UNITED STATES

securities and exchange commission

Washington, D.C. 20549

form 10-q

(Mark One)

~~[ X~~[ X ]~~quarterly report pursuant to section 13 or 15~~(d~~) ofTHE SECURITIES EXCHANGE ACT OF 1934~~
~~For the quarterly period endedSeptember~~ 30~~, 201~~6
OR
[ ]~~transition report pursuant to section 13 or 15 (~~d~~) ofthe SECURITIES EXCHANGE ACT OF 1934~~
quarterly report pursuant to section 13 or 15(d) of THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2017

[ ]

transition report pursuant to section 13 or 15 (d) of the SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

~~Commission file number~~ ~~001-31830~~

Commission file number

001-31830

Cathay General Bancorp

(Exact name of registrant as specified in its charter)

Delaware	~~Delaware~~		95-4274680
	~~(State~~(State of other jurisdiction of incorporation or organization)		~~(I.R.S.~~(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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or an emerging growth company. See ~~definition~~the definitions of ~~“large~~“large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☑	☑		Accelerated filer	~~Accelerated filer~~ ☐
Non-accelerated filer	☐		~~Non-accelerated filer ☐~~ (Do not check if a smaller reporting company)
				Smaller reporting ~~company☐~~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~~issuer’s classes of common stock, as of the latest practicable date.

Common stock, $.01 par value, ~~78,890,065~~80,819,967 shares outstanding as of October 31, ~~2016.~~2017.

Table of Contents

CATHAY GENERAL BANCORP AND ~~SUBSIDIARies~~SUBSIDIARies

3^RDR^D ~~quarter 201~~6quarter 2017 REPORT ON FORM 10-Q

table of contents

PART I –	FINANCIAL INFORMATION	3

Item 1.	~~Item 1.~~ FINANCIAL STATEMENTS (Unaudited)	3
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	6
Item 2.	6
	~~Item 2. MANAGEMENT’S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3540
	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5664
	Item 4.	CONTROLS AND PROCEDURES	5765

PART II –	OTHER INFORMATION	5766

	~~Item 1. LEGAL PROCEEDINGS~~	57
Item 1.	~~Item 1A. RISK FACTORS~~ LEGAL PROCEEDINGS	5866
Item 1A.	RISK FACTORS	66
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5876
	Item 3.	DEFAULTS UPON SENIOR SECURITIES	5876
	Item 4.	MINE SAFETY DISCLOSURES	5867
	Item 5.	OTHER INFORMATION	5867
	Item 6. ~~EXHIBITS~~	59 EXHIBITS	67

	~~SIGNATURES~~	60
SIGNATURES		68

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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 and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks and uncertainties and other factors include, but are not limited to, adverse developments or conditions related to or arising from:

●

U.S. and international business and economic conditions;

●

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~~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, including the implementation of the Dodd-Frank Wall Street Reform and ~~Consumer~~Consumer Protection Act (the “Dodd-Frank Act”);

●

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;

●

liqui~~liquidity~~dity 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;~~

Table of Contents

●

environmental liabilities;

●

our~~our~~ ability to compete, ~~with~~including against larger competitors;

●

our ability to retain key personnel;

●

successful management of reputational risk;

●

natural disasters and geopolitical events;

●

general economic or business conditions in Asia, and other regions where the Bank has ~~operations;~~operations;

●

failures, interruptions, or security breaches of our information systems;

●

our ability to adapt our systems to technological changes;

●

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~~restrictions~~’s stock price;

●

restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure;

●

~~issuance~~issuances of preferred stock;

●

capital level requirements and successfully raising additional capital, if needed, and the resulting ~~dilution~~dilution of interests of holders of our common stock; and

●

the soundness of other financial institutions.

These and other factors are further described in ~~Bancorp’s~~Bancorp’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings itBancorp 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, which speak to the date of this report. We have no intention and undertake no obligation to update any forward-looking statement or to publicly announce any revision of any forward-looking statement to reflect future developments or events, except as required by law.

~~Bancorp’s~~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) 279-3286.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CATHAY GENERAL BANCORP AND ~~SUBSIDIARIES~~SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016

Assets
Cash and due from banks	$	203,877		$	180,130		$	167,886		$	218,017
Short-term investments and interest bearing deposits		791,757			536,880			573,059			967,067
Securities available-for-sale (amortized cost of $1,283,808 in 2016 and $1,595,723 in 2015)		1,298,469			1,586,352
Securities available-for-sale (amortized cost of $1,364,955 in 2017 and $1,317,012 in 2016)								1,368,487			1,314,345
Loans held for sale		4,750			6,676			-			7,500
Loans		11,010,457			10,163,452			12,597,434			11,201,275
Less: Allowance for loan losses		(117,942	)		(138,963	)		(121,535	)		(118,966	)
Unamortized deferred loan fees, net		(5,519	)		(8,262	)		(3,424	)		(4,994	)
Loans, net		10,886,996			10,016,227			12,472,475			11,077,315
Federal Home Loan Bank stock		18,900			17,250			30,681			17,250
Other real estate owned, net		20,986			24,701			18,115			20,070
Affordable housing investments and alternative energy partnerships, net		225,535			182,943			298,426			251,077
Premises and equipment, net		106,885			108,924			107,954			105,607
Customers’ liability on acceptances		13,339			40,335
Customers’ liability on acceptances								12,009			12,182
Accrued interest receivable		31,868			30,558			42,190			37,299
Goodwill		372,189			372,189			372,189			372,189
Other intangible assets, net		3,158			3,677			9,408			2,949
Other assets		120,080			147,284			255,538			117,902
Total assets	$	14,098,789		$	13,254,126		$	15,728,417		$	14,520,769

Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
Deposits
Non-interest-bearing demand deposits	$	2,246,661		$	2,033,048		$	2,730,006		$	2,478,107
Interest-bearing deposits:
Demand deposits		1,073,436			966,404			1,379,100			1,230,445
Money market deposits		2,131,190			1,905,719			2,370,724			2,198,938
Savings deposits		633,345			618,164			925,312			719,949
Time deposits		4,854,064			4,985,752			5,156,553			5,047,287
Total deposits		10,938,696			10,509,087			12,561,695			11,674,726

Securities sold under agreements to repurchase		350,000			400,000			100,000			350,000
Advances from the Federal Home Loan Bank		700,000			275,000			595,000			350,000
Other borrowings for affordable housing investments		17,705			18,593
Other borrowings of affordable housing investments								17,518			17,662
Long-term debt		119,136			119,136			119,136			119,136
Deferred payments from acquisition								136,056			-
Acceptances outstanding		13,339			40,335			12,009			12,182
Other liabilities		166,474			144,197			218,304			168,524
Total liabilities		12,305,350			11,506,348			13,759,718			12,692,230
Commitments and contingencies		-			-			-			-
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized, 87,090,319 issued and 78,879,676 outstanding at September 30, 2016, and 87,002,931 issued and 80,806,116 outstanding at December 31, 2015		871			870
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized, 89,027,259 issued and 80,816,616 outstanding at September 30, 2017, and 87,820,920 issued and 79,610,277 outstanding at December 31, 2016								890			878
Additional paid-in-capital		886,081			880,822			932,521			895,480
Accumulated other comprehensive income/(loss), net		1,903			(8,426	)
Accumulated other comprehensive loss, net								(217	)		(3,715	)
Retained earnings		1,144,173			1,059,660			1,275,094			1,175,485
Treasury stock, at cost (8,210,643 shares at September 30, 2016, and 6,196,815 shares at December 31, 2015)		(239,589	)		(185,148	)
Treasury stock, at cost (8,210,643 shares at September 30, 2017, and at December 31, 2016)								(239,589	)		(239,589	)
Total equity		1,793,439			1,747,778			1,968,699			1,828,539
Total liabilities and equity	$	14,098,789		$	13,254,126		$	15,728,417		$	14,520,769

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

CATHAY GENERAL BANCORP AND ~~SUBSIDIARIES~~SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,					Nine months ended September 30,
	2016			2015			2016			2015			2017		2016			2017			2016
	(In thousands, except share and per share data)												(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable, including loan fees	$	118,500		$	109,943		$	349,212		$	315,038		$	146,383	$	118,500		$	401,129		$	349,212
Investment securities		4,850			6,142			16,974			15,262			5,692		4,850			14,817			16,974
Federal Home Loan Bank stock		393			524			1,122			2,782
Federal Home Loan Bank and FRB stock														607		393			1,317			1,122
Term federal funds sold														108		-			108			-
Deposits with banks		412			258			1,094			1,105			1,288		412			3,140			1,094
Total interest and dividend income		124,155			116,867			368,402			334,187			154,078		124,155			420,511			368,402

Interest Expense
Time deposits		10,701			10,407			32,177			28,321			11,678		10,701			33,429			32,177
Other deposits		4,212			3,217			11,783			9,010			5,101		4,212			14,245			11,783
Securities sold under agreements to repurchase		3,828			3,977			11,696			11,836			874		3,828			3,489			11,696
Advances from Federal Home Loan Bank		134			164			442			374			872		134			1,465			442
Long-term debt		1,456			1,456			4,336			4,320			1,456		1,456			4,320			4,336
Deferred payments from acquisition														901		-			901			-
Total interest expense		20,331			19,221			60,434			53,861			20,882		20,331			57,849			60,434

Net interest income before reversal for credit losses		103,824			97,646			307,968			280,326			133,196		103,824			362,662			307,968
Reversal for loan losses		-			(1,250	)		(15,650	)		(8,400	)		-		-			(2,500	)		(15,650	)
Net interest income after reversal for credit losses		103,824			98,896			323,618			288,726			133,196		103,824			365,162			323,618

Non-Interest Income
Securities gains/(losses), net		1,692			(16	)		3,141			(3,369	)		24		1,692			(439	)		3,141
Letters of credit commissions		1,212			1,455			3,698			4,114			1,302		1,212			3,618			3,698
Depository service fees		1,401			1,409			4,109			4,003			1,407		1,401			4,259			4,109
Gain from acquisition														5,440		-			5,440			-
Other operating income		4,506			6,308			14,461			18,576			4,788		4,506			12,953			14,461
Total non-interest income		8,811			9,156			25,409			23,324			12,961		8,811			25,831			25,409

Non-Interest Expense
Salaries and employee benefits		22,881			20,725			71,313			67,804			27,913		22,881			79,929			71,313
Occupancy expense		4,734			4,412			13,587			12,419			5,312		4,734			14,733			13,587
Computer and equipment expense		2,337			3,893			7,360			8,783			2,643		2,337			7,895			7,360
Professional services expense		4,999			3,792			13,981			11,408			4,942		4,999			14,541			13,981
Data processing service expense		2,279			1,895			6,556			5,822			2,918		2,279			7,846			6,556
FDIC and State assessments		2,288			2,403			7,640			6,907
FDIC and regulatory assessments														2,552		2,288			7,261			7,640
Marketing expense		1,516			1,436			3,314			3,577			2,103		1,516			4,833			3,314
Other real estate owned expense/(income)		(176	)		250			612			(1,053	)		369		(176	)		747			612
Amortization of investments in low income housing and alternative energy partnerships		5,432			15,427			35,626			23,277			5,723		5,432			16,797			35,626
Amortization of core deposit intangibles		172			169			517			493			281		172			626			517
Acquisition and integration costs														3,277		-			3,277			-
Other operating expense		4,275			3,069			10,681			9,750			3,215		4,275			11,307			10,681
Total non-interest expense		50,737			57,471			171,187			149,187			61,248		50,737			169,792			171,187

Income before income tax expense		61,898			50,581			177,840			162,863			84,909		61,898			221,201			177,840
Income tax expense		15,808			12,098			50,756			43,200			35,163		15,808			71,099			50,756
Net income	$	46,090		$	38,483		$	127,084		$	119,663		$	49,746	$	46,090		$	150,102		$	127,084

Other comprehensive income, net of tax
Unrealized holding gain on securities available-for-sale		938			2,733			15,748			2,837			1,060		938			3,338			15,748
Less: reclassification adjustments for gains/(losses) included in net income		981			(10	)		1,821			(1,953	)		14		981			(254	)		1,821
Unrealized holding gain/(loss) on cash flow hedge derivatives		804			(2,558	)		(3,598	)		(1,818	)		157		804			(94	)		(3,598	)
Total other comprehensive gain, net of tax		761			185			10,329			2,972			1,203		761			3,498			10,329
Total comprehensive income	$	46,851		$	38,668		$	137,413		$	122,635

Total other comprehensive income													$	50,949	$	46,851		$	153,600		$	137,413
Net income per common share:
Basic	$	0.58		$	0.47		$	1.61		$	1.49		$	0.62	$	0.58		$	1.87		$	1.61
Diluted	$	0.58		$	0.47		$	1.59		$	1.48		$	0.61	$	0.58		$	1.86		$	1.59
Cash dividends paid per common share	$	0.18		$	0.14		$	0.54		$	0.38		$	0.21	$	0.18		$	0.63		$	0.54
Average common shares outstanding
Basic		78,865,860			81,475,288			79,147,839			80,422,711			80,665,398		78,865,860			80,073,249			79,147,839
Diluted		79,697,069			82,285,478			79,902,846			81,105,190			81,404,854		79,697,069			80,797,179			79,902,846

~~See accompanying notes to unaudited condensed consolidated financial statements~~
See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

CATHAY GENERAL BANCORP AND ~~SUBSIDIARIES~~SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended September 30						Nine months ended September 30
	2016			2015			2017			2016
	(In thousands)						(In thousands)
Cash Flows from Operating Activities
Net income	$	127,084		$	119,663		$	150,102		$	127,084
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Credit for loan losses		(15,650	)		(8,400	)
Reversal for loan losses								(2,500	)		(15,650	)
Provision for losses on other real estate owned		176			547			889			176
Deferred tax liability		22,483			14,327			10,319			22,483
Depreciation and amortization		5,684			5,745			5,416			5,684
Net gains on sale and transfer of other real estate owned		(476	)		(2,006	)		(394	)		(476	)
Net gains on sale of loans		(285	)		(845	)		-			(285	)
Proceeds from sales of loans		13,525			28,507			7,500			13,525
Originations of loans held-for-sale		(12,665	)		(26,689	)		-			(12,665	)
Amortization on alternative energy partnerships, venture capital and other investments		27,282			16,993			2,778			27,282
Net gain on sales and calls of securities		(3,347	)		(506	)
Net loss/(gain) on sales and calls of securities								438			(3,347	)
Amortization/accretion of security premiums/discounts, net		5,193			3,542			990			5,193
Loss on sales or disposal of fixed assets		19			138			-			19
Write-down on impaired securities		206			3,875			-			206
Excess tax short-fall from share-based payment arrangements		-			5,602
Stock based compensation and stock issued to officers as compensation		3,804			3,923			4,449			3,804
Net change in accrued interest receivable and other assets		2,101			(30,929	)		(51,776	)		2,101
Gain on acquisition								(5,440	)		-
Net change in other liabilities		(4,537	)		(9,432	)		828			(4,537	)
Net cash provided by operating activities		170,597			124,055			123,599			170,597

Cash Flows from Investing Activities
Decrease/(increase) in short-term investments		(254,877	)		119,785			516,008			(254,877	)
Purchase of investment securities available-for-sale		(690,966	)		(1,323,149	)		(450,745	)		(690,966	)
Proceeds from sale of investment securities available-for-sale		415,543			1,033,195			99,541			415,543
Proceeds from repayments, maturities and calls of investment securities available-for-sale		585,285			232,253			389,829			585,285
Purchase of Federal Home Loan Bank stock		(1,650	)		-			-			(1,650	)
Redemptions of Federal Home Loan Bank stock		-			13,535			6,459			-
Net increase in loans		(853,453	)		(702,595	)		(686,225	)		(853,453	)
Purchase of premises and equipment		(3,166	)		(2,628	)		(976	)		(3,166	)
Proceeds from sales of premises and equipment		11			-			-			11
Proceeds from sales of other real estate owned		6,713			10,524			2,186			6,713
Investment in affordable housing and alternative energy partnerships		(59,844	)		(46,349	)
Net increase in investment in affordable housing and alternative energy partnerships								(20,867	)		(59,844	)
Acquisition, net of cash acquired		-			6,572			(14,309	)		-
Net cash used in investing activities		(856,404	)		(658,857	)
Net cash used for investing activities								(159,099	)		(856,404	)

Cash Flows from Financing Activities

Net increase in deposits		429,976			1,034,442
Net (decrease)/increase in deposits								73,120			429,976
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(50,000	)		(50,000	)		(250,000	)		(50,000	)
Advances from Federal Home Loan Bank		2,730,000			4,842,000			2,608,000			2,730,000
Repayment of Federal Home Loan Bank borrowings		(2,305,000	)		(5,192,000	)		(2,393,000	)		(2,305,000	)
Cash dividends paid		(42,570	)		(30,690	)		(50,491	)		(42,570	)
Purchases of treasury stock		(54,441	)		(50,701	)		-			(54,441	)
Proceeds from shares issued under Dividend Reinvestment Plan		1,643			3,636			1,849			1,643
Proceeds from exercise of stock options		49			3,433			1,018			49
Taxes paid related to net share settlement of RSUs		(103	)		(204	)		(5,127	)		(103	)
Excess tax short-fall from share-based payment arrangements		-			(5,602	)
Net cash provided by financing activities		709,554			554,314

Increase in cash and cash equivalents		23,747			19,512
Net cash (used in) provided by financing activities								(14,631	)		709,554
(Decrease)/increase in cash and cash equivalents								(50,131	)		23,747
Cash and cash equivalents, beginning of the period		180,130			176,830			218,017			180,130

Cash and cash equivalents, end of the period	$	203,877		$	196,342		$	167,886		$	203,877


Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	61,212		$	52,614		$	58,416		$	61,212
Income taxes paid	$	31,717		$	67,776		$	62,296		$	31,717
Non-cash investing and financing activities:
Net change in unrealized holding gain on securities available-for-sale, net of tax	$	13,927		$	4,790		$	3,592		$	13,927
Net change in unrealized holding loss on cash flow hedge derivatives	$	(3,598	)	$	(1,818	)	$	(94	)	$	(3,598	)
Transfers of investment securities to available-for-sale from other assets	$	-		$	520
Transfers to other real estate owned from loans held for investment	$	2,698		$	3,914		$	726		$	2,698
Loans transferred from held for sale to held for investment, net	$	1,351		$	-		$	-		$	1,351
Loans to facilitate the sale of other real estate owned	$	2,616		$	-		$	-		$	2,616
Issuance of stock related to acquisition	$	-		$	82,857		$	-		$	-

See accompanying notes to unaudited condensed consolidated financial statements.

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CATHAY GENERAL BANCORP AND ~~SUBSIDIARIES~~SUBSIDIARIES

NOTES TO CONDENSED 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”), ~~six~~seven limited partnerships investing in affordable housing investments in ~~which the~~which the Bank is the sole limited partner, Asia Realty Corp. and GBC Venture Capital, Inc. Bancorp also owns 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities. The Bank was founded in 1962 and offers a wide range of financial services. As of September 30, ~~2016,~~2017, the Bank ~~operated~~operates 22 branches in Southern California, 12 branches in Northern California, 12 branches in New York State, three branches in Illinois, three branches in Washington State, two branches in Texas, one branch in Massachusetts, one branch in New Jersey, one branch in Maryland, one branch in Nevada, one branch in Hong Kong, and a representative office in Shanghai and in Taipei. Deposit accounts at the Hong Kong branch are not insured by the Federal Deposit Insurance Corporation (the “FDIC”).

2. Business Combinations

On July 14, 2017, the Company completed the acquisition of SinoPac Bancorp, the parent of Far East National Bank (FENB), pursuant to a Stock Purchase Agreement, dated as of July 8, 2016, by and between the Company and Bank SinoPac Co. Ltd. Under the terms of the Stock Purchase Agreement, the Company purchased all of the issued and outstanding share capital of SinoPac Bancorp for an aggregate purchase price of $351.6 million plus additional post closing payments based on the realization of certain assets of FENB. The Company issued 926,192 shares of common stock as consideration and the remainder of the consideration is payable in cash. Pursuant to the Stock Purchase Agreement, (i) $100 million of the purchase price was deferred and will be released within one year based on the timing of the contemplated merger of FENB into Cathay Bank and (ii) 10% of the purchase price was held back and will be released over a period of three years following the closing of the acquisition, subject to any indemnity claims. Founded in 1974, FENB offers a wide range of financial services. The acquisition allowed the Company to expand its number of branches in California. As of July 14, 2017, FENB operated nine branches in California, and a representative office in Beijing. The acquisition will be accounted for as a business combination, subject to the provisions of ASC 805-10-50, Business Combinations.

The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the July 14, 2017 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 condensed consolidated statement of 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.

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The fair value of the assets and the liabilities acquired as of July 14, 2017 are shown below:

SinoPac Bancorp

Assets acquired:

Cash and cash equivalents
$ 166,932
Short-term investments
122,000
Securities available-for-sale
107,934
Loans
703,787
Premises and equipment
6,198
Cash surrender value of life insurance
46,083
Deferred tax assets, net
40,136
Core deposit intangible
7,144
Accrued interest receivable and other assets
9,134
Total assets acquired
1,209,348

Liabilities assumed:

Deposits
813,888
Long-term debt
30,000
Accrued interest payable and other liabilities
5,608
Total liabilities assumed
849,496
Net assets acquired
$ 359,852

Cash paid
$ 181,241
Fair value of common stock issued
34,862
Total consideration paid
$ 216,103

Purchase price payable to SinoPac
138,309
Total consideration
$ 354,412
Gains on bargain purchase
$ 5,440
3

2.. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in ~~accordance~~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 of 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, ~~2016.~~2017. 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, ~~2015.~~2016.

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The Company expects that the most significant estimates subject to change are the allowance for loan losses, goodwill impairment, and other-than-temporary impairment.

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3.. Recent Accounting Pronouncements

Accounting Standards adopted in 2017

In March 2016, the FASB issued ASU 2016-09, “Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 changes aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 became effective for interim and annual periods beginning on January 1, 2017. The method of adoption differs for each of the topics covered by the ASU. The Company elected to apply all topics covered by the ASU on a prospective basis and has elected to continue to estimate forfeitures expected to occur in determining the amount of compensation cost to be recognized each period.

Under ASU 2016-09, all excess tax benefits and tax deficiencies from share based payments are recognized as income tax expense or benefit in the income statement instead of the previous accounting which credited excess tax benefits to additional paid-in capital and tax deficiencies as a charge to income tax expense or as an offset to accumulated excess tax benefits, if any. Excess tax benefits or deficiencies are included in income tax expense as discrete items in the period in which they occur. For diluted earnings per share calculations, excess tax benefits are no longer included in assumed proceeds when determining average diluted shares outstanding under the treasury stock method. ASU 2016-09 resulted in a $2.6 million tax benefit from the distribution of restricted stock units in the nine months ended September 30, 2017.

Other Accounting Standards

In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606).The new guidance replaces existing revenue recognition guidance for contracts to provide goods or services to customers and amends existing guidance related to recognition of gains and losses on the sale of certain nonfinancial assets such as real estate. ASU 2014-09 clarifies the principles for recognizing revenue and replaces nearly all existing revenue recognition guidance in U.S. GAAP. Quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. ASU 2014-09 as amended by ASU 2015-14, ASU 2016-08, ASU 2016-10 and ASU 2016-12, is effective for interim and annual periods beginning after December 15, 2017 and is applied on either a modified retrospective or full retrospective basis. ~~Early adoption~~Our revenue is ~~permitted for interim~~primarily comprised of net interest income on financial assets and ~~annual periods beginning after December 15, 2016. Adoption~~financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and ~~its subsequent amendments is~~non-interest income. The Company has completed the assessment phase of implementing this new standard. In the assessment phase, the Company determined which revenue streams are within the scope and those that are excluded from the scope of the new standard. Based on this assessment, the Company concluded that substantially all of the Company's revenues are excluded from the scope of the new standard. For the revenues within the scope of the new standard, the Company concluded that there will not ~~expected to have~~be a ~~significant~~material impact onunder the ~~Company’s Consolidated Financial Statements.~~new standard.

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In January 2016, the FASB issued ASU 2016-01, “Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This update requires an entity to measure equity investments with readily determinable fair values at fair value with changes in fair value recognized in net income. Equity investment without readily determinable fair values will be measured at fair value either upon the occurrence of an observable price change or upon identification of an impairment and any amount by which the carrying value exceeding the fair value will be recognized as an impairment in net income. This update also requires an entity to disclose fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price option. In addition, this update requires separate presentation in comprehensive income for changes in the fair value of a liability and in the balance sheet by measurement category and form of financial asset. ASU 2016-01 becomes effective for interim and annual periods beginning after December 15, 2017. ~~Adoption of ASU 2016-01~~The Company is ~~not expected to have a significant~~currently evaluating the impact on ~~the Company’s~~its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842),which is intended to increase transparency and comparability in the accounting for lease transactions. ASU 2016-02 requires lessees to recognize all leases longer than twelve months on the ~~Consolidated Balance Sheet~~consolidated balance sheet as lease assets and lease liabilities and quantitative and qualitative disclosures regarding key information about leasing arrangements. Lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with an option to early adopt. ASU 2016-02 mandates a modified retrospective transition method for all entities. The Company is ~~currently~~ evaluating the impact onof ASU 2016-02 and has determined that the majority of our leases are operating leases. We expect, upon adoption, the Company will record a liability for the remaining obligation under the lease agreements and a corresponding right-of-use asset in its ~~Consolidated Financial Statements.~~

~~In March 2016, the FASB issued~~consolidated financial statements. ASU ~~2016-06, “~~~~Derivatives and Hedging~~(T~~opic 8~~15):~~Contingent Put and Call Options in Debt Instruments~~.” This update requires an entity to perform a four-step decision sequence when assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The four-step decision sequence is: the payoff is adjusted based on changes in an index; the payoff is indexed to an underlying other than interest rates or credit risk; the debt involves a substantial premium or discount; and the call or put option is contingently exercisable. ASU 2016-06 becomes2016-02 will be effective for ~~interim~~us on January 1, 2019 and ~~annual periods~~will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning ~~after December 15, 2016. Adoption~~ of ~~ASU 2016-06 is not expected to have a significant impact on~~ the ~~Company’s consolidated~~earliest comparative period presented in the financial statements.

~~In March 2016, the FASB issued ASU 2016-07, “~~~~Investments Equity Method and Joint Ventures~~(T~~opic~~~~323~~):~~Simplifying the Transition to the Equity Method of Accounting~~.” This update eliminates the requirement to retroactively adopt the equity method of accounting. It requires that an equity method investor add the cost of acquiring the additional interest to the current basis of the previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The retroactive adjustment of the investment is no longer required. ASU 2016-07 becomes ~~effective for interim and annual periods beginning after December 15, 2016. Adoption of ASU 2016-07 is not expected to have a significant impact on the Company’s consolidated financial statements.~~

~~In March 2016, the FASB issued ASU 2016-09, “~~~~Compensation Stock Compensation~~(T~~opic~~~~718~~):Im~~provements to Employee Share-Based Payment Accounting~~.” This update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 becomes ~~effective for interim and annual periods beginning after December 15, 2016. Adoption of ASU 2016-09 is not expected to have a significant impact on the Company’s consolidated financial statements.~~

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses(T~~opic~~~~326~~) (Topic 326):Measurement of Credit Losses on Financial Instruments.”This update requires an entity to use a broader range of reasonable and supportable forecasts, in addition to historical experience and current conditions, to develop an expected credit loss estimate for financial assets and net investments that are not accounted for at fair value through net income. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses to the amount by which fair value is below amortized cost. ASU 2016-13 becomes effective for interim and annual periods beginning after December 15, 2019. The Company ~~is currently evaluating~~has designated a management team to evaluate ASU 2016-13 and develop an implementation strategy. The Company has not yet determined the effect of ASU 2016-13 on its accounting policies or the impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.”This update provides guidance on eight cash flow issues with the objective of reducing the existing diversity in practice related to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interest in securitization transactions, separately identifiable cash flows and application of the predominance principle. The amendments reduce current and potential future diversity in practice. The amendments in this update apply to all entities that are required to present a statement of cash flows under Topic 230. ASU 2016-15 becomes effective for interim and annual periods beginning after December 15, 2017.The Company is currently evaluating the impact on its consolidated financial statements.

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In October 2016, the FASB issued ASU 2016-16, “Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory.” This update will allow the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows – Restricted Cash.” This update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Adoption of ASU 2016-18 is not expected to have a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) – Clarifying the Definition of a Business.” This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. Under the current implementation guidance in Topic 805, there are three elements of a business—inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes. The amendments in this update also provide a screen to determine when a set is not a business. The amendments in this update affect all reporting entities that must determine whether they have acquired or sold a business. The amendments in this update are to be applied to annual periods beginning after December 15, 2017. Adoption of ASU 2017-01 is not expected to have a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Adoption of this update is on a prospective basis and the amendments in this update are to be applied to annual periods beginning after December 15, 2019. Adoption of ASU 2017-04 is not expected to have a significant impact on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, "Other Income—Gains and Losses from theDerecognition of Nonfinancial Assets (Subtopic 610-20):Clarifying the Scope of Asset Derecognition Guidanceand Accounting for Partial Sales of Nonfinancial Assets.” This update clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments define the term “in substance nonfinancial asset”, in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets with the scope of Subtopic 610-20. The amendments in this update clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The amendments also clarify that an entity should allocate consideration to each distinct asset by applying the guidance in Topic 606 on allocating the transaction price to performance obligations. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Adoption of ASU 2017-05 is not expected to have a significant impact on the Company’s consolidated financial statements.

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In March 2017, the FASB issued ASU 2017-08, “Receivables- Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This update amends the amortization period for certain purchased callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This update affects all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation –Stock Compensation (Topic 718): Modification Accounting.”The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update affect any entity that changes the terms or conditions of a share-based payment award. The amendments should be applied prospectively to an award modified on or after the adoption date. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Adoption of ASU 2017-09 is not expected to have a significant impact on the Company’s consolidated financial statements.

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

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815)”, targeted improvements to accounting for hedging activities. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact on its consolidated financial statements.

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54. Earnings per Share

Basic earnings per share ~~excludes~~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 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. Outstanding stock options with anti-dilutive effect were not included in the computation of diluted earnings per share. The following table sets forth earnings per common share calculations:

Three months ended September 30,

Nine months ended September 30,

(Dollars in thousands, except share and per share data)

2016

2015

2016

2015

Net income
$ 46,090 $ 38,483 $ 127,084 $ 119,663

Weighted-average shares:

Basic weighted-average number of common shares outstanding
78,865,860 81,475,288 79,147,839 80,422,711
Dilutive effect of weighted-average outstanding common share equivalents

Warrants
569,949 606,803 520,686 507,002
Options
95,850 123,910 90,461 124,135
Restricted stock units
165,410 79,477 143,860 51,343
Diluted weighted-average number of common shares outstanding
79,697,069 82,285,478 79,902,846 81,105,191

Average stock options and warrants with anti-dilutive effect
207,183 760,291 247,974 1,082,400
Earnings per common share:

Basic
$ 0.58 $ 0.47 $ 1.61 $ 1.49
Diluted
$ 0.58 $ 0.47 $ 1.59 $ 1.48

	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands, except share and per share data)	2017		2016		2017		2016
Net income	$	49,746	$	46,090	$	150,102	$	127,084

Weighted-average shares:
Basic weighted-average number of common shares outstanding		80,665,398		78,865,860		80,073,249		79,147,839
Dilutive effect of weighted-average outstanding common share equivalents
Warrants		399,957		569,949		409,019		520,686
Options		19,221		95,850		25,706		90,461
Restricted stock units		320,278		165,410		289,205		143,860
Diluted weighted-average number of common shares outstanding		81,404,854		79,697,069		80,797,179		79,902,846

Average stock options and warrants with anti-dilutive effect		0		207,183		6,561		247,974
Earnings per common share:
Basic	$	0.62	$	0.58	$	1.87	$	1.61
Diluted	$	0.61	$	0.58	$	1.86	$	1.59

5. Stock-Based Compensation

Under the Company’s equity incentive plans, directors and eligible employees may be granted incentive or non-statutory stock options and/or restricted stock units, or awarded non-vested stock.As of September 30, ~~2016,~~2017, the only options granted by the Company were non-statutory stock options to selected Bank officers and non-employee directors at exercise prices equal to the fair market value of a share of the Company’s common stock on the date of grant. Such options have a maximum ten-year term and vest in 20% annual increments (subject to early termination in certain events) ~~except certain options granted to the Chief Executive Officer of the Company in 2005 and 2008.~~. There were no options granted during the first nine months of ~~2016~~2017 or ~~2015.~~2016.

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Option compensation expense was zero for the three months and for the nine months ended September 30, ~~2016,~~2017, and September 30, ~~2015.~~2016. Stock-based compensation was fully recognized over the requisite service period for all awards. There were ~~2,110~~43,540 and ~~147,350~~2,110 stock option shares exercised in the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The Company received ~~$49,000 with~~$1.0 million from the exercise of stock options which had an aggregate intrinsic value of ~~$9,000 from the exercise of stock options~~$607,000 during the nine months ended September 30, ~~2016~~2017 compared to ~~$3.4 million with~~$49,000 from the exercise of stock options which had an aggregate intrinsic value of ~~$1.3 million~~$9,000 during the nine months ended September 30, ~~2015.~~2016. The table below summarizes stock option activity for the periods indicated:

Shares

Weighted-average
Exercise Price

Weighted-average
Remaining Contractual
Life (in years)

Aggregate
Intrinsic
Value (in thousands)

Balance, December 31, 2015
1,031,170 $ 31.27 0.9 $ 3,268
Exercised
(2,110 ) 23.37
Forfeited
(608,670 ) 36.46
Balance, March 31, 2016
420,390 $ 23.80 1.8 $ 2,026
Forfeited
(12,000 ) 38.26
Balance, June 30, 2016
408,390 $ 23.37 1.6 $ 1,973
Exercised
- -
Forfeited
- -
Balance, September 30, 2016
408,390 $ 23.37 1.4 $ 3,026

Exercisable, September 30, 2016
408,390 $ 23.37 1.4 $ 3,026

Weighted-average

Aggregate

Weighted-average

Remaining Contractual

Intrinsic

Shares

Exercise Price

Life (in years)

Value (in thousands)

Balance, December 31, 2016
82,670 $ 23.37 1.1 $ 1,211
Exercised
(18,040 ) 23.37
Balance, March 31, 2017
64,630 $ 23.37 0.9 $ 925
Exercised
(19,500 ) 23.37
Balance, June 30, 2017
45,130 $ 23.37 0.7 $ 658
Exercised
(6,000 ) 23.37
Balance, September 30, 2017
39,130 $ 23.37 0.4 $ 659

Exercisable, September 30, 2017
39,130 $ 23.37 0.4 $ 659

In addition to stock options, the Company also grants restricted stock units to eligible employees that vest subject to continued employment at the vesting dates.

The Company granted restricted stock units for 87,781 shares at an average closing price of $38.59 per share in the first nine months of 2017. The Company granted restricted stock units for 88,693 shares at an average closing price of $30.37 per share in ~~the first nine months of~~ 2016. ~~The Company granted restricted stock units for 72,900 shares at an average closing price for $28.11 per share in the first nine months of 2015.~~

InStarting in December 2013, the Company granted performance share unit awards in which the number of units earned is calculated based on the relative total shareholder return (TSR) of the Company’s common stock as compared to the TSR of the KBW Regional Banking Index. In addition, the Company granted performance share unit awards in which the number of units earned is determined by comparison to the targeted earnings per share (EPS) as defined in the award for the 2014 to 2016 period. In December 2016, in addition to TSR and EPS awards, the Company granted performance share unit awards in which the number of units earned is determined by comparison to the targeted return of assets ROA as defined in the award for December 2016. Performance TSR, performance EPS, and performance ROA units awarded are scheduled to vest on December 31 of the third full year from the grant date. The Company granted performance TSR restricted stock units for ~~119,840~~30,319 shares in 2016, 61,209 shares in 2015 and 60,456 shares in 2014, performance EPS restricted stock units for ~~116,186~~58,241 shares ~~were granted to eight executive officers~~ in ~~2013. In December~~2016, 57,409 shares in 2015 and 57,642 shares in 2014, ~~the Company granted additional~~and performance ~~TSR~~ROA restricted stock units for ~~60,456~~29,119 shares ~~and performance EPS restricted stock units for 57,642 shares~~in 2016, to its seven executive officers. In February 2017, after approval by the Company’s Compensation Committee, 297,171 shares of the Company’s stock were distributed under the TSR and EPS grants awarded in December ~~2015,~~2013 under the ~~Company~~terms of the awards, including 76,623 shares granted ~~additional~~and distributed based on higher than target actual performance ~~TSR restricted stock units~~and for ~~61,209 shares and performance EPS restricted stock units for 57,409 shares to seven executive officers. Both~~cash dividends during the performance ~~TSR and performance EPS units awarded are scheduled to vest three years from grant date.~~period.

The following table presents restricted stock unit activity during the nine months ended September 30, ~~2016:~~2017:

Units

Balance at December 31, ~~2015~~2016
~~542,375~~727,419
Granted
~~88,693~~164,404
~~Vested~~Distributed
(~~13,780~~297,905 )
Forfeited
(~~3,290~~10,424 )
Balance at September 30, ~~2016~~2017
~~613,998~~583,494

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Table of Contents

The ~~compensation~~compensation expense recorded for restricted stock units was ~~$1.2~~$1.3 million for the three months ended September 30, ~~2016,~~2017, compared to $1.2 million in the same period a year ago. For the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, compensation expense recorded related to the restricted stock units was ~~$3.3~~$3.9 million and ~~$3.4~~$3.3 million, respectively. Unrecognized stock-based compensation expense related to restricted stock units was ~~$6.9~~$9.1 million as of September 30, ~~2016,~~2017, and is expected to be recognized over the next ~~2.1~~2.0 years.

As of September 30, ~~2016, 3,716,379~~2017, 3,465,411 shares were available under the Company’s 2005 Incentive Plan (as Amended and Restated) for future grants.

~~The following table summarizes the tax~~Tax benefit ~~(short-fall) from share-based payment arrangements:~~

Three months ended September 30,

Nine months ended September 30,

(Dollars in thousands)

2016

2015

2016

2015

Tax benefit/(short-fall) of tax deductions in excess of grant-date fair value
$ - $ 17 $ (3,366 ) $ (5,602 )
Benefit of tax deductions on grant-date fair value
- 275 3,370 6,421
Total benefit of tax deductions
$ - $ 292 $ 4 $ 819
~~The short-fall amount~~ from share-based payment arrangements of $2.6 million reduced income tax expense in the first nine months of 2017 compared to a tax short-fall of $3.4 million that was charged ~~against~~to income tax ~~expense. In addition, as~~expense in the first nine months of ~~September 30, 2016, $140,000 was offset against additional paid-in capital that resulted from previously realized excess tax benefits.~~2016.

6. Investment Securities

Investment securities were ~~$1.30~~$1.4 billion as of September 30, ~~2016,~~2017, compared to ~~$1.59~~$1.3 billion as of December 31, ~~2015.~~2016. The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of investment securities as of September 30, ~~2016,~~2017, and December 31, ~~2015:~~2016:

September 30, 2017

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 399,741 $ - $ 305 $ 399,436
U.S. government agency entities
9,679 27 6 9,700
U.S. government sponsored entities
400,000 - 6,278 393,722
State and municipal securities
1,943 - 12 1,931
Mortgage-backed securities
447,959 468 2,362 446,065
Collateralized mortgage obligations
1,715 - 5 1,710
Corporate debt securities
80,007 904 5 80,906
Mutual funds
6,500 - 229 6,271
Preferred stock of government sponsored entities
4,117 3,970 - 8,087
Other equity securities
13,294 7,463 98 20,659
Total
$ 1,364,955 $ 12,832 $ 9,300 $ 1,368,487

September 30, 2016

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 389,921 $ 112 $ 24 $ 390,009
U.S. government sponsored entities
250,000 79 69 250,010
Mortgage-backed securities
556,454 7,186 2 563,638
Collateralized mortgage obligations
52 - 22 30
Corporate debt securities
74,962 444 937 74,469
Mutual funds
6,000 - 74 5,926
Preferred stock of government sponsored entities
2,811 565 188 3,188
Other equity securities
3,608 7,591 - 11,199

Total
$ 1,283,808 $ 15,977 $ 1,316 $ 1,298,469

December 31, 2015

December 31, 2016

Gross

Gross

Gross

Gross

Amortized

Unrealized

Unrealized

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

(In thousands)

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 284,678 $ 5 $ 395 $ 284,288 $ 489,839 $ 35 $ 857 $ 489,017
U.S. government sponsored entities
150,000 - 1,840 148,160 400,000 - 9,669 390,331
Mortgage-backed securities
1,073,108 560 11,399 1,062,269 339,241 309 3,290 336,260
Collateralized mortgage obligations
63 - 27 36 48 - 20 28
Corporate debt securities
74,955 425 1,525 73,855 74,965 247 862 74,350
Mutual funds
6,000 - 167 5,833 6,500 - 270 6,230
Preferred stock of government sponsored entities
2,811 633 228 3,216 2,811 4,497 - 7,308
Other equity securities
4,108 4,929 342 8,695 3,608 7,213 - 10,821
Total
$ 1,595,723 $ 6,552 $ 15,923 $ 1,586,352 $ 1,317,012 $ 12,301 $ 14,968 $ 1,314,345

14

Table of Contents

The amortized cost and fair value of investment securities asas of September 30, ~~2016,~~2017, by contractual maturities, are shown 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.

Securities Available-For-Sale

Amortized cost

Fair value

(In thousands)

Due in one year or less
$ 415,782 $ 415,555
Due after one year through five years
465,328 459,924
Due after five years through ten years
8,658 8,647
Due after ten years ⁽¹⁾
475,187 484,361
Total
$ 1,364,955 $ 1,368,487

Securities Available-For-Sale

Amortized cost

Fair value

(In thousands)

Due in one year or less
$ 289,859 $ 289,923
Due after one year through five years
353,931 353,682
Due after five years through ten years
75,117 75,076
Due after ten years⁽¹⁾
564,901 579,788
Total
$ 1,283,808 $ 1,298,469
(1) Equity securities are reported in this category

There were no sales transactions of mortgage-backed⁽¹⁾ ~~Equity~~ securities ~~are reported in this category~~
during the first nine months of 2017. Proceeds of $415.3 million were received from the sales transactions of mortgage-backed securities during the first nine months of 2016. Proceeds ~~of $648.0 million were received from the sale of mortgage-backed securities during the first nine months of 2015. Proceeds~~ from repayments, maturities and calls of mortgage-backed securities were ~~$125.3~~$48.5 million and ~~$67.3~~$125.3 million for the nine months ended September 30, 2017 and 2016, ~~and 2015,~~ respectively. Proceeds of $99.5 million were received from the sale of other investment securities during the nine months ended September 30, 2017. There were no sales transactions of other investment securities during the nine months ended September 30, 2016. Proceeds ~~of $385.2 million were received from the sale of other investment securities during the nine months ended September 30, 2015. Proceeds~~ from maturities and calls of other investment securities were ~~$460.0~~$341.3 million during the nine months ended September 30, ~~2016~~2017 compared to ~~$165.0~~$460.0 million during the same period a year ago. ~~Gains~~During the nine months ended September 30, 2017, $439,000 of ~~$3.3 million and zero~~ losses were realized on sales of investment ~~securities in addition to a permanent~~securities. Other than temporary impairment ~~write-down~~write-downs of zero and $206,000 ~~that was~~were recorded during the first nine months ~~ended September 30,~~of 2017 and 2016, ~~compared to gains of $2.4 million and losses of $1.9 million realized during the same period a year ago.~~respectively.

The ~~tables~~tables below show the fair value and unrealized losses of the temporarily impaired securities in our investment securities portfolio as of September 30, ~~2016,~~2017, and December 31, ~~2015:~~2016:

September 30, 2017

Temporarily impaired securities

Less than 12 months

12 months or longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 339,707 $ 46 $ 49,729 $ 259 $ 389,436 $ 305
U.S. government sponsored entities
395,774 6,284 - - 395,774 6,284
State and municipal securities
1,931 12 - - 1,931 12
Mortgage-backed securities
359,112 2,359 122 3 359,234 2,362
Collateralized mortgage obligations
1,710 5 - - 1,710 5
Corporate debt securities
5,029 5 - - 5,029 5
Mutual funds
- - 6,271 229 6,271 229
Other equity securities
4,680 98 - - 4,680 98
Total
$ 1,107,943 $ 8,809 $ 56,122 $ 491 $ 1,164,065 $ 9,300

September 30, 2016

Temporarily impaired securities

Less than 12 months

12 months or longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

(in thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 149,983 $ 24 $ - $ - $ 149,983 $ 24
U.S. government sponsored entities
149,931 69 - - 149,931 69
Mortgage-backed securities
44 1 265 1 309 2
Collateralized mortgage obligations
- - 30 22 30 22
Corporate debt securities
- - 54,063 937 54,063 937
Mutual funds
- - 5,926 74 5,926 74
Preferred stock of government sponsored entities
2,528 188 - - 2,528 188

Total
$ 302,486 $ 282 $ 60,284 $ 1,034 $ 362,770 $ 1,316
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December 31, 2015

December 31, 2016

Temporarily impaired securities

Temporarily impaired securities

Less than 12 months

12 months or longer

Total

Less than 12 months

12 months or longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses

(in thousands)

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 224,289 $ 395 $ - $ - $ 224,289 $ 395 $ 299,088 $ 857 $ - $ - $ 299,088 $ 857
U.S. government sponsored entities
148,160 1,840 - - 148,160 1,840 390,331 9,669 - - 390,331 9,669
Mortgage-backed securities
1,025,342 11,398 6 1 1,025,348 11,399 328,236 3,288 62 2 328,298 3,290
Collateralized mortgage obligations
- - 36 27 36 27 - - 28 20 28 20
Corporate debt securities
9,950 50 43,525 1,475 53,475 1,525 - - 29,138 862 29,138 862
Mutual funds
- - 5,833 167 5,833 167 - - 6,230 270 6,230 270
Preferred stock of government sponsored entities
2,488 228 - - 2,488 228
Other equity securities
158 342 - - 158 342
Total
$ 1,410,387 $ 14,253 $ 49,400 $ 1,670 $ 1,459,787 $ 15,923 $ 1,017,655 $ 13,814 $ 35,458 $ 1,154 $ 1,053,113 $ 14,968

AsAs of September 30, ~~2016,~~2017, the Company had unrealized losses on available-for-sale securities of ~~$1.3~~$9.3 million. The unrealized losses on these securities were primarily attributed to yield curve movement, together with ~~the~~ widened liquidity ~~spread~~spreads and credit ~~spread.~~spreads. The issuers have not, to the Company’s knowledge, established any cause for default on these securities. Management believes the impairment was temporary and, accordingly, no impairment loss on these securities has been recognized in our condensed consolidated statements of operations. The Company expects to recover the amortized cost basis of its debt securities, and has no intent to sell and will not be required to sell available-for-sale debt securities that have declined below their cost before their anticipated recovery.

Investment securities having a carrying value of ~~$505.9~~$291.4 million as of September 30, ~~2016,~~2017, and ~~$449.6~~$649.1 million as of December 31, ~~2015,~~2016, were pledged to secure public deposits, other borrowings, treasury tax and loan, and securities sold under agreements to repurchase.

Table of Contents

7. Loans

Most of the ~~Company’s~~Company’s business ~~activity is~~activities are with ~~Asian~~ customers located in the predominately Asian-populated areas of Southern and Northern California; New York City, New York; ~~Houston~~Dallas and ~~Dallas,~~Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; Las Vegas, Nevada, and Hong Kong. The Company has no specific industry concentration, and generally its loans are secured by real property or other collateral of the borrowers. Loans are generally expected 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 condensed consolidated balance sheets as of September 30, ~~2016,~~2017, and December 31, ~~2015,~~2016, were as follows:

	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016
	(in thousands)						(In thousands)
Commercial loans	$	2,248,996		$	2,316,863		$	2,419,891		$	2,248,187
Residential mortgage loans		2,329,402			1,932,355			2,922,537			2,444,048
Commercial mortgage loans		5,743,991			5,301,218			6,377,047			5,785,248
Real estate construction loans		515,236			441,543			691,486			548,088
Equity lines		170,022			168,980			181,751			171,711
Installment & other loans		2,810			2,493			4,722			3,993
Gross loans	$	11,010,457		$	10,163,452		$	12,597,434		$	11,201,275
Allowance for loan losses		(117,942	)		(138,963	)		(121,535	)		(118,966	)
Unamortized deferred loan fees		(5,519	)		(8,262	)		(3,424	)		(4,994	)
Total loans, net	$	10,886,996		$	10,016,227		$	12,472,475		$	11,077,315
Loans held for sale	$	4,750		$	6,676		$	-		$	7,500

AsAs of September 30, ~~2016,~~2017, recorded investment in impaired loans totaled ~~$130.9~~$127.7 million and was comprised of non-accrual loans, excluding loans held for sale, of ~~$44.4~~$65.3 million and accruing troubled debt restructured loans (TDRs) of ~~$86.6~~$62.4 million. As of December 31, ~~2015,~~2016, recorded investment in impaired loans totaled ~~$133.8~~$115.1 million and was comprised of non-accrual loans, excluding loans held for sale, of ~~$52.1~~$49.7 million and accruing TDRs of ~~$81.7~~$65.4 million. For impaired loans, the amounts previously charged off represent ~~7.7%~~7.1% as of September 30, ~~2016,~~2017, and ~~22.4%~~8.4% as of December 31, ~~2015,~~2016, of the contractual balances for impaired loans.

The following table presents the average balance and interest income recognized related to impaired loans for the periods indicated:

	Impaired Loans																Impaired Loans
	Average Recorded Investment								Interest Income Recognized								Average Recorded Investment								Interest Income Recognized
	Three months ended				Nine months ended				Three months ended				Nine months ended				Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,				September 30,				September 30,				September 30,				September 30,
	2016		2015		2016		2015		2016		2015		2016		2015		2017		2016		2017		2016		2017		2016		2017		2016
	(In thousands)																				(In thousands)
Commercial loans	$	28,091	$	23,894	$	18,602	$	24,974	$	170	$	170	$	488	$	519	$	24,987	$	28,091	$	22,572	$	18,602	$	678	$	170	$	760	$	488
Real estate construction loans		5,869		22,392		12,005		22,056		66		66		196		196		29,780		5,869		29,868		12,005		99		66		287		196
Commercial mortgage loans		81,005		97,557		86,456		104,508		776		777		2,124		2,126		58,555		81,005		60,074		86,456		391		776		1,015		2,124
Residential mortgage loans and equity lines		18,256		16,506		17,456		16,934		148		139		401		380		13,937		18,256		15,208		17,456		96		148		287		401
Total impaired loans	$	133,221	$	160,349	$	134,519	$	168,472	$	1,160	$	1,152	$	3,209	$	3,221	$	127,259	$	133,221	$	127,722	$	134,519	$	1,264	$	1,160	$	2,349	$	3,209

Table of Contents

The following table ~~presents~~presents impaired loans and the related allowance for loan losses as of the dates indicated:

													Impaired Loans
	Impaired Loans												September 30, 2017						December 31, 2016
	September 30, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)												(In thousands)

With no allocated allowance
Commercial loans	$	29,794	$	29,414	$	-	$	15,493	$	6,721	$	-	$	23,953	$	23,373	$	-	$	24,037	$	23,121	$	-
Real estate construction loans		5,776		5,507		-		51,290		22,002		-		22,309		21,748		-		5,776		5,458		-
Commercial mortgage loans		72,319		64,298		-		59,954		54,625		-		39,154		32,370		-		60,522		54,453		-
Residential mortgage loans and equity lines		4,832		4,675		-		3,233		3,026		-		2,264		2,264		-		5,472		5,310		-
Subtotal	$	112,721	$	103,894	$	-	$	129,970	$	86,374	$	-	$	87,680	$	79,755	$	-	$	95,807	$	88,342	$	-
With allocated allowance
Commercial loans	$	3,315	$	3,217	$	1,320	$	7,757	$	6,847	$	530	$	14,082	$	13,985	$	1,461	$	5,216	$	4,640	$	1,827
Commercial mortgage loans		10,425		10,289		1,248		28,258		27,152		6,792		23,061		22,820		823		10,158		10,017		573
Residential mortgage loans and equity lines		14,637		13,514		375		14,383		13,437		427		12,461		11,111		322		13,263		12,075		396
Subtotal	$	28,377	$	27,020	$	2,943	$	50,398	$	47,436	$	7,749	$	49,604	$	47,916	$	2,606	$	28,637	$	26,732	$	2,796
Total impaired loans	$	141,098	$	130,914	$	2,943	$	180,368	$	133,810	$	7,749	$	137,284	$	127,671	$	2,606	$	124,444	$	115,074	$	2,796

The following ~~tables~~tables present the aging of the loan portfolio by type as of September 30, ~~2016,~~2017, and as of December 31, ~~2015:~~2016:

September 30, 2017

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

Type of Loans:

(In thousands)

Commercial loans
$ 8,412 $ 14,855 $ 3,900 $ 15,942 $ 43,109 $ 2,376,782 $ 2,419,891
Real estate construction loans
- - - 14,267 14,267 677,219 691,486
Commercial mortgage loans
- - - 28,379 28,379 6,348,668 6,377,047
Residential mortgage loans and equity lines
- 89 - 6,725 6,814 3,097,474 3,104,288
Installment and other loans
- - - - - 4,722 4,722
Total loans
$ 8,412 $ 14,944 $ 3,900 $ 65,313 $ 92,569 $ 12,504,865 $ 12,597,434

September 30, 2016

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past
Due

Non-accrual
Loans

Total PastDue

Loans Not Past
Due

Total

(In thousands)

Type of Loans:
Commercial loans
$ 45,409 $ 6,807 $ - $ 9,251 $ 61,467 $ 2,187,529 $ 2,248,996
Real estate construction loans
- - - 5,507 5,507 509,729 515,236
Commercial mortgage loans
12,949 12,205 - 21,077 46,231 5,697,760 5,743,991
Residential mortgage loans and equity lines
- 477 - 8,524 9,001 2,490,423 2,499,424
Installment and other loans
- - - - - 2,810 2,810
Total loans
$ 58,358 $ 19,489 $ - $ 44,359 $ 122,206 $ 10,888,251 $ 11,010,457

December 31, 2015

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or More
Past Due

Non-accrual
Loans

Total PastDue

Loans Not Past
Due

Total

(In thousands)

Type of Loans:
Commercial loans
$ 8,367 $ 221 $ - $ 3,545 $ 12,133 $ 2,304,730 $ 2,316,863
Real estate construction loans
7,285 - - 16,306 23,591 417,952 441,543
Commercial mortgage loans
2,243 2,223 - 25,231 29,697 5,271,521 5,301,218
Residential mortgage loans and equity lines
4,959 1,038 - 7,048 13,045 2,088,290 2,101,335
Installment and other loans
- - - - - 2,493 2,493
Total loans
$ 22,854 $ 3,482 $ - $ 52,130 $ 78,466 $ 10,084,986 $ 10,163,452

December 31, 2016

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

Type of Loans:

(In thousands)

Commercial loans
$ 22,753 $ 27,190 $ - $ 15,710 $ 65,653 $ 2,182,534 $ 2,248,187
Real estate construction loans
10,390 5,835 - 5,458 21,683 526,405 548,088
Commercial mortgage loans
5,886 700 - 20,078 26,664 5,758,584 5,785,248
Residential mortgage loans and equity lines
4,390 - - 8,436 12,826 2,602,933 2,615,759
Installment and other loans
- - - - - 3,993 3,993
Total loans
$ 43,419 $ 33,725 $ - $ 49,682 $ 126,826 $ 11,074,449 $ 11,201,275

The determination of the amount of the allowance for loan losses for impaired loans is based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for loan losses. The nature of the process by which the Bank determines the appropriate allowance for loan losses requires the exercise of considerable judgment. This allowance evaluation process is also applied to troubled debt restructurings since they are considered to be impaired loans.

18

Table of Contents

A troubled debt restructuring is a formal modification of the terms of a loan when the lender, for ~~economic~~economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the ~~borrower it would not otherwise consider.~~borrower. The concessions may be granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date that causes significant delay in payment.

~~TDRs~~TDRs on accrual status are comprised of the 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 before being returned to accrual status. The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructure to set up interest reserves.

As of September 30, ~~2016,~~2017, accruing TDRs were ~~$86.6~~$62.4 million and non-accrual TDRs were ~~$20.9~~$33.7 million compared to accruing TDRs of ~~$81.7~~$65.4 million and non-accrual TDRs of ~~$39.9~~$29.7 million as of December 31, ~~2015.~~2016. The Company allocated specific reserves of ~~$1.3~~$1.1 million to accruing TDRs and ~~$0.3 million~~$143,000 to non-accrual TDRs as of September 30, ~~2016,~~2017, and ~~$2.0~~$1.3 million to accruing TDRs and ~~$5.4~~$1.1 million to non-accrual TDRs as of December 31, ~~2015.The~~2016. The following tables present TDRs that were modified during the three and nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, their specific reserves as of September 30, 2017 and 2016, and ~~2015 and charge-offsforthe~~charge-offs for the three and nine months ended September 30, ~~2016~~2017 and ~~2015:~~2016:

Three months ended September 30, 2017

September 30, 2017

No. of Contracts

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

Commercial loans
8 $ 18,873 $ 18,873 $ - $ 636
Commercial mortgage loans
5 4,123 3,818 305 10
Residential mortgage loans and equity lines
1 483 483 - 32
Total
14 $ 23,479 $ 23,174 $ 305 $ 678

Three months ended September 30, 2016

September 30, 2016

No. of Contracts

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

Commercial loans
7 $ 18,258 $ 18,258 $ - $ 208
Commercial mortgage loans
1 738 738 - -
Total
8 $ 18,996 $ 18,996 $ - $ 208
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Table of Contents

Nine months ended September 30, 2017

September 30, 2017

No. of Contracts

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

Commercial loans
13 $ 19,543 $ 19,543 $ - $ 641
Real estate construction loans
2 28,489 28,489 - -
Commercial mortgage loans
5 4,123 3,818 305 10
Residential mortgage loans and equity lines
1 483 483 - 32
Total
21 $ 52,638 $ 52,333 $ 305 $ 683

Three months ended September 30, 2016

September 30, 2016

No. of
Contracts

Pre-Modification
OutstandingRecorded
Investment

Post-Modification
Outstanding Recorded
Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

Commercial loans
7 $ 18,258 $ 18,258 $ - $ 208
Commercial mortgage loans
1 738 738 - -
Total
8 $ 18,996 $ 18,996 $ - $ 208

Three months ended September 30, 2015

September 30, 2015

No. of Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

Commercial loans
2 $ 306 $ 306 $ - $ 1
Commercial mortgage loans
15 1,918 1,918 - -
Total
17 $ 2,224 $ 2,224 $ - $ 1

Nine months ended September 30, 2016

September 30, 2016

No. of Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

Commercial loans
11 $ 23,102 $ 23,102 $ - $ 222
Commercial mortgage loans
1 738 738 - -
Residential mortgage loans and equity lines
2 367 367 - -
Total
14 $ 24,207 $ 24,207 $ - $ 222

Nine months ended September 30, 2015

September 30, 2015

Nine months ended September 30, 2016

September 30, 2016

No. ofContracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Charge-offs

Specific Reserve

No. of Contracts

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

(Dollars in thousands)

Commercial loans
3 $ 1,156 $ 1,156 $ - $ 1 11 $ 23,102 $ 23,102 $ - $ 222
Commercial mortgage loans
19 16,329 16,329 - 38 1 738 738 - -
Residential mortgage loans and equity lines
5 1,522 1,374 148 45 2 367 367 - -
Total
27 $ 19,007 $ 18,859 $ 148 $ 84 14 $ 24,207 $ 24,207 $ - $ 222

Modifications of the loan terms during the first nine months of ~~2016~~2017 were in the form of ~~changes in the stated interest rate,~~ extensions of maturity ~~dates, and/or reductions in monthly payment amounts.~~dates. The length of time for which modifications involving ~~a reduction~~extensions of ~~the stated interest rate or changes in payment terms that were documented~~maturity dates ranged from three to ~~ten~~twelve months from the modification date.

We expect that the ~~TDRs~~TDRs on accruing status as of September 30, ~~2016,~~2017, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. A summary of TDRs by type of concession and by type of loan, as of September 30, ~~2016,~~2017, and December 31, ~~2015,~~2016, is shown below:

September 30, 2016

Accruing TDRs

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

Commercial loans
$ 22,019 $ - $ 1,360 $ 23,379
Commercial mortgage loans
26,835 5,986 20,690 53,511
Residential mortgage loans
5,048 989 3,628 9,665
Total accruing TDRs
$ 53,902 $ 6,975 $ 25,678 $ 86,555

September 30, 2016

Non-accrual TDRs

Payment
Deferral

Rate Reduction
and Payment
Deferral

Total

(In thousands)

Commercial loans
$ 3,477 $ 90 $ 3,567
Commercial mortgage loans
1,508 15,260 16,768
Residential mortgage loans
364 171 535
Total non-accrual TDRs
$ 5,349 $ 15,521 $ 20,870

December 31, 2015

September 30, 2017

Accruing TDRs

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment Deferral

Total

(In thousands)
(In thousands)

Commercial loans
$ 8,298 $ - $ 1,726 $ 10,024 $ 21,416 $ - $ - $ 21,416
Real estate construction loans
- - 5,696 5,696 7,480 - - 7,480
Commercial mortgage loans
16,701 6,045 33,800 56,546 16,130 5,895 4,787 26,812
Residential mortgage loans
5,201 999 3,214 9,414 3,516 337 2,797 6,650
Total accruing TDRs
$ 30,200 $ 7,044 $ 44,436 $ 81,680 $ 48,542 $ 6,232 $ 7,584 $ 62,358

December 31, 2015

September 30, 2017

Non-accrual TDRs

Payment
Deferral

Rate Reductionand
PaymentDeferral

Total

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

(In thousands)

Commercial loans
$ 1,033 $ 90 $ 1,123 $ 13,259 $ - $ - $ 13,259
Real estate construction loans
9,981 5,825 15,806
Commercial mortgage loans
1,544 20,362 21,906 1,347 1,706 16,508 19,561
Residential mortgage loans
388 700 1,088 714 - 157 871
Total non-accrual TDRs
$ 12,946 $ 26,977 $ 39,923 $ 15,320 $ 1,706 $ 16,665 $ 33,691

20

Table of Contents

December 31, 2016

Accruing TDRs

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment Deferral

Total

(In thousands)

Commercial loans
$ 7,971 $ - $ 4,081 $ 12,052
Commercial mortgage loans
25,979 5,961 12,452 44,392
Residential mortgage loans
5,104 789 3,056 8,949
Total accruing TDRs
$ 39,054 $ 6,750 $ 19,589 $ 65,393

December 31, 2016

Non-accrual TDRs

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

Commercial loans
$ 14,565 $ - $ - $ 14,565
Commercial mortgage loans
2,510 1,795 10,328 14,633
Residential mortgage loans
356 - 168 524
Total non-accrual TDRs
$ 17,431 $ 1,795 $ 10,496 $ 29,722

The activity within our ~~TDRs~~TDRs for the periods indicated ~~are~~is shown below:

Three months ended September 30,

Nine months ended September 30,

Three months ended September 30,

Nine months ended September 30,

Accruing TDRs

2016

2015

2016

2015

2017

2016

2017

2016

(In thousands)

(In thousands)

Beginning balance
$ 74,708 $ 100,011 $ 81,680 $ 104,355 $ 79,819 $ 74,708 $ 65,393 $ 81,680
New restructurings
18,347 427 20,412 16,853 21,790 18,347 49,973 20,412
Restructured loans restored to accrual status
- 723 10,303 723 - - - 10,303
Charge-offs
- - - (148 )
Payments
(6,500 ) (11,280 ) (9,816 ) (21,714 ) (35,677 ) (6,500 ) (41,372 ) (9,816 )
Restructured loans placed on non-accrual status
- - (1,138 ) (10,188 ) (3,574 ) - (9,396 ) (1,138 )
Expiration of loan concession upon renewal
- - (14,886 ) - - - (2,240 ) (14,886 )
Ending balance
$ 86,555 $ 89,881 $ 86,555 $ 89,881 $ 62,358 $ 86,555 $ 62,358 $ 86,555

Three months ended September 30,

Nine months ended September 30,

Non-accrual TDRs

2017

2016

2017

2016

(In thousands)

Beginning balance
$ 30,045 $ 25,442 $ 29,722 $ 39,923
New restructurings
2,360 649 2,360 3,794
Restructured loans placed on non-accrual status
3,574 - 9,396 1,138
Charge-offs
(355 ) (3,407 ) (1,901 ) (4,352 )
Payments
(1,933 ) (1,814 ) (5,160 ) (9,330 )
Foreclosures
- - (726 ) -
Restructured loans restored to accrual status
- - - (10,303 )
Ending balance
$ 33,691 $ 20,870 $ 33,691 $ 20,870

Three months ended September 30,

Nine months ended September 30,

Non-accrual TDRs

2016

2015

2016

2015

(In thousands)

Beginning balance
$ 25,442 $ 42,595 $ 39,923 $ 41,618
New restructurings
649 1,796 3,794 2,006
Restructured loans placed on non-accrual status
- - 1,138 10,188
Charge-offs
(3,407 ) (3 ) (4,352 ) (3,246 )
Payments
(1,814 ) (1,859 ) (9,330 ) (8,037 )
Restructured loans restored to accrual status
- (723 ) (10,303 ) (723 )
Ending balance
$ 20,870 $ 41,806 $ 20,870 $ 41,806
AThe Company considers a loan ~~is considered~~ 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~~One commercial loan of $50,000 with charge-offs of $2.1 million had payment defaults within the previous twelve months ~~and which subsequently defaulted as of~~ended September 30, ~~2016.~~2017.

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

As of September 30, ~~2016,~~2017, there were no commitments to lend additional funds to those borrowers whose loans had been restructured, were considered impaired, or were on non-accrual status.
21
Table of Contents

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. The risk rating categories can be generally described by the following grouping for non-homogeneous loans:

●
●
Pass/Watch – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

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

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

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

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

The following ~~tables~~tables present the loan portfolio by risk rating as of September 30, ~~2016,~~2017, and as of December 31, ~~2015:~~2016:

September 30, 2017

Pass/Watch

Special Mention

Substandard

Doubtful

Total

(In thousands)

Commercial loans
$ 2,216,816 $ 146,479 $ 56,565 $ 31 $ 2,419,891
Real estate construction loans
604,363 65,375 21,748 - 691,486
Commercial mortgage loans
5,904,023 305,927 167,097 - 6,377,047
Residential mortgage loans and equity lines
3,064,118 31,858 8,312 - 3,104,288
Installment and other loans
4,722 - - - 4,722
Total gross loans
$ 11,794,042 $ 549,639 $ 253,722 $ 31 $ 12,597,434

Loans held for sale
$ - $ - $ - $ - $ -

September 30, 2016

Pass/Watch

Special Mention

Substandard

Doubtful

Total

(In thousands)
Commercial loans
$ 2,027,815 $ 133,858 $ 86,806 $ 517 $ 2,248,996
Real estate construction loans
489,473 20,256 5,507 - 515,236
Commercial mortgage loans
5,391,701 219,081 133,209 - 5,743,991
Residential mortgage loans and equity lines
2,488,495 391 10,538 - 2,499,424
Installment and other loans
2,810 - - - 2,810
Total gross loans
$ 10,400,294 $ 373,586 $ 236,060 $ 517 $ 11,010,457

Loans held for sale
$ - $ - $ - $ 4,750 $ 4,750

December 31, 2015

December 31, 2016

Pass/Watch

Special Mention

Substandard

Doubtful

Total

Pass/Watch

Special Mention

Substandard

Doubtful

Total

(In thousands)
(In thousands)

Commercial loans
$ 2,143,270 $ 110,338 $ 61,297 $ 1,958 $ 2,316,863 $ 2,023,114 $ 140,682 $ 84,293 $ 98 $ 2,248,187
Real estate construction loans
413,765 5,776 21,502 500 441,543 469,909 44,129 34,050 - 548,088
Commercial mortgage loans
5,018,199 155,553 118,196 9,270 5,301,218 5,410,623 250,221 124,404 - 5,785,248
Residential mortgage loans and equity lines
2,091,434 399 9,502 - 2,101,335 2,605,834 - 9,925 - 2,615,759
Installment and other loans
2,493 - - - 2,493 3,993 - - - 3,993
Total gross loans
$ 9,669,161 $ 272,066 $ 210,497 $ 11,728 $ 10,163,452 $ 10,513,473 $ 435,032 $ 252,672 $ 98 $ 11,201,275

Loans held for sale
$ 732 $ - $ 5,944 $ - $ 6,676 $ - $ - $ 7,500 $ - $ 7,500

22

Table of Contents

The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on ~~management’s~~management’s process in analyzing the loan portfolio and on management’s assumptions about specific borrowers, underlying collateral, and applicable economic and environmental conditions, among other factors.

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of September 30, ~~2016,~~2017, and as of December 31, ~~2015:~~2016:

Commercial
Loans

Real Estate
Construction
Loans

Commercial
Mortgage
Loans

Residential
Mortgage Loans and Equity Lines

Installment and
Other Loans

Total

Real Estate

Commercial

Residential

(In thousands)

Commercial

Construction

Mortgage

Mortgage Loans

Installment and

September 30, 2016

Loans

Loans

Loans

and Equity Lines

Other Loans

Total

(In thousands)

September 30, 2017

Loans individually evaluated for impairment

Allowance
$ 1,320 $ - $ 1,248 $ 375 $ - $ 2,943 $ 1,461 $ - $ 823 $ 322 $ - $ 2,606
Balance
$ 32,631 $ 5,507 $ 74,587 $ 18,189 $ - $ 130,914 $ 37,358 $ 21,748 $ 55,190 $ 13,376 $ - $ 127,672

Loans collectively evaluated for impairment

Allowance
$ 52,379 $ 9,245 $ 43,685 $ 9,682 $ 8 $ 114,999 $ 49,578 $ 22,008 $ 36,579 $ 10,740 $ 24 $ 118,929
Balance
$ 2,216,365 $ 509,729 $ 5,669,404 $ 2,481,235 $ 2,810 $ 10,879,543 $ 2,382,533 $ 669,738 $ 6,321,857 $ 3,090,912 $ 4,722 $ 12,469,762

Total allowance
$ 53,699 $ 9,245 $ 44,933 $ 10,057 $ 8 $ 117,942 $ 51,039 $ 22,008 $ 37,402 $ 11,062 $ 24 $ 121,535
Total balance
$ 2,248,996 $ 515,236 $ 5,743,991 $ 2,499,424 $ 2,810 $ 11,010,457 $ 2,419,891 $ 691,486 $ 6,377,047 $ 3,104,288 $ 4,722 $ 12,597,434

December 31, 2015

December 31, 2016

Loans individually evaluated for impairment

Allowance
$ 530 $ - $ 6,792 $ 427 $ - $ 7,749 $ 1,827 $ - $ 573 $ 396 $ - $ 2,796
Balance
$ 13,568 $ 22,002 $ 81,776 $ 16,464 $ - $ 133,810 $ 27,761 $ 5,458 $ 64,470 $ 17,385 $ - $ 115,074

Loans collectively evaluated for impairment

Allowance
$ 55,669 $ 22,170 $ 42,648 $ 10,718 $ 9 $ 131,214 $ 47,376 $ 23,268 $ 34,291 $ 11,224 $ 11 $ 116,170
Balance
$ 2,303,295 $ 419,541 $ 5,219,442 $ 2,084,871 $ 2,493 $ 10,029,642 $ 2,220,426 $ 542,630 $ 5,720,778 $ 2,598,374 $ 3,993 $ 11,086,201

Total allowance
$ 56,199 $ 22,170 $ 49,440 $ 11,145 $ 9 $ 138,963 $ 49,203 $ 23,268 $ 34,864 $ 11,620 $ 11 $ 118,966
Total balance
$ 2,316,863 $ 441,543 $ 5,301,218 $ 2,101,335 $ 2,493 $ 10,163,452 $ 2,248,187 $ 548,088 $ 5,785,248 $ 2,615,759 $ 3,993 $ 11,201,275

23

Table of Contents

The following ~~tables~~tables detail activity in the allowance for loan losses by portfolio segment for the three ~~months~~ and nine months ended September 30, ~~2016,~~2017, and September 30, ~~2015.~~2016. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three months ended September 30, 2016 and 2015
Three months ended September 30, 2017 and 2016
Three months ended September 30, 2017 and 2016

Real Estate

Commercial

Residential

Installment

Real Estate

Commercial

Residential

Installment

Commercial

Construction

Mortgage

Mortgage Loans

and Other

Commercial

Construction

Mortgage

Mortgage Loans

and Other

Loans

Loans

Loans

and Equity Lines

Loans

Total

Loans

Loans

Loans

and Equity Lines

Loans

Total

(In thousands)

(In thousands)

June 30, 2017 Ending Balance
$ 46,744 $ 17,844 $ 36,840 $ 14,364 $ 17 115,809
Provision/(credit) for possible credit losses
3,800 4,117 (4,615 ) (3,309 ) 7 -
Charge-offs
(80 ) - (305 ) - - (385 )
Recoveries
575 47 5,482 7 - 6,111
Net (charge-offs)/recoveries
495 47 5,177 7 - 5,726
September 30, 2017 Ending Balance
$ 51,039 $ 22,008 $ 37,402 $ 11,062 $ 24 $ 121,535

June 30, 2016 Ending Balance
$ 50,590 $ 10,753 $ 46,090 $ 15,503 $ 12 122,948 $ 50,590 $ 10,753 $ 46,090 $ 15,503 $ 12 $ 122,948
Provision/(credit) for possible credit losses
4,380 (2,056 ) 3,132 (5,452 ) (4 ) - 4,380 (2,056 ) 3,132 (5,452 ) (4 ) -
Charge-offs
(3,277 ) - (4,626 ) - - (7,903 ) (3,277 ) - (4,626 ) - - (7,903 )
Recoveries
2,006 548 337 6 - 2,897 2,006 548 337 6 - 2,897
Net (charge-offs)/recoveries
(1,271 ) 548 (4,289 ) 6 - (5,006 ) (1,271 ) 548 (4,289 ) 6 - (5,006 )
September 30, 2016 Ending Balance
$ 53,699 $ 9,245 $ 44,933 $ 10,057 $ 8 $ 117,942 $ 53,699 $ 9,245 $ 44,933 $ 10,057 $ 8 $ 117,942

June 30, 2015 Ending Balance
$ 47,540 $ 26,304 $ 67,245 $ 12,323 $ 25 $ 153,437
Provision/(credit) for possible credit losses
10,040 121 (11,762 ) 353 (2 ) (1,250 )
Charge-offs
(3,310 ) - (97 ) - - (3,407 )
Recoveries
607 41 647 1 - 1,296
Net (charge-offs)/recoveries
(2,703 ) 41 550 1 - (2,111 )
September 30, 2015 Ending Balance
$ 54,877 $ 26,466 $ 56,033 $ 12,677 $ 23 $ 150,076

Nine months ended September 30, 2016 and 2015
Nine months ended September 30, 2017 and 2016
Nine months ended September 30, 2017 and 2016

Real Estate

Commercial

Residential

Installment

Real Estate

Commercial

Residential

Installment

Commercial

Construction

Mortgage

Mortgage Loans

and Other

Commercial

Construction

Mortgage

Mortgage Loans

and Other

Loans

Loans

Loans

and Equity Lines

Loans

Total

Loans

Loans

Loans

and Equity Lines

Loans

Total

(In thousands)

(In thousands)

2017 Beginning Balance
$ 49,203 $ 23,268 $ 34,864 $ 11,620 $ 11 $ 118,966
Provision/(credit) for possible credit losses
2,245 (1,403 ) (2,775 ) (580 ) 13 (2,500 )
Charge-offs
(1,810 ) - (860 ) - - (2,670 )
Recoveries
1,401 143 6,173 22 - 7,739
Net (charge-offs)/recoveries
(409 ) 143 5,313 22 - 5,069

September 30, 2017 Ending Balance
$ 51,039 $ 22,008 $ 37,402 $ 11,062 $ 24 $ 121,535
Reserve for impaired loans
$ 1,461 $ - $ 823 $ 322 $ - $ 2,606
Reserve for non-impaired loans
$ 49,578 $ 22,008 $ 36,579 $ 10,740 $ 24 $ 118,929
Reserve for off-balance sheet credit commitments
$ 2,760 $ 1,206 $ 109 $ 175 $ 4 $ 4,254

2016 Beginning Balance
$ 56,199 $ 22,170 $ 49,440 $ 11,145 $ 9 $ 138,963 $ 56,199 $ 22,170 $ 49,440 $ 11,145 $ 9 $ 138,963

Provision/(credit) for possible credit losses
5,815 (20,796 ) 295 (963 ) (1 ) (15,650 ) 5,815 (20,796 ) 295 (963 ) (1 ) (15,650 )

Charge-offs
(12,035 ) - (5,681 ) (149 ) - (17,865 ) (12,035 ) - (5,681 ) (149 ) - (17,865 )
Recoveries
3,720 7,871 879 24 12,494 3,720 7,871 879 24 - 12,494
Net (charge-offs)/recoveries
(8,315 ) 7,871 (4,802 ) (125 ) - (5,371 ) (8,315 ) 7,871 (4,802 ) (125 ) - (5,371 )

September 30, 2016 Ending Balance
$ 53,699 $ 9,245 $ 44,933 $ 10,057 $ 8 $ 117,942 $ 53,699 $ 9,245 $ 44,933 $ 10,057 $ 8 $ 117,942
Reserve for impaired loans
$ 1,320 $ - $ 1,248 $ 375 $ - $ 2,943 $ 1,320 $ - $ 1,248 $ 375 $ - $ 2,943
Reserve for non-impaired loans
$ 52,379 $ 9,245 $ 43,685 $ 9,682 $ 8 $ 114,999 $ 52,379 $ 9,245 $ 43,685 $ 9,682 $ 8 $ 114,999
Reserve for off-balance sheetcredit commitments
$ 2,112 $ - $ 35 $ 80 $ 2 $ 2,229

2015 Beginning Balance
$ 47,501 $ 27,652 $ 74,673 $ 11,578 $ 16 $ 161,420

Provision/(credit) for possible credit losses
11,045 (1,349 ) (19,342 ) 1,239 7 (8,400 )

Charge-offs
(6,754 ) - (3,613 ) (161 ) - (10,528 )
Recoveries
3,085 163 4,315 21 - 7,584
Net (charge-offs)/recoveries
(3,669 ) 163 702 (140 ) - (2,944 )

September 30, 2015 Ending Balance
$ 54,877 $ 26,466 $ 56,033 $ 12,677 $ 23 $ 150,076
Reserve for impaired loans
$ 7,561 $ - $ 6,389 $ 373 $ - $ 14,323
Reserve for non-impaired loans
$ 47,316 $ 26,466 $ 49,644 $ 12,304 $ 23 $ 135,753
Reserve for off-balance sheetcredit commitments
$ 703 $ 477 $ 202 $ 37 $ 1 $ 1,420
Reserve for off-balance sheet credit commitments
$ 2,112 $ - $ 35 $ 80 $ 2 $ 2,229

24

Table of Contents

.8. Commitments and Contingencies

The Company is involved in various litigation concerning transactions entered into in the normal course of business. Management, after consultation with legal counsel, does not believe that the resolution of such litigation will have a material effect upon its 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 becomes a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans, or through commercial or standby letters of credit and financial guarantees. These instruments represent varying degrees of exposure to risk in excess of the amounts included in the accompanying condensed consolidated balance sheets. The contractual or notional amount of these instruments indicates a level of activity associated with a particular class of financial instrument and is not a reflection of the level of expected losses, if any.

~~9. Borrowed Funds~~

10. Borrowed Funds

Securities Sold Under Agreements to Repurchase.Securities sold under agreements to repurchase were $100 million with a weighted average rate of 2.86% as of September 30, 2017, compared to $350 million with a weighted average rate of 4.06% as of ~~September 30, 2016, compared to $400 million with a weighted average rate of 3.89% as of~~ December 31, ~~2015. As of September 30, 2016, four floating-to-fixed rate agreements totaling $200 million with a weighted average rate of 5.0% and final~~2016. Final maturity ~~in January 2017 had initial floating rates for one year, with floating rates of the three-month LIBOR rate minus 340 basis points. Thereafter, the rates are fixed~~ for the ~~remainder of the term, with interest rates ranging from 4.89% to 5.07%. As of September 30, 2016, three~~two fixed rate non-callable securities sold under agreements to repurchase totaled $150 million with a weighted average rate of 2.81%, compared to four fixed rate non-callable securities sold under agreements to repurchase totaling $200 million with a weighted average rate of 2.78% as of December 31, 2015. Final maturity for the three fixed rate non-callable securities sold under agreements to repurchase was ~~$50.0 million in July 2017,~~ $50.0 million in June 2018 and $50.0 million in July 2018.

These transactions are accounted for as collateralized financing transactions and recorded at the amounts at which the securities were sold. The Company may have to provide additional collateral for the ~~repurchase~~repurchase agreements, as necessary. The underlying collateral pledged for the repurchase agreements consists of U.S. Treasury securities and mortgage-backed securities with a fair value of ~~$383~~$108 million as of September 30, ~~2016,~~2017, and ~~$430~~$372 million as of December 31, ~~2015.~~2016.

Borrowing from the FHLB. As of September 30, ~~2016,~~2017, over-night borrowings from the FHLB were ~~$300~~$450 million at a rate of ~~0.38%~~1.16% compared to ~~$250~~$275 million at a rate of ~~0.27%~~0.55% as of December 31, ~~2015.~~2016. As of September 30, ~~2016,~~2017, the advances from the FHLB were ~~$400~~$145 million at a rate of ~~0.47% compared to $25 million at a rate of 1.13% as of December 31, 2015.~~1.35%. As of September 30, ~~2016,~~2017, FHLB advances of ~~$375~~$490 million will mature in October ~~2016~~2017, $55 million in 2018 and ~~$25~~$50 million ~~will mature~~ in ~~March 2018.~~December 2019.

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1~~10.~~1. Income Taxes

~~Income~~The effective tax ~~expense totaled $50.8 million, or an~~rate for the third quarter of 2017 was 41.4% compared to 25.5% for the third quarter of 2016. The third quarter 2017 effective tax rate of ~~28.5%, for the nine months ended September 30, 2016, compared to an income~~41.4% reflected additional tax expense ~~of $43.2 million, or an~~to increase the full year effective tax rate ~~of 26.5%, for~~to 34% compared to the ~~same period in 2015. The~~29% effective tax rate ~~includes~~forecasted at June 30, 2017. This adjustment in the ~~impact~~third quarter was the result of ~~the utilization of low income housing~~lower tax credits from the ~~utilization~~slow deployment of alternative energy investments. Income tax ~~credits, and the write-off of deferred tax assets related to stock options that expired unexercised during~~expense for the first quarter of ~~2016.~~ 2017 was also reduced by $2.6 million in benefits from the distribution of restricted stock units and exercises of stock options.

As of September 30, 2017 and December 31, ~~2015,~~2016, the Company had income tax refunds receivable of ~~$28.9 million.~~$19.4 million and $14.6 million, respectively. These income tax receivables are included in other assets in the accompanying condensed consolidated balance sheets.

The ~~Company’s~~Company’s tax returns are open for audit by the Internal Revenue Service back to ~~2012~~2014 and by the California Franchise Tax Board back to ~~2008.~~2012. As the Company is presently under audit by a number of tax authorities, 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.

11. Fair Value ~~Measurements~~Measurements

The Company adopted ASC Topic 820 on January 1, 2008, and determined the fair values of our financial instruments based on the following:

●

~~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.~~

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

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

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. For certain actively traded agency preferred stock, mutual funds, ~~and~~ 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, state and municipal securities, mortgage-backed securities (“MBS”), commercial MBS, collateralized mortgage obligations, asset-backed securities, corporate bonds and trust preferred securities.

Warrants. The Company measures the fair value of warrants based on unobservable inputs based on assumptions and management judgment, a Level 3 measurement.

Foreign Exchange Contracts. The Company measures the fair value of foreign exchange contracts based on dealer quotes, a Level 2 measurement.

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Interest Rate Swaps. Fair value of interest rate swaps is derived from third party models with observable market data, a Level 2 measurement.

The valuation techniques for the assets and liabilities valued on a nonrecurring basis are as follows:

Impaired Loans. The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on either the current appraised value of the collateral, a Level 2 measurement, or management’s judgment and estimation of value reported on older appraisals that are then adjusted based on recent market trends, a Level 3 measurement.

Goodwill.The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The two-step impairment testing process, if needed, begins by assigning net assets and goodwill to the two reporting ~~units~~—units—Commercial Lending and Retail Banking. The Company then completes “step one” of the impairment test by comparing the fair value of each reporting unit (as determined based on the discussion below) with the recorded book value (or “carrying amount”) of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and “step two” of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step two of the impairment test compares the carrying amount of the reporting unit’s goodwill to the “implied fair value” of that goodwill. The implied fair value of goodwill is computed by assuming that all assets and liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to goodwill. This adjusted goodwill balance is the implied fair value used in step two. An impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value. In connection with the determination of fair value, certain data and information is utilized, including earnings forecasts at the reporting unit level for the next four years. Other key assumptions include terminal values based on future growth rates and discount rates for valuing the cash flows, which have inputs for the risk-free rate, market risk premium, and adjustments to reflect inherent risk and required market returns. Because of the significance of unobservable inputs in the valuation of goodwill impairment, goodwill subject to nonrecurring fair value adjustments is classified as a Level 3 measurement.

Core Deposit Intangibles. Core deposit intangibles is initially recorded at fair value based on a valuation of the core deposits acquired and is amortized over its estimated useful life, which range from 4 to 10 years, to its residual value in proportion to the economic benefits consumed. The Company assesses the recoverability of this intangible asset on a nonrecurring basis using the core deposits remaining at the assessment date and the fair value of cash flows expected to be generated from the core deposits, a Level 3 measurement.

Other Real Estate Owned. Real estate acquired in the settlement of loans is initially recorded at fair value based on the appraised value of the property on the date of transfer, less estimated costs to sell, a Level 2 measurement. From time to time, nonrecurring fair value adjustments are made to other real estate owned based on the current updated appraised value of the property, also a Level 2 measurement, or management’s judgment and estimation of value reported on older appraisals that are then adjusted based on recent market trends, a Level 3 measurement.

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Investments in Venture Capital.The Company periodically reviews its investments in venture capital for other-than-temporary impairment on a nonrecurring basis. Investments in venture capital were written down to their fair value based on available financial reports from venture capital partnerships and management’s judgment and estimation, a Level 3 measurement.

Equity Investments. The Company records equity investments at fair value on a nonrecurring basis based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement.

The following ~~tables~~tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of September 30, ~~2016,~~2017, and December 31, ~~2015:~~2016:

September 30, 2016

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
$ 390,009 $ - $ - $ 390,009
U.S. government sponsored entities
- 250,010 - 250,010
Mortgage-backed securities
- 563,638 - 563,638
Collateralized mortgage obligations
- 30 - 30
Corporate debt securities
- 74,469 - 74,469
Mutual funds
5,926 - - 5,926
Preferred stock of government sponsored entities
- 3,188 - 3,188
Other equity securities
- 11,199 - 11,199
Total securities available-for-sale
395,935 902,534 - 1,298,469
Warrants
- - 75 75
Foreign exchange contracts
- 1,711 - 1,711
Total assets
$ 395,935 $ 904,245 $ 75 $ 1,300,255

Liabilities

Interest rate swaps
$ - $ 15,186 $ - $ 15,186
Foreign exchange contracts
- 712 - 712
Total liabilities
$ - $ 15,898 $ - $ 15,898

December 31, 2015	Fair Value Measurements Using						Total at
September 30, 2017									Fair Value Measurements Using						Total at
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
	(In thousands)								(In thousands)
Assets

Securities available-for-sale
U.S. Treasury securities	$	284,288	$	-	$	-	$	284,288	$	399,436	$	-	$	-	$	399,436
U.S. government agencies										-		9,700		-		9,700
U.S. government sponsored entities		-		148,160		-		148,160		-		393,722		-		393,722
State and municipal securities										-		1,931		-		1,931
Mortgage-backed securities		-		1,062,269		-		1,062,269		-		446,065		-		446,065
Collateralized mortgage obligations		-		36		-		36		-		1,710		-		1,710
Corporate debt securities		-		73,855		-		73,855		-		80,906		-		80,906
Mutual funds		5,833		-		-		5,833		6,271		-		-		6,271
Preferred stock of government sponsored entities		-		3,216		-		3,216		8,087		-		-		8,087
Other equity securities		-		8,695		-		8,695		20,659		-		-		20,659
Total securities available-for-sale		290,121		1,296,231		-		1,586,352		434,453		934,034		-		1,368,487
Warrants		-		-		62		62		-		-		97		97
Foreign exchange contracts		-		3,339		-		3,339		-		1,725		-		1,725
Interest rate swaps										-		2,314		-		2,314
Total assets	$	290,121	$	1,299,570	$	62	$	1,589,753	$	434,453	$	938,073	$	97	$	1,372,623

Liabilities

Option contracts	$	-	$	28	$	-	$	28	$	-	$	234	$	-	$	234
Foreign exchange contracts										-		1,083		-		1,083
Interest rate swaps		-		6,496		-		6,496		-		5,049		-		5,049
Foreign exchange contracts		-		4,124		-		4,124
Total liabilities	$	-	$	10,648	$	-	$	10,648	$	-	$	6,366	$	-	$	6,366

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December 31, 2016

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
$ 489,017 $ - $ - $ 489,017
U.S. government sponsored entities
- 390,331 - 390,331
Mortgage-backed securities
- 336,260 - 336,260
Collateralized mortgage obligations
- 28 - 28
Corporate debt securities
- 74,350 - 74,350
Mutual funds
6,230 - - 6,230
Preferred stock of government sponsored entities
7,308 - - 7,308
Other equity securities
10,821 - - 10,821
Total securities available-for-sale
513,376 800,969 - 1,314,345
Warrants
- - 79 79
Interest rate swaps
- 938 - 938
Foreign exchange contracts
- 1,302 - 1,302
Total assets
$ 513,376 $ 803,209 $ 79 $ 1,316,664

Liabilities

Option contracts
$ - $ 121 $ - $ 121
Interest rate swaps
- 3,744 - 3,744
Foreign exchange contracts
- 3,132 - 3,132
Total liabilities
$ - $ 6,997 $ - $ 6,997

The Company measured the fair value of its warrants on a recurring basis using significant unobservable inputs. The fair value of warrants was ~~$75,000~~$97,000 as of September 30, ~~2016,~~2017, compared to ~~$62,000~~$79,000 as of December 31, ~~2015.~~2016. The fair value adjustment of warrants was included in other operating income in the third quarter of ~~2016.~~2017. The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are their expected life ranging from 1 to 76 years, risk-free interest rate from ~~0.73%~~1.51% to ~~1.38%~~2.28%, and stock volatility from ~~12.4%~~5.05% to ~~15.1%~~12.6%.

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the condensed consolidated balance ~~sheets~~sheet as of September 30, ~~2016,~~2017, the following tables provide the level of valuation assumptions used to determine each adjustment, the carrying value of the related individual assets as of September 30, ~~2016,~~2017, and December 31, ~~2015,~~2016, and the total losses for the periods indicated:

September 30, 2016

Total (Gains)/Losses

September 30, 2017

Total (Gains)/Losses

Fair Value Measurements Using

Three Months Ended

Nine Months Ended

Fair Value Measurements Using

Total at

Three Months Ended

Nine Months Ended

Level 1

Level 2

Level 3

Total at
Fair Value

September 30,
2016

September 30,
2015

September 30,
2016

September 30,
2015

Level 1

Level 2

Level 3

Fair Value

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

(In thousands)

(In thousands)

Assets

Impaired loans by type:

Commercial loans
$ - $ - $ 1,897 $ 1,897 $ - $ 575 $ - $ 3,380 $ - $ - $ 12,525 $ 12,525 $ - $ - $ 25 $ -
Commercial mortgage loans
- - 9,041 9,041 - - - 654 - - 21,997 21,997 - - - -
Residential mortgage loans and equity lines
- - 13,139 13,139 - - - 146 - - 10,790 10,790 - - - -
Total impaired loans
- - 24,077 24,077 - 575 - 4,180 - - 45,312 45,312 - - 25 -
Other real estate owned⁽¹⁾
- 3,095 4,372 7,467 (206 ) 179 9 404 - 6,317 4,322 10,639 405 (206 ) 654 9
Investments in venture capital and private company stock
- - 4,291 4,291 187 81 419 408 - - 3,023 3,023 12 187 365 419
Total assets
$ - $ 3,095 $ 32,740 $ 35,835 $ (19 ) $ 835 $ 428 $ 4,992 $ - $ 6,317 $ 52,657 $ 58,974 $ 417 $ (19 ) $ 1,044 $ 428

⁽¹⁾ Other real estate owned balance of ~~$21.0~~$18.1 million in the condensed consolidated balance sheet is net of estimated disposal costs.

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December 31, 2015

Total Losses

December 31, 2016

Total Losses

Fair Value Measurements Using

Twelve Months Ended

Fair Value Measurements Using

Total at

Twelve Months Ended

Level 1

Level 2

Level 3

Total at
Fair Value

December 31,
2015

December 31,
2014

Level 1

Level 2

Level 3

Fair Value

December 31, 2016

December 31, 2015

(In thousands)

(In thousands)

Assets

Impaired loans by type:

Commercial loans
$ - $ - $ 6,317 $ 6,317 $ 806 $ 17 $ - $ - $ 2,813 $ 2,813 $ 322 $ 806
Commercial mortgage loans
- - 20,359 20,359 598 3,914 - - 9,444 9,444 - 598
Residential mortgage loans and equity lines
- - 13,009 13,009 146 27 - - 11,679 11,679 - 146
Total impaired loans
- - 39,685 39,685 1,550 3,958 - - 23,936 23,936 322 1,550
Other real estate owned⁽¹⁾
- 10,047 4,235 14,282 404 202 - 6,006 4,372 10,378 9 404
Investments in venture capital and private company stock
- - 4,922 4,922 553 436 - - 3,667 3,667 976 553
Total assets
$ - $ 10,047 $ 48,842 $ 58,889 $ 2,507 $ 4,596 $ - $ 6,006 $ 31,975 $ 37,981 $ 1,307 $ 2,507

⁽¹⁾ Other real estate owned balance of ~~$24.7~~$20.1 million in the condensed consolidated balance sheet is net of estimated disposal costs.

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for ~~collateral-dependent~~collateral-dependent impaired loans was primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports every nine months. 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. During the reported periods, collateral discounts ranged from 55% in the case of accounts receivable collateral to 65% in the case of inventory collateral.

The significant unobservable inputs used in the fair value measurement of loans held for sale was primarily based on the quoted price or sale price adjusted by estimated sales cost and commissions.
The ~~significant~~significant unobservable inputs used in the fair value measurement of other real estate owned (“OREO”) was 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% toof the collateral value of impaired loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO.

12. Fair Value of Financial Instruments

The Company uses the following methods and assumptions ~~were used~~ to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents.For cash and cash equivalents, the carrying amount was assumed to be a reasonable estimate of fair value, a Level 1 measurement.

Short-term Investments.For short-term investments, the carrying amount was assumed to be a reasonable estimate of fair value, a Level 1 measurement.

Securities Purchased under Agreements to ~~Resell.~~Resell. The fair value of securities purchased under agreements to resell is based on dealer quotes, a Level 2 measurement.

Securities.For securities, including securities held-to-maturity, available-for-sale, and for trading, fair values were based on quoted market prices at the reporting date. If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities or dealer quotes. For certain actively traded agency preferred stock, ~~and~~ 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, state and municipal securities, mortgage-backed securities (“MBS”), commercial MBS, collateralized mortgage obligations, asset-backed securities, and corporate bonds.

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Loans ~~Held~~Held for ~~Sale~~ Sale. The Company records loans held for sale at fair value based on quoted prices from third party sources, or appraisal reports adjusted by sales commission ~~assumptions.~~assumptions.

Loans.Fair values were estimated for portfolios of loans with similar financial characteristics. Each loan category was further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.

The fair value of performing loans was calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 3 measurement.

The fair value of impaired loans was calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on the current appraised value or adjusted appraised value of the collateral, a Level 2 or Level 3 measurement.

Deposit Liabilities.The fair value of demand deposits, savings accounts, and certain money market deposits was assumed to be the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit was estimated using the rates currently offered for deposits with similar remaining maturities, a Level 3 measurement.

Securities Sold under Agreements to Repurchase.The fair value of securities sold under agreements to repurchase is based on dealer quotes, a Level 2 measurement.

Advances from Federal Home Loan Bank(“FHLB”).The fair value of the advances is based on quotes from the FHLB to settle the advances, a Level 2 measurement.

Other Borrowings.This category includes borrowings from other financial institutions. The fair value of other borrowings is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 measurement.

Long-term ~~Debt.~~Debt. The fair value of long-term debt is estimated based on the quoted market prices or dealer quotes, a Level 2 measurement.

Currency Option and Foreign Exchange Contracts. The Company measures the fair value of currency option and foreign exchange contracts based on dealer quotes, a Level 2 measurement.

Interest Rate Swaps. Fair value of interest rate swaps is derived from third party models with observable market data, a Level 2 measurement.

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Off-Balance-Sheet Financial Instruments.The fair value of commitments to extend credit, standby letters of credit, and financial guarantees written were estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair value of guarantees and letters of credit was based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of off-balance-sheet financial instruments was based on the assumptions that a market participant would use, a Level 3 measurement.

Fair value was estimated in accordance with ASC Topic 825. Fair value estimates were 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~~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 were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates were subjective in nature and involved 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 presents the carrying and notional amounts and estimated fair value of financial instruments as of September 30, ~~2016,~~2017, and as of December 31, ~~2015:~~2016:

	September 30, 2016				December 31, 2015				September 30, 2017				December 31, 2016
	Carrying				Carrying				Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
	(In thousands)								(In thousands)
Financial Assets
Cash and due from banks	$	203,877	$	203,877	$	180,130	$	180,130	$	167,886	$	167,886	$	218,017	$	218,017
Short-term investments		791,757		791,757		536,880		536,880		573,059		573,059		967,067		967,067
Securities available-for-sale		1,298,469		1,298,469		1,586,352		1,586,352		1,368,487		1,368,487		1,314,345		1,314,345
Loans held for sale		4,750		4,750		6,676		6,676		-		-		7,500		7,500
Loans, net		10,886,996		10,825,059		10,016,227		9,938,810		12,472,475		12,403,100		11,077,315		11,006,344
Investment in Federal Home Loan Bank stock		18,900		18,900		17,250		17,250		21,948		21,948		17,250		17,250
Investment in Federal Reserve Bank stock										8,733		8,733		-		-
Warrants		75		75		62		62		97		97		79		79

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Foreign exchange contracts.
$ 107,064 $ 1,711 $ 100,602 $ 3,339

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Foreign exchange contracts
$ 69,278 $ 1,725 $ 82,439 $ 1,302
Interest rate swaps
155,671 2,314 361,526 938

Carrying

Carrying

Carrying

Carrying

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Financial Liabilities

Deposits
$ 10,938,696 $ 10,946,853 $ 10,509,087 $ 10,509,879 $ 12,561,695 $ 12,573,127 $ 11,674,726 $ 11,680,017
Securities sold under agreements to repurchase
350,000 355,422 400,000 413,417 100,000 100,549 350,000 351,989
Advances from Federal Home Loan Bank
700,000 700,130 275,000 274,488 595,000 595,037 350,000 350,062
Other borrowings
17,705 15,903 18,593 16,684 153,574 151,643 17,662 15,944
Long-term debt
119,136 62,628 119,136 58,420 119,136 68,056 119,136 63,169

Notional

Notional

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Option contracts
$ - $ - $ 9,396 $ 28 $ 12,307 $ 234 $ 12,117 $ 121
Foreign exchange contracts
44,985 712 115,418 4,124 86,625 1,083 89,545 3,132
Interest rate swaps
477,479 15,186 459,416 6,496 510,841 5,049 119,136 3,744

Notional

Notional

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

Off-Balance Sheet Financial Instruments

Commitments to extend credit
$ 1,950,756 $ (5,844 ) $ 1,971,848 $ (5,570 ) $ 2,287,498 $ (6,924 ) $ 2,062,241 $ (6,025 )
Standby letters of credit
74,612 (839 ) 49,081 (194 ) 140,682 (1,699 ) 75,396 (668 )
Other letters of credit
31,331 (69 ) 38,131 (22 ) 41,868 (218 ) 37,283 (16 )
Bill of lading guarantees
- - 454 (1 ) 24 - 75 -

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The following ~~tables~~tables present the level in the fair value hierarchy for the estimated fair values of financial instruments as of September 30, ~~2016,~~2017, and December 31, ~~2015.~~2016.

September 30, 2016

September 30, 2017

Estimated

Estimated

Fair Value

Fair Value

Measurements

Level 1

Level 2

Level 3

Measurements

Level 1

Level 2

Level 3

(In thousands)

(In thousands)

Financial Assets

Cash and due from banks
$ 203,877 $ 203,877 $ - $ - $ 167,886 $ 167,886 $ - $ -
Short-term investments
791,757 791,757 - - 573,059 573,059 - -
Securities available-for-sale
1,298,469 395,935 902,534 - 1,368,487 434,453 934,034 -
Loans held-for-sale
4,750 - - 4,750 - - - -
Loans, net
10,825,059 - - 10,825,059 12,403,100 - - 12,403,100
Investment in Federal Home Loan Bank stock
18,900 - 18,900 - 21,948 - 21,948 -
Investment in Federal Reserve Bank stock
8,733 - 8,733 -
Warrants
75 - - 75 97 - - 97
Financial Liabilities

Deposits
10,946,853 - - 10,946,853 12,573,127 - - 12,573,127
Securities sold under agreements to repurchase
355,422 - 355,422 - 100,549 - 100,549 -
Advances from Federal Home Loan Bank
700,130 - 700,130 - 595,037 - 595,037 -
Other borrowings .
15,903 - - 15,903
Other borrowings
151,643 - - 151,643
Long-term debt
62,628 - 62,628 - 68,056 - 68,056 -

December 31, 2016

Estimated

Fair Value

Measurements

Level 1

Level 2

Level 3

(In thousands)

Financial Assets

Cash and due from banks
$ 218,017 $ 218,017 $ - $ -
Short-term investments
967,067 967,067 - -
Securities available-for-sale
1,314,345 513,376 800,969 -
Loans held-for-sale
7,500 - - 7,500
Loans, net
11,006,344 - - 11,006,344
Investment in Federal Home Loan Bank stock
17,250 - 17,250 -
Warrants
79 - - 79
Financial Liabilities

Deposits
11,680,017 - - 11,680,017
Securities sold under agreements to repurchase
351,989 - 351,989 -
Advances from Federal Home Loan Bank
350,062 - 350,062 -
Other borrowings
15,944 - - 15,944
Long-term debt
63,169 - 63,169 -

December 31, 2015

Estimated

Fair Value

Measurements

Level 1

Level 2

Level 3

(In thousands)

Financial Assets

Cash and due from banks
$ 180,130 $ 180,130 $ - $ -
Short-term investments
536,880 536,880 - -
Securities available-for-sale
1,586,352 290,121 1,296,231 -
Loans held-for-sale
6,676 - - 6,676
Loans, net
9,938,810 - - 9,938,810
Investment in Federal Home Loan Bank stock
17,250 - 17,250 -
Warrants
62 - - 62
Financial Liabilities

Deposits
10,509,879 - - 10,509,879
Securities sold under agreements to repurchase
413,417 - 413,417 -
Advances from Federal Home Loan Bank
274,488 - - 274,488
Other borrowings
16,684 - - 16,684
Long-term debt
58,420 - 58,420 -

13. Goodwill and Goodwill Impairment

The ~~Company’s~~Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.

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The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The two-step impairment testing process, if needed, begins by assigning net assets and goodwill to our two reporting units—Commercial Lending and Retail Banking. The Company then completes “step one” of the impairment test by comparing the fair value of each reporting unit (as determined based on the discussion below) with the recorded book value (or “carrying amount”) of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and “step two” of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step two of the impairment test compares the carrying amount of the reporting unit’s goodwill to the “implied fair value” of that goodwill. The implied fair value of goodwill is computed by assuming that all assets and liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to goodwill. This adjusted goodwill balance is the implied fair value used in step two. An impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value.

AsAs of September 30, ~~2016,~~2017, the Company’s market capitalization was above book value and there was no triggering event that required the Company to assess goodwill for impairment as of an interim date.

145. Financial Derivatives

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

The Company follows ASC Topic 815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s consolidated balance sheet 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.

InIn 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 on Bancorp’s $119.1 million of Junior Subordinated Debentures that had been issued to five trusts, with the quarterly interest payments 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. Bancorp pays a weighted average fixed interest rate of 2.61% and receives a variable interest rate of the three-month LIBOR at a weighted average rate of ~~0.85%~~1.32%. As of September 30, ~~2016,~~2017, the notional amount of cash flow interest rate swaps was $119.1 million and their unrealized loss of ~~$6.6~~$2.3 million, net of taxes, was included in other comprehensive income. The amount of periodic net settlement of interest rate swaps included in interest expense was ~~$588,000~~$407,000 for the three months ended September 30, ~~2016~~2017 compared to ~~$706,000~~$588,000 for the same quarter a year ago. For the nine months ended September 30, ~~2016,~~2017, the periodic net settlement of interest rate swaps included in interest expense was ~~$1.8~~$1.3 million compared to ~~$2.1~~$1.8 million for the same period in ~~2015.~~2016.

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As of September 30, ~~2016,~~2017, the Bank has entered into interest rate swap contracts with various terms from four to eight years. These interest rate swap contracts are matched to individual fixed-rate commercial real estate loans in the Bank’s loan portfolio. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial real estate loan 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. The Bank pays a weighted average fixed rate of ~~4.63%~~4.55% and receives a variable rate at the one month LIBOR rate plus a weighted average spread of ~~318~~293 basis points, or at a weighted average rate of ~~3.70%~~4.16%. As of September 30, ~~2016,~~2017, the notional amount of fair value interest rate swaps was ~~$358.3~~$510.6 million and their unrealized ~~loss~~gain of ~~$3.8~~$1.9 million was included in other non-interest income. The amount of periodic net settlement of interest rate swaps reducing interest income was ~~$879,000~~$514,000 for the three months ended September 30, ~~2016,~~2017, compared to ~~$831,000~~$879,000 for the same quarter a year ago. The amount of periodic net settlement of interest rate swaps reducing interest income was ~~$2.8~~$1.9 million for the nine months ended September 30, ~~2016,~~2017, compared to ~~$2.2~~$2.8 million for the same period a year ago. As of September 30, ~~2016,~~2017, the ineffective portion of these interest rate swaps was not significant.

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 derivatives clearing organization and daily margin is indirectly maintained with the derivatives clearing organization. Cash posted as collateral by Bancorp related to derivative contracts totaled ~~$14.8~~$6.3 million as of September 30, ~~2016.~~2017.

The Company enters into foreign exchange forward contracts with various counterparties to mitigate the risk of fluctuations in foreign currency exchange rates for foreign exchange certificates of deposit or foreign exchange contracts entered into with our clients. These contracts are not designated as hedging instruments and are recorded at fair value in our condensed consolidated balance sheets. Changes in the fair value of these contracts as well as the related foreign exchange certificates of deposit and foreign exchange contracts are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities. As of September 30, ~~2016, there were no~~2017, the notional amount of option contracts ~~outstanding.~~totaled $12.3 million with a net negative fair value of $234,000. As of September 30, ~~2016,~~2017, spot, forward, and swap contracts with a total notional amount of ~~$107.1~~$69.3 million had a positive fair value of $1.7 million. Spot, forward, and swap contracts with a total notional amount of ~~$45.0~~$86.6 million had a negative fair value of ~~$712,000~~$1.1 million as of September 30, ~~2016.~~2017. As of December 31, ~~2015,~~2016, the notional amount of option contracts totaled ~~$9.4~~$12.1 million with a net negative fair value of ~~$28,000.~~$121,000. As of December 31, ~~2015,~~2016, spot, forward, and swap contracts with a total notional amount of ~~$100.6~~$82.4 million had a positive fair value of ~~$3.3~~$1.3 million. Spot, forward, and swap contracts with a total notional amount of ~~$115.4~~$89.5 million had a negative fair value of ~~$4.1~~$3.1 million as of December 31, ~~2015.~~2016.

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156. Balance Sheet Offsetting

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

Financial instruments that are eligible for offset in the condensed consolidated balance sheets, as of September 30, ~~2016,~~2017, and December 31, ~~2015,~~2016, are presented in the following table:

Gross Amounts Not Offset in the Balance Sheet

Gross Amounts Recognized

Gross Amounts
Offset in the
Balance Sheet

Net Amounts
Presented in
the Balance
Sheet

Financial
Instruments

Collateral
Posted

Net Amount

September 30, 2017

(In thousands)

Assets:

Derivatives
$ 2,314 $ - $ 2,314 $ - $ - $ 2,314
Liabilities:

Securities sold under agreements to repurchase
$ 100,000 $ - $ 100,000 $ - $ (100,000 ) $ -
Derivatives
$ 5,049 $ - $ 5,049 $ - $ (5,049 ) $ -

December 31, 2016

Assets:

Derivatives
$ 938 $ - $ 938 $ - $ - $ 938

Liabilities:

Securities sold under agreements to repurchase
$ 350,000 $ - $ 350,000 $ - $ (350,000 ) $ -
Derivatives
$ 3,744 $ - $ 3,744 $ - $ (3,744 ) $ -

Gross Amounts Not Offset in the Balance Sheet

Gross Amounts Recognized

Gross Amounts Offset in the Balance Sheet

Net Amounts Presented in the Balance Sheet

Financial Instruments

Collateral Posted

Net Amount

(In thousands)
September 30, 2016

Liabilities:

Securities sold under agreements to repurchase
$ 350,000 $ - $ 350,000 $ - $ (350,000 ) $ -
Derivatives
$ 15,186 $ - $ 15,186 $ - $ (15,186 ) $ -

December 31, 2015

Liabilities:

Securities sold under agreements to repurchase
$ 400,000 $ - $ 400,000 $ - $ (400,000 ) $ -
Derivatives
$ 6,496 $ - $ 6,496 $ - $ (6,496 ) $ -
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167. Stockholders’ Equity

Total equity was ~~$1.79~~$2.0 billion as of September 30, ~~2016,~~2017, an increase of ~~$45.7~~$140.2 million, from ~~$1.75~~$1.8 billion as of December 31, ~~2015,~~2016, primarily due to net income of ~~$127.1~~$150.1 million and ~~other comprehensive income~~equity consideration for the acquisition of ~~$10.3~~SinoPac Bancorp of $34.9 million partially offset by ~~purchases of treasury stock of $54.4 million and~~ common stock cash dividends of ~~$42.6~~$50.5 million and shares withheld related to net share settlement of RSUs of $5.1 million.

The U.S. Treasury received warrants to purchase common stock of 1,846,374 shares at an exercise price of $20.96 as part of the Company’s participation in the U.S. Treasury Troubled Asset Relief Program Capital Purchase Program. As a result of the anti-dilution adjustments under the warrant, the exercise price at December 31, 2016 has been adjusted to $20.65 and the number of warrants increased by 1.5%. At September 30, 2017, 932,461 warrants remain exercisable compared to 943,345 warrants at December 31, 2016.

Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the three months and nine months ended September 30, ~~2016,~~2017, and September 30, ~~2015,~~2016, was as follows:

Three months ended September 30, 2017

Three months ended September 30, 2016

Pre-tax

Tax expense/ (benefit)

Net-of-tax

Pre-tax

Tax expense/ (benefit)

Net-of-tax

(In thousands)

Beginning balance, loss, net of tax

Securities available-for-sale
$ 1,001 $ 8,539
Cash flow hedge derivatives
(2,421 ) (7,397 )
Total
$ (1,420 ) $ 1,142
Net unrealized (losses)/gains arising during the period

Securities available-for-sale
$ 1,829 $ 769 $ 1,060 $ 1,618 $ 680 $ 938
Cash flow hedge derivatives
271 114 157 1,387 583 804
Total
2,100 883 1,217 3,005 1,263 $ 1,742
Reclassification adjustment for net losses in net income

Securities available-for-sale
(24 ) (10 ) (14 ) (1,692 ) (711 ) (981 )
Cash flow hedge derivatives
- - - - - -
Total
(24 ) (10 ) (14 ) (1,692 ) (711 ) (981 )
Total other comprehensive (loss)/income

Securities available-for-sale
1,805 759 1,046 (74 ) (31 ) (43 )
Cash flow hedge derivatives
271 114 157 1,387 583 804
Total
$ 2,076 $ 873 $ 1,203 $ 1,313 $ 552 $ 761
Ending balance, (loss)/gain, net of tax

Securities available-for-sale
$ 2,047 $ 8,496
Cash flow hedge derivatives
(2,264 ) (6,593 )
Total
$ (217 ) $ 1,903

Three months ended September 30, 2016

Three months ended September 30, 2015

Pre-tax

Tax expense/
(benefit)

Net-of-tax

Pre-tax

Tax expense/
(benefit)

Net-of-tax

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

Securities available-for-sale
$ 8,539 $ (1,125 )
Cash flow hedge derivatives
(7,397 ) (1,657 )
Total
$ 1,142 $ (2,782 )
Net unrealized gains/(losses) arising during the period

Securities available-for-sale
$ 1,618 $ 680 $ 938 $ 4,717 $ 1,984 $ 2,733
Cash flow hedge derivatives
1,387 583 804 (4,413 ) (1,855 ) (2,558 )
Total
3,005 1,263 1,742 304 129 $ 175
Reclassification adjustment for net (gains)/losses in net income

Securities available-for-sale
(1,692 ) (711 ) (981 ) 16 6 10
Cash flow hedge derivatives
- - - - - -
Total
(1,692 ) (711 ) (981 ) 16 6 10
Total other comprehensive income/(loss)

Securities available-for-sale
(74 ) (31 ) (43 ) 4,733 1,990 2,743
Cash flow hedge derivatives
1,387 583 804 (4,413 ) (1,855 ) (2,558 )
Total
$ 1,313 $ 552 $ 761 $ 320 $ 135 $ 185
Ending balance, gain/(loss), net of tax

Securities available-for-sale
$ 8,496 $ 1,618
Cash flow hedge derivatives
(6,593 ) (4,215 )
Total
$ 1,903 $ (2,597 )
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Nine months ended September 30, 2017

Nine months ended September 30, 2016

Pre-tax

Tax expense/ (benefit)

Net-of-tax

Pre-tax

Tax expense/ (benefit)

Net-of-tax

(In thousands)

Beginning balance, loss, net of tax

Securities available-for sale
$ (1,545 ) $ (5,431 )
Cash flow hedge derivatives
(2,170 ) (2,995 )
Total
$ (3,715 ) $ (8,426 )
Net unrealized gains/(losses) arising during the period

Securities available-for sale
$ 5,759 $ 2,421 $ 3,338 $ 27,170 $ 11,422 $ 15,748
Cash flow hedge derivatives
(162 ) (68 ) (94 ) (6,208 ) (2,610 ) (3,598 )
Total
5,597 2,353 3,244 20,962 8,812 $ 12,150
Reclassification adjustment for net (gains)/losses in net income

Securities available-for sale
439 185 254 (3,141 ) (1,320 ) (1,821 )
Cash flow hedge derivatives
- - - - - -
Total
439 185 254 (3,141 ) (1,320 ) (1,821 )
Total other comprehensive income/(loss)

Securities available-for sale
6,198 2,606 3,592 24,029 10,102 13,927
Cash flow hedge derivatives
(162 ) (68 ) (94 ) (6,208 ) (2,610 ) (3,598 )
Total
$ 6,036 $ 2,538 $ 3,498 $ 17,821 $ 7,492 $ 10,329
Ending balance, gain/(loss), net of tax

Securities available-for sale
$ 2,047 $ 8,496
Cash flow hedge derivatives
(2,264 ) (6,593 )
Total
$ (217 ) $ 1,903

Nine months ended September 30, 2016

Nine months ended September 30, 2015

Pre-tax

Tax expense/
(benefit)

Net-of-tax

Pre-tax

Tax expense/
(benefit)

Net-of-tax

(In thousands)
Beginning balance, loss, net of tax

Securities available-for sale
$ (5,431 ) $ (3,172 )
Cash flow hedge derivatives
(2,995 ) (2,397 )
Total
$ (8,426 ) $ (5,569 )
Net unrealized gains/(losses) arising during the period

Securities available-for sale
$ 27,170 $ 11,422 $ 15,748 $ 4,895 $ 2,058 $ 2,837
Cash flow hedge derivatives
(6,208 ) (2,610 ) (3,598 ) (3,137 ) (1,319 ) (1,818 )
Total
20,962 8,812 12,150 1,758 739 $ 1,019
Reclassification adjustment for net (gains)/losses in net income

Securities available-for sale
(3,141 ) (1,320 ) (1,821 ) 3,369 1,416 1,953
Cash flow hedge derivatives
- - - - - -
Total
(3,141 ) (1,320 ) (1,821 ) 3,369 1,416 1,953
Total other comprehensive income/(loss)

Securities available-for sale
24,029 10,102 13,927 8,264 3,474 4,790
Cash flow hedge derivatives
(6,208 ) (2,610 ) (3,598 ) (3,137 ) (1,319 ) (1,818 )
Total
$ 17,821 $ 7,492 $ 10,329 $ 5,127 $ 2,155 $ 2,972
Ending balance, gain/(loss), net of tax

Securities available-for sale
$ 8,496 $ 1,618
Cash flow hedge derivatives
(6,593 ) (4,215 )
Total
$ 1,903 $ (2,597 )

1~~17.~~8. Stock Repurchase Program

In February 2016, the Company completed the repurchase of the remaining 633,250 shares of its common stock under the August 2015 repurchase program, for $17.0 million, or a $26.82 average price per share.

On February 1, 2016, the Company’s Board of Directors ~~of the Company adopted~~approved a new stock repurchase program to ~~repurchase~~buy back up to $45.0 million of ~~the Company’s~~our common stock. In ~~February~~ 2016, the Company repurchased 1,380,578 shares ~~of its common stock~~ for $37.5 million, or a $27.13 ~~average price~~ per share under the February 2016 repurchase program. ~~As of September 30, 2016, $7.5 million of the Company’s common stock could be purchased in the future~~The Company did not repurchase any shares under the February 2016 repurchase program for the nine months ended September 30, 2017. As of September 30, 2017 and December 31, 2016, the Company may repurchase up to $7.5 million of its common stock under the February 2016 repurchase program.

19. Subsequent Events

The Company has evaluated the effect of the following events that have occurred subsequent to the quarter ended September 30, 2017 through the date of issuance of the accompanying condensed consolidated financial statements.

The Bank received final regulatory approval and the merger of Far East National Bank into Cathay Bank was completed on October 27, 2017. Each of the nine former FENB branches in California and its representative office in Beijing became a branch and representative office of Cathay Bank as a result of the merger. As of the filing date of this report, Cathay Bank operates 43 branches in California, 12 branches in New York State, three in the Chicago, Illinois area, three in Washington State, two in Texas, one in Maryland, one in Massachusetts, one in Nevada, one in New Jersey, one in Hong Kong, and a representative office in Taipei, Shanghai, and Beijing.

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Item 2. ~~MANAGEMENT’S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS.~~OPERATIONS.

The following discussion is based on the assumption that the reader has access to and has read the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Critical Accounting Policies

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

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 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 Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Accounting for investment securities involves significant judgments and assumptions by management, which have a material impact on the carrying value of securities and the recognition of any “other-than-temporary” impairment to our investment securities. The judgments and assumptions used by ~~management~~management are described in “Investment Securities” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Accounting for income taxes involves significant judgments and assumptions by management, which have a material impact on the amount of taxes currently payable and the income tax expense recorded in the financial statements. The judgments and assumptions used by management are described in “Income Taxes” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Accounting for goodwill and goodwill impairment involves significant judgments and assumptions by management, which have a material impact on the amount of goodwill and noninterest expense recorded in the financial statements. The judgments and assumptions used by management are described in “Goodwill and Goodwill Impairment” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

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H~~Highlights~~ighlights

●

~~Diluted earnings per share increased 23.4% to $0.58 per share~~Completed the acquisition of SinoPac Bancorp, the holding company for Far East National Bank, (“FENB”) on July 14, 2017.

●

Total loans during the third quarter ~~of 2016 compared~~increased by $1.0 billion to ~~$0.47 per share for the same quarter a year ago.~~$12.6 billion.

●

~~Total loans~~Net interest margin increased ~~$487.4 million for~~to 3.75% in the third quarter ~~or 18.5% annualized, to $11.0 billion~~ compared to ~~$10.5 billion at June 30, 2016.~~3.63% in the second quarter of 2017.

Quarterly Statement of Operations Review

Net Income

Net income for the quarter ended September 30, ~~2016,~~2017, was ~~$46.1~~$49.7 million, an increase of ~~$7.6~~$3.6 million, or ~~19.8%~~7.8%, compared to net income of ~~$38.5~~$46.1 million for the same quarter a year ago. Diluted earnings per share for the quarter ended September 30, ~~2016,~~2017, was ~~$0.58~~$0.61 compared to ~~$0.47~~$0.58 for the same quarter a year ago.

Return on average ~~stockholders’~~stockholders’ equity was ~~10.30%~~9.77% and return on average assets was ~~1.38%~~1.29% for the quarter ended September 30, ~~2016,~~2017, compared to a return on average stockholders’ equity of ~~8.80%~~10.30% and a return on average assets of ~~1.23%~~1.38% for the same quarter a year ago. ~~The increase is primarily due to the $11.7 million decrease in amortization of investments in alternative energy partnerships.~~

F~~Financial~~inancial Performance

	Three months ended September 30,						Three months ended
	2016			2015			September 30, 2017			September 30, 2016
Net income (million)	$	46.1		$	38.5
Net income							$	49.7 million		$	46.1 million
Basic earnings per common share	$	0.58		$	0.47		$	0.62		$	0.58
Diluted earnings per common share	$	0.58		$	0.47		$	0.61		$	0.58
Return on average assets		1.38	%		1.23	%		1.29	%		1.38	%
Return on average total stockholders' equity		10.30	%		8.80	%		9.77	%		10.30	%
Efficiency ratio		45.05	%		53.81	%		41.91	%		45.05	%

Net Interest Income Before Provision for Credit Losses

~~Net~~Net interest income before provision for credit losses increased ~~$6.2~~$29.4 million, or ~~6.3%~~28.3%, to ~~$103.8~~$133.2 million during the third quarter of ~~2016~~2017 compared to ~~$97.6~~$103.8 million during the same quarter a year ago. The increase was due primarily to an increase in interest income from loans ~~partially offset by an increase~~and a decrease in interest expense from ~~time and other deposits.~~securities sold under agreements to repurchase.

The net interest margin was 3.75% for the third quarter of 2017 compared to 3.36% for the third quarter of 2016 and ~~3.37%~~3.63% for ~~the third quarter of 2015. The decrease in the net interest margin for the third quarter of 2016 from 3.38% in~~ the second quarter of ~~2016,~~2017. The increase from the second quarter of 2017 was primarily ~~due to lower~~the result of interest recoveries and prepayment penalties ~~during the third quarter~~ of ~~2016.~~$5.6 million.

For the third quarter of 2017, the yield on average interest-earning assets was 4.34%, the cost of funds on average interest-bearing liabilities was 0.81%, and the cost of interest-bearing deposits was 0.68%. In comparison, for the third quarter of 2016,the yield on average interest-earning assets was 4.02%, the cost of funds on average interest-bearing liabilities was 0.89%, and the cost of average interest-bearing deposits was 0.70%. ~~In comparison, for the third quarter of 2015,~~The increase in the yield on average ~~interest-earning~~interest earning assets was ~~4.03%, the cost~~a result of ~~funds on average interest-bearing liabilities was 0.87%,~~higher interest rates, interest income collected from nonaccrual loans and ~~the cost of interest-bearing deposits was 0.67%.~~loan prepayment penalties. 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 ~~3.13%~~3.53% for the quarter ended September 30, ~~2016,~~2017, compared to ~~3.16%~~3.13% for the same quarter a year ago.

Table of Contents

The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities for the three months ended September 30, 2017, and 2016. Average outstanding amounts included in the table are daily averages.

Interest-Earning Assets and Interest-Bearing Liabilities

Three months ended September 30,

2017

2016

Interest

Average

Interest

Average

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Interest earning assets:

Total loans and leases ⁽¹⁾
$ 12,317,721 $ 146,383 4.71 % 10,670,253 118,500 4.42
Investment securities
1,396,859 5,692 1.62 1,303,598 4,850 1.48
Federal Home Loan Bank and FRB stock
32,369 607 7.44 17,268 393 9.05
Interest bearing deposits
292,595 1,288 1.75 294,292 412 0.56
Federal funds sold and securities purchased under agreements to resell
35,707 108 1.20 -
Total interest-earning assets
14,075,251 154,078 4.34 12,285,411 124,155 4.02
Non-interest earning assets:

Cash and due from banks
294,466 223,925
Other non-earning assets
1,094,648 884,006
Total non-interest earning assets
1,389,114 1,107,931
Less:   Allowance for loan losses
(105,390 ) (123,609 )
Deferred loan fees
(4,852 ) (6,348 )
Total assets
$ 15,354,123 $ 13,263,385

Interest bearing liabilities:

Interest bearing demand accounts
$ 1,349,508 $ 588 0.17 $ 1,060,065 $ 441 0.17
Money market accounts
2,496,548 3,944 0.63 2,117,831 3,511 0.66
Savings accounts
942,452 569 0.24 627,912 260 0.16
Time deposits
4,939,189 11,678 0.94 4,651,593 10,701 0.92
Total interest-bearing deposits
9,727,697 16,779 0.68 8,457,401 14,913 0.70

Securities sold under agreements to repurchase
109,239 874 3.17 378,261 3,828 4.03
Other borrowings
324,581 1,773 2.17 107,203 134 0.50
Long-term debt
119,136 1,456 4.85 119,136 1,456 4.86
Total interest-bearing liabilities
10,280,653 20,882 0.81 9,062,001 20,331 0.89
Non-interest bearing liabilities:

Demand deposits
2,714,244 2,254,123
Other liabilities
339,001 167,409
Total equity
2,020,224 1,779,852
Total liabilities and equity
$ 15,354,122 $ 13,263,385
Net interest spread
3.53 % 3.13 %
Net interest income
$ 133,196 $ 103,824
Net interest margin
3.75 % 3.36 %
(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.
42
Table of Contents
The following table summarizes the changes in interest income and interest expense attributable to changes in volume and changes in interest rates:
Taxable-Equivalent Net Interest Income — Changes Due to Volume and Rate⁽¹⁾

Three months ended September 30,

2017-2016

Increase (Decrease) in

Net Interest Income Due to:

(In thousands)

Changes in
Volume

Changes in
Rate

Total
Change

Interest-earning assets:

Loans and leases
$ 19,431 $ 8,452 $ 27,883
Investment securities
368 474 842
Federal Home Loan Bank and FRB stock
294 (80 ) 214
Deposits with other banks
(2 ) 878 876
Federal funds sold and securities purchased under agreements to resell
108 - 108
Total changes in interest income
20,199 9,724 29,923

Interest-bearing liabilities:

Interest bearing demand accounts
126 21 147
Money market accounts
610 (177 ) 433
Savings accounts
162 147 309
Time deposits
696 281 977
Securities sold under agreements to repurchase
(2,277 ) (677 ) (2,954 )
Other borrowed funds
617 1,022 1,639
Long-term debt
- - -
Total changes in interest expense
(66 ) 617 551
Changes in net interest income
$ 20,265 $ 9,107 $ 29,372
(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.
43
Table of Contents
Provision/(Reversal) for Credit Losses
The provision for credit losses was zero for the third quarter of 2017 and 2016. The provision/(reversal) for credit losses was based on a review of the appropriateness of the allowance for loan losses at September 30, 2017. The following table summarizes the charge-offs and recoveries for the periods indicated:

Three months ended

Nine months ended September 30,

September 30, 2017

September 30, 2016

2017

2016

(In thousands)

Charge-offs:

Commercial loans
$ 80 $ 3,278 $ 1,810 $ 12,035
Real estate loans ⁽¹⁾
305 4,626 860 5,830
Total charge-offs
385 7,904 2,670 17,865
Recoveries:

Commercial loans
575 2,006 1,401 3,720
Construction loans
47 548 143 7,871
Real estate loans⁽¹⁾
5,489 343 6,195 903
Total recoveries
6,111 2,897 7,739 12,494
Net (recoveries)/charge-offs
$ (5,726 ) $ 5,007 $ (5,069 ) $ 5,371
(1)
Real estate loans include commercial mortgage loans, residential mortgage loans, and equity lines.
Non-Interest Income
Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wire transfer fees, and other sources of fee income, was $13.0 million for the third quarter of 2017, an increase of $4.2 million, or 47.1%, compared to $8.8 million for the third quarter of 2016. The increase was primarily due to the gain of $5.4 million on the acquisition of SinoPac Bancorp and was offset by a decrease in securities gains of $1.7 million from the quarter a year ago.
Non-Interest Expense
Non-interest expense increased $10.5 million, or 20.7%, to $61.2 million in the third quarter of 2017 compared to $50.7 million in the same quarter a year ago. The increase in non-interest expense in the third quarter of 2017 was primarily due to a $5.0 million increase in salary and employee benefit expenses and a $3.3 million increase in acquisition related expense when compared to the same quarter a year ago. Acquisition related expenses during the third quarter totaled approximately, $3.3 million, including $2.8 million in legal and investment banking fees and $0.5 million in severance and retention expenses. The efficiency ratio was 41.9% in the third quarter of 2017 compared to 45.1% for the same quarter a year ago.
Income Taxes
The effective tax rate for the third quarter of 2017 was 41.4% compared to 25.5% for the third quarter of 2016. The third quarter 2017 effective tax rate of 41.4% reflected additional tax expense to increase the full year effective tax rate to 34% compared to the 29% effective tax rate forecasted at June 30, 2017. This adjustment in the third quarter was the result of lower tax credits from the slow deployment of alternative energy investments. Income tax expense for the first quarter of 2017 was also reduced by $2.6 million in benefits from the distribution of restricted stock units and exercises of stock options.
44
Table of Contents
Year-to-Date Statement of Operations Review
Net income for the nine months ended September 30, 2017, was $150.1 million, an increase of $23.0 million, or 18.1%, compared to net income of $127.1 million for the same period a year ago. Diluted earnings per share was $1.86 compared to $1.59 per share for the same period a year ago. The net interest margin for the nine months ended September 30, 2017, was 3.63% compared to 3.39% for the same period a year ago.
Return on average stockholders’ equity was 10.46% and return on average assets was 1.39% for the nine months ended September 30, 2017, compared to a return on average stockholders’ equity of 9.66% and a return on average assets of 1.29% for the same period of 2016. The efficiency ratio for the nine months ended September 30, 2017, was 43.71% compared to 51.35% for the same period a year ago.
45
Table of Contents

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~~assets and liabilities for the ~~three~~nine months ended September 30, ~~2016,~~2017, and ~~2015.~~2016. Average outstanding amounts included in the table are daily averages.

Interest-Earning Assets and Interest-Bearing Liabilities Interest-Earning Assets and Interest-Bearing Liabilities
Interest-Earning Assets and Interest-Bearing Liabilities

Three months ended September 30,
Nine months ended September 30,

2016

2015

2017

2016

Interest

Average

Interest

Average

Interest

Average

Interest

Average

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate⁽¹⁾⁽²⁾

Balance

Expense

Rate⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Balance

Expense

Rate ⁽¹⁾⁽²⁾

Interest earning assets:

Commercial loans
$ 2,203,278 $ 21,277 3.84 % $ 2,411,560 $ 22,651 3.73 %
Residential mortgage loans
2,381,931 26,038 4.37 1,936,100 21,835 4.51
Commercial mortgage loans
5,579,186 63,888 4.56 5,110,278 59,652 4.63
Real estate construction loans
502,943 7,279 5.76 392,579 5,779 5.84
Other loans and leases
2,915 18 2.46 4,933 26 2.09
Total loans and leases⁽¹⁾
10,670,253 118,500 4.42 9,855,450 109,943 4.43 $ 11,668,814 $ 401,129 4.60 10,468,328 349,212 4.46
Taxable securities
1,303,598 4,850 1.48 1,488,655 6,142 1.64
Federal Home Loan Bank stock
17,268 393 9.05 17,250 524 12.05
Investment securities
1,297,789 14,817 1.53 1,384,019 16,974 1.64
Federal Home Loan Bank and FRB stock
22,345 1,317 7.88 17,256 1,122 8.69
Interest bearing deposits
294,292 412 0.56 149,153 258 0.69 359,580 3,140 1.17 272,690 1,094 0.54
Federal funds sold and securities purchased under agreements to resell
12,033 108 1.20 - - -
Total interest-earning assets
12,285,411 124,155 4.02 11,510,508 116,867 4.03 13,360,561 420,511 4.21 12,142,293 368,402 4.05
Non-interest earning assets:

Cash and due from banks
223,925 223,295 235,097 215,415
Other non-earning assets
884,006 866,217 965,906 891,974
Total non-interest earning assets
1,107,931 1,089,512 1,201,003 1,107,389
Less: Allowance for loan losses
(123,609 ) (153,762 ) (113,299 ) (133,232 )
Deferred loan fees
(6,348 ) (9,977 ) (4,531 ) (7,225 )
Total assets
$ 13,263,385 $ 12,436,281 $ 14,443,734 $ 13,109,225

Interest bearing liabilities:

Interest bearing demand accounts
$ 1,060,065 $ 441 0.17 $ 880,209 $ 367 0.17 $ 1,282,904 $ 1,639 0.17 $ 1,013,129 $ 1,256 0.17
Money market accounts
2,117,831 3,511 0.66 1,721,394 2,616 0.60 2,359,871 11,362 0.64 2,020,725 9,768 0.65
Savings accounts
627,912 260 0.16 632,466 235 0.15 817,540 1,244 0.20 626,200 759 0.16
Time deposits
4,651,593 10,701 0.92 4,868,908 10,406 0.85 4,840,293 33,429 0.92 4,752,938 32,177 0.90
Total interest-bearing deposits
8,457,401 14,913 0.70 8,102,977 13,624 0.67 9,300,608 47,674 0.69 8,412,992 43,960 0.70

Securities sold under agreements to repurchase
378,261 3,828 4.03 400,000 3,977 3.94 149,267 3,489 3.13 392,701 11,696 3.98
Other borrowings
107,203 134 0.50 114,998 164 0.57 177,372 2,366 1.78 119,348 442 0.49
Long-term debt
119,136 1,456 4.86 119,136 1,456 4.85 119,136 4,320 4.85 119,136 4,336 4.86
Total interest-bearing liabilities
9,062,001 20,331 0.89 8,737,111 19,221 0.87 9,746,383 57,849 0.79 9,044,177 60,434 0.89
Non-interest bearing liabilities:

Demand deposits
2,254,123 1,795,938 2,542,754 2,131,742
Other liabilities
167,409 168,083 236,332 175,714
Total equity
1,779,852 1,735,149 1,918,265 1,757,592
Total liabilities and equity
$ 13,263,385 $ 12,436,281 $ 14,443,734 $ 13,109,225
Net interest spread
3.13 % 3.16 % 3.42 % 3.16 %
Net interest income
$ 103,824 $ 97,646 $ 362,662 $ 307,968
Net interest margin
3.36 % 3.37 % 3.63 % 3.39 %

⁽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.

46

Table of Contents

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

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

Three months ended September 30,
Nine months ended September 30,

2016-2015
2017-2016

Increase (Decrease) in
Increase (Decrease) in

Net Interest Income Due to:
Net Interest Income Due to:

(In thousands)

Changes in
Volume

Changes in
Rate

Total
Change

(Dollars in thousands)

Changes in
Volume

Changes in
Rate

Total
Change

Interest-earning assets:

Loans and leases
$ 8,753 $ (196 ) $ 8,557 $ 40,745 $ 11,172 $ 51,917
Taxable securities
(730 ) (562 ) (1,292 )
Federal Home Loan Bank stock
1 (132 ) (131 )
Investment securities
(1,030 ) (1,127 ) (2,157 )
Federal Home Loan Bank and FRB stock
307 (112 ) 195
Deposits with other banks
210 (56 ) 154 435 1,611 2,046
Federal funds sold and securities purchased under agreements to resell
108 - 108
Total changes in interest income
8,234 (946 ) 7,288 40,565 11,544 52,109

Interest-bearing liabilities:

Interest bearing demand accounts
74 - 74 343 40 383
Money market accounts.
636 259 895
Money market accounts
1,624 (30 ) 1,594
Savings accounts
(2 ) 27 25 264 221 485
Time deposits
(483 ) 778 295 583 669 1,252
Securities sold under agreements to repurchase
(226 ) 77 (149 ) (6,097 ) (2,110 ) (8,207 )
Other borrowed funds
(11 ) (19 ) (30 ) 303 1,621 1,924
Long-term debt
- (16 ) (16 )
Total changes in interest expense
(12 ) 1,122 1,110 (2,980 ) 395 (2,585 )
Changes in net interest income
$ 8,246 $ (2,068 ) $ 6,178 $ 43,545 $ 11,149 $ 54,694

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

~~Reversal~~ ~~for Credit Losses~~
Reversal for credit losses was zero for the third quarter of 2016 compared to $1.3 million for the third quarter of 2015. This was based on a review of the appropriateness of the allowance for loan losses at September 30, 2016. A provision or reversal for credit losses represents a charge against or benefit toward current earnings that is determined by management, through a credit review process, as the amount needed to establish an allowance that management believes to be sufficient to absorb credit losses inherent in the Company’s loan portfolio, including unfunded commitments. The following table summarizes the charge-offs and recoveries for the periods indicated:

Three months ended September 30,

Nine months ended September 30,

2016

2015

2016

2015

(In thousands)

Charge-offs:

Commercial loans
$ 3,278 $ 3,310 $ 12,035 $ 6,754
Real estate loans⁽¹⁾
4,626 97 5,830 3,774
Total charge-offs
7,904 3,407 17,865 10,528
Recoveries:

Commercial loans
$ 2,006 606 3,720 3,084
Construction loans
548 41 7,871 163
Real estate loans⁽¹⁾
343 648 903 4,336
Total recoveries
2,897 1,295 12,494 7,583
Net charge-offs
$ 5,007 $ 2,112 $ 5,371 $ 2,945
⁽¹⁾ ~~Real estate loans include commercial mortgage loans, residential mortgage loans, and equity lines.~~

~~Non~~~~-Interest Income~~
Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), gains (losses) on loan sales, wire transfer fees, and other sources of fee income, was $8.8 million for the third quarter of 2016, a decrease of $400,000, or 3.8%, compared to $9.2 million for the third quarter of 2015.
~~Non-Interest Expense~~
Non-interest expense decreased $6.8 million, or 11.7%, to $50.7 million in the third quarter of 2016 compared to $57.5 million in the same quarter a year ago. The decrease in non-interest expense in the third quarter of 2016 was primarily due to decreases of $11.7 million in amortization of investments in alternative energy partnerships. The efficiency ratio was 45.05% in the third quarter of 2016 compared to 53.81% for the same quarter a year ago.
~~Income Taxes~~
The effective tax rate for the third quarter of 2016 was 25.5% compared to 23.9% for the third quarter of 2015. The effective tax rate includes the impact of the utilization of low income housing tax credits and alternative energy tax credits.
~~Year-to-Date Statement of Operations Review~~
Net income for the nine months ended September 30, 2016, was $127.1 million, an increase of $7.4 million, or 6.2%, compared to net income of $119.7 million for the same period a year ago. Diluted earnings per share was $1.59 compared to $1.48 per share for the same period a year ago. The net interest margin for the nine months ended September 30, 2016, was 3.39% compared to 3.43% for the same period a year ago.
Return on average stockholders’ equity was 9.66% and return on average assets was 1.29% for the nine months ended September 30, 2016, compared to a return on average stockholders’ equity of 9.56% and a return on average assets of 1.36% for the same period of 2015. The efficiency ratio for the nine months ended September 30, 2016, was 51.35% compared to 49.13% for the same period a year ago.

The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities for the nine months ended September 30, 2016, and 2015. Average outstanding amounts included in the table are daily averages.
Interest-Earning Assets and Interest-Bearing Liabilities
Nine months ended September 30,

2016

2015

Interest

Average

Interest

Average

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate⁽¹⁾⁽²⁾

Balance

Expense

Rate⁽¹⁾⁽²⁾

Interest earning assets:

Commercial loans
$ 2,248,025 $ 65,244 3.88 % $ 2,417,306 $ 68,969 3.81 %
Residential mortgage loans
2,260,806 75,128 4.43 1,837,912 62,731 4.55
Commercial mortgage loans
5,477,646 186,567 4.55 4,810,426 167,646 4.66
Real estate construction loans
479,235 22,227 6.20 355,520 15,619 5.87
Other loans and leases
2,616 46 2.35 4,541 73 2.15
Total loans and leases⁽¹⁾
10,468,328 349,212 4.46 9,425,705 315,038 4.47
Taxable securities
1,384,019 16,974 1.64 1,337,791 15,262 1.53
Federal Home Loan Bank stock
17,256 1,122 8.69 22,905 2,782 16.24
Interest bearing deposits
272,690 1,094 0.54 147,206 1,105 1.00
Total interest-earning assets
12,142,293 368,402 4.05 10,933,607 334,187 4.09
Non-interest earning assets:

Cash and due from banks
215,415 202,080
Other non-earning assets
891,974 798,587
Total non-interest earning assets
1,107,389 1,000,667
Less: Allowance for loan losses
(133,232 ) (157,939 )
Deferred loan fees
(7,225 ) (10,736 )
Total assets
$ 13,109,225 $ 11,765,599

Interest bearing liabilities:

Interest bearing demand accounts
$ 1,013,129 $ 1,256 0.17 $ 838,976 $ 1,025 0.16
Money market accounts
2,020,725 9,768 0.65 1,634,848 7,340 0.60
Savings accounts
626,200 759 0.16 582,632 646 0.15
Time deposits
4,752,938 32,177 0.90 4,541,376 28,320 0.83
Total interest-bearing deposits
8,412,992 43,960 0.70 7,597,832 37,331 0.66

Securities sold under agreements to repurchase
392,701 11,696 3.98 401,099 11,836 3.95
Other borrowings
119,348 442 0.49 118,091 374 0.42
Long-term debt
119,136 4,336 4.86 119,136 4,320 4.85
Total interest-bearing liabilities
9,044,177 60,434 0.89 8,236,158 53,861 0.87
Non-interest bearing liabilities:

Demand deposits
2,131,742 1,710,823
Other liabilities
175,714 144,664
Total equity
1,757,592 1,673,954
Total liabilities and equity
$ 13,109,225 $ 11,765,599
Net interest spread
3.16 % 3.22 %
Net interest income
$ 307,968 $ 280,326
Net interest margin
3.39 % 3.43 %
⁽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.~~

~~The following table summarizes the changes in interest income and interest expense attributable to changes in volume and changes in interest rates:~~
Taxable-Equivalent Net Interest Income — Changes Due to Volumn and Rate⁽¹⁾

Nine months ended September 30,

2016-2015

Increase (Decrease) in

Net Interest Income Due to:

(Dollars in thousands)

Changes in
Volume

Changes in
Rate

Total
Change

Interest-earning assets:

Loans and leases
$ 35,069 $ (895 ) $ 34,174
Taxable securities
545 1,167 1,712
Federal Home Loan Bank stock
(575 ) (1,085 ) (1,660 )
Deposits with other banks
661 (672 ) (11 )
Total changes in interest income
35,700 (1,485 ) 34,215

Interest-bearing liabilities:

Interest bearing demand accounts
217 14 231
Money market accounts
1,839 589 2,428
Savings accounts
51 62 113
Time deposits
1,369 2,488 3,857
Securities sold under agreements to repurchase
(242 ) 102 (140 )
Other borrowed funds
4 64 68
Long-term debt
- 16 16
Total changes in interest expense
3,238 3,335 6,573
Changes in net interest income
$ 32,462 $ (4,820 ) $ 27,642
⁽¹⁾ ~~Changes in interest income and interest expense attributable to changes in both volume and rate have beenallocated proportionately to changes due to volume and changes due to rate.~~
Balance Sheet Review

Assets

Total assets were ~~$14.10~~$15.7 billion as of September 30, ~~2016,~~2017, an increase of ~~$844.7 million,~~$1.2 billion, or ~~6.4%~~8.3%, from ~~$13.25~~$14.5 billion as of December 31, ~~2015,~~2016, primarily due to ~~a $847.0 million increase in loans and a $254.9 million increase in short-term investments and interest bearing deposits offset by a $287.9 million decrease in securities available-for-sale.~~
~~Investment Securities~~the acquisition of SinoPac Bancorp which had total assets of $1.2 billion.

Investment Securities
Investment securities represented ~~9.2%~~8.7% of total assets as of September 30, ~~2016,~~2017, compared to ~~12.0%~~9.1% of total assets as of December 31, ~~2015.~~2016. The carrying value of investment securities as of September 30, ~~2016,~~2017, was ~~$1.30~~$1.4 billion compared to ~~$1.59~~$1.3 billion as of December 31, ~~2015.~~2016. Securities available-for-sale are carried at fair value and had a net unrealized gain, net of tax, of ~~$8.5~~$2.0 million as of September 30, ~~2016,~~2017, compared to a net unrealized loss, net of tax, of ~~$5.4~~$1.5 million as of December 31, ~~2015.~~2016.

47

Table of Contents

The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of investment securities as of September 30, ~~2016,~~2017, and December 31, ~~2015:~~2016:

September 30, 2017

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 399,741 $ - $ 305 $ 399,436
U.S. government agency entities
9,679 27 6 9,700
U.S. government sponsored entities
400,000 - 6,278 393,722
State and municipal securities
1,943 12 1,931
Mortgage-backed securities
447,959 468 2,362 446,065
Collateralized mortgage obligations
1,715 - 5 1,710
Corporate debt securities
80,007 904 5 80,906
Mutual funds
6,500 - 229 6,271
Preferred stock of government sponsored entities
4,117 3,970 - 8,087
Other equity securities
13,294 7,463 98 20,659
Total
$ 1,364,955 $ 12,832 $ 9,300 $ 1,368,487

September 30, 2016

December 31, 2016

Gross

Gross

Gross

Gross

Amortized

Unrealized

Unrealized

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

(In thousands)

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 389,921 $ 112 $ 24 $ 390,009 $ 489,839 $ 35 $ 857 $ 489,017
U.S. government sponsored entities
250,000 79 69 250,010 400,000 - 9,669 390,331
Mortgage-backed securities
556,454 7,186 2 563,638 339,241 309 3,290 336,260
Collateralized mortgage obligations
52 - 22 30 48 - 20 28
Corporate debt securities
74,962 444 937 74,469 74,965 247 862 74,350
Mutual funds
6,000 - 74 5,926 6,500 - 270 6,230
Preferred stock of government sponsored entities
2,811 565 188 3,188 2,811 4,497 - 7,308
Other equity securities
3,608 7,591 - 11,199 3,608 7,213 - 10,821

Total
$ 1,283,808 $ 15,977 $ 1,316 $ 1,298,469 $ 1,317,012 $ 12,301 $ 14,968 $ 1,314,345

December 31, 2015

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 284,678 $ 5 $ 395 $ 284,288
U.S. government sponsored entities
150,000 - 1,840 148,160
Mortgage-backed securities
1,073,108 560 11,399 1,062,269
Collateralized mortgage obligations
63 - 27 36
Corporate debt securities
74,955 425 1,525 73,855
Mutual funds
6,000 - 167 5,833
Preferred stock of government sponsored entities
2,811 633 228 3,216
Other equity securities
4,108 4,929 342 8,695

Total
$ 1,595,723 $ 6,552 $ 15,923 $ 1,586,352

For additional information, see Note 67 to the Company’s unaudited condensed consolidated financial ~~statements presented elsewhere in this report.~~statements.

Investment securities having a carrying value of ~~$505.9~~$291.4 million as of September 30, ~~2016,~~2017, and ~~$449.6~~$649.1 million as of December 31, ~~2015,~~2016, were pledged to secure public deposits, other borrowings, treasury tax and loan and securities sold under agreements to repurchase.

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Loans

Gross loans, excluding loans held for sale, were ~~$11.0~~$12.6 billion at September 30, ~~2016,~~2017, an increase of ~~$847.0 million,~~$1.4 billion, or ~~8.3%~~12.5%, from ~~$10.2~~$11.2 billion at December 31, ~~2015,~~2016. The increase was primarily due to increases of ~~$442.8~~$591.8 million, or ~~8.4%~~10.2%, in commercial mortgage loans, ~~$397.0~~$478.5 million, or ~~20.5%~~19.6%, in residential mortgage loans, ~~and $73.7~~$171.7 million, or ~~16.7%~~7.6%, in commercial loans, and $143.4 million, or 26.2%, in real estate construction ~~loans partially offset by decreases of $67.9 million, or 2.9%, in commercial~~ loans. The ~~following table sets forth the classification of loans by type, mix,~~loan balances and ~~percentage change as of the dates indicated:~~composition at September 30, 2017, compared to December 31, 2016, and to September 30, 2016, are presented below:

September 30, 2016

% of Gross Loans

December 31, 2015

% of Gross Loans

% Change

(Dollars in thousands)
September 30, 2017

% of Gross Loans

December 31, 2016

% of Gross Loans

% Change

Type of Loans

(Dollars in thousands)

Commercial loans
$ 2,248,996 20.4 % $ 2,316,863 22.8 % (2.9 %) $ 2,419,891 19.2 % $ 2,248,187 20.1 % 7.6 %
Residential mortgage loans
2,329,402 21.2 1,932,355 19.0 20.5 2,922,537 23.3 2,444,048 21.8 19.6
Commercial mortgage loans
5,743,991 52.2 5,301,218 52.2 8.4 6,377,047 50.6 5,785,248 51.7 10.2
Equity lines
170,022 1.5 168,980 1.7 0.6 181,751 1.4 171,711 1.5 5.8
Real estate construction loans
515,236 4.7 441,543 4.3 16.7 691,486 5.5 548,088 4.9 26.2
Installment and other loans
2,810 0.0 2,493 0.0 12.7 4,722 0.0 3,993 0.0 18.3
Gross loans
$ 11,010,457 100 % $ 10,163,452 100 % 8.3 % $ 12,597,434 100 % $ 11,201,275 100 % 12.5 %

Allowance for loan losses
(117,942 ) (138,963 ) (15.1 ) (121,535 ) (118,966 ) 2.2
Unamortized deferred loan fees
(5,519 ) (8,262 ) (33.2 ) (3,424 ) (4,994 ) (31.4 )

Total loans, net
$ 10,886,996 $ 10,016,227 8.7 % $ 12,472,475 $ 11,077,315 12.6 %

Loans held for sale
$ 4,750 $ 6,676 (28.8 %) $ - $ 7,500 (100.0 %)

Non-performing Assets

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

Management reviews the loan portfolio regularly for problem loans. During the ordinary course of ~~business,~~business, management becomes aware of borrowers that may not be able to meet the contractual requirements of the loan agreements. Such loans 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~~non-performing assets, excluding non-accrual loans held for sale, to total assets was ~~0.5%~~0.6% at September 30, ~~2016,~~2017, compared to ~~0.6%~~0.5% at December 31, ~~2015.~~2016. Total non-performing assets ~~decreased $11.5~~increased $17.6 million, or ~~15.0%~~25.2%, to ~~$65.3~~$87.4 million at September 30, ~~2016,~~2017, compared to ~~$76.8~~$69.8 million at December 31, ~~2015,~~2016, primarily due to ~~a decrease~~an increase of ~~$7.7~~$15.7 million, or ~~14.9%~~31.6%, in non-accrual loans ~~and~~offset by a decrease of ~~$3.8~~$2.0 million, or ~~15.0%~~9.7%, in ~~OREO.~~other real estate owned.

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets was ~~0.59%~~0.69% as of September 30, ~~2016,~~2017, compared to ~~0.75%~~0.62% as of December 31, ~~2015.~~2016. The non-performing portfolio loan coverage ratio, defined as the allowance for credit losses to non-performing loans, ~~increased~~decreased to ~~270.9%~~181.6% as of September 30, ~~2016,~~2017, from ~~269.4%~~245.9% as of December 31, ~~2015.~~2016.

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The following table presents the changes in non-performing assets and troubled debt restructurings (“TDRs”) as of September 30, ~~2016,~~2017, compared to December 31, ~~2015,~~2016, and to September 30, ~~2015:~~2016:

(Dollars in thousands)

September 30, 2016

December 31, 2015

% Change

September 30, 2015

% Change

September 30, 2017

December 31, 2016

% Change

September 30, 2016

% Change

Non-performing assets

Accruing loans past due 90 days or more
$ - $ - - $ 2,573 (100 ) $ 3,900 $ - 100 $ - 100
Non-accrual loans:

Construction loans
5,507 16,306 (66 ) 16,579 (67 ) 14,267 5,458 161 5,507 159
Commercial mortgage loans
21,077 25,231 (16 ) 33,214 (37 ) 28,379 20,078 41 21,077 35
Commercial loans
9,251 3,545 161 14,758 (37 ) 15,942 15,710 1 9,251 72
Residential mortgage loans
8,524 7,048 21 6,690 27 6,763 8,436 (20 ) 8,524 (21 )
Total non-accrual loans:
$ 44,359 $ 52,130 (15 ) $ 71,241 (38 ) $ 65,351 $ 49,682 32 $ 44,359 47
Total non-performing loans
44,359 52,130 (15 ) 73,814 (40 ) 69,251 49,682 39 44,359 56
Other real estate owned
20,986 24,701 (15 ) 26,326 (20 ) 18,115 20,070 (10 ) 20,986 (14 )
Total non-performing assets
$ 65,345 $ 76,831 (15 ) $ 100,140 (35 ) $ 87,366 $ 69,752 25 $ 65,345 34
Accruing troubled debt restructurings
$ 86,555 $ 81,680 6 $ 89,881 (4 ) $ 62,358 $ 65,393 (5 ) $ 86,555 (28 )
Non-accrual loans held for sale
$ 4,750 $ 5,944 (20 ) $ - 100 $ - $ 7,500 (100 ) $ 4,750 (100 )

Allowance for loan losses
$ 117,942 $ 138,963 (15 ) $ 150,076 (21 ) $ 121,535 $ 118,966 2 $ 117,942 3

Total gross loans outstanding, at period-end⁽¹⁾
$ 11,010,457 $ 10,163,452 8 $ 10,039,932 10 $ 12,597,434 $ 11,201,275 12 $ 11,010,457 14

Allowance for loan losses to non-performing loans, at period-end⁽²⁾
265.88 % 266.57 % 203.32 % 175.50 % 239.45 % 265.88 %
Allowance for loan losses to gross loans, at period-end⁽¹⁾
1.07 % 1.37 % 1.49 % 0.96 % 1.06 % 1.07 %

⁽¹⁾ Excludes loans held for sale at period-end.
⁽²⁾ Excludes non-accrual loans held for sale at period-end.

Non-accrual Loans

At September 30, ~~2016,~~2017, total non-accrual loans were ~~$44.4~~$65.4 million, ~~a decrease~~an increase of ~~$26.8~~$15.7 million, or ~~37.7%~~31.6%, resulting from several construction and commercial real estate loans placed on nonaccrual, from $49.7 million at December 31, 2016, and an increase of $21.0 million, or 47.3%, from ~~$71.2~~$44.4 million at September 30, ~~2015, and a decrease of $7.7 million, or 14.9%, from $52.1 million at December 31, 2015.~~2016. 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. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly. Non-accrual loans also include those TDRs that do not qualify for accrual status.

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

September 30, 2016

December 31, 2015

September 30, 2017

December 31, 2016

Real

Real

Real

Real

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

Estate ⁽¹⁾

Commercial

(In thousands)

(In thousands)

Type of Collateral

Single/multi-family residence
$ 9,471 $ - $ 8,727 $ - $ 23,780 $ 7,742 $ 9,368 $ 218
Commercial real estate
20,728 2,416 30,588 834 25,591 - 24,321 -
Land
4,909 - 9,270 - - - 283 -
Personal property (UCC)
- 6,835 - 2,711 - 8,200 - 15,492
Total
$ 35,108 $ 9,251 $ 48,585 $ 3,545 $ 49,371 $ 15,942 $ 33,972 $ 15,710

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

September 30, 2016

December 31, 2015

Real

Real

Estate⁽¹⁾

Commercial

Estate⁽¹⁾

Commercial

(In thousands)

Type of Business

Real estate development
$ 10,004 $ - $ 29,174 $ 834
Wholesale/Retail
17,174 3,597 13,414 780
Food/Restaurant
156 - 293 -
Import/Export
- 4,422 - 1,931
Other
7,774 1,232 5,704 -
Total
$ 35,108 $ 9,251 $ 48,585 $ 3,545
⁽¹⁾ ~~Real estate includes commercial mortgage loans, real estate construction loans,~~residential mortgage loans and equity lines.

~~Other Real Estate Owned~~

September 30, 2017

December 31, 2016

Real

Real

Estate ⁽¹⁾

Commercial

Estate ⁽¹⁾

Commercial

(In thousands)

Type of Business

Real estate development
$ 31,890 $ 20 $ 13,804 $ -
Wholesale/Retail
10,807 7,924 12,312 9,213
Food/Restaurant
140 - 153 -
Import/Export
- 7,998 - 6,174
Other
6,534 - 7,703 323
Total
$ 49,371 $ 15,942 $ 33,972 $ 15,710

As of September 30, 2016, OREO totaled $21.0 million, which decreased $3.7 million, or 15.0%, compared to $24.7 million as of December 31, 2015, and increased $5.3 million, or 20.3%, compared to $26.3 million as of September 30, 2015.
(1) Real estate includes commercial mortgage loans, real estate construction loans, residential mortgage loans and equity lines.

Impaired Loans

A loan is considered impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement based on current circumstances and events. The assessment for impairment occurs when and while such loans are on non-accrual as a result of ~~delinquency~~delinquency status of over 90 days or receipt of information indicating that full collection of principal is doubtful, or when the loan has been restructured in a troubled debt ~~restructuring.~~restructuring (TDRs). Those loans with a balance less than our defined selection criteria, generally a loan amount less than $500,000, are treated as a homogeneous portfolio. If loans meeting the defined criteria are not collateral dependent, we measure the impairment based on the present value of the expected future cash flows discounted at the loan’s effective interest rate. If loans meeting the defined criteria are collateral dependent, we measure the impairment by using the loan’s observable market price or the fair value of the collateral. We obtain an appraisal to determine the amount of impairment at the date that the loan becomes impaired. The appraisals are based on “as is” or bulk sale valuations. To ensure that appraised values remain current, we generally obtain an updated appraisal every twelve months from qualified independent appraisers. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, we then recognize impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the collateral, the amount of impairment, excluding disposal costs, which range between 3% to 6% of the fair value, depending on the size of the impaired loan, is charged off against the allowance for loan losses. Non-accrual impaired loans, including TDRs, are not returned to accrual status unless the unpaid interest has been brought current and full repayment of the recorded balance is expected or if the borrower has made six consecutive monthly payments of the scheduled amounts due, and TDRs are reviewed for continued impairment until they are no longer reported as TDRs.

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As
As of September 30, 2017, recorded investment in impaired loans totaled $127.7 million and was comprised of non-accrual loans, excluding loans held for sale, of $65.3 million and accruing troubled debt restructured loans (TDRs) of $62.4 million. As of December 31, 2016, recorded investment in impaired loans totaled ~~$130.9~~$115.1 million and was comprised of non-accrual loans, excluding loans held for sale, of ~~$44.4~~$49.7 million and accruing TDRs of ~~$86.6 million. As of December 31, 2015, recorded investment in impaired loans totaled $133.8 million and was comprised of non-accrual loans of $52.1 million and accruing TDRs of $81.7~~$65.4 million. For impaired loans, the amounts previously charged off represent ~~7.7%~~7.1% as of September 30, ~~2016,~~2017, and ~~22.4%~~8.4% as of December 31, ~~2015,~~2016, of the contractual balances for impaired loans. As of September 30, ~~2016, $35.1~~2017, $49.4 million, or ~~79.1%~~75.7%, of the ~~$44.4~~$65.3 million of non-accrual loans, excluding loans held for sale, was secured by real estate compared to ~~$48.6~~$34.0 million, or ~~93.2%~~68.4%, of the ~~$52.1~~$49.7 million of non-accrual loans, excluding loans held for sale, that was secured by real estate as of December 31, ~~2015.~~2016. The Bank obtains current appraisals, sales contracts, or other available market price information which provide updated factors in evaluating potential loss.

AsAs of September 30, ~~2016, $2.9~~2017, $2.1 million of the ~~$117.9~~$121.5 million allowance for loan losses was allocated for impaired loans and ~~$115.0~~$119.4 million was allocated to the general allowance. As of December 31, ~~2015, $7.8~~2016, $2.8 million of the ~~$139.0~~$119.0 million allowance for loan losses was allocated for impaired loans and ~~$131.2~~$116.2 million was allocated to the general allowance.

The allowance for loan losses to non-accrual loans ~~decreased to 265.9%~~was 186.0% as of September 30, ~~2016,~~2017, from ~~266.6%~~239.5% as of December 31, ~~2015,~~2016, primarily due to ~~a decrease~~an increase in the ~~allowance for loan losses.~~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 impaired loans and the related allowance as of the dates indicated:

Impaired Loans

Impaired Loans

September 30, 2017

December 31, 2016

September 30, 2016

December 31, 2015

Unpaid
Principal
Balance

Recorded
Investment

Allowance

Unpaid
Principal
Balance

Recorded
Investment

Allowance

Unpaid Principal Balance

Recorded Investment

Allowance

Unpaid Principal Balance

Recorded Investment

Allowance

(In thousands)

(In thousands)

With no allocated allowance

Commercial loans
$ 29,794 $ 29,414 $ - $ 15,493 $ 6,721 $ - $ 23,953 $ 23,373 $ - $ 24,037 $ 23,121 $ -
Real estate construction loans
5,776 5,507 - 51,290 22,002 - 22,309 21,748 - 5,776 5,458 -
Commercial mortgage loans
72,319 64,298 - 59,954 54,625 - 39,154 32,370 - 60,522 54,453 -
Residential mortgage loans and equity lines
4,832 4,675 - 3,233 3,026 - 2,264 2,264 - 5,472 5,310 -
Subtotal
$ 112,721 $ 103,894 $ - $ 129,970 $ 86,374 $ - $ 87,680 $ 79,755 $ - $ 95,807 $ 88,342 $ -
With allocated allowance

Commercial loans
$ 3,315 $ 3,217 $ 1,320 $ 7,757 $ 6,847 $ 530 $ 14,082 $ 13,985 $ 1,461 $ 5,216 $ 4,640 $ 1,827
Commercial mortgage loans
10,425 10,289 1,248 28,258 27,152 6,792 23,061 22,820 823 10,158 10,017 573
Residential mortgage loans and equity lines
14,637 13,514 375 14,383 13,437 427 12,461 11,111 322 13,263 12,075 396
Subtotal
$ 28,377 $ 27,020 $ 2,943 $ 50,398 $ 47,436 $ 7,749 $ 49,604 $ 47,916 $ 2,606 $ 28,637 $ 26,732 $ 2,796
Total impaired loans
$ 141,098 $ 130,914 $ 2,943 $ 180,368 $ 133,810 $ 7,749 $ 137,284 $ 127,671 $ 2,606 $ 124,444 $ 115,074 $ 2,796

Loan Interest Reserves

In accordance with customary banking practice, we originate construction loans and land development loans ~~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 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 65% in the case of land to 85% in the case of one to four family residential construction projects.

As of September 30, ~~2016,~~2017, construction loans of ~~$465.5~~$515.4 million were disbursed with pre-established interest reserves of ~~$56.1~~$61.8 million compared to ~~$371.4~~$500.2 million of such loans disbursed with pre-established interest reserves of ~~$49.5~~$58.9 million at December 31, ~~2015.~~2016. The balance for construction loans with interest reserves which have been extended was ~~$120.1~~$81.3 million with pre-established interest reserves of ~~$3.7~~$1.8 million at September 30, ~~2016,~~2017, compared to ~~$67.8~~$113.1 million with pre-established interest reserves of ~~$2.6~~$2.1 million at December 31, ~~2015.~~2016. Land loans of ~~$49.5~~$23.2 million were disbursed with pre-established interest reserves of ~~$1.5 million~~$680,000 at September 30, ~~2016,~~2017, compared to ~~$87.3~~$51.3 million land loans disbursed with pre-established interest reserves of ~~$1.8~~$1.0 million at December 31, ~~2015.~~2016. The balance for land loans with interest reserves which have been extended was ~~$1.3~~$5.9 million at September 30, ~~2016~~2017 with pre-established interest reserves of ~~$42,000~~$360,000 compared to ~~$73.2~~$2.0 million in land loans with pre-established interest reserves of ~~$1.3 million~~$40,000 at December 31, ~~2015.~~ 2016.

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At September 30, 2017 and December 31, 2016, the Bank had no loans on non-accrual status with available interest reserves. At September 30, ~~2016, $5.5~~2017, $14.3 million of non-accrual non-residential construction loans, and ~~$9.7~~$8.0 million ~~of non-accrual~~ land loans had been originated with pre-established interest reserves. At December 31, ~~2015, the Bank had no loans on non-accrual status with available interest reserves. At December 31, 2015, $0.5 million of non-accrual residential construction loans, $15.8~~2016, $5.5 million of non-accrual non-residential construction loans, and ~~$13.9~~$7.8 million of non-accrual land loans had been originated with pre-established interest reserves.    While we typically expect loans with interest reserves ~~are typically expected~~ to be repaid in full according to the original contractual terms, some loans require one or more extensions beyond the original ~~maturity.~~maturity before full repayment. Typically, these extensions are required due to construction delays, delays in the sale or lease of property, or some combination of these two factors.

Loan Concentration

Most of the ~~Company’s~~Company’s business activities are with customers located in the predominantly ~~Asian~~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; Las Vegas, Nevada, and Hong Kong. The Company has no specific industry concentration, and generally its loans are collateralized with real property or other pledged collateral of the borrowers. ~~Loans are~~The Company generally ~~expected~~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 ~~which~~that exceeded 10% of total loans as of September 30, ~~2016,~~2017, or as of December 31, ~~2015.~~2016.

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-nine~~thirty-six months. Total loans for construction, land development, and other land represented ~~38.6%~~40.7% of the Bank’s total risk-based capital as of September 30, ~~2016,~~2017, and ~~35.8%~~40.4% as of December 31, ~~2015.~~2016. Total CRE loans represented ~~304%~~305% of total risk-based capital as of September 30, ~~2016,~~2017, and ~~286%~~300% as of December 31, ~~2015~~2016 and were below the Bank’s internal limit for CRE loans of 400% of total capital at both dates.

Allowance for Credit Losses

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

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In addition, the Bank’s Board of Directors has established a written credit policy that includes a credit review and control system ~~which it~~that the Board of Directors believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses. The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio. The determination of the amount of the allowance for credit losses and the provision for credit losses isare based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment. Additions to the allowance for credit losses are made by charges to the provision for credit losses. While management utilizes its best judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond the Bank’s control, including the performance of the Bank’s loan portfolio, the economy, changes in interest rates, and the view of the regulatory authorities toward loan classifications. Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged off amounts, if any, are credited to the allowance for credit losses. A weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies, bankruptcies, or defaults, and a higher level of non-performing assets, net charge-offs, and provision for credit losses in future periods.

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The allowance for loan losses was ~~$117.9~~$121.5 million and the allowance for off-balance sheet unfunded credit commitments was ~~$2.2~~$4.3 million at September 30, ~~2016,~~2017, which represented the amount believed by management to be appropriate to absorb credit losses inherent in the loan portfolio, including unfunded commitments. The ~~$117.9~~$121.5 million allowance for loan losses at September 30, ~~2016, decreased $21.1~~2017, increased $2.5 million, or ~~15.1%~~2.1%, from ~~$139.0~~$119.0 million at December 31, ~~2015.~~2016. The allowance for loan losses represented ~~1.07%~~0.96% of period-end gross loans, excluding loans held for sale, and ~~265.9%~~175.5% of non-performing loans at September 30, ~~2016.~~2017. The comparable ratios were ~~1.37%~~1.06% of period-end gross loans, excluding loans held for sale, and ~~266.6%~~239.5% of non-performing loans at December 31, ~~2015.~~2016. The following table sets forth information relating to the allowance for loan losses, charge-offs, recoveries, and the reserve for off-balance sheet credit commitments for the periods indicated:

Three months ended September 30,

Nine months ended September 30,

Three months ended September 30,

Nine months ended September 30,

2016

2015

2016

2015

2017

2016

2017

2016

Allowance for loan losses

(Dollars in thousands)

(Dollars in thousands)

Balance at beginning of period
$ 122,948 $ 153,437 $ 138,963 $ 161,420 $ 115,809 $ 122,948 $ 118,966 $ 138,963
Reversal for credit losses .
- (1,250 ) (15,650 ) (8,400 )
Transfers to reserve for off-balance sheetcredit commitments
- 1 - 1
Reversal for credit losses
- - (2,500 ) (15,650 )
Charge-offs :

Commercial loans
(3,278 ) (3,310 ) (12,036 ) (6,754 ) (80 ) (3,278 ) (1,810 ) (12,036 )
Real estate loans
(4,625 ) (97 ) (5,829 ) (3,774 ) (305 ) (4,625 ) (860 ) (5,829 )
Total charge-offs
(7,903 ) (3,407 ) (17,865 ) (10,528 ) (385 ) (7,903 ) (2,670 ) (17,865 )
Recoveries:

Commercial loans
2,006 606 3,720 3,084 575 2,006 1,401 3,720
Construction loans
548 41 7,871 163 47 548 143 7,871
Real estate loans
343 648 903 4,336 5,489 343 6,195 903
Total recoveries
2,897 1,295 12,494 7,583 6,111 2,897 7,739 12,494

Balance at end of period
$ 121,535 $ 117,942 $ 121,535 $ 117,942
Reserve for off-balance sheet credit commitments

Balance at beginning of period
$ 4,513 $ 2,124 $ 3,224 $ 1,494
Provision for credit losses
(259 ) 100 1,030 730
Balance at end of period
$ 117,942 $ 150,076 $ 117,942 $ 150,076 $ 4,254 $ 2,224 $ 4,254 $ 2,224

Reserve for off-balance sheet credit commitments

Balance at beginning of period
$ 2,124 $ 1,574 $ 1,494 $ 1,949
Provision/(reversal) for credit losses
100 (153 ) 730 (528 )
Balance at end of period
$ 2,224 $ 1,421 $ 2,224 $ 1,421

Average loans outstandingduring the period⁽¹⁾.
$ 10,668,341 $ 9,857,196 $ 10,466,764 $ 9,426,293
Average loans outstanding during the period ⁽¹⁾
$ 12,317,721 $ 10,668,341 $ 11,668,814 $ 10,466,764
Total gross loans outstanding, at period-end⁽¹⁾
$ 11,010,457 $ 10,039,932 $ 11,010,457 $ 10,039,932 $ 12,597,434 $ 11,010,457 $ 12,597,434 $ 11,010,457
Total non-performing loans, at period-end⁽²⁾
$ 44,359 $ 73,814 $ 44,359 $ 73,814 $ 69,251 $ 44,359 $ 69,251 $ 44,359
Ratio of net charge-offs to averageloans outstanding during the period⁽¹⁾
0.19 % 0.09 % 0.07 % 0.04 %
Ratio of net charge-offs/(recoveries) to average loans outstanding during the period ⁽¹⁾
(0.18% ) 0.19 % (0.06% ) 0.07 %
Provision for credit losses to averageloans outstanding during the period⁽¹⁾
0.00 % (0.06% ) (0.19% ) (0.13% ) (0.01% ) 0.00 % (0.02% ) (0.19% )
Allowance for credit losses tonon-performing loans, at period-end⁽²⁾
270.89 % 205.24 % 270.89 % 205.24 % 181.64 % 270.89 % 181.64 % 270.89 %

Allowance for credit losses togross loans, at period-end⁽¹⁾
1.09 % 1.51 % 1.09 % 1.51 % 1.00 % 1.09 % 1.00 % 1.09 %

⁽¹⁾ Excluding loans held for sale.
⁽²⁾ Excluding non-accrual loans held for sale.

Our allowance for loan losses consists of the following:

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

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

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

September 30, 2016

December 31, 2015

Percentage of

Percentage of

September 30, 2017

December 31, 2016

Loans in Each

Loans in Each

Percentage of

Percentage of

Category

Category

Loans in Each

Loans in Each

to Average

to Average

Category

Category

Amount

Gross Loans

Amount

Gross Loans

to Average

to Average

(Dollars in thousands)
Amount

Gross Loans

Amount

Gross Loans

Type of Loan:

(Dollars in thousands)

Commercial loans
$ 53,699 21.5 % $ 56,199 24.9 % $ 51,039 19.1 % $ 49,203 21.1 %
Residential mortgage loans⁽¹⁾
10,057 21.6 11,145 19.7 11,062 24.3 11,620 22.0
Commercial mortgage loans
44,933 52.3 49,440 51.5 37,402 51.5 34,864 52.2
Real estate construction loans
9,245 4.6 22,170 3.9 22,008 5.0 23,268 4.7
Installment and other loans
8 0.0 9 0.0 24 0.0 11 0.0
Total
$ 117,942 100 % $ 138,963 100 % $ 121,535 100 % $ 118,966 100 %

⁽¹⁾ Residential mortgage loans includes equity lines.

The allowance allocated to commercial loans increased $1.8 million, or 3.7%, to $51.0 million at September 30, 2017, from $49.2 million at December 31, 2016. The increase is due primarily to commercial loan growth.
The allowance allocated for residential mortgage loans decreased $0.5 million, or 4.3%, to $11.1 million at as of September 30, 2017, from $11.6 million at December 31, 2016 as a result of the decrease in the amount of general allowance determined to be required for residential mortgage loans. .
The allowance allocated to commercial mortgage loans increased $2.5 million, or 7.2%, to $37.4 million at September 30, 2017, from $34.9 million at December 31, 2016 as a result of the increase in the amount of general allowance determined to be required for commercial mortgage loans.

The allowance allocated to real estate construction loans decreased $1.3 million, or 5.6%, to $22.0 million at September 30, 2017 from ~~$22.2~~$23.3 million ~~as of~~at December 31, ~~2015,~~2016. The decrease is due primarily to ~~$9.2 million as of September 30, 2016, which was primarily due to updated loss factors, recoveries of $7.9 million in~~ the ~~first nine months of 2016 and a~~ decrease in the amount of ~~loans classified as substandard. The overall~~specific reserves and general allowance determined to be required for ~~total~~ construction ~~loans was 1.8% as of September 30, 2016, and 3.1% as of December 31, 2015.~~
~~The allowance allocated to commercial loans was $53.7 million at September 30, 2016, compared to $56.2 million at December 31, 2015. The decreaseis due primarily to updated loss factors.~~
The allowance allocated to commercial mortgage loans decreased $4.5 million to $44.9 million at September 30, 2016, from $49.4 million at December 31, 2015, as a result of reduced historical loan loss experience for commercial mortgage loans.

~~The allowance allocated for residential mortgage loans decreased $1.0 million, or 8.8%, to $9.8 million as~~
57
Table of ~~September 30, 2016, compared to $10.1 million as of December 31, 2015.~~

Contents

Deposits

Total deposits were ~~$10.9~~$12.6 billion at September 30, ~~2016,~~2017, an increase of ~~$700~~$887 million, or ~~6.8%~~7.6%, from ~~$10.2 billion at September 30, 2015, and an increase of $430 million, or 4.1% from $10.5~~$11.7 billion at December 31, ~~2015.~~2016. The following table displays the deposit mix as of the dates indicated:

September 30, 2016

% of Total

December 31, 2015

% of Total

Deposits

(Dollars in thousands)
Non-interest-bearing demand deposits
$ 2,246,661 20.5 % $ 2,033,048 19.4 %
Interest bearing demand deposits
1,073,436 9.8 966,404 9.2
Money market deposits
2,131,190 19.5 1,905,719 18.1
Savings deposits
633,345 5.8 618,164 5.9
Time deposits
4,854,064 44.4 4,985,752 47.4
Total deposits
$ 10,938,696 100.0 % $ 10,509,087 100.0 %

September 30, 2017

December 31, 2016

Amount

Percentage

Amount

Percentage

Deposits

(Dollars in thousands)

Non-interest-bearing demand deposits
$ 2,730,006 21.7 % $ 2,478,107 21.2 %
Interest bearing demand deposits
1,379,100 11.0 1,230,445 10.6
Money market deposits
2,370,724 18.9 2,198,938 18.8
Savings deposits
925,312 7.4 719,949 6.2
Time deposits
5,156,553 41.0 5,047,287 43.2
Total deposits
$ 12,561,695 100.0 % $ 11,674,726 100.0 %

The following table shows the maturity distribution of time deposits as of September 30, ~~2016:~~
2017:

At September 30, 2016

Time Deposits -under
$100,000

Time Deposits -
$100,000 and over

Total Time
Deposits

Time Deposits -under $100,000

Time Deposits -
$100,000 and over

Total Time
Deposits

(In thousands)

(In thousands)

Less than three months
$ 632,895 $ 1,553,263 $ 2,186,158 $ 320,157 $ 921,819 $ 1,241,976
Three to six months
200,056 585,738 785,794 320,580 836,506 1,157,086
Six to twelve months
266,166 955,799 1,221,965 371,407 1,704,311 2,075,718
Over one year
217,494 442,653 660,147 224,168 457,605 681,773
Total
$ 1,316,611 $ 3,537,453 $ 4,854,064 $ 1,236,312 $ 3,920,241 $ 5,156,553

Percent of total deposits
12.1 % 32.3 % 44.4 % 9.8 % 31.2 % 41.0 %

Borrowings

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

Securities Sold Under Agreements to Repurchase.Securities sold under agreements to repurchase were $100 million with a weighted average rate of 2.86% as of September 30, 2017, compared to $350 million with a weighted average rate of 4.06% as of ~~September 30, 2016, compared to $400 million with a weighted average rate of 3.89% as of~~ December 31, 2015. As of September 30, 2016, four floating-to-fixed rate agreements totaling $200 million with a weighted average rate of 5.0% and final maturity in January 2017 had initial floating rates for one year, with floating rates of the three-month LIBOR rate minus 340 basis points. Thereafter, the rates are fixed for the remainder of the term, with interest rates ranging from 4.89% to 5.07%. As of September 30, 2016, three fixed rate non-callable securities sold under agreements to repurchase totaled $150 million with a weighted average rate of 2.81%, compared to four fixed rate non-callable securities sold under agreements to repurchase totaled $200 million with a weighted average rate of 2.78% as of December 31, 2015.2016. Final maturity for the ~~three~~two fixed rate non-callable securities sold under agreements to repurchase was $50.0 million in ~~July 2017, $50.0 million in~~ June 2018 and $50.0 million in July 2018.

These transactions are accounted for as collateralized financing transactions and recorded at the amounts at which the securities were sold. The Company may have to provide additional collateral for the ~~repurchase~~repurchase agreements, as necessary. The underlying collateral pledged for the repurchase agreements consists of U.S. Treasury securities and mortgage-backed securities with a fair value of ~~$383~~$109 million as of September 30, ~~2016,~~2017, and ~~$430~~$372 million as of December 31, ~~2015.~~2016.

Borrowing from the FHLB. As of September 30, ~~2016,~~2017, over-night borrowings from the FHLB were ~~$300~~$450 million at a rate of ~~0.38%~~1.16% compared to ~~$250~~$275 million at a rate of ~~0.27%~~0.55% as of December 31, ~~2015.~~2016. As of September 30, ~~2016,~~2017, the advances from the FHLB were ~~$400~~$145 million at a rate of ~~0.47% compared to $25 million at a rate of 1.13% as of December 31, 2015.~~1.35%. As of September 30, ~~2016,~~2017, FHLB advances of ~~$375~~$490 million will mature in October ~~2016~~2017, $55 million in 2018 and ~~$25~~$50 million ~~will mature~~ in ~~March 2018.~~December 2019.

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Long-term Debt

Long-term debt was ~~$119.1~~$255.2 million as of September 30, ~~2016, compared to $119.1 million as of~~2017, and December 31, ~~2015.~~2016. Long-term debt is comprised of a $119.1 million Junior Subordinated Notes, which qualify as Tier I capital for regulatory purposes, issued in connection with our various pooled trust preferred securities ~~offerings.~~offerings, and $136.1 million of deferred payments to Bank SinoPac.

Off-Balance-Sheet Arrangements and Contractual Obligations

The following table summarizes the ~~Company’s~~Company’s contractual obligations to make future payments as of September 30, ~~2016.~~2017. 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
$ 4,474,779 $ 680,903 $ 860 $ 11 $ 5,156,553
Non-callable securities sold under agreements to repurchase
100,000 - - - 100,000
Advances from the Federal Home Loan Bank
540,000 55,000 - - 595,000
Other borrowings
- - - 17,518 17,518
Long-term debt
- - - 119,136 119,136
Deferred payments from acquisition
- - 136,056 - 136,056
Operating leases
9,820 12,853 8,791 8,052 39,516
Total contractual obligations and other commitments
$ 5,124,599 $ 748,756 $ 145,707 $ 144,717 $ 6,163,779

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
$ 4,193,917 $ 656,761 $ 3,375 $ 11 $ 4,854,064
Securities sold under agreements to repurchase⁽¹⁾
200,000 - - - 200,000
Securities sold under agreements to repurchase⁽²⁾
50,000 100,000 - - 150,000
Advances from the Federal Home Loan Bank
675,000 25,000 - - 700,000
Other borrowings
- - - 17,705 17,705
Long-term debt
- - - 119,136 119,136
Operating leases
8,565 13,017 6,938 8,465 36,985
Total contractual obligations and other commitments
$ 5,127,482 $ 794,778 $ 10,313 $ 145,317 $ 6,077,890
⁽¹⁾ ~~These repurchase agreements have a final maturity of 10-years from origination date but are callableon a quarterly basis after one year.~~
⁽²⁾ ~~These repurchase agreements are non-callable.~~
In the normal course of business, we enter into various transactions, which, in accordance with U.S. ~~generally~~generally accepted accounting principles, are not included in our condensed consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the condensed consolidated balance sheets.

Loan Commitments. We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. We 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 customer to a third party. In the event the customer does not perform in accordance with the terms of an agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek reimbursement from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
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Table of Contents
Capital Resources

Total equity was ~~$1.79~~$2.0 billion as of September 30, ~~2016,~~2017, an increase of ~~$45.7~~$140.2 million, from ~~$1.75~~$1.8 billion as of December 31, ~~2015,~~2016, primarily due to net income of ~~$127.1~~$150.1 million and ~~other comprehensive income~~$34.9 million of ~~$10.3 million~~common stock issued for the acquisition of SinoPac Bancorp partially offset by ~~purchases of treasury stock of $54.4 million and~~ common stock cash dividends of ~~$42.6~~$50.5 million and shares withheld related to net share settlement of RSUs of $5.1 million.

The following table summarizes changes in total equity for the nine months ended September 30, ~~2016:~~ 2017:

Nine months ended

(In thousands)

September 30, 2016

Net income
$ 127,084
Stock issued to directors
550
Stock options exercised
49
Proceeds from shares issued through the Dividend Reinvestment Plan
1,643
Shares withheld related to net share settlement of RSUs
(103 )
Net tax short-fall from stock-based compensation expense
(134 )
Share-based compensation
3,254
Other comprehensive income
10,329
Purchase of treasury stock
(54,441 )
Cash dividends paid to common stockholders
(42,570 )
Net increase in total equity
$ 45,661

Nine months ended

(In thousands)

September 30, 2017

Net income
$ 150,102
Stock issued to directors
549
Stock options exercised and RSUs distributed
1,018
Proceeds from shares issued through the Dividend Reinvestment Plan
1,849
Shares withheld related to net share settlement of RSUs
(5,127 )
Share-based compensation
3,900
Other comprehensive income
3,498
Equity consideration for acquisition
34,862
Cash dividends paid to common stockholders
(50,491 )
Net increase in total equity
$ 140,160

Capital Adequacy Review

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

Both ~~Bancorp’s~~Bancorp’s and the Bank’s regulatory capital continued to exceed the regulatory minimum requirements under Basel III rules that became effective January 1, 2015, with transitional provisions as of September 30, ~~2016.~~2017. In addition, the capital ratios of the Bank place it in the “well capitalized” category, which is defined as institutions with a common equity tier 1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%.

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Table of Contents

The following table presents ~~Bancorp’s~~Bancorp’s and the Bank’s capital and leverage ratios as of September 30, ~~2016,~~2017, and December 31, ~~2015:~~
2016:

Cathay General Bancorp

Cathay Bank

Cathay General Bancorp

Cathay Bank

September 30, 2016

December 31, 2015

September 30, 2016

December 31, 2015

September 30, 2017

December 31, 2016

September 30, 2017

December 31, 2016

(Dollars in thousands)

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

Common equtiy Tier 1 capital (to risk-weighted assets)
$ 1,418,573 12.64 $ 1,383,377 12.95 $ 1,479,539 13.22 $ 1,443,159 13.54
Common equtiy Tier 1 capital minimum requirement
504,845 4.50 480,830 4.50 503,684 4.50 479,801 4.50
Common equity Tier 1 capital (to risk-weighted assets)
$ 1,555,919 12.22 $ 1,459,351 12.84 $ 1,461,917 12.34 $ 1,515,096 13.35
Common equity Tier 1 capital minimum requirement
573,075 4.50 511,590 4.50 532,962 4.50 510,582 4.50
Excess
$ 913,728 8.14 $ 902,547 8.45 $ 975,855 8.72 $ 963,358 9.04 $ 981,121 7.68 $ 947,761 8.34 $ 927,155 7.80 $ 1,004,514 8.85

Tier 1 capital (to risk-weighted assets)
$ 1,534,028 13.67 $ 1,498,810 14.03 $ 1,479,539 13.22 $ 1,443,159 13.54 $ 1,555,919 12.22 $ 1,574,806 13.85 $ 1,461,917 12.34 $ 1,515,096 13.35
Tier 1 capital minimum requirement
673,127 6.00 641,107 6.00 671,578 6.00 639,735 6.00 764,100 6.00 682,120 6.00 710,616 6.00 680,776 6.00
Excess
$ 860,901 7.67 $ 857,703 8.03 $ 807,961 7.22 $ 803,424 7.54 $ 789,522 6.18 $ 892,686 7.85 $ 748,901 6.30 $ 834,320 7.35

Total capital (to risk-weighted assets)
$ 1,657,746 14.78 $ 1,634,631 15.30 $ 1,599,705 14.29 $ 1,576,525 14.79 $ 1,802,206 14.15 $ 1,702,144 14.97 $ 1,587,501 13.40 $ 1,637,286 14.43
Total capital minimum requirement
897,502 8.00 854,809 8.00 895,438 8.00 852,980 8.00 1,018,800 8.00 909,493 8.00 947,487 8.00 907,701 8.00
Excess
$ 760,244 6.78 $ 779,822 7.30 $ 704,267 6.29 $ 723,545 6.79 $ 780,343 6.11 $ 792,651 6.97 $ 636,814 5.36 $ 729,585 6.43

Tier 1 capital (to average assets)– Leverage ratio
$ 1,534,028 11.91 $ 1,498,810 11.95 $ 1,479,539 11.52 $ 1,443,159 11.53
Tier 1 capital (to average assets) – Leverage ratio
$ 1,555,919 10.41 $ 1,574,806 11.57 $ 1,461,917 10.54 $ 1,515,096 11.16
Minimum leverage requirement
515,283 4.00 501,875 4.00 513,622 4.00 500,455 4.00 597,635 4.00 544,614 4.00 554,685 4.00 543,059 4.00
Excess
$ 1,018,745 7.91 $ 996,935 7.95 $ 965,917 7.52 $ 942,704 7.53 $ 958,284 6.41 $ 1,030,192 7.57 $ 907,232 6.54 $ 972,037 7.16

Risk-weighted assets
$ 11,218,777 $ 10,685,115 $ 11,192,971 $ 10,662,248 $ 12,734,995 $ 11,368,663 $ 11,843,593 $ 11,346,260
Total average assets⁽¹⁾
$ 12,882,078 $ 12,546,879 $ 12,840,543 $ 12,511,382 $ 14,940,863 $ 13,615,348 $ 13,867,125 $ 13,576,477

(1)
⁽¹⁾The quarterly total average assets reflect all debt securities at amortized cost, equity securities with readily determinablefair values at the lower of cost or fair value, and equity securities without readily determinable fair values at historical cost.

In July 2013, the federal bank regulatory agencies adopted final regulations which revised their risk-based and leverage capital requirements for banking organizations to meet requirements of the Dodd-Frank Act and to implement international agreements reached by the Basel Committee on Banking Supervision that were intended to improve both the quality and quantity of banking organizations’ capital (“Basel III”). Although many of the rules contained in these final regulations are applicable only to large, internationally active banks, some of them will apply on a phased-in basis to all banking organizations, including Bancorp and the Bank.
~~The following are among the new requirements that are being phased in beginning January 1, 2015:~~
~~An increase in the minimum Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets.~~
~~A new category and a required 4.50% of risk-weighted assets ratio is established for “common equity Tier 1” as a subset of Tier 1 capital limited to common equity.~~
~~A minimum non-risk-based leverage ratio is set at 4.00%, eliminating a 3.00% exception for higher rated banks.~~
Changes in the permitted composition of Tier 1 capital to exclude trust preferred securities, mortgage servicing rights and certain deferred tax assets, and to include unrealized gains and losses on available-for-sale debt and equity securities.
A new additional capital conservation buffer of 2.5% of risk-weighted assets over each of the required capital ratios that will be phased in from 2016 to 2019 and must be met to avoid limitations in the ability of the Company to pay dividends, repurchase shares, or pay discretionary bonuses.

The risk-weights of certain assets for purposes of calculating the risk-based capital ratios are changed for high volatility commercial real estate acquisition, development, and construction loans, certain past due non-residential mortgage loans and certain mortgage-backed and other securities exposures.
~~An additional “countercyclical capital buffer” is required for larger and more complex institutions.~~
Dividend Policy

Holders of common stock are entitled to dividends as and when declared by our Board of Directors out of funds legally available for the payment of dividends. Although we have historically paid cash dividends on our common stock, we are not required to do so. The amount of future dividends will depend on our earnings, financial condition, capital requirements and other factors, and will be determined by our Board of Directors. ~~Our Board of Directors increased the common stock dividend to $0.14 per share in June 2015, and $0.18 per share in December 2015.~~ The terms of our Junior Subordinated Notes also limit our ability to pay dividends. Our Board of Directors increased the common stock dividend to $0.21 per share in December 2016. The terms of our Junior Subordinated Notes also limit our ability to pay dividends.

The Company declared a cash dividend of ~~$0.18~~$0.21 per share on ~~78,863,064~~80,795,512 shares outstanding on September 1, ~~2016,~~2017, for distribution to holders of our common stock on September ~~12, 2016,~~11, 2017, $0.21 per share on ~~78,844,500~~79,847,124 shares outstanding on June 1, ~~2016,~~2017, for distribution to holders of our common stock on June ~~13, 2016,~~12, 2017, and $0.21 per share on ~~78,794,528~~79,788,541 shares outstanding on March 1, ~~2016,~~2017, for distribution to holders of our common stock on March ~~11, 2016. Total~~10, 2017. The Company paid total cash dividends of ~~$42.6~~$50.5 million ~~were paid~~ during the first nine months of ~~2016.~~2017.

CountryRisk Exposures

Th~~The~~e Company’s total assets were ~~$14.1~~$15.7 billion and total foreign country risk net exposures were ~~$516.1~~$454.7 million as of September 30, ~~2016.~~2017. Total foreign country risk net exposures as of September 30, ~~2016,~~2017, were comprised primarily of ~~$300.1~~$277.3 million from Hong Kong, ~~$78.4~~$45.6 million from China, ~~$34.5~~$30.8 million from Australia, $25.2 million from France, $15.6 million from Singapore, $13.5 million from Germany, ~~$29.3~~$10.0 million from ~~Australia, $24.8~~Virgin Island, $9.3 million from ~~France, $20.0~~England, $7.6 million from ~~the Philippines, $13.9~~Taiwan, $5.1 million from ~~Singapore, $5.4~~Canada, $5.0 million from Cayman Island, $4.2 million from Macau, ~~$4.7~~$2.2 million from ~~England,~~Indonesia, $1.4 million from Switzerland, $1.1 million from ~~Indonesia, $1.1~~Japan, $0.3 million from ~~Switzerland, $1.0~~New Zealand, and $0.3 million from ~~Japan, and $0.8 million from Taiwan.~~Venezuela. Risk is determined based on location of the borrowers, issuers, and counterparties.

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All foreign country risk net exposures as of September 30, ~~2016~~2017, were to non-sovereign counterparties, except ~~$14.3~~$11.8 million due from the Hong Kong Monetary Authority.

Unfunded ~~loans~~loans to foreign entities exposures were ~~$20.1~~$10.7 million as of September 30, ~~2016,~~2017, primarily due to ~~a $20.0~~$10.0 million of unfunded ~~loan~~loans to a financial ~~institution~~institutions in China and $0.7 million of unfunded loans to borrowers in Canada.

Financial Derivatives

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

The Company follows ASC Topic 815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the ~~Company’s~~Company’s consolidated balance sheet 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.

In May 2014, Bancorp ~~has~~ 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 on ~~Bancorp’s~~Bancorp’s $119.1 million of Junior Subordinated Debentures that had been issued to five trusts, with the quarterly interest payments 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. Bancorp pays a weighted average fixed interest rate of 2.61% and receives a variable interest rate of the three-month LIBOR at a weighted average rate of ~~0.85%~~1.32%. As of September 30, ~~2016,~~2017, the notional amount of cash flow interest rate swaps was $119.1 million and their unrealized loss of ~~$6.6~~$2.3 million, net of taxes, was included in other comprehensive income. The amount of periodic net settlement of interest rate swaps included in interest expense was ~~$588,000~~$407,000 for the three months ended September 30, ~~2016~~2017 compared to ~~$706,000~~$588,000 for the same quarter a year ago. For the nine months ended September 30, ~~2016,~~2017, the periodic net settlement of interest rate swaps included in interest expense was ~~$1.8~~$1.3 million compared to ~~$2.1~~$1.8 million for the same period in ~~2015.~~2016.
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As of September 30, ~~2016,~~2017, the Bank has entered into interest rate swap contracts with various terms from four to eight years. These interest rate swap contracts are matched to individual fixed-rate commercial real estate loans in the Bank’s loan portfolio. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial real estate loan 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. The Bank pays a weighted average fixed rate of ~~4.63%~~4.55% and receives a variable rate at the one month LIBOR rate plus a weighted average spread of ~~318~~293 basis points, or at a weighted average rate of ~~3.70%~~4.16%. As of September 30, ~~2016,~~2017, the notional amount of fair value interest rate swaps was ~~$358.3~~$510.6 million and their unrealized ~~loss~~gain of ~~$3.8~~$1.9 million was included in other non-interest income. The amount of periodic net settlement of interest rate swaps reducing interest income was ~~$879,000~~$514,000 for the three months ended September 30, ~~2016,~~2017, compared to ~~$831,000~~$879,000 for the same quarter a year ago. The amount of periodic net settlement of interest rate swaps reducing interest income was ~~$2.8~~$1.9 million for the nine months ended September 30, ~~2016,~~2017, compared to ~~$2.2~~$2.8 million for the same period a year ago. As of September 30, ~~2016,~~2017, the ineffective portion of these interest rate swaps was not significant.

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~~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 derivatives clearing organization and daily margin is indirectly maintained with the derivatives clearing organization. Cash posted as collateral by Bancorp related to derivative contracts totaled ~~$14.8~~$6.3 million as of September 30, ~~2016.~~2017.

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~~instruments and are recorded at fair value in our condensed consolidated balance sheets. Changes in the fair value of these contracts as well as the related foreign exchange certificates of deposit and foreign exchange contracts are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities. As of September 30, ~~2016, there were no~~2017, the notional amount of option contracts ~~outstanding.~~totaled $12.3 million with a net negative fair value of $234,000. As of September 30, ~~2016,~~2017, spot, forward, and swap contracts with a total notional amount of ~~$107.1~~$69.3 million had a positive fair value of $1.7 million. Spot, forward, and swap contracts with a total notional amount of ~~$45.0~~$86.6 million had a negative fair value of ~~$712,000~~$1.1 million as of September 30, ~~2016.~~2017. As of December 31, ~~2015,~~2016, the notional amount of option contracts totaled ~~$9.4~~$12.1 million with a net negative fair value of ~~$28,000.~~$121,000. As of December 31, ~~2015,~~2016, spot, forward, and swap contracts with a total notional amount of ~~$100.6~~$82.4 million had a positive fair value of ~~$3.3~~$1.3 million. Spot, forward, and swap contracts with a total notional amount of ~~$115.4~~$89.5 million had a negative fair value of ~~$4.1~~$3.1 million as of December 31, ~~2015.~~2016.

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Liquidity

Liquidity is our ability to maintain sufficient cash flow to meet maturing financial obligations and ~~customer~~customer credit needs, and to take advantage of investment opportunities as they are presented in the marketplace. Our principal sources of liquidity are growth in deposits, proceeds from the maturity or sale of securities and other financial instruments, repayments from securities and loans, federal funds purchased, securities sold under agreements to repurchase, and advances from the FHLB. ~~For~~As of September ~~2016,~~30, 2017, our average monthly liquidity ratio (defined as net cash plus short-term and marketable securities to net deposits and short-term liabilities) was ~~12.0%~~14.0% compared to ~~15.8%~~12.6% as of December 31, ~~2015.~~2016.

~~The Bank is a shareholder~~Before merging on October 27, 2017, the two subsidiary banks of the Company were both shareholders of the FHLB of San Francisco, enabling itthem to have access to lower cost FHLB financing when necessary. As of September 30, ~~2016,~~2017, the ~~Bank had an~~two subsidiary banks’ approved credit line with the FHLB ~~totaling $5.2~~totaled $5.5 billion. Advances from the FHLB were ~~$700.0~~$595.0 million and standby letter of credits issued by FHLB on the Company’s behalf were ~~$27.4~~$100.7 million as of September 30, ~~2016.~~2017. The Bank expects to be able to continue to access this source of funding, if required, in the near term. The Bank has pledged a portion of its commercial loans to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program to secure these borrowings. As of September 30, ~~2016,~~2017, the borrowing capacity under the Borrower-in-Custody program was ~~$24.2~~$47.3 million.

Liquidity can also be provided through the sale of liquid assets, which consist of federal funds sold, ~~securities~~securities sold under agreements to repurchase, and unpledged investment securities. As of September 30, ~~2016,~~2017, investment securities totaled ~~$1.30~~$1.4 billion, with ~~$505.9~~$291.4 million pledged as collateral for borrowings and other commitments. The remaining ~~$792.5 million~~$1.1 billion was available as additional liquidity or to be pledged as collateral for additional borrowings.

Approximately ~~86.4%~~87.0% of the Company’s time deposits mature within one year or less as of September 30, ~~2016.~~2017. Management anticipates that there may be some outflow of these deposits upon maturity due to, among other factors, the keen competition in the Bank’s marketplace. However, based on our historical run-off experience, we expect that the outflow will be minimal and can be replenished through our normal growth in deposits. Management believes the above-mentioned sources will provide adequate liquidity to the Bank to meet its daily 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 ~~$163.3~~$113.4 million in ~~2015~~2016 and ~~$98.4~~$208.2 million in the first nine months of ~~2016.~~2017.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

WeWe use a net interest income simulation model to measure the extent of the differences in the behavior of the lending and funding rates to changing interest rates, so as to project future earnings or market values under alternative interest rate scenarios. Interest rate risk arises primarily through the Company’s traditional business activities of extending loans and accepting deposits. Many factors, including economic 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.
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Although the modeling is very helpful in managing interest rate risk, it does require significant ~~assumptions~~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 attempts to reduce the risk of a significant decrease in net interest income caused by a change in interest rates.

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

The table below shows the estimated impact of changes in interest ~~rates~~rates on net interest income and market value of equity as of September 30, ~~2016:~~2017:

Net Interest

Market Value

Net Interest

Market Value

Income

of Equity

Income

of Equity

Change in Interest Rate (Basis Points)

Volatility⁽¹⁾

Volatility⁽²⁾

Change in Interest Rate (Basis Points)

Volatility ⁽¹⁾

Volatility ⁽²⁾

+200
9.0 1.4 8.9 3.1
+100
4.2 1.1 4.5 1.8
-100 -2.6 3.0 -1.9 4.9
-200 -2.8 6.5 -4.7 -0.9

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

The ~~Company’s~~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.
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There has not been any change in our internal control over financial reporting that occurred during the third quarter of ~~2016~~2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.     LEGAL PROCEEDINGS.

~~Bancorp’s~~Bancorp’s wholly-owned subsidiary, Cathay Bank, is a party to ordinary routine litigation from time to time incidental to various aspects of its operations. Management does not believe that any such litigation is expected to have a material adverse impact on the Company’s consolidated financial condition or results of operations.

Item ~~1A.~~1A.     RISK FACTORS.

There is no material change in the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2016, in response to Item 1A in Part I of Form 10-K.

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 (1)

Month #1 (July 1, 2016 - July 31, 2016)
0 $ 0 0 $ 7,543,008
Month #2 (August 1, 2016 - August 31, 2016)
0 $ 0 0 $ 7,543,008
Month #3 (September 1, 2016 - September 30, 2016)
0 $ 0 0 $ 7,543,008
Total
0 $ 0 0 $ 7,543,008

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

Month #1 (July 1, 2017 - July 31, 2017)
0 $0 0 $7,543,008

Month #2 (August 1, 2017 - August 31, 2017)
0 $0 0 $7,543,008

Month #3 (September 1, 2017 - September 30, 2017)
0 $0 0 $7,543,008

Total
0 $0 0 $7,543,008

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

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Item 3.     DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4.     MINE SAFETY DISCLOSURES.

Not applicable.

Item 5.     OTHER INFORMATION.
None.

~~None.~~
Item 6.     EXHIBITS.

~~Item 6.     EXHIBITS.~~

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 *
Exhibit 101.SCH
XBRL Taxonomy Extension Schema Document*

Exhibit 101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*

Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase Document*

Exhibit 101.LAB
XBRL Taxonomy Extension Label Linkbase Document*

Exhibit 101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document*

____________________
+
+ Filed herewith.

++
++ Furnished herewith.

*
XBRL (Extensible Business Reporting Language) information shall not be deemed to be filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, shall not be deemed to be filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise shall not be subject to liability under these sections, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

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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)

~~(Registrant)~~

Date: November 7, ~~2016~~2017

/s/ Pin Tai

Pin Tai
Chief Executive Officer and
President
~~Date: November 7, 2016~~
~~/s/ Heng W. Chen~~

Date: November 7, 2017
/s/ Heng W. Chen
Heng W. Chen
Executive Vice President and
Chief Financial Officer

68
60

	SinoPac Bancorp
Assets acquired:
Cash and cash equivalents	$	166,932
Short-term investments		122,000
Securities available-for-sale		107,934
Loans		703,787
Premises and equipment		6,198
Cash surrender value of life insurance		46,083
Deferred tax assets, net		40,136
Core deposit intangible		7,144
Accrued interest receivable and other assets		9,134
Total assets acquired		1,209,348

Liabilities assumed:
Deposits		813,888
Long-term debt		30,000
Accrued interest payable and other liabilities		5,608
Total liabilities assumed		849,496
Net assets acquired	$	359,852


Cash paid	$	181,241
Fair value of common stock issued		34,862
Total consideration paid	$	216,103

Purchase price payable to SinoPac		138,309
Total consideration	$	354,412
Gains on bargain purchase	$	5,440

	Shares			Weighted-average Exercise Price		Weighted-average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)

Balance, December 31, 2015		1,031,170		$	31.27		0.9	$	3,268
Exercised		(2,110	)		23.37
Forfeited		(608,670	)		36.46
Balance, March 31, 2016		420,390		$	23.80		1.8	$	2,026
Forfeited		(12,000	)		38.26
Balance, June 30, 2016		408,390		$	23.37		1.6	$	1,973
Exercised		-			-
Forfeited		-			-
Balance, September 30, 2016		408,390		$	23.37		1.4	$	3,026

Exercisable, September 30, 2016		408,390		$	23.37		1.4	$	3,026

						Weighted-average		Aggregate
				Weighted-average		Remaining Contractual		Intrinsic
	Shares			Exercise Price		Life (in years)		Value (in thousands)

Balance, December 31, 2016		82,670		$	23.37		1.1	$	1,211
Exercised		(18,040	)		23.37
Balance, March 31, 2017		64,630		$	23.37		0.9	$	925
Exercised		(19,500	)		23.37
Balance, June 30, 2017		45,130		$	23.37		0.7	$	658
Exercised		(6,000	)		23.37
Balance, September 30, 2017		39,130		$	23.37		0.4	$	659

Exercisable, September 30, 2017		39,130		$	23.37		0.4	$	659

	Units
Balance at December 31, ~~2015~~2016		~~542,375~~727,419
Granted		~~88,693~~164,404
~~Vested~~Distributed		(~~13,780~~297,905	)
Forfeited		(~~3,290~~10,424	)
Balance at September 30, ~~2016~~2017		~~613,998~~583,494

	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2016		2015		2016			2015
Tax benefit/(short-fall) of tax deductions in excess of grant-date fair value	$	-	$	17	$	(3,366	)	$	(5,602	)
Benefit of tax deductions on grant-date fair value		-		275		3,370			6,421
Total benefit of tax deductions	$	-	$	292	$	4		$	819

	September 30, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	399,741	$	-	$	305	$	399,436
U.S. government agency entities		9,679		27		6		9,700
U.S. government sponsored entities		400,000		-		6,278		393,722
State and municipal securities		1,943		-		12		1,931
Mortgage-backed securities		447,959		468		2,362		446,065
Collateralized mortgage obligations		1,715		-		5		1,710
Corporate debt securities		80,007		904		5		80,906
Mutual funds		6,500		-		229		6,271
Preferred stock of government sponsored entities		4,117		3,970		-		8,087
Other equity securities		13,294		7,463		98		20,659
Total	$	1,364,955	$	12,832	$	9,300	$	1,368,487

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	389,921	$	112	$	24	$	390,009
U.S. government sponsored entities		250,000		79		69		250,010
Mortgage-backed securities		556,454		7,186		2		563,638
Collateralized mortgage obligations		52		-		22		30
Corporate debt securities		74,962		444		937		74,469
Mutual funds		6,000		-		74		5,926
Preferred stock of government sponsored entities		2,811		565		188		3,188
Other equity securities		3,608		7,591		-		11,199

Total	$	1,283,808	$	15,977	$	1,316	$	1,298,469

	Securities Available-For-Sale
	Amortized cost		Fair value
	(In thousands)
Due in one year or less	$	415,782	$	415,555
Due after one year through five years		465,328		459,924
Due after five years through ten years		8,658		8,647
Due after ten years ⁽¹⁾		475,187		484,361
Total	$	1,364,955	$	1,368,487

	Securities Available-For-Sale
	Amortized cost		Fair value
	(In thousands)
Due in one year or less	$	289,859	$	289,923
Due after one year through five years		353,931		353,682
Due after five years through ten years		75,117		75,076
Due after ten years⁽¹⁾		564,901		579,788
Total	$	1,283,808	$	1,298,469

	September 30, 2017
	Temporarily impaired securities

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)

Securities Available-for-Sale
U.S. treasury securities	$	339,707	$	46	$	49,729	$	259	$	389,436	$	305
U.S. government sponsored entities		395,774		6,284		-		-		395,774		6,284
State and municipal securities		1,931		12		-		-		1,931		12
Mortgage-backed securities		359,112		2,359		122		3		359,234		2,362
Collateralized mortgage obligations		1,710		5		-		-		1,710		5
Corporate debt securities		5,029		5		-		-		5,029		5
Mutual funds		-		-		6,271		229		6,271		229
Other equity securities		4,680		98		-		-		4,680		98
Total	$	1,107,943	$	8,809	$	56,122	$	491	$	1,164,065	$	9,300

	September 30, 2016
	Temporarily impaired securities

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(in thousands)

Securities Available-for-Sale
U.S. treasury securities	$	149,983	$	24	$	-	$	-	$	149,983	$	24
U.S. government sponsored entities		149,931		69		-		-		149,931		69
Mortgage-backed securities		44		1		265		1		309		2
Collateralized mortgage obligations		-		-		30		22		30		22
Corporate debt securities		-		-		54,063		937		54,063		937
Mutual funds		-		-		5,926		74		5,926		74
Preferred stock of government sponsored entities		2,528		188		-		-		2,528		188

Total	$	302,486	$	282	$	60,284	$	1,034	$	362,770	$	1,316

	September 30, 2017
	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
Type of Loans:	(In thousands)
Commercial loans	$	8,412	$	14,855	$	3,900	$	15,942	$	43,109	$	2,376,782	$	2,419,891
Real estate construction loans		-		-		-		14,267		14,267		677,219		691,486
Commercial mortgage loans		-		-		-		28,379		28,379		6,348,668		6,377,047
Residential mortgage loans and equity lines		-		89		-		6,725		6,814		3,097,474		3,104,288
Installment and other loans		-		-		-		-		-		4,722		4,722
Total loans	$	8,412	$	14,944	$	3,900	$	65,313	$	92,569	$	12,504,865	$	12,597,434

	September 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total PastDue		Loans Not Past Due		Total
	(In thousands)

Type of Loans:
Commercial loans	$	45,409	$	6,807	$	-	$	9,251	$	61,467	$	2,187,529	$	2,248,996
Real estate construction loans		-		-		-		5,507		5,507		509,729		515,236
Commercial mortgage loans		12,949		12,205		-		21,077		46,231		5,697,760		5,743,991
Residential mortgage loans and equity lines		-		477		-		8,524		9,001		2,490,423		2,499,424
Installment and other loans		-		-		-		-		-		2,810		2,810
Total loans	$	58,358	$	19,489	$	-	$	44,359	$	122,206	$	10,888,251	$	11,010,457

	Three months ended September 30, 2017								September 30, 2017
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		8	$	18,873	$	18,873	$	-	$	636
Commercial mortgage loans		5		4,123		3,818		305		10
Residential mortgage loans and equity lines		1		483		483		-		32
Total		14	$	23,479	$	23,174	$	305	$	678

	Three months ended September 30, 2016								September 30, 2016
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		7	$	18,258	$	18,258	$	-	$	208
Commercial mortgage loans		1		738		738		-		-
Total		8	$	18,996	$	18,996	$	-	$	208

	Nine months ended September 30, 2017								September 30, 2017
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		13	$	19,543	$	19,543	$	-	$	641
Real estate construction loans		2		28,489		28,489		-		-
Commercial mortgage loans		5		4,123		3,818		305		10
Residential mortgage loans and equity lines		1		483		483		-		32
Total		21	$	52,638	$	52,333	$	305	$	683

	Three months ended September 30, 2016								September 30, 2016
	No. of Contracts		Pre-Modification OutstandingRecorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		7	$	18,258	$	18,258	$	-	$	208
Commercial mortgage loans		1		738		738		-		-
Total		8	$	18,996	$	18,996	$	-	$	208

	Three months ended September 30, 2015								September 30, 2015
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		2	$	306	$	306	$	-	$	1
Commercial mortgage loans		15		1,918		1,918		-		-
Total		17	$	2,224	$	2,224	$	-	$	1

	Nine months ended September 30, 2016								September 30, 2016
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		11	$	23,102	$	23,102	$	-	$	222
Commercial mortgage loans		1		738		738		-		-
Residential mortgage loans and equity lines		2		367		367		-		-
Total		14	$	24,207	$	24,207	$	-	$	222

	Nine months ended September 30, 2015								September 30, 2015		Nine months ended September 30, 2016								September 30, 2016
	No. ofContracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve		No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)										(Dollars in thousands)

Commercial loans		3	$	1,156	$	1,156	$	-	$	1		11	$	23,102	$	23,102	$	-	$	222
Commercial mortgage loans		19		16,329		16,329		-		38		1		738		738		-		-
Residential mortgage loans and equity lines		5		1,522		1,374		148		45		2		367		367		-		-
Total		27	$	19,007	$	18,859	$	148	$	84		14	$	24,207	$	24,207	$	-	$	222

	September 30, 2016
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	22,019	$	-	$	1,360	$	23,379
Commercial mortgage loans		26,835		5,986		20,690		53,511
Residential mortgage loans		5,048		989		3,628		9,665
Total accruing TDRs	$	53,902	$	6,975	$	25,678	$	86,555

	September 30, 2016


Non-accrual TDRs	Payment Deferral		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	3,477	$	90	$	3,567
Commercial mortgage loans		1,508		15,260		16,768
Residential mortgage loans		364		171		535
Total non-accrual TDRs	$	5,349	$	15,521	$	20,870

	December 31, 2016
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	7,971	$	-	$	4,081	$	12,052
Commercial mortgage loans		25,979		5,961		12,452		44,392
Residential mortgage loans		5,104		789		3,056		8,949
Total accruing TDRs	$	39,054	$	6,750	$	19,589	$	65,393

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
Accruing TDRs	2016			2015			2016			2015			2017			2016			2017			2016
	(In thousands)												(In thousands)
Beginning balance	$	74,708		$	100,011		$	81,680		$	104,355		$	79,819		$	74,708		$	65,393		$	81,680
New restructurings		18,347			427			20,412			16,853			21,790			18,347			49,973			20,412
Restructured loans restored to accrual status		-			723			10,303			723			-			-			-			10,303
Charge-offs		-			-			-			(148	)
Payments		(6,500	)		(11,280	)		(9,816	)		(21,714	)		(35,677	)		(6,500	)		(41,372	)		(9,816	)
Restructured loans placed on non-accrual status		-			-			(1,138	)		(10,188	)		(3,574	)		-			(9,396	)		(1,138	)
Expiration of loan concession upon renewal		-			-			(14,886	)		-			-			-			(2,240	)		(14,886	)
Ending balance	$	86,555		$	89,881		$	86,555		$	89,881		$	62,358		$	86,555		$	62,358		$	86,555

	Three months ended September 30,						Nine months ended September 30,
Non-accrual TDRs	2017			2016			2017			2016
	(In thousands)
Beginning balance	$	30,045		$	25,442		$	29,722		$	39,923
New restructurings		2,360			649			2,360			3,794
Restructured loans placed on non-accrual status		3,574			-			9,396			1,138
Charge-offs		(355	)		(3,407	)		(1,901	)		(4,352	)
Payments		(1,933	)		(1,814	)		(5,160	)		(9,330	)
Foreclosures		-			-			(726	)		-
Restructured loans restored to accrual status		-			-			-			(10,303	)
Ending balance	$	33,691		$	20,870		$	33,691		$	20,870

	September 30, 2017
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,216,816	$	146,479	$	56,565	$	31	$	2,419,891
Real estate construction loans		604,363		65,375		21,748		-		691,486
Commercial mortgage loans		5,904,023		305,927		167,097		-		6,377,047
Residential mortgage loans and equity lines		3,064,118		31,858		8,312		-		3,104,288
Installment and other loans		4,722		-		-		-		4,722
Total gross loans	$	11,794,042	$	549,639	$	253,722	$	31	$	12,597,434

Loans held for sale	$	-	$	-	$	-	$	-	$	-

	September 30, 2016
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,027,815	$	133,858	$	86,806	$	517	$	2,248,996
Real estate construction loans		489,473		20,256		5,507		-		515,236
Commercial mortgage loans		5,391,701		219,081		133,209		-		5,743,991
Residential mortgage loans and equity lines		2,488,495		391		10,538		-		2,499,424
Installment and other loans		2,810		-		-		-		2,810
Total gross loans	$	10,400,294	$	373,586	$	236,060	$	517	$	11,010,457

Loans held for sale	$	-	$	-	$	-	$	4,750	$	4,750

	Commercial Loans		Real Estate Construction Loans		Commercial Mortgage Loans		Residential Mortgage Loans and Equity Lines		Installment and Other Loans		Total				Real Estate		Commercial		Residential
	(In thousands)												Commercial		Construction		Mortgage		Mortgage Loans		Installment and
September 30, 2016
													Loans		Loans		Loans		and Equity Lines		Other Loans		Total
													(In thousands)
September 30, 2017
Loans individually evaluated for impairment
Allowance	$	1,320	$	-	$	1,248	$	375	$	-	$	2,943	$	1,461	$	-	$	823	$	322	$	-	$	2,606
Balance	$	32,631	$	5,507	$	74,587	$	18,189	$	-	$	130,914	$	37,358	$	21,748	$	55,190	$	13,376	$	-	$	127,672

Loans collectively evaluated for impairment
Allowance	$	52,379	$	9,245	$	43,685	$	9,682	$	8	$	114,999	$	49,578	$	22,008	$	36,579	$	10,740	$	24	$	118,929
Balance	$	2,216,365	$	509,729	$	5,669,404	$	2,481,235	$	2,810	$	10,879,543	$	2,382,533	$	669,738	$	6,321,857	$	3,090,912	$	4,722	$	12,469,762

Total allowance	$	53,699	$	9,245	$	44,933	$	10,057	$	8	$	117,942	$	51,039	$	22,008	$	37,402	$	11,062	$	24	$	121,535
Total balance	$	2,248,996	$	515,236	$	5,743,991	$	2,499,424	$	2,810	$	11,010,457	$	2,419,891	$	691,486	$	6,377,047	$	3,104,288	$	4,722	$	12,597,434

December 31, 2015
December 31, 2016
Loans individually evaluated for impairment
Allowance	$	530	$	-	$	6,792	$	427	$	-	$	7,749	$	1,827	$	-	$	573	$	396	$	-	$	2,796
Balance	$	13,568	$	22,002	$	81,776	$	16,464	$	-	$	133,810	$	27,761	$	5,458	$	64,470	$	17,385	$	-	$	115,074

Loans collectively evaluated for impairment
Allowance	$	55,669	$	22,170	$	42,648	$	10,718	$	9	$	131,214	$	47,376	$	23,268	$	34,291	$	11,224	$	11	$	116,170
Balance	$	2,303,295	$	419,541	$	5,219,442	$	2,084,871	$	2,493	$	10,029,642	$	2,220,426	$	542,630	$	5,720,778	$	2,598,374	$	3,993	$	11,086,201

Total allowance	$	56,199	$	22,170	$	49,440	$	11,145	$	9	$	138,963	$	49,203	$	23,268	$	34,864	$	11,620	$	11	$	118,966
Total balance	$	2,316,863	$	441,543	$	5,301,218	$	2,101,335	$	2,493	$	10,163,452	$	2,248,187	$	548,088	$	5,785,248	$	2,615,759	$	3,993	$	11,201,275

Three months ended September 30, 2016 and 2015
Three months ended September 30, 2017 and 2016																			Three months ended September 30, 2017 and 2016
				Real Estate			Commercial			Residential			Installment										Real Estate			Commercial			Residential			Installment
	Commercial			Construction			Mortgage			Mortgage Loans			and Other							Commercial			Construction			Mortgage			Mortgage Loans			and Other
	Loans			Loans			Loans			and Equity Lines			Loans			Total				Loans			Loans			Loans			and Equity Lines			Loans			Total
	(In thousands)																			(In thousands)

June 30, 2017 Ending Balance																				$	46,744		$	17,844		$	36,840		$	14,364		$	17			115,809
Provision/(credit) for possible credit losses																					3,800			4,117			(4,615	)		(3,309	)		7			-
Charge-offs																					(80	)		-			(305	)		-			-			(385	)
Recoveries																					575			47			5,482			7			-			6,111
Net (charge-offs)/recoveries																					495			47			5,177			7			-			5,726
September 30, 2017 Ending Balance																				$	51,039		$	22,008		$	37,402		$	11,062		$	24		$	121,535

June 30, 2016 Ending Balance	$	50,590		$	10,753		$	46,090		$	15,503		$	12			122,948			$	50,590		$	10,753		$	46,090		$	15,503		$	12		$	122,948
Provision/(credit) for possible credit losses		4,380			(2,056	)		3,132			(5,452	)		(4	)		-				4,380			(2,056	)		3,132			(5,452	)		(4	)		-
Charge-offs		(3,277	)		-			(4,626	)		-			-			(7,903	)			(3,277	)		-			(4,626	)		-			-			(7,903	)
Recoveries		2,006			548			337			6			-			2,897				2,006			548			337			6			-			2,897
Net (charge-offs)/recoveries		(1,271	)		548			(4,289	)		6			-			(5,006	)			(1,271	)		548			(4,289	)		6			-			(5,006	)
September 30, 2016 Ending Balance	$	53,699		$	9,245		$	44,933		$	10,057		$	8		$	117,942			$	53,699		$	9,245		$	44,933		$	10,057		$	8		$	117,942

June 30, 2015 Ending Balance	$	47,540		$	26,304		$	67,245		$	12,323		$	25		$	153,437
Provision/(credit) for possible credit losses		10,040			121			(11,762	)		353			(2	)		(1,250	)
Charge-offs		(3,310	)		-			(97	)		-			-			(3,407	)
Recoveries		607			41			647			1			-			1,296
Net (charge-offs)/recoveries		(2,703	)		41			550			1			-			(2,111	)
September 30, 2015 Ending Balance	$	54,877		$	26,466		$	56,033		$	12,677		$	23		$	150,076

Nine months ended September 30, 2016 and 2015
Nine months ended September 30, 2017 and 2016																			Nine months ended September 30, 2017 and 2016
				Real Estate			Commercial			Residential			Installment										Real Estate			Commercial			Residential			Installment
	Commercial			Construction			Mortgage			Mortgage Loans			and Other							Commercial			Construction			Mortgage			Mortgage Loans			and Other
	Loans			Loans			Loans			and Equity Lines			Loans			Total				Loans			Loans			Loans			and Equity Lines			Loans			Total
	(In thousands)																			(In thousands)

2017 Beginning Balance																				$	49,203		$	23,268		$	34,864		$	11,620		$	11		$	118,966
Provision/(credit) for possible credit losses																					2,245			(1,403	)		(2,775	)		(580	)		13			(2,500	)
Charge-offs																					(1,810	)		-			(860	)		-			-			(2,670	)
Recoveries																					1,401			143			6,173			22			-			7,739
Net (charge-offs)/recoveries																					(409	)		143			5,313			22			-			5,069

September 30, 2017 Ending Balance																				$	51,039		$	22,008		$	37,402		$	11,062		$	24		$	121,535
Reserve for impaired loans																				$	1,461		$	-		$	823		$	322		$	-		$	2,606
Reserve for non-impaired loans																				$	49,578		$	22,008		$	36,579		$	10,740		$	24		$	118,929
Reserve for off-balance sheet credit commitments																				$	2,760		$	1,206		$	109		$	175		$	4		$	4,254

2016 Beginning Balance	$	56,199		$	22,170		$	49,440		$	11,145		$	9		$	138,963			$	56,199		$	22,170		$	49,440		$	11,145		$	9		$	138,963

Provision/(credit) for possible credit losses		5,815			(20,796	)		295			(963	)		(1	)		(15,650	)			5,815			(20,796	)		295			(963	)		(1	)		(15,650	)

Charge-offs		(12,035	)		-			(5,681	)		(149	)		-			(17,865	)			(12,035	)		-			(5,681	)		(149	)		-			(17,865	)
Recoveries		3,720			7,871			879			24						12,494				3,720			7,871			879			24			-			12,494
Net (charge-offs)/recoveries		(8,315	)		7,871			(4,802	)		(125	)		-			(5,371	)			(8,315	)		7,871			(4,802	)		(125	)		-			(5,371	)

September 30, 2016 Ending Balance	$	53,699		$	9,245		$	44,933		$	10,057		$	8		$	117,942			$	53,699		$	9,245		$	44,933		$	10,057		$	8		$	117,942
Reserve for impaired loans	$	1,320		$	-		$	1,248		$	375		$	-		$	2,943			$	1,320		$	-		$	1,248		$	375		$	-		$	2,943
Reserve for non-impaired loans	$	52,379		$	9,245		$	43,685		$	9,682		$	8		$	114,999			$	52,379		$	9,245		$	43,685		$	9,682		$	8		$	114,999
Reserve for off-balance sheetcredit commitments	$	2,112		$	-		$	35		$	80		$	2		$	2,229

2015 Beginning Balance	$	47,501		$	27,652		$	74,673		$	11,578		$	16		$	161,420

Provision/(credit) for possible credit losses		11,045			(1,349	)		(19,342	)		1,239			7			(8,400	)

Charge-offs		(6,754	)		-			(3,613	)		(161	)		-			(10,528	)
Recoveries		3,085			163			4,315			21			-			7,584
Net (charge-offs)/recoveries		(3,669	)		163			702			(140	)		-			(2,944	)

September 30, 2015 Ending Balance	$	54,877		$	26,466		$	56,033		$	12,677		$	23		$	150,076
Reserve for impaired loans	$	7,561		$	-		$	6,389		$	373		$	-		$	14,323
Reserve for non-impaired loans	$	47,316		$	26,466		$	49,644		$	12,304		$	23		$	135,753
Reserve for off-balance sheetcredit commitments	$	703		$	477		$	202		$	37		$	1		$	1,420
Reserve for off-balance sheet credit commitments																				$	2,112		$	-		$	35		$	80		$	2		$	2,229