CATHAY GENERAL BANCORP [CATY] Filings

10-Q 1 caty20220331_10q.htm FORM 10-Q caty20220331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

001-31830

CATHAY GENERAL BANCORP

(Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number, including area code:

(213) 625-4700

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	CATY	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

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

Common stock, $.01 par value, 75,149,231 shares outstanding as of April, 30, 2022.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

1^ST QUARTER 2022 REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		3
Item 1.	FINANCIAL STATEMENTS (Unaudited)	3
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	7
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	69
Item 4.	CONTROLS AND PROCEDURES.	70
PART II – OTHER INFORMATION		70
Item 1.	LEGAL PROCEEDINGS.	70
Item 1A.	RISK FACTORS.	71
Item 3.	DEFAULTS UPON SENIOR SECURITIES.	72
Item 4.	MINE SAFETY DISCLOSURES.	72
Item 5.	OTHER INFORMATION.	72
Item 6.	EXHIBITS.	72
SIGNATURES		73

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Forward-Looking Statements

In this Quarterly Report on Form 10-Q, the term “Bancorp” refers to Cathay General Bancorp and the term “Bank” refers to Cathay Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively.

The statements in this report include forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 regarding management’s beliefs, projections, and assumptions concerning future results and events. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements in these provisions. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements about anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, growth plans, acquisition and divestiture opportunities, business prospects, strategic alternatives, business strategies, financial expectations, regulatory and competitive outlook, loan and deposit growth, investment and expenditure plans, financing needs and availability, level of nonperforming assets, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “aims,” “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “optimistic,” “plans,” “potential,” “possible,” “predicts,” “projects,” “seeks,” “shall,” “should,” “will,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by us are based on estimates, beliefs, projections, and assumptions of management and are not guarantees of future performance. These forward-looking statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks, uncertainties and other factors include, but are not limited to:

●

local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our operations, assets and liabilities;

●

the impact on our business, operations, financial condition, liquidity, results of operations, prospects and trading prices of our shares arising out of the COVID-19 pandemic and its related economic impacts;

●

possible additional provisions for loan losses and charge-offs;

●

credit risks of lending activities and deterioration in asset or credit quality;

●

extensive laws and regulations and supervision that we are subject to, including potential supervisory action by bank supervisory authorities;

●

increased costs of compliance and other risks associated with changes in regulation, including the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);

●

higher capital requirements from the implementation of the Basel III capital standards;

●

compliance with the Bank Secrecy Act and other money laundering statutes and regulations;

●

potential goodwill impairment;

●

liquidity risk;

●

fluctuations in interest rates;

●

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

●

inflation and deflation;

●

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

●

environmental liabilities;

●

our ability to generate anticipated returns from our investments and/or financings in certain tax advantaged-projects;

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●

our ability to compete with larger competitors;

●

our ability to retain key personnel;

●

successful management of reputational risk;

●

natural disasters, public health crises (including the occurrence of a contagious disease or illness, such as COVID-19) and geopolitical events;

●

failures, interruptions, or security breaches of our information systems;

●

our ability to adapt our systems to the expanding use of technology in banking;

●

risk management processes and strategies;

●

adverse results in legal proceedings;

●

the impact of regulatory enforcement actions, if any;

●

certain provisions in our charter and bylaws that may affect acquisition of the Company;

●

changes in accounting standards or tax laws and regulations;

●

market disruption and volatility;

●

fluctuations in the Bancorp’s stock price;

●

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

●

issuances of preferred stock;

●

capital level requirements and successfully raising additional capital, if needed, and the resulting dilution of interests of holders of Bancorp common stock; and

●

the soundness of other financial institutions.

These and other factors are further described in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings Bancorp makes with the SEC from time to time. Actual results in any future period may also vary from the past results discussed in this report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. We have no intention and undertake no obligation to update any forward-looking statement or to announce publicly any revision of any forward-looking statement to reflect developments, events, occurrences or circumstances after the date of such statement, except as required by law.

Bancorp’s filings with the SEC are available at the website maintained by the SEC at http://www.sec.gov, or by request directed to Cathay General Bancorp, 9650 Flair Drive, El Monte, California 91731, Attention: Investor Relations (626) 279-3296.

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PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2022			December 31, 2021
	(In thousands, except share and per share data)
Assets
Cash and due from banks	$	138,979		$	134,141
Short-term investments and interest-bearing deposits		1,119,105			2,315,563
Securities available-for-sale (amortized cost of $1,284,863 at March 31, 2022 and $1,126,867 at December 31, 2021)		1,219,541			1,127,309
Loans		17,398,357			16,342,479
Less: Allowance for loan losses		(145,786	)		(136,157	)
Unamortized deferred loan fees, net		(4,679	)		(4,321	)
Loans, net		17,247,892			16,202,001
Equity securities		27,740			22,319
Federal Home Loan Bank stock		17,250			17,250
Other real estate owned, net		4,067			4,368
Affordable housing investments and alternative energy partnerships, net		289,430			299,211
Premises and equipment, net		98,795			99,402
Customers’ liability on acceptances		6,753			8,112
Accrued interest receivable		60,056			56,994
Goodwill		375,706			372,189
Other intangible assets, net		7,512			4,627
Right-of-use assets - operating leases		32,045			27,834
Other assets		221,699			195,403
Total assets	$	20,866,570		$	20,886,723

Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing demand deposits	$	4,398,779		$	4,492,054
Interest-bearing deposits:
NOW deposits		2,435,725			2,522,442
Money market deposits		5,113,385			4,611,579
Savings deposits		1,156,727			915,515
Time deposits		4,955,645			5,517,252
Total deposits		18,060,261			18,058,842
Advances from the Federal Home Loan Bank		20,000			20,000
Other borrowings of affordable housing investments		23,108			23,145
Long-term debt		119,136			119,136
Acceptances outstanding		6,753			8,112
Lease liabilities - operating leases		35,403			30,694
Other liabilities		179,679			180,543
Total liabilities		18,444,340			18,440,472
Commitments and contingencies		—			—
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized; 90,904,183 issued and 75,078,258 outstanding at March 31, 2022, and 90,871,860 issued and 75,750,862 outstanding at December 31, 2021		909			909
Additional paid-in-capital		974,748			972,474
Accumulated other comprehensive loss, net		(45,977	)		(3,065	)
Retained earnings		2,034,681			1,985,168
Treasury stock, at cost (15,825,925 shares at March 31, 2022, and 15,120,998 shares at December 31, 2021)		(542,131	)		(509,235	)
Total equity		2,422,230			2,446,251
Total liabilities and equity	$	20,866,570		$	20,886,723

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

	Three months ended March 31,
	2022			2021
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable	$	166,094		$	159,721
Investment securities		4,828			3,067
Federal Home Loan Bank stock		261			217
Deposits with banks		763			315
Total interest and dividend income		171,946			163,320

Interest Expense
Time deposits		6,060			14,009
Other deposits		5,128			5,594
Advances from Federal Home Loan Bank		143			475
Long-term debt		1,424			1,424
Total interest expense		12,755			21,502

Net interest income before provision for credit losses		159,191			141,818
Provision/(reversal) for credit losses		8,643			(13,558	)
Net interest income after provision/(reversal) for credit losses		150,548			155,376

Non-Interest Income
Net gains/(losses) from equity securities		5,974			(2,752	)
Securities losses, net		—			853
Letters of credit commissions		1,556			1,690
Depository service fees		1,671			1,363
Wealth management fees		4,354			3,557
Other operating income		6,677			5,289
Total non-interest income		20,232			10,000

Non-Interest Expense
Salaries and employee benefits		35,475			32,722
Occupancy expense		5,613			5,046
Computer and equipment expense		2,956			3,271
Professional services expense		6,697			4,710
Data processing service expense		2,909			3,655
FDIC and regulatory assessments		1,802			1,925
Marketing expense		947			2,882
Other real estate owned expense		71			94
Amortization of investments in low income housing and alternative energy partnerships		8,287			11,570
Amortization of core deposit intangibles		224			172
Acquisition, integration and restructuring costs		3,936			732
Other operating expense		3,780			4,624
Total non-interest expense		72,697			71,403

Income before income tax expense		98,083			93,973
Income tax expense		23,055			20,589
Net income	$	75,028		$	73,384

Other Comprehensive Income, net of tax
Unrealized holding losses on securities available-for-sale		(45,966	)		(4,887	)
Unrealized holding gains on cash flow hedge derivatives		3,054			1,263
Total other comprehensive loss, net of tax		(42,912	)		(3,624	)
Total other comprehensive income	$	32,116		$	69,760

Net Income Per Common Share:
Basic	$	1.00		$	0.92
Diluted	$	0.99		$	0.92
Cash dividends paid per common share	$	0.34		$	0.31
Average Common Shares Outstanding:
Basic		75,331,976			79,530,777
Diluted		75,719,375			79,832,305

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

									Accumulated
	Common Stock					Additional			Other									Total
	*Number of*					*Paid-in*			*Comprehensive*			*Retained*			*Treasury*			*Stockholders'*
Three months ended	*Shares*			*Amount*		*Capital*			*Income*			*Earnings*			*Stock*			*Equity*
	(In thousands, except share data)
Balance at December 31, 2021		75,750,862		$	909	$	972,474		$	(3,065	)	$	1,985,168		$	(509,235	)	$	2,446,251
Dividend Reinvestment Plan		21,415			—		945			—			—			—			945
Restricted stock units vested		10,908			—		—			—			—			—			—
Shares withheld related to net share settlement of RSUs		—			—		(285	)		—			—			—			(285	)
Purchases of treasury stock		(704,927	)		—		—			—			—			(32,896	)		(32,896	)
Stock-based compensation		—			—		1,614			—			—			—			1,614
Cash dividends of $0.34 per share		—			—		—			—			(25,515	)		—			(25,515	)
Other comprehensive loss		—			—		—			(42,912	)		—			—			(42,912	)
Net income		—			—		—			—			75,028			—			75,028
Balance at March 31, 2022		75,078,258		$	909	$	974,748		$	(45,977	)	$	2,034,681		$	(542,131	)	$	2,422,230

								Accumulated
	Common Stock				Additional			Other									Total
	*Number of*				*Paid-in*			*Comprehensive*			*Retained*			*Treasury*			*Stockholders'*
	*Shares*		*Amount*		*Capital*			*Income*			*Earnings*			*Stock*			*Equity*
	(In thousands, except share data)
Balance at December 31, 2020		79,508,265	$	906	$	964,734		$	5,310		$	1,789,325		$	(342,131	)	$	2,418,144
Cumulative effect of change in accounting principle related to ASC 326, net of tax		—		—		—			—			(3,140	)		—			(3,140	)
Dividend Reinvestment Plan		20,036		—		868			—			—			—			868
Restricted stock units vested		66,724		1		—			—			—			—			1
Shares withheld related to net share settlement of RSUs		—		—		(1,279	)		—			—			—			(1,279	)
Stock-based compensation		—		—		1,243			—			—			—			1,243
Cash dividends of $0.31 per share		—		—		—			—			(24,650	)		—			(24,650	)
Other comprehensive loss		—		—		—			(3,624	)		—			—			(3,624	)
Net income		—		—		—			—			73,384			—			73,384
Balance at March 31, 2021		79,595,025	$	907	$	965,566		$	1,686		$	1,834,919		$	(342,131	)	$	2,460,947

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
	2022			2021
	(In thousands)
Cash Flows from Operating Activities
Net income	$	75,028		$	73,384
Adjustments to reconcile net income to net cash provided by operating activities:
Provision/(reversal) for credit losses		8,643			(13,558	)
Deferred tax provision		3,118			6,135
Depreciation and amortization		2,112			2,044
Amortization of right-of-use asset		2,443			2,221
Change in operating lease liabilities		(1,744	)		2,319
Net gains on sale and transfer of other real estate owned		(6	)		—
Net gains on sale of loans		—			(289	)
Proceeds from sales of loans		—			6,345
Originations of loans held for sale		—			(6,056	)
Loss on sales or disposal of fixed assets		25			22
Amortization on alternative energy partnerships, venture capital and other investments		8,287			11,641
Net gain on sales and calls of securities		100			(853	)
Amortization/accretion of security premiums/discounts, net		1,494			2,282
Unrealized (gain)/loss on equity securities		(5,874	)		2,752
Stock-based compensation and stock issued to officers as compensation		1,614			1,243
Net change in accrued interest receivable and other assets		(13,309	)		11,863
Net change in other liabilities		4,726			(9,924	)
Net cash provided by operating activities		86,457			91,571

Cash Flows from Investing Activities
Purchase of investment securities available-for-sale		(204,882	)		(50,450	)
Proceeds from repayments, maturities and calls of investment securities available-for-sale		45,393			148,685
Proceeds from sale of investment securities available-for-sale		553			21,102
Net increase in loans		(413,721	)		(15,246	)
Purchase of premises and equipment		(1,276	)		(760	)
Proceeds from sales of other real estate owned		307			—
Net decrease/(increase) in investment in affordable housing and alternative energy partnerships		902			(5,950	)
Acquisition, net of cash acquired		(73,882	)		—
Net cash (used)/provided for investing activities		(646,606	)		97,381

Cash Flows from Financing Activities
Net (decrease)/increase in deposits		(573,720	)		244,327
Advances from Federal Home Loan Bank		—			50,000
Repayment of Federal Home Loan Bank borrowings		—			(125,000	)
Cash dividends paid		(25,515	)		(24,650	)
Purchases of treasury stock		(32,896	)		—
Proceeds from shares issued under Dividend Reinvestment Plan		945			868
Taxes paid related to net share settlement of RSUs		(285	)		(1,279	)
Net cash (used)/provided by financing activities		(631,471	)		144,266

(Decrease)/Increase in cash, cash equivalents, and restricted cash		(1,191,620	)		333,218
Cash, cash equivalents, and restricted cash, beginning of the period		2,449,704			1,421,078
Cash, cash equivalents, and restricted cash, end of the period	$	1,258,084		$	1,754,296

Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	12,896		$	25,872
Income taxes paid	$	1,281		$	2,891
Non-cash investing and financing activities:
Net change in unrealized holding loss on securities available-for-sale, net of tax	$	(45,966	)	$	(4,887	)
Net change in unrealized holding gain on cash flow hedge derivatives	$	3,054		$	1,263
Transfers to other real estate owned from loans held for investment	$	—		$	—

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Business

Cathay General Bancorp (“Bancorp”) is the holding company for Cathay Bank (the “Bank” and, together, with Bancorp, the “Company”), ten limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner, and GBC Venture Capital, Inc. Bancorp also owns 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities. The Bank was founded in 1962 and offers a wide range of financial services. As of March 31, 2022, the Bank operates 27 branches in Southern California, 20 branches in Northern California, 10 branches in New York State, four in Washington State, two in Illinois, two in Texas, one in Maryland, Massachusetts, Nevada, and New Jersey, one in Hong Kong, and a representative office in Taipei, Beijing, and Shanghai. Deposit accounts at the Hong Kong branch are not insured by the Federal Deposit Insurance Corporation (the “FDIC”).

2. Business Combinations

The Company’s subsidiary bank, Cathay Bank completed the purchase of HSBC Bank USA, National Association’s West Coast mass retail market consumer banking business and retail business banking business on February 7, 2022. As a result of the acquisition, Cathay Bank added 10 retail branches in California and additional loans with principal balance of $646.1 million and deposits with a balance of $575.2 million.

The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the February 7, 2022 acquisition date. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. We have included the financial results of the business combinations in the condensed consolidated statement of income beginning on the acquisition date. The purchase accounting adjustments are preliminary and subject to finalization during the one-year measurement period from the date of the acquisition.

The fair value of the assets and the liabilities acquired as of February 7, 2022 are shown below:

	Balance Sheet
	(In thousands)
Assets:
Cash and cash equivalents	$	473
Loans		641,829
Right-of-use assets-operating leases		6,453
Core deposit intagible		3,138
Other		561
Total assets	$	652,454

Liabilities assumed:
Deposits	$	575,163
Lease liabilities		6,453
Total liabilities assumed	$	581,616
Net assets acquired	$	70,838


Total consideration paid	$	74,355
Goodwill	$	3,517

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3. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the audited Consolidated Financial Statements and Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022 (the “2021 Form 10-K”).

The preparation of the Consolidated Financial Statements in accordance with GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements. Actual results could differ from those estimates. The Company expects that the most significant estimate subject to change is the allowance for loan losses.

For comparability, the Company adjusted consolidated prior period amounts to conform to current period presentation.

4. Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 is effective for all entities as of March 12, 2020, through December 31, 2022. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 as subsequent amendments, which expanded the scope of Topic 848 to include all affected derivatives and clarified certain optional expedients and exceptions regarding the hedge accounting for derivative contracts affected by the discounting transition. Based on our current assessment, we will plan to offer SOFR as the primary alternative reference rate but may consider alternate rates based on customer demands and/or the type of loan or financial instrument. The Company will also continue to assess impacts to our operations, financial models, data and technology as part of our transition plan. The Company plans to adopt these updates this year. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 will be effective for us on January 1, 2023 though early adoption is permitted. The adoption of ASU 2022-01 is not expected to have a significant impact on our financial statements.

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In March 2022, ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will be effective for us on January 1, 2023 though early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a significant impact on our financial statements.

5. Cash, Cash Equivalents and Restricted Cash

The Company manages its cash and cash equivalents based upon the Company’s operating, investment, and financing activities. Cash and cash equivalents, including for purposes of reporting cash flows, consist of cash on hand, amounts due from banks, and short-term investments with original maturity of three months or less.

The Company is required to maintain reserves with the Federal Reserve Bank. Reserve requirements are based on a percentage of deposit liabilities. There were zero average reserve balances required for the three months ended March 31, 2022 and for the year ended December 31, 2021. The average excess balance with Federal Reserve Bank was $1.6 billion for the three months ended March 31, 2022 and $1.6 billion for the year ended December 31, 2021. As of March 31, 2022 and December 31, 2021, the Company had $3.3 million and $24.3 million, respectively, on deposit in a cash margin account that serves as collateral for interest rate swaps. These amounts included $2.2 million and $5.9 million as of March 31, 2022 and December 31, 2021, respectively, on deposit in a cash margin account that serves as collateral for the Bancorp’s interest rate swaps. As of March 31, 2022 and December 31, 2021, the Company held zero and $690 thousand, respectively, in a restricted escrow account with a major bank for its alternative energy investments.

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6. Earnings per Share

Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that then shared in earnings. Restricted stock units (“RSUs”) with anti-dilutive effect were not included in the computation of diluted earnings per share. The following table sets forth earnings per common share calculations:

	Three months ended March 31,
	2022		2021
	(In thousands, except share and per share data)

Net income	$	75,028	$	73,384

Weighted-average shares:
Basic weighted-average number of common shares outstanding		75,331,976		79,530,777
Dilutive effect of weighted-average outstanding common share equivalents:
RSUs		387,399		301,528
Diluted weighted-average number of common shares outstanding		75,719,375		79,832,305

Average restricted stock units with anti-dilutive effect		22,574		71,108
Earnings per common share:
Basic	$	1.00	$	0.92
Diluted	$	0.99	$	0.92

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7. Stock-Based Compensation

Pursuant to the Company’s 2005 Incentive Plan, as amended and restated, the Company may grant incentive stock options (employees only), non-statutory stock options, common stock awards, restricted stock, RSUs, stock appreciation rights and cash awards to non-employee directors and eligible employees.

RSUs are generally granted at no cost to the recipient. RSUs generally vest ratably over three years or cliff vest after one or three years of continued employment from the date of the grant. While a portion of RSUs may be time-vesting awards, others may vest subject to the attainment of specified performance goals and are referred to as “performance-based RSUs.” All RSUs are subject to forfeiture until vested.

Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum of zero and to a maximum of 150% of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together to determine the total number of performance shares that are eligible to vest. Performance-based RSUs generally cliff vest three years from the date of grant.

Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value, which considers both market and performance conditions. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant.

The following table presents RSU activity during the three months ended March 31, 2022:

	Time-Based RSUs					Performance-Based RSUs
				Weighted-Average				Weighted-Average
				Grant Date				Grant Date
	Shares			Fair Value		Shares		Fair Value
Balance at December 31, 2021		235,944		$	32.38		332,506	$	31.82
Granted		65,389			46.85		—		—
Vested		(17,063	)		46.29		—		—
Forfeited		(1,677	)		30.09		—		—
Balance at March 31, 2022		282,593		$	34.90		332,506	$	31.82

The compensation expense recorded for RSUs was $1.6 million and $1.2 million for the three months ended March 31, 2022, and 2021, respectively. Unrecognized stock-based compensation expense related to RSUs was $10.0 million and $7.2 million as of March 31, 2022 and 2021, respectively. As of March 31, 2022, these costs are expected to be recognized over the next 2.0 years for time-based and performance-based RSUs.

As of March 31, 2022, 1,797,392 shares were available for future grants under the Company’s 2005 Incentive Plan, as amended and restated.

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8. Investment Securities

The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of securities available-for-sale as of March 31, 2022, and December 31, 2021:

	March 31, 2022
			Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*
	*Cost*		*Gains*		*Losses*		*Fair Value*
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	119,757	$	4	$	13	$	119,748
U.S. government agency entities		82,300		1,050		134		83,216
Mortgage-backed securities		929,428		521		56,444		873,505
Collateralized mortgage obligations		9,282		—		894		8,388
Corporate debt securities		144,096		50		9,462		134,684
Total	$	1,284,863	$	1,625	$	66,947	$	1,219,541

	December 31, 2021
			Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*
	*Cost*		*Gains*		*Losses*		*Fair Value*
	(In thousands)
Securities Available-for-Sale
U.S. government agency entities		86,475		1,169		135		87,509
Mortgage-backed securities		886,614		9,465		7,414		888,665
Collateralized mortgage obligations		9,547		—		430		9,117
Corporate debt securities		144,231		441		2,654		142,018
Total	$	1,126,867	$	11,075	$	10,633	$	1,127,309

As of March 31, 2022, the amortized cost of AFS debt securities excluded accrued interest receivables of $2.9 million, which are included in “accrued interest receivables” on the Consolidated Balance Sheets. For the Company’s accounting policy related to AFS debt securities’ accrued interest receivable, see Note 1 - Summary of Significant Accounting Policies – Securities Available for Sale – Allowance for Credit Losses on Available for Sale Securities to the Consolidated Financial Statements in the Company’s 2021 Form 10-K.

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The amortized cost and fair value of securities available-for-sale as of March 31, 2022, by contractual maturities, are set forth in the tables below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties.

	March 31, 2022
	Securities Available-For-Sale
	Amortized Cost		Fair Value
	(In thousands)

Due in one year or less	$	124,789	$	124,794
Due after one year through five years		126,637		117,089
Due after five years through ten years		142,206		141,424
Due after ten years		891,231