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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, 2019
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 every Interactive Data File required to be submitted 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, a 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
 
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(a) 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 1, 2019, there were 126,663,405 outstanding shares of Hope Bancorp, Inc. common stock, $0.001 par value per share.




Table of Contents
 
 
 
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Statements of Financial Condition - March 31, 2019 (Unaudited) and December 31, 2018
 
 
 
 
Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2019 and 2018
 
 
 
 
Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2019 and 2018
 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - Three Months Ended March 31, 2019 and 2018
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2019 and 2018
 
 
 
 
 
 
 
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
 
 
 


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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,” “projects,” “forecasts,” “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. The Company’s 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: possible deterioration in economic conditions in our areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
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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PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements

HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
 
 
(Unaudited)
 
 
 
March 31,
2019
 
December 31,
2018
ASSETS
(Dollars in thousands, except share data)
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
211,223

 
$
219,366

Interest bearing cash in other banks
401,661

 
240,240

Total cash and cash equivalents
612,884

 
459,606

Interest bearing deposits in other financial institutions
30,141

 
29,409

Securities available for sale, at fair value
1,818,343

 
1,846,265

Equity investments
50,873

 
49,835

Loans held for sale, at the lower of cost or fair value
921

 
25,128

Loans receivable, net of allowance for loan losses of $94,217 and $92,557 at March 31, 2019 and December 31, 2018, respectively
11,959,787

 
12,005,558

Other real estate owned (“OREO”), net
6,258

 
7,754

Federal Home Loan Bank (“FHLB”) stock, at cost
21,580

 
25,461

Premises and equipment, net
53,218

 
53,794

Accrued interest receivable
34,831

 
32,225

Deferred tax assets, net
39,352

 
50,913

Customers’ liabilities on acceptances
1,896

 
2,281

Bank owned life insurance (“BOLI”)
75,586

 
75,219

Investments in affordable housing partnerships
89,078

 
92,040

Operating lease right-of-use assets, net
62,360

 

Goodwill
464,450

 
464,450

Core deposit intangible assets, net
13,504

 
14,061

Servicing assets, net
21,407

 
23,132

Other assets
42,200

 
48,821

Total assets
$
15,398,669

 
$
15,305,952

 
 
 
 
(Continued)

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HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
 
 
(Unaudited)
 
 
 
March 31,
2019
 
December 31,
2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share data)
LIABILITIES:
 
 
 
Deposits:
 
 
 
Noninterest bearing
$
2,948,751

 
$
3,022,633

Interest bearing:
 
 
 
Money market and NOW accounts
3,086,920

 
3,036,653

Savings deposits
223,562

 
225,746

Time deposits
5,989,963

 
5,870,624

Total deposits
12,249,196

 
12,155,656

FHLB advances
720,000

 
821,280

Convertible notes, net
195,754

 
194,543

Subordinated debentures
102,201


101,929

Accrued interest payable
37,511

 
31,374

Acceptances outstanding
1,896

 
2,281

Operating lease liabilities
62,833

 

Commitments to fund investments in affordable housing partnerships
40,709

 
46,507

Other liabilities
42,358

 
49,171

Total liabilities
$
13,452,458

 
$
13,402,741

STOCKHOLDERS’ EQUITY:
 
 
 
Common stock, $0.001 par value; authorized 150,000,000 shares at March 31, 2019 and December 31, 2018: issued and outstanding 135,638,037 and 126,635,584 shares, respectively, at March 31, 2019, and issued and outstanding 135,642,365 and 126,639,912 shares, respectively, at December 31, 2018
$
136

 
$
136

Additional paid-in capital
1,424,029

 
1,423,405

Retained earnings
687,404

 
662,375

Treasury stock, at cost; 9,002,453 shares at March 31, 2019 and December 31, 2018
(150,000
)
 
(150,000
)
Accumulated other comprehensive loss, net
(15,358
)
 
(32,705
)
Total stockholders’ equity
1,946,211

 
1,903,211

Total liabilities and stockholders’ equity
$
15,398,669

 
$
15,305,952



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,
 
2019
 
2018
 
(Dollars in thousands, except per share data)
INTEREST INCOME:
 
 
 
Interest and fees on loans
$
158,136

 
$
137,943

Interest on securities
12,319

 
10,101

Interest on other investments
2,675

 
2,366

Total interest income
173,130

 
150,410

INTEREST EXPENSE:
 
 
 
Interest on deposits
46,847

 
24,849

Interest on FHLB advances
2,614

 
4,069

Interest on other borrowings and convertible notes
4,061

 
1,424

Total interest expense
53,522

 
30,342

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
119,608

 
120,068

PROVISION FOR LOAN LOSSES
3,000

 
2,500

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
116,608

 
117,568

NONINTEREST INCOME:
 
 
 
Service fees on deposit accounts
4,317

 
4,801

International service fees
933

 
1,020

Loan servicing fees, net
730

 
1,579

Wire transfer fees
1,089

 
1,207

Net gains on sales of SBA loans

 
3,450

Net gains on sales of other loans
741

 
1,196

Other income and fees
3,612

 
6,597

Total noninterest income
11,422

 
19,850

NONINTEREST EXPENSE:
 
 
 
Salaries and employee benefits
40,429

 
39,385

Occupancy
7,677

 
7,239

Furniture and equipment
3,446

 
3,721

Advertising and marketing
2,062

 
2,299

Data processing and communications
2,956

 
3,495

Professional fees
5,380

 
3,106

Investments in affordable housing partnerships expenses
2,881

 
2,630

FDIC assessments
1,551

 
1,767

Credit related expenses
678

 
772

OREO expense, net
(152
)
 
(104
)
Other
3,925

 
4,143

Total noninterest expense
70,833

 
68,453

INCOME BEFORE INCOME TAXES
57,197

 
68,965

INCOME TAX PROVISION
14,439

 
17,733

NET INCOME
$
42,758

 
$
51,232

EARNINGS PER COMMON SHARE
 
 
 
Basic
$
0.34

 
$
0.38

Diluted
$
0.34

 
$
0.38


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,
 
2019
 
2018
 
(Dollars in thousands)
Net income
$
42,758

 
$
51,232

Other comprehensive income (loss):
 
 
 
Change in unrealized net holding gains (losses) on securities available for sale
24,597

 
(24,645
)
Change in unrealized net holding gains (losses) on interest only strips
69

 
(4
)
Tax effect
(7,319
)
 
7,509

Other comprehensive income (loss), net of tax
17,347

 
(17,140
)
Total comprehensive income
$
60,105

 
$
34,092



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
 
Treasury stock
 
Accumulated other comprehensive loss, net
 
Total
stockholders’ equity
 
 
Shares
 
Amount
 
(Dollars in thousands, except share data)
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, net of forfeitures and tax withholding cancellations
 
4,228

 
 
 
112

 
 
 
 
 
 
 
112

Stock-based compensation
 
 
 
 
 
680

 
 
 
 
 
 
 
680

Cash dividends declared on common stock ($0.13 per share)
 
 
 
 
 
 
 
(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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2019
 
126,639,912

 
$
136

 
$
1,423,405

 
$
662,375

 
$
(150,000
)
 
$
(32,705
)
 
$
1,903,211

Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations
 
(4,328
)
 
 
 
3

 
 
 
 
 
 
 
3

Stock-based compensation
 
 
 
 
 
621

 
 
 
 
 
 
 
621

Cash dividends declared on common stock ($0.14 per share)
 
 
 
 
 
 
 
(17,729
)
 
 
 
 
 
(17,729
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 


Net income
 
 
 
 
 
 
 
42,758

 
 
 
 
 
42,758

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
17,347

 
17,347

BALANCE, MARCH 31, 2019
 
126,635,584

 
$
136

 
$
1,424,029

 
$
687,404

 
$
(150,000
)
 
$
(15,358
)
 
$
1,946,211



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,
 
2019
 
2018
 
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
42,758

 
$
51,232

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Discount accretion, net of depreciation and amortization
1,494

 
(2,077
)
Stock-based compensation expense
815

 
953

Provision for loan losses
3,000

 
2,500

Credit for unfunded loan commitments

 
(200
)
Valuation adjustment of OREO
60

 

Net gains on sales of SBA and other loans
(741
)
 
(4,646
)
Earnings on BOLI
(367
)
 
(387
)
Net change in fair value of derivatives
(39
)
 
(19
)
Net losses on sale and disposal of premises and equipment
13

 
33

Net gains on sales of OREO
(3
)
 
(72
)
Net change in fair value of equity investments with readily determinable fair value
(912
)
 
(3,519
)
Losses on investments in affordable housing partnership
2,886

 
2,546

Net change in deferred income taxes
4,241

 
4,442

Proceeds from sales of loans held for sale
36,919

 
92,850

Originations of loans held for sale
(17,465
)
 
(90,004
)
Originations of servicing assets
(327
)
 
(1,716
)
Net change in accrued interest receivable
(2,606
)
 
825

Net change in other assets
3,782

 
11,515

Net change in accrued interest payable
6,137

 
3,653

Net change in other liabilities
(6,813
)
 
(15,656
)
Net cash provided by operating activities
72,832

 
52,253

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of interest bearing deposits in other financial institutions
(3,430
)
 
(1,323
)
Redemption of interest bearing deposits in other financial institutions
2,698

 
1,225

Purchase of securities available for sale

 
(77,531
)
Proceeds from matured, called, or paid-down securities available for sale
50,923

 
49,850

Proceeds from sales of other loans held for sale previously classified as held for investment
33,644

 
6,296

Net change in loans receivable
22,561

 
(188,437
)
Proceeds from sales of OREO
1,632

 
1,202

Purchase of FHLB stock
(155
)
 
810

Redemption of FHLB stock
4,036

 

Purchase of premises and equipment
(1,541
)
 
(2,302
)
Proceeds from BOLI death benefits
256

 

Investments in affordable housing partnerships
(5,798
)
 
(2,972
)
Net cash provided by (used in) investing activities
104,826

 
(213,182
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net change in deposits
93,540

 
663,961

Proceeds from FHLB advances
175,000

 

Repayment of FHLB advances
(275,000
)
 
(295,000
)
Repayment of federal funds purchased

 
(69,900
)
Cash dividends paid on common stock
(17,729
)
 
(17,618
)
Taxes paid in net settlement of restricted stock
(194
)
 
(273
)
Issuance of additional stock pursuant to various stock plans
3

 
112

Net cash (used in) provided by financing activities
(24,380
)
 
281,282

NET CHANGE IN CASH AND CASH EQUIVALENTS
153,278

 
120,353

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
459,606

 
492,000

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
612,884

 
$
612,353

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
      Interest paid
$
47,182

 
$
26,773

      Income taxes paid
$
1,730

 
$
1,249

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

 
$
806

Transfer from loans receivable to loans held for sale
$
33,390

 
$
6,155

Transfer from loans held for sale to loans receivable
$
5,181

 
$
43

Transfer of available for sale securities to equity investments with adoption of ASU 2016-01
$

 
$
21,957

Lease liabilities arising from obtaining right-of-use assets
$
62,833

 
$

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, 2019, 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, South 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, 2018 which was from the audited financial statements included in the Company’s 2018 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, 2019 and December 31, 2018 and the results of operations for the three months ended March 31, 2019 and 2018. 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 2018 Annual Report on Form 10-K.
Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Subsequently, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”, ASU 2018-11, “Leases Topic 842, Targeted Improvements”, and ASU 2018-20, “Narrow-Scope Improvements for Lessors”, to provide additional clarification, implementation, and transition guidance on certain aspects of ASU 2016-02. ASU 2016-02 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. Under ASU 2016-02, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02, ASU 2018-10, ASU 2018-11, and ASU 2018-20 were effective for fiscal years beginning after December 15, 2018. The Company adopted Topic 842 on January 1, 2019. The Company elected the transition option provided in ASU 2018-11 and the modified retrospective approach was applied on January 1, 2019. The Company did not have any amounts recorded for the cumulative adjustment to the opening balance of retained earnings. As permitted by ASU 2016-02, the Company elected the following practical expedients: lease classifications under ASC 840 were grandfathered in, the Company did not re-evaluate embedded leases, the Company did not reassess initial direct costs, the option not to separate lease and non-lease components and instead accounted for them as a single lease component, and exercised the option not to recognize right-of-use assets and lease liabilities that arose from short-term leases (i.e., leases with terms of twelve months or less). At January 1, 2019, the Company had a total of 96 operating leases resulting in the recognition of $64.3 million in right-of-use assets and related lease liabilities totaling $64.3 million. See Note 8, “Leases” for further details.

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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 was effective for annual period beginning after December 15, 2018. The Company adopted ASU 2017-08 on January 1, 2019. The adoption of ASU 2017-08 did not have an impact to the Company consolidated financial statements as the premiums on purchased callable debt securities were already being amortized to the earliest call date.
In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting”. ASU 2018-07 expands the scope of Topic 718 (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services.  Under ASU 2018-07, the accounting for share-based payments for nonemployees and employees are substantially the same. ASU supersedes Subtopic 505-50, “Equity – Equity-Based Payments to Non-Employees”. ASU 2018-07 was effective for annual period beginning after December 15, 2018. The Company adopted ASU 2018-07 on January 1, 2019. Although the Company’s stock compensation plan allows for the stock compensation to nonemployees, the Company historically has not granted stock compensation to nonemployees. Therefore, the adoption of ASU 2018-07 did not have an impact to the Company’s consolidated financial statements .
Pending Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, also referred to as “CECL”. 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 has established a CECL committee to oversee the development and implementation of ASU 2016-13. The Company is collaborating with a third party advisory team and has completed a gap assessment, a full implementation road-map and a detailed project plan. The Company has also engaged a software vendor to assist the Company to build a model that is compliant with ASU 2016-13 by the effective date. Based on the Company’s initial assessment of the ASU 2016-13, the Company expects the new guidance will result in additional required allowance for loan losses which could potentially have a material impact on its consolidated financial statements and regulatory capital ratios.
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.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018-13 removes the disclosure requirement detailing the amount of and reasons for transfers between Level 1 and Level 2 and the valuation processes for Level 3 fair value measurements will be removed. In addition, ASU 2018-13 modifies the disclosure requirement for investments in certain entities that calculate net asset value. Lastly, ASU 2018-13 adds a disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. ASU 2018-13 is effective annual periods in fiscal years beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted upon the issuance of ASU 2018-13. The removed and modified disclosures will be adopted on a retrospective basis, and the new disclosures will be adopted on a prospective basis. The adoption of ASU 2018-13 is not expected to have a material impact on the Company’s consolidated financial statements.

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In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”. ASU 2018-15 requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted, including adoption in any interim period. The adoption of ASU 2018-15 is not expected to have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842)”. ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. ASU 2019-01 also requires lessors within the scope of Topic 842, Financial Services-Depository Lending, to present all “principal payments received under leases” within investing activities on the Consolidated Statements of Cash Flows. In addition, ASU 2019-01 exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early application is permitted. An entity should apply the amendments as of the date that it first applied Topic 842, using the same transition methodology in accordance with paragraph 842-10-65-1(c). The Company adopted Topic 842 on January 1, 2019 and applied the amendments in ASU 2019-01 as of the same date and it did not have a material impact on the Company’s consolidated financial statements as the Company is not a lessor.

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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 potentially 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. 
Under the 2016 Plan, 772,010 shares were available for future grants as of March 31, 2019.
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, 2019:
 
Number of
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
(Dollars in thousands)
Outstanding - January 1, 2019
982,631

 
$
15.41

 
 
 
 
Granted

 

 
 
 
 
Exercised

 

 
 
 
 
Expired
(6,962
)
 
15.79

 
 
 
 
Forfeited
(18,000
)
 
17.18

 
 
 
 
Outstanding - March 31, 2019
957,669

 
$
15.37

 
6.16
 
$
850

Options exercisable - March 31, 2019
770,659

 
$
15.00

 
5.91
 
$
850



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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, 2019:
 
Number of
Shares
 
Weighted-
Average Grant Date
Fair Value
Outstanding (unvested) - January 1, 2019
478,891

 
$
16.37

Granted
384,854

 
13.67

Vested
(24,956
)
 
15.57

Forfeited
(28,075
)
 
16.31

Outstanding (unvested) - March 31, 2019
810,714

 
$
15.11


The total fair value of restricted stock and performance units vested for the three months ended March 31, 2019 and 2018 was $347 thousand and $476 thousand, respectively.
In 2017, the Company adopted the Hope Employee Stock Purchase Plan (“ESPP”) which 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 a 10% discount to 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, 2019 and 2018 was $33 thousand and $148 thousand, respectively.
The total amount charged against income related to stock-based payment arrangements, including ESPP, was $815 thousand and $953 thousand for the three months ended March 31, 2019 and 2018, respectively. The income tax benefit recognized was approximately $206 thousand and $245 thousand for the three months ended March 31, 2019 and 2018, respectively.
At March 31, 2019, the unrecognized compensation expense related to non-vested stock option grants was $381 thousand which is expected to be recognized over a weighted average vesting period of 2.40 years. Unrecognized compensation expense related to non-vested restricted stock and performance units was $8.9 million which is expected to be recognized over a weighted average vesting period of 2.13 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 or convertible notes 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, convertible notes, 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, 2019 and 2018, stock options and restricted shares awards for 969,871 and 308,258 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 and 20,520 shares of common stock were anti-dilutive and excluded for the three months ended March 31, 2018. There were no warrants outstanding at March 31, 2019.
During the second quarter of 2018, the Company issued $217.5 million in convertible notes. The convertible notes can be converted to the Company’s shares of common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (See footnote 11 “Subordinated Debentures and Convertible Notes” for additional information regarding convertible notes issued). For the three months ended March 31, 2019, shares related to the convertible notes issued were not included in the Company’s diluted EPS calculation. In accordance with the terms of the convertible notes and settlement options available to the Company, no shares would have been delivered to investors of the convertible notes upon assumed conversion based on the Company’s common stock price during the three months ended March 31, 2019.
On April 26, 2018, the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $100.0 million in common stock and on September 20, 2018, the Company’s Board of Directors approved another share repurchase program that authorized the Company to repurchase up to $50.0 million in common stock. During the year ended December 31, 2018, the Company repurchased 9,002,453 shares of common stock totaling$150.0 million. The repurchased shares were recorded as treasury stock and reduced the total number of common shares outstanding as of March 31, 2019 and December 31, 2018.
The following tables show the computation of basic and diluted EPS for the three months ended March 31, 2019 and 2018.
 
Three Months Ended March 31,
 
2019

2018
 
Net Income
(Numerator)
 
Weighted-Average Shares
(Denominator)
 
Earnings
Per
Share
 
Net Income
(Numerator)
 
Weighted-Average Shares
(Denominator)
 
Earnings
Per
Share
 
(Dollars in thousands, except share and per share data)
Basic EPS - common stock
$
42,758

 
126,640,464

 
$
0.34

 
$
51,232

 
135,518,705

 
$
0.38

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock,
   and ESPP shares
 
 
179,208

 
 
 
 
 
296,557

 
 
Diluted EPS - common stock
$
42,758

 
126,819,672

 
$
0.34

 
$
51,232

 
135,815,262

 
$
0.38

 
 
 
 
 
 
 
 
 
 
 
 


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5.    Equity Investments
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 to retained earnings on January 1, 2018. Equity investments with readily determinable fair values at March 31, 2019, consisted of mutual funds and equity stock in other institutions in the amount of $21.7 million and $2.6 million, respectively and is included in “Equity investments” on the Consolidated Statements of Financial Condition. Equity investments with readily determinable fair values at December 31, 2018, consisted of mutual funds and equity stock in other institutions in the amount of $21.5 million and $1.9 million, respectively.
The change in fair value for equity investments with readily determinable fair values for the three months ended March 31, 2019 and 2018 were recorded in other noninterest income and fees as summarized in the table below:
 
Three Months Ended,
 
March 31, 2019
 
March 31, 2018
 
(Dollars in thousands)
Net change in fair value recorded during the period on equity
investments with readily determinable fair value
$
912

 
$
3,519

Net change in fair value recorded on equity investments sold during
the period

 

Net change in fair value on equity investments with readily determinable
fair values
$
912

 
$
3,519

 
 
 
 
At March 31, 2019 and December 31, 2018, the Company also had equity investments without readily determinable fair value which are carried at cost less any determined impairment. The balance of these investments is adjusted for changes in subsequent observable prices. At March 31, 2019, the total balance of equity investments without readily determinable fair values included in “Equity investments” on the consolidated statements of financial condition was $26.6 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in Community Development Financial Institutions investments, and $25.2 million in Community Reinvestment Act investments. At December 31, 2018, the total balance of equity investments without readily determinable fair values was $26.4 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in CDFI investments, and $25.1 million in CRA investments.
The Company had no impairments or subsequent observable price changes for equity investments without readily determinable fair values for the three months ended March 31, 2019 and 2018.

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6.    Securities Available for Sale
The following is a summary of securities available for sale as of the dates indicated:
 
At March 31, 2019
 
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
$
883,525

 
$
2,090

 
$
(13,318
)
 
$
872,297

Mortgage-backed securities:
 
 
 
 
 
 
 
Residential
401,210

 
447

 
(7,116
)
 
394,541

Commercial
474,979

 
4,159

 
(7,879
)
 
471,259

Corporate securities
5,000

 

 
(1,014
)
 
3,986

Municipal securities
76,385

 
839

 
(964
)
 
76,260

Total investment securities available for sale
$
1,841,099

 
$
7,535

 
$
(30,291
)
 
$
1,818,343

 
 
 
 
 
 
 
 
 
At December 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
$
914,710

 
$
1,541

 
$
(21,129
)
 
$
895,122

Mortgage-backed securities:
 
 
 
 
 
 
 
Residential
415,659

 
47

 
(13,101
)
 
402,605

Commercial
481,081

 
1,024

 
(12,979
)
 
469,126

Corporate securities
5,000

 

 
(1,174
)
 
3,826

Municipal securities
77,168

 
398

 
(1,980
)
 
75,586

Total investment securities available for sale
$
1,893,618

 
$
3,010

 
$
(50,363
)
 
$
1,846,265

 
As of March 31, 2019 and December 31, 2018, 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, 2019 and December 31, 2018, $15.4 million and $32.7 million, respectively, in unrealized losses on securities available for sale net of taxes were included in accumulated other comprehensive loss. There were no reclassifications out of accumulated other comprehensive loss into earnings during the three months ended March 31, 2019 or 2018.

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Table of Contents

The amortized cost and estimated fair value of investment securities at March 31, 2019, by contractual maturity, is presented in the table 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. Collateralized mortgage obligations and mortgage-backed securities are not due at a single maturity date and their total balances are shown separately.
 
Amortized
Cost
 
Estimated
Fair Value
 
(Dollars in thousands)
Available for sale:
 
 
 
Due within one year
$
750

 
$
757

Due after one year through five years
19,602

 
19,845

Due after five years through ten years
25,759

 
26,205

Due after ten years
35,274

 
33,439

U.S. Government agency and U.S. Government sponsored enterprises:
 
 
 
Collateralized mortgage obligations
883,525

 
872,297

Mortgage-backed securities:
 
 
 
Residential
401,210

 
394,541

Commercial
474,979

 
471,259

Total
$
1,841,099

 
$
1,818,343


Securities with carrying values of approximately $358.6 million and $354.6 million at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits, for 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 values, 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, 2019
 
 
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*
 
2

 
$
21,338

 
$
(17
)
 
91

 
$
681,210

 
$
(13,301
)
 
93

 
$
702,548

 
$
(13,318
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential*
 

 

 

 
44

 
351,534

 
(7,116
)
 
44

 
351,534

 
(7,116
)
Commercial*
 
1

 
5,756

 
(14
)
 
25

 
295,061

 
(7,865
)
 
26

 
300,817

 
(7,879
)
Corporate securities
 

 

 

 
1

 
3,986

 
(1,014
)
 
1

 
3,986

 
(1,014
)
Municipal securities
 
8

 
4,051

 
(15
)
 
11

 
23,135

 
(949
)
 
19

 
27,186

 
(964
)
Total
 
11

 
$
31,145

 
$
(46
)
 
172

 
$
1,354,926

 
$
(30,245
)
 
183

 
$
1,386,071

 
$
(30,291
)
__________________________________    
* Investments in U.S. Government agency and U.S. Government sponsored enterprises

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Table of Contents

 
 
As of December 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*
 
1

 
$
8,041

 
$
(28
)
 
93

 
$
700,095

 
$
(21,101
)
 
94

 
$
708,136

 
$
(21,129
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential*
 
4

 
19,973

 
(37
)
 
45

 
363,334

 
(13,064
)
 
49

 
383,307

 
(13,101
)
Commercial*
 
3

 
38,494

 
(218
)
 
27

 
312,428

 
(12,761
)
 
30

 
350,922

 
(12,979
)
Corporate securities
 

 

 

 
1

 
3,826

 
(1,174
)
 
1

 
3,826

 
(1,174
)
Municipal securities
 
13

 
5,528

 
(83
)
 
32

 
42,444

 
(1,897
)
 
45

 
47,972

 
(1,980
)
Total
 
21

 
$
72,036

 
$
(366
)
 
198

 
$
1,422,127

 
$
(49,997
)
 
219

 
$
1,494,163

 
$
(50,363
)
__________________________________
* 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, management’s intention to sell, and/or whether it is more likely than not that management will be required to sell the 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.
All of the Company’s investment types had investments that were in a continuous unrealized loss position for twelve months or longer as of March 31, 2019. The collateralized mortgage obligations in a continuous loss position for twelve months or longer had unrealized losses of $13.3 million at March 31, 2019, and total residential and commercial mortgage backed securities in a continuous loss position for twelve months or longer had total unrealized losses of $15.0 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 agencies 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. Corporate securities that were in a continuous loss position for twelve months or longer had unrealized losses of $1.0 million at March 31, 2019. Municipal securities that were in a continuous loss position for twelve months or longer had unrealized losses of $949 thousand at March 31, 2019. 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, corporate securities, and municipal securities that were in an unrealized loss position at March 31, 2019.
The Company considers the losses on the investments in unrealized loss positions at March 31, 2019 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, 2019
 
December 31, 2018
Loan portfolio composition
(Dollars in thousands)
Real estate loans:
 
 
 
Residential
$
49,633

 
$
51,197

Commercial
8,396,364

 
8,395,327

Construction
269,837

 
275,076

Total real estate loans
8,715,834

 
8,721,600

Commercial business
2,158,424

 
2,127,630

Trade finance
172,273

 
197,190

Consumer and other
1,007,067

 
1,051,486

Total loans outstanding
12,053,598

 
12,097,906

Deferred loan fees, net
406

 
209

Loans receivable
12,054,004

 
12,098,115

Allowance for loan losses
(94,217
)
 
(92,557
)
Loans receivable, net of allowance for loan losses
$
11,959,787

 
$
12,005,558


The loan portfolio is made up of four segments: real estate loans, commercial business, trade finance, and consumer and other. Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and are collateralized by residential or commercial properties. Commercial business loans are loans provided to business for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions and other business related financing needs. Trade finance loans generally serves businesses involved in international trade activities. Consumer and other loans consist mostly of single family residential mortgage loans but also includes home equity, credit cards, and other personal loans.
The four 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 date of acquisition and accounted for under ASC 310-30, or “PCI loans”), 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 PCI loans for the three months ended March 31, 2019 and 2018:
 
Three Months Ended March 31,

2019

2018

(Dollars in thousands)
Balance at beginning of period
$
49,697


$
55,002

Accretion
(5,834
)

(5,772
)
Reclassification from nonaccretable difference
3,501


5,616

Balance at end of period
$
47,364


$
54,846

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of PCI loans is considered the “accretable yield.” The accretable yield is 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.

20

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, 2019 and 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)
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
49,446

 
$
21,826

 
$
719

 
$
6,269

 
$
7,321

 
$
5,939

 
$

 
$
1,037

 
$
92,557

Provision (credit) for loan losses
(4,658
)
 
6,621

 
(21
)
 
938

 
(39
)
 
118

 

 
41

 
3,000

Loans charged off
(34
)
 
(1,160
)
 

 
(210
)
 
(26
)
 
(248
)
 

 
(76
)
 
(1,754
)
Recoveries of charge offs
1,122

 
89

 

 
7

 
5

 
69

 

 

 
1,292

PCI allowance adjustment

 

 

 

 

 
(878
)
 

 

 
(878
)
Balance, end of period
$
45,876

 
$
27,376

 
$
698

 
$
7,004

 
$
7,261

 
$
5,000

 
$

 
$
1,002

 
$
94,217


 
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


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, 2019 and December 31, 2018:
 
March 31, 2019
 
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
$
211

 
$
5,842

 
$

 
$
8

 
$
245

 
$
490

 
$

 
$
1

 
$
6,797

Collectively evaluated for impairment
45,665

 
21,534

 
698

 
6,996

 
1,786

 
408

 

 
17

 
77,104

PCI loans

 

 

 

 
5,230

 
4,102

 

 
984

 
10,316

Total
$
45,876

 
$
27,376

 
$
698

 
$
7,004

 
$
7,261

 
$
5,000

 
$

 
$
1,002

 
$
94,217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
59,938

 
$
33,756

 
$
5,343

 
$
817

 
$
23,264

 
$
5,048

 
$
3,066

 
$
918

 
$
132,150

Collectively evaluated for impairment
7,122,309

 
2,026,111

 
163,864

 
872,171

 
1,394,669

 
72,810

 

 
127,583

 
11,779,517

PCI loans

 

 

 

 
115,654

 
20,699

 

 
5,578

 
141,931

Total
$
7,182,247

 
$
2,059,867

 
$
169,207

 
$
872,988

 
$
1,533,587

 
$
98,557

 
$
3,066

 
$
134,079

 
$
12,053,598

 
December 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
$
176

 
$
4,221

 
$

 
$
3

 
$
261

 
$
130

 
$

 
$

 
$
4,791

Collectively evaluated for impairment
49,270

 
17,605

 
719

 
6,266

 
1,264

 
460

 

 
19

 
75,603

PCI loans

 

 

 

 
5,796

 
5,349

 

 
1,018

 
12,163

Total
$
49,446

 
$
21,826

 
$
719

 
$
6,269

 
$
7,321

 
$
5,939

 
$

 
$
1,037

 
$
92,557

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
39,976

 
$
29,624

 
$
5,887

 
$
441

 
$
18,080

 
$
5,734

 
$
3,124

 
$
1,141

 
$
104,007

Collectively evaluated for impairment
7,037,392

 
1,988,067

 
188,179

 
910,292

 
1,507,858

 
80,916

 

 
133,942

 
11,846,646

PCI loans

 

 

 

 
118,294

 
23,289

 

 
5,670

 
147,253

Total
$
7,077,368

 
$
2,017,691

 
$
194,066

 
$
910,733

 
$
1,644,232

 
$
109,939

 
$
3,124

 
$
140,753

 
$
12,097,906

At March 31, 2019 and December 31, 2018, the balance of PCI loans that had credit deterioration subsequent to acquisition was $49.1 million and $57.9 million, respectively. PCI loans with subsequent credit deterioration had an allowance for loan losses balance of $10.3 million and $12.2 million at March 31, 2019 and December 31, 2018, respectively.
As of March 31, 2019 and December 31, 2018, the reserve for unfunded loan commitments recorded in other liabilities was $736 thousand and $736 thousand, respectively. For the three months ended March 31, 2019 and 2018, recognized credit for unfunded commitments recorded in credit related expense was $0 and $200 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 for the dates indicated:
 
March 31, 2019
 
December 31, 2018
 
(Dollars in thousands)
With allocated specific allowance
 
 
 
Without charge off
$
42,912

 
$
35,365

With charge off
1,101

 
681

With no allocated specific allowance
 
 
 
Without charge off
77,619

 
59,607

With charge off
10,518

 
8,354

Specific allowance on impaired loans
(6,797
)
 
(4,791
)
Impaired loans, net of specific allowance
$
125,353

 
$
99,216

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, 2019 and December 31, 2018, and the average recorded investment and interest income recognized for the three months ended March 31, 2019 and 2018. Impaired loans with no related allowance are believed by management to be adequately collateralized.
 
 
As of March 31, 2019
 
As of December 31, 2018
Total Impaired Loans (1)
 
Recorded Investment (2)
 
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
 
2,045

 
2,299

 
171

 
1,375

 
1,487

 
156

Hotel & motel
 
1,834

 
2,185

 
112

 
1,949

 
2,310

 
119

Gas station & car wash
 

 

 

 

 

 

Mixed use
 
858

 
934

 
34

 
881