0001128361hope:ForeignExchangeFeesMember2021-01-012021-06-30

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 June 30, ~~2021~~2022

☐ 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 ~~August 2, 2021,~~July 29, 2022, there were ~~122,898,170~~119,476,315 shares of Hope Bancorp, Inc. common stock outstanding.

Table of Contents








		Page
PART I - FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS
	Consolidated Statements of Financial Condition (Unaudited)	4
	Consolidated Statements of Income (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Unaudited)	7
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited)
	1. Hope Bancorp, Inc.	11
	2. Basis of Presentation	11
	3. Earnings Per Share (“EPS”)	13
	4. Equity Investments	14
	5. Investment Securities ~~Available for Sale~~	15
	6. Loans Receivable and Allowance for Credit Losses	1819
	7. Leases	3234
	8. Deposits	3436
	9. Borrowings	3537
	10. Subordinated Debentures and Convertible Notes	3638
	11. Derivative Financial Instruments	3840
	12. Commitments and Contingencies	4143
	13. Goodwill, Intangible Assets, and Servicing Assets	4244
	14. Income Taxes	4446
	15. Fair Value Measurements	4547
	16. Stockholders’ Equity	5254
	17. Stock-Based Compensation	5355
	18. Regulatory Matters	5557
	19. Revenue Recognition	57
	~~20. Subsequent Events~~	59

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	6061
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	89
Item 4.	CONTROLS AND PROCEDURES	91

PART II - OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	92
Item 1A.	RISK FACTORS	92
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	92
Item 3.	DEFAULTS UPON SENIOR SECURITIES	92
Item 4.	MINE SAFETY DISCLOSURES	92
Item 5.	OTHER INFORMATION	92
Item 6.	EXHIBITS	92

INDEX TO EXHIBITS		93

SIGNATURES		94

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.~~2021, filed with the SEC on February 28, 2022, as such information may be updated from time to time in subsequent Quarterly Reports on Form 10-Q that we file with the SEC.

Due to the risks and uncertainties we face, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Report, which speak only as of the date of this Report, or to make predictions about future performance based solely on historical financial information. 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)
		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
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	$	293,822	$	256,565	Cash and due from banks	$	181,986	$	271,319
Interest bearing cash in other banks	Interest bearing cash in other banks	543,135		94,014		Interest bearing cash in other banks	15,076		44,947

Total cash and cash equivalents	Total cash and cash equivalents	836,957		350,579		Total cash and cash equivalents	197,062		316,266
Interest bearing deposits in other financial institutions	Interest bearing deposits in other financial institutions	18,268		28,642		Interest bearing deposits in other financial institutions	6,448		12,851
Securities available for sale, at fair value		2,274,170		2,285,611
Investment securities available for sale, at fair value						Investment securities available for sale, at fair value	2,100,006		2,666,275
Investment securities held to maturity, at amortized cost; fair value of $257,669 and $0 at June 30, 2022 and December 31, 2021, respectively						Investment securities held to maturity, at amortized cost; fair value of $257,669 and $0 at June 30, 2022 and December 31, 2021, respectively	252,991		—
Equity investments	Equity investments	59,032		59,699		Equity investments	62,869		57,860
Loans held for sale, at the lower of cost or fair value	Loans held for sale, at the lower of cost or fair value	54,245		17,743		Loans held for sale, at the lower of cost or fair value	76,376		99,049
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
Loans receivable, net of allowance for credit losses of $151,580 and $140,550 at June 30, 2022 and December 31, 2021, respectively						Loans receivable, net of allowance for credit losses of $151,580 and $140,550 at June 30, 2022 and December 31, 2021, respectively	14,394,469		13,812,193
Other real estate owned (“OREO”), net	Other real estate owned (“OREO”), net	16,619		20,121		Other real estate owned (“OREO”), net	2,010		2,597
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	17,792		17,250
Premises and equipment, net	Premises and equipment, net	45,302		48,409		Premises and equipment, net	46,093		45,667
Accrued interest receivable	Accrued interest receivable	51,886		59,430		Accrued interest receivable	37,845		41,842
Deferred tax assets, net	Deferred tax assets, net	49,092		47,693		Deferred tax assets, net	118,541		49,719
Customers’ liabilities on acceptances	Customers’ liabilities on acceptances	916		1,184		Customers’ liabilities on acceptances	2,913		1,521
Bank owned life insurance (“BOLI”)	Bank owned life insurance (“BOLI”)	76,428		76,765		Bank owned life insurance (“BOLI”)	77,692		77,081
Investments in affordable housing partnerships	Investments in affordable housing partnerships	63,800		69,454		Investments in affordable housing partnerships	54,524		58,387
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	47,772		47,653		Operating lease right-of-use assets, net	58,573		52,701
Goodwill	Goodwill	464,450		464,450		Goodwill	464,450		464,450
Core deposit intangible assets, net	Core deposit intangible assets, net	8,689		9,708		Core deposit intangible assets, net	6,698		7,671
Servicing assets, net	Servicing assets, net	11,566		12,692		Servicing assets, net	11,215		10,418
Other assets	Other assets	138,336		133,109		Other assets	100,495		95,263
Total assets	Total assets	$	17,469,627	$	17,106,664	Total assets	$	18,089,062	$	17,889,061

(Continued)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


		(Unaudited)					(Unaudited)
		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
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	$	5,638,115	$	4,814,254	Noninterest bearing	$	5,689,992	$	5,751,870
Interest bearing:	Interest bearing:					Interest bearing:
Money market and NOW accounts	Money market and NOW accounts	5,786,697		5,232,413		Money market and NOW accounts	6,339,467		6,178,850
Savings deposits	Savings deposits	308,651		300,770		Savings deposits	326,927		321,377
Time deposits	Time deposits	2,992,767		3,986,475		Time deposits	2,673,244		2,788,353
Total deposits	Total deposits	14,726,230		14,333,912		Total deposits	15,029,630		15,040,450
FHLB advances	FHLB advances	200,000		250,000		FHLB advances	573,000		300,000

Convertible notes, net	Convertible notes, net	215,739		204,565		Convertible notes, net	216,678		216,209
Subordinated debentures, net	Subordinated debentures, net	104,762		104,178		Subordinated debentures, net	105,953		105,354
Accrued interest payable	Accrued interest payable	4,946		14,706		Accrued interest payable	4,112		4,272
Acceptances outstanding	Acceptances outstanding	916		1,184		Acceptances outstanding	2,913		1,521
Operating lease liabilities	Operating lease liabilities	52,177		52,030		Operating lease liabilities	62,990		57,303
Commitments to fund investments in affordable housing partnerships	Commitments to fund investments in affordable housing partnerships	10,654		15,148		Commitments to fund investments in affordable housing partnerships	14,498		9,514
Other liabilities	Other liabilities	61,333		77,196		Other liabilities	78,919		61,455
Total liabilities	Total liabilities	$	15,376,757	$	15,052,919	Total liabilities	$	16,088,693	$	15,796,078
Commitments and contingent liabilities (Note 12)						Commitments and contingent liabilities (Note 12)

STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:					STOCKHOLDERS’ EQUITY:
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
Common stock, $0.001 par value; 150,000,000 authorized shares: issued and outstanding 136,856,774 and 119,473,939 shares, respectively, at June 30, 2022, and issued and outstanding 136,350,301 and 120,006,452 shares, respectively, at December 31, 2021						Common stock, $0.001 par value; 150,000,000 authorized shares: issued and outstanding 136,856,774 and 119,473,939 shares, respectively, at June 30, 2022, and issued and outstanding 136,350,301 and 120,006,452 shares, respectively, at December 31, 2021	$	137	$	136
Additional paid-in capital	Additional paid-in capital	1,418,135		1,434,916		Additional paid-in capital	1,424,891		1,421,698
Retained earnings	Retained earnings	859,548		785,940		Retained earnings	1,011,715		932,561
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		15,051		32,753
Treasury stock, at cost; 17,382,835 and 16,343,849 shares at June 30, 2022 and December 31, 2021, respectively						Treasury stock, at cost; 17,382,835 and 16,343,849 shares at June 30, 2022 and December 31, 2021, respectively	(264,667)		(250,000)
Accumulated other comprehensive loss, net						Accumulated other comprehensive loss, net	(171,707)		(11,412)
Total stockholders’ equity	Total stockholders’ equity	2,092,870		2,053,745		Total stockholders’ equity	2,000,369		2,092,983
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,469,627	$	17,106,664	Total liabilities and stockholders’ equity	$	18,089,062	$	17,889,061

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
INTEREST INCOME:	INTEREST INCOME:									INTEREST INCOME:
Interest and fees on loans	Interest and fees on loans	$	131,823	$	134,190	$	261,559	$	288,420	Interest and fees on loans	$	145,024	$	131,823	$	277,696	$	261,559
Interest on securities		7,713		9,891		15,628		20,500
Interest on investment securities										Interest on investment securities	12,308		7,713		23,964		15,628
Interest on other investments	Interest on other investments	668		980		1,310		3,009		Interest on other investments	492		668		1,036		1,310
Total interest income	Total interest income	140,204		145,061		278,497		311,929		Total interest income	157,824		140,204		302,696		278,497
INTEREST EXPENSE:	INTEREST EXPENSE:									INTEREST EXPENSE:
Interest on deposits	Interest on deposits	10,696		29,451		23,466		70,564		Interest on deposits	12,220		10,696		20,896		23,466
Interest on FHLB advances		631		2,238		1,273		4,885
Interest on FHLB and FRB borrowings										Interest on FHLB and FRB borrowings	1,457		631		2,144		1,273
Interest on other borrowings and convertible notes	Interest on other borrowings and convertible notes	2,300		3,558		4,602		7,375		Interest on other borrowings and convertible notes	2,609		2,300		4,942		4,602
Total interest expense	Total interest expense	13,627		35,247		29,341		82,824		Total interest expense	16,286		13,627		27,982		29,341
NET INTEREST INCOME BEFORE PROVISION (CREDIT) FOR CREDIT LOSSES	NET INTEREST INCOME BEFORE PROVISION (CREDIT) FOR CREDIT LOSSES	126,577		109,814		249,156		229,105		NET INTEREST INCOME BEFORE PROVISION (CREDIT) FOR CREDIT LOSSES	141,538		126,577		274,714		249,156
PROVISION (CREDIT) FOR CREDIT LOSSES	PROVISION (CREDIT) FOR CREDIT LOSSES	(7,000)		17,500		(3,700)		45,500		PROVISION (CREDIT) FOR CREDIT LOSSES	3,200		(7,000)		(7,800)		(3,700)
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES	NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES	133,577		92,314		252,856		183,605		NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES	138,338		133,577		282,514		252,856
NONINTEREST INCOME:	NONINTEREST INCOME:									NONINTEREST INCOME:
Service fees on deposit accounts	Service fees on deposit accounts	1,777		2,583		3,567		6,716		Service fees on deposit accounts	2,270		1,777		4,244		3,567
International service fees	International service fees	795		667		1,636		1,456		International service fees	744		795		1,538		1,636
Loan servicing fees, net	Loan servicing fees, net	934		1,106		1,978		1,471		Loan servicing fees, net	843		934		1,679		1,978
Wire transfer fees	Wire transfer fees	923		820		1,767		1,818		Wire transfer fees	858		923		1,758		1,767
Swap fees	Swap fees	165		1,040		232		2,016		Swap fees	175		165		960		232
Net gains on sales of SBA loans	Net gains on sales of SBA loans	2,375		0		2,375		0		Net gains on sales of SBA loans	5,804		2,375		11,407		2,375
Net gains on sales of other loans		1,028		1,678		3,124		3,533
Net gains on sales of residential mortgage loans										Net gains on sales of residential mortgage loans	76		1,028		833		3,124
Net losses on sales of other loans										Net losses on sales of other loans	(547)		—		(547)		—

Other income and fees	Other income and fees	3,079		3,346		5,201		7,494		Other income and fees	2,523		3,079		4,060		5,201
Total noninterest income	Total noninterest income	11,076		11,240		19,880		24,504		Total noninterest income	12,746		11,076		25,932		19,880
NONINTEREST EXPENSE:	NONINTEREST EXPENSE:									NONINTEREST EXPENSE:
Salaries and employee benefits	Salaries and employee benefits	42,309		38,850		83,525		81,352		Salaries and employee benefits	51,058		42,309		98,803		83,525
Occupancy	Occupancy	7,067		7,043		14,034		14,453		Occupancy	7,178		7,067		14,513		14,034
Furniture and equipment	Furniture and equipment	4,822		4,654		9,008		8,913		Furniture and equipment	4,778		4,822		9,422		9,008
Advertising and marketing	Advertising and marketing	2,097		1,315		3,722		2,988		Advertising and marketing	2,226		2,097		3,862		3,722
Data processing and communications	Data processing and communications	2,411		2,274		5,148		4,905		Data processing and communications	2,893		2,411		5,354		5,148
Professional fees	Professional fees	4,395		1,510		7,298		4,810		Professional fees	1,582		4,395		3,793		7,298
Investments in affordable housing partnership expenses	Investments in affordable housing partnership expenses	2,952		2,873		5,654		5,424		Investments in affordable housing partnership expenses	1,844		2,952		3,863		5,654
FDIC assessments	FDIC assessments	1,284		1,652		2,539		3,211		FDIC assessments	1,450		1,284		3,019		2,539
Credit related expenses	Credit related expenses	43		1,361		2,261		3,023		Credit related expenses	2,872		43		3,984		2,261
OREO expense, net	OREO expense, net	298		1,338		579		2,181		OREO expense, net	5		298		362		579
Software impairment	Software impairment	2,146		0		2,146		0		Software impairment	—		2,146		—		2,146

Other	Other	3,299		4,160		7,640		7,910		Other	4,479		3,299		8,763		7,640
Total noninterest expense	Total noninterest expense	73,123		67,030		143,554		139,170		Total noninterest expense	80,365		73,123		155,738		143,554
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	71,530		36,524		129,182		68,939		INCOME BEFORE INCOME TAXES	70,719		71,530		152,708		129,182
INCOME TAX PROVISION	INCOME TAX PROVISION	17,767		9,771		31,732		16,233		INCOME TAX PROVISION	18,631		17,767		39,882		31,732
NET INCOME	NET INCOME	$	53,763	$	26,753	$	97,450	$	52,706	NET INCOME	$	52,088	$	53,763	$	112,826	$	97,450
EARNINGS PER COMMON SHARE	EARNINGS PER COMMON SHARE									EARNINGS PER COMMON SHARE
Basic	Basic	$	0.44	$	0.22	$	0.79	$	0.43	Basic	$	0.43	$	0.44	$	0.94	$	0.79
Diluted	Diluted	$	0.43	$	0.22	$	0.78	$	0.42	Diluted	$	0.43	$	0.43	$	0.93	$	0.78

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Net income	$	52,088	$	53,763	$	112,826	$	97,450
Other comprehensive (loss) income:
Change in unrealized net holding (losses) gains on securities available for sale	(55,658)		14,186		(196,931)		(26,617)
Change in unrealized net holding losses on securities transferred from available for sale to held to maturity	(36,576)		—		(36,576)		—
Change in unrealized net holding gains (losses) on interest rate swaps used in cash flow hedges	2,006		(297)		6,008		1,523
Reclassification adjustments for net (gains) losses realized in net income	(38)		73		26		139
Tax effect	26,724		(4,134)		67,178		7,253
Other comprehensive (loss) income, net of tax	(63,542)		9,828		(160,295)		(17,702)
Total comprehensive (loss) income	$	(11,454)	$	63,591	$	(47,469)	$	79,748

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

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

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

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

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

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

BALANCE, MARCH 31, 2022															BALANCE, MARCH 31, 2022	120,327,689	$	137	$	1,422,602	$	976,483	$	(250,000)	$	(108,165)	$	2,041,057

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	185,236	0		0								—
Stock-based compensation															Stock-based compensation				2,289								2,289
Cash dividends declared on common stock ($0.14 per share)															Cash dividends declared on common stock ($0.14 per share)						(16,856)						(16,856)
Comprehensive loss:															Comprehensive loss:
Net income															Net income						52,088						52,088
Other comprehensive loss															Other comprehensive loss										(63,542)		(63,542)
Repurchase of treasury stock															Repurchase of treasury stock	(1,038,986)							(14,667)				(14,667)
BALANCE, JUNE 30, 2022															BALANCE, JUNE 30, 2022	119,473,939	$	137	$	1,424,891	$	1,011,715	$	(264,667)	$	(171,707)	$	2,000,369

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



	Common stock			Additional paid-in capital		Retained earnings		Treasury stock		Accumulated other comprehensive income (loss), net		Total stockholders’ equity
	Shares	Amount
	(Dollars in thousands, except share and per share data)
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				3,154								3,154
Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	408,968			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

BALANCE, DECEMBER 31, 2021	120,006,452	$	136	$	1,421,698	$	932,561	$	(250,000)	$	(11,412)	$	2,092,983


Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations	506,473	1		530								531
Stock-based compensation				2,663								2,663
Cash dividends declared on common stock ($0.28 per share)						(33,672)						(33,672)
Comprehensive loss:
Net income						112,826						112,826
Other comprehensive loss										(160,295)		(160,295)
Repurchase of treasury stock	(1,038,986)							(14,667)				(14,667)
BALANCE, JUNE 30, 2022	119,473,939	$	137	$	1,424,891	$	1,011,715	$	(264,667)	$	(171,707)	$	2,000,369

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
		(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	$	97,450	$	52,706	Net income	$	112,826	$	97,450
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	13,724		1,970		Discount accretion, net of depreciation and amortization	11,619		13,724
Stock-based compensation expense	Stock-based compensation expense	4,642		3,804		Stock-based compensation expense	6,058		4,642
(Credit) provision for credit losses		(3,700)		45,500
Credit for credit losses						Credit for credit losses	(7,800)		(3,700)
Provision for unfunded loan commitments	Provision for unfunded loan commitments	105		660		Provision for unfunded loan commitments	380		105
Provision for accrued interest receivables on loans	Provision for accrued interest receivables on loans	600		0		Provision for accrued interest receivables on loans	1,500		600
Valuation adjustment of OREO	Valuation adjustment of OREO	336		1,837		Valuation adjustment of OREO	276		336
Net gains on sales of SBA loans		(2,375)		0
Net gains on sales of other loans		(3,124)		(3,533)
Loss (earnings) on BOLI		337		(711)
Net gains on sales of loans						Net gains on sales of loans	(11,693)		(5,499)
(Earnings) losses on BOLI						(Earnings) losses on BOLI	(611)		337
Net change in fair value of derivatives	Net change in fair value of derivatives	91		(936)		Net change in fair value of derivatives	108		91

Net (gains) losses on sales of OREO		(13)		81
Net gains on sales of OREO						Net gains on sales of OREO	(20)		(13)

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	407		(542)		Net change in fair value of equity investments with readily determinable fair value	2,112		407
Losses on investments in affordable housing partnerships	Losses on investments in affordable housing partnerships	5,507		5,283		Losses on investments in affordable housing partnerships	3,712		5,507

Software impairment	Software impairment	2,146		0		Software impairment	—		2,146
Net change in deferred income taxes	Net change in deferred income taxes	9,145		(6,916)		Net change in deferred income taxes	2,889		9,145
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	145,987		143,704		Proceeds from sales of loans held for sale	155,152		145,987
Originations of loans held for sale	Originations of loans held for sale	(103,746)		(104,436)		Originations of loans held for sale	(20,569)		(103,746)
Originations of servicing assets	Originations of servicing assets	(1,329)		(1,136)		Originations of servicing assets	(2,890)		(1,329)
Net change in accrued interest receivable	Net change in accrued interest receivable	6,944		(22,087)		Net change in accrued interest receivable	1,080		6,944
Net change in other assets	Net change in other assets	(5,574)		(59,291)		Net change in other assets	(4,460)		(5,574)
Net change in accrued interest payable	Net change in accrued interest payable	(9,760)		(7,717)		Net change in accrued interest payable	(160)		(9,760)
Net change in other liabilities	Net change in other liabilities	(15,968)		51,516		Net change in other liabilities	17,084		(15,968)
Net cash provided by operating activities	Net cash provided by operating activities	141,832		99,756		Net cash provided by operating activities	266,593		141,832
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	(747)		(11,886)		Purchase of interest bearing deposits in other financial institutions	—		(747)
Redemption of interest bearing deposits in other financial institutions	Redemption of interest bearing deposits in other financial institutions	11,121		9,810		Redemption of interest bearing deposits in other financial institutions	6,403		11,121
Purchase of securities available for sale		(422,653)		(356,376)
Proceeds from matured, called, or paid-down securities available for sale		397,130		222,485
Investment securities available for sale:						Investment securities available for sale:
Purchase of securities						Purchase of securities	(122,340)		(422,653)
Proceeds from matured, called, or paid-down securities						Proceeds from matured, called, or paid-down securities	211,023		397,130

Investment securities held to maturity:						Investment securities held to maturity:
Purchase of securities						Purchase of securities	(13,971)		—
Proceeds from matured, called, or paid-down securities						Proceeds from matured, called, or paid-down securities	25		—
Proceeds from sale of equity investments	Proceeds from sale of equity investments	367		0		Proceeds from sale of equity investments	—		367
Purchase of equity investments						Purchase of equity investments	(800)		—
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	107,523		1,053		Proceeds from sales of other loans held for sale previously classified as held for investment	66,518		107,523
Purchase of loans receivable	Purchase of loans receivable	(98,271)		0		Purchase of loans receivable	(27,936)		(98,271)
Net change in loans receivable	Net change in loans receivable	48,273		(585,285)		Net change in loans receivable	(709,763)		48,273
Proceeds from sales of OREO	Proceeds from sales of OREO	2,150		1,567		Proceeds from sales of OREO	331		2,150
Purchase of FHLB stock	Purchase of FHLB stock	0		(1,346)		Purchase of FHLB stock	(18,078)		—
Redemption of FHLB stock	Redemption of FHLB stock	0		3,503		Redemption of FHLB stock	17,536		—
Purchase of premises and equipment	Purchase of premises and equipment	(2,673)		(3,104)		Purchase of premises and equipment	(4,525)		(2,673)

Proceeds from BOLI death benefits	Proceeds from BOLI death benefits	576		0		Proceeds from BOLI death benefits	—		576
Investments in affordable housing partnerships	Investments in affordable housing partnerships	(2,854)		(8,403)		Investments in affordable housing partnerships	(1,197)		(2,854)
Net cash provided by (used in) investing activities		39,942		(727,982)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(596,774)		39,942

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	Net change in deposits	392,318		1,596,168		Net change in deposits	(10,820)		392,318
Proceeds from FHLB advances	Proceeds from FHLB advances	1,440,000		910,000		Proceeds from FHLB advances	18,460,885		1,440,000
Repayment of FHLB advances	Repayment of FHLB advances	(1,490,000)		(1,035,000)		Repayment of FHLB advances	(18,187,885)		(1,490,000)
Proceeds from FRB borrowings						Proceeds from FRB borrowings	845,000		10,000
Repayment of FRB borrowings						Repayment of FRB borrowings	(845,000)		(10,000)

Purchase of treasury stock	Purchase of treasury stock	0		(36,777)		Purchase of treasury stock	(14,667)		—
Cash dividends paid on common stock	Cash dividends paid on common stock	(34,557)		(34,670)		Cash dividends paid on common stock	(33,672)		(34,557)
Taxes paid in net settlement of restricted stock	Taxes paid in net settlement of restricted stock	(3,157)		(1,113)		Taxes paid in net settlement of restricted stock	(3,395)		(3,157)

Issuance of additional stock pursuant to various stock plans						Issuance of additional stock pursuant to various stock plans	531		—
Net cash provided by financing activities	Net cash provided by financing activities	304,604		1,398,608		Net cash provided by financing activities	210,977		304,604
NET CHANGE IN CASH AND CASH EQUIVALENTS	NET CHANGE IN CASH AND CASH EQUIVALENTS	486,378		770,382		NET CHANGE IN CASH AND CASH EQUIVALENTS	(119,204)		486,378
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	316,266		350,579
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	836,957	$	1,468,949	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	197,062	$	836,957

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	Interest paid	$	38,048	$	87,445	Interest paid	$	27,074	$	38,048
Income taxes paid	Income taxes paid	$	35,953	$	1,777	Income taxes paid	$	55,222	$	35,953

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES	SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES					SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
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	$	180,835	$	1,002	Transfer from loans receivable to loans held for sale	$	172,255	$	180,835
Transfer from loans held for sale to loans receivable	Transfer from loans held for sale to loans receivable	$	0	$	2,384	Transfer from loans held for sale to loans receivable	$	4,097	$	—
Transfer from investment securities available for sale to held to maturity, at fair value						Transfer from investment securities available for sale to held to maturity, at fair value	$	238,966	$	—

Lease liabilities arising from obtaining right-of-use assets						Lease liabilities arising from obtaining right-of-use assets	$	13,438	$	—

See accompanying Notes to Consolidated Financial Statements (Unaudited)

HOPE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.Hope Bancorp, Inc.

Hope Bancorp, Inc. (“Hope Bancorp” on a parent-only basis and the “Company” on a consolidated basis), headquartered in Los Angeles, California, is the holding company for Bank of Hope (the “Bank”). As of June 30, ~~2021,~~2022, the Bank operated branches in California, New York/New Jersey, Illinois, Washington, Texas, ~~Illinois,~~Virginia, Alabama ~~Virginia, New Jersey,~~ and ~~New York,~~Georgia, loan production offices in Colorado, Texas, Oregon, Washington, Georgia, 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~~2021 which was from the audited financial statements included in the Company’s ~~2020~~2021 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 June 30, ~~2021~~2022 and December 31, ~~2020~~2021 and the results of operations for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. 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 and disrupted global supply ~~chains, considerably lowered equity market valuations, created significant volatility and disruption in financial markets, and materially increased unemployment levels. In addition,~~chains. During the worst of the pandemic, ~~has resulted in~~there were temporary closures of countless businesses and the institution of social distancing and sheltering in place requirements in most states and communities. ~~Although some~~Many states have now relaxed ~~some~~most of the business closures and other social distancing requirements, and the ~~recent rise in COVID-19 cases due to~~economy has recovered from 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 resultworst of the ~~impact~~pandemic. There continues to be uncertainty around variants of the COVID-19 ~~pandemic,~~virus as well as the pace and sustainability of the ~~resulting governmental actions to curtail its spread.~~economic recovery. 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~~2021 Annual Report on Form 10-K.

Pending Accounting Pronouncements

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

In 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. ASU 2021-01 is not expected to have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers”, to address diversity in practice and inconsistency related to the accounting for revenue contracts with customers acquired in a business combination. The amendments require that the acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination and applies to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Entities should apply the amendments prospectively to business combinations that occur after the effective date. Early adoption is permitted, including in any interim period, for public business entities for periods for which financial statements have not yet been issued, and for all other entities for periods for which financial statements have not yet been made available for issuance. The new guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326). The standard addresses the following: 1) eliminates the accounting guidance for TDRs, will require an entity to determine whether a modification results in a new loan or a continuation of an existing loan, 2) expands disclosures related to modifications, and 3) will require disclosure of current period gross write-offs of financing receivables within the vintage disclosures table. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method. Early adoption of the amendments in this update is permitted. An entity may elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is ~~currently in~~assessing the ~~process~~impact that the adoption of ~~evaluating~~ ASU ~~2021-01 and~~2022-02 will have on its ~~potential impact to the Company’s contracts.~~consolidated financial statements.

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, employee stock purchase program (“ESPP”) shares, 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 June 30, ~~2021~~2022 and ~~2020,~~2021, stock options and restricted share awards of ~~544,925~~1,523,255 and ~~1,450,408~~544,925 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~~2022 and ~~2020,~~2021, stock options and restricted ~~shares~~share awards of ~~775,710~~681,787 and ~~737,208~~775,710 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 June 30, ~~2021~~2022 and ~~2020,~~2021, 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 based on the Company’s common stock price during the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 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 June 30, ~~2021~~2022 and ~~2020.~~2021.


		Three Months Ended June 30,											Three Months Ended June 30,
		2021					2020						2022					2021
		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	$	53,763	123,592,695	$	0.44	$	26,753	123,200,127	$	0.22	Basic EPS - common stock	$	52,088	120,219,919	$	0.43	$	53,763	123,592,695	$	0.44
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			731,193					230,764			Stock options, restricted stock, and ESPP shares			479,719					731,193
Diluted EPS - common stock	Diluted EPS - common stock	$	53,763	124,323,888	$	0.43	$	26,753	123,430,891	$	0.22	Diluted EPS - common stock	$	52,088	120,699,638	$	0.43	$	53,763	124,323,888	$	0.43

		Six Months Ended June 30,											Six Months Ended June 30,
		2021					2020						2022					2021
		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	$	97,450	123,459,461	$	0.79	$	52,706	123,747,727	$	0.43	Basic EPS - common stock	$	112,826	120,175,894	$	0.94	$	97,450	123,459,461	$	0.79
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			874,766					306,564			Stock options, restricted stock, and ESPP shares			722,711					874,766
Diluted EPS - common stock	Diluted EPS - common stock	$	97,450	124,334,227	$	0.78	$	52,706	124,054,291	$	0.42	Diluted EPS - common stock	$	112,826	120,898,605	$	0.93	$	97,450	124,334,227	$	0.78

4. Equity Investments

Equity investments with readily determinable fair values at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, consisted of mutual funds in the amounts of ~~$27.2~~$24.7 million and ~~$27.6~~$26.8 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 June 30, ~~2021~~2022 and ~~2020~~2021 were recorded in other noninterest income and fees as summarized in the table below:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(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	$	77	$	188	$	(407)	$	542	Net change in fair value recorded during the period on equity investments with readily determinable fair value	$	(865)	$	77	$	(2,112)	$	(407)
Net change in fair value recorded on equity investments sold during the period	Net change in fair value recorded on equity investments sold during the period	0		0		0		0		Net change in fair value recorded on equity investments sold during the period	—		—		—		—
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	$	77	$	188	$	(407)	$	542	Net change in fair value on equity investments with readily determinable fair values	$	(865)	$	77	$	(2,112)	$	(407)

The decline in fair value of the Company’s equity investments with readily determinable fair values was due to the recent increases in market interest rates over the yield available at the time the equity investments were purchased.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company also had equity investments without readily determinable fair ~~value~~values which are carried at cost less any determined impairment. The balance of these investments is adjusted for changes in subsequent observable prices. At June 30, ~~2021,~~2022, the total balance of equity investments without readily determinable fair values included in “Equity investments” on the Consolidated Statements of Financial Condition was ~~$31.8~~$38.2 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in Community Development Financial Institutions (“CDFI”) investments, and ~~$30.5~~$36.8 million in Community Reinvestment Act (“CRA”) investments. At December 31, ~~2020,~~2021, the total balance of equity investments without readily determinable fair values was ~~$32.1~~$31.0 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in CDFI investments, and ~~$30.7~~$29.7 million in CRA investments.

The Company had 0no impairments or subsequent observable price changes for equity investments without readily determinable fair values for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

5. Investment Securities ~~Available for Sale~~

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


		At June 30, 2021											June 30, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance For Investment Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(Dollars in thousands)											(Dollars in thousands)
Debt securities:
Debt securities available for sale:												Debt securities available for sale:
U.S. Treasury securities												U.S. Treasury securities	$	3,986	$	—	$	(18)	$	3,968
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	$	858,603	$	8,362	$	(2,389)	$	0	$	864,576	Collateralized mortgage obligations	1,005,291		22		(95,486)		909,827
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
Residential	Residential	663,223		3,127		(6,148)		0		660,202		Residential	572,683		—		(69,924)		502,759
Commercial	Commercial	540,908		16,443		(1,738)		0		555,613		Commercial	444,903		139		(30,996)		414,046
Asset-backed securities	Asset-backed securities	62,328		102		(61)		0		62,369		Asset-backed securities	153,557		—		(7,776)		145,781
Corporate securities	Corporate securities	23,422		120		(928)		0		22,614		Corporate securities	23,374		—		(3,140)		20,234
Municipal securities	Municipal securities	106,125		2,715		(44)		0		108,796		Municipal securities	112,515		140		(9,264)		103,391
Total investment securities available for sale	Total investment securities available for sale	$	2,254,609	$	30,869	$	(11,308)	$	0	$	2,274,170	Total investment securities available for sale	$	2,316,309	$	301	$	(216,604)	$	2,100,006

		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		Fair Value
		(Dollars in thousands)											(Dollars in thousands)
Debt securities:
Debt securities held to maturity:												Debt securities held to maturity:
U.S. Government agency and U.S. Government sponsored enterprises:												U.S. Government agency and U.S. Government sponsored enterprises:

Mortgage-backed securities:												Mortgage-backed securities:
Residential												Residential	$	145,305	$	3,541	$	(235)	$	148,611
Commercial												Commercial	107,686		1,573		(201)		109,058
Total investment securities held to maturity												Total investment securities held to maturity	$	252,991	$	5,114	$	(436)	$	257,669

													December 31, 2021
													Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
													(Dollars in thousands)
Debt securities available for sale:												Debt 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	$	990,679	$	11,482	$	(844)	$	0	$	1,001,317	Collateralized mortgage obligations	$	1,039,543	$	3,357	$	(16,470)	$	1,026,430
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
Residential	Residential	672,667		8,460		(114)		0		681,013		Residential	769,113		1,985		(11,874)		759,224
Commercial	Commercial	482,874		25,026		(21)		0		507,879		Commercial	595,659		9,103		(5,360)		599,402
Asset-backed securities												Asset-backed securities	153,564		11		(124)		153,451
Corporate securities	Corporate securities	7,000		15		(881)		0		6,134		Corporate securities	23,398		130		(1,044)		22,484
Municipal securities	Municipal securities	86,213		3,058		(3)		0		89,268		Municipal securities	104,371		1,680		(767)		105,284
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	$	2,685,648	$	16,266	$	(35,639)	$	2,666,275

During the three months ended June 30, 2022, the Company transferred $238.9 million in fair value of debt securities from available for sale (“AFS”) to held to maturity (“HTM”). The transferred securities had an amortized cost of $275.5 million with a pre-tax net unrealized loss of $36.6 million, which was recorded as a discount subsequent to the transfer and will be amortized as an adjustment of yield. The unrealized holding loss at the date of transfer will continue to be reported, net of taxes, in accumulated other comprehensive income (“AOCI”) as a component of stockholders’ equity, and will be amortized over the remaining life of the securities as an adjustment of yield, offsetting the impact on yield of the corresponding discount amortization. The Company has the ability and intent to hold these securities to maturity. At the time of transfer, there was no previously recorded allowance for credit losses on investment securities AFS transferred to HTM.

The Company has elected to exclude accrued interest from the amortized cost of its investment debt securities. Accrued interest receivable for investment debt securities at June 30, 2022 and December 31, 2021 totaled $5.8 million and $5.6 million, respectively.

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 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.~~

At June 30, ~~2021~~2022 and December 31, ~~2020, $14.4~~2021, $151.8 million and ~~$33.2~~$13.0 million in unrealized ~~gains~~losses on investment securities ~~available for sale~~AFS, net of taxes, respectively, were included in accumulated other comprehensive ~~income.~~income (loss). For the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, there were 0no reclassifications out of accumulated other comprehensive income (loss) into ~~earnings.~~earnings as gain on sales of investments securities AFS.

The following table presents a breakdown of interest income recorded for investment securities that are taxable and nontaxable.


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Interest income on investment securities
Taxable	$	11,997	$	7,534	$	23,397	$	15,157
Nontaxable	311		179		567		471
Total	$	12,308	$	7,713	$	23,964	$	15,628

The amortized cost and estimated fair value of investment securities at June 30, ~~2021,~~2022, by contractual maturity, isare 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			Available for Sale				Held to Maturity
		(Dollars in thousands)					Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Available for sale:
							(Dollars in thousands)
Debt securities:						Debt securities:
Due within one year	Due within one year	$	350	$	351	Due within one year	$	—	$	—	$	—	$	—
Due after one year through five years	Due after one year through five years	0		0		Due after one year through five years	5,986		5,822		—		—
Due after five years through ten years	Due after five years through ten years	37,825		38,270		Due after five years through ten years	44,978		39,628		—		—
Due after ten years	Due after ten years	91,372		92,789		Due after ten years	88,911		82,143		—		—
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	858,603		864,576		Collateralized mortgage obligations	1,005,291		909,827		—		—
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
Residential	Residential	663,223		660,202		Residential	572,683		502,759		145,305		148,611
Commercial	Commercial	540,908		555,613		Commercial	444,903		414,046		107,686		109,058
Asset-backed securities	Asset-backed securities	62,328		62,369		Asset-backed securities	153,557		145,781		—		—
Total	Total	$	2,254,609	$	2,274,170	Total	$	2,316,309	$	2,100,006	$	252,991	$	257,669

Securities with carrying values of approximately ~~$354.8~~$388.3 million and ~~$376.1~~$362.2 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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. The length of time that the individual securities have been in a continuous unrealized loss position is not a factor in determining credit impairment with the adoption of current expected credit losses (“CECL”).


		As of June 30, 2021																June 30, 2022
		Less than 12 months					12 months or longer					Total						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
Description of Securities AFS																	Description of Securities AFS	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)

U.S. Treasury securities																	U.S. Treasury securities	1	$	3,968	$	(18)	—	$	—	$	—	1	$	3,968	$	(18)
Collateralized mortgage obligations*	Collateralized mortgage obligations*	20	$	421,753	$	(2,389)	1	$	4	$	0	21	$	421,757	$	(2,389)	Collateralized mortgage obligations*	119	839,936		(87,098)		5	64,987		(8,388)		124	904,923		(95,486)
Mortgage-backed securities:	Mortgage-backed securities:																Mortgage-backed securities:
Residential*	Residential*	47	503,686		(6,148)		0	0		0		47	503,686		(6,148)		Residential*	42	298,870		(36,371)		23	203,889		(33,553)		65	502,759		(69,924)
Commercial*	Commercial*	11	115,974		(1,738)		0	0		0		11	115,974		(1,738)		Commercial*	46	320,422		(19,960)		6	70,998		(11,036)		52	391,420		(30,996)
Asset-backed securities	Asset-backed securities	4	29,000		(61)		0	0		0		4	29,000		(61)		Asset-backed securities	15	122,474		(6,538)		3	23,307		(1,238)		18	145,781		(7,776)
Corporate securities	Corporate securities	2	7,219		(203)		1	4,275		(725)		3	11,494		(928)		Corporate securities	3	10,340		(660)		3	9,894		(2,480)		6	20,234		(3,140)
Municipal securities	Municipal securities	5	4,704		(44)		0	0		0		5	4,704		(44)		Municipal securities	34	87,687		(8,793)		5	6,452		(471)		39	94,139		(9,264)
Total	Total	89	$	1,082,336	$	(10,583)	2	$	4,279	$	(725)	91	$	1,086,615	$	(11,308)	Total	260	$	1,683,697	$	(159,438)	45	$	379,527	$	(57,166)	305	$	2,063,224	$	(216,604)

__________________________________

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


		As of December 31, 2020																December 31, 2021
		Less than 12 months					12 months or longer					Total						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
Description of Securities AFS																	Description of Securities AFS	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*	22	$	312,757	$	(844)	0	$	0	$	0	22	$	312,757	$	(844)	Collateralized mortgage obligations*	39	$	757,799	$	(15,445)	2	$	37,438	$	(1,025)	41	$	795,237	$	(16,470)
Mortgage-backed securities:	Mortgage-backed securities:																Mortgage-backed securities:
Residential*	Residential*	8	46,094		(114)		0	0		0		8	46,094		(114)		Residential*	49	603,372		(9,371)		13	75,211		(2,503)		62	678,583		(11,874)
Commercial*	Commercial*	1	10,275		(21)		0	0		0		1	10,275		(21)		Commercial*	24	214,384		(3,339)		4	57,656		(2,021)		28	272,040		(5,360)
Asset-backed securities																	Asset-backed securities	13	115,885		(124)		—	—		—		13	115,885		(124)
Corporate securities	Corporate securities	0	0		0		1	4,119		(881)		1	4,119		(881)		Corporate securities	4	14,067		(331)		1	4,288		(713)		5	18,355		(1,044)
Municipal securities	Municipal securities	1	997		(3)		0	0		0		1	997		(3)		Municipal securities	23	59,403		(767)		—	—		—		23	59,403		(767)
Total	Total	32	$	370,123	$	(982)	1	$	4,119	$	(881)	33	$	374,242	$	(1,863)	Total	152	$	1,764,910	$	(29,377)	20	$	174,593	$	(6,262)	172	$	1,939,503	$	(35,639)

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

The Company had ~~1 CMO~~investment securities AFS collateralized mortgage obligations, mortgage-backed, asset-backed, corporate, and ~~1 corporate security~~municipal securities that were in a continuous ~~unrealized~~ loss position for twelve months or longer ~~with fair values of $4 thousand and $4.3 million, respectively as of~~at June 30, ~~2021.~~2022. The collateralized mortgage obligations and mortgage-backed securities were investments in U.S. Government agency and U.S. Government sponsored enterprises and have high credit ratings (“AA” grade or better). The interest on other securities that were in an unrealized loss position have been paid as agreed, and the Company believes this will continue in the future and that the securities will be paid in full as scheduled. The market value declines for these securities were primarily due to movements in interest rates and are not reflective of management’s expectations of the Company’s ability to fully recover any unrealized losses, which may be at maturity. 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~~

Allowance for Credit Losses on ~~January 1, 2020, the CECL methodology replaced the other-than-temporary impairment model that previou~~Securities Available for Sale—sly 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 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 June 30, 2021 ~~and~~ ~~December 31, 2020~~ ~~totaled $4.7 million.~~

The Company evaluates investment securities AFS in unrealized loss ~~position~~positions for impairment related to credit losses on at least a quarterly basis. ~~Securities~~Investment securities AFS in unrealized loss positions are first assessed as to whether ~~we intend~~the Company intends to sell, or if it is more likely than not that wethe Company 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 Company compares 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~~The Company did not have an allowance for credit losses ~~for available for sale~~on investment securities ~~was recorded at~~AFS as of June 30, 2022 and December 31, 2021.

Approximately ~~91%~~88% of the Company’s investment portfolio at June 30, ~~2021~~2022 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~~the Company does 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. In addition, the Company had one U.S. Treasury note issued and guaranteed by the U.S. government. Therefore, wethe Company concluded that a zero allowance approach for these ~~investment securities is~~investments was appropriate. The Company ~~had~~ also had 418 asset-backed ~~security, 3~~securities, 6 corporate securities, and 539 municipal bonds in unrealized loss positions at June 30, ~~2021.~~2022. The Company performed an assessment of ~~investment securities~~investments in unrealized loss positions for credit impairment and concluded that 0no allowance for credit losses was required at June 30, 2022.

Allowance for Credit Losses on Securities Held to Maturity—For each major HTM debt security type, the allowance for credit losses is estimated collectively for groups of securities with similar risk characteristics. For securities that do not share similar risk characteristics, the losses are estimated individually. Debt securities that are issued by the U.S. government or government-sponsored enterprises, are highly rated by major rating agencies, and have a long history of no credit losses are an example of such securities to which the Company applies a zero credit loss assumption. Any expected credit loss is provided through the allowance for credit losses on investment securities HTM and deducted from the amortized cost basis of the security, so that the balance sheet reflects the net amount the Company expects to collect. At June 30, 2022, all of the Company’s investment securities HTM are issued by the U.S. government or government-sponsored enterprises. The Company did not have an allowance for credit losses on investment securities HTM as of June 30, 2022 and December 31, 2021.

1718

6. Loans Receivable and Allowance for Credit Losses

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


							June 30, 2022		December 31, 2021
		June 30, 2021		December 31, 2020			(Dollars in thousands)
Loan portfolio composition	Loan portfolio composition	(Dollars in thousands)				Loan portfolio composition
Real estate loans:	Real estate loans:					Real estate loans:
Residential	Residential	$	61,360	$	54,795	Residential	$	75,003	$	69,199
Commercial	Commercial	8,518,115		8,425,959		Commercial	9,041,439		8,816,080
Construction	Construction	252,801		291,380		Construction	218,578		220,652
Total real estate loans	Total real estate loans	8,832,276		8,772,134		Total real estate loans	9,335,020		9,105,931
Commercial business *	Commercial business *	4,001,423		4,157,787		Commercial business *	4,395,738		4,208,674
Residential mortgage	Residential mortgage	543,622		582,232		Residential mortgage	773,400		579,626
Consumer and other	Consumer and other	46,980		51,060		Consumer and other	41,891		58,512
Loans receivable	Loans receivable	13,424,301		13,563,213		Loans receivable	14,546,049		13,952,743
Allowance for credit losses	Allowance for credit losses	(189,452)		(206,741)		Allowance for credit losses	(151,580)		(140,550)
Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	$	13,234,849	$	13,356,472	Loans receivable, net of allowance for credit losses	$	14,394,469	$	13,812,193

* Commercial business loans as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 include ~~$568.8~~$39.2 million and ~~$452.7~~$228.1 million, respectively, in SBA Paycheck Protection Program loans

Loans receivable is stated at the amount of unpaid principal, adjusted for net deferred fees and costs, premiums and discounts, and purchase accounting fair value ~~adjustments, and allowance for credit losses.~~adjustments. The Company had net deferred fees of ~~$12.6~~$3.7 million and ~~net deferred costs of $3.6~~$6.2 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Net loan fees related to SBA Paycheck Protection Program (“PPP”) loans totaled ~~$15.7~~$1.1 million at June 30, ~~2021~~2022 compared to ~~$6.4~~$6.7 million at December 31, ~~2020~~2021 and included fees from the origination of SBA PPP loans net of deferred origination costs. ~~The increase in deferred fees for SBA PPP loans was primarily due to the origination of $324.5 million in second round SBA PPP loans during the six months ended June 30, 2021.~~

The loan portfolio consists of 4 segments: real estate, commercial business, residential mortgage, and consumer and other loans. Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and are collateralized by residential or commercial properties. Commercial business loans are loans provided to businesses for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions, international trade finance activities, and other business related financing needs and also include warehouse lines of credit and SBA 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~~increased $593.3 million from December 31, ~~2020~~2021 to ~~$13.42~~$14.55 billion as of June 30, ~~2021.~~2022. The ~~decline~~increase in loans receivable during the six months ended June 30, ~~2021~~2022 was due ~~a $283.0~~to an increase in all loan types apart from consumer and other loans. Record loan originations in 2022 contributed to the growth of the Company’s loan portfolio as of June 30, 2022 compared to December 31, 2021.

The Company had $76.4 million ~~decline~~ in ~~warehouse lines~~loans held for sale as of ~~credit, $193.5~~June 30, 2022 compared to $99.0 million at December 31, 2021. Loans held for sale at June 30, 2022 consisted of $40.1 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$750 thousand in residential mortgage loans, ~~during the second quarter of 2021.~~and $35.5 million in loans with credit deterioration rated as substandard.

1819

The tables below ~~details~~detail the activity in the allowance for credit losses (“ACL”) by portfolio segment for the three and six months ended June 30, ~~2021~~2022 and ~~2020. Charge offs~~2021. Recoveries for the ~~three and~~ six months ended June 30, ~~2021~~2022 included ~~$11.8~~$17.3 million in ~~real estate loan charge offs~~recoveries from a single lending relationship that ~~resulted from the sale of $119.3~~had $29.6 million in ~~hotel/motel loans with elevated credit risk, there were no such sales for~~charge-offs in the three and six ended June 30, 2020. Accrued interest receivables on loans totaled $47.1 million at June 30, 2021 and $54.6 million at December 31, 2020. The Company set aside an allowance on loan accrued interest receivablesthird quarter of ~~$751 thousand at June 30, 2021 and $1.0 million at December 31, 2020.~~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)
Three Months Ended June 30, 2021
Three Months Ended June 30, 2022												Three Months Ended June 30, 2022
Balance, beginning of period	Balance, beginning of period	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943	Balance, beginning of period	$	106,545	$	35,676	$	4,262	$	967	$	147,450
Provision (credit) for credit losses	Provision (credit) for credit losses	4,227		(12,179)		877		75		(7,000)		Provision (credit) for credit losses	(7,229)		8,715		1,817		(103)		3,200
Loans charged off	Loans charged off	(12,172)		(572)		0		(48)		(12,792)		Loans charged off	(476)		(172)		—		(64)		(712)
Recoveries of charge offs	Recoveries of charge offs	891		391		0		19		1,301		Recoveries of charge offs	984		633		—		25		1,642
Balance, end of period	Balance, end of period	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452	Balance, end of period	$	99,824	$	44,852	$	6,079	$	825	$	151,580

Six Months Ended June 30, 2021
Six Months Ended June 30, 2022												Six Months Ended June 30, 2022
Balance, beginning of period	Balance, beginning of period	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741	Balance, beginning of period	$	108,440	$	27,811	$	3,316	$	983	$	140,550
Provision (credit) for credit losses	Provision (credit) for credit losses	6,572		(9,554)		(615)		(103)		(3,700)		Provision (credit) for credit losses	(25,542)		15,051		2,763		(72)		(7,800)
Loans charged off	Loans charged off	(14,990)		(1,182)		0		(141)		(16,313)		Loans charged off	(1,751)		(349)		—		(115)		(2,215)
Recoveries of charge offs	Recoveries of charge offs	1,475		1,081		0		168		2,724		Recoveries of charge offs	18,677		2,339		—		29		21,045
Balance, end of period	Balance, end of period	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452	Balance, end of period	$	99,824	$	44,852	$	6,079	$	825	$	151,580


		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, 2021												Three Months Ended June 30, 2021
Balance, beginning of period	Balance, beginning of period	$	94,645	$	42,883	$	5,779	$	1,616	$	144,923	Balance, beginning of period	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943

Provision (credit) for credit losses	Provision (credit) for credit losses	24,534		(7,151)		89		28		17,500		Provision (credit) for credit losses	4,227		(12,179)		877		75		(7,000)
Loans charged off	Loans charged off	(174)		(459)		0		(271)		(904)		Loans charged off	(12,172)		(572)		—		(48)		(12,792)
Recoveries of charge offs	Recoveries of charge offs	25		220		0		7		252		Recoveries of charge offs	891		391		—		19		1,301

Balance, end of period	Balance, end of period	$	119,030	$	35,493	$	5,868	$	1,380	$	161,771	Balance, end of period	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452

Six Months Ended June 30, 2020
Six Months Ended June 30, 2021												Six Months Ended June 30, 2021
Balance, beginning of period	Balance, beginning of period	$	53,593	$	33,032	$	5,925	$	1,594	$	94,144	Balance, beginning of period	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741
CECL day 1 adoption		27,791		(1,022)		(543)		(26)		26,200
Provision for credit losses		40,025		4,398		486		591		45,500
Provision (credit) for credit losses												Provision (credit) for credit losses	6,572		(9,554)		(615)		(103)		(3,700)
Loans charged off	Loans charged off	(2,571)		(3,494)		0		(796)		(6,861)		Loans charged off	(14,990)		(1,182)		—		(141)		(16,313)
Recoveries of charge offs	Recoveries of charge offs	192		2,579		0		17		2,788		Recoveries of charge offs	1,475		1,081		—		168		2,724

Balance, end of period	Balance, end of period	$	119,030	$	35,493	$	5,868	$	1,380	$	161,771	Balance, end of period	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452

1920

The following tables break out the allowance for credit losses and loan balance by measurement methodology at June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		June 30, 2021											June 30, 2022
		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	$	27,226	$	3,325	$	15	$	26	$	30,592	Individually evaluated	$	3,632	$	2,972	$	19	$	21	$	6,644
Collectively evaluated	Collectively evaluated	128,027		26,175		3,597		1,061		158,860		Collectively evaluated	96,192		41,880		6,060		804		144,936
Total	Total	$	155,253	$	29,500	$	3,612	$	1,087	$	189,452	Total	$	99,824	$	44,852	$	6,079	$	825	$	151,580

Loans outstanding:	Loans outstanding:											Loans outstanding:
Individually evaluated	Individually evaluated	$	138,368	$	20,978	$	3,053	$	236	$	162,635	Individually evaluated	$	69,734	$	18,444	$	6,992	$	429	$	95,599
Collectively evaluated	Collectively evaluated	8,693,908		3,980,445		540,569		46,744		13,261,666		Collectively evaluated	9,265,286		4,377,294		766,408		41,462		14,450,450
Total	Total	$	8,832,276	$	4,001,423	$	543,622	$	46,980	$	13,424,301	Total	$	9,335,020	$	4,395,738	$	773,400	$	41,891	$	14,546,049


		December 31, 2020								December 31, 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	$	3,683	$	3,575	$	25	$	42		$	7,325	Individually evaluated	$	2,025	$	3,056	$	11	$	23	$	5,115
Collectively evaluated	Collectively evaluated	158,513		35,580		4,202		1,121			199,416		Collectively evaluated	106,415		24,755		3,305		960		135,435
Total	Total	$	162,196	$	39,155	$	4,227	$	1,163		$	206,741	Total	$	108,440	$	27,811	$	3,316	$	983	$	140,550

Loans outstanding:	Loans outstanding:												Loans outstanding:
Individually evaluated	Individually evaluated	$	93,476	$	25,706	$	3,416	$	605		$	123,203	Individually evaluated	$	83,347	$	19,407	$	3,470	$	409	$	106,633
Collectively evaluated	Collectively evaluated	8,678,658		4,132,081		578,816		50,455			13,440,010		Collectively evaluated	9,022,584		4,189,267		576,156		58,103		13,846,110
Total	Total	$	8,772,134	$	4,157,787	$	582,232	$	51,060		$	13,563,213	Total	$	9,105,931	$	4,208,674	$	579,626	$	58,512	$	13,952,743

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, reserves for unfunded loan commitments recorded in other liabilities were ~~$1.4~~$1.5 million and ~~$1.3~~$1.1 million, respectively. For the three and six months ended June 30, 2022, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling $180 thousand and $380 thousand, respectively. For the three and six months ended June 30, 2021, the Company recorded additions to reserves for unfunded commitments ~~recorded in credit related expenses~~ totaling $0 and $105 thousand, respectively. For the three and six months ended June 30, 2020, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling to $50 thousand and $660 thousand, respectively.

2021

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~~amortized cost 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 June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		June 30, 2021									June 30, 2022
		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	$	—	$	—	$	—	$	—
Real estate – commercial	Real estate – commercial									Real estate – commercial
Retail	Retail	10,463		34,100		44,563		0		Retail	20,437		3,303		23,740		—
Hotel & motel	Hotel & motel	13,654		5,428		19,082		3,776		Hotel & motel	3,236		6,502		9,738		10,360
Gas station & car wash	Gas station & car wash	575		1,303		1,878		0		Gas station & car wash	2,237		3,727		5,964		—
Mixed use	Mixed use	9,754		1,610		11,364		0		Mixed use	5,307		4,174		9,481		—
Industrial & warehouse	Industrial & warehouse	2,105		2,332		4,437		0		Industrial & warehouse	147		1,577		1,724		1,615
Other	Other	1,791		5,083		6,874		0		Other	1,455		1,864		3,319		—
Real estate – construction	Real estate – construction	7,424		0		7,424		0		Real estate – construction	—		—		—		—
Commercial business	Commercial business	5,035		7,182		12,217		26		Commercial business	2,946		5,260		8,206		419
Residential mortgage	Residential mortgage	1,440		1,612		3,052		872		Residential mortgage	4,139		2,853		6,992		—
Consumer and other	Consumer and other	0		117		117		85		Consumer and other	—		358		358		74
Total	Total	$	52,241	$	58,767	$	111,008	$	4,759	Total	$	39,904	$	29,618	$	69,522	$	12,468


		December 31, 2020									December 31, 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	$	—	$	—	$	—	$	—
Real estate – commercial	Real estate – commercial									Real estate – commercial
Retail	Retail	3,262		8,530		11,792		478		Retail	7,586		2,604		10,190		—
Hotel & motel	Hotel & motel	15,311		2,195		17,506		0		Hotel & motel	5,471		6,564		12,035		—
Gas station & car wash	Gas station & car wash	151		1,493		1,644		0		Gas station & car wash	575		1,267		1,842		—
Mixed use	Mixed use	1,883		788		2,671		0		Mixed use	5,307		1,412		6,719		—
Industrial & warehouse	Industrial & warehouse	5,443		1,022		6,465		0		Industrial & warehouse	687		1,897		2,584		—
Other	Other	7,230		1,419		8,649		0		Other	1,233		5,153		6,386		215
Real estate – construction	Real estate – construction	0		18,723		18,723		0		Real estate – construction	—		—		—		—
Commercial business	Commercial business	5,319		8,592		13,911		0		Commercial business	4,726		6,299		11,025		1,494
Residential mortgage	Residential mortgage	1,440		1,976		3,416		0		Residential mortgage	275		3,195		3,470		—
Consumer and other	Consumer and other	0		461		461		136		Consumer and other	—		365		365		422
Total	Total	$	40,039	$	45,199	$	85,238	$	614	Total	$	25,860	$	28,756	$	54,616	$	2,131

(1) Total nonaccrual loans exclude the guaranteed portion of SBA loans that are in liquidation totaling ~~$23.6~~$13.2 million and ~~$26.5~~$19.5 million, at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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

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

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

Interest income reversals due to loans being placed on nonaccrual status was $750 thousand and $319 thousand for the three months ended 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.

The following table presents the ~~recorded investment~~amortized cost of collateral dependent loans as of June 30, 2022 and December 31, 2021:


	June 30, 2022						December 31, 2021
	Real Estate Collateral		Other Collateral		Total		Real Estate Collateral		Other Collateral		Total
	(Dollars in thousands)
Real estate – residential	$	—	$	—	$	—	$	—	$	—	$	—
Real estate – commercial	50,400		—		50,400		65,590		—		65,590
Real estate – construction	—		—		—		—		—		—
Commercial business	2,945		3,232		6,177		1,767		6,615		8,382
Residential mortgage	4,139		—		4,139		—		—		—
Consumer and other	—		—		—		—		—		—
Total	$	57,484	$	3,232	$	60,716	$	67,357	$	6,615	$	73,972

Collateral on loans is a significant portion of what secures collateral dependent loans and significant changes to the fair value of the collateral can potentially impact ACL. During the six months ended June 30, 2022, the Company did not have any significant changes to the extent to which collateral secures its collateral dependent loans due to general deterioration or from other factors.

Accrued interest receivables on loans totaled $32.0 million at June 30, 2022 and $36.2 million at December 31, 2021. With the adoption of CECL, the Company elected not to consider accrued interest receivable in its estimates of expected credit losses because the Company writes off uncollectible accrued interest receivable in a timely manner. The Company considers writing off accrued interest amounts once the amounts become 90 days past due to be considered within a timely manner. The Company has elected to write off accrued interest receivables by reversing interest income. The following table presents interest income reversals, due to loans being placed on nonaccrual status, by loan segment for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Real estate	$	1,097	$	731	$	1,252	$	1,687
Commercial business	7		18		26		37
Residential mortgage	—		1		139		—
Consumer and other	—		—		—		—
Total	$	1,104	$	750	$	1,417	$	1,724

The following table presents the amortized cost of past due loans, including nonaccrual loans past due 30 or more days, by the number of days past due as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 by class of loans:


		As of June 30, 2021								As of December 31, 2020									June 30, 2022								December 31, 2021
		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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate – commercial	Real estate – commercial																	Real estate – commercial
Retail	Retail	788		8,148		10,852		19,788		852		8,141		10,276		19,269		Retail	1,771		154		4,470		6,395		1,250		927		9,167		11,344
Hotel & motel	Hotel & motel	2,487		2,808		16,373		21,668		62		1,401		14,744		16,207		Hotel & motel	4,346		—		11,198		15,544		9,320		4,148		4,760		18,228
Gas station & car wash	Gas station & car wash	292		411		443		1,146		619		2,668		563		3,850		Gas station & car wash	179		1,802		1,317		3,298		575		—		832		1,407
Mixed use	Mixed use	2,547		13,921		295		16,763		116		0		1,269		1,385		Mixed use	848		2,204		6,878		9,930		1,124		—		5,625		6,749
Industrial & warehouse	Industrial & warehouse	8,211		154		2,611		10,976		137		0		3,830		3,967		Industrial & warehouse	86		244		2,585		2,915		247		—		785		1,032
Other	Other	2,149		42		2,913		5,104		2,738		545		3,000		6,283		Other	5,082		—		385		5,467		1,198		6,522		3,185		10,905
Real estate – construction	Real estate – construction	0		0		7,424		7,424		8,122		0		0		8,122		Real estate – construction	—		—		—		—		—		—		—		—
Commercial business	Commercial business	431		4,209		5,545		10,185		816		3,683		4,700		9,199		Commercial business	1,247		2,960		3,727		7,934		1,792		2,362		6,482		10,636
Residential mortgage	Residential mortgage	6,359		540		2,702		9,601		4,841		0		2,263		7,104		Residential mortgage	1,923		2,252		4,634		8,809		14,177		—		3,099		17,276
Consumer and other	Consumer and other	45		24		202		271		797		21		595		1,413		Consumer and other	50		1,147		188		1,385		59		21		787		867
Total Past Due	Total Past Due	$	23,309	$	30,257	$	49,360	$	102,926	$	19,100	$	16,459	$	41,240	$	76,799	Total Past Due	$	15,532	$	10,763	$	35,382	$	61,677	$	29,742	$	13,980	$	34,722	$	78,444

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.

2324

The following table presents the amortized cost basis of loans receivable by class, credit quality indicator, and year of origination as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		As of June 30, 2021																	June 30, 2022
		Term Loan by Origination Year												Revolving Loans		Total			Term Loan by Origination Year												Revolving Loans		Total
		2021		2020		2019		2018		2017		Prior							2022		2021		2020		2019		2018		Prior
		(Dollars in thousands)																	(Dollars in thousands)
Real Estate - Residential	Real Estate - Residential																	Real Estate - Residential
Pass / not rated	Pass / not rated	$	12,995	$	14,311	$	13,556	$	5,547	$	3,831	$	10,098	$	658	$	60,996	Pass / not rated	$	11,960	$	25,573	$	9,800	$	9,147	$	4,424	$	8,118	$	4,753	$	73,775
Special mention	Special mention	0		0		0		0		0		0		228		228		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	0		0		0		136		0		0		0		136		Substandard	—		—		—		—		664		564		—		1,228
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	12,995	$	14,311	$	13,556	$	5,683	$	3,831	$	10,098	$	886	$	61,360	Subtotal	$	11,960	$	25,573	$	9,800	$	9,147	$	5,088	$	8,682	$	4,753	$	75,003
Real Estate - Commercial	Real Estate - Commercial																	Real Estate - Commercial
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	Pass / not rated	$	1,492,355	$	2,241,234	$	1,363,342	$	1,097,348	$	1,097,197	$	1,436,692	$	82,756	$	8,810,924
Special mention	Special mention	4,223		5,706		48,552		29,215		40,713		71,144		11,978		211,531		Special mention	—		11,734		1,118		15,191		4,100		20,944		4,365		57,452
Substandard	Substandard	6,508		552		17,395		26,725		52,497		220,280		2,697		326,654		Substandard	1,023		8,614		3,213		25,487		21,807		112,641		278		173,063
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	1,083,776	$	1,491,807	$	1,406,108	$	1,431,016	$	1,148,240	$	1,835,777	$	121,391	$	8,518,115	Subtotal	$	1,493,378	$	2,261,582	$	1,367,673	$	1,138,026	$	1,123,104	$	1,570,277	$	87,399	$	9,041,439
Real Estate - Construction	Real Estate - Construction																	Real Estate - Construction
Pass / not rated	Pass / not rated	$	841	$	47,025	$	44,574	$	39,298	$	27,652	$	21,200	$	8,457	$	189,047	Pass / not rated	$	429	$	31,697	$	78,521	$	33,448	$	7,909	$	4,601	$	89	$	156,694
Special mention	Special mention	0		0		0		45,989		4,428		5,913		0		56,330		Special mention	—		—		—		—		—		15,884		—		15,884
Substandard	Substandard	0		0		0		0		0		7,424		0		7,424		Substandard	—		—		—		—		46,000		—		—		46,000
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	841	$	47,025	$	44,574	$	85,287	$	32,080	$	34,537	$	8,457	$	252,801	Subtotal	$	429	$	31,697	$	78,521	$	33,448	$	53,909	$	20,485	$	89	$	218,578
Commercial Business	Commercial Business																	Commercial Business
Pass / not rated	Pass / not rated	$	889,734	$	866,932	$	516,793	$	147,361	$	112,324	$	100,388	$	1,297,976	$	3,931,508	Pass / not rated	$	1,121,613	$	1,308,227	$	339,258	$	403,541	$	75,312	$	99,543	$	1,008,691	$	4,356,185
Special mention	Special mention	1,191		415		3,943		13,581		212		5,466		1,662		26,470		Special mention	—		2		252		4,596		3,472		3,969		10,170		22,461
Substandard	Substandard	1,457		8,552		1,856		2,114		12,840		7,860		8,766		43,445		Substandard	181		3,214		489		1,861		1,646		5,333		4,368		17,092
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	892,382	$	875,899	$	522,592	$	163,056	$	125,376	$	113,714	$	1,308,404	$	4,001,423	Subtotal	$	1,121,794	$	1,311,443	$	339,999	$	409,998	$	80,430	$	108,845	$	1,023,229	$	4,395,738
Residential Mortgage	Residential Mortgage																	Residential Mortgage
Pass / not rated	Pass / not rated	$	116,677	$	4,764	$	56,940	$	166,777	$	123,595	$	71,816	$	0	$	540,569	Pass / not rated	$	278,148	$	298,211	$	1,403	$	34,526	$	68,722	$	85,398	$	—	$	766,408
Special mention	Special mention	0		0		0		0		0		0		0		0		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	0		0		128		200		541		2,184		0		3,053		Substandard	—		—		—		128		388		6,476		—		6,992
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	116,677	$	4,764	$	57,068	$	166,977	$	124,136	$	74,000	$	0	$	543,622	Subtotal	$	278,148	$	298,211	$	1,403	$	34,654	$	69,110	$	91,874	$	—	$	773,400
Consumer and Other	Consumer and Other																	Consumer and Other
Pass / not rated	Pass / not rated	$	2,784	$	5,994	$	2,243	$	1,937	$	2,114	$	7,611	$	24,054	$	46,737	Pass / not rated	$	1,295	$	1,630	$	4,047	$	1,504	$	1,408	$	7,331	$	24,303	$	41,518
Special mention	Special mention	0		0		0		0		0		0		0		0		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	0		0		0		0		0		243		0		243		Substandard	—		—		—		—		—		373		—		373
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	2,784	$	5,994	$	2,243	$	1,937	$	2,114	$	7,854	$	24,054	$	46,980	Subtotal	$	1,295	$	1,630	$	4,047	$	1,504	$	1,408	$	7,704	$	24,303	$	41,891
Total Loans	Total Loans																	Total Loans
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	Pass / not rated	$	2,905,800	$	3,906,572	$	1,796,371	$	1,579,514	$	1,254,972	$	1,641,683	$	1,120,592	$	14,205,504
Special mention	Special mention	5,414		6,121		52,495		88,785		45,353		82,523		13,868		294,559		Special mention	—		11,736		1,370		19,787		7,572		40,797		14,535		95,797
Substandard	Substandard	7,965		9,104		19,379		29,175		65,878		237,991		11,463		380,955		Substandard	1,204		11,828		3,702		27,476		70,505		125,387		4,646		244,748
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Total	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	Total	$	2,907,004	$	3,930,136	$	1,801,443	$	1,626,777	$	1,333,049	$	1,807,867	$	1,139,773	$	14,546,049

2425


		December 31, 2020																	December 31, 2021
		Term Loan by Origination Year												Revolving Loans		Total			Term Loan by Origination Year												Revolving Loans		Total
		2020		2019		2018		2017		2016		Prior							2021		2020		2019		2018		2017		Prior
		(Dollars in thousands)																	(Dollars in thousands)
Real Estate - Residential	Real Estate - Residential																	Real Estate - Residential
Pass / not rated	Pass / not rated	$	15,158	$	13,924	$	7,587	$	4,316	$	6,800	$	3,460	$	3,104	$	54,349	Pass / not rated	$	26,093	$	10,471	$	11,442	$	4,952	$	2,987	$	7,260	$	4,403	$	67,608
Special mention	Special mention	0		0		0		0		0		0		227		227		Special mention	—		—		—		534		—		924		—		1,458
Substandard	Substandard	0		0		139		0		0		80		0		219		Substandard	—		—		—		133		—		—		—		133
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	15,158	$	13,924	$	7,726	$	4,316	$	6,800	$	3,540	$	3,331	$	54,795	Subtotal	$	26,093	$	10,471	$	11,442	$	5,619	$	2,987	$	8,184	$	4,403	$	69,199
Real Estate - Commercial	Real Estate - Commercial																	Real Estate - Commercial
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	Pass / not rated	$	2,451,662	$	1,415,909	$	1,252,851	$	1,238,425	$	883,790	$	1,086,182	$	89,501	$	8,418,320
Special mention	Special mention	0		2,805		24,569		10,694		8,031		32,048		1,600		79,747		Special mention	5,553		8,882		39,567		20,203		27,204		73,090		5,970		180,469
Substandard	Substandard	126		14,233		28,938		37,174		50,371		173,788		3,194		307,824		Substandard	7,436		7,718		17,533		25,330		53,000		105,995		279		217,291
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
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	$	2,464,651	$	1,432,509	$	1,309,951	$	1,283,958	$	963,994	$	1,265,267	$	95,750	$	8,816,080
Real Estate - Construction	Real Estate - Construction																	Real Estate - Construction
Pass / not rated	Pass / not rated	$	35,743	$	45,290	$	103,794	$	60,996	$	5,740	$	10,099	$	0	$	261,662	Pass / not rated	$	16,545	$	67,628	$	32,044	$	32,908	$	8,292	$	5,685	$	89	$	163,191
Special mention	Special mention	0		0		0		0		5,771		5,224		0		10,995		Special mention	—		—		—		45,996		5,074		6,391		—		57,461
Substandard	Substandard	0		0		0		10,601		0		8,122		0		18,723		Substandard	—		—		—		—		—		—		—		—
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	35,743	$	45,290	$	103,794	$	71,597	$	11,511	$	23,445	$	0	$	291,380	Subtotal	$	16,545	$	67,628	$	32,044	$	78,904	$	13,366	$	12,076	$	89	$	220,652
Commercial Business	Commercial Business																	Commercial Business
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	Pass / not rated	$	1,755,104	$	431,145	$	461,460	$	98,812	$	53,629	$	70,294	$	1,299,372	$	4,169,816
Special mention	Special mention	5,996		27,693		30,852		14,629		6,388		3,139		5,172		93,869		Special mention	1,379		523		4,780		2,897		550		5,083		2,594		17,806
Substandard	Substandard	2,430		1,323		5,539		4,394		6,158		5,463		10,323		35,630		Substandard	3,796		941		2,308		1,651		3,803		3,461		5,092		21,052
Doubtful / loss	Doubtful / loss	0		0		1		0		0		0		0		1		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	1,302,794	$	613,469	$	260,839	$	136,731	$	89,755	$	52,276	$	1,701,923	$	4,157,787	Subtotal	$	1,760,279	$	432,609	$	468,548	$	103,360	$	57,982	$	78,838	$	1,307,058	$	4,208,674
Residential Mortgage	Residential Mortgage																	Residential Mortgage
Pass / not rated	Pass / not rated	$	5,733	$	90,958	$	217,343	$	168,827	$	55,246	$	40,554	$	0	$	578,661	Pass / not rated	$	282,191	$	1,420	$	40,377	$	112,743	$	85,446	$	53,979	$	—	$	576,156
Special mention	Special mention	0		0		0		0		0		0		0		0		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	0		122		536		561		1,715		637		0		3,571		Substandard	275		—		128		394		541		2,132		—		3,470
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	5,733	$	91,080	$	217,879	$	169,388	$	56,961	$	41,191	$	0	$	582,232	Subtotal	$	282,466	$	1,420	$	40,505	$	113,137	$	85,987	$	56,111	$	—	$	579,626
Consumer and Other	Consumer and Other																	Consumer and Other
Pass / not rated	Pass / not rated	$	8,309	$	2,463	$	1,818	$	2,321	$	4,756	$	2,811	$	27,890	$	50,368	Pass / not rated	$	19,203	$	5,347	$	1,783	$	1,699	$	1,769	$	6,165	$	22,095	$	58,061
Special mention	Special mention	0		0		0		103		0		0		0		103		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	0		0		0		0		55		532		2		589		Substandard	—		—		—		—		—		451		—		451
Doubtful / loss	Doubtful / loss	0		0		0		0		0		0		0		0		Doubtful / loss	—		—		—		—		—		—		—		—
Subtotal	Subtotal	$	8,309	$	2,463	$	1,818	$	2,424	$	4,811	$	3,343	$	27,892	$	51,060	Subtotal	$	19,203	$	5,347	$	1,783	$	1,699	$	1,769	$	6,616	$	22,095	$	58,512
Total Loans	Total Loans																	Total Loans
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	Pass / not rated	$	4,550,798	$	1,931,920	$	1,799,957	$	1,489,539	$	1,035,913	$	1,229,565	$	1,415,460	$	13,453,152
Special mention	Special mention	5,996		30,498		55,421		25,426		20,190		40,411		6,999		184,941		Special mention	6,932		9,405		44,347		69,630		32,828		85,488		8,564		257,194
Substandard	Substandard	2,556		15,678		35,152		52,730		58,299		188,622		13,519		366,556		Substandard	11,507		8,659		19,969		27,508		57,344		112,039		5,371		242,397
Doubtful / loss	Doubtful / loss	0		0		1		0		0		0		0		1		Doubtful / loss	—		—		—		—		—		—		—		—
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	$	4,569,237	$	1,949,984	$	1,864,273	$	1,586,677	$	1,126,085	$	1,427,092	$	1,429,395	$	13,952,743

2526

For the three and six months ended June 30, ~~2021~~2022 and the twelve months ended December 31, ~~2020,~~2021, there were 0no 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 June 30, ~~2021~~2022 and ~~2020~~2021 is presented in the following table:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
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	Real estate - commercial	$	57,835	$	171,175	$	155,486	$	171,175

Commercial business	Commercial business	9,660		—		9,660		—		Commercial business	9,867		9,660		16,769		9,660
Residential mortgage		0		0		0		1,002

Total	Total	$	180,835	$	0	$	180,835	$	1,002	Total	$	67,702	$	180,835	$	172,255	$	180,835

~~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 differentiates its loan segments based on shared risk characteristics for which allowance for credit losses is measured on a collective basis.


			Risk Characteristics
Real estate			Property type, location, owner occupied status
Commercial business			Delinquency status, risk rating, industry type
Residential mortgage			FICO score, LTV, delinquency status, maturity date, collateral value, location
Consumer and other			Historical losses

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. Included in the quantitative portion of the analysis of the allowance for credit losses are key inputs including borrowers’ net operating income, debt coverage ratios, real estate collateral values, as well as key inputs that are more subjective or require management’s judgement including key macroeconomic variables from Moody’s forecast scenarios including GDP, unemployment rates, interest rates, and commercial real estate prices. These key inputs are utilized in the Company’s models to develop PD and LGD assumptions used in the calculation of estimated quantitative losses.

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%2% of the Company’s total loan portfolio as of June 30, ~~2021.~~2022.

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 June 30, ~~2021,~~2022, the Company ~~chose a~~utilized the S2 economic forecast scenario ~~that incorporates~~from Moody’s as it better aligned with management’s expectations of future forecasts due to recent increasing recessionary concerns while the ~~effect~~Company utilized Moody’s Consensus economic forecast for the calculation of the ~~COVID-19 pandemic~~December 31, 2021 ACL. The S2 economic forecast projects that the economy will fall into a mild recession during the second half of 2022 with unemployment rising to the peak of 6.5% in the middle of 2023 with supply chain issues and the expected economic recovery into estimates of future economic conditions. The forecast improved considerably compared to forecasts used during the first quarter of 2021 with an increase in projected GDP growthconflict between Russia and a large increase in projected commercial real estate prices combined with a reduction in unemployment, particularly for periods in 2021 and 2022. The forecast improvement reflect the current and projected effects of government stimulus packages, ongoing COVID-19 vaccinations, and the reopening of many businesses throughout the United States.Ukraine worsening.

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,~~$1.0 million, 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~~$1.0 million 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 aan estimated funding rate to allocate ~~the~~an 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.

2728

The following tables present a breakdown of loans by recorded ACL, broken out by loans evaluated individually and collectively at June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		As of June 30, 2021																						June 30, 2022
		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		$	130,944		$	7,424		$	20,978		$	3,053		$	236		$	162,635		Individually evaluated loans	$	—		$	69,734		$	—		$	18,444		$	6,992		$	429		$	95,599
ACL on individually evaluated loans	ACL on individually evaluated loans	$	0		$	27,226		$	0		$	3,325		$	15		$	26		$	30,592		ACL on individually evaluated loans	$	—		$	3,632		$	—		$	2,972		$	19		$	21		$	6,644
Individually evaluated loans ACL coverage	Individually evaluated loans ACL coverage	N/A			20.79		%	N/A			15.85		%	0.49		%	11.02		%	18.81		%	Individually evaluated loans ACL coverage	N/A			5.21		%	N/A			16.11		%	0.27		%	4.90		%	6.95		%
Collectively evaluated loans	Collectively evaluated loans	$	61,360		$	8,387,171		$	245,377		$	3,980,445		$	540,569		$	46,744		$	13,261,666		Collectively evaluated loans	$	75,003		$	8,971,705		$	218,578		$	4,377,294		$	766,408		$	41,462		$	14,450,450
ACL on collectively evaluated loans	ACL on collectively evaluated loans	$	330		$	126,040		$	1,657		$	26,175		$	3,597		$	1,061		$	158,860		ACL on collectively evaluated loans	$	756		$	93,921		$	1,515		$	41,880		$	6,060		$	804		$	144,936
Collectively evaluated loans ACL coverage	Collectively evaluated loans ACL coverage	0.54		%	1.50		%	0.68		%	0.66		%	0.67		%	2.27		%	1.20		%	Collectively evaluated loans ACL coverage	1.01		%	1.05		%	0.69		%	0.96		%	0.79		%	1.94		%	1.00		%
Total loans	Total loans	$	61,360		$	8,518,115		$	252,801		$	4,001,423		$	543,622		$	46,980		$	13,424,301		Total loans	$	75,003		$	9,041,439		$	218,578		$	4,395,738		$	773,400		$	41,891		$	14,546,049
Total ACL	Total ACL	$	330		$	153,266		$	1,657		$	29,500		$	3,612		$	1,087		$	189,452		Total ACL	$	756		$	97,553		$	1,515		$	44,852		$	6,079		$	825		$	151,580
Total ACL to total loans	Total ACL to total loans	0.54		%	1.80		%	0.66		%	0.74		%	0.66		%	2.31		%	1.41		%	Total ACL to total loans	1.01		%	1.08		%	0.69		%	1.02		%	0.79		%	1.97		%	1.04		%

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 %


	December 31, 2021
	Real Estate – Residential			Real Estate – Commercial			Real Estate – Construction			Commercial Business			Residential Mortgage			Consumer and Other			Total
	(Dollars in thousands)
Individually evaluated loans	$	—		$	83,347		$	—		$	19,407		$	3,470		$	409		$	106,633
ACL on individually evaluated loans	$	—		$	2,025		$	—		$	3,056		$	11		$	23		$	5,115
Individually evaluated loans ACL coverage	N/A			2.43		%	N/A			15.75		%	0.32		%	5.62		%	4.80		%
Collectively evaluated loans	$	69,199		$	8,732,733		$	220,652		$	4,189,267		$	576,156		$	58,103		$	13,846,110
ACL on collectively evaluated loans	$	729		$	104,145		$	1,541		$	24,755		$	3,305		$	960		$	135,435
Collectively evaluated loans ACL coverage	1.05		%	1.19		%	0.70		%	0.59		%	0.57		%	1.65		%	0.98		%
Total loans	$	69,199		$	8,816,080		$	220,652		$	4,208,674		$	579,626		$	58,512		$	13,952,743
Total ACL	$	729		$	106,170		$	1,541		$	27,811		$	3,316		$	983		$	140,550
Total ACL to total loans	1.05		%	1.20		%	0.70		%	0.66		%	0.57		%	1.68		%	1.01		%

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 June 30, ~~2021, total~~2022, TDR loans ~~were $88.5~~totaled $57.5 million, compared to ~~$51.6~~$65.5 million at December 31, ~~2020.~~2021.

The balance of loans with modified terms due to COVID-19 as of June 30, ~~2021~~2022 totaled ~~$318.7 million.~~$808 thousand compared to $22.8 million at December 31, 2021. 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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 June 30, ~~2021,~~2022, there was only 1 remaining commercial real estate ~~loans accounted for approximately 85% of the loans~~loan 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~~amortized cost of TDR loans on accrual and nonaccrual status by type of concession as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is presented below:


		As of June 30, 2021																	June 30, 2022
		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	$	17,305	$	808	$	0	$	58	$	8,357	$	523	$	0	$	0			$	27,051		Payment concession	$	5,428		$	721		$	—		$	15		$	25,019		$	312		$	—		$	—					$	31,495
Maturity / amortization concession	Maturity / amortization concession	19,996		7,380		0		133		22,889		3,404		0		117				53,919			Maturity / amortization concession	5,508			9,342			—			233			1,235			2,720			—			114				19,152
Rate concession	Rate concession	5,303		377		0		0		398		1,422		0		0				7,500			Rate concession	5,116			209			—			—			167			1,405			—			—				6,897

Total	Total	$	42,604	$	8,565	$	0	$	191	$	31,644	$	5,349	$	0	$	117			$	88,470		Total	$	16,052		$	10,272		$	—		$	248		$	26,421		$	4,437		$	—		$	114			$	57,544


		As of December 31, 2020																			December 31, 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
		(Dollars in thousands)																			(Dollars in thousands)
Payment concession	Payment concession	$	8,328	$	814	$	0	$	58	$	7,074	$	471	$	0	$	0	$	16,745	Payment concession	$	23,196	$	790	$	—	$	16	$	7,533	$	420	$	—	$	—	$	31,955
Maturity / amortization concession	Maturity / amortization concession	11,331		10,219		0		114		925		3,814		0		117		26,520		Maturity / amortization concession	15,449		7,284		—		183		269		3,109		—		117		26,411
Rate concession	Rate concession	6,112		378		0		0		424		1,430		0		0		8,344		Rate concession	5,161		339		—		—		234		1,413		—		—		7,147

Total	Total	$	25,771	$	11,411	$	0	$	172	$	8,423	$	5,715	$	0	$	117	$	51,609	Total	$	43,806	$	8,413	$	—	$	199	$	8,036	$	4,942	$	—	$	117	$	65,513

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 June 30, ~~2021~~2022 were comprised of 3725 commercial real estate loans totaling ~~$42.6~~$16.1 million, 2215 commercial business loans totaling ~~$8.6~~$10.3 million, and 159 consumer and other loans totaling ~~$191~~$248 thousand. TDR loans on accrual status at December 31, ~~2020~~2021 were comprised of 3331 commercial real estate loans totaling ~~$25.8~~$43.8 million, 2519 commercial business loans totaling ~~$11.4~~$8.4 million, and 1610 consumer and other loans totaling ~~$172~~$199 thousand. The Company expects that TDR loans on accrual status as of June 30, ~~2021,~~2022, 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 ~~$26.8~~$3.1 million and ~~$4.8~~$2.7 million for TDR loans as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The following tables present the ~~recorded investment~~amortized cost of loans classified as TDR during the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 by class of loans:


		Three Months Ended June 30, 2021	Three Months Ended June 30, 2020			Three Months Ended June 30, 2022				Three Months Ended June 30, 2021
		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	1		$	216	Real estate – residential	—	$	—	—	$	—
Real estate – commercial	Real estate – commercial								Real estate – commercial
Retail	Retail	4	6,527		0		0		Retail	—	—		4	6,527
Hotel & motel	Hotel & motel	0	0		0		0		Hotel & motel	—	—		—	—
Gas station & car wash	Gas station & car wash	0	0		1		479		Gas station & car wash	—	—		—	—
Mixed use	Mixed use	1	4,624		1		464		Mixed use	—	—		1	4,624
Industrial & warehouse	Industrial & warehouse	0	0		0		0		Industrial & warehouse	—	—		—	—
Other	Other	0	0		0		0		Other	1	591		—	—
Real estate – construction	Real estate – construction	0	0		0		0		Real estate – construction	—	—		—	—
Commercial business	Commercial business	2	312		2		234		Commercial business	1	2,875		2	312
Residential mortgage	Residential mortgage	0	0		0		0		Residential mortgage	—	—		—	—
Consumer and other	Consumer and other	1	12		3		14		Consumer and other	—	—		1	12
Total	Total	8	$	11,475	8		$	1,407	Total	2	$	3,466	8	$	11,475

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


	Six Months Ended June 30, 2022	Six Months Ended June 30, 2021
	Number of Loans	Balance		Number of Loans	Balance
	(Dollars in thousands)
Real estate – residential	—	$	—	—	$	—
Real estate – commercial
Retail	—	—		7	30,236
Hotel & motel	1	2,032		—	—
Gas station & car wash	—	—		1	575
Mixed use	—	—		1	4,624
Industrial & warehouse	—	—		2	9,149
Other	1	591		—	—
Real estate – construction	—	—		—	—
Commercial business	1	2,875		3	331
Residential mortgage	—	—		—	—
Consumer and other	—	—		5	54
Total	3	$	5,498	19	$	44,969

For the TDRs modified during the three and six months ended June 30, 2022, the Company recorded $57 thousand in ACL. Total charge-offs of TDR loans modified during the three and six months ended June 30, 2022 totaled $0. For TDR loans modified during the three and six months ended June 30, 2021, the Company recorded $59 thousand and $23.7 million ~~respectively~~ in ~~ACL.~~ACL, respectively. Total charge-offs of TDR loans modified during the three and six months ended June 30, 2021 totaled $0. ~~For~~

There were 2 new TDR loans modified with a maturity concession totaling $3.5 million during the three months ended June 30, 2022. There was 1 new TDR loan modified with a payment concession totaling $2.0 million and 2 new TDR loans modified with maturity concessions totaling $3.5 million during the six months ended June 30, ~~2020,~~2022.

For the ~~Company recorded $57~~three months ended June 30, 2021, there was 1 TDR loan modified with a payment concession totaling $12 thousand and ~~$219 thousand, respectively in ACL. Total charge-offs of~~7 TDR loans modified ~~during~~through maturity concessions totaling $11.5 million. For the ~~three and~~ six months ended June 30, ~~2020 totaled $0.~~2021, there were 9 TDR loans modified with payment concessions totaling $9.8 million and 10 TDR loans modified through maturity concessions totaling $35.2 million.

The following tables present the amortized cost balance of loans modified as TDRs within the previous twelve months ended June 30, ~~2021~~2022 and ~~2020~~2021 that subsequently had payment defaults during the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended June 30, 2021			Three Months Ended June 30, 2020				Three Months Ended June 30, 2022			Three Months Ended June 30, 2021
		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	—	$	—	—	$	—
Real estate – commercial	Real estate – commercial							Real estate – commercial
Retail	Retail	1	22,589		0	0		Retail	1	1,030		1	22,589
Hotel & motel	Hotel & motel	0	0		1	543		Hotel & motel	—	—		—	—
Gas station & car wash	Gas station & car wash	0	0		0	0		Gas station & car wash	—	—		—	—
Mixed Use	Mixed Use	0	0		0	0		Mixed Use	—	—		—	—
Industrial & warehouse	Industrial & warehouse	2	9,149		0	0		Industrial & warehouse	—	—		2	9,149
Other	Other	0	0		1	133		Other	—	—		—	—
Real estate – construction	Real estate – construction	0	0		0	0		Real estate – construction	—	—		—	—
Commercial business	Commercial business	0	0		1	18		Commercial business	—	—		—	—
Residential mortgage	Residential mortgage	0	0		0	0		Residential mortgage	—	—		—	—
Consumer and other	Consumer and other	2	16		0	0		Consumer and other	—	—		2	16
Total	Total	5	$	31,754	3	$	694	Total	1	$	1,030	5	$	31,754

		Six Months Ended June 30, 2021			Six Months Ended June 30, 2020				Six Months Ended June 30, 2022			Six Months Ended June 30, 2021
		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	1	$	216	Real estate – residential	—	$	—	—	$	—
Real estate – commercial	Real estate – commercial							Real estate – commercial
Retail	Retail	2	23,551		1	676		Retail	2	2,687		2	23,551
Hotel & motel	Hotel & motel	0	0		1	543		Hotel & motel	—	—		—	—
Gas station & car wash	Gas station & car wash	0	0		1	478		Gas station & car wash	—	—		—	—
Mixed Use	Mixed Use	0	0		1	464		Mixed Use	—	—		—	—
Industrial & warehouse	Industrial & warehouse	2	9,149		1	261		Industrial & warehouse	—	—		2	9,149
Other	Other	0	0		1	133		Other	—	—		—	—
Real estate – construction	Real estate – construction	0	0		0	0		Real estate – construction	—	—		—	—
Commercial business	Commercial business	1	131		2	32		Commercial business	—	—		1	131
Residential mortgage	Residential mortgage	0	0		0	0		Residential mortgage	—	—		—	—
Consumer and other	Consumer and other	4	42		1	6		Consumer and other	—	—		4	42
Total	Total	9	$	32,873	10	$	2,809	Total	2	$	2,687	9	$	32,873

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The Company recorded $0 in ACL for TDR loans that had payment defaults during the three and six months ended June 30, 2022. Total charge offs for TDR loans that had payment defaults during the three and six months ended June 30, 2022 was $0.

The Company recorded $23.6 million in ACL for TDR loans that had payment defaults during the three and six months ended June 30, 2021. Total charge offs for TDR loans that had payment defaults during the three and six months ended June 30, 2021 ~~was~~totaled $0.

~~The Company recorded $86 thousand and $143 thousand of allowance for~~There was 1 TDR loan that subsequently defaulted during the three months ended June 30, 2022. NaN commercial real estate loan was modified through a maturity concession totaling $1.0 million. There were 2 TDR loans that ~~had payment defaults~~subsequently defaulted during the ~~three and~~ six months ended June 30, ~~2020, respectively. Total charge offs for~~2022. NaN commercial real estate loans were modified through maturity concessions totaling $2.7 million.

There were 5 TDR loans that ~~had payment defaults~~subsequently defaulted during the three months ended June 30, 2021. NaN commercial real estate loan was modified through a maturity concession totaling $22.6 million. NaN TDR loans that subsequently defaulted were modified through payment concessions which were comprised of 2 commercial real estate loans totaling to $9.1 million and 2 consumer and other loans totaling to $16 thousand.

There were 9 TDR loans that subsequently defaulted during the six months ended June 30, ~~2020 totaled $0.~~2021. NaN commercial real estate loans were modified through maturity concessions totaling $23.6 million. NaN TDR loans that subsequently defaulted were modified through payment concessions which were comprised of 1 commercial business loan totaling to $131 thousand, 2 commercial real estate loans totaling to $9.1 million and 4 consumer and other loans totaling to $42 thousand.

3133

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 June 30, ~~2021.~~2022. 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 June 30, 2022, ROU assets and related liabilities were $58.6 million and $63.0 million, respectively. At December 31, 2021, ROU assets and related liabilities were ~~$47.8~~$52.7 million and ~~$52.2 million, respectively. At December 31, 2020, ROU assets and related liabilities were $47.7 million and $52.0~~$57.3 million, respectively. At June 30, ~~2021,~~2022, the short term operating lease liability totaled ~~$12.7~~$14.2 million and the long-term operating lease liability totaled ~~$39.5~~$48.8 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 June 30, 2022 and December 31, 2021. During the six months ended June 30, ~~2021,~~2022, the Company extended 98 leases and entered into 01 new lease ~~contracts.~~contract. Lease extension terms ranged from ~~three~~one to ~~five~~six 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~~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~~Federal Home Loan Bank (“FHLB”) borrowing interest rate at a given period.

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


		Three Months Ended June 30,				For the Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars in thousands)									(Dollars in thousands)
Operating lease cost	Operating lease cost	$	3,891	$	3,879	$	7,720	$	7,824	Operating lease cost	$	3,820	$	3,891	$	7,827	$	7,720
Short term lease cost	Short term lease cost	0		0		0		0		Short term lease cost	—		—		—		—
Variable lease cost	Variable lease cost	747		772		1,501		3,397		Variable lease cost	806		747		1,579		1,501
Sublease income	Sublease income	(99)		(214)		(252)		(426)		Sublease income	(105)		(99)		(208)		(252)
Net lease cost	Net lease cost	$	4,539	$	4,437	$	8,969	$	10,795	Net lease cost	$	4,521	$	4,539	$	9,198	$	8,969

Rent expense for the three and six months ended June 30, 2022 was $4.7 million and $9.3 million, respectively. Rent expense for the three and six months ended 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 $9.1 million, respectively.~~

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


		At or for the Six Months Ended June 30, 2021			At or for the Six Months Ended June 30, 2020				At or for the Six Months Ended June 30, 2022			At or for the Six Months Ended June 30, 2021
		(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	$	7,428		$	7,392		Operating cash outflows for operating leases	$	7,953		$	7,428
Right-of-use assets obtained in exchange for lease liabilities, net	Right-of-use assets obtained in exchange for lease liabilities, net	0			1,541			Right-of-use assets obtained in exchange for lease liabilities, net	13,438			—
Weighted-average remaining lease term - operating leases	Weighted-average remaining lease term - operating leases	5.2 years			5.5 years			Weighted-average remaining lease term - operating leases	4.9 years			5.2 years
Weighted-average discount rate - operating leases	Weighted-average discount rate - operating leases	2.69		%	3.01		%	Weighted-average discount rate - operating leases	2.30		%	2.69		%

3234

The table below summarizes the maturity of remaining lease liabilities:


		June 30, 2021			June 30, 2022
		(Dollars in thousands)			(Dollars in thousands)
2021		$	7,277
2022	2022	11,312		2022	$	7,861
2023	2023	9,613		2023	14,701
2024	2024	8,684		2024	13,400
2025	2025	7,319		2025	11,622
2026 and thereafter		11,971
2026				2026	10,916
2027 and thereafter				2027 and thereafter	8,603
Total lease payments	Total lease payments	56,176		Total lease payments	67,103
Less: imputed interest	Less: imputed interest	3,999		Less: imputed interest	4,113
Total lease obligations	Total lease obligations	$	52,177	Total lease obligations	$	62,990

As of June 30, ~~2021,~~2022, the Company ~~did not have any additional~~had 2 operating lease commitments that have not yet ~~commenced.~~commenced totaling $2.9 million in lease payments over terms ranging between five and ten years.

3335

8. Deposits

The aggregate amounts of time deposits in denominations of more than $250 thousand at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, was ~~$1.58~~$1.06 billion and ~~$1.85~~$1.49 billion, respectively. Included in time deposits of more than $250 thousand were $300.0 million in California State Treasurer’s deposits at June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. 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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, securities with fair values of approximately ~~$350.7~~$391.3 million and ~~$368.2~~$359.8 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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, totaled ~~$378.5~~$867.5 million and ~~$1.14 billion,~~$810.9 million, respectively. Brokered deposits at June 30, ~~2021~~2022 consisted of ~~$378.3~~$267.0 million in money market and NOW accounts and ~~$191 thousand~~$600.4 million in time ~~deposits~~deposit accounts. Brokered deposits at December 31, ~~2020~~2021 consisted of ~~$735.0~~$770.0 million in money market and NOW accounts and ~~$400.6~~$40.9 million in time deposit accounts.

The following is a breakdown of the Company’s deposits at June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		At June 30, 2021				At December 31, 2020					June 30, 2022				December 31, 2021
		Balance		Percentage (%)		Balance		Percentage (%)			Balance		Percentage (%)		Balance		Percentage (%)
		(Dollars in thousands)									(Dollars in thousands)
Noninterest bearing demand deposits	Noninterest bearing demand deposits	$	5,638,115	38	%	$	4,814,254	34	%	Noninterest bearing demand deposits	$	5,689,992	38	%	$	5,751,870	38	%
Money market and NOW accounts	Money market and NOW accounts	5,786,697		39	%	5,232,413		36	%	Money market and NOW accounts	6,339,467		42	%	6,178,850		41	%
Saving deposits	Saving deposits	308,651		2	%	300,770		2	%	Saving deposits	326,927		2	%	321,377		2	%
Time deposits	Time deposits	2,992,767		21	%	3,986,475		28	%	Time deposits	2,673,244		18	%	2,788,353		19	%
Total deposits	Total deposits	$	14,726,230	100	%	$	14,333,912	100	%	Total deposits	$	15,029,630	100	%	$	15,040,450	100	%

3436

9. Borrowings

At June 30, 2022, FHLB advances totaled $573.0 million compared to $300.0 million at December 31, 2021.

The Company maintains a line of credit with the ~~Federal Home Loan Bank (“FHLB”)~~FHLB of San Francisco as a secondary source of funds. The borrowing capacity with the FHLB is limited to the lower of either 25% of the Bank’s total assets or the Bank’s collateral capacity, ~~which~~and was ~~$4.30~~$4.14 billion at June 30, ~~2021,~~2022, and ~~$4.18~~$4.45 billion at December 31, ~~2020.~~2021. 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 June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, loans with a carrying amount of approximately ~~$6.61~~$6.81 billion and ~~$6.95~~$6.96 billion, respectively, were pledged at the FHLB for outstanding advances and remaining borrowing capacity. At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, other than FHLB stock, 0no 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 total asset size and outstanding borrowings.

~~At June 30, 2021 and December 31, 2020,~~ FHLB advances ~~totaled $200.0 million and $250.0 million, respectively, and~~ had weighted average interest rates of ~~1.26%~~1.68% and ~~1.07%~~0.92%, at June 30, 2022 and December 31, 2021, respectively. FHLB advances at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 had various maturities through December 2022. The interest rates of FHLB advances as of June 30, ~~2021~~2022 ranged between ~~0.13%~~1.02% and 2.39%. At June 30, ~~2021,~~2022, the Company’s remaining borrowing capacity with the FHLB was ~~$4.08~~$3.55 billion.

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

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

June 30, 2021
Scheduled maturities in: (Dollars in thousands)
2021 $ 100,000
2022 100,000
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 June 30, ~~2021,~~2022, the outstanding principal balance of the qualifying loans pledged at the FRB was ~~$766.0~~$849.3 million and there was 1 investment security pledged ~~to borrow against~~at the discount window with ~~book~~a fair value ~~totaling $2.4~~of $1.1 million. At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the total remaining available borrowing capacity at the FRB discount window was ~~$616.4~~$747.6 million and ~~$616.0~~$606.6 million, respectively.

The Company also maintains unsecured borrowing lines with other banks. There were 0no unsecured borrowings ~~outstanding with the FRB discount window as of~~from other banks at June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

3537

10. Subordinated Debentures and Convertible Notes

Subordinated Debt

At June 30, ~~2021,~~2022, 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 June 30, ~~2021:~~2022:

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

3.269%

06/15/2033

Nara Capital Trust III

06/05/2003

5,000

5,155

Variable

4.979%

06/15/2033

Nara Statutory Trust IV

12/22/2003

5,000

5,155

Variable

3.034%

01/07/2034

Nara Statutory Trust IV

12/22/2003

5,000

5,155

Variable

3.894%

01/07/2034

Nara Statutory Trust V

12/17/2003

10,000

10,310

Variable

3.075%

12/17/2033

Nara Statutory Trust V

12/17/2003

10,000

10,310

Variable

4.980%

12/17/2033

Nara Statutory Trust VI

03/22/2007

8,000

8,248

Variable

1.769%

06/15/2037

Nara Statutory Trust VI

03/22/2007

8,000

8,248

Variable

3.479%

06/15/2037

Center Capital Trust I

12/30/2003

18,000

14,572

Variable

3.034%

01/07/2034

Center Capital Trust I

12/30/2003

18,000

14,812

Variable

3.894%

01/07/2034

Wilshire Trust II

03/17/2005

20,000

16,082

Variable

1.915%

03/17/2035

Wilshire Trust II

03/17/2005

20,000

16,315

Variable

3.820%

03/17/2035

Wilshire Trust III

09/15/2005

15,000

11,423

Variable

1.519%

09/15/2035

Wilshire Trust III

09/15/2005

15,000

11,621

Variable

3.229%

09/15/2035

Wilshire Trust IV

07/10/2007

25,000

18,480

Variable

1.499%

09/15/2037

Wilshire Trust IV

07/10/2007

25,000

18,779

Variable

3.209%

09/15/2037

Saehan Capital Trust I

03/30/2007

20,000

15,337

Variable

1.767%

06/30/2037

Saehan Capital Trust I

03/30/2007

20,000

15,558

Variable

3.870%

06/30/2037

Total

126,000

104,762

Total

126,000

105,953

The carrying value of Debentures at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 was ~~$104.8~~$106.0 million and ~~$104.2~~$105.4 million, respectively. At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, acquired Debentures had remaining discounts of ~~$25.1~~$23.9 million and ~~$25.7~~$24.5 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 June 30, ~~2021~~2022 and December 31, ~~2020~~2021 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.

3638

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~~notes at issuance and the carrying value as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are presented in the tables below:


					As of June 30, 2021								June 30, 2022
		Amortization/ Capitalization Period	Gross Carrying Amount		Accumulated Amortization / Capitalization		Carrying Amount			Capitalization Period	Gross Carrying Amount		Total 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)		2,358		(1,761)		Issuance costs to be capitalized	5 years	(4,119)		$	3,297	(822)
Carrying balance of convertible notes	Carrying balance of convertible notes		$	213,381	$	2,358	$	215,739	Carrying balance of convertible notes		$	213,381	$	3,297	$	216,678


					As of December 31, 2020								December 31, 2021
		Amortization/ Capitalization Period	Gross Carrying Amount		Accumulated Amortization / Capitalization		Carrying Amount			Capitalization Period	Gross Carrying Amount		Total Capitalization		Carrying Amount
			(Dollars in thousands)								(Dollars in thousands)
Convertible notes principal balance	Convertible notes principal balance		$	217,500	$	—	$	217,500	Convertible notes principal balance		$	217,500			$	217,500
Discount		5 years	(21,880)		10,951		(10,929)

Issuance costs to be capitalized	Issuance costs to be capitalized	5 years	(4,119)		2,113		(2,006)		Issuance costs to be capitalized	5 years	(4,119)		$	2,828	(1,291)
Carrying balance of convertible notes	Carrying balance of convertible notes		$	191,501	$	13,064	$	204,565	Carrying balance of convertible notes		$	213,381	$	2,828	$	216,209

Interest expense on the convertible notes for the three and six months ended June 30, ~~2021,~~2022 totaled $1.3 million and $2.6 million, respectively. Interest expense on the convertible notes for the three and six months ended June 30, ~~2020,~~2021 totaled ~~$2.4~~$1.3 million and ~~$4.7~~$2.6 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 June 30, 2021 compared to the three and six months ended June 30, 2020 as it no longer has a discount to amortize and record as non-cash interest expense.

3739

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~~change in fair value is recognized in the income statement as other income and fees.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, interest rate swaps related to the Company’s loan hedging program that were outstanding are presented in the following table:


		June 30, 2021			December 31, 2020				June 30, 2022			December 31, 2021
		(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	$	93,433		$	0		Notional amount	$	623,434		$	148,199
Weighted average remaining term (years)	Weighted average remaining term (years)	8.8			0.0			Weighted average remaining term (years)	6.2			7.2
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	2.86		%	0		%	Pay fixed rate (weighted average)	3.66		%	2.92		%
Received variable rate (weighted average)	Received variable rate (weighted average)	2.08		%	0		%	Received variable rate (weighted average)	3.15		%	2.08		%
Estimated fair value	Estimated fair value	$	1,763		$	0		Estimated fair value	$	36,379		$	3,001

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	$	418,767		$	503,929		Notional amount	$	10,627		$	440,486
Weighted average remaining term (years)	Weighted average remaining term (years)	6.0			6.8			Weighted average remaining term (years)	4.2			6.1
Pay fixed rate (weighted average)	Pay fixed rate (weighted average)	4.06		%	3.86		%	Pay fixed rate (weighted average)	5.09		%	4.03		%
Received variable rate (weighted average)	Received variable rate (weighted average)	2.21		%	2.26		%	Received variable rate (weighted average)	3.40		%	2.20		%
Estimated fair value	Estimated fair value	$	(21,358)		$	(34,606)		Estimated fair value	$	(52)		$	(14,906)

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	$	93,433		$	0		Notional amount	$	623,434		$	148,199
Weighted average remaining term (years)	Weighted average remaining term (years)	8.8			0.0			Weighted average remaining term (years)	6.2			7.2
Received fixed rate (weighted average)	Received fixed rate (weighted average)	2.86		%	0		%	Received fixed rate (weighted average)	3.66		%	2.92		%
Pay variable rate (weighted average)	Pay variable rate (weighted average)	2.08		%	0		%	Pay variable rate (weighted average)	3.15		%	2.08		%
Estimated fair value	Estimated fair value	$	(1,763)		$	0		Estimated fair value	$	(36,379)		$	(3,001)

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	$	418,767		$	503,929		Notional amount	$	10,627		$	440,486
Weighted average remaining term (years)	Weighted average remaining term (years)	6.0			6.8			Weighted average remaining term (years)	4.2			6.1
Received fixed rate (weighted average)	Received fixed rate (weighted average)	4.06		%	3.86		%	Received fixed rate (weighted average)	5.09		%	4.03		%
Pay variable rate (weighted average)	Pay variable rate (weighted average)	2.21		%	2.26		%	Pay variable rate (weighted average)	3.40		%	2.20		%
Estimated fair value	Estimated fair value	$	21,358		$	34,606		Estimated fair value	$	52		$	14,906

3840

At June 30, ~~2021,~~2022, 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 June 30, 2022, the notional amount of the risk participation agreements sold was $122.6 million with a credit valuation adjustment of $31 thousand. At December 31, 2021, the notional amount of the risk participation agreements sold was ~~$111.4~~$123.9 million with a credit valuation adjustment of ~~$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~~$93 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 non-forward starting interest rate swap agreement as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 with a notional amount of $100.0 million designated as cash flow hedges of certain LIBOR-based debt. At June 30, 2022, the Company had forward starting interest rate swap agreements with a total notional amount of $111.0 million designated as cash flow hedges of liabilities tied to the federal funds rate. The weighted average term for forward starting interest rate swap agreements was ~~entered into during the second quarter of 2020 and was~~3.9 years. The Company’s swaps were determined to be fully effective during the ~~period~~periods presented. The aggregate fair value of the ~~swap is~~swaps are recorded in ~~derivative~~assets or liabilities with changes in fair value recorded in other comprehensive income. The gain or loss on ~~the derivative~~derivatives 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~~hedges to remain fully effective ~~during~~throughout the remaining ~~term of~~terms. For the ~~swap.~~three and six months ended June 30, 2022, the Company reclassified $114 thousand and $50 thousand, respectively, from accumulated other comprehensive income to interest expense. For the three and six months ended June 30, 2021, the Company reclassified $73 thousand and $139 thousand, respectively, from accumulated other comprehensive income to interest expense. ~~For the three and six months ended~~

At June 30, ~~2020,~~2022 and December 31, 2021, interest rate swaps designated as cash flow hedges are presented in the ~~Company reclassified $139 thousand from accumulated comprehensive income to interest income.~~following table:

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


	June 30, 2022			December 31, 2021
	(Dollars in thousands)
Interest rate swaps designated as cash flow hedge (included in other assets)

Notional amount	$	100,000		$	100,000
Weighted average remaining term (years)	2.8			3.3
Received variable rate (weighted average)	1.06		%	0.12		%
Pay fixed rate (weighted average)	0.49		%	0.49		%
Estimated fair value	$	6,950		$	2,291

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 June 30, ~~2021,~~2022, the Company had approximately ~~$26.2~~$2.8 million in interest rate lock commitments and total forward sales commitments for the future delivery of residential mortgage loans. At December 31, ~~2020,~~2021, the Company had approximately ~~$43.8~~$17.4 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 June 30, 2021				As of December 31, 2020					June 30, 2022				December 31, 2021
		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	$	23,792	$	213	$	37,507	$	679	Interest rate lock commitments	$	2,697	$	34	$	16,518	$	230
Forward sale contracts related to mortgage banking	Forward sale contracts related to mortgage banking	$	11,942	$	29	$	8,641	$	45	Forward sale contracts related to mortgage banking	1,250		4		6,392		17

Liabilities:	Liabilities:									Liabilities:
Interest rate lock commitments	Interest rate lock commitments	$	2,368	$	(4)	$	6,267	$	(31)	Interest rate lock commitments	$	863	$	(30)	$	907	$	(2)
Forward sale contracts related to mortgage banking	Forward sale contracts related to mortgage banking	$	14,217	$	(48)	$	35,133	$	(79)	Forward sale contracts related to mortgage banking	1,500		(7)		25,305		(74)

4042

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 June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are summarized as follows:


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in thousands)
Commitments to extend credit	Commitments to extend credit	$	2,483,026	$	2,137,178	Commitments to extend credit	$	3,013,883	$	2,329,421
Standby letters of credit	Standby letters of credit	115,629		108,834		Standby letters of credit	121,980		126,137
Other letters of credit	Other letters of credit	55,609		40,508		Other letters of credit	59,888		56,333
Commitments to fund investments in affordable housing partnerships	Commitments to fund investments in affordable housing partnerships	10,654		15,148		Commitments to fund investments in affordable housing partnerships	14,498		9,514

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 ~~$25~~$10 thousand at June 30, ~~2021~~2022 and ~~$1.3 million~~$52 thousand at December 31, ~~2020.~~2021. It is reasonably possible that the Company may incur losses in ~~addition to~~excess of 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.

4143

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,~~2021, the Company performed a ~~Step 1 fair value~~qualitative assessment to test for impairment and ~~determined~~the management has concluded that ~~goodwill~~there was ~~not impaired as the estimated fair value of the Company exceeded the book value.~~no impairment. 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 June 30, ~~2021~~2022 and December 31, ~~2020~~2021 was $464.5 million. There was 0no impairment of goodwill recorded during the three and six months ended June 30, ~~2021.~~2022.

Core deposit intangible assets are amortized over their estimated lives or ten years. Amortization expense related to core deposit intangible assets totaled ~~$510~~$486 thousand and ~~$532~~$973 thousand for the three and six months ended June 30, ~~2021 and 2020,~~2022, respectively. ~~The amortization~~Amortization expense related to core deposit intangible assets totaled ~~$1.0 million~~$510 thousand and ~~$1.1~~$1.0 million for the three and six months ended June 30, 2021, ~~and 2020,~~ respectively. The following table provides information regarding the core deposit intangibles at June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

As of June 30, 2021 As of December 31, 2020
Core Deposit Intangibles Related To: Amortization Period Gross
Amount Accumulated
Amortization Carrying Amount Accumulated
Amortization Carrying Amount
(Dollars in thousands)
Foster Bankshares acquisition 10 years $ 2,763 $ (2,413) $ 350 $ (2,322) $ 441
Wilshire Bancorp acquisition 10 years 18,138 (9,799) 8,339 (8,871) 9,267
Total $ 20,901 $ (12,212) $ 8,689 $ (11,193) $ 9,708


				June 30, 2022				December 31, 2021
Core Deposit Intangibles Related To:	Amortization Period	Gross Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization		Carrying Amount
		(Dollars in thousands)
Foster Bankshares acquisition	10 years	$	2,763	$	(2,586)	$	177	$	(2,504)	$	259
Wilshire Bancorp acquisition	10 years	18,138		(11,617)		6,521		(10,726)		7,412
Total		$	20,901	$	(14,203)	$	6,698	$	(13,230)	$	7,671

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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company did not have a valuation allowance on itits servicing assets.

The changes in servicing assets for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 were as follows:

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Dollars in thousands)
Balance at beginning of period $ 12,084 $ 14,847 $ 12,692 $ 16,417
Additions through originations of servicing assets 737 759 1,329 1,136
Amortization (1,255) (1,442) (2,455) (3,389)
Balance at end of period $ 11,566 $ 14,164 $ 11,566 $ 14,164


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Balance at beginning of period	$	10,874	$	12,084	$	10,418	$	12,692
Additions through originations of servicing assets	1,427		737		2,890		1,329
Amortization	(1,086)		(1,255)		(2,093)		(2,455)
Balance at end of period	$	11,215	$	11,566	$	11,215	$	11,566

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were ~~$1.18~~$1.09 billion as of June 30, ~~2021~~2022 and ~~$1.23~~$1.04 billion as of December 31, ~~2020.~~2021.

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 June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are presented below.


		June 30, 2021	December 31, 2020		June 30, 2022	December 31, 2021
SBA Servicing Assets:	SBA Servicing Assets:			SBA Servicing Assets:
Weighted-average discount rate	Weighted-average discount rate	11.72%	9.93%	Weighted-average discount rate	10.62%	11.20%
Constant prepayment rate	Constant prepayment rate	14.23%	14.40%	Constant prepayment rate	11.94%	14.64%
Mortgage Servicing Assets:	Mortgage Servicing Assets:			Mortgage Servicing Assets:
Weighted-average discount rate	Weighted-average discount rate	8.51%	8.26%	Weighted-average discount rate	10.88%	8.63%
Constant prepayment rate	Constant prepayment rate	9.02%	8.63%	Constant prepayment rate	9.66%	9.58%

4345

14. Income Taxes

For the three months ended June 30, ~~2021,~~2022, the Company had an income tax provision totaling $18.6 million on pretax income of $70.7 million, representing an effective tax rate of 26.35%, compared with an income tax provision of $17.8 million on pretax income of $71.5 million, representing an effective tax rate of 24.84% for the three months ended June 30, 2021. For the six months ended June 30, 2022, the Company had an income tax provision totaling $39.9 million on pretax income of $152.7 million, representing an effective tax rate of 26.12%, compared with an income tax provision of $9.8 million on pretax income of $36.5 million, representing an effective tax rate of 26.75% for the three months ended 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.~~2021. The increase in effective tax rate for the six months ended June 30, ~~2021~~2022 compared to the six months ended June 30, ~~2020~~2021 was primarily due to a decrease in affordable housing ~~partnership investment~~ tax credits ~~benefit having a lower effect on larger annual projected pre-tax book income.~~compared with the prior year.

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~~$3.3 million at both June 30, ~~2021~~2022 and December 31, ~~2020,~~2021 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 ~~$323~~$446 thousand and ~~$276~~$387 thousand, for accrued interest (0(no portion was related to penalties) at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Management believes it is reasonably possible that the unrecognized tax benefits may decrease by ~~$902~~$789 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.~~2017. 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. New York State Department of Taxation and Finance recently completed the examination for the 2017 tax year with no adjustment to the tax return filed.

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 June 30, ~~2021.~~2022.

4446

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:

Investment Securities ~~Available for Sale~~

The fair values of investment securities available for sale and held to maturity 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~~value of the Company’s Level 3 ~~securities~~security available for sale ~~were~~was 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.

4547

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.

4648

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
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)
Assets:
Securities available for sale:
U.S. Government agency and U.S. Government sponsored enterprises:
Collateralized mortgage obligations $ 864,576 $ 0 $ 864,576 $ 0
Mortgage-backed securities:
Residential 660,202 0 660,202 0
Commercial 555,613 0 555,613 0
Asset-backed securities 62,369 0 62,369 0
Corporate securities 22,614 0 22,614 0
Municipal securities 108,796 0 107,738 1,058
Equity investments with readily determinable fair value 27,205 27,205 0 0
Interest rate swaps 23,121 0 23,121 0
Mortgage banking derivatives 242 0 242 0
Other derivatives 921 0 921 0
Liabilities:
Interest rate swaps 23,121 0 23,121 0
Mortgage banking derivatives 52 0 52 0
Other derivatives 64 0 0 64


			Fair Value Measurements at the End of the Reporting Period Using
	June 30, 2022		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. Treasury securities	$	3,968	$	3,968	$	—	$	—
U.S. Government agency and U.S. Government sponsored enterprises:
Collateralized mortgage obligations	909,827		—		909,827		—
Mortgage-backed securities:
Residential	502,759		—		502,759		—
Commercial	414,046		—		414,046		—
Asset-backed securities	145,781		—		145,781		—
Corporate securities	20,234		—		20,234		—
Municipal securities	103,391		—		102,372		1,019
Equity investments with readily determinable fair value	24,711		24,711		—		—
Interest rate swaps	36,431		—		36,431		—
Mortgage banking derivatives	38		—		38		—
Other derivatives	8,558		—		8,558		—

Liabilities:
Interest rate swaps	36,431		—		36,431		—
Mortgage banking derivatives	37		—		37		—
Other derivatives	290		—		259		31

4749


				Fair Value Measurements at the End of the Reporting Period Using									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)			December 31, 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	$	1,001,317	$	0	$	1,001,317	$	0	Collateralized mortgage obligations	$	1,026,430	$	—	$	1,026,430	$	—
Mortgage-backed securities:	Mortgage-backed securities:									Mortgage-backed securities:
Residential	Residential	681,013		0		681,013		0		Residential	759,224		—		759,224		—
Commercial	Commercial	507,879		0		507,879		0		Commercial	599,402		—		599,402		—
Asset-backed securities										Asset-backed securities	153,451		—		153,451		—
Corporate securities	Corporate securities	6,134		0		6,134		0		Corporate securities	22,484		—		22,484		—
Municipal securities	Municipal securities	89,268		0		88,246		1,022		Municipal securities	105,284		—		104,246		1,038
Equity investments with readily determinable fair value	Equity investments with readily determinable fair value	27,611		27,611		0		0		Equity investments with readily determinable fair value	26,823		26,823		—		—
Interest rate swaps	Interest rate swaps	34,606		0		34,606		0		Interest rate swaps	17,907		—		17,907		—
Mortgage banking derivatives	Mortgage banking derivatives	724		0		724		0		Mortgage banking derivatives	247		—		247		—
Other derivatives										Other derivatives	2,291		—		2,291		—

Liabilities:	Liabilities:									Liabilities:
Interest rate swaps	Interest rate swaps	34,606		0		34,606		0		Interest rate swaps	17,907		—		17,907		—
Mortgage banking derivatives	Mortgage banking derivatives	110		0		110		0		Mortgage banking derivatives	76		—		76		—
Other derivatives	Other derivatives	1,000		0		602		398		Other derivatives	93		—		—		93

There were no transfers between ~~Level~~Levels 1, 2, and 3 during the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

The table below presents a reconciliation and income statement classification of gains (losses) for ~~our~~the 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 June 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars in thousands)									(Dollars in thousands)
Municipal securities:	Municipal securities:									Municipal securities:
Beginning Balance	Beginning Balance	$	1,065	$	1,079	$	1,022	$	1,076	Beginning Balance	$	1,029	$	1,065	$	1,038	$	1,022

Change in fair value included in other comprehensive income (loss)	Change in fair value included in other comprehensive income (loss)	(7)		(13)		36		(10)		Change in fair value included in other comprehensive income (loss)	(10)		(7)		(19)		36
Ending Balance	Ending Balance	$	1,058	$	1,066	$	1,058	$	1,066	Ending Balance	$	1,019	$	1,058	$	1,019	$	1,058

Risk participation agreements:	Risk participation agreements:									Risk participation agreements:
Beginning Balance	Beginning Balance	$	95	$	0	$	398	$	0	Beginning Balance	$	61	$	95	$	93	$	398
Change in fair value included in income	Change in fair value included in income	(31)		223		(334)		223		Change in fair value included in income	(30)		(31)		(62)		(334)
Ending Balance	Ending Balance	$	64	$	223	$	64	$	223	Ending Balance	$	31	$	64	$	31	$	64

4850

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
		June 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			June 30, 2022		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	$	50,593	$	0	$	0	$	50,593	Real estate loans	$	7,062	$	—	$	—	$	7,062
Commercial business	Commercial business	3,601		0		0		3,601		Commercial business	3,231		—		—		3,231

Loans held for sale, net										Loans held for sale, net	35,484		—		35,484		—
OREO	OREO	15,759		0		0		15,759		OREO	1,580		—		—		1,580

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


			Fair Value Measurements at the End of the Reporting Period Using
	December 31, 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)
Assets:
Collateral dependent loans at fair value:
Real estate loans	$	12,293	$	—	$	—	$	12,293
Commercial business	3,656		—		—		3,656


Loans held for sale, net	26,154		—		26,154		—
OREO	2,167		—		—		2,167

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


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(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	$	(25,411)	$	(2,746)	$	(27,738)	$	(5,067)	Real estate loans	$	(763)	$	(25,411)	$	(1,374)	$	(27,738)
Commercial business	Commercial business	(2,151)		(3,178)		(2,151)		(5,746)		Commercial business	(2,026)		(2,151)		(2,026)		(2,151)

Loans held for sale, net										Loans held for sale, net	(371)		—		(988)		—
OREO	OREO	(154)		(1,435)		(323)		(2,779)		OREO	—		(154)		(256)		(323)

4951

Fair Value of Financial Instruments

Carrying amounts and estimated fair values of financial instruments, not previously presented, at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:

June 30, 2021
Carrying Amount Estimated Fair Value Fair Value Measurement
Using
(Dollars in thousands)
Financial Assets:
Cash and cash equivalents $ 836,957 $ 836,957 Level 1
Interest bearing deposits in other financial institutions 18,268 18,283 Level 2
Equity investments without readily determinable fair values 31,827 31,827 Level 2
Loans held for sale 54,245 57,365 Level 2
Loans receivable—net 13,234,849 13,236,867 Level 3
Accrued interest receivable 51,886 51,886 Level 2/3
Servicing assets, net 11,566 14,438 Level 3
Customers’ liabilities on acceptances 916 916 Level 2
Financial Liabilities:
Noninterest bearing deposits $ 5,638,115 $ 5,638,115 Level 2
Saving and other interest bearing demand deposits 6,095,348 6,095,348 Level 2
Time deposits 2,992,767 2,996,197 Level 2
FHLB advances 200,000 203,251 Level 2
Convertible notes, net 215,739 214,238 Level 1
Subordinated debentures 104,762 112,429 Level 2
Accrued interest payable 4,946 4,946 Level 2
Acceptances outstanding 916 916 Level 2
December 31, 2020
Carrying Amount Estimated Fair Value Fair Value Measurement
Using
(Dollars in thousands)
Financial Assets:
Cash and cash equivalents $ 350,579 $ 350,579 Level 1
Interest bearing deposits in other financial institutions 28,642 28,669 Level 2
Equity investments without readily determinable fair values 32,088 32,088 Level 2
Loans held for sale 17,743 18,288 Level 2
Loans receivable—net 13,356,472 13,428,706 Level 3
Accrued interest receivable 59,430 59,430 Level 2/3
Servicing assets, net 12,692 15,785 Level 3
Customers’ liabilities on acceptances 1,184 1,184 Level 2
Financial Liabilities:
Noninterest bearing deposits $ 4,814,254 $ 4,814,254 Level 2
Saving and other interest bearing demand deposits 5,533,183 5,533,183 Level 2
Time deposits 3,986,475 3,992,973 Level 2
FHLB advances 250,000 254,456 Level 2
Convertible notes, net 204,565 201,731 Level 1
Subordinated debentures 104,178 98,948 Level 2
Accrued interest payable 14,706 14,706 Level 2
Acceptances outstanding 1,184 1,184 Level 2


	June 30, 2022
	Carrying Amount		Estimated Fair Value		Fair Value Measurement Using
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	197,062	$	197,062	Level 1
Interest bearing deposits in other financial institutions	6,448		6,412		Level 2
Investment securities HTM	252,991		257,669		Level 2
Equity investments without readily determinable fair values	38,158		38,158		Level 2
Loans held for sale	76,376		79,711		Level 2
Loans receivable, net	14,394,469		14,050,218		Level 3
Accrued interest receivable	37,845		37,845		Level 2/3
Servicing assets, net	11,215		15,603		Level 3
Customers’ liabilities on acceptances	2,913		2,913		Level 2
Financial Liabilities:
Noninterest bearing deposits	$	5,689,992	$	5,689,992	Level 2
Saving and other interest bearing demand deposits	6,666,394		6,666,394		Level 2
Time deposits	2,673,244		2,673,525		Level 2
FHLB advances	573,000		572,968		Level 2
Convertible notes, net	216,678		211,449		Level 1
Subordinated debentures	105,953		116,986		Level 2
Accrued interest payable	4,112		4,112		Level 2
Acceptances outstanding	2,913		2,913		Level 2

	December 31, 2021
	Carrying Amount		Estimated Fair Value		Fair Value Measurement Using
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	316,266	$	316,266	Level 1
Interest bearing deposits in other financial institutions	12,851		12,853		Level 2
Equity investments without readily determinable fair values	31,037		31,037		Level 2
Loans held for sale	99,049		103,767		Level 2
Loans receivable, net	13,812,193		13,698,579		Level 3
Accrued interest receivable	41,842		41,842		Level 2/3
Servicing assets, net	10,418		13,500		Level 3
Customers’ liabilities on acceptances	1,521		1,521		Level 2
Financial Liabilities:
Noninterest bearing deposits	$	5,751,870	$	5,751,870	Level 2
Saving and other interest bearing demand deposits	6,500,227		6,500,227		Level 2
Time deposits	2,788,353		2,790,596		Level 2
FHLB advances	300,000		301,936		Level 2
Convertible notes, net	216,209		214,612		Level 1
Subordinated debentures	105,354		117,961		Level 2
Accrued interest payable	4,272		4,272		Level 2
Acceptances outstanding	1,521		1,521		Level 2

5052

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 on 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~~deposit 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.

5153

16. Stockholders’ Equity

Total stockholders’ equity at June 30, ~~2021~~2022 was ~~$2.09~~$2.00 billion, compared to ~~$2.05~~$2.09 billion at December 31, ~~2020.~~2021.

In ~~March 2020,~~January 2022, the Company’s Board of Directors approved a share repurchase program that authorizes the Company ~~completed the~~to repurchase up to $50.0 million ~~repurchase plan though the repurchase~~ of ~~2,716,034 shares of~~its common ~~stock totaling $36.2 million. There were 0 shares repurchased during~~stock. During the three months ended June 30, ~~2021. As of June 30, 2021,~~2022, the Company ~~had~~ repurchased ~~a total of 12,661,581~~1,038,986 shares of ~~its~~ common stock totaling ~~$200.0~~$14.7 million as part of ~~all previous repurchase programs that were authorized by the Company’s Board of Directors.~~this program which was recorded as treasury stock.

For the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company paid cash dividends of $0.14 per common share. For both the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company paid cash 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 June 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended,				Six Months Ended,					Three Months Ended,				Six Months Ended,
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020			June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
		(Dollars in thousands)									(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	5,223	$	36,449	$	32,753	$	9,149	Balance at beginning of period	$	(108,165)	$	5,223	$	(11,412)	$	32,753

Unrealized net gains (losses) on securities available for sale		14,186		3,270		(26,617)		42,123
Unrealized net (losses) gains on securities available for sale										Unrealized net (losses) gains on securities available for sale	(55,658)		14,186		(196,931)		(26,617)
Unrealized net losses on securities available for sale transferred to held to maturity										Unrealized net losses on securities available for sale transferred to held to maturity	(36,576)		—		(36,576)		—
Unrealized net gains (losses) on interest rate swaps used for cash flow hedge	Unrealized net gains (losses) on interest rate swaps used for cash flow hedge	(297)		(711)		1,523		(711)		Unrealized net gains (losses) on interest rate swaps used for cash flow hedge	2,006		(297)		6,008		1,523
Reclassification adjustments for net losses (gains) realized in net income		73		(139)		139		(139)
Reclassification adjustments for net (gains) losses realized in net income										Reclassification adjustments for net (gains) losses realized in net income	(38)		73		26		139
Tax effect	Tax effect	(4,134)		(720)		7,253		(12,273)		Tax effect	26,724		(4,134)		67,178		7,253
Other comprehensive income (loss), net of tax		$	9,828	$	1,700	$	(17,702)	$	29,000
Other comprehensive (loss) income, net of tax										Other comprehensive (loss) income, net of tax	(63,542)		9,828		(160,295)		(17,702)
Balance at end of period	Balance at end of period	$	15,051	$	38,149	$	15,051	$	38,149	Balance at end of period	$	(171,707)	$	15,051	$	(171,707)	$	15,051

Reclassifications for net ~~gains~~losses realized in net income for the three and six months ended June 30, 2022 and 2021 relate to net gains on interest rate swaps used for cash flow ~~hedges.~~hedges and amortization on investment securities HTM. Gains and losses on interest rate swaps are recorded in noninterest income under other income and ~~fee~~fees in the Consolidated Statements of Income. The unrealized holding loss at the date of transfer on securities held to maturity will continue to be reported, net of taxes, in accumulated other comprehensive income (“AOCI”) as a component of stockholders’ equity, and amortized over the remaining life of the securities as an adjustment of yield, offsetting the impact on yield of the corresponding discount amortization.

For the three and six months ended June 30, 2022, the Company recorded reclassification adjustments of $114 thousand and $50 thousand, respectively, from other comprehensive income to losses from cash flow hedge relationships. For the three and six months ended 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,~~2022, the Company recorded reclassification adjustments of ~~$139~~$76 thousand from ~~accumulated~~ other comprehensive income to ~~gains from cash flow hedge relationships.~~interest income to amortize transferred unrealized losses on investment securities HTM, compared to zero for the same periods in 2021.

5254

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,~~stock appreciation rights (“SAR”), restricted stock, performance shares, and performance units to non-employee directors, employees, and potentially consultants of the Company. Stock options may be either incentive stock options (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”). ~~The 2019 Plan replaces the 2016 Plan and stipulates that no further awards shall be made under prior plans. Therefore, future awards will only be issued from the 2019 Plan.~~

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

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

Under the 2019 Plan, ~~2,322,103~~1,484,830 shares were available for future grants as of June 30, ~~2021.~~2022.

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 six months ended June 30, ~~2021:~~2022:


		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		851,580	$	15.25
Outstanding - January 1, 2022								Outstanding - January 1, 2022	814,877	$	15.17
Granted	Granted	0	0					Granted	—	—
Exercised	Exercised	0	0					Exercised	(105,510)	5.02
Expired	Expired	(16,703)	17.12					Expired	(20,000)	17.18
Forfeited	Forfeited	0	0					Forfeited	—	—
Outstanding - June 30, 2021		834,877	$	15.22	3.91	$	959
Options exercisable - June 30, 2021		796,877	$	15.12	3.85	$	959
Outstanding - June 30, 2022								Outstanding - June 30, 2022	689,367	$	16.66	3.47	$	—
Options exercisable - June 30, 2022								Options exercisable - June 30, 2022	689,367	$	16.66	3.47	$	—

The following is a summary of the Company’s restricted stock and performance unit activity for the six months ended June 30, ~~2021:~~2022:


		Number of Shares	Weighted-Average Grant Date Fair Value			Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding (unvested) - January 1, 2021		1,718,838	$	10.73
Outstanding (unvested) - January 1, 2022					Outstanding (unvested) - January 1, 2022	1,561,197	$	12.08
Granted	Granted	652,909	15.65		Granted	939,270	15.99
Vested	Vested	(604,703)	11.75		Vested	(610,121)	12.63
Forfeited	Forfeited	(135,053)	13.18		Forfeited	(147,410)	13.28
Outstanding (unvested) - June 30, 2021		1,631,991	$	12.12
Outstanding (unvested) - June 30, 2022					Outstanding (unvested) - June 30, 2022	1,742,936	$	13.89

The total fair value of restricted stock and performance units vested ~~for the six months ended~~as of June 30, 2022 and 2021 was $9.4 million and ~~2020 was~~ $9.2 million, ~~and $343 thousand,~~ respectively.

5355

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 and six months ended June 30, ~~2021 and 2020~~2022 was ~~$37~~$34 thousand and ~~$26~~$234 thousand, respectively. The compensation expense for the ESPP during the three and six months ended June 30, 2021 ~~and 2020~~ was ~~$259~~$37 thousand and ~~$97~~$259 thousand, respectively.

The total amounts charged against income related to stock-based payment arrangements, including the ESPP, were ~~$2.1~~$3.5 million and ~~$1.8~~$6.1 million for the three and six months ended June 30, ~~2021 and 2020,~~2022, respectively. For the three and six months ended June 30, 2021, ~~and 2020, $4.6~~$2.1 million and ~~$3.8~~$4.6 million, respectively, of stock-based payment arrangements were charged against income. The income tax benefit recognized was approximately ~~$514~~$912 thousand and ~~$485 thousand~~$1.6 million for the three and six months ended June 30, ~~2021 and 2020,~~2022, respectively. The income tax benefit recognized for the three and six months ended June 30, 2021, ~~and 2020,~~ was approximately $514 thousand and $1.1 million, ~~and $896 thousand,~~ respectively.

At June 30, ~~2021, the~~2022, there was no unrecognized compensation expense related to non-vested stock option ~~grants was $21 thousand and is expected to be recognized over a weighted average vesting period of 0.17 years.~~grants. Unrecognized compensation expense related to non-vested restricted stock and performance units was ~~$13.5~~$17.8 million and is expected to be recognized over a weighted average vesting period of ~~2.07~~1.97 years.

5456

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 June 30, ~~2021,~~2022, 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~~purchased credit deteriorated (“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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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.

5557

The Company’s and the Bank’s levels and ratios are presented in the tables below for the dates 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 June 30, 2021		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2022																		June 30, 2022	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	$	1,642,492	11.44	%	$	645,961	4.50	%	$	1,004,828	7.00	%	N/A		N/A		Company	$	1,718,277	10.69	%	$	723,002	4.50	%	$	1,124,670	7.00	%	N/A		N/A
Bank	Bank	$	1,932,546	13.47	%	$	645,615	4.50	%	$	1,004,289	7.00	%	$	932,555	6.50	%	Bank	$	1,995,242	12.43	%	$	722,511	4.50	%	$	1,123,907	7.00	%	$	1,043,628	6.50	%
Total capital (to risk-weighted assets):	Total capital (to risk-weighted assets):																	Total capital (to risk-weighted assets):
Company	Company	$	1,888,996	13.16	%	$	1,148,375	8.00	%	$	1,507,242	10.50	%	N/A		N/A		Company	$	1,948,953	12.13	%	$	1,285,337	8.00	%	$	1,687,004	10.50	%	N/A		N/A
Bank	Bank	$	2,078,189	14.49	%	$	1,147,759	8.00	%	$	1,506,434	10.50	%	$	1,434,699	10.00	%	Bank	$	2,123,866	13.23	%	$	1,284,465	8.00	%	$	1,685,860	10.50	%	$	1,605,581	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	$	1,743,353	12.14	%	$	861,281	6.00	%	$	1,220,148	8.50	%	N/A		N/A		Company	$	1,820,329	11.33	%	$	964,003	6.00	%	$	1,365,670	8.50	%	N/A		N/A
Bank	Bank	$	1,932,546	13.47	%	$	860,820	6.00	%	$	1,219,494	8.50	%	$	1,147,759	8.00	%	Bank	$	1,995,242	12.43	%	$	963,349	6.00	%	$	1,364,744	8.50	%	$	1,284,465	8.00	%
Tier 1 capital (to average assets):	Tier 1 capital (to average assets):																	Tier 1 capital (to average assets):
Company	Company	$	1,743,353	10.43	%	$	668,540	4.00	%	N/A		N/A		N/A		N/A		Company	$	1,820,329	10.32	%	$	705,466	4.00	%	N/A		N/A		N/A		N/A
Bank	Bank	$	1,932,546	11.56	%	$	668,416	4.00	%	N/A		N/A		$	835,520	5.00	%	Bank	$	1,995,242	11.31	%	$	705,356	4.00	%	N/A		N/A		$	881,695	5.00	%


		Actual				Required For Capital Adequacy Purposes				Minimum Capital Adequacy With Capital Conservation Buffer				Required To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				Required For Capital Adequacy Purposes				Minimum Capital Adequacy With Capital Conservation Buffer				Required To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2020		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2021																		December 31, 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	$	1,568,508	10.94	%	$	645,366	4.50	%	$	1,003,902	7.00	%	N/A		N/A		Company	$	1,657,754	11.03	%	$	676,633	4.50	%	$	1,052,540	7.00	%	N/A		N/A
Bank	Bank	$	1,850,091	12.90	%	$	645,277	4.50	%	$	1,003,764	7.00	%	$	932,066	6.50	%	Bank	$	1,947,914	12.96	%	$	676,328	4.50	%	$	1,052,066	7.00	%	$	976,919	6.50	%
Total capital (to risk-weighted assets):	Total capital (to risk-weighted assets):																	Total capital (to risk-weighted assets):
Company	Company	$	1,846,229	12.87	%	$	1,147,317	8.00	%	$	1,505,853	10.50	%	N/A		N/A		Company	$	1,867,968	12.42	%	$	1,202,903	8.00	%	$	1,578,811	10.50	%	N/A		N/A
Bank	Bank	$	2,027,534	14.14	%	$	1,147,159	8.00	%	$	1,505,646	10.50	%	$	1,433,948	10.00	%	Bank	$	2,056,675	13.68	%	$	1,202,361	8.00	%	$	1,578,099	10.50	%	$	1,502,952	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	$	1,668,786	11.64	%	$	860,487	6.00	%	$	1,219,024	8.50	%	N/A		N/A		Company	$	1,759,207	11.70	%	$	902,178	6.00	%	$	1,278,085	8.50	%	N/A		N/A
Bank	Bank	$	1,850,091	12.90	%	$	860,369	6.00	%	$	1,218,856	8.50	%	$	1,147,159	8.00	%	Bank	$	1,947,914	12.96	%	$	901,771	6.00	%	$	1,277,509	8.50	%	$	1,202,361	8.00	%
Tier 1 capital (to average assets):	Tier 1 capital (to average assets):																	Tier 1 capital (to average assets):
Company	Company	$	1,668,786	10.22	%	$	653,163	4.00	%	N/A		N/A		N/A		N/A		Company	$	1,759,207	10.11	%	$	695,795	4.00	%	N/A		N/A		N/A		N/A
Bank	Bank	$	1,850,091	11.33	%	$	653,241	4.00	%	N/A		N/A		$	816,551	5.00	%	Bank	$	1,947,914	11.20	%	$	695,593	4.00	%	N/A		N/A		$	869,491	5.00	%

5658

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 June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(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	$	266	$	329	$	549	$	697	Monthly service charges	$	249	$	266	$	501	$	549
Customer analysis charges	Customer analysis charges	788		1,513		1,485		3,383		Customer analysis charges	1,183		788		2,115		1,485
NSF charges	NSF charges	618		561		1,315		2,216		NSF charges	731		618		1,400		1,315
Other service charges	Other service charges	82		157		170		373		Other service charges	84		82		181		170
Total noninterest bearing deposit account income	Total noninterest bearing deposit account income	1,754		2,560		3,519		6,669		Total noninterest bearing deposit account income	2,247		1,754		4,197		3,519

Interest bearing deposit account income:	Interest bearing deposit account income:									Interest bearing deposit account income:
Monthly service charges	Monthly service charges	23		23		48		47		Monthly service charges	23		23		47		48

Total service fees on deposit accounts	Total service fees on deposit accounts	$	1,777	$	2,583	$	3,567	$	6,716	Total service fees on deposit accounts	$	2,270	$	1,777	$	4,244	$	3,567

Wire transfer fee income:	Wire transfer fee income:									Wire transfer fee income:
Wire transfer fees	Wire transfer fees	$	786	$	765	$	1,489	$	1,571	Wire transfer fees	$	770	$	786	$	1,489	$	1,489
Foreign exchange fees	Foreign exchange fees	137		55		278		247		Foreign exchange fees	88		137		269		278
Total wire transfer fees	Total wire transfer fees	$	923	$	820	$	1,767	$	1,818	Total wire transfer fees	$	858	$	923	$	1,758	$	1,767

5759

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 June 30, ~~2021,~~2022, the Company had recognized net gains on sales of OREO ~~in the amounts of $27 thousand~~totaling $0 and ~~$13~~$20 thousand, respectively. For the three and six months ended June 30, ~~2020,~~2021, the Company recognized net ~~losses~~gains on sale of OREO in the amount of ~~$20~~$27 thousand and ~~$81~~$13 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.

5960

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~~2021 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~~wholly-owned subsidiary Bank of Hope. We have 5354 banking offices in California, New York/New Jersey, Illinois, Washington, Texas, Virginia, Alabama and ~~Alabama.~~Georgia. 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~~branches 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 other events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our 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 a rise in COVID cases or the ~~scope and duration~~impact of ~~the pandemic,~~new variants, 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. 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 had seen a decline in new cases of COVID-19 as a result of ~~the~~ vaccination efforts ~~underway,~~and many ~~parts~~states have relaxed most of the ~~world have seen a rise in new cases~~business closures 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~~other social distancing requirements, concerns over COVID-19 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 funded $324.5 million in second round PPP loans during the six months ended June 30, 2021.

~~At 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.~~exist. 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~~it is possible events related to the COVID-19 pandemic could materially and 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. 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.

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~~of this MD&A.


		At or for the Three Months Ended June 30,						At or for the Six Months Ended June 30,							At or for the Three Months Ended June 30,						At or for the Six Months Ended June 30,
		2021			2020			2021			2020				2022			2021			2022			2021
		(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	$	140,204		$	145,061		$	278,497		$	311,929		Interest income	$	157,824		$	140,204		$	302,696		$	278,497
Interest expense	Interest expense	13,627			35,247			29,341			82,824			Interest expense	16,286			13,627			27,982			29,341
Net interest income	Net interest income	126,577			109,814			249,156			229,105			Net interest income	141,538			126,577			274,714			249,156
Provision for credit losses		(7,000)			17,500			(3,700)			45,500
Net interest income after provision for credit losses		133,577			92,314			252,856			183,605
Provision (credit) for credit losses														Provision (credit) for credit losses	3,200			(7,000)			(7,800)			(3,700)
Net interest income after provision (credit) for credit losses														Net interest income after provision (credit) for credit losses	138,338			133,577			282,514			252,856
Noninterest income	Noninterest income	11,076			11,240			19,880			24,504			Noninterest income	12,746			11,076			25,932			19,880
Noninterest expense	Noninterest expense	73,123			67,030			143,554			139,170			Noninterest expense	80,365			73,123			155,738			143,554
Income before income tax provision	Income before income tax provision	71,530			36,524			129,182			68,939			Income before income tax provision	70,719			71,530			152,708			129,182
Income tax provision	Income tax provision	17,767			9,771			31,732			16,233			Income tax provision	18,631			17,767			39,882			31,732
Net income	Net income	$	53,763		$	26,753		$	97,450		$	52,706		Net income	$	52,088		$	53,763		$	112,826		$	97,450
Per Share Data:	Per Share Data:													Per Share Data:
Earnings per common share - basic	Earnings per common share - basic	$	0.44		$	0.22		$	0.79		$	0.43		Earnings per common share - basic	$	0.43		$	0.44		$	0.94		$	0.79
Earnings per common share - diluted	Earnings per common share - diluted	$	0.43		$	0.22		$	0.78		$	0.42		Earnings per common share - diluted	$	0.43		$	0.43		$	0.93		$	0.78
Book value per common share (period end)	Book value per common share (period end)	$	16.92		$	16.48		$	16.92		$	16.48		Book value per common share (period end)	$	16.74		$	16.92		$	16.74		$	16.92
Cash dividends declared per common share	Cash dividends declared per common share	$	0.14		$	0.14		$	0.28		$	0.28		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)	$	13.10		$	12.62		$	13.10		$	12.62		Tangible book value per common share (period end) (1)	$	12.80		$	13.10		$	12.80		$	13.10
Number of common shares outstanding (period end)	Number of common shares outstanding (period end)	123,673,832			123,239,276			123,673,832			123,239,276			Number of common shares outstanding (period end)	119,473,939			123,673,832			119,473,939			123,673,832
Weighted average shares - basic	Weighted average shares - basic	123,592,695			123,200,127			123,459,461			123,747,727			Weighted average shares - basic	120,219,919			123,592,695			120,175,894			123,459,461
Weighted average shares - diluted	Weighted average shares - diluted	124,323,888			123,430,891			124,334,227			124,054,291			Weighted average shares - diluted	120,699,638			124,323,888			120,898,605			124,334,227
Tangible common equity to tangible assets (1)	Tangible common equity to tangible assets (1)	9.53		%	9.32		%	9.53		%	9.32		%	Tangible common equity to tangible assets (1)	8.68		%	9.53		%	8.68		%	9.53		%

Average Balance Sheet Data:	Average Balance Sheet Data:													Average Balance Sheet Data:
Assets	Assets	$	17,164,893		$	16,759,147		$	17,140,286		$	16,102,977		Assets	$	17,876,945		$	17,164,893		$	17,810,045		$	17,140,286
Securities available for sale		2,253,135			1,750,156			2,260,233			1,731,094
Investment securities														Investment securities	2,424,454			2,253,135			2,522,293			2,260,233
Loans receivable and loans held for sale	Loans receivable and loans held for sale	13,293,591			12,755,088			13,319,782			12,507,468			Loans receivable and loans held for sale	14,327,476			13,293,591			14,100,983			13,319,782
Deposits	Deposits	14,460,491			13,653,065			14,419,176			12,997,544			Deposits	14,804,772			14,460,491			14,876,305			14,419,176
Stockholders’ equity	Stockholders’ equity	2,066,016			2,016,947			2,056,812			2,022,271			Stockholders’ equity	2,016,577			2,066,016			2,053,461			2,056,812


		For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2021			2020			2021			2020			2022			2021			2022		2021
Selected Performance Ratios:	Selected Performance Ratios:												Selected Performance Ratios:
Return on average assets (2)	Return on average assets (2)	1.25		%	0.64		%	1.14	%		0.65	%	Return on average assets (2)	1.17		%	1.25		%	1.27	%	1.14	%
Return on average stockholders’ equity (2)	Return on average stockholders’ equity (2)	10.41		%	5.31		%	9.48	%		5.21	%	Return on average stockholders’ equity (2)	10.33		%	10.41		%	10.99	%	9.48	%
Return on average tangible equity (1) (2)	Return on average tangible equity (1) (2)	13.50		%	6.94		%	12.31	%		6.82	%	Return on average tangible equity (1) (2)	13.48		%	13.50		%	14.27	%	12.31	%
Dividend payout ratio (dividends per share/diluted EPS)	Dividend payout ratio (dividends per share/diluted EPS)	32.38		%	64.61		%	35.72	%		65.90	%	Dividend payout ratio (dividends per share/diluted EPS)	32.44		%	32.38		%	30.00	%	35.72	%
Efficiency ratio (3)	Efficiency ratio (3)	53.12		%	55.37		%	53.36	%		54.88	%	Efficiency ratio (3)	52.09		%	53.12		%	51.80	%	53.36	%
Net interest spread	Net interest spread	2.88		%	2.41		%	2.84	%		2.58	%	Net interest spread	3.10		%	2.88		%	3.05	%	2.84	%
Net interest margin (4)	Net interest margin (4)	3.11		%	2.79		%	3.09	%		3.04	%	Net interest margin (4)	3.36		%	3.11		%	3.28	%	3.09	%

										June 30, 2022				June 30, 2021
		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	$	17,469,627		$	17,169,062							Assets	$	18,089,062		$	17,469,627
Securities available for sale		2,274,170			1,887,604
Investment securities AFS and HTM													Investment securities AFS and HTM	2,352,997			2,274,170
Loans receivable	Loans receivable	13,424,301			12,871,834								Loans receivable	14,546,049			13,424,301
Deposits	Deposits	14,726,230			14,123,532								Deposits	15,029,630			14,726,230
FHLB advances	FHLB advances	200,000			500,000								FHLB advances	573,000			200,000
Convertible notes, net	Convertible notes, net	215,739			201,987								Convertible notes, net	216,678			215,739
Subordinated debentures	Subordinated debentures	104,762			103,602								Subordinated debentures	105,953			104,762
Stockholders’ equity	Stockholders’ equity	2,092,870			2,030,776								Stockholders’ equity	2,000,369			2,092,870

Regulatory Capital Ratios (5)	Regulatory Capital Ratios (5)												Regulatory Capital Ratios (5)
Leverage capital ratio		10.43		%	10.08		%
Leverage capital ratio (6)													Leverage capital ratio (6)	10.32		%	10.43		%
Common equity Tier 1 capital ratio	Common equity Tier 1 capital ratio	11.44		%	11.50		%						Common equity Tier 1 capital ratio	10.69		%	11.44		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	12.14		%	12.24		%						Tier 1 risk-based capital ratio	11.33		%	12.14		%
Total risk-based capital ratio	Total risk-based capital ratio	13.16		%	13.23		%						Total risk-based capital ratio	12.13		%	13.16		%

Asset Quality Ratios:	Asset Quality Ratios:												Asset Quality Ratios:
Allowance for credit losses to loans receivable	Allowance for credit losses to loans receivable	1.41		%	1.26		%						Allowance for credit losses to loans receivable	1.04		%	1.41		%
Allowance for credit losses to nonaccrual loans	Allowance for credit losses to nonaccrual loans	170.67		%	196.95		%						Allowance for credit losses to nonaccrual loans	218.03		%	170.67		%
Allowance for credit losses to nonperforming loans (6)		113.36		%	127.79		%
Allowance for credit losses to nonperforming loans													Allowance for credit losses to nonperforming loans	139.63		%	113.36		%
Allowance for credit losses to nonperforming assets (7)	Allowance for credit losses to nonperforming assets (7)	103.11		%	109.62		%						Allowance for credit losses to nonperforming assets (7)	137.09		%	103.11		%
Nonaccrual loans to loans receivable	Nonaccrual loans to loans receivable	0.83		%	0.64		%						Nonaccrual loans to loans receivable	0.48		%	0.83		%
Nonperforming loans to loans receivable (6)		1.24		%	0.98		%
Nonperforming loans to loans receivable													Nonperforming loans to loans receivable	0.75		%	1.24		%
Nonperforming assets to loans receivable and OREO (7)	Nonperforming assets to loans receivable and OREO (7)	1.37		%	1.14		%						Nonperforming assets to loans receivable and OREO (7)	0.76		%	1.37		%
Nonperforming assets to total assets (7)	Nonperforming assets to total assets (7)	1.05		%	0.86		%						Nonperforming assets to total assets (7)	0.61		%	1.05		%

(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 operating results and financial ~~performance and position.~~condition. 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 1 risk-based capital, and 10.0% total risk-based capital.

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

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

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 operating results and financial ~~performance and position.~~condition. The methodologies for ~~determining~~calculating non-GAAP measures may differ among companies. The following tables reconciles the non-GAAP financial measures used in this Form 10-Q to the most comparable GAAP performance measures:


		At June 30,
		2021			2020				June 30, 2022			June 30, 2021
		(Dollars in thousands, except share data)							(Dollars in thousands, except share data)
Total stockholders’ equity	Total stockholders’ equity	$	2,092,870		$	2,030,776		Total stockholders’ equity	$	2,000,369		$	2,092,870
Less: Goodwill and core deposit intangible assets, net	Less: Goodwill and core deposit intangible assets, net	(473,139)			(475,220)			Less: Goodwill and core deposit intangible assets, net	(471,148)			(473,139)
Tangible common equity	Tangible common equity	$	1,619,731		$	1,555,556		Tangible common equity	$	1,529,221		$	1,619,731

Total assets	Total assets	$	17,469,627		$	17,169,062		Total assets	$	18,089,062		$	17,469,627
Less: Goodwill and core deposit intangible assets, net	Less: Goodwill and core deposit intangible assets, net	(473,139)			(475,220)			Less: Goodwill and core deposit intangible assets, net	(471,148)			(473,139)
Tangible Assets	Tangible Assets	$	16,996,488		$	16,693,842		Tangible Assets	$	17,617,914		$	16,996,488

Common shares outstanding	Common shares outstanding	123,673,832			123,239,276			Common shares outstanding	119,473,939			123,673,832

Tangible book value per common share	Tangible book value per common share	$	13.10		$	12.62		Tangible book value per common share	$	12.80		$	13.10
Tangible common equity to tangible assets	Tangible common equity to tangible assets	9.53		%	9.32		%	Tangible common equity to tangible assets	8.68		%	9.53		%

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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Dollars in thousands)
Net income $ 53,763 $ 26,753 $ 97,450 $ 52,706
Average stockholders’ equity $ 2,066,016 $ 2,016,947 $ 2,056,812 $ 2,022,271
Less: Average goodwill and core deposit intangible assets, net (473,445) (475,534) (473,702) (475,793)
Average tangible equity $ 1,592,571 $ 1,541,413 $ 1,583,110 $ 1,546,478
Return on average tangible equity (annualized) 13.50 % 6.94 % 12.31 % 6.82 %


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
	(Dollars in thousands)
Net income	$	52,088		$	53,763		$	112,826		$	97,450

Average stockholders’ equity	$	2,016,577		$	2,066,016		$	2,053,461		$	2,056,812
Less: Average goodwill and core deposit intangible assets, net	(471,421)			(473,445)			(471,669)			(473,702)
Average tangible equity	$	1,545,156		$	1,592,571		$	1,581,792		$	1,583,110

Return on average tangible equity (annualized)	13.48		%	13.50		%	14.27		%	12.31		%

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.

Results of Operations

Overview

Net income for the second quarter of ~~2021~~2022 was ~~$53.8~~$52.1 million, or $0.43 per diluted common share, compared to ~~$26.8~~$53.8 million, or ~~$0.22~~$0.43 per diluted common share, for the same period of ~~2020,~~2021, which was ~~an increase~~a decrease of ~~$27.0~~$1.7 million, or ~~101.0%~~3.1%. The ~~increase~~decrease in net income was primarily due to ~~a decrease~~the increase in ~~the~~ provision for credit losses ~~which resulted from the current~~ and ~~projected improvements~~an increase in ~~the economy from the COVID-19 pandemic in addition to~~noninterest expense offset partially by an increase in net interest income.

Net income for the six months ended June 30, ~~2021~~2022 was ~~$97.5~~$112.8 million, or ~~$0.78~~$0.93 per diluted common share, compared to ~~$52.7~~$97.5 million, or ~~$0.42~~$0.78 per diluted share, for the same period of ~~2020,~~2021, which was an increase of ~~$44.7~~$15.4 million, or ~~84.9%~~15.8%. The increase in net income was due to ~~a decrease in provision for credit losses which resulted from the current and projected improvements in the economy from the COVID-19 pandemic in addition to~~ an increase in net interest ~~income.~~income offset partially by an increase in noninterest expense.

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 June 30, ~~2021~~2022 and ~~2020:~~2021:

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Dollars in thousands)
Accretion of discounts on purchased performing loans $ 366 $ 658 $ 1,071 $ 1,717
Accretion of discounts on PCD loans 2,188 3,046 4,443 12,495
Amortization of premiums on purchased investments in affordable housing partnerships (74) (70) (147) (141)
Accretion of discounts on assumed subordinated debt (293) (284) (584) (567)
Amortization of core deposit intangibles (510) (532) (1,019) (1,063)
Total $ 1,677 $ 2,818 $ 3,764 $ 12,441


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Accretion on acquired loans (including acquired credit deteriorated loans)	$	999	$	2,554	1,882		5,514
Amortization of premium on low income housing tax credits	(75)		(74)		(151)		(147)
Accretion of discount on acquired subordinated debt	(301)		(293)		(599)		(584)
Amortization of core deposit intangibles	(486)		(510)		(973)		(1,019)
Total	$	137	$	1,677	$	159	$	3,764

The annualized return on average assets was ~~1.25%~~1.17% for the second quarter of ~~2021~~2022 compared to ~~0.64%~~1.25% for the same period of ~~2020.~~2021. The annualized return on average stockholders’ equity was ~~10.41%~~10.33% for the second quarter of ~~2021~~2022 compared to ~~5.31%~~10.41% for the same period of ~~2020.~~2021. The efficiency ratio was ~~53.12%~~52.09% for the second quarter of ~~2021~~2022 compared to ~~55.37%~~53.12% for the same period of ~~2020.~~2021.

The annualized return on average assets was ~~1.14%~~1.27% for the six months ended June 30, ~~2021~~2022 compared to ~~0.65%~~1.14% for the same period of ~~2020.~~2021. The annualized return on average stockholders’ equity was ~~9.48%~~10.99% for the six months ended June 30, ~~2021~~2022 compared to ~~5.21%~~9.48% for the same period of ~~2020.~~2021. The efficiency ratio was ~~53.36%~~51.80% for the six months ended June 30, ~~2021~~2022 compared to ~~54.88%~~53.36% for the same period of ~~2020.~~2021.

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 June 30, ~~2021~~2022 with the Three Months Ended June 30, ~~2020~~2021

Net interest income before provision for credit losses was ~~$126.6~~$141.5 million for the second quarter of ~~2021~~2022 compared to ~~$109.8~~$126.6 million for the same period of ~~2020,~~2021, an increase of ~~$16.8~~$15.0 million, or ~~15.3%~~11.8%. The increase in net interest income was due to the ~~reduction~~increase in interest ~~expense~~income for the second quarter of ~~2021~~2022 compared to the second quarter of ~~2020 offset partly by a decrease~~2021.

Interest income for the second quarter of 2022 was $157.8 million, an increase of $17.6 million, or 12.6%, compared to $140.2 million for the same period of 2021. The increase in interest ~~income.~~income was primarily attributable to the increase in average earnings assets, particularly the increase in loans, but also due to an increase in yields of interest earning assets driven by the 2022 increase in federal funds rate by 150 basis points.

Interest ~~income~~expense for the second quarter of ~~2021~~2022 was ~~$140.2~~$16.3 million, ~~a decrease~~an increase of ~~$4.9~~$2.7 million, or ~~3.3%~~19.5%, compared to ~~$145.1~~$13.6 million for the same period of ~~2020.~~2021. 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 on the U.S. economy, the FOMC lowered the target federal funds rate by a total of 1.50% in March 2020 to 0.00%-0.25%. The reduction in interest rates in March 2020 had a large impact on our loan yields and interest income as our variable rate loans repriced to lower interest rates and new loans were originated at lower rates. Interest income on our investment securities also declined due to the repricing of variable rate investments and the sale and pay-down of higher yielding securities in combination with the purchase of lower yielding securities which contributed to the decline in interest income.

~~Interest expense for the second quarter of 2021 was $13.6 million, a decrease of $21.6 million, or 61.3%, compared to $35.2 million for the same period of 2020. The decrease~~increase in interest expense was due to the ~~overall decline~~increase in ~~our~~ cost of interest bearing deposits resulting 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 1-2 quarters as higher cost time deposits continue to renew to lower rates. Interest expense on FHLB borrowings declinedincreases in the second quarter of 2021 compared to the second quarter of 2020 primarily due to the pay-down of FHLB borrowings during the third quarter of 2020. With the adoption of ASU 2020-06, interest expense on our convertible notes declined by $1.0 million for the second quarter of 2021 compared to the second quarter of 2020 due to the reduction in non-cash interest expense as we no longer have a discount portion to amortize.federal funds rate.

Comparison of Six Months Ended June 30, ~~2021~~2022 with the Six Months Ended June 30, ~~2020~~2021

Net interest income before provision for credit losses was ~~$249.2~~$274.7 million for the six months ended June 30, ~~2021~~2022 compared to ~~$229.1~~$249.2 million for the same period of ~~2020,~~2021, an increase of ~~$20.1~~$25.6 million, or ~~8.8%~~10.3%. The increase in net interest income was due to the ~~reduction~~increase in interest ~~expense for the~~income for the six months ended June 30, ~~2021~~2022 compared to the same period of ~~2020 offset partly by a decrease in interest income.~~2021.

Interest income for the six months ended June 30, ~~2021~~2022 was ~~$278.5~~$302.7 million, ~~a decrease~~an increase of ~~$33.4~~$24.2 million, or ~~10.7%~~8.7%, compared to ~~$311.9~~$278.5 million for the same period of ~~2020.~~2021. The ~~decrease~~increase in interest income was primarily attributable to the ~~decline~~increase in average earning assets, particularly the increase in loans, but also due to the 2022 increase in interest rates, which impacted our variable rate loans and ~~the interest rates on new loan originations.~~investments.

Interest expense for the six months ended June 30, ~~2021~~2022 was ~~$29.3~~$28.0 million, a decrease of ~~$53.5~~$1.4 million, or ~~64.6%~~4.6%, compared to ~~$82.8~~$29.3 million for the same period of ~~2020.~~2021. The decrease in interest expense was due to the ~~repricing of~~decline in interest expense on time deposits due to ~~lower rates as well as~~ a reduction in ~~rates on money market~~balances 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.~~costs.

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 second quarter of ~~2021~~2022 was ~~3.11%~~3.36%, an increase of 3225 basis points from ~~2.79%~~3.11% for the same period of ~~2020.~~2021. Net interest margin for the six months ended June 30, ~~2021~~2022 was ~~3.09%~~3.28%, an increase of 519 basis points from ~~3.04% for the~~3.09% for the same period of ~~2020.~~2021. The increase in net interest margin for the three and six months ended June 30, ~~2021~~2022 compared to the three and six months ended June 30, 2020 was due to decreases in cost of interest bearing deposits, FHLB advances, convertible notes and other borrowings and partially offset by an overall decline in yields on loans and securities available for sale as these earning assets were fully impacted by the decline in 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~~increase in average loan balances and the increase in yields on earnings assets as a result of ~~ASU 2020-06 at~~ the ~~beginning~~rate hikes in 2022. The increase in yield on earnings assets was offset partially by an increase in cost of ~~2021.~~

liabilities for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, while the decline in cost of liabilities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 contributed to the increase in net interest margin as the 2022 rate hikes had not yet fully impacted liabilities’ costs for the six months ended June 30, 2022.

The weighted average yield on loans ~~decreased~~increased to 4.06% for the second quarter of 2022 from 3.98% for the second quarter of ~~2021 from 4.23% for the second quarter of 2020.~~2021. The weighted average yield on loans ~~decreased~~increased to 3.97% for the six months ended June 30, 2022 from 3.96% for the six months ended June 30, ~~2021 from 4.64% for the six months ended June 30, 2020.~~2021. The ~~decrease~~increase in loan yields for the three and six months ended June 30, ~~2021~~2022 compared to the same periods in ~~2020~~2021 was ~~mostly due~~attributable to the ~~decrease~~impact of the hike in federal funds target rate on variable interest ~~rates experienced in 2020~~rate loans 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 for~~ new loan ~~originations, which resulted in an overall decline in loan yields.~~originations. At June 30, ~~2021,~~2022, variable interest rate loans made up ~~40%~~approximately 44% of the loan portfolio and the remaining ~~60%~~56% 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~~fixed number of ~~time.~~years. For the three and six months ended June 30, ~~2021,~~2022, the average weighted rate on new loan originations was ~~2.95%~~4.26% and 3.94%, respectively, compared to ~~2.86%~~3.32% and 2.95% for the three and six months ended June 30, ~~2020.~~2021, respectively. The increase in the average weighted rate on new loan originations for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 ~~compared to the six months ended June 30, 2020~~ was due to ~~higher levels of~~the 2022 interest rate hikes which increased overall loan origination rates and the originations of SBA PPP loans ~~for 2020~~in 2021 which all have an interest rate of 1.00%. Excluding SBA PPP loans, the average weighted rate on new loan originations was 3.37% and 3.40% for the three and six months ended June 30, 2021, ~~was 3.40% compared to 3.77% for the six months ended June 30, 2020.~~respectively. There were no SBA PPP originations in 2022.

Discount accretion income on acquired loans was $1.0 million and $1.9 million for the three and six months ended June 30, 2022, respectively, compared to $2.6 million and $5.5 million for the three and six months ended June 30, 2021, ~~respectively, compared to $3.7 million and $14.2 million for the three and six months ended June 30, 2020,~~ respectively. The decline in discount accretion income was primarily due to the payoff and sales of acquired loans during the three and six months ended June 30, ~~2020~~2021 which resulted in additional discount accretion income. There were no significant payoffs or sales of acquired loans during the three orand six months ended June 30, ~~2021.~~2022.

The weighted average yield on investment securities ~~available for sale~~ for the second quarter of ~~2021~~2022 was ~~1.37%~~2.04% compared to ~~2.27%~~1.37% for the same period of ~~2020.~~2021. The weighted average yield on investment securities ~~available for sale~~ for the six months ended June 30, ~~2021~~2022 was ~~1.39%~~1.92% compared to ~~2.38%~~1.39% for the same period of ~~2020.~~2021. The change in weighted average yield on investment securities ~~available for sale~~ for the three and six months ended June 30, ~~2021~~2022 compared to the same periods of ~~2020~~2021 was due to the ~~reduction~~purchase of higher yielding investment securities and increase in yields on variable rate investments as a result of the increase in interest ~~rates, which impacted our variable rate investments.~~rates. The ~~decline~~change in yields was also ~~due to~~impacted by fluctuations in the overall investment portfolio yield due to the ~~purchase, sale, pay-downs, and calls/maturities~~change in pay-down speeds of investment ~~securities during the twelve months ended June 30, 2021.~~securities.

The weighted average yield on FHLB stock and other investments for the second quarter of ~~2021~~2022 was ~~0.35%~~1.47% compared to ~~0.30%~~0.35% for the same period of ~~2020.~~2021. The weighted average yield on FHLB stock and other investments for the six months ended June 30, 2021 was ~~0.38%~~0.86% compared to ~~0.66%~~0.38% for the same period of ~~2020.~~2021. The decrease in weighted average yield on FHLB stock and other investments for the six months ended June 30, 2021 compared to the same period of 2020 was due to the decline in interest rates experienced in 2020. The declineincrease in interest rates led to ~~a decrease~~an increase in interest earned on interest bearing cash balances at the Federal Reserve, which resulted in ~~a decrease~~an increase in yield on FHLB stock and other investments.

The weighted average cost of deposits for the second quarter of ~~2021~~2022 was ~~0.30%~~0.33%, ~~a decrease~~an increase of 573 basis points from ~~0.87%~~0.30% for the same period of ~~2020.~~2021. The weighted average cost of deposits for the six months ended June 30, ~~2021~~2022 was ~~0.33%~~0.28%, a decrease of 765 basis points from ~~1.09%~~0.33% for the same period of ~~2020.~~2021. The ~~decline~~increase in ~~interest rates experienced in 2020 resulted in a decrease in the weighted average~~ cost of deposits for the ~~three and~~second quarter of 2022 compared to the same period of 2021 was due to the rise in deposit costs as management increased deposits offering rates as a result of the 2022 rise in interest rates. The rise in interest rates had less of an impact on deposit rates for the six months ended June 30, ~~2021~~2022 as the rate changes occurred mostly in the second quarter of 2022 which resulted in a decline in deposit costs compared to the ~~same 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.~~six months ended June 30, 2021.

The weighted average cost of FHLB ~~advances~~and FRB borrowings for the second quarter of ~~2021~~2022 was ~~1.25%~~1.01%, a decrease of 2724 basis points from ~~1.52%~~1.25% for the same period of ~~2020.~~2021. The weighted average cost of FHLB advances for the six months ended June 30, ~~2021~~2022 was ~~1.23%~~1.05%, a decrease of 4218 basis points from ~~1.65%~~1.23% for the same period of ~~2020.~~2021. The decrease in cost of FHLB ~~advances~~and FRB borrowings for the three and six months ended June 30, ~~2021~~2022 compared to the same periods of ~~2020~~2021 was due to ~~higher rate FHLB advances that were prepaid early before maturity during the third quarter of 2020 combined with an overall~~a decline in FHLB ~~borrowing~~advance rates for periods in 2022 compared to 2021 as ~~a result~~most of our advances were made prior to the ~~decline~~rise in interest rates.

The weighted average cost of our convertible notes for the three and six months ended June 30, 2022 was 2.42% and 2.43%, respectively, compared to 2.43% and 2.44% for the three and six months ended June 30, 2021, ~~respectively, compared to 4.64% for the three and six months ended June 30, 2020.~~respectively. The cost of our convertible notes ~~for periods in 2021 consisted~~consists of the 2.00% coupon rate and non-cash interest expense from the capitalization of issuance cost. The cost of our convertible notes for the three and six months ended June 30, 2020 also included non-cash 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 June 30, 2021 by approximately $1.0 million and $2.1 million, respectively, compared to the three and six months ended June 30, 2020.

The weighted average cost of other borrowings (subordinated debentures) for the second quarter of ~~2021~~2022 was ~~3.84%~~5.00%, ~~a decrease~~an increase of 93116 basis points from ~~4.77%~~3.84% for the same period of ~~2020.~~2021. The weighted average cost of other borrowings for the six months ended June 30, ~~2021~~2022 was ~~3.87%~~4.49%, ~~a decrease~~an increase of ~~145~~62 basis points from ~~5.32%~~3.87% for the same period of ~~2020.~~2021. Subordinated debentures have variable interest rates that are tied to the three month LIBOR rate. The ~~decline~~increase in the three month LIBOR rate for the three and six months ended June 30, ~~2021~~2022 compared to the same periods in ~~2020~~2021 resulted in ~~a decline~~an increase in the weighted average cost of other borrowings.

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


		Three Months Ended June 30,													Three Months Ended June 30,
		2021						2020							2022						2021
		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)	$	13,293,591	$	131,823	3.98	%	$	12,755,088	$	134,190	4.23	%	Loans(1) (2)	$	14,327,476	$	145,024	4.06	%	$	13,293,591	$	131,823	3.98	%
Securities available for sale(3)		2,253,135		7,713		1.37	%	1,750,156		9,891		2.27	%
Investment securities AFS and HTM(3)														Investment securities AFS and HTM(3)	2,424,454		12,308		2.04	%	2,253,135		7,713		1.37	%
FHLB stock and other investments	FHLB stock and other investments	759,182		668		0.35	%	1,317,049		980		0.30	%	FHLB stock and other investments	134,055		492		1.47	%	759,182		668		0.35	%
Total interest earning assets	Total interest earning assets	16,305,908		140,204		3.45	%	15,822,293		145,061		3.69	%	Total interest earning assets	16,885,985		157,824		3.75	%	16,305,908		140,204		3.45	%
Total noninterest earning assets	Total noninterest earning assets	858,985						936,854						Total noninterest earning assets	990,960						858,985
Total assets	Total assets	$	17,164,893					$	16,759,147					Total assets	$	17,876,945					$	17,164,893

INTEREST BEARING LIABILITIES:	INTEREST BEARING LIABILITIES:													INTEREST BEARING LIABILITIES:
Deposits:	Deposits:													Deposits:
Demand, interest bearing	Demand, interest bearing	$	5,484,047	$	5,909	0.43	%	$	4,903,786	$	7,563	0.62	%	Demand, interest bearing	$	6,487,890	$	8,655	0.54	%	$	5,484,047	$	5,909	0.43	%
Savings	Savings	308,530		887		1.15	%	284,050		862		1.22	%	Savings	323,114		937		1.16	%	308,530		887		1.15	%
Time deposits	Time deposits	3,222,457		3,900		0.49	%	4,954,446		21,026		1.71	%	Time deposits	2,277,938		2,628		0.46	%	3,222,457		3,900		0.49	%
Total interest bearing deposits	Total interest bearing deposits	9,015,034		10,696		0.48	%	10,142,282		29,451		1.17	%	Total interest bearing deposits	9,088,942		12,220		0.54	%	9,015,034		10,696		0.48	%
FHLB advances		202,198		631		1.25	%	593,407		2,238		1.52	%
FHLB and FRB borrowings														FHLB and FRB borrowings	577,966		1,457		1.01	%	202,198		631		1.25	%
Convertible notes, net	Convertible notes, net	215,599		1,323		2.43	%	201,169		2,358		4.64	%	Convertible notes, net	216,540		1,322		2.42	%	215,599		1,323		2.43	%
Other borrowings, net	Other borrowings, net	100,701		977		3.84	%	99,534		1,200		4.77	%	Other borrowings, net	101,880		1,287		5.00	%	100,701		977		3.84	%
Total interest bearing liabilities	Total interest bearing liabilities	9,533,532		13,627		0.57	%	11,036,392		35,247		1.28	%	Total interest bearing liabilities	9,985,328		16,286		0.65	%	9,533,532		13,627		0.57	%
Noninterest bearing liabilities and equity:	Noninterest bearing liabilities and equity:													Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	Noninterest bearing demand deposits	5,445,457						3,510,783						Noninterest bearing demand deposits	5,715,830						5,445,457
Other liabilities	Other liabilities	119,888						195,025						Other liabilities	159,210						119,888
Stockholders’ equity	Stockholders’ equity	2,066,016						2,016,947						Stockholders’ equity	2,016,577						2,066,016
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,164,893					$	16,759,147					Total liabilities and stockholders’ equity	$	17,876,945					$	17,164,893

Net interest income/net interest spread	Net interest income/net interest spread			$	126,577	2.88	%			$	109,814	2.41	%	Net interest income/net interest spread			$	141,538	3.10	%			$	126,577	2.88	%
Net interest margin	Net interest margin					3.11	%					2.79	%	Net interest margin					3.36	%					3.11	%
Cost of deposits	Cost of deposits					0.30	%					0.87	%	Cost of deposits					0.33	%					0.30	%

* 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,													Six Months Ended June 30,
		2021						2020							2022						2021
		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)	$	13,319,782	$	261,559	3.96	%	$	12,507,468	$	288,420	4.64	%	Loans(1) (2)	$	14,100,983	$	277,696	3.97	%	$	13,319,782	$	261,559	3.96	%
Securities available for sale(3)		2,260,233		15,628		1.39	%	1,731,094		20,500		2.38	%
Investment securities AFS and HTM(3)														Investment securities AFS and HTM(3)	2,522,293		23,964		1.92	%	2,260,233		15,628		1.39	%
FHLB stock and other investments	FHLB stock and other investments	700,115		1,310		0.38	%	918,179		3,009		0.66	%	FHLB stock and other investments	242,810		1,036		0.86	%	700,115		1,310		0.38	%
Total interest earning assets	Total interest earning assets	16,280,130		278,497		3.45	%	15,156,741		311,929		4.14	%	Total interest earning assets	16,866,086		302,696		3.62	%	16,280,130		278,497		3.45	%
Total noninterest earning assets	Total noninterest earning assets	860,156						946,236						Total noninterest earning assets	943,959						860,156
Total assets	Total assets	$	17,140,286					$	16,102,977					Total assets	$	17,810,045					$	17,140,286

INTEREST BEARING LIABILITIES:	INTEREST BEARING LIABILITIES:													INTEREST BEARING LIABILITIES:
Deposits:	Deposits:													Deposits:
Demand, interest bearing	Demand, interest bearing	$	5,370,941	$	11,399	0.43	%	$	4,554,096	$	22,443	0.99	%	Demand, interest bearing	$	6,413,292	$	14,355	0.45	%	$	5,370,941	$	11,399	0.43	%
Savings	Savings	304,877		1,757		1.16	%	279,063		1,670		1.20	%	Savings	320,824		1,865		1.17	%	304,877		1,757		1.16	%
Time deposits	Time deposits	3,493,278		10,310		0.60	%	4,927,425		46,451		1.90	%	Time deposits	2,447,771		4,676		0.39	%	3,493,278		10,310		0.60	%
Total interest bearing deposits	Total interest bearing deposits	9,169,096		23,466		0.52	%	9,760,584		70,564		1.45	%	Total interest bearing deposits	9,181,887		20,896		0.46	%	9,169,096		23,466		0.52	%
FHLB advances		209,006		1,273		1.23	%	594,148		4,885		1.65	%
FHLB advances and FRB borrowings														FHLB advances and FRB borrowings	411,187		2,144		1.05	%	209,006		1,273		1.23	%
Convertible notes, net	Convertible notes, net	215,302		2,645		2.44	%	200,565		4,704		4.64	%	Convertible notes, net	216,423		2,645		2.43	%	215,302		2,645		2.44	%
Other borrowings, net	Other borrowings, net	100,547		1,957		3.87	%	99,393		2,671		5.32	%	Other borrowings, net	101,729		2,297		4.49	%	100,547		1,957		3.87	%
Total interest bearing liabilities	Total interest bearing liabilities	9,693,951		29,341		0.61	%	10,654,690		82,824		1.56	%	Total interest bearing liabilities	9,911,226		27,982		0.57	%	9,693,951		29,341		0.61	%
Noninterest bearing liabilities and equity:	Noninterest bearing liabilities and equity:													Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	Noninterest bearing demand deposits	5,250,080						3,236,960						Noninterest bearing demand deposits	5,694,418						5,250,080
Other liabilities	Other liabilities	139,443						189,056						Other liabilities	150,940						139,443
Stockholders’ equity	Stockholders’ equity	2,056,812						2,022,271						Stockholders’ equity	2,053,461						2,056,812
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,140,286					$	16,102,977					Total liabilities and stockholders’ equity	$	17,810,045					$	17,140,286

Net interest income/net interest spread	Net interest income/net interest spread			$	249,156	2.84	%			$	229,105	2.58	%	Net interest income/net interest spread			$	274,714	3.05	%			$	249,156	2.84	%
Net interest margin	Net interest margin					3.09	%					3.04	%	Net interest margin					3.28	%					3.09	%
Cost of deposits	Cost of deposits					0.33	%					1.09	%	Cost of deposits					0.28	%					0.33	%

~~__________________________________~~

* 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

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 June 30, 2022 over June 30, 2021
	Net Increase (Decrease)		Change due to:
			Rate		Volume
	(Dollars in thousands)
INTEREST INCOME:
Loans, including fees	$	13,201	$	2,781	$	10,420
Investment securities AFS and HTM	4,595		3,970		625
FHLB stock and other investments	(176)		734		(910)
Total interest income	$	17,620	$	7,485	$	10,135
INTEREST EXPENSE:
Demand, interest bearing	$	2,746	$	1,552	$	1,194
Savings	50		8		42
Time deposits	(1,272)		(175)		(1,097)
FHLB and FRB borrowings	826		(142)		968
Convertible notes, net	(1)		(7)		6
Other borrowings, net	310		298		12
Total interest expense	$	2,659	$	1,534	$	1,125
NET INTEREST INCOME	$	14,961	$	5,951	$	9,010

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							Six Months Ended June 30, 2022 over June 30, 2021
		Net Increase (Decrease)		Change due to:					Net Increase (Decrease)		Change due to:
				Rate		Volume					Rate		Volume
		(Dollars in thousands)							(Dollars in thousands)
INTEREST INCOME:	INTEREST INCOME:							INTEREST INCOME:
Loans, including fees	Loans, including fees	$	(26,861)	$	(44,455)	$	17,594	Loans, including fees	$	16,137	$	755	$	15,382
Securities available for sale		(4,872)		(9,997)		5,125
Investment securities AFS and HTM								Investment securities AFS and HTM	8,336		6,364		1,972
FHLB stock and other investments	FHLB stock and other investments	(1,699)		(1,092)		(607)		FHLB stock and other investments	(274)		952		(1,226)
Total interest income	Total interest income	$	(33,432)	$	(55,544)	$	22,112	Total interest income	$	24,199	$	8,071	$	16,128
INTEREST EXPENSE:	INTEREST EXPENSE:							INTEREST EXPENSE:
Demand, interest bearing	Demand, interest bearing	$	(11,044)	$	(14,496)	$	3,452	Demand, interest bearing	$	2,956	$	649	$	2,307
Savings	Savings	87		(60)		147		Savings	108		15		93
Time deposits	Time deposits	(36,141)		(25,376)		(10,765)		Time deposits	(5,634)		(3,048)		(2,586)
FHLB advances		(3,612)		(1,026)		(2,586)
FHLB and FRB borrowings								FHLB and FRB borrowings	871		(206)		1,077
Convertible notes, net	Convertible notes, net	(2,059)		(2,369)		310		Convertible notes, net	—		(14)		14
Other borrowings, net	Other borrowings, net	(714)		(743)		29		Other borrowings, net	340		317		23
Total interest expense	Total interest expense	$	(53,483)	$	(44,070)	$	(9,413)	Total interest expense	$	(1,359)	$	(2,287)	$	928
NET INTEREST INCOME	NET INTEREST INCOME	$	20,051	$	(11,474)	$	31,525	NET INTEREST INCOME	$	25,558	$	10,358	$	15,200

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~~management’s 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,~~provisions, 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 second quarter of ~~2021~~2022 was $3.2 million, an increase of $10.2 million from $7.0 million ~~a decrease of $24.5 million from $17.5 million~~in the recapture of provision for credit losses for the same period of the prior year. ~~The negative~~Negative provision for credit losses for the six months ended June 30, ~~2021~~2022 was $7.8 million, an increase of $4.1 million from $3.7 million ~~a decrease of $49.2 million from $45.5 million of~~in negative provision for credit losses for the same period of the prior year. The ~~overall~~increase in provision for credit losses for the second quarter of 2022 compared to the second quarter of 2021 was due to an increase in allowance for credit losses as a result of loan growth and to account for the recent rise in recessionary concerns. The decrease in provision for credit losses for ~~periods in 2021~~the six months ended June 30, 2022 compared to ~~periods in 2020~~the same period of 2021 was mainly due to large recoveries received during the ~~economic recovery and improved economic forecasts~~first quarter of 2022. The recoveries resulted in an increase in our overall allowance for ~~periods in 2021 compared~~credit losses to ~~periods in 2020. In 2020, due to the COVID-19 pandemic, we recorded~~amounts exceeding our requirements under our CECL allowance for credit losses calculation. The negative provision that resulted from recoveries received was partially offset by additional reserves set aside by management to ~~reflect the economic decline that impacted the global economy, including additional risks associated with the large amount of loans that were modified~~account for instability in markets as a result of ~~the hardships experienced by borrowers due to the effects~~increased concerns of the COVID-19 pandemic. The balance of loans modified due to COVID-19 was approximately 24.2% of the total portfolio as of June 30, 2020, but has declined significantly to approximately 2.4% of the total loan portfolio as of June 30, 2021. The decline in COVID-19 modified loans and overall reduction of credit risk in our loan portfolio also contributed to the decline in provision for credit losses for periods in 2021 compared to periods in 2020.a possible recession.

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

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 second quarter of ~~2021~~2022 was ~~$11.1~~$12.7 million compared to ~~$11.2~~$11.1 million for the second quarter of ~~2020, a decrease~~2021, an increase of ~~$164 thousand~~$1.7 million or ~~1.5%~~15.1%. Noninterest income for the six months ended June 30, ~~2021~~2022 was ~~$19.9~~$25.9 million compared to ~~$24.5~~$19.9 million for the six months ended June 30, ~~2020, a decrease~~2021, an increase of ~~$4.6~~$6.1 million, or ~~18.9%~~30.4%.

Noninterest income by category is summarized in the table below:


		Three Months Ended June 30,				Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
		2021		2020		Amount		Percent (%)			2022		2021		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Service fees on deposit accounts	Service fees on deposit accounts	$	1,777	$	2,583	$	(806)	(31.2)	%	Service fees on deposit accounts	$	2,270	$	1,777	$	493	27.7	%
International service fees	International service fees	795		667		128		19.2	%	International service fees	744		795		(51)		(6.4)	%
Loan servicing fees, net	Loan servicing fees, net	934		1,106		(172)		(15.6)	%	Loan servicing fees, net	843		934		(91)		(9.7)	%
Wire transfer fees	Wire transfer fees	923		820		103		12.6	%	Wire transfer fees	858		923		(65)		(7.0)	%
Swap fees	Swap fees	165		1,040		(875)		(84.1)	%	Swap fees	175		165		10		6.1	%
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 SBA loans	5,804		2,375		3,429		144.4	%
Net gains on sales of other loans		1,028		1,678		(650)		(38.7)	%
Net gains on sales of residential mortgage loans										Net gains on sales of residential mortgage loans	76		1,028		(952)		(92.6)	%
Net losses on sales of other loans										Net losses on sales of other loans	(547)		—		(547)		100.0	%

Other income and fees	Other income and fees	3,079		3,346		(267)		(8.0)	%	Other income and fees	2,523		3,079		(556)		(18.1)	%
Total noninterest income	Total noninterest income	$	11,076	$	11,240	$	(164)	(1.5)	%	Total noninterest income	$	12,746	$	11,076	$	1,670	15.1	%

		Six Months Ended June 30,				Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
		2021		2020		Amount		Percent (%)			2022		2021		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Service fees on deposit accounts	Service fees on deposit accounts	$	3,567	$	6,716	$	(3,149)	(46.9)	%	Service fees on deposit accounts	$	4,244	$	3,567	$	677	19.0	%
International service fees	International service fees	1,636		1,456		180		12.4	%	International service fees	1,538		1,636		(98)		(6.0)	%
Loan servicing fees, net	Loan servicing fees, net	1,978		1,471		507		34.5	%	Loan servicing fees, net	1,679		1,978		(299)		(15.1)	%
Wire transfer fees	Wire transfer fees	1,767		1,818		(51)		(2.8)	%	Wire transfer fees	1,758		1,767		(9)		(0.5)	%
Swap fees	Swap fees	232		2,016		(1,784)		(88.5)	%	Swap fees	960		232		728		313.8	%
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 SBA loans	11,407		2,375		9,032		380.3	%
Net gains on sales of other loans		3,124		3,533		(409)		(11.6)	%
Net gains on sales of residential mortgage loans										Net gains on sales of residential mortgage loans	833		3,124		(2,291)		(73.3)	%
Net losses on sales of other loans										Net losses on sales of other loans	(547)		—		(547)		100.0	%

Other income and fees	Other income and fees	5,201		7,494		(2,293)		(30.6)	%	Other income and fees	4,060		5,201		(1,141)		(21.9)	%
Total noninterest income	Total noninterest income	$	19,880	$	24,504	$	(4,624)	(18.9)	%	Total noninterest income	$	25,932	$	19,880	$	6,052	30.4	%

Total noninterest income for the second quarter of ~~2021 remained largely unchanged~~2022 increased compared to the second quarter of ~~2020~~2021 due to ~~decreases~~increases in ~~service charges on deposits, swap fee income and~~net gains on sales of ~~other~~SBA loans and service fees on deposit accounts offset ~~mostly~~partially by decreases in gains on sales of residential mortgage loans, net ~~gains~~losses on sale of ~~SBA loans.~~other loans, and other income and fees. The ~~decrease~~increase in noninterest income for the six months ended June 30, ~~2021~~2022 compared to the same period of the prior year was due to increases in net gains on sales of SBA loans, swap fees, and service fees on deposit accounts offset partially by decreases in ~~service charges~~gains on ~~deposits, swap fee income and~~sales of residential mortgage loans, other income and fees, ~~partially offset by gains~~and loan servicing fees and increases in net losses on sale of ~~SBA~~other loans.

~~The decrease in service~~Service fees on deposit accounts increased $493 thousand and increased $677 thousand for the three and six months ended June 30, ~~2021~~2022, respectively, compared to the ~~three and six months ended June 30, 2020 was~~same periods of 2021, mainly due to ~~a decrease~~an increase in ~~customer~~business analysis fees and non-sufficient funds fees collected on deposit accounts. Customer analysis fees declined by $724 thousand and $1.9 million, respectively, for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 due to our risk management decision to discontinue our relationships with customers in the check cashing industry. Non-sufficient fee charges increased $57 thousand for the second quarter of 2021 compared to the second quarter of 2020 but declined by $901 thousand for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Due to the COVID-19 pandemic and social distancing and related restrictions, deposit activity for the six months ended June 30, 2021 was greatly reduced compared to the six months ended June 30, 2020. As a result, demand deposit account transactions declined which negatively impacted the amount of non-sufficient fees earned.fees.

International service fees remained largely unchanged for the three and six months ended June 30, ~~2021~~2022 compared to the same ~~periods~~period of ~~2020.~~2021. International service fees are earned from trade finance ~~loans. Trade finance~~ loans ~~decreased~~which increased to $228.8 million at June 30, 2022 from $108.2 million at June 30, ~~2021~~2021. Although the balance of trade finance loans increased from ~~$109.5 million at~~ June 30, ~~2020.~~2021 to June 30, 2022, the volume of trade finance loan transactions declined for 2022 compared to 2021, which resulted in a decline in international service fees.

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 decrease in loan servicing fees, net for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 ~~compared to the three months ended June 30, 2020~~ was due to an increase in payoff of serviced loans for ~~2021~~2022 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.~~2021. The payoff of serviced loans results in the full amortization of the remaining servicing asset, which is recorded as a reduction to loan servicing fee income.

Wire transfer fees ~~increased~~remained largely unchanged during the three ~~months ended June 30, 2021 compared to the three months ended June 30, 2020 due to an increase in demand deposit accounts which has led to an increase in wire activity. Wire transfer fees for the~~and six months ended June 30, ~~2021~~2022 compared to the ~~six months ended June 30, 2020 remained largely unchanged.~~same periods of 2021.

Swap fee income represents fees earned from back to back swap transactions for our loan customers. The number of swap transactions have ~~decreased~~increased in ~~2021~~2022 which has resulted in ~~a decrease~~an increase in swap fee income for the three and six months ended June 30, ~~2021~~2022 compared to the three and six months ended June 30, ~~2020.~~2021.

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~~have increased ~~significantly due~~to levels previously paid prior to the ~~low interest rate environment and increased liquidity held by banks and other financial institutions.~~decline experienced in 2018. As a result, we ~~decided to return~~returned to the practice of regularly selling SBA guaranteed ~~loans. During~~loans starting the second quarter of 2021. During the three and six months ended June 30, 2022, we sold $70.2 million and $128.3 million, respectively, in SBA guaranteed loans and recorded $5.8 million and $11.4 million, respectively, in net gains on sale of SBA loans. During the three and six months ended June 30, 2021, we sold $30.0 million in SBA guaranteed loans and recorded $2.4 million in net gains on ~~sales~~sale 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~~residential mortgage loans represents net gains from the sale of residential mortgage ~~loans. Residential~~loans that we originate. During the three and six months ended June 30, 2022, we sold $4.1 million and $41.9 million, respectively, in residential mortgage loans ~~sold during~~and recorded $76 thousand and $833 thousand, respectively, in net gains on sale of residential mortgage loans. During the ~~second quarter of 2021 totaled $42.6 million compared to $67.4 million sold during the second quarter of 2020. Residential mortgage loans sold during the~~three and six months ended June 30, 2021, ~~totaled~~we sold $42.6 million and $110.5 million, ~~compared to $141.2~~respectively, in residential mortgage loans and recorded $1.0 million ~~for the six months ended June 30, 2020.~~and $3.1 million, respectively, in net gains on sale of residential mortgage loans. The decrease in net gains on sales of ~~other~~residential mortgage loans for the three and six months ended June 30, ~~2021~~2022 compared to the three and six months ended June 30, ~~2020~~2021 was due to a decrease in residential mortgage loans sold.

Net losses on sales of other loans represents net losses from sale of loans with elevated credit risk. During the three and six months ended June 30, 2022, we sold $35.0 million and $39.8 million, respectively, in deteriorated credits rated as substandard. During the three and six months ended June 30, 2022, we recorded $547 thousand in net losses on sale of other loans. There were no losses on the sale of other loans for periods in ~~2021 compared to periods in 2020.~~2021.

Other income and fees include income from bank owned life insurance, recoveries on acquired loans that were fully charged-off at acquisition, debit card/credit card fee income, fair value changes on our derivatives and equity investments, and other miscellaneous income. Other income and fees decreased for the three and six months ended June 30, ~~2021~~2022 compared to the same periods of ~~2020~~2021 primarily due ~~largely~~ to the ~~decline~~decrease in ~~recoveries on acquired loans that were fully charged-off at acquisition and declines in the~~ fair value of ~~our mortgage derivatives.~~equity investments.

Noninterest Expense

Noninterest expense for the second quarter of ~~2021~~2022 was ~~$73.1~~$80.4 million, an increase of ~~$6.1~~$7.2 million, or ~~9.1%~~9.9%, from ~~$67.0~~$73.1 million for the second quarter of ~~2020.~~2021. Noninterest expense for the six months ended June 30, ~~2020~~2022 was ~~$143.6~~$155.7 million, an increase of ~~$4.4~~$12.2 million, or ~~3.2%~~8.5%, from ~~$139.2~~$143.6 million for the six months ended June 30, ~~2020.~~2021.

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


		Three Months Ended June 30,				Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
		2021		2020		Amount		Percent (%)			2022		2021		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	Salaries and employee benefits	$	42,309	$	38,850	$	3,459	8.9	%	Salaries and employee benefits	$	51,058	$	42,309	$	8,749	20.7	%
Occupancy	Occupancy	7,067		7,043		24		0.3	%	Occupancy	7,178		7,067		111		1.6	%
Furniture and equipment	Furniture and equipment	4,822		4,654		168		3.6	%	Furniture and equipment	4,778		4,822		(44)		(0.9)	%
Advertising and marketing	Advertising and marketing	2,097		1,315		782		59.5	%	Advertising and marketing	2,226		2,097		129		6.2	%
Data processing and communications	Data processing and communications	2,411		2,274		137		6.0	%	Data processing and communications	2,893		2,411		482		20.0	%
Professional fees	Professional fees	4,395		1,510		2,885		191.1	%	Professional fees	1,582		4,395		(2,813)		(64.0)	%
Investments in affordable housing partnership expenses	Investments in affordable housing partnership expenses	2,952		2,873		79		2.7	%	Investments in affordable housing partnership expenses	1,844		2,952		(1,108)		(37.5)	%
FDIC assessments	FDIC assessments	1,284		1,652		(368)		(22.3)	%	FDIC assessments	1,450		1,284		166		12.9	%
Credit related expenses	Credit related expenses	43		1,361		(1,318)		(96.8)	%	Credit related expenses	2,872		43		2,829		6,579.1	%
OREO expense, net	OREO expense, net	298		1,338		(1,040)		(77.7)	%	OREO expense, net	5		298		(293)		(98.3)	%

Software impairment	Software impairment	2,146		—		2,146		100.0	%	Software impairment	—		2,146		(2,146)		(100.0)	%
Other	Other	3,299		4,160		(861)		(20.7)	%	Other	4,479		3,299		1,180		35.8	%
Total noninterest expense	Total noninterest expense	$	73,123	$	67,030	$	6,093	9.1	%	Total noninterest expense	$	80,365	$	73,123	$	7,242	9.9	%

		Six Months Ended June 30,				Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
		2021		2020		Amount		Percent (%)			2022		2021		Amount		Percent (%)
		(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	Salaries and employee benefits	$	83,525	$	81,352	$	2,173	2.7	%	Salaries and employee benefits	$	98,803	$	83,525	$	15,278	18.3	%
Occupancy	Occupancy	14,034		14,453		(419)		(2.9)	%	Occupancy	14,513		14,034		479		3.4	%
Furniture and equipment	Furniture and equipment	9,008		8,913		95		1.1	%	Furniture and equipment	9,422		9,008		414		4.6	%
Advertising and marketing	Advertising and marketing	3,722		2,988		734		24.6	%	Advertising and marketing	3,862		3,722		140		3.8	%
Data processing and communications	Data processing and communications	5,148		4,905		243		5.0	%	Data processing and communications	5,354		5,148		206		4.0	%
Professional fees	Professional fees	7,298		4,810		2,488		51.7	%	Professional fees	3,793		7,298		(3,505)		(48.0)	%
Investments in affordable housing partnership expenses	Investments in affordable housing partnership expenses	5,654		5,424		230		4.2	%	Investments in affordable housing partnership expenses	3,863		5,654		(1,791)		(31.7)	%
FDIC assessments	FDIC assessments	2,539		3,211		(672)		(20.9)	%	FDIC assessments	3,019		2,539		480		18.9	%
Credit related expenses	Credit related expenses	2,261		3,023		(762)		(25.2)	%	Credit related expenses	3,984		2,261		1,723		76.2	%
OREO expense, net	OREO expense, net	579		2,181		(1,602)		(73.5)	%	OREO expense, net	362		579		(217)		(37.5)	%

Software impairment	Software impairment	2,146		—		2,146		100.0	%	Software impairment	—		2,146		(2,146)		(100.0)	%
Other	Other	7,640		7,910		(270)		(3.4)	%	Other	8,763		7,640		1,123		14.7	%
Total noninterest expense	Total noninterest expense	$	143,554	$	139,170	$	4,384	3.2	%	Total noninterest expense	$	155,738	$	143,554	$	12,184	8.5	%

The increase in noninterest expense for the three and six months ended June 30, ~~2021~~2022 compared to the three and six months ended June 30, ~~2020~~2021 was due primarily to ~~an increase~~increases in salaries and employee ~~benefits, professional fees, and software impairment offset partially by~~benefits. All other noninterest expense line items experienced net declines for periods in ~~OREO expense, net and credit related expenses.~~

2022 versus periods in 2021.

Salaries and employee benefits expense increased ~~$3.5~~$8.7 million or 20.7% for the second quarter of ~~2021~~2022 compared to the same period in ~~2020~~2021, and increased ~~$2.2~~$15.3 million or 18.3% for the six months ended June 30, ~~2021~~2022 compared to the six months ended June 30, ~~2020.~~2021. The increase in salaries and benefits for the three and six months ended June 30, ~~2021~~2022 compared to the three and six months ended June 30, ~~2020~~2021 was due to ~~a decrease in payroll related origination costs and~~ an increase in ~~salaries from our~~full-time equivalent employees ~~annual~~and 2022 merit increases ~~effective at~~provided to employees during the beginning of second 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, 2020.2022. The number of full-time equivalent employees ~~decreased~~increased from ~~1,474 at June 30, 2020 to~~ 1,438 at June 30, ~~2021.~~2021 to 1,537 at June 30, 2022. Competition in the market for staffing has intensified, which has played a factor in rising salaries and employee benefits costs particularly as it related to new employees.

~~Advertising and marketing~~

Occupancy expense increased ~~$782~~by $111 thousand for the second quarter of ~~2021~~2022 compared to the same period in ~~2020~~2021, and increased ~~$734~~by $479 thousand for the six months ended June 30, ~~2021~~2022 compared to the six months ended June 30, ~~2020. The~~2021, primarily due to increase in ~~advertising~~lease and ~~marketing~~occupancy related expenses.

Furniture and equipment expense ~~reflects additional fees~~decreased by $44 thousand for the ~~sponsorship~~second quarter of 2022 compared to 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 sponsor the event in 2020. However,~~same period in 2021, ~~we chose to again become the main sponsor~~and increased by $414 thousand for the ~~Founders Cup event.~~

~~Professional fees increased by $2.9 million for~~six months ended June 30, 2022 compared to the ~~three~~six months ended June 30, 2021, due to higher software depreciation and software subscription expenses.

Advertising and marketing expense increased by $129 thousand for the second quarter of 2022 compared to the ~~three~~second quarter of 2021, and increased by $140 thousand for the six months ended June 30, ~~2020~~2022 compared to the six months ended June 30, 2021, largely due to increase in sponsorship of various community events.

Data processing and communications expense increased $482 thousand for the second quarter of 2022 compared to the same period in 2021, and increased ~~$2.5~~by $206 thousand for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, due to an increase in costs associated with credit card processing services.

Professional fees decreased by $2.8 million for the second quarter of 2022 compared to same period in 2021, and decreased by $3.5 million for the six months ended June 30, ~~2021~~2022 compared to the six months ended June 30, ~~2020.~~2021. The ~~increase~~decrease in professional fees was due primarily to ~~higher~~lower legal ~~expenses~~fees related to litigation ~~fees paid to attorneys.~~costs.

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 June 30, ~~2021,~~2022, total tax credits related to our investment in affordable housing partnerships was approximately ~~$2.6~~$2.3 million and ~~$5.2~~$4.5 million, respectively. The balance of investments in affordable housing partnerships decreased from ~~$77.2 million at June 30, 2020 to~~ $63.8 million at June 30, ~~2021.~~2021 to $54.5 million at June 30, 2022.

The FDIC assessment ~~expenses~~expense or ~~premiums~~premium 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 on other financial measures. ~~The decrease in~~ FDIC assessment ~~fees~~expenses increased by $166 thousand for the ~~three and six months ended June 30, 2021~~second quarter of 2022 compared to ~~the three~~same period in 2021, and six months ended June 30, 2020 was due to a decline in assessment fees adjustments related to 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 accountincreased by $480 thousand 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 June 30, 2021 compared to the three months ended June 30, 2020 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~~2022 compared to the six months ended June 30, ~~2020~~2021 due mainly to ~~decreases~~an increase in total consolidated assets.

Credit related expense increased $2.8 million for the second quarter of 2022 compared to same period in 2021, and increased by $1.7 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, due largely to increases in provision for loan accrued interest receivables, expenses related to loan collections, and 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.~~commitments. Provision for loan accrued interest receivables for the three and six months ended June 30, ~~2021~~2022 totaled $1.3 million and $1.5 million, respectively, compared to $0 and $600 thousand ~~respectively, compared to no provision~~ for the three and six months ended June 30, ~~2020.~~2021, respectively. Provision for off balance sheet loan commitments for the three and six months ended June 30, ~~2021~~2022 totaled $180 thousand and $380 thousand, compared to $0 and $105 thousand ~~respectively, compared to $50 thousand and $660 thousand, respectively,~~ for the three and six months ended June 30, ~~2020.~~2021, respectively.

OREO expense, net experienced a decrease of ~~$1.0 million~~$293 thousand for the ~~three months ended June 30, 2021~~second quarter of 2022 compared to ~~the three months ended June 30, 2020~~same period in 2021, and decreased ~~$1.6 million~~$217 thousand for the six months ended June 30, ~~2021~~2022 compared to the six months ended June 30, ~~2020.~~2021. The decreases in OREO expense, net for ~~periods in 2021~~the three and six months ended June 30, 2022 compared to ~~periods in 2020 was~~the three and six months ended June 30, 2021 were due to a ~~decrease~~decline in OREO ~~valuation allowance~~related 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. There was no software impairment during the three and six months ended June 30, 2022.

Other noninterest expense for the three and six months ended June 30, ~~2021 decreased~~2022 increased by ~~$861 thousand~~$1.2 million and ~~$270 thousand,~~$1.1 million, respectively, compared to the three and six months ended June 30, ~~2020~~2021 due to ~~decreases~~net increases in various ~~expense items.~~expenditures.

Provision for Income Taxes

Income tax provision expense was ~~$17.8~~$18.6 million and ~~$9.8~~$17.8 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The effective income tax rates were ~~24.84%~~26.35% and ~~26.75%~~24.84% for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Income tax provision expense for the six months ended June 30, 2022 and 2021 ~~and 2020~~ was ~~$31.7~~$39.9 million and ~~$16.2~~$31.7 million, respectively. The effective tax rate for the six months ended June 30, 2022 and 2021 was 26.12% and ~~2020 was~~ 24.56% ~~and 23.55%~~, respectively. The increase in effective tax rate for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 ~~compared to the six months ended June 30, 2020~~ was primarily due to a decrease in affordable housing ~~partnership investment~~ tax ~~credits benefit having a lower effect on larger annual projected pre-tax book income.~~credits.

Financial Condition

At June 30, ~~2021,~~2022, our total assets were ~~$17.47~~$18.09 billion, an increase of ~~$363.0~~$200.0 million, or ~~2.1%~~1.1%, from ~~$17.11~~$17.89 billion at December 31, ~~2020.~~2021. The increase in total assets was due to ~~the increase~~increases in loans receivable and deferred tax assets, partially offset by decreases in investment securities, cash and cash equivalents ~~partially offset by a decline in loan receivable~~and loans held for sale during the six months ended June 30, ~~2021.~~2022.

Equity Investments

Total equity investments include equity investments with readily determinable fair values and equity ~~investment~~investments without readily determinable fair values. Equity investments at June 30, ~~2021~~2022 totaled ~~$59.0~~$62.9 million, ~~a decrease~~an increase of ~~$667 thousand,~~$5.0 million, or ~~1.1%~~8.7%, from ~~$59.7~~$57.9 million at December 31, ~~2020.~~2021.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, total equity investments with readily determinable fair values totaled ~~$27.2~~$24.7 million and ~~$27.6~~$26.8 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 ~~$31.8~~$38.2 million and ~~$32.1~~$31.0 million in equity investments without readily determinable fair values as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. At June 30, ~~2021,~~2022, equity investments without readily determinable fair values included ~~$30.5~~$36.8 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 six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

Investment Securities Portfolio

At June 30, ~~2021,~~2022, we had ~~$2.27~~$2.10 billion in ~~available for sale~~investment securities AFS compared to ~~$2.29~~$2.67 billion at December 31, ~~2020.~~2021. The net unrealized ~~gain~~loss on the ~~available for sale~~investment securities AFS at June 30, ~~2021~~2022 was ~~$19.6~~$216.3 million compared to a net unrealized ~~gain~~loss on securities of ~~$46.2~~$19.4 million at December 31, ~~2020.~~2021. The change in unrealized ~~gain~~loss on investment securities AFS from December 31, ~~2020~~2021 to June 30, ~~2021~~2022 was due to anthe increase in ~~treasury rates.~~market interest rates over the yields available at the time the underlying securities were purchased, and the transfer of securities from AFS to HTM.

As of June 30, 2022, we had $253.0 million in investment securities HTM compared to $0 at December 31, 2021. We have the ability and intent to hold these securities to maturity. During the three months ended June 30, 2022, we transferred $238.9 million in fair value of debt securities from AFS to HTM. The transferred securities had an amortized cost of $275.5 million with a pre-tax net unrealized loss of $36.6 million, which was recorded as a discount and will be amortized as an adjustment to yield. The unrealized holding loss at the date of transfer will continue to be reported, net of taxes, in accumulated other comprehensive income as a component of stockholders’ equity and will be amortized over the remaining life of the securities as an adjustment of yield, offsetting the corresponding discount amortization’s impact on interest income.

During the six months ended June 30, ~~2021, $422.7~~2022, $136.3 million in investment securities were purchased and ~~$397.1~~$211.0 million in investment securities were paid down. For the six months ended June 30, ~~2021,~~2022, there were no investment securities that matured, were called, or were sold.

We performed an analysis on our investment portfolio in unrealized loss positions as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 and determined that an allowance for credit losses was not ~~required.~~required for investment securities AFS or HTM. 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 June 30, ~~2021,~~2022, we also had ~~four asset-back~~18 asset-backed securities, ~~three~~six corporate securities, and ~~five~~39 municipal bonds not issued by U.S. Government agencies or U.S. Government sponsored enterprises that were in unrealized loss ~~position.~~positions. Based on our analysis of these investment securities, we concluded a credit loss did not exist due to the strength of the ~~issuer,~~issuers, high bond ratings, and because we ~~still~~ expect full payment of principal and interest.

Investments in Affordable Housing Partnerships

At June 30, ~~2021,~~2022, we had ~~$63.8~~$54.5 million in investments in affordable housing partnerships compared to ~~$69.5~~$58.4 million at December 31, ~~2020.~~2021. The decrease in investments in affordable housing partnerships was due to recorded losses and premium amortizations recorded during the six months ended June 30, ~~2021.~~2022. Commitments to fund investments in affordable housing partnerships totaled ~~$10.7~~$14.5 million at June 30, ~~2021~~2022 compared to ~~$15.1~~$9.5 million at December 31, ~~2020.~~2021. The ~~decline~~increase in commitments to fund investments in affordable housing partnerships during the six months ended June 30, ~~2021~~2022 was due to new commitments, offset partially by cash contributions which reduced the remaining commitment balances.

~~Loan Portfolio~~

Loans Held For Sale

Loans held for sale at June 30, 2022 totaled $76.4 million compared to $99.0 million at December 31, 2021, representing a decrease of $22.7 million, or 22.9%. The decrease in loans held for sale was due to a reduction in SBA and mortgage loans held for sale. Loans held for sale at June 30, 2022 included $40.1 million in SBA loans held for sale, $750 thousand in residential mortgage loans held for sale, and $35.5 million in other loans with elevated credit risk held for sale. At December 31, 2021, loans held for sale consisted of $49.7 million in SBA loans held for sale, $26.2 million in loans with elevated credit risk, and $23.2 million in residential mortgage loans held for sale.

Loans Receivable

At June 30, ~~2021,~~2022, loans receivable totaled ~~$13.42~~$14.55 billion, ~~a decrease~~an increase of ~~$138.9~~$593.3 million from ~~$13.56~~$13.95 billion at December 31, ~~2020.~~2021. 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:


		June 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
		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	$	61,360	—	%	$	54,795	—	%	Residential	$	75,003	1	%	$	69,199	—	%
Commercial	Commercial	8,518,115		64	%	8,425,959		63	%	Commercial	9,041,439		62	%	8,816,080		63	%
Construction	Construction	252,801		2	%	291,380		2	%	Construction	218,578		2	%	220,652		2	%
Total real estate loans	Total real estate loans	8,832,276		66	%	8,772,134		65	%	Total real estate loans	9,335,020		65	%	9,105,931		65	%
Commercial business	Commercial business	4,001,423		30	%	4,157,787		31	%	Commercial business	4,395,738		30	%	4,208,674		30	%
Residential mortgage	Residential mortgage	543,622		4	%	582,232		4	%	Residential mortgage	773,400		5	%	579,626		5	%
Consumer and other	Consumer and other	46,980		—	%	51,060		—	%	Consumer and other	41,891		—	%	58,512		—	%
Total loans receivable, net of deferred costs and fees	Total loans receivable, net of deferred costs and fees	13,424,301		100	%	13,563,213		100	%	Total loans receivable, net of deferred costs and fees	14,546,049		100	%	13,952,743		100	%
Allowance for credit losses	Allowance for credit losses	(189,452)				(206,741)				Allowance for credit losses	(151,580)				(140,550)
Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	$	13,234,849			$	13,356,472			Loans receivable, net of allowance for credit losses	$	14,394,469			$	13,812,193

Our total loans ~~decreased~~receivable increased from December 31, ~~2020~~2021 to June 30, ~~2021~~2022 largely due to ~~a decrease~~an increase of $225.4 million in commercial real estate loans, an increase of $193.8 million in residential mortgage loans and an increase of $187.1 million in commercial business loans. The increase in loans as of June 30, 2022 compared to December 31, 2022 was due to record originations during the six months ended June 30, 2022. During the six months ended June 30, 2022, we sold $210.0 million in loans consisting of $128.3 million in SBA loans, $41.9 million in residential mortgage loans and $39.8 million in other loans with elevated credit risk. We also purchased $27.9 million in residential mortgage loans during the six months ended June 30, 2021. Commercial business loans decreased $156.4 million from December 31, 2020 to June 30, 2021. The decrease in commercial business loans was largely due to the decrease in warehouse lines of credit from $1.01 billion at December 31, 2020 to $725.2 million at 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 decrease in commercial business loans was partially offset by an 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 2021.2022.

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:


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in thousands)
Commitments to extend credit	Commitments to extend credit	$	2,483,026	$	2,137,178	Commitments to extend credit	$	3,013,883	$	2,329,421
Standby letters of credit	Standby letters of credit	115,629		108,834		Standby letters of credit	121,980		126,137
Other commercial letters of credit	Other commercial letters of credit	55,609		40,508		Other commercial letters of credit	59,888		56,333
Total	Total	$	2,654,264	$	2,286,520	Total	$	3,195,751	$	2,511,891

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 ~~$183.7~~$110.6 million at June 30, ~~2021~~2022 compared to ~~$143.3~~$111.8 million at December 31, ~~2020.~~2021. The ratio of nonperforming assets to loans receivable and OREO was ~~1.37%~~0.76% at June 30, ~~2021~~2022 and ~~1.06%~~0.80% at December 31, ~~2020.~~2021. Nonaccrual loans to loans receivable increased from 0.39% at December 31, 2021 to 0.48% at June 30, 2022 and allowance for credit losses to nonaccrual loans declined to 218.03% at June 30, 2022, compared to 257.34% at December 31, 2021. The increase in nonaccrual loans as a percentage of total loans receivable and decline in allowance for credit losses as percentage of nonaccrual loans from December 31, 2021 to June 30, 2022 was primarily due to the increase in nonaccrual loans from one lending relationship totaling $18.6 million.

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


		June 30, 2021			December 31, 2020				June 30, 2022			December 31, 2021
		(Dollars in thousands)							(Dollars in thousands)
Nonaccrual loans (1)	Nonaccrual loans (1)	$	111,008		$	85,238		Nonaccrual loans (1)	$	69,522		$	54,616
Loans 90 days or more days past due, still accruing	Loans 90 days or more days past due, still accruing	4,759			614			Loans 90 days or more days past due, still accruing	12,468			2,131
Accruing restructured loans	Accruing restructured loans	51,360			37,354			Accruing restructured loans	26,572			52,418
Total nonperforming loans	Total nonperforming loans	167,127			123,206			Total nonperforming loans	108,562			109,165
OREO	OREO	16,619			20,121			OREO	2,010			2,597
Total nonperforming assets	Total nonperforming assets	$	183,746		$	143,327		Total nonperforming assets	$	110,572		$	111,762

Nonaccrual loans to loans receivable								Nonaccrual loans to loans receivable	0.48		%	0.39		%
Nonperforming loans to loans receivable	Nonperforming loans to loans receivable	1.24		%	0.91		%	Nonperforming loans to loans receivable	0.75		%	0.78		%
Nonperforming assets to loans receivable and OREO	Nonperforming assets to loans receivable and OREO	1.37		%	1.06		%	Nonperforming assets to loans receivable and OREO	0.76		%	0.80		%
Nonperforming assets to total assets	Nonperforming assets to total assets	1.05		%	0.84		%	Nonperforming assets to total assets	0.61		%	0.62		%
Allowance for credit losses to nonaccrual loans								Allowance for credit losses to nonaccrual loans	218.03		%	257.34		%
Allowance for credit losses to nonperforming loans	Allowance for credit losses to nonperforming loans	113.36		%	167.80		%	Allowance for credit losses to nonperforming loans	139.63		%	128.75		%
Allowance for credit losses to nonperforming assets	Allowance for credit losses to nonperforming assets	103.11		%	144.24		%	Allowance for credit losses to nonperforming assets	137.09		%	125.76		%

(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling ~~$23.6~~$13.2 million as of June 30, ~~2021~~2022 and ~~$26.5~~$19.5 million as of December 31, ~~2020.~~2021.

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 ~~$189.5~~$151.6 million at June 30, ~~2021~~2022 compared to ~~allowance for credit losses of $206.7~~$140.6 million at December 31, ~~2020.~~2021. The ACL was ~~1.41%~~1.04% and ~~1.52%~~1.01% of loans receivable at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The ACL to loans receivable ratio does not include ~~non-credit related~~ discount on acquired loans. Total discount on acquired loans at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 totaled ~~$17.5~~$10.2 million and ~~$23.3~~$12.4 million, respectively. ACL on individually evaluated loans increased to ~~$30.6~~$6.6 million at June 30, ~~2021~~2022 from ~~$7.3~~$5.1 million at December 31, ~~2020. The~~2021.

Economic forecasts used in the calculation of the June 30, 2022 ACL improved compared to economic forecasts used in the calculation of the December 31, 2021 ACL, which reduced the overall quantitative reserve requirement. However, subsequent to the release of the latest economic forecasts, certain events arose including the rise in inflation and expected future interest rates, a rise in recessionary concerns, and the war in Ukraine which poses a potential risk to the overall stability of global markets. As a result, we incorporated Moody’s S2 forecast scenario which has a more negative outlook of the economy compared to the Consensus forecast scenario that was utilized for the allowance for credit losses as of December 31, 2021. It was management’s view that the S2 scenario was a better reflection of current market expectation compared to the Consensus scenario. As a result, we had a net increase in our ACL ~~for individually evaluated loans was primarily due to one large commercial real estate loan which had an ACL of $21.6 million~~ as of June 30, 2022 compared to the ACL as of December 31, 2021.

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
		June 30, 2021		March 31, 2021				December 31, 2020				June 30, 2022				March 31, 2022		December 31, 2021
		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			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	$	330	0.54	%	$	267	0.51	%	$	391		0.71	%	Real estate – residential	$	756	1.01	%	$	652	0.87	%	$	729	1.05	%
Real estate – commercial	Real estate – commercial	153,266		1.80	%	160,376		1.89	%	159,527			1.89	%	Real estate – commercial	97,553		1.08	%	104,122		1.16	%	106,170		1.20	%
Real estate – construction	Real estate – construction	1,657		0.66	%	1,664		0.62	%	2,278			0.78	%	Real estate – construction	1,515		0.69	%	1,771		0.77	%	1,541		0.70	%
Commercial business	Commercial business	29,500		0.74	%	41,860		0.96	%	39,155			0.94	%	Commercial business	44,852		1.02	%	35,676		0.86	%	27,811		0.66	%
Residential mortgage	Residential mortgage	3,612		0.66	%	2,735		0.55	%	4,227			0.73	%	Residential mortgage	6,079		0.79	%	4,262		0.68	%	3,316		0.57	%
Consumer and other	Consumer and other	1,087		2.31	%	1,041		2.37	%	1,163			2.28	%	Consumer and other	825		1.97	%	967		1.99	%	983		1.68	%
Total	Total	$	189,452	1.41	%	$	207,943	1.52	%	$	206,741		1.52	%	Total	$	151,580	1.04	%	$	147,450	1.05	%	$	140,550	1.01	%

* Held-for-sale loans of ~~$54.2~~$76.4 million, $115.8 million and ~~$17.7~~$99.0 million at June 30, ~~2021~~2022, March 31, 2022 and December 31, ~~2020,~~2021, respectively, were excluded.

Our ACL coverage ratio increased as of June 30, 2022 compared to December 31, 2021 and March 31, 2022. The increase in ACL coverage ratio was primarily due to the increase in allowance for ~~all~~commercial business loans. The allowance for credit losses on commercial business loans increased as the commercial loan ~~segments~~portfolio was impacted by our economic forecasts which had a more negative outlook to consumer spending and higher inflation projections. Commercial real estate price forecasts were not as significantly impacted and therefore allowance for credit losses for commercial real estate loans declined as of June 30, ~~2021~~2022 compared to December 31, ~~2020 except for consumer~~2021 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.March 31, 2022.

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

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

~~The decrease~~ in total ACL as of June 30, ~~2021~~2022 compared to December 31, ~~2020 due to improving economic forecasts was partially offset by the~~2021 consisted of an increase in ~~reserves for individually evaluated loans which increased from $7.3 million at December 31, 2020 to $30.6 million at June 30, 2021. The increase in~~both ACL for individually evaluated loans ~~was due to the increase in ACL of a large real estate loan in 2021. The change of this loan from being~~and collectively evaluated toloans. Reserves for individually evaluated ~~resulted in additional ACL of approximately $21.6 million.~~loans increased from $5.1 million at December 31, 2021 to $6.6 million at June 30, 2022. The allowance requirement for loans evaluated on a collective basis ~~declined~~increased to ~~$158.9~~$144.9 million at June 30, ~~2021~~2022 compared to ~~$199.4~~$135.4 million at December 31, ~~2020~~2021.

Total recoveries for the six months ended June 30, 2022 totaled $21.0 million. The high level of recoveries was primarily due to the ~~projected improvement in economic~~ recovery ~~estimated by~~of a large lending relationship which previously had charge offs totaling $29.6 million during the ~~forecast scenario utilized in our allowance calculation.~~third quarter of 2021.

The following table ~~shows~~presents 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~~related ratios as of the dates and for the periods indicated:


		At or for the Three Months Ended June 30,						At or for the Six Months Ended June 30,							At or for the Three Months Ended June 30,						At or for the Six Months Ended June 30,
		2021			2020			2021			2020				2022			2021			2022			2021
		(Dollars in thousands)													(Dollars in thousands)
LOANS:	LOANS:													LOANS:
Average loans	Average loans	$	13,269,540		$	12,744,049		$	13,298,775		$	12,491,552		Average loans	$	14,327,476		$	13,293,591		$	14,100,983		$	13,319,782
Loans receivable	Loans receivable	$	13,424,301		$	12,871,834		$	13,424,301		$	12,871,834		Loans receivable	$	14,546,049		$	13,424,301		$	14,546,049		$	13,424,301

ALLOWANCE:	ALLOWANCE:													ALLOWANCE:
Balance, beginning of period	Balance, beginning of period	$	207,943		$	144,923		$	206,741		$	94,144		Balance, beginning of period	$	147,450		$	207,943		$	140,550		$	206,741
Less loan charge offs:	Less loan charge offs:													Less loan charge offs:
Real estate – commercial	Real estate – commercial	(12,172)			(174)			(14,990)			(2,571)			Real estate – commercial	(476)			(12,172)			(1,751)			(14,990)
Commercial business	Commercial business	(572)			(459)			(1,182)			(3,494)			Commercial business	(172)			(572)			(349)			(1,182)

Consumer and other	Consumer and other	(48)			(271)			(141)			(796)			Consumer and other	(64)			(48)			(115)			(141)
Total loan charge offs	Total loan charge offs	(12,792)			(904)			(16,313)			(6,861)			Total loan charge offs	(712)			(12,792)			(2,215)			(16,313)
Plus loan recoveries:	Plus loan recoveries:													Plus loan recoveries:
Real estate – commercial	Real estate – commercial	891			25			1,475			192			Real estate – commercial	984			891			18,677			1,475
Commercial business	Commercial business	391			220			1,081			2,579			Commercial business	633			391			2,339			1,081

Consumer and other	Consumer and other	19			7			168			17			Consumer and other	25			19			29			168
Total loans recoveries	Total loans recoveries	1,301			252			2,724			2,788			Total loans recoveries	1,642			1,301			21,045			2,724
Net loan charge offs		(11,491)			(652)			(13,589)			(4,073)
CECL day 1 adoption impact		—			—			—			26,200
Net loan (recoveries) charge offs														Net loan (recoveries) charge offs	930			(11,491)			18,830			(13,589)
Provision (credit) for credit losses	Provision (credit) for credit losses	(7,000)			17,500			(3,700)			45,500			Provision (credit) for credit losses	3,200			(7,000)			(7,800)			(3,700)

Balance, end of period	Balance, end of period	$	189,452		$	161,771		$	189,452		$	161,771		Balance, end of period	$	151,580		$	189,452		$	151,580		$	189,452

Net loan charge offs to average loans*		0.35		%	0.02		%	0.20		%	0.07		%
Net loan (recoveries) charge offs to average loans*														Net loan (recoveries) charge offs to average loans*	(0.03)		%	0.35		%	(0.27)		%	0.20		%
Allowance for credit losses to loans receivable at end of period	Allowance for credit losses to loans receivable at end of period	1.41		%	1.26		%	1.41		%	1.26		%	Allowance for credit losses to loans receivable at end of period	1.04		%	1.41		%	1.04		%	1.41		%
Net loan charge offs to allowance for credit losses*		24.26		%	1.61		%	14.35		%	5.04		%
Net loan charge offs to provision (credit) for credit losses		(164.16)		%	3.73		%	(367.27)		%	8.95		%
Net loan (recoveries) charge offs to allowance for credit losses*														Net loan (recoveries) charge offs to allowance for credit losses*	(2.45)		%	24.26		%	(24.84)		%	14.35		%
Net loan (recoveries) charge offs to provision (credit) for credit losses														Net loan (recoveries) charge offs to provision (credit) for credit losses	(29.06)		%	(164.16)		%	241.41		%	(367.27)		%

* Annualized

We believe the ACL as of June 30, ~~2021~~2022 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 things, if the effects of the COVID-19 pandemic, rising inflation, potential economic recession, and the war in Ukraine 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.

Net loan (recoveries) charge offs as a percentage of average loans and allowance for credit losses decreased for three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 due to a large recovery of $17.3 million during the first quarter of 2022 from a single lending relationship that had $29.6 million in charge offs in the third quarter of 2021. For the three and six months ended June 30, 2021, net charge off was impacted by the write-down of $11.8 million related to the sale of $119.3 million in hotel loans with elevated credit risk.

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.~~additional modifications. Most of the modifications have expired as of June 30, 2022. As of June 30, ~~2021,~~2022, loans that were modified due to hardship caused by the COVID-19 pandemic totaled ~~$318.7 million, which represented approximately 2.4%~~$808 thousand consisting of ~~our total loan portfolio, a decline from 10.2% total modifications at December 31, 2020 and 6.9% total modifications at March 31, 2021.~~one commercial real estate loan. 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 the remaining active ~~modifications~~modification to ~~decrease to less than 1 percent of total loans~~expire by the ~~third quarter~~end of ~~2021.~~2022.

The following ~~table presents~~tables present total COVID-19 related modifications by loan type as of June 30, 2022 and December 31, 2021:

COVID-19 Modifications
June 30, 2021
Modified Loans Loans
Receivable Percentage of Loans Modified Accrued Interest Receivable on Modified Loans
(Dollars in thousands)
Real estate – residential $ 228 $ 61,360 0.4 % $ —
Real estate – commercial
Retail 74,219 2,342,140 3.2 % 3,213
Hotel & motel 113,199 1,425,705 7.9 % 1,235
Gas station & car wash — 943,820 0.0 % —
Mixed use 23,416 763,063 3.1 % 339
Industrial & warehouse 3,779 1,129,184 0.3 % 87
Other 54,552 1,914,203 2.8 % 492
Real estate – construction — 252,801 0.0 % —
Commercial business 11,938 4,001,423 0.3 % 106
Residential mortgage 36,350 543,622 6.7 % 1,558
Consumer and other 972 46,980 2.1 % 33
Total $ 318,653 $ 13,424,301 2.4 % $ 7,063


	COVID-19 Modifications
	June 30, 2022
	Modified Loans		Loans Receivable		Percentage of Loans Modified		Accrued Interest Receivable on Modified Loans
	(Dollars in thousands)
Real estate – residential	$	—	$	75,003	—	%	$	—
Real estate – commercial
Retail	—		2,549,173		—	%	—
Hotel & motel	—		1,139,908		—	%	—
Gas station & car wash	—		1,076,369		—	%	—
Mixed use	808		796,235		0.1	%	2
Industrial & warehouse	—		1,262,262		—	%	—
Other	—		2,217,492		—	%	—
Real estate – construction	—		218,578		—	%	—
Commercial business	—		4,395,738		—	%	—
Residential mortgage	—		773,400		—	%	—
Consumer and other	—		41,891		—	%	—
Total	$	808	$	14,546,049	—	%	$	2

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

Commercial real estate loans secured by hotel/motel and retail properties 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.


	COVID-19 Modifications
	December 31, 2021
	Modified Loans		Loans Receivable		Percentage of Loans Modified		Accrued Interest Receivable on Modified Loans
	(Dollars in thousands)
Real estate – residential	$	—	$	69,199	—	%	$	—
Real estate – commercial
Retail	—		2,447,186		—	%	—
Hotel & motel	1,811		1,304,874		0.1	%	5
Gas station & car wash	—		1,047,226		—	%	—
Mixed use	6,740		814,332		0.8	%	169
Industrial & warehouse	—		1,229,333		—	%	—
Other	3,995		1,973,129		0.2	%	42
Real estate – construction	—		220,652		—	%	—
Commercial business	—		4,208,674		—	%	—
Residential mortgage	9,923		579,626		1.7	%	341
Consumer and other	365		58,512		0.6	%	17
Total	$	22,834	$	13,952,743	0.2	%	$	574

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 June 30, ~~2021,~~2022, 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.~~applies.

At June 30, ~~2021,~~2022, we had ~~$47.1~~$32.0 million in loan accrued interest receivables compared to ~~$54.6~~$36.2 million at December 31, ~~2020.~~2021. Total accrued interest receivables related to loans modified due to COVID-19 totaled ~~$7.1 million~~$2 thousand at June 30, ~~2021~~2022 compared to ~~$25.4 million~~$574 thousand at December 31, 2020. At June 30, 2021, we had $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 June 30, 2021.

OREO

At June 30, ~~2021,~~2022, OREO, net totaled ~~$16.6~~$2.0 million, a decrease of ~~$3.5 million~~$587 thousand compared to ~~$20.1~~$2.6 million at December 31, ~~2020.~~2021. During the six months ended June 30, ~~2021,~~2022, there were no loans transferred to OREO and we sold ~~three~~one OREO with total carrying balance of ~~$2.1 million.~~$311 thousand. OREO are presented on the balance sheet net of OREO valuation allowances. OREO valuation allowance at June 30, ~~2021~~2022 totaled ~~$4.5~~$1.6 million compared to ~~$4.7~~$1.3 million at December 31, ~~2020.~~2021.

Deposits, Other Borrowings, and Convertible Notes

Deposits

Deposits are our primary source of funds used in lending and investment activities. At June 30, ~~2021,~~2022, deposits ~~increased $392.3~~remained largely unchanged, with a decrease of $10.8 million, or ~~2.7%~~0.1%, to ~~$14.73~~$15.03 billion from ~~$14.33~~$15.04 billion at December 31, ~~2020.~~2021. The ~~increase~~decrease in deposits was primarily due to ~~increases~~decreases in demand deposits and time deposits offset partially by an increase in money market and NOW ~~accounts offset partially by a decrease in time deposits.~~accounts. Demand deposits ~~increased $823.9~~decreased $61.9 million during the six months ended June 30, ~~2021 due to an increase in retail deposits.~~2022 and time deposits decreased $115.1 million.

At June 30, 2022, 37.9% of total deposits were noninterest bearing demand deposits, 17.8% were time deposits, and 44.3% were interest bearing demand and savings deposits. At December 31, 2021, 38.3% of total deposits were noninterest bearing demand deposits, ~~20.4%~~18.5% were time deposits, and ~~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%~~43.2% were interest bearing demand and savings deposits.

At June 30, ~~2021,~~2022, we had ~~$378.5~~$867.5 million in brokered deposits and $300.0 million in California State Treasurer deposits compared to ~~$1.14 billion~~$810.9 million in brokered deposits and $300.0 million in California State Treasurer deposits at December 31, ~~2020.~~2021. The California State Treasurer time deposits at June 30, ~~2021~~2022 had original maturities of three months, had a weighted average interest rate of ~~0.10%~~1.18%, and were collateralized with securities with total fair value of ~~$350.7~~$391.3 million. Time deposits of more than $250 thousand at June 30, ~~2021~~2022 totaled ~~$1.58~~$1.06 billion compared to ~~$1.85~~$1.49 billion at December 31, ~~2020.~~2021.

The following is a schedule of ~~certificates of~~time deposit maturities as of June 30, ~~2021:~~2022:


							June 30, 2022
		Balance		Percent (%)			Balance		Percent (%)
		(Dollars in thousands)					(Dollars in thousands)
Three months or less	Three months or less	$	1,248,768	42	%	Three months or less	$	1,020,612	38	%
Over three months through six months	Over three months through six months	530,991		17	%	Over three months through six months	638,121		24	%
Over six months through nine months	Over six months through nine months	570,155		19	%	Over six months through nine months	456,411		17	%
Over nine months through twelve months	Over nine months through twelve months	595,221		20	%	Over nine months through twelve months	539,808		20	%
Over twelve months	Over twelve months	47,632		2	%	Over twelve months	18,292		1	%
Total time deposits	Total time deposits	$	2,992,767	100	%	Total time deposits	$	2,673,244	100	%

FHLB ~~Advances~~and FRB Borrowings and Other Borrowings

We utilize FHLB ~~advances~~and FRB borrowings 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 June 30, ~~2021,~~2022, FHLB advances totaled ~~$200.0~~$573.0 million compared to $300.0 million in FHLB advances at December 31, 2021. At June 30, 2022 and ~~had an~~December 31, 2021, the average weighted remaining maturity of ~~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.~~was 1 month and 4 months, respectively.

We did not have FRB borrowings or federal funds purchased at June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

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 ~~$104.8~~$106.0 million at June 30, ~~2021~~2022 and ~~$104.2~~$105.4 million at December 31, ~~2020.~~2021. 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.~~date (see footnote 10 “Subordinated Debentures and Convertible Notes” for additional information regarding Debentures issued).

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 June 30, ~~2021~~2022 was ~~$215.7~~$216.7 million, net of ~~$1.8 million~~$822 thousand in uncapitalized issuance costs. At December 31, ~~2020,~~2021, the net carrying balance of convertible notes was ~~$204.6~~$216.2 million, net of ~~$12.9~~$1.3 million in ~~discounts and~~uncapitalized issuance costs. ~~The increase in convertible notes from December 31, 2020 to June 30, 2021 was due to the early adoption of ASU 2020-06 on January 1, 2021.~~ With the adoption of ~~the~~ ASU 2020-06, the convertible notes are accounted for ~~entire~~entirely as debt and no longer ~~has~~have a discount or equity ~~portion. (See~~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~~agreements which ~~is a~~are part of a syndicated loan ~~transaction~~transactions 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.

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 wethe Holding Company 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~~$2.00 billion at June 30, ~~2021~~2022 and ~~$2.05~~$2.09 billion at December 31, ~~2020.~~2021. During the six months ended June 30, ~~2021, shareholders’~~2022, stockholders’ equity ~~increased~~decreased by ~~$39.1~~$92.6 million due to ~~increases~~a decrease in accumulated other comprehensive income of $160.3 million, dividends paid of $33.7 million and share repurchases of $14.7 million, offset partially by net income earned of ~~$97.5~~$112.8 million, and ~~from $10.7 million adjustment to beginning retained earnings upon early adoption of ASU 2020-06 offset partially by decreases~~increases in ~~other comprehensive income of $17.7 million, dividends paid of $34.6 million and~~ additional paid-in capital consisting of ~~$16.8 million. The $16.8 million adjustment to additional paid-in capital during the six months ended June 30, 2021 included $1.5~~$2.7 million in stock based compensation and $531 thousand in issuance of additional shares of stock. The decrease in accumulated other comprehensive income from December 31, 2021 to June 30, 2022 was ~~fully offset by~~due to the increase in unrealized losses on our investment portfolio as a ~~$18.3 million decrease to reverse the equity portion~~result of ~~our convertible notes, net of taxes upon the adoption of ASU 2020-06.~~rising interest rates.

~~On July 22, 2021,~~In January 2022, our Board of Directors approved a new stock repurchase plan that authorizes management to repurchase up to ~~$50~~$50.0 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. During the three months ended June 30, 2022, we repurchased 1,038,986 shares of common stock totaling $14.7 million. As of June 30, 2022, we have $35.3 million left of the $50.0 million stock repurchase plan.

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 June 30, ~~2021,~~2022, our common equity Tier 1 capital was ~~$1.64~~$1.72 billion compared to ~~$1.57~~$1.66 billion at December 31, ~~2020.~~2021. Our Tier 1 capital, defined as stockholders’ equity less intangible assets and includes our trust preferred securities, was ~~$1.74~~$1.82 billion at June 30, ~~2021~~2022 and ~~$1.67~~$1.76 billion at December 31, ~~2020.~~2021. At June 30, ~~2021,~~2022, the common equity Tier 1 capital ratio was ~~11.44%~~10.69%. The total capital to risk-weighted assets ratio was ~~13.16%~~12.13% and the Tier 1 capital to risk-weighted assets ratio was ~~12.14%~~11.33%. The Tier 1 leverage capital ratio at June 30, ~~2021~~2022 was ~~10.43%~~10.32%.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 June 30, 2021													June 30, 2022
		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)	$	1,642,492	11.44	%	N/A		N/A		N/A		N/A		Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,718,277	10.69	%	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)	$	1,888,996	13.16	%	N/A		N/A		N/A		N/A		Total risk-based capital ratio (to risk-weighted assets)	$	1,948,953	12.13	%	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)	$	1,743,353	12.14	%	N/A		N/A		N/A		N/A		Tier 1 risk-based capital ratio (to risk-weighted assets)	$	1,820,329	11.33	%	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)	$	1,743,353	10.43	%	N/A		N/A		N/A		N/A		Tier 1 capital to total assets (to average assets)	$	1,820,329	10.32	%	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)	$	1,932,546	13.47	%	$	932,555	6.50	%	$	999,991	6.97	%	Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,995,242	12.43	%	$	1,043,628	6.50	%	$	951,614	5.93	%
Total risk-based capital ratio (to risk-weighted assets)	Total risk-based capital ratio (to risk-weighted assets)	$	2,078,189	14.49	%	$	1,434,699	10.00	%	$	643,490	4.49	%	Total risk-based capital ratio (to risk-weighted assets)	$	2,123,866	13.23	%	$	1,605,581	10.00	%	$	518,285	3.23	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	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 risk-based capital ratio (to risk-weighted assets)	$	1,995,242	12.43	%	$	1,284,465	8.00	%	$	710,777	4.43	%
Tier 1 capital to total assets (to average assets)	Tier 1 capital to total assets (to average assets)	$	1,932,546	11.56	%	$	835,520	5.00	%	$	1,097,026	6.56	%	Tier 1 capital to total assets (to average assets)	$	1,995,242	11.31	%	$	881,695	5.00	%	$	1,113,547	6.31	%

		As of December 31, 2020													December 31, 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)	$	1,568,508	10.94	%	N/A		N/A		N/A		N/A		Common equity Tier 1 capital ratio (to risk-weighted assets)	$	1,657,754	11.03	%	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)	$	1,867,968	12.42	%	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)	$	1,759,207	11.70	%	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)	$	1,759,207	10.11	%	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)	$	1,947,914	12.96	%	$	976,919	6.50	%	$	970,995	6.46	%
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)	$	2,056,675	13.68	%	$	1,502,952	10.00	%	$	553,723	3.68	%
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)	$	1,947,914	12.96	%	$	1,202,361	8.00	%	$	745,553	4.96	%
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)	$	1,947,914	11.20	%	$	869,491	5.00	%	$	1,078,423	6.20	%

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 June 30, ~~2021,~~2022, our total borrowing capacity from the FHLB was ~~$4.30~~$4.14 billion of which ~~$4.08~~$3.55 billion was unused and available to borrow. At June 30, ~~2021,~~2022, our total borrowing capacity from the FRB Discount Window was ~~$616.4~~$747.6 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,~~AFS, and equity investments were ~~$2.68~~$2.09 billion at June 30, ~~2021~~2022 compared to ~~$2.23~~$2.57 billion at December 31, ~~2020.~~2021. Cash and cash equivalents were ~~$837.0~~$197.1 million at June 30, ~~2021~~2022 compared to ~~$350.6~~$316.3 million at December 31, ~~2020.~~2021. 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.

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 June 30, ~~2021,~~2022, 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:


		June 30, 2021						December 31, 2020					June 30, 2022								December 31, 2021
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	9.79	%			2.77	%					4.81	%		5.11	%	+ 200 basis points		7.28	%			(3.77)	%			6.95	%	0.84	%
+ 100 basis points	+ 100 basis points	4.90	%	2.48	%			2.35	%	3.29	%	+ 100 basis points	3.72	%		(1.31)		%			3.52	%			1.55	%
- 100 basis points	- 100 basis points	(1.90)	%	(6.22)	%			(1.31)	%	(7.63)	%	- 100 basis points	(3.86)	%		(0.30)		%			(2.62)	%			(5.94)	%
- 200 basis points	- 200 basis points	(2.98)	%	(15.00)	%			(1.41)	%	(10.80)	%	- 200 basis points	(7.36)	%		(3.82)		%			(4.25)	%			(15.71)	%

LIBOR Transition

On July 27, 2017, the Financial Conduct Authority (“FCA”), 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 iswas expected that after 2021, LIBOR rates ~~will~~would no longer be available or ~~will~~would 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 isThese issuances are intended to help stakeholders during the global market-wide reference rate transition ~~period~~period.

On March 5, 2021, the Intercontinental Exchange Benchmark Administration announced, in conjunction with the FCA, that it would cease the publication of one week and two months U.S. dollar LIBOR settings on December 31, 2021 and would cease the publication of overnight and twelve months U.S. dollar LIBOR settings on June 30, 2023. The FCA also stated that immediately after June 30, 2023, the 1 month, 3 month, and 6 month U.S. dollar LIBOR settings will no longer be representative and representativeness will not be restored. The regulators have also issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021.

The Company has financial instruments that are indexed to LIBOR including investment securities, loans, derivatives, subordinated debentures, and other financial contracts as of June 30, 2022. The Company has formed a committee ~~overseeing our~~to oversee the transition process and to facilitate an orderly transition from LIBOR, and other interbank offered rates, to alternative reference rates for the Company and its clients in a manner consistent with supervisory expectations. Since January 1, 2022, the Company has ceased to originate any LIBOR based financial instruments. The Company has limited LIBOR exposures subsequent to June 2023. The transition away from LIBOR is ~~evaluating~~not expected to have a material impact on the ~~optional guidance.~~Company’s consolidated financial statements. For additional information about our associated risks, please refer to Item 1A, Risk Factors, in our 2021 Form 10-K.

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 June 30, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended June 30, ~~2021~~2022 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 ~~$25~~$10 thousand at June 30, ~~2021.~~2022. It is reasonably possible the Company may incur ~~losses in addition to the amounts currently accrued.~~losses. 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.~~2021. 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,~~2021, 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.~~The Company did not have any unregistered sales of equity securities during the three and six months ended June 30, 2022.

In January 2022, the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $50.0 million of its common stock. The stock repurchase authorization does not have an expiration date and may be modified, amended, suspended, or discontinued at the Company’s discretion at any time without notice. The Company repurchased approximately $14.7 million in common stock during the three months ended June 30, 2022.

The following table summarizes share repurchase activities during the three months ended June 30, 2022:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
					(Dollars in thousands)
April 1, 2022 to April 30, 2022	—	$	—	—	$	50,000
May 1, 2022 to May 31, 2022	—	—		—	50,000
June 1, 2022 to June 30, 2022	1,038,986	14.12		1,038,986	35,333
Total	1,038,986	$	14.12	1,038,986

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.”

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


*			Filed herewith
**			Furnished herewith

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:	August ~~5, 2021~~4, 2022	/s/ Kevin S. Kim
		Kevin S. Kim
		Chairman, President, and Chief Executive Officer


Date:	August ~~5, 2021~~4, 2022	/s/ Alex Ko
		Alex Ko
		Senior Executive Vice President and Chief Financial Officer


	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


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



Total	$	200,000