UNITED STATES

securities and exchange commission

Washington, D.C. 20549

form 10-q

~~(Mark One)~~

[ X ]

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

For the quarterly period ended

September 30, 2018

[ ]	transition report pursuant to section 13 or 15 ((d) of the ~~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

~~Cathay General Bancorp~~

Cathay General Bancorp

(Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number, including area code:

(213) 625-4700

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

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, smaller reporting company, or an emerging growth company. See the definitions of “~~large~~“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑	☑	Accelerated filer	☐
Non-accelerated filer	☐	~~(Do~~ (Do not check if a smaller reporting company)
		Smaller reporting company	☐
		Emerging growth company ☐	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

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

Common stock, $.01 par value, ~~80,819,967~~81,075,803 shares outstanding as of October 31, ~~2017.~~2018.

Table of Contents

CATHAY GENERAL BANCORP AND SUBSIDIARies

3^R^D quarter 20178 REPORT ON FORM 10-Q

table of contents

PART I –		FINANCIAL INFORMATION	3

Item 1.	FINANCIAL STATEMENTS (Unaudited)	3
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	6
Item 2.	~~MANAGEMENT~~’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4041
Item 3.3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	63
Item 4	CONTROLS AND PROCEDURES	64
~~Item 4.~~
~~CONTROLS AND PROCEDURES~~PART II – OTHER INFORMATION		65

~~PART II~~ – Item 1.	~~OTHER INFORMATION~~LEGAL PROCEEDINGS	65
Item 1A.	RISK FACTORS	66

~~Item 1.~~	~~LEGAL PROCEEDINGS~~	66
~~Item 1A.~~	~~RISK FACTORS~~	66
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7666
Item 3.	DEFAULTS UPON SENIOR SECURITIES	7667
Item 4.	MINE SAFETY DISCLOSURES	67
Item 5.	OTHER INFORMATION	67
Item 6.	EXHIBITS	67


SIGNATURES		68

Table of Contents

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 thatthat 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 ~~Consum~~erConsumer 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;

●

~~liquidity~~liquidity risk;

●

fluctuations in interest rates;

●

risks associated with acquisitions and the expansion of our business into new markets;

●

inflation and deflation;

●

real estate market conditions and the value of real estate collateral;

~~Table of Contents~~

●

environmental liabilities;

●

our ability to compete, including against larger competitors;

●

our ability to retain key personnel;

Table of Contents

●

successful management of reputational risk;

●

natural disasters and geopolitical events;

●

general economic or business conditions in Asia, and other regions where the Bank has o~~perations;~~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~~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~~’sBancorp’s stock price;

●

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

●

issuances of preferred stock;

●

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

●

the soundness of other financial institutions.

These and other factors are further described in ~~Bancorp~~’sBancorp’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings Bancorp makes with the SEC from time to time. Actual results in any future period may also vary from the past results discussed in this report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, 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~~’sBancorp’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.~~279-3296.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017

Assets
Cash and due from banks	$	167,886		$	218,017		$	204,178		$	247,056
Short-term investments and interest bearing deposits		573,059			967,067			377,839			292,745
Securities available-for-sale (amortized cost of $1,364,955 in 2017 and $1,317,012 in 2016)		1,368,487			1,314,345
Cash and cash equivalents								582,017			539,801
Securities available-for-sale (amortized cost of $1,320,843 at September 30, 2018 and $1,336,345 at December 31, 2017)								1,283,060			1,333,626
Loans held for sale		-			7,500			-			8,000
Loans		12,597,434			11,201,275			13,647,646			12,870,290
Less: Allowance for loan losses		(121,535	)		(118,966	)		(123,457	)		(123,279	)
Unamortized deferred loan fees, net		(3,424	)		(4,994	)		(2,086	)		(3,245	)
Loans, net		12,472,475			11,077,315			13,522,103			12,743,766
Equity securities								23,522			-
Federal Home Loan Bank stock		30,681			17,250			17,250			23,085
Other real estate owned, net		18,115			20,070			8,741			9,442
Affordable housing investments and alternative energy partnerships, net		298,426			251,077			295,857			272,871
Premises and equipment, net		107,954			105,607			102,565			103,064
Customers’ liability on acceptances		12,009			12,182
Customers’ liability on acceptances								10,454			13,482
Accrued interest receivable		42,190			37,299			50,291			45,307
Goodwill		372,189			372,189			372,189			372,189
Other intangible assets, net		9,408			2,949			7,391			8,062
Other assets		255,538			117,902			186,282			167,491
Total assets	$	15,728,417		$	14,520,769		$	16,461,722		$	15,640,186

Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
Deposits
Non-interest-bearing demand deposits	$	2,730,006		$	2,478,107		$	2,957,881		$	2,783,127
Interest-bearing deposits:
Demand deposits		1,379,100			1,230,445			1,409,463			1,410,519
Money market deposits		2,370,724			2,198,938			2,134,097			2,248,271
Savings deposits		925,312			719,949			747,814			857,199
Time deposits		5,156,553			5,047,287			6,331,823			5,390,777
Total deposits		12,561,695			11,674,726			13,581,078			12,689,893

Securities sold under agreements to repurchase		100,000			350,000			-			100,000
Advances from the Federal Home Loan Bank		595,000			350,000			315,000			430,000
Other borrowings of affordable housing investments		17,518			17,662			17,332			17,481
Long-term debt		119,136			119,136			194,136			194,136
Deferred payments from acquisition		136,056			-			18,253			35,404
Acceptances outstanding		12,009			12,182			10,454			13,482
Other liabilities		218,304			168,524			208,694			186,486
Total liabilities		13,759,718			12,692,230			14,344,947			13,666,882
Commitments and contingencies		-			-			-			-
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
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized, 89,606,690 issued and 81,396,047 outstanding at September 30, 2018, and 89,104,022 issued and 80,893,379 outstanding at December 31, 2017								896			891
Additional paid-in-capital		932,521			895,480			939,801			932,874
Accumulated other comprehensive loss, net		(217	)		(3,715	)		(23,783	)		(2,511	)
Retained earnings		1,275,094			1,175,485			1,439,450			1,281,639
Treasury stock, at cost (8,210,643 shares at September 30, 2017, and at December 31, 2016)		(239,589	)		(239,589	)
Treasury stock, at cost (8,210,643 shares at September 30, 2018, and at December 31, 2017)								(239,589	)		(239,589	)
Total equity		1,968,699			1,828,539			2,116,775			1,973,304
Total liabilities and equity	$	15,728,417		$	14,520,769		$	16,461,722		$	15,640,186

~~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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

~~(Unaudited~~)(Unaudited)

	Three months ended September 30,					Nine months ended September 30,						Three months ended September 30,					Nine months ended September 30,
	2017		2016			2017			2016			2018			2017		2018			2017
	(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	$	146,383	$	118,500		$	401,129		$	349,212		$	168,179		$	146,383	$	478,128		$	401,129
Investment securities		5,692		4,850			14,817			16,974			7,546			5,692		21,212			14,817
Federal Home Loan Bank and FRB stock		607		393			1,317			1,122
Federal Home Loan Bank stock													303			607		1,079			1,317
Term federal funds sold		108		-			108			-			-			108		-			108
Deposits with banks		1,288		412			3,140			1,094			838			1,288		3,667			3,140
Total interest and dividend income		154,078		124,155			420,511			368,402			176,866			154,078		504,086			420,511

Interest Expense
Time deposits		11,678		10,701			33,429			32,177			22,135			11,678		56,593			33,429
Other deposits		5,101		4,212			14,245			11,783			5,474			5,101		14,892			14,245
Securities sold under agreements to repurchase		874		3,828			3,489			11,696			124			874		1,446			3,489
Advances from Federal Home Loan Bank		872		134			1,465			442			1,430			872		3,286			1,465
Long-term debt		1,456		1,456			4,320			4,336			2,220			1,456		6,465			4,320
Deferred payments from acquisition		901		-			901			-			399			901		946			901
Total interest expense		20,882		20,331			57,849			60,434			31,782			20,882		83,628			57,849

Net interest income before reversal for credit losses		133,196		103,824			362,662			307,968			145,084			133,196		420,458			362,662
Reversal for loan losses		-		-			(2,500	)		(15,650	)
Reversal for credit losses													(1,500	)		-		(4,500	)		(2,500	)
Net interest income after reversal for credit losses		133,196		103,824			365,162			323,618			146,584			133,196		424,958			365,162

Non-Interest Income
Securities gains/(losses), net		24		1,692			(439	)		3,141
Net gains/(losses) from equity securities													391			-		(4,580	)		-
Securities (losses)/gains, net													(14	)		24		(14	)		(439	)
Letters of credit commissions		1,302		1,212			3,618			3,698			1,459			1,302		4,110			3,618
Depository service fees		1,407		1,401			4,259			4,109			1,219			1,407		3,905			4,259
Gain from acquisition		5,440		-			5,440			-			-			5,440		340			5,440
Other operating income		4,788		4,506			12,953			14,461			4,780			4,788		17,151			12,953
Total non-interest income		12,961		8,811			25,831			25,409			7,835			12,961		20,912			25,831

Non-Interest Expense
Salaries and employee benefits		27,913		22,881			79,929			71,313			30,514			27,913		91,491			79,929
Occupancy expense		5,312		4,734			14,733			13,587			5,186			5,312		15,808			14,733
Computer and equipment expense		2,643		2,337			7,895			7,360			2,772			2,643		8,477			7,895
Professional services expense		4,942		4,999			14,541			13,981			5,286			4,942		17,055			14,541
Data processing service expense		2,918		2,279			7,846			6,556			3,080			2,918		9,450			7,846
FDIC and regulatory assessments		2,552		2,288			7,261			7,640			2,555			2,552		6,732			7,261
Marketing expense		2,103		1,516			4,833			3,314			1,263			2,103		5,521			4,833
Other real estate owned expense/(income)		369		(176	)		747			612
Other real estate owned (income)/expense													(21	)		369		(236	)		747
Amortization of investments in low income housing and alternative energy partnerships		5,723		5,432			16,797			35,626			11,115			5,723		21,989			16,797
Amortization of core deposit intangibles		281		172			626			517			190			281		704			626
Acquisition and integration costs		3,277		-			3,277			-			179			3,277		2,083			3,277
Other operating expense		3,215		4,275			11,307			10,681			3,845			3,215		10,949			11,307
Total non-interest expense		61,248		50,737			169,792			171,187			65,964			61,248		190,023			169,792

Income before income tax expense		84,909		61,898			221,201			177,840			88,455			84,909		255,847			221,201
Income tax expense		35,163		15,808			71,099			50,756			18,698			35,163		48,610			71,099
Net income	$	49,746	$	46,090		$	150,102		$	127,084		$	69,757		$	49,746	$	207,237		$	150,102

Other comprehensive income, net of tax
Unrealized holding gain on securities available-for-sale		1,060		938			3,338			15,748
Less: reclassification adjustments for gains/(losses) included in net income		14		981			(254	)		1,821
Unrealized holding (losses)/gains on securities available-for-sale													(2,538	)		1,060		(16,803	)		3,338
Unrealized holding gain/(loss) on cash flow hedge derivatives		157		804			(94	)		(3,598	)		1,666			157		4,595			(94	)
Less: reclassification adjustments for (losses)/gains included in net income													(10	)		14		(10	)		(254	)
Total other comprehensive gain, net of tax		1,203		761			3,498			10,329			(862	)		1,203		(12,198	)		3,498
Total other comprehensive income												$	68,895		$	50,949	$	195,039		$	153,600

Total other comprehensive income	$	50,949	$	46,851		$	153,600		$	137,413
Net income per common share:
Basic	$	0.62	$	0.58		$	1.87		$	1.61		$	0.86		$	0.62	$	2.55		$	1.87
Diluted	$	0.61	$	0.58		$	1.86		$	1.59		$	0.85		$	0.61	$	2.53		$	1.86
Cash dividends paid per common share	$	0.21	$	0.18		$	0.63		$	0.54		$	0.24		$	0.21	$	0.72		$	0.63
Average common shares outstanding
Basic		80,665,398		78,865,860			80,073,249			79,147,839			81,311,899			80,665,398		81,224,555			80,073,249
Diluted		81,404,854		79,697,069			80,797,179			79,902,846			81,855,271			81,404,854		81,770,874			80,797,179

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Unaudited~~)(Unaudited)

	Nine months ended September 30						Nine months ended September 30
	2017			2016			2018			2017
	(In thousands)						(In thousands)
Cash Flows from Operating Activities
Net income	$	150,102		$	127,084		$	207,237		$	150,102
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Reversal for loan losses		(2,500	)		(15,650	)
Adjustments to reconcile net income to net cash provided by operating activities:
Reversal for credit losses								(4,500	)		(2,500	)
Provision for losses on other real estate owned		889			176			-			889
Deferred tax liability		10,319			22,483			2,342			10,319
Depreciation and amortization		5,416			5,684			5,593			5,416
Net gains on sale and transfer of other real estate owned		(394	)		(476	)		(567	)		(394	)
Net gains on sale of loans		-			(285	)
Proceeds from sales of loans		7,500			13,525			8,000			7,500
Originations of loans held-for-sale		-			(12,665	)
Amortization on alternative energy partnerships, venture capital and other investments		2,778			27,282			5,384			2,778
Net loss/(gain) on sales and calls of securities		438			(3,347	)
Net loss on sales and calls of securities								14			438
Amortization/accretion of security premiums/discounts, net		990			5,193			2,371			990
Loss on sales or disposal of fixed assets		-			19			107			-
Write-down on impaired securities		-			206
Unrealized loss on equity securities								4,580			-
Stock based compensation and stock issued to officers as compensation		4,449			3,804			5,976			4,449
Net change in accrued interest receivable and other assets		(51,776	)		2,101			(7,863	)		(51,776	)
Gain on acquisition		(5,440	)		-			(340	)		(5,440	)
Net change in other liabilities		828			(4,537	)		10,998			828
Net cash provided by operating activities		123,599			170,597			239,332			123,599

Cash Flows from Investing Activities
Decrease/(increase) in short-term investments		516,008			(254,877	)
Purchase of investment securities available-for-sale		(450,745	)		(690,966	)		(448,805	)		(450,745	)
Proceeds from sale of investment securities available-for-sale		99,541			415,543			99,644			99,541
Proceeds from repayments, maturities and calls of investment securities available-for-sale		389,829			585,285			346,328			389,829
Purchase of Federal Home Loan Bank stock		-			(1,650	)		(5,430	)		-
Redemptions of Federal Home Loan Bank stock		6,459			-			11,265			6,459
Net increase in loans		(686,225	)		(853,453	)		(771,290	)		(686,225	)
Purchase of premises and equipment		(976	)		(3,166	)		(4,496	)		(976	)
Proceeds from sales of premises and equipment		-			11
Proceeds from sales of other real estate owned		2,186			6,713			3,302			2,186
Net increase in investment in affordable housing and alternative energy partnerships		(20,867	)		(59,844	)		(36,666	)		(20,867	)
Acquisition, net of cash acquired		(14,309	)		-			-			(14,309	)
Net cash used for investing activities		(159,099	)		(856,404	)		(806,148	)		(675,107	)

Cash Flows from Financing Activities
Net (decrease)/increase in deposits		73,120			429,976
Net increase in deposits								890,823			73,120
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(250,000	)		(50,000	)		(100,000	)		(250,000	)
Advances from Federal Home Loan Bank		2,608,000			2,730,000			4,495,000			2,608,000
Repayment of Federal Home Loan Bank borrowings		(2,393,000	)		(2,305,000	)		(4,610,000	)		(2,393,000	)
Cash dividends paid		(50,491	)		(42,570	)		(58,498	)		(50,491	)
Purchases of treasury stock		-			(54,441	)
Repayment of other borrowings								(37,117	)		-
Proceeds from issuance of other borrowings								29,554			-
Proceeds from shares issued under Dividend Reinvestment Plan		1,849			1,643			1,982			1,849
Proceeds from exercise of stock options		1,018			49			838			1,018
Taxes paid related to net share settlement of RSUs		(5,127	)		(103	)		(3,550	)		(5,127	)
Net cash (used in) provided by financing activities		(14,631	)		709,554
(Decrease)/increase in cash and cash equivalents		(50,131	)		23,747
Net cash provided by (used in) financing activities								609,032			(14,631	)

Increase/(decrease) in cash and cash equivalents								42,216			(566,139	)
Cash and cash equivalents, beginning of the period		218,017			180,130			539,801			1,185,084
Cash and cash equivalents, end of the period	$	167,886		$	203,877		$	582,017		$	618,945

Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	58,416		$	61,212		$	79,877		$	58,416
Income taxes paid	$	62,296		$	31,717		$	48,072		$	62,296
Non-cash investing and financing activities:
Net change in unrealized holding gain on securities available-for-sale, net of tax	$	3,592		$	13,927
Net change in unrealized holding loss on cash flow hedge derivatives	$	(94	)	$	(3,598	)
Net change in unrealized holding (loss)/gain on securities available-for-sale, net of tax							$	(16,793	)	$	3,592
Net change in unrealized holding gain/(loss) on cash flow hedge derivatives							$	4,595		$	(94	)
Transfers to other real estate owned from loans held for investment	$	726		$	2,698		$	1,646		$	726
Loans transferred from held for sale to held for investment, net	$	-		$	1,351
Loans to facilitate the sale of other real estate owned	$	-		$	2,616
Issuance of stock related to acquisition	$	-		$	-

See accompanying notes to unaudited condensed consolidated financial statements.

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CATHAY GENERAL BANCORP AND 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”), ~~seven~~eight limited partnerships investing in affordable housing investments in ~~which t~~hewhich 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, ~~2017,~~2018, the Bank operates 2226 branches in Southern California, 1214 branches in Northern California, 1211 branches in New York State, three branches in Illinois, ~~three~~four branches in Washington State, two branches in Texas, one branch in Massachusetts, ~~one branch in~~ New Jersey, ~~one branch in~~ Maryland ~~one branch in~~and Nevada, one branch in Hong Kong, and a representative office in ~~Shanghai~~Taipei, Beijing, and ~~in Taipei.~~Shanghai. 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 J~~uly 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, ~~2017.~~2018. 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, ~~2016.~~2017.

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,~~losses.

In the condensed consolidated statement of cash flows, the amounts for the nine months ended September 30, 2017 have been corrected in the current year and ~~other-than-temporary impairment.~~differ from the previously reported amounts of $159.1 million for net cash provided by investing activities, $50.1 million for decrease in cash and cash equivalents, $218.0 million for cash and cash equivalents, beginning of period and $167.9 million for cash and cash equivalents, end of period.

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4.3. Recent Accounting Pronouncements

Accounting Standards adopted in ~~2017~~2018

~~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~~Financial Accounting Standards Board (the “FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2014-09, ~~Revenue~~“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. Our revenue is primarily comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. ~~The Company has completed~~Accordingly, the ~~assessment phase~~majority of ~~implementing this~~the Company’s revenues was not affected. In addition, the new ~~standard. In~~standard did not materially impact the ~~assessment phase,~~timing or measurement of the ~~Company determined which~~Company’s revenue ~~streams are~~recognition as it is consistent with the Company’s existing accounting for contracts within ~~the scope and those that are excluded from~~ the scope of the new standard. ~~Based~~The Company adopted this guidance as of January 1, 2018 using the modified retrospective method where there was no cumulative effect adjustment to retained earnings as a result of adopting this new standard. In addition, the standard did not have a material impact on ~~this assessment, the~~our consolidated financial statements. The Company ~~concluded that substantially all~~has provided a disaggregation of the ~~Company's revenues are excluded from the scope~~significant categories of ~~the new standard. For the~~ revenues within the scope of this guidance and expanded the ~~new standard,~~qualitative disclosures of the ~~Company concluded that there will not be a material impact under the new standard.~~Company’s noninterest income. See footnote 17 - Revenue from Contracts with Customers for additional information.

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In January 2016, the FASB issued ASU 2016-01, “~~Financial~~“Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial ~~Liabilities~~.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~~became effective for interim and annual periods beginning after December 15, 2017. The adoption of the amendment resulted in approximately $8.6 million being reclassified from accumulated other comprehensive income to retained earnings, representing an increase to retained earnings as of January 1, 2018, and increased pre-tax income by $391,000 for the three months ended September 30, 2018 and decreased pre-tax income by $4.6 million for the nine months ended September 30, 2018. See footnote 7 – Investment Securities. Also, beginning in the first quarter of 2018, the Company is ~~currently evaluating~~adopting the ~~impact~~exit price notion on fair value measurement of its ~~consolidated~~loan portfolio. As a result of this fair value change, the prior-year figures shown for loans on footnote - 13 for comparative purposes will no longer be comparable.

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In February 2018, FASB issued ASU 2018-02 to help organizations address certain stranded income tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Legislation”). The amendment provides financial ~~statements.~~statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the changes in the U.S. federal corporate income tax rate in the Tax Legislation (or portion thereof) is recorded. The amendment also includes disclosure requirements regarding the issuer’s accounting policy for releasing income tax effects from AOCI. The amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, and organizations should apply the provisions of the amendment either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Legislation is recognized. The Company elected to reclassify the income tax effects of the Tax Legislation from accumulated other comprehensive income to retained earnings effective January 1, 2018. This resulted in the reclassification of $515,000 from accumulated other comprehensive income to retained earnings, representing an increase to retained earnings as of January 1, 2018. See footnote 18 – Stockholders Equity.

Other Accounting Standards

In February 2016, the FASB issued ASU 2016-02, ~~Leases~~“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~~on-balance sheet ~~as lease assets~~ and ~~lease liabilities and quantitative and qualitative disclosures regarding~~disclose key information about leasing arrangements. ~~Lessor accounting is largely unchanged.~~Topic 842 was subsequently amended by ASU ~~2016-02 is effective~~No. 2018-01, Land Easement Practical Expedient for ~~fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with an option~~Transition to ~~early adopt.~~Topic 842; ASU ~~2016-02 mandates~~No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a ~~modified retrospective transition method~~right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all ~~entities. The Company is evaluating the impact of ASU 2016-02 and has determined that the majority of our~~ leases ~~are operating leases. We expect, upon adoption, the Company will record~~with a ~~liability for the remaining obligation under the lease agreements and a corresponding right-of-use asset in its consolidated financial statements. ASU 2016-02~~term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard is effective for us on January 1, 2019, ~~and will require transition using a~~with early adoption permitted. We expect to adopt the new standard on its effective date. A modified retrospective transition approach ~~for~~is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or ~~entered into after,~~(2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required under the new standard for the comparative periods. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We expect to elect all of the new standard’s available transition practical expedients.

We expect that this standard will not have a material effect on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate and equipment operating leases; and (2) providing significant new disclosures about our leasing activities. We do not expect a significant change in our leasing activities between now and adoption.

On adoption, we currently expect to recognize additional operating liabilities ranging from $30 million to $40 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

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The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.

In June 2016, the FASB issued ASU 2016-13, “~~Financial~~“Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This update requires an entity to use a broader range of reasonable and supportable 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 has designated a management team and begun its implementation efforts by identifying key interpretive issues, assessing its processes and identifying the system requirements against the new guidance to ~~evaluate ASU 2016-13~~determine what modifications may be required. Management has also selected a loss forecasting modeling approach and ~~develop an~~has engaged a vendor to assist in the design and implementation ~~strategy.~~of the loss forecasting modeling. The implementation efforts also involve, but are not limited to, assessing potential macroeconomic factors that will be used to determine the reasonable and supportable forecast period. 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—~~“Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ~~Impairment~~.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 the~~~~Derecognition of Nonfinancial Assets~~ ~~(Subtopic 610-20):~~~~Clarifying the Scope of Asset Derecognition Guidance~~~~and 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~~-“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~~ (T~~opic~~ ~~718~~): ~~Modification~~ A~~ccounting.~~”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~~2017-08 is not expected to have a significant impact on the Company’s consolidated financial statements.

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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~~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),”, which targeted improvements to accounting for hedging activities. The amendments in this update are intended to 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.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This update targets improvements in the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. It is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until the effective date. Adoption of ASU 2018-13 is not expected to have a significant impact on the Company’s consolidated financial statements.

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4. Acquisition

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 of which $100 million was deferred and paid on November 14, 2017 and $35.4 million was deferred and will be released over the next three years. On December 12, 2017, additional cash consideration of $4.1 million was paid based on the realized gain from the sale of the building that housed FENB’s former Alhambra, California branch. SinoPac Bancorp was merged into Cathay General Bancorp on July 17, 2017 and subsequently, on October 27, 2017, FENB was merged into Cathay Bank. The acquisition allowed the Company to expand its number of branches in California. Prior to the closing of the acquisition, FENB operated nine branches in California, and a representative office in Beijing. The acquisition is 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. We have included the financial results of the business combinations in the condensed consolidated statement of income beginning on the acquisition date. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. We made significant estimates and exercised significant judgement in estimating fair values and accounting for such acquired assets and liabilities. The assets and liabilities have been accounted for under the acquisition method of accounting.

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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
88,044
FHLB and FRB stock
19,890
Loans
705,792
Premises and equipment
6,239
Cash surrender value of life insurance
46,083
Deferred tax assets, net
40,690
Core deposit intangible
6,122
Accrued interest receivable and other assets
10,689
Total assets acquired
1,212,481

Liabilities assumed:

Deposits
813,888
Advances from the Federal Home Loan Bank
30,000
Accrued interest payable and other liabilities
8,512
Total liabilities assumed
852,400
Net assets acquired
$ 360,081

Cash paid
$ 284,984
Fair value of common stock issued
34,862
Total consideration paid
$ 319,846

Purchase price payable to SinoPac
34,267
Total consideration
$ 354,113
Gain from acquisition
$ 5,968

The table above reflects net purchase price adjustments of $340,000 related to contingent consideration and imputed interest adjustments made during the nine months ended September 30, 2018.

Table of Contents

5.5. Earnings per Share

Basic earnings per share ~~exclude~~sexcludes 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 and restricted stock units 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)

2018

2017

2018

2017

Net income
$ 69,757 $ 49,746 $ 207,237 $ 150,102

Weighted-average shares:

Basic weighted-average number of common shares outstanding
81,311,899 80,665,398 81,224,555 80,073,249

Dilutive effect of weighted-average outstanding common share equivalents

Warrants
234,105 399,957 268,988 409,019
Options
- 19,221 - 25,706
Restricted stock units
309,267 320,278 277,331 289,205
Diluted weighted-average number of common shares outstanding
81,855,271 81,404,854 81,770,874 80,797,179

Average stock options and restricted stock units with anti-dilutive effect
1,854 - 15,625 6,561
Earnings per common share:

Basic
$ 0.86 $ 0.62 $ 2.55 $ 1.87
Diluted
$ 0.85 $ 0.61 $ 2.53 $ 1.86

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

6.6. 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 (“RSUs”) and/or awarded non-vested stock. As of September 30, ~~2017, the only options granted by the Company~~2018, there were ~~non-statutory~~no 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). outstanding.

There were ~~no options granted during the first nine months of 2017 or 2016.~~

~~Table of Contents~~

~~Option compensation expense was zero~~ ~~for the three months~~35,880 and ~~for the nine months ended September 30, 2017, and September 30, 2016. Stock-based compensation was fully recognized over the requisite service period for all awards. There were~~ 43,540 ~~and 2,110~~ stock option shares exercised in the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The Company received $838,000 from the exercise of stock options for 35,880 shares at $23.37 per share that had an aggregate intrinsic value of $718,000 during the nine months ended September 30, 2018 compared to $1.0 million from the exercise of stock options ~~which~~that had an aggregate intrinsic value of $607,000 during the nine months ended September 30, ~~2017 compared~~2017.

RSUs are granted under the Company’s long-term incentive plan at no cost to ~~$49,000~~the recipient. RSUs generally vest ratably over three years or cliff vest after one or three years of continued employment from the ~~exercise~~date of ~~stock options which had an aggregate intrinsic value~~the grant. While a portion of ~~$9,000 during the nine months ended September 30, 2016. The table below summarizes stock option activity for the periods indicated:~~

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~~RSUs are time-vesting awards, others vest subject to ~~continued employment~~the attainment of specified performance goals and are referred to as “performance-based RSUs.” All RSUs are subject to forfeiture until vested.
Performance-based RSUs are granted at the ~~vesting dates.~~
~~The Company granted restricted stock units for 87,781 shares at an average closing price~~target amount of ~~$38.59 per share in~~awards. Based on the ~~first nine months~~Company’s attainment of ~~2017. The Company granted restricted stock units for 88,693 shares at an average closing price~~specified performance goals and consideration of ~~$30.37 per share in 2016.~~
~~Starting in December 2013, the Company granted performance share unit awards in which~~market conditions, the number of ~~units earned is calculated based on the relative total shareholder return (TSR)~~shares that vest can be adjusted to a minimum of zero and to a maximum of 150% of the ~~Company’s common stock as compared~~target. The amount of performance-based RSUs that are eligible to vest is determined at the ~~TSR~~end of each performance period and is then added together to determine the ~~KBW Regional Banking Index. In addition, the Company granted performance share unit awards in which the~~total number of ~~units earned is determined by comparison~~performance shares that are eligible 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 tovest. Performance-based RSUs generally cliff vest ~~on December 31 of the third full year~~three years from the grant date. The Company granted performance TSR restricted stock units for 30,319 shares in 2016, 61,209 shares in 2015 and 60,456 shares in 2014, performance EPS restricted stock units for 58,241 shares in 2016, 57,409 shares in 2015 and 57,642 shares in 2014, and performance ROA restricted stock units for 29,119 shares in 2016, to its seven executive officers. In February 2017, after approval by the Company’s Compensation Committee, 297,171 sharesdate of the Company’s stock were distributed under the TSR and EPS grants awarded in December 2013 under the terms of the awards, including 76,623 shares granted and distributed based on higher than target actual performance and for cash dividends during the performance period.grant.
~~The following table presents restricted stock unit~~ ~~activity during the nine months ended September 30, 2017:~~
~~Units~~
~~Balance at December 31, 2016~~
~~727,419~~
~~Granted~~
~~164,404~~
~~Distributed~~
~~(297,905~~ )
~~Forfeited~~
~~(10,424~~ )
~~Balance at September 30, 2017~~
~~583,494~~

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Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value, which considers both market and performance conditions. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant.
The ~~compensation~~following table presents RSU activity during the nine months ended September 30, 2018:

Time-Based RSUs

Performance-Based RSUs

Weighted-Average

Weighted-Average

Grant Date

Grant Date

Shares

Fair Value

Shares

Fair Value

Balance at December 31, 2017
221,738 32.72 339,872 33.52
Granted
141,810 43.30 55,455 39.46
Vested
(65,721 ) 41.59 (68,459 ) 41.22
Forfeited
(12,535 ) 35.46 - -
Balance at September 30, 2018
285,292 35.82 326,868 32.91
The compensation expense recorded for ~~restricted stock units~~RSUs was ~~$1.3~~$1.9 million for the three months ended September 30, ~~2017,~~2018, compared to ~~$1.2~~$1.3 million in the same period a year ago. For the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, compensation expense recorded ~~related~~relating to the ~~restricted stock units~~RSUs was ~~$3.9~~$5.3 million and ~~$3.3~~$3.9 million, respectively. Unrecognized stock-based compensation expense related to ~~restricted stock units~~RSUs was $11.8 million and $9.1 million as of September 30, 2018 and 2017, ~~and is~~respectively. As of September 30, 2018, these costs are expected to be recognized over the next ~~2.0 years.~~1.9 years for time-based and performance-based RSU’s.

As of September 30, ~~2017, 3,465,411~~2018, 2,582,001 shares were available under the Company’s 2005 Incentive Plan (as Amended and Restated) for future grants.

TaxTax benefit from share-based payment arrangements of ~~$2.6~~$0.8 million reduced income tax expense in the first nine months of ~~2017~~2018 compared to ~~a tax short-fall of $3.4~~$2.6 million ~~that was charged to income tax expense~~ in the ~~first nine months~~same period a year ago.
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Table of ~~2016.~~Contents

7. Investment Securities

7~~. Investment~~ Securities

~~Investment securities~~ available-for-sale were $~~1.4~~$1.3 billion as of September 30, ~~2017,~~2018, compared to $1.3 billion as of December 31, ~~2016.~~ 2017.

The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of debt securities available-for-sale as of September 30, 2018, and debt and equity investment securities as of ~~September 30, 2017, and~~ December 31, ~~2016:~~2017:

	September 30, 2017								September 30, 2018
			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
Debt Securities Available-for-Sale
U.S. treasury securities	$	399,741	$	-	$	305	$	399,436	$	199,488	$	-	$	114	$	199,374
U.S. government agency entities		9,679		27		6		9,700		6,721		-		210		6,511
U.S. government sponsored entities		400,000		-		6,278		393,722		400,000		-		16,553		383,447
State and municipal securities		1,943		-		12		1,931
Mortgage-backed securities		447,959		468		2,362		446,065		648,532		130		22,023		626,639
Collateralized mortgage obligations		1,715		-		5		1,710		1,119		-		33		1,086
Corporate debt securities		80,007		904		5		80,906		64,983		1,020		-		66,003
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	$	1,320,843	$	1,150	$	38,933	$	1,283,060

December 31, 2016

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 489,839 $ 35 $ 857 $ 489,017
U.S. government sponsored entities
400,000 - 9,669 390,331
Mortgage-backed securities
339,241 309 3,290 336,260
Collateralized mortgage obligations
48 - 20 28
Corporate debt securities
74,965 247 862 74,350
Mutual funds
6,500 - 270 6,230
Preferred stock of government sponsored entities
2,811 4,497 - 7,308
Other equity securities
3,608 7,213 - 10,821
Total
$ 1,317,012 $ 12,301 $ 14,968 $ 1,314,345

14

December 31, 2017

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 249,877 $ - $ 357 $ 249,520
U.S. government agency entities
9,047 11 70 8,988
U.S. government sponsored entities
400,000 - 9,664 390,336
State and municipal securities
1,944 - 30 1,914
Mortgage-backed securities
577,987 241 6,259 571,969
Collateralized mortgage obligations
1,533 - 17 1,516
Corporate debt securities
80,007 1,291 17 81,281
Mutual funds
6,500 - 270 6,230
Preferred stock of government sponsored entities
5,842 4,260 - 10,102
Other equity securities
3,608 8,162 - 11,770
Total
$ 1,336,345 $ 13,965 $ 16,684 $ 1,333,626
~~Table of Contents~~

The amortized cost and fair value of investment securities asas of September 30, ~~2017,~~2018, 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

Securities Available-For-Sale

Amortized cost

Fair value

Amortized cost

Fair value

(In thousands)

(In thousands)

Due in one year or less
$ 415,782 $ 415,555 $ 199,497 $ 199,383
Due after one year through five years
465,328 459,924 465,892 450,363
Due after five years through ten years
8,658 8,647 6,434 6,163
Due after ten years ⁽¹⁾
475,187 484,361 649,020 627,151
Total
$ 1,364,955 $ 1,368,487 $ 1,320,843 $ 1,283,060

~~(1) Equity securities are reported in this category~~
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Table of Contents

There were no sales ~~transactions of mortgage-backed~~ ~~securities 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.~~2018 and the first nine months of 2017. Proceeds from repayments, maturities and calls of mortgage-backed securities were ~~$48.5~~$79.4 million and ~~$125.3~~$48.5 million for the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Proceeds of ~~$99.5~~$99.6 million were received from the sale of other investment securities during the first nine months ~~ended September 30, 2017. There were no sales transactions~~of 2018, compared to proceeds of $99.5 million from the sale of other investment securities during the first nine months ~~ended September 30, 2016.~~of 2017. Proceeds from maturities and calls of other investment securities were ~~$341.3~~$266.9 million during the nine months ended September 30, ~~2017~~2018, compared to ~~$460.0~~$341.3 million during the same period a year ago. ~~During~~There were $14,000 of losses realized on sales of investment securities during the nine months ended September 30, ~~2017, $439,000~~2018, compared to $438,000 of losses in the same period a year ago. There were ~~realized on sales of investment securities. Other~~no other than temporary impairment write-downs ~~of zero and $206,000 were~~ recorded during the first nine months of ~~2017~~2018 and ~~2016, respectively.~~the first nine months of 2017.

The ~~table~~sadoption of ASU 2016-01 resulted in approximately $8.6 million being reclassified from accumulated other comprehensive income to retained earnings, representing an increase to retained earnings as of January 1, 2018. For the nine months ended September 30, 2018, the Company recognized a net loss of $4.6 million due to the decrease in fair value of equity investments with readily determinable fair values. Equity securities were $23.5 million as of September 30, 2018, compared to $28.1 million as of December 31, 2017.
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Table of Contents
The tables below show the fair value and unrealized losses of the temporarily impaired securities in our investment securities portfolio as of September 30, ~~2017,~~2018, and December 31, ~~2016:~~2017:

September 30, 2017

September 30, 2018

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

Debt Securities Available-for-Sale

U.S. treasury securities
$ 339,707 $ 46 $ 49,729 $ 259 $ 389,436 $ 305 $ 199,374 $ 114 $ - $ - $ 199,374 $ 114
U.S. government agency entities
5,208 160 1,304 50 6,512 210
U.S. government sponsored entities
395,774 6,284 - - 395,774 6,284 - - 383,447 16,553 383,447 16,553
State and municipal securities
1,931 12 - - 1,931 12
Mortgage-backed securities
359,112 2,359 122 3 359,234 2,362 247,059 6,088 372,218 15,935 619,277 22,023
Collateralized mortgage obligations
1,710 5 - - 1,710 5 - - 1,086 33 1,086 33
Corporate debt securities
5,029 5 - - 5,029 5
Total debt securities
$ 451,641 $ 6,362 $ 758,055 $ 32,571 $ 1,209,696 $ 38,933

Equity Securities

Preferred stock of government sponsored entities
6,397 3,706 - - 6,397 3,706
Mutual funds
- - 6,271 229 6,271 229 - - 6,034 195 6,034 195
Other equity securities
4,680 98 - - 4,680 98 1,008 679 - - 1,008 679
Total
$ 1,107,943 $ 8,809 $ 56,122 $ 491 $ 1,164,065 $ 9,300
Total equity securities
$ 7,405 $ 4,385 $ 6,034 $ 195 $ 13,439 $ 4,580

15
~~Table of Contents~~

December 31, 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
$ 199,823 $ 62 $ 49,697 $ 295 $ 249,520 $ 357
U.S. government agency entities
5,711 70 - - 5,711 70
U.S. government sponsored entities
- - 390,336 9,664 390,336 9,664
State and municipal securities
1,914 30 - - 1,914 30
Mortgage-backed securities
342,436 3,147 178,617 3,112 521,053 6,259
Collateralized mortgage obligations
1,516 17 - - 1,516 17
Corporate debt securities
5,015 17 - - 5,015 17
Mutual funds
- - 6,230 270 6,230 270
Total
$ 556,415 $ 3,343 $ 624,880 $ 13,341 $ 1,181,295 $ 16,684

December 31, 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
$ 299,088 $ 857 $ - $ - $ 299,088 $ 857
U.S. government sponsored entities
390,331 9,669 - - 390,331 9,669
Mortgage-backed securities
328,236 3,288 62 2 328,298 3,290
Collateralized mortgage obligations
- - 28 20 28 20
Corporate debt securities
- - 29,138 862 29,138 862
Mutual funds
- - 6,230 270 6,230 270
Total
$ 1,017,655 $ 13,814 $ 35,458 $ 1,154 $ 1,053,113 $ 14,968
AsAs of September 30, ~~2017,~~2018, the Company had unrealized losses on available-for-sale securities of ~~$9.3~~$38.9 million. The unrealized losses on these securities were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads. The issuers have not, to the Company’s knowledge, established any cause for default on these securities. Management believes the 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 $~~291.4~~$33.1 million as of September 30, ~~2017,~~2018, and ~~$649.1~~$272.2 million as of December 31, ~~2016,~~2017, were pledged to secure public deposits, other borrowings, treasury tax and loan, and securities sold under agreements to repurchase.

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8.Loans

Most of the ~~Company~~’sCompany’s business activities are with customers located in the ~~predominately~~high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; Las Vegas, Nevada, and Hong Kong. The Company has no specific industry ~~concentration, and~~concentration. The Company’s loans generally ~~its loans~~ are ~~secured~~collateralized by 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, ~~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, ~~2017,~~2018, and December 31, ~~2016,~~2017, were as follows:

	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
	(In thousands)						(In thousands)
Commercial loans	$	2,419,891		$	2,248,187		$	2,674,089		$	2,461,266
Residential mortgage loans		2,922,537			2,444,048			3,569,111			3,062,050
Commercial mortgage loans		6,377,047			5,785,248			6,580,254			6,482,695
Real estate construction loans		691,486			548,088			597,018			678,805
Equity lines		181,751			171,711			221,599			180,304
Installment & other loans		4,722			3,993			5,575			5,170
Gross loans	$	12,597,434		$	11,201,275		$	13,647,646		$	12,870,290

Allowance for loan losses		(121,535	)		(118,966	)		(123,457	)		(123,279	)
Unamortized deferred loan fees		(3,424	)		(4,994	)		(2,086	)		(3,245	)

Total loans, net	$	12,472,475		$	11,077,315		$	13,522,103		$	12,743,766
Loans held for sale	$	-		$	7,500		$	-		$	8,000

AsAs of September 30, ~~2017,~~2018, recorded investment in impaired loans totaled ~~$127.7~~$117.0 million and was comprised of non-accrual loans, excluding loans held for sale, of ~~$65.3~~$42.4 million and accruing troubled debt restructured loans ~~(TDRs)~~(“TDRs”) of ~~$62.4~~$74.6 million. As of December 31, ~~2016,~~2017, recorded investment in impaired loans totaled ~~$115.1~~$117.4 million and was comprised of non-accrual loans, excluding loans held for sale, of ~~$49.7~~$48.8 million and accruing TDRs of ~~$65.4~~$68.6 million. For impaired loans, the amounts previously charged off represent ~~7.1%~~7.4% as of September 30, ~~2017,~~2018, and ~~8.4%~~7.2% as of December 31, ~~2016,~~2017, of the contractual balances for impaired loans.

Table of Contents

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

Impaired Loans

Average Recorded Investment

Interest Income Recognized

Three months ended

Nine months ended

Three months ended

Nine months ended

September 30,

September 30,

September 30,

September 30,

2017

2016

2017

2016

2017

2016

2017

2016

(In thousands)
Commercial loans
$ 24,987 $ 28,091 $ 22,572 $ 18,602 $ 678 $ 170 $ 760 $ 488
Real estate construction loans
29,780 5,869 29,868 12,005 99 66 287 196
Commercial mortgage loans
58,555 81,005 60,074 86,456 391 776 1,015 2,124
Residential mortgage loans and equity lines
13,937 18,256 15,208 17,456 96 148 287 401
Total impaired loans
$ 127,259 $ 133,221 $ 127,722 $ 134,519 $ 1,264 $ 1,160 $ 2,349 $ 3,209
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~~Table of Contents~~

Impaired Loans

Average Recorded Investment

Interest Income Recognized

Three months ended

Nine months ended

Three months ended

Nine months ended

September 30,

September 30,

September 30,

September 30,

2018

2017

2018

2017

2018

2017

2018

2017

(In thousands)

Commercial loans
$ 48,772 $ 24,987 $ 46,920 $ 22,572 $ 461 $ 678 $ 1,152 $ 760
Real estate construction loans
5,980 29,780 7,490 29,868 - 99 - 287
Commercial mortgage loans
55,375 58,555 59,314 60,074 576 391 1,757 1,015
Residential mortgage loans and equity lines
13,724 13,937 14,032 15,208 108 96 279 287
Total impaired loans
$ 123,851 $ 127,259 $ 127,756 $ 127,722 $ 1,145 $ 1,264 $ 3,188 $ 2,349

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

Impaired Loans

September 30, 2017

December 31, 2016

Impaired Loans

September 30, 2018

December 31, 2017

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
$ 23,953 $ 23,373 $ - $ 24,037 $ 23,121 $ - $ 40,426 $ 38,556 $ - $ 43,483 $ 42,702 $ -
Real estate construction loans
22,309 21,748 - 5,776 5,458 - 5,776 4,922 - 8,821 8,185 -
Commercial mortgage loans
39,154 32,370 - 60,522 54,453 - 34,276 26,912 - 37,825 31,029 -
Residential mortgage loans and equity lines
2,264 2,264 - 5,472 5,310 - 6,791 6,776 - 1,301 1,301 -
Subtotal
$ 87,680 $ 79,755 $ - $ 95,807 $ 88,342 $ - $ 87,269 $ 77,166 $ - $ 91,430 $ 83,217 $ -
With allocated allowance

Commercial loans
$ 14,082 $ 13,985 $ 1,461 $ 5,216 $ 4,640 $ 1,827 $ 5,792 $ 5,715 $ 2,506 $ 891 $ 793 $ 43
Commercial mortgage loans
23,061 22,820 823 10,158 10,017 573 27,549 27,523 917 21,733 21,635 1,738
Residential mortgage loans and equity lines
12,461 11,111 322 13,263 12,075 396 7,670 6,605 281 13,022 11,708 353
Subtotal
$ 49,604 $ 47,916 $ 2,606 $ 28,637 $ 26,732 $ 2,796 $ 41,011 $ 39,843 $ 3,704 $ 35,646 $ 34,136 $ 2,134
Total impaired loans
$ 137,284 $ 127,671 $ 2,606 $ 124,444 $ 115,074 $ 2,796 $ 128,280 $ 117,009 $ 3,704 $ 127,076 $ 117,353 $ 2,134

19
Table of Contents

The following ~~table~~stables present the aging of the loan portfolio by type as of September 30, ~~2017,~~2018, and as of December 31, ~~2016:~~2017:

September 30, 2017

September 30, 2018

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or More Past
Due

Non-accrual Loans

Total
Past Due

Loans Not
Past Due

Total

30-59 Days
Past Due

60-89 Days
Past Due

90 Days
or More
Past Due

Non-accrual
Loans

Total Past
Due

Loans Not Past
Due

Total

Type of Loans:

(In thousands)

(In thousands)

Commercial loans
$ 8,412 $ 14,855 $ 3,900 $ 15,942 $ 43,109 $ 2,376,782 $ 2,419,891 $ 28,212 $ 17,329 $ 3,467 $ 17,118 $ 66,126 $ 2,607,963 $ 2,674,089
Real estate construction loans
- - - 14,267 14,267 677,219 691,486 - - - 4,922 4,922 592,096 597,018
Commercial mortgage loans
- - - 28,379 28,379 6,348,668 6,377,047 - 9,157 3,214 13,172 25,543 6,554,711 6,580,254
Residential mortgage loans and equity lines
- 89 - 6,725 6,814 3,097,474 3,104,288 - - - 7,198 7,198 3,783,512 3,790,710
Installment and other loans
- - - - - 4,722 4,722 - - - - - 5,575 5,575
Total loans
$ 8,412 $ 14,944 $ 3,900 $ 65,313 $ 92,569 $ 12,504,865 $ 12,597,434 $ 28,212 $ 26,486 $ 6,681 $ 42,410 $ 103,789 $ 13,543,857 $ 13,647,646

December 31, 2016

December 31, 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

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)

(In thousands)

Commercial loans
$ 22,753 $ 27,190 $ - $ 15,710 $ 65,653 $ 2,182,534 $ 2,248,187 $ 11,079 $ 5,192 $ - $ 14,296 $ 30,567 $ 2,430,699 $ 2,461,266
Real estate construction loans
10,390 5,835 - 5,458 21,683 526,405 548,088 3,028 - - 8,185 11,213 667,592 678,805
Commercial mortgage loans
5,886 700 - 20,078 26,664 5,758,584 5,785,248 17,573 5,602 - 19,820 42,995 6,439,700 6,482,695
Residential mortgage loans and equity lines
4,390 - - 8,436 12,826 2,602,933 2,615,759 6,613 732 - 6,486 13,831 3,228,523 3,242,354
Installment and other loans
- - - - - 3,993 3,993 103 - - - 103 5,067 5,170
Total loans
$ 43,419 $ 33,725 $ - $ 49,682 $ 126,826 $ 11,074,449 $ 11,201,275 $ 38,396 $ 11,526 $ - $ 48,787 $ 98,709 $ 12,771,581 $ 12,870,290

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

~~TDR~~sTDRs 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.
20
Table of Contents

As of September 30, ~~2017,~~2018, accruing TDRs were ~~$62.4~~$74.6 million and non-accrual TDRs were ~~$33.7~~$27.7 million compared to accruing TDRs of ~~$65.4~~$68.6 million and non-accrual TDRs of ~~$29.7~~$33.4 million as of December 31, ~~2016.~~2017. The Company allocated specific reserves of ~~$1.1~~$1.6 million to accruing TDRs and ~~$143,000~~$1.9 million to non-accrual TDRs as of September 30, ~~2017,~~2018, and ~~$1.3~~$1.9 million to accruing TDRs and ~~$1.1 million~~$83,000 to non-accrual TDRs as of December 31, ~~2016.~~2017. The following tables present TDRs that were modified during the three and nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, their specific reserves as of September 30, ~~2017~~2018 and ~~2016,~~2017, and charge-offs for the three and nine months ended September 30, ~~2017~~2018 and ~~2016:~~2017:

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

Three months ended September 30, 2018

September 30, 2018

No. of Contracts

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Charge-offs

Specific Reserve

No. of
Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

(Dollars in thousands)

Commercial loans
7 $ 18,258 $ 18,258 $ - $ 208 3 $ 4,621 $ 4,621 $ - $ 2,467
Commercial mortgage loans
1 738 738 - - 1 339 339 - -
Residential mortgage loans and equity lines
2 413 413 - 16
Total
8 $ 18,996 $ 18,996 $ - $ 208 6 $ 5,373 $ 5,373 $ - $ 2,483

19
~~Table of Contents~~

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

Nine months ended September 30, 2017

September 30, 2017

Nine months ended September 30, 2018

September 30, 2018

No. of Contracts

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Charge-offs

Specific Reserve

No. of
Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Charge-offs

Specific Reserve

(Dollars in thousands)

(Dollars in thousands)

Commercial loans
13 $ 19,543 $ 19,543 $ - $ 641 21 $ 12,212 $ 12,212 $ - $ 2,493
Real estate construction loans
2 28,489 28,489 - -
Commercial mortgage loans
5 4,123 3,818 305 10 7 14,626 14,626 - 119
Residential mortgage loans and equity lines
1 483 483 - 32 4 1,213 1,213 - 24
Total
21 $ 52,638 $ 52,333 $ 305 $ 683 32 $ 28,051 $ 28,051 $ - $ 2,636

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

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

Modifications of the loan terms during the first nine months of ~~2017~~2018 were in the form of extensions of maturity ~~dates. The length of time for~~dates, which ~~modifications involving extensions of maturity dates~~ ranged from three to twelve months from the modification date.
21
Table of Contents

We expect that the ~~TDR~~sTDRs on accruing status as of September 30, ~~2017,~~2018, 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, ~~2017,~~2018, and December 31, ~~2016,~~2017, is shown below:

September 30, 2018

Accruing TDRs

Payment
Deferral

Rate
Reduction

Rate
Reduction
and Payment
Deferral

Total

(In thousands)

Commercial loans
$ 27,153 $ - $ - $ 27,153
Commercial mortgage loans
14,248 7,446 19,568 41,262
Residential mortgage loans
3,433 329 2,421 6,183
Total accruing TDRs
$ 44,834 $ 7,775 $ 21,989 $ 74,598

September 30, 2017

September 30, 2018

Accruing TDRs

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment Deferral

Total

Non-accrual TDRs

Payment
Deferral

Rate
Reduction

Rate
Reduction
and Payment
Deferral

Total

(In thousands)

(In thousands)

Commercial loans
$ 21,416 $ - $ - $ 21,416 $ 14,579 $ - $ - $ 14,579
Real estate construction loans
7,480 - - 7,480
Commercial mortgage loans
16,130 5,895 4,787 26,812 3,863 - 7,261 11,124
Residential mortgage loans
3,516 337 2,797 6,650 1,901 - 114 2,015
Total accruing TDRs
$ 48,542 $ 6,232 $ 7,584 $ 62,358
Total non-accrual TDRs
$ 20,343 $ - $ 7,375 $ 27,718

December 31, 2017

Accruing TDRs

Payment
Deferral

Rate
Reduction

Rate
Reduction and
Payment
Deferral

Total

(In thousands)

Commercial loans
$ 29,199 $ - $ - $ 29,199
Commercial mortgage loans
11,504 5,871 15,468 32,843
Residential mortgage loans
3,416 335 2,772 6,523
Total accruing TDRs
$ 44,119 $ 6,206 $ 18,240 $ 68,565
December 31, 2017
Non-accrual TDRs

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

Commercial loans
$ 12,944 $ - $ - $ 12,944
Commercial mortgage loans
6,231 1,677 11,113 19,021
Residential mortgage loans
1,297 - 154 1,451
Total non-accrual TDRs
$ 20,472 $ 1,677 $ 11,267 $ 33,416

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

September 30, 2017

Non-accrual TDRs

Payment
Deferral

Rate
Reduction

Rate Reduction
and Payment
Deferral

Total

(In thousands)

Commercial loans
$ 13,259 $ - $ - $ 13,259
Commercial mortgage loans
1,347 1,706 16,508 19,561
Residential mortgage loans
714 - 157 871
Total non-accrual TDRs
$ 15,320 $ 1,706 $ 16,665 $ 33,691

Three months ended September 30,

Nine months ended September 30,

Accruing TDRs

2018

2017

2018

2017

(In thousands)

Beginning balance
$ 84,487 $ 79,819 $ 68,566 $ 65,393
New restructurings
2,589 21,790 25,036 49,973
Restructured loans restored to accrual status
577 - 2,895 -
Payments
(13,055 ) (35,677 ) (19,801 ) (41,372 )
Restructured loans placed on non-accrual status
- (3,574 ) (2,098 ) (9,396 )
Expiration of loan concession upon renewal
- - - (2,240 )
Ending balance
$ 74,598 $ 62,358 $ 74,598 $ 62,358

2022
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

Three months ended September 30,

Nine months ended September 30,

Non-accrual TDRs

2018

2017

2018

2017

(In thousands)

Beginning balance
$ 30,347 $ 30,045 $ 33,415 $ 29,722
New restructurings
2,784 2,360 3,015 2,360
Restructured loans placed on non-accrual status
- 3,574 2,098 9,396
Charge-offs
- (355 ) (161 ) (1,901 )
Payments
(4,836 ) (1,933 ) (7,754 ) (5,160 )
Foreclosures
- - - (726 )
Restructured loans restored to accrual status
(577 ) - (2,895 ) -
Ending balance
$ 27,718 $ 33,691 $ 27,718 $ 33,691

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 for the periods indicated is shown below:~~

Three months ended September 30,

Nine months ended September 30,

Accruing TDRs

2017

2016

2017

2016

(In thousands)

Beginning balance
$ 79,819 $ 74,708 $ 65,393 $ 81,680
New restructurings
21,790 18,347 49,973 20,412
Restructured loans restored to accrual status
- - - 10,303
Payments
(35,677 ) (6,500 ) (41,372 ) (9,816 )
Restructured loans placed on non-accrual status
(3,574 ) - (9,396 ) (1,138 )
Expiration of loan concession upon renewal
- - (2,240 ) (14,886 )
Ending balance
$ 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

The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. ~~One commercial loan of $50,000 with charge-offs of $2.1 million had payment defaults within~~The Company did not have any loans that were modified as a TDR during the previous twelve months ~~ended~~and which had subsequently defaulted as of September 30, ~~2017.~~2018.

Under the ~~Company~~’sCompany’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, ~~2017,~~2018, 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.
23
Table of Contents

The following ~~table~~stables present the loan portfolio by risk rating as of September 30, ~~2017,~~2018, and as of December 31, ~~2016:~~2017:

September 30, 2017

September 30, 2018

Pass/Watch

Special Mention

Substandard

Doubtful

Total

Pass/Watch

Special
Mention

Substandard

Doubtful

Total

(In thousands)

(In thousands)

Commercial loans
$ 2,216,816 $ 146,479 $ 56,565 $ 31 $ 2,419,891 $ 2,494,780 $ 125,373 $ 53,936 $ - $ 2,674,089
Real estate construction loans
604,363 65,375 21,748 - 691,486 531,579 60,517 4,922 - 597,018
Commercial mortgage loans
5,904,023 305,927 167,097 - 6,377,047 6,181,227 315,010 84,017 - 6,580,254
Residential mortgage loans and equity lines
3,064,118 31,858 8,312 - 3,104,288 3,782,077 - 8,633 - 3,790,710
Installment and other loans
4,722 - - - 4,722 5,575 - - - 5,575
Total gross loans
$ 11,794,042 $ 549,639 $ 253,722 $ 31 $ 12,597,434 $ 12,995,238 $ 500,900 $ 151,508 $ - $ 13,647,646

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

December 31, 2016

Pass/Watch

Special Mention

Substandard

Doubtful

Total

(In thousands)

Commercial loans
$ 2,023,114 $ 140,682 $ 84,293 $ 98 $ 2,248,187
Real estate construction loans
469,909 44,129 34,050 - 548,088
Commercial mortgage loans
5,410,623 250,221 124,404 - 5,785,248
Residential mortgage loans and equity lines
2,605,834 - 9,925 - 2,615,759
Installment and other loans
3,993 - - - 3,993
Total gross loans
$ 10,513,473 $ 435,032 $ 252,672 $ 98 $ 11,201,275

Loans held for sale
$ - $ - $ 7,500 $ - $ 7,500
22
~~Table of Contents~~

December 31, 2017

Pass/Watch

Special
Mention

Substandard

Doubtful

Total

Commercial loans
$ 2,281,698 $ 118,056 $ 61,503 $ 9 $ 2,461,266
Real estate construction loans
616,411 54,209 8,185 - 678,805
Commercial mortgage loans
6,004,258 308,924 169,513 - 6,482,695
Residential mortgage loans and equity lines
3,232,606 - 9,748 - 3,242,354
Installment and other loans
5,170 - - - 5,170
Total gross loans
$ 12,140,143 $ 481,189 $ 248,949 $ 9 $ 12,870,290

Loans held for sale
$ - $ - $ 8,000 $ - $ 8,000

~~The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on management~~’s process in analyzing the loan portfolio and on management’s assumptions about specific borrowers, underlying collateral, and applicable economic 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, ~~2017,~~2018, and as of December 31, ~~2016:~~2017:

Real Estate

Commercial

Residential

Real Estate

Commercial

Residential

Commercial

Construction

Mortgage

Mortgage Loans

Installment and

Commercial

Construction

Mortgage

Mortgage Loans

Installment and

Loans

Loans

Loans

and Equity Lines

Other Loans

Total

Loans

Loans

Loans

and Equity Lines

Other Loans

Total

(In thousands)

(In thousands)

September 30, 2017

September 30, 2018

Loans individually evaluated for impairment

Allowance
$ 1,461 $ - $ 823 $ 322 $ - $ 2,606 $ 2,506 $ - $ 917 $ 281 $ - $ 3,704
Balance
$ 37,358 $ 21,748 $ 55,190 $ 13,376 $ - $ 127,672 $ 44,272 $ 4,922 $ 54,435 $ 13,381 $ - $ 117,010

Loans collectively evaluated for impairment

Allowance
$ 49,578 $ 22,008 $ 36,579 $ 10,740 $ 24 $ 118,929 $ 54,008 $ 21,226 $ 31,865 $ 12,628 $ 26 $ 119,753
Balance
$ 2,382,533 $ 669,738 $ 6,321,857 $ 3,090,912 $ 4,722 $ 12,469,762 $ 2,629,817 $ 592,096 $ 6,525,819 $ 3,777,329 $ 5,575 $ 13,530,636

Total allowance
$ 51,039 $ 22,008 $ 37,402 $ 11,062 $ 24 $ 121,535 $ 56,514 $ 21,226 $ 32,782 $ 12,909 $ 26 $ 123,457
Total balance
$ 2,419,891 $ 691,486 $ 6,377,047 $ 3,104,288 $ 4,722 $ 12,597,434 $ 2,674,089 $ 597,018 $ 6,580,254 $ 3,790,710 $ 5,575 $ 13,647,646

December 31, 2016

December 31, 2017

Loans individually evaluated for impairment

Allowance
$ 1,827 $ - $ 573 $ 396 $ - $ 2,796 $ 43 $ - $ 1,738 $ 353 $ - $ 2,134
Balance
$ 27,761 $ 5,458 $ 64,470 $ 17,385 $ - $ 115,074 $ 43,495 $ 8,185 $ 52,664 $ 13,009 $ - $ 117,353

Loans collectively evaluated for impairment

Allowance
$ 47,376 $ 23,268 $ 34,291 $ 11,224 $ 11 $ 116,170 $ 49,753 $ 24,838 $ 35,872 $ 10,660 $ 22 $ 121,145
Balance
$ 2,220,426 $ 542,630 $ 5,720,778 $ 2,598,374 $ 3,993 $ 11,086,201 $ 2,417,771 $ 670,620 $ 6,430,031 $ 3,229,345 $ 5,170 $ 12,752,937

Total allowance
$ 49,203 $ 23,268 $ 34,864 $ 11,620 $ 11 $ 118,966 $ 49,796 $ 24,838 $ 37,610 $ 11,013 $ 22 $ 123,279
Total balance
$ 2,248,187 $ 548,088 $ 5,785,248 $ 2,615,759 $ 3,993 $ 11,201,275 $ 2,461,266 $ 678,805 $ 6,482,695 $ 3,242,354 $ 5,170 $ 12,870,290

2324
Table of Contents

The following ~~table~~stables detail activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, ~~2017,~~2018, and September 30, ~~2016.~~2017. 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, 2018 and 2017

Real Estate

Commercial

Residential

Installment

Commercial

Construction

Mortgage

Mortgage Loans

and Other

Loans

Loans

Loans

and Equity Lines

Loans

Total

(In thousands)

June 30, 2018 Ending Balance
$ 55,179 $ 20,663 $ 33,976 $ 12,062 $ 19 121,899
Provision/(credit) for possible credit losses
1,270 519 (4,138 ) 842 7 (1,500 )
Charge-offs
(122 ) - - - - (122 )
Recoveries
187 44 2,944 5 - 3,180
Net (charge-offs)/recoveries
65 44 2,944 5 - 3,058
September 30, 2018 Ending Balance
$ 56,514 $ 21,226 $ 32,782 $ 12,909 $ 26 $ 123,457

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

Three months ended September 30, 2017 and 2016

Real Estate

Commercial

Residential

Installment

Commercial

Construction

Mortgage

Mortgage Loans

and Other

Loans

Loans

Loans

and Equity Lines

Loans

Total

(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
Provision/(credit) for possible credit losses
4,380 (2,056 ) 3,132 (5,452 ) (4 ) -
Charge-offs
(3,277 ) - (4,626 ) - - (7,903 )
Recoveries
2,006 548 337 6 - 2,897
Net (charge-offs)/recoveries
(1,271 ) 548 (4,289 ) 6 - (5,006 )
September 30, 2016 Ending Balance
$ 53,699 $ 9,245 $ 44,933 $ 10,057 $ 8 $ 117,942
Nine months ended September 30, 2018 and 2017

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
2018 Beginning Balance
$ 49,796 $ 24,838 $ 37,610 $ 11,013 $ 22 $ 123,279
Provision/(credit) for possible credit losses
2,245 (1,403 ) (2,775 ) (580 ) 13 (2,500 ) 6,097 (3,744 ) (8,672 ) 1,815 4 (4,500 )
Charge-offs
(1,810 ) - (860 ) - - (2,670 ) (629 ) - (390 ) - - (1,019 )
Recoveries
1,401 143 6,173 22 - 7,739 1,250 132 4,234 81 - 5,697
Net recoveries
621 132 3,844 81 - 4,678
September 30, 2018 Ending Balance
$ 56,514 $ 21,226 $ 32,782 $ 12,909 $ 26 $ 123,457
Reserve for impaired loans
$ 2,506 $ - $ 917 $ 281 $ - $ 3,704
Reserve for non-impaired loans
$ 54,008 $ 21,226 $ 31,865 $ 12,628 $ 26 $ 119,753
Reserve for off-balance sheet credit commitments
$ 1,615 $ 1,174 $ 78 $ 215 $ 6 $ 3,088

2017 Beginning Balance
$ 49,203 $ 23,268 $ 34,864 $ 11,620 $ 11 $ 118,966
(Credit)/provision 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 (409 ) 143 5,313 22 - 5,069

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

2016 Beginning Balance
$ 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 )
Charge-offs
(12,035 ) - (5,681 ) (149 ) - (17,865 )
Recoveries
3,720 7,871 879 24 - 12,494
Net (charge-offs)/recoveries
(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
Reserve for impaired loans
$ 1,320 $ - $ 1,248 $ 375 $ - $ 2,943
Reserve for non-impaired loans
$ 52,379 $ 9,245 $ 43,685 $ 9,682 $ 8 $ 114,999
Reserve for off-balance sheet credit commitments
$ 2,112 $ - $ 35 $ 80 $ 2 $ 2,229

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9.9. 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~~losses 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.

10.10. 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 December 31, 2016. Final maturity for the two fixed rate non-callable securities sold under agreements to repurchase was $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 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 $108 million as of September 30, 2017, and $372 million as of December 31, 2016.

Borrowing from the ~~FHLB.~~Federal Home Loan Bank (“FHLB”). As of September 30, ~~2017,~~2018, over-night borrowings from the FHLB were ~~$450~~$240 million at a rate of ~~1.16%~~2.33% compared to ~~$275~~$325 million at a rate of ~~0.55%~~1.41% as of December 31, ~~2016.~~2017. As of September 30, ~~2017,~~2018, the advances from the FHLB were ~~$145~~$75 million at a rate of ~~1.35%.~~1.99% compared to $105 million at a rate of 1.41% as of December 31, 2017. As of September 30, ~~2017,~~2018, FHLB advances of ~~$490~~$5 million will mature in October ~~2017, $55 million in~~ 2018, ~~and~~ $50 million in December ~~2019.~~2019, and $20 million in May 2023.

Other Borrowing. Pursuant to the Stock Purchase Agreement with Bank SinoPac Co. Ltd, $35.2 million of the purchase price were held back at a floating rate of three-month LIBOR rate plus 150 basis points and 50%, 30%, and 20% will be disbursed annually over three years on the anniversary dates, respectively. As of September 30, 2018, the outstanding balance was $18.3 million with a rate of 3.39% compared to $35.2 million at December 31, 2017.

Long-term Debt. On October 12, 2017, the Bank entered into a term loan agreement of $75.0 million with U.S. Bank. The loan has a floating rate of one-month LIBOR plus 175 basis points. As of September 30, 2018, the term loan has an interest rate of 3.875% compared to 3.125% at December 31, 2017. The principal amount of the long-term debt from U.S. Bank is due and payable in consecutive quarterly installments of $4.7 million each on the last day of each calendar quarter commencing December 31, 2018, with the final installment due and payable on October 12, 2020. The U.S. Bank loan proceeds were used to fund a portion of our acquisition of SinoPac Bancorp.

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11.11. Income Taxes

The effective tax rate for the ~~third quarter~~first nine months of ~~2017~~2018 was ~~41.4%~~19.0% compared to ~~25.5%~~32.1% for the ~~third quarter~~first nine months of ~~2016.~~2017. The ~~third quarter 2017~~reduction in the effective tax rate ~~of 41.4% reflected additional tax expense~~was primarily due to ~~increase~~ the ~~full year effective~~Tax Legislation, which reduced the Company’s federal corporate tax rate from 35% to ~~34% compared to the 29%~~21% effective ~~tax rate forecasted at June 30, 2017. This adjustment~~January 1, 2018, an alternative energy investment made in the ~~third~~second quarter ~~was~~and the ~~result~~impact of ~~lower~~low income housing 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.credits.

As of ~~September 30, 2017 and~~ December 31, ~~2016,~~2017, the Company had income tax refunds receivable of ~~$19.4 million and $14.6 million, respectively.~~$7.2 million. These income tax receivables are included in other assets in the accompanying condensed consolidated balance sheets.

The ~~Company~~’sCompany’s tax returns are open for audit by the Internal Revenue Service back to ~~2014~~2015 and by the California Franchise Tax Board back to ~~2012. As the Company is presently under audit by a number of tax authorities, it~~2013.

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.

12. Fair Value 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,~~ 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.

~~Table of Contents~~

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—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~~Assets measured at estimated fair value on a non-recurring basis:

Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring ~~basis. Investments~~basis subsequent to initial recognition. Generally, these adjustments are the result of lower-of-cost-or-fair value or other impairment write-downs of individual assets. In determining the estimated fair values during the period, the Company determined that substantially all the changes in ~~venture capital were written down to their~~estimated fair value ~~based on available financial reports from venture capital partnerships~~were due to declines in market conditions versus instrument specific credit risk. For the nine months ended September 30, 2018 and ~~management’s judgment~~December 31, 2017, there were no material adjustments to fair value for the Company’s assets and ~~estimation, a Level 3 measurement.~~

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

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The following ~~table~~stables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of September 30, ~~2017,~~2018, and December 31, ~~2016:~~2017:

September 30, 2017	Fair Value Measurements Using						Total at
September 30, 2018									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
Debt securities available-for-sale
U.S. Treasury securities	$	399,436	$	-	$	-	$	399,436	$	199,374	$	-	$	-	$	199,374
U.S. government agencies		-		9,700		-		9,700		-		6,511		-		6,511
U.S. government sponsored entities		-		393,722		-		393,722		-		383,447		-		383,447
State and municipal securities		-		1,931		-		1,931
Mortgage-backed securities		-		446,065		-		446,065		-		626,639		-		626,639
Collateralized mortgage obligations		-		1,710		-		1,710		-		1,086		-		1,086
Corporate debt securities		-		80,906		-		80,906		-		66,003		-		66,003
Total debt securities available-for-sale										199,374		1,083,686		-		1,283,060

Equity securities
Preferred stock of government sponsored entities										6,397		-		-		6,397
Mutual funds		6,271		-		-		6,271		6,034		-		-		6,034
Preferred stock of government sponsored entities		8,087		-		-		8,087
Other equity securities		20,659		-		-		20,659		11,091		-		-		11,091
Total securities available-for-sale		434,453		934,034		-		1,368,487
Total equity securities										23,522		-		-		23,522

Warrants		-		-		97		97		-		-		168		168
Interest rate swaps										-		18,419		-		18,419
Foreign exchange contracts		-		1,725		-		1,725		-		400		-		400
Interest rate swaps		-		2,314		-		2,314
Total assets	$	434,453	$	938,073	$	97	$	1,372,623	$	222,896	$	1,102,505	$	168	$	1,325,569

Liabilities

Option contracts	$	-	$	234	$	-	$	234	$	-	$	4	$	-	$	4
Foreign exchange contracts		-		1,083		-		1,083		-		1,648		-		1,648
Interest rate swaps		-		5,049		-		5,049
Total liabilities	$	-	$	6,366	$	-	$	6,366	$	-	$	1,652	$	-	$	1,652

December 31, 2017

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
$ 249,520 $ - $ - $ 249,520
U.S. government agency entities
- 8,988 - 8,988
U.S. government sponsored entities
- 390,336 - 390,336
State and municipal securities
- 1,914 - 1,914
Mortgage-backed securities
- 571,969 - 571,969
Collateralized mortgage obligations
- 1,516 - 1,516
Corporate debt securities
- 81,281 - 81,281
Mutual funds
6,230 - - 6,230
Preferred stock of government sponsored entities
10,102 - - 10,102
Other equity securities
11,770 - - 11,770
Total securities available-for-sale
277,622 1,056,004 - 1,333,626
Warrants
- - 91 91
Interest rate swaps
- 5,218 - 5,218
Foreign exchange contracts
- 1,832 - 1,832
Total assets
$ 277,622 $ 1,063,054 $ 91 $ 1,340,767

Liabilities

Option contracts
$ - $ 9 $ - $ 9
Interest rate swaps
- 2,699 - 2,699
Foreign exchange contracts
- 453 - 453
Total liabilities
$ - $ 3,161 $ - $ 3,161

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Table of Contents

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 $~~97,000~~$168,000 as of September 30, ~~2017,~~2018, compared to ~~$79,000~~$91,000 as of December 31, ~~2016.~~2017. The fair value adjustment of warrants was included in other operating income in the third quarter of ~~2017.~~2018. The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are their expected life ranging from 1 to 6 years, risk-free interest rate from ~~1.51%~~2.73% to ~~2.28%~~3.27%, and stock volatility from ~~5.05%~~8.3% to ~~12.6%~~12.09%.

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the condensed consolidated balance sheet as of September 30, ~~2017,~~2018, 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, ~~2017,~~2018, and December 31, ~~2016,~~2017, and the total losses for the periods indicated:

September 30, 2017

Total (Gains)/Losses

As of September 30, 2018

Total Losses

Fair Value Measurements Using

Total at

Three Months Ended

Nine Months Ended

Fair Value Measurements Using

Total at

For the Three Months Ended

For the Nine Months Ended

Level 1

Level 2

Level 3

Fair Value

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

Level 1

Level 2

Level 3

Fair
Value

September 30, 2018

September 30, 2017

September 30, 2018

September 30, 2017

(In thousands)

(In thousands)

Assets

Impaired loans by type:

Commercial loans
$ - $ - $ 12,525 $ 12,525 $ - $ - $ 25 $ - $ - $ - $ 3,209 $ 3,209 $ - $ - $ - $ 25
Commercial mortgage loans
- - 21,997 21,997 - - - - - - 26,606 26,606 - - - -
Residential mortgage loans and equity lines
- - 10,790 10,790 - - - - - - 6,323 6,323 - - - -
Total impaired loans
- - 45,312 45,312 - - 25 - - - 36,138 36,138 - - - 25
Other real estate owned ⁽¹⁾
- 6,317 4,322 10,639 405 (206 ) 654 9 - 4,918 4,343 9,261 - 405 - 654
Investments in venture capital and private company stock
- - 3,023 3,023 12 187 365 419 - - 2,188 2,188 62 12 326 365
Total assets
$ - $ 6,317 $ 52,657 $ 58,974 $ 417 $ (19 ) $ 1,044 $ 428 $ - $ 4,918 $ 42,669 $ 47,587 $ 62 $ 417 $ 326 $ 1,044

~~(1) Other real estate owned balance of $18.1~~
(1) Other real estate owned balance of $8.7 million in the condensed consolidated balance sheet is net of estimated disposal costs.

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~~Table of Contents~~

As of December 31, 2017

Total Losses

Fair Value Measurements Using

Total at

For the Twelve Months Ended

Level 1

Level 2

Level 3

Fair Value

December 31, 2017

December 31, 2016

(In thousands)

Assets
Impaired loans by type:

Commercial loans
$ - $ - $ 18,097 $ 18,097 $ 25 $ 322
Commercial mortgage loans
- - 31,459 31,459 - -
Residential mortgage loans and equity lines
- - 11,355 11,355 - -
Total impaired loans
- - 60,911 60,911 25 322
Other real estate owned ⁽¹⁾
- 5,677 4,322 9,999 457 9
Investments in venture capital and private company stock
- - 2,583 2,583 392 976
Total assets
$ - $ 5,677 $ 67,816 $ 73,493 $ 874 $ 1,307

December 31, 2016

Total Losses

Fair Value Measurements Using

Total at

Twelve Months Ended

Level 1

Level 2

Level 3

Fair Value

December 31, 2016

December 31, 2015

(In thousands)

Assets

Impaired loans by type:

Commercial loans
$ - $ - $ 2,813 $ 2,813 $ 322 $ 806
Commercial mortgage loans
- - 9,444 9,444 - 598
Residential mortgage loans and equity lines
- - 11,679 11,679 - 146
Total impaired loans
- - 23,936 23,936 322 1,550
Other real estate owned ⁽¹⁾
- 6,006 4,372 10,378 9 404
Investments in venture capital and private company stock
- - 3,667 3,667 976 553
Total assets
$ - $ 6,006 $ 31,975 $ 37,981 $ 1,307 $ 2,507
(1) Other real estate owned balance of $9.4 million in the Consolidated Balance Sheets is net of estimated disposal costs.
~~(1) Other real estate owned balance of $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~~twelve 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.
30
Table of Contents

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% of the collateral value of impaired loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO.

13. Fair Value of Financial Instruments

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

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

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

Securities Purchased under Agreements to 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, 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.

~~Table of Contents~~

Loans Held for 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 values were based primarily on third-party vendor pricing to determine fair values based on the exit price notion.

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.

FHLB Stock. These securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

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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”)~~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. 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.

~~Table of Contents~~

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~~’sBank’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, ~~2017,~~2018, and December 31, 2017:

September 30, 2018

December 31, 2017

Carrying

Carrying

Amount

Fair Value

Amount

Fair Value

(In thousands)

Financial Assets

Cash and due from banks
$ 204,178 $ 204,178 $ 247,056 $ 247,056
Short-term investments and interest bearing deposits
377,839 377,839 292,745 292,745
Securities available-for-sale
1,283,060 1,283,060 1,333,626 1,333,626
Equity securities
23,522 23,522 - -
Loans held for sale
- - 8,000 8,000
Loans, net ⁽¹⁾
13,522,103 13,502,232 12,743,766 12,663,049
Investment in Federal Home Loan Bank stock
17,250 17,250 23,085 23,085
Warrants
168 168 91 91

��
Notional

Notional

Amount

Fair Value

Amount

Fair Value

Foreign exchange contracts
$ 53,361 $ 400 $ 108,530 $ 1,832
Interest rate swaps
756,819 18,419 514,159 5,218

Financial Liabilities

Carrying

Carrying

Amount

Fair Value

Amount

Fair Value

Deposits
$ 13,581,078 $ 13,617,846 $ 12,689,893 $ 12,700,674
Securities sold under agreements to repurchase
- - 100,000 100,163
Advances from Federal Home Loan Bank
315,000 314,507 430,000 429,482
Other borrowings
35,585 33,791 52,885 51,075
Long-term debt
194,136 142,068 194,136 141,865

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Option contracts
$ 1,623 $ 4 $ 1,014 $ 9
Foreign exchange contracts
117,634 1,648 32,127 453
Interest rate swaps
- - 145,399 2,699

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Off-Balance Sheet Financial Instruments

Commitments to extend credit
$ 2,645,086 $ (9,095 ) $ 2,366,368 $ (7,224 )
Standby letters of credit
167,050 (1,509 ) 140,814 (1,805 )
Other letters of credit
30,420 (20 ) 27,353 (52 )
Bill of lading guarantees
1,108 - 24 -

(1) In accordance with the prospective adoption of ASU 2016-01, the fair value of loans as of September 30, 2018 was measured using an exit price notion. The fair value of loans as of December 31, ~~2016:~~2017 was measured using an entry price notion.

September 30, 2017

December 31, 2016

Carrying

Carrying

Amount

Fair Value

Amount

Fair Value

(In thousands)

Financial Assets

Cash and due from banks
$ 167,886 $ 167,886 $ 218,017 $ 218,017
Short-term investments
573,059 573,059 967,067 967,067
Securities available-for-sale
1,368,487 1,368,487 1,314,345 1,314,345
Loans held for sale
- - 7,500 7,500
Loans, net
12,472,475 12,403,100 11,077,315 11,006,344
Investment in Federal Home Loan Bank stock
21,948 21,948 17,250 17,250
Investment in Federal Reserve Bank stock
8,733 8,733 - -
Warrants
97 97 79 79

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

Amount

Fair Value

Amount

Fair Value

Financial Liabilities

Deposits
$ 12,561,695 $ 12,573,127 $ 11,674,726 $ 11,680,017
Securities sold under agreements to repurchase
100,000 100,549 350,000 351,989
Advances from Federal Home Loan Bank
595,000 595,037 350,000 350,062
Other borrowings
153,574 151,643 17,662 15,944
Long-term debt
119,136 68,056 119,136 63,169

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Option contracts
$ 12,307 $ 234 $ 12,117 $ 121
Foreign exchange contracts
86,625 1,083 89,545 3,132
Interest rate swaps
510,841 5,049 119,136 3,744

Notional

Notional

Amount

Fair Value

Amount

Fair Value

Off-Balance Sheet Financial Instruments

Commitments to extend credit
$ 2,287,498 $ (6,924 ) $ 2,062,241 $ (6,025 )
Standby letters of credit
140,682 (1,699 ) 75,396 (668 )
Other letters of credit
41,868 (218 ) 37,283 (16 )
Bill of lading guarantees
24 - 75 -

33
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The following ~~table~~stables present the level in the fair value hierarchy for the estimated fair values of financial instruments as of September 30, ~~2017,~~2018, and December 31, ~~2016.~~2017.

September 30, 2017

As of September 30, 2018

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
$ 167,886 $ 167,886 $ - $ - $ 204,178 $ 204,178 $ - $ -
Short-term investments
573,059 573,059 - -
Securities available-for-sale
1,368,487 434,453 934,034 -
Loans held-for-sale
- - - -
Short-term investments and interest bearing deposits
377,839 377,839 - -
Debt securities available-for-sale
1,283,060 199,374 1,083,686 -
Equity securities
23,522 23,522 - -
Loans, net(1)
12,403,100 - - 12,403,100 13,502,232 - - 13,502,232
Investment in Federal Home Loan Bank stock
21,948 - 21,948 - 17,250 - 17,250 -
Investment in Federal Reserve Bank stock
8,733 - 8,733 -
Warrants
97 - - 97 168 - - 168
Financial Liabilities

Deposits
12,573,127 - - 12,573,127 13,617,846 - - 13,617,846
Securities sold under agreements to repurchase
100,549 - 100,549 -
Advances from Federal Home Loan Bank
595,037 - 595,037 - 314,507 - 314,507 -
Other borrowings
151,643 - - 151,643 33,791 - - 33,791
Long-term debt
68,056 - 68,056 - 142,068 - 142,068 -

December 31, 2016

As of December 31, 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
$ 218,017 $ 218,017 $ - $ - $ 247,056 $ 247,056 $ - $ -
Short-term investments
967,067 967,067 - -
Short-term investments and interest bearing deposits
292,745 292,745 - -
Securities available-for-sale
1,314,345 513,376 800,969 - 1,333,626 277,622 1,056,004 -
Loans held-for-sale
7,500 - - 7,500 8,000 - - 8,000
Loans, net(1)
11,006,344 - - 11,006,344 12,663,049 - - 12,663,049
Investment in Federal Home Loan Bank stock
17,250 - 17,250 - 23,085 - 23,085 -
Warrants
79 - - 79 91 - - 91
Financial Liabilities

Deposits
11,680,017 - - 11,680,017 12,700,674 - - 12,700,674
Securities sold under agreements to repurchase
351,989 - 351,989 -
Securities sold under agreement to repurchase
100,163 - 100,163 -
Advances from Federal Home Loan Bank
350,062 - 350,062 - 429,482 - 429,482 -
Other borrowings
15,944 - - 15,944 51,075 - - 51,075
Long-term debt
63,169 - 63,169 - 141,865 - 141,865 -

(1) In accordance with the prospective adoption of ASU 2016-01, the fair value of loans as of September 30, 2018 was measured using an exit price notion. The fair value of loans as of December 31, 2017 was measured using an entry price notion.

14. Goodwill and Goodwill Impairment

The ~~Company~~’sCompany’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.

~~Table of Contents~~

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, ~~2017,~~2018, 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.

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15. 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~~to mitigate exposure to interest rate risks r~~elated~~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, the Bancorp entered into interest rate swap contracts in the notional amount of $119.1 million for a period of ten years. The objective of these interest rate swap contracts, which were designated as hedging instruments in cash flow hedges, was to hedge the quarterly interest payments on the Bancorp’s $119.1 million of Junior Subordinated Debentures that had been issued to five trusts, ~~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. The 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 ~~1.32%.~~2.35% as of September 30, 2018. As of September 30, ~~2017,~~2018, the notional amount of cash flow interest rate swaps was $119.1 million and their unrealized ~~loss~~gain of ~~$2.3~~$1.9 million, net of taxes, was included in other comprehensive ~~income.~~income compared to unrealized loss of $2.3 million at September 30, 2017. The amount of periodic net settlement of interest rate swaps included in interest expense was ~~$407,000~~$83,000 for the three months ended September 30, ~~2017~~2018, compared to ~~$588,000~~$407,000 for the same quarter a year ago. For the nine months ended September 30, ~~2017,~~2018, the periodic net settlement of interest rate swaps included in interest expense was ~~$1.3 million~~$480,000 compared to ~~$1.8~~$1.3 million for the same period in ~~2016.~~2017. As of September 30, 2018, and 2017, the ineffective portion of these interest rates swaps was not significant.

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As of September 30, ~~2017,~~2018, the ~~Bank has entered into~~Bank’s outstanding interest rate swap contracts ~~with~~had a notional amount of $637.7 million for various terms from ~~four~~two to ~~eight~~ten years. ~~These~~The Bank entered into these interest rate swap contracts that 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~~loans due to changes in interest rates. The swap contracts are structured so that the notional amounts reduce over time to match the contractual amortization of the underlying loan and allow prepayments with the same pre-payment penalty amounts as the related loan. The Bank pays a weighted average fixed rate of ~~4.55%~~4.71% and receives a variable rate atof the ~~one month~~one-month LIBOR rate plus a weighted average spread of ~~293~~266 basis points, or at a weighted average rate of ~~4.16%~~4.78%. As of September 30, 2018, and September 30, 2017, the notional amount of fair value interest rate swaps was $637.7 million and $510.6 million ~~and their~~with net unrealized ~~gain~~gains of $15.7 million and $1.9 million, ~~was~~respectively, included in other non-interest income. The amount of periodic net settlement of interest rate swaps ~~reducing~~increasing interest income was ~~$514,000~~$96,000 for the three months ended September 30, ~~2017,~~2018, compared to ~~$879,000~~a decrease of $514,000 for the same ~~quarter~~period a year ago. The amount of periodic net settlement of interest rate swaps ~~reducing~~decreasing interest income was ~~$1.9 million~~$132,000 for the nine months ended September 30, ~~2017,~~2018, compared to ~~$2.8~~$1.9 million for the same period a year ago. As of September 30, 2018, and 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. The 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~~There was no cash posted as collateral by the Bancorp related to derivative contracts ~~totaled $6.3 million~~ as of September 30, 2018 compared to $4.5 million as of December 31, 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.~~sheet. 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. AsAt September 30, 2018, the notional amount of option contracts totaled $1.6 million with a net negative fair value of $4,000. At September 30, 2018, spot, forward, and swap contracts in the total notional amount of $53.4 million had a positive fair value of $400,000. Spot, forward, and swap contracts in the total notional amount of $117.6 million had a negative fair value of $1.6 million at September 30, 2018. At December 31, 2017, the notional amount of option contracts totaled ~~$12.3~~$1.0 million with a net negative fair value of ~~$234,000. As of September 30,~~$9,000. At December 31, 2017, spot, forward, and swap contracts ~~with a~~in the total notional amount of ~~$69.3~~$108.5 million had a positive fair value of ~~$1.7~~$1.8 million. Spot, forward, and swap contracts ~~with a~~in the total notional amount of ~~$86.6~~$32.1 million had a negative fair value of ~~$1.1 million as of September 30, 2017. As of~~$453,000 at December 31, 2016, the notional amount of option contracts totaled $12.1 million with a net negative fair value of $121,000. As of December 31, 2016, spot, forward, and swap contracts with a total notional amount of $82.4 million had a positive fair value of $1.3 million. Spot, forward, and swap contracts with a total notional amount of $89.5 million had a negative fair value of $3.1 million as of December 31, 2016.2017.

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16. Balance Sheet Offsetting

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

Financial instruments that are eligible for offset in the condensed consolidated balance sheets, as of September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, are presented in the following table:

							Gross Amounts Not Offset in the Balance Sheet													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		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)
														(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

September 30, 2018
Assets:
Derivatives	$	938	$	-	$	938	$	-	$	-		$	938	$	18,419	$	-	$	18,419	$	-	$	-		$	18,419

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

December 31, 2017
Assets:
Derivatives														$	5,218	$	-	$	5,218	$	-	$	-		$	5,218

Liabilities:
Securities sold under agreements to repurchase														$	100,000	$	-	$	100,000	$	-	$	(100,000	)	$	-
Derivatives														$	2,699	$	-	$	2,699	$	-	$	(2,699	)	$	-

17. Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers - Topic 606 and all subsequent ASUs that modified ASC 606, Revenue from Contracts with Customers. The Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. The new standard did not materially impact the timing or measurement of the Company’s revenue recognition as it is consistent with the Company’s existing accounting for contracts within the scope of the new standard. There was no cumulative effect adjustment to retained earnings as a result of adopting this new standard.

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

Three months Ended September 30,

Nine months Ended September 30,

2018

2017

2018

2017

(In thousands)

Non-interest income, in-scope⁽¹⁾:

Fees and service charges on deposit accounts
$ 2,027 $ 2,286 $ 6,421 $ 7,043
Wealth management fees
1,528 353 4,252 1,906
Other service fees⁽²⁾
3,376 3,863 10,140 10,212
Total in-scope noninterest income
6,931 6,502 20,813 19,161

Noninterest income, not in-scope⁽³⁾
904 6,459 99 6,670
Total noninterest income
$ 7,835 $ 12,961 $ 20,912 $ 25,831

(1) There were no adjustments to the Company's financial statements recorded as a result of the adoption of ASC 606. For comparability, the Company has adjusted prior period amounts to conform to the periods presentation.

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

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

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

Fees and Services Charges on Deposit Accounts

Fees and service charges on deposit accounts include charges for analysis, overdraft, cash checking, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of card based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services, and can be terminated at will by either party. Fees received from deposit clients for the various deposit activities are recognized as revenue once the performance obligations are met. The adoption of ASU 2014-09 had no impact to the recognition of fees and service charges on deposit accounts.

Wealth Management Fees

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

Practical Expedients and Exemptions

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

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

178. Stockholders’ Equity

Total equity was $~~2.0~~$2.12 billion as of September 30, ~~2017,~~2018, an increase of ~~$140.2~~$143.5 million, from ~~$1.8~~$1.97 billion as of December 31, ~~2016,~~2017, primarily due to net income of ~~$150.1 million and equity consideration for the acquisition of SinoPac Bancorp of $34.9~~$207.2 million partially offset by common stock cash dividends of ~~$50.5~~$58.5 million and ~~shares withheld related to net share settlement~~decreases in other comprehensive income of ~~RSUs of $5.1~~$12.2 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~~’sCompany’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~~2017, has been adjusted to ~~$20.65~~$20.41 and the number of warrants increased by ~~1.5%~~1.03%. At September 30, ~~2017, 932,461~~2018, 345,534 warrants remain exercisable compared to ~~943,345~~943,327 warrants at December 31, ~~2016.~~2017.

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, ~~2017,~~2018, and September 30, ~~2016,~~2017, was as follows:

	Three months ended September 30, 2017									Three months ended September 30, 2016									Three months ended September 30, 2018									Three months ended September 30, 2017
	Pre-tax			Tax expense/ (benefit)			Net-of-tax			Pre-tax			Tax expense/ (benefit)			Net-of-tax			Pre-tax			Tax expense/ (benefit)			Net-of-tax			Pre-tax			Tax expense/ (benefit)			Net-of-tax
	(In thousands)																		(In thousands)
Beginning balance, loss, net of tax
Securities available-for-sale							$	1,001								$	8,539								$	(24,084	)							$	1,001
Cash flow hedge derivatives								(2,421	)								(7,397	)								1,163									(2,421	)
Total							$	(1,420	)							$	1,142								$	(22,921	)							$	(1,420	)

Net unrealized (losses)/gains arising during the period
Securities available-for-sale	$	1,829		$	769		$	1,060		$	1,618		$	680		$	938		$	(3,603	)	$	(1,065	)	$	(2,538	)	$	1,829		$	769		$	1,060
Cash flow hedge derivatives		271			114			157			1,387			583			804			2,365			699			1,666			271			114			157
Total		2,100			883			1,217			3,005			1,263		$	1,742			(1,238	)		(366	)		(872	)		2,100			883			1,217

Reclassification adjustment for net losses in net income
Securities available-for-sale		(24	)		(10	)		(14	)		(1,692	)		(711	)		(981	)		14			4			10			(24	)		(10	)		(14	)
Cash flow hedge derivatives		-			-			-			-			-			-			-			-			-			-			-			-
Total		(24	)		(10	)		(14	)		(1,692	)		(711	)		(981	)		14			4			10			(24	)		(10	)		(14	)

Total other comprehensive (loss)/income
Securities available-for-sale		1,805			759			1,046			(74	)		(31	)		(43	)		(3,589	)		(1,061	)		(2,528	)		1,805			759			1,046
Cash flow hedge derivatives		271			114			157			1,387			583			804			2,365			699			1,666			271			114			157
Total	$	2,076		$	873		$	1,203		$	1,313		$	552		$	761		$	(1,224	)	$	(362	)	$	(862	)	$	2,076		$	873		$	1,203
Ending balance, (loss)/gain, net of tax
Securities available-for-sale							$	2,047								$	8,496								$	(26,612	)							$	2,047
Cash flow hedge derivatives								(2,264	)								(6,593	)								2,829									(2,264	)
Total							$	(217	)							$	1,903								$	(23,783	)							$	(217	)

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	Nine months ended September 30, 2017									Nine months ended September 30, 2016									Nine months ended September 30, 2018									Nine months ended September 30, 2017
	Pre-tax			Tax expense/ (benefit)			Net-of-tax			Pre-tax			Tax expense/ (benefit)			Net-of-tax			Pre-tax			Tax expense/ (benefit)			Net-of-tax			Pre-tax			Tax expense/ (benefit)			Net-of-tax
	(In thousands)																		(In thousands)
Beginning balance, loss, net of tax
Securities available-for sale							$	(1,545	)							$	(5,431	)
Securities available-for-sale																									$	(1,060	)							$	(1,545	)
Cash flow hedge derivatives								(2,170	)								(2,995	)								(1,451	)								(2,170	)
Total							$	(3,715	)							$	(8,426	)							$	(2,511	)							$	(3,715	)
Net unrealized gains/(losses) arising during the period
Securities available-for sale	$	5,759		$	2,421		$	3,338		$	27,170		$	11,422		$	15,748

Reclassification adjustment for stranded tax effects of Tax Cuts and Jobs Act ⁽¹⁾
Securities available-for-sale																				-			200			(200	)		-			-			-
Cash flow hedge derivatives		(162	)		(68	)		(94	)		(6,208	)		(2,610	)		(3,598	)		-			315			(315	)		-			-			-
Total		5,597			2,353			3,244			20,962			8,812		$	12,150			-			515			(515	)		-			-			-
Reclassification adjustment for net (gains)/losses in net income
Securities available-for sale		439			185			254			(3,141	)		(1,320	)		(1,821	)

Reclassification adjustment for equity securities ⁽²⁾
Equity securities																				(12,151	)		(3,592	)		(8,559	)		-			-			-

Net unrealized (losses)/gains arising during the period
Securities available-for-sale																			$	(23,854	)	$	(7,051	)	$	(16,803	)	$	5,758		$	2,420		$	3,338
Cash flow hedge derivatives		-			-			-			-			-			-			6,523			1,928			4,595			(162	)		(68	)		(94	)
Total		439			185			254			(3,141	)		(1,320	)		(1,821	)		(17,331	)		(5,123	)		(12,208	)		5,596			2,352			3,244
Total other comprehensive income/(loss)
Securities available-for sale		6,198			2,606			3,592			24,029			10,102			13,927

Reclassification adjustment for net losses in net income
Securities available-for-sale																				14			4			10			439			185			254
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			14			4			10			439			185			254
Ending balance, gain/(loss), net of tax
Securities available-for sale							$	2,047								$	8,496

Total other comprehensive (loss)/income
Securities available-for-sale																				(23,840	)		(7,047	)		(16,793	)		6,197			2,605			3,592
Cash flow hedge derivatives								(2,264	)								(6,593	)		6,523			1,928			4,595			(162	)		(68	)		(94	)
Total							$	(217	)							$	1,903		$	(17,317	)	$	(5,119	)	$	(12,198	)	$	6,035		$	2,537		$	3,498
Ending balance, (loss)/gain, net of tax
Securities available-for-sale																									$	(26,612	)							$	2,047
Cash flow hedge derivatives																										2,829									(2,264	)
Total																									$	(23,783	)							$	(217	)

(1) These amounts were recorded as of January 1, 2018 as a result of the adoption of ASU 2018-2.

(2) This amount was recorded as of January 1, 2018 as a result of the adoption of ASU 2016-1.

18.19. Stock Repurchase Program

On February 1, 2016, the Company’s Board of Directors approved a ~~new~~ stock repurchase program to buy back up to $45.0 million of our common stock. ~~In 2016, the Company repurchased 1,380,578 shares for $37.5 million, or $27.13 per share under the February 2016 repurchase program.~~ The Company did not repurchase any shares under the February 2016 repurchase program in 2017 or for the nine months ended September 30, ~~2017.~~2018. As of September 30, ~~2017~~2018, and December 31, ~~2016,~~2017, the Company may repurchase up to $7.5 million of its common stock under the February 2016 repurchase program.

20. Subsequent Events

19~~. S~~~~ubsequent~~ E~~vents~~

Between October 22 and 25, 2018, the Company repurchased 200,326 shares of common stock for $7.5 million and completed its February 2016 $45 million repurchase program. The Company repurchased 1,580,904 shares at an average price of $28.46 per share under the February 2016 buyback program. On October 26, 2018, the Company announced a new stock repurchase program to repurchase up to $45.0 million of the Company’s common stock. Between October 29 and November 7, 2018, the Company repurchased 255,000 shares of its common stock for $9.7 million, or a $38.26 average price per share under the October 2018 repurchase program. As of November 8, 2018, there was $35.3 million remaining under the Company’s October 2018 stock repurchase program.

The Company has evaluated the effect of ~~the following~~ events that have occurred subsequent to ~~the quarter ended~~ September 30, ~~2017~~2018, through the date of issuance of the ~~accompanying condensed~~consolidated financial statements, and there have been no other material events that would require recognition in the consolidated financial statements or disclosure in the notes to the 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 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion is based on the assumption that the reader has access to and has read the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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, ~~2016.~~2017.

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 manag~~ement 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, 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, 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, 2016.

~~Table of Contents~~

Highlights

●

~~Completed the acquisition of SinoPac Bancorp, the holding company for Far East National Bank, (“FENB”) on July 14, 2017.~~

●

Total loans ~~during~~increased $298.9 million, or 9.3% annualized, to $13.6 billion for the quarter.

●	Diluted earnings per share increased 39.3% to $0.85 per share for the third quarter ~~increased by $1.0 billion to $12.6 billion.~~

●

~~Net interest margin increased to 3.75% in the third quarter~~of 2018 compared to ~~3.63% in~~$0.61 per share for the ~~second~~same quarter ~~of 2017.~~a year ago.

Quarterly Statement of Operations Review

Net Income

Net income for the quarter ended September 30, ~~2017,~~2018, was ~~$49.7~~$69.8 million, an increase of ~~$3.6~~$20.1 million, or ~~7.8%~~40.2%, compared to net income of ~~$46.1~~$49.7 million for the same quarter a year ago. Diluted earnings per share for the quarter ended September 30, ~~2017,~~2018, was ~~$0.61~~$0.85 compared to ~~$0.58~~$0.61 for the same quarter a year ago. Third quarter of 2018 net income, compared to the same quarter a year ago, included an increase of $5.4 million in amortization expense of investments in low income housing and alternative energy partnerships and a decrease of $3.1 million in acquisition and integration costs related to the FENB acquisition.

Return on average stockholders’ equity was 13.19% and return on average assets was 1.72% for the quarter ended September 30, 2018, compared to a return on average stockholders’ equity of 9.77% and a return on average assets of 1.29% for the same quarter a year ago.

~~Return on average stockholders’ equity was 9.77% and return on average assets was 1.29% for the quarter ended September 30, 2017, compared to a return on average stockholders’ equity~~

Table of ~~10.30% and a return on average assets of 1.38% for the same quarter a year ago.~~
Contents

Financial Performance

	Three months ended						Three months ended
	September 30, 2017			September 30, 2016			September 30, 2018			September 30, 2017
Net income	$	49.7 million		$	46.1 million		$69.8 million			$49.7 million
Basic earnings per common share	$	0.62		$	0.58		$	0.86		$	0.62
Diluted earnings per common share	$	0.61		$	0.58		$	0.85		$	0.61
Return on average assets		1.29	%		1.38	%		1.72	%		1.29	%
Return on average total stockholders' equity		9.77	%		10.30	%		13.19	%		9.77	%
Efficiency ratio		41.91	%		45.05	%		43.14	%		41.91	%

Net Interest Income Before Provision for Credit Losses

NetNet interest income before provision for credit losses increased ~~$29.4~~$11.9 million, or ~~28.3%~~8.9%, to ~~$133.2~~$145.1 million during the third quarter of ~~2017~~2018, compared to ~~$103.8~~$133.2 million during the same quarter a year ago. The increase was due primarily to an increase in interest income from loans and ~~a decrease~~securities, offset by increases in interest expense from ~~securities sold under agreements to repurchase.~~time deposits and long-term debt.

The net interest margin was 3.83% for the third quarter of 2018, compared to 3.75% for the third quarter of 2017, ~~compared to 3.36% for the third quarter of 2016~~ and ~~3.63%~~3.83% for the second quarter of ~~2017. The increase from the second quarter of 2017 was primarily the result of interest recoveries and prepayment penalties of $5.6 million.~~2018.

For the third quarter of 2018, the yield on average interest-earning assets was 4.67%, the cost of funds on average interest-bearing liabilities was 1.15%, and the cost of interest-bearing deposits was 1.05%. In comparison, 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%. The increase in the yield on average interest earning assets ~~was a result of~~resulted mainly from higher ~~interest~~ rates ~~interest income collected from nonaccrual loans and loan prepayment penalties.~~on loans. 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 ~~3.53%~~3.52% for the quarter ended September 30, ~~2017,~~2018, compared to ~~3.13%~~3.53% for the same quarter a year ago.

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The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities for the three months ended September 30, ~~2017,~~2018, and ~~2016.~~2017. 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,																	Three months ended September 30,
		2017								2016									2018								2017
					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:
Total loans and leases ⁽¹⁾		$	12,317,721		$	146,383		4.71	%		10,670,253			118,500		4.42			$	13,434,018		$	168,179		4.97	%	$	12,317,721		$	146,383		4.71	%
Investment securities			1,396,859			5,692		1.62			1,303,598			4,850		1.48				1,399,031			7,546		2.14			1,396,859			5,692		1.62
Federal Home Loan Bank and FRB stock			32,369			607		7.44			17,268			393		9.05
Federal Home Loan Bank stock																				17,250			303		6.95			32,369			607		7.44
Interest bearing deposits			292,595			1,288		1.75			294,292			412		0.56				178,434			838		1.86			292,595			1,288		1.75
Federal funds sold and securities purchased under agreements to resell			35,707			108		1.20								-				-			-		-			35,707			108		1.20
Total interest-earning assets			14,075,251			154,078		4.34			12,285,411			124,155		4.02				15,028,733			176,866		4.67			14,075,251			154,078		4.34
Non-interest earning assets:
Cash and due from banks			294,466								223,925									196,692								294,466
Other non-earning assets			1,094,648								884,006									1,036,279								1,094,648
Total non-interest earning assets			1,389,114								1,107,931									1,232,971								1,389,114
Less: Allowance for loan losses			(105,390	)							(123,609	)								(124,579	)							(105,390	)
Deferred loan fees			(4,852	)							(6,348	)								(2,777	)							(4,852	)
Total assets		$	15,354,123							$	13,263,385								$	16,134,348							$	15,354,123

Interest bearing liabilities:
Interest bearing demand accounts		$	1,349,508		$	588		0.17		$	1,060,065		$	441		0.17			$	1,396,436		$	694		0.20		$	1,349,508		$	588		0.17
Money market accounts			2,496,548			3,944		0.63			2,117,831			3,511		0.66				2,234,139			4,435		0.79			2,496,548			3,944		0.63
Savings accounts			942,452			569		0.24			627,912			260		0.16				780,412			345		0.18			942,452			569		0.24
Time deposits			4,939,189			11,678		0.94			4,651,593			10,701		0.92				5,997,268			22,135		1.46			4,939,189			11,678		0.94
Total interest-bearing deposits			9,727,697			16,779		0.68			8,457,401			14,913		0.70				10,408,255			27,609		1.05			9,727,697			16,779		0.68

Securities sold under agreements to repurchase			109,239			874		3.17			378,261			3,828		4.03				16,304			124		3.02			109,239			874		3.17
Other borrowings			324,581			1,773		2.17			107,203			134		0.50				307,298			1,829		2.36			324,581			1,773		2.17
Long-term debt			119,136			1,456		4.85			119,136			1,456		4.86				194,136			2,220		4.54			119,136			1,456		4.85
Total interest-bearing liabilities			10,280,653			20,882		0.81			9,062,001			20,331		0.89				10,925,993			31,782		1.15			10,280,653			20,882		0.81
Non-interest bearing liabilities:
Demand deposits			2,714,244								2,254,123									2,877,646								2,714,244
Other liabilities			339,001								167,409									232,924								339,001
Total equity			2,020,224								1,779,852									2,097,786								2,020,224
Total liabilities and equity		$	15,354,122							$	13,263,385								$	16,134,349							$	15,354,122
Net interest spread								3.53	%							3.13	%								3.52	%							3.53	%
Net interest income					$	133,196							$	103,824								$	145,084							$	133,196
Net interest margin								3.75	%							3.36	%								3.83	%							3.75	%

(1) Yields and amounts of interest earned include loan fees. Non-accrual loans are included in the average balance.

(2) Calculated by dividing net interest income by average outstanding interest-earning assets.

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

Three months ended September 30,

2018-2017

Increase (Decrease) in

Net Interest Income Due to:

(In thousands)

Changes in Volume

Changes in Rate

Total Change

Interest-earning assets:

Loans and leases
$ 13,712 $ 8,084 $ 21,796
Investment securities
9 1,845 1,854
Federal Home Loan Bank stock
(267 ) (38 ) (305 )
Federal funds sold & securities purchased under agreements to resell
(54 ) (54 ) (108 )
Deposits with other banks
(530 ) 80 (450 )
Total changes in interest income
12,870 9,917 22,787

Interest-bearing liabilities:

Interest bearing demand accounts
21 86 107
Money market accounts
(441 ) 932 491
Savings accounts
(88 ) (137 ) (225 )
Time deposits
2,890 7,567 10,457
Securities sold under agreements to repurchase
(710 ) (40 ) (750 )
Other borrowed funds
(97 ) 152 55
Long-term debt
864 (101 ) 763
Total changes in interest expense
2,439 8,459 10,898
Changes in net interest income
$ 10,431 $ 1,458 $ 11,889

(1) Changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to changes due to volume and changes due to rate.
Provision/~~(Reversal)~~(Reversal) for ~~Credit Losses~~Credit Losses

The ~~provision~~Company recorded a reversal for ~~cred~~itcredit losses ~~was zero for~~of $1.5 million in the third quarter of ~~2017 and 2016.~~2018 compared to no reversal for credit losses in the same quarter a year ago. The ~~provision/(reversal)~~reversal for credit losses was based on a review of the appropriateness of the allowance for loan losses at September 30, ~~2017.~~2018. 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.~~

Three months ended September 30,

Nine months ended September 30,

2018

2017

2018

2017

(In thousands)

Charge-offs:

Commercial loans
$ 122 $ 80 $ 629 $ 1,810
Real estate loans ⁽¹⁾
- 305 390 860
Total charge-offs
122 385 1,019 2,670
Recoveries:

Commercial loans
187 575 1,250 1,401
Construction loans
44 47 132 143
Real estate loans⁽¹⁾
2,949 5,489 4,315 6,195
Total recoveries
3,180 6,111 5,697 7,739
Net (recoveries)/charge-offs
$ (3,058 ) $ (5,726 ) $ (4,678 ) $ (5,069 )

(1) Real estate loans include commercial mortgage loans, residential mortgage loans, and equity lines.
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Table of Contents
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 $7.8 million for the third quarter of 2018, a decrease of $5.1 million, or 39.5%, compared to $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~~a $5.4 million ~~on the acquisition of SinoPac Bancorp and was offset by a~~ decrease in ~~securities gains of $1.7 million~~gain from the ~~quarter a year ago.~~FENB acquisition.

Non-Interest Expense

Non-interest expense increased ~~$10.5~~$4.7 million, or ~~20.7%~~7.7%, to ~~$61.2~~$66.0 million in the third quarter of ~~2017~~2018 compared to ~~$50.7~~$61.2 million in the same quarter a year ago. The increase in non-interest expense in the third quarter of ~~2017~~2018 was primarily due to a ~~$5.~~0$2.6 million increase in ~~salary~~salaries and employee ~~benefit expenses~~benefits expense and a ~~$3.3~~$5.4 million increase in amortization expense of investments in low income housing and alternative energy partnerships offset by a $3.1 million decrease in acquisition ~~related expense~~and integration costs, 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%~~43.1% in the third quarter of ~~2017~~2018 compared to ~~45.1%~~41.9% for the same quarter a year ago.

Income Taxes

The effective tax rate for the third quarter of ~~2017~~2018 was ~~41.4%~~21.1% compared to ~~25.5%~~41.4% for the third quarter of ~~2016.~~2017. The ~~third quarter 2017~~ effective tax rate includes the reduction of ~~41.4% reflected additional tax expense to increase~~ the ~~full year effective~~corporate tax rate ~~to 34% compared to~~from the ~~29% effective tax rate forecasted at June 30, 2017. This adjustment~~enactment of the Tax Legislation, an alternative energy investment made in the ~~third~~second quarter ~~was~~and the ~~result~~impact of ~~lower~~low income housing tax ~~credits from the slow deployment of alternative energy investments.~~credits. Income tax expense for ~~the first quarter of 2017 was also~~2018 is expected to be reduced by ~~$2.6~~$0.8 million in benefits from the distribution of restricted stock units and exercises of stock options.

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~~Table of Contents~~
Year-to-Date Statement of Operations Review

Net income for the nine months ended September 30, ~~2017,~~2018, was ~~$150.1~~$207.2 million, an increase of ~~$23.0~~$57.1 million, or ~~18.1%~~38.1%, compared to net income of ~~$127.1~~$150.1 million for the same period a year ago. Diluted earnings per share was ~~$1.86~~$2.53 compared to ~~$1.59~~$1.86 per share for the same period a year ago. The net interest margin for the nine months ended September 30, ~~2017,~~2018, was ~~3.63%~~3.80% compared to ~~3.39%~~3.63% for the same period a year ago.

Return on average ~~stockholders~~’stockholders’ equity was ~~10.46%~~13.56% and return on average assets was ~~1.39%~~1.75% for the nine months ended September 30, ~~2017,~~2018, compared to a return on average stockholders’ equity of ~~9.66%~~10.46% and a return on average assets of ~~1.29%~~1.39% for the same period ~~of 2016.~~a year ago. The efficiency ratio for the nine months ended September 30, ~~2017,~~2018, was ~~43.71%~~43.05% compared to ~~51.35%~~43.71% 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 ~~asse~~tsassets and liabilities for the nine months ended September 30, ~~2017,~~2018, and ~~2016.~~2017. 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

Nine months ended September 30,

Nine months ended September 30,

2017

2016

2018

2017

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:

Total loans and leases ⁽¹⁾
$ 11,668,814 $ 401,129 4.60 10,468,328 349,212 4.46 $ 13,126,693 $ 478,128 4.87 % $ 11,668,814 $ 401,129 4.60 %
Investment securities
1,297,789 14,817 1.53 1,384,019 16,974 1.64 1,357,818 21,212 2.09 1,297,789 14,817 1.53
Federal Home Loan Bank and FRB stock
22,345 1,317 7.88 17,256 1,122 8.69
Federal Home Loan Bank stock
18,975 1,079 7.60 22,345 1,317 7.88
Interest bearing deposits
359,580 3,140 1.17 272,690 1,094 0.54 281,883 3,667 1.74 359,580 3,140 1.17
Federal funds sold and securities purchased under agreements to resell
12,033 108 1.20 - - - - - - 12,033 108 1.20
Total interest-earning assets
13,360,561 420,511 4.21 12,142,293 368,402 4.05 14,785,369 504,086 4.56 13,360,561 420,511 4.21
Non-interest earning assets:

Cash and due from banks
235,097 215,415 209,456 235,097
Other non-earning assets
965,906 891,974 996,466 965,906
Total non-interest earning assets
1,201,003 1,107,389 1,205,922 1,201,003
Less: Allowance for loan losses
(113,299 ) (133,232 ) (123,591 ) (113,299 )
Deferred loan fees
(4,531 ) (7,225 ) (3,117 ) (4,531 )
Total assets
$ 14,443,734 $ 13,109,225 $ 15,864,583 $ 14,443,734

Interest bearing liabilities:

Interest bearing demand accounts
$ 1,282,904 $ 1,639 0.17 $ 1,013,129 $ 1,256 0.17 $ 1,394,743 $ 2,003 0.19 $ 1,282,904 $ 1,639 0.17
Money market accounts
2,359,871 11,362 0.64 2,020,725 9,768 0.65 2,230,365 11,674 0.70 2,359,871 11,362 0.64
Savings accounts
817,540 1,244 0.20 626,200 759 0.16 807,402 1,216 0.20 817,540 1,244 0.20
Time deposits
4,840,293 33,429 0.92 4,752,938 32,177 0.90 5,833,807 56,593 1.30 4,840,293 33,429 0.92
Total interest-bearing deposits
9,300,608 47,674 0.69 8,412,992 43,960 0.70 10,266,317 71,486 0.93 9,300,608 47,674 0.69

Securities sold under agreements to repurchase
149,267 3,489 3.13 392,701 11,696 3.98 66,300 1,446 2.92 149,267 3,489 3.13
Other borrowings
177,372 2,366 1.78 119,348 442 0.49 287,771 4,231 1.97 177,372 2,366 1.78
Long-term debt
119,136 4,320 4.85 119,136 4,336 4.86 194,136 6,465 4.45 119,136 4,320 4.85
Total interest-bearing liabilities
9,746,383 57,849 0.79 9,044,177 60,434 0.89 10,814,524 83,628 1.03 9,746,383 57,849 0.79
Non-interest bearing liabilities:

Demand deposits
2,542,754 2,131,742 2,796,831 2,542,754
Other liabilities
236,332 175,714 210,391 236,332
Total equity
1,918,265 1,757,592 2,042,837 1,918,265
Total liabilities and equity
$ 14,443,734 $ 13,109,225 $ 15,864,583 $ 14,443,734
Net interest spread
3.42 % 3.16 % 3.53 % 3.42 %
Net interest income
$ 362,662 $ 307,968 $ 420,458 $ 362,662
Net interest margin
3.63 % 3.39 % 3.80 % 3.63 %

(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 Volumn and Rate⁽¹⁾

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

Nine months ended September 30,

Nine months ended September 30,

2017-2016

2018-2017

Increase (Decrease) in

Increase (Decrease) in

Net Interest Income Due to:

Net Interest Income Due to:

(Dollars in thousands)

Changes in
Volume

Changes in
Rate

Total
Change

(In thousands)

Changes in Volume

Changes in Rate

Total Change

Interest-earning assets:

Loans and leases
$ 40,745 $ 11,172 $ 51,917 $ 52,138 $ 24,861 $ 76,999
Investment securities
(1,030 ) (1,127 ) (2,157 ) 714 5,681 6,395
Federal Home Loan Bank and FRB stock
307 (112 ) 195
Federal Home Loan Bank stock
(193 ) (46 ) (239 )
Federal funds sold & securities purchased under agreements to resell
(54 ) (54 ) (108 )
Deposits with other banks
435 1,611 2,046 (468 ) 995 527
Federal funds sold and securities purchased under agreements to resell
108 - 108
Total changes in interest income
40,565 11,544 52,109 52,137 31,437 83,574

Interest-bearing liabilities:

Interest bearing demand accounts
343 40 383 150 213 363
Money market accounts
1,624 (30 ) 1,594 (391 ) 703 312
Savings accounts
264 221 485 (15 ) (13 ) (28 )
Time deposits
583 669 1,252 7,796 15,368 23,164
Securities sold under agreements to repurchase
(6,097 ) (2,110 ) (8,207 ) (1,823 ) (220 ) (2,043 )
Other borrowed funds
303 1,621 1,924 1,602 263 1,865
Long-term debt
- (16 ) (16 ) 2,316 (171 ) 2,145
Total changes in interest expense
(2,980 ) 395 (2,585 ) 9,635 16,143 25,778
Changes in net interest income
$ 43,545 $ 11,149 $ 54,694 $ 42,502 $ 15,294 $ 57,796

(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.

Balance Sheet Review

Assets

Total assets were $~~15.7~~$16.5 billion as of September 30, ~~2017,~~2018, an increase of ~~$1.2 billion,~~$821.5 million, or ~~8.3%~~5.3%, from ~~$14.5~~$15.6 billion as of December 31, ~~2016,~~2017, primarily due to ~~the acquisition of SinoPac Bancorp which had total assets of $1.2 billion.~~loan growth and increases in short-term investments.

Investment Securities

Investment securities represented ~~8.7%~~7.8% of total assets as of September 30, ~~2017,~~2018, compared to ~~9.1%~~8.5% of total assets as of December 31, ~~2016. The carrying value of investment securities~~2017. Securities available-for-sale were $1.3 billion as of September 30, ~~2017, was $1.4 billion~~2018, compared to $1.3 billion as of December 31, 2016. Securities available-for-sale are carried at fair value and had a net unrealized gain, net of tax, of $2.0 million as of September 30, 2017, compared to a net unrealized loss, net of tax, of $1.5 million as of December 31, 2016.2017.

47
Table of Contents

The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of debt securities available-for-sale as of September 30, 2018, and debt and equity investment securities as of ~~September 30, 2017, and~~ December 31, ~~2016:~~2017:

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

December 31, 2016

September 30, 2018

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

Debt Securities Available-for-Sale

U.S. treasury securities
$ 489,839 $ 35 $ 857 $ 489,017 $ 199,488 $ - $ 114 $ 199,374
U.S. government agency entities
6,721 - 210 6,511
U.S. government sponsored entities
400,000 - 9,669 390,331 400,000 - 16,553 383,447
Mortgage-backed securities
339,241 309 3,290 336,260 648,532 130 22,023 626,639
Collateralized mortgage obligations
48 - 20 28 1,119 - 33 1,086
Corporate debt securities
74,965 247 862 74,350 64,983 1,020 - 66,003
Mutual funds
6,500 - 270 6,230
Preferred stock of government sponsored entities
2,811 4,497 - 7,308
Other equity securities
3,608 7,213 - 10,821
Total
$ 1,317,012 $ 12,301 $ 14,968 $ 1,314,345 $ 1,320,843 $ 1,150 $ 38,933 $ 1,283,060

December 31, 2017

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

(In thousands)

Securities Available-for-Sale

U.S. treasury securities
$ 249,877 $ - $ 357 $ 249,520
U.S. government agency entities
9,047 11 70 8,988
U.S. government sponsored entities
400,000 - 9,664 390,336
State and municipal securities
1,944 - 30 1,914
Mortgage-backed securities
577,987 241 6,259 571,969
Collateralized mortgage obligations
1,533 - 17 1,516
Corporate debt securities
80,007 1,291 17 81,281
Mutual funds
6,500 - 270 6,230
Preferred stock of government sponsored entities
5,842 4,260 - 10,102
Other equity securities
3,608 8,162 - 11,770
Total
$ 1,336,345 $ 13,965 $ 16,684 $ 1,333,626
For additional information, see Note 7 to the Company’s unaudited condensed consolidated financial statements.

Investment securities having a carrying value of $~~291.4~~$33.1 million as of September 30, ~~2017,~~2018, and ~~$649.1~~$272.2 million as of December 31, ~~2016,~~2017, were pledged to secure public deposits, other borrowings, treasury tax and loan and securities sold under agreements to repurchase.
Equity Securities
The adoption of ASU 2016-01 resulted in approximately $8.6 million being reclassified from accumulated other comprehensive income to retained earnings, representing an increase to retained earnings as of January 1, 2018. For the nine months ended September 30, 2018, the Company recognized a net loss of $4.6 million due to the decrease in fair value of equity investments with readily determinable fair values. Equity securities were $23.5 million as of September 30, 2018, compared to $28.1 million as of December 31, 2017.

48
Table of Contents

Loans

Gross loans, excluding loans held for sale, were ~~$12.6~~$13.6 billion at September 30, ~~2017,~~2018, an increase of ~~$1.4 billion,~~$777.4 million, or ~~12.5%~~6.0%, from ~~$11.2~~$12.9 billion at December 31, ~~2016.~~2017. The increase was primarily due to increases of ~~$591.8~~$507.1 million, or ~~10.2%~~16.6%, in residential mortgage loans, $212.8 million, or 8.6%, in commercial loans, and $97.6 million, or 1.5%, in commercial mortgage loans, ~~$478.5~~which were partially offset by a decrease of $81.8 million, or ~~19.6%, in residential mortgage loans, $171.7 million, or 7.6%, in commercial loans, and $143.4 million, or 26.2%~~12.0%, in real estate construction loans. The loan balances and composition at September 30, ~~2017,~~2018, compared to December 31, ~~2016, and to September 30, 2016,~~2017 are presented below:

September 30, 2017

% of Gross Loans

December 31, 2016

% of Gross Loans

% Change

September 30, 2018

% of Gross Loans

December 31, 2017

% of Gross Loans

% Change

Type of Loans

(Dollars in thousands)

(Dollars in thousands)

Commercial loans
$ 2,419,891 19.2 % $ 2,248,187 20.1 % 7.6 % $ 2,674,089 19.6 % $ 2,461,266 19.1 % 8.6 %
Residential mortgage loans
2,922,537 23.3 2,444,048 21.8 19.6 3,569,111 26.2 3,062,050 23.8 16.6
Commercial mortgage loans
6,377,047 50.6 5,785,248 51.7 10.2 6,580,254 48.2 6,482,695 50.4 1.5
Equity lines
181,751 1.4 171,711 1.5 5.8 221,599 1.6 180,304 1.4 22.9
Real estate construction loans
691,486 5.5 548,088 4.9 26.2 597,018 4.4 678,805 5.3 (12.0 )
Installment and other loans
4,722 0.0 3,993 0.0 18.3 5,575 0.0 5,170 0.0 7.8
Gross loans
$ 12,597,434 100 % $ 11,201,275 100 % 12.5 % $ 13,647,646 100 % $ 12,870,290 100 % 6.0 %

Allowance for loan losses
(121,535 ) (118,966 ) 2.2 (123,457 ) (123,279 ) 0.1
Unamortized deferred loan fees
(3,424 ) (4,994 ) (31.4 ) (2,086 ) (3,245 ) (35.7 )

Total loans, net
$ 12,472,475 $ 11,077,315 12.6 % $ 13,522,103 $ 12,743,766 6.1 %

Loans held for sale
$ - $ 7,500 (100.0 %) $ - $ 8,000 (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 n~~on-performing~~non-performing assets, excluding non-accrual loans held for sale, to total assets was ~~0.6%~~0.4% at September 30, ~~2017,~~2018, compared to ~~0.5%~~0.4% at December 31, ~~2016.~~2017. Total non-performing assets ~~increased $17.6 million,~~decreased $396,000, or ~~25.2%~~0.7%, to ~~$87.4~~$57.8 million at September 30, ~~2017,~~2018, compared to ~~$69.8~~$58.2 million at December 31, ~~2016,~~2017, primarily due to ~~an increase~~a decrease of ~~$15.7~~$6.4 million, or ~~31.6%~~13.1%, in non-accrual loans, ~~offset by~~and a decrease of ~~$2.0 million,~~$701,000, or ~~9.7%~~7.4%, in other real estate ~~owned.~~owned, offset by an increase of $6.7 million, or 100.0%, in accruing loans past due 90 days or more.
49
Table of Contents

As a percentage of gross loans,, excluding loans held for sale, plus OREO, our non-performing assets was ~~0.69%~~0.42% as of September 30, ~~2017,~~2018, compared to ~~0.62%~~0.45% as of December 31, ~~2016.~~2017. The non-performing loan portfolio ~~loan~~ coverage ratio, defined as the allowance for credit losses to non-performing loans, decreased to ~~181.6%~~257.8% as of September 30, ~~2017,~~2018, from ~~245.9%~~262.1% as of December 31, ~~2016.~~2017.
49
~~Table of Contents~~

The following table presents the changes in non-performing assets and troubled debt restructurings (“TDRs”) as of September 30, ~~2017,~~2018, compared to December 31, ~~2016,~~2017, and to September 30, ~~2016:~~2017:

(Dollars in thousands)

September 30, 2017

December 31, 2016

% Change

September 30, 2016

% Change

September 30, 2018

December 31, 2017

% Change

September 30, 2017

% Change

Non-performing assets

Accruing loans past due 90 days or more
$ 3,900 $ - 100 $ - 100 $ 6,681 $ - 100 $ 3,900 71
Non-accrual loans:

Construction loans
14,267 5,458 161 5,507 159 4,922 8,185 (40 ) 14,267 (66 )
Commercial mortgage loans
28,379 20,078 41 21,077 35 13,172 19,820 (34 ) 28,379 (54 )
Commercial loans
15,942 15,710 1 9,251 72 17,118 14,296 20 15,942 7
Residential mortgage loans
6,763 8,436 (20 ) 8,524 (21 ) 7,199 6,486 11 6,763 6
Total non-accrual loans:
$ 65,351 $ 49,682 32 $ 44,359 47
Total non-accrual loans
$ 42,411 $ 48,787 (13 ) $ 65,351 (35 )
Total non-performing loans
69,251 49,682 39 44,359 56 49,092 48,787 1 69,251 (29 )
Other real estate owned
18,115 20,070 (10 ) 20,986 (14 ) 8,741 9,442 (7 ) 18,115 (52 )
Total non-performing assets
$ 87,366 $ 69,752 25 $ 65,345 34 $ 57,833 $ 58,229 (1 ) $ 87,366 (34 )
Accruing troubled debt restructurings
$ 62,358 $ 65,393 (5 ) $ 86,555 (28 ) $ 74,598 $ 68,565 9 $ 62,358 20
Non-accrual loans held for sale
$ - $ 7,500 (100 ) $ 4,750 (100 ) $ - $ 8,000 (100 ) $ - -

Allowance for loan losses
$ 121,535 $ 118,966 2 $ 117,942 3 $ 123,457 $ 123,279 0 $ 121,535 2

Total gross loans outstanding, at period-end ⁽¹⁾
$ 12,597,434 $ 11,201,275 12 $ 11,010,457 14 $ 13,647,646 $ 12,870,290 6 $ 12,597,434 8

Allowance for loan losses to non-performing loans, at period-end ⁽²⁾
175.50 % 239.45 % 265.88 % 251.48 % 252.69 % 175.50 %
Allowance for loan losses to gross loans, at period-end ⁽¹⁾
0.96 % 1.06 % 1.07 % 0.90 % 0.96 % 0.96 %

(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, ~~2017,~~2018, total non-accrual loans were ~~$65.4~~$42.4 million, ~~an increase~~a decrease of ~~$15.7~~$6.4 million, or ~~31.6%~~13.1%, ~~resulting~~ from ~~several construction and commercial real estate loans placed on nonaccrual, from $49.7~~$48.8 million at December 31, ~~2016,~~2017, and ~~an increase~~a decrease of ~~$21.0~~$23.0 million, or ~~47.3%~~35.1%, from ~~$44.4~~$65.4 million at September 30, ~~2016.~~2017. 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.~~information, less cost to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly. Non-accrual loans also include those TDRs that do not qualify for accrual status.

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The following tables 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, 2017

December 31, 2016

September 30, 2018

December 31, 2017

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
$ 23,780 $ 7,742 $ 9,368 $ 218 $ 10,786 $ 8,219 $ 14,952 $ 7,575
Commercial real estate
25,591 - 24,321 - 13,992 - 19,540 -
Land
- - 283 -
Personal property (UCC)
- 8,200 - 15,492 514 8,900 - 6,721
Total
$ 49,371 $ 15,942 $ 33,972 $ 15,710 $ 25,292 $ 17,119 $ 34,492 $ 14,296

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

September 30, 2017

December 31, 2016

September 30, 2018

December 31, 2017

Real

Real

Real

Real

Estate ⁽¹⁾

Commercial

Estate ⁽¹⁾

Commercial

Estate ⁽¹⁾

Commercial

Estate ⁽¹⁾

Commercial

(In thousands)

(In thousands)

Type of Business

Real estate development
$ 31,890 $ 20 $ 13,804 $ - $ 9,226 $ - $ 16,672 $ -
Wholesale/Retail
10,807 7,924 12,312 9,213 9,322 11,716 11,429 7,743
Food/Restaurant
140 - 153 - - - 137 -
Import/Export
- 7,998 - 6,174 - 5,403 - 6,553
Other
6,534 - 7,703 323 6,744 - 6,254 -
Total
$ 49,371 $ 15,942 $ 33,972 $ 15,710 $ 25,292 $ 17,119 $ 34,492 $ 14,296

(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 (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~~(which generally range between 3% to 6% of the fair value, depending on the size of the impaired ~~loan,~~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~~due. TDRs are reviewed for continued impairment until they are no longer reported as TDRs.

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AsAs of September 30, ~~2017,~~2018, recorded investment in impaired loans totaled ~~$127.7~~$117.0 million and was comprised of non-accrual loans, excluding loans held for sale, of ~~$65.3~~$42.4 million and accruing ~~troubled debt restructured loans (TDRs)~~TDRs of ~~$62.4~~$74.6 million. As of December 31, ~~2016,~~2017, recorded investment in impaired loans totaled ~~$115.1~~$117.4 million and was comprised of non-accrual loans, excluding loans held for sale, of ~~$49.7~~$48.8 million and accruing TDRs of ~~$65.4~~$68.6 million. For impaired loans, the amounts previously charged off ~~represent 7.1%~~represented 7.4% as of September 30, ~~2017,~~2018, and ~~8.4%~~7.2% as of December 31, ~~2016,~~2017, of the contractual balances for impaired loans. As of September 30, ~~2017, $49.4~~2018, $25.3 million, or ~~75.7%~~59.6%, of the ~~$65.3~~$42.4 million of non-accrual loans, excluding loans held for sale, was secured by real estate compared to ~~$34.0~~$34.5 million, or ~~68.4%~~70.7%, of the ~~$49.7~~$48.8 million of non-accrual loans, excluding loans held for sale, that was secured by real estate as of December 31, ~~2016.~~2017. The Bank ~~obtains~~seeks to obtain current appraisals, sales contracts, or other available market price information ~~which~~intended to provide updated factors in evaluating potential loss.

AsAs of September 30, ~~2017, $2.1~~2018, $3.7 million of the ~~$121.5~~$123.5 million allowance for loan losses was allocated for impaired loans and ~~$119.4~~$119.8 million was allocated to the general allowance. As of December 31, ~~2016, $2.8~~2017, $2.1 million of the ~~$119.0~~$123.3 million allowance for loan losses was allocated for impaired loans and ~~$116.2~~$121.1 million was allocated to the general allowance.

The allowance for loan losses to non-accrual loans ~~was 186.0%~~increased to 291.1% as of September 30, ~~2017,~~2018, from ~~239.5%~~252.7% as of December 31, ~~2016,~~2017, primarily due to an increase in the non-accrual loans. Non-accrual loans also include those TDRs that do not qualify for accrual status.
The following table presents impaired loans and the related allowance as of the dates indicated:

Impaired Loans

September 30, 2018

December 31, 2017

Unpaid Principal Balance

Recorded Investment

Allowance

Unpaid Principal Balance

Recorded Investment

Allowance

(In thousands)

With no allocated allowance

Commercial loans
$ 40,426 $ 38,556 $ - $ 43,483 $ 42,702 $ -
Real estate construction loans
5,776 4,922 - 8,821 8,185 -
Commercial mortgage loans
34,276 26,912 - 37,825 31,029 -
Residential mortgage loans and equity lines
6,791 6,776 - 1,301 1,301 -
Subtotal
$ 87,269 $ 77,166 $ - $ 91,430 $ 83,217 $ -
With allocated allowance

Commercial loans
$ 5,792 $ 5,715 $ 2,506 $ 891 $ 793 $ 43
Commercial mortgage loans
27,549 27,523 917 21,733 21,635 1,738
Residential mortgage loans and equity lines
7,670 6,605 281 13,022 11,708 353
Subtotal
$ 41,011 $ 39,843 $ 3,704 $ 35,646 $ 34,136 $ 2,134
Total impaired loans
$ 128,280 $ 117,009 $ 3,704 $ 127,076 $ 117,353 $ 2,134

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

Impaired Loans

September 30, 2017

December 31, 2016

Unpaid Principal Balance

Recorded Investment

Allowance

Unpaid Principal Balance

Recorded Investment

Allowance

(In thousands)

With no allocated allowance

Commercial loans
$ 23,953 $ 23,373 $ - $ 24,037 $ 23,121 $ -
Real estate construction loans
22,309 21,748 - 5,776 5,458 -
Commercial mortgage loans
39,154 32,370 - 60,522 54,453 -
Residential mortgage loans and equity lines
2,264 2,264 - 5,472 5,310 -
Subtotal
$ 87,680 $ 79,755 $ - $ 95,807 $ 88,342 $ -
With allocated allowance

Commercial loans
$ 14,082 $ 13,985 $ 1,461 $ 5,216 $ 4,640 $ 1,827
Commercial mortgage loans
23,061 22,820 823 10,158 10,017 573
Residential mortgage loans and equity lines
12,461 11,111 322 13,263 12,075 396
Subtotal
$ 49,604 $ 47,916 $ 2,606 $ 28,637 $ 26,732 $ 2,796
Total impaired loans
$ 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 ~~where~~are originated when 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~~on loan to value ratios 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, ~~2017,~~2018, construction loans of ~~$515.4~~$543.1 million were disbursed with pre-established interest reserves of ~~$61.8~~$73.0 million compared to ~~$500.2~~$545.0 million of such loans disbursed with pre-established interest reserves of ~~$58.9~~$72.3 million at December 31, ~~2016.~~2017. The balance for construction loans with interest reserves ~~which~~that have been extended was ~~$81.3~~$89.8 million with pre-established interest reserves of ~~$1.8~~$3.0 million at September 30, ~~2017,~~2018, compared to ~~$113.1~~$62.1 million with pre-established interest reserves of ~~$2.1~~$2.0 million at December 31, ~~2016.~~2017. Land loans of ~~$23.2~~$23.0 million were disbursed with pre-established interest reserves of ~~$680,000~~$850,000 at September 30, ~~2017,~~2018, compared to ~~$51.3~~$32.7 million of land loans disbursed with pre-established interest reserves of ~~$1.0~~$1.3 million at December 31, ~~2016.~~2017. The balance for land loans with interest reserves ~~which~~that have been extended was ~~$5.9~~$5.5 million at September 30, ~~2017~~2018 with pre-established interest reserves of ~~$360,000~~$30,000, compared to ~~$2.0~~$6.9 million in land loans with pre-established interest reserves of ~~$40,000~~$221,000 at December 31, ~~2016.~~ 2017.
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At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Bank had no loans on non-accrual status with available interest reserves. At September 30, ~~2017, $14.3~~2018, $4.9 million of non-accrual non-residential construction ~~loans, and $8.0 million land~~ loans had been originated with pre-established interest reserves. At December 31, ~~2016, $5.5~~2017, $8.2 million of non-accrual non-residential construction loans and ~~$7.8~~$8.0 million of non-accrual land loans had been originated with pre-established interest reserves.  While we typically expect loans with interest reserves to be repaid in full according to the original contractual terms, some loans require one or more extensions beyond the original maturity before full repayment. Typically, these extensions are required due to construction delays, delays in the sale or lease of property, or some combination of these two factors.

Loan Concentration

Most of the ~~Company~~’sCompany’s business activities are with customers located in the ~~predominantly~~high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; Las Vegas, ~~Nevada,~~Nevada; and Hong Kong. The Company has no specific industry ~~concentration, and~~concentration. The Company’s loans generally ~~its loans~~ are collateralized with real property or other pledged collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the collateral. There were no loan concentrations to multiple borrowers in similar activities that exceeded 10% of total loans as of September 30, ~~2017,~~2018, or as of December 31, ~~2016.~~2017.
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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) total CRE loans represent 300% or more of the institution’s total risk-based capital and the institution’s CRE loan portfolio has increased 50% or more within the last thirty-six months. Total loans for construction, land development, and other land represented ~~40.7%~~34% of the Bank’s total risk-based capital as of September 30, ~~2017,~~2018, and ~~40.4%~~41% as of December 31, ~~2016.~~2017. Total CRE loans represented ~~305%~~271% of total risk-based capital as of September 30, ~~2017,~~2018, and ~~300%~~293% as of December 31, ~~2016~~2017 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 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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~~Table of Contents~~

In addition, the Bank’s Board of Directors has established a written credit policy that includes a credit review and control system that the Board of Directors believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses. The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio. The determination of the amount of the allowance for credit losses and the provision for credit losses are based on management’s current judgment about the credit quality of the loan portfolio and ~~takes~~take into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment. Additions to the allowance for credit losses are made by charges to the provision for credit losses. While management utilizes its 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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~~Table of Contents~~

The allowance for loan losses was $~~121.5~~$123.5 million and the allowance for off-balance sheet unfunded credit commitments was ~~$4.3~~$3.1 million at September 30, ~~2017,~~2018, which represented the amount believed by management to be appropriate to absorb credit losses inherent in the loan portfolio, including unfunded credit commitments. The ~~$121.5~~$123.5 million allowance for loan losses at September 30, ~~2017, increased $2.5 million,~~2018, decreased $178,000, or ~~2.1%~~0.1%, from ~~$119.0~~$123.3 million at December 31, ~~2016.~~2017. The allowance for loan losses represented 0.90% of period-end gross loans, excluding loans held for sale, and 251.5% of non-performing loans at September 30, 2018. The comparable ratios were 0.96% of period-end gross loans, excluding loans held for sale, and ~~175.5% of non-performing loans at September 30, 2017. The comparable ratios were 1.06% of period-end gross loans, excluding loans held for sale, and 239.5%~~252.7% of non-performing loans at December 31, ~~2016.~~ 2017.
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The following table sets forth information relating to the allowance for loan losses, charge-offs, recoveries, and the reserve for off-balance sheet credit commitments for the periods indicated:

Three months ended September 30,

Nine months ended September 30,

Three months ended September 30,

Nine months ended September 30,

2018

2017

2018

2017

2017

2016

2017

2016

(Dollars in thousands)

Allowance for loan losses

(Dollars in thousands)

Balance at beginning of period
$ 115,809 $ 122,948 $ 118,966 $ 138,963 $ 121,899 $ 115,809 $ 123,279 $ 118,966
Reversal for credit losses
- - (2,500 ) (15,650 ) (1,500 ) - (4,500 ) (2,500 )
Charge-offs :

Commercial loans
(80 ) (3,278 ) (1,810 ) (12,036 ) (122 ) (80 ) (629 ) (1,810 )
Real estate loans
(305 ) (4,625 ) (860 ) (5,829 ) - (305 ) (390 ) (860 )
Total charge-offs
(385 ) (7,903 ) (2,670 ) (17,865 ) (122 ) (385 ) (1,019 ) (2,670 )
Recoveries:

Commercial loans
575 2,006 1,401 3,720 187 575 1,250 1,401
Construction loans
47 548 143 7,871 44 47 132 143
Real estate loans
5,489 343 6,195 903 2,949 5,489 4,315 6,195
Total recoveries
6,111 2,897 7,739 12,494 3,180 6,111 5,697 7,739

Balance at end of period
$ 121,535 $ 117,942 $ 121,535 $ 117,942 $ 123,457 $ 121,535 $ 123,457 $ 121,535
Reserve for off-balance sheet credit commitments

Balance at beginning of period
$ 4,513 $ 2,124 $ 3,224 $ 1,494 $ 3,088 $ 4,513 $ 4,588 $ 3,224
Provision for credit losses
(259 ) 100 1,030 730 - (259 ) (1,500 ) 1,030
Balance at end of period
$ 4,254 $ 2,224 $ 4,254 $ 2,224 $ 3,088 $ 4,254 $ 3,088 $ 4,254

Average loans outstanding during the period ⁽¹⁾
$ 12,317,721 $ 10,668,341 $ 11,668,814 $ 10,466,764 $ 13,434,018 $ 12,317,721 $ 13,126,693 $ 11,668,814
Total gross loans outstanding, at period-end ⁽¹⁾
$ 12,597,434 $ 11,010,457 $ 12,597,434 $ 11,010,457 $ 13,647,646 $ 12,597,434 $ 13,647,646 $ 12,597,434
Total non-performing loans, at period-end ⁽²⁾
$ 69,251 $ 44,359 $ 69,251 $ 44,359 $ 49,092 $ 69,251 $ 49,092 $ 69,251
Ratio of net charge-offs/(recoveries) to average loans outstanding during the period ⁽¹⁾
(0.18% ) 0.19 % (0.06% ) 0.07 %
Ratio of net (recoveries)/charge-offs to average loans outstanding during the period ⁽¹⁾
(0.09 %) (0.18 %) (0.05 %) (0.06 %)
Provision for credit losses to average loans outstanding during the period ⁽¹⁾
(0.01% ) 0.00 % (0.02% ) (0.19% ) (0.04 %) (0.01 %) (0.06 %) (0.02 %)
Allowance for credit losses to non-performing loans, at period-end ⁽²⁾
181.64 % 270.89 % 181.64 % 270.89 % 257.77 % 181.64 % 257.77 % 181.64 %

Allowance for credit losses to gross loans, at period-end ⁽¹⁾
1.00 % 1.09 % 1.00 % 1.09 % 0.93 % 1.00 % 0.93 % 1.00 %

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

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Table of Contents
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~~review reports on past-due loans to ensure appropriate classification.
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~~Table of Contents~~

The table set forth below reflects ~~management~~’smanagement’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, 2017

December 31, 2016

September 30, 2018

December 31, 2017

Percentage of

Percentage of

Percentage of

Percentage of

Loans in Each

Loans in Each

Loans in Each

Loans in Each

Category

Category

Category

Category

to Average

to Average

to Average

to Average

Amount

Gross Loans

Amount

Gross Loans

Amount

Gross Loans

Amount

Gross Loans

Type of Loan:

(Dollars in thousands)

(Dollars in thousands)

Commercial loans
$ 51,039 19.1 % $ 49,203 21.1 % $ 56,514 18.9 % $ 49,796 19.1 %
Residential mortgage loans ⁽¹⁾
11,062 24.3 11,620 22.0 12,909 26.4 11,013 24.5
Commercial mortgage loans
37,402 51.5 34,864 52.2 32,782 50.0 37,610 51.2
Real estate construction loans
22,008 5.0 23,268 4.7 21,226 4.7 24,838 5.2
Installment and other loans
24 0.0 11 0.0 26 0.0 22 0.0
Total
$ 121,535 100 % $ 118,966 100 % $ 123,457 100 % $ 123,279 100 %

(1)
Residential mortgage loans includes equity lines.

The allowance allocated to commercial loans increased ~~$1.8~~$6.7 million, or ~~3.7%~~13.5%, to ~~$51.0~~$56.5 million at September 30, ~~2017,~~2018, from ~~$49.2~~$49.8 million at December 31, ~~2016.~~2017. The increase is a result of the continued trade instability and pending tariffs between the U.S. and China and an increase in volume and non-accrual and past due ~~primarily~~commercial loans year to ~~commercial loan growth.~~date.

The allowance allocated for residential mortgage loans ~~decreased $0.5~~increased by $1.9 million, or ~~4.3%~~17.2%, to ~~$11.1~~$12.9 million at as of September 30, ~~2017,~~2018, from ~~$11.6~~$11.0 million at December 31, ~~2016 as a result of~~2017 primarily due to the ~~decrease~~increase in ~~the amount of general allowance determined to be required for residential mortgage loans. .~~volume.

The allowance allocated to commercial mortgage loans ~~increased $2.5~~decreased $4.8 million, or ~~7.2%~~12.8%, to ~~$37.4~~$32.8 million at September 30, ~~2017,~~2018, from ~~$34.9~~$37.6 million at December 31, ~~2016~~2017 as a result of the ~~increase~~$85.5 million decrease in ~~the amount of general allowance determined~~substandard loans, decrease in non-accrual and past due loans and net recoveries year to ~~be required for commercial mortgage loans.~~date.

The allowance allocated to real estate construction loans decreased ~~$1.3~~$3.6 million, or ~~5.6%~~14.5%, to ~~$22.0~~$21.2 million at September 30, ~~2017~~2018 from ~~$23.3~~$24.8 million at December 31, ~~2016.~~2017. The decrease is due primarily to the decrease in ~~the amount of specific reserves~~loans outstanding and ~~general allowance determined~~a reduction in non-accrual and past due loans year to ~~be required for construction loans.~~date.

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Deposits

Total deposits were $1~~2.6~~$13.6 billion at September 30, ~~2017,~~2018, an increase of ~~$887~~$891 million, or ~~7.6%~~7.0%, from ~~$11.7~~$12.7 billion at December 31, ~~2016.~~2017. The following table displays the deposit mix as of the dates indicated:

September 30, 2018

December 31, 2017

September 30, 2017

December 31, 2016

Amount

Percentage

Amount

Percentage

Amount

Percentage

Amount

Percentage

(Dollars in thousands)

Deposits

(Dollars in thousands)

Non-interest-bearing demand deposits
$ 2,730,006 21.7 % $ 2,478,107 21.2 % $ 2,957,881 21.8 % $ 2,783,127 21.9 %
Interest bearing demand deposits
1,379,100 11.0 1,230,445 10.6 1,409,463 10.4 1,410,519 11.1
Money market deposits
2,370,724 18.9 2,198,938 18.8 2,134,097 15.7 2,248,271 17.7
Savings deposits
925,312 7.4 719,949 6.2 747,814 5.5 857,199 6.8
Time deposits
5,156,553 41.0 5,047,287 43.2 6,331,823 46.6 5,390,777 42.5
Total deposits
$ 12,561,695 100.0 % $ 11,674,726 100.0 % $ 13,581,078 100.0 % $ 12,689,893 100.0 %

The following table shows the maturity distribution of time deposits as of September 30, ~~2017:~~2018:

At September 30, 2018

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
$ 320,157 $ 921,819 $ 1,241,976 $ 182,247 $ 934,668 $ 1,116,915
Three to six months
320,580 836,506 1,157,086 549,058 1,024,516 1,573,574
Six to twelve months
371,407 1,704,311 2,075,718 690,620 1,952,419 2,643,039
Over one year
224,168 457,605 681,773 233,421 764,874 998,295
Total
$ 1,236,312 $ 3,920,241 $ 5,156,553 $ 1,655,346 $ 4,676,477 $ 6,331,823

Percent of total deposits
9.8 % 31.2 % 41.0 % 12.2 % 34.4 % 46.6 %

Borrowings

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

~~Securities Sold Under Agreements~~Borrowing from the FHLB. As of September 30, 2018, over-night borrowings from the FHLB were $240 million at a rate of 2.33% compared to ~~Repurchase.~~ ~~Securities sold under agreements~~$325 million at a rate of 1.41% as of December 31, 2017. As of September 30, 2018, the advances from the FHLB were $75 million at a rate of 1.99% compared to ~~repurchase were $100~~$105 million at a rate of 1.41% as of December 31, 2017. As of September 30, 2018, FHLB advances of $5 million will mature in October 2018, $50 million in December 2019, and $20 million in May 2023.
Other Borrowing. Pursuant to the Stock Purchase Agreement with Bank SinoPac Co. Ltd, $35.2 million of the purchase price was held back at a floating rate of three-month LIBOR rate plus 150 basis points and 50%, 30%, and 20% will be disbursed annually over three years on the anniversary dates, respectively. As of September 30, 2018, the outstanding balance was $18.3 million with a rate of 3.39% compared to $35.2 million at December 31, 2017.
Long-term Debt. On October 12, 2017, the Bank entered into a term loan agreement of $75.0 million with U.S. Bank. The loan has a floating rate of one-month LIBOR plus 175 basis points. As of September 30, 2018, the term loan has an interest rate of 3.875% compared to 3.125% at December 31, 2017. The principal amount of the long-term debt from U.S. Bank is due and payable in consecutive quarterly installments of $4.7 million each on the last day of each calendar quarter commencing December 31, 2018, with the final installment due and payable on October 12, 2020. We used the U.S. Bank loan proceeds to fund a portion of our acquisition of SinoPac Bancorp.
At September 30, 2018, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 4.52%, compared to $119.1 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~~3.78% at December 31, ~~2016. Final~~2017. The Junior Subordinated Notes have a stated maturity ~~for the two fixed rate non-callable securities sold under agreements to repurchase was $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 repu~~rchase agreements, as necessary. The underlying collateral pledged for the repurchase agreements consists~~term of ~~U.S. Treasury securities and mortgage-backed securities with a fair value of $109 million as of September~~ 30 ~~2017, and $372 million as of December 31, 2016.~~
~~Borrowing from the FHLB.~~years. As of September 30, ~~2017, over-night borrowings from the FHLB were $450 million at a rate of 1.16% compared to $275 million at a rate of 0.55% as of~~2018, and December 31, ~~2016. As of September 30,~~ 2017, the ~~advances from~~Company’s assets exceeded the ~~FHLB were $145 million at~~$15 billion threshold and, as a ~~rate of 1.35%. As of September 30, 2017, FHLB advances of $490 million will mature~~result, the Junior Subordinated Notes no longer qualify as Tier 1 capital for regulatory reporting purposes. The trusts are not consolidated with the Company in ~~October 2017, $55 million in 2018 and $50 million~~accordance with an accounting pronouncement that took effect in December ~~2019.~~2003.

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~~Long-term Debt~~
~~Long-term debt was $~~255.2 million as of September 30, 2017, and December 31, 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, and $136.1 million of deferred payments to Bank SinoPac.
Off-Balance-Sheet Arrangements and Contractual Obligations

The following table summarizes the ~~Company~~’sCompany’s contractual obligations to make future payments as of September 30, ~~2017.~~2018. Payments for deposits and borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts.

Payment Due by Period

Payment Due by Period

More than

3 years or

More than

3 years or

1 year but

more but

1 year but

more but

1 year

less than

less than

5 years

1 year

less than

less than

5 years

or less

3 years

5 years

or more

Total

or less

3 years

5 years

or more

Total

(In thousands)

(In thousands)

Contractual obligations:

Deposits with stated maturity dates
$ 4,474,779 $ 680,903 $ 860 $ 11 $ 5,156,553 $ 5,333,528 $ 960,308 $ 37,976 $ 11 $ 6,331,823
Non-callable securities sold under agreements to repurchase
100,000 - - - 100,000
Advances from the Federal Home Loan Bank
540,000 55,000 - - 595,000 245,000 50,000 20,000 - 315,000
Other borrowings
- - - 17,518 17,518 10,548 7,705 - 17,332 35,585
Long-term debt
- - - 119,136 119,136 18,750 56,250 - 119,136 194,136
Deferred payments from acquisition
- - 136,056 - 136,056
Operating leases
9,820 12,853 8,791 8,052 39,516 8,470 11,692 8,551 5,816 34,529
Total contractual obligations and other commitments
$ 5,124,599 $ 748,756 $ 145,707 $ 144,717 $ 6,163,779 $ 5,616,296 $ 1,085,955 $ 66,527 $ 142,295 $ 6,911,073

In the normal course of business, we enter into various transactions, which, in accordance with U.S. ge~~nerally~~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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Capital Resources

Total equity was $~~2.0~~$2.12 billion as of September 30, ~~2017,~~2018, an increase of ~~$140.2~~$143.5 million, from ~~$1.8~~$1.97 billion as of December 31, ~~2016,~~2017, primarily due to net income of ~~$150.1~~$207.2 million ~~and $34.9 million of common stock issued for the acquisition of SinoPac Bancorp partially~~ offset by common stock cash dividends of ~~$50.5~~$58.5 million and ~~shares withheld related~~decreases of other comprehensive income of $21.3 million due in part to ~~net share settlement~~the adoption of ~~RSUs~~new accounting pronouncements in the first quarter of ~~$5.1 million.~~2018.

The following table summarizes changes in total equity for the nine months ended September 30, ~~2017:~~2018:

Nine months ended

(In thousands)

September 30, 2018

Net income
$ 207,237
Stock issued to directors
650
Stock options exercised and RSUs distributed
838
Proceeds from shares issued through the Dividend Reinvestment Plan
1,982
Shares withheld related to net share settlement of RSUs
(1,865 )
Share-based compensation
5,326
Other comprehensive income
(21,272 )
Retained earnings adjustments upon initial adoption of new pronouncements ⁽¹⁾
9,074
Cash dividends paid to common stockholders
(58,498 )
Net increase in total equity
$ 143,472
⁽¹⁾ These adjustments are a result of the adoption of ASU 2016-01 and 2018-2, effective as of January 1, 2018.

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~~’sCompany’s capital at a level sufficient to support future growth, protect depositors and stockholders, and comply with various regulatory requirements.

Both ~~Bancorp~~’sBancorp’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, ~~2017.~~2018. 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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The following table presents ~~Bancorp~~’sBancorp’s and the Bank’s capital and leverage ratios as of September 30, ~~2017,~~2018, and December 31, ~~2016:~~2017:

Cathay General Bancorp

Cathay Bank

Cathay General Bancorp

Cathay Bank

September 30, 2017

December 31, 2016

September 30, 2017

December 31, 2016

September 30, 2018

December 31, 2017

September 30, 2018

December 31, 2017

(Dollars in thousands)

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

Balance

%

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 $ 1,737,774 12.81 $ 1,572,025 12.19 $ 1,869,674 13.81 $ 1,734,719 13.46
Common equity Tier 1 capital minimum requirement
573,075 4.50 511,590 4.50 532,962 4.50 510,582 4.50 610,239 4.50 580,552 4.50 609,308 4.50 579,921 4.50
Excess
$ 981,121 7.68 $ 947,761 8.34 $ 927,155 7.80 $ 1,004,514 8.85 $ 1,127,535 8.31 $ 991,473 7.69 $ 1,260,366 9.31 $ 1,154,798 8.96

Tier 1 capital (to risk-weighted assets)
$ 1,555,919 12.22 $ 1,574,806 13.85 $ 1,461,917 12.34 $ 1,515,096 13.35 $ 1,737,774 12.81 $ 1,572,025 12.19 $ 1,869,674 13.81 $ 1,734,719 13.46
Tier 1 capital minimum requirement
764,100 6.00 682,120 6.00 710,616 6.00 680,776 6.00 813,652 6.00 774,070 6.00 812,411 6.00 773,229 6.00
Excess
$ 789,522 6.18 $ 892,686 7.85 $ 748,901 6.30 $ 834,320 7.35 $ 924,122 6.81 $ 797,955 6.19 $ 1,057,263 7.81 $ 961,490 7.46

Total capital (to risk-weighted assets)
$ 1,802,206 14.15 $ 1,702,144 14.97 $ 1,587,501 13.40 $ 1,637,286 14.43 $ 1,979,819 14.60 $ 1,820,860 14.11 $ 1,996,219 14.74 $ 1,862,806 14.45
Total capital minimum requirement
1,018,800 8.00 909,493 8.00 947,487 8.00 907,701 8.00 1,084,870 8.00 1,032,093 8.00 1,083,215 8.00 1,030,971 8.00
Excess
$ 780,343 6.11 $ 792,651 6.97 $ 636,814 5.36 $ 729,585 6.43 $ 894,949 6.60 $ 788,767 6.11 $ 913,004 6.74 $ 831,835 6.45

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 $ 1,737,774 11.03 $ 1,572,025 10.35 $ 1,869,674 11.88 $ 1,734,719 11.82
Minimum leverage requirement
597,635 4.00 544,614 4.00 554,685 4.00 543,059 4.00 630,229 4.00 607,349 4.00 629,371 4.00 586,959 4.00
Excess
$ 958,284 6.41 $ 1,030,192 7.57 $ 907,232 6.54 $ 972,037 7.16 $ 1,107,545 7.03 $ 964,676 6.35 $ 1,240,303 7.88 $ 1,147,760 7.82

Risk-weighted assets
$ 12,734,995 $ 11,368,663 $ 11,843,593 $ 11,346,260 $ 13,560,870 $ 12,901,161 $ 13,540,185 $ 12,887,142
Total average assets ⁽¹⁾
$ 14,940,863 $ 13,615,348 $ 13,867,125 $ 13,576,477 $ 15,755,724 $ 15,183,720 $ 15,734,283 $ 14,673,981

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

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. The terms of our Junior Subordinated Notes also limit our ability to pay dividends. ~~Our Board of Directors~~We increased the common stock dividend tofrom $0.21 per share in ~~December 2016. The terms~~the fourth quarter of ~~our Junior Subordinated Notes also limit our ability~~2016, to ~~pay dividends.~~$0.24 per share in the fourth quarter of 2017.

The Company declared a cash dividend of ~~$0.21~~$0.24 per share on ~~80,795,512~~81,380,559 shares outstanding on September ~~1, 2017,~~4, 2018, for distribution to holders of our common stock on September ~~11, 2017, $0.21~~14, 2018, $0.24 per share on ~~79,847,124~~81,240,446 shares outstanding on June 1, ~~2017,~~2018, for distribution to holders of our common stock on June ~~12, 2017,~~11, 2018, and ~~$0.21~~$0.24 per share on ~~79,788,541~~81,126,888 shares outstanding on March 1, ~~2017,~~2018, for distribution to holders of our common stock on March ~~10, 2017.~~12, 2018. The Company paid total cash dividends of ~~$50.5~~$58.5 million during the first nine months of ~~2017.~~2018.

~~Country~~ ~~Risk~~ ~~Exposures~~
The Company’s total assets were $15.7 billion and total foreign country risk net exposures were $454.7 million as of September 30, 2017. Total foreign country risk net exposures as of September 30, 2017, were comprised primarily of $277.3 million from Hong Kong, $45.6 million from China, $30.8 million from Australia, $25.2 million from France, $15.6 million from Singapore, $13.5 million from Germany, $10.0 million from Virgin Island, $9.3 million from England, $7.6 million from Taiwan, $5.1 million from Canada, $5.0 million from Cayman Island, $4.2 million from Macau, $2.2 million from Indonesia, $1.4 million from Switzerland, $1.1 million from Japan, $0.3 million from New Zealand, and $0.3 million from Venezuela. Risk is determined based on location of the borrowers, issuers, and counterparties.
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~~Table of Contents~~
~~All foreign country risk net exposures~~ ~~as of September 30, 2017, were to non-sovereign counterparties, except $11.8 million due from the Hong Kong Monetary Authority.~~
~~Unfunded loan~~s to foreign entities exposures were $10.7 million as of September 30, 2017, primarily due to $10.0 million of unfunded loans to financial 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~~to mitigate exposure to interest rate risks r~~elated~~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.
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Table of Contents

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~~’sCompany’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, the Bancorp entered into interest rate swap contracts in the notional amount of $119.1 million for a period of ten years. The objective of these interest rate swap contracts, which were designated as hedging instruments in cash flow hedges, was to hedge the quarterly interest payments on ~~Bancorp~~’sthe 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. The 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 ~~1.32%.~~2.35% as of September 30, 2018. As of September 30, ~~2017,~~2018, the notional amount of cash flow interest rate swaps was $119.1 million and their unrealized ~~loss~~gain of ~~$2.3~~$1.9 million, net of taxes, was included in other comprehensive ~~income.~~income compared to unrealized loss of $2.3 million at September 30, 2017. The amount of periodic net settlement of interest rate swaps included in interest expense was ~~$407,000~~$83,000 for the three months ended September 30, ~~2017~~2018, compared to ~~$588,000~~$407,000 for the same quarter a year ago. For the nine months ended September 30, ~~2017,~~2018, the periodic net settlement of interest rate swaps included in interest expense was ~~$1.3 million~~$480,000 compared to ~~$1.8~~$1.3 million for the same period in ~~2016.~~
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~~Table~~2017. As of ~~Contents~~
September 30, 2018, and 2017, the ineffective portion of these interest rates swaps was not significant.

As of September 30, ~~2017~~,2018, the ~~Bank has entered into~~Bank’s outstanding interest rate swap contracts ~~with~~had a notional amount of $637.7 million for various terms from ~~four~~two to ~~eight~~ten years. ~~These~~The Bank entered into these interest rate swap contracts that 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~~loans due to changes in interest rates. The swap contracts are structured so that the notional amounts reduce over time to match the contractual amortization of the underlying loan and allow prepayments with the same pre-payment penalty amounts as the related loan. The Bank pays a weighted average fixed rate of ~~4.55%~~4.71% and receives a variable rate atof the ~~one month~~one-month LIBOR rate plus a weighted average spread of ~~293~~266 basis points, or at a weighted average rate of ~~4.16%~~4.78%. As of September 30, 2018, and September 30, 2017, the notional amount of fair value interest rate swaps was $637.7 million and $510.6 million ~~and their~~with net unrealized ~~gain~~gains of $15.7 million and $1.9 million, ~~was~~respectively, included in other non-interest income. The amount of periodic net settlement of interest rate swaps ~~reducing~~increasing interest income was ~~$514,000~~$96,000 for the three months ended September 30, ~~2017,~~2018, compared to ~~$879,000~~a decrease of $514,000 for the same quarter a year ago. The amount of periodic net settlement of interest rate swaps ~~reducing~~decreasing interest income was ~~$1.9 million~~$132,000 for the nine months ended September 30, ~~2017,~~2018, compared to ~~$2.8~~$1.9 million for the same period a year ago. As of September 30, 2018, and 2017, the ineffective portion of these interest rate swaps was not significant.
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Table of Contents

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~~’sCompany’s Board of Directors. The Company’s credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. The Bancorp’s interest rate swaps have been assigned by the counterparties to a derivatives clearing organization and daily margin is indirectly maintained with the derivatives clearing organization. ~~Cash~~There was no cash posted as collateral by the Bancorp related to derivative contracts ~~totaled $6.3 million~~ as of September 30, 2018 compared to $4.5 million as of December 31, 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 i~~nstruments~~instruments and are recorded at fair value in our ~~condensed consolidated balance sheets.~~Consolidated Balance Sheet. 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. AsAt September 30, 2018, the notional amount of option contracts totaled $1.6 million with a net negative fair value of $4,000. At September 30, 2018, spot, forward, and swap contracts in the total notional amount of $53.4 million had a positive fair value of $400,000. Spot, forward, and swap contracts in the total notional amount of $117.6 million had a negative fair value of $1.6 million at September 30, 2018. At December 31, 2017, the notional amount of option contracts totaled ~~$12.3~~$1.0 million with a net negative fair value of ~~$234,000. As of September 30,~~$9,000. At December 31, 2017, spot, forward, and swap contracts ~~with a~~in the total notional amount of ~~$69.3~~$108.5 million had a positive fair value of ~~$1.7~~$1.8 million. Spot, forward, and swap contracts ~~with a~~in the total notional amount of ~~$86.6~~$32.1 million had a negative fair value of ~~$1.1 million as of September 30, 2017. As of~~$453,000 at December 31, 2016, the notional amount of option contracts totaled $12.1 million with a net negative fair value of $121,000. As of December 31, 2016, spot, forward, and swap contracts with a total notional amount of $82.4 million had a positive fair value of $1.3 million. Spot, forward, and swap contracts with a total notional amount of $89.5 million had a negative fair value of $3.1 million as of December 31, 2016.2017.

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Liquidity

Liquidity is our ability to maintain sufficient cash flow to meet maturing financial obligations and cu~~stomer~~customer credit needs, and to take advantage of investment opportunities as they are presented in the marketplace. Our principal sources of liquidity are growth in deposits, proceeds from the maturity or sale of securities and other financial instruments, repayments from securities and loans, federal funds purchased, securities sold under agreements to repurchase, and advances from the FHLB. As of September 30, ~~2017,~~2018, our average monthly liquidity ratio (defined as net cash plus short-term and marketable securities to net deposits and short-term liabilities) was ~~14.0%~~12.8% compared to ~~12.6%~~12.1% as of December 31, ~~2016.~~2017.

~~Before merging on October 27, 2017, the two subsidiary banks of the Company were both shareholders~~The Bank is a shareholder of the FHLB, ~~of San Francisco, enabling them~~which enables the Bank to have access to ~~lower cost~~lower-cost FHLB financing when necessary. ~~As of~~At September 30, ~~2017,~~2018, the ~~two subsidiary banks’~~Bank had an approved credit line with the FHLB ~~totaled $5.5~~of San Francisco totaling $4.0 billion. ~~Advances~~Total advances from the FHLB of San Francisco were ~~$595.0~~$315.0 million and standby letter of credits issued by FHLB on the Company’s behalf were ~~$100.7~~$216.2 million as of September 30, ~~2017. The~~2018. These borrowings bear fixed rates and are secured by loans. See Note 9 to the Consolidated Financial Statements. At September 30, 2018, 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~~$20.6 million of its commercial loans to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody ~~program to secure these borrowings. As~~program. The Bank had borrowing capacity of $17.7 million from the Federal Reserve Bank Discount Window at September 30, ~~2017, the borrowing capacity under the Borrower-in-Custody program was $47.3 million.~~2018.

Liquidity can also be provided through the sale of liquid assets, which consist of federal funds sold, ~~securities sold~~securities purchased under agreements to ~~repurchase,~~resell, and ~~unpledged investment securities. As of~~securities available-for-sale. At September 30, ~~2017,~~2018, investment securities totaled ~~$1.4~~$1.3 billion, with ~~$291.4~~$33.1 million pledged as collateral for borrowings and other commitments. The remaining ~~$1.1~~$1.2 billion was available as additional liquidity or to be pledged as collateral for additional borrowings.

Approximately ~~87.0%~~84% of ~~the Company’s~~our time deposits mature within one year or less as of September 30, ~~2017.~~2018. 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~~runoff experience, we expect ~~that~~ the outflow will not be ~~minimal~~significant and can be replenished through our normal growth in deposits. Management believes all the above-mentioned sources will provide adequate liquidity toduring the next twelve months for 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 ~~$113.4~~$94.8 million ~~in 2016 and $208.2 million in~~during the first nine months of 2018 and $208.2 million during 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~~our 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 we believe 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 ~~rate~~srates on net interest income and market value of equity as of September 30, ~~2017:~~2018:

Net Interest

Market Value

Net Interest

Market Value

Income

of Equity

Income

of Equity

Change in Interest Rate (Basis Points)
Change in Interest Rate (Basis Points)

Volatility ⁽¹⁾

Volatility ⁽²⁾

Volatility ⁽¹⁾

Volatility ⁽²⁾

+200
8.9 3.1 10.4 3.1
+100
4.5 1.8 5.3 1.6
-100 -1.9 4.9 -8.3 0.9
-200 -4.7 -0.9 -19.8 2.8

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

Item 4. CONTROLS AND ~~PROCEDURES~~.PROCEDURES.

The ~~Company~~’sCompany’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 ~~2017~~2018 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~~’sBancorp’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.
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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, ~~2016,~~2017, 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

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
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, 2018 - July 30, 2018)
0
$0
0
$7,543,008
Month #2 (August 1, 2018 - August 31, 2018)
0
$0
0
$7,543,008
Month #3 (September 1, 2018 - September 30, 2018)
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” under Part I—Item 2— “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.

No~~ne.~~None.

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, 2017~~

~~/s/ Pin Tai~~
~~Pin Tai~~
~~Chief Executive Officer and President~~

Date: November ~~7, 2017~~
8, 2018
/s/ Pin Tai
Pin Tai
Chief Executive Officer and
President
Date: November 8, 2018
/s/ Heng W. Chen

Heng W. Chen
Executive Vice President and
Chief Financial Officer

68

	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

	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands, except share and per share data)	2018		2017		2018		2017
Net income	$	69,757	$	49,746	$	207,237	$	150,102

Weighted-average shares:
Basic weighted-average number of common shares outstanding		81,311,899		80,665,398		81,224,555		80,073,249

Dilutive effect of weighted-average outstanding common share equivalents
Warrants		234,105		399,957		268,988		409,019
Options		-		19,221		-		25,706
Restricted stock units		309,267		320,278		277,331		289,205
Diluted weighted-average number of common shares outstanding		81,855,271		81,404,854		81,770,874		80,797,179

Average stock options and restricted stock units with anti-dilutive effect		1,854		-		15,625		6,561
Earnings per common share:
Basic	$	0.86	$	0.62	$	2.55	$	1.87
Diluted	$	0.85	$	0.61	$	2.53	$	1.86

						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, 2016~~		~~727,419~~
~~Granted~~		~~164,404~~
~~Distributed~~		~~(297,905~~	)
~~Forfeited~~		~~(10,424~~	)
~~Balance at September 30, 2017~~		~~583,494~~

	Time-Based RSUs					Performance-Based RSUs
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value
Balance at December 31, 2017		221,738			32.72		339,872			33.52
Granted		141,810			43.30		55,455			39.46
Vested		(65,721	)		41.59		(68,459	)		41.22
Forfeited		(12,535	)		35.46		-			-
Balance at September 30, 2018		285,292			35.82		326,868			32.91

	December 31, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	489,839	$	35	$	857	$	489,017
U.S. government sponsored entities		400,000		-		9,669		390,331
Mortgage-backed securities		339,241		309		3,290		336,260
Collateralized mortgage obligations		48		-		20		28
Corporate debt securities		74,965		247		862		74,350
Mutual funds		6,500		-		270		6,230
Preferred stock of government sponsored entities		2,811		4,497		-		7,308
Other equity securities		3,608		7,213		-		10,821
Total	$	1,317,012	$	12,301	$	14,968	$	1,314,345

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	249,877	$	-	$	357	$	249,520
U.S. government agency entities		9,047		11		70		8,988
U.S. government sponsored entities		400,000		-		9,664		390,336
State and municipal securities		1,944		-		30		1,914
Mortgage-backed securities		577,987		241		6,259		571,969
Collateralized mortgage obligations		1,533		-		17		1,516
Corporate debt securities		80,007		1,291		17		81,281
Mutual funds		6,500		-		270		6,230
Preferred stock of government sponsored entities		5,842		4,260		-		10,102
Other equity securities		3,608		8,162		-		11,770
Total	$	1,336,345	$	13,965	$	16,684	$	1,333,626

	Securities Available-For-Sale				Securities Available-For-Sale
	Amortized cost		Fair value		Amortized cost		Fair value
	(In thousands)				(In thousands)
Due in one year or less	$	415,782	$	415,555	$	199,497	$	199,383
Due after one year through five years		465,328		459,924		465,892		450,363
Due after five years through ten years		8,658		8,647		6,434		6,163
Due after ten years ⁽¹⁾		475,187		484,361		649,020		627,151
Total	$	1,364,955	$	1,368,487	$	1,320,843	$	1,283,060

	September 30, 2017												September 30, 2018
	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
Debt Securities Available-for-Sale
U.S. treasury securities	$	339,707	$	46	$	49,729	$	259	$	389,436	$	305	$	199,374	$	114	$	-	$	-	$	199,374	$	114
U.S. government agency entities														5,208		160		1,304		50		6,512		210
U.S. government sponsored entities		395,774		6,284		-		-		395,774		6,284		-		-		383,447		16,553		383,447		16,553
State and municipal securities		1,931		12		-		-		1,931		12
Mortgage-backed securities		359,112		2,359		122		3		359,234		2,362		247,059		6,088		372,218		15,935		619,277		22,023
Collateralized mortgage obligations		1,710		5		-		-		1,710		5		-		-		1,086		33		1,086		33
Corporate debt securities		5,029		5		-		-		5,029		5
Total debt securities													$	451,641	$	6,362	$	758,055	$	32,571	$	1,209,696	$	38,933

Equity Securities
Preferred stock of government sponsored entities														6,397		3,706		-		-		6,397		3,706
Mutual funds		-		-		6,271		229		6,271		229		-		-		6,034		195		6,034		195
Other equity securities		4,680		98		-		-		4,680		98		1,008		679		-		-		1,008		679
Total	$	1,107,943	$	8,809	$	56,122	$	491	$	1,164,065	$	9,300
Total equity securities													$	7,405	$	4,385	$	6,034	$	195	$	13,439	$	4,580

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

	September 30, 2017														September 30, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
Type of Loans:	(In thousands)														(In thousands)
Commercial loans	$	8,412	$	14,855	$	3,900	$	15,942	$	43,109	$	2,376,782	$	2,419,891	$	28,212	$	17,329	$	3,467	$	17,118	$	66,126	$	2,607,963	$	2,674,089
Real estate construction loans		-		-		-		14,267		14,267		677,219		691,486		-		-		-		4,922		4,922		592,096		597,018
Commercial mortgage loans		-		-		-		28,379		28,379		6,348,668		6,377,047		-		9,157		3,214		13,172		25,543		6,554,711		6,580,254
Residential mortgage loans and equity lines		-		89		-		6,725		6,814		3,097,474		3,104,288		-		-		-		7,198		7,198		3,783,512		3,790,710
Installment and other loans		-		-		-		-		-		4,722		4,722		-		-		-		-		-		5,575		5,575
Total loans	$	8,412	$	14,944	$	3,900	$	65,313	$	92,569	$	12,504,865	$	12,597,434	$	28,212	$	26,486	$	6,681	$	42,410	$	103,789	$	13,543,857	$	13,647,646

	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		Three months ended September 30, 2018								September 30, 2018
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve		No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)										(Dollars in thousands)

Commercial loans		7	$	18,258	$	18,258	$	-	$	208		3	$	4,621	$	4,621	$	-	$	2,467
Commercial mortgage loans		1		738		738		-		-		1		339		339		-		-
Residential mortgage loans and equity lines												2		413		413		-		16
Total		8	$	18,996	$	18,996	$	-	$	208		6	$	5,373	$	5,373	$	-	$	2,483

	Nine months ended September 30, 2017								September 30, 2017		Nine months ended September 30, 2018								September 30, 2018
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve		No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)										(Dollars in thousands)

Commercial loans		13	$	19,543	$	19,543	$	-	$	641		21	$	12,212	$	12,212	$	-	$	2,493
Real estate construction loans		2		28,489		28,489		-		-
Commercial mortgage loans		5		4,123		3,818		305		10		7		14,626		14,626		-		119
Residential mortgage loans and equity lines		1		483		483		-		32		4		1,213		1,213		-		24
Total		21	$	52,638	$	52,333	$	305	$	683		32	$	28,051	$	28,051	$	-	$	2,636

	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

	September 30, 2018
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	27,153	$	-	$	-	$	27,153
Commercial mortgage loans		14,248		7,446		19,568		41,262
Residential mortgage loans		3,433		329		2,421		6,183
Total accruing TDRs	$	44,834	$	7,775	$	21,989	$	74,598

	December 31, 2017
Non-accrual TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	12,944	$	-	$	-	$	12,944
Commercial mortgage loans		6,231		1,677		11,113		19,021
Residential mortgage loans		1,297		-		154		1,451
Total non-accrual TDRs	$	20,472	$	1,677	$	11,267	$	33,416

	Three months ended September 30,						Nine months ended September 30,
Accruing TDRs	2018			2017			2018			2017
	(In thousands)
Beginning balance	$	84,487		$	79,819		$	68,566		$	65,393
New restructurings		2,589			21,790			25,036			49,973
Restructured loans restored to accrual status		577			-			2,895			-
Payments		(13,055	)		(35,677	)		(19,801	)		(41,372	)
Restructured loans placed on non-accrual status		-			(3,574	)		(2,098	)		(9,396	)
Expiration of loan concession upon renewal		-			-			-			(2,240	)
Ending balance	$	74,598		$	62,358		$	74,598		$	62,358

	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										September 30, 2018
	Pass/Watch		Special Mention		Substandard		Doubtful		Total		Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)										(In thousands)
Commercial loans	$	2,216,816	$	146,479	$	56,565	$	31	$	2,419,891	$	2,494,780	$	125,373	$	53,936	$	-	$	2,674,089
Real estate construction loans		604,363		65,375		21,748		-		691,486		531,579		60,517		4,922		-		597,018
Commercial mortgage loans		5,904,023		305,927		167,097		-		6,377,047		6,181,227		315,010		84,017		-		6,580,254
Residential mortgage loans and equity lines		3,064,118		31,858		8,312		-		3,104,288		3,782,077		-		8,633		-		3,790,710
Installment and other loans		4,722		-		-		-		4,722		5,575		-		-		-		5,575
Total gross loans	$	11,794,042	$	549,639	$	253,722	$	31	$	12,597,434	$	12,995,238	$	500,900	$	151,508	$	-	$	13,647,646

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

			Real Estate		Commercial		Residential								Real Estate		Commercial		Residential
	Commercial		Construction		Mortgage		Mortgage Loans		Installment and				Commercial		Construction		Mortgage		Mortgage Loans		Installment and
	Loans		Loans		Loans		and Equity Lines		Other Loans		Total		Loans		Loans		Loans		and Equity Lines		Other Loans		Total
	(In thousands)												(In thousands)
September 30, 2017
September 30, 2018
Loans individually evaluated for impairment
Allowance	$	1,461	$	-	$	823	$	322	$	-	$	2,606	$	2,506	$	-	$	917	$	281	$	-	$	3,704
Balance	$	37,358	$	21,748	$	55,190	$	13,376	$	-	$	127,672	$	44,272	$	4,922	$	54,435	$	13,381	$	-	$	117,010

Loans collectively evaluated for impairment
Allowance	$	49,578	$	22,008	$	36,579	$	10,740	$	24	$	118,929	$	54,008	$	21,226	$	31,865	$	12,628	$	26	$	119,753
Balance	$	2,382,533	$	669,738	$	6,321,857	$	3,090,912	$	4,722	$	12,469,762	$	2,629,817	$	592,096	$	6,525,819	$	3,777,329	$	5,575	$	13,530,636

Total allowance	$	51,039	$	22,008	$	37,402	$	11,062	$	24	$	121,535	$	56,514	$	21,226	$	32,782	$	12,909	$	26	$	123,457
Total balance	$	2,419,891	$	691,486	$	6,377,047	$	3,104,288	$	4,722	$	12,597,434	$	2,674,089	$	597,018	$	6,580,254	$	3,790,710	$	5,575	$	13,647,646

December 31, 2016
December 31, 2017
Loans individually evaluated for impairment
Allowance	$	1,827	$	-	$	573	$	396	$	-	$	2,796	$	43	$	-	$	1,738	$	353	$	-	$	2,134
Balance	$	27,761	$	5,458	$	64,470	$	17,385	$	-	$	115,074	$	43,495	$	8,185	$	52,664	$	13,009	$	-	$	117,353

Loans collectively evaluated for impairment
Allowance	$	47,376	$	23,268	$	34,291	$	11,224	$	11	$	116,170	$	49,753	$	24,838	$	35,872	$	10,660	$	22	$	121,145
Balance	$	2,220,426	$	542,630	$	5,720,778	$	2,598,374	$	3,993	$	11,086,201	$	2,417,771	$	670,620	$	6,430,031	$	3,229,345	$	5,170	$	12,752,937

Total allowance	$	49,203	$	23,268	$	34,864	$	11,620	$	11	$	118,966	$	49,796	$	24,838	$	37,610	$	11,013	$	22	$	123,279
Total balance	$	2,248,187	$	548,088	$	5,785,248	$	2,615,759	$	3,993	$	11,201,275	$	2,461,266	$	678,805	$	6,482,695	$	3,242,354	$	5,170	$	12,870,290

Three months ended September 30, 2017 and 2016
				Real Estate			Commercial			Residential			Installment
	Commercial			Construction			Mortgage			Mortgage Loans			and Other
	Loans			Loans			Loans			and Equity Lines			Loans			Total
	(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
Provision/(credit) for possible credit losses		4,380			(2,056	)		3,132			(5,452	)		(4	)		-
Charge-offs		(3,277	)		-			(4,626	)		-			-			(7,903	)
Recoveries		2,006			548			337			6			-			2,897
Net (charge-offs)/recoveries		(1,271	)		548			(4,289	)		6			-			(5,006	)
September 30, 2016 Ending Balance	$	53,699		$	9,245		$	44,933		$	10,057		$	8		$	117,942

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
2018 Beginning Balance																			$	49,796		$	24,838		$	37,610		$	11,013		$	22	$	123,279
Provision/(credit) for possible credit losses		2,245			(1,403	)		(2,775	)		(580	)		13			(2,500	)		6,097			(3,744	)		(8,672	)		1,815			4		(4,500	)
Charge-offs		(1,810	)		-			(860	)		-			-			(2,670	)		(629	)		-			(390	)		-			-		(1,019	)
Recoveries		1,401			143			6,173			22			-			7,739			1,250			132			4,234			81			-		5,697
Net recoveries																				621			132			3,844			81			-		4,678
September 30, 2018 Ending Balance																			$	56,514		$	21,226		$	32,782		$	12,909		$	26	$	123,457
Reserve for impaired loans																			$	2,506		$	-		$	917		$	281		$	-	$	3,704
Reserve for non-impaired loans																			$	54,008		$	21,226		$	31,865		$	12,628		$	26	$	119,753
Reserve for off-balance sheet credit commitments																			$	1,615		$	1,174		$	78		$	215		$	6	$	3,088

2017 Beginning Balance																			$	49,203		$	23,268		$	34,864		$	11,620		$	11	$	118,966
(Credit)/provision 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			(409	)		143			5,313			22			-		5,069

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

2016 Beginning Balance	$	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	)
Charge-offs		(12,035	)		-			(5,681	)		(149	)		-			(17,865	)
Recoveries		3,720			7,871			879			24			-			12,494
Net (charge-offs)/recoveries		(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
Reserve for impaired loans	$	1,320		$	-		$	1,248		$	375		$	-		$	2,943
Reserve for non-impaired loans	$	52,379		$	9,245		$	43,685		$	9,682		$	8		$	114,999
Reserve for off-balance sheet credit commitments	$	2,112		$	-		$	35		$	80		$	2		$	2,229

	September 30, 2017								Total (Gains)/Losses									As of September 30, 2018								Total Losses
	Fair Value Measurements Using						Total at		Three Months Ended					Nine Months Ended				Fair Value Measurements Using						Total at		For the Three Months Ended				For the Nine Months Ended
	Level 1		Level 2		Level 3		Fair Value		September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016		Level 1		Level 2		Level 3		Fair Value		September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
	(In thousands)																	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	-	$	-	$	12,525	$	12,525	$	-	$	-		$	25	$	-	$	-	$	-	$	3,209	$	3,209	$	-	$	-	$	-	$	25
Commercial mortgage loans		-		-		21,997		21,997		-		-			-		-		-		-		26,606		26,606		-		-		-		-
Residential mortgage loans and equity lines		-		-		10,790		10,790		-		-			-		-		-		-		6,323		6,323		-		-		-		-
Total impaired loans		-		-		45,312		45,312		-		-			25		-		-		-		36,138		36,138		-		-		-		25
Other real estate owned ⁽¹⁾		-		6,317		4,322		10,639		405		(206	)		654		9		-		4,918		4,343		9,261		-		405		-		654
Investments in venture capital and private company stock		-		-		3,023		3,023		12		187			365		419		-		-		2,188		2,188		62		12		326		365
Total assets	$	-	$	6,317	$	52,657	$	58,974	$	417	$	(19	)	$	1,044	$	428	$	-	$	4,918	$	42,669	$	47,587	$	62	$	417	$	326	$	1,044

	As of December 31, 2017								Total Losses
	Fair Value Measurements Using						Total at		For the Twelve Months Ended
	Level 1		Level 2		Level 3		Fair Value		December 31, 2017		December 31, 2016
	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	-	$	-	$	18,097	$	18,097	$	25	$	322
Commercial mortgage loans		-		-		31,459		31,459		-		-
Residential mortgage loans and equity lines		-		-		11,355		11,355		-		-
Total impaired loans		-		-		60,911		60,911		25		322
Other real estate owned ⁽¹⁾		-		5,677		4,322		9,999		457		9
Investments in venture capital and private company stock		-		-		2,583		2,583		392		976
Total assets	$	-	$	5,677	$	67,816	$	73,493	$	874	$	1,307

	September 30, 2018				December 31, 2017
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Financial Assets
Cash and due from banks	$	204,178	$	204,178	$	247,056	$	247,056
Short-term investments and interest bearing deposits		377,839		377,839		292,745		292,745
Securities available-for-sale		1,283,060		1,283,060		1,333,626		1,333,626
Equity securities		23,522		23,522		-		-
Loans held for sale		-		-		8,000		8,000
Loans, net ⁽¹⁾		13,522,103		13,502,232		12,743,766		12,663,049
Investment in Federal Home Loan Bank stock		17,250		17,250		23,085		23,085
Warrants		168		168		91		91

	��	Notional				Notional
		Amount		Fair Value		Amount		Fair Value
Foreign exchange contracts		$	53,361	$	400	$	108,530	$	1,832
Interest rate swaps			756,819		18,419		514,159		5,218

Financial Liabilities	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value

Deposits	$	13,581,078	$	13,617,846	$	12,689,893	$	12,700,674
Securities sold under agreements to repurchase		-		-		100,000		100,163
Advances from Federal Home Loan Bank		315,000		314,507		430,000		429,482
Other borrowings		35,585		33,791		52,885		51,075
Long-term debt		194,136		142,068		194,136		141,865

	September 30, 2017								As of September 30, 2018
	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	$	167,886	$	167,886	$	-	$	-	$	204,178	$	204,178	$	-	$	-
Short-term investments		573,059		573,059		-		-
Securities available-for-sale		1,368,487		434,453		934,034		-
Loans held-for-sale		-		-		-		-
Short-term investments and interest bearing deposits										377,839		377,839		-		-
Debt securities available-for-sale										1,283,060		199,374		1,083,686		-
Equity securities										23,522		23,522		-		-
Loans, net(1)		12,403,100		-		-		12,403,100		13,502,232		-		-		13,502,232
Investment in Federal Home Loan Bank stock		21,948		-		21,948		-		17,250		-		17,250		-
Investment in Federal Reserve Bank stock		8,733		-		8,733		-
Warrants		97		-		-		97		168		-		-		168
Financial Liabilities
Deposits		12,573,127		-		-		12,573,127		13,617,846		-		-		13,617,846
Securities sold under agreements to repurchase		100,549		-		100,549		-
Advances from Federal Home Loan Bank		595,037		-		595,037		-		314,507		-		314,507		-
Other borrowings		151,643		-		-		151,643		33,791		-		-		33,791
Long-term debt		68,056		-		68,056		-		142,068		-		142,068		-

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