UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50245

HOPE BANCORP INC

(Exact name of registrant as specified in its charter)

Delaware

95-4849715

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3200 Wilshire Boulevard, Suite 1400

Los Angeles, California 90010

(Address of principal executives offices, including zip code)

(213) 639-1700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.001 per share

HOPE

NASDAQ Global Select Market

(Title of class)

(Trading Symbol)

(Name of exchange on which registered)

______________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 28, 2020,~~August 2, 2021, there were ~~123,261,443~~122,898,170 shares of Hope Bancorp, Inc. common stock outstanding.

Table of Contents








		Page
PART I - FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS
	Consolidated Statements of Financial Condition (Unaudited)	4
	Consolidated Statements of Income (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Unaudited)	7
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited)
	1. Hope Bancorp, Inc.	11
	2. Basis of Presentation	11
	3. Earnings Per Share (“EPS”)	1213
	4. Equity Investments	1314
	5. Securities Available for Sale	1415
	6. Loans Receivable and Allowance for Credit Losses	1718
	7. Leases	3032
	8. Deposits	3234
	9. Borrowings	3335
	10. Subordinated Debentures and Convertible Notes	3436
	11. Derivative Financial Instruments	3638
	12. Commitments and Contingencies	3841
	13. Goodwill, Intangible Assets, and Servicing Assets	3942
	14. Income Taxes	4144
	15. Fair Value Measurements	4245
	16. Stockholders’ Equity	4952
	17. Stock-Based Compensation	5053
	18. Regulatory Matters	5255
	19. Revenue Recognition	5457
	20. Subsequent Events	59

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	5660
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	8489
Item 4.	CONTROLS AND PROCEDURES	8691

PART II - OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	8792
Item 1A.	RISK FACTORS	8792
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	8892
Item 3.	DEFAULTS UPON SENIOR SECURITIES	8892
Item 4.	MINE SAFETY DISCLOSURES	8892
Item 5.	OTHER INFORMATION	8892
Item 6.	EXHIBITS	8892

INDEX TO EXHIBITS		8993

SIGNATURES		9094

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, expectations regarding the business environment in which we operate, projections of future performance, perceived opportunities in the market, and statements regarding our business strategies, objectives and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the words “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “projects,” “forecasts,” “estimates” or similar expressions. With respect to any such forward-looking statements, the Company claims the protection provided for in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, trends, uncertainties, and factors that are beyond the Company’s control or ability to predict. The Company’s actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in any forward-looking statements. The risks and uncertainties include: the COVID-19 pandemic and its impact on our financial position, results of operations, liquidity, and capitalization; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; the failure of or changes to assumptions and estimates underlying the Company’s allowances for credit losses; and regulatory risks associated with current and future regulations. For additional information concerning these and other risk factors, see Part I, Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019 and in our Quarterly Reports on Form 10-Q.~~2020.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


		(Unaudited)					(Unaudited)
		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
ASSETS	ASSETS	(Dollars in thousands, except share data)				ASSETS	(Dollars in thousands, except share data)
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Cash and due from banks	Cash and due from banks	$	315,336	$	283,130	Cash and due from banks	$	293,822	$	256,565
Interest bearing cash in other banks	Interest bearing cash in other banks	313,797		415,437		Interest bearing cash in other banks	543,135		94,014

Total cash and cash equivalents	Total cash and cash equivalents	629,133		698,567		Total cash and cash equivalents	836,957		350,579
Interest bearing deposits in other financial institutions	Interest bearing deposits in other financial institutions	30,345		29,162		Interest bearing deposits in other financial institutions	18,268		28,642
Securities available for sale, at fair value	Securities available for sale, at fair value	2,060,991		1,715,987		Securities available for sale, at fair value	2,274,170		2,285,611
Equity investments	Equity investments	49,710		49,090		Equity investments	59,032		59,699
Loans held for sale, at the lower of cost or fair value	Loans held for sale, at the lower of cost or fair value	9,170		54,271		Loans held for sale, at the lower of cost or fair value	54,245		17,743
Loans receivable, net of allowance for credit losses of $179,849 and $94,144 at September 30, 2020 and December 31, 2019, respectively		12,940,376		12,181,863
Loans receivable, net of allowance for credit losses of $189,452 and $206,741 at June 30, 2021 and December 31, 2020, respectively						Loans receivable, net of allowance for credit losses of $189,452 and $206,741 at June 30, 2021 and December 31, 2020, respectively	13,234,849��		13,356,472
Other real estate owned (“OREO”), net	Other real estate owned (“OREO”), net	18,410		24,091		Other real estate owned (“OREO”), net	16,619		20,121
Federal Home Loan Bank (“FHLB”) stock, at cost	Federal Home Loan Bank (“FHLB”) stock, at cost	17,250		19,407		Federal Home Loan Bank (“FHLB”) stock, at cost	17,250		17,250
Premises and equipment, net	Premises and equipment, net	49,552		52,012		Premises and equipment, net	45,302		48,409
Accrued interest receivable	Accrued interest receivable	57,989		30,772		Accrued interest receivable	51,886		59,430
Deferred tax assets, net	Deferred tax assets, net	43,380		31,663		Deferred tax assets, net	49,092		47,693
Customers’ liabilities on acceptances	Customers’ liabilities on acceptances	880		1,117		Customers’ liabilities on acceptances	916		1,184
Bank owned life insurance (“BOLI”)	Bank owned life insurance (“BOLI”)	77,388		76,339		Bank owned life insurance (“BOLI”)	76,428		76,765
Investments in affordable housing partnerships	Investments in affordable housing partnerships	73,300		82,600		Investments in affordable housing partnerships	63,800		69,454
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	52,308		58,593		Operating lease right-of-use assets, net	47,772		47,653
Goodwill	Goodwill	464,450		464,450		Goodwill	464,450		464,450
Core deposit intangible assets, net	Core deposit intangible assets, net	10,239		11,833		Core deposit intangible assets, net	8,689		9,708
Servicing assets, net	Servicing assets, net	13,718		16,417		Servicing assets, net	11,566		12,692
Other assets	Other assets	135,178		69,206		Other assets	138,336		133,109
Total assets	Total assets	$	16,733,767	$	15,667,440	Total assets	$	17,469,627	$	17,106,664

(Continued)

(Continued)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


		(Unaudited)					(Unaudited)
		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY	(Dollars in thousands, except share data)				LIABILITIES AND STOCKHOLDERS’ EQUITY	(Dollars in thousands, except share data)
LIABILITIES:	LIABILITIES:					LIABILITIES:
Deposits:	Deposits:					Deposits:
Noninterest bearing	Noninterest bearing	$	4,488,529	$	3,108,687	Noninterest bearing	$	5,638,115	$	4,814,254
Interest bearing:	Interest bearing:					Interest bearing:
Money market and NOW accounts	Money market and NOW accounts	4,763,893		3,985,556		Money market and NOW accounts	5,786,697		5,232,413
Savings deposits	Savings deposits	308,943		274,151		Savings deposits	308,651		300,770
Time deposits	Time deposits	4,446,991		5,158,970		Time deposits	2,992,767		3,986,475
Total deposits	Total deposits	14,008,356		12,527,364		Total deposits	14,726,230		14,333,912
FHLB advances	FHLB advances	200,000		625,000		FHLB advances	200,000		250,000

Convertible notes, net	Convertible notes, net	203,270		199,458		Convertible notes, net	215,739		204,565
Subordinated debentures, net	Subordinated debentures, net	103,889		103,035		Subordinated debentures, net	104,762		104,178
Accrued interest payable	Accrued interest payable	21,991		33,810		Accrued interest payable	4,946		14,706
Acceptances outstanding	Acceptances outstanding	880		1,117		Acceptances outstanding	916		1,184
Operating lease liabilities	Operating lease liabilities	54,798		60,506		Operating lease liabilities	52,177		52,030
Commitments to fund investments in affordable housing partnerships	Commitments to fund investments in affordable housing partnerships	16,975		28,481		Commitments to fund investments in affordable housing partnerships	10,654		15,148
Other liabilities	Other liabilities	83,047		52,658		Other liabilities	61,333		77,196
Total liabilities	Total liabilities	$	14,693,206	$	13,631,429	Total liabilities	$	15,376,757	$	15,052,919
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:					STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value; 150,000,000 authorized shares: issued and outstanding 135,922,341 and 123,260,760 shares, respectively, at September 30, 2020, and issued and outstanding 135,702,090 and 125,756,543 shares, respectively, at December 31, 2019		$	136	$	136
Common stock, $0.001 par value; 150,000,000 authorized shares: issued and outstanding 136,335,413 and 123,673,832 shares, respectively, at June 30, 2021, and issued and outstanding 135,926,445 and 123,264,864 shares, respectively, at December 31, 2020						Common stock, $0.001 par value; 150,000,000 authorized shares: issued and outstanding 136,335,413 and 123,673,832 shares, respectively, at June 30, 2021, and issued and outstanding 135,926,445 and 123,264,864 shares, respectively, at December 31, 2020	$	136	$	136
Additional paid-in capital	Additional paid-in capital	1,432,773		1,428,066		Additional paid-in capital	1,418,135		1,434,916
Retained earnings	Retained earnings	774,970		762,480		Retained earnings	859,548		785,940
Treasury stock, at cost; 12,661,581 and 9,945,547 shares at September 30, 2020 and December 31, 2019		(200,000)		(163,820)
Treasury stock, at cost; 12,661,581 and 12,661,581 shares at June 30, 2021 and December 31, 2020, respectively						Treasury stock, at cost; 12,661,581 and 12,661,581 shares at June 30, 2021 and December 31, 2020, respectively	(200,000)		(200,000)
Accumulated other comprehensive income, net	Accumulated other comprehensive income, net	32,682		9,149		Accumulated other comprehensive income, net	15,051		32,753
Total stockholders’ equity	Total stockholders’ equity	2,040,561		2,036,011		Total stockholders’ equity	2,092,870		2,053,745
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	16,733,767	$	15,667,440	Total liabilities and stockholders’ equity	$	17,469,627	$	17,106,664

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
INTEREST INCOME:	INTEREST INCOME:									INTEREST INCOME:
Interest and fees on loans	Interest and fees on loans	$	134,430	$	158,115	$	422,850	$	474,878	Interest and fees on loans	$	131,823	$	134,190	$	261,559	$	288,420
Interest on securities	Interest on securities	9,848		11,373		30,348		35,558		Interest on securities	7,713		9,891		15,628		20,500
Interest on other investments	Interest on other investments	942		2,929		3,951		8,577		Interest on other investments	668		980		1,310		3,009
Total interest income	Total interest income	145,220		172,417		457,149		519,013		Total interest income	140,204		145,061		278,497		311,929
INTEREST EXPENSE:	INTEREST EXPENSE:									INTEREST EXPENSE:
Interest on deposits	Interest on deposits	22,871		49,057		93,435		144,730		Interest on deposits	10,696		29,451		23,466		70,564
Interest on FHLB advances	Interest on FHLB advances	1,323		3,112		6,208		9,110		Interest on FHLB advances	631		2,238		1,273		4,885
Interest on other borrowings and convertible notes	Interest on other borrowings and convertible notes	3,389		3,990		10,764		12,086		Interest on other borrowings and convertible notes	2,300		3,558		4,602		7,375
Total interest expense	Total interest expense	27,583		56,159		110,407		165,926		Total interest expense	13,627		35,247		29,341		82,824
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES		117,637		116,258		346,742		353,087
PROVISION FOR CREDIT LOSSES		22,000		2,100		67,500		6,300
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		95,637		114,158		279,242		346,787
NET INTEREST INCOME BEFORE PROVISION (CREDIT) FOR CREDIT LOSSES										NET INTEREST INCOME BEFORE PROVISION (CREDIT) FOR CREDIT LOSSES	126,577		109,814		249,156		229,105
PROVISION (CREDIT) FOR CREDIT LOSSES										PROVISION (CREDIT) FOR CREDIT LOSSES	(7,000)		17,500		(3,700)		45,500
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES										NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES	133,577		92,314		252,856		183,605
NONINTEREST INCOME:	NONINTEREST INCOME:									NONINTEREST INCOME:
Service fees on deposit accounts	Service fees on deposit accounts	2,736		4,690		9,452		13,423		Service fees on deposit accounts	1,777		2,583		3,567		6,716
International service fees	International service fees	987		1,193		2,443		3,146		International service fees	795		667		1,636		1,456
Loan servicing fees, net	Loan servicing fees, net	772		189		2,243		1,656		Loan servicing fees, net	934		1,106		1,978		1,471
Wire transfer fees	Wire transfer fees	892		1,058		2,710		3,458		Wire transfer fees	923		820		1,767		1,818
Swap fees										Swap fees	165		1,040		232		2,016
Net gains on sales of SBA loans										Net gains on sales of SBA loans	2,375		0		2,375		0
Net gains on sales of other loans										Net gains on sales of other loans	1,028		1,678		3,124		3,533

Swap fees		434		1,926		2,450		2,348
Net gains on sales of other loans		2,853		804		6,386		2,611
Net gains on sales of securities available for sale		7,531		153		7,531		282
Other income and fees	Other income and fees	1,308		2,982		8,802		9,780		Other income and fees	3,079		3,346		5,201		7,494
Total noninterest income	Total noninterest income	17,513		12,995		42,017		36,704		Total noninterest income	11,076		11,240		19,880		24,504
NONINTEREST EXPENSE:	NONINTEREST EXPENSE:									NONINTEREST EXPENSE:
Salaries and employee benefits	Salaries and employee benefits	40,659		41,607		122,011		121,333		Salaries and employee benefits	42,309		38,850		83,525		81,352
Occupancy	Occupancy	7,264		7,703		21,717		23,219		Occupancy	7,067		7,043		14,034		14,453
Furniture and equipment	Furniture and equipment	4,513		3,851		13,426		11,323		Furniture and equipment	4,822		4,654		9,008		8,913
Advertising and marketing	Advertising and marketing	1,601		2,377		4,589		6,684		Advertising and marketing	2,097		1,315		3,722		2,988
Data processing and communications	Data processing and communications	2,204		2,821		7,109		8,364		Data processing and communications	2,411		2,274		5,148		4,905
Professional fees	Professional fees	1,513		5,241		6,323		16,580		Professional fees	4,395		1,510		7,298		4,810
Investments in affordable housing partnership expenses	Investments in affordable housing partnership expenses	3,876		2,334		9,300		7,601		Investments in affordable housing partnership expenses	2,952		2,873		5,654		5,424
FDIC assessments	FDIC assessments	1,167		0		4,378		3,110		FDIC assessments	1,284		1,652		2,539		3,211
Credit related expenses	Credit related expenses	1,793		1,031		4,816		3,258		Credit related expenses	43		1,361		2,261		3,023
OREO expense (income), net		1,770		(743)		3,951		(812)
FHLB advance prepayment fee		3,584		0		3,584		0
OREO expense, net										OREO expense, net	298		1,338		579		2,181
Software impairment										Software impairment	2,146		0		2,146		0
Other	Other	3,462		3,773		11,372		11,539		Other	3,299		4,160		7,640		7,910
Total noninterest expense	Total noninterest expense	73,406		69,995		212,576		212,199		Total noninterest expense	73,123		67,030		143,554		139,170
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	39,744		57,158		108,683		171,292		INCOME BEFORE INCOME TAXES	71,530		36,524		129,182		68,939
INCOME TAX PROVISION	INCOME TAX PROVISION	9,254		14,566		25,487		43,261		INCOME TAX PROVISION	17,767		9,771		31,732		16,233
NET INCOME	NET INCOME	$	30,490	$	42,592	$	83,196	$	128,031	NET INCOME	$	53,763	$	26,753	$	97,450	$	52,706
EARNINGS PER COMMON SHARE	EARNINGS PER COMMON SHARE									EARNINGS PER COMMON SHARE
Basic	Basic	$	0.25	$	0.34	$	0.67	$	1.01	Basic	$	0.44	$	0.22	$	0.79	$	0.43
Diluted	Diluted	$	0.25	$	0.34	$	0.67	$	1.01	Diluted	$	0.43	$	0.22	$	0.78	$	0.42

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(Dollars in thousands)
Net income $ 30,490 $ 42,592 $ 83,196 $ 128,031
Other comprehensive (loss) income:
Change in unrealized net holding (losses) gains on securities available for sale (303) 14,160 41,820 71,349
Change in unrealized net holding (losses) gains on interest rate swaps used in cash flow hedges 54 0 (796) 0
Reclassification adjustments for net gains realized in net income (7,510) (153) (7,649) (282)
Tax effect 2,292 (4,157) (9,842) (21,089)
Other comprehensive (loss) income, net of tax (5,467) 9,850 23,533 49,978
Total comprehensive income $ 25,023 $ 52,442 $ 106,729 $ 178,009



	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Dollars in thousands)
Net income	$	53,763	$	26,753	$	97,450	$	52,706
Other comprehensive income (loss):
Change in unrealized net holding gains (losses) on securities available for sale	14,186		3,270		(26,617)		42,123
Change in unrealized net holding gains (losses) on interest rate swaps used in cash flow hedges	(297)		(711)		1,523		(711)
Reclassification adjustments for net losses (gains) realized in net income	73		(139)		139		(139)
Tax effect	(4,134)		(720)		7,253		(12,273)
Other comprehensive income (loss), net of tax	9,828		1,700		(17,702)		29,000
Total comprehensive income	$	63,591	$	28,453	$	79,748	$	81,706

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Common stock Additional paid-in capital Retained
earnings Treasury stock Accumulated other comprehensive income, net Total
stockholders’ equity
Shares Amount
(Dollars in thousands, except share and per share data)
BALANCE, JUNE 30, 2019 126,673,822 $ 136 $ 1,425,262 $ 712,351 $ (150,000) $ 7,423 $ 1,995,172
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations 24,103 — 0 0
Stock-based compensation 1,404 1,404
Cash dividends declared on common stock ($0.14 per share) (17,734) (17,734)
Comprehensive income:
Net income 42,592 42,592
Other comprehensive income 9,850 9,850
BALANCE, SEPTEMBER 30, 2019 126,697,925 $ 136 $ 1,426,666 $ 737,209 $ (150,000) $ 17,273 $ 2,031,284
BALANCE, JUNE 30, 2020 123,239,276 $ 136 $ 1,430,757 $ 761,734 $ (200,000) $ 38,149 $ 2,030,776
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations 21,484 — 0 0
Stock-based compensation 2,016 2,016
Cash dividends declared on common stock ($0.14 per share) (17,254) (17,254)
Comprehensive income:
Net income 30,490 30,490
Other comprehensive loss (5,467) (5,467)
BALANCE, SEPTEMBER 30, 2020 123,260,760 $ 136 $ 1,432,773 $ 774,970 $ (200,000) $ 32,682 $ 2,040,561

~~(Continued)~~



	Common stock			Additional paid-in capital		Retained earnings		Treasury stock		Accumulated other comprehensive income, net		Total stockholders’ equity
	Shares	Amount
	(Dollars in thousands, except share and per share data)
BALANCE, MARCH 31, 2020	123,169,404	$	136	$	1,429,275	$	752,228	$	(200,000)	$	36,449	$	2,018,088


Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	69,872	—		0								0
Stock-based compensation				1,482								1,482
Cash dividends declared on common stock ($0.14 per share)						(17,247)						(17,247)
Comprehensive income:
Net income						26,753						26,753
Other comprehensive income										1,700		1,700


BALANCE, JUNE 30, 2020	123,239,276	$	136	$	1,430,757	$	761,734	$	(200,000)	$	38,149	$	2,030,776

BALANCE, MARCH 31, 2021	123,480,494	$	136	$	1,417,137	$	823,085	$	(200,000)	$	5,223	$	2,045,581

Adoption of ASU 2020-06 tax impact				8								8
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	193,338	—		0								0
Stock-based compensation				990								990
Cash dividends declared on common stock ($0.14 per share)						(17,300)						(17,300)
Comprehensive income:
Net income						53,763						53,763
Other comprehensive income										9,828		9,828

BALANCE, JUNE 30, 2021	123,673,832	$	136	$	1,418,135	$	859,548	$	(200,000)	$	15,051	$	2,092,870

~~HOPE BANCORP, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~(Unaudited)~~


		Common stock			Additional paid-in capital		Retained earnings		Treasury stock		Accumulated other comprehensive (loss) income, net		Total stockholders’ equity			Common stock			Additional paid-in capital		Retained earnings		Treasury stock		Accumulated other comprehensive income, net		Total stockholders’ equity
		Shares	Amount													Shares	Amount
		(Dollars in thousands, except share and per share data)														(Dollars in thousands, except share and per share data)
BALANCE, DECEMBER 31, 2018		126,639,912	$	136	$	1,423,405	$	662,375	$	(150,000)	$	(32,705)	$	1,903,211
BALANCE, DECEMBER 31, 2019															BALANCE, DECEMBER 31, 2019	125,756,543	$	136	$	1,428,066	$	762,480	$	(163,820)	$	9,149	$	2,036,011
CECL day 1 impact															CECL day 1 impact						(26,729)						(26,729)
CECL day 1 impact tax impact															CECL day 1 impact tax impact						7,947						7,947
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	58,013	—		3								3		Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	198,767	—		0								0
Stock-based compensation	Stock-based compensation				3,258								3,258		Stock-based compensation				2,691								2,691
Cash dividends declared on common stock ($0.42 per share)							(53,197)						(53,197)
Comprehensive income:
Net income							128,031						128,031
Other comprehensive income											49,978		49,978

BALANCE, SEPTEMBER 30, 2019		126,697,925	$	136	$	1,426,666	$	737,209	$	(150,000)	$	17,273	$	2,031,284

BALANCE, DECEMBER 31, 2019		125,756,543	$	136	$	1,428,066	$	762,480	$	(163,820)	$	9,149	$	2,036,011
CECL day 1 impact							(26,729)						(26,729)
CECL day 1 impact tax adjustment							7,947						7,947
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations		220,251	—		0								0
Stock-based compensation					4,707								4,707
Cash dividends declared on common stock ($0.42 per share)							(51,924)						(51,924)
Cash dividends declared on common stock ($0.28 per share)															Cash dividends declared on common stock ($0.28 per share)						(34,670)						(34,670)
Comprehensive income:	Comprehensive income:														Comprehensive income:
Net income	Net income						83,196						83,196		Net income						52,706						52,706
Other comprehensive income	Other comprehensive income										23,533		23,533		Other comprehensive income										29,000		29,000
Repurchase of treasury stock	Repurchase of treasury stock	(2,716,034)							(36,180)				(36,180)		Repurchase of treasury stock	(2,716,034)							(36,180)				(36,180)
BALANCE, SEPTEMBER 30, 2020		123,260,760	$	136	$	1,432,773	$	774,970	$	(200,000)	$	32,682	$	2,040,561

BALANCE, JUNE 30, 2020															BALANCE, JUNE 30, 2020	123,239,276	$	136	$	1,430,757	$	761,734	$	(200,000)	$	38,149	$	2,030,776

BALANCE, DECEMBER 31, 2020															BALANCE, DECEMBER 31, 2020	123,264,864	$	136	$	1,434,916	$	785,940	$	(200,000)	$	32,753	$	2,053,745
Adoption of ASU 2020-06															Adoption of ASU 2020-06				(21,420)		10,715						(10,705)
Adoption of ASU 2020-06 tax impact															Adoption of ASU 2020-06 tax impact				3,154								3,154
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations															Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	408,968	—		0								0
Stock-based compensation															Stock-based compensation				1,485								1,485
Cash dividends declared on common stock ($0.28 per share)															Cash dividends declared on common stock ($0.28 per share)						(34,557)						(34,557)
Comprehensive income:															Comprehensive income:
Net income															Net income						97,450						97,450
Other comprehensive loss															Other comprehensive loss										(17,702)		(17,702)

BALANCE, JUNE 30, 2021															BALANCE, JUNE 30, 2021	123,673,832	$	136	$	1,418,135	$	859,548	$	(200,000)	$	15,051	$	2,092,870

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2020		2019			2021		2020
		(Dollars in thousands)					(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	83,196	$	128,031	Net income	$	97,450	$	52,706
Adjustments to reconcile net income to net cash from operating activities:	Adjustments to reconcile net income to net cash from operating activities:					Adjustments to reconcile net income to net cash from operating activities:
Discount accretion, net of depreciation and amortization	Discount accretion, net of depreciation and amortization	5,942		2,391		Discount accretion, net of depreciation and amortization	13,724		1,970
Stock-based compensation expense	Stock-based compensation expense	5,980		3,897		Stock-based compensation expense	4,642		3,804
Provision for credit losses		67,500		6,300
Provision (credit) for unfunded loan commitments		660		(100)
(Credit) provision for credit losses						(Credit) provision for credit losses	(3,700)		45,500
Provision for unfunded loan commitments						Provision for unfunded loan commitments	105		660
Provision for accrued interest receivables on loans						Provision for accrued interest receivables on loans	600		0
Valuation adjustment of OREO						Valuation adjustment of OREO	336		1,837
Net gains on sales of SBA loans						Net gains on sales of SBA loans	(2,375)		0
Net gains on sales of other loans						Net gains on sales of other loans	(3,124)		(3,533)
Loss (earnings) on BOLI						Loss (earnings) on BOLI	337		(711)
Net change in fair value of derivatives						Net change in fair value of derivatives	91		(936)

Valuation adjustment of OREO		3,492		(1,125)
Net gains on sales of other loans		(6,386)		(2,611)
Earnings on BOLI		(1,049)		(1,126)
Net change in fair value of derivatives		(35)		(57)
Net losses on sale and disposal of premises and equipment		357		75
Net losses on sales of OREO		108		14
Net gains on sales and calls of securities available for sale		(7,531)		(282)
Net (gains) losses on sales of OREO						Net (gains) losses on sales of OREO	(13)		81

Net change in fair value of equity investments with readily determinable fair value	Net change in fair value of equity investments with readily determinable fair value	(542)		(1,393)		Net change in fair value of equity investments with readily determinable fair value	407		(542)
Losses on investments in affordable housing partnerships	Losses on investments in affordable housing partnerships	9,088		7,523		Losses on investments in affordable housing partnerships	5,507		5,283
Payment of FHLB prepayment fee		3,584		0
Software impairment						Software impairment	2,146		0
Net change in deferred income taxes	Net change in deferred income taxes	(13,728)		3,907		Net change in deferred income taxes	9,145		(6,916)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	251,092		95,926		Proceeds from sales of loans held for sale	145,987		143,704
Originations of loans held for sale	Originations of loans held for sale	(206,798)		(77,678)		Originations of loans held for sale	(103,746)		(104,436)
Originations of servicing assets	Originations of servicing assets	(2,326)		(1,383)		Originations of servicing assets	(1,329)		(1,136)
Net change in accrued interest receivable	Net change in accrued interest receivable	(27,217)		2,482		Net change in accrued interest receivable	6,944		(22,087)
Net change in other assets	Net change in other assets	(61,023)		(27,110)		Net change in other assets	(5,574)		(59,291)
Net change in accrued interest payable	Net change in accrued interest payable	(11,819)		6,823		Net change in accrued interest payable	(9,760)		(7,717)
Net change in other liabilities	Net change in other liabilities	29,729		4,352		Net change in other liabilities	(15,968)		51,516
Net cash provided by operating activities	Net cash provided by operating activities	122,274		148,856		Net cash provided by operating activities	141,832		99,756
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of interest bearing deposits in other financial institutions	Purchase of interest bearing deposits in other financial institutions	(19,103)		(18,130)		Purchase of interest bearing deposits in other financial institutions	(747)		(11,886)
Redemption of interest bearing deposits in other financial institutions	Redemption of interest bearing deposits in other financial institutions	17,920		17,152		Redemption of interest bearing deposits in other financial institutions	11,121		9,810
Purchase of securities available for sale	Purchase of securities available for sale	(867,723)		(174,486)		Purchase of securities available for sale	(422,653)		(356,376)
Proceeds from matured, called, or paid-down securities available for sale	Proceeds from matured, called, or paid-down securities available for sale	388,647		198,743		Proceeds from matured, called, or paid-down securities available for sale	397,130		222,485
Proceeds from sale of securities available for sale		168,069		115,628

Proceeds from sale of equity investments	Proceeds from sale of equity investments	201		2,570		Proceeds from sale of equity investments	367		0
Proceeds from sales of other loans held for sale previously classified as held for investment	Proceeds from sales of other loans held for sale previously classified as held for investment	1,053		83,599		Proceeds from sales of other loans held for sale previously classified as held for investment	107,523		1,053
Purchase of loans receivable						Purchase of loans receivable	(98,271)		0
Net change in loans receivable	Net change in loans receivable	(832,267)		(106,064)		Net change in loans receivable	48,273		(585,285)
Proceeds from sales of OREO	Proceeds from sales of OREO	2,458		3,197		Proceeds from sales of OREO	2,150		1,567
Purchase of FHLB stock	Purchase of FHLB stock	(1,346)		(155)		Purchase of FHLB stock	0		(1,346)
Redemption of FHLB stock	Redemption of FHLB stock	3,503		6,210		Redemption of FHLB stock	0		3,503
Purchase of premises and equipment	Purchase of premises and equipment	(4,048)		(5,190)		Purchase of premises and equipment	(2,673)		(3,104)

Proceeds from BOLI death benefits	Proceeds from BOLI death benefits	0		1,363		Proceeds from BOLI death benefits	576		0
Investments in affordable housing partnerships	Investments in affordable housing partnerships	(11,506)		(13,804)		Investments in affordable housing partnerships	(2,854)		(8,403)
Net cash (used in) provided by investing activities		(1,154,142)		110,633
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	39,942		(727,982)
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	Net change in deposits	1,480,992		79,094		Net change in deposits	392,318		1,596,168
Proceeds from FHLB advances	Proceeds from FHLB advances	1,010,000		565,000		Proceeds from FHLB advances	1,440,000		910,000
Repayment of FHLB advances	Repayment of FHLB advances	(1,438,584)		(760,000)		Repayment of FHLB advances	(1,490,000)		(1,035,000)

Purchase of treasury stock	Purchase of treasury stock	(36,777)		0		Purchase of treasury stock	0		(36,777)
Cash dividends paid on common stock	Cash dividends paid on common stock	(51,924)		(53,197)		Cash dividends paid on common stock	(34,557)		(34,670)
Taxes paid in net settlement of restricted stock	Taxes paid in net settlement of restricted stock	(1,273)		(639)		Taxes paid in net settlement of restricted stock	(3,157)		(1,113)
Issuance of additional stock pursuant to various stock plans		0		3
Net cash provided by (used in) financing activities		962,434		(169,739)

Net cash provided by financing activities						Net cash provided by financing activities	304,604		1,398,608
NET CHANGE IN CASH AND CASH EQUIVALENTS	NET CHANGE IN CASH AND CASH EQUIVALENTS	(69,434)		89,750		NET CHANGE IN CASH AND CASH EQUIVALENTS	486,378		770,382
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	698,567		459,606		CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	350,579		698,567
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	629,133	$	549,356	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	836,957	$	1,468,949

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	Interest paid	$	117,560	$	155,889	Interest paid	$	38,048	$	87,445
Income taxes paid	Income taxes paid	$	35,365	$	44,492	Income taxes paid	$	35,953	$	1,777

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES	SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES					SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Transfer from loans receivable to OREO	Transfer from loans receivable to OREO	$	979	$	14,651	Transfer from loans receivable to OREO	$	0	$	979
Transfer from loans receivable to loans held for sale	Transfer from loans receivable to loans held for sale	$	1,002	$	108,979	Transfer from loans receivable to loans held for sale	$	180,835	$	1,002
Transfer from loans held for sale to loans receivable	Transfer from loans held for sale to loans receivable	$	2,384	$	5,181	Transfer from loans held for sale to loans receivable	$	0	$	2,384

Lease liabilities arising from obtaining right-of-use assets		$	0	$	62,833

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.Hope Bancorp, Inc.

Hope Bancorp, Inc. (“Hope Bancorp” on a parent-only basis and the “Company” on a consolidated basis), headquartered in Los Angeles, California, is the holding company for Bank of Hope (the “Bank”). As of ~~September~~June 30, ~~2020,~~2021, the Bank operated branches in California, Washington, Texas, Illinois, Alabama, Virginia, New Jersey, and New York, loan production offices in Colorado, Texas, Oregon, Washington, Georgia, ~~New Jersey,~~ Southern California, and Northern California, and a representative office in Seoul, South Korea. The Company is a corporation organized under the laws of the state of Delaware and a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

2.Basis of Presentation

The consolidated financial statements included herein have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), except for the Consolidated Statement of Financial Condition as of December 31, ~~2019~~2020 which was from the audited financial statements included in the Company’s ~~2019~~2020 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations.

The consolidated financial statements include the accounts of Hope Bancorp and its wholly owned subsidiaries, principally Bank of Hope. All intercompany transactions and balances have been eliminated in consolidation. The Company has made all adjustments, that in the opinion of management, are necessary to fairly present the Company’s financial position at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 and the results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. The results of operations for the interim periods are not necessarily indicative of results to be anticipated for the full year.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

The global pandemic resulting from the outbreak of the novel strain of coronavirus (“COVID-19”) has substantially and negatively impacted the United States economy, disrupted global supply chains, considerably lowered equity market valuations, created significant volatility and disruption in financial markets, and materially increased unemployment levels. In addition, the pandemic has resulted in temporary closures of countless businesses and the institution of social distancing and sheltering in place requirements in most states and communities. Although some states have relaxed some of the business closures and other social distancing requirements, the recent rise in COVID-19 cases due to the COVID-19 Delta variant has resulted in states reinstating certain COVID related restrictions. The Company has, and could continue to, experience a material and adverse effect on its business as a result of the impact of the COVID-19 pandemic, and the resulting governmental actions to curtail its spread. It is at least reasonably possible that information which was available to the Company at the date of the financial statements will change in the near term due to the COVID-19 pandemic and that the effect of the change could be material to the financial statements. The extent to which the COVID-19 pandemic will impact the Company’s estimates and assumptions is highly uncertain.

These unaudited consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in the Company’s ~~2019~~2020 Annual Report on Form 10-K.

Pending Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The amendments provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The amendments provide optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This one time election may be made at any time after March 12, 2020, but no later than December 31, 2022. The Company is currently in the process of evaluating ASU 2020-04 to determine whether the Company will make this election and is currently assessing the significance of the impact of modifying contracts in consideration of the election of this amendment.

In ~~August 2020,~~January 2021, the FASB issued ASU ~~2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)”~~2021-01, “Codification Improvements to Topic 848, Reference Rate Reform”. ASU ~~2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also~~2021-01 amends the scope of the recent reference rate reform guidance and clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. New optional expedients allow derivative instruments impacted by changes in the interest rate used for margining, discounting, or contract price alignment (i.e., discount transition) to qualify for certain ~~contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions.~~optional relief. The new optional expedients for contract modifications and hedge accounting are expected to benefit companies, including those with certain centrally cleared derivatives affected by a discount rate transition in 2020. Amendments to the expedients and exceptions in Topic 848 captures the incremental consequences of the scope clarification and tailor the existing guidance ~~also modifies how particular convertible~~to derivative instruments ~~and certain contracts that may be settled in cash or shares impact~~affected by the ~~diluted EPS computation.~~discounting transition. ASU ~~2020-06~~2021-01 is effective ~~for fiscal years~~immediately and can be applied retrospectively to any interim period beginning ~~after December 15, 2021,~~January 1, 2020 or prospectively to any new modifications in any period including interim periods within those annual periods. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those annual periods. ASU 2020-06 allows companiesor subsequent to ~~adopt~~ the ~~guidance through either a modified retrospective method of transition or a fully retrospective method of transition.~~issuance date. The Company ~~plans~~is currently in the process of evaluating ASU 2021-01 and its potential impact to ~~early adopt ASU 2020-06 on January 1, 2021 using~~ the ~~modified retrospective method of transition and expects to have a cumulative effect adjustment to its retained earnings balance upon adoption. The~~ Company’s convertible notes are currently recorded as separate debt and equity components. After the Company adopts ASU 2020-06, its convertible notes will be accounted for as a single debt instrument. As a result, the Company expects to see a decline in reported interest expense with the reduction of the existing debt discount.contracts.

1112

3. Earnings Per Share (“EPS”)

Basic EPS does not reflect the possibility of dilution that could result from the issuance of additional shares of common stock upon exercise or conversion of outstanding equity awards or convertible notes and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options, convertible notes, or other contracts to issue common stock were exercised or converted to common stock that would then share in earnings. For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, stock options and restricted share awards of ~~1,206,040~~544,925 and ~~963,400~~1,450,408 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were anti-dilutive. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, stock options and restricted shares awards of ~~876,565~~775,710 and ~~986,245~~737,208 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were anti-dilutive.

The Company previously issued $217.5 million in convertible senior notes maturing on May 15, 2038. The convertible notes can be converted into the Company’s shares of common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (See footnote 10 “Subordinated Debentures and Convertible Notes” for additional information regarding convertible notes issued). With the adoption of ASU 2020-06, the if-converted method is required for calculating dilutive EPS for all convertible instruments since the treasury stock method is no longer available. Under the if-converted method, the denominator of the diluted EPS calculation is adjusted to reflect the full number of common shares issuable upon conversion, while the numerator is adjusted to add back after-tax interest expense for the period. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, shares related to the convertible notes issued were not included in the Company’s diluted EPS calculation. In accordance with the terms of the convertible notes and settlement options available to the Company, no shares would have been delivered to investors of the convertible notes ~~upon assumed conversion~~ based on the Company’s common stock price during the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019.~~

~~In June 2019,~~as the conversion price exceeded the market price of the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $50.0 million of its common stock which was completed in March 2020. As of September 30, 2020, the Company had repurchased 12,661,581 shares of common stock totaling $200.0 million as part of previously announced share repurchase programs. The Company’s Board of Directors had previously approved the repurchase of $150.0 million in shares of common stock in 2018, all of which were repurchased in the year ended December 31, 2018. The repurchased shares were recorded as treasury stock and reduced the total number of common shares outstanding.stock.

The following tables show the computation of basic and diluted EPS for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.


		Three Months Ended September 30,											Three Months Ended June 30,
		2020					2019						2021					2020
		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share			Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share
		(Dollars in thousands, except share and per share data)											(Dollars in thousands, except share and per share data)
Basic EPS - common stock	Basic EPS - common stock	$	30,490	123,251,336	$	0.25	$	42,592	126,685,921	$	0.34	Basic EPS - common stock	$	53,763	123,592,695	$	0.44	$	26,753	123,200,127	$	0.22
Effect of dilutive securities:	Effect of dilutive securities:											Effect of dilutive securities:
Stock options, restricted stock, and ESPP shares	Stock options, restricted stock, and ESPP shares			285,429					321,548			Stock options, restricted stock, and ESPP shares			731,193					230,764
Diluted EPS - common stock	Diluted EPS - common stock	$	30,490	123,536,765	$	0.25	$	42,592	127,007,469	$	0.34	Diluted EPS - common stock	$	53,763	124,323,888	$	0.43	$	26,753	123,430,891	$	0.22

		Nine Months Ended September 30,											Six Months Ended June 30,
		2020					2019						2021					2020
		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share			Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share
		(Dollars in thousands, except share and per share data)											(Dollars in thousands, except share and per share data)
Basic EPS - common stock	Basic EPS - common stock	$	83,196	123,581,055	$	0.67	$	128,031	126,661,798	$	1.01	Basic EPS - common stock	$	97,450	123,459,461	$	0.79	$	52,706	123,747,727	$	0.43
Effect of dilutive securities:	Effect of dilutive securities:											Effect of dilutive securities:
Stock options, restricted stock, and ESPP shares	Stock options, restricted stock, and ESPP shares			314,029					234,172			Stock options, restricted stock, and ESPP shares			874,766					306,564
Diluted EPS - common stock	Diluted EPS - common stock	$	83,196	123,895,084	$	0.67	$	128,031	126,895,970	$	1.01	Diluted EPS - common stock	$	97,450	124,334,227	$	0.78	$	52,706	124,054,291	$	0.42

1213

4. Equity Investments

Equity investments with readily determinable fair values at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, consisted of mutual funds in the amounts of ~~$22.7~~$27.2 million and ~~$22.1~~$27.6 million, respectively, and were included in “Equity investments” on the Consolidated Statements of Financial Condition.

The changes in fair value for equity investments with readily determinable fair values for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were recorded in other noninterest income and fees as summarized in the table below:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Net change in fair value recorded during the period on equity investments with readily determinable fair value	Net change in fair value recorded during the period on equity investments with readily determinable fair value	$	0	$	168	$	542	$	1,393	Net change in fair value recorded during the period on equity investments with readily determinable fair value	$	77	$	188	$	(407)	$	542
Net change in fair value recorded on equity investments sold during the period	Net change in fair value recorded on equity investments sold during the period	0		0		0		0		Net change in fair value recorded on equity investments sold during the period	0		0		0		0
Net change in fair value on equity investments with readily determinable fair values	Net change in fair value on equity investments with readily determinable fair values	$	0	$	168	$	542	$	1,393	Net change in fair value on equity investments with readily determinable fair values	$	77	$	188	$	(407)	$	542

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company also had equity investments without readily determinable fair value which are carried at cost less any determined impairment. The balance of these investments is adjusted for changes in subsequent observable prices. At ~~September~~June 30, ~~2020,~~2021, the total balance of equity investments without readily determinable fair values included in “Equity investments” on the Consolidated Statements of Financial Condition was ~~$27.0~~$31.8 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in Community Development Financial Institutions (“CDFI”) investments, and ~~$25.7~~$30.5 million in Community Reinvestment Act (“CRA”) investments. At December 31, ~~2019,~~2020, the total balance of equity investments without readily determinable fair values was ~~$27.0~~$32.1 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in CDFI investments, and ~~$25.6~~$30.7 million in CRA investments.

The Company had 0 impairments or subsequent observable price changes for equity investments without readily determinable fair values for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

1314

5. Securities Available for Sale

The following is a summary of securities available for sale as of the dates indicated:


		At September 30, 2020											At June 30, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance For Investment Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance For Investment Credit Losses		Fair Value
		(Dollars in thousands)											(Dollars in thousands)
Debt securities:	Debt securities:											Debt securities:
U.S. Government agency and U.S. Government sponsored enterprises:	U.S. Government agency and U.S. Government sponsored enterprises:											U.S. Government agency and U.S. Government sponsored enterprises:

Collateralized mortgage obligations	Collateralized mortgage obligations	$	779,720	$	13,975	$	(99)	$	0	$	793,596	Collateralized mortgage obligations	$	858,603	$	8,362	$	(2,389)	$	0	$	864,576
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
Residential	Residential	671,027		6,294		(582)		0		676,739		Residential	663,223		3,127		(6,148)		0		660,202
Commercial	Commercial	474,963		25,761		0		0		500,724		Commercial	540,908		16,443		(1,738)		0		555,613
Asset-backed securities												Asset-backed securities	62,328		102		(61)		0		62,369
Corporate securities	Corporate securities	5,000		0		(1,112)		0		3,888		Corporate securities	23,422		120		(928)		0		22,614
Municipal securities	Municipal securities	83,845		2,199		0		0		86,044		Municipal securities	106,125		2,715		(44)		0		108,796
Total investment securities available for sale	Total investment securities available for sale	$	2,014,555	$	48,229	$	(1,793)	$	0	$	2,060,991	Total investment securities available for sale	$	2,254,609	$	30,869	$	(11,308)	$	0	$	2,274,170

		At December 31, 2019											At December 31, 2020
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance For Investment Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance For Investment Credit Losses		Fair Value
		(Dollars in thousands)											(Dollars in thousands)
Debt securities:	Debt securities:											Debt securities:
U.S. Government agency and U.S. Government sponsored enterprises:	U.S. Government agency and U.S. Government sponsored enterprises:											U.S. Government agency and U.S. Government sponsored enterprises:

Collateralized mortgage obligations	Collateralized mortgage obligations	$	735,094	$	4,220	$	(2,659)	N/A		$	736,655	Collateralized mortgage obligations	$	990,679	$	11,482	$	(844)	$	0	$	1,001,317
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
Residential	Residential	353,073		1,422		(1,598)		N/A		352,897		Residential	672,667		8,460		(114)		0		681,013
Commercial	Commercial	541,043		13,441		(2,360)		N/A		552,124		Commercial	482,874		25,026		(21)		0		507,879
Corporate securities	Corporate securities	5,000		0		(800)		N/A		4,200		Corporate securities	7,000		15		(881)		0		6,134
Municipal securities	Municipal securities	69,631		831		(351)		N/A		70,111		Municipal securities	86,213		3,058		(3)		0		89,268

Total investment securities available for sale	Total investment securities available for sale	$	1,703,841	$	19,914	$	(7,768)	N/A		$	1,715,987	Total investment securities available for sale	$	2,239,433	$	48,041	$	(1,863)	$	0	$	2,285,611

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

During the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, the Company had 0 sales of securities and recognized ~~$7.5 million in~~0 net gains on sales and calls of securities available for sale. For the three and nine months ended September 30, 2019, the Company recognized net gains on sales of securities available for sale of $153 thousand and $282 thousand, respectively. For the three and nine months ended September 30, 2020, the Company received proceeds from sale of $168.1 million of securities available for sale, which consisted of $34.6 million commercial mortgage-backed securities, $113.2 million residential mortgage-backed securities and $20.2 million collateralized mortgage obligations. For the three months ended September 30, 2019, the Company received proceeds from the sale of $46.5 million in investment securities, which consisted of $2.3 million municipal securities and $44.2 million residential mortgage-backed securities sold. For the nine months ended September 30, 2019, the Company received proceeds from the sale of $115.6 million in investment securities, which consisted of $41.8 million municipal securities and $73.9 million residential mortgage-backed securities sold.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019, $33.2~~2020, $14.4 million and ~~$9.1~~$33.2 million in unrealized gains on securities available for sale net of taxes, respectively, were included in accumulated other comprehensive income. For the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, $7.5 million was reclassified out of accumulated other comprehensive income into earnings as gain on sales of investments securities available for sale. For the three and nine months ended September 30, 2019,there were 0 reclassifications out of accumulated other comprehensive income into ~~earnings as gains on sales of investments securities available for sale were $153 thousand and $282 thousand, respectively.~~earnings.

1415

The amortized cost and estimated fair value of investment securities at ~~September~~June 30, ~~2020,~~2021, by contractual maturity, is presented in the table below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. Collateralized mortgage obligations, mortgage-backed securities, and ~~mortgage-backed~~asset-backed securities are not due at a single maturity date and their total balances are shown separately.


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
		(Dollars in thousands)					(Dollars in thousands)
Available for sale:	Available for sale:					Available for sale:
Due within one year	Due within one year	$	350	$	351	Due within one year	$	350	$	351
Due after one year through five years	Due after one year through five years	0		0		Due after one year through five years	0		0
Due after five years through ten years	Due after five years through ten years	5,441		5,477		Due after five years through ten years	37,825		38,270
Due after ten years	Due after ten years	83,054		84,104		Due after ten years	91,372		92,789
U.S. Government agency and U.S. Government sponsored enterprises:	U.S. Government agency and U.S. Government sponsored enterprises:					U.S. Government agency and U.S. Government sponsored enterprises:
Collateralized mortgage obligations	Collateralized mortgage obligations	779,720		793,596		Collateralized mortgage obligations	858,603		864,576
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
Residential	Residential	671,027		676,739		Residential	663,223		660,202
Commercial	Commercial	474,963		500,724		Commercial	540,908		555,613
Asset-backed securities						Asset-backed securities	62,328		62,369
Total	Total	$	2,014,555	$	2,060,991	Total	$	2,254,609	$	2,274,170

Securities with carrying values of approximately ~~$371.6~~$354.8 million and ~~$340.9~~$376.1 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged to secure public deposits, for various borrowings, and for other purposes as required or permitted by law.

The following tables show the Company’s investments’ gross unrealized losses and estimated fair values, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position as of the dates indicated.


		As of September 30, 2020																As of June 30, 2021
		Less than 12 months					12 months or longer					Total						Less than 12 months					12 months or longer					Total
Description of Securities	Description of Securities	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Description of Securities	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
		(Dollars in thousands)																(Dollars in thousands)

Collateralized mortgage obligations*	Collateralized mortgage obligations*	8	$	94,580	$	(99)	0	$	0	$	0	8	$	94,580	$	(99)	Collateralized mortgage obligations*	20	$	421,753	$	(2,389)	1	$	4	$	0	21	$	421,757	$	(2,389)
Mortgage-backed securities:	Mortgage-backed securities:																Mortgage-backed securities:
Residential*	Residential*	7	114,906		(582)		0	0		0		7	114,906		(582)		Residential*	47	503,686		(6,148)		0	0		0		47	503,686		(6,148)
Commercial*	Commercial*	0	0		0		0	0		0		0	0		0		Commercial*	11	115,974		(1,738)		0	0		0		11	115,974		(1,738)
Asset-backed securities																	Asset-backed securities	4	29,000		(61)		0	0		0		4	29,000		(61)
Corporate securities	Corporate securities	0	0		0		1	3,888		(1,112)		1	3,888		(1,112)		Corporate securities	2	7,219		(203)		1	4,275		(725)		3	11,494		(928)
Municipal securities	Municipal securities	0	0		0		0	0		0		0	0		0		Municipal securities	5	4,704		(44)		0	0		0		5	4,704		(44)
Total	Total	15	$	209,486	$	(681)	1	$	3,888	$	(1,112)	16	$	213,374	$	(1,793)	Total	89	$	1,082,336	$	(10,583)	2	$	4,279	$	(725)	91	$	1,086,615	$	(11,308)

__________________________________

* Investments in U.S. Government agency and U.S. Government sponsored enterprises

1516


		As of December 31, 2019																As of December 31, 2020
		Less than 12 months					12 months or longer					Total						Less than 12 months					12 months or longer					Total
Description of Securities	Description of Securities	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Description of Securities	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
		(Dollars in thousands)																(Dollars in thousands)
Collateralized mortgage obligations*	Collateralized mortgage obligations*	20	$	108,236	$	(721)	32	$	183,050	$	(1,938)	52	$	291,286	$	(2,659)	Collateralized mortgage obligations*	22	$	312,757	$	(844)	0	$	0	$	0	22	$	312,757	$	(844)
Mortgage-backed securities:	Mortgage-backed securities:																Mortgage-backed securities:
Residential*	Residential*	6	84,107		(267)		16	129,457		(1,331)		22	213,564		(1,598)		Residential*	8	46,094		(114)		0	0		0		8	46,094		(114)
Commercial*	Commercial*	7	68,452		(1,037)		5	73,697		(1,323)		12	142,149		(2,360)		Commercial*	1	10,275		(21)		0	0		0		1	10,275		(21)
Corporate securities	Corporate securities	0	0		0		1	4,200		(800)		1	4,200		(800)		Corporate securities	0	0		0		1	4,119		(881)		1	4,119		(881)
Municipal securities	Municipal securities	2	8,942		(39)		3	15,437		(312)		5	24,379		(351)		Municipal securities	1	997		(3)		0	0		0		1	997		(3)
Total	Total	35	$	269,737	$	(2,064)	57	$	405,841	$	(5,704)	92	$	675,578	$	(7,768)	Total	32	$	370,123	$	(982)	1	$	4,119	$	(881)	33	$	374,242	$	(1,863)

* Investments in U.S. Government agency and U.S. Government sponsored enterprises

The Company had 1 CMO and 1 corporate security that ~~was~~were in a continuous unrealized loss position for twelve months or longer with fair ~~value~~values of ~~$3.9~~$4 thousand and $4.3 million, respectively as of ~~September~~June 30, ~~2020.~~2021. With the adoption of CECL, the length of time that the fair value of investment securities have been less than amortized cost is not considered when assessing for credit impairment.

OnWith the adoption of ASU 2016-13 on January 1, 2020, the ~~Company adopted ASU 2016-13 and implemented the~~ CECL methodology ~~for allowance for credit losses on its investment securities available for sale. The new CECL methodology replaces~~replaced the other-than-temporary impairment model that ~~previously~~previously existed. The Company did not have a day 1 allowance impact attributable to its investment securities portfolio and did not have an allowance for credit losses as of ~~September~~June 30, ~~2020~~.2021 and December 31, 2020. The Company has elected to exclude accrued interest from the amortized cost of its investment securities available for sale. Accrued interest receivable for investment securities available for sale at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020, totaled ~~$4.4 million and $4.3 million, respectively.~~$4.7 million.

The Company evaluates securities in unrealized loss position for impairment related to credit losses on at least a quarterly basis. Securities in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors. In evaluating whether a credit loss exists, the Company has set up an initial filter for impairment triggers. Once the quantitative filters have been triggered, the securities are placed on a watch list and an additional assessment is performed to identify whether a credit impairment exists. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Unrealized losses that have not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. NaN allowance for credit losses for available for sale securities was recorded at ~~September~~June 30, ~~2020.~~2021.

Approximately ~~96%~~91% of the Company’s investment portfolio at ~~September~~June 30, ~~2020~~2021 consisted of securities that were issued by U.S. Government agency and U.S. Government sponsored enterprises. Although a government guarantee exists on these investments, these entities are not legally backed by the full faith and credit of the federal government, and the current support they receive is subject to a cap as part of the agreement entered into in 2008. Nonetheless, at this time we do not foresee any set of circumstances in which the government would not fund its commitments on these investments as the issuers are an integral part of the U.S. housing market in providing liquidity and stability. Therefore, we concluded that a zero allowance approach for these investment securities is appropriate. The Company had also had 14 asset-backed security, 3 corporate ~~security, 8 collateralized mortgage obligations,~~securities, and ~~7 mortgage-backed securities~~5 municipal bonds in unrealized loss positions at ~~September~~June 30, ~~2020.~~2021. The Company performed an assessment of ~~these investments~~investment securities in unrealized loss positions for credit impairment and concluded that 0 allowance for credit losses was required at ~~September~~June 30, ~~2020.~~2021.

1617

6. Loans Receivable and Allowance for Credit Losses

The following is a summary of loans receivable by major category:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Loan portfolio composition	Loan portfolio composition	(Dollars in thousands)				Loan portfolio composition	(Dollars in thousands)
Real estate loans:	Real estate loans:					Real estate loans:
Residential	Residential	$	54,585	$	52,558	Residential	$	61,360	$	54,795
Commercial	Commercial	8,347,358		8,316,470		Commercial	8,518,115		8,425,959
Construction	Construction	311,593		295,523		Construction	252,801		291,380
Total real estate loans	Total real estate loans	8,713,536		8,664,551		Total real estate loans	8,832,276		8,772,134
Commercial business1		3,700,020		2,721,183
Commercial business *						Commercial business *	4,001,423		4,157,787
Residential mortgage	Residential mortgage	659,876		835,188		Residential mortgage	543,622		582,232
Consumer and other	Consumer and other	46,793		55,085		Consumer and other	46,980		51,060
Loans receivable	Loans receivable	13,120,225		12,276,007		Loans receivable	13,424,301		13,563,213
Allowance for credit losses	Allowance for credit losses	(179,849)		(94,144)		Allowance for credit losses	(189,452)		(206,741)
Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	$	12,940,376	$	12,181,863	Loans receivable, net of allowance for credit losses	$	13,234,849	$	13,356,472

1* Commercial ~~Business~~business loans as of ~~September~~June 30, 2021 and December 31, 2020 ~~includes $464.6~~include $568.8 million and $452.7 million, respectively, in SBA Paycheck Protection Program ~~Loans~~loans

Loans receivable is stated at the amount of unpaid principal, adjusted for net deferred fees and costs, premiums and discounts, purchase accounting fair value adjustments, and allowance for credit losses. ~~Loan balances as of December 31, 2019 have been reclassified based on the Company’s current presentation and represent amortized cost balances which are net of deferred fees and costs.~~ The Company had net deferred fees of ~~$5.4~~$12.6 million and net deferred costs of ~~$2.7~~$3.6 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Net loan fees related to SBA Paycheck Protection Program (“PPP”) loans totaled $15.7 million at June 30, 2021 compared to $6.4 million at December 31, 2020 and included fees from the origination of SBA PPP loans net of deferred origination costs. The increase in deferred fees for SBA PPP loans was primarily due to the origination of $324.5 million in second round SBA PPP loans during the six months ended June 30, 2021.

The loan portfolio consists of 4 segments: real estate, commercial business, residential mortgage, and consumer and other loans. Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and are collateralized by residential or commercial properties. Commercial business loans are loans provided to businesses for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions, international trade finance activities, and other business related financing needs and also include warehouse lines of credit and SBA ~~Paycheck Protection Program (“PPP”)~~PPP loans. Residential mortgage loans are extended for personal, family, or household use and are secured by a mortgage or deed of trust. Consumer and other loans consist of home equity, credit card, and other personal loans.

~~On January 1,~~Loans receivable declined $138.9 million from December 31, 2020 ~~the Company adopted ASU 2016-13, or CECL, using the modified retrospective method for all~~to $13.42 billion as of ~~its loans measured at amortized cost. With the adoption of CECL, the Company reassessed its loan portfolio segments and classes of~~June 30, 2021. The decline in loans receivable during the six months ended June 30, 2021 was due a $283.0 million decline in warehouse lines of credit, $193.5 million in SBA PPP forgiveness, the return to the sale of SBA guaranteed loans totaling $30.0 million during the second quarter of 2021, and ~~made changes based on~~ the ~~new allowance for credit losses methodology. As a result,~~second quarter of 2021 sale of $119.3 million in hotel/motel loans, most of which were classified as criticized loans. These declines were partially offset by an increase in commercial real estate loans which saw an increase in 2021 loan originations and the ~~Company now discloses~~purchase of $98.3 million in residential mortgage loans ~~as a separate segment and class~~during the second quarter of receivable. Trade finance loans, which were previously disclosed as a distinct segment and class of receivable, are now combined with commercial business loans. Prior period balances have been reclassified to conform with the current presentation.2021.

1718

The tables below details the activity in the allowance for credit losses by portfolio segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. Charge offs for the three and six months ended June 30, 2021 included $11.8 million in real estate loan charge offs that resulted from the sale of $119.3 million in hotel/motel loans with elevated credit risk, there were no such sales for the three and six ended June 30, 2020. Accrued interest ~~receivable~~receivables on loans totaled ~~$53.5~~$47.1 million at ~~September~~June 30, ~~2020~~2021 and ~~$26.2~~$54.6 million at December 31, ~~2019.~~2020. The Company set aside an allowance on loan accrued interest receivables of $751 thousand at June 30, 2021 and $1.0 million at December 31, 2020.


		Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total			Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
		(Dollars in thousands)											(Dollars in thousands)
Three Months Ended September 30, 2020
Three Months Ended June 30, 2021												Three Months Ended June 30, 2021
Balance, beginning of period	Balance, beginning of period	$	119,030	$	35,493	$	5,868	$	1,380	$	161,771	Balance, beginning of period	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943
Provision (credit) for credit losses	Provision (credit) for credit losses	15,748		7,265		(1,169)		156		22,000		Provision (credit) for credit losses	4,227		(12,179)		877		75		(7,000)
Loans charged off	Loans charged off	(5,313)		(800)		0		(237)		(6,350)		Loans charged off	(12,172)		(572)		0		(48)		(12,792)
Recoveries of charge offs	Recoveries of charge offs	159		2,251		0		18		2,428		Recoveries of charge offs	891		391		0		19		1,301
Balance, end of period	Balance, end of period	$	129,624	$	44,209	$	4,699	$	1,317	$	179,849	Balance, end of period	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452

Nine Months Ended September 30, 2020
Six Months Ended June 30, 2021												Six Months Ended June 30, 2021
Balance, beginning of period	Balance, beginning of period	$	53,593	$	33,032	$	5,925	$	1,594	$	94,144	Balance, beginning of period	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741
CECL day 1 adoption		27,791		(1,022)		(543)		(26)		26,200
Provision (credit) for credit losses	Provision (credit) for credit losses	55,773		11,663		(683)		747		67,500		Provision (credit) for credit losses	6,572		(9,554)		(615)		(103)		(3,700)
Loans charged off	Loans charged off	(7,884)		(4,294)		0		(1,033)		(13,211)		Loans charged off	(14,990)		(1,182)		0		(141)		(16,313)
Recoveries of charge offs	Recoveries of charge offs	351		4,830		0		35		5,216		Recoveries of charge offs	1,475		1,081		0		168		2,724
Balance, end of period	Balance, end of period	$	129,624	$	44,209	$	4,699	$	1,317	$	179,849	Balance, end of period	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452


		Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total			Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
		(Dollars in thousands)											(Dollars in thousands)
Three Months Ended September 30, 2019
Three Months Ended June 30, 2020												Three Months Ended June 30, 2020
Balance, beginning of period	Balance, beginning of period	$	54,084	$	32,364	$	5,514	$	2,104	$	94,066	Balance, beginning of period	$	94,645	$	42,883	$	5,779	$	1,616	$	144,923
Provision (credit) for loan losses		(87)		2,286		(207)		108		2,100

Provision (credit) for credit losses												Provision (credit) for credit losses	24,534		(7,151)		89		28		17,500
Loans charged off	Loans charged off	(1,197)		(1,124)		0		(281)		(2,602)		Loans charged off	(174)		(459)		0		(271)		(904)
Recoveries of charge offs	Recoveries of charge offs	246		528		0		6		780		Recoveries of charge offs	25		220		0		7		252
PCI allowance adjustment		0		0		0		(462)		(462)

Balance, end of period	Balance, end of period	$	53,046	$	34,054	$	5,307	$	1,475	$	93,882	Balance, end of period	$	119,030	$	35,493	$	5,868	$	1,380	$	161,771

Nine Months Ended September 30, 2019
Six Months Ended June 30, 2020												Six Months Ended June 30, 2020
Balance, beginning of period	Balance, beginning of period	$	56,767	$	28,484	$	5,207	$	2,099	$	92,557	Balance, beginning of period	$	53,593	$	33,032	$	5,925	$	1,594	$	94,144
Provision (credit) for loan losses		(4,225)		9,693		176		656		6,300
CECL day 1 adoption												CECL day 1 adoption	27,791		(1,022)		(543)		(26)		26,200
Provision for credit losses												Provision for credit losses	40,025		4,398		486		591		45,500
Loans charged off	Loans charged off	(1,439)		(4,083)		(76)		(834)		(6,432)		Loans charged off	(2,571)		(3,494)		0		(796)		(6,861)
Recoveries of charge offs	Recoveries of charge offs	1,943		838		0		16		2,797		Recoveries of charge offs	192		2,579		0		17		2,788
PCI allowance adjustment		0		(878)		0		(462)		(1,340)

Balance, end of period	Balance, end of period	$	53,046	$	34,054	$	5,307	$	1,475	$	93,882	Balance, end of period	$	119,030	$	35,493	$	5,868	$	1,380	$	161,771

1819

The following tables break out the allowance for credit losses and loan balance by measurement methodology at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020											June 30, 2021
		Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total			Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
		(Dollars in thousands)											(Dollars in thousands)
Allowance for credit losses:	Allowance for credit losses:											Allowance for credit losses:
Individually evaluated	Individually evaluated	$	2,339	$	4,485	$	21	$	50	$	6,895	Individually evaluated	$	27,226	$	3,325	$	15	$	26	$	30,592
Collectively evaluated	Collectively evaluated	127,285		39,724		4,678		1,267		172,954		Collectively evaluated	128,027		26,175		3,597		1,061		158,860
Total	Total	$	129,624	$	44,209	$	4,699	$	1,317	$	179,849	Total	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452

Loans outstanding:	Loans outstanding:											Loans outstanding:
Individually evaluated	Individually evaluated	$	76,025	$	24,930	$	3,775	$	802	$	105,532	Individually evaluated	$	138,368	$	20,978	$	3,053	$	236	$	162,635
Collectively evaluated	Collectively evaluated	8,637,511		3,675,090		656,101		45,991		13,014,693		Collectively evaluated	8,693,908		3,980,445		540,569		46,744		13,261,666
Total	Total	$	8,713,536	$	3,700,020	$	659,876	$	46,793	$	13,120,225	Total	$	8,832,276	$	4,001,423	$	543,622	$	46,980	$	13,424,301

December 31, 2019
Real Estate Commercial Business Residential Mortgage Consumer and Other Total
(Dollars in thousands)
Allowance for loan losses:
Individually evaluated for impairment $ 312 $ 3,073 $ 10 $ 7 $ 3,402
Collectively evaluated for impairment 48,616 26,914 5,913 1,220 82,663
PCI loans 4,665 3,045 2 367 8,079
Total $ 53,593 $ 33,032 $ 5,925 $ 1,594 $ 94,144
Loans outstanding:
Individually evaluated for impairment $ 64,684 $ 22,905 $ 2,762 $ 301 $ 90,652
Collectively evaluated for impairment 8,502,103 2,691,378 832,268 54,037 12,079,786
PCI loans 97,764 6,900 158 747 105,569
Total $ 8,664,551 $ 2,721,183 $ 835,188 $ 55,085 $ 12,276,007


	December 31, 2020
	Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)
Allowance for credit losses:
Individually evaluated	$	3,683	$	3,575	$	25	$	42	$	7,325
Collectively evaluated	158,513		35,580		4,202		1,121		199,416
Total	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741

Loans outstanding:
Individually evaluated	$	93,476	$	25,706	$	3,416	$	605	$	123,203
Collectively evaluated	8,678,658		4,132,081		578,816		50,455		13,440,010
Total	$	8,772,134	$	4,157,787	$	582,232	$	51,060	$	13,563,213

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, reserves for unfunded loan commitments recorded in other liabilities were $1.4 million and $1.3 million, respectively. For the three and ~~$636~~six months ended June 30, 2021, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling $0 and $105 thousand, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, 2020, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling $0to $50 thousand and $660 thousand, respectively. ~~For the three and nine months ended September 30, 2019, the Company recorded reductions to reserves for unfunded commitments recorded in credit related expenses totaling to $100 thousand.~~

1920

Generally, loans are placed on nonaccrual status if principal and/or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to customers whose financial conditions have deteriorated are considered for nonaccrual status whether or not the loan is 90 days or more past due. Generally, payments received on nonaccrual loans are recorded as principal reductions. Loans are returned to accrual status only when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company does not recognize interest income while loans are on nonaccrual status.

The tables below represent the recorded investment of nonaccrual loans and loans past due 90 or more days and still on accrual status by class of loans and broken out by loans with a recorded ACL and those without a recorded ACL as of ~~September~~June 30, ~~2020~~2021 and ~~total nonaccrual loans and loans past due 90 or more days and still on accrual status by class of loans as of~~ December 31, ~~2019.~~2020.


		September 30, 2020									June 30, 2021
		Nonaccrual with No ACL		Nonaccrual with an ACL		Total Nonaccrual (1)		Accruing Loans Past Due 90 or More Days			Nonaccrual with No ACL		Nonaccrual with an ACL		Total Nonaccrual (1)		Accruing Loans Past Due 90 or More Days
		(Dollars in thousands)									(Dollars in thousands)
Real estate – residential	Real estate – residential	$	0	$	0	$	0	$	0	Real estate – residential	$	0	$	0	$	0	$	0
Real estate – commercial	Real estate – commercial									Real estate – commercial
Retail	Retail	8,023		3,688		11,711		0		Retail	10,463		34,100		44,563		0
Hotel & motel	Hotel & motel	14,280		2,260		16,540		0		Hotel & motel	13,654		5,428		19,082		3,776
Gas station & car wash	Gas station & car wash	351		928		1,279		0		Gas station & car wash	575		1,303		1,878		0
Mixed use	Mixed use	1,531		815		2,346		293		Mixed use	9,754		1,610		11,364		0
Industrial & warehouse	Industrial & warehouse	4,618		1,950		6,568		0		Industrial & warehouse	2,105		2,332		4,437		0
Other	Other	4,576		2,121		6,697		0		Other	1,791		5,083		6,874		0
Real estate – construction	Real estate – construction	6,598		0		6,598		0		Real estate – construction	7,424		0		7,424		0
Commercial business	Commercial business	4,351		8,671		13,022		0		Commercial business	5,035		7,182		12,217		26
Residential mortgage	Residential mortgage	2,335		1,440		3,775		0		Residential mortgage	1,440		1,612		3,052		872
Consumer and other	Consumer and other	0		669		669		1,244		Consumer and other	0		117		117		85
Total	Total	$	46,663	$	22,542	$	69,205	$	1,537	Total	$	52,241	$	58,767	$	111,008	$	4,759


		December 31, 2019					December 31, 2020
		Nonaccrual Loans(1)(2)		Accruing Loans Past Due 90 or More Days			Nonaccrual with No ACL		Nonaccrual with an ACL		Total Nonaccrual (1)		Accruing Loans Past Due 90 or More Days
		(Dollars in thousands)					(Dollars in thousands)
Real estate – residential	Real estate – residential	$	0	$	0	Real estate – residential	$	0	$	0	$	0	$	0
Real estate – commercial	Real estate – commercial					Real estate – commercial
Retail	Retail	2,934		449		Retail	3,262		8,530		11,792		478
Hotel & motel	Hotel & motel	10,901		0		Hotel & motel	15,311		2,195		17,506		0
Gas station & car wash	Gas station & car wash	271		0		Gas station & car wash	151		1,493		1,644		0
Mixed use	Mixed use	665		634		Mixed use	1,883		788		2,671		0
Industrial & warehouse	Industrial & warehouse	10,544		0		Industrial & warehouse	5,443		1,022		6,465		0
Other	Other	5,455		919		Other	7,230		1,419		8,649		0
Real estate – construction	Real estate – construction	10,165		3,850		Real estate – construction	0		18,723		18,723		0
Commercial business	Commercial business	10,893		1,096		Commercial business	5,319		8,592		13,911		0
Residential mortgage	Residential mortgage	2,753		0		Residential mortgage	1,440		1,976		3,416		0
Consumer and other	Consumer and other	204		599		Consumer and other	0		461		461		136
Total	Total	$	54,785	$	7,547	Total	$	40,039	$	45,199	$	85,238	$	614

(1) Total nonaccrual loans exclude the guaranteed portion of SBA loans that are in liquidation totaling $~~26.2~~23.6 million and ~~$28.1~~$26.5 million, at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~(2)~~ ~~Nonaccrual loans exclude PCI loans of $18.3 million at December 31, 2019.~~

2021

The following table presents the amortized cost basis of collateral-dependent loans as of ~~September~~June 30, 2021 and December 31, 2020:

September 30, 2020
Real Estate Collateral Other Collateral Total
(Dollars in thousands)
Real Estate - Residential $ 0 $ 0 $ 0
Real Estate - Commercial 55,024 0 55,024
Real Estate - Construction 6,598 0 6,598
Commercial Business 7,581 5,415 12,996
Residential Mortgage 2,335 0 2,335
Consumer and Other 11 0 11
Total $ 71,549 $ 5,415 $ 76,964


	June 30, 2021
	Real Estate Collateral		Other Collateral		Total
	(Dollars in thousands)
Real estate – residential	$	0	$	0	$	0
Real estate – commercial	97,184		0		97,184
Real estate – construction	7,424		0		7,424
Commercial business	7,518		6,560		14,078
Residential mortgage	1,439		0		1,439
Consumer and other	0		0		0
Total	$	113,565	$	6,560	$	120,125


	December 31, 2020
	Real Estate Collateral		Other Collateral		Total
	(Dollars in thousands)
Real estate – residential	$	0	$	0	$	0
Real estate – commercial	55,945		0		55,945
Real estate – construction	8,122		0		8,122
Commercial business	7,818		6,312		14,130
Residential mortgage	1,440		0		1,440
Consumer and other	15		0		15
Total	$	73,340	$	6,312	$	79,652

Interest income reversals due to loans being placed on nonaccrual status was ~~$76~~$750 thousand and ~~$85~~$319 thousand for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Nonaccrual interest income reversals for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 were $1.7 million and ~~2019 was $611~~$356 thousand, ~~and $1.1 million,~~ respectively.

The following table presents the recorded investment of past due loans, including nonaccrual loans past due 30 or more days, by the number of days past due as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 by class of loans:

As of September 30, 2020 As of December 31, 2019
30-59 Days
Past Due 60-89 Days
Past Due 90 or More Days
Past Due Total
Past Due 30-59 Days
Past Due 60-89 Days
Past Due 90 or More Days
Past Due
Total
Past Due (1)
(Dollars in thousands)
Real estate – residential $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Real estate – commercial
Retail 328 44,776 10,074 55,178 1,083 1,424 3,037 5,544
Hotel & motel 534 2,081 13,679 16,294 1,346 936 6,409 8,691
Gas station & car wash 461 0 763 1,224 997 2,038 196 3,231
Mixed use 551 0 1,348 1,899 593 0 801 1,394
Industrial & warehouse 467 1,095 3,735 5,297 94 45 3,946 4,085
Other 2,054 2,671 1,120 5,845 811 785 3,704 5,300
Real estate – construction 0 8,122 6,598 14,720 0 0 14,015 14,015
Commercial business 638 575 6,740 7,953 401 352 5,717 6,470
Residential mortgage 1,185 2,456 2,821 6,462 9,676 792 2,038 12,506
Consumer and other 66 509 1,853 2,428 176 122 614 912
Total Past Due $ 6,284 $ 62,285 $ 48,731 $ 117,300 $ 15,177 $ 6,494 $ 40,477 $ 62,148

~~(1)~~ ~~Past due loans at December 31, 2019 exclude PCI loans totaling $15.0 million.~~


	As of June 30, 2021								As of December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due
	(Dollars in thousands)
Real estate – residential	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Real estate – commercial
Retail	788		8,148		10,852		19,788		852		8,141		10,276		19,269
Hotel & motel	2,487		2,808		16,373		21,668		62		1,401		14,744		16,207
Gas station & car wash	292		411		443		1,146		619		2,668		563		3,850
Mixed use	2,547		13,921		295		16,763		116		0		1,269		1,385
Industrial & warehouse	8,211		154		2,611		10,976		137		0		3,830		3,967
Other	2,149		42		2,913		5,104		2,738		545		3,000		6,283
Real estate – construction	0		0		7,424		7,424		8,122		0		0		8,122
Commercial business	431		4,209		5,545		10,185		816		3,683		4,700		9,199
Residential mortgage	6,359		540		2,702		9,601		4,841		0		2,263		7,104
Consumer and other	45		24		202		271		797		21		595		1,413
Total Past Due	$	23,309	$	30,257	$	49,360	$	102,926	$	19,100	$	16,459	$	41,240	$	76,799

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. Homogeneous loans (i.e., home mortgage loans, home equity lines of credit, overdraft loans, express business loans, and automobile loans) are not risk rated and credit risk is analyzed largely by the number of days past due. This analysis is performed at least on a quarterly basis.

The definitions for risk ratings are as follows:

•Pass: Loans that meet a preponderance or more of the Company’s underwriting criteria and evidence an acceptable level of risk.

•Special Mention: Loans that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

•Substandard: Loans that are inadequately protected by the current net worth and paying capacity of the borrower or by the collateral pledged, if any. Loans in this classification have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

•Doubtful: Loans that have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

During the second quarter of 2021, the Company completed the sale of $119.3 million in hotel/motel loans. The sale consisted of loans with elevated credit risk or were likely to exhibit credit issues in the future. Of the $119.3 million in commercial real estate loans sold, $68.4 million were rated special mention and $33.6 million were rated substandard prior to being sold. The loans were sold at a 9.9% discount to amortized cost. The Company charged off $11.8 million during the second quarter of 2021 as a result of the note sale, all of which was reserved for in prior quarters.

2223

The following table presents the amortized cost basis of loans receivable by class, credit quality indicator, and year of origination as of ~~September~~June 30, 2021 and December 31, 2020.


		As of September 30, 2020																	As of June 30, 2021
		Term Loan by Origination Year												Revolving Loans		Total			Term Loan by Origination Year												Revolving Loans		Total
		2020		2019		2018		2017		2016		Prior							2021		2020		2019		2018		2017		Prior
		(Dollars in thousands)																	(Dollars in thousands)
Real Estate - Residential	Real Estate - Residential																	Real Estate - Residential
Pass/Not Rated		$	5,818	$	16,509	$	11,599	$	4,352	$	7,592	$	5,061	$	3,429	$	54,360
Pass / not rated																		Pass / not rated	$	12,995	$	14,311	$	13,556	$	5,547	$	3,831	$	10,098	$	658	$	60,996
Special mention	Special mention	—		0		0		0		0		0		0		0		Special mention	0		0		0		0		0		0		228		228
Substandard	Substandard	0		0		140		0		0		85		0		225		Substandard	0		0		0		136		0		0		0		136
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	5,818	$	16,509	$	11,739	$	4,352	$	7,592	$	5,146	$	3,429	$	54,585	Subtotal	$	12,995	$	14,311	$	13,556	$	5,683	$	3,831	$	10,098	$	886	$	61,360
Real Estate - Commercial	Real Estate - Commercial																	Real Estate - Commercial
Pass/Not Rated		$	1,112,640	$	1,587,016	$	1,605,796	$	1,297,459	$	868,639	$	1,468,638	$	104,518	$	8,044,706
Pass / not rated																		Pass / not rated	$	1,073,045	$	1,485,549	$	1,340,161	$	1,375,076	$	1,055,030	$	1,544,353	$	106,716	$	7,979,930
Special mention	Special mention	0		2,047		12,923		17,203		1,681		10,082		0		43,936		Special mention	4,223		5,706		48,552		29,215		40,713		71,144		11,978		211,531
Substandard	Substandard	0		12,090		25,640		24,666		41,610		151,514		3,196		258,716		Substandard	6,508		552		17,395		26,725		52,497		220,280		2,697		326,654
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	1,112,640	$	1,601,153	$	1,644,359	$	1,339,328	$	911,930	$	1,630,234	$	107,714	$	8,347,358	Subtotal	$	1,083,776	$	1,491,807	$	1,406,108	$	1,431,016	$	1,148,240	$	1,835,777	$	121,391	$	8,518,115
Real Estate - Construction	Real Estate - Construction																	Real Estate - Construction
Pass/Not Rated		$	29,382	$	38,336	$	109,419	$	82,598	$	5,608	$	10,031	$	0	$	275,374
Pass / not rated																		Pass / not rated	$	841	$	47,025	$	44,574	$	39,298	$	27,652	$	21,200	$	8,457	$	189,047
Special mention	Special mention	0		0		0		0		5,774		5,124		0		10,898		Special mention	0		0		0		45,989		4,428		5,913		0		56,330
Substandard	Substandard	0		0		0		10,601		0		8,122		0		18,723		Substandard	0		0		0		0		0		7,424		0		7,424
Doubtful/Loss		0		0		0		6,598		0		0		0		6,598
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	29,382	$	38,336	$	109,419	$	99,797	$	11,382	$	23,277	$	0	$	311,593	Subtotal	$	841	$	47,025	$	44,574	$	85,287	$	32,080	$	34,537	$	8,457	$	252,801
Commercial Business	Commercial Business																	Commercial Business
Pass/Not Rated		$	979,904	$	628,028	$	246,008	$	134,655	$	90,613	$	55,025	$	1,437,781	$	3,572,014
Pass / not rated																		Pass / not rated	$	889,734	$	866,932	$	516,793	$	147,361	$	112,324	$	100,388	$	1,297,976	$	3,931,508
Special mention	Special mention	5,990		27,099		31,111		15,083		6,503		3,007		9,644		98,437		Special mention	1,191		415		3,943		13,581		212		5,466		1,662		26,470
Substandard	Substandard	1,485		851		6,534		4,459		6,864		5,071		4,263		29,527		Substandard	1,457		8,552		1,856		2,114		12,840		7,860		8,766		43,445
Doubtful/Loss		0		0		0		0		42		0		0		42
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	987,379	$	655,978	$	283,653	$	154,197	$	104,022	$	63,103	$	1,451,688	$	3,700,020	Subtotal	$	892,382	$	875,899	$	522,592	$	163,056	$	125,376	$	113,714	$	1,308,404	$	4,001,423
Residential Mortgage	Residential Mortgage																	Residential Mortgage
Pass/Not Rated		$	4,881	$	111,963	$	251,894	$	184,337	$	60,122	$	42,747	$	0	$	655,944
Pass / not rated																		Pass / not rated	$	116,677	$	4,764	$	56,940	$	166,777	$	123,595	$	71,816	$	0	$	540,569
Special mention	Special mention	0		0		0		0		0		0		0		0		Special mention	0		0		0		0		0		0		0		0
Substandard	Substandard	0		122		1,448		0		1,717		645		0		3,932		Substandard	0		0		128		200		541		2,184		0		3,053
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	4,881	$	112,085	$	253,342	$	184,337	$	61,839	$	43,392	$	0	$	659,876	Subtotal	$	116,677	$	4,764	$	57,068	$	166,977	$	124,136	$	74,000	$	0	$	543,622
Consumer and Other	Consumer and Other																	Consumer and Other
Pass/Not Rated		$	5,747	$	2,602	$	2,051	$	2,687	$	5,203	$	2,881	$	24,726	$	45,897
Pass / not rated																		Pass / not rated	$	2,784	$	5,994	$	2,243	$	1,937	$	2,114	$	7,611	$	24,054	$	46,737
Special mention	Special mention	0		0		0		117		0		0		0		117		Special mention	0		0		0		0		0		0		0		0
Substandard	Substandard	0		0		0		0		40		739		0		779		Substandard	0		0		0		0		0		243		0		243
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	5,747	$	2,602	$	2,051	$	2,804	$	5,243	$	3,620	$	24,726	$	46,793	Subtotal	$	2,784	$	5,994	$	2,243	$	1,937	$	2,114	$	7,854	$	24,054	$	46,980
Total Loans	Total Loans																	Total Loans
Pass/Not Rated		$	2,138,372	$	2,384,454	$	2,226,767	$	1,706,088	$	1,037,777	$	1,584,383	$	1,570,454	$	12,648,295
Pass / not rated																		Pass / not rated	$	2,096,076	$	2,424,575	$	1,974,267	$	1,735,996	$	1,324,546	$	1,755,466	$	1,437,861	$	12,748,787
Special mention	Special mention	5,990		29,146		44,034		32,403		13,958		18,213		9,644		153,388		Special mention	5,414		6,121		52,495		88,785		45,353		82,523		13,868		294,559
Substandard	Substandard	1,485		13,063		33,762		39,726		50,231		166,176		7,459		311,902		Substandard	7,965		9,104		19,379		29,175		65,878		237,991		11,463		380,955
Doubtful/Loss		0		0		0		6,598		42		0		0		6,640
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Total	Total	$	2,145,847	$	2,426,663	$	2,304,563	$	1,784,815	$	1,102,008	$	1,768,772	$	1,587,557	$	13,120,225	Total	$	2,109,455	$	2,439,800	$	2,046,141	$	1,853,956	$	1,435,777	$	2,075,980	$	1,463,192	$	13,424,301

2324


	December 31, 2020
	Term Loan by Origination Year												Revolving Loans		Total
	2020		2019		2018		2017		2016		Prior
	(Dollars in thousands)
Real Estate - Residential
Pass / not rated	$	15,158	$	13,924	$	7,587	$	4,316	$	6,800	$	3,460	$	3,104	$	54,349
Special mention	0		0		0		0		0		0		227		227
Substandard	0		0		139		0		0		80		0		219
Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	$	15,158	$	13,924	$	7,726	$	4,316	$	6,800	$	3,540	$	3,331	$	54,795
Real Estate - Commercial
Pass / not rated	$	1,548,595	$	1,554,980	$	1,533,802	$	1,240,973	$	767,318	$	1,262,125	$	130,595	$	8,038,388
Special mention	0		2,805		24,569		10,694		8,031		32,048		1,600		79,747
Substandard	126		14,233		28,938		37,174		50,371		173,788		3,194		307,824
Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	$	1,548,721	$	1,572,018	$	1,587,309	$	1,288,841	$	825,720	$	1,467,961	$	135,389	$	8,425,959
Real Estate - Construction
Pass / not rated	$	35,743	$	45,290	$	103,794	$	60,996	$	5,740	$	10,099	$	0	$	261,662
Special mention	0		0		0		0		5,771		5,224		0		10,995
Substandard	0		0		0		10,601		0		8,122		0		18,723
Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	$	35,743	$	45,290	$	103,794	$	71,597	$	11,511	$	23,445	$	0	$	291,380
Commercial Business
Pass / not rated	$	1,294,368	$	584,453	$	224,447	$	117,708	$	77,209	$	43,674	$	1,686,428	$	4,028,287
Special mention	5,996		27,693		30,852		14,629		6,388		3,139		5,172		93,869
Substandard	2,430		1,323		5,539		4,394		6,158		5,463		10,323		35,630
Doubtful / loss	0		0		1		0		0		0		0		1
Subtotal	$	1,302,794	$	613,469	$	260,839	$	136,731	$	89,755	$	52,276	$	1,701,923	$	4,157,787
Residential Mortgage
Pass / not rated	$	5,733	$	90,958	$	217,343	$	168,827	$	55,246	$	40,554	$	0	$	578,661
Special mention	0		0		0		0		0		0		0		0
Substandard	0		122		536		561		1,715		637		0		3,571
Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	$	5,733	$	91,080	$	217,879	$	169,388	$	56,961	$	41,191	$	0	$	582,232
Consumer and Other
Pass / not rated	$	8,309	$	2,463	$	1,818	$	2,321	$	4,756	$	2,811	$	27,890	$	50,368
Special mention	0		0		0		103		0		0		0		103
Substandard	0		0		0		0		55		532		2		589
Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	$	8,309	$	2,463	$	1,818	$	2,424	$	4,811	$	3,343	$	27,892	$	51,060
Total Loans
Pass / not rated	$	2,907,906	$	2,292,068	$	2,088,791	$	1,595,141	$	917,069	$	1,362,723	$	1,848,017	$	13,011,715
Special mention	5,996		30,498		55,421		25,426		20,190		40,411		6,999		184,941
Substandard	2,556		15,678		35,152		52,730		58,299		188,622		13,519		366,556
Doubtful / loss	0		0		1		0		0		0		0		1
Total	$	2,916,458	$	2,338,244	$	2,179,365	$	1,673,297	$	995,558	$	1,591,756	$	1,868,535	$	13,563,213

For the three and ~~nine~~six months ended ~~September~~June 30, 2021 and the twelve months ended December 31, 2020, there were 0 revolving loans converted to term loans.

~~The following table presents the recorded investment in the Company’s loans by loan class and credit risk rating as of December 31, 2019.~~

As of December 31, 2019
Pass/Not Rated Special Mention Substandard Doubtful Total
(Dollars in thousands)
Real estate – residential $ 52,096 $ 0 $ 462 $ 0 $ 52,558
Real estate – commercial 8,039,751 78,519 198,200 0 8,316,470
Real estate – construction 253,173 24,620 17,730 0 295,523
Commercial business 2,643,814 38,185 39,171 13 2,721,183
Residential mortgage 832,149 0 3,039 0 835,188
Consumer and other 53,966 166 953 0 55,085
Total $ 11,874,949 $ 141,490 $ 259,555 $ 13 $ 12,276,007

The Company may reclassify loans held for investment to loans held for sale in the event that the Company plans to sell loans that were originated with the intent to hold to maturity. Loans transferred from held for investment to held for sale are carried at the lower of cost or fair value. The breakdown of loans by type that were reclassified from held for investment to held for sale for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 is presented in the following table:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Transfer of loans held for investment to held for sale	Transfer of loans held for investment to held for sale	(Dollars in thousands)								Transfer of loans held for investment to held for sale	(Dollars in thousands)
Real estate - commercial	Real estate - commercial	$	0	$	25,988	$	0	$	25,988	Real estate - commercial	$	171,175	$	0	$	171,175	$	0

Commercial business										Commercial business	9,660		—		9,660		—
Residential mortgage	Residential mortgage	0		0		1,002		82,991		Residential mortgage	0		0		0		1,002
Total	Total	$	0	$	25,988	$	1,002	$	108,979	Total	$	180,835	$	0	$	180,835	$	1,002

On January 1, 2020 the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”, or CECL which significantly changed the credit losses estimation model for loans and investments. The discussion below relates to the Company’s CECL allowance for credit losses (“ACL”) methodology. For a discussion of the Company’s former incurred loss allowance for loan losses methodology, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

CECL. The Company calculates its ACL by estimating expected credit losses on a collective basis for loans that share similar risk characteristics. Loans that do not share similar risk characteristics with other loans are evaluated for credit losses on an individual basis. The Company uses a combination of a modeled and non-modeled approach that incorporates current and future economic conditions to estimate lifetime expected losses on a collective basis. The Company uses Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) methodologies with quantitative factors and qualitative considerations in calculation of the allowance for credit losses for collectively assessed loans. The Company uses a reasonable and supportable period of 2 years at which point loss assumptions revert back to historical loss information by means of 1 year reversion period.

The ACL for the Company’s construction, credit card, and certain consumer loans is calculated based on a non-modeled approach utilizing historical loss rates to estimate losses. A non-modeled approach was chosen for these loans as fewer data points exist which could result in high levels of estimated loss volatility under a modeled approach. In aggregate, non-modeled loans represented less than 3% of the Company’s total loan portfolio as of ~~September~~June 30, ~~2020.~~2021.

~~With the adoption of CECL, the Company formed an~~The Company’s Economic Forecast Committee (“EFC”) ~~to review~~reviews economic forecast scenarios that are incorporated in the Company’s ACL. The EFC reviews multiple scenarios provided to the Company by an independent third party and chooses a single scenario that best aligns with management’s expectation of future economic conditions. The forecast scenario contains certain macroeconomic variables that are incorporated into the Company’s modeling process, including GDP, unemployment rates, interest rates, and commercial real estate prices. As of ~~September~~June 30, ~~2020,~~2021, the Company chose a forecast scenario that incorporates the effect of the COVID-19 pandemic and the expected economic recovery into estimates of future economic conditions. ~~We experienced a large decline in GDP and~~The forecast improved considerably compared to forecasts used during the first quarter of 2021 with an increase in projected GDP growth and a large increase in projected commercial real estate prices combined with a reduction in unemployment, particularly for periods in 2021 and 2022. The forecast improvement reflect the ~~first half~~current and projected effects of ~~2020~~government stimulus packages, ongoing COVID-19 vaccinations, and the ~~forecast scenarios project a return to GDP growth in~~reopening of many businesses throughout the ~~second half of 2020, while unemployment remains elevated through 2022.~~

United States.

Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Company utilizes qualitative adjustments to the modeled and non-modeled estimated loss approaches. The parameters for making adjustments are established under a Credit Risk Matrix that provides different possible scenarios for each of the factors below. The Credit Risk Matrix and the possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio by as much as 25 basis points for each loan type pool. This matrix considers the following seven factors, which are patterned after the guidelines provided under the Federal Financial Institutions Examination Council (“FFIEC”) Interagency Policy Statement on the Allowance for Loan and Lease Losses, updated to reflect the adoption of CECL:

•Changes in lending policies and procedures, including underwriting standards and collection, charge off, and recovery practices;

•Changes in the nature and volume of the loan portfolio;

•Changes in the experience, ability, and depth of lending management and staff;

•Changes in the trends of the volume and severity of past due loans, classified loans, nonaccrual loans, troubled debt restructurings, and other loan modifications;

•Changes in the quality of the loan review system and the degree of oversight by the Directors;

•The existence and effect of any concentrations of credit and changes in the level of such concentrations; and

•The effect of external factors, such as competition, legal requirements, and regulatory requirements on the level of estimated losses in the loan portfolio.

As of September 30, 2020, the Company recorded additional ACL as part of its modeled and qualitative assessments to account for the additional risks associated with the increase in loan modifications related to the COVID-19 pandemic and to account for the Company’s concentration of hotel/motel loans for which the industry was particularly hard hit by the pandemic.

For loans which do not share similar risk characteristics such as nonaccrual and TDR loans above $500 thousand, the Company evaluates these loans on an individual basis in accordance with ASC 326. These nonaccrual and TDR loans are considered to have different risk profiles than performing loans and therefore are evaluated separately. The Company decided to collectively assess TDRs and nonaccrual loans with balances below $500 thousand along with the performing and accrual loans in order to reduce the operational burden of individually assessing small TDR and nonaccrual loans with immaterial balances. For individually assessed loans, the ACL is measured using either 1) the present value of future cash flows discounted at the loan’s effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent loans, the Company obtains a new appraisal to determine the fair value of collateral. The appraisals are based on an “as-is” valuation. To ensure that appraised values remain current, the Company either obtains updated appraisals every twelve months from a qualified independent appraiser or an internal evaluation of the collateral is performed by qualified personnel. If the third party market data indicates that the value of the collateral property has declined since the most recent valuation date, management adjusts the value of the property downward to reflect current market conditions. If the fair value of the collateral is less than the amortized balance of the loan, the Company recognizes an ACL with a corresponding charge to the provision for credit losses.

The Company maintains a separate ACL for its off-balance sheet unfunded loan commitments. The Company uses a funding rate to allocate the allowance to undrawn exposures. This funding rate is used as a credit conversion factor to capture how much undrawn lines of credit can potentially become drawn at any point. The funding rate is determined based on a lookback period of 8 quarters. Credit loss is not estimated for off-balance sheet credit exposures that are unconditionally cancellable by the Company.

2527

The following tables present a breakdown of loans by recorded ACL, broken out by loans evaluated individually and collectively at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		As of September 30, 2020																						As of June 30, 2021
		Real Estate – Residential			Real Estate – Commercial			Real Estate – Construction			Commercial Business			Residential Mortgage			Consumer and Other			Total				Real Estate – Residential			Real Estate – Commercial			Real Estate – Construction			Commercial Business			Residential Mortgage			Consumer and Other			Total
		(Dollars in thousands)																						(Dollars in thousands)
Individually evaluated loans	Individually evaluated loans	$	0		$	69,427		$	6,598		$	24,930		$	3,775		$	802		$	105,532		Individually evaluated loans	$	0		$	130,944		$	7,424		$	20,978		$	3,053		$	236		$	162,635
ACL on individually evaluated loans	ACL on individually evaluated loans	$	0		$	2,339		$	0		$	4,485		$	21		$	50		$	6,895		ACL on individually evaluated loans	$	0		$	27,226		$	0		$	3,325		$	15		$	26		$	30,592
Individually evaluated loans ACL coverage	Individually evaluated loans ACL coverage	N/A			3.37		%	N/A			17.99		%	0.56		%	6.23		%	6.53		%	Individually evaluated loans ACL coverage	N/A			20.79		%	N/A			15.85		%	0.49		%	11.02		%	18.81		%
Collectively evaluated loans	Collectively evaluated loans	$	54,585		$	8,277,931		$	304,995		$	3,675,090		$	656,101		$	45,991		$	13,014,693		Collectively evaluated loans	$	61,360		$	8,387,171		$	245,377		$	3,980,445		$	540,569		$	46,744		$	13,261,666
ACL on collectively evaluated loans	ACL on collectively evaluated loans	$	208		$	125,144		$	1,933		$	39,724		$	4,678		$	1,267		$	172,954		ACL on collectively evaluated loans	$	330		$	126,040		$	1,657		$	26,175		$	3,597		$	1,061		$	158,860
Collectively evaluated loans ACL coverage	Collectively evaluated loans ACL coverage	0.38		%	1.51		%	0.63		%	1.08		%	0.71		%	2.75		%	1.33		%	Collectively evaluated loans ACL coverage	0.54		%	1.50		%	0.68		%	0.66		%	0.67		%	2.27		%	1.20		%
Total loans	Total loans	$	54,585		$	8,347,358		$	311,593		$	3,700,020		$	659,876		$	46,793		$	13,120,225		Total loans	$	61,360		$	8,518,115		$	252,801		$	4,001,423		$	543,622		$	46,980		$	13,424,301
Total ACL	Total ACL	$	208		$	127,483		$	1,933		$	44,209		$	4,699		$	1,317		$	179,849		Total ACL	$	330		$	153,266		$	1,657		$	29,500		$	3,612		$	1,087		$	189,452
Total ACL to total loans	Total ACL to total loans	0.38		%	1.53		%	0.62		%	1.19		%	0.71		%	2.81		%	1.37		%	Total ACL to total loans	0.54		%	1.80		%	0.66		%	0.74		%	0.66		%	2.31		%	1.41		%

As of December 31, 2019
Real Estate –
Residential Real Estate –
Commercial Real Estate –
Construction Commercial
Business Residential
Mortgage Consumer
and Other Total
(Dollars in thousands)
Impaired loans
(recorded investment)
$ 0 $ 54,519 $ 10,165 $ 22,905 $ 2,762 $ 301 $ 90,652
Specific allowance $ 0 $ 312 $ 0 $ 3,073 $ 10 $ 7 $ 3,402
Specific allowance to impaired loans N/A 0.57 % 0 % 13.42 % 0.36 % 2.33 % 3.75 %
Other loans $ 52,558 $ 8,261,951 $ 285,358 $ 2,698,278 $ 832,426 $ 54,784 $ 12,185,355
General allowance $ 204 $ 51,400 $ 1,677 $ 29,959 $ 5,915 $ 1,587 $ 90,742
General allowance to other loans 0.39 % 0.62 % 0.59 % 1.11 % 0.71 % 2.90 % 0.74 %
Total loans $ 52,558 $ 8,316,470 $ 295,523 $ 2,721,183 $ 835,188 $ 55,085 $ 12,276,007
Total allowance for loan losses $ 204 $ 51,712 $ 1,677 $ 33,032 $ 5,925 $ 1,594 $ 94,144
Total allowance to total loans 0.39 % 0.62 % 0.57 % 1.21 % 0.71 % 2.89 % 0.77 %


	As of December 31, 2020
	Real Estate – Residential			Real Estate – Commercial			Real Estate – Construction			Commercial Business			Residential Mortgage			Consumer and Other			Total
	(Dollars in thousands)
Individually evaluated loans	$	0		$	74,753		$	18,723		$	25,706		$	3,416		$	605		$	123,203
ACL on individually evaluated loans	$	0		$	2,862		$	821		$	3,575		$	25		$	42		$	7,325
Individually evaluated loans ACL coverage	N/A			3.83		%	4.38		%	13.91		%	0.73		%	6.94		%	5.95		%
Collectively evaluated loans	$	54,795		$	8,351,206		$	272,657		$	4,132,081		$	578,816		$	50,455		$	13,440,010
ACL on collectively evaluated loans	$	391		$	156,665		$	1,457		$	35,580		$	4,202		$	1,121		$	199,416
Collectively evaluated loans ACL coverage	0.71		%	1.88		%	0.53		%	0.86		%	0.73		%	2.22		%	1.48		%
Total loans	$	54,795		$	8,425,959		$	291,380		$	4,157,787		$	582,232		$	51,060		$	13,563,213
Total ACL	$	391		$	159,527		$	2,278		$	39,155		$	4,227		$	1,163		$	206,741
Total ACL to total loans	0.71		%	1.89		%	0.78		%	0.94		%	0.73		%	2.28		%	1.52		%

2628

Under certain circumstances, the Company provides borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. The temporary modifications generally consist of interest only payments for a three to six month period, whereby principal payments are deferred. At the end of the modification period, the remaining principal balance is re-amortized based on the original maturity date. At the end of the modification period, the loan either 1) returns to the original contractual terms; 2) is further modified and accounted for as a troubled debt restructuring in accordance with ASC 310-10-35; or 3) is disposed of through foreclosure or liquidation.

TDR loans are individually evaluated in accordance with ASC 310 and ASC 326. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on their debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy. At ~~September~~June 30, ~~2020,~~2021, total TDR loans were ~~$49.5~~$88.5 million, compared to ~~$46.7~~$51.6 million at December 31, ~~2019.~~2020.

The balance of loans with modified terms due to COVID-19 as of ~~September~~June 30, ~~2020~~2021 totaled ~~$1.15 billion.~~$318.7 million. The majority of these loans were modified in accordance with Section 4013 of the CARES Act. The CARES Act provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDR for a limited period of time to account for the effects of COVID-19 if (i) the loan modification is made between March 1, 2020 and the earlier of ~~December 31, 2020~~January 1, 2022 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. As such, all modified loans that met the criteria outlined within Section 4013 of the CARES Act were not classified as TDR loans as of ~~September~~June 30, 2021 and December 31, 2020, unless the loans were TDR prior to the COVID-19 ~~modification.~~modification or borrowers were identified to be experiencing financial difficulty prior to the COVID-19 pandemic. As of ~~September~~June 30, ~~2020,~~2021, real estate loans accounted for ~~a little less than 90%~~approximately 85% of the loans modified due to hardship from the COVID-19 pandemic. The modifications consisted of full payment deferrals, interest only payments, and a hybrid of full payment deferrals for a period of time followed by interest only payments. The modifications were granted mostly for periods from 3 to 9 months (see “COVID-19 Related Loan Modifications” in the Financial Condition section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information).

A summary of the recorded investment of TDR loans on accrual and nonaccrual status by type of concession as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is presented below:


		As of September 30, 2020																	As of June 30, 2021
		TDR Loans on Accrual Status								TDR Loans on Nonaccrual Status								Total TDRs				TDR Loans on Accrual Status													TDR Loans on Nonaccrual Status													Total TDRs
		Real Estate		Commercial Business		Residential Mortgage		Other		Real Estate		Commercial Business		Residential Mortgage		Other						Real Estate				Commercial Business			Residential Mortgage			Other			Real Estate			Commercial Business			Residential Mortgage			Other			Total TDRs
		(Dollars in thousands)																				(Dollars in thousands)
Payment concession	Payment concession	$	5,944	$	925	$	0	$	41	$	7,323	$	332	$	0	$	0			$	14,565		Payment concession	$	17,305		$	808		$	0		$	58		$	8,357		$	523		$	0		$	0					$	27,051
Maturity / amortization concession	Maturity / amortization concession	11,874		10,730		0		93		178		4,244		0		118				27,237			Maturity / amortization concession	19,996			7,380			0			133			22,889			3,404			0			117				53,919
Rate concession	Rate concession	5,822		0		0		0		439		1,434		0		0				7,695			Rate concession	5,303			377			0			0			398			1,422			0			0				7,500

Total	Total	$	23,640	$	11,655	$	0	$	134	$	7,940	$	6,010	$	0	$	118			$	49,497		Total	$	42,604		$	8,565		$	0		$	191		$	31,644		$	5,349		$	0		$	117			$	88,470


		As of December 31, 2019																			As of December 31, 2020
		TDR Loans on Accrual Status								TDR Loans on Nonaccrual Status								Total TDRs			TDR Loans on Accrual Status								TDR Loans on Nonaccrual Status								Total TDRs
		Real Estate		Commercial Business		Residential Mortgage		Other		Real Estate		Commercial Business		Residential Mortgage		Other					Real Estate		Commercial Business		Residential Mortgage		Other		Real Estate		Commercial Business		Residential Mortgage		Other
		(Dollars in thousands)																			(Dollars in thousands)
Payment concession	Payment concession	$	4,708	$	886	$	0	$	54	$	4,306	$	259	$	0	$	0	$	10,213	Payment concession	$	8,328	$	814	$	0	$	58	$	7,074	$	471	$	0	$	0	$	16,745
Maturity / amortization concession	Maturity / amortization concession	14,537		10,778		0		43		0		5,931		0		122		31,411		Maturity / amortization concession	11,331		10,219		0		114		925		3,814		0		117		26,520
Rate concession	Rate concession	4,419		181		0		103		334		65		0		0		5,102		Rate concession	6,112		378		0		0		424		1,430		0		0		8,344

Total	Total	$	23,664	$	11,845	$	0	$	200	$	4,640	$	6,255	$	0	$	122	$	46,726	Total	$	25,771	$	11,411	$	0	$	172	$	8,423	$	5,715	$	0	$	117	$	51,609

2729

TDR loans on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Company anticipates full repayment of both principal and interest under the restructured terms. TDR loans that are on nonaccrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. Sustained performance includes the periods prior to the modification and if the prior performance met or exceeded the modified terms. TDR loans on accrual status at ~~September~~June 30, ~~2020~~2021 were comprised of 3037 commercial real estate loans totaling ~~$23.6~~$42.6 million, 2922 commercial business loans totaling ~~$11.7~~$8.6 million, and 1615 consumer and other loans totaling ~~$134~~$191 thousand. TDR loans on accrual status at December 31, ~~2019~~2020 were comprised of 1533 commercial real estate loans totaling ~~$23.7~~$25.8 million, 2725 commercial business loans totaling ~~$11.8~~$11.4 million, and 1216 consumer and other loans totaling ~~$200~~$172 thousand. The Company expects that TDR loans on accrual status as of ~~September~~June 30, ~~2020,~~2021, which were all performing in accordance with their restructured terms, to continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. TDR loans that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDR after each year end but are reserved for under ASC 310-10. The Company recorded an allowance totaling ~~$4.9~~$26.8 million and ~~$3.1~~$4.8 million for TDR loans as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The following tables present the recorded investment of loans classified as TDR during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 by class of loans:


		Three Months Ended September 30, 2020	Three Months Ended September 30, 2019			Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
		Number of Loans	Balance		Number of Loans		Balance			Number of Loans	Balance		Number of Loans	Balance
		(Dollars in thousands)				(Dollars in thousands)
Real estate – residential	Real estate – residential	0	$	0	0		$	0	Real estate – residential	0	$	0	1	$	216
Real estate – commercial	Real estate – commercial								Real estate – commercial
Retail	Retail	1	1,007		1		328		Retail	4	6,527		0	0
Hotel & motel	Hotel & motel	0	0		1		574		Hotel & motel	0	0		0	0
Gas station & car wash	Gas station & car wash	0	0		0		0		Gas station & car wash	0	0		1	479
Mixed use	Mixed use	1	767		0		0		Mixed use	1	4,624		1	464
Industrial & warehouse	Industrial & warehouse	0	0		0		0		Industrial & warehouse	0	0		0	0
Other	Other	0	0		0		0		Other	0	0		0	0
Real estate – construction	Real estate – construction	0	0		0		0		Real estate – construction	0	0		0	0
Commercial business	Commercial business	0	0		2		169		Commercial business	2	312		2	234
Residential mortgage	Residential mortgage	0	0		0		0		Residential mortgage	0	0		0	0
Consumer and other	Consumer and other	2	11		0		0		Consumer and other	1	12		3	14
Total	Total	4	$	1,785	4		$	1,071	Total	8	$	11,475	8	$	1,407


		For the Nine Months Ended September 30, 2020	For the Nine Months Ended September 30, 2019			For the Six Months Ended June 30, 2021				For the Six Months Ended June 30, 2020
		Number of Loans	Balance		Number of Loans		Balance			Number of Loans	Balance		Number of Loans	Balance
		(Dollars in thousands)				(Dollars in thousands)
Real estate – residential	Real estate – residential	0	$	0	0		$	0	Real estate – residential	0	$	0	1	$	216
Real estate – commercial	Real estate – commercial								Real estate – commercial
Retail	Retail	2	1,613		3		449		Retail	7	30,236		1	676
Hotel & motel	Hotel & motel	0	0		3		1,439		Hotel & motel	0	0		0	0
Gas station & car wash	Gas station & car wash	2	515		0		0		Gas station & car wash	1	575		2	527
Mixed use	Mixed use	2	1,233		0		0		Mixed use	1	4,624		1	464
Industrial & warehouse	Industrial & warehouse	1	259		0		0		Industrial & warehouse	2	9,149		1	261
Other	Other	0	0		3		1,055		Other	0	0		0	0
Real estate – construction	Real estate – construction	0	0		0		0		Real estate – construction	0	0		0	0
Commercial business	Commercial business	2	481		14		2,999		Commercial business	3	331		3	523
Residential mortgage	Residential mortgage	0	0		0		0		Residential mortgage	0	0		0	0
Consumer and other	Consumer and other	6	34		10		55		Consumer and other	5	54		4	30
Total	Total	15	$	4,135	33		$	5,997	Total	19	$	44,969	13	$	2,697

2830

For TDRs modified during the three and ~~nine~~six months ended ~~September~~June 30, 2021, the Company recorded $59 thousand and $23.7 million, respectively in ACL. Total charge-offs of TDR loans modified during the three and six months ended June 30, 2021 totaled $0. For TDR loans modified during the three and six months ended June 30, 2020, the Company recorded ~~$342~~$57 thousand and ~~$661~~$219 thousand, respectively in ACL. Total charge-offs of TDR loans modified during the three and ~~nine~~six months ended ~~September~~June 30, 2020 totaled $0. For TDR loans modified during the three and nine months ended September 30, 2019, the Company recorded $17 thousand and $47 thousand, respectively, in allowance for loan losses. Total charge-offs of TDR loans modified during the three and nine months ended September 30, 2019 totaled $0, and $33 thousand, respectively.

The following tables present loans modified as TDRs within the previous twelve months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 that subsequently had payment defaults during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30, 2020			Three Months Ended September 30, 2019
		Number of Loans	Balance		Number of Loans	Balance
		(Dollars in thousands)
Real estate – residential		0	$	0	0	$	0
Real estate – commercial
Retail		1	606		1	96
Hotel & motel		0	0		0	0
Gas station & car wash		0	0		0	0
Mixed Use		0	0		0	0
Industrial & warehouse		1	2,326		0	0
Other		1	133		1	101
Real estate – construction		0	0		0	0
Commercial business		0	0		2	31
Residential mortgage		0	0		0	0
Consumer and other		4	20		8	37
Subtotal		7	$	3,085	12	$	265

		Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019				Three Months Ended June 30, 2021			Three Months Ended June 30, 2020
		Number of Loans	Balance		Number of Loans	Balance			Number of Loans	Balance		Number of Loans	Balance
		(Dollars in thousands)							(Dollars in thousands)
Real estate – residential	Real estate – residential	0	$	0	0	$	0	Real estate – residential	0	$	0	0	$	0
Real estate – commercial	Real estate – commercial							Real estate – commercial
Retail	Retail	1	606		1	96		Retail	1	22,589		0	0
Hotel & motel	Hotel & motel	0	0		0	0		Hotel & motel	0	0		1	543
Gas station & car wash	Gas station & car wash	1	471		0	0		Gas station & car wash	0	0		0	0
Mixed Use	Mixed Use	1	466		0	0		Mixed Use	0	0		0	0
Industrial & warehouse	Industrial & warehouse	2	2,586		0	0		Industrial & warehouse	2	9,149		0	0
Other	Other	1	133		1	101		Other	0	0		1	133
Real estate – construction	Real estate – construction	0	0		0	0		Real estate – construction	0	0		0	0
Commercial business	Commercial business	1	14		3	31		Commercial business	0	0		1	18
Residential mortgage	Residential mortgage	0	0		0	0		Residential mortgage	0	0		0	0
Consumer and other	Consumer and other	5	24		11	42		Consumer and other	2	16		0	0
Total	Total	12	$	4,300	16	$	270	Total	5	$	31,754	3	$	694

									Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
									Number of Loans	Balance		Number of Loans	Balance
									(Dollars in thousands)
Real estate – residential								Real estate – residential	0	$	0	1	$	216
Real estate – commercial								Real estate – commercial
Retail								Retail	2	23,551		1	676
Hotel & motel								Hotel & motel	0	0		1	543
Gas station & car wash								Gas station & car wash	0	0		1	478
Mixed Use								Mixed Use	0	0		1	464
Industrial & warehouse								Industrial & warehouse	2	9,149		1	261
Other								Other	0	0		1	133
Real estate – construction								Real estate – construction	0	0		0	0
Commercial business								Commercial business	1	131		2	32
Residential mortgage								Residential mortgage	0	0		0	0
Consumer and other								Consumer and other	4	42		1	6
Total								Total	9	$	32,873	10	$	2,809

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The Company recorded ~~$4 thousand and $67 thousand~~$23.6 million in ACL for TDR loans that had payment defaults during the three and ~~nine~~six months ended ~~September~~June 30, 2021. Total charge offs for TDR loans that had payment defaults during the three and six months ended June 30, 2021 was $0.

The Company recorded $86 thousand and $143 thousand of allowance for TDR loans that had payment defaults during the three and six months ended June 30, 2020, respectively. Total charge offs for TDR loans that had payment defaults during the three and ~~nine~~six months ended ~~September~~June 30, 2020 ~~was~~totaled $0.

The Company recorded $5 thousand of allowance for TDR loans that had payment defaults during the three and nine months ended September 30, 2019. Total charge offs for TDR loans that had payment defaults during the three and nine months ended September 30, 2019 totaled $33 thousand .

2931

7. Leases

~~On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)”, using the modified retrospective approach under~~ ~~ASC 842~~ ~~and recorded $64.2 million in operating lease right-of-use (“ROU”) assets at adoption.~~ The Company’s operating leases are real estate leases which are comprised of bank branch locations, loan production offices, and office spaces with remaining lease terms ranging from 1 to 10 years as of ~~September~~June 30, ~~2020.~~2021. Certain lease arrangements contain extension options which are typically around 5 years. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

At ~~September~~June 30, 2021, ROU assets and related liabilities were $47.8 million and $52.2 million, respectively. At December 31, 2020, ROU assets and related liabilities were ~~$52.3~~$47.7 million and ~~$54.8~~$52.0 million, respectively. At ~~September~~June 30, ~~2020,~~2021, the short term operating lease liability totaled ~~$13.7~~$12.7 million and the long-term operating lease liability totaled ~~$41.1~~$39.5 million. The Company defines short-term operating lease liabilities as liabilities due in twelve months or less and long term lease liabilities are defined as liabilities that are due in more than twelve months at the end of each reporting period. The Company did not have any finance leases at ~~September~~June 30, ~~2020.~~2021. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company extended 69 leases and entered into 0 new lease contracts. Lease ~~extensions~~extension terms ranged from ~~twenty-two months~~three to five years and the Company reassessed the ROU assets and lease liabilities related to these leases.

Operating lease ROU assets represent the Company’s right to use the underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy expense in the Consolidated Statements of Income. The Company’s occupancy expense also includes variable lease costs which is comprised of the Company's share of actual costs for utilities, common area maintenance, property taxes, and insurance that are not included in lease liabilities and are expensed as incurred. Variable lease costs can also include rent escalations based on changes to indices, such as the Consumer Price Index, where the Company estimates future rent increases and records the actual difference to variable costs.

The Company uses its incremental borrowing rate to present value lease payments in order to recognize a ROU asset and the related lease liability. The Company calculates its incremental borrowing rate by adding a spread to the FHLB borrowing interest rate at a given period.

The table below summarizes the Company’s net lease cost:


		Three Months Ended September 30,				For the Nine Months Ended September 30,					Three Months Ended June 30,				For the Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Operating lease cost	Operating lease cost	$	3,928	$	3,850	$	11,752	$	12,130	Operating lease cost	$	3,891	$	3,879	$	7,720	$	7,824
Short term lease cost	Short term lease cost	0		0		0		9		Short term lease cost	0		0		0		0
Variable lease cost	Variable lease cost	864		875		2,403		2,411		Variable lease cost	747		772		1,501		3,397
Sublease income	Sublease income	(169)		(157)		(595)		(470)		Sublease income	(99)		(214)		(252)		(426)
Net lease cost	Net lease cost	$	4,623	$	4,568	$	13,560	$	14,080	Net lease cost	$	4,539	$	4,437	$	8,969	$	10,795

Rent expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$4.6~~$4.5 million and ~~$13.7~~$9.0 million, respectively. Rent expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$4.6~~$4.5 million and ~~$14.2~~$9.1 million, respectively.

The table below summarizes other information related to the Company’s operating leases:


		At or for the Nine Months Ended September 30, 2020			At or for the Nine Months Ended September 30, 2019				At or for the Six Months Ended June 30, 2021			At or for the Six Months Ended June 30, 2020
		(Dollars in thousands)							(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:							Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	Operating cash outflows for operating leases	$	11,320		$	11,021		Operating cash outflows for operating leases	$	7,428		$	7,392
Right-of-use assets obtained in exchange for lease liabilities, net	Right-of-use assets obtained in exchange for lease liabilities, net	0			65,263			Right-of-use assets obtained in exchange for lease liabilities, net	0			1,541
Weighted-average remaining lease term - operating leases	Weighted-average remaining lease term - operating leases	5.3 years			6.0 years			Weighted-average remaining lease term - operating leases	5.2 years			5.5 years
Weighted-average discount rate - operating leases	Weighted-average discount rate - operating leases	2.99		%	3.11		%	Weighted-average discount rate - operating leases	2.69		%	3.01		%

3032

The table below summarizes the maturity of remaining lease liabilities:


		September 30, 2020			June 30, 2021
		(Dollars in thousands)			(Dollars in thousands)
2020		$	3,806
2021	2021	14,796		2021	$	7,277
2022	2022	10,615		2022	11,312
2023	2023	8,402		2023	9,613
2024	2024	6,769		2024	8,684
2025 and thereafter		15,251
2025				2025	7,319
2026 and thereafter				2026 and thereafter	11,971
Total lease payments	Total lease payments	59,639		Total lease payments	56,176
Less: imputed interest	Less: imputed interest	4,841		Less: imputed interest	3,999
Total lease obligations	Total lease obligations	$	54,798	Total lease obligations	$	52,177

As of ~~September~~June 30, ~~2020,~~2021, the Company did not have any additional operating lease commitments that have not yet commenced.

3133

8. Deposits

The aggregate amounts of time deposits in denominations of more than $250 thousand at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, was ~~$1.98~~$1.58 billion and ~~$1.86~~$1.85 billion, respectively. Included in time deposits of more than $250 thousand were $300.0 million in California State Treasurer’s deposits at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The California State Treasurer’s deposits are subject to withdrawal based on the State’s periodic evaluations. The Company is required to pledge eligible collateral of at least 110% of outstanding deposits. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, securities with fair values of approximately ~~$360.9~~$350.7 million and ~~$333.2~~$368.2 million, respectively, were pledged as collateral for the California State Treasurer’s deposit.

The Company also utilizes brokered deposits as a secondary source of funds. Total brokered deposits at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, totaled ~~$1.00 billion~~$378.5 million and ~~$1.48~~$1.14 billion, respectively. Brokered deposits at ~~September~~June 30, ~~2020~~2021 consisted of ~~$501.0~~$378.3 million in money market and NOW accounts and ~~$500.6 million~~$191 thousand in time deposits accounts. Brokered deposits at December 31, ~~2019~~2020 consisted of ~~$538.2~~$735.0 million in money market and NOW accounts and ~~$940.5~~$400.6 million in time deposit accounts.

The following is breakdown of the Company’s deposits at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		At September 30, 2020				At December 31, 2019					At June 30, 2021				At December 31, 2020
		Balance		Percentage (%)		Balance		Percentage (%)			Balance		Percentage (%)		Balance		Percentage (%)
		(Dollars in thousands)									(Dollars in thousands)
Noninterest bearing demand deposits	Noninterest bearing demand deposits	$	4,488,529	32	%	$	3,108,687	25	%	Noninterest bearing demand deposits	$	5,638,115	38	%	$	4,814,254	34	%
Money market and NOW accounts	Money market and NOW accounts	4,763,893		34	%	3,985,556		32	%	Money market and NOW accounts	5,786,697		39	%	5,232,413		36	%
Saving deposits	Saving deposits	308,943		2	%	274,151		2	%	Saving deposits	308,651		2	%	300,770		2	%
Time deposits	Time deposits	4,446,991		32	%	5,158,970		41	%	Time deposits	2,992,767		21	%	3,986,475		28	%
Total deposits	Total deposits	$	14,008,356	100	%	$	12,527,364	100	%	Total deposits	$	14,726,230	100	%	$	14,333,912	100	%

3234

9. Borrowings

The Company maintains a line of credit with the Federal Home Loan Bank (“FHLB”) of San Francisco as a secondary source of funds. The borrowing capacity with the FHLB is limited to the lower of 25% of the Bank’s total assets or the Bank’s collateral capacity, which was ~~$4.29~~$4.30 billion at ~~September~~June 30, ~~2020,~~2021, and ~~$3.85~~$4.18 billion at December 31, ~~2019.~~2020. The terms of this credit facility require the Company to pledge eligible collateral with the FHLB equal to at least 100% of outstanding advances. The Company also has an unsecured credit facility with the FHLB that totaled $81.2 million at ~~September~~June 30, ~~2020 and $95.0 million at December 31, 2019.~~

~~At September 30, 2020~~2021 and December 31, ~~2019,~~2020.

At June 30, 2021 and December 31, 2020, loans with a carrying amount of approximately ~~$7.02~~$6.61 billion and ~~$6.76~~$6.95 billion, respectively, were pledged at the FHLB for outstanding advances and remaining borrowing capacity. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, other than FHLB stock, 0 securities were pledged as collateral at the FHLB. The purchase of FHLB stock is a prerequisite to become a member of the FHLB system, and the Company is required to own a certain amount of FHLB stock based on outstanding borrowings.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, FHLB advances totaled $200.0 million and ~~$625.0~~$250.0 million, respectively, and had weighted average interest rates of ~~1.32%~~1.26% and ~~1.84%~~1.07%, respectively. FHLB advances at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 had various maturities through December 2022. The interest rates of FHLB advances as of ~~September~~June 30, ~~2020~~2021 ranged between ~~0.25%~~0.13% and 2.39%. ~~During the third quarter of 2020, the Company incurred a $3.6 million prepayment penalty related to the early payoff of $300.0 million in FHLB borrowings.~~ At ~~September~~June 30, ~~2020,~~2021, the Company’s remaining borrowing capacity with the FHLB was ~~$4.05~~$4.08 billion.

The Company maintains unsecured borrowing lines with other banks. There were 0 federal funds purchased from other banks at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

At ~~September~~June 30, ~~2020,~~2021, the contractual maturities for outstanding FHLB advances were as follows:


		September 30, 2020			June 30, 2021
Scheduled maturities in:	Scheduled maturities in:	(Dollars in thousands)		Scheduled maturities in:	(Dollars in thousands)
2020		$	100,000
2021	2021	0		2021	$	100,000
2022	2022	100,000		2022	100,000

Total	Total	$	200,000	Total	$	200,000

As a member of the Federal Reserve Bank (“FRB”) system, the Bank may also borrow from the FRB of San Francisco. The maximum amount that the Bank may borrow from the FRB’s discount window is up to 99% of the fair market value of the qualifying loans and securities that are pledged. At ~~September~~June 30, ~~2020,~~2021, the outstanding principal balance of the qualifying loans pledged at the FRB was ~~$812.5~~$766.0 million and there was 1 investment security pledged to borrow against the discount window with book value totaling ~~$5.9~~$2.4 million. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the total available borrowing capacity at the FRB discount window was ~~$631.5~~$616.4 million and ~~$740.6~~$616.0 million, respectively. There were 0 borrowings outstanding with the FRB discount window as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

3335

10. Subordinated Debentures and Convertible Notes

Subordinated Debt

At ~~September~~June 30, ~~2020,~~2021, the Company had 9 wholly owned subsidiary grantor trusts that had issued $126.0 million of pooled trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated debentures (the “Debentures”). The Debentures are the sole assets of the trusts. The Company’s obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole (but not in part) on a quarterly basis at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. The Company also has a right to defer consecutive payments of interest on the debentures for up to five years.

The following table is a summary of trust preferred securities and Debentures at ~~September~~June 30, ~~2020:~~2021:

Issuance Trust

Issuance
Date

Trust
Preferred
Security
Amount

Carrying
Value of
Debentures

Rate
Type

Current Rate

Maturity
Date

Issuance Trust

Issuance Date

Trust Preferred Security Amount

Carrying Value of Debentures

Rate Type

Current Rate

Maturity Date

(Dollars in thousands)

Nara Capital Trust III

06/05/2003

5,000

5,155

Variable

3.40%

06/15/2033

Nara Capital Trust III

06/05/2003

5,000

5,155

Variable

3.269%

06/15/2033

Nara Statutory Trust IV

12/22/2003

5,000

5,155

Variable

3.13%

01/07/2034

Nara Statutory Trust IV

12/22/2003

5,000

5,155

Variable

3.034%

01/07/2034

Nara Statutory Trust V

12/17/2003

10,000

10,310

Variable

3.20%

12/17/2033

Nara Statutory Trust V

12/17/2003

10,000

10,310

Variable

3.075%

12/17/2033

Nara Statutory Trust VI

03/22/2007

8,000

8,248

Variable

1.90%

06/15/2037

Nara Statutory Trust VI

03/22/2007

8,000

8,248

Variable

1.769%

06/15/2037

Center Capital Trust I

12/30/2003

18,000

14,400

Variable

3.13%

01/07/2034

Center Capital Trust I

12/30/2003

18,000

14,572

Variable

3.034%

01/07/2034

Wilshire Trust II

03/17/2005

20,000

15,911

Variable

2.04%

03/17/2035

Wilshire Trust II

03/17/2005

20,000

16,082

Variable

1.915%

03/17/2035

Wilshire Trust III

09/15/2005

15,000

11,277

Variable

1.65%

09/15/2035

Wilshire Trust III

09/15/2005

15,000

11,423

Variable

1.519%

09/15/2035

Wilshire Trust IV

07/10/2007

25,000

18,259

Variable

1.63%

09/15/2037

Wilshire Trust IV

07/10/2007

25,000

18,480

Variable

1.499%

09/15/2037

Saehan Capital Trust I

03/30/2007

20,000

15,174

Variable

1.84%

06/30/2037

Saehan Capital Trust I

03/30/2007

20,000

15,337

Variable

1.767%

06/30/2037

Total

126,000

103,889

Total

126,000

104,762

The carrying value of Debentures at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$103.9~~$104.8 million and ~~$103.0~~$104.2 million, respectively. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, acquired Debentures had remaining discounts of ~~$26.0~~$25.1 million and ~~$26.9~~$25.7 million, respectively. The carrying balance of Debentures is net of remaining discounts and includes common trust securities.

The Company’s investment in the common trust securities of the issuer trusts was $3.9 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 and is included in other assets. Although the subordinated debt issued by the trusts are not included as a component of stockholders’ equity in the Consolidated Statements of Financial Condition, the debt is treated as capital for regulatory purposes. The Company’s trust preferred security debt issuances (less common trust securities) are includable in Tier 1 capital up to a maximum of 25% of capital on an aggregate basis as they were grandfathered in under BASEL III. Any amount that exceeds 25% qualifies as Tier 2 capital.

Convertible Notes

In 2018, the Company issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038 in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The convertible notes can be converted into shares of the Company’s common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (equivalent to an initial conversion price of approximately $22.18 per share of common stock which represents a premium of 22.50% to the closing stock price on the date of the pricing of the notes). Holders of the convertible notes have the option to convert all or a portion of the notes at any time on or after February 15, 2023. Prior to February 15, 2023, the convertible notes cannot be converted unless under certain specified scenarios. The convertible notes can be called by the Company, in part or in whole, on or after May 20, 2023 for 100% of the principal amount in cash. Holders of the convertible notes also have the option to put the notes back to the Company on May 15, 2023, May 15, 2028, or May 15, 2033 for 100% of the principal amount in cash. The convertible notes can be settled in cash, stock, or a combination of stock and cash at the option of the Company.

3436

~~In accordance with accounting principles, the~~The convertible notes issued by the Company were initially separated into a debt component and an equity component which represents the stock conversion option. The present value of the convertible notes was calculated based on a discount rate of 4.25%, which represented the current offering rate for similar types of debt without conversion options. ~~The effective life of the convertible notes was estimated to be five years based on the first call and put date.~~ The difference between the principal amount of the notes and the present value was recorded as the convertible note discount and additional paid-in capital. The issuance costs related to the offering were also allocated into a debt component to be capitalized, and an equity component in the same percentage allocation of debt and equity of the convertible note.

On January 1, 2021, the Company early adopted ASU 2020-06 and under the modified retrospective approach. Subsequently, the Company accounts for its convertible notes as a single debt instrument. At the adoption of ASU 2020-06, portions previously allocated to equity and the remaining convertible notes discount were both reversed. The reversal of the equity portions of the convertible notes totaled $18.3 million, net of taxes which was recorded as a reduction to additional paid-in capital. The adoption of ASU 2020-06 resulted in a $10.7 million net adjustment to beginning retained earnings.

The value of the convertible note at issuance and the carrying value as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are presented in the tables below:


					As of September 30, 2020								As of June 30, 2021
		Amortization/ Capitalization Period	Gross Carrying Amount		Accumulated Amortization / Capitalization		Carrying Amount			Amortization/ Capitalization Period	Gross Carrying Amount		Accumulated Amortization / Capitalization		Carrying Amount
			(Dollars in thousands)								(Dollars in thousands)
Convertible notes principal balance	Convertible notes principal balance		$	217,500	$	—	$	217,500	Convertible notes principal balance		$	217,500	$	—	$	217,500
Discount		5 years	(21,880)		9,861		(12,019)

Issuance costs to be capitalized	Issuance costs to be capitalized	5 years	(4,119)		1,908		(2,211)		Issuance costs to be capitalized	5 years	(4,119)		2,358		(1,761)
Carrying balance of convertible notes	Carrying balance of convertible notes		$	191,501	$	11,769	$	203,270	Carrying balance of convertible notes		$	213,381	$	2,358	$	215,739


					As of December 31, 2019								As of December 31, 2020
		Amortization/ Capitalization Period	Gross Carrying Amount		Accumulated Amortization / Capitalization		Carrying Amount			Amortization/ Capitalization Period	Gross Carrying Amount		Accumulated Amortization / Capitalization		Carrying Amount
			(Dollars in thousands)								(Dollars in thousands)
Convertible notes principal balance	Convertible notes principal balance		$	217,500	$	—	$	217,500	Convertible notes principal balance		$	217,500	$	—	$	217,500
Discount	Discount	5 years	(21,880)		6,659		(15,221)		Discount	5 years	(21,880)		10,951		(10,929)
Issuance costs to be capitalized	Issuance costs to be capitalized	5 years	(4,119)		1,298		(2,821)		Issuance costs to be capitalized	5 years	(4,119)		2,113		(2,006)
Carrying balance of convertible notes	Carrying balance of convertible notes		$	191,501	$	7,957	$	199,458	Carrying balance of convertible notes		$	191,501	$	13,064	$	204,565

Interest expense on the convertible notes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, totaled ~~$2.4~~$1.3 million and ~~$7.1~~$2.6 million, respectively. Interest expense on the convertible notes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, totaled ~~$2.3~~$2.4 million and ~~$6.9~~$4.7 million, respectively. ~~Interest~~With the adoption of ASU 2020-06, interest expense for the Company’s convertible notes ~~includes~~consists of accrued interest on the convertible note coupon ~~non-cash interest expense representing the conversion option or note discount,~~ and interest expense from capitalized issuance costs. ~~Non-cash interest expense and issuance~~Issuance cost capitalization expense will only be recorded for the first five outstanding years of the convertible notes. The Company’s interest expense on convertible notes declined by $1.0 million and $2.1 million for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 as it no longer has a discount to amortize and record as non-cash interest expense.

3537

11. Derivative Financial Instruments

The Company offers a loan hedging program to certain loan customers. Through this program, the Company originates a variable rate loan with the customer. The Company and the customer will then enter into a fixed interest rate swap. Lastly, an identical offsetting swap is entered into by the Company with a correspondent bank. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. The changes in fair value is recognized in the income statement as other income and fees.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, interest rate swaps related to the Company’s loan hedging program that were outstanding are presented in the following table:


		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
		(Dollars in thousands)							(Dollars in thousands)
Interest rate swaps on loans with correspondent banks (included in other assets)	Interest rate swaps on loans with correspondent banks (included in other assets)							Interest rate swaps on loans with correspondent banks (included in other assets)
Notional amount	Notional amount	$	0		$	137,890		Notional amount	$	93,433		$	0
Weighted average remaining term (years)	Weighted average remaining term (years)	—			7.2			Weighted average remaining term (years)	8.8			0.0
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	0		%	3.62		%	Pay fixed rate (weighted average)	2.86		%	0		%
Received variable rate (weighted average)	Received variable rate (weighted average)	0		%	3.83		%	Received variable rate (weighted average)	2.08		%	0		%
Estimated fair value	Estimated fair value	$	0		$	739		Estimated fair value	$	1,763		$	0

Interest rate swaps on loans with correspondent banks (included in other liabilities)	Interest rate swaps on loans with correspondent banks (included in other liabilities)							Interest rate swaps on loans with correspondent banks (included in other liabilities)
Notional amount	Notional amount	$	496,879		$	282,326		Notional amount	$	418,767		$	503,929
Weighted average remaining term (years)	Weighted average remaining term (years)	6.8			6.9			Weighted average remaining term (years)	6.0			6.8
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	3.90		%	4.48		%	Pay fixed rate (weighted average)	4.06		%	3.86		%
Received variable rate (weighted average)	Received variable rate (weighted average)	2.28		%	3.98		%	Received variable rate (weighted average)	2.21		%	2.26		%
Estimated fair value	Estimated fair value	$	(40,617)		$	(9,614)		Estimated fair value	$	(21,358)		$	(34,606)

Back to back interest rate swaps with loan customers (included in other liabilities)	Back to back interest rate swaps with loan customers (included in other liabilities)							Back to back interest rate swaps with loan customers (included in other liabilities)
Notional amount	Notional amount	$	0		$	137,890		Notional amount	$	93,433		$	0
Weighted average remaining term (years)	Weighted average remaining term (years)	—			7.2			Weighted average remaining term (years)	8.8			0.0
Received fixed rate (weighted average)	Received fixed rate (weighted average)	0		%	3.62		%	Received fixed rate (weighted average)	2.86		%	0		%
Pay variable rate (weighted average)	Pay variable rate (weighted average)	0		%	3.83		%	Pay variable rate (weighted average)	2.08		%	0		%
Estimated fair value	Estimated fair value	$	0		$	(739)		Estimated fair value	$	(1,763)		$	0

Back to back interest rate swaps with loan customers (included in other assets)	Back to back interest rate swaps with loan customers (included in other assets)							Back to back interest rate swaps with loan customers (included in other assets)
Notional amount	Notional amount	$	496,879		$	282,326		Notional amount	$	418,767		$	503,929
Weighted average remaining term (years)	Weighted average remaining term (years)	6.8			6.9			Weighted average remaining term (years)	6.0			6.8
Received fixed rate (weighted average)	Received fixed rate (weighted average)	3.90		%	4.48		%	Received fixed rate (weighted average)	4.06		%	3.86		%
Pay variable rate (weighted average)	Pay variable rate (weighted average)	2.28		%	3.98		%	Pay variable rate (weighted average)	2.21		%	2.26		%
Estimated fair value	Estimated fair value	$	40,617		$	9,614		Estimated fair value	$	21,358		$	34,606

3638

At ~~September~~June 30, ~~2020,~~2021, the Company had 1 risk participation ~~agreement~~agreements with an outside counterparty for an interest rate swap related to a loan in which it is a participant. The risk participation agreement provides credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. The fee received, less the estimate of the loss for credit exposure, was recognized in earnings at the time of the transaction. At ~~September~~June 30, 2021, the notional amount of the risk participation agreements sold was $111.4 million with a credit valuation adjustment of $64 thousand. At December 31, 2020, the notional amount of the risk participation agreement sold was ~~$62.8~~$112.8 million with a credit valuation adjustment of ~~$199~~$398 thousand.

As part of the overall liability management, the Company utilizes interest rate swap agreements to help manage interest rate risk positions. The notional amount of the interest rate swaps do not represent the amount exchanged by the parties. The exchange of cash flows is determined by reference to the notional amounts and the other terms of the interest rate swap agreements.

The Company had 1 existing interest rate swap agreement as of ~~September~~June 30, 2021 and December 31, 2020 with a notional amount of $100.0 million designated as cash flow hedges of certain LIBOR-based debt. The swap was entered into during the second quarter of 2020 and was determined to be fully effective during the period presented. The aggregate fair value of the swap is recorded in derivative liabilities with changes in fair value recorded in other comprehensive income. The gain or loss on the derivative is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified into interest expense and interest income in the period during which the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to interest rate swap derivatives will be reclassified to interest income and interest expense as interest payments are received or paid on the Company’s derivatives. The Company expects the hedge to remain fully effective during the remaining term of the swap. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company reclassified ~~$(21)~~$73 thousand and ~~$118~~$139 thousand, respectively, from accumulated other comprehensive income to interest ~~expense, respectively. There were 0 reclassifications~~expense. For the three and six months ended June 30, 2020, the Company reclassified $139 thousand from accumulated comprehensive income to interest ~~expense during three and nine months ended September 30, 2019.~~income.


		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
									(Dollars in thousands)
Interest rate swaps designated as cash flow hedge (included in other assets)								Interest rate swaps designated as cash flow hedge (included in other assets)
Notional amount								Notional amount	$	100,000		$	0
Weighted average remaining term (years)								Weighted average remaining term (years)	4.0			0.0
Received variable rate (weighted average)								Received variable rate (weighted average)	0.19		%	0		%
Pay fixed rate (weighted average)								Pay fixed rate (weighted average)	0.49		%	0		%
Estimated fair value								Estimated fair value	$	921		$	—
		(Dollars in thousands)
Interest rate swaps designated as cash flow hedge (included in other liabilities)	Interest rate swaps designated as cash flow hedge (included in other liabilities)							Interest rate swaps designated as cash flow hedge (included in other liabilities)
Notional amount	Notional amount	$	100,000		$	0		Notional amount	$	0		$	100,000
Weighted average remaining term (years)	Weighted average remaining term (years)	4.5			—			Weighted average remaining term (years)	0.0			4.3
Received variable rate (weighted average)	Received variable rate (weighted average)	0.40		%	0		%	Received variable rate (weighted average)	0		%	0.22		%
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	0.49		%	0		%	Pay fixed rate (weighted average)	0		%	0.49		%
Estimated fair value	Estimated fair value	$	(796)		$	0		Estimated fair value	$	0		$	(602)

The Company enters into various stand-alone mortgage-banking derivatives in order to hedge the risk associated with the fluctuation of interest rates. Changes in fair value are recorded as mortgage banking revenue. Residential mortgage loans funded with interest rate lock commitments and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. At ~~September~~June 30, ~~2020,~~2021, the Company had approximately ~~$31.7~~$26.2 million in interest rate lock commitments and total forward sales commitments for the future delivery of residential mortgage loans. At December 31, ~~2019,~~2020, the Company had approximately ~~$10.5~~$43.8 million in interest rate lock commitments and total forward sales commitments for the future delivery of residential mortgage loans.

The following table reflects the notional amount and fair value of mortgage banking derivatives for the dates indicated:


		As of September 30, 2020				As of December 31, 2019					As of June 30, 2021				As of December 31, 2020
		Notional Amount		Fair Value		Notional Amount		Fair Value			Notional Amount		Fair Value		Notional Amount		Fair Value
		(Dollars in thousands)									(Dollars in thousands)
Assets:	Assets:									Assets:
Interest rate lock commitments	Interest rate lock commitments	$	31,689	$	757	$	10,540	$	84	Interest rate lock commitments	$	23,792	$	213	$	37,507	$	679
Forward sale contracts related to mortgage banking	Forward sale contracts related to mortgage banking	$	0	$	0	$	4,532	$	11	Forward sale contracts related to mortgage banking	$	11,942	$	29	$	8,641	$	45

Liabilities:	Liabilities:									Liabilities:
Interest rate lock commitments	Interest rate lock commitments	$	0	$	0	$	0	$	0	Interest rate lock commitments	$	2,368	$	(4)	$	6,267	$	(31)
Forward sale contracts related to mortgage banking	Forward sale contracts related to mortgage banking	$	31,689	$	(445)	$	6,008	$	(16)	Forward sale contracts related to mortgage banking	$	14,217	$	(48)	$	35,133	$	(79)

3740

12. Commitments and Contingencies

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk that are used to meet the financing needs of customers. These financial instruments include commitments to extend credit, standby letters of credit, commercial letters of credit, and commitments to fund investments in affordable housing partnerships. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The Company’s exposure to credit loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as the Company does for extending loan facilities to customers. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on the Company’s credit evaluation of the counterparty. The types of collateral that the Company may hold can vary and may include accounts receivable, inventory, property, plant and equipment, and income-producing properties.

Commitments at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized as follows:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Commitments to extend credit	Commitments to extend credit	$	2,184,404	$	1,864,947	Commitments to extend credit	$	2,483,026	$	2,137,178
Standby letters of credit	Standby letters of credit	118,509		113,720		Standby letters of credit	115,629		108,834
Other letters of credit	Other letters of credit	32,228		37,627		Other letters of credit	55,609		40,508
Commitments to fund investments in affordable housing partnerships	Commitments to fund investments in affordable housing partnerships	16,975		28,481		Commitments to fund investments in affordable housing partnerships	10,654		15,148

In the normal course of business, the Company is involved in various legal claims. The Company has reviewed all legal claims against the Company with counsel and has taken into consideration the views of such counsel as to the potential outcome of the claims. Loss contingencies for all legal claims totaled ~~$1.4~~$25 thousand at June 30, 2021 and $1.3 million ~~at September 30, 2020 and $440 thousand~~ at December 31, ~~2019.~~2020. It is reasonably possible that the Company may incur losses in addition to the amounts currently accrued. However, at this time, the Company is unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages and involve claims that the Company believes has little to no merit. The Company has considered these and other possible loss contingencies and does not expect the amounts to be material to the consolidated financial statements.

3841

13. Goodwill, Intangible Assets, and Servicing Assets

Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. At December 31, ~~2019,~~2020, the Company assessed the qualitative factors related to intangible assets and goodwill for the year to determine whether it was more-likely-than-not that the fair value of the Company was less than its carrying amount. As the Company operates as single business unit, goodwill impairment is assessed based on the Company as a whole. Based on the analysis of these factors, management determined that it was more-likely-than-not that intangible assets were not impaired and that the fair value of the Company exceeded the carrying value. Goodwill is not amortized for book purposes and is not tax deductible.

Due to the recent COVID-19 pandemic, future expected economic performance has deteriorated substantially. In addition, U.S. equity markets experienced a significant decline since the first quarter of 2020. In line with these trends, the Company’s stock price also experienced a large reduction during the nine months ended September 30, 2020 where it continued to trade below the Company’s tangible book value. These factors contributed to the Company performing an interim goodwill impairment analysis during the third quarter of 2020. The Company determined that a Step 1 goodwill impairment analysis was warranted as of September 30, 2020. The Company performed a Step 1 fair value assessment and determined that goodwill was not impaired as ~~of September 30, 2020 as~~ the estimated fair value of the ~~reporting unit~~Company exceeded the book value. As the Company operates as a single ~~reporting~~business unit, ~~the fair value of~~goodwill impairment was assessed based on the Company as a ~~whole~~whole. Goodwill is not amortized for book purposes and is not tax deductible.

The carrying amount of the Company’s goodwill as of June 30, 2021 and December 31, 2020 was ~~estimated. Therefore, there~~$464.5 million. There was 0 impairment of goodwill recorded during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

~~The carrying amount of the Company’s goodwill as of September 30, 2020 and December 31, 2019 was $464.5 million.~~

Core deposit intangible assets are amortized over their estimated lives ~~which range from~~ ~~seven~~ toor ten years. Amortization expense related to core deposit intangible assets totaled ~~$531~~$510 thousand and ~~$557~~$532 thousand for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The amortization expense related to core deposit intangible assets totaled ~~$1.6~~$1.0 million and ~~$1.7~~$1.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The following table provides information regarding the core deposit intangibles at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


					As of September 30, 2020				As of December 31, 2019								As of June 30, 2021				As of December 31, 2020
Core Deposit Intangibles Related To:	Core Deposit Intangibles Related To:	Amortization Period	Gross Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization		Carrying Amount		Core Deposit Intangibles Related To:	Amortization Period	Gross Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization		Carrying Amount
			(Dollars in thousands)												(Dollars in thousands)
Center Financial acquisition		7 years	$	4,100	$	(4,100)	$	0	$	(4,100)	$	0
Pacific International Bank acquisition		7 years	604		(603)		1		(602)		2
Foster Bankshares acquisition	Foster Bankshares acquisition	10 years	2,763		(2,272)		491		(2,120)		643		Foster Bankshares acquisition	10 years	$	2,763	$	(2,413)	$	350	$	(2,322)	$	441
Wilshire Bancorp acquisition	Wilshire Bancorp acquisition	10 years	18,138		(8,391)		9,747		(6,950)		11,188		Wilshire Bancorp acquisition	10 years	18,138		(9,799)		8,339		(8,871)		9,267
Total	Total		$	25,605	$	(15,366)	$	10,239	$	(13,772)	$	11,833	Total		$	20,901	$	(12,212)	$	8,689	$	(11,193)	$	9,708

Servicing assets are recognized when SBA and residential mortgage loans are sold with the servicing retained by the Company and the related income is recorded as a component of gains on sales of loans. Servicing assets are initially recorded at fair value based on the present value of the contractually specified servicing fee, net of servicing costs, over the estimated life of the loan, using a discount rate. The Company’s servicing costs approximates the industry average servicing costs of 40 basis points. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Management periodically evaluates servicing assets for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on loan type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company did not have a valuation allowance on it servicing assets.

The changes in servicing assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	14,164	$	19,997	$	16,417	$	23,132	Balance at beginning of period	$	12,084	$	14,847	$	12,692	$	16,417
Additions through originations of servicing assets	Additions through originations of servicing assets	1,190		437		2,326		1,383		Additions through originations of servicing assets	737		759		1,329		1,136
Amortization	Amortization	(1,636)		(2,569)		(5,025)		(6,650)		Amortization	(1,255)		(1,442)		(2,455)		(3,389)

Balance at end of period	Balance at end of period	$	13,718	$	17,865	$	13,718	$	17,865	Balance at end of period	$	11,566	$	14,164	$	11,566	$	14,164

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were ~~$1.28~~$1.18 billion as of ~~September~~June 30, ~~2020~~2021 and ~~$1.35~~$1.23 billion as of December 31, ~~2019.~~2020.

The Company utilizes the discounted cash flow method to calculate the initial excess servicing assets. The inputs used in evaluating servicing assets for impairment at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are presented below.


		September 30, 2020	December 31, 2019		June 30, 2021	December 31, 2020
SBA Servicing Assets:	SBA Servicing Assets:			SBA Servicing Assets:
Weighted-average discount rate	Weighted-average discount rate	10.21%	9.19%	Weighted-average discount rate	11.72%	9.93%
Constant prepayment rate	Constant prepayment rate	14.56%	14.17%	Constant prepayment rate	14.23%	14.40%
Mortgage Servicing Assets:	Mortgage Servicing Assets:			Mortgage Servicing Assets:
Weighted-average discount rate	Weighted-average discount rate	8.38%	9.25%	Weighted-average discount rate	8.51%	8.26%
Constant prepayment rate	Constant prepayment rate	8.55%	9.57%	Constant prepayment rate	9.02%	8.63%

4043

14. Income Taxes

For the three months ended ~~September~~June 30, ~~2020,~~2021, the Company had an income tax provision totaling ~~$9.3~~$17.8 million on pretax income of ~~$39.7~~$71.5 million, representing an effective tax rate of ~~23.28%~~24.84%, compared with an income tax provision of ~~$14.6~~$9.8 million on pretax income of ~~$57.2~~$36.5 million, representing an effective tax rate of ~~25.48%~~26.75% for the three months ended ~~September~~June 30, ~~2019.~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company had an income tax provision totaling ~~$25.5~~$31.7 million on pretax income of ~~$108.7~~$129.2 million, representing an effective tax rate of ~~23.45%~~24.56%, compared with an income tax provision of ~~$43.3~~$16.2 million on pretax income of ~~$171.3~~$68.9 million, representing an effective tax rate of ~~25.26%~~23.55% for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~reduction~~increase in effective tax rate for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~periods 2019~~the six months ended June 30, 2020 was primarily due to affordable housing partnership investment tax credits benefit having a ~~larger~~lower effect on ~~lower~~larger annual projected pre-tax book income.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as state income taxes. The Company had total unrecognized tax benefits of ~~$68 thousand~~$2.8 million at ~~September~~June 30, ~~2020~~2021 and ~~$141 thousand at~~ December 31, ~~2019,~~2020, that relate to uncertainties associated with federal and state income tax matters. The Company recognizes interest and penalties on income tax matters in income tax expense. The Company recorded approximately ~~$17~~$323 thousand and ~~$34~~$276 thousand, for accrued interest (0 portion was related to penalties) at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Management believes it is reasonably possible that the unrecognized tax benefits may decrease by ~~$68~~$902 thousand in the next twelve months due to a settlement with the state tax authorities.

The statute of limitations for the assessment of income taxes related to the consolidated federal income tax return is closed for all tax years up to and including ~~2015.~~2016. The expiration of the statute of limitations for the assessment of income and franchise taxes related to the various state income and franchise tax returns varies by state. During 2020, New York State Department of Taxation and Finance concluded the 2016, 2017, and 2018 examination and State of Ohio Department of Taxation concluded the examination for 2015, 2016, 2017, 2018, and 2019 tax years with no material adjustments. The Company is currently under examination by the New York City Department of Finance for the 2016, 2017 and 2018 tax years. While the outcome of the ~~examinations~~examination is unknown, the Company expects no material adjustments.

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities (without regard to certain changes to deferred taxes). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that a valuation allowance for deferred tax assets was not required as of ~~September~~June 30, ~~2020.~~

2021.

4144

15. Fair Value Measurements

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. There are three levels of inputs that may be used to measure fair value. The fair value inputs of the instruments are classified and disclosed in one of the following categories pursuant to ASC 820:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. The quoted price shall not be adjusted for any blockage factor (i.e., size of the position relative to trading volume).

Level 2 - Pricing inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Fair value is determined through the use of models or other valuation methodologies, including the use of pricing matrices. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 - Pricing inputs are unobservable for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company uses the following methods and assumptions in estimating fair value disclosures for financial instruments. Financial assets and liabilities recorded at fair value on a recurring and non-recurring basis are listed as follows:

Securities Available for Sale

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair values of the Company’s Level 3 securities available for sale were measured using an income approach valuation technique. The primary inputs and assumptions used in the fair value measurement was derived from the security’s underlying collateral, which included discount rate, prepayment speeds, payment delays, and an assessment of the risk of default of the underlying collateral, among other factors. Significant increases or decreases in any of the inputs or assumptions could result in a significant increase or decrease in the fair value measurement.

Equity Investments With Readily Determinable Fair Value

The fair value of the Company’s equity investments with readily determinable fair value is comprised of mutual funds. The fair value for these investments is obtained from unadjusted quoted prices in active markets on the date of measurement and is therefore classified as Level 1.

Interest Rate Swaps

The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2.

Mortgage Banking Derivatives

Mortgage banking derivative instruments consist of interest rate lock commitments and forward sale contracts that trade in liquid markets. The fair value is based on the prices available from third party investors. Due to the observable nature of the inputs used in deriving the fair value, the valuation of mortgage banking derivatives is classified as Level 2.

4245

Other Derivatives

Other derivatives consist of interest rate swaps designated as cash flow hedges and risk participation agreements. The fair values of these other derivative financial instruments are based upon the estimated amount the Company would receive or pay to terminate the instruments, taking into account current interest rates and, when appropriate, the current credit worthiness of the counterparties. Interest rate swaps designated as cash flow hedges are classified within Level 2. Credit derivatives such as risk participation agreements are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore is classified as Level 3.

Collateral Dependent Loans

The fair values of collateral dependent loans are generally measured for ACL using the practical expedients permitted by ASC 326-20-35-5 including collateral dependent loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, less costs to sell of 8.5%. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and income approach. Adjustment may be made in the appraisal process by the independent appraiser to adjust for differences between the comparable sales and income data available for similar loans and the underlying collateral. For commercial and industrial and asset backed loans, independent valuations may include a 20-60% discount for eligible accounts receivable and a 50-70% discount for inventory. These result in a Level 3 classification.

OREO

OREO is fair valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell of up to 8.5% and result in a Level 3 classification of the inputs for determining fair value. OREO is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted to lower of cost or market accordingly, based on the same factors identified above.

Loans Held For Sale

Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments from investors, or based on recent comparable sales (Level 2 inputs), if available, and if not available, are based on discounted cash flows using current market rates applied to the estimated life and credit risk (Level 3 inputs) or may be assessed based upon the fair value of the collateral, which is obtained from recent real estate appraisals (Level 3 inputs). These appraisals may utilize a single valuation approach or a combination of approaches including the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

4346

Assets and liabilities measured at fair value on a recurring basis are summarized below:


				Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
		September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			June 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)									(Dollars in thousands)
Assets:	Assets:									Assets:
Securities available for sale:	Securities available for sale:									Securities available for sale:
U.S. Government agency and U.S. Government sponsored enterprises:	U.S. Government agency and U.S. Government sponsored enterprises:									U.S. Government agency and U.S. Government sponsored enterprises:

Collateralized mortgage obligations	Collateralized mortgage obligations	$	793,596	$	0	$	793,596	$	0	Collateralized mortgage obligations	$	864,576	$	0	$	864,576	$	0
Mortgage-backed securities:	Mortgage-backed securities:									Mortgage-backed securities:
Residential	Residential	676,739		0		676,739		0		Residential	660,202		0		660,202		0
Commercial	Commercial	500,724		0		500,724		0		Commercial	555,613		0		555,613		0
Asset-backed securities										Asset-backed securities	62,369		0		62,369		0
Corporate securities	Corporate securities	3,888		0		3,888		0		Corporate securities	22,614		0		22,614		0
Municipal securities	Municipal securities	86,044		0		84,996		1,048		Municipal securities	108,796		0		107,738		1,058
Equity investments with readily determinable fair value	Equity investments with readily determinable fair value	22,665		22,665		0		0		Equity investments with readily determinable fair value	27,205		27,205		0		0
Interest rate swaps	Interest rate swaps	40,617		0		40,617		0		Interest rate swaps	23,121		0		23,121		0
Mortgage banking derivatives	Mortgage banking derivatives	757		0		757		0		Mortgage banking derivatives	242		0		242		0
Other derivatives										Other derivatives	921		0		921		0

Liabilities:	Liabilities:									Liabilities:
Interest rate swaps	Interest rate swaps	40,617		0		40,617		0		Interest rate swaps	23,121		0		23,121		0
Mortgage banking derivatives	Mortgage banking derivatives	445		0		445		0		Mortgage banking derivatives	52		0		52		0
Other derivatives	Other derivatives	995		0		796		199		Other derivatives	64		0		0		64

4447


				Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
		December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)									(Dollars in thousands)
Assets:	Assets:									Assets:
Securities available for sale:	Securities available for sale:									Securities available for sale:
U.S. Government agency and U.S. Government sponsored enterprises:	U.S. Government agency and U.S. Government sponsored enterprises:									U.S. Government agency and U.S. Government sponsored enterprises:

Collateralized mortgage obligations	Collateralized mortgage obligations	$	736,655	$	0	$	736,655	$	0	Collateralized mortgage obligations	$	1,001,317	$	0	$	1,001,317	$	0
Mortgage-backed securities:	Mortgage-backed securities:									Mortgage-backed securities:
Residential	Residential	352,897		0		352,897		0		Residential	681,013		0		681,013		0
Commercial	Commercial	552,124		0		552,124		0		Commercial	507,879		0		507,879		0
Corporate securities	Corporate securities	4,200		0		4,200		0		Corporate securities	6,134		0		6,134		0
Municipal securities	Municipal securities	70,111		0		69,035		1,076		Municipal securities	89,268		0		88,246		1,022
Equity investments with readily determinable fair value	Equity investments with readily determinable fair value	22,123		22,123		0		0		Equity investments with readily determinable fair value	27,611		27,611		0		0
Interest rate swaps	Interest rate swaps	10,353		0		10,353		0		Interest rate swaps	34,606		0		34,606		0
Mortgage banking derivatives	Mortgage banking derivatives	95		0		95		0		Mortgage banking derivatives	724		0		724		0

Liabilities:	Liabilities:									Liabilities:
Interest rate swaps	Interest rate swaps	10,353		0		10,353		0		Interest rate swaps	34,606		0		34,606		0
Mortgage banking derivatives	Mortgage banking derivatives	16		0		16		0		Mortgage banking derivatives	110		0		110		0
Other derivatives										Other derivatives	1,000		0		602		398

There were no transfers between Level 1, 2, and 3 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

The table below presents a reconciliation and income statement classification of gains (losses) for ~~all assets~~our municipal security and risk participation agreements measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(Dollars in thousands)
Beginning Balance $ 1,066 $ 1,087 $ 1,076 $ 1,059
Change in fair value included in other comprehensive income (loss) (18) 21 (28) 49
Ending Balance $ 1,048 $ 1,108 $ 1,048 $ 1,108


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Dollars in thousands)
Municipal securities:
Beginning Balance	$	1,065	$	1,079	$	1,022	$	1,076



Change in fair value included in other comprehensive income (loss)	(7)		(13)		36		(10)
Ending Balance	$	1,058	$	1,066	$	1,058	$	1,066

Risk participation agreements:
Beginning Balance	$	95	$	0	$	398	$	0
Change in fair value included in income	(31)		223		(334)		223
Ending Balance	$	64	$	223	$	64	$	223

4548

The Company measures certain assets at fair value on a non-recurring basis including collateral dependent loans, ~~(excludes PCI loans at December 31, 2019),~~ loans held for sale, and OREO. These fair value adjustments result from individually evaluated ACL recognized during the period, application of the lower of cost or fair value on loans held for sale, and the application of fair value less cost to sell on OREO.

Assets measured at fair value on a non-recurring basis are summarized below:


				Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
		September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			June 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)									(Dollars in thousands)
Assets:	Assets:									Assets:
Collateral dependent loans at fair value:	Collateral dependent loans at fair value:									Collateral dependent loans at fair value:
Real estate loans	Real estate loans	$	33,012	$	0	$	0	$	33,012	Real estate loans	$	50,593	$	0	$	0	$	50,593
Commercial business	Commercial business	9,876		0		0		9,876		Commercial business	3,601		0		0		3,601

Consumer		11		0		0		11

OREO	OREO	17,549		0		0		17,549		OREO	15,759		0		0		15,759


				Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
		December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)									(Dollars in thousands)
Assets:	Assets:									Assets:
Collateral dependent loans at fair value:	Collateral dependent loans at fair value:									Collateral dependent loans at fair value:
Real estate loans	Real estate loans	$	9,519	$	0	$	0	$	9,519	Real estate loans	$	21,688	$	0	$	0	$	21,688
Commercial business	Commercial business	8,942		0		0		8,942		Commercial business	7,694		0		0		7,694

OREO	OREO	19,086		0		0		19,086		OREO	19,260		0		0		19,260

For assets measured at fair value on a non-recurring basis, the total net ~~gains (losses),~~losses, which include charge offs, recoveries, recorded ACL, valuations, and recognized gains and losses on sales are summarized below:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Assets:	Assets:									Assets:
Collateral dependent loans at fair value:	Collateral dependent loans at fair value:									Collateral dependent loans at fair value:
Real estate loans	Real estate loans	$	(5,951)	$	(891)	$	(8,108)	$	682	Real estate loans	$	(25,411)	$	(2,746)	$	(27,738)	$	(5,067)
Commercial business	Commercial business	(2,902)		1,630		(5,470)		(2,270)		Commercial business	(2,151)		(3,178)		(2,151)		(5,746)

Consumer		0		(276)		0		(904)
Loans held for sale, net		0		(599)		0		(599)

OREO	OREO	(1,682)		1,277		(4,118)		1,112		OREO	(154)		(1,435)		(323)		(2,779)

4649

Fair Value of Financial Instruments

Carrying amounts and estimated fair values of financial instruments, not previously presented, at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


		September 30, 2020						June 30, 2021
		Carrying Amount		Estimated Fair Value		Fair Value Measurement Using		Carrying Amount		Estimated Fair Value		Fair Value Measurement Using
		(Dollars in thousands)						(Dollars in thousands)
Financial Assets:	Financial Assets:						Financial Assets:
Cash and cash equivalents	Cash and cash equivalents	$	629,133	$	629,133	Level 1	Cash and cash equivalents	$	836,957	$	836,957	Level 1
Interest bearing deposits in other financial institutions	Interest bearing deposits in other financial institutions	30,345		30,391		Level 2	Interest bearing deposits in other financial institutions	18,268		18,283		Level 2
Equity investments without readily determinable fair values	Equity investments without readily determinable fair values	27,045		27,045		Level 2	Equity investments without readily determinable fair values	31,827		31,827		Level 2
Loans held for sale	Loans held for sale	9,170		9,420		Level 2	Loans held for sale	54,245		57,365		Level 2
Loans receivable—net	Loans receivable—net	12,940,376		12,958,185		Level 3	Loans receivable—net	13,234,849		13,236,867		Level 3

Accrued interest receivable	Accrued interest receivable	57,989		57,989		Level 2/3	Accrued interest receivable	51,886		51,886		Level 2/3
Servicing assets, net	Servicing assets, net	13,718		16,461		Level 3	Servicing assets, net	11,566		14,438		Level 3
Customers’ liabilities on acceptances	Customers’ liabilities on acceptances	880		880		Level 2	Customers’ liabilities on acceptances	916		916		Level 2
Financial Liabilities:	Financial Liabilities:						Financial Liabilities:
Noninterest bearing deposits	Noninterest bearing deposits	$	4,488,529	$	4,488,529	Level 2	Noninterest bearing deposits	$	5,638,115	$	5,638,115	Level 2
Saving and other interest bearing demand deposits	Saving and other interest bearing demand deposits	5,072,836		5,072,836		Level 2	Saving and other interest bearing demand deposits	6,095,348		6,095,348		Level 2
Time deposits	Time deposits	4,446,991		4,460,696		Level 2	Time deposits	2,992,767		2,996,197		Level 2
FHLB advances	FHLB advances	200,000		204,938		Level 2	FHLB advances	200,000		203,251		Level 2
Convertible notes, net	Convertible notes, net	203,270		181,613		Level 1	Convertible notes, net	215,739		214,238		Level 1
Subordinated debentures	Subordinated debentures	103,889		93,804		Level 2	Subordinated debentures	104,762		112,429		Level 2
Accrued interest payable	Accrued interest payable	21,991		21,991		Level 2	Accrued interest payable	4,946		4,946		Level 2
Acceptances outstanding	Acceptances outstanding	880		880		Level 2	Acceptances outstanding	916		916		Level 2

		December 31, 2019						December 31, 2020
		Carrying Amount		Estimated Fair Value		Fair Value Measurement Using		Carrying Amount		Estimated Fair Value		Fair Value Measurement Using
		(Dollars in thousands)						(Dollars in thousands)
Financial Assets:	Financial Assets:						Financial Assets:
Cash and cash equivalents	Cash and cash equivalents	$	698,567	$	698,567	Level 1	Cash and cash equivalents	$	350,579	$	350,579	Level 1
Interest bearing deposits in other financial institutions	Interest bearing deposits in other financial institutions	29,162		29,235		Level 2	Interest bearing deposits in other financial institutions	28,642		28,669		Level 2
Equity investments without readily determinable fair values	Equity investments without readily determinable fair values	26,967		26,967		Level 2	Equity investments without readily determinable fair values	32,088		32,088		Level 2
Loans held for sale	Loans held for sale	54,271		56,011		Level 2	Loans held for sale	17,743		18,288		Level 2
Loans receivable—net	Loans receivable—net	12,181,863		12,143,727		Level 3	Loans receivable—net	13,356,472		13,428,706		Level 3

Accrued interest receivable	Accrued interest receivable	30,772		30,772		Level 2/3	Accrued interest receivable	59,430		59,430		Level 2/3
Servicing assets, net	Servicing assets, net	16,417		18,966		Level 3	Servicing assets, net	12,692		15,785		Level 3
Customers’ liabilities on acceptances	Customers’ liabilities on acceptances	1,117		1,117		Level 2	Customers’ liabilities on acceptances	1,184		1,184		Level 2
Financial Liabilities:	Financial Liabilities:						Financial Liabilities:
Noninterest bearing deposits	Noninterest bearing deposits	$	3,108,687	$	3,108,687	Level 2	Noninterest bearing deposits	$	4,814,254	$	4,814,254	Level 2
Saving and other interest bearing demand deposits	Saving and other interest bearing demand deposits	4,259,707		4,259,707		Level 2	Saving and other interest bearing demand deposits	5,533,183		5,533,183		Level 2
Time deposits	Time deposits	5,158,970		5,182,405		Level 2	Time deposits	3,986,475		3,992,973		Level 2
FHLB advances	FHLB advances	625,000		628,903		Level 2	FHLB advances	250,000		254,456		Level 2
Convertible notes, net	Convertible notes, net	199,458		206,210		Level 1	Convertible notes, net	204,565		201,731		Level 1
Subordinated debentures	Subordinated debentures	103,035		114,690		Level 2	Subordinated debentures	104,178		98,948		Level 2
Accrued interest payable	Accrued interest payable	33,810		33,810		Level 2	Accrued interest payable	14,706		14,706		Level 2
Acceptances outstanding	Acceptances outstanding	1,117		1,117		Level 2	Acceptances outstanding	1,184		1,184		Level 2

4750

The Company measures assets and liabilities for its fair value disclosures based on an exit price notion. Although the exit price notion represents the value that would be received to sell an asset or paid to transfer a liability, the actual price received for a sale of assets or paid to transfer liabilities could be different from exit price disclosed. The methods and assumptions used to estimate fair value are described as follows:

The carrying amount is the estimated fair value for cash and cash equivalents, savings and other interest bearing demand deposits, equity investments without readily determinable fair values, customer’s and Bank’s liabilities on acceptances, noninterest bearing deposits, short-term debt, secured borrowings and variable rate loans or deposits that reprice frequently and fully. The fair value of loans is determined through a discounted cash flow analysis which incorporates probability of default and loss given default rates on an individual loan basis. The discount rate is based on the LIBOR Swap Rate for fixed rate loans, while variable loans start with the corresponding index rate and an adjustment was made on certain loans which considered factors such as servicing costs, capital charges, duration, asset type incremental costs, and use of projected cash flows. Residential real estate loans fair values include Fannie Mae and Freddie Mac prepayment speed assumptions or a third party index based on historical prepayment speeds. Fair value of time deposits is based discounted cash flow analysis using recent issuance rates over the prior three months and a market rate analysis of recent offering rates for retail products. Wholesale time deposits fair values incorporate brokered time deposit offering rates. The fair value of the Company’s debt is based on current rates for similar financing. Fair value for the Company’s convertible notes is based on the actual last traded price of the notes. The fair value of commitments to fund loans represents fees currently charged to enter into similar agreements with similar remaining maturities and is not presented herein. The fair value of these financial instruments is not material to the consolidated financial statements.

4851

16. Stockholders’ Equity

Total stockholders’ equity at ~~September~~June 30, ~~2020~~2021 was ~~$2.04~~$2.09 billion, compared to ~~$2.04~~$2.05 billion at December 31, ~~2019.~~2020.

In March 2020, the Company completed the $50.0 million repurchase plan though the repurchase of 2,716,034 shares of common stock totaling $36.2 million. There were 0 shares repurchased during the three months ended ~~September~~June 30, ~~2020.~~2021. As of ~~September~~June 30, ~~2020,~~2021, the Company had repurchased a total of 12,661,581 shares of its common stock totaling $200.0 million as part of all previous repurchase programs that were authorized by the Company’s Board of Directors.

~~The~~For the three months ended June 30, 2021 and 2020, the Company paid dividends of $0.14 per common ~~share for both the third quarter of 2020 and 2019.~~share. For both the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company paid dividends of ~~$0.42~~$0.28 per common share.

The following table presents the quarterly changes to accumulated other comprehensive income ~~(loss)~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended, Nine Months Ended,
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
(Dollars in thousands)
Balance at beginning of period $ 38,149 $ 7,423 $ 9,149 $ (32,705)
Unrealized gain on securities available for sale (303) 14,160 41,820 71,349
Unrealized loss on interest rate swaps used for cash flow hedge 54 0 (796) 0
Reclassification adjustments for net gains realize in net income (7,510) (153) (7,649) (282)
Tax effect 2,292 (4,157) (9,842) (21,089)
Total other comprehensive income (loss) $ (5,467) $ 9,850 $ 23,533 $ 49,978
Balance at end of period $ 32,682 $ 17,273 $ 32,682 $ 17,273


	Three Months Ended,				Six Months Ended,
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
	(Dollars in thousands)
Balance at beginning of period	$	5,223	$	36,449	$	32,753	$	9,149

Unrealized net gains (losses) on securities available for sale	14,186		3,270		(26,617)		42,123
Unrealized net gains (losses) on interest rate swaps used for cash flow hedge	(297)		(711)		1,523		(711)
Reclassification adjustments for net losses (gains) realized in net income	73		(139)		139		(139)
Tax effect	(4,134)		(720)		7,253		(12,273)
Other comprehensive income (loss), net of tax	$	9,828	$	1,700	$	(17,702)	$	29,000
Balance at end of period	$	15,051	$	38,149	$	15,051	$	38,149

Reclassifications for net gains realized in net income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 relate to net ~~gains from the sale of investment securities and~~ gains on interest rate swaps used for cash flow hedges. Gains on interest rate swaps are recorded in noninterest income under other income and fee in the Consolidated Statements of Income. Reclassifications for net gains realized in net income for the three and nine months ended September 30, 2019 relate to investment securities sold and is recorded in net gains on sales of securities available for sale in the Consolidated Statements of Income.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 and 2019,~~2021, the Company recorded reclassification adjustments of ~~$7.5 million~~$73 thousand and ~~$7.6 million,~~$139 thousand, respectively from other comprehensive income to ~~net gains on sales of securities available for sale and gains and~~ losses from cash flow hedge relationships. For the three and ~~nine~~six months ended ~~September~~and June 30, ~~2019,~~2020, the Company recorded reclassification adjustments of ~~$153~~$139 thousand ~~and $282 thousand, respectively,~~ from accumulated other comprehensive income to ~~net~~ gains ~~on sales of securities available for sale.~~from cash flow hedge relationships.

4952

17. Stock-Based Compensation

~~On May 23,~~In 2019, the Company’s stockholders approved the 2019 stock-based incentive plan (the “2019 Plan”), which provides for grants of stock options, SARs, restricted stock, performance shares, and performance units to non-employee directors, employees, and potentially consultants of the Company. Stock options may be either incentive stock options (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”). The 2019 Plan replaces the 2016 Plan and stipulates that no further awards shall be made under prior plans. Therefore, future awards will only be issued from the 2019 Plan.

The 2019 Plan provides the Company flexibility to (i) attract and retain qualified non-employee directors, executives, other key employees, and potentially consultants with appropriate equity-based awards to; (ii) motivate high levels of performance; (iii) recognize employee and potentially consultants’ contributions to the Company’s success; and (iv) align the interests of the participants with those of the Company’s stockholders. The 2019 Plan initially had 4,400,000 shares that were available for grant to participants. The exercise price for shares under an ISO may not be less than 100% of fair market value on the date the award is granted under the Code. Similarly, under the terms of the 2019 Plan, the exercise price for SARs and NQSOs may not be less than 100% of fair market value on the date of grant. Performance units are awarded to participants at the market price of the Company’s common stock on the date of award (after the lapse of the restriction period and the attainment of the performance criteria). All options not exercised generally expire 10 years after the date of grant.

ISOs, SARs, and NQSOs have vesting periods of three to five years and have 10-year contractual terms. Restricted stock, performance shares, and performance units are granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recognized over the vesting period.

Under the 2019 Plan, ~~2,933,222~~2,322,103 shares were available for future grants as of ~~September~~June 30, ~~2020.~~2021.

With the exception of the shares underlying stock options and restricted stock awards, the Board of Directors may choose to settle the awards by paying the equivalent cash value or by delivering the appropriate number of shares.

The following is a summary of the Company’s stock option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


		Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value			Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(Dollars in thousands)							(Dollars in thousands)
Outstanding - January 1, 2020		935,211	$	15.34
Outstanding - January 1, 2021								Outstanding - January 1, 2021	851,580	$	15.25
Granted	Granted	0	0					Granted	0	0
Exercised	Exercised	0	0					Exercised	0	0
Expired	Expired	(21,495)	16.13					Expired	(16,703)	17.12
Forfeited	Forfeited	(4,000)	17.18					Forfeited	0	0
Outstanding - September 30, 2020		909,716	$	15.32	4.73	$	267
Options exercisable - September 30, 2020		867,716	$	15.23	4.67	$	267
Outstanding - June 30, 2021								Outstanding - June 30, 2021	834,877	$	15.22	3.91	$	959
Options exercisable - June 30, 2021								Options exercisable - June 30, 2021	796,877	$	15.12	3.85	$	959

The following is a summary of the Company’s restricted stock and performance unit activity for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


		Number of Shares	Weighted-Average Grant Date Fair Value			Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding (unvested) - January 1, 2020		1,035,744	$	14.08
Outstanding (unvested) - January 1, 2021					Outstanding (unvested) - January 1, 2021	1,718,838	$	10.73
Granted	Granted	1,160,202	9.16		Granted	652,909	15.65
Vested	Vested	(341,740)	14.97		Vested	(604,703)	11.75
Forfeited	Forfeited	(121,391)	12.05		Forfeited	(135,053)	13.18
Outstanding (unvested) - September 30, 2020		1,732,815	$	10.75
Outstanding (unvested) - June 30, 2021					Outstanding (unvested) - June 30, 2021	1,631,991	$	12.12

The total fair value of restricted stock and performance units vested for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$3.3~~$9.2 million and ~~$1.6 million,~~$343 thousand, respectively.

5053

~~In 2017, the~~The Company ~~adopted~~maintains the Hope Employee Stock Purchase Plan (“ESPP”), which allows eligible employees to purchase the Company’s common shares through payroll deductions which build up between the offering date and the purchase date. At the purchase date, the Company uses the accumulated funds to purchase shares of the Company’s common stock on behalf of the participating employees at a 10% discount to the closing price of the Company’s common shares. The closing price is the lower of either the closing price on the first day of the offering period or the closing price on the purchase date. The dollar amount of common shares purchased under the ESPP must not exceed 20% of the participating employee’s base salary, subject to a cap of $25 thousand in stock value based on the grant date. The ESPP is considered compensatory under GAAP and compensation expense for the ESPP is recognized as part of the Company’s stock-based compensation expense. The compensation expense for the ESPP during the three months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$108~~$37 thousand and ~~$57~~$26 thousand, respectively. The compensation expense for the ESPP during the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$205~~$259 thousand and ~~$182~~$97 thousand, respectively.

The total amounts charged against income related to stock-based payment arrangements, including the ESPP, were ~~$2.2~~$2.1 million and ~~$1.6~~$1.8 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, $6.0~~$4.6 million and ~~$3.9~~$3.8 million, respectively, of stock-based payment arrangements were charged against income. The income tax benefit recognized was approximately ~~$507~~$514 thousand and ~~$400~~$485 thousand for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The income tax benefit recognized for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, was approximately ~~$1.4~~$1.1 million and ~~$984~~$896 thousand, respectively.

At ~~September~~June 30, ~~2020,~~2021, the unrecognized compensation expense related to non-vested stock option grants was ~~$125~~$21 thousand and is expected to be recognized over a weighted average vesting period of ~~0.92~~0.17 years. Unrecognized compensation expense related to non-vested restricted stock and performance units was ~~$10.7~~$13.5 million and is expected to be recognized over a weighted average vesting period of ~~1.75~~2.07 years.

5154

18. Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material and adverse effect on the Company’s and the Bank’s business, financial condition and results of operation, such as restrictions on growth or the payment of dividends or other capital distributions or management fees. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, the federal bank regulatory agencies adopted final regulations, which revised their risk-based and leverage capital requirements for banking organizations to meet requirements of the Dodd-Frank Act and to implement the Basel III international agreements reached by the Basel Committee. The final rules became effective for the Company and the Bank on January 1, 2015 and were subject to a phase-in period through January 1, 2019. The final rules that had an impact on the Company and the Bank include:

•An increase in the minimum Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets;

•A new category and a required 4.50% of risk-weighted assets ratio was established for “Common Equity Tier 1” as a subset of Tier 1 capital limited to common equity;

•A minimum non-risk-based leverage ratio was set at 4.00%, eliminating a 3.00% exception for higher rated banks;

•Changes in the permitted composition of Tier 1 capital to exclude trust preferred securities, mortgage servicing rights and certain deferred tax assets and include unrealized gains and losses on available for sale debt and equity securities;

•The risk-weights of certain assets for purposes of calculating the risk-based capital ratios are changed for high volatility commercial real estate acquisition, development and construction loans, certain past due non-residential mortgage loans and certain mortgage-backed and other securities exposures; and

•A ~~new additional~~ capital conservation buffer of 2.5% of risk weighted assets over each of the required capital ratios was added and must be met to avoid limitations on the ability of the Bank to pay dividends, repurchase shares, or pay discretionary bonuses. As of ~~September~~June 30, ~~2020,~~2021, the capital ratios for the Company and the Bank were in excess of all regulatory minimum capital ratios with the addition of the conservation buffer.

~~With the adoption of the~~ ~~CECL standard~~ onOn January 1, 2020, the Company ~~recorded~~adopted ASU 2016-13 and implemented the CECL methodology. In response to the COVID-19 pandemic, federal regulatory agencies published a ~~Day~~final rule that provides the option to delay the cumulative effect of the day 1 ~~adjustment, net~~impact of ~~taxes to retained earnings totaling $18.8 million. In accordance~~CECL adoption on regulatory capital, along with 25% of the ~~revised~~change in the adjusted allowance for credit losses (as computed for regulatory ~~CECL transition guidance, the~~capital purposes which excludes PCD loans), for two years, followed by a three-year phase-in period. The Company has elected ~~to defer~~ the ~~impact of~~five-year transition period consistent with the ~~adoption of CECL for two years, at which time~~final rule issued by the ~~impact will be phased-in over a three year period.~~federal regulatory agencies.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the most recent regulatory notification categorized the Bank as “well-capitalized” under the regulatory framework for prompt corrective action. To generally be categorized as “well-capitalized”, the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the most recent notification from regulators that management believes has changed the institution’s category.

5255

The Company’s and the Bank’s levels and ratios are presented in the tables below for the dates ~~indicated:~~indicated and include the effects of the Company’s election to utilize the five-year transition described above:


		Actual				Required For Capital Adequacy Purposes				Minimum Capital Adequacy With Capital Conservation Buffer				Required To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				Required For Capital Adequacy Purposes				Minimum Capital Adequacy With Capital Conservation Buffer				Required To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2020		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2021																		As of June 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)																	(Dollars in thousands)
Common equity Tier 1 capital (to risk weighted assets):	Common equity Tier 1 capital (to risk weighted assets):																	Common equity Tier 1 capital (to risk weighted assets):
Company	Company	$	1,554,838	11.36	%	$	616,132	4.50	%	$	958,428	7.00	%	N/A		N/A		Company	$	1,642,492	11.44	%	$	645,961	4.50	%	$	1,004,828	7.00	%	N/A		N/A
Bank	Bank	$	1,835,738	13.41	%	$	616,072	4.50	%	$	958,334	7.00	%	$	889,882	6.50	%	Bank	$	1,932,546	13.47	%	$	645,615	4.50	%	$	1,004,289	7.00	%	$	932,555	6.50	%
Total capital (to risk-weighted assets):	Total capital (to risk-weighted assets):																	Total capital (to risk-weighted assets):
Company	Company	$	1,806,112	13.19	%	$	1,095,346	8.00	%	$	1,437,641	10.50	%	N/A		N/A		Company	$	1,888,996	13.16	%	$	1,148,375	8.00	%	$	1,507,242	10.50	%	N/A		N/A
Bank	Bank	$	1,987,025	14.51	%	$	1,095,239	8.00	%	$	1,437,501	10.50	%	$	1,369,049	10.00	%	Bank	$	2,078,189	14.49	%	$	1,147,759	8.00	%	$	1,506,434	10.50	%	$	1,434,699	10.00	%
Tier 1 capital (to risk-weighted assets):	Tier 1 capital (to risk-weighted assets):																	Tier 1 capital (to risk-weighted assets):
Company	Company	$	1,654,826	12.09	%	$	821,509	6.00	%	$	1,163,805	8.50	%	N/A		N/A		Company	$	1,743,353	12.14	%	$	861,281	6.00	%	$	1,220,148	8.50	%	N/A		N/A
Bank	Bank	$	1,835,738	13.41	%	$	821,429	6.00	%	$	1,163,692	8.50	%	$	1,095,239	8.00	%	Bank	$	1,932,546	13.47	%	$	860,820	6.00	%	$	1,219,494	8.50	%	$	1,147,759	8.00	%
Tier 1 capital (to average assets):	Tier 1 capital (to average assets):																	Tier 1 capital (to average assets):
Company	Company	$	1,654,826	10.02	%	$	660,470	4.00	%	N/A		N/A		N/A		N/A		Company	$	1,743,353	10.43	%	$	668,540	4.00	%	N/A		N/A		N/A		N/A
Bank	Bank	$	1,835,738	11.12	%	$	660,464	4.00	%	N/A		N/A		$	825,580	5.00	%	Bank	$	1,932,546	11.56	%	$	668,416	4.00	%	N/A		N/A		$	835,520	5.00	%


		Actual				Required For Capital Adequacy Purposes				Minimum Capital Adequacy With Capital Conservation Buffer				Required To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				Required For Capital Adequacy Purposes				Minimum Capital Adequacy With Capital Conservation Buffer				Required To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2019		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2020																		As of December 31, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)																	(Dollars in thousands)
Common equity Tier 1 capital (to risk weighted assets):	Common equity Tier 1 capital (to risk weighted assets):																	Common equity Tier 1 capital (to risk weighted assets):
Company	Company	$	1,553,697	11.76	%	$	594,373	4.50	%	$	924,581	7.00	%	N/A		N/A		Company	$	1,568,508	10.94	%	$	645,366	4.50	%	$	1,003,902	7.00	%	N/A		N/A
Bank	Bank	$	1,811,862	13.72	%	$	594,320	4.50	%	$	924,498	7.00	%	$	858,462	6.50	%	Bank	$	1,850,091	12.90	%	$	645,277	4.50	%	$	1,003,764	7.00	%	$	932,066	6.50	%
Total capital (to risk-weighted assets):	Total capital (to risk-weighted assets):																	Total capital (to risk-weighted assets):
Company	Company	$	1,747,611	13.23	%	$	1,056,664	8.00	%	$	1,386,871	10.50	%	N/A		N/A		Company	$	1,846,229	12.87	%	$	1,147,317	8.00	%	$	1,505,853	10.50	%	N/A		N/A
Bank	Bank	$	1,906,642	14.44	%	$	1,056,569	8.00	%	$	1,386,747	10.50	%	$	1,320,711	10.00	%	Bank	$	2,027,534	14.14	%	$	1,147,159	8.00	%	$	1,505,646	10.50	%	$	1,433,948	10.00	%
Tier 1 capital (to risk-weighted assets):	Tier 1 capital (to risk-weighted assets):																	Tier 1 capital (to risk-weighted assets):
Company	Company	$	1,652,831	12.51	%	$	792,498	6.00	%	$	1,122,705	8.50	%	N/A		N/A		Company	$	1,668,786	11.64	%	$	860,487	6.00	%	$	1,219,024	8.50	%	N/A		N/A
Bank	Bank	$	1,811,862	13.72	%	$	792,427	6.00	%	$	1,122,605	8.50	%	$	1,056,569	8.00	%	Bank	$	1,850,091	12.90	%	$	860,369	6.00	%	$	1,218,856	8.50	%	$	1,147,159	8.00	%
Tier 1 capital (to average assets):	Tier 1 capital (to average assets):																	Tier 1 capital (to average assets):
Company	Company	$	1,652,831	11.22	%	$	589,367	4.00	%	N/A		N/A		N/A		N/A		Company	$	1,668,786	10.22	%	$	653,163	4.00	%	N/A		N/A		N/A		N/A
Bank	Bank	$	1,811,862	12.29	%	$	589,604	4.00	%	N/A		N/A		$	737,005	5.00	%	Bank	$	1,850,091	11.33	%	$	653,241	4.00	%	N/A		N/A		$	816,551	5.00	%

5356

19. Revenue Recognition

With the adoption of ASU 2014-09 (Topic 606), the Company recognizes revenue when obligations under the terms of a contract with customers are satisfied. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also out of scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, wire transfer fees, and certain OREO related net gains or expenses. However, the recognition of these revenue streams for the Company did not change significantly upon adoption of Topic 606. Noninterest revenue streams within the scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts and Wire Transfer Fees

Service charges on noninterest and interest bearing deposit accounts consist of monthly service charges, customer analysis charges, non-sufficient funds (“NSF”) charges, and other deposit account related charges. The Company’s performance obligation for account analysis charges and monthly service charges is generally satisfied, and the related revenue is recognized over the period in which the service is provided. NSF charges, other deposit account related charges, and wire transfer fees are transaction based, and therefore the Company’s performance obligation is satisfied at the point of the transaction, and related revenue recognized at that point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Service charges on deposit accounts and wire transfers are summarized below:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Noninterest bearing deposit account income:	Noninterest bearing deposit account income:									Noninterest bearing deposit account income:
Monthly service charges	Monthly service charges	$	303	$	395	$	1,001	$	1,224	Monthly service charges	$	266	$	329	$	549	$	697
Customer analysis charges	Customer analysis charges	1,693		2,194		5,074		5,788		Customer analysis charges	788		1,513		1,485		3,383
NSF charges	NSF charges	608		1,887		2,824		5,754		NSF charges	618		561		1,315		2,216
Other service charges	Other service charges	110		195		484		605		Other service charges	82		157		170		373
Total noninterest bearing deposit account income	Total noninterest bearing deposit account income	2,714		4,671		9,383		13,371		Total noninterest bearing deposit account income	1,754		2,560		3,519		6,669

Interest bearing deposit account income:	Interest bearing deposit account income:									Interest bearing deposit account income:
Monthly service charges	Monthly service charges	22		19		69		52		Monthly service charges	23		23		48		47

Total service fees on deposit accounts	Total service fees on deposit accounts	$	2,736	$	4,690	$	9,452	$	13,423	Total service fees on deposit accounts	$	1,777	$	2,583	$	3,567	$	6,716

Wire transfer fee income:	Wire transfer fee income:									Wire transfer fee income:
Wire transfer fees	Wire transfer fees	$	812	$	963	$	2,383	$	3,063	Wire transfer fees	$	786	$	765	$	1,489	$	1,571
Foreign exchange fees	Foreign exchange fees	80		95		327		395		Foreign exchange fees	137		55		278		247
Total wire transfer fees	Total wire transfer fees	$	892	$	1,058	$	2,710	$	3,458	Total wire transfer fees	$	923	$	820	$	1,767	$	1,818

5457

OREO Income (Expense)

OREO are often sold in transactions that, under ASC 606, may not be considered a contract with a customer because the sale of the asset may not be an output of the Company’s ordinary activities. However, sales of nonfinancial assets, including in-substance nonfinancial assets, should be accounted for in accordance with ASC 610-20, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets”, which requires the Company to apply certain measurement and recognition concepts of ASC 606. Accordingly, the Company recognizes the sale of a real estate property, along with any associated gain or loss, when control of the property transfers to the buyer. For sales of existing real estate properties, this generally will occur at the point of sale. When the Company finances the sale of OREO to the buyer, the Company must assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. Application of the new revenue recognition standard does not materially change the amount and the timing of the gain/loss on sale of OREO and other nonfinancial assets. Further, there were no open OREO/nonfinancial assets sale contracts at the adoption date that required an evaluation under Topic 606. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized net ~~losses~~gains on sales of OREO in the amounts of $27 thousand and ~~$108~~$13 thousand, respectively. For the three and ~~nine months~~six ended ~~September~~June 30, ~~2019,~~2020, the Company recognized net losses on ~~sales~~sale of OREO in the ~~amounts~~amount of $1$20 thousand and ~~$14~~$81 thousand, respectively.

20. Subsequent Events

On July 22, 2021, the Board of Directors of the Company approved a new stock repurchase plan that authorizes the Company to repurchase up to $50 million of its common stock. Stock repurchases through the new plan may be executed through various means, including, without limitation, open market transactions, privately negotiated transactions or by other means as determined by the Company and in accordance with SEC rules and regulations.

The Company has evaluated the effects of events that have occurred subsequent to June 30, 2021 through the issuance date of these consolidated financial statements. Other than the event described above, there have been no material events that would require disclosure in the consolidated financial statements or in the notes to the consolidated financial statements.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and the unaudited consolidated financial statements and notes set forth elsewhere in this Quarterly Report on Form 10-Q.

GENERAL

We offer a full range of commercial and retail banking loan and deposit products through our wholly-own subsidiary Bank of Hope. We have 5853 banking offices in California, New York/New Jersey, Illinois, Washington, Texas, Virginia, and Alabama. We have loan production offices located in Atlanta, Dallas, Denver, Portland, Seattle, Fremont, and in Southern California. We offer our banking services through our network of banking offices and loan production offices to our customers who typically are small to medium-sized businesses in our market areas. We accept deposits and originate a variety of loans including real estate loans, commercial business loans, residential mortgage loans, SBA loans, and consumer loans.

Our principal business involves earning interest on loans and investment securities that are funded primarily by customer deposits, wholesale deposits, and other borrowings. Our operating income and net income are derived primarily from the difference between interest income received from interest earning assets and interest expense paid on interest bearing liabilities and, to a lesser extent, from fees received in connection with servicing loan and deposit accounts and income from the sale of loans. Our major expenses are the interest we pay on deposits and borrowings, provisions for ~~loan~~credit losses and general operating expenses, which primarily consist of salaries and employee benefits, occupancy costs, and other operating expenses. Interest rates are highly sensitive to many factors that are beyond our control, such as changes in the national economy and in the related monetary policies of the FRB, inflation, unemployment, consumer spending and political changes and events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our ~~performance.~~business, financial condition, and results of operations.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a global pandemic. The COVID-19 pandemic has had a material and adverse impact on our business, financial condition, and results of operations and any further impact will depend on future developments that cannot be predicted, including the scope and duration of the pandemic, the economic implications of the same, effectiveness of vaccines being distributed, and the continued actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has substantially and negatively impacted the United States economy and disrupted global supply ~~chains, considerably lowered equity market valuations, created significant volatility and disruption in financial markets, and materially increased unemployment levels.~~chains. In addition, the pandemic has resulted in permanent and temporary closures of countless businesses and the institution of social distancing and sheltering in place requirements in most states and communities. Although ~~some states and business have reopened,~~the United States had seen a ~~recent wave~~decline in new cases of COVID-19 ~~cases will likely result in further shutdowns and closures. As~~as a result of the vaccination efforts underway, many parts of the world have seen a rise in new cases and new variants of the virus pose a potential risk to overall recovery from the pandemic.

The demand for our products and services has been and ~~likely will~~may continue to be ~~significantly~~ adversely impacted, which would continue to materially and adversely affect our financial condition and results of operations. Furthermore, the pandemic could result in the recognition of amplified credit losses in our loan portfolios and increases in our allowance for credit ~~losses, particularly as more and more businesses are closed.~~losses. Similarly, because of ~~changing~~ economic volatility and uncertain market conditions, we may be required to recognize impairments on goodwill or impairment on other financial instruments we hold. Our business operations may also be further disrupted if significant portions of our workforce are unable to work effectively, because of challenges arising from circumstances related to working from home, illness, quarantines, government actions, or other restrictions in connection with the pandemic, and we have previously temporarily closed certain of our branches. In accordance with both federal and state moratoriums, we have suspended residential and commercial foreclosures, evictions, and involuntary automobile repossessions, and are offering payment deferrals and other expanded assistance for credit card, mortgage and small business lending customers. Future governmental actions may require these and other types of customer-related responses. In addition, we may take capital actions in response to the COVID-19 pandemic. The extent to which the COVID-19 pandemic continues to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, that cannot be predicted, including the continued effectiveness of vaccines, the scope and duration of the pandemic, the impact of the COVID-19 Delta and other new variants, the economic implications of the same, and actions taken by governmental authorities and other third parties in response to the pandemic.

On March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in response to the global pandemic. The CARES Act provided approximately $2.2 trillion in emergency economic relief funds, expanded SBA lending ~~through the Paycheck Protection Program (“PPP”),~~ and provided temporary relief of certain modifications from TDR classification. In December 2020, the President signed the Consolidated Appropriations Act of 2021 which included another $900 billion in stimulus relief for the COVID-19 pandemic to provide emergency economic relief funds, further expanded SBA lending with additional funds for SBA PPP, and provided an extension for the relief of certain modifications from TDR classification. We have ~~been actively assisting~~assisted many of our customers in availing themselves of certain provisions of the CARES Act by providing loan modifications to borrowers consisting of mostly ~~initial~~ payment ~~deferrals. In addition, we funded $480.1 million in SBA PPP loans in the second quarter of 2020~~deferrals (see “COVID-19 Related Loan Modifications” in the Financial Conditions section of the MD&A for more information). We also funded $480.1 million in SBA PPP loans in 2020 and funded $324.5 million in second round PPP loans during the six months ended June 30, 2021.

At ~~September~~June 30, ~~2020,~~2021, all of our regulatory capital ratios for Hope Bancorp and the Bank were in excess of the minimum requirements set by our regulators. While we currently believe that we have sufficient excess capital and liquidity to withstand the economic impact of the COVID-19 pandemic, further economic deterioration or an extended recession could adversely impact our capital and liquidity positions.

Pandemic Response Plan

With the onset of the COVID-19 virus, we activated a Pandemic Response Plan in January 2020, in advance of the declaration of the COVID-19 pandemic. As part of the Pandemic Response Plan, a Pandemic Response Team and a Business Continuity Program Team were formed which closely monitor the COVID-19 situation, identifying issues and developing responses to reduce risks related to COVID-19 to our customers, employees, and communities. As part of our overall efforts to help contain the spread of the virus, we made a number of adjustments in our branch ~~operations:~~

•~~Nationwide, we reduced the operating hours;~~

•~~For some of~~operations and regularly communicate with our ~~branches with drive-thru service facilities, we limited in-branch services by appointment only;~~

•~~We have also temporarily closed a number of branches that are in close proximity~~staff to ~~another branch location;~~

•We implemented social distancing procedures limiting the number of customers in a branch at a given time; requiring the use of face masks and hand sanitizers by all customers entering a branch, and added aisle lines to help guide customers in maintaining a minimum of 6 feet of separation;

•~~We limited operations to every other teller station as warranted to maintain the minimum 6-feet distance;~~

•~~We installed sneeze guards at all teller stations and customer service areas;~~

•~~We have provided our branch staff with facial masks, as well as face shields; and~~

•~~We implemented enhanced cleaning and disinfecting protocols at all of our branches.~~

~~We have also implemented a number of changes to our back-office operations including:~~

•~~Enabling the majority of our employees with remote work capabilities and implementing a remote rotation strategy with the general goal of having approximately 50%~~keep them apprised of the ~~department staff working onsite and the remainder working remotely;~~

•~~In-person meetings have been prohibited to the extent possible;~~

•~~In line with social distancing guidelines, certain employee workstations have been temporarily modified to allow for a minimum separation of approximately six feet between each employee;~~

•~~Common break areas have been closed; and~~

•~~We have implemented enhanced cleaning and disinfecting protocols for our non-branch locations.~~

latest information. The goal of the Pandemic Response Plan is to protect the health of our customers, employees, and communities while continuing to meet the needs of our customers. The Pandemic Response Team and Business Continuity Program Team will continue to monitor the COVID-19 situation and take additional actions in an effort to ensure the safe continued operations of the Bank.

5761

Selected Financial Data

The following tables set forth a performance overview concerning the periods indicated and should be read in conjunction with the unaudited consolidated financial statements and notes set forth elsewhere in this Quarterly Report on Form 10-Q and the following Results of Operations and Financial Condition sections in the MD&A.


		At or for the Three Months Ended September 30,						At or for the Nine Months Ended September 30,							At or for the Three Months Ended June 30,						At or for the Six Months Ended June 30,
		2020			2019			2020			2019				2021			2020			2021			2020
		(Dollars in thousands, except share and per share data)													(Dollars in thousands, except share and per share data)
Income Statement Data:	Income Statement Data:													Income Statement Data:
Interest income	Interest income	$	145,220		$	172,417		$	457,149		$	519,013		Interest income	$	140,204		$	145,061		$	278,497		$	311,929
Interest expense	Interest expense	27,583			56,159			110,407			165,926			Interest expense	13,627			35,247			29,341			82,824
Net interest income	Net interest income	117,637			116,258			346,742			353,087			Net interest income	126,577			109,814			249,156			229,105
Provision for credit losses	Provision for credit losses	22,000			2,100			67,500			6,300			Provision for credit losses	(7,000)			17,500			(3,700)			45,500
Net interest income after provision for credit losses	Net interest income after provision for credit losses	95,637			114,158			279,242			346,787			Net interest income after provision for credit losses	133,577			92,314			252,856			183,605
Noninterest income	Noninterest income	17,513			12,995			42,017			36,704			Noninterest income	11,076			11,240			19,880			24,504
Noninterest expense	Noninterest expense	73,406			69,995			212,576			212,199			Noninterest expense	73,123			67,030			143,554			139,170
Income before income tax provision	Income before income tax provision	39,744			57,158			108,683			171,292			Income before income tax provision	71,530			36,524			129,182			68,939
Income tax provision	Income tax provision	9,254			14,566			25,487			43,261			Income tax provision	17,767			9,771			31,732			16,233
Net income	Net income	$	30,490		$	42,592		$	83,196		$	128,031		Net income	$	53,763		$	26,753		$	97,450		$	52,706
Per Share Data:	Per Share Data:													Per Share Data:
Earnings per common share - basic	Earnings per common share - basic	$	0.25		$	0.34		$	0.67		$	1.01		Earnings per common share - basic	$	0.44		$	0.22		$	0.79		$	0.43
Earnings per common share - diluted	Earnings per common share - diluted	$	0.25		$	0.34		$	0.67		$	1.01		Earnings per common share - diluted	$	0.43		$	0.22		$	0.78		$	0.42
Book value per common share (period end)	Book value per common share (period end)	$	16.55		$	16.03		$	16.55		$	16.03		Book value per common share (period end)	$	16.92		$	16.48		$	16.92		$	16.48
Cash dividends declared per common share	Cash dividends declared per common share	$	0.14		$	0.14		$	0.42		$	0.42		Cash dividends declared per common share	$	0.14		$	0.14		$	0.28		$	0.28
Tangible book value per common share (period end) (1)	Tangible book value per common share (period end) (1)	$	12.70		$	12.27		$	12.70		$	12.27		Tangible book value per common share (period end) (1)	$	13.10		$	12.62		$	13.10		$	12.62
Number of common shares outstanding (period end)	Number of common shares outstanding (period end)	123,260,760			126,697,925			123,260,760			126,697,925			Number of common shares outstanding (period end)	123,673,832			123,239,276			123,673,832			123,239,276
Weighted average shares - basic	Weighted average shares - basic	123,251,336			126,685,921			123,581,055			126,661,798			Weighted average shares - basic	123,592,695			123,200,127			123,459,461			123,747,727
Weighted average shares - diluted	Weighted average shares - diluted	123,536,765			127,007,469			123,895,084			126,895,970			Weighted average shares - diluted	124,323,888			123,430,891			124,334,227			124,054,291
Tangible common equity to tangible assets (1)	Tangible common equity to tangible assets (1)	9.63		%	10.43		%	9.63		%	10.43		%	Tangible common equity to tangible assets (1)	9.53		%	9.32		%	9.53		%	9.32		%

Average Balance Sheet Data:	Average Balance Sheet Data:													Average Balance Sheet Data:
Assets	Assets	$	17,020,795		$	15,154,661		$	16,411,150		$	15,209,668		Assets	$	17,164,893		$	16,759,147		$	17,140,286		$	16,102,977
Securities available for sale	Securities available for sale	2,010,907			1,798,239			1,825,046			1,810,068			Securities available for sale	2,253,135			1,750,156			2,260,233			1,731,094
Loans receivable and loans held for sale	Loans receivable and loans held for sale	12,728,558			11,911,658			12,581,703			11,985,936			Loans receivable and loans held for sale	13,293,591			12,755,088			13,319,782			12,507,468
Deposits	Deposits	14,140,731			12,030,515			13,381,388			12,057,374			Deposits	14,460,491			13,653,065			14,419,176			12,997,544
Stockholders’ equity	Stockholders’ equity	2,039,555			2,010,458			2,028,074			1,964,146			Stockholders’ equity	2,066,016			2,016,947			2,056,812			2,022,271

5862


		For the Three Months Ended September 30,						For the Nine Months Ended September 30,					For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2020			2019			2020		2019			2021			2020			2021		2020
Selected Performance Ratios:	Selected Performance Ratios:											Selected Performance Ratios:
Return on average assets (2)	Return on average assets (2)	0.72		%	1.12		%	0.68	%	1.12	%	Return on average assets (2)	1.25		%	0.64		%	1.14	%	0.65	%
Return on average stockholders’ equity (2)	Return on average stockholders’ equity (2)	5.98		%	8.47		%	5.47	%	8.69	%	Return on average stockholders’ equity (2)	10.41		%	5.31		%	9.48	%	5.21	%
Return on average tangible equity (1) (2)	Return on average tangible equity (1) (2)	7.80		%	11.11		%	7.14	%	11.48	%	Return on average tangible equity (1) (2)	13.50		%	6.94		%	12.31	%	6.82	%
Dividend payout ratio (dividends per share / diluted EPS)		56.73		%	41.74		%	62.55	%	41.63	%
Dividend payout ratio (dividends per share/diluted EPS)												Dividend payout ratio (dividends per share/diluted EPS)	32.38		%	64.61		%	35.72	%	65.90	%
Efficiency ratio (3)	Efficiency ratio (3)	54.31		%	54.15		%	54.68	%	54.44	%	Efficiency ratio (3)	53.12		%	55.37		%	53.36	%	54.88	%
Net interest spread	Net interest spread	2.55		%	2.59		%	2.56	%	2.68	%	Net interest spread	2.88		%	2.41		%	2.84	%	2.58	%
Net interest margin (4)	Net interest margin (4)	2.91		%	3.25		%	2.99	%	3.31	%	Net interest margin (4)	3.11		%	2.79		%	3.09	%	3.04	%

		At September 30,
		2020			2019								June 30, 2021			June 30, 2020
		(Dollars in thousands)											(Dollars in thousands)
Statement of Financial Condition Data - at Period End:	Statement of Financial Condition Data - at Period End:											Statement of Financial Condition Data - at Period End:
Assets	Assets	$	16,733,767		$	15,379,878						Assets	$	17,469,627		$	17,169,062
Securities available for sale	Securities available for sale	2,060,991			1,772,322							Securities available for sale	2,274,170			1,887,604
Loans receivable	Loans receivable	13,120,225			12,104,682							Loans receivable	13,424,301			12,871,834
Deposits	Deposits	14,008,356			12,234,750							Deposits	14,726,230			14,123,532
FHLB advances	FHLB advances	200,000			625,000							FHLB advances	200,000			500,000
Convertible notes, net	Convertible notes, net	203,270			198,211							Convertible notes, net	215,739			201,987
Subordinated debentures	Subordinated debentures	103,889			102,755							Subordinated debentures	104,762			103,602
Stockholders’ equity	Stockholders’ equity	2,040,561			2,031,284							Stockholders’ equity	2,092,870			2,030,776

Regulatory Capital Ratios (5)	Regulatory Capital Ratios (5)											Regulatory Capital Ratios (5)
Leverage capital ratio	Leverage capital ratio	10.02		%	11.18		%					Leverage capital ratio	10.43		%	10.08		%
Common equity Tier 1 capital ratio	Common equity Tier 1 capital ratio	11.36		%	11.89		%					Common equity Tier 1 capital ratio	11.44		%	11.50		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	12.09		%	12.65		%					Tier 1 risk-based capital ratio	12.14		%	12.24		%
Total risk-based capital ratio	Total risk-based capital ratio	13.19		%	13.38		%					Total risk-based capital ratio	13.16		%	13.23		%

Asset Quality Ratios:	Asset Quality Ratios:											Asset Quality Ratios:
Allowance for credit losses to loans receivable	Allowance for credit losses to loans receivable	1.37		%	0.78		%					Allowance for credit losses to loans receivable	1.41		%	1.26		%
Allowance for credit losses to nonaccrual loans	Allowance for credit losses to nonaccrual loans	259.88		%	222.28		%					Allowance for credit losses to nonaccrual loans	170.67		%	196.95		%
Allowance for credit losses to nonperforming loans ~~(7)~~(6)	Allowance for credit losses to nonperforming loans ~~(7)~~(6)	169.40		%	121.37		%					Allowance for credit losses to nonperforming loans ~~(7)~~(6)	113.36		%	127.79		%
Allowance for credit losses to nonperforming assets ~~(8)~~(7)	Allowance for credit losses to nonperforming assets ~~(8)~~(7)	144.36		%	97.06		%					Allowance for credit losses to nonperforming assets ~~(8)~~(7)	103.11		%	109.62		%
Nonaccrual loans to loans receivable	Nonaccrual loans to loans receivable	0.53		%	0.35		%					Nonaccrual loans to loans receivable	0.83		%	0.64		%
Nonperforming loans to loans receivable ~~(7)~~(6)	Nonperforming loans to loans receivable ~~(7)~~(6)	0.81		%	0.64		%					Nonperforming loans to loans receivable ~~(7)~~(6)	1.24		%	0.98		%
Nonperforming assets to loans receivable and OREO ~~(8)~~(7)	Nonperforming assets to loans receivable and OREO ~~(8)~~(7)	0.95		%	0.80		%					Nonperforming assets to loans receivable and OREO ~~(8)~~(7)	1.37		%	1.14		%
Nonperforming assets to total assets ~~(8)~~(7)	Nonperforming assets to total assets ~~(8)~~(7)	0.74		%	0.63		%					Nonperforming assets to total assets ~~(8)~~(7)	1.05		%	0.86		%

(1)Tangible book value per common share, tangible common equity to tangible assets, and return on average tangible equity are non-GAAP financial measures that we believe provide investors with information useful in understanding our financial performance and position. A reconciliation of GAAP to non-GAAP financial measures is provided on the following page.

(2)Annualized.

(3)Efficiency ratio is defined as noninterest expense divided by the sum of net interest income before provision for credit losses and noninterest income.

(4)Net interest margin is calculated by dividing annualized net interest income by average total interest earning assets.

(5)The ratios generally required to meet the definition of a “well-capitalized” financial institution under certain banking regulations are 5.0% leverage capital, 6.5% common equity tier 1 capital, 8.0% ~~Tier~~tier 1 risk-based capital, and 10.0% total risk-based capital.

(6)Calculations are based on average quarterly asset balances.

(7) Nonperforming ~~loans include nonaccrual loans, loans past due 90 days or more and still accruing interest, and accruing restructured loans (excludes PCI loans at September 30, 2019).~~

~~(8)~~ ~~Nonperforming~~ assets consist of nonperforming loans and OREO.

5963

Non-GAAP Financial Measurements

We provide certain non-GAAP financial measures that we believe provide investors with meaningful supplemental information that is useful in understanding our financial performance and position. The methodologies for determining non-GAAP measures may differ among companies. The following tables reconciles non-GAAP financial measures used in this Form 10-Q to the most comparable GAAP performance measures:


		At September 30,							At June 30,
		2020			2019				2021			2020
		(Dollars in thousands, except share data)							(Dollars in thousands, except share data)
Total stockholders’ equity	Total stockholders’ equity	$	2,040,561		$	2,031,284		Total stockholders’ equity	$	2,092,870		$	2,030,776
Less: Goodwill and core deposit intangible assets, net	Less: Goodwill and core deposit intangible assets, net	(474,689)			(476,840)			Less: Goodwill and core deposit intangible assets, net	(473,139)			(475,220)
Tangible common equity	Tangible common equity	$	1,565,872		$	1,554,444		Tangible common equity	$	1,619,731		$	1,555,556

Total assets	Total assets	$	16,733,767		$	15,379,878		Total assets	$	17,469,627		$	17,169,062
Less: Goodwill and core deposit intangible assets, net	Less: Goodwill and core deposit intangible assets, net	(474,689)			(476,840)			Less: Goodwill and core deposit intangible assets, net	(473,139)			(475,220)
Tangible Assets	Tangible Assets	$	16,259,078		$	14,903,038		Tangible Assets	$	16,996,488		$	16,693,842

Common shares outstanding	Common shares outstanding	123,260,760			126,697,925			Common shares outstanding	123,673,832			123,239,276

Tangible book value per common share	Tangible book value per common share	$	12.70		$	12.27		Tangible book value per common share	$	13.10		$	12.62
Tangible common equity to tangible assets	Tangible common equity to tangible assets	9.63		%	10.43		%	Tangible common equity to tangible assets	9.53		%	9.32		%

Tangible book value per common share is calculated by subtracting goodwill and core deposit intangible assets from total stockholders’ equity and dividing the difference by the number of shares of common stock outstanding. Tangible common equity to tangible assets is calculated by subtracting goodwill and core deposit intangible assets from total stockholders’ equity and dividing the difference by total assets after subtracting goodwill and core deposit intangible assets.


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2020			2019			2020			2019				2021			2020			2021			2020
		(Dollars in thousands)													(Dollars in thousands)
Net income	Net income	$	30,490		$	42,592		$	83,196		$	128,031		Net income	$	53,763		$	26,753		$	97,450		$	52,706

Average stockholders’ equity	Average stockholders’ equity	$	2,039,555		$	2,010,458		$	2,028,074		$	1,964,146		Average stockholders’ equity	$	2,066,016		$	2,016,947		$	2,056,812		$	2,022,271
Less: Average goodwill and core deposit intangible assets, net	Less: Average goodwill and core deposit intangible assets, net	(475,010)			(477,159)			(475,530)			(477,730)			Less: Average goodwill and core deposit intangible assets, net	(473,445)			(475,534)			(473,702)			(475,793)
Average tangible equity	Average tangible equity	$	1,564,545		$	1,533,299		$	1,552,544		$	1,486,416		Average tangible equity	$	1,592,571		$	1,541,413		$	1,583,110		$	1,546,478

Return on average tangible equity (annualized)	Return on average tangible equity (annualized)	7.80		%	11.11		%	7.14		%	11.48		%	Return on average tangible equity (annualized)	13.50		%	6.94		%	12.31		%	6.82		%

Return on average tangible equity is calculated by dividing net income for the period by average stockholders’ equity for the period after subtracting average goodwill and core deposit intangible assets for the ~~period.~~period from average stockholders’ equity.

6064

Results of Operations

Overview

Net income for the ~~third~~second quarter of ~~2020~~2021 was ~~$30.5~~$53.8 million, or ~~$0.25~~$0.43 per diluted common share, compared to ~~$42.6~~$26.8 million, or ~~$0.34~~$0.22 per diluted common share, for the same period of ~~2019,~~2020, which was ~~a decrease~~an increase of ~~$12.1~~$27.0 million, or ~~28.4%~~101.0%. The ~~decrease~~increase in net income was due to ~~an increase~~a decrease in the provision for credit losses ~~to reflect~~which resulted from the ~~decline~~current and projected improvements in the economy ~~as a result of~~from the COVID-19 ~~pandemic. Net~~pandemic in addition to an increase in net interest ~~income before provision for credit losses increased by $1.4 million for the third quarter of 2020 to $117.6 million compared to $116.3 million for the third quarter of 2019.~~income.

Net income for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$83.2~~$97.5 million, or ~~$0.67~~$0.78 per diluted common share, compared to ~~$128.0~~$52.7 million, or ~~$1.01~~$0.42 per diluted share, for the same period of ~~2019,~~2020, which was ~~a decrease~~an increase of ~~$44.8~~$44.7 million, or ~~35.0%~~84.9%. The ~~decrease~~increase in net income was due to ~~an increase~~a decrease in provision for credit losses ~~to reflect~~which resulted from the ~~decline~~current and projected improvements in the economy ~~as result of~~from the COVID-19 ~~pandemic. Net~~pandemic in addition to an increase in net interest income before provision for credit losses decreased by $6.3 million for the nine months ended September 30, 2020 to $346.7 million compared to $353.1 million for the nine months ended September 30, 2019.income.

The following table summarizes the accretion and amortization adjustments resulting from prior acquisitions that were included in net income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Accretion of discounts on purchased performing loans	Accretion of discounts on purchased performing loans	$	747	$	2,046	$	2,464	$	6,011	Accretion of discounts on purchased performing loans	$	366	$	658	$	1,071	$	1,717
Accretion of discounts on PCD (formerly PCI) loans		4,584		5,234		17,079		17,916
Accretion of discounts on PCD loans										Accretion of discounts on PCD loans	2,188		3,046		4,443		12,495
Amortization of premiums on purchased investments in affordable housing partnerships	Amortization of premiums on purchased investments in affordable housing partnerships	(71)		(75)		(212)		(227)		Amortization of premiums on purchased investments in affordable housing partnerships	(74)		(70)		(147)		(141)
Amortization of premiums on assumed FHLB advances		—		—		—		1,280

Accretion of discounts on assumed subordinated debt	Accretion of discounts on assumed subordinated debt	(287)		(278)		(854)		(826)		Accretion of discounts on assumed subordinated debt	(293)		(284)		(584)		(567)

Amortization of core deposit intangibles	Amortization of core deposit intangibles	(531)		(557)		(1,594)		(1,671)		Amortization of core deposit intangibles	(510)		(532)		(1,019)		(1,063)
Total	Total	$	4,442	$	6,370	$	16,883	$	22,483	Total	$	1,677	$	2,818	$	3,764	$	12,441

The annualized return on average assets was ~~0.72%~~1.25% for the ~~third~~second quarter of ~~2020~~2021 compared to ~~1.12%~~0.64% for the same period of ~~2019.~~2020. The annualized return on average stockholders’ equity was ~~5.98%~~10.41% for the ~~third~~second quarter of ~~2020~~2021 compared to ~~8.47%~~5.31% for the same period of ~~2019.~~2020. The efficiency ratio was ~~54.31%~~53.12% for the ~~third~~second quarter of ~~2020~~2021 compared to ~~54.15%~~55.37% for the same period of ~~2019.~~2020.

The annualized return on average assets was ~~0.68%~~1.14% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~1.12%~~0.65% for the same period of ~~2019.~~2020. The annualized return on average stockholders’ equity was ~~5.47%~~9.48% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~8.69%~~5.21% for the same period of ~~2019.~~2020. The efficiency ratio was ~~54.68%~~53.36% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~54.44%~~54.88% for the same period of ~~2019.~~2020.

Net Interest Income and Net Interest Margin

Net Interest Income

A principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits, borrowed funds, and convertible notes. Net interest income expressed as a percentage of average interest earning assets is referred to as the net interest margin. The net interest spread is the yield on average interest earning assets less the cost of average interest bearing liabilities. Net interest income is affected by changes in the balances of interest earning assets and interest bearing liabilities and changes in the yields earned on interest earning assets and the rates paid on interest bearing liabilities.

Comparison of Three Months Ended ~~September~~June 30, ~~2020~~2021 with the Three Months Ended ~~September~~June 30, ~~2019~~2020

Net interest income before provision for credit losses was ~~$117.6~~$126.6 million for the ~~third~~second quarter of ~~2020~~2021 compared to ~~$116.3~~$109.8 million for the same period of ~~2019,~~2020, an increase of ~~$1.4~~$16.8 million, or ~~1.2%~~15.3%. The increase in net interest income was due to the reduction in interest expense for the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019~~2020 offset partly by a decrease in interest income.

6165

Interest income for the ~~third~~second quarter of ~~2020~~2021 was ~~$145.2~~$140.2 million, a decrease of ~~$27.2~~$4.9 million, or ~~15.8%~~3.3%, compared to ~~$172.4~~$145.1 million for the same period of ~~2019.~~2020. The decrease in interest income was primarily attributable to the decline in interest rates, which impacted our variable rate loans and the interest rates on new loan ~~originations. The FOMC reduced the federal funds target rate by 25 basis points each~~originations and a decline in ~~July, September, and October 2019.~~discount accretion income on acquired loans. As a result of the COVID-19 pandemic and its impact toon the U.S. economy, the FOMC lowered the target federal funds rate by a total of 1.50% in March 2020 to 0.00%-0.25%. The reduction in interest rates in March 2020 had a large impact on our loan yields and interest income as our variable rate loans repriced to lower interest rates and new loans were originated at lower rates. Interest income on our investment securities also declined due to the repricing of variable rate investments and the sale and pay-down of higher yielding securities in combination with the purchase of lower yielding securities which contributed to the decline in interest income.

Interest expense for the ~~third~~second quarter of ~~2020~~2021 was ~~$27.6~~$13.6 million, a decrease of ~~$28.6~~$21.6 million, or ~~50.9%~~61.3%, compared to ~~$56.2~~$35.2 million for the same period of ~~2019.~~2020. The decrease in interest expense was due to the overall decline in our cost of deposits from the repricing of time deposits to lower rates as well as a reduction in rates on money market and NOW accounts. We reduced our deposit rates in conjunction with the reduction in rates ~~experienced~~ in ~~2019 and~~March 2020 to reduce our cost of deposits and to offset the decline in loan yields. We expect interest expense to continue to decline for the next ~~few~~1-2 quarters as higher cost time deposits continue to renew to lower rates. Interest expense on FHLB borrowings declined in the second quarter of 2021 compared to the second quarter of 2020 primarily due to the pay-down of FHLB borrowings during the third quarter of 2020. With the adoption of ASU 2020-06, interest expense on our convertible notes declined by $1.0 million for the second quarter of 2021 compared to the second quarter of 2020 due to the reduction in non-cash interest expense as we no longer have a discount portion to amortize.

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 with the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020

Net interest income before provision for credit losses was ~~$346.7~~$249.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$353.1~~$229.1 million for the same period of ~~2019, a decrease~~2020, an increase of ~~$6.3~~$20.1 million, or ~~1.8%~~8.8%. The ~~decrease~~increase in net interest income was due to the reduction in interest ~~income on loan and investments securities~~expense for the ~~nine~~for the six months ended ~~September~~June 30, ~~2020~~2021 compared to the same period of ~~2019~~2020 offset partly by a decrease in interest ~~expense.~~income.

Interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$457.1~~$278.5 million, a decrease of ~~$61.9~~$33.4 million, or ~~11.9%~~10.7%, compared to ~~$519.0~~$311.9 million for the same period of ~~2019.~~2020. The decrease in interest income was primarily attributable to the decline in interest rates, which impacted our variable rate loans and the interest rates on new loan originations.

Interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$110.4~~$29.3 million, a decrease of ~~$55.5~~$53.5 million, or ~~33.5%~~64.6%, compared to ~~$165.9~~$82.8 million for the same period of ~~2019.~~2020. The decrease in interest expense was due to the repricing of time deposits to lower rates as well as a reduction in rates on money market and NOW accounts. We expect interest expense to continue to decline in the second half of 2021 as higher cost time deposits continue to renew to lower rates.

Net Interest Margin

Our net interest margin is impacted by the weighted average rates we earn on interest earning assets and pay on interest bearing liabilities and the effect of acquisition accounting adjustments. The net interest margin for the ~~third~~second quarter of ~~2020~~2021 was ~~2.91%~~3.11%, ~~a decrease~~an increase of 3432 basis points from ~~3.25%~~2.79% for the same period of ~~2019. The net~~2020. Net interest margin for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~2.99%~~3.09%, ~~a decrease~~an increase of 325 basis points from ~~3.31%~~3.04% for the for the same period of ~~2019.~~2020. The ~~decline~~increase in net interest margin for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was due to decreases in cost of interest bearing deposits, FHLB advances, convertible notes and other borrowings and partially offset by an overall decline in yields on loans and securities available for sale as these earning assets were fully impacted by the decline in ~~loan yields as a result of the decrease in~~ interest rates ~~during the twelve months ended September 30, 2020. Net interest margin~~in March 2020 for ~~the~~ periods in ~~2020~~2021, while only partially impacted for periods in 2020. Cost of interest bearing deposits and other borrowings were also impacted by the ~~large increase~~rate cut in ~~interest bearing cash included~~March 2020 while the reduction in cost of FHLB ~~stock and other investments. Soon after~~advances was mostly due to the ~~declaration~~pay-down of ~~the COVID-19 pandemic, we increased our excess liquidity as a precautionary measure which also negatively impacted our net interest margin. Most of the excess liquidity was utilized during~~higher rate FHLB advances in the third quarter of 2020 ~~to payoff brokered deposits, FHLB borrowings,~~ and ~~to fund loans, but~~ the ~~bulk of the utilization occurred late~~reduction in the ~~quarter and will have a larger impact on net interest margin in~~cost of convertible notes was due to the ~~fourth quarter~~adoption of ~~2020.~~ASU 2020-06 at the beginning of 2021.

The weighted average yield on loans decreased to ~~4.20%~~3.98% for the ~~third~~second quarter of ~~2020~~2021 from ~~5.27%~~4.23% for the ~~third~~second quarter of ~~2019.~~2020. The weighted average yield on loans decreased to ~~4.49%~~3.96% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~5.30%~~4.64% for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The decrease in loan yields for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019~~2020 was mostly due to the decrease in interest rates experienced in ~~2019 and~~ 2020 and a decline in accretion income on acquired loans. The decrease in interest rates led to a decline in rates on our variable rate loans ~~and~~ for new loan originations, which resulted in an overall decline in loan yields. At ~~September~~June 30, ~~2020,~~2021, variable interest rate loans made up ~~approximately 38%~~40% of the loan portfolio and the remaining ~~62%~~60% of the loan portfolio consisted of loans with fixed interest rates. Fixed rate loans include hybrid loans that had fixed interest rates at the end of the period but will eventually change to a variable interest rate after a certain period of time. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the average weighted rate on new loan originations was ~~2.87%~~2.95% compared to ~~5.16%~~2.86% for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~decline~~increase in the average weighted rate on new loan originations for the ~~nine~~six months ended ~~September~~June 30, 2021 compared to the six months ended June 30, 2020 was ~~impacted by the~~due to higher levels of originations of SBA PPP loans for 2020 which all have an interest rate of 1.00%. Excluding SBA PPP loans, the average weighted rate on new loan originations for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~3.37%.~~

3.40% compared to 3.77% for the six months ended June 30, 2020.

Discount accretion income on acquired loans was ~~$5.3~~$2.6 million and ~~$19.5~~$5.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to ~~$7.3~~$3.7 million and ~~$23.9~~$14.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. The decline in discount accretion income was primarily due to the payoff of loans during the three and six months ended June 30, 2020 which resulted in additional discount accretion income. There were no significant payoffs of acquired loans during the three or six months ended June 30, 2021.

The weighted average yield on securities available for sale for the ~~third~~second quarter of ~~2020~~2021 was ~~1.95%~~1.37% compared to ~~2.51%~~2.27% for the same period of ~~2019.~~2020. The weighted average yield on securities available for sale for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~2.22%~~1.39% compared to ~~2.63%~~2.38% for the same period of ~~2019.~~2020. The change in weighted average yield on securities available for sale for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods of ~~2019~~2020 was due to the reduction in interest rates, which impacted our variable rate investments. The decline in yields was also due to fluctuations in the overall investment portfolio yield due to the purchase, sale, pay-downs, and calls/maturities of investment securities during the ~~nine~~twelve months ended ~~September~~June 30, ~~2020.~~2021.

The weighted average yield on FHLB stock and other investments for the ~~third~~second quarter of ~~2020~~2021 was ~~0.28%~~0.35% compared to ~~2.41%~~0.30% for the same period of ~~2019.~~2020. The weighted average yield on FHLB stock and other investments for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~0.50%~~0.38% compared to ~~2.55%~~0.66% for the same period of ~~2019.~~2020. The decrease in weighted average yield on FHLB stock and other investments for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same ~~periods~~period of ~~2019~~2020 was due to the decline in interest rates experienced in ~~2019 and~~ 2020. The decline in interest rates led to a decrease in interest earned on interest bearing cash balances at the Federal Reserve, which resulted in a decrease in yield on FHLB stock and other investments. ~~The dividend rate on FHLB stock was also reduced to 5.00% for 2020 compared to a 7.00% dividend rate for 2019.~~

The weighted average cost of deposits for the ~~third~~second quarter of ~~2020~~2021 was ~~0.64%~~0.30%, a decrease of 9857 basis points from ~~1.62%~~0.87% for the same period of ~~2019.~~2020. The weighted average cost of deposits for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~0.93%~~0.33%, a decrease of 6776 basis points from ~~1.60%~~1.09% for the same period of ~~2019.~~2020. The decline in interest rates experienced in ~~2019 and~~ 2020 resulted in a decrease in the weighted average cost of deposits for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods of ~~2019.~~2020. Management reduced rates on most of its deposit products ~~during the second half of 2019 and~~ several times in 2020 in light of the FOMC interest rate cuts and to offset ~~some of~~ the decline in loan yields.

The weighted average cost of FHLB advances for the ~~third~~second quarter of ~~2020~~2021 was ~~1.49%~~1.25%, a decrease of 4627 basis points from ~~1.95%~~1.52% for the same period of ~~2019.~~2020. The weighted average cost of FHLB advances for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~1.62%~~1.23%, a decrease of 842 basis points from ~~1.70%~~1.65% for the same period of ~~2019.~~2020. The decrease in cost of FHLB advances for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~three and nine months ended September 30, 2019~~same periods of 2020 was due to higher rate FHLB advances that were prepaid early before maturity during the third quarter of 2020 combined with an overall decline in FHLB borrowing rates as a result of the decline in interest rates and the early payoff of $300.0 million in FHLB advances during the third quarter of 2020. During the third quarter of 2020, we prepaid $300.0 million in FHLB advances with an average weighted rate of 1.69%. These advances had maturities ranging from December 2020 to August 2022. We paid an early prepayment penalty of $3.6 million to payoff these advances, which was offset by gains from the sale of investment securities. Cost of FHLB advances for the nine months ended September 30, 2019 included $1.0 million in accelerated amortization of premiums for FHLB advances that were paid off during the period.rates.

~~The carrying balance of our convertible notes is net of discount to be amortized and issuance costs to be capitalized.~~ The weighted average cost of our convertible notes was ~~4.58%~~2.43% and ~~4.62%~~2.44% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to ~~4.60% and 4.66%~~4.64% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2020. The cost of our convertible notes ~~consists~~for periods in 2021 consisted of the 2.00% coupon rate and non-cash interest expense from the capitalization of issuance cost. The cost of our convertible notes for the three and six months ended June 30, 2020 also included non-cash ~~conversion option rate, and~~interest expense from the ~~issuance cost capitalization rate. We currently plan to adopt~~amortization of the ~~recently issued accounting update~~convertible notes discount. On January 1, 2021, we early adopted ASU 2020-06, ~~on January 1, 2021. Once adopted,~~which eliminated the ~~cost of convertible notes is expected to be reduced as the~~ discount ~~amortization~~ on our convertible notes ~~is expected to be eliminated based on~~and reduced interest expense for the ~~new guidance. Therefore following adoption, the cost of convertible notes will be much closer~~three and six months ended June 30, 2021 by approximately $1.0 million and $2.1 million, respectively, compared to the ~~coupon rate of 2.00%.~~three and six months ended June 30, 2020.

The weighted average cost of other borrowings (subordinated debentures) for the ~~third~~second quarter of ~~2020~~2021 was ~~3.99%~~3.84%, a decrease of ~~262~~93 basis points from ~~6.61%~~4.77% for the same period of ~~2019.~~2020. The weighted average cost of other borrowings for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~4.87%~~3.87%, a decrease of ~~204~~145 basis points from ~~6.91%~~5.32% for the same period of ~~2019.~~2020. Subordinated debentures have variable interest rates that are tied to the three month LIBOR rate. The decline in the three month LIBOR rate ~~during~~for the ~~twelve~~three and six months ended ~~September~~June 30, 2021 compared to the same periods in 2020 resulted in a decline in the weighted average cost of other borrowings.

The following table presents our consolidated average balance sheet information, together with interest rates earned and paid on the various sources and uses of funds for the periods indicated:


		Three Months Ended September 30,													Three Months Ended June 30,
		2020						2019							2021						2020
		Average Balance		Interest Income/ Expense		Average Yield/ Rate*		Average Balance		Interest Income/ Expense		Average Yield/ Rate*			Average Balance		Interest Income/ Expense		Average Yield/ Rate*		Average Balance		Interest Income/ Expense		Average Yield/ Rate*
		(Dollars in thousands)													(Dollars in thousands)
INTEREST EARNINGS ASSETS:	INTEREST EARNINGS ASSETS:													INTEREST EARNINGS ASSETS:
Loans(1) (2)	Loans(1) (2)	$	12,728,558	$	134,430	4.20	%	$	11,911,658	$	158,115	5.27	%	Loans(1) (2)	$	13,293,591	$	131,823	3.98	%	$	12,755,088	$	134,190	4.23	%
Securities available for sale(3)	Securities available for sale(3)	2,010,907		9,848		1.95	%	1,798,239		11,373		2.51	%	Securities available for sale(3)	2,253,135		7,713		1.37	%	1,750,156		9,891		2.27	%
FHLB stock and other investments	FHLB stock and other investments	1,342,641		942		0.28	%	482,952		2,929		2.41	%	FHLB stock and other investments	759,182		668		0.35	%	1,317,049		980		0.30	%
Total interest earning assets	Total interest earning assets	16,082,106		145,220		3.59	%	14,192,849		172,417		4.82	%	Total interest earning assets	16,305,908		140,204		3.45	%	15,822,293		145,061		3.69	%
Total noninterest earning assets	Total noninterest earning assets	938,689						961,812						Total noninterest earning assets	858,985						936,854
Total assets	Total assets	$	17,020,795					$	15,154,661					Total assets	$	17,164,893					$	16,759,147

INTEREST BEARING LIABILITIES:	INTEREST BEARING LIABILITIES:													INTEREST BEARING LIABILITIES:
Deposits:	Deposits:													Deposits:
Demand, interest bearing	Demand, interest bearing	$	4,895,101	$	6,546	0.53	%	$	3,450,749	$	15,802	1.82	%	Demand, interest bearing	$	5,484,047	$	5,909	0.43	%	$	4,903,786	$	7,563	0.62	%
Savings	Savings	302,882		907		1.19	%	252,780		675		1.06	%	Savings	308,530		887		1.15	%	284,050		862		1.22	%
Time deposits	Time deposits	4,703,640		15,418		1.30	%	5,368,753		32,580		2.41	%	Time deposits	3,222,457		3,900		0.49	%	4,954,446		21,026		1.71	%
Total interest bearing deposits	Total interest bearing deposits	9,901,623		22,871		0.92	%	9,072,282		49,057		2.15	%	Total interest bearing deposits	9,015,034		10,696		0.48	%	10,142,282		29,451		1.17	%
FHLB advances	FHLB advances	353,587		1,323		1.49	%	632,500		3,112		1.95	%	FHLB advances	202,198		631		1.25	%	593,407		2,238		1.52	%
Convertible notes, net	Convertible notes, net	202,470		2,370		4.58	%	197,410		2,322		4.60	%	Convertible notes, net	215,599		1,323		2.43	%	201,169		2,358		4.64	%
Other borrowings, net	Other borrowings, net	99,819		1,019		3.99	%	98,690		1,668		6.61	%	Other borrowings, net	100,701		977		3.84	%	99,534		1,200		4.77	%
Total interest bearing liabilities	Total interest bearing liabilities	10,557,499		27,583		1.04	%	10,000,882		56,159		2.23	%	Total interest bearing liabilities	9,533,532		13,627		0.57	%	11,036,392		35,247		1.28	%
Noninterest bearing liabilities and equity:	Noninterest bearing liabilities and equity:													Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	Noninterest bearing demand deposits	4,239,108						2,958,233						Noninterest bearing demand deposits	5,445,457						3,510,783
Other liabilities	Other liabilities	184,633						185,088						Other liabilities	119,888						195,025
Stockholders’ equity	Stockholders’ equity	2,039,555						2,010,458						Stockholders’ equity	2,066,016						2,016,947
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,020,795					$	15,154,661					Total liabilities and stockholders’ equity	$	17,164,893					$	16,759,147

Net interest income/net interest spread	Net interest income/net interest spread			$	117,637	2.55	%			$	116,258	2.59	%	Net interest income/net interest spread			$	126,577	2.88	%			$	109,814	2.41	%
Net interest margin	Net interest margin					2.91	%					3.25	%	Net interest margin					3.11	%					2.79	%
Cost of deposits	Cost of deposits					0.64	%					1.62	%	Cost of deposits					0.30	%					0.87	%

* Annualized

(1)Interest income on loans includes loan fees

(2)Average balances of loans consist of loans receivable and loans held for sale

(3)Interest income and yields are not presented on a tax-equivalent basis

6468


		Nine Months Ended September 30,													Six Months Ended June 30,
		2020						2019							2021						2020
		Average Balance		Interest Income/ Expense		Average Yield/ Rate*		Average Balance		Interest Income/ Expense		Average Yield/ Rate*			Average Balance		Interest Income/ Expense		Average Yield/ Rate*		Average Balance		Interest Income/ Expense		Average Yield/ Rate*
		(Dollars in thousands)													(Dollars in thousands)
INTEREST EARNINGS ASSETS:	INTEREST EARNINGS ASSETS:													INTEREST EARNINGS ASSETS:
Loans(1) (2)	Loans(1) (2)	$	12,581,703	$	422,850	4.49	%	$	11,985,936	$	474,878	5.30	%	Loans(1) (2)	$	13,319,782	$	261,559	3.96	%	$	12,507,468	$	288,420	4.64	%
Securities available for sale(3)	Securities available for sale(3)	1,825,046		30,348		2.22	%	1,810,068		35,558		2.63	%	Securities available for sale(3)	2,260,233		15,628		1.39	%	1,731,094		20,500		2.38	%
FHLB stock and other investments	FHLB stock and other investments	1,060,699		3,951		0.50	%	450,028		8,577		2.55	%	FHLB stock and other investments	700,115		1,310		0.38	%	918,179		3,009		0.66	%
Total interest earning assets	Total interest earning assets	15,467,448		457,149		3.95	%	14,246,032		519,013		4.87	%	Total interest earning assets	16,280,130		278,497		3.45	%	15,156,741		311,929		4.14	%
Total noninterest earning assets	Total noninterest earning assets	943,702						963,636						Total noninterest earning assets	860,156						946,236
Total assets	Total assets	$	16,411,150					$	15,209,668					Total assets	$	17,140,286					$	16,102,977

INTEREST BEARING LIABILITIES:	INTEREST BEARING LIABILITIES:													INTEREST BEARING LIABILITIES:
Deposits:	Deposits:													Deposits:
Demand, interest bearing	Demand, interest bearing	$	4,668,594	$	28,988	0.83	%	$	3,197,313	$	42,807	1.79	%	Demand, interest bearing	$	5,370,941	$	11,399	0.43	%	$	4,554,096	$	22,443	0.99	%
Savings	Savings	287,060		2,578		1.20	%	234,203		1,848		1.05	%	Savings	304,877		1,757		1.16	%	279,063		1,670		1.20	%
Time deposits	Time deposits	4,852,286		61,869		1.70	%	5,694,778		100,075		2.35	%	Time deposits	3,493,278		10,310		0.60	%	4,927,425		46,451		1.90	%
Total interest bearing deposits	Total interest bearing deposits	9,807,940		93,435		1.27	%	9,126,294		144,730		2.12	%	Total interest bearing deposits	9,169,096		23,466		0.52	%	9,760,584		70,564		1.45	%
FHLB advances	FHLB advances	513,376		6,208		1.62	%	715,814		9,110		1.70	%	FHLB advances	209,006		1,273		1.23	%	594,148		4,885		1.65	%
Convertible notes, net	Convertible notes, net	201,204		7,074		4.62	%	196,217		6,930		4.66	%	Convertible notes, net	215,302		2,645		2.44	%	200,565		4,704		4.64	%
Other borrowings, net	Other borrowings, net	99,536		3,690		4.87	%	98,410		5,156		6.91	%	Other borrowings, net	100,547		1,957		3.87	%	99,393		2,671		5.32	%
Total interest bearing liabilities	Total interest bearing liabilities	10,622,056		110,407		1.39	%	10,136,735		165,926		2.19	%	Total interest bearing liabilities	9,693,951		29,341		0.61	%	10,654,690		82,824		1.56	%
Noninterest bearing liabilities and equity:	Noninterest bearing liabilities and equity:													Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	Noninterest bearing demand deposits	3,573,448						2,931,080						Noninterest bearing demand deposits	5,250,080						3,236,960
Other liabilities	Other liabilities	187,572						177,707						Other liabilities	139,443						189,056
Stockholders’ equity	Stockholders’ equity	2,028,074						1,964,146						Stockholders’ equity	2,056,812						2,022,271
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	16,411,150					$	15,209,668					Total liabilities and stockholders’ equity	$	17,140,286					$	16,102,977

Net interest income/net interest spread	Net interest income/net interest spread			$	346,742	2.56	%			$	353,087	2.68	%	Net interest income/net interest spread			$	249,156	2.84	%			$	229,105	2.58	%
Net interest margin	Net interest margin					2.99	%					3.31	%	Net interest margin					3.09	%					3.04	%
Cost of deposits	Cost of deposits					0.93	%					1.60	%	Cost of deposits					0.33	%					1.09	%

__________________________________

* Annualized

(1)Interest income on loans includes loan fees

(2)Average balances of loans consist of loans receivable and loans held for sale

(3)Interest income and yields are not presented on a tax-equivalent basis

6569

Changes in net interest income are a function of changes in interest rates and volumes of interest earning assets and interest bearing liabilities. The following table sets forth information regarding the changes in interest income and interest expense for the periods indicated. The total change for each category of interest earning assets and interest bearing liabilities is segmented into the change attributable to variations in volume (changes in volume multiplied by the old rate) and the change attributable to variations in interest rates (changes in rates multiplied by the old volume). Nonaccrual loans are included in average loans used to compute this table.

Three Months Ended
September 30, 2020 over September 30, 2019
Net
Increase
(Decrease) Change due to:
Rate Volume
(Dollars in thousands)
INTEREST INCOME:
Loans, including fees $ (23,685) $ (33,836) $ 10,151
Securities available for sale (1,525) (2,752) 1,227
FHLB stock and other investments (1,987) (4,110) 2,123
Total interest income $ (27,197) $ (40,698) $ 13,501
INTEREST EXPENSE:
Demand, interest bearing $ (9,256) $ (14,102) $ 4,846
Savings 232 90 142
Time deposits (17,162) (13,510) (3,652)
FHLB advances (1,789) (626) (1,163)
Convertible notes, net 48 (11) 59
Other borrowings, net (649) (667) 18
Total interest expense $ (28,576) $ (28,826) $ 250
NET INTEREST INCOME $ 1,379 $ (11,872) $ 13,251


		Nine Months Ended September 30, 2020 over September 30, 2019							Three Months Ended June 30, 2021 over June 30, 2020
		Net Increase (Decrease)		Change due to:					Net Increase (Decrease)		Change due to:
				Rate		Volume					Rate		Volume
		(Dollars in thousands)							(Dollars in thousands)
INTEREST INCOME:	INTEREST INCOME:							INTEREST INCOME:
Loans, including fees	Loans, including fees	$	(52,028)	$	(74,876)	$	22,848	Loans, including fees	$	(2,367)	$	(8,059)	$	5,692
Securities available for sale	Securities available for sale	(5,210)		(5,504)		294		Securities available for sale	(2,178)		(4,565)		2,387
FHLB stock and other investments	FHLB stock and other investments	(4,626)		(10,396)		5,770		FHLB stock and other investments	(312)		155		(467)
Total interest income	Total interest income	$	(61,864)	$	(90,776)	$	28,912	Total interest income	$	(4,857)	$	(12,469)	$	7,612
INTEREST EXPENSE:	INTEREST EXPENSE:							INTEREST EXPENSE:
Demand, interest bearing	Demand, interest bearing	$	(13,819)	$	(28,669)	$	14,850	Demand, interest bearing	$	(1,654)	$	(2,481)	$	827
Savings	Savings	730		276		454		Savings	25		(48)		73
Time deposits	Time deposits	(38,206)		(24,845)		(13,361)		Time deposits	(17,126)		(11,505)		(5,621)
FHLB advances	FHLB advances	(2,902)		(441)		(2,461)		FHLB advances	(1,607)		(337)		(1,270)
Convertible notes, net	Convertible notes, net	144		(49)		193		Convertible notes, net	(1,035)		(1,190)		155
Other borrowings, net	Other borrowings, net	(1,466)		(1,523)		57		Other borrowings, net	(223)		(237)		14
Total interest expense	Total interest expense	$	(55,519)	$	(55,251)	$	(268)	Total interest expense	$	(21,620)	$	(15,798)	$	(5,822)
NET INTEREST INCOME	NET INTEREST INCOME	$	(6,345)	$	(35,525)	$	29,180	NET INTEREST INCOME	$	16,763	$	3,329	$	13,434



	Six Months Ended June 30, 2021 over June 30, 2020
	Net Increase (Decrease)		Change due to:
			Rate		Volume
	(Dollars in thousands)
INTEREST INCOME:
Loans, including fees	$	(26,861)	$	(44,455)	$	17,594
Securities available for sale	(4,872)		(9,997)		5,125
FHLB stock and other investments	(1,699)		(1,092)		(607)
Total interest income	$	(33,432)	$	(55,544)	$	22,112
INTEREST EXPENSE:
Demand, interest bearing	$	(11,044)	$	(14,496)	$	3,452
Savings	87		(60)		147
Time deposits	(36,141)		(25,376)		(10,765)
FHLB advances	(3,612)		(1,026)		(2,586)
Convertible notes, net	(2,059)		(2,369)		310
Other borrowings, net	(714)		(743)		29
Total interest expense	$	(53,483)	$	(44,070)	$	(9,413)
NET INTEREST INCOME	$	20,051	$	(11,474)	$	31,525

6670

Provision for Credit Losses

The provision for credit losses reflects our judgment of the current period cost associated with credit risk inherent in our loan portfolio. The provision for credit losses for each period is dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, third parties’ and regulators’ examination of the loan portfolio, the value of the underlying collateral on problem loans, the general economic conditions in our market areas, and future projections of the economy. Specifically, the provision for credit losses represents the amount charged against current period earnings to achieve an allowance for credit losses that, in our judgment, is adequate to absorb probable lifetime losses inherent in our loan portfolio. Periodic fluctuations in the provision for credit losses result from management’s assessment of the adequacy of the allowance for credit losses; however, actual credit losses may vary in material respects from current estimates. If the allowance for credit losses is inadequate, we may be required to record additional provision, which may have a material and adverse effect on our business, financial condition, and results of operations.

The negative provision for credit losses for the ~~third~~second quarter of ~~2020~~2021 was ~~$22.0~~$7.0 million, ~~an increase~~a decrease of ~~$19.9~~$24.5 million from ~~$2.1~~$17.5 million ~~for the same period last year. The~~of provision for credit losses for the ~~nine~~same period of the prior year. The negative provision for credit losses for the six months ended ~~September~~June 30, ~~2020~~2021 was ~~$67.5~~$3.7 million, ~~an increase~~a decrease of ~~$61.2~~$49.2 million from ~~$6.3~~$45.5 million of provision for credit losses for the same period ~~last~~of the prior year. The ~~increase~~overall decrease in provision for credit losses for periods in ~~2020~~2021 compared to periods in ~~2019~~2020 was due to the ~~implementation of CECL which now estimates credit losses on the life of loans.~~economic recovery and improved economic forecasts for periods in 2021 compared to periods in 2020. In ~~addition,~~2020, due to the COVID-19 pandemic, we recorded additional reserves to reflect the economic decline that ~~continues to impact~~impacted the global economy, including additional risks associated with the large amount of loans that were modified as a result of the hardships experienced by borrowers due to the effects of the COVID-19 pandemic. The balance of loans modified due to COVID-19 was approximately 24.2% of the total portfolio as of June 30, 2020, but has declined significantly to approximately 2.4% of the total loan portfolio as of June 30, 2021. The decline in COVID-19 modified loans and overall reduction of credit risk in our loan portfolio also contributed to the decline in provision for credit losses for periods in 2021 compared to periods in 2020.

See the “Financial Condition” section of this MD&A for additional information and further discussion.

6771

Noninterest Income

Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), loan servicing fees, wire transfer fees, swap fee income, net gains on sales of loans, net gains on sales and calls of securities available for sale, and other income which includes earnings on bank owned life insurance, ~~swap fee income,~~ changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income. Noninterest income for the ~~third~~second quarter of 2021 was $11.1 million compared to $11.2 million for the second quarter of 2020, ~~was $17.5 million compared to $13.0 million for the third quarter~~a decrease of ~~2019, an increase of $4.5 million,~~$164 thousand or ~~34.8%~~1.5%. Noninterest income for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$42.0~~$19.9 million compared to ~~$36.7~~$24.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, an increase~~2020, a decrease of ~~$5.3~~$4.6 million, or ~~14.5%~~18.9%.

Noninterest income by category is summarized in the table below:


		Three Months Ended September 30,				Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
		2020		2019		Amount		Percent (%)			2021		2020		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Service fees on deposit accounts	Service fees on deposit accounts	$	2,736	$	4,690	$	(1,954)	(41.7)	%	Service fees on deposit accounts	$	1,777	$	2,583	$	(806)	(31.2)	%
International service fees	International service fees	987		1,193		(206)		(17.3)	%	International service fees	795		667		128		19.2	%
Loan servicing fees, net	Loan servicing fees, net	772		189		583		308.5	%	Loan servicing fees, net	934		1,106		(172)		(15.6)	%
Wire transfer fees	Wire transfer fees	892		1,058		(166)		(15.7)	%	Wire transfer fees	923		820		103		12.6	%
Swap fees										Swap fees	165		1,040		(875)		(84.1)	%
Net gains on sales of SBA loans										Net gains on sales of SBA loans	2,375		—		2,375		100.0	%
Net gains on sales of other loans										Net gains on sales of other loans	1,028		1,678		(650)		(38.7)	%

Swap fees		434		1,926		(1,492)		(77.5)	%
Net gains on sales of other loans		2,853		804		2,049		254.9	%
Net gains on sales of securities available for sale		7,531		153		7,378		4,822.2	%
Other income and fees	Other income and fees	1,308		2,982		(1,674)		(56.1)	%	Other income and fees	3,079		3,346		(267)		(8.0)	%
Total noninterest income	Total noninterest income	$	17,513	$	12,995	$	4,518	34.8	%	Total noninterest income	$	11,076	$	11,240	$	(164)	(1.5)	%

		Nine Months Ended September 30,				Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
		2020		2019		Amount		Percent (%)			2021		2020		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Service fees on deposit accounts	Service fees on deposit accounts	$	9,452	$	13,423	$	(3,971)	(29.6)	%	Service fees on deposit accounts	$	3,567	$	6,716	$	(3,149)	(46.9)	%
International service fees	International service fees	2,443		3,146		(703)		(22.3)	%	International service fees	1,636		1,456		180		12.4	%
Loan servicing fees, net	Loan servicing fees, net	2,243		1,656		587		35.4	%	Loan servicing fees, net	1,978		1,471		507		34.5	%
Wire transfer fees	Wire transfer fees	2,710		3,458		(748)		(21.6)	%	Wire transfer fees	1,767		1,818		(51)		(2.8)	%
Swap fees										Swap fees	232		2,016		(1,784)		(88.5)	%
Net gains on sales of SBA loans										Net gains on sales of SBA loans	2,375		—		2,375		100.0	%
Net gains on sales of other loans										Net gains on sales of other loans	3,124		3,533		(409)		(11.6)	%

Swap fees		2,450		2,348		102		4.3	%
Net gains on sales of other loans		6,386		2,611		3,775		144.6	%
Net gains on sales of securities available for sale		7,531		282		7,249		2,570.6	%
Other income and fees	Other income and fees	8,802		9,780		(978)		(10.0)	%	Other income and fees	5,201		7,494		(2,293)		(30.6)	%
Total noninterest income	Total noninterest income	$	42,017	$	36,704	$	5,313	14.5	%	Total noninterest income	$	19,880	$	24,504	$	(4,624)	(18.9)	%

~~The increase in~~Total noninterest income for the ~~third~~second quarter of 2021 remained largely unchanged compared to the second quarter of 2020 ~~compared to the third quarter of 2019 was~~ due to ~~an increase~~decreases in ~~net gains~~service charges on ~~sales~~deposits, swap fee income and ~~calls of securities available for sale and net~~ gains on sales of other loans offset ~~partially~~mostly by anet gains on sale of SBA loans. The decrease ~~in service fees on deposit accounts and other income and fees. The increase~~ in noninterest income for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same period of the prior year was ~~also~~ due to ~~an increase in net gains on sales and calls of securities available for sale and net gains on sales of other loans offset partially by a decrease~~decreases in service ~~fees~~charges on ~~deposit accounts~~deposits, swap fee income and other income and ~~fees.~~fees partially offset by gains on sale of SBA loans.

The decrease in service fees on deposit accounts for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was due to a decrease in customer analysis fees and non-sufficient funds fees collected on deposit accounts. ~~As a result~~Customer analysis fees declined by $724 thousand and $1.9 million, respectively, for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 due to our risk management decision to discontinue our relationships with customers in the check cashing industry. Non-sufficient fee charges increased $57 thousand for the second quarter of 2021 compared to the second quarter of 2020 but declined by $901 thousand for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Due to the COVID-19 pandemic and ~~the stay at home orders issued by many states,~~social distancing and related restrictions, deposit activity for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 was greatly reduced compared to the ~~three and nine~~six months ended ~~September~~June 30, ~~2019.~~2020. As a result, demand deposit account transactions ~~and~~declined which negatively impacted the amount of non-sufficient ~~funds had significant declines during the nine months ended September 30, 2020.~~

fees earned.

International service fees ~~declined~~remained largely unchanged for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods of ~~2019 due to a decline in fees generated from trade finance loans.~~2020. International service fees are earned from trade finance ~~loans and as the balance of these loans have declined, the associated fee income earned has also declined.~~loans. Trade finance loans ~~declined~~decreased to ~~$106.6~~$108.2 million at ~~September~~June 30, ~~2020~~2021 from ~~$161.0~~$109.5 million at ~~September~~June 30, ~~2019.~~2020.

Loan servicing fees, net represents income earned from servicing SBA and residential mortgage loans that were previously sold. We retain servicing on ~~most~~many of the loans that we choose to sell. The decrease in loan servicing fees, net for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was due to an increase in payoff of serviced loans for 2021 compared to 2020 while the increase in loan servicing fees, net for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~three and nine~~six months ended ~~September~~June 30, ~~2019~~2020 was due to a reduction in payoffs of serviced loans. ~~Payoffs~~The payoff of serviced loans ~~were higher during the three and nine months ended September 30, 2019, which resulted~~results in the full amortization of the remaining servicing asset, which is recorded as a reduction to loan servicing fee income.

Wire transfer fees ~~declined for~~increased during the three ~~and nine~~ months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~same periods of 2019~~three months ended June 30, 2020 due to an increase in demand deposit accounts which has led to an increase in wire activity. Wire transfer fees for the ~~COVID-19 pandemic, which resulted in a significant decline in deposit related transactions, including wire transfers. Wire transactions increased during the third quarter of 2020~~six months ended June 30, 2021 compared to the ~~prior two quarters, but not yet to the level experienced in 2019.~~six months ended June 30, 2020 remained largely unchanged.

Swap fee income represents fees earned from back to back swap transactions for our loan customers. ~~Due to the volatility in interest rates we have experienced in the past twelve months, the~~The number of swap transactions ~~increased during the first half of 2020~~have decreased in 2021 which has resulted in ~~an increase~~a decrease in swap fee income for the ~~nine~~three and six months ended ~~September~~June 30, ~~2020 compared to the nine months ended September 30, 2019. However, swap fee transactions declined for the three months ended September 30, 2020 which led to a decline in swap fee income~~2021 compared to the three and six months ended ~~September~~June 30, 2020.

During the fourth quarter of 2018, we stopped the practice of regularly selling the guaranteed portion of SBA loans due to the reduction in premium rates paid in the secondary market. However, recently premiums paid for SBA guaranteed loans has increased significantly due to the low interest rate environment and increased liquidity held by banks and other financial institutions. As a result, we decided to return to the practice of regularly selling SBA guaranteed loans. During the second quarter of 2021, we sold $30.0 million in SBA guaranteed loans and recorded $2.4 million in net gains on sales of SBA loans. The SBA loans that we sold were all seasoned loans that were originated in 2018 and 2019. We chose to focus on selling seasoned loans first as these loans have higher prepayment risk compared to newly originated loans. We did not have any net gains on sales of SBA loans in 2020.

Net gains on sales of other loans represents net gains from the sale of residential mortgage loans. Residential mortgage loans sold during the ~~third~~second quarter of ~~2020~~2021 totaled ~~$104.5~~$42.6 million compared to ~~$30.9~~$67.4 million sold during the ~~third~~second quarter of ~~2019.~~2020. Residential mortgage loans sold during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 totaled ~~$245.8~~$110.5 million compared to ~~$176.9~~$141.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~decrease in net gains on sales of other loans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was due to ~~an increase~~a decrease in residential mortgage loans sold for periods in ~~2020~~2021 compared to periods in ~~2019 in addition to discount accretion income recognized on residential mortgage loans sold during the nine months ended September 30,~~ 2020. During the first quarter of 2020, we sold $38.9 million in residential mortgage loans previously classified as held for investment in a bulk sale transaction. Most of the loans sold were acquired loans with remaining discounts, which increased the gain on sale income recognized.

Net gains on sales of securities available for sale increased for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 due to an increase in investment securities sold during the third quarter of 2020. During the third quarter of 2020, we sold investment securities with a total book value of $160.5 million for sale for a net gain of $7.5 million. There were no investments sold during the first half of 2020. This compares to investment securities with a total book value of $46.3 million and $115.3 million sold during the three and nine months ended September 30, 2019, respectively. During the third quarter of 2020, we prepaid $300.0 million in FHLB advances paying a penalty of $3.6 million. To offset the prepayment penalty paid, we sold a portion of our investment securities and recorded a net gain.

Other income and fees decreased for the three and nine months ended September 30, 2020 compared to the same periods of 2019 due largely to the decline in fair value of our interest rate lock commitments and equity investments as well a decline in various fees and incomes earned through normal operations. Other income and fees include income from bank owned life insurance, recoveries on acquired loans that were fully charged-off at acquisition, debit card/credit card fee income, fair value changes on our derivatives and equity investments, and other miscellaneous income. Other income and fees decreased for the three and six months ended June 30, 2021 compared to the same periods of 2020 due largely to the decline in recoveries on acquired loans that were fully charged-off at acquisition and declines in the fair value of our mortgage derivatives.

6973

Noninterest Expense

Noninterest expense for the ~~third~~second quarter of ~~2020~~2021 was ~~$73.4~~$73.1 million, an increase of ~~$3.4~~$6.1 million, or ~~4.9%~~9.1%, from ~~$70.0~~$67.0 million for the ~~same period~~second quarter of ~~2019.~~2020. Noninterest expense for the ~~nine~~six months ended ~~September~~June 30, 2020 was ~~$212.6~~$143.6 million, an increase of ~~$377 thousand,~~$4.4 million, or ~~0.2%~~3.2%, from ~~$212.2~~$139.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

The breakdown of changes in noninterest expense by category is shown in the following table:


		Three Months Ended September 30,				Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
		2020		2019		Amount		Percent (%)			2021		2020		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	Salaries and employee benefits	$	40,659	$	41,607	$	(948)	(2.3)	%	Salaries and employee benefits	$	42,309	$	38,850	$	3,459	8.9	%
Occupancy	Occupancy	7,264		7,703		(439)		(5.7)	%	Occupancy	7,067		7,043		24		0.3	%
Furniture and equipment	Furniture and equipment	4,513		3,851		662		17.2	%	Furniture and equipment	4,822		4,654		168		3.6	%
Advertising and marketing	Advertising and marketing	1,601		2,377		(776)		(32.6)	%	Advertising and marketing	2,097		1,315		782		59.5	%
Data processing and communications	Data processing and communications	2,204		2,821		(617)		(21.9)	%	Data processing and communications	2,411		2,274		137		6.0	%
Professional fees	Professional fees	1,513		5,241		(3,728)		(71.1)	%	Professional fees	4,395		1,510		2,885		191.1	%
Investments in affordable housing partnership expenses	Investments in affordable housing partnership expenses	3,876		2,334		1,542		66.1	%	Investments in affordable housing partnership expenses	2,952		2,873		79		2.7	%
FDIC assessments	FDIC assessments	1,167		—		1,167		100.0	%	FDIC assessments	1,284		1,652		(368)		(22.3)	%
Credit related expenses	Credit related expenses	1,793		1,031		762		73.9	%	Credit related expenses	43		1,361		(1,318)		(96.8)	%
OREO (income) expense, net		1,770		(743)		2,513		N/A
FHLB prepayment fee		3,584		—		3,584		100.0	%
OREO expense, net										OREO expense, net	298		1,338		(1,040)		(77.7)	%
Software impairment										Software impairment	2,146		—		2,146		100.0	%
Other	Other	3,462		3,773		(311)		(8.2)	%	Other	3,299		4,160		(861)		(20.7)	%
Total noninterest expense	Total noninterest expense	$	73,406	$	69,995	$	3,411	4.9	%	Total noninterest expense	$	73,123	$	67,030	$	6,093	9.1	%

		Nine Months Ended September 30,				Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
		2020		2019		Amount		Percent (%)			2021		2020		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	Salaries and employee benefits	$	122,011	$	121,333	$	678	0.6	%	Salaries and employee benefits	$	83,525	$	81,352	$	2,173	2.7	%
Occupancy	Occupancy	21,717		23,219		(1,502)		(6.5)	%	Occupancy	14,034		14,453		(419)		(2.9)	%
Furniture and equipment	Furniture and equipment	13,426		11,323		2,103		18.6	%	Furniture and equipment	9,008		8,913		95		1.1	%
Advertising and marketing	Advertising and marketing	4,589		6,684		(2,095)		(31.3)	%	Advertising and marketing	3,722		2,988		734		24.6	%
Data processing and communications	Data processing and communications	7,109		8,364		(1,255)		(15.0)	%	Data processing and communications	5,148		4,905		243		5.0	%
Professional fees	Professional fees	6,323		16,580		(10,257)		(61.9)	%	Professional fees	7,298		4,810		2,488		51.7	%
Investments in affordable housing partnership expenses	Investments in affordable housing partnership expenses	9,300		7,601		1,699		22.4	%	Investments in affordable housing partnership expenses	5,654		5,424		230		4.2	%
FDIC assessments	FDIC assessments	4,378		3,110		1,268		40.8	%	FDIC assessments	2,539		3,211		(672)		(20.9)	%
Credit related expenses	Credit related expenses	4,816		3,258		1,558		47.8	%	Credit related expenses	2,261		3,023		(762)		(25.2)	%
OREO (income) expense, net		3,951		(812)		4,763		N/A
FHLB prepayment fee		3,584		—		3,584		100.0	%
OREO expense, net										OREO expense, net	579		2,181		(1,602)		(73.5)	%
Software impairment										Software impairment	2,146		—		2,146		100.0	%
Other	Other	11,372		11,539		(167)		(1.4)	%	Other	7,640		7,910		(270)		(3.4)	%
Total noninterest expense	Total noninterest expense	$	212,576	$	212,199	$	377	0.2	%	Total noninterest expense	$	143,554	$	139,170	$	4,384	3.2	%

The increase in noninterest expense for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 was due primarily to an increase in salaries and employee benefits, professional fees, and software impairment offset partially by declines in OREO expense, net and credit related expenses.

7074

Salaries and employee benefits expense ~~decreased $948 thousand~~increased $3.5 million for the ~~third~~second quarter of ~~2020~~2021 compared to the same period in ~~2019~~2020 and increased ~~$678 thousand~~$2.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in salaries and benefits for the three and six months ended ~~September~~June 30, ~~2020~~2021 compared to the three and six months ended ~~September~~June 30, ~~2019~~2020 was due to a decrease in ~~group insurance~~payroll related origination costs ~~temporary personnel expenses,~~ and ~~bonus provision expenses offset partially by~~ an increase in ~~employee salaries. Salaries and benefits for~~salaries from our employees annual merit increases effective at the nine months ended September 30, 2020 increased compared to the nine months ended September 30, 2019 due to an increase in employee salaries offset partially by a decline in group insurance costs, temporary personnel expenses, and bonus provision expenses. For the three and nine months ended September 30, 2020, salaries and employee benefits also included deferred originations costs which was recorded from the originationbeginning of ~~$480.1 million in SBA PPP loans during the~~ second ~~quarter of 2020.~~quarter. SBA PPP loan origination costs ~~of $5.3 million was recorded during the second quarter of 2020 which~~ initially ~~reduced~~reduces salaries and benefits and ~~going forward~~ is subsequently amortized through the life of the loans as a reduction to interest income. The decrease in payroll origination costs was primarily due to the decline in origination costs related to SBA PPP loans. For the three and six months ended June 30, 2021, we began utilizing a third party loan on-boarding platform for SBA PPP loans which resulted in a quicker and more efficient underwriting process thereby reducing overall loan origination costs compared to the three and six months June 30, 2020. The number of full-time equivalent employees decreased from ~~1,439~~1,474 at ~~September~~June 30, ~~2019~~2020 to ~~1,416~~1,438 at ~~September~~June 30, 2020. During the third quarter of 2020, we implemented a 4% reduction in staff in light of the impact that COVID-19 is having on our operations. The staff reduction is expected to result in approximately $6.4 million in annual savings to salaries2021.

Advertising and ~~employee benefits.~~

~~Occupancy~~marketing expense ~~declined $439~~increased $782 thousand for the ~~third~~second quarter of ~~2020~~2021 compared to the same period in ~~2019~~2020 and ~~declined $1.5 million~~increased $734 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The decline in occupancy expense for periods in 2020 compared to periods in 2019 was due to the decline in rent expenses and other occupancy related expenditures. Our Board of Directors recently approved a branch consolidation plan in which we plan to close six branch offices in early 2021. As a result, we expect to record approximately $3.1 million in restructuring costs during the fourth quarter of 2020 related to the early termination of lease contracts, severance payments, and other costs. The branch consolidation is estimated to result in approximately $2.6 million in annual cost savings starting in 2021.

Furniture and equipment expense increased $662 thousand for the third quarter of 2020 compared to the same period in 2019 and increased $2.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase ~~in these expenses reflect additional expenditures made for software subscriptions, licenses, and IT related equipment and services.~~

Advertising and marketing expense decreased $776 thousand for the third quarter of 2020 compared to the same period in 2019 and decreased $2.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decline in advertising and marketing expense reflects ~~reductions in public~~additional fees for the sponsorship ~~fees. Starting in 2020, we no longer sponsor~~of the Ladies Professional Golf Association (“LPGA”) Founders Cup. In 2017, we began our annual sponsorship of the LGPA’s Founders Cup, ~~for which sponsorship fees were $1.5 million per year.~~

~~Data process and communications expense decreased $617 thousand~~but chose not to sponsor the event in 2020. However, in 2021, we chose to again become the main sponsor for the third quarter of 2020 compared to the same period in 2019 and decreased $1.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decline in data processing and communications expenses for periods in 2020 compared to the periods in 2019 was due to an overall decline in core data processing fees as the number of loan and deposit transactions have declined.Founders Cup event.

Professional fees ~~experienced a decrease of $3.7~~increased by $2.9 million for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020 and ~~decreased by $10.3~~increased $2.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in professional fees ~~for periods in 2020 compared to periods in 2019~~ was due to ~~decreases in fees~~higher legal expenses related to ~~the implementation of CECL, IT related professional~~litigation fees ~~and internal audit service fees. With the expansion of our internal audit department, we were able~~paid to ~~significantly reduce internal audit service fees in 2020 as much more of the work is now performed internally.~~attorneys.

We make investments in affordable housing partnerships and receive Community Reinvestment Act credits and tax credits, which reduces our overall effective tax ~~provision~~ rate. Investments in affordable housing partnership expenses are recorded based on benefit schedules of individual investment projects under the equity method of accounting. The benefit schedules show tax loss/deductions investors can take each year. We amortize the initial cost of the investments in affordable housing partnership by tax loss/deductions. This amortization expense is more than offset by both tax credits received, which reduces our tax provision expense dollar for dollar, and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, total tax credits related to our investment in affordable housing ~~partnership investment~~partnerships was approximately $2.6 million and ~~$7.8~~$5.2 million, respectively. The balance of investments in affordable housing partnerships decreased from ~~$84.3~~$77.2 million at ~~September~~June 30, ~~2019~~2020 to ~~$73.3~~$63.8 million at ~~September~~June 30, ~~2020.~~2021.

The FDIC assessment ~~premium~~expenses or premiums utilizes an initial base assessment rate, which is calculated as a percentage of our average consolidated total assets less average tangible equity. In addition to the initial assessment base, adjustments are added based upon our regulatory rating and ~~selected~~on other financial measures. The ~~increase~~decrease in FDIC assessment fees for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~largely~~ due to a ~~$1.5 million~~

~~small bank~~decline in assessment ~~credit that was received during~~fees adjustments related to the ~~third quarter~~balance of ~~2019 which reduced~~brokered deposits. The decline in brokered deposit balances at June 30, 2021 compared to June 30, 2020 resulted in a decline in FDIC assessment ~~fees~~adjustments to account for ~~periods in 2019. There were no recorded credits for 2020 which resulted in an increase in these fees.~~the reduction of risk that results from a lower percentage of brokered deposits.

Credit related expense ~~increased $762 thousand~~decreased $1.3 million for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019 and increased $1.6 million for~~2020 due largely to a decrease in expenses related to loan collections. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, credit related expenses decreased $762 thousand compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019. The increase in credit related expense was~~2020 due to ~~an overall increase~~decreases in ~~expenses and fees related to the collection and servicing of loans. Provision~~provision for off balance sheet loan commitments ~~are included~~and loan collection expenses which were offset partially by an increase in ~~credit related expense.~~provision for loan accrued interest receivables. Provision for loan accrued interest receivables for the three and six months ended June 30, 2021 totaled $0 and $600 thousand, respectively, compared to no provision for the three and six months ended June 30, 2020. Provision for off balance sheet loan commitments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 totaled $0 and $105 thousand, respectively, compared to $50 thousand and $660 thousand, respectively, ~~compared to a credit for off balance sheet loan commitments of $100 thousand~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

OREO ~~(income)~~ expense, net experienced ~~an increase~~a decrease of ~~$2.5~~$1.0 million for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020 and ~~increased $4.8~~decreased $1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increases~~decreases in OREO ~~(income)~~ expense, net for periods in ~~2020~~2021 compared to periods in ~~2019~~2020 was due to ~~an increase~~a decrease in OREO valuation allowance expenses.

We recorded a one-time $2.1 million impairment during the second quarter of 2021 related to the disposition of a licensed compliance related software platform. Management decided to utilize a different platform and therefore the remaining carrying balance for the unused software was fully written off.

Other noninterest expense for the three and ~~nine~~six months ended ~~September~~June 30, 2021 decreased by $861 thousand and $270 thousand, respectively, compared to the three and six months ended June 30, 2020 ~~remained largely unchanged compared~~due to ~~expenses for the same periods of the prior year.~~decreases in various expense items.

Provision for Income Taxes

Income tax provision expense was ~~$9.3~~$17.8 million and ~~$14.6~~$9.8 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The effective income tax rates were ~~23.28%~~24.84% and ~~25.48%~~26.75% for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Income tax provision expense for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$25.5~~$31.7 million and ~~$43.3~~$16.2 million, respectively. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 was 24.56% and ~~2019 was 23.45% and 25.26%~~23.55%, respectively. The ~~Company reduced its projected annual pre-tax book income~~increase in effective tax rate for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 ~~taking into consideration the current and expected impact that the COVID-19 pandemic has had on the Company which increased the tax effect of the Company’s~~was primarily due to affordable housing partnership investment tax credits ~~reducing the overall tax rate for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019.~~benefit having a lower effect on larger annual projected pre-tax book income.

7276

Financial Condition

At ~~September~~June 30, ~~2020,~~2021, our total assets were ~~$16.73~~$17.47 billion, an increase of ~~$1.07 billion,~~$363.0 million, or ~~6.8%~~2.1%, from ~~$15.67~~$17.11 billion at December 31, ~~2019.~~2020. The increase in total assets was due to the increase in ~~loans~~cash and cash equivalents partially offset by a decline in loan receivable ~~and investment securities~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Equity Investments

Total equity investments include equity investments with readily determinable fair values and equity investment without readily determinable fair values. Equity investments at ~~September~~June 30, ~~2020~~2021 totaled ~~$49.7~~$59.0 million, ~~an increase~~a decrease of ~~$620~~$667 thousand, or ~~1.3%~~1.1%, from ~~$49.1~~$59.7 million at December 31, ~~2019.~~2020.

At ~~September~~June 30, 2021 and December 31, 2020, total equity investments with readily determinable fair values totaled ~~$22.7~~$27.2 million ~~consisting of mutual funds. Equity investments with readily determinable fair values at December 31, 2019 totaled $22.1~~and $27.6 million, ~~also~~respectively, consisting of mutual funds. Changes to the fair value of equity investments with readily determinable fair values is recorded in other noninterest income.

We also had ~~$27.0~~$31.8 million and $32.1 million in equity investments without readily determinable fair values as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively. At ~~September~~June 30, ~~2020,~~2021, equity investments without readily determinable fair values included ~~$25.7~~$30.5 million in CRA investments, $1.0 million in CDFI investments, and $370 thousand in correspondent bank stock. Equity investments without readily determinable fair values are carried at cost, less impairment, and adjustments are made to the carrying balance based on observable price changes. There were no impairments or observable price changes for equity investments without readily determinable fair values during the ~~three or nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Investment Securities Portfolio

At ~~September~~June 30, ~~2020,~~2021, we had ~~$2.06~~$2.27 billion in available for sale securities compared to ~~$1.72~~$2.29 billion at December 31, ~~2019.~~2020. The net unrealized gain on the available for sale securities at ~~September~~June 30, ~~2020~~2021 was ~~$46.4~~$19.6 million compared to a net unrealized gain on securities of ~~$12.1~~$46.2 million at December 31, ~~2019.~~2020. The change in unrealized gain on investment securities from December 31, ~~2019~~2020 to ~~September~~June 30, ~~2020~~2021 was due to ~~a decline~~an increase in treasury rates.

During the ~~nine~~six months ended ~~September~~June 30, ~~2020, $867.7~~2021, $422.7 million in investment securities were purchased and ~~$388.6~~$397.1 million in investment securities were paid down. For the ~~nine~~six months ended ~~September~~June 30, ~~2020, $80 thousand and $160.5 million in~~2021, there were no investment securities that matured, were ~~matured and sold, respectively.~~called or sold.

We adopted ASU 2016-13 on January 1, 2020 and implemented the CECL methodology for our investment securities available for sale. At the time of adoption, we did not record a day 1 CECL adjustment on our investment securities available for sale as we determined that a credit impairment did not exist. Subsequently, we performed an analysis on our investment portfolio in unrealized loss positions as of ~~September~~June 30, 2021 and December 31, 2020 and ~~found~~determined that an allowance for credit losses was not required. The majority of our investment portfolio consists of securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which we determined to have zero loss expectation. At ~~September~~June 30, ~~2020,~~2021, we also had four asset-back securities, three corporate ~~security~~securities, and five municipal bonds not issued by U.S. Government agencies or U.S. Government sponsored enterprises that ~~was~~were in an unrealized loss position. Based on our analysis of ~~this~~these investment securities, we concluded a credit loss did not exist due to the strength of the issuer, high bond ratings, and because we still expect full payment of principal and interest.

Investments in Affordable Housing Partnerships

At ~~September~~June 30, ~~2020,~~2021, we had ~~$73.3~~$63.8 million in investments in affordable housing partnerships compared to ~~$82.6~~$69.5 million at December 31, ~~2019.~~2020. The decrease in investments in affordable housing partnerships was due to recorded losses and premium amortizations recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Commitments to fund investments in affordable housing partnerships totaled ~~$17.0~~$10.7 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$28.5~~$15.1 million at December 31, ~~2019.~~2020. The decline in commitments to fund investments in affordable housing partnerships during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was due to cash contributions, which reduced the remaining commitment balances.

7377

Loan Portfolio

At ~~September~~June 30, ~~2020,~~2021, loans receivable totaled ~~$13.12~~$13.42 billion, ~~an increase~~a decrease of ~~$844.2~~$138.9 million from ~~$12.28~~$13.56 billion at December 31, ~~2019.~~2020. The following table summarizes our loan portfolio by amount and percentage of total loans outstanding in each major loan category as of the dates indicated:


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
		Amount		Percent (%)		Amount		Percent (%)			Amount		Percent (%)		Amount		Percent (%)
				(Dollars in thousands)									(Dollars in thousands)
Loan portfolio composition	Loan portfolio composition									Loan portfolio composition
Real estate loans:	Real estate loans:									Real estate loans:
Residential	Residential	$	54,585	—	%	$	52,558	—	%	Residential	$	61,360	—	%	$	54,795	—	%
Commercial	Commercial	8,347,358		64	%	8,316,470		68	%	Commercial	8,518,115		64	%	8,425,959		63	%
Construction	Construction	311,593		3	%	295,523		3	%	Construction	252,801		2	%	291,380		2	%
Total real estate loans	Total real estate loans	8,713,536		67	%	8,664,551		71	%	Total real estate loans	8,832,276		66	%	8,772,134		65	%
Commercial business	Commercial business	3,700,020		28	%	2,721,183		22	%	Commercial business	4,001,423		30	%	4,157,787		31	%
Residential mortgage	Residential mortgage	659,876		5	%	835,188		7	%	Residential mortgage	543,622		4	%	582,232		4	%
Consumer and other	Consumer and other	46,793		—	%	55,085		—	%	Consumer and other	46,980		—	%	51,060		—	%
Total loans receivable, net of deferred costs and fees	Total loans receivable, net of deferred costs and fees	13,120,225		100	%	12,276,007		100	%	Total loans receivable, net of deferred costs and fees	13,424,301		100	%	13,563,213		100	%
Allowance for credit losses	Allowance for credit losses	(179,849)				(94,144)				Allowance for credit losses	(189,452)				(206,741)
Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	$	12,940,376			$	12,181,863			Loans receivable, net of allowance for credit losses	$	13,234,849			$	13,356,472

Our total loans ~~increased~~decreased from December 31, ~~2019~~2020 to ~~September~~June 30, ~~2020~~2021 largely due to ~~an increase~~a decrease in commercial business loans during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Commercial business loans ~~increased $978.8~~decreased $156.4 million from December 31, ~~2019~~2020 to ~~September~~June 30, ~~2020 due to a combination of new loan originations, line of credit commitment draw-downs, and SBA PPP originations. Warehouse lines of credit, included~~2021. The decrease in commercial business loans ~~increased $449.6 million~~was largely due to the decrease in warehouse lines of credit from ~~$378.9 million~~$1.01 billion at December 31, ~~2019~~2020 to ~~$828.5~~$725.2 million at ~~September~~June 30, ~~2020. During~~2021 and the ~~second quarter~~forgiveness of ~~2020, we originated $480.1~~$193.5 million in SBA PPP loans ~~which are categorized as~~during the six months ended June 30, 2021. The declines in commercial business ~~loans. As~~loans were partially offset by the origination of ~~September 30, 2020, the balance of~~$324.5 million in SBA PPP loans ~~totaled $464.6 million.~~during the first half of 2021. The ~~increase~~net decrease in commercial business loans was partially offset by aan increase in commercial real estate loans of $92.2 million. During the second quarter of 2021, we sold $119.3 million in hotel/motel loans with elevated credit risk. This decline was offset by record commercial real estate originations of $831.0 million during the first half of 2021 which resulted in an overall increase in commercial real estate loans and we also purchased of $98.3 million in residential mortgage loans during the second quarter of ~~$175.3 million due to sales, pay-downs, and payoffs.~~2021.

We normally do not extend lines of credit or make loan commitments to business customers for periods in excess of one year. We use the same credit policies in making commitments and conditional obligations as we do for providing loan facilities to our customers. We perform annual reviews of such commitments prior to renewal.

The following table shows our loan commitments and letters of credit outstanding at the dates indicated:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Commitments to extend credit	Commitments to extend credit	$	2,184,404	$	1,864,947	Commitments to extend credit	$	2,483,026	$	2,137,178
Standby letters of credit	Standby letters of credit	118,509		113,720		Standby letters of credit	115,629		108,834
Other commercial letters of credit	Other commercial letters of credit	32,228		37,627		Other commercial letters of credit	55,609		40,508
Total	Total	$	2,335,141	$	2,016,294	Total	$	2,654,264	$	2,286,520

7478

Nonperforming Assets

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and on accrual status, accruing restructured loans, and OREO totaled ~~$124.6~~$183.7 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$122.1~~$143.3 million at December 31, ~~2019.~~2020. The ratio of nonperforming assets to loans receivable and OREO was ~~0.95%~~1.37% at ~~September~~June 30, ~~2020~~2021 and ~~0.99%~~1.06% at December 31, ~~2019.~~2020.

The following table summarizes the composition of our nonperforming assets as of the dates indicated.


		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
		(Dollars in thousands)							(Dollars in thousands)
Nonaccrual loans (1)	Nonaccrual loans (1)	$	69,205		$	54,785		Nonaccrual loans (1)	$	111,008		$	85,238
Loans 90 days or more days past due, still accruing	Loans 90 days or more days past due, still accruing	1,537			7,547			Loans 90 days or more days past due, still accruing	4,759			614
Accruing restructured loans	Accruing restructured loans	35,429			35,709			Accruing restructured loans	51,360			37,354
Total nonperforming loans	Total nonperforming loans	106,171			98,041			Total nonperforming loans	167,127			123,206
OREO	OREO	18,410			24,091			OREO	16,619			20,121
Total nonperforming assets	Total nonperforming assets	$	124,581		$	122,132		Total nonperforming assets	$	183,746		$	143,327

Nonperforming loans to loans receivable	Nonperforming loans to loans receivable	0.81		%	0.80		%	Nonperforming loans to loans receivable	1.24		%	0.91		%
Nonperforming assets to loans receivable and OREO	Nonperforming assets to loans receivable and OREO	0.95		%	0.99		%	Nonperforming assets to loans receivable and OREO	1.37		%	1.06		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.74		%	0.78		%	Nonperforming assets to total assets	1.05		%	0.84		%
Allowance for credit losses to nonperforming loans ~~(2)~~	Allowance for credit losses to nonperforming loans ~~(2)~~	169.40		%	96.03		%	Allowance for credit losses to nonperforming loans ~~(2)~~	113.36		%	167.80		%
Allowance for credit losses to nonperforming assets ~~(2)~~	Allowance for credit losses to nonperforming assets ~~(2)~~	144.36		%	77.08		%	Allowance for credit losses to nonperforming assets ~~(2)~~	103.11		%	144.24		%

(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling ~~$26.2~~$23.6 million as of ~~September~~June 30, ~~2020~~2021 and ~~$28.1~~$26.5 million as of December 31, ~~2019. Nonaccrual loans at December 31, 2019 excludes PCI loans totaling $18.3 million.~~

~~(2)~~ Allowance for credit losses as of September 30, 2020 was calculated under the CECL methodology while allowance for loan losses as of December 31, 2019 was calculated under the incurred loss methodology.2020.

Allowance for Credit Losses

On January 1, 2020 the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”, or CECL, which significantly changed the credit losses estimation model for ~~loan~~loans and investments. On March 27, 2020, President Donald Trump signed into law the CARES Act in response to the global pandemic. The CARES Act includes a provision that temporarily delays the required implementation date of ASU 2016-13. However, we chose not to elect to delay the adoption of ASU 2016-13 and implemented the CECL methodology as of January 1, 2020. On January 1, 2020, we recorded a $26.2 million day 1 CECL adjustment as a result of adopting the new standard.

The allowance for credit losses (“ACL”) was ~~$179.8~~$189.5 million at ~~September~~June 30, ~~2020~~2021 compared to allowance for ~~loan~~credit losses of ~~$94.1~~$206.7 million at December 31, ~~2019.~~2020. The ACL was ~~1.37%~~1.41% and 1.52% of loans receivable at ~~September~~June 30, ~~2020~~2021 and ~~0.77% of loans receivable at~~ December 31, ~~2019.~~2020, respectively. The ACL to loans receivable ratio does not include non-credit related discount on acquired loans. Total discount on acquired loans at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 totaled ~~$27.0~~$17.5 million and ~~$45.9~~$23.3 million, respectively. ACL on individually evaluated loans increased to ~~$6.9~~$30.6 million at ~~September~~June 30, ~~2020~~2021 from ~~$3.4~~$7.3 million at December 31, ~~2019.~~2020. The increase in ACL for individually evaluated loans was primarily due to one large commercial real estate loan which had an ACL of $21.6 million as of June 30, 2021.

7579

The following table reflects our allocation of the ACL by loan type and the ratio of each loan segment to total loans as of the dates indicated:


		Allocation of Allowance for Credit Losses										Allocation of Allowance for Credit Losses
		September 30, 2020		June 30, 2020				December 31, 2019				June 30, 2021				March 31, 2021		December 31, 2020
		Allowance for Credit Losses		Percent of Allowance to Loans Receivable		Allowance for Credit Losses		Percent of Allowance to Loans Receivable		Allowance for Loan Losses			Percent of Allowance to Loans Receivable			Allowance for Credit Losses		Percent of Allowance to Loans Receivable		Allowance for Credit Losses		Percent of Allowance to Loans Receivable		Allowance for Credit Losses		Percent of Allowance to Loans Receivable
		(Dollars in thousands)										(Dollars in thousands)
Loan Type	Loan Type														Loan Type
Real estate – residential	Real estate – residential	$	208	0.38	%	$	460	0.84	%	$	204		0.39	%	Real estate – residential	$	330	0.54	%	$	267	0.51	%	$	391	0.71	%
Real estate – commercial	Real estate – commercial	127,483		1.53	%	114,668		1.37	%	51,712			0.62	%	Real estate – commercial	153,266		1.80	%	160,376		1.89	%	159,527		1.89	%
Real estate – construction	Real estate – construction	1,933		0.62	%	3,902		1.35	%	1,677			0.57	%	Real estate – construction	1,657		0.66	%	1,664		0.62	%	2,278		0.78	%
Commercial business	Commercial business	44,209		1.19	%	35,493		1.04	%	33,032			1.21	%	Commercial business	29,500		0.74	%	41,860		0.96	%	39,155		0.94	%
Residential mortgage	Residential mortgage	4,699		0.71	%	5,868		0.81	%	5,925			0.71	%	Residential mortgage	3,612		0.66	%	2,735		0.55	%	4,227		0.73	%
Consumer and other	Consumer and other	1,317		2.81	%	1,380		2.98	%	1,594			2.89	%	Consumer and other	1,087		2.31	%	1,041		2.37	%	1,163		2.28	%
Total	Total	$	179,849	1.37	%	$	161,771	1.26	%	$	94,144		0.77	%	Total	$	189,452	1.41	%	$	207,943	1.52	%	$	206,741	1.52	%

* Held-for-sale loans of $54.2 million and $17.7 million at June 30, 2021 and December 31, 2020, respectively, were excluded.

ACL coverage ratio for ~~commercial real estate and construction loans increased~~all loan segments declined as of ~~September~~June 30, ~~2020~~2021 compared to December 31, ~~2019.~~2020 except for consumer and other loans. The ~~increase~~decrease in ACL coverage ratio for these loan types was due to ~~the adoption of CECL as we now estimate~~ a lifetime of expected losses compared to losses at a point in time under the previous incurred model. The ACL as of September 30, 2020 also reflects an increase in estimated losses due to the effects ofmuch stronger economic recovery from the COVID-19 pandemic and resulting risks associated with a deteriorated economy and an increase in COVID-19 related modifications. Residential real estate, commercial business, and consumer and other loans experienced a small decline in ACL coverage ratio from December 31, 2019 to September 30, 2020. The decline in the forecast scenario selected for the ACL ~~coverage ratio for commercial business and consumer and other loans is due to the overall shorter life for~~calculation. The improved forecast had a large positive impact on these loans which resulted in ~~less estimated losses under~~a reduction in required ACL.

The coverage ratio for real estate-commercial loans changed from 1.89% at December 31, 2020 to 1.80% at June 30, 2021 due to improvements in projected forecasts and also due to the ~~CECL model. In addition,~~sale of $119.3 million of hotel/motel loans. Although the ACL for real estate-commercial loans was also impacted by improvements in the projected forecasts, the improvements were partially offset by additional ACL required due to declines in credit quality, particularly the increase in real estate-commercial nonaccrual loans and criticized loans during the first half of 2021. ACL on commercial business loans experienced a decrease ACL coverage at ~~September~~June 30, 2021 compared to December 31, 2020, also due to improved economic forecasts. Most of the consumer and other loans ACL is allocated to our credit card portfolio and the allocated ACL did not significantly change from December 31, 2020 to June 30, 2021.

Commercial business loans at June 30, 2021, includes ~~$464.6~~$568.8 million in SBA PPP loans which have no associated ACL as the loans are fully guaranteed by the government. The ACL coverage ratio excluding SBA PPP loans at ~~September~~June 30, ~~2020~~2021 was ~~1.42%. Commercial business loans also include $828.5 million~~1.47% compared to 1.58% at December 31, 2020.

The decrease in ~~warehouse lines~~total ACL as of ~~credit, which experienced an increase of 118.7% during the nine months ended September~~June 30, ~~2020. Warehouse lines of credit have minimal ACL~~2021 compared to December 31, 2020 due to improving economic forecasts was partially offset by the ~~low associated risk as the lines are fully secured by residential mortgage~~increase in reserves for individually evaluated loans ~~and the lines are usually paid off within~~which increased from $7.3 million at December 31, 2020 to $30.6 million at June 30, ~~days.~~

2021. The increase in ACL ~~as of September 30, 2020 compared~~for individually evaluated loans was due to June 30, 2020 reflects additional reserves to account for the continued impact of the COVID-19 pandemic and to account for the risk associated with the large amount of COVID-19 modifications. A significant portion of the increase in ACL ~~during the three months ended September 30, 2020 was allocated to hotel/motel loans as these loans make up~~of a ~~significant portion of our commercial~~large real estate loan ~~portfolio.~~in 2021. The ~~hotel/motel industry has been hard hit~~change of this loan from being collectively evaluated to individually evaluated resulted in additional ACL of approximately $21.6 million. The allowance requirement for loans evaluated on a collective basis declined to $158.9 million at June 30, 2021 compared to $199.4 million at December 31, 2020 due to the projected improvement in economic recovery estimated by the ~~pandemic and the recovery for this industry is expected to take longer than other industries impacted by COVID-19.~~forecast scenario utilized in our allowance calculation.

7680

The following table shows the provisions (credit) for credit losses, the amount of loans charged off, and the recoveries on loans previously charged off, together with the balance of the ACL at the beginning and end of each period, the balance of average loans and loans receivable outstanding, and certain other ratios as of the dates and for the periods indicated:


		At or for the Three Months Ended September 30,						At or for the Nine Months Ended September 30,							At or for the Three Months Ended June 30,						At or for the Six Months Ended June 30,
		2020			2019			2020			2019				2021			2020			2021			2020
		(Dollars in thousands)													(Dollars in thousands)
LOANS:	LOANS:													LOANS:
Average loans, including loans held for sale		$	12,728,558		$	11,911,658		$	12,581,703		$	11,985,936
Average loans														Average loans	$	13,269,540		$	12,744,049		$	13,298,775		$	12,491,552
Loans receivable	Loans receivable	$	13,120,225		$	12,104,682		$	13,120,225		$	12,104,682		Loans receivable	$	13,424,301		$	12,871,834		$	13,424,301		$	12,871,834

ALLOWANCE:	ALLOWANCE:													ALLOWANCE:
Balance, beginning of period	Balance, beginning of period	$	161,771		$	94,066		$	94,144		$	92,557		Balance, beginning of period	$	207,943		$	144,923		$	206,741		$	94,144
Less loan charge offs:	Less loan charge offs:													Less loan charge offs:
Real estate – commercial	Real estate – commercial	(5,313)			(1,197)			(7,884)			(1,439)			Real estate – commercial	(12,172)			(174)			(14,990)			(2,571)
Commercial business	Commercial business	(800)			(1,124)			(4,294)			(4,083)			Commercial business	(572)			(459)			(1,182)			(3,494)
Residential mortgage		—			—			—			(76)

Consumer and other	Consumer and other	(237)			(281)			(1,033)			(834)			Consumer and other	(48)			(271)			(141)			(796)
Total loan charge offs	Total loan charge offs	(6,350)			(2,602)			(13,211)			(6,432)			Total loan charge offs	(12,792)			(904)			(16,313)			(6,861)
Plus loan recoveries:	Plus loan recoveries:													Plus loan recoveries:
Real estate – commercial	Real estate – commercial	159			246			351			1,943			Real estate – commercial	891			25			1,475			192
Commercial business	Commercial business	2,251			528			4,830			838			Commercial business	391			220			1,081			2,579
Residential mortgage		—			—			—			—

Consumer and other	Consumer and other	18			6			35			16			Consumer and other	19			7			168			17
Total loans recoveries	Total loans recoveries	2,428			780			5,216			2,797			Total loans recoveries	1,301			252			2,724			2,788
Net loan charge offs	Net loan charge offs	(3,922)			(1,822)			(7,995)			(3,635)			Net loan charge offs	(11,491)			(652)			(13,589)			(4,073)
CECL day 1 adoption impact	CECL day 1 adoption impact	—			—			26,200			—			CECL day 1 adoption impact	—			—			—			26,200
Provision for credit losses		22,000			2,100			67,500			6,300
PCI allowance adjustment		—			(462)			—			(1,340)
Provision (credit) for credit losses														Provision (credit) for credit losses	(7,000)			17,500			(3,700)			45,500

Balance, end of period	Balance, end of period	$	179,849		$	93,882		$	179,849		$	93,882		Balance, end of period	$	189,452		$	161,771		$	189,452		$	161,771

Net loan charge offs to average loans, including loans held for sale*		0.12		%	0.06		%	0.08		%	0.04		%
Net loan charge offs to average loans*														Net loan charge offs to average loans*	0.35		%	0.02		%	0.20		%	0.07		%
Allowance for credit losses to loans receivable at end of period	Allowance for credit losses to loans receivable at end of period	1.37		%	0.78		%	1.37		%	0.78		%	Allowance for credit losses to loans receivable at end of period	1.41		%	1.26		%	1.41		%	1.26		%
Net loan charge offs to allowance for credit losses*	Net loan charge offs to allowance for credit losses*	8.72		%	7.76		%	5.93		%	5.16		%	Net loan charge offs to allowance for credit losses*	24.26		%	1.61		%	14.35		%	5.04		%
Net loan charge offs to provision for credit losses		17.83		%	86.76		%	11.84		%	57.70		%
Net loan charge offs to provision (credit) for credit losses														Net loan charge offs to provision (credit) for credit losses	(164.16)		%	3.73		%	(367.27)		%	8.95		%

* Annualized

We believe the ACL as of ~~September~~June 30, ~~2020~~2021 was adequate to absorb lifetime losses in the loan portfolio. However, no assurance can be given that actual losses will not exceed the estimated amounts. IfAmong other things, if the effects of the COVID-19 pandemic are worse than we currently expect, or if the effects are prolonged, actual losses could exceed the estimated amounts, which could have a material and adverse effect on our financial condition and results of operations.

7781

COVID-19 Related Loan Modifications

During the first quarter of 2020, we received a large number of modification requests from borrowers affected by the COVID-19 pandemic. Subsequently many of those requests for modifications were granted during the second quarter of ~~2020.~~2020 in accordance with the guidelines of the CARES Act. Many of these modifications had deferral periods that expired ~~during the third quarter of~~in 2020 ~~and~~but some ~~of these loans~~customers were granted a second modification. As of June 30, ~~2020,~~2021, loans that were modified due to hardship caused by the COVID-19 pandemic totaled ~~$3.12 billion,~~$318.7 million, which represented approximately ~~24.2% of our total loan portfolio. As of September 30, 2020, COVID-19 related modifications totaled $1.15 billion or approximately 8.8%~~2.4% of our total loan portfolio, ~~which represents~~ a ~~reduction~~decline from 10.2% total modifications at December 31, 2020 and 6.9% total modifications at March 31, 2021. Generally, we have not provided additional modifications under the CARES Act since the end of ~~$1.97 billion compared to June 30,~~ 2020.

~~To assist~~ Based on our ~~customers during this difficult time,~~COVID-19 modifications expiration schedule, we ~~provided various types of~~expect active modifications to ~~fit~~decrease to less than 1 percent of total loans by the ~~needs~~third quarter of each borrower. Of the COVID-19 related modifications as of September 30, 2020, $502.0 million or 44% consisted of full payment deferrals, $372.7 million or 32% consisted of a hybrid of full payment deferral for a period followed by interest only payments, $261.9 million or 23% consisted of interest only payments, and the remaining modifications were either fixed payment or maturity extensions. The length of time for the modified loans ranged from 2 to 18 months, but most of the modifications had terms of either 3 months or 9 months (modification terms are not stated on a cumulative basis).2021.

The following table presents total COVID-19 related modifications by loan type as of ~~September~~June 30, ~~2020:~~2021:


		COVID-19 Modifications									COVID-19 Modifications
		September 30, 2020									June 30, 2021
		Modified Loans		Loans Receivable		Percentage of Loans Modified		Accrued Interest Receivable on Modified Loans			Modified Loans		Loans Receivable		Percentage of Loans Modified		Accrued Interest Receivable on Modified Loans
		(Dollars in thousands)									(Dollars in thousands)
Real estate – residential	Real estate – residential	$	1,099	$	54,585	2.0	%	$	29	Real estate – residential	$	228	$	61,360	0.4	%	$	—
Real estate – commercial	Real estate – commercial									Real estate – commercial
Retail	Retail	235,626		2,298,411		10.3	%	4,818		Retail	74,219		2,342,140		3.2	%	3,213
Hotel & motel	Hotel & motel	474,383		1,628,237		29.1	%	11,311		Hotel & motel	113,199		1,425,705		7.9	%	1,235
Gas station & car wash	Gas station & car wash	5,972		820,782		0.7	%	300		Gas station & car wash	—		943,820		0.0	%	—
Mixed use	Mixed use	91,464		701,420		13.0	%	2,191		Mixed use	23,416		763,063		3.1	%	339
Industrial & warehouse	Industrial & warehouse	70,953		1,019,473		7.0	%	1,237		Industrial & warehouse	3,779		1,129,184		0.3	%	87
Other	Other	93,977		1,879,035		5.0	%	2,100		Other	54,552		1,914,203		2.8	%	492
Real estate – construction	Real estate – construction	45,128		311,593		14.5	%	1,236		Real estate – construction	—		252,801		0.0	%	—
Commercial business	Commercial business	30,927		3,700,020		0.8	%	493		Commercial business	11,938		4,001,423		0.3	%	106
Residential mortgage	Residential mortgage	98,282		659,876		14.9	%	1,670		Residential mortgage	36,350		543,622		6.7	%	1,558
Consumer and other	Consumer and other	809		46,793		1.7	%	23		Consumer and other	972		46,980		2.1	%	33
Total	Total	$	1,148,620	$	13,120,225	8.8	%	$	25,408	Total	$	318,653	$	13,424,301	2.4	%	$	7,063

~~Approximately 41% of all of the COVID-19 related modifications were~~


	COVID-19 Modifications
	December 31, 2020
	Modified Loans		Loans Receivable		Percentage of Loans Modified		Accrued Interest Receivable on Modified Loans
	(Dollars in thousands)
Real estate – residential	$	1,099	$	54,795	2.0	%	$	42
Real estate – commercial
Retail	288,154		2,280,297		12.6	%	5,046
Hotel & motel	720,420		1,615,019		44.6	%	14,200
Gas station & car wash	11,282		889,165		1.3	%	262
Mixed use	77,436		694,227		11.2	%	1,811
Industrial & warehouse	29,842		1,084,840		2.8	%	560
Other	115,428		1,862,411		6.2	%	1,636
Real estate – construction	62,068		291,380		21.3	%	1,146
Commercial business	37,925		4,157,787		0.9	%	154
Residential mortgage	35,744		582,232		6.1	%	466
Consumer and other	763		51,060		1.5	%	41
Total	$	1,380,161	$	13,563,213	10.2	%	$	25,364

Commercial real estate loans secured by hotel/motel and retail properties ~~(includes some construction loans secured by hotel/motel~~represent over half of our remaining COVID-19 modifications representing 36% and ~~retail properties) as these industries were hard hit by the pandemic.~~23% of total COVID-19 modifications, respectively. Our hotel/motel loan portfolio consists mostly of limited services facilities, which were less impacted by the pandemic compared to destination hotel properties. Although occupancy trends have stabilized for many of our hotel/motel operators, approximately half of the hotel/motel borrowers that had a modification at June 30, 2020 required a second round of modifications as of September 30, 2020. The majority of our hotel/motel loans are secured with personal guarantees.

Modified loans secured by retail properties consist mostly of strip mall type properties anchored by grocery markets with tenants of these properties made up of largely service oriented businesses. ~~Commercial real estate loans secured by retail properties represented approximately 21% of all COVID-19 modifications as of September 30, 2020.~~ Many of these businesses are now operating again ~~although at a limited level due~~without as many restrictions that were initially put into place to ~~a social distancing requirement as a result~~prevent the spread the COVID-19 virus. The balance of remaining COVID-19 modifications for loans secured by hotel/motel and retail properties has declined significantly in recent quarters and is expected to decline further in the ~~pandemic. As a result, only 30%~~second half of ~~retail commercial real estate loans modified as of June 30, 2020 were modified at September 30, 2020.~~2021.

In accordance with the CARES Act and interagency guidance, qualifying modifications provide banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. As of ~~September~~June 30, ~~2020,~~2021, loans modified under Section 4013 of the CARES Act and interagency guidance were not included as TDRs unless the loans were previously classified as TDR prior to the modification.

When a loan is no longer modified under the CARES Act, the option to temporarily suspend certain requirements under U.S. GAAP no longer apply.

At ~~September~~June 30, ~~2020,~~2021, we had ~~$53.5~~$47.1 million in loan accrued interest receivables ~~on our loans~~ compared to ~~$26.2~~$54.6 million at December 31, ~~2019. A significant portion of the interest increase in accrued interest receivables on loans was due to loan deferral modifications related to COVID-19.~~2020. Total accrued interest receivables related to loans modified due to COVID-19 totaled $7.1 million at June 30, 2021 compared to $25.4 million at ~~September~~December 31, 2020. At June 30, ~~2020. We set aside a total $1.0 million~~2021, we had $751 thousand in ~~additional~~recorded ACL for ~~the~~ accrued interest receivables that relate to COVID-19 loan deferrals. The ACL ~~was recorded as part of our qualitative assessment and~~on accrued interest receivables was calculated by applying the same loss rate on COVID-19 modified loans from our CECL calculation to the related accrued interest balances by loan type as of ~~September~~June 30, ~~2020.~~2021.

OREO

At ~~September~~June 30, ~~2020,~~2021, OREO, net totaled ~~$18.4~~$16.6 million, a decrease of ~~$5.7~~$3.5 million compared to ~~$24.1~~$20.1 million at December 31, ~~2019.~~2020. During the ~~nine~~six months ended ~~September~~June 30, ~~2020, one loan was~~2021, there were no loans transferred to OREO ~~totaling $980 thousand~~ and we sold ~~seven~~three OREO ~~totaling $2.6~~with total carrying balance of $2.1 million. OREO are presented on the balance sheet net of OREO valuation allowances. OREO valuation allowance ~~for the three and nine months ended September~~at June 30, ~~2020~~2021 totaled ~~$1.7~~$4.5 million ~~and $3.8~~compared to $4.7 million ~~respectively.~~at December 31, 2020.

Deposits, Other Borrowings, and Convertible Notes

Deposits

Deposits are our primary source of funds used in lending and investment activities. At ~~September~~June 30, ~~2020,~~2021, deposits increased ~~$1.48 billion,~~$392.3 million, or ~~11.8%~~2.7%, to ~~$14.01~~$14.73 billion from ~~$12.53~~$14.33 billion at December 31, ~~2019.~~2020. The increase in deposits was primarily due to ~~an increase~~increases in demand ~~deposit~~deposits and money market and NOW ~~account balances~~accounts offset partially by a ~~decline~~decrease in time ~~deposit balances.~~deposits. Demand deposits increased ~~$1.38 billion~~$823.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 due to an increase in retail deposits.

At ~~September~~June 30, ~~2020, 32.1%~~2021, 38.3% of total deposits were noninterest bearing demand deposits, ~~31.7%~~20.4% were time deposits, and ~~36.2%~~41.3% were interest bearing demand and savings deposits. At December 31, ~~2019, 24.8%~~2020, 33.6% of total deposits were noninterest bearing demand deposits, ~~41.2%~~27.8% were time deposits, and ~~34.0%~~38.6% were interest bearing demand and savings deposits.

At ~~September~~June 30, ~~2020,~~2021, we had ~~$1.00 billion~~$378.5 million in brokered deposits and $300.0 million in California State Treasurer deposits compared to ~~$1.48~~$1.14 billion in brokered deposits and $300.0 million in California State Treasurer deposits at December 31, ~~2019.~~2020. The California State Treasurer time deposits at ~~September~~June 30, ~~2020~~2021 had original maturities of three months, had a weighted average interest rate of ~~0.17%~~0.10%, and were collateralized with securities with atotal fair value of ~~$360.9~~$350.7 million. Time deposits of more than $250 thousand at ~~September~~June 30, ~~2020~~2021 totaled ~~$1.98~~$1.58 billion compared to ~~$1.86~~$1.85 billion at December 31, 2019. We decreased our brokered deposit balances during the nine months ended September 30, 2020, particularly during the third quarter of 2020 where we utilized our excess liquidity to payoff a portion of our brokered deposits.2020.

The following is a schedule of certificates of deposit maturities as of ~~September~~June 30, ~~2020:~~2021:


		Balance		Percent (%)			Balance		Percent (%)
		(Dollars in thousands)					(Dollars in thousands)
Three months or less	Three months or less	$	1,629,345	37	%	Three months or less	$	1,248,768	42	%
Over three months through six months	Over three months through six months	1,049,941		23	%	Over three months through six months	530,991		17	%
Over six months through nine months	Over six months through nine months	1,032,832		23	%	Over six months through nine months	570,155		19	%
Over nine months through twelve months	Over nine months through twelve months	655,194		15	%	Over nine months through twelve months	595,221		20	%
Over twelve months	Over twelve months	79,679		2	%	Over twelve months	47,632		2	%
Total time deposits	Total time deposits	$	4,446,991	100	%	Total time deposits	$	2,992,767	100	%

7984

FHLB Advances and Other Borrowings

We utilize FHLB advances as a secondary source of funds in addition to deposits, which we consider our primary source of funding. FHLB advances are typically secured by pledged loans and/or securities with a market value at least equal to the outstanding advances plus our investment in FHLB stock. At ~~September~~June 30, ~~2020,~~2021, FHLB advances totaled $200.0 million and had an average weighted remaining maturity of ~~1.1~~0.8 years compared to ~~$625.0~~$250.0 million in FHLB advances with an average weighted remaining maturity of ~~1.2~~0.8 years at December 31, 2019. During the third quarter of 2020, we utilized a portion of our excess liquidity to payoff $300.0 million in FHLB advances. These advances were paid off before maturity and resulted in a prepayment fee of $3.6 million.2020.

We did not have federal funds purchased at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities. The trusts used the net proceeds from their respective offerings to purchase a like amount of subordinated debentures (the “Debentures”) issued by us. The Debentures are the sole assets of the trusts. Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the trusts. Subordinated debentures totaled ~~$103.9~~$104.8 million at ~~September~~June 30, ~~2020~~2021 and ~~$103.0~~$104.2 million at December 31, ~~2019.~~2020. The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. We have the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.

Convertible Notes

In 2018, we issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038 in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The convertible notes were issued as part of our plan to repurchase common stock. The convertible notes pay interest on a semi-annual basis to holders of the notes. The convertible notes can be called by us, in whole or in part, at any time after five years for the original issued amount in cash. Holders of the notes can put the notes for cash on the fifth, tenth, and fifteenth year of the notes. The net carrying balance of convertible notes at ~~September~~June 30, ~~2020~~2021 was ~~$203.3~~$215.7 million, net of ~~$14.2~~$1.8 million in ~~discounts, which represents the conversion option discount and capitalized~~uncapitalized issuance costs. At December 31, ~~2019,~~2020, the net carrying balance of convertible notes was ~~$199.5~~$204.6 million, net of ~~$18.0~~$12.9 million in discounts and issuance costs. The increase in convertible notes from December 31, 2020 to June 30, 2021 was due to the early adoption of ASU 2020-06 on January 1, 2021. With the adoption of the ASU 2020-06, the convertible notes are accounted for entire as debt and no longer has a discount or equity portion. (See footnote 10 “Subordinated Debentures and Convertible Notes” for additional information regarding convertible notes issued)

Off-Balance-Sheet Activities and Contractual Obligations

We routinely engage in activities that involve, to varying degrees, elements of risk that are not reflected, in whole or in part, in the consolidated financial statements. These activities are part of our normal course of business and include traditional off-balance-sheet credit-related financial instruments, interest rate swap contracts, and long-term debt.

Traditional off-balance-sheet credit-related financial instruments are primarily commitments to extend credit and standby letters of credit. These activities could require us to make cash payments to third parties if certain specified future events occur. The contractual amounts represent the extent of our exposure in these off-balance-sheet activities. These activities are necessary to meet the financing needs of our customers.

We enter into interest rate swap contracts under which we are required to either receive cash from or pay cash to counterparties depending on changes in interest rates. We utilize interest rate swap contracts, interest rate floors, and interest rate caps to help manage the risk of changing interest rates. We also sell interest rate swaps to certain adjustable rate commercial loan customers to fix the interest rate on their floating rate loans. When the fixed rate swap is originated with the customer, an identical offsetting swap is also entered into by us with a correspondent bank.

We have an outstanding risk participation agreement which is a part of a syndicated loan transaction that we participated in as a means to earn additional fee income. Risk participation agreements are credit derivatives not designated as hedges in which we share in the risk related to the interest rate swap on participated loans. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities.

We enter into various stand-alone mortgage-banking derivatives in order to hedge the risk associated with the fluctuation of interest rates. The first type of derivative, an interest rate lock commitment, is a commitment to originate loans whereby the interest rate on the loan is determined prior to funding. To mitigate interest rate risk on these rate lock commitments we also enter into forward commitments, or commitments to deliver residential mortgage loans on a future date, also considered derivatives. Net change in the fair value of derivatives represents income recorded from changes in fair value for these mortgage derivatives instruments.

8085

We do not anticipate that our current off-balance-sheet activities will have a material impact on our future results of operations or our financial condition. Further information regarding our financial instruments with off-balance-sheet risk can be found in Item 3 “Quantitative and Qualitative Disclosures about Market Risk.”

Stockholders’ Equity and Regulatory Capital

Historically, our primary source of capital has been the retention of earnings, net of interest payments on Debentures and convertible notes and dividend payments to stockholders. We seek to maintain capital at a level sufficient to assure our stockholders, customers, and regulators that we and the Bank are financially sound. For this purpose, we perform ongoing assessments of capital related risks, components of capital, as well as projected sources and uses of capital in conjunction with projected increases in assets and levels of risks.

Total stockholders’ equity was ~~$2.04~~$2.09 billion at ~~September~~June 30, ~~2020 compared to $2.04~~2021 and $2.05 billion at December 31, ~~2019. For~~2020. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, shareholders’ equity ~~was~~ increased by ~~$83.2~~$39.1 million ~~from~~due to increases in net income earned ~~$23.5~~of $97.5 million and from ~~the increase~~$10.7 million adjustment to beginning retained earnings upon early adoption of ASU 2020-06 offset partially by decreases in other comprehensive income of $17.7 million, dividends paid of $34.6 million and ~~$4.7~~additional paid-in capital of $16.8 million. The $16.8 million ~~due~~adjustment to additional paid-in capital during the six months ended June 30, 2021 included $1.5 million in stock based compensation ~~adjustments. These increases were~~and was fully offset by ~~$36.2~~a $18.3 million ~~in share repurchases, $51.9 million in cash dividends paid, and a~~ decrease to reverse the equity portion of ~~$18.8 million due to the Day 1 impact from~~our convertible notes, net of taxes upon the adoption of ~~CECL, net~~ASU 2020-06.

On July 22, 2021, our Board of ~~taxes. We elected~~Directors approved a new stock repurchase plan that authorizes management to ~~defer~~repurchase up to $50 million of common stock. Stock repurchases through the ~~$18.8 million Day 1 CECL impact to regulatory capital for two years~~new plan may be executed through various means, including, without limitation, open market transactions, privately negotiated transactions or by other means as determined by management and in accordance with ~~the revised regulatory CECL transition guidance.~~SEC rules and regulations.

The federal banking agencies require a minimum ratio of qualifying total capital to risk-weighted assets of 8.00%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, and a minimum ratio of Tier 1 common equity capital to risk-weighted assets of 4.50%, to generally be considered “adequately capitalized” under the Prompt Corrective Action regulations. In addition to the risk-based guidelines, federal banking agencies require banking organizations to maintain a minimum amount of Tier 1 capital to average total assets, referred to as the leverage ratio, of 4.00% to generally be considered “adequately capitalized” under the Prompt Corrective Action regulations. Federal banking agencies also require a capital conservation buffer of 2.50% in addition to the ratios required to generally be considered “adequately capitalized” under the Prompt Corrective Action regulations. Failure to maintain this capital conservation buffer results in limits or prohibitions on capital distributions and discretionary compensation payments. Capital requirements apply to us and the Bank separately. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

At ~~September~~June 30, ~~2020,~~2021, our common equity Tier 1 capital was ~~$1.55~~$1.64 billion compared to ~~$1.55~~$1.57 billion at December 31, ~~2019.~~2020. Our Tier 1 capital, defined as stockholders’ equity less intangible assets and includes our trust preferred securities, was ~~$1.65~~$1.74 billion at ~~September~~June 30, ~~2020~~2021 and ~~$1.65~~$1.67 billion at December 31, ~~2019.~~2020. At ~~September~~June 30, ~~2020,~~2021, the common equity Tier 1 capital ratio was ~~11.36%~~11.44%. The total capital to risk-weighted assets ratio was ~~13.19%~~13.16% and the Tier 1 capital to risk-weighted assets ratio was ~~12.09%~~12.14%. The Tier 1 leverage capital ratio at ~~September~~June 30, ~~2020~~2021 was ~~10.02%~~10.43%.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the most recent regulatory notification generally categorized the Bank as “well capitalized” under the general regulatory framework for Prompt Corrective Action. To be generally categorized as “well-capitalized” the Bank must maintain minimum common equity Tier 1 capital, total risk-based, Tier 1 risk-based, and Tier 1 leverage capital ratios as set forth in the table below.


		As of September 30, 2020													As of June 30, 2021
		Actual				To Be Well-Capitalized				Excess					Actual				To Be Well-Capitalized				Excess
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)													(Dollars in thousands)
Hope Bancorp, Inc.	Hope Bancorp, Inc.													Hope Bancorp, Inc.
Common equity Tier 1 capital ratio (to risk-weighted assets)	Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,554,838	11.36	%	N/A		N/A		N/A		N/A		Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,642,492	11.44	%	N/A		N/A		N/A		N/A
Total risk-based capital ratio (to risk-weighted assets)	Total risk-based capital ratio (to risk-weighted assets)	$	1,806,112	13.19	%	N/A		N/A		N/A		N/A		Total risk-based capital ratio (to risk-weighted assets)	$	1,888,996	13.16	%	N/A		N/A		N/A		N/A
Tier 1 risk-based capital ratio (to risk-weighted assets)	Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,654,826	12.09	%	N/A		N/A		N/A		N/A		Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,743,353	12.14	%	N/A		N/A		N/A		N/A
Tier 1 capital to total assets (to average assets)	Tier 1 capital to total assets (to average assets)	$	1,654,826	10.02	%	N/A		N/A		N/A		N/A		Tier 1 capital to total assets (to average assets)	$	1,743,353	10.43	%	N/A		N/A		N/A		N/A
Bank of Hope	Bank of Hope													Bank of Hope
Common equity Tier 1 capital ratio (to risk-weighted assets)	Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,835,738	13.41	%	$	889,882	6.50	%	$	945,856	6.91	%	Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,932,546	13.47	%	$	932,555	6.50	%	$	999,991	6.97	%
Total risk-based capital ratio (to risk-weighted assets)	Total risk-based capital ratio (to risk-weighted assets)	$	1,987,025	14.51	%	$	1,369,049	10.00	%	$	617,976	4.51	%	Total risk-based capital ratio (to risk-weighted assets)	$	2,078,189	14.49	%	$	1,434,699	10.00	%	$	643,490	4.49	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,835,738	13.41	%	$	1,095,239	8.00	%	$	740,499	5.41	%	Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,932,546	13.47	%	$	1,147,759	8.00	%	$	784,787	5.47	%
Tier 1 capital to total assets (to average assets)	Tier 1 capital to total assets (to average assets)	$	1,835,738	11.12	%	$	825,580	5.00	%	$	1,010,158	6.12	%	Tier 1 capital to total assets (to average assets)	$	1,932,546	11.56	%	$	835,520	5.00	%	$	1,097,026	6.56	%

		As of December 31, 2019													As of December 31, 2020
		Actual				To Be Well-Capitalized				Excess					Actual				To Be Well-Capitalized				Excess
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)													(Dollars in thousands)
Hope Bancorp, Inc.	Hope Bancorp, Inc.													Hope Bancorp, Inc.
Common equity Tier 1 capital ratio (to risk-weighted assets)	Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,553,697	11.76	%	N/A		N/A		N/A		N/A		Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,568,508	10.94	%	N/A		N/A		N/A		N/A
Total risk-based capital ratio (to risk-weighted assets)	Total risk-based capital ratio (to risk-weighted assets)	$	1,747,611	13.23	%	N/A		N/A		N/A		N/A		Total risk-based capital ratio (to risk-weighted assets)	$	1,846,229	12.87	%	N/A		N/A		N/A		N/A
Tier 1 risk-based capital ratio (to risk-weighted assets)	Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,652,831	12.51	%	N/A		N/A		N/A		N/A		Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,668,786	11.64	%	N/A		N/A		N/A		N/A
Tier 1 capital to total assets (to average assets)	Tier 1 capital to total assets (to average assets)	$	1,652,831	11.22	%	N/A		N/A		N/A		N/A		Tier 1 capital to total assets (to average assets)	$	1,668,786	10.22	%	N/A		N/A		N/A		N/A
Bank of Hope	Bank of Hope													Bank of Hope
Common equity Tier 1 capital ratio (to risk-weighted assets)	Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,811,862	13.72	%	$	858,462	6.50	%	$	953,400	7.22	%	Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,850,091	12.90	%	$	932,066	6.50	%	$	918,025	6.40	%
Total risk-based capital ratio (to risk-weighted assets)	Total risk-based capital ratio (to risk-weighted assets)	$	1,906,642	14.44	%	$	1,320,711	10.00	%	$	585,931	4.44	%	Total risk-based capital ratio (to risk-weighted assets)	$	2,027,534	14.14	%	$	1,433,948	10.00	%	$	593,586	4.14	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,811,862	13.72	%	$	1,056,569	8.00	%	$	755,293	5.72	%	Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,850,091	12.90	%	$	1,147,159	8.00	%	$	702,932	4.90	%
Tier 1 capital to total assets (to average assets)	Tier 1 capital to total assets (to average assets)	$	1,811,862	12.29	%	$	737,005	5.00	%	$	1,074,857	7.29	%	Tier 1 capital to total assets (to average assets)	$	1,850,091	11.33	%	$	816,551	5.00	%	$	1,033,540	6.33	%

8287

Liquidity Management

Liquidity risk is the risk of reduction in our earnings or capital that would result if we were not able to meet our obligations when they come due without incurring unacceptable losses. Liquidity risk includes the risk of unplanned decreases or changes in funding sources and changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are the stability of the deposit base; the marketability, maturity, and pledging of our investments; the availability of alternative sources of funds; and our demand for credit. The objective of our liquidity management is to have funds available to meet cash flow requirements arising from fluctuations in deposit levels and the demands of daily operations, which include funding of securities purchases, providing for customers’ credit needs, and ongoing repayment of borrowings.

Our primary sources of liquidity are derived from financing activities, which include customer and broker deposits, federal funds facilities, and borrowings from the FHLB and the FRB Discount Window. These funding sources are augmented by payments of principal and interest on loans and securities, proceeds from sale of loans, and the liquidation or sale of securities from our available for sale portfolio. Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.

At ~~September~~June 30, ~~2020,~~2021, our total borrowing capacity from the FHLB was ~~$4.29~~$4.30 billion of which ~~$4.05~~$4.08 billion was unused and available to borrow. At ~~September~~June 30, ~~2020,~~2021, our total borrowing capacity from the FRB Discount Window was ~~$631.5~~$616.4 million, all of which was unused and available to borrow. In addition to these lines, our liquid assets, consisting of cash and cash equivalents, interest bearing cash deposits and time deposits with other banks, liquid investment securities available for sale, and equity investments were ~~$2.26~~$2.68 billion at ~~September~~June 30, ~~2020~~2021 compared to ~~$1.95~~$2.23 billion at December 31, ~~2019.~~2020. Cash and cash equivalents were ~~$629.1~~$837.0 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$698.6~~$350.6 million at December 31, ~~2019.~~2020. We believe our liquidity sources are sufficient to meet all reasonably foreseeable short-term and intermediate-term needs.

As a result of the recent COVID-19 pandemic, we are reviewing our liquidity position on a more frequent basis. The pandemic has not ~~yet~~to date materially impacted our liquidity position. We have not experienced any meaningful deposit run off and our sources of funds remain fully available for use.

8388

Item 3.Quantitative and Qualitative Disclosures About Market Risk

The objective of our asset and liability management activities is to maximize our earnings while maintaining adequate liquidity and an exposure to interest rate risk deemed by management to be acceptable by adjusting the type and mix of assets and liabilities to seek to effectively address changing conditions and risks. Through overall management of our balance sheet and by seeking to manage various risks, we seek to optimize our financial returns within safe and sound parameters. Our operating strategies for attaining this objective include managing net interest margin through appropriate risk/return pricing of assets and liabilities and emphasizing growth in retail deposits, as a percentage of interest bearing liabilities, to reduce our cost of funds. We also seek to improve earnings by controlling noninterest expense and enhancing noninterest income. We also use various methods to protect against our exposure to interest rate fluctuations with the objective of reducing the effects fluctuations might have on associated cash flows or values. Finally, we perform internal analysis to measure, evaluate, and monitor risk.

Interest Rate Risk

Interest rate risk is the most significant market risk impacting us. Interest rate risk occurs when interest rate sensitive assets and liabilities do not reprice simultaneously and in equal volumes. A key objective of asset and liability management is to manage interest rate risk associated with changing asset and liability cash flows, values of our assets and liabilities, and market interest rate movements. The management of interest rate risk is governed by policies reviewed and approved annually by the Board of Directors. Our Board delegates responsibility for interest rate risk management to the Asset and Liability Board Committee (“ALCO”) and to the Asset and Liability Management Committee (“ALM”), which is composed of the Bank’s senior executives and other designated officers.

The fundamental objective of our ALM is to manage our exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. Our ALM meets regularly to monitor interest rate risk, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of our assets and liabilities, and our investment activities. It also directs changes in the composition of our assets and liabilities. Our strategy has been to reduce the sensitivity of our earnings to interest rate fluctuations by more closely matching the effective maturities or repricing characteristics of our assets and liabilities. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates. Furthermore, interest rates on certain types of assets and liabilities may fluctuate prior to changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. We consider the anticipated effects of these factors when implementing our interest rate risk management objectives.

Interest Rate Sensitivity

We monitor interest rate risk through the use of a simulation model that provides us with the ability to simulate our net interest income. In order to measure, at ~~September~~June 30, ~~2020,~~2021, the sensitivity of our forecasted net interest income to changing interest rates, both rising and falling interest rate scenarios were projected and compared to base market interest rate forecasts. One application of our simulation model measures the impact of market interest rate changes on the net present value of estimated cash flows from our assets and liabilities, defined as our market value of equity. This analysis assesses the changes in market values of interest rate sensitive financial instruments that would occur in response to immediate and parallel changes in market interest rates.

The impacts on our net interest income and market value of equity exposed to immediate and parallel hypothetical changes in market interest rates as projected by the model we use for this purpose are illustrated in the following table:


		September 30, 2020						December 31, 2019					June 30, 2021								December 31, 2020
Simulated Rate Changes	Simulated Rate Changes	Estimated Net Interest Income Sensitivity		Market Value Of Equity Volatility				Estimated Net Interest Income Sensitivity		Market Value Of Equity Volatility		Simulated Rate Changes	Estimated Net Interest Income Sensitivity			Market Value Of Equity Volatility					Estimated Net Interest Income Sensitivity				Market Value Of Equity Volatility

+ 200 basis points	+ 200 basis points	8.31	%			7.26	%					1.57	%		1.84	%	+ 200 basis points		9.79	%			2.77	%			4.81	%	5.11	%
+ 100 basis points	+ 100 basis points	4.19	%	4.45	%			0.88	%	(0.42)	%	+ 100 basis points	4.90	%		2.48		%			2.35	%			3.29	%
- 100 basis points	- 100 basis points	(0.79)	%	(7.63)	%			(1.10)	%	(1.12)	%	- 100 basis points	(1.90)	%		(6.22)		%			(1.31)	%			(7.63)	%
- 200 basis points	- 200 basis points	(0.81)	%	(8.29)	%			(2.68)	%	(4.43)	%	- 200 basis points	(2.98)	%		(15.00)		%			(1.41)	%			(10.80)	%

8489

LIBOR Transition

On July 27, 2017, the Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”) announced that it intends to stop persuading or compelling banks to submit LIBOR rates after December 31, 2021. As a result, it is expected that after 2021, LIBOR rates will no longer be available or will no longer be viewed as an acceptable benchmark rate. The Company has financial instruments that are indexed to LIBOR including investment securities available for sale, loans, derivatives, subordinated debentures, and other financial contracts that mature after December 31, 2021. At this time, the Company cannot predict the overall effect of the modification or discontinuation of LIBOR. The Company has formed a committee to oversee the transition process and assess the impact and associated risks from this transition and explore potential alternatives that can be used for its financial instruments that are indexed to LIBOR.

In March 2020, the FASB issued ASU 2020-04 and in January 2021 issued ASU 2021-01 which ~~provides~~provide 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 and the committee overseeing our transition process is evaluating the optional guidance.

8590

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chairman, President, and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We conducted an evaluation under the supervision and with the participation of our management, including our Chairman, President, and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chairman, President, and Chief Executive Officer and our Chief Financial Officer determined that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2020.~~2021.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.Legal Proceedings

In the normal course of business, the Company is involved in various legal claims. Management has reviewed all legal claims against the Company with counsel and has taken into consideration the views of such counsel as to the potential outcome of the claims in determining our accrued loss contingency. Accrued loss contingencies for all legal claims totaled approximately ~~$1.4 million~~$25 thousand at ~~September~~June 30, ~~2020.~~2021. It is reasonably possible the Company may incur losses in addition to the amounts currently accrued. However, at this time, the Company is unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages and involve claims for which, at this point, management believes have little to no merit. Management has considered these and other possible loss contingencies and does not expect the amounts to be material to the consolidated financial statements.

Item 1A.Risk Factors

~~For information regarding factors that could affect our business, results~~Management is not aware of ~~operations, financial condition and liquidity, see~~any material changes to the risk factors discussed in Part I,1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, ~~2019, as well as~~2020. In addition to the ~~update of those risk factors by the addition of~~other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part ~~II,~~1, Item 1A, of the ~~Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. In addition, the risk factors set forth in our~~ Annual Report on Form 10-K for the year ended December 31, ~~2019, as updated by~~2020, which could materially and adversely affect the ~~addition~~Company’s business, financial condition, results of operations, and stock price. The risks described in the ~~risk factors discussed in Part II, Item 1A, of the Quarterly~~Annual Report on Form ~~10-Q for~~10-K are not the ~~quarter ended March 31, 2020, are updated by adding~~only risks facing the ~~following risk factor.~~

~~We are subject~~Company. Additional risks and uncertainties not presently known to ~~increasing credit risk as a result of the COVID-19 pandemic, which could adversely impact our profitability.~~

Our business depends on our ability to successfully measure and manage credit risk. As a lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely or at allmanagement, or that ~~the value of any collateral supporting a loan will~~management presently believes not to be ~~insufficient to cover our outstanding exposure. In addition, we are exposed to risks with respect to the risks resulting from changes~~material, may also result in ~~economic~~material and industry conditions and risks inherent in dealing with individual loans and borrowers. As the overall economic climate in the U.S., generally, and in our market areas specifically, experiences material disruption due to the COVID-19 pandemic, our borrowers may experience difficulties in repaying their loans and governmental actions may provide payment relief to borrowers affected by COVID-19 and preclude our ability to initiate foreclosure proceedings in certain circumstances and, as a result, the collateral we hold may decrease in value or become illiquid, and the level of our nonperforming loans, charge-offs, and delinquencies could rise and require significant additional provisions for credit losses.

We are actively working to support our borrowers to mitigate the impact of the COVID-19 pandemic on them and on our loan portfolio, including through loan modifications that defer payments for those who experienced a hardship as a result of the COVID-19 pandemic. Although recent regulatory guidance provides that such loan modifications are exempt from the reporting of TDRs and loan delinquencies, we cannot predict whether such loan modifications may ultimately have an adverse ~~impact on our profitability in future periods. Inability to successfully manage the increased credit risk caused by the COVID-19 pandemic could have a material adverse effect~~effects on our business, financial condition, and results of operations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not Applicable.

Item 5.Other Information

None.

Item 6.Exhibits

See “Index to Exhibits.”

8892

INDEX TO EXHIBITS


Exhibit No.						Description

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

101.INS						The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH						Inline XBRL Taxonomy Extension Schema Document*

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document*

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document*

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

* Filed herewith

** Furnished herewith

8993

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		HOPE BANCORP, INC.


Date:	~~November 4, 2020~~August 5, 2021	/s/ Kevin S. Kim
		Kevin S. Kim
		Chairman, President, and Chief Executive Officer


Date:	~~November 4, 2020~~August 5, 2021	/s/ Alex Ko
		Alex Ko
		Senior Executive Vice President and Chief Financial Officer

9094


	Three Months Ended,				Nine Months Ended,
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
	(Dollars in thousands)
Balance at beginning of period	$	38,149	$	7,423	$	9,149	$	(32,705)

Unrealized gain on securities available for sale	(303)		14,160		41,820		71,349
Unrealized loss on interest rate swaps used for cash flow hedge	54		0		(796)		0
Reclassification adjustments for net gains realize in net income	(7,510)		(153)		(7,649)		(282)
Tax effect	2,292		(4,157)		(9,842)		(21,089)
Total other comprehensive income (loss)	$	(5,467)	$	9,850	$	23,533	$	49,978

Balance at end of period	$	32,682	$	17,273	$	32,682	$	17,273