~~0001028918ppbi:SingleFamilyResidentialMemberppbi:RetailLoansPortfolioSegmentMemberppbi:FICOScoreLessthan580Member2020-12-31~~0001028918us-gaap:DesignatedAsHedgingInstrumentMember2021-12-31

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, ~~2021~~2022

☐ 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 July ~~30, 2021~~29, 2022 was ~~94,649,518.~~94,960,656.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED JUNE 30, ~~2021~~2022


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 (Loss) (Unaudited)			5

Consolidated Statements of Stockholders’ Equity (Unaudited)			6

Consolidated Statements of Cash Flows (Unaudited)			8

Notes to Consolidated Financial Statements (Unaudited)			9

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			8464

Item 3 - Quantitative and Qualitative Disclosures About Market Risk			~~133~~106

Item 4 - Controls and Procedures			~~135~~108

PART II - OTHER INFORMATION			~~136~~109

Item 1 - Legal Proceedings			~~136~~109

Item 1A - Risk Factors			~~136~~109

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			~~136~~109

Item 3 - Defaults Upon Senior Securities			~~136~~109

Item 4 - Mine Safety Disclosures			~~136~~109

Item 5 - Other Information			~~136~~109

Item 6 - Exhibits			~~137~~110

SIGNATURE			~~138~~111

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


(Dollars in thousands, except par value and share data)	(Dollars in thousands, except par value and share data)	June 30, 2021		December 31, 2020		(Dollars in thousands, except par value and share data)	June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	208,829	$	135,429	Cash and due from banks	$	133,732	$	83,150
Interest-bearing deposits with financial institutions	Interest-bearing deposits with financial institutions	423,059		745,337		Interest-bearing deposits with financial institutions	839,066		221,553
Cash and cash equivalents	Cash and cash equivalents	631,888		880,766		Cash and cash equivalents	972,798		304,703
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	2,216		2,216
Investments held-to-maturity, at amortized cost (fair value of $19,820 and $25,013 as of June 30, 2021 and December 31, 2020, respectively)		18,933		23,732
Investments held-to-maturity, at amortized cost, net of allowance for credit losses of $109 and $22 (fair value of $1,156,501 and $384,423) at June 30, 2022 and December 31, 2021, respectively						Investments held-to-maturity, at amortized cost, net of allowance for credit losses of $109 and $22 (fair value of $1,156,501 and $384,423) at June 30, 2022 and December 31, 2021, respectively	1,390,682		381,674
Investment securities available-for-sale, at fair value	Investment securities available-for-sale, at fair value	4,487,447		3,931,115		Investment securities available-for-sale, at fair value	2,679,070		4,273,864
FHLB, FRB, and other stock, at cost	FHLB, FRB, and other stock, at cost	117,738		117,055		FHLB, FRB, and other stock, at cost	118,636		117,538
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	4,714		601		Loans held for sale, at lower of cost or fair value	2,957		10,869
Loans held for investment	Loans held for investment	13,594,598		13,236,433		Loans held for investment	15,047,608		14,295,897
Allowance for credit losses	Allowance for credit losses	(232,774)		(268,018)		Allowance for credit losses	(196,075)		(197,752)
Loans held for investment, net	Loans held for investment, net	13,361,824		12,968,415		Loans held for investment, net	14,851,533		14,098,145
Accrued interest receivable	Accrued interest receivable	67,529		74,574		Accrued interest receivable	66,898		65,728

Premises and equipment	Premises and equipment	73,821		78,884		Premises and equipment	68,435		71,908
Deferred income taxes, net	Deferred income taxes, net	81,741		89,056		Deferred income taxes, net	163,767		87,344
Bank owned life insurance	Bank owned life insurance	444,645		292,564		Bank owned life insurance	454,593		449,353
Intangible assets	Intangible assets	77,363		85,507		Intangible assets	62,500		69,571
Goodwill	Goodwill	901,312		898,569		Goodwill	901,312		901,312
Other assets	Other assets	257,823		292,861		Other assets	258,522		260,204
Total assets	Total assets	$	20,529,486	$	19,736,544	Total assets	$	21,993,919	$	21,094,429

LIABILITIES	LIABILITIES					LIABILITIES
Deposit accounts:	Deposit accounts:					Deposit accounts:
Noninterest-bearing checking	Noninterest-bearing checking	$	6,768,384	$	6,011,106	Noninterest-bearing checking	$	6,934,318	$	6,757,259
Interest-bearing:	Interest-bearing:					Interest-bearing:
Checking	Checking	3,103,343		2,913,260		Checking	4,149,432		3,493,331
Money market/savings	Money market/savings	5,883,672		5,662,969		Money market/savings	5,545,230		5,806,726
Retail certificates of deposit	Retail certificates of deposit	1,259,698		1,471,512		Retail certificates of deposit	855,966		1,058,273
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	0		155,330		Wholesale/brokered certificates of deposit	599,667		—
Total interest-bearing	Total interest-bearing	10,246,713		10,203,071		Total interest-bearing	11,150,295		10,358,330
Total deposits	Total deposits	17,015,097		16,214,177		Total deposits	18,084,613		17,115,589
FHLB advances and other borrowings	FHLB advances and other borrowings	0		31,000		FHLB advances and other borrowings	600,000		558,000
Subordinated debentures	Subordinated debentures	476,622		501,511		Subordinated debentures	330,886		330,567

Accrued expenses and other liabilities	Accrued expenses and other liabilities	224,348		243,207		Accrued expenses and other liabilities	223,201		203,962
Total liabilities	Total liabilities	17,716,067		16,989,895		Total liabilities	19,238,700		18,208,118
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 June 30, 2021 and December 31, 2020; 94,656,575 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 June 30, 2022 and December 31, 2021; 94,976,605 shares and 94,389,543 shares issued and outstanding, respectively						Common stock, $0.01 par value; 150,000,000 shares authorized at June 30, 2022 and December 31, 2021; 94,976,605 shares and 94,389,543 shares issued and outstanding, respectively	933		929
Additional paid-in capital	Additional paid-in capital	2,352,112		2,354,871		Additional paid-in capital	2,353,361		2,351,294
Retained earnings	Retained earnings	433,852		330,555		Retained earnings	615,943		541,950
Accumulated other comprehensive income		26,524		60,292
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(215,018)		(7,862)
Total stockholders’ equity	Total stockholders’ equity	2,813,419		2,746,649		Total stockholders’ equity	2,755,219		2,886,311
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	20,529,486	$	19,736,544	Total liabilities and stockholders’ equity	$	21,993,919	$	21,094,429

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME ~~(LOSS)~~

(Unaudited)


		Three Months Ended						Six Months Ended					Three Months Ended						Six Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,			June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)	2021		2021		2020		2021		2020		(Dollars in thousands, except share data)	2022		2022		2021		2022		2021
INTEREST INCOME	INTEREST INCOME											INTEREST INCOME
Loans	Loans	$	152,365	$	155,225	$	133,339	$	307,590	$	246,604	Loans	$	164,455	$	150,604	$	152,365	$	315,059	$	307,590
Investment securities and other interest-earning assets	Investment securities and other interest-earning assets	18,327		17,769		10,783		36,096		21,307		Investment securities and other interest-earning assets	18,771		17,942		18,327		36,713		36,096
Total interest income	Total interest income	170,692		172,994		144,122		343,686		267,911		Total interest income	183,226		168,546		170,692		351,772		343,686
INTEREST EXPENSE	INTEREST EXPENSE											INTEREST EXPENSE
Deposits	Deposits	3,265		4,426		9,655		7,691		20,142		Deposits	2,682		1,673		3,265		4,355		7,691
FHLB advances and other borrowings	FHLB advances and other borrowings	0		65		217		65		1,298		FHLB advances and other borrowings	3,217		474		—		3,691		65
Subordinated debentures	Subordinated debentures	6,493		6,851		3,958		13,344		7,004		Subordinated debentures	4,562		4,560		6,493		9,122		13,344
Total interest expense	Total interest expense	9,758		11,342		13,830		21,100		28,444		Total interest expense	10,461		6,707		9,758		17,168		21,100
Net interest income before provision for credit losses	Net interest income before provision for credit losses	160,934		161,652		130,292		322,586		239,467		Net interest income before provision for credit losses	172,765		161,839		160,934		334,604		322,586
Provision for credit losses	Provision for credit losses	(38,476)		1,974		160,635		(36,502)		186,089		Provision for credit losses	469		448		(38,476)		917		(36,502)
Net interest income (loss) after provision for credit losses		199,410		159,678		(30,343)		359,088		53,378
Net interest income after provision for credit losses												Net interest income after provision for credit losses	172,296		161,391		199,410		333,687		359,088
NONINTEREST INCOME	NONINTEREST INCOME											NONINTEREST INCOME
Loan servicing income	Loan servicing income	622		458		434		1,080		914		Loan servicing income	502		419		622		921		1,080
Service charges on deposit accounts	Service charges on deposit accounts	2,222		2,032		1,399		4,254		3,114		Service charges on deposit accounts	2,690		2,615		2,222		5,305		4,254
Other service fee income	Other service fee income	352		473		297		825		608		Other service fee income	366		367		352		733		825
Debit card interchange fee income	Debit card interchange fee income	1,099		787		457		1,886		805		Debit card interchange fee income	936		836		1,099		1,772		1,886
Earnings on bank-owned life insurance		2,279		2,233		1,314		4,512		2,650
Net gain (loss) from sales of loans		1,546		361		(2,032)		1,907		(1,261)
Net gain (loss) from sales of investment securities		5,085		4,046		(21)		9,131		7,739
Earnings on bank owned life insurance												Earnings on bank owned life insurance	3,240		3,221		2,279		6,461		4,512
Net gain from sales of loans												Net gain from sales of loans	1,136		1,494		1,546		2,630		1,907
Net (loss) gain from sales of investment securities												Net (loss) gain from sales of investment securities	(31)		2,134		5,085		2,103		9,131

Trust custodial account fees	Trust custodial account fees	7,897		7,222		2,397		15,119		2,397		Trust custodial account fees	10,354		11,579		7,897		21,933		15,119
Escrow and exchange fees	Escrow and exchange fees	1,672		1,526		264		3,198		264		Escrow and exchange fees	1,827		1,661		1,672		3,488		3,198
Other income	Other income	3,955		4,602		2,389		8,557		4,143		Other income	1,173		1,568		3,955		2,741		8,557
Total noninterest income	Total noninterest income	26,729		23,740		6,898		50,469		21,373		Total noninterest income	22,193		25,894		26,729		48,087		50,469
NONINTEREST EXPENSE	NONINTEREST EXPENSE											NONINTEREST EXPENSE
Compensation and benefits	Compensation and benefits	53,474		52,548		43,011		106,022		77,387		Compensation and benefits	57,562		56,981		53,474		114,543		106,022
Premises and occupancy	Premises and occupancy	12,240		11,980		9,487		24,220		17,655		Premises and occupancy	11,829		11,952		12,240		23,781		24,220
Data processing	Data processing	5,765		5,828		4,465		11,593		7,718		Data processing	6,604		5,996		5,765		12,600		11,593
Other real estate owned operations, net		0		0		9		0		23

FDIC insurance premiums	FDIC insurance premiums	1,312		1,181		846		2,493		1,213		FDIC insurance premiums	1,452		1,396		1,312		2,848		2,493
Legal and professional services	Legal and professional services	4,186		3,935		3,094		8,121		6,220		Legal and professional services	4,629		4,068		4,186		8,697		8,121
Marketing expense	Marketing expense	1,490		1,598		1,319		3,088		2,731		Marketing expense	1,926		1,809		1,490		3,735		3,088
Office expense	Office expense	1,589		1,829		1,533		3,418		2,636		Office expense	1,252		1,203		1,589		2,455		3,418
Loan expense	Loan expense	1,165		1,115		823		2,280		1,645		Loan expense	1,144		1,134		1,165		2,278		2,280
Deposit expense	Deposit expense	3,985		3,859		4,958		7,844		9,946		Deposit expense	4,081		3,751		3,985		7,832		7,844
Merger-related expense	Merger-related expense	0		5		39,346		5		41,070		Merger-related expense	—		—		—		—		5
Amortization of intangible assets	Amortization of intangible assets	4,001		4,143		4,066		8,144		8,029		Amortization of intangible assets	3,479		3,592		4,001		7,071		8,144
Other expense	Other expense	5,289		4,468		3,013		9,757		6,328		Other expense	5,016		5,766		5,289		10,782		9,757
Total noninterest expense	Total noninterest expense	94,496		92,489		115,970		186,985		182,601		Total noninterest expense	98,974		97,648		94,496		196,622		186,985
Net income (loss) before income taxes		131,643		90,929		(139,415)		222,572		(107,850)
Income tax expense (benefit)		35,341		22,261		(40,324)		57,602		(34,499)
Net income (loss)		$	96,302	$	68,668	$	(99,091)	$	164,970	$	(73,351)
EARNINGS (LOSS) PER SHARE
Net income before income taxes												Net income before income taxes	95,515		89,637		131,643		185,152		222,572
Income tax expense												Income tax expense	25,712		22,733		35,341		48,445		57,602
Net income												Net income	$	69,803	$	66,904	$	96,302	$	136,707	$	164,970
EARNINGS PER SHARE												EARNINGS PER SHARE
Basic	Basic	$	1.02	$	0.73	$	(1.41)	$	1.74	$	(1.14)	Basic	$	0.74	$	0.71	$	1.02	$	1.44	$	1.74
Diluted	Diluted	1.01		0.72		(1.41)		1.73		(1.14)		Diluted	0.73		0.70		1.01		1.44		1.73
WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING											WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	93,635,392		93,529,147		70,425,027		93,582,563		64,716,109		Basic	93,765,264		93,499,695		93,635,392		93,633,213		93,582,563
Diluted	Diluted	94,218,028		94,093,644		70,425,027		94,155,740		64,716,109		Diluted	94,040,691		93,946,074		94,218,028		93,983,057		94,155,740

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

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


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	2022		2022		2021		2022		2021
Net income	$	69,803	$	66,904	$	96,302	$	136,707	$	164,970
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on securities available-for-sale arising, net of income taxes (1)	(40,474)		(118,591)		45,343		(159,065)		(27,249)
Reclassification adjustment for net loss (gain) on sales of securities included in net income, net of income taxes (2)	22		(1,525)		(3,630)		(1,503)		(6,519)
Net unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (3)	(31,326)		(16,558)		—		(47,884)		—
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (4)	993		303		—		1,296		—
Other comprehensive (loss) income, net of tax	(70,785)		(136,371)		41,713		(207,156)		(33,768)
Comprehensive (loss) income, net of tax	$	(982)	$	(69,467)	$	138,015	$	(70,449)	$	131,202

(1) Income tax (benefit) expense ~~(benefit) on~~of the unrealized ~~gain (loss)~~loss on securities was $(16.2) million, $(47.4) million, and $18.2 million for the three months ended June 30, ~~2021, $(29.1) million for the three months ended~~2022, March 31, ~~2021, $5.5 million for the three months ended~~2022, and June 30, ~~2020,~~2021, respectively, and $(63.5) million and $(10.9) million for the six months ended June 30, ~~2021,~~2022 and ~~$17.0 million for the six months ended~~ June 30, ~~2020.~~2021, respectively.

(2) Income tax (benefit) expense ~~(benefit)~~ on the reclassification adjustment for net loss (gain) ~~loss~~ on sales of securities included in net income was $(9,000), $609,000, and $1.5 million for the three months ended June 30, ~~2021, $1.2 million for the three months ended~~2022, March 31, ~~2021, $(6,000) for the three months ended~~2022, and June 30, ~~2020,~~2021, respectively, and $600,000 and $2.6 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

(3) Income tax (benefit) on the unrealized loss on securities transferred from available-for-sale to held-to-maturity was $(12.5) million, $(6.6) million, and ~~$2.2~~$0 for the three months ended June 30, 2022, March 31, 2022, and June 30, 2021, respectively, and $(19.1) million and $0 for the six months ended June 30, ~~2020.~~2022 and June 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 $396,000, $121,000, and $0 for the three months ended June 30, 2022, March 31, 2022, and June 30, 2021, respectively, and $517,000 and $0 for the six months ended June 30, 2022 and June 30, 2021, respectively.

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, ~~2021~~2022

(Unaudited)


(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		(Dollars in thousands, except share data)	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
Balance at December 31, 2020		94,483,136	$	931	$	2,354,871	$	330,555	$	60,292	$	2,746,649
Balance at December 31, 2021													Balance at December 31, 2021	94,389,543	$	929	$	2,351,294	$	541,950	$	(7,862)	$	2,886,311
Net income	Net income	—	—		—		164,970		—		164,970		Net income	—	—		—		136,707		—		136,707
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(33,768)		(33,768)		Other comprehensive loss	—	—		—		—		(207,156)		(207,156)
Repurchase and retirement of common stock		(199,674)	(2)		(4,977)		(1,918)		—		(6,897)
Cash dividends declared ($0.63 per common share)		—	—		—		(59,521)		—		(59,521)
Dividend equivalents declared ($0.63 per restricted stock unit)		—	—		234		(234)		—		0
Cash dividends declared ($0.66 per common share)													Cash dividends declared ($0.66 per common share)	—	—		—		(62,469)		—		(62,469)
Dividend equivalents declared ($0.66 per restricted stock unit)													Dividend equivalents declared ($0.66 per restricted stock unit)	—	—		245		(245)		—		—
Share-based compensation expense	Share-based compensation expense	—	—		6,562		—		—		6,562		Share-based compensation expense	—	—		9,835		—		—		9,835
Issuance of restricted stock, net	Issuance of restricted stock, net	435,957	2		(2)		—		—		0		Issuance of restricted stock, net	761,777	4		(4)		—		—		—
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(110,027)	—		(5,308)		—		—		(5,308)		Restricted stock surrendered and canceled	(212,503)	—		(8,674)		—		—		(8,674)
Exercise of stock options	Exercise of stock options	47,183	—		732		—		—		732		Exercise of stock options	37,788	—		665		—		—		665
Balance at June 30, 2021		94,656,575	$	931	$	2,352,112	$	433,852	$	26,524	$	2,813,419
Balance at June 30, 2022													Balance at June 30, 2022	94,976,605	$	933	$	2,353,361	$	615,943	$	(215,018)	$	2,755,219


Balance at March 31, 2021		94,644,415	$	931	$	2,348,445	$	368,911	$	(15,189)	$	2,703,098
Balance at March 31, 2022													Balance at March 31, 2022	94,945,849	$	933	$	2,348,727	$	577,591	$	(144,233)	$	2,783,018
Net income	Net income	—	—		—		96,302		—		96,302		Net income	—	—		—		69,803		—		69,803
Other comprehensive income		—	—		—		—		41,713		41,713
Other comprehensive loss													Other comprehensive loss	—	—		—		—		(70,785)		(70,785)
Cash dividends declared ($0.33 per common share)	Cash dividends declared ($0.33 per common share)	—	—		—		(31,234)		—		(31,234)		Cash dividends declared ($0.33 per common share)	—	—		—		(31,327)		—		(31,327)
Dividend equivalents declared ($0.33 per restricted stock unit)	Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		127		(127)		—		0		Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		124		(124)		—		—
Share-based compensation expense	Share-based compensation expense	—	—		3,457		—		—		3,457		Share-based compensation expense	—	—		4,305		—		—		4,305
Issuance of restricted stock, net	Issuance of restricted stock, net	16,200	—		—		—		—		0		Issuance of restricted stock, net	46,994	—		—		—		—		—
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(9,477)	—		(29)		—		—		(29)		Restricted stock surrendered and canceled	(37,284)	—		(126)		—		—		(126)
Exercise of stock options	Exercise of stock options	5,437	—		112		—		—		112		Exercise of stock options	21,046	—		331		—		—		331
Balance at June 30, 2021		94,656,575	$	931	$	2,352,112	$	433,852	$	26,524	$	2,813,419
Balance at June 30, 2022													Balance at June 30, 2022	94,976,605	$	933	$	2,353,361	$	615,943	$	(215,018)	$	2,755,219

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

~~(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 — — — (73,351) — (73,351)
Other comprehensive income — — — — 36,701 36,701
Cash dividends declared ($0.50 per common share) — — — (29,874) — (29,874)
Dividend equivalents declared ($0.50 per restricted stock unit) — — 123 (123) — 0
Share-based compensation expense — — 4,848 — — 4,848
Issuance of restricted stock, net 473,509 — — — — 0
Issuance of common stock - acquisition 34,407,403 344 749,259 749,603
Restricted stock surrendered and canceled (94,306) — (1,273) — — (1,273)
Exercise of stock options 58,239 — 1,024 — — 1,024
Cumulative effect of the change in accounting principle (1)
— — — (45,625) — (45,625)
Balance at June 30, 2020 94,350,902 $ 930 $ 2,348,415 $ 247,078 $ 58,224 $ 2,654,647
2021

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

~~(1)~~


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

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



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

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended					Six Months Ended
		June 30,		June 30,			June 30,		June 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		(Dollars in thousands)	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	164,970	$	(73,351)
Adjustments to net income:
Net income						Net income	$	136,707	$	164,970
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	8,081		5,525		Depreciation and amortization expense	7,480		8,081
Provision for credit losses	Provision for credit losses	(36,502)		186,089		Provision for credit losses	917		(36,502)
Share-based compensation expense	Share-based compensation expense	6,562		4,848		Share-based compensation expense	9,835		6,562
Loss on sales and disposals of premises and equipment	Loss on sales and disposals of premises and equipment	71		211		Loss on sales and disposals of premises and equipment	38		71
Loss on sale of or write down of other real estate owned		0		55

Net amortization on securities	Net amortization on securities	11,219		3,739		Net amortization on securities	9,874		11,219
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	(21,409)		(9,652)		Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	(15,776)		(21,409)
Gain on sales of investment securities available-for-sale	Gain on sales of investment securities available-for-sale	(9,131)		(7,739)		Gain on sales of investment securities available-for-sale	(2,103)		(9,131)
Loss on debt extinguishment	Loss on debt extinguishment	1,150		0		Loss on debt extinguishment	—		1,150
Gain on sales of loans						Gain on sales of loans	(2,630)		(1,907)
Deferred income tax expense						Deferred income tax expense	6,336		20,647
Income from bank owned life insurance, net						Income from bank owned life insurance, net	(5,241)		(3,388)
Amortization of intangible assets						Amortization of intangible assets	7,071		8,144
Originations of loans held for sale	Originations of loans held for sale	(20,264)		(10,163)		Originations of loans held for sale	(33,778)		(20,264)
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	17,609		13,490		Proceeds from the sales of and principal payments from loans held for sale	44,320		17,609
(Gain) loss on sales of loans		(1,907)		1,261
Deferred income tax expense (benefit)		20,647		(46,608)
Change in accrued expenses and other liabilities, net	Change in accrued expenses and other liabilities, net	(22,500)		70,342		Change in accrued expenses and other liabilities, net	(14,127)		(22,500)
Income from bank owned life insurance, net		(3,388)		(2,119)
Amortization of intangible assets		8,144		8,029
Change in accrued interest receivable and other assets, net	Change in accrued interest receivable and other assets, net	47,069		(46,134)		Change in accrued interest receivable and other assets, net	61,455		47,069
Net cash provided by operating activities	Net cash provided by operating activities	170,421		97,823		Net cash provided by operating activities	210,378		170,421
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

Loan originations and payments, net	Loan originations and payments, net	(339,184)		(527,053)		Loan originations and payments, net	(791,918)		(339,184)
Proceeds from loans held for sale previously classified as portfolio loans	Proceeds from loans held for sale previously classified as portfolio loans	449		38,246		Proceeds from loans held for sale previously classified as portfolio loans	—		449
Purchase of loans held for investment	Purchase of loans held for investment	0		(66,470)		Purchase of loans held for investment	(797)		—
Proceeds from prepayments and maturities of securities held-to-maturity	Proceeds from prepayments and maturities of securities held-to-maturity	4,790		5,208		Proceeds from prepayments and maturities of securities held-to-maturity	10,242		4,790
Purchase of securities available-for-sale	Purchase of securities available-for-sale	(1,331,037)		(458,667)		Purchase of securities available-for-sale	(583,329)		(1,331,037)
Proceeds from prepayments and maturities of securities available-for-sale	Proceeds from prepayments and maturities of securities available-for-sale	273,521		63,985		Proceeds from prepayments and maturities of securities available-for-sale	184,974		273,521
Proceeds from sale of securities available-for-sale		464,651		339,853
Proceeds from sales of securities available-for-sale						Proceeds from sales of securities available-for-sale	705,729		464,651
Proceeds from the sales of premises and equipment	Proceeds from the sales of premises and equipment	13		42		Proceeds from the sales of premises and equipment	—		13
Proceeds from surrender of bank-owned life insurance		1,307		0
Purchase of bank-owned life insurance		(150,000)		0
Purchases of premises and equipment		(3,102)		(1,198)
Proceeds from surrender of bank owned life insurance						Proceeds from surrender of bank owned life insurance	—		1,307
Purchase of bank owned life insurance						Purchase of bank owned life insurance	—		(150,000)
Purchase of premises and equipment						Purchase of premises and equipment	(4,045)		(3,102)
Change in FHLB, FRB, and other stock, at cost	Change in FHLB, FRB, and other stock, at cost	86		(44)		Change in FHLB, FRB, and other stock, at cost	(2,243)		86
Funding of CRA investments, net	Funding of CRA investments, net	(13,603)		(7,375)		Funding of CRA investments, net	(1,442)		(13,603)

Change in cash acquired in acquisitions, net		0		937,100
Net cash (used in) provided by investing activities		(1,091,972)		323,627

Net cash used in investing activities						Net cash used in investing activities	(482,829)		(1,091,972)
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	800,920		1,162,194		Net increase in deposit accounts	$	969,024	$	800,920
Net change in short-term borrowings	Net change in short-term borrowings	(10,000)		(681,000)		Net change in short-term borrowings	(358,000)		(10,000)
Repayment of long-term FHLB borrowings		(21,503)		(5,000)
Proceeds from issuance of subordinated debt, net		0		147,359
Proceeds from long-term borrowings						Proceeds from long-term borrowings	400,000		—
Repayments of long-term borrowings						Repayments of long-term borrowings	—		(21,503)

Redemption of junior subordinated debt securities	Redemption of junior subordinated debt securities	(25,750)		0		Redemption of junior subordinated debt securities	—		(25,750)

Cash dividends paid	Cash dividends paid	(59,521)		(29,874)		Cash dividends paid	(62,469)		(59,521)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(6,897)		0		Repurchase and retirement of common stock	—		(6,897)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	732		1,024		Proceeds from exercise of stock options	665		732
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(5,308)		(1,273)		Restricted stock surrendered and canceled	(8,674)		(5,308)
Net cash provided by financing activities	Net cash provided by financing activities	672,673		593,430		Net cash provided by financing activities	940,546		672,673
Net (decrease) increase in cash and cash equivalents		(248,878)		1,014,880
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	668,095		(248,878)
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	304,703		880,766
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	631,888	$	1,341,730	Cash and cash equivalents, end of period	$	972,798	$	631,888

Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Interest paid	Interest paid	$	21,614	$	28,057	Interest paid	$	16,640	$	21,614
Income taxes paid		35,211		125
Income taxes paid, net						Income taxes paid, net	31,433		35,211
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		0		42,169

Transfers of investment securities from available-for-sale to held-to-maturity						Transfers of investment securities from available-for-sale to held-to-maturity	1,019,472		—
Recognition of operating lease right-of-use assets	Recognition of operating lease right-of-use assets	0		(11,118)		Recognition of operating lease right-of-use assets	(1,183)		—
Recognition of operating lease liabilities	Recognition of operating lease liabilities	0		11,118		Recognition of operating lease liabilities	1,183		—
Receivable on unsettled security sales		0		6,529

Due on unsettled security purchases	Due on unsettled security purchases	(12,830)		(33,960)		Due on unsettled security purchases	(30,149)		(12,830)
Acquisitions (See Note 4):
Fair value of stock and equity award consideration		0		749,603
Cash consideration		0		2
Fair value of assets acquired		0		8,097,225
Liabilities assumed		0		7,347,620

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, ~~2021~~2022

(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 and six months ended June 30, ~~2021~~2022 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.2022.

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~~2021 (the ~~“2020~~“2021 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 1614 –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 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; 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 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 ~~May 2021,~~March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. The FASB issued this Update in response to feedback the FASB ~~issued~~received from various stakeholders in its post-implementation review process related to the issuance of ASU ~~2021-04,~~2016-13, ~~Earnings Per Share~~Financial Instruments - Credit Losses (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), Issuers Accounting326): Measurement of Credit Losses on Financial Instruments, which was effective for ~~Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options~~.the Company on January 1, 2020. The amendments in this Update ~~seek to clarify~~include the elimination of accounting guidance for troubled debt restructurings (“TDRs”) in Subtopic 310-40 - Receivables - Troubled Debt Restructurings by Creditors, and ~~reduce diversity~~introduce new disclosures and enhance existing disclosures concerning certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. Rather than applying the recognition and measurement guidance of troubled debt restructurings, an entity must determine whether a modification results in ~~practice when~~a new loan or the continuation of an ~~issuer accounts for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Amendments within~~existing loan. Further, the amendments in this Update ~~should be applied prospectively.~~require that a public business entity disclose current period gross charge-offs on financing receivables within the scope of ASC 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, by year of origination and class of financing receivable. The amendments in this Update are effective for ~~all entities for~~the Company in fiscal years beginning after December 15, ~~2021, including~~2022, as well as interim periods within those years. Early adoption is permitted. The amendments in this Update are to be applied prospectively. However, for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company is currently evaluating the impact of this Update on ~~its~~the Company’s consolidated financial ~~statements, upon which this accounting guidance is not expected to have a material impact.~~statements.

In ~~January 2021,~~March 2022, the FASB issued ASU ~~2021-01,~~2022-01, ~~Reference Rate Reform~~Derivatives and Hedging (Topic ~~848)~~815) Fair Value Hedging - Portfolio Layer Method. 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 make targeted improvements to fair value hedge accounting and more specifically to the last-of-layer hedge accounting method. This Update expands the last-of-layer hedge accounting method to allow for multiple hedged layers to be designated for a single closed portfolio of prepayable financial assets, and renames this accounting method the “portfolio layer method.” The provisions of this Update also include: (i) expanding the scope of the portfolio layer method to nonprepayable financial assets, (ii) specifying that eligible hedging instruments in a single layer hedge may include spot-starting or forward-starting constant-notional or amortizing-notional swaps and that the number of hedged layers corresponds with the number of hedges designated, (iii) specifies that an entity hedging multiple amounts in a closed portfolio using a single amortizing-notional swap is executing a single-layer hedge, (iv) provides additional guidance on the accounting for and disclosure of hedge basis adjustments resulting from a fair value hedge under the portfolio layer method by requiring such basis adjustments be maintained at the portfolio level and not allocated to individual assets, and to disclose basis adjustments as a reconciling item in certain disclosures, such as those for loans, and (v) specifies that an entity is to exclude hedge basis adjustments in the determination of credit losses on the assets within the closed portfolio. The provisions of this Update are effective ~~immediately~~ for ~~all entities that elect to apply~~ the ~~optional guidance~~Company in ~~Topic 848.~~

~~An entity~~fiscal years beginning after December 15, 2022, as well as interim periods within those years. Early adoption is permitted. Entities 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~~designate multiple layer hedges only on a prospective basis upon the adoption of this Update. The provisions of this Update that relate to ~~new modifications from any date within an interim period that includes or is subsequent~~hedge basis adjustments, except for those related to disclosure, are to be applied on a modified retrospective basis through a cumulative effect adjustment to the ~~date~~opening balance of retained earnings in the ~~issuance~~period of adoption. The provisions of this Update that relate to disclosure may be applied on a ~~final Update, up~~prospective basis or on a retrospective basis to ~~the date that financial statements are available to be issued.~~each prior period presented. The Company is currently evaluating the impact of this Update on ~~its~~the Company’s consolidated financial ~~statements, upon which this accounting guidance is not expected to have a material impact.~~statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this Update address how to determine whether a contract liability is recognized by an acquirer in a business combination. In addition, the Update addresses inconsistencies in the recognition and measurement of acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this Update are effective for the Company in fiscal years beginning after December 15, 2022, as well as all interim periods within those years. Early adoption is permitted. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application, and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company has not yet adopted the provisions of this Update. The Company does not currently anticipate the adoption of this Update will have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of ~~interbank offered rates~~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~~become effective upon issuance for all entities.

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

An entity may elect to apply the amendments in this Update to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. The Company ~~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.~~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. The Company has chosen to use the Secured Overnight Financing Rate (“SOFR”) as an alternative to LIBOR. However, the Company will also use other alternative reference rates, such as the Constant Maturity Treasury index and Prime rate based on the individual needs of its customers as well as the types of credit being extended.

~~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.

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~~2021 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 June 30, 2021. Management’s assessment of goodwill is performed in accordance with ASC 350-20 -~~Intangibles - Goodwill and Other - Goodwill~~, which allows the Company to first 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, or on a straight-line amortization method over their estimated useful lives, which range from 6 to 11 years. GAAP also requires that intangible assets other than goodwill be tested for impairment when events and circumstances change, indicating that their carrying value may not be recoverable. For intangible assets other than goodwill, the Company first performs a qualitative assessment to determine if the carrying value of such assets may not be recoverable. A quantitative assessment is followed to determine the amount of impairment in the event the carrying value of such assets are deemed not recoverable. Impairment is measured as the amount by which their carrying value exceeds their estimated fair value.

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

Liabilities to make lease payments and right-of-use assets are determined based on the total contractual base rents for each lease, discounted at the rate implicit in the lease or at the Company’s estimated incremental borrowing rate if the rate is not implicit in the lease. The Company measures future base rents based on the minimum payments specified in the lease agreement, giving consideration for periodic contractual rent increases which are based on an escalation rate or a specified index. When future rent payments are based on an index, the Company uses the index rate observed at the time of lease commencement to measure future lease payments. Liabilities to make lease payments are accounted for using the interest method, which are reduced by periodic rent payments, net of interest accretion. Right-of-use assets for finance leases are amortized on a straight-line basis over the term of the lease, while right-of-use assets for operating leases are amortized over the term of the lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion on the related liability to make lease payments. Expense recognition for finance leases is representative of the sum of periodic amortization of the associated right-of-use asset as well as the periodic interest accretion on the liability to make lease payments. Expense recognition for operating leases is recorded on a straight-line basis. As of June 30, 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, 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.~~Held-to-Maturity (“HTM”). Investments in debt securities that management has the positive intent and ability to hold to maturity are reported at cost and adjusted for periodic principal payments and the amortization of premiums and accretion of discounts, which are recognized in interest income using the interest method over the period of time remaining to investment’s maturity.

The Company accounts for transfers of debt securities from available-for-sale classification to held-to-maturity classification at fair value on the transfer date. Any associated unrealized gains or losses on such securities become part of 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 on the date of transfer are also subsequently amortized or accreted into interest income over the remaining life of the security using the interest method.

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

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

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

For available-for-sale investment securities, the Company performs a ~~quarterly~~ qualitative evaluation offor 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, (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~~or a portion thereof, is credit ~~loss,~~related, the Company records the amount of credit loss through a charge to provision for credit losses in current period earnings. However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If it is likely the Company will be required to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings. Unrealized losses deemed non-credit related are recorded, net of tax, through accumulated other comprehensive income.

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

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

1513

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

Loans Held for Investment. Loans held for investment are loans the Company has the ability and intent to hold until their maturity. These loans are carried at amortized cost, ~~including~~net of discounts and premiums on ~~purchased~~acquired and ~~acquired~~purchased loans, and net deferred loan origination fees and costs. Purchase discounts and premiums and net deferred loan origination fees and costs on loans are accreted or amortized in interest income as an adjustment of yield, using the interest method, over the expected ~~lives~~life of the loans. ~~Income recognition~~Amortization of deferred loan fees ~~deferred loan~~and costs ~~discounts and premiums is~~are 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 the collection of principal ~~and~~ and/or interest. When loans are placed on nonaccrual status, all previously accrued and uncollected interest is promptly reversed against current period interest income, and as such an ACL for accrued interest receivable is not established. Interest income generally is not recognized on nonaccrual loans unless the likelihood of further loss is remote. Interest payments received on nonaccrual loans are applied as a reduction to the loan principal balance. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are ~~estimated~~deemed to be fully collectible as to all principal and interest.

Allowance for Credit Losses on ~~Loans.~~ 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 (“PD”) and loss given default (“LGD”) model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the ~~probability of default~~PD and ~~loss given default~~LGD model with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows 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 forecasts PD and LGD over a two-year time horizon, which the Company believes is a reasonable and supportable period. PD and LGD forecasts are derived using economic forecast scenarios. Beyond the two-year forecast time horizon, the Company’s ACL model reverts to long-term average loss rates for purposes of estimating cash flows beyond a period deemed reasonable and supportable. The Company forecasts probability of default and loss given default based on economic forecast scenarios over a two-year time horizon before reverting tohistorical long-term average loss rates over a period of three years. The duration of the forecast horizon, the period over which forecasts revert to historical long-term averages, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s ~~probability of default~~PD and ~~loss given default,~~LGD, which can drive changes in the determination of the ACL.

Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL for term loans represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows expected to be collected. The ACL for credit facilities is determined by discounting estimates for cash flows not expected to be collected. 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, 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~~management periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not limited to factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) ~~organization specific~~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,~~backtesting, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL.

The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, ~~troubled debt restructurings (“TDRs”),~~TDRs, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans, which have exhibited a deterioration in credit quality may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan 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 the ACL, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that may extend beyond the Company’s control. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review ~~process. Such agencies~~process and may require ~~the Company to recognize additions~~changes to the ~~ACL based on judgments different from those of management.~~ACL.

Please also see Note 6 – Allowance for Credit Losses, of these Consolidated Financial Statements for additional discussion concerning the Company’s ACL methodology, including discussion concerning economic forecasts used in the determination of the ACL.

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 June 30, ~~2021,~~2022, the Company had the following segments and classes of loans:

Investor Loans Secured by Real Estate:

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

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

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

Business Loans Secured by Real Estate:

•Commercial real estate owner-occupied - CRE owner-occupied includes loans for which the Company holds real property as collateral and where the underlying property is occupied by the borrower, such as with a place of business. These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. The primary risks associated with CRE owner-occupied loans include the borrower’s inability to pay, material decreases in the value of the real estate that is 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.~~quick service restaurants (“QSR”). These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. Risks associated with these loans include material decreases in the value of real estate being held as collateral, and the borrower’s inability to pay as a result of increases in interest rates or decreases in cash flow from the underlying business.

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

Commercial Loans:

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

Retail Loans:

•One-to-four family - Although we do not originate ~~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, 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.

1917

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

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

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

Unlike non-PCD loans, the initial ACL for PCD loans is established through an adjustment to the acquired loan balance and not through a charge to the provision for credit ~~losses in~~losses. As with non-PCD loans, 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.

Goodwill and Other Intangible Assets. Goodwill assets originate from business combinations where the Company has acquired other financial institutions, and is 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 that are 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 those assets may be impaired. Impairment testing is performed at the reporting unit level, which is considered the Company level as management has identified the Company is its sole reporting unit.

Management’s assessment of goodwill is performed in accordance with ASC 350-20 -Intangibles - Goodwill and Other - Goodwill, which allows the Company to first perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value. However, GAAP also allows the Company, at its option, to unconditionally forego the qualitative assessment and proceed directly to a quantitative assessment. When performing a qualitative assessment of goodwill, should the results of such analysis indicate it is more likely than not the 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’s annual impairment test of goodwill is performed in the fourth quarter of each year. The Company performed a qualitative assessment of goodwill in the fourth quarter of 2021, the results of which indicated the value of goodwill assets could be supported and were not impaired. There have been no changes since the most recent assessment.

Other intangible assets include core deposit and customer relationship intangible assets arising from the acquisition of other financial institutions and are amortized on a basis reflecting the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up, or on a straight-line basis over their estimated useful lives, which range from 6 to 11 years. GAAP requires that intangible assets other than goodwill be tested for impairment when events and circumstances change, indicating that their carrying value may not be recoverable. For intangible assets other than goodwill, the Company first performs a qualitative assessment to determine if the carrying value of such assets may not be recoverable. A quantitative assessment is followed to determine the amount of impairment in the event the carrying value of such assets are deemed not recoverable. Impairment is measured as the amount by which their carrying value exceeds their estimated fair value. The Company tests intangible assets for impairment in the fourth quarter of each year, the results of which indicated the value of intangible assets could be supported and were not impaired.

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

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

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

Liabilities to make lease payments and right-of-use assets are determined based on the total contractual rents for each lease, discounted at the rate implicit in the lease or at the Company’s estimated incremental borrowing rate if the rate is not implicit in the lease. The Company measures future base rents based on the minimum payments specified in the lease agreement, giving consideration for periodic contractual rent increases which are based on an escalation rate or a specified index. When future rent payments are based on an index, the Company uses the index rate observed at the time of lease commencement to measure future lease payments. Liabilities to make future lease payments on operating leases are reduced by periodic contractual lease payments net of periodic interest accretion on the lease liability. Right-of-use assets for operating leases are amortized over the term of the lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion on the related liability to make lease payments. Expense recognition for operating leases is recorded on a straight-line basis. As of June 30, 2022, all of the Company’s leases were classified as either operating leases or short-term leases.

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

~~In connection with the Opus acquisition on June 1, 2020,~~Stock-Based Compensation. The Company issues various forms of stock-based compensation awards annually to officers and directors of the Company, ~~acquired PCD loans with an aggregate~~including stock options, restricted stock awards, and restricted stock units. The related compensation costs are based on the grant-date fair value and are recognized in the income statement over the period they are expected to vest, net of estimates for forfeitures. Estimates for forfeitures are based on the Company’s historical experience for each award type. A Black-Scholes model is utilized to estimate the fair value of ~~approximately $841.2 million,~~stock options on the grant date. The Black-Scholes model uses certain assumptions to determine grant date fair value such as: expected volatility, expected term of the option, expected risk-free rate of interest, and ~~recorded an ACL~~expected dividend yield on the Corporation’s common stock. The market price of ~~approximately $21.2 million, which was added~~the Corporation’s common stock at the grant date is used for restricted stock awards in determining the grant date fair value for those awards.

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

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

~~Other Real Estate Owned (“OREO”)~~Comprehensive Income (Loss). ~~Real estate properties acquired through,~~Comprehensive income (loss) is reported in addition to net income for all periods presented. Comprehensive income (loss) is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s available-for-sale investment securities are required to be included in other comprehensive income or loss. Total comprehensive income (loss) and the components of accumulated other comprehensive income or loss are presented in ~~lieu~~the Consolidated Statements of ~~loan foreclosure are recorded at fair value, less cost to sell, with any excess~~Stockholders’ Equity and Consolidated Statements 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.Comprehensive Income.

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 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 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.


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


~~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.

Core deposit intangible of $16.1 million, customer relationship intangible of $3.2 million, and goodwill of $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:

~~(Dollars in thousands)~~

~~June 1, 2020~~

~~Net identifiable assets acquired, at fair value~~

~~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~~

~~43,395~~

~~Other assets~~

~~369,169~~

~~Total assets acquired~~

~~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 assets~~

~~656,615~~

~~Total merger consideration~~

~~749,605~~

~~Goodwill recognized~~

~~92,990~~

~~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 $146,000 related to loans, deferred tax assets, other assets, and other liabilities. In May 2021, the Company finalized its fair values analysis of the acquired assets and assumed liabilities associated with this acquisition.

~~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 was 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 six months ended June 30, 2021 compared with $39.3 million during the three months ended June 30, 2020. Merger-related expenses are included in noninterest expense in the Company's consolidated statements of income.

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three and six months ended June 30, 2020 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 Six Months Ended
(Dollar in thousands, except per share data) June 30, 2020 June 30, 2020
Net interest and other income $ 203,240 $ 375,984
Net loss (62,479) (119,931)
Basic loss per share (0.67) (1.29)
Diluted loss per share (0.67) (1.29)

Note 54 – Investment Securities

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

June 30, 2021
(Dollars in thousands) Amortized
Cost Gross Unrealized
Gain Gross Unrealized
Loss Estimated
Fair Value
Investment securities available-for-sale:
U.S. Treasury $ 109,847 $ 2,008 $ (47) $ 111,808
Agency 554,342 6,335 (5,510) 555,167
Corporate 355,101 5,957 (2,676) 358,382
Municipal bonds 1,348,346 36,296 (5,169) 1,379,473
Collateralized mortgage obligations 617,596 287 (3,145) 614,738
Mortgage-backed securities 1,465,117 11,216 (8,454) 1,467,879
Total investment securities available-for-sale 4,450,349 62,099 (25,001) 4,487,447
Investment securities held-to-maturity:
Mortgage-backed securities 17,378 887 0 18,265
Other 1,555 0 0 1,555
Total investment securities held-to-maturity 18,933 887 0 19,820
Total investment securities $ 4,469,282 $ 62,986 $ (25,001) $ 4,507,267



(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
AFS investment securities:
June 30, 2022
U.S. Treasury	$	34,750	$	—	$	(1,390)	$	33,360
Agency	452,845		34		(40,584)		412,295
Corporate debt	602,320		36		(32,941)		569,415

Collateralized mortgage obligations	832,341		28		(42,583)		789,786
Mortgage-backed securities	986,255		—		(112,041)		874,214
Total AFS investment securities	$	2,908,511	$	98	$	(229,539)	$	2,679,070

December 31, 2020
(Dollars in thousands) Amortized
Cost Gross Unrealized
Gain Gross Unrealized
Loss Estimated
Fair Value
Investment securities available-for-sale:
U.S. Treasury $ 30,153 $ 2,380 $ 0 $ 32,533
Agency 666,702 24,292 (608) 690,386
Corporate 412,223 3,591 (506) 415,308
Municipal bonds 1,412,012 37,260 (3,253) 1,446,019
Collateralized mortgage obligations 513,259 819 (712) 513,366
Mortgage-backed securities 812,384 21,662 (543) 833,503
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





December 31, 2021
U.S. Treasury	$	57,708	$	614	$	(456)	$	57,866
Agency	440,183		2,081		(10,129)		432,135
Corporate debt	451,621		6,096		(3,856)		453,861
Municipal bonds	1,061,985		32,209		(4,281)		1,089,913
Collateralized mortgage obligations	680,686		2,012		(6,055)		676,643
Mortgage-backed securities	1,586,406		3,220		(26,180)		1,563,446
Total AFS investment securities	$	4,278,589	$	46,232	$	(50,957)	$	4,273,864

The carrying amount and estimated fair value of investment securities held-to-maturity were as follows:



(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrecognized Gain		Gross Unrecognized Loss		Estimated Fair Value
HTM investment securities:
June 30, 2022
Municipal bonds	$	1,148,411	$	(109)	$	1,148,302	$	448	$	(211,542)	$	937,208
Mortgage-backed securities	240,918		—		240,918		9		(23,096)		217,831
Other	1,462		—		1,462		—		—		1,462
Total HTM investment securities	$	1,390,791	$	(109)	$	1,390,682	$	457	$	(234,638)	$	1,156,501





December 31, 2021
Municipal bonds	$	368,344	$	(22)	$	368,322	$	3,834	$	(1,649)	$	370,507
Mortgage-backed securities	11,843		—		11,843		564		—		12,407
Other	1,509		—		1,509		—		—		1,509
Total HTM investment securities	$	381,696	$	(22)	$	381,674	$	4,398	$	(1,649)	$	384,423

The Company reassesses classification of certain investments as part of the ongoing review of the investment securities portfolio. During the second quarter of 2022, the Company transferred the remaining AFS municipal bond portfolio totaling $444.6 million, which the Company intends and has the ability to hold to maturity, to HTM securities. The transfer of these securities was accounted for at fair value on the transfer date. The municipal bonds had a net carrying amount of $400.8 million with a pre-tax unrealized loss of $43.8 million, which was reflected as discounts on the date of transfer. These discounts will be accreted into interest income as yield adjustments over the remaining term of the securities. The amortization of the unrealized losses reported in accumulated other comprehensive income will offset the effect on interest income of the accretion of the discounts. No gains or losses were recorded at the time of transfer.

Investment securities with carrying values of ~~$134.6~~$87.3 million and ~~$147.3~~$130.7 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, were pledged to secure public deposits, other borrowings, and for other purposes as required or permitted by law.

At June 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.

Unrealized Gains and Losses

Unrealized gains and losses on AFS investment securities ~~available-for-sale~~ are recognized in stockholders’ equity as accumulated other comprehensive income or loss. At June 30, ~~2021,~~2022, the Company had a net unrealized loss of $229.4 million, or $163.9 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of $4.7 million, or $3.3 million net of tax in accumulated other comprehensive loss, at December 31, 2021.

For investment securities transferred from AFS to HTM, the unrealized gains and losses at the date of transfer continue to be reported in stockholders’ equity as accumulated other comprehensive income or loss and are amortized over the remaining lives of ~~$37.1~~the securities with an offsetting entry to interest income as an adjustment of yield. At June 30, 2022, the unrealized loss on investment securities transferred from AFS to HTM was $71.5 million, or ~~$26.5~~$51.1 million net of tax ~~compared to an~~in accumulated other comprehensive ~~income of $84.4 million, or $60.3 million net of tax, at December 31, 2020.~~loss.

The table below ~~shows~~summarizes the number, fair value, and gross unrealized holding losses of the Company’s AFS investment securities 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.

June 30, 2021
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:
U.S. Treasury 2 $ 38,568 $ (47) 0 $ 0 $ 0 2 $ 38,568 $ (47)
Agency 24 358,145 (5,244) 9 9,355 (266) 33 367,500 (5,510)
Corporate 11 91,496 (2,676) 0 0 0 11 91,496 (2,676)
Municipal bonds 68 375,132 (5,169) 0 0 0 68 375,132 (5,169)
Collateralized mortgage obligations 35 373,224 (3,145) 1 351 0 36 373,575 (3,145)
Mortgage-backed securities. 68 838,125 (8,454) 0 0 0 68 838,125 (8,454)
Total investment securities available-for-sale 208 $ 2,074,690 $ (24,735) 10 $ 9,706 $ (266) 218 $ 2,084,396 $ (25,001)

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) 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)


	June 30, 2022
	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
AFS investment securities:
U.S. Treasury	2	$	33,360	$	(1,390)	—	$	—	$	—	2	$	33,360	$	(1,390)
Agency	9	69,116		(9,554)		26	295,963		(31,030)		35	365,079		(40,584)
Corporate debt	52	503,218		(21,134)		3	48,161		(11,807)		55	551,379		(32,941)

Collateralized mortgage obligations	45	509,400		(27,406)		29	206,125		(15,177)		74	715,525		(42,583)
Mortgage-backed securities.	70	797,662		(98,760)		10	76,552		(13,281)		80	874,214		(112,041)
Total AFS investment securities	178	$	1,912,756	$	(158,244)	68	$	626,801	$	(71,295)	246	$	2,539,557	$	(229,539)

2723


	December 31, 2021
	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
AFS investment securities:
U.S. Treasury	3	$	47,235	$	(456)	—	$	—	$	—	3	$	47,235	$	(456)
Agency	19	278,078		(5,634)		16	119,750		(4,495)		35	397,828		(10,129)
Corporate debt	17	166,563		(849)		3	57,274		(3,007)		20	223,837		(3,856)
Municipal bonds	36	277,564		(4,079)		2	6,596		(202)		38	284,160		(4,281)
Collateralized mortgage obligations	26	226,763		(3,738)		15	121,185		(2,317)		41	347,948		(6,055)
Mortgage-backed securities	103	1,306,455		(20,417)		15	173,121		(5,763)		118	1,479,576		(26,180)
Total AFS investment securities	204	$	2,302,658	$	(35,173)	51	$	477,926	$	(15,784)	255	$	2,780,584	$	(50,957)

Allowance for Credit Losses on Investment Securities

The Company reviews individual securities classified as ~~available-for-sale~~AFS to determine whether a decline in fair value below the amortized cost basis is deemed credit related or due to other factors such as changes in interest rates and general market conditions. An ACL on ~~available-for-sale~~AFS investment securities is recorded when the fair value of the investment is below its amortized cost and the decline in fair value has been deemed, ~~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~~AFS investment securities, which may be attributed to changes in interest rates and other ~~market related~~market-related factors, are not recorded through an ACL. Such declines are recorded as an adjustment to accumulated other comprehensive income, net of tax. In the event the Company is required to sell or has the intent to sell an ~~available-for-sale~~AFS 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~~HTM investment securities are recorded at the time of purchase or acquisition and when the Company has designated securities as ~~held-to-maturity.~~HTM. Credit losses on ~~held-to-maturity~~HTM investment securities are representative of current expected credit losses that may be incurred over the life of the investment.

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

~~During the second quarter of 2020,~~At June 30, 2022, the Company ~~acquired $829.9 million~~had an ACL of ~~available-for-sale securities in connection with the acquisition of Opus. Such securities were evaluated and it was determined that there were 0~~$109,000 for HTM investment securities classified as ~~purchase~~municipal bonds. The Company had an ACL of $22,000 for HTM investment securities at December 31, 2021. The Company recognized $68,000 and $19,000 of provision for credit ~~deteriorated upon acquisition~~losses for HTM investment securities during the three months ended June 30, 2022 and asMarch 31, 2022, respectively, and $87,000 during the six months ended June 30, 2022. The Company did not recognize any provision for credit losses for HTM investment securities during the three and six months ended June 30, 2021.

The following table presents a ~~result, 0~~rollforward by major security type of the allowance for credit losses ~~was recorded.~~on the Company's HTM debt securities as of, and for the periods indicated:


	Three Months Ended June 30, 2022
(Dollars in thousands)	Balance, March 31, 2022		Provision for Credit Losses		Balance, June 30, 2022









HTM investment securities:
Municipal bonds	$	41	$	68	$	109


	Six Months Ended June 30, 2022
(Dollars in thousands)	Balance, December 31, 2021		Provision for Credit Losses		Balance, June 30, 2022









HTM investment securities:
Municipal bonds	$	22	$	87	$	109

The Company ~~has 0~~had no ACL for ~~held-to maturity~~AFS investment securities at June 30, 2022 and December 31, 2021. The Company performed a qualitative assessment of these investments as of June 30, ~~2021~~2022 and ~~December 31, 2020 because~~determined that the ~~likelihood~~increase in unrealized losses was primarily the result of ~~non-repayment is remote. The Company has 0 ACL for available-for-sale or investment securities June 30, 2021~~changes in interest rates with inflationary pressure driven by the Federal Reserve’s policy, and ~~December 31, 2020.~~does not believe the declines in fair value were credit related. As of June 30, ~~2021,~~2022, the Company ~~has~~had not recorded credit losses on certain ~~available-for-sale~~AFS securities that were in an unrealized loss position due to the high quality of the investments, with investment grade ratings, and many of them ~~are~~ issued by U.S. government agencies. No issuers of these securities have, to the Company’s knowledge, experienced credit downgrades. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. The Company ~~performed a qualitative assessment of these investments as of June 30, 2021, and~~ does not ~~believe~~intend to sell these securities, and it is more likely than not that the ~~declines in fair value are credit related.~~Company will not be required to sell the securities prior to their anticipated recoveries. There was 0no provision for credit losses recognized for ~~available-for-sale or held-to-maturity investment securities~~AFS investment securities during the three months ended June 30, ~~2021,~~2022, March 31, ~~2021, and~~2022, or June 30, ~~2020,~~2021, and the six months ended June 30, ~~2021~~2022 and June 30, ~~2020.~~2021.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were ~~0 available-for-sale~~no AFS or ~~held-to-maturity~~HTM securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 0no securities purchased with deterioration in credit quality since their origination. At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 0no collateral dependent ~~available-for-sale~~AFS or ~~held-to-maturity~~HTM securities.

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

Vintage
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior Total
Investment securities available-for-sale:
U.S. Treasury
Aaa - Aa3 $ 33,148 $ 26,266 $ 20,481 $ 21,408 $ 10,505 $ 0 $ 111,808
Agency
Aaa - Aa3 9,572 349,992 55,601 83,752 0 56,250 555,167
Corporate debt
A1 - A3 0 58,502 0 0 0 60,573 119,075
Baa1 - Baa3 36,553 100,494 70,721 0 17,925 13,614 239,307
Municipal bonds
Aaa - Aa3 40,975 907,667 297,852 32,830 60,376 36,124 1,375,824
A1 - A3 0 0 0 0 0 2,309 2,309
Baa1 - Baa3 0 0 0 0 0 1,340 1,340
Collateralized mortgage obligations
Aaa - Aa3 142,912 232,492 91,915 20,786 14,443 112,190 614,738
Mortgage-backed securities
Aaa - Aa3 834,439 437,746 96,261 12,600 40,338 46,495 1,467,879
Total investment securities available-for-sale 1,097,599 2,113,159 632,831 171,376 143,587 328,895 4,487,447
Investment securities held-to-maturity:
Mortgage-backed securities
Aaa - Aa3 0 0 0 5,029 4,481 7,868 17,378
Other
Baa1 - Baa3 0 0 0 608 0 947 1,555
Total investment securities held-to-maturity 0 0 0 5,637 4,481 8,815 18,933
Total investment securities $ 1,097,599 $ 2,113,159 $ 632,831 $ 177,013 $ 148,068 $ 337,710 $ 4,506,380

Realized Gains and Losses

~~During~~The following table presents the ~~three months ended June 30, 2021, March 31, 2021,~~amortized cost of securities sold with related gross realized gains, gross realized losses, and ~~June 30, 2020,~~net realized (losses) gains for the Company recognized gross gains on sales of available-for-sale securities in the amount of $10.0 million, $4.2 million, and $1.3 million, respectively. During the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, the Company recognized gross losses on sales of available-for-sale securities in the amount of $5.0 million, $191,000, and $1.3 million, respectively. The Company had net proceeds from the sales of available-for-sale securities of $285.3 million, $179.4 million, and $191.1 million, of which $6.5 million were receivables on unsettled securities sales, during the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively.periods indicated:


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	2022		2022		2021		2022		2021
Amortized cost of AFS investment securities sold	$	45,121	$	658,505	$	280,199	$	703,626	$	455,520

Gross realized gains	$	7	$	13,637	$	10,035	$	13,645	$	14,272
Gross realized (losses)	(38)		(11,503)		(4,950)		(11,542)		(5,141)
Net realized (losses) gains on sales of AFS investment securities	$	(31)	$	2,134	$	5,085	$	2,103	$	9,131

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

2925

Contractual maturities

The amortized cost and estimated fair value of investment securities at June 30, ~~2021,~~2022, by contractual maturity, are shown in the table below.


		Due in One Year or Less				Due after One Year through Five Years				Due after Five Years through Ten Years				Due after Ten Years				Total					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)	(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		(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:
AFS investment securities:																						AFS investment securities:
U.S. Treasury	U.S. Treasury	$	0	$	0	$	30,135	$	31,913	$	79,712	$	79,895	$	0	$	0	$	109,847	$	111,808	U.S. Treasury	$	19,817	$	19,806	$	—	$	—	$	14,933	$	13,554	$	—	$	—	$	34,750	$	33,360
Agency	Agency	0		0		312,054		314,952		184,783		184,414		57,505		55,801		554,342		555,167		Agency	—		—		318,130		297,704		97,045		84,078		37,670		30,513		452,845		412,295
Corporate		54,024		54,074		9,670		9,714		291,407		294,594		0		0		355,101		358,382
Municipal bonds		12,830		12,830		4,619		4,918		77,533		80,607		1,253,364		1,281,118		1,348,346		1,379,473
Corporate debt																						Corporate debt	—		—		229,675		223,185		372,645		346,230		—		—		602,320		569,415

Collateralized mortgage obligations	Collateralized mortgage obligations	0		0		26,394		26,357		229,519		226,997		361,683		361,384		617,596		614,738		Collateralized mortgage obligations	—		—		47,532		47,032		221,867		205,674		562,942		537,080		832,341		789,786
Mortgage-backed securities	Mortgage-backed securities	0		0		2,121		2,252		479,885		486,001		983,111		979,626		1,465,117		1,467,879		Mortgage-backed securities	—		—		—		—		569,903		512,789		416,352		361,425		986,255		874,214
Total investment securities available-for-sale		66,854		66,904		384,993		390,106		1,342,839		1,352,508		2,655,663		2,677,929		4,450,349		4,487,447
Investment securities held-to-maturity:
Total AFS investment securities																						Total AFS investment securities	19,817		19,806		595,337		567,921		1,276,393		1,162,325		1,016,964		929,018		2,908,511		2,679,070
HTM investment securities:																						HTM investment securities:
Municipal bonds																						Municipal bonds	—		—		—		—		60,867		56,380		1,087,544		880,828		1,148,411		937,208
Mortgage-backed securities	Mortgage-backed securities	0		0		0		0		0		0		17,378		18,265		17,378		18,265		Mortgage-backed securities	—		—		—		—		—		—		240,918		217,831		240,918		217,831
Other	Other	0		0		0		0		0		0		1,555		1,555		1,555		1,555		Other	—		—		—		—		—		—		1,462		1,462		1,462		1,462
Total investment securities held-to-maturity		0		0		0		0		0		0		18,933		19,820		18,933		19,820
Total HTM investment securities																						Total HTM investment securities	—		—		—		—		60,867		56,380		1,329,924		1,100,121		1,390,791		1,156,501
Total investment securities	Total investment securities	$	66,854	$	66,904	$	384,993	$	390,106	$	1,342,839	$	1,352,508	$	2,674,596	$	2,697,749	$	4,469,282	$	4,507,267	Total investment securities	$	19,817	$	19,806	$	595,337	$	567,921	$	1,337,260	$	1,218,705	$	2,346,888	$	2,029,139	$	4,299,302	$	3,835,571

FHLB, FRB, and Other Stock

The Company’s equity securities primarily consist of ~~FHLB~~Federal Home Loan Bank of San Francisco (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) stock, which are considered restricted securities and held as a condition of membership of the FHLB and the Board of Governors of the Federal Reserve System. These equity securities without readily determinable fair values are carried at cost less impairment. At June 30, 2022, the Company had $19.5 million in FHLB stock, $74.5 million in FRB stock, and $24.6 million in other stock, all carried at cost. At December 31, 2021, the Company had $17.3 million in FHLB stock, ~~$74.4~~$74.5 million in FRB stock, and ~~$26.3~~$25.7 million in other stock, all carried at cost. During the three months ended June 30, 2021 and March 31, 2021, the FHLB did 0t repurchase any of the Company’s excess FHLB stock through its stock repurchase program. During the three months ended June 30, 2020, the FHLB repurchased $17.3 million of the company’s excess FHLB stock through its stock repurchase program.stock.

The Company periodically evaluates its investments in FHLB, FRB, and other stock for impairment, including their capital adequacy and overall financial condition. ~~NaN~~No impairment losses have been recorded through June 30, ~~2021.~~2022.

3026

Note 65 – Loans Held for Investment

The 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.

3127

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


		June 30,		December 31,			June 30,		December 31,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		(Dollars in thousands)	2022		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	$	2,810,233	$	2,675,085	CRE non-owner-occupied	$	2,788,715	$	2,771,137
Multifamily	Multifamily	5,539,464		5,171,356		Multifamily	6,188,086		5,891,934
Construction and land	Construction and land	297,728		321,993		Construction and land	331,734		277,640
SBA secured by real estate	SBA secured by real estate	53,003		57,331		SBA secured by real estate	44,199		46,917
Total investor loans secured by real estate	Total investor loans secured by real estate	8,700,428		8,225,765		Total investor loans secured by real estate	9,352,734		8,987,628
Business loans secured by real estate	Business loans secured by real estate					Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,089,300		2,114,050		CRE owner-occupied	2,486,747		2,251,014
Franchise real estate secured	Franchise real estate secured	358,120		347,932		Franchise real estate secured	387,683		380,381
SBA secured by real estate	SBA secured by real estate	72,923		79,595		SBA secured by real estate	67,191		69,184
Total business loans secured by real estate	Total business loans secured by real estate	2,520,343		2,541,577		Total business loans secured by real estate	2,941,621		2,700,579
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	1,795,144		1,768,834		Commercial and industrial	2,295,421		2,103,112
Franchise non-real estate secured	Franchise non-real estate secured	401,315		444,797		Franchise non-real estate secured	415,830		392,576
SBA non-real estate secured	SBA non-real estate secured	13,900		15,957		SBA non-real estate secured	11,008		11,045

Total commercial loans	Total commercial loans	2,210,359		2,229,588		Total commercial loans	2,722,259		2,506,733
Retail loans	Retail loans					Retail loans
Single family residential	Single family residential	157,228		232,574		Single family residential	77,951		95,292
Consumer	Consumer	6,240		6,929		Consumer	4,130		5,665
Total retail loans	Total retail loans	163,468		239,503		Total retail loans	82,081		100,957
Gross loans held for investment (1)		13,594,598		13,236,433
Loans held for investment before basis adjustment (1)						Loans held for investment before basis adjustment (1)	15,098,695		14,295,897
Basis adjustment associated with fair value hedge (2)						Basis adjustment associated with fair value hedge (2)	(51,087)		—
Loans held for investment						Loans held for investment	15,047,608		14,295,897
Allowance for credit losses for loans held for investment	Allowance for credit losses for loans held for investment	(232,774)		(268,018)		Allowance for credit losses for loans held for investment	(196,075)		(197,752)
Loans held for investment, net	Loans held for investment, net	$	13,361,824	$	12,968,415	Loans held for investment, net	$	14,851,533	$	14,098,145

Total unfunded loan commitments	Total unfunded loan commitments	$	2,345,364	$	1,947,250	Total unfunded loan commitments	$	2,872,934	$	2,507,911
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	$	4,714	$	601	Loans held for sale, at lower of cost or fair value	2,957		10,869

(1) Includes net deferred origination fees of $3.1 million and $3.5 million, and unaccreted fair value net purchase discounts of ~~$94.4~~$63.6 million and ~~$113.8~~$77.1 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

(2) Represents the basis adjustment associated with the application of hedge accounting on certain loans. Refer to Note 11 – Derivative Instruments for additional information.

3228

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 initially 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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the servicing asset totaled ~~$4.4~~$3.7 million and ~~$5.3~~$3.8 million, respectively, and ~~was~~were included in other assets in the Company’s consolidated statement of financial condition. Servicing ~~rights~~assets are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company determined that no valuation allowance was necessary.

~~Opus entered into securitization sales on December 23, 2016~~In connection with the acquisition of Opus Bank (“Opus”), the Company acquired Federal Home Loan Mortgage Corporation (“Freddie Mac”)~~. The transaction involved the~~ guaranteed structured pass-through certificates, which were issued as a result of Opus’s securitization sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored ~~transaction. One class of Freddie Mac guaranteed structured pass-through certificates was issued and purchased entirely by Opus. In connection with the Opus acquisition, the~~transaction in December 2016. 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~~$338,000 as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

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 ~~$618.3~~$528.3 million at June 30, ~~2021~~2022 and ~~$686.0~~$565.8 million at December 31, ~~2020.~~2021. Included ~~within the balances were~~in those totals are multifamily loans transferred through securitization with Freddie Mac of ~~$94.6~~$64.0 million and $78.1 million at June 30, 2022 and December 31, 2021, respectively, and SBA participations serviced for others of ~~$387.8~~$338.9 million and $365.6 million at June 30, ~~2021,~~2022 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.~~

2021, respectively.

3329

Concentration of Credit Risk

As of June 30, ~~2021,~~2022, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located predominately in California. The Company’s loan portfolio contains concentrations of credit in multifamily, CRE non-owner-occupied, CRE owner-occupied, and 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.

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 ~~$833.2~~$817.0 million for secured loans and ~~$500.0~~$490.2 million for unsecured loans at June 30, ~~2021.~~2022. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At June 30, ~~2021,~~2022, the Bank’s largest aggregate outstanding balance of loans to one borrower was ~~$177.6~~$296.6 million ~~secured by multifamily properties.~~primarily comprised of an asset-based line of credit.

Credit Quality and Credit Risk Management

The Company’s credit quality and credit risk are controlled in 2 distinct areas. The first is the loan origination process, wherein the Bank underwrites credit 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 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 federal banking 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.

3430

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

•Pass classifications represent assets with aan acceptable level of credit quality ~~in which~~that contains no well-defined ~~deficiency~~deficiencies or ~~weakness exists.~~weaknesses.

•Special Mention assets do not currently expose the Bank to a sufficient risk to warrant classification in one of the adverse categories, but possess correctable deficiencies or potential weaknesses deserving management’s close attention.

•Substandard assets are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. These assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. OREO acquired ~~from~~through foreclosure is also classified as ~~Substandard.~~substandard assets.

•Doubtful credits have all the weaknesses inherent in ~~Substandard~~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. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate properties, and cash. 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. However, if a loan is not considered collateral dependent and management determines that the loan no longer possesses risk characteristics similar to other loans in the loan portfolio, the loan is individually evaluated, and the associated ACL is determined through the use of a discounted cash flow analysis.

3531

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

Term Loans by Vintage
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Revolving Converted to Term During the Period Total
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
Pass $ 301,013 $ 267,646 $ 477,241 $ 488,498 $ 272,907 $ 923,821 $ 9,980 $ 0 $ 2,741,106
Special mention 0 0 16,356 3,395 0 17,581 0 0 37,332
Substandard 0 0 25,834 0 0 5,424 537 0 31,795
Multifamily
Pass 1,027,783 984,120 1,514,852 707,270 570,526 727,578 1,643 0 5,533,772
Special mention 0 0 1,745 2,073 0 0 0 0 3,818
Substandard 0 0 0 544 559 771 0 0 1,874
Construction and land
Pass 36,740 97,789 93,185 35,334 8,765 25,915 0 0 297,728
SBA secured by real estate
Pass 0 500 7,391 10,116 12,155 11,116 0 0 41,278
Special mention 0 0 0 0 3,038 750 0 0 3,788
Substandard 0 0 1,171 2,361 2,239 2,166 0 0 7,937
Total investor loans secured by real estate 1,365,536 1,350,055 2,137,775 1,249,591 870,189 1,715,122 12,160 0 8,700,428
Business loans secured by real estate
CRE owner-occupied
Pass 276,707 281,668 355,162 269,806 278,179 596,013 3,053 0 2,060,588
Special mention 0 0 6,086 1,741 3,043 0 0 0 10,870
Substandard 0 0 0 6,151 5,873 5,818 0 0 17,842
Franchise real estate secured
Pass 59,536 44,384 71,812 54,679 79,691 47,140 0 0 357,242
Special mention 0 878 0 0 0 0 0 0 878
SBA secured by real estate
Pass 2,502 3,423 7,562 11,398 12,676 27,290 0 0 64,851
Special mention 0 0 0 0 0 150 0 0 150
Substandard 0 0 0 1,336 2,160 4,426 0 0 7,922
Total loans secured by business real estate 338,745 330,353 440,622 345,111 381,622 680,837 3,053 0 2,520,343
2022:


	Term Loans by Vintage
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2022
Investor loans secured by real estate
CRE non-owner-occupied
Pass	$	407,555	$	647,131	$	229,618	$	370,339	$	331,235	$	754,385	$	5,333	$	—	$	2,745,596
Special mention	—		—		—		—		7,585		6,359		—		—		13,944
Substandard	—		—		—		25,773		—		2,914		—		488		29,175

Multifamily
Pass	1,012,086		2,245,091		809,115		976,171		314,160		821,575		261		—		6,178,459

Substandard	—		6,074		—		2,799		—		754		—		—		9,627

Construction and land
Pass	95,161		152,872		44,555		26,790		5,063		7,293		—		—		331,734



SBA secured by real estate
Pass	6,616		130		495		5,476		7,653		15,870		—		—		36,240

Substandard	—		—		—		—		2,432		5,527		—		—		7,959

Total investor loans secured by real estate	1,521,418		3,051,298		1,083,783		1,407,348		668,128		1,614,677		5,594		488		9,352,734
Business loans secured by real estate
CRE owner-occupied
Pass	506,736		760,398		255,275		255,040		131,615		551,125		4,720		—		2,464,909

Substandard	—		—		4,655		2,479		4,761		9,943		—		—		21,838

Franchise real estate secured
Pass	43,571		152,200		35,617		53,647		34,819		67,829		—		—		387,683



SBA secured by real estate
Pass	8,493		7,265		2,342		6,507		5,214		30,616		—		—		60,437

Substandard	—		—		—		—		1,377		5,377		—		—		6,754

Total loans secured by business real estate	558,800		919,863		297,889		317,673		177,786		664,890		4,720		—		2,941,621
Commercial loans
Commercial and industrial
Pass	194,470		361,430		65,403		170,883		100,744		152,008		1,232,369		2,801		2,280,108
Special mention	—		—		323		—		—		—		530		—		853
Substandard	893		2,122		—		3,527		674		1,687		5,557		—		14,460

Franchise non-real estate secured
Pass	74,199		152,765		22,624		72,220		37,442		41,084		780		—		401,114

Substandard	—		—		—		—		2,151		12,565		—		—		14,716

SBA non-real estate secured
Pass	1,952		453		522		1,817		732		3,955		—		—		9,431

Substandard	—		—		—		137		237		579		—		624		1,577






Total commercial loans	271,514		516,770		88,872		248,584		141,980		211,878		1,239,236		3,425		2,722,259

3632


		Term Loans by Vintage																			Term Loans by Vintage
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total		(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021
Commercial loans
Commercial and industrial
Pass		158,312		114,467		243,248		136,513		189,735		95,416		805,860		1,852		1,745,403
Special mention		0		0		231		0		0		0		13,558		0		13,789
Substandard		0		1,940		1,231		3,334		33		2,365		27,049		0		35,952

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

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

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

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

Total commercial loans		215,357		143,142		382,538		222,333		246,838		149,643		848,656		1,852		2,210,359
June 30, 2022																				June 30, 2022
Retail loans	Retail loans																			Retail loans
Single family residential	Single family residential																			Single family residential
Pass	Pass	13,312		6,771		2,524		2,271		8,789		101,020		22,487		0		157,174		Pass	$	—	$	306	$	181	$	—	$	29	$	52,537	$	24,854	$	—	$	77,907

Substandard	Substandard	0		0		0		0		0		54		0		0		54		Substandard	—		—		—		—		—		44		—		—		44

Consumer loans	Consumer loans																			Consumer loans
Pass	Pass	44		39		63		23		19		3,012		2,996		0		6,196		Pass	—		9		22		27		9		1,173		2,887		—		4,127

Substandard	Substandard	0		0		7		0		0		37		0		0		44		Substandard	—		—		—		3		—		—		—		—		3

Total retail loans	Total retail loans	13,356		6,810		2,594		2,294		8,808		104,123		25,483		0		163,468		Total retail loans	—		315		203		30		38		53,754		27,741		—		82,081
Totals gross loans		$	1,932,994	$	1,830,360	$	2,963,529	$	1,819,329	$	1,507,457	$	2,649,725	$	889,352	$	1,852	$	13,594,598
Loans held for investment before basis adjustment (1)																				Loans held for investment before basis adjustment (1)	$	2,351,732	$	4,488,246	$	1,470,747	$	1,973,635	$	987,932	$	2,545,199	$	1,277,291	$	3,913	$	15,098,695

(1) Excludes the basis adjustment of $51.1 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

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:~~2021:


		Term Loans by Vintage																			Term Loans by Vintage
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term During the Period		Total		(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2020
December 31, 2021																				December 31, 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	$	265,901	$	541,994	$	440,351	$	287,580	$	279,238	$	791,477	$	11,114	$	0	$	2,617,655	Pass	$	708,560	$	269,944	$	393,097	$	387,923	$	218,388	$	730,736	$	9,353	$	—	$	2,718,001
Special mention	Special mention	0		0		6,669		437		2,516		29,738		0		0		39,360		Special mention	—		—		16,166		7,682		—		—		—		—		23,848
Substandard	Substandard	0		9,732		2,045		0		516		5,218		559		0		18,070		Substandard	—		—		25,777		—		—		2,998		513		—		29,288

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	2,260,708		952,127		1,199,505		444,904		479,029		554,067		286		—		5,890,626
Special mention		0		1,758		2,630		0		8,649		0		0		0		13,037

Substandard	Substandard	0		0		0		559		772		0		0		0		1,331		Substandard	—		—		—		543		—		765		—		—		1,308

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	119,532		97,721		40,556		12,415		3,857		3,559		—		—		277,640

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	130		497		6,259		9,074		12,070		9,198		—		—		37,228
Special mention	Special mention	496		1,032		1,159		1,000		373		306		0		0		4,366		Special mention	—		—		—		957		—		544		—		—		1,501
Substandard	Substandard	0		1,220		2,959		1,091		400		2,541		0		0		8,211		Substandard	—		—		—		2,343		3,679		2,166		—		—		8,188

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	3,088,930		1,320,289		1,681,360		865,841		717,023		1,304,033		10,152		—		8,987,628
Business loans secured by real estate
CRE owner-occupied
Pass		293,324		409,758		332,672		327,475		225,098		469,704		14,268		246		2,072,545
Special mention		2,190		15,917		3,802		0		4,153		201		0		0		26,263
Substandard		0		0		3,636		4,214		1,169		5,973		250		0		15,242

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

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

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

3833

Term Loans by Vintage
(Dollars in thousands) 2020 2019 2018 2017 2016 Prior Revolving Revolving Converted to Term During the Period Total
December 31, 2020
Commercial loans
Commercial and industrial
Pass 127,082 260,368 159,001 210,163 51,800 82,291 801,752 9,315 1,701,772
Special mention 735 0 2,331 185 1,320 243 17,890 37 22,741
Substandard 0 3,310 2,737 610 1,333 2,446 32,858 1,027 44,321
Franchise non-real estate secured
Pass 27,607 164,025 94,494 46,174 40,829 27,745 1,361 502 402,737
Special mention 0 7,267 2,037 230 480 2,321 0 0 12,335
Substandard 0 6,690 3,706 18,425 700 204 0 0 29,725
SBA non-real estate secured
Pass 407 2,257 1,558 2,674 610 4,449 0 259 12,214
Special mention 0 0 0 1,574 0 0 0 0 1,574
Substandard 0 83 357 282 340 400 707 0 2,169
Total commercial loans 155,831 444,000 266,221 280,317 97,412 120,099 854,568 11,140 2,229,588
Retail loans
Single family residential
Pass 10,794 7,714 13,982 14,039 33,968 124,248 27,172 0 231,917
Substandard 0 0 0 0 0 657 0 0 657
Consumer loans
Pass 52 112 37 25 2 3,145 3,508 0 6,881
Substandard 0 7 0 0 0 41 0 0 48
Total retail loans 10,846 7,833 14,019 14,064 33,970 128,091 30,680 0 239,503
Totals gross loans $ 1,862,085 $ 3,354,750 $ 2,140,513 $ 1,729,763 $ 1,072,603 $ 2,152,690 $ 912,643 $ 11,386 $ 13,236,433


	Term Loans by Vintage
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2021
Business loans secured by real estate
CRE owner-occupied
Pass	$	853,044	$	273,469	$	287,249	$	161,636	$	187,130	$	464,271	$	6,738	$	292	$	2,233,829

Substandard	—		—		2,553		6,074		2,966		5,592		—		—		17,185

Franchise real estate secured
Pass	156,381		36,335		55,091		40,047		56,288		34,878		1,361		—		380,381



SBA secured by real estate
Pass	6,379		2,364		7,331		9,125		10,734		24,627		—		—		60,560
Special mention	—		—		—		—		—		62		—		—		62
Substandard	—		—		—		2,062		2,690		3,810		—		—		8,562

Total loans secured by business real estate	1,015,804		312,168		352,224		218,944		259,808		533,240		8,099		292		2,700,579
Commercial loans
Commercial and industrial
Pass	425,683		79,635		200,234		117,471		123,345		70,789		1,032,053		3,371		2,052,581
Special mention	—		—		146		—		—		152		14,814		178		15,290
Substandard	1,772		—		14		2,683		863		1,150		27,684		1,075		35,241

Franchise non-real estate secured
Pass	163,865		23,943		85,206		45,061		23,672		31,163		—		—		372,910

Substandard	—		—		1,589		3,627		13,346		1,104		—		—		19,666

SBA non-real estate secured
Pass	474		564		1,292		666		2,806		2,148		—		—		7,950
Special mention	—		—		681		114		—		—		—		—		795
Substandard	—		—		76		339		685		547		653		—		2,300






Total commercial loans	591,794		104,142		289,238		169,961		164,717		107,053		1,075,204		4,624		2,506,733
Retail loans
Single family residential
Pass	313		211		—		32		2,008		68,759		23,920		—		95,243

Substandard	—		—		—		—		—		49		—		—		49

Consumer loans
Pass	11		28		49		19		11		1,394		4,113		—		5,625

Substandard	—		—		5		—		—		35		—		—		40

Total retail loans	324		239		54		51		2,019		70,237		28,033		—		100,957
Loans held for investment	$	4,696,852	$	1,736,838	$	2,322,876	$	1,254,797	$	1,143,567	$	2,014,563	$	1,121,488	$	4,916	$	14,295,897

3934

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
(Dollars in thousands)	(Dollars in thousands)	Current		30-59		60-89		90+		Total		(Dollars in thousands)	Current		30-59		60-89		90+		Total
June 30, 2021
June 30, 2022												June 30, 2022
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	$	2,799,890	$	0	$	0	$	10,343	$	2,810,233	CRE non-owner-occupied	$	2,772,126	$	6,359	$	—	$	10,230	$	2,788,715
Multifamily	Multifamily	5,539,464		0		0		0		5,539,464		Multifamily	6,179,213		—		—		8,873		6,188,086
Construction and land	Construction and land	297,728		0		0		0		297,728		Construction and land	331,734		—		—		—		331,734
SBA secured by real estate	SBA secured by real estate	52,563		0		0		440		53,003		SBA secured by real estate	44,199		—		—		—		44,199
Total investor loans secured by real estate	Total investor loans secured by real estate	8,689,645		0		0		10,783		8,700,428		Total investor loans secured by real estate	9,327,272		6,359		—		19,103		9,352,734
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,084,284		0		0		5,016		2,089,300		CRE owner-occupied	2,481,858		—		—		4,889		2,486,747
Franchise real estate secured	Franchise real estate secured	358,120		0		0		0		358,120		Franchise real estate secured	387,683		—		—		—		387,683
SBA secured by real estate	SBA secured by real estate	72,473		0		0		450		72,923		SBA secured by real estate	67,108		83		—		—		67,191
Total business loans secured by real estate	Total business loans secured by real estate	2,514,877		0		0		5,466		2,520,343		Total business loans secured by real estate	2,936,649		83		—		4,889		2,941,621
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	1,792,913		29		83		2,119		1,795,144		Commercial and industrial	2,290,204		473		—		4,744		2,295,421
Franchise non-real estate secured	Franchise non-real estate secured	401,315		0		0		0		401,315		Franchise non-real estate secured	415,830		—		—		—		415,830
SBA not secured by real estate	SBA not secured by real estate	13,223		0		0		677		13,900		SBA not secured by real estate	10,384		—		—		624		11,008

Total commercial loans	Total commercial loans	2,207,451		29		83		2,796		2,210,359		Total commercial loans	2,716,418		473		—		5,368		2,722,259
Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	157,050		178		0		0		157,228		Single family residential	77,951		—		—		—		77,951
Consumer loans	Consumer loans	6,240		0		0		0		6,240		Consumer loans	4,130		—		—		—		4,130
Total retail loans	Total retail loans	163,290		178		0		0		163,468		Total retail loans	82,081		—		—		—		82,081
Totals		$	13,575,263	$	207	$	83	$	19,045	$	13,594,598
Loans held for investment before basis adjustment (1)												Loans held for investment before basis adjustment (1)	$	15,062,420	$	6,915	$	—	$	29,360	$	15,098,695




December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied	$	2,760,882	$	—	$	—	$	10,255	$	2,771,137
Multifamily	5,890,704		1,230		—		—		5,891,934
Construction and land	277,640		—		—		—		277,640
SBA secured by real estate	46,580		—		—		337		46,917
Total investor loans secured by real estate	8,975,806		1,230		—		10,592		8,987,628
Business loans secured by real estate
CRE owner-occupied	2,246,062		—		—		4,952		2,251,014
Franchise real estate secured	380,381		—		—		—		380,381
SBA secured by real estate	68,743		—		—		441		69,184
Total business loans secured by real estate	2,695,186		—		—		5,393		2,700,579
Commercial loans
Commercial and industrial	2,101,558		92		—		1,462		2,103,112
Franchise non-real estate secured	392,576		—		—		—		392,576
SBA not secured by real estate	10,319		73		—		653		11,045
Total commercial loans	2,504,453		165		—		2,115		2,506,733
Retail loans
Single family residential	95,292		—		—		—		95,292
Consumer loans	5,665		—		—		—		5,665
Total retail loans	100,957		—		—		—		100,957
Loans held for investment	$	14,276,402	$	1,395	$	—	$	18,100	$	14,295,897

4035

Days Past Due
(Dollars in thousands) Current 30-59 60-89 90+ Total Gross Loans
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied $ 2,674,328 $ 0 $ 0 $ 757 $ 2,675,085
Multifamily 5,171,355 1 0 0 5,171,356
Construction and land 321,993 0 0 0 321,993
SBA secured by real estate 56,074 0 0 1,257 57,331
Total investor loans secured by real estate 8,223,750 1 0 2,014 8,225,765
Business loans secured by real estate
CRE owner-occupied 2,108,746 0 0 5,304 2,114,050
Franchise real estate secured 347,932 0 0 0 347,932
SBA secured by real estate 78,036 486 0 1,073 79,595
Total business loans secured by real estate 2,534,714 486 0 6,377 2,541,577
Commercial loans
Commercial and industrial 1,765,451 428 57 2,898 1,768,834
Franchise non-real estate secured 444,797 0 0 0 444,797
SBA not secured by real estate 14,912 338 0 707 15,957
Total commercial loans 2,225,160 766 57 3,605 2,229,588
Retail loans
Single family residential 232,559 15 0 0 232,574
Consumer loans 6,928 1 0 0 6,929
Total retail loans 239,487 16 0 0 239,503
Totals $ 13,223,111 $ 1,269 $ 57 $ 11,996 $ 13,236,433

Individually Evaluated Loans

~~Beginning on January 1, 2020, the~~The Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified through a TDR, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. Changes in the ACL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

As of June 30, ~~2021, $34.4~~2022, $44.4 million of loans were individually evaluated with no$1.8 million ACL attributed to such loans. At June 30, ~~2021, $13.1~~2022, $11.5 million of individually evaluated loans were evaluated using a discounted cash flow approach, and ~~$21.3~~$32.9 million of individually evaluated loans were evaluated based on the underlying value of the collateral. All individually evaluated loans were on nonaccrual status at June 30, 2022.

As of December 31, ~~2020, $29.2~~2021, $31.3 million of loans were individually evaluated, and the ACL attributed to such loans totaled ~~$126,000.~~$1.5 million. At December 31, ~~2020, $15.2~~2021, $12.4 million of individually evaluated loans were evaluated using a discounted cash flow approach, and ~~$14.0~~$18.9 million of individually evaluated loans were evaluated based on the underlying value of the collateral. All individually evaluated loans were on nonaccrual status at December 31, 2021.

~~The Company had individually evaluated loans on nonaccrual status of $34.4 million and $29.2 million at June 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 return to accrual status when the loans are brought current, have performed in accordance with the restructured contractual ~~restructured~~ terms for a period of at least six months, and the ultimate collectability of the total contractual restructured principal and interest payments are no longer in doubt. At June 30, ~~2021, there were $17.8 million loans classified as TDRs, compared with 0 TDR loans as of~~2022 and December 31, ~~2020. During~~2021, the ~~three~~Company had 5 and ~~six months ended June 30, 2021, there were~~ 6 loans totaling ~~$17.8~~$16.6 million and $16.9 million, respectively, modified as TDRs, which are comprised of 3 CRE owner-occupied loans and 1 C&I loan totaling ~~$5.3~~$5.1 million and $5.1 million, respectively, belonging to ~~one~~1 borrower relationship with the terms modified due to bankruptcy, and 1 franchise non-real estate secured loan of $11.5 million and 2 franchise non-real estate secured loans totaling ~~$12.6~~$12.1 million, respectively, belonging to another borrower relationship with the terms modified for payment deferral.

During the three and six months ended June 30, ~~2021,~~2022, the 3 CRE owner-occupied loans and 1 C&I loan classified as TDRs experienced payment defaults after modifications within the previous 12 months and were in payment ~~default and all~~default. All TDRs were on nonaccrual status as of June 30, 2022 and December 31, 2021. During the three and six months ended June 30, ~~2020,~~2021, there were 06 loans modified as TDRs, ~~that~~of which 3 CRE owner-occupied loans and 1 C&I loan classified experienced payment defaults after modifications within the previous 12 months.

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

4236

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 June 30, 2021, there was 1 single family residential loan for $819,000 classified as a COVID-19 modification under Section 4013 of the CARES Act. Additionally, as of June 30, 2021, there were no loans in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for investment, remained within their COVID-19 modification period.

Purchased Credit Deteriorated Loans

~~Following the adoption of~~ ~~ASC 326~~ ~~on January 1, 2020, the~~The Company analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated loans. Please see Note 3 -– Significant Accounting Policies for more information concerning the accounting for PCD loans. The Company had PCD loans of $477.2 million and $567.6 million at June 30, 2022 and December 31, 2021, respectively.

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. 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. 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 6 – Allowance for Credit Losses for more information concerning the Company’s ACL methodology.

Nonaccrual Loans

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

The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. However, when such loans are well secured and in the process of collection, the Company may continue ~~accruing~~with the accrual of interest. The Company had loans on nonaccrual status of $44.4 million at June 30, 2022 and $31.3 million at December 31, 2021. The Company did not record income from the receipt of cash payments related to nonaccruing loans during the three and six months ended June 30, 2022 and June 30, 2021. The Company had no loans 90 days or more past due and still accruing at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Nonaccrual loans totaled $34.4 million at June 30, 2021 and $29.2 million as of December 31, 2020. NaN interest income was recognized on nonaccrual loans during the three and six months ended June 30, 2021 and June 30, 2020.

4337

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

Nonaccrual Loans (1)
(Dollars in thousands) Collateral Dependent Loans ACL Non-Collateral Dependent Loans ACL Total Nonaccrual Loans Nonaccrual Loans with No ACL
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied $ 12,296 $ 0 $ 0 $ 0 $ 12,296 $ 12,296
SBA secured by real estate 440 0 0 0 440 440
Total investor loans secured by real estate 12,736 0 0 0 12,736 12,736
Business loans secured by real estate
CRE owner-occupied 5,016 0 0 0 5,016 5,016
SBA secured by real estate 692 0 0 0 692 692
Total business loans secured by real estate 5,708 0 0 0 5,708 5,708
Commercial loans
Commercial and industrial 2,118 0 552 0 2,670 2,670
Franchise non-real estate secured 0 0 12,584 0 12,584 12,584
SBA non-real estate secured 677 0 0 0 677 677
Total commercial loans 2,795 0 13,136 0 15,931 15,931
Retail loans
Single family residential 12 0 0 0 12 12
Total retail loans 12 0 0 0 12 12
Total nonaccrual loans $ 21,251 $ 0 $ 13,136 $ 0 $ 34,387 $ 34,387

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


	Nonaccrual Loans (1)
(Dollars in thousands)	Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
June 30, 2022
Investor loans secured by real estate
CRE non-owner-occupied	$	10,230	$	1,835	$	—	$	—	$	10,230	$	2,615
Multifamily	8,873		—		—		—		8,873		8,873

SBA secured by real estate	562		—		—		—		562		562
Total investor loans secured by real estate	19,665		1,835		—		—		19,665		12,050
Business loans secured by real estate
CRE owner-occupied	4,889		—		—		—		4,889		4,889

SBA secured by real estate	206		—		—		—		206		206
Total business loans secured by real estate	5,095		—		—		—		5,095		5,095
Commercial loans
Commercial and industrial	4,744		—		—		—		4,744		4,744
Franchise non-real estate secured	2,794		—		11,517		—		14,311		14,311
SBA non-real estate secured	624		—		—		—		624		624
Total commercial loans	8,162		—		11,517		—		19,679		19,679
Retail loans
Single family residential	6		—		—		—		6		6

Total retail loans	6		—		—		—		6		6
Total nonaccrual loans	$	32,928	$	1,835	$	11,517	$	—	$	44,445	$	36,830


		Nonaccrual Loans (1)
(Dollars in thousands)		Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
December 31, 2020

December 31, 2021														December 31, 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	$	2,792	$	0	$	0	$	0	$	2,792	$	2,792	CRE non-owner-occupied	$	10,255	$	1,455	$	—	$	—	$	10,255	$	2,640

SBA secured by real estate	SBA secured by real estate	1,257		0		0		0		1,257		1,257		SBA secured by real estate	937		—		—		—		937		937
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	11,192		1,455		—		—		11,192		3,577
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	4,952		—		—		—		4,952		4,952

SBA secured by real estate	SBA secured by real estate	1,143		0		0		0		1,143		1,143		SBA secured by real estate	589		—		—		—		589		589
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	5,541		—		—		—		5,541		5,541
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	1,462		—		336		—		1,798		1,797
Franchise non-real estate secured	Franchise non-real estate secured	0		0		13,238		0		13,238		13,238		Franchise non-real estate secured	—		—		12,079		—		12,079		12,079
SBA non-real estate secured	SBA non-real estate secured	707		0		0		0		707		707		SBA non-real estate secured	653		—		—		—		653		653
Total commercial loans	Total commercial loans	2,747		0		15,172		126		17,919		16,678		Total commercial loans	2,115		—		12,415		—		14,530		14,529
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	15		0		0		0		15		15		Single family residential	10		—		—		—		10		10

Total retail loans	Total retail loans	15		0		0		0		15		15		Total retail loans	10		—		—		—		10		10
Total nonaccrual loans	Total nonaccrual loans	$	14,037	$	0	$	15,172	$	126	$	29,209	$	27,968	Total nonaccrual loans	$	18,858	$	1,455	$	12,415	$	—	$	31,273	$	23,657

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

Residential Real Estate Loans In Process of Foreclosure

The Company had 0no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of June 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

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:


		June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Residential Properties		Business Assets		Total		(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Multifamily Properties		Residential Properties		Business Assets		Total
June 30, 2022																		June 30, 2022
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	$	2,490	$	0	$	9,806	$	0	$	0	$	12,296	CRE non-owner-occupied	$	—	$	—	$	488	$	—	$	9,742	$	—	$	—	$	—	$	10,230

Multifamily																		Multifamily	—		—		—		—		—		8,873		—		—		8,873

SBA secured by real estate	SBA secured by real estate	0		0		0		0		440		0		0		440		SBA secured by real estate	—		—		—		—		562		—		—		—		562
Total investor loans secured by real estate	Total investor loans secured by real estate	0		0		2,490		0		10,246		0		0		12,736		Total investor loans secured by real estate	—		—		488		—		10,304		8,873		—		—		19,665
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		0		0		5,016		0		0		0		5,016		CRE owner-occupied	—		—		—		4,889		—		—		—		—		4,889

SBA secured by real estate	SBA secured by real estate	178		451		0		0		0		63		0		692		SBA secured by real estate	123		83		—		—		—		—		—		—		206
Total business loans secured by real estate	Total business loans secured by real estate	178		451		0		5,016		0		63		0		5,708		Total business loans secured by real estate	123		83		—		4,889		—		—		—		—		5,095
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	0		0		0		248		0		240		1,630		2,118		Commercial and industrial	—		—		—		242		—		—		—		4,502		4,744

Franchise non-real estate secured																		Franchise non-real estate secured	—		—		—		—		—		—		—		2,794		2,794
SBA non-real estate secured	SBA non-real estate secured	0		0		0		0		0		0		677		677		SBA non-real estate secured	—		—		—		—		—		—		—		624		624
Total commercial loans	Total commercial loans	0		0		0		248		0		240		2,307		2,795		Total commercial loans	—		—		—		242		—		—		—		7,920		8,162
Retail loans	Retail loans																	Retail loans
Single family residential	Single family residential	0		0		0		0		0		12		0		12		Single family residential	—		—		—		—		—		—		6		—		6

Total retail loans	Total retail loans	0		0		0		0		0		12		0		12		Total retail loans	—		—		—		—		—		—		6		—		6
Total collateral dependent loans	Total collateral dependent loans	$	178	$	451	$	2,490	$	5,264	$	10,246	$	315	$	2,307	$	21,251	Total collateral dependent loans	$	123	$	83	$	488	$	5,131	$	10,304	$	8,873	$	6	$	7,920	$	32,928

4639

December 31, 2020
(Dollars in thousands) Office Properties Industrial Properties Retail Properties Land Properties Hotel Properties Residential Properties Business Assets Total
Investor loan secured by real estate
CRE non-owner-occupied $ 0 $ 0 $ 2,594 $ 0 $ 198 $ 0 $ 0 $ 2,792
SBA secured by real estate 0 0 0 0 1,257 0 0 1,257
Total investor loans secured by real estate 0 0 2,594 0 1,455 0 0 4,049
Business loans secured by real estate
CRE owner-occupied 0 779 0 5,304 0 0 0 6,083
SBA secured by real estate 288 757 0 0 0 98 0 1,143
Total business loans secured by real estate 288 1,536 0 5,304 0 98 0 7,226
Commercial loans
Commercial and industrial 0 0 0 0 0 0 2,040 2,040
SBA non-real estate secured 0 0 0 0 0 0 707 707
Total commercial loans 0 0 0 0 0 0 2,747 2,747
Retail loans
Single family residential 0 0 0 0 0 15 0 15
Total retail loans 0 0 0 0 0 15 0 15
Total collateral dependent loans $ 288 $ 1,536 $ 2,594 $ 5,304 $ 1,455 $ 113 $ 2,747 $ 14,037



(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Residential Properties		Business Assets		Total
December 31, 2021
Investor loan secured by real estate
CRE non-owner-occupied	$	—	$	—	$	513	$	—	$	9,742	$	—	$	—	$	10,255


SBA secured by real estate	—		—		—		—		937		—		—		937
Total investor loans secured by real estate	—		—		513		—		10,679		—		—		11,192
Business loans secured by real estate
CRE owner-occupied	—		—		—		4,952		—		—		—		4,952

SBA secured by real estate	148		441		—		—		—		—		—		589
Total business loans secured by real estate	148		441		—		4,952		—		—		—		5,541
Commercial loans
Commercial and industrial	—		—		—		245		—		—		1,217		1,462

SBA non-real estate secured	—		—		—		—		—		—		653		653
Total commercial loans	—		—		—		245		—		—		1,870		2,115
Retail loans
Single family residential	—		—		—		—		—		10		—		10

Total retail loans	—		—		—		—		—		10		—		10
Total collateral dependent loans	$	148	$	441	$	513	$	5,197	$	10,679	$	10	$	1,870	$	18,858

4740

Note 76 – Allowance for Credit Losses

The Company ~~accounts~~maintains an 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 credit 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,~~PD, (ii) the estimated ~~loss given default,~~LGD, which represents the estimated severity of the loss when a loan is in default, (iii) estimates for prepayment activity on loans, and (iv) the estimated exposure to the Company at default (“EAD”). These components are also heavily influenced by changes in economic forecasts employed in the model over a reasonable and supportable period. The Company’s ACL methodology for unfunded loan commitments also includes assumptions concerning the probability an unfunded commitment will be drawn upon by the borrower. These assumptions are based on the Company’s historical experience.

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

Probability of Default

The PD for investor loans secured by real estate is based largely on a model provided by a third party, using proxy loan information. The PDs generated by this model are reflective of current and expected ~~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~~loan-to-value (“LTV”) ratios, debt service coverage, loan size, loan vintage, and property types.

4841

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

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

Loss Given Default

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

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

Historical Loss Rates for Retail Loans

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

4942

EconomicForecasts

GAAP requires the Company to develop reasonable and supportable forecasts of future conditions, and estimate how those forecasts are expected to impact a borrower’s ability to satisfy their obligation to the Bank and the ultimate collectability of future cash flows over the life of ~~the~~a loan. The Company uses ~~economic~~macroeconomic scenarios from an independent ~~third party, Moody’s Analytics, in its estimation of a borrower’s ability to repay a loan in future periods.~~third-party. These scenarios are based on past events, current conditions, and the likelihood of future events occurring. These scenarios typically are comprised of: ~~(1)~~ a base-case scenario, ~~(2)~~ an upside scenario, representing slightly better economic conditions than currently experienced, and ~~(3)~~ a downside scenario, representing recessionary conditions. Management periodically evaluates appropriateness of economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in the Company’s ACL model. The economic scenarios chosen for the model, the extent to which more than one scenario is used, and the weights that are assigned to them, are based on the ~~Company’s estimate of~~likelihood that the ~~probability of~~economy would perform better than 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.~~events. 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 June 30, 2021, the Company’s ACL model used three probability-weighted scenarios representing a base-case scenario, an upside scenario, and a downside scenario. The weightings assigned to each scenario were as follows: the base-case scenario, or most likely scenario, was assigned a weighting of 40%, while the upside and downside scenarios were each assigned weightings of 30%. These economic scenarios include the current and estimated future impact associated with the ongoing COVID-19 pandemic. The Company evaluated the weightings of each economic scenario in the current period with the assistance of Moody's Analytics, and determined the current weightings of 40% for the base-case scenario, and 30% for each of the upside and downside scenarios appropriately reflect the likelihood of outcomes for each scenario given the current economic environment. The use of three probability-weighted scenarios in the second quarter of 2021 and the weighting assigned to each scenario is consistent with the approach used in the Company’s ACL model at ~~March 31, 2021~~June 30, 2022 includes assumptions concerning the ongoing COVID-19 pandemic, the potential impact of the ongoing war between Russia and ~~December 31, 2020.~~Ukraine, ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.

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

The Company derives the economic forecasts it uses in its ACL model from Moody's Analytics that has a large team of economists, database managers, and operational engineers with a long history of producing monthly economic forecasts. The forecasts produced by this 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~~in 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. These key economic variables include the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and the 10-year U.S. Treasury yield.

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

~~Base-case Scenario:~~

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

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

•U.S. unemployment declining from approximately 6% in early 2021 to approximately 4.5% by the end of 2021. This scenario also assumes unemployment continues to decline in 2022 from approximately 4% in early 2022 to approximately 3.5% by the end of 2022. This scenario assumes the rate of unemployment holds constant at approximately 3.5% throughout 2023.

~~Upside Scenario:~~

•CRE price index experiences declines throughout 2021, with the estimated annualized rate of decline slowing from approximately -13% in early 2021 to approximately -1% by the end of 2021. This scenario also assumes the CRE price index returns growth in 2022, with the annualized rate of growth increasing from 7% in early 2022 to 12% by the end of 2022. Under this scenario, the CRE price index is anticipated to experience a decelerating annualized rate of increase from approximately 9% in early 2023 to approximately 7% by the end of 2023.

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

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

~~Downside Scenario:~~

•CRE price index experiences accelerating annualized rates of decline throughout 2021. Annualized declines of approximately -13% in early 2021 and accelerating to approximately -20% by the end of 2021. The CRE price index is estimated to experience decelerating declines throughout 2022, with the annualized rate of decline slowing from approximately -24% in early 2022 to approximately -2% by the end of 2022. Under this scenario, the CRE price index is anticipated to experience accelerating annualized growth of approximately 7% in early 2023 to approximately 20% by the end of 2023.

•U.S. real GDP experiences growth of approximately 6% to 10% in the first half of 2021, followed by a decrease of -3% for the remainder of 2021. This scenario also assumes a return to modest annualized growth in real GDP by the second quarter of 2022, with growth of approximately 2-3% for the remainder of 2022. This scenario assumes real GDP fluctuates within a range of approximately 2-4% throughout 2023.

•U.S. unemployment increases throughout 2021 from approximately 6% in early 2021 to approximately 8% by the end of 2021. This scenario also assumes unemployment remains elevated in 2022 at approximately 9%. This scenario assumes a decline in unemployment throughout 2023, from approximately 8% in early 2023 to approximately 7% at the end of 2023.

Qualitative Adjustments

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

As of June 30, ~~2021,~~2022, qualitative ~~adjustments included in the ACL totaled $8.0 million. These~~ adjustments primarily relate to continued uncertainty concerning the strength of the economic recovery and how it may impact certain classes of loans in the loan portfolio. Management determined through additional review that the uneven recovery and continued government interventions, are potentially underestimating the impact the ongoing COVID-19 pandemic may have on certain segments ~~and classes~~ of the loan portfolio ~~such~~deemed by management to be of a higher-risk profile where management believes the quantitative component of the Company’s ACL model may not have fully captured the associated impact to the ACL. In addition, qualitative adjustments also relate to heightened uncertainty as ~~loans within~~to future macroeconomic conditions and the ~~SBA, franchise, C&I, and construction classifications.~~related impact on certain loan segments. 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.

5243

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 June 30, 2021
													Three Months Ended June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Beginning ACL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance		(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	$	45,545	$	0	$	0	$	1,567	$	47,112	CRE non-owner occupied	$	35,974	$	—	$	—	$	1,247	$	37,221
Multifamily	Multifamily	79,815		0		0		(20,756)		59,059		Multifamily	54,325		—		—		1,968		56,293
Construction and land	Construction and land	13,263		0		0		(3,715)		9,548		Construction and land	5,219		—		—		217		5,436
SBA secured by real estate	SBA secured by real estate	5,141		0		0		(460)		4,681		SBA secured by real estate	3,050		—		—		(185)		2,865
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		0		15		(5,862)		35,747		CRE owner-occupied	31,891		—		4		(434)		31,461
Franchise real estate secured	Franchise real estate secured	10,876		0		0		560		11,436		Franchise real estate secured	7,977		—		—		(1,447)		6,530
SBA secured by real estate	SBA secured by real estate	6,451		0		80		(214)		6,317		SBA secured by real estate	5,195		—		—		(46)		5,149
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	43,373		(3,290)		2,098		(2,302)		39,879		Commercial and industrial	38,598		(5,381)		533		3,298		37,048
Franchise non-real estate secured	Franchise non-real estate secured	18,903		0		0		(1,590)		17,313		Franchise non-real estate secured	14,304		(448)		—		(732)		13,124
SBA non-real estate secured	SBA non-real estate secured	890		0		2		(162)		730		SBA non-real estate secured	490		—		16		(54)		452

Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	822		0		1		(153)		670		Single family residential	233		—		33		12		278
Consumer loans	Consumer loans	326		0		0		(44)		282		Consumer loans	261		(2)		—		(41)		218
Totals	Totals	$	266,999	$	(3,290)	$	2,196	$	(33,131)	$	232,774	Totals	$	197,517	$	(5,831)	$	586	$	3,803	$	196,075


	Six Months Ended June 30, 2022

	Beginning ACL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner occupied	$	37,380	$	—	$	—	$	(159)	$	37,221
Multifamily	55,209		—		—		1,084		56,293
Construction and land	5,211		—		—		225		5,436
SBA secured by real estate	3,201		(70)		—		(266)		2,865
Business loans secured by real estate
CRE owner-occupied	29,575		—		14		1,872		31,461
Franchise real estate secured	7,985		—		—		(1,455)		6,530
SBA secured by real estate	4,866		—		—		283		5,149
Commercial loans
Commercial and industrial	38,136		(7,560)		2,374		4,098		37,048
Franchise non-real estate secured	15,084		(448)		—		(1,512)		13,124
SBA non-real estate secured	565		(50)		18		(81)		452

Retail loans
Single family residential	255		—		33		(10)		278
Consumer loans	285		(2)		—		(65)		218
Totals	$	197,752	$	(8,130)	$	2,439	$	4,014	$	196,075

Six Months Ended June 30, 2021
(Dollars in thousands) Beginning ACL Balance Charge-offs Recoveries Provision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied $ 49,176 $ (154) $ 0 $ (1,910) $ 47,112
Multifamily 62,534 0 0 (3,475) 59,059
Construction and land 12,435 0 0 (2,887) 9,548
SBA secured by real estate 5,159 (265) 0 (213) 4,681
Business loans secured by real estate
CRE owner-occupied 50,517 0 30 (14,800) 35,747
Franchise real estate secured 11,451 0 0 (15) 11,436
SBA secured by real estate 6,567 (98) 80 (232) 6,317
Commercial loans
Commercial and industrial 46,964 (4,569) 2,699 (5,215) 39,879
Franchise non-real estate secured 20,525 (156) 0 (3,056) 17,313
SBA non-real estate secured 995 0 4 (269) 730
Retail loans
Single family residential 1,204 0 1 (535) 670
Consumer loans 491 0 0 (209) 282
Totals $ 268,018 $ (5,242) $ 2,814 $ (32,816) $ 232,774

5344


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

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

Retail loans	Retail loans														Retail loans
Single family residential	Single family residential	1,137		206		(62)		1			197		1,479		Single family residential	822		—		1		(153)		670
Consumer loans	Consumer loans	2,296		0		0		1			1,279		3,576		Consumer loans	326		—		—		(44)		282
Totals	Totals	$	115,422	$	21,242	$	(4,685)	$	35		$	150,257	$	282,271	Totals	$	266,999	$	(3,290)	$	2,196	$	(33,131)	$	232,774

Six Months Ended June 30, 2020
(Dollars in thousands)
Beginning ACL Balance (1)
Adoption of ASC 326 Initial ACL Recorded for PCD Loans Charge-offs Recoveries Provision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied $ 1,899 $ 8,423 $ 3,025 $ (387) $ 0 $ 50,047 $ 63,007
Multifamily 729 9,174 8,710 0 0 44,898 63,511
Construction and land 4,484 (124) 2,051 0 0 12,393 18,804
SBA secured by real estate 1,915 (1,401) 0 (554) 0 2,050 2,010
Business loans secured by real estate
CRE owner-occupied 2,781 20,166 3,766 0 23 21,477 48,213
Franchise real estate secured 592 5,199 0 0 0 7,269 13,060
SBA secured by real estate 2,119 2,207 235 (315) 74 48 4,368
Commercial loans
Commercial and industrial 13,857 87 2,325 (2,776) 26 28,448 41,967
Franchise non-real estate secured 5,816 9,214 0 (1,227) 0 7,873 21,676
SBA non-real estate secured 445 218 924 (792) 2 (197) 600
Retail loans
Single family residential 655 541 206 (62) 1 138 1,479
Consumer loans 406 1,982 0 (8) 1 1,195 3,576
Totals $ 35,698 $ 55,686 $ 21,242 $ (6,121) $ 127 $ 175,639 $ 282,271

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


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

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

5445

The decrease in the ACL for loans held for investment during the three months ended June 30, 2022 of $1.4 million was comprised of $5.2 million in net charge-offs, partially offset by a $3.8 million provision for credit losses. The provision for credit losses for the three months ended June 30, 2022 was reflective of higher loans held for investment, higher net charge-offs, and the impact of macroeconomic uncertainties. The decrease in the ACL for loans held for investment during the six months ended June 30, 2022 of $1.7 million can be attributed to net charge-offs of $5.7 million, partially offset by a $4.0 million provision for credit losses. Charge-offs in the second quarter of 2022 are largely attributable to one C&I lending relationship.

The decrease in the ACL for loans held for investment during the three months ended June 30, 2021 of $34.2 million was comprised of a $33.1 million provision for credit loss recapture and $1.1 million in net charge-offs. The provision recapture for the three months ended June 30, 2021 was reflective of improving economic forecasts employed in the Company’s ACL model relative to prior periods and the continued strong asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment during the quarter. The decrease in the ACL for the six months ended June 30, 2021 of $35.2 million was comprised of a $32.8 million provision for credit loss recapture and $2.4 million in net charge-offs. The provision recapture for the six months ended June 30, 2021 was also reflective of improving economic forecasts employed in the Company’s ACL model and the continued strong asset quality profile of the loan portfolio.

The increase in the ACL for the three months ended June 30, 2020 of $166.8 million was comprised of a $150.3 million provision for credit losses, $4.7 million in net charge-offs, and the establishment of $21.2 million in net ACL for PCD loans acquired in the Opus acquisition. The ACL established for PCD loans was reflected as an adjustment to the acquired balance of the loans in accordance with ASC 326. The increase in the ACL for the six months ended June 30, 2020 of $246.6 million was reflective of a $55.7 million addition associated with the Company’s adoption of ASC 326 on January 1, 2020, which was recorded through a cumulative effect adjustment to retained earnings, as well as a $175.6 million provision for credit losses, net charge-offs of $6.0 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses for the three and six months ended June 30, 2020 includes $75.9 million related to the initial ACL for non-PCD loans acquired in the Opus acquisition, as required by ASC 326. The provision for credit losses for the three and six months ended June 30, 2020 was also reflective of unfavorable changes in economic forecasts used in the Company’s ACL model, which was driven by the COVID-19 pandemic.

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an ~~allowance~~ACL for ~~credit losses on~~ off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. The allowance for off-balance sheet commitments was ~~$27.4~~$24.1 million at June 30, ~~2021, $32.8~~2022, $27.5 million at March 31, ~~2021,~~2022, and ~~$31.1~~$27.4 million at December 31, ~~2020.~~2021. The ~~reversal~~provision recapture for off-balance sheet commitments of $3.4 million and $3.2 million during the three and six months ended June 30, 2022, respectively, was largely due to changes in unfunded lending segment mix. The provision ~~for credit losses~~recapture of $5.4 million and $3.7 million during the three and six months ended June 30, 2021, respectively, was related primarily to improving economic conditions and forecasts reflected ~~in the Company’s ACL model.~~

The allowance for off-balance sheet commitments totaled $22.0 million as of June 30, 2020. The total provision for credit losses for off-balance sheet commitments was $10.4 million and $10.5 million for the three and six months ended June 30, 2020, respectively. The provision for credit losses for the three and six months ended June 30, 2020 can be attributed to an $8.6 million provision for credit losses in the second quarter of 2020 related to the assumption of off-balance sheet loan commitments in the Opus acquisition, as required by ASC 326, and a $1.9 million provision for credit losses for the first six months of 2020 related primarily to the deterioration in economic forecasts used in the Company’s ACL model.

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

~~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 and Commercial Term Loans by PD and Vintage
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Revolving Converted to Term During the Period Total
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00% $ 301,013 $ 239,654 $ 425,062 $ 440,854 $ 210,727 $ 884,807 $ 4,652 $ 0 $ 2,506,769
>5.00% - 10.00% 0 23,774 25,621 17,921 20,269 47,036 5,328 0 139,949
Greater than 10% 0 4,218 68,748 33,118 41,911 14,983 537 0 163,515
Multifamily
0% - 5.00% 1,004,852 934,432 1,478,289 684,846 558,666 713,963 1,643 0 5,376,691
>5.00% - 10.00% 22,931 49,688 27,569 15,354 0 7,226 0 0 122,768
Greater than 10% 0 0 10,739 9,687 12,419 7,160 0 0 40,005
Construction and Land
0% - 5.00% 17,062 78,153 21,725 370 8,321 4,651 0 0 130,282
>5.00% - 10.00% 18,948 16,774 7,211 0 0 0 0 0 42,933
Greater than 10% 730 2,862 64,249 34,964 444 21,264 0 0 124,513
SBA secured by real estate
0% - 5.00% 0 500 8,460 12,477 17,432 13,694 0 0 52,563
>5.00% - 10.00% 0 0 0 0 0 0 0 0 0
Greater than 10% 0 0 102 0 0 338 0 0 440
Total investor loans secured by real estate 1,365,536 1,350,055 2,137,775 1,249,591 870,189 1,715,122 12,160 0 8,700,428
Business loans secured by real estate
CRE owner-occupied
0% - 5.00% 276,707 281,668 347,620 262,455 269,367 558,473 3,052 0 1,999,342
>5.00% - 10.00% 0 0 13,628 9,092 11,854 37,540 1 0 72,115
Greater than 10% 0 0 0 6,151 5,874 5,818 0 0 17,843
Franchise real estate secured
0% - 5.00% 59,007 36,149 71,812 50,663 78,597 43,345 0 0 339,573
>5.00% - 10.00% 239 7,558 0 4,016 1,094 3,795 0 0 16,702
Greater than 10% 290 1,555 0 0 0 0 0 0 1,845
SBA secured by real estate
0% - 5.00% 2,502 3,423 7,492 9,903 10,132 18,318 0 0 51,770
>5.00% - 10.00% 0 0 70 1,495 2,532 8,972 0 0 13,069
Greater than 10% 0 0 0 1,336 2,172 4,576 0 0 8,084
Total business loans secured by real estate 338,745 330,353 440,622 345,111 381,622 680,837 3,053 0 2,520,343

Commercial Real Estate and Commercial Term Loans by PD and Vintage
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Revolving Converted to Term During the Period Total
June 30, 2021
Commercial loans
Commercial and industrial
0% - 5.00% 135,825 105,221 232,476 102,539 155,592 84,339 626,121 1,852 1,443,965
>5.00% - 10.00% 22,487 6,242 10,701 18,922 33,612 7,924 162,253 0 262,141
Greater than 10% 0 4,944 1,533 18,386 564 5,518 58,093 0 89,038
Franchise non-real estate secured
0% - 5.00% 56,293 20,482 94,203 67,224 30,596 24,823 0 0 293,621
>5.00% - 10.00% 599 5,840 39,085 8,783 4,910 19,921 151 0 79,289
Greater than 10% 0 0 2,293 4,665 17,749 2,337 1,361 0 28,405
SBA not secured by real estate
0% - 5.00% 153 413 2,167 990 1,159 3,385 0 0 8,267
>5.00% - 10.00% 0 0 0 479 2,398 657 0 0 3,534
Greater than 10% 0 0 80 345 258 739 677 0 2,099
Total commercial loans $ 215,357 $ 143,142 $ 382,538 $ 222,333 $ 246,838 $ 149,643 $ 848,656 $ 1,852 $ 2,210,359

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

A significant driver in the ACL for loans in the investor real estate secured and business real estate secured segments is estimated loan to value (“LTV”). The following 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 LTV and Vintage
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Revolving Converted to Term During the Period Total
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
55% and below $ 174,343 $ 134,995 $ 204,770 $ 225,932 $ 137,797 $ 661,868 $ 9,980 0 $ 1,549,685
>55-65% 84,362 107,085 208,558 105,364 122,170 243,022 537 0 871,098
>65-75% 42,308 25,566 86,042 147,915 8,567 40,446 0 0 350,844
Greater than 75% 0 0 20,061 12,682 4,373 1,490 0 0 38,606
Multifamily
55% and below 118,036 219,481 336,820 243,793 222,718 334,898 1,643 0 1,477,389
>55-65% 466,963 391,606 673,685 329,299 191,548 265,604 0 0 2,318,705
>65-75% 441,401 373,033 489,754 126,306 154,960 119,559 0 0 1,705,013
Greater than 75% 1,383 0 16,338 10,489 1,859 8,288 0 0 38,357
Construction and land
55% and below 36,740 97,789 73,845 17,816 8,765 25,915 0 0 260,870
>55-65% 0 0 11,429 9,471 0 0 0 0 20,900
>65-75% 0 0 7,911 8,047 0 0 0 0 15,958
Greater than 75% 0 0 0 0 0 0 0 0 0
SBA secured by real estate
55% and below 0 0 102 641 831 2,303 0 0 3,877
>55-65% 0 0 2,414 1,965 3,816 2,872 0 0 11,067
>65-75% 0 0 3,879 4,624 3,924 5,832 0 0 18,259
Greater than 75% 0 500 2,167 5,247 8,861 3,025 0 0 19,800
Total investor loans secured by real estate 1,365,536 1,350,055 2,137,775 1,249,591 870,189 1,715,122 12,160 0 8,700,428
Business loan secured by real estate
CRE owner-occupied
55% and below 142,863 90,967 145,590 120,707 160,886 409,810 3,053 0 1,073,876
>55-65% 58,545 64,476 71,835 87,271 90,387 118,717 0 0 491,231
>65-75% 53,750 78,611 131,250 63,894 24,207 53,691 0 0 405,403
Greater than 75% 21,549 47,614 12,573 5,826 11,615 19,613 0 0 118,790
Franchise real estate secured
55% and below 8,599 23,887 9,141 17,024 15,341 22,162 0 0 96,154
>55-65% 27,170 2,644 11,147 10,886 10,729 9,804 0 0 72,380
>65-75% 13,812 16,857 40,716 10,181 14,597 13,947 0 0 110,110
Greater than 75% 9,955 1,874 10,808 16,588 39,024 1,227 0 0 79,476
SBA secured by real estate
55% and below 1,642 591 1,595 1,033 5,196 16,875 0 0 26,932
>55-65% 37 1,596 511 1,733 994 7,723 0 0 12,594
>65-75% 643 329 3,120 5,416 4,008 3,244 0 0 16,760
Greater than 75% 180 907 2,336 4,552 4,638 4,024 0 0 16,637
Total business loans secured by real estate $ 338,745 $ 330,353 $ 440,622 $ 345,111 $ 381,622 $ 680,837 $ 3,053 $ 0 $ 2,520,343

Term Loans by LTV and Vintage
(Dollars in thousands) 2020 2019 2018 2017 2016 Prior Revolving Revolving Converted to Term During the Period Total
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied
55% and below $ 138,007 $ 229,272 $ 182,385 $ 136,355 $ 189,848 $ 588,230 $ 11,114 $ 0 $ 1,475,211
>55-65% 101,434 217,210 92,015 130,024 78,470 204,161 559 0 823,873
>65-75% 26,460 102,494 169,878 18,876 13,952 29,506 0 0 361,166
Greater than 75% 0 2,750 4,787 2,762 0 4,536 0 0 14,835
Multifamily
55% and below 218,833 345,519 294,464 233,997 84,530 269,906 0 0 1,447,249
>55-65% 381,737 731,408 381,282 215,170 152,066 189,151 420 0 2,051,234
>65-75% 427,074 583,078 215,389 215,452 127,684 66,457 0 0 1,635,134
Greater than 75% 0 19,469 10,618 1,879 0 5,773 0 0 37,739
Construction and land
55% and below 57,309 105,308 36,068 18,625 20,531 6,672 784 0 245,297
>55-65% 0 36,113 23,770 0 0 0 0 0 59,883
>65-75% 0 3,338 13,475 0 0 0 0 0 16,813
Greater than 75% 0 0 0 0 0 0 0 0 0
SBA secured by real estate
55% and below 0 2,066 649 673 317 778 0 0 4,483
>55-65% 0 2,427 1,639 4,008 879 4,354 0 0 13,307
>65-75% 0 3,897 3,882 3,482 4,519 1,884 0 0 17,664
Greater than 75% 496 2,168 6,977 7,346 1,363 3,527 0 0 21,877
Total investor loans secured by real estate 1,351,350 2,386,517 1,437,278 988,649 674,159 1,374,935 12,877 0 8,225,765
Business loan secured by real estate
CRE owner-occupied
55% and below 96,803 160,605 157,868 179,791 131,795 328,188 14,518 246 1,069,814
>55-65% 72,044 91,028 98,176 94,712 65,120 90,548 0 0 511,628
>65-75% 71,692 152,920 79,106 43,832 31,303 31,493 0 0 410,346
Greater than 75% 54,975 21,122 4,960 13,354 2,202 25,649 0 0 122,262
Franchise real estate secured
55% and below 20,801 10,470 13,864 20,956 9,189 16,213 0 0 91,493
>55-65% 2,689 9,955 16,001 19,102 6,855 2,333 0 0 56,935
>65-75% 19,349 51,719 23,258 9,153 10,597 7,236 0 0 121,312
Greater than 75% 2,452 10,944 15,770 47,788 0 1,238 0 0 78,192
SBA secured by real estate
55% and below 1,825 1,626 5,332 5,495 3,615 13,582 0 0 31,475
>55-65% 246 513 1,795 1,094 3,586 5,448 0 0 12,682
>65-75% 264 3,142 1,515 3,968 1,586 4,043 0 0 14,518
Greater than 75% 918 2,356 5,350 7,488 1,214 3,594 0 0 20,920
Total business loans secured by real estate $ 344,058 $ 516,400 $ 422,995 $ 446,733 $ 267,062 $ 529,565 $ 14,518 $ 246 $ 2,541,577

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

Term Loans by FICO and Vintage
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Revolving Converted to Term During the Period Total
June 30, 2021
Retail loans
Single family residential
Greater than 740 $ 13,312 $ 6,771 $ 2,524 $ 2,236 $ 4,215 $ 64,829 $ 16,092 0 $ 109,979
>680 - 740 0 0 0 35 4,090 11,222 5,524 0 20,871
>580 - 680 0 0 0 0 484 9,425 837 0 10,746
Less than 580 0 0 0 0 0 15,598 34 0 15,632
Consumer loans
Greater than 740 44 39 40 18 16 2,526 1,269 0 3,952
>680 - 740 0 0 20 5 3 449 1,651 0 2,128
>580 - 680 0 0 10 0 0 62 54 0 126
Less than 580 0 0 0 0 0 12 22 0 34
Total retail loans $ 13,356 $ 6,810 $ 2,594 $ 2,294 $ 8,808 $ 104,123 $ 25,483 $ 0 $ 163,468

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

Note 87 – Goodwill and Other Intangible Assets

The Company had goodwill of $901.3 million ~~and $898.6 million~~ at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company recorded adjustments to goodwill associated with the acquisition of Opus in the amount of $2.7 million during the six months ended June 30, 2021, within the one-year measurement period subsequent to the acquisition date of June 1, 2020. These adjustments largely relate to the finalization of the short-year Opus tax returns. During the second quarter of 2021, the Company finalized its fair value analysis of the acquired assets and assumed liabilities associated with the Opus acquisition.

June 30, June 30,
(Dollars in thousands) 2021 2020
Balance, beginning of year $ 898,569 $ 808,322
Goodwill acquired during the year 0 92,844
Purchase accounting adjustments 2,743 0
Balance, end of year $ 901,312 $ 901,166
Accumulated impairment losses at end of year $ 0 $ 0

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



	June 30,		June 30,
(Dollars in thousands)	2022		2021
Beginning balance	$	901,312	$	898,569

Purchase accounting adjustments	—		2,743

Ending balance	$	901,312	$	901,312
Accumulated impairment losses at end of period	$	—	$	—

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

~~The Company had other~~Other intangible assets ~~of $77.4~~with definite lives were $62.5 million at June 30, ~~2021,~~2022, consisting of ~~$74.5~~$60.0 million in core deposit intangibles and ~~$2.9~~$2.5 million in customer relationship intangibles. ~~The Company had~~At December 31, 2021, other intangibles assets ~~of $85.5~~were $69.6 million, ~~at December 31, 2020,~~ consisting of ~~$82.5~~$66.9 million in core deposit intangibles and ~~$3.0~~$2.7 million in customer relationship intangibles. The following table summarizes the change in the balance of core deposit intangibles and customer relationship intangibles, and the related accumulated amortization for the periods indicated below:


		Three Months Ended						Six Months Ended					Three Months Ended						Six Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,			June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2021		2020		2021		2020		(Dollars in thousands)	2022		2022		2021		2022		2021
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	$	145,212	$	125,945	Beginning balance	$	145,212	$	145,212	$	145,212	$	145,212	$	145,212
Additions due to acquisitions	Additions due to acquisitions	0		0		19,267		0		19,267		Additions due to acquisitions	—		—		—		—		—
Ending balance	Ending balance	145,212		145,212		145,212		145,212		145,212		Ending balance	145,212		145,212		145,212		145,212		145,212
Accumulated amortization:	Accumulated amortization:											Accumulated amortization:
Beginning balance	Beginning balance	(63,848)		(59,705)		(46,596)		(59,705)		(42,633)		Beginning balance	(79,234)		(75,641)		(63,848)		(75,641)		(59,705)
Amortization	Amortization	(4,001)		(4,143)		(4,066)		(8,144)		(8,029)		Amortization	(3,478)		(3,593)		(4,001)		(7,071)		(8,144)
Ending balance	Ending balance	(67,849)		(63,848)		(50,662)		(67,849)		(50,662)		Ending balance	(82,712)		(79,234)		(67,849)		(82,712)		(67,849)
Net intangible assets	Net intangible assets	$	77,363	$	81,364	$	94,550	$	77,363	$	94,550	Net intangible assets	$	62,500	$	65,978	$	77,363	$	62,500	$	77,363

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,~~2021, in order from the present, is ~~$15.9 million,~~ $14.0 million, $12.3 million, $11.1 million, $10.0 million, and ~~$10.0~~$8.9 million. The ~~Company analyzes~~Company’s core deposit ~~intangibles~~ and customer relationship intangibles are evaluated annually for impairment or ~~sooner~~more frequently if events and circumstances ~~indicate possible impairment.~~lead management to believe their value may not be recoverable. Factors that may ~~contribute~~ultimately attribute to impairment include customer attrition and run-off. ~~Management~~The Company is unaware of any events and/or circumstances that would indicate a possible impairment toin the values of core deposit ~~intangibles or~~intangible assets and customer relationship ~~intangibles~~intangible assets as of June 30, ~~2021.~~2022.

6247

Note 98 – Subordinated Debentures

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.

As of June 30, ~~2021,~~2022, the Company had 43 issuances of subordinated notes ~~and 2 issuances of junior subordinated debt securities,~~ with an aggregate carrying value of ~~$476.6~~$330.9 million and a weighted interest rate of ~~5.29%~~5.32%, compared ~~with 5 issuances of subordinated notes and 2 issuances of junior subordinated debt securities, with an aggregate carrying value of $501.5~~to $330.6 million ~~and~~with a weighted interest rate of ~~5.38%~~5.33% at December 31, ~~2020.~~2021.

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

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


						June 30, 2022		December 31, 2021
(Dollars in thousands)	Stated Maturity	Current Interest Rate		Current Principal Balance		Carrying Value
Subordinated notes
Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,731	$	59,671
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		123,259		123,132
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		147,896		147,764
Total subordinated debentures				$	335,000	$	330,886	$	330,567

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 ~~2021~~2022 by KBRA.

As of June 30, 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.

For additional information on the Company’s subordinated debentures, see “Note 1413 — Subordinated Debentures” to the ~~consolidated financial statements~~Consolidated Financial Statements of the Company’s ~~2020~~2021 Form 10-K.

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

Note 109 – Earnings ~~per~~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.

6448

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


		Three Months Ended							Three Months Ended
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	June 30, 2021		March 31, 2021		June 30, 2020		(Dollars in thousands, except per share data)	June 30, 2022		March 31, 2022		June 30, 2021
Basic	Basic							Basic
Net income (loss)		$	96,302	$	68,668	$	(99,091)
Net income								Net income	$	69,803	$	66,904	$	96,302
Less: dividends and undistributed earnings allocated to participating securities	Less: dividends and undistributed earnings allocated to participating securities	(1,034)		(665)		(222)		Less: dividends and undistributed earnings allocated to participating securities	(867)		(685)		(1,034)
Net income (loss) allocated to common stockholders		$	95,268	$	68,003	$	(99,313)
Net income allocated to common stockholders								Net income allocated to common stockholders	$	68,936	$	66,219	$	95,268

Weighted average common shares outstanding	Weighted average common shares outstanding	93,635,392		93,529,147		70,425,027		Weighted average common shares outstanding	93,765,264		93,499,695		93,635,392
Basic earnings (loss) per common share		$	1.02	$	0.73	$	(1.41)
Basic earnings per common share								Basic earnings per common share	$	0.74	$	0.71	$	1.02

Diluted	Diluted							Diluted
Net income (loss) allocated to common stockholders		$	95,268	$	68,003	$	(99,313)
Net income allocated to common stockholders								Net income allocated to common stockholders	$	68,936	$	66,219	$	95,268

Weighted average common shares outstanding	Weighted average common shares outstanding	93,635,392		93,529,147		70,425,027		Weighted average common shares outstanding	93,765,264		93,499,695		93,635,392
Diluted effect of share-based compensation	Diluted effect of share-based compensation	582,636		564,497		0		Diluted effect of share-based compensation	275,427		446,379		582,636

Weighted average diluted common shares	Weighted average diluted common shares	94,218,028		94,093,644		70,425,027		Weighted average diluted common shares	94,040,691		93,946,074		94,218,028
Diluted earnings (loss) per common share		$	1.01	$	0.72	$	(1.41)
Diluted earnings per common share								Diluted earnings per common share	$	0.73	$	0.70	$	1.01


		Six Months Ended				Six Months Ended
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	June 30, 2021		June 30, 2020			(Dollars in thousands, except per share data)	June 30, 2022		June 30, 2021
Basic	Basic						Basic
Net income (loss)		$	164,970	$	(73,351)
Net income							Net income	$	136,707	$	164,970

Less: dividends and undistributed earnings allocated to participating securities	Less: dividends and undistributed earnings allocated to participating securities	(1,672)		(356)			Less: dividends and undistributed earnings allocated to participating securities	(1,545)		(1,672)
Net income (loss) allocated to common stockholders		$	163,298	$	(73,707)
Net income allocated to common stockholders							Net income allocated to common stockholders	$	135,162	$	163,298

Weighted average common shares outstanding	Weighted average common shares outstanding	93,582,563		64,716,109			Weighted average common shares outstanding	93,633,213		93,582,563
Basic earnings (loss) per common share		$	1.74	$	(1.14)
Basic earnings per common share							Basic earnings per common share	$	1.44	$	1.74

Diluted	Diluted						Diluted
Net income (loss) allocated to common stockholders		$	163,298	$	(73,707)
Net income allocated to common stockholders							Net income allocated to common stockholders	$	135,162	$	163,298

Weighted average common shares outstanding	Weighted average common shares outstanding	93,582,563		64,716,109			Weighted average common shares outstanding	93,633,213		93,582,563
Diluted effect of share-based compensation	Diluted effect of share-based compensation	573,177		0			Diluted effect of share-based compensation	349,844		573,177

Weighted average diluted common shares	Weighted average diluted common shares	94,155,740		64,716,109			Weighted average diluted common shares	93,983,057		94,155,740
Diluted earnings (loss) per common share		$	1.73	$	(1.14)
Diluted earnings per common share							Diluted earnings per common share	$	1.44	$	1.73

~~The impact of~~Shares or stock options ~~which are anti-dilutive,~~ are excluded from the computations of ~~diluted~~dilutive earnings per ~~share.~~share when their inclusion have an anti-dilutive effect. The dilutive impact of these securities could be included in future computations of diluted earnings per share if the market price of the common stock increases. For the three and six months ended June 30, 2022 and June 30, 2021, and the three months ended March 31, ~~2021~~2022 there were no potential common shares that were anti-dilutive. As a result of incurring a net loss for the three and six months ended June 30, 2020, potential common shares of 234,518 and 163,832, respectively, were excluded from diluted loss per share because the effect would have been anti-dilutive.

6549

Note 1110 – 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 – 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~~marketplace and credit issues related to the securities. The Company has not made any adjustments to the market quotes provided by them and, accordingly, the Company categorized ~~its investment portfolio~~these securities within Level 2 of the fair value hierarchy.

Interest Rate Swaps – The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certain fixed-rate loans. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value 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 – The Company acquired equity warrant assets as a result of the 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.

6751

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

June 30, 2021
Fair Value Measurement Using
(Dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value
Financial assets
Investment securities available-for-sale:
U.S. Treasury $ 0 $ 111,808 $ 0 $ 111,808
Agency 0 555,167 0 555,167
Corporate 0 358,382 0 358,382
Municipal bonds 0 1,379,473 0 1,379,473
Collateralized mortgage obligations 0 614,738 0 614,738
Mortgage-backed securities 0 1,467,879 0 1,467,879
Total securities available-for-sale $ 0 $ 4,487,447 $ 0 $ 4,487,447
Derivative assets:
Interest rate swaps $ 0 $ 6,712 $ 0 $ 6,712
Equity warrants 0 0 1,903 1,903
Total derivative assets $ 0 $ 6,712 $ 1,903 $ 8,615
Financial liabilities
Derivative liabilities $ 0 $ 6,716 $ 0 $ 6,716


		December 31, 2020									June 30, 2022
		Fair Value Measurement Using									Fair Value Measurement Using
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value		(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value
Financial assets	Financial assets									Financial assets
Investment securities available-for-sale:
AFS investment securities:										AFS investment securities:
U.S. Treasury	U.S. Treasury	$	0	$	32,533	$	0	$	32,533	U.S. Treasury	$	—	$	33,360	$	—	$	33,360
Agency	Agency	0		690,386		0		690,386		Agency	—		412,295		—		412,295
Corporate		0		415,308		0		415,308
Municipal bonds		0		1,446,019		0		1,446,019
Corporate debt										Corporate debt	—		569,415		—		569,415

Collateralized mortgage obligations	Collateralized mortgage obligations	0		513,366		0		513,366		Collateralized mortgage obligations	—		789,786		—		789,786
Mortgage-backed securities	Mortgage-backed securities	0		833,503		0		833,503		Mortgage-backed securities	—		874,214		—		874,214
Total securities available-for-sale		$	0	$	3,931,115	$	0	$	3,931,115
Total AFS investment securities										Total AFS investment securities	$	—	$	2,679,070	$	—	$	2,679,070

Derivative assets:	Derivative assets:									Derivative assets:
Interest rate swaps		$	0	$	12,053	$	0	$	12,053

Interest rate swaps (1)										Interest rate swaps (1)	$	—	$	5,606	$	—	$	5,606
Equity warrants	Equity warrants	0		0		1,914		1,914		Equity warrants	—		—		1,906		1,906
Total derivative assets	Total derivative assets	$	0	$	12,053	$	1,914	$	13,967	Total derivative assets	$	—	$	5,606	$	1,906	$	7,512

Financial liabilities	Financial liabilities									Financial liabilities
Derivative liabilities		$	0	$	12,066	$	0	$	12,066
Derivative liabilities:										Derivative liabilities:
Interest rate swaps (1)										Interest rate swaps (1)	$	—	$	7,984	$	—	$	7,984

________________________________________________________________

(1) Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable. See Note 11 – Derivative Instruments for additional information.


	December 31, 2021
	Fair Value Measurement Using
(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value
Financial assets
AFS investment securities:
U.S. Treasury	$	—	$	57,866	$	—	$	57,866
Agency	—		432,135		—		432,135
Corporate debt	—		453,861		—		453,861
Municipal bonds	—		1,089,913		—		1,089,913
Collateralized mortgage obligations	—		676,643		—		676,643
Mortgage-backed securities	—		1,563,446		—		1,563,446
Total AFS investment securities	$	—	$	4,273,864	$	—	$	4,273,864

Derivative assets:
Interest rate swaps	$	—	$	10,100	$	—	$	10,100
Equity warrants	—		—		1,889		1,889
Total derivative assets	$	—	$	10,100	$	1,889	$	11,989

Financial liabilities
Derivative liabilities:
Interest rate swaps	$	—	$	5,263	$	—	$	5,263

6852

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:


		Three Months Ended		Six Months Ended				Three Months Ended								Six Months Ended
		June 30,		June 30,		June 30,			June 30,			June 30,		March 31,		June 30,		June 30,		June 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021			2020		(Dollars in thousands)	2022		2022		2021		2022		2021
Beginning balance	Beginning balance	$	1,911	$	5,162	$	1,914		$	5,162	Beginning balance	$	1,908	$	1,889	$	1,911	$	1,889	$	1,914
Change in fair value (1)	Change in fair value (1)	(8)		(3)		(11)			(3)		Change in fair value (1)	(2)		19		(8)		17		(11)
Sales		0		(3,207)		0			(3,207)

Ending balance	Ending balance	$	1,903	$	1,952	$	1,903		$	1,952	Ending balance	$	1,906	$	1,908	$	1,903	$	1,906	$	1,903

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

June 30, 2022

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

1,906

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

2.66%

5.50%

35.00%

2.99%

16.00%

31.16%

2.73%

13.57%

December 31, 2021

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

~~1,903~~1,889

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

~~0.25%~~0.39%

6.00%

35.00%

~~0.67%~~0.97%

16.00%

~~31.16%~~31.14%

~~0.35%~~0.52%

~~13.55%~~

~~December 31, 2020~~

~~Range~~

~~(Dollars in thousands)~~

~~Fair Value~~

~~Valuation Technique(s)~~

~~Unobservable Input(s)~~

~~Min~~

~~Max~~

~~Weighted Average~~

~~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%~~13.61%

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Individually Evaluated Loans – A loan is individually evaluated for expected credit losses when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement and it does not share similar risk characteristics with other loans. Individually evaluated loans are measured based on the fair value of the underlying collateral or the discounted expected future cash flows. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate, and cash. The Company measures impairment on all nonaccrual loans for which it has reduced the principal balance to the value of the underlying collateral less the anticipated selling ~~cost.~~costs.

The fair value of individually evaluated loans were determined using Level 3 assumptions, and represents individually evaluated loan balances for which a specific reserve has been established and/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~~discounts 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~~expects 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.

6953

At June 30, ~~2021,~~2022, the Company’s individually evaluated collateral dependent loans were evaluated based on the fair value of their underlying collateral based upon the most recent appraisals available to management. The Company completed partial charge-offs on certain individually evaluated loans based on recent real estate or property appraisals and ~~released~~recorded the related reserves where applicable during the six months ended June 30, ~~2021.~~2022.

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


		June 30, 2021									June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value		(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	$	845	$	845	Collateral dependent loans	$	—	$	—	$	12,409	$	12,409


		December 31, 2020									December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value		(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	$	—	$	—	$	937	$	937

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

June 30, 2021

June 30, 2022

Range

(Dollars in thousands)

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

7,907

Fair value of collateral

Collateral discount and cost to sell

7.00%

SBA secured by real estate (1)

439

Fair value of collateral

Collateral discount and cost to sell

10.00%

Commercial loans

Commercial and industrial

406

Fair value of collateral

Collateral discount and cost to sell

20.00%

75.00%

57.89%

Commercial and industrial

4,502

Fair value of collateral

Collateral discount and cost to sell

6.00%

Total individually evaluated loans

845

Total individually evaluated loans

12,409

December 31, 2020
Range
(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 $ 198 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
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 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 707 Fair value of collateral Collateral discount and cost to sell 7.00% 7.00% 7.00%
Total individually evaluated loans $ 4,077

December 31, 2021

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Investor loans secured by real estate

SBA secured by real estate (1)

937

Fair value of collateral

Collateral discount and cost to sell

10.00%

Total individually evaluated loans

937

(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.~~

7054

Fair Values of Financial Instruments

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


		At June 30, 2021											At June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value		(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	$	631,888	$	631,888	$	0	$	0	$	631,888	Cash and cash equivalents	$	972,798	$	972,798	$	—	$	—	$	972,798
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	2,216		2,216		—		—		2,216
Investments held-to-maturity		18,933		0		19,820		0		19,820
Investment securities held-to-maturity												Investment securities held-to-maturity	1,390,682		—		1,156,501		—		1,156,501
Investment securities available-for-sale	Investment securities available-for-sale	4,487,447		0		4,487,447		0		4,487,447		Investment securities available-for-sale	2,679,070		—		2,679,070		—		2,679,070
Loans held for sale	Loans held for sale	4,714		0		5,208		0		5,208		Loans held for sale	2,957		—		3,100		—		3,100
Loans held for investment, net	Loans held for investment, net	13,594,598		0		0		13,750,527		13,750,527		Loans held for investment, net	15,047,608		—		—		14,578,222		14,578,222

Derivative assets		8,615		0		6,712		1,903		8,615
Derivative assets (1)												Derivative assets (1)	7,512		—		5,606		1,906		7,512
Accrued interest receivable	Accrued interest receivable	67,529		67,529		0		0		67,529		Accrued interest receivable	66,898		—		66,898		—		66,898

Liabilities	Liabilities											Liabilities
Deposit accounts	Deposit accounts	$	17,015,097	$	15,755,399	$	1,262,149	$	0	$	17,017,548	Deposit accounts	$	18,084,613	$	—	$	18,103,521	$	—	$	18,103,521

FHLB advances												FHLB advances	600,000		—		599,403		—		599,403

Subordinated debentures	Subordinated debentures	476,622		0		515,431		0		515,431		Subordinated debentures	330,886		—		331,934		—		331,934
Derivative liabilities		6,716		0		6,716		0		6,716
Derivative liabilities (1)												Derivative liabilities (1)	7,984		—		7,984		—		7,984
Accrued interest payable	Accrued interest payable	6,216		6,216		0		0		6,216		Accrued interest payable	2,866		—		2,866		—		2,866

(1)Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable. See Note 11 – Derivative Instruments for additional information.


		At December 31, 2020											At December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value		(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	$	304,703	$	304,703	$	—	$	—	$	304,703
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	2,216		2,216		—		—		2,216
Investments held-to-maturity		23,732		0		25,013		0		25,013
Investment securities held-to-maturity												Investment securities held-to-maturity	381,674		—		384,423		—		384,423
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	4,273,864		—		4,273,864		—		4,273,864
Loans held for sale	Loans held for sale	601		0		645		0		645		Loans held for sale	10,869		—		11,959		—		11,959
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	14,295,897		—		—		14,392,684		14,392,684
Derivative assets	Derivative assets	13,967		0		12,053		1,914		13,967		Derivative assets	11,989		—		10,100		1,889		11,989
Accrued interest receivable	Accrued interest receivable	74,574		74,574		0		0		74,574		Accrued interest receivable	65,728		65,728		—		—		65,728

Liabilities	Liabilities											Liabilities
Deposit accounts	Deposit accounts	$	16,214,177	$	14,587,335	$	1,631,047	$	0	$	16,218,382	Deposit accounts	$	17,115,589	$	16,057,316	$	1,058,822	$	—	$	17,116,138
FHLB advances	FHLB advances	31,000		0		31,564		0		31,564		FHLB advances	550,000		—		550,093		—		550,093

Other borrowings												Other borrowings	8,000		��		8,000		—		8,000
Subordinated debentures	Subordinated debentures	501,511		0		544,436		0		544,436		Subordinated debentures	330,567		—		350,359		—		350,359
Derivative liabilities	Derivative liabilities	12,066		0		12,066		0		12,066		Derivative liabilities	5,263		—		5,263		—		5,263
Accrued interest payable	Accrued interest payable	6,569		6,569		0		0		6,569		Accrued interest payable	2,366		2,366		—		—		2,366

Note 1211 – Derivative Instruments

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

Derivatives Designated as Hedging Instruments

Fair Value Hedges – The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. During the second half of 2021, the Company entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans, primarily commercial real estate loans, to manage its exposure to changes in fair value on these instruments attributable to changes in the designated USD-SOFR-COMPOUND benchmark interest rate. These interest rate swaps are designated as fair value hedges using the last-of-layer method. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s consolidated statements of income. At June 30, 2022 and December 31, 2021, interest rate swaps with an aggregate notional amount of $1.20 billion were designated as fair value hedges.

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


Line Item in the Statement of Financial Position in Which the Hedged Item is 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)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Loans held for investment (1)	$	1,148,913	$	1,194,702	$	(51,087)	$	(5,298)
Total	$	1,148,913	$	1,194,702	$	(51,087)	$	(5,298)

(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At June 30, 2022 and December 31, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $3.35 billion and $3.61 billion, respectively, the cumulative basis adjustments associated with these hedging relationships was $(51.1) million and $(5.3) million, respectively; and the amounts of the designated hedged items were $1.20 billion and $1.20 billion, respectively.

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 June 30, 2021, the~~The Company had over-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms with an aggregate notional amount of $137.2 million and a fair value of $6.7 million compared with an aggregate notional amount of $145.2 million and a fair value of $12.1 million at December 31, 2020.terms. The fair ~~value~~values of these agreements are determined through a ~~third party~~third-party valuation model used by the Company’s ~~counterparty bank,~~swap advisory firm, 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.~~balance sheet. Changes in the fair value of these swaps, which occur due to changes in interest rates, are recorded in the Company’s ~~consolidated statements of~~ income statement as a component of noninterest income.

Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, generally contain a greater degree of credit risk and liquidity risk than centrally-cleared contracts, which have standardized terms. Although changes in the fair value of swap agreements between the Company and borrowers and the Company and other financial institutions offset each other, changes in the credit risk of these counterparties may result in a difference in the fair value of these swap agreements. Offsetting over-the-counter swap agreements the Company has with other financial institutions are collateralized with cash and investment securities, and swap agreements with borrowers are secured by the collateral arrangements for the underlying loans these borrowers have with the Company. ~~During the six months ended June 30, 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 June 30, 2021 and December 31, 2020~~ are free-standing derivatives and are not designated as hedging instruments.

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

Equity Warrant Assets

– The Company acquired ~~two 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 respective underlying ~~company’s equity~~private company at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815. The Company no longer has loans associated with these borrowers. Changes in the fair value of the warrants are recognized as a component of noninterest income with a corresponding offset within other assets. The total fair value of the warrants ~~held in private companies~~ was $1.9 million in other assets as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The two remaining warrants expire on March 12, 2023 and July 28, 2025, respectively.

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


		June 30, 2021									June 30, 2022
		Derivative Assets				Derivative Liabilities					Derivative Assets				Derivative Liabilities
(Dollars in thousands)	(Dollars in thousands)	Notional		Fair Value		Notional		Fair Value		(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	$	1,200,000	$	51,273	$	—	$	—
Total derivative designated as hedging instruments										Total derivative designated as hedging instruments	1,200,000		51,273		—		—
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	$	137,154	$	6,712	$	137,154	$	6,716	Interest rate swaps contracts	119,149		7,982		119,149		7,984
Equity warrants	Equity warrants	0		1,903		0		0		Equity warrants	—		1,906		—		—
Total derivative instruments		$	137,154	$	8,615	$	137,154	$	6,716
Total derivative not designated as hedging instruments										Total derivative not designated as hedging instruments	119,149		9,888		119,149		7,984
Total derivatives										Total derivatives	$	1,319,149	61,161		$	119,149	7,984

Netting Adjustments - Cleared Positions (1)										Netting Adjustments - Cleared Positions (1)			53,649				—
Total derivatives in the Balance Sheet										Total derivatives in the Balance Sheet			$	7,512			$	7,984

(1) Netting adjustments represents the variation margin payments that are considered legal settlements of derivative exposure and applied to net the fair value of the respective derivative contracts in accordance with the applicable accounting guidance on the settle-to-market rule for cleared derivatives.

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 0 1,914 0 0
Total derivative instruments $ 145,181 $ 13,967 $ 145,181 $ 12,066


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

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



		Three Months Ended						Six Months Ended
(Dollars in thousands)	Location of Gain (Loss) Recognized in Income on Derivative Instruments	June 30, 2022		March 31, 2022		June 30, 2021		June 30, 2022		June 30, 2021



Gain (loss) on fair value hedging relationships:
Hedged items	Interest Income	$	(11,866)	$	(33,924)	$	—	$	(45,790)	$	—
Derivatives designated as hedging instruments	Interest Income	12,082		32,257		—		44,339		—

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


(Dollars in thousands)	(Dollars in thousands)		Three Months Ended				Six Months Ended				(Dollars in thousands)		Three Months Ended						Six Months Ended
Derivative Not Designated as Hedging Instruments:		Location of Gain (Loss) Recognized in Income on Derivative Instruments	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Derivatives Not Designated as Hedging Instruments:											Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivative Instruments	June 30, 2022		March 31, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Interest rate products	Interest rate products	Other income	$	1	$	0	$	8	$	0	Interest rate products	Other income	$	2	$	1	$	1	$	3	$	8
Other contracts		Other income	0		(1)		0		197
Equity warrants	Equity warrants	Other income	(8)		(4)		(11)		(4)		Equity warrants	Other income	(2)		19		(8)		17		(11)
Total	Total		$	(7)	$	(5)	$	(3)	$	193	Total		$	—	$	20	$	(7)	$	20	$	(3)

7358

Note 1312 – 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 the value of the derivative. These payments are commonly referred to as variation margin and are treated as settlements of derivative exposure rather than as collateral. The Company elected to account for centrally-cleared derivative contracts on a gross basis, even when the right for setoff are in place. However, for derivative contracts cleared through certain central clearing parties, the fair value of the respective derivative contracts is reported net of the variation margin payments.

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
(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		(Dollars in thousands)	Gross Amounts Recognized (1)		Gross Amounts Offset in the Consolidated Statements of Financial Condition		Net Amounts Presented in the Consolidated Statements of Financial Condition		Financial Instruments		Cash Collateral (2)		Net Amount
June 30, 2021
June 30, 2022														June 30, 2022
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	6,712	$	0	$	6,712	$	0	$	0	$	6,712	Interest rate swaps	$	5,606	$	—	$	5,606	$	(106)	$	(4,365)	$	1,135
Total	Total	$	6,712	$	0	$	6,712	$	0	$	0	$	6,712	Total	$	5,606	$	—	$	5,606	$	(106)	$	(4,365)	$	1,135

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	6,716	$	0	$	6,716	$	(4,560)	$	(2,156)	$	0	Interest rate swaps	$	7,984	$	—	$	7,984	$	(106)	$	—	$	7,878
Total	Total	$	6,716	$	0	$	6,716	$	(4,560)	$	(2,156)	$	0	Total	$	7,984	$	—	$	7,984	$	(106)	$	—	$	7,878


December 31, 2020
December 31, 2021														December 31, 2021
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	12,053	$	0	$	12,053	$	0	$	0	$	12,053	Interest rate swaps	$	10,100	$	—	$	10,100	$	—	$	—	$	10,100
Total	Total	$	12,053	$	0	$	12,053	$	0	$	0	$	12,053	Total	$	10,100	$	—	$	10,100	$	—	$	—	$	10,100

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	$	5,263	$	—	$	5,263	$	(4,377)	$	(886)	$	—
Total	Total	$	12,066	$	0	$	12,066	$	(6,140)	$	(5,926)	$	0	Total	$	5,263	$	—	$	5,263	$	(4,377)	$	(886)	$	—

(1) Represents the fair value of securities pledged with counterparty bank.
(2) Represents cash collateral pledged with counterparty bank.
(1) Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable.														(1) Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable.
(2) Represents cash collateral received from or pledged with counterparty bank. Amounts are limited to the derivative asset or liability balance and, accordingly, do not include excess collateral, if any, received or pledged.														(2) Represents cash collateral received from or pledged with counterparty bank. Amounts are limited to the derivative asset or liability balance and, accordingly, do not include excess collateral, if any, received or pledged.

7459

Note 1413 – 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. 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 June 30, ~~2021,~~2022, all of the Company’s leases were classified as operating leases or short-term leases. Short-term leases are leases that have a term of 12 months or less at commencement.

Liabilities to make future lease payments ~~and right-of-use assets are 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 on operating leases 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 on 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 (loss).~~income. The following table presents the components of lease expense for the periods indicated:


		Three Months Ended						Six Months Ended					Three Months Ended						Six Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2021		March 31, 2021		June 30, 2020		June 30, 2021		June 30, 2020		(Dollars in thousands)	June 30, 2022		March 31, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Operating lease	Operating lease	$	4,887	$	5,012	3,908		$	9,899	$	7,072	Operating lease	$	4,614	$	4,738	$	4,887	$	9,352	$	9,899
Short-term lease	Short-term lease	323		507		403		830		930		Short-term lease	388		490		323		878		830
Total lease expense	Total lease expense	$	5,210	$	5,519	$	4,311	$	10,729	$	8,002	Total lease expense	$	5,002	$	5,228	$	5,210	$	10,230	$	10,729

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.

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

(Dollars in thousands)

June 30, 2021

December 31, 2020

(Dollars in thousands)

June 30, 2022

December 31, 2021

Balance Sheet:

Operating lease right of use assets

67,632

76,090

Operating lease right-of-use assets

56,504

64,009

Operating lease liabilities

76,852

85,556

Operating lease liabilities

64,722

72,541

Six Months Ended

(Dollars in thousands)

June 30, 2021

June 30, 2020

(Dollars in thousands)

June 30, 2022

June 30, 2021

Cash Flows:

Operating cash flows from operating leases

10,208

5,524

Operating cash outflow from operating leases

10,015

10,208

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:


(Dollars in thousands)	(Dollars in thousands)	2021		2022		2023		2024		2025		Thereafter		Total			(Dollars in thousands)	2022		2023		2024		2025		2026		Thereafter		Total
As of June 30, 2021
June 30, 2022																	June 30, 2022

Operating leases	Operating leases	$	10,047	$	19,598	$	18,990	$	17,042	$	12,017	$	15,702	$	93,396		Operating leases	$	9,821	$	19,100	$	17,060	$	11,328	$	5,659	$	9,424	$	72,392
Short-term leases	Short-term leases	247		7		0		0		0		0		254			Short-term leases	156		15		—		—		—		—		171
Total contractual base rents (1)	Total contractual base rents (1)	$	10,294	$	19,605	$	18,990	$	17,042	$	12,017	$	15,702	$	93,650		Total contractual base rents (1)	$	9,977	$	19,115	$	17,060	$	11,328	$	5,659	$	9,424	$	72,563

Total liability to make lease payments	Total liability to make lease payments													$	76,852		Total liability to make lease payments													$	64,722
Difference in undiscounted and discounted future lease payments	Difference in undiscounted and discounted future lease payments													$	16,798		Difference in undiscounted and discounted future lease payments													7,670
Weighted average discount rate	Weighted average discount rate													5.69		%	Weighted average discount rate													5.09		%
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)													5.4			Weighted average remaining lease term (years)													4.4

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

The Company from time to time leases portions of space it owns to other parties. Income received from these transactions is recorded on a straight-line basis over the term of the sublease. For the three months ended June 30, ~~2021,~~2022, March 31, ~~2021,~~2022, and June 30, ~~2020,~~2021, rental income totaled ~~$177,000, $175,000,~~$86,000, $125,000, and ~~$66,000,~~$177,000, respectively. For the six months ended June 30, ~~2021~~2022 and June 30, ~~2020,~~2021, rental income totaled $211,000 and $352,000, ~~and $91,000,~~ 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
June 30, 2021 March 31, 2021 June 30, 2020
(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
Loan servicing income $ — $ 622 $ — $ 458 $ — $ 434
Service charges on deposit accounts 2,222 — 2,032 — 1,399 —
Other service fee income 352 — 473 — 297 —
Debit card interchange income 1,099 — 787 — 457 —
Earnings on bank-owned life insurance — 2,279 — 2,233 — 1,314
Net gain (loss) from sales of loans — 1,546 — 361 — (2,032)
Net gain (loss) from sales of investment securities — 5,085 — 4,046 — (21)
Trust custodial account fees 7,897 — 7,222 — 2,397 —
Escrow and exchange fees 1,672 — 1,526 — 264 —
Other income 97 3,858 282 4,320 (80) 2,469
Total noninterest income $ 13,339 $ 13,390 $ 12,322 $ 11,418 $ 4,734 $ 2,164

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

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

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

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

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

~~The major revenue streams by type that are within the scope of ASC 606 presented in the tables above 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 to perform maintenance and custodial services over their alternative IRA investments as well as certain accounts that do not qualify as individual retirement accounts pursuant to the Internal Revenue Code. Typically, such fees are billed and collected on a quarterly basis and recognized commensurate with completion of the performance obligations required under the contracts. At June 30, 2021, the Company had accrued fees receivable of approximately $6.9 million, which are included in other assets in the consolidated statements of financial position. The balance of accrued fees receivable is net of approximately $382,000 of allowance for credit losses on doubtful accounts. The allowance represents the Company’s estimate of credit losses on accrued fees receivable in accordance in ASC 326. The Company recorded approximately $104,000 and $131,000 in credit loss expense associated with accrued fees receivable for the three and six month periods ended June 30, 2021, respectively. The credit loss expense for the three and six month periods ended June 30, 2020, was $64,000. Credit loss expense for fees receivable is included in other expense of the Company’s consolidated statements of income (loss).

~~Escrow and exchange fees~~

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

~~Other Income~~

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

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~~14 – Variable Interest Entities

The Company is involved with VIEs through its loan securitization activities and 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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company determined it was not the primary beneficiary of the VIEs and did not consolidate its interests in VIEs. The following table provides a summary of the carrying amount of assets and liabilities in the Company’s consolidated statements of financial condition and maximum exposure to loss ~~exposures~~ as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 that relate to variable interests in non-consolidated VIEs.

June 30, 2021 December 31, 2020
(Dollars in thousands) Maximum Loss Assets Liabilities Maximum Loss Assets Liabilities
Multifamily loan securitization:
Investment securities (1)
$ 95,857 $ 95,857 $ — $ 100,927 $ 100,927 $ —
Reimbursement obligation (2)
50,901 — 448 50,901 — 448
Affordable housing partnership:
Other investments (3)
70,436 93,225 — 71,681 89,759 —
Unfunded equity commitments (2)
0 — 22,789 0 — 18,078
Total $ 217,194 $ 189,082 $ 23,237 $ 223,509 $ 190,686 $ 18,526


	June 30, 2022						December 31, 2021
(Dollars in thousands)	Maximum Loss		Assets		Liabilities		Maximum Loss		Assets		Liabilities
Multifamily loan securitization:
Investment securities (1)	$	66,496	$	66,496	$	—	$	81,103	$	81,103	$	—
Reimbursement obligation (2)	50,901		—		338		50,901		—		338
Affordable housing partnership:
Other investments (3)	62,702		79,468		—		68,765		85,994		—
Unfunded equity commitments (2)	—		—		16,766		—		—		17,229

Total	$	180,099	$	145,964	$	17,104	$	200,769	$	167,097	$	17,567

(1) Included in investment securities ~~available-for-sale~~AFS on the consolidated statement of financial condition.

(2) Included in accrued expenses and other liabilities on the consolidated statement of financial condition.

(3) Included in other assets on the consolidated statement of financial condition.

Multifamily loan securitization

With respect to the securitization transaction with Freddie Mac discussed in Note ~~6 -~~5 – 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~~AFS at fair value as of June 30, ~~2021.~~2022. Additionally, the Company has variable interests through a reimbursement agreement executed by Freddie Mac that obligates the Company to reimburse Freddie Mac for any defaulted contractual principal and interest payments identified after the ultimate resolution of the 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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, our reserve for estimated losses with respect to the reimbursement obligation was ~~$448,000.~~$338,000.

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~~decision-making capabilities to manage the projects, and therefore, is not the primary beneficiary, and does not consolidate these interests.

The Company’s maximum exposure to loss, exclusive of any potential realization of tax credits, is equal to the commitments invested, adjusted for amortization. The amount of unfunded commitments was included in the investments recognized as assets with a corresponding liability. The table above summarizes the amount of tax credit investments held as assets, the amount of unfunded commitments held as liabilities, and the maximum exposure to loss as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~Trust preferred securities~~

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

Note 1715 – Subsequent Events

Quarterly cash dividend

On July ~~23, 2021,~~19, 2022, the Corporation’s Board of Directors declared a cash dividend of $0.33 per share, payable on August ~~13, 2021~~12, 2022 to ~~shareholders~~stockholders of record onas of August ~~6, 2021.~~1, 2022.

~~Redemption of subordinated notes~~Restructuring

OnDuring July ~~1, 2021,~~2022, 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. On July 7, 2021,~~completed a staff restructuring by eliminating 53 positions, or approximately 3% of the workforce. As a result, the Company ~~redeemed $5.2~~will incur one-time severance and other employee-related costs totaling $1.1 million ~~junior subordinated debt associated with Santa Lucia Bancorp (CA) Capital Trust.~~in the third quarter of 2022. The ~~subordinated notes and junior subordinated debt were redeemed at par, plus accrued and unpaid interest, for an aggregate amount~~workforce reduction will not have a material impact to the Company's financial position or results of ~~$149.2 million. The Company recorded a net gain on early debt extinguishment of $970,000 related to purchase accounting adjustments.~~operations.

~~Branch consolidations~~

On July 16, 2021, the Bank consolidated 2 branch offices in San Luis Obispo County of 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 63 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 July 1, 2021, the Company transferred approximately $157.7 million of municipal bonds from available-for-sale to held-to-maturity securities. The transfer of these securities was accounted for at fair value. These securities had an unrealized loss of $3.2 million at the transfer date, which was reflected as a discount on the date of transfer. This discount, as well as the related unrealized loss in accumulated other comprehensive income, will be amortized into interest income as a yield adjustment through earnings over the remaining term of the securities. The amortization of the unrealized holding loss reported in accumulated other comprehensive income will offset the effect on interest income of the amortization of the discount. NaN gains or losses were recorded at the time of transfer.

8263

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.

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

•The strength of the United States economy in general and the strength of the local economies in which we conduct operations;

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

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

•The effect of changes in accounting policies and practices or accounting standards, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB, or other accounting standards setters, including ASU 2016-13 (Topic 326), ~~“Measurement~~“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 transition away from USD LIBOR and related uncertainty ~~regarding potential alternative reference rates, including~~as well as, the risks and costs related to our adoption of SOFR;

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

•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;

•The impact of any change in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount;

•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;

•The possibility that we may discontinue, reduce, or otherwise limit the level of repurchases of our common stock we may make from time to time pursuant to our stock repurchase program;

•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, including the war between Russia and Ukraine, which could impact business and economic conditions in the United States and abroad;

•Cybersecurity threats and the cost of defending against ~~them,~~them;

•Climate change, including the ~~costs of~~enhanced regulatory, compliance, ~~with potential legislation to combat cybersecurity at a state, national, or global level;~~credit, and reputational risks and costs;

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

•Unanticipated regulatory, legal, or judicial proceedings; and

•Our ability to manage the risks involved in the foregoing.

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking information and statements to reflect actual results or changes in the factors affecting the forward-looking information and statements. For information on the factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our ~~2020~~2021 Form 10-K in addition to Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q and other reports as filed with the SEC.

Forward-looking information and statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties disclosed in our filings with the SEC, all of which are accessible on the SEC’s website at http://www.sec.gov.

8465

GENERAL

Management’s discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to the Company’s financial condition, results of operations, liquidity, and capital resources. This discussion should be read in conjunction with our ~~Management Discussion and Analysis of Financial Condition and Results of Operations included in our 2020~~2021 Form 10-K, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The results for the three and six months ended June 30, ~~2021~~2022 are not necessarily indicative of the results expected for the year ending December 31, ~~2021.~~2022.

The Corporation is a California-based bank holding company incorporated in 1997 in the state of Delaware and registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”). Our wholly owned subsidiary, Pacific Premier Bank, is a California state-chartered commercial bank. The Bank was founded in 1983 as a state-chartered thrift and subsequently converted to a federally-chartered thrift in 1991. The Bank converted to a California-chartered commercial bank and became a member of the Federal Reserve System in March 2007. The Bank is also a member of the FHLB, which is a member of the Federal Home Loan Bank System. As a bank holding company, the Corporation is subject to regulation and supervision by the Federal Reserve. We are required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve may conduct examinations of bank holding companies, such as the Corporation, and its subsidiaries. The Corporation is also a bank holding company within the meaning of the California Financial Code. As such, the Corporation and its subsidiaries are subject to the supervision and examination by, and may be required to file reports with, the California Department of 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, the Consumer Financial Protection Bureau, ~~(“CFPB”),~~ and the ~~FDIC.~~Federal Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund. In general terms, insurance coverage is up to $250,000 per depositor for all deposit accounts. As a result of this deposit insurance function, the FDIC also has certain supervisory authority and powers over the Bank. If, as a result of an examination of the Bank, the regulators should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or our management is violating or has violated any law or regulation, various remedies are available to the regulators. Such remedies include the power to enjoin unsafe or unsound practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict growth, to assess civil monetary penalties, to remove officers and directors, and ultimately, to request the FDIC to terminate the Bank’s deposit insurance. As a California-chartered commercial bank, the Bank is also subject to certain provisions of California law.

Our corporate headquarters ~~are~~is located in Irvine, California. At June 30, ~~2021,~~2022, we primarily conduct business throughout the Western Region of the United States from 65our 61 full-service depository branches located in Arizona, California, Nevada, Oregon, and Washington. Following the two branch consolidations in San Luis Obispo County of California completed in July 2021, the Bank operates 63 full-service depository branches. The branches consolidated were identified largely based on the proximity of neighboring branches, deposit base, historic growth, and market opportunity to improve further the overall efficiency of operations, as well as the Bank's goals related to Fair Lending and the Community Reinvestment Act.

8566

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”)~~HOA and HOA management companies, as well as experienced owner-operator franchisees in the ~~quick service restaurant (“QSR”)~~QSR industry. ~~Most recently, we~~We have expanded our specialty products and services offerings to include commercial escrow services through our Commerce Escrow division, which facilitates commercial escrow services and tax-deferred commercial real estate exchanges under Section 1031 of the Internal Revenue Code, as well as custodial and maintenance services through our Pacific Premier Trust division, which serves as a custodian for self-directed IRAs as well as certain accounts that do not qualify as IRAs pursuant to the Internal Revenue Code.

The Bank funds 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 (“WHO”) on January 30, 2020 and a pandemic by the ~~World Health Organization~~WHO on March 11, 2020. The ongoing COVID-19 global pandemic and national health emergency has caused significant disruption in the United States and international economies and financial markets. ~~The operations and business results of the Company have been and could continue to be materially adversely affected.~~

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

Since the beginning of the crisis, we have been in close contact with our clients, assessing the level of impact on their businesses, and implementing a process to evaluate each client’s specific situation, and where appropriate, providing relief programs. We also enhanced client awareness of our digital banking offerings to ensure that we continue to provide a superior level of customer service. 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, and support our customers affected by the COVID-19 pandemic, including but not limited to the following:

•~~Participated in the Small Business 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~~b~~eginning in April 2020. O~~ur 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.~~

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. At June 30, 2021, there was one single family residential loan for $819,000 classified as a COVID-19 modification under Section 4013 of the CARES Act. Additionally, as of June 30, 2021, there were no loans in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for investment, remained within their COVID-19 modification period. Please also see ~~Note 6 - Loans Held for Investment~~ ~~for additional information.~~

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

While economic conditions have improved since the ~~ongoing~~onset of the COVID-19 pandemic, new variants may continue to impact macroeconomic environment. Inflationary pressures resulting, in part, from various supply chain constraints in many aspects of the U.S. economy, has placed strain on ~~certain~~various businesses, ~~and~~ service providers ~~many of which have not been able to conduct operations in their usual manner.~~and consumers. Should the COVID-19 pandemic as well as the ongoing economic pressures persist, we anticipate it ~~may~~could have an impact on the following:

•Loan growth and interest income - Economic activity has expanded ~~moderately during the first six months of 2021, but macroeconomic conditions continue to exhibit weakness relative to conditions prior to~~since the onset of the COVID-19 ~~pandemic in~~pandemic; however, the ~~first quarter of 2020. Persistent weakness in~~economy continues to experience supply chain disruptions, inflationary pressures, and the uncertainty created by recent geopolitical developments. If the economic ~~activity~~recovery begins to wane, it may have an impact on our borrowers, the businesses they operate, and their financial condition. ~~If a recovery in economic conditions fails to continue, 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~~as well as 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%. A potential reduction in future loan growth in conjunction with lower levels of interest ratesSuch factors would place pressure on the level of ~~and yield on earnings~~interest-earning assets, which may negatively impact our interest income.

•Credit quality - ~~Increases~~Should there be a decline in economic activity, the markets we serve could experience increases in unemployment, declines in consumer confidence, and a reluctance on the part of businesses to invest in and expand their operations, among other ~~things,~~things. Such factors may result in additional weakness in economic conditions, place strain on our borrowers, and ultimately impact the credit quality of our loan portfolio. We expect this ~~would~~could result in increases in the level of past due, nonaccrual, and classified loans, as well as higher net charge-offs. While ~~certain~~ economic ~~metrics~~conditions have improved since the onset of the COVID-19 pandemic, ~~in the first quarter of 2020,~~ there can be no assurance the ~~improvement in economic conditions~~recovery will continue. As such, should we experience future deterioration in the credit quality ~~in conjunction with weakened economic conditions,~~of our loan portfolio, it may ~~require us~~contribute to ~~record~~the need for additional provisions for credit losses.

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

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

The U.S. government as well as other state and local policy makers have responded to the ongoing COVID-19 pandemic with actions geared to support not only the health and well-being of the public, but also consumers, businesses, and the economy as a whole. ~~In addition, during~~The Company continues to focus on serving its customers and communities and maintaining the ~~first quarter~~well-being of ~~2021,~~its employees, monitor 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~~environment, and aid to individuals and state and local governments that have been affected by the ongoing COVID-19 pandemic. However, the impact and overall effectiveness of these actions is difficult to determine at this time.

~~ACQUISITION OF OPUS~~

~~Effective~~make changes 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.

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

•~~$5.81 billion of loans~~

•~~$937.1 million of cash and cash equivalents~~

•~~$829.9 million of investment securities~~

•~~$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 ASC 820 -~~ ~~Fair Value 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 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.appropriate.

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 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~~Note 1. Description of Business and Summary of Significant Accounting Policies to the consolidated financial statements in our ~~2020~~2021 Form 10-K.

Allowance for Credit Losses on Loans and Off-Balance Sheet Commitments

The Company accounts for credit losses on loans and off-balance sheet commitments, such as unfunded loan commitments, in accordance with ASC 326 - Financial Instruments - Credit Losses, which requires the 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 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 estimation process in determining the ACL involves a significant degree of judgement, requiring management to make numerous estimates and assumptions. These estimates and assumptions are subject to change in future periods, which may have a material impact on the level of the ACL and the Company’s results of operations.

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

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

~~Expectations~~Although no one economic variable can fully demonstrate the sensitivity of ~~future cash flows are discounted at~~ the ~~loan’s effective interest rate. The resulting~~ ACL ~~represents~~calculation to changes in the ~~amount by which~~economic variables used in the ~~loan’s amortized cost exceeds~~ACL model, the ~~net present value~~Company, as 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~~June 30, 2022, has identified certain economic variables that have significant influence in the Company’s ~~policy to promptly charge-off loan balances at~~model for determining the ~~time they have been deemed uncollectible.~~ACL. These key economic variables include the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and the 10-year U.S. Treasury yield. Please also see ~~Note 7 -~~ “Allowance for Credit ~~Losses~~Losses” under Item 2 - Management’s Discussion and Analysis , ~~of the consolidated financial statements~~ for additional discussion on assumptions concerning economic forecasts and economic variables used in the Company’s ACL ~~methodology, including discussion concerning economic forecasts used in~~model as well as the ~~determination~~impact of those items on the Company’s ACL.

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

~~Business Combinations~~

~~The Company accounts for business combinations under~~ Further, as the size, complexity, and composition of the loan portfolio changes over time, such as through the acquisition ~~method~~ of ~~accounting. Upon obtaining control~~other financial institutions, new product offerings, client demand for various types of credit, and changes in our geographic footprint, the Company may seek to make additional enhancements to its ACL methodology. Such enhancements may have an impact on the level of the acquired entity, the Company records all identifiable assets and liabilities at their estimated fair values. Goodwill is recorded when the consideration paid for an acquired entity exceeds the estimated fair value of the net assets acquired. Changes to the acquisition date fair values of assets acquired and liabilities assumed may be made as adjustments to goodwill over a 12-month measurement period following the date of acquisition. Such adjustments are attributable to additional information obtained related to fair value estimates of the assets acquired and liabilities assumed. Certain costs associated with business combinations are expensed as incurred.

~~Goodwill~~

Goodwill assets arise from the acquisition method of accounting for business combinations and represent the excess value of the consideration paid over the fair value of the net assets acquired. Goodwill assets are deemed to have indefinite lives, are not subject to amortization and instead are tested for impairment at least annually. The Company’s policy is to assess goodwill for impairment in the fourth quarter of each year or more frequently if events or circumstances lead management to believe the value of goodwill may be impaired. Impairment testing is performed at the reporting unit level, which is considered the Corporation level as management has identified the Corporation as its sole reporting unit as of the date of the consolidated statements of financial condition. Management’s assessment of goodwill is performed in accordance with ASC 350-20 ~~- Goodwill and Other - Goodwill~~, which allows the Company to first perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value. However, GAAP also allows the Company, at its option, to unconditionally forego the qualitative assessment and proceed directly to a quantitative assessment. When performing a qualitative assessment of goodwill, should the results of such analysis indicate it is more likely than not the fair value of the Company’s equity is below its carrying value, the Company then performs the quantitative assessment of goodwill to determine the fair value of the reporting unit and compares it to its carrying value. If the fair value of the reporting unit is below its carrying value, the Company would then recognize the amount of impairment as the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to the reporting unit. Impairment losses are recorded as a charge to noninterest expense.

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

~~Acquired Loans~~

When the Company acquires loans through purchase or a business combination an assessment is first performed to determine if such loans have experienced more than insignificant deterioration in credit quality since their origination and thus should be classified and accounted for as PCD loans or otherwise classified as non-PCD loans. All acquired 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 inand is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the ~~period in which~~Company’s policy to promptly charge-off loan balances at the ~~loans were purchased or acquired.~~time they have been deemed uncollectible.

~~Unlike non-PCD loans,~~Please also see Note 6 – Allowance for Credit Losses, of the ~~initial ACL for PCD loans is established through an adjustment~~Notes to the ~~acquired loan balance and not through a charge to provision~~Consolidated Financial Statements for ~~credit losses in the period in which the loans were acquired. The ACL for PCD loans is determined with the use of~~additional discussion concerning the Company’s ACL 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.

9270

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									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2022			2022			2021			2022			2021
Net income	$	69,803		$	66,904		$	96,302		$	136,707		$	164,970
Plus: amortization of intangible assets expense	3,479			3,592			4,001			7,071			8,144
Less: amortization of intangible assets expense tax adjustment (1)	993			1,025			1,145			2,018			2,330
Net income for average tangible common equity	$	72,289		$	69,471		$	99,158		$	141,760		$	170,784

Average stockholders’ equity	$	2,764,893		$	2,864,387		$	2,747,308		$	2,814,365		$	2,748,468
Less: average intangible assets	64,583			68,157			79,784			66,360			81,853
Less: average goodwill	901,312			901,312			900,582			901,312			899,590
Average tangible common equity	$	1,798,998		$	1,894,918		$	1,766,942		$	1,846,693		$	1,767,025

Return on average equity (2)	10.10		%	9.34		%	14.02		%	9.71		%	12.00		%
Return on average tangible common equity (2)	16.07		%	14.66		%	22.45		%	15.35		%	19.33		%

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

(2) Ratio is annualized.

~~Fair Value~~Tangible book value per share and tangible common equity to tangible assets (the “tangible common equity ratio”) are non-GAAP financial measures derived from GAAP-based amounts. We calculate tangible book value per share by dividing tangible common stockholder’s equity by shares outstanding. We calculate the tangible common equity ratio by excluding the balance of intangible assets from common stockholders’ equity and dividing by period end tangible assets, which also excludes intangible assets. We believe that this information is important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk-based ratios.


	June 30,			December 31,
(Dollars in thousands)	2022			2021
Total stockholders’ equity	$	2,755,219		$	2,886,311
Less: intangible assets	963,812			970,883
Tangible common equity	$	1,791,407		$	1,915,428

Total assets	$	21,993,919		$	21,094,429
Less: intangible assets	963,812			970,883
Tangible assets	$	21,030,107		$	20,123,546

Tangible common equity ratio	8.52		%	9.52		%

Common shares issued and outstanding	94,976,605			94,389,543

Book value per share	$	29.01		$	30.58
Less: intangible book value per share	10.15			10.29
Tangible book value per share	$	18.86		$	20.29

For periods presented below, efficiency ratio is a non-GAAP financial measure derived from GAAP-based amounts. This figure represents the ratio of noninterest expense less other real estate owned operations, core deposit intangible amortization, and merger-related expense to the sum of net interest income before provision for loan losses and total noninterest income, less gain/(loss) on sale of securities, other income - security recoveries on investment securities, gain/(loss) on sale of other real estate owned, and gain/(loss) from debt extinguishment. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2022			2022			2021			2022			2021
Total noninterest expense	$	98,974		$	97,648		$	94,496		$	196,622		$	186,985
Less: amortization of intangible assets	3,479			3,592			4,001			7,071			8,144
Less: merger-related expense	—			—			—			—			5

Noninterest expense, adjusted	$	95,495		$	94,056		$	90,495		$	189,551		$	178,836

Net interest income before provision for loan losses	$	172,765		$	161,839		$	160,934		$	334,604		$	322,586
Add: total noninterest income	22,193			25,894			26,729			48,087			50,469
Less: net (loss) gain from investment securities	(31)			2,134			5,085			2,103			9,131
Less: other income - security recoveries	—			—			6			—			8

Less: net loss from debt extinguishment	—			—			(647)			—			(1,150)

Revenue, adjusted	$	194,989		$	185,599		$	183,219		$	380,588		$	365,066

Efficiency ratio	49.0		%	50.7		%	49.4		%	49.8		%	49.0		%

Core net interest income and core net interest margin are non-GAAP financial measures derived from GAAP based amounts. We calculate core net interest income by excluding scheduled accretion income, accelerated accretion income, premium amortization on CDs, nonrecurring nonaccrual interest paid, and gain (loss) on interest rate in fair value hedging relationships from net interest income. The core net interest margin is calculated as the ratio of core net interest income to average interest-earning assets. Management believes that the exclusion of such items from these financial measures provides useful information to gain an understanding of the operating results of our core business.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2022			2022			2021			2022			2021
Net interest income	$	172,765		$	161,839		$	160,934		$	334,604		$	322,586
Less: scheduled accretion income	2,626			2,857			3,560			5,483			7,438
Less: accelerated accretion income	4,918			3,083			5,927			8,001			11,915
Less: premium amortization on CDs	60			96			942			156			2,693
Less: nonrecurring nonaccrual interest paid	48			(356)			(216)			(308)			(819)
Less: gain (loss) on fair value hedging relationships	128			(1,667)			—			(1,539)			—
Core net interest income	$	164,985		$	157,826		$	150,721		$	322,811		$	301,359



Average interest-earning assets	$	19,876,806		$	19,240,232		$	18,783,803		$	19,553,360		$	18,637,924



Net interest margin (1)	3.49		%	3.41		%	3.44		%	3.45		%	3.49		%
Core net interest margin (1)	3.33		%	3.33		%	3.22		%	3.33		%	3.26		%

(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 consistent comparison to the financial results of prior periods.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2022			2022			2021			2022			2021
Interest income	$	183,226		$	168,546		$	170,692		$	351,772		$	343,686
Interest expense	10,461			6,707			9,758			17,168			21,100
Net interest income	172,765			161,839			160,934			334,604			322,586
Noninterest income	22,193			25,894			26,729			48,087			50,469
Revenue	194,958			187,733			187,663			382,691			373,055
Noninterest expense	98,974			97,648			94,496			196,622			186,985
Add: merger-related expense	—			—			—			—			5
Pre-provision net revenue	$	95,984		$	90,085		$	93,167		$	186,069		$	186,075
Pre-provision net revenue (annualized)	$	383,936		$	360,340		$	372,668		$	372,138		$	372,150

Average assets	$	21,670,153		$	20,956,791		$	20,290,415		$	21,315,443		$	20,143,156

Pre-provision net revenue to average assets	0.44		%	0.43		%	0.46		%	0.87		%	0.92		%
Pre-provision net revenue to average assets (annualized)	1.77		%	1.72		%	1.84		%	1.75		%	1.85		%

RESULTS OF OPERATIONS

The following table presents the components of results of operations, share data, and performance ratios for the periods indicated:


	Three Months Ended									Six Months Ended
(Dollar in thousands, except per share data and	June 30,			March 31,			June 30,			June 30,			June 30,
percentages)	2022			2022			2021			2022			2021
Operating data
Interest income	$	183,226		$	168,546		$	170,692		$	351,772		$	343,686
Interest expense	10,461			6,707			9,758			17,168			21,100
Net interest income	172,765			161,839			160,934			334,604			322,586
Provision for credit losses	469			448			(38,476)			917			(36,502)
Net interest income after provision for credit losses	172,296			161,391			199,410			333,687			359,088
Net gain from sales of loans	1,136			1,494			1,546			2,630			1,907
Other noninterest income	21,057			24,400			25,183			45,457			48,562
Noninterest expense	98,974			97,648			94,496			196,622			186,985
Net income before income taxes	95,515			89,637			131,643			185,152			222,572
Income tax expense	25,712			22,733			35,341			48,445			57,602
Net income	$	69,803		$	66,904		$	96,302		$	136,707		$	164,970
Pre-provision net revenue (3)	$	95,984		$	90,085		$	93,167		$	186,069		$	186,075
Share data
Earnings per share:
Basic	$	0.74		$	0.71		$	1.02		$	1.44		$	1.74
Diluted	0.73			0.70			1.01			1.44			1.73
Common equity dividends declared per share	0.33			0.33			0.33			0.66			0.63
Dividend payout ratio (1)	44.89		%	46.60		%	32.43		%	45.72		%	36.10		%
Performance ratios
Return on average assets (2)	1.29		%	1.28		%	1.90		%	1.28		%	1.64		%
Return on average equity (2)	10.10		%	9.34		%	14.02		%	9.71		%	12.00		%
Return on average tangible common equity (2)(3)	16.07		%	14.66		%	22.45		%	15.35		%	19.33		%

Pre-provision net revenue on average assets (2)(3)	1.77		%	1.72		%	1.84		%	1.75		%	1.85		%
Average equity to average assets	12.76		%	13.67		%	13.54		%	13.20		%	13.64		%
Efficiency ratio (3)	49.0		%	50.7		%	49.4		%	49.8		%	49.0		%

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

(2) Ratio is annualized.

(3) Reconciliations of the non-GAAP measures are set forth in the Non-GAAP Measures section of Item 2 - Management’s Discussion and Analysis of Financial ~~Instruments~~Condition and Results of Operations in this Form 10-Q.

~~We use~~

In the second quarter of 2022, we reported net income of $69.8 million, or $0.73 per diluted share. This compares with net income of $66.9 million, or $0.70 per diluted share, for the first quarter of 2022. The increase in net income was primarily due to a $10.9 million increase in net interest income, partially offset by a $3.7 million decrease in noninterest income, a $3.0 million increase in income tax expense, and a $1.3 million increase in noninterest expense.

Net income of $69.8 million, or $0.73 per diluted share, for the second quarter of 2022 compares to net income for the second quarter of 2021 of $96.3 million, or $1.01 per diluted share. The decrease in net income was primarily due to a $38.9 million decrease in provision recapture for credit losses, a $4.5 million decrease in noninterest income, and a $4.5 million increase in noninterest expense, partially offset by an $11.8 million increase in net interest income. The provision recapture during the second quarter of 2021 was reflective of improved economic forecasts used in the Company’s CECL model relative to prior periods.

For the three months ended June 30, 2022, the Company’s return on average assets was 1.29%, return on average equity was 10.10%, and return on average tangible common equity was 16.07%. For the three months ended March 31, 2022, the return on average assets was 1.28%, the return on average equity was 9.34%, and the return on average tangible common equity was 14.66%. 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 additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

For the six months ended June 30, 2022, the Company recorded net income of $136.7 million, or $1.44 per diluted share. This compares with net income of $165.0 million or $1.73 per diluted share for the six months ended June 30, 2021. The decrease in net income of $28.3 million was mostly due to the $37.4 million decrease in provision recapture for credit losses, a $9.6 million increase in noninterest expense excluding merger-related expenses, and a $2.4 million decrease in noninterest income, partially offset by a $12.0 million increase in net interest income and a $9.2 million decrease in income tax expense. The provision recapture during the six months of June 30, 2021 was reflective of improved economic forecasts used in the Company’s CECL model relative to prior periods.

For the six months ended June 30, 2022, the Company’s return on average assets was 1.28%, return on average equity was 9.71%, and return on average tangible common equity was 15.35%, compared with a return on average assets of 1.64%, return on average equity of 12.00%, and a return on average tangible common equity of 19.33% for the six months ended June 30, 2021. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

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 $172.8 million in the second quarter of 2022, an increase of $10.9 million, or 6.8%, from the first quarter of 2022. The increase in net interest income was primarily attributable to higher average interest-earning assets and yields, higher loan-related fees, and accretion income as a result of increased prepayment activity, a favorable interest impact from fair value ~~measurements~~hedges, and one more day of interest, partially offset by a higher cost of funds, largely as a result of higher average interest-bearing liabilities.

The net interest margin for the second quarter of 2022 was 3.49%, compared with 3.41% in the prior quarter. The core net interest margin, which excludes the impact of loan accretion income and other adjustments, was unchanged at 3.33%, compared to ~~record~~the prior quarter, reflecting a favorable remix towards higher yielding loans, higher loan-related fees, and a favorable interest impact from fair value hedges, partially offset by higher cost of funds due to the full quarter impact of the $600.0 million of FHLB term advances added in March 2022. For additional details of the core net interest margin, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

Net interest income for the second quarter of 2022 increased $11.8 million, or 7.4%, compared to the second quarter of 2021. The increase was attributable to higher average loan balances and lower cost of funds, primarily due to an improved deposit mix from a $689.1 million increase in average noninterest-bearing checking, lower rates paid on money market and savings accounts, and redemptions of higher-cost subordinated debentures, partially offset by lower average loan yield.

For the six months ended 2022, net interest income increased $12.0 million, or 3.7%, compared to the six months ended 2021. The increase was related to an increase in average interest-earning assets, and lower cost of funds, partially offset by lower average loan and investment yields and higher average interest-bearing liabilities. For the six months ended 2022, the net interest margin was 3.45%, compared with 3.49% for the same period last year. The core net interest margin, which excludes the impact of loan accretion income, certificates of deposit mark-to-market amortization, and other adjustments, towas 3.33%, compared with 3.26% for the same period last year, reflecting higher average interest-earning assets balance and lower cost of funds. For additional details of the core net interest margin, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

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
	Three Months Ended
	June 30, 2022						March 31, 2022						June 30, 2021
(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	$	702,663	$	1,211	0.69	%	$	322,236	$	90	0.11	%	$	1,323,186	$	315	0.10	%
Investment securities	4,254,961		17,560		1.65	%	4,546,408		17,852		1.57	%	4,243,644		18,012		1.70	%
Loans receivable, net (1)(2)	14,919,182		164,455		4.42	%	14,371,588		150,604		4.25	%	13,216,973		152,365		4.62	%
Total interest-earning assets	19,876,806		183,226		3.70	%	19,240,232		168,546		3.55	%	18,783,803		170,692		3.64	%
Noninterest-earning assets	1,793,347						1,716,559						1,506,612
Total assets	$	21,670,153					$	20,956,791					$	20,290,415
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	4,055,506	$	712	0.07	%	$	3,537,824	$	229	0.03	%	$	3,155,935	$	336	0.04	%
Money market	5,231,464		1,010		0.08	%	5,343,973		888		0.07	%	5,558,790		2,002		0.14	%
Savings	432,586		27		0.03	%	422,186		26		0.02	%	384,376		84		0.09	%
Retail certificates of deposit	922,784		607		0.26	%	1,047,451		530		0.21	%	1,294,544		839		0.26	%
Wholesale/brokered certificates of deposit	80,182		326		1.63	%	—		—		—	%	1,357		4		1.18	%
Total interest-bearing deposits	10,722,522		2,682		0.10	%	10,351,434		1,673		0.07	%	10,395,002		3,265		0.13	%
FHLB advances and other borrowings	602,621		3,217		2.14	%	225,250		474		0.85	%	6,303		—		—	%
Subordinated debentures	330,796		4,562		5.52	%	330,629		4,560		5.52	%	480,415		6,493		5.41	%
Total borrowings	933,417		7,779		3.34	%	555,879		5,034		3.63	%	486,718		6,493		5.35	%
Total interest-bearing liabilities	11,655,939		10,461		0.36	%	10,907,313		6,707		0.25	%	10,881,720		9,758		0.36	%
Noninterest-bearing deposits	7,030,205						6,928,872						6,341,063
Other liabilities	219,116						256,219						320,324
Total liabilities	18,905,260						18,092,404						17,543,107
Stockholders’ equity	2,764,893						2,864,387						2,747,308
Total liabilities and equity	$	21,670,153					$	20,956,791					$	20,290,415
Net interest income			$	172,765					$	161,839					$	160,934

Net interest margin (3)					3.49	%					3.41	%					3.44	%
Cost of deposits (4)					0.06	%					0.04	%					0.08	%
Cost of funds (5)					0.22	%					0.15	%					0.23	%
Ratio of interest-earning assets to interest-bearing liabilities					170.53	%					176.40	%					172.62	%

(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums, and the basis adjustment of certain ~~financial instruments and to determine~~loans included in fair value ~~disclosures. Investment securities available-for-sale, derivative instruments,~~hedging relationships, where applicable.

(2) Interest income includes net discount accretion of $7.5 million, $5.9 million, and ~~equity warrant assets are financial instruments recorded at~~$9.5 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.



	Average Balance Sheet
	Six Months Ended
	June 30, 2022						June 30, 2021
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	513,500	$	1,301	0.51	%	$	1,316,314	$	616	0.09	%
Investment securities	4,399,880		35,412		1.61	%	4,165,979		35,480		1.70	%
Loans receivable, net (1)(2)	14,639,980		315,059		4.34	%	13,155,631		307,590		4.71	%
Total interest-earning assets	19,553,360		351,772		3.63	%	18,637,924		343,686		3.72	%
Noninterest-earning assets	1,762,083						1,505,232
Total assets	$	21,315,443					$	20,143,156
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,798,095	$	941	0.05	%	$	3,108,260	$	755	0.05	%
Money market	5,287,408		1,898		0.07	%	5,503,656		4,590		0.17	%
Savings	427,414		53		0.03	%	376,376		166		0.09	%
Retail certificates of deposit	984,773		1,137		0.23	%	1,359,458		2,040		0.30	%
Wholesale/brokered certificates of deposit	40,312		326		1.63	%	59,781		140		0.47	%
Total interest-bearing deposits	10,538,002		4,355		0.08	%	10,407,531		7,691		0.15	%
FHLB advances and other borrowings	414,978		3,691		1.79	%	14,115		65		0.93	%
Subordinated debentures	330,713		9,122		5.52	%	490,925		13,344		5.44	%
Total borrowings	745,691		12,813		3.44	%	505,040		13,409		5.35	%
Total interest-bearing liabilities	11,283,693		17,168		0.31	%	10,912,571		21,100		0.39	%
Noninterest-bearing deposits	6,979,818						6,188,539
Other liabilities	237,567						293,578
Total liabilities	18,501,078						17,394,688
Stockholders’ equity	2,814,365						2,748,468
Total liabilities and equity	$	21,315,443					$	20,143,156
Net interest income			$	334,604					$	322,586

Net interest margin (3)					3.45	%					3.49	%
Cost of deposits (4)					0.05	%					0.09	%
Cost of funds (5)					0.19	%					0.25	%
Ratio of interest-earning assets to interest-bearing liabilities					173.29	%					170.79	%

_____________________________

(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums, and the basis adjustment of certain loans included in 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 hedging relationships, where applicable.

~~Note 11 -~~(2) Interest income includes net discount accretion of $13.5 million and $19.4 million, respectively.

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

(4) Represents annualized interest expense on deposits divided by the sum of ~~Financial Instruments~~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.

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 ~~consolidated financial statements~~three and six months ended June 30, 2022 to the three and six months ended June 30, 2021);

•Changes in interest rates (changes in interest rates multiplied by prior volume and includes the recognition of discounts/premiums and deferred fees/costs); and

•The net change or the combined impact of volume, days in a period, and rate changes allocated proportionately to changes in volume, days in a period, and changes in interest rates.


	Three Months Ended June 30, 2022
	Compared to
	Three Months Ended March 31, 2022
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	209	$	13	$	899	$	1,121
Investment securities	(1,174)		—		882		(292)
Loans receivable, net	5,851		1,807		6,193		13,851
Total interest-earning assets	4,886		1,820		7,974		14,680
Interest-bearing liabilities
Interest checking	38		8		437		483
Money market	(18)		11		129		122
Savings	1		—		—		1
Retail certificates of deposit	(51)		7		121		77
Wholesale/brokered certificates of deposit	326		—		—		326
FHLB advances and other borrowings	1,429		35		1,279		2,743
Subordinated debentures	2		—		—		2
Total interest-bearing liabilities	1,727		61		1,966		3,754
Change in net interest income	$	3,159	$	1,759	$	6,008	$	10,926


	Three Months Ended June 30, 2022
	Compared to
	Three Months Ended June 30, 2021
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(74)	$	970	$	896
Investment securities	48		(500)		(452)
Loans receivable, net	18,320		(6,230)		12,090
Total interest-earning assets	18,294		(5,760)		12,534
Interest-bearing liabilities
Interest checking	115		261		376
Money market	(112)		(880)		(992)
Savings	13		(70)		(57)
Retail certificates of deposit	(244)		12		(232)
Wholesale/brokered certificates of deposit	319		3		322
FHLB advances and other borrowings	3,183		34		3,217
Subordinated debentures	(2,066)		135		(1,931)
Total interest-bearing liabilities	1,208		(505)		703
Change in net interest income	$	17,086	$	(5,255)	$	11,831



	Six Months Ended June 30, 2022
	Compared to
	Six Months Ended June 30, 2021
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(111)	$	796	$	685
Investment securities	1,937		(2,005)		(68)
Loans receivable, net	25,332		(17,863)		7,469
Total interest-earning assets	27,158		(19,072)		8,086
Interest-bearing liabilities
Interest checking	171		15		186
Money market	(174)		(2,518)		(2,692)
Savings	26		(139)		(113)
Retail certificates of deposit	(492)		(411)		(903)
Wholesale/brokered certificates of deposit	(29)		215		186
FHLB advances and other borrowings	3,513		113		3,626
Subordinated debentures	(4,495)		273		(4,222)
Total interest-bearing liabilities	(1,480)		(2,452)		(3,932)
Change in net interest income	$	28,638	$	(16,620)	$	12,018

Provision for ~~more information about~~Credit Losses

For the ~~extent~~second quarter of 2022, the Company recorded a $469,000 provision expense for credit losses, compared to ~~which fair value is used to measure assets~~a $448,000 provision expense during the first quarter of 2022, and ~~liabilities,~~a $38.5 million provision recapture during the ~~valuation methodologies used,~~second quarter of 2021. The provision expense during the second quarter of 2022 was driven principally by loan growth and ~~its impact to earnings,~~net charge-offs, as well as the ~~estimated fair value disclosures~~impact of macroeconomic uncertainties, offset by a recapture for ~~financial instruments not recorded at fair value.~~unfunded commitments largely due to favorable changes in unfunded lending segment mix. With the increasing probability of downside risks due to high inflation and the ongoing supply chain challenges, we are carefully monitoring the current and forecasted macroeconomic environment as well as key modeling variables.

The provision expense for the first quarter of 2022 was primarily reflective of loan growth and net charge-offs, as well as the impact of macroeconomic uncertainties. The provision recapture for the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods.

Net loan charge-offs for the three months ended June 30, 2022 totaled $5.2 million, compared with net loan charge-offs of $446,000 for the three months ended March 31, 2022, and net loan charge-offs of $1.1 million for the three months ending June 30, 2021.


	Three Months Ended						Variance From
	June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	2022		2022		2021		$		%		$		%
Provision for credit losses
Provision for loan losses	$	3,803	$	211	$	(33,131)	$	3,592	1,702.4	%	$	36,934	(111.5)	%
Provision for unfunded commitments	(3,402)		218		(5,345)		(3,620)		(1,660.6)	%	1,943		(36.4)	%

Provision for HTM securities	68		19		—		49		257.9	%	68		—	%
Total provision for credit losses	$	469	$	448	$	(38,476)	$	21	4.7	%	$	38,945	(101.2)	%

For the first six months of 2022, the Company recorded a $917,000 provision expense, compared to a $36.5 million provision recapture recorded for the first six months of 2021. The provision expense for the first six months of 2022, was driven principally by loan growth and net charge-offs, as well as the impact of macroeconomic uncertainties, partially offset by a recapture for unfunded commitments largely due to changes in unfunded lending segment mix. The provision expense for the first six months of 2021 was driven by improved economic forecasts used in the Company’s CECL model relative to prior periods.



	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Provision for credit losses
Provision for loans and lease losses	$	4,014	$	(32,816)	$	36,830	(112.2)	%
Provision for unfunded commitments	(3,184)		(3,686)		502		(13.6)	%

Provision for held-to-maturity securities	87		—		87		—	%
Total provision for credit losses	$	917	$	(36,502)	$	37,419	(102.5)	%

Noninterest Income

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


	Three Months Ended						Variance From
	June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	2022		2022		2021		$		%		$		%
Noninterest income
Loan servicing income	$	502	$	419	$	622	$	83	19.8	%	$	(120)	(19.3)	%
Service charges on deposit accounts	2,690		2,615		2,222		75		2.9	%	468		21.1	%
Other service fee income	366		367		352		(1)		(0.3)	%	14		4.0	%
Debit card interchange fee income	936		836		1,099		100		12.0	%	(163)		(14.8)	%
Earnings on bank owned life insurance	3,240		3,221		2,279		19		0.6	%	961		42.2	%
Net gain from sales of loans	1,136		1,494		1,546		(358)		(24.0)	%	(410)		(26.5)	%
Net (loss) gain from sales of investment securities	(31)		2,134		5,085		(2,165)		(101.5)	%	(5,116)		(100.6)	%



Trust custodial account fees	10,354		11,579		7,897		(1,225)		(10.6)	%	2,457		31.1	%
Escrow and exchange fees	1,827		1,661		1,672		166		10.0	%	155		9.3	%
Other income	1,173		1,568		3,955		(395)		(25.2)	%	(2,782)		(70.3)	%
Total noninterest income	$	22,193	$	25,894	$	26,729	$	(3,701)	(14.3)	%	$	(4,536)	(17.0)	%


	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Noninterest income
Loan servicing income	$	921	$	1,080	$	(159)	(14.7)	%
Service charges on deposit accounts	5,305		4,254		1,051		24.7	%
Other service fee income	733		825		(92)		(11.2)	%
Debit card interchange fee income	1,772		1,886		(114)		(6.0)	%
Earnings on bank owned life insurance	6,461		4,512		1,949		43.2	%
Net gain from sales of loans	2,630		1,907		723		37.9	%
Net gain from sales of investment securities	2,103		9,131		(7,028)		(77.0)	%



Trust custodial account fees	21,933		15,119		6,814		45.1	%
Escrow and exchange fees	3,488		3,198		290		9.1	%
Other income	2,741		8,557		(5,816)		(68.0)	%
Total noninterest income	$	48,087	$	50,469	$	(2,382)	(4.7)	%

Noninterest income for the second quarter of 2022 was $22.2 million, a decrease of $3.7 million, or 14.3%, from the first quarter of 2022. The decrease was primarily due to a $2.2 million decrease in net gain from sales of investment securities, a $1.2 million decrease in trust custodial account fees due primarily to the seasonal annual tax fees recognized in the first quarter of 2022, a $358,000 decrease in net gain from sales of loans, as well as a $395,000 decrease in other income, which included $677,000 lower recoveries on pre-acquisition charged-off loans, offset in part by $322,000 higher CRA investment income.

During the second quarter of 2022, the Bank sold $45.1 million of investment securities for a net loss of $31,000, compared to the sales of $658.5 million of investment securities for a net gain of $2.1 million in the first quarter of 2022.

Additionally, during the second quarter of 2022, the Bank sold $23.4 million of Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) loans for a net gain of $1.1 million, compared to the sales of $17.8 million of SBA loans for a net gain of $1.5 million in the first quarter of 2022. Higher interest rates lowered sales premiums in the second quarter.

Noninterest income for the second quarter of 2022 decreased $4.5 million, or 17.0%, compared to the second quarter of 2021. The decrease was primarily due to a $5.1 million decrease in net gain from sales of investment securities and a $2.8 million decrease in other income, primarily from lower CRA investment income, partially offset by a $2.5 million increase in trust custodial account fees.

The net gain from sales of loans for the second quarter of 2022 decreased from the same period last year reflecting lower net gain from the sales of $23.4 million of SBA and USDA loans for a net gain of $1.1 million, compared with the sales of $14.7 million of SBA loans for a net gain of $1.5 million during the second quarter of 2021.

For the first six months of 2022, noninterest income totaled $48.1 million, a decrease of $2.4 million, or 4.7%, compared to the first six months of 2021. The decrease was primarily related to a $7.0 million decrease in net gain from sales of investment securities and a $5.8 million decrease in other income, primarily due to $4.2 million lower CRA investment income and $2.8 million lower SBA PPP loan referral fees, partially offset by a $6.8 million increase in trust custodial account fees, a $1.9 million increase in earnings from bank owned life insurance (“BOLI”), a $1.1 million increase in service charges on deposit accounts, and a $723,000 higher net gain from the sales of loans.

Noninterest Expense

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


	Three Months Ended						Variance From
	June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	2022		2022		2021		$		%		$		%
Noninterest expense
Compensation and benefits	$	57,562	$	56,981	$	53,474	$	581	1.0	%	$	4,088	7.6	%
Premises and occupancy	11,829		11,952		12,240		(123)		(1.0)	%	(411)		(3.4)	%
Data processing	6,604		5,996		5,765		608		10.1	%	839		14.6	%

FDIC insurance premiums	1,452		1,396		1,312		56		4.0	%	140		10.7	%
Legal and professional services	4,629		4,068		4,186		561		13.8	%	443		10.6	%
Marketing expense	1,926		1,809		1,490		117		6.5	%	436		29.3	%
Office expense	1,252		1,203		1,589		49		4.1	%	(337)		(21.2)	%
Loan expense	1,144		1,134		1,165		10		0.9	%	(21)		(1.8)	%
Deposit expense	4,081		3,751		3,985		330		8.8	%	96		2.4	%

Amortization of intangible assets	3,479		3,592		4,001		(113)		(3.1)	%	(522)		(13.0)	%
Other expense	5,016		5,766		5,289		(750)		(13.0)	%	(273)		(5.2)	%
Total noninterest expense	$	98,974	$	97,648	$	94,496	$	1,326	1.4	%	$	4,478	4.7	%



	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Noninterest expense
Compensation and benefits	$	114,543	$	106,022	$	8,521	8.0	%
Premises and occupancy	23,781		24,220		(439)		(1.8)	%
Data processing	12,600		11,593		1,007		8.7	%

FDIC insurance premiums	2,848		2,493		355		14.2	%
Legal and professional services	8,697		8,121		576		7.1	%
Marketing expense	3,735		3,088		647		21.0	%
Office expense	2,455		3,418		(963)		(28.2)	%
Loan expense	2,278		2,280		(2)		(0.1)	%
Deposit expense	7,832		7,844		(12)		(0.2)	%
Merger-related expense	—		5		(5)		(100.0)	%
Amortization of intangible assets	7,071		8,144		(1,073)		(13.2)	%
Other expense	10,782		9,757		1,025		10.5	%
Total noninterest expense	$	196,622	$	186,985	$	9,637	5.2	%

Noninterest expense totaled $99.0 million for the second quarter of 2022, an increase of $1.3 million, or 1.4%, compared to the first quarter of 2022, primarily driven by a $608,000 increase in data processing largely related to software and system expense, a $581,000 increase in compensation and benefits attributable to higher compensation and business incentives, and a $561,000 increase in legal and professional services, partially offset by a $750,000 decrease in other expense mainly attributable to a higher credit loss reserve for trust custodial account fees receivable and higher expenses for Pacific Premier Trust in the prior quarter.

Noninterest expense increased by $4.5 million, or 4.7%, compared to the second quarter of 2021. The increase was primarily due to a $4.1 million increase in compensation and benefits due to higher compensation and business incentives and increased staffing.

The Company’s efficiency ratio was 49.0% for the second quarter of 2022, compared to 50.7% for the first quarter of 2022, and 49.4% for the second quarter of 2021.

Noninterest expense totaled $196.6 million for the first six months of 2022, an increase of $9.6 million, or 5.2%, compared with the first six months of 2021. The increase was driven primarily by an $8.5 million increase in compensation and benefits attributable to higher compensation and business incentives, increased staffing, and higher stock compensation expense, a $1.0 million increase in other expense, a $1.0 million increase in data processing, a $647,000 increase in marketing expense, and a $576,000 increase in legal and professional services, partially offset by a $1.1 million decrease in amortization of intangible assets and a $963,000 decrease in office expense.

The Company’s efficiency ratio was 49.8% for the first six months of 2022, compared to 49.0% for the first six months of 2021.

Net Interest Income ~~Taxes~~

~~Deferred tax~~Net interest income totaled $172.8 million in the second quarter of 2022, an increase of $10.9 million, or 6.8%, from the first quarter of 2022. The increase in net interest income was primarily attributable to higher average interest-earning assets and ~~liabilities are recorded for the expected future tax consequences~~yields, higher loan-related fees, and accretion income as a result 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 enactmentsincreased prepayment activity, a favorable interest impact from fair value hedges, and one more day of ~~changes in tax laws or tax rates are considered. The effect on deferred taxes~~interest, partially offset by a higher cost of funds, largely as 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.~~higher average interest-bearing liabilities.

The net interest margin for the second quarter of 2022 was 3.49%, compared with 3.41% in the prior quarter. The core net interest margin, which excludes the impact of loan accretion income and other adjustments, was unchanged at 3.33%, compared to the prior quarter, reflecting a favorable remix towards higher yielding loans, higher loan-related fees, and a favorable interest impact from fair value hedges, partially offset by higher cost of funds due to the full quarter impact of the $600.0 million of FHLB term advances added in March 2022. For additional details of the core net interest margin, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

For the six months ended 2022, net interest income increased $12.0 million, or 3.7%, compared to the six months ended 2021. The increase was related to an increase in average interest-earning assets, and lower cost of funds, partially offset by lower average loan and investment yields and higher average interest-bearing liabilities. For the six months ended 2022, the net interest margin was 3.45%, compared with 3.49% for the same period last year. The core net interest margin, which excludes the impact of loan accretion income, certificates of deposit mark-to-market amortization, and other adjustments, was 3.33%, compared with 3.26% for the same period last year, reflecting higher average interest-earning assets balance and lower cost of funds. For additional details of the core net interest margin, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

9376


	Average Balance Sheet
	Three Months Ended
	June 30, 2022						March 31, 2022						June 30, 2021
(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	$	702,663	$	1,211	0.69	%	$	322,236	$	90	0.11	%	$	1,323,186	$	315	0.10	%
Investment securities	4,254,961		17,560		1.65	%	4,546,408		17,852		1.57	%	4,243,644		18,012		1.70	%
Loans receivable, net (1)(2)	14,919,182		164,455		4.42	%	14,371,588		150,604		4.25	%	13,216,973		152,365		4.62	%
Total interest-earning assets	19,876,806		183,226		3.70	%	19,240,232		168,546		3.55	%	18,783,803		170,692		3.64	%
Noninterest-earning assets	1,793,347						1,716,559						1,506,612
Total assets	$	21,670,153					$	20,956,791					$	20,290,415
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	4,055,506	$	712	0.07	%	$	3,537,824	$	229	0.03	%	$	3,155,935	$	336	0.04	%
Money market	5,231,464		1,010		0.08	%	5,343,973		888		0.07	%	5,558,790		2,002		0.14	%
Savings	432,586		27		0.03	%	422,186		26		0.02	%	384,376		84		0.09	%
Retail certificates of deposit	922,784		607		0.26	%	1,047,451		530		0.21	%	1,294,544		839		0.26	%
Wholesale/brokered certificates of deposit	80,182		326		1.63	%	—		—		—	%	1,357		4		1.18	%
Total interest-bearing deposits	10,722,522		2,682		0.10	%	10,351,434		1,673		0.07	%	10,395,002		3,265		0.13	%
FHLB advances and other borrowings	602,621		3,217		2.14	%	225,250		474		0.85	%	6,303		—		—	%
Subordinated debentures	330,796		4,562		5.52	%	330,629		4,560		5.52	%	480,415		6,493		5.41	%
Total borrowings	933,417		7,779		3.34	%	555,879		5,034		3.63	%	486,718		6,493		5.35	%
Total interest-bearing liabilities	11,655,939		10,461		0.36	%	10,907,313		6,707		0.25	%	10,881,720		9,758		0.36	%
Noninterest-bearing deposits	7,030,205						6,928,872						6,341,063
Other liabilities	219,116						256,219						320,324
Total liabilities	18,905,260						18,092,404						17,543,107
Stockholders’ equity	2,764,893						2,864,387						2,747,308
Total liabilities and equity	$	21,670,153					$	20,956,791					$	20,290,415
Net interest income			$	172,765					$	161,839					$	160,934

Net interest margin (3)					3.49	%					3.41	%					3.44	%
Cost of deposits (4)					0.06	%					0.04	%					0.08	%
Cost of funds (5)					0.22	%					0.15	%					0.23	%
Ratio of interest-earning assets to interest-bearing liabilities					170.53	%					176.40	%					172.62	%

(2) Interest income includes net discount accretion of $7.5 million, $5.9 million, and $9.5 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.



	Average Balance Sheet
	Six Months Ended
	June 30, 2022						June 30, 2021
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	513,500	$	1,301	0.51	%	$	1,316,314	$	616	0.09	%
Investment securities	4,399,880		35,412		1.61	%	4,165,979		35,480		1.70	%
Loans receivable, net (1)(2)	14,639,980		315,059		4.34	%	13,155,631		307,590		4.71	%
Total interest-earning assets	19,553,360		351,772		3.63	%	18,637,924		343,686		3.72	%
Noninterest-earning assets	1,762,083						1,505,232
Total assets	$	21,315,443					$	20,143,156
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,798,095	$	941	0.05	%	$	3,108,260	$	755	0.05	%
Money market	5,287,408		1,898		0.07	%	5,503,656		4,590		0.17	%
Savings	427,414		53		0.03	%	376,376		166		0.09	%
Retail certificates of deposit	984,773		1,137		0.23	%	1,359,458		2,040		0.30	%
Wholesale/brokered certificates of deposit	40,312		326		1.63	%	59,781		140		0.47	%
Total interest-bearing deposits	10,538,002		4,355		0.08	%	10,407,531		7,691		0.15	%
FHLB advances and other borrowings	414,978		3,691		1.79	%	14,115		65		0.93	%
Subordinated debentures	330,713		9,122		5.52	%	490,925		13,344		5.44	%
Total borrowings	745,691		12,813		3.44	%	505,040		13,409		5.35	%
Total interest-bearing liabilities	11,283,693		17,168		0.31	%	10,912,571		21,100		0.39	%
Noninterest-bearing deposits	6,979,818						6,188,539
Other liabilities	237,567						293,578
Total liabilities	18,501,078						17,394,688
Stockholders’ equity	2,814,365						2,748,468
Total liabilities and equity	$	21,315,443					$	20,143,156
Net interest income			$	334,604					$	322,586

Net interest margin (3)					3.45	%					3.49	%
Cost of deposits (4)					0.05	%					0.09	%
Cost of funds (5)					0.19	%					0.25	%
Ratio of interest-earning assets to interest-bearing liabilities					173.29	%					170.79	%

_____________________________

(2) Interest income includes net discount accretion of $13.5 million and $19.4 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.

•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 and six months ended June 30, 2022 to the three and six months ended June 30, 2021);

•Changes in interest rates (changes in interest rates multiplied by prior volume and includes the recognition of discounts/premiums and deferred fees/costs); and

•The net change or the combined impact of volume, days in a period, and rate changes allocated proportionately to changes in volume, days in a period, and changes in interest rates.


	Three Months Ended June 30, 2022
	Compared to
	Three Months Ended March 31, 2022
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	209	$	13	$	899	$	1,121
Investment securities	(1,174)		—		882		(292)
Loans receivable, net	5,851		1,807		6,193		13,851
Total interest-earning assets	4,886		1,820		7,974		14,680
Interest-bearing liabilities
Interest checking	38		8		437		483
Money market	(18)		11		129		122
Savings	1		—		—		1
Retail certificates of deposit	(51)		7		121		77
Wholesale/brokered certificates of deposit	326		—		—		326
FHLB advances and other borrowings	1,429		35		1,279		2,743
Subordinated debentures	2		—		—		2
Total interest-bearing liabilities	1,727		61		1,966		3,754
Change in net interest income	$	3,159	$	1,759	$	6,008	$	10,926


	Three Months Ended June 30, 2022
	Compared to
	Three Months Ended June 30, 2021
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(74)	$	970	$	896
Investment securities	48		(500)		(452)
Loans receivable, net	18,320		(6,230)		12,090
Total interest-earning assets	18,294		(5,760)		12,534
Interest-bearing liabilities
Interest checking	115		261		376
Money market	(112)		(880)		(992)
Savings	13		(70)		(57)
Retail certificates of deposit	(244)		12		(232)
Wholesale/brokered certificates of deposit	319		3		322
FHLB advances and other borrowings	3,183		34		3,217
Subordinated debentures	(2,066)		135		(1,931)
Total interest-bearing liabilities	1,208		(505)		703
Change in net interest income	$	17,086	$	(5,255)	$	11,831



	Six Months Ended June 30, 2022
	Compared to
	Six Months Ended June 30, 2021
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(111)	$	796	$	685
Investment securities	1,937		(2,005)		(68)
Loans receivable, net	25,332		(17,863)		7,469
Total interest-earning assets	27,158		(19,072)		8,086
Interest-bearing liabilities
Interest checking	171		15		186
Money market	(174)		(2,518)		(2,692)
Savings	26		(139)		(113)
Retail certificates of deposit	(492)		(411)		(903)
Wholesale/brokered certificates of deposit	(29)		215		186
FHLB advances and other borrowings	3,513		113		3,626
Subordinated debentures	(4,495)		273		(4,222)
Total interest-bearing liabilities	(1,480)		(2,452)		(3,932)
Change in net interest income	$	28,638	$	(16,620)	$	12,018

~~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 substituteProvision for ~~an analysis based on GAAP measures and may not be comparable to non-GAAP financial measures that may be presented by other companies.~~Credit Losses

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2021 2021 2020 2021 2020
Net income (loss) $ 96,302 $ 68,668 $ (99,091) $ 164,970 $ (73,351)
Plus: amortization of intangible assets expense 4,001 4,143 4,066 8,144 8,029
Less: amortization of intangible assets expense tax adjustment (1)
1,145 1,185 1,166 2,330 2,303
Net income (loss) for average tangible common equity $ 99,158 $ 71,626 $ (96,191) $ 170,784 $ (67,625)
Average stockholders’ equity $ 2,747,308 $ 2,749,641 $ 2,231,722 $ 2,748,468 $ 2,134,424
Less: average intangible assets 79,784 83,946 84,148 81,853 82,946
Less: average goodwill 900,582 898,587 838,725 899,590 823,524
Average tangible common equity $ 1,766,942 $ 1,767,108 $ 1,308,849 $ 1,767,025 $ 1,227,954
Return on average equity (2)
14.02 % 9.99 % (17.76) % 12.00 % (6.87) %
Return on average tangible common equity (2)
22.45 % 16.21 % (29.40) % 19.33 % (11.01) %

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

~~(2)~~ ~~Ratio is annualized.~~

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

June 30, December 31,
(Dollars in thousands) 2021 2020
Total stockholders’ equity $ 2,813,419 $ 2,746,649
Less: intangible assets 978,675 984,076
Tangible common equity $ 1,834,744 $ 1,762,573
Total assets $ 20,529,486 $ 19,736,544
Less: intangible assets 978,675 984,076
Tangible assets $ 19,550,811 $ 18,752,468
Tangible common equity ratio 9.38 % 9.40 %
Common shares issued and outstanding 94,656,575 94,483,136
Book value per share $ 29.72 $ 29.07
Less: intangible book value per share 10.34 10.42
Tangible book value per share $ 19.38 $ 18.65

`
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2021 2021 2020 2021 2020
Total noninterest expense $ 94,496 $ 92,489 $ 115,970 $ 186,985 $ 182,601
Less: amortization of intangible assets 4,001 4,143 4,066 8,144 8,029
Less: merger-related expense — 5 39,346 5 41,070
Less: other real estate owned operations, net — — 9 — 23
Noninterest expense, adjusted $ 90,495 $ 88,341 $ 72,549 $ 178,836 $ 133,479
Net interest income before provision for loan losses $ 160,934 $ 161,652 $ 130,292 $ 322,586 $ 239,467
Add: total noninterest income 26,729 23,740 6,898 50,469 21,373
Less: net gain (loss) from investment securities 5,085 4,046 (21) 9,131 7,739
Less: other income - security recoveries 6 2 — 8 —
Less: net loss from other real estate owned — — (55) — (55)
Less: net loss from debt extinguishment (647) (503) — (1,150) —
Revenue, adjusted $ 183,219 $ 181,847 $ 137,266 $ 365,066 $ 253,156
Efficiency ratio 49.4 % 48.6 % 52.9 % 49.0 % 52.7 %

Core net interest income and core net interest margin are non-GAAP financial measures derived from GAAP based amounts. We calculate core net interest income by excluding scheduled accretion income, accelerated accretion income, premium amortization on CDs, and nonrecurring nonaccrual interest paid from net interest income. The core net interest margin is calculated as the ratio of core net interest income to average interest-earning assets. Management believes that the exclusion of such items from these financial measures provides useful information to gain an understanding of the operating results of our core business.

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2021 2021 2020 2021 2020
Net interest income $ 160,934 $ 161,652 $ 130,292 $ 322,586 $ 239,467
Less: scheduled accretion income 3,560 3,878 3,501 7,438 5,294
Less: accelerated accretion income 5,927 5,988 2,347 11,915 4,659
Less: premium amortization on CDs 942 1,751 1,054 2,693 1,117
Less: nonrecurring nonaccrual interest paid (216) (603) (142) (819) (142)
Core net interest income $ 150,721 $ 150,638 $ 123,532 $ 301,359 $ 228,539
Less: interest income on SBA PPP loans — — 5,382 — 5,382
Core net interest income excluding SBA PPP loans $ 150,721 $ 150,638 $ 118,150 $ 301,359 $ 223,157
Average interest-earning assets $ 18,783,803 $ 18,490,426 $ 13,831,914 $ 18,637,924 $ 12,097,742
Less: average SBA PPP loans — — 830,090 — 206,388
Average interest-earning assets excluding SBA PPP loans $ 18,783,803 $ 18,490,426 $ 13,001,824 $ 18,637,924 $ 11,891,354
Net interest margin (1)
3.44 % 3.55 % 3.79 % 3.49 % 3.98 %
Core net interest margin (1)
3.22 % 3.30 % 3.59 % 3.26 % 3.80 %
Core net interest margin excluding SBA PPP loans (1)
3.22 % 3.30 % 3.65 % 3.26 % 3.77 %

~~(1)~~ ~~Ratio is annualized.~~

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

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2021 2021 2020 2021 2020
Interest income $ 170,692 $ 172,994 $ 144,122 $ 343,686 $ 267,911
Interest expense 9,758 11,342 13,830 21,100 28,444
Net interest income 160,934 161,652 130,292 322,586 239,467
Noninterest income 26,729 23,740 6,898 50,469 21,373
Revenue 187,663 185,392 137,190 373,055 260,840
Noninterest expense 94,496 92,489 115,970 186,985 182,601
Add: merger-related expense — 5 39,346 5 41,070
Pre-provision net revenue 93,167 92,908 60,566 186,075 119,309
Pre-provision net revenue (annualized) $ 372,668 $ 371,632 $ 242,264 $ 372,150 $ 238,618
Average assets $ 20,290,415 $ 19,994,260 $ 15,175,310 $ 20,143,156 $ 13,383,324
Pre-provision net revenue on average assets 0.46 % 0.46 % 0.40 % 0.92 % 0.89 %
Pre-provision net revenue on average assets (annualized) 1.84 % 1.86 % 1.60 % 1.85 % 1.78 %

~~RESULTS OF OPERATIONS~~

~~The following table presents the components of results of operations, share data, and performance ratios for the periods indicated:~~

Three Months Ended Six Months Ended
(Dollar in thousands, except per share data and June 30, March 31, June 30, June 30, June 30,
percentages) 2021 2021 2020 2021 2020
Operating data
Interest income $ 170,692 $ 172,994 $ 144,122 $ 343,686 $ 267,911
Interest expense 9,758 11,342 13,830 21,100 28,444
Net interest income 160,934 161,652 130,292 322,586 239,467
Provision for credit losses (38,476) 1,974 160,635 (36,502) 186,089
Net interest income (loss) after provision for credit losses 199,410 159,678 (30,343) 359,088 53,378
Net gain (loss) from sales of loans 1,546 361 (2,032) 1,907 (1,261)
Other noninterest income 25,183 23,379 8,930 48,562 22,634
Noninterest expense 94,496 92,489 115,970 186,985 182,601
Net income (loss) before income taxes 131,643 90,929 (139,415) 222,572 (107,850)
Income tax expense (benefit) 35,341 22,261 (40,324) 57,602 (34,499)
Net income (loss) $ 96,302 $ 68,668 $ (99,091) $ 164,970 $ (73,351)
Pre-provision net revenue (3)
$ 93,167 $ 92,908 $ 60,566 $ 186,075 $ 119,309
Share data
Earnings (loss) per share:
Basic $ 1.02 $ 0.73 $ (1.41) $ 1.74 $ (1.14)
Diluted 1.01 0.72 (1.41) 1.73 (1.14)
Common equity dividends declared per share 0.33 0.30 0.25 0.63 0.50
Dividend payout ratio (1)
32.43 % 41.26 % (17.73) % 36.10 % (43.90) %
Performance ratios
Return on average assets (2)
1.90 % 1.37 % (2.61) % 1.64 % (1.10) %
Return on average equity (2)
14.02 9.99 (17.76) 12.00 (6.87)
Return on average tangible common equity (2)(3)
22.45 16.21 (29.40) 19.33 (11.01)
Pre-provision net revenue on average assets (2)(3)
1.84 1.86 1.60 1.85 1.78
Average equity to average assets 13.54 13.75 14.71 13.64 15.95
Efficiency ratio (3)
49.4 48.6 52.9 49.0 52.7

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

~~(2)~~ ~~Ratio is annualized.~~

~~(3)~~ A reconciliation of the non-GAAP measures are set forth in the Non-GAAP Measures section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

~~The Company completed the acquisition of Opus effective June 1, 2020. The Company's financial statements for~~ the second quarter of ~~2020 include 30 days of Opus's operations, post-merger, which impacts~~2022, the ~~comparability of the current quarter's results~~Company recorded a $469,000 provision expense for credit losses, compared to ~~prior periods.~~

~~In the second quarter of 2021, we reported net income of $96.3 million, or $1.01 per diluted share. This compares with net income of $68.7 million, or $0.72 per diluted share, for~~a $448,000 provision expense during the first quarter of ~~2021. The increase in net income was primarily due to recapture of provision for credit losses of~~2022, and a $38.5 million and a $3.0 million increase in noninterest income, partially offset by an increase of $13.1 million in income tax expense, an increase of $2.0 million in noninterest expense, and a decrease of $718,000 in net interest income. The provision recapture during the second quarter of ~~2021 was primarily attributable to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio.~~

~~Net income of $96.3 million, or $1.01 per diluted share, for~~2021. The provision expense during the second quarter of ~~2021 compares~~2022 was driven principally by loan growth and net charge-offs, as well as the impact of macroeconomic uncertainties, offset by a recapture for unfunded commitments largely due to ~~a net loss~~favorable changes in unfunded lending segment mix. With the increasing probability of downside risks due to high inflation and the ongoing supply chain challenges, we are carefully monitoring the current and forecasted macroeconomic environment as well as key modeling variables.

The provision expense for the ~~second~~first quarter of ~~2020 of $99.1 million, or $(1.41) per diluted share. The increase in net income~~2022 was primarily ~~due to a $199.1 million decrease in provision for credit losses, a $30.6 million increase in~~reflective of loan growth and net ~~interest income, a $39.3 million decrease in merger-related expense, and a $19.8 million increase in noninterest income, partially offset by an increase~~charge-offs, as well as the impact of ~~$75.7 million in income tax expense and $17.9 million increase in noninterest expense excluding merger-related expenses.~~macroeconomic uncertainties. The provision ~~decrease during~~recapture for the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The provision expense in the second quarter of 2020 reflected unfavorable changes in economic forecasts related to the onset of the COVID-19 pandemic and the Day 1 provision for credit losses of $84.4 million resulting from the acquisition of Opus. The year-over-year increases in net income reflect the impact of the acquisition of Opus in the second quarter of 2020.periods.

~~For~~Net loan charge-offs for the three months ended June 30, ~~2021, the Company’s return on average assets was 1.90%, return on average equity was 14.02%, and return on average tangible common equity was 22.45%. For~~2022 totaled $5.2 million, compared with net loan charge-offs of $446,000 for the three months ended March 31, ~~2021, the return on average assets was 1.37%, the return on average equity was 9.99%,~~2022, and ~~the return on average tangible common equity was 16.21%. For~~net loan charge-offs of $1.1 million for the three months ~~ended~~ending June 30, ~~2020, the return on average assets was (2.61)%, the return on average equity was (17.76)%, and the return on average tangible common equity was (29.40)%.~~2021.


	Three Months Ended						Variance From
	June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	2022		2022		2021		$		%		$		%
Provision for credit losses
Provision for loan losses	$	3,803	$	211	$	(33,131)	$	3,592	1,702.4	%	$	36,934	(111.5)	%
Provision for unfunded commitments	(3,402)		218		(5,345)		(3,620)		(1,660.6)	%	1,943		(36.4)	%

Provision for HTM securities	68		19		—		49		257.9	%	68		—	%
Total provision for credit losses	$	469	$	448	$	(38,476)	$	21	4.7	%	$	38,945	(101.2)	%

For the first six months ~~ended June 30, 2021,~~of 2022, the Company recorded ~~net income of $165.0~~a $917,000 provision expense, compared to a $36.5 million ~~or $1.73 per diluted share. This compares with net loss of $73.4 million, or $(1.14) per diluted share,~~provision recapture recorded for the first six months ~~ended June 30, 2020.~~of 2021. The ~~increase in~~provision expense for the first six months of 2022, was driven principally by loan growth and net ~~income~~charge-offs, as well as the impact of $238.3 million was primarily due to a $222.6 million decrease in provision for credit losses, an $83.1 million increase in net interest income, a $29.1 million increase in noninterest income, and a $41.1 million decrease in merger-related expenses,macroeconomic uncertainties, partially offset by a ~~$92.1 million increase~~recapture for unfunded commitments largely due to changes in ~~income tax expense and $45.4 million increase in noninterest expense excluding merger-related expenses.~~unfunded lending segment mix. The ~~decrease in provision for credit losses was attributable to higher~~ provision expense ~~from~~for the Company’s adoption of ASC 326 effective January 1, 2020, the acquisition of Opus, and unfavorable economic forecasts used in the Company’s ACL model driven by the COVID-19 pandemic, as well as the $38.5 million recapture of provision for credit losses during the second quarterfirst six months of 2021 ~~primarily due to~~was driven by improved economic forecasts used in the Company’s CECL model relative to prior periods.



	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Provision for credit losses
Provision for loans and lease losses	$	4,014	$	(32,816)	$	36,830	(112.2)	%
Provision for unfunded commitments	(3,184)		(3,686)		502		(13.6)	%

Provision for held-to-maturity securities	87		—		87		—	%
Total provision for credit losses	$	917	$	(36,502)	$	37,419	(102.5)	%

Noninterest Income

The following table presents the components of noninterest income for the periods ~~and the continued strong asset quality profile of the loan portfolio. The year-over-year increases in net~~indicated:


	Three Months Ended						Variance From
	June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	2022		2022		2021		$		%		$		%
Noninterest income
Loan servicing income	$	502	$	419	$	622	$	83	19.8	%	$	(120)	(19.3)	%
Service charges on deposit accounts	2,690		2,615		2,222		75		2.9	%	468		21.1	%
Other service fee income	366		367		352		(1)		(0.3)	%	14		4.0	%
Debit card interchange fee income	936		836		1,099		100		12.0	%	(163)		(14.8)	%
Earnings on bank owned life insurance	3,240		3,221		2,279		19		0.6	%	961		42.2	%
Net gain from sales of loans	1,136		1,494		1,546		(358)		(24.0)	%	(410)		(26.5)	%
Net (loss) gain from sales of investment securities	(31)		2,134		5,085		(2,165)		(101.5)	%	(5,116)		(100.6)	%



Trust custodial account fees	10,354		11,579		7,897		(1,225)		(10.6)	%	2,457		31.1	%
Escrow and exchange fees	1,827		1,661		1,672		166		10.0	%	155		9.3	%
Other income	1,173		1,568		3,955		(395)		(25.2)	%	(2,782)		(70.3)	%
Total noninterest income	$	22,193	$	25,894	$	26,729	$	(3,701)	(14.3)	%	$	(4,536)	(17.0)	%


	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Noninterest income
Loan servicing income	$	921	$	1,080	$	(159)	(14.7)	%
Service charges on deposit accounts	5,305		4,254		1,051		24.7	%
Other service fee income	733		825		(92)		(11.2)	%
Debit card interchange fee income	1,772		1,886		(114)		(6.0)	%
Earnings on bank owned life insurance	6,461		4,512		1,949		43.2	%
Net gain from sales of loans	2,630		1,907		723		37.9	%
Net gain from sales of investment securities	2,103		9,131		(7,028)		(77.0)	%



Trust custodial account fees	21,933		15,119		6,814		45.1	%
Escrow and exchange fees	3,488		3,198		290		9.1	%
Other income	2,741		8,557		(5,816)		(68.0)	%
Total noninterest income	$	48,087	$	50,469	$	(2,382)	(4.7)	%

Noninterest income ~~reflect the impact of the acquisition of Opus in~~for the second quarter of ~~2020.~~

~~For~~2022 was $22.2 million, a decrease of $3.7 million, or 14.3%, from the ~~six months ended June 30, 2021,~~first quarter of 2022. The decrease was primarily due to a $2.2 million decrease in net gain from sales of investment securities, a $1.2 million decrease in trust custodial account fees due primarily to the ~~Company’s return~~seasonal annual tax fees recognized in the first quarter of 2022, a $358,000 decrease in net gain from sales of loans, as well as a $395,000 decrease in other income, which included $677,000 lower recoveries on average assets was 1.64%, return on average equity was 12.00%, and return on average tangible common equity was 19.33%, compared with a return on average assets of (1.10)%, return on average equity of (6.87)%, and a return on average tangible common equity of (11.01)% for the six months ended June 30, 2020.pre-acquisition charged-off loans, offset in part by $322,000 higher CRA investment income.

~~100~~82

Noninterest Expense

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


	Three Months Ended						Variance From
	June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	2022		2022		2021		$		%		$		%
Noninterest expense
Compensation and benefits	$	57,562	$	56,981	$	53,474	$	581	1.0	%	$	4,088	7.6	%
Premises and occupancy	11,829		11,952		12,240		(123)		(1.0)	%	(411)		(3.4)	%
Data processing	6,604		5,996		5,765		608		10.1	%	839		14.6	%

FDIC insurance premiums	1,452		1,396		1,312		56		4.0	%	140		10.7	%
Legal and professional services	4,629		4,068		4,186		561		13.8	%	443		10.6	%
Marketing expense	1,926		1,809		1,490		117		6.5	%	436		29.3	%
Office expense	1,252		1,203		1,589		49		4.1	%	(337)		(21.2)	%
Loan expense	1,144		1,134		1,165		10		0.9	%	(21)		(1.8)	%
Deposit expense	4,081		3,751		3,985		330		8.8	%	96		2.4	%

Amortization of intangible assets	3,479		3,592		4,001		(113)		(3.1)	%	(522)		(13.0)	%
Other expense	5,016		5,766		5,289		(750)		(13.0)	%	(273)		(5.2)	%
Total noninterest expense	$	98,974	$	97,648	$	94,496	$	1,326	1.4	%	$	4,478	4.7	%



	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Noninterest expense
Compensation and benefits	$	114,543	$	106,022	$	8,521	8.0	%
Premises and occupancy	23,781		24,220		(439)		(1.8)	%
Data processing	12,600		11,593		1,007		8.7	%

FDIC insurance premiums	2,848		2,493		355		14.2	%
Legal and professional services	8,697		8,121		576		7.1	%
Marketing expense	3,735		3,088		647		21.0	%
Office expense	2,455		3,418		(963)		(28.2)	%
Loan expense	2,278		2,280		(2)		(0.1)	%
Deposit expense	7,832		7,844		(12)		(0.2)	%
Merger-related expense	—		5		(5)		(100.0)	%
Amortization of intangible assets	7,071		8,144		(1,073)		(13.2)	%
Other expense	10,782		9,757		1,025		10.5	%
Total noninterest expense	$	196,622	$	186,985	$	9,637	5.2	%

The Company’s efficiency ratio was 49.0% for the second quarter of 2022, compared to 50.7% for the first quarter of 2022, and 49.4% for the second quarter of 2021.

The Company’s efficiency ratio was 49.8% for the first six months of 2022, compared to 49.0% for the first six months of 2021.

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 ~~$160.9~~$172.8 million in the second quarter of ~~2021, a decrease~~2022, an increase of ~~$718,000,~~$10.9 million, or ~~0.4%~~6.8%, from the first quarter of ~~2021.~~2022. The ~~decrease~~increase in net interest income ~~reflected lower~~was primarily attributable to higher average ~~loan~~interest-earning assets and yields, higher loan-related fees, and ~~fees, partially offset by~~accretion income as a result of increased prepayment activity, a favorable interest impact from fair value hedges, and one more day of interest, ~~and~~partially offset by a ~~lower~~higher cost of funds, ~~driven by lower rates paid on deposits, lower~~largely as a result of higher average ~~balances of retail and brokered certificates of deposit, and lower average borrowings.~~interest-bearing liabilities.

The net interest margin for the second quarter of ~~2021~~2022 was ~~3.44%~~3.49%, compared with ~~3.55%~~3.41% in the prior quarter. ~~Our~~The core net interest margin, which excludes the impact of loan accretion income ~~of $9.5 million,~~and other adjustments, was unchanged at 3.33%, compared to ~~$9.9 million in~~ the prior quarter, ~~certificates of deposit mark-to-market amortization,~~reflecting a favorable remix towards higher yielding loans, higher loan-related fees, and ~~other adjustments, decreased 8 basis points to 3.22%, compared to 3.30% in the prior quarter. The decrease was driven by lower average loan yields and fees,~~a favorable interest impact from fair value hedges, partially offset by ~~a lower~~higher cost of ~~funds.~~funds due to the full quarter impact of the $600.0 million of FHLB term advances added in March 2022. For additional details of the core net interest margin, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

Net interest income for the second quarter of ~~2021~~2022 increased ~~$30.6~~$11.8 million, or ~~23.5%~~7.4%, compared to the second quarter of ~~2020.~~2021. The increase was attributable to higher average loan balances and lower cost of funds, primarily due to an improved deposit mix from a $689.1 million increase in average noninterest-bearing checking, lower rates paid on money market and savings accounts, and redemptions of higher-cost subordinated debentures, partially offset by lower average loan yield.

For the six months ended 2022, net interest income increased $12.0 million, or 3.7%, compared to the six months ended 2021. The increase was related to an increase in average interest-earning assets, ~~of $4.95 billion, which primarily resulted from the acquisition of Opus in the second quarter of 2020, as well as higher investment securities balances compared with the second quarter of 2020,~~ and a lower cost of funds, partially offset by lower average loan and investment yields and a higher average ~~balance of deposits.~~

interest-bearing liabilities. For the ~~first~~ six months ended ~~2021,~~2022, the net interest ~~income increased $83.1 million, or 34.7%~~margin was 3.45%, compared towith 3.49% for the ~~first six months ended 2020.~~same period last year. The ~~increase~~core net interest margin, which excludes the impact of loan accretion income, certificates of deposit mark-to-market amortization, and other adjustments, was ~~related to an increase in~~3.33%, compared with 3.26% for the same period last year, reflecting higher average interest-earning assets ~~of $6.5 billion, which resulted primarily from our acquisition of Opus on June 1, 2020,~~balance and a lower cost of ~~funds, partially offset by lower average loan~~funds. For additional details of the core net interest margin, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and ~~investment yields.~~

Analysis
.

~~101~~76


		Average Balance Sheet																			Average Balance Sheet
		Three Months Ended																			Three Months Ended
		June 30, 2021						March 31, 2021						June 30, 2020							June 30, 2022						March 31, 2022						June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		(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	$	1,323,186	$	315	0.10	%	$	1,309,366	$	301	0.09	%	$	796,761	$	215	0.11	%	Cash and cash equivalents	$	702,663	$	1,211	0.69	%	$	322,236	$	90	0.11	%	$	1,323,186	$	315	0.10	%
Investment securities	Investment securities	4,243,644		18,012		1.70		4,087,451		17,468		1.71		1,792,432		10,568		2.36		Investment securities	4,254,961		17,560		1.65	%	4,546,408		17,852		1.57	%	4,243,644		18,012		1.70	%
Loans receivable, net (1)(2)	Loans receivable, net (1)(2)	13,216,973		152,365		4.62		13,093,609		155,225		4.81		11,242,721		133,339		4.77		Loans receivable, net (1)(2)	14,919,182		164,455		4.42	%	14,371,588		150,604		4.25	%	13,216,973		152,365		4.62	%
Total interest-earning assets	Total interest-earning assets	18,783,803		170,692		3.64		18,490,426		172,994		3.79		13,831,914		144,122		4.19		Total interest-earning assets	19,876,806		183,226		3.70	%	19,240,232		168,546		3.55	%	18,783,803		170,692		3.64	%
Noninterest-earning assets	Noninterest-earning assets	1,506,612						1,503,834						1,343,396						Noninterest-earning assets	1,793,347						1,716,559						1,506,612
Total assets	Total assets	$	20,290,415					$	19,994,260					$	15,175,310					Total assets	$	21,670,153					$	20,956,791					$	20,290,415
Liabilities and equity	Liabilities and equity																			Liabilities and equity
Interest-bearing deposits:	Interest-bearing deposits:																			Interest-bearing deposits:
Interest checking	Interest checking	$	3,155,935	$	336	0.04	%	$	3,060,055	$	419	0.06	%	$	1,417,846	$	844	0.24	%	Interest checking	$	4,055,506	$	712	0.07	%	$	3,537,824	$	229	0.03	%	$	3,155,935	$	336	0.04	%
Money market	Money market	5,558,790		2,002		0.14		5,447,909		2,588		0.19		4,242,990		5,680		0.54		Money market	5,231,464		1,010		0.08	%	5,343,973		888		0.07	%	5,558,790		2,002		0.14	%
Savings	Savings	384,376		84		0.09		368,288		82		0.09		283,632		101		0.14		Savings	432,586		27		0.03	%	422,186		26		0.02	%	384,376		84		0.09	%
Retail certificates of deposit	Retail certificates of deposit	1,294,544		839		0.26		1,425,093		1,201		0.34		1,148,874		2,251		0.79		Retail certificates of deposit	922,784		607		0.26	%	1,047,451		530		0.21	%	1,294,544		839		0.26	%
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	1,357		4		1.18		118,854		136		0.46		224,333		779		1.40		Wholesale/brokered certificates of deposit	80,182		326		1.63	%	—		—		—	%	1,357		4		1.18	%
Total interest-bearing deposits	Total interest-bearing deposits	10,395,002		3,265		0.13		10,420,199		4,426		0.17		7,317,675		9,655		0.53		Total interest-bearing deposits	10,722,522		2,682		0.10	%	10,351,434		1,673		0.07	%	10,395,002		3,265		0.13	%
FHLB advances and other borrowings	FHLB advances and other borrowings	6,303		—		—		22,012		65		1.20		143,813		217		0.61		FHLB advances and other borrowings	602,621		3,217		2.14	%	225,250		474		0.85	%	6,303		—		—	%
Subordinated debentures	Subordinated debentures	480,415		6,493		5.41		501,553		6,851		5.46		287,368		3,958		5.51		Subordinated debentures	330,796		4,562		5.52	%	330,629		4,560		5.52	%	480,415		6,493		5.41	%
Total borrowings	Total borrowings	486,718		6,493		5.35		523,565		6,916		5.36		431,181		4,175		3.89		Total borrowings	933,417		7,779		3.34	%	555,879		5,034		3.63	%	486,718		6,493		5.35	%
Total interest-bearing liabilities	Total interest-bearing liabilities	10,881,720		9,758		0.36		10,943,764		11,342		0.42		7,748,856		13,830		0.72		Total interest-bearing liabilities	11,655,939		10,461		0.36	%	10,907,313		6,707		0.25	%	10,881,720		9,758		0.36	%
Noninterest-bearing deposits	Noninterest-bearing deposits	6,341,063						6,034,319						4,970,812						Noninterest-bearing deposits	7,030,205						6,928,872						6,341,063
Other liabilities	Other liabilities	320,324						266,536						223,920						Other liabilities	219,116						256,219						320,324
Total liabilities	Total liabilities	17,543,107						17,244,619						12,943,588						Total liabilities	18,905,260						18,092,404						17,543,107
Stockholders’ equity	Stockholders’ equity	2,747,308						2,749,641						2,231,722						Stockholders’ equity	2,764,893						2,864,387						2,747,308
Total liabilities and equity	Total liabilities and equity	$	20,290,415					$	19,994,260					$	15,175,310					Total liabilities and equity	$	21,670,153					$	20,956,791					$	20,290,415
Net interest income	Net interest income			$	160,934					$	161,652					$	130,292			Net interest income			$	172,765					$	161,839					$	160,934

Net interest margin (3)	Net interest margin (3)					3.44	%					3.55	%					3.79	%	Net interest margin (3)					3.49	%					3.41	%					3.44	%
Cost of deposits(4)	Cost of deposits(4)					0.08						0.11						0.32		Cost of deposits(4)					0.06	%					0.04	%					0.08	%
Cost of funds ~~(4)~~(5)	Cost of funds ~~(4)~~(5)					0.23						0.27						0.44		Cost of funds ~~(4)~~(5)					0.22	%					0.15	%					0.23	%
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities					172.62						168.96						178.50		Ratio of interest-earning assets to interest-bearing liabilities					170.53	%					176.40	%					172.62	%

(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/~~premiums.~~premiums, and the basis adjustment of certain loans included in fair value hedging relationships, where applicable.

(2) Interest income includes net discount accretion of ~~$9.5~~$7.5 million, ~~$9.9~~$5.9 million, and ~~$5.8~~$9.5 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.

~~102~~77


		Average Balance Sheet													Average Balance Sheet
		Six Months Ended													Six Months Ended
		June 30, 2021						June 30, 2020							June 30, 2022						June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		(Dollars in thousands)	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	$	1,316,314	$	616	0.09	%	$	506,253	$	431	0.17	%	Cash and cash equivalents	$	513,500	$	1,301	0.51	%	$	1,316,314	$	616	0.09	%
Investment securities	Investment securities	4,165,979		35,480		1.70	%	1,647,502		20,876		2.53	%	Investment securities	4,399,880		35,412		1.61	%	4,165,979		35,480		1.70	%
Loans receivable, net (1)(2)	Loans receivable, net (1)(2)	13,155,631		307,590		4.71	%	9,943,987		246,604		4.99	%	Loans receivable, net (1)(2)	14,639,980		315,059		4.34	%	13,155,631		307,590		4.71	%
Total interest-earning assets	Total interest-earning assets	18,637,924		343,686		3.72	%	12,097,742		267,911		4.45	%	Total interest-earning assets	19,553,360		351,772		3.63	%	18,637,924		343,686		3.72	%
Noninterest-earning assets	Noninterest-earning assets	1,505,232						1,285,582						Noninterest-earning assets	1,762,083						1,505,232
Total assets	Total assets	$	20,143,156					$	13,383,324					Total assets	$	21,315,443					$	20,143,156
Liabilities and equity	Liabilities and equity													Liabilities and equity
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Interest checking	Interest checking	$	3,108,260	$	755	0.05	%	$	997,025	$	1,453	0.29	%	Interest checking	$	3,798,095	$	941	0.05	%	$	3,108,260	$	755	0.05	%
Money market	Money market	5,503,656		4,590		0.17	%	3,702,429		11,751		0.64	%	Money market	5,287,408		1,898		0.07	%	5,503,656		4,590		0.17	%
Savings	Savings	376,376		166		0.09	%	261,239		198		0.15	%	Savings	427,414		53		0.03	%	376,376		166		0.09	%
Retail certificates of deposit	Retail certificates of deposit	1,359,458		2,040		0.30	%	1,042,681		5,715		1.10	%	Retail certificates of deposit	984,773		1,137		0.23	%	1,359,458		2,040		0.30	%
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	59,781		140		0.47	%	133,882		1,025		1.54	%	Wholesale/brokered certificates of deposit	40,312		326		1.63	%	59,781		140		0.47	%
Total interest-bearing deposits	Total interest-bearing deposits	10,407,531		7,691		0.15	%	6,137,256		20,142		0.66	%	Total interest-bearing deposits	10,538,002		4,355		0.08	%	10,407,531		7,691		0.15	%
FHLB advances and other borrowings	FHLB advances and other borrowings	14,115		65		0.93	%	240,682		1,298		1.08	%	FHLB advances and other borrowings	414,978		3,691		1.79	%	14,115		65		0.93	%
Subordinated debentures	Subordinated debentures	490,925		13,344		5.44	%	251,279		7,004		5.57	%	Subordinated debentures	330,713		9,122		5.52	%	490,925		13,344		5.44	%
Total borrowings	Total borrowings	505,040		13,409		5.35	%	491,961		8,302		3.39	%	Total borrowings	745,691		12,813		3.44	%	505,040		13,409		5.35	%
Total interest-bearing liabilities	Total interest-bearing liabilities	10,912,571		21,100		0.39	%	6,629,217		28,444		0.86	%	Total interest-bearing liabilities	11,283,693		17,168		0.31	%	10,912,571		21,100		0.39	%
Noninterest-bearing deposits	Noninterest-bearing deposits	6,188,539						4,434,605						Noninterest-bearing deposits	6,979,818						6,188,539
Other liabilities	Other liabilities	293,578						185,078						Other liabilities	237,567						293,578
Total liabilities	Total liabilities	17,394,688						11,248,900						Total liabilities	18,501,078						17,394,688
Stockholders’ equity	Stockholders’ equity	2,748,468						2,134,424						Stockholders’ equity	2,814,365						2,748,468
Total liabilities and equity	Total liabilities and equity	$	20,143,156					$	13,383,324					Total liabilities and equity	$	21,315,443					$	20,143,156
Net interest income	Net interest income			$	322,586					$	239,467			Net interest income			$	334,604					$	322,586

Net interest margin (3)	Net interest margin (3)					3.49	%					3.98	%	Net interest margin (3)					3.45	%					3.49	%
Cost of deposits						0.09	%					0.38	%
Cost of funds (4)						0.25	%					0.52	%
Cost of deposits (4)														Cost of deposits (4)					0.05	%					0.09	%
Cost of funds (5)														Cost of funds (5)					0.19	%					0.25	%
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities					170.79	%					182.49	%	Ratio of interest-earning assets to interest-bearing liabilities					173.29	%					170.79	%

_____________________________

(2) Interest income includes net discount accretion of ~~$19.4~~$13.5 million and ~~$10.0~~$19.4 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.

~~103~~78

•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 and six months ended June 30, ~~2021~~2022 to the three and six months ended June 30, ~~2020)~~2021);

•Changes in interest rates (changes in interest rates multiplied by prior volume and includes the recognition of discounts/premiums and deferred fees/costs); and

•The net change or the combined impact of volume, days in a period, and rate changes allocated proportionately to changes in volume, days in a period, and changes in interest rates.


											Three Months Ended June 30, 2022
											Compared to
											Three Months Ended March 31, 2022
		Three Months Ended June 30, 2021 Compared to Three Months Ended March 31, 2021 Increase (Decrease) Due to									Increase (Decrease) Due to
(Dollars in thousands)	(Dollars in thousands)	Volume		Days		Rate		Net		(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets	Interest-earning assets									Interest-earning assets
Cash and cash equivalents	Cash and cash equivalents	$	1	$	3	$	10	$	14	Cash and cash equivalents	$	209	$	13	$	899	$	1,121
Investment securities	Investment securities	642		—		(98)		544		Investment securities	(1,174)		—		882		(292)
Loans receivable, net	Loans receivable, net	1,420		1,674		(5,954)		(2,860)		Loans receivable, net	5,851		1,807		6,193		13,851
Total interest-earning assets	Total interest-earning assets	2,063		1,677		(6,042)		(2,302)		Total interest-earning assets	4,886		1,820		7,974		14,680
Interest-bearing liabilities	Interest-bearing liabilities									Interest-bearing liabilities
Interest checking	Interest checking	9		4		(96)		(83)		Interest checking	38		8		437		483
Money market	Money market	52		22		(660)		(586)		Money market	(18)		11		129		122
Savings	Savings	1		1		—		2		Savings	1		—		—		1
Retail certificates of deposit	Retail certificates of deposit	(104)		9		(267)		(362)		Retail certificates of deposit	(51)		7		121		77
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	(135)		—		3		(132)		Wholesale/brokered certificates of deposit	326		—		—		326
FHLB advances and other borrowings	FHLB advances and other borrowings	(27)		—		(38)		(65)		FHLB advances and other borrowings	1,429		35		1,279		2,743
Subordinated debentures	Subordinated debentures	(294)		—		(64)		(358)		Subordinated debentures	2		—		—		2
Total interest-bearing liabilities	Total interest-bearing liabilities	(498)		36		(1,122)		(1,584)		Total interest-bearing liabilities	1,727		61		1,966		3,754
Change in net interest income	Change in net interest income	$	2,561	$	1,641	$	(4,920)	$	(718)	Change in net interest income	$	3,159	$	1,759	$	6,008	$	10,926

~~104~~79

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


											Three Months Ended June 30, 2022
											Compared to
											Three Months Ended June 30, 2021
		Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Increase (Decrease) due to									Increase (Decrease) Due to
(Dollars in thousands)	(Dollars in thousands)	Volume		Days		Rate		Net		(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets	Interest-earning assets									Interest-earning assets
Cash and cash equivalents	Cash and cash equivalents	$	266	$	(3)	$	(78)	$	185	Cash and cash equivalents	$	(74)	$	970	$	896
Investment securities	Investment securities	18,628		—		(4,024)		14,604		Investment securities	48		(500)		(452)
Loans receivable, net	Loans receivable, net	75,866		(1,699)		(13,181)		60,986		Loans receivable, net	18,320		(6,230)		12,090
Total interest-earning assets	Total interest-earning assets	$	94,760	$	(1,702)	$	(17,283)	$	75,775	Total interest-earning assets	18,294		(5,760)		12,534
Interest-bearing liabilities	Interest-bearing liabilities									Interest-bearing liabilities
Interest checking	Interest checking	$	3,036	$	(4)	$	(3,730)	$	(698)	Interest checking	115		261		376
Money market	Money market	13,996		(25)		(21,132)		(7,161)		Money market	(112)		(880)		(992)
Savings	Savings	86		(1)		(117)		(32)		Savings	13		(70)		(57)
Retail certificates of deposit	Retail certificates of deposit	2,632		(11)		(6,296)		(3,675)		Retail certificates of deposit	(244)		12		(232)
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	(394)		(1)		(490)		(885)		Wholesale/brokered certificates of deposit	319		3		322
FHLB advances and other borrowings	FHLB advances and other borrowings	(1,075)		—		(158)		(1,233)		FHLB advances and other borrowings	3,183		34		3,217
Subordinated debentures	Subordinated debentures	6,565		—		(225)		6,340		Subordinated debentures	(2,066)		135		(1,931)
Total interest-bearing liabilities	Total interest-bearing liabilities	$	24,846	$	(42)	$	(32,148)	$	(7,344)	Total interest-bearing liabilities	1,208		(505)		703
Change in net interest income	Change in net interest income	$	69,914	$	(1,660)	$	14,865	$	83,119	Change in net interest income	$	17,086	$	(5,255)	$	11,831



	Six Months Ended June 30, 2022
	Compared to
	Six Months Ended June 30, 2021
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(111)	$	796	$	685
Investment securities	1,937		(2,005)		(68)
Loans receivable, net	25,332		(17,863)		7,469
Total interest-earning assets	27,158		(19,072)		8,086
Interest-bearing liabilities
Interest checking	171		15		186
Money market	(174)		(2,518)		(2,692)
Savings	26		(139)		(113)
Retail certificates of deposit	(492)		(411)		(903)
Wholesale/brokered certificates of deposit	(29)		215		186
FHLB advances and other borrowings	3,513		113		3,626
Subordinated debentures	(4,495)		273		(4,222)
Total interest-bearing liabilities	(1,480)		(2,452)		(3,932)
Change in net interest income	$	28,638	$	(16,620)	$	12,018

~~105~~

Provision for Credit Losses

For the second quarter of ~~2021,~~2022, the ~~Bank~~Company recorded a $469,000 provision expense for credit losses, compared to a $448,000 provision expense during the first quarter of 2022, and a $38.5 million provision recapture ~~a decrease of $40.5 million from the $2.0 million provision expense recognized during the first quarter of 2021, and a decrease of $199.1 million from the $160.6 million provision expense recognized~~ during the second quarter of ~~2020.~~2021. The ~~decrease from~~provision expense during the second quarter of 2022 was driven principally by loan growth and net charge-offs, as well as the impact of macroeconomic uncertainties, offset by a recapture for unfunded commitments largely due to favorable changes in unfunded lending segment mix. With the increasing probability of downside risks due to high inflation and the ongoing supply chain challenges, we are carefully monitoring the current and forecasted macroeconomic environment as well as key modeling variables.

The provision expense for the first quarter of ~~2021~~2022 was ~~comprised~~primarily reflective of ~~a $33.1 million~~loan growth and net charge-offs, as well as the impact of macroeconomic uncertainties. The provision recapture for ~~loan losses and a $5.3 million provision recapture for unfunded commitments. The decrease during~~ the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio. The provision expense in the second quarter of 2020 reflected unfavorable changes in economic forecasts related to the onset of the COVID-19 pandemic, the Day 1 provision for loan losses of $75.9 million, and the provision for unfunded commitments of $8.6 million resulting from the acquisition of Opus.periods.


		Three Months Ended						Three Months Ended						Variance From
		June 30,		March 31,		June 30,		June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	2021		2021		2020			(Dollars in thousands)	2022		2022		2021		$		%		$		%
Provision for credit losses	Provision for credit losses								Provision for credit losses
Provision for loan losses	Provision for loan losses	$	(33,131)	$	315	$	150,257		Provision for loan losses	$	3,803	$	211	$	(33,131)	$	3,592	1,702.4	%	$	36,934	(111.5)	%
Provision for unfunded commitments	Provision for unfunded commitments	(5,345)		1,659		10,378			Provision for unfunded commitments	(3,402)		218		(5,345)		(3,620)		(1,660.6)	%	1,943		(36.4)	%

Provision for HTM securities									Provision for HTM securities	68		19		—		49		257.9	%	68		—	%
Total provision for credit losses	Total provision for credit losses	$	(38,476)	$	1,974	$	160,635		Total provision for credit losses	$	469	$	448	$	(38,476)	$	21	4.7	%	$	38,945	(101.2)	%

For the first six months of ~~2021, we~~2022, the Company recorded a $917,000 provision expense, compared to a $36.5 million provision recapture ~~a decrease from the $186.1 million provision expense~~ recorded for the first six months of 2020. The decrease, which included a $32.8 million provision recapture for loan losses and a $3.7 million provision recapture for unfunded commitments, was primarily due to improved economic conditions and forecasts used in the Bank’s CECL model relative to prior periods and the continued strong asset quality profile of the loan portfolio.2021. The provision expense for the first six months of ~~2020~~2022, was driven principally by loan growth and net charge-offs, as well as the impact of macroeconomic uncertainties, partially offset by a recapture for unfunded commitments largely due to changes in unfunded lending segment mix. The provision expense for the first six months of 2021 was driven by ~~unfavorable changes in~~improved economic forecasts ~~employed~~used 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.~~relative to prior periods.


		Six Months Ended					Six Months Ended				Variance From
		June 30,		June 30,			June 30,		June 30,		June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	2021		2020		(Dollars in thousands)	2022		2021		$		%
Provision for credit losses	Provision for credit losses					Provision for credit losses
Provision for loans and lease losses	Provision for loans and lease losses	$	(32,816)	$	175,639	Provision for loans and lease losses	$	4,014	$	(32,816)	$	36,830	(112.2)	%
Provision for unfunded commitments	Provision for unfunded commitments	(3,686)		10,450		Provision for unfunded commitments	(3,184)		(3,686)		502		(13.6)	%

Provision for held-to-maturity securities						Provision for held-to-maturity securities	87		—		87		—	%
Total provision for credit losses	Total provision for credit losses	$	(36,502)	$	186,089	Total provision for credit losses	$	917	$	(36,502)	$	37,419	(102.5)	%

~~106~~81

Noninterest Income

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


		Three Months Ended						Six Months Ended					Three Months Ended						Variance From
		June 30,		March 31,		June 30,		June 30,		June 30,			June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	2021		2021		2020		2021		2020		(Dollars in thousands)	2022		2022		2021		$		%		$		%
Noninterest income	Noninterest income											Noninterest income
Loan servicing income	Loan servicing income	$	622	$	458	$	434	$	1,080	$	914	Loan servicing income	$	502	$	419	$	622	$	83	19.8	%	$	(120)	(19.3)	%
Service charges on deposit accounts	Service charges on deposit accounts	2,222		2,032		1,399		4,254		3,114		Service charges on deposit accounts	2,690		2,615		2,222		75		2.9	%	468		21.1	%
Other service fee income	Other service fee income	352		473		297		825		608		Other service fee income	366		367		352		(1)		(0.3)	%	14		4.0	%
Debit card interchange fee income	Debit card interchange fee income	1,099		787		457		1,886		805		Debit card interchange fee income	936		836		1,099		100		12.0	%	(163)		(14.8)	%
Earnings on bank-owned life insurance		2,279		2,233		1,314		4,512		2,650
Net gain (loss) from sales of loans		1,546		361		(2,032)		1,907		(1,261)
Net gain (loss) from sales of investment securities		5,085		4,046		(21)		9,131		7,739
Earnings on bank owned life insurance												Earnings on bank owned life insurance	3,240		3,221		2,279		19		0.6	%	961		42.2	%
Net gain from sales of loans												Net gain from sales of loans	1,136		1,494		1,546		(358)		(24.0)	%	(410)		(26.5)	%
Net (loss) gain from sales of investment securities												Net (loss) gain from sales of investment securities	(31)		2,134		5,085		(2,165)		(101.5)	%	(5,116)		(100.6)	%

Trust custodial account fees	Trust custodial account fees	7,897		7,222		2,397		15,119		2,397		Trust custodial account fees	10,354		11,579		7,897		(1,225)		(10.6)	%	2,457		31.1	%
Escrow and exchange fees	Escrow and exchange fees	1,672		1,526		264		3,198		264		Escrow and exchange fees	1,827		1,661		1,672		166		10.0	%	155		9.3	%
Other income	Other income	3,955		4,602		2,389		8,557		4,143		Other income	1,173		1,568		3,955		(395)		(25.2)	%	(2,782)		(70.3)	%
Total noninterest income	Total noninterest income	$	26,729	$	23,740	$	6,898	$	50,469	$	21,373	Total noninterest income	$	22,193	$	25,894	$	26,729	$	(3,701)	(14.3)	%	$	(4,536)	(17.0)	%


	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Noninterest income
Loan servicing income	$	921	$	1,080	$	(159)	(14.7)	%
Service charges on deposit accounts	5,305		4,254		1,051		24.7	%
Other service fee income	733		825		(92)		(11.2)	%
Debit card interchange fee income	1,772		1,886		(114)		(6.0)	%
Earnings on bank owned life insurance	6,461		4,512		1,949		43.2	%
Net gain from sales of loans	2,630		1,907		723		37.9	%
Net gain from sales of investment securities	2,103		9,131		(7,028)		(77.0)	%



Trust custodial account fees	21,933		15,119		6,814		45.1	%
Escrow and exchange fees	3,488		3,198		290		9.1	%
Other income	2,741		8,557		(5,816)		(68.0)	%
Total noninterest income	$	48,087	$	50,469	$	(2,382)	(4.7)	%

Noninterest income for the second quarter of ~~2021~~2022 was ~~$26.7~~$22.2 million, ~~an increase~~a decrease of ~~$3.0~~$3.7 million, or 14.3%, from the first quarter of ~~2021.~~2022. The ~~increase~~decrease was primarily due to a ~~$1.2~~$2.2 million ~~increase in net gain from loan sales, a $1.0 million increase~~decrease in net gain from sales of investment securities, ~~and~~ a ~~$675,000 increase~~$1.2 million decrease in trust custodial account fees ~~partially offset by~~due primarily to the seasonal annual tax fees recognized in the first quarter of 2022, a ~~$647,000~~$358,000 decrease in ~~other income. The~~net gain from sales of loans, as well as a $395,000 decrease in other income, ~~was primarily due to $1.8 million~~which included $677,000 lower ~~SBA PPP loan referral fees, a $239,000 decrease~~recoveries on pre-acquisition charged-off loans, offset in ~~unused commitment fees, and a $144,000 increase in loss on debt extinguishment, partially offset~~part by ~~a $1.7 million increase in equity~~$322,000 higher CRA investment income.

During the second quarter of ~~2021,~~2022, the Bank sold ~~$14.7~~$45.1 million of investment securities for a net loss of $31,000, compared to the sales of $658.5 million of investment securities for a net gain of $2.1 million in the first quarter of 2022.

Additionally, during the second quarter of 2022, the Bank sold $23.4 million of Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) loans for a net gain of $1.1 million, compared to the sales of $17.8 million of SBA loans for a net gain of $1.5 million ~~compared to the sales of $1.3 million of SBA loans for a net gain of $69,000 and fully charged-off loans for a net gain of $292,000 during the first quarter of 2021.~~

Additionally, during the second quarter of 2021, the Bank sold $280.2 million of investment securities for a net gain of $5.1 million, compared to the sales of $175.3 million of investment securities for a net gain of $4.0 million in the first quarter of ~~2021.~~2022. Higher interest rates lowered sales premiums in the second quarter.

Noninterest income for the second quarter of ~~2021 increased $19.8~~2022 decreased $4.5 million, or ~~287.5%~~17.0%, compared to the second quarter of ~~2020.~~2021. The ~~increase~~decrease was primarily due to a ~~$5.5 million increase in trust custodial account fees and a $1.4 million increase in escrow and exchange fees following the Opus acquisition, a~~ $5.1 million ~~increase~~decrease in net gain from sales of investment securities ~~a $3.6 million increase in net gain from the sales of loans,~~ and a ~~$1.6~~$2.8 million ~~increase~~decrease in other income, primarily ~~due to a $1.9 million increase in equity~~from lower CRA investment income, ~~and a $527,000 increase in SBA PPP loan referral fees,~~ partially offset by a ~~$647,000 loss on debt extinguishment.~~$2.5 million increase in trust custodial account fees.

The net gain from sales of loans for the second quarter of ~~2021 increased~~2022 decreased from the same period last year ~~primarily due to~~reflecting lower net gain from the sales of $23.4 million of SBA and USDA loans for a net gain of $1.1 million, compared with the sales of $14.7 million of SBA loans for a net gain of $1.5 million ~~compared with the sales of $15.4 million of other loans for a net loss of $2.0 million~~ during the second quarter of ~~2020.~~2021.

~~107~~

For the first six months of ~~2021,~~2022, noninterest income totaled ~~$50.5~~$48.1 million, ~~an increase from $21.4~~a decrease of $2.4 million, ~~for~~or 4.7%, compared to the first six months of ~~2020.~~2021. The ~~increase~~decrease was primarily related to a ~~$12.7~~$7.0 million increase in trust custodial account fees and a $2.9 million increase in escrow and exchange fee income following the Opus acquisition, a $3.2 million increase in net gain from the sales of loans, a $1.9 million increase in earnings from bank-owned life insurance (“BOLI”), a $1.4 million increasedecrease in net gain from sales of investment securities and a $5.8 million decrease in other income, primarily due to $4.2 million lower CRA investment income and $2.8 million lower SBA PPP loan referral fees, partially offset by a $6.8 million increase in trust custodial account fees, a $1.9 million increase in earnings from bank owned life insurance (“BOLI”), a $1.1 million increase in service charges on deposit accounts, and a ~~$1.1 million increase in debit card interchange fee income. In addition, other income increased $4.4 million primarily due to $2.8 million~~$723,000 higher net gain from the sales of ~~SBA PPP loan referral fees and a $2.7 million increase in equity investment income, partially offset by $1.2 million loss on debt extinguishment.~~

~~108~~

loans.

Noninterest Expense

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


	Three Months Ended						Variance From
	June 30,		March 31,		June 30,		March 31, 2022				June 30, 2021
(Dollars in thousands)	2022		2022		2021		$		%		$		%
Noninterest expense
Compensation and benefits	$	57,562	$	56,981	$	53,474	$	581	1.0	%	$	4,088	7.6	%
Premises and occupancy	11,829		11,952		12,240		(123)		(1.0)	%	(411)		(3.4)	%
Data processing	6,604		5,996		5,765		608		10.1	%	839		14.6	%

FDIC insurance premiums	1,452		1,396		1,312		56		4.0	%	140		10.7	%
Legal and professional services	4,629		4,068		4,186		561		13.8	%	443		10.6	%
Marketing expense	1,926		1,809		1,490		117		6.5	%	436		29.3	%
Office expense	1,252		1,203		1,589		49		4.1	%	(337)		(21.2)	%
Loan expense	1,144		1,134		1,165		10		0.9	%	(21)		(1.8)	%
Deposit expense	4,081		3,751		3,985		330		8.8	%	96		2.4	%

Amortization of intangible assets	3,479		3,592		4,001		(113)		(3.1)	%	(522)		(13.0)	%
Other expense	5,016		5,766		5,289		(750)		(13.0)	%	(273)		(5.2)	%
Total noninterest expense	$	98,974	$	97,648	$	94,496	$	1,326	1.4	%	$	4,478	4.7	%

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



	Six Months Ended				Variance From
	June 30,		June 30,		June 30, 2021
(Dollars in thousands)	2022		2021		$		%
Noninterest expense
Compensation and benefits	$	114,543	$	106,022	$	8,521	8.0	%
Premises and occupancy	23,781		24,220		(439)		(1.8)	%
Data processing	12,600		11,593		1,007		8.7	%

FDIC insurance premiums	2,848		2,493		355		14.2	%
Legal and professional services	8,697		8,121		576		7.1	%
Marketing expense	3,735		3,088		647		21.0	%
Office expense	2,455		3,418		(963)		(28.2)	%
Loan expense	2,278		2,280		(2)		(0.1)	%
Deposit expense	7,832		7,844		(12)		(0.2)	%
Merger-related expense	—		5		(5)		(100.0)	%
Amortization of intangible assets	7,071		8,144		(1,073)		(13.2)	%
Other expense	10,782		9,757		1,025		10.5	%
Total noninterest expense	$	196,622	$	186,985	$	9,637	5.2	%

Noninterest expense totaled ~~$94.5~~$99.0 million for the second quarter of ~~2021,~~2022, an increase of ~~$2.0~~$1.3 million, or 1.4%, compared to the first quarter of ~~2021,~~2022, primarily driven ~~primarily~~ by a ~~$926,000~~$608,000 increase in data processing largely related to software and system expense, a $581,000 increase in compensation and benefits ~~primarily~~ attributable to higher compensation and business incentives, associated with higher loan production, a $821,000 increase in other expense primarily related to a $518,000 increase in community development support, a $260,000 increase in premises and occupancy expense, and a ~~$251,000~~$561,000 increase in legal and professional ~~services.~~services, partially offset by a $750,000 decrease in other expense mainly attributable to a higher credit loss reserve for trust custodial account fees receivable and higher expenses for Pacific Premier Trust in the prior quarter.

Noninterest expense ~~decreased~~increased by ~~$21.5~~$4.5 million, or 4.7%, compared to the second quarter of ~~2020.~~2021. The ~~decrease~~increase was primarily due to $39.3 million of merger-related expense for the second quarter of 2020 relating to the Opus acquisition. Excluding merger-related expense, noninterest expense increased $17.9 million compared to the second quarter of 2020, primarily due to an $10.5a $4.1 million increase in compensation and benefits a $2.8 million increase in premises and occupancy expense, a $2.3 million increase in other expense, a $1.3 million increase in data processing expense, a $1.1 million increase in legal and professional services, a $466,000 increase in FDIC insurance premiums, and a $342,000 increase in loan expense, all predominately as a result of the additional operations, personnel, branches, and divisions retained with the acquisition of Opus.

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

The Company’s efficiency ratio was 49.0% for the second quarter of 2022, compared to 50.7% for the first quarter of 2022, and 49.4% for the second quarter of ~~2021, compared to 48.6%~~2021.

Noninterest expense totaled $196.6 million for the first ~~quarter~~six months of ~~2021~~2022, an increase of $9.6 million, or 5.2%, compared with the first six months of 2021. The increase was driven primarily by an $8.5 million increase in compensation and ~~52.9% for the second quarter~~benefits attributable to higher compensation and business incentives, increased staffing, and higher stock compensation expense, a $1.0 million increase in other expense, a $1.0 million increase in data processing, a $647,000 increase in marketing expense, and a $576,000 increase in legal and professional services, partially offset by a $1.1 million decrease in amortization of ~~2020.~~ intangible assets and a $963,000 decrease in office expense.

The Company’s efficiency ratio was 49.8% for the first six months of 2022, compared to 49.0% for the first six months of ~~2021, compared to 52.7% for the first six months of 2020.~~2021.

~~109~~84

Income Taxes

For the three months ended June 30, ~~2021,~~2022, March 31, ~~2021,~~2022, and June 30, ~~2020,~~2021, income tax expense ~~(benefit)~~ was ~~$35.3~~$25.7 million, ~~$22.3~~$22.7 million, and ~~$(40.3)~~$35.3 million, respectively, and the effective income tax rate was ~~26.8%~~26.9%, ~~24.5%~~25.4%, and ~~28.9%~~26.8%, respectively. For the six months ended June 30, 2022 and 2021, income tax expense was $48.4 million and $57.6 million, respectively, and the effective income tax rate was 26.2% and 25.9%, respectively. Our effective tax rate for the three and six months ended June 30, ~~2021~~2022 differs from the 21% federal statutory rate due to the impact of state taxes as well as various permanent tax differences, including tax-exempt income from municipal securities, BOLI income, tax credits from low-income housing tax credit ~~(“LIHTC”)~~ investments, and the exercise of stock options and vesting of other stock-based compensation.

The increase in the effective tax rate in the second quarter of 2021 compared to the first quarter of 2021 was primarily due to the effect of favorable permanent differences on higher annual projected pre-tax book income. The income tax benefit recorded for the second quarter of 2020 was driven by the significant pre-tax loss attributable to the provision for credit losses and our merger-related costs associated with the acquisition of Opus.

~~The~~ total amount of unrecognized tax benefits was ~~$1.7~~$1.4 million ~~and $255,000 as of~~at June 30, ~~2021~~2022 and December 31, ~~2020, respectively,~~2021, 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~~$563,000 at June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. 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 ~~$26,000~~$56,000 and ~~$22,000~~$31,000 of such interest at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. No amounts for penalties were accrued.

The Company and its subsidiaries are subject to U.S. ~~federal~~Federal income tax, as well as ~~state~~ income and franchise ~~taxes~~tax in multiple state jurisdictions. The statute of limitations ~~for the assessment of taxes~~ related to the consolidated ~~federal~~Federal income tax returns is closed for all tax years up to and including ~~2016.~~2017. The ~~expiration~~expirations of the ~~statute~~statutes of limitations ~~for the assessment of taxes~~ related to the various state income and franchise tax returns ~~varies~~vary by state.

The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and the tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the ~~amount of taxes paid in available carryback years, the~~ forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that a valuation allowance against capital loss carryforward of $170,000 was required as of June 30, 2021 as it is more likely that not that the Company would not generate future capital gains to offset the capital loss carryforward. Except for the valuation allowance against the capital loss carryforward of $170,000, a valuation allowance for deferred tax assets was not required as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

~~110~~85

FINANCIAL CONDITION

At June 30, ~~2021,~~2022, assets totaled ~~$20.53~~$21.99 billion, an increase of ~~$792.9~~$899.5 million, or ~~4.0%~~4.3%, from ~~$19.74~~$21.09 billion at December 31, ~~2020.~~2021. The increase was primarily due to increases in ~~investment securities,~~ total loans ~~and BOLI~~ of ~~$551.5 million, $362.3~~$743.8 million and ~~$152.1~~cash and cash equivalents of $668.1 million, ~~respectively,~~ partially offset by a ~~$248.9~~$585.8 million decrease in ~~cash~~investment securities. During the first half of 2022, we took actions to position the balance sheet to increase our asset sensitivity, which included increasing our liquidity position and ~~cash equivalents. The increase in BOLI was due~~reducing the size and duration of the AFS securities portfolio to ~~a $150 million purchase of additional BOLI in June 2021.~~fund higher yielding loan growth, for an economic environment with higher interest rates and macroeconomic uncertainty.

Loans

Loans held for investment totaled ~~$13.59~~$15.05 billion at June 30, ~~2021,~~2022, an increase of ~~$358.2~~$751.7 million, or ~~2.7%~~5.3%, from ~~$13.24~~$14.30 billion at December 31, ~~2020.~~2021. The increase was driven by an increase in loans funded and higher commercial line utilization rates, partially offset by prepayments and maturities during the first half of ~~2021, partially offset by loan maturities and prepayments. Business~~2022. Commercial line ~~average~~ utilization rates ~~decreased~~increased from ~~35.28%~~an average rate of 35.2% for the fourth quarter of ~~2020~~2021 to ~~31.96%~~41.6% for the second quarter of ~~2021.~~2022. Since December 31, ~~2020,~~2021, investor loans secured by real estate increased ~~$474.7 million, commercial loans decreased $19.2~~$365.1 million, business loans secured by real estate ~~decreased $21.2~~increased $241.0 million, commercial loans increased $215.5 million, and retail loans decreased ~~$76.0~~$18.9 million.

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

The total end-of-period weighted average interest rate on loans, ~~net of~~excluding fees and discounts, at June 30, ~~2021~~2022 was ~~4.11%~~4.06%, compared to ~~4.27%~~3.95% at December 31, ~~2020.~~2021. The ~~decrease~~increase reflects the impact of ~~lower~~higher rates on new originations and the ~~continued impact from~~repricing of loans as a result of the Federal Reserve Bank's interest rate increases since March 2022, partially offset by prepayments of higher rate loans.

Loans held for sale primarily represent the guaranteed portion of SBA loans, which the Bank originates for sale, and totaled $3.0 million at June 30, 2022, a decrease of $7.9 million from $10.9 million at December 31, 2021.

~~111~~86

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


		June 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent of Total		Weighted Average Interest Rate		Amount		Percent of Total		Weighted Average Interest Rate		(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	$	2,810,233	20.7	%	4.27	%	$	2,675,085	20.2	%	4.35	%	CRE non-owner-occupied	$	2,788,715	18.5	%	4.21	%	$	2,771,137	19.4	%	4.19	%
Multifamily	Multifamily	5,539,464		40.7		3.89		5,171,356		39.1		4.04		Multifamily	6,188,086		41.1	%	3.70	%	5,891,934		41.2	%	3.75	%
Construction and land	Construction and land	297,728		2.2		5.02		321,993		2.4		5.60		Construction and land	331,734		2.2	%	5.67	%	277,640		1.9	%	4.88	%
SBA secured by real estate	SBA secured by real estate	53,003		0.4		4.98		57,331		0.4		5.01		SBA secured by real estate	44,199		0.3	%	5.27	%	46,917		0.3	%	4.98	%
Total investor loans secured by real estate	Total investor loans secured by real estate	8,700,428		64.0		4.06		8,225,765		62.1		4.21		Total investor loans secured by real estate	9,352,734		62.1	%	3.93	%	8,987,628		62.8	%	3.93	%
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,089,300		15.4		4.29		2,114,050		16.0		4.45		CRE owner-occupied	2,486,747		16.5	%	4.06	%	2,251,014		15.7	%	4.07	%
Franchise real estate secured	Franchise real estate secured	358,120		2.6		4.87		347,932		2.6		5.07		Franchise real estate secured	387,683		2.6	%	4.62	%	380,381		2.7	%	4.60	%
SBA secured by real estate	SBA secured by real estate	72,923		0.5		5.22		79,595		0.6		5.21		SBA secured by real estate	67,191		0.4	%	5.30	%	69,184		0.5	%	5.23	%
Total business loans secured by real estate	Total business loans secured by real estate	2,520,343		18.5		4.40		2,541,577		19.2		4.56		Total business loans secured by real estate	2,941,621		19.5	%	4.16	%	2,700,579		18.9	%	4.18	%
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	1,795,144		13.2		3.73		1,768,834		13.4		3.85		Commercial and industrial	2,295,421		15.3	%	4.31	%	2,103,112		14.7	%	3.61	%
Franchise non-real estate secured	Franchise non-real estate secured	401,315		3.0		5.13		444,797		3.4		5.40		Franchise non-real estate secured	415,830		2.8	%	4.79	%	392,576		2.7	%	4.76	%
SBA non-real estate secured	SBA non-real estate secured	13,900		0.1		5.61		15,957		0.1		5.62		SBA non-real estate secured	11,008		0.1	%	5.66	%	11,045		0.1	%	5.54	%

Total commercial loans	Total commercial loans	2,210,359		16.3		4.00		2,229,588		16.9		4.16		Total commercial loans	2,722,259		18.2	%	4.39	%	2,506,733		17.5	%	3.80	%
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	157,228		1.2		4.16		232,574		1.8		4.28		Single family residential	77,951		0.5	%	4.40	%	95,292		0.7	%	4.01	%
Consumer	Consumer	6,240		—		5.09		6,929		—		5.56		Consumer	4,130		—	%	5.79	%	5,665		0.1	%	4.98	%
Total retail loans	Total retail loans	163,468		1.2		4.19		239,503		1.8		4.31		Total retail loans	82,081		0.5	%	4.45	%	100,957		0.8	%	4.05	%
Gross loans held for investment (1)		13,594,598		100.0	%	4.11		13,236,433		100.0	%	4.27
Loans held for investment before basis adjustment (1)														Loans held for investment before basis adjustment (1)	15,098,695		100.3	%	4.06	%	14,295,897		100.0	%	3.95	%
Basis adjustment associated with fair value hedge (2)														Basis adjustment associated with fair value hedge (2)	(51,087)		(0.3)	%	—	%	—		—	%	—	%
Loans held for investment														Loans held for investment	15,047,608		100.0	%	4.06	%	14,295,897		100.0	%	3.95	%
Allowance for credit losses for loans held for investment	Allowance for credit losses for loans held for investment	(232,774)						(268,018)						Allowance for credit losses for loans held for investment	(196,075)						(197,752)
Loans held for investment, net	Loans held for investment, net	$	13,361,824					$	12,968,415					Loans held for investment, net	$	14,851,533					$	14,098,145

Total unfunded loan commitments	Total unfunded loan commitments	$	2,345,364					$	1,947,250					Total unfunded loan commitments	$	2,872,934					$	2,507,911
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	$	4,714					$	601					Loans held for sale, at lower of cost or fair value	2,957						10,869

(2)

Represents the basis adjustment associated with the application of hedge accounting on certain loans.

~~112~~87

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 ~~0.14%~~0.24% at June 30, ~~2021,~~2022, compared to ~~0.10%~~0.14% at December 31, ~~2020.~~2021. The increase in delinquent loans during the six months ended June 30, 2022 was primarily due to the addition of a multifamily loan relationship of $8.9 million, a CRE non-owner-occupied relationship of $6.4 million, and a C&I loan relationship of $4.5 million that were 90 days or more delinquent at June 30, 2022.

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


		30 - 59 Days				60 - 89 Days				90 Days or More				Total					30 - 59 Days				60 - 89 Days				90 Days or More				Total
(Dollars in thousands)	(Dollars in thousands)	# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			(Dollars in thousands)	# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans
At June 30, 2021
At June 30, 2022																		At June 30, 2022
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	—	$	—		—	$	—		3	$	10,343		3	$	10,343		CRE non-owner-occupied	1	$	6,359		—	$	—		3	$	10,230		4	$	16,589
Multifamily																		Multifamily	—	—			—	—			3	8,873			3	8,873

SBA secured by real estate		—	—			—	—			2	440			2	440
Total investor loans secured by real estate	Total investor loans secured by real estate	—	—			—	—			5	10,783			5	10,783			Total investor loans secured by real estate	1	6,359			—	—			6	19,103			7	25,462
Business loans secured by real estate	Business loans secured by real estate																	Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	—	—			—	—			3	5,016			3	5,016			CRE owner-occupied	—	—			—	—			3	4,889			3	4,889

SBA secured by real estate	SBA secured by real estate	—	—			—	—			1	450			1	450			SBA secured by real estate	1	83			—	—			—	—			1	83
Total business loans secured by real estate	Total business loans secured by real estate	—	—			—	—			4	5,466			4	5,466			Total business loans secured by real estate	1	83			—	—			3	4,889			4	4,972
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	2	29			2	83			4	2,119			8	2,231			Commercial and industrial	2	473			—	—			3	4,744			5	5,217

SBA non-real estate secured	SBA non-real estate secured	—	—			—	—			1	677			1	677			SBA non-real estate secured	—	—			—	—			1	624			1	624
Total commercial loans	Total commercial loans	2	29			2	83			5	2,796			9	2,908			Total commercial loans	2	473			—	—			4	5,368			6	5,841
Retail loans

Total retail loans		1	178			—	—			—	—			1	178

Total	Total	3	$	207		2	$	83		14	$	19,045		19	$	19,335		Total	4	$	6,915		—	$	—		13	$	29,360		17	$	36,275
Delinquent loans to loans held for investment	Delinquent loans to loans held for investment		—		%		—		%		0.14		%		0.14		%	Delinquent loans to loans held for investment		0.05		%		—		%		0.19		%		0.24		%

~~113~~88

30 - 59 Days 60 - 89 Days 90 Days or More Total
(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
Investor loans secured by real estate
CRE non-owner-occupied — $ — — $ — 2 $ 757 2 $ 757
Multifamily 1 1 — — — — 1 1
SBA secured by real estate — — — — 3 1,257 3 1,257
Total investor loans secured by real estate 1 1 — — 5 2,014 6 2,015
Business loans secured by real estate
CRE owner-occupied — — — — 4 5,304 4 5,304
SBA secured by real estate 1 486 — — 5 1,073 6 1,559
Total business loans secured by real estate 1 486 — — 9 6,377 10 6,863��
Commercial loans
Commercial and industrial 10 428 2 57 6 2,898 18 3,383
SBA non-real estate secured 2 338 — — 1 707 3 1,045
Total commercial loans 12 766 2 57 7 3,605 21 4,428
Retail loans
Single family residential (5)
1 15 — — — — 1 15
Consumer 1 1 — — — — 1 1
Total retail loans 2 16 — — — — 2 16
Total 16 $ 1,269 2 $ 57 21 $ 11,996 39 $ 13,322
Delinquent loans to loans held for investment 0.01 % — % 0.09 % 0.10 %


	30 - 59 Days				60 - 89 Days				90 Days or More				Total
(Dollars in thousands)	# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans
At December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied	—	$	—		—	$	—		3	$	10,255		3	$	10,255
Multifamily	1	1,230			—	—			—	—			1	1,230

SBA secured by real estate	—	—			—	—			1	337			1	337
Total investor loans secured by real estate	1	1,230			—	—			4	10,592			5	11,822
Business loans secured by real estate
CRE owner-occupied	—	—			—	—			3	4,952			3	4,952

SBA secured by real estate	—	—			—	—			1	441			1	441
Total business loans secured by real estate	—	—			—	—			4	5,393			4	5,393
Commercial loans
Commercial and industrial	8	92			—	—			2	1,462			10	1,554

SBA non-real estate secured	1	73			—	—			1	653			2	726
Total commercial loans	9	165			—	—			3	2,115			12	2,280




Total	10	$	1,395		—	$	—		11	$	18,100		21	$	19,495
Delinquent loans to loans held for investment		0.01		%		—		%		0.13		%		0.14		%

~~114~~

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. ~~As of~~At June 30, ~~2021, there were $17.8 million loans reported as TDRs, compared with no TDR loans as of~~2022 and December 31, ~~2020. During~~2021, the ~~three~~Company had five and six ~~months ended June 30, 2021, there were six~~ loans, respectively, totaling ~~$17.8~~$16.6 million and $17.3 million, respectively, modified as TDRs, which are comprised primarily of three CRE owner-occupied loans and one C&I loan totaling ~~$5.3~~$5.1 million and $5.2 million, respectively, belonging to one borrower relationship with the terms modified due to bankruptcy, and one franchise non-real estate secured loan for $11.5 million and two franchise non-real estate secured loans totaling ~~$12.6~~$12.1 million, respectively, belonging to another borrower relationship with the terms modified for payment deferral. ~~During the three and six months ended June 30, 2021, the three CRE owner-occupied loans and one C&I loan classified as TDRs were in payment default and all~~All TDRs were on nonaccrual status as of June 30, ~~2021. During the three~~2022 and ~~six months ended June 30, 2020, there were no TDRs that experienced payment defaults after modifications within the previous 12 months.~~December 31, 2021.

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 June 30, 2021, there was one single family residential loan for $819,000 classified as a COVID-19 modification under Section 4013 of the CARES Act. Additionally, as of June 30, 2021, no loans were in-process for potential modification. At December 31, 2020, 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~~whereby 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~~Nonaccrual loans generally consist of loans that are 90 days or more past due or ~~when~~loans where, in the opinion of management, there is reasonable doubt as to the collection of principal ~~or interest appears doubtful.~~and interest.

Nonperforming assets totaled ~~$34.4~~$44.4 million, or ~~0.17%~~0.20% of total assets, at June 30, ~~2021,~~2022, an increase from ~~$29.2~~$31.3 million, or 0.15% of total assets, at December 31, ~~2020.~~2021. There was no other real estate owned at June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. All nonperforming assets consisted of nonperforming loans at June 30, 2022 and December 31, 2021. The increase in nonperforming assets ~~during the six month period ending June 30,~~since December 31, 2021 was primarily ~~attributable~~due to ~~$10.0~~the addition of a multifamily loan relationship of $8.9 million, a C&I loan relationship of ~~nonperforming loans added~~$4.5 million, and a franchise non-real estate secured loan relationship of $2.8 million that were placed on nonaccrual status during the second quarter ~~primarily CRE non-owner occupied loans, and to a lesser extent commercial and industrial loans, partially offset by loan charge-offs and repayments during the quarter.~~ of 2022.

The Company had no loans 90 days or more past due and accruing at June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

~~115~~

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

(Dollars in thousands) June 30, 2021 December 31, 2020
Nonperforming assets
Investor loans secured by real estate
CRE non-owner-occupied $ 12,296 $ 2,792
SBA secured by real estate 440 1,257
Total investor loans secured by real estate 12,736 4,049
Business loans secured by real estate
CRE owner-occupied 5,016 6,083
SBA secured by real estate 692 1,143
Total business loans secured by real estate 5,708 7,226
Commercial loans
Commercial and industrial 2,670 3,974
Franchise non-real estate secured 12,584 13,238
SBA non-real estate secured 677 707
Total commercial loans 15,931 17,919
Retail loans
Single family residential 12 15
Total retail loans 12 15
Total nonperforming loans 34,387 29,209
Other real estate owned — —
Other assets owned — —
Total $ 34,387 $ 29,209
Allowance for credit losses $ 232,774 $ 268,018
Allowance for credit losses as a percent of total nonperforming loans 677 % 918 %
Nonperforming loans as a percent of loans held for investment 0.25 0.22
Nonperforming assets as a percent of total assets 0.17 0.15
TDR included in nonperforming loans $ 17,848 —


(Dollars in thousands)	June 30, 2022			December 31, 2021
Nonperforming assets
Investor loans secured by real estate
CRE non-owner-occupied	$	10,230		$	10,255
Multifamily	8,873			—

SBA secured by real estate	562			937
Total investor loans secured by real estate	19,665			11,192
Business loans secured by real estate
CRE owner-occupied	4,889			4,952

SBA secured by real estate	206			589
Total business loans secured by real estate	5,095			5,541
Commercial loans
Commercial and industrial	4,744			1,798
Franchise non-real estate secured	14,311			12,079
SBA non-real estate secured	624			653
Total commercial loans	19,679			14,530
Retail loans
Single family residential	6			10

Total retail loans	6			10
Total nonperforming loans	44,445			31,273
Other real estate owned	—			—
Other assets owned	—			—
Total	$	44,445		$	31,273

Allowance for credit losses	$	196,075		$	197,752
Allowance for credit losses as a percent of total nonperforming loans	441		%	632		%
Nonperforming loans as a percent of loans held for investment	0.30		%	0.22		%
Nonperforming assets as a percent of total assets	0.20		%	0.15		%
TDRs included in nonperforming loans	$	16,647		$	17,277

~~116~~90

Allowance for Credit Losses

The Company ~~accounts~~maintains an 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,~~PD, (ii) the ~~estimated loss given default,~~LGD, which represents the estimated severity of the loss when a loan is in default, (iii) estimates for prepayment activity on loans, and (iv) the ~~estimated exposure to~~EAD. In the ~~Company at default. With respect to~~case of unfunded loan commitments, the ~~Company’s~~Company incorporates estimates for utilization, based on historical loan data. ~~Probability of default~~PD and ~~loss given default~~LGD for investor loans secured by real estate are derived from a third party, using proxy loan information, and loan and property level attributes. Additionally, loss given default for these loans incorporates an estimate for the loss severity associated with loans where the borrower fails to meet their debt obligation at maturity. External factors that impact loss given default for commercial real estate loans include: changes in the index for CRE pricing, GDP growth rate, unemployment rates, and the Moody’s Baa rating corporate debt interest rate spread.

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

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

~~The ACL~~ Forecasts for ~~retail loans~~PDs and LGDs are made over a two-year period, which we believe is reasonable and supportable, and are based on economic scenarios. Beyond this point, PDs and LGDs revert to their historical long-term averages. The Company has reflected this reversion over a ~~historical loss rate model, which incorporates loss rates derived from a third party that has a considerable database~~period 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~~three years in ~~consumer real estate prices.~~the ACL model.

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 usesfrom an independent third party. These economic ~~scenarios from Moody’s Analytics. These~~forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. Management periodically evaluates economic scenarios ~~determines whether to utilize multiple probability-weighted scenarios, and if multiple scenarios are utilized, evaluates and determines the weighting for each scenario~~ used in the Company’s ACL model, and thus the scenarios ~~and weightings of each scenario may change in future periods. Economic scenarios~~ as well as the assumptions within those scenarios, and whether to use a weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific ~~events such as the ongoing COVID-19 pandemic.~~

~~117~~

events. As of June 30, ~~2021,~~2022, the Company’s ACL model used three ~~probability-weighted~~weighted scenarios representing a base-case scenario, an upside scenario, and a downside scenario. The weightings assigned to each scenario were as follows: the base-case scenario, or most likely scenario, was assigned a weighting of 40%, while the upside and downside scenarios were each assigned weightings of 30%. These economic scenarios include the current and estimated future impact associated with the ongoing COVID-19 pandemic. The Company evaluated the weightings of each economic scenario in the current period with the assistance of Moody's Analytics, and determined the current weightings of 40% for the base-case scenario, and 30% for each of the upside and downside scenarios appropriately reflect the likelihood of outcomes for each scenario given the current economic environment. The use of three ~~probability-weighted~~weighted scenarios ~~in the second quarter of 2021 and the weighting assigned to each scenario~~at June 30, 2022 is consistent with the approach used in the Company’s ACL model ~~for the three months ended~~at March 31, ~~2021~~2022 and December 31, 2021. The Company’s ACL model at June 30, ~~2020.~~2022 includes assumptions concerning the ongoing COVID-19 pandemic, the potential impact of the ongoing war between Russia and Ukraine, ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.

The Company, with the assistance of Moody’s Analytics, currently forecasts probability of default and loss given default based on economic scenarios over a two-year period, which we believe is a reasonable and supportable period. Beyond this point, probability of default and loss given default revert to their long-term averages. The Company has reflected this reversion over a period of three years in each of its economic scenarios used to generate the overall probability-weighted forecast.

The economic forecasts used in the Company’s ACL model cover all states and metropolitan areas in the Unites States, and reflect changes in economic variables such as: GDP growth, interest rates, employment rates, changes in wages, retail sales, industrial production, metrics associated with the single-family and multifamily housing markets, vacancy rates, changes in equity market prices, and energy markets.

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.

These key economic variables include the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and the 10-year U.S. Treasury yield. As of June 30, ~~2021,~~2022, the Company’s ACL model ~~incorporated~~assumes the ~~following assumptions for key economic variables in the base-case, upside and downside scenarios:~~

~~Base-case Scenario:~~following:

•~~CRE price index experiences a slowing annualized~~The U.S. unemployment rate will experience moderate increases over the next two years.

•U.S real GDP growth will decelerate through the remainder of ~~decline throughout 2021 from approximately -13% in early 2021~~2022, before returning to ~~approximately -4% by the end of 2021. This scenario assumes the index returns to growth in 2022~~more consistent and ~~2023. This scenario also assumes the CRE price index returns to moderate~~modest levels of growth ~~beginning in~~through the ~~first~~second quarter of 2022, with the annualized rate of growth increasing from 2% in early 2022 to 10% by the end of 2022. Under this scenario, the CRE price index is anticipated to increase approximately 8-9% on an annualized basis in 2023.2024.

•CRE index growth decelerates through the remainder of 2022, experiences modest declines in 2023, before returning to modest levels of growth in 2024.

•The 10-year U.S. ~~real GDP experiences growth~~Treasury yield remains within a range of ~~6-7% on an annualized basis throughout 2021. This scenario also assumes decelerating growth in real GDP throughout 2022, from~~2.8% and 3.0% over the levels estimated for 2021. Growth in real GDP for 2022 under this scenario decelerates from approximately 5% annualized in early 2022 to approximately 2% annualized by the end of 2022. This scenario assumes real GDP growth increases to approximately 2-3% in 2023.

next two years.

~~118~~

~~Upside Scenario:~~

~~Downside Scenario:~~

~~119~~91

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

As of June 30, ~~2021,~~2022, qualitative ~~adjustments included in the ACL totaled $8.0 million. These~~ adjustments primarily relate to continued uncertainty concerning the strength of the economic recovery and how it may impact certain classes of loans in the loan portfolio. Management determined through additional review that the uneven recovery and continued government interventions, are potentially underestimating the impact the ongoing COVID-19 pandemic may have on certain segments ~~and classes~~ of the loan portfolio ~~such~~deemed by management to be of a higher-risk profile where management believes the quantitative component of the Company’s ACL model may not have fully captured the associated impact to the ACL. In addition, qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Qualitative adjustments to the ACL were made for various classes of commercial loans, ~~within the~~construction loans, CRE owner-occupied loans, SBA investor loans secured by real estate, franchise ~~C&I,~~loans secured by real estate, multifamily and ~~construction classifications.~~CRE non-owner-occupied loans. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.

The following charts quantify certain factors attributing to the changes in the ACL ~~was $232.8 million at~~on loans held for investment for the three and six months ended June 30, ~~2021, $267.0~~2022 and June 30, 2021:

The decrease in the ACL for loans held for investment during the three months ended June 30, 2022 of $1.4 million ~~at March 31, 2021~~was comprised of $5.2 million in net charge-offs, partially offset by a $3.8 million provision for credit losses. The decrease in the ACL for loans held for investment during the six months ended June 30, 2022 of $1.7 million was comprised of $5.7 million in net charge-offs, partially offset by a $4.0 million provision for credit losses. The provision expense for the three and ~~$268.0 million at December 31, 2020.~~ six months ended June 30, 2022 was driven principally by loan growth and higher net charge-offs, as well as the impact of macroeconomic uncertainties.

The decrease in the ACL for loans held for investment during the three months ended June 30, 2021 of $34.2 million was comprised of a $33.1 million provision ~~for credit losses~~ recapture and $1.1 million in net charge-offs. The ~~provision recapture for the three months ended June 30, 2021 was reflective of improving economic forecasts used~~decrease in the ~~Company’s~~ ACL ~~model relative to prior periods and the continued strong asset quality profile of the loan portfolio, partially offset by an increase in~~for loans held for investment during ~~the quarter. The decrease in the ACL for~~ the six months ended June 30, 2021 of $35.2 million was comprised of a $32.8 million provision ~~for credit losses~~ recapture and $2.4 million in net charge-offs. The provision recapture for the three and six months ended June 30, 2021 was ~~also~~ reflective of improving economic forecasts used in the Company’s ACL model and the continued strong asset quality profile of the loan ~~portfolio.~~portfolio relative to prior periods, partially offset by an increase in loans held for investment.

~~The~~At June 30, 2022, the Company believes the ACL was ~~$282.3 million at June 30, 2020, $115.4 million at March 31, 2020, and $35.7 million at December 31, 2019. The change~~adequate to cover current expected credit losses in the ACL for the three months ended June 30, 2020 of $166.8 million was comprised of a $150.3 million provision for credit losses, $4.7 million in net charge-offs, and the establishment of $21.2 million in net ACL for PCD loans acquired in the Opus acquisition. The ACL established for PCD loans was reflected as an adjustment to the acquired balance of the loans in accordance with ASC 326. The change in the ACL for the six months ended June 30, 2020 of $246.6 million was reflective of a $55.7 million addition associated with the Company’s adoption of ASC 326 on January 1, 2020, which was recorded through a cumulative effect adjustment to retained earnings, as well as a $175.6 million provision for credit losses, net charge-offs of $6.0 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses for the three and six months ended June 30, 2020 includes $75.9 million related to the initial ACL for non-PCD loans acquired in the Opus acquisition, as required by ASC 326. The provision for credit losses for the three and six months ended June 30, 2020 was also reflective of unfavorable changes in economic forecasts used in the Company’s ACL model, which was driven by the COVID-19 pandemic.

Noloan portfolio. However, 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.

~~120~~

~~At June 30, 2021, the Company believes the ACL was adequate to cover current expected credit losses in the loan portfolio.~~ Should any of the factors considered by management in evaluating the appropriate level of the ACL change, including the size and composition of the loan portfolio, the credit quality of the loan portfolio, as well as forecasts of future economic conditions, the Company’s estimate of current expected credit losses could also significantly change and affect the level of future provisions for credit losses.

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


		June 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
(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		(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	$	47,112	1.68	%	20.7	%	$	49,176	1.84	%	20.2	%	CRE non-owner-occupied	$	37,221	1.33	%	18.5	%	$	37,380	1.35	%	19.4	%
Multifamily	Multifamily	59,059		1.07		40.7		62,534		1.21		39.1		Multifamily	56,293		0.91	%	41.1	%	55,209		0.94	%	41.2	%
Construction and land	Construction and land	9,548		3.21		2.2		12,435		3.86		2.4		Construction and land	5,436		1.64	%	2.2	%	5,211		1.88	%	1.9	%
SBA secured by real estate	SBA secured by real estate	4,681		8.83		0.4		5,159		9.00		0.4		SBA secured by real estate	2,865		6.48	%	0.3	%	3,201		6.82	%	0.3	%
Total investor loans secured by real estate	Total investor loans secured by real estate	120,400		1.38		64.0		129,304		1.57		62.1		Total investor loans secured by real estate	101,815		1.09	%	62.1	%	101,001		1.12	%	62.8	%
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	35,747		1.71		15.4		50,517		2.39		16.0		CRE owner-occupied	31,461		1.27	%	16.5	%	29,575		1.31	%	15.7	%
Franchise real estate secured	Franchise real estate secured	11,436		3.19		2.6		11,451		3.29		2.6		Franchise real estate secured	6,530		1.68	%	2.6	%	7,985		2.10	%	2.7	%
SBA secured by real estate	SBA secured by real estate	6,317		8.66		0.5		6,567		8.25		0.6		SBA secured by real estate	5,149		7.66	%	0.4	%	4,866		7.03	%	0.5	%
Total business loans secured by real estate	Total business loans secured by real estate	53,500		2.12		18.5		68,535		2.70		19.2		Total business loans secured by real estate	43,140		1.47	%	19.5	%	42,426		1.57	%	18.9	%
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	39,879		2.22		13.2		46,964		2.66		13.4		Commercial and industrial	37,048		1.61	%	15.3	%	38,136		1.81	%	14.7	%
Franchise non-real estate secured	Franchise non-real estate secured	17,313		4.31		3.0		20,525		4.61		3.4		Franchise non-real estate secured	13,124		3.16	%	2.8	%	15,084		3.84	%	2.7	%
SBA non-real estate secured	SBA non-real estate secured	730		5.25		0.1		995		6.24		0.1		SBA non-real estate secured	452		4.11	%	0.1	%	565		5.12	%	0.1	%

Total commercial loans	Total commercial loans	57,922		2.62		16.3		68,484		3.07		16.9		Total commercial loans	50,624		1.86	%	18.2	%	53,785		2.15	%	17.5	%
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	670		0.43		1.2		1,204		0.52		1.8		Single family residential	278		0.36	%	0.5	%	255		0.27	%	0.7	%
Consumer loans	Consumer loans	282		4.52		—		491		7.09		—		Consumer loans	218		5.28	%	—	%	285		5.03	%	0.1	%
Total retail loans	Total retail loans	952		0.58		1.2		1,695		0.71		1.8		Total retail loans	496		0.60	%	0.5	%	540		0.53	%	0.8	%
Total		$	232,774	1.71	%	100.0	%	$	268,018	2.02	%	100.0	%
Total (1)														Total (1)	$	196,075	1.30	%	100.0	%	$	197,752	1.38	%	100.0	%

(1) Total loans utilized in the calculation of the ratio of ACL to total loans held for investment includes $51.1 million of the basis adjustment of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

At June 30, ~~2021,~~2022, the ratio of ~~allowance for credit losses~~ACL to loans held for investment was ~~1.71%~~1.30%, a decrease from ~~2.02%~~1.38% at December 31, ~~2020.~~2021. Our unamortized fair value discount on the loans acquired totaled ~~$94.4~~$63.6 million, or ~~0.69%~~0.42% of total loans held for investment, at June 30, ~~2021,~~2022, compared to ~~$113.8~~$77.1 million, or ~~0.85%~~0.54% of total loans held for investment, at December 31, ~~2020.~~2021.

~~121~~94

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

Three Months Ended
Six Months Ended (1)
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2021 2021 2020 2021 2020
Balance, beginning of period $ 266,999 $ 268,018 $ 115,422 $ 268,018 $ 35,698
Adoption of ASC 326 — — — — 55,686
Initial ACL recorded for PCD Loans — — 21,242 — 21,242
Provision (recapture) for credit losses (33,131) 315 150,257 (32,816) 175,639
Charge-offs
Investor loans secured by real estate
CRE non-owner-occupied — (154) — (154) (387)
SBA secured by real estate — (265) (554) (265) (554)
Business loans secured by real estate
SBA secured by real estate — (98) — (98) (315)
Commercial loans
Commercial and industrial (3,290) (1,279) (2,286) (4,569) (2,776)
Franchise non-real estate secured — (156) (1,227) (156) (1,227)
SBA non-real estate secured — — (556) — (792)
Retail loans
Single family residential — — (62) — (62)
Consumer loans — — — — (8)
Total charge-offs (3,290) (1,952) (4,685) (5,242) (6,121)
Recoveries
Business loans secured by real estate
CRE owner-occupied 15 15 11 30 23
SBA secured by real estate 80 — 3 80 74
Commercial loans
Commercial and industrial 2,098 601 21 2,699 26
SBA non-real estate secured 2 2 (2) 4 2
Retail loans
Single family residential 1 — 1 1 1
Consumer loans — — 1 — 1
Total recoveries 2,196 618 35 2,814 127
Net loan charge-offs (1,094) (1,334) (4,650) (2,428) (5,994)
Balance, end of period $ 232,774 $ 266,999 $ 282,271 $ 232,774 $ 282,271
Ratios
Annualized net charge-offs to average total loans, net 0.03 % 0.04 % 0.17 % 0.04 % 0.12 %
Allowance for loan losses to loans held for investment at end of period 1.71 2.04 1.87 1.71 1.87
Allowance for loan losses to loans held for investment at end of period, excluding SBA PPP loans 1.71 2.04 2.02 1.71 2.02


	Three Months Ended
	June 30, 2022					March 31, 2022					June 30, 2021
(Dollars in thousands)	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage
Investor loans secured by real estate
CRE non-owner-occupied	$	—	$	2,777,618	—%	$	—	$	2,758,078	—%	$	—	$	2,766,725	—%
Multifamily	—		6,141,536		—%	—		5,903,012		—%	—		5,326,740		—%
Construction and land	—		310,035		—%	—		295,490		—%	—		291,929		—%
SBA secured by real estate	—		48,494		—%	70		45,392		0.15%	—		56,648		—%
Total investor loans secured by real estate	—		9,277,683		—%	70		9,001,972		—%	—		8,442,042		—%
Business loans secured by real estate
CRE owner-occupied	(4)		2,437,740		—%	(10)		2,266,066		—%	(15)		2,054,840		—%
Franchise real estate secured	—		385,198		—%	—		382,381		—%	—		339,313		—%
SBA secured by real estate	—		71,260		—%	—		75,189		—%	(80)		75,938		(0.11)%
Total business loans secured by real estate	(4)		2,894,198		—%	(10)		2,723,636		—%	(95)		2,470,091		—%
Commercial loans
Commercial and industrial	4,848		2,289,380		0.21%	338		2,155,582		0.02%	1,192		1,721,554		0.07%
Franchise non-real estate secured	448		405,681		0.11%	—		389,323		—%	—		397,354		—%
SBA non-real estate secured	(16)		13,396		(0.12)%	48		11,607		0.41%	(2)		14,904		(0.01)%
Total commercial loans	5,280		2,708,457		0.19%	386		2,556,512		0.02%	1,190		2,133,812		0.06%
Retail loans
Single family residential	(33)		79,071		(0.04)%	—		84,181		—%	(1)		164,561		—%
Consumer	2		4,518		0.04%	—		4,846		—%	—		6,141		—%
Total retail loans	(31)		83,589		(0.04)%	—		89,027		—%	(1)		170,702		—%
Total (1)	$	5,245	$	14,918,800	0.04%	$	446	$	14,371,147	—%	$	1,094	$	13,216,647	0.01%

Allowance for credit losses to loans held for investment					1.30%					1.34%					1.71%
Nonperforming loans to loans held for investment					0.30%					0.38%					0.25%
Allowance for credit losses to nonperforming loans					441%					357%					677%

(1) ~~Effective January 1, 2020,~~Average loan balance includes $45.1 million of average basis adjustment of certain loans included in fair value hedging relationships for the ~~allowance~~three months ended June 30, 2022. Refer to Note 11 – Derivative Instruments 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.additional information.

~~122~~95



	For the Six Months Ended
	June 30, 2022					June 30, 2021
(Dollars in thousands)	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage		Net Charge-offs (Recoveries)		Average Loan Balance		Percentage
Investor loans secured by real estate
CRE non-owner-occupied	$	—	$	2,767,902	—%		$	154	$	2,721,450	0.01%
Multifamily	—		6,022,933		—%		—		5,264,649		—%
Construction and land	—		302,803		—%		—		305,207		—%
SBA secured by real estate	70		46,952		0.15%		265		56,423		0.47%
Total investor loans secured by real estate	70		9,140,590		—%		419		8,347,729		0.01%
Business loans secured by real estate
CRE owner-occupied	(14)		2,352,377		—%		(30)		2,049,670		—%
Franchise real estate secured	—		383,797		—%		—		341,985		—%
SBA secured by real estate	—		73,214		—%		18		76,542		0.02%
Total business loans secured by real estate	(14)		2,809,388		—%		(12)		2,468,197		—%
Commercial loans
Commercial and industrial	5,186		2,222,851		0.23%		1,870		1,706,965		0.11%
Franchise non-real estate secured	448		397,547		0.11%		156		408,020		0.04%
SBA non-real estate secured	32		12,506		0.26%		(4)		15,107		(0.03)%

Total commercial loans	5,666		2,632,904		0.22%		2,022		2,130,092		0.09%
Retail loans
Single family residential	(33)		81,612		(0.04)%		(1)		203,003		—%
Consumer	2		4,681		0.04%		—		6,375		—%
Total retail loans	(31)		86,293		(0.04)%		(1)		209,378		—%
Total (1)	$	5,691	$	14,639,570	0.04%		$	2,428	$	13,155,396	0.02%

Allowance for credit losses to loans held for investment					1.30%						1.71%
Nonperforming loans to loans held for investment					0.30%						0.25%
Allowance for credit losses to nonperforming loans					441%						677%

(1)Average loan balance includes $29.6 million of average basis adjustment of certain loans included in fair value hedging relationships for the six months ended June 30, 2022. Refer to Note 11 – Derivative Instruments for additional information.

Investment Securities

We primarily use our investment portfolio for liquidity purposes, capital preservation, and to support our interest rate risk management strategies. Investments totaled ~~$4.51~~$4.07 billion at June 30, ~~2021, an increase~~2022, a decrease of ~~$551.5~~$585.8 million, or ~~13.9%~~12.6%, from ~~$3.95~~$4.66 billion at December 31, ~~2020.~~2021, primarily to fund higher-yielding loan growth. The ~~increase~~decrease was primarily the result of ~~$1.34 billion in purchases, primarily mortgage-backed securities, partially offset by $455.5~~$703.6 million in sales ~~$289.5~~of AFS investment securities, $270.3 million in principal payments, ~~amortization,~~discounts from the AFS securities transferred to HTM, amortizations, and redemptions, and ~~a $47.3~~$224.7 million decrease inresulting from mark-to-market fair value ~~adjustments.~~adjustments, partially offset by $612.9 million in purchases, primarily corporate debt securities and collateralized mortgage obligations. In general, the purchase of investment securities is primarily related to investing excess liquidity from our banking operations. During the second quarter of 2022, we have maintained a portion of the AFS securities portfolio in highly-liquid, short-term securities while also continuing to lower the effective duration of this portfolio to 3.4 years at June 30, 2022 from 4.1 years at December 31, 2021. This strategy enhances our interest rate sensitivity profile to the current rate environment and provides us with the flexibility to quickly redeploy these funds into higher-yielding assets as opportunities arise.

At June 30, 2022, AFS and HTM investment securities were $2.68 billion and $1.39 billion, respectively, compared to $4.27 billion and $381.7 million, respectively, at December 31, 2021. During the second quarter of 2022, the Company reassessed classification of certain investments with longer duration and transferred approximately $444.6 million of the remaining AFS municipal bond portfolio, which the Company intends and has the ability to hold to maturity, to HTM securities. The transfer of these securities was accounted for at fair value on the transfer date. The municipal bonds had a net carrying amount of $400.8 million with a pre-tax unrealized loss of $43.8 million, which were reflected as discounts on the date of transfer.

~~Effective January 1, 2020,~~During the first six months of 2022, the Company ~~adopted~~transferred AFS securities of approximately $831.4 million of municipal bonds and $255.0 million of mortgage-backed securities, both of which the ~~new CECL accounting standard.~~Company intends and has the ability to hold to maturity, to HTM securities. The transfer of these securities was accounted for at fair value on the transfer date. The municipal bonds had a net carrying amount of $780.7 million with a pre-tax unrealized loss of $50.8 million, and the mortgage-backed securities had a net carrying amount of $238.8 million with a pre-tax unrealized loss of $16.2 million, which were reflected as discounts on the date of transfer. These discounts are accreted into interest income as yield adjustments through earnings over the remaining term of the securities. The amortization of the unrealized holding loss reported in accumulated other comprehensive income largely offsets the effect on interest income of the accretion of the discount. No gains or losses were recorded at the time of transfer. The AFS securities transferred to HTM during the six months ended June 30, 2022 were investment grade with no credit-related issues as of the transfer date. The transfer of AFS securities to HTM was part of our interest rate risk management strategy to limit future valuation changes resulting from interest rate increases. See Note 4 – Investment Securities to the consolidated financial statements in this Form 10-Q.

The ~~Company’s assessment of held-to-maturity and available-for-sale~~ACL on investment securities asis determined for both the AFS and HTM classifications of ~~January 1, 2020 indicated that an ACL was not required. The Company determined~~ the ~~likelihood of default~~investment portfolio in accordance with ASC 326 and evaluated 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. Aa quarterly basis. sAs of June 30, ~~2021, there was no~~2022, the Company had an ACL of $109,000 for ~~the Company’s held-to-maturity and available-for-sale investment securities. There were no~~HTM investment securities classified as ~~PCD upon acquisition of Opus during~~municipal bonds, which were transferred from AFS since the ~~second~~third quarter of ~~2020. We recorded no allowance~~2021. The Company had an ACL of $22,000 for HTM investment securities at December 31, 2021. The Company recognized $68,000 and $19,000 of provision for credit losses for ~~available-for-sale or held-to-maturity~~HTM investment securities during the three months ended June 30, 2022 and March 31, 2022, respectively, and $87,000 during the six months ended June 30, 2022. The Company did not recognize any provision for credit losses for HTM investment securities during the three and six months ended June 30, ~~2021 and June 30, 2020, respectively.~~2021.

The following table sets forth the ~~fair values~~amortized costs and weighted average yields on our HTM investment ~~securities~~security portfolio by contractual maturity atas of the date ~~indicated:~~indicated. Weighted average yields are an arithmetic computation of income within each maturity range based on the amortized costs of securities, not on a tax-equivalent basis.

June 30, 2021
One Year
or Less More than One
to Five Years More than Five Years
to Ten Years More than
Ten Years Total
(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:
U.S. Treasury $ — — % $ 31,913 2.45 % $ 79,895 1.10 % $ — — % $ 111,808 1.47 %
Agency — — 314,952 0.94 184,414 1.25 55,801 1.30 555,167 1.08
Corporate 54,074 0.97 9,714 3.55 294,594 3.36 — — 358,382 3.00
Municipal bonds 12,830 — 4,918 2.45 80,607 1.99 1,281,118 2.10 1,379,473 2.08
Collateralized mortgage obligations — — 26,357 0.46 226,997 0.86 361,384 1.29 614,738 1.09
Mortgage-backed securities — — 2,252 3.42 486,001 1.38 979,626 1.46 1,467,879 1.44
Total securities available-for-sale 66,904 0.78 390,106 1.13 1,352,508 1.73 2,677,929 1.74 4,487,447 1.66
Investment securities held-to-maturity:
Mortgage-backed securities — — — — — — 18,265 2.72 18,265 2.72
Other — — — — — — 1,555 0.97 1,555 0.97
Total securities held-to-maturity — — — — — — 19,820 2.58 19,820 2.58
Total securities $ 66,904 0.78 % $ 390,106 1.13 % $ 1,352,508 1.73 % $ 2,697,749 1.75 % $ 4,507,267 1.67 %


	June 30, 2022
	One Year or Less				More than One to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
(Dollars in thousands)	Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield








HTM investment securities:
Municipal bonds	$	—	—	%	$	—	—	%	$	60,867	1.56	%	$	1,087,544	2.08	%	$	1,148,411	2.05	%
Mortgage-backed securities	—		—	%	—		—	%	—		—	%	240,918		1.75	%	240,918		1.75	%
Other	—		—	%	—		—	%	—		—	%	1,462		0.97	%	1,462		0.97	%
Total HTM investment securities	$	—	—	%	$	—	—	%	$	60,867	1.56	%	$	1,329,924	2.02	%	$	1,390,791	2.00	%

~~123~~The following table presents the fair value of AFS and the amortized cost of HTM investment securities portfolios by Moody’s credit ratings at June 30, 2022.


(Dollars in thousands)	U.S. Treasury		Agency		Corporate Debt		Municipal Bonds		Collateralized Mortgage Obligations		Mortgage-backed Securities		Other		Total		%
Aaa - Aa3	$	33,360	$	406,483	$	19,635	$	1,148,411	$	789,786	$	1,115,132	$	—	$	3,512,807	86.3	%
A1 - A3	—		—		345,032		—		—		—		—		345,032		8.5	%
Baa1 - Baa3	—		5,812		204,748		—		—		—		1,462		212,022		5.2	%
Total	$	33,360	$	412,295	$	569,415	$	1,148,411	$	789,786	$	1,115,132	$	1,462	$	4,069,861	100.0	%

At June 30, 2022, 94.8% of the Company’s investment securities portfolio was rated “A1 -A3” or higher. We continue to monitor the quality of our investment securities portfolio in accordance with current financial conditions and economic environment.

Liabilities and Stockholders’ Equity

Total liabilities were ~~$17.72~~$19.24 billion at June 30, ~~2021,~~2022, compared to ~~$16.99~~$18.21 billion at December 31, ~~2020.~~2021. The increase of ~~$726.2 million,~~$1.03 billion, or ~~4.3%~~5.7%, from December 31, ~~2020~~2021 was primarily due to a ~~$800.9~~$969.0 million ~~or 4.9%,~~ increase in ~~deposits.~~deposits, a $600.0 million increase in FHLB term advances and a $19.2 million increase in other liabilities, partially offset by decreases of $550.0 million FHLB overnight advances and $8.0 million in other short-term borrowing.

Deposits. At June 30, ~~2021,~~2022, deposits totaled ~~$17.02~~$18.08 billion, an increase of ~~$800.9~~$969.0 million, or ~~4.9%~~5.7%, from ~~$16.21~~$17.12 billion at December 31, ~~2020. Non-maturity~~2021. The increase in deposits included $656.1 million in interest-bearing checking, $599.7 million in brokered certificates of deposit and an increase of $177.1 million in noninterest-bearing checking, partially offset by a decrease of $261.5 million in money market/savings and $202.3 million in retail certificates of deposit. The addition of brokered certificates of deposit was a result of our interest rate risk management strategy to bolster our liquidity position and provide greater balance sheet flexibility.

The Company considers total deposits excluding all certificates of deposit and all brokered deposits as core deposits. At June 30, 2022, core deposits totaled ~~$15.76~~$16.63 billion, or ~~92.6%~~91.9% of total deposits, an increase of ~~$1.17 billion,~~$574.2 million, or ~~8.0%~~3.58%, from December 31, ~~2020.~~2021. The increase ~~in deposits included $757.3 million in noninterest-bearing checking, $220.7 million in money market/savings, and $190.1 million~~compared to the prior year end was primarily due to the increases in interest-bearing checking and noninterest-bearing checking, partially offset by ~~decreases~~the decrease in money market/savings.

Non-maturity deposits totaled $16.63 billion, or 92.0% of ~~$211.8~~total deposits, an increase of $571.7 million, ~~in retail certificates of deposit and $155.3 million in brokered certificates of deposit.~~or 3.6%, from December 31, 2021.

The total ~~end of period~~end-of-period weighted average rate of deposits at June 30, ~~2021~~2022 was ~~0.08%~~0.13%, ~~a decrease~~an increase from ~~0.18%~~0.04% at December 31, ~~2020,~~2021, principally driven by ~~lower pricing across all deposit product categories.~~the addition of brokered time deposits as part of our interest rate risk management strategy. The total end-of-period weighted average rate of core deposits at June 30, 2022 was 0.06% compared to 0.03% at December 31, 2021.

Our ratio of loans held for investment to deposits was ~~79.9%~~83.2% and ~~81.6%~~83.5% at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The following table sets forth the distribution of the Company’s deposit accounts at the dates indicated and the weighted average interest rates as of the last day of each period for each category of deposits presented:


		June 30, 2021						December 31, 2020						June 30, 2022				December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Balance		% of Total Deposits		Weighted Average Rate		Balance		% of Total Deposits		Weighted Average Rate			(Dollars in thousands)	Balance		% of Total Deposits		Weighted Average Rate		Balance		% of Total Deposits		Weighted Average Rate
Core deposits															Core deposits
Noninterest-bearing checking	Noninterest-bearing checking	$	6,768,384	39.8	%	—	%	$	6,011,106	37.1	%	—	%		Noninterest-bearing checking	$	6,934,318	38.4	%	—	%	$	6,757,259	39.5	%	—	%
Interest-bearing deposits:
Checking		3,103,343		18.2		0.03		2,913,260		18.0		0.06
Interest-bearing checking															Interest-bearing checking	4,149,432		22.9	%	0.12	%	3,493,331		20.4	%	0.02	%
Money market	Money market	5,493,096		32.3		0.12		5,302,073		32.7		0.23			Money market	5,104,384		28.2	%	0.09	%	5,381,615		31.4	%	0.07	%
Savings	Savings	390,576		2.3		0.08		360,896		2.2		0.09			Savings	437,846		2.4	%	0.02	%	419,558		2.5	%	0.02	%
Total core deposits															Total core deposits	16,625,980		91.9	%	0.06	%	16,051,763		93.8	%	0.03	%

Brokered money market															Brokered money market	3,000		—	%	0.03	%	5,553		—	%	0.06	%
Time deposit accounts:	Time deposit accounts:														Time deposit accounts:
Less than 1.00%	Less than 1.00%	1,088,347		6.4		0.27		928,830		5.7		0.32			Less than 1.00%	700,695		3.9	%	0.18	%	1,012,473		5.9	%	0.18	%
1.00 - 1.99	1.00 - 1.99	125,664		0.7		1.61		579,570		3.6		1.49			1.00 - 1.99	543,953		3.0	%	1.53	%	39,322		0.3	%	1.49	%
2.00 - 2.99	2.00 - 2.99	45,470		0.3		2.22		118,358		0.7		2.34			2.00 - 2.99	210,985		1.2	%	2.20	%	6,296		—	%	2.23	%
3.00 - 3.99	3.00 - 3.99	179		—		3.45		46		—		4.00			3.00 - 3.99	—		—	%	—	%	182		—	%	3.45	%
4.00 - 4.99	4.00 - 4.99	38		—		4.30		38		—		4.30			4.00 - 4.99	—		—	%	—	%	—		—	%	—	%
5.00 and greater	5.00 and greater	—		—		—		—		—		—			5.00 and greater	—		—	%	—	%	—		—	%	—	%
Total time deposit accounts	Total time deposit accounts	1,259,698		7.4		0.48		1,626,842		10.0		0.88			Total time deposit accounts	1,455,633		8.1	%	0.98	%	1,058,273		6.2	%	0.24	%
Total interest-bearing deposits		10,246,713		60.2		0.14		10,203,071		62.9		0.28
Total non-core deposits															Total non-core deposits	1,458,633		8.1	%	0.98	%	1,063,826		6.2	%	0.24	%
Total deposits	Total deposits	$	17,015,097	100.0	%	0.08	%	$	16,214,177	100.0	%	0.18	%		Total deposits	$	18,084,613	100.0	%	0.13	%	$	17,115,589	100.0	%	0.04	%

The following table sets forth the estimated deposits exceeding the FDIC insurance limit:


(Dollars in thousands)	June 30, 2022		December 31, 2021
Uninsured deposits	$	6,691,045	$	6,220,802

The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $248.4 million at June 30, 2022 and $357.1 million at December 31, 2021. The following table sets forth the maturity distribution of the estimated uninsured time deposits:


(Dollars in thousands)	June 30, 2022		December 31, 2021
3 months or less	$	156,176	$	297,595
Over 3 months through 6 months	65,706		28,187
Over 6 months through 12 months	21,311		23,051
Over 12 months	5,235		8,287
Total	$	248,428	$	357,120

~~124~~99

At June 30, 2021, we had $1.01 billion in certificates of deposit with balances of $100,000 or more, and $586.9 million in certificates of deposit with balances of $250,000 or more with maturities as follows:

At June 30, 2021
(Dollars in thousands) $100,000 through $250,000 Greater than $250,000 Total
Maturity Period Amount Weighted
Average Rate % of Total
Deposits Amount Weighted
Average Rate % of Total
Deposits Amount Weighted
Average Rate % of Total
Deposits
Certificates of deposit
Three months or less $ 132,033 0.80 % 0.77 % $ 409,332 0.40 % 2.41 % $ 541,365 0.50 % 3.18 %
Over three months through 6 months 71,349 0.39 0.42 57,881 0.49 0.34 129,230 0.43 0.76
Over 6 months through 12 months 128,206 0.44 0.75 98,761 0.50 0.58 226,967 0.47 1.33
Over 12 months 89,526 0.38 0.53 20,878 0.52 0.12 110,404 0.41 0.65
Total $ 421,114 0.53 % 2.47 % $ 586,852 0.43 % 3.45 % $ 1,007,966 0.47 % 5.92 %

Borrowings. At June 30, ~~2021,~~2022, total borrowings amounted to ~~$476.6~~$930.9 million, ~~a decrease~~an increase of ~~$55.9~~$42.3 million, or ~~10.5%~~4.8%, from ~~$532.5~~$888.6 million at December 31, ~~2020,~~2021. Total borrowings at June 30, 2022 were comprised of $600.0 million of FHLB term advances and $330.9 million of subordinated debentures. The increase in borrowings at June 30, 2022 as compared to December 31, 2021 was primarily due to ~~the maturity and redemption~~an increase of ~~$31.0~~$600.0 million in FHLB term advances, partially offset by a $550.0 million decrease in FHLB overnight advances and ~~the redemption of $25.0~~an $8.0 million decrease in ~~subordinated notes.~~

other short-term borrowings. At June 30, ~~2021,~~2022, total borrowings represented ~~2.3%~~4.2% of total assets and had an ~~end of period~~end-of-period weighted average rate of ~~5.29%~~3.27%, compared with ~~2.7%~~4.2% of total assets ~~at a~~and an end-of-period weighted average rate of ~~5.16%~~2.12% at December 31, ~~2020.~~2021.

At June 30, ~~2021,~~2022, total ~~borrowings~~subordinated debentures were comprised of the following:

•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~~$59.7 million, net of unamortized debt issuance cost of ~~$389,000.~~$269,000. Interest is payable semiannually at 5.75% per annum;

•Subordinated notes of $125.0 million at 4.875% fixed-to-floating rate due May 15, 2029 (the “Notes II”) and a carrying value of ~~$123.0~~$123.3 million, net of unamortized debt issuance cost of ~~$2.0~~$1.7 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~~$147.9 million, net of unamortized debt issuance cost of ~~$2.4~~$2.1 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.

•Subordinated notes of $135.0 million at 5.5% fixed-to-variable rate due July 1, 2026, assumed in connection with the acquisition of Opus in the second quarter of 2020. The notes bear interest at a fixed rate of per year until June 2021. After this date and for the remaining five years of the notes' term, interest will accrue at a variable rate of three-month LIBOR plus 4.285%. At June 30, 2021, the carrying value of these subordinated notes was $138.2 million, which reflects purchase accounting fair value adjustments of $3.2 million. The subordinate notes were subsequently redeemed by the Company on July 1, 2021. See ~~Note 17 — Subsequent Events~~ ~~to the consolidated financial statements in this Form 10-Q.~~

~~125~~

•$5.2 million of floating rate junior subordinated debt securities due January 1, 2037, associated with Heritage Oaks Capital Trust II and assumed in connection with the acquisition of Heritage Oaks Bancorp in April 2017. At June 30, 2021, the carrying value of these debentures was $4.2 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 1.92% per annum as of June 30, 2021. The junior subordinated debt securities were subsequently redeemed by the Company on July 1, 2021. See ~~Note 17 — Subsequent Events~~ ~~to the consolidated financial statements in this Form 10-Q.~~

•$5.2 million of floating rate junior subordinated debt due July 7, 2036, associated Santa Lucia Bancorp (CA) Capital Trust and assumed in connection with the acquisition of Heritage Oaks Bancorp in April 2017. At June 30, 2021, the carrying value of this debt was $4.0 million, which reflects purchase accounting fair value adjustments $1.1 million. Interest is payable quarterly at three-month LIBOR plus 1.48% per annum, for an effective rate of 1.66% per annum as of June 30, 2021. The junior subordinated debt securities were subsequently redeemed by the Company on July 7, 2021. See ~~Note 17 — Subsequent Events~~ ~~to the consolidated financial statements in this Form 10-Q.~~

For additional information about the subordinated ~~notes, subordinated~~ debentures, ~~and trust preferred securities,~~ see Note ~~9 —~~8 – Subordinated Debentures to the ~~consolidated financial statements~~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:


		June 30, 2021					December 31, 2020						June 30, 2022					December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Balance			Weighted Average Rate		Balance			Weighted Average Rate		(Dollars in thousands)	Balance			Weighted Average Rate		Balance			Weighted Average Rate
FHLB advances	FHLB advances	$	—		—	%	$	31,000		1.53	%	FHLB advances	$	600,000		2.15	%	$	550,000		0.20	%

Other borrowings												Other borrowings	—			—	%	8,000			2.15	%
Subordinated debentures	Subordinated debentures	476,622			5.29		501,511			5.38		Subordinated debentures	330,886			5.32	%	330,567			5.33	%
Total borrowings	Total borrowings	$	476,622		5.29	%	$	532,511		5.16	%	Total borrowings	$	930,886		3.27	%	$	888,567		2.12	%

Weighted average cost of borrowings during the quarter	Weighted average cost of borrowings during the quarter	5.35		%			5.12		%			Weighted average cost of borrowings during the quarter	3.34		%			4.59		%
Borrowings as a percent of total assets	Borrowings as a percent of total assets	2.3					2.7					Borrowings as a percent of total assets	4.2		%			4.2		%

100

Stockholders’ Equity. Total stockholders’ equity was ~~$2.81~~$2.76 billion as of June 30, ~~2021,~~2022, a ~~$66.8~~$131.1 million ~~increase~~decrease from ~~$2.75~~$2.89 billion at December 31, ~~2020.~~2021. The current ~~year increase~~quarter’s decrease in stockholders’ equity was primarily due to ~~$165.0~~$207.2 million ~~net income, partially offset by $59.5~~in comprehensive loss from the impact of higher interest rates on our AFS securities portfolio, and $62.5 million in cash dividends, ~~$33.8~~partially offset by $136.7 million ~~in comprehensive loss, and $6.9 million in repurchase of common stock during the six months ended June 30, 2021.~~net income.

Our book value per share ~~increased~~decreased to ~~$29.72~~$29.01 at June 30, ~~2021~~2022 from ~~$29.07~~$30.58 at December 31, ~~2020.~~2021. At June 30, ~~2021,~~2022, the Company’s tangible common equity to tangible assets ratio was ~~9.38%~~8.52%, a decrease from ~~9.40%~~9.52% at December 31, ~~2020.~~2021. Our tangible book value per share was $18.86, compared to $20.29 at December 31, 2021 . The decreases in the ratio of tangible common equity to tangible assets and tangible book value per share at June 30, 2022 from the prior quarter were primarily driven by the other comprehensive loss from the impact of higher interest rates on our AFS securities portfolio. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

~~126~~

CAPITAL RESOURCES AND LIQUIDITY

Our primary sources of funds are deposits, advances from the FHLB and other borrowings, principal and interest payments on loans, and income from ~~investments.~~investments, to meet our financial obligations, which arise primarily from the withdrawal of deposits, extension of credit, and payment of operating expenses. While maturities and scheduled amortization of loans are a predictable source of funds, deposit inflows and outflows as well as loan prepayments are greatly influenced by ~~general~~market interest rates, economic conditions, and competition.

In addition to the interest payments on loans and investments as well as fees collected on the services we provide, our primary sources of funds generated during the first six months of ~~2021~~2022 were from:

•Principal payments on loans held for investment of ~~$1.37~~$1.55 billion;

•Proceeds of $900.9 million from the sale, payments, or maturity of securities;

•Deposit growth of ~~$800.9~~$969.0 million;

•~~Proceeds of $464.7 million from the sale or maturity of securities available-for-sale;~~ and

•~~Principal payments on securities~~Increased FHLB borrowings of ~~$278.3~~$50.0 million.

We used these funds to:

•Originate loans held for investment of ~~$1.88~~$2.15 billion;

•Purchase ~~available-for-sale~~AFS securities of ~~$1.33 billion;~~

•~~Purchase bank-owned life insurance of $150.0~~$583.3 million;

•Return capital to shareholders through ~~$59.5~~$62.5 million in dividends;

•~~Decrease FHLB borrowing of $31.0 million;~~ and

•Originate loans held for sale of ~~$20.3~~$33.8 million;

•~~Redeem junior subordinated debt securities of $25.0 million; and~~

•~~Repurchase some of the Company’s common stock at a total cost of $6.9 million.~~

Our most liquid assets are unrestricted cash and short-term investments. The levels of these assets are dependent on our operating, lending, and investing activities during any given period. Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. At June 30, ~~2021,~~2022, cash and cash equivalents totaled ~~$631.9~~$972.8 million, and the market value of our investment securities ~~available-for-sale~~AFS totaled ~~$4.49~~$2.68 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 June 30, ~~2021,~~2022, the maximum amount we could borrow through the FHLB was ~~$8.07~~$8.65 billion, of which ~~$5.66~~$5.68 billion was remaining available for borrowing based on collateral pledged of ~~$8.28~~$8.87 billion in real estate loans. At June 30, ~~2021,~~2022, we ~~did not utilize any~~had $600.0 million in FHLB term borrowings. At June 30, ~~2021,~~2022, we also had a ~~$20.8 million~~$214,390 line with the FRB discount window secured by ~~investments~~investment securities, as well as unsecured lines of credit aggregating to ~~$340.0~~$330.0 million with other ~~financial institutions~~correspondent banks from which to ~~draw~~purchase federal funds. As of June 30, ~~2021,~~2022, our liquidity ratio was ~~29.0%~~19.3%, 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.

101

To the extent that ~~2021~~2022 deposit growth is not sufficient to satisfy our ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, or make investments, we may access funds through our FHLB borrowing arrangement, unsecured lines of credit, or other sources.

The Bank ~~has a policy~~maintains liquidity guidelines in ~~place~~the Company’s Liquidity Policy that permits the purchase of brokered deposit funds, in an amount not to exceed ~~15%~~10% of total deposits or ~~12%~~8% of total assets, as a secondary source for funding. At June 30, ~~2021,~~2022, we had ~~$5.6~~$602.7 million in brokered ~~money market~~ deposits, which constituted ~~0.03%~~3.33% of total deposits and ~~0.03%~~2.74% of total assets at that date. During the second quarter of 2022, the Bank added approximately $600.0 million in brokered certificates of deposit as part of the interest rate risk management strategy to bolster our liquidity position and provide greater balance sheet flexibility.

~~127~~

The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation’s primary sources of liquidity are dividends from the Bank. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Corporation. Management believes that such restrictions will not have a material impact on the ability of the Corporation to meet its ongoing cash obligations. During the six months ended June 30, ~~2021,~~2022, the Bank paid ~~$59.3~~$62.5 million in dividends to the Corporation.

The Corporation maintains a line of credit of $25.0 million with USU.S. Bank ~~with availability of $15.0 million~~ that will expire on September ~~28, 2021.~~27, 2022. The Corporation anticipates renewing the line of credit upon expiration. This line of credit provides an additional source of liquidity at the Corporation ~~level and~~level. At June 30, 2022, the Corporation had no outstanding ~~balance at June 30, 2021.~~balances against this line.

During the second quarters of 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. See ~~Note 9 - Subordinated Debentures~~ ~~for additional information.~~

During the first and second~~quarters~~ quarter of ~~2021,~~2022, the Corporation declared a quarterly dividend payment of ~~$0.30 and~~ $0.33 per ~~share, respectively.~~share. On July ~~23, 2021,~~19, 2022, the Company's Board of Directors declared a $0.33 per share dividend, payable on August ~~13, 2021~~12, 2022 to stockholders of record as of ~~August 6, 2021.The~~July 1, 2022. 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 ~~quarter~~half of ~~2021, the Company purchased 199,674 shares for a total of $6.9 million, or $34.51 per share, under this stock repurchase program. During the second quarter of 2021,~~2022, the Company did not repurchase any shares of common stock. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

~~Contractual Obligations~~Our material cash requirements may include funding existing loan commitments, funding equity investments and ~~Off-Balance Sheet Commitments~~

affordable housing partnerships for LIHTC, withdrawal/maturity of existing deposits, repayment of borrowings, operating lease payments, and expenditures necessary to maintain current operations.

~~Contractual Obligations~~
.

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

The following schedule summarizes maturities and principal payments due on our contractual obligations, ~~and commitments,~~ excluding accrued ~~interest, as of the date indicated:~~

June 30, 2021
(Dollars in thousands) Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total
Contractual obligations
Subordinated debentures — — 59,611 417,011 476,622
Certificates of deposit 1,114,334 71,289 9,335 64,740 1,259,698
Operating leases 20,124 37,523 23,887 12,116 93,650
Total contractual cash obligations $ 1,134,458 $ 108,812 $ 92,833 $ 493,867 $ 1,829,970

interest:

~~128~~102


	June 30, 2022
(Dollars in thousands)	Less than 1 year		More than 1 year		Total

FHLB advances and other borrowings	$	200,000	$	400,000	$	600,000
Subordinated debentures	—		330,886		330,886
Certificates of deposit	1,308,180		147,453		1,455,633
Operating leases	19,759		52,804		72,563
Affordable housing partnerships commitment	5,851		10,915		16,766
Total contractual cash obligations	$	1,533,790	$	942,058	$	2,475,848

~~Off-Balance Sheet Commitments~~
.

We ~~utilize off-balance sheet commitments in~~believe that the ~~normal~~Company’s liquidity sources will be sufficient to meet the contractual obligations as they become due through the maintenance of adequate liquidity levels.

In the ordinary course of business, we enter into various transactions to meet the financing needs of our customers, ~~and to reduce~~which, in accordance with GAAP, are not included in our ~~own exposure to fluctuations in interest rates.~~consolidated balance sheets. These ~~financial instruments~~transactions include off-balance sheet commitments, including commitments to ~~originate real estate, business,~~extend credit and ~~other loans held for investment, undisbursed loan funds, lines and~~standby letters of credit, and commitments to ~~purchase loans and investment securities~~fund investments that qualify for ~~portfolio.~~CRA credit. The ~~contract or notional amounts~~following table presents a summary of ~~those instruments reflect~~ the ~~extent of involvement we have in particular classes of financial instruments.~~Company’s commitments to extend credit by expiration period:

~~Commitments~~


	June 30, 2022
(Dollars in thousands)	Less than 1 year		More than 1 year		Total
Loan commitments to extend credit	$	1,406,887	$	1,422,559	$	2,829,446
Standby letters of credit	43,488		—		43,488
Total	$	1,450,375	$	1,422,559	$	2,872,934

Since many commitments to ~~originate loans held for investment~~extend credit are ~~agreements~~expected 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~~For further information, see Note 15 - Off-Balance Sheet Arrangements, Commitments, and ~~unused lines~~Contingencies, to the consolidated financial statements of ~~credit on home equity and commercial loans include committed funds not disbursed. Letters of credit are conditional commitments we issue to guarantee~~ the ~~performance of a customer to a third party. As of June 30,~~Company’s 2021 ~~we had commitments to extend credit on existing lines and letters of credit of $2.35 billion, compared to $1.95 billion at December 31, 2020.~~

Form 10-K.

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

June 30, 2021
(Dollars in thousands) Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total
Other unused commitments
Commercial and industrial $ 958,150 $ 615,811 $ 100,847 $ 75,870 $ 1,750,678
Construction 51,340 241,610 24,706 — 317,656
Agribusiness and farmland 25,862 14,254 3 1,489 41,608
Home equity lines of credit 7,060 6,028 3,003 51,199 67,290
Standby letters of credit 47,604 — — — 47,604
All other 66,488 23,480 2,358 28,202 120,528
Total commitments $ 1,156,504 $ 901,183 $ 130,917 $ 156,760 $ 2,345,364

~~129~~103

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”,~~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~~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 June 30, ~~2021,~~2022, 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 the 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~~into 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. This cumulative difference at the end of 2021 will be phased in regulatory capital over the three-year period from January 1, 2022 through December 31, 2024.

~~130~~

For regulatory capital purposes, the Corporation’s ~~trust preferred securities are~~subordinated debt is included in Tier 2 capital at June 30, 2021. Provisions of the Dodd-Frank Act require that if a depository institution holding company exceeds $15 billion due to an acquisition, then trust preferred securities are to be excluded from Tier 1 capital beginning in the period in which the transaction occurred. 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 Corporation and the Bank also have subordinated debt that qualifies as Tier 2 capital. See Note 9 - 8 – Subordinated Debentures for additional information.

104

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
June 30, 2021
June 30, 2022					June 30, 2022
Pacific Premier Bancorp, Inc. Consolidated	Pacific Premier Bancorp, Inc. Consolidated				Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	Tier 1 leverage ratio	9.83%	4.00%	N/A	Tier 1 leverage ratio	9.90%	4.00%	N/A
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	11.89%	7.00%	N/A	Common equity tier 1 capital ratio	11.91%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	11.89%	8.50%	N/A	Tier 1 capital ratio	11.91%	8.50%	N/A
Total capital ratio	Total capital ratio	15.61%	10.50%	N/A	Total capital ratio	14.41%	10.50%	N/A

Pacific Premier Bank	Pacific Premier Bank				Pacific Premier Bank
Tier 1 leverage ratio	Tier 1 leverage ratio	11.31%	4.00%	5.00%	Tier 1 leverage ratio	11.41%	4.00%	5.00%
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	13.67%	7.00%	6.50%	Common equity tier 1 capital ratio	13.72%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	13.67%	8.50%	8.00%	Tier 1 capital ratio	13.72%	8.50%	8.00%
Total capital ratio	Total capital ratio	15.44%	10.50%	10.00%	Total capital ratio	14.54%	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, 2021					December 31, 2021
Pacific Premier Bancorp, Inc. Consolidated	Pacific Premier Bancorp, Inc. Consolidated				Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	Tier 1 leverage ratio	9.47%	4.00%	N/A	Tier 1 leverage ratio	10.08%	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	12.11%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	12.04%	8.50%	N/A	Tier 1 capital ratio	12.11%	8.50%	N/A
Total capital ratio	Total capital ratio	16.31%	10.50%	N/A	Total capital ratio	14.62%	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	11.62%	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	13.96%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	13.84%	8.50%	8.00%	Tier 1 capital ratio	13.96%	8.50%	8.00%
Total capital ratio	Total capital ratio	15.89%	10.50%	10.00%	Total capital ratio	14.70%	10.50%	10.00%

~~131~~105

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/~~Asset Liability Committee is responsible for implementing the Bank’s interest rate risk management policy established by the board of directors that sets forth limits of acceptable changes in net interest income (“NII”) and economic value of equity (“EVE”) due to specified changes in interest rates. ~~The principal objective of the Company’s interest rate risk management function is to maintain an interest rate risk profile close to the desired risk profile in light of the interest rate outlook.~~ Management monitors asset and liability maturities and repricing characteristics on a regular basis and evaluates its interest rate risk as it relates to operational strategies.

Interest Rate Risk Management

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

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

The Company’s interest rate sensitivity is monitored by management through the use of both a simulation model that quantifies the estimated impact to earnings (“Earnings at Risk”) for a ~~twelve~~twelve- and ~~twenty-four month~~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~~interest-earning assets and interest expense paid on ~~interest~~interest- bearing liabilities. The EVE model computes the net present value of equity by discounting all expected cash flows on assets and liabilities under each rate scenario. For each scenario, the EVE is the present value of all assets less the present value of all liabilities. The EVE ratio is defined as the EVE divided by the market value of assets within the same scenario.

~~132~~106

The following table shows the projected NII and net interest margin of the Company at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


June 30, 2021
June 30, 2022						June 30, 2022
(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	672,230	5,952	0.9	3.58	200	773,388	34,387	4.7	%	3.89	%
100	100	669,336	3,058	0.5	3.56	100	757,377	18,376	2.5	%	3.81	%
Static	Static	666,278	—	—	3.55	Static	739,001	—	—	%	3.72	%
-100	-100	647,878	(18,400)	(2.8)	3.45	-100	714,925	(24,076)	(3.3)	%	3.60	%
-200	-200	628,081	(38,197)	(5.7)	3.34	-200	678,134	(60,867)	(8.2)	%	3.41	%


December 31, 2020
December 31, 2021						December 31, 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	678,071	4,892	0.7	3.66	200	683,485	19,799	3.0	%	3.60	%
100	100	673,368	189	—	3.64	100	672,776	9,090	1.4	%	3.55	%
Static	Static	673,179	—	—	3.64	Static	663,686	—	—	%	3.50	%
-100	-100	657,184	(15,995)	(2.4)	3.55	-100	641,475	(22,211)	(3.3)	%	3.38	%
-200	-200	646,912	(26,267)	(3.9)	3.49	-200	608,007	(55,679)	(8.4)	%	3.21	%

The following table shows the EVE and projected change in the EVE of the Company at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


June 30, 2021
June 30, 2022						June 30, 2022
(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	3,081,405	121,324	4.1	16.90	200	3,294,382	240,437	7.9	%	17.34	%
100	100	3,044,123	84,042	2.8	16.16	100	3,197,305	143,360	4.7	%	16.34	%
Static	Static	2,960,081	—	—	15.20	Static	3,053,945	—	—	%	15.15	%
-100	-100	2,766,235	(193,846)	(6.5)	13.74	-100	2,846,308	(207,637)	(6.8)	%	13.72	%
-200	-200	2,368,412	(591,670)	(20.0)	11.40	-200	2,440,478	(613,467)	(20.1)	%	11.44	%

~~133~~107


December 31, 2020
December 31, 2021						December 31, 2021
(Dollars in thousands)	(Dollars in thousands)					(Dollars in thousands)
		Economic Value of Equity			EVE as % of market value of portfolio assets		Economic Value of Equity				EVE as % of market value of portfolio assets
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change	EVE Ratio	Change in Rates (Basis Points)	$ Amount	$ Change	% Change		EVE Ratio
200	200	2,803,543	85,252	3.1	15.57	200	3,146,242	169,608	5.7	%	16.75	%
100	100	2,774,537	56,246	2.1	14.91	100	3,088,311	111,677	3.8	%	15.90	%
Static	Static	2,718,291	—	—	14.12	Static	2,976,634	—	—	%	14.82	%
-100	-100	2,535,779	(182,512)	(6.7)	12.73	-100	2,774,297	(202,337)	(6.8)	%	13.37	%
-200	-200	2,150,082	(568,209)	(20.9)	10.46	-200	2,349,722	(626,912)	(21.1)	%	10.99	%

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

The Company has minimal direct market risk from foreign exchange 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 June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~134~~108

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in legal proceedings occurring in the ordinary course of business. Management believes that none of the legal proceedings occurring in the ordinary course of business, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.

Item 1A. Risk Factors

The section titled Risk Factors in Part I, Item 1A of our ~~2020~~2021 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~~2021 Form 10-K.

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. During the ~~first quarter of 2021, the Company purchased 199,674 shares for a total of $6.9 million, or $34.51 per share, under this stock repurchase program. During the~~ second quarter of ~~2021,~~2022, the Company did not repurchase any shares of common stock.

The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the second quarter of ~~2021.~~2022.

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

April 1, ~~2021~~2022 to April 30, ~~2021~~2022

—

~~4,525,326~~4,245,056

May 1, ~~2021~~2022 to May 31, ~~2021~~2022

—

~~4,525,326~~4,245,056

June 1, ~~2021~~2022 to June 30, ~~2021~~2022

—

~~4,525,326~~4,245,056

Total

—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~135~~109

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						Pacific Premier Bancorp, Inc. Amended and Restated 2022 Long-Term Incentive Plan (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 June 30, ~~2021,~~2022, 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 May 24, 2022.

~~136~~110

SIGNATURES

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


		PACIFIC PREMIER BANCORP, INC.,

Date:	August ~~6, 2021~~5, 2022	By:	/s/ Steven R. Gardner
			Steven R. Gardner
			Chairman, ~~President, and~~ Chief Executive Officer, and President
			(Principal Executive Officer)

Date:	August ~~6, 2021~~5, 2022	By:	/s/ Ronald J. Nicolas, Jr.
			Ronald J. Nicolas, Jr.
			Senior Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

~~137~~111



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


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


Agency
Aaa - Aa3	9,572		349,992		55,601		83,752		0		56,250		555,167


Corporate debt

A1 - A3	0		58,502		0		0		0		60,573		119,075
Baa1 - Baa3	36,553		100,494		70,721		0		17,925		13,614		239,307
Municipal bonds
Aaa - Aa3	40,975		907,667		297,852		32,830		60,376		36,124		1,375,824
A1 - A3	0		0		0		0		0		2,309		2,309
Baa1 - Baa3	0		0		0		0		0		1,340		1,340
Collateralized mortgage obligations
Aaa - Aa3	142,912		232,492		91,915		20,786		14,443		112,190		614,738


Mortgage-backed securities
Aaa - Aa3	834,439		437,746		96,261		12,600		40,338		46,495		1,467,879


Total investment securities available-for-sale	1,097,599		2,113,159		632,831		171,376		143,587		328,895		4,487,447
Investment securities held-to-maturity:
Mortgage-backed securities
Aaa - Aa3	0		0		0		5,029		4,481		7,868		17,378


Other


Baa1 - Baa3	0		0		0		608		0		947		1,555
Total investment securities held-to-maturity	0		0		0		5,637		4,481		8,815		18,933
Total investment securities	$	1,097,599	$	2,113,159	$	632,831	$	177,013	$	148,068	$	337,710	$	4,506,380


	Six Months Ended June 30, 2020

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

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


	Term Loans by LTV and Vintage
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
55% and below	$	174,343	$	134,995	$	204,770	$	225,932	$	137,797	$	661,868	$	9,980	0		$	1,549,685
>55-65%	84,362		107,085		208,558		105,364		122,170		243,022		537		0		871,098
>65-75%	42,308		25,566		86,042		147,915		8,567		40,446		0		0		350,844
Greater than 75%	0		0		20,061		12,682		4,373		1,490		0		0		38,606
Multifamily
55% and below	118,036		219,481		336,820		243,793		222,718		334,898		1,643		0		1,477,389
>55-65%	466,963		391,606		673,685		329,299		191,548		265,604		0		0		2,318,705
>65-75%	441,401		373,033		489,754		126,306		154,960		119,559		0		0		1,705,013
Greater than 75%	1,383		0		16,338		10,489		1,859		8,288		0		0		38,357
Construction and land
55% and below	36,740		97,789		73,845		17,816		8,765		25,915		0		0		260,870
>55-65%	0		0		11,429		9,471		0		0		0		0		20,900
>65-75%	0		0		7,911		8,047		0		0		0		0		15,958
Greater than 75%	0		0		0		0		0		0		0		0		0
SBA secured by real estate
55% and below	0		0		102		641		831		2,303		0		0		3,877
>55-65%	0		0		2,414		1,965		3,816		2,872		0		0		11,067
>65-75%	0		0		3,879		4,624		3,924		5,832		0		0		18,259
Greater than 75%	0		500		2,167		5,247		8,861		3,025		0		0		19,800
Total investor loans secured by real estate	1,365,536		1,350,055		2,137,775		1,249,591		870,189		1,715,122		12,160		0		8,700,428
Business loan secured by real estate
CRE owner-occupied
55% and below	142,863		90,967		145,590		120,707		160,886		409,810		3,053		0		1,073,876
>55-65%	58,545		64,476		71,835		87,271		90,387		118,717		0		0		491,231
>65-75%	53,750		78,611		131,250		63,894		24,207		53,691		0		0		405,403
Greater than 75%	21,549		47,614		12,573		5,826		11,615		19,613		0		0		118,790
Franchise real estate secured
55% and below	8,599		23,887		9,141		17,024		15,341		22,162		0		0		96,154
>55-65%	27,170		2,644		11,147		10,886		10,729		9,804		0		0		72,380
>65-75%	13,812		16,857		40,716		10,181		14,597		13,947		0		0		110,110
Greater than 75%	9,955		1,874		10,808		16,588		39,024		1,227		0		0		79,476
SBA secured by real estate
55% and below	1,642		591		1,595		1,033		5,196		16,875		0		0		26,932
>55-65%	37		1,596		511		1,733		994		7,723		0		0		12,594
>65-75%	643		329		3,120		5,416		4,008		3,244		0		0		16,760
Greater than 75%	180		907		2,336		4,552		4,638		4,024		0		0		16,637

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


	Term Loans by FICO and Vintage
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2021
Retail loans
Single family residential
Greater than 740	$	13,312	$	6,771	$	2,524	$	2,236	$	4,215	$	64,829	$	16,092	0		$	109,979
>680 - 740	0		0		0		35		4,090		11,222		5,524		0		20,871
>580 - 680	0		0		0		0		484		9,425		837		0		10,746
Less than 580	0		0		0		0		0		15,598		34		0		15,632
Consumer loans
Greater than 740	44		39		40		18		16		2,526		1,269		0		3,952
>680 - 740	0		0		20		5		3		449		1,651		0		2,128
>580 - 680	0		0		10		0		0		62		54		0		126
Less than 580	0		0		0		0		0		12		22		0		34
Total retail loans	$	13,356	$	6,810	$	2,594	$	2,294	$	8,808	$	104,123	$	25,483	$	0	$	163,468


	Three Months Ended									Six Months Ended (1)
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)	2021			2021			2020			2021			2020
Balance, beginning of period	$	266,999		$	268,018		$	115,422		$	268,018		$	35,698
Adoption of ASC 326	—			—			—			—			55,686
Initial ACL recorded for PCD Loans	—			—			21,242			—			21,242
Provision (recapture) for credit losses	(33,131)			315			150,257			(32,816)			175,639
Charge-offs
Investor loans secured by real estate
CRE non-owner-occupied	—			(154)			—			(154)			(387)


SBA secured by real estate	—			(265)			(554)			(265)			(554)
Business loans secured by real estate


SBA secured by real estate	—			(98)			—			(98)			(315)
Commercial loans
Commercial and industrial	(3,290)			(1,279)			(2,286)			(4,569)			(2,776)
Franchise non-real estate secured	—			(156)			(1,227)			(156)			(1,227)
SBA non-real estate secured	—			—			(556)			—			(792)
Retail loans
Single family residential	—			—			(62)			—			(62)
Consumer loans	—			—			—			—			(8)
Total charge-offs	(3,290)			(1,952)			(4,685)			(5,242)			(6,121)
Recoveries





Business loans secured by real estate
CRE owner-occupied	15			15			11			30			23

SBA secured by real estate	80			—			3			80			74
Commercial loans
Commercial and industrial	2,098			601			21			2,699			26

SBA non-real estate secured	2			2			(2)			4			2
Retail loans
Single family residential	1			—			1			1			1
Consumer loans	—			—			1			—			1
Total recoveries	2,196			618			35			2,814			127
Net loan charge-offs	(1,094)			(1,334)			(4,650)			(2,428)			(5,994)
Balance, end of period	$	232,774		$	266,999		$	282,271		$	232,774		$	282,271

Ratios
Annualized net charge-offs to average total loans, net	0.03		%	0.04		%	0.17		%	0.04		%	0.12		%
Allowance for loan losses to loans held for investment at end of period	1.71			2.04			1.87			1.71			1.87
Allowance for loan losses to loans held for investment at end of period, excluding SBA PPP loans	1.71			2.04			2.02			1.71			2.02


	At June 30, 2021
(Dollars in thousands)	$100,000 through $250,000						Greater than $250,000						Total
Maturity Period	Amount		Weighted Average Rate		% of Total Deposits		Amount		Weighted Average Rate		% of Total Deposits		Amount		Weighted Average Rate		% of Total Deposits
Certificates of deposit
Three months or less	$	132,033	0.80	%	0.77	%	$	409,332	0.40	%	2.41	%	$	541,365	0.50	%	3.18	%
Over three months through 6 months	71,349		0.39		0.42		57,881		0.49		0.34		129,230		0.43		0.76
Over 6 months through 12 months	128,206		0.44		0.75		98,761		0.50		0.58		226,967		0.47		1.33
Over 12 months	89,526		0.38		0.53		20,878		0.52		0.12		110,404		0.41		0.65
Total	$	421,114	0.53	%	2.47	%	$	586,852	0.43	%	3.45	%	$	1,007,966	0.47	%	5.92	%