~~0001028918us-gaap:MunicipalBondsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-30~~0001028918ppbi:SingleFamilyResidentialMemberppbi:RetailLoansPortfolioSegmentMemberppbi:FICOScoreLessthan580Member2020-12-31

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, ~~2020~~2021

☐ 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

(Exact name of registrant as specified in its charter)


Delaware			33-0743196
(State or other jurisdiction of incorporation or organization)			(I.R.S Employer Identification No.)

17901 Von Karman Avenue, Suite 1200, Irvine, 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

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 ☒

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

PPBI

~~Nasdaq Stock~~NASDAQ Global Select Market

The number of shares outstanding of the registrant’s common stock as of July ~~31, 2020 was 94,351,866.~~30, 2021 was 94,649,518.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED JUNE 30, ~~2020~~2021


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Statements of Financial Condition (Unaudited)			3

Consolidated Statements of ~~Income/~~Income (Loss) (Unaudited)			4

Consolidated Statements of Comprehensive ~~Income/~~Income (Loss) (Unaudited)			5

Consolidated Statements of Stockholders’ Equity (Unaudited)			6

Consolidated Statements of Cash Flows (Unaudited)			8

Notes to Consolidated Financial Statements (Unaudited)			109

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			8784

Item 3 - Quantitative and Qualitative Disclosures About Market Risk			~~136~~133

Item 4 - Controls and Procedures			~~138~~135

PART II - OTHER INFORMATION			~~139~~136

Item 1 - Legal Proceedings			~~139~~136

Item 1A - Risk Factors			~~140~~136

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			~~143~~136

Item 3 - Defaults Upon Senior Securities			~~144~~136

Item 4 - Mine Safety Disclosures			~~144~~136

Item 5 - Other Information			~~144~~136

Item 6 - Exhibits			~~145~~137

SIGNATURE			~~146~~138

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)


(Dollars in thousands, except par value and share data)						(Dollars in thousands, except par value and share data)	June 30, 2021		December 31, 2020
ASSETS	ASSETS	June 30, 2020		December 31, 2019		ASSETS
Cash and due from banks	Cash and due from banks	$	158,784	$	135,847	Cash and due from banks	$	208,829	$	135,429
Interest-bearing deposits with financial institutions	Interest-bearing deposits with financial institutions	1,182,946		191,003		Interest-bearing deposits with financial institutions	423,059		745,337
Cash and cash equivalents	Cash and cash equivalents	1,341,730		326,850		Cash and cash equivalents	631,888		880,766
Interest-bearing time deposits with financial institutions	Interest-bearing time deposits with financial institutions	2,845		2,708		Interest-bearing time deposits with financial institutions	2,708		2,845
Investments held-to-maturity, at amortized cost (fair value of $34,179 and $38,760 as of June 30, 2020 and December 31, 2019, respectively)		32,557		37,838
Investments held-to-maturity, at amortized cost (fair value of $19,820 and $25,013 as of June 30, 2021 and December 31, 2020, respectively)						Investments held-to-maturity, at amortized cost (fair value of $19,820 and $25,013 as of June 30, 2021 and December 31, 2020, respectively)	18,933		23,732
Investment securities available-for-sale, at fair value	Investment securities available-for-sale, at fair value	2,336,066		1,368,384		Investment securities available-for-sale, at fair value	4,487,447		3,931,115
FHLB, FRB and other stock, at cost		94,658		93,061
FHLB, FRB, and other stock, at cost						FHLB, FRB, and other stock, at cost	117,738		117,055
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	1,007		1,672		Loans held for sale, at lower of cost or fair value	4,714		601
Loans held for investment	Loans held for investment	15,082,884		8,722,311		Loans held for investment	13,594,598		13,236,433
Allowance for credit losses	Allowance for credit losses	(282,271)		(35,698)		Allowance for credit losses	(232,774)		(268,018)
Loans held for investment, net	Loans held for investment, net	14,800,613		8,686,613		Loans held for investment, net	13,361,824		12,968,415
Accrued interest receivable	Accrued interest receivable	78,408		39,442		Accrued interest receivable	67,529		74,574
Other real estate owned		386		441

Premises and equipment	Premises and equipment	76,542		59,001		Premises and equipment	73,821		78,884
Deferred income taxes, net	Deferred income taxes, net	105,859		—		Deferred income taxes, net	81,741		89,056
Bank owned life insurance	Bank owned life insurance	305,901		113,376		Bank owned life insurance	444,645		292,564
Intangible assets	Intangible assets	94,550		83,312		Intangible assets	77,363		85,507
Goodwill	Goodwill	901,166		808,322		Goodwill	901,312		898,569
Other assets	Other assets	344,786		154,992		Other assets	257,823		292,861
Total assets	Total assets	$	20,517,074	$	11,776,012	Total assets	$	20,529,486	$	19,736,544
LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES	LIABILITIES					LIABILITIES
Deposit accounts:	Deposit accounts:					Deposit accounts:
Noninterest-bearing checking	Noninterest-bearing checking	$	5,899,442	$	3,857,660	Noninterest-bearing checking	$	6,768,384	$	6,011,106
Interest-bearing:	Interest-bearing:					Interest-bearing:
Checking	Checking	3,098,454		586,019		Checking	3,103,343		2,913,260
Money market/savings	Money market/savings	6,060,031��		3,406,988		Money market/savings	5,883,672		5,662,969
Retail certificates of deposit	Retail certificates of deposit	1,651,976		973,465		Retail certificates of deposit	1,259,698		1,471,512
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	266,790		74,377		Wholesale/brokered certificates of deposit	0		155,330
Total interest-bearing	Total interest-bearing	11,077,251		5,040,849		Total interest-bearing	10,246,713		10,203,071
Total deposits	Total deposits	16,976,693		8,898,509		Total deposits	17,015,097		16,214,177
FHLB advances and other borrowings	FHLB advances and other borrowings	41,006		517,026		FHLB advances and other borrowings	0		31,000
Subordinated debentures	Subordinated debentures	501,375		215,145		Subordinated debentures	476,622		501,511
Deferred income taxes, net		—		1,371

Accrued expenses and other liabilities	Accrued expenses and other liabilities	343,353		131,367		Accrued expenses and other liabilities	224,348		243,207
Total liabilities	Total liabilities	17,862,427		9,763,418		Total liabilities	17,716,067		16,989,895
STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 1,000,000 authorized; 0ne issued and outstanding	Preferred stock, $0.01 par value; 1,000,000 authorized; 0ne issued and outstanding	—		—		Preferred stock, $0.01 par value; 1,000,000 authorized; 0ne issued and outstanding	0		0
Common stock, $0.01 par value; 150,000,000 shares authorized at June 30, 2020 and December 31, 2019; 94,350,902 shares and 59,506,057 shares issued and outstanding, respectively.		930		586
Common stock, $0.01 par value; 150,000,000 shares authorized at June 30, 2021 and December 31, 2020; 94,656,575 shares and 94,483,136 shares issued and outstanding, respectively.						Common stock, $0.01 par value; 150,000,000 shares authorized at June 30, 2021 and December 31, 2020; 94,656,575 shares and 94,483,136 shares issued and outstanding, respectively.	931		931
Additional paid-in capital	Additional paid-in capital	2,348,415		1,594,434		Additional paid-in capital	2,352,112		2,354,871
Retained earnings	Retained earnings	247,078		396,051		Retained earnings	433,852		330,555
Accumulated other comprehensive income	Accumulated other comprehensive income	58,224		21,523		Accumulated other comprehensive income	26,524		60,292
Total stockholders’ equity	Total stockholders’ equity	2,654,647		2,012,594		Total stockholders’ equity	2,813,419		2,746,649
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	20,517,074	$	11,776,012	Total liabilities and stockholders’ equity	$	20,529,486	$	19,736,544

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~INCOME/~~INCOME (LOSS)

~~(Dollars in thousands, except share data)~~

(Unaudited)


		Three Months Ended											Six Months Ended							Three Months Ended					Six Months Ended
		June 30,		March 31,		June 30,		June 30,								June 30,		March 31,		June 30,		June 30,		June 30,
		2020		2020		2019		2020		2019
(Dollars in thousands, except share data)												(Dollars in thousands, except share data)		2021		2021		2020		2021		2020
INTEREST INCOME	INTEREST INCOME											INTEREST INCOME
Loans	Loans	$	133,339	$	113,265	$	121,860	$	246,604	$	243,336	Loans		$	152,365	$	155,225	$	133,339	$	307,590	$	246,604
Investment securities and other interest-earning assets	Investment securities and other interest-earning assets	10,783		10,524		10,554		21,307		20,321		Investment securities and other interest-earning assets		18,327		17,769		10,783		36,096		21,307
Total interest income	Total interest income	144,122		123,789		132,414		267,911		263,657		Total interest income		170,692		172,994		144,122		343,686		267,911
INTEREST EXPENSE	INTEREST EXPENSE											INTEREST EXPENSE
Deposits	Deposits	9,655		10,487		15,991		20,142		29,275		Deposits		3,265		4,426		9,655		7,691		20,142
FHLB advances and other borrowings	FHLB advances and other borrowings	217		1,081		3,083		1,298		7,885		FHLB advances and other borrowings		0		65		217		65		1,298
Subordinated debentures	Subordinated debentures	3,958		3,046		2,699		7,004		4,450		Subordinated debentures		6,493		6,851		3,958		13,344		7,004
Total interest expense	Total interest expense	13,830		14,614		21,773		28,444		41,610		Total interest expense		9,758		11,342		13,830		21,100		28,444
Net interest income before provision for credit losses	Net interest income before provision for credit losses	130,292		109,175		110,641		239,467		222,047		Net interest income before provision for credit losses		160,934		161,652		130,292		322,586		239,467
Provision for credit losses	Provision for credit losses	160,635		25,454		334		186,089		1,860		Provision for credit losses		(38,476)		1,974		160,635		(36,502)		186,089
Net interest (loss) income after provision for credit losses		(30,343)		83,721		110,307		53,378		220,187
Net interest income (loss) after provision for credit losses												Net interest income (loss) after provision for credit losses		199,410		159,678		(30,343)		359,088		53,378
NONINTEREST INCOME	NONINTEREST INCOME											NONINTEREST INCOME
Loan servicing fees		434		480		409		914		807
Loan servicing income												Loan servicing income		622		458		434		1,080		914
Service charges on deposit accounts	Service charges on deposit accounts	1,399		1,715		1,441		3,114		2,771		Service charges on deposit accounts		2,222		2,032		1,399		4,254		3,114
Other service fee income	Other service fee income	297		311		363		608		719		Other service fee income		352		473		297		825		608
Debit card interchange fee income	Debit card interchange fee income	457		348		1,145		805		2,216		Debit card interchange fee income		1,099		787		457		1,886		805
Earnings on bank-owned life insurance	Earnings on bank-owned life insurance	1,314		1,336		851		2,650		1,761		Earnings on bank-owned life insurance		2,279		2,233		1,314		4,512		2,650
Net (loss) gain from sales of loans		(2,032)		771		902		(1,261)		2,631
Net (loss) gain from sales of investment securities		(21)		7,760		212		7,739		639
Net gain (loss) from sales of loans												Net gain (loss) from sales of loans		1,546		361		(2,032)		1,907		(1,261)
Net gain (loss) from sales of investment securities												Net gain (loss) from sales of investment securities		5,085		4,046		(21)		9,131		7,739

Trust administrative fees		2,397		—		—		2,397		—
Trust custodial account fees												Trust custodial account fees		7,897		7,222		2,397		15,119		2,397
Escrow and exchange fees												Escrow and exchange fees		1,672		1,526		264		3,198		264
Other income	Other income	2,653		1,754		1,001		4,407		2,461		Other income		3,955		4,602		2,389		8,557		4,143
Total noninterest income	Total noninterest income	6,898		14,475		6,324		21,373		14,005		Total noninterest income		26,729		23,740		6,898		50,469		21,373
NONINTEREST EXPENSE	NONINTEREST EXPENSE											NONINTEREST EXPENSE
Compensation and benefits	Compensation and benefits	43,011		34,376		33,847		77,387		67,235		Compensation and benefits		53,474		52,548		43,011		106,022		77,387
Premises and occupancy	Premises and occupancy	9,487		8,168		7,517		17,655		15,052		Premises and occupancy		12,240		11,980		9,487		24,220		17,655
Data processing	Data processing	4,465		3,253		3,036		7,718		5,966		Data processing		5,765		5,828		4,465		11,593		7,718
Other real estate owned operations, net	Other real estate owned operations, net	9		14		62		23		65		Other real estate owned operations, net		0		0		9		0		23
FDIC insurance premiums	FDIC insurance premiums	846		367		740		1,213		1,540		FDIC insurance premiums		1,312		1,181		846		2,493		1,213
Legal, audit and professional expense		3,094		3,126		3,545		6,220		6,543
Legal and professional services												Legal and professional services		4,186		3,935		3,094		8,121		6,220
Marketing expense	Marketing expense	1,319		1,412		1,425		2,731		2,922		Marketing expense		1,490		1,598		1,319		3,088		2,731
Office, telecommunications and postage expense		1,533		1,103		1,311		2,636		2,521
Office expense												Office expense		1,589		1,829		1,533		3,418		2,636
Loan expense	Loan expense	823		822		1,005		1,645		1,878		Loan expense		1,165		1,115		823		2,280		1,645
Deposit expense	Deposit expense	4,958		4,988		3,668		9,946		7,251		Deposit expense		3,985		3,859		4,958		7,844		9,946
Merger-related expense	Merger-related expense	39,346		1,724		5		41,070		660		Merger-related expense		0		5		39,346		5		41,070
Core deposit intangible (“CDI”) amortization		4,040		3,965		4,281		8,005		8,717
Amortization of intangible assets												Amortization of intangible assets		4,001		4,143		4,066		8,144		8,029
Other expense	Other expense	3,039		3,313		3,494		6,352		7,163		Other expense		5,289		4,468		3,013		9,757		6,328
Total noninterest expense	Total noninterest expense	115,970		66,631		63,936		182,601		127,513		Total noninterest expense		94,496		92,489		115,970		186,985		182,601
Net (loss) income before income taxes		(139,415)		31,565		52,695		(107,850)		106,679
Income tax (benefit) expense		(40,324)		5,825		14,168		(34,499)		29,434
Net (loss) income		$	(99,091)	$	25,740	$	38,527	$	(73,351)	$	77,245
Net income (loss) before income taxes												Net income (loss) before income taxes		131,643		90,929		(139,415)		222,572		(107,850)
Income tax expense (benefit)												Income tax expense (benefit)		35,341		22,261		(40,324)		57,602		(34,499)
Net income (loss)												Net income (loss)		$	96,302	$	68,668	$	(99,091)	$	164,970	$	(73,351)
EARNINGS (LOSS) PER SHARE	EARNINGS (LOSS) PER SHARE											EARNINGS (LOSS) PER SHARE
Basic	Basic	$	(1.41)	$	0.43	$	0.62	$	(1.14)	$	1.24	Basic		$	1.02	$	0.73	$	(1.41)	$	1.74	$	(1.14)
Diluted	Diluted	(1.41)		0.43		0.62		(1.14)		1.23		Diluted		1.01		0.72		(1.41)		1.73		(1.14)
WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING											WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	70,425,027		59,007,191		61,308,046		64,716,109		61,645,940		Basic		93,635,392		93,529,147		70,425,027		93,582,563		64,716,109
Diluted	Diluted	70,425,027		59,189,717		61,661,773		64,716,109		61,980,133		Diluted		94,218,028		94,093,644		70,425,027		94,155,740		64,716,109

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME/~~INCOME (LOSS)

~~(Dollars in thousands)~~

(Unaudited)

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2020 2020 2019 2020 2019
Net (loss) income $ (99,091) $ 25,740 $ 38,527 $ (73,351) $ 77,245
Other comprehensive income, net of tax:
Unrealized holding gain on securities available-for-sale arising during the period, net of income taxes ⁽¹⁾
13,800 28,420 17,449 42,220 28,416
Reclassification adjustment for net (loss) gain on sales of securities included in net income, net of income taxes ⁽²⁾
15 (5,534) (151) (5,519) (457)
Other comprehensive income, net of tax 13,815 22,886 17,298 36,701 27,959
Comprehensive (loss) income, net of tax $ (85,276) $ 48,626 $ 55,825 $ (36,650) $ 105,204


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Net income (loss)	$	96,302	$	68,668	$	(99,091)	$	164,970	$	(73,351)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available-for-sale arising during the period, net of income taxes (1)	45,343		(72,592)		13,800		(27,249)		42,220
Reclassification adjustment for net (gain) loss on sales of securities included in net income, net of income taxes (2)	(3,630)		(2,889)		15		(6,519)		(5,519)
Other comprehensive income (loss), net of tax	41,713		(75,481)		13,815		(33,768)		36,701
Comprehensive income (loss), net of tax	$	138,015	$	(6,813)	$	(85,276)	$	131,202	$	(36,650)

⁽¹⁾ Income tax expense (benefit) on the unrealized gain (loss) on securities was $18.2 million for the three months ended June 30, 2021, $(29.1) million for the three months ended March 31, 2021, $5.5 million for the three months ended June 30, 2020, ~~$11.4~~$(10.9) million for the ~~three months ended March 31, 2020 and $7.1 million for the three~~six months ended June 30, ~~2019,~~2021, and $17.0 million for the six months ended June 30, ~~2020 and $11.6 million for the six months ended June 30, 2019.~~2020.

(2)

⁽²⁾ Income tax expense (benefit) on the reclassification adjustment for net ~~gain (loss)~~(gain) loss on sales of securities included in net income was $1.5 million for the three months ended June 30, 2021, $1.2 million for the three months ended March 31, 2021, $(6,000) for the three months ended June 30, 2020, ~~$2.2~~$2.6 million for the ~~three months ended March 31, 2020, $61,000 for the three~~six months ended June 30, ~~2019,~~2021, and $2.2 million for the six months ended June 30, ~~2020 and $182,000 for the six months ended June 30, 2019.~~2020.

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, ~~2020~~

~~(Dollars in thousands)~~2021

(Unaudited)

Common Stock
Shares Common Stock Additional Paid-in Capital Accumulated Retained
Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Balance at December 31, 2019 59,506,057 $ 586 $ 1,594,434 $ 396,051 $ 21,523 $ 2,012,594
Net income — — — (73,351) — (73,351)
Other comprehensive income — — — — 36,701 36,701
Cash dividends declared ($0.50 per common share) — — — (29,874) — (29,874)
Dividend equivalents declared ($0.50 per restricted stock unit) — — 123 (123) — —
Share-based compensation expense — — 4,848 — — 4,848
Issuance of restricted stock, net 473,509 — — — — —
Issuance of common stock - acquisition 34,407,403 344 749,259 — — 749,603
Restricted stock surrendered and canceled (94,306) — (1,273) — — (1,273)
Exercise of stock options 58,239 — 1,024 — — 1,024
Cumulative effect of the change in accounting principal ⁽¹⁾
— — — (45,625) — (45,625)
Balance at June 30, 2020 $ 94,350,902 $ 930 $ 2,348,415 $ 247,078 $ 58,224 $ 2,654,647


(Dollars in thousands, except share data)	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
Balance at December 31, 2020	94,483,136	$	931	$	2,354,871	$	330,555	$	60,292	$	2,746,649
Net income	—	—		—		164,970		—		164,970
Other comprehensive loss	—	—		—		—		(33,768)		(33,768)
Repurchase and retirement of common stock	(199,674)	(2)		(4,977)		(1,918)		—		(6,897)
Cash dividends declared ($0.63 per common share)	—	—		—		(59,521)		—		(59,521)
Dividend equivalents declared ($0.63 per restricted stock unit)	—	—		234		(234)		—		0
Share-based compensation expense	—	—		6,562		—		—		6,562
Issuance of restricted stock, net	435,957	2		(2)		—		—		0
Restricted stock surrendered and canceled	(110,027)	—		(5,308)		—		—		(5,308)
Exercise of stock options	47,183	—		732		—		—		732
Balance at June 30, 2021	94,656,575	$	931	$	2,352,112	$	433,852	$	26,524	$	2,813,419

Balance at March 31, 2020 59,975,281 $ 586 $ 1,596,680 $ 361,242 $ 44,409 $ 2,002,917
Net loss — — — (99,091) — (99,091)
Other comprehensive income — — — — 13,815 13,815
Cash dividends declared ($0.25 per common share) — — — (14,992) (14,992)
Dividend equivalents declared ($0.25 per restricted stock unit) — — 81 (81) —
Share-based compensation expense — — 2,539 — — 2,539
Issuance of restricted stock, net 23,229 — — — — —
Issuance of common stock - acquisition 34,407,403 344 749,259 — — 749,603
Restricted stock surrendered and canceled (61,367) — (265) — — (265)
Exercise of stock options 6,356 — 121 — — 121
Balance at June 30, 2020 94,350,902 $ 930 $ 2,348,415 $ 247,078 $ 58,224 $ 2,654,647

~~(1) Related to the adoption of~~ ~~Accounting Standards Update 2016-13~~, ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. See~~ ~~Note 2 - Recently Issue Accounting Pronouncements~~ ~~for further discussion.~~


Balance at March 31, 2021	94,644,415	$	931	$	2,348,445	$	368,911	$	(15,189)	$	2,703,098
Net income	—	—		—		96,302		—		96,302
Other comprehensive income	—	—		—		—		41,713		41,713
Cash dividends declared ($0.33 per common share)	—	—		—		(31,234)		—		(31,234)
Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		127		(127)		—		0
Share-based compensation expense	—	—		3,457		—		—		3,457
Issuance of restricted stock, net	16,200	—		—		—		—		0
Restricted stock surrendered and canceled	(9,477)	—		(29)		—		—		(29)
Exercise of stock options	5,437	—		112		—		—		112
Balance at June 30, 2021	94,656,575	$	931	$	2,352,112	$	433,852	$	26,524	$	2,813,419

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, ~~2019~~

~~(Dollars in thousands)~~2020

(Unaudited)

Common Stock
Shares Common Stock Additional Paid-in Capital Accumulated Retained
Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Balance at December 31, 2018 62,480,755 $ 617 $ 1,674,274 $ 300,407 $ (5,601) $ 1,969,697
Net income — — — 77,245 — 77,245
Other comprehensive income — — — — 27,959 27,959
Repurchase and retirement of common stock (2,219,246) (22) (59,253) (6,694) — (65,969)
Cash dividends declared ($0.44 per common share) — — — (27,541) — (27,541)
Dividend equivalents declared ($0.44 per restricted stock unit) — — 51 (51) — —
Share-based compensation expense — — 5,313 — — 5,313
Issuance of restricted stock, net 304,754 — — — — —
Restricted stock surrendered and canceled (99,206) — (2,629) — — (2,629)
Exercise of stock options 42,937 — 381 — — 381
Balance at June 30, 2019 60,509,994 $ 595 $ 1,618,137 $ 343,366 $ 22,358 $ 1,984,456


(Dollars in thousands, except share data)	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
Balance at December 31, 2019	59,506,057	$	586	$	1,594,434	$	396,051	$	21,523	$	2,012,594
Net loss	—	—		—		(73,351)		—		(73,351)
Other comprehensive income	—	—		—		—		36,701		36,701
Cash dividends declared ($0.50 per common share)	—	—		—		(29,874)		—		(29,874)
Dividend equivalents declared ($0.50 per restricted stock unit)	—	—		123		(123)		—		0
Share-based compensation expense	—	—		4,848		—		—		4,848
Issuance of restricted stock, net	473,509	—		—		—		—		0
Issuance of common stock - acquisition	34,407,403	344		749,259						749,603
Restricted stock surrendered and canceled	(94,306)	—		(1,273)		—		—		(1,273)
Exercise of stock options	58,239	—		1,024		—		—		1,024
Cumulative effect of the change in accounting principle (1)	—	—		—		(45,625)		—		(45,625)
Balance at June 30, 2020	94,350,902	$	930	$	2,348,415	$	247,078	$	58,224	$	2,654,647

Balance at March 31, 2019 62,773,299 $ 617 $ 1,676,024 $ 325,363 $ 5,060 $ 2,007,064
Net income — — — 38,527 — 38,527
Other comprehensive income — — — — 17,298 17,298
Repurchase and retirement of common stock (2,219,246) (22) (59,253) (6,694) — (65,969)
Cash dividends declared ($0.22 per common share) — — — (13,792) — (13,792)
Dividend equivalents declared ($0.22 per restricted stock unit) — — 38 (38) — —
Share-based compensation expense — — 2,860 — — 2,860
Issuance of restricted stock, net 15,000 — — — — —
Restricted stock surrendered and canceled (61,927) — (1,582) — (1,582)
Exercise of stock options 2,868 — 50 — 50
Balance at June 30, 2019 60,509,994 $ 595 $ 1,618,137 $ 343,366 $ 22,358 $ 1,984,456



Balance at March 31, 2020	59,975,281	$	586	$	1,596,680	$	361,242	$	44,409	$	2,002,917
Net loss	—	—		—		(99,091)		—		(99,091)
Other comprehensive income	—	—		—		—		13,815		13,815
Cash dividends declared ($0.25 per common share)	—	—		—		(14,992)		—		(14,992)
Dividend equivalents declared ($0.25 per restricted stock unit)	—	—		81		(81)		—		0
Share-based compensation expense	—	—		2,539		—		—		2,539
Issuance of restricted stock, net	23,229	—		—		—		—		0
Issuance of common stock - acquisition	34,407,403	344		749,259		—		—		749,603
Restricted stock surrendered and canceled	(61,367)	—		(265)		—				(265)
Exercise of stock options	6,356	—		121		—				121
Balance at June 30, 2020	94,350,902	$	930	$	2,348,415	$	247,078	$	58,224	$	2,654,647

(1) Related to the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Dollars in thousands)~~

(Unaudited)


		Six Months Ended							Six Months Ended
		June 30,							June 30,		June 30,
		2020		2019
(Dollars in thousands)						(Dollars in thousands)	2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income		$	(73,351)	$	77,245
Net income (loss)						Net income (loss)	$	164,970	$	(73,351)
Adjustments to net income:	Adjustments to net income:					Adjustments to net income:
Depreciation and amortization expense	Depreciation and amortization expense	5,525		4,636		Depreciation and amortization expense	8,081		5,525
Provision for credit losses	Provision for credit losses	186,089		1,860		Provision for credit losses	(36,502)		186,089
Share-based compensation expense	Share-based compensation expense	4,848		5,313		Share-based compensation expense	6,562		4,848
Loss (gain) on sales and disposals of premises and equipment		211		(170)
Loss (gain) on sale of or write down of other real estate owned		55		(75)
Loss on sales and disposals of premises and equipment						Loss on sales and disposals of premises and equipment	71		211
Loss on sale of or write down of other real estate owned						Loss on sale of or write down of other real estate owned	0		55
Net amortization on securities	Net amortization on securities	3,739		2,573		Net amortization on securities	11,219		3,739
Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	(9,652)		(12,271)		Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	(21,409)		(9,652)
Gain on sales of investment securities available-for-sale	Gain on sales of investment securities available-for-sale	(7,739)		(639)		Gain on sales of investment securities available-for-sale	(9,131)		(7,739)
Loss on debt extinguishment						Loss on debt extinguishment	1,150		0
Originations of loans held for sale	Originations of loans held for sale	(10,163)		(59,801)		Originations of loans held for sale	(20,264)		(10,163)
Proceeds from the sales of and principal payments from loans held for sale	Proceeds from the sales of and principal payments from loans held for sale	13,490		61,356		Proceeds from the sales of and principal payments from loans held for sale	17,609		13,490
Loss (gain) on sales of loans		1,261		(2,631)
Deferred income tax (benefit) expense		(46,608)		1,988
(Gain) loss on sales of loans						(Gain) loss on sales of loans	(1,907)		1,261
Deferred income tax expense (benefit)						Deferred income tax expense (benefit)	20,647		(46,608)
Change in accrued expenses and other liabilities, net	Change in accrued expenses and other liabilities, net	70,342		(11,315)		Change in accrued expenses and other liabilities, net	(22,500)		70,342
Income from bank owned life insurance, net	Income from bank owned life insurance, net	(2,119)		(1,367)		Income from bank owned life insurance, net	(3,388)		(2,119)
Amortization of core deposit intangible		8,005		8,717
Amortization of intangible assets						Amortization of intangible assets	8,144		8,029
Change in accrued interest receivable and other assets, net	Change in accrued interest receivable and other assets, net	(46,110)		(462)		Change in accrued interest receivable and other assets, net	47,069		(46,134)
Net cash provided by operating activities	Net cash provided by operating activities	97,823		74,957		Net cash provided by operating activities	170,421		97,823
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Net increase in interest-bearing time deposits with financial institutions		—		3,187
Proceeds from sale of other real estate owned		—		390
Net decrease in interest-bearing time deposits with financial institutions						Net decrease in interest-bearing time deposits with financial institutions	137		0

Loan originations and payments, net	Loan originations and payments, net	(527,053)		46,104		Loan originations and payments, net	(339,184)		(527,053)
Proceeds from loans held for sale previously classified as portfolio loans	Proceeds from loans held for sale previously classified as portfolio loans	38,246		74,070		Proceeds from loans held for sale previously classified as portfolio loans	449		38,246
Purchase of loans held for investment	Purchase of loans held for investment	(66,470)		(48,903)		Purchase of loans held for investment	0		(66,470)
Proceeds from prepayments and maturities of held-to-maturity securities		5,208		2,214
Proceeds from prepayments and maturities of securities held-to-maturity						Proceeds from prepayments and maturities of securities held-to-maturity	4,790		5,208
Purchase of securities available-for-sale	Purchase of securities available-for-sale	(458,667)		(400,409)		Purchase of securities available-for-sale	(1,331,037)		(458,667)
Proceeds from prepayments and maturities of securities available-for-sale	Proceeds from prepayments and maturities of securities available-for-sale	63,985		55,549		Proceeds from prepayments and maturities of securities available-for-sale	273,521		63,985
Proceeds from sale of securities available-for-sale	Proceeds from sale of securities available-for-sale	339,853		227,138		Proceeds from sale of securities available-for-sale	464,651		339,853
Proceeds from the sales of premises and equipment	Proceeds from the sales of premises and equipment	42		11,108		Proceeds from the sales of premises and equipment	13		42
Proceeds from bank owned insurance death benefit		—		405
Proceeds from surrender of bank-owned life insurance						Proceeds from surrender of bank-owned life insurance	1,307		0
Purchase of bank-owned life insurance						Purchase of bank-owned life insurance	(150,000)		0
Purchases of premises and equipment	Purchases of premises and equipment	(1,198)		(5,101)		Purchases of premises and equipment	(3,102)		(1,198)
Change in FHLB, FRB and other stock, at cost		(44)		2,416
Funding of CRA investments		(7,375)		(5,338)
Change in FHLB, FRB, and other stock, at cost						Change in FHLB, FRB, and other stock, at cost	86		(44)
Funding of CRA investments, net						Funding of CRA investments, net	(13,603)		(7,375)

Change in cash acquired in acquisitions, net	Change in cash acquired in acquisitions, net	937,100		—		Change in cash acquired in acquisitions, net	0		937,100
Net cash provided by (used in) investing activities		323,627		(37,170)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(1,091,972)		323,627
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposit accounts	Net increase in deposit accounts	1,162,194		203,571		Net increase in deposit accounts	800,920		1,162,194
Net change in short-term borrowings	Net change in short-term borrowings	(681,000)		(86,075)		Net change in short-term borrowings	(10,000)		(681,000)
Repayment of long-term FHLB borrowings	Repayment of long-term FHLB borrowings	(5,000)		(10,000)		Repayment of long-term FHLB borrowings	(21,503)		(5,000)
Proceeds from issuance of subordinated debt, net	Proceeds from issuance of subordinated debt, net	147,359		122,453		Proceeds from issuance of subordinated debt, net	0		147,359
Redemption of junior subordinated debt securities						Redemption of junior subordinated debt securities	(25,750)		0
Cash dividends paid	Cash dividends paid	(29,874)		(27,541)		Cash dividends paid	(59,521)		(29,874)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	—		(65,969)		Repurchase and retirement of common stock	(6,897)		0
Proceeds from exercise of stock options	Proceeds from exercise of stock options	1,024		381		Proceeds from exercise of stock options	732		1,024
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(1,273)		(2,629)		Restricted stock surrendered and canceled	(5,308)		(1,273)
Net cash provided by financing activities	Net cash provided by financing activities	593,430		134,191		Net cash provided by financing activities	672,673		593,430
Net increase in cash and cash equivalents		1,014,880		171,978
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(248,878)		1,014,880
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	326,850		203,406		Cash and cash equivalents, beginning of period	880,766		326,850
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	1,341,730	$	375,384	Cash and cash equivalents, end of period	$	631,888	$	1,341,730

Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Interest paid	Interest paid	$	28,057	$	39,469	Interest paid	$	21,614	$	28,057
Income taxes paid	Income taxes paid	125		26,634		Income taxes paid	35,211		125
Noncash investing activities during the period:	Noncash investing activities during the period:					Noncash investing activities during the period:
Transfers from portfolio loans to loans held for sale	Transfers from portfolio loans to loans held for sale	42,169		75,175		Transfers from portfolio loans to loans held for sale	0		42,169
Transfers from loans to other real estate owned		—		203

Recognition of operating lease right-of-use assets	Recognition of operating lease right-of-use assets	(11,118)		(48,685)		Recognition of operating lease right-of-use assets	0		(11,118)
Recognition of operating lease liabilities	Recognition of operating lease liabilities	11,118		(48,685)		Recognition of operating lease liabilities	0		11,118
Receivable on unsettled security sales	Receivable on unsettled security sales	6,529		—		Receivable on unsettled security sales	0		6,529
Due on unsettled security purchases	Due on unsettled security purchases	(33,960)		—		Due on unsettled security purchases	(12,830)		(33,960)
Acquisitions (See Note 4):	Acquisitions (See Note 4):					Acquisitions (See Note 4):
Fair value of stock and equity award consideration	Fair value of stock and equity award consideration	749,603		—		Fair value of stock and equity award consideration	0		749,603
Cash consideration	Cash consideration	2		—		Cash consideration	0		2
Fair value of assets acquired	Fair value of assets acquired	8,097,225		—		Fair value of assets acquired	0		8,097,225
Liabilities assumed	Liabilities assumed	7,347,620		—		Liabilities assumed	0		7,347,620

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, ~~2020~~2021

~~(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 reflect all normal recurring adjustments and accruals that are necessary for a fair presentation of the statement of financial position and the results of operations for the interim periods presented. The results of operations for the six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, ~~2020.~~2021. Certain items in the prior year financial statements were reclassified to conform to the current year presentation. Reclassification had no effect on prior year net income or stockholders’ equity.

Certain information and ~~note~~footnote 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, ~~2019~~2020 (the ~~“2019~~“2020 Form 10-K”).

The Company ~~accounts for~~consolidates 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 investments in its wholly owned special purpose entities, Heritage Oaks Capital Trust II 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 and the investmentinterests in these entities to determine whether they meet the definition of a VIE and whether the Company is ~~included in other assets on~~required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the ~~Company’s Consolidated Statements~~party that has both (i) the power to direct the activities that most significantly impact the economic performance of ~~Financial Condition.~~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 916 - ~~Subordinated Debentures~~–Variable Interest Entities for additional information.

Effective June 1, 2020, the Corporation completed the acquisition of Opus Bank (“Opus”), a California-chartered state bank headquartered in Irvine, California, for a total consideration of approximately $749.6 million, payable primarily in Corporation common stock, pursuant to the definitive agreement dated as of January 31, 2020. At closing, Opus had $8.32 billion in total assets, $5.94 billion in gross loans and $6.91 billion in total deposits and operated 46 banking offices located throughout California, Washington, Oregon and Arizona.

Prior to the Opus acquisition, PENSCO Trust Company LLC, a Colorado-chartered non-depository trust company (“PENSCO”), operated as an indirect, wholly-owned subsidiary of Opus and served as a custodian for self-directed IRAs, the funds of which account owners used for self-directed investments in various alternative asset classes. Immediately following the Opus acquisition, PENSCO merged with and into the Bank and operates its custodial business under the name of Pacific Premier Trust as a division of the Bank.

million. See further discussion in Note 4 – Acquisitions.

Note 2 – Recently Issued Accounting Pronouncements

Accounting Standards Adopted in ~~2020~~2021

In ~~June 2016,~~October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) ~~2016-13,~~2020-08, ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~. This Update replaces the incurred loss impairment model in current U.S. GAAP with a model that reflects current expected credit losses (“CECL”). The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. CECL also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses when the fair value is less than the amortized cost basis. It also applies to off-balance sheet credit exposures. The Update requires that all expected credit losses for financial assets held at the reporting date be measured based on historical experience, current conditions and reasonable and supportable forecasts. The Update also requires enhanced disclosure, including qualitative and quantitative disclosures that provide additional information about significant estimates and judgments used in estimating credit losses. The provisions of this Update became effective for the Company for all annual and interim periods beginning January 1, 2020.

~~In April 2019, the FASB issued ASU 2019-04,~~Codification Improvements to ~~Topic 326, Financial Instruments~~Subtopic 310-20, Receivables - ~~Credit Losses, Topic 815, Derivatives~~Nonrefundable Fees and ~~Hedging, and Topic 825, Financial Instruments~~Other Costs. ~~This Update was issued as part of an ongoing project on the FASB’s agenda for improving the Codification or correcting for its unintended application.~~ The ~~FASB issued~~amendments included in this Update are intended to clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. The guidance in paragraph 310-20-35-33 relates to amortization of premiums on individual callable debt securities and the period over which the premium shall be amortized in relation to the date the security is ~~specific to Updates: 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~ ~~The~~callable. For public business entities, the amendments in this Update became effective for ~~all~~fiscal years beginning after December 15, 2020, and interim ~~and annual reporting~~ periods ~~for the Company on January 1, 2020.~~within those years. The ~~Company adopted the provisions within~~Company’s adoption of this Update ~~in conjunction with the implementation of Accounting Standard Codification~~ ~~(“ASC”)~~ ~~326,~~ ~~Financial Instruments - Credit Losses, as discussed below, including: (i) the election to~~did not ~~measure credit losses~~have a material impact on accrued interest receivable when such balances are written-off in a timely manner when deemed uncollectable and (ii) the election to not include the balance of accrued interest receivable as part of the amortized cost of a loan, but rather to present it separately in the consolidated statements ofits financial ~~position.~~statements.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this Update clarify the interaction of the accounting for equity securities under Topic 321 and investments under the equity method of accounting in Topic 323, as well as the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments within this Update also clarify that when applying the guidance in paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. The amendments within this Update became effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company’s adoption of this Update did not have a material impact on its financial statements.

In ~~May~~December 2019, the FASB issued ASU ~~2019-05,~~2019-12, ~~Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief. This Update was issued to allow entities that have certain financial instruments within~~Simplifying the ~~scope of ASC 326-20,~~ ~~Financial Instruments - Credit Losses - Measured at Amortized Cost~~Accounting for Income Taxes, which includes updates to ~~make~~Topic 740 - Income Taxes. The amendments to this Update include the removal of the following exceptions included in Topic 740:

(1) Exception to the general intra-period tax allocation principle when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);

(2) Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an ~~irrevocable election~~equity method investment;

(3) Exception to ~~elect~~ the ~~fair value option~~ability not to recognize a deferred tax liability for ~~those instruments~~a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and

(4) Exception to the general methodology for calculating income taxes in ~~ASC 825-10,~~ ~~Financial Instruments - Overall~~ ~~upon~~an interim period when a year-to-date loss exceeds the ~~adoption of ASC 326, which~~anticipated loss for the ~~Company was January 1, 2020. The fair value option is not applicable to held-to-maturity debt securities.~~ ~~Entities are required to make this election on an instrument-by-instrument basis.~~ ~~The Company did not elect the~~ ~~fair value option for any of its financial assets~~ ~~upon the adoption of ASC 326 on January 1, 2020.~~year.

The ~~Company has developed an expected credit loss estimation model~~amendments included in ~~accordance with ASC 326. The Company implemented~~this update also require the model through a cross-functional effort steered by a CECL Committee, related sub-committees and working groups. These committees, sub-committees and working groups, collectively, were primarily comprised of senior management and staff members from our finance, credit, lending, internal audit, risk management and IT functional areas.following:

(1) Requiring that an entity recognize a franchise tax by (i) accounting for the amount based on income under Accounting Standards Codification (“ASC”) 740 and (ii) accounting for any residual amount as a non-income-based tax.

~~Depending on~~(2) Requiring that an entity evaluate when a step up in the ~~nature~~tax basis of each identified pool of financial assets with similar risk characteristics, the Company employs the use of a probability of default (“PD”) and loss given default (“LGD”) discounted cash flow methodology for commercial real estate and commercial loans, and a loss-rate methodology for retail loans, in order to estimate expected future credit losses. The Company’s model incorporates reasonable and supportable economic forecasts into the estimate of expected credit losses, which requires significant judgment. Management leverages economic projections from a reputable and independent third party to inform its reasonable and supportable economic forecasts.

~~Effective January 1, 2020, the Company adopted the provisions of~~ ~~ASC 326~~ ~~through the application~~goodwill should be considered part of the ~~modified retrospective transition approach,~~ business combination in which the book goodwill was originally recognized and ~~recorded~~when it should be considered a ~~net decrease~~separate transaction.

(3) Specifying that an entity is not required to allocate any portion of ~~$45.6 million to~~ the ~~beginning balance~~consolidated amount of ~~retained earnings as of January 1, 2020 for the cumulative effect adjustment, reflecting an initial adjustment to the allowance for credit losses (“ACL”) of $64.0 million, net of related~~current and deferred tax ~~assets arising from temporary differences of $18.3 million, commonly referred~~expense to ~~as the “Day 1” adjustment.~~ ~~The Day 1 adjustment~~a legal entity that is not subject to ~~the ACL is reflective of expected lifetime credit losses associated with the composition of~~tax in its separate financial assets within in the scope of ASC 326 as of January 1, 2020, which is comprised of loans held for investment and off-balance sheet credit exposures at January 1, 2020, as well as management’s current expectation of future economic conditions. Management did not have any qualitative adjustments as of January 1, 2020. The Day 1 adjustment was comprised of $55.7 million for loans held for investment and $8.3 million for off-balance sheet commitments for a total of ~~$64.0 million. The Day 1 adjustment to the~~ ~~ACL~~ for loans held for investment consists of $16.1 million for investor loans secured by real estate, $27.6 million for business real estate secured loans, $9.5 million for commercial loans and $2.5 million for retail loans. The majority of~~the Day 1 increase in the ACL for loans held for investment is attributable primarily to the life of loan loss impact and addition of~~statements. However, an allowance on acquired loans based on the methodology discussed above and secondarily to the incorporation of reasonable and supportable economic forecasts into the estimate of expected future credit losses to our commercial real estate and commercial owner-occupied loan portfolios, which have commercial real estate as the primary collateral source and longer contractual maturities relative to our loan portfolio as a ~~whole. Please also see~~ ~~Note 3 - Significant Accounting Policies, for a discussion on the Company’s accounting policy for the ACL,~~ ~~Note 6 - Loans Held for Investment~~ ~~and~~ ~~Note 7 - Allowance for Credit Losses, for additional information on the Company’s ACL, as well as other related disclosures.~~

The Company’s assessment of held-to-maturity and available-for-sale investment securities as of January 1, 2020 indicated that an ACL was not required. The Company determined the likelihood of default on held-to-maturity investment securities was remote, and the amount of expected non-repayment on those investments was zero. The Company also analyzed available-for-sale investment securities that were in an unrealized loss position as of January 1, 2020 and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, 0 ACL was recorded for held-to-maturity and available-for-sale securities as of January 1, 2020.

In accordance with ASC 326-10-65, upon the adoption of ASC 326, the Company did not reassess purchased loans with credit deterioration (previously classified as purchased credit impaired (“PCI”) loans under ASC 310-30), as there were no such loans on January 1, 2020.

~~Additionally, there were no investment securities with previously recorded other-than-temporary impairment as of January 1, 2020.~~

As previously mentioned, in conjunction with the adoption of ASC 326, the Company made an accounting policy election not to measure an ACL on accrued interest receivables in accordance with ASC 326-20-30-5A. When accrued interest receivable is deemed to be uncollectable, the Company promptly reverses such balances through current period interest income in the period deemed uncollectable. Additionally, the Company has also elected not to include the balance of accrued interest receivable in the amortized cost basis of financial assets within the scope of ASC 326. Accrued interest receivable will continue to be presented separately in the consolidated financial statements.

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 ASU 2016-13. 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. As a result, entities have the option to gradually phase in the full effect of CECL on regulatory capital over a five-year transition period. The Company implemented its 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.

~~The following table illustrates the impact of the adoption of the CECL model under ASC 326 on the Company’s consolidated statements of financial position as of January 1, 2020:~~

January 1, 2020
Pre-CECL Adoption Impact of CECL Adoption As Reported Under CECL
(Dollars in thousands)
Assets:
Allowance for credit losses on debt securities:
Held-to-maturity $ — $ — $ —
Available-for-sale — — —
Allowance for credit losses on loans:
Investor loans secured by real estate 9,027 16,072 25,099
Business loans secured by real estate 5,492 27,572 33,064
Commercial loans 20,118 9,519 29,637
Retail loans 1,061 2,523 3,584
Deferred tax (liabilities) assets (1,371) 18,346 16,975
Liabilities:
Allowance for credit losses on off-balance sheet credit exposures $ 3,279 $ 8,285 $ 11,564
Stockholders' equity:
Retained earnings $ 396,051 $ (45,625) $ 350,426

~~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~~do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the ~~amendments for contract modifications by Topic or Industry Subtopic as of any date from~~taxing authority.

(4) Requiring that an entity reflect the ~~beginning~~effect of an ~~interim period that includes~~enacted change in tax laws 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~~rates in the ~~date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments~~annual effective tax rate computation 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,~~the enactment date.

(5) Making minor Codification improvements for tax benefits related to tax-deductible dividends on employee stock ownership plan shares and investments in qualified affordable housing projects accounted for using the equity method.

The amendments within this Update became effective for public business entities for fiscal years beginning after December 15, 2020, and ~~to new eligible hedging relationships entered into after the beginning~~interim periods within those fiscal years. The Company’s adoption of ~~the interim period that includes March 12, 2020. The Company does not currently engage in hedging related transactions, and as such, the amendments included in~~ this Update did not have ~~not had an~~a material impact on ~~the Company’s~~its financial statements.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820,~~ ~~Fair Value Measurement~~.

~~The following disclosure requirements for public companies were removed from Topic 820:~~

•~~The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy~~

•~~The policy for timing of transfers between levels~~

•~~The valuation processes for Level 3 fair value measurements~~

~~The following disclosure requirements for public companies were modified in Topic 820:~~

•~~The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date~~

~~The following disclosure requirements for public companies were added to Topic 820:~~

•~~The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period.~~

•The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

~~The amendments in this Update became effective for the Company beginning on January 1, 2020. This ASU did not have a material effect on the Company’s financial statements.~~

~~In March 2019, the FASB issued ASU 2019-01,~~ ~~Leases (Topic 842): Codification Improvements.~~ ~~This Update provides clarification on certain aspects of an entity’s implementation of Topic 842 including those that relate to:~~

•Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers. The amendments related to this item carry forward from Topic 840 to Topic 842 an exception that allows lessors who are not manufacturers or dealers to use the cost of the underlying asset as its fair value.

•Presentation on the statement of cash flows - sales-type and direct financing leases. The amendments related to this item clarify that all principal payments received on leases by lessors in sales-type or direct financing lease transactions should be reflected in investing activities for entities such as depository and lending institutions within in the scope of Topic 942.

•Transition disclosures related to Topic 250, Accounting Changes and Error Corrections. The amendments related to this item clarify the FASB’s original intent by explicitly providing an exception to the paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements, which would otherwise require interim disclosures after the date of adoption of Topic 842 related to the impacts of the change on: (a) income from continuing operations, (b) net income, (c) any other financial statement line item and (d) any affected per-share amounts.

~~The amendments in this Update became effective for the Company beginning on January 1, 2020. This ASU did not have a material effect on the Company’s financial statements.~~

Recent Accounting Guidance Not Yet Effective

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), Issuers Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in this Update seek to clarify and reduce diversity in practice when an issuer accounts for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Amendments within this Update should be applied prospectively. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those years. The Company is currently evaluating the impact of this Update on its consolidated financial statements, upon which this accounting guidance is not expected to have a material impact.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The amendments included in this Update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the worldwide transition to new reference rates (commonly referred to as the “discounting transition”).

Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this Update are to the expedients and exceptions in Topic 848 and capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update are effective immediately for all entities that elect to apply the optional guidance in Topic 848.

An entity may elect to apply the amendments in this Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued. The Company is currently evaluating the impact of this Update on its consolidated financial statements, upon which this accounting guidance is not expected to have a material impact.

In March 2020, the FASB issued ASU ~~2020-01,~~2020-04, ~~Investments—Equity Securities~~Reference Rate Reform (Topic ~~321), Investments—Equity Method and Joint Ventures (Topic 323)~~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, ~~Derivatives~~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 ~~Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323 and Topic 815.~~ less susceptible to manipulation. The amendments in this Update ~~clarify~~provide optional guidance for a limited time to ease the ~~interaction~~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 ~~accounting~~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 does not currently engage in hedging related transactions, and as such, the amendments included in this Update have not had an impact on the Company’s consolidated financial statements.

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 ~~equity securities under Topic 321~~the transition, and ~~investments under~~managing the ~~equity method of accounting~~transition process with our customers.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in ~~Topic 323, as well as~~Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The FASB issued this Update to address complexities associated with the accounting for certain ~~forward~~financial instruments that possess characteristics of liabilities and equity, and to amend guidance for the derivatives scope exception for contracts in an entity’s own equity in an effort to reduce disparate accounting results for certain economically similar contracts. With respect to convertible instruments, this Update eliminates certain accounting models with the intent to simplify the accounting for convertible instruments and ~~purchased options~~reduce the complexity for preparers and users of an entity’s financial statements. Convertible instruments primarily affected by this Update are those issued with beneficial conversion features or cash conversion features, because the accounting models for those specific features are removed. For contracts in an entity’s own equity, the type of contracts primarily affected by this Update are freestanding and embedded features that are accounted for as derivatives under ~~Topic 815. The~~the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This Update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. This Update also makes targeted improvements to the disclosures for convertible instruments and earnings per share guidance. Entities may adopt the provisions of this Update using either the modified retrospective method or a fully retrospective method. Under the modified retrospective method, entities are required to apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments ~~clarify that~~in this Update are adopted. Any cumulative effect of the change should be recognized as an ~~entity should consider observable transactions that require it~~adjustment to ~~either apply or discontinue~~ the ~~equity method~~opening balance of ~~accounting~~retained earnings in the year of adoption for ~~the purposes of~~entities applying the ~~measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity~~modified retrospective method. The amendments ~~within~~in this Update also clarify that when applying the guidance in paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. The amendments within this Update becomeare effective for public business entities for fiscal years beginning after December 15, ~~2020, and~~2021, including interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. The Company is evaluating the impact of this Update on its financial statements.

1312

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 ~~2019~~2020 Form 10-K. Select policies have been reiterated below that have a particular affiliation to our interim financial statements.

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, ~~trust administrative~~custodial account fees, fees from other services the Bank provides its customers, and gains and losses from the sale of other real estate owned 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 and can be canceled at any time by the customer or the Bank, such as a deposit account agreement. 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 ~~U.S.~~ GAAP.

Goodwill and Other Intangible Assets. Goodwill 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 and determined to have an indefinite useful ~~life~~lives are not amortized, but are tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has a policy to test goodwill for impairment annually in the fourth quarter of each year, or more frequently if events or circumstances lead management to believe the value of goodwill 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 as of ~~the date of the consolidated balance sheets.~~June 30, 2021. Management’s assessment of goodwill is performed in accordance with ASC 350-20 -Intangibles - Goodwill and Other - Goodwill, which allows the Company to first ~~consists of~~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. ~~Should~~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 ~~this~~such analysis indicate it is more likely than not the fair value of the Company’s equity is below its carrying value, the Company then performs athe 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 ~~compare the implied fair value of the reporting unit goodwill to its carrying value to determine~~recognize the amount of impairment as the amount by which the reporting unit’s carrying value exceeds its fair value, limited to ~~recognize.~~the total amount of goodwill allocated to the reporting unit. Impairment losses are recorded as a charge to noninterest expense. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

In light of the COVID-19 pandemic and the deterioration of economic conditions as a result, the Company performed a goodwill impairment assessment as of June 30, 2020. The Company’s goodwill impairment assessment consisted of a qualitative analysis to first determine if it is more likely than not the estimated fair value of the Company exceeds its carrying value. The results of this analysis indicated no impairment of goodwill. Additionally, as part of the Company’s qualitative analysis, the Company looked at market related data as additional corroborating evidence in its assessment of whether it was more likely than not the carrying value of the Company exceeds its estimated fair value. This assessment of market related data included an initial assessment of the fair value of the Company’s equity as compared to its carrying value with the assistance from an independent third party. The assessment of market related data included factors such as: the Company’s stock price on an actual, 15-day and 30-day average basis as of June 30, 2020, and an implied 40% market participant acquisition premium, which was based upon control premiums for regional banks during the 2008 and 2009 financial crisis. This initial assessment of the fair value of the Company’s equity through observations of market related data provided additional supporting evidence as of June 30, 2020 that the carrying value of goodwill was not impaired. As of June 30, 2020, the balance of goodwill was $901.2 million.

Other intangible assets consist of core deposit intangible (“CDI”) and customer relationship intangible assets ~~associated with PENSCO~~ arising from whole bank acquisitions, and are amortized on either an accelerated basis, reflecting the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, ~~up,~~ or on a straight-line amortization method over their estimated useful lives, which range from 6 to 11 years. GAAP also 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.

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 ~~liability or~~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 base 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 lease payments are accounted for using the interest method, which are reduced by periodic rent payments, net of interest accretion. Right-of-use assets for finance leases are amortized on a straight-line basis over the term of the lease, while 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 finance leases is representative of the sum of periodic amortization of the associated right-of-use asset as well as the periodic interest accretion on the liability to make lease payments. Expense recognition for operating leases is recorded on a straight-line basis. As of June 30, ~~2020,~~2021, 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.

Securities. 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,~~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. 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.

Securities Available-for-Sale. 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 a separate component of stockholders’ equity as 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.

Equity Securities. Investments classified as equity securities 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 securities 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.

Allowance for Credit Losses on Investment Securities. The ACL on investment securities is determined for both the held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with ASC 326. The ACL for held-to-maturity investment securities is recorded at the time of purchase or acquisition, representing the Company’s best estimate of current expected future credit losses as of the date for the consolidated statements of financial condition. The ACL for held-to-maturity 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 quarterly qualitative evaluation ~~for~~of 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;~~issuer, (iii) downgrades in credit ~~ratings;~~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 can be attributed to credit loss, 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 ~~the Company records the loss,~~are recorded, net of tax, through accumulated other comprehensive income.

The Company determines expected credit losses on available-for-sale and held-to-maturity 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, while credit losses on held-to-maturity securities are measured on a collective basis according to shared risk characteristics. Credit losses on held-to-maturity securities are only recognized at the individual security level when the Company determines a security no longer possesses risk characteristics similar to others in the portfolio.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.~~collectible. Accrued interest receivable for investment securities is included in accrued interest receivable balances in the consolidated statements of financial condition.

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, including discounts and premiums on purchased and acquired 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 as an adjustment of yield, using the interest method, over the expected lives of the loans. Income recognition of deferred loan fees, deferred loan costs, discounts and ~~costs~~premiums is discontinued for loans that are placed on nonaccrual. Any remaining discounts, premiums, deferred loan fees or costs, and prepayment fees associated with ~~loans that payoff~~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 exercised, 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 or more based on the contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to collection of principal and or interest. When loans are placed on nonaccrual status, ~~all interest~~ previously accrued ~~but not collected~~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 estimated 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 current expected future 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 and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the probability of default and loss given default 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 ultimately 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 considered by management when developing the forecast metrics. The Company’s ACL model reverts to long-term average loss rates for purposes of estimating ~~expected~~ cash flows beyond a period deemed reasonable and supportable. The Company forecasts probability of default and loss given default based on economic ~~conditions and expected credit losses~~forecast scenarios over a two-year time horizon before reverting to long-term average loss ~~rates.~~rates over a period of three years. The duration of the forecast horizon, the period over which forecasts revert to 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 probability of default and loss given default, which can drive changes in the determination of the ACL.

1716

Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL term loans represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash ~~flows.~~flows expected to be collected. The ACL for credit facilities is determined 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 Company’s policy to charge-off loan balances at the time they have been deemed ~~uncollectable.~~uncollectible. Please also see Note 7 - Allowance for Credit Losses, of these consolidated financial statements for additional discussion concerning the Company’s ACL ~~methodology.~~methodology, including discussion concerning economic forecasts used in the determination of the ACL.

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, the Company 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 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.

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 (“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 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 expected 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 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.

~~Various~~ Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process. Such agencies may require the Company to recognize additions to the ~~allowance~~ACL based on judgments different from those of management.

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 ~~loans, business~~by real estate, ~~secured loans,~~ 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 June 30, ~~2020,~~2021, the Company had the following ~~detailed segmentation on~~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, changes in market rents and vacancy of the underlying property.~~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 ~~multi-family~~multifamily residences and CRE properties in our primary market area. We concentrate our origination efforts on single homes and ~~small~~ 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 being 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.

•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~~.restaurants. 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.

1918

•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), SBAExpress, 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. Small Business Administration, for up to 85% of the loan amount for loans up to $150,000 and 75% of the loan amount for loans of more than $150,000. However, as part of the Consolidated Appropriations Act of 2021, the credit enhancement provided by the SBA under the 7(a) program was temporarily increased to 90% through September 30, 2021. 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 ~~to businesses located generally in our primary~~ ~~market area.~~. Loan types ~~includes~~include revolving lines orof 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.~~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.

•~~SBA Paycheck Protection Program (“PPP”) loans~~ - Federally guaranteed loans designed to assist small and medium sized businesses through the disruptions in business brought on by the COVID-19 pandemic. The Paycheck Protection Program is part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act that was signed into law in March 2020. The loans are designed to help businesses meet the on-going costs associated with running and maintaining a business through the COVID-19 pandemic and provide the potential for forgiveness of the loan if the borrower uses the funds for certain purposes, such maintaining employees on payroll for a specified period of time. Additionally, the PPP allows for a deferral period until the date when the amount of loan forgiveness is determined and remitted to the lender. For borrowers who do not apply for forgiveness, the loan deferral period is 10 months after the applicable forgiveness period ends.

Retail Loans:

•One-to-four family - Although we do not originate, we have acquired first lien single family loans 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 for banking clients, ~~only,~~ 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.

2019

Troubled Debt Restructurings (“TDRs”). From ~~time-to-time,~~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, ~~concessions~~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 ~~loan has performed~~borrower’s performance under the modified terms of the loan agreement ~~for a period of at least six months~~ and the ultimate collectability of all contractual amounts due under the modified terms ~~of the loan agreement~~ 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 ~~cost~~costs to sell.

The CARES Act, signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The Consolidated Appropriations Act (“CAA”), signed into law on December 27, 2020, extends the applicable period to include modification to loans held by financial institutions executed between March 1, 2020 and the earlier of (i) January 1, 2022, or (ii) 60 days after the date of termination of the COVID-19 national emergency. The Company has elected to apply this guidance to certain qualifying loan modifications. For such modifications, in the form of payment deferrals, the delinquency status will not advance and loans that were accruing at the time that the relief is provided will generally not be placed on nonaccrual status during the deferral period. Interest income will continue to be recognized over the contractual life of the loan. However, the Company, through its credit portfolio management activities, continues to monitor facts and circumstances associated with the underlying credit quality of loans modified under the provisions of the CARES Act in an effort to identify any loans where the accrual of interest during the modification period is no longer appropriate. In such cases, the Company ceases the accrual of interest and all previously accrued and uncollected interest is promptly reversed against current period interest income. For additional information, see Note 6 - ~~Lons~~Loans Held for Investment.

Acquired Loans. ~~Loans acquired~~When the Company acquires loans through a purchase or a business combination, ~~are recorded at their fair value at the acquisition date. The Company performs~~ an assessment ~~of acquired loans~~is first performed to ~~first~~ 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. For~~ loans ~~that have not experienced more than insignificant deterioration in credit quality since origination, referred to~~or otherwise classified as non-PCD loans. All acquired loans ~~the Company records such loans~~are recorded at their fair value as of the date of acquisition, with any resulting discount or premium accreted or amortized into interest income over the remaining life of the loan 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.

Acquired loans that are classified as PCD are acquired at fair value, which includes any resulting premiums or discounts. Premiums and discounts are amortized or accreted into interest income over the remaining life of the loan using the interest method. 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 in the period in which the loans were acquired. 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 all other loans.

In connection with the Opus acquisition on June 1, 2020, the Company acquired PCD loans with an aggregate fair value of approximately $841.2 million, and recorded aan ACL of approximately $21.2 million, which was added to the amortized cost of the ~~loans.~~loans on the date of acquisition.

~~Subsequent to acquisition, the ACL for both non-PCD and PCD loans are determined with the use of the Company’s ACL methodology in the same manner as all other loans.~~

Other Real Estate Owned (“OREO”). Real estate properties acquired through, or in lieu of, loan foreclosure are recorded at fair value, less cost to sell, with any excess of the loan’s amortized cost balance over the fair value of the property recorded as a charge against the ACL. The Company obtains an appraisal and/or market valuation on all other real estate owned at the time of possession. After foreclosure, valuations are periodically performed by management. Any subsequent declines in fair value are recorded as a charge to non-interest expense in current period earnings with a corresponding write-down to the asset. All legal fees and direct costs, including foreclosure and other related costs, are expensed as incurred.

Use of Estimates. The preparation of financial statements in conformity with ~~U.S.~~ GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Note 4 – Acquisitions

Acquisition of Opus

Effective as of June 1, 2020, the Corporation completed the acquisition of Opus, a California-chartered state bank headquartered in Irvine, California, pursuant to a definitive agreement dated as of January 31, 2020. At closing, Opus had $8.32 billion in total assets, $5.94 billion in gross loans, and $6.91 billion in total deposits and operated 46 banking offices located throughout California, Washington, Oregon, and Arizona. As a result of the Opus acquisition, the Corporation acquired specialty lines of business, including trust and escrow services.

Prior to the Opus acquisition, PENSCO Trust Company LLC, a Colorado-chartered non-depository trust company (“PENSCO”), operated as an indirect, wholly-owned subsidiary of Opus and served as a custodian for self-directed ~~IRAs,~~individual retirement accounts (“IRA”), the funds of which account owners used for self-directed investments in various alternative asset classes. Immediately following the Opus acquisition, PENSCO merged with and into the Bank and operates its custodial business under the name of Pacific Premier Trust, as a division of the Bank. As of May 31, 2020, PENSCO had approximately $14.48 billion of custodial assets and approximately 44,000 client accounts.

Prior to the Opus acquisition, Commerce Escrow operated as a division of Opus, offering commercial escrow services and facilitating tax-deferred commercial exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). Following the acquisition of Opus, Commerce Escrow operates as a division of the Bank, which created synergies with the Company’s existing escrow deposit business.

The acquisition of Opus ~~expands~~expanded the Company’s presence in major metropolitan markets with greater operational scale, diversifies business lines, banking products and services, as well as deposit base and clients by adding a new channel of stable, low-cost deposits and fee income from Opus’s trust and escrow businesses, improves revenue, and accelerates the Company’s ability to invest in technology solutions and increase efficiencies.

Pursuant to the terms of the merger agreement, the consideration paid to Opus shareholders consisted of whole shares of the Corporation’s common stock and cash in lieu of fractional shares of the Corporation’s common stock. Upon consummation of the transaction, (i) each share of Opus common stock issued and outstanding immediately prior to the effective time of the acquisition was canceled and exchanged for the right to receive 0.900 shares of the Corporation’s common stock, with cash to be paid in lieu of fractional shares at a rate of $19.31 per share, and (ii) each share of Opus Series A non-cumulative, non-voting preferred stock issued and outstanding immediately prior to the effective time of the acquisition was converted into and canceled in exchange for the right to receive that number of shares of the Corporation’s common stock equal to the product of (X) the number of shares of Opus common stock into which such share of Opus preferred stock iswas convertible in connection with, and as a result of, the acquisition, and (Y) 0.900, in each case, plus cash in lieu of fractional shares of the Corporation’s common stock.

The Corporation issued 34,407,403 shares, net of 165,136 shares for tax withholding from Opus equity award holders, of the Corporation’s common stock valued at $21.62 per share, which was the closing price of the Corporation’s common stock on May 29, 2020, the last trading day prior to the consummation of the acquisition, and paid cash in lieu of fractional shares. The Corporation assumed Opus’s warrants and options, which ~~represent~~represented the issuance of up to approximately 406,778 and 9,538 additional shares of the Corporation’s common stock, valued at approximately $1.8 million and $46,000, respectively, and issued substitute restricted stock units in an aggregate amount of $328,000. The value of the total transaction consideration paid amounted to approximately $749.6 million. The Opus warrants assumed by the Corporation expired unexercised as of September 30, 2020 and no longer remain outstanding. The Opus options assumed by the Corporation were fully exercised during the third quarter of 2020.

2322


(Dollars in thousands)	May 29, 2020
Merger consideration	~~(Dollars in thousands)~~


Value of stock consideration paid to shareholders	$	747,458
Cash paid in lieu of fractional shares	2
Value of restricted stock awards	328
Value of options and warrants(1)	1,817
Total merger consideration	$	749,605

(1) The Opus warrants assumed by the Corporation expired unexercised on September 30, 2020 and no longer remain outstanding. The Opus options assumed by the Corporation were fully exercised during the third quarter of 2020.

~~CDI~~Core deposit intangible of $16.1 million, customer relationship intangible of $3.2 million, and goodwill of ~~$92.8~~$93.0 million were recognized as a result of the 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 summarizes the estimated fair value of assets acquired and liabilities assumed of Opus as of June 1, 2020 under the acquisition method of ~~accounting:~~accounting, net of purchase accounting adjustments:

~~Identifiable net assets acquired, at fair value~~(Dollars in thousands)

June 1, 2020

Net identifiable assets acquired, at fair value

~~(Dollars in thousands)~~

Assets acquired

Cash and cash equivalents

937,102

Interest bearing time deposits with financial institutions

137

Investment securities

829,891

Loans

5,809,451

~~5,805,655~~

Allowance for credit losses

(21,242)

Premises and equipment

22,121

Intangible assets

19,267

Deferred tax assets

43,395

~~44,335~~

Other assets

369,169

~~367,115~~

Total assets acquired

~~8,004,381~~8,009,291

Liabilities assumed

Deposits

6,915,990

FHLB advances and other borrowings

213,491

Subordinated debt

138,653

Other liabilities

84,542

~~79,486~~

Total liabilities assumed

7,352,676

~~7,347,620~~

Total fair value of net identifiable ~~net~~ assets

656,615

~~656,761~~

Total merger consideration

749,605

Goodwill recognized

~~92,844~~92,990

2423

The Company accounted for this transaction under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed and consideration exchanged to be recorded at their respective estimated fair values at the date of acquisition. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition, and other future events that are highly subjective in nature and subject to refinement for up to one year after the closing date of acquisition as additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.

As of June 30, 2020, the final purchase price remains subject to final adjustments and fair value measurements remain preliminary due to the timing of the acquisition. The Company continues to review information relating to events or circumstances existing at Since the acquisition, ~~date~~the Company has made a net adjustment of $146,000 related to loans, deferred tax assets, other assets, and ~~expects to finalize~~other liabilities. In May 2021, the Company finalized its fair values analysis of the acquired assets and assumed liabilities ~~over the next few months, but not later than one year after the~~associated with this acquisition. Management anticipates that this review could result in adjustments to the acquisition date valuation amounts presented herein but does not anticipate that these adjustments, if any, would be material.

The Company determined the fair value of loans, intangible assets, investment securities, real property, leases, deposits, and borrowings with the assistance of third-party valuations.

Loans

Opus’s loan portfolio was recorded at fair value at the date of acquisition. A valuation of Opus’s loan portfolio was performed by a third party as of the acquisition date in accordance with ASC 820 to assess the fair value of the loan portfolio, considering adjustments for interest rate risk, required equity return, servicing, credit, and liquidity risk. The loan portfolio was segmented into two groups: non-PCD loans and PCD loans. The non-PCD loans were pooled based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status. The PCD loans were valued at the loan level with similar characteristics noted above. The fair value was calculated using a discounted cash flow analysis. The discount rate utilized to analyze fair value considered the cost of funds rate, capital charge, servicing costs, and liquidity premium, mostly based on industry standards. ~~Non-PCD~~

At the acquisition date, non-PCD loans and PCD loans had a fair value of $4.94 billion and $841.2 million, respectively, ~~at the acquisition date~~ and a contractual balance of $5.05 billion and $896.5 million, respectively. In accordance with ~~U.S.~~ GAAP, there was no carryover of the allowance for credit losses that had been previously recorded by Opus. The Company recorded an ACL of $75.9 million through an increase to the provision for credit losses. The initial ACL for PCD loans of $21.2 million iswas established through an adjustment to the acquired loan balance and goodwill.

Core deposit intangible

The CDI on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates and maintenance costs, and costs of alternative funding using the discounted cash flow approach. The core deposit intangibles represent the costs saved by the Company between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base.

Customer relationship intangible

PENSCO operated as the legal trustee for its clients to provide recurring trust services over the life of client’s ~~trust.~~trust, and as a custodian for certain accounts that do not qualify as individual retirement accounts pursuant to the Internal Revenue Code. PENSCO could separately identify each of its customer relationships through the trustee agreement between each customer and PENSCO, as well as account-level specific information, and has a history and pattern of conducting business with them as their legal trustee. In the event that PENSCO (or its successor trust division within the Bank) were to merge, reorganize, get acquired, or change its name, the surviving entity will become the trustee or custodian of the IRAs provided that the surviving entity is authorized to serve in that capacity pursuant to the Internal Revenue Code. Accordingly, such PENSCO ~~customer~~client relationships met the contractual or other legal rights criterion for identification as a recognizable intangible asset separate from goodwill. The fair value of the customer relationship intangible asset was determined ~~by evaluating~~through the use of an excess earnings ~~through multiple periods using a discounted cash flow approach.~~model associated with the expected fee income associated with underlying client relationships.

Fixed maturity deposits

In determining the fair value of certificates of deposit, the cash flows of the contractual interest payments during the specific period of the certificates of deposit and scheduled principal payout were discounted to present value at market-based interest rates.

FHLB advances

The fair value of fixed rate Federal Home Loan Bank of San Francisco (“FHLB”) advances was determined using a discounted cash flow approach. The cash flows of the advances were projected based on scheduled payments of the fixed rate advances, factoring in prepayment ~~fee.~~fees. The cash flows were then discounted to present value using the FHLB rates as of May 29, 2020.

Subordinated debt

The fair value of subordinated debt was determined by using a discounted cash flow method using a market participant discount rate for similar instruments.

The Company incurred ~~$41.1 million~~$5,000 of expenses in connection with the Opus acquisition during the six months ended June 30, 2021 compared with $39.3 million during the three months ended June 30, 2020. Merger-related expenses are included in ~~other~~noninterest expense in the Company's consolidated statements of income.

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three and six months ended June 30, 2020 ~~and 2019~~ as if Opus had been acquired on January 1, ~~2019.~~2020. This unaudited pro forma information combines the historical results of Opus with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented, and the differences could be significant.

Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(Dollar in thousands, except per share data)
Net interest and other income $ 203,240 $ 190,946 $ 375,984 $ 383,408
Net (loss) income (62,479) 54,711 (119,391) 111,644
Basic (loss) earnings per share (0.67) 0.59 (1.29) 1.20
Diluted (loss) earnings per share (0.67) 0.58 (1.29) 1.18


	Three Months Ended		Six Months Ended
(Dollar in thousands, except per share data)	June 30, 2020		June 30, 2020
Net interest and other income	$	203,240	$	375,984
Net loss	(62,479)		(119,931)
Basic loss per share	(0.67)		(1.29)
Diluted loss per share	(0.67)		(1.29)

2625

Note 5 – Investment Securities

The amortized cost and estimated fair value of securities were as follows:


		June 30, 2020															June 30, 2021
		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
		(Dollars in thousands)
(Dollars in thousands)										(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury	U.S. Treasury	$	30,170	$	2,700	$	—	$	32,870	U.S. Treasury	$	109,847	$	2,008	$	(47)		$	111,808
Agency	Agency	315,927		24,419		(356)		339,990		Agency	554,342		6,335		(5,510)			555,167
Corporate	Corporate	274,076		1,698		(1,775)		273,999		Corporate	355,101		5,957		(2,676)			358,382
Municipal bonds	Municipal bonds	439,772		21,629		(66)		461,335		Municipal bonds	1,348,346		36,296		(5,169)			1,379,473
Collateralized mortgage obligations	Collateralized mortgage obligations	380,527		4,260		(48)		384,739		Collateralized mortgage obligations	617,596		287		(3,145)			614,738
Mortgage-backed securities	Mortgage-backed securities	814,012		29,375		(254)		843,133		Mortgage-backed securities	1,465,117		11,216		(8,454)			1,467,879
Total investment securities available-for-sale	Total investment securities available-for-sale	2,254,484		84,081		(2,499)		2,336,066		Total investment securities available-for-sale	4,450,349		62,099		(25,001)			4,487,447
Investment securities held-to-maturity:	Investment securities held-to-maturity:									Investment securities held-to-maturity:
Mortgage-backed securities	Mortgage-backed securities	30,892		1,622		—		32,514		Mortgage-backed securities	17,378		887		0			18,265
Other	Other	1,665		—		—		1,665		Other	1,555		0		0			1,555
Total investment securities held-to-maturity	Total investment securities held-to-maturity	32,557		1,622		—		34,179		Total investment securities held-to-maturity	18,933		887		0			19,820
Total investment securities	Total investment securities	$	2,287,041	$	85,703	$	(2,499)	$	2,370,245	Total investment securities	$	4,469,282	$	62,986	$	(25,001)		$	4,507,267


		December 31, 2019															December 31, 2020
		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
		(Dollars in thousands)
(Dollars in thousands)										(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury	U.S. Treasury	$	60,457	$	3,137	$	(39)	$	63,555	U.S. Treasury	$	30,153	$	2,380	$	0		$	32,533
Agency	Agency	240,348		7,686		(1,676)		246,358		Agency	666,702		24,292		(608)			690,386
Corporate	Corporate	149,150		2,217		(14)		151,353		Corporate	412,223		3,591		(506)			415,308
Municipal bonds	Municipal bonds	384,032		13,450		(184)		397,298		Municipal bonds	1,412,012		37,260		(3,253)			1,446,019
Collateralized mortgage obligations	Collateralized mortgage obligations	9,869		123		(8)		9,984		Collateralized mortgage obligations	513,259		819		(712)			513,366
Mortgage-backed securities	Mortgage-backed securities	494,404		7,603		(2,171)		499,836		Mortgage-backed securities	812,384		21,662		(543)			833,503
Total investment securities available-for-sale	Total investment securities available-for-sale	1,338,260		34,216		(4,092)		1,368,384		Total investment securities available-for-sale	3,846,733		90,004		(5,622)			3,931,115
Investment securities held-to-maturity:	Investment securities held-to-maturity:									Investment securities held-to-maturity:
Mortgage-backed securities	Mortgage-backed securities	36,114		922		—		37,036		Mortgage-backed securities	22,124		1,281		0			23,405
Other	Other	1,724		—		—		1,724		Other	1,608		0		0			1,608
Total investment securities held-to-maturity	Total investment securities held-to-maturity	37,838		922		—		38,760		Total investment securities held-to-maturity	23,732		1,281		0			25,013
Total investment securities	Total investment securities	$	1,376,098	$	35,138	$	(4,092)	$	1,407,144	Total investment securities	$	3,870,465	$	91,285	$	(5,622)		$	3,956,128

~~Unrealized gains~~Investment securities with carrying values of $134.6 million and ~~losses on investment securities available-for-sale are recognized in stockholders’ equity~~$147.3 million as ~~accumulated other comprehensive income or loss. At~~of June 30, 2020, the Company had accumulated other comprehensive income of $81.6 million, or $58.2 million net of tax, compared to an accumulated other comprehensive income of $30.1 million, or $21.5 million net of tax, at2021 and December 31, ~~2019.~~2020, respectively, were pledged to secure public deposits, other borrowings, and for other purposes as required or permitted by law.

At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

The Company reviews individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is deemed credit related or due to other factors such as changes in interest rates and general market conditions. The Company recognizes credit losses in current period earnings when declines in the fair value of individual available-for-sale securities are below their amortized cost, and the decline in fair value is deemed to be credit related. Declines in fair value below amortized cost not deemed credit related are recorded net of tax in accumulated other comprehensive income. In the event the Company is required to sell or has the intent to sell an available-for-sale security that has experienced a decline in fair value below its amortized cost, the Company writes the amortized cost of the security down to fair value in the current period.

As of June 30, 2020, the Company has not recorded credit losses on certain available-for-sale securities that were in an unrealized loss position due to the high quality of the investments, with investment grade ratings, and many of them are issued by U.S. government agencies. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. The Company performed an assessment of these investments as of June 30, 2020, and does not believe the declines in fair value are credit related. There were 0 provision for credit losses recognized for the the six months ended June 30, 2020. There were 0 other than temporary impairment losses recognized for the six months ended June 30, 2019.

At June 30, 2020, there were 0 available-for-sale or held-to-maturity securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At June 30, 2020 andDecember 31, 2019, there were 0 securities purchased with deterioration in credit quality since their origination. At June 30, 2020, there were 0 collateral dependent available-for-sale or held-to-maturity securities.

2826

Unrealized Gains and Losses

Unrealized gains and losses on investment securities available-for-sale are recognized in stockholders’ equity as accumulated other comprehensive income or loss. At June 30, 2021, the Company had accumulated other comprehensive income of $37.1 million, or $26.5 million net of tax, compared to an accumulated other comprehensive income of $84.4 million, or $60.3 million net of tax, at December 31, 2020.

The table below shows the number, fair value, and gross unrealized holding losses of the Company’s investment securities by investment category and length of time that the securities have been in a continuous loss position.


		June 30, 2020																													June 30, 2021
		Less than 12 Months								12 Months or Longer										Total								Less than 12 Months					12 Months or Longer	Total
		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses
		(Dollars in thousands)
(Dollars in thousands)																	(Dollars in thousands)	Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses
Investment securities available-for-sale:	Investment securities available-for-sale:																Investment securities available-for-sale:
U.S. Treasury	U.S. Treasury	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—	U.S. Treasury	2	$	38,568	$	(47)	0	$	0	$	0	2	$	38,568	$	(47)
Agency	Agency	1	12,361		(10)		9	11,687		(346)		10	24,048		(356)		Agency	24	358,145		(5,244)		9	9,355		(266)		33	367,500		(5,510)
Corporate	Corporate	13	84,559		(1,775)		—	—		—		13	84,559		(1,775)		Corporate	11	91,496		(2,676)		0	0		0		11	91,496		(2,676)
Municipal bonds	Municipal bonds	7	19,326		(66)		—	—		—		7	19,326		(66)		Municipal bonds	68	375,132		(5,169)		0	0		0		68	375,132		(5,169)
Collateralized mortgage obligations	Collateralized mortgage obligations	3	26,593		(47)		1	522		(1)		4	27,115		(48)		Collateralized mortgage obligations	35	373,224		(3,145)		1	351		0		36	373,575		(3,145)
Mortgage-backed securities.	Mortgage-backed securities.	11	93,393		(254)		—	—		—		11	93,393		(254)		Mortgage-backed securities.	68	838,125		(8,454)		0	0		0		68	838,125		(8,454)
Total investment securities available-for-sale	Total investment securities available-for-sale	35	236,232		(2,152)		10	12,209		(347)		45	248,441		(2,499)		Total investment securities available-for-sale	208	$	2,074,690	$	(24,735)	10	$	9,706	$	(266)	218	$	2,084,396	$	(25,001)


		December 31, 2019																													December 31, 2020
		Less than 12 Months								12 Months or Longer										Total								Less than 12 Months					12 Months or Longer	Total
(Dollars in thousands)																	(Dollars in thousands)	Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses
Investment securities available-for-sale:																	Investment securities available-for-sale:
		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses
		(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury		1	$	10,194	$	(39)	—	$	—	$	—	1	$	10,194	$	(39)
Agency	Agency	13	102,874		(1,340)		9	13,514		(336)		22	116,388		(1,676)		Agency	4	$	74,194	$	(307)	9	$	10,434	$	(301)	13	$	84,628	$	(608)
Corporate	Corporate	1	1,017		(14)		—	—		—		1	1,017		(14)		Corporate	9	71,226		(506)		0	0		0		9	71,226		(506)
Municipal bonds	Municipal bonds	12	30,541		(184)		—	—		—		12	30,541		(184)		Municipal bonds	56	312,894		(3,253)		0	0		0		56	312,894		(3,253)
Collateralized mortgage obligations	Collateralized mortgage obligations	—	—		—		1	603		(8)		1	603		(8)		Collateralized mortgage obligations	21	215,603		(710)		1	431		(2)		22	216,034		(712)
Mortgage-backed securities	Mortgage-backed securities	18	130,014		(1,681)		11	26,886		(490)		29	156,900		(2,171)		Mortgage-backed securities	16	139,071		(543)		0	0		0		16	139,071		(543)
Total investment securities available-for-sale	Total investment securities available-for-sale	45	274,640		(3,258)		21	41,003		(834)		66	315,643		(4,092)		Total investment securities available-for-sale	106	$	812,988	$	(5,319)	10	$	10,865	$	(303)	116	$	823,853	$	(5,622)

2927

~~The amortized cost and estimated fair value of investment securities at June 30, 2020, 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
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:
U.S. Treasury $ — $ — $ 20,147 $ 21,577 $ 10,023 $ 11,293 $ — $ — $ 30,170 $ 32,870
Agency 1,000 1,013 40,577 43,830 203,033 218,452 71,317 76,695 315,927 339,990
Corporate 76,883 76,988 73,958 74,303 123,235 122,708 — — 274,076 273,999
Municipal bonds — — 1,452 1,574 29,653 31,980 408,667 427,781 439,772 461,335
Collateralized mortgage obligations — — — — 52,686 53,250 327,841 331,489 380,527 384,739
Mortgage-backed securities — — 2,213 2,419 191,695 206,540 620,104 634,174 814,012 843,133
Total investment securities available-for-sale 77,883 78,001 138,347 143,703 610,325 644,223 1,427,929 1,470,139 2,254,484 2,336,066
Investment securities held-to-maturity:
Mortgage-backed securities — — — — — — 30,892 32,514 30,892 32,514
Other — — — — — — 1,665 1,665 1,665 1,665
Total investment securities held-to-maturity — — — — — — 32,557 34,179 32,557 34,179
Total investment securities $ 77,883 $ 78,001 $ 138,347 $ 143,703 $ 610,325 $ 644,223 $ 1,460,486 $ 1,504,318 $ 2,287,041 $ 2,370,245

During the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, the Company recognized gross gains on sales of available-for-sale securities in the amount of $1.3 million, $8.0 million and $406,000, respectively. During the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, the Company recognized gross losses on sales of available-for-sale securities in the amount of $1.3 million, $204,000 and $194,000, respectively. The Company had net proceeds from the sales of available-for-sale securities of $191.1 million during the three months ended June 30, 2020, of which $6.5 million were receivables on unsettled security sales. The Company had net proceeds from the sales of available-for-sale securities of $155.3 million and $57.2 million during the three months ended March 31, 2020 and June 30, 2019.

~~During the six months ended June 30, 2020 and 2019, the Company recognized gross gains on~~

sales of available-for-sale securities in the amount of $9.2 million and $1.4 million, respectively. During the six months ended June 30, 2020 and 2019, the Company recognized gross losses on the sales of available-for sale securities in the amount of $1.5 million and $809,000, respectively. The Company had net proceeds from the sales of available-for-sale securities of $346.4 million, of which $6.5 million were receivables on unsettled security sales, and $227.1 million during the six months ended June 30, 2020 and 2019, respectively.

Investment securities with carrying values of $133.3 million and $125.7 million as of June 30, 2020 and December 31, 2019, respectively, were pledged to secure public deposits, other borrowings and for other purposes as required or permitted by law.

~~FHLB, FRB and Other Stock~~

At June 30, 2020, the Company had $17.3 million in FHLB stock, $51.8 million in Federal Reserve Bank of San Francisco (“FRB”) stock and $25.7 million in other stock, all carried at cost. During the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, the FHLB repurchased $17.3 million, $10.3 million and $5.4 million, respectively, of the Company’s excess FHLB stock through its stock repurchase program.

The Company evaluates its investments in FHLB, FRB and other stock for impairment periodically, including their capital adequacy and overall financial condition. NaN impairment loss has been recorded through June 30, 2020.

Allowance for Credit Losses on Investment Securities

The Company ~~accounts for~~reviews individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is deemed credit ~~losses on debt securities~~related or due to other factors such as changes in accordance with ASC 326, which requires the Company to record an ACL on held-to-maturity investment securities at the time of purchase or acquisition. The ACL for held-to-maturity investment securities represents the Company’s current estimate of expected credit losses that may be incurred over the life of the investment.interest rates and general market conditions. An ACL on available-for-sale 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 to be credit related through the Company’s qualitative assessment. Non-credit related declines in fair value of available-for-sale investment securities, which may be attributed to changes in interest rates and other market related factors, are not recorded through an ~~ACL, but rather~~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 available-for-sale security that has experienced a decline in fair value below its amortized cost, the Company writes the amortized cost of the security down to fair value in the current period.

Credit losses on held-to-maturity investment securities are recorded at the time of purchase or acquisition and when the Company has designated securities as held-to-maturity. Credit losses on held-to-maturity 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 available-for-sale and held-to-maturity 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 available-for-sale 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.

During the second quarter of 2020, the Company acquired $829.9 million of available-for-sale securities in connection with the acquisition of Opus. Such securities were evaluated and it was determined that there were 0 investment securities classified as purchase credit deteriorated upon acquisition and, as a result, 0 allowance for credit losses was recorded.

The Company did not record an ACL for available-for-sale or held-to-maturity investment securities during the six months ended June 30, 2020. For available-for-sale securities where estimated fair value was below amortized cost, such declines were deemed non-credit related and recorded as an adjustment to accumulated other comprehensive income, net of tax. Non-credit related decline in fair value of available-for-sale investment securities can be attributed to changes in interest rates and other market related factors. The Company did not record anhas 0 ACL for held-to maturity investment securities ~~during the six months ended~~as of June 30, 2021 and December 31, 2020 because the likelihood of non-repayment is remote. The Company has 0 ACL for available-for-sale or investment securities June 30, 2021 and December 31, 2020. As of June 30, 2021, the Company has not recorded credit losses on certain available-for-sale securities that were in an unrealized loss position due to the high quality of the investments, with investment grade ratings, and many of them are issued by U.S. government agencies. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. The Company performed a qualitative assessment of these investments as of June 30, 2021, and does not believe the declines in fair value are credit related. There was 0 provision for credit losses recognized for available-for-sale or held-to-maturity investment securities investment securities during the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, and the six months ended June 30, 2021 and June 30, 2020.

At June 30, 2021 and December 31, 2020, there were 0 available-for-sale or held-to-maturity securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At June 30, 2021 and December 31, 2020, there were 0 securities purchased with deterioration in credit quality since their origination. At June 30, 2021 and December 31, 2020, there were 0 collateral dependent available-for-sale or held-to-maturity securities.

The following table summarizes the Company’s investment securities portfolio by Moody’s external rating equivalent and by vintage as of June 30, ~~2020:~~2021:


		Vintage																									Vintage
		2020		2019		2018		2017		2016		Prior		Total
		(Dollars in thousands)
(Dollars in thousands)																(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Total
Investment securities available-for-sale:	Investment securities available-for-sale:															Investment securities available-for-sale:
U.S. Treasury	U.S. Treasury															U.S. Treasury
Aaa - Aa3	Aaa - Aa3	$	—	$	—	$	22,103	$	10,767	$	—	$	—	$	32,870	Aaa - Aa3	$	33,148	$	26,266	$	20,481	$	21,408	$	10,505	$	0	$	111,808

Agency	Agency															Agency
Aaa - Aa3	Aaa - Aa3	28,924		44,590		159,345		9,759		21,556		75,816		339,990		Aaa - Aa3	9,572		349,992		55,601		83,752		0		56,250		555,167

Corporate debt	Corporate debt															Corporate debt

A1 - A3	A1 - A3	—		19,856		—		—		119,687		9,344		148,887		A1 - A3	0		58,502		0		0		0		60,573		119,075
Baa1 - Baa3	Baa1 - Baa3	19,652		41,571		5,100		18,131		8,857		31,801		125,112		Baa1 - Baa3	36,553		100,494		70,721		0		17,925		13,614		239,307
Municipal bonds	Municipal bonds															Municipal bonds
Aaa - Aa3	Aaa - Aa3	67,718		264,432		32,497		50,889		15,176		30,623		461,335		Aaa - Aa3	40,975		907,667		297,852		32,830		60,376		36,124		1,375,824

A1 - A3																A1 - A3	0		0		0		0		0		2,309		2,309
Baa1 - Baa3																Baa1 - Baa3	0		0		0		0		0		1,340		1,340
Collateralized mortgage obligations	Collateralized mortgage obligations															Collateralized mortgage obligations
Aaa - Aa3	Aaa - Aa3	37,610		44,082		162,056		4,208		119,932		16,851		384,739		Aaa - Aa3	142,912		232,492		91,915		20,786		14,443		112,190		614,738

Mortgage-backed securities	Mortgage-backed securities															Mortgage-backed securities
Aaa - Aa3	Aaa - Aa3	164,071		217,705		49,247		220,385		94,794		96,931		843,133		Aaa - Aa3	834,439		437,746		96,261		12,600		40,338		46,495		1,467,879

Total investment securities available-for-sale	Total investment securities available-for-sale	317,975		632,236		430,348		314,139		380,002		261,366		2,336,066		Total investment securities available-for-sale	1,097,599		2,113,159		632,831		171,376		143,587		328,895		4,487,447
Investment securities held-to-maturity:	Investment securities held-to-maturity:															Investment securities held-to-maturity:
Mortgage-backed securities	Mortgage-backed securities															Mortgage-backed securities
Aaa - Aa3	Aaa - Aa3	—		—		9,538		7,487		5,356		8,511		30,892		Aaa - Aa3	0		0		0		5,029		4,481		7,868		17,378

Other	Other															Other

Baa1 - Baa3	Baa1 - Baa3	—		—		663		—		—		1,002		1,665		Baa1 - Baa3	0		0		0		608		0		947		1,555
Total investment securities held-to-maturity	Total investment securities held-to-maturity	—		—		10,201		7,487		5,356		9,513		32,557		Total investment securities held-to-maturity	0		0		0		5,637		4,481		8,815		18,933
Total investment securities	Total investment securities	$	317,975	$	632,236	$	440,549	$	321,626	$	385,358	$	270,879	$	2,368,623	Total investment securities	$	1,097,599	$	2,113,159	$	632,831	$	177,013	$	148,068	$	337,710	$	4,506,380

Realized Gains and Losses

During the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, the Company recognized gross gains on sales of available-for-sale securities in the amount of $10.0 million, $4.2 million, and $1.3 million, respectively. During the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, the Company recognized gross losses on sales of available-for-sale securities in the amount of $5.0 million, $191,000, and $1.3 million, respectively. The Company had net proceeds from the sales of available-for-sale securities of $285.3 million, $179.4 million, and $191.1 million, of which $6.5 million were receivables on unsettled securities sales, during the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively.

During the six months ended June 30, 2021 and 2020, the Company recognized gross gains on sales of available-for-sale securities in the amount of $14.3 million and $9.2 million, respectively. During the six months ended June 30, 2021 and 2020, the Company recognized gross losses on the sales of available-for sale securities in the amount of $5.1 million and $1.5 million, respectively. The Company had net proceeds from the sales of available-for-sale securities of $464.7 million and $346.4 million, of which $6.5 million were receivables on unsettled security sales, during the six months ended June 30, 2021 and 2020, respectively.

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Contractual maturities

The amortized cost and estimated fair value of investment securities at June 30, 2021, 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
Investment securities available-for-sale:
U.S. Treasury	$	0	$	0	$	30,135	$	31,913	$	79,712	$	79,895	$	0	$	0	$	109,847	$	111,808
Agency	0		0		312,054		314,952		184,783		184,414		57,505		55,801		554,342		555,167
Corporate	54,024		54,074		9,670		9,714		291,407		294,594		0		0		355,101		358,382
Municipal bonds	12,830		12,830		4,619		4,918		77,533		80,607		1,253,364		1,281,118		1,348,346		1,379,473
Collateralized mortgage obligations	0		0		26,394		26,357		229,519		226,997		361,683		361,384		617,596		614,738
Mortgage-backed securities	0		0		2,121		2,252		479,885		486,001		983,111		979,626		1,465,117		1,467,879
Total investment securities available-for-sale	66,854		66,904		384,993		390,106		1,342,839		1,352,508		2,655,663		2,677,929		4,450,349		4,487,447
Investment securities held-to-maturity:
Mortgage-backed securities	0		0		0		0		0		0		17,378		18,265		17,378		18,265
Other	0		0		0		0		0		0		1,555		1,555		1,555		1,555
Total investment securities held-to-maturity	0		0		0		0		0		0		18,933		19,820		18,933		19,820
Total investment securities	$	66,854	$	66,904	$	384,993	$	390,106	$	1,342,839	$	1,352,508	$	2,674,596	$	2,697,749	$	4,469,282	$	4,507,267

FHLB, FRB, and Other Stock

The Company’s equity securities primarily consist of FHLB and Federal Reserve Bank of San Francisco (“FRB”) stock, which are considered restricted securities and held 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 June 30, 2021, the Company had $17.3 million in FHLB stock, $74.4 million in FRB stock, and $26.3 million in other stock, all carried at cost. During the three months ended June 30, 2021 and March 31, 2021, the FHLB did 0t repurchase any of the Company’s excess FHLB stock through its stock repurchase program. During the three months ended June 30, 2020, the FHLB repurchased $17.3 million of the company’s excess FHLB stock through its stock repurchase program.

The Company periodically evaluates its investments in FHLB, FRB, and other stock for impairment, including their capital adequacy and overall financial condition. NaN impairment losses have been recorded through June 30, 2021.

Note 6 – Loans Held for Investment

The ~~company’s~~Company’s loan portfolio ~~are~~is segmented according to loans that share similar attributes and risk characteristics.

Investor loans secured by real estate ~~loan portfolio~~ includes CRE non-owner-occupied, multifamily, construction, and land, ~~and~~as well as SBA loans secured by real estate, which are loans collateralized by hotel/motel real property.

Business loans secured by real estate ~~portfolio~~ 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, and SBA PPP loans under the CARES Act.~~secured.

Retail loans ~~portfolio includes~~include single family residential and consumer loans. Single family residential includes home equity lines of credit, as well as second trust deeds.

3331

The following table presents the composition of the loan portfolio for the ~~period~~periods indicated:


		June 30,		December 31,			June 30,		December 31,
		2020		2019
		(Dollars in thousands)
(Dollars in thousands)						(Dollars in thousands)	2021		2020
Investor loans secured by real estate	Investor loans secured by real estate					Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	2,783,692	$	2,070,141	CRE non-owner-occupied	$	2,810,233	$	2,675,085
Multifamily	Multifamily	5,225,557		1,575,726		Multifamily	5,539,464		5,171,356
Construction and land	Construction and land	357,426		438,786		Construction and land	297,728		321,993
SBA secured by real estate	SBA secured by real estate	59,482		68,431		SBA secured by real estate	53,003		57,331
Total investor loans secured by real estate	Total investor loans secured by real estate	8,426,157		4,153,084		Total investor loans secured by real estate	8,700,428		8,225,765
Business loans secured by real estate	Business loans secured by real estate					Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,170,154		1,846,554		CRE owner-occupied	2,089,300		2,114,050
Franchise real estate secured	Franchise real estate secured	364,647		353,240		Franchise real estate secured	358,120		347,932
SBA secured by real estate	SBA secured by real estate	85,542		88,381		SBA secured by real estate	72,923		79,595
Total business loans secured by real estate	Total business loans secured by real estate	2,620,343		2,288,175		Total business loans secured by real estate	2,520,343		2,541,577
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	2,051,313		1,393,270		Commercial and industrial	1,795,144		1,768,834
Franchise non-real estate secured	Franchise non-real estate secured	523,755		564,357		Franchise non-real estate secured	401,315		444,797
SBA non-real estate secured	SBA non-real estate secured	21,057		17,426		SBA non-real estate secured	13,900		15,957
SBA PPP		1,128,780		—

Total commercial loans	Total commercial loans	3,724,905		1,975,053		Total commercial loans	2,210,359		2,229,588
Retail loans	Retail loans					Retail loans
Single family residential	Single family residential	265,170		255,024		Single family residential	157,228		232,574
Consumer	Consumer	46,309		50,975		Consumer	6,240		6,929
Total retail loans	Total retail loans	311,479		305,999		Total retail loans	163,468		239,503
Gross loans held for investment ⁽¹⁾	Gross loans held for investment ⁽¹⁾	15,082,884		8,722,311		Gross loans held for investment (1)	13,594,598		13,236,433
Allowance for credit losses for loans held for investment ⁽²⁾		(282,271)		(35,698)
Allowance for credit losses for loans held for investment						Allowance for credit losses for loans held for investment	(232,774)		(268,018)
Loans held for investment, net	Loans held for investment, net	$	14,800,613	$	8,686,613	Loans held for investment, net	$	13,361,824	$	12,968,415

Total unfunded loan commitments						Total unfunded loan commitments	$	2,345,364	$	1,947,250
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	$	1,007	$	1,672	Loans held for sale, at lower of cost or fair value	$	4,714	$	601

⁽¹⁾ Includes unaccreted fair value net purchase discounts of ~~$144.5~~$94.4 million and ~~$40.7~~$113.8 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

⁽²⁾The allowance for credit losses as of December 31, 2019 was the allowance for loan and lease losses (“ALLL”) accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. The allowance for credit losses at June 30, 2020 is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

Loans Serviced for Others and Loan Securitization

The Company generally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company records a servicing asset ~~initially~~ at fair value within its other assets category. Servicing assets are subsequently measured using the amortization method and amortized to noninterest income. Servicing assets are evaluated for impairment based on the fair value of the assets as compared to carrying amount. At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the servicing asset totaled ~~$6.6~~$4.4 million and ~~$7.7~~$5.3 million, respectively, and was included in other assets in the Company’s consolidated statement of financial condition. Servicing rights 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 June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company determined that no valuation allowance was necessary.

Opus entered into securitization sales on December 23, 2016 with the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The transaction involved the sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored transaction. One class of Freddie Mac guaranteed structured pass-through certificates was issued and purchased entirely by Opus. In connection with the Opus acquisition, the Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and reimbursement obligations. Servicing responsibilities on loan sales 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 separately 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 responsibilities accordingly.

General representations and warranties associated with loan sales and securitization sales require the Company to uphold various assertions that pertain to the underlying loans at the time 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 limited to those that do not meet the quality represented at the transaction date and do not pertain to a decline in value or future payment defaults. In circumstances where the Company breaches its representations and warranties, the Company would 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 obligated 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 ~~Company recognized a~~ liability ~~of $463,000 as of June 30, 2020~~recorded for ~~its~~Company’s exposure to the reimbursement agreement with Freddie ~~Mac.~~Mac was $448,000 as of June 30, 2021 and December 31, 2020.

Loans sold and serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balance of loans and participations serviced for others were ~~$749.8~~$618.3 million at June 30, ~~2020~~2021 and ~~$633.8~~$686.0 million at December 31, ~~2019, including~~2020. Included within the balances were loans transferred through securitization with Freddie Mac of ~~$114.8~~$94.6 million and SBA participations serviced for others of ~~$440.9~~$387.8 million at June 30, ~~2020~~2021, and loans transferred through securitization with Freddie Mac of $99.4 million and SBA participations serviced for others of ~~$475.3~~$421.7 million at December 31, ~~2019, respectively.~~2020.

3533

Concentration of Credit Risk

As of June 30, ~~2020,~~2021, 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 multifamily, ~~real estate, commercial~~CRE non-owner-occupied, ~~real estate, commercial~~CRE owner-occupied, ~~real estate loans~~ and ~~commercial and industrial~~C&I business loans. The Bank maintains policies approved by the Bank’s Board of Directors (the “Bank Board”) that address these concentrations and diversifies its loan portfolio through loan originations, purchases, and sales to meet approved concentration levels. While management believes that the collateral presently securing these 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.

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 ~~$782.4~~$833.2 million for secured loans and ~~$469.5~~$500.0 million for unsecured loans at June 30, ~~2020.~~2021. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At June 30, ~~2020,~~2021, the Bank’s largest aggregate outstanding balance of loans to one borrower was ~~$124.6~~$177.6 million ~~comprised of $101.5 million and $23.1 million of~~ secured ~~CRE non-owner-occupied and unsecured C&I credit, respectively.~~by multifamily properties.

Credit Quality and Credit Risk Management

The Company’s credit quality and credit risk are controlled in 2 ~~distinct~~ areas. The first is the loan origination process, wherein the Bank underwrites credit ~~quality~~ and chooses which ~~risks~~types and levels of risk it is willing to accept. The Company maintains a ~~comprehensive~~ credit policy which addresses many related topics, sets forth maximum tolerances for key elements of loan ~~risk.~~risk, and indicates appropriate protocols for identifying and analyzing these risk elements. 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 underwriters ensure all key risk factors are analyzed, with ~~nearly all~~most underwriting including a ~~comprehensive~~ 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 ~~comprehensive~~appropriate fashion. 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, ~~comprehensive~~thorough 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 ~~borrowing bases under~~ 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. ~~Individual~~Most 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.~~grade

Risk grades are based on a 6-grade Pass scale, along with Special Mention, Substandard, Doubtful, and Loss classifications, as such classifications are defined by the regulatory agencies. The assignment of risk grades allows the Company to, among other 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 with the Company’s Credit and Portfolio Review Committee, and the portfolio management and risk grading process is

reviewed on an ongoing basis by an independent loan review function, as well as by regulatory agencies during scheduled examinations.

3634

The following provides brief definitions for risk grades assigned to loans in the portfolio:

•Pass classifications represent assets with a level of credit quality, in which no well-defined deficiency or weakness exists.

•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 from foreclosure is also classified as Substandard.

•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 commence 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, substandard, or doubtful, the Company obtains an updated valuation of the underlying collateral. If, through the Company’s credit risk management process, it is determined the ultimate repayment of a loan will come from the foreclosure upon and ultimate sale of the underlying collateral, the loan is 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 of the underlying collateral securing the loan. Additionally, once a loan is identified as 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. Changes in the estimated fair value of the collateral are reflected in the lifetime ACL for the loan. Balances deemed to be uncollectable are promptly charged-off.

3735

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of June 30, 2021:


	Term Loans by Vintage
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
Pass	$	301,013	$	267,646	$	477,241	$	488,498	$	272,907	$	923,821	$	9,980	$	0	$	2,741,106
Special mention	0		0		16,356		3,395		0		17,581		0		0		37,332
Substandard	0		0		25,834		0		0		5,424		537		0		31,795

Multifamily
Pass	1,027,783		984,120		1,514,852		707,270		570,526		727,578		1,643		0		5,533,772
Special mention	0		0		1,745		2,073		0		0		0		0		3,818
Substandard	0		0		0		544		559		771		0		0		1,874

Construction and land
Pass	36,740		97,789		93,185		35,334		8,765		25,915		0		0		297,728



SBA secured by real estate
Pass	0		500		7,391		10,116		12,155		11,116		0		0		41,278
Special mention	0		0		0		0		3,038		750		0		0		3,788
Substandard	0		0		1,171		2,361		2,239		2,166		0		0		7,937

Total investor loans secured by real estate	1,365,536		1,350,055		2,137,775		1,249,591		870,189		1,715,122		12,160		0		8,700,428
Business loans secured by real estate
CRE owner-occupied
Pass	276,707		281,668		355,162		269,806		278,179		596,013		3,053		0		2,060,588
Special mention	0		0		6,086		1,741		3,043		0		0		0		10,870
Substandard	0		0		0		6,151		5,873		5,818		0		0		17,842

Franchise real estate secured
Pass	59,536		44,384		71,812		54,679		79,691		47,140		0		0		357,242
Special mention	0		878		0		0		0		0		0		0		878


SBA secured by real estate
Pass	2,502		3,423		7,562		11,398		12,676		27,290		0		0		64,851
Special mention	0		0		0		0		0		150		0		0		150
Substandard	0		0		0		1,336		2,160		4,426		0		0		7,922

Total loans secured by business real estate	338,745		330,353		440,622		345,111		381,622		680,837		3,053		0		2,520,343


	Term Loans by Vintage
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021
Commercial loans
Commercial and industrial
Pass	158,312		114,467		243,248		136,513		189,735		95,416		805,860		1,852		1,745,403
Special mention	0		0		231		0		0		0		13,558		0		13,789
Substandard	0		1,940		1,231		3,334		33		2,365		27,049		0		35,952

Franchise non-real estate secured
Pass	56,892		26,322		133,288		76,113		35,506		45,833		1,512		0		375,466

Substandard	0		0		2,293		4,559		17,749		1,248		0		0		25,849

SBA non-real estate secured
Pass	153		413		2,167		1,469		3,557		4,060		0		0		11,819

Substandard	0		0		80		345		258		721		677		0		2,081






Total commercial loans	215,357		143,142		382,538		222,333		246,838		149,643		848,656		1,852		2,210,359
Retail loans
Single family residential
Pass	13,312		6,771		2,524		2,271		8,789		101,020		22,487		0		157,174

Substandard	0		0		0		0		0		54		0		0		54

Consumer loans
Pass	44		39		63		23		19		3,012		2,996		0		6,196

Substandard	0		0		7		0		0		37		0		0		44

Total retail loans	13,356		6,810		2,594		2,294		8,808		104,123		25,483		0		163,468
Totals gross loans	$	1,932,994	$	1,830,360	$	2,963,529	$	1,819,329	$	1,507,457	$	2,649,725	$	889,352	$	1,852	$	13,594,598

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, 2020:


		Term Loans by Vintage																													Term Loans by Vintage
		2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2020		(Dollars in thousands)
(Dollars in thousands)																				(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2020																				December 31, 2020
Investor loans secured by real estate	Investor loans secured by real estate																			Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied																			CRE non-owner-occupied
Pass	Pass	$	155,429	$	567,989	$	482,567	$	359,173	$	319,468	$	876,776	$	10,924	$	—	$	2,772,326	Pass	$	265,901	$	541,994	$	440,351	$	287,580	$	279,238	$	791,477	$	11,114	$	0	$	2,617,655
Special mention	Special mention	—		—		—		—		—		4,872		—		—		4,872		Special mention	0		0		6,669		437		2,516		29,738		0		0		39,360
Substandard	Substandard	—		—		322		528		518		4,567		559		—		6,494		Substandard	0		9,732		2,045		0		516		5,218		559		0		18,070

Multifamily	Multifamily																			Multifamily
Pass	Pass	522,381		1,753,769		1,010,047		761,576		474,835		701,092		1,031		—		5,224,731		Pass	1,027,644		1,677,716		899,123		665,939		354,859		531,287		420		0		5,156,988

Special mention																				Special mention	0		1,758		2,630		0		8,649		0		0		0		13,037
Substandard	Substandard	—		—		—		—		—		826		—		—		826		Substandard	0		0		0		559		772		0		0		0		1,331

Construction and land	Construction and land																			Construction and land
Pass	Pass	13,838		140,848		135,797		36,569		—		8,468		461		—		335,981		Pass	57,309		144,759		73,313		18,625		20,531		6,672		784		0		321,993
Special mention		—		—		19,643		—		—		—		—		—		19,643
Substandard		—		—		—		1,802		—		—		—		—		1,802

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	495		10,436		12,284		15,483		6,734		9,392		—		—		54,824		Pass	0		8,306		9,029		13,418		6,305		7,696		0		0		44,754
Special mention	Special mention	—		—		—		698		—		269		—		—		967		Special mention	496		1,032		1,159		1,000		373		306		0		0		4,366
Substandard	Substandard	—		268		937		—		795		1,691		—		—		3,691		Substandard	0		1,220		2,959		1,091		400		2,541		0		0		8,211

Total investor loans secured by real estate	Total investor loans secured by real estate	$	692,143	$	2,473,310	$	1,661,597	$	1,175,829	$	802,350	$	1,607,953	$	12,975	$	—	$	8,426,157	Total investor loans secured by real estate	1,351,350		2,386,517		1,437,278		988,649		674,159		1,374,935		12,877		0		8,225,765
Business loans secured by real estate	Business loans secured by real estate																			Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied																			CRE owner-occupied
Pass	Pass	$	212,046	$	435,924	$	345,829	$	324,096	$	261,057	$	525,237	$	4,875	$	—	$	2,109,064	Pass	293,324		409,758		332,672		327,475		225,098		469,704		14,268		246		2,072,545
Special mention	Special mention	5,979		15,734		—		3,886		—		8,476		—		—		34,075		Special mention	2,190		15,917		3,802		0		4,153		201		0		0		26,263
Substandard	Substandard	—		—		7,086		2,525		6,797		10,357		250		—		27,015		Substandard	0		0		3,636		4,214		1,169		5,973		250		0		15,242

Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
Pass	Pass	20,406		88,808		76,192		103,848		31,578		42,932		—		—		363,764		Pass	44,413		81,438		66,241		96,999		24,673		27,020		0		0		340,784

Special mention																				Special mention	878		1,650		2,652		0		0		0		0		0		5,180
Substandard	Substandard	—		—		—		—		—		883		—		—		883		Substandard	0		0		0		0		1,968		0		0		0		1,968

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	1,905		7,693		14,159		17,302		10,510		28,021		365		—		79,955		Pass	3,253		7,637		12,608		16,058		8,488		23,624		0		0		71,668
Special mention	Special mention	—		—		—		1,008		343		—		—		—		1,351		Special mention	0		0		1,200		0		137		0		0		0		1,337
Substandard	Substandard	—		—		—		914		148		3,174		—		—		4,236		Substandard	0		0		184		1,987		1,376		3,043		0		0		6,590

Total loans secured by business real estate	Total loans secured by business real estate	$	240,336	$	548,159	$	443,266	$	453,579	$	310,433	$	619,080	$	5,490	$	—	$	2,620,343	Total loans secured by business real estate	344,058		516,400		422,995		446,733		267,062		529,565		14,518		246		2,541,577

Term Loans by Vintage
2020 2019 2018 2017 2016 Prior Revolving Revolving Converted to Term During the Period Total
June 30, 2020 (Dollars in thousands)
Commercial Loans
Commercial and industrial
Pass $ 106,699 $ 388,548 $ 290,535 $ 221,262 $ 71,937 $ 105,707 $ 803,473 $ 2,470 $ 1,990,631
Special mention — 73 2,928 1,994 1,562 2,671 20,969 500 30,697
Substandard 70 309 2,621 1,000 6,567 4,883 14,342 193 29,985
Franchise non-real estate secured
Pass 10,347 206,422 121,616 74,743 49,307 45,116 2,205 — 509,756
Special mention — — — 3,834 — — — — 3,834
Substandard — — — 7,737 — 2,428 — — 10,165
SBA non-real estate secured
Pass 646 2,341 1,428 2,517 654 4,276 — 3,537 15,399
Special mention — — — 1,745 284 150 — — 2,179
Substandard — 86 399 856 — 1,374 764 — 3,479
SBA PPP
Pass 1,128,780 — — — — — — — 1,128,780
Total commercial loans $ 1,246,542 $ 597,779 $ 419,527 $ 315,688 $ 130,311 $ 166,605 $ 841,753 $ 6,700 $ 3,724,905
Retail Loans
Single family residential
Pass $ 4,863 $ 9,426 $ 15,553 $ 14,991 $ 38,123 $ 143,690 $ 37,140 — $ 263,786
Special mention — — — — — 58 — — 58
Substandard — — — — 251 1,075 — — 1,326
Consumer loans
Pass 72 174 870 38,039 23 3,273 3,812 — 46,263
Substandard — — — — — 46 — — 46
Total retail loans $ 4,935 $ 9,600 $ 16,423 $ 53,030 $ 38,397 $ 148,142 $ 40,952 $ — $ 311,479
Totals gross loans $ 2,183,956 $ 3,628,848 $ 2,540,813 $ 1,998,126 $ 1,281,491 $ 2,541,780 $ 901,170 $ 6,700 $ 15,082,884


	Term Loans by Vintage
(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2020
Commercial loans
Commercial and industrial
Pass	127,082		260,368		159,001		210,163		51,800		82,291		801,752		9,315		1,701,772
Special mention	735		0		2,331		185		1,320		243		17,890		37		22,741
Substandard	0		3,310		2,737		610		1,333		2,446		32,858		1,027		44,321

Franchise non-real estate secured
Pass	27,607		164,025		94,494		46,174		40,829		27,745		1,361		502		402,737
Special mention	0		7,267		2,037		230		480		2,321		0		0		12,335
Substandard	0		6,690		3,706		18,425		700		204		0		0		29,725

SBA non-real estate secured
Pass	407		2,257		1,558		2,674		610		4,449		0		259		12,214
Special mention	0		0		0		1,574		0		0		0		0		1,574
Substandard	0		83		357		282		340		400		707		0		2,169






Total commercial loans	155,831		444,000		266,221		280,317		97,412		120,099		854,568		11,140		2,229,588
Retail loans
Single family residential
Pass	10,794		7,714		13,982		14,039		33,968		124,248		27,172		0		231,917

Substandard	0		0		0		0		0		657		0		0		657

Consumer loans
Pass	52		112		37		25		2		3,145		3,508		0		6,881

Substandard	0		7		0		0		0		41		0		0		48

Total retail loans	10,846		7,833		14,019		14,064		33,970		128,091		30,680		0		239,503
Totals gross loans	$	1,862,085	$	3,354,750	$	2,140,513	$	1,729,763	$	1,072,603	$	2,152,690	$	912,643	$	11,386	$	13,236,433

~~The following tables stratify the loan portfolio by the Company’s internal risk grading as of December 31, 2019:~~

Credit Risk Grades
Pass Special
Mention Substandard Total Gross
Loans
December 31, 2019 (Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 2,067,875 $ 1,178 $ 1,088 $ 2,070,141
Multifamily 1,575,510 — 216 1,575,726
Construction and land 438,769 — 17 438,786
SBA secured by real estate 65,835 973 1,623 68,431
Total investor loans secured by real estate 4,147,989 2,151 2,944 4,153,084
Business loans secured by real estate
CRE owner-occupied 1,831,853 11,167 3,534 1,846,554
Franchise real estate secured 352,319 921 — 353,240
SBA secured by real estate 83,106 1,842 3,433 88,381
Total business loans secured by real estate 2,267,278 13,930 6,967 2,288,175
Commercial loans
Commercial and industrial 1,359,662 13,226 20,382 1,393,270
Franchise non-real estate secured 546,594 6,930 10,833 564,357
SBA not secured by real estate 13,933 485 3,008 17,426
Total commercial loans 1,920,189 20,641 34,223 1,975,053
Retail loans
Single family residential 254,463 — 561 255,024
Consumer loans 50,921 — 54 50,975
Total retail loans 305,384 — 615 305,999
Total gross loans $ 8,640,840 $ 36,722 $ 44,749 $ 8,722,311

The following tables stratify loans held byfor investment by delinquencies in the Company’s loan portfolio at the dates indicated:


				Days Past Due															Days Past Due
		Current		30-59		60-89		90+		Total
June 30, 2020		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	Current		30-59		60-89		90+		Total
June 30, 2021												June 30, 2021
Investor loans secured by real estate	Investor loans secured by real estate											Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	2,780,620	$	—	$	—	$	3,072	$	2,783,692	CRE non-owner-occupied	$	2,799,890	$	0	$	0	$	10,343	$	2,810,233
Multifamily	Multifamily	5,222,439		3,118		—		—		5,225,557		Multifamily	5,539,464		0		0		0		5,539,464
Construction and land	Construction and land	354,729		895		—		1,802		357,426		Construction and land	297,728		0		0		0		297,728
SBA secured by real estate	SBA secured by real estate	58,494		—		—		988		59,482		SBA secured by real estate	52,563		0		0		440		53,003
Total investor loans secured by real estate	Total investor loans secured by real estate	8,416,282		4,013		—		5,862		8,426,157		Total investor loans secured by real estate	8,689,645		0		0		10,783		8,700,428
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,162,842		1,062		319		5,931		2,170,154		CRE owner-occupied	2,084,284		0		0		5,016		2,089,300
Franchise real estate secured	Franchise real estate secured	364,647		—		—		—		364,647		Franchise real estate secured	358,120		0		0		0		358,120
SBA secured by real estate	SBA secured by real estate	84,536		—		—		1,006		85,542		SBA secured by real estate	72,473		0		0		450		72,923
Total business loans secured by real estate	Total business loans secured by real estate	2,612,025		1,062		319		6,937		2,620,343		Total business loans secured by real estate	2,514,877		0		0		5,466		2,520,343
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	2,041,675		796		3,116		5,726		2,051,313		Commercial and industrial	1,792,913		29		83		2,119		1,795,144
Franchise non-real estate secured	Franchise non-real estate secured	515,313		—		—		8,442		523,755		Franchise non-real estate secured	401,315		0		0		0		401,315
SBA not secured by real estate	SBA not secured by real estate	19,889		—		328		840		21,057		SBA not secured by real estate	13,223		0		0		677		13,900
SBA PPP		1,128,780		—		—		—		1,128,780

Total commercial loans	Total commercial loans	3,705,657		796		3,444		15,008		3,724,905		Total commercial loans	2,207,451		29		83		2,796		2,210,359
Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	264,549		257		364		—		265,170		Single family residential	157,050		178		0		0		157,228
Consumer loans	Consumer loans	46,183		120		6		—		46,309		Consumer loans	6,240		0		0		0		6,240
Total retail loans	Total retail loans	310,732		377		370		—		311,479		Total retail loans	163,290		178		0		0		163,468
Totals	Totals	$	15,044,696	$	6,248	$	4,133	$	27,807	$	15,082,884	Totals	$	13,575,263	$	207	$	83	$	19,045	$	13,594,598

4140


				Days Past Due															Days Past Due
		Current		30-59		60-89		90+		Total Gross Loans
December 31, 2019		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	Current		30-59		60-89		90+		Total Gross Loans
December 31, 2020												December 31, 2020
Investor loans secured by real estate	Investor loans secured by real estate											Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	2,067,874	$	1,179	$	—	$	1,088	$	2,070,141	CRE non-owner-occupied	$	2,674,328	$	0	$	0	$	757	$	2,675,085
Multifamily	Multifamily	1,575,726		—		—		—		1,575,726		Multifamily	5,171,355		1		0		0		5,171,356
Construction and land	Construction and land	438,786		—		—		—		438,786		Construction and land	321,993		0		0		0		321,993
SBA secured by real estate	SBA secured by real estate	68,041		—		—		390		68,431		SBA secured by real estate	56,074		0		0		1,257		57,331
Total investor loans secured by real estate	Total investor loans secured by real estate	4,150,427		1,179		—		1,478		4,153,084		Total investor loans secured by real estate	8,223,750		1		0		2,014		8,225,765
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	1,846,223		331		—		—		1,846,554		CRE owner-occupied	2,108,746		0		0		5,304		2,114,050
Franchise real estate secured	Franchise real estate secured	353,240		—		—		—		353,240		Franchise real estate secured	347,932		0		0		0		347,932
SBA secured by real estate	SBA secured by real estate	86,946		—		589		846		88,381		SBA secured by real estate	78,036		486		0		1,073		79,595
Total business loans secured by real estate	Total business loans secured by real estate	2,286,409		331		589		846		2,288,175		Total business loans secured by real estate	2,534,714		486		0		6,377		2,541,577
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	1,389,026		422		826		2,996		1,393,270		Commercial and industrial	1,765,451		428		57		2,898		1,768,834
Franchise non-real estate secured	Franchise non-real estate secured	555,215		—		9,142		—		564,357		Franchise non-real estate secured	444,797		0		0		0		444,797
SBA not secured by real estate	SBA not secured by real estate	16,141		167		—		1,118		17,426		SBA not secured by real estate	14,912		338		0		707		15,957
Total commercial loans	Total commercial loans	1,960,382		589		9,968		4,114		1,975,053		Total commercial loans	2,225,160		766		57		3,605		2,229,588
Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	255,024		—		—		—		255,024		Single family residential	232,559		15		0		0		232,574
Consumer loans	Consumer loans	50,967		5		2		1		50,975		Consumer loans	6,928		1		0		0		6,929
Total retail loans	Total retail loans	305,991		5		2		1		305,999		Total retail loans	239,487		16		0		0		239,503
Totals loans		$	8,703,209	$	2,104	$	10,559	$	6,439	$	8,722,311
Totals												Totals	$	13,223,111	$	1,269	$	57	$	11,996	$	13,236,433

Individually Evaluated Loans

Beginning on January 1, 2020, the Company 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 deteriorates. 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, unless 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 received from such loans.

As of June 30, ~~2020, $34.6~~2021, $34.4 million of loans were individually evaluated ~~and the~~with no ACL ~~attributable~~attributed to such ~~loans was $2.6 million.~~loans. At June 30, ~~2020, $13.5~~2021, $13.1 million of individually evaluated loans were evaluated using a discounted cash flow approach and ~~$21.1~~$21.3 million of individually evaluated loans were evaluated based on the underlying value of the collateral.

As of December 31, 2020, $29.2 million of loans were individually evaluated, and the ACL attributed to such loans totaled $126,000. At December 31, 2020, $15.2 million of individually evaluated loans were evaluated using a discounted cash flow approach and $14.0 million of individually evaluated loans were evaluated based on the underlying value of the collateral.

The Company had individually evaluated loans on nonaccrual status of ~~$33.7~~$34.4 million and $29.2 million at June 30, 2021 and December 31, 2020,. respectively.

~~Impaired Loans~~

Prior to the adoption of ASC 326 on January 1, 2020, the Company classified loans as impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the loan agreement or it was determined that the likelihood of the Company receiving all scheduled payments, including interest, when due was remote. Credit losses on impaired loans were determined separately based on the guidance in ASC 310. Beginning January 1, 2020, the Company accounts for credit losses on all loans in accordance with ASC 326, which eliminates the concept of an impaired loan within the context of determining credit losses, and requires all loans to be evaluated for credit losses collectively. Loans are only evaluated individually when they are deemed to no longer possess similar risk characteristics with other loans within the portfolio.

Prior to the adoption of ASC 326, the Company reviewed loans for impairment when the loan was classified as substandard or worse, delinquent 90 days, determined by management to be collateral dependent, when the borrower files bankruptcy or is granted a loan modification in a TDR. Measurement of impairment was 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 existed, or the fair value of the collateral if the loan was deemed collateral dependent. Valuation allowances were determined on a loan-by-loan basis or by aggregating loans with similar risk characteristics. Charge-offs were recorded when amounts were no longer deemed collectable.

~~The following tables provide a summary of the Company’s investment in impaired loans as of the period indicated:~~

Impaired Loans
Unpaid Principal Balance Recorded Investment With Specific Allowance Without Specific Allowance Specific Allowance for Impaired Loans
(Dollars in thousands)
December 31, 2019
Investor loans secured by real estate
CRE non-owner-occupied $ 1,184 $ 1,088 $ — $ 1,088 $ —
SBA secured by real estate 772 390 — 390 —
Business loans secured by real estate
SBA secured by real estate 1,743 1,517 — 1,517 —
Commercial loans
Commercial and industrial 7,755 7,529 — 7,529 —
Franchise non-real estate secured 10,835 10,834 — 10,834 —
SBA non-real estate secured 1,555 1,118 — 1,118 —
Retail loans
Single family residential 412 366 — 366 —
Totals $ 24,256 $ 22,842 $ — $ 22,842 $ —

~~The following table presents information on impaired loans and leases, disaggregated by loan segment, for the periods indicated:~~

Impaired Loans
June 30, 2019
Three Months Ended Six Months Ended
Average Recorded Investment
Interest Income Recognized ⁽⁶⁾
Average Recorded Investment
Interest Income Recognized ⁽⁶⁾
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 162 $ — $ 81 $ —
Construction and land 160 — 80 —
SBA secured by real estate 1,292 — 1,591 —
Business loans secured by real estate
CRE owner-occupied 564 — 570 —
Franchise real estate secured 3,762 — 3,774 —
SBA secured by real estate 828 — 554 —
Commercial loans
Commercial and industrial 10,103 109 9,803 199
Franchise non-real estate secured 285 — 238 —
SBA non-real estate secured 1,019 — 1,064 —
Retail loans
Single family residential 383 — 389 —
Consumer loans 17 — 37 —
Totals $ 18,575 $ 109 $ 18,181 $ 199

~~The Company had impaired loans on nonaccrual status of $8.5 million at December 31, 2019. The Company had 0 loans 90 days or more past due and still accruing at December 31, 2019.~~

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 ~~TDR.~~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 designed to provide a bridge for borrower cash flow shortfalls in the near term. ~~A TDR loan~~In most cases, the Company initially places TDRs on nonaccrual status, and they may ~~be returned~~return to accrual status when the ~~loan is~~loans are brought current, ~~has~~have performed in accordance with the contractual restructured terms for a ~~time frame~~period of at least six months, and the ultimate collectability of the total contractual restructured principal and interest inpayments are no longer in doubt. At June 30, ~~2020,~~2021, there were $17.8 million loans classified as TDRs, ~~consisted~~compared with 0 TDR loans as of ~~1 loan of $700,000 that was over 90 days past due and on nonaccrual status. At~~ December 31, ~~2019, TDRs consisted of 2 loans aggregating $3.0 million, both of which were current and on accrual status.~~2020. During the three ~~months~~ and six months ended June 30, ~~2020 and 2019,~~2021, there were 06 loans totaling $17.8 million modified as ~~TDRs.~~TDRs, which are comprised of 3 CRE owner-occupied loans and 1 C&I loan totaling $5.3 million belonging to one borrower relationship with the terms modified due to bankruptcy, and 2 franchise non-real estate secured loans totaling $12.6 million belonging to another borrower relationship with the terms modified for payment deferral. During the three ~~months~~ and six months ended June 30, ~~2020~~2021, the 3 CRE owner-occupied loans and ~~2019,~~1 C&I loan classified as TDRs were in payment default and all TDRs were on nonaccrual status as of June 30, 2021. During the three and six months ended June 30, 2020, there were 0 TDRs that experienced payment defaults after modifications within the previous 12 months.

The CARES Act, signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. On April 7, 2020, federal bank regulators issued a joint interagency statement that allows lenders to conclude that a borrower is not experiencing financial difficulty if short-term (e.g., six months or less) modifications are made in response to the COVID-19 pandemic, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The CAA, signed into law on December 27, 2020, extends the applicable period to include modification to loans held by financial institutions executed between March 1, 2020 and the earlier of (i) January 1, 2022, or (ii) 60 days after the date of termination of the COVID-19 national emergency.

For COVID-19 related loan modifications in the form of payment deferrals, the delinquency status will not advance and loans that were accruing at the time that the relief is provided will generally not be placed on nonaccrual status during the deferral period. Interest income will continue to be recognized over the contractual life of the loan. ~~The~~However, the Company, through its credit portfolio management activities, has ~~elected~~continued to ~~not apply TDR classification~~monitor facts and circumstances associated with the underlying credit quality of loans modified under the provisions of the CARES Act in an effort to identify any loans where the accrual of interest during the modification period is no longer appropriate. In such cases, the Company ceases the accrual of interest and all previously accrued and uncollected interest is promptly reversed against current period interest income. At June 30, 2021, there was 1 single family residential loan for $819,000 classified as a COVID-19 ~~related loan modifications. As~~modification under Section 4013 of the CARES Act. Additionally, as of June 30, 2021, there were no loans in-process for potential modification. At December 31, 2020, ~~1,461 loans with a total balance of $2.24 billion, of which 345~~52 loans totaling ~~$688.4~~$79.5 million, ~~were acquired in connection with the acquisition~~or 0.60% of ~~Opus, were modified due to COVID-19 hardship under the CARES Act, which represents 14.9% of total~~ loans held for investment, ~~as of that date.~~

~~The following table presents the combination of types of loan and payment relief that have been granted for the period indicated as of that date.~~

June 30, 2020
Full payment Deferral Interest-only Deferral Total
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 545,928 $ 250,586 $ 796,514
Multifamily 424,540 67,720 492,260
Total investor loans secured by real estate 970,468 318,306 1,288,774
Business loans secured by real estate
CRE owner-occupied 297,662 65,442 363,104
Franchise real estate secured 115,674 59,060 174,734
SBA secured by real estate 26 — 26
Total business loans secured by real estate 413,362 124,502 537,864
Commercial loans
Commercial and industrial 61,497 30,061 91,558
Franchise non-real estate secured 188,548 126,566 315,114
Total commercial loans 250,045 156,627 406,672
Retail loans
Single family residential 11,391 265 11,656
Consumer 8 — 8
Total retail loans 11,399 265 11,664
Total loans $ 1,645,274 $ 599,700 $ 2,244,974
remained within their COVID-19 modification period.

Purchased Credit Deteriorated ~~and Purchased Credit Impaired~~ Loans

Prior to the adoption of ASC 326, the Company accounted for PCI loans and income recognition thereof in accordance with ASC Subtopic 310-30 Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. PCI loans are loans that as of the date of their acquisition have experienced deterioration in credit quality between origination and acquisition and for which it was probable, at acquisition, that not all contractually required payments would be collected. Following the adoption of ASC 326 on January 1, 2020, the Company ~~analyzes~~analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated loans. Please ~~also~~ see Note 3 - Significant Accounting Policies ~~of these financial statements~~ for more information concerning the accounting for PCD loans.

Prior to the adoption of ASC 326, the Company measured the amount by which the undiscounted expected cash future flows on PCI loans exceed the estimated fair value of the loan on the date of acquisition as the “accretable yield,” representing the amount of estimated future interest income on the loan. The amount of accretable yield was re-measured at each financial reporting date, representing the difference between the remaining undiscounted expected cash flows and the current carrying value of the PCI loan. Following the adoption of ASC 326, the Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield. ~~An accretable yield is not determined for PCD loans.~~

~~Upon the adoption of ASC 326, acquired~~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 of the loans, and any resulting ~~premium~~discount or ~~discount~~premium related to factors other than credit. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income by adjusting the related ACL.

The following table reconciles the par value, or initial amortized cost, of loans acquired in the Opus acquisition as of the date of the acquisition with the purchase price (or initial fair value of the loans):

June 1, 2020
Investor Loans Secured by Real Estate Business Loans Secured by Real Estate Commercial Loans Retail Loans Total
(Dollars in thousands)
Par value (unpaid principal balance) $ 704,441 $ 105,578 $ 80,184 $ 6,280 $ 896,483
Allowance for credit losses ⁽¹⁾
(13,786) (4,083) (25,635) (381) (43,885)
(Discount) premium related to factors other than credit (8,696) (2,512) 138 (294) (11,364)
Purchase price (initial fair value) $ 681,959 $ 98,983 $ 54,687 $ 5,605 $ 841,234

⁽¹⁾ The initial gross ACL determined for PCD loans was $43.9 million as of the acquisition date. Of this amount, approximately $22.7 million relates to net uncollectable balances such as loans that were fully or partially charged off prior to acquisition. Therefore, the net impact to the ACL related to PCD loans was an increase of $21.2 million.

Nonaccrual Loans

When loans are placed on nonaccrual status, previously accrued but unpaid interest is promptly reversed from 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 will recognize interest on a cash basis only. 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 of collection, the Company may continue ~~with the accrual of~~accruing interest. The Company had no loans 90 days or more past due and still accruing at June 30, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively. Nonaccrual loans totaled ~~$33.8~~$34.4 million at June 30, ~~2020~~2021 and ~~$8.5~~$29.2 million as of December 31, ~~2019.~~2020. NaN interest income was recognized on nonaccrual loans during the three and six months ended June 30, 2021 and June 30, 2020.

4843

The following tables provide a summary of nonaccrual loans as of the ~~date~~dates indicated:


		Nonaccrual Loans ⁽¹⁾																							Nonaccrual Loans (1)
		Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans ⁽²⁾		Nonaccrual Loans with No ACL
June 30, 2020		(Dollars in thousands)
(Dollars in thousands)														(Dollars in thousands)	Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
June 30, 2021														June 30, 2021
Investor loans secured by real estate	Investor loans secured by real estate													Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	5,322	$	—	$	—	$	—	$	5,322	$	5,322	CRE non-owner-occupied	$	12,296	$	0	$	0	$	0	$	12,296	$	12,296

Construction and land		1,802		—		—		—		1,802		1,802

SBA secured by real estate	SBA secured by real estate	988		—		—		—		988		988		SBA secured by real estate	440		0		0		0		440		440
Total investor loans secured by real estate	Total investor loans secured by real estate	8,112		—		—		—		8,112		8,112		Total investor loans secured by real estate	12,736		0		0		0		12,736		12,736
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	5,563		—		1,196		393		6,759		5,563		CRE owner-occupied	5,016		0		0		0		5,016		5,016

SBA secured by real estate	SBA secured by real estate	1,006		—		77		17		1,083		1,006		SBA secured by real estate	692		0		0		0		692		692
Total business loans secured by real estate	Total business loans secured by real estate	6,569		—		1,273		410		7,842		6,569		Total business loans secured by real estate	5,708		0		0		0		5,708		5,708
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	1,606		—		4,464		646		6,070		1,606		Commercial and industrial	2,118		0		552		0		2,670		2,670
Franchise non-real estate secured	Franchise non-real estate secured	2,428		—		7,742		1,493		10,170		2,428		Franchise non-real estate secured	0		0		12,584		0		12,584		12,584
SBA non-real estate secured	SBA non-real estate secured	840		—		—		—		840		840		SBA non-real estate secured	677		0		0		0		677		677
Total commercial loans	Total commercial loans	4,874		—		12,206		2,139		17,080		4,874		Total commercial loans	2,795		0		13,136		0		15,931		15,931
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	662		—		129		—		791		662		Single family residential	12		0		0		0		12		12

Total retail loans	Total retail loans	662		—		129		—		791		662		Total retail loans	12		0		0		0		12		12
Totals nonaccrual loans		$	20,217	$	—	$	13,608	$	2,549	$	33,825	$	20,217
Total nonaccrual loans														Total nonaccrual loans	$	21,251	$	0	$	13,136	$	0	$	34,387	$	34,387

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

⁽²⁾ ~~NaN interest income was recognized on nonaccrual loans during the three and six months ended June 30, 2020.~~


	Nonaccrual Loans (1)
(Dollars in thousands)	Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied	$	2,792	$	0	$	0	$	0	$	2,792	$	2,792


SBA secured by real estate	1,257		0		0		0		1,257		1,257
Total investor loans secured by real estate	4,049		0		0		0		4,049		4,049
Business loans secured by real estate
CRE owner-occupied	6,083		0		0		0		6,083		6,083

SBA secured by real estate	1,143		0		0		0		1,143		1,143
Total business loans secured by real estate	7,226		0		0		0		7,226		7,226
Commercial loans
Commercial and industrial	2,040		0		1,934		126		3,974		2,733
Franchise non-real estate secured	0		0		13,238		0		13,238		13,238
SBA non-real estate secured	707		0		0		0		707		707
Total commercial loans	2,747		0		15,172		126		17,919		16,678
Retail loans
Single family residential	15		0		0		0		15		15

Total retail loans	15		0		0		0		15		15
Total nonaccrual loans	$	14,037	$	0	$	15,172	$	126	$	29,209	$	27,968

(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 0 consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

4945

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 the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, ~~for each loan. 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 ~~table summarizes~~tables summarize collateral dependent loans by collateral type as of ~~June 30, 2020:~~the dates indicated:


		June 30, 2020																													June 30, 2021
		Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Residential Properties		Business Assets		Total
		(Dollars in thousands)
(Dollars in thousands)																		(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Residential Properties		Business Assets		Total
Investor loan secured by real estate	Investor loan secured by real estate																	Investor loan secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	—	$	2,250	$	2,750	$	—	$	322	$	—	$	—	$	5,322	CRE non-owner-occupied	$	0	$	0	$	2,490	$	0	$	9,806	$	0	$	0	$	12,296

Construction and land		—		—		—		—		—		1,802		—		1,802

SBA secured by real estate	SBA secured by real estate	—		—		—		—		988		—		—		988		SBA secured by real estate	0		0		0		0		440		0		0		440
Total investor loans secured by real estate	Total investor loans secured by real estate	—		2,250		2,750		—		1,310		1,802		—		8,112		Total investor loans secured by real estate	0		0		2,490		0		10,246		0		0		12,736
Business loans secured by real estate	Business loans secured by real estate																	Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	—		509		—		5,054		—		—		—		5,563		CRE owner-occupied	0		0		0		5,016		0		0		0		5,016
Franchise real estate secured		—		—		883		—		—		—		—		883

SBA secured by real estate	SBA secured by real estate	247		758		—		—		—		—		—		1,005		SBA secured by real estate	178		451		0		0		0		63		0		692
Total business loans secured by real estate	Total business loans secured by real estate	247		1,267		883		5,054		—		—		—		7,451		Total business loans secured by real estate	178		451		0		5,016		0		63		0		5,708
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	—		—		—		312		—		—		1,295		1,607		Commercial and industrial	0		0		0		248		0		240		1,630		2,118
Franchise non-real estate secured		—		—		—		—		—		—		2,428		2,428

SBA non-real estate secured	SBA non-real estate secured	—		—		—		—		—		—		840		840		SBA non-real estate secured	0		0		0		0		0		0		677		677
Total commercial loans	Total commercial loans	—		—		—		312		—		—		4,563		4,875		Total commercial loans	0		0		0		248		0		240		2,307		2,795
Retail loans	Retail loans																	Retail loans
Single family residential	Single family residential	—		—		—		—		—		662		—		662		Single family residential	0		0		0		0		0		12		0		12

Total retail loans	Total retail loans	—		—		—		—		—		662		—		662		Total retail loans	0		0		0		0		0		12		0		12
Totals collateral dependent loans		$	247	$	3,517	$	3,633	$	5,366	$	1,310	$	2,464	$	4,563	$	21,100
Total collateral dependent loans																		Total collateral dependent loans	$	178	$	451	$	2,490	$	5,264	$	10,246	$	315	$	2,307	$	21,251

5046


	December 31, 2020
(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Residential Properties		Business Assets		Total
Investor loan secured by real estate
CRE non-owner-occupied	$	0	$	0	$	2,594	$	0	$	198	$	0	$	0	$	2,792


SBA secured by real estate	0		0		0		0		1,257		0		0		1,257
Total investor loans secured by real estate	0		0		2,594		0		1,455		0		0		4,049
Business loans secured by real estate
CRE owner-occupied	0		779		0		5,304		0		0		0		6,083

SBA secured by real estate	288		757		0		0		0		98		0		1,143
Total business loans secured by real estate	288		1,536		0		5,304		0		98		0		7,226
Commercial loans
Commercial and industrial	0		0		0		0		0		0		2,040		2,040

SBA non-real estate secured	0		0		0		0		0		0		707		707
Total commercial loans	0		0		0		0		0		0		2,747		2,747
Retail loans
Single family residential	0		0		0		0		0		15		0		15

Total retail loans	0		0		0		0		0		15		0		15
Total collateral dependent loans	$	288	$	1,536	$	2,594	$	5,304	$	1,455	$	113	$	2,747	$	14,037

Note 7 – Allowance for Credit Losses

The Company accounts for credit losses on loans and unfunded loan commitments in accordance with ASC 326 - Financial Instruments - Credit Losses, to determine the ACL. 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 losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates, which are subject to change based on management’s ~~on-going~~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 probability of default, (ii) the estimated loss given default, 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 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 the origination of the 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 term loans is determined by measuring the amount by which a loan’s amortized cost exceeds its discounted cash ~~flows.~~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 ~~commercial~~investor loans secured by real estate ~~loans~~ 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 changes in 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 ratios, debt service coverage, loan size, loan vintage, and property types.

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, ~~in the commercial segment,~~ the PD assigned to them also changes. As with ~~commercial~~investor loans secured by real estate, ~~loans,~~ 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 in the Company’s loan portfolio, such as: loan to values, estimated time to resolution, property size, and current and estimated future market price changes for underlying collateral. The LGD is highly dependent upon loan to value 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 ~~Price Index,~~pricing, GDP growth rate, unemployment rates, and the Moody’s Baa rating corporate debt interest rate spread. 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 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.

Historical Loss Rates for Retail Loans

The historical loss rate model for retail loans are 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.

Forecasts

~~U.S.~~ 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 the loan. The Company uses economic scenarios from an independent third party, Moody’s Analytics, in its estimation of a borrower’s ability to repay a loan in future periods. 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 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 Company’s estimate of the probability of each scenario occurring, 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 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 ~~January 1, 2020, upon the adoption of ASC 326,~~June 30, 2021, the Company’s ACL model used three probability-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 weightings of 30%. ~~As of June 30, 2020, the Company’s ACL model used the same three probability weighted~~These economic scenarios ~~updated for current expected economic conditions, including~~include the current and estimated future impact associated with the ~~on-going~~ongoing COVID-19 pandemic. The Company evaluated the weightings of each economic scenario in the current period with the assistance of ~~an independent third party,~~Moody's Analytics, 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. ~~For~~The use of three probability-weighted scenarios in the ~~three months ended March 31, 2020,~~second quarter of 2021 and the weighting assigned to each scenario is consistent with the approach used in the Company’s ACL model ~~used three probability-weighted scenarios, however the composition~~at March 31, 2021 and weightings of those scenarios differed from those used in the model as of June 30, 2020 due to the rapid emergence of the of the COVID-19 pandemic in the first quarter of 2020. These scenarios included (i) a base-case scenario with a weighting of 37.5%, (ii) a critical pandemic scenario with a weighting of 30%, and (iii) a more severe down-side scenario with a weighting of 32.5%. The composition of these scenarios and their assigned weightings were determined with the assistance of an independent third party, and were reflective of the rapidly changing economic conditions, economic uncertainty and volatility in financial markets brought on by the COVID-19 pandemic and the estimated likelihood of each scenario occurring as of MarchDecember 31, 2020.

The Company, with the assistance of Moody’s Analytics, currently forecasts PDs and LGDs based on economic ~~conditions~~scenarios over a two-year period, which we believe is a reasonable and supportable period. Beyond ~~the~~this point, ~~which the Company can provide for a reasonable~~PDs and ~~supportable forecast, economic variables~~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 Company does not expect to collect.

The Company derives the economic forecasts it uses in its ACL model from ~~an independent third party~~Moody's Analytics that has a large team of economists, ~~data-base~~database managers, and operational engineers with a long history of producing monthly economic ~~forecasts for over 25 years.~~forecasts. The forecasts produced by this ~~third party~~third-party have been widely used by banks, credit unions, government agencies, and real estate developers. These economic forecasts cover all states and metropolitan areas in the Unites States, and reflect changes in economic variables such as: GDP growth, interest rates, employment rates, changes in wages, retail sales, industrial production, metrics associated with the single-family and multifamily housing markets, vacancy rates, changes in equity market prices, and energy markets.

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 June 30, ~~2020,~~2021, the Company’s ACL model incorporated the following assumptions for key economic variables in the base-case, upside, and downside scenarios:

Base-case Scenario:

•CRE ~~Price Index decreases by an approximate~~price index experiences a slowing annualized rate of ~~16% through~~decline throughout 2021 from approximately -13% in early 2021 to approximately -4% by the ~~remainder~~end of ~~2020~~2021. This scenario assumes the index returns to growth in 2022 and 2023. This scenario also assumes the CRE price index returns to moderate levels of growth beginning in the first quarter of 2022, with the annualized rate of growth increasing from 2% in early 2022 to 10% by the end of 2022. Under this scenario, the CRE price index is anticipated to increase approximately 8-9% on an annualized basis in 2023.

•U.S. real GDP experiences growth within a range of 6-7% on an annualized basis throughout 2021. This scenario also assumes decelerating growth in real GDP throughout 2022, from the levels estimated for 2021. Growth in real GDP for 2022 under this scenario decelerates from approximately 5% annualized in early 2022 to approximately 2% annualized by the end of 2022. This scenario assumes real GDP growth increases to approximately 2-3% in 2023.

•U.S. unemployment declining from approximately 6% in early 2021 to approximately 4.5% by the end of 2021. This scenario also assumes unemployment continues to decline in 2022 from approximately 4% in early 2022 to approximately 3.5% by the end of 2022. This scenario assumes the rate of ~~decline slowing in Q1 2021 to 8%, before returning to growth in the second quarter of 2021.~~

•A significant decrease in real GDP of an approximate 33% annualized rate in Q2 2020, followed by an approximate 20% increase in Q3 2020 before returning to levels of marginal growth through the second quarter of 2021.

•~~Elevated levels of U.S.~~ unemployment ~~reaching~~holds constant at approximately ~~14% in Q2 2020 and then declining to levels of 9% to 10% through the end of 2021.~~3.5% throughout 2023.

Upside Scenario:

•CRE ~~Price Index decreases by an approximate~~price index experiences declines throughout 2021, with the estimated annualized rate of ~~15% and 6% during the third and fourth quarters of 2020, respectively, before returning~~decline slowing from approximately -13% in early 2021 to ~~growth~~approximately -1% by ~~the first quarter of 2021.~~

•~~An approximate annualized decrease in real GDP of 27% in Q2 2020, followed by a 20% increase in real GDP in the third quarter of 2020, and growth of approximately 4% growth through~~ the end of 2021. This scenario also assumes the ~~second quarter~~CRE price index returns growth in 2022, with the annualized rate of ~~2021.~~

•~~Elevated levels~~growth increasing from 7% in early 2022 to 12% by the end of ~~U.S. unemployment at approximately 13% for Q2 2020, followed by unemployment~~2022. Under this scenario, the CRE price index is anticipated to experience a decelerating annualized rate of increase from approximately 9% ~~through the remainder of 2020, and decreasing gradually~~in early 2023 to approximately 7% by the end of 2023.

•U.S. real GDP experiences accelerating growth within a range of 6-10% on an annualized basis throughout 2021. This scenario also assumes decelerating growth in real GDP throughout 2022, from the levels estimated for 2021. Growth in real GDP for 2022 under this scenario decelerates from approximately 8% annualized in early 2022 to approximately 0% annualized by the end of 2022. This scenario assumes real GDP growth increases to approximately 1-2% in 2023.

•U.S. unemployment declining from approximately 6.2% in early 2021 to approximately 4.0% by the end of 2021. This scenario also assumes unemployment of approximately 3% throughout all of 2022. This scenario assumes the rate of unemployment holds constant at approximately 3% throughout 2023.

Downside Scenario:

•CRE ~~Price Index decreases~~price index experiences accelerating annualized rates of decline throughout 2021. Annualized declines of approximately -13% in early 2021 and accelerating to approximately -20% by ~~an approximate~~the end of 2021. The CRE price index is estimated to experience decelerating declines throughout 2022, with the annualized rate of ~~25% and 26%~~decline slowing from approximately -24% in early 2022 to approximately -2% by the ~~third and fourth quarters~~end of ~~2020, respectively, with~~2022. Under this scenario, the ~~rate~~CRE price index is anticipated to experience accelerating annualized growth of ~~decline decreasing~~approximately 7% in early 2023 to ~~21% and 4%~~approximately 20% by the end of 2023.

•U.S. real GDP experiences growth of approximately 6% to 10% in the first ~~and second quarters~~half of 2021, ~~respectively, before returning~~followed by a decrease of -3% for the remainder of 2021. This scenario also assumes a return to modest annualized growth ~~in the third quarter of 2021.~~

•~~A decrease~~ in real GDP ~~of an approximate annualized rate of 36% in~~by the second quarter of ~~2020, followed by an increase in GDP~~2022, with growth of approximately ~~13% in~~2-3% for the ~~third quarter~~remainder of ~~2020, and then declining by~~2022. This scenario assumes real GDP fluctuates within a range of approximately ~~4% in the fourth quarter of 2020, 3% in the first quarter of 2021, 1% growth in the second quarter of 2021 and growth of 5% to 6% in the remaining two quarters of 2021.~~2-4% throughout 2023.

•~~Elevated levels of~~ U.S. unemployment atincreases throughout 2021 from approximately ~~15% for Q2 2020, followed~~6% in early 2021 to approximately 8% by ~~unemployment of approximately 11% and 12% in Q3 and Q4 2020. Unemployment is projected to remain elevated at approximately 12% through~~ the end of 2021. This scenario also assumes unemployment remains elevated in 2022 at approximately 9%. This scenario assumes a decline in unemployment throughout 2023, from approximately 8% in early 2023 to approximately 7% at the end of 2023.

Qualitative Adjustments

The Company recognizes that historical information used as the basis for determining future expected credit losses may not always, by themselves, 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 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 June 30, ~~2020,~~2021, qualitative adjustments included in the ACL totaled ~~$15.0~~$8.0 million. These adjustments primarily relate to ~~potential limitations~~continued uncertainty concerning the strength of the economic recovery and how it may impact certain classes of loans in the ~~model.~~loan portfolio. Management determined through additional review that ~~certain key model drivers~~the uneven recovery and continued government interventions, are potentially underestimating the impact of the ~~on-going~~ongoing COVID-19 pandemic may have on ~~small~~certain segments and ~~medium sized businesses,~~classes of the loan portfolio, such as loans within the SBA, franchise, C&I, and ~~may not be fully reflecting the potential for a more turbulent economic recovery.~~construction classifications. Management reviews the need for ~~and~~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 ~~table~~tables provides the allocation of the ACL for loans held for investment as well as the activity in the ACL attributed to various segments in the loan portfolio as of, and for the ~~period~~periods indicated:


		Three Months Ended June 30, 2020																			Three Months Ended June 30, 2021

		Beginning ACL Balance ⁽¹⁾		Initial ACL Recorded for PCD Loans		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
		(Dollars in thousands)
(Dollars in thousands)														(Dollars in thousands)	Beginning ACL Balance		Charge-offs		Recoveries			Provision for Credit Losses		Ending ACL Balance
Investor loans secured by real estate	Investor loans secured by real estate													Investor loans secured by real estate
CRE non-owner occupied	CRE non-owner occupied	$	15,896	$	3,025	$	—	$	—	$	44,086	$	63,007	CRE non-owner occupied	$	45,545	$	0	$	0		$	1,567	$	47,112
Multifamily	Multifamily	14,722		8,710		—		—		40,079		63,511		Multifamily	79,815		0		0			(20,756)		59,059
Construction and land	Construction and land	9,222		2,051		—		—		7,531		18,804		Construction and land	13,263		0		0			(3,715)		9,548
SBA secured by real estate	SBA secured by real estate	935		—		(554)		—		1,629		2,010		SBA secured by real estate	5,141		0		0			(460)		4,681
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	26,793		3,766		—		11		17,643		48,213		CRE owner-occupied	41,594		0		15			(5,862)		35,747
Franchise real estate secured	Franchise real estate secured	7,503		—		—		—		5,557		13,060		Franchise real estate secured	10,876		0		0			560		11,436
SBA secured by real estate	SBA secured by real estate	4,044		235		—		3		86		4,368		SBA secured by real estate	6,451		0		80			(214)		6,317
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	15,742		2,325		(2,286)		21		26,165		41,967		Commercial and industrial	43,373		(3,290)		2,098			(2,302)		39,879
Franchise non-real estate secured	Franchise non-real estate secured	16,616		—		(1,227)		—		6,287		21,676		Franchise non-real estate secured	18,903		0		0			(1,590)		17,313
SBA non-real estate secured	SBA non-real estate secured	516		924		(556)		(2)		(282)		600		SBA non-real estate secured	890		0		2			(162)		730

Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	1,137		—		(62)		1		403		1,479		Single family residential	822		0		1			(153)		670
Consumer loans	Consumer loans	2,296		206		—		1		1,073		3,576		Consumer loans	326		0		0			(44)		282
Totals	Totals	$	115,422	$	21,242	$	(4,685)	$	35	$	150,257	$	282,271	Totals	$	266,999	$	(3,290)	$	2,196		$	(33,131)	$	232,774

Six Months Ended June 30, 2020
Beginning ACL Balance ⁽¹⁾
Adoption of ASC 326 Initial ACL Recorded for PCD Loans Charge-offs Recoveries Provision for Credit Losses Ending
ACL Balance
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner occupied $ 1,899 $ 8,423 $ 3,025 $ (387) $ — $ 50,047 $ 63,007
Multifamily 729 9,174 8,710 — — 44,898 63,511
Construction and land 4,484 (124) 2,051 — — 12,393 18,804
SBA secured by real estate 1,915 (1,401) — (554) — 2,050 2,010
Business loans secured by real estate
CRE owner-occupied 2,781 20,166 3,766 — 23 21,477 48,213
Franchise real estate secured 592 5,199 — — — 7,269 13,060
SBA secured by real estate 2,119 2,207 235 (315) 74 48 4,368
Commercial loans
Commercial and industrial 13,857 87 2,325 (2,776) 26 28,448 41,967
Franchise non-real estate secured 5,816 9,214 — (1,227) — 7,873 21,676
SBA non-real estate secured 445 218 924 (792) 2 (197) 600
Retail loans
Single family residential 655 541 206 (62) 1 138 1,479
Consumer loans 406 1,982 — (8) 1 1,195 3,576
Totals $ 35,698 $ 55,686 $ 21,242 $ (6,121) $ 127 $ 175,639 $ 282,271


	Six Months Ended June 30, 2021
(Dollars in thousands)	Beginning ACL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
Investor loans secured by real estate
CRE non-owner occupied	$	49,176	$	(154)	$	0	$	(1,910)	$	47,112
Multifamily	62,534		0		0		(3,475)		59,059
Construction and land	12,435		0		0		(2,887)		9,548
SBA secured by real estate	5,159		(265)		0		(213)		4,681
Business loans secured by real estate
CRE owner-occupied	50,517		0		30		(14,800)		35,747
Franchise real estate secured	11,451		0		0		(15)		11,436
SBA secured by real estate	6,567		(98)		80		(232)		6,317
Commercial loans
Commercial and industrial	46,964		(4,569)		2,699		(5,215)		39,879
Franchise non-real estate secured	20,525		(156)		0		(3,056)		17,313
SBA non-real estate secured	995		0		4		(269)		730

Retail loans
Single family residential	1,204		0		1		(535)		670
Consumer loans	491		0		0		(209)		282
Totals	$	268,018	$	(5,242)	$	2,814	$	(32,816)	$	232,774


	Three Months Ended June 30, 2020

(Dollars in thousands)	Beginning ACL Balance		Initial ACL Recorded for PCD Loans		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
Investor loans secured by real estate
CRE non-owner occupied	$	15,896	$	3,025	$	0	$	0	$	44,086	$	63,007
Multifamily	14,722		8,710		0		0		40,079		63,511
Construction and land	9,222		2,051		0		0		7,531		18,804
SBA secured by real estate	935		0		(554)		0		1,629		2,010
Business loans secured by real estate
CRE owner-occupied	26,793		3,766		0		11		17,643		48,213
Franchise real estate secured	7,503		0		0		0		5,557		13,060
SBA secured by real estate	4,044		235		0		3		86		4,368
Commercial loans
Commercial and industrial	15,742		2,325		(2,286)		21		26,165		41,967
Franchise non-real estate secured	16,616		0		(1,227)		0		6,287		21,676
SBA non-real estate secured	516		924		(556)		(2)		(282)		600

Retail loans
Single family residential	1,137		206		(62)		1		197		1,479
Consumer loans	2,296		0		0		1		1,279		3,576
Totals	$	115,422	$	21,242	$	(4,685)	$	35	$	150,257	$	282,271


	Six Months Ended June 30, 2020

(Dollars in thousands)	Beginning ACL Balance (1)		Adoption of ASC 326		Initial ACL Recorded for PCD Loans		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
Investor loans secured by real estate
CRE non-owner occupied	$	1,899	$	8,423	$	3,025	$	(387)	$	0	$	50,047	$	63,007
Multifamily	729		9,174		8,710		0		0		44,898		63,511
Construction and land	4,484		(124)		2,051		0		0		12,393		18,804
SBA secured by real estate	1,915		(1,401)		0		(554)		0		2,050		2,010
Business loans secured by real estate
CRE owner-occupied	2,781		20,166		3,766		0		23		21,477		48,213
Franchise real estate secured	592		5,199		0		0		0		7,269		13,060
SBA secured by real estate	2,119		2,207		235		(315)		74		48		4,368
Commercial loans
Commercial and industrial	13,857		87		2,325		(2,776)		26		28,448		41,967
Franchise non-real estate secured	5,816		9,214		0		(1,227)		0		7,873		21,676
SBA non-real estate secured	445		218		924		(792)		2		(197)		600

Retail loans
Single family residential	655		541		206		(62)		1		138		1,479
Consumer loans	406		1,982		0		(8)		1		1,195		3,576
Totals	$	35,698	$	55,686	$	21,242	$	(6,121)	$	127	$	175,639	$	282,271

⁽¹⁾Beginning ACL balance represents the ALLL accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date.

The ~~following table provides~~decrease in the ~~allocation of the ALLL~~ACL for loans held for investment ~~as well as~~during the ~~activity attributed~~three months ended June 30, 2021 of $34.2 million was comprised of a $33.1 million provision for credit loss recapture and $1.1 million in net charge-offs. The provision recapture for the three months ended June 30, 2021 was reflective of improving economic forecasts employed in the Company’s ACL model relative to ~~various segments in~~prior periods and the continued strong asset quality profile of the loan portfolio, ~~as of and~~partially offset by an increase in loans held for investment during the quarter. The decrease in the ACL for the ~~period indicated, as determined~~six months ended June 30, 2021 of $35.2 million was comprised of a $32.8 million provision for credit loss recapture and $2.4 million in ~~accordance with ASC 450~~net charge-offs. The provision recapture for the six months ended June 30, 2021 was also reflective of improving economic forecasts employed in the Company’s ACL model and ~~ASC 310, prior to~~ the ~~adoption~~continued strong asset quality profile of ~~ASC 326:~~

For the Three Months Ended June 30, 2019
Beginning ALLL Balance Charge-offs Recoveries Provision for Credit Losses Ending
ALLL Balance
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 1,668 $ (488) $ — $ 585 $ 1,765
Multifamily 669 — — 36 705
Construction and land 5,960 — — (552) 5,408
SBA secured by real estate 2,704 (721) — (661) 1,322
Business loans secured by real estate
CRE owner-occupied 1,969 — 15 315 2,299
Franchise real estate secured 2,173 (1,376) — (218) 579
SBA secured by real estate 1,966 (254) — (101) 1,611
Commercial loans
Commercial and industrial 13,587 (393) 47 555 13,796
Franchise non-real estate secured 5,698 (160) — 648 6,186
SBA non-real estate secured 503 (244) 1 170 430
Retail loans
Single family residential 758 — 1 (55) 704
Consumer loans 201 — — 20 221
Totals $ 37,856 $ (3,636) $ 64 $ 742 $ 35,026

For the Six Months Ended June 30, 2019
Beginning ALLL Balance Charge-offs Recoveries Provision for Credit Losses Ending
ALLL Balance
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 1,624 $ (488) $ — $ 629 $ 1,765
Multifamily 740 — — (35) 705
Construction and land 5,964 — — (556) 5,408
SBA secured by real estate 1,827 (721) — 216 1,322
Business loans secured by real estate
CRE owner-occupied 1,908 — 23 368 2,299
Franchise real estate secured 743 (1,376) — 1,212 579
SBA secured by real estate 1,824 (254) — 41 1,611
Commercial loans
Commercial and industrial 13,695 (695) 114 682 13,796
Franchise non-real estate secured 6,066 (160) — 280 6,186
SBA non-real estate secured 654 (244) 4 16 430
Retail loans
Single family residential 808 — 1 (105) 704
Consumer loans 219 (5) 1 6 221
Totals $ 36,072 $ (3,943) $ 143 $ 2,754 $ 35,026
the loan portfolio.

The ~~change~~increase in the ACL ~~during~~for the three months ended June 30, 2020 of $166.8 million ~~is reflective~~was comprised of a $150.3 million in provision for credit losses, $4.7 million in net charge-offs, and the establishment of $21.2 million in net ACL for PCD loans acquired in the Opus acquisition. The ~~change~~ACL established for PCD loans was reflected as an adjustment to the acquired balance of the loans in accordance with ASC 326. The increase in the ACL for the six months ended June 30, 2020 of $246.6 million iswas reflective of a $55.7 million ~~adjustment~~addition associated with the Company’s adoption of ASC 326 on January 1, 2020, which was recorded through a cumulative effect adjustment to retained earnings, as well as a $175.6 million provision for credit losses, ~~on loans,~~ net charge-offs of $6.0 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses ~~during~~for the three and six months ended June 30, 2020 includes ~~approximately~~ $75.9 million related to the initial ACL ~~required~~ for ~~the acquisition of~~ non-PCD loans acquired in the Opus ~~acquisition. Under~~acquisition, as required by ASC 326, the Company is required to record an ACL for estimates of life-time credit losses on loans at the time of acquisition. For non-PCD loans, the initial ACL is established through a charge to provision for credit losses at the time of acquisition. However, the ACL for PCD loans is established through an adjustment to the loan’s purchase price (or initial fair value). In addition, the326. The provision for credit losses for the three and six months ended June 30, 2020 iswas also reflective of unfavorable changes in economic forecasts used in the Company’s ACL model, which was driven by the COVID-19 pandemic.

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an allowance for credit losses on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated ~~balance sheets.~~statements of financial condition. The allowance for off-balance sheet commitments was ~~$22.0~~$27.4 million at June 30, ~~2020~~2021, $32.8 million at March 31, 2021, and ~~$3.3~~$31.1 million at December 31, ~~2019.~~2020. The ~~change~~reversal of provision for credit losses of $5.4 million and $3.7 million during the three and six months ended June 30, 2021, respectively, was related primarily to improving economic conditions and forecasts reflected in the Company’s ACL model.

The allowance for off-balance sheet commitments totaled $22.0 million as of June 30, 2020. The total provision for credit losses for off-balance sheet commitments was $10.4 million and $10.5 million for the three and six months ended June 30, 2020, respectively. The provision for credit losses for the three and six months ended June 30, 2020 can be attributed to ~~several factors, including: (i)~~ an ~~$8.3 million increase in the first quarter of 2020 attributed to the Company’s adoption of ASC 326, (ii) a~~ $8.6 million provision for credit losses in the second quarter of 2020 related to the assumption of off-balance sheet loan commitments in the Opus acquisition, ~~of Opus~~as required by ASC 326, and ~~the initial ACL the Company was required to establish at the time of acquisition, and (iii)~~ a $1.9 million in provision for credit losses for the first six months of 2020 related primarily to the deterioration in economic forecasts ~~primarily in the second quarter of 2020,~~ used in the Company’s ~~CECL~~ACL model. ~~The total provision for credit losses for off-balance sheet commitments totaled $10.4 million and $10.5 million for the three and six months ended June 30, 2020, respectively.~~

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 ~~the probability that a loan will fund, as well as the expected amount of funding.~~utilization at default. These assumptions are based on the Company’s own historical internal loan data.

The following table presents loans individually and collectively evaluated for impairment and their respective ALLL allocation at December 31, 2019 as determined in accordance with ASC 450 and ASC 310, prior to the adoption of ASC 326:

December 31, 2019
Loans Evaluated Individually for Impairment ALLL Attributed to Individually Evaluated Loans Loans Evaluated Collectively for Impairment ALLL Attributed to Collectively Evaluated Loans
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 1,088 $ — $ 2,069,053 $ 1,899
Multifamily — — 1,575,726 729
Construction and land — — 438,786 4,484
SBA secured by real estate 390 — 68,041 1,915
Business loans secured by real estate
CRE owner-occupied — — 1,846,554 2,781
Franchise real estate secured — — 353,240 592
SBA secured by real estate 1,517 — 86,864 2,119
Commercial loans
Commercial and industrial 7,529 — 1,385,741 13,857
Franchise non-real estate secured 10,834 — 553,523 5,816
SBA non-real estate secured 1,118 — 16,308 445
Retail loans
Single family residential 366 — 254,658 655
Consumer loans — — 50,975 406
Totals $ 22,842 $ — $ 8,699,469 $ 35,698

~~The following table presents~~tables present PD bands for commercial real estate and commercial loan segments of the loan portfolio as of the ~~date~~dates indicated. ~~It should be noted that SBA PPP loans, which are in the commercial loans segment, have been excluded from this table since they are not included in the Company’s ACL model.~~


		Commercial Real Estate Term Loans by Vintage																													Commercial Real Estate and Commercial Term Loans by PD and Vintage
		2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2020		(Dollars in thousands)
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021																				June 30, 2021
Investor loans secured by real estate	Investor loans secured by real estate																			Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied																			CRE non-owner-occupied
0% - 5.00%	0% - 5.00%	$	153,133	$	561,104	$	474,139	$	258,886	$	279,780	$	793,398	$	10,924	$	—	$	2,531,364	0% - 5.00%	$	301,013	$	239,654	$	425,062	$	440,854	$	210,727	$	884,807	$	4,652	$	0	$	2,506,769
>5.00% - 10.00%	>5.00% - 10.00%	—		2,897		8,428		86,660		37,621		39,947		—		—		175,553		>5.00% - 10.00%	0		23,774		25,621		17,921		20,269		47,036		5,328		0		139,949
Greater than 10%	Greater than 10%	2,296		3,988		322		14,155		2,585		52,870		559		—		76,775		Greater than 10%	0		4,218		68,748		33,118		41,911		14,983		537		0		163,515
Multifamily	Multifamily																			Multifamily
0% - 5.00%	0% - 5.00%	520,782		1,723,731		991,561		746,855		460,328		678,741		1,031		—		5,123,029		0% - 5.00%	1,004,852		934,432		1,478,289		684,846		558,666		713,963		1,643		0		5,376,691
>5.00% - 10.00%	>5.00% - 10.00%	1,599		17,431		8,692		2,176		4,098		8,906		—		—		42,902		>5.00% - 10.00%	22,931		49,688		27,569		15,354		0		7,226		0		0		122,768
Greater than 10%	Greater than 10%	—		12,607		9,794		12,545		10,409		14,271		—		—		59,626		Greater than 10%	0		0		10,739		9,687		12,419		7,160		0		0		40,005
Construction and Land	Construction and Land																			Construction and Land
0% - 5.00%	0% - 5.00%	13,838		32,921		4,296		20,357		—		6,919		66		—		78,397		0% - 5.00%	17,062		78,153		21,725		370		8,321		4,651		0		0		130,282
>5.00% - 10.00%	>5.00% - 10.00%	—		40,785		21,154		3,275		—		—		395		—		65,609		>5.00% - 10.00%	18,948		16,774		7,211		0		0		0		0		0		42,933
Greater than 10%	Greater than 10%	—		67,142		129,990		14,739		—		1,549		—		—		213,420		Greater than 10%	730		2,862		64,249		34,964		444		21,264		0		0		124,513
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
0% - 5.00%	0% - 5.00%	495		10,704		12,115		16,181		7,135		11,352		—		—		57,982		0% - 5.00%	0		500		8,460		12,477		17,432		13,694		0		0		52,563
>5.00% - 10.00%	>5.00% - 10.00%	—		—		512		—		—		—		—		—		512		>5.00% - 10.00%	0		0		0		0		0		0		0		0		0
Greater than 10%	Greater than 10%	—		—		594		—		394		—		—		—		988		Greater than 10%	0		0		102		0		0		338		0		0		440
Total investor loans secured by real estate	Total investor loans secured by real estate	$	692,143	$	2,473,310	$	1,661,597	$	1,175,829	$	802,350	$	1,607,953	$	12,975	$	—	$	8,426,157	Total investor loans secured by real estate	1,365,536		1,350,055		2,137,775		1,249,591		870,189		1,715,122		12,160		0		8,700,428
Business loans secured by real estate	Business loans secured by real estate																			Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied																			CRE owner-occupied
0% - 5.00%	0% - 5.00%	$	211,860	$	402,474	$	309,907	$	304,611	$	234,139	$	488,345	$	3,124	$	—	$	1,954,460	0% - 5.00%	276,707		281,668		347,620		262,455		269,367		558,473		3,052		0		1,999,342
>5.00% - 10.00%	>5.00% - 10.00%	186		33,118		35,922		22,510		26,918		42,552		1,504		—		162,710		>5.00% - 10.00%	0		0		13,628		9,092		11,854		37,540		1		0		72,115
Greater than 10%	Greater than 10%	5,979		16,066		7,086		3,386		6,797		13,173		497		—		52,984		Greater than 10%	0		0		0		6,151		5,874		5,818		0		0		17,843
Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
0% - 5.00%	0% - 5.00%	18,724		86,263		74,832		95,221		28,550		42,831		—		—		346,421		0% - 5.00%	59,007		36,149		71,812		50,663		78,597		43,345		0		0		339,573
>5.00% - 10.00%	>5.00% - 10.00%	754		—		632		8,627		3,028		101		—		—		13,142		>5.00% - 10.00%	239		7,558		0		4,016		1,094		3,795		0		0		16,702
Greater than 10%	Greater than 10%	928		2,545		728		—		—		883		—		—		5,084		Greater than 10%	290		1,555		0		0		0		0		0		0		1,845
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
0% - 5.00%	0% - 5.00%	1,905		7,693		13,476		16,611		8,547		24,605		365		—		73,202		0% - 5.00%	2,502		3,423		7,492		9,903		10,132		18,318		0		0		51,770
>5.00% - 10.00%	>5.00% - 10.00%	—		—		683		1,699		2,306		3,416		—		—		8,104		>5.00% - 10.00%	0		0		70		1,495		2,532		8,972		0		0		13,069
Greater than 10%	Greater than 10%	—		—		—		914		148		3,174		—		—		4,236		Greater than 10%	0		0		0		1,336		2,172		4,576		0		0		8,084
Total business loans secured by real estate	Total business loans secured by real estate	$	240,336	$	548,159	$	443,266	$	453,579	$	310,433	$	619,080	$	5,490	$	—	$	2,620,343	Total business loans secured by real estate	338,745		330,353		440,622		345,111		381,622		680,837		3,053		0		2,520,343

5956


		Commercial Real Estate Term Loans by Vintage																													Commercial Real Estate and Commercial Term Loans by PD and Vintage
		2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2020		(Dollars in thousands)
Commercial Loans
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021																				June 30, 2021
Commercial loans																				Commercial loans
Commercial and industrial	Commercial and industrial																			Commercial and industrial
0% - 5.00%	0% - 5.00%	$	91,538	$	376,850	$	268,429	$	211,610	$	58,496	$	94,984	$	508,985	$	1,593	$	1,612,485	0% - 5.00%	135,825		105,221		232,476		102,539		155,592		84,339		626,121		1,852		1,443,965
>5.00% - 10.00%	>5.00% - 10.00%	9,735		11,741		24,030		11,639		14,449		8,862		271,951		547		352,954		>5.00% - 10.00%	22,487		6,242		10,701		18,922		33,612		7,924		162,253		0		262,141
Greater than 10%	Greater than 10%	5,496		339		3,625		1,007		7,121		9,415		57,848		1,023		85,874		Greater than 10%	0		4,944		1,533		18,386		564		5,518		58,093		0		89,038
Franchise non-real estate secured	Franchise non-real estate secured																			Franchise non-real estate secured
0% - 5.00%	0% - 5.00%	9,535		197,360		117,509		69,287		46,925		40,305		1,476		—		482,397		0% - 5.00%	56,293		20,482		94,203		67,224		30,596		24,823		0		0		293,621
>5.00% - 10.00%	>5.00% - 10.00%	812		6,619		3,593		9,290		2,382		4,704		729		—		28,129		>5.00% - 10.00%	599		5,840		39,085		8,783		4,910		19,921		151		0		79,289
Greater than 10%	Greater than 10%	—		2,443		514		7,737		—		2,535		—		—		13,229		Greater than 10%	0		0		2,293		4,665		17,749		2,337		1,361		0		28,405
SBA not secured by real estate	SBA not secured by real estate																			SBA not secured by real estate
0% - 5.00%	0% - 5.00%	646		2,341		1,301		2,517		571		3,842		—		3,537		14,755		0% - 5.00%	153		413		2,167		990		1,159		3,385		0		0		8,267
>5.00% - 10.00%	>5.00% - 10.00%	—		—		132		1,745		367		439		—		—		2,683		>5.00% - 10.00%	0		0		0		479		2,398		657		0		0		3,534
Greater than 10%	Greater than 10%	—		86		394		856		—		1,519		764		—		3,619		Greater than 10%	0		0		80		345		258		739		677		0		2,099
Total commercial loans	Total commercial loans	$	117,762	$	597,779	$	419,527	$	315,688	$	130,311	$	166,605	$	841,753	$	6,700	$	2,596,125	Total commercial loans	$	215,357	$	143,142	$	382,538	$	222,333	$	246,838	$	149,643	$	848,656	$	1,852	$	2,210,359


	Commercial Real Estate and Commercial Term Loans by PD and Vintage
(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00%	$	261,885	$	491,522	$	431,791	$	266,942	$	254,527	$	763,101	$	11,114	$	0	$	2,480,882
>5.00% - 10.00%	4,016		34,360		5,794		10,558		16,961		33,734		0		0		105,423
Greater than 10%	0		25,844		11,480		10,517		10,782		29,598		559		0		88,780
Multifamily
0% - 5.00%	950,089		1,610,011		878,233		634,268		349,549		516,452		0		0		4,938,602
>5.00% - 10.00%	38,892		59,500		12,181		19,751		10,917		13,606		0		0		154,847
Greater than 10%	38,663		9,963		11,339		12,479		3,814		1,229		420		0		77,907
Construction and land
0% - 5.00%	55,785		40,860		4,604		11,238		0		6,412		784		0		119,683
>5.00% - 10.00%	1,123		41,046		9,197		3,601		0		260		0		0		55,227
Greater than 10%	401		62,853		59,512		3,786		20,531		0		0		0		147,083
SBA secured by real estate
0% - 5.00%	496		10,400		12,558		14,497		7,078		10,032		0		0		55,061
>5.00% - 10.00%	0		0		0		1,012		0		0		0		0		1,012
Greater than 10%	0		158		589		0		0		511		0		0		1,258
Total investor loans secured by real estate	1,351,350		2,386,517		1,437,278		988,649		674,159		1,374,935		12,877		0		8,225,765


	Commercial Real Estate and Commercial Term Loans by PD and Vintage
(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2020
Business loans secured by real estate
CRE owner-occupied
0% - 5.00%	286,745		367,269		274,512		295,809		202,282		422,614		10,393		246		1,859,870
>5.00% - 10.00%	8,769		42,310		60,222		28,421		23,875		44,855		3,875		0		212,327
Greater than 10%	0		16,096		5,376		7,459		4,263		8,409		250		0		41,853
Franchise real estate secured
0% - 5.00%	37,262		79,926		65,619		96,672		19,046		22,927		0		0		321,452
>5.00% - 10.00%	7,587		1,650		3,274		327		5,627		4,093		0		0		22,558
Greater than 10%	442		1,512		0		0		1,968		0		0		0		3,922
SBA secured by real estate
0% - 5.00%	3,253		7,637		11,840		15,069		5,707		18,742		0		0		62,248
>5.00% - 10.00%	0		0		768		989		2,780		4,882		0		0		9,419
Greater than 10%	0		0		1,384		1,987		1,514		3,043		0		0		7,928
Total business loans secured by real estate	344,058		516,400		422,995		446,733		267,062		529,565		14,518		246		2,541,577
Commercial loans
Commercial and industrial
0% - 5.00%	70,233		205,395		99,178		193,046		36,957		62,682		394,124		5,051		1,066,666
>5.00% - 10.00%	49,883		50,743		35,813		13,427		12,922		13,948		322,123		2,469		501,328
Greater than 10%	7,701		7,540		29,078		4,485		4,574		8,350		136,253		2,859		200,840
Franchise non-real estate secured
0% - 5.00%	21,409		145,392		88,171		38,010		21,956		23,479		0		502		338,919
>5.00% - 10.00%	6,198		15,754		5,454		8,164		18,415		3,626		0		0		57,611
Greater than 10%	0		16,836		6,612		18,655		1,638		3,165		1,361		0		48,267
SBA not secured by real estate
0% - 5.00%	407		2,257		910		1,078		441		2,782		0		0		7,875
>5.00% - 10.00%	0		0		648		1,596		169		1,652		0		259		4,324
Greater than 10%	0		83		357		1,856		340		415		707		0		3,758
Total commercial loans	$	155,831	$	444,000	$	266,221	$	280,317	$	97,412	$	120,099	$	854,568	$	11,140	$	2,229,588

A significant driver in the ACL for loans in the investor real estate secured and business real estate secured segments is estimated loan to value (“LTV”). The following ~~table summarizes~~tables summarize the amortized cost of loans in these segments by current estimated LTV and by year of origination as of the ~~date~~dates indicated:


		Term Loans by Vintage																													Term Loans by LTV and Vintage
		2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2020		(Dollars in thousands)
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021																				June 30, 2021
Investor loans secured by real estate	Investor loans secured by real estate																			Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied																			CRE non-owner-occupied
55% and below	55% and below	$	73,769	$	241,867	$	191,322	$	156,622	$	189,946	$	618,498	$	10,924	—		$	1,482,948	55% and below	$	174,343	$	134,995	$	204,770	$	225,932	$	137,797	$	661,868	$	9,980	0		$	1,549,685
>55-65%	>55-65%	54,874		214,909		119,539		177,366		104,448		231,545		559		—		903,240		>55-65%	84,362		107,085		208,558		105,364		122,170		243,022		537		0		871,098
>65-75%	>65-75%	22,526		108,464		169,089		23,368		25,379		31,566		—		—		380,392		>65-75%	42,308		25,566		86,042		147,915		8,567		40,446		0		0		350,844
Greater than 75%	Greater than 75%	4,260		2,749		2,939		2,345		213		4,606		—		—		17,112		Greater than 75%	0		0		20,061		12,682		4,373		1,490		0		0		38,606
Multifamily	Multifamily																			Multifamily
55% and below	55% and below	123,726		387,468		341,633		223,446		95,645		290,333		599		—		1,462,850		55% and below	118,036		219,481		336,820		243,793		222,718		334,898		1,643		0		1,477,389
>55-65%	>55-65%	164,019		734,321		386,341		266,322		167,271		283,527		432		—		2,002,233		>55-65%	466,963		391,606		673,685		329,299		191,548		265,604		0		0		2,318,705
>65-75%	>65-75%	234,636		609,946		270,888		269,910		211,919		122,199		—		—		1,719,498		>65-75%	441,401		373,033		489,754		126,306		154,960		119,559		0		0		1,705,013
Greater than 75%	Greater than 75%	—		22,034		11,185		1,898		—		5,859		—		—		40,976		Greater than 75%	1,383		0		16,338		10,489		1,859		8,288		0		0		38,357
Construction and land	Construction and land																			Construction and land
55% and below	55% and below	13,838		136,216		107,812		30,148		—		8,468		461		—		296,943		55% and below	36,740		97,789		73,845		17,816		8,765		25,915		0		0		260,870
>55-65%	>55-65%	—		4,632		42,778		8,223		—		—		—		—		55,633		>55-65%	0		0		11,429		9,471		0		0		0		0		20,900
>65-75%	>65-75%	—		—		3,697		—		—		—		—		—		3,697		>65-75%	0		0		7,911		8,047		0		0		0		0		15,958
Greater than 75%	Greater than 75%	—		—		1,153		—		—		—		—		—		1,153		Greater than 75%	0		0		0		0		0		0		0		0		0
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
55% and below	55% and below	—		1,148		655		841		332		436		—		—		3,412		55% and below	0		0		102		641		831		2,303		0		0		3,877
>55-65%	>55-65%	—		3,187		1,647		3,860		623		4,791		—		—		14,108		>55-65%	0		0		2,414		1,965		3,816		2,872		0		0		11,067
>65-75%	>65-75%	495		3,724		7,802		5,364		4,358		2,829		—		—		24,572		>65-75%	0		0		3,879		4,624		3,924		5,832		0		0		18,259
Greater than 75%	Greater than 75%	—		2,645		3,117		6,116		2,216		3,296		—		—		17,390		Greater than 75%	0		500		2,167		5,247		8,861		3,025		0		0		19,800
Total investor loans secured by real estate	Total investor loans secured by real estate	$	692,143	$	2,473,310	$	1,661,597	$	1,175,829	$	802,350	$	1,607,953	$	12,975	$	—	$	8,426,157	Total investor loans secured by real estate	1,365,536		1,350,055		2,137,775		1,249,591		870,189		1,715,122		12,160		0		8,700,428
Business loan secured by real estate	Business loan secured by real estate																			Business loan secured by real estate
CRE owner-occupied	CRE owner-occupied																			CRE owner-occupied
55% and below	55% and below	$	55,579	$	153,995	$	171,876	$	196,583	$	150,233	$	377,115	$	5,125	—		$	1,110,506	55% and below	142,863		90,967		145,590		120,707		160,886		409,810		3,053		0		1,073,876
>55-65%	>55-65%	63,067		100,226		89,960		64,803		73,724		81,403		—		—		473,183		>55-65%	58,545		64,476		71,835		87,271		90,387		118,717		0		0		491,231
>65-75%	>65-75%	56,327		175,639		63,734		54,957		39,714		58,581		—		—		448,952		>65-75%	53,750		78,611		131,250		63,894		24,207		53,691		0		0		405,403
Greater than 75%	Greater than 75%	43,052		21,798		27,345		14,164		4,183		26,971		—		—		137,513		Greater than 75%	21,549		47,614		12,573		5,826		11,615		19,613		0		0		118,790
Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
55% and below	55% and below	7,461		18,360		14,615		16,057		11,567		20,926		—		—		88,986		55% and below	8,599		23,887		9,141		17,024		15,341		22,162		0		0		96,154
>55-65%	>55-65%	928		8,900		13,096		29,110		7,823		5,919		—		—		65,776		>55-65%	27,170		2,644		11,147		10,886		10,729		9,804		0		0		72,380
>65-75%	>65-75%	2,911		49,851		25,927		9,859		11,062		14,848		—		—		114,458		>65-75%	13,812		16,857		40,716		10,181		14,597		13,947		0		0		110,110
Greater than 75%	Greater than 75%	9,106		11,697		22,554		48,822		1,126		2,122		—		—		95,427		Greater than 75%	9,955		1,874		10,808		16,588		39,024		1,227		0		0		79,476
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
55% and below	55% and below	736		1,735		6,537		4,784		2,348		10,568		365		—		27,073		55% and below	1,642		591		1,595		1,033		5,196		16,875		0		0		26,932
>55-65%	>55-65%	104		514		2,337		2,643		2,252		4,121		—		—		11,971		>55-65%	37		1,596		511		1,733		994		7,723		0		0		12,594
>65-75%	>65-75%	264		2,687		754		4,602		3,167		5,871		—		—		17,345		>65-75%	643		329		3,120		5,416		4,008		3,244		0		0		16,760
Greater than 75%	Greater than 75%	801		2,757		4,531		7,195		3,234		10,635		—		—		29,153		Greater than 75%	180		907		2,336		4,552		4,638		4,024		0		0		16,637

Total business loans secured by real estate	Total business loans secured by real estate	$	240,336	$	548,159	$	443,266	$	453,579	$	310,433	$	619,080	$	5,490	$	—	$	2,620,343	Total business loans secured by real estate	$	338,745	$	330,353	$	440,622	$	345,111	$	381,622	$	680,837	$	3,053	$	0	$	2,520,343

6159


	Term Loans by LTV and Vintage
(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied
55% and below	$	138,007	$	229,272	$	182,385	$	136,355	$	189,848	$	588,230	$	11,114	$	0	$	1,475,211
>55-65%	101,434		217,210		92,015		130,024		78,470		204,161		559		0		823,873
>65-75%	26,460		102,494		169,878		18,876		13,952		29,506		0		0		361,166
Greater than 75%	0		2,750		4,787		2,762		0		4,536		0		0		14,835
Multifamily
55% and below	218,833		345,519		294,464		233,997		84,530		269,906		0		0		1,447,249
>55-65%	381,737		731,408		381,282		215,170		152,066		189,151		420		0		2,051,234
>65-75%	427,074		583,078		215,389		215,452		127,684		66,457		0		0		1,635,134
Greater than 75%	0		19,469		10,618		1,879		0		5,773		0		0		37,739
Construction and land
55% and below	57,309		105,308		36,068		18,625		20,531		6,672		784		0		245,297
>55-65%	0		36,113		23,770		0		0		0		0		0		59,883
>65-75%	0		3,338		13,475		0		0		0		0		0		16,813
Greater than 75%	0		0		0		0		0		0		0		0		0
SBA secured by real estate
55% and below	0		2,066		649		673		317		778		0		0		4,483
>55-65%	0		2,427		1,639		4,008		879		4,354		0		0		13,307
>65-75%	0		3,897		3,882		3,482		4,519		1,884		0		0		17,664
Greater than 75%	496		2,168		6,977		7,346		1,363		3,527		0		0		21,877
Total investor loans secured by real estate	1,351,350		2,386,517		1,437,278		988,649		674,159		1,374,935		12,877		0		8,225,765
Business loan secured by real estate
CRE owner-occupied
55% and below	96,803		160,605		157,868		179,791		131,795		328,188		14,518		246		1,069,814
>55-65%	72,044		91,028		98,176		94,712		65,120		90,548		0		0		511,628
>65-75%	71,692		152,920		79,106		43,832		31,303		31,493		0		0		410,346
Greater than 75%	54,975		21,122		4,960		13,354		2,202		25,649		0		0		122,262
Franchise real estate secured
55% and below	20,801		10,470		13,864		20,956		9,189		16,213		0		0		91,493
>55-65%	2,689		9,955		16,001		19,102		6,855		2,333		0		0		56,935
>65-75%	19,349		51,719		23,258		9,153		10,597		7,236		0		0		121,312
Greater than 75%	2,452		10,944		15,770		47,788		0		1,238		0		0		78,192
SBA secured by real estate
55% and below	1,825		1,626		5,332		5,495		3,615		13,582		0		0		31,475
>55-65%	246		513		1,795		1,094		3,586		5,448		0		0		12,682
>65-75%	264		3,142		1,515		3,968		1,586		4,043		0		0		14,518
Greater than 75%	918		2,356		5,350		7,488		1,214		3,594		0		0		20,920

Total business loans secured by real estate	$	344,058	$	516,400	$	422,995	$	446,733	$	267,062	$	529,565	$	14,518	$	246	$	2,541,577

The following ~~table presents~~tables present the FICO bands, at origination, for the retail segment of the loan portfolio as of the ~~date~~dates indicated:


		Term Loans by Vintage																													Term Loans by FICO and Vintage
		2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2020		(Dollars in thousands)
Retail Loans
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021																				June 30, 2021
Retail loans																				Retail loans
Single family residential	Single family residential																			Single family residential
Greater than 740	Greater than 740	$	4,863	$	8,236	$	13,274	$	9,719	$	31,203	$	96,475	$	27,050	—		$	190,820	Greater than 740	$	13,312	$	6,771	$	2,524	$	2,236	$	4,215	$	64,829	$	16,092	0		$	109,979
>680 - 740	>680 - 740	—		1,190		2,268		4,794		2,660		18,190		9,095		—		38,197		>680 - 740	0		0		0		35		4,090		11,222		5,524		0		20,871
>580 - 680	>580 - 680	—		—		—		466		3,178		9,030		959		—		13,633		>580 - 680	0		0		0		0		484		9,425		837		0		10,746
Less than 580	Less than 580	—		—		11		12		1,333		21,128		36		—		22,520		Less than 580	0		0		0		0		0		15,598		34		0		15,632
Consumer loans	Consumer loans																			Consumer loans
Greater than 740	Greater than 740	72		95		863		51		20		2,661		1,993		—		5,755		Greater than 740	44		39		40		18		16		2,526		1,269		0		3,952
>680 - 740	>680 - 740	—		59		7		37,988		—		488		1,737		—		40,279		>680 - 740	0		0		20		5		3		449		1,651		0		2,128
>580 - 680	>580 - 680	—		20		—		—		3		150		51		—		224		>580 - 680	0		0		10		0		0		62		54		0		126
Less than 580	Less than 580	—		—		—		—		—		20		31		—		51		Less than 580	0		0		0		0		0		12		22		0		34
Total retail loans	Total retail loans	$	4,935	$	9,600	$	16,423	$	53,030	$	38,397	$	148,142	$	40,952	$	—	$	311,479	Total retail loans	$	13,356	$	6,810	$	2,594	$	2,294	$	8,808	$	104,123	$	25,483	$	0	$	163,468


	Term Loans by FICO and Vintage
(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2020
Retail loans
Single family residential
Greater than 740	$	10,794	$	6,531	$	12,679	$	8,846	$	28,222	$	81,838	$	19,588	0		$	168,498
>680 - 740	0		1,183		1,303		4,732		2,614		15,624		6,685		0		32,141
>580 - 680	0		0		0		461		3,132		7,473		864		0		11,930
Less than 580	0		0		0		0		0		19,970		35		0		20,005
Consumer loans
Greater than 740	52		69		31		22		1		2,609		2,198		0		4,982
>680 - 740	0		35		6		3		0		469		1,227		0		1,740
>580 - 680	0		15		0		0		1		95		56		0		167
Less than 580	0		0		0		0		0		13		27		0		40
Total retail loans	$	10,846	$	7,833	$	14,019	$	14,064	$	33,970	$	128,091	$	30,680	$	0	$	239,503

Note 8 – Goodwill and Other Intangible Assets

The Company had goodwill of ~~$901.2~~$901.3 million and ~~$808.3~~$898.6 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. ~~During~~The Company recorded adjustments to goodwill associated with the acquisition of Opus in the amount of $2.7 million during the six months ended June 30, 2020, the additions to goodwill include $92.8 million associated with the acquisition of Opus. During the six months ended June 30, 2019, adjustments to goodwill in the amount of $404,000 for Grandpoint Capital, Inc. were recorded during2021, within the one-year measurement period subsequent to the acquisition ~~date.~~

June 30, June 30,
2020 2019
(Dollars in thousands)
Balance, beginning of year $ 808,322 $ 808,726
Goodwill acquired during the year 92,844 —
Purchase accounting adjustments — (404)
Impairment losses — —
Balance, end of year $ 901,166 $ 808,322
Accumulated impairment losses at end of year $ — $ —

~~The amount~~date of ~~goodwill is subject~~June 1, 2020. These adjustments largely relate to ~~change, as~~ the ~~Company’s~~finalization of the short-year Opus tax returns. During the second quarter of 2021, the Company finalized its fair value ~~estimates~~analysis of the acquired assets and assumed liabilities associated with the Opus ~~acquisition are considered preliminary estimates and are subject to refinement for a period of one year after the closing date of the~~ acquisition. Acquisition date fair values of assets acquired and liabilities assumed in the Opus acquisition may be further refined as potential additional information related to those fair value estimates become available and such information is considered final.


	June 30,		June 30,
(Dollars in thousands)	2021		2020
Balance, beginning of year	$	898,569	$	808,322
Goodwill acquired during the year	0		92,844
Purchase accounting adjustments	2,743		0

Balance, end of year	$	901,312	$	901,166
Accumulated impairment losses at end of year	$	0	$	0

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. Given the recent volatility in the economy triggered by the outbreak of the COVID-19 pandemic, the Company performed an analysis of goodwill during the second quarter of 2020 that consisted of a qualitative assessment to first determine if it is more likely than not that the carrying value of the Company exceeds its estimated fair value. The results of this analysis indicated 0 impairment of goodwill as of June 30, 2020. Additionally, as part of the Company’s qualitative analysis, the Company looked at market related data as additional corroborated evidence in its assessment of whether it was more likely than not the estimated fair value of the Company exceeds its carrying value. This assessment of market related data included an initial assessment of the fair value of the Company’s equity as compared to its carrying value with the assistance from an independent third party. The assessment of market related data included factors such as: the Company’s stock price on an actual, 15-day and 30-day average basis as of June 30, 2020, and an implied 40% market participant acquisition premium, which was based upon control premiums for regional banks during the 2008 and 2009 financial crisis. This initial assessment of the fair value of the Company’s equity through observations of market related data provided additional supporting evidence as of June 30, 2020 that the carrying value of goodwill was not impaired.

The Company had other intangible assets of ~~$94.6~~$77.4 million at June 30, ~~2020,~~2021, consisting of ~~$91.4~~$74.5 million in core deposit intangibles and ~~$3.2~~$2.9 million in customer relationship intangibles. The Company had ~~core deposit~~other intangibles assets of ~~$83.3~~$85.5 million at December 31, ~~2019. The additions~~2020, consisting of ~~$16.1~~$82.5 million toin core deposit intangibles and ~~$3.2~~$3.0 million ofin customer relationship ~~intangibles during~~intangibles. The following table summarizes the ~~second quarter of 2020 was the result of the acquisition of Opus. The~~ change in the ~~gross~~ balance of core deposit intangibles and customer relationship intangibles, and the related accumulated amortization ~~consisted of the following~~ for the periods ~~indicated:~~indicated below:


		Three Months Ended												Six Months Ended					Three Months Ended				Six Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,			June 30,		March 31,		June 30,		June 30,		June 30,
		2020		2020		2019		2020		2019
		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	2021		2021		2020		2021		2020
Gross amount of intangible assets:	Gross amount of intangible assets:											Gross amount of intangible assets:
Beginning balance	Beginning balance	$	125,945	$	125,945	$	125,945	$	125,945	$	125,945	Beginning balance	$	145,212	$	145,212	$	125,945	$	145,212	$	125,945
Additions due to acquisitions	Additions due to acquisitions	19,267		—		—		19,267		—		Additions due to acquisitions	0		0		19,267		0		19,267
Ending balance	Ending balance	145,212		125,945		125,945		145,212		125,945		Ending balance	145,212		145,212		145,212		145,212		145,212
Accumulated amortization:	Accumulated amortization:											Accumulated amortization:
Beginning balance	Beginning balance	(46,596)		(42,633)		(29,824)		(42,633)		(25,388)		Beginning balance	(63,848)		(59,705)		(46,596)		(59,705)		(42,633)
Amortization	Amortization	(4,066)		(3,963)		(4,281)		(8,029)		(8,717)		Amortization	(4,001)		(4,143)		(4,066)		(8,144)		(8,029)
Ending balance	Ending balance	(50,662)		(46,596)		(34,105)		(50,662)		(34,105)		Ending balance	(67,849)		(63,848)		(50,662)		(67,849)		(50,662)
Net intangible assets	Net intangible assets	$	94,550	$	79,349	$	91,840	$	94,550	$	91,840	Net intangible assets	$	77,363	$	81,364	$	94,550	$	77,363	$	94,550

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, ~~2019,~~2020, in order from the present, is ~~$17.1 million,~~ $15.9 million, $14.0 million, $12.3 million, $11.1 million, and ~~$11.1~~$10.0 million. The ~~Company’s~~Company analyzes core deposit intangibles and customer relationship intangibles annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that may ~~attribute~~contribute to impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that would indicate a possible impairment to the core deposit intangibles or customer relationship intangibles as of June 30, ~~2020.~~

2021.

6362

Note 9 – Subordinated Debentures

On ~~June 1, 2020, in connection with~~April 15, 2021, the Opus acquisition, the Bank assumed $135.0 million of fixed-to-variable rate subordinated notes due July 1, 2026. The notes bear interest at a fixed rate of 5.5% per year until June 2021. After this date and for the remaining five years of the notes' term, interest will accrue at a variable rate of three-month London Interbank Offering Rate (“LIBOR”) plus 4.285%. The Bank may redeemCompany redeemed the subordinated notes totaling $25.0 million that the Company assumed as part of the acquisition of Plaza Bancorp, Inc. in ~~whole or in part, on or after July 1, 2021. At June 30, 2020, the~~2017. Prior to redemption, such subordinated notes ~~qualified as Tier 2 capital for the Bank. At~~carried a fixed interest rate of 7.125% and were scheduled to mature on June ~~30, 2020, the carrying value of these~~26, 2025. These subordinated notes ~~was $138.6 million, which reflects purchase accounting fair value adjustments~~were called at 103% of ~~$3.6 million.~~

~~In June 2020,~~ the Corporation issued $150.0 million aggregate principal amount of its 5.375% fixed-to-floating rate subordinated notes due 2030 (the “Notes III”) at a public offering price equal to 100% of the aggregate principal amount of the ~~Notes III.~~notes, plus accrued and unpaid interest, for an aggregate amount of $25.8 million. The ~~Corporation may redeem the Notes III~~Company recorded a loss on orearly debt extinguishment of $647,000 after ~~June 14, 2025. Interest on the Notes III accrue at~~considering a ~~rate equal~~$103,000 fair value mark related 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 Secured Overnight Financing Rate (“SOFR”), plus a spread of 517 basis points, payable quarterly in arrears. Principal and interest are due upon early redemption at any time, including prior to June 15, 2025 at our option, in whole but not in part, under the occurrence of special events defined within the trust indenture. At June 30, 2020, the Notes III qualified as Tier 2 capital. At June 30, 2020, the carrying value of the Notes III was $147.4 million, net of unamortized debt issuance cost of $2.3 million.purchase accounting adjustments.

As of June 30, ~~2020,~~2021, the Company had 4 issuances of subordinated notes and 2 issuances of junior subordinated debt securities, with an aggregate carrying value of $476.6 million and a weighted interest rate of 5.29%, compared with 5 issuances of subordinated notes and 2 issuances of junior subordinated debt securities, with an aggregate carrying value of ~~$501.4~~$501.5 million and a weighted interest rate of ~~5.41%, compared with an aggregate carrying value of $215.1 million and a weighted interest rate of 5.37%~~5.38% at December 31, ~~2019.~~2020.

The following table summarizes our outstanding subordinated debentures as of the dates indicated:


							June 30, 2020		December 31, 2019								June 30, 2021		December 31, 2020
		Stated Maturity	Current Interest Rate		Current Principal Balance		Carrying Value
					(Dollars in thousands)
(Dollars in thousands)											(Dollars in thousands)	Stated Maturity	Current Interest Rate		Current Principal Balance		Carrying Value
Subordinated notes	Subordinated notes										Subordinated notes
Subordinated notes due 2024, 5.75% per annum	Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,492	$	59,432	Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,611	$	59,552
Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month LIBOR +2.5% thereafter	Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month LIBOR +2.5% thereafter	May 15, 2029	4.875	%	125,000		122,749		122,622		Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month LIBOR +2.5% thereafter	May 15, 2029	4.875	%	125,000		123,004		122,877
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.17% thereafter		June 15, 2030	5.375	%	150,000		147,370		—
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.170% thereafter											Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.170% thereafter	June 15, 2030	5.375	%	150,000		147,633		147,501
Subordinated notes due 2025, 7.125% per annum	Subordinated notes due 2025, 7.125% per annum	June 26, 2025	7.125	%	25,000		25,121		25,133		Subordinated notes due 2025, 7.125% per annum	June 26, 2025	0	%	0		0		25,109
Subordinated notes due 2026, 5.5% per annum until June 30 2021, 3-month LIBOR +4.285% thereafter		July 1, 2026	5.50	%	135,000		138,613		—
Subordinated notes due 2026, 5.50% per annum until June 30 2021, 3-month LIBOR +4.285% thereafter											Subordinated notes due 2026, 5.50% per annum until June 30 2021, 3-month LIBOR +4.285% thereafter	July 1, 2026	5.50	%	135,000		138,201		138,371
Total subordinated notes	Total subordinated notes				495,000		493,345		207,187		Total subordinated notes				470,000		468,449		493,410
Subordinated debt	Subordinated debt										Subordinated debt
Heritage Oaks Capital Trust II (junior subordinated debt), 3-month LIBOR+1.72%	Heritage Oaks Capital Trust II (junior subordinated debt), 3-month LIBOR+1.72%	January 1, 2037	3.15	%	5,248		4,088		4,054		Heritage Oaks Capital Trust II (junior subordinated debt), 3-month LIBOR+1.72%	January 1, 2037	1.92	%	5,248		4,155		4,121
Santa Lucia Bancorp (CA) Capital Trust (junior subordinated debt), 3-month LIBOR+1.48%	Santa Lucia Bancorp (CA) Capital Trust (junior subordinated debt), 3-month LIBOR+1.48%	July 7, 2036	2.70	%	5,155		3,942		3,904		Santa Lucia Bancorp (CA) Capital Trust (junior subordinated debt), 3-month LIBOR+1.48%	July 7, 2036	1.66	%	5,155		4,018		3,980
Total subordinated debt	Total subordinated debt				10,403		8,030		7,958		Total subordinated debt				10,403		8,173		8,101
Total subordinated debentures	Total subordinated debentures				$	505,403	$	501,375	$	215,145	Total subordinated debentures				$	480,403	$	476,622	$	501,511

In connection with the 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 unsecured debt rating of A- and subordinated debt of

BBB+ for the Bank. The Corporation’s and Bank’s ratings were reaffirmed in June ~~2020~~2021 by ~~KBRA following the announcement of the consummated acquisition of Opus.~~KBRA.

As of June 30, ~~2020,~~2021, the Corporation has two unconsolidated Delaware statutory trust subsidiaries, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust. Both are used as business trusts for the purpose of issuing trust preferred securities to third party investors. The junior subordinated debt was issued in connection with the trust preferred securities offerings. The Corporation is not allowed to consolidate any trust preferred securities into the Company’s consolidated financial statements. The resulting effect on the Company’s consolidated financial statements is to report the subordinated debentures as a component of the Company’s liabilities, and its ownership interest in the trusts as a component of other ~~assets.~~assets on the Company’s consolidated financial statements.

For additional information on the Company’s subordinated debentures, see “Note 1314 — Subordinated Debentures” to the ~~Consolidated Financial Statements~~consolidated financial statements of the Company’s ~~2019~~2020 Form 10-K.

For regulatory capital purposes, the trust preferred securities are included in Tier 2 capital at June 30, ~~2020.~~2021. Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 require that if a depository institution holding company exceeds $15 billion in total consolidated assets due to an acquisition, then trust preferred securities are to be excluded from Tier 1 capital beginning in the period in which the transaction occurred. During the ~~current~~second quarter of 2020, the Company’s acquisition of Opus resulted in total consolidated assets exceeding $15 billion; accordingly, trust preferred securities are ~~now~~ excluded from the Company’s Tier 1 capital. The Company and the Bank also ~~has~~have subordinated ~~debt~~notes that ~~qualifies~~qualify as Tier 2 capital. The redemption of subordinated notes totaling $25 million during the second quarter of 2021 reduced the Company’s Tier 2 capital by approximately $20 million. Following the redemption, the Company’s regulatory capital ratios continued to exceed regulatory minimums to be well-capitalized and the fully phased-in capital conservation buffer.

Note 10 – Earnings per Share

In February 2019, the Compensation Committee of the Corporation’s Board of Directors reviewed the various forms of outstanding equity awards, including restricted stock and restrict stock units (“RSUs”), and approved that unvestedThe Company’s restricted stock awards ~~will be~~contain non-forfeitable rights to dividends and therefore are considered participating securities. ~~As a result of the different treatment of unvested restricted stock~~The Company calculates basic and ~~unvested RSUs, beginning in 2019,~~diluted earnings per common share ~~is computed~~ 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 is computed by dividing net income allocable to common shareholders by the weighted average number of common shares outstanding for the reporting period, excluding outstanding participating securities. Diluted earnings per common share is computed by dividing net income allocable to common shareholders by the weighted average number of common shares outstanding over the reporting period, adjusted to include the effect of potentially dilutive common shares, but excludes awards considered participating securities. The computation of diluted earnings per common share excludes the impact of the assumed exercise or issuance of securities that would have an anti-dilutive effect.

6564

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


	Three Months Ended
(Dollars in thousands, except per share data)	June 30, 2021		March 31, 2021		June 30, 2020
Basic
Net income (loss)	$	96,302	$	68,668	$	(99,091)
Less: dividends and undistributed earnings allocated to participating securities	(1,034)		(665)		(222)
Net income (loss) allocated to common stockholders	$	95,268	$	68,003	$	(99,313)

Weighted average common shares outstanding	93,635,392		93,529,147		70,425,027
Basic earnings (loss) per common share	$	1.02	$	0.73	$	(1.41)

Diluted
Net income (loss) allocated to common stockholders	$	95,268	$	68,003	$	(99,313)

Weighted average common shares outstanding	93,635,392		93,529,147		70,425,027
Diluted effect of share-based compensation	582,636		564,497		0

Weighted average diluted common shares	94,218,028		94,093,644		70,425,027
Diluted earnings (loss) per common share	$	1.01	$	0.72	$	(1.41)

Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
(Dollars in thousands, except per share data)
Basic
Net (loss) income $ (99,091) $ 25,740 $ 38,527
Less: Dividends and undistributed earnings allocated to participating securities (222) (232) (444)
Net (loss) income allocated to common stockholders $ (99,313) $ 25,508 $ 38,083
Weighted average common shares outstanding 70,425,027 59,007,191 61,308,046
Basic (loss) earnings per common share $ (1.41) $ 0.43 $ 0.62
Diluted
Net (loss) income allocated to common stockholders $ (99,313) $ 25,508 $ 38,083
Weighted average common shares outstanding 70,425,027 59,007,191 61,308,046
Diluted effect of share-based compensation — 182,526 353,727
Diluted effect of stock warrants — — —
Weighted average diluted common shares 70,425,027 59,189,717 61,661,773
Diluted (loss) earnings per common share $ (1.41) $ 0.43 $ 0.62

Six Months Ended
June 30, 2020 June 30, 2019
(Dollars in thousands, except per share data)
Basic
Net (loss) income $ (73,351) $ 77,245
Less: Dividends and undistributed earnings allocated to participating securities (356) (791)
Net (loss) income allocated to common stockholders $ (73,707) $ 76,454
Weighted average common shares outstanding 64,716,109 61,645,940
Basic (loss) earnings per common share $ (1.14) $ 1.24
Diluted
Net (loss) income allocated to common stockholders $ (73,707) $ 76,454
Weighted average common shares outstanding 64,716,109 61,645,940
Diluted effect of share-based compensation — 334,193
Diluted effect of stock warrants — —
Weighted average diluted common shares 64,716,109 61,980,133
Diluted (loss) earnings per common share $ (1.14) $ 1.23


	Six Months Ended
(Dollars in thousands, except per share data)	June 30, 2021		June 30, 2020
Basic
Net income (loss)	$	164,970	$	(73,351)

Less: dividends and undistributed earnings allocated to participating securities	(1,672)		(356)
Net income (loss) allocated to common stockholders	$	163,298	$	(73,707)

Weighted average common shares outstanding	93,582,563		64,716,109
Basic earnings (loss) per common share	$	1.74	$	(1.14)

Diluted
Net income (loss) allocated to common stockholders	$	163,298	$	(73,707)

Weighted average common shares outstanding	93,582,563		64,716,109
Diluted effect of share-based compensation	573,177		0

Weighted average diluted common shares	94,155,740		64,716,109
Diluted earnings (loss) per common share	$	1.73	$	(1.14)

The impact of stock options, which are anti-dilutive, are excluded from the computations of diluted earnings per share. 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. For the three and six months ended June 30, 2021 and the three months ended March 31, 2021 there were no potential common shares that were anti-dilutive. As a result of incurring a net loss for the three and six months ended June 30, 2020, potential common shares of 234,518 and 163,832, respectively, were excluded from diluted loss per share because the effect would have been anti-dilutive.

6665

Note 11 – 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 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. 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 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 be indicative of net realizable value or reflective of future fair values.

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. 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~~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 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.

Interest ~~rate swaps~~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 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 of these derivatives is based on a market standard discounted cash flow approach. ~~Due~~The Company incorporates credit value adjustments on derivatives to properly 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 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 ~~derivatives~~interest rate swaps is classified as Level 2.2 of the fair value hierarchy.

Equity Warrant ~~assets~~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 Company has chosen to account for equity warrants under the fair value option, an irrevocable election under which the changes to the fair value of these assets are recognized in earnings.~~ 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.

6867

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis at the dates indicated:


		June 30, 2020															June 30, 2021
		Fair Value Measurement Using													Fair Value Measurement Using
		Level 1		Level 2		Level 3		Total Fair Value
		(Dollars in thousands)
(Dollars in thousands)										(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value
Financial assets	Financial assets									Financial assets
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury	U.S. Treasury	$	—	$	32,870	$	—	$	32,870	U.S. Treasury	$	0	$	111,808	$	0	$	111,808
Agency	Agency	—		339,990		—		339,990		Agency	0		555,167		0		555,167
Corporate	Corporate	—		273,999		—		273,999		Corporate	0		358,382		0		358,382
Municipal bonds	Municipal bonds	—		461,335		—		461,335		Municipal bonds	0		1,379,473		0		1,379,473
Collateralized mortgage obligations	Collateralized mortgage obligations	—		384,739		—		384,739		Collateralized mortgage obligations	0		614,738		0		614,738
Mortgage-backed securities	Mortgage-backed securities	—		843,133		—		843,133		Mortgage-backed securities	0		1,467,879		0		1,467,879
Total securities available-for-sale	Total securities available-for-sale	$	—	$	2,336,066	$	—	$	2,336,066	Total securities available-for-sale	$	0	$	4,487,447	$	0	$	4,487,447

Derivative assets:	Derivative assets:									Derivative assets:
Interest rate swaps	Interest rate swaps	$	—	$	15,707	$	—	$	15,707	Interest rate swaps	$	0	$	6,712	$	0	$	6,712

Equity warrants	Equity warrants	—		—		1,952		1,952		Equity warrants	0		0		1,903		1,903
Total derivative assets	Total derivative assets	$	—	$	15,707	$	1,952	$	17,659	Total derivative assets	$	0	$	6,712	$	1,903	$	8,615

Financial liabilities	Financial liabilities									Financial liabilities

Derivative liabilities	Derivative liabilities	$	—	$	16,017	$	—	$	16,017	Derivative liabilities	$	0	$	6,716	$	0	$	6,716

December 31, 2019
Fair Value Measurement Using
Level 1 Level 2 Level 3 Total
Fair Value
(Dollars in thousands)
Financial assets
Investment securities available-for-sale:
U.S. Treasury $ — $ 63,555 $ — $ 63,555
Agency — 246,358 — 246,358
Corporate — 151,353 — 151,353
Municipal bonds — 397,298 — 397,298
Collateralized mortgage obligations — 9,984 — 9,984
Mortgage-backed securities — 499,836 — 499,836
Total securities available-for-sale $ — $ 1,368,384 $ — $ 1,368,384
Derivative assets $ — $ 2,103 $ — $ 2,103
Financial liabilities
Derivative liabilities $ — $ 2,103 $ — $ 2,103


	December 31, 2020
	Fair Value Measurement Using
(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value
Financial assets
Investment securities available-for-sale:
U.S. Treasury	$	0	$	32,533	$	0	$	32,533
Agency	0		690,386		0		690,386
Corporate	0		415,308		0		415,308
Municipal bonds	0		1,446,019		0		1,446,019
Collateralized mortgage obligations	0		513,366		0		513,366
Mortgage-backed securities	0		833,503		0		833,503
Total securities available-for-sale	$	0	$	3,931,115	$	0	$	3,931,115

Derivative assets:
Interest rate swaps	$	0	$	12,053	$	0	$	12,053
Equity warrants	0		0		1,914		1,914
Total derivative assets	$	0	$	12,053	$	1,914	$	13,967

Financial liabilities
Derivative liabilities	$	0	$	12,066	$	0	$	12,066

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The following table is a reconciliation of the fair value of the equity warrants that are classified as Level 3 and measured on a recurring ~~basis:~~basis as of:


	~~June 30, 2020~~
	~~(Dollars in thousands)~~
~~Beginning Balance~~	$	~~5,162~~
~~Change in fair value~~ ⁽¹⁾	~~(3)~~
~~Sales~~	~~(3,207)~~
~~Ending balance~~	$	~~1,952~~


	Three Months Ended		Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(Dollars in thousands)	2021		2020		2021		2020
Beginning balance	$	1,911	$	5,162	$	1,914	$	5,162
Change in fair value (1)	(8)		(3)		(11)		(3)
Sales	0		(3,207)		0		(3,207)
Ending balance	$	1,903	$	1,952	$	1,903	$	1,952

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

The following table presents quantitative information about ~~level~~Level 3 of fair value measurements for assets measured at fair value on a recurring basis at ~~June 30, 2020.~~the dates indicated.

June 30, ~~2020~~2021

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

~~(Dollars in thousands)~~$

1,903

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

0.25%

6.00%

35.00%

0.67%

16.00%

31.16%

0.35%

13.55%

December 31, 2020

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

~~1,952~~1,914

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

~~30.00% 0.16% 6.00%~~

~~41.25%~~30.00%

~~0.28%~~0.13%

~~33.00%~~6.00%

~~31.33%~~35.00%

~~20.00%~~0.36%

~~13.67%~~16.00%

31.19%

0.18%

13.51%

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Individually ~~evaluated~~Evaluated Loans ~~(impaired loans prior to adoption of ASC 326)~~ – A loan is individually evaluated for expected credit losses when it ~~is probable that payment of interest and principal will~~does not ~~be made in accordance~~share similar risk characteristics with ~~the contractual terms of the loan agreement.~~other loans. Individually evaluated loans isare 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 nonaccrual loans for which it has reduced the principal balance to the value of the underlying collateral less the anticipated selling cost.

~~Other Real Estate Owned~~ – OREO is initially recorded at the fair value less estimated costs to sell at the date of transfer. This amount becomes the property’s new basis. Any fair value adjustments based on the property’s fair value less estimated costs to sell at the date of acquisition are charged to the allowance for credit losses.

The fair value of individually evaluated loans ~~and other real estate owned~~ were determined using Level 3 assumptions, and represents individually evaluated loan ~~and other real estate owned~~ balances for which a specific reserve has been established or on which a write down has been taken. 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 individually evaluated loans and other real estate owned to determine fair value. In determining the net realizable value of the underlying collateral for individually 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.

7069

At June 30, ~~2020,~~2021, 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 ~~specific~~ reserves during the six months ended June 30, ~~2020.~~2021.

The following table presents our assets measured at fair value on a nonrecurring basis at ~~June 30, 2020 and December 31, 2019.~~the dates indicated.


	June 30, 2020															June 30, 2021
(Dollars in thousands)									(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value
Financial assets									Financial assets
Collateral dependent loans									Collateral dependent loans	$	0	$	0	$	845	$	845
	Level 1		Level 2		Level 3		Total Fair Value
	(Dollars in thousands)
Financial assets
Collateral dependent loans	$	—	$	—	$	3,904	$	3,904
Other real estate owned	—		—		260		260
Total assets	$	—	$	—	$	4,164	$	4,164


	December 31, 2019															December 31, 2020
(Dollars in thousands)									(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value
Financial assets									Financial assets
Collateral dependent loans									Collateral dependent loans	$	0	$	0	$	4,077	$	4,077
	Level 1		Level 2		Level 3		Total Fair Value
	(Dollars in thousands)
Financial assets
Impaired loans	$	—	$	—	$	2,257	$	2,257

The following table presents quantitative information about ~~level~~Level 3 of fair value measurements for assets measured at fair value on a nonrecurring basis at ~~June 30, 2020 and December 31, 2019.~~the dates indicated.

June 30, 2020
Range
Fair Value Valuation Technique(s) Unobservable Input(s) Min Max Weighted Average
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 322 Fair value of collateral Collateral discount and cost to sell 10.00% 10.00% 10.00%
SBA secured by real estate ⁽¹⁾
593 Fair value of collateral Collateral discount and cost to sell 10.00% 10.00% 10.00%
Business loans secured by real estate
SBA secured by real estate ⁽²⁾
247 Fair value of collateral Collateral discount and cost to sell 10.00% 10.00% 10.00%
Commercial loans
Commercial and industrial 312 Fair value of collateral Collateral discount and cost to sell 5.00% 5.00% 5.00% 5.00%
Franchise non-real estate secured 2,428 Fair value of collateral Collateral discount and cost to sell —% 10.00% 10.00%
SBA non-real estate secured 2 Fair value of collateral Collateral discount and cost to sell 7.00% 7.00% 7.00%
Total individually evaluated loans 3,904
Other real estate owned 260 Fair value of property Cost to sell 10.00% 10.00% 10.00%
Total assets $ 4,164

June 30, 2021

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Investor loans secured by real estate

SBA secured by real estate (1)

439

Fair value of collateral

Collateral discount and cost to sell

10.00%

Commercial loans

Commercial and industrial

406

Fair value of collateral

Collateral discount and cost to sell

20.00%

75.00%

57.89%

Total individually evaluated loans

845


		December 31, 2019														December 31, 2020
						Range										Range
		Fair Value		Valuation Technique(s)	Unobservable Input(s)	Min	Max	Weighted Average
		(Dollars in thousands)
(Dollars in thousands)									(Dollars in thousands)	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Min	Max	Weighted Average
Investor loans secured by real estate	Investor loans secured by real estate								Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	569	Fair value of collateral	Collateral discount and cost to sell	10.00%	10.00%	10.00%	CRE non-owner-occupied	$	198	Fair value of collateral	Collateral discount and cost to sell	10.00%	10.00%	10.00%

SBA secured by real estate ⁽¹⁾	SBA secured by real estate ⁽¹⁾	408		Fair value of collateral	Collateral discount and cost to sell	10.00%	10.00%	10.00%	SBA secured by real estate (1)	746		Fair value of collateral	Collateral discount and cost to sell	10.00%	10.00%	10.00%

Business loans secured by real estate	Business loans secured by real estate								Business loans secured by real estate

SBA secured by real estate ⁽²⁾	SBA secured by real estate ⁽²⁾	140		Fair value of collateral	Collateral discount and cost to sell	7.00%	10.00%	7.81%	SBA secured by real estate (2)	386		Fair value of collateral	Collateral discount and cost to sell	7.00%	10.00%	9.09%

Commercial loans	Commercial loans								Commercial loans

Commercial and industrial									Commercial and industrial	2,040		Fair value of collateral	Collateral discount and cost to sell	7.00%	10.00%	9.06%

SBA non-real estate secured	SBA non-real estate secured	1,140		Fair value of collateral	Collateral discount and cost to sell	7.00%	63.00%	15.33%	SBA non-real estate secured	707		Fair value of collateral	Collateral discount and cost to sell	7.00%	7.00%	7.00%

Total individually evaluated loans	Total individually evaluated loans	$	2,257						Total individually evaluated loans	$	4,077

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

⁽²⁾ SBA loans that are collateralized by real property other than hotel/motel real property.

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 June 30, 2021
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Assets
Cash and cash equivalents	$	631,888	$	631,888	$	0	$	0	$	631,888
Interest-bearing time deposits with financial institutions	2,708		2,708		0		0		2,708
Investments held-to-maturity	18,933		0		19,820		0		19,820
Investment securities available-for-sale	4,487,447		0		4,487,447		0		4,487,447
Loans held for sale	4,714		0		5,208		0		5,208
Loans held for investment, net	13,594,598		0		0		13,750,527		13,750,527

Derivative assets	8,615		0		6,712		1,903		8,615
Accrued interest receivable	67,529		67,529		0		0		67,529

Liabilities
Deposit accounts	$	17,015,097	$	15,755,399	$	1,262,149	$	0	$	17,017,548


Subordinated debentures	476,622		0		515,431		0		515,431
Derivative liabilities	6,716		0		6,716		0		6,716
Accrued interest payable	6,216		6,216		0		0		6,216

At June 30, 2020
Carrying
Amount Level 1 Level 2 Level 3 Estimated
Fair Value
(Dollars in thousands)
Assets
Cash and cash equivalents $ 1,341,730 $ 1,341,730 $ — $ — $ 1,341,730
Interest-bearing time deposits with financial institutions 2,845 2,845 — — 2,845
Investments held-to-maturity 32,557 — 34,179 — 34,179
Investment securities available-for-sale 2,336,066 — 2,336,066 — 2,336,066
Loans held for sale 1,007 — 1,081 — 1,081
Loans held for investment, net 15,082,884 — — 15,308,998 15,308,998
Derivative assets 17,659 — 15,707 1,952 17,659
Accrued interest receivable 78,408 78,408 — — 78,408
Liabilities
Deposit accounts $ 16,976,693 $ 15,057,613 $ 1,926,624 $ — $ 16,984,237
FHLB advances 41,006 — 41,700 — 41,700
Subordinated debentures 501,375 — 565,772 — 565,772
Derivative liabilities 16,017 — 16,017 — 16,017
Accrued interest payable 6,991 6,991 — — 6,991


	At December 31, 2020
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Assets
Cash and cash equivalents	$	880,766	$	880,766	$	0	$	0	$	880,766
Interest-bearing time deposits with financial institutions	2,845		2,845		0		0		2,845
Investments held-to-maturity	23,732		0		25,013		0		25,013
Investment securities available-for-sale	3,931,115		0		3,931,115		0		3,931,115
Loans held for sale	601		0		645		0		645
Loans held for investment, net	13,236,433		0		0		13,351,092		13,351,092
Derivative assets	13,967		0		12,053		1,914		13,967
Accrued interest receivable	74,574		74,574		0		0		74,574

Liabilities
Deposit accounts	$	16,214,177	$	14,587,335	$	1,631,047	$	0	$	16,218,382
FHLB advances	31,000		0		31,564		0		31,564

Subordinated debentures	501,511		0		544,436		0		544,436
Derivative liabilities	12,066		0		12,066		0		12,066
Accrued interest payable	6,569		6,569		0		0		6,569

At December 31, 2019
Carrying
Amount Level 1 Level 2 Level 3 Estimated
Fair Value
(Dollars in thousands)
Assets
Cash and cash equivalents $ 326,850 $ 326,850 $ — $ — $ 326,850
Interest-bearing time deposits with financial institutions 2,708 2,708 — — 2,708
Investments held-to-maturity 37,838 — 38,760 — 38,760
Investment securities available-for-sale 1,368,384 — 1,368,384 — 1,368,384
Loans held for sale 1,672 — 1,821 — 1,821
Loans held for investment, net 8,722,311 — — 8,691,019 8,691,019
Derivative assets 2,103 — 2,103 — 2,103
Accrued interest receivable 39,442 39,442 — — 39,442
Liabilities
Deposit accounts $ 8,898,509 $ 7,850,667 $ 1,048,583 $ — $ 8,899,250
FHLB advances 517,026 — 517,291 — 517,291
Other borrowings — — — — —
Subordinated debentures 215,145 — 237,001 — 237,001
Derivative liabilities 2,103 — 2,103 — 2,103
Accrued interest payable 2,686 2,686 — — 2,686

The Company’s valuation methodologies may produce a fair value calculation that may not be indicative 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 result in a different estimate of fair value at the reporting date.

7371

Note 12 – Derivative Instruments

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 offsetting 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 June 30, ~~2020,~~2021, the Company had over-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms with an aggregate notional amount of ~~$148.4~~$137.2 million and a fair value of ~~$17.7~~$6.7 million compared with an aggregate notional amount of ~~$76.3~~$145.2 million and a fair value of ~~$2.1~~$12.1 million at December 31, ~~2019.~~2020. The fair value of these agreements are determined through a third party valuation model used by the Company’s counterparty bank, which uses observable market data such as cash LIBOR rates, prices of Eurodollar ~~future~~futures contracts, and 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.~~statements of financial condition. Changes in the fair value of these swaps, which occur due to changes in interest rates, are recorded in the Company’s consolidated statements of income ~~statement~~ as a component of noninterest income.

Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, generally contain a greater degree of credit risk and liquidity risk than centrally-cleared contracts, which have 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 six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, 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 June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are free-standing derivatives and are not designated as hedging instruments.

The Company’s credit derivatives result from entering into credit risk participation agreements (“RPAs”) with a counterparty bank (Opus) during the first quarter of 2020 to accept a portion of the credit risk on interest rate swaps related to loans. RPAs provide credit protection to the financial institution should the borrower fail to perform on its interest rate swap derivative contract with the financial institution. The credit risk related to these credit derivatives is managed through the Company’s loan underwriting process. RPAs are derivative financial instruments not designated as hedging and are recorded at fair value. Changes in fair value are recognized as a component of noninterest income with a corresponding offset within other assets or other liabilities. As the result of the acquisition of Opus, the RPAs were terminated in the second quarter 2020.

The Company acquired two individual equity warrant assets as a result of acquisition of the Opus. Opus received equity warrant assets through its lending activities, which were accounted for 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 Company no longer has loans associated with these borrowers. Changes in fair value are recognized as a component of noninterest income with a corresponding offset within other assets. The total fair value of the warrants held in private companies was ~~$2.0~~$1.9 million in other assets as of June 30, 2021 and December 31, 2020.

The two warrants expire on March 12, 2023 and July 28, 2025, respectively.

7472

The following tables summarize the Company's derivative instruments included in other assets and other liabilities in the consolidated statements of financial condition:


		June 30, 2020															June 30, 2021
		Derivative Assets						Derivative Liabilities							Derivative Assets				Derivative Liabilities
		Notional		Fair Value		Notional		Fair Value
		(Dollars in thousands)
(Dollars in thousands)										(Dollars in thousands)	Notional		Fair Value		Notional		Fair Value
Derivative instruments not designated as hedging instruments:	Derivative instruments not designated as hedging instruments:									Derivative instruments not designated as hedging instruments:
Interest rate swaps		$	148,443	$	15,707	$	148,443	$	16,017
Interest rate swaps contracts										Interest rate swaps contracts	$	137,154	$	6,712	$	137,154	$	6,716
Equity warrants	Equity warrants	—		1,952		—		—		Equity warrants	0		1,903		0		0
Total derivative instruments	Total derivative instruments	$	148,443	$	17,659	$	148,443	$	16,017	Total derivative instruments	$	137,154	$	8,615	$	137,154	$	6,716


		December 31, 2019															December 31, 2020
		Derivative Assets						Derivative Liabilities							Derivative Assets				Derivative Liabilities
		Notional		Fair Value		Notional		Fair Value
		(Dollars in thousands)
(Dollars in thousands)										(Dollars in thousands)	Notional		Fair Value		Notional		Fair Value
Derivative instruments not designated as hedging instruments:	Derivative instruments not designated as hedging instruments:									Derivative instruments not designated as hedging instruments:
Interest rate swaps		$	76,314	$	2,103	$	76,314	$	2,103
Interest rate swaps contracts										Interest rate swaps contracts	$	145,181	$	12,053	$	145,181	$	12,066
Equity warrants										Equity warrants	0		1,914		0		0
Total derivative instruments	Total derivative instruments	$	76,314	$	2,103	$	76,314	$	2,103	Total derivative instruments	$	145,181	$	13,967	$	145,181	$	12,066

The following table summarizes the effect of the derivative financial instruments in the consolidated statements of income.


			Three Months Ended						Six Months Ended
(Dollars in thousands)											(Dollars in thousands)		Three Months Ended				Six Months Ended
Derivative Not Designated as Hedging Instruments:	Derivative Not Designated as Hedging Instruments:	Location of Gain Recognized in Income on Derivative Instruments	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		Derivative Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivative Instruments	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
			(Dollars in thousands)
Interest rate products											Interest rate products	Other income	$	1	$	0	$	8	$	0
Other contracts	Other contracts	Other income	$	(1)	$	—	$	197	$	—	Other contracts	Other income	0		(1)		0		197
Equity warrants	Equity warrants	Other income	(4)		—		(4)		—		Equity warrants	Other income	(8)		(4)		(11)		(4)
Total	Total		$	(5)	$	—	$	193	$	—	Total		$	(7)	$	(5)	$	(3)	$	193

7573

Note 13 – Balance Sheet Offsetting

Derivative financial instruments may be eligible for offset in the consolidated 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 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 the periods indicated are presented below:


								Gross Amounts Not Offset in the Consolidated Statements of Financial Condition															Gross Amounts Not Offset in the Consolidated Statements of Financial Condition
		Gross Amounts Recognized		Gross Amounts Offset in the Consolidated Statements of Financial Condition		Net Amounts Presented in the Consolidated Statements of Financial Condition		Financial Instruments ⁽¹⁾		Cash Collateral ⁽²⁾		Net Amount
		(Dollars in thousands)
June 30, 2020
(Dollars in thousands)														(Dollars in thousands)	Gross Amounts Recognized		Gross Amounts Offset in the Consolidated Statements of Financial Condition		Net Amounts Presented in the Consolidated Statements of Financial Condition		Financial Instruments (1)		Cash Collateral (2)		Net Amount
June 30, 2021														June 30, 2021
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	15,707	$	—	$	15,707	$	—	$	—	$	15,707	Interest rate swaps	$	6,712	$	0	$	6,712	$	0	$	0	$	6,712
Total	Total	$	15,707	$	—	$	15,707	$	—	$	—	$	15,707	Total	$	6,712	$	0	$	6,712	$	0	$	0	$	6,712

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	16,017	$	—	$	16,017	$	(5,500)	$	(8,963)	$	1,554	Interest rate swaps	$	6,716	$	0	$	6,716	$	(4,560)	$	(2,156)	$	0
Total	Total	$	16,017	$	—	$	16,017	$	(5,500)	$	(8,963)	$	1,554	Total	$	6,716	$	0	$	6,716	$	(4,560)	$	(2,156)	$	0


December 31, 2019
December 31, 2020														December 31, 2020
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	2,103	$	—	$	2,103	$	—	$	—	$	2,103	Interest rate swaps	$	12,053	$	0	$	12,053	$	0	$	0	$	12,053
Total	Total	$	2,103	$	—	$	2,103	$	—	$	—	$	2,103	Total	$	12,053	$	0	$	12,053	$	0	$	0	$	12,053

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	2,107	$	(4)	$	2,103	$	—	$	(1,678)	$	425	Interest rate swaps	$	12,066	$	0	$	12,066	$	(6,140)	$	(5,926)	$	0
Total	Total	$	2,107	$	(4)	$	2,103	$	—	$	(1,678)	$	425	Total	$	12,066	$	0	$	12,066	$	(6,140)	$	(5,926)	$	0

⁽¹⁾ Represents the fair value of securities pledged with counterparty bank.	⁽¹⁾ Represents the fair value of securities pledged with counterparty bank.																									(1) Represents the fair value of securities pledged with counterparty bank.
⁽²⁾ Represents cash collateral pledged with counterparty bank.	⁽²⁾ Represents cash collateral pledged with counterparty bank.																									(2) Represents cash collateral pledged with counterparty bank.

7674

Note 14 – Leases

The Company accounts for its leases in accordance with ASC 842 which ~~was implemented on January 1, 2019, and~~ requires the Company to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased asset. The Company’s leases primarily represent future obligations to make payments for the use of buildings or space for its operations. Liabilities to 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 ~~balance sheets.~~statements of financial condition. At June 30, ~~2020,~~2021, all of the Company’s leases were classified as operating leases or short-term leases.

Liabilities to make future lease payments and ~~right of use~~right-of-use assets are recorded for the Company’s operating leases and not short-term leases. These liabilities 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 believes 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 using the Company’s estimated incremental borrowing rate if the rate implicit in the lease is not readily determinable. For leases that contain variable lease payments, the Company assumes future lease payment escalations based on a lease payment escalation rate specified in the lease or the specified index rate observed at the time of lease commencement. Liabilities to make future lease payments are accounted for using the interest method, being 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 associated lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion inon the related liability to make future lease payments. Short-term leases are leases that have a term of 12 months or less at commencement. 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.~~income (loss). The following table presents the components of lease expense for the periods indicated:


		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
		(Dollars in thousands)
(Dollars in thousands)										(Dollars in thousands)	June 30, 2021		March 31, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Operating lease	Operating lease	$	3,908	$	2,785	$	7,072	$	5,524	Operating lease	$	4,887	$	5,012	3,908		$	9,899	$	7,072
Short-term lease	Short-term lease	403		627		930		1,318		Short-term lease	323		507		403		830		930
Total lease expense	Total lease expense	$	4,311	$	3,412	$	8,002	$	6,842	Total lease expense	$	5,210	$	5,519	$	4,311	$	10,729	$	8,002

The Company assumed operating leases in the acquisition of Opus on June 1, 2020. The ~~liability~~liabilities and related right-of-use ~~asset~~assets recorded for the assumption of these leases was approximately ~~$42.5~~$43.3 million and ~~$41.6~~$42.4 million, respectively. Right-of-use assets related to the Opus acquisition reflect unfavorable lease liability adjustments of approximately $900,000. Lease liabilities for leases assumed from Opus were measured based on the net present value of remaining future lease payments, with consideration given for options to extend or renew each lease. Remaining future lease payments were discounted at the Company’s estimated incremental borrowing rate on the date of acquisition.

7775

The following table presents supplemental information related to operating leases as of and for six months ended:

June 30, 2020

December 31, 2019

(Dollars in thousands)

June 30, 2021

December 31, 2020

Balance Sheet:

Operating lease right of use assets

86,188

43,177

Operating lease right of use assets

67,632

76,090

Operating lease liabilities

96,057

46,498

Operating lease liabilities

76,852

85,556

Six Months Ended

June 30, 2020

June 30, 2019

(Dollars in thousands)

June 30, 2021

June 30, 2020

Cash Flows:

Operating cash flows from operating leases

5,524

5,957

Operating cash flows from operating leases

10,208

5,524

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

2020 2021 2022 2023 2024 Thereafter Total
(Dollars in thousands)
As of June 30, 2020
Operating leases $ 11,227 $ 22,510 $ 20,550 $ 18,902 $ 16,223 $ 22,489 $ 111,901
Short-term leases 99 17 — — — — 116
Total contractual base rents ⁽¹⁾
$ 11,326 $ 22,527 $ 20,550 $ 18,902 $ 16,223 $ 22,489 $ 112,017
Total liability to make lease payments $ 96,057
Difference in undiscounted and discounted future lease payments $ 15,960
Weighted average discount rate 5.30 %
Weighted average remaining lease term (years) 5.8


(Dollars in thousands)																(Dollars in thousands)	2021		2022		2023		2024		2025				Thereafter		Total
As of June 30, 2021																As of June 30, 2021
		2020		2021		2022		2023		2024		Thereafter		Total
		(Dollars in thousands)

As of December 31, 2019
Operating leases	Operating leases	$	10,138	$	10,602	$	10,137	$	9,055	$	7,318	$	7,265	$	54,515	Operating leases	$	10,047	$	19,598	$	18,990	$	17,042	$	12,017			$	15,702	$	93,396
Short-term leases	Short-term leases	143		7		—		—		—		—		150		Short-term leases	247		7		0		0		0				0		254
Total contractual base rents ⁽¹⁾	Total contractual base rents ⁽¹⁾	$	10,281	$	10,609	$	10,137	$	9,055	$	7,318	$	7,265	$	54,665	Total contractual base rents (1)	$	10,294	$	19,605	$	18,990	$	17,042	$	12,017			$	15,702	$	93,650

Total liability to make lease payments	Total liability to make lease payments																										$	46,498		Total liability to make lease payments			$	76,852
Difference in undiscounted and discounted future lease payments	Difference in undiscounted and discounted future lease payments																										$	8,167		Difference in undiscounted and discounted future lease payments			$	16,798
Weighted average discount rate	Weighted average discount rate																										6.13		%	Weighted average discount rate			5.69		%
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)																										5.4			Weighted average remaining lease term (years)			5.4

⁽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 a straight-line basis over the term of the sublease. For the three ~~and six~~ months ended June 30, 2021, March 31, 2021, and June 30, 2020, rental income totaled ~~$66,000~~$177,000, $175,000, and ~~$91,000,~~$66,000, respectively. For the ~~three and~~ six months ended June 30, ~~2019,~~2021 and June 30, 2020, rental income totaled ~~$46,000~~$352,000 and $91,000, respectively.

Note 15 – Revenue Recognition

The Company ~~earns~~accounts for revenue from a variety of sources. The Company’s principal source of revenue is interest income on loans, investment securities and other interest earning assets, while the remainder of the Company’s revenue is earned from a variety of fees, service charges, gains and losses, and other income, all of which are classified as noninterest income.

~~On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts~~contracts with ~~Customers (Topic 606)”, and all subsequent amendments that modified~~customers under ASC 606, which requires revenue that is derived from a contract with a customer to be recognized when the Company satisfies the related performance obligations by transferring to the customer a good or service. 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 and can be canceled at any time by the customer or the Company without penalty, such as a deposit account agreement. These revenue streams are included in noninterest income.

The Company’s principal source of revenue is interest income on loans, investment securities, and other interest earning assets, all of which are not within the scope of ASC 606. The remainder of the Company’s revenue is classified as noninterest income and is earned from a variety of fees, such as custodial and other fees, service charges, gains and losses, and other income.

The following tables provide a summary of the Company’s noninterest income, segregated by revenue streams ~~including those that are~~ within and outside the scope of ASC 606 ~~and those that are accounted~~ for ~~under other applicable U.S. GAAP:~~the periods indicated:


		Three Months Ended																							Three Months Ended
		June 30, 2020						March 31, 2020								June 30, 2019					June 30, 2021				March 31, 2021		June 30, 2020
		Within Scope⁽¹⁾		Out of Scope⁽²⁾		Within Scope⁽¹⁾		Out of Scope⁽²⁾		Within Scope⁽¹⁾		Out of Scope⁽²⁾
		(Dollars in thousands)
Noninterest income:
Loan servicing fees		$	—	$	434	$	—	$	480	$	—	$	409
(Dollars in thousands)														(Dollars in thousands)	Within Scope(1)		Out of Scope(2)		Within Scope(1)		Out of Scope(2)		Within Scope(1)		Out of Scope(2)
Noninterest income														Noninterest income
Loan servicing income														Loan servicing income	$	—	$	622	$	—	$	458	$	—	$	434
Service charges on deposit accounts	Service charges on deposit accounts	1,399		—		1,715		—		1,441		—		Service charges on deposit accounts	2,222		—		2,032		—		1,399		—
Other service fee income	Other service fee income	297		—		311		—		363		—		Other service fee income	352		—		473		—		297		—
Debit card interchange income	Debit card interchange income	457		—		348		—		1,145		—		Debit card interchange income	1,099		—		787		—		457		—
Earnings on bank-owned life insurance	Earnings on bank-owned life insurance	—		1,314		—		1,336		—		851		Earnings on bank-owned life insurance	—		2,279		—		2,233		—		1,314
Net gain from sales of loans		—		(2,032)		—		771		—		902
Net gain from sales of investment securities		—		(21)		—		7,760		—		212
Trust administrative fees		2,397		—		—		—		—		—
Net gain (loss) from sales of loans														Net gain (loss) from sales of loans	—		1,546		—		361		—		(2,032)
Net gain (loss) from sales of investment securities														Net gain (loss) from sales of investment securities	—		5,085		—		4,046		—		(21)
Trust custodial account fees														Trust custodial account fees	7,897		—		7,222		—		2,397		—
Escrow and exchange fees														Escrow and exchange fees	1,672		—		1,526		—		264		—
Other income	Other income	184		2,469		217		1,537		544		457		Other income	97		3,858		282		4,320		(80)		2,469
Total noninterest income	Total noninterest income	$	4,734	$	2,164	$	2,591	$	11,884	$	3,493	$	2,831	Total noninterest income	$	13,339	$	13,390	$	12,322	$	11,418	$	4,734	$	2,164

⁽¹⁾ Revenues from contracts with customers accounted for under ASC 606.

⁽²⁾ Revenues not within the scope of ASC 606 and accounted for under other applicable ~~U.S.~~ GAAP requirements.


		Six Months Ended															Six Months Ended
		June 30, 2020						June 30, 2019							June 30, 2021				June 30, 2020
		Within Scope⁽¹⁾		Out of Scope⁽²⁾		Within Scope⁽¹⁾		Out of Scope⁽²⁾
		(Dollars in thousands)
Noninterest income:
Loan servicing fees		$	—	$	914	$	—	$	807
(Dollars in thousands)										(Dollars in thousands)	Within Scope(1)		Out of Scope(2)		Within Scope(1)		Out of Scope(2)
Noninterest income										Noninterest income
Loan servicing income										Loan servicing income	$	—	$	1,080	$	—	$	914
Service charges on deposit accounts	Service charges on deposit accounts	3,114		—		2,771		—		Service charges on deposit accounts	4,254		—		3,114		—
Other service fee income	Other service fee income	608		—		719		—		Other service fee income	825		—		608		—
Debit card interchange income	Debit card interchange income	805		—		2,216		—		Debit card interchange income	1,886		—		805		—
Earnings on bank-owned life insurance	Earnings on bank-owned life insurance	—		2,650		—		1,761		Earnings on bank-owned life insurance	—		4,512		—		2,650
Net gain from sales of loans		—		(1,261)		—		2,631
Net gain (loss) from sales of loans										Net gain (loss) from sales of loans	—		1,907		—		(1,261)
Net gain from sales of investment securities	Net gain from sales of investment securities	—		7,739		—		639		Net gain from sales of investment securities	—		9,131		—		7,739
Trust administrative fees		2,397		—		—		—
Trust custodial account fees										Trust custodial account fees	15,119		—		2,397		—
Escrow and exchange fees										Escrow and exchange fees	3,198		—		264		—
Other income	Other income	401		4,006		736		1,725		Other income	379		8,178		137		4,006
Total noninterest income	Total noninterest income	$	7,325	$	14,048	$	6,442	$	7,563	Total noninterest income	$	25,661	$	24,808	$	7,325	$	14,048

⁽¹⁾ Revenues from contracts with customers accounted for under ASC 606.

⁽²⁾ Revenues not within the scope of ASC 606 and accounted for under other applicable ~~U.S.~~ GAAP requirements.

The major revenue streams by ~~fee~~ type that are within the scope of ASC 606 presented in the tables above ~~tables~~ are described in additional detail below:

Service Charges on Deposit Accounts and Other Service Fee Income

Service charges on deposit accounts and other service fee income consists of periodic service charges on deposit accounts and transaction based fees such as those related to overdrafts, ATM charges, and wire transfer fees. The majority of these revenues are accounted for under ASC 606. Performance obligations for periodic service charges on deposit accounts are typically short-term in nature and are generally satisfied on a monthly basis, while performance obligations for other transaction based fees are typically satisfied at a point in time (which may consist of only a few moments to perform the service or transaction) with no further obligations on behalf of the Company to the customer. Periodic service charges are generally collected monthly directly from the customer’s deposit account, and at the end of a statement cycle, while transaction based service charges are typically collected at the time of or soon after the service is performed.

Debit Card Interchange Income

Debit card interchange fee income consists of transaction processing fees associated with customer debit card transactions processed through a payment network and are accounted for under ASC 606. These fees are earned each time a request for payment is originated by a customer debit cardholder at a merchant. In these transactions, the Company transfers funds from the debit cardholder’s account to a merchant through a payment network at the request of the debit cardholder by way of the debit card transaction. The related performance obligations are generally satisfied when the transfer of funds is complete, which is generally a point in time when the debit card transaction is processed. Debit card interchange fees are typically received and recorded as revenue on a daily basis.

Trust ~~Administrative~~Custodial Account Fees

~~Trust administrative~~Custodial account fees is a revenue stream acquired in the Opus acquisition and is governed by contracts executed with Pacific Premier Trust clients to perform maintenance and custodial services over their alternative IRA ~~investments. Fees~~investments as well as certain accounts that do not qualify as individual retirement accounts pursuant to the Internal Revenue Code. Typically, such fees are billed and collected on a quarterly basis and recognized commensurate with completion of the performance obligations required under the contracts. At June 30, 2021, the Company had accrued fees receivable of approximately $6.9 million, which are included in other assets in the consolidated statements of financial position. The balance of accrued fees receivable is net of approximately $382,000 of allowance for credit losses on doubtful accounts. The allowance represents the Company’s estimate of credit losses on accrued fees receivable in accordance in ASC 326. The Company recorded approximately $104,000 and $131,000 in credit loss expense associated with accrued fees receivable for the three and six month periods ended June 30, 2021, respectively. The credit loss expense for the three and six month periods ended June 30, 2020, was $64,000. Credit loss expense for fees receivable is included in other expense of the Company’s consolidated statements of income (loss).

Escrow and exchange fees

Escrow and exchange fees is a revenue stream from the Commerce Escrow division acquired in the Opus acquisition, which are related to agreements with customers participating in escrow transactions. Transactions under Section 1031 of the Internal Revenue Code generate exchange fees as well as escrow fees. These fees relate to services that include preparation of closing statements and custody of escrow funds. The fees are received from the sale proceeds of a relinquished property and are recognized as revenue upon closing of the escrow transaction, which is the final performance obligation.

Other Income

Other noninterest income includes other miscellaneous fees, which are accounted for under ASC 606; however, much like service charges on deposit accounts, these fees have performance obligations that are very short-term in nature and are typically satisfied at a point in time. Revenue is typically recorded at the time these fees are collected, which is generally upon the completion the related transaction or service provided.

Also included in other income are escrow fees from the Commerce Escrow division acquired in the Opus acquisition, which are related to agreements with customers participating in escrow transactions under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”). These fees relate to services that include preparation of closing statements and custody of escrow funds. The fees are received from the sale proceeds of a relinquished property to be exchanged under Section 1031 of the Code and are recognized as revenue upon closing of the escrow transaction, which is the final performance obligation. These fees totaled approximately $264,000 during the second quarter of 2020.

Other revenue streams that may be applicable to the Company include gains and losses from the sale of nonfinancial assets such as other real estate owned and property premises and equipment. The Company accounts for these revenue streams in accordance with ASC 610-20, which requires the Company to look to guidance in ASC 606 in the application of certain measurement and recognition concepts. The Company records gains and losses on the sale of nonfinancial assets when control of the asset has been surrendered to the buyer, which generally occurs at a specific point in time.

Practical Expedient

The Company also employs a practical expedient with respect to contract acquisition costs, which are generally capitalized and amortized into expense. These costs relate to expenses incurred directly attributable to the efforts to obtain a contract. The practical expedient allows the Company to immediately recognize contract acquisition costs in current period earnings when these costs would have been amortized over a period of one year or less.

At June 30, 2020, the Company did not have any material contract assets or liabilities in its consolidated financial statements related to revenue streams within the scope of ASC 606, and there were no material changes in those balances during the reporting period.

Note 16 – Variable Interest Entities

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

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 ~~balance sheet~~statements of financial condition and maximum loss exposures as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 that relate to variable interests in non-consolidated VIEs.


		June 30, 2020										December 31, 2019											June 30, 2021				December 31, 2020
		Maximum Loss		Assets		Liabilities		Maximum Loss		Assets		Liabilities
		(Dollars in thousands)
(Dollars in thousands)														(Dollars in thousands)	Maximum Loss		Assets		Liabilities		Maximum Loss		Assets		Liabilities
Multifamily loan securitization:	Multifamily loan securitization:													Multifamily loan securitization:
Investment securities ⁽¹⁾	Investment securities ⁽¹⁾	$	119,932	$	119,932	$	—	$	—	$	—	$	—	Investment securities (1)	$	95,857	$	95,857	$	—	$	100,927	$	100,927	$	—
Reimbursement obligation ⁽²⁾	Reimbursement obligation ⁽²⁾	50,901		—		463		—		—		—		Reimbursement obligation (2)	50,901		—		448		50,901		—		448
Affordable housing partnership:	Affordable housing partnership:													Affordable housing partnership:
Other investments ⁽³⁾	Other investments ⁽³⁾	76,072		95,562		—		32,466		53,880		—		Other investments (3)	70,436		93,225		—		71,681		89,759		—
Unfunded equity commitments ⁽²⁾	Unfunded equity commitments ⁽²⁾	—		—		19,490		—		—		21,414		Unfunded equity commitments (2)	0		—		22,789		0		—		18,078

Total	Total	$	246,905	$	215,494	$	19,953	$	32,466	$	53,880	$	21,414	Total	$	217,194	$	189,082	$	23,237	$	223,509	$	190,686	$	18,526

⁽¹⁾ Included in investment securities available-for-sale 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.

Multifamily loan securitization

With respect to the securitization transaction with Freddie Mac discussed in Note 6 - Loans Held for Investment, the Company’s variable interests reside with the purchase of the underlying Freddie Mac-issued guaranteed, structured pass-through certificates that were held as investment securities available-for-sale at fair value as of June 30, ~~2020.~~2021. 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 defaulted 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. ~~Freddie Mac, in~~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 VIE’s net assets and, therefore, the Company is not the primary beneficiary of the VIE. As a result, we determined that the VIE associated with the multifamily securitization should not be included in the consolidated financial statements of the 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 June 30, 2021 and December 31, 2020, our reserve for estimated losses with respect to the reimbursement obligation was ~~$463,000.~~$448,000.

~~Qualified~~Investments in qualified affordable housing ~~project investments~~partnerships

The Company has variable interests through its affordable housing partnership investments. These investments are fundamentally designed to provide a return through the generation of income tax credits. The Company has evaluated its involvement with the low-income housing projects and determined it does not have significant influence or decision making capabilities to manage the projects, 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 commitments invested, adjusted for amortization. The amount of unfunded 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 loss as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Trust preferred securities

The Company accounts for its investments in its wholly owned special purpose entities, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust, acquired through bank acquisitions, under the equity method whereby the subsidiary’s net earnings are recognized in the Company’s consolidated statement of income and the investment in these entities is included in other assets in the Company’s consolidated statements of financial condition. The Corporation is not allowed to consolidate the capital trusts as they have been formed for the sole purpose of issuing trust preferred securities, from which the proceeds were invested in the Company’s junior subordinated debt securities and reflected in our consolidated statements of financial condition as subordinated debentures with the corresponding interest distributions reflected as interest expense in the consolidated statements of income. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debt. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The capital securities held by the capital trust qualify as Tier 2 capital. See Note 9 - Subordinated Debentures for additional information.

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Note 17 – Subsequent Events

Quarterly ~~Cash Dividend~~cash dividend

On July ~~24, 2020,~~23, 2021, the Corporation’s Board of Directors declared a cash dividend of ~~$0.25~~$0.33 per share, payable on August ~~14, 2020~~13, 2021 to shareholders of record on August ~~7, 2020.~~6, 2021.

~~Sale~~Redemption of ~~SBA PPP loan portfolio~~subordinated notes

On July ~~21, 2020,~~1, 2021, the Company ~~entered into~~redeemed $135.0 million subordinated notes acquired from Opus and $5.2 million junior subordinated debt associated with Heritage Oaks Capital Trust II. On July 7, 2021, the Company redeemed $5.2 million junior subordinated debt associated with Santa Lucia Bancorp (CA) Capital Trust. The subordinated notes and junior subordinated debt were redeemed at par, plus accrued and unpaid interest, for an ~~agreement to sell its entire $1.13 billion SBA PPP loan portfolio to~~aggregate amount of $149.2 million. The Company recorded a ~~seasoned and experienced non-bank lender and servicer of SBA loans. The sale closed on July 28, 2020, resulting in improved balance sheet liquidity and a~~net gain on ~~sale~~early debt extinguishment of ~~approximately of $18.9 million, net of net deferred origination fees and~~$970,000 related to purchase ~~discounts.~~accounting adjustments.

Branch ~~Consolidations~~consolidations

~~Following~~On July 16, 2021, the ~~Opus acquisition, the Company notified the Federal Reserve~~ Bank ~~of San Francisco that it intends to consolidate and close 20 (20) Bank~~consolidated 2 branch offices ~~located throughout~~in San Luis Obispo County of California ~~Arizona~~into nearby branch offices with minimal disruption to clients and ~~Washington (the “Branch Consolidations”).~~daily operations. The ~~Branch Consolidations reflect~~consolidated branches were identified largely based on the ~~Company’s ongoing cost reduction initiatives~~proximity of neighboring branches, deposit base, historic growth, and ~~undertakings~~market opportunity to improve further ~~improve~~ the overall efficiency of ~~its~~ operations, as well as the Bank's goals related to Fair Lending and ~~are expected to be consummated~~the Community Reinvestment Act. After the branch consolidations, the Bank operates 63 branches in ~~October 2020.~~major metropolitan markets in California, Washington, Oregon, Arizona, and Nevada.

Transfers of investment securities available-for-sale to held-to-maturity

The Company reassessed classification of certain investments, and effective July 1, 2021, the Company transferred approximately $157.7 million of municipal bonds from available-for-sale to held-to-maturity securities. The transfer of these securities was accounted for at fair value. These securities had an unrealized loss of $3.2 million at the transfer date, which was reflected as a discount on the date of transfer. This discount, as well as the related unrealized loss in accumulated other comprehensive income, will be amortized into interest income as a yield adjustment through earnings over the remaining term of the securities. The amortization of the unrealized holding loss reported in accumulated other comprehensive income will offset the effect on interest income of the amortization of the discount. NaN gains or losses were recorded at the time of transfer.

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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 Exchange 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.

~~The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees and third party service providers, and given its~~Given 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 isremain uncertain. ~~Continued deterioration in~~Although general business and economic conditions have begun to recover, the recovery could be slowed or reversed by a number of factors, including ~~further~~increases in COVID-19 infections, increases in unemployment rates, or turbulence in domestic or global financial markets, which could adversely affect our revenues and the values of our assets and liabilities, 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~~time to time by bank regulatory agencies, the ~~U.S. Securities and Exchange Commission (“SEC”),~~SEC, the Public Company Accounting Oversight Board, 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, ~~such as our recent acquisition of Opus,~~ 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;

•The ~~expected discontinuation of the~~transition away from USD LIBOR ~~after 2021~~ and uncertainty regarding potential alternative reference rates, including SOFR;

•The effectiveness of our risk management framework and quantitative models;

8583

•Changes in the level of our nonperforming assets and charge-offs;

•Possible credit-related impairments of securities held by us;

•~~Possible impairment charges to goodwill;~~

•The impact of current and possible future governmental efforts to restructure the U.S. financial regulatory ~~system, including any amendments to 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;

•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;

•Public health crises and pandemics, including the COVID-19 pandemic, and the effects on the economic and business environments in which we operate, including our credit quality and business operations, as well as the impact on general economic and financial market conditions;

•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, which could impact business and economic conditions in the United States and abroad;

•Cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level;

•Natural disasters, earthquakes, fires, and severe weather;

•Unanticipated regulatory, legal, or judicial proceedings;

•~~Ambiguity in the rules and regulatory guidance regarding the SBA PPP loan program;~~ 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 ~~2019~~2020 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.

8684

GENERAL

This discussion should be read in conjunction with our Management Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2019~~2020 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 six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results expected for the year ending December 31, ~~2020.~~2021.

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 ~~Institutions~~Protection 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 ~~DBO,~~DFPI, the Federal Reserve, ~~and~~ the Consumer Financial Protection ~~Bureau.~~Bureau (“CFPB”), and the 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.

Our corporate headquarters are located in Irvine, California. At June 30, 2021, we primarily conduct business throughout the Western Region of the United States from 65 full-service depository branches located in Arizona, California, Nevada, Oregon, and Washington. Following the two branch consolidations in San Luis Obispo County of California completed in July 2021, the Bank operates 63 full-service depository branches. The branches consolidated were identified largely based on the proximity of neighboring branches, deposit base, historic growth, and market opportunity to improve further the overall efficiency of operations, as well as the Bank's goals related to Fair Lending and the Community Reinvestment Act.

8785

~~We provide~~As a result of our organic and strategic growth strategy we have developed a variety of banking products and services ~~including deposit accounts, digital banking, and treasury management services, throughout~~within our targeted markets in the ~~western~~Western United States ~~in major metropolitan markets in California, Washington, Oregon, Arizona,~~tailored to small- and ~~Nevada to~~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. ~~We also offer~~Through our branches and our website, www.ppbi.com, we provide a wide array of banking products and services such as: various types of deposit accounts, digital banking, treasury management services, online bill payment, and a wide array of loan products, ~~such as~~including commercial business loans, lines of credit, SBA loans, commercial real estate loans, agribusiness loans, franchise lending, home equity lines of credit, and construction ~~loans. Additionally, through our~~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 Homeowners’ Associations (“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~~as well as experienced owner-operator franchisees in the quick service restaurant (“QSR”) ~~franchise owners nationwide. With the acquisition of Opus in June 2020,~~industry. Most recently, we ~~offer~~have expanded our specialty products and services offerings to include commercial escrow services through our Commerce Escrow division, ~~that~~which facilitates commercial escrow services and tax-deferred commercial real estate exchanges under Section 1031 of the Internal Revenue Code, ~~of 1986,~~ as ~~amended, and offer clients IRA~~well as custodial and maintenance services through our Pacific Premier Trust division, ~~that~~which serves as a custodian for self-directed IRAs as well as certain accounts that do not qualify as IRAs pursuant to the ~~funds of which account owners use for self-directed investments in various alternative asset classes.~~Internal Revenue Code.

Our corporate headquarters are located in Irvine, California. At June 30, 2020, the Bank operated 86 full-service depository branches located in California, Washington, Arizona, Oregon, and Nevada. Following the planned branch Consolidations, which are expected to be consummated in October 2020, the Bank will operate 65 full-service depository branches.

Through our branches and our web site at www.ppbi.com, we offer a broad array of deposit products and services for both business and consumer customers, including checking, money market and savings accounts, cash management services, electronic banking and on-line bill payment. We also offer a variety of loan products, including commercial business loans, lines of credit, commercial real estate loans, SBA loans, residential home loans and home equity loans. The Bank funds ~~it’s~~its 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 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 depository, loan, escrow, and IRA custodial clients.

COVID-19 PANDEMIC

The COVID-19 outbreak was declared a Public Health Emergency of International Concern by the World Health Organization on January 30, 2020 and a pandemic by the World Health Organization on March 11, 2020. The ongoing COVID-19 global pandemic ~~global~~ and national health emergency has caused significant disruption in the United States and international economies and financial markets. The operations and business results of the Company have been and could continue to be materially adversely affected.

~~Correspondingly, in~~In early March 2020, the Company began preparing for potential disruptions and government limitations of activity in the markets in which we serve. We activated our Business Continuity Program and Pandemic Preparedness Plan, and were able to quickly execute on multiple initiatives to adjust our operations to protect the health and safety of our employees and clients. We expanded remote-access availability to ensure a greater number of employees have the capability to work from home or other remote locations without impacting our operations while continuing to provide a superior level of customer service. We also reconfigured our corporate headquarter offices and branches to promote social distancing for employees by erecting physical barriers, and we provided monthly rapid COVID-19 testing for all employees and their partners. In addition, the Company issued a Company-wide employee appreciation bonus related to the COVID-19 pandemic during the fourth quarter of 2020. Beginning April 2021, non-exempt employees will receive up to 4 hours of paid time off for COVID-19 vaccination appointments and exempt employees will receive flexibility for vaccination appointments.

Since the beginning of the crisis, we have been in close contact with our clients, assessing the level of impact on their businesses, and implementing a process to evaluate each client’s specific situation, and where appropriate, providing relief programs. We also enhanced client awareness of our digital banking offerings to ensure that we continue to provide a superior level of customer service. ~~The Company’s branches remain open with reduced office hours and we~~We have taken steps to comply with various government directives regarding social distancing and use of personal protective equipment in the work place, and we are following the guidance from the Centers of Disease Control (“CDC”) to protect our clients and employees.

~~During the second quarter of 2020, the~~The Company continued its efforts to monitor the ~~Bank’s~~ loan portfolio to identify potential at-risk segments and line of credit draws for deviations from normal activity, ~~increase the reserved allocated to these portfolios,~~ and support our customers affected by the COVID-19 pandemic, including but not limited to the following:

•Participated in the Small Business ~~Administration’s~~Administration (“SBA”) Paycheck Protection Program

On March 27, 2020, the CARES Act was signed into law, which authorized the SBA to guarantee $349 billion in loans under the PPP program. Loans under the PPP do not require collateral or personal guarantees and, as such, these loans are generally included within our commercial loans segment. Loans under the PPP are designed to provide assistance for small businesses during the COVID-19 pandemic to help meet the costs associated with payroll, mortgage interest, rent and utilities. These loans, carrying ~~a fixed rate of 1.00%,~~ ~~are 100% guaranteed by the SBA and forgiveness of the loan, by the SBA, is granted to the borrower if the borrower uses at least 75% of the funds to cover the cos~~t of payroll. Forgiveness is also based on the small business maintaining or quickly rehiring their employees and maintaining salary levels for their employees. As the initial funding allotted for PPP loans had been fully committed in two weeks after it was opened on April 3, 2020, the Paycheck Protection Program and Health Care Enhancement Act was signed into law on April 24, 2020, which authorized an additional $310 billion for guarantees of PPP loans. (“PPP”)

We were able to quickly establish our process for participating in the SBA PPP program that enabled our clients to utilize this valuable resource beginning in April 2020. Our team ~~has~~ executed ~~over 3,700~~ PPP loans ~~for approximately $1.12 billion~~ in the two rounds of the program, which ~~has~~ allowed us to further strengthen and deepen our client relationships, while positively impacting tens of thousands of individuals.

On In July ~~21,~~ 2020, the ~~Company entered into an agreement to sell~~Bank sold its entire ~~$1.13 billion~~ SBA PPP loan portfolio with an aggregate amortized cost of $1.13 billion to a seasoned and experienced non-bank lender and servicer of SBA ~~loans. The sale closed on July 28, 2020,~~loans, resulting in improved balance sheet liquidity and a gain on sale of approximately ~~of $18.9~~$18.9 million, net of net deferred origination fees and net purchase discounts.

•Implemented a temporary loan modification program for borrowers affected by the COVID-19 pandemic, including payment deferrals, fee waivers, and extensions of repayment terms.

In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Bank established a COVID-19 temporary modification program, including interest-only payments, or full payment deferrals for clients that are adversely affected by the COVID-19 pandemic. The CARES Act also addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not classified as TDRs. In accordance with interagency guidance issued in April 2020, these short-term modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders, including payment deferrals, fee waivers, and extensions of repayment terms, do not need to be identified as TDRs if the loans were current at the time a modification plan was implemented. AsThe CAA, signed into law on December 27, 2020, extended the applicable period to include modification to loans held by financial institutions executed between March 1, 2020 and the earlier of (i) January 1, 2022, or (ii) 60 days after the date of termination of the COVID-19 national emergency. At June 30, 2021, there was one single family residential loan for $819,000 classified as a COVID-19 modification under Section 4013 of the CARES Act. Additionally, as of June 30, 2021, there were no loans in-process for potential modification. At December 31, 2020, ~~1,461~~52 loans ~~with a total recorded balance~~totaling $79.5 million, or 0.60% of ~~$2.24 billion were modified due to COVID-19 hardship under the CARES Act, which represents 14.9% of the Company’s total~~ loans held for investment, ~~as of that date.~~remained within their COVID-19 modification period. Please also see Note 6 - Loans Held for Investment for additional information.

Additionally, the CARES Act provides for relief on existing and new SBA loans through the Small Business Debt ~~Relief.~~Relief program. As part of the SBA Small Business Debt Relief, the SBA will automatically pay principal, interest, and fees of certain SBA loans for a period of six months for both existing loans and new loans issued prior to September 27, 2020. On December 27, 2020, the CAA authorized a second round of SBA payments on covered loans approved before March 27, 2020, for a two-month period beginning with the first payment due on the loan on or after February 1, 2021, and for an additional three-month period for certain eligible borrowers. For new loans approved beginning on February 2, 2021 and ending on September 30, 2021, the SBA will make the payments for a three-month period subject to the availability of funds. At June 30, ~~2020,~~2021, approximately ~~521~~478 loans, representing approximately ~~$152.4~~$134.3 million aggregate ~~principal amount of qualifying loans,~~reported balance, are eligible for this relief. The CARES Act also provides for mortgage payment relief and a foreclosure moratorium.

The extent to which the COVID-19 pandemic impacts the Company’s business, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be accurately predicted, including the scope and duration of the COVID-19 pandemic, vaccine adoption rates and the effectiveness of vaccines against variants, and the actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic. Material adverse impacts may include all or a combination of valuation impairments on our intangible assets, investments, loans, loan servicing rights, and deferred tax assets.

~~Given~~While economic conditions have improved, the ~~fluidity of the situation, management cannot estimate the long term impact of the~~ongoing COVID-19 pandemic at this time. During the second quarter of 2020, the Company performed a qualitative assessment to determine if it is more likely than not that the estimated fair value of the Company exceeds its carrying value. The results of this analysis indicated no impairment of goodwill as of June 30, 2020. Additionally, as part of the Company’s qualitative analysis, the Company reviewed market related data as additional corroborated evidence in its assessment of whether it was more likely than not the estimated fair value of the Company exceeds its carrying value. This assessment of market related data included an initial assessment of the fair value of the Company’s equity as compared to its carrying value with the assistance from an independent third party. The assessment of market related data included factors such as: the Company’s stock price on an actual, 15-day and 30-day average basis as of June 30, 2020, and an implied 40% market participant acquisition premium, which was based upon control premiums for regional banks during the 2008 and 2009 financial crisis. This initial assessment of the fair value of the Company’s equity through observations of market related data provided additional supporting evidence as of June 30, 2020 that the carrying value of goodwill was not impaired. As of June 30, 2020, our goodwill had a balance of $901.2 million.

~~The preventative measures taken by various state and local governments, as well as the U.S. government, to stem the spread and impact of the COVID-19 pandemic, have contributed to further~~has placed strain on ~~economic conditions. Certain~~certain businesses and service providers, many of which have not been able to conduct operations in their usual ~~manner or have had to temporarily halt operations altogether. While the magnitude of the impact from~~manner. Should the COVID-19 pandemic ~~and the related preventative measures taken is uncertain and difficult to predict,~~persist, we anticipate ~~the COVID-19 pandemic to~~it may have an impact on the following:

•Loan growth and interest income - ~~Current~~Economic activity expanded moderately during the first six months of 2021, but macroeconomic conditions continue to exhibit weakness relative to conditions prior to the onset of the COVID-19 pandemic in the first quarter of 2020. Persistent weakness in economic activity ~~will likely~~may have an impact on our borrowers, the businesses they operate and their financial condition. If ~~we experience~~ a ~~protracted decline~~recovery in economic ~~activity,~~conditions fails to continue, our borrowers may have less demand for credit needed to invest in and expand their businesses and/or support their ongoing operations. Additionally, our borrowers may have less demand for real estate and consumer loans. ~~Additionally, during the first quarter of 2020,~~Further, the Federal Reserve’s Federal Open Market Committee ~~reduced~~continues to maintain the federal funds rate towithin a range of 0% to 0.25%. ~~The~~A potential ~~for a~~ reduction in future loan growth in conjunction with ~~the decline in~~lower levels of interest rates ~~will~~would place pressure on the level of and yield on earnings assets, which may negatively impact our interest income.

•Credit quality - 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, 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 would result in increases in the level of past due, nonaccrual, and classified loans, as well as higher net charge-offs. ~~Deterioration~~While certain economic metrics have improved since the onset of the COVID-19 pandemic in the first quarter of 2020, there can be no assurance the improvement in economic conditions will continue. As such, future deterioration in credit quality in conjunction with ~~weakness in current and expected~~weakened economic conditions, may require us to record additional provisions for credit losses.

•CECL - On January 1, 2020, the Company adopted ASC 326, which requires the Company to measure credit losses on certain financial assets, such as loans and debt securities, using the CECL model. The CECL model for measuring credit losses is highly dependent upon expectations of future economic conditions and requires ~~a considerable amount of~~management judgment. Should a recovery in economic conditions fail to continue and the expectations concerning future economic conditions ~~continue to~~ deteriorate, the Company may be required to record additional provisions for credit ~~losses.~~losses under the CECL model.

•Impairment charges - ~~Prolonged deterioration~~Should a recovery in economic conditions ~~will likely~~fail to continue, it may 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. In addition, during the first quarter of 2021, the President signed into law the American Rescue Plan Act of 2021 (“American Rescue Plan”), which provides approximately $1.9 trillion in various forms of economic stimulus and aid to individuals and state and local governments that have been affected by the ongoing COVID-19 pandemic. However, the impact and overall effectiveness of these actions is difficult to determine at this time.

9188

ACQUISITION OF OPUS

The Corporation issued 34,407,403 shares of the Corporation’s common stock valued at $21.62 per share, which was the closing price of the Corporation’s common stock on May 29, 2020, the last trading day prior to the consummation of the acquisition, and paid cash in lieu of fractional shares. The Corporation assumed Opus’s warrants and options, which ~~represent~~represented the issuance of up to approximately 406,778 and 9,538 additional shares of the Corporation’s common stock, valued at approximately $1.8 million and $46,000, respectively, and issued substitute restricted stock units in an aggregate amount of $328,000. The value of the total transaction consideration paid amounted to approximately $749.6 million. The Opus warrants assumed by the Corporation expired unexercised as of September 30, 2020 and no longer remain outstanding. The Opus options assumed by the Corporation were fully exercised during the third quarter of 2020.

As a result of the Opus acquisition, the Company acquired Opus and recorded net assets of ~~$656.8~~$656.6 million. The ~~estimated~~final fair value of assets acquired and ~~liability~~liabilities assumed primarily ~~consists~~consist of the ~~followings:~~following:

•$5.81 billion of ~~loans;~~loans

•$937.1 million of cash and cash equivalents

•$829.9 million of investment securities

•$~~92.8~~93.0 million of goodwill

•$16.1 million of core deposit intangible

•$3.2 million of customer relationship intangible

•$6.92 billion of deposits

The fair values of the assets acquired and liabilities assumed were determined based on the requirements of ~~FASB~~ ASC ~~Topic 820:~~ 820 - Fair Value ~~Measurements and Disclosures.~~Measurement. Such fair values are preliminary estimates at the time of acquisition 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.

~~The integration~~ Since the acquisition, the Company has made a net adjustment of $146,000 related to loans, deferred tax assets, other assets, and ~~system conversion~~other liabilities. During the second quarter of ~~Opus is scheduled to occur in~~2021, the ~~first week~~Company finalized its fair values analysis of ~~October 2020.~~

the acquired assets and assumed liabilities associated with this acquisition. For additional information about the acquisition of Opus, please see Note 4 - ~~Acquisitions~~ Acquisitions.

~~of these financial statements.~~

9289

The client account integration and system conversion of Opus was completed in October 2020. At the same time, as a result of the Opus acquisition, the Bank consolidated 20 branch offices primarily in California, Washington, and Arizona into nearby branch offices. The consolidated branches were identified largely based on the proximity of neighboring branches, historic growth, and market opportunity to improve further the overall efficiency of operations in line with the Bank's ongoing cost reduction initiatives.

CRITICAL ACCOUNTING POLICIES

Management has established various accounting policies that govern the application of ~~U.S.~~ GAAP in the preparation of our financial statements. Certain accounting policies require management to make estimates and assumptions that 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 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 as well as the Company’s results of operations in future reporting periods. Our significant accounting policies are described in the Notes to the ~~Consolidated Financial Statements in our 2019 Form 10-K.~~

~~On January 1, 2020, the Company adopted the provisions of ASC 326 -~~ ~~Financial Instruments - Measurement of Credit Losses on Financial Instruments~~. The adoption of ASC 326 changes the way the Company estimates the allowance for credit losses on certain financial assets. The adoption of ASC 326 requires the Company to measure and record current expected credit losses for financial assets within the scope of ASC 326, which for the Company, currently consist substantially of loans, unfunded loan commitments and investment securities. Measuring credit losses under the CECL framework requires a significant amount of judgment, including the incorporation of reasonable and supportable forecasts about future conditions that may ultimately impact the level of credit losses the Company may recognize. Under the CECL framework, current expected credit losses, or lifetime losses, are recorded on financial assets within the scope of ASC 326 at the time of their origination or acquisition. The Company has provided a summary of its policy for the accounting for credit losses below. Please also see ~~Note 2 - Recently Issued Accounting Pronouncements~~ ~~as well as~~ ~~Note 3 - Significant Accounting Policies, of the~~ consolidated financial statements ~~for addition discussion on the adoption of ASC 326, as well as the Company’s policy for accounting for credit losses.~~

~~The following provides a summary of the Company’s policy for the accounting for the allowance for credit losses under ASC 326:~~in our 2020 Form 10-K.

Allowance for Credit Losses

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 current expected future 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 and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. The use of reasonable and supportable forecasts require 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 the forecast metrics. The Company’s ACL model reverts to long-term average loss rates for purposes of estimating expected cash flows beyond a period deemed reasonable and supportable. The Company forecasts economic conditions and expected credit losses over a two-year time horizon before reverting to long-term average loss ~~rates.~~rates over a period of three years. The duration of the forecast horizon, the period over which forecasts revert to 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 probability of default and loss given default, 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 represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows. 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 Company’s policy to promptly charge-off loan balances at the time they have been deemed ~~uncollectable.~~uncollectible. Please also see Note 7 - Allowance for Credit Losses, of the consolidated financial statements for additional discussion concerning the Company’s ACL methodology, including discussion concerning economic forecasts used in the determination of the ~~ACL and the estimated impact of COVID-19 on current expectations of economic conditions.~~ACL.

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 themselves, provide a sufficient basis for determining future expected credit ~~losses;~~losses, the Company 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 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 may extend beyond the Company’s control.

~~Various~~ Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and ~~loan review~~credit risk grading process. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Upon obtaining control of the 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 entity exceeds the estimated fair value of the net assets acquired. Changes to the acquisition date fair values of assets acquired and liabilities assumed may be made as adjustments to goodwill over a 12-month measurement period following the date of acquisition. Such adjustments are attributable to additional information obtained related to fair value estimates of the assets acquired and liabilities assumed. Certain costs associated with business combinations are expensed as incurred.

Goodwill

Goodwill assets arise from the acquisition method of accounting for business combinations and represent the excess value of the consideration paid over the fair value of the net assets acquired. Goodwill assets are deemed to have indefinite lives, are not subject to amortization and instead are tested for impairment at least annually. The Company’s policy is to assess goodwill for impairment in the fourth quarter of each year or more frequently if events or circumstances lead management to believe the value of goodwill may be impaired. Impairment testing is performed at the reporting unit level, which is considered the Corporation level as management has identified the Corporation as its sole reporting unit as of the date of the consolidated statements of financial condition. Management’s assessment of goodwill is performed in accordance with ASC 350-20 - 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 fair 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 as the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to the reporting unit. Impairment losses are recorded as a charge to noninterest expense.

The Company is required to employ the use of significant judgment in its assessment of goodwill, both in a qualitative assessment and a quantitative assessment, if needed. Assessments of goodwill often require the use of fair value estimates, which are dependent upon various factors including estimates concerning the Company’s long term growth prospects. Imprecision in estimates can affect the estimated fair value of the reporting unit in a goodwill assessment. Additionally, various events or circumstances could have a negative effect on the estimated fair value of a reporting unit, including declines in business performance, increases in credit losses, as well as deterioration in economic or market conditions, which may result in a material impairment charge to earnings in future periods.

Acquired Loans

~~Loans acquired~~When the Company acquires loans through purchase or a business combination ~~are recorded at their fair value at the acquisition date. The Company performs~~ an assessment ~~of acquired loans~~is first performed to ~~first~~ 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 loans. For~~PCD loans ~~that have not experienced more than insignificant deterioration in credit quality since origination, referred to~~or otherwise classified as non-PCD loans. All acquired loans ~~the Company records such loans~~are recorded at their fair value as of the date of acquisition, with any resulting discount or premium accreted or amortized into interest income over the remaining life of the loan 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 provision for credit losses in the period in which the loans were purchased or acquired.

Acquired loans that are classified as PCD are acquired at fair value, which includes any resulting premiums or discounts. Premiums and discounts are amortized or accreted into interest income over the remaining life of the loan using the interest method. 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 provision for credit losses in the period in which the loans were acquired. The ACL for PCD loans is determined with the use of the Company’s ACL ~~methodology, and is recorded as an adjustment to the acquired loan balance on the date of acquisition.~~methodology. Characteristics of PCD loans include: delinquency, downgrade in credit quality since origination, loans on nonaccrual status, loans that had been modified, 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 determined with the use of the Company’s ACL methodology in the same manner as all other loans.

In connection with the Opus acquisition on June 1, 2020, the Company acquired PCD loans with an aggregate fair value of approximately $841.2 million, and recorded a net ACL of approximately $21.2 million, which was added to the amortized cost of the loans.

~~Subsequent to acquisition, the ACL for both non-PCD and PCD loans are determined with the use~~

Fair Value of ~~the Company’s ACL methodology in the same manner as all other loans.~~Financial Instruments

~~Goodwill~~

~~Goodwill assets arise from the acquisition method of accounting for business combinations and represent the excess value of the consideration paid over the~~We use fair value ~~of the net assets acquired. Goodwill~~measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Investment securities available-for-sale, derivative instruments, and equity warrant assets are ~~deemed~~financial instruments recorded at fair value on a recurring basis. Additionally, from time to have indefinite lives, are not subject to amortization and instead are tested for impairment at least annually. The Company’s policy is to assess goodwill for impairment in the fourth quarter of each year or more frequently if events or circumstances lead management to believe the value of goodwilltime, we may be ~~impaired. Impairment testing is performed~~required to record other financial assets at fair value on a non-recurring basis, such as collateral dependent loans that are individually evaluated and OREO. These non-recurring fair value adjustments typically involve the ~~reporting unit level, which is considered the Company level as management has identified the Company as its sole reporting unit as~~application of ~~the date~~lower of cost or fair value accounting or write-downs of individual assets. Please also see Note 11 -Fair Value of Financial Instruments of the consolidated ~~balance sheets. Management’s assessment~~financial statements for more information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used, and its impact to earnings, as well as the estimated fair value disclosures for financial instruments not recorded at fair value.

Income Taxes

Deferred tax assets and liabilities are recorded for the expected future tax consequences of ~~goodwill first consists~~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 effect on deferred taxes of a ~~qualitative assessment~~change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are to ~~determine~~be recognized for temporary differences that will result in deductible amounts in future years and for tax carryforwards if, in the opinion of management, it is more likely than not that the fair value of the Company’s equity is below its carrying value. Should the results of this analysis indicate it is likely the fair value of the Company’s equity is below its carrying value, the Company performs a 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 compare the implied fair value of the reporting unit goodwill to its carrying value to determine the amount of impairment to recognize. Impairment losses are recorded as a charge to noninterest expense.deferred tax assets will be realized.

The Company is required to employ the use of significant judgment in its assessment of goodwill, both in a qualitative assessment and a quantitative assessment, if needed. Assessments of goodwill often require the use of fair value estimates which are dependent upon various factors including estimates concerning the Company’s long term growth prospects. Imprecision in estimates can affect the estimated fair value of the reporting unit in a goodwill assessment. Additionally, various events or circumstances could have a negative effect on the estimated fair value of a reporting unit, including declines in business performance, increases in credit losses, as well as deterioration in economic or market conditions, which may result in a material impairment charge to earnings in future periods.

Certain accounting policies require management to make estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities; 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 assets and liabilities at balance sheet dates and our results of operations for future reporting periods.

9593

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 measure derived from GAAP-based amounts. We calculate this figure by excluding ~~CDI~~ amortization of intangible assets expense from net income and excluding the average ~~CDI~~intangible assets and average goodwill from the average stockholders’ equity during the period. 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.

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2020 2020 2019 2020 2019
(Dollars in thousands)
Net income $ (99,091) $ 25,740 $ 38,527 $ (73,351) $ 77,245
Plus: CDI amortization expense 4,040 3,965 4,281 8,005 8,717
Less: CDI amortization expense tax adjustment ⁽¹⁾
1,159 1,137 1,240 2,296 2,528
Net income for average tangible common equity $ (96,210) $ 28,568 $ 41,568 $ (67,642) $ 83,434
Average stockholders’ equity $ 2,231,722 $ 2,037,126 $ 1,999,986 $ 2,134,424 $ 1,995,946
Less: average CDI 84,148 81,744 94,460 82,946 96,710
Less: average goodwill 838,725 808,322 808,778 823,524 808,752
Average tangible common equity $ 1,308,849 $ 1,147,060 $ 1,096,748 $ 1,227,954 $ 1,090,484
Return on average equity ⁽²⁾
(17.76) % 5.05 % 7.71 % (6.87) % 7.74 %
Return on average tangible common equity ⁽²⁾
(29.40) % 9.96 % 15.16 % (11.02) % 15.30 %


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net income (loss)	$	96,302		$	68,668		$	(99,091)		$	164,970		$	(73,351)
Plus: amortization of intangible assets expense	4,001			4,143			4,066			8,144			8,029
Less: amortization of intangible assets expense tax adjustment (1)	1,145			1,185			1,166			2,330			2,303
Net income (loss) for average tangible common equity	$	99,158		$	71,626		$	(96,191)		$	170,784		$	(67,625)

Average stockholders’ equity	$	2,747,308		$	2,749,641		$	2,231,722		$	2,748,468		$	2,134,424
Less: average intangible assets	79,784			83,946			84,148			81,853			82,946
Less: average goodwill	900,582			898,587			838,725			899,590			823,524
Average tangible common equity	$	1,766,942		$	1,767,108		$	1,308,849		$	1,767,025		$	1,227,954

Return on average equity (2)	14.02		%	9.99		%	(17.76)		%	12.00		%	(6.87)		%
Return on average tangible common equity (2)	22.45		%	16.21		%	(29.40)		%	19.33		%	(11.01)		%

⁽¹⁾ ~~CDI amortization~~Amortization of intangible assets expense adjusted by statutory tax rate.

⁽²⁾ Ratio is annualized.

9694

Tangible book value per share and tangible common equity to tangible assets (the “tangible common equity ratio”) are non-GAAP financial measures derived 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 dividing by period end tangible assets, which also ~~exclude~~excludes 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.


		June 30,			December 31,				June 30,			December 31,
(Dollars in thousands)								(Dollars in thousands)	2021			2020
Total stockholders’ equity								Total stockholders’ equity	$	2,813,419		$	2,746,649
Less: intangible assets								Less: intangible assets	978,675			984,076
Tangible common equity								Tangible common equity	$	1,834,744		$	1,762,573
		2020			2019
Total assets								Total assets	$	20,529,486		$	19,736,544
Less: intangible assets								Less: intangible assets	978,675			984,076
Tangible assets								Tangible assets	$	19,550,811		$	18,752,468
		(Dollars in thousands)
Total stockholders’ equity		$	2,654,647		$	2,012,594
Less: Intangible assets		995,716			891,634
Tangible common equity		$	1,658,931		$	1,120,960
Tangible common equity ratio								Tangible common equity ratio	9.38		%	9.40		%

Common shares issued and outstanding								Common shares issued and outstanding	94,656,575			94,483,136

Book value per share	Book value per share	$	28.14		$	33.82		Book value per share	$	29.72		$	29.07
Less: intangible book value per share	Less: intangible book value per share	10.55			14.98			Less: intangible book value per share	10.34			10.42
Tangible book value per share	Tangible book value per share	$	17.58		$	18.84		Tangible book value per share	$	19.38		$	18.65

Total assets		$	20,517,074		$	11,776,012
Less: Intangible assets		995,716			891,634
Tangible assets		$	19,521,358		$	10,884,378

Tangible common equity ratio		8.50		%	10.30		%

9795

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-than-temporary impairment recovery/(loss)~~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 understanding of the operating results of our core business.

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2020 2020 2019 2020 2019
(Dollars in thousands)
Total noninterest expense $ 115,970 $ 66,631 $ 63,936 $ 182,601 $ 127,513
Less: CDI amortization 4,040 3,965 4,281 8,005 8,717
Less: merger-related expense 39,346 1,724 5 41,070 660
Less: other real estate owned operations, net 9 14 62 23 65
Noninterest expense, adjusted $ 72,575 $ 60,928 $ 59,588 $ 133,503 $ 118,071
Net interest income before provision for loan losses $ 130,292 $ 109,175 $ 110,641 $ 239,467 $ 222,047
Add: total noninterest income 6,898 14,475 6,324 21,373 14,005
Less: net gain (loss) from investment securities (21) 7,760 212 7,739 639
Less: net gain (loss) from other real estate owned (55) — 72 (55) 72
Revenue, adjusted $ 137,266 $ 115,890 $ 116,681 $ 253,156 $ 235,341
Efficiency ratio 52.9 % 52.6 % 51.1 % 52.7 % 50.2 %
`


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Total noninterest expense	$	94,496		$	92,489		$	115,970		$	186,985		$	182,601
Less: amortization of intangible assets	4,001			4,143			4,066			8,144			8,029
Less: merger-related expense	—			5			39,346			5			41,070
Less: other real estate owned operations, net	—			—			9			—			23
Noninterest expense, adjusted	$	90,495		$	88,341		$	72,549		$	178,836		$	133,479

Net interest income before provision for loan losses	$	160,934		$	161,652		$	130,292		$	322,586		$	239,467
Add: total noninterest income	26,729			23,740			6,898			50,469			21,373
Less: net gain (loss) from investment securities	5,085			4,046			(21)			9,131			7,739
Less: other income - security recoveries	6			2			—			8			—
Less: net loss from other real estate owned	—			—			(55)			—			(55)
Less: net loss from debt extinguishment	(647)			(503)			—			(1,150)			—

Revenue, adjusted	$	183,219		$	181,847		$	137,266		$	365,066		$	253,156

Efficiency ratio	49.4		%	48.6		%	52.9		%	49.0		%	52.7		%

Core net interest income and core net interest margin are non-GAAP financial measures derived from ~~GAAP-based~~GAAP based amounts. We calculate core net interest income by excluding scheduled accretion income, accelerated accretion income, premium amortization on CDs, and nonrecurring nonaccrual interest paid 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 ~~this~~these financial ~~measure~~measures provides useful information to gain an understanding of the operating results of our core business.

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2020 2020 2019 2020 2019
(Dollars in thousands)
Net interest income $ 130,292 $ 109,175 $ 110,641 $ 239,467 $ 222,047
Less: scheduled accretion income 3,501 1,793 2,387 5,294 4,960
Less: accelerated accretion income 2,347 2,312 2,563 4,659 3,795
Less: premium amortization on CDs 1,054 63 124 1,117 325
Less: nonrecurring nonaccrual interest paid (142) — 104 (142) 265
Core net interest income $ 123,532 $ 105,007 $ 105,463 $ 228,539 $ 212,702
Average interest-earning assets $ 13,831,914 $ 10,363,570 $ 10,363,988 $ 12,097,742 $ 10,351,687
Net interest margin ⁽¹⁾
3.79 % 4.24 % 4.28 % 3.98 % 4.33 %
Core net interest margin ⁽¹⁾
3.59 % 4.08 % 4.08 % 3.80 % 4.14 %


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net interest income	$	160,934		$	161,652		$	130,292		$	322,586		$	239,467
Less: scheduled accretion income	3,560			3,878			3,501			7,438			5,294
Less: accelerated accretion income	5,927			5,988			2,347			11,915			4,659
Less: premium amortization on CDs	942			1,751			1,054			2,693			1,117
Less: nonrecurring nonaccrual interest paid	(216)			(603)			(142)			(819)			(142)
Core net interest income	$	150,721		$	150,638		$	123,532		$	301,359		$	228,539
Less: interest income on SBA PPP loans	—			—			5,382			—			5,382
Core net interest income excluding SBA PPP loans	$	150,721		$	150,638		$	118,150		$	301,359		$	223,157

Average interest-earning assets	$	18,783,803		$	18,490,426		$	13,831,914		$	18,637,924		$	12,097,742
Less: average SBA PPP loans	—			—			830,090			—			206,388
Average interest-earning assets excluding SBA PPP loans	$	18,783,803		$	18,490,426		$	13,001,824		$	18,637,924		$	11,891,354

Net interest margin (1)	3.44		%	3.55		%	3.79		%	3.49		%	3.98		%
Core net interest margin (1)	3.22		%	3.30		%	3.59		%	3.26		%	3.80		%
Core net interest margin excluding SBA PPP loans (1)	3.22		%	3.30		%	3.65		%	3.26		%	3.77		%

⁽¹⁾ 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~~merger-related expenses from ~~the~~ net income. Management believes that the exclusion of such items from this financial ~~measures~~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																Six Months Ended										Three Months Ended						Six Months Ended
		June 30,			March 31,			June 30,			June 30,			June 30,					June 30,			March 31,			June 30,			June 30,			June 30,
		2020			2020			2019			2020			2019
		(Dollars in thousands)
(Dollars in thousands)																	(Dollars in thousands)		2021			2021			2020			2021			2020
Interest income	Interest income	$	144,122		$	123,789		$	132,414		$	267,911		$	263,657		Interest income		$	170,692		$	172,994		$	144,122		$	343,686		$	267,911
Interest expense	Interest expense	13,830			14,614			21,773			28,444			41,610			Interest expense		9,758			11,342			13,830			21,100			28,444
Net interest income	Net interest income	130,292			109,175			110,641			239,467			222,047			Net interest income		160,934			161,652			130,292			322,586			239,467
Noninterest income	Noninterest income	6,898			14,475			6,324			21,373			14,005			Noninterest income		26,729			23,740			6,898			50,469			21,373
Revenue	Revenue	137,190			123,650			116,965			260,840			236,052			Revenue		187,663			185,392			137,190			373,055			260,840
Noninterest expense	Noninterest expense	115,970			66,631			63,936			182,601			127,513			Noninterest expense		94,496			92,489			115,970			186,985			182,601
Add: merger-related expense	Add: merger-related expense	39,346			1,724			5			41,070			660			Add: merger-related expense		—			5			39,346			5			41,070
Pre-provision net revenue	Pre-provision net revenue	$	60,566		$	58,743		$	53,034		$	119,309		$	109,199		Pre-provision net revenue		93,167			92,908			60,566			186,075			119,309
Pre-provision net revenue (annualized)	Pre-provision net revenue (annualized)	$	242,264		$	234,972		$	212,136		$	238,618		$	218,398		Pre-provision net revenue (annualized)		$	372,668		$	371,632		$	242,264		$	372,150		$	238,618

Average assets	Average assets	$	15,175,310		$	11,591,336		$	11,585,973		$	13,383,324		11,574,813			Average assets		$	20,290,415		$	19,994,260		$	15,175,310		$	20,143,156		$	13,383,324

Pre-provision net revenue on average assets	Pre-provision net revenue on average assets	0.40		%	0.51		%	0.46		%	0.89		%	0.94		%	Pre-provision net revenue on average assets		0.46		%	0.46		%	0.40		%	0.92		%	0.89		%
Pre-provision net revenue on average assets (annualized)	Pre-provision net revenue on average assets (annualized)	1.60		%	2.03		%	1.83		%	1.78		%	1.89		%	Pre-provision net revenue on average assets (annualized)		1.84		%	1.86		%	1.60		%	1.85		%	1.78		%

~~100~~98

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																Six Months Ended										Three Months Ended						Six Months Ended
		June 30,			March 31,			June 30,			June 30,
		2020			2020			2019			2020			2019
		(Dollar in thousands, except per share data and percentages)
Operating Data
(Dollar in thousands, except per share data and																	(Dollar in thousands, except per share data and		June 30,			March 31,			June 30,			June 30,			June 30,
percentages)																	percentages)		2021			2021			2020			2021			2020
Operating data																	Operating data
Interest income	Interest income	$	144,122		$	123,789		$	132,414		$	267,911		$	263,657		Interest income		$	170,692		$	172,994		$	144,122		$	343,686		$	267,911
Interest expense	Interest expense	13,830			14,614			21,773			28,444			41,610			Interest expense		9,758			11,342			13,830			21,100			28,444
Net interest income	Net interest income	130,292			109,175			110,641			239,467			222,047			Net interest income		160,934			161,652			130,292			322,586			239,467
Provision for credit losses	Provision for credit losses	160,635			25,454			334			186,089			1,860			Provision for credit losses		(38,476)			1,974			160,635			(36,502)			186,089
Net interest (loss) income after provision for credit losses		(30,343)			83,721			110,307			53,378			220,187
Net (loss) gains from loan sales		(2,032)			771			902			(1,261)			2,631
Net interest income (loss) after provision for credit losses																	Net interest income (loss) after provision for credit losses		199,410			159,678			(30,343)			359,088			53,378
Net gain (loss) from sales of loans																	Net gain (loss) from sales of loans		1,546			361			(2,032)			1,907			(1,261)
Other noninterest income	Other noninterest income	8,930			13,704			5,422			22,634			11,374			Other noninterest income		25,183			23,379			8,930			48,562			22,634
Noninterest expense	Noninterest expense	115,970			66,631			63,936			182,601			127,513			Noninterest expense		94,496			92,489			115,970			186,985			182,601
Net (loss) income before income taxes		(139,415)			31,565			52,695			(107,850)			106,679
Income tax (benefit) expense		(40,324)			5,825			14,168			(34,499)			29,434
Net (loss) income		$	(99,091)		$	25,740		$	38,527		$	(73,351)		$	77,245
Net income (loss) before income taxes																	Net income (loss) before income taxes		131,643			90,929			(139,415)			222,572			(107,850)
Income tax expense (benefit)																	Income tax expense (benefit)		35,341			22,261			(40,324)			57,602			(34,499)
Net income (loss)																	Net income (loss)		$	96,302		$	68,668		$	(99,091)		$	164,970		$	(73,351)
Pre-provision net revenue ⁽³⁾	Pre-provision net revenue ⁽³⁾	$	60,566		$	58,743		$	53,034		$	119,309		$	109,199		Pre-provision net revenue (3)		$	93,167		$	92,908		$	60,566		$	186,075		$	119,309
Share Data
Net income (loss) per share:
Share data																	Share data
Earnings (loss) per share:																	Earnings (loss) per share:
Basic	Basic	$	(1.41)		$	0.43		$	0.62		$	(1.14)		$	1.24		Basic		$	1.02		$	0.73		$	(1.41)		$	1.74		$	(1.14)
Diluted	Diluted	(1.41)			0.43			0.62			(1.14)			1.23			Diluted		1.01			0.72			(1.41)			1.73			(1.14)
Dividends declared per share		0.25			0.25			0.22			0.50			0.44
Common equity dividends declared per share																	Common equity dividends declared per share		0.33			0.30			0.25			0.63			0.50
Dividend payout ratio ⁽¹⁾	Dividend payout ratio ⁽¹⁾	(17.73)		%	57.83		%	35.42		%	(43.90)		%	35.48		%	Dividend payout ratio (1)		32.43		%	41.26		%	(17.73)		%	36.10		%	(43.90)		%
Performance Ratios
Performance ratios																	Performance ratios
Return on average assets ⁽²⁾	Return on average assets ⁽²⁾	(2.61)		%	0.89		%	1.33		%	(1.10)		%	1.33		%	Return on average assets (2)		1.90		%	1.37		%	(2.61)		%	1.64		%	(1.10)		%
Return on average equity ⁽²⁾	Return on average equity ⁽²⁾	(17.76)			5.05			7.71			(6.87)			7.74			Return on average equity (2)		14.02			9.99			(17.76)			12.00			(6.87)
Return on average tangible common equity ⁽²⁾⁽³⁾	Return on average tangible common equity ⁽²⁾⁽³⁾	(29.40)			9.96			15.16			(11.02)			15.30			Return on average tangible common equity (2)(3)		22.45			16.21			(29.40)			19.33			(11.01)

Pre-provision net revenue on average assets ⁽²⁾⁽³⁾	Pre-provision net revenue on average assets ⁽²⁾⁽³⁾	1.60			2.03			1.83			1.78			1.89			Pre-provision net revenue on average assets (2)(3)		1.84			1.86			1.60			1.85			1.78
Average equity to average assets	Average equity to average assets	14.71			17.57			17.26			15.95			17.24			Average equity to average assets		13.54			13.75			14.71			13.64			15.95
Efficiency ratio ⁽⁴⁾		52.9			52.6			51.1			52.7			50.2
Efficiency ratio (3)																	Efficiency ratio (3)		49.4			48.6			52.9			49.0			52.7

⁽¹⁾ Dividend payout ratio is defined as common equity dividends declared per share divided by basic earnings per share.

⁽²⁾ Ratio is annualized.

⁽³⁾ A reconciliation of the ~~non-U.S. GAAP~~non-GAAP measures ~~of return on average tangible common equity, pre-provision net revenue and pre-provision net revenue on average assets~~ 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.

⁽⁴⁾ 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 credit losses and total noninterest income, less gains/(loss) on sale of securities, other-than-temporary impairment recovery/(loss) on investment securities, and gain/(loss) from other real estate owned and gain/(loss) from debt extinguishment.

~~101~~99

The Company completed the acquisition of Opus effective June 1, 2020. The Company's financial statements for the second quarter of 2020 include 30 days of Opus's operations, post-merger, which impacts the comparability of the current quarter's results to prior periods.

In the second quarter of ~~2020,~~2021, we reported net ~~loss~~income of ~~$99.1~~$96.3 million, or ~~$(1.41)~~$1.01 per diluted share. This compares with net income of ~~$25.7~~$68.7 million, or ~~$0.43~~$0.72 per diluted share, for the first quarter of ~~2020.~~2021. The ~~decrease is~~increase in net income was primarily due to ~~a $135.2 million increase in~~recapture of provision for credit losses of $38.5 million and a ~~$37.6~~$3.0 million increase ~~in merger-related expenses, a $11.7 million increase in noninterest expense excluding merger-related expenses, and a$7.6 million decrease~~ in noninterest income, partially offset by ~~a decrease~~an increase of $13.1 million in income tax expense, an increase of ~~$46.1~~$2.0 million in noninterest expense, and a ~~$21.1 million increase~~decrease of $718,000 in net interest income. The provision recapture during the second quarter of 2021 was primarily attributable to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio.

Net ~~loss~~income of ~~$99.1~~$96.3 million, or ~~$(1.41)~~$1.01 per diluted share, for the second quarter of ~~2020~~2021 compares to a net ~~income~~loss for the second quarter of ~~2019~~2020 of ~~$38.5~~$99.1 million, or ~~$0.62~~$(1.41) per diluted share. The ~~decrease~~increase in net income ~~of $137.6 million during the second quarter of 2020 compared to the second quarter of 2019~~ was primarily due to a ~~$160.3~~$199.1 million ~~increase~~decrease in provision for credit losses, a ~~$39.3~~$30.6 million increase in net interest income, a $39.3 million decrease in merger-related ~~expenses,~~expense, and a ~~$12.7~~$19.8 million increase in noninterest income, partially offset by an increase of $75.7 million in income tax expense and $17.9 million increase in noninterest expense excluding merger-related ~~expenses, partially offset by a $54.5~~expenses. The provision decrease during the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The provision expense in the second quarter of 2020 reflected unfavorable changes in economic forecasts related to the onset of the COVID-19 pandemic and the Day 1 provision for credit losses of $84.4 million ~~decrease in income tax expense, a $19.7 million increase~~resulting from the acquisition of Opus. The year-over-year increases in net ~~interest~~ income ~~and a $574,000 increase~~reflect the impact of the acquisition of Opus in ~~noninterest income.~~the second quarter of 2020.

For the three months ended June 30, 2021, the Company’s return on average assets was 1.90%, return on average equity was 14.02%, and return on average tangible common equity was 22.45%. For the three months ended March 31, 2021, the return on average assets was 1.37%, the return on average equity was 9.99%, and the return on average tangible common equity was 16.21%. For the three months ended June 30, 2020, the ~~Company’s~~ return on average assets was (2.61)% ~~and return on average tangible common equity was (29.40)%. For the three months ended March 31, 2020,~~, the return on average ~~assets~~equity was ~~0.89%~~(17.76)%, and the return on average tangible common equity was ~~9.96%. For the three months ended June 30, 2019, the return on average assets was 1.33% and the return on average tangible common equity was 15.16%~~(29.40)%.

For the six months ended June 30, ~~2020,~~2021, the Company recorded net income of $165.0 million, or $1.73 per diluted share. This compares with net loss of $73.4 million, or $(1.14) ~~per diluted share. This compares with net income of $77.2 million or $1.23~~ per diluted share, for the six months ended June 30, ~~2019.~~2020. The ~~decrease~~increase in net income of ~~$150.6~~$238.3 million was ~~mostly~~primarily due to ~~the $184.2~~a $222.6 million ~~increase~~decrease in provision for credit losses, ~~a $40.4~~an $83.1 million increase in net interest income, a $29.1 million increase in noninterest income, and a $41.1 million decrease in merger-related expenses, partially offset by a $92.1 million increase in income tax expense and ~~a $14.7~~$45.4 million increase in noninterest expense excluding merger-related ~~expenses, partially offset by a $63.9 million~~expenses. The decrease in ~~income tax~~provision for credit losses was attributable to higher provision expense ~~a $17.4~~from the Company’s adoption of ASC 326 effective January 1, 2020, the acquisition of Opus, and unfavorable economic forecasts used in the Company’s ACL model driven by the COVID-19 pandemic, as well as the $38.5 million ~~increase~~recapture of provision for credit losses during the second quarter of 2021, primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The year-over-year increases in net ~~interest~~ income ~~and a $7.4 million increase~~reflect the impact of the acquisition of Opus in ~~noninterest income.~~the second quarter of 2020.

For the six months ended June 30, ~~2020,~~2021, the Company’s return on average assets was ~~(1.10)%~~1.64%, return on average equity was 12.00%, and return on average tangible common equity was ~~(11.02)%~~19.33%, compared with a return on average assets of ~~1.33%~~(1.10)%, return on average equity of (6.87)%, and a return on average tangible common equity of ~~15.30%~~(11.01)% for the six months ended June 30, ~~2019.~~2020.

100

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 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-earning assets. Net interest income is affected by changes in both interest rates and the volume of interest-earning assets and interest-bearing liabilities.

~~102~~

Net interest income totaled ~~$130.3~~$160.9 million in the second quarter of ~~2020, an increase~~2021, a decrease of ~~$21.1 million,~~$718,000, or ~~19.3%~~0.4%, from the first quarter of ~~2020.~~2021. The ~~increase~~decrease in net interest income reflected ~~higher~~lower average ~~interest-earning assets~~loan yields and fees, partially offset by one more day of ~~$2.60 billion, primarily related to the acquisition of Opus, which added $5.81 billion of loans after purchase accounting adjustments, higher accretion income,~~interest and a lower cost of funds driven by a lower ~~cost of~~rates paid on deposits, ~~and an increase in noninterest-bearing deposits, all of which was partially offset by~~ lower average ~~loan~~balances of retail and ~~investment yields.~~brokered certificates of deposit, and lower average borrowings.

The net interest margin for the second quarter of ~~2020~~2021 was ~~3.79%~~3.44%, compared with ~~4.24%~~3.55% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income of ~~$5.8~~$9.5 million, compared to ~~$4.1~~$9.9 million in the prior quarter, certificates of deposit mark-to-market amortization, and ~~one-time~~other adjustments, decreased 488 basis points to ~~3.59%~~3.22%, compared to ~~4.08%~~3.30% in the prior ~~quarter, primarily attributable to~~quarter. The decrease was driven by lower average loan yields and ~~investment yields,~~fees, partially offset by a lower cost of deposits. The lower loan yields were driven primarily by the addition of the Opus loan portfolio, the origination and retention of the SBA PPP loans, which have a coupon rate of 1%, as well as the impact of loan repricing as a result of the Federal Reserve Board's federal funds rate decrease in March 2020. The lower cost of funds was driven principally by lower rates paid on deposits and increased noninterest-bearing deposits, partially offset by the higher rates paid on Opus's deposits.funds.

Net interest income for the second quarter of ~~2020~~2021 increased ~~$19.7~~$30.6 million, or ~~17.8%~~23.5%, compared to the second quarter of ~~2019.~~2020. The increase was attributable to an increase in average interest-earning assets of ~~$3.47~~$4.95 billion, which primarily resulted from the acquisition of Opus in the second quarter of 2020, as well as ~~organic loan growth, including SBA PPP loans,~~higher investment securities balances compared with the second quarter of 2020, and a lower cost of funds, partially offset by lower average loan and investment ~~yields.~~yields, and a higher average balance of deposits.

For the first six months ended ~~2020,~~2021, net interest income increased ~~$17~~$83.1 million, or 8%34.7%, compared to the first six months ended ~~2019.~~2020. The increase was related to an increase in average interest-earning assets of ~~$1.7~~$6.5 billion, which resulted primarily from our ~~acquisitions~~acquisition of Opus on June 1, 2020, and a lower cost of funds, partially offset by lower average loan and investment yields.

~~103~~101

The following table presents the interest spread, net interest margin, average balances calculated based on daily average, interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities, and the average yield/rate by asset and liability component for the periods indicated:


		Average Balance Sheet																																				Average Balance Sheet
		Three Months Ended																																				Three Months Ended
		June 30, 2020										March 31, 2020											June 30, 2019											June 30, 2021						March 31, 2021		June 30, 2020
		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
(Dollars in thousands)																				(Dollars in thousands)	Average Balance			Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets	Assets	(Dollars in thousands)																																			Assets
Interest-earning assets:	Interest-earning assets:																			Interest-earning assets:
Cash and cash equivalents	Cash and cash equivalents	$	796,761	$	215	0.11	%	$	215,746	$	216	0.40	%	$	187,963	$	435	0.93	%	Cash and cash equivalents	$	1,323,186		$	315	0.10	%	$	1,309,366	$	301	0.09	%	$	796,761	$	215	0.11	%
Investment securities	Investment securities	1,792,432		10,568		2.36		1,502,572		10,308		2.74		1,396,585		10,119		2.90		Investment securities	4,243,644			18,012		1.70		4,087,451		17,468		1.71		1,792,432		10,568		2.36
Loans receivable, net ⁽¹⁾⁽²⁾	Loans receivable, net ⁽¹⁾⁽²⁾	11,242,721		133,339		4.77		8,645,252		113,265		5.27		8,779,440		121,860		5.57		Loans receivable, net (1)(2)	13,216,973			152,365		4.62		13,093,609		155,225		4.81		11,242,721		133,339		4.77
Total interest-earning assets	Total interest-earning assets	13,831,914		144,122		4.19		10,363,570		123,789		4.80		10,363,988		132,414		5.12		Total interest-earning assets	18,783,803			170,692		3.64		18,490,426		172,994		3.79		13,831,914		144,122		4.19
Noninterest-earning assets	Noninterest-earning assets	1,343,396						1,227,766						1,221,985						Noninterest-earning assets	1,506,612							1,503,834						1,343,396
Total assets	Total assets	$	15,175,310					$	11,591,336					$	11,585,973					Total assets	$	20,290,415						$	19,994,260					$	15,175,310
Liabilities and equity	Liabilities and equity																			Liabilities and equity
Interest-bearing deposits:	Interest-bearing deposits:																			Interest-bearing deposits:
Interest checking	Interest checking	$	1,417,846	$	844	0.24		$	576,203	$	609	0.43		$	543,473	$	535	0.39		Interest checking	$	3,155,935		$	336	0.04	%	$	3,060,055	$	419	0.06	%	$	1,417,846	$	844	0.24	%
Money market	Money market	4,242,990		5,680		0.54		3,161,867		6,071		0.77		2,978,065		7,305		0.98		Money market	5,558,790			2,002		0.14		5,447,909		2,588		0.19		4,242,990		5,680		0.54
Savings	Savings	283,632		101		0.14		238,848		97		0.16		242,483		92		0.15		Savings	384,376			84		0.09		368,288		82		0.09		283,632		101		0.14
Retail certificates of deposit	Retail certificates of deposit	1,148,874		2,251		0.79		936,489		3,464		1.49		1,025,404		4,610		1.80		Retail certificates of deposit	1,294,544			839		0.26		1,425,093		1,201		0.34		1,148,874		2,251		0.79
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	224,333		779		1.40		43,432		246		2.28		555,963		3,449		2.49		Wholesale/brokered certificates of deposit	1,357			4		1.18		118,854		136		0.46		224,333		779		1.40
Total interest-bearing deposits	Total interest-bearing deposits	7,317,675		9,655		0.53		4,956,839		10,487		0.85		5,345,388		15,991		1.20		Total interest-bearing deposits	10,395,002			3,265		0.13		10,420,199		4,426		0.17		7,317,675		9,655		0.53
FHLB advances and other borrowings	FHLB advances and other borrowings	143,813		217		0.61		337,551		1,081		1.29		491,706		3,083		2.51		FHLB advances and other borrowings	6,303			—		—		22,012		65		1.20		143,813		217		0.61
Subordinated debentures	Subordinated debentures	287,368		3,958		5.51		215,190		3,046		5.66		183,639		2,699		5.88		Subordinated debentures	480,415			6,493		5.41		501,553		6,851		5.46		287,368		3,958		5.51
Total borrowings	Total borrowings	431,181		4,175		3.89		552,741		4,127		3.00		675,345		5,782		3.43		Total borrowings	486,718			6,493		5.35		523,565		6,916		5.36		431,181		4,175		3.89
Total interest-bearing liabilities	Total interest-bearing liabilities	7,748,856		13,830		0.72		5,509,580		14,614		1.07		6,020,733		21,773		1.45		Total interest-bearing liabilities	10,881,720			9,758		0.36		10,943,764		11,342		0.42		7,748,856		13,830		0.72
Noninterest-bearing deposits	Noninterest-bearing deposits	4,970,812						3,898,399						3,426,508						Noninterest-bearing deposits	6,341,063							6,034,319						4,970,812
Other liabilities	Other liabilities	223,920						146,231						138,746						Other liabilities	320,324							266,536						223,920
Total liabilities	Total liabilities	12,943,588						9,554,210						9,585,987						Total liabilities	17,543,107							17,244,619						12,943,588
Stockholders’ equity	Stockholders’ equity	2,231,722						2,037,126						1,999,986						Stockholders’ equity	2,747,308							2,749,641						2,231,722
Total liabilities and equity	Total liabilities and equity	$	15,175,310					$	11,591,336					$	11,585,973					Total liabilities and equity	$	20,290,415						$	19,994,260					$	15,175,310
Net interest income	Net interest income			$	130,292					$	109,175					$	110,641			Net interest income				$	160,934					$	161,652					$	130,292

Net interest margin ⁽³⁾	Net interest margin ⁽³⁾					3.79	%					4.24	%					4.28	%	Net interest margin (3)						3.44	%					3.55	%					3.79	%
Cost of deposits	Cost of deposits					0.32						0.48						0.73		Cost of deposits						0.08						0.11						0.32
Cost of funds ⁽⁴⁾	Cost of funds ⁽⁴⁾					0.44						0.62						0.92		Cost of funds (4)						0.23						0.27						0.44
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities									178.50						188.10							172.14		Ratio of interest-earning assets to interest-bearing liabilities					172.62						168.96					178.50

⁽¹⁾ Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

⁽²⁾ Interest income includes net discount accretion of ~~$5.8~~$9.5 million, ~~$4.1~~$9.9 million, and ~~$5.0~~$5.8 million, respectively.

⁽³⁾ Represents annualized net interest income divided by average interest-earning assets.

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

~~104~~

102


															Average Balance Sheet
		Average Balance Sheet																								Six Months Ended
		Six Months Ended																								June 30, 2021		June 30, 2020
		June 30, 2020										June 30, 2019
		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
(Dollars in thousands)														(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest			Average Yield/Cost
Assets	Assets	(Dollars in thousands)																							Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Cash and cash equivalents	Cash and cash equivalents	$	506,253	$	431	0.17	%	$	180,827	$	813	0.91	%	Cash and cash equivalents	$	1,316,314	$	616	0.09	%	$	506,253	$	431		0.17	%
Investment securities	Investment securities	1,647,502		20,876		2.53	%	1,347,802		19,508		2.89	%	Investment securities	4,165,979		35,480		1.70	%	1,647,502		20,876			2.53	%
Loans receivable, net ⁽¹⁾⁽²⁾	Loans receivable, net ⁽¹⁾⁽²⁾	9,943,987		246,604		4.99	%	8,823,058		243,336		5.56	%	Loans receivable, net (1)(2)	13,155,631		307,590		4.71	%	9,943,987		246,604			4.99	%
Total interest-earning assets	Total interest-earning assets	12,097,742		267,911		4.45	%	10,351,687		263,657		5.14	%	Total interest-earning assets	18,637,924		343,686		3.72	%	12,097,742		267,911			4.45	%
Noninterest-earning assets	Noninterest-earning assets	1,285,582						1,223,126						Noninterest-earning assets	1,505,232						1,285,582
Total assets	Total assets	$	13,383,324					$	11,574,813					Total assets	$	20,143,156					$	13,383,324
Liabilities and Equity
Liabilities and equity														Liabilities and equity
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Interest checking	Interest checking	$	997,025	$	1,453	0.29	%	$	539,815	$	1,009	0.38	%	Interest checking	$	3,108,260	$	755	0.05	%	$	997,025	$	1,453		0.29	%
Money market	Money market	3,702,429		11,751		0.64	%	2,945,622		13,839		0.95	%	Money market	5,503,656		4,590		0.17	%	3,702,429		11,751			0.64	%
Savings	Savings	261,239		198		0.15	%	246,032		178		0.15	%	Savings	376,376		166		0.09	%	261,239		198			0.15	%
Retail certificates of deposit	Retail certificates of deposit	1,042,681		5,715		1.10	%	1,013,441		8,668		1.72	%	Retail certificates of deposit	1,359,458		2,040		0.30	%	1,042,681		5,715			1.10	%
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	133,882		1,025		1.54	%	465,396		5,581		2.42	%	Wholesale/brokered certificates of deposit	59,781		140		0.47	%	133,882		1,025			1.54	%
Total interest-bearing deposits	Total interest-bearing deposits	6,137,256		20,142		0.66	%	5,210,306		29,275		1.13	%	Total interest-bearing deposits	10,407,531		7,691		0.15	%	6,137,256		20,142			0.66	%
FHLB advances and other borrowings	FHLB advances and other borrowings	240,682		1,298		1.08	%	630,248		7,885		2.52	%	FHLB advances and other borrowings	14,115		65		0.93	%	240,682		1,298			1.08	%
Subordinated debentures	Subordinated debentures	251,279		7,004		5.57	%	147,193		4,450		6.05	%	Subordinated debentures	490,925		13,344		5.44	%	251,279		7,004			5.57	%
Total borrowings	Total borrowings	491,961		8,302		3.39	%	777,441		12,335		3.20	%	Total borrowings	505,040		13,409		5.35	%	491,961		8,302			3.39	%
Total interest-bearing liabilities	Total interest-bearing liabilities	6,629,217		28,444		0.86	%	5,987,747		41,610		1.40	%	Total interest-bearing liabilities	10,912,571		21,100		0.39	%	6,629,217		28,444			0.86	%
Noninterest-bearing deposits	Noninterest-bearing deposits	4,434,605						3,453,500						Noninterest-bearing deposits	6,188,539						4,434,605
Other liabilities	Other liabilities	185,078						137,620						Other liabilities	293,578						185,078
Total liabilities	Total liabilities	11,248,900						9,578,867						Total liabilities	17,394,688						11,248,900
Stockholders’ equity	Stockholders’ equity	2,134,424						1,995,946						Stockholders’ equity	2,748,468						2,134,424
Total liabilities and equity	Total liabilities and equity	$	13,383,324					$	11,574,813					Total liabilities and equity	$	20,143,156					$	13,383,324
Net interest income	Net interest income			$	239,467					$	222,047			Net interest income			$	322,586					$	239,467

Net interest margin ⁽³⁾	Net interest margin ⁽³⁾					3.98	%					4.33	%	Net interest margin (3)					3.49	%						3.98	%
Cost of deposits														Cost of deposits					0.09	%						0.38	%
Cost of funds⁽⁴⁾	Cost of funds⁽⁴⁾					0.52	%					0.89	%	Cost of funds (4)					0.25	%						0.52	%
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities					182.49	%					172.88	%	Ratio of interest-earning assets to interest-bearing liabilities					170.79	%						182.49	%

_____________________________

⁽¹⁾ Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

⁽²⁾ Interest income includes net discount accretion of ~~$10.0~~$19.4 million and ~~$8.8~~$10.0 million, respectively.

⁽³⁾ Represents net interest income divided by average interest-earning assets.

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

~~105~~103

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 tables 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; no changes in days for comparisons of the three months ended June 30, ~~2020~~2021 to ~~the three months ended March 31, 2020 and~~ the three months ended June 30, ~~2019)~~2020);

•Changes in interest rates (changes in interest rates multiplied by prior 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 June 30, 2020 Compared to Three Months Ended March 31, 2019 Increase (Decrease) Due to											Three Months Ended June 30, 2021 Compared to Three Months Ended March 31, 2021 Increase (Decrease) Due to
		Volume		Rate		Net
		(Dollars in thousands)
(Dollars in thousands)								(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets	Interest-earning assets							Interest-earning assets
Cash and cash equivalents	Cash and cash equivalents	$	(2)	$	1	$	(1)	Cash and cash equivalents	$	1	$	3	$	10	$	14
Investment securities	Investment securities	922		(662)		260		Investment securities	642		—		(98)		544
Loans receivable, net	Loans receivable, net	29,344		(9,270)		20,074		Loans receivable, net	1,420		1,674		(5,954)		(2,860)
Total interest-earning assets	Total interest-earning assets	30,264		(9,931)		20,333		Total interest-earning assets	2,063		1,677		(6,042)		(2,302)
Interest-bearing liabilities	Interest-bearing liabilities							Interest-bearing liabilities
Interest checking	Interest checking	338		(103)		235		Interest checking	9		4		(96)		(83)
Money market	Money market	(3,095)		2,704		(391)		Money market	52		22		(660)		(586)
Savings	Savings	12		(8)		4		Savings	1		1		—		2
Retail certificates of deposit	Retail certificates of deposit	1,131		(2,344)		(1,213)		Retail certificates of deposit	(104)		9		(267)		(362)
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	588		(55)		533		Wholesale/brokered certificates of deposit	(135)		—		3		(132)
FHLB advances and other borrowings	FHLB advances and other borrowings	(450)		(414)		(864)		FHLB advances and other borrowings	(27)		—		(38)		(65)
Subordinated debentures	Subordinated debentures	990		(78)		912		Subordinated debentures	(294)		—		(64)		(358)
Total interest-bearing liabilities	Total interest-bearing liabilities	(486)		(298)		(784)		Total interest-bearing liabilities	(498)		36		(1,122)		(1,584)
Change in net interest income	Change in net interest income	$	30,750	$	(9,633)	$	21,117	Change in net interest income	$	2,561	$	1,641	$	(4,920)	$	(718)

~~106~~104


		Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 Increase (Decrease) due to									Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Increase (Decrease) Due to
		Volume		Rate		Net
		(Dollars in thousands)
(Dollars in thousands)								(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets	Interest-earning assets							Interest-earning assets
Cash and cash equivalents	Cash and cash equivalents	$	(298)	$	78	$	(220)	Cash and cash equivalents	$	116	$	(16)	$	100
Investment securities	Investment securities	1,305		(856)		449		Investment securities	9,346		(1,902)		7,444
Loans receivable, net	Loans receivable, net	23,512		(12,033)		11,479		Loans receivable, net	23,175		(4,149)		19,026
Total interest-earning assets	Total interest-earning assets	24,519		(12,811)		11,708		Total interest-earning assets	32,637		(6,067)		26,570
Interest-bearing liabilities	Interest-bearing liabilities							Interest-bearing liabilities
Interest checking	Interest checking	407		(98)		309		Interest checking	1,040		(1,548)		(508)
Money market	Money market	28,492		(30,117)		(1,625)		Money market	2,648		(6,326)		(3,678)
Savings	Savings	15		(6)		9		Savings	3,131		(3,148)		(17)
Retail certificates of deposit	Retail certificates of deposit	643		(3,002)		(2,359)		Retail certificates of deposit	329		(1,741)		(1,412)
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	(1,537)		(1,133)		(2,670)		Wholesale/brokered certificates of deposit	(670)		(105)		(775)
FHLB advances and other borrowings	FHLB advances and other borrowings	(1,390)		(1,476)		(2,866)		FHLB advances and other borrowings	(106)		(111)		(217)
Subordinated debentures	Subordinated debentures	1,417		(158)		1,259		Subordinated debentures	2,605		(70)		2,535
Total interest-bearing liabilities	Total interest-bearing liabilities	28,047		(35,990)		(7,943)		Total interest-bearing liabilities	8,977		(13,049)		(4,072)
Change in net interest income	Change in net interest income	$	(3,528)	$	23,179	$	19,651	Change in net interest income	$	23,660	$	6,982	$	30,642


		Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 Increase (Decrease) due to															Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Increase (Decrease) due to
		Volume		Days		Rate		Net
		(Dollars in thousands)
(Dollars in thousands)										(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets	Interest-earning assets									Interest-earning assets
Cash and cash equivalents	Cash and cash equivalents	$	(696)	$	2	$	312	$	(382)	Cash and cash equivalents	$	266	$	(3)	$	(78)	$	185
Investment securities	Investment securities	3,112		—		(1,744)		1,368		Investment securities	18,628		—		(4,024)		14,604
Loans receivable, net	Loans receivable, net	9,911		1,355		(7,998)		3,268		Loans receivable, net	75,866		(1,699)		(13,181)		60,986
Total interest-earning assets	Total interest-earning assets	$	12,327	$	1,357	$	(9,430)	$	4,254	Total interest-earning assets	$	94,760	$	(1,702)	$	(17,283)	$	75,775
Interest-bearing liabilities	Interest-bearing liabilities									Interest-bearing liabilities
Interest checking	Interest checking	$	605	$	8	$	(169)	$	444	Interest checking	$	3,036	$	(4)	$	(3,730)	$	(698)
Money market	Money market	7,970		65		(10,123)		(2,088)		Money market	13,996		(25)		(21,132)		(7,161)
Savings	Savings	19		1		—		20		Savings	86		(1)		(117)		(32)
Retail certificates of deposit	Retail certificates of deposit	260		31		(3,244)		(2,953)		Retail certificates of deposit	2,632		(11)		(6,296)		(3,675)
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	(3,023)		6		(1,539)		(4,556)		Wholesale/brokered certificates of deposit	(394)		(1)		(490)		(885)
FHLB advances and other borrowings	FHLB advances and other borrowings	(3,425)		7		(3,169)		(6,587)		FHLB advances and other borrowings	(1,075)		—		(158)		(1,233)
Subordinated debentures	Subordinated debentures	3,012		—		(458)		2,554		Subordinated debentures	6,565		—		(225)		6,340
Total interest-bearing liabilities	Total interest-bearing liabilities	$	5,418	$	118	$	(18,702)	$	(13,166)	Total interest-bearing liabilities	$	24,846	$	(42)	$	(32,148)	$	(7,344)
Change in net interest income	Change in net interest income	$	6,909	$	1,239	$	9,272	$	17,420	Change in net interest income	$	69,914	$	(1,660)	$	14,865	$	83,119

~~107~~105

Provision for Credit Losses

~~Provision~~For the second quarter of 2021, the Bank recorded a $38.5 million provision recapture, a decrease of $40.5 million from the $2.0 million provision expense recognized during the first quarter of 2021, and a decrease of $199.1 million from the $160.6 million provision expense recognized during the second quarter of 2020. The decrease from the first quarter of 2021 was comprised of a $33.1 million provision recapture for ~~credit~~loan losses and a $5.3 million provision recapture for unfunded commitments. The decrease during the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The provision expense in the second quarter of 2020 was $160.6 million, an increase of $135.2 million from the first quarter of 2020 and an increase of $160.3 million from the second quarter of 2019. The increases, which included a $150.3 million provision for loan losses and a $10.4 million provision for unfunded commitments, was primarily driven byreflected unfavorable changes in economic forecasts ~~employed in~~related to the ~~Bank's CECL model and~~onset of the Day 1 provision for loan losses of $75.9 million and the provision for unfunded commitments of $8.6 million resulting from the acquisition of Opus. The Opus acquisition Day 1 provision of credit losses does not include $21.2 million of reserves established for the PCD loans.

Three Months Ended
June 30, March 31, June 30,
2020 2020 2019
Provision for Credit Losses (Dollars in thousands)
Provision for loan losses $ 150,257 $ 25,382 $ 742
Provision for unfunded commitments 10,378 72 (408)
Total provision for credit losses $ 160,635 $ 25,454 $ 334

For the first six months of 2020, we recorded a $186.1 million provision for credit losses, an increase from $1.9 million recorded for the first six months of 2019. The increase, which included a $175.6 million provision for loan losses and a $10.5 million provision for unfunded commitments, was primarily driven by unfavorable changes in economic forecasts employed in the Bank's CECL model andCOVID-19 pandemic, the Day 1 provision for loan losses of $75.9 million, and the provision for unfunded commitments of $8.6 million resulting from the acquisition of Opus.

Six Months Ended
June 30, June 30,
2020 2019
Provision for Credit Losses (Dollars in thousands)
Provision for loans and lease losses $ 175,639 $ 2,754
Provision for unfunded commitments 10,450 (894)
Total provision for credit losses $ 186,089 $ 1,860


	Three Months Ended
	June 30,		March 31,		June 30,
(Dollars in thousands)	2021		2021		2020
Provision for credit losses
Provision for loan losses	$	(33,131)	$	315	$	150,257
Provision for unfunded commitments	(5,345)		1,659		10,378

Total provision for credit losses	$	(38,476)	$	1,974	$	160,635

For the first six months of 2021, we recorded a $36.5 million provision recapture, a decrease from the $186.1 million provision expense recorded for the first six months of 2020. The decrease, which included a $32.8 million provision recapture for loan losses and a $3.7 million provision recapture for unfunded commitments, was primarily due to improved economic conditions and forecasts used in the Bank’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The provision expense for the first six months of 2020 was driven by unfavorable changes in economic forecasts employed in the Company’s CECL model, the Day 1 provision for loan losses of $75.9 million, and the provision for unfunded commitments of $8.6 million resulting from the acquisition of Opus.


	Six Months Ended
	June 30,		June 30,
(Dollars in thousands)	2021		2020
Provision for credit losses
Provision for loans and lease losses	$	(32,816)	$	175,639
Provision for unfunded commitments	(3,686)		10,450

Total provision for credit losses	$	(36,502)	$	186,089

~~108~~106

Noninterest Income

The following table presents the components of noninterest income for the periods indicated:


		Three Months Ended											Six Months Ended							Three Months Ended					Six Months Ended
		June 30,		March 31,		June 30,		June 30,								June 30,		March 31,		June 30,		June 30,		June 30,
		2020		2020		2019		2020		2019
Noninterest Income		(Dollars in thousands)
Loan servicing fees		$	434	$	480	$	409	$	914	$	807
(Dollars in thousands)												(Dollars in thousands)		2021		2021		2020		2021		2020
Noninterest income												Noninterest income
Loan servicing income												Loan servicing income		$	622	$	458	$	434	$	1,080	$	914
Service charges on deposit accounts	Service charges on deposit accounts	1,399		1,715		1,441		3,114		2,771		Service charges on deposit accounts		2,222		2,032		1,399		4,254		3,114
Other service fee income	Other service fee income	297		311		363		608		719		Other service fee income		352		473		297		825		608
Debit card interchange fee income	Debit card interchange fee income	457		348		1,145		805		2,216		Debit card interchange fee income		1,099		787		457		1,886		805
Earnings on bank-owned life insurance	Earnings on bank-owned life insurance	1,314		1,336		851		2,650		1,761		Earnings on bank-owned life insurance		2,279		2,233		1,314		4,512		2,650
Net (loss) gain from sales of loans		(2,032)		771		902		(1,261)		2,631
Net (loss) gain from sales of investment securities		(21)		7,760		212		7,739		639
Net gain (loss) from sales of loans												Net gain (loss) from sales of loans		1,546		361		(2,032)		1,907		(1,261)
Net gain (loss) from sales of investment securities												Net gain (loss) from sales of investment securities		5,085		4,046		(21)		9,131		7,739

Trust administrative fees		2,397		—		—		2,397		—
Trust custodial account fees												Trust custodial account fees		7,897		7,222		2,397		15,119		2,397
Escrow and exchange fees												Escrow and exchange fees		1,672		1,526		264		3,198		264
Other income	Other income	2,653		1,754		1,001		4,407		2,461		Other income		3,955		4,602		2,389		8,557		4,143
Total noninterest income	Total noninterest income	$	6,898	$	14,475	$	6,324	$	21,373	$	14,005	Total noninterest income		$	26,729	$	23,740	$	6,898	$	50,469	$	21,373

Noninterest income for the second quarter of ~~2020~~2021 was ~~$6.9~~$26.7 million, ~~a decrease~~an increase of ~~$7.6~~$3.0 million ~~or 52.3%,~~ from the first quarter of ~~2020.~~2021. The ~~decrease~~increase was primarily due to a ~~$7.8~~$1.2 million ~~decrease~~increase in net gain from loan sales, a $1.0 million increase in net gain from sales of investment securities, and a ~~$2.8~~$675,000 increase in trust custodial account fees, partially offset by a $647,000 decrease in other income. The decrease in other income was primarily due to $1.8 million lower SBA PPP loan referral fees, a $239,000 decrease in unused commitment fees, and a $144,000 increase in loss on debt extinguishment, partially offset by a $1.7 million increase in equity investment income.

During the second quarter of 2021, the Bank sold $14.7 million of SBA loans for a net gain of $1.5 million, compared to the sales of $1.3 million of SBA loans for a net gain of $69,000 and fully charged-off loans for a net gain of $292,000 during the first quarter of 2021.

Additionally, during the second quarter of 2021, the Bank sold $280.2 million of investment securities for a net gain of $5.1 million, compared to the sales of $175.3 million of investment securities for a net gain of $4.0 million in the first quarter of 2021.

Noninterest income for the second quarter of 2021 increased $19.8 million, or 287.5%, compared to the second quarter of 2020. The increase was primarily due to a $5.5 million increase in trust custodial account fees and a $1.4 million increase in escrow and exchange fees following the Opus acquisition, a $5.1 million increase in net gain from sales of investment securities, a $3.6 million increase in net gain from the sales of loans, ~~partially offset by $2.4 million of trust administrative fees from Pacific Premier Trust, the IRA custodian trust company division of the Bank acquired with the Opus Bank acquisition,~~ and a ~~$899,000~~$1.6 million increase in other income, primarily due to ~~$658,000 of recoveries from previously charged-off Opus loans.~~a $1.9 million increase in equity investment income and a $527,000 increase in SBA PPP loan referral fees, partially offset by a $647,000 loss on debt extinguishment.

~~During~~The net gain from sales of loans for the second quarter of ~~2020,~~2021 increased from the ~~Bank sold~~same period last year primarily due to the sales of $14.7 million of SBA loans for a net gain of $1.5 million, compared with the sales of $15.4 million of other loans for a net loss of $2.0 million compared with sales of $15.9 million of SBA and U.S. Department of Agriculture (“USDA”) loans for a net gain of $1.2 million and $23.0 million of other loans for a net loss of $404,000 during the prior quarter.

Noninterest income for the second quarter of 2020 increased $574,000, or 9.1%, compared to the second quarter of 2019. The increase was primarily related to $2.4 million of trust administrative fees, a $1.7 million increase in other income and a $463,000 increase in earnings on bank owned life insurance (“BOLI”) primarily due to the addition of BOLI from Opus, partially offset by a $2.9 million decrease in net gain from the sales of loans and a $688,000 decrease in debit card interchange fee income, primarily the result of the Bank becoming a non-exempt institution, effective July 1, 2019, under the Durbin Amendment that regulates debit card interchange fee income due to the Bank exceeding $10 billion in total assets.

The decrease in net gain from sales of loans for the second quarter of 2020 compared to the same period last year was primarily due to the recognition of a $2.0 million loss on the sales of other loans in the second quarter of 2020 compared with a loss of $1.3 million in the second quarter of 2019, and lower net gain from sales of SBA and USDA loans in the second quarter of 2020 compared to the second quarter of 2019. The Bank sold $24.4 million of SBA loans for a net gain of $2.2 million during the second quarter of ~~2019.~~2020.

~~109~~107

For the first six months of ~~2020,~~2021, noninterest income totaled ~~$21.4~~$50.5 million, an increase from ~~$14.0~~$21.4 million for the first six months of ~~2019.~~2020. The increase was primarily related to ~~higher net gain from sales of investment securities of $7.1~~a $12.7 million ~~$2.4~~increase in trust custodial account fees and a $2.9 million ~~of trust administrative fees from Pacific Premier Trust, the IRA custodian trust company division of the Bank acquired with~~increase in escrow and exchange fee income following the Opus ~~Bank~~ acquisition, ~~and $1.9~~a $3.2 million ~~higher other income, due to $658,000 of recoveries from previously charged-off Opus loans, $631,000~~ increase in Community Reinvestment Act (“CRA”) related equity investments and $448,000 of swap fee income, as well as an $889,000 increase in earnings from BOLI attributable to the addition of BOLI from Opus. These increases were offset by $3.9 million decrease in net gain from the sales of loans, ~~and~~a $1.9 million increase in earnings from bank-owned life insurance (“BOLI”), a $1.4 million ~~decrease~~increase in net gain from sales of investment securities, a $1.1 million increase in service charges on deposit accounts, and a $1.1 million increase in debit card interchange fee income. In addition, other income increased $4.4 million primarily ~~the result~~due to $2.8 million of ~~the Bank becoming~~SBA PPP loan referral fees and a ~~non-exempt institution.~~$2.7 million increase in equity investment income, partially offset by $1.2 million loss on debt extinguishment.

~~110~~108

~~Noninterest Expense~~Income Taxes

Deferred tax assets and liabilities are recorded for the expected future tax consequences of 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 effect on deferred taxes of a change in tax rates is recognized in income in the period 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 for tax carryforwards if, in the opinion of management, it is more likely than not that the deferred tax assets will be realized.

NON-GAAP MEASURES

For periods presented below, return on average tangible common equity is a non-GAAP financial measure derived from GAAP-based amounts. We calculate this figure by excluding amortization of intangible assets expense from net income and excluding the average intangible assets and average goodwill from the average stockholders’ equity during the period. 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.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net income (loss)	$	96,302		$	68,668		$	(99,091)		$	164,970		$	(73,351)
Plus: amortization of intangible assets expense	4,001			4,143			4,066			8,144			8,029
Less: amortization of intangible assets expense tax adjustment (1)	1,145			1,185			1,166			2,330			2,303
Net income (loss) for average tangible common equity	$	99,158		$	71,626		$	(96,191)		$	170,784		$	(67,625)

Average stockholders’ equity	$	2,747,308		$	2,749,641		$	2,231,722		$	2,748,468		$	2,134,424
Less: average intangible assets	79,784			83,946			84,148			81,853			82,946
Less: average goodwill	900,582			898,587			838,725			899,590			823,524
Average tangible common equity	$	1,766,942		$	1,767,108		$	1,308,849		$	1,767,025		$	1,227,954

Return on average equity (2)	14.02		%	9.99		%	(17.76)		%	12.00		%	(6.87)		%
Return on average tangible common equity (2)	22.45		%	16.21		%	(29.40)		%	19.33		%	(11.01)		%

(1) Amortization of intangible assets expense adjusted by statutory tax rate.

(2) Ratio is annualized.

Tangible book value per share and tangible common equity to tangible assets (the “tangible common equity ratio”) are non-GAAP financial measures derived 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 dividing by period end tangible assets, which also excludes 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.


	June 30,			December 31,
(Dollars in thousands)	2021			2020
Total stockholders’ equity	$	2,813,419		$	2,746,649
Less: intangible assets	978,675			984,076
Tangible common equity	$	1,834,744		$	1,762,573

Total assets	$	20,529,486		$	19,736,544
Less: intangible assets	978,675			984,076
Tangible assets	$	19,550,811		$	18,752,468

Tangible common equity ratio	9.38		%	9.40		%

Common shares issued and outstanding	94,656,575			94,483,136

Book value per share	$	29.72		$	29.07
Less: intangible book value per share	10.34			10.42
Tangible book value per share	$	19.38		$	18.65

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 understanding of the operating results of our core business.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Total noninterest expense	$	94,496		$	92,489		$	115,970		$	186,985		$	182,601
Less: amortization of intangible assets	4,001			4,143			4,066			8,144			8,029
Less: merger-related expense	—			5			39,346			5			41,070
Less: other real estate owned operations, net	—			—			9			—			23
Noninterest expense, adjusted	$	90,495		$	88,341		$	72,549		$	178,836		$	133,479

Net interest income before provision for loan losses	$	160,934		$	161,652		$	130,292		$	322,586		$	239,467
Add: total noninterest income	26,729			23,740			6,898			50,469			21,373
Less: net gain (loss) from investment securities	5,085			4,046			(21)			9,131			7,739
Less: other income - security recoveries	6			2			—			8			—
Less: net loss from other real estate owned	—			—			(55)			—			(55)
Less: net loss from debt extinguishment	(647)			(503)			—			(1,150)			—

Revenue, adjusted	$	183,219		$	181,847		$	137,266		$	365,066		$	253,156

Efficiency ratio	49.4		%	48.6		%	52.9		%	49.0		%	52.7		%

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, and nonrecurring nonaccrual interest paid 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									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net interest income	$	160,934		$	161,652		$	130,292		$	322,586		$	239,467
Less: scheduled accretion income	3,560			3,878			3,501			7,438			5,294
Less: accelerated accretion income	5,927			5,988			2,347			11,915			4,659
Less: premium amortization on CDs	942			1,751			1,054			2,693			1,117
Less: nonrecurring nonaccrual interest paid	(216)			(603)			(142)			(819)			(142)
Core net interest income	$	150,721		$	150,638		$	123,532		$	301,359		$	228,539
Less: interest income on SBA PPP loans	—			—			5,382			—			5,382
Core net interest income excluding SBA PPP loans	$	150,721		$	150,638		$	118,150		$	301,359		$	223,157

Average interest-earning assets	$	18,783,803		$	18,490,426		$	13,831,914		$	18,637,924		$	12,097,742
Less: average SBA PPP loans	—			—			830,090			—			206,388
Average interest-earning assets excluding SBA PPP loans	$	18,783,803		$	18,490,426		$	13,001,824		$	18,637,924		$	11,891,354

Net interest margin (1)	3.44		%	3.55		%	3.79		%	3.49		%	3.98		%
Core net interest margin (1)	3.22		%	3.30		%	3.59		%	3.26		%	3.80		%
Core net interest margin excluding SBA PPP loans (1)	3.22		%	3.30		%	3.65		%	3.26		%	3.77		%

(1) 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									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Interest income	$	170,692		$	172,994		$	144,122		$	343,686		$	267,911
Interest expense	9,758			11,342			13,830			21,100			28,444
Net interest income	160,934			161,652			130,292			322,586			239,467
Noninterest income	26,729			23,740			6,898			50,469			21,373
Revenue	187,663			185,392			137,190			373,055			260,840
Noninterest expense	94,496			92,489			115,970			186,985			182,601
Add: merger-related expense	—			5			39,346			5			41,070
Pre-provision net revenue	93,167			92,908			60,566			186,075			119,309
Pre-provision net revenue (annualized)	$	372,668		$	371,632		$	242,264		$	372,150		$	238,618

Average assets	$	20,290,415		$	19,994,260		$	15,175,310		$	20,143,156		$	13,383,324

Pre-provision net revenue on average assets	0.46		%	0.46		%	0.40		%	0.92		%	0.89		%
Pre-provision net revenue on average assets (annualized)	1.84		%	1.86		%	1.60		%	1.85		%	1.78		%

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									Six Months Ended
(Dollar in thousands, except per share data and	June 30,			March 31,			June 30,			June 30,			June 30,
percentages)	2021			2021			2020			2021			2020
Operating data
Interest income	$	170,692		$	172,994		$	144,122		$	343,686		$	267,911
Interest expense	9,758			11,342			13,830			21,100			28,444
Net interest income	160,934			161,652			130,292			322,586			239,467
Provision for credit losses	(38,476)			1,974			160,635			(36,502)			186,089
Net interest income (loss) after provision for credit losses	199,410			159,678			(30,343)			359,088			53,378
Net gain (loss) from sales of loans	1,546			361			(2,032)			1,907			(1,261)
Other noninterest income	25,183			23,379			8,930			48,562			22,634
Noninterest expense	94,496			92,489			115,970			186,985			182,601
Net income (loss) before income taxes	131,643			90,929			(139,415)			222,572			(107,850)
Income tax expense (benefit)	35,341			22,261			(40,324)			57,602			(34,499)
Net income (loss)	$	96,302		$	68,668		$	(99,091)		$	164,970		$	(73,351)
Pre-provision net revenue (3)	$	93,167		$	92,908		$	60,566		$	186,075		$	119,309
Share data
Earnings (loss) per share:
Basic	$	1.02		$	0.73		$	(1.41)		$	1.74		$	(1.14)
Diluted	1.01			0.72			(1.41)			1.73			(1.14)
Common equity dividends declared per share	0.33			0.30			0.25			0.63			0.50
Dividend payout ratio (1)	32.43		%	41.26		%	(17.73)		%	36.10		%	(43.90)		%
Performance ratios
Return on average assets (2)	1.90		%	1.37		%	(2.61)		%	1.64		%	(1.10)		%
Return on average equity (2)	14.02			9.99			(17.76)			12.00			(6.87)
Return on average tangible common equity (2)(3)	22.45			16.21			(29.40)			19.33			(11.01)

Pre-provision net revenue on average assets (2)(3)	1.84			1.86			1.60			1.85			1.78
Average equity to average assets	13.54			13.75			14.71			13.64			15.95
Efficiency ratio (3)	49.4			48.6			52.9			49.0			52.7

(1) Dividend payout ratio is defined as common equity dividends declared per share divided by basic earnings per share.

(2) Ratio is annualized.

(3) A reconciliation 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 second quarter of 2021, we reported net income of $96.3 million, or $1.01 per diluted share. This compares with net income of $68.7 million, or $0.72 per diluted share, for the first quarter of 2021. The increase in net income was primarily due to recapture of provision for credit losses of $38.5 million and a $3.0 million increase in noninterest income, partially offset by an increase of $13.1 million in income tax expense, an increase of $2.0 million in noninterest expense, and a decrease of $718,000 in net interest income. The provision recapture during the second quarter of 2021 was primarily attributable to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio.

Net income of $96.3 million, or $1.01 per diluted share, for the second quarter of 2021 compares to a net loss for the second quarter of 2020 of $99.1 million, or $(1.41) per diluted share. The increase in net income was primarily due to a $199.1 million decrease in provision for credit losses, a $30.6 million increase in net interest income, a $39.3 million decrease in merger-related expense, and a $19.8 million increase in noninterest income, partially offset by an increase of $75.7 million in income tax expense and $17.9 million increase in noninterest expense excluding merger-related expenses. The provision decrease during the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The provision expense in the second quarter of 2020 reflected unfavorable changes in economic forecasts related to the onset of the COVID-19 pandemic and the Day 1 provision for credit losses of $84.4 million resulting from the acquisition of Opus. The year-over-year increases in net income reflect the impact of the acquisition of Opus in the second quarter of 2020.

For the six months ended June 30, 2021, the Company recorded net income of $165.0 million, or $1.73 per diluted share. This compares with net loss of $73.4 million, or $(1.14) per diluted share, for the six months ended June 30, 2020. The increase in net income of $238.3 million was primarily due to a $222.6 million decrease in provision for credit losses, an $83.1 million increase in net interest income, a $29.1 million increase in noninterest income, and a $41.1 million decrease in merger-related expenses, partially offset by a $92.1 million increase in income tax expense and $45.4 million increase in noninterest expense excluding merger-related expenses. The decrease in provision for credit losses was attributable to higher provision expense from the Company’s adoption of ASC 326 effective January 1, 2020, the acquisition of Opus, and unfavorable economic forecasts used in the Company’s ACL model driven by the COVID-19 pandemic, as well as the $38.5 million recapture of provision for credit losses during the second quarter of 2021, primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The year-over-year increases in net income reflect the impact of the acquisition of Opus in the second quarter of 2020.

For the six months ended June 30, 2021, the Company’s return on average assets was 1.64%, return on average equity was 12.00%, and return on average tangible common equity was 19.33%, compared with a return on average assets of (1.10)%, return on average equity of (6.87)%, and a return on average tangible common equity of (11.01)% for the six months ended June 30, 2020.

100

Net Interest Income

Net interest income totaled $160.9 million in the second quarter of 2021, a decrease of $718,000, or 0.4%, from the first quarter of 2021. The decrease in net interest income reflected lower average loan yields and fees, partially offset by one more day of interest and a lower cost of funds driven by lower rates paid on deposits, lower average balances of retail and brokered certificates of deposit, and lower average borrowings.

The net interest margin for the second quarter of 2021 was 3.44%, compared with 3.55% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income of $9.5 million, compared to $9.9 million in the prior quarter, certificates of deposit mark-to-market amortization, and other adjustments, decreased 8 basis points to 3.22%, compared to 3.30% in the prior quarter. The decrease was driven by lower average loan yields and fees, partially offset by a lower cost of funds.

Net interest income for the second quarter of 2021 increased $30.6 million, or 23.5%, compared to the second quarter of 2020. The increase was attributable to an increase in average interest-earning assets of $4.95 billion, which primarily resulted from the acquisition of Opus in the second quarter of 2020, as well as higher investment securities balances compared with the second quarter of 2020, and a lower cost of funds, partially offset by lower average loan and investment yields, and a higher average balance of deposits.

For the first six months ended 2021, net interest income increased $83.1 million, or 34.7%, compared to the first six months ended 2020. The increase was related to an increase in average interest-earning assets of $6.5 billion, which resulted primarily from our acquisition of Opus on June 1, 2020, and a lower cost of funds, partially offset by lower average loan and investment yields.

101


	Average Balance Sheet
	Three Months Ended
	June 30, 2021						March 31, 2021						June 30, 2020
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	1,323,186	$	315	0.10	%	$	1,309,366	$	301	0.09	%	$	796,761	$	215	0.11	%
Investment securities	4,243,644		18,012		1.70		4,087,451		17,468		1.71		1,792,432		10,568		2.36
Loans receivable, net (1)(2)	13,216,973		152,365		4.62		13,093,609		155,225		4.81		11,242,721		133,339		4.77
Total interest-earning assets	18,783,803		170,692		3.64		18,490,426		172,994		3.79		13,831,914		144,122		4.19
Noninterest-earning assets	1,506,612						1,503,834						1,343,396
Total assets	$	20,290,415					$	19,994,260					$	15,175,310
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,155,935	$	336	0.04	%	$	3,060,055	$	419	0.06	%	$	1,417,846	$	844	0.24	%
Money market	5,558,790		2,002		0.14		5,447,909		2,588		0.19		4,242,990		5,680		0.54
Savings	384,376		84		0.09		368,288		82		0.09		283,632		101		0.14
Retail certificates of deposit	1,294,544		839		0.26		1,425,093		1,201		0.34		1,148,874		2,251		0.79
Wholesale/brokered certificates of deposit	1,357		4		1.18		118,854		136		0.46		224,333		779		1.40
Total interest-bearing deposits	10,395,002		3,265		0.13		10,420,199		4,426		0.17		7,317,675		9,655		0.53
FHLB advances and other borrowings	6,303		—		—		22,012		65		1.20		143,813		217		0.61
Subordinated debentures	480,415		6,493		5.41		501,553		6,851		5.46		287,368		3,958		5.51
Total borrowings	486,718		6,493		5.35		523,565		6,916		5.36		431,181		4,175		3.89
Total interest-bearing liabilities	10,881,720		9,758		0.36		10,943,764		11,342		0.42		7,748,856		13,830		0.72
Noninterest-bearing deposits	6,341,063						6,034,319						4,970,812
Other liabilities	320,324						266,536						223,920
Total liabilities	17,543,107						17,244,619						12,943,588
Stockholders’ equity	2,747,308						2,749,641						2,231,722
Total liabilities and equity	$	20,290,415					$	19,994,260					$	15,175,310
Net interest income			$	160,934					$	161,652					$	130,292

Net interest margin (3)					3.44	%					3.55	%					3.79	%
Cost of deposits					0.08						0.11						0.32
Cost of funds (4)					0.23						0.27						0.44
Ratio of interest-earning assets to interest-bearing liabilities					172.62						168.96						178.50

(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

(2) Interest income includes net discount accretion of $9.5 million, $9.9 million, and $5.8 million, respectively.

(3) Represents annualized net interest income divided by average interest-earning assets.

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

102


	Average Balance Sheet
	Six Months Ended
	June 30, 2021						June 30, 2020
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	1,316,314	$	616	0.09	%	$	506,253	$	431	0.17	%
Investment securities	4,165,979		35,480		1.70	%	1,647,502		20,876		2.53	%
Loans receivable, net (1)(2)	13,155,631		307,590		4.71	%	9,943,987		246,604		4.99	%
Total interest-earning assets	18,637,924		343,686		3.72	%	12,097,742		267,911		4.45	%
Noninterest-earning assets	1,505,232						1,285,582
Total assets	$	20,143,156					$	13,383,324
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,108,260	$	755	0.05	%	$	997,025	$	1,453	0.29	%
Money market	5,503,656		4,590		0.17	%	3,702,429		11,751		0.64	%
Savings	376,376		166		0.09	%	261,239		198		0.15	%
Retail certificates of deposit	1,359,458		2,040		0.30	%	1,042,681		5,715		1.10	%
Wholesale/brokered certificates of deposit	59,781		140		0.47	%	133,882		1,025		1.54	%
Total interest-bearing deposits	10,407,531		7,691		0.15	%	6,137,256		20,142		0.66	%
FHLB advances and other borrowings	14,115		65		0.93	%	240,682		1,298		1.08	%
Subordinated debentures	490,925		13,344		5.44	%	251,279		7,004		5.57	%
Total borrowings	505,040		13,409		5.35	%	491,961		8,302		3.39	%
Total interest-bearing liabilities	10,912,571		21,100		0.39	%	6,629,217		28,444		0.86	%
Noninterest-bearing deposits	6,188,539						4,434,605
Other liabilities	293,578						185,078
Total liabilities	17,394,688						11,248,900
Stockholders’ equity	2,748,468						2,134,424
Total liabilities and equity	$	20,143,156					$	13,383,324
Net interest income			$	322,586					$	239,467

Net interest margin (3)					3.49	%					3.98	%
Cost of deposits					0.09	%					0.38	%
Cost of funds (4)					0.25	%					0.52	%
Ratio of interest-earning assets to interest-bearing liabilities					170.79	%					182.49	%

_____________________________

(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

(2) Interest income includes net discount accretion of $19.4 million and $10.0 million, respectively.

(3) Represents net interest income divided by average interest-earning assets.

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

103

Changes in our net interest income are a function of changes in volume, days in a period, and rates of interest-earning assets and interest-bearing liabilities. The following tables 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; no changes in days for comparisons of the three months ended June 30, 2021 to the three months ended June 30, 2020);

•Changes in interest rates (changes in interest rates multiplied by prior 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 June 30, 2021 Compared to Three Months Ended March 31, 2021 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	1	$	3	$	10	$	14
Investment securities	642		—		(98)		544
Loans receivable, net	1,420		1,674		(5,954)		(2,860)
Total interest-earning assets	2,063		1,677		(6,042)		(2,302)
Interest-bearing liabilities
Interest checking	9		4		(96)		(83)
Money market	52		22		(660)		(586)
Savings	1		1		—		2
Retail certificates of deposit	(104)		9		(267)		(362)
Wholesale/brokered certificates of deposit	(135)		—		3		(132)
FHLB advances and other borrowings	(27)		—		(38)		(65)
Subordinated debentures	(294)		—		(64)		(358)
Total interest-bearing liabilities	(498)		36		(1,122)		(1,584)
Change in net interest income	$	2,561	$	1,641	$	(4,920)	$	(718)

104


	Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	116	$	(16)	$	100
Investment securities	9,346		(1,902)		7,444
Loans receivable, net	23,175		(4,149)		19,026
Total interest-earning assets	32,637		(6,067)		26,570
Interest-bearing liabilities
Interest checking	1,040		(1,548)		(508)
Money market	2,648		(6,326)		(3,678)
Savings	3,131		(3,148)		(17)
Retail certificates of deposit	329		(1,741)		(1,412)
Wholesale/brokered certificates of deposit	(670)		(105)		(775)
FHLB advances and other borrowings	(106)		(111)		(217)
Subordinated debentures	2,605		(70)		2,535
Total interest-bearing liabilities	8,977		(13,049)		(4,072)
Change in net interest income	$	23,660	$	6,982	$	30,642



	Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Increase (Decrease) due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	266	$	(3)	$	(78)	$	185
Investment securities	18,628		—		(4,024)		14,604
Loans receivable, net	75,866		(1,699)		(13,181)		60,986
Total interest-earning assets	$	94,760	$	(1,702)	$	(17,283)	$	75,775
Interest-bearing liabilities
Interest checking	$	3,036	$	(4)	$	(3,730)	$	(698)
Money market	13,996		(25)		(21,132)		(7,161)
Savings	86		(1)		(117)		(32)
Retail certificates of deposit	2,632		(11)		(6,296)		(3,675)
Wholesale/brokered certificates of deposit	(394)		(1)		(490)		(885)
FHLB advances and other borrowings	(1,075)		—		(158)		(1,233)
Subordinated debentures	6,565		—		(225)		6,340
Total interest-bearing liabilities	$	24,846	$	(42)	$	(32,148)	$	(7,344)
Change in net interest income	$	69,914	$	(1,660)	$	14,865	$	83,119

105

Provision for Credit Losses

For the second quarter of 2021, the Bank recorded a $38.5 million provision recapture, a decrease of $40.5 million from the $2.0 million provision expense recognized during the first quarter of 2021, and a decrease of $199.1 million from the $160.6 million provision expense recognized during the second quarter of 2020. The decrease from the first quarter of 2021 was comprised of a $33.1 million provision recapture for loan losses and a $5.3 million provision recapture for unfunded commitments. The decrease during the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The provision expense in the second quarter of 2020 reflected unfavorable changes in economic forecasts related to the onset of the COVID-19 pandemic, the Day 1 provision for loan losses of $75.9 million, and the provision for unfunded commitments of $8.6 million resulting from the acquisition of Opus.


	Three Months Ended
	June 30,		March 31,		June 30,
(Dollars in thousands)	2021		2021		2020
Provision for credit losses
Provision for loan losses	$	(33,131)	$	315	$	150,257
Provision for unfunded commitments	(5,345)		1,659		10,378

Total provision for credit losses	$	(38,476)	$	1,974	$	160,635


	Six Months Ended
	June 30,		June 30,
(Dollars in thousands)	2021		2020
Provision for credit losses
Provision for loans and lease losses	$	(32,816)	$	175,639
Provision for unfunded commitments	(3,686)		10,450

Total provision for credit losses	$	(36,502)	$	186,089

106

Noninterest Income

The following table presents the components of noninterest ~~expense~~income for the periods indicated:

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2020 2020 2019 2020 2019
Noninterest Expense (Dollars in thousands)
Compensation and benefits $ 43,011 $ 34,376 $ 33,847 $ 77,387 $ 67,235
Premises and occupancy 9,487 8,168 7,517 17,655 15,052
Data processing 4,465 3,253 3,036 7,718 5,966
Other real estate owned operations, net 9 14 62 23 65
FDIC insurance premiums 846 367 740 1,213 1,540
Legal, audit and professional expense 3,094 3,126 3,545 6,220 6,543
Marketing expense 1,319 1,412 1,425 2,731 2,922
Office, telecommunications and postage expense 1,533 1,103 1,311 2,636 2,521
Loan expense 823 822 1,005 1,645 1,878
Deposit expense 4,958 4,988 3,668 9,946 7,251
Merger-related expense 39,346 1,724 5 41,070 660
CDI amortization 4,040 3,965 4,281 8,005 8,717
Other expense 3,039 3,313 3,494 6,352 7,163
Total noninterest expense $ 115,970 $ 66,631 $ 63,936 $ 182,601 $ 127,513


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Noninterest income
Loan servicing income	$	622	$	458	$	434	$	1,080	$	914
Service charges on deposit accounts	2,222		2,032		1,399		4,254		3,114
Other service fee income	352		473		297		825		608
Debit card interchange fee income	1,099		787		457		1,886		805
Earnings on bank-owned life insurance	2,279		2,233		1,314		4,512		2,650
Net gain (loss) from sales of loans	1,546		361		(2,032)		1,907		(1,261)
Net gain (loss) from sales of investment securities	5,085		4,046		(21)		9,131		7,739



Trust custodial account fees	7,897		7,222		2,397		15,119		2,397
Escrow and exchange fees	1,672		1,526		264		3,198		264
Other income	3,955		4,602		2,389		8,557		4,143
Total noninterest income	$	26,729	$	23,740	$	6,898	$	50,469	$	21,373

Noninterest ~~expense totaled $116.0 million~~income for the second quarter of ~~2020,~~2021 was $26.7 million, an increase of ~~$49.3~~$3.0 million from the first quarter of 2021. The increase was primarily due to a $1.2 million increase in net gain from loan sales, a $1.0 million increase in net gain from sales of investment securities, and a $675,000 increase in trust custodial account fees, partially offset by a $647,000 decrease in other income. The decrease in other income was primarily due to $1.8 million lower SBA PPP loan referral fees, a $239,000 decrease in unused commitment fees, and a $144,000 increase in loss on debt extinguishment, partially offset by a $1.7 million increase in equity investment income.

Noninterest income for the second quarter of 2021 increased $19.8 million, or ~~74.0%~~287.5%, compared to the ~~first~~second quarter of 2020. The increase was primarily due to ~~merger-related expense~~a $5.5 million increase in trust custodial account fees and a $1.4 million increase in escrow and exchange fees following the Opus acquisition, a $5.1 million increase in net gain from sales of ~~$39.3~~investment securities, a $3.6 million increase in net gain from the sales of loans, and a $1.6 million increase in other income, primarily due to a $1.9 million increase in equity investment income and a $527,000 increase in SBA PPP loan referral fees, partially offset by a $647,000 loss on debt extinguishment.

The net gain from sales of loans for the second quarter of ~~2020 relating~~2021 increased from the same period last year primarily due to the ~~Opus acquisition. Excluding merger-related expense, noninterest expense totaled $76.6~~sales of $14.7 million ~~an increase~~ of ~~$11.7~~SBA loans for a net gain of $1.5 million, ~~or 18.1%,~~ compared towith the ~~first quarter~~sales of ~~2020, driven primarily by~~$15.4 million of other loans for a ~~$8.6~~net loss of $2.0 million increase in compensation and benefits, a $1.3 million increase in premises and occupancy, a $1.2 million increase in data processing, a $479,000 increase in FDIC insurance premiums, and a $430,000 increase in office, telecommunications and postage expense, all of which was primarily the result of the addition of operations, personnel and branches retained from the acquisition of Opus.

~~Noninterest expense increased by $52.0 million, or 81.4%, compared to~~during the second quarter of 2019. The increase was primarily due to a $39.3 million merger-related expense related to the Opus acquisition, a $9.2 million increase in compensation and benefits, a $2.0 million increase in premises and occupancy, a $1.4 million increase in data processing and a $1.3 million increase in deposit expense as a result of the addition of operations, personnel and branches retained from the acquisition of Opus.2020.

~~Noninterest expense~~

107

For the first six months of 2021, noninterest income totaled ~~$183~~$50.5 million, an increase from $21.4 million for the first six months of ~~2020, an increase of $55.1 million, or 43%, compared with the first six months of 2019.~~2020. The increase was primarily related to a $12.7 million increase in trust custodial account fees and a $2.9 million increase in escrow and exchange fee income following the Opus acquisition, a $3.2 million increase in net gain from the sales of loans, a $1.9 million increase in earnings from bank-owned life insurance (“BOLI”), a $1.4 million increase in net gain from sales of investment securities, a $1.1 million increase in service charges on deposit accounts, and a $1.1 million increase in debit card interchange fee income. In addition, other income increased $4.4 million primarily due to ~~merger-related expense~~$2.8 million of $41.1 million for the first six months of 2020 relating to the Opus acquisition. Excluding merger-related expense, noninterest expense totaled $141.5 million, an increase of $14.7 million, or 11.6%, compared to the six months of 2019 driven primarily by $10.2 million in compensationSBA PPP loan referral fees and ~~benefits expenses,~~a $2.7 million increase in ~~deposit expense, $2.6~~equity investment income, partially offset by $1.2 million ~~in premises and occupancy expense and $1.8 million in data processing.~~

The Company’s efficiency ratio was 52.9% for the second quarter of 2020, compared to 52.6% for the first quarter of 2020 and 51.1% for the second quarter of 2019. The Company’s efficiency ratio was 52.7% for the first six months of 2020, compared to 50.2% for the first six months of 2019.

loss on debt extinguishment.

~~111~~108

Income Taxes

NON-GAAP MEASURES


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net income (loss)	$	96,302		$	68,668		$	(99,091)		$	164,970		$	(73,351)
Plus: amortization of intangible assets expense	4,001			4,143			4,066			8,144			8,029
Less: amortization of intangible assets expense tax adjustment (1)	1,145			1,185			1,166			2,330			2,303
Net income (loss) for average tangible common equity	$	99,158		$	71,626		$	(96,191)		$	170,784		$	(67,625)

Average stockholders’ equity	$	2,747,308		$	2,749,641		$	2,231,722		$	2,748,468		$	2,134,424
Less: average intangible assets	79,784			83,946			84,148			81,853			82,946
Less: average goodwill	900,582			898,587			838,725			899,590			823,524
Average tangible common equity	$	1,766,942		$	1,767,108		$	1,308,849		$	1,767,025		$	1,227,954

Return on average equity (2)	14.02		%	9.99		%	(17.76)		%	12.00		%	(6.87)		%
Return on average tangible common equity (2)	22.45		%	16.21		%	(29.40)		%	19.33		%	(11.01)		%

(1) Amortization of intangible assets expense adjusted by statutory tax rate.

(2) Ratio is annualized.

Tangible book value per share and tangible common equity to tangible assets (the “tangible common equity ratio”) are non-GAAP financial measures derived 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 dividing by period end tangible assets, which also excludes 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.


	June 30,			December 31,
(Dollars in thousands)	2021			2020
Total stockholders’ equity	$	2,813,419		$	2,746,649
Less: intangible assets	978,675			984,076
Tangible common equity	$	1,834,744		$	1,762,573

Total assets	$	20,529,486		$	19,736,544
Less: intangible assets	978,675			984,076
Tangible assets	$	19,550,811		$	18,752,468

Tangible common equity ratio	9.38		%	9.40		%

Common shares issued and outstanding	94,656,575			94,483,136

Book value per share	$	29.72		$	29.07
Less: intangible book value per share	10.34			10.42
Tangible book value per share	$	19.38		$	18.65

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 understanding of the operating results of our core business.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Total noninterest expense	$	94,496		$	92,489		$	115,970		$	186,985		$	182,601
Less: amortization of intangible assets	4,001			4,143			4,066			8,144			8,029
Less: merger-related expense	—			5			39,346			5			41,070
Less: other real estate owned operations, net	—			—			9			—			23
Noninterest expense, adjusted	$	90,495		$	88,341		$	72,549		$	178,836		$	133,479

Net interest income before provision for loan losses	$	160,934		$	161,652		$	130,292		$	322,586		$	239,467
Add: total noninterest income	26,729			23,740			6,898			50,469			21,373
Less: net gain (loss) from investment securities	5,085			4,046			(21)			9,131			7,739
Less: other income - security recoveries	6			2			—			8			—
Less: net loss from other real estate owned	—			—			(55)			—			(55)
Less: net loss from debt extinguishment	(647)			(503)			—			(1,150)			—

Revenue, adjusted	$	183,219		$	181,847		$	137,266		$	365,066		$	253,156

Efficiency ratio	49.4		%	48.6		%	52.9		%	49.0		%	52.7		%


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net interest income	$	160,934		$	161,652		$	130,292		$	322,586		$	239,467
Less: scheduled accretion income	3,560			3,878			3,501			7,438			5,294
Less: accelerated accretion income	5,927			5,988			2,347			11,915			4,659
Less: premium amortization on CDs	942			1,751			1,054			2,693			1,117
Less: nonrecurring nonaccrual interest paid	(216)			(603)			(142)			(819)			(142)
Core net interest income	$	150,721		$	150,638		$	123,532		$	301,359		$	228,539
Less: interest income on SBA PPP loans	—			—			5,382			—			5,382
Core net interest income excluding SBA PPP loans	$	150,721		$	150,638		$	118,150		$	301,359		$	223,157

Average interest-earning assets	$	18,783,803		$	18,490,426		$	13,831,914		$	18,637,924		$	12,097,742
Less: average SBA PPP loans	—			—			830,090			—			206,388
Average interest-earning assets excluding SBA PPP loans	$	18,783,803		$	18,490,426		$	13,001,824		$	18,637,924		$	11,891,354

Net interest margin (1)	3.44		%	3.55		%	3.79		%	3.49		%	3.98		%
Core net interest margin (1)	3.22		%	3.30		%	3.59		%	3.26		%	3.80		%
Core net interest margin excluding SBA PPP loans (1)	3.22		%	3.30		%	3.65		%	3.26		%	3.77		%

(1) 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									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Interest income	$	170,692		$	172,994		$	144,122		$	343,686		$	267,911
Interest expense	9,758			11,342			13,830			21,100			28,444
Net interest income	160,934			161,652			130,292			322,586			239,467
Noninterest income	26,729			23,740			6,898			50,469			21,373
Revenue	187,663			185,392			137,190			373,055			260,840
Noninterest expense	94,496			92,489			115,970			186,985			182,601
Add: merger-related expense	—			5			39,346			5			41,070
Pre-provision net revenue	93,167			92,908			60,566			186,075			119,309
Pre-provision net revenue (annualized)	$	372,668		$	371,632		$	242,264		$	372,150		$	238,618

Average assets	$	20,290,415		$	19,994,260		$	15,175,310		$	20,143,156		$	13,383,324

Pre-provision net revenue on average assets	0.46		%	0.46		%	0.40		%	0.92		%	0.89		%
Pre-provision net revenue on average assets (annualized)	1.84		%	1.86		%	1.60		%	1.85		%	1.78		%

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									Six Months Ended
(Dollar in thousands, except per share data and	June 30,			March 31,			June 30,			June 30,			June 30,
percentages)	2021			2021			2020			2021			2020
Operating data
Interest income	$	170,692		$	172,994		$	144,122		$	343,686		$	267,911
Interest expense	9,758			11,342			13,830			21,100			28,444
Net interest income	160,934			161,652			130,292			322,586			239,467
Provision for credit losses	(38,476)			1,974			160,635			(36,502)			186,089
Net interest income (loss) after provision for credit losses	199,410			159,678			(30,343)			359,088			53,378
Net gain (loss) from sales of loans	1,546			361			(2,032)			1,907			(1,261)
Other noninterest income	25,183			23,379			8,930			48,562			22,634
Noninterest expense	94,496			92,489			115,970			186,985			182,601
Net income (loss) before income taxes	131,643			90,929			(139,415)			222,572			(107,850)
Income tax expense (benefit)	35,341			22,261			(40,324)			57,602			(34,499)
Net income (loss)	$	96,302		$	68,668		$	(99,091)		$	164,970		$	(73,351)
Pre-provision net revenue (3)	$	93,167		$	92,908		$	60,566		$	186,075		$	119,309
Share data
Earnings (loss) per share:
Basic	$	1.02		$	0.73		$	(1.41)		$	1.74		$	(1.14)
Diluted	1.01			0.72			(1.41)			1.73			(1.14)
Common equity dividends declared per share	0.33			0.30			0.25			0.63			0.50
Dividend payout ratio (1)	32.43		%	41.26		%	(17.73)		%	36.10		%	(43.90)		%
Performance ratios
Return on average assets (2)	1.90		%	1.37		%	(2.61)		%	1.64		%	(1.10)		%
Return on average equity (2)	14.02			9.99			(17.76)			12.00			(6.87)
Return on average tangible common equity (2)(3)	22.45			16.21			(29.40)			19.33			(11.01)

Pre-provision net revenue on average assets (2)(3)	1.84			1.86			1.60			1.85			1.78
Average equity to average assets	13.54			13.75			14.71			13.64			15.95
Efficiency ratio (3)	49.4			48.6			52.9			49.0			52.7

(1) Dividend payout ratio is defined as common equity dividends declared per share divided by basic earnings per share.

(2) Ratio is annualized.

100

Net Interest Income

101


	Average Balance Sheet
	Three Months Ended
	June 30, 2021						March 31, 2021						June 30, 2020
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	1,323,186	$	315	0.10	%	$	1,309,366	$	301	0.09	%	$	796,761	$	215	0.11	%
Investment securities	4,243,644		18,012		1.70		4,087,451		17,468		1.71		1,792,432		10,568		2.36
Loans receivable, net (1)(2)	13,216,973		152,365		4.62		13,093,609		155,225		4.81		11,242,721		133,339		4.77
Total interest-earning assets	18,783,803		170,692		3.64		18,490,426		172,994		3.79		13,831,914		144,122		4.19
Noninterest-earning assets	1,506,612						1,503,834						1,343,396
Total assets	$	20,290,415					$	19,994,260					$	15,175,310
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,155,935	$	336	0.04	%	$	3,060,055	$	419	0.06	%	$	1,417,846	$	844	0.24	%
Money market	5,558,790		2,002		0.14		5,447,909		2,588		0.19		4,242,990		5,680		0.54
Savings	384,376		84		0.09		368,288		82		0.09		283,632		101		0.14
Retail certificates of deposit	1,294,544		839		0.26		1,425,093		1,201		0.34		1,148,874		2,251		0.79
Wholesale/brokered certificates of deposit	1,357		4		1.18		118,854		136		0.46		224,333		779		1.40
Total interest-bearing deposits	10,395,002		3,265		0.13		10,420,199		4,426		0.17		7,317,675		9,655		0.53
FHLB advances and other borrowings	6,303		—		—		22,012		65		1.20		143,813		217		0.61
Subordinated debentures	480,415		6,493		5.41		501,553		6,851		5.46		287,368		3,958		5.51
Total borrowings	486,718		6,493		5.35		523,565		6,916		5.36		431,181		4,175		3.89
Total interest-bearing liabilities	10,881,720		9,758		0.36		10,943,764		11,342		0.42		7,748,856		13,830		0.72
Noninterest-bearing deposits	6,341,063						6,034,319						4,970,812
Other liabilities	320,324						266,536						223,920
Total liabilities	17,543,107						17,244,619						12,943,588
Stockholders’ equity	2,747,308						2,749,641						2,231,722
Total liabilities and equity	$	20,290,415					$	19,994,260					$	15,175,310
Net interest income			$	160,934					$	161,652					$	130,292

Net interest margin (3)					3.44	%					3.55	%					3.79	%
Cost of deposits					0.08						0.11						0.32
Cost of funds (4)					0.23						0.27						0.44
Ratio of interest-earning assets to interest-bearing liabilities					172.62						168.96						178.50

(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

(2) Interest income includes net discount accretion of $9.5 million, $9.9 million, and $5.8 million, respectively.

(3) Represents annualized net interest income divided by average interest-earning assets.

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

102


	Average Balance Sheet
	Six Months Ended
	June 30, 2021						June 30, 2020
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	1,316,314	$	616	0.09	%	$	506,253	$	431	0.17	%
Investment securities	4,165,979		35,480		1.70	%	1,647,502		20,876		2.53	%
Loans receivable, net (1)(2)	13,155,631		307,590		4.71	%	9,943,987		246,604		4.99	%
Total interest-earning assets	18,637,924		343,686		3.72	%	12,097,742		267,911		4.45	%
Noninterest-earning assets	1,505,232						1,285,582
Total assets	$	20,143,156					$	13,383,324
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,108,260	$	755	0.05	%	$	997,025	$	1,453	0.29	%
Money market	5,503,656		4,590		0.17	%	3,702,429		11,751		0.64	%
Savings	376,376		166		0.09	%	261,239		198		0.15	%
Retail certificates of deposit	1,359,458		2,040		0.30	%	1,042,681		5,715		1.10	%
Wholesale/brokered certificates of deposit	59,781		140		0.47	%	133,882		1,025		1.54	%
Total interest-bearing deposits	10,407,531		7,691		0.15	%	6,137,256		20,142		0.66	%
FHLB advances and other borrowings	14,115		65		0.93	%	240,682		1,298		1.08	%
Subordinated debentures	490,925		13,344		5.44	%	251,279		7,004		5.57	%
Total borrowings	505,040		13,409		5.35	%	491,961		8,302		3.39	%
Total interest-bearing liabilities	10,912,571		21,100		0.39	%	6,629,217		28,444		0.86	%
Noninterest-bearing deposits	6,188,539						4,434,605
Other liabilities	293,578						185,078
Total liabilities	17,394,688						11,248,900
Stockholders’ equity	2,748,468						2,134,424
Total liabilities and equity	$	20,143,156					$	13,383,324
Net interest income			$	322,586					$	239,467

Net interest margin (3)					3.49	%					3.98	%
Cost of deposits					0.09	%					0.38	%
Cost of funds (4)					0.25	%					0.52	%
Ratio of interest-earning assets to interest-bearing liabilities					170.79	%					182.49	%

_____________________________

(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

(2) Interest income includes net discount accretion of $19.4 million and $10.0 million, respectively.

(3) Represents net interest income divided by average interest-earning assets.

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

103

•Changes in volume (changes in volume multiplied by prior rate);

•Changes in interest rates (changes in interest rates multiplied by prior 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 June 30, 2021 Compared to Three Months Ended March 31, 2021 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	1	$	3	$	10	$	14
Investment securities	642		—		(98)		544
Loans receivable, net	1,420		1,674		(5,954)		(2,860)
Total interest-earning assets	2,063		1,677		(6,042)		(2,302)
Interest-bearing liabilities
Interest checking	9		4		(96)		(83)
Money market	52		22		(660)		(586)
Savings	1		1		—		2
Retail certificates of deposit	(104)		9		(267)		(362)
Wholesale/brokered certificates of deposit	(135)		—		3		(132)
FHLB advances and other borrowings	(27)		—		(38)		(65)
Subordinated debentures	(294)		—		(64)		(358)
Total interest-bearing liabilities	(498)		36		(1,122)		(1,584)
Change in net interest income	$	2,561	$	1,641	$	(4,920)	$	(718)

104


	Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	116	$	(16)	$	100
Investment securities	9,346		(1,902)		7,444
Loans receivable, net	23,175		(4,149)		19,026
Total interest-earning assets	32,637		(6,067)		26,570
Interest-bearing liabilities
Interest checking	1,040		(1,548)		(508)
Money market	2,648		(6,326)		(3,678)
Savings	3,131		(3,148)		(17)
Retail certificates of deposit	329		(1,741)		(1,412)
Wholesale/brokered certificates of deposit	(670)		(105)		(775)
FHLB advances and other borrowings	(106)		(111)		(217)
Subordinated debentures	2,605		(70)		2,535
Total interest-bearing liabilities	8,977		(13,049)		(4,072)
Change in net interest income	$	23,660	$	6,982	$	30,642



	Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Increase (Decrease) due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	266	$	(3)	$	(78)	$	185
Investment securities	18,628		—		(4,024)		14,604
Loans receivable, net	75,866		(1,699)		(13,181)		60,986
Total interest-earning assets	$	94,760	$	(1,702)	$	(17,283)	$	75,775
Interest-bearing liabilities
Interest checking	$	3,036	$	(4)	$	(3,730)	$	(698)
Money market	13,996		(25)		(21,132)		(7,161)
Savings	86		(1)		(117)		(32)
Retail certificates of deposit	2,632		(11)		(6,296)		(3,675)
Wholesale/brokered certificates of deposit	(394)		(1)		(490)		(885)
FHLB advances and other borrowings	(1,075)		—		(158)		(1,233)
Subordinated debentures	6,565		—		(225)		6,340
Total interest-bearing liabilities	$	24,846	$	(42)	$	(32,148)	$	(7,344)
Change in net interest income	$	69,914	$	(1,660)	$	14,865	$	83,119

105

Provision for Credit Losses


	Three Months Ended
	June 30,		March 31,		June 30,
(Dollars in thousands)	2021		2021		2020
Provision for credit losses
Provision for loan losses	$	(33,131)	$	315	$	150,257
Provision for unfunded commitments	(5,345)		1,659		10,378

Total provision for credit losses	$	(38,476)	$	1,974	$	160,635


	Six Months Ended
	June 30,		June 30,
(Dollars in thousands)	2021		2020
Provision for credit losses
Provision for loans and lease losses	$	(32,816)	$	175,639
Provision for unfunded commitments	(3,686)		10,450

Total provision for credit losses	$	(36,502)	$	186,089

106

Noninterest Income

The following table presents the components of noninterest income for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Noninterest income
Loan servicing income	$	622	$	458	$	434	$	1,080	$	914
Service charges on deposit accounts	2,222		2,032		1,399		4,254		3,114
Other service fee income	352		473		297		825		608
Debit card interchange fee income	1,099		787		457		1,886		805
Earnings on bank-owned life insurance	2,279		2,233		1,314		4,512		2,650
Net gain (loss) from sales of loans	1,546		361		(2,032)		1,907		(1,261)
Net gain (loss) from sales of investment securities	5,085		4,046		(21)		9,131		7,739



Trust custodial account fees	7,897		7,222		2,397		15,119		2,397
Escrow and exchange fees	1,672		1,526		264		3,198		264
Other income	3,955		4,602		2,389		8,557		4,143
Total noninterest income	$	26,729	$	23,740	$	6,898	$	50,469	$	21,373

Noninterest income for the second quarter of 2021 was $26.7 million, an increase of $3.0 million from the first quarter of 2021. The increase was primarily due to a $1.2 million increase in net gain from loan sales, a $1.0 million increase in net gain from sales of investment securities, and a $675,000 increase in trust custodial account fees, partially offset by a $647,000 decrease in other income. The decrease in other income was primarily due to $1.8 million lower SBA PPP loan referral fees, a $239,000 decrease in unused commitment fees, and a $144,000 increase in loss on debt extinguishment, partially offset by a $1.7 million increase in equity investment income.

Noninterest income for the second quarter of 2021 increased $19.8 million, or 287.5%, compared to the second quarter of 2020. The increase was primarily due to a $5.5 million increase in trust custodial account fees and a $1.4 million increase in escrow and exchange fees following the Opus acquisition, a $5.1 million increase in net gain from sales of investment securities, a $3.6 million increase in net gain from the sales of loans, and a $1.6 million increase in other income, primarily due to a $1.9 million increase in equity investment income and a $527,000 increase in SBA PPP loan referral fees, partially offset by a $647,000 loss on debt extinguishment.

The net gain from sales of loans for the second quarter of 2021 increased from the same period last year primarily due to the sales of $14.7 million of SBA loans for a net gain of $1.5 million, compared with the sales of $15.4 million of other loans for a net loss of $2.0 million during the second quarter of 2020.

107

For the first six months of 2021, noninterest income totaled $50.5 million, an increase from $21.4 million for the first six months of 2020. The increase was primarily related to a $12.7 million increase in trust custodial account fees and a $2.9 million increase in escrow and exchange fee income following the Opus acquisition, a $3.2 million increase in net gain from the sales of loans, a $1.9 million increase in earnings from bank-owned life insurance (“BOLI”), a $1.4 million increase in net gain from sales of investment securities, a $1.1 million increase in service charges on deposit accounts, and a $1.1 million increase in debit card interchange fee income. In addition, other income increased $4.4 million primarily due to $2.8 million of SBA PPP loan referral fees and a $2.7 million increase in equity investment income, partially offset by $1.2 million loss on debt extinguishment.

108

Noninterest Expense

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


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Noninterest expense
Compensation and benefits	$	53,474	$	52,548	$	43,011	$	106,022	$	77,387
Premises and occupancy	12,240		11,980		9,487		24,220		17,655
Data processing	5,765		5,828		4,465		11,593		7,718
Other real estate owned operations, net	—		—		9		—		23
FDIC insurance premiums	1,312		1,181		846		2,493		1,213
Legal and professional services	4,186		3,935		3,094		8,121		6,220
Marketing expense	1,490		1,598		1,319		3,088		2,731
Office expense	1,589		1,829		1,533		3,418		2,636
Loan expense	1,165		1,115		823		2,280		1,645
Deposit expense	3,985		3,859		4,958		7,844		9,946
Merger-related expense	—		5		39,346		5		41,070
Amortization of intangible assets	4,001		4,143		4,066		8,144		8,029
Other expense	5,289		4,468		3,013		9,757		6,328
Total noninterest expense	$	94,496	$	92,489	$	115,970	$	186,985	$	182,601

Noninterest expense totaled $94.5 million for the second quarter of 2021, an increase of $2.0 million compared to the first quarter of 2021, primarily driven primarily by a $926,000 increase in compensation and benefits primarily attributable to higher business incentives associated with higher loan production, a $821,000 increase in other expense primarily related to a $518,000 increase in community development support, a $260,000 increase in premises and occupancy expense, and a $251,000 increase in legal and professional services.

Noninterest expense decreased by $21.5 million compared to the second quarter of 2020. The decrease was primarily due to $39.3 million of merger-related expense for the second quarter of 2020 relating to the Opus acquisition. Excluding merger-related expense, noninterest expense increased $17.9 million compared to the second quarter of 2020, primarily due to an $10.5 million increase in compensation and benefits, a $2.8 million increase in premises and occupancy expense, a $2.3 million increase in other expense, a $1.3 million increase in data processing expense, a $1.1 million increase in legal and professional services, a $466,000 increase in FDIC insurance premiums, and a $342,000 increase in loan expense, all predominately as a result of the additional operations, personnel, branches, and divisions retained with the acquisition of Opus.

Noninterest expense totaled $187.0 million for the first six months of 2021, an increase of $4.4 million, or 2%, compared with the first six months of 2020. The increase was driven primarily by increases of $28.6 million in compensation and benefits, $6.6 million in premises and occupancy expense, $3.9 million in data processing expense, $3.4 million in other expense, $1.9 million in legal and professional services expense, and $1.3 million in FDIC insurance premiums, all predominately as a result of the additional operations, personnel, branches, and divisions retained with the acquisition of Opus, partially offset by a $41.1 million decrease in merger-related expense relating to the Opus acquisition.

The Company’s efficiency ratio was 49.4% for the second quarter of 2021, compared to 48.6% for the first quarter of 2021 and 52.9% for the second quarter of 2020. The Company’s efficiency ratio was 49.0% for the first six months of 2021, compared to 52.7% for the first six months of 2020.

109

Income Taxes

For the three months ended June 30, 2021, March 31, ~~2020~~2021, and June 30, ~~2019,~~2020, income tax expense (benefit) ~~expense~~ was ~~$(40.3)~~$35.3 million, ~~$5.8~~$22.3 million, and ~~$14.2~~$(40.3) million, respectively, and the effective income tax rate was ~~(28.9%)~~26.8%, ~~18.5%~~24.5%, and ~~26.9%~~28.9%, respectively. Our effective tax rate for the three months ended June 30, 2021 differs from the 21% federal statutory rate due to the impact of state 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 (“LIHTC”) investments, and the exercise of stock options and vesting of other stock-based compensation.

The increase in the effective tax rate in the second quarter of 2021 compared to the first quarter of 2021 was primarily due to the effect of favorable permanent differences on higher annual projected pre-tax book income. The income tax benefit recorded for the second quarter of 2020 was driven by the significant pre-tax loss ~~recorded for the second quarter, due~~attributable to the provision for credit losses and our merger-related costs associated with the acquisition of Opus. For the second quarter and first six months of 2020, the estimated effective tax rate is deemed highly sensitive as our permanent book to tax differences are significant compared to the estimated pre-tax book income for the year. As such, the Company determined it is appropriate to estimate the effective tax rate and related income tax benefit for the second quarter and the first six months of 2020 based on actual year-to-date pre-tax operating results rather than estimates of pre-tax operating results for the full year, as generally required by ASC 740. As of June 30, 2020, the Company believes the income tax benefit associated with the year-to-date pre-tax loss will be realizable.

The total amount of unrecognized tax benefits was ~~$3.1~~$1.7 million and ~~$2.9 million~~$255,000 as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and was primarily comprised of unrecognized tax benefits ~~from~~related to the ~~Plaza Bancorp~~Opus acquisition ~~during 2017.~~in 2020. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate was ~~$180,000~~$749,000 and $0$184,000 at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company does not believe that the unrecognized tax benefits will change significantly within the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued for ~~$511,000~~$26,000 and ~~$424,000~~$22,000 of such interest at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. No amounts for penalties were accrued.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as state income and franchise taxes in multiple state jurisdictions. The statute of limitations for the assessment of taxes related to the consolidated federal income tax returns is closed for all tax years up to and including ~~2015.~~2016. The expiration of the statute of limitations for the assessment of taxes related to the various state income and franchise tax returns varies 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 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 carryback 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 the analysis, the Company has determined that a valuation allowance against capital loss carryforward of $170,000 was required as of June 30, 2021 as it is more likely that not that the Company would not generate future capital gains to offset the capital loss carryforward. Except for the valuation allowance against the capital loss carryforward of $170,000, a valuation allowance for deferred tax assets was not required as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

~~112~~110

FINANCIAL CONDITION

At June 30, ~~2020,~~2021, assets totaled ~~$20.52~~$20.53 billion, an increase of ~~$8.74 billion,~~$792.9 million, or ~~74.2%~~4.0%, from $19.74 billion at December 31, ~~2019.~~2020. The increase was ~~a result of the acquisition of Opus, which added $5.81 billion in loans, $937.1 million in cash, $829.9 million~~primarily due to increases in investment securities, ~~$191.4~~total loans, and BOLI of $551.5 million, ~~in BOLI~~$362.3 million, and ~~$92.8~~$152.1 million, ~~of goodwill, after purchase accounting adjustments, as well as $1.13 billion of SBA PPP loans. These increases were~~respectively, partially offset by ~~increases~~a $248.9 million decrease in cash and cash equivalents. The increase in BOLI was due to a $150 million purchase of ~~$246.6 million~~additional BOLI in allowance for credit losses on loans, reflecting a provision for loan losses of $150.3 million and an initial ACL of $21.2 million with respect to PCD loans from the acquisition of Opus. The provision increase was primarily a result of the Opus acquisition and the unfavorable changes in economic forecasts employed in the Bank's CECL modeling.June 2021.

Loans

Loans held for investment totaled ~~$15.08~~$13.59 billion at June 30, ~~2020,~~2021, an increase of ~~$6.36 billion,~~$358.2 million, or ~~72.9%~~2.7%, from $13.24 billion at December 31, ~~2019.~~2020. The increase was ~~primarily impacted~~driven by an increase in loans funded during the ~~acquisition~~first half of ~~Opus, which added $5.81 billion of loans held for investment, after purchase accounting adjustments, as well as new loan originations, primarily SBA PPP loans of $1.13 billion,~~2021, partially offset by loan ~~prepayments~~maturities and ~~payoffs, and lower~~prepayments. Business line ~~utilization. Business line~~average utilization rates decreased from ~~44.3% at the end of~~35.28% for the fourth quarter of ~~2019~~2020 to ~~37.9% at the end of~~31.96% for the second quarter of ~~2020.~~2021. Since December 31, ~~2019,~~2020, investor loans secured by real estate increased ~~$4.27 billion,~~$474.7 million, commercial loans ~~increased $1.75 billion,~~decreased $19.2 million, business loans secured by real estate ~~increased $332.2~~decreased $21.2 million, and retail loans ~~increased $5.5~~decreased $76.0 million.

Loans held for sale were $4.7 million at June 30, 2021, which primarily represent the guaranteed portion of SBA ~~and USDA~~ loans that the Bank originates for sale, ~~decreased $665,000~~and increased by $4.1 million from $601,000 at December 31, ~~2019 to $1.0 million.~~2020.

The total end-of-period weighted average interest rate on loans, net of fees and discounts, at June 30, ~~2020~~2021 was ~~4.12%~~4.11%, compared to ~~4.91%~~4.27% at December 31, ~~2019.~~2020. The decrease reflects the impact of lower rates on new originations as well as the repricing of loans as a result of the Federal Reserve’s interest rate decreases. The quarter-over-quarter and year-over-year decreases reflect the impact of lower rates on new originations as well as the repricing of loans as a result of the Federal Reserve Board's federal funds rate decreases and the continued impact from prepayments of ~~the 1% SBA PPP~~higher rate loans. ~~Excluding the SBA PPP loans, the end of period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2020 was 4.46%.~~

~~113~~111

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:


		June 30, 2020										December 31, 2019											June 30, 2021				December 31, 2020
		Amount		Percent of Total		Weighted Average Interest Rate		Amount		Percent of Total		Weighted Average Interest Rate
		(Dollars in thousands)
(Dollars in thousands)														(Dollars in thousands)	Amount		Percent of Total		Weighted Average Interest Rate		Amount		Percent of Total		Weighted Average Interest Rate
Investor loans secured by real estate	Investor loans secured by real estate													Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	2,783,692	18.5	%	4.41	%	$	2,070,141	23.7	%	4.61	%	CRE non-owner-occupied	$	2,810,233	20.7	%	4.27	%	$	2,675,085	20.2	%	4.35	%
Multifamily	Multifamily	5,225,557		34.6		4.15		1,575,726		18.1		4.30		Multifamily	5,539,464		40.7		3.89		5,171,356		39.1		4.04
Construction and land	Construction and land	357,426		2.4		5.81		438,786		5.0		5.95		Construction and land	297,728		2.2		5.02		321,993		2.4		5.60
SBA secured by real estate	SBA secured by real estate	59,482		0.4		5.02		68,431		0.8		6.62		SBA secured by real estate	53,003		0.4		4.98		57,331		0.4		5.01
Total investor loans secured by real estate	Total investor loans secured by real estate	8,426,157		55.9		4.31		4,153,084		47.6		4.67		Total investor loans secured by real estate	8,700,428		64.0		4.06		8,225,765		62.1		4.21
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,170,154		14.4		4.56		1,846,554		21.2		4.83		CRE owner-occupied	2,089,300		15.4		4.29		2,114,050		16.0		4.45
Franchise real estate secured	Franchise real estate secured	364,647		2.4		5.19		353,240		4.0		5.39		Franchise real estate secured	358,120		2.6		4.87		347,932		2.6		5.07
SBA secured by real estate	SBA secured by real estate	85,542		0.6		5.25		88,381		1.0		6.92		SBA secured by real estate	72,923		0.5		5.22		79,595		0.6		5.21
Total business loans secured by real estate	Total business loans secured by real estate	2,620,343		17.4		4.67		2,288,175		26.2		5.00		Total business loans secured by real estate	2,520,343		18.5		4.40		2,541,577		19.2		4.56
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	2,051,313		13.6		3.95		1,393,270		16.0		5.19		Commercial and industrial	1,795,144		13.2		3.73		1,768,834		13.4		3.85
Franchise non-real estate secured	Franchise non-real estate secured	523,755		3.5		5.67		564,357		6.5		5.70		Franchise non-real estate secured	401,315		3.0		5.13		444,797		3.4		5.40
SBA non-real estate secured	SBA non-real estate secured	21,057		0.1		5.38		17,426		0.2		7.06		SBA non-real estate secured	13,900		0.1		5.61		15,957		0.1		5.62
SBA PPP		1,128,780		7.5		1.00		—		—		—

Total commercial loans	Total commercial loans	3,724,905		24.7		3.29		1,975,053		22.7		5.35		Total commercial loans	2,210,359		16.3		4.00		2,229,588		16.9		4.16
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	265,170		1.7		4.41		255,024		2.9		4.77		Single family residential	157,228		1.2		4.16		232,574		1.8		4.28
Consumer	Consumer	46,309		0.3		2.50		50,975		0.6		3.96		Consumer	6,240		—		5.09		6,929		—		5.56
Total retail loans	Total retail loans	311,479		2.0		4.14		305,999		3.5		4.64		Total retail loans	163,468		1.2		4.19		239,503		1.8		4.31
Gross loans held for investment ⁽¹⁾	Gross loans held for investment ⁽¹⁾	15,082,884		100.0	%	4.12		8,722,311		100.0	%	4.91		Gross loans held for investment (1)	13,594,598		100.0	%	4.11		13,236,433		100.0	%	4.27
Allowance for credit losses for loans held for investment ⁽²⁾		(282,271)						(35,698)
Allowance for credit losses for loans held for investment														Allowance for credit losses for loans held for investment	(232,774)						(268,018)
Loans held for investment, net	Loans held for investment, net	$	14,800,613					$	8,686,613					Loans held for investment, net	$	13,361,824					$	12,968,415

Total unfunded loan commitments														Total unfunded loan commitments	$	2,345,364					$	1,947,250
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	$	1,007					$	1,672					Loans held for sale, at lower of cost or fair value	$	4,714					$	601

⁽¹⁾ Includes unaccreted fair value net purchase discounts of ~~$144.5~~$94.4 million and ~~$40.7~~$113.8 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

⁽²⁾The allowance for credit losses as of December 31, 2019 was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

~~114~~112

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 ~~0.25%~~0.14% at June 30, ~~2020,~~2021, compared to ~~0.22%~~0.10% at December 31, ~~2019.~~2020.

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


		30 - 59 Days					60 - 89 Days							90 Days or More							Total						30 - 59 Days				60 - 89 Days				90 Days or More	Total
(Dollars in thousands)																		(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 June 30, 2021																		At June 30, 2021
Investor loans secured by real estate																		Investor loans secured by real estate
CRE non-owner-occupied																		CRE non-owner-occupied	—	$	—		—	$	—		3	$	10,343		3	$	10,343
		# 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 June 30, 2020
Investor loans secured by real estate
CRE non-owner-occupied		—	$	—		—	$	—		3	$	3,072		3	$	3,072
Multifamily		3	3,118			—	—			—	—			3	3,118
Construction and land		2	895			—	—			1	1,802			3	2,697
SBA secured by real estate	SBA secured by real estate	—	—			—	—			2	988			2	988			SBA secured by real estate	—	—			—	—			2	440			2	440
Total investor loans secured by real estate	Total investor loans secured by real estate	5	4,013			—	—			6	5,862			11	9,875			Total investor loans secured by real estate	—	—			—	—			5	10,783			5	10,783
Business loans secured by real estate	Business loans secured by real estate																	Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	1	1,062			1	319			4	5,931			6	7,312			CRE owner-occupied	—	—			—	—			3	5,016			3	5,016

SBA secured by real estate	SBA secured by real estate	—	—			—	—			3	1,006			3	1,006			SBA secured by real estate	—	—			—	—			1	450			1	450
Total business loans secured by real estate	Total business loans secured by real estate	1	1,062			1	319			7	6,937			9	8,318			Total business loans secured by real estate	—	—			—	—			4	5,466			4	5,466
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	13	796			10	3,116			6	5,726			29	9,638			Commercial and industrial	2	29			2	83			4	2,119			8	2,231
Franchise non-real estate secured		—	—			—	—			3	8,442			3	8,442

SBA non-real estate secured	SBA non-real estate secured	—	—			1	328			4	840			5	1,168			SBA non-real estate secured	—	—			—	—			1	677			1	677
Total commercial loans	Total commercial loans	13	796			11	3,444			13	15,008			37	19,248			Total commercial loans	2	29			2	83			5	2,796			9	2,908
Retail loans	Retail loans																	Retail loans
Single family residential		2	257			2	364			—	—			4	621
Consumer		2	120			2	6			—	—			4	126

Total retail loans	Total retail loans	4	377			4	370			—	—			8	747			Total retail loans	1	178			—	—			—	—			1	178
Total	Total	23	$	6,248		16	$	4,133		26	$	27,807		65	$	38,188		Total	3	$	207		2	$	83		14	$	19,045		19	$	19,335
Delinquent loans to loans held for investment	Delinquent loans to loans held for investment		0.04		%		0.03		%		0.18		%		0.25		%	Delinquent loans to loans held for investment		—		%		—		%		0.14		%		0.14		%

~~115~~113


		30 - 59 Days					60 - 89 Days							90 Days or More							Total						30 - 59 Days				60 - 89 Days				90 Days or More	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
At December 31, 2019		(Dollars in thousands)
(Dollars in thousands)																		(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, 2020																		At December 31, 2020
Investor loans secured by real estate	Investor loans secured by real estate																	Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	2	$	1,178		—	$	—		2	$	1,088		4	$	2,266		CRE non-owner-occupied	—	$	—		—	$	—		2	$	757		2	$	757

Multifamily																		Multifamily	1	1			—	—			—	—			1	1

SBA secured by real estate	SBA secured by real estate	—	—			—	—			1	390			1	390			SBA secured by real estate	—	—			—	—			3	1,257			3	1,257
Total investor loans secured by real estate	Total investor loans secured by real estate	2	1,178			—	—			3	1,478			5	2,656			Total investor loans secured by real estate	1	1			—	—			5	2,014			6	2,015
Business loans secured by real estate	Business loans secured by real estate																	Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	1	331			—	—			—	—			1	331			CRE owner-occupied	—	—			—	—			4	5,304			4	5,304

SBA secured by real estate	SBA secured by real estate	—	—			1	589			4	846			5	1,435			SBA secured by real estate	1	486			—	—			5	1,073			6	1,559
Total business loans secured by real estate	Total business loans secured by real estate	1	331			1	589			4	846			6	1,766			Total business loans secured by real estate	1	486			—	—			9	6,377			10	6,863��
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	7	422			6	826			2	2,996			15	4,244			Commercial and industrial	10	428			2	57			6	2,898			18	3,383
Franchise non-real estate secured		—	—			2	9,142			—	—			2	9,142

SBA non-real estate secured	SBA non-real estate secured	2	168			—	—			5	1,118			7	1,286			SBA non-real estate secured	2	338			—	—			1	707			3	1,045
Total commercial loans	Total commercial loans	9	590			8	9,968			7	4,114			24	14,672			Total commercial loans	12	766			2	57			7	3,605			21	4,428
Retail loans	Retail loans																	Retail loans

Single family residential (5)																		Single family residential (5)	1	15			—	—			—	—			1	15
Consumer	Consumer	1	5			1	2			1	1			3	8			Consumer	1	1			—	—			—	—			1	1
Total retail loans	Total retail loans	1	5			1	2			1	1			3	8			Total retail loans	2	16			—	—			—	—			2	16
Total	Total	13	$	2,104		10	$	10,559		15	$	6,439		38	$	19,102		Total	16	$	1,269		2	$	57		21	$	11,996		39	$	13,322
Delinquent loans to loans held for investment	Delinquent loans to loans held for investment		0.02		%		0.12		%		0.08		%		0.22		%	Delinquent loans to loans held for investment		0.01		%		—		%		0.09		%		0.10		%

~~116~~

~~Allowance for Credit Losses~~

The Company accounts for credit losses on 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 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 estimated probability of default, (ii) the estimated loss given default, 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. In the case of unfunded loan commitments, the Company’s incorporates estimates for utilization, based on its own historical data. Probability of default and loss given default for commercial real estate loans are derived from a third party, using proxy loan information, and loan and property level attributes. Additionally, loss given default for commercial real estate loans incorporate an estimate for the loss severity associated with loans where the borrower fails to meet their debt obligation at maturity. External factors that impact loss given default for commercial real estate loans include: changes in the CRE Price Index, GDP growth rate, unemployment rates and the Moody’s Baa rating corporate debt interest rate spread.

For commercial loans, probability of default is based on an internally developed rating scale that assigns probability of default based on the Company’s internal risk grades for each loan. Changes in risk grades for commercial loans, result in changes in probability of default. The Company obtains loss given default for commercial 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 this segment.

~~Probability of default for both commercial real estate and commercial loans are also heavily impacted by current and expected economic conditions.~~

The ACL for retail loans is based on a historical loss rate model, which incorporates losses 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 the loan. The Company uses economic scenarios from Moody’s. These 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 in the Company’s ACL model, 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 as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions and due to the occurrence of specific events such as the COVID-19 pandemic.

~~117~~

As of January 1, 2020, upon the adoption of ASC 326, Company’s ACL model used three 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 weightings of 30%. As of June 30, 2020, the Company’s ACL model used the same three probability weighted scenarios, updated for current expected economic conditions, including the current and estimated future impact associated with the on-going COVID-19 pandemic. The Company evaluated the weightings of each economic scenario in the current period with the assistance of an independent third party, 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. For the three months ended March 31, 2020, the Company’s ACL model used three probability-weighted scenarios, however the composition and weightings of those scenarios differed from those used in the model as of June 30, 2020 due to the rapid emergence of the of the COVID-19 pandemic in the first quarter of 2020and the ensuing decline in economic activity. These scenarios included (i) a base-case scenario with a weighting of 37.5%, (ii) a critical pandemic scenario with a weighting of 30%, and (iii) a more severe down-side scenario with a weighting of 32.5%. The composition of these scenarios and their assigned weightings were determined with the assistance of an independent third party, and were reflective of the rapidly changing economic conditions, economic uncertainty and volatility in financial markets brought on by the COVID-19 pandemic and the estimated likelihood of each scenario occurring as of March 31, 2020.

The Company currently forecasts economic conditions over a two-year period, which we believe is a reasonable and supportable period. Beyond the point which the Company can provide for a reasonable and supportable forecast, economic variables revert to their long-term averages. The Company has reflected this reversion over a period of three years in each of its economic scenarios.

The forecasts used in the Company’s ACL model are produced by an independent third party and have been widely used by banks, credit unions, government agencies and real estate developers. These economic forecasts cover all states and metropolitan areas in the Unites States, and reflect changes in economic variables such as: GDP growth, interest rates, employment rates, changes in wages, retail sales, industrial production, metrics associated with the single-family and multifamily housing markets, vacancy rates, changes in equity market prices and energy markets.

The Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL. As of June 30, 2020, the Company’s ACL model incorporated the following assumptions for key economic variables in the base-case and downside scenarios:

~~Base-case Scenario:~~

•CRE Price Index decreases by an approximate annualized rate of 16% through the remainder of 2020 with the rate of decline slowing in Q1 2021 to 8%, before returning to growth in the second quarter of 2021.

•~~Elevated levels of U.S. unemployment reaching approximately 14% in Q2 2020 and then declining to levels of 9% to 10% through the end of 2021.~~

~~118~~

~~Upside Scenario:~~

•~~CRE Price Index decreases by an approximate annualized rate of 15% and 6% during the third and fourth quarters of 2020, respectively, before returning to growth by the first quarter of 2021.~~

•An approximate annualized decrease in real GDP of 27% in Q2 2020, followed by a 20% increase in real GDP in the third quarter of 2020, and growth of approximately 4% growth through the end of the second quarter of 2021.

•Elevated levels of U.S. unemployment at approximately 13% for Q2 2020, followed by unemployment of approximately 9% through the remainder of 2020, and decreasing gradually to approximately 7% by the end of 2021.

~~Downside Scenario:~~

•CRE Price Index decreases by an approximate annualized rate of 25% and 26% in the third and fourth quarters of 2020, respectively, with the rate of decline decreasing to 21% and 4% in the first and second quarters of 2021, respectively, before returning to growth in the third quarter of 2021.

•A decrease in real GDP of an approximate annualized rate of 36% in the second quarter of 2020, followed by an increase in GDP of approximately 13% in the third quarter of 2020, and then declining by approximately 4% in the fourth quarter of 2020, 3% in the first quarter of 2021, 1% growth in the second quarter of 2021 and growth of 5% to 6% in the remaining two quarters of 2021.

•Elevated levels of U.S. unemployment at approximately 15% for Q2 2020, followed by unemployment of approximately 11% and 12% in Q3 and Q4 2020. Unemployment is projected to remain elevated at approximately 12% through the end of 2021.

The Company recognizes that historical information used as the basis for determining future expected credit losses may not always, by themselves, 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 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 June 30, 2020, qualitative adjustments included in the ACL totaled $15.0 million. These adjustments relate to potential limitations in the model. Management determined through additional review that certain key model drivers are potentially underestimating the impact the on-going COVID-19 pandemic may have on small and medium sized businesses, and may not be fully reflecting the potential for a more turbulent economic recovery. Management reviews the need for and appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.

~~119~~

At June 30, 2020, our allowance for credit losses on loans was $282.3 million, an increase of $246.6 million from $35.7 million at December 31, 2019, is reflective of a $55.7 million cumulative-effect Day 1 adjustment to ACL on loans associated with the Company’s adoption of ASC 326 on January 1, 2020, which was recorded through a cumulative effect adjustment to retained earnings, as well as $175.6 million in provisions for credit losses on loans, net charge-offs of $6.0 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses during the three and six months ended June 30, 2020 includes approximately $75.9 million related to the initial ACL required for the acquisition of non-PCD loans in the Opus acquisition. Under ASC 326, the Company is required to record an ACL for estimates of life-time credit losses on loans at the time of acquisition. For non-PCD loans, the initial ACL is established through a charge to provision for credit losses at the time of acquisition. However, the ACL for PCD loans is established through an adjustment to the loan’s purchase price (or initial fair value). In addition, the provision for credit losses for the three and six months ended June 30, 2020 is also reflective of unfavorable changes in economic forecasts used in the Company’s ACL model driven by the COVID-19 pandemic.

The Company incurred $4.7 million and $6.0 million of net charge-offs, respectively, during the three and six months ended June 30, 2020, compared to $3.6 million and $3.8 million, respectively during the three and six months ended June 30, 2019. The increase between second quarters was primarily due to the charge-off of a commercial and industrial loan relationship of $1.5 million, a franchise non-real estate secured loan of $1.0 million, as well as a $600,000 charge-off of an SBA non-real estate secured loan acquired from Opus.

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.

At June 30, 2020, the Company believes the ACL was adequate to cover current expected credit losses in the loan portfolio. 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.

~~120~~

The following table sets forth the Company’s ACL 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:

June 30, 2020 December 31, 2019
Balance at end of period applicable to Amount Allowance as a % of Category Total % of Loans in Category to
Total Loans
Amount ⁽¹⁾
Allowance as a % of Category Total % of Loans in Category to
Total Loans
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied $ 63,007 2.26 % 18.5 % $ 1,899 0.09 % 23.7 %
Multifamily 63,511 1.22 34.6 729 0.05 18.1
Construction and land 18,804 5.26 2.4 4,484 1.02 5.0
SBA secured by real estate 2,010 3.38 0.4 1,915 2.80 0.8
Total investor loans secured by real estate 147,332 1.75 55.9 9,027 0.22 47.6
Business loans secured by real estate
CRE owner-occupied 48,213 2.22 14.4 2,781 0.15 21.2
Franchise real estate secured 13,060 3.58 2.4 592 0.17 4.0
SBA secured by real estate 4,368 5.11 0.6 2,119 2.40 1.0
Total business loans secured by real estate 65,641 2.51 17.4 5,492 0.24 26.2
Commercial loans
Commercial and industrial 41,967 2.05 13.6 13,857 0.99 16.0
Franchise non-real estate secured 21,676 4.14 3.5 5,816 1.03 6.5
SBA non-real estate secured 600 2.85 0.1 445 2.55 0.2
SBA PPP — — 7.5 — — —
Total commercial loans 64,243 1.72 24.7 20,118 1.02 22.7
Retail loans
Single family residential 1,479 0.56 1.7 655 0.26 2.9
Consumer loans 3,576 7.72 0.3 406 0.80 0.6
Total retail loans $ 5,055 1.62 % 2.0 % $ 1,061 0.35 % 3.5 %
Total $ 282,271 2.02 % 100.0 % $ 35,698 0.41 % 100.0 %

⁽¹⁾ The allowance for credit losses as of December 31, 2019 was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. The allowance for credit losses at June 30, 2020 is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

At June 30, 2020, the ratio of allowance for credit losses to loans held for investment was 2.02%, excluding SBA PPP loans, a significant increase from 0.41% at December 31, 2019 due to the adoption of the CECL accounting standard. Our unamortized fair value discount on the loans acquired totaled $144.5 million, or 1.03% of total loans held for investment excluding SBA PPP loans, at June 30, 2020, compared to $40.7 million, or 0.47% of total loans held for investment, at December 31, 2019.

~~121~~

~~The following table sets forth the activity within the Company’s allowance for credit losses in each of the loan categories listed for the periods indicated:~~

Three Months Ended ⁽¹⁾
Six Months Ended ⁽¹⁾
June 30, March 31, June 30, June 30,
2020 2019 2019 2020 2019
(Dollars in thousands)
Balance, beginning of period $ 115,422 $ 35,698 $ 37,856 $ 35,698 $ 36,072
Adoption of ASC 326 — 55,686 — 55,686 —
Initial ACL recorded for PCD Loans 21,242 — — 21,242 —
Provision for credit losses 150,257 25,382 742 175,639 2,754
Charge-offs:
Investor loans secured by real estate
CRE non-owner-occupied — (387) (488) (387) (488)
SBA secured by real estate (554) — (721) (554) (721)
Business loans secured by real estate
Franchise real estate secured — — (1,376) — (1,376)
SBA secured by real estate — (315) (254) (315) (254)
Commercial loans
Commercial and industrial (2,286) (490) (393) (2,776) (695)
Franchise non-real estate secured (1,227) — (160) (1,227) (160)
SBA non-real estate secured (556) (236) (244) (792) (244)
Retail loans
Single family residential (62) — — (62) —
Consumer loans — (8) — (8) (5)
Total charge-offs (4,685) (1,436) (3,636) (6,121) (3,943)
Recoveries:
Business loans secured by real estate
CRE owner-occupied 11 12 15 23 23
SBA secured by real estate 3 71 — 74 —
Commercial loans
Commercial and industrial 21 5 47 26 114
SBA non-real estate secured (2) 4 1 2 4
Retail loans
Single family residential 1 — 1 1 1
Consumer loans 1 — — 1 1
Total recoveries 35 92 64 127 143
Net loan charge-offs (4,650) (1,344) (3,572) (5,994) (3,800)
Balance, end of period $ 282,271 $ 115,422 $ 35,026 $ 282,271 $ 35,026
Ratios:
Annualized net charge-offs to average total loans, net 0.17 % 0.06 % 0.16 % 0.12 % 0.09 %
Allowance for loan losses to loans held for investment at end of period, excluding SBA PPP loans 2.02 1.32 0.40 2.02 0.40

⁽¹⁾ The allowance for credit losses as of June 30, 2019 was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

~~122~~114

Troubled Debt Restructurings

In accordance with the CARES Act, the Company ~~has~~ implemented various loan modification programs beginning in April 2020 to provide its borrowers relief from the economic impacts of COVID-19 and ~~elected to not apply TDR classification to any~~determined none of the COVID-19 related loan ~~modifications.~~modifications need to be characterized as TDRs. As of June 30, 2021, there was one single family residential loan for $819,000 classified as a COVID-19 modification under Section 4013 of the CARES Act. Additionally, as of June 30, 2021, no loans were in-process for potential modification. At December 31, 2020, ~~1,461 loans with a total balance of $2.24 billion, of which 345~~52 loans totaling ~~$688.4~~$79.5 million, ~~were acquired in connection with the acquisition~~or 0.60% of ~~Opus, were modified due to COVID-19 hardship under the CARES Act, which represents 14.9% of total~~ loans held for ~~investment.~~investment, remained within their modification period, of which $20.2 million of loans had migrated to the substandard risk grade. No loans were in-process for potential modification as of December 31, 2020. See Note 6 - Loans Held for Investment for additional information.

Nonperforming Assets

Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), ~~troubled debt restructured loans,~~ OREO, and other repossessed assets owned. It is our general policy to place a loan on nonaccrual status when the loan becomes 90 days or more past due or when collection of principal or interest appears doubtful.

Nonperforming assets totaled ~~$34.2~~$34.4 million, or 0.17% of total assets, at June 30, ~~2020,~~2021, an increase from ~~$9.0~~$29.2 million, or ~~0.08%~~0.15% of total assets, at December 31, 2019. At June 30, 2020, nonperforming loans totaled $33.8 million, or 0.22%, of loans held for investment, an increase from $8.5 million, or 0.10% of loans held for investment at December 31, 2019. Other2020. There was no other real estate owned ~~was $386,000~~ at June 30, ~~2020, down from $441,000 at~~2021 and December 31, ~~2019.~~2020. The increase in nonperforming assets during the six month period ending June 30, ~~2020~~2021 was primarily attributable to ~~the addition~~$10.0 million of nonperforming loans ~~of $30.7 million, including~~added during the quarter, primarily CRE non-owner occupied loans, and to a ~~franchise credit relationship of $9.1 million, an owner-occupied~~lesser extent commercial ~~real estate credit relationship of 5.1 million~~ and ~~nonperforming loans from Opus totaling $1.3 million, consisting mostly of single family residential~~industrial loans, partially offset by loan charge-offs ~~aggregating $2.6 million,~~and repayments ~~of $2.0 million and~~during the ~~sale of a single C&I loan of $800,000.~~quarter. The Company had no loans 90 days or more past due and ~~still~~ accruing at June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

~~123~~115

The following table sets forth our composition of nonperforming assets at the dates indicated:


		June 30, 2020			December 31, 2019
		(Dollars in thousands)
(Dollars in thousands)								(Dollars in thousands)	June 30, 2021			December 31, 2020
Nonperforming assets	Nonperforming assets							Nonperforming assets
Investor loans secured by real estate	Investor loans secured by real estate							Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	5,322		$	1,088		CRE non-owner-occupied	$	12,296		$	2,792

Construction and land		1,802			—

SBA secured by real estate	SBA secured by real estate	988			390			SBA secured by real estate	440			1,257
Total investor loans secured by real estate	Total investor loans secured by real estate	8,112			1,478			Total investor loans secured by real estate	12,736			4,049
Business loans secured by real estate	Business loans secured by real estate							Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	6,759			—			CRE owner-occupied	5,016			6,083

SBA secured by real estate	SBA secured by real estate	1,083			928			SBA secured by real estate	692			1,143
Total business loans secured by real estate	Total business loans secured by real estate	7,842			928			Total business loans secured by real estate	5,708			7,226
Commercial loans	Commercial loans							Commercial loans
Commercial and industrial	Commercial and industrial	6,070			4,637			Commercial and industrial	2,670			3,974
Franchise non-real estate secured	Franchise non-real estate secured	10,170			—			Franchise non-real estate secured	12,584			13,238
SBA non-real estate secured	SBA non-real estate secured	840			1,118			SBA non-real estate secured	677			707
Total commercial loans	Total commercial loans	17,080			5,755			Total commercial loans	15,931			17,919
Retail loans	Retail loans							Retail loans
Single family residential	Single family residential	791			366			Single family residential	12			15

Total retail loans	Total retail loans	791			366			Total retail loans	12			15
Total nonperforming loans	Total nonperforming loans	33,825			8,527			Total nonperforming loans	34,387			29,209
Other real estate owned	Other real estate owned	386			441			Other real estate owned	—			—

Other assets owned								Other assets owned	—			—
Total	Total	$	34,211		$	8,968		Total	$	34,387		$	29,209

Allowance for credit losses ⁽¹⁾		$	282,271		$	35,698
Allowance for credit losses as a percent of total nonperforming loans ⁽¹⁾		835		%	419		%
Allowance for credit losses								Allowance for credit losses	$	232,774		$	268,018
Allowance for credit losses as a percent of total nonperforming loans								Allowance for credit losses as a percent of total nonperforming loans	677		%	918		%
Nonperforming loans as a percent of loans held for investment	Nonperforming loans as a percent of loans held for investment	0.22			0.10			Nonperforming loans as a percent of loans held for investment	0.25			0.22
Nonperforming assets as a percent of total assets	Nonperforming assets as a percent of total assets	0.17			0.08			Nonperforming assets as a percent of total assets	0.17			0.15
TDR included in nonperforming loans	TDR included in nonperforming loans	$	700		—			TDR included in nonperforming loans	$	17,848		—

⁽¹⁾

116

Allowance for Credit Losses

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 estimated probability of default, (ii) the estimated loss given default, 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. With respect to unfunded loan commitments, the Company’s incorporates estimates for utilization, based on historical loan data. Probability of default and loss given default for investor loans secured by real estate are derived from a third party, using proxy loan information, and loan and property level attributes. Additionally, loss given default 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 loss given default for commercial real estate loans include: changes in the index for CRE pricing, GDP growth rate, unemployment rates, and the Moody’s Baa rating corporate debt interest rate spread.

For business loans secured by real estate and commercial loans, probability of default is based on an internally developed rating scale that assigns probability of default based on the Company’s internal risk grades for each loan. Changes in risk grades for these loans result in changes in probability of default. The Company obtains loss given default 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.

Probability of default for both investor and business real estate loans, as well as commercial loans are 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 Moody’s Analytics. These 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 as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions and due to the occurrence of specific events such as the ongoing COVID-19 pandemic.

117

As of June 30, 2021, the Company’s ACL model used three probability-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 weightings of 30%. These economic scenarios include the current and estimated future impact associated with the ongoing COVID-19 pandemic. The Company evaluated the weightings of each economic scenario in the current period with the assistance of Moody's Analytics, 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 probability-weighted scenarios in the second quarter of 2021 and the weighting assigned to each scenario is consistent with the approach used in the Company’s ACL model for the three months ended March 31, 2021 and June 30, 2020.

The Company, with the assistance of Moody’s Analytics, currently forecasts probability of default and loss given default based on economic scenarios over a two-year period, which we believe is a reasonable and supportable period. Beyond this point, probability of default and loss given default 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.

The economic forecasts used in the Company’s ACL model cover all states and metropolitan areas in the Unites States, and reflect changes in economic variables such as: GDP growth, interest rates, employment rates, changes in wages, retail sales, industrial production, metrics associated with the single-family and multifamily housing markets, vacancy rates, changes in equity market prices, and energy markets.

As of June 30, 2021, the Company’s ACL model incorporated the following assumptions for key economic variables in the base-case, upside and downside scenarios:

Base-case Scenario:

•CRE price index experiences a slowing annualized rate of decline throughout 2021 from approximately -13% in early 2021 to approximately -4% by the end of 2021. This scenario assumes the index returns to growth in 2022 and 2023. This scenario also assumes the CRE price index returns to moderate levels of growth beginning in the first quarter of 2022, with the annualized rate of growth increasing from 2% in early 2022 to 10% by the end of 2022. Under this scenario, the CRE price index is anticipated to increase approximately 8-9% on an annualized basis in 2023.

•U.S. unemployment declining from approximately 6% in early 2021 to approximately 4.5% by the end of 2021. This scenario also assumes unemployment continues to decline in 2022 from approximately 4% in early 2022 to approximately 3.5% by the end of 2022. This scenario assumes the rate of unemployment holds constant at approximately 3.5% throughout 2023.

118

Upside Scenario:

•CRE price index experiences declines throughout 2021, with the estimated annualized rate of decline slowing from approximately -13% in early 2021 to approximately -1% by the end of 2021. This scenario also assumes the CRE price index returns growth in 2022, with the annualized rate of growth increasing from 7% in early 2022 to 12% by the end of 2022. Under this scenario, the CRE price index is anticipated to experience a decelerating annualized rate of increase from approximately 9% in early 2023 to approximately 7% by the end of 2023.

Downside Scenario:

•CRE price index experiences accelerating annualized rates of decline throughout 2021. Annualized declines of approximately -13% in early 2021 and accelerating to approximately -20% by the end of 2021. The CRE price index is estimated to experience decelerating declines throughout 2022, with the annualized rate of decline slowing from approximately -24% in early 2022 to approximately -2% by the end of 2022. Under this scenario, the CRE price index is anticipated to experience accelerating annualized growth of approximately 7% in early 2023 to approximately 20% by the end of 2023.

•U.S. real GDP experiences growth of approximately 6% to 10% in the first half of 2021, followed by a decrease of -3% for the remainder of 2021. This scenario also assumes a return to modest annualized growth in real GDP by the second quarter of 2022, with growth of approximately 2-3% for the remainder of 2022. This scenario assumes real GDP fluctuates within a range of approximately 2-4% throughout 2023.

•U.S. unemployment increases throughout 2021 from approximately 6% in early 2021 to approximately 8% by the end of 2021. This scenario also assumes unemployment remains elevated in 2022 at approximately 9%. This scenario assumes a decline in unemployment throughout 2023, from approximately 8% in early 2023 to approximately 7% at the end of 2023.

119

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 June 30, 2021, qualitative adjustments included in the ACL totaled $8.0 million. These adjustments primarily relate to continued uncertainty concerning the strength of the economic recovery and how it may impact certain classes of loans in the loan portfolio. Management determined through additional review that the uneven recovery and continued government interventions, are potentially underestimating the impact the ongoing COVID-19 pandemic may have on certain segments and classes of the loan portfolio, such as loans within the SBA, franchise, C&I, and construction classifications. 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 ACL was $232.8 million at June 30, 2021, $267.0 million at March 31, 2021 and $268.0 million at December 31, 2020. The decrease in the ACL for loans held for investment during the three months ended June 30, 2021 of $34.2 million was comprised of a $33.1 million provision for credit losses recapture and $1.1 million in net charge-offs. The provision recapture for the three months ended June 30, 2021 was reflective of improving economic forecasts used in the Company’s ACL model relative to prior periods and the continued strong asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment during the quarter. The decrease in the ACL for the six months ended June 30, 2021 of $35.2 million was comprised of a $32.8 million provision for credit losses recapture and $2.4 million in net charge-offs. The provision recapture for the six months ended June 30, 2021 was also reflective of improving economic forecasts used in the Company’s ACL model and the continued strong asset quality profile of the loan portfolio.

The ACL was $282.3 million at June 30, 2020, $115.4 million at March 31, 2020, and $35.7 million at December 31, 2019. The change in the ACL for the three months ended June 30, 2020 of $166.8 million was comprised of a $150.3 million provision for credit losses, $4.7 million in net charge-offs, and the establishment of $21.2 million in net ACL for PCD loans acquired in the Opus acquisition. The ACL established for PCD loans was reflected as an adjustment to the acquired balance of the loans in accordance with ASC 326. The change in the ACL for the six months ended June 30, 2020 of $246.6 million was reflective of a $55.7 million addition associated with the Company’s adoption of ASC 326 on January 1, 2020, which was recorded through a cumulative effect adjustment to retained earnings, as well as a $175.6 million provision for credit losses, net charge-offs of $6.0 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses for the three and six months ended June 30, 2020 includes $75.9 million related to the initial ACL for non-PCD loans acquired in the Opus acquisition, as required by ASC 326. The provision for credit losses for the three and six months ended June 30, 2020 was also reflective of unfavorable changes in economic forecasts used in the Company’s ACL model, which was driven by the COVID-19 pandemic.

120

At June 30, 2021, the Company believes the ACL was adequate to cover current expected credit losses in the loan portfolio. 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.

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:


	June 30, 2021						December 31, 2020
(Dollars in thousands)	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
Investor loans secured by real estate
CRE non-owner-occupied	$	47,112	1.68	%	20.7	%	$	49,176	1.84	%	20.2	%
Multifamily	59,059		1.07		40.7		62,534		1.21		39.1
Construction and land	9,548		3.21		2.2		12,435		3.86		2.4
SBA secured by real estate	4,681		8.83		0.4		5,159		9.00		0.4
Total investor loans secured by real estate	120,400		1.38		64.0		129,304		1.57		62.1
Business loans secured by real estate
CRE owner-occupied	35,747		1.71		15.4		50,517		2.39		16.0
Franchise real estate secured	11,436		3.19		2.6		11,451		3.29		2.6
SBA secured by real estate	6,317		8.66		0.5		6,567		8.25		0.6
Total business loans secured by real estate	53,500		2.12		18.5		68,535		2.70		19.2
Commercial loans
Commercial and industrial	39,879		2.22		13.2		46,964		2.66		13.4
Franchise non-real estate secured	17,313		4.31		3.0		20,525		4.61		3.4
SBA non-real estate secured	730		5.25		0.1		995		6.24		0.1

Total commercial loans	57,922		2.62		16.3		68,484		3.07		16.9
Retail loans
Single family residential	670		0.43		1.2		1,204		0.52		1.8
Consumer loans	282		4.52		—		491		7.09		—
Total retail loans	952		0.58		1.2		1,695		0.71		1.8
Total	$	232,774	1.71	%	100.0	%	$	268,018	2.02	%	100.0	%

At June 30, 2021, the ratio of allowance for credit losses ~~as of~~to loans held for investment was 1.71%, a decrease from 2.02% at December 31, ~~2019~~2020. Our unamortized fair value discount on the loans acquired totaled $94.4 million, or 0.69% of total loans held for investment at June 30, 2021, compared to $113.8 million, or 0.85% of total loans held for investment at December 31, 2020.

121

The following table sets forth the activity within the Company’s allowance for credit losses in each of the loan categories listed for the periods indicated:


	Three Months Ended									Six Months Ended (1)
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Balance, beginning of period	$	266,999		$	268,018		$	115,422		$	268,018		$	35,698
Adoption of ASC 326	—			—			—			—			55,686
Initial ACL recorded for PCD Loans	—			—			21,242			—			21,242
Provision (recapture) for credit losses	(33,131)			315			150,257			(32,816)			175,639
Charge-offs
Investor loans secured by real estate
CRE non-owner-occupied	—			(154)			—			(154)			(387)


SBA secured by real estate	—			(265)			(554)			(265)			(554)
Business loans secured by real estate


SBA secured by real estate	—			(98)			—			(98)			(315)
Commercial loans
Commercial and industrial	(3,290)			(1,279)			(2,286)			(4,569)			(2,776)
Franchise non-real estate secured	—			(156)			(1,227)			(156)			(1,227)
SBA non-real estate secured	—			—			(556)			—			(792)
Retail loans
Single family residential	—			—			(62)			—			(62)
Consumer loans	—			—			—			—			(8)
Total charge-offs	(3,290)			(1,952)			(4,685)			(5,242)			(6,121)
Recoveries





Business loans secured by real estate
CRE owner-occupied	15			15			11			30			23

SBA secured by real estate	80			—			3			80			74
Commercial loans
Commercial and industrial	2,098			601			21			2,699			26

SBA non-real estate secured	2			2			(2)			4			2
Retail loans
Single family residential	1			—			1			1			1
Consumer loans	—			—			1			—			1
Total recoveries	2,196			618			35			2,814			127
Net loan charge-offs	(1,094)			(1,334)			(4,650)			(2,428)			(5,994)
Balance, end of period	$	232,774		$	266,999		$	282,271		$	232,774		$	282,271

Ratios
Annualized net charge-offs to average total loans, net	0.03		%	0.04		%	0.17		%	0.04		%	0.12		%
Allowance for loan losses to loans held for investment at end of period	1.71			2.04			1.87			1.71			1.87
Allowance for loan losses to loans held for investment at end of period, excluding SBA PPP loans	1.71			2.04			2.02			1.71			2.02

(1) Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses. Prior to January 1, 2020, the allowance was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. ~~The allowance for credit losses at March 31, 2020 is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.~~

~~124~~122

Investment Securities

We primarily use our investment portfolio for liquidity purposes, capital preservation, and to support our interest rate risk management strategies. Investments totaled ~~$2.37~~$4.51 billion at June 30, ~~2020,~~2021, an increase of ~~$962.4~~$551.5 million, or ~~68.4%~~13.9%, from ~~$1.41~~$3.95 billion at December 31, ~~2019.~~2020. The increase was primarily the result of ~~$829.9 million of investment securities, after purchase accounting adjustments, acquired in connection with the acquisition of Opus, $492.6 million~~$1.34 billion in purchases, ~~and a $51.5 million increase in mark-to-market fair value adjustments,~~primarily mortgage-backed securities, partially offset by ~~$338.6~~$455.5 million in sales, ~~and $72.9~~$289.5 million in principal payments, amortization, and ~~redemptions.~~redemptions, and a $47.3 million decrease in mark-to-market fair value adjustments.

Effective January 1, 2020, the Company adopted the new CECL accounting standard. The Company’s assessment of held-to-maturity and available-for-sale investment securities as of January 1, 2020 indicated that an ACL was not required. The Company determined the likelihood of default on held-to-maturity investment securities was remote, and the amount of expected non-repayment on those investments was zero. The Company also analyzed available-for-sale investment securities that were in an unrealized loss position as of January 1, 2020 and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As of ~~January 1, 2020 and~~ June 30, ~~2020,~~2021, there was no ACL for the Company’s held-to-maturity and available-for-sale investment securities. There were no investment securities classified as PCD upon acquisition of Opus during the second quarter of 2020. We recorded no allowance for credit losses for available-for-sale or held-to-maturity investment securities during the three and six months ended June 30, 2021 and June 30, 2020, respectively.

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


		June 30, 2020																																								June 30, 2021
		One Year or Less						More than One to Five Years						More than Five Years to Ten Years						More than Ten Years							Total							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)
(Dollars in thousands)																						(Dollars in thousands)	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
Investment securities available-for-sale:	Investment securities available-for-sale:																					Investment securities available-for-sale:
U.S. Treasury	U.S. Treasury	$	—	—	%	$	21,577	2.27	%	$	11,293	2.83	%	$	—	—	%	$	32,870	2.45	%	U.S. Treasury	$	—	—	%		$	31,913	2.45	%	$	79,895	1.10	%	$	—	—	%	$	111,808	1.47	%
Agency	Agency	1,013		3.08		43,830		2.72		218,452		2.06		76,695		2.12		339,990		2.16		Agency	—		—			314,952		0.94		184,414		1.25		55,801		1.30		555,167		1.08
Corporate	Corporate	76,988		0.74		74,303		1.08		122,708		3.40		—		—		273,999		2.03		Corporate	54,074		0.97			9,714		3.55		294,594		3.36		—		—		358,382		3.00
Municipal bonds	Municipal bonds	—		—		1,574		2.64		31,980		2.48		427,781		2.40		461,335		2.40		Municipal bonds	12,830		—			4,918		2.45		80,607		1.99		1,281,118		2.10		1,379,473		2.08
Collateralized mortgage obligations	Collateralized mortgage obligations	—		—		—		—		53,250		1.46		331,489		1.64		384,739		1.62		Collateralized mortgage obligations	—		—			26,357		0.46		226,997		0.86		361,384		1.29		614,738		1.09
Mortgage-backed securities	Mortgage-backed securities	—		—		2,419		3.35		206,540		2.72		634,174		1.77		843,133		2.00		Mortgage-backed securities	—		—			2,252		3.42		486,001		1.38		979,626		1.46		1,467,879		1.44
Total securities available-for-sale	Total securities available-for-sale	78,001		0.77		143,703		1.81		644,223		2.51		1,470,139		1.94		2,336,066		2.05		Total securities available-for-sale	66,904		0.78			390,106		1.13		1,352,508		1.73		2,677,929		1.74		4,487,447		1.66
Investment securities held-to-maturity:	Investment securities held-to-maturity:																					Investment securities held-to-maturity:
Mortgage-backed securities	Mortgage-backed securities	—		—		—		—		—		—		32,514		2.97		32,514		2.97		Mortgage-backed securities	—		—			—		—		—		—		18,265		2.72		18,265		2.72
Other	Other	—		—		—		—		—		—		1,665		0.97		1,665		0.97		Other	—		—			—		—		—		—		1,555		0.97		1,555		0.97
Total securities held-to-maturity	Total securities held-to-maturity	—		—		—		—		—		—		34,179		2.87		34,179		2.87		Total securities held-to-maturity	—		—			—		—		—		—		19,820		2.58		19,820		2.58
Total securities	Total securities	$	78,001	0.77	%	$	143,703	1.81	%	$	644,223	2.51	%	$	1,504,318	1.96	%	$	2,370,245	2.06	%	Total securities	$	66,904	0.78	%		$	390,106	1.13	%	$	1,352,508	1.73	%	$	2,697,749	1.75	%	$	4,507,267	1.67	%

~~We recorded no allowance for credit losses for available-for-sale or held-to-maturity investment securities during the six months ended June 30, 2020.~~

~~125~~123

Liabilities and Stockholders’ Equity

Total liabilities were ~~$17.86~~$17.72 billion at June 30, ~~2020,~~2021, compared to ~~$9.76~~$16.99 billion at December 31, ~~2019.~~2020. The increase of ~~$8.10 billion,~~$726.2 million, or ~~83.0%~~4.3%, from December 31, ~~2019~~2020 was primarily due to ~~the acquisition of Opus, which contributed $7.35 billion~~a $800.9 million, or 4.9%, increase in ~~liabilities after purchasing accounting adjustments, as well as an increase of approximately $1.03 billion in noninterest-bearing~~ deposits.

Deposits. At June 30, ~~2020,~~2021, deposits totaled ~~$16.98~~$17.02 billion, an increase of ~~$8.08 billion,~~$800.9 million, or ~~90.8%~~4.9%, from ~~$8.90~~$16.21 billion at December 31, ~~2019.~~2020. Non-maturity deposits totaled ~~$15.06~~$15.76 billion, or ~~88.7%~~92.6% of total deposits, an increase of ~~$7.21~~$1.17 billion, or ~~91.8%~~8.0%, from December 31, ~~2019.~~2020. The ~~increases~~increase in deposits included ~~$2.65 billion~~$757.3 million in noninterest-bearing checking, $220.7 million in money market/savings, ~~$2.51 billion~~and $190.1 million in ~~interest~~interest-bearing checking, ~~$2.04 billion in noninterest-bearing checking, $678.5~~partially offset by decreases of $211.8 million in retail certificates of deposit and ~~$192.4~~$155.3 million in brokered certificates of deposit. The increase in deposits during 2020 was primarily due to the acquisition of Opus in the second quarter of 2020, which contributed $6.92 billion of deposits at the time of acquisition, after purchase accounting adjustments, and an increase of approximately $1.03 billion noninterest-bearing deposits, reflecting SBA PPP loans funded in the Bank's clients' demand deposit accounts, and liquidity maintained by customers due to the economic impact of the pandemic.

The total end of period weighted average rate of deposits at June 30, ~~2020~~2021 was ~~0.34%~~0.08%, a decrease from ~~0.53%~~0.18% at December 31, ~~2019,~~2020, principally driven by lower pricing across all deposit product ~~categories, favorably impacted by the Federal Reserve’s federal funds rate decrease in March 2020.~~categories.

Our ratio of loans held for investment to deposits was ~~88.8%~~79.9% and ~~98.0%~~81.6% at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The following table sets forth the distribution of the Company’s deposit accounts at the dates indicated and the weighted average interest rates as of the last day of each period for each category of deposits presented:


		June 30, 2020										December 31, 2019											June 30, 2021				December 31, 2020
		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 Deposits		Weighted Average Rate		Balance		% of Total Deposits		Weighted Average Rate
Noninterest-bearing checking	Noninterest-bearing checking	$	5,899,442	34.8	%	—	%	$	3,857,660	43.4	%	—	%	Noninterest-bearing checking	$	6,768,384	39.8	%	—	%	$	6,011,106	37.1	%	—	%
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Checking	Checking	3,098,454		18.3		0.17		586,019		6.6		0.43		Checking	3,103,343		18.2		0.03		2,913,260		18.0		0.06
Money market	Money market	5,709,669		33.6		0.48		3,171,164		35.6		0.83		Money market	5,493,096		32.3		0.12		5,302,073		32.7		0.23
Savings	Savings	350,362		2.1		0.12		235,824		2.7		0.16		Savings	390,576		2.3		0.08		360,896		2.2		0.09
Time deposit accounts:	Time deposit accounts:													Time deposit accounts:
Less than 1.00%	Less than 1.00%	609,755		3.6		0.39		118,530		1.3		0.54		Less than 1.00%	1,088,347		6.4		0.27		928,830		5.7		0.32
1.00 - 1.99	1.00 - 1.99	999,342		5.9		1.42		613,194		6.9		1.58		1.00 - 1.99	125,664		0.7		1.61		579,570		3.6		1.49
2.00 - 2.99	2.00 - 2.99	309,277		1.8		2.36		315,530		3.5		2.33		2.00 - 2.99	45,470		0.3		2.22		118,358		0.7		2.34
3.00 - 3.99	3.00 - 3.99	355		—		3.13		588		—		3.03		3.00 - 3.99	179		—		3.45		46		—		4.00
4.00 - 4.99	4.00 - 4.99	37		—		—		—		—		—		4.00 - 4.99	38		—		4.30		38		—		4.30
5.00 and greater	5.00 and greater	—		—		—		—		—		—		5.00 and greater	—		—		—		—		—		—
Total time deposit accounts	Total time deposit accounts	1,918,766		11.3		1.25		1,047,842		11.8		1.69		Total time deposit accounts	1,259,698		7.4		0.48		1,626,842		10.0		0.88
Total interest-bearing deposits	Total interest-bearing deposits	11,077,251		65.2		0.51		5,040,849		56.6		0.93		Total interest-bearing deposits	10,246,713		60.2		0.14		10,203,071		62.9		0.28
Total deposits	Total deposits	$	16,976,693	100.0	%	0.34	%	$	8,898,509	100.0	%	0.53	%	Total deposits	$	17,015,097	100.0	%	0.08	%	$	16,214,177	100.0	%	0.18	%

~~126~~124

At June 30, 2021, we had $1.01 billion in certificates of deposit with balances of $100,000 or more, and $586.9 million in certificates of deposit with balances of $250,000 or more with maturities as follows:


	At June 30, 2021
(Dollars in thousands)	$100,000 through $250,000						Greater than $250,000						Total
Maturity Period	Amount		Weighted Average Rate		% of Total Deposits		Amount		Weighted Average Rate		% of Total Deposits		Amount		Weighted Average Rate		% of Total Deposits
Certificates of deposit
Three months or less	$	132,033	0.80	%	0.77	%	$	409,332	0.40	%	2.41	%	$	541,365	0.50	%	3.18	%
Over three months through 6 months	71,349		0.39		0.42		57,881		0.49		0.34		129,230		0.43		0.76
Over 6 months through 12 months	128,206		0.44		0.75		98,761		0.50		0.58		226,967		0.47		1.33
Over 12 months	89,526		0.38		0.53		20,878		0.52		0.12		110,404		0.41		0.65
Total	$	421,114	0.53	%	2.47	%	$	586,852	0.43	%	3.45	%	$	1,007,966	0.47	%	5.92	%

Borrowings. At June 30, ~~2020,~~2021, total borrowings amounted to ~~$542.4~~$476.6 million, a decrease of ~~$189.8~~$55.9 million, or ~~25.9%~~10.5%, from ~~$732.2~~$532.5 million at December 31, ~~2019,~~2020, primarily due to the ~~lower~~maturity and redemption of $31.0 million FHLB advances ~~partially offset by~~and the ~~issuance in June 2020~~redemption of ~~$150~~$25.0 million in ~~aggregate principal amount of the Company's 5.375% Fixed-to-Floating Rate Subordinated Notes (the “Notes III”) due June 15, 2030, as well as the $135 million aggregate principal amount of~~ subordinated ~~notes assumed by the Bank in connection with the acquisition of Opus in the second quarter of 2020.~~notes.

At June 30, ~~2020,~~2021, total borrowings represented ~~2.6%~~2.3% of total assets and had an end of period weighted average rate of ~~5.09%~~5.29%, compared with ~~6.2%~~2.7% of total assets at a weighted average rate of ~~2.77%~~5.16% at December 31, ~~2019.~~2020.

At June 30, ~~2020,~~2021, total borrowings were comprised of the following:

•~~FHLB advances of $41.0 million at 1.16%;~~

•Subordinated notes of $60.0 million at a fixed rate of 5.75% due September 3, 2024 (the “Notes I”) and a carrying value of ~~$59.5~~$59.6 million, net of unamortized debt issuance cost of ~~$508,000.~~$389,000. 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 ~~$122.7~~$123.0 million, net of unamortized debt issuance cost of ~~$2.3~~$2.0 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;

•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 ~~$147.4~~$147.6 million, net of unamortized debt issuance cost of ~~$2.6~~$2.4 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~~three-month term SOFR, plus a spread of 517 basis points, payable quarterly in arrears.

•$25.0 million of subordinated notes at a fixed rate of 5.17% due June 26, 2020, inherited as part of the 2017 acquisition of Plaza Bancorp. At June 30, 2020, the carrying value of these notes was $25.1 million, which reflects purchase accounting fair value adjustments of $121,000.

•Subordinated notes of $135.0 million at 5.5% fixed-to-variable rate due July 1, 2026, assumed in connection with the acquisition of Opus in the second quarter of 2020. The notes bear interest at a fixed rate of per year until June 2021. After this date and for the remaining five years of the notes' term, interest will accrue at a variable rate of three-month LIBOR plus 4.285%. At June 30, ~~2019,~~2021, the carrying value of these subordinated notes was ~~$138.6~~$138.2 million, which reflects purchase accounting fair value adjustments of ~~$3.6~~$3.2 million. The subordinate notes were subsequently redeemed by the Company on July 1, 2021. See Note 17 — Subsequent Events to the consolidated financial statements in this Form 10-Q.

125

•$5.2 million of floating rate junior subordinated debt securities due January 1, 2037, associated with Heritage Oaks Capital Trust ~~II.~~II and assumed in connection with the acquisition of Heritage Oaks Bancorp in April 2017. At June 30, ~~2020,~~2021, the carrying value of these debentures was ~~$4.1~~$4.2 million, which reflects purchase accounting fair value adjustments of ~~$1.16~~$1.1 million. Interest is payable quarterly at three-month LIBOR plus 1.72% per annum, for an effective rate of ~~3.15%~~1.92% per annum as of June 30, ~~2020;~~2021. The junior subordinated debt securities were subsequently redeemed by the Company on July 1, 2021. See Note 17 — Subsequent Events to the consolidated financial statements in this Form 10-Q.

•$5.2 million of floating rate junior subordinated debt due July 7, 2036, associated Santa Lucia Bancorp (CA) Capital ~~Trust.~~Trust and assumed in connection with the acquisition of Heritage Oaks Bancorp in April 2017. At June 30, ~~2020,~~2021, the carrying value of this debt was ~~$3.9~~$4.0 million, which reflects purchase accounting fair value adjustments ~~$1.2~~$1.1 million. Interest is payable quarterly at three-month LIBOR plus 1.48% per annum, for an effective rate of ~~2.70%~~1.66% per annum as of June 30, ~~2020;~~2021. The junior subordinated debt securities were subsequently redeemed by the Company on July 7, 2021. See Note 17 — Subsequent Events to the consolidated financial statements in this Form 10-Q.

For additional information about the subordinated notes, subordinated debentures, and trust preferred securities, see Note 9 — Subordinated Debentures to the ~~Consolidated Financial Statements~~consolidated financial statements in this Form 10-Q.

~~127~~

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


		June 30, 2020								December 31, 2019								June 30, 2021					December 31, 2020
		Balance			Weighted Average Rate		Balance			Weighted Average Rate
		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	Balance			Weighted Average Rate		Balance			Weighted Average Rate
FHLB advances	FHLB advances	$	41,006		1.16	%	$	517,026		1.69	%	FHLB advances	$	—		—	%	$	31,000		1.53	%

Subordinated debentures	Subordinated debentures	501,375			5.41		215,145			5.37		Subordinated debentures	476,622			5.29		501,511			5.38
Total borrowings	Total borrowings	$	542,381		5.09	%	$	732,171		2.77	%	Total borrowings	$	476,622		5.29	%	$	532,511		5.16	%

Weighted average cost of borrowings during the quarter	Weighted average cost of borrowings during the quarter	3.89		%			4.07		%			Weighted average cost of borrowings during the quarter	5.35		%			5.12		%
Borrowings as a percent of total assets	Borrowings as a percent of total assets	2.6					6.2					Borrowings as a percent of total assets	2.3					2.7

Stockholders’ Equity. Total stockholders’ equity was ~~$2.65~~$2.81 billion as of June 30, ~~2020,~~2021, a ~~$642.1~~$66.8 million increase from ~~$2.01~~$2.75 billion at December 31, ~~2019.~~2020. The current year increase in stockholders’ equity was primarily ~~the result of the $749.6~~due to $165.0 million ~~stock consideration issued in connection with the acquisition of Opus in the second quarter of 2020 and $36.7 million comprehensive~~net income, partially offset by ~~the $73.4 million year to date net loss and the $45.6 million cumulative-effect adjustment to the opening balance of retained earnings upon the adoption of the new CECL accounting standard, and $29.9~~$59.5 million in cash dividends, ~~paid~~$33.8 million in comprehensive loss, and $6.9 million in repurchase of common stock during the six months ended June 30, ~~2020.~~2021.

Our book value per share ~~decreased~~increased to ~~$28.14~~$29.72 at June 30, ~~2020~~2021 from ~~$33.82~~$29.07 at December 31, ~~2019.~~2020. At June 30, ~~2020,~~2021, the Company’s tangible common equity to tangible assets ratio was ~~8.50%~~9.38%, ~~decreased~~a decrease from ~~10.30%~~9.40% at December 31, ~~2019.~~

On December 2, 2019, the Company’s Board of Directors approved a new stock repurchase program, which authorized the repurchase up to $100 million of its common stock. As of June 30, 2020, the Company did not repurchase any shares under the new stock repurchase program. The Company has suspended the stock repurchase program indefinitely.2020.

~~128~~126

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. 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 general interest rates, economic conditions, and competition.

~~Our~~In 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 six months of ~~2020~~2021 were from:

•~~Deposit growth of $1.16 billion;~~

•~~Cash and cash equivalent acquired in Opus acquisition of $937.1 million;~~

•Principal payments on loans held for investment of ~~$826.0~~$1.37 billion;

•Deposit growth of $800.9 million;

•Proceeds of ~~$339.9~~$464.7 million from the sale or maturity of securities available-for-sale;

•~~Proceeds from issuance of $150.0 million subordinated notes;~~ and

•Principal payments on securities of ~~$69.2 million;~~

•~~Proceeds of $38.2 million from the of sale of previously classified portfolio loans; and~~

•~~Proceeds of $13.5 million from the sale and principal payments on loans held for sale.~~$278.3 million.

We used these funds to:

•Originate loans held for investment of ~~$1.54~~$1.88 billion;

•~~Decrease FHLB borrowing of $686.0 million;~~

•Purchase available-for-sale securities of ~~$458.7 million;~~$1.33 billion;

•Purchase ~~loans held for investment~~bank-owned life insurance of ~~$66.5~~$150.0 million;

•Return capital to shareholders through ~~$29.9~~$59.5 million in dividends; ~~and~~

•Decrease FHLB borrowing of $31.0 million;

•Originate loans held for sale of ~~$10.2~~$20.3 million;

•Redeem junior subordinated debt securities of $25.0 million; and

•Repurchase some of the Company’s common stock at a total cost of $6.9 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 June 30, ~~2020,~~2021, cash and cash equivalents totaled ~~$1.34 billion,~~$631.9 million, and the market value of our investment securities available-for-sale totaled ~~$2.34~~$4.49 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’s~~Reserve Board’s lending programs, as well as loan and investment securities sales. As of June 30, ~~2020,~~2021, the maximum amount we could borrow through the FHLB was ~~$7.72~~$8.07 billion, of which ~~$5.55~~$5.66 billion was remaining available for borrowing based on collateral pledged of ~~$8.17~~$8.28 billion in real estate loans. At June 30, ~~2020,~~2021, we ~~had $41.0 million in~~did not utilize any FHLB borrowings. At June 30, ~~2020,~~2021, we also had a $20.8 million line with the FRB discount window secured by investments securities as well as unsecured lines of credit aggregating ~~$360.9 million, which consisted of~~to $340.0 million with other financial institutions from which to draw ~~funds, $20.9 million with the FRB.~~funds. As of June 30, ~~2020,~~2021, our liquidity ratio was ~~20.3%~~29.0%, which is above the Company’s minimum policy requirement of 10.0%. The Company regularly monitors liquidity, ~~and~~ 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.

To the extent that ~~2020~~2021 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.

~~129~~

The Bank has a policy in place that permits the purchase of brokered funds, in an amount not to exceed 15% of total deposits or 12% of total assets, as a secondary source for funding. At June 30, ~~2020,~~2021, we had ~~$275.0~~$5.6 million in brokered ~~time and~~ money market deposits which constituted ~~1.6%~~0.03% of total deposits and ~~1.3%~~0.03% of total assets at that date.

127

The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation’s primary sources of liquidity are dividends from the Bank. 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 six months ended June 30, ~~2020,~~2021, the Bank paid ~~$29.9~~$59.3 million in dividends to the Corporation.

The Corporation maintains a line of credit with US Bank ~~established in June of 2019,~~ with availability of $15.0 million that will expire on September ~~29, 2020.~~28, 2021. The Corporation anticipates renewing the line of credit upon expiration. This line of credit provides an additional source of liquidity at the Corporation level and had no outstanding balance at June 30, ~~2020. In June 2020,~~2021.

During the ~~Corporation issued $150.0~~second quarters of 2021, the Company redeemed the subordinated notes totaling $25.0 million ~~aggregate principal amount of its 5.375% Fixed-to-Floating Rate Subordinated Notes due June 15, 2030, at a public offering price equal to 100%~~that the Company assumed as part of the ~~aggregate~~acquisition of Plaza Bancorp, Inc. in 2017. Prior to redemption, such subordinated notes carried a fixed interest rate of 7.125% and were scheduled to mature on June 26, 2025. These subordinated notes were called at 103% of the principal amount of the ~~Notes.~~notes, plus accrued and unpaid interest, for an aggregate amount of $25.8 million. See Note 9 - Subordinated Debentures for additional information.

During ~~each quarter~~the first and secondquarters of ~~2020,~~2021, the Corporation ~~made~~declared a quarterly dividend payment of ~~$0.25~~$0.30 and $0.33 per ~~share.~~share, respectively. On July ~~24, 2020,~~23, 2021, the Company's Board of Directors declared a ~~$0.25~~$0.33 per share dividend, payable on August ~~14, 2020~~13, 2021 to stockholders of record as of August ~~7, 2020. The~~6, 2021.The Corporation’s Board of Directors periodically reviews whether to declare or pay cash dividends, taking into account, among other things, general business conditions, the Company’s financial results, future prospects, capital requirements, legal and regulatory restrictions, and such other factors as the Corporation’s Board of Directors may deem relevant.

~~130~~On January 11, 2021, the Company’s Board of Directors approved a new stock repurchase program, which authorized the repurchase of up to 4,725,000 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 on December 31, 2020. During the first quarter of 2021, the Company purchased 199,674 shares for a total of $6.9 million, or $34.51 per share, under this stock repurchase program. During the second quarter of 2021, the Company did not repurchase any shares of common stock. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

Contractual Obligations and Off-Balance Sheet Commitments

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 payments due on our obligations and commitments, excluding accrued interest, as of the date indicated:


		June 30, 2020																			June 30, 2021
(Dollars in thousands)												(Dollars in thousands)	Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total
Contractual obligations												Contractual obligations
		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total
		(Dollars in thousands)
Contractual obligations
FHLB advances		$	20,000	$	21,006	$	—	$	—	$	41,006
Subordinated debentures	Subordinated debentures	—		—		84,613		416,762		501,375		Subordinated debentures	—		—		59,611		417,011		476,622
Certificates of deposit	Certificates of deposit	1,613,700		243,293		11,240		50,533		1,918,766		Certificates of deposit	1,114,334		71,289		9,335		64,740		1,259,698
Operating leases	Operating leases	22,855		41,369		31,694		16,099		112,017		Operating leases	20,124		37,523		23,887		12,116		93,650
Total contractual cash obligations	Total contractual cash obligations	$	1,656,555	$	305,668	$	127,547	$	483,394	$	2,573,164	Total contractual cash obligations	$	1,134,458	$	108,812	$	92,833	$	493,867	$	1,829,970

128

Off-Balance Sheet Commitments. We utilize off-balance sheet commitments in the normal course of business to meet the financing needs of our customers and to reduce our own exposure to fluctuations in interest rates. These financial instruments include commitments to originate real estate, business, and other loans held for investment, undisbursed loan funds, lines and letters of credit, and commitments to purchase loans and investment securities for portfolio. The contract or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Commitments to originate loans held for investment are agreements 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 funds and unused lines 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 June 30, ~~2020,~~2021, we had commitments to extend credit on existing lines and letters of credit of ~~$1.89~~$2.35 billion, compared to ~~$1.58~~$1.95 billion at December 31, ~~2019.~~2020.

The following table summarizes our contractual commitments with off-balance sheet risk by expiration period at the date indicated:


		June 30, 2020																			June 30, 2021
		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total
		(Dollars in thousands)
Other commitments
(Dollars in thousands)												(Dollars in thousands)	Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total
Other unused commitments												Other unused commitments
Commercial and industrial	Commercial and industrial	$	914,679	$	292,218	$	116,685	$	70,020	$	1,393,602	Commercial and industrial	$	958,150	$	615,811	$	100,847	$	75,870	$	1,750,678
Construction	Construction	113,603		109,404		—		2,983		225,990		Construction	51,340		241,610		24,706		—		317,656
Agribusiness and farmland	Agribusiness and farmland	27,950		13,335		—		789		42,074		Agribusiness and farmland	25,862		14,254		3		1,489		41,608
Home equity lines of credit	Home equity lines of credit	2,044		3,978		10,068		49,411		65,501		Home equity lines of credit	7,060		6,028		3,003		51,199		67,290
Standby letters of credit	Standby letters of credit	45,395		—		—		—		45,395		Standby letters of credit	47,604		—		—		—		47,604
All other	All other	34,108		43,551		8,782		26,160		112,601		All other	66,488		23,480		2,358		28,202		120,528
Total other commitments		$	1,137,779	$	462,486	$	135,535	$	149,363	$	1,885,163
Total commitments												Total commitments	$	1,156,504	$	901,183	$	130,917	$	156,760	$	2,345,364

~~131~~129

Regulatory Capital Compliance

The Corporation 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 Corporation’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Corporation’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’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.

Final 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 ~~increased by 0.625% each year beginning on January 1, 2016, with additional 0.625% increments annually, until~~ fully phased in at 2.50% by January 1, 2019. At June 30, ~~2020,~~2021, the Company and Bank are in compliance with the capital conservation buffer requirement and exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of the fully phased-in capital conservation buffer, of ~~7.0%~~7.00%, ~~8.5%~~8.50%, and ~~10.5%~~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 in to regulatory capital at 25% per year over a three-year transition period. The final rule was adopted and became effective in September 2020. As a result, entities may gradually phase in the full effect of CECL on regulatory capital over a five-year transition period. 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.

~~132~~130

For regulatory capital purposes, the ~~Company’s~~Corporation’s trust preferred securities are included in Tier 2 capital at June 30, ~~2020.~~2021. Provisions of the Dodd-Frank Act require that if a depository institution holding company exceeds $15 billion due to an acquisition, then trust preferred securities are to be excluded from Tier 1 capital beginning in the period in which the transaction occurred. ~~During the current quarter, the Company’s~~The Corporation’s acquisition of Opus resulted in total consolidated assets exceeding $15 billion; accordingly, trust preferred securities are now excluded from the ~~Company’s~~Corporation’s Tier 1 capital and included as Tier 2 capital. The ~~Company~~Corporation and the Bank also have subordinated debt that qualifies as Tier 2 capital. See Note 9 - Subordinated Debentures for additional information.

As defined in applicable regulations and set forth in the table below, the ~~Company~~Corporation 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:


		Actual	Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer	Minimum Required For Well Capitalized Requirement		Actual	Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer	Minimum Required For Well Capitalized Requirement
June 30, 2020
June 30, 2021					June 30, 2021
Pacific Premier Bancorp, Inc. Consolidated	Pacific Premier Bancorp, Inc. Consolidated				Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	Tier 1 leverage ratio	12.00%	4.00%	N/A	Tier 1 leverage ratio	9.83%	4.00%	N/A
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	11.32%	7.00%	N/A	Common equity tier 1 capital ratio	11.89%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	11.32%	8.50%	N/A	Tier 1 capital ratio	11.89%	8.50%	N/A
Total capital ratio	Total capital ratio	15.69%	10.50%	N/A	Total capital ratio	15.61%	10.50%	N/A

Pacific Premier Bank	Pacific Premier Bank				Pacific Premier Bank
Tier 1 leverage ratio	Tier 1 leverage ratio	13.49%	4.00%	5.00%	Tier 1 leverage ratio	11.31%	4.00%	5.00%
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	12.73%	7.00%	6.50%	Common equity tier 1 capital ratio	13.67%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	12.73%	8.50%	8.00%	Tier 1 capital ratio	13.67%	8.50%	8.00%
Total capital ratio	Total capital ratio	14.81%	10.50%	10.00%	Total capital ratio	15.44%	10.50%	10.00%

		Actual	Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer	Minimum Required For Well Capitalized Requirement		Actual	Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer	Minimum Required For Well Capitalized Requirement
December 31, 2019
December 31, 2020					December 31, 2020
Pacific Premier Bancorp, Inc. Consolidated	Pacific Premier Bancorp, Inc. Consolidated				Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	Tier 1 leverage ratio	10.54%	4.00%	N/A	Tier 1 leverage ratio	9.47%	4.00%	N/A
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	11.35%	7.00%	N/A	Common equity tier 1 capital ratio	12.04%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	11.42%	8.50%	N/A	Tier 1 capital ratio	12.04%	8.50%	N/A
Total capital ratio	Total capital ratio	13.81%	10.50%	N/A	Total capital ratio	16.31%	10.50%	N/A

Pacific Premier Bank	Pacific Premier Bank				Pacific Premier Bank
Tier 1 leverage ratio	Tier 1 leverage ratio	12.39%	4.00%	5.00%	Tier 1 leverage ratio	10.89%	4.00%	5.00%
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	13.43%	7.00%	6.50%	Common equity tier 1 capital ratio	13.84%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	13.43%	8.50%	8.00%	Tier 1 capital ratio	13.84%	8.50%	8.00%
Total capital ratio	Total capital ratio	13.83%	10.50%	10.00%	Total capital ratio	15.89%	10.50%	10.00%

~~133~~131

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Asset/Liability Management and Market Risk

Market risk is the risk of loss in value or reduced earnings from adverse changes in market prices and interest rates. The Bank’s market risk arises 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 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 re-pricing 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.

132

The following table shows the projected NII and net interest margin of the Company at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, assuming instantaneous parallel interest rate shifts in the first ~~period:~~month of the following quarter:


June 30, 2020
June 30, 2021						June 30, 2021
(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
		Earnings at Risk					Projected Net Interest Margin			Earnings at Risk			Projected Net Interest Margin
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change	Rate %	Change in Rates (Basis Points)		$ Amount	$ Change	% Change	Rate %
200	200	668,299	12,657	1.9	3.52	200		672,230	5,952	0.9	3.58
100	100	659,548	3,906	0.6	3.47	100		669,336	3,058	0.5	3.56
Static	Static	655,642	—	—	3.45	Static		666,278	—	—	3.55
-100	-100	638,945	(16,697)	(2.5)	3.37	-100		647,878	(18,400)	(2.8)	3.45
-200	-200	624,135	(31,507)	(4.8)	3.29	-200		628,081	(38,197)	(5.7)	3.34


December 31, 2019
December 31, 2020						December 31, 2020
(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
		Earnings at Risk					Projected Net Interest Margin			Earnings at Risk			Projected Net Interest Margin
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change	Rate %	Change in Rates (Basis Points)		$ Amount	$ Change	% Change	Rate %
200	200	457,284	2,271	0.5	4.33	200		678,071	4,892	0.7	3.66
100	100	456,115	1,101	0.2	4.32	100		673,368	189	—	3.64
Static	Static	455,013	—	—	4.31	Static		673,179	—	—	3.64
-100	-100	452,307	(2,706)	(0.6)	4.29	-100		657,184	(15,995)	(2.4)	3.55
-200	-200	444,418	(10,595)	(2.3)	4.21	-200		646,912	(26,267)	(3.9)	3.49

~~134~~

The following table shows the EVE and projected change in the EVE of the Company at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, assuming ~~various non-parallel~~instantaneous parallel interest rate shifts ~~over a twelve~~in the first month ~~period:~~of the following quarter:


June 30, 2020
June 30, 2021						June 30, 2021
(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
		Economic Value of Equity					EVE as % of market value of portfolio assets			Economic Value of Equity			EVE as % of market value of portfolio assets
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change	EVE Ratio	Change in Rates (Basis Points)		$ Amount	$ Change	% Change	EVE Ratio
200	200	2,878,996	320,886	12.5	15.10	200		3,081,405	121,324	4.1	16.90
100	100	2,740,725	182,615	7.1	14.00	100		3,044,123	84,042	2.8	16.16
Static	Static	2,558,110	—	—	12.73	Static		2,960,081	—	—	15.20
-100	-100	2,209,396	(348,714)	(13.6)	10.71	-100		2,766,235	(193,846)	(6.5)	13.74
-200	-200	1,651,576	(906,534)	(35.4)	7.82	-200		2,368,412	(591,670)	(20.0)	11.40

133


December 31, 2020
(Dollars in thousands)
	Economic Value of Equity			EVE as % of market value of portfolio assets
Change in Rates (Basis Points)	$ Amount	$ Change	% Change	EVE Ratio
200	2,803,543	85,252	3.1	15.57
100	2,774,537	56,246	2.1	14.91
Static	2,718,291	—	—	14.12
-100	2,535,779	(182,512)	(6.7)	12.73
-200	2,150,082	(568,209)	(20.9)	10.46

December 31, 2019
(Dollars in thousands)
Economic Value of Equity EVE as % of market value of portfolio assets
Change in Rates (Basis Points) $ Amount $ Change % Change EVE Ratio
200 2,084,891 106,053 5.4 19.77
100 2,042,116 63,277 3.2 18.91
Static 1,978,839 — — 17.90
-100 1,884,247 (94,591) (4.8) 16.63
-200 1,728,146 (250,693) (12.7) 14.86

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 low for rising rates. Both the Earnings at Risk ~~increases slightly as rates increase given~~and the ~~drop in market and index rates in the quarter, as a number of loans are below their floors, not allowing for the rate to increase immediately as indices rise.~~ EVE ~~is modeled to~~ 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.~~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 ~~does not have any~~has minimal direct market risk from foreign exchange ~~or commodity exposures.~~and no exposure from commodities.

Management believes that there have been no material changes in our quantitative and qualitative information about market risk since December 31, 2019. For a complete discussion of our quantitative and qualitative market risk, see “Item 7A. Quantitative and Qualitative Disclosure about Market Risk” in our 2019 Form 10-K.

~~135~~

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

~~Beginning January 1, 2020, the Company adopted the CECL model under ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~”. The Company made changes to the loan loss reserve policies, processes and controls and incorporated new policies, process and controls over the estimation of ACL as a result. New controls were established over the review of PD and LGD model to calculate cash flows, economic forecasting projections and historical loss rate model provided by an independent third party during the quarter ended March 31, 2020. There ~~has~~have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~136~~134

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

~~Anschutz Litigation~~

~~On April 2, 2020, the Corporation and its directors were named as defendants in a lawsuit brought in U.S. District Court for the Central District of California captioned~~ ~~Anschutz v. Pacific Premier Bancorp, Inc., et al.~~ (Case No. 8:20-cv-00650). This lawsuit was brought by Bennett Anschutz, a shareholder of the Corporation. Mr. Anschutz alleged that the Corporation omitted material facts necessary to make certain statements in the joint proxy statement/prospectus contained in the Corporation’s Registration Statement on Form S-4 (File No.33-237188), as amended by Amendment No. 1 dated April 6, 2020, which was declared effective by the SEC on April 7, 2020 (the “Registration Statement”), not false or misleading. The complaint did not specify any damages, but sought the right to enjoin the Corporation’s acquisition of Opus until further disclosures are made, or in the alternative, recover unspecified damages related to the alleged omissions, as well as interest, attorney’s fees and litigation costs. On May 6, 2020, plaintiff voluntarily dismissed the lawsuit, without prejudice. The lawsuit was reopened on July 14, 2020, against the Corporation only, for the limited purpose of plaintiff’s motion seeking attorney’s fees related to filing the lawsuit. The Corporation will oppose the request for attorney’s fees on the grounds that the additional disclosures identified by plaintiff were immaterial, and would not have meaningfully aided shareholders in evaluating the Opus acquisition in light of the Corporation’s existing disclosures.

~~Parshall Litigation~~

~~On April 21, 2020, Opus, the Opus directors, the Corporation, and the Bank were named as defendants in a lawsuit brought in the United States District Court for the District of Delaware captioned~~ ~~Parshall v. Opus Bank et al.~~ (Case No. 1:20-cv-536). This lawsuit was brought by Paul Parshall, an Opus shareholder. Mr. Parshall alleges that Opus and its directors omitted material facts necessary to make certain statements in the joint proxy statement/prospectus contained in the Registration Statement not false or misleading. It further alleges that the Corporation and the Bank were each a “controlling person” of Opus, and are therefore liable for those supposedly inadequate disclosures. The lawsuit purports to bring this claim on behalf of a class of similarly-situated Opus shareholders, although no class has yet been certified by the court. The complaint sought various forms of relief, much of it now moot, such as an order enjoining the now-completed Opus acquisition and requiring additional pre-Opus acquisition disclosures, as well as unspecified money damages or other monetary relief. The court has not yet authorized service of the lawsuit, and there has been no litigation activity to date. The Corporation and the Bank intend to file a motion to dismiss the lawsuit.

~~In addition to the lawsuits described above, the~~ Company is involved in legal proceedings occurring in the ordinary course of business. Management believes that ~~neither lawsuit described above nor any~~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.

~~137~~

Item 1A. Risk Factors

The section titled Risk Factors in Part I, Item 1A of our ~~2019~~2020 Form 10-K ~~and Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, include~~included a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Company. ~~The information presented below provides an update~~There are no material changes to ~~and should be read in conjunction with, the~~our risk factors ~~and other information contained in our 2019 Form 10-K.~~

~~The recent COVID-19 pandemic has led to periods of significant volatility in financial, commodities and other markets and could harm our business and results of operations.~~

In December 2019, COVID-19 was first reported in Wuhan, Hubei Province, China. Since then, COVID-19 infections have spread to additional countries including the United States. In March 2020, the World Health Organization declared COVID-19 to be a pandemic. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the coronavirus pandemic on our business, and there is no guarantee that our efforts to address or mitigate the adverse impacts of the coronavirus will be effective. The impact to date has included periods of significant volatility in financial, commodities and other markets. This volatility, if it continues, could have an adverse impact on our customers and on our business, financial condition and results of operations as ~~well as our growth strategy.~~

~~Our business is dependent upon the willingness and ability~~previously described under Item 1A of our customers to conduct banking and other financial transactions. The spread of COVID-19 has caused and could continue to cause severe disruptions in the U.S. economy at large, and has resulted and may continue to result in disruptions to our customers’ businesses, and a decrease in consumer confidence and business generally. In addition, recent actions by US federal, state and local governments to address the pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, may have a significant adverse effect on our customers and the markets in which we conduct our business. The extent of impacts resulting from the coronavirus pandemic and other events beyond our control will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus pandemic and actions taken to contain the coronavirus or its impact, among others.

~~Economic impacts related to COVID-19 and government actions seeking to address the pandemic affected our loan originations during the second quarter of~~ 2020 as we focused considerable efforts on originating SBA PPP loans. While we have now ceased originating SBA PPP loans and sold our entire SBA PPP portfolio, we believe economic impacts stemming from COVID-19 will continue to influence our loan originations in the near term, in terms of both a reduction in overall demand for new loans and our continued emphasis on prudent credit risk management, particularly within the context of the current uncertain economic environment.

Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans. The escalation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability. If the global response to contain COVID-19 escalates or is unsuccessful, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.

~~138~~

The spread of the COVID-19 outbreak and the governmental responses may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.

The outbreak of COVID-19 and the U.S. federal, state and local governmental responses may result in a disruption in the services we provide. We rely on our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services or experience interruptions in their ability to provide us with these services, it could negatively impact our ability to serve our customers. Furthermore, the coronavirus pandemic could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to infection, quarantine or other effects and restrictions of a COVID-19 outbreak in our market areas. Although we have business continuity plans, succession plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. If we are unable to promptly recover from such business disruptions, our business and financial conditions and results of operations would be adversely affected. We also may incur additional costs to remedy damages caused by such disruptions, which could adversely affect our financial condition and results of operations.

Our participation in the SBA PPP loan program exposes us to risks related to noncompliance with the PPP, as well as litigation risk related to our administration of the PPP loan program, which could have a material adverse impact on our business, financial condition and results of operations.

The Company participated in the SBA PPP loan program that was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the amounts loaned under the PPP. The PPP opened on April 3, 2020; however, because of the short window between the passing of the CARES Act and the opening of the PPP, as well as the continued rollout of additional program parameters, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which may expose the Company to risks relating to noncompliance with the PPP loan program. For instance, other financial institutions have experienced litigation related to their process and procedures used in processing applications for the PPP. Any material financial liability, litigation costs or reputational damage caused by PPP related litigation could have an adverse impact on our business, financial condition and results of operations. In addition, the Company may be exposed to credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced. If a deficiency is identified to be the result of the Company’s non-compliance with the PPP loan program requirements, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company. Such actions could trigger one or more repurchase demands in connection with the recent sale of the Company’s PPP loan portfolio.

~~139~~

~~Interest rate volatility stemming from COVID-19 could negatively affect our net interest income, lending activities, deposits and profitability.~~

Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. For example, our net interest margin decreased from 4.24% at March 31, 2020 to 3.79% at June 30, 2020, primarily due to lower loan and investment yields. Lower loan yields were partially driven by the impact of loan repricing resulting from the Federal Reserve’s decrease in the target range for the federal funds rate in March 2020, though other important factors impacted yields as well, such as the acquisition of the Opus loan portfolio and the origination of 1% coupon PPP loans. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

~~We are subject to increasing credit risk as a result of the COVID-19 pandemic, which could adversely impact our profitability.~~

Our business depends on our ability to successfully measure and manage credit risk. As a commercial lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely or at all or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In addition, we are exposed to risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual loans and borrowers. As the overall economic climate in the U.S., generally, and in our market areas specifically, experiences material disruption due to the COVID-19 pandemic, our borrowers may experience difficulties in repaying their loans and governmental actions may provide payment relief to borrowers affected by COVID-19 and preclude our ability to initiate foreclosure proceedings in certain circumstances and, as a result, the collateral we hold may decrease in value or become illiquid, and the level of our nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for credit losses. Additional factors related to the credit quality of certain commercial real estate and multifamily residential loans include the duration of state and local moratoriums on evictions for non-payment of rent or other fees. The payment on these loans that are secured by income producing properties are typically dependent on the successful operation of the related real estate property and may subject us to risks from adverse conditions in the real estate market or the general economy.

We are actively working to support our borrowers to mitigate the impact of the COVID-19 pandemic on them and on our loan portfolio, including through temporary loan modifications that reduce or defer payments for those who experienced a hardship as a result of the COVID-19 pandemic. Although recent regulatory guidance provides that such loan modifications are exempt from the calculation and reporting of TDRs and loan delinquencies, we cannot predict whether such loan modifications may ultimately have an adverse impact on our profitability in future periods. Our inability to successfully manage the increased credit risk caused by the COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations.

~~140~~

We may incur impairments to goodwill or other intangibles as a result of the economic volatility resulting from the COVID-19 pandemic, which could adversely affect our financial condition, results of operations and stock price.

As of June 30, 2020, we had $901.2 million recorded as goodwill. We evaluate our goodwill for impairment at least annually. Although we conducted an impairment assessment of goodwill and intangibles in both the first quarter and the second quarter of 2020 and the impairment evaluation did not identify any impairment in the first quarter or the second quarter of 2020, there can be no assurances that prolonged significant negative economic trends resulting from the COVID-19 pandemic, including the lack of recovery in the market price of our common stock, or reduced estimates of future cash flows or disruptions to our business, will not result in impairments to goodwill or other intangibles, such as our core deposit intangibles. If our analysis results in impairment to goodwill or other intangibles, we would be required to record an impairment charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such change could have a material adverse effect on our financial condition, results of operations and stock price.

~~Unpredictable future developments related to or resulting from the COVID-19 pandemic could materially and adversely affect our business and results of operations.~~

Because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet know the full extent of the COVID-19 pandemic’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the pandemic. We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on us. However, if the pandemic continues to spread or otherwise results in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations and cash flows as well as our regulatory capital and liquidity ratios could be materially adversely affected and many of the risks described in our 2019 Form ~~10-K will be heightened.~~

10-K.

~~141~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~In December 2019,~~On January 11, 2021, the Company’s Board of Directors approved a new stock repurchase program, which

authorized the repurchase of up to ~~$100 million~~4,725,000 shares of its common stock. AsThe stock repurchase program may be limited or terminated at any time without notice. During the first quarter of ~~June 30, 2020,~~2021, the Company ~~has not repurchased any~~purchased 199,674 shares for a total of $6.9 million, or $34.51 per share, under ~~the newly-approved~~this stock repurchase program. ~~The~~During the second quarter of 2021, the Company ~~has suspended the stock~~did not repurchase ~~program indefinitely.~~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 second quarter of ~~2020.~~2021.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum ~~Dollar Value~~Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, ~~2020~~2021 to April 30, ~~2020~~2021	—	$	—	—	4,525,326
May 1, 2021 to May 31, 2021	—	—		$—	~~100,000,000~~4,525,326
~~May~~June 1, ~~2020~~2021 to ~~May 31, 2020~~June 30, 2021	—	—		—	~~100,000,000~~4,525,326
~~June 1, 2020 to June 30, 2020~~	—	—		—	~~100,000,000~~
Total	—			—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~142~~135

Item 6. Exhibits

Exhibit 2.1

Agreement and Plan of Reorganization, dated as of January 31, 2020 by and between Pacific Premier Bancorp, Inc., Pacific Premier Bank and Opus Bank (1)

Exhibit 3.1

Second Amended and Restated Certificate of Incorporation of Pacific Premier Bancorp, Inc. (2)

Exhibit 3.2

Amended and Restated Bylaws of Pacific Premier Bancorp, Inc. (2)

Exhibit 4.1

Specimen Stock Certificate of Pacific Premier Bancorp, Inc. (3)

Exhibit 4.2

~~Form~~ of ~~AmendedandRestated Warrant to purchase Opus Bank common stock (~~4 )

~~Exhibit 4.3~~

~~Form of Amended and Restated Warrant to purchase Opus Bank Series A non-cumulative, non-voting preferred stock (~~4 )

~~Exhibit 4.4~~

Long-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

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.INS

XBRL 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.SCH

Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document

Exhibit 101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104

The cover page of Pacific Premier Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020,~~2021, formatted in Inline XBRL (contained in Exhibit 101)

(1) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on 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.

~~(4) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on June 1, 2020.~~

~~143~~136

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:

August ~~7, 2020~~6, 2021

By:

/s/ Steven R. Gardner

Steven R. Gardner

Chairman, President, and Chief Executive Officer

(Principal Executive Officer)

Date:

August ~~7, 2020~~6, 2021

By:

/s/ Ronald J. Nicolas, Jr.

Ronald J. Nicolas, Jr.

Senior Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

~~144~~137



Balance at March 31, 2019	62,773,299	$	617	$	1,676,024	$	325,363	$	5,060	$	2,007,064
Net income	—	—		—		38,527		—		38,527
Other comprehensive income	—	—		—		—		17,298		17,298
Repurchase and retirement of common stock	(2,219,246)	(22)		(59,253)		(6,694)		—		(65,969)
Cash dividends declared ($0.22 per common share)	—	—		—		(13,792)		—		(13,792)
Dividend equivalents declared ($0.22 per restricted stock unit)	—	—		38		(38)		—		—
Share-based compensation expense	—	—		2,860		—		—		2,860
Issuance of restricted stock, net	15,000	—		—		—		—		—
Restricted stock surrendered and canceled	(61,927)	—		(1,582)		—				(1,582)
Exercise of stock options	2,868	—		50		—				50
Balance at June 30, 2019	60,509,994	$	595	$	1,618,137	$	343,366	$	22,358	$	1,984,456


	January 1, 2020
	Pre-CECL Adoption		Impact of CECL Adoption		As Reported Under CECL
	(Dollars in thousands)
Assets:
Allowance for credit losses on debt securities:
Held-to-maturity	$	—	$	—	$	—
Available-for-sale	—		—		—
Allowance for credit losses on loans:
Investor loans secured by real estate	9,027		16,072		25,099
Business loans secured by real estate	5,492		27,572		33,064
Commercial loans	20,118		9,519		29,637
Retail loans	1,061		2,523		3,584
Deferred tax (liabilities) assets	(1,371)		18,346		16,975
Liabilities:
Allowance for credit losses on off-balance sheet credit exposures	$	3,279	$	8,285	$	11,564
Stockholders' equity:
Retained earnings	$	396,051	$	(45,625)	$	350,426


	Credit Risk Grades
	Pass		Special Mention		Substandard		Total Gross Loans
December 31, 2019	(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied	$	2,067,875	$	1,178	$	1,088	$	2,070,141
Multifamily	1,575,510		—		216		1,575,726
Construction and land	438,769		—		17		438,786
SBA secured by real estate	65,835		973		1,623		68,431
Total investor loans secured by real estate	4,147,989		2,151		2,944		4,153,084
Business loans secured by real estate
CRE owner-occupied	1,831,853		11,167		3,534		1,846,554
Franchise real estate secured	352,319		921		—		353,240
SBA secured by real estate	83,106		1,842		3,433		88,381
Total business loans secured by real estate	2,267,278		13,930		6,967		2,288,175
Commercial loans
Commercial and industrial	1,359,662		13,226		20,382		1,393,270
Franchise non-real estate secured	546,594		6,930		10,833		564,357
SBA not secured by real estate	13,933		485		3,008		17,426
Total commercial loans	1,920,189		20,641		34,223		1,975,053
Retail loans
Single family residential	254,463		—		561		255,024
Consumer loans	50,921		—		54		50,975
Total retail loans	305,384		—		615		305,999
Total gross loans	$	8,640,840	$	36,722	$	44,749	$	8,722,311


	Impaired Loans
	Unpaid Principal Balance		Recorded Investment		With Specific Allowance		Without Specific Allowance		Specific Allowance for Impaired Loans
	(Dollars in thousands)
December 31, 2019
Investor loans secured by real estate
CRE non-owner-occupied	$	1,184	$	1,088	$	—	$	1,088	$	—


SBA secured by real estate	772		390		—		390		—
Business loans secured by real estate


SBA secured by real estate	1,743		1,517		—		1,517		—
Commercial loans
Commercial and industrial	7,755		7,529		—		7,529		—
Franchise non-real estate secured	10,835		10,834		—		10,834		—
SBA non-real estate secured	1,555		1,118		—		1,118		—
Retail loans
Single family residential	412		366		—		366		—

Totals	$	24,256	$	22,842	$	—	$	22,842	$	—


	June 30, 2020
	Full payment Deferral		Interest-only Deferral		Total
	(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied	$	545,928	$	250,586	$	796,514
Multifamily	424,540		67,720		492,260


Total investor loans secured by real estate	970,468		318,306		1,288,774
Business loans secured by real estate
CRE owner-occupied	297,662		65,442		363,104
Franchise real estate secured	115,674		59,060		174,734
SBA secured by real estate	26		—		26
Total business loans secured by real estate	413,362		124,502		537,864
Commercial loans
Commercial and industrial	61,497		30,061		91,558
Franchise non-real estate secured	188,548		126,566		315,114


Total commercial loans	250,045		156,627		406,672
Retail loans
Single family residential	11,391		265		11,656
Consumer	8		—		8
Total retail loans	11,399		265		11,664
Total loans	$	1,645,274	$	599,700	$	2,244,974


	For the Three Months Ended June 30, 2019
	Beginning ALLL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ALLL Balance
	(Dollars in thousands)

Investor loans secured by real estate
CRE non-owner-occupied	$	1,668	$	(488)	$	—	$	585	$	1,765
Multifamily	669		—		—		36		705
Construction and land	5,960		—		—		(552)		5,408
SBA secured by real estate	2,704		(721)		—		(661)		1,322
Business loans secured by real estate
CRE owner-occupied	1,969		—		15		315		2,299
Franchise real estate secured	2,173		(1,376)		—		(218)		579
SBA secured by real estate	1,966		(254)		—		(101)		1,611
Commercial loans
Commercial and industrial	13,587		(393)		47		555		13,796
Franchise non-real estate secured	5,698		(160)		—		648		6,186
SBA non-real estate secured	503		(244)		1		170		430
Retail loans
Single family residential	758		—		1		(55)		704
Consumer loans	201		—		—		20		221
Totals	$	37,856	$	(3,636)	$	64	$	742	$	35,026


	For the Six Months Ended June 30, 2019
	Beginning ALLL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ALLL Balance
	(Dollars in thousands)

Investor loans secured by real estate
CRE non-owner-occupied	$	1,624	$	(488)	$	—	$	629	$	1,765
Multifamily	740		—		—		(35)		705
Construction and land	5,964		—		—		(556)		5,408
SBA secured by real estate	1,827		(721)		—		216		1,322
Business loans secured by real estate
CRE owner-occupied	1,908		—		23		368		2,299
Franchise real estate secured	743		(1,376)		—		1,212		579
SBA secured by real estate	1,824		(254)		—		41		1,611
Commercial loans
Commercial and industrial	13,695		(695)		114		682		13,796
Franchise non-real estate secured	6,066		(160)		—		280		6,186
SBA non-real estate secured	654		(244)		4		16		430
Retail loans
Single family residential	808		—		1		(105)		704
Consumer loans	219		(5)		1		6		221
Totals	$	36,072	$	(3,943)	$	143	$	2,754	$	35,026


	December 31, 2019
	Loans Evaluated Individually for Impairment		ALLL Attributed to Individually Evaluated Loans		Loans Evaluated Collectively for Impairment		ALLL Attributed to Collectively Evaluated Loans
	(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied	$	1,088	$	—	$	2,069,053	$	1,899
Multifamily	—		—		1,575,726		729
Construction and land	—		—		438,786		4,484
SBA secured by real estate	390		—		68,041		1,915
Business loans secured by real estate
CRE owner-occupied	—		—		1,846,554		2,781
Franchise real estate secured	—		—		353,240		592
SBA secured by real estate	1,517		—		86,864		2,119
Commercial loans
Commercial and industrial	7,529		—		1,385,741		13,857
Franchise non-real estate secured	10,834		—		553,523		5,816
SBA non-real estate secured	1,118		—		16,308		445
Retail loans
Single family residential	366		—		254,658		655
Consumer loans	—		—		50,975		406
Totals	$	22,842	$	—	$	8,699,469	$	35,698


	June 30, 2020										December 31, 2019
Balance at end of period applicable to	Amount		Allowance as a % of Category Total		% of Loans in Category to Total Loans		Amount ⁽¹⁾		Allowance as a % of Category Total		% of Loans in Category to Total Loans
	(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner-occupied	$	63,007	2.26	%	18.5	%	$	1,899	0.09	%	23.7	%
Multifamily	63,511		1.22		34.6		729		0.05		18.1
Construction and land	18,804		5.26		2.4		4,484		1.02		5.0
SBA secured by real estate	2,010		3.38		0.4		1,915		2.80		0.8
Total investor loans secured by real estate	147,332		1.75		55.9		9,027		0.22		47.6
Business loans secured by real estate
CRE owner-occupied	48,213		2.22		14.4		2,781		0.15		21.2
Franchise real estate secured	13,060		3.58		2.4		592		0.17		4.0
SBA secured by real estate	4,368		5.11		0.6		2,119		2.40		1.0
Total business loans secured by real estate	65,641		2.51		17.4		5,492		0.24		26.2
Commercial loans
Commercial and industrial	41,967		2.05		13.6		13,857		0.99		16.0
Franchise non-real estate secured	21,676		4.14		3.5		5,816		1.03		6.5
SBA non-real estate secured	600		2.85		0.1		445		2.55		0.2
SBA PPP	—		—		7.5		—		—		—
Total commercial loans	64,243		1.72		24.7		20,118		1.02		22.7
Retail loans
Single family residential	1,479		0.56		1.7		655		0.26		2.9
Consumer loans	3,576		7.72		0.3		406		0.80		0.6
Total retail loans	$	5,055	1.62	%	2.0	%	$	1,061	0.35	%	3.5	%
Total	$	282,271	2.02	%	100.0	%	$	35,698	0.41	%	100.0	%


	Three Months Ended ⁽¹⁾															Six Months Ended ⁽¹⁾
	June 30,			March 31,			June 30,			June 30,
	2020			2019			2019			2020			2019
	(Dollars in thousands)
Balance, beginning of period	$	115,422		$	35,698		$	37,856		$	35,698		$	36,072
Adoption of ASC 326	—			55,686			—			55,686			—
Initial ACL recorded for PCD Loans	21,242			—			—			21,242			—
Provision for credit losses	150,257			25,382			742			175,639			2,754
Charge-offs:
Investor loans secured by real estate
CRE non-owner-occupied	—			(387)			(488)			(387)			(488)


SBA secured by real estate	(554)			—			(721)			(554)			(721)
Business loans secured by real estate

Franchise real estate secured	—			—			(1,376)			—			(1,376)
SBA secured by real estate	—			(315)			(254)			(315)			(254)
Commercial loans
Commercial and industrial	(2,286)			(490)			(393)			(2,776)			(695)
Franchise non-real estate secured	(1,227)			—			(160)			(1,227)			(160)
SBA non-real estate secured	(556)			(236)			(244)			(792)			(244)
Retail loans
Single family residential	(62)			—			—			(62)			—
Consumer loans	—			(8)			—			(8)			(5)
Total charge-offs	(4,685)			(1,436)			(3,636)			(6,121)			(3,943)
Recoveries:





Business loans secured by real estate
CRE owner-occupied	11			12			15			23			23

SBA secured by real estate	3			71			—			74			—
Commercial loans
Commercial and industrial	21			5			47			26			114

SBA non-real estate secured	(2)			4			1			2			4
Retail loans
Single family residential	1			—			1			1			1
Consumer loans	1			—			—			1			1
Total recoveries	35			92			64			127			143
Net loan charge-offs	(4,650)			(1,344)			(3,572)			(5,994)			(3,800)
Balance, end of period	$	282,271		$	115,422		$	35,026		$	282,271		$	35,026

Ratios:
Annualized net charge-offs to average total loans, net	0.17		%	0.06		%	0.16		%	0.12		%	0.09		%

Allowance for loan losses to loans held for investment at end of period, excluding SBA PPP loans	2.02			1.32			0.40			2.02			0.40