~~0001028918us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2020-12-31~~0001028918ppbi:SingleFamilyResidentialMemberppbi:FICOScore580to680Memberppbi:RetailLoansPortfolioSegmentMember2021-09-30

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 ~~March 31,~~September 30, 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 Global Select Market

The number of shares outstanding of the registrant’s common stock as of ~~April 30,~~October 29, 2021 was ~~94,650,895.~~94,355,063.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED ~~MARCH 31,~~SEPTEMBER 30, 2021


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Statements of Financial Condition (Unaudited)			3

Consolidated Statements of 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)			78

Notes to Consolidated Financial Statements (Unaudited)			89

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			7985

Item 3 - Quantitative and Qualitative Disclosures About Market Risk			~~124~~134

Item 4 - Controls and Procedures			~~126~~136

PART II - OTHER INFORMATION			~~127~~137

Item 1 - Legal Proceedings			~~127~~137

Item 1A - Risk Factors			~~127~~137

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			~~127~~137

Item 3 - Defaults Upon Senior Securities			~~128~~137

Item 4 - Mine Safety Disclosures			~~128~~137

Item 5 - Other Information			~~128~~137

Item 6 - Exhibits			~~129~~138

SIGNATURE			~~130~~139

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)


		March 31, 2021		December 31, 2020
(Dollars in thousands, except par value and share data)						(Dollars in thousands, except par value and share data)	September 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	118,258	$	135,429	Cash and due from banks	$	160,276	$	135,429
Interest-bearing deposits with financial institutions	Interest-bearing deposits with financial institutions	1,436,410		745,337		Interest-bearing deposits with financial institutions	162,044		745,337
Cash and cash equivalents	Cash and cash equivalents	1,554,668		880,766		Cash and cash equivalents	322,320		880,766
Interest-bearing time deposits with financial institutions	Interest-bearing time deposits with financial institutions	2,708		2,845		Interest-bearing time deposits with financial institutions	2,708		2,845
Investments held-to-maturity, at amortized cost (fair value of $23,004 and $25,013 as of March 31, 2021 and December 31, 2020, respectively)		21,931		23,732
Investments held-to-maturity, at amortized cost, net of allowance for credit losses of $11 and $0 (fair value of $169,154 and $25,013) at September 30, 2021 and December 31, 2020, respectively						Investments held-to-maturity, at amortized cost, net of allowance for credit losses of $11 and $0 (fair value of $169,154 and $25,013) at September 30, 2021 and December 31, 2020, respectively	170,576		23,732
Investment securities available-for-sale, at fair value	Investment securities available-for-sale, at fair value	3,857,337		3,931,115		Investment securities available-for-sale, at fair value	4,709,815		3,931,115
FHLB, FRB, and other stock, at cost	FHLB, FRB, and other stock, at cost	117,843		117,055		FHLB, FRB, and other stock, at cost	118,399		117,055
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	7,311		601		Loans held for sale, at lower of cost or fair value	8,100		601
Loans held for investment	Loans held for investment	13,117,392		13,236,433		Loans held for investment	13,982,861		13,236,433
Allowance for credit losses	Allowance for credit losses	(266,999)		(268,018)		Allowance for credit losses	(211,481)		(268,018)
Loans held for investment, net	Loans held for investment, net	12,850,393		12,968,415		Loans held for investment, net	13,771,380		12,968,415
Accrued interest receivable	Accrued interest receivable	65,098		74,574		Accrued interest receivable	63,228		74,574

Premises and equipment	Premises and equipment	76,329		78,884		Premises and equipment	72,850		78,884
Deferred income taxes, net	Deferred income taxes, net	104,450		89,056		Deferred income taxes, net	83,432		89,056
Bank owned life insurance		292,932		292,564
Bank-owned life insurance						Bank-owned life insurance	447,135		292,564
Intangible assets	Intangible assets	81,364		85,507		Intangible assets	73,451		85,507
Goodwill	Goodwill	900,204		898,569		Goodwill	901,312		898,569
Other assets	Other assets	240,730		292,861		Other assets	260,505		292,861
Total assets	Total assets	$	20,173,298	$	19,736,544	Total assets	$	21,005,211	$	19,736,544

LIABILITIES	LIABILITIES					LIABILITIES
Deposit accounts:	Deposit accounts:					Deposit accounts:
Noninterest-bearing checking	Noninterest-bearing checking	$	6,302,703	$	6,011,106	Noninterest-bearing checking	$	6,841,495	$	6,011,106
Interest-bearing:	Interest-bearing:					Interest-bearing:
Checking	Checking	3,155,071		2,913,260		Checking	3,477,902		2,913,260
Money market/savings	Money market/savings	5,911,417		5,662,969		Money market/savings	6,037,532		5,662,969
Retail certificates of deposit	Retail certificates of deposit	1,353,431		1,471,512		Retail certificates of deposit	1,113,070		1,471,512
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	17,385		155,330		Wholesale/brokered certificates of deposit	—		155,330
Total interest-bearing	Total interest-bearing	10,437,304		10,203,071		Total interest-bearing	10,628,504		10,203,071
Total deposits	Total deposits	16,740,007		16,214,177		Total deposits	17,469,999		16,214,177
FHLB advances and other borrowings	FHLB advances and other borrowings	10,000		31,000		FHLB advances and other borrowings	150,000		31,000
Subordinated debentures	Subordinated debentures	501,611		501,511		Subordinated debentures	330,408		501,511

Accrued expenses and other liabilities	Accrued expenses and other liabilities	218,582		243,207		Accrued expenses and other liabilities	216,688		243,207
Total liabilities	Total liabilities	17,470,200		16,989,895		Total liabilities	18,167,095		16,989,895
STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
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 March 31, 2021 and December 31, 2020; 94,644,415 shares and 94,483,136 shares issued and outstanding, respectively.		931		931
Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding						Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding	—		—
Common stock, $0.01 par value; 150,000,000 shares authorized at September 30, 2021 and December 31, 2020; 94,354,211 shares and 94,483,136 shares issued and outstanding, respectively.						Common stock, $0.01 par value; 150,000,000 shares authorized at September 30, 2021 and December 31, 2020; 94,354,211 shares and 94,483,136 shares issued and outstanding, respectively.	929		931
Additional paid-in capital	Additional paid-in capital	2,348,445		2,354,871		Additional paid-in capital	2,347,626		2,354,871
Retained earnings	Retained earnings	368,911		330,555		Retained earnings	488,385		330,555
Accumulated other comprehensive (loss) income		(15,189)		60,292
Accumulated other comprehensive income						Accumulated other comprehensive income	1,176		60,292
Total stockholders’ equity	Total stockholders’ equity	2,703,098		2,746,649		Total stockholders’ equity	2,838,116		2,746,649
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	20,173,298	$	19,736,544	Total liabilities and stockholders’ equity	$	21,005,211	$	19,736,544

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

(Unaudited)


		Three Months Ended						Three Months Ended						Nine Months Ended
		March 31,		December 31,		March 31,		September 30,		June 30,		September 30,		September 30,		September 30,
		2021		2020		2020
(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	$	155,225	$	163,499	$	113,265		Loans	$	157,025	$	152,365	$	167,455	$	464,615	$	414,059
Investment securities and other interest-earning assets	Investment securities and other interest-earning assets	17,769		17,325		10,524			Investment securities and other interest-earning assets	19,022		18,327		14,536		55,118		35,843
Total interest income	Total interest income	172,994		180,824		123,789			Total interest income	176,047		170,692		181,991		519,733		449,902
INTEREST EXPENSE	INTEREST EXPENSE								INTEREST EXPENSE
Deposits	Deposits	4,426		5,685		10,487			Deposits	2,432		3,265		8,509		10,123		28,651
FHLB advances and other borrowings	FHLB advances and other borrowings	65		121		1,081			FHLB advances and other borrowings	1		—		113		66		1,411
Subordinated debentures	Subordinated debentures	6,851		6,820		3,046			Subordinated debentures	4,545		6,493		6,823		17,889		13,827
Total interest expense	Total interest expense	11,342		12,626		14,614			Total interest expense	6,978		9,758		15,445		28,078		43,889
Net interest income before provision for credit losses	Net interest income before provision for credit losses	161,652		168,198		109,175			Net interest income before provision for credit losses	169,069		160,934		166,546		491,655		406,013
Provision for credit losses	Provision for credit losses	1,974		1,517		25,454			Provision for credit losses	(19,726)		(38,476)		4,210		(56,228)		190,299
Net interest income after provision for credit losses	Net interest income after provision for credit losses	159,678		166,681		83,721			Net interest income after provision for credit losses	188,795		199,410		162,336		547,883		215,714
NONINTEREST INCOME	NONINTEREST INCOME								NONINTEREST INCOME
Loan servicing income	Loan servicing income	458		633		480			Loan servicing income	536		622		481		1,616		1,395
Service charges on deposit accounts	Service charges on deposit accounts	2,032		2,005		1,715			Service charges on deposit accounts	2,375		2,222		1,593		6,629		4,707
Other service fee income	Other service fee income	473		459		311			Other service fee income	350		352		487		1,175		1,095
Debit card interchange fee income	Debit card interchange fee income	787		777		348			Debit card interchange fee income	834		1,099		944		2,720		1,749
Earnings on bank-owned life insurance	Earnings on bank-owned life insurance	2,233		2,240		1,336			Earnings on bank-owned life insurance	3,266		2,279		2,270		7,778		4,920
Net gain from sales of loans	Net gain from sales of loans	361		328		771			Net gain from sales of loans	1,187		1,546		9,542		3,094		8,281
Net gain from sales of investment securities	Net gain from sales of investment securities	4,046		5,002		7,760			Net gain from sales of investment securities	4,190		5,085		1,141		13,321		8,880

Trust custodial account fees	Trust custodial account fees	7,222		7,296		0			Trust custodial account fees	11,446		7,897		6,960		26,565		9,357
Escrow and exchange fees	Escrow and exchange fees	1,526		1,257		0			Escrow and exchange fees	1,867		1,672		1,142		5,065		1,407
Other income	Other income	4,602		3,197		1,754			Other income	4,049		3,955		2,198		12,606		6,340
Total noninterest income	Total noninterest income	23,740		23,194		14,475			Total noninterest income	30,100		26,729		26,758		80,569		48,131
NONINTEREST EXPENSE	NONINTEREST EXPENSE								NONINTEREST EXPENSE
Compensation and benefits	Compensation and benefits	52,548		52,044		34,376			Compensation and benefits	53,592		53,474		51,021		159,614		128,408
Premises and occupancy	Premises and occupancy	11,980		13,268		8,168			Premises and occupancy	12,611		12,240		12,373		36,831		30,028
Data processing	Data processing	5,828		5,990		3,253			Data processing	6,296		5,765		6,783		17,889		14,501
Other real estate owned operations, net	Other real estate owned operations, net	0		(5)		14			Other real estate owned operations, net	—		—		(17)		—		6
FDIC insurance premiums	FDIC insurance premiums	1,181		1,213		367			FDIC insurance premiums	1,392		1,312		1,145		3,885		2,358
Legal and professional services	Legal and professional services	3,935		4,305		3,126			Legal and professional services	4,563		4,186		5,108		12,684		11,328
Marketing expense	Marketing expense	1,598		1,442		1,412			Marketing expense	2,008		1,490		1,718		5,096		4,449
Office expense	Office expense	1,829		2,191		1,103			Office expense	1,076		1,589		2,389		4,494		5,025
Loan expense	Loan expense	1,115		1,084		822			Loan expense	1,332		1,165		802		3,612		2,447
Deposit expense	Deposit expense	3,859		5,026		4,988			Deposit expense	3,974		3,985		4,728		11,818		14,674
Merger-related expense	Merger-related expense	5		5,071		1,724			Merger-related expense	—		—		2,988		5		44,058
Amortization of intangible assets	Amortization of intangible assets	4,143		4,505		3,965			Amortization of intangible assets	3,912		4,001		4,538		12,056		12,567
Other expense	Other expense	4,468		3,805		3,313			Other expense	5,284		5,289		5,003		15,041		11,331
Total noninterest expense	Total noninterest expense	92,489		99,939		66,631			Total noninterest expense	96,040		94,496		98,579		283,025		281,180
Net income before income taxes		90,929		89,936		31,565
Income tax expense		22,261		22,800		5,825
Net income		$	68,668	$	67,136	$	25,740
EARNINGS PER SHARE
Net income (loss) before income taxes									Net income (loss) before income taxes	122,855		131,643		90,515		345,427		(17,335)
Income tax expense (benefit)									Income tax expense (benefit)	32,767		35,341		23,949		90,369		(10,550)
Net income (loss)									Net income (loss)	$	90,088	$	96,302	$	66,566	$	255,058	$	(6,785)
EARNINGS (LOSS) PER SHARE									EARNINGS (LOSS) PER SHARE
Basic	Basic	$	0.73	$	0.71	$	0.43		Basic	$	0.95	$	1.02	$	0.71	$	2.70	$	(0.10)
Diluted	Diluted	0.72		0.71		0.43			Diluted	0.95		1.01		0.70		2.68		(0.10)
WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING								WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	93,529,147		93,568,994		59,007,191			Basic	93,549,639		93,635,392		93,529,967		93,571,468		74,391,688
Diluted	Diluted	94,093,644		93,969,188		59,189,717			Diluted	94,060,724		94,218,028		93,719,167		94,090,407		74,391,688

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
March 31, December 31, March 31,
2021 2020 2020
Net income $ 68,668 $ 67,136 $ 25,740
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on securities available-for-sale arising during the period, net of income taxes (1)
(72,592) 18,201 28,420
Reclassification adjustment for net gain on sales of securities included in net income, net of income taxes (2)
(2,889) (3,572) (5,534)
Other comprehensive (loss) income, net of tax (75,481) 14,629 22,886
Comprehensive (loss) income, net of tax $ (6,813) $ 81,765 $ 48,626


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Net income (loss)	$	90,088	$	96,302	$	66,566	$	255,058	$	(6,785)
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on securities available-for-sale arising during the period, net of income taxes (1)	(20,138)		45,343		(11,747)		(47,387)		30,473
Reclassification adjustment for net (gain) on sales of securities included in net income, net of income taxes (2)	(2,991)		(3,630)		(814)		(9,510)		(6,333)
Net unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (3)	(2,277)		—		—		(2,277)		—
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (4)	58		—		—		58		—
Other comprehensive (loss) income, net of tax	(25,348)		41,713		(12,561)		(59,116)		24,140
Comprehensive income, net of tax	$	64,740	$	138,015	$	54,005	$	195,942	$	17,355

(1) Income tax (benefit) expense onof the unrealized (loss) gain on securities was ~~$(29.1)~~$(8.1) million, $18.2 million, and $(4.7) million for the three months ended ~~March 31,~~September 30, 2021, ~~$7.2~~June 30, 2021, and September 30, 2020, respectively, and $(19.0) million and $12.3 million for the ~~three~~nine months ended ~~December 31,~~September 30, 2021 and September 30, 2020, ~~and $11.4 million for the three months ended March 31, 2020.~~respectively.

(2) Income tax expense ~~(benefit)~~ on the reclassification adjustment for net ~~gain (loss)~~(gain) on sales of securities included in net income was $1.2 million, $1.5 million, and $327,000 for the three months ended ~~March 31,~~September 30, 2021, ~~$1.4~~June 30, 2021, and September 30, 2020, respectively, and $3.8 million and $2.5 million for the ~~three~~nine months ended ~~December 31,~~September 30, 2021 and September 30, 2020, ~~and $2.2 million~~respectively.

(3) Income tax (benefit) on the unrealized loss on securities transferred from available-for-sale to held-to maturity was $(913,000) for the three and nine months ended ~~March 31, 2020.~~September 30, 2021.

(4) Income tax expense on the amortization of unrealized (loss) on securities transferred from available-for-sale to held-to maturity included in net income was $24,000 for the three and nine months ended September 30, 2021.

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS AND THREE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2021 ~~and 2020~~

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

(Unaudited)


		Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
(Dollars in thousands, except share data)													(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	Balance at December 31, 2020	94,483,136	$	931	$	2,354,871	$	330,555	$	60,292	$	2,746,649	Balance at December 31, 2020	94,483,136	$	931	$	2,354,871	$	330,555	$	60,292	$	2,746,649
Net income	Net income	—	—		—		68,668		—		68,668		Net income	—	—		—		255,058		—		255,058
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(75,481)		(75,481)		Other comprehensive loss	—	—		—		—		(59,116)		(59,116)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(199,674)	(2)		(4,977)		(1,918)		—		(6,897)		Repurchase and retirement of common stock	(479,944)	(5)		(11,942)		(6,120)		—		(18,067)
Cash dividends declared ($0.30 per common share)		—	—		—		(28,287)		—		(28,287)
Dividend equivalents declared ($0.30 per restricted stock unit)		—	—		107		(107)		—		0
Cash dividends declared ($0.96 per common share)													Cash dividends declared ($0.96 per common share)	—	—		—		(90,747)		—		(90,747)
Dividend equivalents declared ($0.96 per restricted stock unit)													Dividend equivalents declared ($0.96 per restricted stock unit)	—	—		361		(361)		—		—
Share-based compensation expense	Share-based compensation expense	—	—		3,105		—		—		3,105		Share-based compensation expense	—	—		9,911		—		—		9,911
Issuance of restricted stock, net	Issuance of restricted stock, net	419,757	2		(2)		—		—		0		Issuance of restricted stock, net	450,549	3		(3)		—		—		—
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(100,550)	—		(5,279)		—		—		(5,279)		Restricted stock surrendered and canceled	(149,782)	—		(6,354)		—		—		(6,354)
Exercise of stock options	Exercise of stock options	41,746	—		620		—		—		620		Exercise of stock options	50,252	—		782		—		—		782
Balance at March 31, 2021		94,644,415	$	931	$	2,348,445	$	368,911	$	(15,189)	$	2,703,098
Balance at September 30, 2021													Balance at September 30, 2021	94,354,211	$	929	$	2,347,626	$	488,385	$	1,176	$	2,838,116

Balance at December 31, 2019 59,506,057 $ 586 $ 1,594,434 $ 396,051 $ 21,523 $ 2,012,594
Net income — — — 25,740 — 25,740
Other comprehensive income — — — — 22,886 22,886
Cash dividends declared ($0.25 per common share) — — — (14,882) — (14,882)
Dividend equivalents declared ($0.25 per restricted stock unit) — — 42 (42) — 0
Share-based compensation expense — — 2,309 — — 2,309
Issuance of restricted stock, net 446,815 — — — — 0
Restricted stock surrendered and canceled (29,474) — (1,008) — — (1,008)
Exercise of stock options 51,883 — 903 — — 903
Cumulative effect of the change in accounting principle (1)
— — — (45,625) — (45,625)
Balance at March 31, 2020 59,975,281 $ 586 $ 1,596,680 $ 361,242 $ 44,409 $ 2,002,917


Balance at June 30, 2021	94,656,575	$	931	$	2,352,112	$	433,852	$	26,524	$	2,813,419
Net income	—	—		—		90,088		—		90,088
Other comprehensive loss	—	—		—		—		(25,348)		(25,348)
Repurchase and retirement of common stock	(280,270)	(3)		(6,965)		(4,202)		—		(11,170)
Cash dividends declared ($0.33 per common share)	—	—		—		(31,226)		—		(31,226)
Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		127		(127)		—		—
Share-based compensation expense	—	—		3,349		—		—		3,349
Issuance of restricted stock, net	14,592	1		(1)		—		—		—
Restricted stock surrendered and canceled	(39,755)	—		(1,046)		—		—		(1,046)
Exercise of stock options	3,069	—		50		—		—		50
Balance at September 30, 2021	94,354,211	$	929	$	2,347,626	$	488,385	$	1,176	$	2,838,116

~~__________________~~

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)


(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	—	—		—		(6,785)		—		(6,785)
Other comprehensive income	—	—		—		—		24,140		24,140
Cash dividends declared ($0.75 per common share)	—	—		—		(53,464)		—		(53,464)
Dividend equivalents declared ($0.75 per restricted stock unit)	—	—		217		(217)		—		—
Share-based compensation expense	—	—		7,747		—		—		7,747
Issuance of restricted stock, net	493,411	—		—		—		—		—
Issuance of common stock - acquisition	34,407,403	344		749,259		—		—		749,603
Restricted stock surrendered and canceled	(102,486)	—		(1,372)		—		—		(1,372)
Exercise of stock options	71,136	—		1,247		—		—		1,247
Cumulative effect of the change in accounting principle (1)	—	—		—		(45,625)		—		(45,625)
Balance at September 30, 2020	94,375,521	$	930	$	2,351,532	$	289,960	$	45,663	$	2,688,085



Balance at June 30, 2020	94,350,902	$	930	$	2,348,415	$	247,078	$	58,224	$	2,654,647
Net income	—	—		—		66,566		—		66,566
Other comprehensive loss	—	—		—		—		(12,561)		(12,561)
Cash dividends declared ($0.25 per common share)	—	—		—		(23,590)		—		(23,590)
Dividend equivalents declared ($0.25 per restricted stock unit)	—	—		94		(94)		—		—
Share-based compensation expense	—	—		2,899		—		—		2,899
Issuance of restricted stock, net	19,902	—		—		—		—		—
Restricted stock surrendered and canceled	(8,180)	—		(99)		—				(99)
Exercise of stock options	12,897	—		223		—				223
Balance at September 30, 2020	94,375,521	$	930	$	2,351,532	$	289,960	$	45,663	$	2,688,085

(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)


		Three Months Ended					Nine Months Ended
		March 31,					September 30,		September 30,
		2021		2020
(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		$	68,668	$	25,740
Net income (loss)						Net income (loss)	$	255,058	$	(6,785)
Adjustments to net income:	Adjustments to net income:					Adjustments to net income:
Depreciation and amortization expense	Depreciation and amortization expense	4,009		2,580		Depreciation and amortization expense	12,147		9,186
Provision for credit losses	Provision for credit losses	1,974		25,454		Provision for credit losses	(56,228)		190,299
Share-based compensation expense	Share-based compensation expense	3,105		2,309		Share-based compensation expense	9,911		7,747
Loss on sales and disposals of premises and equipment	Loss on sales and disposals of premises and equipment	7		10		Loss on sales and disposals of premises and equipment	179		255

Loss on sales of or write downs of other real estate owned						Loss on sales of or write downs of other real estate owned	—		42
Net amortization on securities	Net amortization on securities	5,983		1,238		Net amortization on securities	17,078		9,417
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	(10,833)		(5,604)		Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	(31,955)		(28,317)
Gain on sales of investment securities available-for-sale	Gain on sales of investment securities available-for-sale	(4,046)		(7,760)		Gain on sales of investment securities available-for-sale	(13,321)		(8,880)
Loss on debt extinguishment	Loss on debt extinguishment	503		0		Loss on debt extinguishment	180		—
Originations of loans held for sale	Originations of loans held for sale	(7,768)		(10,491)		Originations of loans held for sale	(34,902)		(12,217)
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	970		13,961		Proceeds from the sales of and principal payments from loans held for sale	29,973		14,201
Gain on sales of loans	Gain on sales of loans	(361)		(771)		Gain on sales of loans	(3,094)		(8,281)
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	14,650		(7,476)		Deferred income tax expense (benefit)	29,111		(52,471)
Change in accrued expenses and other liabilities, net	Change in accrued expenses and other liabilities, net	(34,203)		(5,058)		Change in accrued expenses and other liabilities, net	(17,404)		19,770
Income from bank owned life insurance, net		(1,675)		(1,129)
Income from bank-owned life insurance, net						Income from bank-owned life insurance, net	(6,071)		(3,849)
Amortization of intangible assets	Amortization of intangible assets	4,143		3,965		Amortization of intangible assets	12,056		12,567
Change in accrued interest receivable and other assets, net	Change in accrued interest receivable and other assets, net	60,176		8,953		Change in accrued interest receivable and other assets, net	53,953		28,426
Net cash provided by operating activities	Net cash provided by operating activities	105,302		45,921		Net cash provided by operating activities	256,671		171,110
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Net decrease in interest-bearing time deposits with financial institutions	Net decrease in interest-bearing time deposits with financial institutions	137		0		Net decrease in interest-bearing time deposits with financial institutions	137		—

Proceeds from sales of other real estate owned						Proceeds from sales of other real estate owned	—		273
Loan originations and payments, net	Loan originations and payments, net	128,540		11,902		Loan originations and payments, net	(719,657)		(111,334)
Proceeds from loans held for sale previously classified as portfolio loans	Proceeds from loans held for sale previously classified as portfolio loans	449		25,038		Proceeds from loans held for sale previously classified as portfolio loans	1,530		1,283,214
Purchase of loans held for investment	Purchase of loans held for investment	0		(66,470)		Purchase of loans held for investment	—		(66,470)
Proceeds from prepayments and maturities of securities held-to-maturity	Proceeds from prepayments and maturities of securities held-to-maturity	1,807		3,234		Proceeds from prepayments and maturities of securities held-to-maturity	7,509		9,782
Purchase of securities available-for-sale	Purchase of securities available-for-sale	(364,542)		(104,725)		Purchase of securities available-for-sale	(2,079,198)		(2,057,690)
Proceeds from prepayments and maturities of securities available-for-sale	Proceeds from prepayments and maturities of securities available-for-sale	162,568		18,737		Proceeds from prepayments and maturities of securities available-for-sale	429,235		149,720
Proceeds from sale of securities available-for-sale		179,386		97,886
Proceeds from sales of securities available-for-sale						Proceeds from sales of securities available-for-sale	630,437		558,899
Proceeds from the sales of premises and equipment	Proceeds from the sales of premises and equipment	4		38		Proceeds from the sales of premises and equipment	26		42
Proceeds from bank owned life insurance settlements		1,307		0
Purchases of premises and equipment		(1,465)		(5,242)
Proceeds from surrender of bank-owned life insurance						Proceeds from surrender of bank-owned life insurance	1,400		17,799
Purchase of bank-owned life insurance						Purchase of bank-owned life insurance	(150,000)		—
Purchase of premises and equipment						Purchase of premises and equipment	(6,318)		(8,687)
Change in FHLB, FRB, and other stock, at cost	Change in FHLB, FRB, and other stock, at cost	(202)		(8)		Change in FHLB, FRB, and other stock, at cost	3		(22,584)
Funding of CRA investments, net	Funding of CRA investments, net	(3,873)		(2,705)		Funding of CRA investments, net	(19,001)		(9,025)

Net cash provided by (used in) investing activities		104,116		(22,315)
Change in cash acquired in acquisitions, net						Change in cash acquired in acquisitions, net	—		937,100
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(1,903,897)		681,039
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	525,830		194,563		Net increase in deposit accounts	1,255,822		516,308
Net change in short-term borrowings	Net change in short-term borrowings	0		9,000		Net change in short-term borrowings	140,000		(681,000)
Repayment of long-term FHLB borrowings	Repayment of long-term FHLB borrowings	(21,503)		(5,000)		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

Redemption of subordinated debentures						Redemption of subordinated debentures	(171,153)		—
Cash dividends paid	Cash dividends paid	(28,287)		(14,882)		Cash dividends paid	(90,747)		(53,464)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(6,897)		0		Repurchase and retirement of common stock	(18,067)		—
Proceeds from exercise of stock options	Proceeds from exercise of stock options	620		903		Proceeds from exercise of stock options	782		1,247
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(5,279)		(1,008)		Restricted stock surrendered and canceled	(6,354)		(1,372)
Net cash provided by financing activities		464,484		183,576
Net increase in cash and cash equivalents		673,902		207,182
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	1,088,780		(75,922)
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(558,446)		776,227
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	880,766		326,850		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	$	1,554,668	$	534,032	Cash and cash equivalents, end of period	$	322,320	$	1,103,077

Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Interest paid	Interest paid	$	10,890	$	13,618	Interest paid	$	29,745	$	43,188
Income taxes paid	Income taxes paid	77		84		Income taxes paid	56,472		26,151
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	0		26,176		Transfers from portfolio loans to loans held for sale	1,006		1,276,277

Transfers from loans to other real estate owned						Transfers from loans to other real estate owned	—		208
Transfers of investment securities from available-for-sale to held-to-maturity						Transfers of investment securities from available-for-sale to held-to-maturity	154,456		—
Recognition of operating lease right-of-use assets	Recognition of operating lease right-of-use assets	0		(10,706)		Recognition of operating lease right-of-use assets	(3,812)		(11,118)
Recognition of operating lease liabilities	Recognition of operating lease liabilities	0		10,706		Recognition of operating lease liabilities	3,812		11,118
Receivable on unsettled security sales		0		57,385

Due on unsettled security purchases	Due on unsettled security purchases	(11,286)		0		Due on unsettled security purchases	—		(20,000)

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
Cash consideration						Cash consideration	—		2
Fair value of assets acquired						Fair value of assets acquired	—		8,102,281
Liabilities assumed						Liabilities assumed	—		7,352,676

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~March 31,~~September 30, 2021

(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,” 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 ~~three~~nine months ended ~~March 31,~~September 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 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 footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2020 (the “2020 Form 10-K”).

The Company 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 interests in these entities to determine whether they meet the definition of a VIE and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size, and form of the Company's involvement with the VIE. See Note 16 -– 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. See further discussion in Note 4 – Acquisitions.

Note 2 – Recently Issued Accounting Pronouncements

Accounting Standards Adopted in 2021

In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. The 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 callable. For public business entities, the amendments in this Update became effective for fiscal years beginning after December 15, 2020, and interim periods within those years. The Company’s adoption of this Update did not have a material impact on its financial 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 December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which ~~include~~includes updates to 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 equity method investment;

(3) Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a ~~subsidiary,~~subsidiary; and

(4) Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The amendments included in this update also require the following:

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

(2) Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.

(3) Specifying that an entity is not required to allocate any portion of the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority.

(4) Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes 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 interim periods within those fiscal years. The Company’s adoption of this Update did not have a material impact on its financial statements.

Recent Accounting Guidance Not Yet Effective

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 2020-04, 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.

1011

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

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

The Company has created a cross-functional working group to manage the transition away from LIBOR. This working group is comprised of senior leadership and staff from functional areas that include: finance, treasury, lending, loan servicing, enterprise risk management, information technology, legal, and other internal stakeholders integral to the Bank’s transition away from LIBOR. The working group monitors developments related to transition and uncertainty surrounding reference rate reform and guides the Bank’s response. The working group is currently assessing the population of financial instruments that reference LIBOR, confirming our loan documents that reference LIBOR have been appropriately amended, ensuring that our internal systems are prepared for the transition, and managing the transition process with our customers. While the Company has not yet selected a preferred reference rate as an alternative to LIBOR, currently, new loan originations are primarily being made with the use of the Constant Maturity Treasury (“CMT”) Index. The Company may also consider the use of other alternative reference rates based on the individual needs of its customers as well as the types of credit being extended.

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 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 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 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 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 in this Update are adopted. Any cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the year of adoption for entities applying the modified retrospective method. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is evaluating the impact of this Update on its financial statements.

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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 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, 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 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 indefinite useful lives are not amortized, but are tested for impairment at least annually or more frequently if events and 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 ~~March 31,~~September 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 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.

Other intangible assets consist of core deposit intangible (“CDI”) and customer relationship intangible assets 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.

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Leases. The Company accounts for its leases in accordance with ASC 842, which requires the Company to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased asset. Leases with a term of 12 months or less are accounted for using straight-line expense recognition with no ~~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 ~~March 31,~~September 30, 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.

Transfers of debt securities from available-for-sale classification to held-to-maturity classification are made at fair value. Any associated unrealized gains or losses on such securities become part of the security’s amortized cost at the time of transfer and are subsequently amortized or accreted into interest income over the remaining life of the security using the interest method. In addition, the related unrealized gains and losses included in accumulated other comprehensive income at the time a security is transferred are also subsequently amortized or accreted into interest income over the remaining life of the security using the interest method.

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.

13Equity 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 (“ACL”) 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 credit losses (“CECL”) 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 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 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, previously accrued and uncollected interest is promptly reversed against current period interest income, and as such an ACL for accrued interest receivable is not established. Interest income generally is not recognized on nonaccrual loans unless the likelihood of further loss is remote. Interest payments received on nonaccrual loans are applied as a reduction to the loan principal balance. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are 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.

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 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 ~~backtesting,~~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. 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 by real estate, commercial loans, and retail loans. Within each segment grouping there are various classes of loans as disclosed below. The Company determines the ACL for loans based on this more detailed loan segmentation and classification.

At ~~March 31,~~September 30, 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. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

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

•Construction and land - We originate loans for the construction of one-to-four family and multifamily residences and CRE properties in our primary market area. We concentrate our origination efforts on single homes and ~~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. These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. Risks associated with these loans include material decreases in the value of real estate being held as collateral, and the borrower’s inability to pay as a result of increases in interest rates or decreases in cash flow from the underlying business.

•Small Business Administration (“SBA”) - We are approved to originate loans under the SBA’s Preferred Lenders Program (“PLP”). The PLP lending status affords us a higher level of delegated credit autonomy, translating to a significantly shorter turnaround time from application to funding, which is critical to our marketing efforts. We originate loans nationwide under the SBA’s 7(a), 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.

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Commercial Loans:

•Commercial and industrial (including franchise commercial loans) (“C&I”) - Loans to businesses, secured by business assets including inventory, receivables, and machinery and equipment. Loan types ~~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.

Retail Loans:

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

•Consumer loans - In addition to consumer loans acquired through our various bank acquisitions, we originate a limited number of consumer loans, generally ~~for~~to 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.

Troubled Debt Restructurings (“TDRs”). From time to time, the Company makes modifications to certain loans when a borrower is experiencing financial difficulty. These modifications are made to alleviate temporary impairments in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications typically include: changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and, in limited cases, reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status and are returned to accrual status when all contractual amounts past due have been brought current, and the ~~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, which are in the form of payment deferrals, the delinquency status will not advance, and loans that were accruing at the time that the relief iswas 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, ~~has continued~~continues to monitor facts and circumstances associated with the underlying credit quality of the 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 the current period interest income. For additional information, see Note 6 - 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 discounts or premiums. Discounts and premiums are accreted or amortized 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 an ACL of approximately $21.2 million, which was added to the amortized cost of the 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.

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

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

Use of Estimates. The preparation of financial statements in conformity with 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 was 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 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.

2023


(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 ~~$91.9~~$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, 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

Allowance for credit losses

(21,242)

Premises and equipment

22,121

Intangible assets

19,267

Deferred tax assets

~~44,835~~43,395

Other assets

~~368,837~~369,169

Total assets acquired

~~8,010,399~~8,009,291

Liabilities assumed

Deposits

6,915,990

FHLB advances and other borrowings

213,491

Subordinated debt

138,653

Other liabilities

84,542

Total liabilities assumed

7,352,676

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

~~657,723~~656,615

Total merger consideration

749,605

Goodwill recognized

~~91,882~~92,990

2124

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. Since the acquisition, the Company has made a net adjustment of ~~$962,000~~$146,000 related to loans, deferred tax assets, other assets, and other liabilities.

~~As of March 31,~~ In May 2021, the ~~final purchase price remains subject to final adjustments and~~Company finalized its 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 the acquisition date and expects to finalize itsvalues analysis of the acquired assets and assumed liabilities ~~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.

At the acquisition date, non-PCD loans and PCD loans had a fair value of $4.94 billion and $841.2 million, respectively, and a contractual balance of $5.05 billion and $896.5 million, respectively. In accordance with 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, 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 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 through the use of an excess earnings 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 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 $5,000 of expenses in connection with the Opus acquisition during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared with ~~$1.7~~$44.1 million during the ~~three~~nine months ended ~~March 31,~~September 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 nine months ended ~~March 31, 2021 and~~September 30, 2020 as if Opus had been acquired on January 1, 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
March 31, 2021 March 31, 2020
(Dollar in thousands, except per share data)
Net interest and other income $ 185,392 $ 197,117
Net income 68,668 43,128
Basic earnings per share 0.73 0.47
Diluted earnings per share 0.72 0.47


	Three Months Ended		Nine Months Ended
(Dollar in thousands, except per share data)	September 30, 2020		September 30, 2020
Net interest and other income	$	193,304	$	577,799
Net income (loss)	66,566		(78,570)
Basic earnings (loss) per share	0.71		(0.84)
Diluted earnings (loss) per share	0.70		(0.84)

2326

Note 5 – Investment Securities

The amortized cost and estimated fair value of investment securities available-for-sale were as follows:


		March 31, 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:
September 30, 2021										September 30, 2021
U.S. Treasury	U.S. Treasury	$	30,144	$	1,919	$	0	$	32,063	U.S. Treasury	$	77,803	$	1,665	$	(126)	$	79,342
Agency	Agency	660,582		12,956		(10,379)		663,159		Agency	531,867		5,252		(7,026)		530,093
Corporate	Corporate	360,617		2,128		(4,911)		357,834		Corporate	383,910		5,381		(2,900)		386,391
Municipal bonds	Municipal bonds	1,432,169		22,287		(32,394)		1,422,062		Municipal bonds	1,237,923		27,585		(9,642)		1,255,866
Collateralized mortgage obligations	Collateralized mortgage obligations	514,250		431		(5,710)		508,971		Collateralized mortgage obligations	665,851		1,109		(4,729)		662,231
Mortgage-backed securities	Mortgage-backed securities	880,903		9,309		(16,964)		873,248		Mortgage-backed securities	1,807,758		6,194		(18,060)		1,795,892
Total investment securities available-for-sale	Total investment securities available-for-sale	3,878,665		49,030		(70,358)		3,857,337		Total investment securities available-for-sale	$	4,705,112	$	47,186	$	(42,483)	$	4,709,815
Investment securities held-to-maturity:
Mortgage-backed securities		20,353		1,073		0		21,426
Other		1,578		0		0		1,578
Total investment securities held-to-maturity		21,931		1,073		0		23,004
Total investment securities		$	3,900,596	$	50,103	$	(70,358)	$	3,880,341


		December 31, 2020
		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
		(Dollars in thousands)
Investment securities available-for-sale:
December 31, 2020										December 31, 2020
U.S. Treasury	U.S. Treasury	$	30,153	$	2,380	$	0	$	32,533	U.S. Treasury	$	30,153	$	2,380	$	—	$	32,533
Agency	Agency	666,702		24,292		(608)		690,386		Agency	666,702		24,292		(608)		690,386
Corporate	Corporate	412,223		3,591		(506)		415,308		Corporate	412,223		3,591		(506)		415,308
Municipal bonds	Municipal bonds	1,412,012		37,260		(3,253)		1,446,019		Municipal bonds	1,412,012		37,260		(3,253)		1,446,019
Collateralized mortgage obligations	Collateralized mortgage obligations	513,259		819		(712)		513,366		Collateralized mortgage obligations	513,259		819		(712)		513,366
Mortgage-backed securities	Mortgage-backed securities	812,384		21,662		(543)		833,503		Mortgage-backed securities	812,384		21,662		(543)		833,503
Total investment securities available-for-sale	Total investment securities available-for-sale	3,846,733		90,004		(5,622)		3,931,115		Total investment securities available-for-sale	$	3,846,733	$	90,004	$	(5,622)	$	3,931,115
Investment securities held-to-maturity:
Mortgage-backed securities		22,124		1,281		0		23,405
Other		1,608		0		0		1,608
Total investment securities held-to-maturity		23,732		1,281		0		25,013
Total investment securities		$	3,870,465	$	91,285	$	(5,622)	$	3,956,128

~~Unrealized gains~~The carrying amount and ~~losses on~~estimated fair value of investment securities ~~available-for-sale are recognized in stockholders’ equity~~held-to-maturity were as accumulated other comprehensive income or loss. At March 31, 2021, the Company had accumulated other comprehensive loss of $21.3 million, or $15.2 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.follows:



(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrecognized Gain		Gross Unrecognized Loss		Estimated Fair Value
Investment securities held-to-maturity:
September 30, 2021
Municipal bonds	$	154,399	$	(11)	$	154,388	$	—	$	(2,225)	$	152,163
Mortgage-backed securities	14,656		—		14,656		803		—		15,459
Other	1,532		—		1,532		—		—		1,532
Total investment securities held-to-maturity	$	170,587	$	(11)	$	170,576	$	803	$	(2,225)	$	169,154





December 31, 2020
Mortgage-backed securities	$	22,124	$	—	$	22,124	$	1,281	$	—	$	23,405
Other	1,608		—		1,608		—		—		1,608
Total investment securities held-to-maturity	$	23,732	$	—	$	23,732	$	1,281	$	—	$	25,013

2427

The Company reassesses classification of certain investments as part of the ongoing review of the investment securities portfolio. During the third quarter of 2021, the Company transferred approximately $157.6 million of municipal bonds, which the Company intends and has the ability to hold to maturity, from available-for-sale to held-to-maturity securities. The transfer of these securities was accounted for at fair value. These securities had a net carrying amount of $154.5 million with a pre-tax unrealized loss of $3.2 million, 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 over the remaining term of the securities. The amortization of the unrealized loss reported in accumulated other comprehensive income will offset the effect on interest income of the amortization of the discount. No gains or losses were recorded at the time of transfer.

Investment securities with carrying values of $131.8 million and $147.3 million as of September 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, other borrowings, and for other purposes as required or permitted by law.

At ~~March 31,~~September 30, 2021 and December 31, 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~~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 September 30, 2021, 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~~had accumulated other comprehensive income of $4.7 million, or due to other factors such as changes in interest rates and general market conditions. The Company recognizes credit losses in current period earnings, through a change to provision for credit losses, 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$3.4 million net of tax, incompared to accumulated other comprehensive ~~income. In the event the Company is required to sell~~income of $84.4 million, 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~~$60.3 million net of ~~the security down to fair value in the current period.~~

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.

As of March 31, 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 March 31, 2021, and does not believe the declines in fair value are credit related. There was 0 provision for credit losses recognized for investment securities during the three months ended March 31, 2021,tax, at December ~~31, 2020, and March~~ 31, 2020.

For investment securities transferred from available-for-sale to held-to-maturity, the unrealized gains and losses at the date of transfer continue to be reported in stockholders’ equity as accumulated other comprehensive income and are amortized over the remaining lives of the securities with an offsetting entry to interest income as an adjustment of yield. At ~~March 31,~~September 30, 2021, ~~and December 31, 2020, there were 0~~the gross unrealized loss on municipal bonds transferred from available-for-sale to held-to-maturity in accumulated other comprehensive income was $3.1 million, or ~~held-to-maturity securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At March 31, 2021 and~~December 31, 2020, there were 0 securities purchased with deterioration in credit quality since their origination. At March 31, 2021 and December 31, 2020, there were 0 collateral dependent available-for-sale or held-to-maturity securities.

$2.2 million net of tax.

The table below ~~shows~~summarizes the number, fair value, and gross unrealized holding losses of the Company’s investment securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded as of the dates indicated, aggregated by investment category and length of time ~~that the securities have been~~ in a continuous loss position.

March 31, 2021
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)
Investment securities available-for-sale:
Agency 28 $ 389,387 $ (10,094) 9 $ 9,947 $ (285) 37 $ 399,334 $ (10,379)
Corporate 18 152,134 (4,911) 0 — 0 18 152,134 (4,911)
Municipal bonds 173 921,332 (32,394) 0 0 0 173 921,332 (32,394)
Collateralized mortgage obligations 32 309,975 (5,708) 1 388 (2) 33 310,363 (5,710)
Mortgage-backed securities. 70 671,400 (16,964) 0 0 0 70 671,400 (16,964)
Total investment securities available-for-sale 321 $ 2,444,228 $ (70,071) 10 $ 10,335 $ (287) 331 $ 2,454,563 $ (70,358)


																	September 30, 2021
																	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:
U.S. Treasury																U.S. Treasury	2	$	32,626	$	(126)	—	$	—	$	—	2	$	32,626	$	(126)
Agency																Agency	24	339,270		(5,365)		12	64,991		(1,661)		36	404,261		(7,026)
Corporate																Corporate	8	88,666		(1,916)		1	20,346		(984)		9	109,012		(2,900)
Municipal bonds																Municipal bonds	108	651,169		(9,102)		2	11,068		(540)		110	662,237		(9,642)
Collateralized mortgage obligations																Collateralized mortgage obligations	30	302,104		(4,297)		5	44,615		(432)		35	346,719		(4,729)
Mortgage-backed securities.																Mortgage-backed securities.	113	1,570,327		(17,961)		1	7,395		(99)		114	1,577,722		(18,060)
Total investment securities available-for-sale																Total investment securities available-for-sale	285	$	2,984,162	$	(38,767)	21	$	148,415	$	(3,716)	306	$	3,132,577	$	(42,483)

	December 31, 2020
	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)
Investment securities available-for-sale:

Agency	4	$	74,194	$	(307)	9	$	10,434	$	(301)	13	$	84,628	$	(608)
Corporate	9	71,226		(506)		0	0		0		9	71,226		(506)
Municipal bonds	56	312,894		(3,253)		0	0		0		56	312,894		(3,253)
Collateralized mortgage obligations	21	215,603		(710)		1	431		(2)		22	216,034		(712)
Mortgage-backed securities	16	139,071		(543)		0	0		0		16	139,071		(543)
Total investment securities available-for-sale	106	$	812,988	$	(5,319)	10	$	10,865	$	(303)	116	$	823,853	$	(5,622)

2628

~~The amortized cost and estimated fair value of investment securities at March 31, 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
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 $ 0 $ 0 $ 30,144 $ 32,063 $ 0 $ 0 $ 0 $ 0 $ 30,144 $ 32,063
Agency 0 0 322,038 325,584 251,286 252,084 87,258 85,491 660,582 663,159
Corporate 94,711 94,917 9,683 9,645 218,847 218,536 37,376 34,736 360,617 357,834
Municipal bonds 11,286 11,286 4,622 4,912 36,182 38,652 1,380,079 1,367,212 1,432,169 1,422,062
Collateralized mortgage obligations 0 0 27,394 27,373 211,472 207,662 275,384 273,936 514,250 508,971
Mortgage-backed securities 0 0 2,144 2,283 190,923 195,067 687,836 675,898 880,903 873,248
Total investment securities available-for-sale 105,997 106,203 396,025 401,860 908,710 912,001 2,467,933 2,437,273 3,878,665 3,857,337
Investment securities held-to-maturity:
Mortgage-backed securities 0 0 0 0 0 0 20,353 21,426 20,353 21,426
Other 0 0 0 0 0 0 1,578 1,578 1,578 1,578
Total investment securities held-to-maturity 0 0 0 0 0 0 21,931 23,004 21,931 23,004
Total investment securities $ 105,997 $ 106,203 $ 396,025 $ 401,860 $ 908,710 $ 912,001 $ 2,489,864 $ 2,460,277 $ 3,900,596 $ 3,880,341

During the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, the Company recognized gross gains on sales of available-for-sale securities in the amount of $4.2 million, $5.3 million, and $8.0 million, respectively. During the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, the Company recognized gross losses on sales of available-for-sale securities in the amount of $191,000, $285,000, and $204,000, respectively. The Company had net proceeds from the sales of available-for-sale securities of $179.4 million, $207.6 million, and $97.9 million, during the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

Investment securities with carrying values of $128.1 million and $147.3 million as of March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, other borrowings, and for other purposes as required or permitted by law.


	December 31, 2020
	Less than 12 Months					12 Months or Longer					Total
(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:

Agency	4	$	74,194	$	(307)	9	$	10,434	$	(301)	13	$	84,628	$	(608)
Corporate	9	71,226		(506)		—	—		—		9	71,226		(506)
Municipal bonds	56	312,894		(3,253)		—	—		—		56	312,894		(3,253)
Collateralized mortgage obligations	21	215,603		(710)		1	431		(2)		22	216,034		(712)
Mortgage-backed securities	16	139,071		(543)		—	—		—		16	139,071		(543)
Total investment securities available-for-sale	106	$	812,988	$	(5,319)	10	$	10,865	$	(303)	116	$	823,853	$	(5,622)

~~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 March 31, 2021, the Company had $17.3 million in FHLB stock, $74.5 million in FRB stock and $26.1 million in other stock, all carried at cost. During the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, the FHLB did 0t repurchase any 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 losses have been recorded through March 31, 2021.

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.~~assessment, to be credit related. 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 no investment securities classified as purchase credit deteriorated upon acquisition and, as a result, no allowance for credit losses was recorded.

At September 30, 2021, the Company had an ACL of $11,000 for held-to-maturity investment securities classified as municipal bonds. These securities were transferred from available-for-sale to held-to-maturity during the third quarter of 2021. There was no ACL for held-to-maturity investment securities at December 31, 2020. The Company ~~did not record an ACL~~recognized $11,000 of provision for ~~available-for-sale or~~credit losses for held-to-maturity investment securities during the three months and nine months ended ~~March 31,~~September 30, 2021. There was no provision for credit losses recognized for held-to-maturity investment securities during the three months June 30, 2021, and September 30, 2020, and the nine months ended September 30, 2020.

The Company had no ACL for available-for-sale or investment securities at September 30, 2021 and December 31, ~~2020, and March 31,~~ 2020. ~~For~~As of September 30, 2021, the Company had not recorded credit losses on certain available-for-sale securities ~~where estimated fair value was below amortized cost, such~~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 September 30, 2021, and does not believe the 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 ofare credit related. There was no provision for credit losses recognized for available-for-sale investment ~~securities can be attributed to changes in interest rates and other market related factors. The Company did not record an ACL for held-to maturity~~ securities during the three months ended ~~March 31,~~September 30, 2021, June 30, 2021, or September 30, 2020, and the nine months ended September 30, 2021 and September 30, 2020.

At September 30, 2021 and December 31, 2020, there were no available-for-sale or held-to-maturity securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and ~~March~~interest payments. At September 30, 2021 and December 31, 2020, ~~because the likelihood of non-repayment is remote.~~there were no securities purchased with deterioration in credit quality since their origination. At September 30, 2021 and December 31, 2020, there were no 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 ~~March 31,~~September 30, 2021:


		Vintage															Vintage
		2021		2020		2019		2018		2017		Prior		Total
		(Dollars in thousands)
Investment securities available-for-sale:
(Dollars in thousands)																(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Total
Investment securities available-for-sale at fair value:																Investment securities available-for-sale at fair value:
U.S. Treasury	U.S. Treasury															U.S. Treasury
Aaa - Aa3	Aaa - Aa3	$	0	$	0	$	0	$	21,510	$	10,553	$	0	$	32,063	Aaa - Aa3	$	32,973	$	14,634	$	—	$	21,274	$	10,461	$	—	$	79,342

Agency	Agency															Agency
Aaa - Aa3	Aaa - Aa3	0		352,414		73,090		151,364		9,075		77,216		663,159		Aaa - Aa3	24,393		324,241		44,487		76,415		—		46,390		515,926

Baa1 - Baa3																Baa1 - Baa3	—		—		—		5,715		—		8,452		14,167
Corporate debt	Corporate debt															Corporate debt

A1 - A3	A1 - A3	0		56,760		0		0		0		93,295		150,055		A1 - A3	79,252		57,799		—		—		17,864		10,029		164,944
Baa1 - Baa3	Baa1 - Baa3	0		98,707		69,231		0		17,919		21,922		207,779		Baa1 - Baa3	36,473		100,614		70,704		—		—		13,656		221,447
Municipal bonds	Municipal bonds															Municipal bonds
Aaa - Aa3	Aaa - Aa3	11,286		994,512		285,174		32,304		59,458		35,689		1,418,423		Aaa - Aa3	118,941		725,524		294,323		32,429		50,536		33,264		1,255,017
A1 - A3	A1 - A3	0		0		0		0		0		2,313		2,313		A1 - A3	—		—		—		—		—		849		849
Baa1 - Baa3		0		0		0		0		0		1,326		1,326

Collateralized mortgage obligations	Collateralized mortgage obligations															Collateralized mortgage obligations
Aaa - Aa3	Aaa - Aa3	17,334		241,843		93,697		25,311		14,634		116,152		508,971		Aaa - Aa3	212,687		224,252		86,604		18,523		14,199		105,966		662,231

Mortgage-backed securities	Mortgage-backed securities															Mortgage-backed securities
Aaa - Aa3	Aaa - Aa3	185,205		458,327		109,257		13,155		47,529		59,775		873,248		Aaa - Aa3	1,250,191		391,394		101,935		6,891		25,280		20,201		1,795,892

Total investment securities available-for-sale	Total investment securities available-for-sale	213,825		2,202,563		630,449		243,644		159,168		407,688		3,857,337		Total investment securities available-for-sale	1,754,910		1,838,458		598,053		161,247		118,340		238,807		4,709,815
Investment securities held-to-maturity:
Investment securities held-to-maturity at amortized cost:																Investment securities held-to-maturity at amortized cost:
Municipal bonds																Municipal bonds
Aaa - Aa3																Aaa - Aa3	—		154,399		—		—		—		—		154,399

Mortgage-backed securities	Mortgage-backed securities															Mortgage-backed securities
Aaa - Aa3	Aaa - Aa3	0		0		0		5,822		5,186		9,345		20,353		Aaa - Aa3	—		—		—		4,206		3,767		6,683		14,656

Other	Other															Other

Baa1 - Baa3	Baa1 - Baa3	0		0		0		617		0		961		1,578		Baa1 - Baa3	—		—		—		600		—		932		1,532
Total investment securities held-to-maturity	Total investment securities held-to-maturity	0		0		0		6,439		5,186		10,306		21,931		Total investment securities held-to-maturity	—		154,399		—		4,806		3,767		7,615		170,587
Total investment securities	Total investment securities	$	213,825	$	2,202,563	$	630,449	$	250,083	$	164,354	$	417,994	$	3,879,268	Total investment securities	$	1,754,910	$	1,992,857	$	598,053	$	166,053	$	122,107	$	246,422	$	4,880,402

2930

Realized Gains and Losses

During the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, the Company recognized gross gains on sales of available-for-sale securities in the amount of $4.2 million, $10.0 million, and $1.2 million, respectively. The Company did not recognize any gross losses during the three months ended September 30, 2021. During the three months ended June 30, 2021 and September 30, 2020, the Company recognized gross losses on sales of available-for-sale securities in the amount of $5.0 million and $12,000, respectively. The Company had net proceeds from the sales of available-for-sale securities of $165.8 million, $285.3 million, and $212.5 million during the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively.

During the nine months ended September 30, 2021 and 2020, the Company recognized gross gains on sales of available-for-sale securities in the amount of $18.5 million and $10.4 million, respectively. During the nine months ended September 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 $630.4 million and $558.9 million during the nine months ended September 30, 2021 and 2020, respectively.

Contractual maturities

The amortized cost and estimated fair value of investment securities at September 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	$	—	$	—	$	30,126	$	31,734	$	47,677	$	47,608	$	—	$	—	$	77,803	$	79,342
Agency	—		—		352,023		353,184		135,567		134,426		44,277		42,483		531,867		530,093
Corporate	10,021		10,029		21,178		21,227		352,711		355,135		—		—		383,910		386,391
Municipal bonds	—		—		3,528		3,731		95,420		96,849		1,138,975		1,155,286		1,237,923		1,255,866
Collateralized mortgage obligations	—		—		41,692		41,631		226,958		223,612		397,201		396,988		665,851		662,231
Mortgage-backed securities	—		—		12,098		12,704		709,280		709,155		1,086,380		1,074,033		1,807,758		1,795,892
Total investment securities available-for-sale	10,021		10,029		460,645		464,211		1,567,613		1,566,785		2,666,833		2,668,790		4,705,112		4,709,815
Investment securities held-to-maturity:
Municipal bonds	—		—		—		—		—		—		154,399		152,163		154,399		152,163
Mortgage-backed securities	—		—		—		—		—		—		14,656		15,459		14,656		15,459
Other	—		—		—		—		—		—		1,532		1,532		1,532		1,532
Total investment securities held-to-maturity	—		—		—		—		—		—		170,587		169,154		170,587		169,154
Total investment securities	$	10,021	$	10,029	$	460,645	$	464,211	$	1,567,613	$	1,566,785	$	2,837,420	$	2,837,944	$	4,875,699	$	4,878,969

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 September 30, 2021, the Company had $17.3 million in FHLB stock, $74.5 million in FRB stock, and $26.7 million in other stock, all carried at cost. During the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, the FHLB did not repurchase any 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. No impairment losses have been recorded through September 30, 2021.

Note 6 – Loans Held for Investment

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

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

Business loans secured by real estate are loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment. This loan portfolio includes CRE owner-occupied, franchise loans secured by real estate, and SBA loans secured by real estate, which are collateralized by real property other than hotel/motel real property.

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

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

3032

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


		March 31,		December 31,			September 30,		December 31,
		2021		2020
		(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	$	2,729,785	$	2,675,085	CRE non-owner-occupied	$	2,823,065	$	2,675,085
Multifamily	Multifamily	5,309,592		5,171,356		Multifamily	5,705,666		5,171,356
Construction and land	Construction and land	316,458		321,993		Construction and land	292,815		321,993
SBA secured by real estate	SBA secured by real estate	56,381		57,331		SBA secured by real estate	49,446		57,331
Total investor loans secured by real estate	Total investor loans secured by real estate	8,412,216		8,225,765		Total investor loans secured by real estate	8,870,992		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	2,029,984		2,114,050		CRE owner-occupied	2,242,164		2,114,050
Franchise real estate secured	Franchise real estate secured	340,805		347,932		Franchise real estate secured	354,481		347,932
SBA secured by real estate	SBA secured by real estate	73,967		79,595		SBA secured by real estate	69,937		79,595
Total business loans secured by real estate	Total business loans secured by real estate	2,444,756		2,541,577		Total business loans secured by real estate	2,666,582		2,541,577
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	1,656,098		1,768,834		Commercial and industrial	1,888,870		1,768,834
Franchise non-real estate secured	Franchise non-real estate secured	399,041		444,797		Franchise non-real estate secured	392,950		444,797
SBA non-real estate secured	SBA non-real estate secured	14,908		15,957		SBA non-real estate secured	12,732		15,957

Total commercial loans	Total commercial loans	2,070,047		2,229,588		Total commercial loans	2,294,552		2,229,588
Retail loans	Retail loans					Retail loans
Single family residential	Single family residential	184,049		232,574		Single family residential	144,309		232,574
Consumer	Consumer	6,324		6,929		Consumer	6,426		6,929
Total retail loans	Total retail loans	190,373		239,503		Total retail loans	150,735		239,503
Gross loans held for investment (1)	Gross loans held for investment (1)	13,117,392		13,236,433		Gross loans held for investment (1)	13,982,861		13,236,433
Allowance for credit losses for loans held for investment	Allowance for credit losses for loans held for investment	(266,999)		(268,018)		Allowance for credit losses for loans held for investment	(211,481)		(268,018)
Loans held for investment, net	Loans held for investment, net	$	12,850,393	$	12,968,415	Loans held for investment, net	$	13,771,380	$	12,968,415

Total unfunded loan commitments						Total unfunded loan commitments	$	2,504,188	$	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	$	7,311	$	601	Loans held for sale, at lower of cost or fair value	$	8,100	$	601

(1) Includes net deferred origination fees of $3.0 million and $2.6 million, and unaccreted fair value net purchase discounts of ~~$103.9~~$85.0 million and $113.8 million as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

3133

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 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 ~~March 31,~~September 30, 2021 and December 31, 2020, the servicing asset totaled ~~$4.6~~$4.1 million and $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 ~~March 31,~~September 30, 2021 and December 31, 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 liability recorded for Company’s exposure to the reimbursement agreement with Freddie Mac was $448,000 as of ~~March 31,~~September 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 ~~$637.4~~$590.9 million at ~~March 31,~~September 30, 2021 and $686.0 million at December 31, 2020. Included within the balances were loans transferred through securitization with Freddie Mac of ~~$95.5~~$85.2 million and SBA participations serviced for others of ~~$398.2~~$372.7 million at ~~March 31,~~September 30, 2021, and loans transferred through securitization with Freddie Mac of $99.4 million and SBA participations serviced for others of $421.7 million at December 31, 2020.

3234

Concentration of Credit Risk

As of ~~March 31,~~September 30, 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 ~~$812.9~~$838.4 million for secured loans and ~~$487.8~~$503.0 million for unsecured loans at ~~March 31,~~September 30, 2021. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At ~~March 31,~~September 30, 2021, the Bank’s largest aggregate outstanding balance of loans to one borrower was ~~$184.2~~$176.8 million secured by multifamily properties.

Credit Quality and Credit Risk Management

The Company’s credit quality and credit risk are controlled in 2 areas. The first is the loan origination process, wherein the Bank underwrites credit and chooses which types and levels of risk it is willing to accept. The Company maintains a credit policy which addresses many related topics, sets forth maximum tolerances for key elements of loan risk, and indicates appropriate protocols for identifying and analyzing these risk elements. The policy sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio-wide basis. The credit policy is reviewed annually by the Bank Board. The Bank’s underwriters ensure all key risk factors are analyzed, with ~~nearly all~~most underwriting including a global cash flow analysis of the prospective borrowers.

The second area is in the ongoing oversight of the loan portfolio, where existing credit risk is measured and monitored, and where performance issues are dealt with in a timely and 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 credit and portfolio review policy. This latter policy requires a program of financial data collection and analysis, thorough loan reviews, property and/or business inspections, monitoring of portfolio concentrations and trends, and incorporation of current business and economic conditions. The portfolio managers also monitor asset-based lines of credit, loan covenants, and other conditions associated with the Company’s business loans as a means to help identify potential credit risk. Most individual loans, excluding the homogeneous loan portfolio, are reviewed at least 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.

3335

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.

3436

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of ~~March 31,~~September 30, 2021:


		Term Loans by Vintage																			Term Loans by Vintage
		2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2021		(Dollars in thousands)
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
September 30, 2021																				September 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
Pass	Pass	$	124,225	$	272,001	$	501,036	$	482,052	$	278,439	$	972,783	$	10,779	$	0	$	2,641,315	Pass	$	565,605	$	268,733	$	424,397	$	462,395	$	219,672	$	823,208	$	9,599	$	—	$	2,773,609
Special mention	Special mention	0		0		2,004		8,619		438		43,694		0		0		54,755		Special mention	—		—		16,263		1,943		—		—		—		—		18,206
Substandard	Substandard	0		0		25,740		1,856		0		5,571		548		0		33,715		Substandard	—		—		25,775		—		—		4,950		525		—		31,250

Multifamily	Multifamily																			Multifamily
Pass	Pass	405,022		1,005,928		1,626,859		791,365		629,525		834,458		1,426		0		5,294,583		Pass	1,694,447		1,012,346		1,348,563		526,744		501,849		619,628		218		—		5,703,795
Special mention		0		0		1,755		2,629		0		9,294		0		0		13,678

Substandard	Substandard	0		0		0		0		559		772		0		0		1,331		Substandard	—		—		—		543		556		772		—		—		1,871

Construction and land	Construction and land																			Construction and land
Pass	Pass	12,496		76,486		133,997		53,795		12,264		26,377		1,043		0		316,458		Pass	86,107		125,190		51,733		22,134		3,996		3,607		48		—		292,815

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	0		0		7,409		8,991		15,383		12,485		0		0		44,268		Pass	130		499		7,373		9,113		12,665		9,722		—		—		39,502
Special mention	Special mention	0		498		1,033		1,161		1,002		1,124		0		0		4,818		Special mention	—		—		—		962		—		548		—		—		1,510
Substandard	Substandard	0		0		1,168		2,365		1,091		2,671		0		0		7,295		Substandard	—		—		9		2,353		3,170		2,902		—		—		8,434

Total investor loans secured by real estate	Total investor loans secured by real estate	541,743		1,354,913		2,301,001		1,352,833		938,701		1,909,229		13,796		0		8,412,216		Total investor loans secured by real estate	2,346,289		1,406,768		1,874,113		1,026,187		741,908		1,465,337		10,390		—		8,870,992
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	108,753		283,401		373,667		280,703		304,938		638,844		8,946		0		1,999,252		Pass	635,469		302,683		317,035		221,806		207,923		531,119		3,211		300		2,219,546
Special mention	Special mention	0		2,190		0		3,792		3,045		4,319		0		0		13,346		Special mention	—		—		6,078		1,741		—		—		—		—		7,819
Substandard	Substandard	0		0		0		4,143		5,884		7,109		250		0		17,386		Substandard	—		—		—		6,109		2,972		5,718		—		—		14,799

Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
Pass	Pass	23,192		43,635		71,269		62,905		81,819		52,837		0		0		335,657		Pass	97,884		43,332		59,772		44,306		66,901		42,286		—		—		354,481
Special mention		0		878		1,650		2,620		0		0		0		0		5,148

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	510		3,237		7,587		12,262		13,155		27,937		0		0		64,688		Pass	3,789		2,368		7,533		10,498		11,230		25,181		1,361		—		61,960
Special mention	Special mention	0		0		0		1,186		0		1,175		0		0		2,361		Special mention	—		—		—		—		—		212		—		—		212
Substandard	Substandard	0		0		0		161		2,111		4,646		0		0		6,918		Substandard	—		—		—		1,326		3,000		3,439		—		—		7,765

Total loans secured by business real estate	Total loans secured by business real estate	132,455		333,341		454,173		367,772		410,952		736,867		9,196		0		2,444,756		Total loans secured by business real estate	737,142		348,383		390,418		285,786		292,026		607,955		4,572		300		2,666,582

3537


		Term Loans by Vintage																			Term Loans by Vintage
		2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2021		(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
September 30, 2021																				September 30, 2021
Commercial loans																				Commercial loans
Commercial and industrial	Commercial and industrial																			Commercial and industrial
Pass	Pass	62,622		112,135		272,585		142,706		195,658		112,930		694,022		1,699		1,594,357		Pass	260,359		89,545		204,683		139,560		156,915		78,951		906,369		2,059		1,838,441
Special mention	Special mention	0		655		0		2,219		177		1,460		16,377		0		20,888		Special mention	—		—		189		—		—		—		14,629		—		14,818
Substandard	Substandard	0		1,389		2,936		3,619		218		3,622		29,069		0		40,853		Substandard	650		1,759		552		2,854		867		1,570		26,619		740		35,611

Franchise non-real estate secured	Franchise non-real estate secured																			Franchise non-real estate secured
Pass	Pass	15,398		27,216		138,064		86,988		43,294		50,126		1,361		0		362,447		Pass	118,333		24,954		96,784		65,300		27,683		37,157		—		—		370,211
Special mention		0		0		7,028		1,984		216		2,605		0		0		11,833

Substandard	Substandard	0		0		2,071		3,637		18,181		872		0		0		24,761		Substandard	—		—		2,236		4,421		14,903		1,179		—		—		22,739

SBA non-real estate secured	SBA non-real estate secured																			SBA non-real estate secured
Pass	Pass	72		422		2,212		1,511		2,816		4,337		0		0		11,370		Pass	152		653		1,424		938		3,239		3,567		—		—		9,973
Special mention	Special mention	0		0		0		0		1,456		0		0		0		1,456		Special mention	—		—		698		117		—		—		—		—		815
Substandard	Substandard	0		0		81		353		270		686		692		0		2,082		Substandard	—		—		78		338		247		617		664		—		1,944

Total commercial loans	Total commercial loans	78,092		141,817		424,977		243,017		262,286		176,638		741,521		1,699		2,070,047		Total commercial loans	379,494		116,911		306,644		213,528		203,854		123,041		948,281		2,799		2,294,552
Retail Loans
Retail loans																				Retail loans
Single family residential	Single family residential																			Single family residential
Pass	Pass	6,582		7,624		4,349		10,708		11,169		120,675		22,662		0		183,769		Pass	20,201		3,518		1,967		1,633		6,954		86,711		23,274		—		144,258

Substandard	Substandard	0		0		0		0		0		280		0		0		280		Substandard	—		—		—		—		—		51		—		—		51

Consumer loans	Consumer loans																			Consumer loans
Pass	Pass	2		47		101		35		22		3,998		2,073		0		6,278		Pass	28		30		57		22		15		2,964		3,268		—		6,384

Substandard	Substandard	0		0		7		0		0		39		0		0		46		Substandard	—		—		6		—		—		36		—		—		42

Total retail loans	Total retail loans	6,584		7,671		4,457		10,743		11,191		124,992		24,735		0		190,373		Total retail loans	20,229		3,548		2,030		1,655		6,969		89,762		26,542		—		150,735
Totals gross loans	Totals gross loans	$	758,874	$	1,837,742	$	3,184,608	$	1,974,365	$	1,623,130	$	2,947,726	$	789,248	$	1,699	$	13,117,392	Totals gross loans	$	3,483,154	$	1,875,610	$	2,573,205	$	1,527,156	$	1,244,757	$	2,286,095	$	989,785	$	3,099	$	13,982,861

3638

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
(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	(Dollars in thousands)																		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	$	265,901	$	541,994	$	440,351	$	287,580	$	279,238	$	791,477	$	11,114	$	0	$	2,617,655	Pass	$	265,901	$	541,994	$	440,351	$	287,580	$	279,238	$	791,477	$	11,114	$	—	$	2,617,655
Special mention	Special mention	0		0		6,669		437		2,516		29,738		0		0		39,360		Special mention	—		—		6,669		437		2,516		29,738		—		—		39,360
Substandard	Substandard	0		9,732		2,045		0		516		5,218		559		0		18,070		Substandard	—		9,732		2,045		—		516		5,218		559		—		18,070

Multifamily	Multifamily																			Multifamily
Pass	Pass	1,027,644		1,677,716		899,123		665,939		354,859		531,287		420		0		5,156,988		Pass	1,027,644		1,677,716		899,123		665,939		354,859		531,287		420		—		5,156,988
Special mention	Special mention	0		1,758		2,630		0		8,649		0		0		0		13,037		Special mention	—		1,758		2,630		—		8,649		—		—		—		13,037
Substandard	Substandard	0		0		0		559		772		0		0		0		1,331		Substandard	—		—		—		559		772		—		—		—		1,331

Construction and land	Construction and land																			Construction and land
Pass	Pass	57,309		144,759		73,313		18,625		20,531		6,672		784		0		321,993		Pass	57,309		144,759		73,313		18,625		20,531		6,672		784		—		321,993

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	0		8,306		9,029		13,418		6,305		7,696		0		0		44,754		Pass	—		8,306		9,029		13,418		6,305		7,696		—		—		44,754
Special mention	Special mention	496		1,032		1,159		1,000		373		306		0		0		4,366		Special mention	496		1,032		1,159		1,000		373		306		—		—		4,366
Substandard	Substandard	0		1,220		2,959		1,091		400		2,541		0		0		8,211		Substandard	—		1,220		2,959		1,091		400		2,541		—		—		8,211

Total investor loans secured by real estate	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		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		—		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	293,324		409,758		332,672		327,475		225,098		469,704		14,268		246		2,072,545		Pass	293,324		409,758		332,672		327,475		225,098		469,704		14,268		246		2,072,545
Special mention	Special mention	2,190		15,917		3,802		0		4,153		201		0		0		26,263		Special mention	2,190		15,917		3,802		—		4,153		201		—		—		26,263
Substandard	Substandard	0		0		3,636		4,214		1,169		5,973		250		0		15,242		Substandard	—		—		3,636		4,214		1,169		5,973		250		—		15,242

Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
Pass	Pass	44,413		81,438		66,241		96,999		24,673		27,020		0		0		340,784		Pass	44,413		81,438		66,241		96,999		24,673		27,020		—		—		340,784
Special mention	Special mention	878		1,650		2,652		0		0		0		0		0		5,180		Special mention	878		1,650		2,652		—		—		—		—		—		5,180
Substandard	Substandard	0		0		0		0		1,968		0		0		0		1,968		Substandard	—		—		—		—		1,968		—		—		—		1,968

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	3,253		7,637		12,608		16,058		8,488		23,624		0		0		71,668		Pass	3,253		7,637		12,608		16,058		8,488		23,624		—		—		71,668
Special mention	Special mention	0		0		1,200		0		137		0		0		0		1,337		Special mention	—		—		1,200		—		137		—		—		—		1,337
Substandard	Substandard	0		0		184		1,987		1,376		3,043		0		0		6,590		Substandard	—		—		184		1,987		1,376		3,043		—		—		6,590

Total loans secured by business real estate	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		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

3739


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

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

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

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

Substandard	Substandard	0		0		0		0		0		657		0		0		657		Substandard	—		—		—		—		—		657		—		—		657

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

Substandard	Substandard	0		7		0		0		0		41		0		0		48		Substandard	—		7		—		—		—		41		—		—		48

Total retail loans	Total retail loans	10,846		7,833		14,019		14,064		33,970		128,091		30,680		0		239,503		Total retail loans	10,846		7,833		14,019		14,064		33,970		128,091		30,680		—		239,503
Totals gross loans	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	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

3840

The following tables stratify loans held for 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
		(Dollars in thousands)
March 31, 2021
(Dollars in thousands)												(Dollars in thousands)	Current		30-59		60-89		90+		Total
September 30, 2021												September 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	$	2,719,494	$	9,743	$	0	$	548	$	2,729,785	CRE non-owner-occupied	$	2,812,797	$	—	$	—	$	10,268	$	2,823,065
Multifamily	Multifamily	5,309,592		0		0		0		5,309,592		Multifamily	5,705,666		—		—		—		5,705,666
Construction and land	Construction and land	316,458		0		0		0		316,458		Construction and land	292,815		—		—		—		292,815
SBA secured by real estate	SBA secured by real estate	55,941		0		0		440		56,381		SBA secured by real estate	48,470		—		629		347		49,446
Total investor loans secured by real estate	Total investor loans secured by real estate	8,401,485		9,743		0		988		8,412,216		Total investor loans secured by real estate	8,859,748		—		629		10,615		8,870,992
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,024,680		0		0		5,304		2,029,984		CRE owner-occupied	2,237,186		—		—		4,978		2,242,164
Franchise real estate secured	Franchise real estate secured	340,805		0		0		0		340,805		Franchise real estate secured	354,481		—		—		—		354,481
SBA secured by real estate	SBA secured by real estate	73,307		0		0		660		73,967		SBA secured by real estate	69,496		—		—		441		69,937
Total business loans secured by real estate	Total business loans secured by real estate	2,438,792		0		0		5,964		2,444,756		Total business loans secured by real estate	2,661,163		—		—		5,419		2,666,582
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	1,651,203		3,068		61		1,766		1,656,098		Commercial and industrial	1,886,386		654		14		1,816		1,888,870
Franchise non-real estate secured	Franchise non-real estate secured	399,041		0		0		0		399,041		Franchise non-real estate secured	392,950		—		—		—		392,950
SBA not secured by real estate	SBA not secured by real estate	13,911		305		0		692		14,908		SBA not secured by real estate	11,701		74		293		664		12,732

Total commercial loans	Total commercial loans	2,064,155		3,373		61		2,458		2,070,047		Total commercial loans	2,291,037		728		307		2,480		2,294,552
Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	184,049		0		0		0		184,049		Single family residential	144,309		—		—		—		144,309
Consumer loans	Consumer loans	6,324		0		0		0		6,324		Consumer loans	6,426		—		—		—		6,426
Total retail loans	Total retail loans	190,373		0		0		0		190,373		Total retail loans	150,735		—		—		—		150,735
Totals	Totals	$	13,094,805	$	13,116	$	61	$	9,410	$	13,117,392	Totals	$	13,962,683	$	728	$	936	$	18,514	$	13,982,861

3941


				Days Past Due											Days Past Due
		Current		30-59		60-89		90+		Total Gross Loans
		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	Current		30-59		60-89		90+		Total Gross Loans
December 31, 2020	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	$	2,674,328	$	0	$	0	$	757	$	2,675,085	CRE non-owner-occupied	$	2,674,328	$	—	$	—	$	757	$	2,675,085
Multifamily	Multifamily	5,171,355		1		0		0		5,171,356		Multifamily	5,171,355		1		—		—		5,171,356
Construction and land	Construction and land	321,993		0		0		0		321,993		Construction and land	321,993		—		—		—		321,993
SBA secured by real estate	SBA secured by real estate	56,074		0		0		1,257		57,331		SBA secured by real estate	56,074		—		—		1,257		57,331
Total investor loans secured by real estate	Total investor loans secured by real estate	8,223,750		1		0		2,014		8,225,765		Total investor loans secured by real estate	8,223,750		1		—		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	2,108,746		0		0		5,304		2,114,050		CRE owner-occupied	2,108,746		—		—		5,304		2,114,050
Franchise real estate secured	Franchise real estate secured	347,932		0		0		0		347,932		Franchise real estate secured	347,932		—		—		—		347,932
SBA secured by real estate	SBA secured by real estate	78,036		486		0		1,073		79,595		SBA secured by real estate	78,036		486		—		1,073		79,595
Total business loans secured by real estate	Total business loans secured by real estate	2,534,714		486		0		6,377		2,541,577		Total business loans secured by real estate	2,534,714		486		—		6,377		2,541,577
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	1,765,451		428		57		2,898		1,768,834		Commercial and industrial	1,765,451		428		57		2,898		1,768,834
Franchise non-real estate secured	Franchise non-real estate secured	444,797		0		0		0		444,797		Franchise non-real estate secured	444,797		—		—		—		444,797
SBA not secured by real estate	SBA not secured by real estate	14,912		338		0		707		15,957		SBA not secured by real estate	14,912		338		—		707		15,957
Total commercial loans	Total commercial loans	2,225,160		766		57		3,605		2,229,588		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	232,559		15		0		0		232,574		Single family residential	232,559		15		—		—		232,574
Consumer loans	Consumer loans	6,928		1		0		0		6,929		Consumer loans	6,928		1		—		—		6,929
Total retail loans	Total retail loans	239,487		16		0		0		239,503		Total retail loans	239,487		16		—		—		239,503
Totals loans		$	13,223,111	$	1,269	$	57	$	11,996	$	13,236,433
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 ~~March 31,~~September 30, 2021, ~~$38.9~~$35.1 million of loans were individually evaluated ~~and the~~with $571,000 ACL attributed to such ~~loans totaled $688,000.~~loans. At ~~March 31,~~September 30, 2021, ~~$16.9~~$12.8 million of individually evaluated loans were evaluated using a discounted cash flow approach and ~~$22.0~~$22.3 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 ~~$38.9~~$35.1 million and $29.2 million at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

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~~interest-only payments, and, in limited cases, concessions to the outstanding loan balances. These loans are classified as TDRs. TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows. A workout plan between us and the borrower is designed to provide a bridge for borrower cash flow shortfalls in the near term. In most cases, the Company initially places TDRs on nonaccrual status, and they may ~~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 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 ~~March~~September 30, 2021, there were $17.6 million loans classified as TDRs, compared with no TDR loans as of December 31, 2020. During the three and nine months ended September 30, 2021, there were 6 loans totaling $17.6 million modified as TDRs, which are comprised of 3 CRE owner-occupied loans and ~~December 31,~~1 C&I loan totaling $5.2 million belonging to one borrower relationship with the terms modified due to bankruptcy, and 2 franchise non-real estate secured loans totaling $12.3 million belonging to another borrower relationship with the terms modified for payment deferral. During the three and nine months ended September 30, 2021, the 3 CRE owner-occupied loans and 1 C&I loan classified as TDRs were in payment default and all TDRs were on nonaccrual status as of September 30, 2021. During the three and nine months ended September 30, 2020, there were ~~0 loans modified as TDRs. During the three months ended March 31, 2021, there were 0 loans modified as TDRs and 0~~no TDRs that experienced payment defaults after modifications within the previous 12 months. ~~During the three months ended March 31, 2020, 1 TDR of $1.3 million experienced a payment default and was placed on nonaccrual.~~

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~~allowed 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~~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.

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. However, the Company, through its credit portfolio management activities, has continued 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. At ~~March 31,~~September 30, 2021, ~~there were~~ no loans ~~remaining within their~~were classified as a COVID-19 modification ~~period due to COVID-19 hardship~~ under Section 4013 of the CARES ~~Act. Additionally, as of March 31, 2021, there were~~Act and no loans were in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for investment, remained within their COVID-19 ~~hardship~~ 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.~~period.

Purchased Credit Deteriorated Loans

Following the adoption of ASC 326 on January 1, 2020, the Company analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated loans. Please see Note 3 - Significant Accounting Policies for more information concerning the accounting for PCD loans.

The Company 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.

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~~as well as any resulting discount or premium related to factors other than credit. Subsequent ~~changes (favorable and unfavorable)~~to acquisition, the ACL for PCD loans is measured in ~~expected cash flows are recognized immediately in net income by adjusting~~accordance with the ~~related ACL.~~Company’s ACL methodology. Please also see Note 7 - Allowance for Credit Losses for more information concerning the Company’s ACL methodology.

Nonaccrual Loans

When loans are placed on nonaccrual status, previously accrued but unpaid interest is 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~~Generally, the Company may ~~be returned~~return a loan to accruing status if ~~the Company believes that~~ all ~~remaining~~past due principal and interest ~~is fully collectible~~have been collected and ~~there has been at least~~the Company expects repayment of the remaining contractual amounts on the loan. In some cases, the Company may require a sustained period of performance from the borrower, such as three ~~months~~consecutive payments, before returning a loan to accruing status. The Company may also return a loan to accruing status when it becomes well secured and in the process of ~~sustained repayment performance since the loan was placed on nonaccrual.~~collection.

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 accruing of interest. The Company had no loans 90 days or more past due and still accruing at ~~March 31,~~September 30, 2021 and December 31, ~~2020.~~2020, respectively. Nonaccrual loans totaled ~~$38.9~~$35.1 million at ~~March 31,~~September 30, 2021 and $29.2 million as of December 31, 2020. No interest income was recognized on nonaccrual loans during the three and nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020.

4244

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


		Nonaccrual Loans (1)													Nonaccrual Loans (1)
		Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
		(Dollars in thousands)
March 31, 2021
(Dollars in thousands)														(Dollars in thousands)	Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
September 30, 2021														September 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	$	12,284	$	0	$	0	$	0	$	12,284	$	12,284	CRE non-owner-occupied	$	12,179	$	571	$	—	$	—	$	12,179	$	4,563

SBA secured by real estate	SBA secured by real estate	440		0		0		0		440		440		SBA secured by real estate	976		—		—		—		976		976
Total investor loans secured by real estate	Total investor loans secured by real estate	12,724		0		0		0		12,724		12,724		Total investor loans secured by real estate	13,155		571		—		—		13,155		5,539
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	6,060		0		0		0		6,060		6,060		CRE owner-occupied	4,978		—		—		—		4,978		4,978

SBA secured by real estate	SBA secured by real estate	727		0		0		0		727		727		SBA secured by real estate	604		—		—		—		604		604
Total business loans secured by real estate	Total business loans secured by real estate	6,787		0		0		0		6,787		6,787		Total business loans secured by real estate	5,582		—		—		—		5,582		5,582
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	1,767		0		3,843		688		5,610		2,132		Commercial and industrial	1,816		—		443		—		2,259		2,259
Franchise non-real estate secured	Franchise non-real estate secured	0		0		13,082		0		13,082		13,082		Franchise non-real estate secured	1,086		—		12,333		—		13,419		13,419
SBA non-real estate secured	SBA non-real estate secured	692		0		0		0		692		692		SBA non-real estate secured	664		—		—		—		664		664
Total commercial loans	Total commercial loans	2,459		0		16,925		688		19,384		15,906		Total commercial loans	3,566		—		12,776		—		16,342		16,342
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	14		0		0		0		14		14		Single family residential	11		—		—		—		11		11

Total retail loans	Total retail loans	14		0		0		0		14		14		Total retail loans	11		—		—		—		11		11
Totals nonaccrual loans		$	21,984	$	0	$	16,925	$	688	$	38,909	$	35,431
Total nonaccrual loans														Total nonaccrual loans	$	22,314	$	571	$	12,776	$	—	$	35,090	$	27,474

(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.

4345


		Nonaccrual Loans (1)													Nonaccrual Loans (1)
		Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
		(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
December 31, 2020	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	$	2,792	$	0	$	0	$	0	$	2,792	$	2,792	CRE non-owner-occupied	$	2,792	$	—	$	—	$	—	$	2,792	$	2,792

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

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

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

Residential Real Estate Loans In Process of Foreclosure

The Company had 0no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of ~~March 31,~~September 30, 2021 or December 31, 2020.

4446

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, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

The following tables summarize collateral dependent loans by collateral type as of the dates indicated:


		March 31, 2021														September 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	$	0	$	0	$	2,542	$	0	$	9,742	$	0	$	0		$	12,284	CRE non-owner-occupied	$	—	$	—	$	2,437	$	—	$	9,742	$	—	$	—	$	12,179

SBA secured by real estate	SBA secured by real estate	0		0		0		0		440		0		0			440		SBA secured by real estate	—		—		—		—		976		—		—		976
Total investor loans secured by real estate	Total investor loans secured by real estate	0		0		2,542		0		10,182		0		0			12,724		Total investor loans secured by real estate	—		—		2,437		—		10,718		—		—		13,155
Business loans secured by real estate	Business loans secured by real estate																		Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	0		756		0		5,304		0		0		0			6,060		CRE owner-occupied	—		—		—		4,978		—		—		—		4,978

SBA secured by real estate	SBA secured by real estate	270		457		0		0		0		0		0			727		SBA secured by real estate	163		441		—		—		—		—		—		604
Total business loans secured by real estate	Total business loans secured by real estate	270		1,213		0		5,304		0		0		0			6,787		Total business loans secured by real estate	163		441		—		4,978		—		—		—		5,582
Commercial loans	Commercial loans																		Commercial loans
Commercial and industrial	Commercial and industrial	0		0		0		0		0		0		1,767			1,767		Commercial and industrial	—		—		—		246		—		240		1,330		1,816

Franchise non-real estate secured																			Franchise non-real estate secured	—		—		—		—		—		—		1,086		1,086
SBA non-real estate secured	SBA non-real estate secured	0		0		0		0		0		0		692			692		SBA non-real estate secured	—		—		—		—		—		—		664		664
Total commercial loans	Total commercial loans	0		0		0		0		0		0		2,459			2,459		Total commercial loans	—		—		—		246		—		240		3,080		3,566
Retail loans	Retail loans																		Retail loans
Single family residential	Single family residential	0		0		0		0		0		14		0			14		Single family residential	—		—		—		—		—		11		—		11

Total retail loans	Total retail loans	0		0		0		0		0		14		0			14		Total retail loans	—		—		—		—		—		11		—		11
Totals collateral dependent loans		$	270	$	1,213	$	2,542	$	5,304	$	10,182	$	14	$	2,459		$	21,984
Total collateral dependent loans																			Total collateral dependent loans	$	163	$	441	$	2,437	$	5,224	$	10,718	$	251	$	3,080	$	22,314

4547


		December 31, 2020														December 31, 2020
		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	$	0	$	0	$	2,594	$	0	$	198	$	0	$	0		$	2,792	CRE non-owner-occupied	$	—	$	—	$	2,594	$	—	$	198	$	—	$	—	$	2,792

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

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

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

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

4648

Note 7 – Allowance for Credit Losses

The Company ~~accounts~~determines the ACL 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~~losses, given the facts and circumstances associated with ~~the~~a particular loan ~~and~~or group of loans with similar risk characteristics. Determining the ACL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses a discounted cash flow model when determining estimates for the ACL for commercial real estate loans and commercial loans, which comprise the majority of the loan portfolio, and uses a historical loss rate model for retail loans. The Company also utilizes proxy loan data in its ACL model where the Company’s own historical data is not sufficiently available.

The discounted cash flow model is applied on an instrument-by-instrument basis, and for loans with similar risk characteristics, to derive estimates for the lifetime ACL for each loan. The discounted cash flow methodology relies on several significant components essential to the development of estimates for future cash flows on loans and unfunded commitments. These components consist of: (i) the estimated 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~~an originated loan. The Company has made an accounting policy election to adjust the effective interest rate to take into consideration the effects of estimated prepayments. The ACL for 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 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

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~~a 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.~~Analytics. 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 ~~March 31,~~September 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~~a weighting 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 inat September 30, 2021 and the ~~first quarter of 2021~~weighting assigned to each scenario is consistent with the approach used in the ~~Company��s ACL model during the fourth quarter of 2020.~~

As of March 31, 2020, and in response to the onset of the COVID-19 pandemic, the Company with the assistance of an independent third party, determined it appropriate to include an economic scenario in its ACL model that was reflective of the estimated economic effects of the pandemic, including the responses to contain the pandemic. This scenario was referred to as the critical pandemic scenario. Additionally, the Company evaluated the weightings of each economic scenario in the first quarter of 2020 with the assistance of an independent third party, and revised those weightings to levels it believed appropriate to reflect the likelihood of outcomes for each scenario given the change in economic environment during the first quarter of 2020. As such, for the three months ended March 31, 2020, the Company’s ACL model ~~incorporated three economic scenarios comprised of: the critical pandemic scenario weighted 30%, the more severe (as compared to the critical pandemic scenario) downside scenario weighted 32.5%~~at June 30, 2021 and the base-case scenario weighted 37.5%. These weightings were reflective of rapidly changing economic conditions, economic uncertainty and volatility in financial markets due to the onset of the COVID-19 pandemic, and the estimated likelihood that each scenario may occur 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 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 ~~March 31,~~September 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~~U.S. unemployment declines ~~throughout 2021, with the estimated annualized rate of decline slowing from approximately -13% in early 2021~~ to approximately ~~-3%~~4.5% by the end of 2021. ~~This~~Unemployment continues to decline in 2022 to approximately 3.4% by the end of 2022. The rate of unemployment holds relatively constant at approximately 3.5% throughout 2023.

•U.S. real GDP experiences annualized growth of approximately 7% through the remainder of 2021. Growth in real GDP for 2022 under this scenario ~~also assumes~~decelerates from an annualized rate of approximately 5% in early 2022 to approximately 1% by the end of 2022. Annualized real GDP growth of approximately 2-3% in 2023.

•CRE ~~Price Index~~index experiences a slight decline throughout the remainder of 2021, with an annualized rate of decline of approximately -2% for 2021. The CRE index returns to ~~modest~~moderate levels of growth beginning in the first quarter of 2022, with the annualized rate of growth increasing ~~through the end of 2022.~~

•~~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 7% annualized~~2% in early 2022 to ~~approximately 2% annualized~~11% by the end of 2022.

•~~U.S. unemployment declining from~~ The CRE index is anticipated to increase approximately 6%7-9% on an annualized basis in ~~early 2021 to approximately 5% by the end of 2021. This scenario also assumes unemployment continues to decline in 2022 from approximately 5% in early 2022 to approximately 4% by the end of 2022.~~2023.

Upside Scenario:

•~~CRE Price Index experiences a decline in first half~~U.S. unemployment declines to approximately 4.3% by the end of ~~2021,~~2021. The unemployment rates holds at approximately 3% throughout all of 2022 and ~~then returning to growth of approximately 5% on an annualized basis during the second half of 2021.~~2023.

•U.S. real GDP experiences ~~accelerating~~annualized growth ~~within a range~~ of ~~5-10% on an annualized basis throughout~~approximately 11% through the remainder of 2021. ~~This scenario also assumes decelerating growth~~Growth in real GDP throughout 2022 ~~from the levels estimated for 2021. Growth in real GDP for 2022 under this scenario~~ decelerates from an annualized rate of approximately ~~10% annualized~~7% in early 2022 to approximately 1% ~~annualized~~ by the end of 2022. Annualized real GDP growth of approximately 1-2% in 2023.

•~~U.S. unemployment declining~~CRE index remains relatively unchanged throughout the remainder of 2021. The CRE index returns growth in 2022, with the annualized rate of growth increasing from ~~approximately 6%~~5% in early ~~2021~~2022 to ~~approximately 3%~~14% by the end of ~~2021. This scenario also assumes unemployment~~2022. The CRE index is anticipated to experience a decelerating annualized rate of ~~3% throughout all~~growth from approximately 10% in early 2023 to approximately 7% by the end of ~~2022.~~2023.

Downside Scenario:

•~~CRE Price Index experiences accelerating declines throughout 2021. Annualized declines of approximately -13% in Q1 2021 and accelerating~~U.S. unemployment increases to approximately ~~-23%~~6.7% by the end of 2021. ~~For~~Unemployment remains elevated in 2022 at approximately 8-9%. Unemployment declines throughout 2023 to approximately 6.8% at the ~~CRE Price Index is estimated to continue to decline through Q3 2022, before returning to growth in Q4 2022.~~end of 2023.

•U.S. real GDP experiences ~~growth~~a decline of approximately ~~5% in Q1 2021, followed by decreases of -3%~~-3.5% for ~~Q2, -2% for Q3 and -1% for Q4~~the remainder of 2021. ~~This scenario also assumes~~Real GDP returns to modest annualized growth in the third quarter of 2022, with growth of approximately 1% for the remainder of 2022. Annualized real GDP ~~in 2022~~fluctuates within a range of approximately ~~2-3%.~~2-4% throughout 2023.

•~~U.S. unemployment increases~~CRE index experiences an annualized rate of decline throughout the remainder 2021 of approximately -5%. The CRE index is estimated to experience decelerating declines throughout 2022, with the annualized rate of decline slowing from approximately 6%-16% in early ~~2021~~2022 to approximately 8%-11% by the end of ~~2021. This~~2022. Under this scenario, ~~also assumes unemployment remains elevated in 2022 at~~the CRE index is anticipated to experience accelerating annualized growth throughout 2023 to approximately ~~8%.~~18% by 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 ~~March 31,~~September 30, 2021, qualitative adjustments included in the ACL totaled ~~$8.0~~$6.5 million. These adjustments primarily relate to ~~potential limitations in the model, as well as~~ continued uncertainty concerning the strength of the economic ~~recovery.~~recovery and how it may impact certain classes of loans in the loan portfolio. Management determined through additional review that ~~certain key model drivers~~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 ~~commercial real estate,~~loans within the SBA, construction, franchise, ~~real estate secured loans,~~ and ~~SBA hotel loans.~~CRE owner-occupied 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 following 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 periods indicated:


		Three Months Ended March 31, 2021						Three Months Ended September 30, 2021

		Beginning ACL Balance		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	$	49,176	$	(154)	$	0		$	(3,477)	$	45,545	CRE non-owner occupied	$	47,112	$	—	$	—	$	(4,645)	$	42,467
Multifamily	Multifamily	62,534		0		0			17,281		79,815		Multifamily	59,059		—		—		(6,895)		52,164
Construction and land	Construction and land	12,435		0		0			828		13,263		Construction and land	9,548		—		—		(1,531)		8,017
SBA secured by real estate	SBA secured by real estate	5,159		(265)		0			247		5,141		SBA secured by real estate	4,681		(158)		—		(644)		3,879
Business loans secured by real estate	Business loans secured by real estate												Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	50,517		0		15			(8,938)		41,594		CRE owner-occupied	35,747		—		14		(2,082)		33,679
Franchise real estate secured	Franchise real estate secured	11,451		0		0			(575)		10,876		Franchise real estate secured	11,436		—		—		(1,810)		9,626
SBA secured by real estate	SBA secured by real estate	6,567		(98)		0			(18)		6,451		SBA secured by real estate	6,317		—		50		(1,263)		5,104
Commercial loans	Commercial loans												Commercial loans
Commercial and industrial	Commercial and industrial	46,964		(1,279)		601			(2,913)		43,373		Commercial and industrial	39,879		(84)		729		(2,929)		37,595
Franchise non-real estate secured	Franchise non-real estate secured	20,525		(156)		0			(1,466)		18,903		Franchise non-real estate secured	17,313		(2,398)		80		2,523		17,518
SBA non-real estate secured	SBA non-real estate secured	995		0		2			(107)		890		SBA non-real estate secured	730		—		15		(113)		632

Retail loans	Retail loans												Retail loans
Single family residential	Single family residential	1,204		0		0			(382)		822		Single family residential	670		—		2		(143)		529
Consumer loans	Consumer loans	491		0		0			(165)		326		Consumer loans	282		—		—		(11)		271
Totals	Totals	$	268,018	$	(1,952)	$	618		$	315	$	266,999	Totals	$	232,774	$	(2,640)	$	890	$	(19,543)	$	211,481


	Nine Months Ended September 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)	$	—	$	(6,555)	$	42,467
Multifamily	62,534		—		—		(10,370)		52,164
Construction and land	12,435		—		—		(4,418)		8,017
SBA secured by real estate	5,159		(423)		—		(857)		3,879
Business loans secured by real estate
CRE owner-occupied	50,517		—		44		(16,882)		33,679
Franchise real estate secured	11,451		—		—		(1,825)		9,626
SBA secured by real estate	6,567		(98)		130		(1,495)		5,104
Commercial loans
Commercial and industrial	46,964		(4,653)		3,428		(8,144)		37,595
Franchise non-real estate secured	20,525		(2,554)		80		(533)		17,518
SBA non-real estate secured	995		—		19		(382)		632

Retail loans
Single family residential	1,204		—		3		(678)		529
Consumer loans	491		—		—		(220)		271
Totals	$	268,018	$	(7,882)	$	3,704	$	(52,359)	$	211,481

5154


		Three Months Ended March 31, 2020								Three Months Ended September 30, 2020
		Beginning ACL Balance (1)		Adoption of ASC 326		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	$	1,899	$	8,423	$	(387)	$	0		$	5,961	$	15,896	CRE non-owner occupied	$	63,007	$	(443)	$	—	$	(8,459)	$	54,105
Multifamily	Multifamily	729		9,174		0		0			4,819		14,722		Multifamily	63,511		—		—		3,825		67,336
Construction and land	Construction and land	4,484		(124)		0		0			4,862		9,222		Construction and land	18,804		(377)		—		(2,870)		15,557
SBA secured by real estate	SBA secured by real estate	1,915		(1,401)		0		0			421		935		SBA secured by real estate	2,010		(145)		34		3,428		5,327
Business loans secured by real estate	Business loans secured by real estate														Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,781		20,166		0		12			3,834		26,793		CRE owner-occupied	48,213		(1,739)		21		2,171		48,666
Franchise real estate secured	Franchise real estate secured	592		5,199		0		0			1,712		7,503		Franchise real estate secured	13,060		—		—		(1,072)		11,988
SBA secured by real estate	SBA secured by real estate	2,119		2,207		(315)		71			(38)		4,044		SBA secured by real estate	4,368		—		76		1,716		6,160
Commercial loans	Commercial loans														Commercial loans
Commercial and industrial	Commercial and industrial	13,857		87		(490)		5			2,283		15,742		Commercial and industrial	41,967		(2,437)		10		8,374		47,914
Franchise non-real estate secured	Franchise non-real estate secured	5,816		9,214		0		0			1,586		16,616		Franchise non-real estate secured	21,676		(207)		865		(2,185)		20,149
SBA non-real estate secured	SBA non-real estate secured	445		218		(236)		4			85		516		SBA non-real estate secured	600		(10)		8		353		951

Retail loans	Retail loans														Retail loans
Single family residential	Single family residential	655		541		0		0			(59)		1,137		Single family residential	1,479		—		2		(238)		1,243
Consumer loans	Consumer loans	406		1,982		(8)		0			(84)		2,296		Consumer loans	3,576		(129)		1		(341)		3,107
Totals	Totals	$	35,698	$	55,686	$	(1,436)	$	92		$	25,382	$	115,422	Totals	$	282,271	$	(5,487)	$	1,017	$	4,702	$	282,503


	Nine Months Ended September 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	$	(830)	$	—	$	41,588	$	54,105
Multifamily	729		9,174		8,710		—		—		48,723		67,336
Construction and land	4,484		(124)		2,051		(377)		—		9,523		15,557
SBA secured by real estate	1,915		(1,401)		—		(699)		34		5,478		5,327
Business loans secured by real estate
CRE owner-occupied	2,781		20,166		3,766		(1,739)		44		23,648		48,666
Franchise real estate secured	592		5,199		—		—		—		6,197		11,988
SBA secured by real estate	2,119		2,207		235		(315)		147		1,767		6,160
Commercial loans
Commercial and industrial	13,857		87		2,325		(5,213)		37		36,821		47,914
Franchise non-real estate secured	5,816		9,214		—		(1,434)		865		5,688		20,149
SBA non-real estate secured	445		218		924		(803)		13		154		951

Retail loans
Single family residential	655		541		206		(62)		3		(100)		1,243
Consumer loans	406		1,982		—		(137)		2		854		3,107
Totals	$	35,698	$	55,686	$	21,242	$	(11,609)	$	1,145	$	180,341	$	282,503

(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 ending ACL balance is reflective of current expected credit losses, accounted for under ASC 326.~~

The decrease in the ACL for loans held for investment during the three months ended ~~March 31,~~September 30, 2021 of ~~$1.0~~$21.3 million iswas comprised of a $19.5 million provision recapture and $1.8 million in net charge-offs. The provision recapture for the three months ended September 30, 2021 was reflective of improving economic forecasts employed in the Company’s ACL model relative to prior periods and the favorable 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 nine months ended September 30, 2021 of $56.5 million was comprised of a ~~$315,000~~$52.4 million provision recapture and $4.2 million in net charge-offs. The provision recapture for the nine months ended September 30, 2021 was also reflective of improving economic forecasts employed in the Company’s ACL model and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment during the first nine months of 2021.

The increase in the ACL for the three months ended September 30, 2020 of $232,000 was comprised of a $4.7 million provision for credit losses and ~~$1.3~~$4.5 million in net charge-offs. The provision for credit losses for the three months ended ~~March 31, 2021 is~~September 30, 2020 was reflective of ~~continued~~ unfavorable, but improving economic ~~conditions and~~ forecasts used in the Company’s ACL model.

The ~~change~~increase in the ACL for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 of ~~$79.7~~$246.8 million iswas 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 ~~$25.4~~$180.3 million provision for credit losses on loans, ~~and~~ net charge-offs of ~~$1.3 million.~~$10.5 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses of $180.3 million during the nine months ended September 30, 2020 was inclusive of $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). Excluding the impact of the Opus acquisition, the provision for credit losses for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 is also reflective of unfavorable ~~changes in~~ economic forecasts used in the Company’s ACL model driven by the COVID-19 pandemic.

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an ~~allowance for credit losses~~ACL on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. The allowance for off-balance sheet commitments was ~~$32.8~~$27.2 million at ~~March 31,~~September 30, 2021, $27.4 million at June 30, 2021, and $31.1 million at December 31, 2020. The ~~change in the allowance~~provision recapture for off-balance sheet commitments ~~can be attributed to a $1.7~~of $194,000 and $3.9 million ~~in provision for credit losses~~ during the three and nine months ended ~~March 31,~~September 30, 2021, respectively, was related primarily to ~~an increase in unfunded lines of credit in conjunction with continued unfavorable, but~~ improving economic conditions and forecasts reflected in the Company’s ~~CECL~~ACL model.

The ~~allowance~~Company recorded a provision recapture for off-balance sheet commitments ~~totaled $11.6~~of $492,000 and a provision for credit losses of $10.0 million ~~as of March 31, 2020.~~for the three and nine months ended September 30, 2020, respectively. The provision recapture for off-balance sheet commitments for the three months ended September 30, 2020 can be attributed to lower outstanding unfunded balances in certain loan segments where a higher reserve allocation had been assigned. The provision for credit losses ~~attributable~~on off-balance sheet commitments for the nine months ended September 30, 2020 can be attributed to ~~unfunded~~an $8.6 million provision for credit losses in the second quarter of 2020 related to the initial ACL for off-balance sheet loan commitments that the Company was ~~$72,000~~required to establish at the time of acquisition of Opus, and a $1.4 million in provision for credit losses for the ~~three month ended March 31, 2020.~~first nine months of 2020 related primarily to the deterioration in economic forecasts, primarily in the second quarter of 2020, used in the Company’s CECL model.

The Company applies an expected credit loss estimation methodology for off-balance sheet commitments that is largely commensurate with the methodology applied to each respective segment of the loan portfolio in determining the ACL for loans held-for-investment. The loss estimation process includes assumptions for ~~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 tables present PD bands for commercial real estate and commercial loan segments of the loan portfolio as of the dates indicated.


		Commercial Real Estate Term Loans by Vintage																			Commercial Real Estate and Commercial Term Loans by PD and Vintage
		2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2021		(Dollars in thousands)
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
September 30, 2021																				September 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%	$	124,225	$	244,225	$	447,464	$	445,435	$	223,077	$	927,154	$	10,779	$	0	$	2,422,359	0% - 5.00%	$	530,275	$	239,267	$	392,557	$	421,922	$	198,651	$	722,951	$	4,270	$	—	$	2,509,893
>5.00% - 10.00%	>5.00% - 10.00%	0		25,477		9,581		14,151		12,408		73,255		0		0		134,872		>5.00% - 10.00%	35,330		24,645		23,757		9,755		11,088		53,696		5,329		—		163,600
Greater than 10%	Greater than 10%	0		2,299		71,735		32,941		43,392		21,639		548		0		172,554		Greater than 10%	—		4,821		50,121		32,661		9,933		51,511		525		—		149,572
Multifamily	Multifamily																			Multifamily
0% - 5.00%	0% - 5.00%	372,435		946,666		1,564,508		763,445		611,026		812,130		1,426		0		5,071,636		0% - 5.00%	1,660,670		962,609		1,316,575		520,329		500,815		609,731		218		—		5,570,947
>5.00% - 10.00%	>5.00% - 10.00%	32,587		5,858		51,975		17,181		6,602		17,328		0		0		131,531		>5.00% - 10.00%	28,718		49,737		31,988		6,958		1,590		8,314		—		—		127,305
Greater than 10%	Greater than 10%	0		53,404		12,131		13,368		12,456		15,066		0		0		106,425		Greater than 10%	5,059		—		—		—		—		2,355		—		—		7,414
Construction and Land	Construction and Land																			Construction and Land
0% - 5.00%	0% - 5.00%	12,496		65,447		28,996		1,425		4,081		5,139		1,043		0		118,627		0% - 5.00%	56,187		82,557		2,329		991		3,996		3,607		48		—		149,715
>5.00% - 10.00%	>5.00% - 10.00%	0		7,462		45,561		0		3,785		71		0		0		56,879		>5.00% - 10.00%	21,654		11,027		1,700		—		—		—		—		—		34,381
Greater than 10%	Greater than 10%	0		3,577		59,440		52,370		4,398		21,167		0		0		140,952		Greater than 10%	8,266		31,606		47,704		21,143		—		—		—		—		108,719
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
0% - 5.00%	0% - 5.00%	0		498		9,508		12,517		17,476		15,942		0		0		55,941		0% - 5.00%	130		499		7,373		12,428		15,206		12,834		—		—		48,470
>5.00% - 10.00%	>5.00% - 10.00%	0		0		0		0		0		0		0		0		0		>5.00% - 10.00%	—		—		—		—		—		—		—		—		—
Greater than 10%	Greater than 10%	0		0		102		0		0		338		0		0		440		Greater than 10%	—		—		9		—		629		338		—		—		976
Total investor loans secured by real estate	Total investor loans secured by real estate	541,743		1,354,913		2,301,001		1,352,833		938,701		1,909,229		13,796		0		8,412,216		Total investor loans secured by real estate	2,346,289		1,406,768		1,874,113		1,026,187		741,908		1,465,337		10,390		—		8,870,992
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%	108,753		274,558		358,652		251,081		274,570		588,999		8,946		0		1,865,559		0% - 5.00%	635,469		302,683		315,267		215,974		201,190		499,308		3,211		300		2,173,402
>5.00% - 10.00%	>5.00% - 10.00%	0		11,033		15,015		31,674		30,254		51,484		0		0		139,460		>5.00% - 10.00%	—		—		7,846		7,573		6,733		31,811		—		—		53,963
Greater than 10%	Greater than 10%	0		0		0		5,883		9,043		9,789		250		0		24,965		Greater than 10%	—		—		—		6,109		2,972		5,718		—		—		14,799
Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
0% - 5.00%	0% - 5.00%	23,192		36,483		69,701		58,245		80,716		36,800		0		0		305,137		0% - 5.00%	95,937		43,332		55,621		39,053		61,591		37,696		—		—		333,230
>5.00% - 10.00%	>5.00% - 10.00%	0		7,588		3,218		7,280		1,103		16,037		0		0		35,226		>5.00% - 10.00%	812		—		4,151		5,253		5,310		4,590		—		—		20,116
Greater than 10%	Greater than 10%	0		442		0		0		0		0		0		0		442		Greater than 10%	1,135		—		—		—		—		—		—		—		1,135
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
0% - 5.00%	0% - 5.00%	510		3,237		7,517		11,357		11,448		21,384		0		0		55,453		0% - 5.00%	3,789		2,368		6,237		9,605		8,900		16,909		—		—		47,808
>5.00% - 10.00%	>5.00% - 10.00%	0		0		70		905		1,694		6,502		0		0		9,171		>5.00% - 10.00%	—		—		1,296		893		2,318		8,273		—		—		12,780
Greater than 10%	Greater than 10%	0		0		0		1,347		2,124		5,872		0		0		9,343		Greater than 10%	—		—		—		1,326		3,012		3,650		1,361		—		9,349
Total business loans secured by real estate	Total business loans secured by real estate	132,455		333,341		454,173		367,772		410,952		736,867		9,196		0		2,444,756		Total business loans secured by real estate	737,142		348,383		390,418		285,786		292,026		607,955		4,572		300		2,666,582

5357


		Commercial Real Estate Term Loans by Vintage																			Commercial Real Estate and Commercial Term Loans by PD and Vintage
		2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2021		(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
September 30, 2021																				September 30, 2021
Commercial loans																				Commercial loans
Commercial and industrial	Commercial and industrial																			Commercial and industrial
0% - 5.00%	0% - 5.00%	61,115		76,872		223,574		101,069		182,673		90,115		316,224		1,113		1,052,755		0% - 5.00%	253,639		87,252		196,671		118,678		128,879		69,707		764,279		2,055		1,621,160
>5.00% - 10.00%	>5.00% - 10.00%	1,507		28,732		31,098		25,613		10,383		16,090		305,405		101		418,929		>5.00% - 10.00%	6,720		2,293		8,012		20,835		27,760		8,438		140,001		4		214,063
Greater than 10%	Greater than 10%	0		8,575		20,849		21,862		2,997		11,807		117,839		485		184,414		Greater than 10%	650		1,759		741		2,901		1,143		2,376		43,337		740		53,647
Franchise non-real estate secured	Franchise non-real estate secured																			Franchise non-real estate secured
0% - 5.00%	0% - 5.00%	15,398		21,160		102,790		78,320		34,932		31,020		0		0		283,620		0% - 5.00%	108,905		19,246		63,233		59,636		22,735		15,697		—		—		289,452
>5.00% - 10.00%	>5.00% - 10.00%	0		6,056		35,273		8,527		8,362		18,588		0		0		76,806		>5.00% - 10.00%	9,159		5,708		33,550		5,594		3,483		18,536		—		—		76,030
Greater than 10%	Greater than 10%	0		0		9,100		5,762		18,397		3,995		1,361		0		38,615		Greater than 10%	269		—		2,237		4,491		16,368		4,103		—		—		27,468
SBA not secured by real estate	SBA not secured by real estate																			SBA not secured by real estate
0% - 5.00%	0% - 5.00%	72		422		2,212		1,021		1,299		3,230		0		0		8,256		0% - 5.00%	152		653		1,215		633		1,008		2,421		—		—		6,082
>5.00% - 10.00%	>5.00% - 10.00%	0		0		0		490		1,518		1,102		0		0		3,110		>5.00% - 10.00%	—		—		209		305		2,231		1,137		—		—		3,882
Greater than 10%	Greater than 10%	0		0		81		353		1,725		691		692		0		3,542		Greater than 10%	—		—		776		455		247		626		664		—		2,768
Total commercial loans	Total commercial loans	$	78,092	$	141,817	$	424,977	$	243,017	$	262,286	$	176,638	$	741,521	$	1,699	$	2,070,047	Total commercial loans	$	379,494	$	116,911	$	306,644	$	213,528	$	203,854	$	123,041	$	948,281	$	2,799	$	2,294,552


		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
(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	(Dollars in thousands)																		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
0% - 5.00%	0% - 5.00%	$	261,885	$	491,522	$	431,791	$	266,942	$	254,527	$	763,101	$	11,114	$	0	$	2,480,882	0% - 5.00%	$	261,885	$	491,522	$	431,791	$	266,942	$	254,527	$	763,101	$	11,114	$	—	$	2,480,882
>5.00% - 10.00%	>5.00% - 10.00%	4,016		34,360		5,794		10,558		16,961		33,734		0		0		105,423		>5.00% - 10.00%	4,016		34,360		5,794		10,558		16,961		33,734		—		—		105,423
Greater than 10%	Greater than 10%	0		25,844		11,480		10,517		10,782		29,598		559		0		88,780		Greater than 10%	—		25,844		11,480		10,517		10,782		29,598		559		—		88,780
Multifamily	Multifamily																			Multifamily
0% - 5.00%	0% - 5.00%	950,089		1,610,011		878,233		634,268		349,549		516,452		0		0		4,938,602		0% - 5.00%	950,089		1,610,011		878,233		634,268		349,549		516,452		—		—		4,938,602
>5.00% - 10.00%	>5.00% - 10.00%	38,892		59,500		12,181		19,751		10,917		13,606		0		0		154,847		>5.00% - 10.00%	38,892		59,500		12,181		19,751		10,917		13,606		—		—		154,847
Greater than 10%	Greater than 10%	38,663		9,963		11,339		12,479		3,814		1,229		420		0		77,907		Greater than 10%	38,663		9,963		11,339		12,479		3,814		1,229		420		—		77,907
Construction and Land
Construction and land																				Construction and land
0% - 5.00%	0% - 5.00%	55,785		40,860		4,604		11,238		0		6,412		784		0		119,683		0% - 5.00%	55,785		40,860		4,604		11,238		—		6,412		784		—		119,683
>5.00% - 10.00%	>5.00% - 10.00%	1,123		41,046		9,197		3,601		0		260		0		0		55,227		>5.00% - 10.00%	1,123		41,046		9,197		3,601		—		260		—		—		55,227
Greater than 10%	Greater than 10%	401		62,853		59,512		3,786		20,531		0		0		0		147,083		Greater than 10%	401		62,853		59,512		3,786		20,531		—		—		—		147,083
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
0% - 5.00%	0% - 5.00%	496		10,400		12,558		14,497		7,078		10,032		0		0		55,061		0% - 5.00%	496		10,400		12,558		14,497		7,078		10,032		—		—		55,061
>5.00% - 10.00%	>5.00% - 10.00%	0		0		0		1,012		0		0		0		0		1,012		>5.00% - 10.00%	—		—		—		1,012		—		—		—		—		1,012
Greater than 10%	Greater than 10%	0		158		589		0		0		511		0		0		1,258		Greater than 10%	—		158		589		—		—		511		—		—		1,258
Total investor loans secured by real estate	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		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		—		8,225,765

5458


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

5559

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 tables summarize the amortized cost of loans in these segments by current estimated LTV and by year of origination as of the dates indicated:


		Term Loans by Vintage																			Term Loans by LTV and Vintage
		2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2021		(Dollars in thousands)
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
September 30, 2021																				September 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	$	64,538	$	130,003	$	213,339	$	220,420	$	130,687	$	709,045	$	10,779	0		$	1,478,811	55% and below	$	291,909	$	142,444	$	188,747	$	208,825	$	127,768	$	589,484	$	9,599	—		$	1,558,776
>55-65%	>55-65%	31,752		116,313		197,381		105,577		130,405		266,760		548		0		848,736		>55-65%	220,116		89,488		193,461		104,301		79,960		204,683		525		—		892,534
>65-75%	>65-75%	27,935		25,685		97,297		153,854		13,411		44,463		0		0		362,645		>65-75%	53,580		36,801		64,165		146,402		8,118		32,513		—		—		341,579
Greater than 75%	Greater than 75%	0		0		20,763		12,676		4,374		1,780		0		0		39,593		Greater than 75%	—		—		20,062		4,810		3,826		1,478		—		—		30,176
Multifamily	Multifamily																			Multifamily
55% and below	55% and below	59,772		219,912		344,043		261,109		231,004		356,028		1,426		0		1,473,294		55% and below	260,469		219,510		314,269		211,795		207,913		299,265		218		—		1,513,439
>55-65%	>55-65%	173,282		389,105		716,453		359,851		211,357		328,477		0		0		2,178,525		>55-65%	719,640		421,994		580,084		229,609		158,927		226,977		—		—		2,337,231
>65-75%	>65-75%	169,340		396,911		553,451		162,499		185,854		155,480		0		0		1,623,535		>65-75%	703,894		367,815		442,661		85,883		133,716		85,918		—		—		1,819,887
Greater than 75%	Greater than 75%	2,628		0		14,667		10,535		1,869		4,539		0		0		34,238		Greater than 75%	10,444		3,027		11,549		—		1,849		8,240		—		—		35,109
Construction and land	Construction and land																			Construction and land
55% and below	55% and below	12,496		76,486		106,181		27,368		12,264		26,377		1,043		0		262,215		55% and below	82,458		120,912		42,774		4,183		3,996		3,607		48		—		257,978
>55-65%	>55-65%	0		0		19,603		18,590		0		0		0		0		38,193		>55-65%	—		4,278		6,630		17,951		—		—		—		—		28,859
>65-75%	>65-75%	0		0		8,213		7,837		0		0		0		0		16,050		>65-75%	3,649		—		2,329		—		—		—		—		—		5,978
Greater than 75%	Greater than 75%	0		0		0		0		0		0		0		0		0		Greater than 75%	—		—		—		—		—		—		—		—		—
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
55% and below	55% and below	0		0		102		645		669		1,088		0		0		2,504		55% and below	—		—		9		637		695		2,177		—		—		3,518
>55-65%	>55-65%	0		0		2,420		1,633		3,991		5,449		0		0		13,493		>55-65%	—		—		2,407		1,958		1,910		2,853		—		—		9,128
>65-75%	>65-75%	0		0		3,888		4,641		3,477		6,619		0		0		18,625		>65-75%	130		—		3,870		4,606		4,461		5,544		—		—		18,611
Greater than 75%	Greater than 75%	0		498		3,200		5,598		9,339		3,124		0		0		21,759		Greater than 75%	—		499		1,096		5,227		8,769		2,598		—		—		18,189
Total investor loans secured by real estate	Total investor loans secured by real estate	541,743		1,354,913		2,301,001		1,352,833		938,701		1,909,229		13,796		0		8,412,216		Total investor loans secured by real estate	2,346,289		1,406,768		1,874,113		1,026,187		741,908		1,465,337		10,390		—		8,870,992
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	41,757		100,507		148,303		122,790		173,168		433,778		9,196		0		1,029,499		55% and below	296,313		108,338		123,527		100,865		139,455		383,599		3,211		300		1,155,608
>55-65%	>55-65%	28,552		64,442		75,112		87,262		101,484		131,991		0		0		488,843		>55-65%	161,368		73,789		66,407		70,311		46,314		99,171		—		—		517,360
>65-75%	>65-75%	17,278		71,694		143,725		72,734		25,938		63,635		0		0		395,004		>65-75%	126,160		87,909		123,495		52,679		16,909		37,740		—		—		444,892
Greater than 75%	Greater than 75%	21,166		48,948		6,527		5,852		13,277		20,868		0		0		116,638		Greater than 75%	51,628		32,647		9,684		5,801		8,217		16,327		—		—		124,304
Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
55% and below	55% and below	1,884		20,715		9,853		15,109		13,479		25,410		0		0		86,450		55% and below	17,039		23,695		9,052		12,776		14,889		19,988		—		—		97,439
>55-65%	>55-65%	0		2,666		9,905		14,514		14,248		7,615		0		0		48,948		>55-65%	39,872		2,622		11,055		10,137		4,804		10,129		—		—		78,619
>65-75%	>65-75%	11,298		15,452		42,286		17,909		14,740		16,607		0		0		118,292		>65-75%	23,262		15,150		36,521		8,632		15,563		10,951		—		—		110,079
Greater than 75%	Greater than 75%	10,010		5,680		10,875		17,993		39,352		3,205		0		0		87,115		Greater than 75%	17,711		1,865		3,144		12,761		31,645		1,218		—		—		68,344
SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
55% and below	55% and below	510		1,813		1,601		5,265		5,442		16,620		0		0		31,251		55% and below	2,547		591		1,897		1,127		5,146		14,667		1,361		—		27,336
>55-65%	>55-65%	0		247		512		1,740		999		8,073		0		0		11,571		>55-65%	186		556		199		1,513		1,306		7,513		—		—		11,273
>65-75%	>65-75%	0		263		3,129		1,293		3,695		4,824		0		0		13,204		>65-75%	703		328		3,111		5,254		4,104		3,586		—		—		17,086
Greater than 75%	Greater than 75%	0		914		2,345		5,311		5,130		4,241		0		0		17,941		Greater than 75%	353		893		2,326		3,930		3,674		3,066		—		—		14,242

Total business loans secured by real estate	Total business loans secured by real estate	$	132,455	$	333,341	$	454,173	$	367,772	$	410,952	$	736,867	$	9,196	$	0	$	2,444,756	Total business loans secured by real estate	$	737,142	$	348,383	$	390,418	$	285,786	$	292,026	$	607,955	$	4,572	$	300	$	2,666,582

5660


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

Total business loans secured by real estate	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	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

5761

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


		Term Loans by Vintage																			Term Loans by FICO and Vintage
		2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
		(Dollars in thousands)
March 31, 2021
Retail Loans
(Dollars in thousands)																				(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
September 30, 2021																				September 30, 2021
Retail loans																				Retail loans
Single family residential	Single family residential																			Single family residential
Greater than 740	Greater than 740	$	6,582	$	7,624	$	3,480	$	10,341	$	6,559	$	78,694	$	15,850	0		$	129,130	Greater than 740	$	20,201	$	3,518	$	1,967	$	1,599	$	3,319	$	53,609	$	17,213	—		$	101,426
>680 - 740	>680 - 740	0		0		869		367		4,119		14,654		5,915		0		25,924		>680 - 740	—		—		—		34		3,172		9,756		5,271		—		18,233
>580 - 680	>580 - 680	0		0		0		0		491		9,561		863		0		10,915		>580 - 680	—		—		—		—		453		9,301		757		—		10,511
Less than 580	Less than 580	0		0		0		0		0		18,046		34		0		18,080		Less than 580	—		—		—		—		10		14,096		33		—		14,139
Consumer loans	Consumer loans																			Consumer loans
Greater than 740	Greater than 740	2		47		63		30		19		3,476		531		0		4,168		Greater than 740	27		30		37		22		12		2,500		1,325		—		3,953
>680 - 740	>680 - 740	0		0		32		5		3		459		1,461		0		1,960		>680 - 740	1		—		19		—		3		441		1,876		—		2,340
>580 - 680	>580 - 680	0		0		13		0		0		90		57		0		160		>580 - 680	—		—		7		—		—		59		49		—		115
Less than 580	Less than 580	0		0		0		0		0		12		24		0		36		Less than 580	—		—		—		—		—		—		18		—		18
Total retail loans	Total retail loans	$	6,584	$	7,671	$	4,457	$	10,743	$	11,191	$	124,992	$	24,735	$	0	$	190,373	Total retail loans	$	20,229	$	3,548	$	2,030	$	1,655	$	6,969	$	89,762	$	26,542	$	—	$	150,735


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

Note 8 – Goodwill and Other Intangible Assets

The Company had goodwill of ~~$900.2~~$901.3 million and $898.6 million at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively. The Company recorded adjustments to goodwill associated with the acquisition of Opus in the amount of ~~$1.6~~$2.7 million during the ~~three~~first six months ~~ended March 31,~~of 2021, within the one-year measurement period subsequent to the acquisition date of June 1, 2020.

March 31, March 31,
2021 2020
(Dollars in thousands)
Balance, beginning of year $ 898,569 $ 808,322
Purchase accounting adjustments 1,635 0
Balance, end of year $ 900,204 $ 808,322
Accumulated impairment losses at end of year $ 0 $ 0

~~The~~ These adjustments largely relate to the finalization of the short-year Opus tax returns. During the nine months ended September 30, 2020, the additions to goodwill included $92.8 million associated with the acquisition of Opus and adjustments to goodwill in the amount of ~~goodwill is subject~~$2.7 million during the third quarter of 2020, within the one-year measurement period subsequent to ~~change, as~~ the ~~Company’s~~acquisition date. 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 estimates and are subject to refinement for a period of one year after the closing date of the acquisition as additional information related to those fair value estimates becomes available and such information is considered final.acquisition.


	September 30,		September 30,
(Dollars in thousands)	2021		2020
Balance, beginning of year	$	898,569	$	808,322
Goodwill acquired during the year	—		92,844
Purchase accounting adjustments	2,743		(2,732)

Balance, end of year	$	901,312	$	898,434
Accumulated impairment losses at end of year	$	—	$	—

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.

The Company had other intangible assets of ~~$81.4~~$73.5 million at ~~March 31,~~September 30, 2021, consisting of ~~$78.4~~$70.7 million in core deposit intangibles and ~~$2.9~~$2.8 million in customer relationship intangibles. The Company had other intangibles assets of $85.5 million at December 31, 2020, consisting of $82.5 million in core deposit intangibles and $3.0 million in customer relationship intangibles. The following table summarizes the change in the balance of core deposit intangibles and customer relationship intangibles, and the related accumulated amortization for the periods indicated below:


		Three Months Ended						Three Months Ended						Nine Months Ended
		March 31,		December 31,		March 31,				September 30,		June 30,		September 30,		September 30,		September 30,
		2021		2020		2020
		(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	$	145,212	$	145,212	$	125,945		Beginning balance	$	145,212	$	145,212	$	145,212	$	145,212	$	125,945
Additions due to acquisitions	Additions due to acquisitions	0		0		0			Additions due to acquisitions	—		—		—		—		19,267
Ending balance	Ending balance	145,212		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	(59,705)		(55,200)		(42,633)			Beginning balance	(67,849)		(63,848)		(50,662)		(59,705)		(42,633)
Amortization	Amortization	(4,143)		(4,505)		(3,963)			Amortization	(3,912)		(4,001)		(4,538)		(12,056)		(12,567)
Ending balance	Ending balance	(63,848)		(59,705)		(46,596)			Ending balance	(71,761)		(67,849)		(55,200)		(71,761)		(55,200)
Net intangible assets	Net intangible assets	$	81,364	$	85,507	$	79,349		Net intangible assets	$	73,451	$	77,363	$	90,012	$	73,451	$	90,012

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, 2020, in order from the present, is $15.9 million, $14.0 million, $12.3 million, $11.1 million, and $10.0 million. The Company analyzes core deposit intangibles and customer relationship intangibles annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that may 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 ~~March 31,~~September 30, 2021.

Note 9 – Subordinated Debentures

~~As of March 31,~~On April 15, 2021, the Company redeemed the subordinated notes totaling $25.0 million that the Company assumed as part of the 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, plus accrued and unpaid interest, for an aggregate amount of $25.8 million. The Company recorded a loss on early debt extinguishment of $647,000 after considering a $103,000 fair value mark related to purchase accounting adjustments.

On July 1, 2021, the Company redeemed $135.0 million subordinated notes acquired from Opus and $5.2 million junior subordinated debt associated with Heritage Oaks Capital Trust II. Prior to redemption, the subordinated notes and junior subordinated debt securities carried an interest rate of 5.50% and 1.92%, respectively. On July 7, 2021, the Company redeemed $5.2 million junior subordinated debt associated with Santa Lucia Bancorp (CA) Capital Trust. Prior to redemption, the junior subordinated debt securities carried an interest rate of 1.66%. The subordinated notes and junior subordinated debt were redeemed at par, plus accrued and unpaid interest, for an aggregate amount of $149.2 million. The Company recorded a net gain on early debt extinguishment of $970,000 related to purchase accounting adjustments. Subsequent to the redemptions of these junior subordinated debt securities, the Company’s unconsolidated Delaware statutory trust subsidiaries, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust, that were used as business trusts for the purpose of issuing trust preferred securities to third party investors were dissolved.

As of September 30, 2021, the Company had 3 issuances of subordinated notes with an aggregate carrying value of $330.4 million and a weighted interest rate of 5.33%, compared with 5 issuances of subordinated notes and 2 issuances of junior subordinated debt securities, ~~with an aggregate carrying value of $501.6 million and a weighted interest rate of 5.38%, compared~~ with an aggregate carrying value of $501.5 million and a weighted interest rate of 5.38% at December 31, 2020.

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


							March 31, 2021		December 31, 2020								September 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	$	59,581	$	59,552	Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,641	$	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		122,941		122,877		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		123,068		122,877
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		147,567		147,501		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		147,699		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		25,103		25,109		Subordinated notes due 2025, 7.125% per annum	June 26, 2025	—	%	—		—		25,109
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		138,282		138,371		Subordinated notes due 2026, 5.50% per annum until June 30 2021, 3-month LIBOR +4.285% thereafter	July 1, 2026	—	%	—		—		138,371
Total subordinated notes	Total subordinated notes				495,000		493,474		493,410		Total subordinated notes				335,000		330,408		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	1.96	%	5,248		4,138		4,121		Heritage Oaks Capital Trust II (junior subordinated debt), 3-month LIBOR+1.72%	January 1, 2037	—	%	—		—		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	1.72	%	5,155		3,999		3,980		Santa Lucia Bancorp (CA) Capital Trust (junior subordinated debt), 3-month LIBOR+1.48%	July 7, 2036	—	%	—		—		3,980
Total subordinated debt	Total subordinated debt				10,403		8,137		8,101		Total subordinated debt				—		—		8,101
Total subordinated debentures	Total subordinated debentures				$	505,403	$	501,611	$	501,511	Total subordinated debentures				$	335,000	$	330,408	$	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.~~

As of March 31, 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 on the Company’s consolidated financial statements.KBRA.

For additional information on the Company’s subordinated debentures, see “Note 14 — Subordinated Debentures” to the consolidated financial statements of the Company’s 2020 Form 10-K.

For regulatory capital purposes, subordinated notes and the trust preferred securities ~~are included in~~qualify as Tier 2 ~~capital at March 31, 2021. Provisions~~capital. The redemption 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. Duringsubordinated notes totaling $25.0 million during the second quarter of ~~2020,~~2021 reduced the Company’s ~~acquisition~~Tier 2 capital by approximately $20.0 million. The redemption of ~~Opus resulted in total consolidated assets exceeding $15 billion; accordingly,~~subordinated notes and trust preferred securities ~~are excluded from~~totaling $145.4 million during the third quarter of 2021 reduced the Company’s Tier ~~1 capital. The~~2 capital by approximately $146.0 million. Following these redemptions, the regulatory total capital ratios of the Company and the Bank ~~also has subordinated debt that qualifies as Tier 2 capital.~~continued to exceed regulatory minimums to be well-capitalized and the fully phased-in capital conservation buffer.

Note 10 – Earnings per Share

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

Under the two-class method, distributed and undistributed earnings allocable to participating securities are deducted from net income to determine net income allocable to common shareholders, which is then used in the numerator of both basic and diluted earnings per share calculations. Basic earnings per common share 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.

6165

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


		Three Months Ended							Three Months Ended
		March 31, 2021		December 31, 2020		March 31, 2020
		(Dollars in thousands, except per share data)
(Dollars in thousands, except per share data)								(Dollars in thousands, except per share data)	September 30, 2021		June 30, 2021		September 30, 2020
Basic	Basic							Basic
Net income	Net income	$	68,668	$	67,136	$	25,740	Net income	$	90,088	$	96,302	$	66,566
Less: Dividends and undistributed earnings allocated to participating securities		(665)		(629)		(232)
Less: dividends and undistributed earnings allocated to participating securities								Less: dividends and undistributed earnings allocated to participating securities	(937)		(1,034)		(612)
Net income allocated to common stockholders	Net income allocated to common stockholders	$	68,003	$	66,507	$	25,508	Net income allocated to common stockholders	$	89,151	$	95,268	$	65,954

Weighted average common shares outstanding	Weighted average common shares outstanding	93,529,147		93,568,994		59,007,191		Weighted average common shares outstanding	93,549,639		93,635,392		93,529,967
Basic earnings per common share	Basic earnings per common share	$	0.73	$	0.71	$	0.43	Basic earnings per common share	$	0.95	$	1.02	$	0.71

Diluted	Diluted							Diluted
Net income allocated to common stockholders	Net income allocated to common stockholders	$	68,003	$	66,507	$	25,508	Net income allocated to common stockholders	$	89,151	$	95,268	$	65,954

Weighted average common shares outstanding	Weighted average common shares outstanding	93,529,147		93,568,994		59,007,191		Weighted average common shares outstanding	93,549,639		93,635,392		93,529,967
Diluted effect of share-based compensation	Diluted effect of share-based compensation	564,497		400,194		182,526		Diluted effect of share-based compensation	511,085		582,636		189,200

Weighted average diluted common shares	Weighted average diluted common shares	94,093,644		93,969,188		59,189,717		Weighted average diluted common shares	94,060,724		94,218,028		93,719,167
Diluted earnings per common share	Diluted earnings per common share	$	0.72	$	0.71	$	0.43	Diluted earnings per common share	$	0.95	$	1.01	$	0.70


	Nine Months Ended
(Dollars in thousands, except per share data)	September 30, 2021		September 30, 2020
Basic
Net income (loss)	$	255,058	$	(6,785)

Less: dividends and undistributed earnings allocated to participating securities	(2,641)		(564)
Net income (loss) allocated to common stockholders	$	252,417	$	(7,349)

Weighted average common shares outstanding	93,571,468		74,391,688
Basic earnings (loss) per common share	$	2.70	$	(0.10)

Diluted
Net income (loss) allocated to common stockholders	$	252,417	$	(7,349)

Weighted average common shares outstanding	93,571,468		74,391,688
Diluted effect of share-based compensation	518,939		—

Weighted average diluted common shares	94,090,407		74,391,688
Diluted earnings (loss) per common share	$	2.68	$	(0.10)

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 nine months ended ~~March 31,~~September 30, 2021 ~~December 31, 2020,~~ and ~~March 31, 2020,~~the three months ended June 30, 2021 there were no potential common shares that were anti-dilutive. For the three months ended September 30, 2020, there were 27,815 potential common shares that were anti-dilutive. As a result of incurring a net loss for the nine months ended September 30, 2020, potential common shares of 173,235 were excluded from diluted loss per share because the effect would have been anti-dilutive.

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 Company also enters into interest rate swap contracts with institutional counterparties to hedge against certain fixed-rate loans. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a market standard discounted cash flow approach. 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 interest rate swaps is classified as Level 2 of the fair value hierarchy.

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

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:


		March 31, 2021									September 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	$	0	$	32,063	$	0	$	32,063	U.S. Treasury	$	—	$	79,342	$	—	$	79,342
Agency	Agency	0		663,159		0		663,159		Agency	—		530,093		—		530,093
Corporate	Corporate	0		357,834		0		357,834		Corporate	—		386,391		—		386,391
Municipal bonds	Municipal bonds	0		1,422,062		0		1,422,062		Municipal bonds	—		1,255,866		—		1,255,866
Collateralized mortgage obligations	Collateralized mortgage obligations	0		508,971		0		508,971		Collateralized mortgage obligations	—		662,231		—		662,231
Mortgage-backed securities	Mortgage-backed securities	0		873,248		0		873,248		Mortgage-backed securities	—		1,795,892		—		1,795,892
Total securities available-for-sale	Total securities available-for-sale	$	0	$	3,857,337	$	0	$	3,857,337	Total securities available-for-sale	$	—	$	4,709,815	$	—	$	4,709,815

Derivative assets:	Derivative assets:									Derivative assets:

Interest rate swaps	Interest rate swaps	$	0	$	5,326	$	0	$	5,326	Interest rate swaps	$	—	$	6,747	$	—	$	6,747
Equity warrants	Equity warrants	0		0		1,911		1,911		Equity warrants	—		—		1,895		1,895
Total derivative assets	Total derivative assets	$	0	$	5,326	$	1,911	$	7,237	Total derivative assets	$	—	$	6,747	$	1,895	$	8,642

Financial liabilities	Financial liabilities									Financial liabilities

Derivative liabilities	Derivative liabilities	$	0	$	5,332	$	0	$	5,332	Derivative liabilities	$	—	$	5,819	$	—	$	5,819


	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	$	—	$	32,533	$	—	$	32,533
Agency	—		690,386		—		690,386
Corporate	—		415,308		—		415,308
Municipal bonds	—		1,446,019		—		1,446,019
Collateralized mortgage obligations	—		513,366		—		513,366
Mortgage-backed securities	—		833,503		—		833,503
Total securities available-for-sale	$	—	$	3,931,115	$	—	$	3,931,115

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

Financial liabilities
Derivative liabilities	$	—	$	12,066	$	—	$	12,066

6469

December 31, 2020
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 $ 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

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 as ~~of :~~of:

~~Three Months Ended~~

~~March 31,~~

~~2021~~

~~(Dollars in thousands)~~

~~Beginning Balance~~

~~1,914~~

~~Change in fair value~~ ~~(1)~~

~~(3)~~

~~Ending balance~~

~~1,911~~


	Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2021		2020		2021		2020
Beginning balance	$	1,903	$	1,952	$	1,914	$	5,162
Change in fair value (1)	(8)		(32)		(19)		(35)
Sales	—		—		—		(3,207)
Ending balance	$	1,895	$	1,920	$	1,895	$	1,920

(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 fair value measurements for assets measured at fair value on a recurring basis at at the dates indicated.

~~March 31,~~September 30, 2021

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

~~(Dollars in thousands)~~

Equity warrants

~~1,911~~1,895

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

~~0.16%~~0.19%

~~6.00%~~5.50%

35.00%

~~0.64%~~0.76%

16.00%

~~31.18%~~31.15%

~~0.27%~~0.32%

~~13.52%~~13.59%

December 31, 2020

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

~~(Dollars in thousands)~~

Equity warrants

1,914

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

0.13%

6.00%

35.00%

0.36%

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 are measured based on the fair value of the underlying collateral or the discounted expected future cash flows. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate, and cash. The Company measures impairment on all 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.

At ~~March 31,~~September 30, 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 reserves during the ~~three~~nine months ended ~~March 31,~~September 30, 2021.

The following table presents our assets measured at fair value on a nonrecurring basis at the dates indicated.


		March 31, 2021									September 30, 2021
		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
Collateral dependent loans	Collateral dependent loans	$	0	$	0	$	606	$	606	Collateral dependent loans	$	—	$	—	$	9,348	$	9,348


		December 31, 2020									December 31, 2020
		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
Collateral dependent loans	Collateral dependent loans	$	0	$	0	$	4,077	$	4,077	Collateral dependent loans	$	—	$	—	$	4,077	$	4,077

The following table presents quantitative information about ~~level~~Level 3 fair value measurements for assets measured at fair value on a nonrecurring basis at the dates indicated.

March 31, 2021

September 30, 2021

Range

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Investor loans secured by real estate

CRE non-owner-occupied

7,045

Fair value of collateral

Collateral discount and cost to sell

7.00%

SBA secured by real estate (1)

440

Fair value of collateral

Collateral discount and cost to sell

10.00%

SBA secured by real estate (1)

976

Fair value of collateral

Collateral discount and cost to sell

10.00%

Commercial loans

Commercial and industrial

166

Fair value of collateral

Collateral discount and cost to sell

75.00%

100.00%

75.00%

Commercial and industrial

240

Fair value of collateral

Collateral discount and cost to sell

20.00%

Franchise non-real estate secured

1,087

Fair value of collateral

Collateral discount and cost to sell

—%

100.00%

10.32%

Total individually evaluated loans

606

Total individually evaluated loans

9,348


		December 31, 2020								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	$	198	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)	746		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)	386		Fair value of collateral	Collateral discount and cost to sell	7.00%	10.00%	9.09%	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%	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	707		Fair value of collateral	Collateral discount and cost to sell	7.00%	7.00%	7.00%	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	$	4,077						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.

6772

Fair Values of Financial Instruments

The fair value estimates presented herein are based on pertinent information available to management as of the dates indicated, representing an exit price.


		At March 31, 2021											At September 30, 2021
		Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Assets	Assets											Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,554,668	$	1,554,668	$	0	$	0	$	1,554,668	Cash and cash equivalents	$	322,320	$	322,320	$	—	$	—	$	322,320
Interest-bearing time deposits with financial institutions	Interest-bearing time deposits with financial institutions	2,708		2,708		0		0		2,708		Interest-bearing time deposits with financial institutions	2,708		2,708		—		—		2,708
Investments held-to-maturity	Investments held-to-maturity	21,931		0		23,004		0		23,004		Investments held-to-maturity	170,576		—		169,154		—		169,154
Investment securities available-for-sale	Investment securities available-for-sale	3,857,337		0		3,857,337		0		3,857,337		Investment securities available-for-sale	4,709,815		—		4,709,815		—		4,709,815
Loans held for sale	Loans held for sale	7,311		0		7,702		0		7,702		Loans held for sale	8,100		—		8,899		—		8,899
Loans held for investment, net	Loans held for investment, net	13,117,392		0		0		13,276,121		13,276,121		Loans held for investment, net	13,982,861		—		—		14,121,193		14,121,193

Derivative assets	Derivative assets	7,237		0		5,326		1,911		7,237		Derivative assets	8,642		—		6,747		1,895		8,642
Accrued interest receivable	Accrued interest receivable	65,098		65,098		0		0		65,098		Accrued interest receivable	63,228		63,228		—		—		63,228

Liabilities	Liabilities											Liabilities
Deposit accounts	Deposit accounts	$	16,740,007	$	15,369,192	$	1,373,363	$	0	$	16,742,555	Deposit accounts	$	17,469,999	$	16,356,929	$	1,167,405	$	—	$	17,524,334
FHLB advances	FHLB advances	10,000		0		9,998		0		9,998		FHLB advances	150,000		—		150,000		—		150,000

Subordinated debentures	Subordinated debentures	501,611		0		542,721		0		542,721		Subordinated debentures	330,408		—		367,515		—		367,515
Derivative liabilities	Derivative liabilities	5,332		0		5,332		0		5,332		Derivative liabilities	5,819		—		5,819		—		5,819
Accrued interest payable	Accrued interest payable	7,097		7,097		0		0		7,097		Accrued interest payable	5,065		5,065		—		—		5,065


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

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

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

Note 12 – Derivative Instruments

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

Derivatives Designated as Hedging Instruments

Fair Value Hedges – The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. During the third quarter of 2021, the Company entered into pay-fixed and receive-floating interest rate swaps of certain fixed rate loans, primarily commercial real estate loans, to manage its exposure to changes in fair value on these instruments attributable to changes in the designated USD-SOFR-COMPOUND benchmark interest rate. These interest rate swaps are designated as fair value hedges using the last-of-layer method. As a result, the Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value of fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s consolidated statements of income. At September 30, 2021, interest rate swaps with a notional amount totaling $300.0 million and a fair value totaling $932,000 were designated as fair value hedges.

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


Line Item in the Statement of Financial Position in Which the Hedged Item is Included	Carrying Amount of the Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(Dollars in thousands)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Loans held for investment(1)	$	298,973	$	—	$	(1,027)	$	—
Total	$	298,973	$	—	$	(1,027)	$	—

(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At September 30, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $815.2 million; the cumulative basis adjustments associated with these hedging relationships was $1.0 million; and the amounts of the designated hedged items were $300.0 million.

Derivatives Not Designated as Hedging Instruments

Interest Rate Swap Contracts – From time to time, the Company enters into interest rate swap agreements with certain borrowers to assist them in mitigating their interest rate risk exposure associated with the loans they have with the Company. At the same time, the Company enters into identical 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 ~~March 31,~~September 30, 2021, the Company had over-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms with an aggregate notional amount of ~~$143.6~~$135.6 million and a fair value of ~~$5.3~~$5.8 million compared with an aggregate notional amount of $145.2 million and a fair value of $12.1 million at December 31, 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~~interest rates, prices of Eurodollar 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 consolidated 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 ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 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 ~~March 31,~~September 30, 2021 and December 31, 2020 are free-standing derivatives and are not designated as hedging instruments.

Other Contracts – 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 instruments 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.

Equity Warrant Assets – The Company acquired 2 individual equity warrant assets as a result of the acquisition of ~~the~~ Opus. Opus received equity warrant assets through its lending activities, which were accounted for as loan origination fees. The warrants provide the Bank the right to purchase a specific number of equity shares of the 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 $1.9 million in other assets as of September 30, 2021 and December 31, 2020. The two warrants expire on March ~~31, 2021.~~

12, 2023 and July 28, 2025, respectively.

6975

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


		March 31, 2021									September 30, 2021
		Derivative Assets				Derivative Liabilities					Derivative Assets				Derivative Liabilities
(Dollars in thousands)										(Dollars in thousands)	Notional		Fair Value		Notional		Fair Value
Derivative instruments designated as hedging instruments:										Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts										Fair value hedge - interest rate swap contracts	$	300,000	$	932	$	—	$	—
		Notional		Fair Value		Notional		Fair Value
		(Dollars in thousands)
Total derivative designated as hedging instruments										Total derivative designated as hedging instruments	300,000		932		—		—
Derivative instruments not designated as hedging instruments:	Derivative instruments not designated as hedging instruments:									Derivative instruments not designated as hedging instruments:
Interest rate swaps contracts	Interest rate swaps contracts	$	143,577	$	5,326	$	143,577	$	5,332	Interest rate swaps contracts	135,580		5,815		135,580		5,819
Equity warrants	Equity warrants	0		1,911		0		0		Equity warrants	—		1,895		—		—
Total derivative instruments		$	143,577	$	7,237	$	143,577	$	5,332
Total derivative not designated as hedging instruments										Total derivative not designated as hedging instruments	$	135,580	$	7,710	$	135,580	$	5,819
Total derivatives										Total derivatives	435,580		8,642		135,580		5,819

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


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

The following table presents the effect of fair value hedge accounting on the consolidated statements of income:

Three Months Ended

(Dollars in thousands)

Location of Gain (Loss) Recognized in Income on Derivative Instruments

September 30, 2021

Gain (loss) on fair value hedging relationships:

Hedged items

Interest Income

(1,027)

Derivatives designated as hedging instruments

Interest Income

932

The following table summarizes the effect of the ~~derivative financial~~derivatives not designated as hedging instruments in the consolidated statements of income.


			Three Months Ended
Derivative Not Designated as Hedging Instruments:		Location of Gain (Loss) Recognized in Income on Derivative Instruments	March 31, 2021		March 31, 2020
			(Dollars in thousands)
(Dollars in thousands)							(Dollars in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives Not Designated as Hedging Instruments:							Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivative Instruments	2021		2020		2021		2020
Interest rate products	Interest rate products	Other income	$	7	$	0	Interest rate products	Other income	$	1	$	—	$	9	$	—
Other contracts	Other contracts	Other income	0		198		Other contracts	Other income	—		218		—		415
Equity warrants	Equity warrants	Other income	(3)		0		Equity warrants	Other income	(8)		(31)		(19)		(35)
Total	Total		$	4	$	198	Total		$	(7)	$	187	$	(10)	$	380

7076

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)
March 31, 2021
(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
September 30, 2021														September 30, 2021
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	5,326	$	0	$	5,326	$	0	$	0	$	5,326	Interest rate swaps	$	6,747	$	—	$	6,747	$	—	$	—	$	6,747
Total	Total	$	5,326	$	0	$	5,326	$	0	$	0	$	5,326	Total	$	6,747	$	—	$	6,747	$	—	$	—	$	6,747

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	5,332	$	0	$	5,332	$	0	$	(5,332)	$	0	Interest rate swaps	$	5,819	$	—	$	5,819	$	(4,593)	$	(1,226)	$	—
Total	Total	$	5,332	$	0	$	5,332	$	0	$	(5,332)	$	0	Total	$	5,819	$	—	$	5,819	$	(4,593)	$	(1,226)	$	—


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

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	12,066	$	0	$	12,066	$	(6,140)	$	(5,926)	$	0	Interest rate swaps	$	12,066	$	—	$	12,066	$	(6,140)	$	(5,926)	$	—
Total	Total	$	12,066	$	0	$	12,066	$	(6,140)	$	(5,926)	$	0	Total	$	12,066	$	—	$	12,066	$	(6,140)	$	(5,926)	$	—

(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.

7177

Note 14 – Leases

The Company accounts for its leases in accordance with ASC 842 ~~and~~which 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 statements of financial condition. At ~~March 31,~~September 30, 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 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						Three Months Ended						Nine Months Ended
		March 31, 2021		December 31, 2020		March 31, 2020
		(Dollars in thousands)
(Dollars in thousands)									(Dollars in thousands)	September 30, 2021		June 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Operating lease	Operating lease	$	5,012	$	5,375	3,164			Operating lease	$	4,826	$	4,887	5,618		$	14,725	$	12,690
Short-term lease	Short-term lease	507		607		527			Short-term lease	433		323		495		1,263		1,425
Total lease expense	Total lease expense	$	5,519	$	5,982	$	3,691		Total lease expense	$	5,259	$	5,210	$	6,113	$	15,988	$	14,115

The Company assumed operating leases in the acquisition of Opus on June 1, 2020. The liabilities and related right-of-use assets recorded for the assumption of these leases was approximately $43.3 million and $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.

7278

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

March 31, 2021

December 31, 2020

(Dollars in thousands)

September 30, 2021

December 31, 2020

Balance Sheet:

Operating lease right of use assets

70,417

76,090

Operating lease right of use assets

67,586

76,090

Operating lease liabilities

79,441

85,556

Operating lease liabilities

76,592

85,556

Three Months Ended

Nine Months Ended

March 31, 2021

March 31, 2020

(Dollars in thousands)

September 30, 2021

September 30, 2020

Cash Flows:

Operating cash flows from operating leases

2,000

2,257

Operating cash outflow from operating leases

15,512

10,946

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:


		2021		2022		2023		2024		2025		Thereafter		Total
		(Dollars in thousands)
As of March 31, 2021
(Dollars in thousands)																	(Dollars in thousands)	2021		2022		2023		2024		2025		Thereafter		Total
As of September 30, 2021																	As of September 30, 2021

Operating leases	Operating leases	$	14,778	$	18,682	$	18,051	$	16,076	$	11,014	$	13,039	$	91,640		Operating leases	$	5,103	$	20,058	$	19,463	$	17,454	$	12,171	$	15,855	$	90,104
Short-term leases	Short-term leases	180		7		0		0		0		0		187			Short-term leases	130		24		—		—		—		—		154
Total contractual base rents (1)	Total contractual base rents (1)	$	14,958	$	18,689	$	18,051	$	16,076	$	11,014	$	13,039	$	91,827		Total contractual base rents (1)	$	5,233	$	20,082	$	19,463	$	17,454	$	12,171	$	15,855	$	90,258

Total liability to make lease payments	Total liability to make lease payments													$	79,441		Total liability to make lease payments													$	76,592
Difference in undiscounted and discounted future lease payments	Difference in undiscounted and discounted future lease payments													$	12,386		Difference in undiscounted and discounted future lease payments													$	13,666
Weighted average discount rate	Weighted average discount rate													5.70		%	Weighted average discount rate													5.23		%
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)													5.3			Weighted average remaining lease term (years)													5.1

(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 months ended ~~March 31,~~September 30, 2021, ~~December 31, 2020,~~June 30, 2021, and ~~March 31,~~September 30, 2020, rental income totaled ~~$175,000, $178,000,~~$176,000, $177,000, and ~~$25,000,~~$265,000, respectively. For the nine months ended September 30, 2021 and September 30, 2020, rental income totaled $528,000 and $356,000, respectively.

Note 15 – Revenue Recognition

The Company accounts for revenue from contracts with 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 within and outside the scope of ASC 606 for the periods indicated:


		Three Months Ended													Three Months Ended
		March 31, 2021				December 31, 2020				March 31, 2020					September 30, 2021				June 30, 2021				September 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:
(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	$	—	$	458	$	—	$	633	$	—	$	480	Loan servicing income	$	—	$	536	$	—	$	622	$	—	$	481
Service charges on deposit accounts	Service charges on deposit accounts	2,032		—		2,005		—		1,715		—		Service charges on deposit accounts	2,375		—		2,222		—		1,593		—
Other service fee income	Other service fee income	473		—		459		—		311		—		Other service fee income	350		—		352		—		487		—
Debit card interchange income	Debit card interchange income	787		—		777		—		348		—		Debit card interchange income	834		—		1,099		—		944		—
Earnings on bank-owned life insurance	Earnings on bank-owned life insurance	—		2,233		—		2,240		—		1,336		Earnings on bank-owned life insurance	—		3,266		—		2,279		—		2,270
Net gain from sales of loans		—		361		—		328		—		771
Net gain from sales of investment securities		—		4,046		—		5,002		—		7,760
Net gain (loss) from sales of loans														Net gain (loss) from sales of loans	—		1,187		—		1,546		—		9,542
Net gain (loss) from sales of investment securities														Net gain (loss) from sales of investment securities	—		4,190		—		5,085		—		1,141
Trust custodial account fees	Trust custodial account fees	7,222		—		7,296		—		0		—		Trust custodial account fees	11,446		—		7,897		—		6,960		—
Escrow and exchange fees	Escrow and exchange fees	1,526		—		1,257		—		0		—		Escrow and exchange fees	1,867		—		1,672		—		1,142		—
Other income	Other income	282		4,320		199		2,998		217		1,537		Other income	(14)		4,063		97		3,858		91		2,107
Total noninterest income	Total noninterest income	$	12,322	$	11,418	$	11,993	$	11,201	$	2,591	$	11,884	Total noninterest income	$	16,858	$	13,242	$	13,339	$	13,390	$	11,217	$	15,541

(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 GAAP requirements.



	Nine Months Ended
	September 30, 2021				September 30, 2020
(Dollars in thousands)	Within Scope(1)		Out of Scope(2)		Within Scope(1)		Out of Scope(2)
Noninterest income
Loan servicing income	$	—	$	1,616	$	—	$	1,395
Service charges on deposit accounts	6,629		—		4,707		—
Other service fee income	1,175		—		1,095		—
Debit card interchange income	2,720		—		1,749		—
Earnings on bank-owned life insurance	—		7,778		—		4,920
Net gain (loss) from sales of loans	—		3,094		—		8,281
Net gain from sales of investment securities	—		13,321		—		8,880
Trust custodial account fees	26,565		—		9,357		—
Escrow and exchange fees	5,065		—		1,407		—
Other income	365		12,241		227		6,113
Total noninterest income	$	42,519	$	38,050	$	18,542	$	29,589

(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 GAAP requirements.

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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 Custodial Account Fees

Custodial account fees is a revenue stream acquired in the Opus acquisition and is governed by contracts executed with Pacific Premier Trust clients, largely to perform maintenance and custodial services over their alternative IRA ~~investments.~~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 the completion of the performance obligations required under the contracts. At ~~March 31,~~September 30, 2021, the Company had accrued fees receivable of approximately ~~$5.9~~$10.4 million, which are included in other assets in the consolidated statements of financial position.

~~Certain~~ The balance of ~~these~~accrued fees ~~are collected annually from~~receivable is net of approximately $988,000 of allowance for credit losses on doubtful accounts. The allowance represents the ~~customer~~Company’s estimate of credit losses on accrued fees receivable in ~~advance~~accordance in ASC 326. The Company recorded approximately $281,000 and $411,000 in credit loss expense associated with accrued fees receivable for the three and nine month periods ended September 30, 2021, respectively. The credit loss expense for the three and nine month periods ended September 30, 2020, was $12,000 and $76,000, respectively. Credit loss expense for fees receivable is included in other expense of the ~~related performance obligation in accordance with the associated account agreement. Such fees are recorded as deferred revenue at the time~~Company’s consolidated statements of collection and recognized as revenue over the service period as services are performed and the performance obligations on behalf of the Company have been satisfied. At March 31, 2021, the balance of deferred revenue associated with these fees was $2.4 million.income (loss).

Escrow and ~~exchange fees~~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.

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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.

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.

Note 16 – Variable Interest Entities

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

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


		March 31, 2021						December 31, 2020							September 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)	$	98,863	$	98,863	$	—	$	100,927	$	100,927	$	—	Investment securities (1)	$	90,575	$	90,575	$	—	$	100,927	$	100,927	$	—
Reimbursement obligation (2)	Reimbursement obligation (2)	50,901		—		448		50,901		—		448		Reimbursement obligation (2)	50,901		—		448		50,901		—		448
Affordable housing partnership:	Affordable housing partnership:													Affordable housing partnership:
Other investments (3)	Other investments (3)	71,637		86,448		—		71,681		89,759		—		Other investments (3)	70,606		90,010		—		71,681		89,759		—
Unfunded equity commitments (2)	Unfunded equity commitments (2)	0		—		14,811		0		—		18,078		Unfunded equity commitments (2)	—		—		19,404		—		—		18,078

Total	Total	$	221,401	$	185,311	$	15,259	$	223,509	$	190,686	$	18,526	Total	$	212,082	$	180,585	$	19,852	$	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.

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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 ~~March 31,~~September 30, 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. 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 ~~March 31,~~September 30, 2021 and December 31, 2020, our reserve for estimated losses with respect to the reimbursement obligation was $448,000.

Investments in qualified affordable housing 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 ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

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Trust preferred securities

The Company ~~accounts~~accounted 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~~were 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 iswas 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~~were 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~~debt, and ~~unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The capital securities held by the capital trust qualify~~qualified as Tier 2 capital. In July 2021, the Company redeemed $5.2 million junior subordinated debt securities associated with Heritage Oaks Capital Trust II and $5.2 million junior subordinated debt securities associated with Santa Lucia Bancorp (CA) Capital Trust. Subsequent to the redemptions, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust were dissolved. See Note 9 - Subordinated Debentures for additional information.

Note 17 – Subsequent Events

Quarterly ~~Cash Dividend~~cash dividend

On ~~April 23,~~October 19, 2021, the Corporation’s Board of Directors declared a cash dividend of $0.33 per share, payable on ~~May 14,~~November 12, 2021 to shareholders of record on ~~May 7,~~November 1, 2021.

~~Redemption of Subordinated Notes~~Branch consolidations

On ~~April 15,~~November 5, 2021, the Bank consolidated 2 branch offices, one in San Diego County and the other in Los Angeles County, both in California, into nearby branch offices with minimal disruption to clients and daily operations. The consolidated branches 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. After the branch consolidations, the Bank operates 61 branches in 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 October 1, 2021, the Company ~~redeemed all three subordinated notes totaling $25.0~~transferred approximately $165.5 million ~~that~~of municipal bonds from available-for-sale to held-to-maturity securities at fair value. These securities had an unrealized loss of $3.4 million at the ~~Company assumed~~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 over the remaining term of the securities. The amortization of the unrealized loss reported in accumulated other comprehensive income will offset the effect on interest income of the amortization of the discount. No gains or losses were recorded at the time of transfer.

Fair value hedge

On November 1, 2021, as part of ~~the acquisition of Plaza Bancorp, Inc. in 2017. Prior to redemption, the subordinated notes carried a fixed~~its interest rate sensitivity management, the Company entered into pay-fixed and receive-floating interest rate swaps with an aggregate notional amount of ~~7.125% and were scheduled~~$300.0 million of certain fixed rate loans to ~~mature~~manage its exposure to changes in fair value on ~~June 26, 2025. The subordinated notes securities were called at 103%~~these instruments attributable to changes in the designated benchmark interest rate. These interest rate swaps are designated as fair value hedges. Under the swap agreement, the Company receives variable-rate interest payments based on USD-SOFR-COMPOUND in exchange for making fixed-rate payments over the lives of the ~~principal amount of~~contracts without exchanging the notes, plus accrued and unpaid interest, for an aggregate amount of $25.8 million. The Company recorded a loss on early debt extinguishment of $647,000 after considering $103,000 fair value mark related to purchase accounting adjustments.

notional amounts.

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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 continuing to adversely affect 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 ~~unemployment rates,~~COVID-19 infections, the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets, which could adversely affect our revenues 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 United States economy in general and the strength of the local economies in which we conduct operations;

•The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

•Inflation/deflation, interest rate, market, and monetary fluctuations;

•The effect of changes in accounting policies and practices or accounting standards, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, FASB, or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which has changed how we estimate credit losses and has increased the required level of our allowance for credit losses since adoption on January 1, 2020;

•The effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;

•The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

•The impact of changes in financial services policies, laws and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies;

•The ~~expected discontinuation of~~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;

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

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

•The impact of current and possible future governmental efforts to restructure the U.S. financial regulatory 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; 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 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.

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GENERAL

This discussion should be read in conjunction with our Management Discussion and Analysis of Financial Condition and Results of Operations included in our 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 nine months ended ~~March 31,~~September 30, 2021 are not necessarily indicative of the results expected for the year ending December 31, 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 Financial Protection and Innovation (“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 DFPI, the Federal Reserve, ~~and~~ the Consumer Financial Protection 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 ~~March 31,~~September 30, 2021, we primarily conduct business throughout the Western Region of the United States from 6563 full-service depository branches located in Arizona, California, Nevada, Oregon, and Washington. Following the two branch consolidations in San Diego County and Los Angeles County of California in early November 2021, the Bank operates 61 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.

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As a result of our organic and strategic growth strategy we have developed a variety of banking products and services within our targeted markets in the Western United States tailored to small- and middle-market businesses, corporations, including the owners and employees of those businesses, professionals, entrepreneurs, real estate investors, and non-profit organizations, as well as consumers in the communities we serve. 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, 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 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”) and HOA management companies, as well as experienced owner-operator franchisees in the quick service restaurant (“QSR”) industry. Most recently, we have expanded our specialty ~~product~~products and ~~service~~services offerings to include commercial escrow services through our Commerce Escrow division, which facilitates commercial escrow services and tax-deferred commercial real estate exchanges under Section 1031 of the Internal Revenue Code, as well as ~~individual retirement account (“IRA”)~~ custodial and maintenance services through our Pacific Premier Trust division, which serves as a custodian for self-directed ~~IRAs.~~IRAs as well as certain accounts that do not qualify as IRAs pursuant to the Internal Revenue Code.

The Bank funds 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 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 we 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~~headquarters, administrative 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.~~barriers. 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. 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.

The Company continued its efforts to monitor the loan portfolio to identify potential at-risk segments and line of credit draws for deviations from normal activity, ~~increase the reserves 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 (“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 executed PPP loans in the two rounds of the program, which allowed us to further strengthen and deepen our client relationships, while positively impacting tens of thousands of individuals. In July 2020, the Bank sold its entire 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, resulting in improved balance sheet liquidity and a gain on sale of approximately $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.~~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. The 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. ~~As of March 31,~~At September 30, 2021, there were no loans ~~remaining in their active~~classified as a COVID-19 modification ~~period. At March 31, 2021, there were no loans remaining within their modification period due to COVID-19 hardship~~ under Section 4013 of the CARES ~~Act. Additionally, as of March 31, 2021, there were~~Act and no loans in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for investment, remained within their COVID-19 ~~hardship~~ modification period. ~~No loans were in-process for potential modification as of December 31, 2020.~~ 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 program. As part of the SBA Small Business Debt Relief program, 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 ~~March 31,~~September 30, 2021, approximately ~~501~~13 loans, representing approximately ~~$138.6~~$9.4 million aggregate 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, ~~progress on vaccinations,~~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.

~~The preventative measures taken by various state and local governments, as well as the U.S. government, to stem the spread and impact of~~While economic conditions have improved, the ongoing 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~~manner. Should the ~~magnitude of the impact from the on-going~~ COVID-19 pandemic ~~and the related preventative measures taken is uncertain and difficult to predict,~~persist, we anticipate ~~the on-going COVID-19 pandemic to~~it may have an impact on the following:

•Loan growth and interest income - Economic activity expanded moderately during the first ~~quarter~~nine months of 2021, but ~~the~~ macroeconomic conditions have not yet fully recovered to the levels observed prior to the onset of the COVID-19 pandemic in the first quarter of 2020. If a recovery in economic conditions fails to continue, ~~to exhibit weakness, which will likely~~it may have an impact on our borrowers, the businesses they operate, and their financial condition. ~~If we experience a protracted decline in economic activity, our~~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. Further, the Federal Reserve’s Federal Open Market Committee continues to maintain the federal funds rate within a range of 0% to 0.25%. ~~The~~Lower levels of interest rates in conjunction with the potential ~~for a~~ reduction in future loan growth ~~in conjunction with lower levels of interest rates will~~would place pressure on the level of and yield on ~~earnings~~interest-earning assets, which may negatively impact our interest income.

•Credit quality - ~~Increases in~~Elevated levels of 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. While ~~certain~~there has been a recovery in economic ~~metrics have improved~~conditions since the onset of the COVID-19 pandemic in the first quarter of 2020, there can be no assurance the ~~improvement in economic conditions~~recovery will continue. As such, future deterioration in credit quality ~~in conjunction with 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 management judgment. Should the 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 under the CECL model.

•Impairment charges - ~~Prolonged deterioration~~Should the 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 ~~on-going~~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 ~~on-going~~ongoing COVID-19 pandemic. However, the impact and overall effectiveness of these actions is difficult to determine at this time.

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ACQUISITION OF OPUS

Effective as of June 1, 2020, the Corporation completed the acquisition of Opus, ~~Bank (“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.

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 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 ~~$657.7~~$656.6 million. The ~~estimated~~final fair value of assets acquired and liabilities assumed primarily consist of the ~~followings:~~following:

•$5.81 billion of loans

•$937.1 million of cash and cash equivalents

•$829.9 million of investment securities

•$~~91.9~~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. Since the acquisition, the Company has made a net adjustment of $146,000 related to loans, deferred tax assets, other assets, and other liabilities. During the second quarter of 2021, the Company finalized its fair values analysis of the acquired assets and assumed liabilities associated with this acquisition. For additional information about the acquisition of Opus, please see Note 4 - Acquisitions.

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 ~~twenty (20)~~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. Following the branch consolidations, the Bank operates 65 branches in major metropolitan markets in California, Washington, Oregon, Arizona, and Nevada. For additional information about the acquisition of Opus, please see ~~Note 4 - Acquisitions.~~

CRITICAL ACCOUNTING POLICIES

Management has established various accounting policies that govern the application of 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;~~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 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 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 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.

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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, 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 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.

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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 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 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 discounts or premiums. Discounts and premiums are accreted or amortized 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 of the Company’s ACL methodology in the same manner as all other loans.~~

Fair Value of Financial Instruments

We use fair value 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 financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, we may be 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 application of 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 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 ~~estimate~~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 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.

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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 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
March 31, December 31, March 31,
2021 2020 2020
(Dollars in thousands)
Net income $ 68,668 $ 67,136 $ 25,740
Plus: amortization of intangible assets expense 4,143 4,505 3,965
Less: amortization of intangible assets expense tax adjustment (1)
1,185 1,288 1,137
Net income for average tangible common equity $ 71,626 $ 70,353 $ 28,568
Average stockholders’ equity $ 2,749,641 $ 2,710,509 $ 2,037,126
Less: average intangible assets 83,946 88,216 81,744
Less: average goodwill 898,587 898,436 808,322
Average tangible common equity $ 1,767,108 $ 1,723,857 $ 1,147,060
Return on average equity (2)
9.99 % 9.91 % 5.05 %
Return on average tangible common equity (2)
16.21 % 16.32 % 9.96 %


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net income (loss)	$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Plus: amortization of intangible assets expense	3,912			4,001			4,538			12,056			12,567
Less: amortization of intangible assets expense tax adjustment (1)	1,119			1,145			1,301			3,449			3,605
Net income for average tangible common equity	$	92,881		$	99,158		$	69,803		$	263,665		$	2,177

Average stockholders’ equity	$	2,844,800		$	2,747,308		$	2,689,867		$	2,780,932		$	2,321,138
Less: average intangible assets	75,795			79,784			92,768			79,812			86,244
Less: average goodwill	901,312			900,582			898,430			900,170			848,675
Average tangible common equity	$	1,867,693		$	1,766,942		$	1,698,669		$	1,800,950		$	1,386,219

Return on average equity (2)	12.67		%	14.02		%	9.90		%	12.23		%	(0.39)		%
Return on average tangible common equity (2)	19.89		%	22.45		%	16.44		%	19.52		%	0.21		%

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

(2) Ratio is annualized.

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Tangible book value per share and tangible common equity to tangible assets (the “tangible common equity ratio”) are non-GAAP financial measures 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.


		March 31,			December 31,				September 30,			December 31,
		2021			2020
		(Dollars in thousands)
(Dollars in thousands)								(Dollars in thousands)	2021			2020
Total stockholders’ equity	Total stockholders’ equity	$	2,703,098		$	2,746,649		Total stockholders’ equity	$	2,838,116		$	2,746,649
Less: intangible assets	Less: intangible assets	981,568			984,076			Less: intangible assets	974,763			984,076
Tangible common equity	Tangible common equity	$	1,721,530		$	1,762,573		Tangible common equity	$	1,863,353		$	1,762,573

Total assets								Total assets	$	21,005,211		$	19,736,544
Less: intangible assets								Less: intangible assets	974,763			984,076
Tangible assets								Tangible assets	$	20,030,448		$	18,752,468

Tangible common equity ratio								Tangible common equity ratio	9.30		%	9.40		%

Common shares issued and outstanding	Common shares issued and outstanding	94,644,415			94,483,136			Common shares issued and outstanding	94,354,211			94,483,136

Book value per share	Book value per share	$	28.56		$	29.07		Book value per share	$	30.08		$	29.07
Less: intangible book value per share	Less: intangible book value per share	10.37			10.42			Less: intangible book value per share	10.33			10.42
Tangible book value per share	Tangible book value per share	$	18.19		$	18.65		Tangible book value per share	$	19.75		$	18.65

Total assets		$	20,173,298		$	19,736,544
Less: intangible assets		981,568			984,076
Tangible assets		$	19,191,730		$	18,752,468

Tangible common equity ratio		8.97		%	9.40		%

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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
March 31, December 31, March 31,
2021 2020 2020
(Dollars in thousands)
Total noninterest expense $ 92,489 $ 99,939 $ 66,631
Less: amortization of intangible assets 4,143 4,505 3,965
Less: merger-related expense 5 5,071 1,724
Less: other real estate owned operations, net — (5) 14
Noninterest expense, adjusted $ 88,341 $ 90,368 $ 60,928
Net interest income before provision for loan losses $ 161,652 $ 168,198 $ 109,175
Add: total noninterest income 23,740 23,194 14,475
Less: net gain from investment securities 4,046 5,002 7,760
Less: other income - security recoveries 2 1 —
Less: net gain (loss) from other real estate owned — (70) —
Less: net gain (loss) from debt extinguishment (503) — —
Revenue, adjusted $ 181,847 $ 186,459 $ 115,890
Efficiency ratio 48.6 % 48.5 % 52.6 %
`


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Total noninterest expense	$	96,040		$	94,496		$	98,579		$	283,025		$	281,180
Less: amortization of intangible assets	3,912			4,001			4,538			12,056			12,567
Less: merger-related expense	—			—			2,988			5			44,058
Less: other real estate owned operations, net	—			—			(17)			—			6
Noninterest expense, adjusted	$	92,128		$	90,495		$	91,070		$	270,964		$	224,549

Net interest income before provision for loan losses	$	169,069		$	160,934		$	166,546		$	491,655		$	406,013
Add: total noninterest income	30,100			26,729			26,758			80,569			48,131
Less: net gain from investment securities	4,190			5,085			1,141			13,321			8,880
Less: other income - security recoveries	1			6			1			9			1
Less: net gain (loss) from other real estate owned	—			—			13			—			(42)
Less: net gain (loss) from debt extinguishment	970			(647)			—			(180)			—

Revenue, adjusted	$	194,008		$	183,219		$	192,149		$	559,074		$	445,305

Efficiency ratio	47.5		%	49.4		%	47.4		%	48.5		%	50.4		%

9398

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
March 31, December 31, March 31,
2021 2020 2020
(Dollars in thousands)
Net interest income $ 161,652 $ 168,198 $ 109,175
Less: scheduled accretion income 3,878 4,911 1,793
Less: accelerated accretion income 5,988 6,120 2,312
Less: premium amortization on CDs 1,751 2,358 63
Less: nonrecurring nonaccrual interest paid (603) 322 —
Core net interest income $ 150,638 $ 154,487 $ 105,007
Average interest-earning assets $ 18,490,426 $ 18,519,437 $ 10,363,570
Net interest margin (1)
3.55 % 3.61 % 4.24 %
Core net interest margin (1)
3.30 % 3.32 % 4.08 %


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net interest income	$	169,069		$	160,934		$	166,546		$	491,655		$	406,013
Less: scheduled accretion income	3,339			3,560			6,858			10,777			12,152
Less: accelerated accretion income	6,107			5,927			5,338			18,022			9,997
Less: premium amortization on CDs	390			942			2,968			3,083			4,085
Less: nonrecurring nonaccrual interest paid	(74)			(216)			(275)			(893)			(417)
Core net interest income	$	159,307		$	150,721		$	151,657		$	460,666		$	380,196
Less: interest income on SBA PPP loans	—			—			838			—			6,220
Core net interest income excluding SBA PPP loans	$	159,307		$	150,721		$	150,819		$	460,666		$	373,976

Average interest-earning assets	$	19,131,172		$	18,783,803		$	18,707,605		$	18,804,146		$	14,317,164
Less: average SBA PPP loans	—			—			329,396			—			386,287
Average interest-earning assets excluding SBA PPP loans	$	19,131,172		$	18,783,803		$	18,378,209		$	18,804,146		$	13,930,877

Net interest margin (1)	3.51		%	3.44		%	3.54		%	3.50		%	3.79		%
Core net interest margin (1)	3.30		%	3.22		%	3.23		%	3.28		%	3.55		%
Core net interest margin excluding SBA PPP loans (1)	3.30		%	3.22		%	3.26		%	3.28		%	3.59		%

(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 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									Three Months Ended								Nine Months Ended
		March 31,			December 31,			March 31,					September 30,			June 30,			September 30,			September 30,			September 30,
		2021			2020			2020
		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	2021			2021			2020			2021			2020
Interest income	Interest income	$	172,994		$	180,824		$	123,789			Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902
Interest expense	Interest expense	11,342			12,626			14,614				Interest expense	6,978			9,758			15,445			28,078			43,889
Net interest income	Net interest income	161,652			168,198			109,175				Net interest income	169,069			160,934			166,546			491,655			406,013
Noninterest income	Noninterest income	23,740			23,194			14,475				Noninterest income	30,100			26,729			26,758			80,569			48,131
Revenue	Revenue	185,392			191,392			123,650				Revenue	199,169			187,663			193,304			572,224			454,144
Noninterest expense	Noninterest expense	92,489			99,939			66,631				Noninterest expense	96,040			94,496			98,579			283,025			281,180
Add: merger-related expense	Add: merger-related expense	5			5,071			1,724				Add: merger-related expense	—			—			2,988			5			44,058
Pre-provision net revenue	Pre-provision net revenue	92,908			96,524			58,743				Pre-provision net revenue	103,129			93,167			97,713			289,204			217,022
Pre-provision net revenue (annualized)	Pre-provision net revenue (annualized)	$	371,632		$	386,096		$	234,972			Pre-provision net revenue (annualized)	$	412,516		$	372,668		$	390,852		$	385,605		$	289,363

Average assets	Average assets	$	19,994,260		$	20,059,893		$	11,591,336			Average assets	$	20,804,903		$	20,290,415		$	20,366,761		$	20,366,162		$	15,728,468

Pre-provision net revenue on average assets	Pre-provision net revenue on average assets	0.46		%	0.48		%	0.51		%		Pre-provision net revenue on average assets	0.50		%	0.46		%	0.48		%	1.42		%	1.38		%
Pre-provision net revenue on average assets (annualized)	Pre-provision net revenue on average assets (annualized)	1.86		%	1.92		%	2.03		%		Pre-provision net revenue on average assets (annualized)	1.98		%	1.84		%	1.92		%	1.89		%	1.84		%

94100

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									Three Months Ended								Nine Months Ended
		March 31,			December 31,			March 31,
		2021			2020			2020
		(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	September 30,			June 30,			September 30,			September 30,			September 30,
percentages)												percentages)	2021			2021			2020			2021			2020
Operating data												Operating data
Interest income	Interest income	$	172,994		$	180,824		$	123,789			Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902
Interest expense	Interest expense	11,342			12,626			14,614				Interest expense	6,978			9,758			15,445			28,078			43,889
Net interest income	Net interest income	161,652			168,198			109,175				Net interest income	169,069			160,934			166,546			491,655			406,013
Provision for credit losses	Provision for credit losses	1,974			1,517			25,454				Provision for credit losses	(19,726)			(38,476)			4,210			(56,228)			190,299
Net interest income after provision for credit losses	Net interest income after provision for credit losses	159,678			166,681			83,721				Net interest income after provision for credit losses	188,795			199,410			162,336			547,883			215,714
Net gains from loan sales		361			328			771
Net gain from sales of loans												Net gain from sales of loans	1,187			1,546			9,542			3,094			8,281
Other noninterest income	Other noninterest income	23,379			22,866			13,704				Other noninterest income	28,913			25,183			17,216			77,475			39,850
Noninterest expense	Noninterest expense	92,489			99,939			66,631				Noninterest expense	96,040			94,496			98,579			283,025			281,180
Net income before income taxes		90,929			89,936			31,565
Income tax expense		22,261			22,800			5,825
Net income		$	68,668		$	67,136		$	25,740
Net income (loss) before income taxes												Net income (loss) before income taxes	122,855			131,643			90,515			345,427			(17,335)
Income tax expense (benefit)												Income tax expense (benefit)	32,767			35,341			23,949			90,369			(10,550)
Net income (loss)												Net income (loss)	$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Pre-provision net revenue (3)	Pre-provision net revenue (3)	$	92,908		$	96,524		$	58,743			Pre-provision net revenue (3)	$	103,129		$	93,167		$	97,713		$	289,204		$	217,022
Share Data
Earnings per share:
Share data												Share data
Earnings (loss) per share:												Earnings (loss) per share:
Basic	Basic	$	0.73		$	0.71		$	0.43			Basic	$	0.95		$	1.02		$	0.71		$	2.70		$	(0.10)
Diluted	Diluted	0.72			0.71			0.43				Diluted	0.95			1.01			0.70			2.68			(0.10)
Common equity dividends declared per share	Common equity dividends declared per share	0.30			0.28			0.25				Common equity dividends declared per share	0.33			0.33			0.25			0.96			0.75
Dividend payout ratio (1)	Dividend payout ratio (1)	41.26		%	39.39		%	57.83		%		Dividend payout ratio (1)	34.63		%	32.43		%	35.45		%	35.59		%	(759.20)		%
Performance Ratios
Performance ratios												Performance ratios
Return on average assets (2)	Return on average assets (2)	1.37		%	1.34		%	0.89		%		Return on average assets (2)	1.73		%	1.90		%	1.31		%	1.67		%	(0.06)		%
Return on average equity (2)	Return on average equity (2)	9.99			9.91			5.05				Return on average equity (2)	12.67			14.02			9.90			12.23			(0.39)
Return on average tangible common equity (2)(3)	Return on average tangible common equity (2)(3)	16.21			16.32			9.96				Return on average tangible common equity (2)(3)	19.89			22.45			16.44			19.52			0.21

Pre-provision net revenue on average assets (2)(3)	Pre-provision net revenue on average assets (2)(3)	1.86			1.92			2.03				Pre-provision net revenue on average assets (2)(3)	1.98			1.84			1.92			1.89			1.84
Average equity to average assets	Average equity to average assets	13.75			13.51			17.57				Average equity to average assets	13.67			13.54			13.21			13.65			14.76
Efficiency ratio (3)	Efficiency ratio (3)	48.6			48.5			52.6				Efficiency ratio (3)	47.5			49.4			47.4			48.5			50.4

(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 ~~of return on average tangible common equity, pre-provision net revenue, pre-provision net revenue on average assets, and efficiency ratio~~ 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.

95101

In the ~~first~~third quarter of 2021, we reported net income of ~~$68.7~~$90.1 million, or ~~$0.72~~$0.95 per diluted share. This compares with net income of ~~$67.1~~$96.3 million, or ~~$0.71~~$1.01 per diluted share, for the ~~fourth~~second quarter of ~~2020.~~2021. The decrease in net income was primarily due to $18.8 million lower recapture of provision for credit losses and an increase of $1.5 million in noninterest expense, partially offset by an increase of $8.1 million in net interest income, a $3.4 million increase in noninterest income, and a decrease of $2.6 million in income tax expense. The provision recaptures during the second and third quarters of 2021 were reflective of improving economic forecasts used in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment.

Net income of $90.1 million, or $0.95 per diluted share, for the third quarter of 2021 compares to a net income for the third quarter of 2020 of $66.6 million, or $0.70 per diluted share. The increase in net income was primarily due to a $23.9 million decrease ~~of $7.5~~in provision for credit losses, a $3.3 million increase in noninterest ~~expense, driven by~~income, a $3.0 million decrease ~~of $5.1 million~~ in merger-related ~~costs,~~expense, and a $2.5 million increase in net interest income, partially offset by an increase of ~~$546,000 in noninterest income, and a decrease~~$8.8 million in income tax expense and a $449,000 increase in noninterest expense excluding merger-related expenses. The decrease in the provision for credit losses during the third quarter of ~~$539,000, partially offset by a decrease~~2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the favorable asset quality profile of ~~$6.5 million in net interest income.~~the loan portfolio.

~~Net~~For the three months ended September 30, 2021, the Company’s return on average assets was 1.73%, return on average equity was 12.67%, and return on average tangible common equity was 19.89%. For the three months ended June 30, 2021, the return on average assets was 1.90%, the return on average equity was 14.02%, and the return on average tangible common equity was 22.45%. For the three months ended September 30, 2020, the return on average assets was 1.31%, the return on average equity was 9.90%, and the return on average tangible common equity was 16.44%.

For the nine months ended September 30, 2021, the Company recorded net income of ~~$68.7~~$255.1 million, or ~~$0.72~~$2.68 per diluted share. This compares with net loss of $6.8 million, or $(0.10) per diluted share, for the ~~first quarter of 2021 compares to net income for the first quarter of 2020 of $25.7 million, or $0.43 per diluted share.~~nine months ended September 30, 2020. The increase in net income of ~~$42.9~~$261.8 million was primarily due to a ~~$52.5 million increase in net interest income, a $23.5~~$246.5 million decrease in the provision for credit losses, an $85.6 million increase in net interest income, a $44.1 million decrease in merger-related expenses, and a ~~$9.3~~$32.4 million increase in noninterest income, partially offset by a ~~$25.9~~$100.9 million increase in income tax expense and a $45.9 million increase in noninterest expense excluding merger-related expenses. The decrease in the 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 ~~an $16.4~~unfavorable economic forecasts used in the Company’s CECL model driven by the COVID-19 pandemic, as well as the $38.5 million ~~increase~~and $19.7 million recapture of provision for credit losses during the second and third quarter of 2021, respectively, primarily due to improved economic forecasts used in ~~income tax expense.~~the Company’s CECL model relative to prior periods and the favorable 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 ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Company’s return on average assets was ~~1.37%~~1.67%, return on average equity was ~~9.99%~~12.23%, and return on average tangible common equity was ~~16.21%. For the three months ended December 31, 2020, the~~19.52%, compared with a return on average assets ~~was 1.34%~~of (0.06)%, ~~the~~ return on average equity ~~was 9.91%~~of (0.39)%, and ~~the~~a return on average tangible common equity ~~was 16.32%. For~~of 0.21% for the ~~three~~nine months ended ~~March 31, 2020, the return on average assets was 0.89%, the return on average equity was 5.05%, and the return on average tangible common equity was 9.96%.~~

September 30, 2020.

102

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~~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.

Net interest income totaled ~~$161.7~~$169.1 million in the ~~first~~third quarter of 2021, ~~a decrease~~an increase of ~~$6.5~~$8.1 million, or ~~3.9%~~5.1%, from the ~~fourth~~second quarter of ~~2020.~~2021. The ~~decrease~~increase in net interest income ~~reflected 2 less days~~was due to higher average interest-earning assets, higher loan fees, one more day of interest, ~~lower average loan balances~~ and ~~yields, and lower accretion income, partially offset by~~ a lower cost of funds ~~driven~~as compared to the prior quarter, partially offset by lower ~~rates paid on deposits~~average investment securities and ~~lower average balances of retail and brokered certificates of deposit.~~loan yields.

The net interest margin for the ~~first~~third quarter of 2021 was ~~3.55%~~3.51%, compared with ~~3.61%~~3.44% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income of $9.4 million, compared to $9.5 million in the prior quarter, certificates of deposit mark-to-market amortization, and other adjustments, ~~decreased 2~~increased eight basis points to 3.30%, compared to ~~3.32%~~3.22% in the prior ~~quarter. The decrease was driven~~quarter, reflecting lower cost of funds and higher loan fees, partially offset by lower average investment and loan yields and ~~the shift in our interest-earning assets mix, partially offset by a lower cost of deposits.~~fees.

Net interest income for the ~~first~~third quarter of 2021 increased ~~$52.5~~$2.5 million, or ~~48.1%~~1.5%, compared to the ~~first~~third quarter of 2020. The increase was attributable to a lower cost of funds, a $1.52 billion increase in average investment securities, and a $377.5 million decrease in average interest-bearing liabilities, which primarily resulted from the redemptions of subordinated debentures, partially offset by lower average interest-earning asset yields and lower average loan balances.

For the first nine months ended 2021, net interest income increased $85.6 million, or 21.1%, compared to the first nine months ended 2020. The increase was related to an increase in average interest-earning assets of ~~$8.13~~$4.49 billion, which resulted primarily ~~resulted~~ from ~~the~~our acquisition of Opus ~~in the second quarter of~~on June 1, 2020, ~~as well as a higher average investment securities balance~~ and a lower cost of funds, partially offset by lower average loan and investment yields and a higher average ~~balance of deposits.~~

interest-bearing liabilities.

96103

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
		March 31, 2021						December 31, 2020						March 31, 2020							September 30, 2021						June 30, 2021						September 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)																				(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets	Assets																			Assets
Interest-earning assets:	Interest-earning assets:																			Interest-earning assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,309,366	$	301	0.09	%	$	1,239,035	$	286	0.09	%	$	215,746	$	216	0.40	%	Cash and cash equivalents	$	663,076	$	195	0.12	%	$	1,323,186	$	315	0.10	%	$	1,388,897	$	305	0.09	%
Investment securities	Investment securities	4,087,451		17,468		1.71		3,964,592		17,039		1.72		1,502,572		10,308		2.74		Investment securities	4,807,854		18,827		1.57		4,243,644		18,012		1.70		3,283,840		14,231		1.73
Loans receivable, net (1)(2)	Loans receivable, net (1)(2)	13,093,609		155,225		4.81		13,315,810		163,499		4.88		8,645,252		113,265		5.27		Loans receivable, net (1)(2)	13,660,242		157,025		4.56		13,216,973		152,365		4.62		14,034,868		167,455		4.75
Total interest-earning assets	Total interest-earning assets	18,490,426		172,994		3.79		18,519,437		180,824		3.88		10,363,570		123,789		4.80		Total interest-earning assets	19,131,172		176,047		3.65		18,783,803		170,692		3.64		18,707,605		181,991		3.87
Noninterest-earning assets	Noninterest-earning assets	1,503,834						1,540,456						1,227,766						Noninterest-earning assets	1,673,731						1,506,612						1,659,156
Total assets	Total assets	$	19,994,260					$	20,059,893					$	11,591,336					Total assets	$	20,804,903					$	20,290,415					$	20,366,761
Liabilities and equity	Liabilities and equity																			Liabilities and equity
Interest-bearing deposits:	Interest-bearing deposits:																			Interest-bearing deposits:
Interest checking	Interest checking	$	3,060,055	$	419	0.06	%	$	2,971,983	$	652	0.09	%	$	576,203	$	609	0.43	%	Interest checking	$	3,383,219	$	290	0.03	%	$	3,155,935	$	336	0.04	%	$	3,001,738	$	1,191	0.16	%
Money market	Money market	5,447,909		2,588		0.19		5,368,054		3,296		0.24		3,161,867		6,071		0.77		Money market	5,554,881		1,309		0.09		5,558,790		2,002		0.14		5,490,541		4,855		0.35
Savings	Savings	368,288		82		0.09		360,148		86		0.09		238,848		97		0.16		Savings	401,804		58		0.06		384,376		84		0.09		357,768		109		0.12
Retail certificates of deposit	Retail certificates of deposit	1,425,093		1,201		0.34		1,507,959		1,413		0.37		936,489		3,464		1.49		Retail certificates of deposit	1,196,187		775		0.26		1,294,544		839		0.26		1,587,712		1,857		0.47
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	118,854		136		0.46		176,085		238		0.54		43,432		246		2.28		Wholesale/brokered certificates of deposit	—		—		—		1,357		4		1.18		265,672		497		0.74
Total interest-bearing deposits	Total interest-bearing deposits	10,420,199		4,426		0.17		10,384,229		5,685		0.22		4,956,839		10,487		0.85		Total interest-bearing deposits	10,536,091		2,432		0.09		10,395,002		3,265		0.13		10,703,431		8,509		0.32
FHLB advances and other borrowings	FHLB advances and other borrowings	22,012		65		1.20		37,560		121		1.28		337,551		1,081		1.29		FHLB advances and other borrowings	1,670		1		0.24		6,303		—		—		41,041		113		1.10
Subordinated debentures	Subordinated debentures	501,553		6,851		5.46		501,461		6,820		5.44		215,190		3,046		5.66		Subordinated debentures	330,575		4,545		5.50		480,415		6,493		5.41		501,396		6,823		5.44
Total borrowings	Total borrowings	523,565		6,916		5.36		539,021		6,941		5.12		552,741		4,127		3.00		Total borrowings	332,245		4,546		5.43		486,718		6,493		5.35		542,437		6,936		5.09
Total interest-bearing liabilities	Total interest-bearing liabilities	10,943,764		11,342		0.42		10,923,250		12,626		0.46		5,509,580		14,614		1.07		Total interest-bearing liabilities	10,868,336		6,978		0.25		10,881,720		9,758		0.36		11,245,868		15,445		0.55
Noninterest-bearing deposits	Noninterest-bearing deposits	6,034,319						6,125,171						3,898,399						Noninterest-bearing deposits	6,809,211						6,341,063						5,877,619
Other liabilities	Other liabilities	266,536						300,963						146,231						Other liabilities	282,556						320,324						553,407
Total liabilities	Total liabilities	17,244,619						17,349,384						9,554,210						Total liabilities	17,960,103						17,543,107						17,676,894
Stockholders’ equity	Stockholders’ equity	2,749,641						2,710,509						2,037,126						Stockholders’ equity	2,844,800						2,747,308						2,689,867
Total liabilities and equity	Total liabilities and equity	$	19,994,260					$	20,059,893					$	11,591,336					Total liabilities and equity	$	20,804,903					$	20,290,415					$	20,366,761
Net interest income	Net interest income			$	161,652					$	168,198					$	109,175			Net interest income			$	169,069					$	160,934					$	166,546

Net interest margin (3)	Net interest margin (3)					3.55	%					3.61	%					4.24	%	Net interest margin (3)					3.51	%					3.44	%					3.54	%
Cost of deposits						0.11						0.14						0.48
Cost of funds (4)						0.27						0.29						0.62
Cost of deposits (4)																				Cost of deposits (4)					0.06						0.08						0.20
Cost of funds (5)																				Cost of funds (5)					0.16						0.23						0.36
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities					168.96						169.54						188.10		Ratio of interest-earning assets to interest-bearing liabilities					176.03						172.62						166.35

(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 ~~$9.9~~$9.4 million, ~~$11.0~~$9.5 million, and ~~$4.1~~$12.2 million, respectively.

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

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

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

104


	Average Balance Sheet
	Nine Months Ended
	September 30, 2021						September 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	$	1,096,175	$	811	0.10	%	$	802,615	$	736	0.12	%
Investment securities	4,382,288		54,307		1.65	%	2,196,929		35,107		2.13	%
Loans receivable, net (1)(2)	13,325,683		464,615		4.66	%	11,317,620		414,059		4.89	%
Total interest-earning assets	18,804,146		519,733		3.70	%	14,317,164		449,902		4.20	%
Noninterest-earning assets	1,562,016						1,411,304
Total assets	$	20,366,162					$	15,728,468
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,200,920	$	1,045	0.04	%	$	1,666,723	$	2,644	0.21	%
Money market	5,520,919		5,899		0.14	%	4,302,817		16,606		0.52	%
Savings	384,945		224		0.08	%	293,653		307		0.14	%
Retail certificates of deposit	1,304,436		2,815		0.29	%	1,225,689		7,710		0.84	%
Wholesale/brokered certificates of deposit	39,635		140		0.47	%	178,133		1,384		1.04	%
Total interest-bearing deposits	10,450,855		10,123		0.13	%	7,667,015		28,651		0.50	%
FHLB advances and other borrowings	9,921		66		0.89	%	173,649		1,411		1.09	%
Subordinated debentures	436,888		17,889		5.46	%	335,260		13,827		5.50	%
Total borrowings	446,809		17,955		5.37	%	508,909		15,238		4.00	%
Total interest-bearing liabilities	10,897,664		28,078		0.34	%	8,175,924		43,889		0.72	%
Noninterest-bearing deposits	6,397,703						4,922,726
Other liabilities	289,863						308,680
Total liabilities	17,585,230						13,407,330
Stockholders’ equity	2,780,932						2,321,138
Total liabilities and equity	$	20,366,162					$	15,728,468
Net interest income			$	491,655					$	406,013

Net interest margin (3)					3.50	%					3.79	%
Cost of deposits (4)					0.08	%					0.30	%
Cost of funds (5)					0.22	%					0.45	%
Ratio of interest-earning assets to interest-bearing liabilities					172.55	%					175.11	%

_____________________________

(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 $28.8 million and $22.1 million, respectively.

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

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

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

97105

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)~~interest; no changes in days for comparisons of the three months ended September 30, 2021 to the three months ended September 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 March 31, 2021 Compared to Three Months Ended December 31, 2020 Increase (Decrease) Due to									Three Months Ended September 30, 2021 Compared to Three Months Ended June 30, 2021 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	$	22	$	(7)	$	—	$	15	Cash and cash equivalents	$	(204)	$	2	$	82	$	(120)
Investment securities	Investment securities	528		—		(99)		429		Investment securities	1,919		—		(1,104)		815
Loans receivable, net	Loans receivable, net	(2,594)		(3,449)		(2,231)		(8,274)		Loans receivable, net	4,820		1,707		(1,867)		4,660
Total interest-earning assets	Total interest-earning assets	(2,044)		(3,456)		(2,330)		(7,830)		Total interest-earning assets	6,535		1,709		(2,889)		5,355
Interest-bearing liabilities	Interest-bearing liabilities									Interest-bearing liabilities
Interest checking	Interest checking	21		(9)		(245)		(233)		Interest checking	20		3		(69)		(46)
Money market	Money market	50		(58)		(700)		(708)		Money market	(1)		14		(706)		(693)
Savings	Savings	(2)		(2)		—		(4)		Savings	4		1		(31)		(26)
Retail certificates of deposit	Retail certificates of deposit	(75)		(27)		(110)		(212)		Retail certificates of deposit	(72)		8		—		(64)
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	(68)		(3)		(31)		(102)		Wholesale/brokered certificates of deposit	(4)		—		—		(4)
FHLB advances and other borrowings	FHLB advances and other borrowings	(48)		(1)		(7)		(56)		FHLB advances and other borrowings	(3)		—		4		1
Subordinated debentures	Subordinated debentures	1		—		30		31		Subordinated debentures	(2,058)		—		110		(1,948)
Total interest-bearing liabilities	Total interest-bearing liabilities	(121)		(100)		(1,063)		(1,284)		Total interest-bearing liabilities	(2,114)		26		(692)		(2,780)
Change in net interest income	Change in net interest income	$	(1,923)	$	(3,356)	$	(1,267)	$	(6,546)	Change in net interest income	$	8,649	$	1,683	$	(2,197)	$	8,135

98106


		Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020 Increase (Decrease) Due to									Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Increase (Decrease) Due to
		Volume		Days		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	$	104	$	(3)	$	(16)	$	85	Cash and cash equivalents	$	(303)	$	193	$	(110)
Investment securities	Investment securities	9,159		—		(1,999)		7,160		Investment securities	5,740		(1,144)		4,596
Loans receivable, net	Loans receivable, net	52,628		(1,725)		(8,943)		41,960		Loans receivable, net	(4,175)		(6,255)		(10,430)
Total interest-earning assets	Total interest-earning assets	61,891		(1,728)		(10,958)		49,205		Total interest-earning assets	1,262		(7,206)		(5,944)
Interest-bearing liabilities	Interest-bearing liabilities									Interest-bearing liabilities
Interest checking	Interest checking	(232)		(5)		47		(190)		Interest checking	154		(1,055)		(901)
Money market	Money market	82,574		(29)		(86,028)		(3,483)		Money market	57		(3,603)		(3,546)
Savings	Savings	(74)		(1)		60		(15)		Savings	16		(67)		(51)
Retail certificates of deposit	Retail certificates of deposit	4,698		(13)		(6,948)		(2,263)		Retail certificates of deposit	(384)		(698)		(1,082)
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	(199)		(2)		91		(110)		Wholesale/brokered certificates of deposit	(249)		(248)		(497)
FHLB advances and other borrowings	FHLB advances and other borrowings	(944)		(1)		(71)		(1,016)		FHLB advances and other borrowings	(62)		(50)		(112)
Subordinated debentures	Subordinated debentures	3,909		—		(104)		3,805		Subordinated debentures	(2,354)		76		(2,278)
Total interest-bearing liabilities	Total interest-bearing liabilities	89,732		(51)		(92,953)		(3,272)		Total interest-bearing liabilities	(2,822)		(5,645)		(8,467)
Change in net interest income	Change in net interest income	$	(27,841)	$	(1,677)	$	81,995	$	52,477	Change in net interest income	$	4,084	$	(1,561)	$	2,523



	Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Increase (Decrease) due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	143	$	(3)	$	(65)	$	75
Investment securities	24,846		—		(5,646)		19,200
Loans receivable, net	71,109		(1,702)		(18,851)		50,556
Total interest-earning assets	$	96,098	$	(1,705)	$	(24,562)	$	69,831
Interest-bearing liabilities
Interest checking	$	2,410	$	(4)	$	(4,005)	$	(1,599)
Money market	6,750		(22)		(17,435)		(10,707)
Savings	96		(1)		(178)		(83)
Retail certificates of deposit	532		(10)		(5,417)		(4,895)
Wholesale/brokered certificates of deposit	(727)		(1)		(516)		(1,244)
FHLB advances and other borrowings	(1,125)		—		(220)		(1,345)
Subordinated debentures	4,209		—		(147)		4,062
Total interest-bearing liabilities	$	12,145	$	(38)	$	(27,918)	$	(15,811)
Change in net interest income	$	83,953	$	(1,667)	$	3,356	$	85,642

107

Provision for Credit Losses

~~Provision for credit losses~~For the third quarter of 2021, the Company recorded a $19.7 million provision recapture, compared to a $38.5 million provision recapture recognized during the second quarter of 2021, and a $4.2 million provision expense recognized during the third quarter of 2020. The provision recapture for the ~~first~~third quarter of 2021 was ~~$2.0~~comprised of a $19.5 million ~~an increase of $457,000 from the fourth quarter of 2020 and~~provision recapture for loan losses, a ~~decrease of $23.5 million from the first quarter of 2020. The increase from the fourth quarter of 2020 was primarily due to a~~$194,000 provision recapture for unfunded commitments, ~~of $1.7 million as a result of~~and an ~~increase in outstanding~~$11,000 provision expense for held-to-maturity securities that were transferred from available-for-sale during the third quarter. The provision recaptures for loans and unfunded commitments induring the ~~commercial and industrial loan segment in conjunction with continued unfavorable, but~~third quarter of 2021 were reflective of improving economic ~~conditions and~~ forecasts ~~reflected~~employed in the Company’s CECL ~~model. The provision for~~model relative to prior periods and the favorable asset quality profile of the loan ~~losses in the first quarter of 2021 reflected improved economic conditions, a decrease~~portfolio, partially offset by an increase in loans held for ~~investment, and lower net charge offs compared to the prior quarter.~~investment. The provision expense in the ~~first~~third quarter of 2020 reflected unfavorable changes in economic forecasts related to the onset of the COVID-19 pandemic.

Three Months Ended
March 31, December 31, March 31,
2021 2020 2020
Provision for Credit Losses (Dollars in thousands)
Provision for loan losses $ 315 $ (8,079) $ 25,382
Provision for unfunded commitments 1,659 9,596 72
Total provision for credit losses $ 1,974 $ 1,517 $ 25,454


	Three Months Ended
	September 30,		June 30,		September 30,
(Dollars in thousands)	2021		2021		2020
Provision for credit losses
Provision for loan losses	$	(19,543)	$	(33,131)	$	4,702
Provision for unfunded commitments	(194)		(5,345)		(492)

Provision for held-to-maturity securities	$	11	$	—	$	—
Total provision for credit losses	$	(19,726)	$	(38,476)	$	4,210

For the first nine months of 2021, the Company recorded a $56.2 million provision recapture, compared to a $190.3 million provision expense recorded for the first nine months of 2020. The provision recapture for the first nine months of 2021, which included a $52.4 million provision recapture for loan losses, a $3.9 million provision recapture for unfunded commitments, and an $11,000 provision expense for held-to-maturity securities was reflective of improving economic forecasts employed in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment during the first nine months of 2021. The provision expense for the first nine 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.


	Nine Months Ended
	September 30,		September 30,
(Dollars in thousands)	2021		2020
Provision for credit losses
Provision for loans and lease losses	$	(52,359)	$	180,341
Provision for unfunded commitments	(3,880)		9,958

Provision for held-to-maturity securities	$	11	$	—
Total provision for credit losses	$	(56,228)	$	190,299

108

Noninterest Income

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


		Three Months Ended						Three Months Ended						Nine Months Ended
		March 31,		December 31,		March 31,		September 30,		June 30,		September 30,		September 30,		September 30,
		2021		2020		2020
Noninterest Income		(Dollars in thousands)
(Dollars in thousands)									(Dollars in thousands)	2021		2021		2020		2021		2020
Noninterest income									Noninterest income
Loan servicing income	Loan servicing income	$	458	$	633	$	480		Loan servicing income	$	536	$	622	$	481	$	1,616	$	1,395
Service charges on deposit accounts	Service charges on deposit accounts	2,032		2,005		1,715			Service charges on deposit accounts	2,375		2,222		1,593		6,629		4,707
Other service fee income	Other service fee income	473		459		311			Other service fee income	350		352		487		1,175		1,095
Debit card interchange fee income	Debit card interchange fee income	787		777		348			Debit card interchange fee income	834		1,099		944		2,720		1,749
Earnings on bank-owned life insurance	Earnings on bank-owned life insurance	2,233		2,240		1,336			Earnings on bank-owned life insurance	3,266		2,279		2,270		7,778		4,920
Net gain from sales of loans	Net gain from sales of loans	361		328		771			Net gain from sales of loans	1,187		1,546		9,542		3,094		8,281
Net gain from sales of investment securities	Net gain from sales of investment securities	4,046		5,002		7,760			Net gain from sales of investment securities	4,190		5,085		1,141		13,321		8,880

Trust custodial account fees	Trust custodial account fees	7,222		7,296		—			Trust custodial account fees	11,446		7,897		6,960		26,565		9,357
Escrow and exchange fees	Escrow and exchange fees	1,526		1,257		—			Escrow and exchange fees	1,867		1,672		1,142		5,065		1,407
Other income	Other income	4,602		3,197		1,754			Other income	4,049		3,955		2,198		12,606		6,340
Total noninterest income	Total noninterest income	$	23,740	$	23,194	$	14,475		Total noninterest income	$	30,100	$	26,729	$	26,758	$	80,569	$	48,131

Noninterest income for the third quarter of 2021 was $30.1 million, an increase of $3.4 million from the second quarter of 2021. The increase was primarily due to a $3.5 million increase in trust custodial account fees attributable to a new pricing initiative and a $987,000 increase in earnings on bank-owned life insurance ("BOLI") largely driven by a $150 million addition to BOLI in June 2021, partially offset by a $895,000 decrease in net gain from sales of investment securities. Also, other income included a $970,000 net gain on debt extinguishment compared to a $647,000 loss in the prior quarter, partially offset by $1.1 million lower CRA investment income and $483,000 lower SBA PPP loan referral fees.

During the third quarter of 2021, the Bank sold $12.0 million of SBA loans for a net gain of $1.2 million, compared to the sales of $14.7 million of SBA loans for a net gain of $1.5 million during the second quarter of 2021. Additionally, during the third quarter of 2021, the Bank sold $161.6 million of investment securities for a net gain of $4.2 million, compared to the sales of $280.2 million of investment securities for a net gain of $5.1 million in the second quarter of 2021.

Noninterest income for the ~~first~~third quarter of 2021 ~~was $23.7~~increased $3.3 million, ~~an increase of $546,000 from~~compared to the ~~fourth~~third quarter of 2020. The increase was primarily due to ~~$2.3~~a $4.5 million ~~of SBA PPP referral fees recorded~~increase in ~~other income, partially offset by a $1.0 million decrease in net gain from sales of investment securities.~~

During the first quarter of 2021, the Bank sold $1.3 million of Small Business Administration (“SBA”) loans for a net gain of $69,000 and fully charged-off loans for a net gain of $292,000, compared to the sale of $2.1 million of SBA loans and $59.2 million of other loans for net gains of $154,000 and $174,000, respectively, during the fourth quarter of 2020.

During the first quarter of 2021, the Bank sold $175.3 million of investment securities for a net gain of $4.0 million, compared to the sale of $202.6 million of investment securities for a net gain of $5.0 million in the fourth quarter of 2020.

~~Noninterest income for the first quarter of 2021 increased $9.3 million, or 64.0%, compared to the first quarter of 2020. The increase was primarily due to the addition of $7.2 million of~~ trust custodial account fees, ~~and $1.5~~a $3.0 million ~~of escrow and exchange fee income following the Opus acquisition, a $2.8 million~~ increase in other income primarily due to $2.3 million of SBA PPP referral fees, a $791,000 increase in equity investment income, and an $897,000 increase in earnings on bank-owned life insurance (“BOLI”), partially offset by a $3.7 million decrease in net gain from sales of investment securities, a $1.9 million increase in other income, and a ~~$410,000~~$996,000 increase in earnings on BOLI, partially offset by a $8.4 million decrease in net gain from the sales of loans.

The net gain from sales of loans for the ~~first~~third quarter of 2021 decreased from the same period last year primarily due to the ~~sale~~sales of ~~$1.3 million of SBA loans for a net gain of $69,000 and the sale of fully charged-off loans for a net gain of $292,000, compared with the sale of $15.9~~$12.0 million of SBA loans for a net gain of $1.2 million, ~~and $23.0~~compared with the sales of $1.16 billion SBA PPP loans for a net gain of $19.0 million in the third quarter of 2020, offset by sales of $96.2 million of other loans for a net loss of ~~$404,000~~$9.4 million during the ~~first~~third quarter of 2020.

For the first nine months of 2021, noninterest income totaled $80.6 million, an increase of $32.4 million from $48.1 million for the first nine months of 2020. The increase was primarily related to a $17.2 million increase in trust custodial account fees following the Opus acquisition, a $4.4 million increase in net gain from sales of investment securities, a $3.7 million increase in escrow and exchange fee income following the Opus acquisition, a $2.9 million increase in earnings from BOLI largely due to a $150.0 million addition to BOLI, a $1.9 million increase in service charges on deposit accounts, and a $1.0 million increase in debit card interchange fee income, partially offset by a $5.2 million decrease in net gain from the sales of loans. In addition, other income increased $6.3 million primarily due to a $4.3 million increase in equity investment income and $2.9 million of SBA PPP loan referral fees.

~~100~~109

Income Taxes

NON-GAAP MEASURES


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net income (loss)	$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Plus: amortization of intangible assets expense	3,912			4,001			4,538			12,056			12,567
Less: amortization of intangible assets expense tax adjustment (1)	1,119			1,145			1,301			3,449			3,605
Net income for average tangible common equity	$	92,881		$	99,158		$	69,803		$	263,665		$	2,177

Average stockholders’ equity	$	2,844,800		$	2,747,308		$	2,689,867		$	2,780,932		$	2,321,138
Less: average intangible assets	75,795			79,784			92,768			79,812			86,244
Less: average goodwill	901,312			900,582			898,430			900,170			848,675
Average tangible common equity	$	1,867,693		$	1,766,942		$	1,698,669		$	1,800,950		$	1,386,219

Return on average equity (2)	12.67		%	14.02		%	9.90		%	12.23		%	(0.39)		%
Return on average tangible common equity (2)	19.89		%	22.45		%	16.44		%	19.52		%	0.21		%

(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.


	September 30,			December 31,
(Dollars in thousands)	2021			2020
Total stockholders’ equity	$	2,838,116		$	2,746,649
Less: intangible assets	974,763			984,076
Tangible common equity	$	1,863,353		$	1,762,573

Total assets	$	21,005,211		$	19,736,544
Less: intangible assets	974,763			984,076
Tangible assets	$	20,030,448		$	18,752,468

Tangible common equity ratio	9.30		%	9.40		%

Common shares issued and outstanding	94,354,211			94,483,136

Book value per share	$	30.08		$	29.07
Less: intangible book value per share	10.33			10.42
Tangible book value per share	$	19.75		$	18.65


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Total noninterest expense	$	96,040		$	94,496		$	98,579		$	283,025		$	281,180
Less: amortization of intangible assets	3,912			4,001			4,538			12,056			12,567
Less: merger-related expense	—			—			2,988			5			44,058
Less: other real estate owned operations, net	—			—			(17)			—			6
Noninterest expense, adjusted	$	92,128		$	90,495		$	91,070		$	270,964		$	224,549

Net interest income before provision for loan losses	$	169,069		$	160,934		$	166,546		$	491,655		$	406,013
Add: total noninterest income	30,100			26,729			26,758			80,569			48,131
Less: net gain from investment securities	4,190			5,085			1,141			13,321			8,880
Less: other income - security recoveries	1			6			1			9			1
Less: net gain (loss) from other real estate owned	—			—			13			—			(42)
Less: net gain (loss) from debt extinguishment	970			(647)			—			(180)			—

Revenue, adjusted	$	194,008		$	183,219		$	192,149		$	559,074		$	445,305

Efficiency ratio	47.5		%	49.4		%	47.4		%	48.5		%	50.4		%


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net interest income	$	169,069		$	160,934		$	166,546		$	491,655		$	406,013
Less: scheduled accretion income	3,339			3,560			6,858			10,777			12,152
Less: accelerated accretion income	6,107			5,927			5,338			18,022			9,997
Less: premium amortization on CDs	390			942			2,968			3,083			4,085
Less: nonrecurring nonaccrual interest paid	(74)			(216)			(275)			(893)			(417)
Core net interest income	$	159,307		$	150,721		$	151,657		$	460,666		$	380,196
Less: interest income on SBA PPP loans	—			—			838			—			6,220
Core net interest income excluding SBA PPP loans	$	159,307		$	150,721		$	150,819		$	460,666		$	373,976

Average interest-earning assets	$	19,131,172		$	18,783,803		$	18,707,605		$	18,804,146		$	14,317,164
Less: average SBA PPP loans	—			—			329,396			—			386,287
Average interest-earning assets excluding SBA PPP loans	$	19,131,172		$	18,783,803		$	18,378,209		$	18,804,146		$	13,930,877

Net interest margin (1)	3.51		%	3.44		%	3.54		%	3.50		%	3.79		%
Core net interest margin (1)	3.30		%	3.22		%	3.23		%	3.28		%	3.55		%
Core net interest margin excluding SBA PPP loans (1)	3.30		%	3.22		%	3.26		%	3.28		%	3.59		%

(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									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902
Interest expense	6,978			9,758			15,445			28,078			43,889
Net interest income	169,069			160,934			166,546			491,655			406,013
Noninterest income	30,100			26,729			26,758			80,569			48,131
Revenue	199,169			187,663			193,304			572,224			454,144
Noninterest expense	96,040			94,496			98,579			283,025			281,180
Add: merger-related expense	—			—			2,988			5			44,058
Pre-provision net revenue	103,129			93,167			97,713			289,204			217,022
Pre-provision net revenue (annualized)	$	412,516		$	372,668		$	390,852		$	385,605		$	289,363

Average assets	$	20,804,903		$	20,290,415		$	20,366,761		$	20,366,162		$	15,728,468

Pre-provision net revenue on average assets	0.50		%	0.46		%	0.48		%	1.42		%	1.38		%
Pre-provision net revenue on average assets (annualized)	1.98		%	1.84		%	1.92		%	1.89		%	1.84		%

100

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									Nine Months Ended
(Dollar in thousands, except per share data and	September 30,			June 30,			September 30,			September 30,			September 30,
percentages)	2021			2021			2020			2021			2020
Operating data
Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902
Interest expense	6,978			9,758			15,445			28,078			43,889
Net interest income	169,069			160,934			166,546			491,655			406,013
Provision for credit losses	(19,726)			(38,476)			4,210			(56,228)			190,299
Net interest income after provision for credit losses	188,795			199,410			162,336			547,883			215,714
Net gain from sales of loans	1,187			1,546			9,542			3,094			8,281
Other noninterest income	28,913			25,183			17,216			77,475			39,850
Noninterest expense	96,040			94,496			98,579			283,025			281,180
Net income (loss) before income taxes	122,855			131,643			90,515			345,427			(17,335)
Income tax expense (benefit)	32,767			35,341			23,949			90,369			(10,550)
Net income (loss)	$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Pre-provision net revenue (3)	$	103,129		$	93,167		$	97,713		$	289,204		$	217,022
Share data
Earnings (loss) per share:
Basic	$	0.95		$	1.02		$	0.71		$	2.70		$	(0.10)
Diluted	0.95			1.01			0.70			2.68			(0.10)
Common equity dividends declared per share	0.33			0.33			0.25			0.96			0.75
Dividend payout ratio (1)	34.63		%	32.43		%	35.45		%	35.59		%	(759.20)		%
Performance ratios
Return on average assets (2)	1.73		%	1.90		%	1.31		%	1.67		%	(0.06)		%
Return on average equity (2)	12.67			14.02			9.90			12.23			(0.39)
Return on average tangible common equity (2)(3)	19.89			22.45			16.44			19.52			0.21

Pre-provision net revenue on average assets (2)(3)	1.98			1.84			1.92			1.89			1.84
Average equity to average assets	13.67			13.54			13.21			13.65			14.76
Efficiency ratio (3)	47.5			49.4			47.4			48.5			50.4

(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.

101

In the third quarter of 2021, we reported net income of $90.1 million, or $0.95 per diluted share. This compares with net income of $96.3 million, or $1.01 per diluted share, for the second quarter of 2021. The decrease in net income was primarily due to $18.8 million lower recapture of provision for credit losses and an increase of $1.5 million in noninterest expense, partially offset by an increase of $8.1 million in net interest income, a $3.4 million increase in noninterest income, and a decrease of $2.6 million in income tax expense. The provision recaptures during the second and third quarters of 2021 were reflective of improving economic forecasts used in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment.

Net income of $90.1 million, or $0.95 per diluted share, for the third quarter of 2021 compares to a net income for the third quarter of 2020 of $66.6 million, or $0.70 per diluted share. The increase in net income was primarily due to a $23.9 million decrease in provision for credit losses, a $3.3 million increase in noninterest income, a $3.0 million decrease in merger-related expense, and a $2.5 million increase in net interest income, partially offset by an increase of $8.8 million in income tax expense and a $449,000 increase in noninterest expense excluding merger-related expenses. The decrease in the provision for credit losses during the third quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio.

For the three months ended September 30, 2021, the Company’s return on average assets was 1.73%, return on average equity was 12.67%, and return on average tangible common equity was 19.89%. For the three months ended June 30, 2021, the return on average assets was 1.90%, the return on average equity was 14.02%, and the return on average tangible common equity was 22.45%. For the three months ended September 30, 2020, the return on average assets was 1.31%, the return on average equity was 9.90%, and the return on average tangible common equity was 16.44%.

For the nine months ended September 30, 2021, the Company recorded net income of $255.1 million, or $2.68 per diluted share. This compares with net loss of $6.8 million, or $(0.10) per diluted share, for the nine months ended September 30, 2020. The increase in net income of $261.8 million was primarily due to a $246.5 million decrease in the provision for credit losses, an $85.6 million increase in net interest income, a $44.1 million decrease in merger-related expenses, and a $32.4 million increase in noninterest income, partially offset by a $100.9 million increase in income tax expense and a $45.9 million increase in noninterest expense excluding merger-related expenses. The decrease in the 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 CECL model driven by the COVID-19 pandemic, as well as the $38.5 million and $19.7 million recapture of provision for credit losses during the second and third quarter of 2021, respectively, primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the favorable 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 nine months ended September 30, 2021, the Company’s return on average assets was 1.67%, return on average equity was 12.23%, and return on average tangible common equity was 19.52%, compared with a return on average assets of (0.06)%, return on average equity of (0.39)%, and a return on average tangible common equity of 0.21% for the nine months ended September 30, 2020.

102

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.

Net interest income totaled $169.1 million in the third quarter of 2021, an increase of $8.1 million, or 5.1%, from the second quarter of 2021. The increase in net interest income was due to higher average interest-earning assets, higher loan fees, one more day of interest, and a lower cost of funds as compared to the prior quarter, partially offset by lower average investment securities and loan yields.

The net interest margin for the third quarter of 2021 was 3.51%, compared with 3.44% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income of $9.4 million, compared to $9.5 million in the prior quarter, certificates of deposit mark-to-market amortization, and other adjustments, increased eight basis points to 3.30%, compared to 3.22% in the prior quarter, reflecting lower cost of funds and higher loan fees, partially offset by lower average investment and loan yields and fees.

Net interest income for the third quarter of 2021 increased $2.5 million, or 1.5%, compared to the third quarter of 2020. The increase was attributable to a lower cost of funds, a $1.52 billion increase in average investment securities, and a $377.5 million decrease in average interest-bearing liabilities, which primarily resulted from the redemptions of subordinated debentures, partially offset by lower average interest-earning asset yields and lower average loan balances.

For the first nine months ended 2021, net interest income increased $85.6 million, or 21.1%, compared to the first nine months ended 2020. The increase was related to an increase in average interest-earning assets of $4.49 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 and higher average interest-bearing liabilities.

103


	Average Balance Sheet
	Three Months Ended
	September 30, 2021						June 30, 2021						September 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	$	663,076	$	195	0.12	%	$	1,323,186	$	315	0.10	%	$	1,388,897	$	305	0.09	%
Investment securities	4,807,854		18,827		1.57		4,243,644		18,012		1.70		3,283,840		14,231		1.73
Loans receivable, net (1)(2)	13,660,242		157,025		4.56		13,216,973		152,365		4.62		14,034,868		167,455		4.75
Total interest-earning assets	19,131,172		176,047		3.65		18,783,803		170,692		3.64		18,707,605		181,991		3.87
Noninterest-earning assets	1,673,731						1,506,612						1,659,156
Total assets	$	20,804,903					$	20,290,415					$	20,366,761
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,383,219	$	290	0.03	%	$	3,155,935	$	336	0.04	%	$	3,001,738	$	1,191	0.16	%
Money market	5,554,881		1,309		0.09		5,558,790		2,002		0.14		5,490,541		4,855		0.35
Savings	401,804		58		0.06		384,376		84		0.09		357,768		109		0.12
Retail certificates of deposit	1,196,187		775		0.26		1,294,544		839		0.26		1,587,712		1,857		0.47
Wholesale/brokered certificates of deposit	—		—		—		1,357		4		1.18		265,672		497		0.74
Total interest-bearing deposits	10,536,091		2,432		0.09		10,395,002		3,265		0.13		10,703,431		8,509		0.32
FHLB advances and other borrowings	1,670		1		0.24		6,303		—		—		41,041		113		1.10
Subordinated debentures	330,575		4,545		5.50		480,415		6,493		5.41		501,396		6,823		5.44
Total borrowings	332,245		4,546		5.43		486,718		6,493		5.35		542,437		6,936		5.09
Total interest-bearing liabilities	10,868,336		6,978		0.25		10,881,720		9,758		0.36		11,245,868		15,445		0.55
Noninterest-bearing deposits	6,809,211						6,341,063						5,877,619
Other liabilities	282,556						320,324						553,407
Total liabilities	17,960,103						17,543,107						17,676,894
Stockholders’ equity	2,844,800						2,747,308						2,689,867
Total liabilities and equity	$	20,804,903					$	20,290,415					$	20,366,761
Net interest income			$	169,069					$	160,934					$	166,546

Net interest margin (3)					3.51	%					3.44	%					3.54	%
Cost of deposits (4)					0.06						0.08						0.20
Cost of funds (5)					0.16						0.23						0.36
Ratio of interest-earning assets to interest-bearing liabilities					176.03						172.62						166.35

(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 $9.4 million, $9.5 million, and $12.2 million, respectively.

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

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

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

104


	Average Balance Sheet
	Nine Months Ended
	September 30, 2021						September 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	$	1,096,175	$	811	0.10	%	$	802,615	$	736	0.12	%
Investment securities	4,382,288		54,307		1.65	%	2,196,929		35,107		2.13	%
Loans receivable, net (1)(2)	13,325,683		464,615		4.66	%	11,317,620		414,059		4.89	%
Total interest-earning assets	18,804,146		519,733		3.70	%	14,317,164		449,902		4.20	%
Noninterest-earning assets	1,562,016						1,411,304
Total assets	$	20,366,162					$	15,728,468
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,200,920	$	1,045	0.04	%	$	1,666,723	$	2,644	0.21	%
Money market	5,520,919		5,899		0.14	%	4,302,817		16,606		0.52	%
Savings	384,945		224		0.08	%	293,653		307		0.14	%
Retail certificates of deposit	1,304,436		2,815		0.29	%	1,225,689		7,710		0.84	%
Wholesale/brokered certificates of deposit	39,635		140		0.47	%	178,133		1,384		1.04	%
Total interest-bearing deposits	10,450,855		10,123		0.13	%	7,667,015		28,651		0.50	%
FHLB advances and other borrowings	9,921		66		0.89	%	173,649		1,411		1.09	%
Subordinated debentures	436,888		17,889		5.46	%	335,260		13,827		5.50	%
Total borrowings	446,809		17,955		5.37	%	508,909		15,238		4.00	%
Total interest-bearing liabilities	10,897,664		28,078		0.34	%	8,175,924		43,889		0.72	%
Noninterest-bearing deposits	6,397,703						4,922,726
Other liabilities	289,863						308,680
Total liabilities	17,585,230						13,407,330
Stockholders’ equity	2,780,932						2,321,138
Total liabilities and equity	$	20,366,162					$	15,728,468
Net interest income			$	491,655					$	406,013

Net interest margin (3)					3.50	%					3.79	%
Cost of deposits (4)					0.08	%					0.30	%
Cost of funds (5)					0.22	%					0.45	%
Ratio of interest-earning assets to interest-bearing liabilities					172.55	%					175.11	%

_____________________________

(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 $28.8 million and $22.1 million, respectively.

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

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

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

105

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 September 30, 2021 to the three months ended September 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 September 30, 2021 Compared to Three Months Ended June 30, 2021 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(204)	$	2	$	82	$	(120)
Investment securities	1,919		—		(1,104)		815
Loans receivable, net	4,820		1,707		(1,867)		4,660
Total interest-earning assets	6,535		1,709		(2,889)		5,355
Interest-bearing liabilities
Interest checking	20		3		(69)		(46)
Money market	(1)		14		(706)		(693)
Savings	4		1		(31)		(26)
Retail certificates of deposit	(72)		8		—		(64)
Wholesale/brokered certificates of deposit	(4)		—		—		(4)
FHLB advances and other borrowings	(3)		—		4		1
Subordinated debentures	(2,058)		—		110		(1,948)
Total interest-bearing liabilities	(2,114)		26		(692)		(2,780)
Change in net interest income	$	8,649	$	1,683	$	(2,197)	$	8,135

106


	Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(303)	$	193	$	(110)
Investment securities	5,740		(1,144)		4,596
Loans receivable, net	(4,175)		(6,255)		(10,430)
Total interest-earning assets	1,262		(7,206)		(5,944)
Interest-bearing liabilities
Interest checking	154		(1,055)		(901)
Money market	57		(3,603)		(3,546)
Savings	16		(67)		(51)
Retail certificates of deposit	(384)		(698)		(1,082)
Wholesale/brokered certificates of deposit	(249)		(248)		(497)
FHLB advances and other borrowings	(62)		(50)		(112)
Subordinated debentures	(2,354)		76		(2,278)
Total interest-bearing liabilities	(2,822)		(5,645)		(8,467)
Change in net interest income	$	4,084	$	(1,561)	$	2,523



	Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Increase (Decrease) due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	143	$	(3)	$	(65)	$	75
Investment securities	24,846		—		(5,646)		19,200
Loans receivable, net	71,109		(1,702)		(18,851)		50,556
Total interest-earning assets	$	96,098	$	(1,705)	$	(24,562)	$	69,831
Interest-bearing liabilities
Interest checking	$	2,410	$	(4)	$	(4,005)	$	(1,599)
Money market	6,750		(22)		(17,435)		(10,707)
Savings	96		(1)		(178)		(83)
Retail certificates of deposit	532		(10)		(5,417)		(4,895)
Wholesale/brokered certificates of deposit	(727)		(1)		(516)		(1,244)
FHLB advances and other borrowings	(1,125)		—		(220)		(1,345)
Subordinated debentures	4,209		—		(147)		4,062
Total interest-bearing liabilities	$	12,145	$	(38)	$	(27,918)	$	(15,811)
Change in net interest income	$	83,953	$	(1,667)	$	3,356	$	85,642

107

Provision for Credit Losses

For the third quarter of 2021, the Company recorded a $19.7 million provision recapture, compared to a $38.5 million provision recapture recognized during the second quarter of 2021, and a $4.2 million provision expense recognized during the third quarter of 2020. The provision recapture for the third quarter of 2021 was comprised of a $19.5 million provision recapture for loan losses, a $194,000 provision recapture for unfunded commitments, and an $11,000 provision expense for held-to-maturity securities that were transferred from available-for-sale during the third quarter. The provision recaptures for loans and unfunded commitments during the third quarter of 2021 were reflective of improving economic forecasts employed in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment. The provision expense in the third quarter of 2020 reflected unfavorable changes in economic forecasts related to the onset of the COVID-19 pandemic.


	Three Months Ended
	September 30,		June 30,		September 30,
(Dollars in thousands)	2021		2021		2020
Provision for credit losses
Provision for loan losses	$	(19,543)	$	(33,131)	$	4,702
Provision for unfunded commitments	(194)		(5,345)		(492)

Provision for held-to-maturity securities	$	11	$	—	$	—
Total provision for credit losses	$	(19,726)	$	(38,476)	$	4,210


	Nine Months Ended
	September 30,		September 30,
(Dollars in thousands)	2021		2020
Provision for credit losses
Provision for loans and lease losses	$	(52,359)	$	180,341
Provision for unfunded commitments	(3,880)		9,958

Provision for held-to-maturity securities	$	11	$	—
Total provision for credit losses	$	(56,228)	$	190,299

108

Noninterest ~~Expense~~Income

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

Three Months Ended
March 31, December 31, March 31,
2021 2020 2020
Noninterest Expense (Dollars in thousands)
Compensation and benefits $ 52,548 $ 52,044 $ 34,376
Premises and occupancy 11,980 13,268 8,168
Data processing 5,828 5,990 3,253
Other real estate owned operations, net — (5) 14
FDIC insurance premiums 1,181 1,213 367
Legal and professional services 3,935 4,305 3,126
Marketing expense 1,598 1,442 1,412
Office expense 1,829 2,191 1,103
Loan expense 1,115 1,084 822
Deposit expense 3,859 5,026 4,988
Merger-related expense 5 5,071 1,724
Amortization of intangible assets 4,143 4,505 3,965
Other expense 4,468 3,805 3,313
Total noninterest expense $ 92,489 $ 99,939 $ 66,631


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Noninterest income
Loan servicing income	$	536	$	622	$	481	$	1,616	$	1,395
Service charges on deposit accounts	2,375		2,222		1,593		6,629		4,707
Other service fee income	350		352		487		1,175		1,095
Debit card interchange fee income	834		1,099		944		2,720		1,749
Earnings on bank-owned life insurance	3,266		2,279		2,270		7,778		4,920
Net gain from sales of loans	1,187		1,546		9,542		3,094		8,281
Net gain from sales of investment securities	4,190		5,085		1,141		13,321		8,880



Trust custodial account fees	11,446		7,897		6,960		26,565		9,357
Escrow and exchange fees	1,867		1,672		1,142		5,065		1,407
Other income	4,049		3,955		2,198		12,606		6,340
Total noninterest income	$	30,100	$	26,729	$	26,758	$	80,569	$	48,131

Noninterest ~~expense totaled $92.5 million~~income for the ~~first~~third quarter of 2021 was $30.1 million, an increase of $3.4 million from the second quarter of 2021. The increase was primarily due to a $3.5 million increase in trust custodial account fees attributable to a new pricing initiative and a $987,000 increase in earnings on bank-owned life insurance ("BOLI") largely driven by a $150 million addition to BOLI in June 2021, partially offset by a $895,000 decrease in net gain from sales of ~~$7.5~~investment securities. Also, other income included a $970,000 net gain on debt extinguishment compared to a $647,000 loss in the prior quarter, partially offset by $1.1 million lower CRA investment income and $483,000 lower SBA PPP loan referral fees.

During the third quarter of 2021, the Bank sold $12.0 million of SBA loans for a net gain of $1.2 million, compared to the ~~fourth~~sales of $14.7 million of SBA loans for a net gain of $1.5 million during the second quarter of ~~2020, primarily due~~2021. Additionally, during the third quarter of 2021, the Bank sold $161.6 million of investment securities for a net gain of $4.2 million, compared to the sales of $280.2 million of investment securities for a ~~decrease~~net gain of $5.1 million in ~~merger-related expense associated with~~ the ~~Opus acquisition. Excluding merger-related expense, noninterest expense decreased $2.4~~second quarter of 2021.

Noninterest income for the third quarter of 2021 increased $3.3 million, compared to the fourth quarter of 2020, driven primarily by a $1.3 million decrease in premises and occupancy expense, a $1.2 million decrease in deposit expense, as well as other decreases, partially offset by a $663,000 increase in other expense primarily related to higher charitable contributions.

~~Noninterest expense increased by $25.9 million compared to the first quarter of 2020. Excluding merger-related expense, noninterest expense increased $27.6 million compared to the first~~third quarter of 2020. The increase was primarily due to ~~an $18.2~~a $4.5 million increase in ~~compensation and benefits,~~trust custodial account fees, a ~~$3.8~~$3.0 million increase in ~~premises and occupancy expense,~~net gain from sales of investment securities, a ~~$2.6 million increase in data processing expense, a $1.2~~$1.9 million increase in other ~~expense, an $814,000~~income, and a $996,000 increase in FDIC insurance premiums, an $809,000 increase in legal and professional services, and a $726,000 increase in office expense, predominately as a result of the additional operations, personnel, branches, and divisions retained with the acquisition of Opus. These increases wereearnings on BOLI, partially offset by a ~~$1.1~~$8.4 million decrease in ~~deposit expense.~~net gain from the sales of loans.

The ~~Company’s efficiency ratio was 48.6%~~net gain from sales of loans for the ~~first~~third quarter of 2021 decreased from the same period last year primarily due to the sales of $12.0 million of SBA loans for a net gain of $1.2 million, compared ~~to 48.5%~~with the sales of $1.16 billion SBA PPP loans for a net gain of $19.0 million in the ~~fourth~~third quarter of 2020, ~~and 52.6%~~offset by sales of $96.2 million of other loans for a net loss of $9.4 million during the ~~first~~third quarter of 2020.

~~101~~

109

Income Taxes

NON-GAAP MEASURES


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net income (loss)	$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Plus: amortization of intangible assets expense	3,912			4,001			4,538			12,056			12,567
Less: amortization of intangible assets expense tax adjustment (1)	1,119			1,145			1,301			3,449			3,605
Net income for average tangible common equity	$	92,881		$	99,158		$	69,803		$	263,665		$	2,177

Average stockholders’ equity	$	2,844,800		$	2,747,308		$	2,689,867		$	2,780,932		$	2,321,138
Less: average intangible assets	75,795			79,784			92,768			79,812			86,244
Less: average goodwill	901,312			900,582			898,430			900,170			848,675
Average tangible common equity	$	1,867,693		$	1,766,942		$	1,698,669		$	1,800,950		$	1,386,219

Return on average equity (2)	12.67		%	14.02		%	9.90		%	12.23		%	(0.39)		%
Return on average tangible common equity (2)	19.89		%	22.45		%	16.44		%	19.52		%	0.21		%

(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.


	September 30,			December 31,
(Dollars in thousands)	2021			2020
Total stockholders’ equity	$	2,838,116		$	2,746,649
Less: intangible assets	974,763			984,076
Tangible common equity	$	1,863,353		$	1,762,573

Total assets	$	21,005,211		$	19,736,544
Less: intangible assets	974,763			984,076
Tangible assets	$	20,030,448		$	18,752,468

Tangible common equity ratio	9.30		%	9.40		%

Common shares issued and outstanding	94,354,211			94,483,136

Book value per share	$	30.08		$	29.07
Less: intangible book value per share	10.33			10.42
Tangible book value per share	$	19.75		$	18.65


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Total noninterest expense	$	96,040		$	94,496		$	98,579		$	283,025		$	281,180
Less: amortization of intangible assets	3,912			4,001			4,538			12,056			12,567
Less: merger-related expense	—			—			2,988			5			44,058
Less: other real estate owned operations, net	—			—			(17)			—			6
Noninterest expense, adjusted	$	92,128		$	90,495		$	91,070		$	270,964		$	224,549

Net interest income before provision for loan losses	$	169,069		$	160,934		$	166,546		$	491,655		$	406,013
Add: total noninterest income	30,100			26,729			26,758			80,569			48,131
Less: net gain from investment securities	4,190			5,085			1,141			13,321			8,880
Less: other income - security recoveries	1			6			1			9			1
Less: net gain (loss) from other real estate owned	—			—			13			—			(42)
Less: net gain (loss) from debt extinguishment	970			(647)			—			(180)			—

Revenue, adjusted	$	194,008		$	183,219		$	192,149		$	559,074		$	445,305

Efficiency ratio	47.5		%	49.4		%	47.4		%	48.5		%	50.4		%


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Net interest income	$	169,069		$	160,934		$	166,546		$	491,655		$	406,013
Less: scheduled accretion income	3,339			3,560			6,858			10,777			12,152
Less: accelerated accretion income	6,107			5,927			5,338			18,022			9,997
Less: premium amortization on CDs	390			942			2,968			3,083			4,085
Less: nonrecurring nonaccrual interest paid	(74)			(216)			(275)			(893)			(417)
Core net interest income	$	159,307		$	150,721		$	151,657		$	460,666		$	380,196
Less: interest income on SBA PPP loans	—			—			838			—			6,220
Core net interest income excluding SBA PPP loans	$	159,307		$	150,721		$	150,819		$	460,666		$	373,976

Average interest-earning assets	$	19,131,172		$	18,783,803		$	18,707,605		$	18,804,146		$	14,317,164
Less: average SBA PPP loans	—			—			329,396			—			386,287
Average interest-earning assets excluding SBA PPP loans	$	19,131,172		$	18,783,803		$	18,378,209		$	18,804,146		$	13,930,877

Net interest margin (1)	3.51		%	3.44		%	3.54		%	3.50		%	3.79		%
Core net interest margin (1)	3.30		%	3.22		%	3.23		%	3.28		%	3.55		%
Core net interest margin excluding SBA PPP loans (1)	3.30		%	3.22		%	3.26		%	3.28		%	3.59		%

(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									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902
Interest expense	6,978			9,758			15,445			28,078			43,889
Net interest income	169,069			160,934			166,546			491,655			406,013
Noninterest income	30,100			26,729			26,758			80,569			48,131
Revenue	199,169			187,663			193,304			572,224			454,144
Noninterest expense	96,040			94,496			98,579			283,025			281,180
Add: merger-related expense	—			—			2,988			5			44,058
Pre-provision net revenue	103,129			93,167			97,713			289,204			217,022
Pre-provision net revenue (annualized)	$	412,516		$	372,668		$	390,852		$	385,605		$	289,363

Average assets	$	20,804,903		$	20,290,415		$	20,366,761		$	20,366,162		$	15,728,468

Pre-provision net revenue on average assets	0.50		%	0.46		%	0.48		%	1.42		%	1.38		%
Pre-provision net revenue on average assets (annualized)	1.98		%	1.84		%	1.92		%	1.89		%	1.84		%

100

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									Nine Months Ended
(Dollar in thousands, except per share data and	September 30,			June 30,			September 30,			September 30,			September 30,
percentages)	2021			2021			2020			2021			2020
Operating data
Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902
Interest expense	6,978			9,758			15,445			28,078			43,889
Net interest income	169,069			160,934			166,546			491,655			406,013
Provision for credit losses	(19,726)			(38,476)			4,210			(56,228)			190,299
Net interest income after provision for credit losses	188,795			199,410			162,336			547,883			215,714
Net gain from sales of loans	1,187			1,546			9,542			3,094			8,281
Other noninterest income	28,913			25,183			17,216			77,475			39,850
Noninterest expense	96,040			94,496			98,579			283,025			281,180
Net income (loss) before income taxes	122,855			131,643			90,515			345,427			(17,335)
Income tax expense (benefit)	32,767			35,341			23,949			90,369			(10,550)
Net income (loss)	$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Pre-provision net revenue (3)	$	103,129		$	93,167		$	97,713		$	289,204		$	217,022
Share data
Earnings (loss) per share:
Basic	$	0.95		$	1.02		$	0.71		$	2.70		$	(0.10)
Diluted	0.95			1.01			0.70			2.68			(0.10)
Common equity dividends declared per share	0.33			0.33			0.25			0.96			0.75
Dividend payout ratio (1)	34.63		%	32.43		%	35.45		%	35.59		%	(759.20)		%
Performance ratios
Return on average assets (2)	1.73		%	1.90		%	1.31		%	1.67		%	(0.06)		%
Return on average equity (2)	12.67			14.02			9.90			12.23			(0.39)
Return on average tangible common equity (2)(3)	19.89			22.45			16.44			19.52			0.21

Pre-provision net revenue on average assets (2)(3)	1.98			1.84			1.92			1.89			1.84
Average equity to average assets	13.67			13.54			13.21			13.65			14.76
Efficiency ratio (3)	47.5			49.4			47.4			48.5			50.4

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

(2) Ratio is annualized.

101

Net income of $90.1 million, or $0.95 per diluted share, for the third quarter of 2021 compares to a net income for the third quarter of 2020 of $66.6 million, or $0.70 per diluted share. The increase in net income was primarily due to a $23.9 million decrease in provision for credit losses, a $3.3 million increase in noninterest income, a $3.0 million decrease in merger-related expense, and a $2.5 million increase in net interest income, partially offset by an increase of $8.8 million in income tax expense and a $449,000 increase in noninterest expense excluding merger-related expenses. The decrease in the provision for credit losses during the third quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio.

102

Net Interest Income

For the first nine months ended 2021, net interest income increased $85.6 million, or 21.1%, compared to the first nine months ended 2020. The increase was related to an increase in average interest-earning assets of $4.49 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 and higher average interest-bearing liabilities.

103


	Average Balance Sheet
	Three Months Ended
	September 30, 2021						June 30, 2021						September 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	$	663,076	$	195	0.12	%	$	1,323,186	$	315	0.10	%	$	1,388,897	$	305	0.09	%
Investment securities	4,807,854		18,827		1.57		4,243,644		18,012		1.70		3,283,840		14,231		1.73
Loans receivable, net (1)(2)	13,660,242		157,025		4.56		13,216,973		152,365		4.62		14,034,868		167,455		4.75
Total interest-earning assets	19,131,172		176,047		3.65		18,783,803		170,692		3.64		18,707,605		181,991		3.87
Noninterest-earning assets	1,673,731						1,506,612						1,659,156
Total assets	$	20,804,903					$	20,290,415					$	20,366,761
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,383,219	$	290	0.03	%	$	3,155,935	$	336	0.04	%	$	3,001,738	$	1,191	0.16	%
Money market	5,554,881		1,309		0.09		5,558,790		2,002		0.14		5,490,541		4,855		0.35
Savings	401,804		58		0.06		384,376		84		0.09		357,768		109		0.12
Retail certificates of deposit	1,196,187		775		0.26		1,294,544		839		0.26		1,587,712		1,857		0.47
Wholesale/brokered certificates of deposit	—		—		—		1,357		4		1.18		265,672		497		0.74
Total interest-bearing deposits	10,536,091		2,432		0.09		10,395,002		3,265		0.13		10,703,431		8,509		0.32
FHLB advances and other borrowings	1,670		1		0.24		6,303		—		—		41,041		113		1.10
Subordinated debentures	330,575		4,545		5.50		480,415		6,493		5.41		501,396		6,823		5.44
Total borrowings	332,245		4,546		5.43		486,718		6,493		5.35		542,437		6,936		5.09
Total interest-bearing liabilities	10,868,336		6,978		0.25		10,881,720		9,758		0.36		11,245,868		15,445		0.55
Noninterest-bearing deposits	6,809,211						6,341,063						5,877,619
Other liabilities	282,556						320,324						553,407
Total liabilities	17,960,103						17,543,107						17,676,894
Stockholders’ equity	2,844,800						2,747,308						2,689,867
Total liabilities and equity	$	20,804,903					$	20,290,415					$	20,366,761
Net interest income			$	169,069					$	160,934					$	166,546

Net interest margin (3)					3.51	%					3.44	%					3.54	%
Cost of deposits (4)					0.06						0.08						0.20
Cost of funds (5)					0.16						0.23						0.36
Ratio of interest-earning assets to interest-bearing liabilities					176.03						172.62						166.35

(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 $9.4 million, $9.5 million, and $12.2 million, respectively.

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

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

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

104


	Average Balance Sheet
	Nine Months Ended
	September 30, 2021						September 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	$	1,096,175	$	811	0.10	%	$	802,615	$	736	0.12	%
Investment securities	4,382,288		54,307		1.65	%	2,196,929		35,107		2.13	%
Loans receivable, net (1)(2)	13,325,683		464,615		4.66	%	11,317,620		414,059		4.89	%
Total interest-earning assets	18,804,146		519,733		3.70	%	14,317,164		449,902		4.20	%
Noninterest-earning assets	1,562,016						1,411,304
Total assets	$	20,366,162					$	15,728,468
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,200,920	$	1,045	0.04	%	$	1,666,723	$	2,644	0.21	%
Money market	5,520,919		5,899		0.14	%	4,302,817		16,606		0.52	%
Savings	384,945		224		0.08	%	293,653		307		0.14	%
Retail certificates of deposit	1,304,436		2,815		0.29	%	1,225,689		7,710		0.84	%
Wholesale/brokered certificates of deposit	39,635		140		0.47	%	178,133		1,384		1.04	%
Total interest-bearing deposits	10,450,855		10,123		0.13	%	7,667,015		28,651		0.50	%
FHLB advances and other borrowings	9,921		66		0.89	%	173,649		1,411		1.09	%
Subordinated debentures	436,888		17,889		5.46	%	335,260		13,827		5.50	%
Total borrowings	446,809		17,955		5.37	%	508,909		15,238		4.00	%
Total interest-bearing liabilities	10,897,664		28,078		0.34	%	8,175,924		43,889		0.72	%
Noninterest-bearing deposits	6,397,703						4,922,726
Other liabilities	289,863						308,680
Total liabilities	17,585,230						13,407,330
Stockholders’ equity	2,780,932						2,321,138
Total liabilities and equity	$	20,366,162					$	15,728,468
Net interest income			$	491,655					$	406,013

Net interest margin (3)					3.50	%					3.79	%
Cost of deposits (4)					0.08	%					0.30	%
Cost of funds (5)					0.22	%					0.45	%
Ratio of interest-earning assets to interest-bearing liabilities					172.55	%					175.11	%

_____________________________

(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 $28.8 million and $22.1 million, respectively.

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

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

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

105

•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 September 30, 2021 Compared to Three Months Ended June 30, 2021 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(204)	$	2	$	82	$	(120)
Investment securities	1,919		—		(1,104)		815
Loans receivable, net	4,820		1,707		(1,867)		4,660
Total interest-earning assets	6,535		1,709		(2,889)		5,355
Interest-bearing liabilities
Interest checking	20		3		(69)		(46)
Money market	(1)		14		(706)		(693)
Savings	4		1		(31)		(26)
Retail certificates of deposit	(72)		8		—		(64)
Wholesale/brokered certificates of deposit	(4)		—		—		(4)
FHLB advances and other borrowings	(3)		—		4		1
Subordinated debentures	(2,058)		—		110		(1,948)
Total interest-bearing liabilities	(2,114)		26		(692)		(2,780)
Change in net interest income	$	8,649	$	1,683	$	(2,197)	$	8,135

106


	Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(303)	$	193	$	(110)
Investment securities	5,740		(1,144)		4,596
Loans receivable, net	(4,175)		(6,255)		(10,430)
Total interest-earning assets	1,262		(7,206)		(5,944)
Interest-bearing liabilities
Interest checking	154		(1,055)		(901)
Money market	57		(3,603)		(3,546)
Savings	16		(67)		(51)
Retail certificates of deposit	(384)		(698)		(1,082)
Wholesale/brokered certificates of deposit	(249)		(248)		(497)
FHLB advances and other borrowings	(62)		(50)		(112)
Subordinated debentures	(2,354)		76		(2,278)
Total interest-bearing liabilities	(2,822)		(5,645)		(8,467)
Change in net interest income	$	4,084	$	(1,561)	$	2,523



	Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Increase (Decrease) due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	143	$	(3)	$	(65)	$	75
Investment securities	24,846		—		(5,646)		19,200
Loans receivable, net	71,109		(1,702)		(18,851)		50,556
Total interest-earning assets	$	96,098	$	(1,705)	$	(24,562)	$	69,831
Interest-bearing liabilities
Interest checking	$	2,410	$	(4)	$	(4,005)	$	(1,599)
Money market	6,750		(22)		(17,435)		(10,707)
Savings	96		(1)		(178)		(83)
Retail certificates of deposit	532		(10)		(5,417)		(4,895)
Wholesale/brokered certificates of deposit	(727)		(1)		(516)		(1,244)
FHLB advances and other borrowings	(1,125)		—		(220)		(1,345)
Subordinated debentures	4,209		—		(147)		4,062
Total interest-bearing liabilities	$	12,145	$	(38)	$	(27,918)	$	(15,811)
Change in net interest income	$	83,953	$	(1,667)	$	3,356	$	85,642

107

Provision for Credit Losses


	Three Months Ended
	September 30,		June 30,		September 30,
(Dollars in thousands)	2021		2021		2020
Provision for credit losses
Provision for loan losses	$	(19,543)	$	(33,131)	$	4,702
Provision for unfunded commitments	(194)		(5,345)		(492)

Provision for held-to-maturity securities	$	11	$	—	$	—
Total provision for credit losses	$	(19,726)	$	(38,476)	$	4,210


	Nine Months Ended
	September 30,		September 30,
(Dollars in thousands)	2021		2020
Provision for credit losses
Provision for loans and lease losses	$	(52,359)	$	180,341
Provision for unfunded commitments	(3,880)		9,958

Provision for held-to-maturity securities	$	11	$	—
Total provision for credit losses	$	(56,228)	$	190,299

108

Noninterest Income

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


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Noninterest income
Loan servicing income	$	536	$	622	$	481	$	1,616	$	1,395
Service charges on deposit accounts	2,375		2,222		1,593		6,629		4,707
Other service fee income	350		352		487		1,175		1,095
Debit card interchange fee income	834		1,099		944		2,720		1,749
Earnings on bank-owned life insurance	3,266		2,279		2,270		7,778		4,920
Net gain from sales of loans	1,187		1,546		9,542		3,094		8,281
Net gain from sales of investment securities	4,190		5,085		1,141		13,321		8,880



Trust custodial account fees	11,446		7,897		6,960		26,565		9,357
Escrow and exchange fees	1,867		1,672		1,142		5,065		1,407
Other income	4,049		3,955		2,198		12,606		6,340
Total noninterest income	$	30,100	$	26,729	$	26,758	$	80,569	$	48,131

Noninterest income for the third quarter of 2021 increased $3.3 million, compared to the third quarter of 2020. The increase was primarily due to a $4.5 million increase in trust custodial account fees, a $3.0 million increase in net gain from sales of investment securities, a $1.9 million increase in other income, and a $996,000 increase in earnings on BOLI, partially offset by a $8.4 million decrease in net gain from the sales of loans.

The net gain from sales of loans for the third quarter of 2021 decreased from the same period last year primarily due to the sales of $12.0 million of SBA loans for a net gain of $1.2 million, compared with the sales of $1.16 billion SBA PPP loans for a net gain of $19.0 million in the third quarter of 2020, offset by sales of $96.2 million of other loans for a net loss of $9.4 million during the third quarter of 2020.

109

Noninterest Expense

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


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2021		2021		2020		2021		2020
Noninterest expense
Compensation and benefits	$	53,592	$	53,474	$	51,021	$	159,614	$	128,408
Premises and occupancy	12,611		12,240		12,373		36,831		30,028
Data processing	6,296		5,765		6,783		17,889		14,501
Other real estate owned operations, net	—		—		(17)		—		6
FDIC insurance premiums	1,392		1,312		1,145		3,885		2,358
Legal and professional services	4,563		4,186		5,108		12,684		11,328
Marketing expense	2,008		1,490		1,718		5,096		4,449
Office expense	1,076		1,589		2,389		4,494		5,025
Loan expense	1,332		1,165		802		3,612		2,447
Deposit expense	3,974		3,985		4,728		11,818		14,674
Merger-related expense	—		—		2,988		5		44,058
Amortization of intangible assets	3,912		4,001		4,538		12,056		12,567
Other expense	5,284		5,289		5,003		15,041		11,331
Total noninterest expense	$	96,040	$	94,496	$	98,579	$	283,025	$	281,180

Noninterest expense totaled $96.0 million for the third quarter of 2021, an increase of $1.5 million compared to the second quarter of 2021, driven primarily by a $531,000 increase in data processing expense and a $518,000 increase in marketing expense.

Noninterest expense decreased by $2.5 million compared to the third quarter of 2020. The decrease was primarily due to $3.0 million of merger-related expense for the third quarter of 2020 relating to the Opus acquisition. Excluding merger-related expense, noninterest expense increased $449,000 compared to the third quarter of 2020, primarily due to a $2.6 million increase in compensation and benefits, partially offset by a $1.3 million decrease in office expense.

Noninterest expense totaled $283.0 million for the first nine months of 2021, an increase of $1.8 million, compared with the first nine months of 2020. The increase was driven primarily by increases of $31.2 million in compensation and benefits, $6.8 million in premises and occupancy, $3.7 million in other expense, $3.4 million in data processing, $1.5 million in FDIC insurance premiums, and $1.4 million in legal and professional services, all impacted by the additional operations, personnel, branches, and divisions retained with the acquisition of Opus, partially offset by a $44.1 million decrease in merger-related expense relating to the Opus acquisition.

The Company’s efficiency ratio was 47.5% for the third quarter of 2021, compared to 49.4% for the second quarter of 2021 and 47.4% for the third quarter of 2020. The Company’s efficiency ratio was 48.5% for the first nine months of 2021, compared to 50.4% for the first nine months of 2020.

110

Income Taxes

For the three months ended ~~March 31,~~September 30, 2021, ~~December 31, 2020,~~June 30, 2021, and ~~March 31,~~September 30, 2020, income tax expense was ~~$22.3~~$32.8 million, ~~$22.8~~$35.3 million, and ~~$5.8~~$23.9 million, respectively, and the effective income tax rate was ~~24.5%~~26.7%, ~~25.4%~~26.8%, and ~~18.5%~~26.5%, respectively. Our effective tax rate for the three months ended ~~March 31,~~September 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~~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 decrease in effective tax rate, compared to the fourth quarter of 2020, was primarily due to the excess tax benefit from stock-based compensation recognized in the first quarter of 2021. The lower effective tax rate from the first quarter of 2020 was due to a one-time federal tax benefit of $2.6 million associated with net operating loss (“NOL”) carryback related to our acquisition of Grandpoint Capital, Inc. in 2018 as a result of the CARES Act that was signed into law in March 2020 in response to the outbreak of COVID-19. With the passage of the CARES Act, the Company is permitted to carry back NOLs to prior tax years, which have higher income tax rates at which these benefits can be realized.

~~The~~ total amount of unrecognized tax benefits was $1.7 million and $255,000 as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively, and was primarily comprised of unrecognized tax benefits related to the Opus acquisition in 2020. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate was $749,000 and $184,000 at ~~March 31,~~September 30, 2021 and December 31, ~~2020.~~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 ~~$24,000~~$28,000 and $22,000 of such interest at ~~March 31,~~September 30, 2021 and December 31, 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 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. Based on the analysis, the Company has determined that a valuation allowance against capital loss carryforward of ~~$199,000~~$170,000 was required as of ~~March 31,~~September 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 ~~$199,000,~~$170,000, a valuation allowance for deferred tax assets was not required as of ~~March 31,~~September 30, 2021 and December 31, 2020.

~~102~~111

FINANCIAL CONDITION

At ~~March 31,~~September 30, 2021, assets totaled ~~$20.17~~$21.01 billion, an increase of ~~$436.8 million,~~$1.27 billion, or ~~2.2%~~6.4%, from $19.74 billion at December 31, 2020. The increase was primarily due to increases in investment securities, total loans, and BOLI of $925.5 million, $753.9 million, and $154.6 million, respectively, partially offset by a $558.4 million decrease in cash and cash ~~equivalents, partially offset by decreases of $112.3 million~~equivalents. The increase in ~~total loans, $75.6 million in investment securities, and $52.1 million in other assets. The decrease in other assets~~BOLI was ~~primarily~~ due to ~~lower accounts receivable, interest rate swap assets, and right-of-use assets.~~a $150 million purchase of additional BOLI in June 2021.

Loans

Loans held for investment totaled ~~$13.12~~$13.98 billion at ~~March 31,~~September 30, 2021, ~~a decrease~~an increase of ~~$119.0~~$746.4 million, or ~~0.9%~~5.6%, from $13.24 billion at December 31, 2020. The ~~decrease~~increase was driven by ~~loan maturities, prepayments, and lower line utilization rates,~~an increase in loans funded during the first nine months of 2021, partially offset by ~~higher funded loans in the first quarter of 2021.~~loan maturities and prepayments. Business line average utilization rates decreased from ~~36.1% at the end of~~35.28% for the fourth quarter of 2020 to ~~29.7% at~~33.12% for the ~~end of the first~~third quarter of 2021. Since December 31, 2020, investor loans secured by real estate increased ~~$186.5 million, commercial loans decreased $159.5~~$645.2 million, business loans secured by real estate ~~decreased $96.8~~increased $125.0 million, commercial loans increased $65.0 million, and retail loans decreased ~~$49.1~~$88.8 million.

Loans held for sale were $8.1 million at September 30, 2021, which primarily represent the guaranteed portion of SBA ~~and USDA~~ loans that the Bank originates for sale, and increased by ~~$6.7~~$7.5 million from $601,000 at December 31, ~~2020 to $7.3 million at March 31, 2021.~~2020.

The total end-of-period weighted average interest rate on loans, net of fees and discounts, at ~~March 31,~~September 30, 2021 was ~~4.21%~~4.03%, compared to 4.27% at December 31, 2020. The decrease reflects the impact of lower rates on new originations ~~as well as~~and the ~~repricing~~continued impact from prepayments of ~~loans as a result of the Federal Reserve’s federal funds~~higher rate ~~decrease in March 2020.~~loans.

~~103~~112

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:


		March 31, 2021						December 31, 2020							September 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	$	2,729,785	20.8	%	4.32	%	$	2,675,085	20.2	%	4.35	%	CRE non-owner-occupied	$	2,823,065	20.2	%	4.24	%	$	2,675,085	20.2	%	4.35	%
Multifamily	Multifamily	5,309,592		40.5		3.98		5,171,356		39.1		4.04		Multifamily	5,705,666		40.8		3.81		5,171,356		39.1		4.04
Construction and land	Construction and land	316,458		2.4		5.33		321,993		2.4		5.60		Construction and land	292,815		2.1		4.94		321,993		2.4		5.60
SBA secured by real estate	SBA secured by real estate	56,381		0.4		5.00		57,331		0.4		5.01		SBA secured by real estate	49,446		0.3		4.98		57,331		0.4		5.01
Total investor loans secured by real estate	Total investor loans secured by real estate	8,412,216		64.1		4.15		8,225,765		62.1		4.21		Total investor loans secured by real estate	8,870,992		63.4		3.99		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	2,029,984		15.5		4.37		2,114,050		16.0		4.45		CRE owner-occupied	2,242,164		16.0		4.16		2,114,050		16.0		4.45
Franchise real estate secured	Franchise real estate secured	340,805		2.6		4.96		347,932		2.6		5.07		Franchise real estate secured	354,481		2.6		4.70		347,932		2.6		5.07
SBA secured by real estate	SBA secured by real estate	73,967		0.6		5.24		79,595		0.6		5.21		SBA secured by real estate	69,937		0.5		5.28		79,595		0.6		5.21
Total business loans secured by real estate	Total business loans secured by real estate	2,444,756		18.7		4.47		2,541,577		19.2		4.56		Total business loans secured by real estate	2,666,582		19.1		4.26		2,541,577		19.2		4.56
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	1,656,098		12.6		3.89		1,768,834		13.4		3.85		Commercial and industrial	1,888,870		13.5		3.64		1,768,834		13.4		3.85
Franchise non-real estate secured	Franchise non-real estate secured	399,041		3.0		5.31		444,797		3.4		5.40		Franchise non-real estate secured	392,950		2.8		4.91		444,797		3.4		5.40
SBA non-real estate secured	SBA non-real estate secured	14,908		0.1		5.61		15,957		0.1		5.62		SBA non-real estate secured	12,732		0.1		5.62		15,957		0.1		5.62

Total commercial loans	Total commercial loans	2,070,047		15.7		4.17		2,229,588		16.9		4.16		Total commercial loans	2,294,552		16.4		3.86		2,229,588		16.9		4.16
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	184,049		1.4		4.24		232,574		1.8		4.28		Single family residential	144,309		1.0		4.14		232,574		1.8		4.28
Consumer	Consumer	6,324		0.1		5.24		6,929		—		5.56		Consumer	6,426		0.1		4.81		6,929		—		5.56
Total retail loans	Total retail loans	190,373		1.5		4.27		239,503		1.8		4.31		Total retail loans	150,735		1.1		4.17		239,503		1.8		4.31
Gross loans held for investment (1)	Gross loans held for investment (1)	13,117,392		100.0	%	4.21		13,236,433		100.0	%	4.27		Gross loans held for investment (1)	13,982,861		100.0	%	4.03		13,236,433		100.0	%	4.27
Allowance for credit losses for loans held for investment	Allowance for credit losses for loans held for investment	(266,999)						(268,018)						Allowance for credit losses for loans held for investment	(211,481)						(268,018)
Loans held for investment, net	Loans held for investment, net	$	12,850,393					$	12,968,415					Loans held for investment, net	$	13,771,380					$	12,968,415

Total unfunded loan commitments														Total unfunded loan commitments	$	2,504,188					$	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	$	7,311					$	601					Loans held for sale, at lower of cost or fair value	$	8,100					$	601

~~104~~113

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 where we generally acquire title to the property. Loans delinquent 30 or more days as a percentage of loans held for investment were ~~0.17%~~0.14% at ~~March 31,~~September 30, 2021, compared to 0.10% at December 31, 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
		# 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 March 31, 2021
(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 September 30, 2021																		At September 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	$	9,743		—	$	—		1	$	548		3	$	10,291		CRE non-owner-occupied	—	$	—		—	$	—		3	$	10,268		3	$	10,268

SBA secured by real estate	SBA secured by real estate	—	—			—	—			2	440			2	440			SBA secured by real estate	—	—			1	629			2	347			3	976
Total investor loans secured by real estate	Total investor loans secured by real estate	2	9,743			—	—			3	988			5	10,731			Total investor loans secured by real estate	—	—			1	629			5	10,615			6	11,244
Business loans secured by real estate	Business loans secured by real estate																	Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	—	—			—	—			4	5,304			4	5,304			CRE owner-occupied	—	—			—	—			3	4,978			3	4,978

SBA secured by real estate	SBA secured by real estate	—	—			—	—			2	660			2	660			SBA secured by real estate	—	—			—	—			1	441			1	441
Total business loans secured by real estate	Total business loans secured by real estate	—	—			—	—			6	5,964			6	5,964			Total business loans secured by real estate	��	—			—	—			4	5,419			4	5,419
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	5	3,068			4	61			2	1,766			11	4,895			Commercial and industrial	4	654			1	14			3	1,816			8	2,484

SBA non-real estate secured	SBA non-real estate secured	1	305			—	—			1	692			2	997			SBA non-real estate secured	1	74			1	293			1	664			3	1,031
Total commercial loans	Total commercial loans	6	3,373			4	61			3	2,458			13	5,892			Total commercial loans	5	728			2	307			4	2,480			11	3,515
Retail loans

Total retail loans		—	—			—	—			—	—			—	—

Total	Total	8	$	13,116		4	$	61		12	$	9,410		24	$	22,587		Total	5	$	728		3	$	936		13	$	18,514		21	$	20,178
Delinquent loans to loans held for investment	Delinquent loans to loans held for investment		0.10		%		—		%		0.07		%		0.17		%	Delinquent loans to loans held for investment		0.01		%		0.01		%		0.12		%		0.14		%

~~105~~114


		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
		(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																	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	$	757		2	$	757		CRE non-owner-occupied	—	$	—		—	$	—		2	$	757		2	$	757
Multifamily	Multifamily	1	1			—	—			—	—			1	1			Multifamily	1	1			—	—			—	—			1	1

SBA secured by real estate	SBA secured by real estate	—	—			—	—			3	1,257			3	1,257			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	1	1			—	—			5	2,014			6	2,015			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	—	—			—	—			4	5,304			4	5,304			CRE owner-occupied	—	—			—	—			4	5,304			4	5,304

SBA secured by real estate	SBA secured by real estate	1	486			—	—			5	1,073			6	1,559			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	486			—	—			9	6,377			10	6,863			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	10	428			2	57			6	2,898			18	3,383			Commercial and industrial	10	428			2	57			6	2,898			18	3,383

SBA non-real estate secured	SBA non-real estate secured	2	338			—	—			1	707			3	1,045			SBA non-real estate secured	2	338			—	—			1	707			3	1,045
Total commercial loans	Total commercial loans	12	766			2	57			7	3,605			21	4,428			Total commercial loans	12	766			2	57			7	3,605			21	4,428
Retail loans	Retail loans																	Retail loans
Single family residential (5)		1	15			—	—			—	—			1	15
Single family residential																		Single family residential	1	15			—	—			—	—			1	15
Consumer	Consumer	1	1			—	—			—	—			1	1			Consumer	1	1			—	—			—	—			1	1
Total retail loans	Total retail loans	2	16			—	—			—	—			2	16			Total retail loans	2	16			—	—			—	—			2	16
Total	Total	16	$	1,269		2	$	57		21	$	11,996		39	$	13,322		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		0.01		%		—		%		0.09		%		0.10		%	Delinquent loans to loans held for investment		0.01		%		—		%		0.09		%		0.10		%

~~106~~115

Troubled Debt Restructurings

In accordance with the CARES Act, the Company implemented various loan modification programs beginning in April 2020 to provide its borrowers relief from the economic impacts of COVID-19 and determined none of the COVID-19 related loan modifications need to be characterized as TDRs. As of ~~March 31,~~September 30, 2021, ~~there were~~ no loans ~~remaining within their~~were classified as a COVID-19 modification ~~period due to COVID-19 hardship~~ under Section 4013 of the CARES ~~Act.~~Act, and no loans were in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for 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), 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 ~~$38.9~~$35.1 million, or ~~0.19%~~0.17% of total assets, at ~~March 31,~~September 30, 2021, an increase from $29.2 million, or 0.15% of total assets, at December 31, 2020. There was no other real estate owned at ~~March 31,~~September 30, 2021 and December 31, 2020. The increase in nonperforming assets during the ~~three~~nine month period ending ~~March 31,~~September 30, 2021 was primarily attributable to ~~$12.6~~$11.7 million of nonperforming loans added ~~during~~since the ~~quarter,~~end of 2020, primarily CRE non-owner occupied ~~loans,~~ and ~~to a lesser extent commercial and industrial~~franchise non-real estate secured loans, partially offset by loan charge-offs and repayments during the ~~quarter.~~nine months ended September 30, 2021. The Company had no loans 90 days or more past due and accruing at ~~March 31,~~September 30, 2021 and December 31, 2020.

~~107~~116

The following table sets forth our composition of nonperforming assets at the dates indicated:


		March 31, 2021			December 31, 2020
		(Dollars in thousands)
(Dollars in thousands)								(Dollars in thousands)	September 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	$	12,284		$	2,792		CRE non-owner-occupied	$	12,179		$	2,792

SBA secured by real estate	SBA secured by real estate	440			1,257			SBA secured by real estate	976			1,257
Total investor loans secured by real estate	Total investor loans secured by real estate	12,724			4,049			Total investor loans secured by real estate	13,155			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	6,060			6,083			CRE owner-occupied	4,978			6,083

SBA secured by real estate	SBA secured by real estate	727			1,143			SBA secured by real estate	604			1,143
Total business loans secured by real estate	Total business loans secured by real estate	6,787			7,226			Total business loans secured by real estate	5,582			7,226
Commercial loans	Commercial loans							Commercial loans
Commercial and industrial	Commercial and industrial	5,610			3,974			Commercial and industrial	2,259			3,974
Franchise non-real estate secured	Franchise non-real estate secured	13,082			13,238			Franchise non-real estate secured	13,419			13,238
SBA non-real estate secured	SBA non-real estate secured	692			707			SBA non-real estate secured	664			707
Total commercial loans	Total commercial loans	19,384			17,919			Total commercial loans	16,342			17,919
Retail loans	Retail loans							Retail loans
Single family residential	Single family residential	14			15			Single family residential	11			15

Total retail loans	Total retail loans	14			15			Total retail loans	11			15
Total nonperforming loans	Total nonperforming loans	38,909			29,209			Total nonperforming loans	35,090			29,209
Other real estate owned	Other real estate owned	—			—			Other real estate owned	—			—
Other assets owned	Other assets owned	—			—			Other assets owned	—			—
Total	Total	$	38,909		$	29,209		Total	$	35,090		$	29,209

Allowance for credit losses	Allowance for credit losses	$	266,999		$	268,018		Allowance for credit losses	$	211,481		$	268,018
Allowance for credit losses as a percent of total nonperforming loans	Allowance for credit losses as a percent of total nonperforming loans	686		%	918		%	Allowance for credit losses as a percent of total nonperforming loans	603		%	918		%
Nonperforming loans as a percent of loans held for investment	Nonperforming loans as a percent of loans held for investment	0.30			0.22			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	0.19			0.15			Nonperforming assets as a percent of total assets	0.17			0.15

TDRs included in nonperforming loans								TDRs included in nonperforming loans	$	17,557		—

~~108~~117

Allowance for Credit Losses

The Company ~~accounts~~determines the ACL 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 expected estimated fair value of the underlying collateral.

The Company measures the ACL on commercial real estate and commercial loans using a discounted cash flow approach, using the loan’s effective interest rate, while the ACL for retail loans is based on a historical loss rate model. The discounted cash flow methodology relies on several significant components essential to the development of estimates for future cash flows on loans and unfunded commitments. These components consist of: (i) the 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 ~~commercial~~investor loans secured by 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~~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 ~~commercial~~these loans result in changes in probability of default. The Company obtains loss given default for ~~commercial~~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 ~~this segment.~~these segments.

Probability of default for both ~~commercial~~investor and business real estate ~~and~~loans, as well as 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 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.

~~109~~118

As of ~~March 31,~~September 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~~a weighting of 30%. These economic scenarios 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 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 inat September 30, 2021 and the ~~first quarter of 2021~~weighting assigned to each scenario is consistent with the approach used in the Company’s ACL model ~~during the fourth quarter of 2020.~~

~~As of March 31, 2020,~~at June 30, 2021 and in response to the onset of the COVID-19 pandemic, the Company with the assistance of an independent third party, determined it appropriate to include an economic scenario in its ACL model that was reflective of the estimated economic effects of the pandemic, including the responses to contain the pandemic. This scenario was referred to as the critical pandemic scenario. Additionally, the Company evaluated the weightings of each economic scenario in the first quarter of 2020 with the assistance of an independent third party, and revised those weightings to levels it believed appropriate to reflect the likelihood of outcomes for each scenario given the change in economic environment during the first quarter of 2020. As such, for the three months ended March 31, 2020, the Company’s ACL model incorporated three economic scenarios comprised of: the critical pandemic scenario weighted 30%, the more severe (as compared to the critical pandemic scenario) downside scenario weighted 32.5% and the base-case scenario weighted 37.5%. These weightings were reflective of rapidly changing economic conditions, economic uncertainty and volatility in financial markets due to the onset of the COVID-19 pandemic, and the estimated likelihood that each scenario may occur as of MarchDecember 31, 2020.

The Company, with the assistance of Moody’s Analytics, currently forecasts probability of default and loss given default 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~~probability of default and ~~supportable forecast, economic variables~~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.

~~110~~

As of ~~March 31,~~September 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:

119

Upside Scenario:

Downside Scenario:

~~111~~

The Company periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL. As of ~~March 31,~~September 30, 2021, qualitative adjustments included in the ACL totaled ~~$8.0~~$6.5 million. These adjustments primarily relate to ~~potential limitations in the model, as well as~~ 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 ~~certain key model drivers~~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 ~~commercial real estate,~~loans within the SBA, construction, franchise, ~~real estate secured loans,~~ and ~~SBA hotel loans.~~CRE owner-occupied 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.

~~At March 31, 2021, our ACL on loans was $267.0 million, a decrease of $1.0 million from $268.0 million at December 31, 2020.~~

120

The increase in the ACL for the three months ended September 30, 2020 of $232,000 was comprised of a $4.7 million provision for credit losses and ~~$1.3~~$4.5 million in net charge-offs. The provision for credit losses for the three months ended ~~March 31, 2021~~September 30, 2020 is reflective of ~~continued~~ unfavorable, but improving economic ~~conditions and~~ forecasts used in the Company’s ACL model.

The ~~change~~increase in the ACL for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 of ~~$79.7~~$246.8 million is 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 ~~$25.4~~$180.3 million provision for credit losses on loans, ~~and~~ net charge-offs of ~~$1.3 million.~~$10.5 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses of $180.3 million during the nine months ended September 30, 2020 is inclusive of $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). Excluding the impact of the Opus acquisition, the provision for credit losses for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 is also reflective of unfavorable ~~changes in~~ economic forecasts used in the Company’s ACL model driven by the COVID-19 pandemic.

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 ~~March 31,~~September 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.

~~112~~121

The following table sets forth the Company’s ACL, its corresponding percentage of the loan category balance, and the percentage of loan balance to total gross loans in each of the loan categories listed for the periods indicated:


		March 31, 2021						December 31, 2020							September 30, 2021						December 31, 2020
Balance at end of period applicable to		Amount		Allowance as a % of Category Total		% of Loans in Category to Total Loans		Amount		Allowance as a % of Category Total		% of Loans in Category to Total Loans
		(Dollars in thousands)
(Dollars in thousands)														(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	Investor loans secured by real estate													Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	45,545	1.67	%	20.8	%	$	49,176	1.84	%	20.2	%	CRE non-owner-occupied	$	42,467	1.50	%	20.2	%	$	49,176	1.84	%	20.2	%
Multifamily	Multifamily	79,815		1.50		40.5		62,534		1.21		39.1		Multifamily	52,164		0.91		40.8		62,534		1.21		39.1
Construction and land	Construction and land	13,263		4.19		2.4		12,435		3.86		2.4		Construction and land	8,017		2.74		2.1		12,435		3.86		2.4
SBA secured by real estate	SBA secured by real estate	5,141		9.12		0.4		5,159		9.00		0.4		SBA secured by real estate	3,879		7.84		0.3		5,159		9.00		0.4
Total investor loans secured by real estate	Total investor loans secured by real estate	143,764		1.71		64.1		129,304		1.57		62.1		Total investor loans secured by real estate	106,527		1.20		63.4		129,304		1.57		62.1
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	41,594		2.05		15.5		50,517		2.39		16.0		CRE owner-occupied	33,679		1.50		16.0		50,517		2.39		16.0
Franchise real estate secured	Franchise real estate secured	10,876		3.19		2.6		11,451		3.29		2.6		Franchise real estate secured	9,626		2.72		2.6		11,451		3.29		2.6
SBA secured by real estate	SBA secured by real estate	6,451		8.72		0.6		6,567		8.25		0.6		SBA secured by real estate	5,104		7.30		0.5		6,567		8.25		0.6
Total business loans secured by real estate	Total business loans secured by real estate	58,921		2.41		18.7		68,535		2.70		19.2		Total business loans secured by real estate	48,409		1.82		19.1		68,535		2.70		19.2
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	43,373		2.62		12.6		46,964		2.66		13.4		Commercial and industrial	37,595		1.99		13.5		46,964		2.66		13.4
Franchise non-real estate secured	Franchise non-real estate secured	18,903		4.74		3.0		20,525		4.61		3.4		Franchise non-real estate secured	17,518		4.46		2.8		20,525		4.61		3.4
SBA non-real estate secured	SBA non-real estate secured	890		5.97		0.1		995		6.24		0.1		SBA non-real estate secured	632		4.96		0.1		995		6.24		0.1

Total commercial loans	Total commercial loans	63,166		3.05		15.7		68,484		3.07		16.9		Total commercial loans	55,745		2.43		16.4		68,484		3.07		16.9
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	822		0.45		1.4		1,204		0.52		1.8		Single family residential	529		0.37		1.0		1,204		0.52		1.8
Consumer loans	Consumer loans	326		5.15		0.1		491		7.09		—		Consumer loans	271		4.22		0.1		491		7.09		—
Total retail loans	Total retail loans	1,148		0.60		1.5		1,695		0.71		1.8		Total retail loans	800		0.53		1.1		1,695		0.71		1.8
Total	Total	$	266,999	2.04	%	100.0	%	$	268,018	2.02	%	100.0	%	Total	$	211,481	1.51	%	100.0	%	$	268,018	2.02	%	100.0	%

At ~~March 31,~~September 30, 2021, the ratio of allowance for credit losses to loans held for investment was ~~2.04%~~1.51%, ~~an increase~~a decrease from 2.02% at December 31, 2020. Our unamortized fair value discount on the loans acquired totaled ~~$103.9~~$85.0 million, or ~~0.79%~~0.60% of total loans held for investment, at ~~March 31,~~September 30, 2021, compared to $113.8 million, or 0.85% of total loans held for investment, at December 31, 2020.

~~113~~122

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)									Three Months Ended								Nine Months Ended
		March 31,			December 31,			March 31,			September 30,		June 30,			September 30,			September 30,			September 30,
		2021			2020			2020
		(Dollars in thousands)
(Dollars in thousands)												(Dollars in thousands)	2021			2021			2020			2021			2020
Balance, beginning of period	Balance, beginning of period	$	268,018		$	282,503		$	35,698			Balance, beginning of period	$	232,774		$	266,999		$	282,271		$	268,018		$	35,698
Adoption of ASC 326		—			—			55,686

Provision (recapture) for credit losses		315			(8,079)			25,382
Charge-offs:
Adoption of ASC 326 (1)												Adoption of ASC 326 (1)	—			—			—			—			55,686
Initial ACL recorded for PCD Loans												Initial ACL recorded for PCD Loans	—			—			—			—			21,242
Provision for credit losses												Provision for credit losses	(19,543)			(33,131)			4,702			(52,359)			180,341
Charge-offs												Charge-offs
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	(154)			(8)			(387)				CRE non-owner-occupied	—			—			(443)			(154)			(830)

Construction and land	Construction and land	—			(162)			—				Construction and land	—			—			(377)			—			(377)
SBA secured by real estate	SBA secured by real estate	(265)			(6)			—				SBA secured by real estate	(158)			—			(145)			(423)			(699)
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied												CRE owner-occupied	—			—			(1,739)			—			(1,739)

Franchise real estate secured		—			(932)			—
SBA secured by real estate	SBA secured by real estate	(98)			(23)			(315)				SBA secured by real estate	—			—			—			(98)			(315)
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	(1,279)			(1,678)			(490)				Commercial and industrial	(84)			(3,290)			(2,437)			(4,653)			(5,213)
Franchise non-real estate secured	Franchise non-real estate secured	(156)			(5,297)			—				Franchise non-real estate secured	(2,398)			—			(207)			(2,554)			(1,434)
SBA non-real estate secured	SBA non-real estate secured	—			(97)			(236)				SBA non-real estate secured	—			—			(10)			—			(803)
Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	—			(44)			—				Single family residential	—			—			—			—			(62)
Consumer loans	Consumer loans	—			(2)			(8)				Consumer loans	—			—			(129)			—			(137)
Total charge-offs	Total charge-offs	(1,952)			(8,249)			(1,436)				Total charge-offs	(2,640)			(3,290)			(5,487)			(7,882)			(11,609)
Recoveries:
Recoveries												Recoveries
Investor loans secured by real estate	Investor loans secured by real estate											Investor loans secured by real estate
CRE non-owner occupied		—			44			—

SBA secured by real estate												SBA secured by real estate	—			—			34			—			34
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	15			15			12				CRE owner-occupied	14			15			21			44			44

SBA secured by real estate	SBA secured by real estate	—			—			71				SBA secured by real estate	50			80			76			130			147
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	601			1,781			5				Commercial and industrial	729			2,098			10			3,428			37

Franchise non-real estate secured												Franchise non-real estate secured	80			—			865			80			865
SBA non-real estate secured	SBA non-real estate secured	2			1			4				SBA non-real estate secured	15			2			8			19			13
Retail loans	Retail loans											Retail loans

Single family residential												Single family residential	2			1			2			3			3
Consumer loans	Consumer loans	—			2			—				Consumer loans	—			—			1			—			2
Total recoveries	Total recoveries	618			1,843			92				Total recoveries	890			2,196			1,017			3,704			1,145
Net loan charge-offs	Net loan charge-offs	(1,334)			(6,406)			(1,344)				Net loan charge-offs	(1,750)			(1,094)			(4,470)			(4,178)			(10,464)
Balance, end of period	Balance, end of period	$	266,999		$	268,018		$	115,422			Balance, end of period	$	211,481		$	232,774		$	282,503		$	211,481		$	282,503

Ratios:
Ratios												Ratios
Annualized net charge-offs to average total loans, net	Annualized net charge-offs to average total loans, net	0.04		%	0.19		%	0.06		%		Annualized net charge-offs to average total loans, net	0.05		%	0.03		%	0.13		%	0.04		%	0.12		%
Allowance for loan losses to loans held for investment at end of period	Allowance for loan losses to loans held for investment at end of period	2.04			2.02			1.32				Allowance for loan losses to loans held for investment at end of period	1.51			1.71			2.10			1.51			2.10

Allowance for loan losses to loans held for investment at end of period, excluding SBA PPP loans												Allowance for loan losses to loans held for investment at end of period, excluding SBA PPP loans	1.51			1.71			2.10			1.51			2.10

(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.

~~114~~123

Investment Securities

We primarily use our investment portfolio for liquidity purposes, capital preservation, and to support our interest rate risk management strategies. Investments totaled ~~$3.88~~$4.88 billion at ~~March 31,~~September 30, 2021, ~~a decrease~~an increase of ~~$75.6~~$925.5 million, or ~~1.9%~~23.4%, from $3.95 billion at December 31, 2020. The ~~decrease~~increase was primarily the result of ~~$175.3~~$2.08 billion in purchases, primarily mortgage-backed securities, partially offset by $617.1 million in sales, ~~$170.4~~$456.8 million in principal payments, amortization, and redemptions, and a ~~$105.7~~$79.7 million decrease in mark-to-market fair value ~~adjustments, partially offset by $375.8~~adjustments.

During the third quarter of 2021, the Company reassessed classification of certain investment securities and transferred approximately $157.6 million ~~in purchases, primarily~~of municipal bonds ~~mortgage-backed~~from available-for-sale to held-to-maturity securities. The transfer of these securities was accounted for at fair value with a net carrying amount of $154.5 million and ~~agency~~pre-tax unrealized loss of $3.2 million reflected as a discount on the date of transfer. This discount, as well as the related unrealized loss in accumulated other comprehensive income, is 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 largely offsets the effect on interest income of the amortization of the discount. No gains or losses were recorded at the time of transfer. See Note 5 — Investment Securities to the consolidated financial statements in this Form 10-Q.

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 September 30, 2021, the Company had an ACL of $11,000 for held-to-maturity investment securities. These securities were transferred from available-for-sale to held-to-maturity during the third quarter of 2021. The Company did not record an ACL for held-to-maturity investment securities at December 31, 2020, because the likelihood of non-repayment is remote. As of ~~March~~September 30, 2021 and December 31, ~~2021,~~2020, 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~~nine months ended ~~March 31, 2021 and March 31,~~September 30, 2020.

124

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


		March 31, 2021																					September 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	$	—	—	%	$	32,063	2.45	%	$	—	—	%	$	—	—	%	$	32,063	2.45	%	U.S. Treasury	$	—	—	%	$	31,734	2.45	%	$	47,608	1.18	%	$	—	—	%	$	79,342	1.68	%
Agency	Agency	—		—		325,584		1.01		252,084		1.56		85,491		1.81		663,159		1.32		Agency	—		—		353,184		0.92		134,426		1.43		42,483		1.32		530,093		1.08
Corporate	Corporate	94,917		1.00		9,645		3.59		218,536		3.68		34,736		1.72		357,834		2.77		Corporate	10,029		1.00		21,227		1.03		355,135		2.93		—		—		386,391		2.77
Municipal bonds	Municipal bonds	11,286		—		4,912		2.44		38,652		2.53		1,367,212		2.12		1,422,062		2.11		Municipal bonds	—		—		3,731		2.46		96,849		1.81		1,155,286		2.09		1,255,866		2.07
Collateralized mortgage obligations	Collateralized mortgage obligations	—		—		27,373		0.47		207,662		0.81		273,936		1.44		508,971		1.13		Collateralized mortgage obligations	—		—		41,631		0.46		223,612		0.95		396,988		1.19		662,231		1.06
Mortgage-backed securities	Mortgage-backed securities	—		—		2,283		3.41		195,067		2.17		675,898		1.48		873,248		1.63		Mortgage-backed securities	—		—		12,704		2.50		709,155		1.16		1,074,033		1.48		1,795,892		1.36
Total securities available-for-sale	Total securities available-for-sale	106,203		0.89		401,860		1.18		912,001		2.07		2,437,273		1.85		3,857,337		1.80		Total securities available-for-sale	10,029		1.00		464,211		1.04		1,566,785		1.60		2,668,790		1.70		4,709,815		1.59
Investment securities held-to-maturity:	Investment securities held-to-maturity:																					Investment securities held-to-maturity:
Municipal bonds																						Municipal bonds	—		—		—		—		—		—		152,163		2.09		152,163		2.09
Mortgage-backed securities	Mortgage-backed securities	—		—		—		—		—		—		21,426		3.36		21,426		3.36		Mortgage-backed securities	—		—		—		—		—		—		15,459		2.43		15,459		2.43
Other	Other	—		—		—		—		—		—		1,578		0.97		1,578		0.97		Other	—		—		—		—		—		—		1,532		0.97		1,532		0.97
Total securities held-to-maturity	Total securities held-to-maturity	—		—		—		—		—		—		23,004		3.20		23,004		3.20		Total securities held-to-maturity	—		—		—		—		—		—		169,154		2.11		169,154		2.11
Total securities	Total securities	$	106,203	0.89	%	$	401,860	1.18	%	$	912,001	2.07	%	$	2,460,277	1.86	%	$	3,880,341	1.81	%	Total securities	$	10,029	1.00	%	$	464,211	1.04	%	$	1,566,785	1.60	%	$	2,837,944	1.72	%	$	4,878,969	1.61	%

~~115~~125

Liabilities and Stockholders’ Equity

Total liabilities were ~~$17.47~~$18.17 billion at ~~March 31,~~September 30, 2021, compared to $16.99 billion at December 31, 2020. The increase of ~~$480.3 million,~~$1.18 billion, or ~~2.8%~~6.9%, from December 31, 2020 was primarily due to a ~~$525.8 million, or 3.2%,~~$1.26 billion increase in ~~deposits.~~deposits, and a $119.0 million increase in FHLB advances, partially offset by a decrease of $171.1 million in subordinated debentures.

Deposits. At ~~March 31,~~September 30, 2021, deposits totaled ~~$16.74~~$17.47 billion, an increase of ~~$525.8 million,~~$1.26 billion, or ~~3.2%~~7.7%, from $16.21 billion at December 31, 2020. Non-maturity deposits totaled ~~$15.37~~$16.36 billion, or ~~91.8%~~93.6% of total deposits, an increase of ~~$781.9 million,~~$1.77 billion, or ~~5.4%~~12.1%, from December 31, 2020. The increase in deposits included ~~$291.6~~$830.4 million in noninterest-bearing checking, ~~$248.4~~$564.6 million in interest-bearing checking, and $374.6 million in money market/savings, ~~and $241.8 million~~primarily driven by an increase in ~~interest-bearing checking,~~business deposit account balances, partially offset by decreases of ~~$118.1~~$358.4 million in retail certificates of deposit and ~~$137.9~~$155.3 million in brokered certificates of deposit.

The total end of period weighted average rate of deposits at ~~March 31,~~September 30, 2021 was ~~0.12%~~0.04%, a decrease from 0.18% at December 31, 2020, principally driven by lower pricing across all deposit product ~~categories.~~categories as well as the improvement in deposit mix.

Our ratio of loans held for investment to deposits was ~~78.4%~~80.0% and 81.6% at ~~March 31,~~September 30, 2021 and December 31, 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:


		March 31, 2021						December 31, 2020						September 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	$	6,302,703	37.7	%	—	%	$	6,011,106	37.1	%	—	%		Noninterest-bearing checking	$	6,841,495	39.2	%	—	%	$	6,011,106	37.1	%	—	%
Interest-bearing deposits:	Interest-bearing deposits:														Interest-bearing deposits:
Checking	Checking	3,155,071		18.8		0.05		2,913,260		18.0		0.06			Checking	3,477,902		19.9		0.02		2,913,260		18.0		0.06
Money market	Money market	5,533,936		33.1		0.15		5,302,073		32.7		0.23			Money market	5,625,739		32.2		0.06		5,302,073		32.7		0.23
Savings	Savings	377,481		2.2		0.09		360,896		2.2		0.09			Savings	411,793		2.4		0.02		360,896		2.2		0.09
Time deposit accounts:	Time deposit accounts:														Time deposit accounts:
Less than 1.00%	Less than 1.00%	973,988		5.8		0.28		928,830		5.7		0.32			Less than 1.00%	1,054,186		6.0		0.22		928,830		5.7		0.32
1.00 - 1.99	1.00 - 1.99	328,252		2.0		1.55		579,570		3.6		1.49			1.00 - 1.99	52,383		0.3		1.49		579,570		3.6		1.49
2.00 - 2.99	2.00 - 2.99	68,315		0.4		2.27		118,358		0.7		2.34			2.00 - 2.99	6,321		—		2.23		118,358		0.7		2.34
3.00 - 3.99	3.00 - 3.99	223		—		3.56		46		—		4.00			3.00 - 3.99	180		—		3.45		46		—		4.00
4.00 - 4.99	4.00 - 4.99	38		—		4.30		38		—		4.30			4.00 - 4.99	—		—		—		38		—		4.30
5.00 and greater	5.00 and greater	—		—		��		—		—		—			5.00 and greater	—		—		—		—		—		—
Total time deposit accounts	Total time deposit accounts	1,370,816		8.2		0.68		1,626,842		10.0		0.88			Total time deposit accounts	1,113,070		6.4		0.29		1,626,842		10.0		0.88
Total interest-bearing deposits	Total interest-bearing deposits	10,437,304		62.3		0.19		10,203,071		62.9		0.28			Total interest-bearing deposits	10,628,504		60.8		0.07		10,203,071		62.9		0.28
Total deposits	Total deposits	$	16,740,007	100.0	%	0.12	%	$	16,214,177	100.0	%	0.18	%		Total deposits	$	17,469,999	100.0	%	0.04	%	$	16,214,177	100.0	%	0.18	%

~~116~~

At ~~March 31,~~September 30, 2021, we had ~~$1.10 billion~~$881.3 million in certificates of deposit with balances of $100,000 or more, and ~~$638.2~~$514.8 million in certificates of deposit with balances of $250,000 or more with maturities as follows:

At March 31, 2021
$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
(dollars in thousands)
Certificates of deposit
Three months or less $ 138,587 1.08 % 0.83 % $ 287,047 0.71 % 1.71 % $ 425,634 0.83 % 2.54 %
Over three months through 6 months 130,764 0.81 0.78 263,234 0.58 1.57 393,998 0.65 2.35
Over 6 months through 12 months 92,492 0.41 0.55 63,057 0.50 0.38 155,549 0.44 0.93
Over 12 months 104,201 0.54 0.62 24,846 0.85 0.15 129,047 0.60 0.77
Total $ 466,044 0.75 % 2.78 % $ 638,184 0.64 % 3.81 % $ 1,104,228 0.69 % 6.60 %

126


	At September 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	$	75,369	0.37	%	0.43	%	$	336,590	0.15	%	1.93	%	$	411,959	0.19	%	2.36	%
Over three months through 6 months	75,502		0.24		0.43		49,171		0.24		0.28		124,673		0.24		0.71
Over 6 months through 12 months	132,311		0.38		0.76		106,684		0.43		0.61		238,995		0.40		1.37
Over 12 months	83,317		0.34		0.48		22,331		0.41		0.13		105,648		0.36		0.60
Total	$	366,499	0.34	%	2.10	%	$	514,776	0.23	%	2.95	%	$	881,275	0.27	%	5.04	%

127

Borrowings. At ~~March 31,~~September 30, 2021, total borrowings amounted to ~~$511.6~~$480.4 million, a decrease of ~~$20.9~~$52.1 million, or ~~3.9%~~9.8%, from $532.5 million at December 31, 2020, primarily due to ~~lower~~the redemption of $170.4 million in subordinated debentures, partially offset by increases of $119.0 million in FHLB advances.

At ~~March 31,~~September 30, 2021, total borrowings represented ~~2.5%~~2.3% of total assets and had an end of period weighted average rate of ~~5.28%~~3.71%, compared with 2.7% of total assets at a weighted average rate of 5.16% at December 31, 2020.

At ~~March 31,~~September 30, 2021, total borrowings were comprised of the following:

•~~FHLB advances of $10.0 million at 0.00%;~~

•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 $59.6 million, net of unamortized debt issuance cost of ~~$419,000.~~$359,000. 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 ~~$122.9~~$123.1 million, net of unamortized debt issuance cost of ~~$2.1~~$1.9 million. Interest is payable semiannually at an initial fixed rate of 4.875% per annum. From and including May 15, 2024, but excluding the maturity date or the date of earlier redemption, the Notes II will bear interest at a floating rate equal to three-month LIBOR plus a spread of 2.50% per annum, payable quarterly in arrears; and

•Subordinated notes of $150.0 million at 5.375% fixed-to-floating rate due June 15, 2030 (the “Notes III”) and a carrying value of ~~$147.6~~$147.7 million, net of unamortized debt issuance cost of ~~$2.4~~$2.3 million. Interest on the Notes III accrue at a rate equal to 5.375% per annum from and including June 15, 2020 to, but excluding, June 15, 2025, payable semiannually in arrears. From and including June 15, 2025 to, but excluding, June 15, 2030 or the earlier redemption date, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month term SOFR, plus a spread of 517 basis points, payable quarterly in arrears.

•$25.0 million of subordinated notes at a fixed rate of 7.125% due June 26, 2025, assumed in connection with the 2017 acquisition of Plaza Bancorp, Inc. At March 31, 2021, the carrying value of these notes was $25.1 million, which reflects purchase accounting fair value adjustments of $103,000.

~~117~~

•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 March 31, 2021, the carrying value of these subordinated notes was $138.3 million, which reflects purchase accounting fair value adjustments of $3.3 million.

•$5.2 million of floating rate junior subordinated debt securities due January 1, 2037, associated with Heritage Oaks Capital Trust II and assumed in connection with the acquisition of Heritage Oaks Bancorp in April 2017. At March 31, 2021, the carrying value of these debentures was $4.1 million, which reflects purchase accounting fair value adjustments of $1.1 million. Interest is payable quarterly at three-month LIBOR plus 1.72% per annum, for an effective rate of 1.96% per annum as of March 31, 2021.

•$5.2 million of floating rate junior subordinated debt due July 7, 2036, associated Santa Lucia Bancorp (CA) Capital Trust and assumed in connection with the acquisition of Heritage Oaks Bancorp in April 2017. At March 31, 2021, the carrying value of this debt was $4.0 million, which reflects purchase accounting fair value adjustments $1.2 million. Interest is payable quarterly at three-month LIBOR plus 1.48% per annum, for an effective rate of 1.72% per annum as of March 31, 2021.

For additional information about the subordinated notes, subordinated debentures, and trust preferred securities, see Note 9 — Subordinated Debentures to the consolidated financial statements in this Form 10-Q.

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


		March 31, 2021					December 31, 2020						September 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	$	10,000		—	%	$	31,000		1.53	%	FHLB advances	$	150,000		0.15	%	$	31,000		1.53	%

Subordinated debentures	Subordinated debentures	501,611			5.38		501,511			5.38		Subordinated debentures	330,408			5.33		501,511			5.38
Total borrowings	Total borrowings	$	511,611		5.28	%	$	532,511		5.16	%	Total borrowings	$	480,408		3.71	%	$	532,511		5.16	%

Weighted average cost of borrowings during the quarter	Weighted average cost of borrowings during the quarter	5.36		%			5.12		%			Weighted average cost of borrowings during the quarter	5.43		%			5.12		%
Borrowings as a percent of total assets	Borrowings as a percent of total assets	2.5					2.7					Borrowings as a percent of total assets	2.3					2.7

Stockholders’ Equity. Total stockholders’ equity was ~~$2.70~~$2.84 billion as of ~~March 31,~~September 30, 2021, a ~~$43.6~~$91.5 million ~~decrease~~increase from $2.75 billion at December 31, 2020. The current year ~~decrease~~increase in stockholders’ equity was primarily ~~the result of the $75.5~~due to $255.1 million net income, partially offset by $90.7 million in cash dividends, $59.1 million in comprehensive loss, ~~due to the unrealized loss on securities available-for-sale, net of tax, resulting from higher interest rates as of March 31, 2021, $28.3 million in cash dividends,~~ and ~~$6.9~~$18.1 million in repurchase of common stock ~~partially offset by $68.7 million in net income for~~during the ~~three~~nine months ended ~~March 31,~~September 30, 2021.

During the first quarter of 2021, the Corporation made a quarterly dividend payment of $0.30 per share. During the first quarter of 2021, the Company repurchased 199,674 shares of common stock for a total market value of $6.9 million, or $34.51 per share, under the stock repurchase program approved by the Company’s Board of Directors on January 11, 2021.

Our book value per share ~~decreased~~increased to ~~$28.56~~$30.08 at ~~March 31,~~September 30, 2021 from $29.07 at December 31, 2020. At ~~March 31,~~September 30, 2021, the Company’s tangible common equity to tangible assets ratio was ~~8.97%~~9.30%, a decrease from 9.40% at December 31, 2020.

~~118~~

128

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 ~~three~~nine months of 2021 were from:

•Principal payments on loans held for investment of ~~$670.0 million;~~$2.21 billion;

•Deposit growth of ~~$525.8 million;~~$1.26 billion;

•Proceeds of ~~$179.4~~$630.4 million from the sale or maturity of securities available-for-sale; ~~and~~

•Principal payments on securities of ~~$164.4~~$436.7 million; and

•Increased FHLB borrowing of $119.0 million.

We used these funds to:

•Originate loans held for investment of ~~$745.6 million;~~$2.97 billion;

•Purchase available-for-sale securities of ~~$364.5~~$2.08 billion;

•Redeem subordinated debentures of $170.4 million;

•Purchase bank-owned life insurance of $150.0 million;

•Return capital to shareholders through ~~$28.3~~$90.7 million in ~~dividends~~

•~~Decrease FHLB borrowing of $21.0 million;~~dividends;

•Originate loans held for sale of ~~$7.8~~$34.9 million;

•Fund the CRA investments of $19.0 million; and

•Repurchase some of the Company’s common stock at a total cost of ~~$6.9~~$18.1 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 ~~March 31,~~September 30, 2021, cash and cash equivalents totaled ~~$1.55 billion,~~$322.3 million, and the market value of our investment securities available-for-sale totaled ~~$3.86~~$4.71 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 Board’s lending programs, as well as loan and investment securities sales. As of ~~March 31,~~September 30, 2021, the maximum amount we could borrow through the FHLB was ~~$7.90~~$8.21 billion, of which ~~$5.01~~$5.57 billion was remaining available for borrowing based on collateral pledged of ~~$7.59~~$8.31 billion in real estate loans. At ~~March 31,~~September 30, 2021, we had ~~$10.0~~$150.0 million in FHLB borrowings. At ~~March 31,~~September 30, 2021, we also had a ~~$20.7~~$20.3 million line with the FRB discount window secured by ~~investments~~investment securities as well as unsecured lines of credit aggregating to $340.0 million with other financial institutions from which to draw funds. As of ~~March 31,~~September 30, 2021, our liquidity ratio was ~~31.2%~~27.6%, which is above the Company’s minimum policy requirement of 10.0%. The Company regularly monitors liquidity, models liquidity stress scenarios to ensure that adequate liquidity is available, and has contingency funding plans in place, which are reviewed and tested on a regular, recurring basis.

To the extent that 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 ~~March 31,~~September 30, 2021, we had ~~$22.9~~$5.6 million in brokered ~~time and~~ money market deposits which constituted ~~0.1%~~0.03% of total deposits and ~~0.1%~~0.03% of total assets at that date.

~~119~~

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 ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Bank paid ~~$28.3~~$90.5 million in dividends to the Corporation.

The Corporation ~~maintains~~maintained a line of credit with USU.S. Bank with availability of $15.0 million that ~~will expire on~~matured in September ~~28,~~ 2021. The Corporation ~~anticipates renewing~~renewed the line of credit, ~~upon expiration.~~extended the maturity date to September 27, 2022, and increased the aggregate principal amount to $25.0 million. This line of credit provides an additional source of liquidity at the Corporation level and had no outstanding balance at ~~March 31,~~September 30, 2021.

During ~~first quarter~~the second and third quarters of 2021, the Company redeemed the subordinated debentures for an aggregate amount of $170.4 million. See Note 9 - Subordinated Debentures for additional information.

During 2021, the Corporation ~~made~~declared a quarterly dividend payment of $0.30 per ~~share.~~share for the first quarter and $0.33 per share for each subsequent quarter. On ~~April 23,~~October 19, 2021, the Company's Board of Directors declared a $0.33 per share dividend, payable on ~~May 14,~~November 12, 2021 to stockholders of record as of ~~May 7,~~November 1, 2021. ~~This represents a $0.03 per share, or 10% increase, compared to the prior quarter’s quarterly dividend rate.~~ 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.

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~~third quarter of 2021, the Company ~~has repurchased 199,674~~purchased 280,270 shares for a total ~~market value~~ of ~~$6.9~~$11.2 million, or ~~$34.51~~$39.82 per share, under this stock repurchase program. The total number of common stock shares repurchased during the nine months ended September 30, 2021 under the program was 479,944 shares for a total of $18.1 million, or $37.61 per share. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

130

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:


		March 31, 2021											September 30, 2021
		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total
		(Dollars in thousands)
(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											Contractual obligations
FHLB advances	FHLB advances	$	10,000	$	—	$	—	$	—	$	10,000	FHLB advances	$	150,000	$	—	$	—	$	—	$	150,000
Subordinated debentures	Subordinated debentures	—		—		84,684		416,927		501,611		Subordinated debentures	—		59,641		—		270,767		330,408
Certificates of deposit	Certificates of deposit	1,204,521		86,824		10,777		68,694		1,370,816		Certificates of deposit	975,205		78,183		7,152		52,530		1,113,070
Operating leases	Operating leases	19,636		36,181		24,589		11,421		91,827		Operating leases	20,326		37,758		21,643		10,531		90,258
Total contractual cash obligations	Total contractual cash obligations	$	1,234,157	$	123,005	$	120,050	$	497,042	$	1,974,254	Total contractual cash obligations	$	1,145,531	$	175,582	$	28,795	$	333,828	$	1,683,736

~~120~~

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 ~~March 31,~~September 30, 2021, we had commitments to extend credit on existing lines and letters of credit of ~~$2.24~~$2.50 billion, compared to $1.95 billion at December 31, 2020.

The following table summarizes our contractual commitments with off-balance sheet risk by expiration period at the date indicated:


		March 31, 2021											September 30, 2021
		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total
		(Dollars in thousands)
Other Unused 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	$	836,601	$	687,007	$	141,939	$	81,496	$	1,747,043	Commercial and industrial	$	731,497	$	882,525	$	99,230	$	96,328	$	1,809,580
Construction	Construction	62,868		155,143		16,238		14,706		248,955		Construction	44,295		253,621		83,381		—		381,297
Agribusiness and farmland	Agribusiness and farmland	27,094		20,049		267		2,088		49,498		Agribusiness and farmland	15,075		36,242		570		14,503		66,390
Home equity lines of credit	Home equity lines of credit	5,078		3,943		7,598		47,402		64,021		Home equity lines of credit	3,160		5,813		1,817		54,633		65,423
Standby letters of credit	Standby letters of credit	40,253		—		—		—		40,253		Standby letters of credit	45,074		—		—		—		45,074
All other	All other	29,918		20,324		22,416		21,222		93,880		All other	49,798		27,005		3,447		56,174		136,424
Total commitments	Total commitments	$	1,001,812	$	886,466	$	188,458	$	166,914	$	2,243,650	Total commitments	$	888,899	$	1,205,206	$	188,445	$	221,638	$	2,504,188

~~121~~131

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 fully phased in at 2.50% by January 1, 2019. At ~~March 31,~~September 30, 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 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as “well-capitalized” for purposes of the federal bank regulatory prompt corrective action regulations.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of CECL accounting standard. Additionally, in March 2020, the U.S. Federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the COVID-19 pandemic. The capital relief in the interim is calibrated to approximate the difference in allowances under CECL relative to the incurred loss methodology for the first two years of the transition period using a 25% scaling factor. The cumulative difference at the end of the second year of the transition period is then phased 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.

~~122~~132

For regulatory capital purposes, the Corporation’s ~~trust preferred securities are~~subordinated debt is included in Tier 2 capital. Total capital ~~at March 31, 2021. Provisions~~ratio 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. The Corporation’s acquisition of Opus resulted in total consolidated assets exceeding $15 billion; accordingly, trust preferred securities are now excluded from the Corporation’s Tier 1 capital and included as Tier 2 capital. The CorporationCompany and the Bank ~~also have~~were impacted by the redemptions of subordinated ~~debt that qualifies as Tier 2 capital.~~debentures during the second and third quarter of 2021 and remained above the regulatory minimum required for capital adequacy purposes, inclusive of capital conservation buffer. See Note 9 - Subordinated Debentures for additional information.

As defined in applicable regulations and set forth in the table below, the 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
March 31, 2021
September 30, 2021					September 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	9.66%	4.00%	N/A	Tier 1 leverage ratio	9.85%	4.00%	N/A
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	12.05%	7.00%	N/A	Common equity tier 1 capital ratio	11.96%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	12.05%	8.50%	N/A	Tier 1 capital ratio	11.96%	8.50%	N/A
Total capital ratio	Total capital ratio	16.26%	10.50%	N/A	Total capital ratio	14.56%	10.50%	N/A

Pacific Premier Bank	Pacific Premier Bank				Pacific Premier Bank
Tier 1 leverage ratio	Tier 1 leverage ratio	11.13%	4.00%	5.00%	Tier 1 leverage ratio	11.38%	4.00%	5.00%
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	13.90%	7.00%	6.50%	Common equity tier 1 capital ratio	13.81%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	13.90%	8.50%	8.00%	Tier 1 capital ratio	13.81%	8.50%	8.00%
Total capital ratio	Total capital ratio	15.92%	10.50%	10.00%	Total capital ratio	14.61%	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, 2020	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	9.47%	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	12.04%	7.00%	N/A	Common equity tier 1 capital ratio	12.04%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	12.04%	8.50%	N/A	Tier 1 capital ratio	12.04%	8.50%	N/A
Total capital ratio	Total capital ratio	16.31%	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	10.89%	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	13.84%	7.00%	6.50%	Common equity tier 1 capital ratio	13.84%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	13.84%	8.50%	8.00%	Tier 1 capital ratio	13.84%	8.50%	8.00%
Total capital ratio	Total capital ratio	15.89%	10.50%	10.00%	Total capital ratio	15.89%	10.50%	10.00%

~~123~~133

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.

~~124~~134

The following table shows the projected NII and net interest margin of the Company at ~~March 31,~~September 30, 2021 and December 31, 2020, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


March 31, 2021
September 30, 2021						September 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	675,168	12,813	1.9	3.65	200	683,650	3,608	0.5	3.59
100	100	666,986	4,631	0.7	3.61	100	680,673	631	0.1	3.58
Static	Static	662,355	—	—	3.58	Static	680,042	—	—	3.57
-100	-100	646,268	(16,087)	(2.4)	3.50	-100	659,287	(20,755)	(3.1)	3.46
-200	-200	631,467	(30,888)	(4.7)	3.42	-200	638,027	(42,015)	(6.2)	3.35


December 31, 2020
(Dollars in thousands)
	Earnings at Risk			Projected Net Interest Margin
Change in Rates (Basis Points)	$ Amount	$ Change	% Change	Rate %
200	678,071	4,892	0.7	3.66
100	673,368	189	—	3.64
Static	673,179	—	—	3.64
-100	657,184	(15,995)	(2.4)	3.55
-200	646,912	(26,267)	(3.9)	3.49

The following table shows the EVE and projected change in the EVE of the Company at ~~March 31,~~September 30, 2021 and December 31, 2020, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


March 31, 2021
September 30, 2021						September 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	3,065,453	113,119	3.8	16.81	200	2,702,660	138,146	5.4	14.82
100	100	3,026,919	74,585	2.5	16.06	100	2,657,586	93,073	3.6	14.10
Static	Static	2,952,334	—	—	15.16	Static	2,564,514	—	—	13.17
-100	-100	2,775,173	(177,161)	(6.0)	13.78	-100	2,358,047	(206,467)	(8.1)	11.71
-200	-200	2,454,178	(498,156)	(16.9)	11.82	-200	1,933,927	(630,587)	(24.6)	9.31

~~125~~135


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

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 and the EVE increase as rates rise. It is important to note the above tables are forecasts based on several assumptions and that actual results may vary. The forecasts are based on estimates of historical behavior and assumptions by management that may change over time and may turn out to be different. Factors affecting these estimates and assumptions include, but are not limited to (1) competitor behavior, (2) economic conditions both locally and nationally, (3) actions taken by the Federal Reserve Board, (4) customer behavior, and (5) management’s ~~responses.~~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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Controls over Financial Reporting

There have 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 ~~March 31,~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~126~~136

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

~~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 were 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. On October 21, 2020, Mr. Anschutz’s motion for attorney’s fees was denied by the court, which ruled that the information sought by the ~~Anschutz~~ ~~lawsuit was not material.~~

On November 19, 2020, Mr. Anschutz filed a Notice of Appeal, indicating that he was appealing the District Court’s ruling to the United States Court of Appeals for the Ninth Circuit, which assigned Appellate Case No. 20-56222.On January 19, 2021, Mr. Anschutz filed his opening brief in the appeal, which only sought to re-litigate one of the four alleged omissions stated in the original lawsuit. As previously reported in our 2020 Form 10-K, on February 24, 2021, the parties jointly filed a motion to dismiss the appeal with prejudice, which the Court of Appeals granted on that same day. As a result, this matter has been dismissed with prejudice and is concluded.

~~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.

Item 1A. Risk Factors

The section titled Risk Factors in Part I, Item 1A of our 2020 Form 10-K 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. There are no material changes to our risk factors as previously described under Item 1A of our 2020 Form 10-K.

~~127~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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. The stock repurchase program may be limited or terminated at any time without notice.

As During the third quarter of ~~March 31,~~ 2021, the Company ~~has repurchased 199,674~~purchased 280,270 shares for a total of ~~$6.9~~$11.2 million, or ~~$34.51~~$39.82 per share, under this stock repurchase program.

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 ~~first~~third quarter of 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 Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2021 to January 31, 2021 — $ — — 4,725,000
February 1, 2021 to February 28, 2021 199,674 34.51 199,674 4,525,326
March 1, 2021 to March 31, 2021 — — — 4,525,326
Total 199,674 199,674


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 Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2021 to July 31, 2021	—	$	—	—	4,525,326
August 1, 2021 to August 31, 2021	280,270	39.82		280,270	4,245,056
September 1, 2021 to September 30, 2021	—	—		—	4,245,056
Total	280,270			280,270

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~128~~137

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						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 10.1						Employment Agreement, effective as of August 30, 2021, by and among Pacific Premier Bancorp, Inc., Pacific Premier Bank and Steven R. Gardner (4)
Exhibit 10.2						Employment Agreement, effective as of August 30, 2021, by and among Pacific Premier Bancorp, Inc., Pacific Premier Bank and Ronald J. Nicolas, Jr. (4)
Exhibit 10.3						Employment Agreement, effective as of August 30, 2021, by and between Pacific Premier Bank and Edward E. Wilcox (4)
Exhibit 10.4						Employment Agreement, effective as of August 30, 2021, by and between Pacific Premier Bank and Michael S. Karr (4)
Exhibit 10.5						Employment Agreement, effective as of August 30, 2021, by and between Pacific Premier Bank and Thomas E. Rice (4)
Exhibit 31.1						Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/~~15(d)-14(a)~~15d-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)~~15d-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 ~~March 31,~~September 30, 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 September 3, 2021.

~~129~~138

SIGNATURES

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


		PACIFIC PREMIER BANCORP, INC.,

Date:	~~May 7,~~November 5, 2021	By:	/s/ Steven R. Gardner
			Steven R. Gardner
			Chairman, President, and Chief Executive Officer
			(Principal Executive Officer)

Date:	~~May 7,~~November 5, 2021	By:	/s/ Ronald J. Nicolas, Jr.
			Ronald J. Nicolas, Jr.
			Senior Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

~~130~~139