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

Critical Accounting Policies





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



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





Accounting for the allowance for loan losses involves significant judgments and
assumptions by management, which have a material impact on, among other things,
the carrying value of net loans. The judgments and assumptions used by
management are based on historical experience and other factors, which are
believed to be reasonable under the circumstances as described in "Allowance for
Credit Losses" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Critical Accounting Policies" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2019.



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





The ongoing COVID-19 pandemic has caused significant disruption in the United
States and international economies and financial markets. The spread of COVID-19
in the United States has caused illness, quarantines, cancellation of events and
travel, business and school shutdowns, reduction in commercial activity and
financial transactions, supply chain interruptions, increased unemployment, and
overall economic and financial market instability. Many states, including
California, New York, Washington, Illinois, Texas, Massachusetts, Nevada and
other states in which we have significant operations, have declared states of
emergency.


The onset of the COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing our Company and its operations, including the following:

? Market interest rates have declined significantly and these reductions,

especially if prolonged, could adversely affect our net interest income, net


    interest margin and earnings.



? We anticipate a potential slowdown in demand for our products and services,

including the demand for traditional loans, although we believe the decline

may be partially offset due to the new volume of PPP loans under the CARES Act

and other governmental programs established in response to the pandemic.

? The inability of our customers to meet their loan commitments and could result

in increased risk of delinquencies, defaults, foreclosures, declining

collateral values and ability of our borrowers to repay their loans resulting


    in losses to our Company.



? The COVID-19 pandemic restrictions have created significant volatility and

disruption in the financial markets, and these conditions may require us to

recognize an elevated level of other than temporary impairments on investment

securities in our portfolio as issues of these securities are negatively

impacted by the economic slowdown. Declines in fair value of investment

securities in our portfolio could also reduce the unrealized gains reported as


    part of our consolidated comprehensive income (loss).




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Additional potential impacts arising from, and our anticipated responses to, the COVID-19 pandemic are set forth below:

Financial position and results of operations



Our financial position and results of operations as of and for the three months
ended March 31, 2020 have been significantly impacted by the COVID-19 pandemic.
The economic environment and uncertainty related to the pandemic contributed to
a $25.0 million provision for credit losses recognized during the three months
ended March 31, 2020. While we have not yet experienced significant write-offs
related to the COVID-19 pandemic as of March 31, 2020, the continued uncertainty
regarding the severity and duration of the pandemic and related economic effects
will continue to affect our estimate of our allowance for credit losses and
resulting provision for credit losses. To the extent the impact of the pandemic
is prolonged and economic conditions worsen or persist longer than forecast,
such estimates may be insufficient and change significantly in the future. Our
interest income may also be negatively impacted in future periods as we continue
to work with our affected borrowers to defer payments, interest, and fees.
Additionally, net interest margin may be reduced generally as a result of the
low rate environment. These uncertainties and the economic environment will
continue to affect earnings, slow growth, and may result in deterioration of
asset quality in our loan and investment portfolios.



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





                           March 31, 2020
                                                    Percent of Total
        Industry (1)             Loan Balance        Loan Portfolio
                                           ($ in millions)
Restaurants                     $        171.7                      1 %
Hotels/motels                            297.0                      2
Retail businesses/properties           1,757.9                     11
                                $      2,226.6                     14 %



(1)- Balances capture credit exposures in the business segments that manage the

significant majority of industry relationships. Balances consist of commercial


     real estate secured loans where the collateral consist of restaurants,
     hotels/motels or have a retail dependency.




While the Company has not experienced disproportionate impacts among its
business segments as of March 31, 2020, borrowers in the industries detailed in
the table above (and potentially other industries) could have greater
sensitivity to the economic downturn resulting from COVID-19 with potentially
longer recovery periods than other business lines.



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Loan and lease modifications

We began receiving requests from our borrowers for loan and lease deferrals in
March. Modifications include the deferral of principal payments or the deferral
of principal and interest payments for terms generally 90 - 180 days. Requests
are evaluated individually, and approved modifications are based on the unique
circumstances of each borrower. We are committed to working with our clients to
allow time to work through the challenges of this pandemic. At this time, it is
uncertain what future impact loan and lease modifications related to COVID-19
difficulties will have on our financial condition, results of operations and
reserve for loan and lease losses. As of May 1, 2020, COVID-19 modification
applications approved include 1,094, or $477.7 million, in residential mortgage
loans, with a weighted average loan to value of 53.2% that represented 11.5% of
the total mortgage portfolio and 46, or $123.2 million, in commercial loan
balances that represented 4.1% of total commercial loans.



The CARES Act permits financial institutions to suspend requirements under GAAP
for loan modifications to borrowers affected by COVID-19 and is intended to
provide interpretive guidance as to conditions that would constitute a
short-term modification that would not meet the definition of a TDR. This
includes the following (i) the loan modification is made between March 1, 2020
and the earlier of December 31, 2020 or 60 days after the end of the coronavirus
emergency declaration and (ii) the applicable loan was not more than 30 days
past due as of December 31, 2019. The Company is applying this guidance to
qualifying loan modifications and anticipates that it will continue to
experience an increase in short-term modifications.



The following table shows COVID-19 CRE loan and lease modifications by property type approved as of May 1, 2020.





                              # of Loans                             Total
                              Deferrals        Balance as of       Category      Weighted
Property Type                  Approved        March 31, 2020       Balance      Avg LTV
                                                   ($ in millions)
Hotel/Motel                            23     $          190.8     $   297.0      48.5%
Retail                                 92                381.4       1,757.9      52.4%
Residential                           219                142.4       1,929.8      51.8%
Warehouse                              24                 50.2         935.4      50.1%
Office & Comm'l Condo                  94                109.9       1,375.5      51.3%
Theater                                 3                 24.5          24.5      73.6%
Special Use & HK Portfolio             25                 44.5         397.8      55.8%
Industrial and Multi-Use               11                 24.2         410.5      50.2%
Restaurant                             13                 10.2         171.7      45.1%
Other                                   -                    -         122.5        -
Total CRE                             504     $          978.1     $ 7,422.6      51.8%



Paycheck Protection Program (PPP)



As part of the CARES Act, the Small Business Administration (SBA) has been
authorized to guarantee loans under the PPP through June 30, 2020 for small
businesses who meet the necessary eligibility requirements in order to keep
their workers on the payroll. One of the notable features of the PPP is that
borrowers are eligible for loan forgiveness if borrowers maintain their staff
and payroll and if loan amounts are used to cover payroll, mortgage interest,
rents and utilities payments. These loans will have a two-year term and will
earn interest at a rate of 1%. We began accepting applications on April 3, 2020.
As of May 1, 2020, we had processed 964 PPP loans totaling $242.7 million. PPP
loans are guaranteed by the SBA and therefore we believe PPP loans generally do
not represent a material credit risk.



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Capital and liquidity

While we believe we have sufficient capital and do not anticipate any need for
additional liquidity as of March 31, 2020, in response to the uncertainty
regarding the severity and duration of the COVID-19 pandemic, we have taken
additional actions to ensure the strength of our liquidity position. These
actions include suspending our share repurchase program at this time to moderate
the impact of COVID-19 by maintaining strong capital levels and liquidity to
support customers and other stakeholders. In addition, we are also in a position
to pledge additional collateral to increase our borrowing capacity with the FRB,
if necessary. Our Board of Directors also will continue to evaluate the impacts
of the COVID-19 pandemic and the appropriateness of declaring future dividends
and the rate of any future dividends, in light of our capital and liquidity
needs.



Asset impairment

At this time, as of March 31, 2020, we do not believe there exists any
impairment to our goodwill and intangible assets, long-lived assets, right of
use assets, or available-for-sale investment securities due to the COVID-19
pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic
will result in future impairment charges related to any of the aforementioned
assets. Continued and sustained declines in Bancorp's stock price and/or other
credit related impacts could give rise to triggering events in the future that
could result in a write-down in the value of our goodwill, which could have a
material adverse impact on our results of operations.



Our processes, controls and business continuity plan



As a financial institution, we are considered an essential business and
therefore continue to operate on a modified basis to comply with governmental
restrictions and public health authority guidelines. Our bank lobbies are closed
to the general public, although business is still being transacted through
drive-up facilities, online, telephone or by appointment. Although we believe
these arrangements will remain in effect until the restrictions are lifted by
governmental authorities, we continue to operate and maintain our customer
relationships. The health and safety of our employees and customers is a major
concern to our management and every effort is being made to have employees work
from home or, if working from one of our locations is required, to maintain
appropriate social distancing and observe other health precautions.



Through this time of disruption, we have remained open for business supporting
our customers while implementing our business continuity plan to mitigate the
risks of the spread of COVID-19 to our employees and customers. We have also
taken such other actions as social distancing, restrictions on in-person
meetings and conferences, Company travel restrictions and increased sanitary
protocols. We believe these actions offer the best protection for our employees
and customers, an enhance our ability to continue providing our banking
services. We believe that we are positioned to continue these business
continuity measures for the foreseeable future, however, no assurances can be
provided as these circumstances may change depending on the duration of the
pandemic.



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Highlights


? Total loans increased for the quarter by $458.7 million, or 3.0%, to $15.5

billion from $15.1 billion in 2019.

? Total deposits increased for the quarter by $397.8 million, or 2.7%, to $15.1


    billion from $14.7 billion in 2019.



Quarterly Statement of Operations Review





Net Income



Net income for the quarter ended March 31, 2020, was $46.9 million, a decrease
of $19.8 million, or 29.7%, compared to net income of $66.7 million for the same
quarter a year ago. Diluted earnings per share for the quarter ended March 31,
2020 was $0.59 compared to $0.83 for the same quarter a year ago.



Return on average stockholders' equity was 8.12% and return on average assets
was 1.05% for the quarter ended March 31, 2020, compared to a return on average
stockholders' equity of 12.57% and a return on average assets of 1.61% for the
same quarter a year ago.



Financial Performance



                                                         Three months ended
                                                March 31, 2020        March 31, 2019
Net income (in millions)                       $           46.9      $           66.7
Basic earnings per common share                $           0.59      $      

0.83


Diluted earnings per common share              $           0.59      $      

0.83


Return on average assets                                   1.05 %                1.61 %
Return on average total stockholders' equity               8.12 %               12.57 %
Efficiency ratio                                          44.60 %               45.42 %



Net Interest Income Before Provision for Credit Losses





Net interest income before provision for credit losses decreased $3.0 million,
or 2.1%, to $140.3 million during the first quarter of 2020, compared to $143.3
million during the same quarter a year ago. The decrease was due primarily to an
increase in interest expense from time deposits, and a decrease in interest
income from loans and securities.



The net interest margin was 3.34% for the first quarter of 2020 compared to 3.70% for the first quarter of 2019 and 3.34% for the fourth quarter of 2019.





For the first quarter of 2020, the yield on average interest-earning assets was
4.44%, the cost of funds on average interest-bearing liabilities was 1.49%, and
the cost of interest-bearing deposits was 1.44%. In comparison, for the first
quarter of 2019, the yield on average interest-earning assets was 4.85%, the
cost of funds on average interest-bearing liabilities was 1.55%, and the cost of
interest-bearing deposits was 1.46%. The decrease in the yield on average
interest-earning assets resulted mainly from lower rates 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 2.95% for the quarter ended March 31, 2020, compared to 3.30%
for the same quarter a year ago.



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The following table sets forth information concerning average interest-earning
assets, average interest-bearing liabilities, and the average yields and rates
paid on those assets and liabilities for the three months ended March 31, 2020,
and 2019. Average outstanding amounts included in the table are daily averages.



                                          Interest-Earning Assets and

Interest-Bearing Liabilities


                                                        Three months ended March 31,
                                            2020                                             2019
                                         Interest         Average                         Interest         Average
                          Average         Income/         Yield/           Average         Income/         Yield/
                          Balance         Expense       Rate (1)(2)        Balance         Expense       Rate (1)(2)
                                                           (Dollars in thousands)
Interest-earning
assets:
Total loans and
leases (1)              $ 15,213,440     $ 177,870              4.70 %   $ 14,088,488     $ 178,277              5.13 %
Investment securities      1,379,365         7,610              2.22        1,270,053         7,290              2.33
Federal Home Loan
Bank stock                    17,268           305              7.09           17,304           304              7.13
Interest-bearing
deposits                     311,024           951              1.23          312,779         1,890              2.45
Total
interest-earning
assets                    16,921,097       186,736              4.44       15,688,624       187,761              4.85
Non-interest earning
assets:
Cash and due from
banks                        175,827                                          211,792
Other non-earning
assets                     1,030,634                                        1,035,208
Total non-interest
earning assets             1,206,461                                        1,247,000
Less: Allowance for
loan losses                 (123,886 )                                       (122,907 )
Deferred loan fees              (631 )                                         (1,468 )
Total assets            $ 18,003,041                                     $ 16,811,249

Interest-bearing
liabilities:
Interest-bearing
demand accounts         $  1,388,597     $     709              0.21 %   $  1,309,109     $     609              0.19 %
Money market accounts      2,437,997         6,959              1.15        1,915,030         4,428              0.94
Savings accounts             733,372           323              0.18          717,393           340              0.19
Time deposits              7,495,619        35,155              1.89        7,064,254        34,123              1.96

Total

interest-bearing


deposits                  12,055,585        43,146              1.44       11,005,786        39,500              1.46

Other borrowings             392,029         1,839              1.89          462,043         2,813              2.47
Long-term debt               119,136         1,440              4.86          183,115         2,132              4.72
Total
interest-bearing
liabilities               12,566,750        46,425              1.49       11,650,944        44,445              1.55

Non-interest bearing
liabilities:
Demand deposits            2,863,889                                        2,775,545
Other liabilities            252,119                                          233,568
Total equity               2,320,283                                        2,151,192
Total liabilities and
equity                  $ 18,003,041                                     $ 16,811,249

Net interest spread                                             2.95 %                                           3.31 %
Net interest income                      $ 140,311                                        $ 143,316
Net interest margin                                             3.34 %                                           3.70 %



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






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The following table summarizes the changes in interest income and interest expense attributable to changes in volume and changes in interest rates for the three months ended March 31, 2020 and 2019:





       Taxable-Equivalent Net Interest Income - Changes Due to Volume and Rate(1)
                                                    Three months ended March 31,
                                                              2020-2019
                                                       Increase/(Decrease) in
                                                     Net Interest Income Due to:
                                             Changes in         Changes in       Total
                                               Volume              Rate          Change
                                                           (In thousands)
Interest-earning assets:
Loans and leases                             $    14,575       $    (14,981 )   $   (406 )
Investment securities                                655               (335 )        320
Deposits with other banks                            (10 )             (929 )       (939 )
Total changes in interest income                  15,220            (16,245 

) (1,025 )



Interest-bearing liabilities:
Interest-bearing demand accounts                      41                 60          101
Money market accounts                              1,390              1,141        2,531
Savings accounts                                       8                (26 )        (18 )
Time deposits                                      2,239             (1,207 )      1,032
Other borrowed funds                                (381 )             (592 )       (973 )
Long-term debt                                      (756 )               63         (693 )
Total changes in interest expense                  2,541               (561 )      1,980
Changes in net interest income               $    12,679       $    (15,684 )   $ (3,005 )

(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) for credit losses





Based on a review of the appropriateness of the allowance for loan losses at
March 31, 2020, the Company recorded a provision for credit losses of $25.0
million in first quarter of 2020 compared to no provision for credit losses in
the first quarter of 2019. The provision for credit losses is primarily a result
of the economic deterioration of the global economy resulting from the COVID-19
pandemic. While we took steps to incorporate the impact of the COVID-19 pandemic
on the economic forecast and other factors utilized to determine our allowance
for credit losses, if the economic forecast or other factors worsen relative to
the assumptions we utilized, our allowance for credit losses will increase
accordingly in future periods.



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



                          Three months ended March 31,
                            2020                2019
                                 (In thousands)
Charge-offs:
Commercial loans        $       1,321       $       1,231
Total charge-offs               1,321               1,231
Recoveries:
Commercial loans                1,208                  41
Construction loans                  -               1,044
Real estate loans (1)             162                 310
Total recoveries                1,370               1,395
Net recoveries          $         (49 )     $        (164 )

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






Non-Interest Income



Non-interest income, which includes revenues from depository service fees,
letters of credit commissions, equity securities gains (losses), wire transfer
fees, and other sources of fee income, was $5.8 million for the first quarter of
2020, a decrease of $7.1 million, or 55.0%, compared to $12.9 million for the
first quarter of 2019. The decrease was primarily due to a $10.3 million
decrease in net losses from equity securities, offset by a $1.4 million increase
in wealth management fees and an increase of $1.3 million in the valuation of
interest rate swap contracts, when compared to the same quarter a year ago.



Non-Interest Expense



Non-interest expense decreased $5.8 million, or 8.2%, to $65.2 million in the
first quarter of 2020, compared to $71.0 million in the same quarter a year ago.
The decrease was primarily due to a $4.5 million gain recognized on sale of a
foreclosed property, a decrease of $1.2 million in salaries and employee
benefits and a decrease of $2.4 million in provision for unfunded commitments
offset by an increase of $3.1 million in amortization expense of investments in
low income housing and alternative energy partnerships, when compared to the
same quarter a year ago. The efficiency ratio was 44.6% in the first quarter of
2020 compared to 45.4% for the same quarter a year ago.



Income Taxes



The effective tax rate for the first quarter of 2020 was 16.3% compared to 21.8%
for the first quarter of 2019. The effective tax rate for both quarters includes
the impact of low-income housing and alternative energy investment tax credits.



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Balance Sheet Review



Assets



Total assets were $18.3 billion as of March 31, 2020, an increase of $202.3
million, or 1.1%, from $18.1 billion as of December 31, 2019, primarily due to
loan growth offset in part by decreases in investment securities and short-term
investments.


Securities Available for Sale

Securities available-for-sale represented 7.4% of total assets as of March 31, 2020, compared to 8.0% of total assets as of December 31, 2019. Securities available-for-sale were $1.4 billion as of March 31, 2020, compared to $1.5 billion as of December 31, 2019.





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



                                                                  March 31, 2020
                                                              Gross            Gross
                                            Amortized       Unrealized       Unrealized
                                              Cost            Gains            Losses        Fair Value
                                                                  (In thousands)
Securities Available-for-Sale
U.S. government agency entities            $   110,650     $        151     $        391     $   110,410
U.S. government sponsored entities             175,000               45                -         175,045
Mortgage-backed securities                     883,097           27,570              663         910,004
Collateralized mortgage obligations                459                -               11             448
Corporate debt securities                      161,026               10            1,770         159,266
Total                                      $ 1,330,232     $     27,776     $      2,835     $ 1,355,173




                                                                 December 31, 2019
                                                              Gross            Gross
                                            Amortized       Unrealized       Unrealized
                                              Cost            Gains            Losses        Fair Value
                                                                  (In thousands)
Securities Available-for-Sale
U.S. treasury securities                   $    74,926     $         10     $          -     $    74,936
U.S. government agency entities                 90,452              663              319          90,796
U.S. government sponsored entities             225,000                -              557         224,443
Mortgage-backed securities                     880,040            8,574              824         887,790
Collateralized mortgage obligations                569                -               17             552
Corporate debt securities                      172,743              605               23         173,325
Total                                      $ 1,443,730     $      9,852     $      1,740     $ 1,451,842

For additional information, see Note 7 to the Company's unaudited Condensed Consolidated Financial Statements.

Securities available-for-sale having a carrying value of $21.3 million as of March 31, 2020, and $20.1 million as of December 31, 2019, were pledged to secure public deposits, other borrowings and treasury tax and loan.


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Equity Securities



The Company recognized a net loss of $6.1 million for the three months ended
March 31, 2020, due to the decrease in fair value of equity investments with
readily determinable fair values compared to a net gain of $4.2 million for the
three months ended March 31, 2019. Equity securities were $18.8 million and
$28.0 million as of March 31, 2020 and December 31, 2019, respectively.



Loans



Gross loans were $15.5 billion at March 31, 2020, an increase of $458.7 million,
or 3.0%, from $15.1 billion at December 31, 2019. The increase was primarily due
to increases of $194.3 million, or 7.0%, in commercial loans, $147.3 million, or
2.0%, in commercial mortgage loans, $85.3 million, or 2.1%, in residential
mortgage loans, and $37.3 million, or 10.7%, in equity lines. The loan balances
and composition at March 31, 2020, compared to December 31, 2019 are set forth
below:



                                                      % of Gross      December 31,      % of Gross          %
                                  March 31, 2020         Loans            2019             Loans         Change
                                                              (Dollars in thousands)

Commercial loans                 $      2,973,078            19.1 %   $   2,778,744            18.4 %         7.0 %
Residential mortgage loans              4,173,876            26.9         4,088,586            27.1           2.1
Commercial mortgage loans               7,422,585            47.8         7,275,262            48.3           2.0
Real estate construction loans            577,240             3.7           579,864             3.9          (0.5 )
Equity lines                              385,317             2.5           347,975             2.3          10.7
Installment and other loans                 2,116             0.0             5,050             0.0         (58.1 )
Gross loans                      $     15,534,212             100 %   $  15,075,481             100 %         3.0 %
Allowance for loan losses                (148,273 )                        (123,224 )                        20.3
Unamortized deferred loan fees               (277 )                            (626 )                       (55.8 )
Total loans, net                 $     15,385,662                     $  14,951,631                           2.9 %




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



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The ratio of non-performing assets to total assets was 0.4% at March 31, 2020,
compared to 0.3% at December 31, 2019. Total non-performing assets increased
$10.1 million, or 17.7%, to $67.3 million at March 31, 2020, compared to $57.2
million at December 31, 2019, primarily due to a $12.1 million commercial loan
that is in the process of being restructured, offset in part by a decrease of
$1.9 million, or 29.3%, in accruing loans past due 90 days or more and a
decrease of $1.2 million, or 11.7%, in other real estate owned.



As a percentage of gross loans plus OREO, our non-performing assets was 0.43% as
of March 31, 2020, compared to 0.38% as of December 31, 2019. The non-performing
loan portfolio coverage ratio, defined as the allowance for credit losses to
non-performing loans, decreased to 259.7% as of March 31, 2020, from 270.8% as
of December 31, 2019.



The following table sets forth the changes in non-performing assets and troubled
debt restructurings ("TDRs") as of March 31, 2020, compared to December 31,
2019, and to March 31, 2019:



                                                         December 31,
                                     March 31, 2020          2019          % Change       March 31, 2019      % Change
                                                                  (Dollars in thousands)
Non-performing assets
Accruing loans past due 90 days
or more                             $          4,531     $       6,409           (29 )   $              -           100
Non-accrual loans:
Construction loans                             4,482             4,580            (2 )              4,801            (7 )
Commercial mortgage loans                     11,859             9,928            19               17,940           (34 )
Commercial loans                              30,443            19,381            57               26,499            15
Residential mortgage loans                     6,949             6,634             5                7,443            (7 )
Total non-accrual loans             $         53,733     $      40,523            33     $         56,683            (5 )
Total non-performing loans                    58,264            46,932            24               56,683             3
Other real estate owned                        9,048            10,244           (12 )             12,522           (28 )

Total non-performing assets $ 67,312 $ 57,176

       18     $         69,205            (3 )
Accruing troubled debt
restructurings                      $         34,364     $      35,336            (3 )   $         62,948           (45 )

Allowance for loan losses           $        148,273     $     123,224            20     $        122,555            21

Total gross loans outstanding, at
period-end                          $     15,534,212     $  15,075,481             3     $     14,277,422             9

Allowance for loan losses to
non-performing loans, at
period-end                                    254.48 %          262.56 %                           216.21 %
Allowance for loan losses to
gross loans, at period-end                      0.95 %            0.82 %                             0.86 %




Non-accrual Loans



At March 31, 2020, total non-accrual loans were $53.7 million, an increase of
$13.2 million, or 32.6%, from $40.5 million at December 31, 2019, and a decrease
of $3.0 million, or 5.3%, from $56.7 million at March 31, 2019. The allowance
for the collateral-dependent loans is calculated based on the difference between
the outstanding loan balance and the value of the collateral as determined by
recent appraisals, sales contracts, or other available market price information,
less cost to sell. The allowance for collateral-dependent loans varies from loan
to loan based on the collateral coverage of the loan at the time of designation
as non-performing. We continue to monitor the collateral coverage of these
loans, based on recent appraisals, on a quarterly basis and adjust the allowance
accordingly. Non-accrual loans also include those TDRs that do not qualify for
accrual status.



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



                                                  March 31, 2020                   December 31, 2019
                                               Real                              Real
                                            Estate (1)       Commercial       Estate (1)        Commercial
                                                                    (In

thousands)


Type of Collateral
Single/multi-family residence              $      9,340     $     10,321     $       6,874     $      9,475
Commercial real estate                           13,950           13,655            14,268            1,603
Personal property (UCC)                               -            6,467                 -            8,303
Total                                      $     23,290     $     30,443     $      21,142     $     19,381

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






                                 March 31, 2020                   December 31, 2019
                              Real                              Real
                           Estate (1)       Commercial       Estate (1)       Commercial
                                                  (In thousands)
Type of Business
Real estate development   $     16,142     $          -     $     14,305     $          -
Wholesale/Retail                   621            8,617              637            9,684
Import/Export                        -           16,826                -            4,697
Other                            6,527            5,000            6,200            5,000
Total                     $     23,290     $     30,443     $     21,142     $     19,381

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






Impaired Loans



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



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As of March 31, 2020, recorded investment in impaired loans totaled $88.1
million and was comprised of non-accrual loans of $53.7 million and accruing
TDRs of $34.4 million. As of December 31, 2019, recorded investment in impaired
loans totaled $75.9 million and was comprised of non-accrual loans of $40.5
million and accruing TDRs of $35.4 million. For impaired loans, the amounts
previously charged off represent 0.3% as of March 31, 2020, and 2.1% as of
December 31, 2019, of the contractual balances for impaired loans. As of March
31, 2020, $23.3 million, or 43.3%, of the $53.7 million of non-accrual loans
were secured by real estate compared to $21.1 million, or 52.2%, of the
$40.5 million of non-accrual loans that were secured by real estate as of
December 31, 2019. The Bank generally seeks to obtain current appraisals, sales
contracts, or other available market price information intended to provide
updated factors in evaluating potential loss.



As of March 31, 2020, $3.5 million of the $148.3 million allowance for loan
losses was allocated for impaired loans and $144.8 million was allocated to the
general allowance. As of December 31, 2019, $3.2 million of the $123.2 million
allowance for loan losses was allocated for impaired loans and $120.0 million
was allocated to the general allowance.



The allowance for loan losses to non-performing loans was 254.5% as of March 31,
2020, compared to 262.6% as of December 31, 2019, primarily due to an increase
in the non-accrual loans. Non-accrual loans also include those TDRs that do not
qualify for accrual status.



The following table sets forth impaired loans and the related allowance as of
the dates indicated:



                                          March 31, 2020                                 December 31, 2019
                             Unpaid                                           Unpaid
                            Principal        Recorded                        Principal        Recorded
                             Balance        Investment       Allowance        Balance        Investment       Allowance
                                                                  (In thousands)

With no allocated
allowance
Commercial loans           $    28,685     $     25,991     $         -     $    20,134     $     15,857     $         -
Real estate construction
loans                            5,776            4,482               -           5,776            4,580               -
Commercial mortgage
loans                           16,559           16,223               -           9,234            9,030               -
Residential mortgage
loans and equity lines           6,046            6,024               -           6,171            6,073               -
Subtotal                   $    57,066     $     52,720     $         -     $    41,315     $     35,540     $         -

With allocated allowance
Commercial loans           $     9,223     $      9,152     $     2,827     $     8,769     $      8,739     $     2,543
Commercial mortgage
loans                           20,513           20,420             405          26,117           26,040             473
Residential mortgage
loans and equity lines           7,018            5,805             219           6,740            5,540             220
Subtotal                   $    36,754     $     35,377     $     3,451     $    41,626     $     40,319     $     3,236
Total impaired loans       $    93,820     $     88,097     $     3,451     $    82,941     $     75,859     $     3,236




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Loan Interest Reserves



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



As of March 31, 2020, construction loans of $549.4 million were disbursed with
pre-established interest reserves of $71.5 million, compared to $550.0 million
with pre-established interest reserves of $73.4 million at December 31, 2019.
The balance for construction loans with interest reserves that have been
extended was $106.8 million with pre-established interest reserves of $3.1
million at March 31, 2020, compared to $129.2 million with pre-established
interest reserves of $4.7 million at December 31, 2019.  Land loans of $57.2
million were disbursed with pre-established interest reserves of $1.0 million at
March 31, 2020, compared to $45.5 million of land loans disbursed with
pre-established interest reserves of $1.9 million at December 31, 2019.  The
balance for land loans with interest reserves that have been extended was $942
thousand at March 31, 2020 with pre-established interest reserves of $58
thousand, compared to $1.7 million in land loans with pre-established interest
reserves of $2 thousand at December 31, 2019.



At March 31, 2020 and December 31, 2019, the Bank had no loans on non-accrual
status with available interest reserves.  At March 31, 2020 and December 31,
2019, $4.5 million and $4.6 million of non-accrual non-residential construction
loans had been originated with pre-established interest reserves, respectively.
While we typically expect loans with interest reserves to be repaid in full
according to the original contractual terms, some loans may require one or more
extensions beyond the original maturity before full repayment.  Typically, these
extensions are required due to construction delays, delays in the sale or lease
of the property, or some combination of these two factors.



Loan Concentration



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



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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 33%
of the Bank's total risk-based capital as of March 31, 2020, and 34% as of
December 31, 2019. Total CRE loans represented 275% of total risk-based capital
as of March 31, 2020, and 277% as of December 31, 2019 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 it
believes 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.



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 take into
consideration known relevant internal and external factors that affect
collectability when determining the appropriate level for the allowance for
credit losses. The nature of the process by which the Bank determines the
appropriate allowance for credit losses requires the exercise of considerable
judgment. Additions to the allowance for credit losses are made by charges to
the provision for credit losses. While management utilizes its business judgment
based on the information available, the ultimate appropriateness of the
allowance is dependent upon a variety of factors, many of which are beyond the
Bank's control, including but not limited to the performance of the Bank's loan
portfolio, the economy and market conditions, changes in interest rates, and the
view of the regulatory authorities toward loan classifications. Identified
credit exposures that are determined to be uncollectible are charged against the
allowance for credit losses. Recoveries of previously charged off amounts, if
any, are credited to the allowance for credit losses. A weakening of the economy
or other factors that adversely affect asset quality could result in an increase
in the number of delinquencies, bankruptcies, or defaults, and a higher level of
non-performing assets, net charge-offs, and provision for credit losses in
future periods.



The allowance for loan losses was $148.3 million and the allowance for
off-balance sheet unfunded credit commitments was $3.0 million at March 31,
2020, which represented the amount believed by management to be appropriate to
absorb credit losses inherent in the loan portfolio, including unfunded credit
commitments. The $148.3 million allowance for loan losses at March 31, 2020,
increased $25.1 million, or 20.4%, from $123.2 million at December 31, 2019.
This increase included $22.0 million of additional allowance for loan losses due
to deterioration in economic conditions in the closing weeks of the quarter
related to COVID-19. This deterioration is reflected in unprecedented increases
in new unemployment claims in the United States and deterioration in global
economic measures during this period. While we took steps to incorporate the
impact of the COVID-19 pandemic on the economic forecast and other factors
utilized to determine our allowance for loan losses, if the economic forecast or
other factors worsen relative to the assumptions we utilized, our allowance for
loan losses will increase accordingly in future periods. The allowance for loan
losses represented 0.95% of period-end gross loans and 254.5% of non-performing
loans at March 31, 2020. The comparable ratios were 0.82% of period-end gross
loans and 262.6% of non-performing loans at December 31, 2019.



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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 March 31,
                                                                2020                2019
                                                                    (In thousands)
Allowance for loan losses
Balance at beginning of period                             $       123,224      $    122,391
Provision for credit losses                                         25,000                 -
Charge-offs:
Commercial loans                                                    (1,321 )          (1,231 )
Total charge-offs                                                   (1,321 )          (1,231 )
Recoveries:
Commercial loans                                                     1,208                41
Construction loans                                                       -             1,044
Real estate loans                                                      162               310
Total recoveries                                                     1,370             1,395
Balance at end of period                                   $       148,273      $    122,555

Reserve for off-balance sheet credit commitments
Balance at beginning of period                             $         3,855      $      2,250
(Reversal)/Provision for credit losses                                (842 )           1,600
Balance at end of period                                   $         3,013  

$ 3,850



Average loans outstanding during the period                $    15,213,440      $ 14,088,488
Total gross loans outstanding, at period-end               $    15,534,212      $ 14,277,422
Total non-performing loans, at period-end                  $        58,264

$ 56,683 Ratio of net recoveries to average loans outstanding during the period

                                                   (0.00) 

% (0.00) % Provision for credit losses to average loans outstanding during the period

                                                     0.64 %            0.05 %

Allowance for credit losses to non-performing loans, at period-end

                                                          259.66 %          223.00 %
Allowance for credit losses to gross loans, at
period-end                                                            0.97 %            0.89 %




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Our allowance for loan losses consists of the following:

• Specific allowance: For impaired loans, we provide specific allowances for

loans that are not collateral dependent based on an evaluation of the

present value of the expected future cash flows discounted at the loan's

effective interest rate and for loans that are collateral dependent based on

the fair value of the underlying collateral determined by the most recent

valuation information received, which may be adjusted based on factors such

as changes in market conditions from the time of valuation. If the measure

of the impaired loan is less than the recorded investment in the loan, the


      deficiency will be charged off against the allowance for loan losses or,
      alternatively, a specific allocation will be established.



• General allowance: The unclassified portfolio is segmented on a group basis.

Segmentation is determined by loan type and common risk characteristics. The

non-impaired loans are grouped into 19 segments: two commercial segments, ten

commercial real estate segments, one residential construction segment, one

non-residential construction segment, one SBA segment, one installment loans

segment, one residential mortgage segment, one equity lines of credit segment,

and one overdrafts segment. The allowance is provided for each segmented group

based on the group's historical loan loss experience aggregated based on loan

risk classifications which take into account, among other things, the current

financial condition of the borrowers and guarantors, the prevailing value of


    the underlying collateral if collateral dependent, charge-off history,
    management's knowledge of the portfolio, general economic conditions,
    environmental factors, trends in delinquency and non-accrual, and other
    significant factors, such as the national and local economy, volume and
    composition of the portfolio, strength of management and loan staff,

underwriting standards, and concentration of credit. In addition, management

reviews reports on past-due loans to check for appropriate classification.






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



                                                     March 31, 2020                    December 31, 2019
                                                             Percentage of                       Percentage of
                                                             Loans in Each                       Loans in Each
                                                               Category                            Category
                                                              to Average                          to Average
                                               Amount         Gross Loans         Amount          Gross Loans
                                                                       (In thousands)
Type of Loan:
Commercial loans                              $  67,799                18.7 %   $    57,021                18.9 %
Real estate construction loans                   23,222                 3.7          19,474                 4.0
Commercial mortgage loans                        39,886                48.1          33,602                48.0
Residential mortgage loans and equity lines      17,366                29.5          13,108                29.1
Installment and other loans                           -                   -              19                   -
Total loans                                   $ 148,273                 100 %   $   123,224                 100 %




The allowance allocated to commercial loans increased $10.8 million, or 18.9%,
to $67.8 million at March 31, 2020, from $57.0 million at December 31, 2019. The
increase is due primarily to an increase in the allowance due to deterioration
in economic conditions in the closing weeks of the quarter related to COVID-19
and increases in commercial loan growth and non-accrual loans in the first
quarter.



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The allowance allocated to real estate construction loans increased $3.7
million, or 19.0%, to $23.2 million at March 31, 2020 from $19.5 million at
December 31, 2019. The increase is due primarily to an increase in the allowance
due to deterioration in economic conditions in the closing weeks of the quarter
related to COVID-19.



The allowance allocated to commercial mortgage loans increased $6.3 million, or
18.8%, to $39.9 million at March 31, 2020, from $33.6 million at December 31,
2019. The increase is due primarily to an increase in the allowance due to
deterioration in economic conditions in the closing weeks of the quarter related
to COVID-19 and an increase in commercial mortgage loan growth in the first
quarter.



The allowance allocated for residential mortgage loans increased by $4.3
million, or 32.8%, to $17.4 million as of March 31, 2020, from $13.1 million at
December 31, 2019. The increase is due primarily to an increase in the allowance
due to deterioration in economic conditions in the closing weeks of the quarter
related to COVID-19 and increases in substandard and special mention loans in
the first quarter.



Deposits


Total deposits were $15.1 billion at March 31, 2020, an increase of $397.8 million, or 2.7%, from $14.7 billion at December 31, 2019. The following table sets forth the deposit mix as of the dates indicated:





                                                  March 31, 2020                   December 31, 2019
                                              Amount         Percentage         Amount         Percentage
Deposits                                                       (Dollars in 

thousands)


Non-interest-bearing demand deposits       $  2,860,580             19.0 %   $  2,871,444             19.5 %
Interest bearing demand deposits              1,514,434             10.0        1,358,152              9.2
Money market deposits                         2,482,950             16.5        2,260,764             15.4
Savings deposits                                710,602              4.7          758,903              5.2
Time deposits                                 7,521,584             49.8        7,443,045             50.7
Total deposits                             $ 15,090,150            100.0 %   $ 14,692,308            100.0 %




The following table sets forth the maturity distribution of time deposits at
March 31, 2020:



                                                At March 31, 2020
                             Time Deposits -        Time Deposits -       Total Time
                             under $100,000        $100,000 and over       Deposits
                                             (Dollars in thousands)
Less than three months      $         463,745     $           951,279     $ 1,415,024
Three to six months                   443,358               1,364,939       1,808,297
Six to twelve months                  932,769               2,784,517       3,717,286
Over one year                         194,168                 386,809         580,977
Total                       $       2,034,040     $         5,487,544     $ 7,521,584

Percent of total deposits                13.5 %                  36.3 %          49.8 %




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Borrowings


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





Short-term borrowings - The Company had $12.9 million of short-term borrowings
outstanding with an interest rate of 2.4% as of March 31, 2020. This funding was
entered into by the Company's Hong Kong office, and will mature in April 2020.



Borrowings from the FHLB - As of March 31, 2020, over-night borrowings from the
FHLB were zero, compared to $450 million at an average rate of 1.66% as of
December 31, 2019. Advances from the FHLB were $495 million at an average rate
of 1.13% as of March 31, 2020 and $220 million at an average rate of 2.26% as of
December 31, 2019. As of March 31, 2020, FHLB advances of $275 million will
mature in April 2020, $75 million in May 2021, $50 million in June 2021, $75
million in July 2021, and $20 million in May 2023.



Other Borrowings - The Company owes a residual payable balance of $7.7 million
to Bank SinoPac Co. related to the Company's acquisition of SinoPac Bancorp, the
parent of Far East National Bank, completed in October 2017. The remaining
balance of $7.0 million, due in July 2020, has an interest rate of 2.95%
(three-month LIBOR rate plus 150 basis points) as of March 31, 2020.



At March 31, 2020, Junior Subordinated Notes totaled $119.1 million with a
weighted average interest rate of 3.15%, compared to $119.1 million with a
weighted average rate of 4.09% at December 31, 2019. The Junior Subordinated
Notes have a stated maturity term of 30 years. The trusts are not consolidated
with the Company in accordance with an accounting pronouncement that took effect
in December 2003.


Off-Balance-Sheet Arrangements and Contractual Obligations





The following table summarizes the Company's contractual obligations to make
future payments as of March 31, 2020. Payments for deposits and borrowings do
not include interest. Payments related to leases are based on actual payments
specified in the underlying contracts.



                                                            Payment Due by Period
                                                   More than       3 years or
                                                  1 year but        more but
                                    1 year         less than       less than        5 years
                                    or less         3 years         5 years         or more         Total
                                                                (In thousands)
Contractual obligations:
Deposits with stated maturity
dates                             $ 6,940,607     $   565,641     $     15,297     $      39     $ 7,521,584
Advances from the Federal Home
Loan Bank                             275,000         200,000           20,000             -         495,000
Other borrowings                        7,031               -                -        28,981          36,012
Long-term debt                              -               -                -       119,136         119,136
Operating leases                        6,714          15,106            9,862         6,241          37,923
Total contractual obligations
and other commitments             $ 7,229,352     $   780,747     $     45,159     $ 154,397     $ 8,209,655




In the normal course of business, we enter into various transactions, which, in
accordance with U.S. 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.



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



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



Capital Resources



Total equity was $2.31 billion as of March 31, 2020, an increase of $18.8
million, from $2.29 billion as of December 31, 2019, primarily due to net income
of $46.9 million, increases in other comprehensive income of $7.6 million, and
proceeds from dividend reinvestment of $846 thousand, and partially offset by
common stock cash dividends of $24.7 million and repurchases of the Company's
common stock of $12.9 million.



The following table summarizes changes in total equity for the three months
ended March 31, 2020:



                                                                       Three months
                                                                          ended
                                                                      March 31, 2020
                                                                      (In thousands)
Net income                                                            $       46,852

Proceeds from shares issued through the Dividend Reinvestment Plan

846


RSUs distributed                                                            

1


Shares withheld related to net share settlement of RSUs                         (523 )
Purchase of treasury stock                                                   (12,880 )
Share-based compensation                                                       1,543
Cash dividends paid to common stockholders                                   (24,660 )
Other comprehensive income                                                  

7,575


Net increase in total equity                                          $       18,754




Capital Adequacy Review


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


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



                                                                  Minimum Capital             Required to be Considered Well
                                    Actual                      Required - Basel III                    Capitalized
                                                                                                Capital
                         Capital Amount        Ratio        Capital Amount        Ratio          Amount             Ratio
March 31, 2020                                                 (Dollars in thousands)

Common Equity Tier 1 to Risk-Weighted
Assets
Cathay General
Bancorp                 $      1,904,483         12.38     $      1,076,711          7.00     $    999,803               6.50
Cathay Bank                    1,978,085         12.88            1,075,416          7.00          998,601               6.50

Tier 1 Capital to
Risk-Weighted Assets
Cathay General
Bancorp                        1,904,483         12.38            1,307,435          8.50        1,230,527               8.00
Cathay Bank                    1,978,085         12.88            1,305,862          8.50        1,229,047               8.00

Total Capital to
Risk-Weighted Assets
Cathay General
Bancorp                        2,171,269         14.12            1,615,066         10.50        1,538,158              10.00
Cathay Bank                    2,129,371         13.86            1,613,124         10.50        1,536,309              10.00

Leverage Ratio
Cathay General
Bancorp                        1,904,483         10.82              703,798          4.00          879,748               5.00
Cathay Bank                    1,978,085         11.26              702,740          4.00          878,425               5.00




                                                                  Minimum Capital             Required to be Considered Well
                                    Actual                      Required - Basel III                    Capitalized
                                                                                                Capital
                         Capital Amount        Ratio        Capital Amount        Ratio          Amount             Ratio
December 31, 2019                                              (Dollars in 

thousands)



Common Equity Tier 1 to Risk-Weighted
Assets
Cathay General
Bancorp                 $      1,892,321         12.51     $      1,059,259          7.00     $    983,597               6.50
Cathay Bank                    1,959,832         12.97            1,057,880          7.00          982,318               6.50

Tier 1 Capital to
Risk-Weighted Assets
Cathay General
Bancorp                        1,892,321         12.51            1,286,243          8.50        1,210,581               8.00
Cathay Bank                    1,959,832         12.97            1,284,569          8.50        1,209,006               8.00

Total Capital to
Risk-Weighted Assets
Cathay General
Bancorp                        2,134,900         14.11            1,588,888         10.50        1,513,227              10.00
Cathay Bank                    2,086,911         13.81            1,586,821         10.50        1,511,258              10.00

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




As of March 31, 2020, capital levels at Bancorp and the Bank exceed all capital
adequacy requirements under the fully phased-in Basel III Capital Rules. Based
on the ratios presented above, capital levels as of March 31, 2020 at Bancorp
and the Bank exceed the minimum levels necessary to be considered "well
capitalized."



Dividend Policy



Holders of common stock are entitled to dividends as and when declared by our
Board of Directors out of funds legally available for the payment of dividends.
Although we have historically paid cash dividends on our common stock, we are
not required to do so. The amount of future dividends, if any, will depend on
our earnings, financial condition, capital requirements and other factors, and
will be determined by our Board of Directors. The terms of our Junior
Subordinated Notes also limit our ability to pay dividends. We increased the
common stock dividend from $0.21 per share in the fourth quarter of 2016, to
$0.24 per share in the fourth quarter of 2017, and to $0.31 per share in the
fourth quarter of 2018 and 2019.



The Company declared a cash dividend of $0.31 per share on 79,546,735 shares
outstanding on March 2, 2020, for distribution to holders of our common stock on
March 12, 2020. The Company paid total cash dividends of $24.7 million in the
first quarter of 2020.



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Financial Derivatives



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



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



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



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



                                          March 31, 2020       December 31, 2019
Cash flow swap hedges:                               ($ in thousands)
Notional                                 $        119,136     $           119,136
Weighted average fixed rate-pay                      2.61 %                  2.61 %
Weighted average variable rate-receive               0.98 %                 

2.26 %



Unrealized loss, net of taxes (1)        $         (7,691 )   $            (3,412 )




                                                 Three months ended
                                        March 31, 2020         March 31, 2019
Periodic net settlement of swaps (2)   $            255       $            (45 )




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




As of March 31, 2020, the Bank's outstanding interest rate swap contracts had a
notional amount of $561.9 million for various terms from three to ten years. The
Bank entered into these interest rate swap contracts that are matched to
individual fixed-rate commercial real estate 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 loans due to
changes in interest rates. The swap contracts are structured so that the
notional amounts reduce over time to match the contractual amortization of the
underlying loan and allow prepayments with the same pre-payment penalty amounts
as the related loan. As of March 31, 2020, and 2019, the ineffective portion of
these interest rate swaps was not significant. The notional amount and net
unrealized loss of the Company's fair value derivative financial instruments as
of March 31, 2020, and December 31, 2019, were as follows:



                                          March 31, 2020       December 31, 2019
Fair value swap hedges:                              ($ in thousands)
Notional                                 $        561,854     $           579,584
Weighted average fixed rate-pay                      4.65 %                  4.71 %
Weighted average variable rate spread                2.58 %                  2.62 %
Weighted average variable rate-receive               4.16 %                  4.87 %

Net unrealized loss (1)                  $        (18,176 )   $            (7,205 )




                                                 Three months ended
                                        March 31, 2020         March 31, 2019
Periodic net settlement of SWAPs (2)   $           (643 )     $            613



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






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The Company has designated as a partial-term hedging election $25.0 million of a
pool of loans with a notational value of $45.2 million as of March 31, 2020. The
loans are not expected to be affected by prepayment, defaults, or other factors
affecting the timing and amount of cash flows under the last-of-layer method.
The Company has entered into a pay-fixed and receive 1-Month LIBOR interest rate
swap to convert the last-of-layer $25.0 million portion of a $45.2 million fixed
rate loan tranche in order to reduce the Company's exposure to higher interest
rates for the last-of-layer tranche. As of March 31, 2020, the last-of-layer
loan tranche had a fair value basis adjustment of $245 thousand. The interest
rate swap converts this last-of-layer tranche into a floating rate instrument.
The Company's risk management objective with respect to this last-of-layer
interest rate swap is to reduce interest rate exposure as to the last-of-layer
tranche.



Interest rate swap contracts involve the risk of dealing with institutional
derivative counterparties and their ability to meet contractual terms.
Institutional counterparties must have a strong credit profile and be approved
by the Company's Board of Directors. The Company's credit exposure on interest
rate swaps is limited to the net favorable value and interest payments of all
swaps by each counterparty. Credit exposure may be reduced by the amount of
collateral pledged by the counterparty. The Bancorp's interest rate swaps have
been assigned by the counterparties to a derivative clearing organization and
daily margin is indirectly maintained with the derivative clearing organization.
Cash posted as collateral by the Bancorp related to derivative contracts totaled
$13.4 million as of March 31, 2020 and $7.1 million as of December 31, 2019.



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



                                                          March 31, 2020       December 31, 2019
Derivative financial instruments not designated as
hedging instruments:                                                 ($ in thousands)
Notional amounts:
Option contracts                                         $          2,496     $               908

Spot, forward, and swap contracts with positive fair value

$        110,465     $           146,397
Spot, forward, and swap contracts with negative fair
value                                                    $        216,401     $           127,003
Fair value:
Option contracts                                         $            (14 )   $                (7 )

Spot, forward, and swap contracts with positive fair value

                                                    $          1,157     $             2,411
Spot, forward, and swap contracts with negative fair
value                                                    $         (4,211 )   $            (1,415 )




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Liquidity



Liquidity is our ability to maintain sufficient cash flow to meet maturing
financial obligations and customer credit needs, and to take advantage of
investment opportunities as they are presented in the marketplace. Our principal
sources of liquidity are growth in deposits, proceeds from the maturity or sale
of securities and other financial instruments, repayments from securities and
loans, federal funds purchased, securities sold under agreements to repurchase,
and advances from the FHLB. As of March 31, 2020, our average monthly liquidity
ratio (defined as net cash plus short-term and marketable securities to net
deposits and short-term liabilities) was 12.1% compared to 12.9% as of December
31, 2019.



The Bank is a shareholder of the FHLB, which enables the Bank to have access to
lower-cost FHLB financing when necessary. At March 31, 2020, the Bank had an
approved credit line with the FHLB of San Francisco totaling $4.5 billion. Total
advances from the FHLB of San Francisco were $495.0 million and standby letter
of credits issued by the FHLB on the Company's behalf were $489.1 million as of
March 31, 2020. These borrowings bear fixed rates and are secured by the Bank's
loans. See Note 11 to the Condensed Consolidated Financial Statements. At March
31, 2020, the Bank pledged $10.0 million of its commercial loans to the Federal
Reserve Bank's Discount Window under the Borrower-in-Custody program. The Bank
had borrowing capacity of $10.0 million from the Federal Reserve Bank Discount
Window at March 31, 2020.



Liquidity can also be provided through the sale of liquid assets, which consist
of federal funds sold, securities purchased under agreements to resell, and
securities available-for-sale. At March 31, 2020, investment securities totaled
$1.4 billion, with $21.3 million pledged as collateral for borrowings and other
commitments. The remaining $1.4 billion was available as additional liquidity or
to be pledged as collateral for additional borrowings.



Approximately 92% of our time deposits mature within one year or less as of
March 31, 2020. Management anticipates that there may be some outflow of these
deposits upon maturity due to the keen competition in the Bank's marketplace.
However, based on our historical runoff experience, we expect the outflow will
not be significant and can be replenished through our normal growth in deposits.
As of March 31, 2020, management believes all the above-mentioned sources will
provide adequate liquidity during the next twelve months for the Bank to meet
its operating needs. Deposits and other sources of liquidity, however, may be
adversely impacted by COVID-19 pandemic.



The business activities of Bancorp consist primarily of the operation of the
Bank and limited activities in other investments. The Bank paid dividends to
Bancorp totaling $36.0 million and $55.0 million during the first quarter of
2020 and 2019, respectively.



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