0001028918srt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueOptionPricingModelMemberus-gaap:MeasurementInputOptionVolatilityMember2022-03-31
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X)☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2022
OR
( )☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-22193
ppbi-20220331_g1.jpg
(Exact name of registrant as specified in its charter) 
DELAWAREDelaware33-0743196
(State or other jurisdiction of incorporation or organization)(I.R.S Employer Identification No.)

17901 VON KARMAN AVENUE, SUITEVon Karman Avenue, Suite 1200, IRVINE, CALIFORNIAIrvine, California 92614
(Address of principal executive offices and zip code)

(949) 864-8000
(Registrant’s telephone number, including area code)


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


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]☒ No [_]☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer"filer”, “accelerated filer”, “smaller reporting company”, and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer[ ]☒Accelerated filer[X]☐
Non-accelerated filer

(Do not check if a smaller
reporting company)
[ ]☐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 Exchange Act Rule 12b-2).  Yes [ ]☐ No [X]☒


Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per sharePPBINASDAQ Global Select Market
The number of shares outstanding of the registrant’s common stock as of November 6, 2017April 29, 2022 was 46,219,559.94,930,357.



PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED SEPTEMBER 30, 2017

MARCH 31, 2022
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
3
Consolidated Statements of Income (Unaudited)
4
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
5
Consolidated Statements of Stockholders’ Equity (Unaudited)
6
Consolidated Statements of Cash Flows (Unaudited)
7
Notes to Consolidated Financial Statements (Unaudited)
8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
4267
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
71104
Item 4 - Controls and Procedures
72106
73107
Item 1 - Legal Proceedings
73107
Item 1A - Risk Factors
73107
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
74107
Item 3 - Defaults Upon Senior Securities
74107
Item 4 - Mine Safety Disclosures
74107
Item 5 - Other Information
74107
Item 6 - Exhibits
75108
109

2

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share data)(Unaudited)
(unaudited)
(Dollars in thousands, except par value and share data)March 31,
2022		December 31,
2021
ASSETS
Cash and due from banks$147,763 $83,150 
Interest-bearing deposits with financial institutions661,496 221,553 
Cash and cash equivalents809,259 304,703 
Interest-bearing time deposits with financial institutions2,216 2,216 
Investments held-to-maturity, at amortized cost, net of allowance for credit losses of $41 and $22 (fair value of $886,050 and $384,423) at March 31, 2022 and December 31, 2021, respectively996,382 381,674 
Investment securities available-for-sale, at fair value3,222,095 4,273,864 
FHLB, FRB, and other stock, at cost116,973 117,538 
Loans held for sale, at lower of cost or fair value11,646 10,869 
Loans held for investment14,733,755 14,295,897 
Allowance for credit losses(197,517)(197,752)
Loans held for investment, net14,536,238 14,098,145 
Accrued interest receivable60,922 65,728 
Premises and equipment70,453 71,908 
Deferred income taxes, net133,938 87,344 
Bank owned life insurance451,968 449,353 
Intangible assets65,978 69,571 
Goodwill901,312 901,312 
Other assets242,916 260,204 
Total assets$21,622,296 $21,094,429 
LIABILITIES 
Deposit accounts: 
Noninterest-bearing checking$7,106,548 $6,757,259 
Interest-bearing: 
Checking3,679,067 3,493,331 
Money market/savings5,872,597 5,806,726 
Retail certificates of deposit1,031,011 1,058,273 
Total interest-bearing10,582,675 10,358,330 
Total deposits17,689,223 17,115,589 
FHLB advances and other borrowings600,000 558,000 
Subordinated debentures330,726 330,567 
Accrued expenses and other liabilities219,329 203,962 
Total liabilities18,839,278 18,208,118 
STOCKHOLDERS’ EQUITY 
Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding— — 
Common stock, $0.01 par value; 150,000,000 shares authorized at March 31, 2022 and December 31, 2021; 94,945,849 shares and 94,389,543 shares issued and outstanding, respectively933 929 
Additional paid-in capital2,348,727 2,351,294 
Retained earnings577,591 541,950 
Accumulated other comprehensive loss(144,233)(7,862)
Total stockholders’ equity2,783,018 2,886,311 
Total liabilities and stockholders’ equity$21,622,296 $21,094,429 

ASSETS September 30,
2017		 December 31,
2016
Cash and due from banks $35,713
 $14,706
Interest-bearing deposits with financial institutions 85,649
 142,151
Cash and cash equivalents 121,362
 156,857
Interest-bearing time deposits with financial institutions 4,437
 3,944
Investments held-to-maturity, at amortized cost (fair value of $18,577 as of September 30, 2017 and $8,461 as of December 31, 2016) 18,627
 8,565
Investment securities available-for-sale, at fair value 703,944
 380,963
FHLB, FRB and other stock, at cost 58,344
 37,304
Loans held for sale, at lower of cost or fair value 44,343
 7,711
Loans held for investment 5,009,317
 3,241,613
Allowance for loan losses (27,143) (21,296)
Loans held for investment, net 4,982,174
 3,220,317
Accrued interest receivable 20,527
 13,145
Other real estate owned 372
 460
Premises and equipment 45,725
 12,014
Deferred income taxes, net 22,023
 16,807
Bank owned life insurance 75,482
 40,409
Intangible assets 33,545
 9,451
Goodwill 371,677
 102,490
Other assets 29,752
 25,874
Total Assets $6,532,334
 $4,036,311
LIABILITIES AND STOCKHOLDERS’ EQUITY  
  
LIABILITIES:  
  
Deposit accounts:  
  
Noninterest-bearing checking $1,890,241
 $1,185,768
Interest-bearing:  
  
Checking 304,295
 182,893
Money market/savings 2,009,781
 1,202,361
Retail certificates of deposit 573,652
 375,203
Wholesale/brokered certificates of deposit 240,184
 199,356
Total interest-bearing 3,127,912
 1,959,813
Total deposits 5,018,153
 3,145,581
FHLB advances and other borrowings 382,173
 327,971
Subordinated debentures 79,871
 69,383
Accrued expenses and other liabilities 70,477
 33,636
Total Liabilities 5,550,674
 3,576,571
STOCKHOLDERS’ EQUITY:  
  
Preferred stock, $.01 par value; 1,000,000 authorized; none issued and outstanding —
 —
Common stock, $.01 par value; 100,000,000 shares authorized; 40,162,026 shares at September 30, 2017 and 27,798,283 shares at December 31, 2016 397
 274
Additional paid-in capital 817,809
 345,138
Retained earnings 160,978
 117,049
Accumulated other comprehensive income (loss), net of tax 2,476
 (2,721)
Total Stockholders' Equity 981,660
 459,740
Total Liabilities and Stockholders' Equity $6,532,334
 $4,036,311
     

Accompanying notes are an integral part of these consolidated financial statements.

3

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share data)(Unaudited)
(unaudited)
 Three Months Ended
 March 31,December 31,March 31,
(Dollars in thousands, except share data)202220212021
INTEREST INCOME
Loans$150,604 $157,418 $155,225 
Investment securities and other interest-earning assets17,942 19,588 17,769 
Total interest income168,546 177,006 172,994 
INTEREST EXPENSE
Deposits1,673 1,694 4,426 
FHLB advances and other borrowings474 33 65 
Subordinated debentures4,560 4,560 6,851 
Total interest expense6,707 6,287 11,342 
Net interest income before provision for credit losses161,839 170,719 161,652 
Provision for credit losses448 (14,648)1,974 
Net interest income after provision for credit losses161,391 185,367 159,678 
NONINTEREST INCOME
Loan servicing income419 505 458 
Service charges on deposit accounts2,615 2,590 2,032 
Other service fee income367 391 473 
Debit card interchange fee income836 769 787 
Earnings on bank owned life insurance3,221 3,521 2,233 
Net gain from sales of loans1,494 1,334 361 
Net gain from sales of investment securities2,134 3,585 4,046 
Trust custodial account fees11,579 11,611 7,222 
Escrow and exchange fees1,661 2,221 1,526 
Other income1,568 754 4,602 
Total noninterest income25,894 27,281 23,740 
NONINTEREST EXPENSE
Compensation and benefits56,981 56,076 52,548 
Premises and occupancy11,952 11,403 11,980 
Data processing5,996 5,881 5,828 
FDIC insurance premiums1,396 1,389 1,181 
Legal and professional services4,068 5,870 3,935 
Marketing expense1,809 1,821 1,598 
Office expense1,203 1,463 1,829 
Loan expense1,134 857 1,115 
Deposit expense3,751 3,836 3,859 
Merger-related expense— — 5 
Amortization of intangible assets3,592 3,880 4,143 
Other expense5,766 4,776 4,468 
Total noninterest expense97,648 97,252 92,489 
Net income before income taxes89,637 115,396 90,929 
Income tax expense22,733 30,565 22,261 
Net income$66,904 $84,831 $68,668 
EARNINGS PER SHARE
Basic$0.71 $0.90 $0.73 
Diluted0.70 0.89 0.72 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic93,499,695 93,415,304 93,529,147 
Diluted93,946,074 93,906,491 94,093,644 
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
  2017 2017 2016 2017 2016
INTEREST INCOME          
Loans $64,915
 $63,554
 $40,487
 $170,905
 $114,929
Investment securities and other interest-earning assets 5,246
 5,179
 1,942
 13,416
 5,879
Total interest income 70,161
 68,733
 42,429
 184,321
 120,808
INTEREST EXPENSE        
  
Deposits 3,557
 3,081
 2,136
 8,774
 6,215
FHLB advances and other borrowings 1,162
 1,175
 314
 2,940
 963
Subordinated debentures 1,151
 1,139
 970
 3,275
 2,859
Total interest expense 5,870
 5,395
 3,420
 14,989
 10,037
Net interest income before provision for loan losses 64,291
 63,338
 39,009
 169,332
 110,771
Provision for loan losses 2,049
 1,904
 4,013
 6,455
 6,722
Net interest income after provision for loan losses 62,242
 61,434
 34,996
 162,877
 104,049
NONINTEREST INCOME        
  
Loan servicing fees 276
 143
 288
 641
 769
Deposit fees 1,117
 986
 422
 2,521
 1,267
Net gain from sales of loans 3,439
 2,887
 3,122
 9,137
 7,152
Net gain from sales of investment securities 896
 2,093
 512
 2,989
 1,797
Net gain from other real estate owned —
 94
 —
 94
 18
Other income 2,493
 2,556
 1,624
 6,281
 4,282
Total noninterest income 8,221
 8,759
 5,968
 21,663
 15,285
NONINTEREST EXPENSE        
  
Compensation and benefits 21,707
 21,625
 14,181
 58,218
 39,018
Premises and occupancy 4,016
 3,733
 2,576
 10,202
 7,306
Data processing 2,082
 2,439
 1,223
 5,708
 3,021
Other real estate owned operations, net 3
 44
 5
 59
 16
FDIC insurance premiums 379
 818
 442
 1,652
 1,225
Legal, audit and professional expense 1,978
 1,281
 737
 4,177
 2,149
Marketing expense 1,248
 1,006
 1,683
 3,072
 3,116
Office, telecommunications and postage expense 835
 922
 612
 2,190
 1,666
Loan expense 1,017
 1,068
 534
 2,553
 1,477
Deposit expense 1,655
 1,663
 1,315
 4,762
 3,516
Merger-related expense 503
 10,117
 —
 15,566
 3,616
CDI amortization 1,761
 1,761
 525
 4,033
 1,514
Other expense 2,428
 2,019
 2,027
 5,663
 5,565
Total noninterest expense 39,612
 48,496
 25,860
 117,855
 73,205
Net income before income taxes 30,851
 21,697
 15,104
 66,685
 46,129
Income tax 10,619
 7,521
 5,877
 22,756
 17,977
Net Income $20,232
 $14,176
 $9,227
 $43,929
 $28,152
EARNINGS PER SHARE        
  
Basic $0.51
 $0.36
 $0.34
 $1.23
 $1.05
Diluted $0.50
 $0.35
 $0.33
 $1.20
 $1.03
WEIGHTED AVERAGE SHARES OUTSTANDING        
  
Basic 39,709,565
 39,586,524
 27,387,123
 35,652,626
 26,776,140
Diluted 40,486,114
 40,394,236
 27,925,351
 36,455,945
 27,245,108
           

Accompanying notes are an integral part of these consolidated financial statements.

4

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)(Unaudited)
(unaudited)

 Three Months Ended Nine Months Ended
 September 30, June 30, September 30, September 30,
 2017 2017 2016 2017 2016
Net income$20,232
 $14,176
 $9,227
 $43,929
 $28,152
Other comprehensive income, net of tax:         
Unrealized holding gains/(loss) on securities arising during the period, net of income taxes (1)(196) 6,336
 (441) 7,153
 2,071
Reclassification adjustment for net (gains)/losses on sale of securities included in net income, net of income taxes (2)(588) (1,368) (296) (1,956) (1,040)
  Other comprehensive income, net of tax(784) 4,968
 (737) 5,197
 1,031
Comprehensive income, net of tax$19,448
 $19,144
 $8,490
 $49,126
 $29,183
 Three Months Ended
 March 31,December 31,March 31,
(Dollars in thousands)202220212021
Net income$66,904 $84,831 $68,668 
Other comprehensive loss, net of tax:
Unrealized loss on securities available-for-sale arising during the period, net of income taxes (1)
(118,591)(4,176)(72,592)
Reclassification adjustment for net gain on sales of securities included in net income, net of income taxes (2)
(1,525)(2,562)(2,889)
Net unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (3)
(16,558)(2,415)— 
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (4)
303 115 — 
Other comprehensive loss, net of tax(136,371)(9,038)(75,481)
Comprehensive (loss) income, net of tax$(69,467)$75,793 $(6,813)

(1) Income tax (benefit) onof the unrealized gains (losses)loss on securities was $(253,000) for the three months ended September 30, 2017, $4.3$(47.4) million, $(1.7) million, and $(29.1) million for the three months ended June 30, 2017, $(366,000) for the three months ended September 30, 2016, $4.7 million for the nine months ended September 30, 2017March 31, 2022, December 31, 2021, and $1.5 million for the nine months ended September 30, 2016.March 31, 2021, respectively.

(2) Income tax (benefit)expense on the reclassification adjustment for net (gains) lossesgain on salesales of securities included in net income was $308,000$609,000, $1.0 million, and $1.2 million for the three months ended September 30, 2017, $725,000March 31, 2022, December 31, 2021, and March 31, 2021, respective.
(3) Income tax (benefit) on the unrealized loss on securities transferred from available-for-sale to held-to maturity was $(6.6) million and $(968,000) for the three months ended June 30, 2017, $216,000March 31, 2022 and December 31, 2021, respectively.
(4) Income tax expense on the amortization of unrealized loss on securities transferred from available-for-sale to held-to maturity included in net income was $121,000 and $46,000 for the three months ended September 30, 2016, $1,033,000 for the nine months ended September 30, 2017March 31, 2022 and $756,000 for the nine months ended September 30, 2016.December 31, 2021, respectively.


Accompanying notes are an integral part of these consolidated financial statements.



5

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022 AND 20162021
(dollars in thousands)(Unaudited)
(unaudited)
(Dollars in thousands, except share data)Common Stock
Shares		Common StockAdditional Paid-in CapitalAccumulated Retained
Earnings		Accumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
Balance at December 31, 202194,389,543 $929 $2,351,294 $541,950 $(7,862)$2,886,311 
Net income— — — 66,904 — 66,904 
Other comprehensive loss— — — — (136,371)(136,371)
Cash dividends declared ($0.33 per common share)— — — (31,142)— (31,142)
Dividend equivalents declared ($0.33 per restricted stock unit)— — 121 (121)— — 
Share-based compensation expense— — 5,530 — — 5,530 
Issuance of restricted stock, net714,783 4 (4)— — — 
Restricted stock surrendered and canceled(175,219)— (8,548)— — (8,548)
Exercise of stock options16,742 — 334 — — 334 
Balance at March 31, 202294,945,849 $933 $2,348,727 $577,591 $(144,233)$2,783,018 


Balance at December 31, 202094,483,136 $931 $2,354,871 $330,555 $60,292 $2,746,649 
Net loss— — — 68,668 — 68,668 
Other comprehensive loss— — — — (75,481)(75,481)
Repurchase and retirement of common stock(199,674)(2)(4,977)(1,918)— (6,897)
Cash dividends declared ($0.30 per common share)— — — (28,287)— (28,287)
Dividend equivalents declared ($0.30 per restricted stock unit)— — 107 (107)— — 
Share-based compensation expense— — 3,105 — — 3,105 
Issuance of restricted stock, net419,757 2 (2)— — — 
Restricted stock surrendered and canceled(100,550)— (5,279)— — (5,279)
Exercise of stock options41,746 — 620 — — 620 
Balance at March 31, 202194,644,415 $931 $2,348,445 $368,911 $(15,189)$2,703,098 
 
Common Stock
Shares
 Common Stock Additional Paid-in Capital 
Accumulated Retained
Earnings
 Accumulated Other Comprehensive Income Total Stockholders’ Equity
Balance at December 31, 201627,798,283
 $274
 $345,138
 $117,049
 $(2,721) $459,740
Net income—
 —
 —
 43,929
 —
 43,929
Other comprehensive income—
 —
 —
 —
 5,197
 5,197
Share-based compensation expense—
 —
 4,246
 —
 —
 4,246
Issuance of restricted stock, net4,085
 —
 —
 —
 —
 —
Common stock issued11,971,917
 120
 464,862
 —
 —
 464,982
Goodwill adjustment—
 —
 500
 —
 —
 500
Repurchase of common stock—
 —
 (1,259) —
 —
 (1,259)
Exercise of stock options387,741
 3
 4,322
 —
 —
 4,325
Balance at September 30, 201740,162,026
 $397
 $817,809
 $160,978
 $2,476
 $981,660
            
Balance at December 31, 201521,570,746
 $215
 $221,487
 $76,946
 $332
 $298,980
Net income—
 —
 —
 28,152
 —
 28,152
Other comprehensive income—
 —
 —
 —
 1,031
 1,031
Share-based compensation expense—
 —
 1,831
 —
 —
 1,831
Issuance of restricted stock, net218,236
 —
 —
 —
 —
 —
Common stock issued5,815,051
 58
 119,325
 —
 —
 119,383
Exercise of stock options52,500
 —
 588
 —
 —
 588
Balance at September 30, 201627,656,533
 $273
 $343,231
 $105,098
 $1,363
 $449,965


Accompanying notes are an integral part of these consolidated financial statements.




6

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)(Unaudited)
(unaudited)
  Nine Months Ended
  September 30,
  2017 2016
Cash flows from operating activities:    
Net income $43,929
 $28,152
Adjustments to net income:  
  
Depreciation and amortization expense 3,378
 2,107
Provision for loan losses 6,455
 6,722
Share-based compensation expense 4,246
 1,831
(Gain) loss on sale and disposal of premises and equipment 235
 420
Gain on sale of or write down of other real estate owned (94) (18)
Net amortization on securities available-for-sale, net 5,693
 8,060
Net accretion of discounts/premiums for loans acquired and deferred loan fees/costs 1,373
 (8,832)
Gain on sale of investment securities available-for-sale (2,989) (1,797)
Other-than-temporary impairment recovery on investment securities, net (1) —
Originations of loans held for sale (130,040) (76,570)
Proceeds from the sales of and principal payments from loans held for sale 100,938
 83,317
Gain on sale of loans (9,137) (7,152)
Deferred income tax expense (benefit) 1,651
 (1,756)
Change in accrued expenses and other liabilities, net 9,930
 1,388
Income from bank owned life insurance, net (1,349) (871)
Amortization of core deposit intangible 4,033
 1,513
Change in accrued interest receivable and other assets, net 1,665
 3,272
Net cash provided by operating activities 39,916
 39,786
Cash flows from investing activities:  
  
Net increase in interest-bearing time deposits with financial institutions (493) —
Proceeds from sale of real estate owned 182
 —
Increase in loans, net (404,768) (370,196)
Change in other real estate owned from sales and write-downs —
 468
Principal payments on securities available-for-sale 55,473
 27,434
Purchase of securities available-for-sale (168,697) (102,010)
Proceeds from sale or maturity of securities available-for-sale 248,043
 229,855
Proceeds from the sale of premises and equipment —
 10,263
Proceeds from bank owned life insurance death benefit 199
 —
Purchases of premises and equipment (2,421) (10,499)
Change in FHLB, FRB, and other stock, at cost (11,301) (7,674)
Cash acquired in acquisitions, net 76,531
 40,304
Net cash used in investing activities (207,252) (182,055)
Cash flows from financing activities:  
  
Net increase in deposit accounts 203,119
 228,037
Change in FHLB advances and other borrowings, net (74,344) (60,869)
Proceeds from exercise of stock options and warrants 4,325
 588
Repurchase of common stock (1,259) —
Net cash provided by financing activities 131,841
 167,756
Net increase in cash and cash equivalents (35,495) 25,487
Cash and cash equivalents, beginning of period 156,857
 78,417
Cash and cash equivalents, end of period $121,362
 $103,904
     
Supplemental cash flow disclosures:  
  
Interest paid $12,696
 $10,956
Income taxes paid 1,405
 13,139
Noncash investing activities during the period:    
Security purchases settled in subsequent period 18,755
 —
Transfers from portfolio loans to loans held for sale 31,685
 —
Assets acquired (liabilities assumed and capital created) in acquisitions (See Note 4):  
  
Investment securities 442,923
 190,254
FHLB and Other Stock 9,739
 3,671
Loans 1,364,649
 456,158
Core deposit intangible 28,123
 4,319
Deferred income tax 9,986
 6,748
Goodwill 269,187
 51,658
Fixed assets 34,902
 4,190
Other assets 45,475
 5,691
Deposits (1,669,550) (636,591)
Other borrowings (139,034) —
Other liabilities (8,061) (8,843)
Common stock and additional paid-in capital (465,482) (120,174)

 Three Months Ended
 March 31,March 31,
(Dollars in thousands)20222021
Cash flows from operating activities:  
Net income$66,904 $68,668 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization expense3,726 4,009 
Provision for credit losses448 1,974 
Share-based compensation expense5,530 3,105 
Loss on sales and disposals of premises and equipment37 7 
Net amortization on securities5,023 5,983 
Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs(7,353)(10,833)
Gain on sales of investment securities available-for-sale(2,134)(4,046)
Loss on debt extinguishment— 503 
Gain on sales of loans(1,494)(361)
Deferred income tax expense7,887 14,650 
Income from bank owned life insurance, net(2,617)(1,675)
Amortization of intangible assets3,592 4,143 
Originations of loans held-for-sale(18,769)(7,768)
Proceeds from the sales of and principal payments from loans held-for-sale19,486 970 
Change in accrued expenses and other liabilities, net15,207 (34,203)
Change in accrued interest receivable and other assets, net36,904 60,176 
Net cash provided by operating activities132,377 105,302 
Cash flows from investing activities:  
Net decrease in interest-bearing time deposits with financial institutions— 137 
Loan originations and payments, net(430,951)128,540 
Proceeds from loans held-for-sale previously classified as portfolio loans— 449 
Proceeds from prepayments and maturities of securities held-to-maturity3,750 1,807 
Purchase of securities available-for-sale(499,168)(364,542)
Proceeds from prepayments and maturities of securities available-for-sale77,817 162,568 
Proceeds from sales of securities available-for-sale647,557 179,386 
Proceeds from the sales of premises and equipment— 4 
Proceeds from surrender of bank owned life insurance— 1,307 
Purchase of premises and equipment(2,308)(1,465)
Change in FHLB, FRB, and other stock, at cost(95)(202)
Funding of CRA investments, net(701)(3,873)
Net cash (used in) provided by investing activities(204,099)104,116 
Cash flows from financing activities:  
Net increase in deposit accounts573,634 525,830 
Net change in short-term borrowings(358,000)— 
Proceeds from long-term borrowings400,000 — 
Repayments of long-term borrowings— (21,503)
Cash dividends paid(31,142)(28,287)
Repurchase and retirement of common stock— (6,897)
Proceeds from exercise of stock options334 620 
Restricted stock surrendered and canceled(8,548)(5,279)
Net cash provided by financing activities576,278 464,484 
Net increase in cash and cash equivalents504,556 673,902 
Cash and cash equivalents, beginning of period304,703 880,766 
Cash and cash equivalents, end of period$809,259 $1,554,668 
Supplemental cash flow disclosures:  
Interest paid$3,927 $10,890 
Income taxes (refunded) paid, net(11,944)77 
Noncash investing activities during the period:
Transfers of investment securities from available-for-sale to held-to-maturity618,678 — 
Recognition of operating lease right-of-use assets(459)— 
Recognition of operating lease liabilities459 — 
Receivable on unsettled security sales13,464 — 
Due on unsettled security purchases— (11,286)
Accompanying notes are an integral part of these consolidated financial statements.

7

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017March 31, 2022
(UNAUDITED)(Unaudited)


Note 1 - Basis of Presentation
 
The consolidated financial statements include the accounts of Pacific Premier Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiaries, including Pacific Premier Bank (the “Bank”) (collectively, the “Company,” “we,” “our”“our,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation.
 
In the opinion of management, the unaudited consolidated financial statements containreflect all adjustments (consisting of normal recurring accruals)adjustments and accruals that are necessary to present fairlyfor a fair presentation of the Company’sstatement of financial position as of September 30, 2017 and December 31, 2016, the results of its operations and comprehensive incomefor the interim periods presented. The results of operations for the three months ended September 30, 2017, June 30, 2017 and September 30, 2016 and the nine months ended September 30, 2017 and September 30, 2016 and the changes in stockholders’ equity and cash flows for the nine months ended September 30, 2017 and 2016. Operating results or comprehensive income for the nine months ended September 30, 2017March 31, 2022 are not necessarily indicative of the results or comprehensive income that may be expected for any other interim period or the full year ending December 31, 2017.2022.
 
Certain information and notefootnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162021 (the “2016 Annual Report”“2021 Form 10-K”).
 
The Company accountsconsolidates voting entities in which the Company has control through voting interests or entities through which the Company has a controlling financial interest in a variable interest entity (“VIE”). The Company evaluates its interests in these entities to determine whether they meet the definition of a VIE and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size, and form of the Company's involvement with the VIE. See Note 15–Variable Interest Entities for its investments in its wholly owned special purpose entities, PPBI Trust I, Heritage Oaks Capital Trust II, Mission Community Capital Trust I, and Santa Lucia Bancorp (CA) Capital Trust, under the equity method whereby the subsidiary’s net earnings are recognized in the Company’s statement of income.additional information.


8

Note 2 – Recently Issued Accounting Pronouncements
 
Accounting Standards Adopted in 2017

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting. The amendments simplify several aspects of the accounting for share-based payment award transactions, including accounting for excess tax benefits and tax deficiencies, classifying excess tax benefits on the statement of cash flows, accounting for forfeitures, classifying awards that permit share repurchases to satisfy statutory tax-withholding requirements and classifying tax payments on behalf of employees on the statement of cash flows. For public business entities, the amendment is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. As a result of the adoption of ASU 2016-09, the Company began recognizing the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur, resulting in a $355,000 and a $2.0 million tax benefit to the Company for the three and nine months ended September 30, 2017, respectively.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments clarify that a change in the counterparty to a derivative instrument designated as a hedging instrument does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria remain the same. The

Update is effective for public business entities for fiscal years beginning after December 31, 2016, including interim periods within those years. The adoption of this standard did not have a material effect on the Company's operating results or financial condition.

Recent Accounting Guidance Not Yet Effective


In May 2017,March 2022, the FASB issued ASU 2017-09, Compensation-Stock CompensationAccounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 718): Scope of Modification Accounting.326) Troubled Debt Restructurings and Vintage Disclosures. The amendments provide guidance about which changesFASB issued this Update in response to feedback the FASB received from various stakeholders in its post-implementation review process related to the terms or conditionsissuance of a share-based payment award require an entity to apply modification accounting in Topic 718. Modification accounting will apply unless all of the following are the same immediately before and after the modification:

The award’s fair value – or calculated value or intrinsic value, if an alternative method is used. If the modification does not affect any inputs to the valuation of the award, estimating the value immediately before and after the modification is not required.

The award’s vesting provisions

The award’s classification as an equity instrument or a liability instrument
The Update is effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those years. The amendments should be applied prospectively to awards modified on or after the effective date. The adoption of this standard will not material effect the Company's operating results or financial condition, as historically the Company has not modified share-based awards.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-CreditInstruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.Instruments, which was effective for the Company on January 1, 2020. The amendments replacein this Update include the incurred loss impairment methodologyelimination of accounting guidance for troubled debt restructurings in current GAAP withSubtopic 310-40 - Receivables - Troubled Debt Restructurings by Creditors, and introduce new disclosures and enhance existing disclosures concerning certain loan refinancings and restructurings when a methodologyborrower is experiencing financial difficulty. Rather than applying the recognition and measurement guidance of troubled debt restructurings (“TDRs”), an entity must determine whether a modification results in a new loan or the continuation of an existing loan. Further, the amendments in this Update require that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For public business entities,entity disclose current period gross charge-offs on financing receivables within the amendment isscope of ASC 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, by year of origination and class of financing receivable. The amendments in this Update are effective for annual periods beginning after December 15, 2019 and interim period within those annual periods. Thethe Company is currently evaluating the effects of ASU 2016-13 on its financial statements and disclosures. The Company is in the process of compiling key data elements and considering software models that will meet the requirements of the new guidance.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. The Update is generally effective for public business entities in fiscal years beginning after December 15, 2018, including2022, as well as interim periods within those fiscal years. Early adoption is permitted. The amendments in this Update are to be applied prospectively. However, for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company is currently evaluating the impact of this Update 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. The amendments in this Update make targeted improvements to fair value hedge accounting and more specifically to the early stageslast-of-layer hedge accounting method. This Update expands the last-of-layer hedge accounting method to allow for multiple hedged layers to be designated for a single closed portfolio of its implementation assessment, which includes identifyingprepayable financial assets, and renames this accounting method the population“portfolio layer method.” The provisions of the Company's leases that are withinthis Update also include: (i) expanding the scope of the newportfolio layer method to nonprepayable financial assets, (ii) specifying that eligible hedging instruments in a single layer hedge may include spot-starting or forward-starting constant-notional or amortizing-notional swaps and that the number of hedged layers corresponds with the number of hedges designated, (iii) specifies that an entity hedging multiple amounts in a closed portfolio using a single amortizing-notional swap is executing a single-layer hedge, (iv) provides additional guidance on the accounting for and gathering all key lease datadisclosure of hedge basis adjustments resulting from a fair value hedge under the portfolio layer method by requiring such basis adjustments be maintained at the portfolio level and not allocated to individual assets, and to disclose basis adjustments as a reconciling item in certain disclosures, such as those for loans, and (v) specifies that will facilitate applicationan entity is to exclude hedge basis adjustments in the determination of credit losses on the new accounting requirements.assets within the closed portfolio. The provisions of this Update are effective for the Company in fiscal years beginning after December 15, 2022, as well as interim periods within those years. Early adoption is permitted. Entities may designate multiple layer hedges only on a prospective basis upon the adoption of this Update. The provisions of this Update that relate to hedge basis adjustments, except for those related to disclosure, are to be applied on a modified retrospective basis through a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The provisions of this Update that relate to disclosure may be applied on a prospective basis or on a retrospective basis to each prior period presented. The Company is currently evaluating the impact of this Update on the Company’s consolidated financial statements.

9

In October 2021, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (Topic 606), ASU 2015-14 Revenue2021-08, Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 606): Deferral of Effective Date, ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-11 Revenue Recognition (Topic 605) and Derivatives ad Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant. The amendments in this Update address how to Staff Announcements at the March 3, 2016 EITF Meeting, ASU 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU 2016-20 Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements to Topic 606. The FASB amended existing guidance related to revenue from contracts with customers, superseding and replacing nearly all existing revenue recognition guidance, including industry-specific guidance, establishingdetermine whether a new control-based revenue recognition model, changing the basis for deciding when revenuecontract liability is recognized over time or at

by an acquirer in a point in time, providing new and more detailed guidance on specific topics and expanding and improving disclosures about revenue.business combination. In addition, this guidance specifies the accounting for some costs to obtain or fulfillUpdate addresses inconsistencies in the recognition and measurement of acquired contract assets and contract liabilities from revenue contracts in a contract with a customer.business combination. The amendments in this Update are effective for public entities for annual reporting periodsthe Company in fiscal years beginning after December 15, 2017. A substantial portion2022, as well as all interim periods within those years. Early adoption is permitted. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the Company’s revenues represent interestfiscal year that includes the interim period of early application, and fee income generated from financial instruments such as loans and investment securities. Revenues generated from financial instruments such as these are(2) prospectively to all business combinations that occur on or after the date of initial application. The Company has not withinyet adopted the scopeprovisions of this guidance. Revenue sources that are within the scope of this guidance include service charges and fees on deposit accounts. The Company is in the process of reviewing non-interest income revenue sources to determine if they are within the scope of the new guidance.Update. The Company does not expectcurrently anticipate the adoption of this Update will have a significantmaterial impact on itsthe Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of Interbank Offered Rates (“IBORs”), and particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The amendments in this Update provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as well as optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this Update are elective and became effective upon issuance for all entities.

An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this Update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company has not yet made a determination on whether it will make this election and is currently tracking the exposure as of each reporting period and assessing the significance of impact towards implementing any necessary modification in consideration of the election of this amendment.

An entity may elect to apply the amendments in this Update to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. The Company has not entered into any hedging related transactions that reference LIBOR or another reference rate that is expected to be discontinued, and as such, the amendments included in this Update have not had an impact on the Company’s Consolidated Financial Statements.


10

The Company has created a cross-functional working group to manage the transition away from LIBOR. This working group is comprised of senior leadership and staff from functional areas that include: finance, treasury, lending, loan servicing, enterprise risk management, information technology, legal, and other internal stakeholders integral to the Bank’s transition away from LIBOR. The working group monitors developments related to transition and uncertainty surrounding reference rate reform and guides the Bank’s response. The working group is currently assessing the population of financial instruments that reference LIBOR, confirming our loan documents that reference LIBOR have been appropriately amended, ensuring that our internal systems are prepared for the transition, and managing the transition process with our customers. The Company has chosen to use the Secured Overnight Financing Rate (“SOFR”) as an alternative to LIBOR. However, the Company will also use other alternative reference rates, such as the Constant Maturity Treasury index and Prime rate based on the individual needs of its customers as well as the types of credit being extended.

Note 3 – Significant Accounting Policies
 
Our accounting policies are described in Note 1. Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on2021 Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission ("Form 10-K").10-K. Select policies have been reiterated below that have a particular affiliation to our interim financial statements.


Certain Acquired Loans–AsSecurities. The Company has established written guidelines and objectives for its investing activities. At the time of purchase, management designates the security as either held-to-maturity, available-for-sale, or held for trading based on the Company’s investment objectives, operational needs, and intent. The investments are monitored to ensure that those activities are consistent with the established guidelines and objectives.
Securities Held-to-Maturity (“HTM”). Investments in debt securities that management has the positive intent and ability to hold to maturity are reported at cost and adjusted for periodic principal payments and the amortization of premiums and accretion of discounts, which are recognized in interest income using the interest method over the period of time remaining to investment’s maturity. 

The Company accounts for transfers of debt securities from available-for-sale classification to held-to-maturity classification at fair value on the transfer date. Any associated unrealized gains or losses on such securities become part of business acquisitions, the Bank acquires certain loans that have shown evidence of credit deterioration since origination. These acquired loans are recordedsecurity’s amortized cost at the allocated fair value, such that there is no carryovertime of the seller’s allowance for loan losses. Such acquired loanstransfer and are accounted for individually. The Bank estimates the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair value is recorded assubsequently amortized or accreted into interest income over the remaining life of the loan (accretable yield)security using the interest method. In addition, the related unrealized gains and losses included in accumulated other comprehensive income on the date of transfer are also subsequently amortized or accreted into interest income over the remaining life of the security using the interest method.

Securities Available-for-Sale (“AFS”). Investments in debt securities that management has no immediate plan to sell, but which may be sold in the future, are carried at fair value. Premiums and discounts are amortized using the interest method over the remaining period to the call date for premiums or contractual maturity for discounts and, in the case of mortgage-backed securities, the estimated average life, which can fluctuate based on the anticipated prepayments on the underlying collateral of the securities. Unrealized holding gains and losses, net of tax, are recorded in accumulated other comprehensive income. Realized gains and losses on the sales of securities are determined on the specific identification method, recorded on a trade date basis based on the amortized cost basis of the specific security and are included in noninterest income as net gain (loss) on investment securities.


11

Allowance for Credit Losses on Investment Securities. The excessallowance for credit losses (“ACL”) on investment securities is determined for both the HTM and AFS classifications of the loan’s contractualinvestment portfolio in accordance with the guidance ASC 326. The ACL for investment securities is evaluated on a quarterly basis. The ACL for HTM investment securities is recorded at the time of purchase or acquisition, representing the Company’s best estimate of current expected credit losses (“CECL”) as of the date for the consolidated statements of financial condition. The ACL for HTM investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. For investment securities where the Company has reason to believe the credit loss exposure is remote, such as those guaranteed by the U.S. government or other government enterprises, a zero credit loss assumption is applied.

For available-for-sale investment securities, the Company performs a qualitative evaluation for securities in an unrealized loss position to determine if, for those investments in an unrealized loss position, the decline in fair value is credit related or non-credit related. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings, (iv) payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments, and (vi) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads. If it is determined that the unrealized loss, or a portion thereof, is credit related, the Company records the amount of credit loss through a charge to provision for credit losses in current period earnings. However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If it is likely the Company will be required to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings. Unrealized losses deemed non-credit related are recorded, net of tax, through accumulated other comprehensive income.

The Company determines expected credit losses on AFS and HTM securities through a discounted cash flow approach, using the security’s effective interest rate. However, as previously mentioned, the measurement of credit losses on available-for-sale securities only occurs when, through the Company’s qualitative assessment, it is determined all or a portion of the unrealized loss is deemed to be credit related. The Company’s discounted cash flow approach incorporates assumptions about the collectability of future cash flows. The amount of credit loss is measured as the amount by which the security’s amortized cost exceeds the present value of expected future cash flows. Credit losses on available-for-sale securities are measured on an individual basis. The Company does not measure credit losses on an investment’s accrued interest receivable, but rather promptly reverses from current period earnings the amount of accrued interest that is no longer deemed collectable. Accrued interest receivable for investment securities is included in accrued interest receivable balances in the consolidated statements of financial condition.

Equity Investments. Equity investments that have readily determinable fair values are carried at fair value with changes in fair value recognized in current period earnings as a component of noninterest income. Equity investments that do not have readily determinable fair values are carried at cost, adjusted for any observable price changes in orderly transactions for identical or similar investments of the same issuer. Such investments are also recorded net of any previously recognized impairment. Certain equity securities the Company holds, such as investments in the stock of the Federal Home Loan Bank and the Federal Reserve Bank of San Francisco are carried at cost, less any previously recognized impairment. Investment in these securities is restricted to member banks and the securities are not actively traded on an exchange.
12

The Company applies the equity method of accounting to investments in the equity of certain entities where it is deemed to have the ability to exercise significant influence over the entity, but does not control the entity, such as when its ownership interest is between 20% and 50%. Further, the Company also applies the equity method of accounting to equity investments it makes in limited partnerships and limited liability companies when its ownership interest in such entities exceeds 3-5% or when the Company has the ability to exercise significant influence over the partnership. Such investments typically reflect equity interests in various partnerships that make investments qualifying for credit under the Community Reinvestment Act (“CRA”). The Company records its share of the operating results associated with equity method investments, based on the most recent information available from the investee, in other noninterest income in the consolidated statements of income.

Loans Held for Investment. Loans held for investment are loans the Company has the ability and intent to hold until their maturity. These loans are carried at amortized cost, net of discounts and premiums on acquired and purchased loans, and net deferred loan origination fees and costs. Purchase discounts and premiums and net deferred loan origination fees and costs on loans are accreted or amortized in interest income as an adjustment of yield, using the interest method, over the expected cash flowslife of the loans. Amortization of deferred loan fees and costs are discontinued for loans that are placed on nonaccrual. Any remaining discounts, premiums, deferred fees or costs, and prepayment fees associated with loan payoffs prior to contractual maturity are included in loan interest income in the period of payoff. Loan commitment fees received to originate or purchase a loan are deferred and, if the commitment is not recorded (non-accretable difference). Overexercised, recognized over the life of the loan using the interest method as an adjustment of yield or, if the commitment expires unexercised, recognized as income upon expiration of the commitment.

The Company accrues interest on loans using the interest method and only if deemed collectible. Loans for which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of interest on loans is discontinued when principal or interest is past due 90 days based on contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to the collection of principal and or interest. When loans are placed on nonaccrual status, all previously accrued and uncollected interest is promptly reversed against current period interest income, and as such an ACL for accrued interest receivable is not established. Interest income generally is not recognized on nonaccrual loans unless the likelihood of further loss is remote. Interest payments received on nonaccrual loans are applied as a reduction to the loan principal balance. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are deemed to be fully collectible as to all principal and interest.

Allowance for Credit Losses on Loans. The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination or acquisition. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company measures the ACL on commercial real estate loans and commercial loans using a discounted cash flow approach, and a historical loss rate methodology is used to determine the ACL on retail loans. The Company’s discounted cash flow methodology incorporates a probability of default (“PD”) and loss given default (“LGD”) model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the PD and LGD model with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows continueultimately reflect assumptions made concerning net credit losses over the life of a loan. The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon. Management leverages economic projections from a reputable and independent third party to inform and provide its reasonable and supportable economic forecasts. Other internal and external indicators of economic forecasts may also be estimated. Ifconsidered by management when developing the forecast metrics.


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The Company’s ACL model forecasts PD and LGD over a two-year time horizon, which the Company believes is a reasonable and supportable period. PD and LGD forecasts are derived using economic forecast scenarios. Beyond the two-year forecast time horizon, the Company’s ACL model reverts to historical long-term average loss rates over a period of three years. The duration of the forecast horizon, the period over which forecasts revert to historical long-term averages, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s PD and LGD, which can drive changes in the determination of the ACL.

Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL for term loans represents the amount by which the loan’s amortized cost exceeds the net present value of expecteda loan’s discounted cash flows expected to be collected. The ACL for credit facilities is less than the carrying amount, a lossdetermined by discounting estimates for cash flows not expected to be collected. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the allowanceCompany’s policy to charge-off loan balances at the time they have been deemed uncollectible.

The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Since historical information (such as historical net losses and economic cycles) may not always, by itself, provide a sufficient basis for determining future expected credit losses, management periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not limited to factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization-specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through backtesting, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL.

The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, TDRs, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans, which have exhibited a deterioration in credit quality may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan losses. Ifportfolio, and as such may require individual evaluation to determine an appropriate ACL for the presentloan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent. Collateral dependent loans are loans where the repayment of the loan is expected to come from the operation of and/or eventual liquidation of the underlying collateral. The ACL for collateral dependent loans is determined using estimates for the fair value of expectedthe underlying collateral, less costs to sell.

Although management uses the best information available to derive estimates necessary to measure an appropriate level of the ACL, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that may extend beyond the Company’s control. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process.

Please also see Note 6 - Allowance for Credit Losses, of these Consolidated Financial Statements for additional discussion concerning the Company’s ACL methodology, including discussion concerning economic forecasts used in the determination of the ACL.
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The Company has segmented the loan portfolio according to loans that share similar attributes and risk characteristics. Each segment possesses varying degrees of risk based on, among other things, the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. These segment groupings are: investor loans secured by real estate, business loans secured by real estate, commercial loans, and retail loans. Within each segment grouping there are various classes of loans as disclosed below. The Company determines the ACL for loans based on this more detailed loan segmentation and classification.

At March 31, 2022, the Company had the following segments and classes of loans:

Investor Loans Secured by Real Estate:

•Commercial real estate non-owner-occupied - Commercial real estate (“CRE”) non-owner-occupied includes loans for which the Company holds real property as collateral, but where the borrower does not occupy the underlying property. The primary risks associated with these loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, significant increases in interest rates, changes in market rents, and vacancy of the underlying property, any of which may make the real estate loan unprofitable to the borrower. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

•Multifamily - Multifamily loans are secured by multi-tenant (5 or more units) residential real properties. Payments on multifamily loans are dependent on the successful operation or management of the properties, and repayment of these loans may be subject to adverse conditions in the real estate market or the economy.

•Construction and land - We originate loans for the construction of one-to-four family and multifamily residences and CRE properties in our primary market area. We concentrate our origination efforts on single homes and infill multifamily and commercial projects in established neighborhoods where there is not abundant land available for development. Construction loans are considered to have higher risks due to construction completion and timing risk, and the ultimate repayment being sensitive to interest rate changes, government regulation of real property, and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. We occasionally originate land loans located predominantly in California for the purpose of facilitating the ultimate construction of a home or commercial building. The primary risks include the borrower’s inability to pay and the inability of the Company to recover its investment due to a decline in the fair value of the underlying collateral.

Business Loans Secured by Real Estate:

•Commercial real estate owner-occupied - CRE owner-occupied includes loans for which the Company holds real property as collateral and where the underlying property is occupied by the borrower, such as with a place of business. These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. The primary risks associated with CRE owner-occupied loans include the borrower���s inability to pay, material decreases in the value of the real estate that is greaterbeing held as collateral, and significant increases in interest rates, which may make the real estate loan unprofitable to the borrower. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.



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•Franchise secured by real estate - Franchise real estate secured loans are business loans secured by real property occupied by franchised restaurants, generally quick service restaurants (“QSR”). These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. Risks associated with these loans include material decreases in the value of real estate being held as collateral, and the borrower’s inability to pay as a result of increases in interest rates or decreases in cash flow from the underlying business.

•Small Business Administration (“SBA”) - We are approved to originate loans under the SBA’s Preferred Lenders Program (“PLP”). The PLP lending status affords us a higher level of delegated credit autonomy, translating to a significantly shorter turnaround time from application to funding, which is critical to our marketing efforts. We originate loans nationwide under the SBA’s 7(a), SBA Express, International Trade and 504(a) loan programs, in conformity with SBA underwriting and documentation standards. SBA loans are similar to commercial business loans, but have additional credit enhancement provided by the U.S. government. The Company originates SBA loans with the intent to sell the guaranteed portion into the secondary market on a quarterly basis. Certain loans classified as SBA are secured by commercial real estate property. SBA loans secured by hotels are included in the segment investor loans secured by real estate, and SBA loans secured by all other forms of real estate are included in the business loans secured by real estate segment. All other SBA loans are included in the commercial loans segment below, and are secured by business assets.

Commercial Loans:

•Commercial and industrial (including franchise commercial loans) (“C&I”) - Loans to businesses, secured by business assets including inventory, receivables, and machinery and equipment. Loan types include revolving lines of credit, term loans, seasonal loans, and loans secured by liquid collateral such as cash deposits or marketable securities. Franchise credit facilities not secured by real estate and Home Owners’ Association (“HOA”) credit facilities are included in C&I loans. We also issue letters of credit on behalf of our customers. Risk arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans, and occasionally upon other borrower assets and guarantor assets. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.

Retail Loans:

•One-to-four family - Although we do not originate first lien single family loans, we have acquired them through bank acquisitions. The primary risks of one-to-four family loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which may make loans unprofitable to the borrower.

•Consumer loans - In addition to consumer loans acquired through our various bank acquisitions, we originate a limited number of consumer loans, generally to banking clients, which consist primarily of home equity lines of credit, savings account secured loans, and auto loans. Repayment of these loans is dependent on the borrower’s ability to pay and the fair value of the underlying collateral.


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Troubled Debt Restructurings. From time to time, the Company makes modifications to certain loans when a borrower is experiencing financial difficulty. These modifications are made to alleviate temporary impairments in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications typically include: changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and, in limited cases, reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status and are returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL for TDRs on an individual basis when the loans are deemed to no longer share similar risk characteristics with other loans in the portfolio. The determination of the ACL for TDRs is based on a discounted cash flow approach for both those measured collectively and individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to sell.

Acquired Loans. When the Company acquires loans through purchase or a business combination, an assessment is first performed to determine if such loans have experienced more than insignificant deterioration in credit quality since their origination and thus should be classified and accounted for as purchased credit deteriorated (“PCD”) loans or otherwise classified as non-PCD loans. All acquired loans are recorded at their fair value as of the carrying amount, itdate of acquisition. Any resulting discount or premium on acquired loans is recognizedaccreted or amortized into interest income over the remaining life of the loans using the interest method. Additionally, upon the purchase or acquisition of non-PCD loans, the Company measures and records an ACL based on the Company’s methodology for determining the ACL. The ACL for non-PCD loans is recorded through a charge to the provision for credit losses in the period in which the loans were purchased or acquired.

Unlike non-PCD loans, the initial ACL for PCD loans is established through an adjustment to the acquired loan balance and not through a charge to the provision for credit losses. As with non-PCD loans, the ACL for PCD loans is determined with the use of the Company’s ACL methodology. Characteristics of PCD loans include: delinquency, downgrade in credit quality since origination, loans on nonaccrual status, and/or other factors the Company may become aware of through its initial analysis of acquired loans that may indicate there has been more than insignificant deterioration in credit quality since a loan’s origination. Subsequent to acquisition, the ACL for both non-PCD and PCD loans are measured with the use of the Company’s ACL methodology in the same manner as part of future interest income.all other loans.

Goodwill and Core DepositOther Intangible– Assets.Goodwill assets originate from business combinations where the Company has acquired other financial institutions, and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination andthat are determined to have an indefinite useful lifelives are not amortized, but are tested for impairment at least annually or more frequently if events and circumstances exist thatlead management to believe the value of those assets may be impaired. Impairment testing is performed at the reporting unit level, which is considered the Company level as management has identified the Company is its sole reporting unit.

Management’s assessment of goodwill is performed in accordance with ASC 350-20 -Intangibles - Goodwill and Other - Goodwill, which allows the Company to first perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value. However, GAAP also allows the Company, at its option, to unconditionally forego the qualitative assessment and proceed directly to a quantitative assessment. When performing a qualitative assessment of goodwill, should the results of such analysis indicate it is more likely than not the necessity for suchfair value of the Company’s equity is below its carrying value, the Company then performs the quantitative assessment of goodwill to determine the fair value of the reporting unit and compares it to its carrying value. If the fair value of the reporting unit is below its carrying value, the Company would then recognize the amount of impairment testsas the amount by which the reporting unit’s carrying value exceeds its fair value, limited to be performed.the total amount of goodwill allocated to the reporting unit. Impairment losses are recorded as a charge to noninterest expense.
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The Company’s annual impairment test of goodwill is performed in the fourth quarter of each year. The Company has selected November 30 asperformed a qualitative assessment of goodwill in the date to performfourth quarter of 2021, the annual impairment test. Intangibleresults of which indicated the value of goodwill assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill iscould be supported and were not impaired. There have been no changes since the onlymost recent assessment.

Other intangible asset with an indefinite life on our balance sheet.
Coreassets include core deposit and customer relationship intangible assets arising from whole bank acquisitionsthe acquisition of other financial institutions and are amortized on either an accelerateda basis reflecting the pattern in which the economic benefits of the intangible assets isare consumed or otherwise used up, or on a straight-line amortization methodbasis over their estimated useful lives, which range from 6 to 1011 years. GAAP requires that intangible assets other than goodwill be tested for impairment when events and circumstances change, indicating that their carrying value may not be recoverable. For intangible assets other than goodwill, the Company first performs a qualitative assessment to determine if the carrying value of such assets may not be recoverable. A quantitative assessment is followed to determine the amount of impairment in the event the carrying value of such assets are deemed not recoverable. Impairment is measured as the amount by which their carrying value exceeds their estimated fair value. The Company tests intangible assets for impairment in the fourth quarter of each year, the results of which indicated the value of intangible assets could be supported and were not impaired.

Derivatives as Part of Designated Accounting Hedges. The Company applies hedge accounting to certain derivative instruments used for risk management purposes, primarily interest rate risk. To qualify for hedge accounting, a derivative instrument must be highly effective at reducing the risk associated with the hedged exposure, and the hedging relationship must be formally documented at its inception. The Company uses regression analysis to assess the effectiveness of each hedging relationship, unless the hedge qualifies for other methods of assessing effectiveness (e.g., shortcut or critical terms match), both at inception and throughout the life of the hedge transaction.

The Company currently has derivative instruments designated as part of fair value accounting hedges. These derivatives consist of pay-fixed, receive-floating interest rate swaps, and were entered into to hedge changes in the fair value of fixed-rate assets for specific risks, such as interest rate risk resulting from changes in a benchmark interest rate. In a qualifying fair value hedge, the Company records periodic changes in the fair value of the derivative instrument in current period earnings. Simultaneously, periodic changes in the fair value of the hedged risk are also recorded in current period earnings. Together, these periodic changes in the fair value of the derivative instrument and the fair value of the hedged risk are included in the same line item of the statements of income associated with the hedged item (i.e. interest income), and largely offset each other. Interest accruals on both the derivative instrument and the hedged item are also recorded in the same line item, which effectively converts the designated fixed-rate assets to floating-rate assets. The Company structures these swaps to match the critical terms of the hedged items (i.e. fixed-rate loans), thereby maximizing the economic and accounting effectiveness of the hedging relationships and resulting in the expectation that the hedging relationship will be highly effective. If a fair value hedging relationship ceases to qualify for hedge accounting, hedge accounting is discontinued and future changes in the fair value of the derivative instrument are recognized in current period earnings, until the derivative is settled with the counterparty. In addition, all remaining basis adjustments resulting from periodic changes in the fair value of the hedged risk, previously recorded to the carrying amount of the hedged item, are amortized or accreted into interest income using the interest method over the remaining life of the hedged item.


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Leases. The Company accounts for its leases in accordance with ASC 842, which requires the Company to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased asset. Leases with a term of 12 months or less are accounted for using straight-line expense recognition with no right-of-use asset being recorded for such leases. Other than short-term leases, the Company classifies its leases as either finance leases or operating leases. Leases are classified as finance leases when any of the following are met: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (b) the lease contains an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c) the term of the lease represents a major part of the remaining life of the underlying asset, (d) the present value of the future lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (e) the underling leased asset is expected to have no alternative use to the lessor at the end of the lease term due to its specialized nature. When the Company’s assessment of a lease does not meet the foregoing criteria, and the term of the lease is in excess of 12 months, the lease is classified as an operating lease.

Liabilities to make lease payments and right-of-use assets are determined based on the total contractual rents for each lease, discounted at the rate implicit in the lease or at the Company’s estimated incremental borrowing rate if the rate is not implicit in the lease. The Company measures future base rents based on the minimum payments specified in the lease agreement, giving consideration for periodic contractual rent increases which are based on an escalation rate or a specified index. When future rent payments are based on an index, the Company uses the index rate observed at the time of lease commencement to measure future lease payments. Liabilities to make future lease payments on operating leases are reduced by periodic contractual lease payments net of periodic interest accretion on the lease liability. Right-of-use assets for operating leases are amortized over the term of the lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion on the related liability to make lease payments. Expense recognition for operating leases is recorded on a straight-line basis. As of March 31, 2022, all of the Company’s leases were classified as either operating leases or short-term leases.

From time to time the Company leases portions of the space it leases to other parties through sublease transactions. Income received from these transactions is recorded on a straight-line basis over the term of the sublease.

Revenue Recognition. The Company accounts for certain of its revenue streams deemed to arise from contracts with customers in accordance with ASC 606 -Revenue from Contracts with Customers. Revenue streams within the scope of and accounted for under ASC 606 include: service charges and fees on deposit accounts, debit card interchange fees, custodial account fees, fees from other services the Bank provides its customers, and gains and losses from the sale of other real estate owned (“OREO”) and property, premises and equipment. These revenue streams are included in noninterest income in the Company’s consolidated statements of income. ASC 606 requires revenue to be recognized when the Company satisfies related performance obligations by transferring to the customer a good or service. The recognition of revenue under ASC 606 requires the Company to first identify the contract with the customer, identify the performance obligations, determine the transaction price, allocate the transaction price to the performance obligations, and finally recognize revenue when the performance obligations have been satisfied and the good or service has been transferred. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the transfer of goods or services to the associated customer. The majority of the Company’s contracts with customers associated with revenue streams that are within the scope of ASC 606 are considered short-term in nature, such as a deposit account agreement, which can be canceled at any time, or a service provided to a customer at a point in time. Other more significant revenue streams for the Company such as interest income on loans and investment securities are specifically excluded from the scope of ASC 606 and are accounted for under other applicable GAAP.


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Stock-Based Compensation. The Company issues various forms of stock-based compensation awards annually to officers and directors of the Company, including stock options, restricted stock awards, and restricted stock units. The related compensation costs are based on the grant-date fair value and are recognized in the income statement over the period they are expected to vest, net of estimates for forfeitures. Estimates for forfeitures are based on the Company’s historical experience for each award type. A Black-Scholes model is utilized to estimate the fair value of stock options on the grant date. The Black-Scholes model uses certain assumptions to determine grant-date fair value such as: expected volatility, expected term of the option, expected risk-free rate of interest, and expected dividend yield on the Corporation’s common stock. The market price of the Corporation’s common stock at the grant date is used for restricted stock awards in determining the grant date fair value for those awards.

Restricted stock awards and restricted stock units are granted to employees of the Company, and represent stock-based compensation awards that when ultimately settled, result in the issuance of shares of the Corporation’s common stock to the grantee. As with other stock-based compensation awards, compensation cost for restricted stock awards and restricted stock units is recognized over the period in which the awards are expected to vest. Certain of the Corporation’s restricted stock units contain vesting conditions which are based on pre-determined performance targets. The level at which the associated performance targets are achieved can impact the ultimate settlement of the award with the grantee and thus the level of compensation expense ultimately recognized. Certain of these awards contain a market-based condition whereby the vesting of the award is based on the Company’s performance, such as total shareholder return, relative to its peers over a specified period of time. The grant date fair value of market-based restricted stock units is determined through an independent third party which employs the use of a Monte Carlo simulation. The Monte Carlo simulation estimates grant date fair value using input assumptions similar to those used in the Black-Scholes model, however, it also incorporates into the grant date fair value calculation the probability that the performance targets will be achieved. The grant date fair value of restricted stock units that do not contain a market-based condition for vesting is based on the price of the Corporation’s common stock on the grant date.

Holders of restricted stock awards are entitled to receive cash dividends. Holders of restricted stock units are entitled to receive dividend equivalents during the vesting period commensurate with dividends declared and paid on the Corporation’s common stock. As restricted stock awards contain rights to receive non-forfeitable dividends prior to the awards being vested, such awards are considered participating securities.

Comprehensive Income. Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s available-for-sale investment securities are required to be included in other comprehensive income or loss. Total comprehensive income (loss) and the components of accumulated other comprehensive income or loss are presented in the Consolidated Statements of Stockholders’ Equity and Consolidated Statements of Comprehensive Income.

Use of Estimates–. The preparation of financial statements in conformity with accounting principles generally accepted in the United StatesGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.


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Note 4 – Acquisitions
The Company accounted for the following transactions under the acquisition method of accounting, which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of the loans, core deposit intangible, securities and deposits with the assistance of third party valuations.

Heritage Oaks Bancorp Acquisition

Effective as of April 1, 2017, the Company completed the acquisition of Heritage Oaks Bancorp ("HEOP"), the holding company of Heritage Oaks Bank, a Paso Robles, California based state-chartered bank (“Heritage Oaks Bank”) with $2.0 billion in total assets, $1.4 billion in gross loans and $1.7 billion in total deposits at March 31, 2017. Heritage Oaks Bank operates branches within San Luis Obispo and Santa Barbara Counties and a loan production office in Ventura County.

Pursuant to the terms of the merger agreement, each outstanding share of HEOP common stock was converted into the right to receive 0.3471 shares of corporate common stock. The value of the total deal consideration was approximately $465 million, which included approximately $3.9 million of aggregate cash consideration payable to holders of Heritage Oaks share-based compensation awards, and the issuance of 11,959,022 shares of the Corporation's common stock, which had a value of $38.55 per share, which was the closing price of the Corporation's common stock on March 31, 2017, the last trading day prior to the consummation of the acquisition.

Goodwill in the amount of $269 million was recognized in the HEOP acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of HEOP as of April 1, 2017 and the fair value adjustments and amounts recorded by the Company in 2017 under the acquisition method of accounting: 


 
HEOP
Book Value
 
Fair Value
Adjustments
 
Fair
Value
ASSETS ACQUIRED(dollars in thousands)
Cash and cash equivalents$78,728
 $—
 $78,728
Investment securities447,520
 (4,597) 442,923
FHLB stock9,739
 —
 9,739
Loans, gross1,387,949
 (23,300) 1,364,649
Allowance for loan losses(17,200) 17,200
 —
Fixed assets35,567
 (665) 34,902
Core deposit intangible—
 28,123
 28,123
Deferred tax assets17,850
 (7,864) 9,986
Other assets45,484
 (9) 45,475
Total assets acquired$2,005,637
 $8,888
 $2,014,525
LIABILITIES ASSUMED 
  
  
Deposits1,668,079
 1,471
 1,669,550
Borrowings141,996
 (2,962) 139,034
Other Liabilities7,290
 771
 8,061
Total liabilities assumed1,817,365
 (720) 1,816,645
Excess of assets acquired over liabilities assumed$188,272
 $9,608
 197,880
Consideration paid 
  
 465,482
Capitalized merger-related expense    1,585
Goodwill recognized 
  
 $269,187

The fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. In the third quarter of 2017, the Company made a $1.1 million adjustment to deferred tax assets and the deal consideration.

Security California Bancorp Acquisition

On January 31, 2016, the Company completed its acquisition of Security California Bancorp (“SCAF”), whereby we acquired $714 million in total assets, $456 million in loans and $637 million in total deposits. Under the terms of the merger agreement, each share of SCAF common stock was converted into the right to receive 0.9629 shares of the Corporation’s common stock. The value of the total deal consideration was $120 million, which includes $788,000 of aggregate cash consideration to the holders of SCAF stock options and the issuance of 5,815,051 shares of the Corporation’s common stock, valued at $119 million based on a closing stock price of $20.53 per share on January 29, 2016.

SCAF was the holding company of Security Bank of California, a Riverside, California, based state-chartered bank with six branches located in Riverside County, San Bernardino County and Orange County.

Goodwill in the amount of $51.7 million was recognized in the SCAF acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.


The following table represents the assets acquired and liabilities assumed of SCAF as of January 31, 2016 and the fair value adjustments and amounts recorded by the Company in 2016 under the acquisition method of accounting: 

 
SCAF
Book Value
 
Fair Value
Adjustments
 
Fair
Value
ASSETS ACQUIRED(dollars in thousands)
Cash and cash equivalents$40,947
 $—
 $40,947
Interest-bearing deposits with financial institutions1,972
 —
 1,972
Investment securities191,881
 (1,627) 190,254
Loans, gross467,197
 (11,039) 456,158
Allowance for loan losses(7,399) 7,399
 —
Fixed assets5,335
 (1,145) 4,190
Core deposit intangible493
 3,826
 4,319
Deferred tax assets5,618
 1,130
 6,748
Other assets10,589
 (1,227) 9,362
Total assets acquired$716,633
 $(2,683) $713,950
LIABILITIES ASSUMED 
  
  
Deposits$636,450
 $141
 $636,591
Other Liabilities9,063
 (220) 8,843
Total liabilities assumed645,513
 (79) 645,434
Excess of assets acquired over liabilities assumed$71,120
 $(2,604) 68,516
Consideration paid 
  
 120,174
Goodwill recognized 
  
 $51,658

The fair values are estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. In the second quarter of 2016, the Company made a $146,000 adjustment to fixed assets and goodwill. As of March 31, 2017, the Company finalized its fair values with this acquisition.

For loans acquired from SCAF and HEOP, the contractual amounts due, expected cash flows to be collected, interest component and fair value as of the respective acquisition dates were as follows:

 Acquired Loans
 SCAF HEOP
 (dollars in thousands)
Contractual amounts due$539,806
 $1,717,230
Cash flows not expected to be collected2,765
 4,442
Expected cash flows537,041
 1,712,788
Interest component of expected cash flows80,883
 348,100
Fair value of acquired loans$456,158
 $1,364,688

In accordance with generally accepted accounting principles, there was no carryover of the allowance for loan losses that had been previously recorded by SCAF and HEOP.

The operating results of the Company for the three months ended September 30, 2017, June 30, 2017 and September 30, 2016 and the nine months ended September 30, 2017 and September 30, 2016 include the operating results of SCAF and HEOP since its acquisition date. The following table presents the net interest and other income, net income and earnings per share as if the acquisition of SCAF and HEOP were effective as of January 1, 2016. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:

 Three Months Ended Nine Months Ended
 September 30, June 30, September 30, September 30, September 30,
 2017 2017 2016 2017 2016
 (dollars in thousands)
Net interest and other income$70,463
 $70,193
 $60,538
 $203,018
 $179,958
Net income20,232
 14,176
 13,410
 44,492
 38,562
Basic earnings per share0.51
 0.36
 0.34
 1.12
 0.98
Diluted earnings per share0.50
 0.35
 0.34
 1.10
 0.97


Note 5 – Investment Securities
 
The amortized cost and estimated fair value of investment securities available-for-sale were as follows:
(Dollars in thousands)Amortized
 Cost		Gross Unrealized
Gain		Gross Unrealized
Loss		Estimated
Fair Value
AFS investment securities:
March 31, 2022    
U.S. Treasury$14,930 $— $(940)$13,990 
Agency406,654 — (30,877)375,777 
Corporate debt612,647 702 (18,284)595,065 
Municipal bonds445,537 58 (30,311)415,284 
Collateralized mortgage obligations874,382 1,606 (20,732)855,256 
Mortgage-backed securities1,040,774 1 (74,052)966,723 
Total AFS investment securities$3,394,924 $2,367 $(175,196)$3,222,095 
December 31, 2021
U.S. Treasury$57,708 $614 $(456)$57,866 
Agency440,183 2,081 (10,129)432,135 
Corporate debt451,621 6,096 (3,856)453,861 
Municipal bonds1,061,985 32,209 (4,281)1,089,913 
Collateralized mortgage obligations680,686 2,012 (6,055)676,643 
Mortgage-backed securities1,586,406 3,220 (26,180)1,563,446 
Total AFS investment securities$4,278,589 $46,232 $(50,957)$4,273,864 

The carrying amount and estimated fair value of investment securities held-to-maturity were as follows:
(Dollars in thousands)Amortized
 Cost		Allowance for Credit LossesNet Carrying AmountGross Unrecognized
Gain		Gross Unrecognized
Loss		Estimated
Fair Value
HTM investment securities:
March 31, 2022
Municipal bonds$747,887 $(41)$747,846 $— $(101,757)$646,089 
Mortgage-backed securities247,050 — 247,050 96 (8,671)238,475 
Other1,486 — 1,486 — — 1,486 
Total HTM investment securities$996,423 $(41)$996,382 $96 $(110,428)$886,050 
December 31, 2021
Municipal bonds$368,344 $(22)$368,322 $3,834 $(1,649)$370,507 
Mortgage-backed securities$11,843 $— $11,843 $564 $— $12,407 
Other1,509 — 1,509 — — 1,509 
Total HTM investment securities$381,696 $(22)$381,674 $4,398 $(1,649)$384,423 

21

  September 30, 2017
  
Amortized
 Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value
  (dollars in thousands)
Investment securities available-for-sale:  
      
Agency $49,969
 $433
 $(23) $50,379
Corporate 61,040
 1,275
 (140) 62,175
Municipal bonds 224,332
 4,481
 (386) 228,427
Collateralized mortgage obligation: residential 43,254
 255
 (105) 43,404
Mortgage-backed securities: residential 321,158
 688
 (2,287) 319,559
Total investment securities available-for-sale 699,753
 7,132
 (2,941) 703,944
Investment securities held-to-maturity:        
Mortgage-backed securities: residential 17,476
 —
 (50) 17,426
Other 1,151
 —
 —
 1,151
Total investment securities held-to-maturity 18,627
 —
 (50) 18,577
Total investment securities $718,380
 $7,132
 $(2,991) $722,521
The Company reassesses classification of certain investments as part of the ongoing review of the investment securities portfolio. During the first quarter of 2022, the Company transferred approximately $386.8 million of municipal bonds and $255.0 million of mortgage-backed securities with longer durations, both of which the Company intends and has the ability to hold to maturity, from AFS to HTM securities. The transfer of these securities was accounted for at fair value. The municipal bonds had a net carrying amount of $379.9 million with a pre-tax unrealized loss of $6.9 million, and the mortgage-backed securities had a net carrying amount of $238.8 million with a pre-tax unrealized loss of $16.2 million, and both unrealized losses were reflected as discounts on the date of transfer. These discounts, as well as the related unrealized losses in accumulated other comprehensive income, will be amortized into interest income as yield adjustments over the remaining term of the securities. The amortization of the unrealized losses reported in accumulated other comprehensive income will offset the effect on interest income of the amortization of the discounts. No gains or losses were recorded at the time of transfer.

Investment securities with carrying values of $56.5 million and $130.7 million as of March 31, 2022 and December 31, 2021, respectively, were pledged to secure public deposits, other borrowings, and for other purposes as required or permitted by law.

  December 31, 2016
  
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value
  (dollars in thousands)
Investment securities available-for-sale:  
      
Corporate $37,475
 $372
 $(205) $37,642
Municipal bonds 120,155
 338
 (1,690) 118,803
Collateralized mortgage obligation: residential 31,536
 25
 (173) 31,388
Mortgage-backed securities: residential 196,496
 69
 (3,435) 193,130
Total investment securities available-for-sale 385,662
 804
 (5,503) 380,963
Investment securities held-to-maturity:        
Mortgage-backed securities: residential 7,375
 —
 (104) 7,271
Other 1,190
 —
 —
 1,190
Total investment securities held-to-maturity 8,565
 —
 (104) 8,461
Total investment securities $394,227
 $804
 $(5,607) $389,424
Unrealized Gains and Losses


Unrealized gains and losses on AFS investment securities available-for-sale are recognized in stockholders’ equity as accumulated other comprehensive income or loss. At September 30, 2017,March 31, 2022, the Company had an accumulated other comprehensive incomeunrealized loss of $4.2$172.8 million, or $2.5$123.5 million net of tax in accumulated other comprehensive loss, compared to an accumulated other comprehensiveunrealized loss of $4.7 million, or $2.7$3.3 million net of tax in accumulated other comprehensive loss, at December 31, 2016.2021.


At September 30, 2017, mortgage-backedFor investment securities ("MBS ")transferred from AFS to HTM, the unrealized gains and losses at the date of transfer continue to be reported in stockholders’ equity as accumulated other comprehensive income or loss and are amortized over the remaining lives of the securities with an estimated par valueoffsetting entry to interest income as an adjustment of $62.4yield. At March 31, 2022, the unrealized loss on investment securities transferred from AFS to HTM that were included in accumulated other comprehensive loss was $20.8 million and anet of tax.
The table below summarizes the number, fair value, and gross unrealized holding losses of $64.2 million were pledged as collateral for the Bank’s three repurchase agreements, which totaled $28.5 million, and homeowner’s association (“HOA”) reverse repurchase agreements, which totaled $18.5 million.


At December 31, 2016, MBS with an estimated par value of $63.6million and a fair value of $65.3 million were pledged as collateral for the Bank’s three repurchase agreements, which totaled $28.5 million, and HOA reverse repurchase agreements, which totaled $21.5 million.

At September 30, 2017 and December 31, 2016, there were not holdings ofCompany’s AFS investment securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10%unrealized loss position for which an allowance for credit losses has not been recorded as of shareholders' equity.the dates indicated, aggregated by investment category and length of time in a continuous loss position.

 March 31, 2022
 Less than 12 Months12 Months or LongerTotal
(Dollars in thousands)NumberFair
Value		Gross
Unrealized
Losses		NumberFair
Value		Gross
Unrealized
Losses		NumberFair
Value		Gross
Unrealized
Losses
AFS investment securities:
U.S. Treasury1 $13,990 $(940)— $— $— 1 $13,990 $(940)
Agency9 72,300 (6,489)26 303,476 (24,388)35 375,776 (30,877)
Corporate debt44 449,423 (10,400)3 52,241 (7,884)47 501,664 (18,284)
Municipal bonds85 397,687 (30,158)1 1,444 (153)86 399,131 (30,311)
Collateralized mortgage obligations32 320,962 (10,317)23 165,246 (10,415)55 486,208 (20,732)
Mortgage-backed securities.71 880,417 (66,282)9 86,208 (7,770)80 966,625 (74,052)
Total AFS investment securities242 $2,134,779 $(124,586)62 $608,615 $(50,610)304 $2,743,394 $(175,196)

22

 December 31, 2021
 Less than 12 Months12 Months or LongerTotal
(Dollars in thousands)NumberFair
Value		Gross
Unrealized
Losses		NumberFair
Value		Gross
Unrealized
Losses		NumberFair
Value		Gross
Unrealized
Losses
AFS investment securities:
U.S. Treasury3 $47,235 $(456)— $— $— 3 $47,235 $(456)
Agency19 278,078 (5,634)16 119,750 (4,495)35 397,828 (10,129)
Corporate debt17 166,563 (849)3 57,274 (3,007)20 223,837 (3,856)
Municipal bonds36 277,564 (4,079)2 6,596 (202)38 284,160 (4,281)
Collateralized mortgage obligations26 226,763 (3,738)15 121,185 (2,317)41 347,948 (6,055)
Mortgage-backed securities103 1,306,455 (20,417)15 173,121 (5,763)118 1,479,576 (26,180)
Total AFS investment securities204 $2,302,658 $(35,173)51 $477,926 $(15,784)255 $2,780,584 $(50,957)

Allowance for Credit Losses on Investment Securities

The Company reviews individual securities classified as available-for-saleAFS to determine whether a decline in fair value below the amortized cost basis is temporary because (i) those declines weredeemed credit related or due to other factors such as changes in interest raterates and general market conditions. An ACL on AFS investment securities is recorded when the fair value of the investment is below its amortized cost and the decline in fair value has been deemed, through the Company’s qualitative assessment, to be credit related. Non-credit related declines in fair value of AFS investment securities, which may be attributed to changes in interest rates and other market-related factors, are not recorded through an ACL. Such declines are recorded as an adjustment to accumulated other comprehensive income, net of tax. In the event the Company is required to sell or has the intent to sell an AFS security that has experienced a deteriorationdecline in fair value below its amortized cost, the Company writes the amortized cost of the security down to fair value in the creditworthinesscurrent period.

Credit losses on HTM investment securities are recorded at the time of purchase or acquisition and when the Company has designated securities as HTM. Credit losses on HTM investment securities are representative of current expected credit losses that may be incurred over the life of the investment.

The Company determines credit losses on both AFS and HTM investment securities through the use of a discounted cash flow approach using the security’s effective interest rate. The ACL is measured as the amount by which an investment security’s amortized cost exceeds the net present value of expected future cash flows. However, the amount of credit losses for AFS investment securities is limited to the amount of a security’s unrealized loss. The ACL is established through a charge to provision for credit losses in current period earnings.

At March 31, 2022, the Company had an ACL of $41,000 for HTM investment securities classified as municipal bonds. These securities were transferred from AFS to HTM during the third and fourth quarters of 2021 and first quarter of 2022. The Company had an ACL of $22,000 for HTM investment securities at December 31, 2021. The Company recognized $19,000 and $11,000 of provision for credit losses for HTM investment securities during the three months ended March 31, 2022 and December 31, 2021, respectively. There was no provision for credit losses recognized for HTM investment securities during the three months ended March 31, 2021.

The following table presents a rollforward by major security type of the allowance for credit losses on the Company's HTM debt securities as of, and for the periods indicated:
Three Months Ended March 31, 2022
(Dollars in thousands)
 Balance,
December 31, 2021
Provision for Credit Losses
Balance,
March 31, 2022
HTM investment securities:
Municipal bonds$22 $19 $41 

23

The Company had no ACL for AFS investment securities at March 31, 2022 and December 31, 2021. The Company performed a qualitative assessment of these investments as of March 31, 2022 and determined that the increase in unrealized losses was primarily the result of changes in interest rates with inflationary pressure driven by the Federal Reserve’s policy along with recent geopolitical developments, and does not believe the declines in fair value were credit related. As of March 31, 2022, the Company had not recorded credit losses on certain AFS securities that were in an unrealized loss position due to the high quality of the investments, with investment grade ratings, and many of them issued by U.S. government agencies. No issuers of those investmentthese securities have, to the Company’s knowledge, experienced credit downgrades. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. The Company does not intend to sell these securities, and (ii) we have the ability to hold those securities until there is a recovery in their values or until their maturity.

If it is probablemore likely than not that the Company will not be unablerequired to collect all amounts due accordingsell the securities prior to contractual terms of the debt security not impaired at acquisition, an other-than-temporary impairment ("OTTI") shall be considered to have occurred. If an OTTI occurs, the cost basis of the security will be written down to its fair value as the new cost basis and the write down accountedtheir anticipated recoveries. There was no provision for as a realized loss.

The Company did not realize any OTTI recoveries orcredit losses recognized for AFS investment securities during the three months ended September 30, 2017March 31, 2022, December 31, 2021, or March 31, 2021.

At March 31, 2022 and June 30, 2017. However, the Company did realize an OTTI recovery of $2,000 for the three months ended September 30, 2016, which relates to investment income from a previously charge-off investment. A $207,000 OTTI was takenDecember 31, 2021, there were no AFS or HTM securities in nonaccrual status. All securities in the first quarter of 2016, related to a CRA investmentportfolio were current with their contractual principal and interest payments. At March 31, 2022 and December 31, 2021, there were no securities purchased with deterioration in June of 2014 with a par value of $50,credit quality since their origination. At March 31, 2022 and a book value of $500,000. In March 2016, the shareholders of the investment voted to approve a sale of the institution at a per share acquisition price less the Bank's book value, and the sale closed in July 2016.December 31, 2021, there were no collateral dependent AFS or HTM securities.

    The Company is currently waiting to receive the proceeds for its outstanding shares. As a result, the Company's current holdings were written down and the loss recognized.

Thefollowing table below shows the number, fair value and gross unrealized holding losses ofsummarizes the Company’s investment securities portfolio by investment categoryMoody’s external rating equivalent and lengthby vintage as of time that the securities have been in a continuous loss position.March 31, 2022:
Vintage
(Dollars in thousands)20222021202020192018PriorTotal
AFS Investment securities at fair value:
U.S. Treasury
Aaa - Aa3$— $13,990 $— $— $— $— $13,990 
Agency
Aaa - Aa3— 22,827 282,195 23,967 33,635 6,603 369,227 
Baa1 - Baa3— — — — — 6,550 6,550 
Corporate debt
Aaa - Aa339,946 — — — — — 39,946 
A1 - A374,565 203,779 62,222 — — — 340,566 
Baa1 - Baa334,267 52,711 92,122 25,664 — 9,789 214,553 
Municipal bonds
Aaa - Aa3— 43,333 222,497 136,748 — 12,706 415,284 
Collateralized mortgage obligations
Aaa - Aa3173,442 260,990 229,588 74,720 14,839 101,677 855,256 
Mortgage-backed securities
Aaa - Aa319,610 772,190 113,748 58,778 — 2,397 966,723 
Total AFS investment securities341,830 1,369,820 1,002,372 319,877 48,474 139,722 3,222,095 
HTM investment securities at amortized cost:
Municipal bonds
Aaa - Aa3— 116,523 622,498 8,866 — — 747,887 
Mortgage-backed securities
Aaa - Aa3— 135,396 101,116 — 2,942 7,596 247,050 
Other
Baa1 - Baa3— — — — 582 904 1,486 
Total HTM investment securities— 251,919 723,614 8,866 3,524 8,500 996,423 
Total investment securities$341,830 $1,621,739 $1,725,986 $328,743 $51,998 $148,222 $4,218,518 

24

 September 30, 2017
 Less than 12 months 12 months or Longer Total
 Number 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 Number 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 Number 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 (dollars in thousands)
Investment securities available-for-sale:                 
Agency1
 $1,598
 $(23) —
 $—
 $—
 1
 $1,598
 $(23)
Corporate3
 7,625
 (134) 1
 1,014
 (6) 4
 8,639
 (140)
Municipal bonds16
 8,179
 (112) 24
 12,488
 (274) 40
 20,667
 (386)
Collateralized mortgage obligation: residential5
 15,197
 (105) —
 —
 —
 5
 15,197
 (105)
Mortgage-backed securities: residential46
 116,678
 (1,105) 18
 61,565
 (1,182) 64
 178,243
 (2,287)
Total investment securities available-for-sale71
 149,277
 (1,479) 43
 75,067
 (1,462) 114
 224,344
 (2,941)
Investment securities held-to-maturity:                 
Mortgage-backed securities: residential1
 6,502
 (50) —
 —
 —
 1
 6,502
 (50)
Total investment securities held-to-maturity1
 6,502
 (50) —
 —
 —
 1
 6,502
 (50)
Total investment securities72
 $155,779
 $(1,529) 43
 $75,067
 $(1,462) 115
 $230,846
 $(2,991)
Realized Gains and Losses



The following table presents the amortized cost of securities sold with related gross realized gains, gross realized losses, and net realized gains for the periods indicated:
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202220212021
Amortized cost of AFS investment securities sold$658,505 $267,114 $172,320 
Gross realized gains$13,637 $4,723 $4,237 
Gross realized losses(11,503)(1,138)(191)
Net realized gains on sales of AFS investment securities$2,134 $3,585 $4,046 
 December 31, 2016
 Less than 12 months 12 months or Longer Total
 Number Fair
Value		 Gross
Unrealized
Holding
Losses		 Number Fair
Value		 Gross
Unrealized
Holding
Losses		 Number Fair
Value		 Gross
Unrealized
Holding
Losses
 (dollars in thousands)
Investment securities available-for-sale:                 
Corporate3
 $7,609
 $(205) —
 $—
 $—
 3
 $7,609
 $(205)
Municipal bonds152
 85,750
 (1,690) —
 —
 —
 152
 85,750
 (1,690)
Collateralized mortgage obligation: residential5
 19,092
 (173) —
 —
 —
 5
 19,092
 (173)
Mortgage-backed securities: residential55
 149,740
 (2,916) 4
 16,039
 (519) 59
 165,779
 (3,435)
Total investment securities available-for-sale215
 262,191
 (4,984) 4
 16,039
 (519) 219
 278,230
 (5,503)
Investment securities held-to-maturity:                 
Mortgage-backed securities: residential1
 7,271
 (104) —
 —
 —
 1
 7,271
 (104)
Total investment securities held-to-maturity1
 7,271
 (104) —
 —
 —
 1
 7,271
 (104)
Total investment securities216
 $269,462
 $(5,088) 4
 $16,039
 $(519) 220
 $285,501
 $(5,607)


Contractual maturities


The amortized cost and estimated fair value of investment securities at September 30, 2017,March 31, 2022, by contractual maturity, are shown in the table below.

Due in One Year
or Less		Due after One Year
through Five Years		Due after Five Years
through Ten Years		Due after
Ten Years		Total
(Dollars in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
AFS investment securities:          
U.S. Treasury$— $— $— $— $14,930 $13,990 $— $— $14,930 $13,990 
Agency— — 271,342 254,013 97,419 88,539 37,893 33,225 406,654 375,777 
Corporate debt— — 192,589 190,794 405,058 389,354 15,000 14,917 612,647 595,065 
Municipal bonds— — — — 18,061 16,806 427,476 398,478 445,537 415,284 
Collateralized mortgage obligations— — 36,738 36,544 243,674 231,495 593,970 587,217 874,382 855,256 
Mortgage-backed securities— — — — 612,287 572,033 428,487 394,690 1,040,774 966,723 
Total AFS investment securities— — 500,669 481,351 1,391,429 1,312,217 1,502,826 1,428,527 3,394,924 3,222,095 
HTM investment securities:
Municipal bonds— — — — 44,774 42,509 703,113 603,580 747,887 646,089 
Mortgage-backed securities— — — — — — 247,050 238,475 247,050 238,475 
Other— — — — — — 1,486 1,486 1,486 1,486 
Total HTM investment securities— — — — 44,774 42,509 951,649 843,541 996,423 886,050 
Total investment securities$— $— $500,669 $481,351 $1,436,203 $1,354,726 $2,454,475 $2,272,068 $4,391,347 $4,108,145 


25
 
One Year
or Less
 
More than One
Year to Five Years
 
More than Five Years
to Ten Years
 
More than
Ten Years
 Total
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 (dollars in thousands)
Investment securities available-for-sale:                   
Agency$—
 $—
 $—
 $—
 $16,085
 $16,176
 $33,884
 $34,203
 $49,969
 $50,379
Corporate—
 —
 —
 —
 56,040
 57,175
 5,000
 5,000
 61,040
 62,175
Municipal bonds4,592
 4,598
 32,249
 32,569
 72,854
 73,907
 114,637
 117,353
 224,332
 228,427
Collateralized mortgage obligation: residential—
 —
 —
 —
 3,361
 3,406
 39,893
 39,998
 43,254
 43,404
Mortgage-backed securities: residential2,614
 2,603
 5,302
 5,295
 54,838
 54,797
 258,404
 256,864
 321,158
 319,559
Total investment securities available-for-sale7,206
 7,201
 37,551
 37,864
 203,178
 205,461
 451,818
 453,418
 699,753
 703,944
Investment securities held-to-maturity:                   
Mortgage-backed securities: residential—
 —
 —
 —
 —
 —
 17,476
 17,426
 17,476
 17,426
Other—
 —
 —
 —
 —
 —
 1,151
 1,151
 1,151
 1,151
Total investment securities held-to-maturity—
 —
 —
 —
 —
 —
 18,627
 18,577
 18,627
 18,577
Total investment securities$7,206
 $7,201
 $37,551
 $37,864
 $203,178
 $205,461
 $470,445
 $471,995
 $718,380
 $722,521


During the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, the Company recognized gross gains on sales of available-for-sale securities in the amount of $897,000, $2.1 million and $512,000, respectively. During the three months ended September 30, 2017 and June 30, 2017, the Company recognized gross losses on the sales of available-for-sale securities in the amount of $1,000 and $50,000, respectively. The Company did not recognize any gross losses on the sales of available-for sale securities during the three months ended September 30, 2016. The Company had net proceeds from the sale of available-for-sale securities of $3.7 million, $215 million and $16.6 million during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016.

During the nine months ended September 30, 2017 and September 30, 2016, the Company recognized gross gains on sales of available-for-sale securities in the amount of $3.0 million and $1.8 million, respectively. During the nine months ended September 30, 2017 and September 30, 2016, the Company recognized gross losses on sales of available-for-sale securities in the amount of $51,000 and $9,000, respectively. The Company had net proceeds from the sale of available-for-sale securities of $243 million during the nine months ended September 30, 2017and $223 million during the nine months ended September 30, 2016.


FHLB, FRB, and other stockOther Stock


At September 30, 2017, the Company had $17.3 million inThe Company’s equity securities primarily consist of Federal Home Loan Bank of San Francisco (“FHLB”) stock, $25.0 million inand Federal Reserve Bank of San Francisco (“FRB”) stock, which are considered restricted securities and $16.1held as a condition of membership of the FHLB and the Board of Governors of the Federal Reserve System. These equity securities without readily determinable fair values are carried at cost less impairment. At March 31, 2022, the Company had $17.3 million in FHLB stock, $74.6 million in FRB stock, and $25.1 million in other stock, all carried at cost. At December 31, 2021, the Company had $17.3 million in FHLB stock, $74.5 million in FRB stock, and $25.7 million in other stock. During the three months ended September 30, 2016 and March 31, 2022, December 31, 2016,2021, and March 31, 2021, the FHLB did not repurchase any of the Company’s excess FHLB stock through theirits stock repurchase program.

The Company periodically evaluates its investments in FHLB, FRB, and other stock for impairment, periodically, including their capital adequacy and overall financial condition. No impairment losses have been recorded through September 30, 2017.March 31, 2022.




Note 65 – Loans Held for Investment
 
The following table sets forth the composition of ourCompany’s loan portfolio in dollar amounts at the dates indicated:is segmented according to loans that share similar attributes and risk characteristics.

 September 30, 2017 December 31, 2016
 (dollars in thousands)
Business loans:   
Commercial and industrial$763,091
 $563,169
Franchise626,508
 459,421
Commercial owner occupied (1)805,137
 454,918
SBA107,211
 88,994
Agriculture86,466
 —
    Total business loans2,388,413
 1,566,502
Real estate loans: 
  
Commercial non-owner occupied1,098,995
 586,975
Multi-family797,370
 690,955
One-to-four family (2)246,248
 100,451
Construction301,334
 269,159
Farmland140,581
 —
Land30,719
 19,829
  Other loans6,228
 4,112
    Total real estate loans2,621,475
 1,671,481
      Gross loans held for investment (3)5,009,888
 3,237,983
Plus: Deferred loan origination costs/(fees) and premiums/(discounts), net(571) 3,630
        Loans held for investment5,009,317
 3,241,613
Allowance for loan losses(27,143) (21,296)
    Loans held for investment, net$4,982,174
 $3,220,317
    
Loans held for sale, at lower of cost or fair value$44,343
 $7,711

(1) SecuredInvestor loans secured by real estate.estate includes CRE non-owner-occupied, multifamily, construction, and land, as well as SBA loans secured by real estate, which are loans collateralized by hotel/motel real property.
(2) Includes
Business loans secured by real estate are loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment. This loan portfolio includes CRE owner-occupied, franchise loans secured by real estate, and SBA loans secured by real estate, which are collateralized by real property other than hotel/motel real property.

Commercial loans are loans to businesses where the operating cash flow of the business is the primary source of repayment. This loan portfolio includes commercial and industrial, franchise loans non-real estate secured, and SBA loans non-real estate secured.

Retail loans include single family residential and consumer loans. Single family residential includes home equity lines of credit, as well as second trust deeds.
(3) Total gross loans held for investment for September 30, 2017 are net of the unaccreted fair value purchase discounts of $21.6 million.

From time to time, we may purchase or sell loans in order to manage concentrations, maximize interest income, change risk profiles, improve returns and generate liquidity.
The Company makes residential and commercial loans held for investment to customers located primarily in California. Consequently, the underlying collateral for our loans and a borrower’s ability to repay may be impacted unfavorably by adverse changes in the economy and real estate market in the region.
Under applicable laws and regulations, the Bank may not make secured loans to one borrower in excess of 25% of the Bank’s unimpaired capital plus surplus and likewise in excess of 15% of the Bank's unimpaired capital plus surplus for unsecured loans. These loans-to-one borrower limitations result in a dollar limitation of $269.1 million for secured loans and $161.5 million for unsecured loans at September 30, 2017. At September 30, 2017, the Bank’s largest aggregate outstanding balance of loans to one borrower was $45.0 million of secured credit.

Purchased Credit Impaired Loans
The Company has acquired loans as part of its acquisitions of Canyon National Bank in 2011, Palm Desert National Bank in 2012, Independence Bank in 2015, Security Bank of California in 2016 and Heritage Oaks Bank in 2017 for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows:
26
 September 30, 2017 December 31, 2016
 (dollars in thousands)
Business loans:   
Commercial and industrial$2,870
 $2,586
Commercial owner occupied3,019
 491
SBA334
 —
Real estate loans: 
  
Commercial non-owner occupied1,303
 1,088
Multi-family226
 —
One-to-four family257
 1
   Construction/Land973
 —
   Other loans221
 393
Total purchase credit impaired$9,203
 $4,559


On each acquisition date, the amount by which the undiscounted expected cash flows of the purchased credit impaired loans exceed the estimated fair value of the loan is the “accretable yield.” The accretable yield is measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the purchased credit impaired loan. At September 30, 2017, the Company had $9.2 million of purchased credit impaired loans, of which none were placed on nonaccrual status.

The following table summarizespresents the accretable yield oncomposition of the purchased credit impaired loansloan portfolio for the three months ended September 30, 2017, June 30, 2017periods indicated:
March 31,December 31,
(Dollars in thousands)20222021
Investor loans secured by real estate
CRE non-owner-occupied$2,774,650 $2,771,137 
Multifamily6,041,085 5,891,934 
Construction and land303,811 277,640 
SBA secured by real estate42,642 46,917 
Total investor loans secured by real estate9,162,188 8,987,628 
Business loans secured by real estate
CRE owner-occupied2,391,984 2,251,014 
Franchise real estate secured384,267 380,381 
SBA secured by real estate68,466 69,184 
Total business loans secured by real estate2,844,717 2,700,579 
Commercial loans
Commercial and industrial2,242,632 2,103,112 
Franchise non-real estate secured388,322 392,576 
SBA non-real estate secured10,761 11,045 
Total commercial loans2,641,715 2,506,733 
Retail loans
Single family residential79,978 95,292 
Consumer5,157 5,665 
Total retail loans85,135 100,957 
Gross loans held for investment (1)
14,733,755 14,295,897 
Allowance for credit losses for loans held for investment(197,517)(197,752)
Loans held for investment, net$14,536,238 $14,098,145 
Total unfunded loan commitments$2,940,370 $2,507,911 
Loans held for sale, at lower of cost or fair value$11,646 $10,869 

(1) Includes net deferred origination fees of $3.9 million and September 30, 2016$3.5 million, and for the nine months ended September 30, 2017unaccreted fair value net purchase discounts of $71.2 million and 2016:

  Three Months Ended Nine Months Ended
  September 30, 2017 June 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
  
(dollars in thousands)

Balance at the beginning of period $3,497
 $3,601
 $2,981
 $3,747
 $2,726
Additions —
 2,036
 788
 2,036
 788
Accretion (388) (712) (389) (1,729) (665)
Payoffs 39
 —
 —
 39
 (27)
Reclassification from (to) nonaccretable difference —
 (1,428) (1,301) (945) (743)
Balance at the end of period $3,148
 $3,497
 $2,079
 $3,148
 $2,079

Impaired Loans
The following tables provide a summary of the Company’s investment in impaired loans$77.1 million as of the period indicated:March 31, 2022 and December 31, 2021, respectively.



  Impaired Loans
  
Contractual
Unpaid Principal Balance
 Recorded Investment With Specific Allowance Without Specific Allowance Specific Allowance for Impaired Loans
  (dollars in thousands)
September 30, 2017          
Business loans:          
Commercial and industrial $1,760
 $1,003
 $—
 $1,003
 $—
Commercial owner occupied 227
 186
 —
 186
 —
SBA 234
 90
 —
 90
 —
Real estate loans:          
One-to-four family 135
 103
 —
 103
 —
Land 35
 11
 —
 11
 —
Totals $2,391
 $1,393
 $—
 $1,393
 $—
27

  Impaired Loans
  
Contractual
Unpaid Principal Balance
 Recorded Investment With Specific Allowance Without Specific Allowance Specific Allowance for Impaired Loans
  (dollars in thousands)
December 31, 2016  
  
  
  
  
Business loans:  
  
  
  
  
Commercial and industrial $1,990
 $250
 $250
 $—
 $250
Commercial owner occupied 847
 436
 —
 436
 —
SBA 3,865
 316
 —
 316
 —
Real estate loans:  
  
  
  
  
One-to-four family 291
 124
 —
 124
 —
Land 36
 15
 —
 15
 —
Totals $7,029
 $1,141
 $250
 $891
 $250



  Impaired Loans
  Three Months Ended
  September 30, 2017 June 30, 2017 September 30, 2016
  Average Recorded Investment Interest Income Recognized (1) Average Recorded Investment Interest Income Recognized (1) Average Recorded Investment Interest Income Recognized (1)
  (dollars in thousands)
Business loans:            
Commercial and industrial $446
 $7
 $7
 $—
 $1,387
 $16
Franchise —
 —
 —
 —
 974
 16
Commercial owner occupied 170
 3
 125
 2
 518
 9
SBA 85
 2
 222
 4
 381
 7
Real estate loans:            
Commercial non-owner occupied 342
 7
 —
 —
 2,487
 42
One-to-four family 103
 3
 105
 3
 133
 4
Land 11
 —
 12
 1
 17
 1
Totals $1,157
 $22
 $471
 $10
 $5,897
 $95
             
(1) Cash basis and accrual basis is materially the same.
Loans Serviced for Others and Loan Securitization


  Impaired Loans
  Nine Months Ended
  September 30, 2017 September 30, 2016
  Average Recorded Investment Interest Income Recognized (1) Average Recorded Investment Interest Income Recognized (1)
  (dollars in thousands)
Business loans:        
Commercial and industrial $218
 $12
 $682
 $28
Franchise —
 —
 1,355
 68
Commercial owner occupied 162
 8
 510
 27
SBA 204
 10
 217
 11
Real estate loans:        
Commercial non-owner occupied 114
 7
 877
 44
One-to-four family 108
 9
 259
 13
Land 13
 1
 18
 2
Totals $819
 $47
 $3,918
 $193
         
(1) Cash basis and accrual basis is materially the same.



The Company considers a loan to be impaired when, based on current information and events, it is probable thatgenerally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company will be unableinitially records a servicing asset at fair value within its other assets category. Servicing assets are subsequently measured using the amortization method and amortized to collect all amounts due according to the contractual terms of the loan agreement or it is determined that the likelihood of the Company receiving all scheduled payments, including

interest, when due is remote. The Company has no commitments to lend additional funds to debtors whose loans have been impaired.
The Company reviews loansnoninterest income. Servicing assets are evaluated for impairment when the loan is classified as substandard or worse, delinquent 90 days, or determined by management to be collateral dependent, or when the borrower files bankruptcy or is granted a troubled debt restructuring (“TDR”). Measurement of impairment is based on the loan’s expected future cash flows discounted at the loan’s effective interest rate, measured by reference to an observable market value, if one exists, or the fair value of the collateral ifassets as compared to carrying amount. At March 31, 2022 and December 31, 2021, the servicing asset totaled $3.7 million and $3.8 million, respectively, and were included in other assets in the Company’s consolidated statement of financial condition. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At March 31, 2022 and December 31, 2021, the Company determined that no valuation allowance was necessary.
In connection with the acquisition of Opus Bank (“Opus”), the Company acquired Federal Home Loan Mortgage Corporation (“Freddie Mac”) guaranteed structured pass-through certificates, which were issued as a result of Opus’s securitization sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored transaction in December 2016. The Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and reimbursement obligations. Servicing responsibilities on loan is deemed collateral dependent. Allsales generally include obligations to collect and remit payments of principal and interest, provide foreclosure services, manage payments of taxes and insurance premiums, and otherwise administer the underlying loans. In connection with the securitization transaction, Freddie Mac was designated as the master servicer and appointed the Company to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with the exception of the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are generally charged-off atseparately designated to the special servicer, a third-party institution that is independent of the master servicer and the Company. The master servicer has the right to terminate the Company in its role as sub-servicer and direct such timeresponsibilities accordingly.

General representations and warranties associated with loan sales and securitization sales require the loan is classified as a loss. Valuation allowances are determined on a loan-by-loan basis or by aggregating loans with similar risk characteristics.
The following table provides additional detail onCompany to uphold various assertions that pertain to the components of impairedunderlying loans at the period end indicated:
 September 30, 2017 December 31, 2016
 (dollars in thousands)
Nonaccruing loans$515
 $1,141
Accruing loans878
 —
Total impaired loans$1,393
 $1,141

When loanstime of the transaction, including, but not limited to, compliance with relevant laws and regulations, absence of fraud, enforcement of liens, no environmental damages, and maintenance of relevant environmental insurance. Such representations and warranties are placed on nonaccrual status all accrued interest is reversed from earnings. Payments received on nonaccrual loans are generally applied aslimited to those that do not meet the quality represented at the transaction date and do not pertain to a reduction to the loan principal balance. If the likelihood of further loss is remote,decline in value or future payment defaults. In circumstances where the Company will recognize interest on a cash basis only. Loans may be returned to accruing status ifbreaches its representations and warranties, the Company believes that all remainingwould generally be required to cure such instances through a repurchase or substitution of the subject loan(s).

To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the Company is fully collectibleobligated to reimburse Freddie Mac for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date of December 23, 2016. The liability recorded for Company’s exposure to the reimbursement agreement with Freddie Mac was $338,000 as of March 31, 2022 and there has been at least three months of sustained repayment performance since the loan was placed on nonaccrual.December 31, 2021.

The Company doesLoans sold and serviced for others are not accrue interest on loans 90 days or more past due or when,included in the opinionaccompanying consolidated statements of management, there is reasonable doubt as to the collectionfinancial condition. The unpaid principal balance of interest. The Company had impaired loans on nonaccrual status of $515,000and participations serviced for others were $542.4 million at September 30, 2017March 31, 2022 and $1.1$565.8 million at December 31, 2016. The Company had no2021. Included in those totals are multifamily loans 90 days or more past duetransferred through securitization with Freddie Mac of $75.9 million and still accruing$78.1 million at September 30, 2017March 31, 2022 and December 31, 2016.
At September 30, 2017, the Company had a recorded investment in two TDR loans totaling $878,500. The modification2021, respectively, and SBA participations serviced for others of the terms of the first relationship, totaling $775,500, included the restructuring of three loans related to one borrower into one loan$343.9 million and an extension of the maturity to six years. The modification of the terms of the second relationship, totaling $103,000, included the restructuring of two loans related to one borrower into one loan and an extension of the maturity to three years. There were no TDRs$365.6 million at DecemberMarch 31, 2016. In addition, the Company had $41,000 in consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of September 30, 20172022 and December 31, 2016.2021, respectively.

28

Concentration of Credit Risk
 
As of September 30, 2017,March 31, 2022, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located predominately in California. The Company’s loan portfolio contains concentrations of credit in multi-family real estate, commercial non-owner occupied real estatemultifamily, CRE non-owner-occupied, CRE owner-occupied, and commercial owner occupied real estate andC&I business loans. The Bank maintains policies approved by the Bank’s Board of Directors (the “Bank Board”) that address these concentrations and continues to diversifydiversifies its loan portfolio through loan originations, purchases, and sales to meet approved concentration levels. While management believes that

Under applicable laws and regulations, the collateral presently securingBank may not make secured loans to one borrower in excess of 25% of the Bank’s unimpaired capital plus surplus, and likewise in excess of 15% of the Bank’s unimpaired capital plus surplus for unsecured loans. These loans-to-one borrower limitations result in a dollar limitation of $823.3 million for secured loans and $494.0 million for unsecured loans at March 31, 2022. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At March 31, 2022, the Bank’s largest aggregate outstanding balance of loans is adequate, there can be no assurances that a significant deterioration in the California real estate market or economy would not expose the Company to significantly greater credit risk.one borrower was $235.5 million primarily comprised of an asset-based line of credit.
 

Credit Quality and Credit Risk Management
 
The Company’s credit quality is maintained and credit risk managedare controlled in two2 distinct areas. The first is the loan origination process, wherein the Bank underwrites credit quality and chooses which riskstypes and levels of risk it is willing to accept. The Company maintains a credit policy which addresses many related topics, sets forth maximum tolerances for key elements of loan risk, and indicates appropriate protocols for identifying and analyzing these risk elements. The policy sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio-wide basis. The credit policy is reviewed annually by the Bank Board. The Bank’s underwriters ensure all key risk factors are analyzed, with most underwriting including a global cash flow analysis of the prospective borrowers. 
The second area is in the ongoing oversight of the loan portfolio, where existing credit risk is measured and monitored, and where performance issues are dealt with in a timely and comprehensiveappropriate fashion.
The Company maintains a comprehensive credit policy which sets forth minimum and maximum tolerances for key elements of loan risk. The policy identifies and sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio wide basis. The credit policy is reviewed annually by the Bank Board. The Bank’s seasoned underwriters ensure key risk factors are analyzed with nearly all underwriting including a comprehensive global cash flow analysis of the prospective borrowers.
Credit risk is monitored and managed within the loan portfolio by the Company’s portfolio managers based on both the credit policy and a comprehensive credit and portfolio review policy. This latter policy requires a program of financial data collection and analysis, comprehensivethorough loan reviews, property and/or business inspections, and monitoring of portfolio concentrations and trends.trends, and incorporation of current business and economic conditions. The portfolio managers also monitor asset-based lines of credit, loan covenants, and other conditions associated with the Company’s business loans as a means to help identify potential credit risk. IndividualMost individual loans, excluding the homogeneous loan portfolio, are reviewed at least every two years and in most cases, more often,annually, including the assignment or confirmation of a risk grade.
 
Risk grades are based on a six-grade6-grade Pass scale;scale, along with Special Mention, Substandard, Doubtful, and Loss classifications, as such classifications are defined by the federal banking regulatory agencies. The assignment of risk grades allows the Company to, among other things;things, identify the risk associated with each credit in the portfolio and to provide a basis for estimating credit losses inherent in the portfolio. Risk grades are reviewed regularly bywith the Company’s Credit and Portfolio Review committee,Committee, and arethe portfolio management and risk grading process is reviewed annuallyon an ongoing basis by an independent third-party,loan review function, as well as by regulatory agencies during scheduled examinations.
 
29

The following provides brief definitions for risk grades assigned to loans in the portfolio:
 
•Pass classifications represent assets with aan acceptable level of credit quality which containthat contains no well-defined deficiencydeficiencies or weakness.weaknesses.
•Special Mention assets do not currently expose the Bank to a sufficient risk to warrant classification in one of the adverse categories, but possess correctable deficiencies or potential weaknesses deserving management’s close attention.
•Substandard assets are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. These assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. OREO acquired fromthrough foreclosure is also classified as substandard.substandard assets.
•Doubtful credits have all the weaknesses inherent in substandard credits, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
•Loss assets are those that are considered uncollectible and of such little value that their continuance as assets is not warranted. Amounts classified as loss are promptly charged off.


The Bank’s portfolio managers also manage loan performance risks, collections, workouts, bankruptcies, and foreclosures. A special department, whose portfolio managers have professional expertise in these areas, typically handles or advises on these types of matters. Loan performance risks are mitigated by our portfolio managers acting promptly and assertively to address problem credits when they are identified. Collection efforts are commencedcommence immediately upon non-payment, and the portfolio managers seek to promptly determine the appropriate steps to minimize the Company’s risk of loss. When foreclosure will maximize the Company’s recovery for a non-performing loan, the portfolio managers will take appropriate action to initiate the foreclosure process.

 
When a loan is graded as special mention, or substandard, or doubtful, the Company obtains an updated valuation of the underlying collateral. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate properties, and cash. If, through the Company’s credit in questionrisk management process, it is also identified as impaired,determined the ultimate repayment of a valuation allowance, if necessary, is established against such loan or a loss is recognized by a charge towill come from the allowance for loan losses (“ALLL”) if management believes that the full amountforeclosure upon and ultimate sale of the Company’s recorded investment inunderlying collateral, the loan is no longer collectable.deemed collateral dependent and evaluated individually to determine an appropriate ACL for the loan. The ACL for such loans is measured as the amount by which the fair value of the underlying collateral, less estimated costs to sell, is less than the amortized cost of the loan. The Company typically continues to obtain or confirm updated valuations of underlying collateral for special mention and classified loans on an annual or biennial basis in order to have the most current indication of fair value. Oncevalue of the underlying collateral securing the loan. Additionally, once a loan is identified as impaired,collateral dependent, due to the likelihood of foreclosure, and repayment of the loan is expected to come from the eventual sale of the underlying collateral, an analysis of the underlying collateral is performed at least quarterly, and corresponding changesquarterly. Changes in any related valuation allowancethe estimated fair value of the collateral are made or balancesreflected in the lifetime ACL for the loan. Balances deemed to be fully uncollectable are promptly charged-off. However, if a loan is not considered collateral dependent and management determines that the loan no longer possesses risk characteristics similar to other loans in the loan portfolio, the loan is individually evaluated, and the associated ACL is determined through the use of a discounted cash flow analysis.



30

The following tables stratifytable stratifies the loanloans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of the periods indicated:March 31, 2022:

Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied
Pass$176,426 $670,633 $257,088 $403,482 $348,314 $870,240 $9,354 $— $2,735,537 
Special mention— — — — 7,633 2,245 — — 9,878 
Substandard— — — 25,780 — 2,955 500 — 29,235 
Multifamily
Pass465,994 2,279,374 871,658 1,082,386 399,926 940,701 286 — 6,040,325 
Substandard— — — — — 760 — — 760 
Construction and land
Pass46,203 132,985 79,651 28,556 9,027 7,389 — — 303,811 
SBA secured by real estate
Pass1,966 130 496 6,135 6,847 18,215 — — 33,789 
Substandard— — — — 3,282 5,571 — — 8,853 
Total investor loans secured by real estate690,589 3,083,122 1,208,893 1,546,339 775,029 1,848,076 10,140 — 9,162,188 
Business loans secured by real estate
CRE owner-occupied
Pass250,202 830,646 263,304 279,071 143,848 597,055 4,719 — 2,368,845 
Special mention— — — — 764 — — — 764 
Substandard— — 4,673 2,516 5,140 10,046 — — 22,375 
Franchise real estate secured
Pass24,715 156,307 35,974 54,053 36,483 76,735 — — 384,267 
SBA secured by real estate
Pass6,107 7,452 2,357 7,133 4,760 32,189 — — 59,998 
Substandard— — — — 1,888 6,580 — — 8,468 
Total loans secured by business real estate281,024 994,405 306,308 342,773 192,883 722,605 4,719 — 2,844,717 
Commercial loans
Commercial and industrial
Pass77,907 417,259 68,739 185,229 105,770 180,774 1,171,092 2,747 2,209,517 
Special mention— — 339 — — 142 530 — 1,011 
Substandard963 2,317 — 12 1,365 1,621 25,826 — 32,104 
Franchise non-real estate secured
Pass23,582 159,709 23,309 76,734 41,700 43,597 661 — 369,292 
Substandard— — — 1,550 3,517 13,963 — — 19,030 
SBA non-real estate secured
Pass663 467 543 1,861 756 4,752 — — 9,042 
Special mention— — — 66 — — — — 66 
Substandard— — — 75 244 692 642 — 1,653 
Total commercial loans103,115 579,752 92,930 265,527 153,352 245,541 1,198,751 2,747 2,641,715 
31

  Credit Risk Grades
  Pass 
Special
Mention
 Substandard Doubtful 
Total Gross
Loans
September 30, 2017 (dollars in thousands)
Business loans:          
Commercial and industrial $740,405
 $14,694
 $7,992
 $—
 $763,091
Franchise 626,508
 —
 —
 —
 626,508
Commercial owner occupied 784,962
 983
 19,192
 —
 805,137
SBA 117,909
 222
 1,738
 —
 119,869
Agriculture 80,344
 4,433
 1,689
 —
 86,466
Real estate loans:          
Commercial non-owner occupied 1,095,919
 1,985
 1,091
 —
 1,098,995
Multi-family 796,603
 —
 767
 —
 797,370
One-to-four family 276,511
 578
 844
 —
 277,933
Construction and land 324,773
 299
 6,981
 —
 332,053
Farmland 138,409
 61
 2,111
 —
 140,581
Other loans 5,949
 —
 279
 —
 6,228
Totals $4,988,292
 $23,255
 $42,684
 $—
 $5,054,231
Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2022
Retail loans
Single family residential
Pass$— $309 $194 $— $31 $55,677 $23,721 $— $79,932 
Substandard— — — — — 46 — — 46 
Consumer loans
Pass— 10 25 37 10 1,310 3,761 — 5,153 
Substandard— — — 4 — — — — 4 
Total retail loans— 319 219 41 41 57,033 27,482 — 85,135 
Totals gross loans$1,074,728 $4,657,598 $1,608,350 $2,154,680 $1,121,305 $2,873,255 $1,241,092 $2,747 $14,733,755 



The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of December 31, 2021:
Term Loans by Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied
Pass$708,560 $269,944 $393,097 $387,923 $218,388 $730,736 $9,353 $— $2,718,001 
Special mention— — 16,166 7,682 — — — — 23,848 
Substandard— — 25,777 — — 2,998 513 — 29,288 
Multifamily
Pass2,260,708 952,127 1,199,505 444,904 479,029 554,067 286 — 5,890,626 
Substandard— — — 543 — 765 — — 1,308 
Construction and land
Pass119,532 97,721 40,556 12,415 3,857 3,559 — — 277,640 
SBA secured by real estate
Pass130 497 6,259 9,074 12,070 9,198 — — 37,228 
Special mention— — — 957 — 544 — — 1,501 
Substandard— — — 2,343 3,679 2,166 — — 8,188 
Total investor loans secured by real estate3,088,930 1,320,289 1,681,360 865,841 717,023 1,304,033 10,152 — 8,987,628 
Business loans secured by real estate
CRE owner-occupied
Pass853,044 273,469 287,249 161,636 187,130 464,271 6,738 292 2,233,829 
Substandard— — 2,553 6,074 2,966 5,592 — — 17,185 
Franchise real estate secured
Pass156,381 36,335 55,091 40,047 56,288 34,878 1,361 — 380,381 
SBA secured by real estate
Pass6,379 2,364 7,331 9,125 10,734 24,627 — — 60,560 
Special mention— — — — — 62 — — 62 
Substandard— — — 2,062 2,690 3,810 — — 8,562 
Total loans secured by business real estate1,015,804 312,168 352,224 218,944 259,808 533,240 8,099 292 2,700,579 
32

  Credit Risk Grades
  Pass Special
Mention		 Substandard Doubtful Total Gross
Loans
December 31, 2016 (dollars in thousands)
Business loans:  
  
  
    
Commercial and industrial $550,919
 $8,216
 $3,784
 $250
 $563,169
Franchise 459,421
 —
 —
 —
 459,421
Commercial owner occupied 450,416
 281
 4,221
 —
 454,918
SBA 96,190
 53
 462
 —
 96,705
Real estate loans:  
  
  
    
Commercial non-owner occupied 585,093
 810
 1,072
 —
 586,975
Multi-family 681,942
 6,610
 2,403
 —
 690,955
One-to-four family 100,010
 —
 441
 —
 100,451
Construction and land 288,973
 —
 15
 —
 288,988
Other loans 3,719
 —
 393
 —
 4,112
Totals $3,216,683
 $15,970
 $12,791
 $250
 $3,245,694
Term Loans by Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2021
Commercial loans
Commercial and industrial
Pass$425,683 $79,635 $200,234 $117,471 $123,345 $70,789 $1,032,053 $3,371 $2,052,581 
Special mention— — 146 — — 152 14,814 178 15,290 
Substandard1,772 — 14 2,683 863 1,150 27,684 1,075 35,241 
Franchise non-real estate secured
Pass163,865 23,943 85,206 45,061 23,672 31,163 — — 372,910 
Substandard— — 1,589 3,627 13,346 1,104 — — 19,666 
SBA non-real estate secured
Pass474 564 1,292 666 2,806 2,148 — — 7,950 
Special mention— — 681 114 — — — — 795 
Substandard— — 76 339 685 547 653 — 2,300 
Total commercial loans591,794 104,142 289,238 169,961 164,717 107,053 1,075,204 4,624 2,506,733 
Retail loans
Single family residential
Pass313 211 — 32 2,008 68,759 23,920 — 95,243 
Substandard— — — — — 49 — — 49 
Consumer loans
Pass11 28 49 19 11 1,394 4,113 — 5,625 
Substandard— — 5 — — 35 — — 40 
Total retail loans324 239 54 51 2,019 70,237 28,033 — 100,957 
Totals gross loans$4,696,852 $1,736,838 $2,322,876 $1,254,797 $1,143,567 $2,014,563 $1,121,488 $4,916 $14,295,897 



33

The following tables set forthstratify loans held for investment by delinquencies in the Company’s loan portfolio at the dates indicated:
Days Past Due
(Dollars in thousands)Current30-5960-8990+Total
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied$2,762,632 $— $— $12,018 $2,774,650 
Multifamily6,041,085 — — — 6,041,085 
Construction and land303,811 — — — 303,811 
SBA secured by real estate42,642 — — — 42,642 
Total investor loans secured by real estate9,150,170 — — 12,018 9,162,188 
Business loans secured by real estate
CRE owner-occupied2,387,083 — — 4,901 2,391,984 
Franchise real estate secured384,267 — — — 384,267 
SBA secured by real estate68,025 — — 441 68,466 
Total business loans secured by real estate2,839,375 — — 5,342 2,844,717 
Commercial loans
Commercial and industrial2,216,983 25,332 74 243 2,242,632 
Franchise non-real estate secured388,322 — — — 388,322 
SBA not secured by real estate10,119 — — 642 10,761 
Total commercial loans2,615,424 25,332 74 885 2,641,715 
Retail loans
Single family residential79,978 — — — 79,978 
Consumer loans5,157 — — — 5,157 
Total retail loans85,135 — — — 85,135 
Totals$14,690,104 $25,332 $74 $18,245 $14,733,755 
December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied$2,760,882 $— $— $10,255 $2,771,137 
Multifamily5,890,704 1,230 — — 5,891,934 
Construction and land277,640 — — — 277,640 
SBA secured by real estate46,580 — — 337 46,917 
Total investor loans secured by real estate8,975,806 1,230 — 10,592 8,987,628 
Business loans secured by real estate
CRE owner-occupied2,246,062 — — 4,952 2,251,014 
Franchise real estate secured380,381 — — — 380,381 
SBA secured by real estate68,743 — — 441 69,184 
Total business loans secured by real estate2,695,186 — — 5,393 2,700,579 
Commercial loans
Commercial and industrial2,101,558 92 — 1,462 2,103,112 
Franchise non-real estate secured392,576 — — — 392,576 
SBA not secured by real estate10,319 73 — 653 11,045 
Total commercial loans2,504,453 165 — 2,115 2,506,733 
Retail loans
Single family residential95,292 — — — 95,292 
Consumer loans5,665 — — — 5,665 
Total retail loans100,957 — — — 100,957 
Totals$14,276,402 $1,395 $— $18,100 $14,295,897 


34

    Days Past Due   Non-
  Current 30-59 60-89 90+ Total Accruing
September 30, 2017 (dollars in thousands)
Business loans:    
  
  
    
Commercial and industrial $762,588
 $57
 $119
 $327
 $763,091
 $228
Franchise 626,508
 —
 —
 —
 626,508
 —
Commercial owner occupied 804,094
 —
 —
 1,043
 805,137
 83
SBA 118,711
 15
 994
 149
 119,869
 90
  Agriculture 86,466
 —
 —
 —
 86,466
 —
Real estate loans:  
  
  
  
  
  
Commercial non-owner occupied 1,098,995
 —
 —
 —
 1,098,995
 —
Multi-family 797,370
 —
 —
 —
 797,370
 —
One-to-four family 277,107
 416
 310
 100
 277,933
 103
Construction 301,334
 —
 —
 —
 301,334
 —
Farmland 140,581
 —
 —
 —
 140,581
 —
Land 30,709
 —
 —
 10
 30,719
 11
Other loans 6,160
 68
 —
 —
 6,228
 —
Totals $5,050,623
 $556
 $1,423
 $1,629
 $5,054,231
 $515
Individually Evaluated Loans


   
 Days Past Due  
 Non-
  Current 30-59 60-89 90+ Total Accruing
December 31, 2016 (dollars in thousands)
Business loans:  
  
  
  
  
  
Commercial and industrial $562,805
 $104
 $—
 $260
 $563,169
 $250
Franchise 459,421
 —
 —
 —
 459,421
 —
Commercial owner occupied 454,918
 —
 —
 —
 454,918
 436
SBA 96,389
 —
 —
 316
 96,705
 316
Real estate loans:  
  
  
  
  
  
Commercial non-owner occupied 586,975
 —
 —
 —
 586,975
 —
Multi-family 690,955
 —
 —
 —
 690,955
 —
One-to-four family 100,314
 18
 71
 48
 100,451
 124
Construction 269,159
 —
 —
 —
 269,159
 —
Land 19,814
 —
 —
 15
 19,829
 15
Other loans 4,112
 —
 —
 —
 4,112
 —
Totals $3,244,862
 $122
 $71
 $639
 $3,245,694
 $1,141


Note 7 – Allowance for Loan Losses

The Company’s ALLL covers estimatedCompany evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit lossesdeteriorates. Such loans are typically nonperforming, modified through a TDR, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, that are determinedunless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. Changes in the ACL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be impaired as well as estimated credit losses inherentreceived from such loans.

As of March 31, 2022, $55.3 million of loans were individually evaluated with $1.2 million ACL attributed to such loans. At March 31, 2022, $11.8 million of individually evaluated loans were evaluated using a discounted cash flow approach, and $43.5 million of individually evaluated loans were evaluated based on the underlying value of the collateral. All individually evaluated loans were on nonaccrual status at March 31, 2022.

As of December 31, 2021, $31.3 million of loans were individually evaluated, and the ACL attributed to such loans totaled $1.5 million. At December 31, 2021, $12.4 million of individually evaluated loans were evaluated using a discounted cash flow approach, and $18.9 million of individually evaluated loans were evaluated based on the underlying value of the collateral. All individually evaluated loans were on nonaccrual status at December 31, 2021.

Troubled Debt Restructurings

We sometimes modify or restructure loans when the borrower is experiencing financial difficulties by making a concession to the borrower in the remainderform of changes in the amortization terms, reductions in the interest rates, the acceptance of interest-only payments, and, in limited cases, concessions to the outstanding loan portfolio. The ALLLbalances. These loans are classified as TDRs. TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows. A workout plan between us and the borrower is prepareddesigned to provide a bridge for borrower cash flow shortfalls in the near term. In most cases, the Company initially places TDRs on nonaccrual status, and they may return to accrual status when the loans are brought current, have performed in accordance with the historical loss method,restructured contractual terms for a period of at least six months, and the ultimate collectability of the total contractual restructured principal and interest payments are no longer in doubt. At March 31, 2022 and December 31, 2021, the Company had 6 loans totaling $16.9 million and $17.3 million, respectively, modified as TDRs, which are comprised of 3 CRE owner-occupied loans and 1 C&I loan totaling $5.1 million and $5.2 million, respectively, belonging to one borrower relationship with the terms modified due to bankruptcy, and 2 franchise non-real estate secured loans totaling $11.8 million and $12.1 million, respectively, belonging to another borrower relationship with the terms modified for payment deferral. During the three months ended March 31, 2022, the 3 CRE owner-occupied loans and 1 C&I loan classified as TDRs experienced payment defaults after modifications within the previous 12 months and were in payment default. All TDRs were on nonaccrual status as of March 31, 2022 and December 31, 2021. During the three months ended March 31, 2021, there were no loans modified as TDRs and no TDRs that experienced payment defaults after modifications within the previous 12 months.


35

Purchased Credit Deteriorated Loans
The Company analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated loans. Please see Note 3 - Significant Accounting Policies for more information concerning the accounting for PCD loans. The Company had PCD loans of $542.4 million and $567.6 million at March 31, 2022 and December 31, 2021, respectively.

Acquired loans classified as PCD are recorded at an initial amortized cost, which is comprised of the purchase price of the loans (or initial fair value) and the initial ACL determined for the loans, which is added to the purchase price, as well as any resulting discount or premium related to factors other than credit. The Company accounts for interest income on PCD loans using the information provided byinterest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield. Subsequent to acquisition, the ACL for PCD loans is measured in accordance with the Company’s credit reviewACL methodology. Please also see Note 6 - Allowance for Credit Losses for more information concerning the Company’s ACL methodology.

Nonaccrual Loans

When loans are placed on nonaccrual status, previously accrued but unpaid interest is reversed from current period earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is remote, the Company may recognize interest on a cash basis. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least three months of sustained repayment performance since the loan was placed on nonaccrual.

The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. However, when such loans are well secured and in the process togetherof collection, the Company may continue with datathe accrual of interest. The Company had loans on nonaccrual status of $55.3 million at March 31, 2022 and $31.3 million at December 31, 2021. The Company did not record income from peer institutionsthe receipt of cash payments related to nonaccruing loans during the three months ended March 31, 2022, December 31, 2021, and economic information gatheredMarch 31, 2021. The Company had one CRE owner-occupied loan of $1.8 million in default for more than 90 days and still accruing interest, pending a legal proceeding with repayment reasonably expected at March 31, 2022. The Company had no loans 90 days or more past due and still accruing at December 31, 2021.

36

The following tables provide a summary of nonaccrual loans as of the dates indicated:
Nonaccrual Loans (1)
(Dollars in thousands)Collateral Dependent LoansACLNon-Collateral Dependent LoansACLTotal Nonaccrual LoansNonaccrual Loans with No ACL
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied$10,243 $1,152 $— $— $10,243 $2,627 
SBA secured by real estate573 — — — 573 573 
Total investor loans secured by real estate10,816 1,152 — — 10,816 3,200 
Business loans secured by real estate
CRE owner-occupied4,901 — — — 4,901 4,901 
SBA secured by real estate575 — — — 575 575 
Total business loans secured by real estate5,476 — — — 5,476 5,476 
Commercial loans
Commercial and industrial26,588 — — — 26,588 26,588 
Franchise non-real estate secured— — 11,779 — 11,779 11,779 
SBA non-real estate secured642 — — — 642 642 
Total commercial loans27,230 — 11,779 — 39,009 39,009 
Retail loans
Single family residential8 — — — 8 8 
Total retail loans8 — — — 8 8 
Total nonaccrual loans$43,530 $1,152 $11,779 $— $55,309 $47,693 
December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied$10,255 $1,455 $— $— $10,255 $2,640 
SBA secured by real estate937 — — — 937 937 
Total investor loans secured by real estate11,192 1,455 — — 11,192 3,577 
Business loans secured by real estate
CRE owner-occupied4,952 — — — 4,952 4,952 
SBA secured by real estate589 — — — 589 589 
Total business loans secured by real estate5,541 — — — 5,541 5,541 
Commercial loans
Commercial and industrial1,462 — 336 — 1,798 1,797 
Franchise non-real estate secured— — 12,079 — 12,079 12,079 
SBA non-real estate secured653 — — — 653 653 
Total commercial loans2,115 — 12,415 — 14,530 14,529 
Retail loans
Single family residential10 — — — 10 10 
Total retail loans10 — — — 10 10 
Total nonaccrual loans$18,858 $1,455 $12,415 $— $31,273 $23,657 

(1) The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent; otherwise, the ACL for collateral dependent nonaccrual loans is determined based on the estimated fair value of the underlying collateral.

Residential Real Estate Loans In Process of Foreclosure

The Company had no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of March 31, 2022 or December 31, 2021.

37

Collateral Dependent Loans

Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from published sources.the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

The following tables summarize collateral dependent loans by collateral type as of the dates indicated:
(Dollars in thousands)Office PropertiesIndustrial PropertiesRetail PropertiesLand PropertiesHotel PropertiesResidential PropertiesBusiness AssetsTotal
March 31, 2022
Investor loan secured by real estate
CRE non-owner-occupied$— $— $500 $— $9,743 $— $— $10,243 
SBA secured by real estate— — — — 573 — — 573 
Total investor loans secured by real estate— — 500 — 10,316 — — 10,816 
Business loans secured by real estate
CRE owner-occupied— — — 4,901 — — — 4,901 
SBA secured by real estate133 442 — — — — — 575 
Total business loans secured by real estate133 442 — 4,901 — — — 5,476 
Commercial loans
Commercial and industrial— — — 242 — — 26,346 26,588 
SBA non-real estate secured— — — — — — 642 642 
Total commercial loans— — — 242 — — 26,988 27,230 
Retail loans
Single family residential— — — — — 8 — 8 
Total retail loans— — — — — 8 — 8 
Total collateral dependent loans$133 $442 $500 $5,143 $10,316 $8 $26,988 $43,530 

December 31, 2021
Investor loan secured by real estate
CRE non-owner-occupied$— $— $513 $— $9,742 $— $— $10,255 
SBA secured by real estate— — — — 937 — — 937 
Total investor loans secured by real estate— — 513 — 10,679 — — 11,192 
Business loans secured by real estate
CRE owner-occupied— — — 4,952 — — — 4,952 
SBA secured by real estate148 441 — — — — — 589 
Total business loans secured by real estate148 441 — 4,952 — — — 5,541 
Commercial loans
Commercial and industrial— — — 245 — — 1,217 1,462 
SBA non-real estate secured— — — — — — 653 653 
Total commercial loans— — — 245 — — 1,870 2,115 
Retail loans
Single family residential— — — — — 10 — 10 
Total retail loans— — — — — 10 — 10 
Total collateral dependent loans$148 $441 $513 $5,197 $10,679 $10 $1,870 $18,858 
38

Note 6 – Allowance for Credit Losses
 
The Company maintains an ACL for loans and unfunded loan portfolio is segmented into groupscommitments in accordance with ASC 326 - Financial Instruments - Credit Losses. ASC 326 requires the Company to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses at origination or acquisition represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. Each segment possesses varying degreesDetermining the ACL involves the use of risksignificant management judgement and estimates, which are subject to change based on among other things,management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses a discounted cash flow model when determining estimates for the ACL for commercial real estate loans and commercial loans, which comprise the majority of the loan portfolio, and uses a historical loss rate model for retail loans. The Company also utilizes proxy loan data in its ACL model where the Company’s own historical data is not sufficiently available.

The discounted cash flow model is applied on an instrument-by-instrument basis, and for loans with similar risk characteristics, to derive estimates for the lifetime ACL for each loan. The discounted cash flow methodology relies on several significant components essential to the development of estimates for future cash flows on loans and unfunded commitments. These components consist of: (i) the estimated PD, (ii) the estimated LGD, which represents the estimated severity of the loss when a loan is in default, (iii) estimates for prepayment activity on loans, and (iv) the estimated exposure to the Company at default (“EAD”). These components are also heavily influenced by changes in economic forecasts employed in the model over a reasonable and supportable period. The Company’s ACL methodology for unfunded loan commitments also includes assumptions concerning the probability an unfunded commitment will be drawn upon by the borrower. These assumptions are based on the Company’s historical experience.

The Company’s discounted cash flow ACL model for commercial real estate and commercial loans uses internally derived estimates for prepayments in determining the amount and timing of future contractual cash flows expected to be collected. The estimate of future cash flows also incorporates estimates for contractual amounts the Company believes may not be collected, which are based on assumptions for PD, LGD, and EAD. EAD is the estimated outstanding balance of the loan at the time of default. It is determined by the contractual payment schedule and expected payment profile of the loan, incorporating estimates for expected prepayments and future draws on revolving credit facilities. The Company discounts cash flows using the effective interest rate on the loan. The effective interest rate represents the contractual rate on the loan; adjusted for any purchase premiums, purchase discounts, and deferred fees and costs associated with an originated loan. The Company has made an accounting policy election to adjust the effective interest rate to take into consideration the effects of estimated prepayments. The ACL for loans is determined by measuring the amount by which a loan’s amortized cost exceeds its discounted cash flows expected to be collected. The ACL for credit facilities is determined by discounting estimates for cash flows not expected to be collected.

Probability of Default

The PD for investor loans secured by real estate is based largely on a model provided by a third party, using proxy loan information. The PDs generated by this model are reflective of current and expected economic conditions and conditions in the commercial real estate market, and how they are expected to impact loan level and property level attributes, and ultimately the likelihood of a default event occurring. This model also incorporates assumptions for PD at a loan’s maturity. Significant loan and property level attributes include: loan-to-value (“LTV”) ratios, debt service coverage, loan size, loan vintage, and property types.


39

The PD for business loans secured by real estate and commercial loans is based on an internally developed PD rating scale that assigns PDs based on the Company’s internal risk grades for loans. This internally developed PD rating scale is based on a combination of the Company’s own historical data and observed historical data from the Company’s peers, which consist of banks that management believes align with our business profile. As credit risk grades change for these loans, the PD assigned to them also changes. As with investor loans secured by real estate, the PD for business loans secured by real estate and commercial loans is also impacted by current and expected economic conditions.

The Company considers loans to be in default when they are 90 days or more past due and still accruing or placed on nonaccrual status.

Loss Given Default

LGDs for commercial real estate loans are derived from a third party, using proxy loan information, and are based on loan and property level characteristics for loans in the Company’s loan portfolio, such as: LTVs, estimated time to resolution, property size, and current and estimated future market price changes for underlying collateral. The LGD is highly dependent upon LTV ratios, and incorporates estimates for the expense associated with managing the loan through to resolution. LGDs also incorporate an estimate for the loss severity associated with loans where the borrower fails to meet their debt obligation at maturity, such as through a balloon payment or the refinancing of the loan through another lender. External factors that have an impact on LGDs include: changes in the index for CRE pricing, GDP growth rate, unemployment rates, and the Consumer Price Index. LGDs are applied to each loan in the commercial real estate portfolio, and in conjunction with the PD, produce estimates for net cash flows not expected to be collected over the estimated term of the loan.

LGDs for commercial loans are also derived from a third party that has a considerable database of credit related information specific to the financial services industry and the type of loans within this segment, and is used to generate annual default information for commercial loans. These proxy LGDs are dependent upon data inputs such as: credit quality, borrower industry, region, borrower size, and debt seniority. LGDs are then applied to each loan in the commercial segment, and in conjunction with the PD, produce estimates for net cash flows not expected to be collected over the estimated term of the loan.

Historical Loss Rates for Retail Loans
The historical loss rate model for retail loans is derived from a third party that has a considerable database of credit related information for retail loans. Key loan level attributes and economic drivers in determining the loss rate for retail loans include FICO scores, vintage, as well as geography, unemployment rates, and changes in consumer real estate prices.


40

EconomicForecasts

GAAP requires the Company to develop reasonable and supportable forecasts of future conditions, and estimate how those forecasts are expected to impact a borrower’s ability to satisfy their obligation to the Bank and the ultimate collectability of future cash flows over the life of a loan. The Company uses economic scenarios from an independent third party. These scenarios are based on past events, current conditions, and the likelihood of future events occurring. These scenarios typically are comprised of: (1) a base-case scenario, (2) an upside scenario, representing slightly better economic conditions than currently experienced, and (3) a downside scenario, representing recessionary conditions. Management periodically evaluates appropriateness of economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in the Company’s ACL model. The economic scenarios chosen for the model, the extent to which more than one scenario is used, and the weights that are assigned to them, are based on the likelihood that the economy would perform better than each scenario, which is based in part on analysis performed by an independent third-party. Economic scenarios chosen, as well as the assumptions within those scenarios, and whether to use a probability-weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events such as the ongoing COVID-19 pandemic, the war between Russia and Ukraine, and ongoing inflationary pressures throughout the U.S. economy. The Company recognizes the non-linearity of credit losses relative to economic performance and thus the Company believes consideration of, and if appropriate under the circumstances, use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. This approach is based on certain assumptions. The first assumption is that no single forecast of the economy, however detailed or complex, is completely accurate over a reasonable forecast time-frame, and is subject to revisions over time. By considering multiple scenario outcomes and assigning reasonable probability weightings to them, some of the uncertainty associated with a single scenario approach, the Company believes, is mitigated.

As of March 31, 2022, the Company’s ACL model used three weighted scenarios representing a base-case scenario, an upside scenario, and a downside scenario. The weightings assigned to each scenario were as follows: the base-case scenario, or most likely scenario, was assigned a weighting of 40%, while the upside and downside scenarios were each assigned a weighting of 30%. The Company evaluated the weightings of each economic scenario in the current period and determined the current weightings of 40% for the base-case scenario, and 30% for each of the upside and downside scenarios appropriately reflect the likelihood of outcomes for each scenario given the current economic environment. The use of three weighted scenarios at March 31, 2022 and the weighting assigned to each scenario is consistent with the approach used in the Company’s ACL model at December 31, 2021.

Given recent developments in the geopolitical landscape with the war between Russia and Ukraine, ongoing inflationary pressures in the U.S. economy, and general uncertainty surrounding future economic conditions, the Company took into consideration these and other factors when determining the appropriateness of economic scenarios used in the ACL model at March 31, 2022. As a result, the Company used the economic forecast as of December 31, 2021 in the ACL model, which was more reflective of the current economic environment as well as the likelihood of future economic conditions occurring as of March 31, 2022. Further, economic scenarios used in the ACL model include the current and estimated future impact associated with the ongoing COVID-19 pandemic.

The Company currently forecasts PDs and LGDs based on economic scenarios over a two-year period, which we believe is a reasonable and supportable period. Beyond this point, PDs and LGDs revert to their long-term averages. The Company has reflected this reversion over a period of three years in each of its economic scenarios used to generate the overall probability-weighted forecast. Changes in economic forecasts impact the PD, LGD, and EAD for each loan, and therefore influence the amount of future cash flows for each loan the type of collateral, andCompany does not expect to collect.

It is important to note that the Company’s ACL model relies on multiple economic variables, which are used under several economic scenarios. Although no one economic variable can fully demonstrate the sensitivity of the borrower or industryACL calculation to changes in the economic variables used in the model, the Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL.
41

As of March 31, 2022, the Company’s ACL model incorporated the following assumptions for key economic variables in the base-case, upside, and downside scenarios, which are largely unchanged from those used in the ACL model at December 31, 2021:

Base-case Scenario:

•U.S. unemployment declines to 3.5% through the end of 2022 and holds relatively constant at approximately 3.5% throughout 2023.
•U.S. real GDP growth decelerates throughout 2022 from approximately 5.4% to approximately 2.8% by the end of 2022. U.S. real GDP growth accelerates slightly from 2.7% from the beginning of 2023 to 2.8% towards the end of 2023.
•CRE index growth accelerates in 2022 from 0.4% in the second quarter of 2022 to approximately 8.3% by the end of 2022. Growth in the CRE index then decelerates from approximately 11.2% at the beginning of 2023 to 6.8% by the end of 2023.
•The 10-year U.S. Treasury yield ends 2022 at approximately 2.4%, and increases to approximately 3.1% by the end of 2023.

Upside Scenario:

•U.S. unemployment rate declines to approximately 3.1% through the end of 2022 and holds relatively constant at approximately 3.0% throughout 2023.
•U.S. real GDP growth decelerates throughout 2022 from approximately 9.3% to approximately 4.2% by the end of 2022. U.S. real GDP growth decelerates from approximately 4.4% in early 2023 to approximately 1.9% by the end of 2023.
•CRE index growth accelerates in 2022 from approximately 1.9% in the second quarter of 2022 to approximately 14.1% by the end of 2022. Growth in the CRE index then decelerates from approximately 15.0% at the beginning of 2023 to approximately 6.9% by the end of 2023.
•The 10-year U.S. Treasury yield ends 2022 at approximately 2.3%, and then increases to approximately 3.0% by the end of 2023.

Downside Scenario:

•U.S. unemployment rate increases to approximately 8.2% through the end of 2022 and then declines moderately to approximately 8.0% by the end of 2023.
•U.S. real GDP declines decelerate in 2022 from approximately -4.0% in the second quarter to approximately -1.9% by the end of 2023. U.S. real GDP then returns to accelerating growth throughout 2023, with growth of approximately 3.4% by the end of 2023.
•CRE index declines accelerate in 2023 from approximately -3.5% in the second quarter of 2023 to approximately -19.5% by the end of 2023. The CRE index declines decelerate through the third quarter of 2023 from approximately -10.9% to -3.8%. The CRE index then returns to growth in the fourth quarter of 2023.
•The 10-year U.S. Treasury yield ends 2022 at approximately 1.2%, and then increases to approximately 2.1% by the end of 2023.


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Qualitative Adjustments

The Company recognizes that historical information used as the basis for determining future expected credit losses may not always, by itself, provide a sufficient basis for determining future expected credit losses. The Company, therefore, periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as economic conditions. An estimated loss rate calculated usingunderwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is appliedadequacy of the ACL, including an assessment of model data inputs used to each group’s aggregate loan balances.determine the ACL.


The Company’s base ALLL factors are determined by management using the Bank’s annualized actual trailing charge-off data over a full credit cycle (replacing prior period's interval ranging from 8As of March 31, 2022, qualitative adjustments primarily relate to 87 months) with the loss emergence period extending from 1 year to 1.4 years. The aforementioned enhancements did not materially impact the allowance balance at September 30, 2017. Adjustments to those base factors are made for relevant internal and external factors. Those factors may include:
Changes in national, regional and local economic conditions, including trends in real estate values and the interest rate environment,
Changes in the nature and volumecertain segments of the loan portfolio including new typesdeemed by management to be of lending,
Changes in volume and severity of past due loans,a higher-risk profile where management believes the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, and
The existence and effect of concentrations of credit, and changes in the level of such concentrations.

For loans risk graded as watch or worse, progressively higher potential loss factors are applied based on management’s judgment, taking into consideration the specific characteristics of the Bank’s portfolio and analysis of results from a select groupquantitative component of the Company’s peers.ACL model may not have fully captured the associated impact to the ACL. In addition, qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Qualitative adjustments to the ACL were made for SBA investor loans secured by real estate, construction loans, and franchise loans. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.



The following tables summarizeprovides the allocation of the ALLL,ACL for loans held for investment as well as the activity in the ALLLACL attributed to various segments in the loan portfolio as of, and for the periods indicated:

Three Months Ended March 31, 2022
(Dollars in thousands) Beginning ACL Balance Charge-offs RecoveriesProvision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied$37,380 $— $— $(1,406)$35,974 
Multifamily55,209 — — (884)54,325 
Construction and land5,211 — — 8 5,219 
SBA secured by real estate3,201 (70)— (81)3,050 
Business loans secured by real estate
CRE owner-occupied29,575 — 10 2,306 31,891 
Franchise real estate secured7,985 — — (8)7,977 
SBA secured by real estate4,866 — — 329 5,195 
Commercial loans
Commercial and industrial38,136 (2,179)1,841 800 38,598 
Franchise non-real estate secured15,084 — — (780)14,304 
SBA non-real estate secured565 (50)2 (27)490 
Retail loans
Single family residential255 — — (22)233 
Consumer loans285 — — (24)261 
Totals$197,752 $(2,299)$1,853 $211 $197,517 
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Three Months Ended March 31, 2021
(Dollars in thousands) Beginning ACL Balance Charge-offs RecoveriesProvision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied$49,176 $(154)$— $(3,477)$45,545 
Multifamily62,534 — — 17,281 79,815 
Construction and land12,435 — — 828 13,263 
SBA secured by real estate5,159 (265)— 247 5,141 
Business loans secured by real estate
CRE owner-occupied50,517 — 15 (8,938)41,594 
Franchise real estate secured11,451 — — (575)10,876 
SBA secured by real estate6,567 (98)— (18)6,451 
Commercial loans
Commercial and industrial46,964 (1,279)601 (2,913)43,373 
Franchise non-real estate secured20,525 (156)— (1,466)18,903 
SBA non-real estate secured995 — 2 (107)890 
Retail loans
Single family residential1,204 — — (382)822 
Consumer loans491 — — (165)326 
Totals$268,018 $(1,952)$618 $315 $266,999 

The decrease in the ACL for loans held for investment during the three and nine months ended March 31, 2022 of $235,000 was comprised of $446,000 in net charge-offs, partially offset by a $211,000 provision for credit losses. The provision for credit losses for the three months ended March 31, 2022 was reflective of higher loans held for investment and growing economic uncertainties, offset by improved economic forecasts and asset quality.

The decrease in the ACL for loans held for investment during the three months ended March 31, 2021 of $1.0 million is reflective of $1.3 million in net charge-offs, partially offset by a $315,000 provision for credit losses. The provision for credit losses for the three months ended March 31, 2021 was reflective of unfavorable economic conditions and forecasts used in the Company’s ACL model.


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The following tables present PD bands for investor loans secured by real estate, business loans secured by real estate, and commercial loans segments of the loan portfolio as of the dates indicated.

Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00%$176,426 $651,475 $250,051 $369,190 $339,561 $791,623 $9,354 $— $2,587,680 
>5.00% - 10.00%— 8,632 1,141 718 16,386 54,229 — — 81,106 
Greater than 10%— 10,526 5,896 59,354 — 29,588 500 — 105,864 
Multifamily
0% - 5.00%461,776 2,251,232 865,755 1,057,766 398,127 926,880 286 — 5,961,822 
>5.00% - 10.00%4,218 23,077 5,903 24,620 1,799 14,581 — — 74,198 
Greater than 10%— 5,065 — — — — — — 5,065 
Construction and Land
0% - 5.00%45,018 106,397 62,442 15,840 5,618 7,389 — — 242,704 
>5.00% - 10.00%1,185 23,088 13,821 4,815 — — — — 42,909 
Greater than 10%— 3,500 3,388 7,901 3,409 — — — 18,198 
SBA secured by real estate
0% - 5.00%1,966 130 496 6,135 10,129 23,213 — — 42,069 
>5.00% - 10.00%— — — — — — — — — 
Greater than 10%— — — — — 573 — — 573 
Total investor loans secured by real estate690,589 3,083,122 1,208,893 1,546,339 775,029 1,848,076 10,140 — 9,162,188 
Business loans secured by real estate
CRE owner-occupied
0% - 5.00%250,202 830,646 263,304 279,071 143,848 597,055 4,719 — 2,368,845 
>5.00% - 10.00%— — — — 764 — — — 764 
Greater than 10%— — 4,673 2,516 5,140 10,046 — — 22,375 
Franchise real estate secured
0% - 5.00%24,715 152,674 35,974 54,053 35,233 73,922 — — 376,571 
>5.00% - 10.00%— 1,245 — — 1,250 2,813 — — 5,308 
Greater than 10%— 2,388 — — — — — — 2,388 
SBA secured by real estate
0% - 5.00%6,107 7,452 1,596 5,785 3,459 22,774 — — 47,173 
>5.00% - 10.00%— — 761 1,348 1,302 9,414 — — 12,825 
Greater than 10%— — — — 1,887 6,581 — — 8,468 
Total business loans secured by real estate281,024 994,405 306,308 342,773 192,883 722,605 4,719 — 2,844,717 
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Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2022
Commercial loans
Commercial and industrial
0% - 5.00%75,796 410,671 67,470 178,211 101,951 177,185 854,129 1,247 1,866,660 
>5.00% - 10.00%2,111 6,964 1,608 7,018 3,819 3,589 317,797 — 342,906 
Greater than 10%963 1,941 — 12 1,365 1,763 25,522 1,500 33,066 
Franchise non-real estate secured
0% - 5.00%23,120 158,940 15,289 62,490 36,456 35,717 555 — 332,567 
>5.00% - 10.00%462 769 8,020 14,244 5,244 7,306 106 — 36,151 
Greater than 10%— — — 1,550 3,517 14,537 — — 19,604 
SBA not secured by real estate
0% - 5.00%663 467 477 87 266 2,451 — — 4,411 
>5.00% - 10.00%— — 66 1,775 490 2,301 — — 4,632 
Greater than 10%— — — 140 244 692 642 — 1,718 
Total commercial loans$103,115 $579,752 $92,930 $265,527 $153,352 $245,541 $1,198,751 $2,747 $2,641,715 

Term Loans by Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00%$654,823 $233,718 $375,691 $392,892 $193,762 $682,357 $4,022 $— $2,537,265 
>5.00% - 10.00%37,931 22,965 9,174 2,713 23,559 23,707 5,331 — 125,380 
Greater than 10%15,806 13,261 50,175 — 1,067 27,670 513 — 108,492 
Multifamily
0% - 5.00%2,242,420 929,964 1,174,859 442,410 470,107 548,156 286 — 5,808,202 
>5.00% - 10.00%13,226 7,393 24,646 1,807 8,922 6,676 — — 62,670 
Greater than 10%5,062 14,770 — 1,230 — — — — 21,062 
Construction and land
0% - 5.00%110,545 81,029 23,030 8,321 3,857 3,559 — — 230,341 
>5.00% - 10.00%5,500 14,264 9,931 4,094 — — — — 33,789 
Greater than 10%3,487 2,428 7,595 — — — — — 13,510 
SBA secured by real estate
0% - 5.00%130 497 6,259 12,374 15,149 11,572 — — 45,981 
>5.00% - 10.00%— — — — — — — — — 
Greater than 10%— — — — 600 336 — — 936 
Total investor loans secured by real estate3,088,930 1,320,289 1,681,360 865,841 717,023 1,304,033 10,152 — 8,987,628 
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Term Loans by Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2021
Business loans secured by real estate
CRE owner-occupied
0% - 5.00%853,044 273,469 287,249 161,635 187,130 456,170 6,738 292 2,225,727 
>5.00% - 10.00%— — — — — 8,101 — — 8,101 
Greater than 10%— — 2,553 6,075 2,966 5,592 — — 17,186 
Franchise real estate secured
0% - 5.00%154,009 36,335 55,091 37,559 53,519 33,635 1,361 — 371,509 
>5.00% - 10.00%843 — — 2,488 2,769 1,243 — — 7,343 
Greater than 10%1,529 — — — — — — — 1,529 
SBA secured by real estate
0% - 5.00%6,379 2,364 6,040 8,986 8,718 16,947 — — 49,434 
>5.00% - 10.00%— — 1,291 139 2,006 7,681 — — 11,117 
Greater than 10%— — — 2,062 2,700 3,871 — — 8,633 
Total business loans secured by real estate1,015,804 312,168 352,224 218,944 259,808 533,240 8,099 292 2,700,579 
Commercial loans
Commercial and industrial
0% - 5.00%417,780 77,755 192,478 114,593 120,869 67,194 680,662 3,380 1,674,711 
>5.00% - 10.00%8,349 1,880 7,757 2,878 2,476 3,595 375,829 341 403,105 
Greater than 10%1,326 — 159 2,683 863 1,302 18,060 903 25,296 
Franchise non-real estate secured
0% - 5.00%155,064 18,370 64,503 39,389 21,483 21,524 — — 320,333 
>5.00% - 10.00%8,801 5,573 20,703 5,672 2,189 8,840 — — 51,778 
Greater than 10%— — 1,589 3,627 13,346 1,903 — — 20,465 
SBA not secured by real estate
0% - 5.00%474 564 1,088 370 732 1,636 — — 4,864 
>5.00% - 10.00%— — 205 410 2,074 512 — — 3,201 
Greater than 10%— — 756 339 685 547 653 — 2,980 
Total commercial loans$591,794 $104,142 $289,238 $169,961 $164,717 $107,053 $1,075,204 $4,624 $2,506,733 
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A significant driver in the ACL for loans in the investor real estate secured and business real estate secured segments is estimated LTV ratio. The following tables summarize the amortized cost of loans in these segments by current estimated LTV and by year of origination as of the dates indicated:
Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied
55% and below$80,360 $370,848 $138,963 $182,092 $166,633 $592,412 $9,854 — $1,541,162 
>55-65%88,510 238,821 90,596 154,776 54,175 250,482 — — 877,360 
>65-75%7,556 60,735 27,529 56,266 130,804 27,166 — — 310,056 
Greater than 75%— 229 — 36,128 4,335 5,380 — — 46,072 
Multifamily
55% and below111,585 409,021 197,947 256,819 169,113 449,182 286 — 1,593,953 
>55-65%209,094 944,247 367,310 466,705 194,097 348,010 — — 2,529,463 
>65-75%142,824 896,113 303,401 353,096 36,716 134,308 — — 1,866,458 
Greater than 75%2,491 29,993 3,000 5,766 — 9,961 — — 51,211 
Construction and land
55% and below46,203 129,135 79,651 10,675 4,155 7,389 — — 277,208 
>55-65%— 3,850 — 8,916 4,872 — — — 17,638 
>65-75%— — — 8,965 — — — — 8,965 
Greater than 75%— — — — — — — — — 
SBA secured by real estate
55% and below1,966 — — — 1,469 2,908 — — 6,343 
>55-65%— — — 2,392 1,941 4,307 — — 8,640 
>65-75%— 130 — 2,654 3,113 7,158 — — 13,055 
Greater than 75%— — 496 1,089 3,606 9,413 — — 14,604 
Total investor loans secured by real estate690,589 3,083,122 1,208,893 1,546,339 775,029 1,848,076 10,140 — 9,162,188 
Business loan secured by real estate
CRE owner-occupied
55% and below121,356 401,001 109,427 104,982 79,468 450,860 4,719 — 1,271,813 
>55-65%59,295 202,766 52,624 63,290 29,886 107,522 — — 515,383 
>65-75%60,334 190,253 105,172 103,746 35,344 32,545 — — 527,394 
Greater than 75%9,217 36,626 754 9,569 5,054 16,174 — — 77,394 
Franchise real estate secured
55% and below17,475 39,481 16,725 14,418 12,385 23,380 — — 123,864 
>55-65%— 45,789 11,986 3,995 7,313 12,726 — — 81,809 
>65-75%1,792 33,932 5,426 32,540 9,235 35,728 — — 118,653 
Greater than 75%5,448 37,105 1,837 3,100 7,550 4,901 — — 59,941 
SBA secured by real estate
55% and below1,040 2,508 589 1,646 962 17,411 — — 24,156 
>55-65%— 724 555 199 1,454 9,264 — — 12,196 
>65-75%— 1,178 327 3,465 647 7,823 — — 13,440 
Greater than 75%5,067 3,042 886 1,823 3,585 4,271 — — 18,674 
Total business loans secured by real estate$281,024 $994,405 $306,308 $342,773 $192,883 $722,605 $4,719 $— $2,844,717 
48


Term Loans by Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied
55% and below$366,617 $141,752 $184,553 $171,879 $130,679 $533,990 $9,866 $— $1,539,336 
>55-65%277,092 91,539 155,908 86,933 79,043 172,713 — — 863,228 
>65-75%64,619 36,653 58,350 131,975 5,662 25,446 — — 322,705 
Greater than 75%232 — 36,229 4,818 3,004 1,585 — — 45,868 
Multifamily
55% and below397,562 226,129 285,520 181,826 197,276 279,880 286 — 1,568,479 
>55-65%932,115 416,712 510,840 219,710 185,773 198,802 — — 2,463,952 
>65-75%906,910 306,272 391,686 41,174 94,142 67,964 — — 1,808,148 
Greater than 75%24,121 3,014 11,459 2,737 1,838 8,186 — — 51,355 
Construction and land
55% and below116,575 95,293 26,501 4,172 3,857 3,559 — — 249,957 
>55-65%2,957 2,428 5,095 6,650 — — — — 17,130 
>65-75%— — 8,960 1,593 — — — — 10,553 
Greater than 75%— — — — — — — — — 
SBA secured by real estate
55% and below— — — 632 693 2,159 — — 3,484 
>55-65%— — 2,399 1,950 1,903 3,595 — — 9,847 
>65-75%130 — 2,767 3,630 4,444 4,346 — — 15,317 
Greater than 75%— 497 1,093 6,162 8,709 1,808 — — 18,269 
Total investor loans secured by real estate3,088,930 1,320,289 1,681,360 865,841 717,023 1,304,033 10,152 — 8,987,628 
Business loan secured by real estate
CRE owner-occupied
55% and below400,857 95,504 107,766 87,779 134,184 347,926 6,738 292 1,181,046 
>55-65%214,798 67,639 60,192 32,283 35,513 80,347 — — 490,772 
>65-75%188,022 78,589 112,217 41,874 12,241 25,460 — — 458,403 
Greater than 75%49,367 31,737 9,627 5,774 8,158 16,130 — — 120,793 
Franchise real estate secured
55% and below32,189 16,889 8,954 12,469 9,163 14,552 1,361 — 95,577 
>55-65%47,521 3,603 10,270 7,442 4,749 9,349 — — 82,934 
>65-75%39,409 13,991 32,743 11,289 29,641 9,768 — — 136,841 
Greater than 75%37,262 1,852 3,124 8,847 12,735 1,209 — — 65,029 
SBA secured by real estate
55% and below4,333 590 1,821 1,123 4,512 14,850 — — 27,229 
>55-65%452 555 199 954 1,524 8,497 — — 12,181 
>65-75%1,082 328 3,478 5,208 4,853 2,793 — — 17,742 
Greater than 75%512 891 1,833 3,902 2,535 2,359 — — 12,032 
Total business loans secured by real estate$1,015,804 $312,168 $352,224 $218,944 $259,808 $533,240 $8,099 $292 $2,700,579 
49

The following tables present the FICO bands, at origination, for the retail segment of the loan portfolio as of the dates indicated:
Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2022
Retail loans
Single family residential
Greater than 740$— $309 $194 $— $— $30,820 $18,657 — $49,980 
>680 - 740— — — — 31 5,410 4,278 — 9,719 
>580 - 680— — — — — 6,651 755 — 7,406 
Less than 580— — — — — 12,842 31 — 12,873 
Consumer loans
Greater than 740— 7 25 26 10 929 1,847 — 2,844 
>680 - 740— 3 — 11 — 330 1,852 — 2,196 
>580 - 680— — — 4 — 51 46 — 101 
Less than 580— — — — — — 16 — 16 
Total retail loans$— $319 $219 $41 $41 $57,033 $27,482 $— $85,135 

December 31, 2021
Retail loans
Single family residential
Greater than 740$313 $211 $— $— $1,446 $40,605 $17,553 — $60,128 
>680 - 740— — — 32 103 7,602 5,579 — 13,316 
>580 - 680— — — — 450 6,989 756 — 8,195 
Less than 580— — — — 9 13,612 32 — 13,653 
Consumer loans
Greater than 7407 28 32 19 9 944 2,196 — 3,235 
>680 - 7404 — 17 — 2 431 1,859 — 2,313 
>580 - 680— — 5 — — 54 42 — 101 
Less than 580— — — — — — 16 — 16 
Total retail loans$324 $239 $54 $51 $2,019 $70,237 $28,033 $— $100,957 

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an ACL on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. The allowance for off-balance sheet commitments was $27.5 million at March 31, 2022, $27.3 million at December 31, 2021, and $32.8 million at March 31, 2021. The provision expense for off-balance sheet commitments of $218,000 during the three months ended March 31, 2022 was related primarily to the increase in off-balance sheet commitments. The provision expense of $1.7 million during the three months ended March 31, 2021 related primarily to an increase in outstanding unfunded loan commitments in conjunction with continued unfavorable economic conditions and forecasts reflected in the Company’s CECL model.

The Company applies an expected credit loss estimation methodology for off-balance sheet commitments that is largely commensurate with the methodology applied to each respective segment of the loan portfolio in determining the ACL for loans held-for-investment. The loss estimation process includes assumptions for utilization at default. These assumptions are based on the Company’s own historical internal loan data.

50

Note 7 – Goodwill and Other Intangible Assets

The Company had goodwill of $901.3 million at March 31, 2022 and December 31, 2021, respectively. The Company recorded adjustments to goodwill associated with the acquisition of Opus in the amount of $1.6 million during the first three months of 2021, within the one-year measurement period subsequent to the acquisition date of June 1, 2020. These adjustments largely relate to the finalization of the short-year Opus tax returns. During the second quarter of 2021, the Company finalized its fair value analysis of the acquired assets and assumed liabilities associated with the Opus acquisition.

The following table summarizes the change in the balance of goodwill for the periods indicated:indicated below:

Three Months Ended
March 31,December 31,March 31,
 (Dollars in thousands)202220212021
Beginning balance$901,312 $901,312 $898,569 
Purchase accounting adjustments— — 1,635 
Ending balance$901,312 $901,312 $900,204 
Accumulated impairment losses at end of period$— $— $— 

The Company’s policy is to assess goodwill for impairment on an annual basis during the fourth quarter of each year, and more frequently if events or circumstances lead management to believe the value of goodwill may be impaired.

Other intangible assets with definite lives were $66.0 million at March 31, 2022, consisting of $63.4 million in core deposit intangibles and $2.6 million in customer relationship intangibles. At December 31, 2021, other intangibles assets were $69.6 million, consisted of $66.9 million in core deposit intangibles and $2.7 million in customer relationship intangibles. The following table summarizes the change in the balance of core deposit intangibles and customer relationship intangibles, and the related accumulated amortization for the periods indicated below:
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202220212021
Gross amount of intangible assets:
Beginning balance$145,212 $145,212 $145,212 
Additions due to acquisitions— — — 
Ending balance145,212 145,212 145,212 
Accumulated amortization:
Beginning balance(75,641)(71,761)(59,705)
Amortization(3,593)(3,880)(4,143)
Ending balance(79,234)(75,641)(63,848)
Net intangible assets$65,978 $69,571 $81,364 


51

 Three Months Ended September 30, 2017
 Commercial and industrial Franchise Commercial owner occupied SBA Agriculture Commercial non-owner occupied Multi-family One-to-four family Construction Farmland Land Other loans Total
 (dollars in thousands)
Balance, June 30, 2017$7,644
 $5,367
 $672
 $2,519
 $206
 $1,204
 $611
 $724
 $5,036
 $28
 $959
 $85
 $25,055
Charge-offs(32) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (32)
Recoveries15
 —
 12
 42
 —
 —
 —
 2
 —
 —
 —
 —
 71
Provisions for (reduction in) loan losses682
 452
 131
 409
 (37) 116
 47
 120
 104
 64
 (15) (24) 2,049
Balance, September 30, 2017$8,309
 $5,819
 $815
 $2,970
 $169
 $1,320
 $658
 $846
 $5,140
 $92
 $944
 $61
 $27,143
                          
 Nine Months Ended September 30, 2017
 Commercial and industrial Franchise Commercial owner occupied SBA Agriculture Commercial non-owner occupied Multi-family One-to-four family Construction Farmland Land Other loans Total
 (dollars in thousands)
Balance, December 31, 2016$6,362
 $3,845
 $1,193
 $1,039
 $—
 $1,715
 $2,927
 $365
 $3,632
 $—
 $198
 $20
 $21,296
Charge-offs(894) —
 —
 (8) —
 —
 —
 —
 —
 —
 —
 —
 (902)
Recoveries70
 —
 94
 125
 —
 —
 —
 4
 —
 —
 —
 1
 294
Provisions for (reduction in) loan losses2,771
 1,974
 (472) 1,814
 169
 (395) (2,269) 477
 1,508
 92
 746
 40
 6,455
Balance, September 30, 2017$8,309
 $5,819
 $815
 $2,970
 $169
 $1,320
 $658
 $846
 $5,140
 $92
 $944
 $61
 $27,143
                          
Amount of allowance attributed to: 
    
  
    
  
  
  
    
  
  
Specifically evaluated impaired loans$—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
The Company amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case of customer relationship intangibles. The amortization periods typically range from six to eleven years. The estimated aggregate amortization expense related to our core deposit intangible and customer relationship intangible assets for each of the next five years succeeding December 31, 2021, in order from the present, is $14.0 million, $12.3 million, $11.1 million, $10.0 million, and $8.9 million. The Company’s core deposit and customer relationship intangibles are evaluated annually for impairment or more frequently if events and circumstances lead management to believe their value may not be recoverable. Factors that may ultimately attribute to impairment include customer attrition and run-off. The Company is unaware of any events and/or circumstances that would indicate a possible impairment in the values of core deposit intangible assets and customer relationship intangible assets as of March 31, 2022.


General portfolio allocation8,309
 5,819
 815
 2,970
 169
 1,320
 658
 846
 5,140
 92
 944
 61
 27,143
Loans individually evaluated for impairment228
 —
 83
 90
 —
 —
 —
 103
 11
 —
 —
 —
 515
Specific reserves to total loans individually evaluated for impairment—% —% —% —% —% —% —% —% —% —% —% —% —%
Loans collectively evaluated for impairment$762,863
 $626,508
 $805,054
 $107,121
 $86,466
 $1,098,995
 $797,370
 $246,145
 $301,323
 $140,581
 $30,719
 $6,228
 $5,009,373
General reserves to total loans collectively evaluated for impairment1.09% 0.93% 0.10% 2.77% 0.20% 0.12% 0.08% 0.34% 1.71% 0.07% 3.07% 0.98% 0.54%
Total gross loans held for investment$763,091
 $626,508
 $805,137
 $107,211
 $86,466
 $1,098,995
 $797,370
 $246,248
 $301,334
 $140,581
 $30,719
 $6,228
 $5,009,888
Total allowance to gross loans held for investment1.09% 0.93% 0.10% 2.77% 0.20% 0.12% 0.08% 0.34% 1.71% 0.07% 3.07% 0.98% 0.54%


 Three Months Ended September 30, 2016
 Commercial and industrial Franchise Commercial owner occupied SBA Warehouse Facilities Commercial non-owner occupied Multi-family One-to-four family Construction Land Other loans Total
 (dollars in thousands)
Balance, June 30, 2016$4,485
 $3,252
 $2,141
 $1,559
 $—
 $2,104
 $2,334
 $607
 $2,245
 $204
 $24
 $18,955
Charge-offs(302) (811) —
 (153) —
 —
 —
 —
 —
 —
 —
 (1,266)
Recoveries13
 —
 8
 106
 —
 —
 —
 14
 —
 —
 —
 141
Provisions for (reduction in) loan losses1,909
 1,521
 (1,040) 777
 —
 (393) 518
 (166) 921
 (32) (2) 4,013
Balance, September 30, 2016$6,105
 $3,962
 $1,109
 $2,289
 $—
 $1,711
 $2,852
 $455
 $3,166
 $172
 $22
 $21,843
                        
 Nine Months Ended September 30, 2016
 Commercial and industrial Franchise Commercial owner occupied SBA Warehouse Facilities Commercial non-owner occupied Multi-family One-to-four family Construction Land Other loans Total
 (dollars in thousands)
Balance, December 31, 2015$3,449
 $3,124
 $1,870
 $1,500
 $759
 $2,048
 $1,583
 $698
 $2,030
 $233
 $23
 $17,317

Charge-offs(1,012) (980) (329) (158) —
 —
 —
 (7) —
 —
 —
 (2,486)
Recoveries67
 —
 8
 191
 —
 —
 —
 20
 —
 —
 4
 290
Provisions for (reduction in) loan losses3,601
 1,818
 (440) 756
 (759) (337) 1,269
 (256) 1,136
 (61) (5) 6,722
Balance, September 30, 2016$6,105
 $3,962
 $1,109
 $2,289
 $—
 $1,711
 $2,852
 $455
 $3,166
 $172
 $22
 $21,843
                        
Amount of allowance attributed to:                       
Specifically evaluated impaired loans$1,990
 $—
 $73
 $354
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $2,417
General portfolio allocation4,115
 3,962
 1,036
 1,935
 —
 1,711
 2,852
 455
 3,166
 172
 22
 19,426
Loans individually evaluated for impairment1,990
 —
 606
 503
 —
 2,487
 —
 131
 —
 17
 —
 5,734
Specific reserves to total loans individually evaluated for impairment100.00% —% 12.05% 70.38% —% —% —% —% —% —% —% 42.15%
Loans collectively evaluated for impairment$535,819
 $431,618
 $459,462
 $82,683
 $—
 $524,925
 $689,813
 $101,246
 $231,098
 $18,455
 $5,678
 $3,080,797
General reserves to total loans collectively evaluated for impairment0.77% 0.92% 0.23% 2.34% —% 0.33% 0.41% 0.45% 1.37% 0.93% 0.39% 0.63%
Total gross loans held for investment$537,809
 $431,618
 $460,068
 $83,186
 $—
 $527,412
 $689,813
 $101,377
 $231,098
 $18,472
 $5,678
 $3,086,531
Total allowance to gross loans held for investment1.14% 0.92% 0.24% 2.75% —% 0.32% 0.41% 0.45% 1.37% 0.93% 0.39% 0.71%



Note 8 – Subordinated Debentures

In August 2014,As of March 31, 2022, the Corporation issued $60Company had 3 issuances of subordinated notes with an aggregate carrying value of $330.7 million in aggregate principal amount of 5.75% Subordinated Notes Due 2024 (the “Notes”) inand a private placement transaction to institutional accredited investors (the “Private Placement”). The Corporation contributed $50 million of net proceeds from the Private Placement to the Bank to support general corporate purposes. The Notes bearweighted interest at an annual fixed rate of 5.75%5.32%, and the firstcompared to $330.6 million with a weighted interest payment on the Notes occurred on March 3, 2015, and will continue to be payable semiannually each March 3 and September 3 until September 3, 2024. rate of 5.33% at December 31, 2021.

The Notes can only be redeemed, partially or in whole, prior to the maturity date if the notes do not constitute Tier 2 Capital (for purposes of capital adequacy guidelinesfollowing table summarizes our outstanding subordinated debentures as of the Board of Governors of the Federal Reserve). Outstanding principal and accrued and unpaid interest are due upon early redemption.dates indicated:
 March 31, 2022December 31, 2021
(Dollars in thousands)Stated MaturityCurrent Interest RateCurrent Principal BalanceCarrying Value
Subordinated notes
Subordinated notes due 2024, 5.75% per annumSeptember 3, 20245.75 %$60,000 $59,701 $59,671 
Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month LIBOR +2.5% thereafterMay 15, 20294.875 %125,000 123,195 123,132 
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.170% thereafterJune 15, 20305.375 %150,000 147,830 147,764 
Total subordinated debentures$335,000 $330,726 $330,567 

In connection with the Private Placement,various issuances of subordinated notes, the Corporation obtained ratings from Kroll Bond Rating Agency (“KBRA”). KBRA assigned investment grade ratings of BBB+ and BBB for the Corporation’s senior unsecured debt and subordinated debt, respectively, and a deposit and senior depositunsecured debt rating of A- and subordinated debt of BBB+ for the Bank. TheseThe Corporation’s and Bank’s ratings were reaffirmed in June 2021 by KBRA on October 27, 2017.KBRA.

In March 2004, the Corporation issued $10.3 million of Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures”) to PPBI Trust I, which funded the payment of $10 million of Floating Rate Trust Preferred Securities (“Trust Preferred Securities”) issued by PPBI Trust I in March 2004 due April 7, 2034. The net proceeds from the offering of Trust Preferred Securities were contributed as capital to the Bank to support further growth. Interest is payable quarterly on the Subordinated Debentures at three-month LIBOR plus 2.75% per annum, for an effective rate of 4.05% per annum as of September 30, 2017.

On April 1, 2017, as part of the Heritage Oaks acquisition, the Corporation assumed $5.2 million of floating rate junior subordinated debt securities associated with Heritage Oaks Capital Trust II. Interest is payable quarterly at three-month LIBOR plus 1.72% per annum, for an effective rate of 3.02% per annum as of September 30, 2017. At September 30, 2017, the carrying value of these debentures was $3.9 million, which reflects purchase accounting fair value adjustments of $1.3 million. The Corporation also assumed $3.1 million and $5.2 million of floating rate junior subordinated debt associated with Mission Community Capital Trust I and Santa Lucia Bancorp (CA) Capital Trust, respectively. At September 30, 2017, the carrying value of Mission Community Capital Trust I and Santa Lucia Bancorp (CA) Capital Trust were $2.8 million and $3.7 million, respectively, which reflects purchase accounting fair value adjustments of $332,000 and $1.4 million, respectively. Interest is payable quarterly at three-month LIBOR plus 2.95% per annum, for an effective rate of 4.25% per annum as of September 30, 2017 for Mission Community Capital Trust I. Interest is payable quarterly at three-month LIBOR plus 1.48% per annum, for an effective rate of 2.78% per annum as of September 30, 2017 for Santa Lucia Bancorp (CA) Capital Trust. These three debentures are callable by the Corporation at par.

The Corporation is not allowed to consolidate any trust preferred securities into the Company’s consolidated financial statements. The resulting effectFor additional information on the Company’s consolidated financial statements issubordinated debentures, see “Note 13 — Subordinated Debentures” to report only the Subordinated Debentures as a componentConsolidated Financial Statements of the Company’s liabilities.2021 Form 10-K. 

For regulatory capital purposes, subordinated notes qualify as Tier 2 capital. The regulatory total capital ratios of the Company and the Bank continued to exceed regulatory minimums, inclusive fully phased-in capital conservation buffer.

52

Note 9 – Earnings Perper Share
 
The Company’s restricted stock awards contain non-forfeitable rights to dividends and therefore are considered participating securities. The Company calculates basic and diluted earnings per common share using the two-class method.

Under the two-class method, distributed and undistributed earnings allocable to participating securities are deducted from net income to determine net income allocable to common shareholders, which is then used in the numerator of both basic and diluted earnings per share calculations. Basic earnings per common share excludes dilution and is computed by dividing net income or loss availableallocable to common stockholdersshareholders by the weighted average number of common shares outstanding for the reporting period, excluding common shares in treasury.outstanding participating securities. Diluted earnings per common share reflectsis computed by dividing net income allocable to common shareholders by the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuanceweighted average number of common stock that would then share in earnings and excludesshares outstanding over the reporting period, adjusted to include the effect of potentially dilutive common shares, in treasury. Stock options exercisable for shares of common stock are excluded from thebut excludes awards considered participating securities. The computation of diluted earnings per common share if they areexcludes the impact of the assumed exercise or issuance of securities that would have an anti-dilutive due to their exercise price exceeding the average market price during the period.effect.


The impact offollowing tables set forth the Corporation’s earnings per share calculations for the periods indicated:
 Three Months Ended
(Dollars in thousands, except per share data)March 31, 2022December 31, 2021March 31, 2021
Basic
Net income$66,904 $84,831 $68,668 
Less: dividends and undistributed earnings allocated to participating securities(685)(876)(665)
Net income allocated to common stockholders$66,219 $83,955 $68,003 
Weighted average common shares outstanding93,499,695 93,415,304 93,529,147 
Basic earnings per common share$0.71 $0.90 $0.73 
Diluted
Net income allocated to common stockholders$66,219 $83,955 $68,003 
Weighted average common shares outstanding93,499,695 93,415,304 93,529,147 
Diluted effect of share-based compensation446,379 491,187 564,497 
Weighted average diluted common shares93,946,074 93,906,491 94,093,644 
Diluted earnings per common share$0.70 $0.89 $0.72 

Shares or stock options which are anti-dilutive are excluded from the computations of diluteddilutive earnings per share.share when their inclusion have an anti-dilutive effect. The dilutive impact of these securities could be included in future computations of diluted earnings per share if the market price of the common stock increases. The following table sets forthFor the weighted average number of stock options excluded for the periods indicated:three months ended March 31, 2022, December 31, 2021, and March 31, 2021 there were no potential common shares that were anti-dilutive.

53
 Three Months Ended Nine Months Ended
 September 30, June 30, September 30, September 30,
 2017 2017 2016 2017 2016
          
Weighted average stock options excluded10,036
 29,513
 5,000
 12,192
 136,951

The following tables set forth the Company’s earnings per share calculations for the periods indicated:

 Three Months Ended
 September 30, 2017 June 30, 2017 September 30, 2016
 Net
Income		 Shares Per Share
Amount		 Net
Income		 Shares Per Share
Amount		 Net
Income		 Shares Per Share
Amount
 (dollars in thousands, except per share data)
Net income$20,232
     $14,176
     $9,227
    
Basic income available to common stockholders20,232
 39,709,565
 $0.51
 14,176
 39,586,524
 $0.36
 9,227
 27,387,123
 $0.34
Effect of dilutive stock option grants and warrants—
 776,549
   —
 807,712
   —
 538,228
  
Diluted income available to common stockholders plus assumed conversions$20,232
 40,486,114
 $0.50
 $14,176
 40,394,236
 $0.35
 $9,227
 27,925,351
 $0.33

 Nine Months Ended September 30,
 2017 2016
 Net
Income		 Shares Per Share
Amount		 Net
Income		 Shares Per Share
Amount
 (dollars in thousands, except per share data)
Net income$43,929
     $28,152
    
Basic income available to common stockholders43,929
 35,652,626
 $1.23
 28,152
 26,776,140
 $1.05
Effect of dilutive stock options and warrants  803,319
     468,968
  
Diluted income available to common stockholders plus assumed conversions$43,929
 36,455,945
 $1.20
 $28,152
 27,245,108
 $1.03


Note 10 – Fair Value of Financial Instruments
 
The fair value of an asset or liability is the exchange price that would be received to sell that asset or paid to transfer that liability (exit price) in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including both those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis and a non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value and for estimating the fair value of financial assets and financial liabilities not recorded at fair value, are discussed below.


In accordance with accounting guidance, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:


Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.



Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, volatilities, etc.), or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market.


Level 3 - Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models, and similar techniques.
 
Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments,While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value estimates presented herein areof certain financial instruments could result in a different estimate of fair value at the reporting date. The Company’s valuation methodologies may produce a fair value calculation that may not necessarilybe indicative of the amounts the Company could have realized in a sales transaction at September 30, 2017, June 30, 2017 and September 30, 2016.net realizable value or reflective of future fair values.


54

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management maximizes the use of observable inputs and attempts to minimize the use of unobservable inputs when determining fair value measurements. The following is a description of both the general and specific valuation methodologies used for certain instruments measured at fair value, as well as the general classification of these instruments pursuant to the valuation hierarchy.

Cash and due from banks – The carrying amounts of cash and short-term instruments approximate fair value due to the liquidity of these instruments.

Investment securities – Investment securities are generally valued based upon quotes obtained from independent third-party pricing services, which uses evaluated pricing applications and model processes. Observable market inputs, such as, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data are considered as part of the evaluation. The inputs are related directly to the security being evaluated, or indirectly to a similarly situated security. Market assumptions and market data are utilized in the valuation models. The Company reviews the market prices provided by the third-party pricing service for reasonableness based on the Company’s understanding of the market place and credit issues related to the securities. The Company has not made any adjustments to the market quotes provided by them and, accordingly, the Company categorized its investment portfolio within Level 2 of the fair value hierarchy.

FHLB, FRB, Other Stock – Due to restrictions placed on transferability, it is not practical to determine the fair value of the stock.
Loans Held for Sale — The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Loans Held for Investment — The fair value of loans, other than loans on nonaccrual status, was estimated by discounting the remaining contractual cash flows using the estimated current rate at which similar loans would be made to borrowers with similar credit risk characteristics and for the same remaining maturities, reduced by deferred net loan origination fees and the allocable portion of the allowance for loan losses. Accordingly, in determining the estimated current rate for discounting purposes, no adjustment has been made for any change in borrowers’ credit risks since the origination of such loans. Rather, the allocable portion of the allowance for loan losses is considered to provide for such changes in estimating fair value. As a result, this fair value is not necessarily the value which would be derived using an exit price. These loans are included within Level 3 of the fair value hierarchy.
Impaired loans and OREO– Impaired loans and OREO assets are recorded at the fair value less estimated costs to sell at the time of foreclosure. The fair value of impaired loans and OREO assets are generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Deposit Accounts and Short-term Borrowings — The amounts payable to depositors for demand, savings, and money market accounts, and short-term borrowings are considered to approximate fair value. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities using a discounted cash flow calculation. Interest-bearing deposits and borrowings are included within Level 2 of the fair value hierarchy.
Term FHLB Advances and Other Long-term Borrowings— The fair value of long term borrowings is determined using rates currently available for similar borrowings with similar credit risk and for the remaining maturities and are classified as Level 2.
Subordinated Debentures – The fair value of subordinated debentures is estimated by discounting the balance by the current three-month LIBOR rate plus the current market spread. The fair value is determined based on the maturity date as the Company does not currently have intentions to call the debenture and is classified as Level 2.

Accrued Interest Receivable/Payable – The carrying amounts of accrued interest receivable and accrued interest payable are deemed to approximate fair value.

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following is a description of both the general and specific valuation methodologies used to measure financial assets and liabilities on a recurring basis, as well as the general classification of these instruments pursuant to the fair value hierarchy.

Investment Securities – Investment securities are generally valued based upon quotes obtained from independent third-party pricing services, which use evaluated pricing applications and model processes. Observable market inputs, such as, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data are considered as part of the evaluation. The inputs are related directly to the security being evaluated, or indirectly to a similarly situated security. Market assumptions and market data are utilized in the valuation models. The Company reviews the market prices provided by the third-party pricing service for reasonableness based on the Company’s understanding of the marketplace and credit issues related to the securities. The Company has not made any adjustments to the market quotes provided by them and, accordingly, the Company categorized its investment portfolio within Level 2 of the fair value hierarchy.
Interest Rate Swaps – The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certain fixed-rate loans. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value estimates presented herein areof these derivatives is based on pertinent information availablea market standard discounted cash flow approach. The Company incorporates credit value adjustments on derivatives to management asproperly reflect the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The Company has determined that the observable nature of the periods indicated.majority of inputs used in deriving the fair value of these derivative contracts fall within Level 2 of the fair value hierarchy, and the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the valuation of interest rate swaps is classified as Level 2 of the fair value hierarchy.

Equity Warrant Assets – The Company acquired equity warrant assets as a result of acquisition of Opus. Opus received equity warrant assets through its lending activities as part of loan origination fees. The warrants provide the Bank the right to purchase a specific number of equity shares of the underlying company’s equity at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815. The fair value of equity warrant assets is determined using a Black-Scholes option pricing model and are classified as Level 3 with the fair value hierarchy due to the extent of unobservable inputs. The key assumptions used in determining the fair value include the exercise price of the warrants, valuation of the underlying entity's outstanding stock, expected term, risk-free interest rate, marketability discount for private company warrants, and price volatility.

55
  At September 30, 2017
  
Carrying
Amount
 Level 1 Level 2 Level 3 
Estimated
Fair Value
  (dollars in thousands)
Assets:          
Cash and cash equivalents $121,362
 $121,362
 $—
 $—
 $121,362
Interest-bearing time deposits with financial institutions 4,437
 4,437
 —
 —
 4,437
Investments held-to-maturity 18,627
 —
 18,577
 —
 18,577
Securities available-for-sale 703,944
 —
 703,944
 —
 703,944
Federal Reserve Bank and FHLB stock, at cost 58,344
 N/A
 N/A
 N/A
 N/A
Loans held for sale, net 44,343
 —
 46,817
 —
 46,817
Loans held for investment, net 5,009,317
 —
 —
 5,000,756
 5,000,756
Accrued interest receivable 20,527
 20,527
 —
 —
 20,527
           
Liabilities:  
  
  
  
  
Deposit accounts 5,018,153
 3,821,275
 807,647
 —
 4,628,922
FHLB advances 335,186
 —
 335,661
 —
 335,661
Other borrowings 46,987
 —
 47,371
 —
 47,371
Subordinated debentures 79,871
 —
 81,870
 —
 81,870
Accrued interest payable 985
 985
 —
 —
 985




  At December 31, 2016
  
Carrying
Amount
 Level 1 Level 2 Level 3 
Estimated
Fair Value
  (dollars in thousands)
Assets:  
  
  
  
  
Cash and cash equivalents $156,857
 $156,857
 $—
 $—
 $156,857
Interest-bearing time deposits with financial institutions 3,944
 3,944
 —
 —
 3,944
Investments held-to-maturity 8,565
 —
 8,461
   8,461
Securities available-for-sale 380,963
 —
 380,963
 —
 380,963
Federal Reserve Bank and FHLB stock, at cost 37,304
 N/A
 N/A
 N/A
 N/A
Loans held for sale, net 7,711
 —
 8,405
 —
 8,405
Loans held for investment, net 3,220,317
 —
 —
 3,211,154
 3,211,154
Accrued interest receivable 13,145
 13,145
 —
 —
 13,145
           
Liabilities:  
  
  
  
  
Deposit accounts 3,145,581
 2,330,579
 573,467
 —
 2,904,046
FHLB advances 278,000
 —
 277,935
 —
 277,935
Other borrowings 49,971
 —
 50,905
 —
 50,905
Subordinated debentures 69,383
 —
 69,982
 —
 69,982
Accrued interest payable 263
 263
 —
 —
 263

The following fair value hierarchy table presents information about the Company’s financial instrumentsassets and liabilities measured at fair value on a recurring basis at the dates indicated:
March 31, 2022
 Fair Value Measurement Using 
(Dollars in thousands)Level 1Level 2Level 3Total Fair Value
Financial assets
AFS investment securities:    
U.S. Treasury$— $13,990 $— $13,990 
Agency— 375,777 — 375,777 
Corporate debt— 595,065 — 595,065 
Municipal bonds— 415,284 — 415,284 
Collateralized mortgage obligations— 855,256 — 855,256 
Mortgage-backed securities— 966,723 — 966,723 
Total AFS investment securities$— $3,222,095 $— $3,222,095 
Derivative assets:
Interest rate swaps$— $42,972 $— $42,972 
Equity warrants— — 1,908 1,908 
Total derivative assets$— $42,972 $1,908 $44,880 
Financial liabilities
Derivative liabilities:
Interest rate swaps$— $4,241 $— $4,241 
December 31, 2021
 Fair Value Measurement Using 
(Dollars in thousands)Level 1Level 2Level 3Total
Fair Value
Financial assets
AFS investment securities:    
U.S. Treasury$— $57,866 $— $57,866 
Agency— 432,135 — 432,135 
Corporate debt— 453,861 — 453,861 
Municipal bonds— 1,089,913 — 1,089,913 
Collateralized mortgage obligations— 676,643 — 676,643 
Mortgage-backed securities— 1,563,446 — 1,563,446 
Total AFS investment securities$— $4,273,864 $— $4,273,864 
Derivative assets:
Interest rate swaps$— $10,100 $— $10,100 
Equity warrants— — 1,889 1,889 
Total derivative assets$— $10,100 $1,889 $11,989 
Financial liabilities
Derivative liabilities:
Interest rate swaps$— $5,263 $— $5,263 
56
  September 30, 2017
  Fair Value Measurement Using  
  Level 1 Level 2 Level 3 
Securities at
Fair Value
  (dollars in thousands)
Investment securities available-for-sale:        
Agency $—
 $50,379
 $—
 $50,379
Corporate —
 62,175
 —
 62,175
Municipal bonds —
 228,427
 —
 228,427
Collateralized mortgage obligation: residential —
 43,404
 —
 43,404
Mortgage-backed securities: residential —
 319,559
 —
 319,559
Total securities available-for-sale $—
 $703,944
 $—
 $703,944



  December 31, 2016
  Fair Value Measurement Using  
  Level 1 Level 2 Level 3 
Securities at
Fair Value
  (dollars in thousands)
Investment securities available-for-sale:  
  
  
  
Corporate $—
 $37,642
 $—
 $37,642
Municipal bonds —
 118,803
 —
 118,803
Collateralized mortgage obligation: residential —
 31,388
 —
 31,388
Mortgage-backed securities: residential —
 193,130
 —
 193,130
Total securities available-for-sale $—
 $380,963
 $—
 $380,963

The Company’s valuation methodologies may producefollowing table is a fair value calculation that may not be indicativereconciliation of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could resultthe equity warrants that are classified as Level 3 and measured on a recurring basis as of:
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202220212021
Beginning balance$1,889 $1,895 $1,914 
Change in fair value (1)
19 (6)(3)
Ending balance$1,908 $1,889 $1,911 

(1) The changes in a different estimate of fair value are included in other income on the consolidated statement of income.

The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a recurring basis at the reporting date.dates indicated.

March 31, 2022
Range
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input(s)MinMaxWeighted Average
Equity warrants$1,908 Black-Scholes
option pricing
model		Volatility
Risk free interest rate
Marketability discount
30.00%
1.63%
5.50%
35.00%
2.45%
16.00%
31.16%
1.82%
13.56%

December 31, 2021
Range
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input(s)MinMaxWeighted Average
Equity warrants$1,889 Black-Scholes
option pricing
model		Volatility
Risk free interest rate
Marketability discount
30.00%
0.39%
6.00%
35.00%
0.97%
16.00%
31.14%
0.52%
13.61%

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Individually Evaluated Loans – A loan is considered impairedindividually evaluated for expected credit losses when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Impairment isagreement and it does not share similar risk characteristics with other loans. Individually evaluated loans are measured based on the fair value of the underlying collateral or the discounted expected future cash flows. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate, and cash. The Company measures impairment on all non-accrualnonaccrual loans for which it has reduced the principal balance to the value of the underlying collateral less the anticipated selling cost. As such, the Company records impaired loans as Level 3. At September 30, 2017, substantially all the Company’s impaired loans were evaluated based on the fair value of their underlying collateral based upon the most recent appraisal available to management.


The fair value of impairedindividually evaluated loans and other real estate owned were determined using Level 3 assumptions, and represents impaired loan and other real estateindividually evaluated loan balances for which a specific reserve has been established or on which a write down has been taken. Generally,For real estate loans, generally, the Company obtains third party appraisals (or property valuations) and/or collateral audits in conjunction with internal analysis based on historical experience on its impairedindividually evaluated loans and other real estate owned to determine fair value. In determining the net realizable value of the underlying collateral for impairedindividually evaluated loans, the Company will then discount the valuation to cover both market price fluctuations and selling costs, typically ranging from 7% to 10% of the collateral value, that the Company expected would be incurred in the event of foreclosure. In addition to the discounts taken, the Company’s calculation of net realizable value considered any other senior liens in place on the underlying collateral. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions, and management’s expertise and knowledge of the client and client’s business.

57

At March 31, 2022, the Company’s individually evaluated collateral dependent loans were evaluated based on the fair value of their underlying collateral based upon the most recent appraisals available to management. The Company completed partial charge-offs on certain individually evaluated loans based on recent real estate or property appraisals and released the related reserves during the three months ended March 31, 2022.

The following table presents our assets measured at fair value on a nonrecurring basis at the dates indicated.
 March 31, 2022
(Dollars in thousands)Level 1Level 2Level 3Total
Fair Value
Financial assets   
Collateral dependent loans$— $— $33,869 $33,869 
 December 31, 2021
(Dollars in thousands)Level 1Level 2Level 3Total
Fair Value
Financial assets    
Collateral dependent loans$— $— $937 $937 
The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a nonrecurring basis at the dates indicated.
 March 31, 2022
   Range
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input(s)MinMaxWeighted Average
Investor loans secured by real estate
CRE non-owner-occupied$8,590 Fair value of collateralCollateral discount and cost to sell7.00%7.00%7.00%
Commercial loans
Commercial and industrial25,279 Fair value of collateralCollateral discount and cost to sell—%7.40%6.35%
Total individually evaluated loans$33,869 
 December 31, 2021
   Range
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input(s)MinMaxWeighted Average
Investor loans secured by real estate
SBA secured by real estate (1)
$937 Fair value of collateralCollateral discount and cost to sell10.00%10.00%10.00%
Total individually evaluated loans$937 

(1) SBA loans that are collateralized by hotel/motel real property.
58

Fair Values of Financial Instruments
    
The fair value estimates presented herein are based on pertinent information available to management as of the dates indicated, representing an exit price.
 At March 31, 2022
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Estimated
Fair Value
Assets     
Cash and cash equivalents$809,259 $809,259 $— $— $809,259 
Interest-bearing time deposits with financial institutions2,216 2,216 — — 2,216 
Investment securities held-to-maturity996,382 — 886,050 — 886,050 
Investment securities available-for-sale3,222,095 — 3,222,095 — 3,222,095 
Loans held for sale11,646 — 12,622 — 12,622 
Loans held for investment, net14,733,755 — — 14,623,169 14,623,169 
Derivative assets44,880 — 42,972 1,908 44,880 
Accrued interest receivable60,922 — 60,922 — 60,922 
Liabilities     
Deposit accounts$17,689,223 $— $17,685,458 $— $17,685,458 
FHLB advances600,000 — 598,334 — 598,334 
Subordinated debentures330,726 — 338,603 — 338,603 
Derivative liabilities4,241 — 4,241 — 4,241 
Accrued interest payable5,115 — 5,115 — 5,115 

 At December 31, 2021
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Estimated
Fair Value
Assets     
Cash and cash equivalents$304,703 $304,703 $— $— $304,703 
Interest-bearing time deposits with financial institutions2,216 2,216 — — 2,216 
Investment securities held-to-maturity381,674 — 384,423 — 384,423 
Investment securities available-for-sale4,273,864 — 4,273,864 — 4,273,864 
Loans held for sale10,869 — 11,959 — 11,959 
Loans held for investment, net14,295,897 — — 14,392,684 14,392,684 
Derivative assets11,989 — 10,100 1,889 11,989 
Accrued interest receivable65,728 65,728 — — 65,728 
Liabilities     
Deposit accounts$17,115,589 $16,057,316 $1,058,822 $— $17,116,138 
FHLB advances550,000 — 550,093 — 550,093 
Other borrowings8,000 — 8,000 — 8,000 
Subordinated debentures330,567 — 350,359 — 350,359 
Derivative liabilities5,263 — 5,263 — 5,263 
Accrued interest payable2,366 2,366 — — 2,366 



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Note 11 – Derivative Instruments


The Company uses derivative instruments to manage its exposure to market risks, including interest rate risk, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, while other derivatives serve as economic hedges that do not qualify for hedge accounting.

Derivatives Designated as Hedging Instruments

Fair Value Hedges – The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. During the second half of 2021, the Company entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans, primarily commercial real estate loans, to manage its exposure to changes in fair value on these instruments attributable to changes in the designated USD-SOFR-COMPOUND benchmark interest rate. These interest rate swaps are designated as fair value hedges using the last-of-layer method. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s consolidated statements of income. At March 31, 2022 and December 31, 2021, interest rate swaps with an aggregate notional amount of $1.20 billion were designated as fair value hedges.

The following amounts were recorded on the consolidated statement of financial condition related to cumulative basis adjustment for fair value hedges as of the dates indicated:

Line Item in the Statement of Financial Position in Which the Hedged Item is IncludedCarrying Amount of the Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(Dollars in thousands)March 31, 2022December 31, 2021March 31, 2022December 31, 2021
Loans held for investment(1)
$1,160,779 $1,194,702 $(39,221)$(5,298)
Total$1,160,779 $1,194,702 $(39,221)$(5,298)

(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2022 and December 31, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $3.47 billion and $3.61 billion, respectively, the cumulative basis adjustments associated with these hedging relationships was $(39.2) million and $(5.3) million, respectively; and the amounts of the designated hedged items were $1.20 billion and $1.20 billion, respectively.



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Derivatives Not Designated as Hedging Instruments

Interest Rate Swap Contracts – From time to time, the Company enters into interest rate swap agreements with certain borrowers to assist them in mitigating their interest rate risk exposure associated with the loans they have with the Company. At the same time, the Company enters into identical interest rate swap agreements with another financial institution to mitigate the Company’s interest rate risk exposure associated with the swap agreements it enters into with its borrowers. At September 30, 2017, theThe Company had swapsover-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms with an aggregate notional amountterms. The fair values of $59.0 millionthese agreements are determined through a third party valuation model used by the Company’s swap advisory firm, which uses observable market data such as interest rates, prices of Eurodollar futures contracts, and a fair value of $0.6 million.market swap rates. The fair values of these swaps are recorded as components of other assets and other liabilities in the Company’s condensed consolidated balance sheet. Changes in the fair value of these swaps, which occur due to changes in interest rates, are recorded in the Company’s income statement as a component of noninterest income. Since
Over-the-counter contracts are tailored to meet the termsneeds of the swap agreements between the Companycounterparties involved and, its borrowerstherefore, generally contain a greater degree of credit risk and liquidity risk than centrally-cleared contracts, which have been matched with the terms of swap agreements with another financial institution, the adjustments for the change in their fair value offset each other in non-interest income.
standardized terms. Although changes in the fair value of swap agreements between the Company and borrowers and the Company and other financial institutions offset each other, changes in the credit risk of these counterparties may

result in a difference in the fair value of these swap agreements. Offsetting over-the-counter swap agreements the Company has with other financial institutions are collateralized with cash and investment securities, and swap agreements with borrowers are secured by the collateral arrangements for the underlying loans these borrowers have with the Company. During the nine months ended September 30, 2017, there were no losses recorded on swap agreements, attributable to the change in credit risk associated with a counterparty. All interest rate swap agreements entered into by the Company as of September 30, 2017are free-standing derivatives and are not designated as hedging instruments.

Equity Warrant Assets – The Company acquired equity warrant assets as a result of the acquisition of Opus. Opus received equity warrant assets through its lending activities, which were accounted for as loan origination fees. The warrants provide the Bank the right to purchase a specific number of equity shares of the respective underlying private company at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815. The Company no longer has loans associated with these borrowers. Changes in the fair value of the warrants are recognized as a component of noninterest income with a corresponding offset within other assets. The total fair value of the warrants was $1.9 million in other assets as of March 31, 2022 and December 31, 2021. The two remaining warrants expire on March 12, 2023 and July 28, 2025, respectively.

The following tables summarize the Company's derivative instruments included in "other assets"other assets and "other liabilities"other liabilities in the consolidated statements of financial condition. condition:
March 31, 2022
Derivative AssetsDerivative Liabilities
(Dollars in thousands)NotionalFair ValueNotionalFair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts$1,200,000 $38,734 $— $— 
Total derivative designated as hedging instruments1,200,000 38,734 — — 
Derivative instruments not designated as hedging instruments:
Interest rate swaps contracts130,444 4,238 130,444 4,241 
Equity warrants— 1,908 — — 
Total derivative not designated as hedging instruments130,444 6,146 130,444 4,241 
Total derivatives$1,330,444 $44,880 $130,444 $4,241 

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December 31, 2021
Derivative AssetsDerivative Liabilities
(Dollars in thousands)NotionalFair ValueNotionalFair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts$1,100,000 $4,874 $100,000 $33 
Total derivative designated as hedging instruments1,100,000 4,874 100,000 33 
Derivative instruments not designated as hedging instruments:
Interest rate swaps contracts132,056 5,226 132,056 5,230 
Equity warrants— 1,889 — — 
Total derivative not designated as hedging instruments132,056 7,115 132,056 5,230 
Total derivatives$1,232,056 $11,989 $232,056 $5,263 

The Company's derivative instruments were acquired as partfollowing table presents the effect of fair value hedge accounting on the consolidated statements of income:
For the Three Months Ended
(Dollars in thousands)Location of Gain (Loss) Recognized in Income on Derivative InstrumentsMarch 31, 2022December 31, 2021March 31, 2021
Gain (loss) on fair value hedging relationships:
Hedged itemsInterest Income$(33,924)$(4,271)$— 
Derivatives designated as hedging instrumentsInterest Income32,257 3,451 — 

The following table summarizes the effect of the HEOP acquisition, andderivatives not designated as hedging instruments in the Company did not have any at December 31, 2016:consolidated statements of income.
(Dollars in thousands)For the Three Months Ended
Derivatives Not Designated as Hedging Instruments:Location of Gain (Loss) Recognized in Income on Derivative InstrumentsMarch 31, 2022December 31, 2021March 31, 2021
Interest rate productsOther income$1 $— $7 
Equity warrantsOther income19 (5)(3)
Total$20 $(5)$4 
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 September 30, 2017
 Derivative Assets Derivative Liabilities
 Notional Fair Value Notional Fair Value
 (dollars in thousands)
Derivative instruments not designated as hedging instruments:       
Interest rate swap contracts$59,036
 $582
 $59,036
 $582
Total derivative instruments$59,036
 $582
 $59,036
 $582



Note 12 – Balance Sheet Offsetting


Derivative financial instruments may be eligible for offset in the consolidated balance sheets,statements of financial condition, such as those subject to enforceable master netting arrangements or a similar agreement. Under these agreements, the Company has the right to net settle multiple contracts with the same counterparty. The Company offers an interest rate swap product to qualified customers, which are then paired with derivative contracts the Company enters into with a counterparty bank. While derivative contracts entered into with counterparty banks may be subject to enforceable master netting agreements, derivative contracts with customers may not be subject to enforceable master netting arrangements. The Company elected to account for centrally-cleared derivative contracts on a gross basis. With regard to derivative contracts not centrally cleared through a clearinghouse, regulations require collateral to be posted by the party with a net liability position. Parties to a centrally cleared over-the-counter derivative exchange daily payments that reflect the daily change in the value of the derivative. These payments are commonly referred to as variation margin and are treated as settlements of derivative exposure rather than as collateral.

Financial instruments that are eligible for offset in the consolidated statements of financial condition as of September 30, 2017the periods indicated are presented in the table below:
Gross Amounts Not Offset in the Consolidated
Statements of Financial Condition
(Dollars in thousands)Gross Amounts RecognizedGross Amounts Offset in the Consolidated Statements of Financial ConditionNet Amounts Presented in the Consolidated Statements of Financial Condition
Financial Instruments (1)
Cash Collateral (2)
Net Amount
March 31, 2022
Derivative assets:
Interest rate swaps$42,972 $— $42,972 $— $(25,345)$17,627 
Total$42,972 $— $42,972 $— $(25,345)$17,627 
Derivative liabilities:
Interest rate swaps$4,241 $— $4,241 $— $(172)$4,069 
Total$4,241 $— $4,241 $— $(172)$4,069 
December 31, 2021
Derivative assets:
Interest rate swaps$10,100 $— $10,100 $— $— $10,100 
Total$10,100 $— $10,100 $— $— $10,100 
Derivative liabilities:
Interest rate swaps$5,263 $— $5,263 $(4,377)$(886)$— 
Total$5,263 $— $5,263 $(4,377)$(886)$— 
(1) Represents the fair value of securities pledged with counterparty bank.
(2) Represents cash collateral received from or pledged with counterparty bank.
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       Gross Amounts Not Offset in the Consolidated
Balance Sheets		  
 Gross Amounts Recognized in the Consolidated Balance Sheets Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral (1) Net Amount
 (dollars in thousands)
September 30, 2017           
Financial assets:           
Derivatives not designated as
hedging instruments		$1,676
 $(1,094) $582
 —
 $600
 $1,182
Total$1,676
 $(1,094) $582
 —
 $600
 $1,182
            
Financial liabilities:           
Derivatives not designated as
hedging instruments		$582
 —
 $582
 —
 —
 $582
Total$582
 —
 $582
 —
 —
 $582
            
(1) Represents cash collateral held with counterparty bank.



Note 13 – Subsequent EventsLeases


Pacific Premier Bancorp, Inc. and Plaza Bancorp
On August 9, 2017,The Company accounts for its leases in accordance with ASC 842, which requires the Company announced that it had entered into an agreement to acquire Plaza Bancorp (PLZZ.OTC) ("Plaza"), the holding company of Plaza Bank, a California-chartered banking corporation headquartered in Irvine, California, with seven branches located in Irvine, Manhattan Beach, El Segundo, Pasadena, Montebello, San Diego, California, and Las Vegas, Nevada.
The acquisition was completed on November 1, 2017, whereby we acquired $1.3 billion in totalrecord liabilities for future lease obligations as well as assets $1.1 billion in loans and $1.1 billion in total deposits. Under the terms of the merger agreement, each share of Plaza common stock was converted intorepresenting the right to receive 0.2000 sharesuse the underlying leased asset. The Company’s leases primarily represent future obligations to make payments for the use of Company common stock. Pursuantbuildings or space for its operations. Liabilities to such terms,make future lease payments are recorded in accrued expenses and other liabilities, while right-of-use assets are recorded in other assets in the Company’s consolidated statements of financial condition. At March 31, 2022, all of the Company’s leases were classified as operating leases or short-term leases. Short-term leases are leases that have a term of 12 months or less at commencement.

Liabilities to make future lease payments and right-of-use assets are determined based on the total contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Company will issue approximately 6,049,447 sharesbelieves it has an economic incentive to extend or renew the lease. Future contractual base rents are discounted using the rate implicit in the lease or the Company’s estimated incremental borrowing rate if the rate implicit in the lease is not readily determinable. Liabilities to make future lease payments on operating leases are reduced by periodic contractual lease payments net of periodic interest accretion. Right-of-use assets for operating leases are amortized over the term of the Company's Common Stock valued at $40.40 per share, which wasassociated lease by amounts that represent the closing pricedifference between periodic straight-line lease expense and periodic interest accretion on the related liability to make future lease payments. The Company recognizes expense for both operating leases and short-term leases on a straight-line basis.

The Company’s lease expense is recorded in premises and occupancy expense in the consolidated statements of income. The following table presents the components of lease expense for the periods indicated:

Three Months Ended
(Dollars in thousands)March 31, 2022December 31, 2021March 31, 2021
Operating lease$4,738 $4,756 5,012 
Short-term lease490 353 507 
Total lease expense$5,228 $5,109 $5,519 

The following table presents supplemental information related to operating leases as of and for three months ended:
(Dollars in thousands)March 31, 2022December 31, 2021
Balance Sheet:
Operating lease right-of-use assets$60,819 $64,009 
Operating lease liabilities69,151 72,541 
Three Months Ended
(Dollars in thousands)March 31, 2022March 31, 2021
Cash Flows:
Operating cash outflow from operating leases$4,959 $2,000 

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The following table provides information related to minimum contractual lease payments and other information associated with the Company’s leases as of the Company's Common Stockdates indicated:

(Dollars in thousands)20222023202420252026ThereafterTotal
March 31, 2022
Operating leases$14,779 $19,163 $17,111 $11,400 $5,731 $9,541 $77,725 
Short-term leases320 — — — — — 320 
Total contractual base rents (1)
$15,099 $19,163 $17,111 $11,400 $5,731 $9,541 $78,045 
Total liability to make lease payments$69,151 
Difference in undiscounted and discounted future lease payments$8,574 
Weighted average discount rate5.51 %
Weighted average remaining lease term (years)4.6

(1) Contractual base rents reflect options to extend and renewals, and do not include property taxes and other operating expenses due under respective lease agreements.

The Company from time to time leases portions of space it owns to other parties. Income received from these transactions is recorded on Octobera straight-line basis over the term of the sublease. For the three months ended March 31, 2017,2022, December 31, 2021, and March 31, 2021, rental income totaled $125,000, $175,000, and $175,000, respectively.

Note 14 – Variable Interest Entities

The Company is involved with VIEs through its loan securitization activities, affordable housing investments that qualify for the last trading day priorlow-income housing tax credit (“LIHTC”), and trust subsidiaries, which have issued trust preferred securities. The Company has determined that its interests in these entities meet the definition of variable interests.

As of March 31, 2022 and December 31, 2021, the Company determined it was not the primary beneficiary of the VIEs and did not consolidate its interests in VIEs. The following table provides a summary of the carrying amount of assets and liabilities in the Company’s consolidated statements of financial condition and maximum exposure to loss as of March 31, 2022 and December 31, 2021 that relate to variable interests in non-consolidated VIEs.

March 31, 2022December 31, 2021
(Dollars in thousands)Maximum LossAssetsLiabilitiesMaximum LossAssetsLiabilities
Multifamily loan securitization:
Investment securities (1)
$77,939 $77,939 $— $81,103 $81,103 $— 
Reimbursement obligation (2)
50,901 — 338 50,901 — 338 
Affordable housing partnership:
Other investments (3)
65,861 82,732 — 68,765 85,994 — 
Unfunded equity commitments (2)
— — 16,871 — — 17,229 
Total$194,701 $160,671 $17,209 $200,769 $167,097 $17,567 

(1) Included in investment securities AFS on the consolidated statement of financial condition.
(2) Included in accrued expenses and other liabilities on the consolidated statement of financial condition.
(3) Included in other assets on the consolidated statement of financial condition.
.
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Multifamily loan securitization

With respect to the consummationsecuritization transaction with Freddie Mac discussed in Note 5 - Loans Held for Investment, the Company’s variable interests reside with the underlying Freddie Mac-issued guaranteed, structured pass-through certificates that were held as investment securities AFS at fair value as of March 31, 2022. Additionally, the Company has variable interests through a reimbursement agreement executed by Freddie Mac that obligates the Company to reimburse Freddie Mac for any defaulted contractual principal and interest payments identified after the ultimate resolution of the Merger. Thedefaulted loans. Such reimbursement obligations are not to exceed 10% of the original principal amount of the loans comprising the securitization pool.

As part of the securitization transaction, the Company released all servicing obligations and rights to Freddie Mac who was designated as the Master Servicer. In its capacity as Master Servicer, Freddie Mac can terminate the Company’s role as sub-servicer and direct such responsibilities accordingly. In evaluating our variable interests and continuing involvement in the VIE, we determined that we do not have the power to make significant decisions or direct the activities that most significantly impact the economic performance of the VIE’s assets and liabilities. As sub-servicer of the loans, the Company does not have the authority to make significant decisions that influence the value of the total transaction consideration was approximately $251 million, which included approximately $6.5 million in aggregate cash for fractional sharesVIE’s net assets and, consideration payable to holderstherefore, the Company is not the primary beneficiary of Plaza options and Plaza warrants in connectionthe VIE. As a result, we determined that the VIE associated with the closingmultifamily securitization should not be included in the consolidated financial statements of the Merger.Company.

We believe that our maximum exposure to loss as a result of our involvement with the VIE associated with the securitization is the carrying value of the investment securities issued by Freddie Mac and purchased by the Company. Additionally, our maximum exposure to loss under the reimbursement agreement executed with Freddie Mac is 10% of the original principal amount of the loans comprising the securitization pool, or $50.9 million. Based upon our analysis of quantitative and qualitative data over the underlying loans included in the securitization pool, as of March 31, 2022 and December 31, 2021, our reserve for estimated losses with respect to the reimbursement obligation was $338,000.

Investments in qualified affordable housing partnerships

The Company expectshas variable interests through its affordable housing partnership investments. These investments are fundamentally designed to record goodwill arising fromprovide a return through the acquisition consisting largelygeneration of synergiesincome tax credits. The Company has evaluated its involvement with the low-income housing projects and cost savings resulting from combiningdetermined it does not have significant influence or decision making capabilities to manage the operationsprojects, and therefore, is not the primary beneficiary, and does not consolidate these interests.

The Company’s maximum exposure to loss, exclusive of any potential realization of tax credits, is equal to the companies.commitments invested, adjusted for amortization. The amount of goodwill is not expectedunfunded commitments was included in the investments recognized as assets with a corresponding liability. The table above summarizes the amount of tax credit investments held as assets, the amount of unfunded commitments held as liabilities, and the maximum exposure to be deductible for tax purposes. The fair value of intangible assets and acquired assets and liabilities will be determinedloss as of March 31, 2022 and December 31, 2021, respectively.


Note 15 – Subsequent Events

Quarterly cash dividend

On April 22, 2022, the acquisition date but are still being evaluated asCorporation’s Board of the dateDirectors declared a cash dividend of these financial statements.$0.33 per share, payable on May 13, 2022 to shareholders of record on May 6, 2022.




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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains information and statements that are considered “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Act. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of our beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” or words or phrases of similar meaning.

We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors, which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.



TheGiven the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects remain uncertain. Although general business and economic conditions have begun to recover, the recovery could be slowed or reversed by a number of factors, including increases in COVID-19 infections, the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets, which could adversely affect our revenues, the values of our assets and liabilities, and our profitability, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill or other intangible assets in future periods. Changes to statutes, regulations, or regulatory policies or practices as a result of, or in response, to the COVID-19 pandemic could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance. In addition to the foregoing, the following additional factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:


•The strength of the U.S.United States economy in general and the strength of the local economies in which we conduct operations;
•The effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);
•Inflation/deflation, interest rate, market, and monetary fluctuations;
•The effect of changes in accounting policies and practices or accounting standards, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB, or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which has changed how we estimate credit losses and has increased the required level of our allowance for credit losses since adoption on January 1, 2020;
•The effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;
•The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;
•The impact of changes in financial services policies, laws and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies;
Technological•The transition away from USD LIBOR and social media changes;related uncertainty as well as, the risks and costs related to our adoption of SOFR;
•The effecteffectiveness of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth or expense savings from such acquisitions, or the failure to effectively integrate an acquisition target into our operations;risk management framework and quantitative models;
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•Changes in the level of our nonperforming assets and charge-offs;
The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters;
•Possible OTTIcredit-related impairments of securities held by us;
•The impact of current and possible future governmental efforts to restructure the U.S. financial regulatory system, including enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act")system;
•Changes in consumer spending, borrowing, and savings habits;
•The effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
Ability•Our ability to attract deposits and other sources of liquidity;
•The possibility that we may reduce or discontinue the payments of dividends on our common stock;
•Changes in the financial performance and/or condition of our borrowers;
•Changes in the competitive environment among financial and bank holding companies and other financial service providers;
•Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, including the war between Russia and Ukraine, which could impact business and economic conditions in the United States and abroad;
•Cybersecurity threats and the cost of defending against them;
•Climate change, including the enhanced regulatory, compliance, credit, and reputational risks and costs;
•Natural disasters, earthquakes, fires, and severe weather;
•Unanticipated regulatory, legal, or judicial proceedings; and
•Our ability to manage the risks involved in the foregoing.

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking information and statements to reflect actual results or changes in the factors affecting the forward-looking information and statements. For information on the factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our 2016 Annual Report.

2021 Form 10-K in addition to Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q and other reports as filed with the SEC.
 
Forward-looking information and statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties disclosed in our filings with the SEC, all of which are accessible on the SEC’s website at http://www.sec.gov.
 
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GENERAL
 
Management’s discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to the Company’s financial condition, results of operations, liquidity, and capital resources. This discussion should be read in conjunction with our Management Discussion and Analysis of Financial Condition and Results of Operations included in our 2016 Annual Report,2021 Form 10-K, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The results for the three and nine months ended September 30, 2017March 31, 2022 are not necessarily indicative of the results expected for the year ending December 31, 2017.2022.
 
The Corporation is a California-based bank holding company incorporated in 1997 in the state of Delaware and registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”). Our wholly owned subsidiary, Pacific Premier Bank, is a California state-chartered commercial bank. The Bank was founded in 1983 as a state-chartered thrift and subsequently converted to a federally-chartered thrift in 1991. The Bank converted to a California-chartered commercial bank and became a member of the Federal Reserve System in March 2007. The Bank is also a member of the FHLB, which is a member of the Federal Home Loan Bank System. As a bank holding company, the Corporation is subject to regulation and supervision by the Federal Reserve. We are required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve may conduct examinations of bank holding companies, such as the Corporation, and its subsidiaries. The Corporation is also a bank holding company within the meaning of the California Financial Code. As such, the Corporation and its subsidiaries are subject to the supervision and examination by, and may be required to file reports with, the California Department of Business Oversight-Division of Financial InstitutionsProtection and Innovation (“DBO”DFPI”).
 
A bank holding company, such as the Corporation, is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such a policy. The Federal Reserve, under the BHCA, has the authority to require a bank holding company to terminate any activity or to relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.
    
As a California state-chartered commercial bank, which is a member of the Federal Reserve, the Bank is subject to supervision, periodic examination, and regulation by the DBODFPI, the Federal Reserve, the Consumer Financial Protection Bureau, and the Federal Reserve.Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund. In general terms, insurance coverage is up to $250,000 per depositor for all deposit accounts. As a result of this deposit insurance function, the FDIC also has certain supervisory authority and powers over the Bank. If, as a result of an examination of the Bank, the regulators should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or our management is violating or has violated any law or regulation, various remedies are available to the regulators. Such remedies include the power to enjoin unsafe or unsound practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict growth, to assess civil monetary penalties, to remove officers and directors, and ultimately, to request the FDIC to terminate the Bank’s deposit insurance. As a California-chartered commercial bank, the Bank is also subject to certain provisions of California law.
 
We provideOur corporate headquarters are located in Irvine, California. At March 31, 2022, we primarily conduct business throughout the Western Region of the United States from our 61 full-service depository branches located in Arizona, California, Nevada, Oregon, and Washington.


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As a result of our organic and strategic growth strategy we have developed a variety of banking products and services within our targeted markets in Californiathe Western United States tailored to small- and middle-market businesses, corporations, including the owners and employees of those businesses, professionals, entrepreneurs, real estate investors, and non-profit organizations, as well as consumers in the communities we serve. Additionally, through our HOA Banking and Lending and Franchise Capital units we can provide customized cash management, electronic banking services and credit facilities to HOAs, HOA management companies and quick service restaurant ("QSR") franchise owners nationwide. Our corporate headquarters are located in Irvine, California. At September 30, 2017, the Bank operated 26 full-service depository branches in California located in the counties of Orange, Los Angeles, Riverside, San Bernardino, San

Diego, San Luis Obispo and Santa Barbara. Through our branches and our web site atwebsite, www.ppbi.com, we offerprovide a broadwide array of depositbanking products and services for both business and consumer customers, including checking, money market and savingssuch as: various types of deposit accounts, cashdigital banking, treasury management services, electronic banking,online bill payment, and on-line bill payment. We also offer a varietywide array of loan products, including commercial business loans, lines of credit, SBA loans, commercial real estate loans, SBAagribusiness loans, residential home loans, andfranchise lending, home equity loans. lines of credit, and construction loans throughout the Western United States in major metropolitan markets within Arizona, California, Nevada, Oregon, and Washington. We also have acquired and enhanced nationwide specialty banking products and services for HOA and HOA management companies, as well as experienced owner-operator franchisees in the QSR industry. Most recently, we have expanded our specialty products and services offerings to include commercial escrow services through our Commerce Escrow division, which facilitates commercial escrow services and tax-deferred commercial real estate exchanges under Section 1031 of the Internal Revenue Code, as well as custodial and maintenance services through our Pacific Premier Trust division, which serves as a custodian for self-directed IRAs as well as certain accounts that do not qualify as IRAs pursuant to the Internal Revenue Code.

The Bank funds it'sits lending and investment activities with retail and commercial deposits obtained through its branches, advances from the FHLB, lines of credit, and wholesale and brokered certificates of deposits.deposit.
 
Our principal source of income is the net spread between interest earned on loans and investments and the interest costs associated with deposits and borrowings used to finance the loan and investment portfolios. Additionally, the Bank generates fee income from loan and investment sales, and various products and services offered to both depository, loan, escrow, and loan customers.IRA custodial clients.

COVID-19 PANDEMIC
    

The COVID-19 outbreak was declared a Public Health Emergency of International Concern by the World Health Organization (“WHO”) on January 30, 2020 and a pandemic by the WHO on March 11, 2020. The ongoing COVID-19 global pandemic and national health emergency has caused significant disruption in the United States and international economies and financial markets.

While economic conditions have improved, the ongoing COVID-19 pandemic has placed strain on certain businesses and service providers, many of which have not been able to conduct operations in their usual manner. Should the COVID-19 pandemic persist, we anticipate it could have an impact on the following:

•Loan growth and interest income - Economic activity has expanded since the onset of the COVID-19 pandemic, however the economy continues to experience supply chain disruptions, inflationary pressures, and the uncertainty created by recent geopolitical developments. If the economic recovery begins to wane, it may have an impact on our borrowers, the businesses they operate, and their financial condition. Our borrowers may have less demand for credit needed to invest in and expand their businesses, as well as less demand for real estate and consumer loans. Such factors would place pressure on the level of interest-earning assets, which may negatively impact our interest income.

•Credit quality - Should there be a decline in economic activity, the markets we serve could experience increases in unemployment, declines in consumer confidence, and a reluctance on the part of businesses to invest in and expand their operations, among other things. Such factors may result in additional weakness in economic conditions, place strain on our borrowers, and ultimately impact the credit quality of our loan portfolio. We expect this could result in increases in the level of past due, nonaccrual, and classified loans, as well as higher net charge-offs. While economic conditions have improved since the onset of the COVID-19 pandemic in the first quarter of 2020, there can be no assurance the recovery will continue. As such, should we experience future deterioration in the credit quality of our loan portfolio, it may contribute to the need for additional provisions for credit losses.
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•CECL - The Company is required to measure and record credit losses on certain financial assets, such as loans and debt securities, in accordance with the CECL model stipulated under ASC 326. The CECL model for measuring credit losses is highly dependent upon expectations of future economic conditions and requires management judgment. Should the recovery in economic conditions begin to wane and expectations concerning future economic conditions deteriorate, the Company may be required to record additional provisions for credit losses under the CECL model.

•Impairment charges - Should the recovery in economic conditions wane, it could adversely impact the Company’s operating results and the value of certain of our assets. As a result, the Company may be required to write-down the value of certain assets such as goodwill, intangible assets, or deferred tax assets when there is evidence to suggest their value has become impaired or will not be realizable at a future date.

The U.S. government as well as other state and local policy makers have responded to the ongoing COVID-19 pandemic with actions geared to support not only the health and well-being of the public, but also consumers, businesses, and the economy as a whole. However, the ultimate impact and overall effectiveness of these actions is difficult to determine at this time.

CRITICAL ACCOUNTING POLICIES
 
Management has established various accounting policies that govern the application of U.S. GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to the Consolidated Financial Statements in our 2016 Annual Report. There have been no significant changes to our Critical Accounting Policies as described in our 2016 Annual Report.
Certain accounting policies require management to make estimates and assumptions whichthat involve a significant level of estimation uncertainty and are reasonably likely to have a material impact on the carrying value of certain assets and liabilities;liabilities as well as the Company’s results of operations; management considers these to be critical accounting policies. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of the Company’s assets and liabilities at balance sheet dates and ouras well as the Company’s results of operations forin future reporting periods. Our significant accounting policies are described in the Notes to the consolidated financial statements in our 2021 Form 10-K.

We considerAllowance for Credit Losses on Loans and Off-Balance Sheet Commitments

The Company accounts for credit losses on loans and off-balance sheet commitments, such as unfunded loan commitments, in accordance with ASC 326 - Financial Instruments - Credit Losses, which requires the ALLLCompany to berecord an estimate of expected lifetime credit losses for loans and unfunded loan commitments at the time of origination or acquisition. The ACL is maintained at a critical accounting policy thatlevel deemed appropriate by management to provide for current expected future credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires judiciousmanagement to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The estimation process in determining the ACL involves a significant degree of judgement, requiring management to make numerous estimates and assumptions. These estimates and assumptions are subject to change in future periods, which may have a material impact on the level of the ACL and the Company’s results of operations.

The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics, as well as the individual evaluation of loans that are deemed to no longer possess characteristics similar to others in the preparationloan portfolio. The Company measures the ACL on commercial real estate loans and commercial loans through a discounted cash flow approach using a loan’s effective interest rate, while a historical loss rate methodology is used to determine the ACL on retail loans. The Company’s discounted cash flow methodology incorporates a PD and LGD model, which is impacted by expectations of future economic conditions. The Company’s ACL methodology also incorporates estimates and assumptions concerning loan prepayments, future draws on revolving credit facilities, and the probability an unfunded commitment will be drawn upon.

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The use of reasonable and supportable forecasts in the ACL methodology requires significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon. Management leverages economic projections from a reputable and independent third party to inform and provide its reasonable and supportable economic forecasts. Other internal and external indicators of economic forecasts may also be considered by management when developing forecast metrics. Forecasts of economic conditions and expected credit losses are made over a two-year time horizon, before reverting to long-term average loss rates over a period of three years. Changes in economic forecasts, in conjunction with changes in loan specific attributes, have an impact on a loan’s PD and LGD, which can drive changes in the determination of the ACL and can have a significant impact on the provision for credit losses.

The Company’s ACL methodology also includes adjustments for qualitative factors where appropriate. Qualitative adjustments may be related to and include, but not limited to, factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios, changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL.

The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, troubled debt restructurings, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans, and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan portfolio, and as such, may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent. Collateral dependent loans are loans where the repayment of the loan is expected to come from the operation of and/or eventual liquidation of the underlying collateral. The ACL for collateral dependent loans is determined using estimates for the fair value of the underlying collateral, less costs to sell.

Although management uses the best information available to derive estimates necessary to measure an appropriate level of the ACL, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that extend beyond the Company’s control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL. Such agencies may require the Company to recognize changes to the ACL based on judgments different from those of management. Further, as the size, complexity, and composition of the loan portfolio changes over time, such as through the acquisition of other financial institutions, new product offerings, client demand for various types of credit, and changes in our financial statements thatgeographic footprint, the Company may seek to make additional enhancements to its ACL methodology. Such enhancements may have an impact on the level of the ACL in future periods.

The ACL is particularly susceptiblerecorded through a charge to significant change. For further information,provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the Company’s policy to promptly charge-off loan balances at the time they have been deemed uncollectible.

Please also see “AllowancesNote 6 - Allowance for Loan Losses” discussed in Note 7Credit Losses, of the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 5 tofor additional discussion concerning the Consolidated Financial Statements in our 2016 Annual Report.Company’s ACL methodology.


HEOP ACQUISITION
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Effective April 1, 2017,Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Upon obtaining control of an acquired entity, the Company records all identifiable assets and liabilities at their estimated fair values. Goodwill is recorded when the consideration paid for an acquired HEOP, and its wholly-owned bank subsidiary, Heritage Oaks Bank, a Paso Robles, California, based state-chartered bank, pursuant toentity exceeds the terms of a definitive agreement entered into by the Corporation and HEOP on December 12, 2016. As a resultestimated fair value of the HEOP acquisition, the Bank acquired and recorded atnet assets acquired. Changes to the acquisition date fair values of assets withacquired and liabilities assumed may be made as adjustments to goodwill during a one year measurement period following the date of acquisition. Such adjustments are attributable to additional information obtained related to fair value of approximately $2.0 billion, including:
$1.4 billion of gross loans;
$443 million in investment securities;
$269 million in goodwill;
$78.7 million of cash and cash equivalents;
$45.5 million of other types of assets;
$34.9 million in fixed assets; and
$28.1 million of a core deposit intangible.

Also as a result of the HEOP acquisition, the Company recorded $465 million of equity in connection with the Corporation’s stock issued to HEOP shareholders as part of the acquisition consideration and assumed at acquisition date liabilities with a fair value of approximately $1.8 billion, including:
$1.7 billion in deposit accounts; and
$147 million in other liabilities.

The fair valuesestimates of the assets acquired and liabilities assumed were determinedassumed. Costs associated with business combinations are expensed as incurred.

Income Taxes

The Company is subject to federal and state taxation in various tax jurisdictions within the United States. Current income taxes are based on the requirements of FASB ASC Topic 820: Fair Value Measurements and Disclosures. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the merger dateamounts payable or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.

The acquisition was an opportunityreceivable on tax returns for the Company to further strengthen its competitive positioncurrent year. Deferred tax assets and move intoliabilities are recorded for the Central Coastexpected future tax consequences of California.events that have been recognized in the Company’s financial statements or tax returns using the asset-liability method. In estimating future tax consequences, all expected future events other than enactments of changes in tax laws or tax rates are considered. The integration and system conversion of HEOP was completed in July 2017.

SCAF ACQUISITION
Effective January 31, 2016, the Company acquired SCAF, and its wholly-owned bank subsidiary, Security Bank of California, a Riverside, California, based state-chartered bank, pursuant to the termseffect on deferred taxes of a definitive agreement entered into bychange in tax rates is recognized in income in the Corporationperiod that includes the enactment date. Deferred tax assets are to be recognized for temporary differences that will result in deductible amounts in future years and SCAFfor tax carryforwards if, in the opinion of management, it is more likely than not that the deferred tax assets will be realized. Changes in income taxes can occur when, among other things, there are changes in tax laws, changes in tax rates, and/or changes in statutory or regulatory guidance; any of which may have an impact on October 2, 2015. Ascurrent and deferred income taxes, and may have a resultmaterial impact on our results of the SCAF acquisition, the Bank acquired and recorded at the acquisition date assets with a fair value of approximately $765 million, including:operations. The Company’s income tax positions are evaluated quarterly.

$456 million of gross loans;
$190 million in investment securities;
$51.7 million in goodwill;
$40.9 million of cash and cash equivalents;
$18.1 million of other types of assets;
$4.2 million in fixed assets; and
$4.3 million of a core deposit intangible.

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Also as a result of the SCAF acquisition, the Company recorded $119 million of equity in connection with the Corporation’s stock issued to SCAF shareholders as part of the acquisition consideration and assumed at acquisition date liabilities with a fair value of approximately $645 million, including:

$637 million in deposit transaction accounts; and
$8.8 million other liabilities.

The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820: Fair Value Measurements and Disclosures. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. In the second quarter of 2016, the Company made a $146,000 adjustment to fixed assets and goodwill. As of March 31, 2017, the Company finalized its fair values with this acquisition.
The acquisition was an opportunity for the Company to further strengthen its competitive position as one of the premier community banks headquartered in Southern California. The integration and system conversion of SCAF was completed in April 2016.


NON-GAAP MEASURES


The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures and may not be comparable to non-GAAP financial measures that may be presented by other companies.

For periods presented below, return on average tangible common equity is a non-GAAP financial measuresmeasure derived from U.S. GAAP-based amounts. We calculate these figuresthis figure by excluding core depositamortization of intangible ("CDI") amortizationassets expense from net income and excludeexcluding the average CDIintangible assets and average goodwill from the average stockholders’ equity during the period. Management believes that the exclusion of such items from thesethis financial measuresmeasure provides useful information to gain an understanding of the operating results of our core business. However, these

Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202220212021
Net income$66,904 $84,831 $68,668 
Plus: amortization of intangible assets expense3,592 3,880 4,143 
Less: amortization of intangible assets expense tax adjustment (1)
1,025 1,107 1,185 
Net income for average tangible common equity$69,471 $87,604 $71,626 
Average stockholders’ equity$2,864,387 $2,851,000 $2,749,641 
Less: average intangible assets68,157 71,897 83,946 
Less: average goodwill901,312 901,312 898,587 
Average tangible common equity$1,894,918 $1,877,791 $1,767,108 
Return on average equity (2)
9.34 %11.90 %9.99 %
Return on average tangible common equity (2)
14.66 %18.66 %16.21 %

(1) Amortization of intangible assets expense adjusted by statutory tax rate.
(2) Ratio is annualized.

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Tangible book value per share and tangible common equity to tangible assets (the “tangible common equity ratio”) are non-GAAP financial measures are supplementalderived from GAAP-based amounts. We calculate tangible book value per share by dividing tangible common stockholder’s equity by shares outstanding. We calculate the tangible common equity ratio by excluding the balance of intangible assets from common stockholders’ equity and are notdividing by period end tangible assets, which also excludes intangible assets. We believe that this information is important to shareholders as tangible equity is a substitutemeasure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk-based ratios.
 March 31,December 31,
(Dollars in thousands)20222021
Total stockholders’ equity$2,783,018 $2,886,311 
Less: intangible assets967,290 970,883 
Tangible common equity$1,815,728 $1,915,428 
Total assets$21,622,296 $21,094,429 
Less: intangible assets967,290 970,883 
Tangible assets$20,655,006 $20,123,546 
Tangible common equity ratio8.79 %9.52 %
Common shares issued and outstanding94,945,84994,389,543
Book value per share$29.31 $30.58 
Less: intangible book value per share10.19 10.29 
Tangible book value per share$19.12 $20.29 
For periods presented below, efficiency ratio is a non-GAAP financial measure derived from GAAP-based amounts. This figure represents the ratio of noninterest expense less other real estate owned operations, core deposit intangible amortization, and merger-related expense to the sum of net interest income before provision for loan losses and total noninterest income, less gain/(loss) on sale of securities, other income - security recoveries on investment securities, gain/(loss) on sale of other real estate owned, and gain/(loss) from debt extinguishment. Management believes that the exclusion of such items from this financial measure provides useful information to gain an analysis based on U.S. GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

understanding of the operating results of our core business.
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202220212021
Total noninterest expense$97,648 $97,252 $92,489 
Less: amortization of intangible assets3,592 3,880 4,143 
Less: merger-related expense— — 5 
Noninterest expense, adjusted$94,056 $93,372 $88,341 
Net interest income before provision for loan losses$161,839 $170,719 $161,652 
Add: total noninterest income25,894 27,281 23,740 
Less: net gain from investment securities2,134 3,585 4,046 
Less: other income - security recoveries— 1 2 
Less: net gain (loss) from debt extinguishment— — (503)
Revenue, adjusted$185,599 $194,414 $181,847 
Efficiency ratio50.7 %48.0 %48.6 %
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  Three Months Ended Nine Months Ended
  September 30, 2017 June 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
      
  (dollars in thousands)
Net income $20,232
 $14,176
 $9,227
 $43,929
 $28,152
Plus CDI amortization expense 1,761
 1,761
 525
 4,033
 1,514
Less CDI amortization expense tax adjustment (1) (606) (610) (204) (1,376) (590)
Net income for average tangible common equity 21,387
 15,327
 9,548
 46,586
 29,076
Average stockholders’ equity 976,081
 948,200
 448,777
 799,760
 421,753
Less average CDI 34,699
 36,445
 10,318
 26,899
 10,364
Less average goodwill 371,651
 370,564
 101,939
 282,554
 96,284
Average tangible common equity $569,731
 $541,191
 $336,520
 $490,307
 $315,105
Return on average tangible common equity (2) 15.02% 11.33% 11.35% 12.67% 12.30%
Core net interest income and core net interest margin are non-GAAP financial measures derived from GAAP based amounts. We calculate core net interest income by excluding scheduled accretion income, accelerated accretion income, premium amortization on CDs, nonrecurring nonaccrual interest paid, and gain (loss) on interest rate in fair value hedging relationships from net interest income. The core net interest margin is calculated as the ratio of core net interest income to average interest-earning assets. Management believes that the exclusion of such items from these financial measures provides useful information to gain an understanding of the operating results of our core business.

Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202220212021
Net interest income$161,839 $170,719 $161,652 
Less: scheduled accretion income2,857 3,097 3,878 
Less: accelerated accretion income3,083 4,770 5,988 
Less: premium amortization on CDs96 183 1,751 
Less: nonrecurring nonaccrual interest paid(356)349 (603)
Less: loss on fair value hedging relationships(1,667)(819)— 
Core net interest income$157,826 $163,139 $150,638 
Average interest-earning assets$19,240,232 $19,173,458 $18,490,426 
Net interest margin (1)
3.41 %3.53 %3.55 %
Core net interest margin (1)
3.33 %3.38 %3.30 %

(1) CDI amortization expense adjusted by quarterly effective tax rate.
(2) Ratio is annualized.



Pre-provision net revenue is a non-GAAP financial measure derived from GAAP-based amounts. We calculate the pre-provision net revenue by excluding income tax, provision for credit losses, and merger-related expenses from net income. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business and a better comparison to the financial results of prior periods.



Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202220212021
Interest income$168,546 $177,006 $172,994 
Interest expense6,707 6,287 11,342 
Net interest income161,839 170,719 161,652 
Noninterest income25,894 27,281 23,740 
Revenue187,733 198,000 185,392 
Noninterest expense97,648 97,252 92,489 
Add: merger-related expense— — 5 
Pre-provision net revenue90,085 100,748 92,908 
Pre-provision net revenue (annualized)$360,340 $402,992 $371,632 
Average assets$20,956,791 $20,867,005 $19,994,260 
Pre-provision net revenue on average assets0.43 %0.48 %0.46 %
Pre-provision net revenue on average assets (annualized)1.72 %1.93 %1.86 %



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RESULTS OF OPERATIONS
 
The following table presents the components of results of operations, share data, and performance ratios for the periods indicated:
 Three Months Ended
(Dollar in thousands, except per share data andMarch 31,December 31,March 31,
percentages)202220212021
Operating data
Interest income$168,546 $177,006 $172,994 
Interest expense6,707 6,287 11,342 
Net interest income161,839 170,719 161,652 
Provision for credit losses448 (14,648)1,974 
Net interest income after provision for credit losses161,391 185,367 159,678 
Net gain from sales of loans1,494 1,334 361 
Other noninterest income24,400 25,947 23,379 
Noninterest expense97,648 97,252 92,489 
Net income before income taxes89,637 115,396 90,929 
Income tax expense22,733 30,565 22,261 
Net income$66,904 $84,831 $68,668 
Pre-provision net revenue (3)
$90,085 $100,748 $92,908 
Share data
Earnings per share:
Basic$0.71 $0.90 $0.73 
Diluted0.70 0.89 0.72 
Common equity dividends declared per share0.33 0.33 0.30 
Dividend payout ratio (1)
46.60 %36.72 %41.26 %
Performance ratios
Return on average assets (2)
1.28 %1.63 %1.37 %
Return on average equity (2)
9.34 11.90 9.99 
Return on average tangible common equity (2)(3)
14.66 18.66 16.21 
Pre-provision net revenue on average assets (2)(3)
1.72 1.93 1.86 
Average equity to average assets13.67 13.66 13.75 
Efficiency ratio (3)
50.7 48.0 48.6 

(1) Dividend payout ratio is defined as common equity dividends declared per share divided by basic earnings per share.
(2) Ratio is annualized.
(3) Reconciliations of the non-GAAP measures are set forth in the Non-GAAP Measures section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

In the thirdfirst quarter of 2017,2022, we reported net income of $20.2$66.9 million, or $0.50$0.70 per diluted share. This compares with net income of $14.2$84.8 million, or $0.35$0.89 per diluted share, for the secondfourth quarter of 2017.2021. The increasedecrease in net income was primarily driven bydue to a $15.1 million decrease in provision recapture, an $8.9 million decrease in net interest income, a $1.4 million decrease in noninterest income, and a $396,000 increase in noninterest expense, of $8.9 million, principally due topartially offset by a $9.6$7.8 million decrease in merger-related expense,income tax expense. The provision recapture during the fourth quarter of 2021 was reflective of improving economic forecasts used in the Company’s CECL model relative to prior periods, partially offset by an increase in income tax expense of $3.1 million.loans held for investment and changes in loan mix.


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Net income of $20.2$66.9 million, or $0.50$0.70 per diluted share, for the thirdfirst quarter of 20172022 compares to net income for the thirdfirst quarter of 20162021 of $9.2$68.7 million, or $0.33$0.72 per diluted share. The increasedecrease in net income of $11.0 million was primarily due to the $25.3 million increase in net interest income resulting from average interest-earning asset growth of $2.4 billion. The increase in average interest-earning assets was primarily from the acquisition of HEOP and organic loan growth since the end of the third quarter of 2016. The increase was partially offset by an $13.8a $5.2 million increase in noninterest expense, including increasespartially offset by a $2.2 million increase in noninterest income, and a $1.5 million decrease in provision for credit losses. The decrease in the provision for credit losses during the first quarter of $7.5 million2022 was primarily due to higher outstanding unfunded loan commitments in compensation and benefits expenses, $1.4 million in premises and occupancy, $1.2 million in legal, audit and professional expense, $1.2 million in CDI amortization expense, and $503,000 in merger-related expenses.the first quarter of 2021.


For the three months ended September 30, 2017,March 31, 2022, the Company’s return on average assets was 1.26%1.28%, return on average equity was 9.34%, and return on average tangible common equity was 15.02%14.66%. For the three months ended June 30, 2017,December 31, 2021, the return on average assets was 0.89%1.63%, the return on average equity was 11.90%, and the return on average tangible common equity was 11.33%18.66%. For the three months ended September 30, 2016,March 31, 2021, the return on average assets was 1.00%1.37%, the return on average equity was 9.99%, and the return on average tangible common equity was 11.35%16.21%. For additional details, see "non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.


For the nine months ended September 30, 2017, the Company recorded net income of $43.9 million, or $1.20 per diluted share. This compares with net income of $28.2 million or $1.03 per diluted share for the nine months ended September 30, 2016. The increase in net income of $15.8 million was mostly due to the $58.6 million increase in net interest income resulting from earning asset growth, primarily from the acquisition of HEOP and organic loan growth, partially offset by growth in non-interest expense of $44.7 million, including increases of $19.2 million in compensation and benefits expenses associated with both the acquisition of HEOP and an increase in staffing to support organic growth and $12.0 million in merger-related expenses. Prior period comparisons for the year-to-date results are impacted by the acquisition of HEOP in the second quarter of 2017 and the acquisition of SCAF in the first quarter of 2016.
For the nine months ended September 30, 2017, the Company’s return on average assets was 1.56% and return on average tangible common equity was 12.67%, compared with a return on average assets of 1.60% and a return on average tangible common equity of 12.30% for the nine months ended September 30, 2016.

Net Interest Income
 
Our primary source of revenue is net interest income, which is the difference between the interest earned on loans, investment securities, and interest earninginterest-earning balances with financial institutions (“interest-earning assets”) and the interest paid on deposits and borrowings (“interest-bearing liabilities”). Net interest margin is net interest income expressed as a percentage of average interest earninginterest-earning assets. Net interest income is affected by changes in both interest rates and the volume of interest-earning assets and interest-bearing liabilities.

Net interest income totaled $64.3$161.8 million in the thirdfirst quarter of 2017, an increase2022, a decrease of $953,000$8.9 million, or 1.5%5.2%, from the secondfourth quarter of 2017.2021. The increasedecrease in net interest income was primarily dueattributable to lower loan-related fees and lower accretion income as a result of slowing prepayment activity, two fewer days of interest, and lower average investment and loan yields, partially offset by an increase in average loan balancesearning assets and a favorable remix towards higher yielding loans.

The net interest margin for the first quarter of 2022 was 3.41%, compared with 3.53% in the prior quarter. Our core net interest margin, which excludes the impact of higher loan yields, driven principally by the Federal Reserve June rate hike, primarily offset by lower accretion income, loss on interest rate contract in fair value hedging relationships, and prepayment fees, as well as higher deposit costs.


Net interest marginother adjustments, decreased from 4.40% to 4.34% in the current quarter, entirely driven by lower accretion income of $2.9 million, compared to $4.2 million of accretion income in the second quarter of 2017. Excluding the impact of accretion, our net interest margin expanded 5 basis points to 4.14%3.33%, compared with 4.09%to 3.38% in the secondprior quarter, as portfolioreflecting lower loan prepayment fees, lower average investment and loan yields, expandedpartially offset by 7 basis points overall. Partially offsetting thesethe favorable increases were higher deposit interest costs of 3 basis points to 28 basis points, as well as as a decreaseshift in prepayment fees of approximately $400,000.average earning-asset mix.


Net interest income for the thirdfirst quarter of 20172022 increased $25.3 million,$187,000, or 65%, compared to the third quarter of 2016. The increase was related to an increase in average interest-earning assets of $2.4 billion, which resulted primarily from our organic loan growth since the end of the third quarter of 2016 and our acquisition of HEOP during the second quarter of 2017.

For the first nine months ended 2017, net interest income increased $58.6 million, or 53%0.1%, compared to the first nine months ended 2016.quarter of 2021. The increase was relatedattributable to higher average loan and investment balances, lower cost of funds, primarily due to a favorable deposit mix from an $894.6 million increase in average noninterest-bearing checking, and redemptions of higher-cost subordinated debentures, partially offset by lower average interest-earning assets of $1.8 billion, which resulted primarily from our organic loan growth since the end of the first nine months ended 2016 and our acquisition of HEOP during the second quarter of 2017.yields.


78

The following tables present fortable presents the periods indicated theinterest spread, net interest margin, average dollar amounts from selected balance sheet categoriesbalances calculated frombased on daily average, balancesinterest income and the total dollar amount, including adjustments to yields and costs, of:
Interest income earned fromon average interest-earning assets and the resultant yields;interest expense and
Interest expense incurred from rates paid on average interest-bearing liabilities, and resultant costs, expressed as rates.


The tables below set forth our net interest income, net interest the average yield/rate spreadby asset and net interest rate marginliability component for the periods indicated. The net interest rate margin reflects the relative level of interest-earning assets to interest-bearing liabilities and equals our net interest rate spread divided by average interest-earning assets for the periods indicated.indicated:
 Average Balance Sheet
Three Months Ended
March 31, 2022December 31, 2021March 31, 2021
(Dollars in thousands)Average
Balance		InterestAverage
Yield/Cost		Average
Balance		InterestAverage
Yield/Cost		Average
Balance		InterestAverage
Yield/Cost
Assets
Interest-earning assets:         
Cash and cash equivalents$322,236 $90 0.11 %$334,371 $66 0.08 %$1,309,366 $301 0.09 %
Investment securities4,546,408 17,852 1.57 4,833,251 19,522 1.62 4,087,451 17,468 1.71 
Loans receivable, net (1)(2)
14,371,588 150,604 4.25 14,005,836 157,418 4.46 13,093,609 155,225 4.81 
Total interest-earning assets19,240,232 168,546 3.55 19,173,458 177,006 3.66 18,490,426 172,994 3.79 
Noninterest-earning assets1,716,559 1,693,547 1,503,834 
Total assets$20,956,791 $20,867,005 $19,994,260 
Liabilities and equity
Interest-bearing deposits:
Interest checking$3,537,824 $229 0.03 %$3,501,323 $225 0.03 %$3,060,055 $419 0.06 %
Money market5,343,973 888 0.07 5,467,559 925 0.07 5,447,909 2,588 0.19 
Savings422,186 26 0.02 418,218 27 0.03 368,288 82 0.09 
Retail certificates of deposit1,047,451 530 0.21 1,084,326 517 0.19 1,425,093 1,201 0.34 
Wholesale/brokered certificates of deposit— — — — — — 118,854 136 0.46 
Total interest-bearing deposits10,351,434 1,673 0.07 10,471,426 1,694 0.06 10,420,199 4,426 0.17 
FHLB advances and other borrowings225,250 474 0.85 69,538 33 0.19 22,012 65 1.20 
Subordinated debentures330,629 4,560 5.52 330,476 4,560 5.52 501,553 6,851 5.46 
Total borrowings555,879 5,034 3.63 400,014 4,593 4.59 523,565 6,916 5.36 
Total interest-bearing liabilities10,907,313 6,707 0.25 10,871,440 6,287 0.23 10,943,764 11,342 0.42 
Noninterest-bearing deposits6,928,872 6,911,702 6,034,319 
Other liabilities256,219 232,863 266,536 
Total liabilities18,092,404 18,016,005 17,244,619 
Stockholders’ equity2,864,387 2,851,000 2,749,641 
Total liabilities and equity$20,956,791 $20,867,005 $19,994,260 
Net interest income$161,839 $170,719 $161,652 
Net interest margin (3)
3.41 %3.53 %3.55 %
Cost of deposits (4)
0.04 0.04 0.11 
Cost of funds (5)
0.15 0.14 0.27 
Ratio of interest-earning assets to interest-bearing liabilities176.40 176.37 168.96 

 Average Balance Sheet
 Three Months Ended
 September 30, 2017 June 30, 2017 September 30, 2016
 
Average
Balance
 Interest 
Average
Yield/Cost
 
Average
Balance
 Interest 
Average
Yield/Cost
 
Average
Balance
 Interest 
Average
Yield/Cost
Assets(dollars in thousands)
Interest-earning assets:                 
Cash and cash equivalents$167,745
 $265
 0.63% $133,127
 $160
 0.48% $201,140
 $232
 0.46%
Investment securities765,537
 4,981
 2.60
 829,380
 5,019
 2.42
 316,253
 1,710
 2.16
Loans receivable, net (1)4,937,979
 64,915
 5.22
 4,815,612
 63,554
 5.29
 2,998,153
 40,487
 5.37
Total interest-earning assets5,871,261
 70,161
 4.74
 5,778,119
 68,733
 4.77
 3,515,546
 42,429
 4.80
Noninterest-earning assets573,127
     592,186
     190,670
    
Total assets$6,444,388
     $6,370,305
     $3,706,216
    
Liabilities and Equity                 
Interest-bearing deposits:                 
Interest checking$318,412
 $103
 0.13
 $329,450
 $90
 0.11
 $185,344
 $53
 0.11
Money market1,802,834
 1,767
 0.39
 1,779,013
 1,582
 0.36
 1,036,349
 923
 0.35
Savings211,404
 68
 0.13
 218,888
 68
 0.12
 98,496
 38
 0.15
Retail certificates of deposit571,663
 1,052
 0.73
 568,367
 911
 0.64
 402,371
 745
 0.74
Wholesale/brokered certificates of deposit243,007
 567
 0.93
 212,124
 430
 0.81
 199,180
 377
 0.75
Total interest-bearing deposits3,147,320
 3,557
 0.45
 3,107,842
 3,081
 0.40
 1,921,740
 2,136
 0.44
FHLB advances and other borrowings319,373
 1,162
 1.44
 385,088
 1,175
 1.22
 97,547
 314
 1.28
Subordinated debentures79,833
 1,151
 5.77
 79,757
 1,139
 5.71
 69,334
 970
 5.60
Total borrowings399,206
 2,313
 2.30
 464,845
 2,314
 2.00
 166,881
 1,284
 3.06
Total interest-bearing liabilities3,546,526
 5,870
 0.66
 3,572,687
 5,395
 0.61
 2,088,621
 3,420
 0.65
Noninterest-bearing deposits1,860,177
     1,802,752
     1,134,318
    
Other liabilities61,604
     46,666
     34,500
    
Total liabilities5,468,307
     5,422,105
     3,257,439
    
Stockholders’ equity976,081
     948,200
     448,777
    
Total liabilities and equity$6,444,388
     $6,370,305
     $3,706,216
    
Net interest income  $64,291
     $63,338
     $39,009
  
Net interest rate spread (2)    4.08%     4.16%     4.15%
Net interest margin (3)    4.34%     4.40%     4.41%
Ratio of interest-earning assets to interest-bearing liabilities    165.55%     161.73%     168.32%

            
 Average Balance Sheet
 Nine Months Ended
 September 30, 2017 September 30, 2016
 
Average
Balance
 Interest 
Average
Yield/Cost
 
Average
Balance
 Interest 
Average
Yield/Cost
Assets(dollars in thousands)
Interest-earning assets:           
Cash and cash equivalents$129,537
 $509
 0.53% $204,821
 $659
 0.43%
Investment securities682,819
 12,907
 2.52% 318,570
 5,220
 2.18%
Loans receivable, net (1)4,362,403
 170,905
 5.24% 2,806,902
 114,929
 5.47%
Total interest-earning assets5,174,759
 184,321
 4.76% 3,330,293
 120,808
 4.85%
Noninterest-earning assets455,166
     183,922
    
Total assets$5,629,925
     $3,514,215
    
Liabilities and Equity           
Interest-bearing deposits:           
Interest checking$281,491
 $246
 0.12% $176,079
 $150
 0.11%
Money market1,574,292
 4,321
 0.37% 969,666
 2,640
 0.36%
Savings178,309
 174
 0.13% 97,234
 113
 0.16%
Retail certificates of deposit504,810
 2,648
 0.70% 428,434
 2,388
 0.74%
Wholesale/brokered certificates of deposit219,119
 1,385
 0.85% 168,631
 924
 0.73%
Total interest-bearing deposits2,758,021
 8,774
 0.43% 1,840,044
 6,215
 0.45%
FHLB advances and other borrowings323,426
 2,940
 1.22% 102,860
 963
 1.25%
Subordinated debentures76,366
 3,275
 5.72% 69,340
 2,859
 5.50%
Total borrowings399,792
 6,215
 2.08% 172,200
 3,822
 2.96%
Total interest-bearing liabilities3,157,813
 14,989
 0.63% 2,012,244
 10,037
 0.67%
Noninterest-bearing deposits1,626,047
     1,048,630
    
Other liabilities46,305
     31,588
    
Total liabilities4,830,165
     3,092,462
    
Stockholders' equity799,760
     421,753
    
Total liabilities and equity$5,629,925
     $3,514,215
    
Net interest income  $169,332
     $110,771
  
Net interest rate spread (2)    4.13%     4.18%
Net interest margin (3)    4.38%     4.44%
Ratio of interest-earning assets to interest-bearing liabilities    163.87%     165.50%
_____________________________
(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees, unamortized discountsfees/costs and discounts/premiums.
(2) Interest income includes net discount accretion of $5.9 million, $7.9 million, and $9.9 million, respectively.
(3) Represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(3) Representsannualized net interest income divided by average interest-earning assets.

(4) Represents annualized interest expense on deposits divided by the sum of average interest-bearing deposits and noninterest-bearing deposits.

(5) Represents annualized total interest expense divided by the sum of average total interest-bearing liabilities and noninterest-bearing deposits.

79

Changes in our net interest income are a function of changes in volumes,volume, days in a period, and rates of interest-earning assets and interest-bearing liabilities. The following table presentstables present the impact that the volume, days in a period, and rate changes have had on our net interest income for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, we have provided information on changes to our net interest income with respect to:
 
•Changes in volume (changes in volume multiplied by prior rate);
•Changes in days in a period (changes in days in a period multiplied by daily interest)interest; no changes in days for comparisons of the three months ended March 31, 2022 to the three months ended March 31, 2021);
•Changes in interest rates (changes in interest rates multiplied by prior volume)volume and includes the recognition of discounts/premiums and deferred fees/costs); and
•The net change or the combined impact of volume, days in a period, and rate changes allocated proportionately to changes in volume, days in a period, and changes in interest rates.
Three Months Ended March 31, 2022
Compared to
Three Months Ended December 31, 2021
Increase (Decrease) Due to
(Dollars in thousands)VolumeDaysRateNet
Interest-earning assets   
Cash and cash equivalents$(2)$(2)$28 $24 
Investment securities(1,137)— (533)(1,670)
Loans receivable, net3,890 (3,347)(7,357)(6,814)
Total interest-earning assets2,751 (3,349)(7,862)(8,460)
Interest-bearing liabilities   
Interest checking2 (5)7 4 
Money market(21)(20)4 (37)
Savings— (1)— (1)
Retail certificates of deposit(16)(12)41 13 
FHLB advances and other borrowings176 (11)276 441 
Subordinated debentures2 — (2)— 
Total interest-bearing liabilities143 (49)326 420 
Change in net interest income$2,608 $(3,300)$(8,188)$(8,880)
80

Three Months Ended March 31, 2022
Three Months Ended September 30, 2017
Compared to
Three Months Ended June 30, 2017
Increase (decrease) due to		Compared to
Volume Days Rate NetThree Months Ended March 31, 2021
(dollars in thousands)Increase (Decrease) Due to
(Dollars in thousands)(Dollars in thousands)VolumeRateNet
Interest-earning assets       Interest-earning assets   
Cash and cash equivalents$46
 $3
 $56
 $105
Cash and cash equivalents$(296)$85 $(211)
Investment securities(270) —
 232
 (38)Investment securities1,882 (1,498)384 
Loans receivable, net1,508
 706
 (853) 1,361
Loans receivable, net14,273 (18,894)(4,621)
Total interest-earning assets1,284
 709
 (565) 1,428
Total interest-earning assets15,859 (20,307)(4,448)
Interest-bearing liabilities 
    
  
Interest-bearing liabilities   
Interest checking(3) 1
 15
 13
Interest checking48 (238)(190)
Money market23
 19
 143
 185
Money market(48)(1,652)(1,700)
Savings(3) 1
 2
 —
Savings14 (70)(56)
Retail certificates of deposit5
 11
 125
 141
Retail certificates of deposit(267)(404)(671)
Wholesale/brokered certificates of deposit65
 6
 66
 137
Wholesale/brokered certificates of deposit(68)(68)(136)
FHLB advances and other borrowings(220) 13
 194
 (13)FHLB advances and other borrowings514 (105)409 
Subordinated debentures—
 —
 12
 12
Subordinated debentures(2,358)67 (2,291)
Total interest-bearing liabilities(133) 51
 557
 475
Total interest-bearing liabilities(2,165)(2,470)(4,635)
Change in net interest income$1,417
 $658
 $(1,122) $953
Change in net interest income$18,024 $(17,837)$187 







 Three Months Ended September 30, 2017
Compared to
Three Months Ended September 30, 2016
Increase (decrease) due to
 Volume Rate Net
 (dollars in thousands)
Interest-earning assets     
Cash and cash equivalents$(43) $76
 $33
Investment securities2,803
 468
 3,271
Loans receivable, net25,597
 (1,169) 24,428
Total interest-earning assets28,357
 (625) 27,732
Interest-bearing liabilities 
  
  
Interest checking40
 10
 50
Money market730
 114
 844
Savings36
 (6) 30
Retail certificates of deposit317
 (10) 307
Wholesale/brokered certificates of deposit91
 99
 190
FHLB advances and other borrowings804
 44
 848
Subordinated debentures150
 31
 181
Total interest-bearing liabilities2,168
 282
 2,450
Change in net interest income$26,189
 $(907) $25,282
        
 Nine Months Ended September 30, 2017
Compared to
Nine Months Ended September 30, 2016
Increase (decrease) due to
 Volume Days Rate Net
 (dollars in thousands)
Interest-earning assets       
Cash and cash equivalents$(277) $(2) $129
 $(150)
Investment securities6,783
 —
 904
 7,687
Loans receivable, net61,533
 (626) (4,931) 55,976
Total interest-earning assets$68,039
 $(628) $(3,898) $63,513
Interest-bearing liabilities 
    
  
Interest checking$84
 $(1) $13
 $96
Money market1,624
 (16) 73
 1,681
Savings87
 (1) (25) 61
Retail certificates of deposit404
 (10) (134) 260
Wholesale/brokered certificates of deposit301
 (5) 165
 461
FHLB advances and other borrowings2,011
 (11) (23) 1,977
Subordinated debentures250
 —
 166
 416
Total interest-bearing liabilities$4,761
 $(44) $235
 $4,952
Change in net interest income$63,278
 $(584) $(4,133) $58,561


Provision for LoanCredit Losses


AFor the first quarter of 2022, the Company recorded a $448,000 provision for loan lossesexpense, compared to a $14.6 million provision recapture during the fourth quarter of 2021, and a $2.0 million provision expense during the first quarter of 2021. The provision expense during the first quarter of 2022 was recordeddriven principally by loan growth and higher net charge-offs, as well as the impact of growing macroeconomic uncertainties. With the increasing probability of downside risks due to high inflation, the war between Russia and Ukraine and the uncertainty of its economic impact, and the potential that the economy may enter into a period of recession, the Company is carefully monitoring the current and forecasted macroeconomic environment, as well as key modeling variables.

The provision recapture for the thirdfourth quarter of 2017, compared with a2021 was primarily reflective of improving economic forecasts employed in the Company’s CECL model, partially offset by the fourth quarter loan growth and changes in loan mix. The provision for loan losses of $1.9 millionexpense for the first quarter ended June 30, 2017. The smallof 2021 was a result of an increase in our provision foroutstanding unfunded commitments in the commercial and industrial loan losses was primarily due to organic loan growth. segment in conjunction with continued unfavorable, but improving economic conditions and forecasts reflected in the Company’s CECL model.

Net loan recoveries were $39,000charge-offs for the recent quarter of 2017,three months ending March 31, 2022 totaled $446,000, compared with net loan recoveries of $76,000$981,000 for the quarter ended June 30, 2017.

The $2.0 million provision for loan losses during the third quarter of 2017 decreased by $2.0 million from
the third quarter of 2016. Net loan recoveries were $39,000 for the third quarter of 2017, compared withthree months ending December 31, 2021, and net loan charge-offs of $1.1 million from the third quarter of 2016.

For the first nine months of 2017, we recorded a $6.5 million provision for loan losses, a decrease from
$6.7 million recorded for the first nine months of 2016. Net loan charge-offs amounted to $608,000 for the first nine months of 2017, a decrease from $2.2$1.3 million for the first ninethree months of 2016.ending March 31, 2021.

Three Months EndedVariance From
March 31,December 31,March 31,December 31, 2021March 31, 2021
(Dollars in thousands)202220212021$%$%
Provision for credit losses
Provision for loan losses$211 $(14,710)$315 $14,921 (101.4)%$(104)(33.0)%
Provision for unfunded commitments218 51 1,659 167 327.5 (1,441)(86.9)
Provision for HTM securities19 11 — 8 72.7 19 — 
Total provision for credit losses$448 $(14,648)$1,974 $15,096 (103.1)%$(1,526)(77.3)%
For purchased credit impaired loans, charge-offs are recorded when there is a decrease in the estimated cash flows of the credit from original cash flow estimates. Purchased credit impaired loans were recorded at their estimated fair value, which incorporated our estimated expected cash flows until the ultimate resolution of these credits. To the extent actual or projected cash flows are less than originally estimated, additional provisions for loan losses or charge-offs will be recognized into earnings or against the allowance, if applicable. To the extent actual or projected cash flows are more than originally estimated, the increase in cash flows is prospectively recognized in loan interest income. Due to the accounting rules associated with our purchased credit impaired loans, each quarter we are required to re-estimate cash flows which could cause volatility in our reported net interest margin and provision for loan losses. During the three and nine months ended September 30, 2017, no additional allowance was recorded associated with certain purchased credit impaired loans. See “Allowance for Loan Losses” discussed below in this Quarterly Report on Form 10-Q.
81

Noninterest Income


The following table presents the components of noninterest income for the periods indicated:
 Three Months EndedVariance From
 March 31,December 31,March 31,December 31, 2021March 31, 2021
(Dollars in thousands)202220212021$%$%
Noninterest income
Loan servicing income$419 $505 $458 $(86)(17.0)%$(39)(8.5)%
Service charges on deposit accounts2,615 2,590 2,032 25 1.0 583 28.7 
Other service fee income367 391 473 (24)(6.1)(106)(22.4)
Debit card interchange fee income836 769 787 67 8.7 49 6.2 
Earnings on bank owned life insurance3,221 3,521 2,233 (300)(8.5)988 44.2 
Net gain from sales of loans1,494 1,334 361 160 12.0 1,133 313.9 
Net gain from sales of investment securities2,134 3,585 4,046 (1,451)(40.5)(1,912)(47.3)
Trust custodial account fees11,579 11,611 7,222 (32)(0.3)4,357 60.3 
Escrow and exchange fees1,661 2,221 1,526 (560)(25.2)135 8.8 
Other income1,568 754 4,602 814 108.0 (3,034)(65.9)
Total noninterest income$25,894 $27,281 $23,740 $(1,387)(5.1)%$2,154 9.1 %
Noninterest income for the thirdfirst quarter of 20172022 was $8.2$25.9 million, a decrease of $538,000, or 6%,$1.4 million from the secondfourth quarter of 2017.2021. The decrease from the second quarter of 2017 was primarily relateddue to a $1.2$1.5 million decrease in net gain from the salesales of investment securities and a $560,000 decrease in escrow and exchange fees, partially offset by a $552,000an $814,000 increase in net gain from the sale of loans and increases in loan servicing and deposit fees.

other income, which included $530,000 higher CRA investment income.
During the thirdfirst quarter of 2017,2022, the Bank sold $31.9 million of Small Business Administration ("SBA") loans for a gain of $3.1 million, compared with $29.2$17.8 million of SBA loans sold andfor a net gain of $2.9$1.5 million, compared to the sales of $13.3 million of SBA loans for a net gain of $1.3 million during the fourth quarter of 2021.

Additionally, during the first quarter of 2022, the Bank sold $658.5 million of investment securities for a net gain of $2.1 million, compared to the sales of $267.1 million of investment securities for a net gain of $3.6 million in the prior quarter. Additionally, the Bank sold one-to-four family loans during the thirdfourth quarter of 2017, totaling $37.0 million for a gain of $386,000.2021.


Noninterest income for the thirdfirst quarter of 20172022 increased $2.3$2.2 million, or 38%, compared to the thirdfirst quarter of 2016.2021. The increase from the third quarter of 2016 was primarily relateddue to a $869,000$4.4 million increase in other income, $695,000 increase in deposittrust custodial account fees, a $384,000 increase in net gain from the sale of investment securities and a $317,000$1.1 million increase in net gain from sales of loans.

For the first nine months of 2017, noninterestloans, and a $988,000 increase in earnings on bank owned life insurance (“BOLI”), partially offset by a $3.0 million decrease in other income totaled $21.7and a $1.9 million an increase from $15.3 million for the first nine months of 2016. The increase was primarily related to higher net gain from sale of loans of $2.0 million and higherdecrease in net gain from sales of investment securitiessecurities.

The net gain from sales of $1.2 million. In addition,loans for the first quarter of 2022 increased from the same period last year reflecting higher deposit service chargesnet gain from the sales of $17.8 million of SBA loans for a net gain of $1.5 million, compared with the sales of $1.3 million of SBA loans for a net gain of $69,000 and higher other incomefully charged-off loans for a net gain of $2.0 million were recognized, which includes higher debit card and other fees of $1.7 million, primarily as a result of$292,000 during the HEOP acquisition in the secondfirst quarter of 2017.2021.



82

Noninterest Expense


The following table presents the components of noninterest expense for the periods indicated:
 Three Months EndedVariance From
 March 31,December 31,March 31,December 31, 2021March 31, 2021
(Dollars in thousands)202220212021$%$%
Noninterest expense
Compensation and benefits$56,981 $56,076 $52,548 $905 1.6 %$4,433 8.4 %
Premises and occupancy11,952 11,403 11,980 549 4.8 (28)(0.2)
Data processing5,996 5,881 5,828 115 2.0 168 2.9 
Other real estate owned operations, net— — — — — — — 
FDIC insurance premiums1,396 1,389 1,181 7 0.5 215 18.2 
Legal and professional services4,068 5,870 3,935 (1,802)(30.7)133 3.4 
Marketing expense1,809 1,821 1,598 (12)(0.7)211 13.2 
Office expense1,203 1,463 1,829 (260)(17.8)(626)(34.2)
Loan expense1,134 857 1,115 277 32.3 19 1.7 
Deposit expense3,751 3,836 3,859 (85)(2.2)(108)(2.8)
Merger-related expense— — 5 — — (5)(100.0)
Amortization of intangible assets3,592 3,880 4,143 (288)(7.4)(551)(13.3)
Other expense5,766 4,776 4,468 990 20.7 1,298 29.1 
Total noninterest expense$97,648 $97,252 $92,489 $396 0.4 %$5,159 5.6 %

Noninterest expense totaled $39.6$97.6 million for the thirdfirst quarter of 2017, a decrease2022, an increase of $8.9 million, or 18%,$396,000 compared withto the secondfourth quarter of 2017. The decrease was2021, primarily driven by merger-related expenses of $503,000 in the third quarter of 2017 compared with $10.1 million for the second quarter of 2017. Excluding the merger-related expense, our noninterest expense increased to $39.1 million compared with $38.4 million for the second quarter of 2017. The increase was primarily driven by an increase in legal, audit and professional expenses of $697,000, a $409,000$990,000 increase in other expense due primarilymainly attributable to CRA related charitable contributions,a higher credit loss reserve for trust custodial account fees receivable and higher expenses for Pacific Premier Trust, a $905,000 increase in compensation and benefits, and a $283,000$549,000 increase in premises and occupancy expense, as we expand our facilities to accommodate our growth. These increases were partially offset by a decrease of $439,000 in FDIC insurance premiums, as we adjusted the accrual following the HEOP acquisition, and a $357,000$1.8 million decrease in data processing expense, as we realized cost savings upon converting the HEOP systems early in the third quarter of 2017.legal and professional services.

In comparison to the third quarter of 2016, noninterest expense grew by $13.8 million, or 53%. The increase in expense was primarily related to the additional costs from the operations, personnel and branches retained from the acquisition of HEOP, combined with our continued investment in personnel and systems to support our organic growth.


Noninterest expense totaled $118increased by $5.2 million forcompared to the first nine monthsquarter of 2017, an increase of $44.7 million, or 61%, compared with the first nine months of 2016.2021. The increase was primarily driven by higherdue to a $4.4 million increase in compensation and benefits and a $1.3 million increase in other expense, during the first nine monthspartially offset by a $626,000 decrease in office expense and a $551,000 decrease in amortization of 2017 of $19.2 million, as well as merger-related expense of $15.6 million for the HEOP acquisition in the first nine months of 2017 compared with $3.6 million for the first nine months of 2016 for the SCAF acquisition.intangible assets.


The Company’s efficiency ratio was 52.1% for the third quarter of 2017, compared to 52.3% for the second quarter of 2017 and 57.0% for the third quarter of 2016. The Company's efficiency ratio was 52.3%50.7% for the first nine monthsquarter of 2017,2022, compared to 54.8%48.0% for the fourth quarter of 2021, and 48.6% for the first nine monthsquarter of 2016.2021.

83

Income Taxes

For the three months ended September 30, 2017, June 30, 2017March 31, 2022, December 31, 2021, and September 30, 2016,March 31, 2021, income tax expense was $10.6$22.7 million, $7.5$30.6 million, and $5.9$22.3 million, respectively, and the effective income tax rate was 34.4%25.4%, 34.7%26.5%, and 38.9%24.5%, respectively. The quarter's rate was favorably impacted by a $1.1 million true-up with the filing of the 2016 tax return and, to a lesser extent, theOur effective tax rate deductibilityfor the three months ended March 31, 2022 differs from the 21% federal statutory rate due to the impact of equitystate taxes as well as various permanent tax differences, including tax-exempt income from municipal securities, BOLI income, tax credits from low-income housing tax credit investments, and the exercise of stock expenseoptions and vesting of other stock-based compensation.

The total amount of unrecognized tax benefits was $1.4 million at March 31, 2022 and December 31, 2021, and was comprised of unrecognized tax benefits related to the adoptionOpus acquisition in 2020. The total amount of ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting.tax benefits that, if recognized, would favorably impact the effective tax rate was $563,000 at March 31, 2022 and December 31, 2021. The Company does not believe that the unrecognized tax benefits will change significantly within the next twelve months.

The Company did not haverecognizes interest and penalties related to unrecognized tax benefits that related to uncertainties associated with federal and statein income tax matters asexpense. The Company had accrued for $42,000 and $31,000 of September 30, 2017such interest at March 31, 2022 and December 31, 2016.2021, respectively. No amounts for penalties were accrued.


The Company and its subsidiaries are subject to U.S. federalFederal income tax, as well as state income and franchise taxestax in multiple state jurisdictions. The statute of limitations related to the consolidated federalFederal income tax returns is closed for all tax years up to and including 2012.2017. The expirationexpirations of the statutestatutes of limitations related to the various state income and franchise tax returns variesvary by state.


The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and the tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business

conditions. This analysis is updated quarterly and adjusted as necessary. Based on thisthe analysis, Managementthe Company has determined that a valuation allowance for deferred tax assets was not required as of September 30, 2017. March 31, 2022 and December 31, 2021.


FINANCIAL CONDITION
 
At September 30, 2017,March 31, 2022, assets totaled $6.5$21.62 billion, an increase of $2.5 billion,$527.9 million, or 62%2.5%, from $21.09 billion at December 31, 2016.2021. The increase in assets since December 31, 2016 was primarily due to the acquisitionincreases in cash and cash equivalents of HEOP, which after purchase accounting adjustments, added $1.4 billion in gross$504.6 million and total loans and $443of $438.6 million, partially offset by a $437.1 million decrease in investment securities. During the quarter, we took actions to position the balance sheet for a higher interest rate environment and macroeconomic uncertainty, which included increasing our liquidity position and reducing the size and duration of the AFS securities of which $244 million were sold subsequentportfolio to the acquisition, and goodwill of $269 million was recognized in the acquisition.fund higher yielding loan growth.


Loans

Loans held for investment totaled $5.0$14.73 billion at September 30, 2017,March 31, 2022, an increase of $1.8 billion,$437.9 million, or 55%3.1%, from $14.30 billion at December 31, 2016.2021. The increase from December 31, 2016 was primarily due to the acquisitiondriven by an increase in loans funded and higher commercial line utilization rates and lower levels of HEOP, which after purchase accounting adjustments, added $1.4 billion in gross loansprepayments and organic loan commitments of $1.5 billionmaturities during the first ninethree months of 2017.

Loans held2022. Commercial line utilization rates increased from an average rate of 35.2% for sale increased $36.6 million fromthe fourth quarter of 2021 to 39.5% for the first quarter of 2022. Since December 31, 2016 as a result of the inclusion of $322021, investor loans secured by real estate increased $174.6 million, of one-to-four familybusiness loans earmarked for sale in the fourth quarter.secured by real estate increased $144.1 million, commercial loans increased $135.0 million, and retail loans decreased $15.8 million.

84

The total end-of-period weighted average contractual interest rate on loans, excludingnet of fees and discounts, at September 30, 2017March 31, 2022 was 4.81%3.92%, compared to 4.81%3.95% at December 31, 2016.2021. The decrease reflects the impact of lower rates on new originations, prepayments of higher rate loans, and the change in the mix of loans.


Loans held for sale primarily represent the guaranteed portion of SBA loans, which the Bank originates for sale, and totaled $11.6 million at March 31, 2022, an increase of $777,000 from $10.9 million at December 31, 2021.

The following table sets forth the composition of our loan portfolio in dollar amounts and as a percentage of the portfolio, and gives the weighted average interest rate by loan category at the dates indicated: 

 September 30, 2017 December 31, 2016
 Amount 
Percent
of Total
 
Weighted
Average
Interest Rate
 Amount 
Percent
of Total
 
Weighted
Average
Interest Rate
 (dollars in thousands)
Business loans:           
Commercial and industrial$763,091
 15.2% 5.01% $563,169
 17.4% 4.82%
Franchise626,508
 12.6
 5.24
 459,421
 14.3
 5.24
Commercial owner occupied (1)805,137
 16.1
 4.62
 454,918
 14.0
 4.76
SBA107,211
 2.1
 6.27
 88,994
 2.7
 5.64
Agriculture86,466
 1.7
 4.57
 —
 —
 —
Total business loans2,388,413
 47.7% 4.98% 1,566,502
 48.4
 4.97%
Real estate loans:           
Commercial non-owner occupied1,098,995
 21.9
 4.54
 586,975
 18.1
 4.63
Multi-family797,370
 15.9
 4.30
 690,955
 21.3
 4.28
One-to-four family (2)246,248
 4.9
 4.61
 100,451
 3.2
 4.62
Construction301,334
 6.0
 5.98
 269,159
 8.3
 5.57
Farmland140,581
 2.9
 4.56
 —
 —
 —
Land30,719
 0.6
 5.62
 19,829
 0.6
 5.36
Other loans6,228
 0.1
 6.36
 4,112
 0.1
 5.60
Total real estate loans2,621,475
 52.3% 4.66% 1,671,481
 51.6% 4.65%
Gross loans held for investment (3)5,009,888
 100.0% 4.81% 3,237,983
 100.0% 4.81%
Plus: Deferred loan origination costs/(fees) and premiums/(discounts), net(571)  
  
 3,630
  
  
Loans held for investment5,009,317
     3,241,613
    
Allowance for loan losses(27,143)  
  
 (21,296)  
  
Loans held for investment, net$4,982,174
  
  
 $3,220,317
  
  
            
Loans held for sale, at lower of cost or fair value44,343
  
  
 7,711
  
  
 March 31, 2022December 31, 2021
(Dollars in thousands)AmountPercent
of Total		Weighted
Average
Interest Rate		AmountPercent
of Total		Weighted
Average
Interest Rate
Investor loans secured by real estate      
CRE non-owner-occupied$2,774,650 18.8 %4.16 %$2,771,137 19.4 %4.19 %
Multifamily6,041,085 41.0 3.70 5,891,934 41.2 3.75 
Construction and land303,811 2.1 4.89 277,640 1.9 4.88 
SBA secured by real estate42,642 0.2 4.98 46,917 0.3 4.98 
Total investor loans secured by real estate9,162,188 62.1 3.89 8,987,628 62.8 3.93 
Business loans secured by real estate
CRE owner-occupied2,391,984 16.2 4.03 2,251,014 15.7 4.07 
Franchise real estate secured384,267 2.7 4.60 380,381 2.7 4.60 
SBA secured by real estate68,466 0.5 5.11 69,184 0.5 5.23 
Total business loans secured by real estate2,844,717 19.4 4.13 2,700,579 18.9 4.18 
Commercial loans
Commercial and industrial2,242,632 15.2 3.62 2,103,112 14.7 3.61 
Franchise non-real estate secured388,322 2.6 4.75 392,576 2.7 4.76 
SBA non-real estate secured10,761 0.1 5.52 11,045 0.1 5.54 
Total commercial loans2,641,715 17.9 3.79 2,506,733 17.5 3.80 
Retail loans
Single family residential79,978 0.5 4.05 95,292 0.7 4.01 
Consumer5,157 0.1 4.87 5,665 0.1 4.98 
Total retail loans85,135 0.6 4.08 100,957 0.8 4.05 
Gross loans held for investment (1)
14,733,755 100.0 %3.92 14,295,897 100.0 %3.95 
Allowance for credit losses for loans held for investment(197,517)(197,752)
Loans held for investment, net$14,536,238 $14,098,145 
Total unfunded loan commitments$2,940,370 $2,507,911 
Loans held for sale, at lower of cost or fair value$11,646 $10,869 

(1) Secured by real estate.
(2) Includes second trust deeds.
(3) Total gross loans held for investment for September 30, 2017 are net deferred origination fees of the$3.9 million and $3.5 million, and unaccreted fair value net purchase discounts of $21.6$71.2 million. and $77.1 million as of March 31, 2022 and December 31, 2021, respectively.





85

Delinquent Loans.  When a borrower fails to make required payments on a loan and does not cure the delinquency within 30 days, we normally initiate proceedings to pursue our remedies under the loan documents. For loans secured by real estate, we record a notice of default and, after providing the required notices to the borrower, commence foreclosure proceedings. If the loan is not reinstated within the time permitted by law, we may sell the property at a foreclosure sale. At these foreclosure sales,sale where we generally acquire title to the property. Loans delinquent 30 or more days as a percentage of loans held for investment were 0.07%0.30% at September 30, 2017,March 31, 2022, compared to 0.03%0.14% at December 31, 2016.2021. The quarter-over-quarter increase in loan delinquencies was primarily due to the addition of two C&I loans totaling $25.3 million belonging to a single relationship that were 30 - 59 days delinquent at March 31, 2022.


The following table sets forth delinquencies in the Company’s loan portfolio atas of the dates indicated:

 30 - 59 Days60 - 89 Days90 Days or MoreTotal
(Dollars in thousands)# of
Loans		Principal
Balance
of Loans		# of
Loans		Principal
Balance
of Loans		# of
Loans		Principal
Balance
of Loans		# of
Loans		Principal
Balance
of Loans
At March 31, 2022        
Investor loans secured by real estate        
CRE non-owner-occupied— $— — $— 4 $12,018 4 $12,018 
Total investor loans secured by real estate— — — — 4 12,018 4 12,018 
Business loans secured by real estate
CRE owner-occupied— — — — 3 4,901 3 4,901 
SBA secured by real estate— — — — 1 441 1 441 
Total business loans secured by real estate— — — — 4 5,342 4 5,342 
Commercial loans
Commercial and industrial7 25,332 2 74 1 243 10 25,649 
SBA non-real estate secured— — — — 1 642 1 642 
Total commercial loans7 25,332 2 74 2 885 11 26,291 
Retail loans
Total retail loans— — — — — — — — 
Total7 $25,332 2 $74 10 $18,245 19 $43,651 
Delinquent loans to loans held for investment 0.17 % — % 0.13 %0.30 %
.
.
86

 30 - 59 Days 60 - 89 Days 90 Days or More (1) Total
 
# of
Loans
 
Principal
Balance
of Loans
 
# of
Loans
 
Principal
Balance
of Loans
 
# of
Loans
 
Principal
Balance
of Loans
 
# of
Loans
 
Principal
Balance
of Loans
 (dollars in thousands)
At September 30, 2017               
Business loans:               
Commercial and industrial3
 $57
 1
 $119
 5
 $327
 9
 $503
Commercial owner occupied—
 —
 —
 —
 3
 1,043
 3
 1,043
SBA2
 15
 1
 994
 3
 149
 6
 1,158
Warehouse facilities—
 —
 —
 —
 —
 —
 —
 —
Real estate loans:               
One-to-four family1
 416
 2
 310
 3
 100
 6
 826
Construction/Land/Other1
 68
 —
 —
 1
 10
 2
 78
Total7
 $556
 4
 $1,423
 15
 $1,629
 26
 $3,608
Delinquent loans to loans held for investment 
 0.01%  
 0.03%  
 0.03%   0.07%
                
At December 31, 2016               
Business loans:               
Commercial and industrial2
 $104
 —
 $—
 2
 $260
 4
 $364
SBA—
 —
 —
 —
 3
 316
 3
 316
Real estate loans:               
One-to-four family1
 18
 1
 71
 3
 48
 5
 137
Land—
 —
 —
 —
 1
 15
 1
 15
Total3
 $122
 1
 $71
 9
 $639
 13
 $832
Delinquent loans to loans held for investment  —%   —%   0.02%   0.03%
 30 - 59 Days60 - 89 Days90 Days or MoreTotal
(Dollars in thousands)# of
Loans		Principal
Balance
of Loans		# of
Loans		Principal
Balance
of Loans		# of
Loans		Principal
Balance
of Loans		# of
Loans		Principal
Balance
of Loans
At December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied— $— — $— 3 $10,255 3 $10,255 
Multifamily1 1,230 — — — — 1 1,230 
SBA secured by real estate— — — — 1 337 1 337 
Total investor loans secured by real estate1 1,230 — — 4 10,592 5 11,822 
Business loans secured by real estate
CRE owner-occupied— — — — 3 4,952 3 4,952 
SBA secured by real estate— — — — 1 441 1 441 
Total business loans secured by real estate— — — — 4 5,393 4 5,393 
Commercial loans
Commercial and industrial8 92 — — 2 1,462 10 1,554 
SBA non-real estate secured1 73 — — 1 653 2 726 
Total commercial loans9 165 — — 3 2,115 12 2,280 
Retail loans
Total retail loans— — — — — — — — 
Total10 $1,395 — $— 11 $18,100 21 $19,495 
Delinquent loans to loans held for investment0.01 %— %0.13 %0.14 %

(1)
Troubled Debt Restructurings

We sometimes modify or restructure loans when the borrower is experiencing financial difficulties by making a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest-only payments, and, in limited cases, concessions to the outstanding loan balances. These loans are classified as TDRs. At March 31, 2022 and December 31, 2021, the Company had six loans totaling $16.9 million and $17.3 million, respectively, modified as TDRs, which are comprised of three CRE owner-occupied loans and one C&I loan totaling $5.1 million and $5.2 million, respectively, belonging to one borrower relationship with the terms modified due to bankruptcy, and two franchise non-real estate secured loans totaling $11.8 million and $12.1 million, respectively, belonging to another borrower relationship with the terms modified for payment deferral. All loans that are delinquent 90 days or more areTDRs were on nonaccrual status and reported as part of nonperforming loans.
Allowance for Loan Losses.  The ALLL represents an estimate of probable incurred losses inherent in our loan portfolio and is based on our continual review of credit quality of the loan portfolio. The allowance contains a specific reserve component for loans that are determined to be impaired and a general reserve component for loans without credit impairment. The general reserve is determined by applying a systematically derived loss factor to individual segments of the loan portfolio. The adequacy and appropriateness of the ALLL and the individual loss factors are reviewed each quarter by management.
The loss factor for each segment of our loan portfolio is generally based on our actual historical loss rate experience supplemented by industry data where we lack loss history experience. The loss factor is adjusted by

qualitative adjustment factors to arrive at a final loss factor for each loan portfolio segment. For additional information regarding the qualitative adjustments, please see “Allowances for Loan Losses” as discussed in our 2016 Annual Report. The qualitative factors allow management to assess current trends within our loan portfolio and the economic environment to incorporate their effect when calculating the ALLL. The final loss factors are applied to pass graded loans within our loan portfolio. Higher factors are applied to loans graded below pass, including classified and criticized assets.
No assurance can be given that we will not, in any particular period, sustain loan losses that exceed the amount reserved, or that subsequent evaluation of our loan portfolio, in light of the prevailing factors, including economic conditions which may adversely affect our market area or other circumstances, will not require significant increases in the loan loss allowance. In addition, regulatory agencies, as an integral part of their examination process, periodically review our ALLL and may require us to recognize additional provisions to increase the allowance or take charge-offs in anticipation of future losses.
At September 30, 2017, our ALLL was $27.1 million, an increase of $5.8 million from DecemberMarch 31, 2016. The increase in the allowance for loan losses at September 30, 2017 was mainly attributable to loan growth in the loan portfolio and, to a lesser extent, net loan charge-offs of $608,000. At September 30, 2017, given the composition of our loan portfolio, as well as the unamortized fair value discount of loans acquired, the ALLL was considered adequate to cover probable incurred losses inherent in the loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the ALLL change, the Company’s estimate of probable incurred loan losses could also change, which could affect the level of future provisions for loan losses.
The following table sets forth the Company’s ALLL and its corresponding percentage of the loan category balance and the percent of loan balance to total gross loans in each of the loan categories listed for the periods indicated:
  September 30, 2017 December 31, 2016
Balance at End of Period Applicable to Amount Allowance as a % of Category Total 
% of Loans in Category to
Total Loans
 Amount Allowance as a % of Category Total % of Loans in Category to
Total Loans
  (dollars in thousands)
Business loans:            
Commercial and industrial $8,309
 1.09% 15.1% $6,362
 1.13% 17.4%
Franchise 5,819
 0.93
 12.4
 3,845
 0.84
 14.1
Commercial owner occupied 815
 0.10
 15.9
 1,193
 0.26
 14.0
SBA 2,970
 2.48
 2.4
 1,039
 1.17
 3.0
Agriculture 169
 0.20
 1.7
 —
 —
 —
Real estate loans:        
  
  
Commercial non-owner occupied 1,320
 0.12
 21.7
 1,715
 0.29
 18.1
Multi-family 658
 0.08
 15.8
 2,927
 0.42
 21.3
One-to-four family 846
 0.30
 5.5
 365
 0.36
 3.1
Construction 5,140
 1.71
 6.0
 3,632
 1.35
 8.3
Farmland 93
 0.07
 2.8
 —
 —
 —
Land 944
 3.07
 0.6
 198
 1.00
 0.6
Other Loans 60
 0.96
 0.1
 20
 0.49
 0.1
Total $27,143
 0.54% 100.0% $21,296
 0.66% 100.0%

At September 30, 2017, the ratio of ALLL to loans held for investment was 0.54%, a decrease from 0.66% at December 31, 2016. Our remaining unamortized fair value discount on the loans acquired totaled $22.0 million at September 30, 2017, compared to $7.6 million million at December 31, 2016.

The following table sets forth the activity within the Company’s ALLL in each of the loan categories listed for the periods indicated:
 Three Months Ended Nine Months Ended
 September 30, June 30, September 30, September 30, September 30,
 2017 2017 2016 2017 2016
 (dollars in thousands)
Balance, beginning of period$25,055
 $23,075
 $18,955
 $21,296
 $17,317
Provision for loan losses2,049
 1,904
 4,013
 6,455
 6,722
Charge-offs: 
        
Business loans: 
        
Commercial and industrial(32) (110) (302) (894) (1,012)
     Franchise—
 —
 (811) —
 (980)
Commercial owner occupied—
 —
 —
 —
 (329)
SBA—
 —
 (153) (8) (158)
Real estate: 
        
One-to-four family—
 —
 —
 —
 (7)
Total charge-offs(32) (110) (1,266) (902) (2,486)
Recoveries : 
        
Business loans: 
        
Commercial and industrial15
 33
 13
 70
 67
Commercial owner occupied12
 70
 8
 94
 8
SBA42
 81
 106
 125
 191
Real estate:         
One-to-four family2
 1
 14
 4
 20
Other loans—
 1
 —
 1
 4
Total recoveries71
 186
 141
 294
 290
Net loan (charge-offs) recoveries39
 76
 (1,125) (608) (2,196)
Balance at end of period$27,143
 $25,055
 $21,843
 $27,143
 $21,843
          
Ratios:         
Net charge-offs (recoveries) to average total loans, net— % — % 0.04% 0.01% 0.08%
Allowance for loan losses to loans held for investment at end of period0.54 % 0.52 % 0.71% 0.54% 0.71%

Investment Securities
We primarily use our investment portfolio for liquidity purposes and to support our interest rate risk management strategies. Investment securities available-for-sale totaled $704 million at September 30, 2017, an increase of $323 million, or 85%, from December 31, 2016. The increase in investment securities from December 31, 2016 was primarily the result of the acquisition of HEOP, which at acquisition added $445 million of securities, before purchase accounting adjustments, and purchases of $187 million, partially offset by approximately $244 million in sales of securities resulting in a gain of $3.0 million.

The following tables set forth the amortized cost, unrealized gains and losses, and estimated fair value of our investment securities portfolio at the dates indicated:

  September 30, 2017
  
Amortized
 Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value
  (dollars in thousands)
Investment securities available-for-sale:  
      
Agency $49,969
 $433
 $(23) $50,379
Corporate 61,040
 1,275
 (140) 62,175
Municipal bonds 224,332
 4,481
 (386) 228,427
Collateralized mortgage obligation: residential 43,254
 255
 (105) 43,404
Mortgage-backed securities: residential 321,158
 688
 (2,287) 319,559
Total investment securities available-for-sale 699,753
 7,132
 (2,941) 703,944
Investment securities held-to-maturity:        
Mortgage-backed securities: residential 17,476
 —
 (50) 17,426
Other 1,151
 —
 —
 1,151
Total securities held-to-maturity 18,627
 —
 (50) 18,577
Total investment securities $718,380
 $7,132
 $(2,991) $722,521

  December 31, 2016
  
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value
  (dollars in thousands)
Investment securities available-for-sale:  
      
Corporate $37,475
 $372
 $(205) $37,642
Municipal bonds 120,155
 338
 (1,690) 118,803
Collateralized mortgage obligation: residential 31,536
 25
 (173) 31,388
Mortgage-backed securities: residential 196,496
 69
 (3,435) 193,130
Total investment securities available-for-sale 385,662
 804
 (5,503) 380,963
Investment securities held-to-maturity:        
Mortgage-backed securities: residential 7,375
 —
 (104) 7,271
Other 1,190
 —
 —
 1,190
Total investment securities held-to-maturity 8,565
 —
 (104) 8,461
Total investment securities $394,227
 $804
 $(5,607) $389,424



The following table sets forth the fair values and weighted average yields on our investment securities available-for-sale portfolio by contractual maturity at the date indicated:

  September 30, 2017
  
One Year
or Less
 
More than One
to Five Years
 
More than Five Years
to Ten Years
 
More than
Ten Years
 Total
  
Fair
Value
 
Weighted
Average
 Yield
 
Fair
Value
 
Weighted
Average
Yield
 
Fair
Value
 
Weighted
Average
Yield
 
Fair
Value
 
Weighted
Average
Yield
 
Fair
Value
 
Weighted
Average
Yield
  (dollars in thousands)
Investment securities available-for-sale:
                    
Agency $—
 —% $—
 — % $16,176
 2.25% $34,203
 2.38% $50,379
 2.34%
Corporate —
 —
 —
 —
 57,175
 5.20
 5,000
 —
 62,175
 4.77
Municipal bonds 4,598
 1.43
 32,569
 1.83
 73,907
 2.04
 117,353
 2.39
 228,427
 2.17
Collateralized mortgage obligation —
 —
 —
 —
 3,406
 2.29
 39,998
 2.48
 43,404
 2.46
Mortgage-backed securities 2,603
 2.30
 5,295
 (0.26) 54,797
 2.08
 256,864
 1.73
 319,559
 1.76
Total securities available-for-sale 7,201
 1.74
 37,864
 1.53
 205,461
 2.95
 453,418
 1.99
 703,944
 2.24
Investment securities held-to-maturity:                    
Mortgage-backed securities —
 —
 —
 —
 —
 —
 17,426
 3.39
 17,426
 3.39
Other —
 —
 —
 —
 —
 —
 1,151
 0.93
 1,151
 0.93
Total securities held-to-maturity —
 —
 —
 —
 —
 —
 18,577
 3.24
 18,577
 3.24
Total securities $7,201
 1.74% $37,864
 1.53 % $205,461
 2.95% $471,995
 2.04% $722,521
 2.26%

Each quarter, we review individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. If it is probable that we will be unable to collect all amounts due according to the contractual terms of the debt security, an OTTI write-down is recorded against the security and a loss recognized.
In determining if a security has an OTTI loss, we consider the 1) length of time and the extent to which the fair value has been less then amortized cost; 2) financial condition and near term prospects of the issuer; 3) impact of changes in market interest rates; and 4) intent and ability of the Company to retain its investment for a period of time sufficient to allow any anticipated recovery in fair value and whether it is not more likely than not the Company would be required to sell the security. We estimate OTTI losses on a security primarily through:
An evaluation of the present value of estimated cash flows from the security using the current yield to accrete beneficial interest and including assumptions in the prepayment rate, default rate, delinquencies, loss severity and percentage of nonperforming assets;
An evaluation of the estimated payback period to recover principal;
An analysis of the credit support available in the underlying security to absorb losses; and
A review of the financial condition and near term prospects of the issuer.


The Company realized no OTTI recovery for the quarters ended September 30, 20172022 and December 31, 2016. The Company realized OTTI recovery of $2,000 for the quarter ended September 30, 2016. We recorded no impairment credit losses on available-for-sale securities in our consolidated statements of income for the three months ended September 30, 2017, December 31, 2016 and September 30, 2016. A $207,000 OTTI was taken during the quarter ended March 31, 2016, related to a CRA investment purchased in June 2014 with a par value of $50, and a book value of $500,000.2021.



87

Nonperforming Assets
 
Nonperforming assets consist of loans on whichwhereby we have ceased accruing interest (nonaccrual loans), restructuredOREO, and other repossessed assets owned. Nonaccrual loans and OREO. It is our general policy to account for a loan as nonaccrual when the loan becomesgenerally consist of loans that are 90 days delinquent or whenmore past due or loans where, in the opinion of management, there is reasonable doubt as to the collection of interest appears doubtful.principal and interest.
 
Nonperforming assets totaled $887,000,$55.3 million, or 0.01%0.26% of total assets, at September 30, 2017, a decreaseMarch 31, 2022, an increase from $1.6$31.3 million, or 0.04%0.15% of total assets, at December 31, 2016. At September 30, 2017,2021. There was no other real estate owned at March 31, 2022 and December 31, 2021. All nonperforming assets consisted of nonperforming loans totaled $515,000,at March 31, 2022 and December 31, 2021. The increase in nonperforming assets since December 31, 2021 was primarily due to the addition of two C&I loans totaling $25.3 million belonging to a single relationship that were placed on nonaccrual during first quarter of 2022.

The Company had one CRE owner-occupied loan of $1.8 million that was 90 days or 0.01% ofmore past due and accruing at March 31, 2022, compared to no loans held for investment, a decrease from $1.1 million,90 days or 0.04% of loans held for investmentmore past due and accruing at December 31, 2016. Other real estate owned decreased to $372,000.2021.

The following table sets forth our composition of nonperforming assets at the dates indicated:
(Dollars in thousands)March 31, 2022December 31, 2021
Nonperforming assets  
Investor loans secured by real estate  
CRE non-owner-occupied$10,243 $10,255 
SBA secured by real estate573 937 
Total investor loans secured by real estate10,816 11,192 
Business loans secured by real estate 
CRE owner-occupied4,901 4,952 
SBA secured by real estate575 589 
Total business loans secured by real estate5,476 5,541 
Commercial loans
Commercial and industrial26,588 1,798 
Franchise non-real estate secured11,779 12,079 
SBA non-real estate secured642 653 
Total commercial loans39,009 14,530 
Retail loans
Single family residential8 10 
Total retail loans8 10 
Total nonperforming loans55,309 31,273 
Other real estate owned— — 
Other assets owned— — 
Total$55,309 $31,273 
Allowance for credit losses$197,517 $197,752 
Allowance for credit losses as a percent of total nonperforming loans357 %632 %
Nonperforming loans as a percent of loans held for investment0.38 0.22 
Nonperforming assets as a percent of total assets0.26 0.15 
TDRs included in nonperforming loans$16,923 $17,277 


88

  September 30, 2017 December 31, 2016
  (dollars in thousands)
Nonperforming assets    
Business loans:    
Commercial and industrial $228
 $250
Commercial owner occupied 83
 436
SBA 90
 316
Real estate:  
  
One-to-four family 103
 124
Land 11
 15
Total nonperforming loans 515
 1,141
Other real estate owned 372
 460
Total nonperforming assets $887
 $1,601
     
Allowance for loan losses $27,143
 $21,296
Allowance for loan losses as a percent of total nonperforming loans 5,270% 1,866%
Nonperforming loans as a percent of loans held for investment 0.01
 0.04
Nonperforming assets as a percent of total assets 0.01
 0.04
Allowance for Credit Losses


The Company maintains an ACL for loans and unfunded loan commitments in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans and unfunded loan commitments at the time of origination or acquisition. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that have been deemed by management to no longer possess similar risk characteristics are evaluated individually under a discounted cash flow approach, and loans that have been deemed collateral dependent are evaluated individually based on the expected estimated fair value of the underlying collateral.

The Company measures the ACL on commercial real estate and commercial loans using a discounted cash flow approach, using the loan’s effective interest rate, while the ACL for retail loans is based on a historical loss rate model. The discounted cash flow methodology relies on several significant components essential to the development of estimates for future cash flows on loans and unfunded commitments. These components consist of: (i) the PD, (ii) the LGD, which represents the estimated severity of the loss when a loan is in default, (iii) estimates for prepayment activity on loans, and (iv) the EAD. In the case of unfunded loan commitments, the Company incorporates estimates for utilization, based on historical loan data. PD and LGD for investor loans secured by real estate are derived from a third party, using proxy loan information, and loan and property level attributes. Additionally, LGD for these loans incorporates an estimate for the loss severity associated with loans where the borrower fails to meet their debt obligation at maturity. External factors that impact PD and LGD for commercial real estate loans include: changes in the index for CRE pricing, GDP growth rate, unemployment rates, and the Consumer Price Index.

For business loans secured by real estate and commercial loans, PD is based on an internally developed rating scale that assigns PD based on the Company’s internal risk grades for each loan. Changes in risk grades for these loans result in changes in PD. The Company obtains LGD for these loans from a third party that has a considerable database of credit related information specific to the financial services industry and the type of loans within these segments.

PD for both investor and business real estate loans, as well as commercial loans is heavily impacted by current and expected economic conditions.

The ACL for retail loans is based on a historical loss rate model, which incorporates loss rates derived from a third party that has a considerable database of credit related information for retail loans. Loss rates for retail loans are dependent upon loan level and external factors such as: FICO, vintage, geography, unemployment rates, and changes in consumer real estate prices.

The Company’s ACL includes assumptions concerning current and future economic conditions using reasonable and supportable forecasts and how those forecasts are expected to impact a borrower’s ability to satisfy their obligation to the Bank and the ultimate collectability of future cash flows over the life of a loan. The Company uses economic scenarios from an independent third party. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. Management periodically evaluates economic scenarios, determines whether to utilize multiple probability-weighted scenarios, and, if multiple scenarios are utilized, evaluates and determines the weighting for each scenario used in the Company’s ACL model, and thus the scenarios and weightings of each scenario may change in future periods. Economic scenarios chosen, as well as the assumptions within those scenarios, and whether to use a weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events such as the ongoing COVID-19 pandemic, the war between Russia and Ukraine, and ongoing inflationary pressures throughout the U.S. economy.

89

As of March 31, 2022, the Company’s ACL model used three weighted scenarios representing a base-case scenario, an upside scenario, and a downside scenario. The weightings assigned to each scenario were as follows: the base-case scenario, or most likely scenario, was assigned a weighting of 40%, while the upside and downside scenarios were each assigned a weighting of 30%. The Company evaluated the weightings of each economic scenario in the current period and determined the current weightings of 40% for the base-case scenario, and 30% for each of the upside and downside scenarios appropriately reflect the likelihood of outcomes for each scenario given the current economic environment. The use of three weighted scenarios at March 31, 2022 and the weighting assigned to each scenario is consistent with the approach used in the Company’s ACL model at December 31, 2021.

Given recent developments in the geopolitical landscape with the war between Russia and Ukraine, ongoing inflationary pressures in the U.S. economy, and general uncertainty surrounding future economic conditions, the Company took into consideration these and other factors when determining the appropriateness of economic scenarios used in the ACL model at March 31, 2022. As a result, the Company used the economic forecast as of December 31, 2021 in the ACL model, which was more reflective of the current economic environment as well as the likelihood of future economic conditions occurring as of March 31, 2022. Further, economic scenarios used in the ACL model include the current and estimated future impact associated with the ongoing COVID-19 pandemic.

The Company currently forecasts PDs and LGDs based on economic scenarios over a two-year period, which we believe is a reasonable and supportable period. Beyond this point, PDs and LGDs revert to their historical long-term averages. The Company has reflected this reversion over a period of three years in each of its economic scenarios used to generate the overall probability-weighted forecast. Changes in economic forecasts impact the PD, LGD, and EAD for each loan, and therefore influence the amount of future cash flows from each loan the Company does not expect to collect.

It is important to note that the Company’s ACL model relies on multiple economic variables, which are used under several economic scenarios. Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the model, the Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL. As of March 31, 2022, the Company’s ACL model incorporated the following assumptions for key economic variables in the base-case, upside, and downside scenarios:

Base-case Scenario:

•U.S. unemployment declines to 3.5% through the end of 2022 and holds relatively constant at approximately 3.5% throughout 2023.
•U.S. real GDP growth decelerates throughout 2022 from approximately 5.4% to approximately 2.8% by the end of 2022. U.S. real GDP growth accelerates slightly from 2.7% from the beginning of 2023 to 2.8% towards the end of 2023.
•CRE index growth accelerates in 2022 from 0.4% in the second quarter of 2022 to approximately 8.3% by the end of 2022. Growth in the CRE index then decelerates from approximately 11.2% at the beginning of 2023 to 6.8% by the end of 2023.
•The 10-year U.S. Treasury yield ends 2022 at approximately 2.4%, and increases to approximately 3.1% by the end of 2023.


90

Upside Scenario:

•U.S. unemployment rate declines to approximately 3.1% through the end of 2022 and holds relatively constant at approximately 3.0% throughout 2023.
•U.S. real GDP growth decelerates throughout 2022 from approximately 9.3% to approximately 4.2% by the end of 2022. U.S. real GDP growth decelerates from approximately 4.4% in early 2023 to approximately 1.9% by the end of 2023.
•CRE index growth accelerates in 2022 from approximately 1.9% in the second quarter of 2022 to approximately 14.1% by the end of 2022. Growth in the CRE index then decelerates from approximately 15.0% at the beginning of 2023 to approximately 6.9% by the end of 2023.
•The 10-year U.S. Treasury yield ends 2022 at approximately 2.3%, and then increases to approximately 3.0% by the end of 2023.

Downside Scenario:

•U.S. unemployment rate increases to approximately 8.2% through the end of 2022 and then declines moderately to approximately 8.0% by the end of 2023.
•U.S. real GDP declines decelerate in 2022 from approximately -4.0% in the second quarter to approximately -1.9% by the end of 2023. U.S. real GDP then returns to accelerating growth throughout 2023, with growth of approximately 3.4% by the end of 2023.
•CRE index declines accelerate in 2023 from approximately -3.5% in the second quarter of 2023 to approximately -19.5% by the end of 2023. The CRE index declines decelerate through the third quarter of 2023 from approximately -10.9% to -3.8%. The CRE index then returns to growth in the fourth quarter of 2023.
•The 10-year U.S. Treasury yield ends 2022 at approximately 1.2%, and then increases to approximately 2.1% by the end of 2023.

The Company periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL.

As of March 31, 2022, qualitative adjustments primarily relate to certain segments of the loan portfolio deemed by management to be of a higher-risk profile where management believes the quantitative component of the Company’s ACL model may not have fully captured the associated impact to the ACL. In addition, qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Qualitative adjustments to the ACL were made for SBA investor loans secured by real estate, construction loans, and franchise loans. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.


91

The following charts quantify certain factors attributing to the changes in the ACL on loans held for investment for the three months ended March 31, 2022 and March 31, 2021:

ppbi-20220331_g2.jpgppbi-20220331_g3.jpg

The decrease in the ACL for loans held for investment during the three months ended March 31, 2022 of $235,000 was comprised of $446,000 in net charge-offs, partially offset by a $211,000 provision for credit losses. The provision for credit losses for the three months ended March 31, 2022 was reflective of higher loans held for investment and growing economic uncertainties, offset by improved economic forecasts and asset quality.

The decrease in the ACL for loans held for investment during the three months ended March 31, 2021 of $1.0 million is reflective of $1.3 million in net charge-offs, partially offset by a $315,000 provision for credit losses. The provision for credit losses for the three months ended March 31, 2021 was reflective of unfavorable economic conditions and forecasts used in the Company’s ACL model.

No assurance can be given that we will not, in any particular period, sustain credit losses that exceed the amount reserved, or that subsequent evaluation of our loan portfolio, in light of prevailing factors, including economic conditions that may adversely affect our market area or other circumstances, will not require significant increases in the ACL. In addition, regulatory agencies, as an integral part of their examination process, periodically review our ACL and may require us to recognize additional provisions to increase the allowance and record charge-offs in anticipation of future losses. Should any of the factors considered by management in evaluating the appropriate level of the ACL change, including the size and composition of the loan portfolio, the credit quality of the loan portfolio, as well as forecasts of future economic conditions, the Company’s estimate of current expected credit losses could also significantly change and affect the level of future provisions for credit losses.

At March 31, 2022, the Company believes the ACL was adequate to cover current expected credit losses in the loan portfolio.


92

The following table sets forth the Company’s ACL, its corresponding percentage of the loan category balance, and the percentage of loan balance to total gross loans in each of the loan categories listed for the periods indicated:
 March 31, 2022December 31, 2021
(Dollars in thousands)AmountAllowance as a % of Category Total% of Loans in Category to
Total Loans		AmountAllowance as a % of Category Total% of Loans in Category to
Total Loans
Investor loans secured by real estate      
CRE non-owner-occupied$35,974 1.30 %18.8 %$37,380 1.35 %19.4 %
Multifamily54,325 0.90 41.0 55,209 0.94 41.2 
Construction and land5,219 1.72 2.1 5,211 1.88 1.9 
SBA secured by real estate3,050 7.15 0.2 3,201 6.82 0.3 
Total investor loans secured by real estate98,568 1.08 62.1 101,001 1.12 62.8 
Business loans secured by real estate
CRE owner-occupied31,891 1.33 16.2 29,575 1.31 15.7 
Franchise real estate secured7,977 2.08 2.7 7,985 2.10 2.7 
SBA secured by real estate5,195 7.59 0.5 4,866 7.03 0.5 
Total business loans secured by real estate45,063 1.58 19.4 42,426 1.57 18.9 
Commercial loans
Commercial and industrial38,598 1.72 15.2 38,136 1.81 14.7 
Franchise non-real estate secured14,304 3.68 2.6 15,084 3.84 2.7 
SBA non-real estate secured490 4.55 0.1 565 5.12 0.1 
Total commercial loans53,392 2.02 17.9 53,785 2.15 17.5 
Retail loans
Single family residential233 0.29 0.5 255 0.27 0.7 
Consumer loans261 5.06 0.1 285 5.03 0.1 
Total retail loans494 0.58 0.6 540 0.53 0.8 
Total$197,517 1.34 %100.0 %$197,752 1.38 %100.0 %

At March 31, 2022, the ratio of allowance for credit losses to loans held for investment was 1.34%, a decrease from 1.38% at December 31, 2021. Our unamortized fair value discount on the loans acquired totaled $71.2 million, or 0.48% of total loans held for investment, at March 31, 2022, compared to $77.1 million, or 0.54% of total loans held for investment, at December 31, 2021.


93

The following table sets forth the Company’s net charge-offs as a percentage to the average loan held for investment balances in each of the loan categories, as well as other credit related percentages at and for the periods indicated:

Three Months Ended
March 31, 2022December 31, 2021March 31, 2021
(Dollars in thousands)Net Charge-offs (Recoveries)Average Loan BalancePercentageNet Charge-offs (Recoveries)Average Loan BalancePercentageNet Charge-offs (Recoveries)Average Loan BalancePercentage
Investor loans secured by real estate
CRE non-owner-occupied$— $2,758,078 —%$(78)$2,799,901 —%$154 $2,675,671 0.01%
Multifamily— 5,903,012 —%— 5,761,101 —%— 5,201,868 —%
Construction and land— 295,490 —%— 293,937 —%— 318,632 —%
SBA secured by real estate70 45,392 0.15%(2)50,546 —%265 56,196 0.47%
Total investor loans secured by real estate70 9,001,972 —%(80)8,905,485 —%419 8,252,367 0.01%
Business loans secured by real estate
CRE owner-occupied(10)2,266,066 —%(12)2,243,161 —%(15)2,044,442 —%
Franchise real estate secured— 382,381 —%— 356,467 —%— 344,687 —%
SBA secured by real estate— 75,189 —%— 72,217 —%98 77,152 0.13%
Total business loans secured by real estate(10)2,723,636 —%(12)2,671,845 —%83 2,466,281 —%
Commercial loans
Commercial and industrial338 2,155,582 0.02%(561)1,913,974 (0.03)%678 1,692,213 0.04%
Franchise non-real estate secured— 389,323 —%(325)385,922 (0.08)%156 418,805 0.04%
SBA non-real estate secured48 11,607 0.41%(2)12,107 (0.02)%(2)15,312 (0.01)%
Total commercial loans386 2,556,512 0.02%(888)2,312,003 (0.04)%832 2,126,330 0.04%
Retail loans
Single family residential— 84,181 —%— 110,277 —%— 241,872 —%
Consumer— 4,846 —%(1)5,868 (0.02)%— 6,612 —%
Total retail loans— 89,027 —%(1)116,145 —%— 248,484 —%
Total$446 $14,371,147 —%$(981)$14,005,478 (0.01)%$1,334 $13,093,462 0.01%
Allowance for credit losses to loans held for investment1.34%1.38%2.04%
Nonperforming loans to loans held for investment0.38%0.22%0.30%
Allowance for credit losses to nonperforming loans357%632%686%


94

Investment Securities
We primarily use our investment portfolio for liquidity purposes, capital preservation, and to support our interest rate risk management strategies. Investments totaled $4.22 billion at March 31, 2022, a decrease of $437.1 million, or 9.4%, from $4.66 billion at December 31, 2021, primarily to fund higher-yielding loan growth. The decrease was primarily the result of $658.5 million in sales, $109.3 million in principal payments, discounts from the AFS securities transferred to HTM, amortization, and redemptions, as well as a $168.1 million decrease in mark-to-market fair value adjustments, partially offset by $498.9 million in purchases, primarily corporate debt securities and collateralized mortgage obligations. In general, the purchase of investment securities is primarily related to investing excess liquidity from our banking operations. During the first quarter of 2022, we have maintained a portion of the AFS securities portfolio in highly liquid, short-term securities while also continuing to lower the effective duration of this portfolio to 4.0 years at March 31, 2022 from 4.1 years at December 31, 2021. This strategy enhances our interest rate sensitivity profile to the current rate environment and provides us with the flexibility to quickly redeploy these funds into higher-yielding assets as opportunities arise.

At March 31, 2022, AFS and HTM investment securities were $3.22 billion and $996.4 million, respectively, compared to $4.27 billion and $381.7 million, respectively, at December 31, 2021. During the first quarter of 2022, the Company reassessed classification of certain investments with longer duration and transferred approximately $386.8 million of municipal bonds and $255.0 million of mortgage-backed securities, both of which the Company intends and has the ability to hold to maturity, from AFS to HTM securities. The transfer of these securities was accounted for at fair value. The municipal bonds had a net carrying amount of $379.9 million with a pre-tax unrealized loss of $6.9 million, and the mortgage-backed securities had a net carrying amount of $238.8 million with a pre-tax unrealized loss of $16.2 million, which were reflected as discounts on the date of transfer. These discounts, as well as the related unrealized losses in accumulated other comprehensive income, are amortized into interest income as yield adjustments through earnings over the remaining term of the securities. The amortization of the unrealized holding loss reported in accumulated other comprehensive income largely offsets the effect on interest income of the amortization of the discount. No gains or losses were recorded at the time of transfer. See Note 4 — Investment Securities to the consolidated financial statements in this Form 10-Q.

The ACL on investment securities is determined for both the AFS and HTM classifications of the investment portfolio in accordance with the guidance ASC 326 and evaluated on a quarterly basis. As of March 31, 2022, the Company had an ACL of $41,000 for HTM investment securities classified as municipal bonds, which were transferred from AFS during the third and fourth quarters of 2021 and first quarter of 2022. The Company had an ACL of $22,000 ACL for HTM investment securities at December 31, 2021. As of March 31, 2022 and December 31, 2021, there was no ACL for the Company’s AFS investment securities. The Company recognized $19,000 and $11,000 of provision for credit losses for HTM investment securities during the three months March 31, 2022 and December 31, 2021, respectively. There was no provision for credit losses recognized for HTM investment securities during the three months March 31, 2021.
95

The following table sets forth the amortized costs and weighted average yields on our HTM investment security portfolio by contractual maturity as of the date indicated. Weighted average yields are an arithmetic computation of income within each maturity range based on the amortized costs of securities, not on a tax-equivalent basis.
 March 31, 2022
One Year
or Less		More than One
to Five Years		More than Five Years
to Ten Years		More than
Ten Years		Total
(Dollars in thousands)AmountWeighted
Average
Yield		AmountWeighted
Average
Yield		AmountWeighted
Average
Yield		AmountWeighted
Average
Yield		AmountWeighted
Average
Yield
HTM investment securities:          
Municipal bonds— — — — $44,774 1.52 %$703,113 2.07 %$747,887 2.04 %
Mortgage-backed securities— — — — — — 247,050 1.66 247,050 1.66 
Other— — — — — — 1,486 0.97 1,486 0.97 
Total HTM investment securities— — %— — %$44,774 1.52 %$951,649 1.97 %$996,423 1.94 %
Total securities$— — %$481,351 0.69 %$1,356,991 1.47 %$2,380,176 1.65 %$4,218,518 1.49 %
The following table presents the fair value of AFS and the amortized cost of HTM investment securities portfolios by Moody’s credit ratings at March 31, 2022.

(Dollars in thousands)U.S. TreasuryAgencyCorporate DebtMunicipal BondsCollateralized Mortgage ObligationsMortgage-backed SecuritiesOtherTotal%
Aaa - Aa3$13,990 $369,227 $39,946 $1,163,171 $855,256 $1,213,773 $— $3,655,363 86.6 %
A1 - A3— — 340,566 — — — — 340,566 8.1 
Baa1 - Baa3— 6,550 214,553 — — — 1,486 222,589 5.3 
Total$13,990 $375,777 $595,065 $1,163,171 $855,256 $1,213,773 $1,486 $4,218,518 100.0 %

At March 31, 2022, 94.7% of the Company’s investment securities portfolio was rated “A1 -A3” or higher. We continue to monitor the quality of our investment securities portfolio in accordance with current financial conditions and economic environment.

Liabilities and Stockholders’ Equity

Total liabilities were $5.55$18.84 billion at September 30, 2017,March 31, 2022, compared to $3.58$18.21 billion at December 31, 2016.2021. The increase of $2.0 billion,$631.2 million, or 55%3.5%, from December 31, 20162021 was primarily relateddue to a $1.9 billion, or 60%,$573.6 million increase in deposits, from December$42.0 million increase in FHLB advances, and $15.4 million increase in other liabilities.

Deposits.  At March 31, 2016.
Deposits.  At September 30, 2017,2022, deposits totaled $5.0$17.69 billion, an increase of $1.9 billion,$573.6 million, or 60%3.4%, from $17.12 billion at December 31, 2016, primarily as a result of the acquisition of HEOP.2021. Non-maturity deposits totaled $4.2$16.66 billion, 84%or 94.2% of total deposits, an increase of $1.6 billion,$600.9 million, or 64%3.7%, from December 31, 2016, highlighted2021. The increase in deposits included $349.3 million in noninterest-bearing checking, $185.7 million in interest-bearing checking, and $65.9 million in money market/savings, primarily driven by an increase in money market and savings accountsbusiness deposit account balances, partially offset by a planned decrease of $807$27.3 million noninterest-bearing checkingin retail certificates of $704 million and demand deposit of $121 million. Time deposits increased $239 million, or 42% from December 31, 2016, which includeddeposit.

an increase of $40.8 million and $198 million to wholesale/brokered certificate of deposits and retail certificate of deposits, respectively.


The total end of period weighted average rate of deposits at September 30, 2017 was 0.27%March 31, 2022 remain unchanged at 0.04%, a decrease from 0.32%compared to December 31, 2016.2021.

Our ratio of loans held for investment to deposits was 99.8%83.3% and 103.1%83.5% at September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively.
 
96

The following table sets forth the distribution of the Company’s deposit accounts at the dates indicated and the weighted average interest rates onas of the last day of each period for each category of deposits presented:
March 31, 2022December 31, 2021
September 30, 2017 December 31, 2016
Balance % of Total Deposits Weighted Average Rate Balance % of Total Deposits Weighted Average Rate
(dollars in thousands)
(Dollars in thousands)(Dollars in thousands)Balance% of Total DepositsWeighted Average RateBalance% of Total DepositsWeighted Average Rate
Noninterest-bearing checking$1,890,241
 37.7% —% $1,185,768
 37.7% —%Noninterest-bearing checking$7,106,548 40.2 %— %$6,757,259 39.5 %— %
Interest-bearing deposits:       
  
  
Interest-bearing deposits:   
Checking304,295
 6.1
 0.11
 182,893
 5.8
 0.11
Checking3,679,067 20.8 0.04 3,493,331 20.4 0.02 
Money market1,797,485
 35.8
 0.36
 1,100,787
 35.1
 0.34
Money market5,445,870 30.8 0.07 5,387,168 31.5 0.07 
Savings212,297
 4.2
 0.15
 101,574
 3.2
 0.14
Savings426,727 2.4 0.02 419,558 2.5 0.02 
Time deposit accounts:       
  
  
Time deposit accounts:   
Less than 1.00%380,615
 7.6
 0.57
 416,649
 13.2
 0.61
Less than 1.00%996,562 5.6 0.22 1,012,473 5.9 0.18 
1.00 - 1.99426,858
 8.5
 0.91
 153,012
 4.9
 1.14
1.00 - 1.9928,441 0.2 1.52 39,322 0.2 1.49 
2.00 - 2.995,998
 0.1
 2.17
 4,413
 0.1
 2.25
2.00 - 2.996,008 — 2.21 6,296 — 2.23 
3.00 - 3.9952
 —
 3.87
 37
 —
 3.85
3.00 - 3.99— — — 182 — 3.45 
4.00 - 4.9929
 —
 4.08
 3
 —
 4.93
4.00 - 4.99— — — — — — 
5.00 and greater283
 —
 5.07
 445
 —
 5.07
5.00 and greater— — — — — — 
Total time deposit accounts813,835
 16.2
 0.76
 574,559
 18.2
 0.80
Total time deposit accounts1,031,011 5.8 0.26 1,058,273 6.2 0.24 
Total interest-bearing deposits3,127,912
 62.3
 0.43
 1,959,813
 62.3
 0.48
Total interest-bearing deposits10,582,675 59.8 0.08 10,358,330 60.5 0.07 
Total deposits$5,018,153
 100.0% 0.27% $3,145,581
 100.0% 0.32%Total deposits$17,689,223 100.0 %0.04 %$17,115,589 100.0 %0.04 %
 
The following table sets forth the estimated deposits exceeding the FDIC insurance limit:

(Dollars in thousands)March 31, 2022December 31, 2021
Uninsured deposits$6,598,952 $6,220,802 


The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $352.4 million at March 31, 2022 and $357.1 million at December 31, 2021. The following table sets forth the maturity distribution of the estimated uninsured time deposits:

(Dollars in thousands)March 31, 2022December 31, 2021
3 months or less$307,612 $297,595 
Over 3 months through 6 months18,450 28,187 
Over 6 months through 12 months19,261 23,051 
Over 12 months7,120 8,287 
Total$352,443 $357,120 
97

Borrowings.  At September 30, 2017,March 31, 2022, total borrowings amounted to $462$930.7 million, a decreasean increase of $64.7$42.2 million, or 16%4.7%, from $888.6 million at December 31, 2016.2021. Total borrowings at March 31, 2022 were comprised of $600.0 million of FHLB advances and $330.7 million of subordinated debentures. The increase in borrowings at March 31, 2022 as compared to December 31, 2021 was primarily due to an increase of $600.0 million in FHLB term advances, offset by repayment of $550.0 million in FHLB overnight advances and $8.0 million in other short-term borrowings. At September 30, 2017,March 31, 2022, total borrowings represented 7.1%4.3% of total assets and had an end of periodend-of-period weighted average rate of 2.1%3.28%, compared with 9.8%4.2% of total assets at aand an end-of-period weighted average rate of 1.6%2.12% at December 31, 2016.2021.


At September 30, 2017,March 31, 2022, total borrowingssubordinated debentures were comprised of the following:
 
FHLB advances of $335 million at 1.34%;
•Subordinated notes of $60$60.0 million at a fixed rate of 5.75% due September 3, 2024. 2024 (the “Notes I”) and a carrying value of $59.7 million, net of unamortized debt issuance cost of $299,000. Interest is payable semiannually at 5.75% per annum;
•Subordinated notes of $125.0 million at 4.875% fixed-to-floating rate due May 15, 2029 (the “Notes II”) and a carrying value of $123.2 million, net of unamortized debt issuance cost of $1.8 million. Interest is payable semiannually at an initial fixed rate of 4.875% per annum. From and including May 15, 2024, but excluding the maturity date or the date of earlier redemption, the Notes II will bear interest at a floating rate equal to three-month LIBOR plus a spread of 2.50% per annum, payable quarterly in arrears; and
•Subordinated notes of $150.0 million at 5.375% fixed-to-floating rate due June 15, 2030 (the “Notes III”) and a carrying value of $147.8 million, net of unamortized debt issuance cost of $2.2 million. Interest on the Notes III accrue at a rate equal to 5.375% per annum from and including June 15, 2020 to, but excluding, June 15, 2025, payable semiannually in arrears. From and including June 15, 2025 to, but excluding, June 15, 2030 or the earlier redemption date, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month term SOFR, plus a spread of 517 basis points, payable quarterly in arrears.

For additional information about the subordinated notes,debentures, see Note 8 — Subordinated Debentures to the Consolidated Financial Statements in this report;Form 10-Q.
Three reverse repurchase agreements totaling $28.5 million at a weighted average rate of 3.26% with $10 million due in February 2018 and $18.5 million due in September 2018. These agreements are secured by government sponsored entity mortgage-backed securities with a par value of $30.9 million and a fair value of $32.0 million;
HOA reverse repurchase agreements totaling $18.5 million at a weighted average rate of .01% and secured by government sponsored entity mortgage-backed securities with a par value of$31.4 million and a fair value of$32.2 million; and
Subordinated debentures used to fund the issuance of trust preferred securities in 2004 of $10.3 million at 4.05% due April 7, 2034. For additional information about the subordinated debentures and trust preferred securities, see Note 8 to the Consolidated Financial Statements in this report.
$5.2 million of floating rate junior subordinated debt securities to Heritage Oaks Capital Trust II. Interest is payable quarterly at three-month LIBOR plus 1.72% per annum, for an effective rate of 3.02% per annum as of September 30, 2017. At September 30, 2017, the carrying value of these debentures was $3.9 million, which reflects purchase accounting fair value adjustments of $1.3 million.
$3.1 million of floating rate junior subordinated debt associated with Mission Community Capital Trust I. The carrying value of Mission Community Capital Trust I was $2.8 million which reflects purchase accounting fair value adjustments of $332,000. Interest is payable quarterly at three-month LIBOR plus 2.95% per annum, for an effective rate of 4.25% per annum as of September 30, 2017.
$5.2 million of floating rate junior subordinated debt associated Santa Lucia Bancorp (CA) Capital Trust. The carrying value of Santa Lucia Bancorp (CA) Capital Trust was $3.7 million, which reflects purchase accounting fair value adjustments $1.4 million. Interest is payable quarterly at three-month LIBOR plus 1.48% per annum, for an effective rate of 2.78% per annum as of September 30, 2017.

The following table sets forth certain information regarding the Company’s borrowed funds at the dates indicated: 

March 31, 2022December 31, 2021
(Dollars in thousands)(Dollars in thousands)BalanceWeighted
Average Rate		BalanceWeighted
Average Rate
FHLB advancesFHLB advances$600,000 2.15 %$550,000 0.20 %
September 30, 2017 December 31, 2016
Balance 
Weighted
Average Rate
 Balance 
Weighted
Average Rate
(dollars in thousands)
FHLB advances$335,186
 1.34% $278,000
 0.55%
Reverse repurchase agreements46,987
 1.98
 49,971
 1.87
Subordinated debentures79,871
 5.13
 69,383
 5.35
Subordinated debentures330,726 5.32 330,567 5.33 
Total borrowings$462,044
 2.06% $397,354
 1.55%Total borrowings$930,726 3.28 %$888,567 2.12 %
       
Weighted average cost of
borrowings during the quarter
2.30%  
 2.75%  
Weighted average cost of
borrowings during the quarter		3.63 % 4.59 % 
Borrowings as a percent of total assets7.1
  
 9.8
  
Borrowings as a percent of total assets4.3  4.2  
 

98

Stockholders’ Equity.  Total stockholders’ equity was $982 million$2.78 billion as of September 30, 2017, an increaseMarch 31, 2022, a $103.3 million decrease from $460 million$2.89 billion at December 31, 2016.2021. The current year increase of $522 millionquarter’s decrease in stockholders’ equity was primarily relateddue to $136.4 million in comprehensive loss from the issuanceimpact of $465higher interest rates on our AFS securities portfolio, and $31.1 million of stock in the acquisition of HEOP as well ascash dividends, partially offset by $66.9 million net income for the first nine months of 2017 of $43.9 million.income.


Our book value per share increaseddecreased to $24.44$29.31 at September 30, 2017March 31, 2022 from $16.54$30.58 at December 31, 2016.2021. At September 30, 2017,March 31, 2022, the Company’s tangible common equity to tangible assets ratio was 9.41%8.79%, an increasea decrease from 8.86%9.52% at December 31, 2016.2021. Our tangible book value per share was $19.12, compared with $20.29 at December 31, 2021, and $18.19 at March 31, 2021. For additional details, see "non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

Tangible common equity to tangible assets (the “tangible common equity ratio”) is a non-GAAP financial measure derived from GAAP-based amounts. We calculate the tangible common equity ratio by deducting the balance of intangible assets from common shareholders’ equity and dividing by period end tangible assets which also deducts intangible assets. We believe that this information is important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk-based ratios.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
GAAP Reconciliation
(dollars in thousands)

 September 30, December 31,
 2017 2016
Total stockholders’ equity$981,660
 $459,740
Less: Intangible assets(405,222) (111,941)
Tangible common equity$576,438
 $347,799
    
Total assets$6,532,334
 $4,036,311
Less: Intangible assets(405,222) (111,941)
Tangible assets$6,127,112
 $3,924,370
    
Tangible common equity ratio9.41% 8.86%

CAPITAL RESOURCES AND LIQUIDITY
 
Our primary sources of funds are deposits, advances from the FHLB and other borrowings, principal and interest payments on loans, and income from investments.investments, to meet our financial obligations, which arise primarily from the withdrawal of deposits, extension of credit, and payment of operating expenses. While maturities and scheduled amortization of loans are a predictable source of funds, deposit inflows and outflows as well as loan prepayments are greatly influenced by generalmarket interest rates, economic conditions, and competition.
 
OurIn addition to the interest payments on loans and investments as well as fees collected on the services we provide, our primary sources of funds generated during the first ninethree months of 20172022 were from:
 
•Proceeds of $248$725.4 million from the sale, prepayments, or maturity of securities available-for-sale;
Net increase of $203 million in deposit accounts;
Cash of $76.5 million acquired in the acquisition;
Proceeds of $100.9 million from the sale and principal•Principal payments on loans held for sale; andinvestment of $690.8 million;
•Deposit growth of $573.6 million;
•Principal payments on securities available-for-sale of $55.5$81.6 million; and
•Increased FHLB borrowings of 50.0 million.


We used these funds to:
 
•Originate loans held for investment of $588$1.05 billion;
•Purchase AFS securities of $499.2 million;
Purchase of securities available-for-sale of $169 million;•Return capital to shareholders through $31.1 million in dividends;
•Originate loans held for sale of $130.0$18.8 million; and
Reduce borrowings by $74.3 million.


Our most liquid assets are unrestricted cash and short-term investments. The levels of these assets are dependent on our operating, lending, and investing activities during any given period. Our liquidity position is

continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. At September 30, 2017,March 31, 2022, cash and cash equivalents totaled $121$809.3 million, and the market value of our investment securities available-for-saleAFS totaled $704 million.$3.22 billion. If additional funds are needed, we have additional sources of liquidity that can be accessed, including FHLB advances, federal fund lines, the Federal Reserve’sReserve Board’s lending programs, as well as loan and loaninvestment securities sales. As of September 30, 2017,March 31, 2022, the maximum amount we could borrow through the FHLB was $2.9$8.44 billion, of which $931 million$5.26 billion was remaining available for borrowing based on collateral pledged of $1.1$8.45 billion in real estate loans. At September 30, 2017,March 31, 2022, we had $335$600.0 million in FHLB borrowings against that available balance.term borrowings. At September 30, 2017,March 31, 2022, we also had a $243,000 line with the FRB discount window secured by investment securities as well as unsecured lines of credit aggregating $221 million, which consisted of $168to $330.0 million with other financial institutionscorrespondent banks from which to draw funds and $3.3 million with the FRB and one reverse repo line with a correspondent bankpurchase federal funds. As of $50 million. For the quarter ended September 30, 2017,March 31, 2022, our average liquidity ratio was 10.59%21.8%, which is above the Company'sCompany’s minimum policy requirement of 10.0%. The Company regularly monitors liquidity, models liquidity stress scenarios to ensure that adequate liquidity is available, and has contingency funding plans in place, which are reviewed and tested on a regular, recurring basis.
99

To the extent that 20172022 deposit growth is not sufficient to satisfy our ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, or make investments, we may access funds through our FHLB borrowing arrangement, unsecured lines of credit, or other sources.

The Bank has a policymaintains liquidity guidelines in placethe Company’s Liquidity Policy that permits the purchase of brokered deposit funds, in an amount not to exceed 15%10% of total deposits or 8% of total assets, as a secondary source for funding. At September 30, 2017,March 31, 2022, we had $240$5.6 million in brokered timemoney market deposits, which constituted 4.8%0.03% of total deposits and 0.03% of total assets at that date.

The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation'sCorporation’s primary sources of liquidity are dividends from the Bank. In addition, the Corporation maintains a line of credit with Wells Fargo, with availability of $15 million. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Corporation. Management believes that such restrictions will not have a material impact on the ability of the Corporation to meet its ongoing cash obligations. During the three months ended March 31, 2022, the Bank paid $31.1 million in dividends to the Corporation.

The Corporation has nevermaintains a line of credit with U.S. Bank with availability of $25.0 million line of credit that will expire on September 27, 2022. The Corporation anticipates renewing the line of credit upon expiration. This line of credit provides an additional source of liquidity at the Corporation level. At March 31, 2022, the Corporation had no outstanding balances against this line.

During the first quarter of 2022, the Corporation declared a quarterly dividend payment of $0.33 per share. On April 22, 2022, the Company's Board of Directors declared a $0.33 per share dividend, payable on May 13, 2022 to stockholders of record as of May 6, 2022. The Corporation’s Board of Directors periodically reviews whether to declare or paid dividends on its common stock and, at this time, does not anticipate declaring or paying anypay cash dividends, intaking into account, among other things, general business conditions, the foreseeable future. TheCompany’s financial results, future prospects, capital requirements, legal and regulatory restrictions, and such other factors as the Corporation’s boardBoard of directors authorized in June 2012Directors may deem relevant.

On January 11, 2021, the Company’s Board of Directors approved a stock repurchase plan,program, which allows the Corporation to proactively manage its capital position and return excess capital to its stockholders. The repurchase plan authorizesauthorized the repurchase of up to 1,000,0004,725,000 shares of its common stock, representing approximately 5% of the Company’s issued and outstanding shares of common stock and approximately $150 million of common stock as of December 31, 2020 based on the closing price of the Company’s common stock. Shares purchased under such plans also providestock on December 31, 2020. During the Corporation withfirst quarter of 2022, the Company did not repurchase any shares of common stock necessary to satisfy obligations related to stock compensation awards. Also, please seestock. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

Contractual ObligationsOur material cash requirements may include funding existing loan commitments, funding equity investments and Off-Balance Sheet Commitmentsaffordable housing partnerships for LIHTC, withdrawal/maturity of existing deposits, repayment of borrowings, operating lease payments, and expenditures necessary to maintain current operations.

Contractual Obligations.  The Company enters into contractual obligations in the normal course of business primarily as a source of funds for its asset growth and to meet required capital needs.

The following schedule summarizes maturities and principal payments due on our contractual obligations, and commitments, excluding accrued interest,interest:

100

 March 31, 2022
(Dollars in thousands)Less than 1 yearMore than 1 yearTotal
FHLB advances and other borrowings$200,000 $400,000 $600,000 
Subordinated debentures— 330,726 330,726 
Certificates of deposit911,586 119,425 1,031,011 
Operating leases20,045 58,000 78,045 
Affordable housing partnerships commitment5,439 11,432 16,871 
Total contractual cash obligations$1,137,070 $919,583 $2,056,653 

We believe that the Company’s liquidity sources will be sufficient to meet the contractual obligations as they become due through the maintenance of adequate liquidity levels.

In the date indicated:

 September 30, 2017
 Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total
 (dollars in thousands)
Contractual obligations   
  
    
FHLB advances$273,500
 $23,500
 $38,000
 $—
 $335,000
Other borrowings28,500
 —
 —
 —
 28,500
Subordinated debentures—
 —
 —
 79,800
 79,800
Certificates of deposit613,117
 170,911
 19,911
 9,897
 813,836
Operating leases5,169
 7,235
 2,860
 3,258
 18,522
Total contractual cash obligations$920,286
 $201,646
 $60,771
 $92,955
 $1,275,658
Off-Balance Sheet Commitments.  We utilize off-balance sheet commitments in the normalordinary course of business, we enter into various transactions to meet the financing needs of our customers, and to reducewhich, in accordance with GAAP, are not included in our own exposure to fluctuations in interest rates.consolidated balance sheets. These financial instrumentstransactions include off-balance sheet commitments, including commitments to originate real estate, businessextend credit and other loans held for investment, undisbursed loan funds, lines andstandby letters of credit, and commitments to purchase loans and investment securitiesfund investments that qualify for portfolio.CRA credit. The contract or notional amountsfollowing table presents a summary of those instruments reflect the extent of involvement we have in particular classes of financial instruments.Company’s commitments to extend credit by expiration period:

Commitments
 March 31, 2022
(Dollars in thousands)Less than 1 yearMore than 1 yearTotal
Loan commitments to extend credit$1,522,948 $1,373,989 $2,896,937 
Standby letters of credit43,433 — 43,433 
Total$1,566,381 $1,373,989 $2,940,370 

Since many commitments to originate loans held for investmentextend credit are agreementsexpected to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some commitments expire, without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Undisbursed loan fundsFor further information, see Note 15 - Off-Balance Sheet Arrangements, Commitments, and unused linesContingencies, to the consolidated financial statements of credit on home equity and commercial loans include committed funds not disbursed. Letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party. As of September 30, 2017, we had commitments to extend credit on existing lines and letters of credit of $1.0 billion, compared to $581 million at December 31, 2016 and $576 million at September 30, 2016.Company’s 2021 Form 10-K. 
The following table summarizes our contractual commitments with off-balance sheet risk by expiration period at the date indicated:

101
 September 30, 2017
 Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total
 (dollars in thousands)
Other commitments   
  
    
Commercial and industrial$434,629
 $91,407
 $25,352
 $31,492
 $582,880
Construction117,979
 148,508
 5,000
 259
 271,746
Agriculture and Farmland37,627
 8,960
 1,667
 9,723
 57,977
Home equity lines of credit2,255
 5,322
 3,081
 54,800
 65,458
Standby letters of credit29,810
 —
 —
 —
 29,810
Credit card lines—
 —
 —
 1,911
 1,911
All other13,865
 51
 5,578
 17,129
 36,623
Total other commitments$636,165
 $254,248
 $40,678
 $115,314
 $1,046,405



Regulatory Capital Compliance
 
The CompanyCorporation and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’sCorporation’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the CompanyCorporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’sCorporation’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’sCorporation’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.


Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain capital in order to meet certain capital ratios to be considered adequately capitalized or well capitalized under the regulatory framework for prompt corrective action. As of the most recent formal notification from the Federal Reserve, the Company and the Bank was categorized as “well capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s categorization.


NewFinal comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III”, became effective for the Company and the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions. The most significant of the provisions of the new capital rules which apply to the Company and the Bank are as follows: the phase-out of trust preferred securities from Tier 1 capital, the higher risk-weighting of high volatility and past due real estate loans and the capital treatment of deferred tax assets and liabilities above certain thresholds.

Beginning January 1, 2016, Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. The capital conservation buffer fully phased in at 2.50% by January 1, 2019. At September 30, 2017,March 31, 2022, the Company and Bank are in compliance with the capital conservation buffer requirement. The capital conservation buffer will increase by 0.625% each year starting in 2016 through 2019, at which point,requirement and exceeded the minimum common equity tierTier 1, tierTier 1, and total capital ratio, minimums inclusive of the fully phased-in capital conservation buffer, of 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as “well-capitalized” for purposes of the federal bank regulatory prompt corrective action regulations.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of CECL accounting standard. Additionally, in March 2020, the U.S. Federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the COVID-19 pandemic. The capital relief in the interim is calibrated to approximate the difference in allowances under CECL relative to the incurred loss methodology for the first two years of the transition period using a 25% scaling factor. The cumulative difference at the end of the second year of the transition period is then phased into regulatory capital at 25% per year over a three-year transition period. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. This cumulative difference at the end of 2021 will be 7.0%, 8.5% and 10.5%, respectively.phased in regulatory capital over the three-year period from January 1, 2022 through December 31, 2024.


For regulatory capital purposes, the Corporation’s subordinated debt is included in Tier 2 capital. See Note 8 - Subordinated Debentures for additional information.


102

As defined in applicable regulations and set forth in the table below, the CompanyCorporation and the Bank continue to exceed the regulatory capital minimum requirements, and the Bank continues to exceed the “well capitalized” standards and the required conservation buffer at the dates indicated:
ActualMinimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation BufferMinimum Required
For Well Capitalized Requirement
March 31, 2022
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio10.10%4.00%N/A
Common equity tier 1 capital ratio11.80%7.00%N/A
Tier 1 capital ratio11.80%8.50%N/A
Total capital ratio14.37%10.50%N/A
Pacific Premier Bank
Tier 1 leverage ratio11.66%4.00%5.00%
Common equity tier 1 capital ratio13.61%7.00%6.50%
Tier 1 capital ratio13.61%8.50%8.00%
Total capital ratio14.47%10.50%10.00%
ActualMinimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation BufferMinimum Required
For Well Capitalized Requirement
December 31, 2021
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio10.08%4.00%N/A
Common equity tier 1 capital ratio12.11%7.00%N/A
Tier 1 capital ratio12.11%8.50%N/A
Total capital ratio14.62%10.50%N/A
Pacific Premier Bank
Tier 1 leverage ratio11.62%4.00%5.00%
Common equity tier 1 capital ratio13.96%7.00%6.50%
Tier 1 capital ratio13.96%8.50%8.00%
Total capital ratio14.70%10.50%10.00%
103
  Actual Minimum Required
For Capital Adequacy Purposes		 Minimum Required Plus Capital Conservation Buffer
Phase-In
for 2017		 Minimum Required Plus Capital Conservation Buffer
Fully
Phased-In		 Minimum Required
For Well Capitalized Requirement
At September 30, 2017          
Pacific Premier Bancorp, Inc. Consolidated          
Tier 1 Leverage Ratio 10.12% 4.00% 4.00% 4.00% N/A
Common Equity Tier 1 to Risk-Weighted Assets 10.59% 4.50% 5.75% 7.00% N/A
Tier 1 Capital to Risk-Weighted Assets 10.94% 6.00% 7.25% 8.50% N/A
Total Capital to Risk-Weighted Assets 12.51% 8.00% 9.25% 10.50% N/A
           
Pacific Premier Bank          
Tier 1 Leverage Ratio 10.91% 4.00% 4.00% 4.00% 5.00%
Common Equity Tier 1 to Risk-Weighted Assets 11.80% 4.50% 5.75% 7.00% 6.50%
Tier 1 Capital to Risk-Weighted Assets 11.80% 6.00% 7.25% 8.50% 8.00%
Total Capital to Risk-Weighted Assets 12.31% 8.00% 9.25% 10.50% 10.00%
           
  Actual Minimum Required
For Capital Adequacy Purposes		 Minimum Required Plus Capital Conservation Buffer
Phase-In
for 2017		 Minimum Required Plus Capital Conservation Buffer
Fully
Phased-In		 Minimum Required
For Well Capitalized Requirement
At December 31, 2016          
Pacific Premier Bancorp, Inc. Consolidated          
Tier 1 Leverage Ratio 9.78% 4.00% 4.00% 4.00% N/A
Common Equity Tier 1 to Risk-Weighted Assets 10.12% 4.50% 5.125% 7.00% N/A
Tier 1 Capital to Risk-Weighted Assets 10.41% 6.00% 6.625% 8.50% N/A
Total Capital to Risk-Weighted Assets 12.72% 8.00% 8.625% 10.50% N/A
           
Pacific Premier Bank          
Tier 1 Leverage Ratio 10.94% 4.00% 4.00% 4.00% 5.00%
Common Equity Tier 1 to Risk-Weighted Assets 11.65% 4.50% 5.125% 7.00% 6.50%
Tier 1 Capital to Risk-Weighted Assets 11.65% 6.00% 6.625% 8.50% 8.00%
Total Capital to Risk-Weighted Assets 12.29% 8.00% 8.625% 10.50% 10.00%


Item 3.  Quantitative and Qualitative Disclosure Aboutabout Market Risk
 
Asset/Liability Management believes that there have been no materialand Market Risk

Market risk is the risk of loss in value or reduced earnings from adverse changes in our quantitativemarket prices and qualitative information aboutinterest rates. The Bank’s market risk sincearises primarily from interest rate risk in our lending and deposit taking activities. Interest rate risk primarily occurs to the degree that the Bank’s interest-bearing liabilities reprice or mature on a different basis and frequency than its interest-earning assets. The Bank actively monitors and manages its portfolios to limit the adverse effects on net interest income and economic value due to changes in interest rates. The Asset Liability Committee is responsible for implementing the Bank’s interest rate risk management policy established by the board of directors that sets forth limits of acceptable changes in net interest income (“NII”) and economic value of equity (“EVE”) due to specified changes in interest rates. The principal objective of the Company’s interest rate risk management function is to maintain an interest rate risk profile close to the desired risk profile in light of the interest rate outlook. Management monitors asset and liability maturities and repricing characteristics on a regular basis and evaluates its interest rate risk as it relates to operational strategies.

Interest Rate Risk Management

The principal objective of the Company’s interest rate risk management function is to maintain an interest rate risk profile close to the desired risk profile in light of the interest rate outlook. The Bank measures the interest rate risk included in the major balance sheet portfolios and compares the current risk profile to the desired risk profile and to policy limits set by the Board of Directors. Management then implements strategies consistent with the desired risk profile. Asset duration is compared to liability, with the desired mix of fixed and floating rate determined based upon the Company’s risk profile and outlook. Likewise, the Bank seeks to raise non-maturity deposits. Management often implements these strategies through pricing actions. Finally, management structures its security portfolio and borrowings to offset some of the interest rate sensitivity created by the repricing characteristics of customer loans and deposits.

Management monitors asset and liability maturities and repricing characteristics on a regular basis and evaluates its interest rate risk as it relates to operational strategies. Management analyzes potential strategies for their impact on the interest rate risk profile. Each quarter the Corporation’s Board of Directors reviews the Bank’s asset/liability position, including simulations showing the impact on the Bank’s economic value of equity in various interest rate scenarios. Interest rate moves, up or down, may subject the Bank to interest rate spread compression, which adversely impacts its net interest income. This is primarily due to the lag in repricing of the indices, to which adjustable rate loans and mortgage-backed securities are tied, as well as their repricing frequencies. Furthermore, large rate moves show the impact of interest rate caps and floors on adjustable rate transactions. This is partly offset by lags in repricing for deposit products. The extent of the interest rate spread compression depends on the direction and severity of interest rate moves and features in the Bank’s product portfolios.

The Company’s interest rate sensitivity is monitored by management through the use of both a simulation model that quantifies the estimated impact to earnings (“Earnings at Risk”) for a twelve and twenty-four month period, and a model that estimates the change in the Company’s EVE under alternative interest rate scenarios, primarily instantaneous parallel interest rate shifts in 100 basis point increments. The simulation model estimates the impact on NII from changing interest rates on interest earning assets and interest expense paid on interest bearing liabilities. The EVE model computes the net present value of equity by discounting all expected cash flows on assets and liabilities under each rate scenario. For each scenario, the EVE is the present value of all assets less the present value of all liabilities. The EVE ratio is defined as the EVE divided by the market value of assets within the same scenario.


104

The following table shows the projected NII and net interest margin of the Company at March 31, 2022 and December 31, 2016.  For a complete discussion2021, assuming instantaneous parallel interest rate shifts in the first month of our quantitativethe following quarter:
March 31, 2022
(Dollars in thousands)
Earnings at RiskProjected Net Interest Margin
Change in Rates (Basis Points)$ Amount$ Change% ChangeRate %
200718,367 35,619 5.2 3.65 
100702,411 19,663 2.9 3.56 
Static682,748 — — 3.47 
-100659,380 (23,368)(3.4)3.35 
-200635,696 (47,052)(6.9)3.23 
December 31, 2021
(Dollars in thousands)
Earnings at RiskProjected Net Interest Margin
Change in Rates (Basis Points)$ Amount$ Change% ChangeRate %
200683,485 19,799 3.0 3.60 
100672,776 9,090 1.4 3.55 
Static663,686 — — 3.50 
-100641,475 (22,211)(3.3)3.38 
-200608,007 (55,679)(8.4)3.21 

The following table shows the EVE and qualitativeprojected change in the EVE of the Company at March 31, 2022 and December 31, 2021, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:
March 31, 2022
(Dollars in thousands)
Economic Value of Equity EVE as % of market value of portfolio assets
Change in Rates (Basis Points)$ Amount$ Change% ChangeEVE Ratio
2003,387,240 197,565 6.2 17.91 
1003,311,634 121,959 3.8 16.98 
Static3,189,675 — — 15.86 
-1002,999,497 (190,178)(6.0)14.48 
-2002,674,241 (515,434)(16.2)12.55 
105

December 31, 2021
(Dollars in thousands)
Economic Value of Equity EVE as % of market value of portfolio assets
Change in Rates (Basis Points)$ Amount$ Change% ChangeEVE Ratio
2003,146,242 169,608 5.7 16.75 
1003,088,311 111,677 3.8 15.90 
Static2,976,634 — — 14.82 
-1002,774,297 (202,337)(6.8)13.37 
-2002,349,722 (626,912)(21.1)10.99 

Based on the modeling of the impact on earnings and EVE from changes in interest rates, the Company’s sensitivity to changes in interest rates is moderate for rising rates, aided by the addition of interest rate swaps for hedging purposes. Both the Earnings at Risk and the EVE increase as rates rise. It is important to note the above tables are forecasts based on several assumptions and that actual results may vary. The forecasts are based on estimates of historical behavior and assumptions by management that may change over time and may turn out to be different. Factors affecting these estimates and assumptions include, but are not limited to (1) competitor behavior, (2) economic conditions both locally and nationally, (3) actions taken by the Federal Reserve Board, (4) customer behavior, and (5) management’s responses to the foregoing. Changes that vary significantly from the assumptions and estimates may have significant effects on the Company’s earnings and EVE.

The Company has minimal direct market risk see “Item 7A. Quantitativefrom foreign exchange and Qualitative Disclosure About Market Risk” in our 2016 Annual Report.no exposure from commodities.



Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
 
Changes in Internal Controls over Financial Reporting
 
There have not been anyno changes in ourthe Company’s internal control over financial reporting (as such term is defined in RuleRules 13a-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report on Form 10-Q relatesended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.


106

PART II - OTHER INFORMATION
 
Item 1.  Legal Proceedings
There are no material pending
The Company is involved in legal proceedings other thanoccurring in the ordinary routine litigation incidental to ourcourse of business. Management believes that none of the legal proceedings occurring in the ordinary course of business, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.

Item 1A. Risk Factors
    
The description of the risk factors associated with the Company’s business previously disclosedsection titled Risk Factors in Part I, Item 1A of our 2016 Annual Report is supplemented to include the following updated risk factor:

Existing and potential acquisitions may disrupt our business and dilute stockholder value.
On April 1, 2017, we completed the acquisition of HEOP, the holding company of Heritage Oaks Bank,2021 Form 10-K included a California state-chartered bank with $2.0 billion in total assets. On November 1, 2017, we completed the acquisition of Plaza, the holding company of Plaza Bank, a California-chartered banking corporation with $1.3 billion in total assets.

The success of these mergers will depend on, among other things, our ability to realize the anticipated revenue enhancements and efficiencies and to combine the businesses of Pacific Premier with those of HEOP and Plaza in a manner that does not materially disrupt the existing customer relationships of HEOP or Plaza or result in decreased revenues resulting from any loss of customers, and that permits growth opportunities to occur. If we are not able to successfully achieve these objectives, the anticipated benefitsdiscussion of the mergers may not be realized fullymany risks and uncertainties we face, any one or at all or may take longer to realize than expected.

It is possible that the ongoing HEOP integration process and the Plaza integration process could result in the lossmore of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the mergers.  Integration efforts could also divert management attention and resources. These integration matters could have an adverse effect on the combined company.
In addition, we issued 11,959,022 shares of our common stock in connection with the HEOP acquisition. We expect to issue approximately 6,049,447 shares of our common stock as consideration for the acquisition of Plaza. All of the shares of our common stock issued to former HEOP and Plaza shareholders in the mergers are freely tradable without restrictions under the Securities Act. If former HEOP and Plaza holders sell substantial amounts of our common stock, it may cause the market price of our common stock to decrease.
We continue to evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions on an ongoing basis.  As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time.  Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our stock’s tangible book value and net income per common share may occur in connection with any future transaction.  Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from recent or future acquisitionswhich could have a material adverse effect on our business, results of operations, financial condition (including capital and results of operations.
We cannot say with any certainty that we will be able to consummate,liquidity), or if consummated, successfully integrate future acquisitionsprospects or that we will not incur disruptions or unexpected expenses in integrating such acquisitions.  In attempting to make such future acquisitions, we anticipate competing with other financial institutions, many of which have greater financial and operational resources.  Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:



Potential exposure to unknown or contingent liabilities of the target company;

Exposure to potential asset quality issues of the target company;

Potential disruption to our business;

Potential diversion of management’s time and attention;

The possible loss of key employees and customers of the target company;

Difficulty in estimating the value of or return on an investment in the target company; andCompany. There are no material changes to our risk factors as previously described under Item 1A of our 2021 Form 10-K.


Potential changes in banking or tax laws or regulations that may affect the target company.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
On June 25, 2012,January 11, 2021, the boardCompany’s Board of directors authorized its secondDirectors approved a stock repurchase program. Underprogram, which authorized the repurchase program, management is authorized to repurchaseof up to 1,000,0004,725,000 shares of the Company’sits common stock. The stock repurchase program may be limited or terminated at any time without prior notice. During the first quarter of 2022, the Company did not repurchase any shares of common stock.

The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the thirdfirst quarter of 2017.

2022.
Month of PurchasePeriodTotal Number of shares purchased/ returnedShares PurchasedAverage price paidPrice Paid per shareShareTotal numberNumber of shares repurchasedShares Purchased as partPart of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the publicly announced programMaximum number of shares that may yet be purchased under the program at end of monthPlans or Programs
June-2017January 1, 2022 to January 31, 2022—
—$
— 		—
— 		762,545
4,245,056 
July-2017February 1, 2022 to February 28, 2022—
—
—
762,5454,245,056 
August-2017March 1, 2022 to March 31, 2022—
—
—
762,5454,245,056 
September-2017Total—
—
— —
762,545
Total/Average—
—
—
762,545

Item 3.  Defaults Upon Senior Securities
 
NoneNone.
 
Item 4.  Mine Safety Disclosures
 
Not applicable.
 
Item 5.  Other Information
 
NoneNone.
 

107


Item 6.  Exhibits
Exhibit 2.1
Exhibit 4.13.1
Exhibit 3.2
Exhibit 4.1
Exhibit 4.2Long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the SEC upon request.
Exhibit 31.1
Exhibit 31.2
Exhibit 32
Exhibit 101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Exhibit 101.SCHInline XBRL Taxonomy Extension Schema Document
Exhibit 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEFInline XBRL Taxonomy Extension Definitions Linkbase Document
Exhibit 101.LABInline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104The cover page of Pacific Premier Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (contained in Exhibit 101)
(1) Incorporated by reference from the Registrant'sRegistrant’s Form 8-K filed with the SEC on August 9, 2017.February 6, 2020.
(2) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on May 15, 2018.
(3) Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (Registration No. 333-20497) filed with the SEC on January 27, 1997.

108


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PACIFIC PREMIER BANCORP, INC.,
Date:May 6, 2022By:/s/ Steven R. Gardner
Steven R. Gardner
Chairman, President, and Chief Executive Officer
(Principal Executive Officer)
Date:May 6, 2022By:/s/ Ronald J. Nicolas, Jr.
Ronald J. Nicolas, Jr.
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
PACIFIC PREMIER BANCORP, INC.,
November 7, 2017By:/s/ Steven R. Gardner
DateSteven R. Gardner
Chairman, President and Chief Executive Officer
(principal executive officer)
November 7, 2017By:/s/ Ronald J. Nicolas, Jr.
DateRonald J. Nicolas, Jr.
Sr. Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)

Index to Exhibits
Exhibit 2.1
Agreement and Plan of Reorganization, dated as of August 8, 2017, by and between Pacific Premier Bancorp, Inc. and Plaza Bancorp. (1)
Exhibit 4.1
Investor Rights Agreement, dated as of August 8, 2017, by and between Pacific Premier Bancorp, Inc. and Carpenter Fund Manager GP, LLC. (1)
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended
Exhibit 32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INSXBRL Instance Document
Exhibit 101.SCHXBRL Taxonomy Extension Schema Document
Exhibit 101.CALXBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEFXBRL Taxonomy Extension Definitions Linkbase Document
Exhibit 101.LABXBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PREXBRL Taxonomy Extension Presentation Linkbase Document



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