~~0001028918ppbi:SingleFamilyResidentialMemberppbi:FICOScore580to680Memberppbi:RetailLoansPortfolioSegmentMember2021-09-30~~0001028918srt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueOptionPricingModelMemberus-gaap:MeasurementInputOptionVolatilityMember2022-03-31

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 ~~September 30, 2021~~March 31, 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 ~~October~~April 29, ~~2021~~2022 was ~~94,355,063.~~94,930,357.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2021~~MARCH 31, 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)			87

Notes to Consolidated Financial Statements (Unaudited)			98

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			8567

Item 3 - Quantitative and Qualitative Disclosures About Market Risk			~~134~~104

Item 4 - Controls and Procedures			~~136~~106

PART II - OTHER INFORMATION			~~137~~107

Item 1 - Legal Proceedings			~~137~~107

Item 1A - Risk Factors			~~137~~107

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			~~137~~107

Item 3 - Defaults Upon Senior Securities			~~137~~107

Item 4 - Mine Safety Disclosures			~~137~~107

Item 5 - Other Information			~~137~~107

Item 6 - Exhibits			~~138~~108

SIGNATURE			~~139~~109

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)	September 30, 2021		December 31, 2020		(Dollars in thousands, except par value and share data)	March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	160,276	$	135,429	Cash and due from banks	$	147,763	$	83,150
Interest-bearing deposits with financial institutions	Interest-bearing deposits with financial institutions	162,044		745,337		Interest-bearing deposits with financial institutions	661,496		221,553
Cash and cash equivalents	Cash and cash equivalents	322,320		880,766		Cash and cash equivalents	809,259		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, net of allowance for credit losses of $11 and $0 (fair value of $169,154 and $25,013) at September 30, 2021 and December 31, 2020, respectively		170,576		23,732
Investments held-to-maturity, at amortized cost, net of allowance for credit losses of $41 and $22 (fair value of $886,050 and $384,423) at March 31, 2022 and December 31, 2021, respectively						Investments held-to-maturity, at amortized cost, net of allowance for credit losses of $41 and $22 (fair value of $886,050 and $384,423) at March 31, 2022 and December 31, 2021, respectively	996,382		381,674
Investment securities available-for-sale, at fair value	Investment securities available-for-sale, at fair value	4,709,815		3,931,115		Investment securities available-for-sale, at fair value	3,222,095		4,273,864
FHLB, FRB, and other stock, at cost	FHLB, FRB, and other stock, at cost	118,399		117,055		FHLB, FRB, and other stock, at cost	116,973		117,538
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	8,100		601		Loans held for sale, at lower of cost or fair value	11,646		10,869
Loans held for investment	Loans held for investment	13,982,861		13,236,433		Loans held for investment	14,733,755		14,295,897
Allowance for credit losses	Allowance for credit losses	(211,481)		(268,018)		Allowance for credit losses	(197,517)		(197,752)
Loans held for investment, net	Loans held for investment, net	13,771,380		12,968,415		Loans held for investment, net	14,536,238		14,098,145
Accrued interest receivable	Accrued interest receivable	63,228		74,574		Accrued interest receivable	60,922		65,728

Premises and equipment	Premises and equipment	72,850		78,884		Premises and equipment	70,453		71,908
Deferred income taxes, net	Deferred income taxes, net	83,432		89,056		Deferred income taxes, net	133,938		87,344
Bank-owned life insurance		447,135		292,564
Bank owned life insurance						Bank owned life insurance	451,968		449,353
Intangible assets	Intangible assets	73,451		85,507		Intangible assets	65,978		69,571
Goodwill	Goodwill	901,312		898,569		Goodwill	901,312		901,312
Other assets	Other assets	260,505		292,861		Other assets	242,916		260,204
Total assets	Total assets	$	21,005,211	$	19,736,544	Total assets	$	21,622,296	$	21,094,429

LIABILITIES	LIABILITIES					LIABILITIES
Deposit accounts:	Deposit accounts:					Deposit accounts:
Noninterest-bearing checking	Noninterest-bearing checking	$	6,841,495	$	6,011,106	Noninterest-bearing checking	$	7,106,548	$	6,757,259
Interest-bearing:	Interest-bearing:					Interest-bearing:
Checking	Checking	3,477,902		2,913,260		Checking	3,679,067		3,493,331
Money market/savings	Money market/savings	6,037,532		5,662,969		Money market/savings	5,872,597		5,806,726
Retail certificates of deposit	Retail certificates of deposit	1,113,070		1,471,512		Retail certificates of deposit	1,031,011		1,058,273
Wholesale/brokered certificates of deposit		—		155,330

Total interest-bearing	Total interest-bearing	10,628,504		10,203,071		Total interest-bearing	10,582,675		10,358,330
Total deposits	Total deposits	17,469,999		16,214,177		Total deposits	17,689,223		17,115,589
FHLB advances and other borrowings	FHLB advances and other borrowings	150,000		31,000		FHLB advances and other borrowings	600,000		558,000
Subordinated debentures	Subordinated debentures	330,408		501,511		Subordinated debentures	330,726		330,567

Accrued expenses and other liabilities	Accrued expenses and other liabilities	216,688		243,207		Accrued expenses and other liabilities	219,329		203,962
Total liabilities	Total liabilities	18,167,095		16,989,895		Total liabilities	18,839,278		18,208,118
STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
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	—		—		Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding	—		—
Common stock, $0.01 par value; 150,000,000 shares authorized at September 30, 2021 and December 31, 2020; 94,354,211 shares and 94,483,136 shares issued and outstanding, respectively.		929		931
Common stock, $0.01 par value; 150,000,000 shares authorized at March 31, 2022 and December 31, 2021; 94,945,849 shares and 94,389,543 shares issued and outstanding, respectively						Common stock, $0.01 par value; 150,000,000 shares authorized at March 31, 2022 and December 31, 2021; 94,945,849 shares and 94,389,543 shares issued and outstanding, respectively	933		929
Additional paid-in capital	Additional paid-in capital	2,347,626		2,354,871		Additional paid-in capital	2,348,727		2,351,294
Retained earnings	Retained earnings	488,385		330,555		Retained earnings	577,591		541,950
Accumulated other comprehensive income		1,176		60,292
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(144,233)		(7,862)
Total stockholders’ equity	Total stockholders’ equity	2,838,116		2,746,649		Total stockholders’ equity	2,783,018		2,886,311
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	21,005,211	$	19,736,544	Total liabilities and stockholders’ equity	$	21,622,296	$	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						Nine Months Ended					Three Months Ended
		September 30,		June 30,		September 30,		September 30,		September 30,			March 31,		December 31,		March 31,
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)	2021		2021		2020		2021		2020		(Dollars in thousands, except share data)	2022		2021		2021
INTEREST INCOME	INTEREST INCOME											INTEREST INCOME
Loans	Loans	$	157,025	$	152,365	$	167,455	$	464,615	$	414,059	Loans	$	150,604	$	157,418	$	155,225
Investment securities and other interest-earning assets	Investment securities and other interest-earning assets	19,022		18,327		14,536		55,118		35,843		Investment securities and other interest-earning assets	17,942		19,588		17,769
Total interest income	Total interest income	176,047		170,692		181,991		519,733		449,902		Total interest income	168,546		177,006		172,994
INTEREST EXPENSE	INTEREST EXPENSE											INTEREST EXPENSE
Deposits	Deposits	2,432		3,265		8,509		10,123		28,651		Deposits	1,673		1,694		4,426
FHLB advances and other borrowings	FHLB advances and other borrowings	1		—		113		66		1,411		FHLB advances and other borrowings	474		33		65
Subordinated debentures	Subordinated debentures	4,545		6,493		6,823		17,889		13,827		Subordinated debentures	4,560		4,560		6,851
Total interest expense	Total interest expense	6,978		9,758		15,445		28,078		43,889		Total interest expense	6,707		6,287		11,342
Net interest income before provision for credit losses	Net interest income before provision for credit losses	169,069		160,934		166,546		491,655		406,013		Net interest income before provision for credit losses	161,839		170,719		161,652
Provision for credit losses	Provision for credit losses	(19,726)		(38,476)		4,210		(56,228)		190,299		Provision for credit losses	448		(14,648)		1,974
Net interest income after provision for credit losses	Net interest income after provision for credit losses	188,795		199,410		162,336		547,883		215,714		Net interest income after provision for credit losses	161,391		185,367		159,678
NONINTEREST INCOME	NONINTEREST INCOME											NONINTEREST INCOME
Loan servicing income	Loan servicing income	536		622		481		1,616		1,395		Loan servicing income	419		505		458
Service charges on deposit accounts	Service charges on deposit accounts	2,375		2,222		1,593		6,629		4,707		Service charges on deposit accounts	2,615		2,590		2,032
Other service fee income	Other service fee income	350		352		487		1,175		1,095		Other service fee income	367		391		473
Debit card interchange fee income	Debit card interchange fee income	834		1,099		944		2,720		1,749		Debit card interchange fee income	836		769		787
Earnings on bank-owned life insurance		3,266		2,279		2,270		7,778		4,920
Earnings on bank owned life insurance												Earnings on bank owned life insurance	3,221		3,521		2,233
Net gain from sales of loans	Net gain from sales of loans	1,187		1,546		9,542		3,094		8,281		Net gain from sales of loans	1,494		1,334		361
Net gain from sales of investment securities	Net gain from sales of investment securities	4,190		5,085		1,141		13,321		8,880		Net gain from sales of investment securities	2,134		3,585		4,046

Trust custodial account fees	Trust custodial account fees	11,446		7,897		6,960		26,565		9,357		Trust custodial account fees	11,579		11,611		7,222
Escrow and exchange fees	Escrow and exchange fees	1,867		1,672		1,142		5,065		1,407		Escrow and exchange fees	1,661		2,221		1,526
Other income	Other income	4,049		3,955		2,198		12,606		6,340		Other income	1,568		754		4,602
Total noninterest income	Total noninterest income	30,100		26,729		26,758		80,569		48,131		Total noninterest income	25,894		27,281		23,740
NONINTEREST EXPENSE	NONINTEREST EXPENSE											NONINTEREST EXPENSE
Compensation and benefits	Compensation and benefits	53,592		53,474		51,021		159,614		128,408		Compensation and benefits	56,981		56,076		52,548
Premises and occupancy	Premises and occupancy	12,611		12,240		12,373		36,831		30,028		Premises and occupancy	11,952		11,403		11,980
Data processing	Data processing	6,296		5,765		6,783		17,889		14,501		Data processing	5,996		5,881		5,828
Other real estate owned operations, net		—		—		(17)		—		6

FDIC insurance premiums	FDIC insurance premiums	1,392		1,312		1,145		3,885		2,358		FDIC insurance premiums	1,396		1,389		1,181
Legal and professional services	Legal and professional services	4,563		4,186		5,108		12,684		11,328		Legal and professional services	4,068		5,870		3,935
Marketing expense	Marketing expense	2,008		1,490		1,718		5,096		4,449		Marketing expense	1,809		1,821		1,598
Office expense	Office expense	1,076		1,589		2,389		4,494		5,025		Office expense	1,203		1,463		1,829
Loan expense	Loan expense	1,332		1,165		802		3,612		2,447		Loan expense	1,134		857		1,115
Deposit expense	Deposit expense	3,974		3,985		4,728		11,818		14,674		Deposit expense	3,751		3,836		3,859
Merger-related expense	Merger-related expense	—		—		2,988		5		44,058		Merger-related expense	—		—		5
Amortization of intangible assets	Amortization of intangible assets	3,912		4,001		4,538		12,056		12,567		Amortization of intangible assets	3,592		3,880		4,143
Other expense	Other expense	5,284		5,289		5,003		15,041		11,331		Other expense	5,766		4,776		4,468
Total noninterest expense	Total noninterest expense	96,040		94,496		98,579		283,025		281,180		Total noninterest expense	97,648		97,252		92,489
Net income (loss) before income taxes		122,855		131,643		90,515		345,427		(17,335)
Income tax expense (benefit)		32,767		35,341		23,949		90,369		(10,550)
Net income (loss)		$	90,088	$	96,302	$	66,566	$	255,058	$	(6,785)
EARNINGS (LOSS) PER SHARE
Net income before income taxes												Net income before income taxes	89,637		115,396		90,929
Income tax expense												Income tax expense	22,733		30,565		22,261
Net income												Net income	$	66,904	$	84,831	$	68,668
EARNINGS PER SHARE												EARNINGS PER SHARE
Basic	Basic	$	0.95	$	1.02	$	0.71	$	2.70	$	(0.10)	Basic	$	0.71	$	0.90	$	0.73
Diluted	Diluted	0.95		1.01		0.70		2.68		(0.10)		Diluted	0.70		0.89		0.72
WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING											WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	93,549,639		93,635,392		93,529,967		93,571,468		74,391,688		Basic	93,499,695		93,415,304		93,529,147
Diluted	Diluted	94,060,724		94,218,028		93,719,167		94,090,407		74,391,688		Diluted	93,946,074		93,906,491		94,093,644

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


	Three Months Ended
	March 31,		December 31,		March 31,
(Dollars in thousands)	2022		2021		2021
Net income	$	66,904	$	84,831	$	68,668
Other comprehensive loss, net of tax:
Unrealized loss on securities available-for-sale arising during the period, net of income taxes (1)	(118,591)		(4,176)		(72,592)
Reclassification adjustment for net gain on sales of securities included in net income, net of income taxes (2)	(1,525)		(2,562)		(2,889)
Net unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (3)	(16,558)		(2,415)		—
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (4)	303		115		—
Other comprehensive loss, net of tax	(136,371)		(9,038)		(75,481)
Comprehensive (loss) income, net of tax	$	(69,467)	$	75,793	$	(6,813)

(1) Income tax (benefit) ~~expense~~ of the unrealized ~~(loss) gain~~loss on securities was ~~$(8.1)~~$(47.4) million, ~~$18.2~~$(1.7) million, and ~~$(4.7)~~$(29.1) million for the three months ended ~~September 30, 2021, June 30,~~March 31, 2022, December 31, 2021, and ~~September 30, 2020, respectively, and $(19.0) million and $12.3 million for the nine months ended September 30,~~March 31, 2021, ~~and September 30, 2020,~~ respectively.

(2) Income tax expense on the reclassification adjustment for net ~~(gain)~~gain on sales of securities included in net income was ~~$1.2 million, $1.5~~$609,000, $1.0 million, and ~~$327,000~~$1.2 million for the three months ended ~~September 30, 2021, June 30,~~March 31, 2022, December 31, 2021, and ~~September 30, 2020, respectively, and $3.8 million and $2.5 million for the nine months ended September 30,~~March 31, 2021, ~~and September 30, 2020, respectively.~~respective.

(3) Income tax (benefit) on the unrealized loss on securities transferred from available-for-sale to held-to maturity was ~~$(913,000)~~$(6.6) million and $(968,000) for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022 and December 31, 2021, respectively.

(4) Income tax expense on the amortization of unrealized ~~(loss)~~loss on securities transferred from available-for-sale to held-to maturity included in net income was ~~$24,000~~$121,000 and $46,000 for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022 and December 31, 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 ~~NINE MONTHS AND~~ THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2022 AND 2021

(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	—	—		—		255,058		—		255,058		Net income	—	—		—		66,904		—		66,904
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(59,116)		(59,116)		Other comprehensive loss	—	—		—		—		(136,371)		(136,371)
Repurchase and retirement of common stock		(479,944)	(5)		(11,942)		(6,120)		—		(18,067)
Cash dividends declared ($0.96 per common share)		—	—		—		(90,747)		—		(90,747)
Dividend equivalents declared ($0.96 per restricted stock unit)		—	—		361		(361)		—		—
Cash dividends declared ($0.33 per common share)													Cash dividends declared ($0.33 per common share)	—	—		—		(31,142)		—		(31,142)
Dividend equivalents declared ($0.33 per restricted stock unit)													Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		121		(121)		—		—
Share-based compensation expense	Share-based compensation expense	—	—		9,911		—		—		9,911		Share-based compensation expense	—	—		5,530		—		—		5,530
Issuance of restricted stock, net	Issuance of restricted stock, net	450,549	3		(3)		—		—		—		Issuance of restricted stock, net	714,783	4		(4)		—		—		—
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(149,782)	—		(6,354)		—		—		(6,354)		Restricted stock surrendered and canceled	(175,219)	—		(8,548)		—		—		(8,548)
Exercise of stock options	Exercise of stock options	50,252	—		782		—		—		782		Exercise of stock options	16,742	—		334		—		—		334
Balance at September 30, 2021		94,354,211	$	929	$	2,347,626	$	488,385	$	1,176	$	2,838,116
Balance at March 31, 2022													Balance at March 31, 2022	94,945,849	$	933	$	2,348,727	$	577,591	$	(144,233)	$	2,783,018


Balance at June 30, 2021		94,656,575	$	931	$	2,352,112	$	433,852	$	26,524	$	2,813,419
Net income		—	—		—		90,088		—		90,088

Balance at December 31, 2020													Balance at December 31, 2020	94,483,136	$	931	$	2,354,871	$	330,555	$	60,292	$	2,746,649
Net loss													Net loss	—	—		—		68,668		—		68,668
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(25,348)		(25,348)		Other comprehensive loss	—	—		—		—		(75,481)		(75,481)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(280,270)	(3)		(6,965)		(4,202)		—		(11,170)		Repurchase and retirement of common stock	(199,674)	(2)		(4,977)		(1,918)		—		(6,897)
Cash dividends declared ($0.33 per common share)		—	—		—		(31,226)		—		(31,226)
Dividend equivalents declared ($0.33 per restricted stock unit)		—	—		127		(127)		—		—
Cash dividends declared ($0.30 per common share)													Cash dividends declared ($0.30 per common share)	—	—		—		(28,287)		—		(28,287)
Dividend equivalents declared ($0.30 per restricted stock unit)													Dividend equivalents declared ($0.30 per restricted stock unit)	—	—		107		(107)		—		—
Share-based compensation expense	Share-based compensation expense	—	—		3,349		—		—		3,349		Share-based compensation expense	—	—		3,105		—		—		3,105
Issuance of restricted stock, net	Issuance of restricted stock, net	14,592	1		(1)		—		—		—		Issuance of restricted stock, net	419,757	2		(2)		—		—		—
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(39,755)	—		(1,046)		—		—		(1,046)		Restricted stock surrendered and canceled	(100,550)	—		(5,279)		—		—		(5,279)
Exercise of stock options	Exercise of stock options	3,069	—		50		—		—		50		Exercise of stock options	41,746	—		620		—		—		620
Balance at September 30, 2021		94,354,211	$	929	$	2,347,626	$	488,385	$	1,176	$	2,838,116
Balance at March 31, 2021													Balance at March 31, 2021	94,644,415	$	931	$	2,348,445	$	368,911	$	(15,189)	$	2,703,098

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

~~PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

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

~~(Unaudited)~~

(Dollars in thousands, except share data) Common Stock
Shares Common Stock Additional Paid-in Capital Accumulated Retained
Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Balance at December 31, 2019 59,506,057 $ 586 $ 1,594,434 $ 396,051 $ 21,523 $ 2,012,594
Net loss — — — (6,785) — (6,785)
Other comprehensive income — — — — 24,140 24,140
Cash dividends declared ($0.75 per common share) — — — (53,464) — (53,464)
Dividend equivalents declared ($0.75 per restricted stock unit) — — 217 (217) — —
Share-based compensation expense — — 7,747 — — 7,747
Issuance of restricted stock, net 493,411 — — — — —
Issuance of common stock - acquisition 34,407,403 344 749,259 — — 749,603
Restricted stock surrendered and canceled (102,486) — (1,372) — — (1,372)
Exercise of stock options 71,136 — 1,247 — — 1,247
Cumulative effect of the change in accounting principle (1)
— — — (45,625) — (45,625)
Balance at September 30, 2020 94,375,521 $ 930 $ 2,351,532 $ 289,960 $ 45,663 $ 2,688,085

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

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

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended					Three Months Ended
		September 30,		September 30,			March 31,		March 31,
(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)		$	255,058	$	(6,785)
Adjustments to net income:
Net income						Net income	$	66,904	$	68,668
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	12,147		9,186		Depreciation and amortization expense	3,726		4,009
Provision for credit losses	Provision for credit losses	(56,228)		190,299		Provision for credit losses	448		1,974
Share-based compensation expense	Share-based compensation expense	9,911		7,747		Share-based compensation expense	5,530		3,105
Loss on sales and disposals of premises and equipment	Loss on sales and disposals of premises and equipment	179		255		Loss on sales and disposals of premises and equipment	37		7
Loss on sales of or write downs of other real estate owned		—		42

Net amortization on securities	Net amortization on securities	17,078		9,417		Net amortization on securities	5,023		5,983
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	(31,955)		(28,317)		Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	(7,353)		(10,833)
Gain on sales of investment securities available-for-sale	Gain on sales of investment securities available-for-sale	(13,321)		(8,880)		Gain on sales of investment securities available-for-sale	(2,134)		(4,046)
Loss on debt extinguishment	Loss on debt extinguishment	180		—		Loss on debt extinguishment	—		503
Originations of loans held for sale		(34,902)		(12,217)
Proceeds from the sales of and principal payments from loans held for sale		29,973		14,201
Gain on sales of loans	Gain on sales of loans	(3,094)		(8,281)		Gain on sales of loans	(1,494)		(361)
Deferred income tax expense (benefit)		29,111		(52,471)
Deferred income tax expense						Deferred income tax expense	7,887		14,650
Income from bank owned life insurance, net						Income from bank owned life insurance, net	(2,617)		(1,675)
Amortization of intangible assets						Amortization of intangible assets	3,592		4,143
Originations of loans held-for-sale						Originations of loans held-for-sale	(18,769)		(7,768)
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	19,486		970
Change in accrued expenses and other liabilities, net	Change in accrued expenses and other liabilities, net	(17,404)		19,770		Change in accrued expenses and other liabilities, net	15,207		(34,203)
Income from bank-owned life insurance, net		(6,071)		(3,849)
Amortization of intangible assets		12,056		12,567
Change in accrued interest receivable and other assets, net	Change in accrued interest receivable and other assets, net	53,953		28,426		Change in accrued interest receivable and other assets, net	36,904		60,176
Net cash provided by operating activities	Net cash provided by operating activities	256,671		171,110		Net cash provided by operating activities	132,377		105,302
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		—		Net decrease in interest-bearing time deposits with financial institutions	—		137
Proceeds from sales of other real estate owned		—		273

Loan originations and payments, net	Loan originations and payments, net	(719,657)		(111,334)		Loan originations and payments, net	(430,951)		128,540
Proceeds from loans held for sale previously classified as portfolio loans		1,530		1,283,214
Purchase of loans held for investment		—		(66,470)
Proceeds from loans held-for-sale previously classified as portfolio loans						Proceeds from loans held-for-sale previously classified as portfolio loans	—		449

Proceeds from prepayments and maturities of securities held-to-maturity	Proceeds from prepayments and maturities of securities held-to-maturity	7,509		9,782		Proceeds from prepayments and maturities of securities held-to-maturity	3,750		1,807
Purchase of securities available-for-sale	Purchase of securities available-for-sale	(2,079,198)		(2,057,690)		Purchase of securities available-for-sale	(499,168)		(364,542)
Proceeds from prepayments and maturities of securities available-for-sale	Proceeds from prepayments and maturities of securities available-for-sale	429,235		149,720		Proceeds from prepayments and maturities of securities available-for-sale	77,817		162,568
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	630,437		558,899		Proceeds from sales of securities available-for-sale	647,557		179,386
Proceeds from the sales of premises and equipment	Proceeds from the sales of premises and equipment	26		42		Proceeds from the sales of premises and equipment	—		4
Proceeds from surrender of bank-owned life insurance		1,400		17,799
Purchase of bank-owned life insurance		(150,000)		—
Proceeds from surrender of bank owned life insurance						Proceeds from surrender of bank owned life insurance	—		1,307

Purchase of premises and equipment	Purchase of premises and equipment	(6,318)		(8,687)		Purchase of premises and equipment	(2,308)		(1,465)
Change in FHLB, FRB, and other stock, at cost	Change in FHLB, FRB, and other stock, at cost	3		(22,584)		Change in FHLB, FRB, and other stock, at cost	(95)		(202)
Funding of CRA investments, net	Funding of CRA investments, net	(19,001)		(9,025)		Funding of CRA investments, net	(701)		(3,873)

Change in cash acquired in acquisitions, net		—		937,100

Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	(1,903,897)		681,039		Net cash (used in) provided by investing activities	(204,099)		104,116
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposit accounts	Net increase in deposit accounts	1,255,822		516,308		Net increase in deposit accounts	573,634		525,830
Net change in short-term borrowings	Net change in short-term borrowings	140,000		(681,000)		Net change in short-term borrowings	(358,000)		—
Repayment of long-term FHLB borrowings		(21,503)		(5,000)
Proceeds from issuance of subordinated debt, net		—		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 subordinated debentures		(171,153)		—

Cash dividends paid	Cash dividends paid	(90,747)		(53,464)		Cash dividends paid	(31,142)		(28,287)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(18,067)		—		Repurchase and retirement of common stock	—		(6,897)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	782		1,247		Proceeds from exercise of stock options	334		620
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(6,354)		(1,372)		Restricted stock surrendered and canceled	(8,548)		(5,279)
Net cash provided by (used in) financing activities		1,088,780		(75,922)
Net (decrease) increase in cash and cash equivalents		(558,446)		776,227
Net cash provided by financing activities						Net cash provided by financing activities	576,278		464,484
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	504,556		673,902
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	$	322,320	$	1,103,077	Cash and cash equivalents, end of period	$	809,259	$	1,554,668

Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Interest paid	Interest paid	$	29,745	$	43,188	Interest paid	$	3,927	$	10,890
Income taxes paid		56,472		26,151
Income taxes (refunded) paid, net						Income taxes (refunded) paid, net	(11,944)		77
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		1,006		1,276,277
Transfers from loans to other real estate owned		—		208

Transfers of investment securities from available-for-sale to held-to-maturity	Transfers of investment securities from available-for-sale to held-to-maturity	154,456		—		Transfers of investment securities from available-for-sale to held-to-maturity	618,678		—
Recognition of operating lease right-of-use assets	Recognition of operating lease right-of-use assets	(3,812)		(11,118)		Recognition of operating lease right-of-use assets	(459)		—
Recognition of operating lease liabilities	Recognition of operating lease liabilities	3,812		11,118		Recognition of operating lease liabilities	459		—
Receivable on unsettled security sales						Receivable on unsettled security sales	13,464		—
Due on unsettled security purchases						Due on unsettled security purchases	—		(11,286)

Due on unsettled security purchases		—		(20,000)
Acquisitions (See Note 4):
Fair value of stock and equity award consideration		—		749,603
Cash consideration		—		2
Fair value of assets acquired		—		8,102,281
Liabilities assumed		—		7,352,676

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 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 ~~nine~~three months ended ~~September 30, 2021~~March 31, 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 1615 – 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 ~~January 2021,~~March 2022, the FASB issued ~~ASU 2021-01,~~Accounting Standards Update (“ASU”) 2022-02, ~~Reference Rate Reform~~Financial Instruments - Credit Losses (Topic ~~848)~~326) Troubled Debt Restructurings and Vintage Disclosures. The FASB issued this Update in response to feedback the FASB received from various stakeholders in its post-implementation review process related to the issuance of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was effective for the Company on January 1, 2020. The amendments ~~included~~ in this Update ~~clarify that~~include the elimination of accounting guidance for troubled debt restructurings in Subtopic 310-40 - Receivables - Troubled Debt Restructurings by Creditors, and introduce new disclosures and enhance existing disclosures concerning certain ~~optional expedients~~loan refinancings and ~~exceptions in Topic 848 for contract modifications~~restructurings when a borrower is experiencing financial difficulty. Rather than applying the recognition and ~~hedge accounting apply to derivatives that are affected by the worldwide transition to new reference rates (commonly referred to as the “discounting transition”~~measurement guidance of troubled debt restructurings (“TDRs”).

~~Specifically, certain provisions in Topic 848, if elected by~~, an entity ~~apply to derivative instruments that use~~must determine whether a modification results in a new loan or the continuation of an ~~interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments~~existing loan. Further, the amendments in this Update ~~are to the expedients and exceptions in Topic 848 and capture the incremental consequences of~~require that a public business entity disclose current period gross charge-offs on financing receivables within the scope ~~clarification~~of ASC 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, by year of origination and ~~tailor the existing guidance to derivative instruments affected by the discounting transition.~~class of financing receivable. The amendments in this Update are effective ~~immediately~~ for ~~all entities that elect to apply~~ the ~~optional guidance~~Company in ~~Topic 848.~~

~~An entity may elect to apply the~~fiscal years beginning after December 15, 2022, as well as interim periods within those years. Early adoption is permitted. The amendments in this Update ~~on a full retrospective basis as of any date from~~are to be applied prospectively. However, for the ~~beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent~~transition method related to the ~~date~~recognition and measurement of TDRs, an entity has the ~~issuance of~~option to apply a ~~final Update, up~~modified retrospective transition method, resulting in a cumulative effect adjustment to the ~~date that financial statements are available to be issued.~~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~~statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) Fair Value Hedging - Portfolio Layer Method. The amendments in this Update make targeted improvements to fair value hedge accounting and more specifically to the 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 for the Company in fiscal years beginning after December 15, 2022, as well as interim periods within those years. Early adoption is permitted. Entities may designate multiple layer hedges only on a prospective basis upon the adoption of this Update. The provisions of this Update that relate to hedge basis adjustments, except for those related to disclosure, are to be applied on a modified retrospective basis through a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The provisions of this Update that relate to disclosure may be applied on a prospective basis or on a retrospective basis to each prior period presented. The Company is currently evaluating the impact of this Update on the Company’s consolidated financial statements.

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 ~~expected to~~yet adopted the provisions of this Update. The Company does not currently anticipate the adoption of this Update will have a material ~~impact.~~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 effective upon issuance for all entities.

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

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

The Company has created a cross-functional working group to manage the transition away from LIBOR. This working group is comprised of senior leadership and staff from functional areas that include: finance, treasury, lending, loan servicing, enterprise risk management, information technology, legal, and other internal stakeholders integral to the Bank’s transition away from LIBOR. The working group monitors developments related to transition and uncertainty surrounding reference rate reform and guides the Bank’s response. The working group is currently assessing the population of financial instruments that reference LIBOR, confirming our loan documents that reference LIBOR have been appropriately amended, ensuring that our internal systems are prepared for the transition, and managing the transition process with our customers. ~~While the~~The Company has ~~not yet selected a preferred reference rate~~chosen to use the Secured Overnight Financing Rate (“SOFR”) as an alternative to ~~LIBOR, currently, new loan originations are primarily being made with~~LIBOR. However, the Company will also use ofother alternative reference rates, such as the Constant Maturity Treasury ~~(“CMT”) Index. The Company may also consider the use of other alternative reference rates~~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 September 30, 2021. Management’s assessment of goodwill is performed in accordance with ASC 350-20 -~~Intangibles - Goodwill and Other - Goodwill~~, which allows the Company to first perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value. However, GAAP also allows the Company, at its option, to unconditionally forego the qualitative assessment and proceed directly to a quantitative assessment. When performing a qualitative assessment of goodwill, should the results of such analysis indicate it is more likely than not the fair value of the Company’s equity is below its carrying value, the Company then performs the quantitative assessment of goodwill to determine the fair value of the reporting unit and compares it to its carrying value. If the fair value of the reporting unit is below its carrying value, the Company would then recognize the amount of impairment as the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to the reporting unit. Impairment losses are recorded as a charge to noninterest expense.

Other intangible assets consist of core deposit intangible (“CDI”) and customer relationship intangible assets arising from whole bank acquisitions, and are amortized on either an accelerated basis, reflecting the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, 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 September 30, 2021, all of the Company’s leases were classified as either operating leases or short-term leases.

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

Securities. The Company has established written guidelines and objectives for its investing activities. At the time of purchase, management designates the security as either held-to-maturity, 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.

~~Transfers~~The Company accounts for transfers of debt securities from available-for-sale classification to held-to-maturity classification ~~are made~~ at fair ~~value.~~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 aton the ~~time a security is transferred~~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 ~~(“ACL”)~~ 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 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.

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 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.

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 ~~September 30, 2021,~~March 31, 2022, the Company had the following segments and classes of loans:

Investor Loans Secured by Real Estate:

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

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

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

Business Loans Secured by Real Estate:

•Commercial real estate owner-occupied - CRE owner-occupied includes loans for which the Company holds real property as collateral and where the underlying property is occupied by the borrower, such as with a place of business. These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. The primary risks associated with CRE owner-occupied loans include the ~~borrower’s~~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 first lien single family loans, we have acquired them through bank acquisitions. The primary risks of one-to-four family loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which may make loans unprofitable to the borrower.

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

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, which are in the form of payment deferrals, the delinquency status will not advance, and loans that were accruing at the time that the relief was 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 the loans modified under the provisions of the ~~CARES Act~~ in an effort to identify any loans where the accrual of interest during the modification period is no longer appropriate. In such cases, the Company ceases the accrual of interest and all previously accrued and uncollected interest is promptly reversed against the current period interest income. For additional information, see ~~Note 6 - Loans Held for Investment~~.

Acquired Loans. 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.

~~In connection with the Opus acquisition on June 1, 2020,~~Goodwill and Other Intangible Assets. Goodwill assets originate from business combinations where the Company has acquired ~~PCD loans with an aggregate~~other financial institutions, and is determined as the excess of the fair value of ~~approximately $841.2 million, and recorded an ACL of approximately $21.2 million, which was added to~~ the ~~amortized cost of~~consideration transferred, plus the ~~loans on the date of acquisition.~~

~~Other Real Estate Owned (“OREO”).~~ ~~Real estate properties acquired through, or in lieu of, loan foreclosure are recorded at~~ fair value ~~less cost to sell, with~~of any ~~excess of~~noncontrolling interests in the ~~loan’s amortized cost balance~~acquiree, over the fair value of the ~~property recorded~~net assets acquired and liabilities assumed as ~~a charge against~~of the ~~ACL. The Company obtains an appraisal and/~~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 ~~market valuation on all other real estate owned~~more frequently if events and circumstances lead management to believe the value of those assets may be impaired. Impairment testing is performed at the ~~time~~reporting unit level, which is considered the Company level as management has identified the Company is its sole reporting unit.

Management’s assessment of ~~possession. After foreclosure, valuations are periodically~~goodwill is performed ~~by management. Any subsequent declines~~ 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 ~~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.~~

noninterest expense.

2117

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 ~~hedges for~~ accounting ~~purposes.~~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 ~~now~~ 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 March 31, 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.

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

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

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

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

Use of Estimates. The preparation of financial statements in conformity with 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 nine months ended September 30, 2021 compared with $44.1 million during the nine months ended September 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 nine months ended September 30, 2020 as if Opus had been acquired on January 1, 2020. This unaudited pro forma information combines the historical results of Opus with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented, and the differences could be significant.

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

2620

Note 54 – Investment Securities

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


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Investment securities available-for-sale:
September 30, 2021
AFS investment securities:										AFS investment securities:
March 31, 2022										March 31, 2022
U.S. Treasury	U.S. Treasury	$	77,803	$	1,665	$	(126)	$	79,342	U.S. Treasury	$	14,930	$	—	$	(940)	$	13,990
Agency	Agency	531,867		5,252		(7,026)		530,093		Agency	406,654		—		(30,877)		375,777
Corporate		383,910		5,381		(2,900)		386,391
Corporate debt										Corporate debt	612,647		702		(18,284)		595,065
Municipal bonds	Municipal bonds	1,237,923		27,585		(9,642)		1,255,866		Municipal bonds	445,537		58		(30,311)		415,284
Collateralized mortgage obligations	Collateralized mortgage obligations	665,851		1,109		(4,729)		662,231		Collateralized mortgage obligations	874,382		1,606		(20,732)		855,256
Mortgage-backed securities	Mortgage-backed securities	1,807,758		6,194		(18,060)		1,795,892		Mortgage-backed securities	1,040,774		1		(74,052)		966,723
Total investment securities available-for-sale		$	4,705,112	$	47,186	$	(42,483)	$	4,709,815
Total AFS investment securities										Total AFS investment securities	$	3,394,924	$	2,367	$	(175,196)	$	3,222,095


December 31, 2020
December 31, 2021										December 31, 2021
U.S. Treasury	U.S. Treasury	$	30,153	$	2,380	$	—	$	32,533	U.S. Treasury	$	57,708	$	614	$	(456)	$	57,866
Agency	Agency	666,702		24,292		(608)		690,386		Agency	440,183		2,081		(10,129)		432,135
Corporate		412,223		3,591		(506)		415,308
Corporate debt										Corporate debt	451,621		6,096		(3,856)		453,861
Municipal bonds	Municipal bonds	1,412,012		37,260		(3,253)		1,446,019		Municipal bonds	1,061,985		32,209		(4,281)		1,089,913
Collateralized mortgage obligations	Collateralized mortgage obligations	513,259		819		(712)		513,366		Collateralized mortgage obligations	680,686		2,012		(6,055)		676,643
Mortgage-backed securities	Mortgage-backed securities	812,384		21,662		(543)		833,503		Mortgage-backed securities	1,586,406		3,220		(26,180)		1,563,446
Total investment securities available-for-sale		$	3,846,733	$	90,004	$	(5,622)	$	3,931,115
Total AFS investment securities										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)	(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrecognized Gain		Gross Unrecognized Loss		Estimated Fair Value		(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrecognized Gain		Gross Unrecognized Loss		Estimated Fair Value
Investment securities held-to-maturity:
September 30, 2021
HTM investment securities:														HTM investment securities:
March 31, 2022														March 31, 2022
Municipal bonds	Municipal bonds	$	154,399	$	(11)	$	154,388	$	—	$	(2,225)	$	152,163	Municipal bonds	$	747,887	$	(41)	$	747,846	$	—	$	(101,757)	$	646,089
Mortgage-backed securities	Mortgage-backed securities	14,656		—		14,656		803		—		15,459		Mortgage-backed securities	247,050		—		247,050		96		(8,671)		238,475
Other	Other	1,532		—		1,532		—		—		1,532		Other	1,486		—		1,486		—		—		1,486
Total investment securities held-to-maturity		$	170,587	$	(11)	$	170,576	$	803	$	(2,225)	$	169,154
Total HTM investment securities														Total HTM investment securities	$	996,423	$	(41)	$	996,382	$	96	$	(110,428)	$	886,050


December 31, 2020
December 31, 2021														December 31, 2021
Municipal bonds														Municipal bonds	$	368,344	$	(22)	$	368,322	$	3,834	$	(1,649)	$	370,507
Mortgage-backed securities	Mortgage-backed securities	$	22,124	$	—	$	22,124	$	1,281	$	—	$	23,405	Mortgage-backed securities	$	11,843	$	—	$	11,843	$	564	$	—	$	12,407
Other	Other	1,608		—		1,608		—		—		1,608		Other	1,509		—		1,509		—		—		1,509
Total investment securities held-to-maturity		$	23,732	$	—	$	23,732	$	1,281	$	—	$	25,013
Total HTM investment securities														Total HTM investment securities	$	381,696	$	(22)	$	381,674	$	4,398	$	(1,649)	$	384,423

2721

The Company reassesses classification of certain investments as part of the ongoing review of the investment securities portfolio. During the ~~third~~first quarter of ~~2021,~~2022, the Company transferred approximately ~~$157.6~~$386.8 million of municipal bonds and $255.0 million of mortgage-backed securities with longer durations, both of which the Company intends and has the ability to hold to maturity, from ~~available-for-sale~~AFS to ~~held-to-maturity~~HTM securities. The transfer of these securities was accounted for at fair value. ~~These~~The municipal bonds had a net carrying amount of $379.9 million with a pre-tax unrealized loss of $6.9 million, and the mortgage-backed securities had a net carrying amount of ~~$154.5~~$238.8 million with a pre-tax unrealized loss of ~~$3.2~~$16.2 million, ~~which was~~and both unrealized losses were reflected as ~~a discount~~discounts on the date of transfer. ~~This discount,~~These discounts, as well as the related unrealized ~~loss~~losses in accumulated other comprehensive income, will be amortized into interest income as a yield ~~adjustment~~adjustments over the remaining term of the securities. The amortization of the unrealized ~~loss~~losses reported in accumulated other comprehensive income will offset the effect on interest income of the amortization of the ~~discount.~~discounts. No gains or losses were recorded at the time of transfer.

Investment securities with carrying values of ~~$131.8~~$56.5 million and ~~$147.3~~$130.7 million as of ~~September 30, 2021~~March 31, 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 September 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Unrealized Gains and Losses

Unrealized gains and losses on AFS investment securities ~~available-for-sale~~ are recognized in stockholders’ equity as accumulated other comprehensive income or loss. At ~~September 30, 2021,~~March 31, 2022, the Company had an unrealized loss of $172.8 million, or $123.5 million net of tax in accumulated other comprehensive ~~income~~loss, compared to an unrealized loss of $4.7 million, or ~~$3.4~~$3.3 million net of tax ~~compared to~~in accumulated other comprehensive ~~income of $84.4 million, or $60.3 million net of tax,~~loss, at December 31, ~~2020.~~2021.

For investment securities transferred from ~~available-for-sale~~AFS to ~~held-to-maturity,~~HTM, the unrealized gains and losses at the date of transfer continue to be reported in stockholders’ equity as accumulated other comprehensive income or loss and are amortized over the remaining lives of the securities with an offsetting entry to interest income as an adjustment of yield. At ~~September 30, 2021,~~March 31, 2022, the ~~gross~~ unrealized loss on ~~municipal bonds~~investment securities transferred from ~~available-for-sale~~AFS to ~~held-to-maturity~~HTM that were included in accumulated other comprehensive ~~income~~loss was ~~$3.1 million, or $2.2~~$20.8 million net of tax.

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


		September 30, 2021																March 31, 2022
		Less than 12 Months					12 Months or Longer					Total						Less than 12 Months					12 Months or Longer					Total
(Dollars in thousands)	(Dollars in thousands)	Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		(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:
AFS investment securities:																	AFS investment securities:
U.S. Treasury	U.S. Treasury	2	$	32,626	$	(126)	—	$	—	$	—	2	$	32,626	$	(126)	U.S. Treasury	1	$	13,990	$	(940)	—	$	—	$	—	1	$	13,990	$	(940)
Agency	Agency	24	339,270		(5,365)		12	64,991		(1,661)		36	404,261		(7,026)		Agency	9	72,300		(6,489)		26	303,476		(24,388)		35	375,776		(30,877)
Corporate		8	88,666		(1,916)		1	20,346		(984)		9	109,012		(2,900)
Corporate debt																	Corporate debt	44	449,423		(10,400)		3	52,241		(7,884)		47	501,664		(18,284)
Municipal bonds	Municipal bonds	108	651,169		(9,102)		2	11,068		(540)		110	662,237		(9,642)		Municipal bonds	85	397,687		(30,158)		1	1,444		(153)		86	399,131		(30,311)
Collateralized mortgage obligations	Collateralized mortgage obligations	30	302,104		(4,297)		5	44,615		(432)		35	346,719		(4,729)		Collateralized mortgage obligations	32	320,962		(10,317)		23	165,246		(10,415)		55	486,208		(20,732)
Mortgage-backed securities.	Mortgage-backed securities.	113	1,570,327		(17,961)		1	7,395		(99)		114	1,577,722		(18,060)		Mortgage-backed securities.	71	880,417		(66,282)		9	86,208		(7,770)		80	966,625		(74,052)
Total investment securities available-for-sale		285	$	2,984,162	$	(38,767)	21	$	148,415	$	(3,716)	306	$	3,132,577	$	(42,483)
Total AFS investment securities																	Total AFS investment securities	242	$	2,134,779	$	(124,586)	62	$	608,615	$	(50,610)	304	$	2,743,394	$	(175,196)

2822


		December 31, 2020																December 31, 2021
		Less than 12 Months					12 Months or Longer					Total						Less than 12 Months					12 Months or Longer					Total
(Dollars in thousands)	(Dollars in thousands)	Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		(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:

AFS investment securities:																	AFS investment securities:
U.S. Treasury																	U.S. Treasury	3	$	47,235	$	(456)	—	$	—	$	—	3	$	47,235	$	(456)
Agency	Agency	4	$	74,194	$	(307)	9	$	10,434	$	(301)	13	$	84,628	$	(608)	Agency	19	278,078		(5,634)		16	119,750		(4,495)		35	397,828		(10,129)
Corporate		9	71,226		(506)		—	—		—		9	71,226		(506)
Corporate debt																	Corporate debt	17	166,563		(849)		3	57,274		(3,007)		20	223,837		(3,856)
Municipal bonds	Municipal bonds	56	312,894		(3,253)		—	—		—		56	312,894		(3,253)		Municipal bonds	36	277,564		(4,079)		2	6,596		(202)		38	284,160		(4,281)
Collateralized mortgage obligations	Collateralized mortgage obligations	21	215,603		(710)		1	431		(2)		22	216,034		(712)		Collateralized mortgage obligations	26	226,763		(3,738)		15	121,185		(2,317)		41	347,948		(6,055)
Mortgage-backed securities	Mortgage-backed securities	16	139,071		(543)		—	—		—		16	139,071		(543)		Mortgage-backed securities	103	1,306,455		(20,417)		15	173,121		(5,763)		118	1,479,576		(26,180)
Total investment securities available-for-sale		106	$	812,988	$	(5,319)	10	$	10,865	$	(303)	116	$	823,853	$	(5,622)
Total AFS investment securities																	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, through the Company’s qualitative 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, the Company acquired $829.9 million of available-for-sale securities in connection with the acquisition of Opus. Such securities were evaluated and it was determined that there were no investment securities classified as purchase credit deteriorated upon acquisition and, as a result, no allowance for credit losses was recorded.

At ~~September 30, 2021,~~March 31, 2022, the Company had an ACL of ~~$11,000~~$41,000 for ~~held-to-maturity~~HTM investment securities classified as municipal bonds. These securities were transferred from ~~available-for-sale~~AFS to ~~held-to-maturity~~HTM during the third and fourth quarters of 2021 and first quarter of ~~2021. There was no~~2022. The Company had an ACL of $22,000 for ~~held-to-maturity~~HTM investment securities at December 31, ~~2020.~~2021. The Company recognized $19,000 and $11,000 of provision for credit losses for ~~held-to-maturity~~HTM investment securities during the three months ended March 31, 2022 and ~~nine months ended September 30, 2021.~~December 31, 2021, respectively. There was no provision for credit losses recognized for ~~held-to-maturity~~HTM investment securities during the three months ~~June 30, 2021, and September 30, 2020, and the nine months~~ ended ~~September 30, 2020.~~March 31, 2021.

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


	Three Months Ended March 31, 2022
(Dollars in thousands)	Balance, December 31, 2021		Provision for Credit Losses		Balance, March 31, 2022









HTM investment securities:
Municipal bonds	$	22	$	19	$	41

2923

The Company had no ACL for ~~available-for-sale or~~AFS investment securities at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. The Company performed a qualitative assessment of these investments as of March 31, 2022 and determined that the increase in unrealized losses was primarily the result of changes in interest rates with inflationary pressure driven by the Federal Reserve’s policy along with recent geopolitical developments, and does not believe the declines in fair value were credit related. As of ~~September 30, 2021,~~March 31, 2022, the Company 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 September 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 no provision for credit losses recognized for ~~available-for-sale~~AFS investment securities during the three months ended ~~September 30, 2021, June 30,~~March 31, 2022, December 31, 2021, or ~~September 30, 2020, and the nine months ended September 30, 2021 and September 30, 2020.~~March 31, 2021.

At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no ~~available-for-sale~~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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no securities purchased with deterioration in credit quality since their origination. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no 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 ~~September 30, 2021:~~March 31, 2022:


		Vintage															Vintage
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Total		(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Total
Investment securities available-for-sale at fair value:
AFS Investment securities at fair value:																AFS Investment securities at fair value:
U.S. Treasury	U.S. Treasury															U.S. Treasury
Aaa - Aa3	Aaa - Aa3	$	32,973	$	14,634	$	—	$	21,274	$	10,461	$	—	$	79,342	Aaa - Aa3	$	—	$	13,990	$	—	$	—	$	—	$	—	$	13,990

Agency	Agency															Agency
Aaa - Aa3	Aaa - Aa3	24,393		324,241		44,487		76,415		—		46,390		515,926		Aaa - Aa3	—		22,827		282,195		23,967		33,635		6,603		369,227

Baa1 - Baa3	Baa1 - Baa3	—		—		—		5,715		—		8,452		14,167		Baa1 - Baa3	—		—		—		—		—		6,550		6,550
Corporate debt	Corporate debt															Corporate debt

Aaa - Aa3																Aaa - Aa3	39,946		—		—		—		—		—		39,946
A1 - A3	A1 - A3	79,252		57,799		—		—		17,864		10,029		164,944		A1 - A3	74,565		203,779		62,222		—		—		—		340,566
Baa1 - Baa3	Baa1 - Baa3	36,473		100,614		70,704		—		—		13,656		221,447		Baa1 - Baa3	34,267		52,711		92,122		25,664		—		9,789		214,553
Municipal bonds	Municipal bonds															Municipal bonds
Aaa - Aa3	Aaa - Aa3	118,941		725,524		294,323		32,429		50,536		33,264		1,255,017		Aaa - Aa3	—		43,333		222,497		136,748		—		12,706		415,284
A1 - A3		—		—		—		—		—		849		849

Collateralized mortgage obligations	Collateralized mortgage obligations															Collateralized mortgage obligations
Aaa - Aa3	Aaa - Aa3	212,687		224,252		86,604		18,523		14,199		105,966		662,231		Aaa - Aa3	173,442		260,990		229,588		74,720		14,839		101,677		855,256

Mortgage-backed securities	Mortgage-backed securities															Mortgage-backed securities
Aaa - Aa3	Aaa - Aa3	1,250,191		391,394		101,935		6,891		25,280		20,201		1,795,892		Aaa - Aa3	19,610		772,190		113,748		58,778		—		2,397		966,723

Total investment securities available-for-sale		1,754,910		1,838,458		598,053		161,247		118,340		238,807		4,709,815
Investment securities held-to-maturity at amortized cost:
Total AFS investment securities																Total AFS investment securities	341,830		1,369,820		1,002,372		319,877		48,474		139,722		3,222,095
HTM investment securities at amortized cost:																HTM investment securities at amortized cost:
Municipal bonds	Municipal bonds															Municipal bonds
Aaa - Aa3	Aaa - Aa3	—		154,399		—		—		—		—		154,399		Aaa - Aa3	—		116,523		622,498		8,866		—		—		747,887

Mortgage-backed securities	Mortgage-backed securities															Mortgage-backed securities
Aaa - Aa3	Aaa - Aa3	—		—		—		4,206		3,767		6,683		14,656		Aaa - Aa3	—		135,396		101,116		—		2,942		7,596		247,050

Other	Other															Other

Baa1 - Baa3	Baa1 - Baa3	—		—		—		600		—		932		1,532		Baa1 - Baa3	—		—		—		—		582		904		1,486
Total investment securities held-to-maturity		—		154,399		—		4,806		3,767		7,615		170,587
Total HTM investment securities																Total HTM investment securities	—		251,919		723,614		8,866		3,524		8,500		996,423
Total investment securities	Total investment securities	$	1,754,910	$	1,992,857	$	598,053	$	166,053	$	122,107	$	246,422	$	4,880,402	Total investment securities	$	341,830	$	1,621,739	$	1,725,986	$	328,743	$	51,998	$	148,222	$	4,218,518

3024

Realized Gains and Losses

~~During~~The following table presents the ~~three months ended September 30, 2021, June 30, 2021,~~amortized cost of securities sold with related gross realized gains, gross realized losses, and ~~September 30, 2020,~~net realized gains for the Company recognized gross gains on sales of available-for-sale securities in the amount of $4.2 million, $10.0 million, and $1.2 million, respectively. The Company did not recognize any gross losses during the three months ended September 30, 2021. During the three months ended June 30, 2021 and September 30, 2020, the Company recognized gross losses on sales of available-for-sale securities in the amount of $5.0 million and $12,000, respectively. The Company had net proceeds from the sales of available-for-sale securities of $165.8 million, $285.3 million, and $212.5 million during the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively.periods indicated:

During the nine months ended September 30, 2021 and 2020, the Company recognized gross gains on sales of available-for-sale securities in the amount of $18.5 million and $10.4 million, respectively. During the nine months ended September 30, 2021 and 2020, the Company recognized gross losses on the sales of available-for sale securities in the amount of $5.1 million and $1.5 million, respectively. The Company had net proceeds from the sales of available-for-sale securities of $630.4 million and $558.9 million during the nine months ended September 30, 2021 and 2020, respectively.


	Three Months Ended
	March 31,		December 31,		March 31,
(Dollars in thousands)	2022		2021		2021
Amortized cost of AFS investment securities sold	$	658,505	$	267,114	$	172,320

Gross realized gains	$	13,637	$	4,723	$	4,237
Gross realized losses	(11,503)		(1,138)		(191)
Net realized gains on sales of AFS investment securities	$	2,134	$	3,585	$	4,046

Contractual maturities

The amortized cost and estimated fair value of investment securities at ~~September 30, 2021,~~March 31, 2022, by contractual maturity, are shown in the table below.


		Due in One Year or Less				Due after One Year through Five Years				Due after Five Years through Ten Years				Due after Ten Years				Total					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	$	—	$	—	$	30,126	$	31,734	$	47,677	$	47,608	$	—	$	—	$	77,803	$	79,342	U.S. Treasury	$	—	$	—	$	—	$	—	$	14,930	$	13,990	$	—	$	—	$	14,930	$	13,990
Agency	Agency	—		—		352,023		353,184		135,567		134,426		44,277		42,483		531,867		530,093		Agency	—		—		271,342		254,013		97,419		88,539		37,893		33,225		406,654		375,777
Corporate		10,021		10,029		21,178		21,227		352,711		355,135		—		—		383,910		386,391
Corporate debt																						Corporate debt	—		—		192,589		190,794		405,058		389,354		15,000		14,917		612,647		595,065
Municipal bonds	Municipal bonds	—		—		3,528		3,731		95,420		96,849		1,138,975		1,155,286		1,237,923		1,255,866		Municipal bonds	—		—		—		—		18,061		16,806		427,476		398,478		445,537		415,284
Collateralized mortgage obligations	Collateralized mortgage obligations	—		—		41,692		41,631		226,958		223,612		397,201		396,988		665,851		662,231		Collateralized mortgage obligations	—		—		36,738		36,544		243,674		231,495		593,970		587,217		874,382		855,256
Mortgage-backed securities	Mortgage-backed securities	—		—		12,098		12,704		709,280		709,155		1,086,380		1,074,033		1,807,758		1,795,892		Mortgage-backed securities	—		—		—		—		612,287		572,033		428,487		394,690		1,040,774		966,723
Total investment securities available-for-sale		10,021		10,029		460,645		464,211		1,567,613		1,566,785		2,666,833		2,668,790		4,705,112		4,709,815
Investment securities held-to-maturity:
Total AFS investment securities																						Total AFS investment securities	—		—		500,669		481,351		1,391,429		1,312,217		1,502,826		1,428,527		3,394,924		3,222,095
HTM investment securities:																						HTM investment securities:
Municipal bonds	Municipal bonds	—		—		—		—		—		—		154,399		152,163		154,399		152,163		Municipal bonds	—		—		—		—		44,774		42,509		703,113		603,580		747,887		646,089
Mortgage-backed securities	Mortgage-backed securities	—		—		—		—		—		—		14,656		15,459		14,656		15,459		Mortgage-backed securities	—		—		—		—		—		—		247,050		238,475		247,050		238,475
Other	Other	—		—		—		—		—		—		1,532		1,532		1,532		1,532		Other	—		—		—		—		—		—		1,486		1,486		1,486		1,486
Total investment securities held-to-maturity		—		—		—		—		—		—		170,587		169,154		170,587		169,154
Total HTM investment securities																						Total HTM investment securities	—		—		—		—		44,774		42,509		951,649		843,541		996,423		886,050
Total investment securities	Total investment securities	$	10,021	$	10,029	$	460,645	$	464,211	$	1,567,613	$	1,566,785	$	2,837,420	$	2,837,944	$	4,875,699	$	4,878,969	Total investment securities	$	—	$	—	$	500,669	$	481,351	$	1,436,203	$	1,354,726	$	2,454,475	$	2,272,068	$	4,391,347	$	4,108,145

3125

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 ~~September 30,~~March 31, 2022, the Company had $17.3 million in FHLB stock, $74.6 million in FRB stock, and $25.1 million in other stock, all carried at cost. At December 31, 2021, the Company had $17.3 million in FHLB stock, $74.5 million in FRB stock, and ~~$26.7~~$25.7 million in other ~~stock, all carried at cost.~~stock. During the three months ended ~~September 30, 2021, June 30,~~March 31, 2022, December 31, 2021, and ~~September 30, 2020,~~March 31, 2021, the FHLB did not repurchase any of the Company’s excess FHLB stock through its stock repurchase program.

The Company periodically evaluates its investments in FHLB, FRB, and other stock for impairment, including their capital adequacy and overall financial condition. No impairment losses have been recorded through ~~September 30, 2021.~~March 31, 2022.

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.

3226

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


		September 30,		December 31,			March 31,		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	$	2,823,065	$	2,675,085	CRE non-owner-occupied	$	2,774,650	$	2,771,137
Multifamily	Multifamily	5,705,666		5,171,356		Multifamily	6,041,085		5,891,934
Construction and land	Construction and land	292,815		321,993		Construction and land	303,811		277,640
SBA secured by real estate	SBA secured by real estate	49,446		57,331		SBA secured by real estate	42,642		46,917
Total investor loans secured by real estate	Total investor loans secured by real estate	8,870,992		8,225,765		Total investor loans secured by real estate	9,162,188		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	2,242,164		2,114,050		CRE owner-occupied	2,391,984		2,251,014
Franchise real estate secured	Franchise real estate secured	354,481		347,932		Franchise real estate secured	384,267		380,381
SBA secured by real estate	SBA secured by real estate	69,937		79,595		SBA secured by real estate	68,466		69,184
Total business loans secured by real estate	Total business loans secured by real estate	2,666,582		2,541,577		Total business loans secured by real estate	2,844,717		2,700,579
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	1,888,870		1,768,834		Commercial and industrial	2,242,632		2,103,112
Franchise non-real estate secured	Franchise non-real estate secured	392,950		444,797		Franchise non-real estate secured	388,322		392,576
SBA non-real estate secured	SBA non-real estate secured	12,732		15,957		SBA non-real estate secured	10,761		11,045

Total commercial loans	Total commercial loans	2,294,552		2,229,588		Total commercial loans	2,641,715		2,506,733
Retail loans	Retail loans					Retail loans
Single family residential	Single family residential	144,309		232,574		Single family residential	79,978		95,292
Consumer	Consumer	6,426		6,929		Consumer	5,157		5,665
Total retail loans	Total retail loans	150,735		239,503		Total retail loans	85,135		100,957
Gross loans held for investment (1)	Gross loans held for investment (1)	13,982,861		13,236,433		Gross loans held for investment (1)	14,733,755		14,295,897
Allowance for credit losses for loans held for investment	Allowance for credit losses for loans held for investment	(211,481)		(268,018)		Allowance for credit losses for loans held for investment	(197,517)		(197,752)
Loans held for investment, net	Loans held for investment, net	$	13,771,380	$	12,968,415	Loans held for investment, net	$	14,536,238	$	14,098,145

Total unfunded loan commitments	Total unfunded loan commitments	$	2,504,188	$	1,947,250	Total unfunded loan commitments	$	2,940,370	$	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	$	8,100	$	601	Loans held for sale, at lower of cost or fair value	$	11,646	$	10,869

(1) Includes net deferred origination fees of ~~$3.0~~$3.9 million and ~~$2.6~~$3.5 million, and unaccreted fair value net purchase discounts of ~~$85.0~~$71.2 million and ~~$113.8~~$77.1 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

3327

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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the servicing asset totaled ~~$4.1~~$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 ~~September 30, 2021~~March 31, 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 ~~September 30, 2021~~March 31, 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 ~~$590.9~~$542.4 million at ~~September 30, 2021~~March 31, 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 ~~$85.2~~$75.9 million and $78.1 million at March 31, 2022 and December 31, 2021, respectively, and SBA participations serviced for others of ~~$372.7~~$343.9 million and $365.6 million at ~~September 30, 2021,~~March 31, 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.

3428

Concentration of Credit Risk

As of ~~September 30, 2021,~~March 31, 2022, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located predominately in California. The Company’s loan portfolio contains concentrations of credit in 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 ~~$838.4~~$823.3 million for secured loans and ~~$503.0~~$494.0 million for unsecured loans at ~~September 30, 2021.~~March 31, 2022. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At ~~September 30, 2021,~~March 31, 2022, the Bank’s largest aggregate outstanding balance of loans to one borrower was ~~$176.8~~$235.5 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.

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.

3529

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.

3630

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of ~~September 30, 2021:~~March 31, 2022:


		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
September 30, 2021
March 31, 2022																				March 31, 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																			CRE non-owner-occupied
Pass	Pass	$	565,605	$	268,733	$	424,397	$	462,395	$	219,672	$	823,208	$	9,599	$	—	$	2,773,609	Pass	$	176,426	$	670,633	$	257,088	$	403,482	$	348,314	$	870,240	$	9,354	$	—	$	2,735,537
Special mention	Special mention	—		—		16,263		1,943		—		—		—		—		18,206		Special mention	—		—		—		—		7,633		2,245		—		—		9,878
Substandard	Substandard	—		—		25,775		—		—		4,950		525		—		31,250		Substandard	—		—		—		25,780		—		2,955		500		—		29,235

Multifamily	Multifamily																			Multifamily
Pass	Pass	1,694,447		1,012,346		1,348,563		526,744		501,849		619,628		218		—		5,703,795		Pass	465,994		2,279,374		871,658		1,082,386		399,926		940,701		286		—		6,040,325

Substandard	Substandard	—		—		—		543		556		772		—		—		1,871		Substandard	—		—		—		—		—		760		—		—		760

Construction and land	Construction and land																			Construction and land
Pass	Pass	86,107		125,190		51,733		22,134		3,996		3,607		48		—		292,815		Pass	46,203		132,985		79,651		28,556		9,027		7,389		—		—		303,811

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	130		499		7,373		9,113		12,665		9,722		—		—		39,502		Pass	1,966		130		496		6,135		6,847		18,215		—		—		33,789
Special mention		—		—		—		962		—		548		—		—		1,510

Substandard	Substandard	—		—		9		2,353		3,170		2,902		—		—		8,434		Substandard	—		—		—		—		3,282		5,571		—		—		8,853

Total investor loans secured by real estate	Total investor loans secured by real estate	2,346,289		1,406,768		1,874,113		1,026,187		741,908		1,465,337		10,390		—		8,870,992		Total investor loans secured by real estate	690,589		3,083,122		1,208,893		1,546,339		775,029		1,848,076		10,140		—		9,162,188
Business loans secured by real estate	Business loans secured by real estate																			Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied																			CRE owner-occupied
Pass	Pass	635,469		302,683		317,035		221,806		207,923		531,119		3,211		300		2,219,546		Pass	250,202		830,646		263,304		279,071		143,848		597,055		4,719		—		2,368,845
Special mention	Special mention	—		—		6,078		1,741		—		—		—		—		7,819		Special mention	—		—		—		—		764		—		—		—		764
Substandard	Substandard	—		—		—		6,109		2,972		5,718		—		—		14,799		Substandard	—		—		4,673		2,516		5,140		10,046		—		—		22,375

Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
Pass	Pass	97,884		43,332		59,772		44,306		66,901		42,286		—		—		354,481		Pass	24,715		156,307		35,974		54,053		36,483		76,735		—		—		384,267

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	3,789		2,368		7,533		10,498		11,230		25,181		1,361		—		61,960		Pass	6,107		7,452		2,357		7,133		4,760		32,189		—		—		59,998

Substandard																				Substandard	—		—		—		—		1,888		6,580		—		—		8,468

Total loans secured by business real estate																				Total loans secured by business real estate	281,024		994,405		306,308		342,773		192,883		722,605		4,719		—		2,844,717
Commercial loans																				Commercial loans
Commercial and industrial																				Commercial and industrial
Pass																				Pass	77,907		417,259		68,739		185,229		105,770		180,774		1,171,092		2,747		2,209,517
Special mention	Special mention	—		—		—		—		—		212		—		—		212		Special mention	—		—		339		—		—		142		530		—		1,011
Substandard	Substandard	—		—		—		1,326		3,000		3,439		—		—		7,765		Substandard	963		2,317		—		12		1,365		1,621		25,826		—		32,104

Total loans secured by business real estate		737,142		348,383		390,418		285,786		292,026		607,955		4,572		300		2,666,582
Franchise non-real estate secured																				Franchise non-real estate secured
Pass																				Pass	23,582		159,709		23,309		76,734		41,700		43,597		661		—		369,292

Substandard																				Substandard	—		—		—		1,550		3,517		13,963		—		—		19,030

SBA non-real estate secured																				SBA non-real estate secured
Pass																				Pass	663		467		543		1,861		756		4,752		—		—		9,042
Special mention																				Special mention	—		—		—		66		—		—		—		—		66
Substandard																				Substandard	—		—		—		75		244		692		642		—		1,653

Total commercial loans																				Total commercial loans	103,115		579,752		92,930		265,527		153,352		245,541		1,198,751		2,747		2,641,715

3731


		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
September 30, 2021
Commercial loans
Commercial and industrial
Pass		260,359		89,545		204,683		139,560		156,915		78,951		906,369		2,059		1,838,441
Special mention		—		—		189		—		—		—		14,629		—		14,818
Substandard		650		1,759		552		2,854		867		1,570		26,619		740		35,611

Franchise non-real estate secured
Pass		118,333		24,954		96,784		65,300		27,683		37,157		—		—		370,211

Substandard		—		—		2,236		4,421		14,903		1,179		—		—		22,739

SBA non-real estate secured
Pass		152		653		1,424		938		3,239		3,567		—		—		9,973
Special mention		—		—		698		117		—		—		—		—		815
Substandard		—		—		78		338		247		617		664		—		1,944

Total commercial loans		379,494		116,911		306,644		213,528		203,854		123,041		948,281		2,799		2,294,552
March 31, 2022																				March 31, 2022
Retail loans	Retail loans																			Retail loans
Single family residential	Single family residential																			Single family residential
Pass	Pass	20,201		3,518		1,967		1,633		6,954		86,711		23,274		—		144,258		Pass	$	—	$	309	$	194	$	—	$	31	$	55,677	$	23,721	$	—	$	79,932

Substandard	Substandard	—		—		—		—		—		51		—		—		51		Substandard	—		—		—		—		—		46		—		—		46

Consumer loans	Consumer loans																			Consumer loans
Pass	Pass	28		30		57		22		15		2,964		3,268		—		6,384		Pass	—		10		25		37		10		1,310		3,761		—		5,153

Substandard	Substandard	—		—		6		—		—		36		—		—		42		Substandard	—		—		—		4		—		—		—		—		4

Total retail loans	Total retail loans	20,229		3,548		2,030		1,655		6,969		89,762		26,542		—		150,735		Total retail loans	—		319		219		41		41		57,033		27,482		—		85,135
Totals gross loans	Totals gross loans	$	3,483,154	$	1,875,610	$	2,573,205	$	1,527,156	$	1,244,757	$	2,286,095	$	989,785	$	3,099	$	13,982,861	Totals gross loans	$	1,074,728	$	4,657,598	$	1,608,350	$	2,154,680	$	1,121,305	$	2,873,255	$	1,241,092	$	2,747	$	14,733,755

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of December 31, ~~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	$	—	$	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	—		—		6,669		437		2,516		29,738		—		—		39,360		Special mention	—		—		16,166		7,682		—		—		—		—		23,848
Substandard	Substandard	—		9,732		2,045		—		516		5,218		559		—		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		—		5,156,988		Pass	2,260,708		952,127		1,199,505		444,904		479,029		554,067		286		—		5,890,626
Special mention		—		1,758		2,630		—		8,649		—		—		—		13,037

Substandard	Substandard	—		—		—		559		772		—		—		—		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		—		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	—		8,306		9,029		13,418		6,305		7,696		—		—		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		—		—		4,366		Special mention	—		—		—		957		—		544		—		—		1,501
Substandard	Substandard	—		1,220		2,959		1,091		400		2,541		—		—		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		—		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	Business loans secured by real estate																			Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied																			CRE owner-occupied
Pass	Pass	293,324		409,758		332,672		327,475		225,098		469,704		14,268		246		2,072,545		Pass	853,044		273,469		287,249		161,636		187,130		464,271		6,738		292		2,233,829
Special mention		2,190		15,917		3,802		—		4,153		201		—		—		26,263

Substandard	Substandard	—		—		3,636		4,214		1,169		5,973		250		—		15,242		Substandard	—		—		2,553		6,074		2,966		5,592		—		—		17,185

Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
Pass	Pass	44,413		81,438		66,241		96,999		24,673		27,020		—		—		340,784		Pass	156,381		36,335		55,091		40,047		56,288		34,878		1,361		—		380,381
Special mention		878		1,650		2,652		—		—		—		—		—		5,180
Substandard		—		—		—		—		1,968		—		—		—		1,968

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	3,253		7,637		12,608		16,058		8,488		23,624		—		—		71,668		Pass	6,379		2,364		7,331		9,125		10,734		24,627		—		—		60,560
Special mention	Special mention	—		—		1,200		—		137		—		—		—		1,337		Special mention	—		—		—		—		—		62		—		—		62
Substandard	Substandard	—		—		184		1,987		1,376		3,043		—		—		6,590		Substandard	—		—		—		2,062		2,690		3,810		—		—		8,562

Total loans secured by business real estate	Total loans secured by business real estate	344,058		516,400		422,995		446,733		267,062		529,565		14,518		246		2,541,577		Total loans secured by business real estate	1,015,804		312,168		352,224		218,944		259,808		533,240		8,099		292		2,700,579

3932

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 — 2,331 185 1,320 243 17,890 37 22,741
Substandard — 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 — 7,267 2,037 230 480 2,321 — — 12,335
Substandard — 6,690 3,706 18,425 700 204 — — 29,725
SBA non-real estate secured
Pass 407 2,257 1,558 2,674 610 4,449 — 259 12,214
Special mention — — — 1,574 — — — — 1,574
Substandard — 83 357 282 340 400 707 — 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 — 231,917
Substandard — — — — — 657 — — 657
Consumer loans
Pass 52 112 37 25 2 3,145 3,508 — 6,881
Substandard — 7 — — — 41 — — 48
Total retail loans 10,846 7,833 14,019 14,064 33,970 128,091 30,680 — 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
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
Totals gross loans	$	4,696,852	$	1,736,838	$	2,322,876	$	1,254,797	$	1,143,567	$	2,014,563	$	1,121,488	$	4,916	$	14,295,897

4033

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
September 30, 2021
March 31, 2022												March 31, 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	$	2,812,797	$	—	$	—	$	10,268	$	2,823,065	CRE non-owner-occupied	$	2,762,632	$	—	$	—	$	12,018	$	2,774,650
Multifamily	Multifamily	5,705,666		—		—		—		5,705,666		Multifamily	6,041,085		—		—		—		6,041,085
Construction and land	Construction and land	292,815		—		—		—		292,815		Construction and land	303,811		—		—		—		303,811
SBA secured by real estate	SBA secured by real estate	48,470		—		629		347		49,446		SBA secured by real estate	42,642		—		—		—		42,642
Total investor loans secured by real estate	Total investor loans secured by real estate	8,859,748		—		629		10,615		8,870,992		Total investor loans secured by real estate	9,150,170		—		—		12,018		9,162,188
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,237,186		—		—		4,978		2,242,164		CRE owner-occupied	2,387,083		—		—		4,901		2,391,984
Franchise real estate secured	Franchise real estate secured	354,481		—		—		—		354,481		Franchise real estate secured	384,267		—		—		—		384,267
SBA secured by real estate	SBA secured by real estate	69,496		—		—		441		69,937		SBA secured by real estate	68,025		—		—		441		68,466
Total business loans secured by real estate	Total business loans secured by real estate	2,661,163		—		—		5,419		2,666,582		Total business loans secured by real estate	2,839,375		—		—		5,342		2,844,717
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	1,886,386		654		14		1,816		1,888,870		Commercial and industrial	2,216,983		25,332		74		243		2,242,632
Franchise non-real estate secured	Franchise non-real estate secured	392,950		—		—		—		392,950		Franchise non-real estate secured	388,322		—		—		—		388,322
SBA not secured by real estate	SBA not secured by real estate	11,701		74		293		664		12,732		SBA not secured by real estate	10,119		—		—		642		10,761

Total commercial loans	Total commercial loans	2,291,037		728		307		2,480		2,294,552		Total commercial loans	2,615,424		25,332		74		885		2,641,715
Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	144,309		—		—		—		144,309		Single family residential	79,978		—		—		—		79,978
Consumer loans	Consumer loans	6,426		—		—		—		6,426		Consumer loans	5,157		—		—		—		5,157
Total retail loans	Total retail loans	150,735		—		—		—		150,735		Total retail loans	85,135		—		—		—		85,135
Totals	Totals	$	13,962,683	$	728	$	936	$	18,514	$	13,982,861	Totals	$	14,690,104	$	25,332	$	74	$	18,245	$	14,733,755




December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied	$	2,760,882	$	—	$	—	$	10,255	$	2,771,137
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
Totals	$	14,276,402	$	1,395	$	—	$	18,100	$	14,295,897

4134

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 $ — $ — $ 757 $ 2,675,085
Multifamily 5,171,355 1 — — 5,171,356
Construction and land 321,993 — — — 321,993
SBA secured by real estate 56,074 — — 1,257 57,331
Total investor loans secured by real estate 8,223,750 1 — 2,014 8,225,765
Business loans secured by real estate
CRE owner-occupied 2,108,746 — — 5,304 2,114,050
Franchise real estate secured 347,932 — — — 347,932
SBA secured by real estate 78,036 486 — 1,073 79,595
Total business loans secured by real estate 2,534,714 486 — 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 — — — 444,797
SBA not secured by real estate 14,912 338 — 707 15,957
Total commercial loans 2,225,160 766 57 3,605 2,229,588
Retail loans
Single family residential 232,559 15 — — 232,574
Consumer loans 6,928 1 — — 6,929
Total retail loans 239,487 16 — — 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 ~~September 30, 2021, $35.1~~March 31, 2022, $55.3 million of loans were individually evaluated with ~~$571,000~~$1.2 million ACL attributed to such loans. At ~~September 30, 2021, $12.8~~March 31, 2022, $11.8 million of individually evaluated loans were evaluated using a discounted cash flow approach, and ~~$22.3~~$43.5 million of individually evaluated loans were evaluated based on the underlying value of the collateral. All individually evaluated loans were on nonaccrual status at March 31, 2022.

As of December 31, ~~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 $35.1 million and $29.2 million at September 30, 2021 and December 31, 2020, respectively.~~

Troubled Debt Restructurings

We sometimes modify or restructure loans when the borrower is experiencing financial difficulties by making a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest-only 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 ~~September 30, 2021, there were $17.6 million loans classified as TDRs, compared with no TDR loans as of~~March 31, 2022 and December 31, ~~2020. During~~2021, the ~~three and nine months ended September 30, 2021, there were~~Company had 6 loans totaling ~~$17.6~~$16.9 million and $17.3 million, respectively, modified as TDRs, which are comprised of 3 CRE owner-occupied loans and 1 C&I loan totaling $5.1 million and $5.2 million, respectively, belonging to one borrower relationship with the terms modified due to bankruptcy, and 2 franchise non-real estate secured loans totaling ~~$12.3~~$11.8 million and $12.1 million, respectively, belonging to another borrower relationship with the terms modified for payment deferral. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the 3 CRE owner-occupied loans and 1 C&I loan classified as TDRs experienced payment defaults after modifications within the previous 12 months and were in payment ~~default and all~~default. All TDRs were on nonaccrual status as of ~~September 30,~~March 31, 2022 and December 31, 2021. During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, there were no loans modified as TDRs and no TDRs that experienced payment defaults after modifications within the previous 12 months.

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

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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 September 30, 2021, no loans were classified as a COVID-19 modification under Section 4013 of the CARES Act and no loans were in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for investment, remained within their COVID-19 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 ~~accounts for interest income on~~had 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.~~$542.4 million and $567.6 million at March 31, 2022 and December 31, 2021, respectively.

Acquired loans classified as PCD are recorded at an initial amortized cost, which is comprised of the purchase price of the loans (or initial fair value) and the initial ACL determined for the loans, which is added to the purchase price, as well as any resulting discount or premium related to factors other than credit. The Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield. Subsequent to acquisition, the ACL for PCD loans is measured in accordance with the Company’s ACL methodology. Please also see Note 76 - 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. Generally, the Company~~basis. Loans may ~~return a loan~~be returned to accruing status if the Company believes that all ~~past due~~remaining principal and interest ~~have~~is fully collectible and there has been ~~collected and~~at least three months of sustained repayment performance since the ~~Company expects repayment of the remaining contractual amounts~~loan was placed on the loan. In some cases, the Company may require a sustained period of performance from the borrower, such as three consecutive payments, before returning a loan to accruing status. The Company may also return a loan to accruing status when it becomes well secured and in the process of collection.nonaccrual.

The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. However, when such loans are well secured and in the process of collection, the Company may continue with the accrual of interest. The Company had loans on nonaccrual status of $55.3 million at March 31, 2022 and $31.3 million at December 31, 2021. The Company did not record income from the receipt of cash payments related to nonaccruing loans during the three months ended March 31, 2022, December 31, 2021, and March 31, 2021. The Company had one CRE owner-occupied loan of $1.8 million in default for more than 90 days and still accruing ~~interest.~~interest, pending a legal proceeding with repayment reasonably expected at March 31, 2022. The Company had no loans 90 days or more past due and still accruing at ~~September 30, 2021 and~~ December 31, 2020, respectively. Nonaccrual loans totaled $35.1 million at September 30, 2021 and $29.2 million as of December 31, 2020. No interest income was recognized on nonaccrual loans during the three and nine months ended September 30, 2021 and September 30, 2020.

2021.

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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
September 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied $ 12,179 $ 571 $ — $ — $ 12,179 $ 4,563
SBA secured by real estate 976 — — — 976 976
Total investor loans secured by real estate 13,155 571 — — 13,155 5,539
Business loans secured by real estate
CRE owner-occupied 4,978 — — — 4,978 4,978
SBA secured by real estate 604 — — — 604 604
Total business loans secured by real estate 5,582 — — — 5,582 5,582
Commercial loans
Commercial and industrial 1,816 — 443 — 2,259 2,259
Franchise non-real estate secured 1,086 — 12,333 — 13,419 13,419
SBA non-real estate secured 664 — — — 664 664
Total commercial loans 3,566 — 12,776 — 16,342 16,342
Retail loans
Single family residential 11 — — — 11 11
Total retail loans 11 — — — 11 11
Total nonaccrual loans $ 22,314 $ 571 $ 12,776 $ — $ 35,090 $ 27,474

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


	Nonaccrual Loans (1)
(Dollars in thousands)	Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied	$	10,243	$	1,152	$	—	$	—	$	10,243	$	2,627


SBA secured by real estate	573		—		—		—		573		573
Total investor loans secured by real estate	10,816		1,152		—		—		10,816		3,200
Business loans secured by real estate
CRE owner-occupied	4,901		—		—		—		4,901		4,901

SBA secured by real estate	575		—		—		—		575		575
Total business loans secured by real estate	5,476		—		—		—		5,476		5,476
Commercial loans
Commercial and industrial	26,588		—		—		—		26,588		26,588
Franchise non-real estate secured	—		—		11,779		—		11,779		11,779
SBA non-real estate secured	642		—		—		—		642		642
Total commercial loans	27,230		—		11,779		—		39,009		39,009
Retail loans
Single family residential	8		—		—		—		8		8

Total retail loans	8		—		—		—		8		8
Total nonaccrual loans	$	43,530	$	1,152	$	11,779	$	—	$	55,309	$	47,693


		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	$	—	$	—	$	—	$	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		—		—		—		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		—		—		—		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		—		—		—		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		—		—		—		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		—		—		—		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		—		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	—		—		13,238		—		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		—		—		—		707		707		SBA non-real estate secured	653		—		—		—		653		653
Total commercial loans	Total commercial loans	2,747		—		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		—		—		—		15		15		Single family residential	10		—		—		—		10		10

Total retail loans	Total retail loans	15		—		—		—		15		15		Total retail loans	10		—		—		—		10		10
Total nonaccrual loans	Total nonaccrual loans	$	14,037	$	—	$	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 no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of ~~September 30, 2021~~March 31, 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:

September 30, 2021
(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 $ — $ — $ 2,437 $ — $ 9,742 $ — $ — $ 12,179
SBA secured by real estate — — — — 976 — — 976
Total investor loans secured by real estate — — 2,437 — 10,718 — — 13,155
Business loans secured by real estate
CRE owner-occupied — — — 4,978 — — — 4,978
SBA secured by real estate 163 441 — — — — — 604
Total business loans secured by real estate 163 441 — 4,978 — — — 5,582
Commercial loans
Commercial and industrial — — — 246 — 240 1,330 1,816
Franchise non-real estate secured — — — — — — 1,086 1,086
SBA non-real estate secured — — — — — — 664 664
Total commercial loans — — — 246 — 240 3,080 3,566
Retail loans
Single family residential — — — — — 11 — 11
Total retail loans — — — — — 11 — 11
Total collateral dependent loans $ 163 $ 441 $ 2,437 $ 5,224 $ 10,718 $ 251 $ 3,080 $ 22,314



(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Residential Properties		Business Assets		Total
March 31, 2022
Investor loan secured by real estate
CRE non-owner-occupied	$	—	$	—	$	500	$	—	$	9,743	$	—	$	—	$	10,243


SBA secured by real estate	—		—		—		—		573		—		—		573
Total investor loans secured by real estate	—		—		500		—		10,316		—		—		10,816
Business loans secured by real estate
CRE owner-occupied	—		—		—		4,901		—		—		—		4,901

SBA secured by real estate	133		442		—		—		—		—		—		575
Total business loans secured by real estate	133		442		—		4,901		—		—		—		5,476
Commercial loans
Commercial and industrial	—		—		—		242		—		—		26,346		26,588

SBA non-real estate secured	—		—		—		—		—		—		642		642
Total commercial loans	—		—		—		242		—		—		26,988		27,230
Retail loans
Single family residential	—		—		—		—		—		8		—		8

Total retail loans	—		—		—		—		—		8		—		8
Total collateral dependent loans	$	133	$	442	$	500	$	5,143	$	10,316	$	8	$	26,988	$	43,530

December 31, 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 $ — $ — $ 2,594 $ — $ 198 $ — $ — $ 2,792
SBA secured by real estate — — — — 1,257 — — 1,257
Total investor loans secured by real estate — — 2,594 — 1,455 — — 4,049
Business loans secured by real estate
CRE owner-occupied — 779 — 5,304 — — — 6,083
SBA secured by real estate 288 757 — — — 98 — 1,143
Total business loans secured by real estate 288 1,536 — 5,304 — 98 — 7,226
Commercial loans
Commercial and industrial — — — — — — 2,040 2,040
SBA non-real estate secured — — — — — — 707 707
Total commercial loans — — — — — — 2,747 2,747
Retail loans
Single family residential — — — — — 15 — 15
Total retail loans — — — — — 15 — 15
Total collateral dependent loans $ 288 $ 1,536 $ 2,594 $ 5,304 $ 1,455 $ 113 $ 2,747 $ 14,037




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

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Note 76 – Allowance for Credit Losses

The Company ~~determines the~~maintains an ACL for loans and unfunded loan commitments in accordance with ASC 326 - Financial Instruments - Credit Losses. ASC 326 requires the Company to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses at origination or acquisition represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. 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 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 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.

4939

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.

5040

EconomicForecasts

GAAP requires the Company to develop reasonable and supportable forecasts of future conditions, and estimate how those forecasts are expected to impact a borrower’s ability to satisfy their obligation to the Bank and the ultimate collectability of future cash flows over the life of a loan. The Company uses economic scenarios from an independent third ~~party, Moody’s Analytics.~~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.~~pandemic, the war between Russia and Ukraine, and ongoing inflationary pressures throughout the U.S. economy. The Company recognizes the non-linearity of credit losses relative to economic performance and thus the Company believes consideration of, and if appropriate under the circumstances, use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. This approach is based on certain assumptions. The first assumption is that no single forecast of the economy, however detailed or complex, is completely accurate over a reasonable forecast time-frame, and is subject to revisions over time. By considering multiple scenario outcomes and assigning reasonable probability weightings to them, some of the uncertainty associated with a single scenario approach, the Company believes, is mitigated.

As of ~~September 30, 2021,~~March 31, 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 a weighting of 30%. ~~These economic scenarios include the current and estimated future impact associated with the ongoing COVID-19 pandemic.~~ The Company evaluated the weightings of each economic scenario in the current period ~~with the assistance of Moody's Analytics,~~ and determined the current weightings of 40% for the base-case scenario, and 30% for each of the upside and downside scenarios appropriately reflect the likelihood of outcomes for each scenario given the current economic environment. The use of three ~~probability-weighted~~weighted scenarios at ~~September 30, 2021~~March 31, 2022 and the weighting assigned to each scenario is consistent with the approach used in the Company’s ACL model at ~~June 30, 2021 and~~ December 31, ~~2020.~~2021.

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

The Company ~~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.

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 several economic scenarios. Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the model, the Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL.

As of ~~September 30, 2021,~~March 31, 2022, the Company’s ACL model incorporated the following assumptions for key economic variables in the base-case, upside, and downside ~~scenarios:~~scenarios, which are largely unchanged from those used in the ACL model at December 31, 2021:

Base-case Scenario:

•U.S. unemployment declines to ~~approximately 4.5% by~~3.5% through the end of ~~2021. Unemployment continues to decline in~~ 2022 ~~to approximately 3.4% by the end of 2022. The rate of unemployment~~and holds relatively constant at approximately 3.5% throughout 2023.

•U.S. real GDP ~~experiences annualized~~ growth ofdecelerates throughout 2022 from approximately ~~7% through the remainder of 2021. Growth in real GDP for 2022 under this scenario decelerates from an annualized rate of approximately 5% in early 2022~~5.4% to approximately 1%2.8% by the end of 2022. ~~Annualized~~U.S. real GDP growth accelerates slightly from 2.7% from the beginning of ~~approximately 2-3% in~~2023 to 2.8% towards the end of 2023.

•CRE index ~~experiences a slight decline throughout the remainder of 2021, with an annualized rate of decline of approximately -2% for 2021. The CRE index returns to moderate levels of~~ growth ~~beginning~~accelerates in 2022 from 0.4% in the ~~first~~second quarter of 2022 ~~with the annualized rate of growth increasing from 2% in early 2022~~ to ~~11%~~approximately 8.3% by the end of 2022. ~~The~~Growth in the CRE index ~~is anticipated~~then decelerates from approximately 11.2% at the beginning of 2023 to ~~increase~~6.8% by the end of 2023.

•The 10-year U.S. Treasury yield ends 2022 at approximately ~~7-9% on an annualized basis in~~2.4%, and increases to approximately 3.1% by the end of 2023.

Upside Scenario:

•U.S. unemployment rate declines to approximately ~~4.3% by~~3.1% through the end of ~~2021. The unemployment rates~~2022 and holds relatively constant at approximately 3%3.0% throughout ~~all of 2022 and~~ 2023.

•U.S. real GDP ~~experiences annualized~~ growth ~~of approximately 11% through the remainder of 2021. Growth in real GDP~~decelerates throughout 2022 ~~decelerates~~ from ~~an annualized rate of~~ approximately ~~7% in early 2022~~9.3% to approximately 1%4.2% by the end of 2022. ~~Annualized~~U.S. real GDP growth ofdecelerates from approximately ~~1-2%~~4.4% in early 2023 to approximately 1.9% by the end of 2023.

•CRE index ~~remains relatively unchanged throughout the remainder of 2021. The CRE index returns~~ growth accelerates in 2022 ~~with~~from approximately 1.9% in the ~~annualized rate~~second quarter of ~~growth increasing from 5% in early~~ 2022 to ~~14%~~approximately 14.1% by the end of 2022. Growth in the CRE index then decelerates from approximately 15.0% at the beginning of 2023 to approximately 6.9% by the end of 2023.

•The 10-year U.S. Treasury yield ends 2022 at approximately 2.3%, and then increases to approximately 3.0% by the end of 2023.

Downside Scenario:

•U.S. unemployment rate increases to approximately 8.2% through the end of 2022 and then declines moderately to approximately 8.0% by the end of 2023.

•U.S. real GDP declines decelerate in 2022 from approximately -4.0% in the second quarter to approximately -1.9% by the end of 2023. U.S. real GDP then returns to accelerating growth throughout 2023, with growth of approximately 3.4% by the end of 2023.

•CRE index declines accelerate in 2023 from approximately -3.5% in the second quarter of 2023 to approximately -19.5% by the end of 2023. The CRE index ~~is anticipated to experience a decelerating annualized rate~~declines decelerate through the third quarter of ~~growth~~2023 from approximately ~~10%~~-10.9% to -3.8%. The CRE index then returns to growth in ~~early 2023~~the fourth quarter of 2023.

•The 10-year U.S. Treasury yield ends 2022 at approximately 1.2%, and then increases to approximately 7%2.1% by the end of 2023.

5242

~~Downside Scenario:~~

•U.S. unemployment increases to approximately 6.7% by the end of 2021. Unemployment remains elevated in 2022 at approximately 8-9%. Unemployment declines throughout 2023 to approximately 6.8% at the end of 2023.

•U.S. real GDP experiences a decline of approximately -3.5% for the remainder of 2021. Real GDP returns to modest annualized growth in the third quarter of 2022, with growth of approximately 1% for the remainder of 2022. Annualized real GDP fluctuates within a range of approximately 2-4% throughout 2023.

•CRE index experiences an annualized rate of decline throughout the remainder 2021 of approximately -5%. The CRE index is estimated to experience decelerating declines throughout 2022, with the annualized rate of decline slowing from approximately -16% in early 2022 to approximately -11% by the end of 2022. Under this scenario, the CRE index is anticipated to experience accelerating annualized growth throughout 2023 to approximately 18% by the end of 2023.

Qualitative Adjustments

The Company recognizes that historical information used as the basis for determining future expected credit losses may not always, by ~~themselves,~~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 ~~September 30, 2021,~~March 31, 2022, qualitative ~~adjustments included in the ACL totaled $6.5 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 SBA investor loans ~~within the SBA,~~secured by real estate, construction loans, and franchise ~~and CRE owner-occupied classifications.~~loans. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.

The following tables 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 September 30, 2021
													Three Months Ended March 31, 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	$	47,112	$	—	$	—	$	(4,645)	$	42,467	CRE non-owner occupied	$	37,380	$	—	$	—	$	(1,406)	$	35,974
Multifamily	Multifamily	59,059		—		—		(6,895)		52,164		Multifamily	55,209		—		—		(884)		54,325
Construction and land	Construction and land	9,548		—		—		(1,531)		8,017		Construction and land	5,211		—		—		8		5,219
SBA secured by real estate	SBA secured by real estate	4,681		(158)		—		(644)		3,879		SBA secured by real estate	3,201		(70)		—		(81)		3,050
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		—		14		(2,082)		33,679		CRE owner-occupied	29,575		—		10		2,306		31,891
Franchise real estate secured	Franchise real estate secured	11,436		—		—		(1,810)		9,626		Franchise real estate secured	7,985		—		—		(8)		7,977
SBA secured by real estate	SBA secured by real estate	6,317		—		50		(1,263)		5,104		SBA secured by real estate	4,866		—		—		329		5,195
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	39,879		(84)		729		(2,929)		37,595		Commercial and industrial	38,136		(2,179)		1,841		800		38,598
Franchise non-real estate secured	Franchise non-real estate secured	17,313		(2,398)		80		2,523		17,518		Franchise non-real estate secured	15,084		—		—		(780)		14,304
SBA non-real estate secured	SBA non-real estate secured	730		—		15		(113)		632		SBA non-real estate secured	565		(50)		2		(27)		490

Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	670		—		2		(143)		529		Single family residential	255		—		—		(22)		233
Consumer loans	Consumer loans	282		—		—		(11)		271		Consumer loans	285		—		—		(24)		261
Totals	Totals	$	232,774	$	(2,640)	$	890	$	(19,543)	$	211,481	Totals	$	197,752	$	(2,299)	$	1,853	$	211	$	197,517

Nine Months Ended September 30, 2021
(Dollars in thousands) Beginning ACL Balance Charge-offs Recoveries Provision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied $ 49,176 $ (154) $ — $ (6,555) $ 42,467
Multifamily 62,534 — — (10,370) 52,164
Construction and land 12,435 — — (4,418) 8,017
SBA secured by real estate 5,159 (423) — (857) 3,879
Business loans secured by real estate
CRE owner-occupied 50,517 — 44 (16,882) 33,679
Franchise real estate secured 11,451 — — (1,825) 9,626
SBA secured by real estate 6,567 (98) 130 (1,495) 5,104
Commercial loans
Commercial and industrial 46,964 (4,653) 3,428 (8,144) 37,595
Franchise non-real estate secured 20,525 (2,554) 80 (533) 17,518
SBA non-real estate secured 995 — 19 (382) 632
Retail loans
Single family residential 1,204 — 3 (678) 529
Consumer loans 491 — — (220) 271
Totals $ 268,018 $ (7,882) $ 3,704 $ (52,359) $ 211,481

5443


		Three Months Ended September 30, 2020						Three Months Ended March 31, 2021

(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	$	63,007	$	(443)	$	—		$	(8,459)	$	54,105	CRE non-owner occupied	$	49,176	$	(154)	$	—	$	(3,477)	$	45,545
Multifamily	Multifamily	63,511		—		—			3,825		67,336		Multifamily	62,534		—		—		17,281		79,815
Construction and land	Construction and land	18,804		(377)		—			(2,870)		15,557		Construction and land	12,435		—		—		828		13,263
SBA secured by real estate	SBA secured by real estate	2,010		(145)		34			3,428		5,327		SBA secured by real estate	5,159		(265)		—		247		5,141
Business loans secured by real estate	Business loans secured by real estate												Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	48,213		(1,739)		21			2,171		48,666		CRE owner-occupied	50,517		—		15		(8,938)		41,594
Franchise real estate secured	Franchise real estate secured	13,060		—		—			(1,072)		11,988		Franchise real estate secured	11,451		—		—		(575)		10,876
SBA secured by real estate	SBA secured by real estate	4,368		—		76			1,716		6,160		SBA secured by real estate	6,567		(98)		—		(18)		6,451
Commercial loans	Commercial loans												Commercial loans
Commercial and industrial	Commercial and industrial	41,967		(2,437)		10			8,374		47,914		Commercial and industrial	46,964		(1,279)		601		(2,913)		43,373
Franchise non-real estate secured	Franchise non-real estate secured	21,676		(207)		865			(2,185)		20,149		Franchise non-real estate secured	20,525		(156)		—		(1,466)		18,903
SBA non-real estate secured	SBA non-real estate secured	600		(10)		8			353		951		SBA non-real estate secured	995		—		2		(107)		890

Retail loans	Retail loans												Retail loans
Single family residential	Single family residential	1,479		—		2			(238)		1,243		Single family residential	1,204		—		—		(382)		822
Consumer loans	Consumer loans	3,576		(129)		1			(341)		3,107		Consumer loans	491		—		—		(165)		326
Totals	Totals	$	282,271	$	(5,487)	$	1,017		$	4,702	$	282,503	Totals	$	268,018	$	(1,952)	$	618	$	315	$	266,999

Nine Months Ended September 30, 2020
(Dollars in thousands)
Beginning ACL Balance (1)
Adoption of ASC 326 Initial ACL Recorded for PCD Loans Charge-offs Recoveries Provision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied $ 1,899 $ 8,423 $ 3,025 $ (830) $ — $ 41,588 $ 54,105
Multifamily 729 9,174 8,710 — — 48,723 67,336
Construction and land 4,484 (124) 2,051 (377) — 9,523 15,557
SBA secured by real estate 1,915 (1,401) — (699) 34 5,478 5,327
Business loans secured by real estate
CRE owner-occupied 2,781 20,166 3,766 (1,739) 44 23,648 48,666
Franchise real estate secured 592 5,199 — — — 6,197 11,988
SBA secured by real estate 2,119 2,207 235 (315) 147 1,767 6,160
Commercial loans
Commercial and industrial 13,857 87 2,325 (5,213) 37 36,821 47,914
Franchise non-real estate secured 5,816 9,214 — (1,434) 865 5,688 20,149
SBA non-real estate secured 445 218 924 (803) 13 154 951
Retail loans
Single family residential 655 541 206 (62) 3 (100) 1,243
Consumer loans 406 1,982 — (137) 2 854 3,107
Totals $ 35,698 $ 55,686 $ 21,242 $ (11,609) $ 1,145 $ 180,341 $ 282,503

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

The decrease in the ACL for loans held for investment during the three months ended ~~September 30, 2021~~March 31, 2022 of ~~$21.3 million~~$235,000 was comprised of ~~a $19.5 million provision recapture and $1.8 million~~$446,000 in net charge-offs. The provision recapture for the three months ended September 30, 2021 was reflective of improving economic forecasts employed in the Company’s ACL model relative to prior periods and the favorable asset quality profile of the loan portfolio,charge-offs, partially offset by ~~an increase in loans held for investment during the quarter. The decrease in the ACL for the nine months ended September 30, 2021 of $56.5 million was comprised of~~ a $52.4 million provision recapture and $4.2 million in net charge-offs. The provision recapture for the nine months ended September 30, 2021 was also reflective of improving economic forecasts employed in the Company’s ACL model and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment during the first nine months of 2021.

~~The increase in the ACL for the three months ended September 30, 2020 of $232,000 was comprised of a $4.7 million~~$211,000 provision for credit ~~losses and $4.5 million in net charge-offs.~~losses. The provision for credit losses for the three months ended ~~September 30, 2020~~March 31, 2022 was reflective of higher loans held for investment and growing economic uncertainties, offset by improved economic forecasts and asset quality.

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


	Term Loans by Vintage
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00%	$	176,426	$	651,475	$	250,051	$	369,190	$	339,561	$	791,623	$	9,354	$	—	$	2,587,680
>5.00% - 10.00%	—		8,632		1,141		718		16,386		54,229		—		—		81,106
Greater than 10%	—		10,526		5,896		59,354		—		29,588		500		—		105,864
Multifamily
0% - 5.00%	461,776		2,251,232		865,755		1,057,766		398,127		926,880		286		—		5,961,822
>5.00% - 10.00%	4,218		23,077		5,903		24,620		1,799		14,581		—		—		74,198
Greater than 10%	—		5,065		—		—		—		—		—		—		5,065
Construction and Land
0% - 5.00%	45,018		106,397		62,442		15,840		5,618		7,389		—		—		242,704
>5.00% - 10.00%	1,185		23,088		13,821		4,815		—		—		—		—		42,909
Greater than 10%	—		3,500		3,388		7,901		3,409		—		—		—		18,198
SBA secured by real estate
0% - 5.00%	1,966		130		496		6,135		10,129		23,213		—		—		42,069
>5.00% - 10.00%	—		—		—		—		—		—		—		—		—
Greater than 10%	—		—		—		—		—		573		—		—		573
Total investor loans secured by real estate	690,589		3,083,122		1,208,893		1,546,339		775,029		1,848,076		10,140		—		9,162,188
Business loans secured by real estate
CRE owner-occupied
0% - 5.00%	250,202		830,646		263,304		279,071		143,848		597,055		4,719		—		2,368,845
>5.00% - 10.00%	—		—		—		—		764		—		—		—		764
Greater than 10%	—		—		4,673		2,516		5,140		10,046		—		—		22,375
Franchise real estate secured
0% - 5.00%	24,715		152,674		35,974		54,053		35,233		73,922		—		—		376,571
>5.00% - 10.00%	—		1,245		—		—		1,250		2,813		—		—		5,308
Greater than 10%	—		2,388		—		—		—		—		—		—		2,388
SBA secured by real estate
0% - 5.00%	6,107		7,452		1,596		5,785		3,459		22,774		—		—		47,173
>5.00% - 10.00%	—		—		761		1,348		1,302		9,414		—		—		12,825
Greater than 10%	—		—		—		—		1,887		6,581		—		—		8,468
Total business loans secured by real estate	281,024		994,405		306,308		342,773		192,883		722,605		4,719		—		2,844,717


	Term Loans by Vintage
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2022
Commercial loans
Commercial and industrial
0% - 5.00%	75,796		410,671		67,470		178,211		101,951		177,185		854,129		1,247		1,866,660
>5.00% - 10.00%	2,111		6,964		1,608		7,018		3,819		3,589		317,797		—		342,906
Greater than 10%	963		1,941		—		12		1,365		1,763		25,522		1,500		33,066
Franchise non-real estate secured
0% - 5.00%	23,120		158,940		15,289		62,490		36,456		35,717		555		—		332,567
>5.00% - 10.00%	462		769		8,020		14,244		5,244		7,306		106		—		36,151
Greater than 10%	—		—		—		1,550		3,517		14,537		—		—		19,604
SBA not secured by real estate
0% - 5.00%	663		467		477		87		266		2,451		—		—		4,411
>5.00% - 10.00%	—		—		66		1,775		490		2,301		—		—		4,632
Greater than 10%	—		—		—		140		244		692		642		—		1,718
Total commercial loans	$	103,115	$	579,752	$	92,930	$	265,527	$	153,352	$	245,541	$	1,198,751	$	2,747	$	2,641,715


	Term Loans by Vintage
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00%	$	654,823	$	233,718	$	375,691	$	392,892	$	193,762	$	682,357	$	4,022	$	—	$	2,537,265
>5.00% - 10.00%	37,931		22,965		9,174		2,713		23,559		23,707		5,331		—		125,380
Greater than 10%	15,806		13,261		50,175		—		1,067		27,670		513		—		108,492
Multifamily
0% - 5.00%	2,242,420		929,964		1,174,859		442,410		470,107		548,156		286		—		5,808,202
>5.00% - 10.00%	13,226		7,393		24,646		1,807		8,922		6,676		—		—		62,670
Greater than 10%	5,062		14,770		—		1,230		—		—		—		—		21,062
Construction and land
0% - 5.00%	110,545		81,029		23,030		8,321		3,857		3,559		—		—		230,341
>5.00% - 10.00%	5,500		14,264		9,931		4,094		—		—		—		—		33,789
Greater than 10%	3,487		2,428		7,595		—		—		—		—		—		13,510
SBA secured by real estate
0% - 5.00%	130		497		6,259		12,374		15,149		11,572		—		—		45,981
>5.00% - 10.00%	—		—		—		—		—		—		—		—		—
Greater than 10%	—		—		—		—		600		336		—		—		936
Total investor loans secured by real estate	3,088,930		1,320,289		1,681,360		865,841		717,023		1,304,033		10,152		—		8,987,628


	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
0% - 5.00%	853,044		273,469		287,249		161,635		187,130		456,170		6,738		292		2,225,727
>5.00% - 10.00%	—		—		—		—		—		8,101		—		—		8,101
Greater than 10%	—		—		2,553		6,075		2,966		5,592		—		—		17,186
Franchise real estate secured
0% - 5.00%	154,009		36,335		55,091		37,559		53,519		33,635		1,361		—		371,509
>5.00% - 10.00%	843		—		—		2,488		2,769		1,243		—		—		7,343
Greater than 10%	1,529		—		—		—		—		—		—		—		1,529
SBA secured by real estate
0% - 5.00%	6,379		2,364		6,040		8,986		8,718		16,947		—		—		49,434
>5.00% - 10.00%	—		—		1,291		139		2,006		7,681		—		—		11,117
Greater than 10%	—		—		—		2,062		2,700		3,871		—		—		8,633
Total business loans secured by real 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
0% - 5.00%	417,780		77,755		192,478		114,593		120,869		67,194		680,662		3,380		1,674,711
>5.00% - 10.00%	8,349		1,880		7,757		2,878		2,476		3,595		375,829		341		403,105
Greater than 10%	1,326		—		159		2,683		863		1,302		18,060		903		25,296
Franchise non-real estate secured
0% - 5.00%	155,064		18,370		64,503		39,389		21,483		21,524		—		—		320,333
>5.00% - 10.00%	8,801		5,573		20,703		5,672		2,189		8,840		—		—		51,778
Greater than 10%	—		—		1,589		3,627		13,346		1,903		—		—		20,465
SBA not secured by real estate
0% - 5.00%	474		564		1,088		370		732		1,636		—		—		4,864
>5.00% - 10.00%	—		—		205		410		2,074		512		—		—		3,201
Greater than 10%	—		—		756		339		685		547		653		—		2,980
Total commercial loans	$	591,794	$	104,142	$	289,238	$	169,961	$	164,717	$	107,053	$	1,075,204	$	4,624	$	2,506,733

A significant driver in the ACL for the nine months ended September 30, 2020 of $246.8 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 $180.3 million provision for credit losses on loans, net charge-offs of $10.5 million, and the establishment of $21.2 million in net ACL for PCD loans previously mentioned. The provision for credit losses of $180.3 million during the nine months ended September 30, 2020 was inclusive of $75.9 million related to the initial ACL required for the acquisition of non-PCD loans in the ~~Opus acquisition. Under ASC 326,~~investor real estate secured and business real estate secured segments is estimated LTV ratio. The following tables summarize the ~~Company is required to record an ACL for estimates~~amortized cost of ~~life-time credit losses on~~ loans ~~at the time~~in these segments by current estimated LTV and by year of acquisition. For non-PCD loans, the initial ACL is established through a charge to provision for credit losses at the time of acquisition. However, the ACL for PCD loans is established through an adjustment to the loan’s purchase price (or initial fair value). Excluding the impactorigination as of the Opus acquisition, the provision for credit losses for the nine months ended September 30, 2020 is also reflective of unfavorable economic forecasts used in the Company’s ACL model driven by the COVID-19 pandemic.dates indicated:


	Term Loans by Vintage
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied
55% and below	$	80,360	$	370,848	$	138,963	$	182,092	$	166,633	$	592,412	$	9,854	—		$	1,541,162
>55-65%	88,510		238,821		90,596		154,776		54,175		250,482		—		—		877,360
>65-75%	7,556		60,735		27,529		56,266		130,804		27,166		—		—		310,056
Greater than 75%	—		229		—		36,128		4,335		5,380		—		—		46,072
Multifamily
55% and below	111,585		409,021		197,947		256,819		169,113		449,182		286		—		1,593,953
>55-65%	209,094		944,247		367,310		466,705		194,097		348,010		—		—		2,529,463
>65-75%	142,824		896,113		303,401		353,096		36,716		134,308		—		—		1,866,458
Greater than 75%	2,491		29,993		3,000		5,766		—		9,961		—		—		51,211
Construction and land
55% and below	46,203		129,135		79,651		10,675		4,155		7,389		—		—		277,208
>55-65%	—		3,850		—		8,916		4,872		—		—		—		17,638
>65-75%	—		—		—		8,965		—		—		—		—		8,965
Greater than 75%	—		—		—		—		—		—		—		—		—
SBA secured by real estate
55% and below	1,966		—		—		—		1,469		2,908		—		—		6,343
>55-65%	—		—		—		2,392		1,941		4,307		—		—		8,640
>65-75%	—		130		—		2,654		3,113		7,158		—		—		13,055
Greater than 75%	—		—		496		1,089		3,606		9,413		—		—		14,604
Total investor loans secured by real estate	690,589		3,083,122		1,208,893		1,546,339		775,029		1,848,076		10,140		—		9,162,188
Business loan secured by real estate
CRE owner-occupied
55% and below	121,356		401,001		109,427		104,982		79,468		450,860		4,719		—		1,271,813
>55-65%	59,295		202,766		52,624		63,290		29,886		107,522		—		—		515,383
>65-75%	60,334		190,253		105,172		103,746		35,344		32,545		—		—		527,394
Greater than 75%	9,217		36,626		754		9,569		5,054		16,174		—		—		77,394
Franchise real estate secured
55% and below	17,475		39,481		16,725		14,418		12,385		23,380		—		—		123,864
>55-65%	—		45,789		11,986		3,995		7,313		12,726		—		—		81,809
>65-75%	1,792		33,932		5,426		32,540		9,235		35,728		—		—		118,653
Greater than 75%	5,448		37,105		1,837		3,100		7,550		4,901		—		—		59,941
SBA secured by real estate
55% and below	1,040		2,508		589		1,646		962		17,411		—		—		24,156
>55-65%	—		724		555		199		1,454		9,264		—		—		12,196
>65-75%	—		1,178		327		3,465		647		7,823		—		—		13,440
Greater than 75%	5,067		3,042		886		1,823		3,585		4,271		—		—		18,674

Total business loans secured by real estate	$	281,024	$	994,405	$	306,308	$	342,773	$	192,883	$	722,605	$	4,719	$	—	$	2,844,717


	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
Investor loans secured by real estate
CRE non-owner-occupied
55% and below	$	366,617	$	141,752	$	184,553	$	171,879	$	130,679	$	533,990	$	9,866	$	—	$	1,539,336
>55-65%	277,092		91,539		155,908		86,933		79,043		172,713		—		—		863,228
>65-75%	64,619		36,653		58,350		131,975		5,662		25,446		—		—		322,705
Greater than 75%	232		—		36,229		4,818		3,004		1,585		—		—		45,868
Multifamily
55% and below	397,562		226,129		285,520		181,826		197,276		279,880		286		—		1,568,479
>55-65%	932,115		416,712		510,840		219,710		185,773		198,802		—		—		2,463,952
>65-75%	906,910		306,272		391,686		41,174		94,142		67,964		—		—		1,808,148
Greater than 75%	24,121		3,014		11,459		2,737		1,838		8,186		—		—		51,355
Construction and land
55% and below	116,575		95,293		26,501		4,172		3,857		3,559		—		—		249,957
>55-65%	2,957		2,428		5,095		6,650		—		—		—		—		17,130
>65-75%	—		—		8,960		1,593		—		—		—		—		10,553
Greater than 75%	—		—		—		—		—		—		—		—		—
SBA secured by real estate
55% and below	—		—		—		632		693		2,159		—		—		3,484
>55-65%	—		—		2,399		1,950		1,903		3,595		—		—		9,847
>65-75%	130		—		2,767		3,630		4,444		4,346		—		—		15,317
Greater than 75%	—		497		1,093		6,162		8,709		1,808		—		—		18,269
Total investor loans secured by real estate	3,088,930		1,320,289		1,681,360		865,841		717,023		1,304,033		10,152		—		8,987,628
Business loan secured by real estate
CRE owner-occupied
55% and below	400,857		95,504		107,766		87,779		134,184		347,926		6,738		292		1,181,046
>55-65%	214,798		67,639		60,192		32,283		35,513		80,347		—		—		490,772
>65-75%	188,022		78,589		112,217		41,874		12,241		25,460		—		—		458,403
Greater than 75%	49,367		31,737		9,627		5,774		8,158		16,130		—		—		120,793
Franchise real estate secured
55% and below	32,189		16,889		8,954		12,469		9,163		14,552		1,361		—		95,577
>55-65%	47,521		3,603		10,270		7,442		4,749		9,349		—		—		82,934
>65-75%	39,409		13,991		32,743		11,289		29,641		9,768		—		—		136,841
Greater than 75%	37,262		1,852		3,124		8,847		12,735		1,209		—		—		65,029
SBA secured by real estate
55% and below	4,333		590		1,821		1,123		4,512		14,850		—		—		27,229
>55-65%	452		555		199		954		1,524		8,497		—		—		12,181
>65-75%	1,082		328		3,478		5,208		4,853		2,793		—		—		17,742
Greater than 75%	512		891		1,833		3,902		2,535		2,359		—		—		12,032

Total business loans secured by real estate	$	1,015,804	$	312,168	$	352,224	$	218,944	$	259,808	$	533,240	$	8,099	$	292	$	2,700,579

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


	Term Loans by Vintage
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total
March 31, 2022
Retail loans
Single family residential
Greater than 740	$	—	$	309	$	194	$	—	$	—	$	30,820	$	18,657	—		$	49,980
>680 - 740	—		—		—		—		31		5,410		4,278		—		9,719
>580 - 680	—		—		—		—		—		6,651		755		—		7,406
Less than 580	—		—		—		—		—		12,842		31		—		12,873
Consumer loans
Greater than 740	—		7		25		26		10		929		1,847		—		2,844
>680 - 740	—		3		—		11		—		330		1,852		—		2,196
>580 - 680	—		—		—		4		—		51		46		—		101
Less than 580	—		—		—		—		—		—		16		—		16
Total retail loans	$	—	$	319	$	219	$	41	$	41	$	57,033	$	27,482	$	—	$	85,135




December 31, 2021
Retail loans
Single family residential
Greater than 740	$	313	$	211	$	—	$	—	$	1,446	$	40,605	$	17,553	—		$	60,128
>680 - 740	—		—		—		32		103		7,602		5,579		—		13,316
>580 - 680	—		—		—		—		450		6,989		756		—		8,195
Less than 580	—		—		—		—		9		13,612		32		—		13,653
Consumer loans
Greater than 740	7		28		32		19		9		944		2,196		—		3,235
>680 - 740	4		—		17		—		2		431		1,859		—		2,313
>580 - 680	—		—		5		—		—		54		42		—		101
Less than 580	—		—		—		—		—		—		16		—		16
Total retail loans	$	324	$	239	$	54	$	51	$	2,019	$	70,237	$	28,033	$	—	$	100,957

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an ACL on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. The allowance for off-balance sheet commitments was ~~$27.2~~$27.5 million at ~~September 30, 2021, $27.4 million at June 30, 2021, and $31.1~~March 31, 2022, $27.3 million at December 31, ~~2020.~~2021, and $32.8 million at March 31, 2021. The provision ~~recapture~~expense for off-balance sheet commitments of ~~$194,000 and $3.9~~$218,000 during the three months ended March 31, 2022 was related primarily to the increase in off-balance sheet commitments. The provision expense of $1.7 million during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 ~~respectively, was~~ related primarily to ~~improving~~an increase in outstanding unfunded loan commitments in conjunction with continued unfavorable economic conditions and forecasts reflected ~~in the Company’s ACL model.~~

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

The Company applies an expected credit loss estimation methodology for off-balance sheet commitments that is largely commensurate with the methodology applied to each respective segment of the loan portfolio in determining the ACL for loans held-for-investment. The loss estimation process includes assumptions for 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
September 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00% $ 530,275 $ 239,267 $ 392,557 $ 421,922 $ 198,651 $ 722,951 $ 4,270 $ — $ 2,509,893
>5.00% - 10.00% 35,330 24,645 23,757 9,755 11,088 53,696 5,329 — 163,600
Greater than 10% — 4,821 50,121 32,661 9,933 51,511 525 — 149,572
Multifamily
0% - 5.00% 1,660,670 962,609 1,316,575 520,329 500,815 609,731 218 — 5,570,947
>5.00% - 10.00% 28,718 49,737 31,988 6,958 1,590 8,314 — — 127,305
Greater than 10% 5,059 — — — — 2,355 — — 7,414
Construction and Land
0% - 5.00% 56,187 82,557 2,329 991 3,996 3,607 48 — 149,715
>5.00% - 10.00% 21,654 11,027 1,700 — — — — — 34,381
Greater than 10% 8,266 31,606 47,704 21,143 — — — — 108,719
SBA secured by real estate
0% - 5.00% 130 499 7,373 12,428 15,206 12,834 — — 48,470
>5.00% - 10.00% — — — — — — — — —
Greater than 10% — — 9 — 629 338 — — 976
Total investor loans secured by real estate 2,346,289 1,406,768 1,874,113 1,026,187 741,908 1,465,337 10,390 — 8,870,992
Business loans secured by real estate
CRE owner-occupied
0% - 5.00% 635,469 302,683 315,267 215,974 201,190 499,308 3,211 300 2,173,402
>5.00% - 10.00% — — 7,846 7,573 6,733 31,811 — — 53,963
Greater than 10% — — — 6,109 2,972 5,718 — — 14,799
Franchise real estate secured
0% - 5.00% 95,937 43,332 55,621 39,053 61,591 37,696 — — 333,230
>5.00% - 10.00% 812 — 4,151 5,253 5,310 4,590 — — 20,116
Greater than 10% 1,135 — — — — — — — 1,135
SBA secured by real estate
0% - 5.00% 3,789 2,368 6,237 9,605 8,900 16,909 — — 47,808
>5.00% - 10.00% — — 1,296 893 2,318 8,273 — — 12,780
Greater than 10% — — — 1,326 3,012 3,650 1,361 — 9,349
Total business loans secured by real estate 737,142 348,383 390,418 285,786 292,026 607,955 4,572 300 2,666,582

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
September 30, 2021
Commercial loans
Commercial and industrial
0% - 5.00% 253,639 87,252 196,671 118,678 128,879 69,707 764,279 2,055 1,621,160
>5.00% - 10.00% 6,720 2,293 8,012 20,835 27,760 8,438 140,001 4 214,063
Greater than 10% 650 1,759 741 2,901 1,143 2,376 43,337 740 53,647
Franchise non-real estate secured
0% - 5.00% 108,905 19,246 63,233 59,636 22,735 15,697 — — 289,452
>5.00% - 10.00% 9,159 5,708 33,550 5,594 3,483 18,536 — — 76,030
Greater than 10% 269 — 2,237 4,491 16,368 4,103 — — 27,468
SBA not secured by real estate
0% - 5.00% 152 653 1,215 633 1,008 2,421 — — 6,082
>5.00% - 10.00% — — 209 305 2,231 1,137 — — 3,882
Greater than 10% — — 776 455 247 626 664 — 2,768
Total commercial loans $ 379,494 $ 116,911 $ 306,644 $ 213,528 $ 203,854 $ 123,041 $ 948,281 $ 2,799 $ 2,294,552

Commercial Real Estate 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 — 212,327
Greater than 10% — 16,096 5,376 7,459 4,263 8,409 250 — 41,853
Franchise real estate secured
0% - 5.00% 37,262 79,926 65,619 96,672 19,046 22,927 — — 321,452
>5.00% - 10.00% 7,587 1,650 3,274 327 5,627 4,093 — — 22,558
Greater than 10% 442 1,512 — — 1,968 — — — 3,922
SBA secured by real estate
0% - 5.00% 3,253 7,637 11,840 15,069 5,707 18,742 — — 62,248
>5.00% - 10.00% — — 768 989 2,780 4,882 — — 9,419
Greater than 10% — — 1,384 1,987 1,514 3,043 — — 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 — 502 338,919
>5.00% - 10.00% 6,198 15,754 5,454 8,164 18,415 3,626 — — 57,611
Greater than 10% — 16,836 6,612 18,655 1,638 3,165 1,361 — 48,267
SBA not secured by real estate
0% - 5.00% 407 2,257 910 1,078 441 2,782 — — 7,875
>5.00% - 10.00% — — 648 1,596 169 1,652 — 259 4,324
Greater than 10% — 83 357 1,856 340 415 707 — 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
September 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
55% and below $ 291,909 $ 142,444 $ 188,747 $ 208,825 $ 127,768 $ 589,484 $ 9,599 — $ 1,558,776
>55-65% 220,116 89,488 193,461 104,301 79,960 204,683 525 — 892,534
>65-75% 53,580 36,801 64,165 146,402 8,118 32,513 — — 341,579
Greater than 75% — — 20,062 4,810 3,826 1,478 — — 30,176
Multifamily
55% and below 260,469 219,510 314,269 211,795 207,913 299,265 218 — 1,513,439
>55-65% 719,640 421,994 580,084 229,609 158,927 226,977 — — 2,337,231
>65-75% 703,894 367,815 442,661 85,883 133,716 85,918 — — 1,819,887
Greater than 75% 10,444 3,027 11,549 — 1,849 8,240 — — 35,109
Construction and land
55% and below 82,458 120,912 42,774 4,183 3,996 3,607 48 — 257,978
>55-65% — 4,278 6,630 17,951 — — — — 28,859
>65-75% 3,649 — 2,329 — — — — — 5,978
Greater than 75% — — — — — — — — —
SBA secured by real estate
55% and below — — 9 637 695 2,177 — — 3,518
>55-65% — — 2,407 1,958 1,910 2,853 — — 9,128
>65-75% 130 — 3,870 4,606 4,461 5,544 — — 18,611
Greater than 75% — 499 1,096 5,227 8,769 2,598 — — 18,189
Total investor loans secured by real estate 2,346,289 1,406,768 1,874,113 1,026,187 741,908 1,465,337 10,390 — 8,870,992
Business loan secured by real estate
CRE owner-occupied
55% and below 296,313 108,338 123,527 100,865 139,455 383,599 3,211 300 1,155,608
>55-65% 161,368 73,789 66,407 70,311 46,314 99,171 — — 517,360
>65-75% 126,160 87,909 123,495 52,679 16,909 37,740 — — 444,892
Greater than 75% 51,628 32,647 9,684 5,801 8,217 16,327 — — 124,304
Franchise real estate secured
55% and below 17,039 23,695 9,052 12,776 14,889 19,988 — — 97,439
>55-65% 39,872 2,622 11,055 10,137 4,804 10,129 — — 78,619
>65-75% 23,262 15,150 36,521 8,632 15,563 10,951 — — 110,079
Greater than 75% 17,711 1,865 3,144 12,761 31,645 1,218 — — 68,344
SBA secured by real estate
55% and below 2,547 591 1,897 1,127 5,146 14,667 1,361 — 27,336
>55-65% 186 556 199 1,513 1,306 7,513 — — 11,273
>65-75% 703 328 3,111 5,254 4,104 3,586 — — 17,086
Greater than 75% 353 893 2,326 3,930 3,674 3,066 — — 14,242
Total business loans secured by real estate $ 737,142 $ 348,383 $ 390,418 $ 285,786 $ 292,026 $ 607,955 $ 4,572 $ 300 $ 2,666,582

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 $ — $ 1,475,211
>55-65% 101,434 217,210 92,015 130,024 78,470 204,161 559 — 823,873
>65-75% 26,460 102,494 169,878 18,876 13,952 29,506 — — 361,166
Greater than 75% — 2,750 4,787 2,762 — 4,536 — — 14,835
Multifamily
55% and below 218,833 345,519 294,464 233,997 84,530 269,906 — — 1,447,249
>55-65% 381,737 731,408 381,282 215,170 152,066 189,151 420 — 2,051,234
>65-75% 427,074 583,078 215,389 215,452 127,684 66,457 — — 1,635,134
Greater than 75% — 19,469 10,618 1,879 — 5,773 — — 37,739
Construction and land
55% and below 57,309 105,308 36,068 18,625 20,531 6,672 784 — 245,297
>55-65% — 36,113 23,770 — — — — — 59,883
>65-75% — 3,338 13,475 — — — — — 16,813
Greater than 75% — — — — — — — — —
SBA secured by real estate
55% and below — 2,066 649 673 317 778 — — 4,483
>55-65% — 2,427 1,639 4,008 879 4,354 — — 13,307
>65-75% — 3,897 3,882 3,482 4,519 1,884 — — 17,664
Greater than 75% 496 2,168 6,977 7,346 1,363 3,527 — — 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 — 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 — — 511,628
>65-75% 71,692 152,920 79,106 43,832 31,303 31,493 — — 410,346
Greater than 75% 54,975 21,122 4,960 13,354 2,202 25,649 — — 122,262
Franchise real estate secured
55% and below 20,801 10,470 13,864 20,956 9,189 16,213 — — 91,493
>55-65% 2,689 9,955 16,001 19,102 6,855 2,333 — — 56,935
>65-75% 19,349 51,719 23,258 9,153 10,597 7,236 — — 121,312
Greater than 75% 2,452 10,944 15,770 47,788 — 1,238 — — 78,192
SBA secured by real estate
55% and below 1,825 1,626 5,332 5,495 3,615 13,582 — — 31,475
>55-65% 246 513 1,795 1,094 3,586 5,448 — — 12,682
>65-75% 264 3,142 1,515 3,968 1,586 4,043 — — 14,518
Greater than 75% 918 2,356 5,350 7,488 1,214 3,594 — — 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
September 30, 2021
Retail loans
Single family residential
Greater than 740 $ 20,201 $ 3,518 $ 1,967 $ 1,599 $ 3,319 $ 53,609 $ 17,213 — $ 101,426
>680 - 740 — — — 34 3,172 9,756 5,271 — 18,233
>580 - 680 — — — — 453 9,301 757 — 10,511
Less than 580 — — — — 10 14,096 33 — 14,139
Consumer loans
Greater than 740 27 30 37 22 12 2,500 1,325 — 3,953
>680 - 740 1 — 19 — 3 441 1,876 — 2,340
>580 - 680 — — 7 — — 59 49 — 115
Less than 580 — — — — — — 18 — 18
Total retail loans $ 20,229 $ 3,548 $ 2,030 $ 1,655 $ 6,969 $ 89,762 $ 26,542 $ — $ 150,735

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 — $ 168,498
>680 - 740 — 1,183 1,303 4,732 2,614 15,624 6,685 — 32,141
>580 - 680 — — — 461 3,132 7,473 864 — 11,930
Less than 580 — — — — — 19,970 35 — 20,005
Consumer loans
Greater than 740 52 69 31 22 1 2,609 2,198 — 4,982
>680 - 740 — 35 6 3 — 469 1,227 — 1,740
>580 - 680 — 15 — — 1 95 56 — 167
Less than 580 — — — — — 13 27 — 40
Total retail loans $ 10,846 $ 7,833 $ 14,019 $ 14,064 $ 33,970 $ 128,091 $ 30,680 $ — $ 239,503

Note 87 – Goodwill and Other Intangible Assets

The Company had goodwill of $901.3 million ~~and $898.6 million~~ at ~~September 30, 2021~~March 31, 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~~$1.6 million during the first ~~six~~three months of 2021, within the one-year measurement period subsequent to the acquisition date of June 1, 2020. These adjustments largely relate to the finalization of the short-year Opus tax returns. During the nine months ended September 30, 2020, the additions to goodwill included $92.8 million associated with the acquisition of Opus and adjustments to goodwill in the amount of $2.7 million during the third quarter of 2020, within the one-year measurement period subsequent to the acquisition date. 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.

62The following table summarizes the change in the balance of goodwill for the periods indicated below:

September 30, September 30,
(Dollars in thousands) 2021 2020
Balance, beginning of year $ 898,569 $ 808,322
Goodwill acquired during the year — 92,844
Purchase accounting adjustments 2,743 (2,732)
Balance, end of year $ 901,312 $ 898,434
Accumulated impairment losses at end of year $ — $ —


	Three Months Ended
	March 31,		December 31,		March 31,
(Dollars in thousands)	2022		2021		2021
Beginning balance	$	901,312	$	901,312	$	898,569

Purchase accounting adjustments	—		—		1,635

Ending balance	$	901,312	$	901,312	$	900,204
Accumulated impairment losses at end of period	$	—	$	—	$	—

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

~~The Company had other~~Other intangible assets ~~of $73.5~~with definite lives were $66.0 million at ~~September 30, 2021,~~March 31, 2022, consisting of ~~$70.7~~$63.4 million in core deposit intangibles and ~~$2.8~~$2.6 million in customer relationship intangibles. ~~The Company had~~At December 31, 2021, other intangibles assets were $69.6 million, consisted of ~~$85.5 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
	March 31,		December 31,		March 31,
(Dollars in thousands)	2022		2021		2021
Gross amount of intangible assets:
Beginning balance	$	145,212	$	145,212	$	145,212
Additions due to acquisitions	—		—		—
Ending balance	145,212		145,212		145,212
Accumulated amortization:
Beginning balance	(75,641)		(71,761)		(59,705)
Amortization	(3,593)		(3,880)		(4,143)
Ending balance	(79,234)		(75,641)		(63,848)
Net intangible assets	$	65,978	$	69,571	$	81,364

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
(Dollars in thousands) 2021 2021 2020 2021 2020
Gross amount of intangible assets:
Beginning balance $ 145,212 $ 145,212 $ 145,212 $ 145,212 $ 125,945
Additions due to acquisitions — — — — 19,267
Ending balance 145,212 145,212 145,212 145,212 145,212
Accumulated amortization:
Beginning balance (67,849) (63,848) (50,662) (59,705) (42,633)
Amortization (3,912) (4,001) (4,538) (12,056) (12,567)
Ending balance (71,761) (67,849) (55,200) (71,761) (55,200)
Net intangible assets $ 73,451 $ 77,363 $ 90,012 $ 73,451 $ 90,012

The Company amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case of customer relationship intangibles. The amortization periods typically range from six to eleven years. The estimated aggregate amortization expense related to our core deposit intangible and customer relationship intangible assets for each of the next five years succeeding December 31, ~~2020,~~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 ~~September 30, 2021.~~March 31, 2022.

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.

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

As of ~~September 30, 2021,~~March 31, 2022, the Company had 3 issuances of subordinated notes with an aggregate carrying value of ~~$330.4~~$330.7 million and a weighted interest rate of ~~5.33%~~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:

September 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 $ 59,641 $ 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 % 125,000 123,068 122,877
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.170% thereafter June 15, 2030 5.375 % 150,000 147,699 147,501
Subordinated notes due 2025, 7.125% per annum June 26, 2025 — % — — 25,109
Subordinated notes due 2026, 5.50% per annum until June 30 2021, 3-month LIBOR +4.285% thereafter July 1, 2026 — % — — 138,371
Total subordinated notes 335,000 330,408 493,410
Subordinated debt
Heritage Oaks Capital Trust II (junior subordinated debt), 3-month LIBOR+1.72% January 1, 2037 — % — — 4,121
Santa Lucia Bancorp (CA) Capital Trust (junior subordinated debt), 3-month LIBOR+1.48% July 7, 2036 — % — — 3,980
Total subordinated debt — — 8,101
Total subordinated debentures $ 335,000 $ 330,408 $ 501,511


						March 31, 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	$	59,701	$	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		123,195		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		147,830		147,764
Total subordinated debentures				$	335,000	$	330,726	$	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 by KBRA.

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, subordinated notes ~~and the trust preferred securities~~ qualify as Tier 2 capital. The redemption of subordinated notes totaling $25.0 million during the second quarter of 2021 reduced the Company’s Tier 2 capital by approximately $20.0 million. The redemption of subordinated notes and trust preferred securities totaling $145.4 million during the third quarter of 2021 reduced the Company’s Tier 2 capital by approximately $146.0 million. Following these redemptions, the regulatory total capital ratios of the Company and the Bank continued to exceed regulatory minimums, ~~to be well-capitalized and the~~inclusive fully phased-in capital conservation buffer.

Note 109 – Earnings per Share

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

Under the two-class method, distributed and undistributed earnings allocable to participating securities are deducted from net income to determine net income allocable to common shareholders, which is then used in the numerator of both basic and diluted earnings per share calculations. Basic earnings per common share is computed by dividing net income allocable to common shareholders by the weighted average number of common shares outstanding for the reporting period, excluding outstanding participating securities. Diluted earnings per common share is computed by dividing net income allocable to common shareholders by the weighted average number of common shares outstanding over the reporting period, adjusted to include the effect of potentially dilutive common shares, but excludes awards considered participating securities. The computation of diluted earnings per common share excludes the impact of the assumed exercise or issuance of securities that would have an anti-dilutive effect.

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

Three Months Ended
(Dollars in thousands, except per share data) September 30, 2021 June 30, 2021 September 30, 2020
Basic
Net income $ 90,088 $ 96,302 $ 66,566
Less: dividends and undistributed earnings allocated to participating securities (937) (1,034) (612)
Net income allocated to common stockholders $ 89,151 $ 95,268 $ 65,954
Weighted average common shares outstanding 93,549,639 93,635,392 93,529,967
Basic earnings per common share $ 0.95 $ 1.02 $ 0.71
Diluted
Net income allocated to common stockholders $ 89,151 $ 95,268 $ 65,954
Weighted average common shares outstanding 93,549,639 93,635,392 93,529,967
Diluted effect of share-based compensation 511,085 582,636 189,200
Weighted average diluted common shares 94,060,724 94,218,028 93,719,167
Diluted earnings per common share $ 0.95 $ 1.01 $ 0.70


		Nine Months Ended				Three Months Ended
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	September 30, 2021		September 30, 2020			(Dollars in thousands, except per share data)	March 31, 2022		December 31, 2021		March 31, 2021
Basic	Basic						Basic
Net income (loss)		$	255,058	$	(6,785)

Net income							Net income	$	66,904	$	84,831	$	68,668
Less: dividends and undistributed earnings allocated to participating securities	Less: dividends and undistributed earnings allocated to participating securities	(2,641)		(564)			Less: dividends and undistributed earnings allocated to participating securities	(685)		(876)		(665)
Net income (loss) allocated to common stockholders		$	252,417	$	(7,349)
Net income allocated to common stockholders							Net income allocated to common stockholders	$	66,219	$	83,955	$	68,003

Weighted average common shares outstanding	Weighted average common shares outstanding	93,571,468		74,391,688			Weighted average common shares outstanding	93,499,695		93,415,304		93,529,147
Basic earnings (loss) per common share		$	2.70	$	(0.10)
Basic earnings per common share							Basic earnings per common share	$	0.71	$	0.90	$	0.73

Diluted	Diluted						Diluted
Net income (loss) allocated to common stockholders		$	252,417	$	(7,349)
Net income allocated to common stockholders							Net income allocated to common stockholders	$	66,219	$	83,955	$	68,003

Weighted average common shares outstanding	Weighted average common shares outstanding	93,571,468		74,391,688			Weighted average common shares outstanding	93,499,695		93,415,304		93,529,147
Diluted effect of share-based compensation	Diluted effect of share-based compensation	518,939		—			Diluted effect of share-based compensation	446,379		491,187		564,497

Weighted average diluted common shares	Weighted average diluted common shares	94,090,407		74,391,688			Weighted average diluted common shares	93,946,074		93,906,491		94,093,644
Diluted earnings (loss) per common share		$	2.68	$	(0.10)
Diluted earnings per common share							Diluted earnings per common share	$	0.70	$	0.89	$	0.72

~~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 nine~~ months ended ~~September 30,~~March 31, 2022, December 31, 2021, and ~~the three months ended June 30,~~March 31, 2021 there were no potential common shares that were anti-dilutive. For the three months ended September 30, 2020, there were 27,815 potential common shares that were anti-dilutive. As a result of incurring a net loss for the nine months ended September 30, 2020, potential common shares of 173,235 were excluded from diluted loss per share because the effect would have been anti-dilutive.

6653

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.

6754

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 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 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.

6855

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:


		September 30, 2021									March 31, 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	$	—	$	79,342	$	—	$	79,342	U.S. Treasury	$	—	$	13,990	$	—	$	13,990
Agency	Agency	—		530,093		—		530,093		Agency	—		375,777		—		375,777
Corporate		—		386,391		—		386,391
Corporate debt										Corporate debt	—		595,065		—		595,065
Municipal bonds	Municipal bonds	—		1,255,866		—		1,255,866		Municipal bonds	—		415,284		—		415,284
Collateralized mortgage obligations	Collateralized mortgage obligations	—		662,231		—		662,231		Collateralized mortgage obligations	—		855,256		—		855,256
Mortgage-backed securities	Mortgage-backed securities	—		1,795,892		—		1,795,892		Mortgage-backed securities	—		966,723		—		966,723
Total securities available-for-sale		$	—	$	4,709,815	$	—	$	4,709,815
Total AFS investment securities										Total AFS investment securities	$	—	$	3,222,095	$	—	$	3,222,095

Derivative assets:	Derivative assets:									Derivative assets:

Interest rate swaps	Interest rate swaps	$	—	$	6,747	$	—	$	6,747	Interest rate swaps	$	—	$	42,972	$	—	$	42,972
Equity warrants	Equity warrants	—		—		1,895		1,895		Equity warrants	—		—		1,908		1,908
Total derivative assets	Total derivative assets	$	—	$	6,747	$	1,895	$	8,642	Total derivative assets	$	—	$	42,972	$	1,908	$	44,880

Financial liabilities	Financial liabilities									Financial liabilities
Derivative liabilities:										Derivative liabilities:
Interest rate swaps										Interest rate swaps	$	—	$	4,241	$	—	$	4,241

Derivative liabilities		$	—	$	5,819	$	—	$	5,819

December 31, 2020
Fair Value Measurement Using
(Dollars in thousands) Level 1 Level 2 Level 3 Total
Fair Value
Financial assets
Investment securities available-for-sale:
U.S. Treasury $ — $ 32,533 $ — $ 32,533
Agency — 690,386 — 690,386
Corporate — 415,308 — 415,308
Municipal bonds — 1,446,019 — 1,446,019
Collateralized mortgage obligations — 513,366 — 513,366
Mortgage-backed securities — 833,503 — 833,503
Total securities available-for-sale $ — $ 3,931,115 $ — $ 3,931,115
Derivative assets:
Interest rate swaps $ — $ 12,053 $ — $ 12,053
Equity warrants — — 1,914 1,914
Total derivative assets $ — $ 12,053 $ 1,914 $ 13,967
Financial liabilities
Derivative liabilities $ — $ 12,066 $ — $ 12,066


	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

6956

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		Nine Months Ended				Three Months Ended
		September 30,		September 30,		September 30,			September 30,			March 31,		December 31,		March 31,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021			2020		(Dollars in thousands)	2022		2021		2021
Beginning balance	Beginning balance	$	1,903	$	1,952	$	1,914		$	5,162	Beginning balance	$	1,889	$	1,895	$	1,914
Change in fair value (1)	Change in fair value (1)	(8)		(32)		(19)			(35)		Change in fair value (1)	19		(6)		(3)
Sales		—		—		—			(3,207)

Ending balance	Ending balance	$	1,895	$	1,920	$	1,895		$	1,920	Ending balance	$	1,908	$	1,889	$	1,911

(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.

~~September 30,~~March 31, 2022

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

1,908

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

1.63%

5.50%

35.00%

2.45%

16.00%

31.16%

1.82%

13.56%

December 31, 2021

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

~~1,895~~1,889

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

~~0.19%~~

~~5.50%~~

~~35.00%~~

~~0.76%~~

~~16.00%~~

~~31.15%~~

~~0.32%~~

~~13.59%~~

~~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%~~0.39%

6.00%

35.00%

~~0.36%~~0.97%

16.00%

~~31.19%~~31.14%

~~0.18%~~0.52%

~~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.

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

7057

At ~~September 30, 2021,~~March 31, 2022, the Company’s individually evaluated collateral dependent loans were evaluated based on the fair value of their underlying collateral based upon the most recent appraisals available to management. The Company completed partial charge-offs on certain individually evaluated loans based on recent real estate or property appraisals and released the related reserves during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

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


		September 30, 2021									March 31, 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	$	—	$	—	$	9,348	$	9,348	Collateral dependent loans	$	—	$	—	$	33,869	$	33,869

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


	December 31, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value
Financial assets
Collateral dependent loans	$	—	$	—	$	937	$	937

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

September 30, 2021

March 31, 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

7,045

Fair value of collateral

Collateral discount and cost to sell

7.00%

CRE non-owner-occupied

8,590

Fair value of collateral

Collateral discount and cost to sell

7.00%

SBA secured by real estate (1)

976

Fair value of collateral

Collateral discount and cost to sell

10.00%

Commercial loans

Commercial and industrial

240

Fair value of collateral

Collateral discount and cost to sell

20.00%

Commercial and industrial

25,279

Fair value of collateral

Collateral discount and cost to sell

—%

7.40%

6.35%

Franchise non-real estate secured

1,087

Fair value of collateral

Collateral discount and cost to sell

—%

100.00%

10.32%

Total individually evaluated loans

9,348

Total individually evaluated loans

33,869

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.~~

7258

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 September 30, 2021											At March 31, 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	$	322,320	$	322,320	$	—	$	—	$	322,320	Cash and cash equivalents	$	809,259	$	809,259	$	—	$	—	$	809,259
Interest-bearing time deposits with financial institutions	Interest-bearing time deposits with financial institutions	2,708		2,708		—		—		2,708		Interest-bearing time deposits with financial institutions	2,216		2,216		—		—		2,216
Investments held-to-maturity		170,576		—		169,154		—		169,154
Investment securities held-to-maturity												Investment securities held-to-maturity	996,382		—		886,050		—		886,050
Investment securities available-for-sale	Investment securities available-for-sale	4,709,815		—		4,709,815		—		4,709,815		Investment securities available-for-sale	3,222,095		—		3,222,095		—		3,222,095
Loans held for sale	Loans held for sale	8,100		—		8,899		—		8,899		Loans held for sale	11,646		—		12,622		—		12,622
Loans held for investment, net	Loans held for investment, net	13,982,861		—		—		14,121,193		14,121,193		Loans held for investment, net	14,733,755		—		—		14,623,169		14,623,169

Derivative assets	Derivative assets	8,642		—		6,747		1,895		8,642		Derivative assets	44,880		—		42,972		1,908		44,880
Accrued interest receivable	Accrued interest receivable	63,228		63,228		—		—		63,228		Accrued interest receivable	60,922		—		60,922		—		60,922

Liabilities	Liabilities											Liabilities
Deposit accounts	Deposit accounts	$	17,469,999	$	16,356,929	$	1,167,405	$	—	$	17,524,334	Deposit accounts	$	17,689,223	$	—	$	17,685,458	$	—	$	17,685,458
FHLB advances	FHLB advances	150,000		—		150,000		—		150,000		FHLB advances	600,000		—		598,334		—		598,334

Subordinated debentures	Subordinated debentures	330,408		—		367,515		—		367,515		Subordinated debentures	330,726		—		338,603		—		338,603
Derivative liabilities	Derivative liabilities	5,819		—		5,819		—		5,819		Derivative liabilities	4,241		—		4,241		—		4,241
Accrued interest payable	Accrued interest payable	5,065		5,065		—		—		5,065		Accrued interest payable	5,115		—		5,115		—		5,115


		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	$	—	$	—	$	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		—		—		2,845		Interest-bearing time deposits with financial institutions	2,216		2,216		—		—		2,216
Investments held-to-maturity		23,732		—		25,013		—		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		—		3,931,115		—		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		—		645		—		645		Loans held for sale	10,869		—		11,959		—		11,959
Loans held for investment, net	Loans held for investment, net	13,236,433		—		—		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		—		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		—		—		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	$	—	$	16,218,382	Deposit accounts	$	17,115,589	$	16,057,316	$	1,058,822	$	—	$	17,116,138
FHLB advances	FHLB advances	31,000		—		31,564		—		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		—		544,436		—		544,436		Subordinated debentures	330,567		—		350,359		—		350,359
Derivative liabilities	Derivative liabilities	12,066		—		12,066		—		12,066		Derivative liabilities	5,263		—		5,263		—		5,263
Accrued interest payable	Accrued interest payable	6,569		6,569		—		—		6,569		Accrued interest payable	2,366		2,366		—		—		2,366

7359

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 ~~third quarter~~second half of 2021, the Company entered into pay-fixed and receive-floating interest rate swaps ofassociated 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. ~~As a result, the~~The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The ~~fair value of~~ fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s consolidated statements of income. At ~~September 30,~~March 31, 2022 and December 31, 2021, interest rate swaps with aan aggregate notional amount ~~totaling $300.0 million and a fair value totaling $932,000~~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	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				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)	(Dollars in thousands)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		(Dollars in thousands)	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Loans held for investment(1)	Loans held for investment(1)	$	298,973	$	—	$	(1,027)	$	—	Loans held for investment(1)	$	1,160,779	$	1,194,702	$	(39,221)	$	(5,298)
Total	Total	$	298,973	$	—	$	(1,027)	$	—	Total	$	1,160,779	$	1,194,702	$	(39,221)	$	(5,298)

(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At ~~September 30,~~March 31, 2022 and December 31, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was ~~$815.2 million;~~$3.47 billion and $3.61 billion, respectively, the cumulative basis adjustments associated with these hedging relationships was ~~$1.0 million;~~$(39.2) million and $(5.3) million, respectively; and the amounts of the designated hedged items were ~~$300.0 million.~~$1.20 billion and $1.20 billion, respectively.

7460

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 September 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 $135.6 million and a fair value of $5.8 million compared with an aggregate notional amount of $145.2 million and a fair value of $12.1 million at December 31, 2020.terms. The fair ~~value~~values of these agreements are determined through a third party valuation model used by the Company’s ~~counterparty bank,~~swap advisory firm, which uses observable market data such as 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 nine months ended September 30, 2021 and 2020, there were no losses recorded on swap agreements attributable to the change in credit risk associated with a counterparty.~~ All interest rate swap agreements entered into by the Company ~~as of September 30, 2021 and December 31, 2020~~ are free-standing derivatives and are not designated as hedging instruments.

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

Equity Warrant Assets – The Company acquired ~~2 individual~~ equity warrant assets as a result of the acquisition of 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 ~~September 30, 2021~~March 31, 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:


		September 30, 2021									March 31, 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:									Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts	Fair value hedge - interest rate swap contracts	$	300,000	$	932	$	—	$	—	Fair value hedge - interest rate swap contracts	$	1,200,000	$	38,734	$	—	$	—

Total derivative designated as hedging instruments	Total derivative designated as hedging instruments	300,000		932		—		—		Total derivative designated as hedging instruments	1,200,000		38,734		—		—
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	135,580		5,815		135,580		5,819		Interest rate swaps contracts	130,444		4,238		130,444		4,241
Equity warrants	Equity warrants	—		1,895		—		—		Equity warrants	—		1,908		—		—
Total derivative not designated as hedging instruments	Total derivative not designated as hedging instruments	$	135,580	$	7,710	$	135,580	$	5,819	Total derivative not designated as hedging instruments	130,444		6,146		130,444		4,241
Total derivatives	Total derivatives	435,580		8,642		135,580		5,819		Total derivatives	$	1,330,444	$	44,880	$	130,444	$	4,241

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


	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~~

~~(Dollars in thousands)~~

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

~~September 30, 2021~~

~~Gain (loss) on fair value hedging relationships:~~

~~Hedged items~~

~~Interest Income~~

~~(1,027)~~

~~Derivatives designated as hedging instruments~~

~~Interest Income~~

~~932~~



		For the Three Months Ended
(Dollars in thousands)	Location of Gain (Loss) Recognized in Income on Derivative Instruments	March 31, 2022		December 31, 2021		March 31, 2021



Gain (loss) on fair value hedging relationships:
Hedged items	Interest Income	$	(33,924)	$	(4,271)	$	—
Derivatives designated as hedging instruments	Interest Income	32,257		3,451		—

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


(Dollars in thousands)	(Dollars in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,				(Dollars in thousands)		For the Three Months Ended
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivative Instruments	2021		2020		2021		2020		Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivative Instruments	March 31, 2022		December 31, 2021		March 31, 2021
Interest rate products	Interest rate products	Other income	$	1	$	—	$	9	$	—	Interest rate products	Other income	$	1	$	—	$	7
Other contracts		Other income	—		218		—		415
Equity warrants	Equity warrants	Other income	(8)		(31)		(19)		(35)		Equity warrants	Other income	19		(5)		(3)
Total	Total		$	(7)	$	187	$	(10)	$	380	Total		$	20	$	(5)	$	4

7662

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.

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		Gross Amounts Offset in the Consolidated Statements of Financial Condition		Net Amounts Presented in the Consolidated Statements of Financial Condition		Financial Instruments (1)		Cash Collateral (2)		Net Amount
September 30, 2021
March 31, 2022														March 31, 2022
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	6,747	$	—	$	6,747	$	—	$	—	$	6,747	Interest rate swaps	$	42,972	$	—	$	42,972	$	—	$	(25,345)	$	17,627
Total	Total	$	6,747	$	—	$	6,747	$	—	$	—	$	6,747	Total	$	42,972	$	—	$	42,972	$	—	$	(25,345)	$	17,627

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	5,819	$	—	$	5,819	$	(4,593)	$	(1,226)	$	—	Interest rate swaps	$	4,241	$	—	$	4,241	$	—	$	(172)	$	4,069
Total	Total	$	5,819	$	—	$	5,819	$	(4,593)	$	(1,226)	$	—	Total	$	4,241	$	—	$	4,241	$	—	$	(172)	$	4,069


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

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	12,066	$	—	$	12,066	$	(6,140)	$	(5,926)	$	—	Interest rate swaps	$	5,263	$	—	$	5,263	$	(4,377)	$	(886)	$	—
Total	Total	$	12,066	$	—	$	12,066	$	(6,140)	$	(5,926)	$	—	Total	$	5,263	$	—	$	5,263	$	(4,377)	$	(886)	$	—

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

7763

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 ~~September 30, 2021,~~March 31, 2022, all of the Company’s leases were classified as operating leases or short-term leases. Short-term leases are leases that have a term of 12 months or less at commencement.

Liabilities to make future lease payments ~~and right-of-use assets are 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						Nine Months Ended					Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2021		June 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		(Dollars in thousands)	March 31, 2022		December 31, 2021		March 31, 2021
Operating lease	Operating lease	$	4,826	$	4,887	5,618		$	14,725	$	12,690	Operating lease	$	4,738	$	4,756	5,012
Short-term lease	Short-term lease	433		323		495		1,263		1,425		Short-term lease	490		353		507
Total lease expense	Total lease expense	$	5,259	$	5,210	$	6,113	$	15,988	$	14,115	Total lease expense	$	5,228	$	5,109	$	5,519

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 ~~nine~~three months ended:

(Dollars in thousands)

September 30, 2021

December 31, 2020

(Dollars in thousands)

March 31, 2022

December 31, 2021

Balance Sheet:

Operating lease right of use assets

67,586

76,090

Operating lease right-of-use assets

60,819

64,009

Operating lease liabilities

76,592

85,556

Operating lease liabilities

69,151

72,541

Nine Months Ended

Three Months Ended

(Dollars in thousands)

September 30, 2021

September 30, 2020

(Dollars in thousands)

March 31, 2022

March 31, 2021

Cash Flows:

Operating cash outflow from operating leases

15,512

10,946

Operating cash outflow from operating leases

4,959

2,000

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 September 30, 2021
March 31, 2022																	March 31, 2022

Operating leases	Operating leases	$	5,103	$	20,058	$	19,463	$	17,454	$	12,171	$	15,855	$	90,104		Operating leases	$	14,779	$	19,163	$	17,111	$	11,400	$	5,731	$	9,541	$	77,725
Short-term leases	Short-term leases	130		24		—		—		—		—		154			Short-term leases	320		—		—		—		—		—		320
Total contractual base rents (1)	Total contractual base rents (1)	$	5,233	$	20,082	$	19,463	$	17,454	$	12,171	$	15,855	$	90,258		Total contractual base rents (1)	$	15,099	$	19,163	$	17,111	$	11,400	$	5,731	$	9,541	$	78,045

Total liability to make lease payments	Total liability to make lease payments													$	76,592		Total liability to make lease payments													$	69,151
Difference in undiscounted and discounted future lease payments	Difference in undiscounted and discounted future lease payments													$	13,666		Difference in undiscounted and discounted future lease payments													$	8,574
Weighted average discount rate	Weighted average discount rate													5.23		%	Weighted average discount rate													5.51		%
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)													5.1			Weighted average remaining lease term (years)													4.6

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

The Company from time to time leases portions of space it owns to other parties. Income received from these transactions is recorded on a straight-line basis over the term of the sublease. For the three months ended ~~September 30, 2021, June 30,~~March 31, 2022, December 31, 2021, and ~~September 30, 2020,~~March 31, 2021, rental income totaled ~~$176,000, $177,000,~~$125,000, $175,000, and ~~$265,000,~~$175,000, respectively. ~~For the nine months ended September 30, 2021 and September 30, 2020, rental income totaled $528,000 and $356,000, respectively.~~

Note ~~15 – Revenue Recognition~~

The Company accounts for revenue from contracts with customers under ASC 606, which requires revenue that is derived from a contract with a customer to be recognized when the Company satisfies the related performance obligations by transferring to the customer a good or service. The majority of the Company’s contracts with customers associated with revenue streams that are within the scope of ASC 606 are considered short-term in nature and can be canceled at any time by the customer or the Company without penalty, such as a deposit account agreement. These revenue streams are included in noninterest income.

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

~~The following tables provide a summary of the Company’s noninterest income, segregated by revenue streams within and outside the scope of ASC 606 for the periods indicated:~~

Three Months Ended
September 30, 2021 June 30, 2021 September 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 $ — $ 536 $ — $ 622 $ — $ 481
Service charges on deposit accounts 2,375 — 2,222 — 1,593 —
Other service fee income 350 — 352 — 487 —
Debit card interchange income 834 — 1,099 — 944 —
Earnings on bank-owned life insurance — 3,266 — 2,279 — 2,270
Net gain (loss) from sales of loans — 1,187 — 1,546 — 9,542
Net gain (loss) from sales of investment securities — 4,190 — 5,085 — 1,141
Trust custodial account fees 11,446 — 7,897 — 6,960 —
Escrow and exchange fees 1,867 — 1,672 — 1,142 —
Other income (14) 4,063 97 3,858 91 2,107
Total noninterest income $ 16,858 $ 13,242 $ 13,339 $ 13,390 $ 11,217 $ 15,541

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

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

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

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

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

~~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, largely 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 the completion of the performance obligations required under the contracts. At September 30, 2021, the Company had accrued fees receivable of approximately $10.4 million, which are included in other assets in the consolidated statements of financial position. The balance of accrued fees receivable is net of approximately $988,000 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 $281,000 and $411,000 in credit loss expense associated with accrued fees receivable for the three and nine month periods ended September 30, 2021, respectively. The credit loss expense for the three and nine month periods ended September 30, 2020, was $12,000 and $76,000, respectively. Credit loss expense for fees receivable is included in other expense of the 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, 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 ~~September 30, 2021~~March 31, 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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 that relate to variable interests in non-consolidated VIEs.


		September 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Maximum Loss		Assets		Liabilities		Maximum Loss		Assets		Liabilities		(Dollars in thousands)	Maximum Loss		Assets		Liabilities		Maximum Loss		Assets		Liabilities
Multifamily loan securitization:	Multifamily loan securitization:													Multifamily loan securitization:
Investment securities (1)	Investment securities (1)	$	90,575	$	90,575	$	—	$	100,927	$	100,927	$	—	Investment securities (1)	$	77,939	$	77,939	$	—	$	81,103	$	81,103	$	—
Reimbursement obligation (2)	Reimbursement obligation (2)	50,901		—		448		50,901		—		448		Reimbursement obligation (2)	50,901		—		338		50,901		—		338
Affordable housing partnership:	Affordable housing partnership:													Affordable housing partnership:
Other investments (3)	Other investments (3)	70,606		90,010		—		71,681		89,759		—		Other investments (3)	65,861		82,732		—		68,765		85,994		—
Unfunded equity commitments (2)	Unfunded equity commitments (2)	—		—		19,404		—		—		18,078		Unfunded equity commitments (2)	—		—		16,871		—		—		17,229

Total	Total	$	212,082	$	180,585	$	19,852	$	223,509	$	190,686	$	18,526	Total	$	194,701	$	160,671	$	17,209	$	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.

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Multifamily loan securitization

With respect to the securitization transaction with Freddie Mac discussed in Note 65 - 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 ~~September 30, 2021.~~March 31, 2022. Additionally, the Company has variable interests through a reimbursement agreement executed by Freddie Mac that obligates the Company to reimburse Freddie Mac for any defaulted contractual principal and interest payments identified after the ultimate resolution of the 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 ~~September 30, 2021~~March 31, 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 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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~Trust preferred securities~~

The Company accounted for its investments in its wholly owned special purpose entities, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust, acquired through bank acquisitions, under the equity method whereby the subsidiary’s net earnings were recognized in the Company’s consolidated statement of income and the investment in these entities is included in other assets in the Company’s consolidated statements of financial condition. The Corporation was 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 were subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debt, and qualified as Tier 2 capital. In July 2021, the Company redeemed $5.2 million junior subordinated debt securities associated with Heritage Oaks Capital Trust II and $5.2 million junior subordinated debt securities associated with Santa Lucia Bancorp (CA) Capital Trust. Subsequent to the redemptions, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust were dissolved. See ~~Note 9~~ - ~~Subordinated Debentures~~ ~~for additional information.~~

Note 1715 – Subsequent Events

Quarterly cash dividend

On ~~October 19, 2021,~~April 22, 2022, the Corporation’s Board of Directors declared a cash dividend of $0.33 per share, payable on ~~November 12, 2021~~May 13, 2022 to shareholders of record on ~~November 1, 2021.~~May 6, 2022.

~~Branch consolidations~~

On November 5, 2021, the Bank consolidated 2 branch offices, one in San Diego County and the other in Los Angeles County, both in California, into nearby branch offices with minimal disruption to clients and daily operations. The consolidated branches were identified largely based on the proximity of neighboring branches, deposit base, historic growth, and market opportunity to improve further the overall efficiency of operations, as well as the Bank's goals related to Fair Lending and the Community Reinvestment Act. After the branch consolidations, the Bank operates 61 branches in major metropolitan markets in California, Washington, Oregon, Arizona, and Nevada.

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

The Company reassessed classification of certain investments, and effective October 1, 2021, the Company transferred approximately $165.5 million of municipal bonds from available-for-sale to held-to-maturity securities at fair value. These securities had an unrealized loss of $3.4 million at the transfer date, which was reflected as a discount on the date of transfer. This discount, as well as the related unrealized loss in accumulated other comprehensive income, will be amortized into interest income as a yield adjustment over the remaining term of the securities. The amortization of the unrealized loss reported in accumulated other comprehensive income will offset the effect on interest income of the amortization of the discount. No gains or losses were recorded at the time of transfer.

~~Fair value hedge~~

On November 1, 2021, as part of its interest rate sensitivity management, the Company entered into pay-fixed and receive-floating interest rate swaps with an aggregate notional amount of $300.0 million of certain fixed rate loans to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. These interest rate swaps are designated as fair value hedges. Under the swap agreement, the Company receives variable-rate interest payments based on USD-SOFR-COMPOUND in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts.

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

FORWARD-LOOKING STATEMENTS

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

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

Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects remain uncertain. Although general business and economic conditions have begun to recover, the recovery could be slowed or reversed by a number of factors, including increases in COVID-19 infections, the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets, which could adversely affect our revenues, ~~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;

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

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

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

•Changes in consumer spending, borrowing, and savings habits;

•The effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;

•Our ability to attract deposits and other sources of liquidity;

•The possibility that we may reduce or discontinue the payments of dividends on our common stock;

•Changes in the financial performance and/or condition of our borrowers;

•Changes in the competitive environment among financial and bank holding companies and other financial service providers;

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

•Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, 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.

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GENERAL

Management’s discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to the Company’s financial condition, results of operations, liquidity, and capital resources. This discussion should be read in conjunction with our ~~Management Discussion and Analysis of Financial Condition and Results of Operations included in our 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 nine~~ months ended ~~September 30, 2021~~March 31, 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 located in Irvine, California. At ~~September 30, 2021,~~March 31, 2022, we primarily conduct business throughout the Western Region of the United States from 63our 61 full-service depository branches located in Arizona, California, Nevada, Oregon, and Washington. Following the two branch consolidations in San Diego County and Los Angeles County of California in early November 2021, the Bank operates 61 full-service depository branches. The branches consolidated were identified largely based on the proximity of neighboring branches, deposit base, historic growth, and market opportunity to improve further the overall efficiency of operations, as well as the Bank's goals related to Fair Lending and the Community Reinvestment Act.

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As a result of our organic and strategic growth strategy we have developed a variety of banking products and services within our targeted markets in the Western United States tailored to small- and middle-market businesses, corporations, including the owners and employees of those businesses, professionals, entrepreneurs, real estate investors, and non-profit organizations, as well as consumers in the communities we serve. Through our branches and our website, www.ppbi.com, we provide a wide array of banking products and services such as: various types of deposit accounts, digital banking, treasury management services, online bill payment, and a wide array of loan products, including commercial business loans, lines of credit, SBA loans, commercial real estate loans, agribusiness loans, franchise lending, home equity lines of credit, and construction loans throughout the Western United States in major metropolitan markets within Arizona, California, Nevada, Oregon, and Washington. We also have acquired and enhanced nationwide specialty banking products and services for ~~Homeowners’ Associations (“HOA”)~~HOA and HOA management companies, as well as experienced owner-operator franchisees in the ~~quick service restaurant (“QSR”)~~QSR industry. Most recently, we have expanded our specialty products and services offerings to include commercial escrow services through our Commerce Escrow division, which facilitates commercial escrow services and tax-deferred commercial real estate exchanges under Section 1031 of the Internal Revenue Code, as well as custodial and maintenance services through our Pacific Premier Trust division, which serves as a custodian for self-directed IRAs as well as certain accounts that do not qualify as IRAs pursuant to the Internal Revenue Code.

The Bank funds 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 we were able to quickly execute on multiple initiatives to adjust our operations to protect the health and safety of our employees and clients. We expanded remote-access availability to ensure a greater number of employees have the capability to work from home or other remote locations without impacting our operations while continuing to provide a superior level of customer service. We also reconfigured our corporate headquarters, administrative offices, and branches to promote social distancing for employees by erecting physical barriers. In addition, the Company issued a Company-wide employee appreciation bonus related to the COVID-19 pandemic during the fourth quarter of 2020. Beginning April 2021, non-exempt employees will receive up to 4 hours of paid time off for COVID-19 vaccination appointments and exempt employees will receive flexibility for vaccination appointments.

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

The Company continued its efforts to monitor the loan portfolio to identify potential at-risk segments and line of credit draws for deviations from normal activity, 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 September 30, 2021, there were no loans classified as a COVID-19 modification under Section 4013 of the CARES Act and no loans in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for investment, remained within their COVID-19 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 program, the SBA will automatically pay principal, interest, and fees of certain SBA loans for a period of six months for both existing loans and new loans issued prior to September 27, 2020. On December 27, 2020, the CAA authorized a second round of SBA payments on covered loans approved before March 27, 2020, for a two-month period beginning with the first payment due on the loan on or after February 1, 2021, and for an additional three-month period for certain eligible borrowers. For new loans approved beginning on February 2, 2021 and ending on September 30, 2021, the SBA will make the payments for a three-month period subject to the availability of funds. At September 30, 2021, approximately 13 loans, representing approximately $9.4 million aggregate reported balance, are eligible for this relief. The CARES Act also provides for mortgage payment relief and a foreclosure moratorium.

The extent to which the COVID-19 pandemic impacts the Company’s business, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be accurately predicted, including the scope and duration of the COVID-19 pandemic, 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, the ongoing COVID-19 pandemic has placed strain on certain businesses and service providers, many of which have not been able to conduct operations in their usual manner. Should the COVID-19 pandemic persist, we anticipate it ~~may~~could have an impact on the following:

•Loan growth and interest income - Economic activity has expanded ~~moderately during the first nine months of 2021, but macroeconomic conditions have not yet fully recovered to the levels observed prior to~~since the onset of the COVID-19 pandemic, inhowever the ~~first quarter of 2020.~~economy continues to experience supply chain disruptions, inflationary pressures, and the uncertainty created by recent geopolitical developments. If athe economic recovery ~~in economic conditions fails~~begins to ~~continue,~~wane, it may have an impact on our borrowers, the businesses they operate, and their financial condition. Our borrowers may have less demand for credit needed to invest in and expand their businesses, ~~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%. Lower levels of interest rates in conjunction with the potential reduction in future loan growthSuch factors would place pressure on the level of ~~and yield on~~ interest-earning assets, which may negatively impact our interest income.

•Credit quality - ~~Elevated levels of~~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 ~~there has been a recovery in~~ economic conditions have improved since the onset of the COVID-19 pandemic in the first quarter of 2020, there can be no assurance the recovery will continue. As such, should we experience future deterioration in the credit quality of our loan portfolio, it may ~~require us~~contribute to ~~record~~the need for additional provisions for credit losses.

•CECL - ~~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 the 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 the 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~~However, the first quarter of 2021, the President signed into law the American Rescue Plan Act of 2021 (“American Rescue Plan”), which provides approximately $1.9 trillion in various forms of economic stimulus and aid to individuals and state and local governments that have been affected by the ongoing COVID-19 pandemic. However, theultimate impact and overall effectiveness of these actions is difficult to determine at this time.

~~ACQUISITION OF OPUS~~

The Corporation issued 34,407,403 shares of the Corporation’s common stock valued at $21.62 per share, which was the closing price of the Corporation’s common stock on May 29, 2020, the last trading day prior to the consummation of the acquisition, and paid cash in lieu of fractional shares. The Corporation assumed Opus’s warrants and options, which 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.

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 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.~~

~~Expectations of future cash flows are discounted at~~ACL and can have a significant impact on the loan’s effective interest rate. The resulting ACL represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the Company’s policy to promptly charge-off loan balances at the time they have been deemed uncollectible. Please also see ~~Note 7 - Allowance for Credit Losses~~, ~~of the consolidated financial statements for additional discussion concerning the Company’s ACL methodology, including discussion concerning economic forecasts used in the determination of the ACL.~~losses.

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. Further, as the size, complexity, and composition of the loan portfolio changes over time, such as through the acquisition of other financial institutions, new product offerings, client demand for various types of credit, and changes in our 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 ACL in future periods.

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

Please also see Note 6 - Allowance for Credit Losses, of the Notes to the Consolidated Financial Statements for additional discussion concerning the Company’s ACL methodology.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Upon obtaining control of ~~the~~an acquired entity, the Company records all identifiable assets and liabilities at their estimated fair values. Goodwill is recorded when the consideration paid for an acquired 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~~during a ~~12-month~~one year 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~~Costs associated with business combinations are expensed as incurred.

~~Goodwill~~

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

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

~~Acquired Loans~~

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 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 provision for credit losses in the period in which the loans were acquired. The ACL for PCD loans is determined with the use of the Company’s ACL methodology. Characteristics of PCD loans include: delinquency, downgrade in credit quality since origination, loans on nonaccrual status, 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.

~~Fair Value of Financial Instruments~~

We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Investment securities available-for-sale, derivative instruments, and equity warrant assets are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other financial assets at fair value on a non-recurring basis, such as collateral dependent loans that are individually evaluated and OREO. These non-recurring fair value adjustments typically involve the application of lower of cost or fair value accounting or write-downs of individual assets. Please also see ~~Note 11 -Fair Value of Financial Instruments~~ of the consolidated financial statements for more information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used, and its impact to earnings, as well as the estimated fair value disclosures for financial instruments not recorded at fair value.

Income Taxes

The Company is subject to federal and state taxation in various tax jurisdictions within the United States. Current income taxes are based on estimates for amounts payable or receivable on tax returns for the current year. Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the ~~asset liability~~asset-liability method. In estimating future tax consequences, all expected future events other than enactments of changes in tax laws or tax rates are considered. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are to be recognized for temporary differences that will result in deductible amounts in future years and for tax carryforwards if, in the opinion of management, it is more likely than not that the deferred tax assets will be realized. Changes in income taxes can occur when, among other things, there are changes in tax laws, changes in tax rates, and/or changes in statutory or regulatory guidance; any of which may have an impact on current and deferred income taxes, and may have a material impact on our results of operations. The Company’s income tax positions are evaluated quarterly.

9573

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									Nine Months Ended							Three Months Ended
		September 30,			June 30,			September 30,			September 30,			September 30,				March 31,			December 31,			March 31,
(Dollars in thousands)	(Dollars in thousands)	2021			2021			2020			2021			2020			(Dollars in thousands)	2022			2021			2021
Net income (loss)		$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Net income																	Net income	$	66,904		$	84,831		$	68,668
Plus: amortization of intangible assets expense	Plus: amortization of intangible assets expense	3,912			4,001			4,538			12,056			12,567			Plus: amortization of intangible assets expense	3,592			3,880			4,143
Less: amortization of intangible assets expense tax adjustment (1)	Less: amortization of intangible assets expense tax adjustment (1)	1,119			1,145			1,301			3,449			3,605			Less: amortization of intangible assets expense tax adjustment (1)	1,025			1,107			1,185
Net income for average tangible common equity	Net income for average tangible common equity	$	92,881		$	99,158		$	69,803		$	263,665		$	2,177		Net income for average tangible common equity	$	69,471		$	87,604		$	71,626

Average stockholders’ equity	Average stockholders’ equity	$	2,844,800		$	2,747,308		$	2,689,867		$	2,780,932		$	2,321,138		Average stockholders’ equity	$	2,864,387		$	2,851,000		$	2,749,641
Less: average intangible assets	Less: average intangible assets	75,795			79,784			92,768			79,812			86,244			Less: average intangible assets	68,157			71,897			83,946
Less: average goodwill	Less: average goodwill	901,312			900,582			898,430			900,170			848,675			Less: average goodwill	901,312			901,312			898,587
Average tangible common equity	Average tangible common equity	$	1,867,693		$	1,766,942		$	1,698,669		$	1,800,950		$	1,386,219		Average tangible common equity	$	1,894,918		$	1,877,791		$	1,767,108

Return on average equity (2)	Return on average equity (2)	12.67		%	14.02		%	9.90		%	12.23		%	(0.39)		%	Return on average equity (2)	9.34		%	11.90		%	9.99		%
Return on average tangible common equity (2)	Return on average tangible common equity (2)	19.89		%	22.45		%	16.44		%	19.52		%	0.21		%	Return on average tangible common equity (2)	14.66		%	18.66		%	16.21		%

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

(2) Ratio is annualized.

9674

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


		September 30,			December 31,				March 31,			December 31,
(Dollars in thousands)	(Dollars in thousands)	2021			2020			(Dollars in thousands)	2022			2021
Total stockholders’ equity	Total stockholders’ equity	$	2,838,116		$	2,746,649		Total stockholders’ equity	$	2,783,018		$	2,886,311
Less: intangible assets	Less: intangible assets	974,763			984,076			Less: intangible assets	967,290			970,883
Tangible common equity	Tangible common equity	$	1,863,353		$	1,762,573		Tangible common equity	$	1,815,728		$	1,915,428

Total assets	Total assets	$	21,005,211		$	19,736,544		Total assets	$	21,622,296		$	21,094,429
Less: intangible assets	Less: intangible assets	974,763			984,076			Less: intangible assets	967,290			970,883
Tangible assets	Tangible assets	$	20,030,448		$	18,752,468		Tangible assets	$	20,655,006		$	20,123,546

Tangible common equity ratio	Tangible common equity ratio	9.30		%	9.40		%	Tangible common equity ratio	8.79		%	9.52		%

Common shares issued and outstanding	Common shares issued and outstanding	94,354,211			94,483,136			Common shares issued and outstanding	94,945,849			94,389,543

Book value per share	Book value per share	$	30.08		$	29.07		Book value per share	$	29.31		$	30.58
Less: intangible book value per share	Less: intangible book value per share	10.33			10.42			Less: intangible book value per share	10.19			10.29
Tangible book value per share	Tangible book value per share	$	19.75		$	18.65		Tangible book value per share	$	19.12		$	20.29

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

`
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
(Dollars in thousands) 2021 2021 2020 2021 2020
Total noninterest expense $ 96,040 $ 94,496 $ 98,579 $ 283,025 $ 281,180
Less: amortization of intangible assets 3,912 4,001 4,538 12,056 12,567
Less: merger-related expense — — 2,988 5 44,058
Less: other real estate owned operations, net — — (17) — 6
Noninterest expense, adjusted $ 92,128 $ 90,495 $ 91,070 $ 270,964 $ 224,549
Net interest income before provision for loan losses $ 169,069 $ 160,934 $ 166,546 $ 491,655 $ 406,013
Add: total noninterest income 30,100 26,729 26,758 80,569 48,131
Less: net gain from investment securities 4,190 5,085 1,141 13,321 8,880
Less: other income - security recoveries 1 6 1 9 1
Less: net gain (loss) from other real estate owned — — 13 — (42)
Less: net gain (loss) from debt extinguishment 970 (647) — (180) —
Revenue, adjusted $ 194,008 $ 183,219 $ 192,149 $ 559,074 $ 445,305
Efficiency ratio 47.5 % 49.4 % 47.4 % 48.5 % 50.4 %


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Total noninterest expense	$	97,648		$	97,252		$	92,489
Less: amortization of intangible assets	3,592			3,880			4,143
Less: merger-related expense	—			—			5

Noninterest expense, adjusted	$	94,056		$	93,372		$	88,341

Net interest income before provision for loan losses	$	161,839		$	170,719		$	161,652
Add: total noninterest income	25,894			27,281			23,740
Less: net gain from investment securities	2,134			3,585			4,046
Less: other income - security recoveries	—			1			2

Less: net gain (loss) from debt extinguishment	—			—			(503)

Revenue, adjusted	$	185,599		$	194,414		$	181,847

Efficiency ratio	50.7		%	48.0		%	48.6		%

9875

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, 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									Nine Months Ended							Three Months Ended
		September 30,			June 30,			September 30,			September 30,			September 30,				March 31,			December 31,			March 31,
(Dollars in thousands)	(Dollars in thousands)	2021			2021			2020			2021			2020			(Dollars in thousands)	2022			2021			2021
Net interest income	Net interest income	$	169,069		$	160,934		$	166,546		$	491,655		$	406,013		Net interest income	$	161,839		$	170,719		$	161,652
Less: scheduled accretion income	Less: scheduled accretion income	3,339			3,560			6,858			10,777			12,152			Less: scheduled accretion income	2,857			3,097			3,878
Less: accelerated accretion income	Less: accelerated accretion income	6,107			5,927			5,338			18,022			9,997			Less: accelerated accretion income	3,083			4,770			5,988
Less: premium amortization on CDs	Less: premium amortization on CDs	390			942			2,968			3,083			4,085			Less: premium amortization on CDs	96			183			1,751
Less: nonrecurring nonaccrual interest paid	Less: nonrecurring nonaccrual interest paid	(74)			(216)			(275)			(893)			(417)			Less: nonrecurring nonaccrual interest paid	(356)			349			(603)
Less: loss on fair value hedging relationships																	Less: loss on fair value hedging relationships	(1,667)			(819)			—
Core net interest income	Core net interest income	$	159,307		$	150,721		$	151,657		$	460,666		$	380,196		Core net interest income	$	157,826		$	163,139		$	150,638
Less: interest income on SBA PPP loans		—			—			838			—			6,220
Core net interest income excluding SBA PPP loans		$	159,307		$	150,721		$	150,819		$	460,666		$	373,976

Average interest-earning assets	Average interest-earning assets	$	19,131,172		$	18,783,803		$	18,707,605		$	18,804,146		$	14,317,164		Average interest-earning assets	$	19,240,232		$	19,173,458		$	18,490,426
Less: average SBA PPP loans		—			—			329,396			—			386,287
Average interest-earning assets excluding SBA PPP loans		$	19,131,172		$	18,783,803		$	18,378,209		$	18,804,146		$	13,930,877

Net interest margin (1)	Net interest margin (1)	3.51		%	3.44		%	3.54		%	3.50		%	3.79		%	Net interest margin (1)	3.41		%	3.53		%	3.55		%
Core net interest margin (1)	Core net interest margin (1)	3.30		%	3.22		%	3.23		%	3.28		%	3.55		%	Core net interest margin (1)	3.33		%	3.38		%	3.30		%
Core net interest margin excluding SBA PPP loans (1)		3.30		%	3.22		%	3.26		%	3.28		%	3.59		%

(1) Ratio is annualized.

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


		Three Months Ended									Nine Months Ended							Three Months Ended
		September 30,			June 30,			September 30,			September 30,			September 30,				March 31,			December 31,			March 31,
(Dollars in thousands)	(Dollars in thousands)	2021			2021			2020			2021			2020			(Dollars in thousands)	2022			2021			2021
Interest income	Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902		Interest income	$	168,546		$	177,006		$	172,994
Interest expense	Interest expense	6,978			9,758			15,445			28,078			43,889			Interest expense	6,707			6,287			11,342
Net interest income	Net interest income	169,069			160,934			166,546			491,655			406,013			Net interest income	161,839			170,719			161,652
Noninterest income	Noninterest income	30,100			26,729			26,758			80,569			48,131			Noninterest income	25,894			27,281			23,740
Revenue	Revenue	199,169			187,663			193,304			572,224			454,144			Revenue	187,733			198,000			185,392
Noninterest expense	Noninterest expense	96,040			94,496			98,579			283,025			281,180			Noninterest expense	97,648			97,252			92,489
Add: merger-related expense	Add: merger-related expense	—			—			2,988			5			44,058			Add: merger-related expense	—			—			5
Pre-provision net revenue	Pre-provision net revenue	103,129			93,167			97,713			289,204			217,022			Pre-provision net revenue	90,085			100,748			92,908
Pre-provision net revenue (annualized)	Pre-provision net revenue (annualized)	$	412,516		$	372,668		$	390,852		$	385,605		$	289,363		Pre-provision net revenue (annualized)	$	360,340		$	402,992		$	371,632

Average assets	Average assets	$	20,804,903		$	20,290,415		$	20,366,761		$	20,366,162		$	15,728,468		Average assets	$	20,956,791		$	20,867,005		$	19,994,260

Pre-provision net revenue on average assets	Pre-provision net revenue on average assets	0.50		%	0.46		%	0.48		%	1.42		%	1.38		%	Pre-provision net revenue on average assets	0.43		%	0.48		%	0.46		%
Pre-provision net revenue on average assets (annualized)	Pre-provision net revenue on average assets (annualized)	1.98		%	1.84		%	1.92		%	1.89		%	1.84		%	Pre-provision net revenue on average assets (annualized)	1.72		%	1.93		%	1.86		%

~~100~~76

RESULTS OF OPERATIONS

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


		Three Months Ended									Nine Months Ended							Three Months Ended
(Dollar in thousands, except per share data and	(Dollar in thousands, except per share data and	September 30,			June 30,			September 30,			September 30,			September 30,			(Dollar in thousands, except per share data and	March 31,			December 31,			March 31,
percentages)	percentages)	2021			2021			2020			2021			2020			percentages)	2022			2021			2021
Operating data	Operating data																Operating data
Interest income	Interest income	$	176,047		$	170,692		$	181,991		$	519,733		$	449,902		Interest income	$	168,546		$	177,006		$	172,994
Interest expense	Interest expense	6,978			9,758			15,445			28,078			43,889			Interest expense	6,707			6,287			11,342
Net interest income	Net interest income	169,069			160,934			166,546			491,655			406,013			Net interest income	161,839			170,719			161,652
Provision for credit losses	Provision for credit losses	(19,726)			(38,476)			4,210			(56,228)			190,299			Provision for credit losses	448			(14,648)			1,974
Net interest income after provision for credit losses	Net interest income after provision for credit losses	188,795			199,410			162,336			547,883			215,714			Net interest income after provision for credit losses	161,391			185,367			159,678
Net gain from sales of loans	Net gain from sales of loans	1,187			1,546			9,542			3,094			8,281			Net gain from sales of loans	1,494			1,334			361
Other noninterest income	Other noninterest income	28,913			25,183			17,216			77,475			39,850			Other noninterest income	24,400			25,947			23,379
Noninterest expense	Noninterest expense	96,040			94,496			98,579			283,025			281,180			Noninterest expense	97,648			97,252			92,489
Net income (loss) before income taxes		122,855			131,643			90,515			345,427			(17,335)
Income tax expense (benefit)		32,767			35,341			23,949			90,369			(10,550)
Net income (loss)		$	90,088		$	96,302		$	66,566		$	255,058		$	(6,785)
Net income before income taxes																	Net income before income taxes	89,637			115,396			90,929
Income tax expense																	Income tax expense	22,733			30,565			22,261
Net income																	Net income	$	66,904		$	84,831		$	68,668
Pre-provision net revenue (3)	Pre-provision net revenue (3)	$	103,129		$	93,167		$	97,713		$	289,204		$	217,022		Pre-provision net revenue (3)	$	90,085		$	100,748		$	92,908
Share data	Share data																Share data
Earnings (loss) per share:
Earnings per share:																	Earnings per share:
Basic	Basic	$	0.95		$	1.02		$	0.71		$	2.70		$	(0.10)		Basic	$	0.71		$	0.90		$	0.73
Diluted	Diluted	0.95			1.01			0.70			2.68			(0.10)			Diluted	0.70			0.89			0.72
Common equity dividends declared per share	Common equity dividends declared per share	0.33			0.33			0.25			0.96			0.75			Common equity dividends declared per share	0.33			0.33			0.30
Dividend payout ratio (1)	Dividend payout ratio (1)	34.63		%	32.43		%	35.45		%	35.59		%	(759.20)		%	Dividend payout ratio (1)	46.60		%	36.72		%	41.26		%
Performance ratios	Performance ratios																Performance ratios
Return on average assets (2)	Return on average assets (2)	1.73		%	1.90		%	1.31		%	1.67		%	(0.06)		%	Return on average assets (2)	1.28		%	1.63		%	1.37		%
Return on average equity (2)	Return on average equity (2)	12.67			14.02			9.90			12.23			(0.39)			Return on average equity (2)	9.34			11.90			9.99
Return on average tangible common equity (2)(3)	Return on average tangible common equity (2)(3)	19.89			22.45			16.44			19.52			0.21			Return on average tangible common equity (2)(3)	14.66			18.66			16.21

Pre-provision net revenue on average assets (2)(3)	Pre-provision net revenue on average assets (2)(3)	1.98			1.84			1.92			1.89			1.84			Pre-provision net revenue on average assets (2)(3)	1.72			1.93			1.86
Average equity to average assets	Average equity to average assets	13.67			13.54			13.21			13.65			14.76			Average equity to average assets	13.67			13.66			13.75
Efficiency ratio (3)	Efficiency ratio (3)	47.5			49.4			47.4			48.5			50.4			Efficiency ratio (3)	50.7			48.0			48.6

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

(2) Ratio is annualized.

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

~~101~~

In the ~~third~~first quarter of ~~2021,~~2022, we reported net income of ~~$90.1~~$66.9 million, or ~~$0.95~~$0.70 per diluted share. This compares with net income of ~~$96.3~~$84.8 million, or ~~$1.01~~$0.89 per diluted share, for the ~~second~~fourth quarter of 2021. The decrease in net income was primarily due to ~~$18.8~~a $15.1 million ~~lower~~decrease in provision recapture, ~~of provision for credit losses~~an $8.9 million decrease in net interest income, a $1.4 million decrease in noninterest income, and ana $396,000 increase ~~of $1.5 million~~ in noninterest expense, partially offset by ~~an increase of $8.1~~a $7.8 million ~~in net interest income, a $3.4 million increase in noninterest income, and a~~ decrease ~~of $2.6 million~~ in income tax expense. The provision ~~recaptures~~recapture during the ~~second and third quarters~~fourth quarter of 2021 ~~were~~was reflective of improving economic forecasts used in the Company’s CECL model relative to prior periods, ~~and the favorable asset quality profile of the loan portfolio,~~ partially offset by an increase in loans held for ~~investment.~~investment and changes in loan mix.

Net income of ~~$90.1~~$66.9 million, or ~~$0.95~~$0.70 per diluted share, for the ~~third~~first quarter of ~~2021~~2022 compares to a net income for the ~~third~~first quarter of ~~2020~~2021 of ~~$66.6~~$68.7 million, or ~~$0.70~~$0.72 per diluted share. The ~~increase~~decrease in net income was primarily due to a ~~$23.9~~$5.2 million increase in noninterest expense, partially offset by a $2.2 million increase in noninterest income, and a $1.5 million decrease in provision for credit losses, a $3.3 million increase in noninterest income, a $3.0 million decrease in merger-related expense, and a $2.5 million increase in net interest income, partially offset by an increase of $8.8 million in income tax expense and a $449,000 increase in noninterest expense excluding merger-related expenses.losses. The decrease in the provision for credit losses during the ~~third~~first quarter of ~~2021~~2022 was primarily due to ~~improved economic forecasts used~~higher outstanding unfunded loan commitments in the ~~Company’s CECL model relative to prior periods and the favorable asset quality profile~~first quarter of ~~the loan portfolio.~~2021.

For the three months ended ~~September 30, 2021,~~March 31, 2022, the Company’s return on average assets was ~~1.73%~~1.28%, return on average equity was ~~12.67%~~9.34%, and return on average tangible common equity was ~~19.89%~~14.66%. For the three months ended ~~June 30,~~December 31, 2021, the return on average assets was ~~1.90%~~1.63%, the return on average equity was ~~14.02%~~11.90%, and the return on average tangible common equity was ~~22.45%~~18.66%. For the three months ended ~~September 30, 2020,~~March 31, 2021, the return on average assets was ~~1.31%~~1.37%, the return on average equity was ~~9.90%~~9.99%, and the return on average tangible common equity was ~~16.44%~~16.21%.

For the nine months ended September 30, 2021, the Company recorded net income of $255.1 million, or $2.68 per diluted share. This compares with net loss of $6.8 million, or $(0.10) per diluted share, for the nine months ended September 30, 2020. The increase in net income of $261.8 million was primarily due to a $246.5 million decrease in the provision for credit losses, an $85.6 million increase in net interest income, a $44.1 million decrease in merger-related expenses,additional details, see "non-GAAP measures” presented under Item 2 - Management’s Discussion and a $32.4 million increase in noninterest income, partially offset by a $100.9 million increase in income tax expense and a $45.9 million increase in noninterest expense excluding merger-related expenses. The decrease in the provision for credit losses was attributable to higher provision expense from the Company’s adoption of ASC 326 effective January 1, 2020, the acquisition of Opus, and unfavorable economic forecasts used in the Company’s CECL model driven by the COVID-19 pandemic, as well as the $38.5 million and $19.7 million recapture of provision for credit losses during the second and third quarter of 2021, respectively, primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio. The year-over-year increases in net income reflect the impact of the acquisition of Opus in the second quarter of 2020.

For the nine months ended September 30, 2021, the Company’s return on average assets was 1.67%, return on average equity was 12.23%, and return on average tangible common equity was 19.52%, compared with a return on average assets of (0.06)%, return on average equity of (0.39)%, and a return on average tangible common equity of 0.21% for the nine months ended September 30, 2020.Analysis.

~~102~~

Net Interest Income

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

Net interest income totaled ~~$169.1~~$161.8 million in the ~~third~~first quarter of ~~2021, an increase~~2022, a decrease of ~~$8.1~~$8.9 million, or ~~5.1%~~5.2%, from the ~~second~~fourth quarter of 2021. The ~~increase~~decrease in net interest income was ~~due~~primarily attributable to ~~higher average interest-earning assets, higher loan~~lower loan-related fees ~~one more day~~and lower accretion income as a result of slowing prepayment activity, two fewer days of interest, and a lower ~~cost of funds as compared to the prior quarter,~~average investment and loan yields, partially offset by ~~lower~~an increase in average ~~investment securities~~earning assets and ~~loan yields.~~a favorable remix towards higher yielding loans.

The net interest margin for the ~~third~~first quarter of ~~2021~~2022 was ~~3.51%~~3.41%, compared with ~~3.44%~~3.53% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income, ~~of $9.4 million, compared to $9.5 million~~loss on interest rate contract in ~~the prior quarter, certificates of deposit mark-to-market amortization,~~fair value hedging relationships, and other adjustments, ~~increased eight~~decreased 5 basis points to ~~3.30%~~3.33%, compared to ~~3.22%~~3.38% in the prior quarter, reflecting lower ~~cost of funds and higher~~ loan prepayment fees, ~~partially offset by~~ lower average investment and loan yields, ~~and fees.~~partially offset by the favorable shift in average earning-asset mix.

Net interest income for the ~~third~~first quarter of ~~2021~~2022 increased ~~$2.5 million,~~$187,000, or ~~1.5%~~0.1%, compared to the ~~third~~first quarter of ~~2020.~~2021. The increase was attributable to ahigher average loan and investment balances, lower cost of funds, primarily due to a ~~$1.52 billion~~favorable deposit mix from an $894.6 million increase in average ~~investment securities,~~noninterest-bearing checking, and ~~a $377.5 million decrease in average interest-bearing liabilities, which primarily resulted from the~~ redemptions of higher-cost subordinated debentures, partially offset by lower average interest-earning ~~asset yields and lower average loan balances.~~

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

~~103~~78

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


		Average Balance Sheet																			Average Balance Sheet
		Three Months Ended																			Three Months Ended
		September 30, 2021						June 30, 2021						September 30, 2020							March 31, 2022						December 31, 2021						March 31, 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	$	663,076	$	195	0.12	%	$	1,323,186	$	315	0.10	%	$	1,388,897	$	305	0.09	%	Cash and cash equivalents	$	322,236	$	90	0.11	%	$	334,371	$	66	0.08	%	$	1,309,366	$	301	0.09	%
Investment securities	Investment securities	4,807,854		18,827		1.57		4,243,644		18,012		1.70		3,283,840		14,231		1.73		Investment securities	4,546,408		17,852		1.57		4,833,251		19,522		1.62		4,087,451		17,468		1.71
Loans receivable, net (1)(2)	Loans receivable, net (1)(2)	13,660,242		157,025		4.56		13,216,973		152,365		4.62		14,034,868		167,455		4.75		Loans receivable, net (1)(2)	14,371,588		150,604		4.25		14,005,836		157,418		4.46		13,093,609		155,225		4.81
Total interest-earning assets	Total interest-earning assets	19,131,172		176,047		3.65		18,783,803		170,692		3.64		18,707,605		181,991		3.87		Total interest-earning assets	19,240,232		168,546		3.55		19,173,458		177,006		3.66		18,490,426		172,994		3.79
Noninterest-earning assets	Noninterest-earning assets	1,673,731						1,506,612						1,659,156						Noninterest-earning assets	1,716,559						1,693,547						1,503,834
Total assets	Total assets	$	20,804,903					$	20,290,415					$	20,366,761					Total assets	$	20,956,791					$	20,867,005					$	19,994,260
Liabilities and equity	Liabilities and equity																			Liabilities and equity
Interest-bearing deposits:	Interest-bearing deposits:																			Interest-bearing deposits:
Interest checking	Interest checking	$	3,383,219	$	290	0.03	%	$	3,155,935	$	336	0.04	%	$	3,001,738	$	1,191	0.16	%	Interest checking	$	3,537,824	$	229	0.03	%	$	3,501,323	$	225	0.03	%	$	3,060,055	$	419	0.06	%
Money market	Money market	5,554,881		1,309		0.09		5,558,790		2,002		0.14		5,490,541		4,855		0.35		Money market	5,343,973		888		0.07		5,467,559		925		0.07		5,447,909		2,588		0.19
Savings	Savings	401,804		58		0.06		384,376		84		0.09		357,768		109		0.12		Savings	422,186		26		0.02		418,218		27		0.03		368,288		82		0.09
Retail certificates of deposit	Retail certificates of deposit	1,196,187		775		0.26		1,294,544		839		0.26		1,587,712		1,857		0.47		Retail certificates of deposit	1,047,451		530		0.21		1,084,326		517		0.19		1,425,093		1,201		0.34
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	—		—		—		1,357		4		1.18		265,672		497		0.74		Wholesale/brokered certificates of deposit	—		—		—		—		—		—		118,854		136		0.46
Total interest-bearing deposits	Total interest-bearing deposits	10,536,091		2,432		0.09		10,395,002		3,265		0.13		10,703,431		8,509		0.32		Total interest-bearing deposits	10,351,434		1,673		0.07		10,471,426		1,694		0.06		10,420,199		4,426		0.17
FHLB advances and other borrowings	FHLB advances and other borrowings	1,670		1		0.24		6,303		—		—		41,041		113		1.10		FHLB advances and other borrowings	225,250		474		0.85		69,538		33		0.19		22,012		65		1.20
Subordinated debentures	Subordinated debentures	330,575		4,545		5.50		480,415		6,493		5.41		501,396		6,823		5.44		Subordinated debentures	330,629		4,560		5.52		330,476		4,560		5.52		501,553		6,851		5.46
Total borrowings	Total borrowings	332,245		4,546		5.43		486,718		6,493		5.35		542,437		6,936		5.09		Total borrowings	555,879		5,034		3.63		400,014		4,593		4.59		523,565		6,916		5.36
Total interest-bearing liabilities	Total interest-bearing liabilities	10,868,336		6,978		0.25		10,881,720		9,758		0.36		11,245,868		15,445		0.55		Total interest-bearing liabilities	10,907,313		6,707		0.25		10,871,440		6,287		0.23		10,943,764		11,342		0.42
Noninterest-bearing deposits	Noninterest-bearing deposits	6,809,211						6,341,063						5,877,619						Noninterest-bearing deposits	6,928,872						6,911,702						6,034,319
Other liabilities	Other liabilities	282,556						320,324						553,407						Other liabilities	256,219						232,863						266,536
Total liabilities	Total liabilities	17,960,103						17,543,107						17,676,894						Total liabilities	18,092,404						18,016,005						17,244,619
Stockholders’ equity	Stockholders’ equity	2,844,800						2,747,308						2,689,867						Stockholders’ equity	2,864,387						2,851,000						2,749,641
Total liabilities and equity	Total liabilities and equity	$	20,804,903					$	20,290,415					$	20,366,761					Total liabilities and equity	$	20,956,791					$	20,867,005					$	19,994,260
Net interest income	Net interest income			$	169,069					$	160,934					$	166,546			Net interest income			$	161,839					$	170,719					$	161,652

Net interest margin (3)	Net interest margin (3)					3.51	%					3.44	%					3.54	%	Net interest margin (3)					3.41	%					3.53	%					3.55	%
Cost of deposits (4)	Cost of deposits (4)					0.06						0.08						0.20		Cost of deposits (4)					0.04						0.04						0.11
Cost of funds (5)	Cost of funds (5)					0.16						0.23						0.36		Cost of funds (5)					0.15						0.14						0.27
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities					176.03						172.62						166.35		Ratio of interest-earning assets to interest-bearing liabilities					176.40						176.37						168.96

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

(2) Interest income includes net discount accretion of ~~$9.4~~$5.9 million, ~~$9.5~~$7.9 million, and ~~$12.2~~$9.9 million, respectively.

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

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

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

~~104~~

Average Balance Sheet
Nine Months Ended
September 30, 2021 September 30, 2020
(Dollars in thousands) Average
Balance Interest Average
Yield/Cost Average
Balance Interest Average
Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents $ 1,096,175 $ 811 0.10 % $ 802,615 $ 736 0.12 %
Investment securities 4,382,288 54,307 1.65 % 2,196,929 35,107 2.13 %
Loans receivable, net (1)(2)
13,325,683 464,615 4.66 % 11,317,620 414,059 4.89 %
Total interest-earning assets 18,804,146 519,733 3.70 % 14,317,164 449,902 4.20 %
Noninterest-earning assets 1,562,016 1,411,304
Total assets $ 20,366,162 $ 15,728,468
Liabilities and equity
Interest-bearing deposits:
Interest checking $ 3,200,920 $ 1,045 0.04 % $ 1,666,723 $ 2,644 0.21 %
Money market 5,520,919 5,899 0.14 % 4,302,817 16,606 0.52 %
Savings 384,945 224 0.08 % 293,653 307 0.14 %
Retail certificates of deposit 1,304,436 2,815 0.29 % 1,225,689 7,710 0.84 %
Wholesale/brokered certificates of deposit 39,635 140 0.47 % 178,133 1,384 1.04 %
Total interest-bearing deposits 10,450,855 10,123 0.13 % 7,667,015 28,651 0.50 %
FHLB advances and other borrowings 9,921 66 0.89 % 173,649 1,411 1.09 %
Subordinated debentures 436,888 17,889 5.46 % 335,260 13,827 5.50 %
Total borrowings 446,809 17,955 5.37 % 508,909 15,238 4.00 %
Total interest-bearing liabilities 10,897,664 28,078 0.34 % 8,175,924 43,889 0.72 %
Noninterest-bearing deposits 6,397,703 4,922,726
Other liabilities 289,863 308,680
Total liabilities 17,585,230 13,407,330
Stockholders’ equity 2,780,932 2,321,138
Total liabilities and equity $ 20,366,162 $ 15,728,468
Net interest income $ 491,655 $ 406,013
Net interest margin (3)
3.50 % 3.79 %
Cost of deposits (4)
0.08 % 0.30 %
Cost of funds (5)
0.22 % 0.45 %
Ratio of interest-earning assets to interest-bearing liabilities 172.55 % 175.11 %

~~_____________________________~~

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

~~(2)~~ ~~Interest income includes net discount accretion of $28.8 million and $22.1 million, respectively.~~

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

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

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

~~105~~79

Changes in our net interest income are a function of changes in volume, days in a period, and rates of interest-earning assets and interest-bearing liabilities. The following tables present the impact that the volume, days in a period, and rate changes have had on our net interest income for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, we have provided information on changes to our net interest income with respect to:

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

•Changes in days in a period (changes in days in a period multiplied by daily interest; no changes in days for comparisons of the three months ended ~~September 30, 2021~~March 31, 2022 to the three months ended ~~September 30, 2020)~~March 31, 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 March 31, 2022
											Compared to
											Three Months Ended December 31, 2021
											Increase (Decrease) Due to
		Three Months Ended September 30, 2021 Compared to Three Months Ended June 30, 2021 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	$	(204)	$	2	$	82	$	(120)	Cash and cash equivalents	$	(2)	$	(2)	$	28	$	24
Investment securities	Investment securities	1,919		—		(1,104)		815		Investment securities	(1,137)		—		(533)		(1,670)
Loans receivable, net	Loans receivable, net	4,820		1,707		(1,867)		4,660		Loans receivable, net	3,890		(3,347)		(7,357)		(6,814)
Total interest-earning assets	Total interest-earning assets	6,535		1,709		(2,889)		5,355		Total interest-earning assets	2,751		(3,349)		(7,862)		(8,460)
Interest-bearing liabilities	Interest-bearing liabilities									Interest-bearing liabilities
Interest checking	Interest checking	20		3		(69)		(46)		Interest checking	2		(5)		7		4
Money market	Money market	(1)		14		(706)		(693)		Money market	(21)		(20)		4		(37)
Savings	Savings	4		1		(31)		(26)		Savings	—		(1)		—		(1)
Retail certificates of deposit	Retail certificates of deposit	(72)		8		—		(64)		Retail certificates of deposit	(16)		(12)		41		13
Wholesale/brokered certificates of deposit		(4)		—		—		(4)

FHLB advances and other borrowings	FHLB advances and other borrowings	(3)		—		4		1		FHLB advances and other borrowings	176		(11)		276		441
Subordinated debentures	Subordinated debentures	(2,058)		—		110		(1,948)		Subordinated debentures	2		—		(2)		—
Total interest-bearing liabilities	Total interest-bearing liabilities	(2,114)		26		(692)		(2,780)		Total interest-bearing liabilities	143		(49)		326		420
Change in net interest income	Change in net interest income	$	8,649	$	1,683	$	(2,197)	$	8,135	Change in net interest income	$	2,608	$	(3,300)	$	(8,188)	$	(8,880)

~~106~~80


									Three Months Ended March 31, 2022
									Compared to
									Three Months Ended March 31, 2021
									Increase (Decrease) Due to
		Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Increase (Decrease) Due to
(Dollars in thousands)	(Dollars in thousands)	Volume		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	$	(303)	$	193	$	(110)	Cash and cash equivalents	$	(296)	$	85	$	(211)
Investment securities	Investment securities	5,740		(1,144)		4,596		Investment securities	1,882		(1,498)		384
Loans receivable, net	Loans receivable, net	(4,175)		(6,255)		(10,430)		Loans receivable, net	14,273		(18,894)		(4,621)
Total interest-earning assets	Total interest-earning assets	1,262		(7,206)		(5,944)		Total interest-earning assets	15,859		(20,307)		(4,448)
Interest-bearing liabilities	Interest-bearing liabilities							Interest-bearing liabilities
Interest checking	Interest checking	154		(1,055)		(901)		Interest checking	48		(238)		(190)
Money market	Money market	57		(3,603)		(3,546)		Money market	(48)		(1,652)		(1,700)
Savings	Savings	16		(67)		(51)		Savings	14		(70)		(56)
Retail certificates of deposit	Retail certificates of deposit	(384)		(698)		(1,082)		Retail certificates of deposit	(267)		(404)		(671)
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	(249)		(248)		(497)		Wholesale/brokered certificates of deposit	(68)		(68)		(136)
FHLB advances and other borrowings	FHLB advances and other borrowings	(62)		(50)		(112)		FHLB advances and other borrowings	514		(105)		409
Subordinated debentures	Subordinated debentures	(2,354)		76		(2,278)		Subordinated debentures	(2,358)		67		(2,291)
Total interest-bearing liabilities	Total interest-bearing liabilities	(2,822)		(5,645)		(8,467)		Total interest-bearing liabilities	(2,165)		(2,470)		(4,635)
Change in net interest income	Change in net interest income	$	4,084	$	(1,561)	$	2,523	Change in net interest income	$	18,024	$	(17,837)	$	187

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

~~107~~

Provision for Credit Losses

For the ~~third~~first quarter of ~~2021,~~2022, the Company recorded a ~~$19.7~~$448,000 provision expense, compared to a $14.6 million provision recapture ~~compared to a $38.5 million provision recapture recognized~~ during the ~~second~~fourth quarter of 2021, and a ~~$4.2~~$2.0 million provision expense ~~recognized~~ during the ~~third~~first quarter of ~~2020.~~ 2021. The provision expense during the first quarter of 2022 was driven principally by loan growth and higher net charge-offs, as well as the impact of growing macroeconomic uncertainties. With the increasing probability of downside risks due to high inflation, the war between Russia and Ukraine and the uncertainty of its economic impact, and the potential that the economy may enter into a period of recession, the Company is carefully monitoring the current and forecasted macroeconomic environment, as well as key modeling variables.

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

Three Months Ended
September 30, June 30, September 30,
(Dollars in thousands) 2021 2021 2020
Provision for credit losses
Provision for loan losses $ (19,543) $ (33,131) $ 4,702
Provision for unfunded commitments (194) (5,345) (492)
Provision for held-to-maturity securities $ 11 $ — $ —
Total provision for credit losses $ (19,726) $ (38,476) $ 4,210

For the first nine months of 2021, the Company recorded a $56.2 million provision recapture, compared to a $190.3 million provision expense recorded for the first nine months of 2020. The provision recapture for the first nine months of 2021, which included a $52.4 million provision recapture for loan losses, a $3.9 million provision recapture for unfunded commitments, and an $11,000 provision expense for held-to-maturity securities was reflective of improving economic forecasts employed in the Company’s CECL model relative to prior periods and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment during the first nine months of 2021.mix. The provision expense for the first ~~nine months~~quarter of ~~2020~~2021 was ~~driven by~~a result of an increase in outstanding unfunded commitments in the commercial and industrial loan segment in conjunction with continued unfavorable, ~~changes in~~but improving economic conditions and forecasts ~~employed~~reflected 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.~~model.

Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2021 2020
Provision for credit losses
Provision for loans and lease losses $ (52,359) $ 180,341
Provision for unfunded commitments (3,880) 9,958
Provision for held-to-maturity securities $ 11 $ —
Total provision for credit losses $ (56,228) $ 190,299
Net loan charge-offs for the three months ending March 31, 2022 totaled $446,000, compared with net loan recoveries of $981,000 for the three months ending December 31, 2021, and net loan charge-offs of $1.3 million for the three months ending March 31, 2021.


	Three Months Ended						Variance From
	March 31,		December 31,		March 31,		December 31, 2021				March 31, 2021
(Dollars in thousands)	2022		2021		2021		$		%		$		%
Provision for credit losses
Provision for loan losses	$	211	$	(14,710)	$	315	$	14,921	(101.4)	%	$	(104)	(33.0)	%
Provision for unfunded commitments	218		51		1,659		167		327.5		(1,441)		(86.9)

Provision for HTM securities	19		11		—		8		72.7		19		—
Total provision for credit losses	$	448	$	(14,648)	$	1,974	$	15,096	(103.1)	%	$	(1,526)	(77.3)	%

~~108~~81

Noninterest Income

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


		Three Months Ended						Nine Months Ended					Three Months Ended						Variance From
		September 30,		June 30,		September 30,		September 30,		September 30,			March 31,		December 31,		March 31,		December 31, 2021				March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	2021		2021		2020		2021		2020		(Dollars in thousands)	2022		2021		2021		$		%		$		%
Noninterest income	Noninterest income											Noninterest income
Loan servicing income	Loan servicing income	$	536	$	622	$	481	$	1,616	$	1,395	Loan servicing income	$	419	$	505	$	458	$	(86)	(17.0)	%	$	(39)	(8.5)	%
Service charges on deposit accounts	Service charges on deposit accounts	2,375		2,222		1,593		6,629		4,707		Service charges on deposit accounts	2,615		2,590		2,032		25		1.0		583		28.7
Other service fee income	Other service fee income	350		352		487		1,175		1,095		Other service fee income	367		391		473		(24)		(6.1)		(106)		(22.4)
Debit card interchange fee income	Debit card interchange fee income	834		1,099		944		2,720		1,749		Debit card interchange fee income	836		769		787		67		8.7		49		6.2
Earnings on bank-owned life insurance		3,266		2,279		2,270		7,778		4,920
Earnings on bank owned life insurance												Earnings on bank owned life insurance	3,221		3,521		2,233		(300)		(8.5)		988		44.2
Net gain from sales of loans	Net gain from sales of loans	1,187		1,546		9,542		3,094		8,281		Net gain from sales of loans	1,494		1,334		361		160		12.0		1,133		313.9
Net gain from sales of investment securities	Net gain from sales of investment securities	4,190		5,085		1,141		13,321		8,880		Net gain from sales of investment securities	2,134		3,585		4,046		(1,451)		(40.5)		(1,912)		(47.3)

Trust custodial account fees	Trust custodial account fees	11,446		7,897		6,960		26,565		9,357		Trust custodial account fees	11,579		11,611		7,222		(32)		(0.3)		4,357		60.3
Escrow and exchange fees	Escrow and exchange fees	1,867		1,672		1,142		5,065		1,407		Escrow and exchange fees	1,661		2,221		1,526		(560)		(25.2)		135		8.8
Other income	Other income	4,049		3,955		2,198		12,606		6,340		Other income	1,568		754		4,602		814		108.0		(3,034)		(65.9)
Total noninterest income	Total noninterest income	$	30,100	$	26,729	$	26,758	$	80,569	$	48,131	Total noninterest income	$	25,894	$	27,281	$	23,740	$	(1,387)	(5.1)	%	$	2,154	9.1	%

Noninterest income for the ~~third~~first quarter of ~~2021~~2022 was ~~$30.1~~$25.9 million, ~~an increase~~a decrease of ~~$3.4~~$1.4 million from the ~~second~~fourth quarter of 2021. The ~~increase~~decrease was primarily due to a ~~$3.5~~$1.5 million increase in trust custodial account fees attributable to a new pricing initiative and a $987,000 increase in earnings on bank-owned life insurance ("BOLI") largely driven by a $150 million addition to BOLI in June 2021, partially offset by a $895,000 decrease in net gain from sales of investment ~~securities. Also, other income included~~securities and a ~~$970,000 net gain on debt extinguishment compared to a $647,000 loss~~$560,000 decrease in ~~the prior quarter,~~escrow and exchange fees, partially offset by ~~$1.1 million lower~~an $814,000 increase in other income, which included $530,000 higher CRA investment ~~income and $483,000 lower SBA PPP loan referral fees.~~

income.

During the ~~third~~first quarter of ~~2021,~~2022, the Bank sold ~~$12.0 million of SBA loans for a net gain of $1.2 million, compared to the sales of $14.7~~$17.8 million of SBA loans for a net gain of $1.5 million, compared to the sales of $13.3 million of SBA loans for a net gain of $1.3 million during the ~~second~~fourth quarter of 2021.

Additionally, during the ~~third~~first quarter of ~~2021,~~2022, the Bank sold ~~$161.6~~$658.5 million of investment securities for a net gain of ~~$4.2~~$2.1 million, compared to the sales of ~~$280.2~~$267.1 million of investment securities for a net gain of ~~$5.1~~$3.6 million in the ~~second~~fourth quarter of 2021.

Noninterest income for the ~~third~~first quarter of ~~2021~~2022 increased ~~$3.3~~$2.2 million, compared to the ~~third~~first quarter of ~~2020.~~2021. The increase was primarily due to a ~~$4.5~~$4.4 million increase in trust custodial account fees, a ~~$3.0~~$1.1 million increase in net gain from sales of ~~investment securities,~~loans, and a ~~$1.9~~$988,000 increase in earnings on bank owned life insurance (“BOLI”), partially offset by a $3.0 million ~~increase~~decrease in other income and a ~~$996,000 increase in earnings on BOLI, partially offset by a $8.4~~$1.9 million decrease in net gain from ~~the~~ sales of ~~loans.~~investment securities.

The net gain from sales of loans for the ~~third~~first quarter of ~~2021 decreased~~2022 increased from the same period last year ~~primarily due to~~reflecting higher net gain from the sales of ~~$12.0~~$17.8 million of SBA loans for a net gain of ~~$1.2~~$1.5 million, compared with the sales of ~~$1.16 billion~~$1.3 million of SBA ~~PPP~~ loans for a net gain of ~~$19.0 million in the third quarter of 2020, offset by sales of $96.2 million of other~~$69,000 and fully charged-off loans for a net ~~loss~~gain of ~~$9.4 million~~$292,000 during the ~~third~~first quarter of ~~2020.~~2021.

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

~~109~~82

~~Noninterest Expense~~Income Taxes

The Company is subject to federal and state taxation in various tax jurisdictions within the United States. Current income taxes are based on estimates for amounts payable or receivable on tax returns for the current year. Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the asset-liability method. In estimating future tax consequences, all expected future events other than enactments of changes in tax laws or tax rates are considered. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are to be recognized for temporary differences that will result in deductible amounts in future years and for tax carryforwards if, in the opinion of management, it is more likely than not that the deferred tax assets will be realized. Changes in income taxes can occur when, among other things, there are changes in tax laws, changes in tax rates, and/or changes in statutory or regulatory guidance; any of which may have an impact on current and deferred income taxes, and may have a material impact on our results of operations. The Company’s income tax positions are evaluated quarterly.

NON-GAAP MEASURES


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Net income	$	66,904		$	84,831		$	68,668
Plus: amortization of intangible assets expense	3,592			3,880			4,143
Less: amortization of intangible assets expense tax adjustment (1)	1,025			1,107			1,185
Net income for average tangible common equity	$	69,471		$	87,604		$	71,626

Average stockholders’ equity	$	2,864,387		$	2,851,000		$	2,749,641
Less: average intangible assets	68,157			71,897			83,946
Less: average goodwill	901,312			901,312			898,587
Average tangible common equity	$	1,894,918		$	1,877,791		$	1,767,108

Return on average equity (2)	9.34		%	11.90		%	9.99		%
Return on average tangible common equity (2)	14.66		%	18.66		%	16.21		%

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

(2) Ratio is annualized.


	March 31,			December 31,
(Dollars in thousands)	2022			2021
Total stockholders’ equity	$	2,783,018		$	2,886,311
Less: intangible assets	967,290			970,883
Tangible common equity	$	1,815,728		$	1,915,428

Total assets	$	21,622,296		$	21,094,429
Less: intangible assets	967,290			970,883
Tangible assets	$	20,655,006		$	20,123,546

Tangible common equity ratio	8.79		%	9.52		%

Common shares issued and outstanding	94,945,849			94,389,543

Book value per share	$	29.31		$	30.58
Less: intangible book value per share	10.19			10.29
Tangible book value per share	$	19.12		$	20.29


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Total noninterest expense	$	97,648		$	97,252		$	92,489
Less: amortization of intangible assets	3,592			3,880			4,143
Less: merger-related expense	—			—			5

Noninterest expense, adjusted	$	94,056		$	93,372		$	88,341

Net interest income before provision for loan losses	$	161,839		$	170,719		$	161,652
Add: total noninterest income	25,894			27,281			23,740
Less: net gain from investment securities	2,134			3,585			4,046
Less: other income - security recoveries	—			1			2

Less: net gain (loss) from debt extinguishment	—			—			(503)

Revenue, adjusted	$	185,599		$	194,414		$	181,847

Efficiency ratio	50.7		%	48.0		%	48.6		%

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


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Net interest income	$	161,839		$	170,719		$	161,652
Less: scheduled accretion income	2,857			3,097			3,878
Less: accelerated accretion income	3,083			4,770			5,988
Less: premium amortization on CDs	96			183			1,751
Less: nonrecurring nonaccrual interest paid	(356)			349			(603)
Less: loss on fair value hedging relationships	(1,667)			(819)			—
Core net interest income	$	157,826		$	163,139		$	150,638



Average interest-earning assets	$	19,240,232		$	19,173,458		$	18,490,426



Net interest margin (1)	3.41		%	3.53		%	3.55		%
Core net interest margin (1)	3.33		%	3.38		%	3.30		%

(1) Ratio is annualized.


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Interest income	$	168,546		$	177,006		$	172,994
Interest expense	6,707			6,287			11,342
Net interest income	161,839			170,719			161,652
Noninterest income	25,894			27,281			23,740
Revenue	187,733			198,000			185,392
Noninterest expense	97,648			97,252			92,489
Add: merger-related expense	—			—			5
Pre-provision net revenue	90,085			100,748			92,908
Pre-provision net revenue (annualized)	$	360,340		$	402,992		$	371,632

Average assets	$	20,956,791		$	20,867,005		$	19,994,260

Pre-provision net revenue on average assets	0.43		%	0.48		%	0.46		%
Pre-provision net revenue on average assets (annualized)	1.72		%	1.93		%	1.86		%

RESULTS OF OPERATIONS

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


	Three Months Ended
(Dollar in thousands, except per share data and	March 31,			December 31,			March 31,
percentages)	2022			2021			2021
Operating data
Interest income	$	168,546		$	177,006		$	172,994
Interest expense	6,707			6,287			11,342
Net interest income	161,839			170,719			161,652
Provision for credit losses	448			(14,648)			1,974
Net interest income after provision for credit losses	161,391			185,367			159,678
Net gain from sales of loans	1,494			1,334			361
Other noninterest income	24,400			25,947			23,379
Noninterest expense	97,648			97,252			92,489
Net income before income taxes	89,637			115,396			90,929
Income tax expense	22,733			30,565			22,261
Net income	$	66,904		$	84,831		$	68,668
Pre-provision net revenue (3)	$	90,085		$	100,748		$	92,908
Share data
Earnings per share:
Basic	$	0.71		$	0.90		$	0.73
Diluted	0.70			0.89			0.72
Common equity dividends declared per share	0.33			0.33			0.30
Dividend payout ratio (1)	46.60		%	36.72		%	41.26		%
Performance ratios
Return on average assets (2)	1.28		%	1.63		%	1.37		%
Return on average equity (2)	9.34			11.90			9.99
Return on average tangible common equity (2)(3)	14.66			18.66			16.21

Pre-provision net revenue on average assets (2)(3)	1.72			1.93			1.86
Average equity to average assets	13.67			13.66			13.75
Efficiency ratio (3)	50.7			48.0			48.6

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

(2) Ratio is annualized.

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

In the first quarter of 2022, we reported net income of $66.9 million, or $0.70 per diluted share. This compares with net income of $84.8 million, or $0.89 per diluted share, for the fourth quarter of 2021. The decrease in net income was primarily due to a $15.1 million decrease in provision recapture, an $8.9 million decrease in net interest income, a $1.4 million decrease in noninterest income, and a $396,000 increase in noninterest expense, partially offset by a $7.8 million decrease in income tax expense. The provision recapture during the fourth quarter of 2021 was reflective of improving economic forecasts used in the Company’s CECL model relative to prior periods, partially offset by an increase in loans held for investment and changes in loan mix.

Net income of $66.9 million, or $0.70 per diluted share, for the first quarter of 2022 compares to net income for the first quarter of 2021 of $68.7 million, or $0.72 per diluted share. The decrease in net income was primarily due to a $5.2 million increase in noninterest expense, partially offset by a $2.2 million increase in noninterest income, and a $1.5 million decrease in provision for credit losses. The decrease in the provision for credit losses during the first quarter of 2022 was primarily due to higher outstanding unfunded loan commitments in the first quarter of 2021.

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

Net Interest Income

Net interest income totaled $161.8 million in the first quarter of 2022, a decrease of $8.9 million, or 5.2%, from the fourth quarter of 2021. The decrease in net interest income was primarily attributable to lower loan-related fees and lower accretion income as a result of slowing prepayment activity, two fewer days of interest, and lower average investment and loan yields, partially offset by an increase in average earning assets and a favorable remix towards higher yielding loans.

The net interest margin for the first quarter of 2022 was 3.41%, compared with 3.53% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income, loss on interest rate contract in fair value hedging relationships, and other adjustments, decreased 5 basis points to 3.33%, compared to 3.38% in the prior quarter, reflecting lower loan prepayment fees, lower average investment and loan yields, partially offset by the favorable shift in average earning-asset mix.

Net interest income for the first quarter of 2022 increased $187,000, or 0.1%, compared to the first quarter of 2021. The increase was attributable to higher average loan and investment balances, lower cost of funds, primarily due to a favorable deposit mix from an $894.6 million increase in average noninterest-bearing checking, and redemptions of higher-cost subordinated debentures, partially offset by lower average interest-earning assets yields.


	Average Balance Sheet
	Three Months Ended
	March 31, 2022						December 31, 2021						March 31, 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	$	322,236	$	90	0.11	%	$	334,371	$	66	0.08	%	$	1,309,366	$	301	0.09	%
Investment securities	4,546,408		17,852		1.57		4,833,251		19,522		1.62		4,087,451		17,468		1.71
Loans receivable, net (1)(2)	14,371,588		150,604		4.25		14,005,836		157,418		4.46		13,093,609		155,225		4.81
Total interest-earning assets	19,240,232		168,546		3.55		19,173,458		177,006		3.66		18,490,426		172,994		3.79
Noninterest-earning assets	1,716,559						1,693,547						1,503,834
Total assets	$	20,956,791					$	20,867,005					$	19,994,260
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,537,824	$	229	0.03	%	$	3,501,323	$	225	0.03	%	$	3,060,055	$	419	0.06	%
Money market	5,343,973		888		0.07		5,467,559		925		0.07		5,447,909		2,588		0.19
Savings	422,186		26		0.02		418,218		27		0.03		368,288		82		0.09
Retail certificates of deposit	1,047,451		530		0.21		1,084,326		517		0.19		1,425,093		1,201		0.34
Wholesale/brokered certificates of deposit	—		—		—		—		—		—		118,854		136		0.46
Total interest-bearing deposits	10,351,434		1,673		0.07		10,471,426		1,694		0.06		10,420,199		4,426		0.17
FHLB advances and other borrowings	225,250		474		0.85		69,538		33		0.19		22,012		65		1.20
Subordinated debentures	330,629		4,560		5.52		330,476		4,560		5.52		501,553		6,851		5.46
Total borrowings	555,879		5,034		3.63		400,014		4,593		4.59		523,565		6,916		5.36
Total interest-bearing liabilities	10,907,313		6,707		0.25		10,871,440		6,287		0.23		10,943,764		11,342		0.42
Noninterest-bearing deposits	6,928,872						6,911,702						6,034,319
Other liabilities	256,219						232,863						266,536
Total liabilities	18,092,404						18,016,005						17,244,619
Stockholders’ equity	2,864,387						2,851,000						2,749,641
Total liabilities and equity	$	20,956,791					$	20,867,005					$	19,994,260
Net interest income			$	161,839					$	170,719					$	161,652

Net interest margin (3)					3.41	%					3.53	%					3.55	%
Cost of deposits (4)					0.04						0.04						0.11
Cost of funds (5)					0.15						0.14						0.27
Ratio of interest-earning assets to interest-bearing liabilities					176.40						176.37						168.96

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

(2) Interest income includes net discount accretion of $5.9 million, $7.9 million, and $9.9 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.

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

•Changes in days in a period (changes in days in a period multiplied by daily interest; no changes in days for comparisons of the three months ended March 31, 2022 to the three months ended March 31, 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 March 31, 2022
	Compared to
	Three Months Ended December 31, 2021
	Increase (Decrease) Due to

(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(2)	$	(2)	$	28	$	24
Investment securities	(1,137)		—		(533)		(1,670)
Loans receivable, net	3,890		(3,347)		(7,357)		(6,814)
Total interest-earning assets	2,751		(3,349)		(7,862)		(8,460)
Interest-bearing liabilities
Interest checking	2		(5)		7		4
Money market	(21)		(20)		4		(37)
Savings	—		(1)		—		(1)
Retail certificates of deposit	(16)		(12)		41		13

FHLB advances and other borrowings	176		(11)		276		441
Subordinated debentures	2		—		(2)		—
Total interest-bearing liabilities	143		(49)		326		420
Change in net interest income	$	2,608	$	(3,300)	$	(8,188)	$	(8,880)


	Three Months Ended March 31, 2022
	Compared to
	Three Months Ended March 31, 2021
	Increase (Decrease) Due to

(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(296)	$	85	$	(211)
Investment securities	1,882		(1,498)		384
Loans receivable, net	14,273		(18,894)		(4,621)
Total interest-earning assets	15,859		(20,307)		(4,448)
Interest-bearing liabilities
Interest checking	48		(238)		(190)
Money market	(48)		(1,652)		(1,700)
Savings	14		(70)		(56)
Retail certificates of deposit	(267)		(404)		(671)
Wholesale/brokered certificates of deposit	(68)		(68)		(136)
FHLB advances and other borrowings	514		(105)		409
Subordinated debentures	(2,358)		67		(2,291)
Total interest-bearing liabilities	(2,165)		(2,470)		(4,635)
Change in net interest income	$	18,024	$	(17,837)	$	187

Provision for Credit Losses

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

The provision recapture for the fourth quarter of 2021 was primarily reflective of improving economic forecasts employed in the Company’s CECL model, partially offset by the fourth quarter loan growth and changes in loan mix. The provision expense for the first quarter of 2021 was a result of an increase in outstanding unfunded commitments in the commercial and industrial loan segment in conjunction with continued unfavorable, but improving economic conditions and forecasts reflected in the Company’s CECL model.

Net loan charge-offs for the three months ending March 31, 2022 totaled $446,000, compared with net loan recoveries of $981,000 for the three months ending December 31, 2021, and net loan charge-offs of $1.3 million for the three months ending March 31, 2021.


	Three Months Ended						Variance From
	March 31,		December 31,		March 31,		December 31, 2021				March 31, 2021
(Dollars in thousands)	2022		2021		2021		$		%		$		%
Provision for credit losses
Provision for loan losses	$	211	$	(14,710)	$	315	$	14,921	(101.4)	%	$	(104)	(33.0)	%
Provision for unfunded commitments	218		51		1,659		167		327.5		(1,441)		(86.9)

Provision for HTM securities	19		11		—		8		72.7		19		—
Total provision for credit losses	$	448	$	(14,648)	$	1,974	$	15,096	(103.1)	%	$	(1,526)	(77.3)	%

Noninterest Income

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


	Three Months Ended						Variance From
	March 31,		December 31,		March 31,		December 31, 2021				March 31, 2021
(Dollars in thousands)	2022		2021		2021		$		%		$		%
Noninterest income
Loan servicing income	$	419	$	505	$	458	$	(86)	(17.0)	%	$	(39)	(8.5)	%
Service charges on deposit accounts	2,615		2,590		2,032		25		1.0		583		28.7
Other service fee income	367		391		473		(24)		(6.1)		(106)		(22.4)
Debit card interchange fee income	836		769		787		67		8.7		49		6.2
Earnings on bank owned life insurance	3,221		3,521		2,233		(300)		(8.5)		988		44.2
Net gain from sales of loans	1,494		1,334		361		160		12.0		1,133		313.9
Net gain from sales of investment securities	2,134		3,585		4,046		(1,451)		(40.5)		(1,912)		(47.3)



Trust custodial account fees	11,579		11,611		7,222		(32)		(0.3)		4,357		60.3
Escrow and exchange fees	1,661		2,221		1,526		(560)		(25.2)		135		8.8
Other income	1,568		754		4,602		814		108.0		(3,034)		(65.9)
Total noninterest income	$	25,894	$	27,281	$	23,740	$	(1,387)	(5.1)	%	$	2,154	9.1	%

Noninterest ~~expense totaled $96.0 million~~income for the ~~third~~first quarter of ~~2021,~~2022 was $25.9 million, a decrease of $1.4 million from the fourth quarter of 2021. The decrease was primarily due to a $1.5 million decrease in net gain from sales of investment securities and a $560,000 decrease in escrow and exchange fees, partially offset by an $814,000 increase in other income, which included $530,000 higher CRA investment income.

During the first quarter of 2022, the Bank sold $17.8 million of SBA loans for a net gain of $1.5 million, compared to the ~~second~~sales of $13.3 million of SBA loans for a net gain of $1.3 million during the fourth quarter of ~~2021, driven primarily by~~2021.

Additionally, during the first quarter of 2022, the Bank sold $658.5 million of investment securities for a ~~$531,000 increase~~net gain of $2.1 million, compared to the sales of $267.1 million of investment securities for a net gain of $3.6 million in ~~data processing expense and a $518,000 increase in marketing expense.~~the fourth quarter of 2021.

Noninterest ~~expense decreased by $2.5~~income for the first quarter of 2022 increased $2.2 million, compared to the ~~third~~first quarter of ~~2020.~~2021. The ~~decrease~~increase was primarily due to $3.0 million of merger-related expense for the third quarter of 2020 relating to the Opus acquisition. Excluding merger-related expense, noninterest expense increased $449,000 compared to the third quarter of 2020, primarily due to a ~~$2.6~~$4.4 million increase in ~~compensation~~trust custodial account fees, a $1.1 million increase in net gain from sales of loans, and ~~benefits,~~a $988,000 increase in earnings on bank owned life insurance (“BOLI”), partially offset by a ~~$1.3~~$3.0 million decrease in ~~office expense.~~other income and a $1.9 million decrease in net gain from sales of investment securities.

~~Noninterest expense totaled $283.0 million~~The net gain from sales of loans for the first ~~nine months~~quarter of ~~2021, an increase~~2022 increased from the same period last year reflecting higher net gain from the sales of ~~$1.8~~$17.8 million of SBA loans for a net gain of $1.5 million, compared with the sales of $1.3 million of SBA loans for a net gain of $69,000 and fully charged-off loans for a net gain of $292,000 during the first ~~nine months~~quarter of 2020. The increase was driven primarily by increases of $31.2 million in compensation and benefits, $6.8 million in premises and occupancy, $3.7 million in other expense, $3.4 million in data processing, $1.5 million in FDIC insurance premiums, and $1.4 million in legal and professional services, all impacted by the additional operations, personnel, branches, and divisions retained with the acquisition of Opus, partially offset by a $44.1 million decrease in merger-related expense relating to the Opus acquisition.2021.

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

~~110~~82

Income Taxes

The Company is subject to federal and state taxation in various tax jurisdictions within the United States. Current income taxes are based on estimates for amounts payable or receivable on tax returns for the current year. Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the asset-liability method. In estimating future tax consequences, all expected future events other than enactments of changes in tax laws or tax rates are considered. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are to be recognized for temporary differences that will result in deductible amounts in future years and for tax carryforwards if, in the opinion of management, it is more likely than not that the deferred tax assets will be realized. Changes in income taxes can occur when, among other things, there are changes in tax laws, changes in tax rates, and/or changes in statutory or regulatory guidance; any of which may have an impact on current and deferred income taxes, and may have a material impact on our results of operations. The Company’s income tax positions are evaluated quarterly.

NON-GAAP MEASURES


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Net income	$	66,904		$	84,831		$	68,668
Plus: amortization of intangible assets expense	3,592			3,880			4,143
Less: amortization of intangible assets expense tax adjustment (1)	1,025			1,107			1,185
Net income for average tangible common equity	$	69,471		$	87,604		$	71,626

Average stockholders’ equity	$	2,864,387		$	2,851,000		$	2,749,641
Less: average intangible assets	68,157			71,897			83,946
Less: average goodwill	901,312			901,312			898,587
Average tangible common equity	$	1,894,918		$	1,877,791		$	1,767,108

Return on average equity (2)	9.34		%	11.90		%	9.99		%
Return on average tangible common equity (2)	14.66		%	18.66		%	16.21		%

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

(2) Ratio is annualized.


	March 31,			December 31,
(Dollars in thousands)	2022			2021
Total stockholders’ equity	$	2,783,018		$	2,886,311
Less: intangible assets	967,290			970,883
Tangible common equity	$	1,815,728		$	1,915,428

Total assets	$	21,622,296		$	21,094,429
Less: intangible assets	967,290			970,883
Tangible assets	$	20,655,006		$	20,123,546

Tangible common equity ratio	8.79		%	9.52		%

Common shares issued and outstanding	94,945,849			94,389,543

Book value per share	$	29.31		$	30.58
Less: intangible book value per share	10.19			10.29
Tangible book value per share	$	19.12		$	20.29


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Total noninterest expense	$	97,648		$	97,252		$	92,489
Less: amortization of intangible assets	3,592			3,880			4,143
Less: merger-related expense	—			—			5

Noninterest expense, adjusted	$	94,056		$	93,372		$	88,341

Net interest income before provision for loan losses	$	161,839		$	170,719		$	161,652
Add: total noninterest income	25,894			27,281			23,740
Less: net gain from investment securities	2,134			3,585			4,046
Less: other income - security recoveries	—			1			2

Less: net gain (loss) from debt extinguishment	—			—			(503)

Revenue, adjusted	$	185,599		$	194,414		$	181,847

Efficiency ratio	50.7		%	48.0		%	48.6		%

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


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Net interest income	$	161,839		$	170,719		$	161,652
Less: scheduled accretion income	2,857			3,097			3,878
Less: accelerated accretion income	3,083			4,770			5,988
Less: premium amortization on CDs	96			183			1,751
Less: nonrecurring nonaccrual interest paid	(356)			349			(603)
Less: loss on fair value hedging relationships	(1,667)			(819)			—
Core net interest income	$	157,826		$	163,139		$	150,638



Average interest-earning assets	$	19,240,232		$	19,173,458		$	18,490,426



Net interest margin (1)	3.41		%	3.53		%	3.55		%
Core net interest margin (1)	3.33		%	3.38		%	3.30		%

(1) Ratio is annualized.


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2022			2021			2021
Interest income	$	168,546		$	177,006		$	172,994
Interest expense	6,707			6,287			11,342
Net interest income	161,839			170,719			161,652
Noninterest income	25,894			27,281			23,740
Revenue	187,733			198,000			185,392
Noninterest expense	97,648			97,252			92,489
Add: merger-related expense	—			—			5
Pre-provision net revenue	90,085			100,748			92,908
Pre-provision net revenue (annualized)	$	360,340		$	402,992		$	371,632

Average assets	$	20,956,791		$	20,867,005		$	19,994,260

Pre-provision net revenue on average assets	0.43		%	0.48		%	0.46		%
Pre-provision net revenue on average assets (annualized)	1.72		%	1.93		%	1.86		%

RESULTS OF OPERATIONS

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


	Three Months Ended
(Dollar in thousands, except per share data and	March 31,			December 31,			March 31,
percentages)	2022			2021			2021
Operating data
Interest income	$	168,546		$	177,006		$	172,994
Interest expense	6,707			6,287			11,342
Net interest income	161,839			170,719			161,652
Provision for credit losses	448			(14,648)			1,974
Net interest income after provision for credit losses	161,391			185,367			159,678
Net gain from sales of loans	1,494			1,334			361
Other noninterest income	24,400			25,947			23,379
Noninterest expense	97,648			97,252			92,489
Net income before income taxes	89,637			115,396			90,929
Income tax expense	22,733			30,565			22,261
Net income	$	66,904		$	84,831		$	68,668
Pre-provision net revenue (3)	$	90,085		$	100,748		$	92,908
Share data
Earnings per share:
Basic	$	0.71		$	0.90		$	0.73
Diluted	0.70			0.89			0.72
Common equity dividends declared per share	0.33			0.33			0.30
Dividend payout ratio (1)	46.60		%	36.72		%	41.26		%
Performance ratios
Return on average assets (2)	1.28		%	1.63		%	1.37		%
Return on average equity (2)	9.34			11.90			9.99
Return on average tangible common equity (2)(3)	14.66			18.66			16.21

Pre-provision net revenue on average assets (2)(3)	1.72			1.93			1.86
Average equity to average assets	13.67			13.66			13.75
Efficiency ratio (3)	50.7			48.0			48.6

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

(2) Ratio is annualized.

Net Interest Income


	Average Balance Sheet
	Three Months Ended
	March 31, 2022						December 31, 2021						March 31, 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	$	322,236	$	90	0.11	%	$	334,371	$	66	0.08	%	$	1,309,366	$	301	0.09	%
Investment securities	4,546,408		17,852		1.57		4,833,251		19,522		1.62		4,087,451		17,468		1.71
Loans receivable, net (1)(2)	14,371,588		150,604		4.25		14,005,836		157,418		4.46		13,093,609		155,225		4.81
Total interest-earning assets	19,240,232		168,546		3.55		19,173,458		177,006		3.66		18,490,426		172,994		3.79
Noninterest-earning assets	1,716,559						1,693,547						1,503,834
Total assets	$	20,956,791					$	20,867,005					$	19,994,260
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	3,537,824	$	229	0.03	%	$	3,501,323	$	225	0.03	%	$	3,060,055	$	419	0.06	%
Money market	5,343,973		888		0.07		5,467,559		925		0.07		5,447,909		2,588		0.19
Savings	422,186		26		0.02		418,218		27		0.03		368,288		82		0.09
Retail certificates of deposit	1,047,451		530		0.21		1,084,326		517		0.19		1,425,093		1,201		0.34
Wholesale/brokered certificates of deposit	—		—		—		—		—		—		118,854		136		0.46
Total interest-bearing deposits	10,351,434		1,673		0.07		10,471,426		1,694		0.06		10,420,199		4,426		0.17
FHLB advances and other borrowings	225,250		474		0.85		69,538		33		0.19		22,012		65		1.20
Subordinated debentures	330,629		4,560		5.52		330,476		4,560		5.52		501,553		6,851		5.46
Total borrowings	555,879		5,034		3.63		400,014		4,593		4.59		523,565		6,916		5.36
Total interest-bearing liabilities	10,907,313		6,707		0.25		10,871,440		6,287		0.23		10,943,764		11,342		0.42
Noninterest-bearing deposits	6,928,872						6,911,702						6,034,319
Other liabilities	256,219						232,863						266,536
Total liabilities	18,092,404						18,016,005						17,244,619
Stockholders’ equity	2,864,387						2,851,000						2,749,641
Total liabilities and equity	$	20,956,791					$	20,867,005					$	19,994,260
Net interest income			$	161,839					$	170,719					$	161,652

Net interest margin (3)					3.41	%					3.53	%					3.55	%
Cost of deposits (4)					0.04						0.04						0.11
Cost of funds (5)					0.15						0.14						0.27
Ratio of interest-earning assets to interest-bearing liabilities					176.40						176.37						168.96