
|
6,196
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial mortgage loans
|
|
|
—
|
|
|
|
—
|
|
|
|
25,566
|
|
|
|
25,566
|
|
|
|
—
|
|
|
|
—
|
|
Residential mortgage loans and equity lines
|
|
|
—
|
|
|
|
—
|
|
|
|
5,320
|
|
|
|
5,320
|
|
|
|
—
|
|
|
|
—
|
|
Total impaired loans
|
|
|
—
|
|
|
|
—
|
|
|
|
37,082
|
|
|
|
37,082
|
|
|
|
—
|
|
|
|
—
|
|
Other real estate owned (1)
|
|
|
—
|
|
|
|
6,490
|
|
|
|
4,343
|
|
|
|
10,833
|
|
|
|
681
|
|
|
|
(619
|
)
|
Investments in venture capital and private company stock
|
|
|
—
|
|
|
|
—
|
|
|
|
1,604
|
|
|
|
1,604
|
|
|
|
167
|
|
|
|
330
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
6,490
|
|
|
$
|
43,029
|
|
|
$
|
49,519
|
|
|
$
|
848
|
|
|
$
|
(289
|
)
|
(1) Other real estate owned balance of $10.2 million in the Consolidated Balance Sheets is net of estimated disposal costs.
The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans are primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports every twelve months as appropriate. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. In the current year, the Company used borrower specific collateral discounts with various discount levels.
The significant unobservable inputs used in the fair value measurement of other real estate owned (“OREO”) are primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions. The Company applies estimated sales cost and commissions ranging from 3% to 6% of the collateral value of impaired loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO.
14. Fair Value of Financial Instruments
The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments.
Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is assumed to be a reasonable estimate of fair value, a Level 1 measurement.
Short-term Investments and interest-bearing deposits - For short-term investments and interest-bearing deposits, the carrying amount is assumed to be a reasonable estimate of fair value, a Level 1 measurement.
Securities Available for Sale - For certain U.S. Treasury securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement. This category generally includes U.S. Government agency securities, U.S. Government sponsored entities, state and municipal securities, mortgage-backed securities (“MBS”), collateralized mortgage obligations and corporate bonds.
Equity Securities – The Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a level 1 measurement. Equity securities are comprised of mutual funds, preferred stock of government-sponsored entities and other equity securities.
Loans - Fair values are estimated for portfolios of loans with similar financial characteristics. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair values are based primarily on third-party vendor pricing to determine fair values based on the exit price notion.
The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 3 measurement.
The fair value of impaired loans is calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on the current appraised value or adjusted appraised value of the collateral, a Level 2 or Level 3 measurement.
Loans Held-for-Sale – The Company records loans held for sale at fair value based on quoted prices from third party sale analysis, existing sale agreements, or appraisal reports adjusted by sales commission assumption, a Level 3 measurement.
FHLB Stock - These securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.
Deposit Liabilities - The fair value of demand deposits, savings accounts, and certain money market deposits is assumed to be the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities, a Level 3 measurement.
Advances from FHLB - The fair value of the advances is based on quotes from the FHLB to settle the advances, a Level 2 measurement.
Short-term and Other Borrowings - This category includes borrowings from other financial institutions. The fair value of other borrowings is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 measurement.
Long-term Debt - The fair value of long-term debt is estimated based on the quoted market prices or dealer quotes, a Level 2 measurement.
Currency Option and Foreign Exchange Contracts - The Company measures the fair value of currency option and foreign exchange contracts based on dealer quotes, a Level 2 measurement.
Interest Rate Swaps - Fair value of interest rate swaps is derived from third party models with observable market data, a Level 2 measurement.
Off-Balance-Sheet Financial Instruments - The fair value of commitments to extend credit, standby letters of credit, and financial guarantees written is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of off-balance-sheet financial instruments is based on the assumptions that a market participant would use, a Level 3 measurement.
Fair value is estimated in accordance with ASC Topic 825. Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The following table sets forth the carrying and notional amounts and estimated fair value of financial instruments as of June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Carrying
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
148,700
|
|
|
$
|
148,700
|
|
|
$
|
177,240
|
|
|
$
|
177,240
|
|
Short-term investments
|
|
|
1,425,001
|
|
|
|
1,425,001
|
|
|
|
416,538
|
|
|
|
416,538
|
|
Securities available-for-sale
|
|
|
1,146,102
|
|
|
|
1,146,102
|
|
|
|
1,451,842
|
|
|
|
1,451,842
|
|
Loans, net
|
|
|
15,434,096
|
|
|
|
15,954,278
|
|
|
|
14,951,631
|
|
|
|
15,444,752
|
|
Equity securities
|
|
|
24,570
|
|
|
|
24,570
|
|
|
|
28,005
|
|
|
|
28,005
|
|
Investment in Federal Home Loan Bank stock
|
|
|
17,250
|
|
|
|
17,250
|
|
|
|
18,090
|
|
|
|
18,090
|
|
Warrants
|
|
|
13
|
|
|
|
13
|
|
|
|
39
|
|
|
|
39
|
|
|
|
Notional
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Foreign exchange contracts
|
|
$
|
101,020
|
|
|
$
|
1,529
|
|
|
$
|
146,397
|
|
|
$
|
2,411
|
|
Interest rate swaps
|
|
|
50,599
|
|
|
|
3,842
|
|
|
|
130,401
|
|
|
|
2,181
|
|
|
|
Carrying
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
16,281,904
|
|
|
$
|
16,334,769
|
|
|
$
|
14,692,308
|
|
|
$
|
14,719,452
|
|
Short-term borrowings
|
|
|
—
|
|
|
|
—
|
|
|
|
25,683
|
|
|
|
25,683
|
|
Advances from Federal Home Loan Bank
|
|
|
230,000
|
|
|
|
241,047
|
|
|
|
670,000
|
|
|
|
674,530
|
|
Other borrowings
|
|
|
40,152
|
|
|
|
33,040
|
|
|
|
36,666
|
|
|
|
30,764
|
|
Long-term debt
|
|
|
119,136
|
|
|
|
61,913
|
|
|
|
119,136
|
|
|
|
76,058
|
|
|
|
Notional
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Option contracts
|
|
$
|
530
|
|
|
$
|
6
|
|
|
$
|
908
|
|
|
$
|
7
|
|
Foreign exchange contracts
|
|
|
179,211
|
|
|
|
531
|
|
|
|
127,003
|
|
|
|
1,415
|
|
Interest rate swaps
|
|
|
697,212
|
|
|
|
33,760
|
|
|
|
602,291
|
|
|
|
14,229
|
|
|
|
Notional
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Off-Balance Sheet Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
3,073,581
|
|
|
$
|
(9,464
|
)
|
|
$
|
3,077,081
|
|
|
$
|
(9,826
|
)
|
Standby letters of credit
|
|
|
262,028
|
|
|
|
(1,981
|
)
|
|
|
282,352
|
|
|
|
(2,431
|
)
|
Other letters of credit
|
|
|
28,199
|
|
|
|
(30
|
)
|
|
|
22,209
|
|
|
|
(20
|
)
|
Bill of lading guarantees
|
|
|
124
|
|
|
|
—
|
|
|
|
319
|
|
|
|
(1
|
)
|
The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of June 30, 2020 and December 31, 2019.
|
|
As of June 30, 2020
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurements
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
148,700
|
|
|
$
|
148,700
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments
|
|
|
1,425,001
|
|
|
|
1,425,001
|
|
|
|
—
|
|
|
|
—
|
|
Securities available-for-sale
|
|
|
1,146,102
|
|
|
|
99,927
|
|
|
|
1,046,175
|
|
|
|
—
|
|
Loans, net
|
|
|
15,954,278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,954,278
|
|
Equity securities
|
|
|
24,570
|
|
|
|
24,570
|
|
|
|
—
|
|
|
|
—
|
|
Investment in Federal Home Loan Bank stock
|
|
|
17,250
|
|
|
|
—
|
|
|
|
17,250
|
|
|
|
—
|
|
Warrants
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
16,334,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,334,769
|
|
Advances from Federal Home Loan Bank
|
|
|
241,047
|
|
|
|
—
|
|
|
|
241,047
|
|
|
|
—
|
|
Other borrowings
|
|
|
33,040
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,040
|
|
Long-term debt
|
|
|
61,913
|
|
|
|
—
|
|
|
|
61,913
|
|
|
|
—
|
|
|
|
As of December 31, 2019
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurements
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
177,240
|
|
|
$
|
177,240
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments
|
|
|
416,538
|
|
|
|
416,538
|
|
|
|
—
|
|
|
|
—
|
|
Securities available-for-sale
|
|
|
1,451,842
|
|
|
|
74,936
|
|
|
|
1,376,906
|
|
|
|
—
|
|
Loans, net
|
|
|
15,444,752
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,444,752
|
|
Equity securities
|
|
|
28,005
|
|
|
|
28,005
|
|
|
|
—
|
|
|
|
—
|
|
Investment in Federal Home Loan Bank stock
|
|
|
18,090
|
|
|
|
—
|
|
|
|
18,090
|
|
|
|
—
|
|
Warrants
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
14,719,452
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,719,452
|
|
Short-term borrowings
|
|
|
25,683
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,683
|
|
Advances from Federal Home Loan Bank
|
|
|
674,530
|
|
|
|
—
|
|
|
|
674,530
|
|
|
|
—
|
|
Other borrowings
|
|
|
30,764
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,764
|
|
Long-term debt
|
|
|
76,058
|
|
|
|
—
|
|
|
|
76,058
|
|
|
|
—
|
|
15. Goodwill and Goodwill Impairment
The Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.
During the second quarter of 2020, the Company assessed its goodwill for impairment. The Company performed an assessment of the criteria included in ASC 350 and, based on such assessment, the Company concluded that the goodwill of the Company’s two reporting units is not impaired.
16. Financial Derivatives
It is our policy not to speculate on the future direction of interest rates. However, from time to time, we may enter into financial derivatives in order to seek mitigation of exposure to interest rate risks related to our interest-earning assets and interest-bearing liabilities. We believe that these transactions, when properly structured and managed, may provide a hedge against inherent interest rate risk in our assets or liabilities and against risk in specific transactions. In such instances, we may enter into interest rate swap contracts or other types of financial derivatives. Prior to considering any hedging activities, we seek to analyze the costs and benefits of the hedge in comparison to other viable alternative strategies. All hedges must be approved by the Bank’s Investment Committee.
The Company follows ASC Topic 815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s Condensed Consolidated Balance Sheets and measurement of those financial derivatives at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a financial derivative is designated as a hedge and, if so, the type of hedge. Fair value is determined using third-party models with observable market data. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivatives are reflected in current earnings, together with changes in the fair value of the related hedged item if there is a highly effective correlation between changes in the fair value of the interest rate swaps and changes in the fair value of the underlying asset or liability that is intended to be hedged. If there is not a highly effective correlation between changes in the fair value of the interest rate swap and changes in the fair value of the underlying asset or liability that is intended to be hedged, then only the changes in the fair value of the interest rate swaps are reflected in the Company’s Consolidated Financial Statements.
The Company offers various interest rate derivative contracts to its customers. When derivative transactions are executed with its customers, the derivative contracts are offset by paired trades with third-party financial institutions including with central counterparties (“CCP”). Certain derivative contracts entered with CCPs are settled-to-market daily to the extent the CCP’s rulebooks legally characterize the variation margin as settlement. Derivative contracts are intended to allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are generally not linked to specific Company assets or liabilities on the Condensed Consolidated Balance Sheets or to forecasted transactions in a hedging relationship and, therefore, are economic hedges. The contracts are marked to market at each reporting period. The changes in fair values of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the counterparties, considering the effects of enforceable master netting agreements and collateral arrangements.
In May 2014, the Bancorp entered into interest rate swap contracts in the notional amount of $119.1 million for a period of ten years. The objective of these interest rate swap contracts, which were designated as hedging instruments in cash flow hedges, was to hedge the quarterly interest payments on the Bancorp’s $119.1 million of Junior Subordinated Debentures that had been issued to five trusts, throughout the ten-year period beginning in June 2014 and ending in June 2024, from the risk of variability of these payments resulting from changes in the three-month LIBOR interest rate. As of June 30, 2020, and 2019, the ineffective portion of these interest rate swaps was not significant. The notional amount and net unrealized loss of the Company’s cash flow derivative financial instruments as of June 30, 2020, and December 31, 2019, were as follows:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Cash flow swap hedges:
|
|
($ in thousands)
|
|
Notional
|
|
$
|
119,136
|
|
|
$
|
119,136
|
|
Weighted average fixed rate-pay
|
|
|
2.61
|
%
|
|
|
2.61
|
%
|
Weighted average variable rate-receive
|
|
|
0.64
|
%
|
|
|
2.26
|
%
|
|
|
|
|
|
|
|
|
|
Unrealized loss, net of taxes (1)
|
|
$
|
(7,925
|
)
|
|
$
|
(3,412
|
)
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Periodic net settlement of swaps (2)
|
|
$
|
514
|
|
|
$
|
8
|
|
|
$
|
769
|
|
|
$
|
(37
|
)
|
(1)-Included in other comprehensive income.
(2)-the amount of periodic net settlement of interest rate swaps was included in interest expense.
As of June 30, 2020, the Bank’s outstanding interest rate swap contracts had a notional amount of $527.5 million for various terms from three to ten years. The Bank entered into these interest rate swap contracts that are matched to individual fixed-rate commercial real estate loans in the Bank’s loan portfolio. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial real estate loans due to changes in interest rates. The swap contracts are structured so that the notional amounts reduce over time to match the contractual amortization of the underlying loan and allow prepayments with the same pre-payment penalty amounts as the related loan. As of June 30, 2020, and 2019, the ineffective portion of these interest rate swaps was not significant. The notional amount and net unrealized loss of the Company’s fair value derivative financial instruments as of June 30, 2020, and December 31, 2019, were as follows:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Fair value swap hedges:
|
|
($ in thousands)
|
|
Notional
|
|
$
|
527,477
|
|
|
$
|
579,584
|
|
Weighted average fixed rate-pay
|
|
|
4.59
|
%
|
|
|
4.71
|
%
|
Weighted average variable rate spread
|
|
|
2.53
|
%
|
|
|
2.62
|
%
|
Weighted average variable rate-receive
|
|
|
3.57
|
%
|
|
|
4.87
|
%
|
|
|
|
|
|
|
|
|
|
Net unrealized loss (1)
|
|
$
|
(18,667
|
)
|
|
$
|
(7,205
|
)
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Periodic net settlement of SWAPs (2)
|
|
$
|
(2,154
|
)
|
|
$
|
534
|
|
|
$
|
(2,797
|
)
|
|
$
|
1,147
|
|
(1)-the amount is included in other non-interest income.
(2)-the amount of periodic net settlement of interest rate swaps was included in interest income.
The Company has designated as a partial-term hedging election $25.0 million of a pool of loans with a notational value of $45.0 million as of June 30, 2020. The loans are not expected to be affected by prepayment, defaults, or other factors affecting the timing and amount of cash flows under the last-of-layer method. The Company has entered into a pay-fixed and receive 1-Month LIBOR interest rate swap to convert the last-of-layer $25.0 million portion of a $45.0 million fixed rate loan tranche in order to reduce the Company’s exposure to higher interest rates for the last-of-layer tranche. As of June 30, 2020, the last-of-layer loan tranche had a fair value basis adjustment of $427 thousand. The interest rate swap converts this last-of-layer tranche into a floating rate instrument. The Company’s risk management objective with respect to this last-of-layer interest rate swap is to reduce interest rate exposure as to the last-of-layer tranche.
Interest rate swap contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have a strong credit profile and be approved by the Company’s Board of Directors. The Company’s credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. The Bancorp’s interest rate swaps have been assigned by the counterparties to a derivative clearing organization and daily margin is indirectly maintained with the derivative clearing organization. Cash posted as collateral by the Bancorp related to derivative contracts totaled $13.7 million as of June 30, 2020 and $7.1 million as of December 31, 2019.
The Company from time to time enters into foreign exchange forward contracts with various counterparties to mitigate the risk of fluctuations in foreign currency exchange rates for foreign exchange certificates of deposit or foreign exchange contracts entered into with our clients. These contracts are not designated as hedging instruments and are recorded at fair value in our Condensed Consolidated Balance Sheets. Changes in the fair value of these contracts as well as the related foreign exchange certificates of deposit and foreign exchange contracts are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities. The notional amount and fair value of the Company’s derivative financial instruments not designated as hedging instruments as of June 30, 2020, and December 31, 2019, were as follows:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
($ in thousands)
|
|
Derivative financial instruments not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Notional amounts:
|
|
|
|
|
|
|
|
|
Option contracts
|
|
$
|
530
|
|
|
$
|
908
|
|
Spot, forward, and swap contracts with positive fair value
|
|
$
|
101,020
|
|
|
$
|
146,397
|
|
Spot, forward, and swap contracts with negative fair value
|
|
$
|
179,211
|
|
|
$
|
127,003
|
|
Fair value:
|
|
|
|
|
|
|
|
|
Option contracts
|
|
$
|
(6
|
)
|
|
$
|
(7
|
)
|
Spot, forward, and swap contracts with positive fair value
|
|
$
|
1,529
|
|
|
$
|
2,411
|
|
Spot, forward, and swap contracts with negative fair value
|
|
$
|
(531
|
)
|
|
$
|
(1,415
|
)
|
17. Balance Sheet Offsetting
Certain financial instruments, including resell and repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the Condensed Consolidated Balance Sheets and/or subject to master netting arrangements or similar agreements. The Company’s securities sold with agreements to repurchase and derivative transactions with upstream financial institution counterparties are generally executed under International Swaps and Derivative Association master agreements that include “right of set-off” provisions. In such cases, there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes.
Financial instruments that are eligible for offset in the Condensed Consolidated Balance Sheets, as of June 30, 2020, and December 31, 2019, are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Balance Sheet
|
|
|
|
Gross
Amounts
Recognized
|
|
|
Gross Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts
Presented in the
Balance Sheet
|
|
|
Financial
Instruments
|
|
|
Collateral
Posted
|
|
|
Net Amount
|
|
|
|
(In thousands)
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
3,842
|
|
|
$
|
—
|
|
|
$
|
3,842
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
33,760
|
|
|
$
|
—
|
|
|
$
|
33,760
|
|
|
$
|
—
|
|
|
$
|
(33,760
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
2,181
|
|
|
$
|
—
|
|
|
$
|
2,181
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
14,229
|
|
|
$
|
—
|
|
|
$
|
14,229
|
|
|
$
|
—
|
|
|
$
|
(14,229
|
)
|
|
$
|
—
|
|
18. Revenue from Contracts with Customers
The following is a summary of revenue from contracts with customers that are in-scope and not in-scope under ASC 606, Revenue from Contracts with Customers:
|
|
Three months Ended June 30,
|
|
|
Six months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
Non-interest income, in-scope:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges on deposit accounts
|
|
$
|
1,873
|
|
|
$
|
2,020
|
|
|
$
|
3,928
|
|
|
$
|
4,047
|
|
Wealth management fees
|
|
|
2,209
|
|
|
|
2,513
|
|
|
|
5,346
|
|
|
|
4,209
|
|
Other service fees(1)
|
|
|
2,990
|
|
|
|
3,559
|
|
|
|
6,362
|
|
|
|
6,948
|
|
Total non-interest income
|
|
|
7,072
|
|
|
|
8,092
|
|
|
|
15,636
|
|
|
|
15,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income, not in-scope(2)
|
|
|
8,534
|
|
|
|
4,702
|
|
|
|
5,756
|
|
|
|
10,511
|
|
Total non-interest income
|
|
$
|
15,606
|
|
|
$
|
12,794
|
|
|
$
|
21,392
|
|
|
$
|
25,715
|
|
(1) Other service fees comprise of fees related to letters of credit, wire fees, fees on foreign exchange transactions and other immaterial individual revenue streams.
(2) These amounts primarily represent revenue from contracts with customers that are out of the scope of ASC 606.
The major revenue streams by fee type that are within the scope of ASC 606 presented in the above tables are described in additional detail below:
Fees and Services Charges on Deposit Accounts
Fees and service charges on deposit accounts include charges for analysis, overdraft, cash checking, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of card based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services and can be terminated at will by either party. Fees received from deposit clients for the various deposit activities are recognized as revenue by the Company once the performance obligations are met.
Wealth Management Fees
The Company employs financial consultants to provide investment planning services for customers including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The fees the Company earns are variable and are generally received monthly by the Company. The Company recognizes revenue for the services performed at quarter end based on actual transaction details received from the broker dealer the Company engages.
Practical Expedients and Exemptions
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose the value of unsatisfied performance obligations as the Company’s contracts with customers generally have a term that is less than one year, are open-ended with a cancellation period that is less than one year, or allow the Company to recognize revenue in the amount to which the Company has the right to invoice.
In addition, given the short term nature of the contracts, the Company also applies the practical expedient in ASC 606-10-32-18 and does not adjust the consideration from customers for the effects of a significant financing component, if at contract inception the period between when the entity transfers the goods or services and when the customer pays for that good or service is one year or less.
19. Stockholders’ Equity
Total equity was $2.34 billion as of June 30, 2020, an increase of $48.2 million, from $2.29 billion as of December 31, 2019, primarily due to net income of $101.2 million, increases in other comprehensive income of $6.1 million, and proceeds from dividend reinvestment of $1.7 million, and partially offset by common stock cash dividends of $49.3 million and repurchases of the Company’s common stock of $12.9 million.
Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the three months and six months ended June 30, 2020, and June 30, 2019, was as follows:
|
|
Three months ended June 30, 2020
|
|
|
Three months ended June 30, 2019
|
|
|
|
Pre-tax
|
|
|
Tax expense/
(benefit)
|
|
|
Net-of-tax
|
|
|
Pre-tax
|
|
|
Tax expense/
(benefit)
|
|
|
Net-of-tax
|
|
|
|
(In thousands)
|
|
Beginning balance, gain/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
$
|
17,567
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,966
|
)
|
Cash flow hedge derivatives
|
|
|
|
|
|
|
|
|
|
|
(7,690
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,465
|
)
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
9,877
|
|
|
|
|
|
|
|
|
|
|
$
|
(10,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses)/gains arising during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
$
|
(683
|
)
|
|
$
|
(202
|
)
|
|
$
|
(481
|
)
|
|
$
|
15,865
|
|
|
$
|
4,690
|
|
|
$
|
11,175
|
|
Cash flow hedge derivatives
|
|
|
(334
|
)
|
|
|
(99
|
)
|
|
|
(235
|
)
|
|
|
(2,984
|
)
|
|
|
(882
|
)
|
|
|
(2,102
|
)
|
Total
|
|
$
|
(1,017
|
)
|
|
$
|
(301
|
)
|
|
$
|
(716
|
)
|
|
$
|
12,881
|
|
|
$
|
3,808
|
|
|
$
|
9,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
(1,147
|
)
|
|
|
(339
|
)
|
|
|
(808
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cash flow hedge derivatives
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
(1,147
|
)
|
|
|
(339
|
)
|
|
|
(808
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss)/income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
$
|
(1,830
|
)
|
|
$
|
(541
|
)
|
|
$
|
(1,289
|
)
|
|
$
|
15,865
|
|
|
$
|
4,690
|
|
|
$
|
11,175
|
|
Cash flow hedge derivatives
|
|
|
(334
|
)
|
|
|
(99
|
)
|
|
|
(235
|
)
|
|
|
(2,984
|
)
|
|
|
(882
|
)
|
|
|
(2,102
|
)
|
Total
|
|
$
|
(2,164
|
)
|
|
$
|
(640
|
)
|
|
$
|
(1,524
|
)
|
|
$
|
12,881
|
|
|
$
|
3,808
|
|
|
$
|
9,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, gain/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
$
|
16,278
|
|
|
|
|
|
|
|
|
|
|
$
|
2,209
|
|
Cash flow hedge derivatives
|
|
|
|
|
|
|
|
|
|
|
(7,925
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,567
|
)
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
8,353
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,358
|
)
|
|
|
Six months ended June 30, 2020
|
|
|
Six months ended June 30, 2019
|
|
|
|
Pre-tax
|
|
|
Tax expense/
(benefit)
|
|
|
Net-of-tax
|
|
|
Pre-tax
|
|
|
Tax expense/
(benefit)
|
|
|
Net-of-tax
|
|
|
|
(In thousands)
|
|
Beginning balance, gain/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
$
|
5,714
|
|
|
|
|
|
|
|
|
|
|
$
|
(17,765
|
)
|
Cash flow hedge derivatives
|
|
|
|
|
|
|
|
|
|
|
(3,412
|
)
|
|
|
|
|
|
|
|
|
|
|
(241
|
)
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
2,302
|
|
|
|
|
|
|
|
|
|
|
$
|
(18,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains/(losses) arising during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
$
|
16,150
|
|
|
$
|
4,774
|
|
|
$
|
11,376
|
|
|
$
|
28,356
|
|
|
$
|
8,382
|
|
|
$
|
19,974
|
|
Cash flow hedge derivatives
|
|
|
(6,407
|
)
|
|
|
(1,894
|
)
|
|
|
(4,513
|
)
|
|
|
(4,722
|
)
|
|
|
(1,396
|
)
|
|
|
(3,326
|
)
|
Total
|
|
$
|
9,743
|
|
|
$
|
2,880
|
|
|
$
|
6,863
|
|
|
$
|
23,634
|
|
|
$
|
6,986
|
|
|
$
|
16,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
(1,153
|
)
|
|
|
(341
|
)
|
|
|
(812
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cash flow hedge derivatives
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
(1,153
|
)
|
|
|
(341
|
)
|
|
|
(812
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
$
|
14,997
|
|
|
$
|
4,433
|
|
|
$
|
10,564
|
|
|
$
|
28,356
|
|
|
$
|
8,382
|
|
|
$
|
19,974
|
|
Cash flow hedge derivatives
|
|
|
(6,407
|
)
|
|
|
(1,894
|
)
|
|
|
(4,513
|
)
|
|
|
(4,722
|
)
|
|
|
(1,396
|
)
|
|
|
(3,326
|
)
|
Total
|
|
$
|
8,590
|
|
|
$
|
2,539
|
|
|
$
|
6,051
|
|
|
$
|
23,634
|
|
|
$
|
6,986
|
|
|
$
|
16,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, gain/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
$
|
16,278
|
|
|
|
|
|
|
|
|
|
|
$
|
2,209
|
|
Cash flow hedge derivatives
|
|
|
|
|
|
|
|
|
|
|
(7,925
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,567
|
)
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
8,353
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,358
|
)
|
20. Stock Repurchase Program
On May 7, 2019, the Board of Directors approved a new stock repurchase program to buy back up to $50.0 million of the Company’s common stock. In 2019, the Company repurchased 741,934 shares for $26.4 million, at an average cost of $35.59 per share under the May 2019 repurchase program. The Company repurchased 400,000 shares for $12.9 million, at an average cost of $32.20 per share under the May 2019 repurchase program in the three months ended March 31, 2020. As of June 30, 2020, the Company repurchased 1,141,934 shares for $39.3 million, at an average cost of $34.40 per share. The Company has temporarily suspended the stock repurchase program and does not plan to buy back additional stock until further notice. If the Company resumes stock repurchases, it may repurchase up to an additional $10.7 million of its common stock under the May 2019 stock repurchase program.
21. Subsequent Events
The Company has evaluated the effect of events that have occurred subsequent to June 30, 2020, through the date of issuance of the Condensed Consolidated Financial Statements, and, based on such evaluation, the Company believes that there have been no material events during such period that would require recognition in the Condensed Consolidated Financial Statements or disclosure in the Notes to the Condensed Consolidated Financial Statements.