HANMI FINANCIAL: Discussion and analysis by management of the financial position and operating results (Form 10-Q)

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The following is management's discussion and analysis of our results of
operations and financial condition as of and for the three months ended March
31, 2021. This analysis should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report on Form
10-K") and with the unaudited consolidated financial statements and notes
thereto set forth in this Quarterly Report on Form 10-Q for the period ended
March 31, 2021 (this "Report").

Forward-looking statements

Some of the statements contained in this Report are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements in this Report other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including, but not limited to, statements
about anticipated future operating and financial performance, financial position
and liquidity, business strategies, regulatory and competitive outlook,
investment and expenditure plans, capital and financing needs, plans and
objectives of management for future operations, and other similar forecasts and
statements of expectation and statements of assumptions underlying any of the
foregoing. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential," or
"continue," or the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, strategies, outlook, needs, plans,
objectives or achievements to differ from those expressed or implied by the
forward-looking statement. These factors include the following: failure to
maintain adequate levels of capital and liquidity to support our operations; the
effect of potential future supervisory action against us or Hanmi Bank; general
economic and business conditions internationally, nationally and in those areas
in which we operate; volatility and deterioration in the credit and equity
markets; changes in consumer spending, borrowing and savings habits;
availability of capital from private and government sources; demographic
changes; competition for loans and deposits and failure to attract or retain
loans and deposits; fluctuations in interest rates and a decline in the level of
our interest rate spread; risks of natural disasters; a failure in or breach of
our operational or security systems or infrastructure, including cyber-attacks;
the failure to maintain current technologies; inability to successfully
implement future information technology enhancements; difficult business and
economic conditions that can adversely affect our industry and business,
including competition, fraudulent activity and negative publicity; risks
associated with Small Business Administration loans; failure to attract or
retain key employees; our ability to access cost-effective funding; fluctuations
in real estate values; changes in accounting policies and practices; the
imposition of tariffs or other domestic or international governmental policies
impacting the value of the products of our borrowers; changes in governmental
regulation, including, but not limited to, any increase in Federal Deposit
Insurance Corporation insurance premiums; the ability of Hanmi Bank to make
distributions to Hanmi Financial Corporation, which is restricted by certain
factors, including Hanmi Bank's retained earnings, net income, prior
distributions made, and certain other financial tests; ability to identify a
suitable strategic partner or to consummate a strategic transaction; adequacy of
our allowance for credit losses; credit quality and the effect of credit quality
on our credit losses expense and allowance for credit losses; changes in the
financial performance and/or condition of our borrowers and the ability of our
borrowers to perform under the terms of their loans and other terms of credit
agreements; our ability to control expenses; changes in securities markets; and
risks as it relates to cyber security against our information technology
infrastructure and those of our third party providers and vendors.

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Given the ongoing and dynamic nature of the circumstances, it is difficult to
predict the full impact of the COVID-19 outbreak on our business. The extent of
such impact will depend on future developments, which are highly uncertain,
including when the coronavirus can be controlled and abated and whether the
gradual reopening of businesses will result in a meaningful increase in economic
activity. As the result of the COVID-19 pandemic and the related adverse local
and national economic consequences, we could be subject to any of the following
risks, any of which could have a material, adverse effect on our business,
financial condition, liquidity, and results of operations: demand for our
products and services may decline, making it difficult to grow assets and
income; if the economy is unable to substantially reopen, and high levels of
unemployment continue for an extended period of time, loan delinquencies,
problem assets, and foreclosures may increase, resulting in increased charges
and reduced income; collateral for loans, especially real estate, may decline in
value, which could cause credit loss expense to increase; our allowance for
credit losses may have to be increased if borrowers experience financial
difficulties beyond forbearance periods, which will adversely affect our net
income; the net worth and liquidity of loan guarantors may decline, impairing
their ability to honor commitments to us; as the result of the decline in the
Federal Reserve Board's target federal funds rate, the yield on our assets may
decline to a greater extent than the decline in our cost of interest-bearing
liabilities, reducing our net interest margin and spread and reducing net
income; a material decrease in net income or a net loss over several quarters
could result in a decrease in the rate of our quarterly cash dividend; our cyber
security risks are increased as the result of an increase in the number of
employees working remotely; we rely on third party vendors for certain services
and the unavailability of a critical service due to the COVID-19 outbreak could
have an adverse effect on us; Federal Deposit Insurance Corporation premiums may
increase if the agency experiences additional resolution costs; potential
goodwill impairment charges could result if acquired assets and operations are
adversely affected and remain at reduced levels; due to recent legislation and
government action limiting foreclosure of real property and reduced governmental
capacity to effect business transactions and property transfers, we may have
more difficulty taking possession of collateral supporting our loans, which may
negatively impact our ability to minimize our losses, which could adversely
impact our financial results; and we face litigation, regulatory enforcement and
reputation risk as a result of our participation in the Paycheck Protection
Program ("PPP") and the risk that the Small Business Administration may not fund
some or all PPP loan guaranties. Moreover, our future success and profitability
substantially depends on the management skills of our executive officers and
directors, many of whom have held officer and director positions with us for
many years. The unanticipated loss or unavailability of key employees due to the
outbreak could harm our ability to operate our business or execute our business
strategy. We may not be successful in finding and integrating suitable
successors in the event of key employee loss or unavailability.

For additional information concerning risks we face, see "Part II, Item 1A. Risk
Factors" in this Report and "Item 1A. Risk Factors" in Part I of the 2020 Annual
Report on Form 10-K. We undertake no obligation to update these forward-looking
statements to reflect events or circumstances that occur after the date on which
such statements were made, except as required by law.

COVID-19[female[feminine

The COVID-19 pandemic has caused significant economic dislocation in the United
States as many state and local governments placed restrictions on travel,
gatherings and business activities. Various state governments and federal
agencies have required lenders to provide forbearance and other relief to
borrowers (e.g., waiving late payment and other fees). The federal banking
agencies have encouraged financial institutions to prudently work with affected
borrowers and passed legislation that provided relief from reporting loan
classifications due to modifications related to the COVID-19 outbreak. Certain
industries have been particularly hard-hit, including the travel and hospitality
industry, the restaurant industry and the retail industry. Finally, the spread
of the coronavirus has caused us to modify our business practices, including
employee travel, employee work locations, and cancellation of physical
participation in meetings, events and conferences. We have many employees
working remotely and we may take further actions as may be required by
government authorities or that we determine are in the best interests of our
employees, customers and business partners.

Critical accounting methods

We have established various accounting policies that govern the application of
GAAP in the preparation of our financial statements. Our significant accounting
policies are described in the Notes to consolidated financial statements in our
2020 Annual Report on Form 10-K. We had no significant changes in our accounting
policies since the filing of our 2020 Annual Report on Form 10-K.

Certain accounting policies require us to make significant estimates and
assumptions that have a material impact on the carrying value of certain assets
and liabilities, and we consider these critical accounting policies. For a
description of these critical accounting policies, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies" in our 2020 Annual Report on Form 10-K. Actual
results could differ significantly from these estimates and assumptions, which
could have a material impact on the carrying value of assets and liabilities at
the balance sheet dates and our results of operations for the reporting periods.
Management has discussed the development and selection of these critical
accounting policies with the Audit Committee of the Company's Board of
Directors.

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Executive overview

Net income was $16.7 million, or $0.54 per diluted share, for the three months
ended March 31, 2021 compared with $2.4 million, or $0.08 per diluted share, for
the same period a year ago. The increase in net income for the 2021 first
quarter primarily reflects a $7.4 million qualitative provision associated with
the COVID-19 pandemic, a $4.9 million provision related to changes in other
qualitative factors, a $2.6 million specific provision for a previously
identified troubled loan relationship, and a $823,000 provision for off-balance
sheet items.

The other financial highlights are as follows:

• Cash flow and amounts owed by banks increased $ 254.6 million at $ 646.4 million from

March 31, 2021 of $ 391.8 million at December 31, 2020, mainly from a

a higher volume of non-interest bearing deposits, reflecting the proceeds

         PPP loans and other government assistance programs, as well as an
         increase in our marketing efforts.


      •  Loans receivable, before allowance for credit losses, were $4.82 billion
         at March 31, 2021 compared with $4.88 billion at December 31, 2020.

• The deposits were $ 5.51 billion at March 31, 2021 compared to $ 5.28 billion

at December 31, 2020. The increase mainly reflects a $ 275.9 million

increase in unpaid sight deposits.

Results of Operations

Net Interest Income

Our primary source of revenue is net interest income, which is the difference
between interest derived from earning assets, and interest paid on liabilities
obtained to fund those assets. Our net interest income is affected by changes in
the level and mix of interest-earning assets and interest-bearing liabilities,
referred to as volume changes. Net interest income is also affected by changes
in the yields earned on assets and rates paid on liabilities, referred to as
rate changes. Interest rates charged on loans receivable are affected
principally by changes to interest rates, the demand for loans receivable, the
supply of money available for lending purposes, and other competitive factors.
Those factors are, in turn, affected by general economic conditions and other
factors beyond our control, such as federal economic policies, the general
supply of money in the economy, legislative tax policies, governmental budgetary
matters, and the actions of the Federal Reserve.

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The following table shows the average balance of assets, liabilities and
stockholders' equity; the amount of interest income, on a tax-equivalent basis,
and interest expense; the average yield or rate for each category of
interest-earning assets and interest-bearing liabilities; and the net interest
spread and the net interest margin for the periods indicated. All average
balances are daily average balances.



                                                                       Three Months Ended
                                                   March 31, 2021                              March 31, 2020
                                                       Interest       Average                      Interest       Average
                                         Average       Income /       Yield /        Average       Income /       Yield /
                                         Balance        Expense        Rate          Balance        Expense        Rate
Assets                                                                   (in thousands)
Interest-earning assets:
Loans receivable (1)                   $ 4,843,825     $  50,614          4.24 %   $ 4,518,395     $  54,648          4.86 %
Securities (2)                             774,022         1,140          0.59 %       623,711         3,655          2.34 %
FHLB stock                                  16,385           206          5.10 %        16,385           289          7.10 %
Interest-bearing deposits in other
banks                                      395,602            96          0.10 %       104,513           333          1.28 %
Total interest-earning assets            6,029,834        52,056          

3.50% 5,263,004 58,925 4.50%

Noninterest-earning assets:
Cash and due from banks                     56,666                                      97,896
Allowance for credit losses                (89,681 )                                   (61,054 )
Other assets                               233,146                                     204,807
Total assets                           $ 6,229,965                                 $ 5,504,653

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing               $   102,980     $      14          0.05 %   $    82,934     $      21          0.10 %
Money market and savings                 1,967,012         1,479          0.30 %     1,687,013         4,780          1.14 %
Time deposits                            1,238,513         2,465          0.81 %     1,522,745         7,942          2.10 %
Total interest-bearing deposits          3,308,505         3,958          0.49 %     3,292,692        12,743          1.56 %
Borrowings                                 150,000           478          1.29 %       130,659           496          1.53 %
Subordinated debentures                    119,040         1,619         

5.44% 118,444 1,712 5.78% Total interest-bearing liabilities 3,577,545 6,055 0.69% 3,541,795 14,951 1.70%

Noninterest-bearing liabilities and
equity:
Demand deposits: noninterest-bearing     1,991,204                                   1,333,697
Other liabilities                           80,060                                      69,205
Stockholders' equity                       581,156                                     559,956
Total liabilities and stockholders'
equity                                 $ 6,229,965                                 $ 5,504,653

Net interest income (taxable
equivalent basis)                                      $  46,001                                   $  43,974

Cost of deposits (3)                                                      0.30 %                                      1.11 %
Net interest spread (taxable
equivalent basis) (4)                                                     2.81 %                                      2.80 %
Net interest margin (taxable
equivalent basis) (5)                                                     3.09 %                                      3.36 %



(1) Loans receivable include loans held for sale and exclude the allowance for

credit losses. Non-financial claims are included in average loans

balance of receivables.

(2) Amounts calculated on a fully taxable equivalence basis using the

statutory federal tax rate.

(3) Represents interest expense on deposits as a percentage of all

paid and unpaid deposits.

(4) Represents the average return earned on interest-bearing assets less the

average rate paid on interest-bearing liabilities.

(5) Represents net interest income as a percentage of average interest income

    assets.


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The table below shows changes in interest income (on a tax equivalent basis) and
interest expense and the amounts attributable to variations in interest rates
and volumes for the periods indicated. The variances attributable to
simultaneous volume and rate changes have been allocated to the change due to
volume and the change due to rate categories in proportion to the relationship
of the absolute dollar amount attributable solely to the change in volume and to
the change in rate.



                                                                 Three Months Ended
                                                          March 31, 2021 vs March 31, 2020
                                                       Increases

(Decreases) Due to the change in

                                                       Volume               

Total rate

                                                                   (in 

thousands)

Interest and dividend income:
Loans receivable (1)                               $        3,530         $    (7,564 )   $ (4,034 )
Securities (2)                                                699              (3,214 )     (2,515 )
FHLB stock                                                      -                 (83 )        (83 )
Interest-bearing deposits in other banks                      279                (516 )       (237 )
Total interest and dividend income                          4,508             (11,377 )     (6,869 )

Interest expense:
Demand: interest-bearing                           $            4         $       (11 )   $     (7 )
Money market and savings                                      674              (3,975 )     (3,301 )
Time deposits                                              (1,276 )            (4,201 )     (5,477 )
Borrowings                                                     66                 (84 )        (18 )
Subordinated debentures                                         8                (101 )        (93 )
Total interest expense                                       (524 )            (8,372 )     (8,896 )
Change in net interest income                      $        5,032         $    (3,005 )   $  2,027



(1) Loans receivable include loans held for sale and exclude the allowance for

credit losses. Non-financial claims are included in average loans

balance of receivables.

(2) Amounts calculated on a fully taxable equivalence basis using the

    statutory federal tax rate.




Interest and dividend income, on a taxable equivalent basis, decreased $6.9
million, or 11.7 percent, to $52.1 million for the three months ended March 31,
2021 from $58.9 million for the same period in 2020 due primarily to a $4.0
million or 7.4 percent decrease in the interest on loans and a $2.5 million or
68.8 percent decrease in the interest on securities. Interest expense decreased
$8.9 million, or 59.5 percent, to $6.1 million for the three months ended March
31, 2021 from $15.0 million for the same period in 2020 due primarily to a $8.8
million or 68.9 percent decrease in the interest on deposits. For the three
months ended March 31, 2021 and 2020, net interest income, on a taxable
equivalent basis, was $46.0 million and $44.0 million, respectively. The
increase in net interest income was primarily due to the decrease in interest
expense on interest-bearing liabilities, partially offset by the decrease in
interest income on interest-earning assets. The net interest spread and net
interest margin, on a taxable equivalent basis, for the three months ended March
31, 2021 were 2.81 percent and 3.09 percent, respectively, compared with 2.80
percent and 3.36 percent, respectively, for the same period in 2020.



The average balance of interest earning assets increased $766.8 million, or 14.6
percent, to $6.03 billion as of March 31, 2021 from $5.26 billion for the three
months ended March 31, 2020. The average balance of loans increased $325.4
million, or 7.2 percent, to $4.84 billion for the three months ended March 31,
2021 from $4.52 billion as of March 31, 2020. The average balance of securities
increased $150.3 million, or 24.1 percent, to $774.0 million for the three
months ended March 31, 2021 from $623.7 million as of March 31, 2020. The
increase in the average balance of loans was due mainly to new loan production
driven by PPP loans.



The average yield on interest-earning assets, on a taxable equivalent basis,
decreased 100 basis points to 3.50 percent for the three months ended March 31,
2021 from 4.50 percent for the three months ended March 31, 2020, mainly due to
the origination of $440.3 million of PPP loans at a rate of one percent during
the second quarter of 2020 and first quarter of 2021. The average yield on loans
decreased to 4.24 percent for the three months ended March 31, 2021 from 4.86
percent for the three months ended March 31, 2020, primarily due to the
continued decrease in market interest rates commencing in the first quarter of
2020 and the origination of $308.8 million of first draw PPP loans at a rate of
one percent during the second quarter of 2020. The average yield on securities,
on a taxable equivalent basis, decreased to 0.59 percent for the three months
ended March 31, 2021 from 2.34 percent for the three months ended March 31,
2020, attributable to the sale of most of the portfolio during second quarter
2020 and subsequently reinvesting into a portfolio of lower yielding securities
due to the continued decline in market interest rates.



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The average balance of interest-bearing liabilities increased $35.8 million, or
1.0 percent, to $3.58 billion as of March 31, 2021 compared to $3.54 billion as
of March 31, 2020. The increase in average interest-bearing liabilities resulted
primarily from higher noninterest bearing demand deposits, money market and
savings balances, offset by a decrease in time deposits. The average cost of
interest-bearing liabilities decreased by 101 basis points to 0.69 percent for
the three months ended March 31, 2021 from 1.70 percent for the three months
ended March 31, 2020. The decrease was due to lower market interest rates and a
shift away from time deposits to low-interest money market and savings accounts.



Credit Loss Expense

For the three months ended March 31, 2021, credit loss expense was $2.1 million,
comprised of a $1.0 million provision for loan losses, a $2.1 million provision
for an SBA guarantee repair loss, a $450,000 negative provision for off-balance
sheet items and a $471,000 negative provision for losses on accrued interest
receivable for loans currently or previously modified under the CARES Act. For
the same period in 2020, loan loss provision was $14.9 million and provision for
off-balance sheet items was $823,000. The credit loss expense for the three
months ended March 31, 2021 compared to the same period in 2020 reflected the
higher allowance as of March 31, 2020 from a $7.4 million qualitative provision
associated with the COVID-19 pandemic, a $4.9 million provision related to other
qualitative factors, an additional provision for a previously identified
troubled loan relationship of $2.6 million, and an off-balance sheet provision
of $823,000.

See also “Provision for credit losses and provision for credit losses related to off-balance sheet items” for more details.

Non-interest income

The following table sets forth the various components of noninterest income for
the periods indicated:



                                                                                     Increase
                                               Three Months Ended March 31,         (Decrease)
                                                 2021                2020             Amount
                                                               (in thousands)
Service charges on deposit accounts          $       2,357       $       2,400     $        (43 )
Trade finance and other service charges
and fees                                             1,034                 986               48
Servicing income                                       846                 561              285
Bank-owned life insurance income                       256                 277              (21 )
All other operating income                             841                 845               (4 )
Service charges, fees & other                        5,334               5,069              265
Gain on sale of SBA loans                            1,671               1,154              517
Gain on sale of PPP loans                            2,454                   -            2,454
Net gain on sales of securities                         99                   -               99
Legal settlement                                       250                   -              250
Total noninterest income                     $       9,808       $       6,223     $      3,585




For the three months ended March 31, 2021, noninterest income was $9.8 million,
an increase of $3.6 million, or 57.6 percent, compared with $6.2 million for the
same period in 2020. Most of the increase was attributable to a $2.5 million
gain on the sale of $108.6 million of PPP loans originated during the quarter,
and $1.7 million in gains on the sale of $18.1 million of non-PPP 7(a) SBA loans
during the three months ended March 31, 2021 compared with $1.2 million for the
three months ended March 31, 2020.

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Interest-free expenses

The following table sets forth the components of noninterest expense for the
periods indicated:



                                                                                       Increase
                                                Three Months Ended March 31,          (Decrease)
                                                  2021                 2020             Amount
                                                                (in thousands)
Salaries and employee benefits               $       16,820       $       17,749     $       (929 )
Occupancy and equipment                               4,595                4,475              120
Data processing                                       2,926                2,669              257
Professional fees                                     1,447                1,915             (468 )
Supplies and communications                             757                  781              (24 )
Advertising and promotion                               359                  734             (375 )
All other operating expenses                          2,378                2,722             (344 )
Subtotal                                             29,282               31,045           (1,763 )
Other real estate owned expense                         221                    2              219
Repossessed personal property expense                    32                   21               11
Total noninterest expense                    $       29,535       $       31,068     $     (1,533 )




For the three months ended March 31, 2021, noninterest expense was $29.5
million, a decrease of $1.5 million, or 4.9 percent, compared with $31.1 million
for the same period in 2020. Salaries and benefits decreased $929,000, as $1.4
million in capitalized costs from second draw PPP originations was offset
partially by higher incentive compensation expense. Noninterest expense also
benefited from lower professional fees related to a prior year troubled loan
relationship resolved in 2020 and prior year implementation costs of the new
CECL standard, and lower advertising and promotion expense, offset partially
higher data processing costs and other real estate owned expense.

Income tax expense

Income tax expense was $7.5 million and $1.0 million representing an effective
income tax rate of 31.1 percent and 30.7 percent for the three months ended
March 31, 2021 and 2020, respectively. The increase in the effective tax rate
for the three months ended March 31, 2021, compared to the same period in 2020
was principally due to an increase in pre-tax earnings.

Financial condition

Securities

As of March 31, 2021, our securities portfolio consisted of U.S. government
agency and sponsored agency mortgage-backed securities, collateralized mortgage
obligations and debt securities and, to a lesser extent, U.S. Treasury
securities. Most of these securities carry fixed interest rates. Other than
holdings of U.S. government agency and sponsored agency obligations, there were
no securities of any one issuer exceeding 10 percent of stockholders' equity as
of March 31, 2021 and December 31, 2020.

The following table summarizes the contractual maturity schedule for securities,
at amortized cost, and their cost weighted average yield, which is calculated
using amortized cost as the weight and tax-equivalent book yield, as of March
31, 2021:



                                                            After One              After Five
                                                            Year But                Years But
                                   Within One              Within Five             Within Ten               After Ten
                                      Year                    Years                   Years                   Years                    Total
                                Amount      Yield       Amount      Yield       Amount      Yield       Amount       Yield       Amount       Yield
                                                                                  (in thousands)
Securities available for
sale:
U.S. Treasury securities       $  9,998       2.67 %   $      -       0.00 %   $      -       0.00 %   $       -       0.00 %   $   9,998       2.67 %
U.S. government agency and
sponsored agency
obligations:
Mortgage-backed securities        1,174       1.67 %      2,937       1.35 %          -       0.00 %     575,098       0.86 %     579,209       0.86 %
Collateralized mortgage
obligations                           -       0.00 %        746       1.47 

% 978 1.19% 111 084 0.26% 112 808 0.28% Debt securities

                       -       0.00 %     75,660       0.54 %     10,000       0.85 %           -       0.00 %      85,660       0.58 %
Total U.S. government agency
and sponsored agency
obligations                       1,174       1.67 %     79,343       0.58 

% 10,978 0.88% 686,182 0.76% 777677 0.75% Total titles available $ 11,172

                $ 79,343                $ 10,978                $ 686,182                $ 787,675
for sale                                      2.56 %                  0.58 %                  0.88 %                   0.76 %                   0.77 %


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Loans Receivable

As of March 31, 2021 and December 31, 2020, loans receivable (excluding loans
held for sale), net of deferred loan fees and costs, discounts and allowance for
credit losses, were $4.73 billion and $4.79 billion, respectively, representing
a decrease of $61.0 million, or 1.3 percent. The decrease reflects $303.3
million in loan sales and payoffs, including $108.6 million in second draw PPP
loan sales and $39.0 million in SBA PPP loan forgiveness, and amortization of
$94.9 million, offset partially by $348.0 million in new loan production,
including $131.5 million of second draw PPP loan production.

During the three months ended March 31, 2021, total loan disbursements consisted
of $103.1 million in commercial real estate loans, $34.1 million in leases
receivable, $42.3 million in commercial and industrial loans, $155.9 million in
SBA loans ($131.5 million in second draw PPP loans) and $12.7 million in
residential/consumer loans.



The table below shows the maturity distribution of outstanding loans as of March
31, 2021. In addition, the table shows the distribution of such loans between
those with floating or variable interest rates and those with fixed or
predetermined interest rates.

                                                            After Five
                                           After One        Years but
                                            Year but          Within          After
                          Within One      Within Five        Fifteen         Fifteen
                             Year            Years            Years           Years           Total
                                                         (in thousands)
Real estate loans:
Commercial property
Retail                   $    174,754     $    532,914     $    103,915     $        -     $    811,583
Hospitality                   223,908          578,520           39,586              -          842,014
Other                         214,603          983,650          339,945        117,867        1,656,065
Total commercial
property loans                613,265        2,095,084          483,446        117,867        3,309,662
Construction                   61,910              716                -              -           62,626
Residential/consumer
loans                           4,034            1,418            5,832        316,944          328,228
Total real estate
loans                         679,209        2,097,218          489,278        434,811        3,700,516
Commercial and
industrial loans              219,926          406,624           80,523              -          707,073
Leases receivable              19,566          363,683           26,313              -          409,562
Loans receivable         $    918,701     $  2,867,525     $    596,114     $  434,811     $  4,817,151
Loans with
predetermined interest
rates                    $    480,084     $  1,877,300     $    138,669     $   40,670     $  2,536,723
Loans with variable
interest rates                438,617          990,225          457,445        394,141        2,280,428


Industry

As of March 31, 2021, the loan portfolio included the following concentrations
of loans to one type of industry that were greater than 10.0 percent of loans
receivable outstanding:



                                                           Percentage of
                                      Balance as of       Loans Receivable
                                     March 31, 2021         Outstanding
                                                 (in thousands)
Lessor of nonresidential buildings   $     1,436,931                   29.8 %
Hospitality                                  880,894                   18.3 %




                                       46
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Loan Quality Indicators



Delinquent loans (defined as 30 to 89 days past due and still accruing) were
$6.9 million and $9.5 million at March 31, 2021 and December 31, 2020,
respectively, representing a decrease of $2.5 million or 26.9 percent, in 2021.
There were no loans 90 days or more past due and accruing at March 31, 2021 and
December 31, 2020.



Special mention loans were $96.1 million at March 31, 2021 compared with $77.0
million at December 31, 2020. The quarter-over-quarter change reflects additions
of $33.8 million and reductions (comprising upgrades, downgrades and payments)
of $14.7 million. At March 31, 2021 and December 31, 2020, special mention loans
included $72.0 million and $49.1 million, respectively, of loans identified as
adversely affected by the pandemic.



The classified loans were $ 147.4 million at March 31, 2021 compared to $ 140.2 million at the end of the fourth trimester. The quarter-to-quarter variation reflects the additions of $ 28.5 million and discounts (including upgrades, payments, sales and write-offs) of $ 21.3 million. AT March 31, 2021 and
December 31, 2020, classified loans included $ 69.5 million and $ 54.0 million, respectively, loans identified as affected by the COVID-19 pandemic.



Nonperforming Assets

Nonperforming loans consist of loans receivable on nonaccrual status and loans
90 days or more past due and still accruing interest. Nonperforming assets
consist of nonperforming loans and OREO. Loans are placed on nonaccrual status
when, in the opinion of management, the full timely collection of principal or
interest is in doubt. Generally, the accrual of interest is discontinued when
principal or interest payments become more than 90 days past due, unless we
believe the loan is adequately collateralized and in the process of collection.
However, in certain instances, we may place a particular loan on nonaccrual
status earlier, depending upon the individual circumstances surrounding the
loan's delinquency. When a loan is placed on nonaccrual status, previously
accrued but unpaid interest is reversed against current income. Subsequent
collections of cash are applied as principal reductions when received, except
when the ultimate collectability of principal is probable, in which case
interest payments are credited to income. Nonaccrual loans may be restored to
accrual status when principal and interest become current and full repayment is
expected. Interest income is recognized on the accrual basis for impaired loans
not meeting the criteria for nonaccrual. OREO consists of properties acquired by
foreclosure or similar means, or vacant bank properties for which their usage
for operations has ceased and management intends to offer for sale.

Except for nonaccrual loans and loans modified under the CARES Act set forth
below, management is not aware of any other loans as of March 31, 2021 for which
known credit problems of the borrower would cause serious doubts as to the
ability of such borrowers to comply with their present loan or lease repayment
terms, or any known events that would result in a loan or lease being designated
as nonperforming at some future date. Management cannot, however, predict the
extent to which a deterioration in general economic conditions, real estate
values, increases in general rates of interest, or changes in the financial
condition or business of borrower may adversely affect a borrower's ability to
pay.

Nonaccrual loans were $55.1 million at March 31, 2021 or 1.14 percent of loans,
compared with $83.0 million at December 31, 2020, or 1.70 percent of the
portfolio. The quarter-over-quarter change reflects additions of $2.7 million
loans and reductions (comprising upgrades, payments, sales, and charge-offs) of
$30.6 million. At March 31, 2021, nonaccrual loans included $21.0 million of
loans adversely affected by the pandemic.

Nonperforming assets were $56.6 million at the end of the first quarter of 2021,
or 0.88 percent of total assets, compared with $85.4 million, or 1.38 percent,
at the end of the prior quarter.

All of the $55.1 million and $83.0 million nonaccrual loans as of March 31, 2021
and December 31, 2020, respectively, were considered nonperforming and resulted
in aggregate individually evaluated allowances of $12.2 million and $14.1
million, respectively. The allowance for collateral-dependent loans is
calculated as the difference between the outstanding loan balance and the value
of the collateral as determined by recent appraisals less estimated costs to
sell. The allowance for collateral-dependent loans varies based on the
collateral coverage of the loan at the time of designation as nonperforming. We
continue to monitor the collateral coverage, based on recent appraisals, on
these loans on a quarterly basis and adjust the allowance accordingly.

Loans modified under the CARES Act declined 25.0 percent to $116.4 million at
March 31, 2021 from $155.6 million at December 31, 2020. At March 31, 2021,
approximately 10.6 percent, or $12.3 million, of modified loans are currently
under deferred payment arrangements, compared with approximately 13.6 percent,
or $21.1 million at December 31, 2020. The remainder of modified loans were
making payments that are less than the contractually required amount. Of the
modified loan portfolio, at March 31, 2021, 43.6 percent were special mention
and 15.6 percent were classified, compared with 20.1 percent and 15.7 percent at
December 31, 2020. In addition, 7.1 percent and 4.6 percent were on nonaccrual
status at March 31, 2021 and December 31, 2020, respectively.

                                       47

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Individually valued loans

The Company reviews loans on an individual basis when the loan does not share similar risk characteristics with loan pools.



Individually evaluated loans were $63.5 million and $91.0 million as of March
31, 2021 and December 31, 2020, respectively, representing a decrease of $27.5
million, or 30.2 percent. Specific allowances associated with individually
evaluated loans decreased $1.9 million to $12.2 million as of March 31, 2021
compared with $14.1 million as of December 31, 2020.



For the three months ended March 31, 2021, there were no loans restructured
which were subsequently classified as TDRs. For the year ended December 31,
2020, we restructured monthly payments for five loans, with a net carrying value
of $4.5 million at the time of modification, which we subsequently classified as
TDRs. Temporary payment structure modifications included, but were not limited
to, extending the maturity date, reducing the amount of principal and/or
interest due monthly, and/or allowing for interest only monthly payments for six
months or less.

As of March 31, 2021 and December 31, 2020, TDRs on an accrual status were $8.4
million and $7.9 million, respectively, most of which were deferral of principal
or extensions of maturity. A $2,000 and $5,000 allowance relating to these
loans, respectively, was included in the allowance for credit losses. As of
March 31, 2021 and December 31, 2020, restructured loans on nonaccrual status
were $15.2 million and $17.1 million, respectively, and a $5,000 and $12,000
allowance relating to these loans, respectively, was included in the allowance
for credit losses.

Provision for credit losses and provision for credit losses related to off-balance sheet items



The Company's estimate of the allowance for credit losses at March 31, 2021 and
December 31, 2020 reflects losses expected over the remaining contractual life
of the assets based on historical, current, and forward-looking information. The
contractual term does not consider extensions, renewals or modifications unless
the Company has identified an expected troubled debt restructuring.



Management selected three loss methodologies for the collective allowance
estimation. At March 31, 2021, the Company used the discounted cash flow ("DCF")
method to estimate allowances for credit losses for the commercial and
industrial loan portfolio, the PD/LGD method for the commercial property,
construction and residential property portfolios, and the Weighted Average
Remaining Maturity ("WARM") method to estimate expected credit losses for
equipment financing agreements or the equipment lease receivables portfolio.
Loans that do not share similar risk characteristics are individually evaluated
for allowances.



For all loan pools utilizing the DCF method, the Company determined that four
quarters represented a reasonable and supportable forecast period and reverted
to a historical loss rate over twelve quarters on a straight-line basis. For
each of these loan segments, the Company applied an annualized historical
Probability of Default/Loss Given Default ("PD/LGD") using all available
historical periods. Since reasonable and supportable forecasts of economic
conditions are imbedded directly into the DCF model, qualitative adjustments are
reduced but considered. The PD/LGD method incorporates a forecast into loss
estimates using a qualitative adjustment.



The Company used the Weighted Average Residual Maturity (“WARM”) method to estimate expected credit losses on equipment financing arrangements or the equipment rental receivables portfolio. The company applied an expected loss ratio based on historical internal losses adjusted for qualitative factors.



As of March 31, 2021 and December 31, 2020, the Company relied on the economic
projections from Moody's Analytics Economic Scenarios and Forecasts to inform
its loss driver forecasts over the four-quarter forecast period whereas it had
previously relied on Federal Reserve Economic Database economic data. For all
loan pools, the Company utilizes and forecasts the national unemployment rate as
the primary loss driver.



To adjust the historical and forecast periods to current conditions, the Company
applies various qualitative factors derived from market, industry or business
specific data, changes in the underlying portfolio composition, trends relating
to credit quality, delinquency, nonperforming and adversely rated leases, and
reasonable and supportable forecasts of economic conditions.

The allowance for credit losses was $88.4 million at March 31, 2021 compared
with $90.4 million at December 31, 2020. The allowance attributed to
individually evaluated loans was $12.2 million at March 31, 2021 compared with
$14.1 million at December 31, 2020. The allowance attributed to collectively
evaluated loans was $76.2 million at March 31, 2021 compared with $76.4 million
at December 31, 2020, and considered the impact of changes in macroeconomic
assumptions including an improving unemployment rate for the subsequent four
quarters. The Company recognizes the inherent uncertainties in the estimate of
the allowance for credit losses and the effect the COVID-19 pandemic may have on
borrowers. The following table reflects our

                                       48

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allocation of the allowance for credit losses by loan category as well as the
loans receivable for each loan category to total loans, including related
percentages:



                                           March 31, 2021                                       December 31, 2020
                                                        Loans                                                  Loans
                           Allowance                         Percentage of       Allowance                          Percentage of
                             Amount        Total Loans        Total Loans          Amount         Total Loans        Total Loans
                                                                       (in thousands)
Real estate loans:
Commercial property
Retail                    $      3,962     $    811,583                16.8 %   $      4,855     $     824,606                16.9 %
Hospitality                     38,251          842,014                17.5 %         28,801           859,953                17.6 %
Other                           11,121        1,656,065                34.4 %         13,991         1,610,377                33.0 %
Total commercial
property loans                  53,334        3,309,662                68.7 %         47,647         3,294,936                67.5 %
Construction                     3,670           62,626                 1.3 %          2,876            58,882                 1.2 %
Residential/consumer
loans                              758          328,228                 6.8 %          1,353           345,831                 7.1 %
Total real estate loans         57,762        3,700,516                76.8 %         51,876         3,699,649                75.8 %
Commercial and
industrial loans                16,387          707,073                14.7 %         21,410           757,255                15.5 %
Leases receivable               14,243          409,562                 8.5 %         17,140           423,264                 8.7 %
Total                     $     88,392     $  4,817,151               100.0 %   $     90,426     $   4,880,168               100.0 %



The following table presents certain ratios related to our allowance for credit losses at the dates presented:


                                                              As of
                                             March 31, 2021         December 31, 2020
                                                          (in thousands)
Ratios:
Allowance for credit losses to loans
receivable                                                1.83 %                   1.85 %
Nonaccrual loans to loans                                 1.14 %                   1.70 %
Allowance for credit losses to
nonaccrual loans                                        160.54 %            

108.91%

Balanced:

Nonaccrual loans at end of period          $            55,058     $        

83,032

Nonperforming loans at end of period       $            55,058     $        

83,032


As of March 31, 2021 and December 31, 2020, the allowance for credit losses
related to off-balance sheet items, primarily unfunded loan commitments, was
$2.3 million and $2.8 million, respectively. The Bank closely monitors the
borrower's repayment capabilities, while funding existing commitments to ensure
losses are minimized. Based on management's evaluation and analysis of portfolio
credit quality and prevailing economic conditions, we believe these allowances
were adequate for current expected lifetime losses in the loan portfolio and
off-balance sheet exposure as of March 31, 2021.

The following table presents a summary of net charge-offs (recoveries) for the
loan portfolio:



                                                      Three Months Ended
                                                                             Net Charge-Offs
                                                                             (Recoveries) to
                                                        Net Charge-Offs       Average Loans
                                    Average Loans        (Recoveries)              (1)
                                                        (in thousands)
March 31, 2021
Real estate loans                  $     3,704,694     $           1,236                0.13 %
Commercial and industrial loans            723,343                    (6 )             (0.00 )%
Leases receivable                          415,788                 1,768                1.70 %
Total                              $     4,843,825     $           2,998                0.25 %

March 31, 2020
Real estate loans                  $     3,592,136     $          14,085                1.57 %
Commercial and industrial loans            432,633                12,066               11.16 %
Leases receivable                          493,626                 1,107                0.90 %
Total                              $     4,518,395     $          27,258                2.41 %


(1) Annualized




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For the three months ended March 31, 2021, gross charge-offs were $3.5 million,
a decrease of $24.0 million, or 87.2 percent, from $27.5 million for the same
period in 2020 and recoveries were $507,000, an increase of $291,000 or 134.7
percent, from $216,000 in 2020. Net loan charge-offs were $3.0 million, or 0.25
percent of average loans, compared with $27.3 million, or 2.41 percent of
average loans, for the three months ended March 31, 2021 and 2020, respectively.

Deposits

The following table shows the composition of deposits by type as of the dates
indicated:



                                              March 31, 2021                December 31, 2020
                                         Balance         Percent          Balance        Percent
                                                         (dollars in thousands)
Demand - noninterest-bearing           $ 2,174,624             39.5 %   $ 1,898,766           36.0 %

Interesting:

Demand                                     111,362              2.0 %       100,617            1.9 %
Money market and savings                 2,029,824             36.8 %     1,991,926           37.8 %
Uninsured time deposits of more than
$250,000:
Three months or less                       182,827              3.3 %       134,543            2.6 %
Over three months through six months        10,047              0.2 %        70,011            1.3 %
Over six months through twelve                                  1.2 %                          1.0 %
months                                      64,234                           52,401
Over twelve months                           2,505              0.0 %         8,633            0.2 %
Other time deposits                        934,400             17.0 %     1,018,111           19.3 %
Total deposits                         $ 5,509,823            100.0 %   $ 5,275,008          100.0 %


Total deposits were $5.51 billion and $5.28 billion as of March 31, 2021 and
December 31, 2020, respectively, representing an increase of $234.8 million, or
4.5 percent.

Growth was primarily driven by an increase in noninterest-bearing demand
deposits and to a lesser extent increases in money market and savings deposits
and interest-bearing demand deposits, partially offset by a reduction in time
deposits. At March 31, 2021, the loan-to-deposit ratio was 87.4 percent compared
with 92.5 percent at the end of the previous quarter. The increase in
noninterest-bearing deposits reflects growth from new and existing customer
relationships as well as increases from second draw PPP loans and similar
economic stimulus activities.



As of March 31, 2021, the aggregate amount of uninsured deposits (deposits in
amounts greater than $250,000, which is the maximum amount for federal deposit
insurance) was $2.27 billion, of which $2.01 billion were demand deposits and
money market and savings deposits and $259.6 million were time deposits. As of
December 31, 2020, the aggregate amount of uninsured deposits was $2.09 billion,
consisting of $1.82 billion in demand deposits and money market and savings
deposits and $265.6 million in time deposits.



Subordinated loans and debentures

Borrowings mostly take the form of advances from the FHLB. At March 31, 2021 and
December 31, 2020, advances from the FHLB were $150.0 million. At March 31, 2021
and December 31, 2020, the Bank had $150.0 million in term advances and no
overnight advances from the FHLB.

The following is a summary of contractual maturities greater than twelve months
of FHLB advances:



                                              March 31, 2021                    December 31, 2020
                                                          Weighted                            Weighted
                                      Outstanding         Average          Outstanding        Average
FHLB of San Francisco                   Balance             Rate             Balance            Rate
                                                           (dollars in 

thousands)

Advances due over 12 months
through 24 months                    $      50,000               1.63 %   $       50,000           1.62 %
Advances due over 24 months
through 36 months                           50,000               0.37 %           50,000           0.97 %
Outstanding advances over 12         $     100,000                        $      100,000
months                                                           1.00 %                            1.30 %




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The weighted-average interest rate at March 31, 2021 and December 31, 2020 were
1.20 percent and 1.40 percent, respectively, and weighted-average interest rate
for the three months ended March 31, 2021 and December 31, 2020 were 1.29
percent and 1.42 percent, respectively. Average balances of FHLB advances for
the three months ended March 31, 2021 and December 31, 2020 were $150.0 million
and $156.6 million, respectively, with maximum amount outstanding at any month
end during the three months period ended March 31, 2021 and December 31, 2020 of
$150.0 million and $300.0 million, respectively.



Subordinated debentures were $119.1 million as of March 31, 2021 and $119.0
million as of December 31, 2020. Subordinated debentures are comprised of
fixed-to-floating subordinated notes of $98.6 million and $98.5 million as of
March 31, 2021 and December 31, 2020, respectively, and junior subordinated
deferrable interest debentures of $20.5 million and $20.4 million as of March
31, 2021 and December 31, 2020, respectively. See "Note 8 - Borrowings and
Subordinated Debentures" to the consolidated financial statements for more
details.



Interest Rate Risk Management

The spread between interest income on interest-earning assets and interest
expense on interest-bearing liabilities is the principal component of net
interest income, and interest rate changes substantially affect our financial
performance. We emphasize capital protection through stable earnings. In order
to achieve stable earnings, we prudently manage our assets and liabilities and
closely monitor the percentage changes in net interest income and equity value
in relation to limits established within our guidelines.

The Company performs simulation modeling to estimate the potential effects of
interest rate changes. The following table summarizes one of the stress
simulations performed to forecast the impact of changing interest rates on net
interest income and the value of interest-earning assets and interest-bearing
liabilities reflected on our balance sheet (i.e., an instantaneous parallel
shift in the yield curve of the magnitude indicated below) as of March 31, 2021.
The Company compares this stress simulation to policy limits, which specify the
maximum tolerance level for net interest income exposure over a 1- to 12-month
and a 13- to 24- month horizon, given the basis point adjustment in interest
rates reflected below.



                                    Net Interest Income Simulation
 Change in          1- to 12-Month Horizon                13- to 24-Month Horizon
 Interest          Dollar           Percentage           Dollar            Percentage
   Rate            Change             Change             Change              Change
                                        (dollars in thousands)
   300%         $     33,652              16.92 %    $       47,830              24.19 %
   200%         $     22,135              11.13 %    $       31,776              16.07 %
   100%         $     11,190               5.63 %    $       16,783               8.49 %
  (100%)        $     (7,254 )            (3.65 %)   $      (12,328 )            (6.23 %)




 Change in                 Economic Value of Equity (EVE)
 Interest                    Dollar              Percentage
   Rate                      Change                Change
                               (dollars in thousands)
   300%                 $         156,938               29.45 %
   200%                 $         116,316               21.82 %
   100%                 $          69,132               12.97 %
  (100%)                $        (125,598 )            (23.57 %)




The estimated sensitivity does not necessarily represent our forecast, and the
results may not be indicative of actual changes to our net interest income.
These estimates are based upon a number of assumptions including the nature and
timing of interest rate levels including yield curve shape, prepayments on loans
receivable and securities, pricing strategies on loans receivable and deposits,
and replacement of asset and liability cash flows. While the assumptions used
are based on current economic and local market conditions, there is no assurance
as to the predictive nature of these conditions, including how customer
preferences or competitor influences might change.

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Capital resources and liquidity

Capital resources

Historically, our primary source of capital has been the retention of operating
earnings. In order to ensure adequate capital levels, the Board regularly
assesses projected sources and uses of capital, expected loan growth,
anticipated strategic actions (such as stock repurchases and dividends), and
projected capital thresholds under adverse and severely adverse economic
conditions. In addition, the Board considers the Company's access to capital
from financial markets through the issuance of additional debt and securities,
including common stock or notes, to meet its capital needs.

In response to the uncertainty surrounding the COVID-19 pandemic, the Board
reduced the quarterly cash dividend paid on common stock for the third and
fourth quarter of 2020 to $0.08 per share from $0.12 per share and $0.24 per
share in the second and first quarters of 2020, respectively. The Board believed
these actions were the most prudent course of action as it continued to monitor
the results of operations and financial condition of the Company. During the
first quarter of 2021, the Board authorized an increase in the quarterly cash
dividend to $0.10 per share due to the stabilization of Company results and
financial condition. In addition, during the second quarter of 2021, due to the
continued stabilization of Company results and financial condition, the Board
authorized an increase in the quarterly cash dividend to $0.12 per share. The
Board expects to continue to re-evaluate the level of quarterly dividends in
subsequent quarters.

The Company's ability to pay dividends to shareholders depends in part upon
dividends it receives from the Bank. California law restricts the amount
available for cash dividends to the lesser of a bank's retained earnings or net
income for its last three fiscal years (less any distributions to shareholders
made during such period). Where the above test is not met, cash dividends may
still be paid, with the prior approval of the Department of Financial Protection
and Innovation ("DFPI"), in an amount not exceeding the greatest of: (1)
retained earnings of the bank; (2) net income of the bank for its last fiscal
year; or (3) the net income of the bank for its current fiscal year. As of April
1, 2021, after giving effect to the 2021 second quarter dividend declared by the
Company, the Bank has the ability to pay $13.5 million of dividends without the
prior approval of the Commissioner of the DFPI.

At March 31, 2021, the Bank's total risk-based capital ratio of 15.26 percent,
Tier 1 risk-based capital ratio of 14.01 percent, common equity Tier 1 capital
ratio of 14.01 percent and Tier 1 leverage capital ratio of 10.99 percent,
placed the Bank in the "well capitalized" category pursuant to capital rules,
which is defined as institutions with total risk-based capital ratio equal to or
greater than 10.00 percent, Tier 1 risk-based capital ratio equal to or greater
than 8.00 percent, common equity Tier 1 capital ratios equal to or greater than
6.50 percent, and Tier 1 leverage capital ratio equal to or greater than 5.00
percent.

AT March 31, 2021, the company’s total risk-based capital ratio was 15.54%, the Tier 1 risk-based capital ratio of 12.26%, the Tier 1 basic capital ratio of 11.84% and the Tier 1 capital ratio of 9.61%.

For a discussion of the changes implemented under the Basel III initiative and the Dodd-Frank Wall Street reform and consumer protection framework, see our 2020 Annual Report on Form 10 -K.

Liquidity

For a discussion of liquidity for the Company, see Note 14 - Liquidity included
in the notes to unaudited consolidated financial statements in this Report and
Note 22 - Liquidity in our 2020 Annual Report on Form 10-K.

Off-balance sheet arrangements

For a discussion of off-balance sheet arrangements, see Note 12 - Off-Balance
Sheet Commitments included in the notes to unaudited consolidated financial
statements in this Report and "Item 1. Business - Off-Balance Sheet Commitments"
in our 2020 Annual Report on Form 10-K.

Contractual obligations

There have been no material changes to the contractual obligations described in our 2020 Annual Report on Form 10-K.

Recently published accounting standards are not yet effective

FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects
of Reference Rate Reform on Financial Reporting, On March 12, 2020, the FASB
issued ASU 2020-04 to ease the potential burden in accounting for reference rate
reform. The amendments in ASU 2020-04 are elective and apply to all entities
that have contracts, hedging relationships, and other transactions that
reference LIBOR or another reference rate expected to be discontinued due to
reference rate reform.

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The new guidance provided for several optional expedients that reduce the costs and complexity of accounting for the benchmark rate reform, including measures to simplify or change the accounting issues resulting from the benchmark reform for changes in rates. contracts, hedges and debt securities.

The amendments are effective for all entities from the beginning of an interim
period that includes the issuance date of ASU 2020-04. An entity may elect to
apply the amendments prospectively through December 31, 2022.

The adoption of this standard is not expected to have a material impact on the results of operations or the financial condition of the company.

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