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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________ 
FORM 10-Q
______________________________________________ 

Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2018
Commission File Number: 000-50245
______________________________________________ 
HOPE BANCORP, INC.
(Exact name of registrant as specified in its charter)
______________________________________________ 
Delaware
 
95-4849715
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3200 Wilshire Boulevard, Suite 1400,
Los Angeles, California
 
90010
(Address of principal executive offices)
 
(Zip Code)
(213) 639-1700
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if change since last report)
______________________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(d) of the Exchange Act.   o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o   No  x
As of May 2, 2018, there were 135,517,002 outstanding shares of Hope Bancorp, Inc. common stock, $0.001 par value.



Table of Contents
 
 
 
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Statements of Financial Condition - March 31, 2018 (Unaudited) and December 31, 2017
 
 
 
 
Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2018 and 2017
 
 
 
 
Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2018 and 2017
 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - Three Months Ended March 31, 2018 and 2017
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2018 and 2017
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
LEGAL PROCEEDINGS
 
 
 
Item 1A.
RISK FACTORS
 
 
 
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 
 
Item 3.
DEFAULTS UPON SENIOR SECURITIES
 
 
 
Item 4.
MINE SAFETY DISCLOSURES
 
 
 
Item 5.
OTHER INFORMATION
 
 
 
Item 6.
EXHIBITS
 
 
 
 
 
 
INDEX TO EXHIBITS
 
 
 
SIGNATURES
 
 
 


2

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Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, expectations regarding the business environment in which we operate, projections of future performance, perceived opportunities in the market, and statements regarding our business strategies, objectives and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the words “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. With respect to any such forward-looking statements, the Company claims the protection provided for in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, trends, uncertainties, and factors that are beyond the Company’s control or ability to predict. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in any forward-looking statements. The risks and uncertainties include: the Company’s inability to remediate its presently identified material weaknesses or to do so in a timely manner, the possibility that additional material weaknesses may arise in the future, and that a material weakness may have an impact on our reported financial results; possible deterioration in economic conditions in our areas of operation; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; and regulatory risks associated with current and future regulations. For additional information concerning these and other risk factors, see Part I, Item 1A. Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2017.
The Company does not undertake, and specifically disclaims any obligation, to update any forward looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.


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Table of Contents

PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements

HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
 
 
(Unaudited)
 
 
 
March 31,
2018
 
December 31,
2017
ASSETS
(Dollars in thousands, except share data)
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
160,372

 
$
185,527

Interest bearing cash in other banks
451,981

 
306,473

Total cash and cash equivalents
612,353

 
492,000

Interest bearing deposits in other financial institutions and other investments
78,940

 
53,366

Securities available for sale, at fair value
1,699,315

 
1,720,257

Loans held for sale, at the lower of cost or fair value
33,689

 
29,661

Loans receivable (net of allowance for loan losses of $86,461 and $84,541 at March 31, 2018 and December 31, 2017, respectively)
11,206,022

 
11,018,034

Other real estate owned (“OREO”), net
8,261

 
10,787

Federal Home Loan Bank (“FHLB”) stock, at cost
28,966

 
29,776

Premises and equipment, net
56,564

 
56,714

Accrued interest receivable
29,154

 
29,979

Deferred tax assets, net
58,082

 
55,203

Customers’ liabilities on acceptances
1,220

 
1,691

Bank owned life insurance (“BOLI”)
75,302

 
74,915

Investments in affordable housing partnerships
78,379

 
81,009

Goodwill
464,450

 
464,450

Core deposit intangible assets, net
15,907

 
16,523

Servicing assets
24,866

 
24,710

Other assets
35,656

 
47,642

Total assets
$
14,507,126

 
$
14,206,717

 
 
 
 
(Continued)

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HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
 
 
(Unaudited)
 
 
 
March 31,
2018
 
December 31,
2017
LIABILITIES AND STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share data)
LIABILITIES:
 
 
 
Deposits:
 
 
 
Noninterest bearing
$
3,048,181

 
$
2,998,734

Interest bearing:
 
 
 
Money market and NOW accounts
3,454,660

 
3,332,703

Savings deposits
233,014

 
240,509

Time deposits
4,774,714

 
4,274,663

Total deposits
11,510,569

 
10,846,609

FHLB advances
862,346

 
1,157,693

Federal funds purchased

 
69,900

Subordinated debentures
101,117


100,853

Accrued interest payable
19,614

 
15,961

Acceptances outstanding
1,220

 
1,691

Commitments to fund investments in affordable housing partnerships
35,495

 
38,467

Other liabilities
31,432

 
47,288

Total liabilities
12,561,793

 
12,278,462

STOCKHOLDERS’ EQUITY:
 
 
 
Common stock, $0.001 par value; authorized 150,000,000 shares at March 31, 2018 and December 31, 2017: issued and outstanding, 135,516,119 and 135,511,891 shares at March 31, 2018 and December 31, 2017, respectively
136

 
136

Additional paid-in capital
1,405,806

 
1,405,014

Retained earnings
578,031

 
544,886

Accumulated other comprehensive loss, net
(38,640
)
 
(21,781
)
Total stockholders’ equity
1,945,333

 
1,928,255

Total liabilities and stockholders’ equity
$
14,507,126

 
$
14,206,717


See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
 
 
Three Months Ended March 31,
 
2018
 
2017
 
(Dollars in thousands, except per share data)
INTEREST INCOME:
 
 
 
Interest and fees on loans
$
137,943

 
$
123,294

Interest on securities
10,101

 
8,113

Interest on federal funds sold and other investments
2,366

 
1,336

Total interest income
150,410

 
132,743

INTEREST EXPENSE:
 
 
 
Interest on deposits
24,849

 
14,511

Interest on FHLB advances
4,069

 
2,139

Interest on other borrowings
1,424

 
1,188

Total interest expense
30,342

 
17,838

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
120,068

 
114,905

PROVISION FOR LOAN LOSSES
2,500

 
5,600

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
117,568

 
109,305

NONINTEREST INCOME:
 
 
 
Service fees on deposit accounts
4,801

 
5,338

International service fees
1,020

 
1,108

Loan servicing fees, net
1,579

 
1,438

Wire transfer fees
1,207

 
1,186

Net gains on sales of SBA loans
3,450

 
3,250

Net gains on sales of other loans
1,196

 
420

Other income and fees
6,597

 
4,863

Total noninterest income
19,850

 
17,603

NONINTEREST EXPENSE:
 
 
 
Salaries and employee benefits
39,385

 
34,166

Occupancy
7,239

 
7,194

Furniture and equipment
3,721

 
3,413

Advertising and marketing
2,299

 
3,424

Data processing and communications
3,495

 
3,606

Professional fees
3,106

 
3,902

Loss on investments in affordable housing partnerships
2,630

 
2,160

FDIC assessments
1,767

 
1,010

Credit related expenses
772

 
1,883

OREO expense, net
(104
)
 
997

Merger-related expenses
(7
)
 
947

Other
4,150

 
4,997

Total noninterest expense
68,453

 
67,699

INCOME BEFORE INCOME TAXES
68,965

 
59,209

INCOME TAX PROVISION
17,733

 
22,999

NET INCOME
$
51,232

 
$
36,210

EARNINGS PER COMMON SHARE
 
 
 
Basic
$
0.38

 
$
0.27

Diluted
$
0.38

 
$
0.27

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
 
 
Three Months Ended March 31,
 
2018
 
2017
 
(Dollars in thousands)
Net income
$
51,232

 
$
36,210

Other comprehensive (loss) income:
 
 
 
Change in unrealized net holding (losses) gains on securities available for sale
(24,645
)
 
3,181

Change in unrealized net holding losses on interest only strips
(4
)
 
(49
)
Tax effect
7,509

 
(1,324
)
Other comprehensive (loss) income, net of tax
(17,140
)
 
1,808

Total comprehensive income
$
34,092

 
$
38,018



See accompanying Notes to Consolidated Financial Statements (Unaudited)


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HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
Additional paid-in capital
 
Retained
earnings
 
Accumulated other comprehensive loss, net
 
Total
stockholders’ equity
 
 
Shares
 
Amount
 
(Dollars in thousands, except share data)
 
 
BALANCE, JANUARY 1, 2017
 
135,240,079

 
$
135

 
$
1,400,490

 
$
469,505

 
$
(14,657
)
 
$
1,855,473

Issuance of shares pursuant to various stock plans
 
8,106

 
 
 
252

 
 
 
 
 
252

Stock-based compensation
 
 
 
 
 
533

 
 
 
 
 
533

Cash dividends declared on common stock
 
 
 
 
 
 
 
(16,229
)
 
 
 
(16,229
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
36,210

 
 
 
36,210

Other comprehensive income
 
 
 
 
 
 
 
 
 
1,808

 
1,808

BALANCE, MARCH 31, 2017
 
135,248,185

 
$
135

 
$
1,401,275

 
$
489,486

 
$
(12,849
)
 
$
1,878,047

 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2018
 
135,511,891

 
$
136

 
$
1,405,014

 
$
544,886

 
$
(21,781
)
 
$
1,928,255

Reclassification of unrealized losses on equity investments to retained earnings - ASU 2016-01
 
 
 
 
 
 
 
(469
)
 
281

 
(188
)
Issuance of shares pursuant to various stock plans
 
4,228

 
 
 
112

 
 
 
 
 
112

Stock-based compensation
 
 
 
 
 
680

 
 
 
 
 
680

Cash dividends declared on common stock
 
 
 
 
 
 
 
(17,618
)
 
 
 
(17,618
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 


Net income
 
 
 
 
 
 
 
51,232

 
 
 
51,232

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(17,140
)
 
(17,140
)
BALANCE, MARCH 31, 2018
 
135,516,119

 
$
136

 
$
1,405,806

 
$
578,031

 
$
(38,640
)
 
$
1,945,333


See accompanying Notes to Consolidated Financial Statements (Unaudited)


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HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
 
 
 
Three Months Ended March 31,
 
2018
 
2017
 
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
51,232

 
$
36,210

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Discount accretion, net of depreciation and amortization
(2,077
)
 
(504
)
Stock-based compensation expense
953

 
746

Provision for loan losses
2,500

 
5,600

Credit for unfunded loan commitments
(200
)
 
241

Valuation adjustment of premises held for sale

 
1,084

Valuation adjustment of OREO

 
592

Net gains on sales of SBA and other loans
(4,646
)
 
(3,670
)
Earnings on BOLI
(387
)
 
(394
)
Net change in fair value of derivatives
(19
)
 
33

Net losses on sale and disposal of premises and equipment
33

 
147

Net (gains) losses on sales of OREO
(72
)
 
3

Net change in fair value of equity investments
(3,519
)
 

Losses on investments in affordable housing partnership
2,546

 
2,077

Net change in deferred income taxes
4,442

 
7,182

Proceeds from sales of loans held for sale
92,850

 
70,254

Originations of loans held for sale
(90,004
)
 
(53,903
)
Originations of servicing assets
(1,716
)
 
(1,296
)
Net change in accrued interest receivable
825

 
1,197

Net change in other assets
11,515

 
6,981

Net change in accrued interest payable
3,653

 
(271
)
Net change in other liabilities
(15,656
)
 
(878
)
Net cash provided by operating activities
52,253

 
71,431

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of interest bearing deposits in other financial institutions and other investments
(1,323
)
 

Redemption of interest bearing deposits in other financial institutions and other investments
1,225

 
244

Purchase of securities available for sale
(77,531
)
 
(94,890
)
Proceeds from matured or paid-down securities available for sale
49,850

 
68,124

Proceeds from sales of other loans held for sale
6,296

 

Net change in loans receivable
(188,437
)
 
(17,288
)
Proceeds from sales of OREO
1,202

 
194

Redemption of FHLB stock
810

 
761

Purchase of premises and equipment
(2,302
)
 
(2,491
)
Investments in affordable housing partnerships
(2,972
)
 
(1,379
)
Net cash used in investing activities
(213,182
)
 
(46,725
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net change in deposits
663,961

 
65,218

Proceeds from FHLB advances

 
50,000

Repayment of FHLB advances
(295,000
)
 
(100,000
)
Net change in federal funds sold
(69,900
)
 

Cash dividends paid on common stock
(17,618
)
 
(16,229
)
Taxes paid in net settlement of restricted stock
(273
)
 
(213
)
Issuance of additional stock pursuant to various stock plans
112

 
252

Net cash provided by (used in) financing activities
281,282

 
(972
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
120,353

 
23,734

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
492,000

 
437,334

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
612,353

 
$
461,068

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
      Interest paid
$
26,773

 
$
21,767

      Income taxes paid
$
1,249

 
$
1,161

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
 
 
 
Transfer from loans receivable to OREO
$
806

 
$
137

Transfer from loans receivable to loans held for sale
$
6,155

 
$
9,451

Transfer from loans held for sale to loans receivable
$
43

 
$
159

Transfer from premises and equipment to premises held for sale
$

 
$
3,300

New commitments to fund affordable housing partnership investments
$

 
$
8,500

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HOPE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)




1.
Hope Bancorp, Inc.
Hope Bancorp, Inc. (“Hope Bancorp” on a parent-only basis and the “Company” on a consolidated basis), headquartered in Los Angeles, California, is the holding company for Bank of Hope (the “Bank”). As of March 31, 2018, the Bank operated branches in California, Washington, Texas, Illinois, Alabama, Georgia, Virginia, New Jersey, and New York, loan production offices in Colorado, Texas, Oregon, Washington, Georgia, Southern California, and Northern California, and a representative office in Seoul, Korea. The Company is a corporation organized under the laws of the state of Delaware and a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

2.
Basis of Presentation
The consolidated financial statements included herein have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), except for the Consolidated Statement of Financial Condition as of December 31, 2017 which was from the audited financial statements included in the Company’s 2017 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations.
The consolidated financial statements include the accounts of Hope Bancorp and its wholly owned subsidiaries, principally Bank of Hope. All intercompany transactions and balances have been eliminated in consolidation. The Company has made all adjustments, that in the opinion of management, are necessary to fairly present the Company’s financial position at March 31, 2018 and December 31, 2017 and the results of operations for the three months ended March 31, 2018 and 2017. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. The results of operations for the interim periods are not necessarily indicative of results to be anticipated for the full year.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
These unaudited consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in the Company’s 2017 Annual Report on Form 10-K.
Accounting Pronouncements Adopted
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), with several subsequent updates. This series of comprehensive guidance has replaced all existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein. Under the new guidance, there is a five-step model to apply to revenue recognition. The five-steps consist of: (1) determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company adopted this standard as of January 1, 2018, and applied the modified retrospective approach to reflect the aggregate effect of all modifications of those contracts that were not completed as of that date. There was no material impact on the consolidated financial statements or on how the Company recognizes revenue upon adoption. As such, prior period amounts were not adjusted and the prior period amounts continue to be reported in accordance with previous accounting guidance. See Note 18, “Revenue Recognition” for further details.

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In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The adoption of ASU No. 2016-01 on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements. In accordance with (1) above, the Company measured equity investments at fair value and recognized changes in fair value in net income as of March 31, 2018 (see Note 5 Equity Investment Securities). In accordance with (5) above, the Company measured the fair value of its loan portfolio as of March 31, 2018 using an exit price notion (see Note 15 Fair Value Measurements).
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently in the process of evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. ASU 2016-13 becomes effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and is collaborating with a third party advisory team to develop and execute upon the Company’s implementation plan and methodology in order for the Company to be compliant with ASU 2016-13 by the effective date. The Company has established a CECL committee to oversee the development and implementation of ASU 2016-13. Based on the Company’s initial assessment of the ASU 2016-13, the Company expects the new guidance will result in additional required provision and allowance for loan losses which could have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment.” ASU 2017-04 will amend and simplify current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the quantitative assessment for a reporting unit to determine if a quantitative impairment test is necessary. ASU 2017-04 should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

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In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. ASU 2017-08 was issued to amend the amortization period for certain callable debt securities held at a premium. ASU 2017-08 shortens the amortization period of premiums on certain purchased callable debt securities to the earliest call date. ASU 2017-08 affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). ASU 2017-08 does not impact securities purchased at a discount, which continue to be amortized to maturity. ASU 2017-08 is effective for annual period beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted in an interim period. If an entity chooses to adopt early, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The adoption of ASU 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.

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3.    Stock-Based Compensation
The Company has a stock-based incentive plan (the “2016 Plan”) to award equity as a form of compensation. The 2016 Plan, was approved by the Company’s stockholders on September 1, 2016. The 2016 Plan provides for grants of stock options, stock appreciation rights (“SARs”), restricted stock, performance shares, and performance units (sometimes referred to individually or collectively as “awards”) to non-employee directors, employees, and consultants of the Company. Stock options may be either incentive stock options (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”).
The 2016 Plan gives the Company flexibility to (i) attract and retain qualified non-employee directors, executives, other key employees, and consultants with appropriate equity-based awards to; (ii) motivate high levels of performance; (iii) recognize employee contributions to the Company’s success; and (iv) align the interests of the 2016 Plan participants with those of the Company’s stockholders. The plan initially had 2,400,000 shares available for grant to participants. The exercise price for shares under an ISO may not be less than 100% of fair market value on the date the award is granted under Code Section 422. Similarly, under the terms of the 2016 Plan, the exercise price for SARs and NQSOs may not be less than 100% of fair market value on the date of grant. Performance units are awarded to a participant at the market price of the Company’s common stock on the date of award (after the lapse of the restriction period and the attainment of the performance criteria). No minimum exercise price is prescribed for performance shares and restricted stock awarded under the 2016 Plan. All options not exercised generally expire 10 years after the date of grant.
ISOs, SARs and NQSOs have vesting periods of three to five years and have 10-year contractual terms. Restricted stock, performance shares, and performance units are granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recognized over the vesting period. 
The Company had another stock-based incentive plan, the 2007 Equity Incentive Plan (“2007 Plan”), which was approved by stockholders in May 2007. Under the terms of this plan, awards cannot be granted under the plan more than ten years after the plan adoption date. Therefore, subsequent to May 2017, equity awards were not issued from this plan.
Under the 2016 Plan, 1,330,621 shares were available for future grants as of March 31, 2018.
The total shares reserved for issuance will serve as the underlying value for all equity awards under the 2016 Plan. With the exception of the shares underlying stock options and restricted stock awards, the board of directors may choose to settle the awards by paying the equivalent cash value or by delivering the appropriate number of shares.
The following is a summary of stock option activity under the 2016 Plan for the three months ended March 31, 2018:
 
Number of
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
(Dollars in thousands)
Outstanding - January 1, 2018
1,075,423

 
$
15.06

 
 
 
 
Granted

 

 
 
 
 
Exercised
(11,000
)
 
9.35

 
 
 
 
Expired
(3,195
)
 
16.66

 
 
 
 
Forfeited

 

 
 
 
 
Outstanding - March 31, 2018
1,061,228

 
$
15.11

 
 
7.11
 
$
3,267

Options exercisable - March 31, 2018
630,770

 
$
13.88

 
 
6.43
 
$
2,721



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The following is a summary of restricted stock and performance unit activity under the 2016 Plan for the three months ended March 31, 2018:
 
 
Number of
Shares
 
Weighted-
Average Grant Date
Fair Value
Outstanding - January 1, 2018
379,419

 
$
16.42

Granted
13,000

 
18.91

Vested
(24,763
)
 
15.11

Forfeited
(2,801
)
 
14.84

Outstanding - March 31, 2018
364,855

 
$
16.61


The total fair value of restricted stock and performance units vested for the three months ended March 31, 2018 and 2017 was $476 thousand and $735 thousand, respectively.
On August, 21, 2017 the Company adopted the Hope Employee Stock Purchase Plan (“ESPP”). The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions which build up between the offering date and the purchase date. At the purchase date, the Company uses the accumulated funds to purchase shares in the Company on behalf of the participating employees at 10% discount of the closing price of the Company’s common shares. The closing price is the lower of either the closing price on the first day of the offering period or on the closing price on the purchase date. The dollar amount of common shares purchased under the ESPP must not exceed 20% of the participating employee’s base salary, subject to a cap of $25 thousand in stock value based on the grant date. The ESPP is considered compensatory under GAAP and compensation expense for the ESPP is recognized as part of the Company’s stock based compensation expenses. The compensation expense for ESPP during the three months ended March 31, 2018 was $148 thousand. The Company did not have any compensation expenses for the ESPP during the three months ended March 31, 2017.
The amount charged against income related to stock-based payment arrangements, including ESPP, was $953 thousand and $746 thousand for the three months ended March 31, 2018 and 2017, respectively. The income tax benefit recognized was approximately $245 thousand and $290 thousand for the three months ended March 31, 2018 and 2017, respectively.
At March 31, 2018, the unrecognized compensation expense related to non-vested stock option grants was $880 thousand which is expected to be recognized over a weighted average vesting period of 2.75 years. Unrecognized compensation expense related to non-vested restricted stock and performance units was $3.9 million which is expected to be recognized over a weighted average vesting period of 2.46 years.

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4.    Earnings Per Share (“EPS”)
Basic EPS does not reflect the possibility of dilution that could result from the issuance of additional shares of common stock upon exercise or conversion of outstanding equity awards, and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted to common stock that would then share in earnings. For the three months ended March 31, 2018 and 2017, stock options and restricted shares awards for 308,258 and 236,878 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were anti-dilutive. Additionally, warrants issued pursuant to the Company’s participation in the U.S. Treasury’s TARP Capital Purchase Plan, to purchase 20,520 shares and 19,963 shares of common stock were anti-dilutive and excluded for the three months ended March 31, 2018 and 2017, respectively.
The following tables show the computation of basic and diluted EPS for the three months ended March 31, 2018 and 2017.
 
Three Months Ended March 31,
 
2018

2017
 
Net Income
(Numerator)
 
Weighted-Average Shares
(Denominator)
 
Per
Share
(Amount)
 
Net Income
(Numerator)
 
Weighted-Average Shares
(Denominator)
 
Per
Share
(Amount)
 
(Dollars in thousands, except share and per share data)
Basic EPS - common stock
$
51,232

 
135,518,705

 
$
0.38

 
$
36,210

 
135,248,018

 
$
0.27

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock,
   and ESPP shares
 
 
296,557

 
 
 
 
 
520,627

 
 
Diluted EPS - common stock
$
51,232

 
135,815,262

 
$
0.38

 
$
36,210

 
135,768,645

 
$
0.27

 
 
 
 
 
 
 
 
 
 
 
 



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Table of Contents

5.    Equity Investment Securities
On January 1, 2018, the Company adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. As a result of the adoption, the Company reclassified $469 thousand in net unrealized losses included in other comprehensive income and deferred tax assets as of December 31, 2017 to retained earnings on January 1, 2018. Equity investment securities measured at fair value at March 31, 2018, consisted of mutual funds and equity stock in other institutions in the amount of $21.6 million and $3.9 million, respectively.
In accordance with ASU 2016-01, the change in fair value for equity investment securities for the three months ended March 31, 2018 were recorded as noninterest income for the three months ended March 31, 2018, summarized in the table below:
 
Three Months Ended March 31,
 
2018
 
(Dollars in thousands)
Net unrealized gains recorded during the period on equity investment securities
$
3,519

Net gains (losses) recorded on equity investment securities sold during the period

Net unrealized gains on equity investment securities at end of period
$
3,519



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Table of Contents

6.    Securities Available for Sale
The following is a summary of securities available for sale as of the dates indicated:
 
At March 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(Dollars in thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government agency and U.S. Government sponsored enterprises:
 
 
 
 
 
 
 
Collateralized mortgage obligations
$
839,229

 
$
39

 
$
(27,258
)
 
$
812,010

Mortgage-backed securities:
 
 
 
 
 
 
 
Residential
453,107

 
122

 
(14,559
)
 
438,670

Commercial
375,880

 
147

 
(12,246
)
 
363,781

Corporate securities
5,000

 

 
(561
)
 
4,439

Municipal securities
81,897

 
311

 
(1,793
)
 
80,415

Total investment securities available for sale
$
1,755,113

 
$
619

 
$
(56,417
)
 
$
1,699,315

 
 
 
 
 
 
 
 
 
At December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(Dollars in thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government agency and U.S. Government sponsored enterprises:
 
 
 
 
 
 
 
Collateralized mortgage obligations
$
856,193

 
$
58

 
$
(17,542
)
 
$
838,709

Mortgage-backed securities:
 
 
 
 
 
 
 
Residential
477,676

 
521

 
(6,983
)
 
471,214

Commercial
308,046

 

 
(6,681
)
 
301,365

Corporate securities
4,997

 

 
(522
)
 
4,475

Municipal securities
82,542

 
870

 
(875
)
 
82,537

Total debt securities
1,729,454

 
1,449

 
(32,603
)
 
1,698,300

Mutual funds
22,425

 
17

 
(485
)
 
21,957

Total investment securities available for sale
$
1,751,879

 
$
1,466

 
$
(33,088
)
 
$
1,720,257

 
As of March 31, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
At March 31, 2018 and December 31, 2017, $39.6 million and $19.0 million, respectively, in unrealized losses on securities net of taxes were included in accumulated other comprehensive loss. Also included in accumulated other comprehensive loss at March 31, 2018 and December 31, 2017, were unrealized losses on interest only strip net of taxes of $51 thousand and $41 thousand, respectively. There were no reclassifications out of accumulated other comprehensive income into earnings for the three months ended March 31, 2018 or 2017.
During the first quarter of 2018, the Company adopted ASU 2016-01 “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. As a result of the adoption of ASU 2016-01, the Company no longer accounts for mutual funds as available-for-sale securities and accounts for these investments as equity investments with changes in fair value recorded through earnings. In accordance with ASU 2016-01, the Company reclassified $469 thousand in net unrealized losses included in other comprehensive income and deferred tax assets as of December 31, 2017 to retained earnings on January 1, 2018. The subsequent change to fair value for mutual funds were recorded as noninterest income for the three months ended March 31, 2018.

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Table of Contents

The amortized cost and estimated fair value of investment securities at March 31, 2018, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
 
Amortized
Cost
 
Estimated
Fair Value
 
(Dollars in thousands)
Available for sale:
 
 
 
Due within one year
$

 
$

Due after one year through five years
12,035

 
12,143

Due after five years through ten years
33,567

 
33,450

Due after ten years
41,295

 
39,261

U.S. Government agency and U.S. Government sponsored enterprises:
 
 
 
Collateralized mortgage obligations
839,229

 
812,010

Mortgage-backed securities:
 
 
 
Residential
453,107

 
438,670

Commercial
375,880

 
363,781

Total
$
1,755,113

 
$
1,699,315


Securities with carrying values of approximately $357.9 million and $359.2 million at March 31, 2018 and December 31, 2017, respectively, were pledged to secure public deposits, various borrowings and for other purposes as required or permitted by law.
The following tables show the Company’s investments’ gross unrealized losses and estimated fair value, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position as of the dates indicated.    
 
 
As of March 31, 2018
 
 
Less than 12 months
 
12 months or longer
 
Total
Description of
Securities
 
Number 
of
Securities
 
Fair 
Value
 
Gross
Unrealized
Losses
 
Number 
of
Securities
 
Fair 
Value
 
Gross
Unrealized
Losses
 
Number 
of
Securities
 
Fair 
Value
 
Gross
Unrealized
Losses
 
 
 (Dollars in thousands)
Collateralized mortgage obligations*
 
40

 
$
400,036

 
$
(10,841
)
 
53

 
$
386,009

 
$
(16,417
)
 
93

 
$
786,045

 
$
(27,258
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential*
 
23

 
201,859

 
(5,252
)
 
22

 
207,694

 
(9,307
)
 
45

 
409,553

 
(14,559
)
Commercial*
 
18

 
201,894

 
(4,659
)
 
9

 
122,332

 
(7,587
)
 
27

 
324,226

 
(12,246
)
Corporate securities
 
1

 
4,439

 
(561
)
 

 

 

 
1

 
4,439

 
(561
)
Municipal securities
 
58

 
36,166

 
(419
)
 
3

 
21,029

 
(1,374
)
 
61

 
57,195

 
(1,793
)
Total
 
140

 
$
844,394

 
$
(21,732
)
 
87

 
$
737,064

 
$
(34,685
)
 
227

 
$
1,581,458

 
$
(56,417
)
__________________________________    
* Investments in U.S. Government agency and U.S. Government sponsored enterprises

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Table of Contents

 
 
As of December 31, 2017
 
 
Less than 12 months
 
12 months or longer
 
Total
Description of
Securities
 
Number 
of
Securities
 
Fair 
Value
 
Gross
Unrealized
Losses
 
Number 
of
Securities
 
Fair 
Value
 
Gross
Unrealized
Losses
 
Number 
of
Securities
 
Fair 
Value
 
Gross
Unrealized
Losses
 
 
 (Dollars in thousands)
Collateralized mortgage obligations
 
38

 
$
425,198

 
$
(5,954
)
 
53

 
$
408,526

 
$
(11,588
)
 
91

 
$
833,724

 
$
(17,542
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential*
 
20

 
195,086

 
(1,282
)
 
23

 
230,616

 
(5,701
)
 
43

 
425,702

 
(6,983
)
Commercial*
 
16

 
186,357

 
(1,614
)
 
8

 
115,008

 
(5,067
)
 
24

 
301,365

 
(6,681
)
Corporate securities
 
1

 
4,475

 
(522
)
 

 

 

 
1

 
4,475

 
(522
)
Municipal securities
 
18

 
9,295

 
(69
)
 
3

 
22,144

 
(806
)
 
21

 
31,439

 
(875
)
Mutual funds
 
1

 
8,899

 
(101
)
 
3

 
11,579

 
(384
)
 
4

 
20,478

 
(485
)
Total
 
94

 
$
829,310

 
$
(9,542
)
 
90

 
$
787,873

 
$
(23,546
)
 
184

 
$
1,617,183

 
$
(33,088
)
__________________________________
* Investments in U.S. Government agency and U.S. Government sponsored enterprises
The Company evaluates securities for other-than-temporary-impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair values of the securities have been less than the cost of the securities, and management’s intention to sell, or whether it is more likely than not that management will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. In analyzing an issuer’s financial condition, the Company considers, among other considerations, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
The Company has certain collateralized mortgage obligations, mortgage backed securities, and municipal securities that were in a continuous unrealized loss position for twelve months or longer as of March 31, 2018. The collateralized mortgage obligations in a continuous loss position for twelve months or longer had an unrealized loss of $16.4 million at March 31, 2018 and total mortgage backed securities in a continuous loss position for twelve months or longer had a total unrealized loss of $16.9 million. These securities were issued by U.S. Government agency and U.S. Government sponsored enterprises and have high credit ratings of “AA” grade or better. Interest on U.S. Government agency and U.S. Government sponsored enterprise investments have been paid as agreed, and management believes this will continue in the future and that the securities will be repaid in full as scheduled. Municipal securities that were in a continuous loss position for twelve months or longer had an unrealized loss of $1.4 million at March 31, 2018. The market value declines for these securities were primarily due to movements in interest rates and are not reflective of management’s expectations of the Company’s ability to fully recover these investments, which may be at maturity. For these reasons, no OTTI was recognized on U.S. Government sponsored collateralized mortgage obligations and mortgage backed securities, and municipal securities that were in an unrealized loss position at March 31, 2018.
The Company considers the losses on the investments in unrealized loss positions at March 31, 2018 to be temporary based on: 1) the likelihood of recovery; 2) the information relative to the extent and duration of the decline in market value; and 3) the Company’s intention not to sell, and management’s determination that it is more likely than not that the Company will not be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.

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Table of Contents

7.    Loans Receivable and Allowance for Loan Losses
The following is a summary of loans receivable by major category:
 
March 31, 2018
 
December 31, 2017
 
(Dollars in thousands)
Loan portfolio composition
 
 
 
Real estate loans:
 
 
 
Residential
$
47,662

 
$
49,774

Commercial
8,180,537

 
8,142,036

Construction
300,954

 
316,412

Total real estate loans
8,529,153

 
8,508,222

Commercial business
1,818,291

 
1,780,869

Trade finance
189,395

 
166,664

Consumer and other
755,621

 
647,102

Total loans outstanding
11,292,460

 
11,102,857

      Deferred loan costs (fees), net
23

 
(282
)
Loans receivable
11,292,483

 
11,102,575

      Allowance for loan losses
(86,461
)
 
(84,541
)
Loans receivable, net of allowance for loan losses
$
11,206,022

 
$
11,018,034


The loan portfolio is made up of four segments: real estate loans, commercial business, trade finance, and consumer and other. These segments are further segregated between loans accounted for under the amortized cost method (“Legacy Loans”) and previously acquired loans that were originally recorded at fair value with no carryover of the related pre-acquisition allowance for loan losses (“Acquired Loans”). Acquired Loans are further segregated between purchased credit impaired loans (loans with credit deterioration on the acquisition date and accounted for under ASC 310-30, or “PCIs”) and Acquired Performing Loans (loans that were pass graded on the acquisition date and the fair value adjustment is amortized over the contractual life under ASC 310-20, or “non-PCI loans”).
The following table presents changes in the accretable discount on the PCI loans for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31,

2018

2017

(Dollars in thousands)
Balance at beginning of period
$
55,002


$
43,611

Accretion
(5,772
)

(5,348
)
Reclassification from nonaccretable difference
5,616


13,388

Balance at end of period
$
54,846


$
51,651

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the PCI loans is the “accretable yield.” The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans. The accretable yield will change from period to period due to the following: 1) estimates of the remaining life of acquired loans will affect the amount of future interest income; 2) indices for variable rates of interest on PCI loans may change; and 3) estimates of the amount of the contractual principal and interest that will not be collected (nonaccretable difference) may change.

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Table of Contents

The following tables detail the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2018 and 2017:
 
Legacy Loans
 
Acquired Loans
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer
and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(Dollars in thousands)
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
45,360

 
$
17,228

 
$
1,674

 
$
3,385

 
$
13,322

 
$
3,527

 
$
42

 
$
3

 
$
84,541

Provision (credit) for loan losses
479

 
3,289

 
81

 
877

 
(173
)
 
(2,046
)
 
(4
)
 
(3
)
 
2,500

Loans charged off
(63
)
 
(342
)
 

 
(347
)
 
(102
)
 
(214
)
 

 

 
(1,068
)
Recoveries of charge offs
201

 
212

 
12

 
19

 
1

 
41

 

 
2

 
488

Balance, end of period
$
45,977

 
$
20,387

 
$
1,767

 
$
3,934

 
$
13,048

 
$
1,308

 
$
38

 
$
2

 
$
86,461


 
Legacy Loans
 
Acquired Loans
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer
and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(Dollars in thousands)
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
38,956

 
$
23,430

 
$
1,897

 
$
2,116

 
$
12,791

 
$
117

 
$

 
$
36

 
$
79,343

Provision (credit) for loan losses
6,106

 
(2,884
)
 
303

 
184

 
975

 
748

 
187

 
(19
)
 
5,600

Loans charged off
(1,154
)
 
(3,190
)
 
(1,576
)
 
(279
)
 
(336
)
 
(70
)
 

 

 
(6,605
)
Recoveries of charge offs
21

 
123

 

 
1

 
25

 
149

 

 
2

 
321

Balance, end of period
$
43,929

 
$
17,479

 
$
624

 
$
2,022

 
$
13,455

 
$
944

 
$
187

 
$
19

 
$
78,659


21

Table of Contents

The following tables break out the allowance for loan losses and the recorded investment of loans outstanding (not including accrued interest receivable and net deferred loan costs or fees by individually impaired, general valuation, and PCI impairment, by portfolio segment, at March 31, 2018 and December 31, 2017:
 
March 31, 2018
 
Legacy Loans
 
Acquired Loans
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(Dollars in thousands)
Allowance for loan losses:
Individually evaluated for impairment
$
6,966

 
$
3,662

 
$

 
$
24

 
$
267

 
$
595

 
$

 
$

 
$
11,514

Collectively evaluated for impairment
39,011

 
16,725

 
1,767

 
3,910

 
966

 
713

 
38

 
2

 
63,132

PCI loans

 

 

 

 
11,815

 

 

 

 
11,815

Total
$
45,977

 
$
20,387

 
$
1,767

 
$
3,934

 
$
13,048

 
$
1,308

 
$
38

 
$
2

 
$
86,461

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
52,454

 
$
32,639

 
$
2,597

 
$
870

 
$
18,414

 
$
16,448

 
$
3,368

 
$
1,278

 
$
128,068

Collectively evaluated for impairment
6,300,435

 
1,598,739

 
176,856

 
593,727

 
2,005,172

 
142,774

 
6,574

 
149,677

 
10,973,954

PCI loans

 

 

 

 
152,678

 
27,691

 

 
10,069

 
190,438

Total
$
6,352,889

 
$
1,631,378

 
$
179,453

 
$
594,597

 
$
2,176,264

 
$
186,913

 
$
9,942

 
$
161,024

 
$
11,292,460


 
December 31, 2017
 
Legacy Loans
 
Acquired Loans
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(Dollars in thousands)
Allowance for loan losses:
Individually evaluated for impairment
$
1,378

 
$
2,807

 
$
3

 
$
35

 
$
246

 
$
854

 
$

 
$

 
$
5,323

Collectively evaluated for impairment
43,982

 
14,421

 
1,671

 
3,350

 
1,036

 
2,673

 
42

 
3

 
67,178

PCI loans

 

 

 

 
12,040

 

 

 

 
12,040

Total
$
45,360

 
$
17,228

 
$
1,674

 
$
3,385

 
$
13,322

 
$
3,527

 
$
42

 
$
3

 
$
84,541

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
41,041

 
$
31,322

 
$
3,951

 
$
908

 
$
14,239

 
$
18,733

 
$
2,984

 
$
1,171

 
$
114,349

Collectively evaluated for impairment
6,172,448

 
1,459,273

 
152,204

 
477,375

 
2,120,001

 
244,980

 
7,525

 
157,794

 
10,791,600

PCI loans

 

 

 

 
160,493

 
26,561

 

 
9,854

 
196,908

Total
$
6,213,489

 
$
1,490,595

 
$
156,155

 
$
478,283

 
$
2,294,733

 
$
290,274

 
$
10,509

 
$
168,819

 
$
11,102,857

As of March 31, 2018 and December 31, 2017, the reserve for unfunded loan commitments recorded in other liabilities was $636 thousand and $836 thousand, respectively. For the three months ended March 31, 2018 and 2017, the recognized (credit) provision for unfunded commitments recorded in credit related expense was $(200) thousand and $241 thousand, respectively.

22

Table of Contents

The recorded investment of individually impaired loans and the total impaired loans net of specific allowance is presented in the following table:
 
March 31, 2018
 
December 31, 2017
 
(Dollars in thousands)
With allocated specific allowance
 
 
 
Without charge off
$
56,548

 
$
28,614

With charge off
1,355

 
3,044

With no allocated specific allowance
 
 
 
Without charge off
63,194

 
77,533

With charge off
6,971

 
5,158

Specific allowance on impaired loans
(11,514
)
 
(5,323
)
Impaired loans, net of specific allowance
$
116,554

 
$
109,026

        
The following tables detail the recorded investment of impaired loans (Legacy Loans and Acquired Loans that became impaired subsequent to being originated and acquired, respectfully) as of March 31, 2018 and December 31, 2017, and the average recorded investment and interest income recognized for the three months ended March 31, 2018 and 2017. Impaired loans with no related allowance are believed by management to be adequately collateralized.
 
 
As of March 31, 2018
 
As of December 31, 2017
Total Impaired Loans
 
Recorded Investment*
 
Unpaid Contractual Principal Balance
 
Related
Allowance
 
Recorded Investment*
 
Unpaid Contractual Principal Balance
 
Related
Allowance
 
 
(Dollars in thousands)
With related allowance:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$

 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
 
Retail
 
6,384

 
6,384

 
5,740

 
532

 
531

 
131

Hotel & motel
 
2,826

 
4,982

 
232

 
2,931

 
5,090

 
284

Gas station & car wash
 

 

 

 

 

 

Mixed use
 
2,959

 
4,819

 
5

 
312

 
958

 
4

Industrial & warehouse
 
2,378

 
2,380

 
103

 
772

 
1,482

 
96

Other
 
9,391

 
9,397

 
1,153

 
4,397

 
4,401

 
1,109

Real estate—construction
 

 

 

 

 

 

Commercial business
 
30,876

 
32,791

 
4,257

 
18,330

 
22,757

 
3,661

Trade finance
 
2,597

 
2,597

 

 
3,861

 
3,861

 
3

Consumer and other
 
492

 
492

 
24