In this Quarterly Report on Form 10-Q, the term “Bancorp” refers to Cathay General Bancorp and the term “Bank” refers to Cathay Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively.

The statements in this report include forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 regarding management’s beliefs, projections, and assumptions concerning future results and events. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements in these provisions. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements about anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, growth plans, acquisition and divestiture opportunities, business prospects, strategic alternatives, business strategies, financial expectations, regulatory and competitive outlook, loan and deposit growth, investment and expenditure plans, financing needs and availability, level of nonperforming assets, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “aims,” “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “optimistic,” “plans,” “potential,” “possible,” “predicts,” “projects,” “seeks,” “shall,” “should,” “will,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by us are based on estimates, beliefs, projections, and assumptions of management and are not guarantees of future performance. These forward-looking statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks, uncertainties and other factors include, but are not limited to:

These and other factors are further described in Bancorp’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings Bancorp makes with the SEC from time to time. Actual results in any future period may also vary from the past results discussed in this report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. We have no intention and undertake no obligation to update any forward-looking statement or to announce publicly any revision of any forward-looking statement to reflect developments, events, occurrences or circumstances after the date of such statement, except as required by law.

Bancorp’s filings with the SEC are available at the website maintained by the SEC at http://www.sec.gov, or by request directed to Cathay General Bancorp, 9650 Flair Drive, El Monte, California 91731, Attention: Investor Relations (626) 279-3296.

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~~CONDENSED~~ CONSOLIDATED ~~STATEMENTS OF~~ ~~CHANGES IN STOCKHOLDERS’ EQUITY~~BALANCE SHEETS

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

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Cathay General Bancorp (“Bancorp”) is the holding company for Cathay Bank (the “Bank” and, together, with Bancorp, the “Company”), ten limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner, ~~Asia Realty Corp.~~ and GBC Venture Capital, Inc. Bancorp also owns 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities. The Bank was founded in 1962 and offers a wide range of financial services. As of September 30, ~~2020,~~2021, the Bank operates 2524 branches in Southern California, 13 branches in Northern California, 10 branches in New York State, four in Washington State, ~~three~~2 in Illinois, two in Texas, one in Maryland, Massachusetts, Nevada, and New Jersey, one in Hong Kong, and a representative office in Taipei, Beijing, and Shanghai. Deposit accounts at the Hong Kong branch are not insured by the Federal Deposit Insurance Corporation (the “FDIC”).

The accompanying unaudited ~~Condensed~~ Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. For further information, refer to the audited Consolidated Financial Statements and Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020 filed with the SEC on March 1, 2021 (the "2020 Form 10-K").

The preparation of the ~~Condensed~~ Consolidated Financial Statements in accordance with GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the ~~Condensed~~ Consolidated Financial Statements. Actual results could differ from those estimates. The Company expects that the most significant estimates subject to change are the allowance for loan losses.

With the exception of the updated accounting policies listed below, the accompanying unaudited interim Consolidated Financial Statements have been prepared on a consistent basis with the accounting policies described in Consolidated Financial Statements and Supplementary Data - Note 1 - “Summary of Significant Accounting Policies” under Part II, Item 8 of our 2020 Form 10K.

InPrior to January ~~2017,~~1, 2021, ~~the FASB issued ASU~~ ~~2017~~-~~04,~~ ~~“Intangibles—Goodwill and Other (Topic~~ ~~350~~available-for-sale ("AFS")~~: Simplifying the Test for Goodwill Impairment.” This update simplifies how an entity is required to test goodwill for impairment by eliminating Step~~ 2 ~~from the goodwill impairment test. Step~~ 2 ~~measures a goodwill impairment loss by comparing the implied~~ debt securities were measured at fair value ~~of a reporting unit’s goodwill with~~and declines in the ~~carrying amount of that goodwill. Adoption of this update is on a prospective basis and~~fair value were reviewed to determine whether the ~~amendments in this update are to be applied to annual periods beginning after~~ ~~December 15, 2019.~~ ~~Adoption of ASU~~ ~~2017~~-04impairment was other-than-temporary. If we did not expect to recover the entire amortized cost basis of the security, then an other-than-temporary impairment (“OTTI”) was considered to have ~~a material impact on~~occurred. The cost basis of the ~~Company’s Consolidated Financial Statements.~~

In ~~August 2018,~~ ~~the FASB issued ASU~~ ~~No.~~~~2018~~-~~13,~~ ~~“Disclosure Framework Changes~~security was written down to ~~the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for~~its estimated fair value ~~measurements. Among the changes, entities will~~ no ~~longer be required to disclose~~and the amount of ~~and reasons for transfers between Level~~ 1 ~~and Level~~ 2the write-down was recognized through a charge to earnings. If the amount of the ~~fair value hierarchy~~amortized cost basis expected to be recovered increased in a future period, the cost basis of the security was not increased but ~~will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level~~ 3 ~~fair value measurements. ASU~~ ~~No.~~~~2018~~-13 ~~is effective for interim and annual reporting periods beginning after~~ ~~December 15, 2019;~~ ~~early adoption is permitted. As ASU~~ ~~No.~~~~2018~~-13 ~~only revises disclosure requirements, there was~~ no ~~material impact on the Company’s Consolidated Financial Statements.~~rather recognized prospectively through interest income.

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Effective January 1, 2021, upon the adoption of ASU 2016-13, debt securities AFS are measured at fair value and subject to impairment testing. When an AFS debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit loss by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security.

Interest income includes amortization of premiums and discounts as an adjustment of yield on a level-yield basis. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time any principal or interest payments become delinquent by 90 days or greater. Interest accrued but not received for a security placed on non-accrual is reversed against interest income. No interest was reversed against interest income during the period.

Allowance for Credit Losses on Available for Sale Securities

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value with the credit component of the unrealized loss of the impaired AFS debt security recognized as an allowance for credit losses, and a corresponding provision for credit losses on the consolidated statement of income and the non-credit component is recognized in other comprehensive income (loss), net of applicable taxes. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, the payment structure of the security, failure of the issuer of the security to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Any fair value changes that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for credit loss expense. Losses are charged against the allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The amortized cost of the Company’s AFS debt securities excludes accrued interest, which is included in “accrued interest receivable” on the Consolidated Balance Sheets. The Company has made an accounting policy election not to measure an allowance for credit losses for accrued interest receivables on AFS debt securities since the Company timely reverses any previously accrued interest when the debt security remains in default for an extended period. As each AFS debt security has a unique security structure, where the accrual status is clearly determined when certain criteria listed in the terms are met, the Company assesses the default status of each security as defined by the debt security’s specific security structure.

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Trading securities are reported at fair value, with unrealized gains or losses included in income.
Loans Held for Investment
Loans receivable that the Company has the intent and ability to hold for the foreseeable future or until maturity are stated at their outstanding principal, reduced by an allowance for loan losses and net of deferred loan fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized in interest income as an adjustment to yield over the loan term using the effective interest method or straight-line method. Discounts or premiums on purchased loans are accreted or amortized to interest income using the effective interest method or straight-line method over the remaining period to contractual maturity. Interest on loans is calculated using the simple-interest method on daily balances of the principal amounts outstanding based on an actual or 360-day basis.
Generally, loans are placed on nonaccrual status when they become 90 days past due. Loans are considered past due when contractually required principal or interest payments have not been made on the due dates. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of principal or interest becomes uncertain, regardless of the length of past due status. Once a loan is placed on nonaccrual status, interest accrual is discontinued, and all unpaid accrued interest is reversed against interest income. As a result, accrued interest receivable does not carry a credit loss reserve. Interest payments received on nonaccrual loans are reflected as a reduction of principal and not as interest income. A loan is returned to accrual status when the borrower has demonstrated a satisfactory payment trend subject to management’s assessment of the borrower’s ability to repay the loan.
Loans Held for Sale
Held for sale loans are carried at the lower of aggregate cost or fair value. Gains and losses are recorded in non-interest income based on the difference between sales proceeds, net of sales commissions, and carrying value. When a determination is made at the time of commitment to originate or purchase loans as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic review under the Company’s management evaluation processes, including asset/liability management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from the loans held-for-investment portfolio at amortized cost to the loans held-for-sale portfolio at lower of aggregate cost or fair value and the existing ACL on the loans transferred is reversed.
Allowance for Credit Losses on Loans Held for Investment.
Effective January 1, 2021, and upon the adoption of ASU 2016-13, the Company replaced the incurred loss accounting approach with the current expected credit loss (“CECL”) approach for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances.
The ACL on loans held for investment is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "other liabilities" on the Consolidated Balance Sheets (Unaudited). The amortized cost basis of loans does not include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statements of Operations and Comprehensive Income (Unaudited) is a combination of the provision for loan losses and the provision for unfunded loan commitments.
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Under the Company's CECL approach, management estimates the ACL using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable economic forecasts that vary by loan portfolio. We use economic forecasts from Moody’s Analytics in this process. The economic forecast is updated monthly; therefore, the one used for each quarter-end calculation is generally based on a one-month lag based on the timing of when the forecast is released. The Company does not consider a one-month lag to create a material difference but will consider any subsequent material changes to our estimated loss forecasts as deemed appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in gross domestic product (or “GDP”), unemployment rates, property values, or other relevant factors.
Under the CECL methodology, quantitative and qualitative loss factors are applied to our population of loans on a collective pool basis when similar risk characteristics exist. When loans do not share similar risk characteristics, the Company would evaluate the loan for expected credit losses on an individual basis. The Company evaluates loans for expected credit losses on an individual basis if, based on current information and events, the loan does not share similar credit risk characteristics with other loans. The Company may choose to measure expected credit losses on an individual loan basis by using one of the following methods: (1) the present value of the expected future cash flows of the loan discounted at the loan’s original effective interest rate, or (2) if the loan is collateral dependent, the fair value of the collateral less costs to sell. For loans that are not collateral-dependent, the Company will use the present value of future cash flows.
Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six portfolios subject to econometric modeling include residential mortgages; commercial and industrial loans (“C&I”); construction loans; commercial real estate (“CRE”) for multifamily loans; CRE for owner-occupied loans; and other CRE loans. We estimate the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables, (GDP, unemployment, CRE prices and residential mortgage prices) to historical credit performance for each of the six loan portfolios from 2007 to the fourth quarter of 2020. Loss given default rates would be computed based on the net charge-offs recognized divided by the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2020. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses.
The Company’s CECL methodology utilizes an eight-quarter reasonable and supportable (“R&S”) forecast period, and a four-quarter reversion period. Management relies on multiple forecasts, blending them into a single loss estimate. Generally speaking, the blended scenario approach would include the Baseline, the Alternative Scenario 1 – Upside – 10th Percentile and the Alternative Scenario 3 – Downside – 90th Percentile forecasts. After the R&S period, the Company will revert linearly for the four-quarter reversion period to the long-term loss rates for each of the six portfolios of loans.
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The Company’s CECL methodology estimates expected credit losses over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: (i) management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or (ii) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
The simplified approach portfolios include Small Business Administration (“SBA”) loans, Home Equity Lines of Credit (“HELOCs”) and cash-secured loans, which are not modelled econometrically due to the low loss history for these three pools of loans. The forecasted loss rate is based on the forecasted GDP and unemployment rates during the firsteight quarters of the portfolio’s contractual life, reversion loss rates for the next four quarters of the portfolio’s contractual life on a linear declining rate, and the long-term loss rate projected over the remainder of the portfolio’s contractual life.
Under the Company’s CECL methodology, the qualitative portion of the reserve on pooled loans represents management’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to seek to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. The qualitative reserves include reserves for policy exceptions, experience of management and staff, level of competition in the lending environment, weak risk identification, lack of historical experience with residential mortgage loans made to non-U.S. residents, oil and gas, included as part of the C&I loan portfolio, and the higher risk characteristics of purchased syndicated loans. Current and forecasted economic trends and underlying market values for collateral dependent loans also are considered within the econometric models described above.
The Company's CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Several of the steps in the methodology involve judgment and are subjective in nature including, among other things: segmenting the loan portfolio; determining the amount of loss history to consider; selecting predictive econometric regression models that use appropriate macroeconomic variables; determining the methodology to forecast prepayments; selecting the most appropriate economic forecast scenario; determining the length of the R&S forecast and reversion periods; estimating expected utilization rates on unfunded loan commitments; and assessing relevant and appropriate qualitative factors. In addition, the CECL methodology is dependent on economic forecasts that are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered by management to be appropriate, there can be no assurance that it will be sufficient to absorb future losses.
Management believes the allowance for credit losses is appropriate for the CECL in our loan portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date.
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Individually Evaluated Loans
Loans that do not share similar risk characteristics with other financial assets are individually evaluated for impairment and excluded from loan pools used within the collective evaluation of estimated credit losses. We defined the following criteria for what constitutes a “default”, which results in a loan no longer sharing similar risk characteristics with other loans, and therefore requires an individual evaluation for expected credit losses. The criteria for default may include any one of the following: on nonaccrual status, modified under a troubled debt restructuring, or payment delinquency of 90 days or more.
Impaired Loans
Prior to January 1, 2021, a loan or lease was considered impaired when it was probable that we would be unable to collect all amounts due according to the contractual terms of the loan or lease agreement. The measurement of impairment may be based on (1) the present value of the expected future cash flows of the impaired loan discounted at the loan’s original effective interest rate, (2) the observable market price of the impaired loan or (3) the fair value of the collateral of a collateral-dependent loan. The amount by which the recorded investment in the loan exceeds the measure of the impaired loan is recognized by recording a valuation allowance with a corresponding charge to the provision for loan losses. When loans are placed on an impaired status, previously accrued but unpaid interest is reversed against current income and subsequent payments received are generally first applied toward the outstanding principal balance of the loan.
Troubled Debt Restructured Loan (“TDR”)
A TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date. Although these loan modifications are considered TDRs, TDR loans that have, pursuant to the Bank’s policy, performed under the restructured terms and have demonstrated sustained performance under the modified terms for six months are returned to accrual status. The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructure to set up interest reserves. Loans classified as TDRs are reported as individually evaluated loans.
The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) as extended by the Consolidated Appropriation Act, 2021 (“CAA”) permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 and is intended to provide interpretive guidance as to conditions that would constitute a short-term modification that would not meet the definition of a TDR. Such conditions include the following (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.
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Unfunded Loan Commitments
Unfunded loan commitments are generally related to providing credit facilities to clients of the Bank and are not actively traded financial instruments. These unfunded commitments are disclosed as off-balance sheet financial instruments in Note 9 in the Notes to Consolidated Financial Statements (Unaudited).
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company, using the same loss factors as used for the allowance for loan losses. The reserve for unfunded loan commitments uses the expected historical usage rate of the unfunded commitments during the contractual life of the commitments. The allowance for unfunded commitments is included in “other liabilities” on the Consolidated Balance Sheets. Changes in the allowance for unfunded commitments are included in the provision for loan losses.
3. Recent Accounting Pronouncements

~~Other~~ Accounting Standards ~~Pending Adoption~~ Adopted in 2021

In June 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This update requires an entity to use a broader range of ~~reasonable and supportable (“~~R~~&S”)~~&S forecasts, in addition to historical experience and current conditions, to develop an expected credit loss estimate, referred to as the ~~Current Expected Credit Loss (“CECL”)~~CECL model, for financial assets and net investments that are not accounted for at fair value through net income. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses to the amount by which fair value is below amortized cost.

The FASB issued additional ASUs containing clarifying guidance, transition relief provisions and minor updates to the original ASU. These include ASU 2018-19 (issued November 2018), ASU 2019-04 (issued April 2019), ASU 2019-05 (issued May 2019), ASU 2019-10 (issued November 2019), ASU 2019-11 (issued November 2019), ASU 2020-02 (issued February 2020) and ASU 2020-03 (issued March 2020). ASU 2016-13 and subsequent ASUs are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This amendment ~~is required to be adopted~~requires using a modified retrospective approach with a cumulative-effect adjustment to beginning retained earnings, as of the beginning of the first reporting period in which the guidance is effective.

~~As previously disclosed,~~ Effective January 1, 2021, the Company formed a multidisciplinary project team and implementation plan, developed a conceptual framework, and engaged an outside firm to develop econometric regression models for net losses during the R&S forecast period. Our approach for estimating expected life-time credit losses includes, among other things, the following key components for all loan portfolio segments: a. The use of a probability of default/loss given default methodology; b. A number of scenarios based on forecasts from an outside economic forecasting company to develop economic forecasts for the R&S period; c. An initial R&S forecast period of ~~eight~~ ~~quarters for all loan portfolio segments, which reflects management's expectation of losses based on forward-looking economic scenarios over that time; and d. A post-R&S reversion period of~~ ~~four~~ ~~quarters using a linear transition to the historical loss rates for each loan pool. Model back testing,~~ ~~third~~ ~~party model validation and management review of model results are substantially underway, and are nearing completion.~~
~~As previously disclosed, the Company has elected to delay its adoption of~~adopted ASU 2016-13 ~~as provided by~~and the ~~Coronavirus Aid, Relief,~~related amendments to Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses, to replace the incurred loss accounting approach with a CECL approach for financial instruments measured at amortized cost and ~~Economic Security (the “CARES Act”), until~~other commitments to extend credit. The new standard is generally intended to require earlier recognition of credit losses. While the ~~date on which~~standard changes the ~~national emergency related to~~measurement of the ~~COVID-~~19 ~~outbreak is terminated or~~ ~~December 31, 2020,~~ ~~whichever occurs first. Upon adoption of ASU~~ ~~2016~~-~~13,~~ ~~the Company expects to recognize, as of~~ ~~January 1, 2020,~~ a ~~one~~~~-time cumulative effect adjustment through retained earnings of between $10 million to $12 million and expects to increase its~~ allowance for credit losses, ~~(“ACL”) by $15~~it does not change the credit risk of our lending portfolios or the ultimate losses in those portfolios.
Under the CECL approach, the standard requires immediate recognition of estimated credit losses expected to ~~$17 million. As of~~ ~~September 30, 2020,~~ occur over the ~~Company’s process for estimation~~estimated remaining life of the ~~ACL under~~asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts. The standard modifies the ~~CECL~~other-than-temporary impairment model ~~is in progress as~~for available-for-sale debt securities to require entities to record an allowance when recognizing credit losses for available-for-sale securities, rather than reducing the ~~March 31, 2020~~ ~~ACL,~~amortized cost of the ~~June 30, 2020~~ ~~ACL and the~~ ~~September 30, 2020~~ ~~ACL. Based on its preliminary analysis as of~~ ~~September 30, 2020,~~ ~~the Company preliminarily estimates an addition to its ACL of between $10 to $15 million for the~~ ~~first~~ ~~quarter of~~ ~~2020,~~ ~~an addition of between $5 million and $10 million for the~~ ~~second~~ ~~quarter of~~ ~~2020,~~ ~~and a reduction of between $15 to $25 million for the~~ ~~third~~ ~~quarter of~~ ~~2020~~ ~~above the $25 million reported under the incurred loss method for both the quarter ended~~ ~~March 31, 2020~~ ~~and the quarter ended~~ ~~June 30, 2020~~ ~~and below the $12.5 million recorded under the incurred loss method for the quarter ended~~ ~~September 30, 2020.~~securities by direct write-offs.

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The Company adopted the new standard using the modified retrospective approach and recognized a cumulative effect adjustment to decrease retained earnings by $3.1 million, net of taxes, and decrease the allowance for loan losses by $1.6 million and increase the reserve for unfunded loan commitments by $6.0 million without restating prior periods and applied the requirements of the new standard prospectively. There was no cumulative effect adjustment related to available-for-sale securities at adoption. The Company elected to account for accrued interest receivable separately from the amortized cost of loans and investment securities. Accrued interest receivable is included in "accrued interest receivables" on the Consolidated Balance Sheets. The Company elected the practical expedient to use the fair value of the collateral at the reporting date when determining the allowance for credit losses for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the entity’s assessment as of the reporting date (collateral dependent financial asset). Additionally, the Company implemented new business processes, new internal controls, and modified existing and/or implemented new internal models and tools to facilitate the ongoing application of the new standard. See Note 8.Loans for further details.
The following table sets forth the cumulative effect of the changes to the Company’s unaudited Consolidated Balance Sheets at January 1, 2021, for the adoption of ASC 326:

Balance at

Adjustments due to

Balance at

December 31, 2020

Adoption of ASC 326

January 1, 2021

(In thousands)

Assets:
Allowance for credit losses on loans
$ 166,538 $ (1,560 ) $ 164,978
Deferred tax assets
85,610 1,319 86,929
Liabilities:

Allowance for unfunded commitments
$ 5,880 $ 6,018 $ 11,898
Stockholders' equity:

Retained earnings, net of tax
$ 2,418,144 $ (3,140 ) $ 2,415,004

In July 2017, the FASB issued ASU 2017-11, “Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815).” There are two parts to this update. Part I ~~of this update~~ addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments that result in the strike price being reduced on the basis of the pricing of future equity offerings. Part II ~~of this update~~ addresses the difficulty in navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB ~~Accounting Standards Codification.~~ASC. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in this update are effective for fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in part I of this update should be applied in either of the following ways: (i) ~~Retrospectively~~retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim periods in which the pending content that links to this paragraph is effective; or (ii) ~~Retrospectively~~retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments to Part II of this update do not require any transition guidance because those amendments do not have an accounting effect. ~~The Company does~~ ~~not~~ ~~expect~~Adoption of ASU 2017-11 todid not have a material impact on ~~its~~the Company’s Consolidated Financial Statements.

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In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740); Simplifying the Accounting for Income Taxes.” This ASU removes specific exceptions to the general principles in Topic 740 in ~~Generally Accepted Accounting Principles.~~GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intra-period tax allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also (i) improves financial statement preparers’ application of income tax-related guidance ~~and~~(ii) simplifies GAAP ~~for: Franchise~~for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; and separate financial statements of legal entities that are not subject to tax; and ~~enacted~~(iii) establishes changes in tax laws in interim periods. This ASU is effective for public business entities, for fiscal years beginning after December 15, 2020 with early adoption permitted for public business entities for periods for which financial statements have not yet been issued. ~~The Company does~~ ~~not~~ ~~expect the adoption~~Adoption of ASU 2019-12 todid not have a material impact on the Company’s Consolidated Financial Statements.

In January 2020, the FASB issued ASU No. 2020-01, “'Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint-Ventures (Topic 323), and Derivatives and Hedging (Topic 815). Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is permitted, including early adoption in an interim period for public business entities for periods for which financial statements have not yet been issued. An entity should apply ASU No. 2020-01 prospectively at the beginning of the interim period that includes the adoption date. This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ~~The Company does~~ ~~not~~ ~~expect the adoption~~Adoption of ASU 2020-01 todid not have a material impact on the Company’s Consolidated Financial Statements.

Other Accounting Standards Pending Adoption
10

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In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 is effective for all entities as of March 12, 2020, through December 31, 2022. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying ~~generally accepted accounting principles~~GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 as subsequent amendments, which expanded the scope of Topic 848 to include all affected derivatives and clarified certain optional expedients and exceptions regarding the hedge accounting for derivative contracts affected by the discounting transition. Based on our current assessment, we will plan to offer SOFR as the primary alternative reference rate but may consider alternate rates based on customer demands and/or the type of loan or financial instrument. The Company will also continue to assess impacts to our operations, financial models, data and technology as part of our transition plan. The adoption of this guidance is ~~evaluating the~~not expected to have a material impact ~~of adopting ASU~~ ~~2020~~-02 on the Company’s ~~Consolidated Financial Statements.~~consolidated financial statements.

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4. Cash, Cash Equivalents and Restricted Cash

The Company manages its cash and cash equivalents based upon the Company’s operating, investment, and financing activities. Cash and cash equivalents, including for purposes of reporting cash flows, consist of cash on hand, amounts due from banks, and short-term investments with original maturity of three months or less.

The Company is required to maintain reserves with the Federal Reserve Bank. Reserve requirements are based on a percentage of deposit liabilities. The average reserve balances required were ~~$78 thousand~~0 and ~~$110~~$60 thousand for the nine months ended September 30, ~~2020~~2021 and for the year ended December 31, ~~2019,~~2020, respectively. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$39.0~~$31.9 million and ~~$17.7~~$34.7 million, respectively, on deposit in a cash margin account that serves as collateral for interest rate swaps. These amounts included ~~$13.2~~$8.0 million and ~~$7.1~~$11.9 million as of September 30, 2021 and December 31, 2020, respectively, on deposit in a cash margin account that serves as collateral for the Bancorp’s interest rate swaps. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company held ~~$21.8~~$1.0 million and ~~$18.9~~$9.3 million, respectively, in a restricted escrow account with a major bank for its alternative energy investments.

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5. Earnings per Share

Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that then shared in earnings. Restricted stock units (“RSUs”) with anti-dilutive effect were not included in the computation of diluted earnings per share. The following table sets forth earnings per common share calculations:

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Three months ended September 30,

Nine months ended September 30,

(In thousands, except share and per share data)

2021

2020

2021

2020

(In thousands, except share and per share data)

Net income
$ 56,794 $ 72,835 $ 157,967 $ 211,758 $ 72,397 $ 56,794 $ 222,980 $ 157,967

Weighted-average shares:

Basic weighted-average number of common shares outstanding
79,628,372 79,736,814 79,599,288 80,096,855 77,846,424 79,628,372 78,841,899 79,599,288
Dilutive effect of weighted-average outstanding common share equivalents RSUs
135,946 257,016 159,655 233,761 306,984 135,946 286,745 159,655
Diluted weighted-average number of common shares outstanding
79,764,318 79,993,830 79,758,943 80,330,616 78,153,408 79,764,318 79,128,644 79,758,943

Average restricted stock units with anti-dilutive effect
117,621 32,321 97,110 47,690 884 117,621 30,130 97,110
Earnings per common share:

Basic
$ 0.71 $ 0.91 $ 1.98 $ 2.64 $ 0.93 $ 0.71 $ 2.83 $ 1.98
Diluted
$ 0.71 $ 0.91 $ 1.98 $ 2.64 $ 0.93 $ 0.71 $ 2.82 $ 1.98

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6. Stock-Based Compensation

Pursuant to the Company’s 2005 Incentive Plan, as amended and restated, the Company may grant incentive stock options (employees only), non-statutory stock options, common stock awards, restricted stock, RSUs, stock appreciation rights and cash awards to non-employee directors and eligible employees.

RSUs are generally granted at no cost to the recipient. RSUs generally vest ratably over three years or cliff vest after one or three years of continued employment from the date of the grant. While a portion of RSUs may be time-vesting awards, others may vest subject to the attainment of specified performance goals and are referred to as “performance-based RSUs.” All RSUs are subject to forfeiture until vested.

Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum of zero and to a maximum of 150% of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together to determine the total number of performance shares that are eligible to vest. Performance-based RSUs generally cliff vest three years from the date of grant.

Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value, which considers both market and performance conditions. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant.

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~~Table of Contents~~
The following table presents RSU activity during the nine months ended September 30, ~~2020:~~2021:

Time-Based RSUs

Performance-Based RSUs

Time-Based RSUs

Performance-Based RSUs

Weighted-Average

Weighted-Average

Weighted-Average

Weighted-Average

Grant Date

Grant Date

Grant Date

Grant Date

Shares

Fair Value

Shares

Fair Value

Shares

Fair Value

Shares

Fair Value

Balance at December 31, 2019
273,200 $ 35.90 297,744 $ 32.65
Balance at December 31, 2020
292,670 $ 33.37 302,802 $ 32.55
Granted
3,013 24.89 212,369 19.66 60,666 41.11 113,764 37.13
Vested
(79,630 ) 25.39 (193,240 ) 21.68 (96,869 ) 41.72 (76,292 ) 42.56
Forfeited
(8,162 ) 39.41 (14,071 ) 39.08 (23,324 ) 29.92 (7,768 ) 40.60
Balance at September 30, 2020
188,421 $ 40.01 302,802 $ 30.24
Balance at September 30, 2021
233,143 $ 32.26 332,506 $ 31.63

The compensation expense recorded for RSUs was ~~$1.3~~$1.7 million and ~~$1.8~~$1.3 million for the three months ended September 30, ~~2020~~2021, and ~~2019,~~2020, respectively. For the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the compensation expense recorded for RSUs was ~~$3.8~~$4.1 million and ~~$4.8~~$3.8 million, respectively. Unrecognized stock-based compensation expense related to RSUs was ~~$8.0~~$10.3 million and ~~$11.5~~$8.0 million as of September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. As of September 30, ~~2020,~~2021, these costs are expected to be recognized over the next ~~1.7~~1.9 years for time-based and performance-based RSUs.

As of September 30, ~~2020,~~2021, ~~2,150,724~~1,863,749 shares were available for future grants under the Company’s 2005 Incentive Plan, as amended and restated.

Tax deficiency from share-based payment arrangements increased income tax expense by $0.4 million and a tax benefit from share-based payment arrangements reduced income tax expense by $0.6 million in the
~~nine~~18 ~~months ended~~ ~~September 30, 2020~~ ~~and~~ ~~2019,~~ ~~respectively.~~

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7. Investment Securities

The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of securities available-for-sale as of September 30, ~~2020,~~2021, and December 31, ~~2019:~~2020:

September 30, 2020

September 30, 2021

Gross

Gross

Gross

Gross

Amortized

Unrealized

Unrealized

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

(In thousands)

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 99,968 $ 12 $ 0 $ 99,980 $ 40,206 $ 5 $ 0 $ 40,211
U.S. government agency entities
104,661 465 530 104,596 89,823 1,255 135 90,943
Mortgage-backed securities
709,756 20,045 557 729,244 798,905 12,490 6,328 805,067
Collateralized mortgage obligations
222 0 11 211 9,792 0 231 9,561
Corporate debt securities
146,368 288 147 146,509 134,348 514 1,428 133,434
Total
$ 1,060,975 $ 20,810 $ 1,245 $ 1,080,540 $ 1,073,074 $ 14,264 $ 8,122 $ 1,079,216

December 31, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 80,948 $ 6 $ 6 $ 80,948
U.S. government agency entities
99,944 441 546 99,839
Mortgage-backed securities
709,709 17,965 606 727,068
Collateralized mortgage obligations
10,358 0 34 10,324
Corporate debt securities
118,271 367 267 118,371
Total
$ 1,019,230 $ 18,779 $ 1,459 $ 1,036,550
As of September 30, 2021, the amortized cost of AFS debt securities excluded accrued interest receivables of $2.6 million, which are included in “accrued interest receivables” on the Consolidated Balance Sheets. For the Company’s accounting policy related to AFS debt securities’ accrued interest receivable, see Note 2.Basis of Presentation and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10Q.
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December 31, 2019

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 74,926 $ 10 $ 0 $ 74,936
U.S. government agency entities
90,452 663 319 90,796
U.S. government sponsored entities
225,000 0 557 224,443
Mortgage-backed securities
880,040 8,574 824 887,790
Collateralized mortgage obligations
569 0 17 552
Corporate debt securities
172,743 605 23 173,325
Total
$ 1,443,730 $ 9,852 $ 1,740 $ 1,451,842
The amortized cost and fair value of securities available-for-sale as of September 30, ~~2020,~~2021, by contractual maturities, are set forth in the tables below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties.

September 30, 2020

September 30, 2021

Securities Available-For-Sale

Securities Available-For-Sale

Amortized Cost

Fair Value

Amortized Cost

Fair Value

(In thousands)

(In thousands)

Due in one year or less
$ 182,047 $ 182,289 $ 45,215 $ 45,234
Due after one year through five years
44,028 44,044 117,088 115,615
Due after five years through ten years
176,079 178,429 149,474 153,657
Due after ten years
658,821 675,778 761,297 764,710
Total
$ 1,060,975 $ 1,080,540 $ 1,073,074 $ 1,079,216

Equity Securities - The Company recognized a net ~~loss~~gain of ~~$1.6 million~~$3 thousand for the three months ended September 30, ~~2020,~~2021, due to the ~~decrease~~increase in fair value during the quarter of equity investments with readily determinable fair values compared to a net gain of ~~$0.4~~$1.6 million for the three months ended September 30, ~~2019.~~2020. The Company recognized a net loss of $3.6 million for the nine months ended September 30, 2021, due to the decrease in fair value, year to date, of equity investments with readily determinable fair values compared to a net loss of $1.9 million for the nine months ended September 30, ~~2020,~~ ~~due to the decrease in fair value of equity investments with readily determinable fair values compared to a net gain of $7.8 million for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019.~~2020. Equity securities were ~~$23.0~~$20.1 million and ~~$28.0~~$23.7 million as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively.
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~~Table of Contents~~

The following tables set forth the gross unrealized losses and related fair value of the Company’s investment portfolio, aggregated by investment category and the length of time that individual security has been in a continuous unrealized loss position, as of September 30, ~~2020~~2021, and December 31, ~~2019:~~2020:

September 30, 2020

Less than 12 Months

12 Months or Longer

Total

September 30, 2021

Gross

Gross

Gross

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Gross

Gross

Gross

Value

Losses

Value

Losses

Value

Losses

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(In thousands)

Value

Losses

Value

Losses

Value

Losses

(In thousands)

Securities Available-for-Sale

U.S. government agency entities
$ 21,824 $ 94 $ 40,793 $ 436 $ 62,617 $ 530 $ 0 $ 0 $ 2,403 $ 135 $ 2,403 $ 135
Mortgage-backed securities
1,924 20 8,944 537 10,868 557 399,470 5,632 7,038 696 406,508 6,328
Collateralized mortgage obligations
0 0 211 11 211 11 9,418 219 144 12 9,562 231
Corporate debt securities
45,762 147 0 0 45,762 147 91,870 1,144 19,716 284 111,586 1,428
Total
$ 69,510 $ 261 $ 49,948 $ 984 $ 119,458 $ 1,245 $ 500,758 $ 6,995 $ 29,301 $ 1,127 $ 530,059 $ 8,122

December 31, 2020

Less than 12 Months

12 Months or Longer

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 40,952 $ 6 $ 0 $ 0 $ 40,952 $ 6
U.S. government agency entities
26,390 102 40,009 444 66,399 546
Mortgage-backed securities
1,694 23 8,093 583 9,787 606
Collateralized mortgage obligations
10,131 25 193 9 10,324 34
Corporate debt securities
58,405 267 0 0 58,405 267
Total
$ 137,572 $ 423 $ 48,295 $ 1,036 $ 185,867 $ 1,459
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Table of Contents
Allowance for Credit Losses

The securities that were in an unrealized loss position at September 30, 2021, were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors. For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note 2Basis of Presentation and Summary of Significant Accounting Policies - Allowance for Credit Losses on Available for Sale Securities to the Consolidated Financial Statements in this Form 10Q.

December 31, 2019

Less than 12 Months

12 Months or Longer

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

(In thousands)

Securities Available-for-Sale

U.S. government agency entities
$ 48,829 $ 172 $ 3,570 $ 147 $ 52,399 $ 319
U.S. government sponsored entities
0 0 224,443 557 224,443 557
Mortgage-backed securities
43,719 36 120,801 788 164,520 824
Collateralized mortgage obligations
0 0 552 17 552 17
Corporate debt securities
51,791 23 0 0 51,791 23
Total
$ 144,339 $ 231 $ 349,366 $ 1,509 $ 493,705 $ 1,740

~~To the Company’s knowledge, the~~The Company ~~believes~~concluded the unrealized losses were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads. The issuers have not, to the Company’s knowledge, established any cause for default on these securities. ~~Management believes the gross unrealized losses detailed in the table above are temporary.~~ The Company expects to recover the amortized cost basis of its securities and has no present intent to sell and will not be required to sell available-for-sale securities that have declined below their cost before their anticipated recovery. Accordingly, no ~~other than temporary impairment write-downs were~~allowance for credit losses was recorded onas of September 30, 2021, against these securities, and there was no provision for credit losses recognized for the ~~Company’s Condensed Consolidated Statement of Operations and Comprehensive Income in~~nine months ended September 30, 2021. For the~~three~~ or nine months ended September 30, 2020, ~~and~~there was ~~2019.~~no credit loss recognized.

Securities available-for-sale having a carrying value of ~~$18.6~~$30.9 million and ~~$20.1~~$22.7 million as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively, were pledged to secure public deposits, other borrowings, ~~and~~ treasury tax and loan.

88. Loans.~~Loans~~

Most of the Company’s business activities are with customers located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan customers in Hong Kong. The Company has no specific industry concentration, and generally its loans, when secured, are secured by real property or other collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.

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The types of loans in the Company’s ~~Condensed~~ Consolidated Balance Sheets as of September 30, ~~2020,~~2021 and December 31, ~~2019,~~2020, were as follows:

September 30, 2020

December 31, 2019

September 30, 2021

December 31, 2020

(In thousands)

(In thousands)

Commercial loans
$ 2,848,000 $ 2,778,744 $ 2,871,693 $ 2,836,833
Residential mortgage loans
4,169,847 4,088,586 4,144,789 4,145,389
Commercial mortgage loans
7,459,316 7,275,262 7,835,528 7,555,027
Real estate construction loans
675,112 579,864 688,195 679,492
Equity lines
411,848 347,975 433,206 424,555
Installment and other loans
1,656 5,050 3,370 3,100
Gross loans
$ 15,565,779 $ 15,075,481 $ 15,976,781 $ 15,644,396
Allowance for loan losses
(179,130 ) (123,224 ) (131,945 ) (166,538 )
Unamortized deferred loan fees, net
(4,210 ) (626 ) (3,835 ) (2,494 )
Total loans, net
$ 15,382,439 $ 14,951,631 $ 15,841,001 $ 15,475,364

As of September 30, 2021, recorded investment in non-accrual loans was $68.7 million. As of December 31, 2020, recorded investment in impaired loans totaled ~~$105.8~~$95.4 million and was comprised of non-accrual loans of ~~$77.2 million and accruing troubled debt restructured loans (“TDRs”) of $28.6 million. As of~~ ~~December 31, 2019,~~ ~~recorded investment in impaired loans totaled $75.9 million and was comprised of non-accrual loans of $40.5~~$67.7 million and accruing TDRs of ~~$35.4~~$27.7 million. For non-accrual loans, the amounts previously charged off represent 10.6% of the contractual balances for non-accrual loans as of September 30, 2021. For impaired loans, the amounts previously charged off represent ~~6.1% and 2.1%~~7.1% of the contractual balances for impaired loans as of ~~September 30, 2020~~ ~~and~~ December 31, ~~2019,~~ 2020.~~respectively.~~

The following table presents the average recorded investment and interest income recognized on ~~impaired~~non-accrual loans for the ~~periods~~period indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

Nine Months Ended

2020

2019

2020

2019

September 30, 2021

September 30, 2021

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest Income
Recognized

Average
Recorded
Investment

Interest Income
Recognized

(In thousands)

(In thousands)

Commercial loans
$ 30,346 $ 148 $ 38,659 $ 208 $ 30,723 $ 242 $ 41,132 $ 705 $ 16,379 $ 0 $ 22,989 $ 0
Real estate construction loans
4,368 98 4,662 0 4,444 245 4,734 0 4,548 50 4,310 220
Commercial mortgage loans
40,708 268 40,699 332 37,730 966 51,323 1,034 37,017 140 37,964 297
Residential mortgage loans and equity lines
16,609 74 13,133 78 15,240 200 13,126 237 9,831 7 8,976 23
Total impaired loans
$ 92,031 $ 588 $ 97,153 $ 618 $ 88,137 $ 1,653 $ 110,315 $ 1,976
Total non-accrual loans
$ 67,775 $ 197 $ 74,239 $ 540

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In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. The following table presents the average recorded investment and interest income recognized on individually evaluated loans for the period indicated:

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2020

Average
Recorded
Investment

Interest Income
Recognized

Average
Recorded
Investment

Interest Income
Recognized

(In thousands)

Commercial loans
$ 30,346 $ 148 $ 30,723 $ 242
Real estate construction loans
4,368 98 4,444 245
Commercial mortgage loans
40,708 268 37,730 966
Residential mortgage loans and equity lines
16,609 74 15,240 200
Total impaired loans
$ 92,031 $ 588 $ 88,137 $ 1,653

The following table presents non-accrual loans and the related allowance as of September 30, 2021:

September 30, 2021

Unpaid
Principal
Balance

Recorded
Investment

Allowance

(In thousands)

With no allocated allowance

Commercial loans
$ 13,897 $ 10,442 $ —
Real estate construction loans
7,201 5,491 —
Commercial mortgage loans
19,356 18,407 —
Residential mortgage loans and equity lines
6,989 6,813 —
Subtotal
$ 47,443 $ 41,153 $ —

With allocated allowance

Commercial loans
$ 16,739 $ 6,656 $ 1,301
Commercial mortgage loans
18,664 18,561 5,229
Residential mortgage loans and equity lines
2,892 2,312 0
Subtotal
$ 38,295 $ 27,529 $ 6,530
Total non-accrual loans
$ 85,738 $ 68,682 $ 6,530
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Table of Contents
In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. The following table presents impaired loans and the related allowance ~~for loan losses~~ as of ~~the dates indicated:~~December 31, 2020:

September 30, 2020

December 31, 2019

December 31, 2020

Unpaid
Principal
Balance

Recorded
Investment

Allowance

Unpaid
Principal
Balance

Recorded
Investment

Allowance

Unpaid
Principal
Balance

Recorded
Investment

Allowance

(In thousands)

(In thousands)

With no allocated allowance

Commercial loans
$ 16,210 $ 13,293 $ — $ 20,134 $ 15,857 $ — $ 23,784 $ 20,698 $ —
Real estate construction loans
5,776 4,335 — 5,776 4,580 — 5,776 4,286 —
Commercial mortgage loans
22,996 22,532 — 9,234 9,030 — 22,877 22,287 —
Residential mortgage loans and equity lines
7,921 7,814 — 6,171 6,073 — 6,379 6,307 —
Subtotal
$ 52,903 $ 47,974 $ — $ 41,315 $ 35,540 $ — $ 58,816 $ 53,578 $ —

With allocated allowance

Commercial loans
$ 28,059 $ 20,871 $ 7,704 $ 8,769 $ 8,739 $ 2,543 $ 13,703 $ 6,372 $ 1,030
Commercial mortgage loans
31,138 31,019 582 26,117 26,040 473 31,134 31,003 5,254
Residential mortgage loans and equity lines
6,632 5,914 209 6,740 5,540 220 5,005 4,452 145
Subtotal
$ 65,829 $ 57,804 $ 8,495 $ 41,626 $ 40,319 $ 3,236 $ 49,842 $ 41,827 $ 6,429
Total impaired loans
$ 118,732 $ 105,778 $ 8,495 $ 82,941 $ 75,859 $ 3,236 $ 108,658 $ 95,405 $ 6,429

The following tables present the aging of the loan portfolio by type as of September 30, ~~2020,~~2021, and as of December 31, ~~2019:~~2020:

September 30, 2020

September 30, 2021

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past
Due

Non-accrual
Loans

Total Past
Due

Loans Not
Past Due

Total

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past
Due

Non-accrual
Loans

Total Past
Due

Loans Not
Past Due

Total

(In thousands)

(In thousands)

Commercial loans
$ 4,956 $ 7,098 $ 0 $ 29,757 $ 41,811 $ 2,806,189 $ 2,848,000 $ 15,391 $ 2,326 $ 2,861 $ 17,098 $ 37,676 $ 2,834,017 $ 2,871,693
Real estate construction loans
19,000 2,657 0 4,335 25,992 649,120 675,112 0 0 0 5,491 5,491 682,704 688,195
Commercial mortgage loans
4,275 0 2,868 33,782 40,925 7,418,391 7,459,316 458 0 1,472 36,968 38,898 7,796,630 7,835,528
Residential mortgage loans and equity lines
212 0 0 9,317 9,529 4,572,166 4,581,695 0 2,451 0 9,125 11,576 4,566,419 4,577,995
Installment and other loans
0 0 0 0 0 1,656 1,656 8 0 0 0 8 3,362 3,370
Total loans
$ 28,443 $ 9,755 $ 2,868 $ 77,191 $ 118,257 $ 15,447,522 $ 15,565,779 $ 15,857 $ 4,777 $ 4,333 $ 68,682 $ 93,649 $ 15,883,132 $ 15,976,781

December 31, 2019

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past
Due

Non-accrual
Loans

Total Past
Due

Loans Not
Past Due

Total

(In thousands)

Commercial loans
$ 24,681 $ 9,954 $ 6,409 $ 19,381 $ 60,425 $ 2,718,319 $ 2,778,744
Real estate construction loans
5,846 6,753 0 4,580 17,179 562,685 579,864
Commercial mortgage loans
7,694 2,609 0 9,928 20,231 7,255,031 7,275,262
Residential mortgage loans and equity lines
26,028 965 0 6,634 33,627 4,402,934 4,436,561
Installment and other loans
0 0 0 0 0 5,050 5,050
Total loans
$ 64,249 $ 20,281 $ 6,409 $ 40,523 $ 131,462 $ 14,944,019 $ 15,075,481
The determination of the amount of the allowance for loan losses for impaired loans is based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for loan losses. The nature of the process by which the Bank determines the appropriate allowance for loan losses requires the exercise of considerable judgment. This allowance evaluation process is also applied to TDRs since they are considered to be impaired loans. The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on management’s process in analyzing the loan portfolio and on management’s assumptions about specific borrowers, underlying collateral, and applicable economic, market and environmental conditions, among other factors. Although the Company took steps to incorporate the impact of the COVID-19 ~~pandemic on the economic conditions and other factors (such as the severity and length of the COVID-~~19 pandemic and its impacts) utilized to determine the allowance for loan losses, if the economic conditions or other factors worsen relative to the assumptions the Company utilized, the allowance for loan losses will increase accordingly in future periods.
18

~~Table of Contents~~

December 31, 2020

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past
Due

Non-accrual
Loans

Total Past
Due

Loans Not
Past Due

Total

(In thousands)

Commercial loans
$ 52,601 $ 3,182 $ 2,947 $ 23,087 $ 81,817 $ 2,755,016 $ 2,836,833
Real estate construction loans
6,257 0 0 4,286 10,543 668,949 679,492
Commercial mortgage loans
45,186 18,069 2,035 33,715 99,005 7,456,022 7,555,027
Residential mortgage loans and equity lines
14,315 4,223 0 6,596 25,134 4,544,810 4,569,944
Installment and other loans
43 0 0 0 43 3,057 3,100
Total loans
$ 118,402 $ 25,474 $ 4,982 $ 67,684 $ 216,542 $ 15,427,854 $ 15,644,396

A TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the ~~borrower’s~~borrower's financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity ~~date that causes significant delay in payment.~~
date. Although these loan modifications are considered TDRs, ~~on accrual status are comprised of the~~TDR loans that have, pursuant to the ~~Bank’s~~Bank's policy, performed under the restructured terms and have demonstrated sustained performance under the modified terms for six months ~~before being~~are returned to accrual status. The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructure to set up interest reserves. Loans classified as TDRs are reported as individually evaluated loans.
The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan.
24
Table of Contents
The Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in the quantitative baseline. These individually evaluated loans are removed from the pooling approach discussed in the “Basis of Presentation and Summary of Significant Accounting Policies” above, for the quantitative baseline, and include non-accrual loans, TDRs, and other loans as deemed appropriate by management. In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a commercial loan expected to be classified as a TDR. Individually evaluated loans also includes “reasonably expected” TDRs, identified by the Company as a consumer loan for which a borrower’s application of loan modification due to hardship has been received by the Company. Management judgment is utilized to make this determination.
Although the Company took steps to incorporate the impact of the COVID-19 pandemic on the economic conditions and other factors utilized to determine the expected loan losses, if the economic conditions or other factors worsen relative to the assumptions the Company utilized, the expected loan losses will increase accordingly in future periods.

As of September 30, ~~2020,~~2021, accruing TDRs were ~~$28.6~~$24.4 million and non-accrual TDRs were ~~$9.9~~$8.3 million compared to accruing TDRs of ~~$35.3~~$27.7 million and non-accrual TDRs of ~~$18.0~~$9.0 million as of December 31, ~~2019.~~2020. The Company allocated ~~specific~~$181 thousand in reserves ~~of $395 thousand~~ to accruing TDRs and ~~$42~~$24 thousand to non-accrual TDRs as of September 30, ~~2020,~~2021, ~~and $822~~compared to $122 thousand to accruing TDRs and ~~$2.2 million~~$24 thousand to non-accrual TDRs as of December 31, ~~2019.~~2020. The following tables set forth TDRs that were modified during the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, their specific reserves as of September 30, ~~2020~~2021, and ~~2019,~~2020, and charge-offs for the three and nine months ended September 30, ~~2020~~2021, and ~~2019:~~2020:

Three Months Ended September 30, 2020

September 30, 2020

Three Months Ended September 30, 2021

September 30, 2021

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

(In thousands)

(In thousands)

Commercial loans
2 $ 2,983 $ 2,983 $ 0 $ 203 0 $ 0 $ 0 $ 0 $ 0
Residential mortgage loans and equity lines
1 479 479 0 14
Total
2 $ 2,983 $ 2,983 $ 0 $ 203 1 $ 479 $ 479 $ 0 $ 14

1925
Table of Contents

Three Months Ended September 30, 2020

September 30, 2020

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

(In thousands)

Commercial loans
2 $ 2,983 $ 2,983 $ 0 $ 203
Residential mortgage loans and equity lines
0 0 0 0 0
Total
2 $ 2,983 $ 2,983 $ 0 $ 203

Three Months Ended September 30, 2019

September 30, 2019

Nine Months Ended September 30, 2021

September 30, 2021

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

(In thousands)

(In thousands)

Commercial loans
3 $ 7,585 $ 6,165 $ 0 $ 89 1 $ 686 $ 686 $ 0 $ 0
Residential mortgage loans and equity lines
1 479 479 0 14
Total
3 $ 7,585 $ 6,165 $ 0 $ 89 2 $ 1,165 $ 1,165 $ 0 $ 14

Nine Months Ended September 30, 2020

September 30, 2020

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

(In thousands)

Commercial loans
5 $ 5,417 $ 5,417 $ 0 $ 203
Total
5 $ 5,417 $ 5,417 $ 0 $ 203

Nine Months Ended September 30, 2019

September 30, 2019

Nine Months Ended September 30, 2020

September 30, 2020

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

No. of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Charge-offs

Specific Reserve

(In thousands)

(In thousands)

Commercial loans
23 $ 25,937 $ 10,814 $ 0 $ 125 5 $ 5,417 $ 5,417 $ 0 $ 204
Residential mortgage loans and equity lines 0 0 0 0 0
Total
23 $ 25,937 $ 10,814 $ 0 $ 125 5 $ 5,417 $ 5,417 $ 0 $ 204

Modifications of the loan terms in the nine months ended September 30, ~~2020~~2021, were in the form of extensions of maturity dates, which ranged generally from three to twelve months from the modification date.

20

~~Table of Contents~~
We expect that the TDRs on accruing status as of September 30, ~~2020,~~2021, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. The ongoing impact of the COVID pandemic, however, could increase the risk of such TDRs becoming non-accrual due to the ~~borrowers'~~borrowers’ inability to continue to comply with their restructured terms.
26
Table of Contents
A summary of TDRs by type of concession and by type of loan, as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, is set forth in the table below:

September 30, 2020

September 30, 2021

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

(In thousands)

Accruing TDRs

Commercial loans
$ 4,406 $ 0 $ 0 $ 4,406 $ 1,453 $ 0 $ 0 $ 1,453
Commercial mortgage loans
582 5,662 13,526 19,770 441 5,552 13,114 19,107
Residential mortgage loans
1,940 284 2,187 4,411 1,726 251 1,869 3,846
Total accruing TDRs
$ 6,928 $ 5,946 $ 15,713 $ 28,587 $ 3,620 $ 5,803 $ 14,983 $ 24,406

September 30, 2020

September 30, 2021

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

(In thousands)

Non-accrual TDRs

Commercial loans
$ 8,902 $ 0 $ 0 $ 8,902 $ 7,784 $ 0 $ 0 $ 7,784
Commercial mortgage loans
0 0 0 0
Residential mortgage loans
1,017 0 0 1,017 500 0 0 500
Total non-accrual TDRs
$ 9,919 $ 0 $ 0 $ 9,919 $ 8,284 $ 0 $ 0 $ 8,284

December 31, 2019

December 31, 2020

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

(In thousands)

Accruing TDRs

Commercial loans
$ 5,215 $ 0 $ 0 $ 5,215 $ 3,983 $ 0 $ 0 $ 3,983
Commercial mortgage loans
615 5,748 18,779 25,142 515 5,635 13,425 19,575
Residential mortgage loans
2,525 311 2,143 4,979 1,724 275 2,164 4,163
Total accruing TDRs
$ 8,355 $ 6,059 $ 20,922 $ 35,336 $ 6,222 $ 5,910 $ 15,589 $ 27,721

December 31, 2019

December 31, 2020

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

(In thousands)

Non-accrual TDRs

Commercial loans
$ 16,692 $ 0 $ 0 $ 16,692 $ 8,462 $ 0 $ 0 $ 8,462
Commercial mortgage loans
1,220 0 136 1,356
Residential mortgage loans
523 0 0 523
Total non-accrual TDRs
$ 17,912 $ 0 $ 136 $ 18,048 $ 8,985 $ 0 $ 0 $ 8,985

27
21
Table of Contents
The activity within TDRs for the periods indicated is set forth below:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

2021

2020

2021

2020

(In thousands)

(In thousands)

Accruing TDRs

Beginning balance
$ 31,671 $ 64,898 $ 35,336 $ 65,071 $ 27,261 $ 31,671 $ 27,721 $ 35,336
New restructurings
2,983 240 5,417 15,432 (208 ) 2,983 479 5,417
Restructured loans restored to accrual status
263 0 263 0 0 263 0 263
Charge-offs
0 (1,341 ) 0 (1,341 ) 0 0 0 0
Payments
(6,330 ) (22,150 ) (12,429 ) (36,219 ) (2,406 ) (6,330 ) (3,553 ) (12,429 )
Restructured loans placed on non-accrual status
0 0 0 (1,296 ) (241 ) 0 (241 ) 0
Ending balance
$ 28,587 $ 41,647 $ 28,587 $ 41,647 $ 24,406 $ 28,587 $ 24,406 $ 28,587

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

2021

2020

2021

2020

(In thousands)

(In thousands)

Non-accrual TDRs

Beginning balance
$ 12,670 $ 22,457 $ 18,048 $ 24,189 $ 8,402 $ 12,670 $ 8,985 $ 18,048
New restructurings
0 7,345 0 10,505 0 0 0 0
Restructured loans placed on non-accrual status
0 0 0 1,296 234 0 241 0
Charge-offs
0 (2,389 ) (4,970 ) (3,607 ) 0 0 0 (4,970 )
Payments
(2,488 ) (7,626 ) (2,896 ) (12,596 ) (352 ) (2,488 ) (710 ) (2,896 )
Restructured loans restored to accrual status
(263 ) 0 (263 ) 0 0 (263 ) (232 ) (263 )
Ending balance
$ 9,919 $ 19,787 $ 9,919 $ 19,787 $ 8,284 $ 9,919 $ 8,284 $ 9,919

The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company did not have any loans that were modified as a TDR during the previous twelve months and which had subsequently defaulted as of September 30, ~~2020.~~2021.

Under the Company’s internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty.

As of September 30, ~~2020,~~2021, there were no commitments to lend additional funds to those borrowers whose loans had been restructured, were considered ~~impaired,~~individually evaluated, or were on non-accrual status.

The CARES Act, signed into law on March 27, 2020, and as extended by the CAA, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020, and the earlier of ~~December 31, 2020~~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. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.

2228
Table of Contents
As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of sources of repayment, the borrower’s current financial and liquidity status and other relevant information. The risk rating categories can be generally described by the following grouping for non-homogeneous loans:

●
Pass/Watch – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.
●
●
Special Mention – Borrower is fundamentally sound, and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.
●
●
Substandard – These loans are inadequately protected by current sound net worth, paying capacity, or collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.
●
●
Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan), a loss classification is deferred until the situation is better defined.
●
●
Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. The following ~~tables set forth the~~table presents loan portfolio by risk rating as of ~~September 30, 2020~~ ~~and~~ December 31, ~~2019:~~2020:

September 30, 2020

December 31, 2020

Pass/Watch

Special
Mention

Substandard

Doubtful

Total

Pass/Watch

Special
Mention

Substandard

Doubtful

Total

(In thousands)

(In thousands)

Commercial loans
$ 2,553,148 $ 156,869 $ 137,983 $ 0 $ 2,848,000 $ 2,581,128 $ 141,344 $ 108,788 $ 5,573 $ 2,836,833
Real estate construction loans
548,075 122,299 4,738 0 675,112 593,196 82,010 4,286 0 679,492
Commercial mortgage loans
7,215,288 114,653 129,375 0 7,459,316 7,202,568 186,283 166,176 0 7,555,027
Residential mortgage loans and equity lines
4,571,766 212 9,717 0 4,581,695 4,547,052 11,647 11,245 0 4,569,944
Installment and other loans
1,656 0 0 0 1,656 3,100 0 0 0 3,100
Total gross loans
$ 14,889,933 $ 394,033 $ 281,813 $ 0 $ 15,565,779 $ 14,927,044 $ 421,284 $ 290,495 $ 5,573 $ 15,644,396

December 31, 2019

Pass/Watch

Special
Mention

Substandard

Doubtful

Total

(In thousands)

Commercial loans
$ 2,528,944 $ 166,016 $ 83,784 $ 0 $ 2,778,744
Real estate construction loans
461,597 113,687 4,580 0 579,864
Commercial mortgage loans
6,992,933 196,454 85,875 0 7,275,262
Residential mortgage loans and equity lines
4,427,205 914 8,442 0 4,436,561
Installment and other loans
5,050 0 0 0 5,050
Total gross loans
$ 14,415,729 $ 477,071 $ 182,681 $ 0 $ 15,075,481
29
Table of Contents
The following table summarizes the Company’s loan held for investment by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification:

Loans Amortized Cost Basis by Origination Year

September 30, 2021

2021

2020

2019

2018

2017

Prior

Revolving
Loans

Revolving
Converted to
Term Loans

Total

(In thousands)

Commercial loans

Pass/Watch
$ 552,079 $ 309,944 $ 245,936 $ 188,790 $ 87,579 $ 69,354 $ 1,266,946 $ 7,650 $ 2,728,278
Special Mention
93 570 4,506 1,703 2,871 0 22,073 89 31,905
Substandard
31 6,286 21,896 16,829 13,077 5,319 39,457 6,089 108,984
Doubtful
0 0 0 0 0 0 901 0 901
Loss
0 0 0 0 0 0 0 0 0
Total
$ 552,203 $ 316,800 $ 272,338 $ 207,322 $ 103,527 $ 74,673 $ 1,329,377 $ 13,828 $ 2,870,068
YTD period charge-offs
$ 0 $ 927 $ 507 $ 366 $ 0 $ 50 $ 17,649 $ 0 $ 19,499
YTD period recoveries
0 0 0 (75 ) 0 (169 ) (1,301 ) 0 (1,545 )
Net
$ 0 $ 927 $ 507 $ 291 $ 0 $ (119 ) $ 16,348 $ 0 $ 17,954
Real estate construction loans

Pass/Watch
$ 160,357 $ 213,737 $ 152,626 $ 64,908 $ 30,272 $ 0 $ 0 $ 0 $ 621,900
Special Mention
4,772 22,233 11,800 17,306 0 0 0 0 56,111
Substandard
0 0 3,344 0 0 4,066 0 0 7,410
Doubtful
0 0 0 0 0 0 0 0 0
Loss
0 0 0 0 0 0 0 0 0
Total
$ 165,129 $ 235,970 $ 167,770 $ 82,214 $ 30,272 $ 4,066 $ 0 $ 0 $ 685,421
YTD period charge-offs
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
YTD period recoveries
0 0 0 0 0 (76 ) 0 0 (76 )
Net
$ 0 $ 0 $ 0 $ 0 $ 0 $ (76 ) $ 0 $ 0 $ (76 )
Commercial mortgage loans

Pass/Watch
$ 1,256,784 $ 1,266,048 $ 1,284,803 $ 1,089,005 $ 813,707 $ 1,473,901 $ 177,509 $ 0 $ 7,361,757
Special Mention
18,826 52,416 45,281 104,703 42,329 82,614 2,499 0 348,668
Substandard
1,116 235 10,906 46,149 1,590 62,095 856 0 122,947
Doubtful
0 0 0 0 0 0 0 0 0
Loss
0 0 0 0 0 0 0 0 0
Total
$ 1,276,726 $ 1,318,699 $ 1,340,990 $ 1,239,857 $ 857,626 $ 1,618,610 $ 180,864 $ 0 $ 7,833,372
YTD period charge-offs
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
YTD period recoveries
0 0 (180 ) 0 0 (21 ) (83 ) 0 (284 )
Net
$ 0 $ 0 $ (180 ) $ 0 $ 0 $ (21 ) $ (83 ) $ 0 $ (284 )
Residential mortgage loans

Pass/Watch
$ 722,013 $ 663,292 $ 731,803 $ 544,362 $ 474,271 $ 992,504 $ 0 $ 0 $ 4,128,245
Special Mention
0 140 4,369 1,448 839 589 0 0 7,385
Substandard
479 167 1,921 2,520 1,167 4,466 0 0 10,720
Doubtful
0 0 0 0 0 0 0 0 0
Loss
0 0 0 0 0 0 0 0 0
Total
$ 722,492 $ 663,599 $ 738,093 $ 548,330 $ 476,277 $ 997,559 $ 0 $ 0 $ 4,146,350
YTD period charge-offs
$ 0 $ 0 $ 0 $ 0 $ 3 $ 0 $ 0 $ 0 $ 3
YTD period recoveries
0 0 0 0 0 (208 ) 0 0 (208 )
Net
$ 0 $ 0 $ 0 $ 0 $ 3 $ (208 ) $ 0 $ 0 $ (205 )
Equity lines

Pass/Watch
$ 0 $ 0 $ 0 $ 0 $ 0 $ 7 $ 400,991 $ 31,677 $ 432,675
Special Mention
0 0 0 0 0 0 0 0 0
Substandard
0 0 0 0 0 0 1,240 450 1,690
Doubtful
0 0 0 0 0 0 0 0 0
Loss
0 0 0 0 0 0 0 0 0
Total
$ 0 $ 0 $ 0 $ 0 $ 0 $ 7 $ 402,231 $ 32,127 $ 434,365
YTD period charge-offs
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
YTD period recoveries
0 0 0 0 0 0 (8 ) (58 ) (66 )
Net
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ (8 ) $ (58 ) $ (66 )
Installment and other loans

Pass/Watch
$ 2,120 $ 1,250 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,370
Special Mention
0 0 0 0 0 0 0 0 0
Substandard
0 0 0 0 0 0 0 0 0
Doubtful
0 0 0 0 0 0 0 0 0
Loss
0 0 0 0 0 0 0 0 0
Total
$ 2,120 $ 1,250 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,370
YTD period charge-offs
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
YTD period recoveries
0 0 0 0 0 0 0 0 0
Net
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total loans
$ 2,718,670 $ 2,536,318 $ 2,519,191 $ 2,077,723 $ 1,467,702 $ 2,694,915 $ 1,912,472 $ 45,955 $ 15,972,946
Net charge-offs/(recoveries)
$ 0 $ 927 $ 327 $ 291 $ 3 $ (424 ) $ 16,257 $ (58 ) $ 17,323
2330
Table of Contents
Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns.

The following ~~tables set~~table sets forth the balance in the allowance for loan losses by portfolio segment and based on impairment method as of ~~September 30, 2020~~December 31, 2020. ~~and~~This table is no longer presented after December 31, ~~2019:~~2020, given the adoption of ASU 2016-13, which has a single impairment methodology.

September 30, 2020

Real Estate

Commercial

Residential

Installment

Commercial

Construction

Mortgage

Mortgage Loans

and

Loans

Loans

Loans

and Equity Lines

Other Loans

Total

(In thousands)

Loans individually evaluated for impairment

Allowance
$ 7,704 $ 0 $ 582 $ 209 $ 0 $ 8,495
Balance
$ 34,164 $ 4,335 $ 53,551 $ 13,728 $ 0 $ 105,778
Loans collectively evaluated for impairment

Allowance
$ 71,690 $ 32,712 $ 46,083 $ 20,150 $ 0 $ 170,635
Balance
$ 2,813,836 $ 670,777 $ 7,405,765 $ 4,567,967 $ 1,656 $ 15,460,001
Total allowance
$ 79,394 $ 32,712 $ 46,665 $ 20,359 $ 0 $ 179,130
Total balance
$ 2,848,000 $ 675,112 $ 7,459,316 $ 4,581,695 $ 1,656 $ 15,565,779

December 31, 2019

Real Estate

Commercial

Residential

Installment

Commercial

Construction

Mortgage

Mortgage Loans

and

Loans

Loans

Loans

and Equity Lines

Other Loans

Total

(In thousands)

Loans individually evaluated for impairment

Allowance
$ 2,543 $ 0 $ 473 $ 220 $ 0 $ 3,236
Balance
$ 24,596 $ 4,580 $ 35,070 $ 11,613 $ 0 $ 75,859
Loans collectively evaluated for impairment

Allowance
$ 54,478 $ 19,474 $ 33,129 $ 12,888 $ 19 $ 119,988
Balance
$ 2,754,148 $ 575,284 $ 7,240,192 $ 4,424,948 $ 5,050 $ 14,999,622
Total allowance
$ 57,021 $ 19,474 $ 33,602 $ 13,108 $ 19 $ 123,224
Total balance
$ 2,778,744 $ 579,864 $ 7,275,262 $ 4,436,561 $ 5,050 $ 15,075,481
24

~~Table of Contents~~

December 31, 2020

Real Estate

Commercial

Residential

Installment

Commercial

Construction

Mortgage

Mortgage Loans

and

Loans

Loans

Loans

and Equity Lines

Other Loans

Total

(In thousands)

Loans individually evaluated for impairment

Allowance
$ 1,030 $ 0 $ 5,254 $ 145 $ 0 $ 6,429
Balance
$ 27,070 $ 4,286 $ 53,289 $ 10,760 $ 0 $ 95,405
Loans collectively evaluated for impairment

Allowance
$ 67,712 $ 30,854 $ 43,951 $ 17,592 $ 0 $ 160,109
Balance
$ 2,809,763 $ 675,206 $ 7,501,738 $ 4,559,184 $ 3,100 $ 15,548,991
Total allowance
$ 68,742 $ 30,854 $ 49,205 $ 17,737 $ 0 $ 166,538
Total balance
$ 2,836,833 $ 679,492 $ 7,555,027 $ 4,569,944 $ 3,100 $ 15,644,396

The following tables set forth activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, ~~2020,~~2021, and September 30, ~~2019.~~2020. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three months ended September 30, 2020 and 2019

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

(In thousands)

June 30, 2020 Ending Balance
$ 82,256 $ 26,700 $ 41,132 $ 19,592 $ 0 $ 169,680
Provision for possible credit losses
298 6,012 5,438 752 0 12,500
Charge-offs
(6,956 ) 0 0 0 0 (6,956 )
Recoveries
3,796 0 95 15 0 3,906
Net (charge-offs)/recoveries
(3,160 ) 0 95 15 0 (3,050 )
September 30, 2020 Ending Balance
$ 79,394 $ 32,712 $ 46,665 $ 20,359 $ 0 $ 179,130
Three months ended September 30, 2021 and 2020

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

(In thousands)

June 30, 2021 Ending Balance
$ 40,067 $ 6,119 $ 58,026 $ 27,043 $ 1 $ 131,256
Provision/(reversal) for possible credit losses
674 149 2,786 (609 ) 0 3,000
Charge-offs
(2,649 ) 0 0 (3 ) 0 (2,652 )
Recoveries
121 76 144 0 0 341
Net (charge-offs)/recoveries
(2,528 ) 76 144 (3 ) 0 (2,311 )
September 30, 2021 Ending Balance
$ 38,213 $ 6,344 $ 60,956 $ 26,431 $ 1 $ 131,945

Allowance for unfunded credit commitments June 30, 2021
$ 4,388 $ 3,581 $ 81 $ 0 $ 0 $ 8,050
Provision/(reversal) for possible credit losses
329 (396 ) 117 0 0 50
Allowance for unfunded credit commitments September 30, 2021
$ 4,717 $ 3,185 $ 198 $ 0 $ 0 $ 8,100

Residential

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

Loans

Loans

Loans

Equity Lines

Loans

Total

(In thousands)

(In thousands)

June 30, 2019 Ending Balance
$ 54,293 $ 21,010 $ 33,154 $ 14,164 $ 30 $ 122,651
June 30, 2020 Ending Balance
$ 82,256 $ 26,700 $ 41,132 $ 19,592 $ 0 $ 169,680
Provision/(reversal) for possible credit losses
7,400 (2,690 ) (4,648 ) (2,057 ) (5 ) (2,000 ) 298 6,012 5,438 752 0 12,500
Charge-offs
(3,356 ) 0 0 0 0 (3,356 ) (6,956 ) 0 0 0 0 (6,956 )
Recoveries
212 3,378 4,961 62 0 8,613 3,796 0 95 15 0 3,906
Net (charge-offs)/recoveries
(3,144 ) 3,378 4,961 62 0 5,257 (3,160 ) 0 95 15 0 (3,050 )
September 30, 2019 Ending Balance
$ 58,549 $ 21,698 $ 33,467 $ 12,169 $ 25 $ 125,908
September 30, 2020 Ending Balance
$ 79,394 $ 32,712 $ 46,665 $ 20,359 $ 0 $ 179,130

Nine months ended September 30, 2020 and 2019

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

(In thousands)

2020 Beginning Balance
$ 57,021 $ 19,474 $ 33,602 $ 13,108 $ 19 $ 123,224
Provision/(reversal) for possible credit losses
29,402 13,238 12,718 7,161 (19 ) 62,500
Charge-offs
(13,383 ) 0 0 0 0 (13,383 )
Recoveries
6,354 0 345 90 0 6,789
Net (charge-offs)/recoveries
(7,029 ) 0 345 90 0 (6,594 )
September 30, 2020 Ending Balance
$ 79,394 $ 32,712 $ 46,665 $ 20,359 $ 0 $ 179,130
Reserve for impaired loans
$ 7,704 $ 0 $ 582 $ 209 $ 0 $ 8,495
Reserve for non-impaired loans
$ 71,690 $ 32,712 $ 46,083 $ 20,150 $ 0 $ 170,635
Reserve for off-balance sheet credit commitments
$ 4,297 $ 896 $ 172 $ 294 $ 4 $ 5,663

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

(In thousands)

2019 Beginning Balance
$ 54,978 $ 19,626 $ 33,487 $ 14,282 $ 18 $ 122,391
Provision/(reversal) for possible credit losses
8,262 (2,540 ) (5,234 ) (2,495 ) 7 (2,000 )
Charge-offs
(6,300 ) 0 0 0 0 (6,300 )
Recoveries
1,609 4,612 5,214 382 0 11,817
Net (charge-offs)/recoveries
(4,691 ) 4,612 5,214 382 0 5,517
September 30, 2019 Ending Balance
$ 58,549 $ 21,698 $ 33,467 $ 12,169 $ 25 $ 125,908
Reserve for impaired loans
$ 744 $ 0 $ 536 $ 221 $ 0 $ 1,501
Reserve for non-impaired loans
$ 57,805 $ 21,698 $ 32,931 $ 11,948 $ 25 $ 124,407
Reserve for off-balance sheet credit commitments
$ 2,505 $ 1,608 $ 121 $ 313 $ 3 $ 4,550
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Table of Contents

Nine months ended September 30, 2021 and 2020

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

(In thousands)

2021 Beginning Balance
$ 68,742 $ 30,854 $ 49,205 $ 17,737 $ 0 $ 166,538
Impact of ASU 2016-13 adoption
(31,466 ) (24,307 ) 34,993 19,211 9 (1,560 )
Allowance for loan losses, January 1, 2021
37,276 6,547 84,198 36,948 9 164,978
Provision/(reversal) for possible credit losses
18,891 (279 ) (23,526 ) (10,788 ) (8 ) (15,710 )
Charge-offs
(19,499 ) 0 0 (3 ) 0 (19,502 )
Recoveries
1,545 76 284 274 0 2,179
Net (charge-offs)/recoveries
(17,954 ) 76 284 271 0 (17,323 )
September 30, 2021 Ending Balance
$ 38,213 $ 6,344 $ 60,956 $ 26,431 $ 1 $ 131,945

Allowance for unfunded credit commitments December 31, 2020
$ 4,802 $ 690 $ 101 $ 284 $ 3 $ 5,880
Impact of ASU 2016-13 adoption
3,236 3,135 (66 ) (284 ) (3 ) 6,018
Allowance for loan losses, January 1, 2021
8,038 3,825 35 0 0 11,898
Provision/(reversal) for possible credit losses
(3,321 ) (640 ) 163 0 0 (3,798 )
Allowance for unfunded credit commitments September 30, 2021
$ 4,717 $ 3,185 $ 198 $ 0 $ 0 $ 8,100

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

(In thousands)

2020 Beginning Balance
$ 57,021 $ 19,474 $ 33,602 $ 13,108 $ 19 $ 123,224
Provision/(reversal) for possible credit losses
29,402 13,238 12,718 7,161 (19 ) 62,500
Charge-offs
(13,383 ) 0 0 0 0 (13,383 )
Recoveries
6,354 0 345 90 0 6,789
Net (charge-offs)/recoveries
(7,029 ) 0 345 90 0 (6,594 )
September 30, 2020 Ending Balance
$ 79,394 $ 32,712 $ 46,665 $ 20,359 $ 0 $ 179,130
Reserve for impaired loans
$ 7,704 $ 0 $ 582 $ 209 $ 0 $ 8,495
Reserve for non-impaired loans
$ 71,690 $ 32,712 $ 46,083 $ 20,150 $ 0 $ 170,635
Reserve for off-balance sheet credit commitments
$ 4,297 $ 896 $ 172 $ 294 $ 4 $ 5,663
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Table of Contents
The U. S. economy has gradually recovered from the COVID-19 pandemic with improving gross national product and a declining unemployment rate in the first half of 2021. This contributed to a positive economic outlook and forecasts that resulted in a decrease to the allowance for credit losses.

~~The~~
Despite the gradual recovery in the first half of 2021,the ongoing COVID-19 pandemic has caused significant disruption in the United States and international economies and financial markets. Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to our business and could cause material disruptions to our business and operations in the future. The Company has continued its efforts to support its customers affected by the pandemic and to maintain asset quality and balance sheet strength, including the following:

•
The Company has provided loans through the SBA's Paycheck Protection Program, or(or “PPP”). As of September 30, ~~2020,~~2021, ~~1,437~~1,514 PPP loans with a current balance of ~~$265.7~~$169.4 million were outstanding and an additional $264.4 million have been ~~approved~~forgiven by the ~~Small Business Administration.~~U.S. Government. These loans do not carry an allowance for loan losses.

•
The Company has outstanding COVID-19modifications on approximately ~~95 commercial real estate~~6 CRE loans totaling ~~$428.1~~$44.8 million as of September 30, ~~2020,~~2021, which represented ~~5.7%~~0.6% of the Bank’s ~~commercial real estate~~CRE loans and 243 commercial loans, totaling ~~$64..6~~$2.8 million, which represented ~~2.3%~~0.1% of the total commercial loans.

•
As of September 30, ~~2020,~~2021, there were sevenCOVID-19 residential mortgage loan modifications outstanding, ~~include 367,~~ or ~~$180.6~~$5.1 million, ~~in residential mortgage loans,~~ that represented ~~4.3%~~0.1% of the total residential mortgage ~~portfolio, and 21 HELOC loans totaling $6.5 million, which represented 1.6% of total HELOC loans.~~portfolio.

9. Commitments and Contingencies

From time to time, Bancorp and its subsidiaries are parties to litigation that arise in the ordinary course of business or otherwise are incidental to various aspects of its operations. Based upon information available to the Company and its review of any such litigation with counsel, management presently believes that the liability relating to such litigation, if any, would not be expected to have a material adverse impact on the Company’s consolidated financial condition, results of operations or liquidity taken as a whole. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity taken as a whole.

Although the Company establishes accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, the Company does not have accruals for all legal proceedings where there is a risk of loss. In addition, amounts accrued may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued for legal loss contingencies.

In the normal course of business, the Company from time to time becomes a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans, or through commercial or standby letters of credit and financial guarantees. These instruments represent varying degrees of exposure to risk in excess of the amounts included in the accompanying ~~Condensed~~ Consolidated Balance Sheets. The contractual or notional amount of these instruments indicates a level of activity associated with a particular class of financial instrument and is not a reflection of the level of expected losses, if any.

33

Table of Contents
The Company’s unfunded commitments related to investments in qualified affordable housing and alternative energy partnerships were ~~$117.8~~$119.0 million and ~~$114.5~~$103.1 million as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively.

26

~~Table of Contents~~

10. Leases

The Company determines if a contract arrangement is a lease at inception and primarily enters into operating lease contracts for its branch locations, office space and certain equipment. As part of its property lease agreements, the Company may seek to include options to extend or terminate ata lease when it is reasonably certain that the Company will exercise those options. The Right-of-Use (“ROU”) lease asset also includes any lease payments made and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not possess any leases that have variable lease payments or residual value guarantees as of September 30, ~~2020.~~2021.

34

Table of Contents
~~Accounting Policy Elections~~ ASU 2016-02, “Leases (Topic 842),” as amended by ASU No.2018-01, “Land Easement Practical Expedient for Transition to Topic 842”; ASU No.2018-10, “Codification Improvements to Topic 842, Leases”; and ASU No.2018-11, “Targeted Improvements,” establishes a ROU model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The ~~Company has~~standard provides a number of optional practical expedients in transition. We have elected the ~~package~~“package of practical expedients, ~~that~~” which permits ~~the Company to~~us not to reassess ~~its~~under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. ~~The Company~~We also elected all of the new standard’s available transition practical expedients, including the short-term lease recognition exemption that includes not recognizing ROU assets or lease liabilities for existing short-term leases, and the practical expedient to not separate lease and non-lease components for all of ~~the Company’s~~our leases.
~~The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.~~ The Company uses its incremental borrowing rate to determine the present value of its lease liabilities.

The following table presents the operating lease ~~related assets and liabilities recorded~~amounts reported on the ~~Condensed~~ Consolidated Balance ~~Sheet,~~Sheets, and ~~the weighted-average remaining lease terms and discount rates~~other supplemental information as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30, 2020

December 31, 2019

($ In millions)

Operating Leases:

ROU assets
$ 32.6 $ 34.0
Lease liabilities
$ 35.1 $ 35.9

Weighted-average remaining lease term (in years)
4.9 5.4
Weighted-average discount rate
2.79
%
3.10
%

September 30, 2021

December 31, 2020

(In millions)

Operating Leases:

ROU assets
$ 29.2 $ 30.9
Lease liabilities
$ 32.0 $ 33.5

Weighted-average remaining lease term (in years)
4.5 4.7
Weighted-average discount rate
2.62
%
2.77
%

Operating lease expense was ~~$3.1~~$3.2 million and ~~$3.3~~$3.1 million for the three months ended September 30, ~~2020~~2021 and ~~September 30, 2019,~~ 2020,respectively, and includes short-term leases that were immaterial. Operating lease expense was ~~$8.8~~$9.5 million and ~~$10.1~~$8.8 million for the nine months ended September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, respectively, and includes short-term leases that were immaterial. Operating cash flows from operating leases were ~~$2.2~~$2.5 million and ~~$2.1~~$2.2 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Operating cash flows from operating leases were ~~$6.8~~$7.4 million and ~~$6.2~~$6.8 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. In the nine months ended September 30, 2021 the Company recognized an ROU asset impairment of $187 thousand related to an early termination of a lease agreement. This amount was included in other expenses in the Consolidated Statement of Operations and Comprehensive Income.

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Table of Contents
The following table presents a maturity analysis of the Company’s operating lease liabilities as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively.

As of September 30, 2020

As of September 30, 2021

Operating Leases

Operating Leases

(In thousands)

(In thousands)

Remaining 2020
$ 2,392
2021
9,235
Remaining 2021
$ 2,374
2022
8,183 9,432
2023
6,758 7,996
2024
4,570 5,565
2025
3,307
Thereafter
6,641 5,352
Total lease payments
37,779 34,026
Less amount of payment representing interest
(2,663 ) (1,998 )
Total present value of lease payments
$ 35,116 $ 32,028

As of December 31, 2019

Operating Leases

(In thousands)

2020
$ 8,764
2021
7,923
2022
6,771
2023
5,714
2024
3,852
Thereafter
6,199
Total lease payments
39,223
Less amount of payment representing interest
(3,350 )
Total present value of lease payments
$ 35,873
28

~~Table of Contents~~

As of December 31, 2020

Operating Leases

(In thousands)

2021
$ 9,384
2022
8,335
2023
6,890
2024
4,635
2025
2,520
Thereafter
4,153
Total lease payments
35,917
Less amount of payment representing interest
(2,433 )
Total present value of lease payments
$ 33,484

11. Borrowed Funds

~~Borrowing~~sBorrowings from the FFederal Home Loan Bank (“~~ederal~~ H~~ome~~ L~~oan~~ B~~ank (“~~FHLB””)– There were 0 over-night borrowings from the FHLB as of September 30, ~~2020,~~2021, ~~compared to $450~~and December 31, 2020. Advances from the FHLB were $20.0 million at a weighted average rate of ~~1.66%~~2.89% as of ~~December 31, 2019.~~September 30, 2021, ~~Advances from the FHLB were $230~~and $150.0 million at a weighted average rate of ~~2.16% as of~~ ~~September 30, 2020~~ ~~and $220 million at a weighted average rate of 2.26%~~2.15% as of December 31, ~~2019.~~2020. As of September 30, ~~2020,~~2021, FHLB advances of $5$20.0 million will mature in ~~November 2020,~~ ~~$80 million in~~ ~~May 2021,~~ ~~$50 million in~~ ~~June 2021,~~ ~~$75 million in~~ ~~July 2021,~~ ~~and $20 million~~ in May 2023.

Junior Subordinated Notes – The Company established three special purpose trusts in 2003 and two in 2007 for the purpose of issuing Guaranteed Preferred Beneficial Interests in their Subordinated Debentures to outside investors (“Capital Securities”). The proceeds from the issuance of the Capital Securities as well as our purchase of the common stock of the special purpose trusts were invested in Junior Subordinated Notes of the Company (“Junior Subordinated Notes”). The trusts exist for the purpose of issuing the Capital Securities and investing in Junior Subordinated Notes. Subject to some limitations, payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts, or the redemption of the Capital Securities, are guaranteed by the Company to the extent the trusts have funds on hand at such time. The obligations of the Company under the guarantees and the Junior Subordinated Notes are subordinate and junior in right of payment to all indebtedness of the Company and are structurally subordinated to all liabilities and obligations of the Company’s subsidiaries. The Company has the right to defer payments of interest on the Junior Subordinated Notes at any time or from time to time for a period of up to twenty consecutive quarterly periods with respect to each deferral period. Under the terms of the Junior Subordinated Notes, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock if it has deferred payment of interest on any Junior Subordinated Notes.

36

Table of Contents
At September 30, ~~2020,~~2021, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of ~~2.41%~~2.36%, compared to $119.1 million with a weighted average rate of ~~4.09%~~2.40% at December 31, ~~2019.~~2020. The Junior Subordinated Notes have a stated maturity term of 30 years.

12. Income Taxes

The effective tax rate for the first nine months of ~~2020~~2021 was ~~8.6%~~21.3% compared to ~~20.3%~~8.6% for the first nine months of ~~2019.~~2020. The effective tax rate includes the impact of low-income housing and alternative energy investment tax credits. ~~Income tax expense for the~~ ~~first~~~~nine~~ ~~months of~~ ~~2020~~ ~~was increased by $0.4 million related to a tax deficiency from the distribution of restricted stock units.~~

The Company’s tax returns are open for audit by the Internal Revenue Service back to ~~2016~~2018 and by the California Franchise Tax Board back to ~~2015.~~ ~~The audit by the Internal Revenue Service for~~ ~~2017~~ ~~was completed in~~ ~~July 2020~~ ~~and did~~ ~~not~~ ~~have an impact on income tax expense.~~2017.

It is reasonably possible that unrecognized tax benefits could change significantly over the next twelve months. The Company does not expect that any such changes would have a material impact on its annual effective tax rate.

29

~~Table of Contents~~

113.3. Fair Value Measurements and Fair Value of Financial Instruments~~Measurement~~s

The Company ~~determined~~uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.
The Company used valuation methodologies to measure assets at fair value under ASC Topic 820 and ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03, to estimate the fair value of ~~our~~ financial instruments ~~based on~~not recorded at fair value. The fair value of the ~~following:~~Company’s assets and liabilities is classified and disclosed in one of the following three categories:

●
Level 1 - Quoted prices in active markets for identical assets or liabilities.

●
Level 2 - Observable prices in active markets for similar assets or liabilities; prices for identical or similar assets or liabilities in markets that are not active; directly observable market inputs for substantially the full term of the asset and liability; market inputs that are not directly observable but are derived from or corroborated by observable market data.

●
Level 3 – Unobservable inputs based on the Company’s own judgment about the assumptions that a market participant would use.

The classification of assets and liabilities within the hierarchy is based on whether inputs to the valuation methodology used are observable or unobservable, and the significance of those inputs in the fair value measurement. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements.
37

Table of Contents
Financial assets and liabilities measured at fair value on a recurring basis
The Company uses the following methodologies to measure the fair value of its financial assets and liabilities on a recurring basis:

Securities ~~Available for Sale~~Available-for-Saleand Equity Securities - For certain actively traded agency preferred stocks, mutual funds, U.S. Treasury securities, and other equity securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement. This category generally includes U.S. Government agency securities, U.S. Government sponsored entities, state and municipal securities, mortgage-backed securities (“MBS”), collateralized mortgage obligations and corporate bonds.

~~Equity Securities~~ – ~~The Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a level~~ 1 ~~measurement. Equity securities are comprised of mutual funds, preferred stock of government-sponsored entities and other equity securities.~~
~~Foreign Exchange Contracts~~ ~~- The Company measures the fair value of foreign exchange contracts based on dealer quotes, a Level~~ 2 ~~measurement.~~
Warrants - The Company measures the fair value of warrants based on unobservable inputs based on assumptions and management judgment, a Level 3 measurement.

Interest Rate Swaps ~~- Fair~~– The Company measures the fair value of interest rate swaps ~~is derived from~~using third party models with observable market data, a Level 2 measurement.

~~Assets~~Currency Option Contracts and Foreign Exchange Contracts - The Company measures the fair value of currency option contracts and foreign exchange contracts based on observable market rates on a recurring basis, a Level 2 measurement.
The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:

September 30, 2021

Fair Value Measurements Using

Total Fair Value

Level 1

Level 2

Level 3

Measurements

(In thousands)

Assets

Securities available-for-sale

U.S. Treasury securities
$ 40,211 $ 0 $ 0 $ 40,211
U.S. government agency entities
0 90,943 0 90,943
Mortgage-backed securities
0 805,067 0 805,067
Collateralized mortgage obligations
0 9,561 0 9,561
Corporate debt securities
0 133,434 0 133,434
Total securities available-for-sale
40,211 1,039,005 0 1,079,216

Equity securities

Mutual funds
6,289 0 0 6,289
Preferred stock of government sponsored entities
1,493 0 0 1,493
Other equity securities
12,335 0 0 12,335
Total equity securities
20,117 0 0 20,117

Warrants
0 0 22 22
Interest rate swaps
0 5,187 0 5,187
Foreign exchange contracts
0 1,319 0 1,319
Total assets
$ 60,328 $ 1,045,511 $ 22 $ 1,105,861

Liabilities

Interest rate swaps
$ 0 $ 9,037 $ 0 $ 9,037
Foreign exchange contracts
0 1,723 0 1,723
Total liabilities
$ 0 $ 10,760 $ 0 $ 10,760
38
Table of Contents

December 31, 2020

Fair Value Measurements Using

Total Fair Value

Level 1

Level 2

Level 3

Measurements

(In thousands)

Assets

Securities available-for-sale

U.S. Treasury securities
$ 80,948 $ 0 $ 0 $ 80,948
U.S. government agency entities
0 99,839 0 99,839
Mortgage-backed securities
0 727,068 0 727,068
Collateralized mortgage obligations
0 10,324 0 10,324
Corporate debt securities
0 118,371 0 118,371
Total securities available-for-sale
80,948 955,602 0 1,036,550

Equity securities

Mutual funds
6,413 0 0 6,413
Preferred stock of government sponsored entities
5,485 0 0 5,485
Other equity securities
11,846 0 0 11,846
Total equity securities
23,744 0 0 23,744

Warrants
0 0 21 21
Interest rate swaps
0 3,409 0 3,409
Foreign exchange contracts
0 4,658 0 4,658
Total assets
$ 104,692 $ 963,669 $ 21 $ 1,068,382

Liabilities

Interest rate swaps
$ 0 $ 10,286 $ 0 $ 10,286
Foreign exchange contracts
0 2,200 0 2,200
Total liabilities
$ 0 $ 12,486 $ 0 $ 12,486
Financial assets and liabilities measured at estimated fair value on a non-recurring basis:

Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring basis subsequent to initial recognition. Generally, these adjustments are the result of lower-of-cost-or-fair value or other impairment write-downs of individual assets. In determining the estimated fair values during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. For the periods ended September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, there were no material adjustments to fair value for the Company’s assets and liabilities measured at fair value on a nonrecurring basis in accordance with GAAP.

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~~The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of~~ ~~September 30, 2020,~~ ~~and~~ ~~December 31, 2019:~~

September 30, 2020

Fair Value Measurements Using

Total Fair Value

Level 1

Level 2

Level 3

Measurements

(In thousands)

Assets

Securities available-for-sale

U.S. Treasury securities
$ 99,980 $ 0 $ 0 $ 99,980
U.S. government agency entities
0 104,596 0 104,596
Mortgage-backed securities
0 729,244 0 729,244
Collateralized mortgage obligations
0 211 0 211
Corporate debt securities
0 146,509 0 146,509
Total securities available-for-sale
$ 99,980 $ 980,560 $ 0 $ 1,080,540

Equity securities

Mutual funds
$ 6,430 $ 0 $ 0 $ 6,430
Preferred stock of government sponsored entities
5,522 0 0 5,522
Other equity securities
11,012 0 0 11,012
Total equity securities
$ 22,964 $ 0 $ 0 $ 22,964

Warrants
$ 0 $ 0 $ 20 $ 20
Interest rate swaps
0 3,992 0 3,992
Foreign exchange contracts
0 3,236 0 3,236
Total assets
$ 122,944 $ 987,788 $ 20 $ 1,110,752

Liabilities

Option contracts
$ 0 $ 6 $ 0 $ 6
Interest rate swaps
0 31,525 0 31,525
Foreign exchange contracts
0 1,592 0 1,592
Total liabilities
$ 0 $ 33,123 $ 0 $ 33,123

December 31, 2019

Fair Value Measurements Using

Total Fair Value

Level 1

Level 2

Level 3

Measurements

(In thousands)

Assets

Securities available-for-sale

U.S. Treasury securities
$ 74,936 $ 0 $ 0 $ 74,936
U.S. government agency entities
0 90,796 0 90,796
U.S. government sponsored entities
0 224,443 0 224,443
Mortgage-backed securities
0 887,790 0 887,790
Collateralized mortgage obligations
0 552 0 552
Corporate debt securities
0 173,325 0 173,325
Total securities available-for-sale
$ 74,936 $ 1,376,906 $ 0 $ 1,451,842

Equity securities

Mutual funds
$ 6,277 $ 0 $ 0 $ 6,277
Preferred stock of government sponsored entities
10,529 0 0 10,529
Other equity securities
11,199 0 0 11,199
Total equity securities
$ 28,005 $ 0 $ 0 $ 28,005

Warrants
$ 0 $ 0 $ 39 $ 39
Interest rate swaps
0 2,181 0 2,181
Foreign exchange contracts
0 2,411 0 2,411
Total assets
$ 102,941 $ 1,381,498 $ 39 $ 1,484,478

Liabilities

Option contracts
$ 0 $ 7 $ 0 $ 7
Interest rate swaps
0 14,229 0 14,229
Foreign exchange contracts
0 1,415 0 1,415
Total liabilities
$ 0 $ 15,651 $ 0 $ 15,651
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~~Table of Contents~~
~~The Company measured the fair value of its warrants on a recurring basis using significant unobservable inputs. The fair value adjustment of warrants was included in other operating income in the~~ ~~first~~~~nine~~ ~~months of~~ ~~2020.~~ The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are their expected life ranging from 1 to 6 years, risk-free interest rate from 0.23% to 0.66%, and stock volatility from 16.58% to 25.50%.
For financial assets measured at fair value on a nonrecurring basis that were still reflected in the ~~Condensed~~ Consolidated Balance Sheets as of September 30, ~~2020,~~2021, the following tables set forth the level of valuation assumptions used to determine each adjustment, the carrying value of the related individual assets as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, and the total losses for the periods indicated:

As of September 30, 2020

Total Losses

As of September 30, 2021

Total Losses

Fair Value Measurements Using

Total Fair Value

For the Three Months Ended

For the Nine Months Ended

Fair Value Measurements Using

Total Fair

For the Three Months Ended

For the Nine Months Ended

Level 1

Level 2

Level 3

Measurements

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Level 1

Level 2

Level 3

Value Measurements

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

(In thousands)

(In thousands)

Assets

Impaired loans by type:

Loans held-for-investment:

Commercial loans
$ 0 $ 0 $ 13,167 $ 13,167 $ 6,950 $ 0 $ 6,950 $ 0 $ 0 $ 0 $ 5,355 $ 5,355 $ 0 $ 6,950 $ 2,037 $ 6,950
Commercial mortgage loans
0 0 30,437 30,437 0 0 0 0 0 0 13,332 13,332 0 0 0 0
Residential mortgage loans and equity lines
0 0 5,705 5,705 0 0 0 0 0 0 2,277 2,227 0 0 0 0
Total impaired loans
0 0 49,309 49,309 6,950 0 6,950 0
Loans held-for-sale
0 0 0 0 0 120 0 120
Total loans held-for-investment
0 0 20,964 20,914 0 6,950 2,037 6,950
Other real estate owned ⁽¹⁾
0 905 4,238 5,143 0 0 717 494 0 0 5,497 5,497 (55 ) 0 (8 ) 717
Investments in venture capital and private company stock
0 0 1,381 1,381 3 83 107 101 0 0 1,007 1,007 8 3 143 107
Total assets
$ 0 $ 905 $ 54,928 $ 55,833 $ 6,953 $ 203 $ 7,774 $ 715 $ 0 $ 0 $ 27,468 $ 27,418 $ (47 ) $ 6,953 $ 2,172 $ 7,774
(1) Other real estate owned balance of $5.3 million in the Consolidated Balance Sheets is net of estimated disposal costs.

As of December 31, 2020

Fair Value Measurements Using

Total Fair Value

Level 1

Level 2

Level 3

Measurements

(In thousands)

Assets

Impaired loans by type:

Commercial loans
$ 0 $ 0 $ 5,342 $ 5,342
Commercial mortgage loans
0 0 25,749 25,749
Residential mortgage loans and equity lines
0 0 4,307 4,307
Total impaired loans
0 0 35,398 35,398
Other real estate owned ⁽¹⁾
0 0 5,141 5,141
Investments in venture capital and private company stock
0 0 1,381 1,381
Total assets
$ 0 $ 0 $ 41,920 $ 41,920

(1) Other real estate owned balance of $4.9 ~~million in the condensed consolidated balance sheet is net of estimated disposal costs.~~

As of December 31, 2019

Total Losses/(Gains)

Fair Value Measurements Using

Total Fair Value

For the Twelve Months Ended

Level 1

Level 2

Level 3

Measurements

December 31, 2019

December 31, 2018

(In thousands)

Assets

Impaired loans by type:

Commercial loans
$ 0 $ 0 $ 6,196 $ 6,196 $ 0 $ 0
Commercial mortgage loans
0 0 25,566 25,566 0 0
Residential mortgage loans and equity lines
0 0 5,320 5,320 0 0
Total impaired loans
0 0 37,082 37,082 0 0
Other real estate owned ⁽¹⁾
0 6,490 4,343 10,833 681 (619 )
Investments in venture capital and private company stock
0 0 1,604 1,604 167 330
Total assets
$ 0 $ 6,490 $ 43,029 $ 49,519 $ 848 $ (289 )
(1~~) Other real estate owned balance of $10.2~~ million in the Consolidated Balance Sheets is net of estimated disposal costs.

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent ~~impaired~~individually evaluated loans are primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports every twelve months as appropriate. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. In the current year, the Company used borrower specific collateral discounts with various discount levels.

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The significant unobservable inputs used in the fair value measurement of other real estate owned (“OREO”) are primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions. The Company applies estimated sales cost and commissions ranging from 3% to 6% of the collateral value of impaired loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO.
14~~. Fair Value of Financial Instruments~~
~~The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments.~~
~~Cash and Cash Equivalents~~ -~~For cash and cash equivalents, the carrying amount is assumed to be a reasonable estimate of fair value, a Level~~ 1 ~~measurement.~~
~~Short-term Investments~~ ~~and interest~~-~~bearing deposits~~ -~~For short-term investments and interest-bearing deposits, the carrying amount is assumed to be a reasonable estimate of fair value, a Level~~ 1 ~~measurement.~~
~~Securities Available for Sale~~ ~~- For certain U.S. Treasury securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level~~ 1 ~~measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level~~ 2 measurement. This category generally includes U.S. Government agency securities, U.S. Government sponsored entities, state and municipal securities, mortgage-backed securities (“MBS”), collateralized mortgage obligations and corporate bonds.
~~Equity Securities~~ – ~~The Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a level~~ 1 ~~measurement. Equity securities are comprised of mutual funds, preferred stock of government-sponsored entities and other equity securities.~~
~~Loans~~ - Fair values are estimated for portfolios of loans with similar financial characteristics. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair values are based primarily on ~~third~~~~-party vendor pricing to determine fair values based on the exit price notion.~~
The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 3 ~~measurement.~~
~~The fair value of impaired~~individually evaluated loans is calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent ~~impaired~~individually evaluated loans are recorded based on the current appraised value ~~or adjusted appraised value~~ of the collateral, a Level 2 measurement, or ~~Level~~ 3 ~~measurement.~~
~~Loans~~ ~~Held-for-Sale~~–~~The Company records loans held for sale at fair~~management’s judgment and estimation of value using discounted future cash flows or old appraisals which are then adjusted based on ~~quoted prices from~~ ~~third~~ ~~party sale analysis, existing sale agreements, or appraisal reports adjusted by sales commission assumption,~~recent market trends, a Level 3 measurement.

~~FHLB Stock~~ -~~These securities can only be redeemed or sold at their par value and only to~~The significant unobservable inputs (Level 3) used in the respective issuing government-supported institution or to another member institution. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.
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~~Table of Contents~~
~~Deposit Liabilities~~ -~~The~~ fair value of demand deposits, savings accounts, and certain money market deposits is assumed to be the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities, a Level 3 ~~measurement.~~
~~Advanc~~~~es from~~ ~~FHLB~~ -~~The fair value of the advances is based on quotes from the FHLB to settle the advances, a Level~~ 2 ~~measurement.~~
~~Short-term and~~ ~~Other Borrowings~~ - ~~This category includes borrowings from other financial institutions. The fair value~~measurement of other ~~borrowings is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level~~ 3 ~~measurement.~~
~~Long-term~~ D~~ebt~~ -~~The fair value of long-term debt is estimated~~real estate owned (“OREO”) are primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions. The Company applies estimated sales cost and commissions ranging from 3% to 6% of the collateral value of individually evaluated loans, quoted ~~market prices~~price, or ~~dealer quotes, a Level~~ 2 ~~measurement.~~loan sale price of loans held for sale, and appraised value of OREO.

~~Currency Option and~~ ~~Foreign Exchange Contracts~~ - The ~~Company measures~~significant unobservable inputs in the Black-Scholes option pricing model for the fair value of ~~currency option and foreign exchange contracts based on dealer quotes, a Level~~ 2 ~~measurement.~~
~~Interest Rate Swaps~~ ~~- Fair value of~~warrants are their expected life ranging from one to five years, risk-free interest rate ~~swaps is derived~~ from ~~third~~ ~~party models with observable market data, a Level~~ 2 ~~measurement.~~
~~Off-Balance-Sheet Financi~~~~al Instruments~~ -~~The fair value of commitments~~0.18% to ~~extend credit, standby letters of credit,~~1.16%, and ~~financial guarantees written is estimated using the fees currently charged~~stock volatility from 14.86% to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of off-balance-sheet financial instruments is based on the assumptions that a market participant would use, a Level 3 ~~measurement.~~20.34%.

Fair value is estimated in accordance with ASC Topic 825. Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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The following table sets forth the carrying and notional amounts and estimated fair value of financial instruments as of September 30, ~~2020~~2021, and December 31, ~~2019:~~2020:

September 30, 2020

December 31, 2019

September 30, 2021

December 31, 2020

Carrying

Carrying

Carrying

Carrying

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

(In thousands)

(In thousands)

Financial Assets

Cash and due from banks
$ 128,896 $ 128,896 $ 177,240 $ 177,240 $ 156,287 $ 156,287 $ 138,616 $ 138,616
Short-term investments
1,305,170 1,305,170 416,538 416,538 1,667,875 1,667,875 1,282,462 1,282,462
Securities available-for-sale
1,080,540 1,080,540 1,451,842 1,451,842 1,079,216 1,079,216 1,036,550 1,036,550
Loans, net
15,382,439 16,030,529 14,951,631 15,444,752 15,976,781 16,301,993 15,475,364 16,103,471
Equity securities
22,964 22,964 28,005 28,005 20,117 20,117 23,744 23,744
Investment in Federal Home Loan Bank stock
17,250 17,250 18,090 18,090 17,250 17,250 17,250 17,250
Warrants
20 20 39 39 22 22 21 21

Notional

Notional

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Foreign exchange contracts
Foreign exchange contracts
$ 107,071 $ 3,236 $ 146,397 $ 2,411 $ 161,535 $ 1,319 $ 151,244 $ 4,658
Interest rate swaps
Interest rate swaps
72,717 3,992 130,401 2,181 664,288 5,187 96,889 3,409

Carrying

Carrying

Carrying

Carrying

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Financial Liabilities

Deposits
$ 16,034,248 $ 16,061,257 $ 14,692,308 $ 14,719,452 $ 17,006,870 $ 17,007,694 $ 16,109,401 $ 16,125,808
Short-term borrowings
0 0 25,683 25,683
Advances from Federal Home Loan Bank
230,000 238,509 670,000 674,530 20,000 20,856 150,000 155,133
Other borrowings
23,788 19,550 36,666 30,764 23,197 19,164 23,714 19,632
Long-term debt
119,136 64,296 119,136 76,058 119,136 62,274 119,136 65,487

Notional

Notional

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Option contracts
$ 850 $ 6 $ 908 $ 7
Foreign exchange contracts
Foreign exchange contracts
160,489 1,592 127,003 1,415 $ 70,184 $ 1,723 $ 132,813 $ 2,200
Interest rate swaps
Interest rate swaps
686,785 31,525 602,291 14,229 788,802 9,037 679,648 10,286

Notional

Notional

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Off-Balance Sheet Financial Instruments

Commitments to extend credit
$ 3,033,685 $ (8,847 ) $ 3,077,081 $ (9,826 ) $ 3,255,421 $ (11,020 ) $ 2,977,528 $ (8,432 )
Standby letters of credit
255,173 (1,647 ) 282,352 (2,431 ) 248,958 (2,172 ) 234,200 (1,630 )
Other letters of credit
24,591 (21 ) 22,209 (20 ) 25,205 (15 ) 16,821 (16 )
Bill of lading guarantees
221 0 319 (1 ) 0 0 238 0

41
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Table of Contents
The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of September 30, ~~2020~~2021, and December 31, ~~2019.~~2020.

As of September 30, 2020

As of September 30, 2021

Estimated

Estimated

Fair Value

Fair Value

Measurements

Level 1

Level 2

Level 3

Measurements

Level 1

Level 2

Level 3

(In thousands)

(In thousands)

Financial Assets

Cash and due from banks
$ 128,896 $ 128,896 $ 0 $ 0 $ 156,287 $ 156,287 $ 0 $ 0
Short-term investments
1,305,170 1,305,170 0 0 1,667,875 1,667,875 0 0
Securities available-for-sale
1,080,540 99,980 980,560 0 1,079,216 40,211 1,039,005 0
Loans, net
16,030,529 0 0 16,030,529 16,301,993 0 0 16,301,993
Equity securities
22,964 22,964 0 0 20,117 20,117 0 0
Investment in Federal Home Loan Bank stock
17,250 0 17,250 0 17,250 0 17,250 0
Warrants
20 0 0 20 22 0 0 22
Financial Liabilities

Deposits
16,061,257 0 0 16,061,257 17,007,694 0 — 17,007,694
Advances from Federal Home Loan Bank
238,509 0 238,509 0 20,856 0 20,856 0
Other borrowings
19,550 0 0 19,550 19,164 0 0 19,164
Long-term debt
64,296 0 64,296 0 62,274 0 62,274 0

As of December 31, 2019

As of December 31, 2020

Estimated

Estimated

Fair Value

Fair Value

Measurements

Level 1

Level 2

Level 3

Measurements

Level 1

Level 2

Level 3

(In thousands)

(In thousands)

Financial Assets

Cash and due from banks
$ 177,240 $ 177,240 $ 0 $ 0 $ 138,616 $ 138,616 $ 0 $ 0
Short-term investments
416,538 416,538 0 0 1,282,462 1,282,462 0 0
Securities available-for-sale
1,451,842 74,936 1,376,906 0 1,036,550 80,948 955,602 0
Loans, net
15,444,752 0 0 15,444,752 16,103,471 0 0 16,103,471
Equity securities
28,005 28,005 0 0 23,744 23,744 0 0
Investment in Federal Home Loan Bank stock
18,090 0 18,090 0 17,250 0 17,250 0
Warrants
39 0 0 39 21 0 0 21
Financial Liabilities

Deposits
14,719,452 0 0 14,719,452 16,125,808 0 0 16,125,808
Short-term borrowings
25,683 0 0 25,683
Advances from Federal Home Loan Bank
674,530 0 674,530 0 155,133 0 155,133 0
Other borrowings
30,764 0 0 30,764 19,632 0 0 19,632
Long-term debt
76,058 0 76,058 0 65,487 0 65,487 0

114.5. Goodwill and Goodwill Impairment

Total goodwill was $372.2 million as of both September 30, 2021 and December 31, 2020. The Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The Company completed its annual goodwill impairment testing as of December 31, 2020 and determined there was 0 goodwill impairment.

~~During the~~ ~~third~~ ~~quarter of~~ ~~2020,~~ ~~the Company assessed its goodwill for impairment. The Company performed an assessment of the criteria included in ASC~~ ~~350~~ ~~and, based on such assessment, the Company concluded that the goodwill of the Company’s~~ ~~two~~ ~~reporting units is~~ ~~not~~ ~~impaired.~~
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115.6. Financial Derivatives

It is our policy not to speculate on the future direction of interest rates. However, from time to time, we may enter into financial derivatives in order to seek mitigation of exposure to interest rate risks related to our interest-earning assets and interest-bearing liabilities. We believe that these transactions, when properly structured and managed, may provide a hedge against inherent interest rate risk in our assets or liabilities and against risk in specific transactions. In such instances, we may enter into interest rate swap contracts or other types of financial derivatives. Prior to considering any hedging activities, we seek to analyze the costs and benefits of the hedge in comparison to other viable alternative strategies. All hedges must be approved by the Bank’s Investment Committee.

The Company follows ASC Topic 815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s ~~Condensed~~ Consolidated Balance Sheets and measurement of those financial derivatives at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a financial derivative is designated as a hedge and, if so, the type of hedge. Fair value is determined using third-party models with observable market data. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivatives are reflected in current earnings, together with changes in the fair value of the related hedged item if there is a highly effective correlation between changes in the fair value of the interest rate swaps and changes in the fair value of the underlying asset or liability that is intended to be hedged. If there is not a highly effective correlation between changes in the fair value of the interest rate swap and changes in the fair value of the underlying asset or liability that is intended to be hedged, then only the changes in the fair value of the interest rate swaps are reflected in the Company’s Consolidated Financial Statements.

The Company offers various interest rate derivative contracts to its customers. When derivative transactions are executed with its customers, the derivative contracts are offset by paired trades with third-party financial institutions including with central counterparties (“CCP”). Certain derivative contracts entered with CCPs are settled-to-market daily to the extent the CCP’s rulebooks legally characterize the variation margin as settlement. Derivative contracts are intended to allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are generally not linked to specific Company assets or liabilities on the ~~Condensed~~ Consolidated Balance Sheets or to forecasted transactions in a hedging relationship and, therefore, are economic hedges. The contracts are marked to market at each reporting period. The changes in fair values of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the counterparties, considering the effects of enforceable master netting agreements and collateral arrangements.

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In May 2014, ~~the~~ Bancorp entered into interest rate swap contracts in the notional amount of $119.1 million for a period of ten years. The objective of these interest rate swap contracts, which were designated as hedging instruments in cash flow hedges, was to hedge the quarterly interest payments on ~~the~~ Bancorp’s $119.1 million of Junior Subordinated Debentures that had been issued to five trusts, throughout the ten-year period beginning in June 2014 and ending in June 2024, from the risk of variability of these payments resulting from changes in the three-month LIBOR interest rate. As of September 30, ~~2020,~~2021, and ~~2019,~~2020, the ineffective portion of these interest rate swaps was not significant. The notional amount and net unrealized loss of the Company’s cash flow derivative financial instruments as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:

September 30, 2021

December 31, 2020

September 30, 2020

December 31, 2019

(In thousands)

Cash flow swap hedges:

($ in thousands)

Notional
$ 119,136 $ 119,136 $ 119,136 $ 119,136
Weighted average fixed rate-pay
2.61 % 2.61 % 2.61 % 2.61 %
Weighted average variable rate-receive
0.51 % 2.26 % 0.15 % 0.44 %

Unrealized loss, net of taxes ⁽¹⁾
$ (7,393 ) $ (3,412 ) $ (4,696 ) $ (6,890 )

Three months ended

Nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Periodic net settlement of swaps ⁽²⁾
$ 702 $ 78 $ 1,471 $ 41

Three months ended

Nine months ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Periodic net settlement of swaps ⁽²⁾
$ 754 $ 702 $ 2,196 $ 1,471

(1)~~-Included~~ Included in other comprehensive income.
(2)~~-the~~ the amount of periodic net settlement of interest rate swaps was included in interest expense.

As of September 30, ~~2020,~~2021, the Bank’s outstanding interest rate swap contracts had a notional amount of ~~$494.9~~$779.4 million for various terms from three to ten years. The Bank entered into these interest rate swap contracts that are matched to ~~individual~~ fixed-rate ~~commercial real estate~~CRE loans in the Bank’s loan portfolio. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying ~~commercial real estate~~CRE loans due to changes in interest rates. The swap contracts are structured so that the notional amounts reduce over time to match the contractual amortization of the underlying loan and allow prepayments with the same pre-payment penalty amounts as the related loan. As of September 30, ~~2020,~~2021, and ~~2019,~~2020, the ineffective portion of these interest rate swaps was not significant. The notional amount and net unrealized loss of the Company’s fair value derivative financial instruments as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:

September 30, 2021

December 31, 2020

September 30, 2020

December 31, 2019

(In thousands)

Fair value swap hedges:

($ in thousands)

Notional
$ 494,932 $ 579,584 $ 779,392 $ 478,266
Weighted average fixed rate-pay
4.57 % 4.71 % 2.48 % 4.56 %
Weighted average variable rate spread
1.90 % 2.62 % 1.22 % 2.46 %
Weighted average variable rate-receive
3.27 % 4.87 % 1.31 % 3.11 %

Net unrealized loss⁽¹⁾
$ (17,037 ) $ (7,205 ) $ (8,255 ) $ (15,082 )

Three months ended

Nine months ended

September 30, 2020
September 30, 2019

September 30, 2020
September 30, 2019
Periodic net settlement of SWAPs ⁽²⁾

$ (2,510)
$ 205

$ (5,307)
$ 1,352

Three months ended

Nine months ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Periodic net settlement of swaps ⁽²⁾
$ (2,363 ) $ (2,510 ) $ (7,137 ) $ (5,307 )

(1)~~-the~~ the amount is included in other non-interest income.
(2)~~-the~~ the amount of periodic net settlement of interest rate swaps was included in interest income.

The Company has designated as a partial-term hedging election ~~$25.0~~$404.7 million ~~of a pool~~notional as last-of-layer hedge on pools of loans with a notational value of ~~$44.7~~$816.7 million as of September 30, ~~2020.~~2021. The loans are not expected to be affected by prepayment, defaults, or other factors affecting the timing and amount of cash flows under the last-of-layer method. The Company has entered into athese pay-fixed and receive 1-Month LIBOR interest rate ~~swap~~swaps to convert the last-of-layer ~~$25.0~~$404.7 million portion of ~~a $44.7~~$816.7 million fixed rate loan ~~tranche~~pools in order to reduce the Company’s exposure to higher interest rates for the last-of-layer ~~tranche.~~tranches. As of September 30, ~~2020,~~2021, the last-of-layer loan tranche had a fair value basis adjustment of ~~$397~~$943 thousand. The interest rate swap converts this last-of-layer tranche into a floating rate instrument. The Company’s risk management objective with respect to this last-of-layer interest rate swap is to reduce interest rate exposure as to the last-of-layer tranche.

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Interest rate swap contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have a strong credit profile and be approved by the Company’s Board of Directors. The Company’s credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. ~~The~~ Bancorp’s interest rate swaps have been assigned by the counterparties to a derivative clearing organization and daily margin is indirectly maintained with the derivative clearing organization. Cash posted as collateral by ~~the~~ Bancorp related to derivative contracts totaled ~~$13.2~~$24.3 million as of September 30, ~~2020~~2021 and ~~$7.1~~$11.9 million as of December 31, ~~2019.~~2020.

~~The Company from~~From time to time, the Company enters into foreign exchange forward contracts with various counterparties to mitigate the risk of fluctuations in foreign currency exchange rates for foreign exchange certificates of deposit or foreign exchange contracts entered into with our clients. These contracts are not designated as hedging instruments and are recorded at fair value in our ~~Condensed~~ Consolidated Balance Sheets. Changes in the fair value of these contracts as well as the related foreign exchange certificates of deposit and foreign exchange contracts are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities. The notional amount and fair value of the Company’s derivative financial instruments not designated as hedging instruments as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:

September 30, 2021

December 31, 2020

September 30, 2020

December 31, 2019

(In thousands)

Derivative financial instruments not designated as hedging instruments:

($ in thousands)

Notional amounts:

Option contracts
$ 850 $ 908
Spot, forward, and swap contracts with positive fair value
$ 107,071 $ 146,397 $ 161,535 $ 151,244
Spot, forward, and swap contracts with negative fair value
$ 160,489 $ 127,003 $ 70,184 $ 132,813
Fair value:

Option contracts
$ (6 ) $ (7 )
Spot, forward, and swap contracts with positive fair value
$ 3,236 $ 2,411 $ 1,319 $ 4,658
Spot, forward, and swap contracts with negative fair value
$ (1,592 ) $ (1,415 ) $ 1,723 $ (2,200 )

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116.7. Balance Sheet Offsetting

Certain financial instruments, including resell and repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the ~~Condensed~~ Consolidated Balance Sheets and/or subject to master netting arrangements or similar agreements. The Company’s securities sold with agreements to repurchase and derivative transactions with upstream financial institution counterparties are generally executed under International Swaps and Derivative Association master agreements that include “right of set-off” provisions. In such cases, there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes.

Financial instruments that are eligible for offset in the ~~Condensed~~ Consolidated Balance Sheets, as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, are set forth in the following table:

Gross Amounts Not Offset in the
Balance Sheet

Gross
Amounts
Recognized

Gross Amounts
Offset in the
Balance Sheet

Net Amounts
Presented in the
Balance Sheet

Financial
Instruments

Collateral
Posted

Net Amount

September 30, 2020

(In thousands)

Assets:

Derivatives
$ 3,992 $ — $ 3,992 $ — $ 0 $ 3,992

Liabilities:

Derivatives
$ 31,525 $ (20,247 ) $ 11,278 $ — $ 0 $ 11,278

December 31, 2019

Assets:

Derivatives
$ 2,181 $ — $ 2,181 $ — $ 0 $ 2,181

Liabilities:

Derivatives
$ 14,229 $ — $ 14,229 $ — $ (14,229 ) $ —
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Gross Amounts Not Offset in the
Balance Sheet

Gross
Amounts
Recognized

Gross Amounts
Offset in the
Balance Sheet

Net Amounts
Presented in the
Balance Sheet

Financial
Instruments

Collateral
Posted

Net Amount

(In thousands)

September 30, 2021
Assets:

Derivatives
$ 5,187 $ — $ 5,187 $ — $ 0 $ 5,187

Liabilities:

Derivatives
$ 20,107 $ (11,067 ) $ 9,040 $ — $ 0 $ 9,040

December 31, 2020

Assets:

Derivatives
$ 3,409 $ — $ 3,409 $ — $ 0 $ 3,409

Liabilities:

Derivatives
$ 28,258 $ (17,972 ) $ 10,286 $ — $ 0 $ 10,286

117.8. Revenue from Contracts with Customers

The following is a summary of revenue from contracts with customers that are in-scope and not in-scope under ASC ~~606,~~606: ~~Revenue from Contracts with Customers:~~

Three months Ended September 30,

Nine months Ended September 30,

Three months Ended September 30,

Nine months Ended September 30,

2020

2019

2020

2019

2021

2020

2021

2020

(In thousands)

(In thousands)

Non-interest income, in-scope:

Fees and service charges on deposit accounts
$ 2,018 $ 1,892 $ 5,945 $ 5,940 $ 2,130 $ 2,018 $ 6,386 $ 5,945
Wealth management fees
2,628 2,049 7,974 6,258 3,578 2,628 11,074 7,974
Other service fees⁽¹⁾
3,676 3,645 10,038 10,593 3,735 3,676 11,109 10,038
Total noninterest income
8,322 7,586 23,957 22,791 9,443 8,322 28,569 23,957

Noninterest income, not in-scope⁽²⁾
1,655 2,802 7,412 13,312 2,773 1,655 6,230 7,412
Total noninterest income
$ 9,977 $ 10,388 $ 31,369 $ 36,103 $ 12,216 $ 9,977 $ 34,799 $ 31,369

(1)
Other service fees ~~comprise~~is comprised of fees related to letters of credit, wire fees, fees on foreign exchange transactions and other immaterial individual revenue streams.

(2)
These amounts primarily represent revenue from contracts with customers that are out of the scope of ASC 606.

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Table of Contents
The major revenue streams by fee type that are within the scope of ASC 606 presented in the above ~~tables are~~table is described in additional detail below:

Fees and Services Charges on Deposit Accounts

Fees and service charges on deposit accounts include charges for analysis, overdraft, cash checking, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of ~~card based~~card-based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services and can be terminated at will by either party. Fees received from deposit clients for the various deposit activities are recognized as revenue by the Company once the performance obligations are met.

Wealth Management Fees

The Company employs financial consultants to provide investment planning services for customers including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The fees the Company earns are variable and are generally received monthly by the Company. The Company recognizes revenue for the services performed at quarter end based on actual transaction details received from the broker dealer the Company engages.

Practical Expedients and Exemptions

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose the value of unsatisfied performance obligations as the Company’s contracts with customers generally have a term that is less than one year, are open-ended with a cancellation period that is less than one year, or allow the Company to recognize revenue in the amount to which the Company has the right to invoice.

In addition, given the ~~short term~~short-term nature of the contracts, the Company also applies the practical expedient in ASC 606-10-32-18 and does not adjust the consideration from customers for the effects of a significant financing component, if at contract inception the period between when the entity transfers the goods or services and when the customer pays for that good or service is one year or less.

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18. Stockholders’1 Equity9. ~~Stockholders’ Equity~~

Total equity was ~~$2.37~~$2.46 billion as of September 30, ~~2020,~~2021, an increase of ~~$80.4~~$45.1 million, from ~~$2.29~~$2.42 billion as of December 31, ~~2019,~~2020, primarily due to net income of ~~$158.0~~$223.0 million, ~~increases in other comprehensive income~~stock-based compensation of $4.1 million, and proceeds from dividend reinvestment of $2.6 million, ~~and~~ partially offset by purchases of treasury stock of $100.7 million, common stock cash dividends of ~~$74.0~~$73.3 million and ~~repurchases~~a decrease in other comprehensive income of ~~the Company’s common stock of $12.9~~$5.7 million.

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Table of Contents
Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the three ~~months~~ and nine months ended September 30, ~~2020,~~2021, and ~~September~~June 30, ~~2019,~~2020, was as follows:

Three months ended September 30, 2021

Three months ended September 30, 2020

Three months ended September 30, 2020

Three months ended September 30, 2019

Pre-tax

Tax expense/
(benefit)

Net-of-tax

Pre-tax

Tax expense/
(benefit)

Net-of-tax

Pre-tax

Tax expense/ (benefit)

Net-of-tax

Pre-tax

Tax expense/ (benefit)

Net-of-tax

(In thousands)

Beginning balance, gain/(loss), net of tax

(In thousands)
Beginning balance, gain/(loss), net of tax
Securities available-for-sale
Securities available-for-sale
$ 16,278 $ 2,209
Securities available-for-sale
$ 7,560 $ 16,278
Cash flow hedge derivatives
Cash flow hedge derivatives
(7,925 ) (3,567 )
Cash flow hedge derivatives
(5,188 ) (7,925 )
Total
$ 8,353 $ (1,358 ) $ 2,372 $ 8,353

Net unrealized (losses)/gains arising during the period

Net unrealized gains/(losses) arising during the period

Securities available-for-sale
$ (3,543 ) $ (1,047 ) $ (2,496 ) $ 1,750 $ 517 $ 1,233 $ (4,588 ) $ (1,356 ) $ (3,232 ) $ (3,543 ) $ (1,047 ) $ (2,496 )
Cash flow hedge derivatives
755 223 532 (1,126 ) (333 ) (793 ) 698 206 492 755 223 532
Total
$ (2,788 ) $ (824 ) $ (1,964 ) $ 624 $ 184 $ 440 $ (3,890 ) $ (1,150 ) $ (2,740 ) $ (2,788 ) $ (824 ) $ (1,964 )

Reclassification adjustment for net (gains)/losses in net income

Reclassification adjustment for net losses in net income

Securities available-for-sale
0 0 0 121 36 85 0 0 0 0 0 0
Cash flow hedge derivatives
0 0 0 0 0 0 0 0 0 0 0 0
Total
0 0 0 121 36 85 0 0 0 0 0 0

Total other comprehensive (loss)/income

Total other comprehensive income/(loss)

Securities available-for-sale
$ (3,543 ) $ (1,047 ) $ (2,496 ) $ 1,871 $ 553 $ 1,318 $ (4,588 ) $ (1,356 ) $ (3,232 ) $ (3,543 ) $ (1,047 ) $ (2,496 )
Cash flow hedge derivatives
755 223 532 (1,126 ) (333 ) (793 ) 698 206 492 755 223 532
Total
$ (2,788 ) $ (824 ) $ (1,964 ) $ 745 $ 220 $ 525 $ (3,890 ) $ (1,150 ) $ (2,740 ) $ (2,788 ) $ (824 ) $ (1,964 )

Ending balance, gain/(loss), net of tax

Securities available-for-sale
Securities available-for-sale
$ 13,782 $ 3,527
Securities available-for-sale
$ 4,328 $ 13,782
Cash flow hedge derivatives
Cash flow hedge derivatives
(7,393 ) (4,360 )
Cash flow hedge derivatives
(4,696 ) (7,393 )
Total
$ 6,389 $ (833 ) $ (368 ) $ 6,389

Nine months ended September 30, 2021

Nine months ended September 30, 2020

Pre-tax

Tax expense/
(benefit)

Net-of-tax

Pre-tax

Tax expense/
(benefit)

Net-of-tax

(In thousands)

Beginning balance, gain/(loss), net of tax
Securities available-for-sale
$ 12,200 $ 5,714
Cash flow hedge derivatives
(6,890 ) (3,412 )
Total
$ 5,310 $ 2,302

Net unrealized gains/(losses) arising during the period

Securities available-for-sale
$ (10,322 ) $ (3,051 ) $ (7,271 ) $ 12,607 $ 3,727 $ 8,880
Cash flow hedge derivatives
3,115 921 2,194 (5,652 ) (1,671 ) (3,981 )
Total
$ (7,207 ) $ (2,130 ) $ (5,077 ) $ 6,955 $ 2,056 $ 4,899

Reclassification adjustment for net losses in net income

Securities available-for-sale
(853 ) (252 ) (601 ) (1,153 ) (341 ) (812 )
Cash flow hedge derivatives
0 0 0 0 0 0
Total
(853 ) (252 ) (601 ) (1,153 ) (341 ) (812 )

Total other comprehensive income/(loss)

Securities available-for-sale
$ (11,175 ) $ (3,303 ) $ (7,872 ) $ 11,454 $ 3,386 $ 8,068
Cash flow hedge derivatives
3,115 921 2,194 (5,652 ) (1,671 ) (3,981 )
Total
$ (8,060 ) $ (2,382 ) $ (5,678 ) $ 5,802 $ 1,715 $ 4,087

Ending balance, gain/(loss), net of tax

Securities available-for-sale
$ 4,328 $ 13,782
Cash flow hedge derivatives
(4,696 ) (7,393 )
Total
$ (368 ) $ 6,389
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Nine months ended September 30, 2020

Nine months ended September 30, 2019

Pre-tax

Tax expense/ (benefit)

Net-of-tax

Pre-tax

Tax expense/ (benefit)

Net-of-tax

Beginning balance, gain/(loss), net of tax

(In thousands)

Securities available-for-sale
$ 5,714 $ (17,765 )
Cash flow hedge derivatives
(3,412 ) (241 )
Total
$ 2,302 $ (18,006 )

Net unrealized gains/(losses) arising during the period

Securities available-for-sale
$ 12,607 $ 3,727 $ 8,880 $ 30,119 $ 8,903 $ 21,216
Cash flow hedge derivatives
(5,652 ) (1,671 ) (3,981 ) (5,848 ) (1,729 ) (4,119 )
Total
$ 6,955 $ 2,056 $ 4,899 $ 24,271 $ 7,174 $ 17,097

Reclassification adjustment for net (gains)/losses in net income

Securities available-for-sale
(1,153 ) (341 ) (812 ) 108 32 76
Cash flow hedge derivatives
0 0 0 0 0 0
Total
(1,153 ) (341 ) (812 ) 108 32 76

Total other comprehensive income/(loss)

Securities available-for-sale
$ 11,454 $ 3,386 $ 8,068 $ 30,227 $ 8,935 $ 21,292
Cash flow hedge derivatives
(5,652 ) (1,671 ) (3,981 ) (5,848 ) (1,729 ) (4,119 )
Total
$ 5,802 $ 1,715 $ 4,087 $ 24,379 $ 7,206 $ 17,173

Ending balance, gain/(loss), net of tax

Securities available-for-sale
$ 13,782 $ 3,527
Cash flow hedge derivatives
(7,393 ) (4,360 )
Total
$ 6,389 $ (833 )
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~~20.~~19. Stock Repurchase Program

On ~~May 7, 2019,~~April 1, 2021, the Board of Directors approved a new stock repurchase program to buy back up to ~~$50.0~~$75.0 million of the Company’s common stock. InThe ~~2019,~~$75.0 million share repurchase program was completed and terminated on August 5, 2021 with the ~~Company repurchased 741,934~~repurchase of 1,832,481 shares for ~~$26.4~~a total of $74.9 million, at an average cost of ~~$35.59~~$40.93 per share ~~under~~in the ~~May 2019~~ nine months ended September 30, 2021.
On September 2, 2021, the Board of Directors approved a new stock repurchase ~~program. The~~program to buy back up to $125.0 million of the Company’s common stock. During the quarter ended September 30, 2021, the Company repurchased ~~400,000~~942,613 shares of common stock for ~~$12.9~~a total of $37.1 million, at an average cost of ~~$32.20 per share under the~~ ~~May 2019~~ ~~repurchase program in the~~ ~~three~~ ~~months ended~~ ~~March 31, 2020.~~ No ~~shares were repurchased under the~~ ~~may 2019~~ ~~repurchase program during the~~ ~~three~~ ~~months ended~~ ~~June 30, 2020~~ ~~and~~ ~~September 30, 2020.~~ ~~As of~~ ~~September 30, 2020,~~ ~~the Company repurchased in the aggregate 1,141,934 shares for $39.3 million, at an average cost of $34.40~~$39.40 per share.

~~21.~~20. Subsequent Events

The Company has evaluated the effect of events that have occurred subsequent to September 30, ~~2020,~~2021, through the date of issuance of the Condensed Consolidated Financial Statements, and, based on such evaluation, the Company believes that there have been no material events during such period that would require recognition in the Condensed Consolidated Financial Statements or disclosure in the Notes to the Condensed Consolidated Financial Statements.

~~Between~~ ~~October 30, 2020~~ ~~and~~ ~~November 4, 2020,~~ ~~the Company repurchased 120,000 shares for $2.9 million at an average cost of $24.19 and $7.8 million remain under the~~ ~~May 2019~~ ~~stock repurchase program.~~
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Item 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS~~.OPERATIONS.

The following discussion is based on the assumption that the reader has access to and has read the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon its unaudited ~~Condensed~~ Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these ~~Condensed~~ Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities at the date of the ~~Condensed~~ Consolidated Financial Statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies involve significant judgments, assumptions and uncertainties and are essential to understanding the Company’s results of operations and financial condition. Management of the Company considers the following to be critical accounting policies:

Accounting for the allowance for loan losses involves significant judgments and assumptions by management, which have a material impact on, among other things, the carrying value of net loans. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances as described in “Allowance for Credit Losses” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 2020 Form 10-K. For more information, please also see Note 2 to the Company’s ~~Annual Report on Form 10-K for the year ended December 31, 2019.~~unaudited Consolidated Financial Statements.

Recent Developments: Impact of and Response to COVID-19 Pandemic

The ongoing COVID-19 pandemic has caused significant disruption in the United States and international economies and financial markets. The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Many states, including California, New York, Washington, Illinois, Texas, Massachusetts, Nevada and other states in which we have significant operations, have imposed restrictions on leisure, business, commercial and other activities and gatherings to seek to slow the spread of COVID-19.
~~The onset of the~~ COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing our Company and its ~~operations, including the following:~~operations.
●
~~Market interest rates have declined significantly and these reductions, especially if prolonged, could adversely affect our net interest income, net interest margin and earnings.~~
●
We anticipate a potential slowdown in demand for our products and services, including the demand for traditional loans, although we believe the decline may be partially offset due to the new volume of PPP loans under the CARES Act and other governmental programs established in response to the pandemic.
●
The inability of our customers to meet their loan commitments due to job and other losses resulting from the pandemic could result in increased risk of delinquencies, defaults, foreclosures, and declining collateral values, resulting in losses to our Company.
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●
The COVID-19 pandemic restrictions have created significant volatility and disruption in the financial markets, and these conditions may require us to recognize an elevated level of other than temporary impairments on investment securities in our portfolio as issues of these securities are negatively impacted by the economic slowdown. Declines in fair value of investment securities in our portfolio could also reduce the unrealized gains reported as part of our consolidated comprehensive income (loss).

Additional potential impacts arising from, and our anticipated responses to, the COVID-19 pandemic are set forth below. See also the COVID-related risk factors as previously disclosed in Part I, Item 1A, ~~Risk Factors.~~of the 2020 Form 10-K.

~~Financial position and results~~
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Table of ~~operations~~
Our financial position and results of operations as of and for the nine months ended September 30, 2020 have been significantly impacted by the COVID-19 pandemic. The economic environment and uncertainty related to the pandemic, higher specific reserves for impaired loans and net charge-offs of $3.1 million during the third quarter contributed to a $62.5 million provision for credit losses recognized during the nine months ended September 30, 2020. While we have not yet experienced significant write-offs related to the COVID-19 pandemic as of September 30, 2020, the continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to affect our estimate of our allowance for credit losses and resulting provision for credit losses. To the extent the impact of the pandemic is prolonged and economic conditions worsen or persist longer than forecast, such estimates may be insufficient and change significantly in the future. Our interest income may also be negatively impacted in future periods as we continue to work with our affected borrowers to defer payments, interest, and fees. Additionally, net interest margin may be reduced generally as a result of the low rate environment. These uncertainties and the economic environment will continue to affect earnings, slow growth, and may result in deterioration of asset quality in our loan and investment portfolios.
Contents

The below table details our exposure to borrowers in industries generally considered to be the most impacted by the COVID-19 pandemic:

September 30, 2020

September 30, 2021
September 30, 2021

Industry ⁽¹⁾

Loan Balance

Percent of Total
Loan Portfolio

Loan Balance

Percent of Total
Loan Portfolio

($ in millions)

Restaurants
$ 166.1 1
%
$ 153.8 0.1
%
Hotels/motels
295.5 2 299.7 1.1
Retail businesses/properties
1,753.0 11 1,738.7 2.4
$ 2,214.6 14
%
$ 2,192.2 3.6
%

~~(1)~~^-
(1)
Balances capture credit exposures in the business segments that manage the significant majority of industry relationships. Balances consist of commercial real estate secured loans where the collateral consist of restaurants, hotels/motels or have a retail dependency.
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While we have not experienced disproportionate impacts among our business segments as of September 30, ~~2020,~~2021, borrowers in the industries detailed in the table above (and potentially other industries) could have greater sensitivity to the economic downturn resulting from the COVID-19 pandemic with potentially longer recovery periods than other business lines.

Loan ~~and lease~~ modifications

We began receiving requests from our borrowers for loan ~~and lease~~ deferrals in March 2020 following the onset of the pandemic. Modifications include the deferral of principal payments or the deferral of principal and interest payments for terms generally 90 - 180 days. Requests are evaluated individually, and approved modifications are based on the unique circumstances of each borrower. We are committed to working with our clients to allow time to work through the challenges of this pandemic. At this time, it is uncertain what future impact loan ~~and lease~~ modifications related to COVID-19 difficulties will have on our financial condition, results of operations and reserve for loan ~~and lease~~ losses.

As of September 30, ~~2020,~~2021, there were seven COVID-19 residential mortgage loan modifications outstanding, ~~include 367,~~ or ~~$180.6~~$5.1 million, ~~in residential mortgage loans,~~ with a weighted average loan to value ratio of ~~57.9%~~58.6% that represented ~~4.3%~~0.1% of the total residential mortgage loan portfolio and ~~24,~~three, or ~~$64.6~~$2.8 million, in commercial loan balances that represented ~~2.3%~~0.1% of total commercial loans.

As of September 30, 2021, there were six CRE loan modifications outstanding of $44.8 million, with a weighted average loan to value ratio of 40.1% that represent 0.6% of the total CRE loan portfolio. All of these $44.8 million of real estate loan modifications are paying interests.
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Table of Contents
The CARES Act, as extended by the CAA, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 and is intended to provide interpretive guidance as to conditions that would constitute a short-term modification that would not meet the definition of a TDR. This includes the following (i) the loan modification is made between March 1, 2020, and the earlier of ~~December 31, 2020~~January 1, 2022, or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The Company is applying this guidance to qualifying loan modifications and anticipates that it will continue to experience an increase in short-term modifications.

~~The following table shows COVID-19 CRE loan and lease modifications outstanding by property type as of September 30, 2020.~~
Property Type

# of Loan Deferrals Approved

Balance as of September 30, 2020

Total Category Balance

Weighted Avg LTV

($ in millions)

Hotel/Motel
6 $ 39.1 $ 295.5 50 %
Retail
23 161.0 1,753.0 52 %
Residential
21 46.4 2,100.4 55 %
Warehouse
3 18.0 900.0 48 %
Office & Comm'l Condo
26 114.8 1,337.3 51 %
Theater
— — 25.0 —
Special Use & HK Portfolio
12 41.0 386.4 49 %
Industrial and Multi-Use
3 5.0 391.8 48 %
Restaurant
1 2.8 166.1 —
Other
— — 103.8 —
Total CRE
95 $ 428.1 $ 7,459.3 52 %
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~~Table of Contents~~
Paycheck Protection Program ~~(PPP)~~("PPP")

As part of the CARES Act, the ~~Small Business Administration (SBA)~~SBA has been authorized to guarantee loans under the PPP through September 30, ~~2020~~2021 for small businesses who meet the necessary eligibility requirements in order to keep their workers on the payroll. One of the notable features of the PPP is that borrowers are eligible for loan forgiveness if borrowers, among other conditions, maintain their staff and payroll and if loan amounts are used to cover payroll, mortgage interest, rents and utilities payments. These loans have a ~~two to five year~~two-to-five-year term and earn interest at a rate of 1%. We began accepting applications on April 3, 2020. As of September 30, ~~2020, we had processed 1,437~~2021, our outstanding PPP loans ~~with~~had a current balance of ~~$265.7 million.~~$169.4 million and $264.4 million of PPP loans had been forgiven by the U.S. Treasury. PPP loans are guaranteed by the SBA and therefore we believe PPP loans generally do not represent a material credit risk.

~~Capital and liquidity~~
While we believe we have sufficient capital and do not anticipate any need for additional liquidity as of September 30, 2020, in response to the uncertainty regarding the severity and duration of the COVID-19 pandemic, we are prepared to take additional actions, as needed, to maintain strong capital levels and ensure the strength of our liquidity position. Such actions may include pledging additional collateral to increase our borrowing capacity with the FRB, if necessary. Our Board of Directors also will continue to evaluate the impacts of the COVID-19 pandemic and the appropriateness of declaring future dividends and the rate of any future dividends as well as any stock repurchases, in light of our capital and liquidity needs.
~~Asset impairment~~
At this time, as of September 30, 2020, we do not believe there exists any impairment to our goodwill and intangible assets, long-lived assets, right of use assets, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets. Continued and sustained declines in Bancorp’s stock price and/or other credit related impacts could give rise to triggering events in the future that could result in a write-down in the value of our goodwill, which could have a material adverse impact on our results of operations.
~~Our processes, controls and business continuity plan~~
As a financial institution, we are considered an essential business and therefore continue to operate on a modified basis to comply with governmental restrictions and public health authority guidelines. The health and safety of our employees and customers is a major concern to our management. We are continuing to permit employees to work from home when feasible or, if working from one of our locations is required, to maintain appropriate social distancing and observe other health precautions. We have also taken such other actions as social distancing, restrictions on in-person meetings and conferences, Company travel restrictions and increased sanitary protocols. We believe these actions offer the best protection for our employees and customers, and enhance our ability to continue providing our banking services.
Through this time of disruption, we have remained open for business supporting our customers while implementing our business continuity plan to mitigate the risks of the spread of COVID-19 to our employees and customers. While physical access to our bank offices remains restricted, customer business is still being transacted through drive-up facilities, online, telephone or by appointment.
We believe that we are positioned to continue these business continuity measures for the foreseeable future, however, no assurances can be provided as these circumstances may change depending on the duration and severity of the pandemic.
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H~~ighlights~~Highlights

●
Total loans, excluding PPP loans, increased by 9.1% annualized.

●
The net interest margin ~~of 3.02% during~~increased to 3.22% in the third quarter of ~~2020 is unchanged~~2021 from ~~the second~~3.02% in third quarter of 2020.

●
~~The provision for loan losses decreased~~Quarterly earnings per share increased 31.0% compared to ~~$12.5 million~~the same quarter in 2020.
●
Total deposits, excluding time deposits, increased for the ~~third~~ quarter ~~of 2020 compared to $25.0~~by $686.3 million, ~~for the second quarter of 2020.~~or 25.9% annualized.

Quarterly Statement of Operations Review

Net Income

Net income for the quarter ended September 30, ~~2020,~~2021, was ~~$56.8~~$72.4 million, ~~a decrease~~an increase of ~~$16.0~~$15.6 million, or ~~22.0%~~27.5%, compared to net income of ~~$72.8~~$56.8 million for the same quarter a year ago. Diluted earnings per share for the quarter ended September 30, ~~2020~~2021, was ~~$0.71~~$0.93 per share compared to ~~$0.91~~$0.71 per share for the same quarter a year ago.

Return on average stockholders’ equity was ~~9.53%~~11.61% and return on average assets was ~~1.18%~~1.45% for the quarter ended September 30, ~~2020,~~2021, compared to a return on average stockholders’ equity of ~~12.98%~~9.53% and a return on average assets of ~~1.65%~~1.18% for the same quarter a year ago.

F~~inancial~~Financial Performance

Three months ended

Three months ended

September 30, 2020

September 30, 2019

September 30, 2021

September 30, 2020

Net income (in millions)
$ 56.8 $ 72.8 $ 72.4 $ 56.8
Basic earnings per common share
$ 0.71 $ 0.91 $ 0.93 $ 0.71
Diluted earnings per common share
$ 0.71 $ 0.91 $ 0.93 $ 0.71
Return on average assets
1.18 % 1.65 % 1.45 % 1.18 %
Return on average total stockholders' equity
9.53 % 12.98 % 11.61 % 9.53 %
Efficiency ratio
51.53 % 41.67 % 43.85 % 51.53 %

Net Interest Income Before Provision for Credit Losses

Net interest income before provision for credit losses ~~decreased $9.5~~increased $15.0 million, or ~~6.5%~~10.9%, to ~~$137.5~~$152.5 million during the third quarter of ~~2020,~~2021, compared to ~~$147.0~~$137.5 million during the same quarter a year ago. The ~~decrease~~increase was due primarily to a decrease in interest ~~income~~expense from ~~loans and securities.~~deposits.

The net interest margin was 3.22% for the third quarter of 2021 compared to 3.02% for the third quarter of 2020 ~~compared to 3.56% for the third quarter of 2019~~ and ~~3.02%~~3.24% for the second quarter of ~~2020.~~2021.

For the third quarter of 2021, the yield on average interest-earning assets was 3.56%, the cost of funds on average interest-bearing liabilities was 0.48%, and the cost of interest-bearing deposits was 0.44%. In comparison, for the third quarter of 2020, the yield on average interest-earning assets was 3.78%, the cost of funds on average interest-bearing liabilities was 1.04%, and the cost of interest-bearing deposits was 0.99%. In comparison, for the third quarter of 2019, the yield on average interest-earning assets was 4.80%, the cost of funds on average interest-bearing liabilities was 1.65%, and the cost of interest-bearing deposits was 1.60%. The decrease in the yield on average interest-earning assets resulted mainly from lower lending rates. The decrease in average interest-bearing liabilities was a result of the renewal of maturing higher rate certificates of deposit at lower rates ~~on loans.~~and the continuing run off of brokered CD’s during the quarter. The net interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, was ~~2.74%~~3.08% for the quarter ended September 30, ~~2020,~~2021, compared to ~~3.15%~~2.74% for the same quarter a year ago.

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The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities for the three months ended September 30, ~~2020,~~2021, and ~~2019.~~2020. Average outstanding amounts included in the table are daily averages.

Interest-Earning Assets and Interest-Bearing Liabilities

Interest-Earning Assets and Interest-Bearing Liabilities

Three months ended September 30,

Three months ended September 30,

2020

2019

2021

2020

Interest

Average

Interest

Average

Interest

Average

Interest

Average

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

(Dollars in thousands)

(In thousands)

Interest-earning assets:

Total loans and leases ⁽¹⁾
$ 15,592,536 $ 167,556 4.28 % $ 14,662,847 $ 187,827 5.08 %
Total loans ⁽¹⁾
$ 15,798,496 $ 163,948 4.12 % $ 15,592,536 $ 167,556 4.28 %
Investment securities
1,145,092 4,115 1.43 1,498,569 8,687 2.30 1,058,004 3,707 1.39 1,145,092 4,115 1.43
Federal Home Loan Bank stock
17,250 216 4.99 17,250 301 6.92 17,250 258 5.93 17,250 216 4.99
Interest-bearing deposits
1,385,535 347 0.10 188,772 1,016 2.14 1,893,785 714 0.15 1,385,535 347 0.10
Total interest-earning assets
18,140,413 172,234 3.78 16,367,438 197,831 4.80 18,767,535 168,627 3.56 18,140,413 172,234 3.78
Non-interest earning assets:

Cash and due from banks
136,671 204,974 155,604 136,671
Other non-earning assets
1,064,371 1,037,937 1,027,921 1,064,371
Total non-interest earning assets
1,201,042 1,242,911 1,183,525 1,201,042
Less: Allowance for loan losses
(172,225 ) (125,399 ) (131,316 ) (172,225 )
Deferred loan fees
(5,010 ) (1,574 ) (7,302 ) (5,010 )
Total assets
$ 19,164,220 $ 17,483,376 $ 19,812,442 $ 19,164,220

Interest-bearing liabilities:

Interest-bearing demand accounts
$ 1,695,882 $ 724 0.17 % $ 1,281,629 $ 589 0.18 % $ 2,109,632 $ 524 0.10 % $ 1,695,882 $ 724 1.74 %
Money market accounts
3,119,091 4,833 0.62 2,028,039 5,684 1.11 4,228,025 4,554 0.43 3,119,091 4,833 0.62
Savings accounts
766,521 204 0.11 726,763 354 0.19 914,540 164 0.07 766,521 204 0.11
Time deposits
7,281,403 26,247 1.43 7,623,238 40,378 2.10 5,882,576 9,299 0.63 7,281,403 26,247 1.43
Total interest-bearing deposits
12,862,897 32,008 0.99 11,659,669 47,005 1.60 13,134,773 14,541 0.44 12,862,897 32,008 0.99

Other borrowings
263,306 1,266 1.91 362,698 1,878 2.05 43,246 146 1.34 263,306 1,266 1.91
Long-term debt
119,136 1,456 4.86 165,023 1,948 4.68 119,136 1,455 4.84 119,136 1,456 4.86
Total interest-bearing liabilities
13,245,339 34,730 1.04 12,187,390 50,831 1.65 13,297,155 16,142 0.48 13,245,339 34,730 1.04

Non-interest bearing liabilities:

Demand deposits
3,301,253 2,805,582 3,830,485 3,301,253
Other liabilities
246,811 263,813 211,636 246,811
Total equity
2,370,817 2,226,591 2,473,166 2,370,817
Total liabilities and equity
$ 19,164,220 $ 17,483,376 $ 19,812,442 $ 19,164,220

Net interest spread
2.74 % 3.15 % 3.08 % 2.74 %
Net interest income
$ 137,504 $ 147,000 $ 152,485 $ 137,504
Net interest margin
3.02 % 3.56 % 3.22 % 3.02 %

(1) Yields and amounts of interest earned include loan fees. Non-accrual loans are included in the average balance.
(2) Calculated by dividing net interest income by average outstanding interest-earning assets.

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The following table summarizes the changes in interest income and interest expense attributable to changes in volume and changes in interest rates for the three months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

~~Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate~~⁽¹⁾
Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate⁽¹⁾ Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate⁽¹⁾

Three months ended September 30,

2021-2020

Increase/(Decrease) in

Three months ended September 30,
2020-2019
Increase/(Decrease) in
Net Interest Income Due to:

Net Interest Income Due to:

Changes in Volume

Changes in Rate

Total Change

Changes in
Volume

Changes in
Rate

Total
Change

(In thousands)
(In thousands)
Interest-earning assets:

Loans and leases
$ 11,100 $ (31,371 ) $ (20,271 )
Loans
$ 2,292 $ (5,900 ) $ (3,608 )
Investment securities
(1,756 ) (2,816 ) (4,572 ) (299 ) (109 ) (408 )
Federal Home Loan Bank stock
— (85 ) (85 ) — 42 42
Deposits with other banks
1,089 (1,758 ) (669 ) 155 213 368
Total changes in interest income
10,433 (36,030 ) (25,597 ) 2,148 (5,754 ) (3,606 )

Interest-bearing liabilities:

Interest-bearing demand accounts
178 (42 ) 136 149 (349 ) (200 )
Money market accounts
2,283 (3,134 ) (851 ) 1,433 (1,712 ) (279 )
Savings accounts
18 (168 ) (150 ) 34 (74 ) (40 )
Time deposits
(1,748 ) (12,383 ) (14,131 ) (4,314 ) (12,634 ) (16,948 )
Other borrowed funds
(489 ) (123 ) (612 ) (824 ) (296 ) (1,120 )
Long-term debt
(562 ) 70 (492 ) — 1 1
Total changes in interest expense
(320 ) (15,780 ) (16,100 ) (3,522 ) (15,064 ) (18,586 )
Changes in net interest income
$ 10,753 $ (20,250 ) $ (9,497 ) $ 5,670 $ 9,310 $ 14,980

(1)
Changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to changes due to volume and changes due to rate.

(Reversal)/provision for credit losses
As permitted under the CARES Act and as extended by the CAA, the Company adopted the CECL methodology for estimated credit losses effective as of January 1, 2021. The Company recorded a provision for credit losses of $3.1 million in the third quarter of 2021 compared to a reversal for credit losses of $9.0 million in the second quarter of 2021 and a $12.5 million provision for loan losses in the third quarter of 2020. The third quarter provision for credit losses were primarily driven by the net charge-offs during the period and growth of loans. As of September 30, 2021, the allowance for loan losses increased by $689 thousand to $131.9 million, or 0.83% of gross loans, compared to $131.3 million, or 0.84% of gross loans, as of June 30, 2021. The change in the allowance for loan losses included a $3 million provision for loan losses for the third quarter of 2021, and $2.3 million in net charge-offs. In the third quarter of 2020, a provision for loan losses of $12.5 million was recorded under the incurred loss method, which includes management’s projection of the potential impacts from the COVID-19 pandemic at that time. The Company will continue to monitor the continuing impact of the COVID-19 pandemic on credit risks and losses, as well as on customer deposits and other liabilities and assets.
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~~Provision~~~~/(reversal)~~ ~~for credit losses~~
Based on a review of the appropriateness of the allowance for loan losses at September 30, 2020, the Company recorded a provision for credit losses of $12.5 million in third quarter of 2020 compared to a reversal for credit losses of $2.0 million in the third quarter of 2019. The provision for credit losses is primarily a result of the economic deterioration of the global economy resulting from the COVID-19 pandemic. While we took steps to incorporate the impact of the COVID-19 pandemic on the economic forecast and other factors utilized to determine our allowance for credit losses, if the economic forecast or other factors worsen relative to the assumptions we utilized, our allowance for credit losses will increase accordingly in future periods. The following table ~~summarizes~~sets forth the charge-offs and recoveries for the periods indicated:

Three months ended September 30,

Nine months ended September 30,

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

2021

2020

2021

2020

(In thousands)

(In thousands)

Charge-offs:

Commercial loans
$ 6,956 $ 3,356 $ 13,383 $ 6,300 $ 2,649 $ 6,956 $ 19,499 $ 13,383
Real estate loans⁽¹⁾
3 — 3 —
Total charge-offs
6,956 3,356 13,383 6,300 2,652 6,956 19,502 13,383
Recoveries:

Commercial loans
3,796 212 6,354 1,609 121 3,796 1,545 6,354
Construction loans
— 3,378 — 4,612 76 — 76 —
Real estate loans⁽¹⁾
110 5,023 435 5,596 144 110 558 435
Total recoveries
3,906 8,613 6,789 11,817 341 3,906 2,179 6,789
Net charge-offs/(recoveries)
$ 3,050 $ (5,257 ) $ 6,594 $ (5,517 )
Net charge-offs
$ 2,311 $ 3,050 $ 17,323 $ 6,594

(1)
Real estate loans include commercial mortgage loans, residential mortgage loans, and equity lines.
~~Non~~~~-Interest~~Non-Interest Income

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, ~~equity~~ securities gains (losses), wire transfer fees, and other sources of fee income, was $12.2 million for the third quarter of 2021, an increase of $2.2 million, or 22.0%, compared to $10.0 million for the third quarter of ~~2020, a decrease of $0.4 million, or 3.8%, compared to $10.4 million for the third quarter of 2019.~~2020. The ~~decrease~~increase was primarily due to a ~~$2.0~~$1.6 million decrease in net ~~gains~~loss from equity securities, a $1.0 million increase in wealth management fees and ~~a decrease of $0.7 million from gain on sale of loans,~~commissions offset, in part by, a $1.4 million ~~increase~~decrease in gain on ~~low income~~low-income housing investments, ~~and a $0.6 million increase in wealth management fees,~~ when compared to the same quarter a year ago.

Non-Interest Expense

Non-interest expense ~~increased $10.4~~decreased $3.8 million, or ~~15.9%~~5.0%, to ~~$76.0~~$72.2 million in the third quarter of ~~2020,~~2021 compared to ~~$65.6~~$76.0 million in the same quarter a year ago. The ~~increase~~decrease in non-interest expense in the third quarter of 2021 was primarily due to ~~an increase of $9.2~~$3.8 million in higher amortization expense of investments in low-income housing and alternative energy partnerships an increase of $1.4 million in salaries and employee benefits and an increase of $1.0 million in provision for unfunded commitments offset, in part, by a decrease of $1.3 million in marketing expense, when compared to the same quarter a year ago. The efficiency ratio was 51.5% in the third quarter of 2020 compared to ~~41.7%~~the third quarter of 2021. The efficiency ratio was 43.85% in the third quarter of 2021 compared to 51.53% for the same quarter a year ago.

Income Taxes

The effective tax rate for the third quarter of ~~2020~~2021 was ~~3.7%~~19.05% compared to ~~22.4%~~3.7% for the third quarter of ~~2019.~~2020. In the second quarter of 2020, the Company made a new alternative energy investment which resulted in a lower full year effective tax rate for 2020 resulting from tax credits generated from the new alternative energy investment. The effective tax rate ~~was lower in 2020 due to~~includes the impact of ~~higher tax credits from~~alternative energy investments and low-income housing ~~and alternative energy investment~~ tax credits.

Year-to-DateStatement of Operations Review

Net income for the nine months ended September 30, ~~2020,~~2021, was ~~$158.0~~$223.0 million, ~~a decrease~~an increase of ~~$53.8~~$65.0 million, or ~~25.4%~~41.1%, compared to net income of ~~$211.8~~$158.0 million for the same period a year ago. Diluted earnings per share was ~~$1.98~~$2.82 compared to ~~$2.64~~$1.98 per share for the same period a year ago. The net interest margin for the nine months ended September 30, ~~2020,~~2021, was ~~3.12%~~3.22% compared to ~~3.61%~~3.12% for the same period a year ago.

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Table of Contents
Return on average stockholders’ equity was ~~8.99%~~12.11% and return on average assets was ~~1.13%~~1.54% for the nine months ended September 30, ~~2020,~~2021, compared to a return on average stockholders’ equity of ~~12.94%~~8.99% and a return on average assets of ~~1.65%~~1.13% for the same period a year ago. The efficiency ratio for the nine months ended September 30, ~~2020,~~2021, was ~~46.98%~~44.71% compared to ~~43.87%~~46.98% for the same period a year ago.
52

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The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities for the nine months ended September 30, ~~2020,~~2021, and ~~2019.~~2020. Average outstanding amounts included in the table are daily averages.

Interest-Earning Assets and Interest-Bearing Liabilities

Interest-Earning Assets and Interest-Bearing Liabilities

Nine months ended September 30,

Nine months ended September 30,

2020

2019

2021

2020

Interest

Average

Interest

Average

Interest

Average

Interest

Average

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

(Dollars in thousands)

(In thousands)

Interest-earning assets:

Total loans and leases ⁽¹⁾
$ 15,477,883 $ 513,575 4.43 % $ 14,374,397 $ 548,395 5.10 %
Total loans ⁽¹⁾
$ 15,725,324 $ 485,159 4.12 % $ 15,477,883 $ 513,575 4.43 %
Investment securities
1,263,937 17,130 1.81 1,404,046 24,454 2.33 1,010,328 9,963 1.32 1,263,937 17,130 1.81
Federal Home Loan Bank stock
17,317 735 5.67 17,268 903 6.99 17,250 730 5.66 17,317 735 5.67
Interest-bearing deposits
894,302 1,538 0.23 245,971 4,289 2.33 1,605,851 1,467 0.12 894,302 1,538 0.23
Total interest-earning assets
17,653,439 532,978 4.03 16,041,682 578,041 4.82 18,358,753 497,319 3.62 17,653,439 532,978 4.03
Non-interest earning assets:

Cash and due from banks
149,777 198,835 153,790 149,777
Other non-earning assets
1,048,008 1,038,009 1,034,752 1,048,008
Total non-interest earning assets
1,197,785 1,236,844 1,188,542 1,197,785
Less: Allowance for loan losses
(148,437 ) (123,854 ) (146,640 ) (148,437 )
Deferred loan fees
(1,787 ) (1,476 ) (6,224 ) (1,787 )
Total assets
$ 18,701,000 $ 17,153,196 $ 19,394,431 $ 18,701,000

Interest-bearing liabilities:

Interest-bearing demand accounts
$ 1,557,371 $ 2,176 0.19 % $ 1,285,180 $ 1,773 0.18 % $ 1,989,833 $ 1,819 0.12 % $ 1,557,371 $ 2,176 0.19 %
Money market accounts
2,772,463 16,712 0.81 1,933,898 14,754 1.02 3,913,073 13,893 0.47 2,772,463 16,712 0.81
Savings accounts
746,870 783 0.14 725,257 1,064 0.20 885,863 590 0.09 746,870 783 0.14
Time deposits
7,463,821 92,213 1.65 7,421,255 113,992 2.05 6,105,604 33,362 0.73 7,463,821 92,213 1.65
Total interest-bearing deposits
12,540,525 111,884 1.19 11,365,590 131,583 1.55 12,894,373 49,664 0.51 12,540,525 111,884 1.19

Other borrowings
355,758 4,468 1.68 392,483 6,676 2.27 86,410 1,037 1.60 355,758 4,468 1.68
Long-term debt
119,136 4,336 4.86 172,567 6,087 4.72 119,136 4,318 4.85 119,136 4,336 4.86
Total interest-bearing liabilities
13,015,419 120,688 1.24 11,930,640 144,346 1.62 13,099,919 55,019 0.56 13,015,419 120,688 1.24

Non-interest bearing liabilities:

Demand deposits
3,089,578 2,790,367 3,613,026 3,089,578
Other liabilities
249,954 244,568 219,591 249,954
Total equity
2,346,049 2,187,621 2,461,895 2,346,049
Total liabilities and equity
$ 18,701,000 $ 17,153,196 $ 19,394,431 $ 18,701,000

Net interest spread
2.79 % 3.20 % 3.06 % 2.79 %
Net interest income
$ 412,290 $ 433,695 $ 442,300 $ 412,290
Net interest margin
3.12 % 3.61 % 3.22 % 3.12 %

(1)
Yields and amounts of interest earned include loan fees. Non-accrual loans are included in the average balance.
(2)
Calculated by dividing net interest income by average outstanding interest-earning assets.

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The following table summarizes the changes in interest income and interest expense attributable to changes in volume and changes in interest rates:

~~Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate~~⁽¹⁾
Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate⁽¹⁾
Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate⁽¹⁾

Nine months ended September 30,

2021-2020

Increase/(Decrease) in

Nine months ended September 30,
2020-2019
Increase/(Decrease) in
Net Interest Income Due to:

Net Interest Income Due to:

Changes in Volume

Changes in Rate

Total Change

Changes in
Volume

Changes in
Rate

Total
Change

(In thousands)

(In thousands)

Interest-earning assets:

Loans and leases
$ 40,381 $ (75,201 ) $ (34,820 )
Loans
$ 8,044 $ (36,458 ) $ (28,414 )
Investment securities
(2,267 ) (5,057 ) (7,324 ) (3,044 ) (4,123 ) (7,167 )
Federal Home Loan Bank stock
3 (170 ) (167 ) (3 ) (2 ) (5 )
Deposits with other banks
3,728 (6,479 ) (2,751 ) 864 (935 ) (71 )
Total changes in interest income
41,845 (86,907 ) (45,062 ) 5,861 (41,518 ) (35,657 )

Interest-bearing liabilities:

Interest-bearing demand accounts
382 22 404 512 (869 ) (357 )
Money market accounts
5,512 (3,555 ) 1,957 5,469 (8,288 ) (2,819 )
Savings accounts
31 (312 ) (281 ) 128 (321 ) (193 )
Time deposits
656 (22,435 ) (21,779 ) (14,486 ) (44,365 ) (58,851 )
Other borrowed funds
(581 ) (1,627 ) (2,208 ) (3,243 ) (188 ) (3,431 )
Long-term debt
(1,935 ) 183 (1,752 ) — (18 ) (18 )
Total changes in interest expense
4,065 (27,724 ) (23,659 ) (11,620 ) (54,049 ) (65,669 )
Changes in net interest income
$ 37,780 $ (59,183 ) $ (21,403 ) $ 17,481 $ 12,531 $ 30,012

(1)
Changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to changes due to volume and changes due to rate.

~~Non~~~~-Interest~~Non-Interest Income

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, equity securities gains (losses), wire transfer fees, and other sources of fee income, was $34.8 million for the nine months ended September 30, 2021, an increase of $3.4 million, or 10.8%, compared to $31.4 million for the nine months ended September 30, ~~2020, a decrease of $4.7 million, or 13.0%, compared to $36.1 million for the nine months ended September 30, 2019.~~2020. The ~~decrease~~increase was primarily due to a ~~$9.7~~$3.1 million ~~decrease~~increase in ~~net gains from equity securities,~~wealth management fees and commissions, a $1.9 million increase in derivative fees, offset, in part, by ana $2.0 million increase ~~of $2.4 million~~ in ~~gain on low income housing investments, and increase of $1.1 million~~net losses from ~~the gain on sale of mortgage backed~~equity securities ~~and an increase of $1.7 million from wealth management fees~~ when compared to the same period a year ago.

Non-Interest Expense

Non-interest expense increased ~~$2.3~~$4.9 million, or ~~1.1%~~2.4%, to ~~$208.4~~$213.3 million for the nine months ended September 30, ~~2020,~~2021, compared to ~~$206.1~~$208.4 million for the same period a year ago. The increase was primarily due to ana $6.4 million increase in salaries and employee benefits, a $3.4 million decrease in other real estate owned income, a $1.9 million increase in computer and equipment expense and a $1.4 million increase in marketing expense, offset, in part, by a decrease of ~~$16.1~~$8.3 million in amortization expense of investments in low-income housing and alternative energy partnerships, offset, in part, by a $4.7 million decrease in salaries and employee benefits resulting from lower bonus accruals and an increase in salaries capitalized for loan originations, a decrease of $4.1 million in other real estate owned expense, a decrease of $1.7 million in marketing expense, a decrease of $1.6 million in professional services expense, and a decrease of $1.2 million in occupancy expense, when compared to the same period a year ago.
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Income Taxes

The effective tax rate for the nine months ended September 30, ~~2020~~2021 was ~~8.6%~~21.3% compared to ~~20.3%~~8.6% for the nine months ended September 30, ~~2019.~~2020. The effective tax rate was lower in 2020 due to the impact of higher tax credits from ~~low-income housing and~~ alternative energy investment tax credits.

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Balance Sheet Review

Assets

Total assets were ~~$19.0~~$19.9 billion as of September 30, ~~2020,~~2021, an increase of ~~$0.9 billion,~~$817.3 million, or ~~5.0%~~4.3%, from ~~$18.1~~$19.0 billion as of December 31, ~~2019,~~2020, primarily due to an increase in short-term investments and ~~loan growth offset in part by a decrease in investment securities.~~commercial mortgage loans.

Securities ~~Available~~Available-for-Sale
Prior to January 1, 2021, debt securities available-for-sale were measured at fair value and declines in the fair value were reviewed to determine whether the impairment was other-than-temporary. If we did not expect to recover the entire amortized cost basis of the security, then an other-than-temporary impairment (“OTTI”) was considered to have occurred. The cost basis of the security was written down to its estimated fair value and the amount of the write-down was recognized through a charge to earnings. If the amount of the amortized cost basis expected to be recovered increased in a future period, the cost basis of the security was not increased but rather recognized prospectively through interest income.
Effective January 1, 2021, upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses, debt securities available-for-sale are measured at fair value and subject to impairment testing. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for ~~Sale~~credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security.
For available-for-sale ("AFS") debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value with the credit component of the unrealized loss of the impaired AFS debt security recognized as an allowance for credit losses, and a corresponding provision for credit losses on the consolidated statement of income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, the payment structure of the security, failure of the issuer of the security to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Any fair value changes that have not been recorded through an allowance for credit losses is recognized in other comprehensive income. In the current period, management evaluated the securities in an unrealized loss position and determined that their unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.
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Securities available-for-sale represented ~~5.7%~~5.4% of total assets as of September 30, ~~2020,~~2021, compared to ~~8.0%~~5.4% of total assets as of December 31, ~~2019.~~2020. Securities available-for-sale were $1.1 billion as of September 30, ~~2020,~~2021, compared to ~~$1.5~~$1.0 billion as of December 31, ~~2019.~~2020.

The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of securities available-for-sale as of September 30, ~~2020,~~2021, and December 31, ~~2019:~~2020:

September 30, 2020

September 30, 2021

Gross

Gross

Gross

Gross

Amortized

Unrealized

Unrealized

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

(In thousands)

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 99,968 $ 12 $ — $ 99,980 $ 40,206 $ 5 $ — $ 40,211
U.S. government agency entities
104,661 465 530 104,596 89,823 1,255 135 90,943
Mortgage-backed securities
709,756 20,045 557 729,244 798,905 12,490 6,328 805,067
Collateralized mortgage obligations
222 — 11 211 9,792 — 231 9,561
Corporate debt securities
146,368 288 147 146,509 134,348 514 1,428 133,434
Total
$ 1,060,975 $ 20,810 $ 1,245 $ 1,080,540 $ 1,073,074 $ 14,264 $ 8,122 $ 1,079,216

December 31, 2019

December 31, 2020

Gross

Gross

Gross

Gross

Amortized

Unrealized

Unrealized

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

(In thousands)

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 74,926 $ 10 $ — $ 74,936 $ 80,948 $ 6 $ 6 $ 80,948
U.S. government agency entities
90,452 663 319 90,796 99,944 441 546 99,839
U.S. government sponsored entities
225,000 — 557 224,443
Mortgage-backed securities
880,040 8,574 824 887,790 709,709 17,965 606 727,068
Collateralized mortgage obligations
569 — 17 552 10,358 — 34 10,324
Corporate debt securities
172,743 605 23 173,325 118,271 367 267 118,371
Total
$ 1,443,730 $ 9,852 $ 1,740 $ 1,451,842 $ 1,019,230 $ 18,779 $ 1,459 $ 1,036,550

For additional information, see Note 7 to the Company’s unaudited ~~Condensed~~ Consolidated Financial Statements.
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Securities available-for-sale having a carrying value of ~~$18.6~~$30.1 million as of September 30, ~~2020,~~2021, and ~~$20.1~~$22.7 million as of December 31, ~~2019,~~2020, were pledged to secure public deposits, other borrowings and treasury tax and loan.

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Equity Securities

The Company recognized a net gain of $3 thousand for the three months ended September 30, 2021, due to the increase in fair value of equity investments with readily determinable fair values compared to a net loss of $1.6 million for the three months ended September 30, ~~2020,~~2020. The Company recognized a net loss of $3.7 million for the nine months ended September 30, 2021, due to the decrease in fair value of equity investments with readily determinable fair values compared to a net ~~gain of $0.4 million for the three months ended September 30, 2019. The Company recognized a net~~ loss of $1.9 million for the ~~nine~~six months ended September 30, ~~2020, due to the decrease in fair value of equity investments with readily determinable fair values compared to a net gain of $7.8 million for the nine months ended September 30, 2019.~~2020. Equity securities were ~~$23.0~~$20.1 million and ~~$28.0~~$23.7 million as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively.
Losses are charged against the allowance when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Changes in the allowance for credit losses are recorded as provision for credit loss expense.
The amortized cost of the Company’s AFS debt securities excludes accrued interest, which is included in “accrued interest income” on the Consolidated Balance Sheets. The Company has made an accounting policy election not to measure an allowance for credit losses for accrued interest receivables on AFS debt securities since the Company timely reverses any previously accrued interest when the debt security remains in default for an extended period. As each AFS debt security has a unique security structure, where the accrual status is clearly determined when certain criteria listed in the terms are met, the Company assesses the default status of each security as defined by the debt security’s specific security structure. At September 30, 2021, no AFS debt securities were in default.

Loans

Gross loans were ~~$15.6~~$16.0 billion at September 30, ~~2020,~~2021, an increase of ~~$490.3~~$332.4 million, or ~~3.3%~~2.1%, from ~~$15.1~~$15.6 billion at December 31, ~~2019.~~2020. The increase was primarily due to ~~$265.7 million in Paycheck Protection Program Loans and~~ increases of ~~$184.1~~$280.5 million, or ~~2.5%~~3.71%, in commercial mortgage loans, ~~$81.3~~and a $106.4 million increase, or ~~2.0%, in residential mortgage loans, $63.9 million, or 18.4%, in equity lines and $95.2 million, or 16.4%, in real estate construction loans offset, in part, by a decrease of $196.5 million, or 7.1%~~4.1%, in commercial ~~loans not including Paycheck Protection Program Loans.~~loans. The loan balances and composition at September 30, ~~2020,~~2021, compared to December 31, ~~2019~~2020 are set forth below:

September 30, 2020

% of Gross Loans

December 31, 2019

% of Gross Loans

% Change

September 30, 2021

% of Gross
Loans

December 31, 2020

% of Gross
Loans

%
Change

(Dollars in thousands)

(in thousands)

Commercial loans
$ 2,582,272 16.6 % $ 2,778,744 18.4 % (7.1 %) $ 2,871,693 18.0 % $ 2,836,833 18.1 % 1.2 %
Paycheck protection program loans
265,728 1.7 — — 100.0
Residential mortgage loans
4,169,847 26.8 4,088,586 27.1 2.0 4,144,789 25.9 4,145,389 26.5 (0.0 )
Commercial mortgage loans
7,459,316 47.9 7,275,262 48.3 2.5 7,835,528 49.1 7,555,027 48.3 3.7
Real estate construction loans
675,112 4.3 579,864 3.9 16.4 688,195 4.3 679,492 4.4 1.3
Equity lines
411,848 2.7 347,975 2.3 18.4 433,206 2.7 424,555 2.7 2.0
Installment and other loans
1,656 0.0 5,050 0.0 (67.2 ) 3,370 0.0 3,100 0.0 8.7
Gross loans
$ 15,565,779 100 % $ 15,075,481 100 % 3.3 % $ 15,976,781 100 % $ 15,644,396 100 % 2.1 %
Allowance for loan losses
(179,130 ) (123,224 ) 45.4 (131,945 ) (166,538 ) (20.8 )
Unamortized deferred loan fees
(4,210 ) (626 ) 572.5 (3,835 ) (2,494 ) 53.8
Total loans, net
$ 15,382,439 $ 14,951,631 2.9 % $ 15,841,001 $ 15,475,364 2.4 %

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Non-performing Assets

Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans, and ~~other real estate owned (“OREO”).~~OREO. The Company’s policy is to place loans on non-accrual status if interest and/or principal is past due 90 days or more, or in cases where management deems the full collection of principal and interest unlikely. After a loan is placed on non-accrual status, any previously accrued but unpaid interest is reversed and charged against current income and subsequent payments received are generally first applied towards the outstanding principal balance of the loan. Depending on the circumstances, management may elect to continue the accrual of interest on certain past due loans if partial payment is received and/or the loan is well collateralized and in the process of collection. The loan is generally returned to accrual status when the borrower has brought the past due principal and interest payments current and, in the opinion of management, the borrower has demonstrated the ability to make future payments of principal and interest as scheduled.

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Management reviews the loan portfolio regularly to seek to identify problem loans. From time to time during the ordinary course of business, management may become aware of borrowers that may not be able to meet the contractual requirements of their loan agreements. Such loans generally are placed under closer supervision with consideration given to placing the loans on non-accrual status, the need for an additional allowance for loan losses, and (if appropriate) partial or full charge-off.

The ratio of non-performing assets to total assets was 0.4% at September 30, ~~2020,~~2021, compared to ~~0.3%~~0.4% at December 31, ~~2019.~~2020. Total non-performing assets increased ~~$27.8~~$0.7 million, or ~~48.6%~~0.9%, to ~~$85.0~~$78.3 million at September 30, ~~2020,~~2021, compared to ~~$57.2~~$77.6 million at December 31, ~~2019,~~2020, primarily due to an increase of ~~$36.7~~$1.0 million, or ~~90.6%~~1.5%, in ~~nonaccrual loans, offset, in part, by a decrease of $5.3 million, or 52.0%, in other real estate owned and a decrease of $3.5 million, or 55.2%, in accruing loans past due 90 days or more.~~non-accruing loans.

As a percentage of gross loans plus OREO, our non-performing assets ~~was 0.55%~~were 0.49% as of September 30, ~~2020,~~2021, compared to ~~0.38%~~0.50% as of December 31, ~~2019.~~2020. The non-performing loan portfolio coverage ratio, defined as the allowance for credit losses to non-performing loans, decreased to ~~230.8%~~191.8% as of September 30, ~~2020,~~2021, from ~~270.8%~~237.3% as of December 31, ~~2019.~~2020.
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The following table sets forth the changes in non-performing assets and ~~troubled debt restructurings (“TDRs”)~~TDRs as of September 30, ~~2020,~~2021, compared to December 31, ~~2019,~~2020, and to September 30, ~~2019:~~2020:

September 30, 2020

December 31, 2019

% Change

September 30, 2019

% Change

(Dollars in thousands)

Non-performing assets

Accruing loans past due 90 days or more
$ 2,868 $ 6,409 (55 ) $ 683 320
Non-accrual loans:

Construction loans
4,335 4,580 (5 ) 4,629 (6 )
Commercial mortgage loans
33,782 9,928 240 12,330 174
Commercial loans
29,757 19,381 54 22,970 30
Residential mortgage loans
9,317 6,634 40 7,271 28
Total non-accrual loans
$ 77,191 $ 40,523 90 $ 47,200 64
Total non-performing loans
80,059 46,932 71 47,883 67
Other real estate owned
4,918 10,244 (52 ) 11,329 (57 )
Total non-performing assets
$ 84,977 $ 57,176 49 $ 59,212 44
Accruing troubled debt restructurings
$ 28,587 $ 35,336 (19 ) $ 41,647 (31 )

Allowance for loan losses
$ 179,130 $ 123,224 45 $ 125,908 42

Total gross loans outstanding, at period-end ⁽¹⁾
$ 15,565,779 $ 15,075,481 3 $ 14,728,554 6

Allowance for loan losses to non-performing loans, at period-end ⁽²⁾
223.75 % 262.56 % 262.95 %
Allowance for loan losses to gross loans, at period-end ⁽¹⁾
1.15 % 0.82 % 0.85 %
~~(1)~~
~~Excludes loans held for sale at period-end.~~
~~(2)~~
~~Excludes non-accrual loans held for sale at period-end.~~

September 30, 2021

December 31, 2020

% Change

September 30, 2020

% Change

(in thousands)

Non-performing assets

Accruing loans past due 90 days or more
$ 4,333 $ 4,982 (13 ) $ 2,868 51
Non-accrual loans:

Construction loans
5,491 4,286 28 4,335 27
Commercial mortgage loans
36,968 33,715 10 33,782 9
Commercial loans
17,098 23,087 (26 ) 29,757 (43 )
Residential mortgage loans
9,125 6,596 38 9,317 (2 )
Total non-accrual loans
$ 68,682 $ 67,684 1 $ 77,191 (11 )
Total non-performing loans
73,015 72,666 0 80,059 (9 )
Other real estate owned
5,251 4,918 7 4,918 7
Total non-performing assets
$ 78,266 $ 77,584 1 $ 84,977 (8 )
Accruing troubled debt restructurings
$ 24,406 $ 27,721 (12 ) $ 28,587 (15 )

Allowance for loan losses
$ 131,945 $ 166,538 (21 ) $ 179,130 (26 )

Total gross loans outstanding, at period-end
$ 15,976,781 $ 15,644,396 2 $ 15,565,779 3

Allowance for loan losses to non-performing loans, at period-end
180.71 % 229.18 % 223.75 %
Allowance for loan losses to gross loans, at period-end
0.83 % 1.06 % 1.15 %

Non-accrual Loans

At September 30, ~~2020,~~2021, total non-accrual loans were ~~$77.2~~$68.7 million, an increase of ~~$36.7~~$1.0 million, or ~~90.6%~~1.5%, from ~~$40.5~~$67.7 million at December 31, ~~2019,~~2020, and ~~an increase~~a decrease of ~~$30.0~~$8.5 million, or ~~63.6%~~11.0%, from ~~$47.2~~$77.2 million at September 30, ~~2019.~~2020. The allowance for the collateral-dependent loans is calculated based on the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, sales contracts, or other available market price information, less cost to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly. Non-accrual loans also include those TDRs that do not qualify for accrual status.

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The following tables set forth the type of properties securing the non-accrual portfolio loans and the type of businesses the borrowers engaged in as of the dates indicated:

September 30, 2020

December 31, 2019

September 30, 2021

December 31, 2020

Real

Real

Real

Real

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

(In thousands)

(In thousands)

Type of Collateral

Single/multi-family residence
$ 9,851 $ 9,290 $ 6,874 $ 9,475 $ 12,148 $ 7,707 $ 7,126 $ 9,031
Commercial real estate
37,583 338 14,268 1,603 39,436 338 37,471 338
Land
— 2,734 — 2,634
Personal property (UCC)
— 20,129 — 8,303 — 6,318 — 11,084
Total
$ 47,434 $ 29,757 $ 21,142 $ 19,381 $ 51,584 $ 17,097 $ 44,597 $ 23,087

(1)
Real estate includes commercial mortgage loans, real estate construction loans, residential mortgage loans and equity lines.

September 30, 2020

December 31, 2019

September 30, 2021

December 31, 2020

Real

Real

Real

Real

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

(In thousands)

(In thousands)

Type of Business

Real estate development
$ 13,153 $ — $ 14,305 $ — $ 15,523 $ — $ 12,875 $ 33
Wholesale/Retail
25,134 8,516 637 9,684 26,958 13,006 25,291 11,290
Import/Export
— 7,306 — 4,697 — 3,190 — 6,191
Other
9,147 13,935 6,200 5,000 9,103 901 6,431 5,573
Total
$ 47,434 $ 29,757 $ 21,142 $ 19,381 $ 51,584 $ 17,097 $ 44,597 $ 23,087

(1)
Real estate includes commercial mortgage loans, real estate construction loans, residential mortgage loans and equity lines.

I~~mpaired~~
Impaired Loans

~~We consider~~Prior to January 1, 2021, a loan was considered to be impaired when it iswas probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on current circumstances and events. The assessment for impairment occurs when and while such loans are on non-accrual as a result of delinquency status of over 90 days or our receipt of information otherwise indicating that full collection of principal is doubtful, or when the loan has been restructured in a TDRs. Those loans with a balance less than our defined selection criteria, generally a loan amount less than $500 thousand, are treated as a homogeneous portfolio. If loans meeting the defined criteria are not collateral dependent, we measure the impairment based on the present value of the expected future cash flows discounted at the loan’s effective interest rate. If loans meeting the defined criteria are collateral dependent, we measure the impairment by using the loan’s observable market price or the fair value of the collateral. We generally obtain an appraisal to determine the amount of impairment at the date that the loan becomes impaired. The appraisals are generally based on “as is” or bulk sale valuations. To ensure that appraised values remain current, we generally obtain an updated appraisal every twelve months from qualified independent appraisers. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, we then recognize impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the collateral, the amount of impairment, excluding disposal costs (which generally range between 3% to 6% of the fair value, depending on the size of the impaired loan), is charged off against the allowance for loan losses. Non-accrual impaired loans, including TDRs, are not returned to accrual status unless the unpaid interest has been brought current and full repayment of the recorded balance is expected or if the borrower has made six consecutive monthly payments of the scheduled amounts due, and TDRs are reviewed for continued impairment until they are no longer reported as TDRs.

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As of September 30, 2021, recorded investment in non-accrual loans was $68.7 million. As of December 31, 2020, recorded investment in impaired loans totaled ~~$105.8~~$95.4 million and was comprised of non-accrual loans of ~~$77.2~~$67.7 million and accruing TDRs of ~~$28.6~~$27.7 million. ~~As of December 31, 2019, recorded investment in impaired loans totaled $75.9 million and was comprised of~~For non-accrual loans, the amounts previously charged off represent 10.6% of ~~$40.5 million and accruing TDRs~~the contractual balances for non-accrual loans as of ~~$35.4 million.~~September 30, 2021. For impaired loans, the amounts previously charged off represent ~~6.1% as of September 30, 2020, and 2.1%~~7.1% as of December 31, ~~2019,~~2020, of the contractual balances for impaired loans. As of September 30, ~~2020, $47.4~~2021, $51.6 million, or ~~61.5%~~75.1%, of the ~~$77.2~~$68.7 million of non-accrual loans were secured by real estate compared to ~~$21.1~~$44.6 million, or ~~52.2%~~65.9%, of the ~~$40.5~~$67.7 million of non-accrual loans that were secured by real estate as of December 31, ~~2019.~~2020. The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss.

As of September 30, ~~2020, $8.5~~2021, $6.5 million of the ~~$179.1~~$131.9 million allowance for loan losses was allocated for non-accrual loans and $125.4 million was allocated to the general allowance. As of December 31, 2020, $6.4 million of the $166.5 million allowance for loan losses was allocated for impaired loans and ~~$170.6 million was allocated to the general allowance. As of December 31, 2019, $3.2 million of the $123.2 million allowance for loan losses was allocated for impaired loans and $120.0~~$160.1 million was allocated to the general allowance.

The allowance for loan losses to non-performing loans was ~~223.8%~~180.7% as of September 30, ~~2020,~~2021, compared to ~~262.6%~~229.2% as of December 31, ~~2019,~~2020, primarily due to an increase in the non-accrual loans. Non-accrual loans also include those TDRs that do not qualify for accrual status.

The following table ~~sets forth impaired~~presents non-accrual loans and the related allowance as of ~~the dates indicated:~~September 30, 2021:

September 30, 2020

December 31, 2019

September 30, 2021

Unpaid Principal Balance

Recorded Investment

Allowance

Unpaid Principal Balance

Recorded Investment

Allowance

Unpaid
Principal
Balance

Recorded
Investment

Allowance

(In thousands)

(In thousands)

With no allocated allowance

Commercial loans
$ 16,210 $ 13,293 $ — $ 20,134 $ 15,857 $ — $ 13,897 $ 10,442 $ —
Real estate construction loans
5,776 4,335 — 5,776 4,580 — 7,201 5,491 —
Commercial mortgage loans
22,996 22,532 — 9,234 9,030 — 19,356 18,407 —
Residential mortgage loans and equity lines
7,921 7,814 — 6,171 6,073 — 6,989 6,813 —
Subtotal
$ 52,903 $ 47,974 $ — $ 41,315 $ 35,540 $ — $ 47,443 $ 41,153 $ —

With allocated allowance

Commercial loans
$ 28,059 $ 20,871 $ 7,704 $ 8,769 $ 8,739 $ 2,543 $ 16,739 $ 6,656 $ 1,301
Commercial mortgage loans
31,138 31,019 582 26,117 26,040 473 18,664 18,561 5,229
Residential mortgage loans and equity lines
6,632 5,914 209 6,740 5,540 220 2,892 2,312 —
Subtotal
$ 65,829 $ 57,804 $ 8,495 $ 41,626 $ 40,319 $ 3,236 $ 38,295 $ 27,529 $ 6,530
Total impaired loans
$ 118,732 $ 105,778 $ 8,495 $ 82,941 $ 75,859 $ 3,236
Total non-accrual loans
$ 85,738 $ 68,682 $ 6,530

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In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. The following table presents impaired loans and the related allowance as of December 31, 2020:

December 31, 2020

Unpaid
Principal
Balance

Recorded
Investment

Allowance

(In thousands)

With no allocated allowance

Commercial loans
$ 23,784 $ 20,698 $ —
Real estate construction loans
5,776 4,286 —
Commercial mortgage loans
22,877 22,287 —
Residential mortgage loans and equity lines
6,379 6,307 —
Subtotal
$ 58,816 $ 53,578 $ —

With allocated allowance

Commercial loans
$ 13,703 $ 6,372 $ 1,030
Commercial mortgage loans
31,134 31,003 5,254
Residential mortgage loans and equity lines
5,005 4,452 145
Subtotal
$ 49,842 $ 41,827 $ 6,429
Total impaired loans
$ 108,658 $ 95,405 $ 6,429
Loan Interest Reserves

In accordance with customary banking practice, we originate construction loans and land development loans where interest on the loan is disbursed from pre-established interest reserves included in the total original loan commitment. Our construction loans and land development loans generally include optional renewal terms after the maturity of the initial loan term. New appraisals are obtained prior to extension or renewal of these loans in part to determine the appropriate interest reserve to be established for the new loan term. Loans with interest reserves are generally underwritten to the same criteria, including loan to value and, if applicable, pro forma debt service coverage ratios, as loans without interest reserves. Construction loans with interest reserves are monitored on a periodic basis to gauge progress towards completion. Interest reserves are frozen if it is determined that additional draws would result in a loan to value ratio that exceeds policy maximums based on collateral property type. Our policy limits in this regard are consistent with supervisory limits and range from 50% in the case of land to 85% in the case of one to four family residential construction projects.

As of September 30, ~~2020,~~2021, construction loans of ~~$635.1~~$583.4 million were disbursed with pre-established interest reserves of ~~$74.4~~$48.0 million, compared to ~~$550.0~~$643.5 million with pre-established interest reserves of ~~$73.4~~$71.0 million at December 31, ~~2019.~~2020. The balance for construction loans with interest reserves that have been extended was ~~$148.6~~$50.2 million with pre-established interest reserves of ~~$5.2~~$1.9 million at September 30, ~~2020,~~2021, compared to ~~$129.2~~$127.0 million with pre-established interest reserves of ~~$4.7~~$4.4 million at December 31, ~~2019.~~2020. Land loans of ~~$25.8~~$38.5 million were disbursed with pre-established interest reserves of ~~$364 thousand~~$1.4 million at September 30, ~~2020,~~2021, compared to ~~$45.5~~$24.7 million of land loans disbursed with pre-established interest reserves of ~~$1.9 million~~$486 thousand at December 31, ~~2019.~~2020. The balance for land loans with interest reserves that have been extended was $942 thousand at September 30, ~~2020~~2021 with pre-established interest reserves of $58 thousand, compared to ~~$1.7 million~~$942 thousand in land loans with pre-established interest reserves of $2$58 thousand at December 31, ~~2019.~~2020.
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At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Bank had no loans on non-accrual status with available interest reserves. At September 30, ~~2020~~2021 and December 31, ~~2019, $4.3~~2020, there was $4.1 million and ~~$4.6~~$4.3 million of non-accrual non-residential construction loans ~~had been~~that were originated with pre-established interest reserves, respectively. While we typically expect loans with interest reserves to be repaid in full according to the original contractual terms, some loans may require one or more extensions beyond the original maturity before full repayment. Typically, these extensions are required due to construction delays, delays in the sale or lease of the property, or some combination of these two factors.

Loan Concentration

Most of the Company’s business activities are with customers located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan customers in Hong Kong. The Company has no specific industry concentration, and generally its loans, when secured, are collateralized with real property or other pledged collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the collateral. There were no loan concentrations to multiple borrowers in similar activities that exceeded 10% of total loans as of September 30, ~~2020,~~2021, or as of December 31, ~~2019.~~2020.

The federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of ~~commercial real estate (“CRE”)~~CRE loans on their balance sheets. The regulatory guidance reiterates the need for sound internal risk management practices for those institutions that have experienced rapid growth in CRE lending, have notable exposure to specific types of CRE, or are approaching or exceeding the supervisory criteria used to evaluate the CRE concentration risk, but the guidance is not to be construed as a limit for CRE exposure. The supervisory criteria are: (1) total reported loans for construction, land development, and other land represent 100% of the institution’s total risk-based capital, and (2) total CRE loans represent 300% or more of the institution’s total risk-based capital and the institution’s CRE loan portfolio has increased 50% or more within the last thirty-six months. Total loans for construction, land development, and other land represented ~~35%~~34% of the Bank’s total risk-based capital as of September 30, ~~2020,~~2021, and ~~34%~~35% as of December 31, ~~2019.~~2020. Total CRE loans represented ~~273%~~276% of total risk-based capital as of September 30, ~~2020,~~2021, and ~~277%~~273% as of December 31, ~~2019~~2020 and were below the Bank’s internal limit for CRE loans of 400% of total capital at both dates.

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Allowance for Credit Losses

The Bank maintains the allowance for credit losses at a level that the Bank considers appropriate to absorb the estimated and known risks in the loan portfolio and off-balance sheet unfunded credit commitments. Allowance for credit losses is comprised of the allowance for loan losses and the reserve for off-balance sheet unfunded credit commitments. With this risk management objective, the Bank’s management has an established monitoring system that it believes is designed to identify ~~impaired~~individually evaluated and potential problem loans, and to permit periodic evaluation of impairment and the appropriate level of the allowance for credit losses in a timely manner.

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In addition, the ~~Bank’s~~Company’s Board of Directors has established a written credit policy that includes a credit review and control system that the Board of Directors believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses. The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio. The determination of the amount of the allowance for credit losses and the provision for credit losses are based on management’s current judgment about the credit quality of the loan portfolio and take into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment. Additions to the allowance for credit losses are made by charges to the provision for credit losses. While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank’s control, including but not limited to the performance of the Bank’s loan portfolio, the economy and market conditions, changes in interest rates, and the view of the regulatory authorities toward loan classifications. Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged off amounts, if any, are credited to the allowance for credit losses. A weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies, bankruptcies, or defaults, and a higher level of non-performing assets, net charge-offs, and provision for credit losses in future periods.

The allowance for loan losses was ~~$179.1~~$131.9 million and the allowance for off-balance sheet unfunded credit commitments was ~~$5.7~~$8.1 million at September 30, ~~2020,~~2021, which represented the amount believed by management to be appropriate to absorb credit losses inherent in the loan portfolio, including unfunded credit commitments. The $179.1 million allowance for loan losses at September 30, 2020, increased $55.9 million, or 45.4%, from $123.2 million at December 31, 2019. This increase includes additional provisions for credit losses and reflects the deterioration in economic conditions related to COVID-19 and an increase in specific reserves of $5.3 million. This deterioration is reflected in unprecedented increases in new unemployment claims in the United States and deterioration in global economic measures during this period. While we took steps to incorporate the impact of the COVID-19 pandemic on the economic forecast and other factors utilized to determine our allowance for loan losses, if the economic forecast or other factors (such as the severity and length of the COVID-19 pandemic and its impacts) worsen relative to the assumptions we utilized, our allowance for loan losses will increase accordingly in future periods. The allowance for loan losses represented ~~1.15%~~0.83% of period-end gross loans and ~~223.8%~~180.7% of non-performing loans at September 30, ~~2020.~~2021. The comparable ratios were ~~0.82%~~1.06% of period-end gross loans and ~~262.6%~~229.18% of non-performing loans at December 31, ~~2019.~~2020.
Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. We have identified the policy and estimates relate to the allowance for credit losses on loans as a critical accounting policy.
Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2020 Form 10-K. For more information, please also see Note 2 to the Company’s unaudited Consolidated Financial Statements.
Expected Credit Losses Estimate for Loans
The allowance for credit losses on loans held for investment is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "Other liabilities" on the Consolidated Balance Sheets. The amortized cost basis of loans does not include interest receivable, which is included in "Other assets" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statement of Operations and Comprehensive Income is a combination of the provision for loan losses and the provision for unfunded loan commitments.
Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. For further information regarding the calculation of the allowance for credit losses on loans held for investment using the CECL methodology effective January 1, 2021, see Notes 2 and 3 to the unaudited Consolidated Financial Statements contained in "Item 1. Consolidated Financial Statements."

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In calculating our allowance for credit losses in the third quarter of 2021, the change in Moody��s forecast of future GDP, unemployment rates, CRE and home price indexes, resulted in a small increase in the allowance for credit losses. Our methodology and framework along with the 8-quarter reasonable and supportable forecast period and the 4-quarter reversion period have remained consistent since the implementation of CECL on January 1, 2021. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.
The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit losses.
The determination of the allowance for credit losses is complex and dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses as quantified in the allowance for credit losses, considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan composition, and relative credit risks known as of the balance sheet date.
Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements.
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The following table sets forth information relating to the allowance for loan losses, charge-offs, recoveries, and the reserve for off-balance sheet credit commitments for the periods indicated:

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

(In thousands)

Allowance for loan losses

Balance at beginning of period
$ 169,680 $ 122,651 $ 123,224 $ 122,391
Provision/(reversal) for credit losses
12,500 (2,000 ) 62,500 (2,000 )
Charge-offs:

Commercial loans
(6,956 ) (3,356 ) (13,383 ) (6,300 )
Total charge-offs
(6,956 ) (3,356 ) (13,383 ) (6,300 )
Recoveries:

Commercial loans
3,796 212 6,354 1,609
Construction loans
— 3,378 — 4,612
Real estate loans
110 5,023 435 5,596
Total recoveries
3,906 8,613 6,789 11,817
Balance at end of period
$ 179,130 $ 125,908 $ 179,130 $ 125,908

Reserve for off-balance sheet credit commitments

Balance at beginning of period
$ 4,663 $ 4,550 $ 3,855 $ 2,250
Provision for credit losses
1,000 — 1,808 2,300
Balance at end of period
$ 5,663 $ 4,550 $ 5,663 $ 4,550

Average loans outstanding during the period ⁽¹⁾
$ 15,592,536 $ 14,654,644 $ 15,477,883 $ 14,371,633
Total gross loans outstanding, at period-end ⁽¹⁾
$ 15,565,779 $ 14,728,554 $ 15,565,779 $ 14,728,554
Total non-performing loans, at period-end ⁽²⁾
$ 80,059 $ 47,883 $ 80,059 $ 47,883
Ratio of net (charge-offs)/recoveries to average loans outstanding during the period ⁽¹⁾
(0.08% ) 0.14 % (0.06% ) 0.05 %
Provision for credit losses to average loans outstanding during the period ⁽¹⁾
0.34 % (0.05% ) 0.55 % 0.00 %
Allowance for credit losses to non-performing loans, at period-end ⁽²⁾
230.82 % 272.45 % 230.82 % 272.45 %
Allowance for credit losses to gross loans, at period-end ⁽¹⁾
1.19 % 0.89 % 1.19 % 0.89 %
~~(1)~~
~~Excludes loans held for sale.~~
~~(2)~~
~~Excludes non-accrual loans held for sale.~~

Three months ended September 30,

Nine months ended September 30,

2021

2020

2021

2020

(In thousands)

Allowance for loan losses

Balance at beginning of period
$ 131,256 $ 169,680 $ 166,538 $ 123,224
Impact of ASU 2016-13 adoption
— — (1,560 ) —
Adjusted beginning balance
131,256 169,680 164,978 123,224
(Reversal)/provision for credit losses
3,000 12,500 (15,710 ) 62,500
Charge-offs:

Commercial loans
(2,649 ) (6,956 ) (19,499 ) (13,383 )
Real estate loans
(3 ) — (3 ) —
Total charge-offs
(2,652 ) (6,956 ) (19,502 ) (13,383 )
Recoveries:

Commercial loans
121 3,796 1,545 6,354
Construction loans
76 — 76 —
Real estate loans
144 110 558 435
Total recoveries
341 3,906 2,179 6,789
Balance at end of period
$ 131,945 $ 179,130 $ 131,945 $ 179,130

Reserve for off-balance sheet credit commitments

Balance at beginning of period
$ 8,050 $ 4,663 $ 5,880 $ 3,855
Impact of ASU 2016-13 adoption
— — 6,018 —
Adjusted beginning balance
8,050 4,663 11,898 3,855
(Reversal)/provision for credit losses
50 1,000 (3,798 ) 1,808
Balance at end of period
$ 8,100 $ 5,663 $ 8,100 $ 5,663

Average loans outstanding during the period
$ 15,798,261 $ 15,592,536 $ 15,725,324 $ 15,477,883
Total gross loans outstanding, at period-end
$ 15,976,781 $ 15,565,779 $ 15,976,781 $ 15,565,779
Total non-performing loans, at period-end
$ 73,015 $ 80,059 $ 73,015 $ 80,059
Ratio of net recoveries/(charge-offs) to average loans outstanding during the period
0.06 % (0.08 %) 0.15 % (0.06 %)
Provision for credit losses to average loans outstanding during the period
0.08 % 0.34 % (0.17 %) 0.55 %
Allowance for credit losses to non-performing loans, at period-end
191.80 % 230.82 % 191.80 % 230.82 %
Allowance for credit losses to gross loans, at period-end
0.88 % 1.19 % 0.88 % 1.19 %

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~~Our~~Prior to January 1, 2021, our allowance for loan losses consists of the following:

•
Specific allowance: For impaired loans, we provide specific allowances for loans that are not collateral dependent based on an evaluation of the present value of the expected future cash flows discounted at the loan’s effective interest rate and for loans that are collateral dependent based on the fair value of the underlying collateral determined by the most recent valuation information received, which may be adjusted based on factors such as changes in market conditions from the time of valuation. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established.

•
General allowance: The unclassified portfolio is segmented on a group basis. Segmentation is determined by loan type and common risk characteristics. The non-impaired loans are grouped into 19 segments: two commercial segments, ten ~~commercial real estate~~CRE segments, one residential construction segment, one non-residential construction segment, one SBA segment, one installment loans segment, one residential mortgage segment, one equity lines of credit segment, and one overdrafts segment. The allowance is provided for each segmented group based on the group’s historical loan loss experience aggregated based on loan risk classifications which take into account, among other things, the current financial condition of the borrowers and guarantors, the prevailing value of the underlying collateral if collateral dependent, charge-off history, management’s knowledge of the portfolio, general economic conditions, environmental factors, trends in delinquency and non-accrual, and other significant factors, such as the national and local economy, volume and composition of the portfolio, strength of management and loan staff, underwriting standards, and concentration of credit. In addition, management reviews reports on past-due loans to check for appropriate classification.

The table set forth below reflects management’s allocation of the allowance for loan losses by loan category and the ratio of each loan category to the average gross loans as of the dates indicated:

September 30, 2020

December 31, 2019

September 30, 2021

December 31, 2020

Percentage of

Percentage of

Percentage of

Percentage of

Loans in Each

Loans in Each

Loans in Each

Loans in Each

Category

Category

Category

Category

to Average

to Average

to Average

to Average

Amount

Gross Loans

Amount

Gross Loans

Amount

Gross Loans

Amount

Gross Loans

(In thousands)

(In thousands)

Type of Loan:

Commercial loans
$ 79,394 19.0 % $ 57,021 18.9 % $ 38,213 18.5 % $ 68,742 18.8 %
Real estate construction loans
32,712 3.9 19,474 4.0 6,344 4.3 30,854 4.0
Commercial mortgage loans
46,665 47.7 33,602 48.0 60,956 48.4 49,205 47.8
Residential mortgage loans and equity lines
20,359 29.4 13,108 29.1 26,431 28.8 17,737 29.4
Installment and other loans
— — 19 — 1 0.0 — —
Total loans
$ 179,130 100 % $ 123,224 100 % $ 131,945 100 % $ 166,538 100 %

The allowance allocated to commercial loans ~~increased $22.4~~decreased $30.5 million, or ~~39.2%~~44.4%, to ~~$79.4~~$38.2 million at September 30, ~~2020,~~2021, from ~~$57.0~~$68.7 million at December 31, ~~2019.~~2020. The ~~increase~~decrease is due primarily to ~~an increase~~a decrease in the allowance ~~due to~~of $31.5 million from the ~~continued deterioration in economic conditions related to COVID-19, the impact on loss rates from~~adoption of ASU 2016-13 and net charge-offs of ~~commercial loans and increases in specific reserves on impaired loans, year to date.~~$18.0 million offset by a provision for loan losses of $18.9 million.

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The allowance allocated to real estate construction loans ~~increased $13.2~~decreased $24.5 million, or ~~68.0%~~79.3%, to ~~$32.7~~$6.3 million at September 30, ~~2020~~2021, from ~~$19.5~~$30.9 million at December 31, ~~2019.~~2020. The ~~increase~~decrease is due primarily to ~~continued deterioration~~a decrease in ~~economic conditions, year~~the allowance of $24.3 million from the adoption of ASU 2016-13. The $24.3 million decrease in allowance was primarily due to ~~date, related~~a change in methodology from the incurred loss model in 2020 to ~~COVID-19 and increases~~CECL based modeling in ~~real estate construction loans.~~2021. Under the CECL based modeling, the allowance is determined using actual loss experience, average life of loans, loan-to-collateral value among other factors, as compared to only historical loss experience used in incurred loss model.

The allowance allocated to commercial mortgage loans increased ~~$13.1~~$11.8 million, or ~~38.9%~~24.0%, to ~~$46.7~~$61.0 million at September 30, ~~2020,~~2021, from ~~$33.6~~$49.2 million at December 31, ~~2019.~~2020. The increase is due primarily to ~~continued deterioration~~an increase in ~~economic conditions, year to date,~~the allowance of $35.0 million from the adoption of ASU 2016-13 offset by a reversal for loan losses of $23.4 million related to ~~COVID-19.~~the improvements in projected future macro-economic conditions in the nine months ended September 30, 2021.

The allowance allocated for residential mortgage loans and equity lines increased by ~~$7.3~~$8.7 million, or ~~55.3%~~49.0%, to ~~$20.4~~$26.4 million as of September 30, ~~2020,~~2021, from ~~$13.1~~$17.7 million at December 31, ~~2019.~~2020. The increase is due primarily to ~~continued deterioration~~an increase in ~~economic conditions, year to date,~~the allowance of $19.2 million from the adoption of ASU 2016-13 offset by a reversal for loan losses of $10.9 million related to ~~COVID-19.~~improvements in projected future macro-economic conditions in the nine months ended September 30, 2021.

Deposits

Total deposits were ~~$16.0~~$17.0 billion at September 30, ~~2020,~~2021, an increase of ~~$1.3 billion,~~$897.5 million, or ~~8.8%~~5.6%, from ~~$14.7~~$16.1 billion at December 31, 2019. The increases in non-interest bearing demand deposits, NOW deposits, and money market deposits resulted from higher liquidity maintained by our depositors during these uncertain times, and improved money market deposit generation from corporate accounts. The decreases in time deposits resulted primarily from the runoff of wholesale time deposits.2020. The following table sets forth the deposit mix as of the dates indicated:

September 30, 2021

December 31, 2020

September 30, 2020

December 31, 2019

Amount

Percentage

Amount

Percentage

Amount

Percentage

Amount

Percentage
(In thousands)
Deposits

(Dollars in thousands)

Non-interest-bearing demand deposits
$ 3,306,421 20.6 % $ 2,871,444 19.5 % $ 4,024,504 23.7 % $ 3,365,086 20.9 %
Interest bearing demand deposits
1,767,227 11.0 1,358,152 9.2 2,202,956 13.0 1,926,135 12.0
Money market deposits
3,227,359 20.1 2,260,764 15.4 4,132,912 24.3 3,359,191 20.8
Savings deposits
784,076 4.9 758,903 5.2 920,138 5.4 785,672 4.9
Time deposits
6,949,165 43.4 7,443,045 50.7 5,726,360 33.6 6,673,317 41.4
Total deposits
$ 16,034,248 100.0 % $ 14,692,308 100.0 % $ 17,006,870 100.0 % $ 16,109,401 100.0 %

The following table sets forth the maturity distribution of time deposits at September 30, ~~2020:~~2021:

At September 30, 2020

At September 30, 2021

Time Deposits -under $100,000

Time Deposits -$100,000 and over

Total Time Deposits

Time Deposits -
under $100,000

Time Deposits -
$100,000 and over

Total Time
Deposits

(Dollars in thousands)

(In thousands)

Less than three months
$ 352,732 $ 1,322,805 $ 1,675,537 $ 187,913 $ 1,331,317 $ 1,519,230
Three to six months
749,486 1,889,171 2,638,657 398,779 1,641,597 2,040,376
Six to twelve months
490,537 1,825,301 2,315,838 184,602 1,771,945 1,956,547
Over one year
90,796 228,337 319,133 68,130 142,077 210,207
Total
$ 1,683,551 $ 5,265,614 $ 6,949,165 $ 839,424 $ 4,886,936 $ 5,726,360

Percent of total deposits
10.5 % 32.8 % 43.3 % 4.9 % 28.7 % 33.7%

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Borrowings

Borrowings include federal funds purchased, funds obtained as advances from the ~~Federal Home Loan Bank (“FHLB”)~~FHLB of San Francisco, and borrowings from other financial institutions.

~~Borrowing~~sBorrowings from the FHLB ~~FHLB~~– There were no over-night borrowings from the FHLB as of September 30, ~~2020, compared to $450 million at a weighted average rate of 1.66% as of~~2021, and December 31, ~~2019.~~2020. Advances from the FHLB were ~~$230~~$20.0 million at ~~a weighted~~an average rate of ~~2.16%~~2.89% as of September 30, ~~2020 and $220~~2021, compared to $150.0 million at ~~a weighted~~an average rate of ~~2.26%~~2.15% as of December 31, ~~2019.~~2020. As of September 30, ~~2020,~~2021, FHLB advances of $5$20.0 million will mature ~~in November 2020, $80 million in May 2021, $50 million in June 2021, $75 million in July 2021, and $20 million~~ in May 2023.

Junior Subordinated Notes – At September 30, ~~2020,~~2021, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of ~~2.41%~~2.36%, compared to $119.1 million with a weighted average rate of ~~4.09%~~2.40% at December 31, ~~2019.~~2020. The Junior Subordinated Notes have a stated maturity term of 30 years. The trusts are not consolidated with the Company in accordance with an accounting pronouncement that took effect in December 2003.

For additional information, see Note 11 to the Company’s unaudited ~~Condensed~~ Consolidated Financial Statements.

Off-Balance-Sheet Arrangements and Contractual Obligations

The following table summarizes the Company’s contractual obligations to make future payments as of September 30, ~~2020.~~2021. Payments for deposits and borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts.

Payment Due by Period

Payment Due by Period

More than

3 years or

More than

3 years or

1 year but

more but

1 year but

more but

1 year

less than

less than

5 years

1 year

less than

less than

5 years

or less

3 years

5 years

or more

Total

or less

3 years

5 years

or more

Total

(In thousands)

(In thousands)

Contractual obligations:

Deposits with stated maturity dates
$ 6,630,032 $ 318,959 $ 162 $ 12 $ 6,949,165 $ 5,516,154 $ 203,360 $ 6,833 $ 13 $ 5,726,360
Advances from the Federal Home Loan Bank
210,000 20,000 — — 230,000 — 20,000 — — 20,000
Other borrowings
— — — 23,788 23,788 — — — 23,197 23,197
Long-term debt
— — — 119,136 119,136 — — — 119,136 119,136
Operating leases
9,469 15,629 8,022 4,704 37,824 9,577 14,696 6,452 3,338 34,063
Total contractual obligations and other commitments
$ 6,849,501 $ 354,588 $ 8,184 $ 147,640 $ 7,359,913 $ 5,525,731 $ 238,056 $ 13,285 $ 145,684 $ 5,922,756

In the normal course of business, we enter into various transactions, which, in accordance with ~~U.S. generally accepted accounting principles,~~GAAP, are not included in our ~~Condensed~~ Consolidated Balance Sheets. We typically enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the ~~Condensed~~ Consolidated Balance Sheets.

Loan Commitments - We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. We seek to minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for credit losses.

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Standby Letters of Credit - Standby letters of credit are written conditional commitments issued by us to secure the obligations of a customer to a third party. In the event the customer does not perform in accordance with the terms of an agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek reimbursement from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

Capital Resources

Total equity was ~~$2.37~~$2.46 billion as of September 30, ~~2020,~~2021, an increase of ~~$80.4~~$45.1 million, from ~~$2.29~~$2.42 billion as of December 31, ~~2019,~~2020, primarily due to net income of ~~$158.0~~$223.0 million, ~~increases~~stock-based compensation of $4.1 million, and proceeds from dividend reinvestment of $2.6 million, offset, in part, by purchases of treasury stock of $100.7 million, common stock cash dividends of $73.3 million and a decrease in other comprehensive income of $4.1 million, and amortization of share-based compensation of $3.8 million, which were partially offset by common stock cash dividends of $74.0 million and repurchases of the Company’s common stock of $12.9$5.7 million.

The following table summarizes changes in total equity for the nine months ended September 30, ~~2020:~~2021:

Nine months ended

Nine months ended

September 30, 2020

September 30, 2021

(In thousands)

(In thousands)

Net income
$ 157,967 $ 222,980
Cumulative effect of change in accounting principle related to ASC 326, net of tax
(3,139 )
Proceeds from shares issued through the Dividend Reinvestment Plan
2,573 2,619
RSUs distributed
2 1
Shares withheld related to net share settlement of RSUs
(1,903 ) (2,632 )
Stock issued to directors
800 850
Purchase of treasury stock
(12,880 ) (100,668 )
Share-based compensation
3,808 4,149
Cash dividends paid to common stockholders
(74,014 ) (73,335 )
Other comprehensive income
4,087 (5,678 )
Net increase in total equity
$ 80,440 $ 45,147
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Capital Adequacy Review

Management seeks to maintain the Company’s capital at a level sufficient to support future growth, protect depositors and stockholders, and comply with various regulatory requirements.

The following tables set forth actual and required capital ratios as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 for Bancorp and the Bank under the Basel III Capital Rules. The Basel III Capital Rules became fully phased-in on January 1, 2019. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. See the ~~2019~~2020 Form 10-K for a more detailed discussion of the Basel III Capital Rules.

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Actual

Minimum Capital
Required - Basel III

Required to be Considered
Well Capitalized

Capital Amount

Ratio

Capital Amount

Ratio

Capital Amount

Ratio

(In thousands)

September 30, 2021

Common Equity Tier 1 to Risk-Weighted Assets

Cathay General Bancorp
$ 2,070,291 13.29 $ 1,090,278 7.00 $ 1,012,401 6.50
Cathay Bank
2,137,383 13.73 1,089,593 7.00 1,011,765 6.50

Tier 1 Capital to Risk-Weighted Assets

Cathay General Bancorp
2,070,291 13.29 1,323,909 8.50 1,246,032 8.00
Cathay Bank
2,137,383 13.73 1,323,078 8.50 1,245,250 8.00

Total Capital to Risk-Weighted Assets

Cathay General Bancorp
2,325,836 14.93 1,635,417 10.50 1,557,540 10.00
Cathay Bank
2,277,428 14.63 1,634,390 10.50 1,556,562 10.00

Leverage Ratio

Cathay General Bancorp
2,070,291 10.67 776,410 4.00 970,513 5.00
Cathay Bank
2,137,383 11.02 775,500 4.00 969,375 5.00

Actual

Minimum Capital Required - Basel III

Required to be Considered Well Capitalized

Actual

Minimum Capital
Required - Basel III

Required to be Considered
Well Capitalized

Capital Amount

Ratio

Capital Amount

Ratio

Capital Amount

Ratio

Capital Amount

Ratio

Capital Amount

Ratio

Capital Amount

Ratio

September 30, 2020

(Dollars in thousands)

(In thousands)

December 31, 2020

Common Equity Tier 1 to Risk-Weighted Assets
Common Equity Tier 1 to Risk-Weighted Assets

Common Equity Tier 1 to Risk-Weighted Assets

Cathay General Bancorp
$ 1,970,778 13.22 $ 1,043,776 7.00 $ 969,221 6.50 $ 2,016,448 13.53 $ 1,042,967 7.00 $ 968,470 6.50
Cathay Bank
$ 2,034,242 13.65 $ 1,042,861 7.00 $ 968,371 6.50 2,059,056 13.83 1,041,911 7.00 967,489 6.50

Tier 1 Capital to Risk-Weighted Assets

Cathay General Bancorp
$ 1,970,778 13.22 $ 1,267,443 8.50 $ 1,192,887 8.00 2,016,448 13.53 1,266,460 8.50 1,191,963 8.00
Cathay Bank
$ 2,034,242 13.65 $ 1,266,331 8.50 $ 1,191,841 8.00 2,059,056 13.83 1,265,178 8.50 1,190,755 8.00

Total Capital to Risk-Weighted Assets

Cathay General Bancorp
$ 2,271,071 15.23 $ 1,565,664 10.50 $ 1,491,109 10.00 2,304,366 15.47 1,564,451 10.50 1,489,953 10.00
Cathay Bank
$ 2,219,035 14.89 $ 1,564,291 10.50 $ 1,489,801 10.00 2,231,474 14.99 1,562,866 10.50 1,488,444 10.00

Leverage Ratio

Cathay General Bancorp
$ 1,970,778 10.51 $ 750,036 4.00 $ 937,545 5.00 2,016,448 10.94 737,382 4.00 921,727 5.00
Cathay Bank
$ 2,034,242 10.87 $ 748,839 4.00 $ 936,048 5.00 2,059,056 11.19 736,317 4.00 920,396 5.00

Actual

Minimum Capital Required - Basel III

Required to be Considered Well Capitalized

Capital Amount

Ratio

Capital Amount

Ratio

Capital Amount

Ratio

December 31, 2019

(Dollars in thousands)

Common Equity Tier 1 to Risk-Weighted Assets

Cathay General Bancorp
$ 1,892,321 12.51 $ 1,059,259 7.00 $ 983,597 6.50
Cathay Bank
$ 1,959,832 12.97 $ 1,057,880 7.00 $ 982,318 6.50

Tier 1 Capital to Risk-Weighted Assets

Cathay General Bancorp
$ 1,892,321 12.51 $ 1,286,243 8.50 $ 1,210,581 8.00
Cathay Bank
$ 1,959,832 12.97 $ 1,284,569 8.50 $ 1,209,006 8.00

Total Capital to Risk-Weighted Assets

Cathay General Bancorp
$ 2,134,900 14.11 $ 1,588,888 10.50 $ 1,513,227 10.00
Cathay Bank
$ 2,086,911 13.81 $ 1,586,821 10.50 $ 1,511,258 10.00

Leverage Ratio

Cathay General Bancorp
$ 1,892,321 10.83 $ 699,173 4.00 $ 873,966 5.00
Cathay Bank
$ 1,959,832 11.23 $ 697,976 4.00 $ 872,470 5.00

As of September 30, ~~2020,~~2021, capital levels at Bancorp and the Bank exceed all capital adequacy requirements under the fully phased-in Basel III Capital Rules. Based on the ratios presented above, capital levels as of September 30, ~~2020~~2021 at Bancorp and the Bank exceed the minimum levels necessary to be considered “well capitalized.”

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Dividend Policy

Holders of common stock are entitled to dividends as and when declared by our Board of Directors out of funds legally available for the payment of dividends. Although we have historically paid cash dividends on our common stock, we are not required to do so. The amount of future dividends, if any, will depend on our earnings, financial condition, capital requirements and other factors, and will be determined by our Board of Directors. The terms of our Junior Subordinated Notes also limit our ability to pay dividends. We increased the common stock dividend from $0.21 per share in the fourth quarter of 2016, to $0.24 per share in the fourth quarter of 2017, and to $0.31 per share in the fourth quarter of 2018.

The Company declared a cash dividend of $0.31 per share on ~~79,620,510~~77,860,539 shares outstanding on ~~September 1, 2020,~~August 19, 2021 for distribution to holders of our common stock on September ~~11, 2020,~~9, 2021. The Company declared a cash dividend of $0.31 per share on ~~79,587,596~~79,188,570 shares outstanding on ~~June 2, 2020,~~May 28, 2021, for distribution to holders of our common stock on June ~~12, 2020, and~~7, 2021. The Company declared a cash dividend of $0.31 per share on ~~79,546,735~~79,514,076 shares outstanding on March ~~2, 2020,~~1, 2021, for distribution to holders of our common stock on March ~~12, 2020.~~11, 2021. The Company paid total cash dividends of ~~$74.0~~$73.3 million in the first nine months of ~~2020.~~2021.
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Financial Derivatives

It is our policy not to speculate on the future direction of interest rates. However, from time to time, we may enter into financial derivatives in order to seek mitigation of exposure to interest rate risks related to our interest-earning assets and interest-bearing liabilities. We believe that these transactions, when properly structured and managed, may provide a hedge against inherent interest rate risk in our assets or liabilities and against risk in specific transactions. In such instances, we may enter into interest rate swap contracts or other types of financial derivatives. Prior to considering any hedging activities, we seek to analyze the costs and benefits of the hedge in comparison to other viable alternative strategies. All hedges must be approved by the Bank’s Investment Committee.

The Company follows ASC Topic 815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s ~~Condensed~~ Consolidated Balance Sheets and measurement of those financial derivatives at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a financial derivative is designated as a hedge and, if so, the type of hedge. Fair value is determined using third-party models with observable market data. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivatives are reflected in current earnings, together with changes in the fair value of the related hedged item if there is a highly effective correlation between changes in the fair value of the interest rate swaps and changes in the fair value of the underlying asset or liability that is intended to be hedged. If there is not a highly effective correlation between changes in the fair value of the interest rate swap and changes in the fair value of the underlying asset or liability that is intended to be hedged, then only the changes in the fair value of the interest rate swaps are reflected in the Company’s Consolidated Financial Statements.

The Company offers various interest rate derivative contracts to its customers. When derivative transactions are executed with its customers, the derivative contracts are offset by paired trades with third-party financial institutions including with ~~central counterparties (“CCP”).~~CCP. Certain derivative contracts entered with CCPs are settled-to-market daily to the extent the CCP’s rulebooks legally characterize the variation margin as settlement. Derivative contracts are intended to allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are generally not linked to specific Company assets or liabilities on the ~~Condensed~~ Consolidated Balance Sheets or to forecasted transactions in a hedging relationship and, therefore, are economic hedges. The contracts are marked to market at each reporting period. The changes in fair values of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the counterparties, considering the effects of enforceable master netting agreements and collateral arrangements.

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In May 2014, ~~the~~ Bancorp entered into interest rate swap contracts in the notional amount of $119.1 million for a period of ten years. The objective of these interest rate swap contracts, which were designated as hedging instruments in cash flow hedges, was to hedge the quarterly interest payments on ~~the~~ Bancorp’s $119.1 million of Junior Subordinated Debentures that had been issued to five trusts, throughout the ten-year period beginning in June 2014 and ending in June 2024, from the risk of variability of these payments resulting from changes in the three-month LIBOR interest rate. As of September 30, ~~2020,~~2021, and ~~2019,~~2020, the ineffective portion of these interest rate swaps was not significant. The notional amount and net unrealized loss of the Company’s cash flow derivative financial instruments as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:

September 30, 2020

December 31, 2019

September 30, 2021

December 31, 2020

($ in thousands)

(In thousands)

Cash flow swap hedges:
Notional
$ 119,136 $ 119,136 $ 119,136 $ 119,136
Weighted average fixed rate-pay
2.61 % 2.61 % 2.61 % 2.61 %
Weighted average variable rate-receive
0.51 % 2.26 % 0.15 % 0.44 %

Unrealized loss, net of taxes ⁽¹⁾
$ (7,393 ) $ (3,412 ) $ (4,696 ) $ (6,890 )

Three months ended

Nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Periodic net settlement of swaps ⁽²⁾
$ 702 $ 78 $ 1,471 $ 41

Three months ended

Nine months ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Periodic net settlement of swaps ⁽²⁾
$ 754 $ 702 $ 2,196 $ 1,471

(1)-
Included in other comprehensive income.
(2)-
the amount of periodic net settlement of interest rate swaps was included in interest expense.

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Table of Contents
As of September 30, ~~2020,~~2021, the Bank’s outstanding interest rate swap contracts had a notional amount of ~~$494.9~~$779.4 million for various terms from three to ten years. The Bank entered into these interest rate swap contracts that are matched to ~~individual~~ fixed-rate ~~commercial real estate~~CRE loans in the Bank’s loan portfolio. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying ~~commercial real estate~~CRE loans due to changes in interest rates. The swap contracts are structured so that the notional amounts reduce over time to match the contractual amortization of the underlying loan and allow prepayments with the same pre-payment penalty amounts as the related loan. As of September 30, ~~2020,~~2021, and ~~2019,~~2020, the ineffective portion of these interest rate swaps was not significant. The notional amount and net unrealized loss of the Company’s fair value derivative financial instruments as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:

September 30, 2020

December 31, 2019

($ in thousands)

Fair value swap hedges:
Notional
$ 494,932 $ 579,584
Weighted average fixed rate-pay
4.57 % 4.71 %
Weighted average variable rate spread
1.90 % 2.62 %
Weighted average variable rate-receive
3.27 % 4.87 %

Net unrealized loss⁽¹⁾
$ (17,037 ) $ (7,205 )

September 30, 2021

December 31, 2020

(In thousands)

Fair value swap hedges:
Notional
$ 779,392 $ 478,266
Weighted average fixed rate-pay
2.48 % 4.56 %
Weighted average variable rate spread
1.22 % 2.46 %
Weighted average variable rate-receive
1.31 % 3.11 %

Net unrealized loss⁽¹⁾
$ (8,255 ) $ (15,082 )

Three months ended

Nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Periodic net settlement of SWAPs ⁽²⁾
$ (2,510 ) $ 205 $ (5,307 ) $ 1,352

Three months ended

Nine months ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Periodic net settlement of swaps ⁽²⁾
$ (2,363 ) $ (2,510 ) $ (7,137 ) $ (5,307 )

(1)-
the amount is included in other non-interest income.
(2)-
the amount of periodic net settlement of interest rate swaps was included in interest income.

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The Company has designated as a partial-term hedging election ~~$25.0~~$404.7 million ~~of a pool~~notional as last-of-layer hedge on pools of loans with a notational value of ~~$44.7~~$816.7 million as of September 30, ~~2020.~~2021. The loans are not expected to be affected by prepayment, defaults, or other factors affecting the timing and amount of cash flows under the last-of-layer method. The Company has entered into athese pay-fixed and receive 1-Month LIBOR interest rate ~~swap~~swaps to convert the last-of-layer ~~$25.0~~$404.7 million portion of ~~a $44.7~~$816.7 million fixed rate loan ~~tranche~~pools in order to reduce the Company’s exposure to higher interest rates for the last-of-layer ~~tranche.~~tranches. As of September 30, ~~2020,~~2021, the last-of-layer loan tranche had a fair value basis adjustment of ~~$397~~$943 thousand. The interest rate swap converts this last-of-layer tranche into a floating rate instrument. The Company’s risk management objective with respect to this last-of-layer interest rate swap is to reduce interest rate exposure as to the last-of-layer tranche.

Interest rate swap contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have a strong credit profile and be approved by ~~the Company’s~~our Board of Directors. The Company’s credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. ~~The~~ Bancorp’s interest rate swaps have been assigned by the counterparties to a derivative clearing organization and daily margin is indirectly maintained with the derivative clearing organization. Cash posted as collateral by ~~the~~ Bancorp related to derivative contracts totaled ~~$13.2~~$24.3 million as of September 30, ~~2020~~2021 and ~~$7.1~~$11.9 million as of December 31, ~~2019.~~2020.
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The Company from time to time enters into foreign exchange forward contracts with various counterparties to mitigate the risk of fluctuations in foreign currency exchange rates for foreign exchange certificates of deposit or foreign exchange contracts entered into with our clients. These contracts are not designated as hedging instruments and are recorded at fair value in our ~~Condensed~~ Consolidated Balance Sheets. Changes in the fair value of these contracts as well as the related foreign exchange certificates of deposit and foreign exchange contracts are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities. The notional amount and fair value of the Company’s derivative financial instruments not designated as hedging instruments as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:

September 30, 2020

December 31, 2019

($ in thousands)

Derivative financial instruments not designated as hedging instruments:
Notional amounts:

Option contracts
$ 850 $ 908
Spot, forward, and swap contracts with positive fair value
$ 107,071 $ 146,397
Spot, forward, and swap contracts with negative fair value
$ 160,489 $ 127,003
Fair value:

Option contracts
$ (6 ) $ (7 )
Spot, forward, and swap contracts with positive fair value
$ 3,236 $ 2,411
Spot, forward, and swap contracts with negative fair value
$ (1,592 ) $ (1,415 )
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September 30, 2021

December 31, 2020

(In thousands)

Derivative financial instruments not designated as hedging instruments:
Notional amounts:

Spot, forward, and swap contracts with positive fair value
$ 161,535 $ 151,244
Spot, forward, and swap contracts with negative fair value
$ 70,184 $ 132,813
Fair value:

Spot, forward, and swap contracts with positive fair value
$ 1,319 $ 4,658
Spot, forward, and swap contracts with negative fair value
$ 1,723 $ (2,200 )

Liquidity

Liquidity is our ability to maintain sufficient cash flow to meet maturing financial obligations and customer credit needs, and to take advantage of investment opportunities as they are presented in the marketplace. Our principal sources of liquidity are growth in deposits, proceeds from the maturity or sale of securities and other financial instruments, repayments from securities and loans, federal funds purchased, securities sold under agreements to repurchase, and advances from the FHLB. As of September 30, ~~2020,~~2021, our average monthly liquidity ratio (defined as net cash plus short-term and marketable securities to net deposits and short-term liabilities) was ~~16.0%~~18.1% compared to ~~12.9%~~14.7% as of December 31, ~~2019.~~2020.

The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary. At September 30, ~~2020,~~2021, the Bank had an approved credit line with the FHLB of San Francisco totaling $4.8 billion. Total advances from the FHLB of San Francisco were ~~$230.0~~$20.0 million and standby letter of credits issued by the FHLB on the Company’s behalf were ~~$529.1~~$675.4 million as of September 30, ~~2020.~~2021. These borrowings bear fixed rates and are secured by the Bank’s loans. See Note 11 to the ~~Condensed~~ Consolidated Financial Statements. At September 30, ~~2020,~~2021, the Bank pledged ~~$7.5 million~~$820 thousand of its commercial loans and $1.9 million of securities to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program. The Bank had borrowing capacity of ~~$7.8~~$2.6 million from the Federal Reserve Bank Discount Window at September 30, ~~2020.~~2021.

Liquidity can also be provided through the sale of liquid assets, which consist of federal funds sold, securities purchased under agreements to resell, and securities available-for-sale. At September 30, ~~2020,~~2021, investment securities totaled $1.1 billion, with ~~$18.6~~$30.9 million pledged as collateral for borrowings and other commitments. The remaining ~~$1.1~~$1.0 billion was available as additional liquidity or to be pledged as collateral for additional borrowings.

Approximately ~~95%~~96% of our time deposits mature within one year or less as of September 30, ~~2020.~~2021. Management anticipates that there may be some outflow of these deposits upon maturity due to the keen competition in the Bank’s marketplace. However, based on our historical runoff experience, we expect the outflow will not be significant and can be replenished through our normal growth in deposits. As of September 30, ~~2020,~~2021, management believes all the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs. Deposits and other sources of liquidity, however, may be adversely impacted by the COVID-19 pandemic.

The business activities of Bancorp consist primarily of the operation of the Bank and limited activities in other investments. The Bank paid dividends to Bancorp totaling ~~$96.0~~$155 million and ~~$176.5~~$96.0 million during the first nine months of ~~2020~~2021 and ~~2019,~~2020, respectively.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use a net interest income simulation model to measure the extent of the differences in the behavior of the lending and funding rates to changing interest rates, ~~so as~~ to project future earnings or market values under alternative interest rate scenarios. Interest rate risk arises primarily through the Company’s traditional business activities of extending loans and accepting deposits. Many factors, including but not limited to economic, market and financial conditions, movements in interest rates, and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities. The net interest income simulation model is designed to measure the volatility of net interest income and net portfolio value, defined as net present value of assets and liabilities, under immediate rising or falling interest rate scenarios in 100 basis point increments.

Although the modeling can be helpful in managing interest rate risk, it does require significant assumptions for the projection of loan prepayment rates on mortgage related assets, loan volumes and pricing, and deposit and borrowing volume and pricing, that might prove inaccurate. Because these assumptions are inherently uncertain, the model cannot precisely estimate net interest income, or precisely predict the effect of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes, the differences between actual experience and the assumed volume, changes in market conditions, and management strategies, among other factors. The Company monitors its interest rate sensitivity and seeks to reduce the risk of a significant decrease in net interest income caused by a change in interest rates.

We have established a tolerance level in our policy to define and limit net interest income volatility to a change of plus or minus 5% when the hypothetical rate change is plus or minus 200 basis points. When the net interest rate simulation projects that our tolerance level will be met, or exceeded, we seek corrective action after considering, among other things, market conditions, customer reaction, and the estimated impact on profitability. The Company’s simulation model also projects the net economic value of our portfolio of assets and liabilities. We have established a tolerance level in our policy to limit the loss in the net economic value of our portfolio of assets and liabilities to zero when the hypothetical rate change is plus or minus 200 basis points.

The table below shows the estimated impact of changes in interest rates on net interest income and market value of equity as of September 30, ~~2020:~~2021:

Net Interest

Market Value

Net Interest

Market Value

Income

of Equity

Income

of Equity

Change in Interest Rate (Basis Points)

Volatility ⁽¹⁾

Volatility ⁽²⁾

Volatility ⁽¹⁾

Volatility ⁽²⁾

+200
8.8 7.1 18.2 14.5
+100
4.0 3.9 8.6 7.0
-100 -0.2 -3.0 -0.8 -3.7
-200 -0.1 -2.9 -0.9 -1.7

(1)
The percentage change in this column represents net interest income of the Company for 12 months in a stable interest rate environment versus the net interest income in the various rate scenarios.
(2)
The percentage change in this column represents the net portfolio value of the Company in a stable interest rate environment versus the net portfolio value in the various rate scenarios.

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Item 4.   CONTROLS AND PROCEDURES.

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based upon their evaluation, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There has not been any change in our internal control over financial reporting that occurred during the third quarter of ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS.

From time to time, Bancorp and its subsidiaries are parties to litigation that arise in the ordinary course of business or otherwise are incidental to various aspects of its operations. Based upon information available to the Company and its review of any such litigation with counsel, management presently believes that the liability relating to such litigation, if any, would not be expected to have a material adverse impact on the Company’s consolidated financial condition, results of operations or liquidity taken as a whole. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity taken as a whole.

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Item 1A.RISK FACTORS.

~~Other than the supplemental risk factor set forth below, the~~The Company is not aware of any material change to the risk factors as previously disclosed in Part I, Item 1A, of the Company’s ~~Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2019.~~10-K. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in Part I, Item 1A, of the Company’s ~~Annual Report on~~2020 Form 10-K, ~~for the year ended December 31, 2019,~~ which could materially and adversely affect the Company’s business, financial condition, results of operations and stock price. The risk factors disclosed in the ~~Annual Report on~~2020 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties, including those not presently known to the Company or that the Company presently believes not to be material, could also materially and adversely affect the Company’s business, financial condition, and results of operations and stock price.

~~The outbreak of the COVID-19 pandemic has caused a significant global economic~~ ~~downturn, which~~ has adversely affected, and is expected to continue to adversely affect, our business and results of operations, and the future impacts of the COVID-19 pandemic on the global economy and our business, results of operations and financial condition remain uncertain.

Global health and economic concerns relating to the COVID-19 outbreak and government actions taken to reduce the spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern the markets in which we operate, implementing numerous measures to try to contain the virus. Such measures have included travel bans and restrictions, curfews, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in the near future.
The outbreak has adversely impacted and is likely to continue to adversely impact our workforce and operations and the operations of our customers and business partners. In particular, we may experience financial losses due to a number of operational factors impacting us or our customers or business partners, including but not limited to the following:
●
Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions. The spread of COVID-19 could disrupt the business, activities, and operations of our customers, cause a decline in demand for our products and services, including loans and deposits which may result in a significant decrease in business and would negatively impact our liquidity position, and our growth strategy.
●
Our financial results could also be impacted due to an inability of our customers to meet their loan commitments due to job losses or other losses associated with impacts of the disease, and could also result in increased risk of delinquencies, defaults, foreclosures, declining collateral values and the ability of our borrowers to repay their loans resulting in losses to our Bank.
●
Based on a review of the appropriateness of the allowance for loan losses at September 30, 2020, we recorded a provision for credit losses of $12.5 million in third quarter of 2020, primarily a result of the economic deterioration of the global economy resulting from the COVID-19 pandemic. While we took steps to incorporate the impact of the COVID-19 pandemic on the economic forecast and other factors utilized to determine our allowance for loan losses, if the economic forecast or other factors worsen relative to the assumptions we utilized, our allowance for loan losses will increase accordingly in future periods.
74

~~Table of Contents~~
●
Market interest rates have declined significantly. We expect that these reductions in interest rates, especially if prolonged, could adversely affect our net interest income, margins and our profitability. Our assets and liabilities may be significantly impacted by changes in interest rates.
●
The COVID-19 pandemic restrictions have created significant volatility and disruption in the financial markets, and these conditions may require us to recognize an elevated level of other than temporary impairments on investment securities in our portfolio as issues of these securities are negatively impacted by the economic slowdown. Declines in fair value of investment securities in our portfolio could also reduce the unrealized gains reported as part of our consolidated comprehensive income (loss).
●
We are required to comply with minimum capital and leverage requirements. Our capital strategy is primarily to maintain capital levels through the COVID-19 pandemic, and our Board of Directors could determine, as appropriate, to reduce or forego dividends in order to maintain and/or strengthen our capital and liquidity position.
●
~~Current and future governmental action may temporarily require us to conduct business related to foreclosures, repossessions, payments, deferrals and other customer-related transactions differently.~~
●
~~The pandemic creates heightened risks of cyber and payment fraud, as cyber criminals try to take advantage of the disruption and increased online activity brought about by the pandemic.~~
●
Although we have established a pandemic response plan and procedures, our workforce has been, is, and may continue to be impacted by COVID-19. We are taking precautions to protect the safety and well-being of our employees and customers, including temporary branch and office closures, but no assurance can be given that our actions will be adequate or appropriate, nor can we predict the level of disruption which will occur to our employees’ ability to provide customer support and service. The spread could also negatively impact availability of key personnel and employee productivity, as well as the business and operations of third-party service providers who perform critical services for us, which could adversely impact our ability to deliver products and services to our customers.
These and other factors may exist for an extended period of time and may continue to adversely affect our business, financial condition and operations even after the COVID-19 outbreak has subsided. The extent to which the pandemic impacts our business, financial condition and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the pandemic’s duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of its economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future. Additionally, future outbreaks of COVID-19, or other viruses, may occur.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Therefore, the risk factors discussed in our Annual Report on Form 10-K and in this Form 10-Q could be heightened, changed or be added to in the future.
75

~~Table of Contents~~

~~Item~~ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
Period
(a) Total Number of Shares (or Units) Purchased
(b) Average Price Paid per Share (or Unit)
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
(a) Total Number of
Shares (or Units)
Purchased
(b) Average
Price Paid per
Share (or Unit)
(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
(d) Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that
May Yet Be Purchased
Under the Plans or
Programs
(July 1, 2020 - July 31, 2020)
0
$0.00
0
$10,713,881
(August 1, 2020 - August 31, 2020)
0
$0.00
0
$10,713,881
(September 1, 2020 - September 30, 2020)
0
$0.00
0
$10,713,881
(July 1, 2021 - July 31, 2021)
90,000
$38.26
90,000
$8,028,035
(August 1, 2021 - August 31, 2021)
210,075
$38.21
210,075
$0
(September 1, 2021 - September 30, 2021)
642,538
$39.95
642,538
$99,331,597
Total
0
$0.00
0
$10,713,881
942,613
$39.40
942,613
$99,331,597

~~For additional information, see Note 20 to the Company’s unaudited Condensed Consolidated Financial Statements.~~

For a discussion of limitations on the payment of dividends, see “Dividend Policy” and “~~Liquidit~~Liquidityy” under Part I—Item 2— “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

7682

Table of Contents

Item 3.DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4.MINE SAFETY DISCLOSURES.

Not applicable.

Item 5.OTHER INFORMATION.

None.

Item 6.EXHIBITS.

~~Exhibit 10.1~~ ~~Employment Agreement, dated as of July 16, 2020, among Cathay General Bancorp, Cathay Bank and Chang M. Liu. **+~~
~~Exhibit 10.2~~ ~~Change in Control Employment Agreement, dated as of July 16, 2020, among Cathay General Bancorp, Cathay Bank and Chang M. Liu. **+~~
Exhibit 31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
Exhibit 31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
Exhibit 32.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.++
Exhibit 32.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.++
~~Exhibit 99.1~~ ~~Press Release of Cathay General Bancorp dated July 16, 2020, announcing CEO succession.~~
Exhibit 101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*
Exhibit 101.SCH
Inline XBRL Taxonomy Extension Schema Document*
Exhibit 101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document*
Exhibit 101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document*
Exhibit 101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document*
Exhibit 101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document*
Exhibit 104
Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document*

____________________
+
Filed herewith.

++
Furnished herewith.

*
Filed electronically herewith.

**
~~Indicates a management contract or compensation plan.~~
7783

Table of Contents

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.

Cathay General Bancorp
(Registrant)
Date: November 8, 2021

~~Date: November 6, 2020~~
/s/ Chang M. Liu

Chang M. Liu
~~President and Chief Executive Officer~~

President and Chief Executive Officer
Date: November 8, 2021
~~Date: November 6, 2020~~
/s/ Heng W. Chen

Heng W. Chen
Executive Vice President and
Chief Financial Officer

7884

~~For the transition period from~~ ☐	to

~~Commission file number~~	~~001-31830~~ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		95-4274680
(State of other jurisdiction of incorporation		~~(I.R.S.~~ (I.R.S. Employer
or organization)		Identification No.)

777 North Broadway, Los Angeles, California		90012
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	CATY	Nasdaq Global Select Market

Large accelerated filer ☑	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

CATHAY GENERAL BANCORP
(Exact name of registrant as specified in its charter)

PART I – FINANCIAL INFORMATION		3
Item 1.	FINANCIAL STATEMENTS (Unaudited)	3
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	8
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	80
Item 4.	CONTROLS AND PROCEDURES.	81
PART II – OTHER INFORMATION		81
Item 1.	LEGAL PROCEEDINGS.	81
Item 1A.	RISK FACTORS.	82
Item 3.	DEFAULTS UPON SENIOR SECURITIES.	83
Item 4.	MINE SAFETY DISCLOSURES.	83
Item 5.	OTHER INFORMATION.	83
Item 6.	EXHIBITS.	83
SIGNATURES		84

~~PART I – FINANCIAL INFORMATION~~		3

~~Item 1.~~	~~FINANCIAL STATEMENTS (Unaudited)~~	3
	~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~	8
~~Item 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~	45
~~Item 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	72
~~Item 4.~~	~~CONTROLS AND PROCEDURES.~~	73

~~PART II – OTHER INFORMATION~~		73

~~Item 1.~~	~~LEGAL PROCEEDINGS.~~	73
~~Item 1A.~~	~~RISK FACTORS.~~	74
~~Item 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~	76
~~Item 3.~~	~~DEFAULTS UPON SENIOR SECURITIES.~~	77
~~Item 4.~~	~~MINE SAFETY DISCLOSURES.~~	77
~~Item 5.~~	~~OTHER INFORMATION.~~	77
~~Item 6.~~	~~EXHIBITS~~.	77

~~SIGNATURES~~		78

	September 30, 2020			December 31, 2019
	(In thousands, except share and per share data)
Assets
Cash and due from banks	$	128,896		$	177,240
Short-term investments and interest-bearing deposits		1,305,170			416,538
Cash and cash equivalents
Securities available-for-sale (amortized cost of $1,060,975 at September 30, 2020 and $1,443,730 at December 31, 2019)		1,080,540			1,451,842
Loans		15,565,779			15,075,481
Less: Allowance for loan losses		(179,130	)		(123,224	)
Unamortized deferred loan fees, net		(4,210	)		(626	)
Loans, net		15,382,439			14,951,631
Equity securities		22,964			28,005
Federal Home Loan Bank stock		17,250			18,090
Other real estate owned, net		4,918			10,244
Affordable housing investments and alternative energy partnerships, net		325,013			308,681
Premises and equipment, net		103,438			104,239
Customers’ liability on acceptances		12,973			10,694
Accrued interest receivable		57,102			53,541
Goodwill		372,189			372,189
Other intangible assets, net		5,631			6,296
Right-of-use assets - operating leases		32,591			33,990
Other assets		167,124			150,924
Total assets	$	19,018,238		$	18,094,144

Liabilities
Deposits:
Non-interest-bearing demand deposits	$	3,306,421		$	2,871,444
Interest-bearing deposits:
NOW deposits		1,767,227			1,358,152
Money market deposits		3,227,359			2,260,764
Savings deposits		784,076			758,903
Time deposits		6,949,165			7,443,045
Total deposits		16,034,248			14,692,308
Short-term borrowings		0			25,683
Advances from the Federal Home Loan Bank		230,000			670,000
Other borrowings of affordable housing investments		23,788			29,022
Long-term debt		119,136			119,136
Deferred payments from acquisition		0			7,644
Acceptances outstanding		12,973			10,694
Lease liabilities - operating leases		35,116			35,873
Other liabilities		188,254			209,501
Total liabilities		16,643,515			15,799,861
Commitments and contingencies		—			—
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized; 90,394,359 issued and 79,659,396 outstanding at September 30, 2020, and 90,064,382 issued and 79,729,419 outstanding at December 31, 2019		904			900
Additional paid-in-capital		955,742			950,466
Accumulated other comprehensive income, net		6,389			2,302
Retained earnings		1,743,106			1,659,153
Treasury stock, at cost (10,734,963 shares at September 30, 2020, and 10,334,963 shares at December 31, 2019)		(331,418	)		(318,538	)
Total equity		2,374,723			2,294,283
Total liabilities and equity	$	19,018,238		$	18,094,144

	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable, including loan fees	$	167,556		$	187,827		$	513,575		$	548,395
Investment securities		4,115			8,687			17,130			24,454
Federal Home Loan Bank stock		216			301			735			903
Deposits with banks		347			1,016			1,538			4,289
Total interest and dividend income		172,234			197,831			532,978			578,041

Interest Expense
Time deposits		26,247			40,378			92,213			113,992
Other deposits		5,761			6,626			19,671			17,591
Advances from Federal Home Loan Bank		1,251			1,661			4,119			5,976
Long-term debt		1,456			1,948			4,336			6,087
Deferred payments from acquisition		15			93			115			502
Short-term borrowings		0			125			234			198
Total interest expense		34,730			50,831			120,688			144,346

Net interest income before provision/(reversal) for credit losses		137,504			147,000			412,290			433,695
Provision/(reversal) for credit losses		12,500			(2,000	)		62,500			(2,000	)
Net interest income after provision/(reversal) for credit losses		125,004			149,000			349,790			435,695

Non-Interest Income
Net (losses)/gains from equity securities		(1,605	)		364			(1,928	)		7,764
Securities gains/(losses), net		0			(121	)		1,153			(108	)
Letters of credit commissions		1,792			1,602			4,992			4,733
Depository service fees		1,263			1,119			3,678			3,617
Other operating income		8,527			7,424			23,474			20,097
Total non-interest income		9,977			10,388			31,369			36,103

Non-Interest Expense
Salaries and employee benefits		33,341			31,915			92,477			97,200
Occupancy expense		5,295			5,579			15,435			16,617
Computer and equipment expense		3,044			2,741			8,218			8,453
Professional services expense		5,241			5,952			15,586			17,209
Data processing service expense		3,772			3,246			11,004			9,737
FDIC and regulatory assessments		1,993			2,582			6,854			7,190
Marketing expense		1,089			2,436			3,890			5,556
Other real estate owned expense/(income)		423			190			(3,229	)		839
Amortization of investments in low income housing and alternative energy partnerships		16,173			6,997			42,997			26,909
Amortization of core deposit intangibles		172			172			515			515
Other operating expense		5,454			3,770			14,672			15,871
Total non-interest expense		75,997			65,580			208,419			206,096

Income before income tax expense		58,984			93,808			172,740			265,702
Income tax expense		2,190			20,973			14,773			53,944
Net income	$	56,794		$	72,835		$	157,967		$	211,758

Other Comprehensive (Loss)/Income, net of tax
Unrealized holding (losses)/gains on securities available-for-sale		(2,496	)		1,233			8,880			21,216
Unrealized holding gains/(losses) on cash flow hedge derivatives		532			(793	)		(3,981	)		(4,119	)
Less: reclassification adjustments for gains/(losses) included in net income		0			(85	)		812			(76	)
Total other comprehensive (loss)/income, net of tax		(1,964	)		525			4,087			17,173
Total comprehensive income	$	54,830		$	73,360		$	162,054		$	228,931

Net Income Per Common Share:
Basic	$	0.71		$	0.91		$	1.98		$	2.64
Diluted	$	0.71		$	0.91		$	1.98		$	2.64
Cash dividends paid per common share	$	0.31		$	0.31		$	0.93		$	0.93
Average Common Shares Outstanding:
Basic		79,628,372			79,736,814			79,599,288			80,096,855
Diluted		79,764,318			79,993,830			79,758,943			80,330,616

								Accumulated
	Common Stock				Additional			Other									Total
	*Number of*				*Paid-in*			*Comprehensive*			*Retained*			*Treasury*			*Stockholders'*
Three months ended	*Shares*		*Amount*		*Capital*			*Income/(Loss)*			*Earnings*			*Stock*			*Equity*
	(In thousands, except share data)
Balance at June 30, 2020		79,619,984	$	903	$	953,616		$	8,353		$	1,710,994		$	(331,418	)	$	2,342,448
Dividend Reinvestment Plan		37,420		1		866			0			0			0			867
Restricted stock units vested		1,992		0		0			0			0			0			0
Shares withheld related to net share settlement of RSUs		—		0		(4	)		0			0			0			(4	)
Stock -based compensation		—		0		1,264			0			0			0			1,264
Cash dividends of $0.31 per share		—		0		0			0			(24,682	)		0			(24,682	)
Other comprehensive loss		—		0		0			(1,964	)		0			0			(1,964	)
Net income		—		0		0			0			56,794			0			56,794
Balance at September 30, 2020		79,659,396		904		955,742			6,389			1,743,106			(331,418	)		2,374,723

	September 30, 2021			December 31, 2020
	(In thousands, except share and per share data)
Assets
Cash and due from banks	$	156,287		$	138,616
Short-term investments and interest-bearing deposits		1,667,875			1,282,462
Securities available-for-sale (amortized cost of $1,073,074 at September 30, 2021 and $1,019,230 at December 31, 2020)		1,079,216			1,036,550
Loans		15,976,781			15,644,396
Less: Allowance for loan losses		(131,945	)		(166,538	)
Unamortized deferred loan fees, net		(3,835	)		(2,494	)
Loans, net		15,841,001			15,475,364
Equity securities		20,117			23,744
Federal Home Loan Bank stock		17,250			17,250
Other real estate owned, net		5,251			4,918
Affordable housing investments and alternative energy partnerships, net		313,517			309,016
Premises and equipment, net		100,344			102,998
Customers’ liability on acceptances		13,185			13,753
Accrued interest receivable		56,844			59,032
Goodwill		372,189			372,189
Other intangible assets, net		4,831			5,434
Right-of-use assets - operating leases		29,179			30,919
Other assets		183,354			170,889
Total assets	$	19,860,440		$	19,043,134
Liabilities
Deposits:
Non-interest-bearing demand deposits	$	4,024,504		$	3,365,086
Interest-bearing deposits:
NOW deposits		2,202,956			1,926,135
Money market deposits		4,132,912			3,359,191
Savings deposits		920,138			785,672
Time deposits		5,726,360			6,673,317
Total deposits		17,006,870			16,109,401
Advances from the Federal Home Loan Bank		20,000			150,000
Other borrowings of affordable housing investments		23,197			23,714
Long-term debt		119,136			119,136
Acceptances outstanding		13,185			13,753
Lease liabilities - operating leases		32,028			33,484
Other liabilities		182,733			175,502
Total liabilities		17,397,149			16,624,990
Commitments and contingencies		—			—
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized; 90,850,175 issued and 77,240,215 outstanding at September 30, 2021, and 90,643,206 issued and 79,508,265 outstanding at December 31, 2020		909			906
Additional paid-in-capital		969,719			964,734
Accumulated other comprehensive income, net		(368	)		5,310
Retained earnings		1,935,831			1,789,325
Treasury stock, at cost (13,609,960 shares at September 30, 2021, and 11,134,941 shares at December 31, 2020)		(442,800	)		(342,131	)
Total equity		2,463,291			2,418,144
Total liabilities and equity	$	19,860,440		$	19,043,134

	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable, including loan fees	$	163,948		$	167,556		$	485,162		$	513,575
Investment securities		3,707			4,115			9,963			17,130
Federal Home Loan Bank stock		258			216			730			735
Deposits with banks		714			347			1,467			1,538
Total interest and dividend income		168,627			172,234			497,322			532,978

Interest Expense
Time deposits		9,299			26,247			33,363			92,213
Other deposits		5,243			5,761			16,302			19,671
Advances from Federal Home Loan Bank		146			1,251			1,036			4,119
Long-term debt		1,455			1,456			4,318			4,336
Deferred payments from acquisition		0			15			0			115
Short-term borrowings		0			0			0			234
Total interest expense		16,143			34,730			55,019			120,688
Net interest income before provision for credit losses		152,484			137,504			442,303			412,290
Provision for credit losses		3,050			12,500			(19,508	)		62,500
Net interest income after provision for credit losses		149,434			125,004			461,811			349,790

Non-Interest Income
Net gain/(loss) from equity securities		3			(1,605	)		(3,628	)		(1,928	)
Securities losses, net		0			0			853			1,153
Letters of credit commissions		1,764			1,792			5,236			4,992
Depository service fees		1,401			1,263			4,107			3,678
Other operating income		9,048			8,527			28,231			23,474
Total non-interest income		12,216			9,977			34,799			31,369

Non-Interest Expense
Salaries and employee benefits		33,437			33,341			98,917			92,477
Occupancy expense		5,136			5,295			15,142			15,435
Computer and equipment expense		3,175			3,044			10,093			8,218
Professional services expense		6,232			5,241			16,698			15,586
Data processing service expense		3,524			3,772			10,422			11,004
FDIC and regulatory assessments		1,830			1,993			5,195			6,854
Marketing expense		945			1,089			5,270			3,890
Other real estate owned (income)/expense		(88	)		423			197			(3,229	)
Amortization of investments in low income housing and alternative energy partnerships		12,411			16,173			34,663			42,997
Amortization of core deposit intangibles		172			172			515			515
Costs associated with debt redemption		0			0			732			0
Acquisition, integration and reorganization costs		476			0			476			0
Other operating expense		4,965			5,454			15,005			14,672
Total non-interest expense		72,215			75,997			213,325			208,419

Income before income tax expense		89,435			58,984			283,285			172,740
Income tax expense		17,038			2,190			60,305			14,773
Net income	$	72,397		$	56,794		$	222,980		$	157,967

Other Comprehensive Income, net of tax
Unrealized holding (loss)/gain on securities available-for-sale		(3,232	)		(2,496	)		(7,271	)		8,880
Unrealized holding gain/(loss) on cash flow hedge derivatives		492			532			2,194			(3,981	)
Less: reclassification adjustments for losses included in net income		0			0			601			812
Total other comprehensive (loss)/gain, net of tax		(2,740	)		(1,964	)		(5,678	)		4,087
Total other comprehensive income	$	69,656		$	54,830		$	217,302		$	162,054

Net Income Per Common Share:
Basic	$	0.93		$	0.71		$	2.83		$	1.98
Diluted	$	0.93		$	0.71		$	2.82		$	1.98
Cash dividends paid per common share	$	0.31		$	0.31		$	0.93		$	0.93
Average Common Shares Outstanding:
Basic		77,846,424			79,628,372			78,841,899			79,599,288
Diluted		78,153,408			79,764,318			79,128,644			79,758,943

	Balance at		Adjustments due to			Balance at
	December 31, 2020		Adoption of ASC 326			January 1, 2021
	(In thousands)
Assets:
Allowance for credit losses on loans	$	166,538	$	(1,560	)	$	164,978
Deferred tax assets		85,610		1,319			86,929
Liabilities:
Allowance for unfunded commitments	$	5,880	$	6,018		$	11,898
Stockholders' equity:
Retained earnings, net of tax	$	2,418,144	$	(3,140	)	$	2,415,004

	Time-Based RSUs					Performance-Based RSUs					Time-Based RSUs					Performance-Based RSUs
				Weighted-Average					Weighted-Average					Weighted-Average					Weighted-Average
				Grant Date					Grant Date					Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Balance at December 31, 2019		273,200		$	35.90		297,744		$	32.65
Balance at December 31, 2020												292,670		$	33.37		302,802		$	32.55
Granted		3,013			24.89		212,369			19.66		60,666			41.11		113,764			37.13
Vested		(79,630	)		25.39		(193,240	)		21.68		(96,869	)		41.72		(76,292	)		42.56
Forfeited		(8,162	)		39.41		(14,071	)		39.08		(23,324	)		29.92		(7,768	)		40.60
Balance at September 30, 2020		188,421		$	40.01		302,802		$	30.24
Balance at September 30, 2021												233,143		$	32.26		332,506		$	31.63

	September 30, 2020								September 30, 2021
			Gross		Gross						Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*				*Amortized*		*Unrealized*		*Unrealized*
	*Cost*		*Gains*		*Losses*		*Fair Value*		*Cost*		*Gains*		*Losses*		*Fair Value*
	(In thousands)								(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	99,968	$	12	$	0	$	99,980	$	40,206	$	5	$	0	$	40,211
U.S. government agency entities		104,661		465		530		104,596		89,823		1,255		135		90,943
Mortgage-backed securities		709,756		20,045		557		729,244		798,905		12,490		6,328		805,067
Collateralized mortgage obligations		222		0		11		211		9,792		0		231		9,561
Corporate debt securities		146,368		288		147		146,509		134,348		514		1,428		133,434
Total	$	1,060,975	$	20,810	$	1,245	$	1,080,540	$	1,073,074	$	14,264	$	8,122	$	1,079,216

	September 30, 2020				September 30, 2021
	Securities Available-For-Sale				Securities Available-For-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)				(In thousands)

Due in one year or less	$	182,047	$	182,289	$	45,215	$	45,234
Due after one year through five years		44,028		44,044		117,088		115,615
Due after five years through ten years		176,079		178,429		149,474		153,657
Due after ten years		658,821		675,778		761,297		764,710
Total	$	1,060,975	$	1,080,540	$	1,073,074	$	1,079,216

	September 30, 2020
	Less than 12 Months				12 Months or Longer				Total				September 30, 2021
			Gross				Gross				Gross		Less than 12 Months				12 Months or Longer				Total
	*Fair*		*Unrealized*		*Fair*		*Unrealized*		*Fair*		*Unrealized*				Gross				Gross				Gross
	*Value*		*Losses*		*Value*		*Losses*		*Value*		*Losses*		*Fair*		*Unrealized*		*Fair*		*Unrealized*		*Fair*		*Unrealized*
	(In thousands)												*Value*		*Losses*		*Value*		*Losses*		*Value*		*Losses*
													(In thousands)
Securities Available-for-Sale
U.S. government agency entities	$	21,824	$	94	$	40,793	$	436	$	62,617	$	530	$	0	$	0	$	2,403	$	135	$	2,403	$	135
Mortgage-backed securities		1,924		20		8,944		537		10,868		557		399,470		5,632		7,038		696		406,508		6,328
Collateralized mortgage obligations		0		0		211		11		211		11		9,418		219		144		12		9,562		231
Corporate debt securities		45,762		147		0		0		45,762		147		91,870		1,144		19,716		284		111,586		1,428
Total	$	69,510	$	261	$	49,948	$	984	$	119,458	$	1,245	$	500,758	$	6,995	$	29,301	$	1,127	$	530,059	$	8,122

	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended				Nine Months Ended
	2020				2019				2020				2019				September 30, 2021				September 30, 2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)																(In thousands)

Commercial loans	$	30,346	$	148	$	38,659	$	208	$	30,723	$	242	$	41,132	$	705	$	16,379	$	0	$	22,989	$	0
Real estate construction loans		4,368		98		4,662		0		4,444		245		4,734		0		4,548		50		4,310		220
Commercial mortgage loans		40,708		268		40,699		332		37,730		966		51,323		1,034		37,017		140		37,964		297
Residential mortgage loans and equity lines		16,609		74		13,133		78		15,240		200		13,126		237		9,831		7		8,976		23
Total impaired loans	$	92,031	$	588	$	97,153	$	618	$	88,137	$	1,653	$	110,315	$	1,976
Total non-accrual loans																	$	67,775	$	197	$	74,239	$	540

	September 30, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance
Commercial loans	$	13,897	$	10,442	$	—
Real estate construction loans		7,201		5,491		—
Commercial mortgage loans		19,356		18,407		—
Residential mortgage loans and equity lines		6,989		6,813		—
Subtotal	$	47,443	$	41,153	$	—

With allocated allowance
Commercial loans	$	16,739	$	6,656	$	1,301
Commercial mortgage loans		18,664		18,561		5,229
Residential mortgage loans and equity lines		2,892		2,312		0
Subtotal	$	38,295	$	27,529	$	6,530
Total non-accrual loans	$	85,738	$	68,682	$	6,530

	September 30, 2020														September 30, 2021
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)														(In thousands)

Commercial loans	$	4,956	$	7,098	$	0	$	29,757	$	41,811	$	2,806,189	$	2,848,000	$	15,391	$	2,326	$	2,861	$	17,098	$	37,676	$	2,834,017	$	2,871,693
Real estate construction loans		19,000		2,657		0		4,335		25,992		649,120		675,112		0		0		0		5,491		5,491		682,704		688,195
Commercial mortgage loans		4,275		0		2,868		33,782		40,925		7,418,391		7,459,316		458		0		1,472		36,968		38,898		7,796,630		7,835,528
Residential mortgage loans and equity lines		212		0		0		9,317		9,529		4,572,166		4,581,695		0		2,451		0		9,125		11,576		4,566,419		4,577,995
Installment and other loans		0		0		0		0		0		1,656		1,656		8		0		0		0		8		3,362		3,370
Total loans	$	28,443	$	9,755	$	2,868	$	77,191	$	118,257	$	15,447,522	$	15,565,779	$	15,857	$	4,777	$	4,333	$	68,682	$	93,649	$	15,883,132	$	15,976,781

	Three Months Ended September 30, 2020								September 30, 2020		Three Months Ended September 30, 2021								September 30, 2021
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve		No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)										(In thousands)

Commercial loans		2	$	2,983	$	2,983	$	0	$	203		0	$	0	$	0	$	0	$	0
Residential mortgage loans and equity lines												1		479		479		0		14
Total		2	$	2,983	$	2,983	$	0	$	203		1	$	479	$	479	$	0	$	14

	Three Months Ended September 30, 2019								September 30, 2019		Nine Months Ended September 30, 2021								September 30, 2021
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve		No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)										(In thousands)

Commercial loans		3	$	7,585	$	6,165	$	0	$	89		1	$	686	$	686	$	0	$	0
Residential mortgage loans and equity lines												1		479		479		0		14
Total		3	$	7,585	$	6,165	$	0	$	89		2	$	1,165	$	1,165	$	0	$	14

	Nine Months Ended September 30, 2020								September 30, 2020
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)

Commercial loans		5	$	5,417	$	5,417	$	0	$	203
Total		5	$	5,417	$	5,417	$	0	$	203

	Nine Months Ended September 30, 2019								September 30, 2019		Nine Months Ended September 30, 2020								September 30, 2020
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve		No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)										(In thousands)

Commercial loans		23	$	25,937	$	10,814	$	0	$	125		5	$	5,417	$	5,417	$	0	$	204
Residential mortgage loans and equity lines												0		0		0		0		0
Total		23	$	25,937	$	10,814	$	0	$	125		5	$	5,417	$	5,417	$	0	$	204

	September 30, 2020								September 30, 2021
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total		Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)								(In thousands)
Accruing TDRs
Commercial loans	$	4,406	$	0	$	0	$	4,406	$	1,453	$	0	$	0	$	1,453
Commercial mortgage loans		582		5,662		13,526		19,770		441		5,552		13,114		19,107
Residential mortgage loans		1,940		284		2,187		4,411		1,726		251		1,869		3,846
Total accruing TDRs	$	6,928	$	5,946	$	15,713	$	28,587	$	3,620	$	5,803	$	14,983	$	24,406

	●
	●	Special Mention – Borrower is fundamentally sound, and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.

	●
	●	Substandard – These loans are inadequately protected by current sound net worth, paying capacity, or collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.

	●
	●	Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan), a loss classification is deferred until the situation is better defined.

	●
	●	Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

	September 30, 2020										December 31, 2020
	Pass/Watch		Special Mention		Substandard		Doubtful		Total		Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)										(In thousands)
Commercial loans	$	2,553,148	$	156,869	$	137,983	$	0	$	2,848,000	$	2,581,128	$	141,344	$	108,788	$	5,573	$	2,836,833
Real estate construction loans		548,075		122,299		4,738		0		675,112		593,196		82,010		4,286		0		679,492
Commercial mortgage loans		7,215,288		114,653		129,375		0		7,459,316		7,202,568		186,283		166,176		0		7,555,027
Residential mortgage loans and equity lines		4,571,766		212		9,717		0		4,581,695		4,547,052		11,647		11,245		0		4,569,944
Installment and other loans		1,656		0		0		0		1,656		3,100		0		0		0		3,100
Total gross loans	$	14,889,933	$	394,033	$	281,813	$	0	$	15,565,779	$	14,927,044	$	421,284	$	290,495	$	5,573	$	15,644,396

	Loans Amortized Cost Basis by Origination Year
September 30, 2021	2021		2020		2019			2018			2017		Prior			Revolving Loans			Revolving Converted to Term Loans			Total
	(In thousands)
Commercial loans
Pass/Watch	$	552,079	$	309,944	$	245,936		$	188,790		$	87,579	$	69,354		$	1,266,946		$	7,650		$	2,728,278
Special Mention		93		570		4,506			1,703			2,871		0			22,073			89			31,905
Substandard		31		6,286		21,896			16,829			13,077		5,319			39,457			6,089			108,984
Doubtful		0		0		0			0			0		0			901			0			901
Loss		0		0		0			0			0		0			0			0			0
Total	$	552,203	$	316,800	$	272,338		$	207,322		$	103,527	$	74,673		$	1,329,377		$	13,828		$	2,870,068
YTD period charge-offs	$	0	$	927	$	507		$	366		$	0	$	50		$	17,649		$	0		$	19,499
YTD period recoveries		0		0		0			(75	)		0		(169	)		(1,301	)		0			(1,545	)
Net	$	0	$	927	$	507		$	291		$	0	$	(119	)	$	16,348		$	0		$	17,954
Real estate construction loans
Pass/Watch	$	160,357	$	213,737	$	152,626		$	64,908		$	30,272	$	0		$	0		$	0		$	621,900
Special Mention		4,772		22,233		11,800			17,306			0		0			0			0			56,111
Substandard		0		0		3,344			0			0		4,066			0			0			7,410
Doubtful		0		0		0			0			0		0			0			0			0
Loss		0		0		0			0			0		0			0			0			0
Total	$	165,129	$	235,970	$	167,770		$	82,214		$	30,272	$	4,066		$	0		$	0		$	685,421
YTD period charge-offs	$	0	$	0	$	0		$	0		$	0	$	0		$	0		$	0		$	0
YTD period recoveries		0		0		0			0			0		(76	)		0			0			(76	)
Net	$	0	$	0	$	0		$	0		$	0	$	(76	)	$	0		$	0		$	(76	)
Commercial mortgage loans
Pass/Watch	$	1,256,784	$	1,266,048	$	1,284,803		$	1,089,005		$	813,707	$	1,473,901		$	177,509		$	0		$	7,361,757
Special Mention		18,826		52,416		45,281			104,703			42,329		82,614			2,499			0			348,668
Substandard		1,116		235		10,906			46,149			1,590		62,095			856			0			122,947
Doubtful		0		0		0			0			0		0			0			0			0
Loss		0		0		0			0			0		0			0			0			0
Total	$	1,276,726	$	1,318,699	$	1,340,990		$	1,239,857		$	857,626	$	1,618,610		$	180,864		$	0		$	7,833,372
YTD period charge-offs	$	0	$	0	$	0		$	0		$	0	$	0		$	0		$	0		$	0
YTD period recoveries		0		0		(180	)		0			0		(21	)		(83	)		0			(284	)
Net	$	0	$	0	$	(180	)	$	0		$	0	$	(21	)	$	(83	)	$	0		$	(284	)
Residential mortgage loans
Pass/Watch	$	722,013	$	663,292	$	731,803		$	544,362		$	474,271	$	992,504		$	0		$	0		$	4,128,245
Special Mention		0		140		4,369			1,448			839		589			0			0			7,385
Substandard		479		167		1,921			2,520			1,167		4,466			0			0			10,720
Doubtful		0		0		0			0			0		0			0			0			0
Loss		0		0		0			0			0		0			0			0			0
Total	$	722,492	$	663,599	$	738,093		$	548,330		$	476,277	$	997,559		$	0		$	0		$	4,146,350
YTD period charge-offs	$	0	$	0	$	0		$	0		$	3	$	0		$	0		$	0		$	3
YTD period recoveries		0		0		0			0			0		(208	)		0			0			(208	)
Net	$	0	$	0	$	0		$	0		$	3	$	(208	)	$	0		$	0		$	(205	)
Equity lines
Pass/Watch	$	0	$	0	$	0		$	0		$	0	$	7		$	400,991		$	31,677		$	432,675
Special Mention		0		0		0			0			0		0			0			0			0
Substandard		0		0		0			0			0		0			1,240			450			1,690
Doubtful		0		0		0			0			0		0			0			0			0
Loss		0		0		0			0			0		0			0			0			0
Total	$	0	$	0	$	0		$	0		$	0	$	7		$	402,231		$	32,127		$	434,365
YTD period charge-offs	$	0	$	0	$	0		$	0		$	0	$	0		$	0		$	0		$	0
YTD period recoveries		0		0		0			0			0		0			(8	)		(58	)		(66	)
Net	$	0	$	0	$	0		$	0		$	0	$	0		$	(8	)	$	(58	)	$	(66	)
Installment and other loans
Pass/Watch	$	2,120	$	1,250	$	0		$	0		$	0	$	0		$	0		$	0		$	3,370
Special Mention		0		0		0			0			0		0			0			0			0
Substandard		0		0		0			0			0		0			0			0			0
Doubtful		0		0		0			0			0		0			0			0			0
Loss		0		0		0			0			0		0			0			0			0
Total	$	2,120	$	1,250	$	0		$	0		$	0	$	0		$	0		$	0		$	3,370
YTD period charge-offs	$	0	$	0	$	0		$	0		$	0	$	0		$	0		$	0		$	0
YTD period recoveries		0		0		0			0			0		0			0			0			0
Net	$	0	$	0	$	0		$	0		$	0	$	0		$	0		$	0		$	0
Total loans	$	2,718,670	$	2,536,318	$	2,519,191		$	2,077,723		$	1,467,702	$	2,694,915		$	1,912,472		$	45,955		$	15,972,946
Net charge-offs/(recoveries)	$	0	$	927	$	327		$	291		$	3	$	(424	)	$	16,257		$	(58	)	$	17,323

	September 30, 2020
			Real Estate		Commercial		Residential		Installment
	*Commercial*		*Construction*		*Mortgage*		*Mortgage Loans*		*and*
	*Loans*		*Loans*		*Loans*		*and Equity Lines*		*Other Loans*		*Total*
	(In thousands)
Loans individually evaluated for impairment
Allowance	$	7,704	$	0	$	582	$	209	$	0	$	8,495
Balance	$	34,164	$	4,335	$	53,551	$	13,728	$	0	$	105,778
Loans collectively evaluated for impairment
Allowance	$	71,690	$	32,712	$	46,083	$	20,150	$	0	$	170,635
Balance	$	2,813,836	$	670,777	$	7,405,765	$	4,567,967	$	1,656	$	15,460,001
Total allowance	$	79,394	$	32,712	$	46,665	$	20,359	$	0	$	179,130
Total balance	$	2,848,000	$	675,112	$	7,459,316	$	4,581,695	$	1,656	$	15,565,779

Three months ended September 30, 2020 and 2019
								Residential
				*Real Estate*		*Commercial*		*Mortgage Loans*		*Installment*
	*Commercial*			*Construction*		*Mortgage*		*and*		*and Other*
	*Loans*			*Loans*		*Loans*		*Equity Lines*		*Loans*		*Total*
	(In thousands)

June 30, 2020 Ending Balance	$	82,256		$	26,700	$	41,132	$	19,592	$	0	$	169,680
Provision for possible credit losses		298			6,012		5,438		752		0		12,500
Charge-offs		(6,956	)		0		0		0		0		(6,956	)
Recoveries		3,796			0		95		15		0		3,906
Net (charge-offs)/recoveries		(3,160	)		0		95		15		0		(3,050	)
September 30, 2020 Ending Balance	$	79,394		$	32,712	$	46,665	$	20,359	$	0	$	179,130

Three months ended September 30, 2021 and 2020
									Residential
				*Real Estate*			*Commercial*		*Mortgage Loans*			*Installment*
	*Commercial*			*Construction*			*Mortgage*		*and*			*and Other*
	*Loans*			*Loans*			*Loans*		*Equity Lines*			*Loans*		*Total*
	(In thousands)

June 30, 2021 Ending Balance	$	40,067		$	6,119		$	58,026	$	27,043		$	1	$	131,256
Provision/(reversal) for possible credit losses		674			149			2,786		(609	)		0		3,000
Charge-offs		(2,649	)		0			0		(3	)		0		(2,652	)
Recoveries		121			76			144		0			0		341
Net (charge-offs)/recoveries		(2,528	)		76			144		(3	)		0		(2,311	)
September 30, 2021 Ending Balance	$	38,213		$	6,344		$	60,956	$	26,431		$	1	$	131,945

Allowance for unfunded credit commitments June 30, 2021	$	4,388		$	3,581		$	81	$	0		$	0	$	8,050
Provision/(reversal) for possible credit losses		329			(396	)		117		0			0		50
Allowance for unfunded credit commitments September 30, 2021	$	4,717		$	3,185		$	198	$	0		$	0	$	8,100