OP BANCORP The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Overview
As of
The following significant items are of note for the three months ended
• Net income totaled
three months ended
diluted common share, for the three months ended
• Net interest income for the three months ended
31, 2020
• Total assets of
• Gross loans of
• Total deposits of
• Shareholders' equity of
months ended
Critical Accounting Policies and Estimates
Our accounting and reporting policies conform to accounting principles generally accepted inthe United States of America ("GAAP") and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements. The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. Additional information about these policies can be found in the "Notes to Consolidated Financial Statements, Note 1. Summary of Significant Accounting Policies" of the audited consolidated financial statements included in the Company's Form 10-K for the period endedDecember 31, 2020 .
Allowance for Loan Losses
The allowance for loan losses ("ALL") is a valuation allowance for probable
incurred credit losses. Loan losses are charged against the ALL when management
believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the ALL. Management estimates the ALL
balance required using past loan loss experience, the nature and volume of the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the
ALL may be made for specific loans, but the entire allowance is available for
any loan that, in management's judgment, should be charged off.
The ALL is maintained at a level that management believes is appropriate to
provide for known and inherent incurred loan losses as of the date of the
consolidated balance sheet and we have established methodologies for the
determination of its adequacy. The methodologies are set forth in a formal
policy and take into consideration the need for an overall general valuation
allowance as well as specific allowances that are determined on an individual
loan basis.
The evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as more information becomes available. While
management uses available information to recognize losses on loans, changes in
economic or other conditions may necessitate revision of the estimate in future
periods.
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Selected Financial Data
Financial Highlights (unaudited)
(Dollars in thousands, except per share data) Three Months Ended
March 31, March 31,
2021 2020
Income Statement Data:
Interest income $ 13,632 $ 14,345
Interest expense 877 3,229
Net interest income 12,755 11,116
Provision for loan losses 620 743
Noninterest income 2,966 2,296
Noninterest expense 7,966 8,207
Income before taxes 7,135 4,462
Provision for income taxes 2,058 1,163
Net Income $ 5,077 $ 3,299
Diluted earnings per share $ 0.33 $ 0.21
Performance Ratios:
Return on average assets (annualized) 1.44 % 1.12 %
Return on average equity (annualized) 14.02 % 9.44 %
Net interest margin (annualized) 3.80 % 3.95 %
Efficiency ratio (1) 50.67 % 61.19 %
(1) Represents noninterest expense divided by the sum of net interest income and
noninterest income.
Financial Highlights (unaudited)
(Dollars in thousands, except per share data) As of
March 31, December 31,
2021 2020
Balance Sheet Data:
Loans held for sale $ 28,575 $ 26,659
Gross loans, net of unearned income 1,155,872 1,099,736
Allowance for loan losses 15,339 15,352
Total assets 1,455,334 1,366,826
Deposits 1,285,390 1,200,090
Shareholders' equity 146,993 143,366
Credit Quality:
Nonperforming loans $ 1,148 $ 985
Nonperforming assets 1,148 985
Net charge-offs to average gross loans (annualized) 0.00 % 0.00 %
Nonperforming assets to gross loans plus OREO 0.10 % 0.09 %
ALL to nonperforming loans 1,337 % 1,558 %
ALL to gross loans, net of unearned income 1.33 % 1.40 %
Capital Ratios:
Total risk-based capital ratio 15.04 % 14.81 %
Tier 1 risk-based capital ratio 13.79 % 13.56 %
Common equity tier 1 ratio 13.79 % 13.56 %
Leverage ratio 10.38 % 10.55 %
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COVID-19 AND GOVERNMENT RESPONSE
The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the local, state, national and global economies. The pandemic has resulted in temporary closures of many businesses and the institution of social distancing and shelter-in-place requirements in many states and communities. This has increased unemployment levels and caused extreme volatility in the financial markets. While COVID-19 has negatively impacted the economy, the CARES Act provided for financial stimulus and government lending program. The benefits of these programs, as well as additional stimulus, supported businesses and consumers within the economy. The Company was able to react quickly to these changes because of the commitment and flexibility of its workforce coupled with a well-prepared business continuity plan. The Company has taken various steps to help our customers, employees, and communities, while maintaining safe and sound banking operations. The Company has been assisting customers with loan deferrals and the PPP loans and has provided employees remote working environment while maintaining fully functioning operations in all areas. As the recent distribution of vaccinations for the virus accelerates and state and local governments focus on reopening and increased capacity of businesses, the Company anticipates that many of business customers will soon resume their operation to full capacity.
The following tables summarize loan portfolio breakdown by industry and loan deferral requests as of the dates presented:
Loan Portfolio Breakdown by Industry Excluding Home mortgage and consumer loans (Dollars in thousands) As of March
31, 2021
Number of
Industry accounts % of total Balance % of total
Hotel / motel 225 7.5 % $ 150,375 14.1 %
Wholesale 375 12.4 77,331 7.2
Food services / restaurant 432 14.3 62,716 5.9
Laundry services 152 5.0 21,196 2.0
Real estate lessor 240 8.0 396,092 37.1
Car washes 52 1.7 36,459 3.4
Educational service 32 1.1 7,166 0.7
Other 1,505 50.0 315,396 29.6
Total 3,013 100 % $ 1,066,731 100 %
Loan Deferment Summary by Industry
Excluding Home mortgage and consumer
loans
(Dollars in thousands) As of March 31, 2021
% of % of
Number of % of total % of total
Industry accounts deferment loans Balance deferment loans
Hotel / motel 6 66.7 % 2.7 % $ 15,188 93.6 % 10.1 %
Wholesale 1 11.1 0.3 486 3.0 0.6
Food services / 1 11.1 0.2 465 2.9 0.7
restaurant
Laundry services 1 11.1 0.7 90 0.6 0.4
Total 9 100.0 % 0.3 % $ 16,229 100.0 % 1.5 %
Loan Deferment Summary by Loan Type
(Dollars in thousands) As of March 31, 2021
% of % of
Number of % of total % of total
Loan Type accounts deferment loans Balance deferment loans
Real estate loans 6 42.9 % 1.7 % $ 15,188 80.0 % 2.3 %
C & I loans 3 21.4 1.3 1,041 5.5 1.0
Loans, excluding home
mortgage and
consumer loans 9 64.3 0.3 16,229 85.5 1.5
Home mortgage loans 5 35.7 1.6 2,761 14.5 2.2
Total 14 100.0 % 0.4 % $ 18,990 100.0 % 1.6 %
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Loan Deferment Status Change by Loan Type
Total deferments Payment resumed
under the CARES Act or paid off Remaining deferments
(Dollars in thousands) as of March 31, 2021 through March 31, 2021 as of March 31, 2021
Number Number Number
of of of
Loan Type accounts Balance accounts Balance accounts Balance
Loans, excluding home
mortgage and
consumer loans 116 206,582 107 190,353 9 16,229
Home mortgage loans 69 30,205 64 27,444 5 2,761
Total 185 $ 236,787 171 $ 217,797 14 $ 18,990 Results of Operations-Comparison for the Three Months Ended
The following discussion of our results of operations compares the three months
ended
We reported net income for the three months ended
Net Interest Income
The management of interest income and expense is fundamental to our financial
performance. Net interest income, the difference between interest income and
interest expense, is the largest component of the Company's total revenue.
Management closely monitors both total net interest income and the net interest
margin (net interest income divided by average earning assets). We seek to
maximize net interest income without exposing the Company to an excessive level
of interest rate risk through our asset and liability policies. Interest rate
risk is managed by monitoring the pricing, maturity and repricing options of all
classes of interest-bearing assets and liabilities. Our net interest margin is
also adversely impacted by the reversal of interest on nonaccrual loans and the
reinvestment of loan payoffs into lower yielding investment securities and other
short-term investments.
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The following table presents, for the periods indicated, information about:
(i) weighted average balances, the total dollar amount of interest income from
interest-earning assets and the resultant average yields, (ii) average balances,
the total dollar amount of interest expense on interest-bearing liabilities and
the resultant average rates, (iii) net interest income, (iv) the interest rate
spread, and (v) the net interest margin.
Three Months Ended March 31,
2021 2020
Average Interest Yield / Average Interest Yield /
(Dollars in thousands) Balance and Fees Rate Balance and Fees Rate
Interest earning assets:
Federal Funds sold and other $ 99,349 $ 112 0.45 % 1.68 %
investments (1) $ 78,256 $ 332
Securities available for sale 92,951 236 1.02 54,647 319 2.33
Total investments 192,300 348 0.72 132,903 651 1.95
Real estate loans 653,498 7,466 4.63 633,963 8,198 5.20
SBA loans 268,440 3,280 4.95 138,900 2,667 7.72
C & I loans 116,327 1,072 3.74 100,686 1,277 5.10
Home Mortgage loans 125,698 1,451 4.62 121,768 1,514 4.97
Consumer loans 1,187 15 5.12 2,774 38 5.51
Total loans (2) 1,165,150 13,284 4.62 998,091 13,694 5.51
Total earning assets 1,357,450 13,632 4.07 1,130,994 14,345 5.10
Noninterest-earning assets 52,376 48,189
Total assets $ 1,409,826 $ 1,179,183
Interest-bearing liabilities:
Money market deposits and others $ 336,796 $ 270 0.33 % $ 297,202 $ 957 1.29 %
Time deposits 361,803 607 0.68 431,772 2,272 2.12
Total interest-bearing deposits 698,599 877 0.51 728,974 3,229 1.78
Borrowings 5,000 - 0.00 45 - 0.00
Total interest-bearing 703,599 877 0.51 3,229 1.78
liabilities 729,019
Noninterest-bearing liabilities:
Noninterest-bearing deposits 544,492 292,453
Other noninterest-bearing 16,865
liabilities 17,921
Total noninterest-bearing 561,357
liabilities 310,374
Shareholders' equity 144,870 139,790
Total liabilities and $ 1,409,826
shareholders' equity $ 1,179,183
Net interest income / interest $ 12,755 3.56 % $ 11,116 3.32 %
rate spreads
Net interest margin 3.80 % 3.95 %
Cost of deposits & cost of
funds:
Total deposits / cost of $ 1,243,091 $ 877 0.29 % $ 1,021,427 $ 3,229 1.27 %
deposits
Total funding liabilities / cost $ 1,248,091 $ 877 0.28 % $ 1,021,472 $ 3,229 1.27 %
of funds
(1) Includes income and average balances for
federal funds, interest-earning time deposits and other miscellaneous
interest-earning assets.
(2) Average loan balances include non-accrual loans and loans held for sale.
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Increases and decreases in interest income and interest expense result from
changes in average balances (volume) of interest-earning assets and
interest-bearing liabilities, as well as changes in average interest rates. The
following tables set forth the effects of changing rates and volumes on our net
interest income during the period shown. Information is provided with respect to
(i) effects on interest income attributable to changes in volume (change in
volume multiplied by prior rate) and (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume).
Change applicable to both volume and rate have been allocated to volume and rate
ratably.
Three Months Ended March 31,
2021 over 2020
Change due to:
Interest
(Dollars in thousands) Volume Rate Variance
Interest earning assets:
Federal Funds sold and other investments $ 70 $ (290 ) $ (220 )
Securities available for sale 153 (236 ) (83 )
Total investments 223 (526 ) (303 )
Real estate loans 236 (968 ) (732 )
SBA loans 1,831 (1,218 ) 613
C & I loans 177 (382 ) (205 )
Home Mortgage loans 47 (110 ) (63 )
Consumer loans (20 ) (3 ) (23 )
Total loans 2,271 (2,681 ) (410 )
Total earning assets 2,494 (3,207 ) (713 )
Money market deposits and others 111 (798 ) (687 )
Time deposits (320 ) (1,345 ) (1,665 )
Total interest-bearing deposits (209 ) (2,143 ) (2,352 )
Borrowings - - -
Total interest-bearing liabilities (209 ) (2,143 ) (2,352 ) Net interest income$ 2,703 $ (1,064 ) $ 1,639
Total interest income decreased
Interest and fees on loans was$13.3 million for the three months endedMarch 31, 2021 , compared to$13.7 million for the same period in 2020, a decrease of$410,000 , or 3.0%. This decrease in interest income on loans was primarily due to an 89 basis point decrease to 4.62% for the three months endedMarch 31, 2021 from 5.51% for the same period in 2020 in the average yield on loans, partially offset by an increase in the average balance of loans outstanding. Average loans increased$167.1 million , or 16.7%, to$1.17 billion for the three months endedMarch 31, 2021 from$998.1 million for the same period in 2020, primarily due to increases in real estate and SBA loans including SBA PPP loans. Interest income on total investment was$348,000 for the three months endedMarch 31, 2021 , compared to$651,000 for the same period in 2020. Interest income on the securities portfolio decreased$83,000 , or 26.0%, to$236,000 for the three months endedMarch 31, 2021 , compared to$319,000 for the same period in 2020. The decrease in interest income on the securities portfolio was due to a 131 basis point decrease in the average yield on the securities portfolio, offset by 70.1% increase in the average balance of securities available for sale. Interest income on federal funds sold and other investments decreased$220,000 , or 66.3%, to$112,000 the three months endedMarch 31, 2021 from$332,000 for the same period in 2020, due to a 123 basis point decrease in the average yield on the federal funds sold and other investments, offset by 27.0% increase in the average balance of federal funds sold and other investments. Average yield on interest-earning assets decreased 103 basis points to 4.07% for the three months endedMarch 31, 2021 from 5.10% for the same period in 2020. Average interest-earning assets increased$226.5 million , or 20.0%, to$1.36 billion for the three months endedMarch 31, 2021 from$1.13 billion for the same period in 2020. 34
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Total interest expense decreased$2.4 million , or 72.8%, to$877,000 for the three months endedMarch 31, 2021 from$3.2 million for the same period in 2020, primarily due to a decrease in interest expense on deposits as a result of the downward adjustments of the Company's rates paid on interest-bearing deposits in response to the rate decreases by theFederal Reserve and a decrease in the average balance of interest-bearing liabilities. Average cost of interest-bearing liabilities decreased 127 basis points to 0.51% for the three months endedMarch 31, 2021 from 1.78% for the same period in 2020. Average interest-bearing liabilities decreased$25.4 million , or 3.5%, to$703.6 million for the three months endedMarch 31, 2021 compared to$729.0 million for the same period in 2020. Net interest income increased$1.6 million , or 14.7%, to$12.8 million for the three months endedMarch 31, 2021 compared to$11.1 million for the same period in 2020. The net interest spread and net interest margin for the three months endedMarch 31, 2021 , 2021, were 3.56% and 3.80%, respectively, compared to 3.32% and 3.95%, respectively, for the same period in 2020.
Provision for Loan Losses
Credit risk is inherent in the business of making loans. We establish an allowance for loan losses through charges to earnings, which are shown in the statements of operations as the provision for loan losses. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for loan losses and charging the shortfall or excess, if any, to the current quarter's expense. This has the effect of creating variability in the amount and frequency of charges to earnings. The provision for loan losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management's assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market area. The provision for loan losses for the three months endedMarch 31, 2021 was$620,000 . Management has made adjustments to qualitative factors on all loan types to reflect the pandemic's prolonged potential adverse impacts on national, state, and local economic and business conditions. The changes in qualitative factors accounted for$10,000 , or 2% of the provision, and the changes in quantitative factors accounted$579,000 , or 93% of the provision, which included a provision of$636,000 for accrued interest receivables on deferred loans and loans that are no longer on deferral but have not fully caught up on their accrued interest, and$56,000 in net reversal from loss factor change and loan balance change. The changes in specific reserve for impaired loans was$34,000 for the three month endedMarch 31, 2021 . The provision for loan losses for the same period in 2020 was$743,000 . The changes in qualitative factors accounted for$593,000 , or 80% of the provision, and the changes in quantitative factors accounted$48,000 , or 6% of the provision. The changes in specific reserve for impaired loans was$53,000 for the three month endedMarch 31, 2020 .
Noninterest Income
While interest income remains the largest single component of total revenues, noninterest income is also an important component. A portion of our noninterest income is associated with SBA lending activity, consisting of gains on the sale of loans sold in the secondary market and servicing income from loans sold with servicing retained. Other sources of noninterest income include loan servicing fees, service charges and fees, and gains on the sale of securities. Noninterest income for the three months endedMarch 31, 2021 increased$670,000 , or 29.2%, to$3.0 million compared to$2.3 million for the same period in 2020, primarily due to increases of$727,000 in gain on sale of loans and$139,000 in loan servicing fees, partially offset by decreases of$94,000 in service charges on deposits and$102,000 in other income.
The following table sets forth the various components of our noninterest income
for the three months ended
Three Months Ended March 31,
Increase
(Dollars in thousands) 2021 2020 (Decrease)
Noninterest income:
Service charges on deposit accounts $ 274 $ 368 $ (94 )
Loan servicing fees, net of amortization 531 392 139
Gain on sale of loans 1,882 1,155 727
Other income and fees 279 381 (102 )
Total noninterest income $ 2,966 $ 2,296 $ 670
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Table of Contents The increase in gain on sale of loans was due to a$1.8 million gain on$22.4 million sales in SBA loans for the three months endedMarch 31, 2021 compared to a$1.1 million gain on$17.5 million sales in SBA loans for the same period in 2020. The increase in loan servicing fees, net of amortization, was primarily due to a decrease in amortization from lower SBA loan payoffs in the three months endedMarch 31, 2021 compared to the same period in 2020. The decrease in service charges on deposits was primarily due to lower overdraft charges, partially offset by an increase in analysis charges on business accounts for the three months endedMarch 31, 2021 compared to the same period in 2020. The decrease in other income was primarily due to unrealized holding loss of$66,000 on CRA qualified mutual fund for the three months endedMarch 31, 2021 compared to unrealized holding gain of$58,000 on CRA qualified mutual fund for the same period of 2020.
Noninterest Expense
Noninterest expense for the three months endedMarch 31, 2021 was$8.0 million compared to$8.2 million for the same period in 2020, a decrease of$241,000 , or 2.9%. The decrease was primarily attributable to decreases of$407,000 in salaries and employee benefits,$117,000 in director's fees and stock-based compensation expenses, partially offset by an increase of$177,000 in foundation and other contribution expenses.
The following table sets forth the major components of our noninterest expense
for the three months ended
Three Months Ended March 31,
Increase
(Dollars in thousands) 2021 2020 (Decrease)
Noninterest expense:
Salaries and employee benefits $ 4,662 $ 5,071 $ (409 )
Occupancy and equipment 1,235 1,230 5
Data processing and communication 448 409 39
Professional fees 314 273 41
FDIC insurance and regulatory assessments 132 106 26
Promotion and advertising 177 162 15
Directors' fees and stock-based compensation 116 233 (117 )
Foundation donation and other contributions 507 330 177
Other expenses 375 393 (18 )
Total noninterest expense 7,966 8,207 (241 )
Salaries and employee benefits expense decreased $409,000 , or 8.1%, to $4.7
million for the three months ended March 31, 2021 from $5.1 million for the same
period in 2020, primarily attributable to an increase in deferred loan
origination costs. The increase in deferred loan origination costs was due to
higher loan origination of $169.2 million , including SBA PPP loan origination of
$74.2 million for the three months ended March 31, 2021 compared to $77.9
million for the same period in 2020.
Director's fees and stock-based compensation expenses decreased $117,000 , or
50.2%, to $116,000 for the three months ended March 31, 2021 compared to
$233,000 for the same period in 2020, primarily due to a decrease of $108,000 in
restricted stock unit expense resulting from the full vesting of the restricted
stock units in July 2020 .
Foundation donation and other contributions expenses increased $177,000 , or
53.6%, to $507,000 for the three months ended March 31, 2021 compared to
$330,000 for the same period in 2020. The increase was due to increased donation
accruals for Open Stewardship Foundation , which is directly proportionate to our
after-tax net income.
Income Tax Expense
Income tax expense was $2.1 million and $1.2 million for the three months ended
March 31, 2021 and 2020, respectively. The effective income tax rate increased
to 28.8% for the three months ended March 31, 2021 compared to 26.1% for the
same period in 2020, primarily due to realizing a lower amount of tax benefits
resulting from a decrease in the number of non-qualified stock options exercises
during the three months ended March 31, 2021 compared to the same period in
2020.
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Table of Contents Financial Condition Total assets increased$88.5 million , or 6.5%, to$1.46 billion atMarch 31, 2021 compared to$1.37 billion atDecember 31, 2020 , primarily due to increases of$56.1 million , or 5.1%, in gross loans, and$10.6 million , or 11.6%, in securities available for sale. We funded our asset growth primarily with an increase of$85.3 million , or 7.1% in total deposits during the three months endedMarch 31, 2021 . Investment portfolio The securities portfolio is the second largest component of our interest earning assets, and the structure and composition of this portfolio is important to an analysis of our financial condition. The portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, because it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and our other funding sources; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans. We classify our securities as either available-for-sale or held-to-maturity at the time of purchase. Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders' equity. Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities. All securities in our investment portfolio were classified as available-for-sale atMarch 31, 2021 . There were no held-to-maturity securities in our investment portfolio atMarch 31, 2021 . All available-for-sale securities are carried at fair value. Securities available-for-sale consist primarily of US government-sponsored agency securities, home mortgage-backed securities and collateralized mortgage obligations. Securities available for sale increased$10.6 million , or 11.6%, to$102.4 million atMarch 31, 2021 from$91.8 million atDecember 31, 2020 , primarily due to purchases of$19.9 million , partially offset by principal paydowns of$8.3 million and a maturity of$3.1 million in securities available for sale for the three months endedMarch 31, 2021 . No issuer of securities available for sale, other than theU.S. Government and its agencies, comprised more than 10% of our shareholders' equity as ofMarch 31, 2021 orDecember 31, 2020 .
The following table summarizes the fair value of the available-for-sale securities portfolio as of the dates presented.
March 31, 2021 December 31, 2020
Amortized Fair Unrealized Amortized Fair Unrealized
(Dollars in thousands) Cost Value Gain/(Loss) Cost Value Gain/(Loss)
Available for sale
U.S. Government agencies $ 1,000 $ 1,001 $ 1 $ 1,000 $ 1,005 $ 5
Mortgage-backed securities:
residential 25,196 25,428 232 19,281 19,704 423
Collateralized mortgage
obligations 75,772 75,984 212 70,318 71,082 764
Total available for sale $ 101,968 $ 102,413 $ 445 $ 90,599 $ 91,791 $ 1,192
Certain securities have fair values less than amortized cost and, therefore,
contain unrealized losses. At March 31, 2021 , we evaluated the securities which
had an unrealized loss for other than temporary impairment ("OTTI") and
determined all decline in value to be temporary. We anticipate full recovery of
amortized cost with respect to these securities by maturity, or sooner in the
event of a more favorable market interest rate environment. We do not intend to
sell these securities and it is not more likely than not that we will be
required to sell them before recovery of the amortized cost basis, which may be
at maturity.
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The following table sets forth certain information regarding contractual
maturities and the weighted average yields of our investment securities as of
the dates presented. Expected maturities may differ from contractual maturities
if borrowers have the right to call or prepay obligations with or without call
or prepayment penalties.
As of March 31, 2021
Due in One Year Due after One Year Due after Five Years
or Less Through Five Years Through Ten Years Due after Ten Years
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average (Dollars in thousands)
Cost Yield Cost Yield Cost Yield Cost Yield
Available for sale U.S. Government agencies$ 1,000 1.75 % $ - - % $ - - % $ - - % Mortgage-backed securities - residential - - % 938 1.99 % 4,194 1.90 % 20,064 1.05 % Collateralized mortgage obligations - - % - - % 708 1.73 % 75,064 1.06 % Total available for sale$ 1,000 1.75 %$ 938 1.99 %$ 4,902 1.88 %$ 95,128 1.06 %
We have not used interest rate swaps or other derivative instruments to hedge fixed rate loans or securities to otherwise mitigate interest rate risk.
Loans
Our loans represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. Gross loans including net deferred costs increased$56.1 million , or 5.1%, to$1.16 billion atMarch 31, 2021 , compared to$1.10 billion atDecember 31, 2020 , primarily due to originations of SBA PPP loans and organic growth in commercial real estate for the three months endedMarch 31, 2021 .
The loan distribution table that follows sets forth our gross loans outstanding, and the percentage distribution in each category as of the dates indicated:
March 31, 2021 December 31, 2020
(Dollars in thousands) Amount % of Total Amount % of Total
Real estate:
Commercial real estate $ 662,445 57 % $ 651,684 59 %
SBA loan - real estate 139,503 12 % 136,224 12 %
Total real estate 801,948 69 % 787,908 71 %
SBA loan - non-real estate 123,682 11 % 75,151 7 %
Commercial and industrial 103,883 9 % 107,307 10 %
Home mortgage 125,285 11 % 128,212 12 %
Consumer 1,074 <1% 1,158 <1%
Gross loans 1,155,872 100 % 1,099,736 100 %
Allowance for loan losses (15,339 ) (15,352 )
Net loans $ 1,140,533 $ 1,084,384
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Table of Contents The following tables presents the maturity distribution of our loans as ofMarch 31, 2021 andDecember 31, 2020 . The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. As of March 31, 2021 Due after One Year Due in One Year or Less Through Five Years Due after Five Years Adjustable Adjustable Adjustable (Dollars in thousands) Fixed Rate Rate Fixed Rate Rate Fixed Rate Rate Total Real estate: Commercial real estate$ 58,894 $ 54,096 $ 292,863 $ 140,752 $ 88,949 $ 26,891 $ 662,445 SBA loans - real estate - - - 49 - 139,454 139,503 Total real estate 58,894 54,096 292,863 140,801 88,949 166,345 801,948 SBA loan - non-real estate - 7 113,552 1,153 - 8,970 123,682 Commercial and industrial 139 37,438 216 38,531 18,556 9,003 103,883 Home mortgage - - - - 111,188 14,097 125,285 Consumer - 250 - 824 - - 1,074 Gross loans$ 59,033 $ 91,791 $ 406,631 $ 181,309 $ 218,693 $ 198,415 $ 1,155,872 As of December 31, 2020 Due after One Year Due in One Year or Less Through Five Years Due after Five Years Adjustable Adjustable Adjustable (Dollars in thousands) Fixed Rate Rate Fixed Rate Rate Fixed Rate Rate Total Real estate: Commercial real estate$ 58,101 $ 44,439 $ 293,045 $ 155,303 $ 74,302 $ 26,494 $ 651,684 SBA loans - real estate - - - - - 136,224 136,224 Total real estate 58,101 44,439 293,045 155,303 74,302 162,718 787,908 SBA loan - non-real estate - 11 64,906 952 - 9,282 75,151 Commercial and industrial 8,933 43,618 221 36,853 4,887 12,795 107,307 Home mortgage - - - - 114,141 14,071 128,212 Consumer - 271 - 887 - - 1,158 Gross loans$ 67,034 $ 88,339 $ 358,172 $ 193,995 $ 193,330 $ 198,866 $ 1,099,736 Our loan portfolio is concentrated in commercial real estate, commercial (primarily manufacturing, wholesale, and services-oriented entities), SBA loans (primarily unguaranteed portion) with the remaining balance in home mortgage, and consumer loans. We do not have any material concentrations by industry or group of industries in the loan portfolio. However, 80.2% of our gross loans are secured by real property as ofMarch 31, 2021 , compared to 83.3% as ofDecember 31, 2020 . We have established concentration limits in the loan portfolio for commercial real estate loans, commercial and industrial loans, and unsecured lending, among others. All loan types are within established limits. We use underwriting guidelines to assess the borrowers' historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending agreements to allow us to react to a borrower's deteriorating financial condition, should that occur. Commercial real estate loans include owner-occupied and non-occupied commercial real estate. We originate both fixed and adjustable rate loans. Adjustable rate loans are based on theWall Street Journal prime rate. AtMarch 31, 2021 , approximately 66% of the commercial real estate portfolio consisted of fixed-rate loans. Our policy maximum loan-to-value, or LTV, is 70% for commercial real estate loans. AtMarch 31, 2021 , our average loan-to-value for commercial real estate loans was approximately 53%. Our commercial real estate loan portfolio totaled$662.4 million atMarch 31, 2021 compared to$651.7 million atDecember 31, 2020 . We are designated an SBA Preferred Lender under the SBA Preferred Lender Program. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans have maturities up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable and equipment, and may include personal guarantees. Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our CRE Concentration Guidance. 39
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As ofMarch 31, 2021 , our SBA portfolio totaled$263.2 million , including$113.6 million of SBA PPP loans, compared to$211.4 million , including$64.9 million of SBA PPP loans as ofDecember 31, 2020 , an increase of$51.8 million , or 24.5%. We originated$105.3 million of SBA loans, including$74.2 million of SBA PPP loans during the three months endedMarch 31, 2021 compared to$25.7 million during the three months endedMarch 31, 2020 . We sold$22.4 million and$17.5 million of SBA loans during the three months endedMarch 31, 2021 and 2020, respectively.
Loans held for sale was
Commercial and industrial loans totaled
We originate mainly non-qualified single-family home mortgage loans ("home
mortgage") primarily through broker relationships, but also through our branch
network. We offer a five-year or seven-year hybrid adjustable rate mortgage
loans, which reprice annually after the initial fixed rate period. These loans
are held for investment.
Home mortgage loans totaled $125.3 million at March 31, 2021 , compared to $128.2
million at December 31, 2020 , a decrease of $2.9 million , or 2.3%. During the
three months ended March 31, 2021 , we originated $11.6 million and sold $4.3
million in home mortgage loans. Payoffs and paydowns for the same period were
$9.1 million and $1.1 million , respectively. During the same period in 2020, we
originated $9.3 million and sold $1.9 million in home mortgage loans. Payoffs
and paydowns for the same period were $6.9 million and $1.9 million ,
respectively.
Loan Payment Deferrals: As a result of the COVID-19 pandemic, a loan
modification program was designed and implemented to assist our clients
experiencing financial stress resulting from the economic impacts caused by the
global pandemic. The Company has offered loan payment deferrals of up to twelve
months for commercial and consumer borrowers impacted by the pandemic who have
not been delinquent over 30 days on payments at the time of borrowers' deferral
requests. Through March 31, 2021 , the Company has processed loan deferments for
borrowers across multiple industries representing 185 loan accounts, with an
aggregate loan balance of $236.8 million under the interagency guidance and
Section 4013 of the CARES Act. Recent interagency guidance from the Federal
Reserve and the Federal Deposit Insurance Corporation confirmed with the FASB
that short-term modifications made on a good faith basis in response to COVID-19
to borrowers who were current prior to any relief, are not to be considered
TDRs. We believe our loan modification program satisfies the applicable
requirements.
As of March 31, 2021 , 171 loans with an aggregate balance of $217.8 million ,
including 64 home mortgage loans with an aggregate balance of $27.4 million ,
have resumed regular payments.
The following tables summarize loan portfolio breakdown by industry and loan deferral requests as of the dates presented:
Loan Portfolio Breakdown by Industry
Excluding Home mortgage and consumer loans
(Dollars in thousands) As of March 31, 2021
Number of
Industry accounts % of total Balance % of total
Hotel / motel 225 7.5 % $ 150,375 14.1 %
Wholesale 375 12.4 77,331 7.2
Food services / restaurant 432 14.3 62,716 5.9
Laundry services 152 5.0 21,196 2.0
Real estate lessor 240 8.0 396,092 37.1
Car washes 52 1.7 36,459 3.4
Educational service 32 1.1 7,166 0.7
Other 1,505 50.0 315,396 29.6
Total 3,013 100 % $ 1,066,731 100 %
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Loan Deferment Summary by Industry
Excluding Home mortgage and consumer
loans
(Dollars in thousands) As of March 31, 2021
% of % of
Number of % of total % of total
Industry accounts deferment loans Balance deferment loans
Hotel / motel 6 66.7 % 2.7 % $ 15,188 93.6 % 10.1 %
Wholesale 1 11.1 0.3 486 3.0 0.6
Food services / 1 11.1 0.2 465 2.9 0.7
restaurant
Laundry services 1 11.1 0.7 90 0.6 0.4
Total 9 100.0 % 0.3 % $ 16,229 100.0 % 1.5 %
Loan Deferment Summary by Loan Type
(Dollars in thousands) As of March 31, 2021
% of % of
Number of % of total % of total
Loan Type accounts deferment loans Balance deferment loans
Real estate loans 6 42.9 % 1.7 % $ 15,188 80.0 % 2.3 %
C & I loans 3 21.4 1.3 1,041 5.5 1.0
Loans, excluding home
mortgage and
consumer loans 9 64.3 0.3 16,229 85.5 1.5
Home mortgage loans 5 35.7 1.6 2,761 14.5 2.2
Total 14 100.0 % 0.4 % $ 18,990 100.0 % 1.6 %
Loan Deferment Status Change by Loan Type
Total deferments Payment resumed
under the CARES Act or paid off Remaining deferments
(Dollars in thousands) as of March 31, 2021 through March 31, 2021 as of March 31, 2021
Number Number Number
of of of
Loan Type accounts Balance accounts Balance accounts Balance
Loans, excluding home
mortgage and
consumer loans 116 206,582 107 190,353 9 16,229
Home mortgage loans 69 30,205 64 27,444 5 2,761
Total 185 $ 236,787 171 $ 217,797 14 $ 18,990
Loan Servicing
As of March 31, 2021 , and December 31, 2020 , we serviced $401.1 million and
$388.8 million respectively, of SBA loans for others. Activities for loan
servicing rights for the three months ended March 31, 2021 and 2020 were as
follows:
Three Months Ended March 31,
Increase
(Dollars in thousands) 2021 2020 (decrease)
Beginning balance $ 7,360 $ 7,024 $ 336
Additions 570 406 164
Amortized to expense (438 ) (467 ) 29
Ending balance $ 7,492 $ 6,963 $ 529 Loan servicing rights are included in accrued interest receivable and other assets on our consolidated balance sheets and reported net of amortization.
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Table of Contents Allowance for loan losses The allowance for loan losses is an estimate of probable incurred losses in the loan portfolio. Loans are charged-off against the allowance when management believes a loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance for loan losses. Management's methodology for estimating the allowance balance consists of several key elements, which include specific allowances on individual impaired loans and the formula driven allowances on pools of loans with similar risk characteristics. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. The allowance for loan losses is determined on a quarterly basis and reflects management's estimate of probable incurred credit losses inherent in the loan portfolio. We also rely on internal and external loan review procedures to further assess individual loans and loan pools, and economic data for overall industry and geographic trends. The computation includes element of judgment and high levels of subjectivity. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on non-accrual status and performing restructured loans. Income from loans on non-accrual status is recognized to the extent cash is received and when the loan's principal balance is deemed collectible. Depending on a particular loan's circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market value for the collateral. The impairment amount on a collateral-dependent loan is charged-off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve. In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms. A restructured loan is considered impaired despite its accrual status and a specific reserve is calculated based on the present value of expected cash flows discounted at the loan's effective interest rate or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. Interest income on impaired loans is accrued as earned, unless the loan is placed on non-accrual status. The allowance for loan losses was$15.3 million atMarch 31, 2021 and$15.4 million atDecember 31, 2020 . The allowance for loan losses was 1.33% of gross loans atMarch 31, 2021 compared to 1.40% atDecember 31, 2020 . Excluding fully guaranteed SBA PPP loans, the allowance for loan losses was 1.47% of gross loans atMarch 31, 2021 and 1.48% of gross loans atDecember 31, 2020 . In determining the allowance and the related provision for loan losses, we consider two principal elements: (i) valuation allowances based upon probable losses identified during the review of impaired commercial and industrial, commercial real estate, construction and land development loans; and (ii) allocations, by loan classes, on loan portfolios based on historical loan loss experience and qualitative factors. It is the policy of management to maintain the allowance for loan losses at a level adequate for risks inherent in the loan portfolio. TheFederal Reserve Board and theCalifornia Department of Financial Protection and Innovation also review the allowance for loan losses as an integral part of their examination process. Based on information currently available, management believes that our allowance for loan losses is adequate. However, the loan portfolio can be adversely affected ifCalifornia's economic conditions and the real estate market in our market area were to weaken. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect our future growth and profitability. No assurance of the ultimate level of credit losses can be given with any certainty. 42
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Analysis of the Allowance for Loan Losses.
The following table provides an analysis of the allowance for loan losses,
provision for loan losses and net charge-offs, by category, for the three months
ended
As of and For the Three Months Ended March 31,
2021 2020
Net Net
Beginning Charge- Ending Beginning Charge- Ending
(Dollars in thousands) Balance Provision offs Balance Balance Provision offs Balance
Real estate:
Commercial real estate $ 8,505 $ 89 $ - $ 8,594 $ 6,000 $ 210 $ - $ 6,210
SBA loans - real estate 1,802 228 - 2,030 939 143 - 1,082
Total real estate 10,307 317 - 10,624 6,939 353 - 7,292
SBA loan - non-real estate 278 14 - 292 121 116 45 192
Commercial and industrial 2,563 (232 ) - 2,331 1,289 3 - 1,292
Home mortgage 2,185 (110 ) - 2,075 1,667 254 - 1,921
Consumer 19 (5 ) (3 ) 17 34 17 - 51
Total $ 15,352 (1) $ (16 ) $ (3 ) $ 15,339 $ 10,050 $ 743 $ 45 $ 10,748
Gross loans (2) $ 1,155,872 $ 996,559
Average gross loans (2) 1,139,458 992,736
Net charge-offs to average
gross loans (3) (0.00 )% 0.02 %
Allowance for loans losses to
gross loans 1.33 % 1.08 %
(1) Loan loss provision for the three months ended March 31, 2021 , reported on income statement is $620,000 . The difference of $636,000 is allocated to allowance on accrued interest receivable on loan deferrals and
loans that are no longer on deferral but have not fully caught up on their accrued interest.
(2) Gross loans balance and average gross loans balance exclude loans held for sale
(3) Net charge-offs are loan charge-offs net of loan recoveries.
Non-performing Loans
Loans are considered delinquent when principal or interest payments are past due
30 days or more. Delinquent loans may remain on accrual status between 30 days
and 90 days past due. Loans on which the accrual of interest has been
discontinued are designated as non-accrual loans. Typically, the accrual of
interest on loans is discontinued when principal or interest payments are past
due 90 days or when, in the opinion of management, there is a reasonable doubt
as to collectability in the normal course of business. When loans are placed on
non-accrual status, all interest previously accrued but not collected is
reversed against current period interest income. Income on non-accrual loans is
subsequently recognized only to the extent that cash is received, and the loan's
principal balance is deemed collectible. Loans are restored to accrual status
when loans become well-secured and management believes full collectability of
principal and interest is probable.
Real estate we acquire as a result of foreclosure or by deed-in-lieu of
foreclosure is classified as other real estate owned ("OREO") until sold, and is
initially recorded at fair value less costs to sell when acquired, establishing
a new cost basis. We had no OREO property at March 31, 2021 and at December 31,
2020 .
Non-performing loans include loans 90 days past due and still accruing, loans
accounted for on a non-accrual basis and accruing restructured loans.
Non-performing assets consist of non-performing loans plus OREO. Non-performing
loans were $1.1 million at March 31, 2021 , an increase of $163,000 , compared to
$985,000 at December 31, 2020 .
Classified loans were $6.6 million at March 31, 2021 , a decrease of $739,000 ,
compared to $7.3 million at December 31, 2020 . Excluding the SBA guarantee
balance retained, classified loans were $6.4 million at March 31, 2021 . No SBA
guarantee balance was retained at December 31, 2020 . Classified loans of $5.9
million as of March 31, 2021 are fully secured by real estate collaterals.
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The following table sets forth the allocation of our non-performing assets among our different asset categories as of the dates indicated. Non-performing loans include non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings. (Dollars in thousands) March 31, 2021 December 31, 2020 Non-accrual loans $ 1,148 $ 985 Past due loans 90 days or more and still accruing - - Accruing troubled debt restructured loans - - Total non-performing loans 1,148 985 Other real estate owned - - Total non-performing assets $ 1,148 $ 985 Non-performing loans to gross loans 0.10 % 0.09 % Non-performing assets to total assets 0.08 % 0.07 % Allowance for loan losses to non-performing loans 1,337 % 1,558 % Deposits We gather deposits primarily through our branch locations. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificate of deposits. We focus our efforts to originate noninterest demand deposits accounts through marketing to our existing and new loan customers, customer referrals, and the involvement of our marketing staff in various community networks. Total deposits increased$85.3 million , or 7.1%, to$1.29 billion atMarch 31, 2021 compared to$1.20 billion atDecember 31, 2020 . Noninterest-bearing deposits increased$49.2 million , or 9.4%, to$572.0 million atMarch 31, 2021 compared to$522.8 million atDecember 31, 2020 , primarily due to the SBA PPP loans funded to customers' noninterest-bearing deposits and new accounts opened during the three months endedMarch 31, 2021 . Noninterest-bearing deposits accounted for 44.5% of total deposits atMarch 31, 2021 compared to 43.6% atDecember 31, 2020 .
The following tables summarize our average deposit balances and weighted average
rates for the three months ended
Three Months Ended March 31,
2021 2020
Weighted Weighted
Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate
Noninterest-bearing demand $ 544,492 - % $ 292,453 - %
Interest-bearing:
Money market deposits and others 336,796 0.33 297,202 1.29
Time deposits (more than $250,000 ) 197,096 0.63 210,986 2.17
Time deposits ($250,000 or less) 164,707 0.74 220,786 2.07
Total interest-bearing 698,599 0.51 728,974 1.78
Total deposits $ 1,243,091 0.29 % $ 1,021,427 1.27 %
The following tables set forth the maturity of time deposits as of March 31,
2021 and December 31, 2020 :
As of March 31, 2021
Maturity Within:
Three Three to Six to 12 After
(Dollars in thousands) Months Six Months Months 12 Months Total
Time deposits (more than $250,000 ) $ 25,831 $ 92,119 $ 70,781 $ 2,229 $ 190,960
Time deposits ($250,000 or less) 46,430 40,932 73,795 7,140 168,297
Total time deposits $ 72,261 $ 133,051 $ 144,576 $ 9,369 $ 359,257
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As of December 31, 2020
Maturity Within:
Three Three to Six to 12 After
(Dollars in thousands) Months Six Months Months 12 Months Total
Time deposits (more than $250,000 ) $ 107,198 $ 25,498 $ 63,818 $ 3,696 $ 200,210
Time deposits ($250,000 or less) 33,474 28,020 80,308 7,001 148,803
Total time deposits $ 140,672 $ 53,518 $ 144,126 $ 10,697 $ 349,013
Borrowed Funds
Other than deposits, we also utilized FHLB advances as a supplementary funding
source to finance our operations. The advances from the FHLB are collateralized
by residential and commercial real estate loans. At March 31, 2021 and
December 31, 2020 , we had maximum borrowing capacity from the FHLB of
$393.2 million and $394.0 million , respectively. We had $5.0 million in
borrowings from the FHLB, which has a 0% interest rate under the Zero-Rate
Recovery Advance Program, FHLB's pandemic relief initiative at March 31, 2021
and December 31, 2020 .
Liquidity
Liquidity refers to the measure of our ability to meet the cash flow
requirements of depositors and borrowers, while at the same time meeting our
operating, capital and strategic cash flow needs, all at a reasonable cost. We
continuously monitor our liquidity position to ensure that assets and
liabilities are managed in a manner that will meet all short-term and long-term
cash requirements. We manage our liquidity position to meet the daily cash flow
needs of customers, while maintaining an appropriate balance between assets and
liabilities to meet the return on investment objectives of our shareholders.
Our liquidity position is supported by management of liquid assets and access to
alternative sources of funds. Our liquid assets include cash, interest-bearing
deposits in correspondent banks, Federal Funds sold, and fair value of unpledged
investment securities. Other available sources of liquidity include wholesale
deposits, and additional borrowings from correspondent banks, FHLB advances, and
the Federal Reserve discount window.
At
Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis. We had$100.0 million of unsecured Federal Funds lines with no amounts advanced as ofMarch 31, 2021 and as ofDecember 31, 2020 . In addition, on such dates we had lines of credit from theFederal Reserve discount window of$132.1 million and$125.7 million , respectively. TheFederal Reserve discount window lines were collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling$223.0 million and$219.1 million as ofMarch 31, 2021 andDecember 31, 2020 , respectively. We did not have any borrowings outstanding with theFederal Reserve atMarch 31, 2021 orDecember 31, 2020 , and our borrowing capacity is limited only by eligible collateral. Based on the values of loans pledged as collateral, we had$262.7 million and$263.0 million of additional borrowing availability with the FHLB as ofMarch 31, 2021 andDecember 31, 2020 , respectively. We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts.
Capital Requirements
We are subject to various regulatory capital requirements administered by the
federal and state banking regulators. Failure to meet regulatory capital
requirements may result in certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on our financial statements. Under capital adequacy guidelines
and the regulatory framework for "prompt corrective action," we must meet
specific capital guidelines that involve quantitative measures of our assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting policies. The capital amounts and classifications are subject to
qualitative judgments by the federal banking regulators regarding components,
risk weightings and other factors. Qualitative measures established by
regulation to ensure capital adequacy required us to maintain minimum amounts
and various ratios of CET1 capital, Tier 1 capital and total capital to
risk-weighted assets and of Tier 1 capital to average consolidated assets,
referred to as the "leverage ratio." For further information, see "Supervision
and Regulation."
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The table below also summarizes the capital requirements applicable to us and the Bank in order to be considered "well-capitalized" from a regulatory perspective, as well as our and the Bank's capital ratios as ofMarch 31, 2021 andDecember 31, 2020 . The Bank exceeded all regulatory capital requirements under the Basel III Capital Rules and were considered to be "well-capitalized" as of the dates reflected in the table below. AtMarch 31, 2021 , theFDIC categorized us as well-capitalized under the prompt corrective action framework. There have been no conditions or events sinceMarch 31, 2021 that management believes would change this classification. Regulatory Capital Ratio Requirements, Regulatory Minimum including fully Capital Ratio To be Considered phased in Capital Actual Requirements "Well Capitalized" Conservation Buffer
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio As ofMarch 31, 2021 : Total capital (to risk-weighted assets) Consolidated$ 159,626 15.04 % N/A N/A N/A N/A N/A N/A Bank 156,697 14.77 % 84,884 8.00 % 106,106 10.00 % 111,411 10.50 % Tier 1 capital (to risk-weighted assets) Consolidated 146,319 13.79 % N/A N/A N/A N/A N/A N/A Bank 143,391 13.51 % 63,663 6.00 % 84,884 8.00 % 90,190 8.50 % CET1 capital (to risk-weighted assets) Consolidated 146,319 13.79 % N/A N/A N/A N/A N/A N/A Bank 143,391 13.51 % 47,747 4.50 % 68,969 6.50 % 74,274 7.00 % Tier 1 capital (to average assets) Consolidated 146,319 10.38 % N/A N/A N/A N/A N/A N/A Bank 143,391 10.17 % 56,376
4.00 % 70,470 5.00 % 56,376 4.00 % Note: The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose.
Regulatory
Capital Ratio
Requirements,
Regulatory Minimum including fully
Capital Ratio To be Considered phased in Capital
Actual Requirements "Well Capitalized" Conservation Buffer(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio As ofDecember 31, 2020 : Total capital (to risk-weighted assets) Consolidated$ 155,287 14.81 % N/A N/A N/A N/A N/A N/A Bank 152,232 14.52 % 83,859 8.00 % 104,824 10.00 % 110,065 10.50 % Tier 1 capital (to risk-weighted assets) Consolidated 142,147 13.56 % N/A N/A N/A N/A N/A N/A Bank 139,092 13.27 % 62,894 6.00 % 83,859 8.00 % 89,101 8.50 % CET1 capital (to risk-weighted assets) Consolidated 142,147 13.56 % N/A N/A N/A N/A N/A N/A Bank 139,092 13.27 % 47,171 4.50 % 68,136 6.50 % 73,377 7.00 % Tier 1 capital (to average assets) Consolidated 142,147 10.55 % N/A N/A N/A N/A N/A N/A Bank 139,092 10.32 % 53,915
4.00 % 67,393 5.00 % 53,915 4.00 % Note: The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose.
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Table of Contents Contractual Obligations
The following tables contain supplemental information regarding our total
contractual obligations as of
Payments Due at March 31, 2021
Within One to Three to After Five
(Dollars in thousands) One Year Three Years Five Years Years Total
Deposits without a stated maturity $ 926,133 $ - $ - $ - $ 926,133
Time deposits 349,888 8,033 1,336 - 359,257
Operating lease commitments 2,056 3,764 2,025 866 8,711
Advanced from FHLB 5,000 - - - 5,000
Commitments to fund investments for
low income housing
partnerships 1,093 801 25 46 1,965
Total contractual obligations
3,386$ 912 $ 1,301,066 Payments Due at December 31, 2020 Within One to Three to After Five (Dollars in thousands) One Year Three Years Five Years Years Total Deposits without a stated maturity$ 851,077 $ - $ - $ -$ 851,077 Time deposits 338,316 9,578 522 597 349,013 Operating lease commitments 2,047 3,844 2,376 956 9,223 Advanced from FHLB 5,000 - - - 5,000 Commitments to fund investments for low income housing partnerships 1,042 1,036 29 47 2,154
Total contractual obligations
2,927$ 1,600 $ 1,216,467 We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheet. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if we deem collateral is necessary upon extension of credit, is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. They are intended to be disbursed, subject to certain condition, upon request of the borrower.
The following table summarized commitments as of the dates presented.
As of March 31, As of December
(Dollars in thousands) 2021 31, 2020
Commitments to extend credit $ 108,887 $ 75,740
Standby letters of credit 8,586 9,212
Other commercial letters of credit 981 1,552
Total $ 118,454 $ 86,504
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