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 ~~March 31,~~June 30, 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 ~~May 5,~~August 2, 2021, there were ~~123,566,066~~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)	910
	Notes to Consolidated Financial Statements (Unaudited)
	1. Hope Bancorp, Inc.	1011
	2. Basis of Presentation	1011
	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	3132
	8. Deposits	3334
	9. Borrowings	3435
	10. Subordinated Debentures and Convertible Notes	3536
	11. Derivative Financial Instruments	3738
	12. Commitments and Contingencies	4041
	13. Goodwill, Intangible Assets, and Servicing Assets	4142
	14. Income Taxes	4344
	15. Fair Value Measurements	4445
	16. Stockholders’ Equity	5152
	17. Stock-Based Compensation	5253
	18. Regulatory Matters	5455
	19. Revenue Recognition	5657
	20. Subsequent Events	59

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	5860
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, 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)
		March 31, 2021		December 31, 2020			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	$	286,400	$	256,565	Cash and due from banks	$	293,822	$	256,565
Interest bearing cash in other banks	Interest bearing cash in other banks	90,266		94,014		Interest bearing cash in other banks	543,135		94,014

Total cash and cash equivalents	Total cash and cash equivalents	376,666		350,579		Total cash and cash equivalents	836,957		350,579
Interest bearing deposits in other financial institutions	Interest bearing deposits in other financial institutions	25,943		28,642		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	2,233,744		2,285,611		Securities available for sale, at fair value	2,274,170		2,285,611
Equity investments	Equity investments	59,049		59,699		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	19,672		17,743		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 $207,943 and $206,741 at March 31, 2021 and December 31, 2020, respectively		13,494,686		13,356,472
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	18,515		20,121		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		17,250		Federal Home Loan Bank (“FHLB”) stock, at cost	17,250		17,250
Premises and equipment, net	Premises and equipment, net	47,918		48,409		Premises and equipment, net	45,302		48,409
Accrued interest receivable	Accrued interest receivable	60,498		59,430		Accrued interest receivable	51,886		59,430
Deferred tax assets, net	Deferred tax assets, net	58,115		47,693		Deferred tax assets, net	49,092		47,693
Customers’ liabilities on acceptances	Customers’ liabilities on acceptances	754		1,184		Customers’ liabilities on acceptances	916		1,184
Bank owned life insurance (“BOLI”)	Bank owned life insurance (“BOLI”)	77,089		76,765		Bank owned life insurance (“BOLI”)	76,428		76,765
Investments in affordable housing partnerships	Investments in affordable housing partnerships	66,752		69,454		Investments in affordable housing partnerships	63,800		69,454
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	44,179		47,653		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	9,198		9,708		Core deposit intangible assets, net	8,689		9,708
Servicing assets, net	Servicing assets, net	12,084		12,692		Servicing assets, net	11,566		12,692
Other assets	Other assets	112,298		133,109		Other assets	138,336		133,109
Total assets	Total assets	$	17,198,860	$	17,106,664	Total assets	$	17,469,627	$	17,106,664

(Continued)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


		(Unaudited)					(Unaudited)
		March 31, 2021		December 31, 2020			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	$	5,427,174	$	4,814,254	Noninterest bearing	$	5,638,115	$	4,814,254
Interest bearing:	Interest bearing:					Interest bearing:
Money market and NOW accounts	Money market and NOW accounts	5,009,419		5,232,413		Money market and NOW accounts	5,786,697		5,232,413
Savings deposits	Savings deposits	305,326		300,770		Savings deposits	308,651		300,770
Time deposits	Time deposits	3,559,350		3,986,475		Time deposits	2,992,767		3,986,475
Total deposits	Total deposits	14,301,269		14,333,912		Total deposits	14,726,230		14,333,912
FHLB advances	FHLB advances	400,000		250,000		FHLB advances	200,000		250,000

Convertible notes, net	Convertible notes, net	215,504		204,565		Convertible notes, net	215,739		204,565
Subordinated debentures, net	Subordinated debentures, net	104,469		104,178		Subordinated debentures, net	104,762		104,178
Accrued interest payable	Accrued interest payable	8,611		14,706		Accrued interest payable	4,946		14,706
Acceptances outstanding	Acceptances outstanding	754		1,184		Acceptances outstanding	916		1,184
Operating lease liabilities	Operating lease liabilities	48,575		52,030		Operating lease liabilities	52,177		52,030
Commitments to fund investments in affordable housing partnerships	Commitments to fund investments in affordable housing partnerships	13,354		15,148		Commitments to fund investments in affordable housing partnerships	10,654		15,148
Other liabilities	Other liabilities	60,743		77,196		Other liabilities	61,333		77,196
Total liabilities	Total liabilities	$	15,153,279	$	15,052,919	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 136,142,075 and 123,480,494 shares, respectively, at March 31, 2021, and issued and outstanding 135,926,445 and 123,264,864 shares, respectively, at December 31, 2020		$	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	1,417,137		1,434,916		Additional paid-in capital	1,418,135		1,434,916
Retained earnings	Retained earnings	823,085		785,940		Retained earnings	859,548		785,940
Treasury stock, at cost; 12,661,581 and 12,661,581 shares at March 31, 2021 and December 31, 2020		(200,000)		(200,000)
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	5,223		32,753		Accumulated other comprehensive income, net	15,051		32,753
Total stockholders’ equity	Total stockholders’ equity	2,045,581		2,053,745		Total stockholders’ equity	2,092,870		2,053,745
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,198,860	$	17,106,664	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 March 31,
2021 2020
(Dollars in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans $ 129,736 $ 154,230
Interest on securities 7,915 10,609
Interest on other investments 642 2,029
Total interest income 138,293 166,868
INTEREST EXPENSE:
Interest on deposits 12,770 41,113
Interest on FHLB advances 642 2,647
Interest on other borrowings and convertible notes 2,302 3,817
Total interest expense 15,714 47,577
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES 122,579 119,291
PROVISION FOR CREDIT LOSSES 3,300 28,000
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 119,279 91,291
NONINTEREST INCOME:
Service fees on deposit accounts 1,790 4,133
International service fees 841 790
Loan servicing fees, net 1,044 365
Wire transfer fees 844 998
Swap fees 67 976
Net gains on sales of other loans 2,096 1,855
Other income and fees 2,122 4,147
Total noninterest income 8,804 13,264
NONINTEREST EXPENSE:
Salaries and employee benefits 41,216 42,502
Occupancy 6,967 7,410
Furniture and equipment 4,186 4,259
Advertising and marketing 1,625 1,673
Data processing and communications 2,737 2,631
Professional fees 2,903 3,300
Investments in affordable housing partnership expenses 2,702 2,551
FDIC assessments 1,255 1,559
Credit related expenses 2,218 1,662
OREO expense, net 281 843
Other 4,341 3,750
Total noninterest expense 70,431 72,140
INCOME BEFORE INCOME TAXES 57,652 32,415
INCOME TAX PROVISION 13,965 6,462
NET INCOME $ 43,687 $ 25,953
EARNINGS PER COMMON SHARE
Basic $ 0.35 $ 0.21
Diluted $ 0.35 $ 0.21



	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Dollars in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans	$	131,823	$	134,190	$	261,559	$	288,420
Interest on securities	7,713		9,891		15,628		20,500
Interest on other investments	668		980		1,310		3,009
Total interest income	140,204		145,061		278,497		311,929
INTEREST EXPENSE:
Interest on deposits	10,696		29,451		23,466		70,564
Interest on FHLB advances	631		2,238		1,273		4,885
Interest on other borrowings and convertible notes	2,300		3,558		4,602		7,375
Total interest expense	13,627		35,247		29,341		82,824
NET INTEREST INCOME BEFORE PROVISION (CREDIT) FOR CREDIT LOSSES	126,577		109,814		249,156		229,105
PROVISION (CREDIT) FOR CREDIT LOSSES	(7,000)		17,500		(3,700)		45,500
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES	133,577		92,314		252,856		183,605
NONINTEREST INCOME:
Service fees on deposit accounts	1,777		2,583		3,567		6,716
International service fees	795		667		1,636		1,456
Loan servicing fees, net	934		1,106		1,978		1,471
Wire transfer fees	923		820		1,767		1,818
Swap fees	165		1,040		232		2,016
Net gains on sales of SBA loans	2,375		0		2,375		0
Net gains on sales of other loans	1,028		1,678		3,124		3,533

Other income and fees	3,079		3,346		5,201		7,494
Total noninterest income	11,076		11,240		19,880		24,504
NONINTEREST EXPENSE:
Salaries and employee benefits	42,309		38,850		83,525		81,352
Occupancy	7,067		7,043		14,034		14,453
Furniture and equipment	4,822		4,654		9,008		8,913
Advertising and marketing	2,097		1,315		3,722		2,988
Data processing and communications	2,411		2,274		5,148		4,905
Professional fees	4,395		1,510		7,298		4,810
Investments in affordable housing partnership expenses	2,952		2,873		5,654		5,424
FDIC assessments	1,284		1,652		2,539		3,211
Credit related expenses	43		1,361		2,261		3,023
OREO expense, net	298		1,338		579		2,181
Software impairment	2,146		0		2,146		0
Other	3,299		4,160		7,640		7,910
Total noninterest expense	73,123		67,030		143,554		139,170
INCOME BEFORE INCOME TAXES	71,530		36,524		129,182		68,939
INCOME TAX PROVISION	17,767		9,771		31,732		16,233
NET INCOME	$	53,763	$	26,753	$	97,450	$	52,706
EARNINGS PER COMMON SHARE
Basic	$	0.44	$	0.22	$	0.79	$	0.43
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 March 31,
2021 2020
(Dollars in thousands)
Net income $ 43,687 $ 25,953
Other comprehensive (loss) income:
Change in unrealized net holding (losses) gains on securities available for sale (40,803) 38,853
Change in unrealized net holding gains on interest rate swaps used in cash flow hedges 602 0
Reclassification adjustments for net gains realized in net income 66 0
Tax effect 12,605 (11,553)
Other comprehensive (loss) income, net of tax (27,530) 27,300
Total comprehensive income $ 16,157 $ 53,253



	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			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, 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
BALANCE, MARCH 31, 2020															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	Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	128,895	—		0								0		Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	69,872	—		0								0
Stock-based compensation	Stock-based compensation				1,209								1,209		Stock-based compensation				1,482								1,482
Cash dividends declared on common stock ($0.14 per share)	Cash dividends declared on common stock ($0.14 per share)						(17,423)						(17,423)		Cash dividends declared on common stock ($0.14 per share)						(17,247)						(17,247)
Comprehensive income:	Comprehensive income:														Comprehensive income:
Net income	Net income						25,953						25,953		Net income						26,753						26,753
Other comprehensive income	Other comprehensive income										27,300		27,300		Other comprehensive income										1,700		1,700
Repurchase of treasury stock		(2,716,034)							(36,180)				(36,180)

BALANCE, MARCH 31, 2020		123,169,404	$	136	$	1,429,275	$	752,228	$	(200,000)	$	36,449	$	2,018,088

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					(21,420)		10,715						(10,705)
Adoption of ASU 2020-06 tax adjustment					3,145								3,145
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, MARCH 31, 2021															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															Adoption of ASU 2020-06 tax impact				8								8
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	215,630	—		0								0		Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	193,338	—		0								0
Stock-based compensation	Stock-based compensation				496								496		Stock-based compensation				990								990
Cash dividends declared on common stock ($0.14 per share)	Cash dividends declared on common stock ($0.14 per share)						(17,257)						(17,257)		Cash dividends declared on common stock ($0.14 per share)						(17,300)						(17,300)
Comprehensive income:	Comprehensive income:														Comprehensive income:
Net income	Net income						43,687						43,687		Net income						53,763						53,763
Other comprehensive loss											(27,530)		(27,530)
Other comprehensive income															Other comprehensive income										9,828		9,828

BALANCE, MARCH 31, 2021		123,480,494	$	136	$	1,417,137	$	823,085	$	(200,000)	$	5,223	$	2,045,581
BALANCE, JUNE 30, 2021															BALANCE, JUNE 30, 2021	123,673,832	$	136	$	1,418,135	$	859,548	$	(200,000)	$	15,051	$	2,092,870



	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, 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 impact						7,947						7,947
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	198,767	—		0								0
Stock-based compensation				2,691								2,691
Cash dividends declared on common stock ($0.28 per share)						(34,670)						(34,670)
Comprehensive income:
Net income						52,706						52,706
Other comprehensive income										29,000		29,000
Repurchase of treasury stock	(2,716,034)							(36,180)				(36,180)

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

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				(21,420)		10,715						(10,705)
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	408,968	—		0								0
Stock-based compensation				1,485								1,485
Cash dividends declared on common stock ($0.28 per share)						(34,557)						(34,557)
Comprehensive income:
Net income						97,450						97,450
Other comprehensive loss										(17,702)		(17,702)

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)


		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2020			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	$	43,687	$	25,953	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	6,638		(2,497)		Discount accretion, net of depreciation and amortization	13,724		1,970
Stock-based compensation expense	Stock-based compensation expense	2,572		1,990		Stock-based compensation expense	4,642		3,804
Provision for credit losses		3,300		28,000
(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		610		Provision for unfunded loan commitments	105		660
Provision for accrued interest receivables on loans	Provision for accrued interest receivables on loans	600		0		Provision for accrued interest receivables on loans	600		0
Valuation adjustment of OREO	Valuation adjustment of OREO	155		765		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	(2,096)		(1,855)		Net gains on sales of other loans	(3,124)		(3,533)
Earnings on BOLI		(324)		(90)
Loss (earnings) on BOLI						Loss (earnings) on BOLI	337		(711)
Net change in fair value of derivatives	Net change in fair value of derivatives	6		(561)		Net change in fair value of derivatives	91		(936)

Net losses on sales of OREO		14		61
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	484		(354)		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	2,629		2,480		Losses on investments in affordable housing partnerships	5,507		5,283

Software impairment						Software impairment	2,146		0
Net change in deferred income taxes	Net change in deferred income taxes	4,175		(853)		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	69,931		74,660		Proceeds from sales of loans held for sale	145,987		143,704
Originations of loans held for sale	Originations of loans held for sale	(69,783)		(33,061)		Originations of loans held for sale	(103,746)		(104,436)
Originations of servicing assets	Originations of servicing assets	(592)		(377)		Originations of servicing assets	(1,329)		(1,136)
Net change in accrued interest receivable	Net change in accrued interest receivable	(1,668)		322		Net change in accrued interest receivable	6,944		(22,087)
Net change in other assets	Net change in other assets	20,938		(42,527)		Net change in other assets	(5,574)		(59,291)
Net change in accrued interest payable	Net change in accrued interest payable	(6,095)		(3,374)		Net change in accrued interest payable	(9,760)		(7,717)
Net change in other liabilities	Net change in other liabilities	(16,558)		22,575		Net change in other liabilities	(15,968)		51,516
Net cash provided by operating activities	Net cash provided by operating activities	58,118		71,867		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	(249)		(2,205)		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	2,948		2,205		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	(209,270)		(56,355)		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	215,077		90,594		Proceeds from matured, called, or paid-down securities available for sale	397,130		222,485

Proceeds from sale of equity investments	Proceeds from sale of equity investments	214		0		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	0		1,053		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	(138,554)		(300,852)		Net change in loans receivable	48,273		(585,285)
Proceeds from sales of OREO	Proceeds from sales of OREO	1,437		946		Proceeds from sales of OREO	2,150		1,567
Purchase of FHLB stock	Purchase of FHLB stock	0		(974)		Purchase of FHLB stock	0		(1,346)
Redemption of FHLB stock	Redemption of FHLB stock	0		2,156		Redemption of FHLB stock	0		3,503
Purchase of premises and equipment	Purchase of premises and equipment	(1,504)		(1,398)		Purchase of premises and equipment	(2,673)		(3,104)

Proceeds from BOLI death benefits						Proceeds from BOLI death benefits	576		0
Investments in affordable housing partnerships	Investments in affordable housing partnerships	(154)		(7,793)		Investments in affordable housing partnerships	(2,854)		(8,403)
Net cash used in investing activities		(130,055)		(272,623)
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	(32,643)		309,203		Net change in deposits	392,318		1,596,168
Proceeds from FHLB advances	Proceeds from FHLB advances	1,140,000		800,000		Proceeds from FHLB advances	1,440,000		910,000
Repayment of FHLB advances	Repayment of FHLB advances	(990,000)		(750,000)		Repayment of FHLB advances	(1,490,000)		(1,035,000)

Purchase of treasury stock	Purchase of treasury stock	0		(36,777)		Purchase of treasury stock	0		(36,777)
Cash dividends paid on common stock	Cash dividends paid on common stock	(17,257)		(17,423)		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	(2,076)		(781)		Taxes paid in net settlement of restricted stock	(3,157)		(1,113)

Net cash provided by financing activities	Net cash provided by financing activities	98,024		304,222		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	26,087		103,466		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	350,579		698,567		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	$	376,666	$	802,033	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	$	21,284	$	49,410	Interest paid	$	38,048	$	87,445
Income taxes paid	Income taxes paid	$	1,240	$	1,777	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	$	0	$	979	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	$	0	$	1,002	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	$	0	$	1,451	Transfer from loans held for sale to loans receivable	$	0	$	2,384

See accompanying Notes to Consolidated Financial Statements (Unaudited)

910

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 ~~March 31,~~June 30, 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, 2020 which was from the audited financial statements included in the Company’s 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 ~~March 31,~~June 30, 2021 and December 31, 2020 and the results of operations for the three and six months ended ~~March 31,~~June 30, 2021 and 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 2020 Annual Report on Form 10-K.

1011

~~Accounting Pronouncements Adopted~~

In August 2020, 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)”. ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, 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 companies to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. On January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective method of transition and had a cumulative effect adjustment to its retained earnings totaling $10.7 million. The Company’s convertible notes were originally recorded as separate debt and equity components. Subsequent to the adoption of ASU 2020-06, the Company’s convertible notes are now accounted for as a single debt instrument with no discount. As a result of the adoption of ASU 2020-06, the Company’s interest expense on its convertible notes declined by $1.0 million with the elimination of the existing debt discount and discount amortization which was previously recorded as non-cash interest expense.

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 January 2021, the FASB issued ASU 2021-01, “Codification Improvements to Topic 848, Reference Rate Reform”. ASU 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 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 to derivative instruments affected by the discounting transition. ASU 2021-01 is effective immediately and can be applied retrospectively to any interim period beginning January 1, 2020 or prospectively to any new modifications in any period including or subsequent to the issuance date. The Company is currently in the process of evaluating ASU 2021-01 and its potential impact to the Company’s 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 ~~March 31,~~June 30, 2021 and 2020, stock options and restricted share awards of ~~594,053~~544,925 and ~~660,995~~1,450,408 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were anti-dilutive. For the six months ended June 30, 2021 and 2020, stock options and restricted shares awards of 775,710 and 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 six months ended ~~March 31,~~June 30, 2021 and 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 six months ended ~~March 31,~~June 30, 2021 and 2020 as the conversion price exceeded the market price of the Company’s stock.

The following tables show the computation of basic and diluted EPS for the three and six months ended ~~March 31,~~June 30, 2021 and 2020.


		Three Months Ended March 31,														Three Months Ended June 30,
		2021							2020							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	$	43,687		123,324,745		$	0.35	$	25,953	124,295,327		$	0.21	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				1,011,385						380,969				Stock options, restricted stock, and ESPP shares			731,193					230,764
Diluted EPS - common stock	Diluted EPS - common stock	$	43,687		124,336,130		$	0.35	$	25,953	124,676,296		$	0.21	Diluted EPS - common stock	$	53,763	124,323,888	$	0.43	$	26,753	123,430,891	$	0.22

				Six Months Ended June 30,
						2021						2020
																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)
Basic EPS - common stock															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:
Stock options, restricted stock, and ESPP shares															Stock options, restricted stock, and ESPP shares			874,766					306,564
Diluted EPS - common stock															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 ~~March 31,~~June 30, 2021 and December 31, 2020, consisted of mutual funds in the amounts of ~~$27.1~~$27.2 million and $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 six months ended ~~March 31,~~June 30, 2021 and 2020 were recorded in other noninterest income and fees as summarized in the table below:


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			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		$	(484)		$	354	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		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		$	(484)		$	354	Net change in fair value on equity investments with readily determinable fair values	$	77	$	188	$	(407)	$	542

At ~~March 31,~~June 30, 2021 and December 31, 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 ~~March 31,~~June 30, 2021, the total balance of equity investments without readily determinable fair values included in “Equity investments” on the Consolidated Statements of Financial Condition was ~~$31.9~~$31.8 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in Community Development Financial Institutions (“CDFI”) investments, and ~~$30.6~~$30.5 million in Community Reinvestment Act (“CRA”) investments. At December 31, 2020, the total balance of equity investments without readily determinable fair values was $32.1 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in CDFI investments, and $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 six months ended ~~March 31,~~June 30, 2021 and 2020.

1314

5. Securities Available for Sale

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


		At March 31, 2021											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	$	901,735	$	9,424	$	(6,500)	$	0	$	904,659	Collateralized mortgage obligations	$	858,603	$	8,362	$	(2,389)	$	0	$	864,576
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
Residential	Residential	646,409		3,190		(11,771)		0		637,828		Residential	663,223		3,127		(6,148)		0		660,202
Commercial	Commercial	527,528		13,378		(3,118)		0		537,788		Commercial	540,908		16,443		(1,738)		0		555,613
Asset-backed securities	Asset-backed securities	34,781		104		(36)		0		34,849		Asset-backed securities	62,328		102		(61)		0		62,369
Corporate securities	Corporate securities	14,435		0		(1,230)		0		13,205		Corporate securities	23,422		120		(928)		0		22,614
Municipal securities	Municipal securities	103,481		2,272		(338)		0		105,415		Municipal securities	106,125		2,715		(44)		0		108,796
Total investment securities available for sale	Total investment securities available for sale	$	2,228,369	$	28,368	$	(22,993)	$	0	$	2,233,744	Total investment securities available for sale	$	2,254,609	$	30,869	$	(11,308)	$	0	$	2,274,170

		At December 31, 2020											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	$	990,679	$	11,482	$	(844)	$	0	$	1,001,317	Collateralized mortgage obligations	$	990,679	$	11,482	$	(844)	$	0	$	1,001,317
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
Residential	Residential	672,667		8,460		(114)		0		681,013		Residential	672,667		8,460		(114)		0		681,013
Commercial	Commercial	482,874		25,026		(21)		0		507,879		Commercial	482,874		25,026		(21)		0		507,879
Corporate securities	Corporate securities	7,000		15		(881)		0		6,134		Corporate securities	7,000		15		(881)		0		6,134
Municipal securities	Municipal securities	86,213		3,058		(3)		0		89,268		Municipal securities	86,213		3,058		(3)		0		89,268
Total investment securities available for sale	Total investment securities available for sale	$	2,239,433	$	48,041	$	(1,863)	$	0	$	2,285,611	Total investment securities available for sale	$	2,239,433	$	48,041	$	(1,863)	$	0	$	2,285,611

As of ~~March 31,~~June 30, 2021 and December 31, 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 six months ended ~~March 31,~~June 30, 2021 and 2020, the Company had 0 sales of securities and recognized 0 net gains on sales and calls of securities available for sale. ~~For the three months ended March 31, 2021 and 2020, the Company had 0 sales of securities available for sale.~~

At ~~March 31,~~June 30, 2021 and December 31, 2020, ~~$4.4~~$14.4 million and $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 six months ended ~~March 31,~~June 30, 2021 and 2020, there were 0 reclassifications out of accumulated other comprehensive income into ~~earnings as gain on sales of investments securities available for sale.~~earnings.

1415

The amortized cost and estimated fair value of investment securities at ~~March 31,~~June 30, 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 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	19,616		19,478		Due after five years through ten years	37,825		38,270
Due after ten years	Due after ten years	97,950		98,791		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	901,735		904,659		Collateralized mortgage obligations	858,603		864,576
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
Residential	Residential	646,409		637,828		Residential	663,223		660,202
Commercial	Commercial	527,528		537,788		Commercial	540,908		555,613
Asset-backed securities	Asset-backed securities	34,781		34,849		Asset-backed securities	62,328		62,369
Total	Total	$	2,228,369	$	2,233,744	Total	$	2,254,609	$	2,274,170

Securities with carrying values of approximately ~~$325.0~~$354.8 million and $376.1 million at ~~March 31,~~June 30, 2021 and December 31, 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 March 31, 2021																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*	24	$	453,139	$	(6,475)	2	$	2,347	$	(25)	26	$	455,486	$	(6,500)	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*	44	507,249		(11,771)		0	0		0		44	507,249		(11,771)		Residential*	47	503,686		(6,148)		0	0		0		47	503,686		(6,148)
Commercial*	Commercial*	13	136,164		(3,118)		0	0		0		13	136,164		(3,118)		Commercial*	11	115,974		(1,738)		0	0		0		11	115,974		(1,738)
Asset-backed securities	Asset-backed securities	1	4,515		(36)		0	0		0		1	4,515		(36)		Asset-backed securities	4	29,000		(61)		0	0		0		4	29,000		(61)
Corporate securities	Corporate securities	3	9,011		(423)		1	4,194		(807)		4	13,205		(1,230)		Corporate securities	2	7,219		(203)		1	4,275		(725)		3	11,494		(928)
Municipal securities	Municipal securities	10	31,371		(338)		0	0		0		10	31,371		(338)		Municipal securities	5	4,704		(44)		0	0		0		5	4,704		(44)
Total	Total	95	$	1,141,449	$	(22,161)	3	$	6,541	$	(832)	98	$	1,147,990	$	(22,993)	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, 2020
	Less than 12 months					12 months or longer					Total
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)
Collateralized mortgage obligations*	22	$	312,757	$	(844)	0	$	0	$	0	22	$	312,757	$	(844)
Mortgage-backed securities:
Residential*	8	46,094		(114)		0	0		0		8	46,094		(114)
Commercial*	1	10,275		(21)		0	0		0		1	10,275		(21)
Corporate securities	0	0		0		1	4,119		(881)		1	4,119		(881)
Municipal securities	1	997		(3)		0	0		0		1	997		(3)
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 ~~two CMOs~~1 CMO and 1 corporate security that were in a continuous unrealized loss position for twelve months or longer with fair values of ~~$2.3 million~~$4 thousand and ~~$4.2~~$4.3 million, respectively as of ~~March 31,~~June 30, 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.

With the adoption of ASU 2016-13 on January 1, 2020, the CECL methodology replaced the other-than-temporary impairment model that 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021 and December 31, 2020, totaled ~~$4.5 million and~~ $4.7 ~~million, respectively.~~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 ~~March 31,~~June 30, 2021.

Approximately ~~93%~~91% of the Company’s investment portfolio at ~~March 31,~~June 30, 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, 43 corporate securities, and 105 municipal bonds in unrealized loss positions at ~~March 31,~~June 30, 2021. The Company performed an assessment of investment securities in unrealized loss positions for credit impairment and concluded that 0 allowance for credit losses was required at ~~March 31,~~June 30, 2021.

1617

6. Loans Receivable and Allowance for Credit Losses

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


		March 31, 2021		December 31, 2020			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	$	52,671	$	54,795	Residential	$	61,360	$	54,795
Commercial	Commercial	8,489,638		8,425,959		Commercial	8,518,115		8,425,959
Construction	Construction	269,114		291,380		Construction	252,801		291,380
Total real estate loans	Total real estate loans	8,811,423		8,772,134		Total real estate loans	8,832,276		8,772,134
Commercial business1		4,346,244		4,157,787
Commercial business *						Commercial business *	4,001,423		4,157,787
Residential mortgage	Residential mortgage	501,000		582,232		Residential mortgage	543,622		582,232
Consumer and other	Consumer and other	43,962		51,060		Consumer and other	46,980		51,060
Loans receivable	Loans receivable	13,702,629		13,563,213		Loans receivable	13,424,301		13,563,213
Allowance for credit losses	Allowance for credit losses	(207,943)		(206,741)		Allowance for credit losses	(189,452)		(206,741)
Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	$	13,494,686	$	13,356,472	Loans receivable, net of allowance for credit losses	$	13,234,849	$	13,356,472

1* Commercial business loans as of ~~March 31,~~June 30, 2021 and December 31, 2020 include ~~$715.5~~$568.8 million and $452.7 million, respectively, in SBA Paycheck Protection Program ~~Loans~~loans

~~On January 1, 2020, the Company adopted ASU 2016-13, or CECL, using the modified retrospective method for all of its loans measured at amortized cost.~~

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. The Company had net deferred fees of ~~$15.4~~$12.6 million and net deferred costs of $3.6 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Net loan fees related to SBA Paycheck Protection Program (“PPP”) loans totaled ~~$18.3~~$15.7 million at ~~March 31,~~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 ~~$304.7~~$324.5 million in second round SBA PPP loans during the ~~three~~six months ended ~~March 31,~~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 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.

Loans receivable declined $138.9 million from December 31, 2020 to $13.42 billion as 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 the 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 purchase of $98.3 million in residential mortgage loans during the second quarter of 2021.

1718

The tables below details the activity in the allowance for credit losses by portfolio segment for the three and six months ended ~~March 31,~~June 30, 2021 and 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 receivables on loans totaled ~~$55.9~~$47.1 million at ~~March 31,~~June 30, 2021 and $54.6 million at December 31, 2020. The Company set aside an allowance on loan accrued interest receivables of ~~$1.3 million~~$751 thousand at ~~March 31,~~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 March 31, 2021
Three Months Ended June 30, 2021												Three Months Ended June 30, 2021
Balance, beginning of period	Balance, beginning of period	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741	Balance, beginning of period	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943
Provision (credit) for credit losses	Provision (credit) for credit losses	2,345		2,625		(1,492)		(178)		3,300		Provision (credit) for credit losses	4,227		(12,179)		877		75		(7,000)
Loans charged off	Loans charged off	(2,818)		(610)		0		(93)		(3,521)		Loans charged off	(12,172)		(572)		0		(48)		(12,792)
Recoveries of charge offs	Recoveries of charge offs	584		690		0		149		1,423		Recoveries of charge offs	891		391		0		19		1,301
Balance, end of period	Balance, end of period	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943	Balance, end of period	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452

Six Months Ended June 30, 2021												Six Months Ended June 30, 2021
Balance, beginning of period												Balance, beginning of period	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741
Provision (credit) for credit losses												Provision (credit) for credit losses	6,572		(9,554)		(615)		(103)		(3,700)
Loans charged off												Loans charged off	(14,990)		(1,182)		0		(141)		(16,313)
Recoveries of charge offs												Recoveries of charge offs	1,475		1,081		0		168		2,724
Balance, end of period												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 June 30, 2020												Three Months Ended June 30, 2020
Balance, beginning of period												Balance, beginning of period	$	94,645	$	42,883	$	5,779	$	1,616	$	144,923

Provision (credit) for credit losses												Provision (credit) for credit losses	24,534		(7,151)		89		28		17,500
Loans charged off												Loans charged off	(174)		(459)		0		(271)		(904)
Recoveries of charge offs												Recoveries of charge offs	25		220		0		7		252

Balance, end of period												Balance, end of period	$	119,030	$	35,493	$	5,868	$	1,380	$	161,771

Three Months Ended March 31, 2020
Six Months Ended June 30, 2020												Six Months Ended June 30, 2020
Balance, beginning of period	Balance, beginning of period	$	53,593	$	33,032	$	5,925	$	1,594	$	94,144	Balance, beginning of period	$	53,593	$	33,032	$	5,925	$	1,594	$	94,144
CECL day 1 adoption	CECL day 1 adoption	27,791		(1,022)		(543)		(26)		26,200		CECL day 1 adoption	27,791		(1,022)		(543)		(26)		26,200
Provision for credit losses	Provision for credit losses	15,491		11,549		397		563		28,000		Provision for credit losses	40,025		4,398		486		591		45,500
Loans charged off	Loans charged off	(2,397)		(3,035)		0		(525)		(5,957)		Loans charged off	(2,571)		(3,494)		0		(796)		(6,861)
Recoveries of charge offs	Recoveries of charge offs	167		2,359		0		10		2,536		Recoveries of charge offs	192		2,579		0		17		2,788

Balance, end of period	Balance, end of period	$	94,645	$	42,883	$	5,779	$	1,616	$	144,923	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 ~~March 31,~~June 30, 2021 and December 31, 2020:


		March 31, 2021											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	$	16,641	$	3,969	$	16	$	15	$	20,641	Individually evaluated	$	27,226	$	3,325	$	15	$	26	$	30,592
Collectively evaluated	Collectively evaluated	145,666		37,891		2,719		1,026		187,302		Collectively evaluated	128,027		26,175		3,597		1,061		158,860
Total	Total	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943	Total	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452

Loans outstanding:	Loans outstanding:											Loans outstanding:
Individually evaluated	Individually evaluated	$	125,326	$	22,620	$	3,379	$	628	$	151,953	Individually evaluated	$	138,368	$	20,978	$	3,053	$	236	$	162,635
Collectively evaluated	Collectively evaluated	8,686,097		4,323,624		497,621		43,334		13,550,676		Collectively evaluated	8,693,908		3,980,445		540,569		46,744		13,261,666
Total	Total	$	8,811,423	$	4,346,244	$	501,000	$	43,962	$	13,702,629	Total	$	8,832,276	$	4,001,423	$	543,622	$	46,980	$	13,424,301


	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 ~~March 31,~~June 30, 2021 and December 31, 2020, reserves for unfunded loan commitments recorded in other liabilities were $1.4 million and $1.3 million, respectively. For the three and six months ended ~~March 31,~~June 30, 2021, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling $0 and $105 ~~thousand.~~thousand, respectively. For the three and six months ended ~~March 31,~~June 30, 2020, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling to ~~$610 thousand.~~$50 thousand and $660 thousand, respectively.

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 ~~March 31,~~June 30, 2021 and December 31, 2020.


		March 31, 2021									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	10,153		26,751		36,904		0		Retail	10,463		34,100		44,563		0
Hotel & motel	Hotel & motel	14,541		4,772		19,313		0		Hotel & motel	13,654		5,428		19,082		3,776
Gas station & car wash	Gas station & car wash	575		984		1,559		0		Gas station & car wash	575		1,303		1,878		0
Mixed use	Mixed use	0		976		976		0		Mixed use	9,754		1,610		11,364		0
Industrial & warehouse	Industrial & warehouse	5,446		923		6,369		304		Industrial & warehouse	2,105		2,332		4,437		0
Other	Other	6,220		2,479		8,699		0		Other	1,791		5,083		6,874		0
Real estate – construction	Real estate – construction	18,120		0		18,120		0		Real estate – construction	7,424		0		7,424		0
Commercial business	Commercial business	7,669		6,411		14,080		0		Commercial business	5,035		7,182		12,217		26
Residential mortgage	Residential mortgage	1,992		1,387		3,379		0		Residential mortgage	1,440		1,612		3,052		872
Consumer and other	Consumer and other	0		459		459		80		Consumer and other	0		117		117		85
Total	Total	$	64,716	$	45,142	$	109,858	$	384	Total	$	52,241	$	58,767	$	111,008	$	4,759


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

(1) Total nonaccrual loans exclude the guaranteed portion of SBA loans that are in liquidation totaling $~~25.0~~23.6 million and $26.5 million, at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

2021

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

March 31, 2021
Real Estate Collateral Other Collateral Total
(Dollars in thousands)
Real Estate - Residential $ 0 $ 0 $ 0
Real Estate - Commercial 91,562 0 91,562
Real Estate - Construction 18,120 0 18,120
Commercial Business 10,151 3,698 13,849
Residential Mortgage 1,992 0 1,992
Consumer and Other 18 0 18
Total $ 121,843 $ 3,698 $ 125,541


	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


	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 ~~$973~~$750 thousand and ~~$37~~$319 thousand for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively. Nonaccrual interest income reversals for the six months ended June 30, 2021 and 2020 were $1.7 million and $356 thousand, respectively.

2122

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 ~~March 31,~~June 30, 2021 and December 31, 2020 by class of loans:


		As of March 31, 2021								As of December 31, 2020									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			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)																	(Dollars in thousands)
Real estate – residential	Real estate – residential	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	Real estate – residential	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Real estate – commercial	Real estate – commercial																	Real estate – commercial
Retail	Retail	7,509		0		4,107		11,616		852		8,141		10,276		19,269		Retail	788		8,148		10,852		19,788		852		8,141		10,276		19,269
Hotel & motel	Hotel & motel	1,039		0		17,809		18,848		62		1,401		14,744		16,207		Hotel & motel	2,487		2,808		16,373		21,668		62		1,401		14,744		16,207
Gas station & car wash	Gas station & car wash	108		85		412		605		619		2,668		563		3,850		Gas station & car wash	292		411		443		1,146		619		2,668		563		3,850
Mixed use	Mixed use	180		6,355		357		6,892		116		0		1,269		1,385		Mixed use	2,547		13,921		295		16,763		116		0		1,269		1,385
Industrial & warehouse	Industrial & warehouse	1,493		0		4,784		6,277		137		0		3,830		3,967		Industrial & warehouse	8,211		154		2,611		10,976		137		0		3,830		3,967
Other	Other	975		1,800		3,183		5,958		2,738		545		3,000		6,283		Other	2,149		42		2,913		5,104		2,738		545		3,000		6,283
Real estate – construction	Real estate – construction	0		0		7,519		7,519		8,122		0		0		8,122		Real estate – construction	0		0		7,424		7,424		8,122		0		0		8,122
Commercial business	Commercial business	1,704		275		4,479		6,458		816		3,683		4,700		9,199		Commercial business	431		4,209		5,545		10,185		816		3,683		4,700		9,199
Residential mortgage	Residential mortgage	7,216		0		2,254		9,470		4,841		0		2,263		7,104		Residential mortgage	6,359		540		2,702		9,601		4,841		0		2,263		7,104
Consumer and other	Consumer and other	219		16		539		774		797		21		595		1,413		Consumer and other	45		24		202		271		797		21		595		1,413
Total Past Due	Total Past Due	$	20,443	$	8,531	$	45,443	$	74,417	$	19,100	$	16,459	$	41,240	$	76,799	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 ~~March 31,~~June 30, 2021 and December 31, 2020.


		As of March 31, 2021																	As of June 30, 2021
		Term Loan by Origination Year												Revolving Loans		Total			Term Loan by Origination Year												Revolving Loans		Total
		2021		2020		2019		2018		2017		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		$	1,517	$	15,081	$	13,836	$	6,856	$	4,105	$	10,174	$	662	$	52,231
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		228		228		Special mention	0		0		0		0		0		0		228		228
Substandard	Substandard	0		0		0		137		0		75		0		212		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	$	1,517	$	15,081	$	13,836	$	6,993	$	4,105	$	10,249	$	890	$	52,671	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		$	410,873	$	1,514,537	$	1,474,205	$	1,436,369	$	1,150,644	$	1,845,078	$	113,414	$	7,945,120
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	522		0		44,398		64,049		28,313		86,162		8,855		232,299		Special mention	4,223		5,706		48,552		29,215		40,713		71,144		11,978		211,531
Substandard	Substandard	3,616		578		15,670		29,410		59,449		200,298		3,198		312,219		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	$	415,011	$	1,515,115	$	1,534,273	$	1,529,828	$	1,238,406	$	2,131,538	$	125,467	$	8,489,638	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		$	5,190	$	42,418	$	41,964	$	85,511	$	44,932	$	26,884	$	0	$	246,899
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		4,095		0		0		4,095		Special mention	0		0		0		45,989		4,428		5,913		0		56,330
Substandard	Substandard	0		0		0		0		10,601		7,519		0		18,120		Substandard	0		0		0		0		0		7,424		0		7,424
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	5,190	$	42,418	$	41,964	$	85,511	$	59,628	$	34,403	$	0	$	269,114	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		$	535,629	$	1,109,519	$	563,787	$	230,107	$	107,590	$	107,798	$	1,603,017	$	4,257,447
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	5,136		1,337		3,977		13,448		5,942		11,226		3,196		44,262		Special mention	1,191		415		3,943		13,581		212		5,466		1,662		26,470
Substandard	Substandard	283		9,419		1,516		2,878		10,576		9,811		10,052		44,535		Substandard	1,457		8,552		1,856		2,114		12,840		7,860		8,766		43,445
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	541,048	$	1,120,275	$	569,280	$	246,433	$	124,108	$	128,835	$	1,616,265	$	4,346,244	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		$	5	$	5,635	$	70,489	$	197,903	$	145,923	$	77,666	$	0	$	497,621
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		0		122		512		552		2,193		0		3,379		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	$	5	$	5,635	$	70,611	$	198,415	$	146,475	$	79,859	$	0	$	501,000	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		$	1,597	$	6,340	$	2,392	$	1,873	$	2,118	$	7,187	$	21,782	$	43,289
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		0		90		0		0		90		Special mention	0		0		0		0		0		0		0		0
Substandard	Substandard	0		0		0		0		0		583		0		583		Substandard	0		0		0		0		0		243		0		243
Doubtful/Loss		0		0		0		—		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	1,597	$	6,340	$	2,392	$	1,873	$	2,208	$	7,770	$	21,782	$	43,962	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		$	954,811	$	2,693,530	$	2,166,673	$	1,958,619	$	1,455,312	$	2,074,787	$	1,738,875	$	13,042,607
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	5,658		1,337		48,375		77,497		38,440		97,388		12,279		280,974		Special mention	5,414		6,121		52,495		88,785		45,353		82,523		13,868		294,559
Substandard	Substandard	3,899		9,997		17,308		32,937		81,178		220,479		13,250		379,048		Substandard	7,965		9,104		19,379		29,175		65,878		237,991		11,463		380,955
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Total	Total	$	964,368	$	2,704,864	$	2,232,356	$	2,069,053	$	1,574,930	$	2,392,654	$	1,764,404	$	13,702,629	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																	December 31, 2020
		Term Loan by Origination Year												Revolving Loans		Total			Term Loan by Origination Year												Revolving Loans		Total
		2020		2019		2018		2017		2016		Prior							2020		2019		2018		2017		2016		Prior
		(Dollars in thousands)																	(Dollars in thousands)
Real Estate - Residential	Real Estate - Residential																	Real Estate - Residential
Pass/Not Rated		$	15,158	$	13,924	$	7,587	$	4,316	$	6,800	$	3,460	$	3,104	$	54,349
Pass / not rated																		Pass / not rated	$	15,158	$	13,924	$	7,587	$	4,316	$	6,800	$	3,460	$	3,104	$	54,349
Special mention	Special mention	0		0		0		0		0		0		227		227		Special mention	0		0		0		0		0		0		227		227
Substandard	Substandard	0		0		139		0		0		80		0		219		Substandard	0		0		139		0		0		80		0		219
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	15,158	$	13,924	$	7,726	$	4,316	$	6,800	$	3,540	$	3,331	$	54,795	Subtotal	$	15,158	$	13,924	$	7,726	$	4,316	$	6,800	$	3,540	$	3,331	$	54,795
Real Estate - Commercial	Real Estate - Commercial																	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
Pass / not rated																		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	Special mention	0		2,805		24,569		10,694		8,031		32,048		1,600		79,747		Special mention	0		2,805		24,569		10,694		8,031		32,048		1,600		79,747
Substandard	Substandard	126		14,233		28,938		37,174		50,371		173,788		3,194		307,824		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
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	1,548,721	$	1,572,018	$	1,587,309	$	1,288,841	$	825,720	$	1,467,961	$	135,389	$	8,425,959	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	Real Estate - Construction																	Real Estate - Construction
Pass/Not Rated		$	35,743	$	45,290	$	103,794	$	60,996	$	5,740	$	10,099	$	0	$	261,662
Pass / not rated																		Pass / not rated	$	35,743	$	45,290	$	103,794	$	60,996	$	5,740	$	10,099	$	0	$	261,662
Special mention	Special mention	0		0		0		0		5,771		5,224		0		10,995		Special mention	0		0		0		0		5,771		5,224		0		10,995
Substandard	Substandard	0		0		0		10,601		0		8,122		0		18,723		Substandard	0		0		0		10,601		0		8,122		0		18,723
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	35,743	$	45,290	$	103,794	$	71,597	$	11,511	$	23,445	$	0	$	291,380	Subtotal	$	35,743	$	45,290	$	103,794	$	71,597	$	11,511	$	23,445	$	0	$	291,380
Commercial Business	Commercial Business																	Commercial Business
Pass/Not Rated		$	1,294,368	$	584,453	$	224,447	$	117,708	$	77,209	$	43,674	$	1,686,428	$	4,028,287
Pass / not rated																		Pass / not rated	$	1,294,368	$	584,453	$	224,447	$	117,708	$	77,209	$	43,674	$	1,686,428	$	4,028,287
Special mention	Special mention	5,996		27,693		30,852		14,629		6,388		3,139		5,172		93,869		Special mention	5,996		27,693		30,852		14,629		6,388		3,139		5,172		93,869
Substandard	Substandard	2,430		1,323		5,539		4,394		6,158		5,463		10,323		35,630		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
Doubtful / loss																		Doubtful / loss	0		0		1		0		0		0		0		1
Subtotal	Subtotal	$	1,302,794	$	613,469	$	260,839	$	136,731	$	89,755	$	52,276	$	1,701,923	$	4,157,787	Subtotal	$	1,302,794	$	613,469	$	260,839	$	136,731	$	89,755	$	52,276	$	1,701,923	$	4,157,787
Residential Mortgage	Residential Mortgage																	Residential Mortgage
Pass/Not Rated		$	5,733	$	90,958	$	217,343	$	168,827	$	55,246	$	40,554	$	0	$	578,661
Pass / not rated																		Pass / not rated	$	5,733	$	90,958	$	217,343	$	168,827	$	55,246	$	40,554	$	0	$	578,661
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		536		561		1,715		637		0		3,571		Substandard	0		122		536		561		1,715		637		0		3,571
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	5,733	$	91,080	$	217,879	$	169,388	$	56,961	$	41,191	$	0	$	582,232	Subtotal	$	5,733	$	91,080	$	217,879	$	169,388	$	56,961	$	41,191	$	0	$	582,232
Consumer and Other	Consumer and Other																	Consumer and Other
Pass/Not Rated		$	8,309	$	2,463	$	1,818	$	2,321	$	4,756	$	2,811	$	27,890	$	50,368
Pass / not rated																		Pass / not rated	$	8,309	$	2,463	$	1,818	$	2,321	$	4,756	$	2,811	$	27,890	$	50,368
Special mention	Special mention	0		0		0		103		0		0		0		103		Special mention	0		0		0		103		0		0		0		103
Substandard	Substandard	0		0		0		0		55		532		2		589		Substandard	0		0		0		0		55		532		2		589
Doubtful/Loss		0		0		0		0		0		0		0		0
Doubtful / loss																		Doubtful / loss	0		0		0		0		0		0		0		0
Subtotal	Subtotal	$	8,309	$	2,463	$	1,818	$	2,424	$	4,811	$	3,343	$	27,892	$	51,060	Subtotal	$	8,309	$	2,463	$	1,818	$	2,424	$	4,811	$	3,343	$	27,892	$	51,060
Total Loans	Total Loans																	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
Pass / not rated																		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	Special mention	5,996		30,498		55,421		25,426		20,190		40,411		6,999		184,941		Special mention	5,996		30,498		55,421		25,426		20,190		40,411		6,999		184,941
Substandard	Substandard	2,556		15,678		35,152		52,730		58,299		188,622		13,519		366,556		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
Doubtful / loss																		Doubtful / loss	0		0		1		0		0		0		0		1
Total	Total	$	2,916,458	$	2,338,244	$	2,179,365	$	1,673,297	$	995,558	$	1,591,756	$	1,868,535	$	13,563,213	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 six months ended ~~March 31,~~June 30, 2021 and the twelve months ended December 31, 2020, there were 0 revolving loans converted to term loans.

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 six months ended ~~March 31,~~June 30, 2021 and 2020 is presented in the following table:


		Three Months Ended March 31,				Three Months Ended June 30,						Six Months Ended June 30,
				2021			2020			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	$	171,175	$	0	$	171,175	$	0

Commercial business									Commercial business	9,660		—		9,660		—
Residential mortgage	Residential mortgage			$	0		$	1,002	Residential mortgage	0		0		0		1,002

Total									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. 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 ~~March 31,~~June 30, 2021.

The Company’s Economic Forecast Committee (“EFC”) 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 ~~March 31,~~June 30, 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. The forecast improved considerably ~~since December 2020~~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.~~2021 and 2022. The forecast improvement reflect the current and projected effects of government stimulus packages, ongoing COVID-19 vaccinations, and the reopening of many businesses throughout the 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.

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.

2627

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


		As of March 31, 2021																						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		$	107,205		$	18,121		$	22,620		$	3,379		$	628		$	151,953		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		$	16,641		$	0		$	3,969		$	16		$	15		$	20,641		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			15.52		%	N/A			17.55		%	0.47		%	2.39		%	13.58		%	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	$	52,671		$	8,382,433		$	250,993		$	4,323,624		$	497,621		$	43,334		$	13,550,676		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	$	267		$	143,735		$	1,664		$	37,891		$	2,719		$	1,026		$	187,302		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	0.51		%	1.71		%	0.66		%	0.88		%	0.55		%	2.37		%	1.38		%	Collectively evaluated loans ACL coverage	0.54		%	1.50		%	0.68		%	0.66		%	0.67		%	2.27		%	1.20		%
Total loans	Total loans	$	52,671		$	8,489,638		$	269,114		$	4,346,244		$	501,000		$	43,962		$	13,702,629		Total loans	$	61,360		$	8,518,115		$	252,801		$	4,001,423		$	543,622		$	46,980		$	13,424,301
Total ACL	Total ACL	$	267		$	160,376		$	1,664		$	41,860		$	2,735		$	1,041		$	207,943		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	0.51		%	1.89		%	0.62		%	0.96		%	0.55		%	2.37		%	1.52		%	Total ACL to total loans	0.54		%	1.80		%	0.66		%	0.74		%	0.66		%	2.31		%	1.41		%


	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		%

2728

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 ~~March 31,~~June 30, 2021, total TDR loans were ~~$79.7~~$88.5 million, compared to $51.6 million at December 31, 2020.

The balance of loans with modified terms due to COVID-19 as of ~~March 31,~~June 30, 2021 totaled ~~$949.1~~$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 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 ~~March 31,~~June 30, 2021 and December 31, 2020, unless the loans were TDR prior to the COVID-19 modification or borrowers were identified to be experiencing financial difficulty prior to the COVID-19 pandemic. As of ~~March 31,~~June 30, 2021, real estate loans accounted for approximately ~~94%~~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 ~~March 31,~~June 30, 2021 and December 31, 2020 is presented below:


		As of March 31, 2021																	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	$	17,419	$	809	$	0	$	55	$	7,459	$	576	$	0	$	0			$	26,318		Payment concession	$	17,305		$	808		$	0		$	58		$	8,357		$	523		$	0		$	0					$	27,051
Maturity / amortization concession	Maturity / amortization concession	9,699		7,351		0		114		23,839		4,099		0		117				45,219			Maturity / amortization concession	19,996			7,380			0			133			22,889			3,404			0			117				53,919
Rate concession	Rate concession	5,949		377		0		0		410		1,426		0		0				8,162			Rate concession	5,303			377			0			0			398			1,422			0			0				7,500

Total	Total	$	33,067	$	8,537	$	0	$	169	$	31,708	$	6,101	$	0	$	117			$	79,699		Total	$	42,604		$	8,565		$	0		$	191		$	31,644		$	5,349		$	0		$	117			$	88,470


	As of December 31, 2020
	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
	(Dollars in thousands)
Payment concession	$	8,328	$	814	$	0	$	58	$	7,074	$	471	$	0	$	0	$	16,745
Maturity / amortization concession	11,331		10,219		0		114		925		3,814		0		117		26,520
Rate concession	6,112		378		0		0		424		1,430		0		0		8,344

Total	$	25,771	$	11,411	$	0	$	172	$	8,423	$	5,715	$	0	$	117	$	51,609

2829

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 ~~March 31,~~June 30, 2021 were comprised of 3437 commercial real estate loans totaling ~~$33.1~~$42.6 million, 2122 commercial business loans totaling ~~$8.5~~$8.6 million, and 1415 consumer and other loans totaling ~~$169~~$191 thousand. TDR loans on accrual status at December 31, 2020 were comprised of 33 commercial real estate loans totaling $25.8 million, 25 commercial business loans totaling $11.4 million, and 16 consumer and other loans totaling $172 thousand. The Company expects that TDR loans on accrual status as of ~~March 31,~~June 30, 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 ~~$18.9~~$26.8 million and $4.8 million for TDR loans as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

The following tables present the recorded investment of loans classified as TDR during the three and six months ended ~~March 31,~~June 30, 2021 and 2020 by class of loans:


		Three Months Ended March 31, 2021	Three Months Ended March 31, 2020			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	3	24,658		0		0		Retail	4	6,527		0	0
Hotel & motel	Hotel & motel	0	0		0		0		Hotel & motel	0	0		0	0
Gas station & car wash	Gas station & car wash	1	575		1		54		Gas station & car wash	0	0		1	479
Mixed use	Mixed use	0	0		0		0		Mixed use	1	4,624		1	464
Industrial & warehouse	Industrial & warehouse	2	9,150		1		261		Industrial & warehouse	0	0		0	0
Other	Other	0	0		1		788		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	1	22		1		294		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	4	44		1		18		Consumer and other	1	12		3	14
Total	Total	11	$	34,449	5		$	1,415	Total	8	$	11,475	8	$	1,407


	For the Six Months Ended June 30, 2021	For the Six Months Ended June 30, 2020
	Number of Loans	Balance		Number of Loans	Balance
	(Dollars in thousands)
Real estate – residential	0	$	0	1	$	216
Real estate – commercial
Retail	7	30,236		1	676
Hotel & motel	0	0		0	0
Gas station & car wash	1	575		2	527
Mixed use	1	4,624		1	464
Industrial & warehouse	2	9,149		1	261
Other	0	0		0	0
Real estate – construction	0	0		0	0
Commercial business	3	331		3	523
Residential mortgage	0	0		0	0
Consumer and other	5	54		4	30
Total	19	$	44,969	13	$	2,697

For TDRs modified during the three and six months ended ~~March 31,~~June 30, 2021, the Company recorded ~~$14.8~~$59 thousand and $23.7 million, respectively in ACL. Total charge-offs of TDR loans modified during the three and six months ended ~~March 31,~~June 30, 2021 totaled $0. For TDR loans modified during the three and six months ended ~~March 31,~~June 30, 2020, the Company recorded ~~$49~~$57 thousand and $219 thousand, respectively in ACL. Total charge-offs of TDR loans modified during the three and six months ended ~~March 31,~~June 30, 2020 totaled $0.

The following tables present loans modified as TDRs within the previous twelve months ended ~~March 31,~~June 30, 2021 and 2020 that subsequently had payment defaults during the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


		Three Months Ended March 31, 2021					Three Months Ended March 31, 2020				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		23,522			0	0		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	0		0			0	0		Gas station & car wash	0	0		0	0
Mixed Use	Mixed Use	0		0			0	0		Mixed Use	0	0		0	0
Industrial & warehouse	Industrial & warehouse	0		0			0	0		Industrial & warehouse	2	9,149		0	0
Other	Other	0		0			2	293		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	2		671			2	292		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	2		6			3	10		Consumer and other	2	16		0	0
Total	Total	5		$	24,199		7	$	595	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 ~~$13.1~~$23.6 million in ACL for TDR loans that had payment defaults during the three and six months ended ~~March 31,~~June 30, 2021. Total charge offs for TDR loans that had payment defaults during the three and six months ended ~~March 31,~~June 30, 2021 was $0.

The Company recorded ~~$136~~$86 thousand and $143 thousand of allowance for TDR loans that had payment defaults during the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively. Total charge offs for TDR loans that had payment defaults during the three and six months ended ~~March 31,~~June 30, 2020 totaled ~~$14 thousand.~~$0.

3031

7. Leases

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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021, ROU assets and related liabilities were ~~$44.2~~$47.8 million and ~~$48.6~~$52.2 million, respectively. At ~~March~~December 31, 2020, ROU assets and related liabilities were $47.7 million and $52.0 million, respectively. At June 30, 2021, the short term operating lease liability totaled ~~$13.4~~$12.7 million and the long-term operating lease liability totaled ~~$35.2~~$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 ~~March 31,~~June 30, 2021. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, the Company extended 39 leases and entered into 0 new lease contracts. Lease extension terms ranged from 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:


		For the Three Months Ended March 31,			Three Months Ended June 30,						For the Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
			(Dollars in thousands)						(Dollars in thousands)
Operating lease cost	Operating lease cost		$	3,829		$	3,945	Operating lease cost	$	3,891	$	3,879	$	7,720	$	7,824
Short term lease cost	Short term lease cost		0			0		Short term lease cost	0		0		0		0
Variable lease cost	Variable lease cost		754			767		Variable lease cost	747		772		1,501		3,397
Sublease income	Sublease income		(153)			(212)		Sublease income	(99)		(214)		(252)		(426)
Net lease cost	Net lease cost		$	4,430		$	4,500	Net lease cost	$	4,539	$	4,437	$	8,969	$	10,795

Rent expense for the three and six months ended ~~March 31,~~June 30, 2021 was $4.5 million and $9.0 million, respectively. Rent expense for the three and six months ended June 30, 2020 was $4.5 million and ~~$4.6~~$9.1 million, respectively.

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


		At or for the Three Months Ended March 31, 2021			At or for the Three Months Ended March 31, 2020				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	$	3,681		$	3,724		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			0			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	5.1 years			5.7 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	2.88		%	3.07		%	Weighted-average discount rate - operating leases	2.69		%	3.01		%

3132

The table below summarizes the maturity of remaining lease liabilities:


		March 31, 2021			June 30, 2021
		(Dollars in thousands)			(Dollars in thousands)
2021	2021	$	10,802	2021	$	7,277
2022	2022	10,182		2022	11,312
2023	2023	8,198		2023	9,613
2024	2024	7,303		2024	8,684
2025	2025	5,883		2025	7,319
2026 and thereafter	2026 and thereafter	10,314		2026 and thereafter	11,971
Total lease payments	Total lease payments	52,682		Total lease payments	56,176
Less: imputed interest	Less: imputed interest	4,107		Less: imputed interest	3,999
Total lease obligations	Total lease obligations	$	48,575	Total lease obligations	$	52,177

As of ~~March 31,~~June 30, 2021, the Company did not have any additional operating lease commitments that have not yet commenced.

3233

8. Deposits

The aggregate amounts of time deposits in denominations of more than $250 thousand at ~~March 31,~~June 30, 2021 and December 31, 2020, was ~~$1.69~~$1.58 billion and $1.85 billion, respectively. Included in time deposits of more than $250 thousand were $300.0 million in California State Treasurer’s deposits at ~~March 31,~~June 30, 2021 and December 31, 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 ~~March 31,~~June 30, 2021 and December 31, 2020, securities with fair values of approximately ~~$319.3~~$350.7 million and $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 ~~March 31,~~June 30, 2021 and December 31, 2020, totaled ~~$720.6~~$378.5 million and $1.14 billion, respectively. Brokered deposits at ~~March 31,~~June 30, 2021 consisted of ~~$376.6~~$378.3 million in money market and NOW accounts and ~~$344.0 million~~$191 thousand in time deposits accounts. Brokered deposits at December 31, 2020 consisted of $735.0 million in money market and NOW accounts and $400.6 million in time deposit accounts.

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


		At March 31, 2021				At December 31, 2020					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	$	5,427,174	38	%	$	4,814,254	34	%	Noninterest bearing demand deposits	$	5,638,115	38	%	$	4,814,254	34	%
Money market and NOW accounts	Money market and NOW accounts	5,009,419		35	%	5,232,413		36	%	Money market and NOW accounts	5,786,697		39	%	5,232,413		36	%
Saving deposits	Saving deposits	305,326		2	%	300,770		2	%	Saving deposits	308,651		2	%	300,770		2	%
Time deposits	Time deposits	3,559,350		25	%	3,986,475		28	%	Time deposits	2,992,767		21	%	3,986,475		28	%
Total deposits	Total deposits	$	14,301,269	100	%	$	14,333,912	100	%	Total deposits	$	14,726,230	100	%	$	14,333,912	100	%

3334

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 ~~$4.28~~$4.30 billion at ~~March 31,~~June 30, 2021, and $4.18 billion at December 31, 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 ~~March 31,~~June 30, 2021 and December 31, 2020.

At ~~March 31,~~June 30, 2021 and December 31, 2020, loans with a carrying amount of approximately ~~$6.94~~$6.61 billion and $6.95 billion, respectively, were pledged at the FHLB for outstanding advances and remaining borrowing capacity. At ~~March 31,~~June 30, 2021 and December 31, 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 ~~March 31,~~June 30, 2021 and December 31, 2020, FHLB advances totaled ~~$400.0~~$200.0 million and $250.0 million, respectively, and had weighted average interest rates of ~~0.69%~~1.26% and 1.07%, respectively. FHLB advances at ~~March 31,~~June 30, 2021 and December 31, 2020 had various maturities through December 2022. The interest rates of FHLB advances as of ~~March 31,~~June 30, 2021 ranged between ~~0.09%~~0.13% and 2.39%. At ~~March 31,~~June 30, 2021, the Company’s remaining borrowing capacity with the FHLB was ~~$3.86~~$4.08 billion.

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

At ~~March 31,~~June 30, 2021, the contractual maturities for outstanding FHLB advances were as follows:


		March 31, 2021			June 30, 2021
Scheduled maturities in:	Scheduled maturities in:	(Dollars in thousands)		Scheduled maturities in:	(Dollars in thousands)
2021	2021	$	300,000	2021	$	100,000
2022	2022	100,000		2022	100,000

Total	Total	$	400,000	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 ~~March 31,~~June 30, 2021, the outstanding principal balance of the qualifying loans pledged at the FRB was ~~$770.8~~$766.0 million and there was 1 investment security pledged to borrow against the discount window with book value totaling ~~$3.2~~$2.4 million. At ~~March 31,~~June 30, 2021 and December 31, 2020, the total available borrowing capacity at the FRB discount window was ~~$667.3~~$616.4 million and $616.0 million, respectively. There were 0 borrowings outstanding with the FRB discount window as of ~~March 31,~~June 30, 2021 and December 31, 2020.

3435

10. Subordinated Debentures and Convertible Notes

Subordinated Debt

At ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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

3.334%

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

3.091%

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

3.132%

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

1.834%

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

14,514

Variable

3.091%

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

16,025

Variable

1.972%

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

11,374

Variable

1.584%

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

18,406

Variable

1.564%

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

15,282

Variable

1.819%

06/30/2037

Saehan Capital Trust I

03/30/2007

20,000

15,337

Variable

1.767%

06/30/2037

Total

126,000

104,469

Total

126,000

104,762

The carrying value of Debentures at ~~March 31,~~June 30, 2021 and December 31, 2020 was ~~$104.5~~$104.8 million and $104.2 million, respectively. At ~~March 31,~~June 30, 2021 and December 31, 2020, acquired Debentures had remaining discounts of ~~$25.4~~$25.1 million and $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 ~~March 31,~~June 30, 2021 and December 31, 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.

3536

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 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 ~~March 31,~~June 30, 2021 and December 31, 2020 are presented in the tables below:


					As of March 31, 2021								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

Issuance costs to be capitalized	Issuance costs to be capitalized	5 years	(4,119)		2,123		(1,996)		Issuance costs to be capitalized	5 years	(4,119)		2,358		(1,761)
Carrying balance of convertible notes	Carrying balance of convertible notes		$	213,381	$	2,123	$	215,504	Carrying balance of convertible notes		$	213,381	$	2,358	$	215,739


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

Interest expense on the convertible notes for the three and six months ended ~~March 31,~~June 30, 2021, ~~and 2020,~~ totaled $1.3 million and ~~$2.3~~$2.6 million, respectively. Interest expense on the convertible notes for the three and six months ended June 30, 2020, totaled $2.4 million and $4.7 million, respectively. With the adoption of ASU 2020-06, interest expense for the Company’s convertible notes consists of accrued interest on the convertible note coupon and interest expense from capitalized issuance costs. 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 ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020 as it no longer has a discount to amortize and record as non-cash interest expense.

3637

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


		March 31, 2021			December 31, 2020				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	$	100,711		$	0		Notional amount	$	93,433		$	0
Weighted average remaining term (years)	Weighted average remaining term (years)	9.1			0.0			Weighted average remaining term (years)	8.8			0.0
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	2.90		%	0		%	Pay fixed rate (weighted average)	2.86		%	0		%
Received variable rate (weighted average)	Received variable rate (weighted average)	2.12		%	0		%	Received variable rate (weighted average)	2.08		%	0		%
Estimated fair value	Estimated fair value	$	4,008		$	0		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	$	406,551		$	503,929		Notional amount	$	418,767		$	503,929
Weighted average remaining term (years)	Weighted average remaining term (years)	6.0			6.8			Weighted average remaining term (years)	6.0			6.8
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	4.10		%	3.86		%	Pay fixed rate (weighted average)	4.06		%	3.86		%
Received variable rate (weighted average)	Received variable rate (weighted average)	2.24		%	2.26		%	Received variable rate (weighted average)	2.21		%	2.26		%
Estimated fair value	Estimated fair value	$	(17,878)		$	(34,606)		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	$	100,711		$	0		Notional amount	$	93,433		$	0
Weighted average remaining term (years)	Weighted average remaining term (years)	9.1			0.0			Weighted average remaining term (years)	8.8			0.0
Received fixed rate (weighted average)	Received fixed rate (weighted average)	2.90		%	0		%	Received fixed rate (weighted average)	2.86		%	0		%
Pay variable rate (weighted average)	Pay variable rate (weighted average)	2.12		%	0		%	Pay variable rate (weighted average)	2.08		%	0		%
Estimated fair value	Estimated fair value	$	(4,008)		$	0		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	$	406,551		$	503,929		Notional amount	$	418,767		$	503,929
Weighted average remaining term (years)	Weighted average remaining term (years)	6.0			6.8			Weighted average remaining term (years)	6.0			6.8
Received fixed rate (weighted average)	Received fixed rate (weighted average)	4.10		%	3.86		%	Received fixed rate (weighted average)	4.06		%	3.86		%
Pay variable rate (weighted average)	Pay variable rate (weighted average)	2.24		%	2.26		%	Pay variable rate (weighted average)	2.21		%	2.26		%
Estimated fair value	Estimated fair value	$	17,878		$	34,606		Estimated fair value	$	21,358		$	34,606

3738

At ~~March 31,~~June 30, 2021, the Company had risk participation 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 ~~March 31,~~June 30, 2021, the notional amount of the risk participation agreements sold was ~~$111.8~~$111.4 million with a credit valuation adjustment of ~~$95~~$64 thousand. At December 31, 2020, the notional amount of the risk participation agreement sold was $112.8 million with a credit valuation adjustment of $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 ~~March 31,~~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 six months ended ~~March 31,~~June 30, 2021, the Company reclassified ~~$66~~$73 thousand and $139 thousand, respectively, from accumulated other comprehensive income to interest expense. ~~There were 0 reclassifications~~For the three and six months ended June 30, 2020, the Company reclassified $139 thousand from accumulated comprehensive income to interest ~~expense during three months ended March 31, 2020.~~income.


		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
		(Dollars in thousands)							(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)							Interest rate swaps designated as cash flow hedge (included in other assets)
Notional amount	Notional amount	$	100,000		$	0		Notional amount	$	100,000		$	0
Weighted average remaining term (years)	Weighted average remaining term (years)	4.0			0.0			Weighted average remaining term (years)	4.0			0.0
Received variable rate (weighted average)	Received variable rate (weighted average)	0.22		%	0		%	Received variable rate (weighted average)	0.19		%	0		%
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	0.49		%	0		%	Pay fixed rate (weighted average)	0.49		%	0		%
Estimated fair value	Estimated fair value	$	1,218		$	0		Estimated fair value	$	921		$	—

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	$	0		$	100,000		Notional amount	$	0		$	100,000
Weighted average remaining term (years)	Weighted average remaining term (years)	0.0			4.3			Weighted average remaining term (years)	0.0			4.3
Received variable rate (weighted average)	Received variable rate (weighted average)	0		%	0.22		%	Received variable rate (weighted average)	0		%	0.22		%
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	0		%	0.49		%	Pay fixed rate (weighted average)	0		%	0.49		%
Estimated fair value	Estimated fair value	$	0		$	(602)		Estimated fair value	$	0		$	(602)

3839

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 ~~March 31,~~June 30, 2021, the Company had approximately ~~$23.6~~$26.2 million in interest rate lock commitments and total forward sales commitments for the future delivery of residential mortgage loans. At December 31, 2020, the Company had approximately $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 March 31, 2021				As of December 31, 2020					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	$	17,755	$	240	$	37,507	$	679	Interest rate lock commitments	$	23,792	$	213	$	37,507	$	679
Forward sale contracts related to mortgage banking	Forward sale contracts related to mortgage banking	$	17,239	$	116	$	8,641	$	45	Forward sale contracts related to mortgage banking	$	11,942	$	29	$	8,641	$	45

Liabilities:	Liabilities:									Liabilities:
Interest rate lock commitments	Interest rate lock commitments	$	5,861	$	(43)	$	6,267	$	(31)	Interest rate lock commitments	$	2,368	$	(4)	$	6,267	$	(31)
Forward sale contracts related to mortgage banking	Forward sale contracts related to mortgage banking	$	6,377	$	(7)	$	35,133	$	(79)	Forward sale contracts related to mortgage banking	$	14,217	$	(48)	$	35,133	$	(79)

3940

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 ~~March 31,~~June 30, 2021 and December 31, 2020 are summarized as follows:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Commitments to extend credit	Commitments to extend credit	$	2,477,778	$	2,137,178	Commitments to extend credit	$	2,483,026	$	2,137,178
Standby letters of credit	Standby letters of credit	134,030		108,834		Standby letters of credit	115,629		108,834
Other letters of credit	Other letters of credit	36,495		40,508		Other letters of credit	55,609		40,508
Commitments to fund investments in affordable housing partnerships	Commitments to fund investments in affordable housing partnerships	13,354		15,148		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 ~~$145~~$25 thousand at ~~March 31,~~June 30, 2021 and $1.3 million at December 31, 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.

4041

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, 2020, the Company performed a Step 1 fair value assessment and determined that goodwill was not impaired as the estimated fair value of the Company exceeded the book value. As the Company operates as single business unit, goodwill impairment was assessed based on the Company as a whole. Goodwill is not amortized for book purposes and is not tax deductible.

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

Core deposit intangible assets are amortized over their estimated lives or ten years. Amortization expense related to core deposit intangible assets totaled ~~$509~~$510 thousand and ~~$531~~$532 thousand for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively. The amortization expense related to core deposit intangible assets totaled $1.0 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively. The following table provides information regarding the core deposit intangibles at ~~March 31,~~June 30, 2021 and December 31, 2020:


					As of March 31, 2021				As of December 31, 2020								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)
Foster Bankshares acquisition	Foster Bankshares acquisition	10 years	$	2,763	$	(2,368)	$	395	$	(2,322)	$	441	Foster Bankshares acquisition	10 years	$	2,763	$	(2,413)	$	350	$	(2,322)	$	441
Wilshire Bancorp acquisition	Wilshire Bancorp acquisition	10 years	18,138		(9,335)		8,803		(8,871)		9,267		Wilshire Bancorp acquisition	10 years	18,138		(9,799)		8,339		(8,871)		9,267
Total	Total		$	20,901	$	(11,703)	$	9,198	$	(11,193)	$	9,708	Total		$	20,901	$	(12,212)	$	8,689	$	(11,193)	$	9,708

4142

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 ~~March 31,~~June 30, 2021 and December 31, 2020, the Company did not have a valuation allowance on it servicing assets.

The changes in servicing assets for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 were as follows:


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
			2021		2020				2021		2020		2021		2020
			(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period		$	12,692	$	16,417		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		592		377			Additions through originations of servicing assets	737		759		1,329		1,136
Amortization	Amortization		(1,200)		(1,947)			Amortization	(1,255)		(1,442)		(2,455)		(3,389)

Balance at end of period	Balance at end of period		$	12,084	$	14,847		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 ~~$1.21~~$1.18 billion as of ~~March 31,~~June 30, 2021 and $1.23 billion as of December 31, 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 ~~March 31,~~June 30, 2021 and December 31, 2020 are presented below.


		March 31, 2021	December 31, 2020		June 30, 2021	December 31, 2020
SBA Servicing Assets:	SBA Servicing Assets:			SBA Servicing Assets:
Weighted-average discount rate	Weighted-average discount rate	10.74%	9.93%	Weighted-average discount rate	11.72%	9.93%
Constant prepayment rate	Constant prepayment rate	14.39%	14.40%	Constant prepayment rate	14.23%	14.40%
Mortgage Servicing Assets:	Mortgage Servicing Assets:			Mortgage Servicing Assets:
Weighted-average discount rate	Weighted-average discount rate	8.75%	8.26%	Weighted-average discount rate	8.51%	8.26%
Constant prepayment rate	Constant prepayment rate	8.74%	8.63%	Constant prepayment rate	9.02%	8.63%

4243

14. Income Taxes

For the three months ended ~~March 31,~~June 30, 2021, the Company had an income tax provision totaling ~~$14.0~~$17.8 million on pretax income of ~~$57.7~~$71.5 million, representing an effective tax rate of ~~24.22%~~24.84%, compared with an income tax provision of ~~$6.5~~$9.8 million on pretax income of ~~$32.4~~$36.5 million, representing an effective tax rate of ~~19.94%~~26.75% for the three months ended ~~March 31,~~June 30, 2020. For the six months ended June 30, 2021, the Company had an income tax provision totaling $31.7 million on pretax income of $129.2 million, representing an effective tax rate of 24.56%, compared with an income tax provision of $16.2 million on pretax income of $68.9 million, representing an effective tax rate of 23.55% for the six months ended June 30, 2020. The increase in effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2021 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2020 was primarily due to affordable housing partnership investment tax credits benefit having a lower effect on 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 $2.8 million at ~~March 31,~~June 30, 2021 and December 31, 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 ~~$299~~$323 thousand and $276 thousand, for accrued interest (0 portion was related to penalties) at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Management believes it is reasonably possible that the unrecognized tax benefits may decrease by $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 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. 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 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 ~~March 31,~~June 30, 2021.

4344

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.

4445

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.

4546

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
		March 31, 2021		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	$	904,659	$	0	$	904,659	$	0	Collateralized mortgage obligations	$	864,576	$	0	$	864,576	$	0
Mortgage-backed securities:	Mortgage-backed securities:									Mortgage-backed securities:
Residential	Residential	637,828		0		637,828		0		Residential	660,202		0		660,202		0
Commercial	Commercial	537,788		0		537,788		0		Commercial	555,613		0		555,613		0
Asset-backed securities	Asset-backed securities	34,849		0		34,849		0		Asset-backed securities	62,369		0		62,369		0
Corporate securities	Corporate securities	13,205		0		13,205		0		Corporate securities	22,614		0		22,614		0
Municipal securities	Municipal securities	105,415		0		104,350		1,065		Municipal securities	108,796		0		107,738		1,058
Equity investments with readily determinable fair value	Equity investments with readily determinable fair value	27,128		27,128		0		0		Equity investments with readily determinable fair value	27,205		27,205		0		0
Interest rate swaps	Interest rate swaps	21,886		0		21,886		0		Interest rate swaps	23,121		0		23,121		0
Mortgage banking derivatives	Mortgage banking derivatives	356		0		356		0		Mortgage banking derivatives	242		0		242		0
Other derivatives	Other derivatives	1,218		0		1,218		0		Other derivatives	921		0		921		0

Liabilities:	Liabilities:									Liabilities:
Interest rate swaps	Interest rate swaps	21,886		0		21,886		0		Interest rate swaps	23,121		0		23,121		0
Mortgage banking derivatives	Mortgage banking derivatives	50		0		50		0		Mortgage banking derivatives	52		0		52		0
Other derivatives	Other derivatives	95		0		0		95		Other derivatives	64		0		0		64

4647


			Fair Value Measurements at the End of the Reporting Period Using
	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)
Assets:
Securities available for sale:
U.S. Government agency and U.S. Government sponsored enterprises:

Collateralized mortgage obligations	$	1,001,317	$	0	$	1,001,317	$	0
Mortgage-backed securities:
Residential	681,013		0		681,013		0
Commercial	507,879		0		507,879		0
Corporate securities	6,134		0		6,134		0
Municipal securities	89,268		0		88,246		1,022
Equity investments with readily determinable fair value	27,611		27,611		0		0
Interest rate swaps	34,606		0		34,606		0
Mortgage banking derivatives	724		0		724		0

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

There were no transfers between Level 1, 2, and 3 during the three and six months ended ~~March 31,~~June 30, 2021 and 2020.

The table below presents a reconciliation and income statement classification of gains (losses) for 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 six months ended ~~March 31,~~June 30, 2021 and 2020:

Three Months Ended March 31,
2021 2020
(Dollars in thousands)
Municipal securities:
Beginning Balance $ 1,022 $ 1,076
Change in fair value included in other comprehensive income (loss) 43 3
Ending Balance $ 1,065 $ 1,079
Risk participation agreements:
Beginning Balance $ 398 $ 0
Change in fair value included in income (303) 0
Ending Balance $ 95 $ 0


	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

4748

The Company measures certain assets at fair value on a non-recurring basis including collateral dependent loans, 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
		March 31, 2021		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	$	46,343	$	0	$	0	$	46,343	Real estate loans	$	50,593	$	0	$	0	$	50,593
Commercial business	Commercial business	3,698		0		0		3,698		Commercial business	3,601		0		0		3,601

OREO	OREO	17,655		0		0		17,655		OREO	15,759		0		0		15,759


			Fair Value Measurements at the End of the Reporting Period Using
	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)
Assets:
Collateral dependent loans at fair value:
Real estate loans	$	21,688	$	0	$	0	$	21,688
Commercial business	7,694		0		0		7,694



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 March 31,				For the Three Months Ended June 30,						For the Six Months Ended June 30,
				2021			2020			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			$	(17,311)		$	(4,659)	Real estate loans	$	(25,411)	$	(2,746)	$	(27,738)	$	(5,067)
Commercial business	Commercial business			(2,634)			(4,656)		Commercial business	(2,151)		(3,178)		(2,151)		(5,746)

Consumer				0			(608)

OREO	OREO			(169)			(826)		OREO	(154)		(1,435)		(323)		(2,779)

4849

Fair Value of Financial Instruments

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


		March 31, 2021						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	$	376,666	$	376,666	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	25,943		25,962		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	31,921		31,921		Level 2	Equity investments without readily determinable fair values	31,827		31,827		Level 2
Loans held for sale	Loans held for sale	19,672		20,279		Level 2	Loans held for sale	54,245		57,365		Level 2
Loans receivable—net	Loans receivable—net	13,494,686		13,541,536		Level 3	Loans receivable—net	13,234,849		13,236,867		Level 3

Accrued interest receivable	Accrued interest receivable	60,498		60,498		Level 2/3	Accrued interest receivable	51,886		51,886		Level 2/3
Servicing assets, net	Servicing assets, net	12,084		15,022		Level 3	Servicing assets, net	11,566		14,438		Level 3
Customers’ liabilities on acceptances	Customers’ liabilities on acceptances	754		754		Level 2	Customers’ liabilities on acceptances	916		916		Level 2
Financial Liabilities:	Financial Liabilities:						Financial Liabilities:
Noninterest bearing deposits	Noninterest bearing deposits	$	5,427,174	$	5,427,174	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	5,314,745		5,314,745		Level 2	Saving and other interest bearing demand deposits	6,095,348		6,095,348		Level 2
Time deposits	Time deposits	3,559,350		3,563,624		Level 2	Time deposits	2,992,767		2,996,197		Level 2
FHLB advances	FHLB advances	400,000		403,811		Level 2	FHLB advances	200,000		203,251		Level 2
Convertible notes, net	Convertible notes, net	215,504		214,847		Level 1	Convertible notes, net	215,739		214,238		Level 1
Subordinated debentures	Subordinated debentures	104,469		101,941		Level 2	Subordinated debentures	104,762		112,429		Level 2
Accrued interest payable	Accrued interest payable	8,611		8,611		Level 2	Accrued interest payable	4,946		4,946		Level 2
Acceptances outstanding	Acceptances outstanding	754		754		Level 2	Acceptances outstanding	916		916		Level 2

		December 31, 2020						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	$	350,579	$	350,579	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	28,642		28,669		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	32,088		32,088		Level 2	Equity investments without readily determinable fair values	32,088		32,088		Level 2
Loans held for sale	Loans held for sale	17,743		18,288		Level 2	Loans held for sale	17,743		18,288		Level 2
Loans receivable—net	Loans receivable—net	13,356,472		13,428,706		Level 3	Loans receivable—net	13,356,472		13,428,706		Level 3

Accrued interest receivable	Accrued interest receivable	59,430		59,430		Level 2/3	Accrued interest receivable	59,430		59,430		Level 2/3
Servicing assets, net	Servicing assets, net	12,692		15,785		Level 3	Servicing assets, net	12,692		15,785		Level 3
Customers’ liabilities on acceptances	Customers’ liabilities on acceptances	1,184		1,184		Level 2	Customers’ liabilities on acceptances	1,184		1,184		Level 2
Financial Liabilities:	Financial Liabilities:						Financial Liabilities:
Noninterest bearing deposits	Noninterest bearing deposits	$	4,814,254	$	4,814,254	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	5,533,183		5,533,183		Level 2	Saving and other interest bearing demand deposits	5,533,183		5,533,183		Level 2
Time deposits	Time deposits	3,986,475		3,992,973		Level 2	Time deposits	3,986,475		3,992,973		Level 2
FHLB advances	FHLB advances	250,000		254,456		Level 2	FHLB advances	250,000		254,456		Level 2
Convertible notes, net	Convertible notes, net	204,565		201,731		Level 1	Convertible notes, net	204,565		201,731		Level 1
Subordinated debentures	Subordinated debentures	104,178		98,948		Level 2	Subordinated debentures	104,178		98,948		Level 2
Accrued interest payable	Accrued interest payable	14,706		14,706		Level 2	Accrued interest payable	14,706		14,706		Level 2
Acceptances outstanding	Acceptances outstanding	1,184		1,184		Level 2	Acceptances outstanding	1,184		1,184		Level 2

4950

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.

5051

16. Stockholders’ Equity

Total stockholders’ equity at ~~March 31,~~June 30, 2021 was ~~$2.05~~$2.09 billion, compared to $2.05 billion at December 31, 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 ~~March 31,~~June 30, 2021. As of ~~March 31,~~June 30, 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.

For the three months ended ~~March 31,~~June 30, 2021 and 2020, the Company paid dividends of $0.14 per common share. For both the six months ended June 30, 2021 and 2020, the Company paid dividends of $0.28 per common share.

The following table presents the quarterly changes to accumulated other comprehensive income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020:

Three Months Ended,
March 31, 2021 March 31, 2020
(Dollars in thousands)
Balance at beginning of period $ 32,753 $ 9,149
Unrealized gain on securities available for sale (40,803) 38,853
Unrealized loss on interest rate swaps used for cash flow hedge 602 0
Reclassification adjustments for net gains realize in net income 66 0
Tax effect 12,605 (11,553)
Total other comprehensive (loss) income $ (27,530) $ 27,300
Balance at end of period $ 5,223 $ 36,449


	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 six months ended ~~March 31,~~June 30, 2021 relate to net 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.

For the three and six months ended ~~March 31,~~June 30, 2021, the Company recorded reclassification adjustments of $73 thousand and $139 thousand, respectively from other comprehensive income to losses from cash flow hedge relationships. For the three and six months ended and June 30, 2020, the Company recorded reclassification adjustments of ~~$66~~$139 thousand ~~and $0, respectively,~~ from accumulated other comprehensive income to gains from cash flow hedge relationships.

5152

17. Stock-Based Compensation

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, ~~938,575~~2,322,103 shares were available for future grants as of ~~March 31,~~June 30, 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 ~~three~~six months ended ~~March 31,~~June 30, 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, 2021	Outstanding - January 1, 2021	851,580	$	15.25				Outstanding - January 1, 2021	851,580	$	15.25
Granted	Granted	0	0					Granted	0	0
Exercised	Exercised	0	0					Exercised	0	0
Expired	Expired	(16,000)	17.18					Expired	(16,703)	17.12
Forfeited	Forfeited	0	0					Forfeited	0	0
Outstanding - March 31, 2021		835,580	$	15.22	4.26	$	1,109
Options exercisable - March 31, 2021		797,580	$	15.12	4.20	$	1,109
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 ~~three~~six months ended ~~March 31,~~June 30, 2021:


		Number of Shares	Weighted-Average Grant Date Fair Value			Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding (unvested) - January 1, 2021	Outstanding (unvested) - January 1, 2021	1,718,838	$	10.73	Outstanding (unvested) - January 1, 2021	1,718,838	$	10.73
Granted	Granted	255,514	15.92		Granted	652,909	15.65
Vested	Vested	(340,129)	12.53		Vested	(604,703)	11.75
Forfeited	Forfeited	(104,869)	14.13		Forfeited	(135,053)	13.18
Outstanding (unvested) - March 31, 2021		1,529,354	$	10.97
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 ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$5.2~~$9.2 million and ~~$2.0 million,~~$343 thousand, respectively.

5253

The Company 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 ~~March 31,~~June 30, 2021 and 2020 was ~~$221~~$37 thousand and ~~$71~~$26 thousand, respectively. The compensation expense for the ESPP during the six months ended June 30, 2021 and 2020 was $259 thousand and $97 thousand, respectively.

The total amounts charged against income related to stock-based payment arrangements, including the ESPP, were ~~$2.6~~$2.1 million and ~~$2.0~~$1.8 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, $4.6 million and $3.8 million, respectively, of stock-based payment arrangements were charged against income. The income tax benefit recognized was approximately $514 thousand and $485 thousand for the three months ended June 30, 2021 and 2020, respectively. The income tax benefit recognized ~~was approximately $623 thousand and $397 thousand~~ for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, was approximately $1.1 million and $896 thousand, respectively.

At ~~March 31,~~June 30, 2021, the unrecognized compensation expense related to non-vested stock option grants was ~~$52~~$21 thousand and is expected to be recognized over a weighted average vesting period of ~~0.42~~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 ~~1.76~~2.07 years.

5354

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 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 ~~March 31,~~June 30, 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.

On January 1, 2020, the Company adopted ASU 2016-13 and implemented the CECL methodology. In response to the COVID-19 pandemic, federal regulatory agencies published a final rule that provides the option to delay the cumulative effect of the day 1 impact of CECL adoption on regulatory capital, along with 25% of the change in the adjusted allowance for credit losses (as computed for regulatory capital purposes which excludes PCD loans), for two years, followed by a three-year phase-in period. The Company has elected the five-year transition period consistent with the final rule issued by the federal regulatory agencies.

As of ~~March 31,~~June 30, 2021 and December 31, 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.

5455

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 March 31, 2021		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	$	1,588,161	11.08	%	$	645,247	4.50	%	$	1,003,718	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	$	1,878,163	13.10	%	$	644,970	4.50	%	$	1,003,286	7.00	%	$	931,623	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	$	1,867,993	13.03	%	$	1,147,106	8.00	%	$	1,505,577	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	$	2,057,351	14.35	%	$	1,146,613	8.00	%	$	1,504,929	10.50	%	$	1,433,266	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	$	1,688,728	11.78	%	$	860,330	6.00	%	$	1,218,800	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	$	1,878,163	13.10	%	$	859,960	6.00	%	$	1,218,276	8.50	%	$	1,146,613	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	$	1,688,728	10.15	%	$	665,230	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	$	1,878,163	11.29	%	$	665,200	4.00	%	N/A		N/A		$	831,501	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
As of December 31, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Common equity Tier 1 capital (to risk weighted assets):
Company	$	1,568,508	10.94	%	$	645,366	4.50	%	$	1,003,902	7.00	%	N/A		N/A
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):
Company	$	1,846,229	12.87	%	$	1,147,317	8.00	%	$	1,505,853	10.50	%	N/A		N/A
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):
Company	$	1,668,786	11.64	%	$	860,487	6.00	%	$	1,219,024	8.50	%	N/A		N/A
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):
Company	$	1,668,786	10.22	%	$	653,163	4.00	%	N/A		N/A		N/A		N/A
Bank	$	1,850,091	11.33	%	$	653,241	4.00	%	N/A		N/A		$	816,551	5.00	%

5556

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 March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			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		$	283		$	368	Monthly service charges	$	266	$	329	$	549	$	697
Customer analysis charges	Customer analysis charges		696			1,870		Customer analysis charges	788		1,513		1,485		3,383
NSF charges	NSF charges		697			1,655		NSF charges	618		561		1,315		2,216
Other service charges	Other service charges		89			216		Other service charges	82		157		170		373
Total noninterest bearing deposit account income	Total noninterest bearing deposit account income		1,765			4,109		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		25			24		Monthly service charges	23		23		48		47

Total service fees on deposit accounts	Total service fees on deposit accounts		$	1,790		$	4,133	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		$	703		$	806	Wire transfer fees	$	786	$	765	$	1,489	$	1,571
Foreign exchange fees	Foreign exchange fees		141			192		Foreign exchange fees	137		55		278		247
Total wire transfer fees	Total wire transfer fees		$	844		$	998	Total wire transfer fees	$	923	$	820	$	1,767	$	1,818

5657

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 six months ended ~~March 31,~~June 30, 2021, ~~and 2020,~~ the Company recognized net ~~losses~~gains on sales of OREO in the amounts of ~~$14~~$27 thousand and ~~$61~~$13 thousand, respectively. For the three and six ended June 30, 2020, the Company recognized net losses on sale of OREO in the amount of $20 thousand and $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, 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 53 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 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 the United States ~~has recently~~had seen a decline in new cases of COVID-19 as a result of the vaccination efforts underway, ~~other~~many parts of the world ~~continue to see~~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 may continue to be 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. Similarly, because of economic volatility and uncertain market conditions, we may be required to recognize impairments on goodwill or impairment on other financial instruments we hold. 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 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 assisted many of our customers in availing themselves of certain provisions of the CARES Act by providing loan modifications to borrowers consisting of mostly payment 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 ~~$304.7~~funded $324.5 million in second round PPP loans induring the six months ended June 30, 2021.

At ~~March 31,~~June 30, 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 and regularly communicate with our staff to keep them apprised of the latest ~~information:~~

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

•~~For some of 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 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% 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.~~

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.

5961

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 March 31,					At or for the Three Months Ended June 30,								At or for the Six Months Ended June 30,
				2021				2020				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			$	138,293			$	166,868		Interest income	$	140,204		$	145,061		$	278,497		$	311,929
Interest expense	Interest expense			15,714				47,577			Interest expense	13,627			35,247			29,341			82,824
Net interest income	Net interest income			122,579				119,291			Net interest income	126,577			109,814			249,156			229,105
Provision for credit losses	Provision for credit losses			3,300				28,000			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			119,279				91,291			Net interest income after provision for credit losses	133,577			92,314			252,856			183,605
Noninterest income	Noninterest income			8,804				13,264			Noninterest income	11,076			11,240			19,880			24,504
Noninterest expense	Noninterest expense			70,431				72,140			Noninterest expense	73,123			67,030			143,554			139,170
Income before income tax provision	Income before income tax provision			57,652				32,415			Income before income tax provision	71,530			36,524			129,182			68,939
Income tax provision	Income tax provision			13,965				6,462			Income tax provision	17,767			9,771			31,732			16,233
Net income	Net income			$	43,687			$	25,953		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			$	0.35			$	0.21		Earnings per common share - basic	$	0.44		$	0.22		$	0.79		$	0.43
Earnings per common share - diluted	Earnings per common share - diluted			$	0.35			$	0.21		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)			$	16.57			$	16.38		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		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)			$	12.73			$	12.52		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)			123,480,494				123,169,404			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			123,324,745				124,295,327			Weighted average shares - basic	123,592,695			123,200,127			123,459,461			123,747,727
Weighted average shares - diluted	Weighted average shares - diluted			124,336,130				124,676,296			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)			9.40		%		9.92		%	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			$	17,115,407			$	15,446,807		Assets	$	17,164,893		$	16,759,147		$	17,140,286		$	16,102,977
Securities available for sale	Securities available for sale			2,267,409				1,712,033			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			13,346,264				12,259,848			Loans receivable and loans held for sale	13,293,591			12,755,088			13,319,782			12,507,468
Deposits	Deposits			14,377,404				12,342,022			Deposits	14,460,491			13,653,065			14,419,176			12,997,544
Stockholders’ equity	Stockholders’ equity			2,047,506				2,027,595			Stockholders’ equity	2,066,016			2,016,947			2,056,812			2,022,271

6062


		For the Three Months Ended March 31,						For the Three Months Ended June 30,					For the Six Months Ended June 30,
		2021			2020					2021			2020			2021		2020
Selected Performance Ratios:	Selected Performance Ratios:								Selected Performance Ratios:
Return on average assets (2)	Return on average assets (2)	1.02		%	0.67		%		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)	8.53		%	5.12		%		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)	11.11		%	6.69		%		Return on average tangible equity (1) (2)	13.50		%	6.94		%	12.31	%	6.82	%
Dividend payout ratio (dividends per share / diluted EPS)		39.84		%	67.24		%
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)	53.61		%	54.42		%		Efficiency ratio (3)	53.12		%	55.37		%	53.36	%	54.88	%
Net interest spread	Net interest spread	2.80		%	2.77		%		Net interest spread	2.88		%	2.41		%	2.84	%	2.58	%
Net interest margin (4)	Net interest margin (4)	3.06		%	3.31		%		Net interest margin (4)	3.11		%	2.79		%	3.09	%	3.04	%

		At March 31,
		2021			2020					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	$	17,198,860		$	16,021,434			Assets	$	17,469,627		$	17,169,062
Securities available for sale	Securities available for sale	2,233,744			1,718,702				Securities available for sale	2,274,170			1,887,604
Loans receivable	Loans receivable	13,702,629			12,583,416				Loans receivable	13,424,301			12,871,834
Deposits	Deposits	14,301,269			12,836,567				Deposits	14,726,230			14,123,532
FHLB advances	FHLB advances	400,000			675,000				FHLB advances	200,000			500,000
Convertible notes, net	Convertible notes, net	215,504			200,716				Convertible notes, net	215,739			201,987
Subordinated debentures	Subordinated debentures	104,469			103,318				Subordinated debentures	104,762			103,602
Stockholders’ equity	Stockholders’ equity	2,045,581			2,018,088				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	10.15		%	10.88		%		Leverage capital ratio	10.43		%	10.08		%
Common equity Tier 1 capital ratio	Common equity Tier 1 capital ratio	11.08		%	11.44		%		Common equity Tier 1 capital ratio	11.44		%	11.50		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	11.78		%	12.19		%		Tier 1 risk-based capital ratio	12.14		%	12.24		%
Total risk-based capital ratio	Total risk-based capital ratio	13.03		%	13.08		%		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	1.52		%	1.15		%		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	189.28		%	199.51		%		Allowance for credit losses to nonaccrual loans	170.67		%	196.95		%
Allowance for credit losses to nonperforming loans (6)	Allowance for credit losses to nonperforming loans (6)	136.79		%	124.06		%		Allowance for credit losses to nonperforming loans (6)	113.36		%	127.79		%
Allowance for credit losses to nonperforming assets (7)	Allowance for credit losses to nonperforming assets (7)	121.94		%	103.62		%		Allowance for credit losses to nonperforming assets (7)	103.11		%	109.62		%
Nonaccrual loans to loans receivable	Nonaccrual loans to loans receivable	0.80		%	0.58		%		Nonaccrual loans to loans receivable	0.83		%	0.64		%
Nonperforming loans to loans receivable (6)	Nonperforming loans to loans receivable (6)	1.11		%	0.93		%		Nonperforming loans to loans receivable (6)	1.24		%	0.98		%
Nonperforming assets to loans receivable and OREO (7)	Nonperforming assets to loans receivable and OREO (7)	1.24		%	1.11		%		Nonperforming assets to loans receivable and OREO (7)	1.37		%	1.14		%
Nonperforming assets to total assets (7)	Nonperforming assets to total assets (7)	0.99		%	0.87		%		Nonperforming assets to total assets (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)~~

(7) Nonperforming assets consist of nonperforming loans and OREO.

6163

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 March 31,							At June 30,
		2021			2020				2021			2020
		(Dollars in thousands, except share data)							(Dollars in thousands, except share data)
Total stockholders’ equity	Total stockholders’ equity	$	2,045,581		$	2,018,088		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	(473,648)			(475,752)			Less: Goodwill and core deposit intangible assets, net	(473,139)			(475,220)
Tangible common equity	Tangible common equity	$	1,571,933		$	1,542,336		Tangible common equity	$	1,619,731		$	1,555,556

Total assets	Total assets	$	17,198,860		$	16,021,434		Total assets	$	17,469,627		$	17,169,062
Less: Goodwill and core deposit intangible assets, net	Less: Goodwill and core deposit intangible assets, net	(473,648)			(475,752)			Less: Goodwill and core deposit intangible assets, net	(473,139)			(475,220)
Tangible Assets	Tangible Assets	$	16,725,212		$	15,545,682		Tangible Assets	$	16,996,488		$	16,693,842

Common shares outstanding	Common shares outstanding	123,480,494			123,169,404			Common shares outstanding	123,673,832			123,239,276

Tangible book value per common share	Tangible book value per common share	$	12.73		$	12.52		Tangible book value per common share	$	13.10		$	12.62
Tangible common equity to tangible assets	Tangible common equity to tangible assets	9.40		%	9.92		%	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 March 31,				Three Months Ended June 30,								Six Months Ended June 30,
			2021				2020				2021			2020			2021			2020
			(Dollars in thousands)								(Dollars in thousands)
Net income	Net income		$	43,687			$	25,953		Net income	$	53,763		$	26,753		$	97,450		$	52,706

Average stockholders’ equity	Average stockholders’ equity		$	2,047,506			$	2,027,595		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		(473,961)				(476,053)			Less: Average goodwill and core deposit intangible assets, net	(473,445)			(475,534)			(473,702)			(475,793)
Average tangible equity	Average tangible equity		$	1,573,545			$	1,551,542		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)		11.11		%		6.69		%	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 from average stockholders’ equity.

6264

Results of Operations

Overview

Net income for the ~~first~~second quarter of 2021 was ~~$43.7~~$53.8 million, or ~~$0.35~~$0.43 per diluted common share, compared to ~~$26.0~~$26.8 million, or ~~$0.21~~$0.22 per diluted common share, for the same period of 2020, which was an increase of ~~$17.7~~$27.0 million, or ~~68.3%~~101.0%. The increase in net income was due to a decrease in the provision for credit losses which resulted from the current and projected improvements in ~~light of~~ the ~~ongoing economic recovery~~economy from the COVID-19 ~~pandemic.~~ pandemic in addition to an increase in net interest income.

Net ~~interest~~ income ~~before~~for the six months ended June 30, 2021 was $97.5 million, or $0.78 per diluted common share, compared to $52.7 million, or $0.42 per diluted share, for the same period of 2020, which was an increase of $44.7 million, or 84.9%. The increase in net income was due to a decrease in provision for credit losses ~~increased by $3.3 million for~~which resulted from the ~~first quarter of 2021~~current and projected improvements in the economy from the COVID-19 pandemic in addition to ~~$122.6 million compared to $119.3 million for the first quarter of 2020.~~an increase in net interest income.

The following table summarizes the accretion and amortization adjustments resulting from prior acquisitions that were included in net income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


		Three Months Ended March 31,				Three Months Ended June 30,						Six Months Ended June 30,
				2021			2020			2021		2020		2021		2020
			(Dollars in thousands)							(Dollars in thousands)
Accretion of discounts on purchased performing loans	Accretion of discounts on purchased performing loans			$	705		$	1,059	Accretion of discounts on purchased performing loans	$	366	$	658	$	1,071	$	1,717
Accretion of discounts on PCD loans	Accretion of discounts on PCD loans			2,255			9,449		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			(73)			(71)		Amortization of premiums on purchased investments in affordable housing partnerships	(74)		(70)		(147)		(141)

Accretion of discounts on assumed subordinated debt	Accretion of discounts on assumed subordinated debt			(291)			(283)		Accretion of discounts on assumed subordinated debt	(293)		(284)		(584)		(567)

Amortization of core deposit intangibles	Amortization of core deposit intangibles			(509)			(531)		Amortization of core deposit intangibles	(510)		(532)		(1,019)		(1,063)
Total	Total			$	2,087		$	9,623	Total	$	1,677	$	2,818	$	3,764	$	12,441

The annualized return on average assets was ~~1.02%~~1.25% for the ~~first~~second quarter of 2021 compared to ~~0.67%~~0.64% for the same period of 2020. The annualized return on average stockholders’ equity was ~~8.53%~~10.41% for the ~~first~~second quarter of 2021 compared to ~~5.12%~~5.31% for the same period of 2020. The efficiency ratio was ~~53.61%~~53.12% for the ~~first~~second quarter of 2021 compared to ~~54.42%~~55.37% for the same period of 2020.

The annualized return on average assets was 1.14% for the six months ended June 30, 2021 compared to 0.65% for the same period of 2020. The annualized return on average stockholders’ equity was 9.48% for the six months ended June 30, 2021 compared to 5.21% for the same period of 2020. The efficiency ratio was 53.36% for the six months ended June 30, 2021 compared to 54.88% for the same period of 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 ~~March 31,~~June 30, 2021 with the Three Months Ended ~~March 31,~~June 30, 2020

Net interest income before provision for credit losses was ~~$122.6~~$126.6 million for the ~~first~~second quarter of 2021 compared to ~~$119.3~~$109.8 million for the same period of 2020, an increase of ~~$3.3~~$16.8 million, or ~~2.8%~~15.3%. The increase in net interest income was due to the reduction in interest expense for the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020 offset partly by a decrease in interest income.

Interest income for the ~~first~~second quarter of 2021 was ~~$138.3~~$140.2 million, a decrease of ~~$28.6~~$4.9 million, or ~~17.1%~~3.3%, compared to ~~$166.9~~$145.1 million for the same period of 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 and a decline in 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. ~~The interest rates were lowered in March 2020, and therefore did not fully impact interest income for the first quarter of 2020, while having a full impact on the first quarter of 2021.~~ 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 ~~first~~second quarter of 2021 was ~~$15.7~~$13.6 million, a decrease of ~~$31.9~~$21.6 million, or ~~67.0%~~61.3%, compared to ~~$47.6~~$35.2 million for the same period of 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 in 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 ~~first~~second quarter of 2021 compared to the ~~first~~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 ~~first~~second quarter of 2021 compared to the ~~first~~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 Six Months Ended June 30, 2021 with the Six Months Ended June 30, 2020

Net interest income before provision for credit losses was $249.2 million for the six months ended June 30, 2021 compared to $229.1 million for the same period of 2020, an increase of $20.1 million, or 8.8%. The increase in net interest income was due to the reduction in interest expense for the for the six months ended June 30, 2021 compared to the same period of 2020 offset partly by a decrease in interest income.

Interest income for the six months ended June 30, 2021 was $278.5 million, a decrease of $33.4 million, or 10.7%, compared to $311.9 million for the same period of 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 six months ended June 30, 2021 was $29.3 million, a decrease of $53.5 million, or 64.6%, compared to $82.8 million for the same period of 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 ~~first~~second quarter of 2021 was ~~3.06%~~3.11%, ~~a decrease~~an increase of 2532 basis points from ~~3.31%~~2.79% for the same period of 2020. Net interest margin for the six months ended June 30, 2021 was 3.09%, an increase of 5 basis points from 3.04% for the for the same period of 2020. The ~~decline~~increase in net interest margin for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020 was due to an overall decline in yields on loans, investments and FHLB stock and other investments as all these earning assets were impacted by the decline in interest rates in March 2020. The decline in net interest margin as a result of the reduction in earning asset yields was partially offset by the continued declinedecreases in cost of interest bearing deposits, FHLB advances, convertible notes and other ~~borrowings.~~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 interest rates in March 2020 for periods in 2021, while only partially impacted for periods in 2020. Cost of interest bearing deposits and other borrowings were also impacted by the rate cut in March 2020 while the reduction in cost of FHLB advances was mostly due to the pay-down of higher rate FHLB advances in the third quarter of 2020 and the reduction in the cost of convertible notes was due to the adoption of ASU ~~2020-06.~~2020-06 at the beginning of 2021.

The weighted average yield on loans decreased to ~~3.94%~~3.98% for the ~~first~~second quarter of 2021 from ~~5.06%~~4.23% for the ~~first~~second quarter of 2020. The weighted average yield on loans decreased to 3.96% for the six months ended June 30, 2021 from 4.64% for the six months ended June 30, 2020. The decrease in loan yields for the three and six months ended ~~March 31,~~June 30, 2021 compared to the same ~~period~~periods in 2020 was mostly due to the decrease in interest rates experienced in 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 ~~March 31,~~June 30, 2021, variable interest rate loans made up ~~approximately 42%~~40% of the loan portfolio and the remaining ~~58%~~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 ~~three~~six months ended ~~March 31,~~June 30, 2021, the average weighted rate on new loan originations was ~~2.56%~~2.95% compared to ~~3.98%~~2.86% for the ~~three~~six months ended ~~March 31,~~June 30, 2020. The ~~decline~~increase in the average weighted rate on new loan originations for the ~~three~~six months ended ~~March 31,~~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 ~~three~~six months ended ~~March 31,~~June 30, 2021 was ~~3.44%.~~3.40% compared to 3.77% for the six months ended June 30, 2020.

Discount accretion income on acquired loans was ~~$3.0~~$2.6 million and $5.5 million for the three and six months ended ~~March 31,~~June 30, 2021, respectively, compared to ~~$10.5~~$3.7 million and $14.2 million for the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively. The decline in discount accretion income was primarily due to the payoff of ~~a large loan~~loans during the three and six months ended ~~March 31,~~June 30, 2020 which resulted in additional discount accretion ~~income of $5.6 million for the period.~~income. There were no significant payoffs of acquired loans during the three or six months ended ~~March 31,~~June 30, 2021.

The weighted average yield on securities available for sale for the ~~first~~second quarter of 2021 was ~~1.42%~~1.37% compared to ~~2.49%~~2.27% for the same period of 2020. The weighted average yield on securities available for sale for the six months ended June 30, 2021 was 1.39% compared to 2.38% for the same period of 2020. The change in weighted average yield on securities available for sale for the three and six months ended ~~March 31,~~June 30, 2021 compared to the same ~~period~~periods of 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 ~~three~~twelve months ended ~~March 31,~~June 30, 2021.

The weighted average yield on FHLB stock and other investments for the ~~first~~second quarter of 2021 was ~~0.41%~~0.35% compared to ~~1.57%~~0.30% for the same period of 2020. The weighted average yield on FHLB stock and other investments for the six months ended June 30, 2021 was 0.38% compared to 0.66% for the same period of 2020. The decrease in weighted average yield on FHLB stock and other investments for the ~~three~~six months ended ~~March 31,~~June 30, 2021 compared to the same period of 2020 was due to the decline in interest rates experienced in 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 weighted average cost of deposits for the ~~first~~second quarter of 2021 was ~~0.36%~~0.30%, a decrease of 9857 basis points from ~~1.34%~~0.87% for the same period of 2020. The weighted average cost of deposits for the six months ended June 30, 2021 was 0.33%, a decrease of 76 basis points from 1.09% for the same period of 2020. The decline in interest rates experienced in 2020 resulted in a decrease in the weighted average cost of deposits for the three and six months ended ~~March 31,~~June 30, 2021 compared to the same ~~period~~periods of 2020. Management reduced rates on most of its deposit products several times in 2020 in light of the FOMC interest rate cuts and to offset the decline in loan yields.

The weighted average cost of FHLB advances for the ~~first~~second quarter of 2021 was ~~1.21%~~1.25%, a decrease of 5827 basis points from ~~1.79%~~1.52% for the same period of 2020. The weighted average cost of FHLB advances for the six months ended June 30, 2021 was 1.23%, a decrease of 42 basis points from 1.65% for the same period of 2020. The decrease in ~~the~~ cost of FHLB advances for the three and six months ended ~~March 31,~~June 30, 2021 compared to the ~~three months ended March 31,~~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.

~~The carrying balance of our convertible notes is net of issuance costs to be capitalized.~~ The weighted average cost of our convertible notes was ~~2.46%~~2.43% and 2.44% for the three and six months ended ~~March 31,~~June 30, 2021, respectively, compared to 4.64% for the three and six months ended ~~March 31,~~June 30, 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. ~~Cost~~The cost of our convertible notes for the three and six months ended ~~March 31,~~June 30, 2020 also included non-cash interest expense from the amortization of the convertible notes discount. On January 1, 2021, we early adopted ASU 2020-06, which eliminated the discount on our convertible notes and reduced interest expense for the three and six months ended ~~March 31,~~June 30, 2021 by approximately $1.0 million and $2.1 million, respectively, compared to the ~~previous quarter.~~three and six months ended June 30, 2020.

The weighted average cost of other borrowings (subordinated debentures) for the ~~first~~second quarter of 2021 was ~~3.90%~~3.84%, a decrease of ~~196~~93 basis points from ~~5.86%~~4.77% for the same period of 2020. The weighted average cost of other borrowings for the six months ended June 30, 2021 was 3.87%, a decrease of 145 basis points from 5.32% for the same period of 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 three and six months ended ~~March 31,~~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 March 31,													Three Months Ended June 30,
		2021						2020							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)	$	13,346,264	$	129,736	3.94	%	$	12,259,848	$	154,230	5.06	%	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)	2,267,409		7,915		1.42	%	1,712,033		10,609		2.49	%	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	640,392		642		0.41	%	519,309		2,029		1.57	%	FHLB stock and other investments	759,182		668		0.35	%	1,317,049		980		0.30	%
Total interest earning assets	Total interest earning assets	16,254,065		138,293		3.45	%	14,491,190		166,868		4.63	%	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	861,342						955,617						Total noninterest earning assets	858,985						936,854
Total assets	Total assets	$	17,115,407					$	15,446,807					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	$	5,256,579	$	5,490	0.42	%	$	4,204,406	$	14,880	1.42	%	Demand, interest bearing	$	5,484,047	$	5,909	0.43	%	$	4,903,786	$	7,563	0.62	%
Savings	Savings	301,184		870		1.17	%	274,075		808		1.19	%	Savings	308,530		887		1.15	%	284,050		862		1.22	%
Time deposits	Time deposits	3,767,109		6,410		0.69	%	4,900,405		25,425		2.09	%	Time deposits	3,222,457		3,900		0.49	%	4,954,446		21,026		1.71	%
Total interest bearing deposits	Total interest bearing deposits	9,324,872		12,770		0.56	%	9,378,886		41,113		1.76	%	Total interest bearing deposits	9,015,034		10,696		0.48	%	10,142,282		29,451		1.17	%
FHLB advances	FHLB advances	215,889		642		1.21	%	594,890		2,647		1.79	%	FHLB advances	202,198		631		1.25	%	593,407		2,238		1.52	%
Convertible notes, net	Convertible notes, net	215,002		1,322		2.46	%	199,960		2,346		4.64	%	Convertible notes, net	215,599		1,323		2.43	%	201,169		2,358		4.64	%
Other borrowings, net	Other borrowings, net	100,392		980		3.90	%	99,252		1,471		5.86	%	Other borrowings, net	100,701		977		3.84	%	99,534		1,200		4.77	%
Total interest bearing liabilities	Total interest bearing liabilities	9,856,155		15,714		0.65	%	10,272,988		47,577		1.86	%	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	5,052,532						2,963,136						Noninterest bearing demand deposits	5,445,457						3,510,783
Other liabilities	Other liabilities	159,214						183,088						Other liabilities	119,888						195,025
Stockholders’ equity	Stockholders’ equity	2,047,506						2,027,595						Stockholders’ equity	2,066,016						2,016,947
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,115,407					$	15,446,807					Total liabilities and stockholders’ equity	$	17,164,893					$	16,759,147

Net interest income/net interest spread	Net interest income/net interest spread			$	122,579	2.80	%			$	119,291	2.77	%	Net interest income/net interest spread			$	126,577	2.88	%			$	109,814	2.41	%
Net interest margin	Net interest margin					3.06	%					3.31	%	Net interest margin					3.11	%					2.79	%
Cost of deposits	Cost of deposits					0.36	%					1.34	%	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


	Six Months Ended June 30,
	2021						2020
	Average Balance		Interest Income/ Expense		Average Yield/ Rate*		Average Balance		Interest Income/ Expense		Average Yield/ Rate*
	(Dollars in thousands)
INTEREST EARNINGS ASSETS:
Loans(1) (2)	$	13,319,782	$	261,559	3.96	%	$	12,507,468	$	288,420	4.64	%
Securities available for sale(3)	2,260,233		15,628		1.39	%	1,731,094		20,500		2.38	%
FHLB stock and other investments	700,115		1,310		0.38	%	918,179		3,009		0.66	%
Total interest earning assets	16,280,130		278,497		3.45	%	15,156,741		311,929		4.14	%
Total noninterest earning assets	860,156						946,236
Total assets	$	17,140,286					$	16,102,977

INTEREST BEARING LIABILITIES:
Deposits:
Demand, interest bearing	$	5,370,941	$	11,399	0.43	%	$	4,554,096	$	22,443	0.99	%
Savings	304,877		1,757		1.16	%	279,063		1,670		1.20	%
Time deposits	3,493,278		10,310		0.60	%	4,927,425		46,451		1.90	%
Total interest bearing deposits	9,169,096		23,466		0.52	%	9,760,584		70,564		1.45	%
FHLB advances	209,006		1,273		1.23	%	594,148		4,885		1.65	%
Convertible notes, net	215,302		2,645		2.44	%	200,565		4,704		4.64	%
Other borrowings, net	100,547		1,957		3.87	%	99,393		2,671		5.32	%
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 demand deposits	5,250,080						3,236,960
Other liabilities	139,443						189,056
Stockholders’ equity	2,056,812						2,022,271
Total liabilities and stockholders’ equity	$	17,140,286					$	16,102,977

Net interest income/net interest spread			$	249,156	2.84	%			$	229,105	2.58	%
Net interest margin					3.09	%					3.04	%
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

6669

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
March 31, 2021 over March 31, 2020
Net
Increase
(Decrease) Change due to:
Rate Volume
(Dollars in thousands)
INTEREST INCOME:
Loans, including fees $ (24,494) $ (36,825) $ 12,331
Securities available for sale (2,694) (5,437) 2,743
FHLB stock and other investments (1,387) (1,769) 382
Total interest income $ (28,575) $ (44,031) $ 15,456
INTEREST EXPENSE:
Demand, interest bearing $ (9,390) $ (12,369) $ 2,979
Savings 62 (10) 72
Time deposits (19,015) (14,132) (4,883)
FHLB advances (2,005) (679) (1,326)
Convertible notes, net (1,024) (1,180) 156
Other borrowings, net (491) (507) 16
Total interest expense $ (31,863) $ (28,877) $ (2,986)
NET INTEREST INCOME $ 3,288 $ (15,154) $ 18,442


	Three 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	$	(2,367)	$	(8,059)	$	5,692
Securities available for sale	(2,178)		(4,565)		2,387
FHLB stock and other investments	(312)		155		(467)
Total interest income	$	(4,857)	$	(12,469)	$	7,612
INTEREST EXPENSE:
Demand, interest bearing	$	(1,654)	$	(2,481)	$	827
Savings	25		(48)		73
Time deposits	(17,126)		(11,505)		(5,621)
FHLB advances	(1,607)		(337)		(1,270)
Convertible notes, net	(1,035)		(1,190)		155
Other borrowings, net	(223)		(237)		14
Total interest expense	$	(21,620)	$	(15,798)	$	(5,822)
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

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 ~~first~~second quarter of 2021 was ~~$3.3~~$7.0 million, a decrease of ~~$24.7~~$24.5 million from ~~$28.0~~$17.5 million of provision for credit losses for the same period ~~last~~of the prior year. The negative provision for credit losses for the six months ended June 30, 2021 was $3.7 million, a decrease of $49.2 million from $45.5 million of provision for credit losses for the same period of the prior year. The overall decrease in provision for credit losses for ~~the three months ended March 31,~~periods in 2021 compared to ~~the three months ended March 31,~~periods in 2020 was due to ~~a change~~the economic recovery and improved economic forecasts for periods in ~~the required allowance for credit losses for the three months ended March 31,~~ 2021 compared to ~~the three months ended March 31,~~periods in 2020. ~~For the three months ended March 31,~~In 2020, ~~we recorded a large increase in our allowance for credit losses~~due to ~~account for all of the uncertainty that arose from~~ the COVID-19 pandemic, ~~which resulted in us recording~~we recorded additional reserves to reflect the economic decline that impacted the global economy, including additional risks associated with the large amount of loans that were modified as a ~~large provision for credit losses for that quarter. For~~result of the ~~three months ended March 31, 2021, economic forecasts showed significant economic improvement compared to the previous quarter~~hardships experienced by borrowers due to the effects of the COVID-19 ~~vaccines~~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 ~~government stimulus packages. As a result,~~overall reduction of credit risk in our loan portfolio also contributed to the ~~required allowance~~decline in provision for credit losses ~~did not increase significantly as had been the case~~ for ~~the prior few quarters following the onset of the pandemic. Therefore, we recorded a much smaller provision for the first quarter of~~periods in 2021 compared to ~~previous quarters since the onset of the pandemic.~~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, changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income. Noninterest income for the ~~first~~second quarter of 2021 was ~~$8.8~~$11.1 million compared to ~~$13.3~~$11.2 million for the ~~first~~second quarter of 2020, a decrease of ~~$4.5~~$164 thousand or 1.5%. Noninterest income for the six months ended June 30, 2021 was $19.9 million compared to $24.5 million for the six months ended June 30, 2020, a decrease of $4.6 million, or ~~33.6%~~18.9%.

Noninterest income by category is summarized in the table below:


		Three Months Ended March 31,						Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
		2021			2020			Amount		Percent (%)			2021		2020		Amount		Percent (%)
		(Dollars in thousands)											(Dollars in thousands)
Service fees on deposit accounts	Service fees on deposit accounts	$	1,790		$	4,133		$	(2,343)	(56.7)	%	Service fees on deposit accounts	$	1,777	$	2,583	$	(806)	(31.2)	%
International service fees	International service fees	841			790			51		6.5	%	International service fees	795		667		128		19.2	%
Loan servicing fees, net	Loan servicing fees, net	1,044			365			679		186.0	%	Loan servicing fees, net	934		1,106		(172)		(15.6)	%
Wire transfer fees	Wire transfer fees	844			998			(154)		(15.4)	%	Wire transfer fees	923		820		103		12.6	%

Swap fees	Swap fees	67			976			(909)		(93.1)	%	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	2,096			1,855			241		13.0	%	Net gains on sales of other loans	1,028		1,678		(650)		(38.7)	%

Other income and fees	Other income and fees	2,122			4,147			(2,025)		(48.8)	%	Other income and fees	3,079		3,346		(267)		(8.0)	%
Total noninterest income	Total noninterest income	$	8,804		$	13,264		$	(4,460)	(33.6)	%	Total noninterest income	$	11,076	$	11,240	$	(164)	(1.5)	%

							Six Months Ended June 30,						Increase (Decrease)
													2021		2020		Amount		Percent (%)
				(Dollars in thousands)
Service fees on deposit accounts												Service fees on deposit accounts	$	3,567	$	6,716	$	(3,149)	(46.9)	%
International service fees												International service fees	1,636		1,456		180		12.4	%
Loan servicing fees, net												Loan servicing fees, net	1,978		1,471		507		34.5	%
Wire transfer fees												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)	%

Other income and fees												Other income and fees	5,201		7,494		(2,293)		(30.6)	%
Total noninterest income												Total noninterest income	$	19,880	$	24,504	$	(4,624)	(18.9)	%

Total noninterest income for the second quarter of 2021 remained largely unchanged compared to the second quarter of 2020 due to decreases in service charges on deposits, swap fee income and gains on sales of other loans offset mostly by net gains on sale of SBA loans. The decrease in noninterest income for the ~~first quarter of~~six months ended June 30, 2021 compared to the ~~first quarter~~same period of ~~2020~~the prior year was due to ~~a decrease~~decreases in service charges on deposits, swap fee income and other income and fees partially offset ~~partially~~ by ~~an increase in loan servicing fees and gain~~gains on sale of ~~other~~SBA loans.

The decrease in service fees on deposit accounts for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020 was due to a decrease in customer analysis ~~fee~~fees and non-sufficient funds fees collected on deposit accounts. Customer analysis fees declined by ~~$1.2~~$724 thousand and $1.9 million, respectively, for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020 due to our risk management decision to discontinue our relationships with customers in the check cashing industry. Non-sufficient fee charges ~~declined by $958~~increased $57 thousand for the ~~three months ended March 31,~~second quarter of 2021 compared to the ~~three~~second quarter of 2020 but declined by $901 thousand for the six months ended ~~March 31,~~June 30, 2021 compared to the six months ended June 30, 2020. ~~As a result of~~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~~six months ended ~~March 31,~~June 30, 2021 was greatly reduced compared to the ~~three~~six months ended ~~March 31,~~June 30, 2020. As a result, demand deposit account transactions declined ~~significantly~~ which negatively impacted the amount of non-sufficient fees earned.

International service fees remained largely unchanged for the three and six months ended ~~March 31,~~June 30, 2021 compared to the same ~~period~~periods of 2020. International service fees are earned from trade finance loans. Trade finance loans ~~declined~~decreased to ~~$102.7~~$108.2 million at ~~March 31,~~June 30, 2021 from ~~$151.2~~$109.5 million at ~~March 31,~~June 30, 2020.

Loan servicing fees, net represents income earned from servicing SBA and residential mortgage loans that were previously sold. We retain servicing on many of the loans that we choose to sell. The ~~increase~~decrease in loan servicing fees, net for the three months ended ~~March 31,~~June 30, 2021 compared to the three months ended ~~March 31,~~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 six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to a reduction in payoffs of serviced loans. ~~Payoffs~~The payoff of serviced loans ~~were higher during the three months ended March 31, 2020, 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 months ended ~~March 31,~~June 30, 2021 compared to the ~~same period of~~three months ended June 30, 2020 due to ~~the COVID-19 pandemic,~~an increase in demand deposit accounts which has ~~resulted in a sustained decline in deposit related transactions, including wire transfers leading~~led to ~~a reduction~~an increase in wire activity. Wire transfer fees ~~collected.~~for the six months ended June 30, 2021 compared to the 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. The number of swap transactions have decreased ~~for the first quarter of~~in 2021 which has resulted in a decrease in swap fee income for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~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 ~~first~~second quarter of 2021 totaled ~~$67.8~~$42.6 million compared to ~~$73.9~~$67.4 million sold during the ~~first~~second quarter of 2020. Residential mortgage loans sold during the six months ended June 30, 2021 totaled $110.5 million compared to $141.2 million for the six months ended June 30, 2020. The ~~increase~~decrease in net gains on sales of other loans for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020 was due to ~~an increase~~a decrease in ~~premiums received~~residential mortgage loans sold for ~~loans sold~~periods in 2021 compared to ~~the premium received for loans sold~~periods in 2020.

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 ~~March 31,~~June 30, 2021 compared to the same ~~period~~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 ~~interest rate lock commitments and equity investments as well a decline in various fees and incomes earned through normal operations.~~mortgage derivatives.

6973

Noninterest Expense

Noninterest expense for the ~~first~~second quarter of 2021 was ~~$70.4~~$73.1 million, ~~a decrease~~an increase of ~~$1.7~~$6.1 million, or ~~2.4%~~9.1%, from ~~$72.1~~$67.0 million for the ~~first~~second quarter of 2020. Noninterest expense for the six months ended June 30, 2020 was $143.6 million, an increase of $4.4 million, or 3.2%, from $139.2 million for the six months ended June 30, 2020.

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


		Three Months Ended March 31,						Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
		2021			2020			Amount		Percent (%)			2021		2020		Amount		Percent (%)
		(Dollars in thousands)											(Dollars in thousands)
Salaries and employee benefits	Salaries and employee benefits	$	41,216		$	42,502		$	(1,286)	(3.0)	%	Salaries and employee benefits	$	42,309	$	38,850	$	3,459	8.9	%
Occupancy	Occupancy	6,967			7,410			(443)		(6.0)	%	Occupancy	7,067		7,043		24		0.3	%
Furniture and equipment	Furniture and equipment	4,186			4,259			(73)		(1.7)	%	Furniture and equipment	4,822		4,654		168		3.6	%
Advertising and marketing	Advertising and marketing	1,625			1,673			(48)		(2.9)	%	Advertising and marketing	2,097		1,315		782		59.5	%
Data processing and communications	Data processing and communications	2,737			2,631			106		4.0	%	Data processing and communications	2,411		2,274		137		6.0	%
Professional fees	Professional fees	2,903			3,300			(397)		(12.0)	%	Professional fees	4,395		1,510		2,885		191.1	%
Investments in affordable housing partnership expenses	Investments in affordable housing partnership expenses	2,702			2,551			151		5.9	%	Investments in affordable housing partnership expenses	2,952		2,873		79		2.7	%
FDIC assessments	FDIC assessments	1,255			1,559			(304)		(19.5)	%	FDIC assessments	1,284		1,652		(368)		(22.3)	%
Credit related expenses	Credit related expenses	2,218			1,662			556		33.5	%	Credit related expenses	43		1,361		(1,318)		(96.8)	%
OREO (income) expense, net		281			843			(562)		(66.7)	%

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	4,341			3,750			591		15.8	%	Other	3,299		4,160		(861)		(20.7)	%
Total noninterest expense	Total noninterest expense	$	70,431		$	72,140		$	(1,709)	(2.4)	%	Total noninterest expense	$	73,123	$	67,030	$	6,093	9.1	%

							Six Months Ended June 30,						Increase (Decrease)
													2021		2020		Amount		Percent (%)
				(Dollars in thousands)

Salaries and employee benefits												Salaries and employee benefits	$	83,525	$	81,352	$	2,173	2.7	%
Occupancy												Occupancy	14,034		14,453		(419)		(2.9)	%
Furniture and equipment												Furniture and equipment	9,008		8,913		95		1.1	%
Advertising and marketing												Advertising and marketing	3,722		2,988		734		24.6	%
Data processing and communications												Data processing and communications	5,148		4,905		243		5.0	%
Professional fees												Professional fees	7,298		4,810		2,488		51.7	%
Investments in affordable housing partnership expenses												Investments in affordable housing partnership expenses	5,654		5,424		230		4.2	%
FDIC assessments												FDIC assessments	2,539		3,211		(672)		(20.9)	%
Credit related expenses												Credit related expenses	2,261		3,023		(762)		(25.2)	%
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	7,640		7,910		(270)		(3.4)	%
Total noninterest expense												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.

Salaries and employee benefits expense ~~decreased $1.3~~increased $3.5 million for the ~~first~~second quarter of 2021 compared to the same period in 2020 and increased $2.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The ~~decrease~~increase in salaries and benefits for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020 was due to a decrease in payroll related origination costs and an increase in ~~deferred loan originations costs~~salaries from our employees annual merit increases effective at the beginning of second round SBA PPP loans originated during the quarter and a reduction in group insurance expenses. For the three months ended March 31, 2021, salaries and employee benefits included $2.0 million in deferred loan originations costs which was recorded from the origination of $304.7 million in SBA PPP loans.quarter. SBA PPP loan origination costs initially reduces salaries and benefits and 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 ~~1,458~~1,474 at ~~March 31,~~June 30, 2020 to ~~1,444~~1,438 at ~~March 31,~~June 30, 2021.

~~Occupancy~~Advertising and marketing expense ~~declined $443~~increased $782 thousand for the ~~first~~second quarter of 2021 compared to the same period in 2020 and increased $734 thousand for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The ~~decline~~increase in ~~occupancy~~advertising and marketing expense ~~was primarily due~~reflects additional fees for the sponsorship of the Ladies Professional Golf Association (“LPGA”) Founders Cup. In 2017, we began our annual sponsorship of the LGPA’s Founders Cup, but chose not to ~~our branch consolidation plan~~sponsor the event in ~~which five branch offices were closed~~2020. However, in ~~early 2021. We recorded approximately $2.4 million in restructuring costs during~~2021, we chose to again become the ~~fourth quarter of 2020 that relate to~~main sponsor for the ~~write-down of terminated lease contracts, severance payments, and other costs. The branch consolidation is projected to result in approximately $2.6 million in annual cost savings.~~Founders Cup event.

Professional fees ~~decreased~~increased by ~~$397 thousand~~$2.9 million for the three months ended ~~March 31,~~June 30, 2021 compared to the three months ended ~~March 31,~~June 30, 2020 and increased $2.5 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The ~~decrease~~increase in professional fees was due to ~~decreases in fees~~higher legal expenses related to ~~compliance related projects, and internal audit service~~litigation fees ~~offset partially by an increase in legal fees. With the expansion of our internal audit department, we were able~~paid to ~~reduce internal audit service fees as 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 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 six months ended ~~March 31,~~June 30, 2021, total tax credits related to our investment in affordable housing ~~partnership investment~~partnerships was approximately $2.6 ~~million.~~million and $5.2 million, respectively. The balance of investments in affordable housing partnerships decreased from ~~$80.0~~$77.2 million at ~~March 31,~~June 30, 2020 to ~~$66.8~~$63.8 million at ~~March 31,~~June 30, 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 ~~based~~ on other financial measures. The decrease in FDIC assessment fees for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020 was due to a decline in assessment fees adjustments related to ~~our~~the balance of brokered deposits. The decline in brokered deposit balances at June 30, 2021 compared to June 30, 2020 resulted in a decline in FDIC assessment adjustments to account for the reduction of risk that results from a lower percentage of brokered deposits.

Credit related expense decreased $1.3 million for the three months ended ~~March 31,~~June 30, 2021 compared to the three months ended ~~March 31,~~June 30, 2020 ~~resulted~~due largely to a decrease in expenses related to loan collections. For the six months ended June 30, 2021, credit related expenses decreased $762 thousand compared to the six months ended June 30, 2020 due to decreases in provision for off balance sheet loan commitments and loan collection expenses which were offset partially by an increase in 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 six months ended June 30, 2021 totaled $0 and $105 thousand, respectively, compared to $50 thousand and $660 thousand, respectively, for the three and six months ended June 30, 2020.

OREO expense, net experienced a ~~$468 thousand reduction to our assessment fees.~~

~~Credit related expense increased $556 thousand~~decrease of $1.0 million for the three months ended ~~March 31,~~June 30, 2021 compared to the three months ended ~~March 31,~~June 30, 2020 ~~due largely to an increase in provision on accrued interest income receivable. Provision for accrued interest income receivable~~and decreased $1.6 million for the ~~three~~six months ended ~~March 31, 2021 totaled $600 thousand compared to no provision for the three months ended March 31, 2020.~~

~~OREO (income) expense, net experienced a decrease of $562 thousand for the three months ended March 31,~~June 30, 2021 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2020. The decreases in OREO ~~(income)~~ expense, net for ~~the three months ended March 31,~~periods in 2021 compared to ~~the three months ended March 31,~~periods in 2020 was due to 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 six months ended ~~March 31,~~June 30, 2021 ~~increased~~decreased by ~~$591~~$861 thousand and $270 thousand, respectively, compared to ~~other noninterest expenses for~~ the three and six months ended ~~March 31,~~June 30, 2020 due to ~~increases~~decreases in various ~~one-time operational losses.~~expense items.

Provision for Income Taxes

Income tax provision expense was ~~$14.0~~$17.8 million and ~~$6.5~~$9.8 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively. The effective income tax rates were ~~24.22%~~24.84% and ~~19.94%~~26.75% for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively. Income tax provision expense for the six months ended June 30, 2021 and 2020 was $31.7 million and $16.2 million, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020 was 24.56% and 23.55%, respectively. The increase in effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2021 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2020 was primarily due to affordable housing partnership investment tax credits benefit having a lower effect on larger annual projected pre-tax book income.

7176

Financial Condition

At ~~March 31,~~June 30, 2021, our total assets were ~~$17.20~~$17.47 billion, an increase of ~~$92.2~~$363.0 million, or ~~0.5%~~2.1%, from $17.11 billion at December 31, 2020. The increase in total assets was due to the increase in ~~loans receivable~~cash and cash equivalents partially offset by a decline in ~~securities available for sale~~loan receivable during the ~~three~~six months ended ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021 totaled $59.0 million, a decrease of ~~$650~~$667 thousand, or 1.1%, from $59.7 million at December 31, 2020.

At ~~March 31,~~June 30, 2021 and December 31, 2020, total equity investments with readily determinable fair values totaled ~~$27.1~~$27.2 million and $27.6 million, 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 ~~$31.9~~$31.8 million and $32.1 million in equity investments without readily determinable fair values as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. At ~~March 31,~~June 30, 2021, equity investments without readily determinable fair values included ~~$30.6~~$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~~six months ended ~~March 31,~~June 30, 2021 and 2020.

Investment Securities Portfolio

At ~~March 31,~~June 30, 2021, we had ~~$2.23~~$2.27 billion in available for sale securities compared to $2.29 billion at December 31, 2020. The net unrealized gain on the available for sale securities at ~~March 31,~~June 30, 2021 was ~~$5.4~~$19.6 million compared to a net unrealized gain on securities of $46.2 million at December 31, 2020. The change in unrealized gain on investment securities from December 31, 2020 to ~~March 31,~~June 30, 2021 was due to an increase in treasury rates.

During the ~~three~~six months ended ~~March 31,~~June 30, 2021, ~~$209.3~~$422.7 million in investment securities were purchased and ~~$215.1~~$397.1 million in investment securities were paid down. For the ~~three~~six months ended ~~March 31,~~June 30, 2021, there were no investment securities that matured, were called or sold.

We performed an analysis on our investment portfolio in unrealized loss positions as of ~~March 31,~~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 ~~March 31,~~June 30, 2021, we also had ~~one~~four asset-back ~~security, four~~securities, three corporate securities, and ~~ten~~five municipal bonds not issued by U.S. Government agencies or U.S. Government sponsored enterprises that were in unrealized loss position. Based on our analysis of 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 ~~March 31,~~June 30, 2021, we had ~~$66.8~~$63.8 million in investments in affordable housing partnerships compared to $69.5 million at December 31, 2020. The decrease in investments in affordable housing partnerships was due to recorded losses and premium amortizations recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2021. Commitments to fund investments in affordable housing partnerships totaled ~~$13.4~~$10.7 million at ~~March 31,~~June 30, 2021 compared to $15.1 million at December 31, 2020. The decline in commitments to fund investments in affordable housing partnerships during the ~~three~~six months ended ~~March 31,~~June 30, 2021 was due to cash contributions, which reduced the remaining commitment balances.

7277

Loan Portfolio

At ~~March 31,~~June 30, 2021, loans receivable totaled ~~$13.70~~$13.42 billion, ~~an increase~~a decrease of ~~$139.4~~$138.9 million from $13.56 billion at December 31, 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:


		March 31, 2021				December 31, 2020					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	$	52,671	—	%	$	54,795	—	%	Residential	$	61,360	—	%	$	54,795	—	%
Commercial	Commercial	8,489,638		62	%	8,425,959		63	%	Commercial	8,518,115		64	%	8,425,959		63	%
Construction	Construction	269,114		2	%	291,380		2	%	Construction	252,801		2	%	291,380		2	%
Total real estate loans	Total real estate loans	8,811,423		64	%	8,772,134		65	%	Total real estate loans	8,832,276		66	%	8,772,134		65	%
Commercial business	Commercial business	4,346,244		32	%	4,157,787		31	%	Commercial business	4,001,423		30	%	4,157,787		31	%
Residential mortgage	Residential mortgage	501,000		4	%	582,232		4	%	Residential mortgage	543,622		4	%	582,232		4	%
Consumer and other	Consumer and other	43,962		—	%	51,060		—	%	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	13,702,629		100	%	13,563,213		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	(207,943)				(206,741)				Allowance for credit losses	(189,452)				(206,741)
Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	$	13,494,686			$	13,356,472			Loans receivable, net of allowance for credit losses	$	13,234,849			$	13,356,472

Our total loans ~~increased~~decreased from December 31, 2020 to ~~March 31,~~June 30, 2021 largely due to ~~an increase~~a decrease in commercial business loans during the ~~three~~six months ended ~~March 31,~~June 30, 2021. Commercial business loans ~~increased $188.5~~decreased $156.4 million from December 31, 2020 to ~~March 31,~~June 30, 2021. The ~~increase~~decrease in commercial business loans was largely due to the ~~increase in SBA PPP loans from $452.7 million at December 31, 2020 to $715.5 million at March 31, 2021. This increase was offset by a decline~~decrease in warehouse lines of credit ~~included in commercial business loans,~~ from $1.01 billion at December 31, 2020 to ~~$956.2~~$725.2 million at ~~March 31,~~June 30, 2021 and the forgiveness of $193.5 million in SBA PPP loans during the six months ended June 30, 2021. The declines in commercial business loans were partially offset by the origination of $324.5 million in SBA PPP loans during the first half of 2021. The net ~~increase~~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 ~~$81.2 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:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Commitments to extend credit	Commitments to extend credit	$	2,477,778	$	2,137,178	Commitments to extend credit	$	2,483,026	$	2,137,178
Standby letters of credit	Standby letters of credit	134,030		108,834		Standby letters of credit	115,629		108,834
Other commercial letters of credit	Other commercial letters of credit	36,495		40,508		Other commercial letters of credit	55,609		40,508
Total	Total	$	2,648,303	$	2,286,520	Total	$	2,654,264	$	2,286,520

7378

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 ~~$170.5~~$183.7 million at ~~March 31,~~June 30, 2021 compared to $143.3 million at December 31, 2020. The ratio of nonperforming assets to loans receivable and OREO was ~~1.24%~~1.37% at ~~March 31,~~June 30, 2021 and 1.06% at December 31, 2020.

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


		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
		(Dollars in thousands)							(Dollars in thousands)
Nonaccrual loans (1)	Nonaccrual loans (1)	$	109,858		$	85,238		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	384			614			Loans 90 days or more days past due, still accruing	4,759			614
Accruing restructured loans	Accruing restructured loans	41,773			37,354			Accruing restructured loans	51,360			37,354
Total nonperforming loans	Total nonperforming loans	152,015			123,206			Total nonperforming loans	167,127			123,206
OREO	OREO	18,515			20,121			OREO	16,619			20,121
Total nonperforming assets	Total nonperforming assets	$	170,530		$	143,327		Total nonperforming assets	$	183,746		$	143,327

Nonperforming loans to loans receivable	Nonperforming loans to loans receivable	1.11		%	0.91		%	Nonperforming loans to loans receivable	1.24		%	0.91		%
Nonperforming assets to loans receivable and OREO	Nonperforming assets to loans receivable and OREO	1.24		%	1.06		%	Nonperforming assets to loans receivable and OREO	1.37		%	1.06		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.99		%	0.84		%	Nonperforming assets to total assets	1.05		%	0.84		%
Allowance for credit losses to nonperforming loans	Allowance for credit losses to nonperforming loans	136.79		%	167.80		%	Allowance for credit losses to nonperforming loans	113.36		%	167.80		%
Allowance for credit losses to nonperforming assets	Allowance for credit losses to nonperforming assets	121.94		%	144.24		%	Allowance for credit losses to nonperforming assets	103.11		%	144.24		%

(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling ~~$25.0~~$23.6 million as of ~~March 31,~~June 30, 2021 and $26.5 million as of December 31, 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 loans and investments. 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 ~~$207.9~~$189.5 million at ~~March 31,~~June 30, 2021 compared to allowance for credit losses of $206.7 million at December 31, 2020. The ACL was 1.41% and 1.52% of loans receivable at ~~both March 31,~~June 30, 2021 and December 31, ~~2020.~~2020, respectively. The ACL to loans receivable ratio does not include non-credit related discount on acquired loans. Total discount on acquired loans at ~~March 31,~~June 30, 2021 and December 31, 2020 totaled ~~$20.2~~$17.5 million and $23.3 million, respectively. ACL on individually evaluated loans increased to ~~$20.6~~$30.6 million at ~~March 31,~~June 30, 2021 from $7.3 million at December 31, ~~2020 and~~2020. The increase in ACL for individually evaluated loans was primarily due to ~~the increase in nonaccrual loans at March 31, 2021 compared to December 31, 2020.~~one large commercial real estate loan which had an ACL of $21.6 million as of June 30, 2021.

7479

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
		March 31, 2021						December 31, 2020						June 30, 2021						March 31, 2021			December 31, 2020
		Allowance for Credit Losses		Loans Receivable*		Percent of Allowance to Loans Receivable			Allowance for Credit Losses		Loans Receivable*				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	$	267	$	52,671	0.51	%		$	391	$	54,795			0.71	%	Real estate – residential	$	330		0.54	%	$	267	0.51	%	$	391	0.71	%
Real estate – commercial	Real estate – commercial	160,376		8,489,638		1.89	%		159,527		8,425,959				1.89	%	Real estate – commercial	153,266			1.80	%	160,376		1.89	%	159,527		1.89	%
Real estate – construction	Real estate – construction	1,664		269,114		0.62	%		2,278		291,380				0.78	%	Real estate – construction	1,657			0.66	%	1,664		0.62	%	2,278		0.78	%
Commercial business	Commercial business	41,860		4,346,244		0.96	%		39,155		4,157,787				0.94	%	Commercial business	29,500			0.74	%	41,860		0.96	%	39,155		0.94	%
Residential mortgage	Residential mortgage	2,735		501,000		0.55	%		4,227		582,232				0.73	%	Residential mortgage	3,612			0.66	%	2,735		0.55	%	4,227		0.73	%
Consumer and other	Consumer and other	1,041		43,962		2.37	%		1,163		51,060				2.28	%	Consumer and other	1,087			2.31	%	1,041		2.37	%	1,163		2.28	%
Total	Total	$	207,943	$	13,702,629	1.52	%		$	206,741	$	13,563,213			1.52	%	Total	$	189,452		1.41	%	$	207,943	1.52	%	$	206,741	1.52	%

* Held-for-sale loans of ~~$19.7~~$54.2 million and $17.7 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, were excluded.

ACL coverage ratio for ~~real estate-residential, real estate-construction loans, and residential mortgage loans~~ all loan segments declined as of ~~March 31,~~June 30, 2021 compared to December 31, ~~2020.~~2020 except for consumer and other loans. The decrease in ACL coverage ratio for these loan types was due to a much stronger economic recovery from the COVID-19 pandemic in the forecast scenario selected for the ACL calculation. The improved forecast had a large positive impact on these loans which resulted in a reduction in required ACL.

The coverage ratio for real estate-commercial ~~and commercial business did not materially change~~loans changed from 1.89% at December 31, 2020 to ~~March 31, 2021.~~1.80% at June 30, 2021 due to improvements in projected forecasts and also due to the 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 ~~entirely~~ 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 ~~quarter~~half of 2021. ACL on commercial business ~~also~~loans experienced ~~an increase~~a decrease ACL coverage at ~~March 31,~~June 30, 2021 compared to December 31, 2020, ~~mainly~~also due to one large commercial business loan for which the ACL increased by $4.2 million to reflect a decline in operating cash flows as indicated by updated financial statements recently received. This offset the declines in commercial business loan ACL resulting from improvingimproved economic forecasts. The increase in consumer and other loans ACL coverage ratio was primarily due to a decline in loan balances for consumer and other loans with minimal allocated ACL at March 31, 2021 compared to December 31, 2020. Most of the consumer and other loans ACL is allocated to our credit card portfolio and the ~~loan balance and~~ allocated ACL did not significantly change from December 31, 2020 to ~~March 31,~~June 30, 2021. ~~However the decline in loan balances offset the small reduction in ACL resulting in an increase in ACL coverage for consumer and other loans at March 31, 2021 compared to December 31, 2020.~~

Commercial business loans at ~~March 31,~~June 30, 2021, includes ~~$715.5~~$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 ~~March 31,~~June 30, 2021 was ~~1.60%~~1.47% compared to 1.58% at December 31, 2020.

The ~~increase~~decrease in total ACL as of ~~March 31,~~June 30, 2021 compared to December 31, 2020 ~~was primarily~~ due to animproving economic forecasts was partially offset by the increase in reserves for individually evaluated loans which increased from $7.3 million at December 31, 2020 to ~~$20.6~~$30.6 million at ~~March 31,~~June 30, 2021. The increase in ACL for individually evaluated loans was due to the ~~migration~~increase in ACL of a large real estate loan ~~to nonaccrual status during the first quarter of~~in 2021. The ~~migration~~change of this loan from being collectively evaluated to ~~nonaccrual~~individually evaluated resulted in additional ~~reserves~~ACL of approximately ~~$12.9~~$21.6 million. The allowance requirement for loans evaluated on a collective basis declined ~~$187.3~~to $158.9 million at ~~March 31,~~June 30, 2021 compared to $199.4 million at December 31, 2020 due to the projected improvement in economic recovery estimated by the forecast scenario utilized in our allowance calculation.

7580

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 March 31,							At or for the Three Months Ended June 30,					At or for the Six Months Ended June 30,
				2021			2020				2021			2020			2021			2020
			(Dollars in thousands)								(Dollars in thousands)
LOANS:	LOANS:									LOANS:
Average loans, including loans held for sale				$	13,346,264		$	12,259,848
Average loans										Average loans	$	13,269,540		$	12,744,049		$	13,298,775		$	12,491,552
Loans receivable	Loans receivable			$	13,702,629		$	12,583,416		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			$	206,741		$	94,144		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			(2,818)			(2,397)			Real estate – commercial	(12,172)			(174)			(14,990)			(2,571)
Commercial business	Commercial business			(610)			(3,035)			Commercial business	(572)			(459)			(1,182)			(3,494)

Consumer and other	Consumer and other			(93)			(525)			Consumer and other	(48)			(271)			(141)			(796)
Total loan charge offs	Total loan charge offs			(3,521)			(5,957)			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			584			167			Real estate – commercial	891			25			1,475			192
Commercial business	Commercial business			690			2,359			Commercial business	391			220			1,081			2,579

Consumer and other	Consumer and other			149			10			Consumer and other	19			7			168			17
Total loans recoveries	Total loans recoveries			1,423			2,536			Total loans recoveries	1,301			252			2,724			2,788
Net loan charge offs	Net loan charge offs			(2,098)			(3,421)			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				3,300			28,000
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			$	207,943		$	144,923		Balance, end of period	$	189,452		$	161,771		$	189,452		$	161,771

Net loan charge offs to average loans, including loans held for sale*				0.06		%	0.11		%
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			1.52		%	1.15		%	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*			4.04		%	9.44		%	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				63.58		%	12.22		%
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 ~~March 31,~~June 30, 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. Among other ~~thing,~~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.

7681

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 in accordance with the guidelines of the CARES Act. Many of these modifications had deferral periods that expired in 2020 but some customers were granted a second modification. As of ~~March 31,~~June 30, 2021, loans that were modified due to hardship caused by the COVID-19 pandemic totaled ~~$949.1~~$318.7 million, which represented approximately ~~6.9%~~2.4% of our total loan portfolio, a decline from 10.2% ~~in modification~~total modifications at December 31, ~~2020.~~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 2020. Based on our COVID-19 modifications expiration schedule, we expect active modifications to decrease to ~~approximately 2 to 3~~less than 1 percent of total loans by the ~~end of the second~~third quarter of 2021.

The following table presents total COVID-19 related modifications by loan type as of ~~March 31,~~June 30, 2021:


		COVID-19 Modifications									COVID-19 Modifications
		March 31, 2021									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	$	228	$	52,671	0.4	%	$	55	Real estate – residential	$	228	$	61,360	0.4	%	$	—
Real estate – commercial	Real estate – commercial									Real estate – commercial
Retail	Retail	189,061		2,304,420		8.2	%	5,517		Retail	74,219		2,342,140		3.2	%	3,213
Hotel & motel	Hotel & motel	524,526		1,600,094		32.8	%	15,503		Hotel & motel	113,199		1,425,705		7.9	%	1,235
Gas station & car wash	Gas station & car wash	4,017		909,689		0.4	%	386		Gas station & car wash	—		943,820		0.0	%	—
Mixed use	Mixed use	47,410		705,222		6.7	%	1,994		Mixed use	23,416		763,063		3.1	%	339
Industrial & warehouse	Industrial & warehouse	24,172		1,082,608		2.2	%	838		Industrial & warehouse	3,779		1,129,184		0.3	%	87
Other	Other	88,458		1,887,605		4.7	%	2,166		Other	54,552		1,914,203		2.8	%	492
Real estate – construction	Real estate – construction	10,601		269,114		3.9	%	18		Real estate – construction	—		252,801		0.0	%	—
Commercial business	Commercial business	18,249		4,346,244		0.4	%	230		Commercial business	11,938		4,001,423		0.3	%	106
Residential mortgage	Residential mortgage	41,936		501,000		8.4	%	2,608		Residential mortgage	36,350		543,622		6.7	%	1,558
Consumer and other	Consumer and other	418		43,962		1.0	%	67		Consumer and other	972		46,980		2.1	%	33
Total	Total	$	949,076	$	13,702,629	6.9	%	$	29,382	Total	$	318,653	$	13,424,301	2.4	%	$	7,063

7782


	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

~~Approximately 55% of all of the COVID-19 related modifications at March 31, 2021 were~~Commercial real estate loans secured by hotel/motel and retail properties ~~as this industry was hard hit by the pandemic.~~represent over half of our remaining COVID-19 modifications representing 36% and 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. 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. Many of these businesses are now operating again without as many restrictions that were initially put into place to 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 second half of 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021, we had ~~$55.9~~$47.1 million in loan accrued interest receivables ~~on our loans~~ compared to ~~$26.1~~$54.6 million at ~~March~~December 31, 2020. ~~A significant portion of the increase in accrued interest receivables on loans was due to loan deferral modifications related to COVID-19.~~ Total accrued interest receivables related to loans modified due to COVID-19 totaled ~~$29.4~~$7.1 million at ~~March~~June 30, 2021 compared to $25.4 million at December 31, ~~2021.~~2020. At ~~March 31,~~June 30, 2021, we had ~~total $1.3 million~~$751 thousand in recorded ACL for accrued interest receivables that relate to COVID-19 loan deferrals. The ACL 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 ~~March 31,~~June 30, 2021.

OREO

At ~~March 31,~~June 30, 2021, OREO, net totaled ~~$18.5~~$16.6 million, a decrease of ~~$1.6~~$3.5 million compared to $20.1 million at December 31, 2020. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, there were no loans transferred to OREO and we sold ~~two~~three OREO ~~totaling $1.5~~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 months ended March 31,~~at June 30, 2021 totaled ~~$4.6~~$4.5 million compared to $4.7 million at December 31, 2020.

7883

Deposits, Other Borrowings, and Convertible Notes

Deposits

Deposits are our primary source of funds used in lending and investment activities. At ~~March 31,~~June 30, 2021, deposits ~~decreased $32.6~~increased $392.3 million, or ~~0.2%~~2.7%, to ~~$14.30~~$14.73 billion from $14.33 billion at December 31, 2020. The ~~decrease~~increase in deposits was primarily due to ~~decreases~~increases in ~~time~~demand deposits and money market and NOW accounts offset partially by ~~an increase~~a decrease in ~~demand~~time deposits. Demand deposits increased ~~$612.9~~$823.9 million during the ~~three~~six months ended ~~March 31,~~June 30, 2021 due to an increase in retail deposits.

At ~~March 31,~~June 30, 2021, ~~38.0%~~38.3% of total deposits were noninterest bearing demand deposits, ~~24.9%~~20.4% were time deposits, and ~~37.1%~~41.3% were interest bearing demand and savings deposits. At December 31, 2020, 33.6% of total deposits were noninterest bearing demand deposits, 27.8% were time deposits, and 38.6% were interest bearing demand and savings deposits.

At ~~March 31,~~June 30, 2021, we had ~~$720.6~~$378.5 million in brokered deposits and $300.0 million in California State Treasurer deposits compared to $1.14 billion in brokered deposits and $300.0 million in California State Treasurer deposits at December 31, 2020. The California State Treasurer time deposits at ~~March 31,~~June 30, 2021 had original maturities of three months, had a weighted average interest rate of ~~0.13%~~0.10%, and were collateralized with securities with atotal fair value of ~~$319.3~~$350.7 million. Time deposits of more than $250 thousand at ~~March 31,~~June 30, 2021 totaled ~~$1.69~~$1.58 billion compared to $1.85 billion at December 31, 2020.

The following is a schedule of certificates of deposit maturities as of ~~March 31,~~June 30, 2021:


		Balance		Percent (%)			Balance		Percent (%)
		(Dollars in thousands)					(Dollars in thousands)
Three months or less	Three months or less	$	1,624,906	46	%	Three months or less	$	1,248,768	42	%
Over three months through six months	Over three months through six months	747,976		20	%	Over three months through six months	530,991		17	%
Over six months through nine months	Over six months through nine months	518,083		15	%	Over six months through nine months	570,155		19	%
Over nine months through twelve months	Over nine months through twelve months	606,776		17	%	Over nine months through twelve months	595,221		20	%
Over twelve months	Over twelve months	61,609		2	%	Over twelve months	47,632		2	%
Total time deposits	Total time deposits	$	3,559,350	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 ~~March 31,~~June 30, 2021, FHLB advances totaled ~~$400.0~~$200.0 million and had an average weighted remaining maturity of ~~0.4~~0.8 years compared to $250.0 million in FHLB advances with an average weighted remaining maturity of 0.8 years at December 31, 2020.

We did not have federal funds purchased at ~~March 31,~~June 30, 2021 and December 31, 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 ~~$104.5~~$104.8 million at ~~March 31,~~June 30, 2021 and $104.2 million at December 31, 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 ~~March 31,~~June 30, 2021 was ~~$215.5~~$215.7 million, net of ~~$2.0~~$1.8 million in uncapitalized issuance costs. At December 31, 2020, the net carrying balance of convertible notes was $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 ~~March 31,~~June 30, 2021 was due to the early adoption of ASU ~~2020-06.~~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 $2.09 billion at June 30, 2021 and $2.05 billion at ~~both March 31, 2021 and~~ December 31, 2020. ~~For~~During the ~~three~~six months ended ~~March 31,~~June 30, 2021, shareholders’ equity ~~decreased~~increased by ~~$8.2~~$39.1 million due to ~~decreases~~increases in ~~other comprehensive income of $27.5 million, dividends of $17.3 million and additional paid-in capital of $17.8 million offset partially by increases from~~ net income earned of ~~$43.7~~$97.5 million and from $10.7 million adjustment to beginning retained earnings upon early adoption of ASU ~~2020-06.~~2020-06 offset partially by decreases in other comprehensive income of $17.7 million, dividends paid of $34.6 million and additional paid-in capital of $16.8 million. The ~~$17.8~~$16.8 million adjustment to additional paid-in capital during the ~~quarter~~six months ended ~~March 31,~~June 30, 2021 included ~~$496 thousand~~$1.5 million in stock based compensation and was fully offset by a $18.3 million decrease to reverse the equity portion of our convertible notes, net of taxes upon the adoption of ASU 2020-06.

On July 22, 2021, our Board of Directors approved a new stock repurchase plan that authorizes management to repurchase up to $50 million of 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 management and in accordance with 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 ~~March 31,~~June 30, 2021, our common equity Tier 1 capital was ~~$1.59~~$1.64 billion compared to $1.57 billion at December 31, 2020. Our Tier 1 capital, defined as stockholders’ equity less intangible assets and includes our trust preferred securities, was ~~$1.69~~$1.74 billion at ~~March 31,~~June 30, 2021 and $1.67 billion at December 31, 2020. At ~~March 31,~~June 30, 2021, the common equity Tier 1 capital ratio was ~~11.08%~~11.44%. The total capital to risk-weighted assets ratio was ~~13.03%~~13.16% and the Tier 1 capital to risk-weighted assets ratio was ~~11.78%~~12.14%. The Tier 1 leverage capital ratio at ~~March 31,~~June 30, 2021 was ~~10.15%~~10.43%.

8186

At ~~March 31,~~June 30, 2021 and December 31, 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 March 31, 2021													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)	$	1,588,161	11.08	%	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)	$	1,867,993	13.03	%	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)	$	1,688,728	11.78	%	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)	$	1,688,728	10.15	%	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)	$	1,878,163	13.10	%	$	931,623	6.50	%	$	946,540	6.60	%	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)	$	2,057,351	14.35	%	$	1,433,266	10.00	%	$	624,085	4.35	%	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)	$	1,878,163	13.10	%	$	1,146,613	8.00	%	$	731,550	5.10	%	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)	$	1,878,163	11.29	%	$	831,501	5.00	%	$	1,046,662	6.29	%	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, 2020													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)	$	1,568,508	10.94	%	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)	$	1,846,229	12.87	%	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)	$	1,668,786	11.64	%	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)	$	1,668,786	10.22	%	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)	$	1,850,091	12.90	%	$	932,066	6.50	%	$	918,025	6.40	%	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)	$	2,027,534	14.14	%	$	1,433,948	10.00	%	$	593,586	4.14	%	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)	$	1,850,091	12.90	%	$	1,147,159	8.00	%	$	702,932	4.90	%	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)	$	1,850,091	11.33	%	$	816,551	5.00	%	$	1,033,540	6.33	%	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 ~~March 31,~~June 30, 2021, our total borrowing capacity from the FHLB was ~~$4.28~~$4.30 billion of which ~~$3.86~~$4.08 billion was unused and available to borrow. At ~~March 31,~~June 30, 2021, our total borrowing capacity from the FRB Discount Window was ~~$667.3~~$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 ~~$2.22~~$2.68 billion at ~~March 31,~~June 30, 2021 compared to $2.23 billion at December 31, 2020. Cash and cash equivalents were ~~$376.7~~$837.0 million at ~~March 31,~~June 30, 2021 compared to $350.6 million at December 31, 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 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.

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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 ~~March 31,~~June 30, 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:


		March 31, 2021						December 31, 2020					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	7.09	%			4.51	%					4.81	%		5.11	%	+ 200 basis points		9.79	%			2.77	%			4.81	%	5.11	%
+ 100 basis points	+ 100 basis points	3.45	%	2.79	%			2.35	%	3.29	%	+ 100 basis points	4.90	%		2.48		%			2.35	%			3.29	%
- 100 basis points	- 100 basis points	(1.67)	%	(5.17)	%			(1.31)	%	(7.63)	%	- 100 basis points	(1.90)	%		(6.22)		%			(1.31)	%			(7.63)	%
- 200 basis points	- 200 basis points	(2.95)	%	(14.51)	%			(1.41)	%	10.80	%	- 200 basis points	(2.98)	%		(15.00)		%			(1.41)	%			(10.80)	%

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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 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.

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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 ~~March 31,~~June 30, 2021.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 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 ~~$145~~$25 thousand at ~~March 31,~~June 30, 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

Management is not aware of any material changes to the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2020. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2020, which could materially and adversely affect the Company’s business, financial condition, results of operations, and stock price. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not presently known to management, or that management presently believes not to be material, may also result in material and adverse 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.”

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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:	~~May 10,~~August 5, 2021	/s/ Kevin S. Kim
		Kevin S. Kim
		Chairman, President, and Chief Executive Officer


Date:	~~May 10,~~August 5, 2021	/s/ Alex Ko
		Alex Ko
		Senior Executive Vice President and Chief Financial Officer

9094


	Three Months Ended,
			March 31, 2021		March 31, 2020
		(Dollars in thousands)
Balance at beginning of period			$	32,753	$	9,149

Unrealized gain on securities available for sale			(40,803)		38,853
Unrealized loss on interest rate swaps used for cash flow hedge			602		0
Reclassification adjustments for net gains realize in net income			66		0
Tax effect			12,605		(11,553)
Total other comprehensive (loss) income			$	(27,530)	$	27,300

Balance at end of period			$	5,223	$	36,449