CATHAY GENERAL BANCORP - Quarter Report: 2023 March (Form 10-Q)

caty20230331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended

March 31, 2023

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

For the transition period from

Commission file number

001-31830

CATHAY GENERAL BANCORP

(Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number, including area code:

(213) 625-4700

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $.01 par value, 72,535,694 shares outstanding as of April 30, 2023.

Table of Contents

CATHAY GENERAL BANCORP AND SUBSIDIARIES

1^ST QUARTER 2023 REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		2
Item 1.	FINANCIAL STATEMENTS (Unaudited)	2
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	6
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
Item 4.	CONTROLS AND PROCEDURES	44
PART II – OTHER INFORMATION		45
Item 1.	LEGAL PROCEEDINGS	45
Item 1A.	RISK FACTORS	45
Item 3.	DEFAULTS UPON SENIOR SECURITIES	45
Item 4.	MINE SAFETY DISCLOSURES	45
Item 5.	OTHER INFORMATION	45
Item 6.	EXHIBITS	46
SIGNATURES		47

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Forward-Looking Statements

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:

	●	local, regional, national and international economic and market conditions and events and the impact they may have on us, our clients and our operations, assets and liabilities;
	●	the impact on our business, operations, financial condition, liquidity, results of operations, prospects and trading prices of our shares arising out of the COVID-19 pandemic and its related economic impacts;
	●	possible additional provisions for loan losses and charge-offs;
	●	credit risks of lending activities and deterioration in asset or credit quality;
	●	extensive laws and regulations and supervision that we are subject to, including potential supervisory action by bank supervisory authorities;
	●	increased costs of compliance and other risks associated with changes in regulation;
	●	higher capital requirements from the implementation of the Basel III capital standards;
	●	compliance with the Bank Secrecy Act and other money laundering statutes and regulations;
	●	potential goodwill impairment;
	●	liquidity risk;
	●	fluctuations in interest rates;
	●	risks associated with acquisitions and the expansion of our business into new markets;
	●	inflation and deflation;
	●	real estate market conditions and the value of real estate collateral;
	●	environmental liabilities;
	●	our ability to generate anticipated returns from our investments and/or financings in certain tax advantaged-projects;
	●	our ability to compete with larger competitors;

	●	our ability to retain key personnel;
	●	successful management of reputational risk;
	●	natural disasters, public health crises (including the occurrence of a contagious disease or illness) and geopolitical events;
	●	failures, interruptions, or security breaches of our information systems;
	●	our ability to adapt our systems to the expanding use of technology in banking;
	●	risk management processes and strategies;
	●	adverse results in legal proceedings;
	●	the impact of regulatory enforcement actions, if any;
	●	certain provisions in our charter and bylaws that may affect acquisition of the Company;
	●	changes in accounting standards or tax laws and regulations;
	●	market disruption and volatility;
	●	fluctuations in the Bancorp’s stock price;
	●	restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure;
	●	issuances of preferred stock;
	●	capital level requirements and successfully raising additional capital, if needed, and the resulting dilution of interests of holders of Bancorp common stock; and
	●	the soundness of other financial institutions.

These and other factors are further described in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2022 (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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PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2023			December 31, 2022
	(In thousands, except share data)
Assets
Cash and due from banks	$	252,048		$	195,440
Short-term investments and interest-bearing deposits		881,282			966,962
Securities available-for-sale (amortized cost of $1,672,440 at March 31, 2023 and $1,622,173 at December 31, 2022)		1,541,250			1,473,348
Loans		18,317,339			18,254,024
Less: Allowance for loan losses		(144,884	)		(146,485	)
Unamortized deferred loan fees, net		(5,872	)		(6,641	)
Loans, net		18,166,583			18,100,898
Equity securities		27,011			22,158
Federal Home Loan Bank stock		17,250			17,250
Other real estate owned, net		4,067			4,067
Affordable housing investments and alternative energy partnerships, net		316,475			327,128
Premises and equipment, net		93,204			94,776
Customers’ liability on acceptances		6,547			2,372
Accrued interest receivable		82,420			82,428
Goodwill		375,696			375,696
Other intangible assets, net		5,564			5,757
Right-of-use assets - operating leases		29,906			29,627
Other assets		232,298			250,069
Total assets	$	22,031,601		$	21,947,976

Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing demand deposits	$	3,748,719		$	4,168,989
Interest-bearing deposits:
NOW deposits		2,354,195			2,509,736
Money market deposits		3,014,500			3,812,724
Savings deposits		891,061			1,000,460
Time deposits		8,640,397			7,013,370
Total deposits		18,648,872			18,505,279
Advances from the Federal Home Loan Bank		360,000			485,000
Other borrowings of affordable housing investments		22,481			22,600
Long-term debt		119,136			119,136
Acceptances outstanding		6,547			2,372
Lease liabilities - operating leases		32,599			32,518
Other liabilities		299,627			307,031
Total liabilities		19,489,262			19,473,936
Commitments and contingencies		—			—
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized; 91,113,634 issued and 72,390,694 outstanding at March 31, 2023, and 91,090,614 issued and 72,742,151 outstanding at December 31, 2022		911			911
Additional paid-in-capital		983,534			981,119
Accumulated other comprehensive income/(loss), net		(91,077	)		(102,295	)
Retained earnings		2,316,258			2,244,856
Treasury stock, at cost (18,722,940 shares at March 31, 2023, and 18,348,463 shares at December 31, 2022)		(667,287	)		(650,551	)
Total equity		2,542,339			2,474,040
Total liabilities and equity	$	22,031,601		$	21,947,976

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

	Three months ended March 31,
	2023			2022
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable	$	261,179		$	166,094
Investment securities		11,764			4,828
Federal Home Loan Bank stock		304			261
Deposits with banks		12,139			763
Total interest and dividend income		285,386			171,946

Interest Expense
Time deposits		64,174			6,060
Other deposits		23,817			5,128
Advances from Federal Home Loan Bank		2,598			143
Long-term debt		1,443			1,424
Short-term debt		919			—
Total interest expense		92,951			12,755

Net interest income before provision for credit losses		192,435			159,191
Provision for credit losses		8,100			8,643
Net interest income after provision for credit losses		184,335			150,548

Non-Interest Income
Net gains from equity securities		4,853			5,974
Securities losses, net		(3,000	)		—
Letters of credit commissions		1,570			1,556
Depository service fees		1,832			1,671
Wealth management fees		3,897			4,354
Other operating income		5,092			6,677
Total non-interest income		14,244			20,232

Non-Interest Expense
Salaries and employee benefits		38,226			35,475
Occupancy expense		5,504			5,613
Computer and equipment expense		4,285			2,956
Professional services expense		7,406			6,697
Data processing service expense		3,724			2,909
FDIC and regulatory assessments		3,155			1,802
Marketing expense		774			947
Other real estate owned expense		50			71
Amortization of investments in low income housing and alternative energy partnerships		15,594			8,287
Amortization of core deposit intangibles		250			224
Acquisition, integration and restructuring costs		—			3,936
Other operating expense		4,218			3,780
Total non-interest expense		83,186			72,697

Income before income tax expense		115,393			98,083
Income tax expense		19,386			23,055
Net income	$	96,007		$	75,028

Other Comprehensive Income/(Loss), net of tax
Net holding gains/(losses) on securities available-for-sale		11,659			(45,966	)
Net holding (losses)/gains on cash flow hedge derivatives		(441	)		3,054
Total other comprehensive income/(loss), net of tax		11,218			(42,912	)
Total other comprehensive income	$	107,225		$	32,116

Net Income Per Common Share:
Basic	$	1.32		$	1.00
Diluted	$	1.32		$	0.99
Cash dividends paid per common share	$	0.34		$	0.34
Average Common Shares Outstanding:
Basic		72,533,239			75,331,976
Diluted		72,899,662			75,719,375

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

									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 December 31, 2022		72,742,151		$	911	$	981,119		$	(102,295	)	$	2,244,856		$	(650,551	)	$	2,474,040
Dividend Reinvestment Plan		23,020			—		918			—			—			—			918
Restricted stock units vested		613			—		—			—			—			—			—
Shares withheld related to net share settlement of RSUs		—			—		(14	)		—			—			—			(14	)
Purchases of treasury stock		(375,090	)		—		—			—			—			(16,736	)		(16,736	)
Stock-based compensation		—			—		1,511			—			—			—			1,511
Cash dividends of $0.34 per share		—			—		—			—			(24,605	)		—			(24,605	)
Other comprehensive income		—			—		—			11,218			—			—			11,218
Net income		—			—		—			—			96,007			—			96,007
Balance at March 31, 2023		72,390,694		$	911	$	983,534		$	(91,077	)	$	2,316,258		$	(667,287	)	$	2,542,339

									Accumulated
	Common Stock					Additional			Other									Total
	*Number of*					*Paid-in*			*Comprehensive*			*Retained*			*Treasury*			*Stockholders'*
	*Shares*			*Amount*		*Capital*			*Income/(Loss)*			*Earnings*			*Stock*			*Equity*
	(In thousands, except share data)
Balance at December 31, 2021		75,750,862		$	909	$	972,474		$	(3,065	)	$	1,985,168		$	(509,235	)	$	2,446,251
Dividend Reinvestment Plan		21,415			—		945			—			—			—			945
Restricted stock units vested		10,908			—		—			—			—			—			—
Shares withheld related to net share settlement of RSUs		—			—		(285	)		—			—			—			(285	)
Purchases of treasury stock		(704,927	)		—		—			—			—			(32,896	)		(32,896	)
Stock-based compensation		—			—		1,614			—			—			—			1,614
Cash dividends of $0.34 per share		—			—		—			—			(25,515	)		—			(25,515	)
Other comprehensive loss		—			—		—			(42,912	)		—			—			(42,912	)
Net income		—			—		—			—			75,028			—			75,028
Balance at March 31, 2022		75,078,258		$	909	$	974,748		$	(45,977	)	$	2,034,681		$	(542,131	)	$	2,422,230

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
	2023			2022
	(In thousands)
Cash Flows from Operating Activities
Net income	$	96,007		$	75,028
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		8,100			8,643
Deferred tax (benefit)/ provision		(7,293	)		3,118
Depreciation and amortization		2,054			2,112
Amortization of right-of-use asset		2,405			2,443
Change in operating lease liabilities		81			(1,744	)
Net gains on sale and transfer of other real estate owned		—			(6	)
Loss on sales or disposal of fixed assets		6			25
Amortization on alternative energy partnerships, venture capital and other investments		15,594			8,287
Net gain on sale of equity securities		(15	)		(100	)
Amortization/accretion of security premiums/discounts, net		(1,324	)		1,494
Unrealized gain on equity securities		(4,853	)		(5,874	)
Write-off of AFS debt securities		3,000			—
Stock-based compensation and stock issued to officers as compensation		1,511			1,614
Net change in accrued interest receivable and other assets		15,623			(13,309	)
Net change in other liabilities		(9,730	)		4,726
Net cash provided by operating activities		121,166			86,457

Cash Flows from Investing Activities
Purchase of investment securities available-for-sale		(156,597	)		(204,882	)
Proceeds from repayments, maturities and calls of investment securities available-for-sale		104,669			45,393
Proceeds from sale of equity securities		—			553
Purchase of Federal Home Loan Bank stock		(680	)		—
Redemption of Federal Home Loan Bank stock		680			—
Net increase in loans		(68,133	)		(413,721	)
Purchase of premises and equipment		(295	)		(1,276	)
Proceeds from sales of other real estate owned		—			307
Net (increase)/decrease in investment in affordable housing and alternative energy partnerships		(8,078	)		902
Acquisition, net of cash acquired		—			(73,882	)
Net cash used for investing activities		(128,434	)		(646,606	)

Cash Flows from Financing Activities
Increase/(decrease) in deposits		143,633			(573,720	)
Advances from Federal Home Loan Bank		(125,000	)		—
Cash dividends paid		(24,605	)		(25,515	)
Purchases of treasury stock		(16,736	)		(32,896	)
Proceeds from shares issued under Dividend Reinvestment Plan		918			945
Taxes paid related to net share settlement of RSUs		(14	)		(285	)
Net cash used by financing activities		(21,804	)		(631,471	)

Decrease in cash, cash equivalents, and restricted cash		(29,072	)		(1,191,620	)
Cash, cash equivalents, and restricted cash, beginning of the period		1,162,402			2,449,704
Cash, cash equivalents, and restricted cash, end of the period	$	1,133,330		$	1,258,084

Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	86,785		$	12,896
Income taxes paid	$	—		$	1,281
Non-cash investing and financing activities:
Net change in unrealized holding gain/(loss) on securities available-for-sale, net of tax	$	11,659		$	(45,966	)
Net change in unrealized holding (loss)/gain on cash flow hedge derivatives	$	(441	)	$	3,054

See accompanying Notes to Consolidated Financial Statements

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Business

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, 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 March 31, 2023, the Bank operates 25 branches in Southern California, 19 branches in Northern California, 9 branches in New York State, four in Washington State, two 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”).

2. Business Combinations

The Company’s subsidiary bank, Cathay Bank completed the purchase of HSBC Bank USA, National Association’s West Coast mass retail market consumer banking business and retail business banking business on February 7, 2022. As a result of the acquisition, Cathay Bank added 10 retail branches in California and additional loans with a principal balance of $646.1 million and deposits with a balance of $575.2 million.

The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the February 7, 2022 acquisition date. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. We have included the financial results of the business combinations in the Consolidated Statements of Operations and Comprehensive Income beginning on the acquisition date. The purchase accounting adjustments are preliminary and subject to finalization during the one-year measurement period from the date of the acquisition.

The fair value of the assets and the liabilities acquired as of February 7, 2022 are shown below:

	Balance Sheet
	(In thousands)
Assets:
Cash and cash equivalents	$	473
Loans		641,829
Right-of-use assets - operating leases		6,453
Core deposit intangible		3,138
Other		561
Total assets	$	652,454

Liabilities assumed:
Deposits	$	575,163
Lease liabilities		6,453
Total liabilities assumed	$	581,616
Net assets acquired	$	70,838


Total cash paid at closing	$	74,355
Goodwill	$	3,517

3. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited 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, 2023. 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, 2022 filed with the SEC on February 28, 2023 (the “2022 Form 10-K”).

The preparation of the 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 Consolidated Financial Statements. Actual results could differ from those estimates. The Company expects that the most significant estimate subject to change is the allowance for loan losses.

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4. Recent Accounting Pronouncements

Accounting Standards Adopted in 2023

In March 2022, ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 was effective for us on January 1, 2023. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in footnote 9.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 is effective for the Company on January 1, 2023. The adoption of ASU 2022-01 did not have a significant impact on our financial statements.

Other Accounting Standards Pending Adoption

In March 2023, ASU 2023-02, “Investments-Equity Method and Joint Ventures (Topic 323): Accounting for investments in tax credit structures using the proportional amortization method. ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. ASU 2023-02 is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2022, ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 will be effective for us on January 1, 2024 though early adoption is permitted. The adoption of ASU 2022-03 is not expected to have a significant impact on our financial statements.

5. 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, for the purposes of reporting cash flows, consist of cash and due from banks, short-term investments, and interest-bearing deposits. Cash and due from banks include cash on hand, cash items in transit, cash due from the Federal Reserve Bank of San Francisco (“FRBSF”) and other financial institutions. Short-term investments and interest-bearing deposits include cash placed with other banks with original maturity of three months or less.

The Company had average excess balance with FRBSF of $1.04 billion as of March 31, 2023 and $1.24 billion for the year ended December 31, 2022. As of March 31, 2023 and December 31, 2022, the Company had $71.9 million and $88.9 million, respectively, as cash margin that serves as collateral on deposit in a cash margin account for interest rate swaps of which $5.6 million and $8.2 million is restricted. As of March 31, 2023 and December 31, 2022, the Company held $23.2 million and $25.4 million, respectively, in a restricted escrow account with a major bank for its alternative energy investments.

6. 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 March 31,
	2023		2022
	(In thousands, except share and per share data)

Net income	$	96,007	$	75,028

Weighted-average shares:
Basic weighted-average number of common shares outstanding .		72,533,239		75,331,976
Dilutive effect of weighted-average outstanding common share equivalents:
RSUs		366,423		387,399
Diluted weighted-average number of common shares outstanding		72,899,662		75,719,375

Average restricted stock units with anti-dilutive effect		777		22,574
Earnings per common share:
Basic	$	1.32	$	1.00
Diluted	$	1.32	$	0.99

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7. 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.

The following table presents RSU activity during the three months ended March 31, 2023:

	Time-Based RSUs					Performance-Based RSUs
				Weighted-Average				Weighted-Average
				Grant Date				Grant Date
	Shares			Fair Value		Shares		Fair Value
Balance at December 31, 2022		202,059		$	33.29		362,965	$	31.56
Granted		—			—		—		—
Vested		(1,037	)		34.52		—		—
Forfeited		(1,395	)		42.12		—		—
Balance at March 31, 2023		199,627		$	33.22		362,965	$	31.56

The compensation expense recorded for RSUs was $1.5 million and $1.6 million for the three months ended March 31, 2023, and 2022, respectively. Unrecognized stock-based compensation expense related to RSUs was $7.4 million and $10.0 million as of March 31, 2023 and 2022, respectively. As of March 31, 2023, these costs are expected to be recognized over the next 1.5 years for time-based and performance-based RSUs.

As of March 31, 2023, 1,659,595 shares were available for future grants under the Company’s 2005 Incentive Plan, as amended and restated.

8. 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 March 31, 2023, and December 31, 2022:

	March 31, 2023
			Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*
	*Cost*		*Gains*		*Losses*		*Fair Value*
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	270,165	$	34	$	501	$	269,698
U.S. government agency entities		59,734		324		127		59,931
U.S. government sponsored entities		40,000		14		—		40,014
Mortgage-backed securities .		969,966		401		113,065		857,302
Collateralized mortgage obligations		33,877		—		2,910		30,967
Corporate debt securities		298,698		265		15,625		283,338
Total	$	1,672,440	$	1,038	$	132,228	$	1,541,250

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	December 31, 2022
			Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*
	*Cost*		*Gains*		*Losses*		*Fair Value*
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	241,611	$	—	$	1,111	$	240,500
U.S. government agency entities		63,347		384		121		63,610
U.S. government sponsored entities		30,000		—		—		30,000
Mortgage-backed securities .		993,883		194		126,983		867,094
Collateralized mortgage obligations		34,552		—		3,491		31,061
Corporate debt securities		258,780		112		17,809		241,083
Total	$	1,622,173	$	690	$	149,515	$	1,473,348

As of March 31, 2023, the amortized cost of AFS debt securities excluded accrued interest receivables of $5.9 million, which are included in “accrued interest receivable” on the Consolidated Balance Sheets. For the Company’s accounting policy related to AFS debt securities’ accrued interest receivable, see Note 1 - Summary of Significant Accounting Policies – Securities Available for Sale – Allowance for Credit Losses on Available for Sale Securities to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

The amortized cost and fair value of securities available-for-sale as of March 31, 2023, 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.

	March 31, 2023
	Securities Available-For-Sale
	Amortized Cost		Fair Value
	(In thousands)

Due in one year or less	$	350,165	$	348,984
Due after one year through five years		256,256		241,910
Due after five years through ten years		169,294		160,169
Due after ten years		896,725		790,187
Total	$	1,672,440	$	1,541,250

Equity Securities - The Company recognized a net gain of $4.9 million for the three months ended March 31, 2023, due to an increase in fair value during the quarter of equity investments with readily determinable fair values compared to a net gain of $5.9 million for the three months ended March 31, 2022. Equity securities were $27.0 million and $22.2 million as of March 31, 2023, and December 31, 2022, respectively.

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 March 31, 2023, and December 31, 2022:

	March 31, 2023
	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	$	172,306	$	501	$	—	$	—	$	172,306	$	501
U.S. government agency entities		6,617		3		1,676		124		8,293		127
Mortgage-backed securities.		127,422		4,819		709,405		108,246		836,827		113,065
Collateralized mortgage obligations		24,326		1,206		6,641		1,704		30,967		2,910
Corporate debt securities		98,411		1,589		114,663		14,036		213,074		15,625
Total	$	429,082	$	8,118	$	832,385	$	124,110	$	1,261,467	$	132,228

	December 31, 2022
	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	$	240,500	$	1,111	$	—	$	—	$	240,500	$	1,111
U.S. government agency entities		—		—		1,806		121		1,806		121
Mortgage-backed securities .		394,123		33,042		452,739		93,941		846,862		126,983
Collateralized mortgage obligations		24,427		1,614		6,634		1,877		31,061		3,491
Corporate debt securities		109,995		3,256		100,977		14,553		210,972		17,809
Total	$	769,045	$	39,023	$	562,156	$	110,492	$	1,331,201	$	149,515

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As of March 31, 2023, the Company had a total of 193 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting primarily of 158 mortgage-backed securities, and 21 Corporate debt securities. In comparison, as of December 31, 2022, the Company has a total of 195 AFS debt securities in a gross unrealized loss position with no impairment, consisting primarily of 159 mortgage-backed securities, 22 Corporate debt securities, six U.S. treasury securities, five collateralized mortgage obligations and three U.S. government agency securities.

In March 2023, the Company recorded a $3.0 million write-off of its holdings of debt securities from the failed Signature Bank.

Allowance for Credit Losses

The securities that were in an unrealized loss position at March 31, 2023, 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 1 - Summary of Significant Accounting Policies - Allowance for Credit Losses on Available for Sale Securities to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

The Company 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. 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 allowance for credit losses was recorded as of March 31, 2023, against these securities, and there was no provision for credit losses recognized for the three months ended March 31, 2023.

Securities available-for-sale having a carrying value of $144.0 million and $145.7 million as of March 31, 2023, and December 31, 2022, respectively, were pledged to secure public deposits and other borrowings.

9. Loans

Most of the Company’s business activities are with clients 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 clients 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.

The types of loans in the Company’s Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, were as follows:

	March 31, 2023			December 31, 2022
	(In thousands)

Commercial loans	$	3,153,039		$	3,318,778
Real estate construction loans		558,967			559,372
Commercial mortgage loans		8,916,766			8,793,685
Residential mortgage loans		5,384,220			5,252,952
Equity lines		298,630			324,548
Installment and other loans		5,717			4,689
Gross loans	$	18,317,339		$	18,254,024
Allowance for loan losses		(144,884	)		(146,485	)
Unamortized deferred loan fees, net		(5,872	)		(6,641	)
Total loans, net	$	18,166,583		$	18,100,898

As of March 31, 2023, recorded investment in non-accrual loans was $73.6 million. As of December 31, 2022, recorded investment in non-accrual loans totaled $68.9 million. For non-accrual loans, the amounts previously charged off represent 10.5% and 14.1% of the contractual balances for non-accrual loans as of March 31, 2023 and December 31, 2022, respectively.

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The following tables present the average recorded investment and interest income recognized on non-accrual loans for the period indicated:

	Three Months Ended
	March 31, 2023
	Average Recorded Investment		Interest Income Recognized
	(In thousands)

Commercial loans	$	23,395	$	4
Commercial mortgage loans		36,214		231
Residential mortgage loans and equity lines		9,965		—
Installment and other loans.		3		—
Total non-accrual loans	$	69,577	$	235

	Three Months Ended
	March 31, 2022
	Average Recorded Investment		Interest Income Recognized
	(In thousands)

Commercial loans	$	27,351	$	—
Commercial mortgage loans		37,909		429
Residential mortgage loans and equity lines		12,439		7
Total non-accrual loans	$	77,699	$	436

The following table presents non-accrual loans and the related allowance as of March 31, 2023 and December 31, 2022:

	March 31, 2023
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance:
Commercial loans	$	27,401	$	10,887	$	—
Commercial mortgage loans		49,927		40,218		—
Residential mortgage loans and equity lines		11,896		11,283		—
Subtotal	$	89,224	$	62,388	$	—

With allocated allowance:
Commercial loans	$	12,511	$	11,192	$	4,258
Commercial mortgage loans		—		—		—
Subtotal	$	12,511	$	11,192	$	4,258
Total non-accrual loans	$	101,735	$	73,580	$	4,258

	December 31, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance:
Commercial loans	$	27,341	$	12,949	$	—
Commercial mortgage loans		37,697		32,205		—
Residential mortgage loans and equity lines		9,626		8,978		—
Installment and other loans		9		8		—
Subtotal	$	74,673	$	54,140	$	—

With allocated allowance:
Commercial loans	$	14,643	$	12,823	$	3,734
Commercial mortgage loans		1,896		1,891		207
Subtotal	$	16,539	$	14,714	$	3,941
Total non-accrual loans	$	91,212	$	68,854	$	3,941

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The following tables present the aging of the loan portfolio by type as of March 31, 2023, and as of December 31, 2022:

	March 31, 2023
	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)
Type of Loans:
Commercial loans	$	7,623	$	272	$	100	$	22,079	$	30,074	$	3,122,965	$	3,153,039
Real estate construction loans		—		—		—		—		—		558,967		558,967
Commercial mortgage loans		19,870		—		12,656		40,218		72,744		8,844,022		8,916,766
Residential mortgage loans and equity lines.		31,998		—		—		11,283		43,281		5,639,569		5,682,850
Installment and other loans		9		10		—		—		19		5,698		5,717
Total loans	$	59,500	$	282	$	12,756	$	73,580	$	146,118	$	18,171,221	$	18,317,339

	December 31, 2022
	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)
Type of Loans:
Commercial loans	$	8,192	$	3,235	$	10,208	$	25,772	$	47,407	$	3,271,371	$	3,318,778
Real estate construction loans		—		—		—		—		—		559,372		559,372
Commercial mortgage loans		25,772		—		1,372		34,096		61,240		8,732,445		8,793,685
Residential mortgage loans and equity lines.		47,043		5,685		—		8,978		61,706		5,515,794		5,577,500
Installment and other loans		5		1		—		8		14		4,675		4,689
Total loans	$	81,012	$	8,921	$	11,580	$	68,854	$	170,367	$	18,083,657	$	18,254,024

The Company has adopted ASU 2022-02, Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in this footnote.

Under the new guidance on loan modifications made to borrowers experiencing financial difficulty, when a loan held for investment is modified and is considered to be a continuation of the original loan, the Company uses the post-modification contractual rate to derive the effective interest rate when using a discounted cash flow method to determine the allowance for credit loss.

The amendments in this new guidance eliminate the TDR recognition and measurement and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan.

Under the prior TDR guidance, 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 a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an 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 restructuring to set up interest reserves. Loans classified as TDRs were reported as individually evaluated loans.

The allowance for credit loss on a TDR was 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. Under the prior guidance when the value of a concession was measured using the discounted cash flow method, the allowance for credit loss was determined by discounting the expected future cash flows at the original interest rate of the loan.

Upon adoption of ASU 2022-02, 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 for the quantitative baseline, and include non-accrual loans, loan modifications made to borrowers experiencing financial difficulty, and other loans as deemed appropriate by management. In addition, the Company individually evaluates “reasonably expected” loan modifications made to borrowers experiencing financial difficulty, which are identified by the Company as a commercial loan expected to be classified as a loan modification made to borrowers experiencing financial difficulty. Individually evaluated loans also includes “reasonably expected” loan modifications made to borrowers experiencing financial difficulty, 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.

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If 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 December 31, 2022, under the prior TDR guidance, there were accruing TDRs of $15.1 million and non-accruing TDRs of $6.3 million. As of December 31, 2022, there were zero accruing TDRs and $427 thousand non-accruing TDRs.

The following tables set forth TDRs that were modified during the three months ended March 31, 2022, and their specific reserves and charge-offs for the three months ended March 31, 2022:

	Three Months Ended March 31, 2022								March 31, 2022
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)

Commercial loans		4	$	6,115	$	6,115	$	—	$	2,566
Residential mortgage loans and equity lines		2		346		346		—		1
Total		6	$	6,461	$	6,461	$	—	$	2,567

Modifications of the loan terms in the three months ended March 31, 2022, were in the form of extensions of maturity dates, which ranged generally from three to twelve months from the modification date, and interest rate reductions, or a combination of the two. For the three months ended March 31, 2023 there were no loan modifications made to borrowers experiencing financial difficulty.

A summary of TDRs by type of concession and by type of loan, as of December 31, 2022 is set forth in the table below:

	December 31, 2022
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs:
Commercial loans	$	2,588	$	—	$	—	$	2,588
Commercial mortgage loans		2,791		—		5,855		8,646
Residential mortgage loans		2,181		445		1,285		3,911
Total accruing TDRs	$	7,560	$	445	$	7,140	$	15,145

	December 31, 2022
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs:
Commercial loans	$	3,629	$	—	$	—	$	3,629
Commercial mortgage loans		1,098		—		—		1,098
Residential mortgage loans		1,621		—		—		1,621
Total non-accrual TDRs	$	6,348	$	—	$	—	$	6,348

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 March 31, 2023. 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 March 31, 2023, the Company did not have commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company has modified the terms of the loan in the form of principal forgiveness, an interest rate reduction, and other-than-insignificant payment delay, or a term extension in the current reporting period.

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 higher than average, but still acceptable, credit risk. The loans have sufficient sources of repayment to repay the loans in full, in accordance with all the terms and conditions and remain currently well protected by collateral values.

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	●	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.

The following table summarizes the Company’s loan held for investment as of March 31, 2023 and December 31, 2022, presented 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
March 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Converted to Term Loans		Total
	(In thousands)
Commercial loans
Pass/Watch	$	62,760	$	462,944	$	436,143	$	161,289	$	99,233	$	191,552	$	1,631,086	$	5,231	$	3,050,238
Special Mention		—		1,212		3,822		2,437		—		3,540		46,123		—		57,134
Substandard		—		59		12,530		285		3,173		6,274		20,823		820		43,964
Doubtful		—		—		—		—		—		1,406		232		—		1,638
Total	$	62,760	$	464,215	$	452,495	$	164,011	$	102,406	$	202,772	$	1,698,264	$	6,051	$	3,152,974

YTD gross writeoffs	$	—	$	164	$	760	$	145	$	2,053	$	778	$	11	$	—	$	3,911

Real estate construction loans
Pass/Watch	$	11,190	$	114,805	$	249,947	$	112,823	$	18,429	$	3,072	$	—	$	—	$	510,266
Special Mention		—		—		491		—		11,903		22,998		—		—		35,392
Substandard		—		—		—		—		1,736		9,266		—		—		11,002
Total	$	11,190	$	114,805	$	250,438	$	112,823	$	32,068	$	35,336	$	—	$	—	$	556,660

YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial mortgage loans
Pass/Watch	$	387,087	$	2,077,494	$	1,715,118	$	958,330	$	1,090,519	$	2,176,822	$	181,831	$	—	$	8,587,201
Special Mention		—		22,150		29,121		25,604		21,038		57,120		—		—		155,033
Substandard		—		12,277		12,361		14,392		19,902		107,434		2,639		—		169,005
Total	$	387,087	$	2,111,921	$	1,756,600	$	998,326	$	1,131,459	$	2,341,376	$	184,470	$	—	$	8,911,239

YTD gross writeoffs	$	—	$	—	$	208	$	—	$	—	$	3,782	$	—	$	—	$	3,990

Residential mortgage loans
Pass/Watch	$	264,586	$	1,195,811	$	950,229	$	570,344	$	586,635	$	1,800,951	$	—	$	—	$	5,368,556
Special Mention		—		459		—		489		678		2,275		—		—		3,901
Substandard		—		204		748		434		1,239		10,186		—		—		12,811
Total	$	264,586	$	1,196,474	$	950,977	$	571,267	$	588,552	$	1,813,412	$	—	$	—	$	5,385,268

YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Equity lines
Pass/Watch	$	—	$	127	$	—	$	—	$	—	$	—	$	277,548	$	20,217	$	297,892
Special Mention		—		—		—		—		—		—		11		—		11
Substandard		—		—		—		—		—		—		1,627		204		1,831
Total	$	—	$	127	$	—	$	—	$	—	$	—	$	279,186	$	20,421	$	299,734

YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Installment and other loans
Pass/Watch	$	241	$	2,573	$	2,778	$	—	$	—	$	—	$	—	$	—	$	5,592
Total	$	241	$	2,573	$	2,778	$	—	$	—	$	—	$	—	$	—	$	5,592

YTD gross writeoffs	$	—	$	6	$	—	$	—	$	—	$	—	$	—	$	—	$	6

Total loans	$	725,864	$	3,890,115	$	3,413,288	$	1,846,427	$	1,854,485	$	4,392,896	$	2,161,920	$	26,472	$	18,311,467

Total YTD gross wrieoffs	$	—	$	170	$	968	$	145	$	2,053	$	4,560	$	11	$	—	$	7,907

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	Loans Amortized Cost Basis by Origination Year
December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Converted to Term Loans		Total
	(In thousands)
Commercial loans
Pass/Watch	$	488,748	$	446,647	$	180,226	$	119,355	$	107,896	$	106,649	$	1,753,509	$	6,560	$	3,209,590
Special Mention		1,212		4,696		2,818		68		308		4,354		41,110		—		54,566
Substandard		25		12,750		342		4,859		2,766		6,985		22,084		133		49,944
Doubtful		—		—		—		1,504		2,185		—		234		—		3,923
Total	$	489,985	$	464,093	$	183,386	$	125,786	$	113,155	$	117,988	$	1,816,937	$	6,693	$	3,318,023

YTD gross writeoffs	$	96	$	587	$	120	$	71	$	1,786	$	360	$	202	$	—	$	3,222

Real estate construction loans
Pass/Watch	$	99,798	$	264,197	$	113,312	$	20,479	$	3,067	$	—	$	—	$	—	$	500,853
Special Mention		—		360		9,449		11,643		22,945		—		—		—		44,397
Substandard		—		—		—		1,736		9,309		—		—		—		11,045
Total	$	99,798	$	264,557	$	122,761	$	33,858	$	35,321	$	—	$	—	$	—	$	556,295

YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial mortgage loans
Pass/Watch	$	2,087,650	$	1,728,607	$	975,953	$	1,094,505	$	908,748	$	1,420,982	$	178,116	$	—	$	8,394,561
Special Mention		22,150		57,015		25,593		32,119		17,999		63,782		1,600		—		220,258
Substandard		12,320		7,861		14,392		19,972		34,899		81,844		2,631		—		173,919
Total	$	2,122,120	$	1,793,483	$	1,015,938	$	1,146,596	$	961,646	$	1,566,608	$	182,347	$	—	$	8,788,738

YTD gross writeoffs	$	—	$	—	$	—	$	—	$	2,091	$	—	$	—	$	—	$	2,091

Residential mortgage loans
Pass/Watch	$	1,228,391	$	964,799	$	580,990	$	600,786	$	417,565	$	1,444,320	$	—	$	—	$	5,236,851
Special Mention		—		—		33		—		752		905		—		—		1,690
Substandard		206		762		2,028		1,966		1,799		8,785		—		—		15,546
Total	$	1,228,597	$	965,561	$	583,051	$	602,752	$	420,116	$	1,454,010	$	—	$	—	$	5,254,087

YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Equity lines
Pass/Watch	$	731	$	—	$	—	$	—	$	—	$	—	$	302,825	$	21,460	$	325,016
Special Mention		5		—		—		—		—		—		—		—		5
Substandard		12		—		—		—		—		—		1,043		220		1,275
Total	$	748	$	—	$	—	$	—	$	—	$	—	$	303,868	$	21,680	$	326,296

YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Installment and other loans
Pass/Watch	$	1,792	$	2,152	$	—	$	—	$	—	$	—	$	—	$	—	$	3,944
Total	$	1,792	$	2,152	$	—	$	—	$	—	$	—	$	—	$	—	$	3,944
YTD gross writeoffs	$	115	$	—	$	—	$	—	$	—	$	—	$	62	$	—	$	177

Total loans	$	3,943,040	$	3,489,846	$	1,905,136	$	1,908,992	$	1,530,238	$	3,138,606	$	2,303,152	$	28,373	$	18,247,383

Total YTD gross wrieoffs	$	211	$	587	$	120	$	71	$	3,877	$	360	$	264	$	—	$	5,490

Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns.

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Allowance for Credit Losses

The Company has an allowance framework under ASC Topic 326 for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The forward-looking concept of current expected credit loss (“CECL”) approach requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances.

The ACL 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.

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 considers 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. 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 uses the present value of future cash flows.

Quantitative Factors

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 the fourth quarter of 2007 to the fourth quarter of 2021. Loss given default rates are computed based on the charge-offs recognized divided by the exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2021. 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 – 10^th Percentile and the Alternative Scenario 3 – Downside – 90^th Percentile forecasts. After the R&S period, the Company reverts linearly for the four-quarter reversion period to the long-term loss rates for each of the six portfolios of loans.

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 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 first eight 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.

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Qualitative Factors

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 & gas, included as part of the C&I loan portfolio, and the higher risk characteristics of purchased syndicated loans, and an adjustment to reflect the time gap between the preparation of the Moody’s forecast of future GDP, unemployment rates, CRE and home price indexes and the higher likelihood of an economic slowdown resulting from the impact of higher interest rates. 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

●

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.

Individually Evaluated Loans

When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual loans, the Company estimates the allowance for loan losses on an individual loan basis. Generally, the allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and the fair value of the collateral. For loans evaluated individually, the Company uses one of three different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; (2) the present value of expected future cash flows; and (3) the loan’s observable market price. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral less costs to sell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of future cash flows or the observable market value of the loan.

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 10 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 a three-year 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.

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The following tables set forth activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2023, and March 31, 2022.

									Residential
				*Real Estate*		*Commercial*			*Mortgage Loans*			*Installment*
	*Commercial*			*Construction*		*Mortgage*			*and*			*and Other*
	*Loans*			*Loans*		*Loans*			*Equity Lines*			*Loans*			*Total*
	(In thousands)
Allowance for Loan Losses:
January 1, 2023 Beginning Balance	$	49,435		$	10,417	$	68,366		$	18,232		$	35		$	146,485
(Reversal)/provision for credit losses on loans		(60	)		483		3,463			(611	)		(20	)		3,255
Charge-offs		(3,911	)		—		(3,990	)		—			(6	)		(7,907	)
Recoveries		511			—		2,528			12			—			3,051
Net (charge-offs)/recoveries		(3,400	)		—		(1,462	)		12			(6	)		(4,856	)
March 31, 2023 Ending Balance	$	45,975		$	10,900	$	70,367		$	17,633		$	9		$	144,884

Allowance for unfunded credit commitments:
January 1, 2023 Beginning Balance	$	4,840		$	3,890	$	—		$	—		$	—		$	8,730
Provision for credit losses on unfunded credit commitments		3,435			1,325		85			—			—			4,845
March 31, 2023 Ending Balance	$	8,275		$	5,215	$	85		$	—		$	—		$	13,575

									Residential
				*Real Estate*			*Commercial*		*Mortgage Loans*		*Installment*
	*Commercial*			*Construction*			*Mortgage*		*and*		*and Other*
	*Loans*			*Loans*			*Loans*		*Equity Lines*		*Loans*		*Total*
Allowance for Loan Losses:	(In thousands)
January 1, 2022 Beginning Balance	$	43,394		$	6,302		$	61,081	$	25,379	$	1	$	136,157
Provision for credit losses on loans		1,206			1,128			2,702		4,200		103		9,339
Charge-offs		(221	)		—			—		—		—		(221	)
Recoveries		359			6			95		51		—		511
Net recoveries		138			6			95		51		—		290
March 31, 2022 Ending Balance	$	44,738		$	7,436		$	63,878	$	29,630	$	104	$	145,786

Allowance for unfunded credit commitments:
January 1, 2022 Beginning Balance		3,725			3,375			—		—		—	$	7,100
Reversal for credit losses on unfunded credit commitments		(548	)		(148	)		—		—		—		(696	)
March 31, 2022 Ending Balance	$	3,177		$	3,227		$	—	$	—	$	—	$	6,404

10. 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 clients. 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 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.

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The Company’s unfunded commitments related to investments in qualified affordable housing and alternative energy partnerships were $126.2 million and $133.5 million as of March 31, 2023, and December 31, 2022, respectively.

11. Borrowed Funds

Borrowings from the Federal Home Loan Bank (“FHLB”) – There were no over-night borrowings from the FHLB as of March 31, 2023, and $150.0 million in over-night borrowings as of December 31, 2022. Advances from the FHLB were $360.0 million at a weighted average rate of 5.0% as of March 31, 2023, and $335.0 million at a weighted average rate of 4.54% as of December 31, 2022. As of March 31, 2023, final maturity for the FHLB advances were $275.0 million in April 2023, $70.0 million in May 2023 and $15.0 million in September 2024. Our unused borrowing capacity from the Federal Home Loan Bank as of March 31, 2023 was $6.55 billion and unpledged securities at March 31, 2023 was $1.40 billion.

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.

At March 31, 2023, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 7.04%, compared to $119.1 million with a weighted average rate of 4.01% at December 31, 2022. The Junior Subordinated Notes have a stated maturity term of 30 years.

12. Income Taxes

The effective tax rate for the first three months of 2023 was 16.8% compared to 23.5% for the first three months of 2022. The effective tax rate includes the impact of low-income housing and alternative energy investment tax credits.

The Company’s tax returns are open for audit by the Internal Revenue Service back to 2020 and by the California Franchise Tax Board back to 2019.

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.

13. Fair Value Measurements and Fair Value of Financial Instruments

The Company 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 financial instruments not recorded at fair value. The fair value of the 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.

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 and 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.

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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 – The Company measures the fair value of interest rate swaps using third party models with observable market data, a Level 2 measurement.

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 March 31, 2023 and December 31, 2022:

	March 31, 2023
	Fair Value Measurements Using						Total at
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities available-for-sale
U.S. Treasury securities	$	269,698	$	—	$	—	$	269,698
U.S. government agency entities		—		59,931		—		59,931
U.S. government sponsored entities		—		40,014		—		40,014
Mortgage-backed securities.		—		857,302		—		857,302
Collateralized mortgage obligations.		—		30,967		—		30,967
Corporate debt securities		—		283,338		—		283,338
Total securities available-for-sale		269,698		1,271,552		—		1,541,250

Equity securities
Mutual funds		1,047		—		—		1,047
Preferred stock of government sponsored entities.		5,597		—		—		5,597
Other equity securities		20,367		—		—		20,367
Total equity securities		27,011		—		—		27,011

Interest rate swaps		—		49,620		—		49,620
Foreign exchange contracts		—		975		—		975
Total assets	$	296,709	$	1,322,147	$	—	$	1,618,856

Liabilities
Interest rate swaps	$	—	$	42,027	$	—	$	42,027
Foreign exchange contracts		—		429		—		429
Total liabilities	$	—	$	42,456	$	—	$	42,456

	December 31, 2022
	Fair Value Measurements Using						Total at
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities available-for-sale
U.S. Treasury securities	$	240,500	$	—	$	—	$	240,500
U.S. government agency entities		—		63,610		—		63,610
U.S. government sponsored entities		—		30,000		—		30,000
Mortgage-backed securities.		—		867,094		—		867,094
Collateralized mortgage obligations.		—		31,061		—		31,061
Corporate debt securities		—		241,083		—		241,083
Total securities available-for-sale		240,500		1,232,848		—		1,473,348

Equity securities
Mutual funds		5,509		—		—		5,509
Preferred stock of government sponsored entities.		1,289		—		—		1,289
Other equity securities		15,360		—		—		15,360
Total equity securities		22,158		—		—		22,158

Warrants		—		—		50		50
Interest rate swaps		—		44,443		—		44,443
Foreign exchange contracts		—		448		—		448
Total assets	$	262,658	$	1,277,739	$	50	$	1,540,447

Liabilities
Interest rate swaps	$	—	$	51,864	$	—	$	51,864
Foreign exchange contracts		—		942		—		942
Total liabilities	$	—	$	52,806	$	—	$	52,806

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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 March 31, 2023, and December 31, 2022, 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.

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the Consolidated Balance Sheets as of March 31, 2023, 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 March 31, 2023, and December 31, 2022, and the total losses for the periods indicated:

	As of March 31, 2023								Total Losses
	Fair Value Measurements Using						Total at		For the Three Months Ended
	Level 1		Level 2		Level 3		Fair Value		March 31, 2023		March 31, 2022
	(In thousands)
Assets
Non accrual loans by type:
Commercial loans	$	—	$	—	$	11,032	$	11,032	$	2,793	$	—
Commercial mortgage loans		—		—		7,907		7,907		3,990		—
Residential mortgage loans and equity lines		—		—		—		—		—		—
Total non accrual loans		—		—		18,939		18,939		6,783		—
Other real estate owned ⁽¹⁾		—		—		4,328		4,328		—		—
Investments in venture capital		—		—		561		561		—		—
Total assets	$	—	$	—	$	23,828	$	23,828	$	6,783	$	—

(1) Other real estate owned balance of $4.1 million in the Consolidated Balance Sheets is net of estimated disposal costs.

	As of December 31, 2022								Total Losses
	Fair Value Measurements Using						Total at		For the Twelve Months Ended
	Level 1		Level 2		Level 3		Fair Value		December 31, 2022		December 31, 2021
	(In thousands)
Assets
Non accrual loans by type:
Commercial loans	$	—	$	—	$	12,950	$	12,950	$	1,786	$	1,012
Commercial mortgage loans		—		—		32,205		32,205		2,091		—
Residential mortgage loans and equity lines		—		—		8,978		8,978		—		—
Installment and other loans		—		—		8		8		—		—
Total non accrual loans		—		—		54,141		54,141		3,877		1,012
Other real estate owned ⁽¹⁾		—		—		4,328		4,328		—		17
Investments in venture capital .		—		—		689		689		268		143
Total assets	$	—	$	—	$	59,158	$	59,158	$	4,145	$	1,172

(1) Other real estate owned balance of $4.1 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 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.

The fair value of 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 individually evaluated loans are recorded based on the current appraised value of the collateral, a Level 2 measurement, or management’s judgment and estimation of value using discounted future cash flows or old appraisals which are then adjusted based on recent market trends, a Level 3 measurement.

The significant unobservable inputs (Level 3) 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 individually evaluated loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO.

The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are their expected life ranging from one to five years, risk-free interest rate from 4.25% to 5.11%, and stock volatility from 20.14% to 27.69% as of December 31, 2022.

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 March 31, 2023, and December 31, 2022:

	March 31, 2023				December 31, 2022
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Financial Assets
Cash and due from banks	$	252,048	$	252,048	$	195,440	$	195,440
Short-term investments		881,282		881,282		966,962		966,962
Securities available-for-sale		1,541,250		1,541,250		1,473,348		1,473,348
Loans, net		18,166,583		18,195,465		18,100,898		17,944,588
Equity securities		27,011		27,011		22,158		22,158
Investment in Federal Home Loan Bank stock		17,250		17,250		17,250		17,250
Warrants		—		—		50		50

	Notional				Notional
	Amount		Fair Value		Amount		Fair Value
Foreign exchange contracts	$	234,733	$	975	$	72,996	$	448
Interest rate swaps		933,688		49,620		817,615		44,443

	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Liabilities
Deposits	$	18,648,872	$	18,798,687	$	18,505,279	$	18,572,387
Advances from Federal Home Loan Bank		360,000		358,334		485,000		482,737
Other borrowings		22,481		18,461		22,600		18,385
Long-term debt		119,136		61,939		119,136		68,231

	Notional				Notional
	Amount		Fair Value		Amount		Fair Value
Foreign exchange contracts.	$	42,753	$	429	$	170,213	$	942
Interest rate swaps		592,514		42,027		595,426		51,864

	Notional					Notional
	Amount		Fair Value			Amount		Fair Value
Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	3,806,329	$	(13,896	)	$	3,630,304	$	(14,797	)
Standby letters of credit		332,575		(2,825	)		315,821		(2,738	)
Other letters of credit		9,073		(8	)		29,416		(33	)

The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of March 31, 2023, and December 31, 2022.

	As of March 31, 2023
	Estimated
	Fair Value
	Measurements		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets
Cash and due from banks	$	252,048	$	252,048	$	—	$	—
Short-term investments.		881,282		881,282		—		—
Securities available-for-sale		1,541,250		269,698		1,271,552		—
Loans, net		18,195,465		—		—		18,195,465
Equity securities		27,011		27,011		—		—
Investment in Federal Home Loan Bank stock		17,250		—		17,250		—
Financial Liabilities
Deposits		18,798,687		—		—		18,798,687
Advances from Federal Home Loan Bank		358,334		—		358,334		—
Other borrowings		18,461		—		—		18,461
Long-term debt		61,939		—		61,939		—

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	As of December 31, 2022
	Estimated
	Fair Value
	Measurements		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets
Cash and due from banks	$	195,440	$	195,440	$	—	$	—
Short-term investments.		966,962		966,962		—		—
Securities available-for-sale		1,473,348		240,500		1,232,848		—
Loans, net		17,944,588		—		—		17,944,588
Equity securities		22,158		22,158		—		—
Investment in Federal Home Loan Bank stock		17,250		—		17,250		—
Warrants		50		—		—		50
Financial Liabilities
Deposits		18,572,387		—		—		18,572,387
Advances from Federal Home Loan Bank		482,737		—		482,737		—
Other borrowings		18,385		—		—		18,385
Long-term debt		68,231		—		68,231		—

14. Goodwill and Other Intangible Assets

Goodwill. Total goodwill was $375.7 million as of March 31, 2023 and remains unchanged compared with December 31, 2022. The Company completed its annual goodwill impairment testing and concluded that goodwill was not impaired as of December 31, 2022. Additionally, the Company reviewed the macroeconomic conditions on its business performance and market capitalization as a result of the banking industry market disruptions during the first quarter and concluded that goodwill was not impaired as of March 31, 2023.

Core Deposit Intangibles. As a result of the acquisition of HSBC’s West Coast mass retail market consumer banking business and retail business banking business, the Company added core deposit intangible of $3.1 million in 2022.

The following table presents the gross carrying amount and accumulated amortization of core deposits intangible assets as of March 31, 2023 and December 31, 2022:

	March 31, 2023			December 31, 2022
	(In thousands)
Gross balance	$	10,562		$	10,562
Accumulated amortization		(5,459	)		(4,291	)
Impairment.		—			(918	)
Net carrying balance	$	5,103		$	5,353

There were no impairment write-downs on core deposit intangibles for the three months ended March 31, 2023. There was $918 thousand in impairment write-downs recorded on core deposit intangibles for the year ended December 31, 2022 included in amortization of core deposit intangibles on the Consolidated Statements of Operations and Comprehensive Income.

The Company amortizes the core deposit intangibles based on the projected useful lives of the related deposits. The amortization expense related to the core deposit intangible assets was $250 thousand and $224 thousand for the three months ended March 31, 2023 and 2022, respectively.

	Amount
	(In thousands)
2023	$	1,001
2024		1,001
2025		914
2026		870
2027		870
Thereafter.		447
Total	$	5,103

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15. Financial Derivatives

The Company does not speculate on the future direction of interest rates. As part of the Company’s asset and liability management, however, the Company enters into financial derivatives to seek to mitigate exposure to interest rate risks related to its interest-earning assets and interest-bearing liabilities. The Company believes 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, the Company may protect its position. Other hedging transactions may be implemented using interest rate swaps, interest rate caps, floors, financial futures, forward rate agreements, and options on futures or bonds. Prior to considering any hedging activities, the Company seeks to analyze the costs and benefits of the hedge in comparison to other viable alternative strategies. All hedges will require an assessment of basis risk and must be approved by the Bancorp or 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 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 clients. When derivative transactions are executed with its clients, 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 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 clients 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. As of March 31, 2023 and December 31, 2022, the Company had outstanding interest rate derivative contracts with certain clients and third-party financial institutions with a notional amount of $592.5 million and $595.4 million, respectively. As of March 31, 2023 and December 31, 2022, the notional amount of $20.5 million and $205.6 million of interest rate swaps cleared through the CCP, respectively. Applying variation margin payments as settlement to CCP cleared derivative transactions resulted in a reduction in derivative asset fair values of $1.6 million as of March 31, 2023 and $20.2 million as of December 31, 2022. The decrease in interest rate swaps cleared through the CCP is a result of the Company moving to SOFR based swaps and no longer entering into Libor based swaps that are cleared through CCP.

In May 2014, 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 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. The Company early terminated these cash flow derivative swaps in 2022 and realized a gain of $4.0 million for the year ended December 31, 2022 and is recognizing the amount as a reduction of long-term debt interest expense over the remaining life of the swaps on a straight-line basis. As of December 31, 2022, the ineffective portion of these interest rate swaps was not significant. The periodic net settlement of the interest rate swaps included in interest expense was a net gain of $689 thousand for the three months ended March 31, 2022.

As of March 31, 2023, the Bank’s outstanding fair value interest rate swap contracts matched to individual fixed-rate commercial real estate loans had a notional amount of $138.2 million for various terms from three to ten years. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial real estate 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 March 31, 2023 and 2022, the ineffective portion of these interest rate swaps was not significant.

The Company has designated as a partial-term hedging election $669.2 million notional as last-of-layer hedge on pools of loans with a notational value of $1.19 billion as of March 31, 2023. 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 these pay-fixed and receive 1-Month LIBOR or 1-Month Term SOFR interest rate swaps to convert the last-of-layer $669.2 million portion of $1.19 billion fixed rate loan pools in order to reduce the Company’s exposure to higher interest rates for the last-of-layer tranches. As of March 31, 2023, the last-of-layer loan tranche had a fair value basis adjustment of $23.7 million. 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 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. 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. There was no cash collateral deposit posted by Bancorp related to fair value derivative contracts as of March 31, 2023 or December 31, 2022.

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The notional amount and net unrealized loss of the Company’s fair value derivative financial instruments as of March 31, 2023, and December 31, 2022, were as follows:

	March 31, 2023			December 31, 2022
Fair value swap hedges:	(In thousands)
Notional	$	807,332		$	874,034
Weighted average fixed rate-pay		1.92	%		2.12	%
Weighted average variable rate spread		0.44	%		0.68	%
Weighted average variable rate-receive		5.04	%		2.61	%

Net unrealized gain⁽¹⁾	$	29,815		$	38,589

	Three months ended
	March 31, 2023		March 31, 2022
Periodic net settlement of swaps ⁽²⁾	$	6,336	$	(1,762	)

(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.

Included in the total notional amount of $807.3 million of the fair value interest rate contracts entered into with financial counterparties as of March 31, 2023, was a notional amount of $448.7 million of interest rate swaps that cleared through the CCP. Applying variation margin payments as settlement to CCP cleared derivative transactions resulted in a reduction in derivative asset fair values of $22.2 million as of March 31, 2023.

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 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 March 31, 2023, and December 31, 2022, not including interest rate swaps cleared through the CCP, were as follows:

	March 31, 2023			December 31, 2022
	(In thousands)
Derivative financial instruments not designated as hedging instruments:
Notional amounts:
Forward, and swap contracts with positive fair value	$	234,733		$	72,996
Forward, and swap contracts with negative fair value	$	42,753		$	170,213
Fair value:
Forward, and swap contracts with positive fair value	$	975		$	448
Forward, and swap contracts with negative fair value	$	(429	)	$	(942	)

16. Balance Sheet Offsetting

Certain financial instruments, including resell and repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the 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 Consolidated Balance Sheets, as of March 31, 2023, and December 31, 2022, 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
March 31, 2023	(In thousands)
Assets:
Derivatives	$	71,840	$	22,220	$	49,620	$	—	$	49,620	$	—

Liabilities:
Derivatives	$	42,027	$	—	$	42,027	$	—	$	—	$	42,027

December 31, 2022
Assets:
Derivatives	$	90,451	$	46,008	$	44,443	$	—	$	42,930	$	1,513

Liabilities:
Derivatives	$	51,864	$	—	$	51,864	$	—	$	—	$	51,864

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17. Revenue from Contracts with Clients

The following is a summary of revenue from contracts with clients that are in-scope and not in-scope under ASC Topic 606:

	Three months Ended March 31,
	2023		2022
	(In thousands)
Non-interest income, in-scope:
Fees and service charges on deposit accounts	$	2,519	$	2,410
Wealth management fees		3,897		4,354
Other service fees⁽¹⁾		3,544		4,069
Total noninterest income		9,960		10,833

Noninterest income, not in-scope⁽²⁾		4,284		9,399
Total noninterest income	$	14,244	$	20,232

	(1)	Other service fees comprise 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 Topic 606.

The major revenue streams by fee type that are within the scope of ASC Topic 606 presented in the above table are 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 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 clients 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 clients 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 nature of the contracts, the Company also applies the practical expedient in ASC 606-10-32-18 and does not adjust the consideration from clients 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 client pays for that good or service is one year or less.

18. Stockholders’ Equity

Total equity was $2.54 billion as of March 31, 2023, an increase of $68.3 million, from $2.47 billion as of December 31, 2022, primarily due to net income of $96.0 million, other comprehensive income of $11.2 million, stock-based compensation of $1.5 million and proceeds from dividend reinvestment of $0.9 million, offset by, common stock cash dividends of $24.6 million and purchase of treasury stock of $16.7 million.

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Activity in accumulated other comprehensive income/(loss), net of tax, and reclassification out of accumulated other comprehensive income/(loss) for the three months ended March 31, 2023, and March 31, 2022, was as follows:

	Three months ended March 31, 2023									Three months ended March 31, 2022
	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							$	(104,832	)							$	211
Cash flow hedge derivatives								2,537									(3,276	)
Total							$	(102,295	)							$	(3,065	)

Net unrealized gains/(losses) arising during the period
Securities available-for-sale	$	13,552		$	4,006		$	9,546		$	(65,256	)	$	(19,290	)	$	(45,966	)
Cash flow hedge derivatives		(626	)		(185	)		(441	)		4,336			1,282			3,054
Total	$	12,926		$	3,821		$	9,105		$	(60,920	)	$	(18,008	)	$	(42,912	)

Reclassification adjustment for net losses in net income
Securities available-for-sale		3,000			887			2,113			—			—			—
Cash flow hedge derivatives		—			—			—			—			—			—
Total		3,000			887			2,113			—			—			—

Total other comprehensive income/(loss)
Securities available-for-sale	$	16,552		$	4,893		$	11,659		$	(65,256	)	$	(19,290	)	$	(45,966	)
Cash flow hedge derivatives		(626	)		(185	)		(441	)		4,336			1,282			3,054
Total	$	15,926		$	4,708		$	11,218		$	(60,920	)	$	(18,008	)	$	(42,912	)

Ending balance, gain/(loss), net of tax
Securities available-for-sale							$	(93,173	)							$	(45,755	)
Cash flow hedge derivatives								2,096									(222	)
Total							$	(91,077	)							$	(45,977	)

19. Stock Repurchase Program

On February 21, 2023, the Company completed its May 2022 stock buyback program by repurchasing 375,090 shares at an average cost of $44.20 in Q1 2023, for a total of $16.6 million.

20. Subsequent Events

The Company has evaluated the effect of events that have occurred subsequent to March 31, 2023, through the date of issuance of the 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 Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial Statements.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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, 2022.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon its unaudited Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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 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 2022 Form 10-K. For more information, please also see Note 3 to the Company’s unaudited Consolidated Financial Statements.

Highlights

●	Total deposits increased by $143.6 million, or 3.1% annualized, to $18.6 billion in the first quarter of 2023.
●	The net interest margin decreased to 3.74% in the first quarter of 2023 from 3.87% in the fourth quarter of 2022.
●	Diluted earnings per share decreased to $1.32 in the first quarter 2023 compared to $1.33 for the fourth quarter of 2022.

Quarterly Statement of Operations Review

Net Income

Net income for the quarter ended March 31, 2023, was $96.0 million, an increase of $21.0 million, or 28.0%, compared to net income of $75.0 million for the same quarter a year ago. Diluted earnings per share for the quarter ended March 31, 2023, was $1.32 per share compared to $0.99 per share for the same quarter a year ago.

Return on average stockholders’ equity was 15.39% and return on average assets was 1.76% for the quarter ended March 31, 2023, compared to a return on average stockholders’ equity of 12.29% and a return on average assets of 1.46% for the same quarter a year ago.

Financial Performance

	Three months ended
	March 31, 2023			March 31, 2022
Net income (in millions)	$	96.0		$	75.0
Basic earnings per common share	$	1.32		$	1.00
Diluted earnings per common share	$	1.32		$	0.99
Return on average assets		1.76	%		1.46	%
Return on average total stockholders' equity		15.39	%		12.29	%
Efficiency ratio		40.25	%		40.52	%

Net Interest Income Before Provision for Credit Losses

Net interest income before provision for credit losses increased $33.2 million, or 20.9%, to $192.4 million during the first quarter of 2023, compared to $159.2 million during the same quarter a year ago. The increase was due primarily to an increase in interest income from loans and securities offset, in part, by an increase in interest expense from deposits.

The net interest margin was 3.74% for the first quarter of 2023 compared to 3.26% for the first quarter of 2022 and 3.87% for the fourth quarter of 2022.

For the first quarter of 2023, the yield on average interest-earning assets was 5.54%, the cost of funds on average interest-bearing liabilities was 2.46%, and the cost of interest-bearing deposits was 2.40%. In comparison, for the first quarter of 2022, the yield on average interest-earning assets was 3.53%, the cost of funds on average interest-bearing liabilities was 0.38%, and the cost of interest-bearing deposits was 0.33%. The increase in the yield on average interest-earning assets resulted mainly from higher interest rates on loans and securities. 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 3.08% for the quarter ended March 31, 2023 compared to 3.15% 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 March 31, 2023, and 2022. Average outstanding amounts included in the table are daily averages.

	Interest-Earning Assets and Interest-Bearing Liabilities
	Three months ended March 31,
	2023								2022
				Interest		Average						Interest		Average
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate ⁽¹⁾⁽²⁾			Balance			Expense		Rate ⁽¹⁾⁽²⁾
	(In thousands)
Interest-earning assets:
Total loans ⁽¹⁾	$	18,245,488		$	261,179		5.81	%	$	16,939,787		$	166,094		3.98	%
Investment securities		1,548,841			11,764		3.08			1,174,245			4,828		1.67
Federal Home Loan Bank stock		17,276			304		7.14			17,250			261		6.14
Interest-bearing deposits		1,070,188			12,139		4.60			1,650,702			763		0.19
Total interest-earning assets		20,881,793			285,386		5.54			19,781,984			171,946		3.53
Non-interest earning assets:
Cash and due from banks		216,794								162,707
Other non-earning assets		1,153,002								1,060,916
Total non-interest earning assets		1,369,796								1,223,623
Less: Allowance for loan losses		(146,884	)							(136,555	)
Deferred loan fees		(6,274	)							(4,521	)
Total assets	$	22,098,431							$	20,864,531

Interest-bearing liabilities:
Interest-bearing demand deposits	$	2,354,531		$	6,531		1.12	%	$	2,400,010		$	481		0.08	%
Money market deposits		3,378,257			17,045		2.05			4,815,578			4,460		0.38
Savings deposits		938,485			241		0.10			1,076,690			187		0.07
Time deposits		8,225,215			64,174		3.16			5,289,313			6,060		0.46
Total interest-bearing deposits		14,896,488			87,991		2.40			13,581,591			11,188		0.33

Other borrowings		321,522			3,517		4.44			43,143			143		1.34
Long-term debt		119,136			1,443		4.91			119,136			1,424		4.85
Total interest-bearing liabilities		15,337,146			92,951		2.46			13,743,870			12,755		0.38

Non-interest bearing liabilities:
Demand deposits		3,958,533								4,360,392
Other liabilities		272,033								314,857
Total equity		2,530,719								2,445,412
Total liabilities and equity	$	22,098,431							$	20,864,531

Net interest spread							3.08	%							3.15	%
Net interest income				$	192,435							$	159,191
Net interest margin							3.74	%							3.26	%

(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 March 31, 2023 and 2022:

Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate⁽¹⁾
	Three months ended March 31,
	2023-2022
	Increase/(Decrease) in
	Net Interest Income Due to:
	Changes in Volume			Changes in Rate		Total Change
	(In thousands)
Interest-earning assets:
Loans	$	13,647		$	81,438	$	95,085
Investment securities		1,897			5,039		6,936
Federal Home Loan Bank stock		—			43		43
Deposits with other banks .		(369	)		11,745		11,376
Total changes in interest income		15,175			98,265		113,440

Interest-bearing liabilities:
Interest-bearing demand accounts		(10	)		6,058		6,048
Money market accounts		(1,738	)		14,324		12,586
Savings accounts .		(27	)		82		55
Time deposits		5,068			53,046		58,114
Other borrowed funds		2,484			890		3,374
Long-term debts		—			19		19
Total changes in interest expense		5,777			74,419		80,196

Changes in net interest income .	$	9,398		$	23,846	$	33,244

(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.

Provision for credit losses

The Company recorded a provision for credit losses of $8.1 million in the first quarter of 2023 compared with $1.4 million in the fourth quarter of 2022 and $8.6 million in the first quarter of 2022. As of March 31, 2023, the allowance for credit losses, comprised of the reserve for loan losses and the reserve for unfunded loan commitments, increased $3.3 million to $158.5 million, or 0.87% of gross loans, compared to $155.2 million, or 0.85% of gross loans, as of December 31, 2022. The change in the allowance for credit losses during the first quarter of 2023 consisted of an $8.1 million provision for credit losses, and $4.9 million in net charge-offs.

The following table sets forth the charge-offs and recoveries for the periods indicated:

	Three months ended March 31,
	2023		2022
	(In thousands)
Charge-offs:
Commercial loans	$	3,911	$	221
Real estate loans ⁽¹⁾		3,990		—
Installment and other loans		6		—
Total charge-offs		7,907		221
Recoveries:
Commercial loans		511		359
Real estate Construction loans		—		6
Real estate loans ⁽¹⁾		2,540		146
Total recoveries		3,051		511
Net charge-offs/(recoveries)	$	4,856	$	(290	)

(1) Real estate loans include commercial mortgage loans, residential mortgage loans, and equity lines.

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Non-Interest Income

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wealth management fees, and other sources of fee income, was $14.2 million for the first quarter of 2023, a decrease of $6.0 million, or 29.7%, compared to $20.2 million for the first quarter of 2022. The decrease was primarily due to a $3.0 million write-off of an available for sale security from Signature Bank, a decrease of $1.4 million in swap dealer fees, and a decrease of $1.0 million in unrealized gains on equity securities, when compared to the same quarter a year ago.

Non-Interest Expense

Non-interest expense increased $10.5 million, or 14.4%, to $83.2 million in the first quarter of 2023 compared to $72.7 million in the same quarter a year ago. The increase in non-interest expense in the first quarter of 2023 was primarily due to an increase of $7.3 million in amortization expense of investments in low-income housing and alternative energy partnerships, an increase of $2.8 million in salaries and employee benefits, an increase of $1.4 million in FDIC deposit insurance assessment expense, and an increase of $1.3 million in computer and equipment expense offset, in part, by a decrease of $3.9 million in acquisition, integration and restructuring costs, when compared to the same quarter a year ago. The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, was 40.3% in the first quarter of 2023 compared to 40.5% for the same quarter a year ago.

Income Taxes

The effective tax rate for the first quarter of 2023 was 16.8% compared to 23.5% for the first quarter of 2022. The effective tax rate includes the impact of alternative energy investments and low-income housing tax credits.

Balance Sheet Review

Assets

Total assets were $22.03 billion as of March 31, 2023 an increase of $0.08 billion or 0.4% from $21.95 billion as of December 31, 2022.

Securities Available-for-Sale

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 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. 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 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.

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.

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 exclude 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 March 31, 2023, no AFS debt securities were in default.

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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.

Securities available-for-sale represented 7.0% of total assets as of March 31, 2023, compared to 6.7% of total assets as of December 31, 2022. Securities available-for-sale were $1.54 billion as of March 31, 2023, compared to $1.47 billion as of December 31, 2022.

The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of securities available-for-sale as of March 31, 2023, and December 31, 2022:

	March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	270,165	$	34	$	501	$	269,698
U.S. government agency entities		59,734		324		127		59,931
U.S. government sponsored entities		40,000		14		—		40,014
Mortgage-backed securities .		969,966		401		113,065		857,302
Collateralized mortgage obligations		33,877		—		2,910		30,967
Corporate debt securities		298,698		265		15,625		283,338
Total	$	1,672,440	$	1,038	$	132,228	$	1,541,250

	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	241,611	$	—	$	1,111	$	240,500
U.S. government agency entities		63,347		384		121		63,610
U.S. government sponsored entities		30,000		—		—		30,000
Mortgage-backed securities .		993,883		194		126,983		867,094
Collateralized mortgage obligations		34,552		—		3,491		31,061
Corporate debt securities		258,780		112		17,809		241,083
Total	$	1,622,173	$	690	$	149,515	$	1,473,348

For additional information, see Note 8 to the Company’s unaudited Consolidated Financial Statements.

Securities available-for-sale having a carrying value of $144.0 million as of March 31, 2023, and $145.7 million as of December 31, 2022, were pledged to secure public deposits and other borrowings.

Equity Securities

The Company recognized a net gain of $4.9 million for the three months ended March 31, 2023, due to the increase in fair value of equity investments with readily determinable fair values compared to a net gain of $6.0 million for the three months ended March 31, 2022. Equity securities were $27.0 million and $22.2 million as of March 31, 2023, and December 31, 2022, respectively.

Loans

Gross loans were $18.32 billion at March 31, 2023, an increase of $63.3 million, or 0.3%, from $18.25 billion at December 31, 2022. The increase was primarily due to an increase of $131.3 million, or 2.5%, in residential mortgage loans and an increase of $123.1 million, or 1.4% in commercial mortgage loans offset, in part, by a decrease of $165.7 million, or 5.0%, in commercial loans, and a decrease of $25.9 million, or 8.0% in home equity loans.

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The loan balances and composition at March 31, 2023, compared to December 31, 2022, are set forth below:

	March 31, 2023			% of Gross Loans			December 31, 2022			% of Gross Loans			% Change
	(in thousands)

Commercial loans	$	3,153,039			17.2	%	$	3,318,778			18.2	%		(5.0)	%
Real estate construction loans		558,967			3.1			559,372			3.1			(0.1	)
Commercial mortgage loans		8,916,766			48.7			8,793,685			48.2			1.4
Residential mortgage loans and equity lines		5,682,850			31.0			5,577,500			30.6			1.9
Installment and other loans		5,717			—			4,689			—			21.9
Gross loans	$	18,317,339			100	%	$	18,254,024			100	%		0.3	%
Allowance for loan losses		(144,884	)					(146,485	)					(1.1	)
Unamortized deferred loan fees		(5,872	)					(6,641	)					(11.6	)
Total loans, net	$	18,166,583					$	18,100,898						0.4	%

Non-performing Assets

Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans, and OREO. Our 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.

Management reviews the loan portfolio regularly to seek to identify problem loans. 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% as of March 31, 2023, compared to 0.4% as of December 31, 2022. Total non-performing assets increased $5.9 million, or 7.0%, to $90.4 million as March 31, 2023, compared to $84.5 million as of December 31, 2022, primarily due to an increase of $4.7 million, or 6.9%, in nonaccrual loans, and an increase of $1.2 million, or 10.2% in accruing loans past due 90 days or more.

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets were 0.49% as of March 31, 2023, compared to 0.46% as of December 31, 2022. The non-performing loan portfolio coverage ratio, defined as the allowance for credit losses to non-performing loans, increased to 183.5% as of March 31, 2023, from 193.0% as of December 31, 2022.

The following table sets forth the changes in non-performing assets and TDRs as of March 31, 2023, compared to December 31, 2022, and to March 31, 2022:

	March 31, 2023			December 31, 2022			% Change			March 31, 2022			% Change
	(in thousands)
Non-performing assets
Accruing loans past due 90 days or more	$	12,756		$	11,580			10		$	300			4,152
Non-accrual loans:
Commercial mortgage loans		40,218			34,096			18			38,095			6
Commercial loans		22,079			25,772			(14	)		36,282			(39	)
Residential mortgage loans		11,283			8,978			26			11,956			(6	)
Installment and other loans		—			8			(100	)		—			—
Total non-accrual loans	$	73,580		$	68,854			7		$	86,333			(15	)
Total non-performing loans		86,336			80,434			7			86,633			(0	)
Other real estate owned		4,067			4,067			—			4,067			—
Total non-performing assets	$	90,403		$	84,501			7		$	90,700			(0	)
Accruing troubled debt restructurings (TDRs).	$	—		$	15,145			(100	)	$	12,994			(100	)

Allowance for loan losses	$	144,884		$	146,485			(1	)	$	145,786			(1	)
Allowance for unfunded loan commitments	$	13,575		$	8,730			55		$	6,404			112

Total gross loans outstanding, at period-end	$	18,317,339		$	18,254,024			0		$	17,398,357			5

Allowance for loan losses to non-performing loans, at period-end		167.81	%		182.12	%					168.28	%
Allowance for credit losses to non-performing loans, at period-end		183.54	%		192.97	%					175.67	%
Allowance for loan losses to gross loans, at period-end		0.79	%		0.80	%					0.84	%

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Non-accrual Loans

As of March 31, 2023, total non-accrual loans were $73.6 million, an increase of $4.7 million, or 6.8%, from $68.9 million at December 31, 2022, and a decrease of $12.7 million, or 14.7%, from $86.3 million at March 31, 2022. 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.

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:

	March 31, 2023				December 31, 2022
	Real				Real
	Estate⁽¹⁾		Commercial		Estate⁽¹⁾		Commercial
	(In thousands)
Type of Collateral
Single/multi-family residence	$	13,879	$	12,948	$	9,215	$	13,190
Commercial real estate		37,622		—		33,859		—
Land		—		2,451		—		2,518
Personal property (UCC)		—		6,680		8		10,064
Total	$	51,501	$	22,079	$	43,082	$	25,772

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

	March 31, 2023				December 31, 2022
	Real				Real
	Estate⁽¹⁾		Commercial		Estate⁽¹⁾		Commercial
	(In thousands)
Type of Business
Real estate development	$	38,535	$	10	$	32,206	$	50
Wholesale/Retail		1,699		10,235		1,907		11,628
Food/Restaurant		84		219		85		479
Import/Export		—		11,383		—		13,382
Other		11,183		232		8,884		233
Total	$	51,501	$	22,079	$	43,082	$	25,772

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

As of March 31, 2023, recorded investment in non-accrual loans was $73.6 million. As of December 31, 2022, recorded investment in non-accrual loans totaled $68.9 million. For non-accrual loans, the amounts previously charged-off represent 10.5% of the contractual balances for non-accrual loans as of March 31, 2023 and 14.1% as of December 31, 2022. As of March 31, 2023, $51.5 million, or 70.0%, of the $73.6 million of non-accrual loans were secured by real estate compared to $43.1 million, or 62.6%, of the $68.9 million of non-accrual loans that were secured by real estate as of December 31, 2022. 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 March 31, 2023, $4.3 million of the $144.9 million allowance for loan losses was allocated for non-accrual loans and $140.6 million was allocated to the general allowance.

The allowance for loan losses to non-performing loans was 167.81% as of March 31, 2023, compared to 182.12% as of December 31, 2022, primarily due to an increase in the non-accrual loans. Non-accrual loans also include those TDRs that do not qualify for accrual status.

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The following table presents non-accrual loans and the related allowance as of March 31, 2023 and December 31, 2022:

	March 31, 2023
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance:
Commercial loans	$	27,401	$	10,887	$	—
Commercial mortgage loans.		49,927		40,218		—
Residential mortgage loans and equity lines		11,896		11,283		—
Subtotal	$	89,224	$	62,388	$	—

With allocated allowance:
Commercial loans	$	12,511	$	11,192	$	4,258
Commercial mortgage loans		—		—		—
Subtotal	$	12,511	$	11,192	$	4,258
Total non-accrual loans	$	101,735	$	73,580	$	4,258

	December 31, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance:
Commercial loans	$	27,341	$	12,949	$	—
Commercial mortgage loans		37,697		32,205		—
Residential mortgage loans and equity lines		9,626		8,978		—
Installment and other loans		9		8		—
Subtotal	$	74,673	$	54,140	$	—

With allocated allowance:
Commercial loans	$	14,643	$	12,823	$	3,734
Commercial mortgage loans		1,896		1,891		207
Subtotal	$	16,539	$	14,714	$	3,941
Total non-accrual loans	$	91,212	$	68,854	$	3,941

Loan Interest Reserves

In accordance with customary banking practice, construction loans and land development loans generally are originated 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 March 31, 2023, construction loans of $374.9 million were disbursed with pre-established interest reserves of $46.2 million, compared to $443.9 million with pre-established interest reserves of $54.5 million at December 31, 2022. The balance for construction loans with interest reserves that have been extended was $17.2 million with pre-established interest reserves of $0.4 million at March 31, 2023, compared to $34.4 million with pre-established interest reserves of $1.0 million at December 31, 2022. Land loans of $44.2 million were disbursed with pre-established interest reserves of $1.2 million at March 31, 2023, compared to $48.6 million of land loans disbursed with pre-established interest reserves of $1.6 million at December 31, 2022. At March 31, 2023 and December 31, 2022, the balance for land loans with interest reserves that have been extended was $0.9 million with pre-established interest reserves of $58 thousand.

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At March 31, 2023 and December 31, 2022, the Bank had no loans on non-accrual status with available interest reserves. At March 31, 2023 and December 31, 2022, there were zero non-accrual non-residential construction loans, residential construction loans, and land loans that were originated with pre-established interest reserves. 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 clients 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 clients in Hong Kong. The Company has no specific industry concentration, and generally our loans 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 March 31, 2023, or as of December 31, 2022.

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”) 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) both 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. The Bank’s loans for construction, land development, and other land represented 26.8% of the Bank’s total risk-based capital as of March 31, 2023, and 27.3% as of December 31, 2022. Total CRE loans represented 288.0% of total risk-based capital as of March 31, 2023, and 287.1% as of December 31, 2022 which were within the Bank’s internal limit of 400%, of total capital.

Allowance for Credit Losses

The Bank maintains the allowance for credit losses at a level that the Bank’s management considers appropriate to cover 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 for off-balance sheet unfunded credit commitments. With this risk management objective, the Bank’s management has an established monitoring system that is designed to identify 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.

In addition, the Company’s Board of Directors has established a written credit policy that includes a credit review and control system that it 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 or reductions to the allowance for credit losses are made by charges or credits 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.

The allowance for loan losses was $144.9 million and the allowance for off-balance sheet unfunded credit commitments was $13.6 million at March 31, 2023, which represented the amount estimated by management to be appropriate to absorb expected credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for credit losses, which is the sum of the allowances for loan losses and for off-balance sheet unfunded credit commitments, was $158.5 million at March 31, 2023, compared to $155.2 million at December 31, 2022. The allowance for loan losses represented 0.79% of period-end gross loans, and 167.81% of non-performing loans at March 31, 2023. The comparable ratios were 0.80% of period-end gross loans, and 182.12% of non-performing loans at December 31, 2022.

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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 related 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 2022 Form 10-K. For more information, please also see Note 3 to the Company’s unaudited Consolidated Financial Statements.

Expected Credit Losses Estimate for Loans

The allowance for credit losses 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, see Note 9 to the unaudited Consolidated Financial Statements contained in "Item 1. Consolidated Financial Statements."

In calculating our allowance for credit losses in the first quarter of 2023, the change in Moody’s forecast of future GDP, unemployment rates, CRE and home price indexes, did not result in a significant impact to the decrease in the allowance for credit losses. The decrease in the allowance for credit losses was primarily due to net charge-offs of $4.9 million. 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.

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 2021. Loss given default rates are computed based on the net charge-offs recognized and then applied to the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2021. 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 straight-line for the four-quarter reversion period to the long-term loss rates for each of the six portfolios of loans. The contractual term excludes renewals and modifications but includes pre-approved extensions and prepayment assumptions where applicable.

Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the March 31, 2023, allowance for credit losses consisted of three scenarios as provided by an outside forecaster. Because the December 2022 baseline scenario did not forecast a recession in the forecast period, we increased the weighing of the downside scenario to reflect our expectations that a recession in the forecast period was more likely than not. The baseline scenario reflects modest ongoing GDP growth and a modest increase in the unemployment rate peaking at 4.0% in the third quarter of 2024. Relative to the baseline scenario, the upside scenario reflects higher GDP growth and lower unemployment rates with the stronger economy resulting in slightly higher inflation, though the Federal Reserve is projected to cut the Fed funds rate starting in the first quarter of 2024. The downside scenario contemplates a recession due to the weakening economy as concerns about inflation keep the Fed funds rate elevated, increasing to 5.0% in the third quarter of 2023, resulting in negative GDP growth for three quarters peaking at minus 3.1% in the second quarter of 2023, rising unemployment that peaks at 7.8% in the second quarter of 2024, and a decline in CRE prices and residential home prices of over 24% and 16%, respectively, during the forecast period. As of March 31, 2023, we placed the most weight on our downside scenario, with the remaining weighting mainly on the baseline scenario and a small weighting on the upside scenario.

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Keeping all other factors constant, we estimate that if we had applied 100% weighting to the downside scenario, the allowance for credit losses as of March 31, 2023, would have been approximately $43.1 million higher. This estimate is intended to reflect the sensitivity of the allowance for credit losses to changes in our scenario weights and is not intended to be indicative of future changes in the allowance for credit losses.

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.

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 March 31,
	2023			2022
	(In thousands)
Allowance for loan losses
Balance at beginning of period	$	146,485		$	136,157
Provision for credit losses on loans		3,255			9,339
Charge-offs:
Commercial loans		(3,911	)		(221	)
Real estate loans		(3,990	)		—
Installment and other loans		(6	)		—
Total charge-offs		(7,907	)		(221	)
Recoveries:
Commercial loans		511			359
Construction loans		—			6
Real estate loans		2,540			146
Total recoveries		3,051			511
Balance at the end of period	$	144,884		$	145,786

Reserve for off-balance sheet credit commitments
Balance at beginning of period	$	8,730		$	7,100
Provision/(reversal) for credit losses on unfunded credit commitments		4,845			(696	)
Balance at the end of period	$	13,575		$	6,404

Average loans outstanding during the period	$	18,245,488		$	16,939,787
Total gross loans outstanding, at period-end	$	18,317,339		$	17,398,357
Total non-performing loans, at period-end	$	86,336		$	86,633
Ratio of net charge-offs/(recoveries) to average loans outstanding during the period		0.11	%		(0.01)	%
Provision for credit losses to average loans outstanding during the period		0.18	%		0.21	%
Allowance for credit losses to non-performing loans, at period-end		183.54	%		175.67	%
Allowance for credit losses to gross loans, at period-end		0.87	%		0.87	%

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:

	March 31, 2023					December 31, 2022
			Percentage of					Percentage of
			Loans in Each					Loans in Each
			Category					Category
			to Average					to Average
	Amount		Gross Loans			Amount		Gross Loans
	(In thousands)
Type of Loan:
Commercial loans	$	45,975		17.8	%	$	49,435		18.2	%
Real estate construction loans		10,900		3.1			10,417		3.4
Commercial mortgage loans		70,367		48.2			68,366		48.2
Residential mortgage loans and equity lines		17,633		30.9			18,232		30.2
Installment and other loans		9		0.0			35		0.0
Total loans	$	144,884		100	%	$	146,485		100	%

The allowance allocated to commercial loans decreased $3.5 million, or 7.0%, to $46.0 million at March 31, 2023, from $49.4 million at December 31, 2022. The decrease is due primarily to $3.4 million in net charge-offs during the first quarter.

The allowance allocated to real estate construction loans increased $483 thousand, or 4.6%, to $10.9 million at March 31, 2023, from $10.4 million at December 31, 2022. The increase is due primarily to higher risk rating as a result of higher unemployment growth rate.

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The allowance allocated to commercial mortgage loans increased $2.0 million, or 2.9%, to $70.4 million at March 31, 2023, from $68.4 million at December 31, 2022. The increase is due primarily to an increase in commercial mortgage loans and an increase in the expected life for multifamily loans as a result of our annual CECL recalibration.

The allowance allocated for residential mortgage loans and equity lines decreased by $599 thousand, or 3.3%, to $17.6 million as of March 31, 2023, from $18.2 million at December 31, 2022. The decrease is due primarily to a decrease in the expected life for residential mortgages as a result of our annual CECL recalibration.

Deposits

Total deposits were $18.65 billion as of March 31, 2023, an increase of $143.6 million, or 0.8%, from $18.51 billion as of December 31, 2022.

Total uninsured deposits were $8.74 billion as of March 31, 2023, decreased approximately $0.46 billion, from $9.21 billion as of December 31, 2022. Excluding $0.80 billion in collateralized deposits, the uninsured and uncollateralized deposits of $7.94 billion was 42.6% of total deposits as of March 31, 2023. Our unused borrowing capacity from the Federal Home Loan Bank as of March 31, 2023 was $6.55 billion and unpledged securities at March 31, 2023 was $1.40 billion. These sources of available liquidity were more than 100% of uninsured and uncollateralized deposits as of March 31, 2023.

The following table sets forth the deposit mix as of the dates indicated:

	March 31, 2023					December 31, 2022
	Amount		%			Amount		%
Deposits	(In thousands)
Non-interest-bearing demand deposits	$	3,748,719		20.1	%	$	4,168,989		22.5	%
NOW deposits		2,354,195		12.6			2,509,736		13.6
Money market deposits		3,014,500		16.2			3,812,724		20.6
Savings deposits		891,061		4.8			1,000,460		5.4
Time deposits		8,640,397		46.3			7,013,370		37.9
Total deposits	$	18,648,872		100.0	%	$	18,505,279		100.0	%

The following table sets forth the maturity distribution of time deposits at March 31, 2023:

	At March 31, 2023
	Time Deposits - under $250,000			Time Deposits - $250,000 and over			Total Time Deposits
	(In thousands)
Less than three months	$	680,893		$	936,272		$	1,617,165
Three to six months		602,623			762,907			1,365,530
Over six to twelve months .		2,033,432			3,563,593			5,597,025
Over one year		37,661			23,016			60,677
Total	$	3,354,609		$	5,285,788		$	8,640,397

Percent of total deposits		18.0	%		28.3	%		46.3	%

Borrowings

Borrowings include Federal funds purchased, funds obtained as advances from the FHLB of San Francisco, and borrowings from other financial institutions.

Borrowings from the FHLB – There were no over-night borrowings from the FHLB as of March 31, 2023, and $150.0 million in over-night borrowings as of December 31, 2022. Advances from the FHLB were $360.0 million at a weighted average rate of 5.0% as of March 31, 2023, and $335.0 million at a weighted average rate of 4.54% as of December 31, 2022. As of March 31, 2023, final maturity for the FHLB advances were $275.0 million in April 2023, $70.0 million in May 2023 and $15.0 million in September 2024.

Junior Subordinated Notes – At March 31, 2023, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 7.04%, compared to $119.1 million with a weighted average rate of 4.01% at December 31, 2022. The Junior Subordinated Notes have a stated maturity term of 30 years. For additional information, see Note 11 to the Company’s unaudited Consolidated Financial Statements.

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Off-Balance-Sheet Arrangements and Contractual Obligations

The following table summarizes the Company’s contractual obligations to make future payments as of March 31, 2023. 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
			More than		3 years or
			1 year but		more but
	1 year		less than		less than		5 years
	or less		3 years		5 years		or more		Total
	(In thousands)
Contractual obligations:
Deposits with stated maturity dates	$	8,579,720	$	58,451	$	2,201	$	25	$	8,640,397
Advances from the Federal Home Loan Bank		345,000		15,000		—		—		360,000
Other borrowings		—		—		—		22,481		22,481
Long-term debt		—		—		—		119,136		119,136
Operating leases		11,070		14,433		7,524		1,670		34,697
Total contractual obligations and other commitments	$	8,935,790	$	87,884	$	9,725	$	143,312	$	9,176,711

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our Consolidated Balance Sheets. We enter into these transactions to meet the financing needs of our clients. 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 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 clients maintaining specific credit standards at the time of loan funding. We 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.

Standby Letters of Credit – Standby letters of credit are written conditional commitments issued by us to secure the obligations of a client to a third party. In the event the client 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 client. 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 $2.54 billion as of March 31, 2023, an increase of $68.3 million, from $2.47 billion as of December 31, 2022, primarily due to net income of $96.0 million, other comprehensive income of $11.2 million, stock-based compensation of $1.5 million, and proceeds from dividend reinvestment of $0.9 million, offset by, common stock cash dividends of $24.6 million and purchase of treasury stock of $16.7 million.

The following table summarizes changes in total equity for the three months ended March 31, 2023:

	Three months ended
	March 31, 2023
	(In thousands)
Net income	$	96,007
Proceeds from shares issued through the Dividend Reinvestment Plan		918
Shares withheld related to net share settlement of RSUs .		(14	)
Purchase of treasury stock		(16,736	)
Share-based compensation		1,511
Cash dividends paid to common stockholders		(24,605	)
Other comprehensive income		11,218
Net increase in total equity	$	68,299

Capital Adequacy Review

Management seeks to retain our capital at a level sufficient to support future growth, protect depositors and stockholders, and comply with various regulatory requirements.

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The following tables set forth actual and required capital ratios as of March 31, 2023 and December 31, 2022 for Bancorp and the Bank under the Basel III Capital Rules. 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 2022 Form 10-K for a more detailed discussion of the Basel III Capital Rules.

	Actual				Minimum Capital Required - Basel III				Required to be Considered Well Capitalized
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
March 31, 2023	(In thousands)

Common Equity Tier 1 to Risk-Weighted Assets
Cathay General Bancorp	$	2,239,910		12.42	$	1,262,669		7.00	$	1,172,478		6.50
Cathay Bank		2,318,196		12.86		1,261,843		7.00		1,171,712		6.50

Tier 1 Capital to Risk-Weighted Assets
Cathay General Bancorp		2,239,910		12.42		1,533,240		8.50		1,443,050		8.00
Cathay Bank		2,318,196		12.86		1,532,238		8.50		1,442,107		8.00

Total Capital to Risk-Weighted Assets
Cathay General Bancorp		2,513,869		13.94		1,894,003		10.50		1,803,812		10.00
Cathay Bank		2,476,655		13.74		1,892,765		10.50		1,802,634		10.00

Leverage Ratio
Cathay General Bancorp		2,239,910		10.27		872,162		4.00		1,090,202		5.00
Cathay Bank.		2,318,196		10.64		871,656		4.00		1,089,569		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, 2022	(In thousands)

Common Equity Tier 1 to Risk-Weighted Assets
Cathay General Bancorp	$	2,182,066		12.21	$	1,250,914		7.00	$	1,161,563		6.50
Cathay Bank.		2,276,830		12.75		1,250,461		7.00		1,161,142		6.50

Tier 1 Capital to Risk-Weighted Assets
Cathay General Bancorp		2,182,066		12.21		1,518,967		8.50		1,429,616		8.00
Cathay Bank.		2,276,830		12.75		1,518,417		8.50		1,429,098		8.00

Total Capital to Risk-Weighted Assets
Cathay General Bancorp		2,452,781		13.73		1,876,371		10.50		1,787,020		10.00
Cathay Bank.		2,432,045		13.61		1,875,691		10.50		1,786,373		10.00

Leverage Ratio
Cathay General Bancorp		2,182,066		10.08		865,470		4.00		1,081,838		5.00
Cathay Bank.		2,276,830		10.53		864,918		4.00		1,081,148		5.00

As of March 31, 2023, 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 March 31, 2023 at Bancorp and the Bank exceed the minimum levels necessary to be considered “well capitalized.”

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. We increased the common stock dividend from $0.24 per share in the fourth quarter of 2017, to $0.31 per share in the fourth quarter of 2018, to $0.34 per share in the fourth quarter of 2021. 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. If we are not current in our payment of dividends on our Junior Subordinated Notes, we may not pay dividends on our common stock.

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The Company declared a cash dividend of $0.34 per share on 72,367,061 shares outstanding on February 16, 2023, for distribution to holders of our common stock on March 9, 2023. The Company paid total cash dividends of $24.6 million in the first quarter of 2023.

Financial Derivatives

The Company does not speculate on the future direction of interest rates. As part of the Company’s asset and liability management, however, the Company enters into financial derivatives to seek to mitigate exposure to interest rate risks related to its interest-earning assets and interest-bearing liabilities. The Company believes 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, The Company may protect its position. Other hedging transactions may be implemented using interest rate swaps, interest rate caps, floors, financial futures, forward rate agreements, and options on futures or bonds. Prior to considering any hedging activities, the Company seek to analyze the costs and benefits of the hedge in comparison to other viable alternative strategies. All hedges will require an assessment of basis risk and must be approved by the Bancorp or 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 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 clients. When derivative transactions are executed with its clients, 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 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 clients 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. As of March 31, 2023 and December 31, 2022, the Company had outstanding interest rate derivative contracts with certain clients and third-party financial institutions with a notional amount of $592.5 million and $595.4 million, respectively. As of March 31, 2023 and December 31, 2022, the notional amount of $20.5 million and $205.6 million of interest rate swaps cleared through the CCP, respectively. Applying variation margin payments as settlement to CCP cleared derivative transactions resulted in a reduction in derivative asset fair values of $1.6 million as of March 31, 2023 and $20.2 million as of December 31, 2022. The decrease in interest rate swaps cleared through the CCP is a result of the Company moving to SOFR based swaps and no longer entering into Libor based swaps that are cleared through CCP.

In May 2014, 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 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. The Company early terminated these cash flow derivative swaps in 2022 and realized a gain of $4.0 million for the year ended December 31, 2022 and is recognizing the amount as a reduction of long-term debt interest expense over the remaining life of the swaps on a straight-line basis. As of December 31, 2022, the ineffective portion of these interest rate swaps was not significant. The periodic net settlement of the interest rate swaps included in interest expense was a net gain of $689 thousand for the three months ended March 31, 2022.

As of March 31, 2023, the Bank’s outstanding fair value interest rate swap contracts matched to individual fixed-rate commercial real estate loans had a notional amount of $138.2 million for various terms from three to ten years. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial real estate 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 March 31, 2023, and 2022, the ineffective portion of these interest rate swaps was not significant.

The Company has designated as a partial-term hedging election $669.2 million notional as last-of-layer hedge on pools of loans with a notational value of $1.19 billion as of March 31, 2023. 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 these pay-fixed and receive 1-Month LIBOR or 1-Month Term SOFR interest rate swaps to convert the last-of-layer $669.2 million portion of $1.19 billion fixed rate loan pools in order to reduce the Company’s exposure to higher interest rates for the last-of-layer tranches. As of March 31, 2023, the last-of-layer loan tranche had a fair value basis adjustment of $23.7 million. 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 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. 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. There was no cash collateral deposit posted by Bancorp related to fair value derivative contracts as of March 31, 2023 or December 31, 2022.

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The notional amount and net unrealized loss of the Company’s fair value derivative financial instruments as of March 31, 2023, and December 31, 2022, were as follows:

	March 31, 2023			December 31, 2022
	(In thousands)
Fair value swap hedges:
Notional	$	807,332		$	874,034
Weighted average fixed rate-pay		1.92	%		2.12	%
Weighted average variable rate spread		0.44	%		0.68	%
Weighted average variable rate-receive		5.04	%		2.61	%

Net unrealized gain⁽¹⁾	$	29,815		$	38,589

	Three months ended
	March 31, 2023		March 31, 2022
Periodic net settlement of swaps ⁽²⁾	$	6,336	$	(1,762	)

(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.

Included in the total notional amount of $807.3 million of the fair value interest rate contracts entered into with financial counterparties as of March 31, 2023, was a notional amount of $448.7 million of interest rate swaps that cleared through the CCP. Applying variation margin payments as settlement to CCP cleared derivative transactions resulted in a reduction in derivative asset fair values of $22.2 million as of March 31, 2023.

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 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 March 31, 2023, and December 31, 2022, not including interest rate swaps cleared through the CCP, were as follows:

	March 31, 2023			December 31, 2022
	(In thousands)
Derivative financial instruments not designated as hedging instruments:
Notional amounts:
Forward, and swap contracts with positive fair value	$	234,733		$	72,996
Forward, and swap contracts with negative fair value	$	42,753		$	170,213
Fair value:
Forward, and swap contracts with positive fair value	$	975		$	448
Forward, and swap contracts with negative fair value	$	(429	)	$	(942	)

Liquidity

Liquidity is our ability to maintain sufficient cash flow to meet maturing financial obligations and client 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 March 31, 2023, our average monthly liquidity ratio (defined as net cash plus short-term and marketable securities to net deposits and short-term liabilities) was 13.5% compared to 13.7% as of December 31, 2022.

The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary. At March 31, 2023, the Bank had an approved credit line with the FHLB of San Francisco totaling $7.69 billion. Total advances from the FHLB of San Francisco were $360.0 million and standby letters of credit issued by the FHLB on the Company’s behalf were $785.1 million as of March 31, 2023. These borrowings bear fixed rates and are secured by the Bank’s loans. See Note 11 to the Consolidated Financial Statements. At March 31, 2023, the Bank pledged $535.4 thousand of its commercial loans and $1.3 million of securities to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program. The Bank had borrowing capacity of $1.7 million from the Federal Reserve Bank Discount Window at March 31, 2023.

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 March 31, 2023, investment securities totaled $1.54 billion, with $144.0 million pledged as collateral for borrowings and other commitments. The remaining balance was available as additional liquidity or to be pledged as collateral for additional borrowings. At March 31, 2023, $1.23 billion of unpledged treasuries, U.S. agency securities, U.S. agency mortgage-backed securities or CMO based on current cost are available for pledging to the Federal Reserve Bank’s Bank Term Funding Program.

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Approximately 99.3% of our time deposits mature within one year or less as of March 31, 2023. Management anticipates that these deposits will reprice higher as a result of the increases in the target Fed funds rate that started in early 2022. 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 March 31, 2023, management believes all the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.

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 $24.6 million and $25.5 million during the first quarter of 2023 and 2022, respectively.

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, 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, client 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 March 31, 2023:

	Net Interest		Market Value
	Income		of Equity
Change in Interest Rate (Basis Points)	Volatility ⁽¹⁾		Volatility ⁽²⁾
+200		7.9		-3.8
+100		4.0		-1.5
-100		-7.0		3.1
-200		-15.7		9.3

	(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. Much of the increase in net interest income is due to the lag in the repricing of certificates of deposits which mature throughout the twelve month period.
	(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.

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 first quarter of 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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.

Item 1A. RISK FACTORS.

Except as set forth below, there have been no material changes to the risk factors as previously disclosed in Part I, Item 1A, of the Company’s 2022 Form 10-K. In addition to the below information and 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 2022 Form 10-K, which could materially and adversely affect the Company’s business, financial condition, results of operations and stock price. The risk factors disclosed in the 2022 Form 10-K, as supplemented by the below, 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.

Risks Related to Recent Events Impacting the Financial Services Industry

Recent events impacting the financial services industry, including the failure of Silicon Valley Bank, Signature Bank and First Republic Bank, have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These recent events have, and could continue to, adversely impact the market price and volatility of the Company’s common stock.

These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding, loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. We may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial and cascading disruption within the financial markets and increased expenses. The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

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

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
(January 1, 2023 - January 31, 2023)	56,002	$42.64	56,002	$14,192,426
(February 1, 2023 - February 28, 2023)	319,088	$44.48	319,088	$0
(March 1, 2023 - March 31, 2023)	0	$0.00	0	$0
Total	375,090	$44.20	375,090	$0

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

Item 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

None.

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Item 6. EXHIBITS.

Exhibit 3.1	Restated Certificate of Incorporation. Previously filed with the Securities and Exchange Commission on February 29, 2016, as an exhibit to Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference.

Exhibit 3.1.1	Amendment to Restated Certificate of Incorporation. Previously filed with the Securities and Exchange Commission on February 29, 2016, as an exhibit to Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference.

Exhibit 3.2	Amended and Restated Bylaws, effective February 16, 2017. Previously filed with the Securities and Exchange Commission on February 17, 2017, as an exhibit to the Bancorp’s Current Report on Form 8-K and incorporated herein by reference.

Exhibit 3.3	Certificate of Designation of Series A Junior Participating Preferred Stock. Previously filed with the Securities and Exchange Commission on February 28, 2012, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference.

Exhibit 3.4	Certificate of Designation of Fixed Rate Cumulative Perpetual Preferred Stock, Series B. Previously filed with the Securities and Exchange Commission on March 3, 2014, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference.

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 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.

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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: May 9, 2023

		/s/ Chang M. Liu
		Chang M. Liu
		President and Chief Executive Officer


Date: May 9, 2023
		/s/ Heng W. Chen
		Heng W. Chen
		Executive Vice President and Chief Financial Officer