~~0001028918us-gaap:DesignatedAsHedgingInstrumentMember2021-12-31~~

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~June 30, 2022~~March 31, 2023

☐ 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

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

PPBI

NASDAQ Global Select Market

The number of shares outstanding of the registrant’s common stock as of ~~July 29, 2022~~April 21, 2023 was ~~94,960,656.~~95,799,986.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED ~~JUNE 30, 2022~~MARCH 31, 2023


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Statements of Financial Condition (Unaudited)			3

Consolidated Statements of Income (Unaudited)			4

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

Consolidated Statements of Stockholders’ Equity (Unaudited)			6

Consolidated Statements of Cash Flows (Unaudited)			87

Notes to Consolidated Financial Statements (Unaudited)			98

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			6456

Item 3 - Quantitative and Qualitative Disclosures About Market Risk			~~106~~92

Item 4 - Controls and Procedures			~~108~~94

PART II - OTHER INFORMATION			~~109~~95

Item 1 - Legal Proceedings			~~109~~95

Item 1A - Risk Factors			~~109~~95

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			~~109~~96

Item 3 - Defaults Upon Senior Securities			~~109~~96

Item 4 - Mine Safety Disclosures			~~109~~96

Item 5 - Other Information			~~109~~96

Item 6 - Exhibits			~~110~~97

SIGNATURE			~~111~~98

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) June 30,
2022 December 31,
2021
ASSETS
Cash and due from banks $ 133,732 $ 83,150
Interest-bearing deposits with financial institutions 839,066 221,553
Cash and cash equivalents 972,798 304,703
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 $109 and $22 (fair value of $1,156,501 and $384,423) at June 30, 2022 and December 31, 2021, respectively 1,390,682 381,674
Investment securities available-for-sale, at fair value 2,679,070 4,273,864
FHLB, FRB, and other stock, at cost 118,636 117,538
Loans held for sale, at lower of cost or fair value 2,957 10,869
Loans held for investment 15,047,608 14,295,897
Allowance for credit losses (196,075) (197,752)
Loans held for investment, net 14,851,533 14,098,145
Accrued interest receivable 66,898 65,728
Premises and equipment 68,435 71,908
Deferred income taxes, net 163,767 87,344
Bank owned life insurance 454,593 449,353
Intangible assets 62,500 69,571
Goodwill 901,312 901,312
Other assets 258,522 260,204
Total assets $ 21,993,919 $ 21,094,429
LIABILITIES
Deposit accounts:
Noninterest-bearing checking $ 6,934,318 $ 6,757,259
Interest-bearing:
Checking 4,149,432 3,493,331
Money market/savings 5,545,230 5,806,726
Retail certificates of deposit 855,966 1,058,273
Wholesale/brokered certificates of deposit 599,667 —
Total interest-bearing 11,150,295 10,358,330
Total deposits 18,084,613 17,115,589
FHLB advances and other borrowings 600,000 558,000
Subordinated debentures 330,886 330,567
Accrued expenses and other liabilities 223,201 203,962
Total liabilities 19,238,700 18,208,118
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding — —
Common stock, $0.01 par value; 150,000,000 shares authorized at June 30, 2022 and December 31, 2021; 94,976,605 shares and 94,389,543 shares issued and outstanding, respectively 933 929
Additional paid-in capital 2,353,361 2,351,294
Retained earnings 615,943 541,950
Accumulated other comprehensive loss (215,018) (7,862)
Total stockholders’ equity 2,755,219 2,886,311
Total liabilities and stockholders’ equity $ 21,993,919 $ 21,094,429


(Dollars in thousands, except par value and share data)	March 31, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	132,441	$	135,207
Interest-bearing deposits with financial institutions	1,292,455		966,042
Cash and cash equivalents	1,424,896		1,101,249
Interest-bearing time deposits with financial institutions	1,734		1,734
Investments securities held-to-maturity, at amortized cost, net of allowance for credit losses of $227 and $43 (fair value of $1,496,494 and $1,097,096) at March 31, 2023 and December 31, 2022, respectively	1,749,030		1,388,103
Investment securities available-for-sale, at fair value	2,112,852		2,601,013
FHLB, FRB, and other stock	105,479		119,918
Loans held for sale, at lower of cost or fair value	1,247		2,643
Loans held for investment	14,171,784		14,676,298
Allowance for credit losses	(195,388)		(195,651)
Loans held for investment, net	13,976,396		14,480,647
Accrued interest receivable	69,660		73,784
Other real estate owned	5,499		—
Premises and equipment, net	63,450		64,543
Deferred income taxes, net	177,778		183,602
Bank owned life insurance	462,732		460,010
Intangible assets	52,417		55,588
Goodwill	901,312		901,312
Other assets	257,082		253,871
Total assets	$	21,361,564	$	21,688,017

LIABILITIES
Deposit accounts:
Noninterest-bearing checking	$	6,209,104	$	6,306,825
Interest-bearing:
Checking	2,871,812		3,119,850
Money market/savings	5,128,857		5,422,607
Retail certificates of deposit	1,257,146		1,086,423
Wholesale/brokered certificates of deposit	1,740,891		1,416,696
Total interest-bearing	10,998,706		11,045,576
Total deposits	17,207,810		17,352,401
FHLB advances and other borrowings	800,000		1,000,000
Subordinated debentures	331,364		331,204

Accrued expenses and other liabilities	191,229		206,023
Total liabilities	18,530,403		18,889,628
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 1,000,000 authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 150,000,000 shares authorized at March 31, 2023 and December 31, 2022; 95,714,777 shares and 95,021,760 shares issued and outstanding, respectively	937		933
Additional paid-in capital	2,361,830		2,362,663
Retained earnings	731,123		700,040
Accumulated other comprehensive loss	(262,729)		(265,247)
Total stockholders’ equity	2,831,161		2,798,389
Total liabilities and stockholders’ equity	$	21,361,564	$	21,688,017

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended						Six Months Ended					Three Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,			March 31,		March 31,
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)	2022		2022		2021		2022		2021		(Dollars in thousands, except share data)	2023		2022
INTEREST INCOME	INTEREST INCOME											INTEREST INCOME
Loans	Loans	$	164,455	$	150,604	$	152,365	$	315,059	$	307,590	Loans	$	180,958	$	150,604
Investment securities and other interest-earning assets	Investment securities and other interest-earning assets	18,771		17,942		18,327		36,713		36,096		Investment securities and other interest-earning assets	40,385		17,942
Total interest income	Total interest income	183,226		168,546		170,692		351,772		343,686		Total interest income	221,343		168,546
INTEREST EXPENSE	INTEREST EXPENSE											INTEREST EXPENSE
Deposits	Deposits	2,682		1,673		3,265		4,355		7,691		Deposits	40,234		1,673
FHLB advances and other borrowings	FHLB advances and other borrowings	3,217		474		—		3,691		65		FHLB advances and other borrowings	7,938		474
Subordinated debentures	Subordinated debentures	4,562		4,560		6,493		9,122		13,344		Subordinated debentures	4,561		4,560
Total interest expense	Total interest expense	10,461		6,707		9,758		17,168		21,100		Total interest expense	52,733		6,707
Net interest income before provision for credit losses	Net interest income before provision for credit losses	172,765		161,839		160,934		334,604		322,586		Net interest income before provision for credit losses	168,610		161,839
Provision for credit losses	Provision for credit losses	469		448		(38,476)		917		(36,502)		Provision for credit losses	3,016		448
Net interest income after provision for credit losses	Net interest income after provision for credit losses	172,296		161,391		199,410		333,687		359,088		Net interest income after provision for credit losses	165,594		161,391
NONINTEREST INCOME	NONINTEREST INCOME											NONINTEREST INCOME
Loan servicing income	Loan servicing income	502		419		622		921		1,080		Loan servicing income	573		419
Service charges on deposit accounts	Service charges on deposit accounts	2,690		2,615		2,222		5,305		4,254		Service charges on deposit accounts	2,629		2,615
Other service fee income	Other service fee income	366		367		352		733		825		Other service fee income	296		367
Debit card interchange fee income	Debit card interchange fee income	936		836		1,099		1,772		1,886		Debit card interchange fee income	803		836
Earnings on bank owned life insurance	Earnings on bank owned life insurance	3,240		3,221		2,279		6,461		4,512		Earnings on bank owned life insurance	3,374		3,221
Net gain from sales of loans	Net gain from sales of loans	1,136		1,494		1,546		2,630		1,907		Net gain from sales of loans	29		1,494
Net (loss) gain from sales of investment securities		(31)		2,134		5,085		2,103		9,131
Net gain from sales of investment securities												Net gain from sales of investment securities	138		2,134

Trust custodial account fees	Trust custodial account fees	10,354		11,579		7,897		21,933		15,119		Trust custodial account fees	11,025		11,579
Escrow and exchange fees	Escrow and exchange fees	1,827		1,661		1,672		3,488		3,198		Escrow and exchange fees	1,058		1,661
Other income	Other income	1,173		1,568		3,955		2,741		8,557		Other income	1,261		1,568
Total noninterest income	Total noninterest income	22,193		25,894		26,729		48,087		50,469		Total noninterest income	21,186		25,894
NONINTEREST EXPENSE	NONINTEREST EXPENSE											NONINTEREST EXPENSE
Compensation and benefits	Compensation and benefits	57,562		56,981		53,474		114,543		106,022		Compensation and benefits	54,293		56,981
Premises and occupancy	Premises and occupancy	11,829		11,952		12,240		23,781		24,220		Premises and occupancy	11,742		11,952
Data processing	Data processing	6,604		5,996		5,765		12,600		11,593		Data processing	7,265		5,996

Other real estate owned operations, net												Other real estate owned operations, net	108		—
FDIC insurance premiums	FDIC insurance premiums	1,452		1,396		1,312		2,848		2,493		FDIC insurance premiums	2,425		1,396
Legal and professional services	Legal and professional services	4,629		4,068		4,186		8,697		8,121		Legal and professional services	5,501		4,068
Marketing expense	Marketing expense	1,926		1,809		1,490		3,735		3,088		Marketing expense	1,838		1,809
Office expense	Office expense	1,252		1,203		1,589		2,455		3,418		Office expense	1,232		1,203
Loan expense	Loan expense	1,144		1,134		1,165		2,278		2,280		Loan expense	646		1,134
Deposit expense	Deposit expense	4,081		3,751		3,985		7,832		7,844		Deposit expense	8,436		3,751
Merger-related expense		—		—		—		—		5

Amortization of intangible assets	Amortization of intangible assets	3,479		3,592		4,001		7,071		8,144		Amortization of intangible assets	3,171		3,592
Other expense	Other expense	5,016		5,766		5,289		10,782		9,757		Other expense	4,695		5,766
Total noninterest expense	Total noninterest expense	98,974		97,648		94,496		196,622		186,985		Total noninterest expense	101,352		97,648
Net income before income taxes	Net income before income taxes	95,515		89,637		131,643		185,152		222,572		Net income before income taxes	85,428		89,637
Income tax expense	Income tax expense	25,712		22,733		35,341		48,445		57,602		Income tax expense	22,866		22,733
Net income	Net income	$	69,803	$	66,904	$	96,302	$	136,707	$	164,970	Net income	$	62,562	$	66,904
EARNINGS PER SHARE	EARNINGS PER SHARE											EARNINGS PER SHARE
Basic	Basic	$	0.74	$	0.71	$	1.02	$	1.44	$	1.74	Basic	$	0.66	$	0.71
Diluted	Diluted	0.73		0.70		1.01		1.44		1.73		Diluted	0.66		0.70
WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING											WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	93,765,264		93,499,695		93,635,392		93,633,213		93,582,563		Basic	93,857,812		93,499,695
Diluted	Diluted	94,040,691		93,946,074		94,218,028		93,983,057		94,155,740		Diluted	94,182,522		93,946,074

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

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


	Three Months Ended
	March 31,		March 31,
(Dollars in thousands)	2023		2022
Net income	$	62,562	$	66,904
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available-for-sale, net of income taxes (1)	36,400		(118,591)
Reclassification adjustment for net gain on sales of securities included in net income, net of income taxes (2)	(99)		(1,525)
Net unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (3)	(36,076)		(16,558)
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (4)	2,293		303
Other comprehensive income (loss), net of tax	2,518		(136,371)
Comprehensive income (loss), net of tax	$	65,080	$	(69,467)

(1) Income tax expense (benefit) ~~expense~~ of the unrealized ~~loss~~gain (loss) on securities was ~~$(16.2) million, $(47.4)~~$14.4 million and ~~$18.2~~$(47.4) million for the three months ended ~~June 30, 2022,~~March 31, 2023 and March 31, 2022, ~~and June 30, 2021, respectively, and $(63.5) million and $(10.9) million for the six months ended June 30, 2022 and June 30, 2021,~~ respectively.

(2) Income tax ~~(benefit)~~ expense on the reclassification adjustment for net ~~loss (gain)~~gain on sales of securities included in net income was ~~$(9,000),~~$39,000 and $609,000 ~~and $1.5 million~~ for the three months ended ~~June 30, 2022,~~March 31, 2023 and March 31, 2022, ~~and June 30, 2021, respectively, and $600,000 and $2.6 million for the six months ended June 30, 2022 and June 30, 2021,~~ respectively.

(3) Income tax (benefit) expense on the unrealized loss on securities transferred from available-for-sale to held-to-maturity was ~~$(12.5) million, $(6.6)~~$(14.3) million and $0$(6.6) million for the three months ended ~~June 30, 2022,~~March 31, 2023 and March 31, 2022, ~~and June 30, 2021, respectively, and $(19.1) million and $0 for the six months ended June 30, 2022 and June 30, 2021.~~respectively.

(4) Income tax expense on the amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity included in net income was ~~$396,000,~~$915,000 and $121,000 ~~and $0~~ for the three months ended ~~June 30, 2022,~~March 31, 2023 and March 31, 2022, ~~and June 30, 2021, respectively, and $517,000 and $0 for the six months ended June 30, 2022 and June 30, 2021,~~ respectively.

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE ~~SIX MONTHS AND~~ THREE MONTHS ~~ENDED JUNE 30,~~MARCH 31, 2023 AND 2022

(Unaudited)


(Dollars in thousands, except share data)	(Dollars in thousands, except share data)	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		(Dollars in thousands, except share data)	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance at December 31, 2021		94,389,543	$	929	$	2,351,294	$	541,950	$	(7,862)	$	2,886,311
Balance at December 31, 2022													Balance at December 31, 2022	95,021,760	$	933	$	2,362,663	$	700,040	$	(265,247)	$	2,798,389
Net income	Net income	—	—		—		136,707		—		136,707		Net income	—	—		—		62,562		—		62,562
Other comprehensive loss		—	—		—		—		(207,156)		(207,156)
Cash dividends declared ($0.66 per common share)		—	—		—		(62,469)		—		(62,469)
Dividend equivalents declared ($0.66 per restricted stock unit)		—	—		245		(245)		—		—
Other comprehensive income													Other comprehensive income	—	—		—		—		2,518		2,518
Cash dividends declared ($0.33 per common share)													Cash dividends declared ($0.33 per common share)	—	—		—		(31,357)		—		(31,357)
Dividend equivalents declared ($0.33 per restricted stock unit)													Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		122		(122)		—		—
Share-based compensation expense	Share-based compensation expense	—	—		9,835		—		—		9,835		Share-based compensation expense	—	—		4,729		—		—		4,729
Issuance of restricted stock, net	Issuance of restricted stock, net	761,777	4		(4)		—		—		—		Issuance of restricted stock, net	834,724	4		(4)		—		—		—
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(212,503)	—		(8,674)		—		—		(8,674)		Restricted stock surrendered and canceled	(142,175)	—		(5,691)		—		—		(5,691)
Exercise of stock options	Exercise of stock options	37,788	—		665		—		—		665		Exercise of stock options	468	—		11		—		—		11
Balance at June 30, 2022		94,976,605	$	933	$	2,353,361	$	615,943	$	(215,018)	$	2,755,219
Balance at March 31, 2023													Balance at March 31, 2023	95,714,777	$	937	$	2,361,830	$	731,123	$	(262,729)	$	2,831,161


Balance at March 31, 2022		94,945,849	$	933	$	2,348,727	$	577,591	$	(144,233)	$	2,783,018

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	—	—		—		69,803		—		69,803		Net income	—	—		—		66,904		—		66,904
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(70,785)		(70,785)		Other comprehensive loss	—	—		—		—		(136,371)		(136,371)

Cash dividends declared ($0.33 per common share)	Cash dividends declared ($0.33 per common share)	—	—		—		(31,327)		—		(31,327)		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)	—	—		124		(124)		—		—		Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		121		(121)		—		—
Share-based compensation expense	Share-based compensation expense	—	—		4,305		—		—		4,305		Share-based compensation expense	—	—		5,530		—		—		5,530
Issuance of restricted stock, net	Issuance of restricted stock, net	46,994	—		—		—		—		—		Issuance of restricted stock, net	714,783	4		(4)		—		—		—
Restricted stock surrendered and canceled	Restricted stock surrendered and canceled	(37,284)	—		(126)		—		—		(126)		Restricted stock surrendered and canceled	(175,219)	—		(8,548)		—		—		(8,548)
Exercise of stock options	Exercise of stock options	21,046	—		331		—		—		331		Exercise of stock options	16,742	—		334		—		—		334
Balance at June 30, 2022		94,976,605	$	933	$	2,353,361	$	615,943	$	(215,018)	$	2,755,219
Balance at March 31, 2022													Balance at March 31, 2022	94,945,849	$	933	$	2,348,727	$	577,591	$	(144,233)	$	2,783,018

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS

~~FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2021~~(Unaudited)


	Three Months Ended
	March 31,		March 31,
(Dollars in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	62,562	$	66,904
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	3,552		3,726
Provision for credit losses	3,016		448
Share-based compensation expense	4,729		5,530
Loss on sales and disposals of premises and equipment	4		37

Net amortization on securities	3,481		5,023
Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	(4,254)		(7,353)
Net gain on sales of investment securities available-for-sale	(138)		(2,134)

Net gain on sales of loans	(29)		(1,494)
Deferred income tax expense	4,824		7,887
Income from bank owned life insurance, net	(2,722)		(2,617)
Amortization of intangible assets	3,171		3,592
Originations of loans held for sale	(766)		(18,769)
Proceeds from the sales of and principal payments from loans held for sale	833		19,486
Change in accrued expenses and other liabilities, net	(15,519)		15,207
Change in accrued interest receivable and other assets, net	12,427		36,904
Net cash provided by operating activities	75,171		132,377
Cash flows from investing activities:

Proceeds from sales of other real estate owned	1,241		—
Loan originations and payments, net	506,197		(430,951)
Proceeds from loans held for sale previously classified as portfolio loans	5,778		—

Purchase of securities held-to-maturity	(8,000)		—
Proceeds from prepayments and maturities of securities held-to-maturity	8,238		3,750
Purchase of securities available-for-sale	(224,347)		(499,168)
Proceeds from prepayments and maturities of securities available-for-sale	47,016		77,817
Proceeds from sales of securities available-for-sale	304,320		647,557


Purchase of premises and equipment	(2,463)		(2,308)
Change in FHLB, FRB, and other stock	1,875		(95)
Funding of CRA investments, net	(9,751)		(701)
Net cash provided by (used in) investing activities	630,104		(204,099)
Cash flows from financing activities:
Net (decrease) increase in deposit accounts	$	(144,591)	$	573,634
Net change in short-term borrowings	(200,000)		(358,000)
Proceeds from long-term borrowings	—		400,000




Cash dividends paid	(31,357)		(31,142)

Proceeds from exercise of stock options	11		334
Restricted stock surrendered and canceled	(5,691)		(8,548)
Net cash (used in) provided by financing activities	(381,628)		576,278
Net increase in cash and cash equivalents	323,647		504,556
Cash and cash equivalents, beginning of period	1,101,249		304,703
Cash and cash equivalents, end of period	$	1,424,896	$	809,259

Supplemental cash flow disclosures:
Interest paid	$	44,138	$	3,927
Income taxes paid, net	(800)		(11,944)
Noncash investing activities during the period:
Transfers from portfolio loans to loans held for sale	5,707		—
Transfers from loans held for sale to portfolio loans	1,287		—
Transfers from loans to other real estate owned	6,886		—
Transfers of investment securities from available-for-sale to held-to-maturity	360,347		618,678
Transfer of CRA investment securities from other stock to other assets	12,601		—
Recognition of operating lease right-of-use assets	(1,337)		(459)
Recognition of operating lease liabilities	1,337		459
Receivable on unsettled security sales	—		13,464

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

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

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

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

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021
Cash flows from operating activities:
Net income $ 136,707 $ 164,970
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 7,480 8,081
Provision for credit losses 917 (36,502)
Share-based compensation expense 9,835 6,562
Loss on sales and disposals of premises and equipment 38 71
Net amortization on securities 9,874 11,219
Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs (15,776) (21,409)
Gain on sales of investment securities available-for-sale (2,103) (9,131)
Loss on debt extinguishment — 1,150
Gain on sales of loans (2,630) (1,907)
Deferred income tax expense 6,336 20,647
Income from bank owned life insurance, net (5,241) (3,388)
Amortization of intangible assets 7,071 8,144
Originations of loans held for sale (33,778) (20,264)
Proceeds from the sales of and principal payments from loans held for sale 44,320 17,609
Change in accrued expenses and other liabilities, net (14,127) (22,500)
Change in accrued interest receivable and other assets, net 61,455 47,069
Net cash provided by operating activities 210,378 170,421
Cash flows from investing activities:
Net decrease in interest-bearing time deposits with financial institutions — 137
Loan originations and payments, net (791,918) (339,184)
Proceeds from loans held for sale previously classified as portfolio loans — 449
Purchase of loans held for investment (797) —
Proceeds from prepayments and maturities of securities held-to-maturity 10,242 4,790
Purchase of securities available-for-sale (583,329) (1,331,037)
Proceeds from prepayments and maturities of securities available-for-sale 184,974 273,521
Proceeds from sales of securities available-for-sale 705,729 464,651
Proceeds from the sales of premises and equipment — 13
Proceeds from surrender of bank owned life insurance — 1,307
Purchase of bank owned life insurance — (150,000)
Purchase of premises and equipment (4,045) (3,102)
Change in FHLB, FRB, and other stock, at cost (2,243) 86
Funding of CRA investments, net (1,442) (13,603)
Net cash used in investing activities (482,829) (1,091,972)
Cash flows from financing activities:
Net increase in deposit accounts $ 969,024 $ 800,920
Net change in short-term borrowings (358,000) (10,000)
Proceeds from long-term borrowings 400,000 —
Repayments of long-term borrowings — (21,503)
Redemption of junior subordinated debt securities — (25,750)
Cash dividends paid (62,469) (59,521)
Repurchase and retirement of common stock — (6,897)
Proceeds from exercise of stock options 665 732
Restricted stock surrendered and canceled (8,674) (5,308)
Net cash provided by financing activities 940,546 672,673
Net increase (decrease) in cash and cash equivalents 668,095 (248,878)
Cash and cash equivalents, beginning of period 304,703 880,766
Cash and cash equivalents, end of period $ 972,798 $ 631,888
Supplemental cash flow disclosures:
Interest paid $ 16,640 $ 21,614
Income taxes paid, net 31,433 35,211
Noncash investing activities during the period:
Transfers of investment securities from available-for-sale to held-to-maturity 1,019,472 —
Recognition of operating lease right-of-use assets (1,183) —
Recognition of operating lease liabilities 1,183 —
Due on unsettled security purchases (30,149) (12,830)

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2022~~March 31, 2023

(Unaudited)

Note 1 – Basis of Presentation

The consolidated financial statements include the accounts of Pacific Premier Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiaries, including Pacific Premier Bank (the “Bank”) (collectively, the “Company,” “we,” “our,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the unaudited consolidated financial statements reflect all normal recurring adjustments and accruals that are necessary for a fair presentation of the statement of financial position and the results of operations for the interim periods presented. The results of operations for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, ~~2022.~~2023.

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, ~~2021~~2022 (the ~~“2021~~“2022 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 1413 – Variable Interest Entities for additional information.

Note 2 – Recently Issued Accounting Pronouncements

Accounting Standards Adopted in 2022

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. The FASB issued this Update in response to feedback the FASB 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 in this Update include the elimination of accounting guidance for troubled debt restructurings (“TDRs”) in Subtopic 310-40 - Receivables - Troubled Debt Restructurings by Creditors, and introduce new disclosures and enhance existing disclosures concerning certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. Under the provisions of this Update, an entity must determine whether a modification results in a new loan or the continuation of an existing loan. Further, the amendments in this Update require that a public business entity disclose current period gross charge-offs on financing receivables within the scope of ASC 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, by year of origination and class of financing receivable. The amendments in this Update became effective for the Company on January 1, 2023 for all interim and annual periods. The adoption of the provisions in this Update are applied prospectively and have resulted in additional disclosures concerning modifications of loans to borrowers experiencing financial difficulty, as well as disaggregated disclosure of charge-offs on loans. Please also see Note 5 – Loans Held for Investment for added disclosure concerning modifications of loans to borrowers experiencing financial difficulty, as well as current period gross charge-offs on financing receivables within by year of origination and class of financing receivable.

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 became effective for the Company on January 1, 2023 for all interim and annual periods. The adoption of the provisions in this Update did not have a material impact on the Company’s consolidated financial statements. Please also see Note 11 – Derivative Instruments, for disclosure concerning the Company’s portfolio layer method fair value hedges.

Recent Accounting Guidance Not Yet Effective

In March ~~2022,~~2023, the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02,~~ ~~Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. The~~ FASB issued ~~this Update in response to feedback the FASB received from various stakeholders in its post-implementation review process related to the issuance of~~ ASU ~~2016-13,~~2023-01, ~~Financial Instruments - Credit Losses~~Leases (Topic ~~326): Measurement of Credit Losses on Financial Instruments,~~ 842), Common Control Arrangements~~which was effective for the Company on January 1, 2020.~~. The amendments in this Update ~~include~~clarify the ~~elimination of~~ accounting ~~guidance~~ for ~~troubled debt restructurings (“TDRs”)~~leasehold improvements associated with common control leases. This Update has been issued in ~~Subtopic 310-40 -~~ ~~Receivables - Troubled Debt Restructurings by Creditors, and introduce new disclosures and enhance existing disclosures concerning certain loan refinancings and restructurings when~~order to address current diversity in practice associated with the accounting for leasehold improvements associated with a borrower is experiencing financial difficulty. Rather than applying the recognition and measurement guidance of troubled debt restructurings, an entity must determine whether a modification results in a new loan or the continuation of an existing loan. Further, thelease between entities under common control. The amendments in this Update ~~require~~apply to all lessees that are a ~~public business entity disclose current period gross charge-offs on financing receivables within the scope of ASC 326-20,~~ ~~Financial Instruments - Credit Losses - Measured at Amortized Cost, by year of origination and class of financing receivable.~~party to a lease between entities under common control in which there are leasehold improvements. The amendments in this Update are effective for ~~the Company in fiscal years~~interim and annual periods beginning after December 15, ~~2022, as well as interim periods within those years. Early~~2023. The Company is currently evaluating the provisions of this Update, but does not anticipate the adoption ~~is permitted.~~will have a material impact on the Company’s consolidated financial statements.

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. The amendments in this Update allow the option for an entity to apply the proportional amortization method of accounting to other equity investments that are ~~to be applied prospectively. However,~~made for the ~~transition~~primary purpose of receiving tax credits or other income tax benefits, if certain conditions are met. Prior to this Update, the application of the proportional amortization method of accounting was limited to investments in low income housing tax credit structures. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related toincome tax credits or other income tax benefits received, being presented on a single line in the ~~recognition and measurement~~statements of ~~TDRs,~~income, income tax expense. Under this Update, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a ~~modified retrospective transition~~tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this Update require that all tax equity investments accounted for using the proportional amortization method ~~resulting~~use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a ~~cumulative~~liability be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this Update, low income housing tax credit investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this Update specifies that impairment of low income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10 - Investments - Equity Method and Joint Ventures - Overall. This Update also clarifies that for low income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321 - Investments - Equity Securities. The amendments in this Update also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect ~~adjustment to~~of tax equity investments and related income tax credits and other income tax benefits on the ~~opening balance~~financial position and results of ~~retained earnings in~~operations. The provisions of this Update are effective for the ~~period of adoption.~~Company for interim and annual periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this Update on ~~the Company’s consolidated financial statements.~~

~~In March 2022, the FASB issued ASU 2022-01,~~ ~~Derivatives and Hedging (Topic 815) Fair Value Hedging - Portfolio Layer Method~~. The amendments in this Update make targeted improvements to fair value hedge accounting and more specifically to the 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 yet adopted the provisions of this Update. The Company does not currently anticipate the adoption of this Update will have a material impact on the Company’sits consolidated financial statements.

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

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

~~An entity may elect to apply the amendments~~ in this Update to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. The Company 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.

1110

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~~continues to regularly assess the population of financial instruments that reference LIBOR, confirming our loan documents that reference LIBOR have been appropriately amended, ensuring that our internal systems are prepared for the transition, and managing the transition process with our customers. The Company has chosen to use the Secured Overnight Financing Rate (“SOFR”) as an alternative to LIBOR. However, the Company will also use other alternative reference rates, such as the Constant Maturity Treasury index and Prime rate based on the individual needs of its customers as well as the types of credit being extended.

Note 3 – Significant Accounting Policies

Our accounting policies are described in Note 1. 1 - Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our ~~2021~~2022 Form 10-K. ~~Select~~Significant changes to accounting policies ~~have been reiterated below that have a particular affiliation to~~from those disclosed in our ~~interim~~audited consolidated financial ~~statements.~~statements included in our 2022 Form 10-K are presented below.

~~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 (“HTM”).~~ Investments in debt securities that management has the positive intent and ability to hold to maturity are reported at cost and adjusted for periodic principal payments and the amortization of premiums and accretion of discounts, which are recognized in interest income using the interest method over the period of time remaining to investment’s maturity.

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

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

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

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

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

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

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

~~Loans Held for Investment.~~ Loans held for investment are loans the Company has the ability and intent to hold until their maturity. These loans are carried at amortized cost, net of discounts and premiums on acquired and purchased loans, and net deferred loan origination fees and costs. Purchase discounts and premiums and net deferred loan origination fees and costs on loans are accreted or amortized in interest income as an adjustment of yield, using the interest method, over the expected life of the loans. Amortization of deferred loan fees and costs are discontinued for loans that are placed on nonaccrual. Any remaining discounts, premiums, deferred fees or costs, and prepayment fees associated with loan payoffs prior to contractual maturity are included in loan interest income in the period of payoff. Loan commitment fees received to originate or purchase a loan are deferred and, if the commitment is 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 based on contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to the collection of principal and/or interest. When loans are placed on nonaccrual status, all previously accrued and uncollected interest is promptly reversed against current period interest income, and as such an ACL for accrued interest receivable is not established. Interest income generally is not recognized on nonaccrual loans unless the likelihood of further loss is remote. Interest payments received on nonaccrual loans are applied as a reduction to the loan principal balance. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are deemed to be fully collectible as to all principal and interest.

~~Allowance for Credit Losses on Loans~~. The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination or acquisition. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company measures the ACL on commercial real estate loans and commercial loans using a discounted cash flow approach, and a historical loss rate methodology is used to determine the ACL on retail loans. The Company’s discounted cash flow methodology incorporates a probability of default (“PD”) and loss given default (“LGD”) model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the PD and LGD model with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows 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 historical long-term average loss rates over a period of three years. The duration of the forecast horizon, the period over which forecasts revert to historical long-term averages, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s PD and LGD, which can drive changes in the determination of the ACL.

Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL for term loans represents the amount by which the loan’s amortized cost exceeds the net present value of 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.

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

The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, TDRs, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans, which have exhibited a deterioration in credit quality may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan 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.

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

The Company has segmented the loan portfolio according to loans that share similar attributes and risk characteristics. Each segment possesses varying degrees of risk based on, among other things, the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. These segment groupings are: investor loans secured by real estate, business loans secured by real estate, commercial loans, and retail loans. Within each segment grouping there are various classes of loans as disclosed below. The Company determines the ACL for loans based on this more detailed loan segmentation and classification.

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

~~Investor Loans Secured by Real Estate:~~

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

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

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

~~Business Loans Secured by Real Estate:~~

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

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

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

~~Commercial Loans:~~

•~~Commercial and industrial (including franchise commercial loans) (“C&I”)~~ -Modified 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~~Borrowers Experiencing Financial Difficulty. - 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.~~ ~~From time to time,~~Infrequently, the Company makes modifications to certain loans ~~when a borrower is experiencing financial difficulty. These modifications are made~~in order to alleviate temporary ~~impairments~~difficulties 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. The Company also refers to these modifications as modified loans to troubled borrowers (“MLTB”). Modifications ~~typically~~may include: changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and, in very limited cases, reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and ~~are~~interest or the loan has been in default for a period of 90 days or more. Such loans may be 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~~allowance for ~~TDRs~~credit losses (“ACL”) on MLTB on an individual basis when the loans are deemed to no longer share ~~similar~~ risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for ~~TDRs~~these loans 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. GAAP requires the Company to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications. Please see Note 5 – Loans Held for Investment for additional information concerning modified loans to troubled borrowers.

~~Acquired Loans.~~ Other Real Estate Owned (“OREO”)~~When the Company acquires loans~~. Real estate properties acquired 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~~lieu of, loan foreclosure are recorded at ~~their~~ fair value, as of the date of acquisition. Any resulting discount or premium on acquired loans is accreted or amortized into interest income over the remaining life of the loans using the interest method. Additionally, upon the purchase or acquisition of non-PCD loans, the Company measures and records an ACL based on the Company’s methodology for determining the ACL. The ACL for non-PCD loans is recorded through a chargeless cost to ~~the provision for credit losses in the period in which the loans were purchased or acquired.~~

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

~~Goodwill and Other Intangible Assets.~~ ~~Goodwill assets originate from business combinations where the Company has acquired other financial institutions, and is determined as the~~any excess of the ~~fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree,~~loan’s amortized cost balance over the fair value of the ~~net assets acquired and liabilities assumed~~property recorded as ofa charge against the ~~acquisition date. Goodwill and intangible assets that are determined to have indefinite useful lives are not amortized, but are tested for impairment at least annually~~ ACL. The Company obtains an appraisal and/or ~~more frequently if events and circumstances lead management to believe the value of those assets may be impaired. Impairment testing is performed~~market valuation on all other real estate owned at the ~~reporting unit level, which is considered the Company level as management has identified the Company is its sole reporting unit.~~

~~Management’s assessment~~time of ~~goodwill is~~possession. After foreclosure, valuations are periodically 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 noninterest ~~expense.~~

The Company’s annual impairment test of goodwill is performed in the fourth quarter of each year. The Company performed a qualitative assessment of goodwill in the fourth quarter of 2021, the results of which indicated the value of goodwill assets could be supported and were not impaired. There have been no changes since the most recent assessment.

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

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

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

~~Leases.~~ The Company accounts for its leases in accordance with ASC 842, which requires the Company to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased asset. Leases with a term of 12 months or less are accounted for using straight-line expense recognition with no right-of-use asset being recorded for such leases. Other than short-term leases, the Company classifies its leases as either finance leases or operating leases. Leases are classified as finance leases when any of the following are met: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (b) the lease contains an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c) the term of the lease represents a major part of the remaining life of the underlying asset, (d) the present value of the future lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (e) the underling leased asset is expected to have no alternative use to the lessor at the end of the lease term due to its specialized nature. When the Company’s assessment of a lease does not meet the foregoing criteria,All legal fees 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~~direct costs, including foreclosure 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 theother related liability to make lease payments. Expense recognition for operating leases is recorded on a straight-line basis. As of June 30, 2022, all of the Company’s leases were classified as either operating leases or short-term leases.

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

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

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

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.~~statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from those estimates.

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Note 4 – Investment Securities

The amortized cost and estimated fair value of available-for-sale (“AFS”) 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
AFS investment securities:	AFS investment securities:									AFS investment securities:
June 30, 2022
March 31, 2023										March 31, 2023
U.S. Treasury	U.S. Treasury	$	34,750	$	—	$	(1,390)	$	33,360	U.S. Treasury	$	14,941	$	—	$	(1,586)	$	13,355
Agency	Agency	452,845		34		(40,584)		412,295		Agency	464,491		—		(46,760)		417,731
Corporate debt		602,320		36		(32,941)		569,415
Corporate										Corporate	561,380		—		(53,191)		508,189

Collateralized mortgage obligations	Collateralized mortgage obligations	832,341		28		(42,583)		789,786		Collateralized mortgage obligations	401,105		—		(28,473)		372,632
Mortgage-backed securities	Mortgage-backed securities	986,255		—		(112,041)		874,214		Mortgage-backed securities	923,956		—		(123,011)		800,945
Total AFS investment securities	Total AFS investment securities	$	2,908,511	$	98	$	(229,539)	$	2,679,070	Total AFS investment securities	$	2,365,873	$	—	$	(253,021)	$	2,112,852


December 31, 2021
December 31, 2022										December 31, 2022
U.S. Treasury	U.S. Treasury	$	57,708	$	614	$	(456)	$	57,866	U.S. Treasury	$	49,156	$	—	$	(2,139)	$	47,017
Agency	Agency	440,183		2,081		(10,129)		432,135		Agency	485,331		—		(53,893)		431,438
Corporate debt		451,621		6,096		(3,856)		453,861
Municipal bonds		1,061,985		32,209		(4,281)		1,089,913
Corporate										Corporate	586,652		—		(44,104)		542,548

Collateralized mortgage obligations	Collateralized mortgage obligations	680,686		2,012		(6,055)		676,643		Collateralized mortgage obligations	829,928		—		(65,699)		764,229
Mortgage-backed securities	Mortgage-backed securities	1,586,406		3,220		(26,180)		1,563,446		Mortgage-backed securities	953,678		—		(137,897)		815,781
Total AFS investment securities	Total AFS investment securities	$	4,278,589	$	46,232	$	(50,957)	$	4,273,864	Total AFS investment securities	$	2,904,745	$	—	$	(303,732)	$	2,601,013

The carrying amount and estimated fair value of held-to-maturity (“HTM”) 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
HTM investment securities:	HTM investment securities:													HTM investment securities:
June 30, 2022
March 31, 2023														March 31, 2023
Municipal bonds	Municipal bonds	$	1,148,411	$	(109)	$	1,148,302	$	448	$	(211,542)	$	937,208	Municipal bonds	$	1,147,822	$	(227)	$	1,147,595	$	398	$	(223,030)	$	924,963
Collateralized mortgage obligations														Collateralized mortgage obligations	356,435		—		356,435		1,198		(481)		357,152
Mortgage-backed securities	Mortgage-backed securities	240,918		—		240,918		9		(23,096)		217,831		Mortgage-backed securities	228,624		—		228,624		—		(30,621)		198,003
Other	Other	1,462		—		1,462		—		—		1,462		Other	16,376		—		16,376		—		��		16,376
Total HTM investment securities	Total HTM investment securities	$	1,390,791	$	(109)	$	1,390,682	$	457	$	(234,638)	$	1,156,501	Total HTM investment securities	$	1,749,257	$	(227)	$	1,749,030	$	1,596	$	(254,132)	$	1,496,494


December 31, 2021
December 31, 2022														December 31, 2022
Municipal bonds	Municipal bonds	$	368,344	$	(22)	$	368,322	$	3,834	$	(1,649)	$	370,507	Municipal bonds	$	1,148,055	$	(43)	$	1,148,012	$	44	$	(257,430)	$	890,626
Mortgage-backed securities	Mortgage-backed securities	11,843		—		11,843		564		—		12,407		Mortgage-backed securities	231,692		—		231,692		—		(33,621)		198,071
Other	Other	1,509		—		1,509		—		—		1,509		Other	8,399		—		8,399		—		—		8,399
Total HTM investment securities	Total HTM investment securities	$	381,696	$	(22)	$	381,674	$	4,398	$	(1,649)	$	384,423	Total HTM investment securities	$	1,388,146	$	(43)	$	1,388,103	$	44	$	(291,051)	$	1,097,096

2212

The Company reassesses classification of certain investments as part of the ongoing review of the investment securities portfolio. During the ~~second~~first quarter of ~~2022,~~2023, the Company transferred ~~the remaining~~$410.7 million of AFS ~~municipal bond portfolio totaling $444.6 million, which the~~collateralized mortgage obligations to HTM securities. The Company intends and has the ability to hold the securities transferred to ~~maturity, to HTM securities.~~maturity. The transfer of these securities was accounted for at fair value on the transfer date. ~~The municipal bonds~~These collateralized mortgage obligations securities had a net carrying amount of ~~$400.8~~$360.3 million with a pre-tax unrealized loss of ~~$43.8~~$50.4 million, which ~~was reflected as discounts on the date of transfer. These discounts will be~~are accreted into interest income as yield adjustments over the remaining term of the securities. The amortization of the related net after-tax unrealized losses reported in accumulated other comprehensive ~~income will offset~~loss largely offsets the effect on interest income of the accretion of the discounts. No gains or losses were recorded at the time of transfer.

During the first quarter of 2022, the Company transferred approximately $386.8 million of municipal bonds and $255.0 million of mortgage-backed securities with longer durations to HTM securities. The Company intends and has the ability to hold the securities transferred to maturity. The municipal bonds had a net carrying amount of $379.9 million with a pre-tax unrealized loss of $6.9 million, and the mortgage-backed securities had a net carrying amount of $238.8 million with a pre-tax unrealized loss of $16.2 million, both of which are accreted into interest income as yield adjustments over the remaining term of the securities. No gains or losses were recorded at the time of transfer.

Investment securities with carrying values of ~~$87.3 million~~$3.61 billion and ~~$130.7~~$195.6 million as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, were pledged to other borrowings, secure public deposits, ~~other borrowings,~~ and for other purposes as required or permitted by law. The increase in the investment securities pledged during the first quarter of 2023 was primarily due to the additional investment securities with carrying values of $1.53 billion pledged to the Federal Reserve's discount window and $1.89 billion pledged to the Federal Reserve's new Bank Term Funding Program launched in March 2023 to increase the Company’s access to funding and provide liquidity.

Unrealized Gains and Losses

Unrealized gains and losses on AFS investment securities are recognized in stockholders’ equity as accumulated other comprehensive income or loss. At ~~June 30, 2022,~~March 31, 2023, the Company had a net unrealized loss on AFS investment securities of ~~$229.4~~$253.0 million, or ~~$163.9~~$181.1 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of ~~$4.7~~$303.7 million, or ~~$3.3~~$217.4 million net of tax in accumulated other comprehensive loss, at December 31, ~~2021.~~2022.

For investment securities transferred from AFS to HTM, the unrealized gains and losses at the date of transfer continue to be reported in stockholders’ equity as accumulated other comprehensive income or loss and are amortized over the remaining lives of the securities with an offsetting entry to interest income as an adjustment of yield. At ~~June 30, 2022,~~March 31, 2023, the unrealized loss on investment securities transferred from AFS to HTM was ~~$71.5~~$114.1 million, or ~~$51.1~~$81.6 million net of tax in accumulated other comprehensive loss.

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

June 30, 2022
Less than 12 Months 12 Months or Longer Total
(Dollars in thousands) Number Fair
Value Gross
Unrealized
Losses Number Fair
Value Gross
Unrealized
Losses Number Fair
Value Gross
Unrealized
Losses
AFS investment securities:
U.S. Treasury 2 $ 33,360 $ (1,390) — $ — $ — 2 $ 33,360 $ (1,390)
Agency 9 69,116 (9,554) 26 295,963 (31,030) 35 365,079 (40,584)
Corporate debt 52 503,218 (21,134) 3 48,161 (11,807) 55 551,379 (32,941)
Collateralized mortgage obligations 45 509,400 (27,406) 29 206,125 (15,177) 74 715,525 (42,583)
Mortgage-backed securities. 70 797,662 (98,760) 10 76,552 (13,281) 80 874,214 (112,041)
Total AFS investment securities 178 $ 1,912,756 $ (158,244) 68 $ 626,801 $ (71,295) 246 $ 2,539,557 $ (229,539)

2313


		December 31, 2021																March 31, 2023
		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
AFS investment securities:	AFS investment securities:																AFS investment securities:
U.S. Treasury	U.S. Treasury	3	$	47,235	$	(456)	—	$	—	$	—	3	$	47,235	$	(456)	U.S. Treasury	14	$	13,355	$	(1,586)	—	$	—	$	—	14	$	13,355	$	(1,586)
Agency	Agency	19	278,078		(5,634)		16	119,750		(4,495)		35	397,828		(10,129)		Agency	13	142,489		(12,151)		30	275,242		(34,609)		43	417,731		(46,760)
Corporate debt		17	166,563		(849)		3	57,274		(3,007)		20	223,837		(3,856)
Municipal bonds		36	277,564		(4,079)		2	6,596		(202)		38	284,160		(4,281)
Corporate																	Corporate	19	158,469		(14,917)		37	349,720		(38,274)		56	508,189		(53,191)

Collateralized mortgage obligations	Collateralized mortgage obligations	26	226,763		(3,738)		15	121,185		(2,317)		41	347,948		(6,055)		Collateralized mortgage obligations	20	185,232		(9,004)		34	187,400		(19,469)		54	372,632		(28,473)
Mortgage-backed securities		103	1,306,455		(20,417)		15	173,121		(5,763)		118	1,479,576		(26,180)
Mortgage-backed securities.																	Mortgage-backed securities.	17	141,007		(12,813)		64	659,938		(110,198)		81	800,945		(123,011)
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)	Total AFS investment securities	83	$	640,552	$	(50,471)	165	$	1,472,300	$	(202,550)	248	$	2,112,852	$	(253,021)


	December 31, 2022
	Less than 12 Months					12 Months or Longer					Total
(Dollars in thousands)	Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses
AFS investment securities:
U.S. Treasury	5	$	33,982	$	(237)	1	$	13,036	$	(1,902)	6	$	47,018	$	(2,139)
Agency	8	79,895		(1,265)		35	351,543		(52,628)		43	431,438		(53,893)
Corporate	35	327,984		(20,840)		21	214,565		(23,264)		56	542,549		(44,104)

Collateralized mortgage obligations	41	522,955		(33,318)		40	241,229		(32,381)		81	764,184		(65,699)
Mortgage-backed securities	13	91,762		(6,987)		68	724,019		(130,910)		81	815,781		(137,897)
Total AFS investment securities	102	$	1,056,578	$	(62,647)	165	$	1,544,392	$	(241,085)	267	$	2,600,970	$	(303,732)

Allowance for Credit Losses on Investment Securities

The Company reviews individual securities classified as 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 AFS investment securities is recorded when the fair value of the investment is below its amortized cost and the decline in fair value has been deemed, through the Company’s qualitative assessment, to be credit related. Non-credit related declines in fair value of AFS investment securities, which may be attributed to changes in interest rates and other market-related factors, are not recorded through an ACL. Such declines are recorded as an adjustment to accumulated other comprehensive income, net of tax. In the event the Company is required to sell or has the intent to sell an AFS security that has experienced a 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 HTM investment securities are representative of current expected credit losses that may be incurred over the life of the investment and are recorded at the time of purchase or acquisition and when the Company has designated securities as HTM. ~~Credit losses on HTM investment securities are representative of current expected credit losses that may be incurred over the life of the investment.~~

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

At ~~June 30,~~March 31, 2023 and December 31, 2022, the Company had an ACL of ~~$109,000~~$227,000 and $43,000, respectively, for HTM investment securities classified as municipal bonds. The Company had an ACL of $22,000 for HTM investment securities at December 31, 2021. The Company recognized $68,000 and $19,000 of provision for credit losses for HTM investment securities during the three months ended June 30, 2022 and March 31, 2022, respectively, and $87,000 during the six months ended June 30, 2022. The Company did not recognize any provision for credit losses for HTM investment securities during the three and six months ended June 30, 2021.

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 June 30, 2022				Three Months Ended March 31, 2023
(Dollars in thousands)	(Dollars in thousands)	Balance, March 31, 2022		Provision for Credit Losses			Balance, June 30, 2022		(Dollars in thousands)	Balance, December 31, 2022		Provision for Credit Losses		Balance, March 31, 2023

HTM investment securities:	HTM investment securities:								HTM investment securities:
Municipal bonds	Municipal bonds	$	41	$	68		$	109	Municipal bonds	$	43	$	184	$	227


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

HTM investment securities:	HTM investment securities:								HTM investment securities:
Municipal bonds	Municipal bonds	$	22	$	87		$	109	Municipal bonds	$	22	$	19	$	41

The Company had no ACL for AFS investment securities at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. The Company performed a qualitative assessment of these investments as of ~~June 30, 2022~~March 31, 2023 and determined that the ~~increase~~decrease in unrealized losses was ~~primarily~~ the result of general market conditions, including changes in interest rates ~~with inflationary pressure~~ driven by the Federal Reserve’s policy to fight against inflation, and does not believe the declines in fair value were credit related. As of ~~June 30, 2022,~~March 31, 2023, the Company had not recorded credit losses on certain AFS securities that were in an unrealized loss position due to the high quality of the investments, with investment grade ratings, and many of them issued by U.S. government agencies. ~~No issuers~~As of ~~these~~March 31, 2023, 50% of our AFS securities ~~have, to the Company’s knowledge, experienced credit downgrades.~~are U.S. Treasury, U.S. government agency, and U.S. government-sponsored enterprise securities. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell the securities prior to their anticipated recoveries. There was no provision for credit losses recognized for AFS investment securities during the three months ended ~~June 30, 2022,~~ March 31, 2023, December 31, 2022, or ~~June 30, 2021, and the six months ended June 30, 2022 and June 30, 2021.~~March 31, 2022.

At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there were no AFS or HTM securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there were no securities purchased with deterioration in credit quality since their origination. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there were no collateral dependent AFS or HTM securities.

Realized Gains and Losses

The following table presents the amortized cost of securities sold with related gross realized gains, gross realized losses, and net realized ~~(losses)~~ gains or losses for the periods indicated:


		Three Months Ended						Six Months Ended					Three Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,			March 31,		March 31,
(Dollars in thousands)	(Dollars in thousands)	2022		2022		2021		2022		2021		(Dollars in thousands)	2023		2022
Amortized cost of AFS investment securities sold	Amortized cost of AFS investment securities sold	$	45,121	$	658,505	$	280,199	$	703,626	$	455,520	Amortized cost of AFS investment securities sold	$	304,182	$	658,505

Gross realized gains	Gross realized gains	$	7	$	13,637	$	10,035	$	13,645	$	14,272	Gross realized gains	$	986	$	13,637
Gross realized (losses)	Gross realized (losses)	(38)		(11,503)		(4,950)		(11,542)		(5,141)		Gross realized (losses)	(848)		(11,503)
Net realized (losses) gains on sales of AFS investment securities		$	(31)	$	2,134	$	5,085	$	2,103	$	9,131
Net realized gains on sales of AFS investment securities												Net realized gains on sales of AFS investment securities	$	138	$	2,134

2515

Contractual ~~maturities~~Maturities

The amortized cost and estimated fair value of investment securities at ~~June 30, 2022,~~March 31, 2023, 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
AFS investment securities:	AFS investment securities:																					AFS investment securities:
U.S. Treasury	U.S. Treasury	$	19,817	$	19,806	$	—	$	—	$	14,933	$	13,554	$	—	$	—	$	34,750	$	33,360	U.S. Treasury	$	—	$	—	$	—	$	—	$	14,941	$	13,355	$	—	$	—	$	14,941	$	13,355
Agency	Agency	—		—		318,130		297,704		97,045		84,078		37,670		30,513		452,845		412,295		Agency	17,140		16,966		314,788		292,224		107,278		89,306		25,285		19,235		464,491		417,731
Corporate debt		—		—		229,675		223,185		372,645		346,230		—		—		602,320		569,415
Corporate																						Corporate	—		—		288,259		280,121		273,121		228,068		—		—		561,380		508,189

Collateralized mortgage obligations	Collateralized mortgage obligations	—		—		47,532		47,032		221,867		205,674		562,942		537,080		832,341		789,786		Collateralized mortgage obligations	31,382		31,174		71,997		70,731		199,472		178,056		98,254		92,671		401,105		372,632
Mortgage-backed securities	Mortgage-backed securities	—		—		—		—		569,903		512,789		416,352		361,425		986,255		874,214		Mortgage-backed securities	19,902		19,617		14,886		14,656		512,674		452,677		376,494		313,995		923,956		800,945
Total AFS investment securities	Total AFS investment securities	19,817		19,806		595,337		567,921		1,276,393		1,162,325		1,016,964		929,018		2,908,511		2,679,070		Total AFS investment securities	68,424		67,757		689,930		657,732		1,107,486		961,462		500,033		425,901		2,365,873		2,112,852
HTM investment securities:	HTM investment securities:																					HTM investment securities:
Municipal bonds	Municipal bonds	—		—		—		—		60,867		56,380		1,087,544		880,828		1,148,411		937,208		Municipal bonds	—		—		10,589		10,224		53,233		47,646		1,084,000		867,093		1,147,822		924,963
Collateralized mortgage obligations																						Collateralized mortgage obligations	—		—		151		151		—		—		356,284		357,001		356,435		357,152
Mortgage-backed securities	Mortgage-backed securities	—		—		—		—		—		—		240,918		217,831		240,918		217,831		Mortgage-backed securities	—		—		—		—		—		—		228,624		198,003		228,624		198,003
Other	Other	—		—		—		—		—		—		1,462		1,462		1,462		1,462		Other	—		—		—		—		—		—		16,376		16,376		16,376		16,376
Total HTM investment securities	Total HTM investment securities	—		—		—		—		60,867		56,380		1,329,924		1,100,121		1,390,791		1,156,501		Total HTM investment securities	—		—		10,740		10,375		53,233		47,646		1,685,284		1,438,473		1,749,257		1,496,494
Total investment securities	Total investment securities	$	19,817	$	19,806	$	595,337	$	567,921	$	1,337,260	$	1,218,705	$	2,346,888	$	2,029,139	$	4,299,302	$	3,835,571	Total investment securities	$	68,424	$	67,757	$	700,670	$	668,107	$	1,160,719	$	1,009,108	$	2,185,317	$	1,864,374	$	4,115,130	$	3,609,346

FHLB, FRB, and Other Stock

The Company’s equity securities primarily consist of Federal Home Loan Bank of San Francisco (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) stock, which are considered restricted securities and held as a condition of membership of the FHLB and the Board of Governors of the Federal Reserve System. These equity securities without readily determinable fair values are carried at cost less impairment. At ~~June 30, 2022,~~March 31, 2023, the Company had ~~$19.5~~$25.7 million in FHLB stock, ~~$74.5~~$74.9 million in FRB stock, and ~~$24.6~~$4.9 million in other ~~stock, all carried at cost.~~stock. At December 31, ~~2021,~~2022, the Company had ~~$17.3~~$27.7 million in FHLB stock, ~~$74.5~~$74.8 million in FRB stock, and ~~$25.7~~$17.4 million in other stock.

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 ~~June 30, 2022.~~March 31, 2023.

2616

Note 5 – 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~~commercial real estate (“CRE”), non-owner-occupied, multifamily, construction, and land, as well as ~~SBA~~Small Business Administration (“SBA”) loans secured by investor 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 (“C&I”), 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.

2717

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


		June 30,		December 31,			March 31,		December 31,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		(Dollars in thousands)	2023		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	$	2,788,715	$	2,771,137	CRE non-owner-occupied	$	2,590,824	$	2,660,321
Multifamily	Multifamily	6,188,086		5,891,934		Multifamily	5,955,239		6,112,026
Construction and land	Construction and land	331,734		277,640		Construction and land	420,079		399,034
SBA secured by real estate	SBA secured by real estate	44,199		46,917		SBA secured by real estate	40,669		42,135
Total investor loans secured by real estate	Total investor loans secured by real estate	9,352,734		8,987,628		Total investor loans secured by real estate	9,006,811		9,213,516
Business loans secured by real estate	Business loans secured by real estate					Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,486,747		2,251,014		CRE owner-occupied	2,342,175		2,432,163
Franchise real estate secured	Franchise real estate secured	387,683		380,381		Franchise real estate secured	371,902		378,057
SBA secured by real estate	SBA secured by real estate	67,191		69,184		SBA secured by real estate	60,527		61,368
Total business loans secured by real estate	Total business loans secured by real estate	2,941,621		2,700,579		Total business loans secured by real estate	2,774,604		2,871,588
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	2,295,421		2,103,112		Commercial and industrial	1,967,128		2,160,948
Franchise non-real estate secured	Franchise non-real estate secured	415,830		392,576		Franchise non-real estate secured	388,722		404,791
SBA non-real estate secured	SBA non-real estate secured	11,008		11,045		SBA non-real estate secured	10,437		11,100
Total commercial loans	Total commercial loans	2,722,259		2,506,733		Total commercial loans	2,366,287		2,576,839
Retail loans	Retail loans					Retail loans
Single family residential	Single family residential	77,951		95,292		Single family residential	70,913		72,997
Consumer	Consumer	4,130		5,665		Consumer	3,174		3,284
Total retail loans	Total retail loans	82,081		100,957		Total retail loans	74,087		76,281
Loans held for investment before basis adjustment (1)	Loans held for investment before basis adjustment (1)	15,098,695		14,295,897		Loans held for investment before basis adjustment (1)	14,221,789		14,738,224
Basis adjustment associated with fair value hedge (2)	Basis adjustment associated with fair value hedge (2)	(51,087)		—		Basis adjustment associated with fair value hedge (2)	(50,005)		(61,926)
Loans held for investment	Loans held for investment	15,047,608		14,295,897		Loans held for investment	14,171,784		14,676,298
Allowance for credit losses for loans held for investment	Allowance for credit losses for loans held for investment	(196,075)		(197,752)		Allowance for credit losses for loans held for investment	(195,388)		(195,651)
Loans held for investment, net	Loans held for investment, net	$	14,851,533	$	14,098,145	Loans held for investment, net	$	13,976,396	$	14,480,647

Total unfunded loan commitments	Total unfunded loan commitments	$	2,872,934	$	2,507,911	Total unfunded loan commitments	$	2,413,169	$	2,489,203
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	2,957		10,869		Loans held for sale, at lower of cost or fair value	1,247		2,643

(1) Includes net deferred origination fees of ~~$3.1 million~~$745,000 and ~~$3.5~~$1.9 million, and unaccreted fair value net purchase discounts of ~~$63.6~~$52.2 million and ~~$77.1~~$54.8 million as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

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

The Company originates SBA loans with the intent to sell the guaranteed portion of the loans prior to maturity and, therefore, designates them as held for sale. From time to time, the Company may purchase or sell other types of loans in order to manage concentrations, maximize interest income, change risk profiles, improve returns, and generate liquidity.

2818

Loans Serviced for Others and Loan Securitization

The Company generally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company initially records a servicing asset at fair value within its other assets category. Servicing assets are subsequently measured using the amortization method and amortized to noninterest income. ~~Servicing assets are evaluated for impairment based on the fair value of the assets as compared to carrying amount.~~ At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the servicing asset totaled ~~$3.7~~$2.6 million and ~~$3.8~~$3.0 million, respectively, and were included in other assets in the Company’s consolidated statement of financial condition. Servicing assets are evaluated for impairment based upon the fair value of the servicing rights as compared to ~~the~~ carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company determined that no valuation allowance was necessary.

In connection with the acquisition of Opus Bank (“Opus”), the Company acquired Federal Home Loan Mortgage Corporation (“Freddie Mac”) guaranteed structured pass-through certificates, which were issued as a result of Opus’s securitization sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored transaction in December 2016. The Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and reimbursement obligations. Servicing responsibilities on loan 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 ~~$338,000~~$334,000 as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

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 ~~$528.3~~$444.4 million at ~~June 30, 2022~~March 31, 2023 and ~~$565.8~~$463.4 million at December 31, ~~2021.~~2022, respectively. Included in those totals are multifamily loans transferred through securitization with Freddie Mac of ~~$64.0~~$53.7 million and ~~$78.1~~$54.2 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and SBA participations serviced for others of ~~$338.9~~$303.9 million and ~~$365.6~~$315.3 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

2919

Concentration of Credit Risk

As of ~~June 30, 2022,~~March 31, 2023, 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 ~~$817.0~~$836.5 million for secured loans and ~~$490.2~~$501.9 million for unsecured loans at ~~June 30, 2022.~~March 31, 2023. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At ~~June 30, 2022,~~March 31, 2023, the Bank’s largest aggregate outstanding balance of loans to one borrower was ~~$296.6~~$171.2 million ~~primarily comprised of an asset-based line of credit.~~secured by multifamily properties.

Credit Quality and Credit Risk Management

The Company’s credit quality and credit risk are controlled in 2two 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~~six-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 and periodic internal audits, as well as by regulatory agencies during scheduled examinations.

3020

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

•Pass ~~classifications represent~~ assets ~~with~~carry an acceptable level of credit quality that contains no well-defined deficiencies or 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 through foreclosure is also classified as ~~substandard assets.~~substandard.

•Doubtful ~~credits~~assets have all the weaknesses inherent in substandard ~~credits,~~assets, 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~~and/or 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.

3121

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as well as the gross charge-offs on a year-to-date basis by year of ~~June 30, 2022:~~origination as of March 31, 2023:


		Term Loans by Vintage																			Term Loans by Vintage
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total		(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2022
March 31, 2023																				March 31, 2023
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	$	407,555	$	647,131	$	229,618	$	370,339	$	331,235	$	754,385	$	5,333	$	—	$	2,745,596	Pass	$	10,306	$	526,084	$	604,909	$	199,161	$	318,943	$	913,142	$	—	$	—	$	2,572,545
Special mention	Special mention	—		—		—		—		7,585		6,359		—		—		13,944		Special mention	—		—		—		—		—		5,104		—		—		5,104
Substandard	Substandard	—		—		—		25,773		—		2,914		—		488		29,175		Substandard	—		450		—		—		—		12,725		—		—		13,175

Multifamily	Multifamily																			Multifamily
Pass	Pass	1,012,086		2,245,091		809,115		976,171		314,160		821,575		261		—		6,178,459		Pass	11,931		1,216,585		2,158,819		778,678		885,448		886,728		—		—		5,938,189

Special mention																				Special mention	—		—		—		—		12,604		—		—		—		12,604
Substandard	Substandard	—		6,074		—		2,799		—		754		—		—		9,627		Substandard	—		—		985		—		2,723		738		—		—		4,446

Construction and land	Construction and land																			Construction and land
Pass	Pass	95,161		152,872		44,555		26,790		5,063		7,293		—		—		331,734		Pass	24,682		213,034		153,359		16,609		4,876		6,077		1,442		—		420,079

SBA secured by real estate	SBA secured by real estate																			SBA secured by real estate
Pass	Pass	6,616		130		495		5,476		7,653		15,870		—		—		36,240		Pass	—		6,546		130		493		5,363		19,211		—		—		31,743

Substandard	Substandard	—		—		—		—		2,432		5,527		—		—		7,959		Substandard	—		—		—		—		—		8,926		—		—		8,926

Total investor loans secured by real estate	Total investor loans secured by real estate	1,521,418		3,051,298		1,083,783		1,407,348		668,128		1,614,677		5,594		488		9,352,734		Total investor loans secured by real estate	46,919		1,962,699		2,918,202		994,941		1,229,957		1,852,651		1,442		—		9,006,811
Current period gross charge-offs																				Current period gross charge-offs	—		—		217		—		—		66		—		—		283
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	506,736		760,398		255,275		255,040		131,615		551,125		4,720		—		2,464,909		Pass	8,779		579,514		689,292		234,096		233,804		512,531		5,795		—		2,263,811

Special mention																				Special mention	—		3,920		2,836		—		—		11,623		—		—		18,379
Substandard	Substandard	—		—		4,655		2,479		4,761		9,943		—		—		21,838		Substandard	—		11,078		1,007		11,339		—		36,561		—		—		59,985

Franchise real estate secured	Franchise real estate secured																			Franchise real estate secured
Pass	Pass	43,571		152,200		35,617		53,647		34,819		67,829		—		—		387,683		Pass	8,551		45,691		125,282		33,145		40,580		85,108		—		—		338,357

Special mention																				Special mention	729		7,766		17,015		—		836		—		—		—		26,346
Substandard																				Substandard	—		958		—		—		5,941		300		—		—		7,199

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

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

Total loans secured by business real estate		558,800		919,863		297,889		317,673		177,786		664,890		4,720		—		2,941,621
Commercial loans
Commercial and industrial
Pass	Pass	194,470		361,430		65,403		170,883		100,744		152,008		1,232,369		2,801		2,280,108		Pass	116		10,724		8,168		2,131		5,648		28,285		—		—		55,072
Special mention	Special mention	—		—		323		—		—		—		530		—		853		Special mention	—		—		—		—		—		195		—		—		195
Substandard	Substandard	893		2,122		—		3,527		674		1,687		5,557		—		14,460		Substandard	—		—		—		—		—		5,260		—		—		5,260

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

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

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

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

Total commercial loans		271,514		516,770		88,872		248,584		141,980		211,878		1,239,236		3,425		2,722,259
Total loans secured by business real estate																				Total loans secured by business real estate	18,175		659,651		843,600		280,711		286,809		679,863		5,795		—		2,774,604
Current period gross charge-offs																				Current period gross charge-offs	—		—		318		—		—		1,845		—		—		2,163

3222


		Term Loans by Vintage																			Term Loans by Vintage
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total		(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Revolving Converted to Term During the Period		Total
June 30, 2022
Commercial loans																				Commercial loans
Commercial and industrial																				Commercial and industrial
Pass																				Pass	23,116		274,813		251,865		54,249		150,173		188,547		942,518		334		1,885,615
Special mention																				Special mention	—		1,804		1,626		—		595		1,501		24,140		—		29,666
Substandard																				Substandard	—		15,900		3,294		746		4		1,255		30,648		—		51,847

Franchise non-real estate secured																				Franchise non-real estate secured
Pass																				Pass	5,573		93,172		121,323		17,959		43,011		67,423		777		—		349,238
Special mention																				Special mention	—		2,699		15,876		—		12,142		—		—		—		30,717
Substandard																				Substandard	—		1,683		369		2,783		2,103		1,829		—		—		8,767

SBA non-real estate secured																				SBA non-real estate secured
Pass																				Pass	18		3,386		357		270		1,597		3,341		—		—		8,969

Substandard																				Substandard	—		572		—		—		127		769		—		—		1,468

Total commercial loans																				Total commercial loans	28,707		394,029		394,710		76,007		209,752		264,665		998,083		334		2,366,287
Current period gross charge-offs																				Current period gross charge-offs	—		177		48		5		289		30		574		—		1,123
Retail loans	Retail loans																			Retail loans
Single family residential	Single family residential																			Single family residential
Pass	Pass	$	—	$	306	$	181	$	—	$	29	$	52,537	$	24,854	$	—	$	77,907	Pass	$	—	$	—	$	—	$	174	$	—	$	47,453	$	23,282	$	—	$	70,909

Substandard	Substandard	—		—		—		—		—		44		—		—		44		Substandard	—		—		—		—		—		4		—		—		4

Consumer loans	Consumer loans																			Consumer loans
Pass	Pass	—		9		22		27		9		1,173		2,887		—		4,127		Pass	—		—		3		14		10		914		2,233		—		3,174

Substandard		—		—		—		3		—		—		—		—		3

Total retail loans	Total retail loans	—		315		203		30		38		53,754		27,741		—		82,081		Total retail loans	—		—		3		188		10		48,371		25,515		—		74,087
Current period gross charge-offs																				Current period gross charge-offs	—		—		—		—		—		93		2		—		95
Loans held for investment before basis adjustment (1)	Loans held for investment before basis adjustment (1)	$	2,351,732	$	4,488,246	$	1,470,747	$	1,973,635	$	987,932	$	2,545,199	$	1,277,291	$	3,913	$	15,098,695	Loans held for investment before basis adjustment (1)	$	93,801	$	3,016,379	$	4,156,515	$	1,351,847	$	1,726,528	$	2,845,550	$	1,030,835	$	334	$	14,221,789
Total current period gross charge-offs																				Total current period gross charge-offs	—		177		583		5		289		2,034		576		—		3,664

(1) Excludes the basis adjustment of ~~$51.1~~$50.0 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of December 31, ~~2021:~~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
December 31, 2021
December 31, 2022																				December 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	$	708,560	$	269,944	$	393,097	$	387,923	$	218,388	$	730,736	$	9,353	$	—	$	2,718,001	Pass	$	523,895	$	607,153	$	208,760	$	347,889	$	308,317	$	651,593	$	—	$	—	$	2,647,607
Special mention	Special mention	—		—		16,166		7,682		—		—		—		—		23,848		Special mention	—		—		—		—		7,487		—		—		—		7,487
Substandard	Substandard	—		—		25,777		—		—		2,998		513		—		29,288		Substandard	—		—		—		—		194		4,570		—		463		5,227

Multifamily	Multifamily																			Multifamily
Pass	Pass	2,260,708		952,127		1,199,505		444,904		479,029		554,067		286		—		5,890,626		Pass	1,230,359		2,187,255		786,436		889,737		263,241		732,808		—		—		6,089,836

Substandard		—		—		—		543		—		765		—		—		1,308

Construction and land
Pass		119,532		97,721		40,556		12,415		3,857		3,559		—		—		277,640

SBA secured by real estate
Pass		130		497		6,259		9,074		12,070		9,198		—		—		37,228
Special mention	Special mention	—		—		—		957		—		544		—		—		1,501		Special mention	—		—		—		12,667		—		—		—		—		12,667
Substandard	Substandard	—		—		—		2,343		3,679		2,166		—		—		8,188		Substandard	—		6,057		—		2,723		—		743		—		—		9,523

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

3323

Term Loans by Vintage
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Revolving Converted to Term During the Period Total
December 31, 2021
Business loans secured by real estate
CRE owner-occupied
Pass $ 853,044 $ 273,469 $ 287,249 $ 161,636 $ 187,130 $ 464,271 $ 6,738 $ 292 $ 2,233,829
Substandard — — 2,553 6,074 2,966 5,592 — — 17,185
Franchise real estate secured
Pass 156,381 36,335 55,091 40,047 56,288 34,878 1,361 — 380,381
SBA secured by real estate
Pass 6,379 2,364 7,331 9,125 10,734 24,627 — — 60,560
Special mention — — — — — 62 — — 62
Substandard — — — 2,062 2,690 3,810 — — 8,562
Total loans secured by business real estate 1,015,804 312,168 352,224 218,944 259,808 533,240 8,099 292 2,700,579
Commercial loans
Commercial and industrial
Pass 425,683 79,635 200,234 117,471 123,345 70,789 1,032,053 3,371 2,052,581
Special mention — — 146 — — 152 14,814 178 15,290
Substandard 1,772 — 14 2,683 863 1,150 27,684 1,075 35,241
Franchise non-real estate secured
Pass 163,865 23,943 85,206 45,061 23,672 31,163 — — 372,910
Substandard — — 1,589 3,627 13,346 1,104 — — 19,666
SBA non-real estate secured
Pass 474 564 1,292 666 2,806 2,148 — — 7,950
Special mention — — 681 114 — — — — 795
Substandard — — 76 339 685 547 653 — 2,300
Total commercial loans 591,794 104,142 289,238 169,961 164,717 107,053 1,075,204 4,624 2,506,733
Retail loans
Single family residential
Pass 313 211 — 32 2,008 68,759 23,920 — 95,243
Substandard — — — — — 49 — — 49
Consumer loans
Pass 11 28 49 19 11 1,394 4,113 — 5,625
Substandard — — 5 — — 35 — — 40
Total retail loans 324 239 54 51 2,019 70,237 28,033 — 100,957
Loans held for investment $ 4,696,852 $ 1,736,838 $ 2,322,876 $ 1,254,797 $ 1,143,567 $ 2,014,563 $ 1,121,488 $ 4,916 $ 14,295,897

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

Days Past Due
(Dollars in thousands) Current 30-59 60-89 90+ Total
June 30, 2022
Investor loans secured by real estate
CRE non-owner-occupied $ 2,772,126 $ 6,359 $ — $ 10,230 $ 2,788,715
Multifamily 6,179,213 — — 8,873 6,188,086
Construction and land 331,734 — — — 331,734
SBA secured by real estate 44,199 — — — 44,199
Total investor loans secured by real estate 9,327,272 6,359 — 19,103 9,352,734
Business loans secured by real estate
CRE owner-occupied 2,481,858 — — 4,889 2,486,747
Franchise real estate secured 387,683 — — — 387,683
SBA secured by real estate 67,108 83 — — 67,191
Total business loans secured by real estate 2,936,649 83 — 4,889 2,941,621
Commercial loans
Commercial and industrial 2,290,204 473 — 4,744 2,295,421
Franchise non-real estate secured 415,830 — — — 415,830
SBA not secured by real estate 10,384 — — 624 11,008
Total commercial loans 2,716,418 473 — 5,368 2,722,259
Retail loans
Single family residential 77,951 — — — 77,951
Consumer loans 4,130 — — — 4,130
Total retail loans 82,081 — — — 82,081
Loans held for investment before basis adjustment (1)
$ 15,062,420 $ 6,915 $ — $ 29,360 $ 15,098,695


													Term Loans by Vintage
(Dollars in thousands)												(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2022												December 31, 2022
Construction and land												Construction and land
Pass												Pass	187,567		154,231		38,760		9,615		1,843		7,018		—		—		399,034

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	SBA secured by real estate	46,580		—		—		337		46,917		SBA secured by real estate
Pass												Pass	6,571		130		493		5,407		7,361		13,199		—		—		33,161

Substandard												Substandard	—		—		—		—		2,416		6,558		—		—		8,974

Total investor loans secured by real estate	Total investor loans secured by real estate	8,975,806		1,230		—		10,592		8,987,628		Total investor loans secured by real estate	1,948,392		2,954,826		1,034,449		1,268,038		590,859		1,416,489		—		463		9,213,516
Business loans secured by real estate	Business loans secured by real estate											Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,246,062		—		—		4,952		2,251,014		CRE owner-occupied
Pass												Pass	593,826		718,223		242,125		240,772		114,581		448,531		5,661		—		$	2,363,719
Special mention												Special mention	334		1,015		—		—		675		327		—		—		2,351
Substandard												Substandard	10,838		2,541		11,970		2,403		4,676		33,665		—		—		66,093

Franchise real estate secured	Franchise real estate secured	380,381		—		—		—		380,381		Franchise real estate secured
Pass												Pass	54,654		131,541		33,513		44,229		32,815		55,893		—		—		352,645
Special mention												Special mention	4,891		13,145		—		—		—		—		—		—		18,036
Substandard												Substandard	980		—		—		6,092		—		304		—		—		7,376

SBA secured by real estate	SBA secured by real estate	68,743		—		—		441		69,184		SBA secured by real estate
Total business loans secured by real estate		2,695,186		—		—		5,393		2,700,579
Pass												Pass	10,993		6,978		2,329		5,710		4,440		25,415		—		—		55,865
Special mention												Special mention	—		—		—		—		—		118		—		—		118
Substandard												Substandard	—		—		—		—		1,354		4,031		—		—		5,385

Total loans secured by business real estate												Total loans secured by business real estate	676,516		873,443		289,937		299,206		158,541		568,284		5,661		—		2,871,588
Commercial loans	Commercial loans											Commercial loans
Commercial and industrial	Commercial and industrial	2,101,558		92		—		1,462		2,103,112		Commercial and industrial
Pass												Pass	282,131		262,044		55,659		155,310		78,684		121,918		1,134,568		3,412		2,093,726
Special mention												Special mention	15,105		3,567		798		—		1,864		41		9,898		—		31,273
Substandard												Substandard	2,590		80		—		3,867		562		1,029		27,680		141		35,949

Franchise non-real estate secured	Franchise non-real estate secured	392,576		—		—		—		392,576		Franchise non-real estate secured
SBA not secured by real estate		10,319		73		—		653		11,045
Pass												Pass	102,542		128,030		18,486		46,027		28,664		43,486		778		—		368,013
Special mention												Special mention	1,372		14,382		—		11,829		—		—		—		—		27,583
Substandard												Substandard	1,757		385		2,852		2,256		1,637		308		—		—		9,195

SBA non-real estate secured												SBA non-real estate secured
Pass												Pass	3,444		435		276		1,638		633		3,124		—		—		9,550
Special mention												Special mention	—		—		—		—		—		—		—		—		—
Substandard												Substandard	—		—		—		130		224		606		—		590		1,550

Total commercial loans	Total commercial loans	2,504,453		165		—		2,115		2,506,733		Total commercial loans	408,941		408,923		78,071		221,057		112,268		170,512		1,172,924		4,143		2,576,839
Retail loans	Retail loans											Retail loans
Single family residential	Single family residential	95,292		—		—		—		95,292		Single family residential
Pass												Pass	—		—		176		—		22		49,729		23,065		—		72,992

Substandard												Substandard	—		—		—		—		—		5		—		—		5

Consumer loans	Consumer loans	5,665		—		—		—		5,665		Consumer loans
Pass												Pass	—		6		17		11		—		969		2,254		—		3,257

Substandard												Substandard	—		—		—		—		—		27		—		—		27

Total retail loans	Total retail loans	100,957		—		—		—		100,957		Total retail loans	—		6		193		11		22		50,730		25,319		—		76,281
Loans held for investment	Loans held for investment	$	14,276,402	$	1,395	$	—	$	18,100	$	14,295,897	Loans held for investment	$	3,033,849	$	4,237,198	$	1,402,650	$	1,788,312	$	861,690	$	2,206,015	$	1,203,904	$	4,606	$	14,738,224

(1) Excludes the basis adjustment of ~~$51.1~~$61.9 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

3524

The following tables stratify the loans held for investment portfolio by delinquency as of the periods indicated:


			Days Past Due
(Dollars in thousands)	Current		30-59		60-89		90+		Total
March 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied	$	2,585,273	$	6	$	1,129	$	4,416	$	2,590,824
Multifamily	5,951,531		—		—		3,708		5,955,239
Construction and land	420,079		—		—		—		420,079
SBA secured by real estate	40,669		—		—		—		40,669
Total investor loans secured by real estate	8,997,552		6		1,129		8,124		9,006,811
Business loans secured by real estate
CRE owner-occupied	2,337,413		—		—		4,762		2,342,175
Franchise real estate secured	371,902		—		—		—		371,902
SBA secured by real estate	59,029		308		—		1,190		60,527
Total business loans secured by real estate	2,768,344		308		—		5,952		2,774,604
Commercial loans
Commercial and industrial	1,962,376		447		69		4,236		1,967,128
Franchise non-real estate secured	388,722		—		—		—		388,722
SBA not secured by real estate	9,865		—		—		572		10,437
Total commercial loans	2,360,963		447		69		4,808		2,366,287
Retail loans
Single family residential	70,913		—		—		—		70,913
Consumer loans	3,174		—		—		—		3,174
Total retail loans	74,087		—		—		—		74,087
Loans held for investment before basis adjustment (1)	$	14,200,946	$	761	$	1,198	$	18,884	$	14,221,789




December 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied	$	2,655,892	$	—	$	—	$	4,429	$	2,660,321
Multifamily	6,103,246		2,723		—		6,057		6,112,026
Construction and land	399,034		—		—		—		399,034
SBA secured by real estate	42,135		—		—		—		42,135
Total investor loans secured by real estate	9,200,307		2,723		—		10,486		9,213,516
Business loans secured by real estate
CRE owner-occupied	2,424,174		1,434		—		6,555		2,432,163
Franchise real estate secured	370,984		7,073		—		—		378,057
SBA secured by real estate	60,177		—		104		1,087		61,368
Total business loans secured by real estate	2,855,335		8,507		104		7,642		2,871,588
Commercial loans
Commercial and industrial	2,152,302		4,657		81		3,908		2,160,948
Franchise non-real estate secured	401,199		3,592		—		—		404,791
SBA not secured by real estate	10,511		—		—		589		11,100
Total commercial loans	2,564,012		8,249		81		4,497		2,576,839
Retail loans
Single family residential	71,940		1,057		—		—		72,997
Consumer loans	3,282		2		—		—		3,284
Total retail loans	75,222		1,059		—		—		76,281
Loans held for investment before basis adjustment (1)	$	14,694,876	$	20,538	$	185	$	22,625	$	14,738,224

(1) Excludes the basis adjustment of $50.0 million and $61.9 million to the carrying amount of certain loans included in fair value hedging relationships as of March 31, 2023 and December 31, 2022, respectively. Refer to Note 11 – Derivative Instruments for additional information.

Individually Evaluated Loans

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,~~loans made to borrowers experiencing financial difficulty, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. Changes in the ACL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

As of ~~June 30, 2022, $44.4~~March 31, 2023, $24.9 million of loans were individually evaluated with ~~$1.8~~$4.0 million ACL attributed to such loans. At ~~June 30, 2022, $11.5 million of individually evaluated loans were evaluated using a discounted cash flow approach, and $32.9 million of~~March 31, 2023, all individually evaluated loans were evaluated based on the underlying value of the ~~collateral.~~collateral and none were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at ~~June 30, 2022.~~March 31, 2023.

As of December 31, ~~2021, $31.3~~2022, $30.9 million of loans were individually evaluated, and the ACL attributed to such loans totaled ~~$1.5~~$1.7 million. At December 31, ~~2021, $12.4 million of individually evaluated loans were evaluated using a discounted cash flow approach, and $18.9 million of~~2022, all individually evaluated loans were evaluated based on the underlying value of the ~~collateral.~~collateral and none were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at December 31, ~~2021.~~2022.

~~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 terms for a period of at least six months, and the ultimate collectability of the total contractual restructured principal and interest payments are no longer in doubt. At June 30, 2022 and December 31, 2021, the Company had 5 and 6 loans totaling $16.6 million and $16.9 million, respectively, modified as TDRs, which are comprised of 3 CRE owner-occupied loans and 1 C&I loan totaling $5.1 million and $5.1 million, respectively, belonging to 1 borrower relationship with the terms modified due to bankruptcy, and 1 franchise non-real estate secured loan of $11.5 million and 2 franchise non-real estate secured loans totaling $12.1 million, respectively, belonging to another borrower relationship with the terms modified for payment deferral.

During the three and six months ended June 30, 2022, the 3 CRE owner-occupied loans and 1 C&I loan classified as TDRs experienced payment defaults after modifications within the previous 12 months and were in payment default. All TDRs were on nonaccrual status as of June 30, 2022 and December 31, 2021. During the three and six months ended June 30, 2021, there were 6 loans modified as TDRs, of which 3 CRE owner-occupied loans and 1 C&I loan classified experienced payment defaults after modifications within the previous 12 months.

Purchased Credit Deteriorated Loans

The Company analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated loans. Please see Note ~~3 –~~1 - Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2022 Form 10-K for more information concerning the accounting for ~~PCD~~purchased credit deterioration (“PCD”) loans. The Company had PCD loans of ~~$477.2~~$413.0 million and ~~$567.6~~$422.7 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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 6 – Allowance for Credit Losses for more information concerning the Company’s ACL methodology.

Nonaccrual Loans

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

The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. However, when such loans are well secured and in the process of collection, the Company may continue with the accrual of interest. The Company had loans on nonaccrual status of ~~$44.4~~$24.9 million at ~~June 30, 2022~~March 31, 2023 and ~~$31.3~~$30.9 million at December 31, ~~2021.~~2022. The Company did not record income from the receipt of cash payments related to nonaccruing loans during the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~June 30, 2021.~~March 31, 2022. The Company had no loans 90 days or more past due and still accruing at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

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


															Nonaccrual Loans (1)
		Nonaccrual Loans (1)													Collateral Dependent Loans				Non-Collateral Dependent Loans				Total Nonaccrual Loans		Nonaccrual Loans with No ACL
(Dollars in thousands)	(Dollars in thousands)	Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL		(Dollars in thousands)	Balance		ACL		Balance		ACL
June 30, 2022
March 31, 2023														March 31, 2023
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	$	10,230	$	1,835	$	—	$	—	$	10,230	$	2,615	CRE non-owner-occupied	$	5,545	$	—	$	—	$	—	$	5,545	$	5,545
Multifamily	Multifamily	8,873		—		—		—		8,873		8,873		Multifamily	3,708		—		—		—		3,708		3,708

SBA secured by real estate	SBA secured by real estate	562		—		—		—		562		562		SBA secured by real estate	519		—		—		—		519		519
Total investor loans secured by real estate	Total investor loans secured by real estate	19,665		1,835		—		—		19,665		12,050		Total investor loans secured by real estate	9,772		—		—		—		9,772		9,772
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	4,889		—		—		—		4,889		4,889		CRE owner-occupied	9,102		—		—		—		9,102		9,102

SBA secured by real estate	SBA secured by real estate	206		—		—		—		206		206		SBA secured by real estate	1,190		—		—		—		1,190		1,190
Total business loans secured by real estate	Total business loans secured by real estate	5,095		—		—		—		5,095		5,095		Total business loans secured by real estate	10,292		—		—		—		10,292		10,292
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	4,744		—		—		—		4,744		4,744		Commercial and industrial	4,236		3,999		—		—		4,236		237
Franchise non-real estate secured		2,794		—		11,517		—		14,311		14,311

SBA non-real estate secured	SBA non-real estate secured	624		—		—		—		624		624		SBA non-real estate secured	572		—		—		—		572		572
Total commercial loans	Total commercial loans	8,162		—		11,517		—		19,679		19,679		Total commercial loans	4,808		3,999		—		—		4,808		809
Retail loans
Single family residential		6		—		—		—		6		6

Total retail loans		6		—		—		—		6		6

Total nonaccrual loans	Total nonaccrual loans	$	32,928	$	1,835	$	11,517	$	—	$	44,445	$	36,830	Total nonaccrual loans	$	24,872	$	3,999	$	—	$	—	$	24,872	$	20,873


December 31, 2021
December 31, 2022														December 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	$	10,255	$	1,455	$	—	$	—	$	10,255	$	2,640	CRE non-owner-occupied	$	4,429	$	—	$	—	$	—	$	4,429	$	4,429

Multifamily														Multifamily	8,780		—		—		—		8,780		8,780

SBA secured by real estate	SBA secured by real estate	937		—		—		—		937		937		SBA secured by real estate	533		—		—		—		533		533
Total investor loans secured by real estate	Total investor loans secured by real estate	11,192		1,455		—		—		11,192		3,577		Total investor loans secured by real estate	13,742		—		—		—		13,742		13,742
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	4,952		—		—		—		4,952		4,952		CRE owner-occupied	11,475		1,742		—		—		11,475		9,733

SBA secured by real estate	SBA secured by real estate	589		—		—		—		589		589		SBA secured by real estate	1,191		—		—		—		1,191		1,191
Total business loans secured by real estate	Total business loans secured by real estate	5,541		—		—		—		5,541		5,541		Total business loans secured by real estate	12,666		1,742		—		—		12,666		10,924
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	1,462		—		336		—		1,798		1,797		Commercial and industrial	3,908		—		—		—		3,908		3,908
Franchise non-real estate secured		—		—		12,079		—		12,079		12,079

SBA non-real estate secured	SBA non-real estate secured	653		—		—		—		653		653		SBA non-real estate secured	589		—		—		—		589		589
Total commercial loans	Total commercial loans	2,115		—		12,415		—		14,530		14,529		Total commercial loans	4,497		—		—		—		4,497		4,497
Retail loans
Single family residential		10		—		—		—		10		10

Total retail loans		10		—		—		—		10		10

Total nonaccrual loans	Total nonaccrual loans	$	18,858	$	1,455	$	12,415	$	—	$	31,273	$	23,657	Total nonaccrual loans	$	30,905	$	1,742	$	—	$	—	$	30,905	$	29,163

(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 ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

3827

Troubled Debt Restructurings

Prior to the Company’s adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) - Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, the Company, in infrequent situations would modify or restructure loans when the borrower was experiencing financial difficulties by making a concession to the borrower. Such concessions typically were in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest-only payments, and, in very few cases, reductions to the outstanding loan balances. These modifications were classified as TDRs and were made for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows. A workout plan between us and the borrower was designed to provide a bridge for borrower cash flow shortfalls in the near term. In most cases, the Company initially placed TDRs on nonaccrual status, and they could be returned to accrual status when the loans were brought current, performed in accordance with the restructured contractual terms for a period of at least six months, and the ultimate collectability of the total contractual restructured principal and interest payments were no longer in doubt. ASU 2022-02 eliminated the concept of TDRs in current GAAP, and therefore, beginning January 1, 2023, the Company no longer reports loans modified as TDRs except for those loans modified and reported as TDRs in prior period financial information under previous GAAP.

At December 31, 2022, there were five loans totaling $16.1 million modified as TDRs, consisting of three CRE owner-occupied loans and one C&I loan totaling $5.1 million belonging to one borrower relationship with the terms modified due to bankruptcy, and one franchise non-real estate secured loans totaling $11.0 million belonging to another borrower relationship with the terms modified for payment deferral. During the three months ended March 31, 2022, the three CRE owner-occupied loans and one C&I loan classified as TDRs experienced payment default after modification within the previous 12 months and were in payment default. All TDRs were on nonaccrual status as of March 31, 2022.

Modified Loans to Troubled Borrowers

On January 1, 2023, the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. The Company also refers to these loans as modified loans to troubled borrowers. A MLTB arises from a modification made to a loan in order to alleviate temporary difficulties 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. GAAP requires that certain types of modifications be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or any combination of the foregoing. The ACL for a MLTB is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for a MLTB is determined through individual evaluation.

During the three months ended March 31, 2023, there was one CRE owner-occupied MLTB.

The following table shows the amortized cost of the MLTB by class and type of modification, as well as the percentage of the loan modified to total loans in each class at and during the period indicated:

For the Three Months Ended March 31, 2023

Term Extension

(Dollars in thousands)

Balance

Percent of Total Class of Loans

Business loans secured by real estate

CRE owner-occupied

851

0.04

Total business loans secured by real estate

851

The following table describes the financial effect of the loan modification made for the borrower experiencing financial difficulty during the three months ended March 31, 2023:

Term Extension

Business loans secured by real estate

CRE owner-occupied

Extended term by 4 months

The following table depicts the performance of the MLTB under ASU 2022-02 in the last three months as of the date indicated:


			Days Past Due
(Dollars in thousands)	Current		30-59		60-89		90+		Total
March 31, 2023






Business loans secured by real estate
CRE owner-occupied	$	851	$	—	$	—	$	—	$	851


Total business loans secured by real estate	851		—		—		—		851









Total	$	851	$	—	$	—	$	—	$	851

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:

(Dollars in thousands) Office Properties Industrial Properties Retail Properties Land Properties Hotel Properties Multifamily Properties Residential Properties Business Assets Total
June 30, 2022
Investor loan secured by real estate
CRE non-owner-occupied $ — $ — $ 488 $ — $ 9,742 $ — $ — $ — $ 10,230
Multifamily — — — — — 8,873 — — 8,873
SBA secured by real estate — — — — 562 — — — 562
Total investor loans secured by real estate — — 488 — 10,304 8,873 — — 19,665
Business loans secured by real estate
CRE owner-occupied — — — 4,889 — — — — 4,889
SBA secured by real estate 123 83 — — — — — — 206
Total business loans secured by real estate 123 83 — 4,889 — — — — 5,095
Commercial loans
Commercial and industrial — — — 242 — — — 4,502 4,744
Franchise non-real estate secured — — — — — — — 2,794 2,794
SBA non-real estate secured — — — — — — — 624 624
Total commercial loans — — — 242 — — — 7,920 8,162
Retail loans
Single family residential — — — — — — 6 — 6
Total retail loans — — — — — — 6 — 6
Total collateral dependent loans $ 123 $ 83 $ 488 $ 5,131 $ 10,304 $ 8,873 $ 6 $ 7,920 $ 32,928



(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Multifamily Properties		Other CRE Properties		Business Assets		Total
March 31, 2023
Investor loan secured by real estate
CRE non-owner-occupied	$	1,129	$	—	$	450	$	—	$	—	$	—	$	3,966	$	—	$	5,545
Multifamily	—		—		—		—		—		3,708		—		—		3,708

SBA secured by real estate	—		—		—		—		519		—		—		—		519
Total investor loans secured by real estate	1,129		—		450		—		519		3,708		3,966		—		9,772
Business loans secured by real estate
CRE owner-occupied	4,341		—		—		4,761		—		—		—		—		9,102

SBA secured by real estate	104		1,086		—		—		—		—		—		—		1,190
Total business loans secured by real estate	4,445		1,086		—		4,761		—		—		—		—		10,292
Commercial loans
Commercial and industrial	—		—		—		237		—		—		—		3,999		4,236

SBA non-real estate secured	—		—		—		—		—		—		—		572		572
Total commercial loans	—		—		—		237		—		—		—		4,571		4,808




Total collateral dependent loans	$	5,574	$	1,086	$	450	$	4,998	$	519	$	3,708	$	3,966	$	4,571	$	24,872

3930


(Dollars in thousands)	(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Residential Properties		Business Assets		Total		(Dollars in thousands)	Office Properties		Industrial Properties		Retail Properties		Land Properties		Hotel Properties		Multifamily Properties		Other CRE Properties		Business Assets		Total
December 31, 2021
December 31, 2022																		December 31, 2022
Investor loan secured by real estate	Investor loan secured by real estate																	Investor loan secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	—	$	—	$	513	$	—	$	9,742	$	—	$	—	$	10,255	CRE non-owner-occupied	$	—	$	—	$	463	$	—	$	—	$	—	$	3,966	$	—	$	4,429

Multifamily																		Multifamily	—		—		—		—		—		8,780		—		—		8,780

SBA secured by real estate	SBA secured by real estate	—		—		—		—		937		—		—		937		SBA secured by real estate	—		—		—		—		533		—		—		—		533
Total investor loans secured by real estate	Total investor loans secured by real estate	—		—		513		—		10,679		—		—		11,192		Total investor loans secured by real estate	—		—		463		—		533		8,780		3,966		—		13,742
Business loans secured by real estate	Business loans secured by real estate																	Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	—		—		—		4,952		—		—		—		4,952		CRE owner-occupied	4,417		—		—		4,813		—		—		2,245		—		11,475

SBA secured by real estate	SBA secured by real estate	148		441		—		—		—		—		—		589		SBA secured by real estate	104		1,087		—		—		—		—		—		—		1,191
Total business loans secured by real estate	Total business loans secured by real estate	148		441		—		4,952		—		—		—		5,541		Total business loans secured by real estate	4,521		1,087		—		4,813		—		—		2,245		—		12,666
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	—		—		—		245		—		—		1,217		1,462		Commercial and industrial	—		—		—		238		—		—		490		3,180		3,908

SBA non-real estate secured	SBA non-real estate secured	—		—		—		—		—		—		653		653		SBA non-real estate secured	—		—		—		—		—		—		—		589		589
Total commercial loans	Total commercial loans	—		—		—		245		—		—		1,870		2,115		Total commercial loans	—		—		—		238		—		—		490		3,769		4,497
Retail loans
Single family residential		—		—		—		—		—		10		—		10

Total retail loans		—		—		—		—		—		10		—		10

Total collateral dependent loans	Total collateral dependent loans	$	148	$	441	$	513	$	5,197	$	10,679	$	10	$	1,870	$	18,858	Total collateral dependent loans	$	4,521	$	1,087	$	463	$	5,051	$	533	$	8,780	$	6,701	$	3,769	$	30,905

4031

Note 6 – Allowance for Credit Losses

The Company 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 loan commitments. These components consist of: (i) the estimated ~~PD,~~probability of default (“PD”), (ii) the estimated ~~LGD,~~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. The 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~~or discounts, and deferred fees and costs associated with an originated loan. The Company has made an accounting policy election to adjust the effective interest rate to take into consideration the effects of estimated prepayments. The ACL for loans is determined by measuring the amount by which a loan’s amortized cost exceeds its discounted cash flows expected to be collected. The ACL for credit facilities is determined by discounting estimates for cash flows not expected to be collected.

Probability of Default

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

4132

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

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

Loss Given Default

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

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

Historical Loss Rates for Retail Loans

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

4233

Economic Forecasts

~~GAAP requires the Company~~In order to develop reasonable and supportable forecasts of future conditions, ~~and estimate~~the Company estimates 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 macroeconomic scenarios from an independent ~~third-party. These scenarios~~third party, which are based on past events, current conditions, and the likelihood of future events occurring. These scenarios are typically ~~are~~ comprised of: a base-case scenario, an upside scenario, representing slightly better economic conditions than currently experienced and, a downside scenario, representing recessionary conditions. Management periodically evaluates appropriateness of economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in the Company’s ACL model. The economic scenarios chosen for the model, the extent to which more than one scenario is used, and the weights that are assigned to them, are based on the likelihood that the economy would perform better than each scenario, which is based in part on analysis performed by an independent ~~third-party.~~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. The Company’s ACL model at ~~June 30, 2022~~March 31, 2023 includes assumptions concerning the rising interest rate environment, ongoing ~~COVID-19 pandemic,~~inflationary pressures throughout the U.S. economy, higher energy prices, the potential impact of the ongoing war between Russia and Ukraine, ~~ongoing inflationary pressures throughout the U.S. economy,~~ general uncertainty concerning future economic conditions, and the potential for recessionary conditions.

The Company 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 the Company does not expect to collect for each loan.

It is important to note that the Company’s ACL model relies on multiple economic variables, which are used in several economic scenarios. Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the model, the Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL. These key economic variables include changes in the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and ~~the 10-year U.S. Treasury yield.~~interest rates.

Qualitative Adjustments

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

~~As of June 30, 2022, qualitative~~

Qualitative adjustments primarily relate to certain segments of the loan portfolio deemed by management to be of a higher-risk profile or other factors where management believes the quantitative component of the Company’s ACL model may not ~~have~~be fully ~~captured~~reflective of levels deemed adequate in the ~~associated impact to the ACL. In addition,~~judgement of management. Certain qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.

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


		Three Months Ended June 30, 2022						Three Months Ended March 31, 2023
(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	$	35,974	$	—	$	—		$	1,247	$	37,221	CRE non-owner occupied	$	33,692	$	(66)	$	15	$	(1,926)	$	31,715
Multifamily	Multifamily	54,325		—		—			1,968		56,293		Multifamily	56,334		(217)		—		1,670		57,787
Construction and land	Construction and land	5,219		—		—			217		5,436		Construction and land	7,114		—		—		558		7,672
SBA secured by real estate	SBA secured by real estate	3,050		—		—			(185)		2,865		SBA secured by real estate	2,592		—		—		(301)		2,291
Business loans secured by real estate	Business loans secured by real estate												Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	31,891		—		4			(434)		31,461		CRE owner-occupied	32,340		(2,163)		12		(855)		29,334
Franchise real estate secured	Franchise real estate secured	7,977		—		—			(1,447)		6,530		Franchise real estate secured	7,019		—		—		771		7,790
SBA secured by real estate	SBA secured by real estate	5,195		—		—			(46)		5,149		SBA secured by real estate	4,348		—		—		67		4,415
Commercial loans	Commercial loans												Commercial loans
Commercial and industrial	Commercial and industrial	38,598		(5,381)		533			3,298		37,048		Commercial and industrial	35,169		(1,123)		211		3,402		37,659
Franchise non-real estate secured	Franchise non-real estate secured	14,304		(448)		—			(732)		13,124		Franchise non-real estate secured	16,029		—		100		(408)		15,721
SBA non-real estate secured	SBA non-real estate secured	490		—		16			(54)		452		SBA non-real estate secured	441		—		6		(46)		401
Retail loans	Retail loans												Retail loans
Single family residential	Single family residential	233		—		33			12		278		Single family residential	352		(90)		1		129		392
Consumer loans	Consumer loans	261		(2)		—			(41)		218		Consumer loans	221		(5)		35		(40)		211
Totals	Totals	$	197,517	$	(5,831)	$	586		$	3,803	$	196,075	Totals	$	195,651	$	(3,664)	$	380	$	3,021	$	195,388

Six Months Ended June 30, 2022
Beginning ACL Balance Charge-offs Recoveries Provision for Credit Losses Ending
ACL Balance
(Dollars in thousands)
Investor loans secured by real estate
CRE non-owner occupied $ 37,380 $ — $ — $ (159) $ 37,221
Multifamily 55,209 — — 1,084 56,293
Construction and land 5,211 — — 225 5,436
SBA secured by real estate 3,201 (70) — (266) 2,865
Business loans secured by real estate
CRE owner-occupied 29,575 — 14 1,872 31,461
Franchise real estate secured 7,985 — — (1,455) 6,530
SBA secured by real estate 4,866 — — 283 5,149
Commercial loans
Commercial and industrial 38,136 (7,560) 2,374 4,098 37,048
Franchise non-real estate secured 15,084 (448) — (1,512) 13,124
SBA non-real estate secured 565 (50) 18 (81) 452
Retail loans
Single family residential 255 — 33 (10) 278
Consumer loans 285 (2) — (65) 218
Totals $ 197,752 $ (8,130) $ 2,439 $ 4,014 $ 196,075

4435


		Three Months Ended June 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	$	45,545	$	—	$	—	$	1,567	$	47,112		CRE non-owner occupied	$	37,380	$	—	$	—	$	(1,406)	$	35,974
Multifamily	Multifamily	79,815		—		—		(20,756)		59,059			Multifamily	55,209		—		—		(884)		54,325
Construction and land	Construction and land	13,263		—		—		(3,715)		9,548			Construction and land	5,211		—		—		8		5,219
SBA secured by real estate	SBA secured by real estate	5,141		—		—		(460)		4,681			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	41,594		—		15		(5,862)		35,747			CRE owner-occupied	29,575		—		10		2,306		31,891
Franchise real estate secured	Franchise real estate secured	10,876		—		—		560		11,436			Franchise real estate secured	7,985		—		—		(8)		7,977
SBA secured by real estate	SBA secured by real estate	6,451		—		80		(214)		6,317			SBA secured by real estate	4,866		—		—		329		5,195
Commercial loans	Commercial loans												Commercial loans
Commercial and industrial	Commercial and industrial	43,373		(3,290)		2,098		(2,302)		39,879			Commercial and industrial	38,136		(2,179)		1,841		800		38,598
Franchise non-real estate secured	Franchise non-real estate secured	18,903		—		—		(1,590)		17,313			Franchise non-real estate secured	15,084		—		—		(780)		14,304
SBA non-real estate secured	SBA non-real estate secured	890		—		2		(162)		730			SBA non-real estate secured	565		(50)		2		(27)		490

Retail loans	Retail loans												Retail loans
Single family residential	Single family residential	822		—		1		(153)		670			Single family residential	255		—		—		(22)		233
Consumer loans	Consumer loans	326		—		—		(44)		282			Consumer loans	285		—		—		(24)		261
Totals	Totals	$	266,999	$	(3,290)	$	2,196	$	(33,131)	$	232,774		Totals	$	197,752	$	(2,299)	$	1,853	$	211	$	197,517

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

The decrease in the ACL for loans held for investment during the three months ended ~~June 30, 2022~~March 31, 2023 of ~~$1.4 million was comprised~~$263,000 is reflective of ~~$5.2~~$3.3 million in net charge-offs, partially offset by a ~~$3.8~~$3.0 million in provision for credit losses. The provision for credit losses ~~for~~during the three months ended June 30, 2022 was reflective of higher loans held for investment, higher net charge-offs, and the impact of macroeconomic uncertainties. The decrease in the ACL for loans held for investment during the six months ended June 30, 2022 of $1.7 millionMarch 31, 2023 can be attributed to ~~net charge-offs of $5.7 million, partially~~increases associated with economic forecast and other model updates, as well as changes in asset quality, including specific reserves, offset by ~~a $4.0 million provision~~lower loans held for ~~credit losses.~~investment. Charge-offs during the three months ended March 31, 2023 were largely attributed to one CRE owner occupied lending relationship, as well as charge-offs on several loans sold in the ~~second~~current quarter, ~~of 2022 are largely attributable to one~~and charge-offs on other smaller C&I lending ~~relationship.~~relationships.

The decrease in the ACL for loans held for investment during the three months ended ~~June 30, 2021~~March 31, 2022 of ~~$34.2 million~~$235,000 was comprised of net charge-offs of $446,000, partially offset by a ~~$33.1 million~~$211,000 provision for credit ~~loss recapture and $1.1 million in net charge-offs.~~losses. The provision ~~recapture~~for credit losses for the three months ended ~~June 30, 2021~~March 31, 2022 was reflective of ~~improving economic forecasts employed in the Company’s ACL model relative to prior periods and the continued strong asset quality profile of the loan portfolio, partially offset by an increase in~~higher loans held for investment ~~during the quarter. The decrease in the ACL for the six months ended June 30, 2021 of $35.2 million was comprised of a $32.8 million provision for credit loss recapture~~ and ~~$2.4 million in net charge-offs. The provision recapture for the six months ended June 30, 2021 was also reflective of improving~~growing economic uncertainties, partially offset by improved economic forecasts ~~employed in the Company’s ACL model~~ and ~~the continued strong~~ asset ~~quality profile of the loan portfolio.~~quality.

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an ACL for 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 ~~$24.1 million at June 30, 2022, $27.5~~$23.5 million at March 31, ~~2022, and $27.4~~2023, relatively unchanged compared to $23.6 million at December 31, ~~2021.~~2022. The provision recapture for off-balance sheet commitments of ~~$3.4 million~~$189,000 was attributable to lower unfunded commitments and ~~$3.2 million~~changes in the mix of unfunded commitments between various loan segments, as well as qualitative adjustments during the three and six months ended June 30, 2022, respectively, was largely due to changes in unfunded lending segment mix. The provision recapture of $5.4 million and $3.7 million during the three and six months ended June 30, 2021, respectively, was related primarily to improving economic conditions and forecasts reflected in the Company’s ACL model.quarter.

The ~~Company applies an expected credit loss estimation methodology~~ACL for off-balance sheet commitments was $27.5 million at March 31, 2022. The provision for credit losses on off-balance sheet commitments of $218,000 during the first quarter of 2022 can be attributed to an increase in off-balance sheet commitments during that ~~is largely commensurate with~~period.

The following table summarizes the ~~methodology applied to each respective segment of the loan portfolio~~activities in ~~determining~~ the ACL for ~~loans held-for-investment. The loss estimation process includes assumptions~~off-balance sheet commitments for ~~utilization at default. These assumptions are based on~~ the ~~Company’s own historical internal loan data.~~periods indicated:


	Three Months Ended
	March 31,		March 31,
(Dollars in thousands)	2023		2022
Beginning ACL balance	$	23,641	$	27,290
Provision for credit losses on off-balance sheet commitments	(189)		218
Ending ACL balance	$	23,452	$	27,508

Note 7 – Goodwill and Other Intangible Assets

The Company had goodwill of $901.3 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021, respectively.~~2022. The Company ~~recorded~~did not record any adjustments to goodwill ~~associated with the acquisition of Opus in the amount of $2.7 million~~ during the ~~six~~three months ended June 30, 2021, within the one-year measurement period subsequent to the acquisition date of June 1, 2020. These adjustments largely relate to the finalization of the short-year Opus tax returns. During the second quarter of 2021, the Company finalized its fair value analysis of the acquired assetsMarch 31, 2023 and ~~assumed liabilities associated with the Opus acquisition.~~March 31, 2022.

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

June 30, June 30,
(Dollars in thousands) 2022 2021
Beginning balance $ 901,312 $ 898,569
Purchase accounting adjustments — 2,743
Ending balance $ 901,312 $ 901,312
Accumulated impairment losses at end of period $ — $ —

The Company’s policy is to assess goodwill for impairment on an annual basis during the fourth quarter of each year, and more frequently if events or circumstances lead management to believe the value of goodwill may be impaired. Due to the recent market volatility experienced in the banking sector, the Company assessed goodwill for impairment at March 31, 2023, by performing a quantitative assessment of goodwill as of March 31, 2023, in accordance with ASC 350-20, Intangibles - Goodwill and Other - Goodwill. The quantitative assessment was performed with the assistance of an independent third party, and the results of this assessment indicated the value of goodwill assets were not impaired as of March 31, 2023. If the recent market volatility continues, the Company may again assess goodwill for impairment prior to the fourth quarter of 2023.

Other intangible assets with definite lives were ~~$62.5~~$52.4 million at ~~June 30, 2022,~~March 31, 2023, consisting of ~~$60.0~~$50.1 million in core deposit intangibles and ~~$2.5~~$2.3 million in customer relationship intangibles. At December 31, ~~2021,~~2022, other intangibles assets were ~~$69.6~~$55.6 million, consisting of ~~$66.9~~$53.2 million in core deposit intangibles and ~~$2.7~~$2.4 million in customer relationship intangibles. The following table summarizes the change in the balance of core deposit intangibles and customer relationship intangibles, and the related accumulated amortization for the periods indicated below:


		Three Months Ended						Six Months Ended					Three Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,			March 31,		March 31,
(Dollars in thousands)	(Dollars in thousands)	2022		2022		2021		2022		2021		(Dollars in thousands)	2023		2022
Gross amount of intangible assets:	Gross amount of intangible assets:											Gross amount of intangible assets:
Beginning balance	Beginning balance	$	145,212	$	145,212	$	145,212	$	145,212	$	145,212	Beginning balance	$	145,212	$	145,212
Additions due to acquisitions	Additions due to acquisitions	—		—		—		—		—		Additions due to acquisitions	—		—
Ending balance	Ending balance	145,212		145,212		145,212		145,212		145,212		Ending balance	145,212		145,212
Accumulated amortization:	Accumulated amortization:											Accumulated amortization:
Beginning balance	Beginning balance	(79,234)		(75,641)		(63,848)		(75,641)		(59,705)		Beginning balance	(89,624)		(75,641)
Amortization	Amortization	(3,478)		(3,593)		(4,001)		(7,071)		(8,144)		Amortization	(3,171)		(3,593)
Ending balance	Ending balance	(82,712)		(79,234)		(67,849)		(82,712)		(67,849)		Ending balance	(92,795)		(79,234)
Net intangible assets	Net intangible assets	$	62,500	$	65,978	$	77,363	$	62,500	$	77,363	Net intangible assets	$	52,417	$	65,978

The Company amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case of customer relationship intangibles. The amortization periods typically range from six to eleven years. The estimated aggregate amortization expense related to our core deposit intangible and customer relationship intangible assets for each of the next five years succeeding December 31, ~~2021,~~2022, in order from the present, is ~~$14.0 million,~~ $12.3 million, $11.1 million, $10.0 million, $8.9 million, and ~~$8.9~~$7.2 million. The Company’s core deposit and customer relationship intangibles are evaluated annually for impairment or more frequently if events and circumstances lead management to believe their value may not be recoverable. Factors that may ultimately attribute to impairment include customer attrition and run-off. The Company believes core deposit relationships in the current interest rate environment continue to provide a significant benefit to the Company relative to other sources of alternative funding, and thus does not believe the value of core deposit intangible assets are impaired at March 31, 2023. In addition, the Company is unaware of any events and/or circumstances that would indicate ~~a possible impairment in~~ the ~~values~~value of ~~core deposit intangible assets and~~ customer relationship intangible assets are impaired as of ~~June 30, 2022.~~March 31, 2023.

Note 8 – Subordinated Debentures

As of ~~June 30, 2022,~~March 31, 2023, the Company had ~~3 issuances of~~three subordinated notes with an aggregate carrying value of ~~$330.9~~$331.4 million and a weighted interest rate of ~~5.32%~~5.31%, compared to ~~$330.6~~$331.2 million with a weighted interest rate of ~~5.33%~~5.32% at December 31, ~~2021.~~2022. The increase of $160,000 was primarily due to amortization of debt issuance costs.

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


							June 30, 2022		December 31, 2021								Carrying Value
(Dollars in thousands)	(Dollars in thousands)	Stated Maturity	Current Interest Rate		Current Principal Balance		Carrying Value				(Dollars in thousands)	Stated Maturity	Current Interest Rate		Current Principal Balance		March 31, 2023		December 31, 2022
Subordinated notes	Subordinated notes										Subordinated notes
Subordinated notes due 2024, 5.75% per annum	Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,731	$	59,671	Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,821	$	59,791
Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month LIBOR +2.5% thereafter	Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month LIBOR +2.5% thereafter	May 15, 2029	4.875	%	125,000		123,259		123,132		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		123,450		123,386
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.170% thereafter	Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.170% thereafter	June 15, 2030	5.375	%	150,000		147,896		147,764		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		148,093		148,027
Total subordinated debentures	Total subordinated debentures				$	335,000	$	330,886	$	330,567	Total subordinated debentures				$	335,000	$	331,364	$	331,204

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 2022 by KBRA.

For additional information on the Company’s subordinated debentures, see “Note 13 — Subordinated Debentures” to the Consolidated Financial Statements of the Company’s ~~2021~~2022 Form 10-K.

For regulatory capital purposes, subordinated notes qualify as Tier 2 ~~capital.~~capital, subject to limitations. Per applicable Federal Reserve rules and regulations, the amount of the subordinated notes qualifying as Tier 2 regulatory capital is phased out by 20 % of the original amount of the subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of the subordinated notes. The regulatory total capital ratios of the Company and the Bank continued to exceed regulatory minimums, inclusive of the fully phased-in capital conservation buffer.

Note 9 – 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) June 30, 2022 March 31, 2022 June 30, 2021
Basic
Net income $ 69,803 $ 66,904 $ 96,302
Less: dividends and undistributed earnings allocated to participating securities (867) (685) (1,034)
Net income allocated to common stockholders $ 68,936 $ 66,219 $ 95,268
Weighted average common shares outstanding 93,765,264 93,499,695 93,635,392
Basic earnings per common share $ 0.74 $ 0.71 $ 1.02
Diluted
Net income allocated to common stockholders $ 68,936 $ 66,219 $ 95,268
Weighted average common shares outstanding 93,765,264 93,499,695 93,635,392
Diluted effect of share-based compensation 275,427 446,379 582,636
Weighted average diluted common shares 94,040,691 93,946,074 94,218,028
Diluted earnings per common share $ 0.73 $ 0.70 $ 1.01


		Six Months Ended				Three Months Ended
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	June 30, 2022		June 30, 2021			(Dollars in thousands, except per share data)	March 31, 2023		March 31, 2022
Basic	Basic						Basic
Net income	Net income	$	136,707	$	164,970		Net income	$	62,562	$	66,904

Less: dividends and undistributed earnings allocated to participating securities	Less: dividends and undistributed earnings allocated to participating securities	(1,545)		(1,672)			Less: dividends and undistributed earnings allocated to participating securities	(823)		(685)
Net income allocated to common stockholders	Net income allocated to common stockholders	$	135,162	$	163,298		Net income allocated to common stockholders	$	61,739	$	66,219

Weighted average common shares outstanding	Weighted average common shares outstanding	93,633,213		93,582,563			Weighted average common shares outstanding	93,857,812		93,499,695
Basic earnings per common share	Basic earnings per common share	$	1.44	$	1.74		Basic earnings per common share	$	0.66	$	0.71

Diluted	Diluted						Diluted
Net income allocated to common stockholders	Net income allocated to common stockholders	$	135,162	$	163,298		Net income allocated to common stockholders	$	61,739	$	66,219

Weighted average common shares outstanding	Weighted average common shares outstanding	93,633,213		93,582,563			Weighted average common shares outstanding	93,857,812		93,499,695
Diluted effect of share-based compensation		349,844		573,177
Dilutive effect of share-based compensation							Dilutive effect of share-based compensation	324,710		446,379

Weighted average diluted common shares	Weighted average diluted common shares	93,983,057		94,155,740			Weighted average diluted common shares	94,182,522		93,946,074
Diluted earnings per common share	Diluted earnings per common share	$	1.44	$	1.73		Diluted earnings per common share	$	0.66	$	0.70

Shares or stock options are excluded from the computations of ~~dilutive~~diluted earnings per share when their inclusion have an anti-dilutive effect. The dilutive impact of these securities could be included in future computations of diluted earnings per share if the market price of the common stock increases. For the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~June 30, 2021, and the three months ended~~ March 31, 2022, there were no potential common shares that were anti-dilutive.

4939

Note 10 – Fair Value of Financial Instruments

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

5040

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,~~for certain instruments measured at fair value, as well as the general classification of these instruments pursuant to the fair value hierarchy.

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

Equity Securities With Readily Determinable Fair Values – The Company’s equity securities with readily determinable fair values consist of investments in public companies and qualify for CRA purposes. The fair value is based on the closing price on nationally recognized securities exchanges at the end of each period and classified as Level 1 of the fair value hierarchy.

Interest Rate Swaps – The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certain fixed-rate loans. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a market standard discounted cash flow approach. The Company incorporates credit value adjustments on derivatives to properly reflect the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The Company has determined that the observable nature of the majority of inputs used in deriving the fair value of these derivative contracts fall within Level 2 of the fair value hierarchy, and the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the valuation of interest rate swaps is classified as Level 2 of the fair value hierarchy.

Equity Warrant Assets – The Company acquired equity warrant assets as a result of the acquisition of Opus. Opus received equity warrant assets through its lending activities as part of loan origination fees. The warrants provide the Bank the right to purchase a specific number of equity shares of the underlying company’s equity at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815. The fair value of equity warrant assets is determined using a Black-Scholes option pricing model and are classified as Level 3 ~~with~~within 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.

Foreign Exchange Contracts – The Company enters into foreign exchange contracts to accommodate the business needs of its customers. The Company also enters into offsetting contracts with institutional counterparties to mitigate the Company’s foreign exchange exposure with its customers, or enters into bilateral collateral and master netting agreements with certain customer counterparties to manage its credit exposure. The Company measures the fair value of foreign exchange contracts based on quoted prices for identical instruments in active markets, a Level 1 measurement.

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

June 30, 2022
Fair Value Measurement Using
(Dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value
Financial assets
AFS investment securities:
U.S. Treasury $ — $ 33,360 $ — $ 33,360
Agency — 412,295 — 412,295
Corporate debt — 569,415 — 569,415
Collateralized mortgage obligations — 789,786 — 789,786
Mortgage-backed securities — 874,214 — 874,214
Total AFS investment securities $ — $ 2,679,070 $ — $ 2,679,070
Derivative assets:
Interest rate swaps (1)
$ — $ 5,606 $ — $ 5,606
Equity warrants — — 1,906 1,906
Total derivative assets $ — $ 5,606 $ 1,906 $ 7,512
Financial liabilities
Derivative liabilities:
Interest rate swaps (1)
$ — $ 7,984 $ — $ 7,984
~~________________________________________________________________~~


	March 31, 2023
	Fair Value Measurement Using						Total Fair Value
(Dollars in thousands)	Level 1		Level 2		Level 3
Financial assets
AFS investment securities:
U.S. Treasury	$	—	$	13,355	$	—	$	13,355
Agency	—		417,731		—		417,731
Corporate	—		508,189		—		508,189

Collateralized mortgage obligations	—		372,632		—		372,632
Mortgage-backed securities	—		800,945		—		800,945
Total AFS investment securities	$	—	$	2,112,852	$	—	$	2,112,852


Equity securities	$	962	$	—	$	—	$	962

Derivative assets:
Foreign exchange contracts	$	37	$	—	$	—	$	37
Interest rate swaps (1)	—		5,630		—		5,630
Equity warrants	—		—		412		412
Total derivative assets	$	37	$	5,630	$	412	$	6,079



Financial liabilities
Derivative liabilities:
Foreign exchange	$	8	$	—	$	—	$	8
Interest rate swaps	—		10,569		—		10,569
Total derivative liabilities	$	8	$	10,569	$	—	$	10,577

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

December 31, 2021
Fair Value Measurement Using
(Dollars in thousands) Level 1 Level 2 Level 3 Total
Fair Value
Financial assets
AFS investment securities:
U.S. Treasury $ — $ 57,866 $ — $ 57,866
Agency — 432,135 — 432,135
Corporate debt — 453,861 — 453,861
Municipal bonds — 1,089,913 — 1,089,913
Collateralized mortgage obligations — 676,643 — 676,643
Mortgage-backed securities — 1,563,446 — 1,563,446
Total AFS investment securities $ — $ 4,273,864 $ — $ 4,273,864
Derivative assets:
Interest rate swaps $ — $ 10,100 $ — $ 10,100
Equity warrants — — 1,889 1,889
Total derivative assets $ — $ 10,100 $ 1,889 $ 11,989
Financial liabilities
Derivative liabilities:
Interest rate swaps $ — $ 5,263 $ — $ 5,263

5243


	December 31, 2022
	Fair Value Measurement Using						Total Fair Value
(Dollars in thousands)	Level 1		Level 2		Level 3
Financial assets
AFS investment securities:
U.S. Treasury	$	—	$	47,017	$	—	$	47,017
Agency	—		431,438		—		431,438
Corporate	—		542,548		—		542,548

Collateralized mortgage obligations	—		764,229		—		764,229
Mortgage-backed securities	—		815,781		—		815,781
Total AFS investment securities	$	—	$	2,601,013	$	—	$	2,601,013

Equity securities (1)	$	925	$	—	$	—	$	13,526

Derivative assets:
Foreign exchange contracts	$	1	$	—	$	—	$	1
Interest rate swaps (2)	—		7,053		—		7,053
Equity warrants	—		—		1,894		1,894
Total derivative assets	$	1	$	7,053	$	1,894	$	8,948

Financial liabilities
Derivative liabilities:
Foreign exchange	$	1	$	—	$	—	$	1
Interest rate swaps	—		12,530		—		12,530
Total derivative liabilities	$	1	$	12,530	$	—	$	12,531

(1) Includes equity securities that are measured at net asset value per share (or its equivalent) as a practical expedient of $12.6 million at December 31, 2022 and are excluded from the fair value hierarchy.

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

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


		Three Months Ended						Six Months Ended					Three Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,			March 31,		March 31,
(Dollars in thousands)	(Dollars in thousands)	2022		2022		2021		2022		2021		(Dollars in thousands)	2023		2022
Beginning balance	Beginning balance	$	1,908	$	1,889	$	1,911	$	1,889	$	1,914	Beginning balance	$	1,894	$	1,889
Change in fair value (1)	Change in fair value (1)	(2)		19		(8)		17		(11)		Change in fair value (1)	(20)		19

Net exercise												Net exercise	(1,462)		—
Ending balance	Ending balance	$	1,906	$	1,908	$	1,903	$	1,906	$	1,903	Ending balance	$	412	$	1,908

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

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

~~June 30,~~March 31, 2023

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

412

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

35.00%

3.94%

5.50%

35.00%

3.94%

5.50%

35.00%

3.94%

5.50%

December 31, 2022

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Equity warrants

~~1,906~~1,894

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

30.00%

~~2.66%~~

~~5.50%~~

~~35.00%~~

~~2.99%~~

~~16.00%~~

~~31.16%~~

~~2.73%~~

~~13.57%~~

~~December 31, 2021~~

~~Range~~

~~(Dollars in thousands)~~

~~Fair Value~~

~~Valuation Technique(s)~~

~~Unobservable Input(s)~~

~~Min~~

~~Max~~

~~Weighted Average~~

~~Equity warrants~~

~~1,889~~

Black-Scholes
option pricing
model

Volatility
Risk free interest rate
Marketability discount

~~30.00%~~

~~0.39%~~4.32%

6.00%

35.00%

~~0.97%~~4.41%

16.00%

31.14%

~~0.52%~~4.39%

~~13.61%~~13.60%

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 costs.

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

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

At ~~June 30, 2022,~~March 31, 2023, 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 recorded the related reserves where applicable during the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

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


											March 31, 2023
		June 30, 2022									Fair Value Measurement Using						Total Fair Value
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value		(Dollars in thousands)	Level 1		Level 2		Level 3
Financial assets	Financial assets									Financial assets
Collateral dependent loans	Collateral dependent loans	$	—	$	—	$	12,409	$	12,409	Collateral dependent loans	$	—	$	—	$	985	$	985

Other real estate owned										Other real estate owned	—		—		5,499		5,499
Total assets										Total assets	$	—	$	—	$	6,484	$	6,484


											December 31, 2022
		December 31, 2021									Fair Value Measurement Using						Total Fair Value
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total Fair Value		(Dollars in thousands)	Level 1		Level 2		Level 3
Financial assets	Financial assets									Financial assets
Collateral dependent loans	Collateral dependent loans	$	—	$	—	$	937	$	937	Collateral dependent loans	$	—	$	—	$	3,180	$	3,180

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

June 30, 2022

March 31, 2023

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

Investor loans secured by real estate

CRE non-owner-occupied

7,907

Fair value of collateral

Collateral discount and cost to sell

7.00%

Multifamily

985

Fair value of collateral

Cost to sell

7.00%

Commercial loans

Commercial and industrial

4,502

Fair value of collateral

Collateral discount and cost to sell

6.00%

Total individually evaluated loans

12,409

Total individually evaluated loans

985

Other real estate owned

5,499

Fair value of property

Cost to sell

6.00%

Total assets

6,484

December 31, 2021

December 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

SBA secured by real estate (1)

937

Fair value of collateral

Collateral discount and cost to sell

10.00%

Commercial loans

Commercial and industrial

3,180

Fair value of collateral

Collateral discount and cost to sell

6.00%

Total individually evaluated loans

937

Total individually evaluated loans

3,180

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

5446

Fair Values of Financial Instruments

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


		At June 30, 2022											At March 31, 2023
(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	$	972,798	$	972,798	$	—	$	—	$	972,798	Cash and cash equivalents	$	1,424,896	$	1,424,896	$	—	$	—	$	1,424,896
Interest-bearing time deposits with financial institutions	Interest-bearing time deposits with financial institutions	2,216		2,216		—		—		2,216		Interest-bearing time deposits with financial institutions	1,734		1,734		—		—		1,734
Investment securities held-to-maturity		1,390,682		—		1,156,501		—		1,156,501
Investment securities available-for-sale		2,679,070		—		2,679,070		—		2,679,070
HTM investment securities												HTM investment securities	1,749,030		—		1,496,494		—		1,496,494
AFS investment securities												AFS investment securities	2,112,852		—		2,112,852		—		2,112,852
Equity securities												Equity securities	962		962		—		—		962
Loans held for sale	Loans held for sale	2,957		—		3,100		—		3,100		Loans held for sale	1,247		—		1,296		—		1,296
Loans held for investment, net	Loans held for investment, net	15,047,608		—		—		14,578,222		14,578,222		Loans held for investment, net	14,171,784		—		—		13,412,607		13,412,607
Derivative assets (1)	Derivative assets (1)	7,512		—		5,606		1,906		7,512		Derivative assets (1)	6,079		37		5,630		412		6,079

Accrued interest receivable	Accrued interest receivable	66,898		—		66,898		—		66,898		Accrued interest receivable	69,660		—		69,660		—		69,660

Liabilities	Liabilities											Liabilities
Deposit accounts	Deposit accounts	$	18,084,613	$	—	$	18,103,521	$	—	$	18,103,521	Deposit accounts	$	17,207,810	$	—	$	17,204,363	$	—	$	17,204,363
FHLB advances	FHLB advances	600,000		—		599,403		—		599,403		FHLB advances	800,000		—		788,132		—		788,132

Subordinated debentures	Subordinated debentures	330,886		—		331,934		—		331,934		Subordinated debentures	331,364		—		325,170		—		325,170
Derivative liabilities (1)		7,984		—		7,984		—		7,984
Derivative liabilities												Derivative liabilities	10,577		8		10,569		—		10,577
Accrued interest payable	Accrued interest payable	2,866		—		2,866		—		2,866		Accrued interest payable	23,261		—		23,261		—		23,261

At December 31, 2021
(Dollars in thousands) Carrying
Amount Level 1 Level 2 Level 3 Estimated
Fair Value
Assets
Cash and cash equivalents $ 304,703 $ 304,703 $ — $ — $ 304,703
Interest-bearing time deposits with financial institutions 2,216 2,216 — — 2,216
Investment securities held-to-maturity 381,674 — 384,423 — 384,423
Investment securities available-for-sale 4,273,864 — 4,273,864 — 4,273,864
Loans held for sale 10,869 — 11,959 — 11,959
Loans held for investment, net 14,295,897 — — 14,392,684 14,392,684
Derivative assets 11,989 — 10,100 1,889 11,989
Accrued interest receivable 65,728 65,728 — — 65,728
Liabilities
Deposit accounts $ 17,115,589 $ 16,057,316 $ 1,058,822 $ — $ 17,116,138
FHLB advances 550,000 — 550,093 — 550,093
Other borrowings 8,000 �� 8,000 — 8,000
Subordinated debentures 330,567 — 350,359 — 350,359
Derivative liabilities 5,263 — 5,263 — 5,263
Accrued interest payable 2,366 2,366 — — 2,366


	At December 31, 2022
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Assets
Cash and cash equivalents	$	1,101,249	$	1,101,249	$	—	$	—	$	1,101,249
Interest-bearing time deposits with financial institutions	1,734		1,734		—		—		1,734
HTM investment securities	1,388,103		—		1,097,096		—		1,097,096
AFS investment securities	2,601,013		—		2,601,013		—		2,601,013
Equity securities (1)	13,526		925		—		—		13,526
Loans held for sale	2,643		—		2,755		—		2,755
Loans held for investment, net	14,676,298		—		—		13,846,403		13,846,403
Derivative assets (2)	8,948		1		7,053		1,894		8,948
Accrued interest receivable	73,784		—		73,784		—		73,784

Liabilities
Deposit accounts	$	17,352,401	$	—	$	17,334,219	$	—	$	17,334,219
FHLB advances	1,000,000		—		982,695		—		982,695

Subordinated debentures	331,204		—		327,609		—		327,609
Derivative liabilities	12,531		1		12,530		—		12,531
Accrued interest payable	14,661		—		14,661		—		14,661

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

5548

Note 11 – Derivative Instruments

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

Derivatives Designated as Hedging Instruments

Fair Value Hedges – The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. ~~During the second half of 2021, the~~The Company entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans, primarily commercial real estate loans, to manage its exposure to changes in fair value on these instruments attributable to changes in the designated ~~USD-SOFR-COMPOUND~~SOFR benchmark interest rate. These interest rate swaps are designated as fair value hedges using the ~~last-of-layer~~portfolio layer method. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s consolidated statements of income. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, interest rate swaps with an aggregate notional amount of $1.20 billion were designated as fair value hedges.

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


Line Item in the Statement of Financial Position in Which the Hedged Item is Included	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)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Loans held for investment (1)	Loans held for investment (1)	$	1,148,913	$	1,194,702	$	(51,087)	$	(5,298)	Loans held for investment (1)	$	1,149,995	$	1,138,074	$	(50,005)	$	(61,926)
Total	Total	$	1,148,913	$	1,194,702	$	(51,087)	$	(5,298)	Total	$	1,149,995	$	1,138,074	$	(50,005)	$	(61,926)

(1) These amounts ~~include~~were included in the amortized cost basis of closed portfolios of loans held for investment used to designate hedging relationships in which the hedged item is the ~~last layer expected~~stated amount of assets in the closed portfolios anticipated to be ~~remaining at~~outstanding for the ~~end of the hedging relationship.~~designated hedge period. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the amortized cost basis of the closed portfolios used in these hedging relationships was ~~$3.35~~$3.27 billion and ~~$3.61~~$3.35 billion, respectively, the cumulative basis adjustments associated with these hedging relationships was ~~$(51.1)~~$(50.0) million and ~~$(5.3)~~$(61.9) million, respectively; and the amounts of the designated hedged items were $1.20 billion and $1.20 billion, respectively.

Derivatives Not Designated as Hedging Instruments

Interest Rate Swap Contracts – From time to time, the Company enters into interest rate swap agreements with certain borrowers to assist them in mitigating their interest rate risk exposure associated with the loans they have with the Company. At the same time, the Company enters into identical offsetting interest rate swap agreements with another financial institution to mitigate the Company’s interest rate risk exposure associated with the swap agreements it enters into with its borrowers. The Company had over-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms. The fair values of these agreements are determined through a third-party valuation model used by the Company’s swap advisory firm, which uses observable market data such as interest rates, prices of Eurodollar futures contracts, and market swap rates. The fair values of these swaps are recorded as components of other assets and other liabilities in the Company’s consolidated balance sheet. Changes in the fair value of these swaps, which occur due to changes in interest rates, are recorded in the Company’s income statement as a component of noninterest income.

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~~the 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. All interest rate swap agreements entered into by the Company are free-standing derivatives and are not designated as hedging instruments.

Foreign Exchange Contracts – The Company offers foreign exchange spot and forward contracts as accommodations to its customers to purchase and/or sell foreign currencies at a contractual price. In conjunction with these products the Company also enters into offsetting contracts with institutional counterparties to mitigate the Company’s foreign exchange exposure with its customers, or enters into bilateral collateral and master netting agreements with certain customer counterparties to manage its credit exposure. These contracts allow the Company to offer its customers foreign exchange products while minimizing its exposure to foreign exchange rate fluctuations. These foreign exchange contracts are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities in the Company’s consolidated statements of financial condition. Changes in the fair value of these contracts are recorded in the Company’s consolidated statements of income as a component of noninterest income.

Equity Warrant Assets – The Company acquired equity warrant assets as a result of the acquisition of Opus. Opus received equity warrant assets through its lending activities, which were accounted for as loan origination fees. The warrants provide the Bank the right to purchase a specific number of equity shares of the ~~respective~~ underlying ~~private company~~company’s equity at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815. The Company no longer has loans associated with these borrowers. Changes in the fair value of the warrants are recognized as a component of noninterest income with a corresponding offset within other assets. The total fair value of the warrants was $412,000 and $1.9 million in other assets as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022, respectively. The ~~two~~ remaining ~~warrants expire~~warrant expires on ~~March 12, 2023 and~~ July 28, ~~2025, respectively.~~2025.

The following tables summarize the Company's derivative instruments included in ~~other assets~~“other assets” and ~~other liabilities~~“other liabilities” in the consolidated statements of financial ~~condition:~~condition as of the dates indicated:


		June 30, 2022									March 31, 2023
		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	$	1,200,000	$	51,273	$	—	$	—	Fair value hedge - interest rate swap contracts	$	900,000	$	52,195	$	300,000	$	24
Total derivative designated as hedging instruments	Total derivative designated as hedging instruments	1,200,000		51,273		—		—		Total derivative designated as hedging instruments	900,000		52,195		300,000		24
Derivative instruments not designated as hedging instruments:	Derivative instruments not designated as hedging instruments:									Derivative instruments not designated as hedging instruments:
Foreign exchange contracts										Foreign exchange contracts	1,913		37		2,197		8
Interest rate swaps contracts	Interest rate swaps contracts	119,149		7,982		119,149		7,984		Interest rate swaps contracts	110,599		10,067		110,599		10,068
Equity warrants	Equity warrants	—		1,906		—		—		Equity warrants	—		412		—		—
Total derivative not designated as hedging instruments	Total derivative not designated as hedging instruments	119,149		9,888		119,149		7,984		Total derivative not designated as hedging instruments	112,512		10,516		112,796		10,076
Total derivatives	Total derivatives	$	1,319,149	61,161		$	119,149	7,984		Total derivatives	$	1,012,512	62,711		$	412,796	10,100

Netting Adjustments - Cleared Positions (1)				53,649				—
Netting adjustments - cleared positions (1)										Netting adjustments - cleared positions (1)			56,632				477
Total derivatives in the Balance Sheet	Total derivatives in the Balance Sheet			$	7,512			$	7,984	Total derivatives in the Balance Sheet			$	6,079			$	10,577

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


	December 31, 2022
	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	$	900,000	$	63,710	$	300,000	$	72
Total derivative designated as hedging instruments	900,000		63,710		300,000		72
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	22		1		143		1
Interest rate swaps contracts	112,124		12,524		112,124		12,525
Equity warrants	—		1,894		—		—
Total derivative not designated as hedging instruments	112,146		14,419		112,267		12,526
Total derivatives	$	1,012,146	$	78,129	$	412,267	$	12,598

Netting adjustments - cleared positions (1)			69,181				67
Total derivatives in the Balance Sheet			$	8,948			$	12,531

5751

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

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


			Three Months Ended						Six Months Ended						Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	Location of Gain (Loss) Recognized in Income on Derivative Instruments	June 30, 2022		March 31, 2022		June 30, 2021		June 30, 2022		June 30, 2021		(Dollars in thousands)	Location of Gain (Loss) Recognized in Income on Derivative Instruments	March 31, 2023		March 31, 2022

Gain (loss) on fair value hedging relationships:	Gain (loss) on fair value hedging relationships:												Gain (loss) on fair value hedging relationships:
Hedged items	Hedged items	Interest Income	$	(11,866)	$	(33,924)	$	—	$	(45,790)	$	—	Hedged items	Interest Income	$	11,921	$	(33,924)
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	Interest Income	12,082		32,257		—		44,339		—		Derivatives designated as hedging instruments	Interest Income	(3,586)		32,257

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						Six Months Ended				(Dollars in thousands)		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	June 30, 2022		March 31, 2022		June 30, 2021		June 30, 2022		June 30, 2021		Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivative Instruments	March 31, 2023		March 31, 2022
Foreign exchange contracts													Foreign exchange contracts	Other income	$	220	$	46
Interest rate products	Interest rate products	Other income	$	2	$	1	$	1	$	3	$	8	Interest rate products	Other income	—		1
Equity warrants	Equity warrants	Other income	(2)		19		(8)		17		(11)		Equity warrants	Other income	(251)		19
Total	Total		$	—	$	20	$	(7)	$	20	$	(3)	Total		$	(31)	$	66

5852

Note 12 – 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. With regard to derivative contracts not centrally cleared through a clearinghouse, regulations require collateral to be posted by the party with a net liability position. Parties to a centrally cleared over-the-counter derivative exchange daily payments that reflect the daily change in the value of the derivative. These payments are commonly referred to as variation margin and are treated as settlements of derivative exposure rather than as collateral. The Company elected to account for centrally-cleared derivative contracts on a gross basis, even when the right for setoff are in place. However, for derivative contracts cleared through certain central clearing parties, the fair value of the respective derivative contracts is reported net of the variation margin payments.

Financial instruments that are eligible for offset in the consolidated statements of financial condition as of the periods indicated are presented below:


								Gross Amounts Not Offset in the Consolidated Statements of Financial Condition													Gross Amounts Not Offset in the Consolidated Statements of Financial Condition
(Dollars in thousands)	(Dollars in thousands)	Gross Amounts Recognized (1)		Gross Amounts Offset in the Consolidated Statements of Financial Condition		Net Amounts Presented in the Consolidated Statements of Financial Condition		Financial Instruments		Cash Collateral (2)		Net Amount		(Dollars in thousands)	Gross Amounts Recognized (1)		Gross Amounts Offset in the Consolidated Statements of Financial Condition		Net Amounts Presented in the Consolidated Statements of Financial Condition		Financial Instruments (2)		Cash Collateral (3)		Net Amount
June 30, 2022
March 31, 2023														March 31, 2023
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	5,606	$	—	$	5,606	$	(106)	$	(4,365)	$	1,135	Interest rate swaps	$	5,630	$	—	$	5,630	$	—	$	(4,720)	$	910
Total	Total	$	5,606	$	—	$	5,606	$	(106)	$	(4,365)	$	1,135	Total	$	5,630	$	—	$	5,630	$	—	$	(4,720)	$	910

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	7,984	$	—	$	7,984	$	(106)	$	—	$	7,878	Interest rate swaps	$	10,569	$	—	$	10,569	$	—	$	—	$	10,569
Total	Total	$	7,984	$	—	$	7,984	$	(106)	$	—	$	7,878	Total	$	10,569	$	—	$	10,569	$	—	$	—	$	10,569


December 31, 2021
December 31, 2022														December 31, 2022
Derivative assets:	Derivative assets:													Derivative assets:
Interest rate swaps	Interest rate swaps	$	10,100	$	—	$	10,100	$	—	$	—	$	10,100	Interest rate swaps	$	7,053	$	—	$	7,053	$	—	$	(5,440)	$	1,613
Total	Total	$	10,100	$	—	$	10,100	$	—	$	—	$	10,100	Total	$	7,053	$	—	$	7,053	$	—	$	(5,440)	$	1,613

Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	5,263	$	—	$	5,263	$	(4,377)	$	(886)	$	—	Interest rate swaps	$	12,530	$	—	$	12,530	$	—	$	—	$	12,530
Total	Total	$	5,263	$	—	$	5,263	$	(4,377)	$	(886)	$	—	Total	$	12,530	$	—	$	12,530	$	—	$	—	$	12,530

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

(1) Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable.

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

(3) Represents cash collateral received from or pledged with counterparty bank. Amounts are limited to the derivative asset or liability balance and, accordingly, do not include excess collateral, if any, received or pledged.

5953

Note 13 ~~– Leases~~

The Company accounts for its leases in accordance with ASC 842, which requires the Company to record liabilities for future lease obligations, as well as assets representing the right to use the underlying leased asset. The Company’s leases primarily represent future obligations to make payments for the use of buildings or space for its operations. Liabilities to make future lease payments are recorded in accrued expenses and other liabilities, while right-of-use assets are recorded in other assets in the Company’s consolidated statements of financial condition. At June 30, 2022, all of the Company’s leases were classified as operating leases or short-term leases. Short-term leases are leases that have a term of 12 months or less at commencement.

Liabilities to make future lease payments and right-of-use assets are determined based on the total contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Company 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 the Company’s estimated incremental borrowing rate if the rate implicit in the lease is not readily determinable. Liabilities to make future lease payments on operating leases are reduced by periodic contractual lease payments net of periodic interest accretion. Right-of-use assets for operating leases are amortized over the term of the 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. The Company recognizes expense for both operating leases and short-term leases on a straight-line basis.

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

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021
Operating lease $ 4,614 $ 4,738 $ 4,887 $ 9,352 $ 9,899
Short-term lease 388 490 323 878 830
Total lease expense $ 5,002 $ 5,228 $ 5,210 $ 10,230 $ 10,729

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

(Dollars in thousands) June 30, 2022 December 31, 2021
Balance Sheet:
Operating lease right-of-use assets $ 56,504 $ 64,009
Operating lease liabilities 64,722 72,541
Six Months Ended
(Dollars in thousands) June 30, 2022 June 30, 2021
Cash Flows:
Operating cash outflow from operating leases $ 10,015 $ 10,208

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

(Dollars in thousands) 2022 2023 2024 2025 2026 Thereafter Total
June 30, 2022
Operating leases $ 9,821 $ 19,100 $ 17,060 $ 11,328 $ 5,659 $ 9,424 $ 72,392
Short-term leases 156 15 — — — — 171
Total contractual base rents (1)
$ 9,977 $ 19,115 $ 17,060 $ 11,328 $ 5,659 $ 9,424 $ 72,563
Total liability to make lease payments $ 64,722
Difference in undiscounted and discounted future lease payments 7,670
Weighted average discount rate 5.09 %
Weighted average remaining lease term (years) 4.4

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

The Company from time to time leases portions of space it owns to other parties. Income received from these transactions is recorded on a straight-line basis over the term of the sublease. For the three months ended June 30, 2022, March 31, 2022, and June 30, 2021, rental income totaled $86,000, $125,000, and $177,000, respectively. For the six months ended June 30, 2022 and June 30, 2021, rental income totaled $211,000 and $352,000, respectively.

~~Note 14~~ – Variable Interest Entities

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

As of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company determined it was not the primary beneficiary of the VIEs and did not consolidate its interests in VIEs. The following table provides a summary of the carrying amount of assets and liabilities in the Company’s consolidated statements of financial condition and maximum exposure to loss as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 that relate to variable interests in non-consolidated VIEs.


		June 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
(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)	$	66,496	$	66,496	$	—	$	81,103	$	81,103	$	—	Investment securities (1)	$	53,716	$	53,716	$	—	$	56,784	$	56,784	$	—
Reimbursement obligation (2)	Reimbursement obligation (2)	50,901		—		338		50,901		—		338		Reimbursement obligation (2)	50,901		—		334		50,901		—		334
Affordable housing partnership:	Affordable housing partnership:													Affordable housing partnership:
Other investments (3)	Other investments (3)	62,702		79,468		—		68,765		85,994		—		Other investments (3)	54,350		69,564		—		60,531		75,959		—
Unfunded equity commitments (2)	Unfunded equity commitments (2)	—		—		16,766		—		—		17,229		Unfunded equity commitments (2)	—		—		15,214		—		—		15,428

Total	Total	$	180,099	$	145,964	$	17,104	$	200,769	$	167,097	$	17,567	Total	$	158,967	$	123,280	$	15,548	$	168,216	$	132,743	$	15,762

(1) Included in investment securities AFS on the consolidated statement of financial condition.

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

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

6154

Multifamily ~~loan securitization~~Loan Securitization

With respect to the securitization transaction with Freddie Mac discussed in Note 5 – Loans Held for Investment, the Company’s variable interests reside with the underlying Freddie Mac-issued guaranteed, structured pass-through certificates that were held as AFS investment securities ~~AFS~~ at fair value as of ~~June 30, 2022.~~March 31, 2023. Additionally, the Company has variable interests through a reimbursement agreement executed by Freddie Mac that obligates the Company to reimburse Freddie Mac for any defaulted contractual principal and interest payments identified after the ultimate resolution of the defaulted loans. Such reimbursement obligations are not to exceed 10% of the original principal amount of the loans comprising the securitization pool.

As part of the securitization transaction, the Company released all servicing obligations and rights to Freddie Mac who was designated as the Master Servicer. In its capacity as Master Servicer, Freddie Mac can terminate the Company’s role as sub-servicer and direct such responsibilities accordingly. In evaluating our variable interests and continuing involvement in the VIE, we determined that we do not have the power to make significant decisions or direct the activities that most significantly impact the economic performance of the VIE’s assets and liabilities. As sub-servicer of the loans, the Company does not have the authority to make significant decisions that influence the value of the VIE’s net assets and, therefore, the Company is not the primary beneficiary of the VIE. As a result, we determined that the VIE associated with the multifamily securitization should not be included in the consolidated financial statements of the Company.

We believe that our maximum exposure to loss as a result of our involvement with the VIE associated with the securitization is the carrying value of the investment securities issued by Freddie Mac and purchased by the Company. Additionally, our maximum exposure to loss under the reimbursement agreement executed with Freddie Mac is 10% of the original principal amount of the loans comprising the securitization pool, or $50.9 million. Based upon our analysis of quantitative and qualitative data over the underlying loans included in the securitization pool, as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, our reserve for estimated losses with respect to the reimbursement obligation was ~~$338,000.~~$334,000.

Investments in ~~qualified affordable housing partnerships~~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 the ability to exercise significant influence over or participate in the decision-making ~~capabilities~~activities related to ~~manage~~the management of the projects, and therefore, is not the primary beneficiary, and does not consolidate these interests.

The Company’s maximum exposure to loss, exclusive of any potential realization of tax credits, is equal to the commitments invested, adjusted for amortization. The amount of unfunded commitments was included in the investments recognized as assets with a corresponding liability. The table above summarizes the amount of tax credit investments held as assets, the amount of unfunded commitments held as liabilities, and the maximum exposure to loss as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Note 1514 – Subsequent Events

Quarterly ~~cash dividend~~Cash Dividend

On ~~July 19, 2022,~~April 24, 2023, the Corporation’s Board of Directors declared a cash dividend of $0.33 per share, payable on ~~August 12, 2022~~May 15, 2023 to stockholders of record as of ~~August 1, 2022.~~May 8, 2023.

~~Restructuring~~

During July 2022, the Company completed a staff restructuring by eliminating 53 positions, or approximately 3% of the workforce. As a result, the Company will incur one-time severance and other employee-related costs totaling $1.1 million in the third quarter of 2022. The workforce reduction will not have a material impact to the Company's financial position or results of operations.

6355

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains information and statements that are considered “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange ~~Act.~~Act of 1934, as amended. 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.

Deterioration in general business and economic conditions, including the tight labor market, supply chain disruptions, inflationary pressures, the ongoing and dynamic nature of the COVID-19 pandemic and related regulatory policies and practices, and turbulence in domestic or global financial markets could adversely affect our revenues, the values of our assets and liabilities, and our profitability, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill or other intangible assets in future periods. In addition to the foregoing, theThe 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 (“U.S.”) economy in general and the strength of the local economies in which we conduct operations;

•Recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;

•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~~Interest rate, liquidity, economic, market, credit, operational and ~~monetary fluctuations;~~inflation risks associated with our business, including the speed and predictability of changes in these risks;

•~~The effect~~Our ability to attract and retain deposits and to access other sources of ~~changes~~liquidity;

•Business and economic conditions generally and in ~~accounting policies~~the financial services industry, nationally and ~~practices~~within our current and future geographic markets, including the tight labor market, ineffective management of the U.S. Federal budget 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,~~debt or ~~other accounting standards setters, including ASU 2016-13 (Topic 326),~~ ~~“Measurement of Credit Losses on Financial Instruments,”~~ ~~commonly referenced as the CECL model, which has changed how we estimate credit losses and has increased the required level of our allowance for credit losses since adoption on January 1, 2020;~~turbulence or uncertainty in domestic or foreign financial markets;

•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;

•Possible impairment charges to goodwill, including any impairment that may result from increased volatility in our stock price;

•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;

•Compliance risks, including the costs of monitoring, testing, and maintaining compliance with complex laws and regulations;

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

•The transition away from USD LIBOR and related uncertainty as well as, the risks and costs related to our adoption of SOFR;

•The ~~effectiveness~~effect of changes in accounting policies and practices or accounting standards, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight

Board, the FASB, or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected Credit Loss (“CECL”) model, which has changed how we estimate credit losses and may further increase the required level of our ~~risk management framework and quantitative models;~~allowance for credit losses in future periods;

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

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

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

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

•The impact of ~~any change~~recent or future changes in ~~the FDIC~~Federal Deposit Insurance Corporation (the “FDIC”) insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount;

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

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

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

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

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

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

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

•Geopolitical conditions, including acts or threats of terrorism, actions taken by the ~~United States~~U.S. 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~~U.S. and abroad;

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

•Cybersecurity threats and the cost of defending against them;

•Climate change, including the enhanced regulatory, compliance, credit, and reputational risks and costs;

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

•Unanticipated regulatory, legal, or judicial proceedings; and

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

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking information and statements to reflect actual results or changes in the factors affecting the forward-looking information and statements. For information on the factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our ~~2021~~2022 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 ~~2021~~2022 Form 10-K, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The results for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 are not necessarily indicative of the results expected for the year ending December 31, ~~2022.~~2023.

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, and the 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 is located in Irvine, California. At ~~June 30, 2022,~~March 31, 2023, we primarily conduct business throughout the Western Region of the United States from our 6159 full-service depository branches located in Arizona, California, Nevada, ~~Oregon,~~ and Washington.

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As a result of our organic and strategic growth strategy we have developed a variety of banking products and services within our targeted markets in 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 enhanced nationwide specialty banking products and services for ~~HOA~~Homeowners’ Associations (“HOA”) and HOA management companies, as well as experienced owner-operator franchisees in the QSR industry. We have expanded our specialty products and services offerings to include commercial escrow and exchange 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~~RECENT DEVELOPMENTS

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

While economic conditions have generally improved since the onset of the COVID-19 pandemic ~~new variants may continue~~in early 2020, such as with favorable trends in employment metrics and increased economic activity, the strong demand for goods and services in recent years in conjunction with supply chain constraints have contributed to ~~impact macroeconomic environment. Inflationary pressures resulting,~~higher levels of inflation throughout the U.S. economy, including within the Company’s market area. Inflation has resulted in ~~part, from~~higher prices for food, energy, housing, and various supply chain ~~constraints~~inputs, among others. These inflationary pressures persisted throughout 2022 and into 2023, resulting in ~~many aspects~~higher costs for consumers and businesses. To address the persistent levels of inflation, the ~~U.S. economy,~~Federal Open Market Committee (“FOMC”) has ~~placed strain on various businesses, service providers and consumers. Should~~taken steps to tighten monetary policy through a cumulative 475 basis point increase to the ~~COVID-19 pandemic~~federal funds rate since March 2022, as well as by beginning to reduce the size of the Federal Reserve’s balance sheet. The FOMC has stated that it remains committed to monetary policy measures that are designed to bring inflation down. The full extent of these measures, including future actions taken by the FOMC, on the Company’s business are uncertain. While increases in interest rates have generally resulted in higher levels of interest income for the Company, they may also reduce economic activity overall or result in recessionary conditions in future periods. During March 2023, two large U.S. banks, Silicon Valley Bank and Signature Bank, were placed in receivership by regulators, creating significant industry-wide market turmoil as well as concerns about the health of the overall banking system. Should these ongoing economic pressures persist, we anticipate it could have an impact on the following:

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

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•Credit quality - Should there be a decline in economic activity, the markets we serve could experience increases in unemployment, declines in consumer confidence, and a reluctance on the part of businesses to invest in and expand their operations, among other things. Such factors may result in ~~additional weakness in~~weakened economic conditions, place strain on our borrowers, and ultimately impact the credit quality of our loan portfolio. We expect this could result in increases in the level of past due, nonaccrual, and classified loans, as well as higher net charge-offs. While economic conditions have ~~improved since the onset~~generally been favorable thus far, notwithstanding higher levels of ~~the COVID-19 pandemic,~~inflation, there can be no assurance ~~the recovery~~favorable economic conditions will continue. In addition, a higher interest rate environment may impact the ability of our borrowers with adjustable rate loans to meet their debt service requirements. As such, should we experience future deterioration in the credit quality of our loan portfolio, it may contribute to the need for additional provisions for credit losses.

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

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

~~The U.S. government~~•Accumulated other comprehensive income (loss) - Unrealized gains and losses on AFS investment securities are recognized in stockholders’ equity as ~~well as~~accumulated other ~~state and local policy makers have responded~~comprehensive income (loss). If economic conditions deteriorate, and/or if the interest rates continue to increase, the valuation of the Company’s AFS investment securities could be negatively impacted, which may lead to increases in other comprehensive loss, the potential for credit losses, decreases to the ~~ongoing COVID-19 pandemic with actions geared to support not only~~Company’s stockholders’ equity, and declines in the ~~health~~Company’s tangible book value per share. “Non-GAAP measures” presented under Item 2 - Management’s Discussion and ~~well-being~~Analysis. Rising interest rates would also decrease the value of the ~~public,~~Company’s HTM investment securities and increase the unrealized losses embedded in these securities.

•Deposits and deposit costs - Given the expectation for further rate increases by the FOMC in the near future, it is likely that deposit costs will continue to increase. In connection with high-profile bank failures, if the adverse developments and significant market volatility continue in the Banking sector, it may become more challenging for the Company to retain and attract deposit relationships.

•Liquidity - Consistent with our prudent, proactive approach to liquidity management, we may take certain actions to further enhance our liquidity, including but ~~also consumers, businesses,~~not limited to, increasing our FHLB borrowings, increasing our brokered deposits, or obtaining borrowing from the Federal Reserve’s discount window or the Bank Term Funding Program. Additional liquidity could be obtained by liquidating loans and AFS investment securities. In the ~~economy as a whole.~~ event that we liquidate AFS securities having an unrealized loss position, those losses would become realized. While the Company does not currently intend to sell HTM securities, if the Company were required to sell such securities to meet liquidity needs, it may recognize the unrealized losses.

The Company continues to focus on serving its customers and communities, ~~and~~ maintaining the well-being of its employees, and executing its strategic initiatives. The Company continues to monitor the economic environment, including recent disruptions in the banking sector, and will make changes as appropriate.

CRITICAL ACCOUNTING POLICIES

Management has established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Certain accounting policies require management to make estimates and assumptions that involve a significant level of estimation uncertainty and are reasonably likely to have a material impact on the carrying value of certain assets and liabilities as well as the Company’s results of ~~operations;~~operations, which 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~~The Company’s critical accounting policies consist of the allowance for credit losses on loans and off-balance sheet commitments. Please see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2022 Form 10-K for additional discussion concerning this critical accounting policy. Also, our significant accounting policies are described in Note 1. Description of Business and Summary of Significant Accounting Policies to the consolidated financial statements in our ~~2021~~2022 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, 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 through a discounted cash flow approach using a loan’s effective interest rate, while a historical loss rate methodology is used to determine the ACL on retail loans. The Company’s discounted cash flow methodology incorporates a PD and LGD model, which is impacted by expectations of future economic conditions. The Company’s ACL methodology also incorporates estimates and assumptions concerning loan prepayments, future draws on revolving credit facilities, and the probability an unfunded commitment will be drawn upon.

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

Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the ACL model, the Company, as of June 30, 2022, has identified certain economic variables that have significant influence in the Company’s model for determining the ACL. These key economic variables include the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and the 10-year U.S. Treasury yield. Please also see ~~“Allowance for Credit Losses” under Item 2 - Management’s Discussion and Analysis~~ ~~for additional discussion on assumptions concerning economic forecasts and economic variables used in the Company’s ACL model as well as the impact of those items on the Company’s ACL.~~

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

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

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

NON-GAAP MEASURES

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

For periods presented below, return on average tangible common equity is a non-GAAP financial measure derived from GAAP-based amounts. We calculate this figure by excluding amortization of intangible assets expense from net income and excluding the average intangible assets and average goodwill from the average stockholders’ equity during the period. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.


		Three Months Ended									Six Months Ended							Three Months Ended
		June 30,			March 31,			June 30,			June 30,			June 30,				March 31,			December 31,			March 31,
(Dollars in thousands)	(Dollars in thousands)	2022			2022			2021			2022			2021			(Dollars in thousands)	2023			2022			2022
Net income	Net income	$	69,803		$	66,904		$	96,302		$	136,707		$	164,970		Net income	$	62,562		$	73,673		$	66,904
Plus: amortization of intangible assets expense	Plus: amortization of intangible assets expense	3,479			3,592			4,001			7,071			8,144			Plus: amortization of intangible assets expense	3,171			3,440			3,592
Less: amortization of intangible assets expense tax adjustment (1)	Less: amortization of intangible assets expense tax adjustment (1)	993			1,025			1,145			2,018			2,330			Less: amortization of intangible assets expense tax adjustment (1)	901			978			1,025
Net income for average tangible common equity	Net income for average tangible common equity	$	72,289		$	69,471		$	99,158		$	141,760		$	170,784		Net income for average tangible common equity	$	64,832		$	76,135		$	69,471

Average stockholders’ equity	Average stockholders’ equity	$	2,764,893		$	2,864,387		$	2,747,308		$	2,814,365		$	2,748,468		Average stockholders’ equity	$	2,822,392		$	2,751,161		$	2,864,387
Less: average intangible assets	Less: average intangible assets	64,583			68,157			79,784			66,360			81,853			Less: average intangible assets	54,310			57,624			68,157
Less: average goodwill	Less: average goodwill	901,312			901,312			900,582			901,312			899,590			Less: average goodwill	901,312			901,312			901,312
Average tangible common equity	Average tangible common equity	$	1,798,998		$	1,894,918		$	1,766,942		$	1,846,693		$	1,767,025		Average tangible common equity	$	1,866,770		$	1,792,225		$	1,894,918

Return on average equity ~~(2)~~	Return on average equity ~~(2)~~	10.10		%	9.34		%	14.02		%	9.71		%	12.00		%	Return on average equity ~~(2)~~	8.87		%	10.71		%	9.34		%
Return on average tangible common equity ~~(2)~~	Return on average tangible common equity ~~(2)~~	16.07		%	14.66		%	22.45		%	15.35		%	19.33		%	Return on average tangible common equity ~~(2)~~	13.89		%	16.99		%	14.66		%

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

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

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

June 30, December 31,
(Dollars in thousands) 2022 2021
Total stockholders’ equity $ 2,755,219 $ 2,886,311
Less: intangible assets 963,812 970,883
Tangible common equity $ 1,791,407 $ 1,915,428
Total assets $ 21,993,919 $ 21,094,429
Less: intangible assets 963,812 970,883
Tangible assets $ 21,030,107 $ 20,123,546
Tangible common equity ratio 8.52 % 9.52 %
Common shares issued and outstanding 94,976,605 94,389,543
Book value per share $ 29.01 $ 30.58
Less: intangible book value per share 10.15 10.29
Tangible book value per share $ 18.86 $ 20.29


	March 31,			December 31,
(Dollars in thousands)	2023			2022
Total stockholders’ equity	$	2,831,161		$	2,798,389
Less: intangible assets	953,729			956,900
Tangible common equity	$	1,877,432		$	1,841,489

Total assets	$	21,361,564		$	21,688,017
Less: intangible assets	953,729			956,900
Tangible assets	$	20,407,835		$	20,731,117

Tangible common equity ratio	9.20		%	8.88		%

Common shares issued and outstanding	95,714,777			95,021,760

Book value per share	$	29.58		$	29.45
Less: intangible book value per share	9.96			10.07
Tangible book value per share	$	19.61		$	19.38

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 amortization of intangible assets and other real estate owned operations, ~~core deposit intangible amortization, and merger-related expense~~where applicable, to the sum of net interest income before provision for loan losses and total noninterest income less ~~gain/(loss)~~gain on ~~sale~~sales of ~~securities, other income - security recoveries on~~ investment ~~securities, gain/(loss) on sale of other real estate owned, and gain/(loss) from debt extinguishment.~~securities. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2023			2022			2022
Total noninterest expense	$	101,352		$	99,182		$	97,648
Less: amortization of intangible assets	3,171			3,440			3,592

Less: other real estate owned operations, net	108			—			—
Noninterest expense, adjusted	$	98,073		$	95,742		$	94,056

Net interest income before provision for credit losses	$	168,610		$	181,396		$	161,839
Add: total noninterest income	21,186			20,497			25,894
Less: net gain from sales of investment securities	138			—			2,134




Revenue, adjusted	$	189,658		$	201,893		$	185,599

Efficiency ratio	51.7		%	47.4		%	50.7		%

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2022 2022 2021 2022 2021
Total noninterest expense $ 98,974 $ 97,648 $ 94,496 $ 196,622 $ 186,985
Less: amortization of intangible assets 3,479 3,592 4,001 7,071 8,144
Less: merger-related expense — — — — 5
Noninterest expense, adjusted $ 95,495 $ 94,056 $ 90,495 $ 189,551 $ 178,836
Net interest income before provision for loan losses $ 172,765 $ 161,839 $ 160,934 $ 334,604 $ 322,586
Add: total noninterest income 22,193 25,894 26,729 48,087 50,469
Less: net (loss) gain from investment securities (31) 2,134 5,085 2,103 9,131
Less: other income - security recoveries — — 6 — 8
Less: net loss from debt extinguishment — — (647) — (1,150)
Revenue, adjusted $ 194,989 $ 185,599 $ 183,219 $ 380,588 $ 365,066
Efficiency ratio 49.0 % 50.7 % 49.4 % 49.8 % 49.0 %

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

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2022 2022 2021 2022 2021
Net interest income $ 172,765 $ 161,839 $ 160,934 $ 334,604 $ 322,586
Less: scheduled accretion income 2,626 2,857 3,560 5,483 7,438
Less: accelerated accretion income 4,918 3,083 5,927 8,001 11,915
Less: premium amortization on CDs 60 96 942 156 2,693
Less: nonrecurring nonaccrual interest paid 48 (356) (216) (308) (819)
Less: gain (loss) on fair value hedging relationships 128 (1,667) — (1,539) —
Core net interest income $ 164,985 $ 157,826 $ 150,721 $ 322,811 $ 301,359
Average interest-earning assets $ 19,876,806 $ 19,240,232 $ 18,783,803 $ 19,553,360 $ 18,637,924
Net interest margin (1)
3.49 % 3.41 % 3.44 % 3.45 % 3.49 %
Core net interest margin (1)
3.33 % 3.33 % 3.22 % 3.33 % 3.26 %

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

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


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2023			2022			2022
Interest income	$	221,343		$	217,781		$	168,546
Interest expense	52,733			36,385			6,707
Net interest income	168,610			181,396			161,839
Noninterest income	21,186			20,497			25,894
Revenue	189,796			201,893			187,733
Noninterest expense	101,352			99,182			97,648

Pre-provision net revenue	$	88,444		$	102,711		$	90,085
Pre-provision net revenue (annualized)	$	353,776		$	410,844		$	360,340

Average assets	$	21,684,873		$	21,728,933		$	20,956,791

Pre-provision net revenue to average assets	0.41		%	0.47		%	0.43		%
Pre-provision net revenue to average assets (annualized)	1.63		%	1.89		%	1.72		%

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2022 2022 2021 2022 2021
Interest income $ 183,226 $ 168,546 $ 170,692 $ 351,772 $ 343,686
Interest expense 10,461 6,707 9,758 17,168 21,100
Net interest income 172,765 161,839 160,934 334,604 322,586
Noninterest income 22,193 25,894 26,729 48,087 50,469
Revenue 194,958 187,733 187,663 382,691 373,055
Noninterest expense 98,974 97,648 94,496 196,622 186,985
Add: merger-related expense — — — — 5
Pre-provision net revenue $ 95,984 $ 90,085 $ 93,167 $ 186,069 $ 186,075
Pre-provision net revenue (annualized) $ 383,936 $ 360,340 $ 372,668 $ 372,138 $ 372,150
Average assets $ 21,670,153 $ 20,956,791 $ 20,290,415 $ 21,315,443 $ 20,143,156
Pre-provision net revenue to average assets 0.44 % 0.43 % 0.46 % 0.87 % 0.92 %
Pre-provision net revenue to average assets (annualized) 1.77 % 1.72 % 1.84 % 1.75 % 1.85 %

Cost of core deposits is a non-GAAP financial measure derived from GAAP-based amounts. Cost of core deposits is calculated as the ratio of core deposit interest expense to average core deposits. We calculate core deposit interest expense by excluding interest expense for certificates of deposit and brokered deposits from total deposit expense, and we calculate average core deposits by excluding certificates of deposit and brokered deposits from total deposits. Management believes cost of core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.


	Three Months Ended
	March 31,			December 31,			March 31,
(Dollars in thousands)	2023			2022			2022
Total deposits interest expense	$	40,234		$	25,865		$	1,673
Less: certificates of deposit interest expense	7,775			3,941			530
Less: brokered deposits interest expense	13,056			9,965			1
Core deposits expense	$	19,403		$	11,959		$	1,142

Total average deposits	$	17,324,442		$	17,608,783		$	17,280,306
Less: average certificates of deposit	1,206,966			975,958			1,047,451
Less: average brokered deposits	1,443,827			1,283,567			5,553
Average core deposits	$	14,673,649		$	15,349,258		$	16,227,302

Cost of core deposits	0.54		%	0.31		%	0.03		%

7363

RESULTS OF OPERATIONS

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


		Three Months Ended									Six Months Ended							Three Months Ended
(Dollar in thousands, except per share data and	(Dollar in thousands, except per share data and	June 30,			March 31,			June 30,			June 30,			June 30,			(Dollar in thousands, except per share data and	March 31,			December 31,			March 31,
percentages)	percentages)	2022			2022			2021			2022			2021			percentages)	2023			2022			2022
Operating data	Operating data																Operating data
Interest income	Interest income	$	183,226		$	168,546		$	170,692		$	351,772		$	343,686		Interest income	$	221,343		$	217,781		$	168,546
Interest expense	Interest expense	10,461			6,707			9,758			17,168			21,100			Interest expense	52,733			36,385			6,707
Net interest income	Net interest income	172,765			161,839			160,934			334,604			322,586			Net interest income	168,610			181,396			161,839
Provision for credit losses	Provision for credit losses	469			448			(38,476)			917			(36,502)			Provision for credit losses	3,016			2,838			448
Net interest income after provision for credit losses	Net interest income after provision for credit losses	172,296			161,391			199,410			333,687			359,088			Net interest income after provision for credit losses	165,594			178,558			161,391
Net gain from sales of loans	Net gain from sales of loans	1,136			1,494			1,546			2,630			1,907			Net gain from sales of loans	29			151			1,494
Other noninterest income	Other noninterest income	21,057			24,400			25,183			45,457			48,562			Other noninterest income	21,157			20,346			24,400
Noninterest expense	Noninterest expense	98,974			97,648			94,496			196,622			186,985			Noninterest expense	101,352			99,182			97,648
Net income before income taxes	Net income before income taxes	95,515			89,637			131,643			185,152			222,572			Net income before income taxes	85,428			99,873			89,637
Income tax expense	Income tax expense	25,712			22,733			35,341			48,445			57,602			Income tax expense	22,866			26,200			22,733
Net income	Net income	$	69,803		$	66,904		$	96,302		$	136,707		$	164,970		Net income	$	62,562		$	73,673		$	66,904
Pre-provision net revenue (3)	Pre-provision net revenue (3)	$	95,984		$	90,085		$	93,167		$	186,069		$	186,075		Pre-provision net revenue (3)	$	88,444		$	102,711		$	90,085
Share data	Share data																Share data
Earnings per share:	Earnings per share:																Earnings per share:
Basic	Basic	$	0.74		$	0.71		$	1.02		$	1.44		$	1.74		Basic	$	0.66		$	0.78		$	0.71
Diluted	Diluted	0.73			0.70			1.01			1.44			1.73			Diluted	0.66			0.77			0.70
Common equity dividends declared per share	Common equity dividends declared per share	0.33			0.33			0.33			0.66			0.63			Common equity dividends declared per share	0.33			0.33			0.33
Dividend payout ratio (1)	Dividend payout ratio (1)	44.89		%	46.60		%	32.43		%	45.72		%	36.10		%	Dividend payout ratio (1)	50.17		%	42.56		%	46.60		%
Book value per share																	Book value per share	$	29.58		$	29.45		$	29.31
Tangible book value per share (2)																	Tangible book value per share (2)	19.61			19.38			19.12
Performance ratios	Performance ratios																Performance ratios
Return on average assets (2)		1.29		%	1.28		%	1.90		%	1.28		%	1.64		%
Return on average equity (2)		10.10		%	9.34		%	14.02		%	9.71		%	12.00		%
Return on average assets (3)																	Return on average assets (3)	1.15		%	1.36		%	1.28		%
Return on average equity (3)																	Return on average equity (3)	8.87			10.71			9.34
Return on average tangible common equity (2)(3)	Return on average tangible common equity (2)(3)	16.07		%	14.66		%	22.45		%	15.35		%	19.33		%	Return on average tangible common equity (2)(3)	13.89			16.99			14.66

Pre-provision net revenue on average assets (2)(3)	Pre-provision net revenue on average assets (2)(3)	1.77		%	1.72		%	1.84		%	1.75		%	1.85		%	Pre-provision net revenue on average assets (2)(3)	1.63			1.89			1.72
Net interest margin																	Net interest margin	3.44			3.61			3.41
Cost of deposits																	Cost of deposits	0.94			0.58			0.04
Average equity to average assets	Average equity to average assets	12.76		%	13.67		%	13.54		%	13.20		%	13.64		%	Average equity to average assets	13.02			12.66			13.67
Efficiency ratio (3)		49.0		%	50.7		%	49.4		%	49.8		%	49.0		%
Efficiency ratio (2)																	Efficiency ratio (2)	51.7			47.4			50.7

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

(2) ~~Ratio is annualized.~~

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

(3) Ratio is annualized.

7464

In the ~~second~~first quarter of ~~2022,~~2023, we reported net income of ~~$69.8~~$62.6 million, or ~~$0.73~~$0.66 per diluted share. This compares with net income of ~~$66.9~~$73.7 million, or ~~$0.70~~$0.77 per diluted share, for the fourth quarter of 2022. The decrease in net income was primarily due to a $12.8 million decrease in net interest income, a $2.2 million increase in noninterest expense and a $178,000 increase in provision for credit losses, partially offset by a $3.3 million decrease in income tax expense and a $689,000 increase in noninterest income.

Net income of $62.6 million, or $0.66 per diluted share, for the first quarter of 2022. The increase in net income was primarily due to a $10.9 million increase in net interest income, partially offset by a $3.7 million decrease in noninterest income, a $3.0 million increase in income tax expense, and a $1.3 million increase in noninterest expense.

~~Net income of $69.8 million, or $0.73 per diluted share, for the second quarter of 2022~~2023 compares to net income for the ~~second~~first quarter of ~~2021~~2022 of ~~$96.3~~$66.9 million, or ~~$1.01~~$0.70 per diluted share. The decrease in net income was primarily due to a ~~$38.9 million decrease in provision recapture for credit losses, a $4.5~~$4.7 million decrease in noninterest income, ~~and~~ a ~~$4.5~~$3.7 million increase in noninterest expense, and a $2.6 million increase in provision for credit losses, partially offset by ~~an $11.8~~a $6.8 million increase in net interest income. ~~The provision recapture during the second quarter of 2021 was reflective of improved economic forecasts used in the Company’s CECL model relative to prior periods.~~

For the ~~three months ended June 30, 2022,~~first quarter of 2023, the Company’s return on average assets was ~~1.29%~~1.15%, return on average equity was ~~10.10%~~8.87%, and return on average tangible common equity was ~~16.07%. For~~13.89%, compared to 1.36%, 10.71%, and 16.99%, respectively, for the ~~three months ended March 31,~~fourth quarter of 2022, ~~the return on average assets was~~and 1.28%, ~~the return on average equity was~~ 9.34%, and 14.66%, respectively, for the return on average tangible common equity was 14.66%. For the three months ended June 30, 2021, the return on average assets was 1.90%, the return on average equity was 14.02%, and the return on average tangible common equity was 22.45%.first quarter of 2022. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis.

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

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

Net Interest Income

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

Net interest income totaled ~~$172.8~~$168.6 million in ~~the second quarter of 2022, an increase of $10.9 million, or 6.8%, from~~ the first quarter of 2023, a decrease of $12.8 million, or 7.0%, from the fourth quarter of 2022. The ~~increase~~decrease in net interest income was primarily attributable to a higher cost of funds reflecting an increase in deposit pricing as a result of the higher interest rate environment, an increase in brokered certificates of deposit as part of our liquidity management strategy, and two fewer days of interest, partially offset by higher yields on average interest-earning assets.

The net interest margin for the first quarter of 2023 decreased 17 basis points to 3.44%, from 3.61% in the prior quarter. The lower net interest margin was due to higher cost of funds, partially offset by higher yields on interest-earning assets.

Net interest income for the first quarter of 2023 increased $6.8 million, or 4.2%, compared to the first quarter of 2022. The increase was attributable to higher yields on average interest-earning assets, partially offset by a higher cost of funds, higher average interest-bearing liabilities, and ~~yields, higher~~lower loan-related fees and accretion income as a result of ~~increased~~decreased prepayment activity, a favorable interest impact from fair value hedges, and one more day of interest, partially offset by a higher cost of funds, largely as a result of higher average interest-bearing liabilities.activity.

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

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

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

7665

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


		Average Balance Sheet																			Average Balance Sheet
		Three Months Ended																			Three Months Ended
		June 30, 2022						March 31, 2022						June 30, 2021							March 31, 2023						December 31, 2022						March 31, 2022
(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	$	702,663	$	1,211	0.69	%	$	322,236	$	90	0.11	%	$	1,323,186	$	315	0.10	%	Cash and cash equivalents	$	1,335,611	$	13,594	4.13	%	$	1,015,197	$	8,636	3.37	%	$	322,236	$	90	0.11	%
Investment securities	Investment securities	4,254,961		17,560		1.65	%	4,546,408		17,852		1.57	%	4,243,644		18,012		1.70	%	Investment securities	4,165,681		26,791		2.57	%	4,130,042		24,688		2.39	%	4,546,408		17,852		1.57	%
Loans receivable, net (1)(2)	Loans receivable, net (1)(2)	14,919,182		164,455		4.42	%	14,371,588		150,604		4.25	%	13,216,973		152,365		4.62	%	Loans receivable, net (1)(2)	14,394,775		180,958		5.10	%	14,799,417		184,457		4.94	%	14,371,588		150,604		4.25	%
Total interest-earning assets	Total interest-earning assets	19,876,806		183,226		3.70	%	19,240,232		168,546		3.55	%	18,783,803		170,692		3.64	%	Total interest-earning assets	19,896,067		221,343		4.51	%	19,944,656		217,781		4.33	%	19,240,232		168,546		3.55	%
Noninterest-earning assets	Noninterest-earning assets	1,793,347						1,716,559						1,506,612						Noninterest-earning assets	1,788,806						1,784,277						1,716,559
Total assets	Total assets	$	21,670,153					$	20,956,791					$	20,290,415					Total assets	$	21,684,873					$	21,728,933					$	20,956,791
Liabilities and equity	Liabilities and equity																			Liabilities and equity
Interest-bearing deposits:	Interest-bearing deposits:																			Interest-bearing deposits:
Interest checking	Interest checking	$	4,055,506	$	712	0.07	%	$	3,537,824	$	229	0.03	%	$	3,155,935	$	336	0.04	%	Interest checking	$	3,008,712	$	5,842	0.79	%	$	3,320,146	$	3,752	0.45	%	$	3,537,824	$	229	0.03	%
Money market	Money market	5,231,464		1,010		0.08	%	5,343,973		888		0.07	%	5,558,790		2,002		0.14	%	Money market	4,992,084		13,053		1.06	%	4,998,726		7,897		0.63	%	5,343,973		888		0.07	%
Savings	Savings	432,586		27		0.03	%	422,186		26		0.02	%	384,376		84		0.09	%	Savings	453,079		508		0.45	%	443,016		310		0.28	%	422,186		26		0.02	%
Retail certificates of deposit	Retail certificates of deposit	922,784		607		0.26	%	1,047,451		530		0.21	%	1,294,544		839		0.26	%	Retail certificates of deposit	1,206,966		7,775		2.61	%	975,958		3,941		1.60	%	1,047,451		530		0.21	%
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	80,182		326		1.63	%	—		—		—	%	1,357		4		1.18	%	Wholesale/brokered certificates of deposit	1,443,783		13,056		3.67	%	1,283,537		9,965		3.08	%	—		—		—	%
Total interest-bearing deposits	Total interest-bearing deposits	10,722,522		2,682		0.10	%	10,351,434		1,673		0.07	%	10,395,002		3,265		0.13	%	Total interest-bearing deposits	11,104,624		40,234		1.47	%	11,021,383		25,865		0.93	%	10,351,434		1,673		0.07	%
FHLB advances and other borrowings	FHLB advances and other borrowings	602,621		3,217		2.14	%	225,250		474		0.85	%	6,303		—		—	%	FHLB advances and other borrowings	987,817		7,938		3.26	%	826,125		5,960		2.86	%	225,250		474		0.85	%
Subordinated debentures	Subordinated debentures	330,796		4,562		5.52	%	330,629		4,560		5.52	%	480,415		6,493		5.41	%	Subordinated debentures	331,297		4,561		5.51	%	331,133		4,560		5.51	%	330,629		4,560		5.52	%
Total borrowings	Total borrowings	933,417		7,779		3.34	%	555,879		5,034		3.63	%	486,718		6,493		5.35	%	Total borrowings	1,319,114		12,499		3.83	%	1,157,258		10,520		3.62	%	555,879		5,034		3.63	%
Total interest-bearing liabilities	Total interest-bearing liabilities	11,655,939		10,461		0.36	%	10,907,313		6,707		0.25	%	10,881,720		9,758		0.36	%	Total interest-bearing liabilities	12,423,738		52,733		1.72	%	12,178,641		36,385		1.19	%	10,907,313		6,707		0.25	%
Noninterest-bearing deposits	Noninterest-bearing deposits	7,030,205						6,928,872						6,341,063						Noninterest-bearing deposits	6,219,818						6,587,400						6,928,872
Other liabilities	Other liabilities	219,116						256,219						320,324						Other liabilities	218,925						211,731						256,219
Total liabilities	Total liabilities	18,905,260						18,092,404						17,543,107						Total liabilities	18,862,481						18,977,772						18,092,404
Stockholders’ equity	Stockholders’ equity	2,764,893						2,864,387						2,747,308						Stockholders’ equity	2,822,392						2,751,161						2,864,387
Total liabilities and equity	Total liabilities and equity	$	21,670,153					$	20,956,791					$	20,290,415					Total liabilities and equity	$	21,684,873					$	21,728,933					$	20,956,791
Net interest income	Net interest income			$	172,765					$	161,839					$	160,934			Net interest income			$	168,610					$	181,396					$	161,839

Net interest margin (3)	Net interest margin (3)					3.49	%					3.41	%					3.44	%	Net interest margin (3)					3.44	%					3.61	%					3.41	%
Cost of deposits (4)	Cost of deposits (4)					0.06	%					0.04	%					0.08	%	Cost of deposits (4)					0.94	%					0.58	%					0.04	%
Cost of funds (5)	Cost of funds (5)					0.22	%					0.15	%					0.23	%	Cost of funds (5)					1.15	%					0.77	%					0.15	%
Cost of core deposits (6)																				Cost of core deposits (6)					0.54	%					0.31	%					0.03	%
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities					170.53	%					176.40	%					172.62	%	Ratio of interest-earning assets to interest-bearing liabilities					160.15	%					163.77	%					176.40	%

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

(2) Interest income includes net discount accretion of ~~$7.5~~$2.5 million, ~~$5.9~~$3.5 million, and ~~$9.5~~$5.9 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.

77(6) Reconciliation of the “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Average Balance Sheet
Six Months Ended
June 30, 2022 June 30, 2021
(Dollars in thousands) Average
Balance Interest Average
Yield/Cost Average
Balance Interest Average
Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents $ 513,500 $ 1,301 0.51 % $ 1,316,314 $ 616 0.09 %
Investment securities 4,399,880 35,412 1.61 % 4,165,979 35,480 1.70 %
Loans receivable, net (1)(2)
14,639,980 315,059 4.34 % 13,155,631 307,590 4.71 %
Total interest-earning assets 19,553,360 351,772 3.63 % 18,637,924 343,686 3.72 %
Noninterest-earning assets 1,762,083 1,505,232
Total assets $ 21,315,443 $ 20,143,156
Liabilities and equity
Interest-bearing deposits:
Interest checking $ 3,798,095 $ 941 0.05 % $ 3,108,260 $ 755 0.05 %
Money market 5,287,408 1,898 0.07 % 5,503,656 4,590 0.17 %
Savings 427,414 53 0.03 % 376,376 166 0.09 %
Retail certificates of deposit 984,773 1,137 0.23 % 1,359,458 2,040 0.30 %
Wholesale/brokered certificates of deposit 40,312 326 1.63 % 59,781 140 0.47 %
Total interest-bearing deposits 10,538,002 4,355 0.08 % 10,407,531 7,691 0.15 %
FHLB advances and other borrowings 414,978 3,691 1.79 % 14,115 65 0.93 %
Subordinated debentures 330,713 9,122 5.52 % 490,925 13,344 5.44 %
Total borrowings 745,691 12,813 3.44 % 505,040 13,409 5.35 %
Total interest-bearing liabilities 11,283,693 17,168 0.31 % 10,912,571 21,100 0.39 %
Noninterest-bearing deposits 6,979,818 6,188,539
Other liabilities 237,567 293,578
Total liabilities 18,501,078 17,394,688
Stockholders’ equity 2,814,365 2,748,468
Total liabilities and equity $ 21,315,443 $ 20,143,156
Net interest income $ 334,604 $ 322,586
Net interest margin (3)
3.45 % 3.49 %
Cost of deposits (4)
0.05 % 0.09 %
Cost of funds (5)
0.19 % 0.25 %
Ratio of interest-earning assets to interest-bearing liabilities 173.29 % 170.79 %

~~_____________________________~~

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

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

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

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

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

7866

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 ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 to the three ~~and six~~ months ended ~~June 30, 2021)~~March 31, 2022);

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

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


		Three Months Ended June 30, 2022									Three Months Ended March 31, 2023
		Compared to									Compared to
		Three Months Ended March 31, 2022									Three Months Ended December 31, 2022
		Increase (Decrease) Due to									Increase (Decrease) Due to
(Dollars in thousands)	(Dollars in thousands)	Volume		Days		Rate		Net		(Dollars in thousands)	Volume		Days		Rate		Net
Interest-earning assets	Interest-earning assets									Interest-earning assets
Cash and cash equivalents	Cash and cash equivalents	$	209	$	13	$	899	$	1,121	Cash and cash equivalents	$	3,081	$	(302)	$	2,179	$	4,958
Investment securities	Investment securities	(1,174)		—		882		(292)		Investment securities	215		—		1,888		2,103
Loans receivable, net	Loans receivable, net	5,851		1,807		6,193		13,851		Loans receivable, net	(3,879)		(4,021)		4,401		(3,499)
Total interest-earning assets	Total interest-earning assets	4,886		1,820		7,974		14,680		Total interest-earning assets	(583)		(4,323)		8,468		3,562
Interest-bearing liabilities	Interest-bearing liabilities									Interest-bearing liabilities
Interest checking	Interest checking	38		8		437		483		Interest checking	(314)		(130)		2,534		2,090
Money market	Money market	(18)		11		129		122		Money market	(10)		(290)		5,456		5,156
Savings	Savings	1		—		—		1		Savings	7		(11)		202		198
Retail certificates of deposit	Retail certificates of deposit	(51)		7		121		77		Retail certificates of deposit	1,092		(173)		2,915		3,834
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	326		—		—		326		Wholesale/brokered certificates of deposit	1,339		(290)		2,042		3,091
FHLB advances and other borrowings	FHLB advances and other borrowings	1,429		35		1,279		2,743		FHLB advances and other borrowings	1,259		(176)		895		1,978
Subordinated debentures	Subordinated debentures	2		—		—		2		Subordinated debentures	1		—		—		1
Total interest-bearing liabilities	Total interest-bearing liabilities	1,727		61		1,966		3,754		Total interest-bearing liabilities	3,374		(1,070)		14,044		16,348
Change in net interest income		$	3,159	$	1,759	$	6,008	$	10,926
Decrease in net interest income										Decrease in net interest income	$	(3,957)	$	(3,253)	$	(5,576)	$	(12,786)

7967


		Three Months Ended June 30, 2022				Three Months Ended March 31, 2023
		Compared to				Compared to
		Three Months Ended June 30, 2021				Three Months Ended March 31, 2022
		Increase (Decrease) Due to				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	$	(74)	$	970		$	896	Cash and cash equivalents	$	1,085	$	12,419	$	13,504
Investment securities	Investment securities	48		(500)			(452)		Investment securities	(1,352)		10,291		8,939
Loans receivable, net	Loans receivable, net	18,320		(6,230)			12,090		Loans receivable, net	243		30,111		30,354
Total interest-earning assets	Total interest-earning assets	18,294		(5,760)			12,534		Total interest-earning assets	(24)		52,821		52,797
Interest-bearing liabilities	Interest-bearing liabilities								Interest-bearing liabilities
Interest checking	Interest checking	115		261			376		Interest checking	(24)		5,637		5,613
Money market	Money market	(112)		(880)			(992)		Money market	(58)		12,223		12,165
Savings	Savings	13		(70)			(57)		Savings	2		480		482
Retail certificates of deposit	Retail certificates of deposit	(244)		12			(232)		Retail certificates of deposit	90		7,155		7,245
Wholesale/brokered certificates of deposit	Wholesale/brokered certificates of deposit	319		3			322		Wholesale/brokered certificates of deposit	13,056		—		13,056
FHLB advances and other borrowings	FHLB advances and other borrowings	3,183		34			3,217		FHLB advances and other borrowings	4,093		3,371		7,464
Subordinated debentures	Subordinated debentures	(2,066)		135			(1,931)		Subordinated debentures	9		(8)		1
Total interest-bearing liabilities	Total interest-bearing liabilities	1,208		(505)			703		Total interest-bearing liabilities	17,168		28,858		46,026
Change in net interest income		$	17,086	$	(5,255)		$	11,831
(Decrease) Increase in net interest income									(Decrease) Increase in net interest income	$	(17,192)	$	23,963	$	6,771

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

Provision for Credit Losses

For the ~~second~~first quarter of ~~2022,~~2023, the Company recorded a ~~$469,000~~$3.0 million provision expense for credit losses, compared to a $2.8 million provision expense during the fourth quarter of 2022, and a $448,000 provision expense during the first quarter of ~~2022, and a $38.5 million provision recapture during the second quarter of 2021.~~2022. The provision expense for loans during the ~~second~~first quarter of 2023 can be attributed to increases associated with economic forecast and other model updates, as well as changes in asset quality, including specific reserves, offset by lower loans held for investment. The provision recapture for off-balance sheet commitments was attributable to lower unfunded commitments and changes in the mix of unfunded commitments between various loan segments, as well as qualitative adjustments during the quarter. The provision expense for HTM investment securities was impacted by the weighted macroeconomic forecasts on HTM investment securities classified as municipal bonds during the quarter.

The provision expense for the fourth quarter of 2022 was ~~driven principally by~~comprised of a $3.9 million provision expense for loan ~~growth and net charge-offs, as well as the impact of macroeconomic uncertainties, offset by~~losses, a $1.0 million provision recapture for unfunded commitments, and a $48,000 provision recapture for HTM investment securities. The provision expense for loans during the fourth quarter of 2022 was largely ~~due~~impacted by changes to the overall size, composition, and asset quality trends of the loan portfolio. The recapture of the provision for unfunded commitments was reflective of favorable changes in the mix of unfunded lending segment mix. With the increasing probability of downside risks due to high inflation and the ongoing supply chain challenges, we are carefully monitoring the current and forecasted macroeconomic environmentcommitments between various loan segments, as well as ~~key modeling variables.~~

qualitative adjustments during the fourth quarter of 2022. The provision expense for the first quarter of 2022 was ~~primarily reflective~~comprised of a $211,000 provision expense for loan ~~growth~~losses, a $218,000 provision expense for unfunded commitments, and ~~net charge-offs, as well as the impact of macroeconomic uncertainties. The~~a $19,000 provision ~~recapture~~expense for ~~the second quarter of 2021 was primarily due to improved economic forecasts used in the Company’s CECL model relative to prior periods.~~HTM investment securities.

Net loan charge-offs for the three months ended ~~June 30, 2022~~March 31, 2023 totaled ~~$5.2~~$3.3 million, compared with net loan charge-offs of $3.8 million for the three months ended December 31, 2022, and net loan charge-offs of $446,000 for the three months ended March 31, ~~2022, and net loan charge-offs of $1.1 million for the three months ending June 30, 2021.~~2022.

Three Months Ended Variance From
June 30, March 31, June 30, March 31, 2022 June 30, 2021
(Dollars in thousands) 2022 2022 2021 $ % $ %
Provision for credit losses
Provision for loan losses $ 3,803 $ 211 $ (33,131) $ 3,592 1,702.4 % $ 36,934 (111.5) %
Provision for unfunded commitments (3,402) 218 (5,345) (3,620) (1,660.6) % 1,943 (36.4) %
Provision for HTM securities 68 19 — 49 257.9 % 68 — %
Total provision for credit losses $ 469 $ 448 $ (38,476) $ 21 4.7 % $ 38,945 (101.2) %

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

Six Months Ended Variance From
June 30, June 30, June 30, 2021
(Dollars in thousands) 2022 2021 $ %
Provision for credit losses
Provision for loans and lease losses $ 4,014 $ (32,816) $ 36,830 (112.2) %
Provision for unfunded commitments (3,184) (3,686) 502 (13.6) %
Provision for held-to-maturity securities 87 — 87 — %
Total provision for credit losses $ 917 $ (36,502) $ 37,419 (102.5) %

8168


	Three Months Ended						Variance From
	March 31,		December 31,		March 31,		December 31, 2022				March 31, 2022
(Dollars in thousands)	2023		2022		2022		$		%		$		%
Provision for credit losses
Provision for loan losses	$	3,021	$	3,899	$	211	$	(878)	(22.5)	%	$	2,810	1331.8	%
Provision for unfunded commitments	(189)		(1,013)		218		824		(81.3)	%	(407)		(186.7)	%

Provision for HTM securities	184		(48)		19		232		(483.3)	%	165		868.4	%
Total provision for credit losses	$	3,016	$	2,838	$	448	$	178	6.3	%	$	2,568	573.2	%

Noninterest Income

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

Three Months Ended Variance From
June 30, March 31, June 30, March 31, 2022 June 30, 2021
(Dollars in thousands) 2022 2022 2021 $ % $ %
Noninterest income
Loan servicing income $ 502 $ 419 $ 622 $ 83 19.8 % $ (120) (19.3) %
Service charges on deposit accounts 2,690 2,615 2,222 75 2.9 % 468 21.1 %
Other service fee income 366 367 352 (1) (0.3) % 14 4.0 %
Debit card interchange fee income 936 836 1,099 100 12.0 % (163) (14.8) %
Earnings on bank owned life insurance 3,240 3,221 2,279 19 0.6 % 961 42.2 %
Net gain from sales of loans 1,136 1,494 1,546 (358) (24.0) % (410) (26.5) %
Net (loss) gain from sales of investment securities (31) 2,134 5,085 (2,165) (101.5) % (5,116) (100.6) %
Trust custodial account fees 10,354 11,579 7,897 (1,225) (10.6) % 2,457 31.1 %
Escrow and exchange fees 1,827 1,661 1,672 166 10.0 % 155 9.3 %
Other income 1,173 1,568 3,955 (395) (25.2) % (2,782) (70.3) %
Total noninterest income $ 22,193 $ 25,894 $ 26,729 $ (3,701) (14.3) % $ (4,536) (17.0) %


		Six Months Ended				Variance From					Three Months Ended						Variance From
		June 30,		June 30,		June 30, 2021					March 31,		December 31,		March 31,		December 31, 2022				March 31, 2022
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$		%		(Dollars in thousands)	2023		2022		2022		$		%		$		%
Noninterest income	Noninterest income									Noninterest income
Loan servicing income	Loan servicing income	$	921	$	1,080	$	(159)	(14.7)	%	Loan servicing income	$	573	$	346	$	419	$	227	65.6	%	$	154	36.8	%
Service charges on deposit accounts	Service charges on deposit accounts	5,305		4,254		1,051		24.7	%	Service charges on deposit accounts	2,629		2,689		2,615		(60)		(2.2)	%	14		0.5	%
Other service fee income	Other service fee income	733		825		(92)		(11.2)	%	Other service fee income	296		295		367		1		0.3	%	(71)		(19.3)	%
Debit card interchange fee income	Debit card interchange fee income	1,772		1,886		(114)		(6.0)	%	Debit card interchange fee income	803		1,048		836		(245)		(23.4)	%	(33)		(3.9)	%
Earnings on bank owned life insurance	Earnings on bank owned life insurance	6,461		4,512		1,949		43.2	%	Earnings on bank owned life insurance	3,374		3,359		3,221		15		0.4	%	153		4.8	%
Net gain from sales of loans	Net gain from sales of loans	2,630		1,907		723		37.9	%	Net gain from sales of loans	29		151		1,494		(122)		(80.8)	%	(1,465)		(98.1)	%
Net gain from sales of investment securities		2,103		9,131		(7,028)		(77.0)	%
Net (loss) gain from sales of investment securities										Net (loss) gain from sales of investment securities	138		—		2,134		138		—	%	(1,996)		(93.5)	%

Trust custodial account fees	Trust custodial account fees	21,933		15,119		6,814		45.1	%	Trust custodial account fees	11,025		9,722		11,579		1,303		13.4	%	(554)		(4.8)	%
Escrow and exchange fees	Escrow and exchange fees	3,488		3,198		290		9.1	%	Escrow and exchange fees	1,058		1,282		1,661		(224)		(17.5)	%	(603)		(36.3)	%
Other income	Other income	2,741		8,557		(5,816)		(68.0)	%	Other income	1,261		1,605		1,568		(344)		(21.4)	%	(307)		(19.6)	%
Total noninterest income	Total noninterest income	$	48,087	$	50,469	$	(2,382)	(4.7)	%	Total noninterest income	$	21,186	$	20,497	$	25,894	$	689	3.4	%	$	(4,708)	(18.2)	%

Noninterest income for the ~~second~~first quarter of ~~2022~~2023 was ~~$22.2~~$21.2 million, an increase of $689,000, or 3.4% from the fourth quarter of 2022. The increase was primarily due to a $1.3 million increase in trust custodial account fees driven by seasonal, annual tax fees earned during the first quarter. Additionally, the Bank sold $304.2 million of investment securities for a net gain of $138,000 during the first quarter of 2023 to provide additional liquidity. These increases were offset in part by a $344,000 decrease in other income, which was driven by lower recoveries on pre-acquisition charged-off loans, partially offset by CRA investment income, as well as a $245,000 decrease in debit card interchange fee income, and a $224,000 decrease in escrow and exchange fees.

During the first quarter of ~~$3.7~~2023, the Bank sold $753,000 of Small Business Administration (“SBA”) loans for a net gain of $29,000 and $6.5 million of nonperforming loans for no gain, compared to the sales of $3.6 million of SBA loans for a net gain of $151,000 and $6.4 million of other loans for no gain in the fourth quarter of 2022.

Noninterest income for the first quarter of 2023 decreased $4.7 million, or ~~14.3%~~18.2%, ~~from~~compared to the first quarter of 2022. The decrease was primarily due to a ~~$2.2~~$2.0 million decrease in net gain from sales of investment securities, a ~~$1.2~~$1.5 million decrease in net gain from loan sales, a $603,000 decrease in escrow and exchange fees attributable to the lower transaction activity in the commercial real estate market, a $554,000 decrease in trust custodial account fees ~~due~~resulting primarily ~~to the seasonal annual tax fees recognized~~from a decrease in the ~~first quarter~~market value of ~~2022,~~custodial assets, and a ~~$358,000~~$307,000 decrease in ~~net gain from sales of loans, as well as a $395,000 decrease in~~ other ~~income, which included $677,000 lower recoveries on pre-acquisition charged-off loans, offset in part by $322,000 higher CRA investment~~ income.

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

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

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

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

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

Noninterest Expense

The following table presents the components of noninterest expense for the periods indicated:
Three Months Ended Variance From
June 30, March 31, June 30, March 31, 2022 June 30, 2021
(Dollars in thousands) 2022 2022 2021 $ % $ %
Noninterest expense
Compensation and benefits $ 57,562 $ 56,981 $ 53,474 $ 581 1.0 % $ 4,088 7.6 %
Premises and occupancy 11,829 11,952 12,240 (123) (1.0) % (411) (3.4) %
Data processing 6,604 5,996 5,765 608 10.1 % 839 14.6 %
FDIC insurance premiums 1,452 1,396 1,312 56 4.0 % 140 10.7 %
Legal and professional services 4,629 4,068 4,186 561 13.8 % 443 10.6 %
Marketing expense 1,926 1,809 1,490 117 6.5 % 436 29.3 %
Office expense 1,252 1,203 1,589 49 4.1 % (337) (21.2) %
Loan expense 1,144 1,134 1,165 10 0.9 % (21) (1.8) %
Deposit expense 4,081 3,751 3,985 330 8.8 % 96 2.4 %
Amortization of intangible assets 3,479 3,592 4,001 (113) (3.1) % (522) (13.0) %
Other expense 5,016 5,766 5,289 (750) (13.0) % (273) (5.2) %
Total noninterest expense $ 98,974 $ 97,648 $ 94,496 $ 1,326 1.4 % $ 4,478 4.7 %


		Six Months Ended				Variance From					Three Months Ended						Variance From
		June 30,		June 30,		June 30, 2021					March 31,		December 31,		March 31,		December 31, 2022				March 31, 2022
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$		%		(Dollars in thousands)	2023		2022		2022		$		%		$		%
Noninterest expense	Noninterest expense									Noninterest expense
Compensation and benefits	Compensation and benefits	$	114,543	$	106,022	$	8,521	8.0	%	Compensation and benefits	$	54,293	$	54,347	$	56,981	$	(54)	(0.1)	%	$	(2,688)	(4.7)	%
Premises and occupancy	Premises and occupancy	23,781		24,220		(439)		(1.8)	%	Premises and occupancy	11,742		11,641		11,952		101		0.9	%	(210)		(1.8)	%
Data processing	Data processing	12,600		11,593		1,007		8.7	%	Data processing	7,265		6,991		5,996		274		3.9	%	1,269		21.2	%

Other real estate owned operations, net										Other real estate owned operations, net	108		—		—		108		100.0	%	108		100.0	%
FDIC insurance premiums	FDIC insurance premiums	2,848		2,493		355		14.2	%	FDIC insurance premiums	2,425		1,463		1,396		962		65.8	%	1,029		73.7	%
Legal and professional services	Legal and professional services	8,697		8,121		576		7.1	%	Legal and professional services	5,501		5,175		4,068		326		6.3	%	1,433		35.2	%
Marketing expense	Marketing expense	3,735		3,088		647		21.0	%	Marketing expense	1,838		1,985		1,809		(147)		(7.4)	%	29		1.6	%
Office expense	Office expense	2,455		3,418		(963)		(28.2)	%	Office expense	1,232		1,310		1,203		(78)		(6.0)	%	29		2.4	%
Loan expense	Loan expense	2,278		2,280		(2)		(0.1)	%	Loan expense	646		743		1,134		(97)		(13.1)	%	(488)		(43.0)	%
Deposit expense	Deposit expense	7,832		7,844		(12)		(0.2)	%	Deposit expense	8,436		6,770		3,751		1,666		24.6	%	4,685		124.9	%
Merger-related expense		—		5		(5)		(100.0)	%

Amortization of intangible assets	Amortization of intangible assets	7,071		8,144		(1,073)		(13.2)	%	Amortization of intangible assets	3,171		3,440		3,592		(269)		(7.8)	%	(421)		(11.7)	%
Other expense	Other expense	10,782		9,757		1,025		10.5	%	Other expense	4,695		5,317		5,766		(622)		(11.7)	%	(1,071)		(18.6)	%
Total noninterest expense	Total noninterest expense	$	196,622	$	186,985	$	9,637	5.2	%	Total noninterest expense	$	101,352	$	99,182	$	97,648	$	2,170	2.2	%	$	3,704	3.8	%

Noninterest expense totaled ~~$99.0~~$101.4 million for ~~the second quarter of 2022, an increase of $1.3 million, or 1.4%, compared to~~ the first quarter of 2023, an increase of $2.2 million, or 2.2% from the fourth quarter of 2022, primarily due to a $1.7 million increase in deposit expense driven by growth in HOA deposits and higher deposit earnings credit rates, a ~~$608,000~~$962,000 increase in FDIC insurance premiums due to the increase of initial base deposit insurance assessment rates that became effective in January 2023, a $326,000 increase legal and professional services, and a $274,000 increase in data processing, largely related to software and system expense, a $581,000 increase in compensation and benefits attributable to higher compensation and business incentives, and a $561,000 increase in legal and professional services, partially offset by a ~~$750,000~~$622,000 decrease in other ~~expense mainly attributable to a higher credit loss reserve for trust custodial account fees receivable and higher expenses for Pacific Premier Trust in the prior quarter.~~expense.

Noninterest expense increased by ~~$4.5~~$3.7 million, or ~~4.7%~~3.8%, compared to the ~~second~~first quarter of ~~2021.~~2022. The increase was primarily due to a ~~$4.1~~$4.7 million increase in deposit expense driven by growth in HOA deposits and higher deposit earnings credit rates, a $1.4 million increase in legal and professional services, a $1.3 million increase in data processing, and a $1.0 million increase in FDIC insurance premiums, partially offset by a $2.7 million decrease in compensation and benefits ~~due to higher compensation and business incentives and increased staffing.~~from decreased staffing levels, as well as a $1.1 million decrease in other expense.

The Company’s efficiency ratio was ~~49.0%~~51.7% for the ~~second~~first quarter of 2023, compared to 47.4% for the fourth quarter of 2022, ~~compared to~~and 50.7% for the first quarter of ~~2022,~~2022. “Non-GAAP measures” presented under Item 2 - Management’s Discussion and ~~49.4% for the second quarter~~Analysis of ~~2021.~~

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

Operations
.

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

8470

Income Taxes

For the three months ended ~~June 30,~~March 31, 2023, December 31, 2022, and March 31, 2022, ~~and June 30, 2021,~~ income tax expense was ~~$25.7~~$22.9 million, ~~$22.7~~$26.2 million, and ~~$35.3~~$22.7 million, respectively, and the effective income tax rate was ~~26.9%~~26.8%, ~~25.4%~~26.2%, and ~~26.8%, respectively. For the six months ended June 30, 2022 and 2021, income tax expense was $48.4 million and $57.6 million, respectively, and the effective income tax rate was 26.2% and 25.9%~~25.4%, respectively. Our effective tax rate for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 differs from the 21% federal statutory rate due to the impact of state taxes as well as various permanent tax differences, including tax-exempt income from municipal securities, BOLI income, tax credits from low-income housing tax credit investments, and the exercise of stock options and vesting of other stock-based compensation.

The total amount of unrecognized tax benefits was $1.4 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, and was comprised of unrecognized tax benefits related to the Opus acquisition in 2020. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate was $563,000 at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. The Company does not believe that the unrecognized tax benefits will change significantly within the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued for ~~$56,000~~$115,000 and ~~$31,000~~$89,000 of such interest at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. No amounts for penalties were accrued.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as income and franchise tax in multiple state jurisdictions. The statute of limitations related to the consolidated Federal income tax returns is closed for all tax years up to and including ~~2017.~~2018. The expirations of the statutes of limitations related to the various state income and franchise tax returns vary by state.

The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and the tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax ~~asset~~assets will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that a valuation allowance for deferred tax assets was not required as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

8571

FINANCIAL CONDITION

At ~~June 30, 2022,~~March 31, 2023, assets totaled ~~$21.99~~$21.36 billion, ~~an increase~~a decrease of ~~$899.5~~$326.5 million, or ~~4.3%~~1.5%, from ~~$21.09~~$21.69 billion at December 31, ~~2021.~~2022. The ~~increase~~decrease was primarily due to ~~increases~~a $505.9 million decrease in total loans ~~of $743.8~~and a $127.2 million ~~and cash and cash equivalents of $668.1 million,~~decrease in investment securities, partially offset by a ~~$585.8~~$323.6 million ~~decrease~~increase in ~~investment securities. During~~cash and cash equivalents. To address the rising interest rate environment, dislocation in credit, funding, and capital markets, and industry-wide turmoil experienced during the first ~~half~~quarter of ~~2022,~~2023, we took strategic actions to ~~position~~increase loan pricing and tighten underwriting standards to manage the ~~balance sheet~~level of new loan demand, increased our deposit pricing to ~~increase our asset sensitivity, which included increasing~~mitigate deposit outflows, and bolstered our liquidity position ~~and~~by reducing the size ~~and duration~~ of the AFS securities portfolio and adding retail and brokered deposits. As a result of our proactive liquidity management, we were able to ~~fund higher yielding loan growth, for an economic environment with higher interest rates~~reduce FHLB term borrowings during the quarter, and ~~macroeconomic uncertainty.~~we did not need to utilize either the Federal Reserve's discount window or the new Bank Term Funding Program.

Loans

Loans held for investment totaled ~~$15.05~~$14.17 billion at ~~June 30, 2022, an increase~~March 31, 2023, a decrease of ~~$751.7~~$504.5 million, or ~~5.3%~~3.4%, from ~~$14.30~~$14.68 billion at December 31, ~~2021.~~2022. The ~~increase~~decrease was ~~driven by an increase in loans funded~~a result of lower loan originations due to our disciplined approach around credit risk management and ~~higher commercial line utilization rates, partially offset by prepayments~~loan pricing along with lower loan demand, as well as increased loan payoffs and maturities during the first ~~half~~quarter of ~~2022. Commercial~~2023. The commercial line average utilization ~~rates increased~~rate decreased from an average rate of ~~35.2%~~39.6% for the fourth quarter of ~~2021~~2022 to ~~41.6%~~39.0% for the ~~second~~first quarter of ~~2022.~~2023. Since December 31, ~~2021,~~2022, commercial loans decreased $210.6 million, investor loans secured by real estate ~~increased $365.1~~decreased $206.7 million, business loans secured by real estate ~~increased $241.0 million, commercial loans increased $215.5~~decreased $97.0 million, and retail loans decreased ~~$18.9~~$2.2 million. The decline in loans from prior year end reflects the strategic actions we have taken to maintain a disciplined approach to our loan production and pricing as well as tightened the underwriting standards to manage the level of new loan demand.

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at ~~June 30, 2022~~March 31, 2023 was ~~4.06%~~4.68%, compared to ~~3.95%~~4.61% at December 31, ~~2021.~~2022. The increase reflects the impact of higher rates on new originations and the repricing of floating rate loans as a result of the ~~Federal Reserve Bank's~~increases in benchmark interest ~~rate increases since March 2022, partially offset by prepayments of higher rate loans.~~rates.

Loans held for sale primarily represent the guaranteed portion of SBA loans, which the Bank originates for sale, and totaled ~~$3.0~~$1.2 million at ~~June 30, 2022,~~March 31, 2023, a decrease of ~~$7.9~~$1.4 million from ~~$10.9~~$2.6 million at December 31, ~~2021.~~2022.

8672

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


		June 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent of Total		Weighted Average Interest Rate		Amount		Percent of Total		Weighted Average Interest Rate		(Dollars in thousands)	Amount		Percent of Total		Weighted Average Interest Rate		Amount		Percent of Total		Weighted Average Interest Rate
Investor loans secured by real estate	Investor loans secured by real estate													Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	2,788,715	18.5	%	4.21	%	$	2,771,137	19.4	%	4.19	%	CRE non-owner-occupied	$	2,590,824	18.3	%	4.56	%	$	2,660,321	18.1	%	4.51	%
Multifamily	Multifamily	6,188,086		41.1	%	3.70	%	5,891,934		41.2	%	3.75	%	Multifamily	5,955,239		42.0	%	3.87	%	6,112,026		41.6	%	3.86	%
Construction and land	Construction and land	331,734		2.2	%	5.67	%	277,640		1.9	%	4.88	%	Construction and land	420,079		3.0	%	8.69	%	399,034		2.7	%	8.24	%
SBA secured by real estate	SBA secured by real estate	44,199		0.3	%	5.27	%	46,917		0.3	%	4.98	%	SBA secured by real estate	40,669		0.3	%	8.62	%	42,135		0.3	%	7.61	%
Total investor loans secured by real estate	Total investor loans secured by real estate	9,352,734		62.1	%	3.93	%	8,987,628		62.8	%	3.93	%	Total investor loans secured by real estate	9,006,811		63.6	%	4.32	%	9,213,516		62.7	%	4.25	%
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	2,486,747		16.5	%	4.06	%	2,251,014		15.7	%	4.07	%	CRE owner-occupied	2,342,175		16.6	%	4.27	%	2,432,163		16.6	%	4.22	%
Franchise real estate secured	Franchise real estate secured	387,683		2.6	%	4.62	%	380,381		2.7	%	4.60	%	Franchise real estate secured	371,902		2.6	%	4.76	%	378,057		2.6	%	4.75	%
SBA secured by real estate	SBA secured by real estate	67,191		0.4	%	5.30	%	69,184		0.5	%	5.23	%	SBA secured by real estate	60,527		0.4	%	8.31	%	61,368		0.4	%	7.45	%
Total business loans secured by real estate	Total business loans secured by real estate	2,941,621		19.5	%	4.16	%	2,700,579		18.9	%	4.18	%	Total business loans secured by real estate	2,774,604		19.6	%	4.43	%	2,871,588		19.6	%	4.36	%
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	2,295,421		15.3	%	4.31	%	2,103,112		14.7	%	3.61	%	Commercial and industrial	1,967,128		13.9	%	6.60	%	2,160,948		14.7	%	6.32	%
Franchise non-real estate secured	Franchise non-real estate secured	415,830		2.8	%	4.79	%	392,576		2.7	%	4.76	%	Franchise non-real estate secured	388,722		2.7	%	4.92	%	404,791		2.8	%	4.91	%
SBA non-real estate secured	SBA non-real estate secured	11,008		0.1	%	5.66	%	11,045		0.1	%	5.54	%	SBA non-real estate secured	10,437		0.1	%	8.87	%	11,100		0.1	%	7.83	%
Total commercial loans	Total commercial loans	2,722,259		18.2	%	4.39	%	2,506,733		17.5	%	3.80	%	Total commercial loans	2,366,287		16.7	%	6.34	%	2,576,839		17.6	%	6.11	%
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	77,951		0.5	%	4.40	%	95,292		0.7	%	4.01	%	Single family residential	70,913		0.5	%	6.11	%	72,997		0.5	%	5.51	%
Consumer	Consumer	4,130		—	%	5.79	%	5,665		0.1	%	4.98	%	Consumer	3,174		—	%	6.36	%	3,284		—	%	6.29	%
Total retail loans	Total retail loans	82,081		0.5	%	4.45	%	100,957		0.8	%	4.05	%	Total retail loans	74,087		0.5	%	6.12	%	76,281		0.5	%	5.53	%
Loans held for investment before basis adjustment (1)	Loans held for investment before basis adjustment (1)	15,098,695		100.3	%	4.06	%	14,295,897		100.0	%	3.95	%	Loans held for investment before basis adjustment (1)	14,221,789		100.4	%	4.68	%	14,738,224		100.4	%	4.61	%
Basis adjustment associated with fair value hedge (2)	Basis adjustment associated with fair value hedge (2)	(51,087)		(0.3)	%	—	%	—		—	%	—	%	Basis adjustment associated with fair value hedge (2)	(50,005)		(0.4)	%			(61,926)		(0.4)	%
Loans held for investment	Loans held for investment	15,047,608		100.0	%	4.06	%	14,295,897		100.0	%	3.95	%	Loans held for investment	14,171,784		100.0	%			14,676,298		100.0	%
Allowance for credit losses for loans held for investment	Allowance for credit losses for loans held for investment	(196,075)						(197,752)						Allowance for credit losses for loans held for investment	(195,388)						(195,651)
Loans held for investment, net	Loans held for investment, net	$	14,851,533					$	14,098,145					Loans held for investment, net	$	13,976,396					$	14,480,647

Total unfunded loan commitments	Total unfunded loan commitments	$	2,872,934					$	2,507,911					Total unfunded loan commitments	$	2,413,169					$	2,489,203
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	2,957						10,869						Loans held for sale, at lower of cost or fair value	1,247						2,643

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

8773

Delinquent Loans. When a borrower fails to make required payments on a loan and does not cure the delinquency within 30 days, we normally initiate proceedings to pursue our remedies under the loan documents. For loans secured by real estate, we ~~record a notice of default and, after providing~~provide the required notices to the borrower and make any required filings, and commence foreclosure ~~proceedings.~~proceedings if necessary. If the loan is not reinstated within the time permitted by law, we may sell the property at a foreclosure ~~sale where~~sale. At these foreclosure sales, we generally acquire title to the property. ~~Loans~~At March 31, 2023, loans delinquent 30 or more days as a percentage of total loans held for investment ~~were 0.24% at June 30, 2022,~~was 0.15%, compared to ~~0.14%~~0.30% at December 31, ~~2021.~~2022. The ~~increase~~decrease in delinquent loans during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 was primarily due to ~~the addition of a multifamily loan relationship of $8.9 million, a CRE non-owner-occupied relationship of $6.4 million,~~decreases in loans that are 30-59 days past due, and ~~a C&I loan relationship of $4.5 million~~decreases in loans that were 90 days or more ~~delinquent at June 30, 2022.~~past due.

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


		30 - 59 Days				60 - 89 Days				90 Days or More				Total					30 - 59 Days				60 - 89 Days				90 Days or More				Total
(Dollars in thousands)	(Dollars in thousands)	# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			(Dollars in thousands)	# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans
At June 30, 2022
At March 31, 2023																		At March 31, 2023
Investor loans secured by real estate	Investor loans secured by real estate																	Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	1	$	6,359		—	$	—		3	$	10,230		4	$	16,589		CRE non-owner-occupied	1	$	6		1	$	1,129		2	$	4,416		4	$	5,551
Multifamily	Multifamily	—	—			—	—			3	8,873			3	8,873			Multifamily	—	—			—	—			2	3,708			2	3,708

Total investor loans secured by real estate	Total investor loans secured by real estate	1	6,359			—	—			6	19,103			7	25,462			Total investor loans secured by real estate	1	6			1	1,129			4	8,124			6	9,259
Business loans secured by real estate	Business loans secured by real estate																	Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	—	—			—	—			3	4,889			3	4,889			CRE owner-occupied	—	—			—	—			3	4,762			3	4,762

SBA secured by real estate	SBA secured by real estate	1	83			—	—			—	—			1	83			SBA secured by real estate	2	308			—	—			3	1,190			5	1,498
Total business loans secured by real estate	Total business loans secured by real estate	1	83			—	—			3	4,889			4	4,972			Total business loans secured by real estate	2	308			—	—			6	5,952			8	6,260
Commercial loans	Commercial loans																	Commercial loans
Commercial and industrial	Commercial and industrial	2	473			—	—			3	4,744			5	5,217			Commercial and industrial	12	447			5	69			2	4,236			19	4,752

SBA non-real estate secured	SBA non-real estate secured	—	—			—	—			1	624			1	624			SBA non-real estate secured	—	—			—	—			1	572			1	572
Total commercial loans	Total commercial loans	2	473			—	—			4	5,368			6	5,841			Total commercial loans	12	447			5	69			3	4,808			20	5,324

Total	Total	4	$	6,915		—	$	—		13	$	29,360		17	$	36,275		Total	15	$	761		6	$	1,198		13	$	18,884		34	$	20,843
Delinquent loans to loans held for investment	Delinquent loans to loans held for investment		0.05		%		—		%		0.19		%		0.24		%	Delinquent loans to loans held for investment		0.01		%		0.01		%		0.13		%		0.15		%

8874

30 - 59 Days 60 - 89 Days 90 Days or More Total
(Dollars in thousands) # of
Loans Principal
Balance
of Loans # of
Loans Principal
Balance
of Loans # of
Loans Principal
Balance
of Loans # of
Loans Principal
Balance
of Loans
At December 31, 2021
Investor loans secured by real estate
CRE non-owner-occupied — $ — — $ — 3 $ 10,255 3 $ 10,255
Multifamily 1 1,230 — — — — 1 1,230
SBA secured by real estate — — — — 1 337 1 337
Total investor loans secured by real estate 1 1,230 — — 4 10,592 5 11,822
Business loans secured by real estate
CRE owner-occupied — — — — 3 4,952 3 4,952
SBA secured by real estate — — — — 1 441 1 441
Total business loans secured by real estate — — — — 4 5,393 4 5,393
Commercial loans
Commercial and industrial 8 92 — — 2 1,462 10 1,554
SBA non-real estate secured 1 73 — — 1 653 2 726
Total commercial loans 9 165 — — 3 2,115 12 2,280
Total 10 $ 1,395 — $ — 11 $ 18,100 21 $ 19,495
Delinquent loans to loans held for investment 0.01 % — % 0.13 % 0.14 %


	30 - 59 Days				60 - 89 Days				90 Days or More				Total
(Dollars in thousands)	# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans			# of Loans	Principal Balance of Loans
At December 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied	—	$	—		—	$	—		2	$	4,429		2	$	4,429
Multifamily	1	2,723			—	—			2	6,057			3	8,780


Total investor loans secured by real estate	1	2,723			—	—			4	10,486			5	13,209
Business loans secured by real estate
CRE owner-occupied	3	1,434			—	—			4	6,555			7	7,989
Franchise real estate secured	2	7,073			—	—			—	—			2	7,073
SBA secured by real estate	—	—			1	104			2	1,087			3	1,191
Total business loans secured by real estate	5	8,507			1	104			6	7,642			12	16,253
Commercial loans
Commercial and industrial	9	4,657			9	81			4	3,908			22	8,646
Franchise non-real estate secured	5	3,592			—	—			—	—			5	3,592
SBA non-real estate secured	—	—			—	—			1	589			1	589
Total commercial loans	14	8,249			9	81			5	4,497			28	12,827
Retail loans
Single family residential	2	1,057			—	—			—	—			2	1,057
Consumer	1	2			—	—			—	—			1	2
Total retail loans	3	1,059			—	—			—	—			3	1,059
Total	23	$	20,538		10	$	185		15	$	22,625		48	$	43,348
Delinquent loans to loans held for investment		0.14		%		—		%		0.16		%		0.30		%

Troubled Debt Restructurings

~~We sometimes~~Prior to the Company’s adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) - Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, the Company, in infrequent situations, would modify or restructure loans when the borrower iswas experiencing financial difficulties by making a concession to the ~~borrower~~borrower. Such concessions typically were in the form of changes in the amortization terms, reductions in the interest rates, ~~the~~ acceptance of interest-only payments, and, in ~~limited~~very few cases, ~~concessions to~~reduction of the outstanding loan balances. These loans ~~are~~were classified as TDRs. ASU 2022-02 eliminated the concept of TDRs in current GAAP, and therefore, beginning January 1, 2023, the Company no longer reports loans modified as TDRs except for those loans modified and reported as TDRs in prior period financial information under previous GAAP. Please see “Modified Loans to Troubled Borrowers” below for discussion on modifications of loans to borrowers experiencing financial difficulty following the Company’s adoption of ASU 2022-02 on January 1, 2023.

At ~~June 30, 2022 and~~ December 31, ~~2021,~~2022, the Company had five ~~and six~~ loans ~~respectively, totaling $16.6 million and $17.3 million, respectively,~~ modified as TDRs totaling $16.1 million, which ~~are~~ comprised ~~primarily of~~ three CRE owner-occupied loans and one C&I loan totaling $5.1 million ~~and $5.2 million, respectively,~~ belonging to one borrower relationship with the terms modified due to bankruptcy, and ~~one~~a franchise non-real estate secured loan for ~~$11.5~~$11.0 million ~~and two franchise non-real estate secured loans totaling $12.1 million, respectively,~~ belonging to another borrower relationship with the terms modified for payment deferral. ~~All~~During the quarter ended December 31, 2022, the three CRE owner-occupied loans and one C&I loan classified as TDRs were in payment default and on nonaccrual status. The franchise non-real estate secured loan was performing in accordance with the restructured contractual terms and was returned to accrual status as of ~~June 30, 2022 and~~ December 31, ~~2021.~~

2022.

8975

Modified Loans to Troubled Borrowers

On January 1, 2023, the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty, which the Company also refers to as modified loans to troubled borrowers. A MLTB arises from a modification made to a loan in response to a borrower’s financial difficulty, in order 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. GAAP requires that certain types of modifications be reported, which consist of the following:

•Principal forgiveness

•Interest rate reduction

•Other-than-insignificant payment delay

•Term extension

•Any combination of the above

Please also see Note 3 - Significant Accounting Policies, of the consolidated financial statements for additional discussion on modified loans to troubled borrowers.

As of March 31, 2023, the Company had one CRE owner-occupied MLTB with an amortized cost of $851,000 to a borrower experiencing financial difficulty, the modification of which involved the extension of the term by four months. Since modification, this MLTB did not have a payment default during the three months ended March 31, 2023.

Nonperforming Assets

Nonperforming assets consist of loans whereby we have ceased accruing interest ~~(nonaccrual~~(i.e., nonaccrual loans), OREO, and other repossessed assets owned. Nonaccrual loans generally consist of loans that are 90 days or more past due orand loans where, in the opinion of management, there is reasonable doubt as to the collection of principal and interest.

Nonperforming assets totaled ~~$44.4~~$30.4 million, or ~~0.20%~~0.14% of total assets, at ~~June 30, 2022, an increase from $31.3~~March 31, 2023, relatively flat compared to $30.9 million, or ~~0.15%~~0.14% of total assets, at December 31, ~~2021. There was no other real estate owned at June 30, 2022 and December~~2022. At March 31, ~~2021. All~~2023, nonperforming assets consisted of nonperforming loans ~~at June 30, 2022~~of $24.9 million and OREO of $5.5 million. At December 31, ~~2021. The increase in~~2022, all nonperforming assets ~~since~~consisted of nonperforming loans.

At March 31, 2023, nonperforming loans totaled $24.9 million, or 0.18% of loans held for investment, a decrease from $30.9 million, 0.21% of loans held for investment, at December 31, ~~2021~~2022.

OREO was ~~primarily due~~$5.5 million at March 31, 2023, compared to no OREO at December 31, 2022. During the ~~addition~~first quarter of ~~a multifamily loan relationship~~2023, the Company took possession of ~~$8.9 million, a C&I loan relationship of $4.5 million, and a franchise non-real estate secured loan relationship of $2.8~~two single family residential properties totaling $6.9 million that were ~~placed on nonaccrual status~~cross-collateralized for two C&I nonperforming loans belonging to one relationship. Of this total, one of the OREO of $1.4 million was sold shortly after possession during the ~~second quarter of 2022.~~same quarter.

The Company had no loans 90 days or more past due and accruing at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

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


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			December 31, 2021			(Dollars in thousands)	March 31, 2023			December 31, 2022
Nonperforming assets	Nonperforming assets							Nonperforming assets
Investor loans secured by real estate	Investor loans secured by real estate							Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	10,230		$	10,255		CRE non-owner-occupied	$	5,545		$	4,429
Multifamily	Multifamily	8,873			—			Multifamily	3,708			8,780

SBA secured by real estate	SBA secured by real estate	562			937			SBA secured by real estate	519			533
Total investor loans secured by real estate	Total investor loans secured by real estate	19,665			11,192			Total investor loans secured by real estate	9,772			13,742
Business loans secured by real estate	Business loans secured by real estate							Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	4,889			4,952			CRE owner-occupied	9,102			11,475

SBA secured by real estate	SBA secured by real estate	206			589			SBA secured by real estate	1,190			1,191
Total business loans secured by real estate	Total business loans secured by real estate	5,095			5,541			Total business loans secured by real estate	10,292			12,666
Commercial loans	Commercial loans							Commercial loans
Commercial and industrial	Commercial and industrial	4,744			1,798			Commercial and industrial	4,236			3,908
Franchise non-real estate secured		14,311			12,079

SBA non-real estate secured	SBA non-real estate secured	624			653			SBA non-real estate secured	572			589
Total commercial loans	Total commercial loans	19,679			14,530			Total commercial loans	4,808			4,497
Retail loans
Single family residential		6			10

Total retail loans		6			10

Total nonperforming loans	Total nonperforming loans	44,445			31,273			Total nonperforming loans	24,872			30,905
Other real estate owned	Other real estate owned	—			—			Other real estate owned	5,499			—
Other assets owned		—			—

Total	Total	$	44,445		$	31,273		Total	$	30,371		$	30,905

Allowance for credit losses	Allowance for credit losses	$	196,075		$	197,752		Allowance for credit losses	$	195,388		$	195,651
Allowance for credit losses as a percent of total nonperforming loans	Allowance for credit losses as a percent of total nonperforming loans	441		%	632		%	Allowance for credit losses as a percent of total nonperforming loans	786		%	633		%
Nonperforming loans as a percent of loans held for investment	Nonperforming loans as a percent of loans held for investment	0.30		%	0.22		%	Nonperforming loans as a percent of loans held for investment	0.18		%	0.21		%
Nonperforming assets as a percent of total assets	Nonperforming assets as a percent of total assets	0.20		%	0.15		%	Nonperforming assets as a percent of total assets	0.14		%	0.14		%
TDRs included in nonperforming loans	TDRs included in nonperforming loans	$	16,647		$	17,277		TDRs included in nonperforming loans	N/A			$	5,051

9077

Allowance for Credit Losses

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

The Company measures the ACL on commercial real estate and commercial loans using a discounted cash flow approach, using the loan’s effective interest rate, while the ACL for retail loans is based on a historical loss rate model. The discounted cash flow methodology relies on several significant components essential to the development of estimates for future cash flows on loans and unfunded commitments. These components consist of: (i) the estimated PD, (ii) the estimated LGD, which represents the estimated severity of the loss when a loan is in default, (iii) estimates for prepayment activity on loans, and (iv) the estimated EAD. In the case of unfunded loan commitments, the Company incorporates estimates for utilization, based on historical loan data. PD and LGD for investor loans secured by real estate loans are derived from a third party, using proxy loan information, and loan and property level attributes. PD for both investor and business real estate loans, as well as commercial loans, is heavily impacted by current and expected economic conditions. Forecasts for PDs and LGDs are made over a two-year period, which we believe is reasonable and supportable, and are based on economic scenarios. Beyond this point, PDs and LGDs revert to their historical long-term averages. The Company has reflected this reversion over a period of three years in the ACL model.

The Company’s ACL includes assumptions concerning current and future economic conditions using reasonable and supportable forecasts from an independent third party. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. Management periodically evaluates economic scenarios used in the Company’s ACL model, and thus the scenarios as well as the assumptions within those scenarios, and whether to use a weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events. As of ~~June 30, 2022,~~March 31, 2023, the Company’s ACL model used three weighted scenarios representing a base-case scenario, an upside scenario, and a downside scenario. The use of three weighted scenarios at ~~June 30, 2022~~March 31, 2023 is consistent with the approach used in the Company’s ACL model at ~~March 31, 2022 and~~ December 31, ~~2021.~~2022. The Company’s ACL model at ~~June 30, 2022~~March 31, 2023 includes assumptions concerning the rising interest rate environment, ongoing ~~COVID-19 pandemic,~~inflationary pressures throughout the U.S. economy, higher energy prices, the potential impact of the ongoing war between Russia and Ukraine, ~~ongoing inflationary pressures throughout the U.S. economy,~~ general uncertainty concerning future economic conditions, and the potential for future recessionary conditions.

The Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL. These key economic variables include changes in the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and the ~~10-year U.S. Treasury yield. As of June 30, 2022, the Company’s ACL model assumes the following:~~interest rates.

•~~The U.S. unemployment rate will experience moderate increases over the next two years.~~

•~~U.S real GDP growth will decelerate through the remainder of 2022, before returning to more consistent and modest levels of growth through the second quarter of 2024.~~

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

•~~The 10-year U.S. Treasury yield remains within a range of 2.8% and 3.0% over the next two years.~~

9178

The Company ~~periodically~~ considers the need for qualitative adjustments to the ~~ACL.~~ACL on a quarterly basis. Qualitative adjustments may be related to and include, but not be limited to, factors such ~~as:~~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, 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 Qualitative adjustments served to increase or decrease the level of ~~June 30, 2022, qualitative adjustments primarily relate~~allocated ACL to ~~certain~~these segments of the loan portfolio deemed by management to be of a higher-risk profile where management believes the quantitative component of the Company’s ACL model may not have fully captured the associated impact to the ACL. In addition, qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Qualitative adjustments to the ACL were made for various classes of commercial loans, construction loans, CRE owner-occupied loans, SBAportfolio: investor loans secured by real estate, ~~franchise~~business loans secured by real estate, ~~multifamily~~ and ~~CRE non-owner-occupied~~commercial loans. ~~Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.~~

The following charts quantify certain factors attributing to the changes in the ACL on loans held for investment for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~June 30, 2021:~~

March 31, 2022:

At March 31, 2023, the ACL on loans was $195.4 million, a decrease of $263,000 from $195.7 million at December 31, 2022. The decrease in the ACL for loans held for investment during the three months ended ~~June 30, 2022~~March 31, 2023 can be attributed to net charge-offs of ~~$1.4~~$3.3 million, ~~was comprised of $5.2 million in net charge-offs,~~ partially offset by ~~a $3.8 million provision for credit losses. The decrease in the ACL for loans held for investment during the six months ended June 30, 2022 of $1.7 million was comprised of $5.7~~$3.0 million in ~~net charge-offs, partially offset by a $4.0 million provision~~provisions for credit losses. The provision ~~expense~~ for credit losses during the three ~~and six~~ months ended ~~June 30, 2022 was driven principally by loan growth~~March 31, 2023 can be attributed to increases associated with economic forecast and ~~higher net charge-offs,~~other model updates, as well as changes in asset quality, including specific reserves, offset by lower loans held for investment. Charge-offs during the ~~impact of macroeconomic uncertainties.~~three months ended March 31, 2023 are largely attributed to one CRE owner occupied lending relationship, as well as charge-offs on several loans sold in the current quarter, and charge-offs on other smaller C&I lending relationships.

The decrease in the ACL for loans held for investment during the three months ended ~~June 30, 2021~~March 31, 2022 of ~~$34.2 million was comprised~~$235,000 can be attributed to net charge-offs of ~~a $33.1 million provision recapture and $1.1 million~~$446,000, partially offset by $211,000 in ~~net charge-offs. The decrease in the ACL~~provisions for ~~loans held for investment during the six months ended June 30, 2021 of $35.2 million was comprised of a $32.8 million provision recapture and $2.4 million in net charge-offs.~~credit losses. The provision ~~recapture~~for credit losses for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 was reflective of ~~improving~~growing economic uncertainties, offset by improved economic forecasts used in the Company’s ACL model, ~~and the continued strong~~as well as favorable asset quality ~~profile of the loan portfolio relative to prior periods, partially offset by an increase in loans held for investment.~~metrics.

At ~~June 30, 2022,~~March 31, 2023, the Company believes the ACL was adequate to cover current expected credit losses in the loan portfolio. However, no assurance can be given that we will not, in any particular period, sustain credit losses that exceed the amount reserved, or that subsequent evaluation of our loan portfolio, in light of prevailing factors, including economic conditions that may adversely affect our market area or other circumstances, will not require significant increases in the ACL. In addition, regulatory agencies, as an integral part of their examination process, periodically review our ACL and may require us to recognize ~~additional provisions~~changes to ~~increase~~ the ~~allowance and record charge-offs in anticipation~~ACL based on judgments different from those of ~~future losses.~~management. Should any of the factors considered by management in evaluating the appropriate level of the ACL change, including the size and composition of the loan portfolio, the credit quality of the loan portfolio, as well as forecasts of future economic conditions, the Company’s estimate of current expected credit losses could also significantly change and affect the level of future provisions for credit losses.

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


		June 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Amount		Allowance as a % of Category Total		% of Loans in Category to Total Loans		Amount		Allowance as a % of Category Total		% of Loans in Category to Total Loans		(Dollars in thousands)	Amount		Allowance as a % of Category Total		% of Loans in Category to Total Loans		Amount		Allowance as a % of Category Total		% of Loans in Category to Total Loans
Investor loans secured by real estate	Investor loans secured by real estate													Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	37,221	1.33	%	18.5	%	$	37,380	1.35	%	19.4	%	CRE non-owner-occupied	$	31,715	1.22	%	18.3	%	$	33,692	1.27	%	18.1	%
Multifamily	Multifamily	56,293		0.91	%	41.1	%	55,209		0.94	%	41.2	%	Multifamily	57,787		0.97	%	42.0	%	56,334		0.92	%	41.6	%
Construction and land	Construction and land	5,436		1.64	%	2.2	%	5,211		1.88	%	1.9	%	Construction and land	7,672		1.83	%	3.0	%	7,114		1.78	%	2.7	%
SBA secured by real estate	SBA secured by real estate	2,865		6.48	%	0.3	%	3,201		6.82	%	0.3	%	SBA secured by real estate	2,291		5.63	%	0.3	%	2,592		6.15	%	0.3	%
Total investor loans secured by real estate	Total investor loans secured by real estate	101,815		1.09	%	62.1	%	101,001		1.12	%	62.8	%	Total investor loans secured by real estate	99,465		1.10	%	63.6	%	99,732		1.08	%	62.7	%
Business loans secured by real estate	Business loans secured by real estate													Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	31,461		1.27	%	16.5	%	29,575		1.31	%	15.7	%	CRE owner-occupied	29,334		1.25	%	16.6	%	32,340		1.33	%	16.6	%
Franchise real estate secured	Franchise real estate secured	6,530		1.68	%	2.6	%	7,985		2.10	%	2.7	%	Franchise real estate secured	7,790		2.09	%	2.6	%	7,019		1.86	%	2.6	%
SBA secured by real estate	SBA secured by real estate	5,149		7.66	%	0.4	%	4,866		7.03	%	0.5	%	SBA secured by real estate	4,415		7.29	%	0.4	%	4,348		7.09	%	0.4	%
Total business loans secured by real estate	Total business loans secured by real estate	43,140		1.47	%	19.5	%	42,426		1.57	%	18.9	%	Total business loans secured by real estate	41,539		1.50	%	19.6	%	43,707		1.52	%	19.6	%
Commercial loans	Commercial loans													Commercial loans
Commercial and industrial	Commercial and industrial	37,048		1.61	%	15.3	%	38,136		1.81	%	14.7	%	Commercial and industrial	37,659		1.91	%	13.9	%	35,169		1.63	%	14.7	%
Franchise non-real estate secured	Franchise non-real estate secured	13,124		3.16	%	2.8	%	15,084		3.84	%	2.7	%	Franchise non-real estate secured	15,721		4.04	%	2.7	%	16,029		3.96	%	2.8	%
SBA non-real estate secured	SBA non-real estate secured	452		4.11	%	0.1	%	565		5.12	%	0.1	%	SBA non-real estate secured	401		3.84	%	0.1	%	441		3.97	%	0.1	%
Total commercial loans	Total commercial loans	50,624		1.86	%	18.2	%	53,785		2.15	%	17.5	%	Total commercial loans	53,781		2.27	%	16.7	%	51,639		2.00	%	17.6	%
Retail loans	Retail loans													Retail loans
Single family residential	Single family residential	278		0.36	%	0.5	%	255		0.27	%	0.7	%	Single family residential	392		0.55	%	0.5	%	352		0.48	%	0.5	%
Consumer loans	Consumer loans	218		5.28	%	—	%	285		5.03	%	0.1	%	Consumer loans	211		6.65	%	—	%	221		6.73	%	—	%
Total retail loans	Total retail loans	496		0.60	%	0.5	%	540		0.53	%	0.8	%	Total retail loans	603		0.81	%	0.5	%	573		0.75	%	0.5	%
Total (1)	Total (1)	$	196,075	1.30	%	100.0	%	$	197,752	1.38	%	100.0	%	Total (1)	$	195,388	1.38	%	100.0	%	$	195,651	1.33	%	100.0	%

(1) Total loans utilized in the calculation of the ratio of ACL to total loans held for investment includes ~~$51.1~~$50.0 million and $61.9 million as of March 31, 2023 and December 31, 2022, respectively, of the basis adjustment of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

At ~~June 30, 2022,~~March 31, 2023, the ratio of ACL to loans held for investment was ~~1.30%~~1.38%, ~~a decrease~~an increase from ~~1.38%~~1.33% at December 31, ~~2021.~~2022. Our unamortized fair value discount on the loans acquired totaled ~~$63.6~~$52.2 million, or ~~0.42%~~0.37% of total loans held for investment, at ~~June 30, 2022,~~March 31, 2023, compared to ~~$77.1~~$54.8 million, or ~~0.54%~~0.37% of total loans held for investment, at December 31, ~~2021.~~2022.

9480

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


		Three Months Ended																Three Months Ended
		June 30, 2022					March 31, 2022					June 30, 2021						March 31, 2023					December 31, 2022					March 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	(Dollars in thousands)	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage
Investor loans secured by real estate	Investor loans secured by real estate																Investor loans secured by real estate
CRE non-owner-occupied	CRE non-owner-occupied	$	—	$	2,777,618	—%	$	—	$	2,758,078	—%	$	—	$	2,766,725	—%	CRE non-owner-occupied	$	51	$	2,622,150	—%	$	3,632	$	2,728,432	0.13%	$	—	$	2,758,078	—%
Multifamily	Multifamily	—		6,141,536		—%	—		5,903,012		—%	—		5,326,740		—%	Multifamily	217		6,039,264		—%	—		6,154,796		—%	—		5,903,012		—%
Construction and land	Construction and land	—		310,035		—%	—		295,490		—%	—		291,929		—%	Construction and land	—		420,558		—%	—		403,593		—%	—		295,490		—%
SBA secured by real estate	SBA secured by real estate	—		48,494		—%	70		45,392		0.15%	—		56,648		—%	SBA secured by real estate	—		41,023		—%	—		42,348		—%	70		45,392		0.15%
Total investor loans secured by real estate	Total investor loans secured by real estate	—		9,277,683		—%	70		9,001,972		—%	—		8,442,042		—%	Total investor loans secured by real estate	268		9,122,995		—%	3,632		9,329,169		0.04%	70		9,001,972		—%
Business loans secured by real estate	Business loans secured by real estate																Business loans secured by real estate
CRE owner-occupied	CRE owner-occupied	(4)		2,437,740		—%	(10)		2,266,066		—%	(15)		2,054,840		—%	CRE owner-occupied	2,151		2,372,678		0.09%	(23)		2,449,181		—%	(10)		2,266,066		—%
Franchise real estate secured	Franchise real estate secured	—		385,198		—%	—		382,381		—%	—		339,313		—%	Franchise real estate secured	—		376,836		—%	—		379,506		—%	—		382,381		—%
SBA secured by real estate	SBA secured by real estate	—		71,260		—%	—		75,189		—%	(80)		75,938		(0.11)%	SBA secured by real estate	—		61,439		—%	—		66,529		—%	—		75,189		—%
Total business loans secured by real estate	Total business loans secured by real estate	(4)		2,894,198		—%	(10)		2,723,636		—%	(95)		2,470,091		—%	Total business loans secured by real estate	2,151		2,810,953		0.08%	(23)		2,895,216		—%	(10)		2,723,636		—%
Commercial loans	Commercial loans																Commercial loans
Commercial and industrial	Commercial and industrial	4,848		2,289,380		0.21%	338		2,155,582		0.02%	1,192		1,721,554		0.07%	Commercial and industrial	912		2,038,633		0.04%	250		2,144,741		0.01%	338		2,155,582		0.02%
Franchise non-real estate secured	Franchise non-real estate secured	448		405,681		0.11%	—		389,323		—%	—		397,354		—%	Franchise non-real estate secured	(100)		395,557		(0.03)%	—		407,030		—%	—		389,323		—%
SBA non-real estate secured	SBA non-real estate secured	(16)		13,396		(0.12)%	48		11,607		0.41%	(2)		14,904		(0.01)%	SBA non-real estate secured	(6)		11,814		(0.05)%	(7)		12,229		(0.06)%	48		11,607		0.41%
Total commercial loans	Total commercial loans	5,280		2,708,457		0.19%	386		2,556,512		0.02%	1,190		2,133,812		0.06%	Total commercial loans	806		2,446,004		0.03%	243		2,564,000		0.01%	386		2,556,512		0.02%
Retail loans	Retail loans																Retail loans
Single family residential	Single family residential	(33)		79,071		(0.04)%	—		84,181		—%	(1)		164,561		—%	Single family residential	89		71,995		0.12%	(57)		74,010		(0.08)%	—		84,181		—%
Consumer	Consumer	2		4,518		0.04%	—		4,846		—%	—		6,141		—%	Consumer	(30)		3,255		(0.92)%	2		3,502		0.06%	—		4,846		—%
Total retail loans	Total retail loans	(31)		83,589		(0.04)%	—		89,027		—%	(1)		170,702		—%	Total retail loans	59		75,250		0.08%	(55)		77,512		(0.07)%	—		89,027		—%
Total (1)	Total (1)	$	5,245	$	14,918,800	0.04%	$	446	$	14,371,147	—%	$	1,094	$	13,216,647	0.01%	Total (1)	$	3,284	$	14,394,642	0.02%	$	3,797	$	14,799,237	0.03%	$	446	$	14,371,147	—%

Allowance for credit losses to loans held for investment	Allowance for credit losses to loans held for investment					1.30%					1.34%					1.71%	Allowance for credit losses to loans held for investment					1.38%					1.33%					1.34%
Nonperforming loans to loans held for investment	Nonperforming loans to loans held for investment					0.30%					0.38%					0.25%	Nonperforming loans to loans held for investment					0.18%					0.21%					0.38%
Allowance for credit losses to nonperforming loans	Allowance for credit losses to nonperforming loans					441%					357%					677%	Allowance for credit losses to nonperforming loans					786%					633%					357%

(1) Average loan balance includes ~~$45.1~~$60.6 million and $66.7 million of average basis adjustment of certain loans included in fair value hedging relationships for the three months ended ~~June 30,~~March 31, 2023 and December 31, 2022, respectively. There was no basis adjustment associated with fair value hedging relationships included in average loan balances during the three months ended March 31, 2022. Refer to Note 11 – Derivative Instruments for additional information.

For the Six Months Ended
June 30, 2022 June 30, 2021
(Dollars in thousands) Net Charge-offs (Recoveries) Average Loan Balance Percentage Net Charge-offs (Recoveries) Average Loan Balance Percentage
Investor loans secured by real estate
CRE non-owner-occupied $ — $ 2,767,902 —% $ 154 $ 2,721,450 0.01%
Multifamily — 6,022,933 —% — 5,264,649 —%
Construction and land — 302,803 —% — 305,207 —%
SBA secured by real estate 70 46,952 0.15% 265 56,423 0.47%
Total investor loans secured by real estate 70 9,140,590 —% 419 8,347,729 0.01%
Business loans secured by real estate
CRE owner-occupied (14) 2,352,377 —% (30) 2,049,670 —%
Franchise real estate secured — 383,797 —% — 341,985 —%
SBA secured by real estate — 73,214 —% 18 76,542 0.02%
Total business loans secured by real estate (14) 2,809,388 —% (12) 2,468,197 —%
Commercial loans
Commercial and industrial 5,186 2,222,851 0.23% 1,870 1,706,965 0.11%
Franchise non-real estate secured 448 397,547 0.11% 156 408,020 0.04%
SBA non-real estate secured 32 12,506 0.26% (4) 15,107 (0.03)%
Total commercial loans 5,666 2,632,904 0.22% 2,022 2,130,092 0.09%
Retail loans
Single family residential (33) 81,612 (0.04)% (1) 203,003 —%
Consumer 2 4,681 0.04% — 6,375 —%
Total retail loans (31) 86,293 (0.04)% (1) 209,378 —%
Total (1)
$ 5,691 $ 14,639,570 0.04% $ 2,428 $ 13,155,396 0.02%
Allowance for credit losses to loans held for investment 1.30% 1.71%
Nonperforming loans to loans held for investment 0.30% 0.25%
Allowance for credit losses to nonperforming loans 441% 677%

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

9681

Investment Securities

We primarily use our investment portfolio for liquidity purposes, capital preservation, and to support our interest rate risk management strategies. Investments totaled ~~$4.07~~$3.86 billion at ~~June 30, 2022,~~March 31, 2023, a decrease of ~~$585.8~~$127.2 million, or ~~12.6%~~3.2%, from ~~$4.66~~$3.99 billion at December 31, ~~2021, primarily to fund higher-yielding loan growth.~~2022. The decrease in securities was primarily the result of ~~$703.6~~$304.2 million in sales of AFS investment securities ~~$270.3~~and $105.9 million in principal payments, discounts from the AFS securities transferred to HTM, amortizations, and redemptions, partially offset by $232.3 million in purchases of U.S. Treasury securities and ~~$224.7 million decrease resulting from~~a mark-to-market fair value ~~adjustments, partially offset by $612.9 million in purchases, primarily corporate debt securities and collateralized mortgage obligations.~~loss reduction of $50.7 million. In general, the purchase of investment securities is primarily related to investing excess liquidity from our banking operations. During the ~~second~~first quarter of ~~2022,~~2023, we have maintained a portion of the AFS securities portfolio in highly-liquid, short-term ~~securities while also continuing to lower the effective duration of this portfolio to 3.4 years at June 30, 2022 from 4.1 years at December 31, 2021.~~securities. This strategy enhances our interest rate sensitivity profile to the current rate environment and provides us with the flexibility to quickly redeploy these funds into higher-yielding assets as opportunities arise. The effective duration of this portfolio was 3.5 years at March 31, 2023 and 3.1 years at December 31, 2022.

At ~~June 30, 2022,~~March 31, 2023, AFS and HTM investment securities were ~~$2.68~~$2.11 billion and $1.75 billion, respectively, compared to $2.60 billion and $1.39 billion, respectively, ~~compared to $4.27 billion and $381.7 million, respectively,~~ at December 31, ~~2021.~~2022. During the ~~second~~first quarter of ~~2022,~~2023, the Company ~~reassessed classification~~transferred AFS securities of ~~certain investments with longer duration and transferred~~ approximately ~~$444.6~~$410.7 million of ~~the remaining AFS municipal bond portfolio, which the~~collateralized mortgage obligations to HTM securities. The Company intends and has the ability to hold the securities transferred to ~~maturity, to HTM securities.~~maturity. The transfer of these securities was accounted for at fair value on the transfer date. ~~The municipal bonds had a net carrying amount of $400.8 million with a pre-tax unrealized loss of $43.8 million, which were reflected as discounts on~~In total, the ~~date of transfer.~~

During the first six months of 2022, the Company transferred AFS securities of approximately $831.4 million of municipal bonds and $255.0 million of mortgage-backed securities, both of which the Company intends and has the ability to hold to maturity, to HTM securities. The transfer of these securities was accounted for at fair value on the transfer date. The municipal bonds had a net carrying amount of $780.7 million with a pre-tax unrealized loss of $50.8 million, and the mortgage-backedcollateralized mortgage obligations securities had a net carrying amount of ~~$238.8~~$360.3 million with a pre-tax unrealized ~~loss~~losses of ~~$16.2~~$50.4 million, which ~~were reflected as discounts on the date of transfer. These discounts~~ are accreted into interest income as yield adjustments through earnings over the remaining term of the securities. The amortization of the related net after-tax unrealized ~~holding loss~~losses reported in accumulated other comprehensive ~~income~~loss largely offsets the effect on interest income of the accretion of the discount. No gains or losses were recorded at the time of transfer. The AFS securities transferred to HTM ~~during the six months ended June 30, 2022~~ were investment grade with no credit-related issues as of the transfer date. The transfer of AFS securities to HTM was part of our ~~interest rate risk~~ management strategy to limit ~~future valuation changes resulting from~~ interest rate ~~increases.~~impact to accumulated other comprehensive income. See Note 4 – Investment Securities to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q.

The ACL on investment securities is determined for both the AFS and HTM classifications of the investment portfolio in accordance with ASC 326 and evaluated on a quarterly basis. As of ~~June 30,~~March 31, 2023 and December 31, 2022, the Company had an ACL of ~~$109,000~~ $227,000 and $43,000, respectively, for HTM investment securities classified as municipal bonds~~, which were transferred from AFS since the third quarter of 2021.~~. The Company ~~had an ACL of $22,000 for HTM investment securities at December 31, 2021. The Company~~ recognized ~~$68,000~~$184,000 and $19,000 of provision for credit losses for HTM investment securities during the three months ended ~~June 30, 2022~~March 31, 2023 and March 31, 2022, respectively, and ~~$87,000 during the six months ended June 30, 2022. The Company did not recognize any~~$48,000 of provision ~~for credit losses~~recapture for HTM investment securities during the three ~~and six~~ months ended ~~June 30, 2021.~~December 31, 2022. The Company had no ACL for AFS investment securities at March 31, 2023 and December 31, 2022.

9782

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


		June 30, 2022																					March 31, 2023
		One Year or Less				More than One to Five Years				More than Five Years to Ten Years				More than Ten Years				Total					One Year or Less				More than One to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
(Dollars in thousands)	(Dollars in thousands)	Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		(Dollars in thousands)	Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield
Investment securities available-for-sale:																						Investment securities available-for-sale:
U.S. Treasury																						U.S. Treasury	$	—	—	%	$	—	—	%	$	13,355	1.33	%	$	—	—	%	$	13,355	1.33	%
Agency																						Agency	16,966		3.34	%	292,224		0.94	%	89,306		1.41	%	19,235		1.42	%	417,731		1.16	%
Corporate																						Corporate	—		—	%	280,121		5.25	%	228,068		3.17	%	—		—	%	508,189		4.24	%

Collateralized mortgage obligations																						Collateralized mortgage obligations	31,174		2.66	%	70,731		4.45	%	178,056		2.97	%	92,671		4.37	%	372,632		3.55	%
Mortgage-backed securities																						Mortgage-backed securities	19,617		3.09	%	14,656		3.43	%	452,677		1.15	%	313,995		1.75	%	800,945		1.47	%
Total securities available-for-sale																						Total securities available-for-sale	67,757		2.95	%	657,732		3.21	%	961,462		1.99	%	425,901		2.30	%	2,112,852		2.42	%
HTM investment securities:	HTM investment securities:																					HTM investment securities:
Municipal bonds	Municipal bonds	$	—	—	%	$	—	—	%	$	60,867	1.56	%	$	1,087,544	2.08	%	$	1,148,411	2.05	%	Municipal bonds	$	—	—	%	$	10,589	1.59	%	$	53,233	1.55	%	$	1,084,000	2.07	%	$	1,147,822	2.04	%
Collateralized mortgage obligations																						Collateralized mortgage obligations	—		—	%	151		5.04	%	—		—	%	356,284		4.13	%	356,435		4.13	%
Mortgage-backed securities	Mortgage-backed securities	—		—	%	—		—	%	—		—	%	240,918		1.75	%	240,918		1.75	%	Mortgage-backed securities	—		—	%	—		—	%	—		—	%	228,624		1.83	%	228,624		1.83	%
Other	Other	—		—	%	—		—	%	—		—	%	1,462		0.97	%	1,462		0.97	%	Other	—		—	%	—		—	%	—		—	%	16,376		2.83	%	16,376		2.83	%
Total HTM investment securities	Total HTM investment securities	$	—	—	%	$	—	—	%	$	60,867	1.56	%	$	1,329,924	2.02	%	$	1,390,791	2.00	%	Total HTM investment securities	$	—	—	%	$	10,740	1.64	%	$	53,233	1.55	%	$	1,685,284	2.48	%	$	1,749,257	2.45	%

Total securities																						Total securities	$	67,757	2.95	%	$	668,472	3.18	%	$	1,014,695	1.97	%	$	2,111,185	1.75	%	$	3,862,109	2.05	%

The following table presents the fair value of AFS and the amortized cost of HTM investment securities portfolios by Moody’s credit ratings at ~~June 30, 2022~~March 31, 2023.


(Dollars in thousands)	(Dollars in thousands)	U.S. Treasury		Agency		Corporate Debt		Municipal Bonds		Collateralized Mortgage Obligations		Mortgage-backed Securities		Other		Total		%		(Dollars in thousands)	U.S. Treasury		Agency		Corporate Debt		Municipal Bonds		Collateralized Mortgage Obligations		Mortgage-backed Securities		Other		Total		%
Aaa - Aa3	Aaa - Aa3	$	33,360	$	406,483	$	19,635	$	1,148,411	$	789,786	$	1,115,132	$	—	$	3,512,807	86.3	%	Aaa - Aa3	$	13,355	$	417,731	$	19,645	$	1,147,822	$	729,067	$	1,029,569	$	—	$	3,357,189	86.9	%
A1 - A3	A1 - A3	—		—		345,032		—		—		—		—		345,032		8.5	%	A1 - A3	—		—		308,556		—		—		—		—		308,556		8.0	%
Baa1 - Baa3	Baa1 - Baa3	—		5,812		204,748		—		—		—		1,462		212,022		5.2	%	Baa1 - Baa3	—		—		179,988		—		—		—		16,376		196,364		5.1	%
Total	Total	$	33,360	$	412,295	$	569,415	$	1,148,411	$	789,786	$	1,115,132	$	1,462	$	4,069,861	100.0	%	Total	$	13,355	$	417,731	$	508,189	$	1,147,822	$	729,067	$	1,029,569	$	16,376	$	3,862,109	100.0	%

At ~~June 30, 2022~~March 31, 2023, ~~94.8%~~94.9% of the Company’s investment securities portfolio was rated “A1 ~~-A3”~~- A3” or higher. We continue to monitor the quality of our investment securities portfolio in accordance with current financial conditions and economic environment.

Liabilities and Stockholders’ Equity

Total liabilities were ~~$19.24~~$18.53 billion at ~~June 30, 2022,~~March 31, 2023, compared to ~~$18.21~~$18.89 billion at December 31, ~~2021.~~2022. The ~~increase~~decrease of ~~$1.03 billion,~~$359.2 million, or ~~5.7%~~1.9%, from December 31, ~~2021~~2022 was primarily due to ~~a $969.0~~decreases of $200.0 million ~~increase in deposits, a $600.0 million increase~~ in FHLB term advances, $144.6 million in deposits, and ~~a $19.2 million increase in other liabilities, partially offset by decreases of $550.0 million FHLB overnight advances and $8.0~~$14.8 million in other ~~short-term borrowing.~~liabilities.

Deposits. At ~~June 30, 2022,~~March 31, 2023, deposits totaled ~~$18.08~~$17.21 billion, ~~an increase~~a decrease of ~~$969.0~~$144.6 million, or ~~5.7%~~0.8%, from ~~$17.12~~$17.35 billion at December 31, ~~2021.~~2022. The ~~increase~~decrease in deposits included ~~$656.1~~decreases of $293.8 million in money market/savings, $248.0 million in interest-bearing checking, ~~$599.7 million in brokered certificates of deposit~~ and ~~an increase of $177.1~~$97.7 million in noninterest-bearing checking, partially offset by ~~a decrease~~increases of ~~$261.5~~$324.2 million in ~~money market/savings~~brokered certificates of deposit to provide additional liquidity and ~~$202.3~~interest rate protection, and $170.7 million in retail certificates of deposit. The ~~addition of brokered certificates of deposit~~linked-quarter decrease was ~~a result of our interest rate risk management strategy~~largely driven by the industry-wide turmoil due to ~~bolster our liquidity position~~high profile bank failures experienced during the quarter and ~~provide greater balance sheet flexibility.~~partially by clients redeploying funds into higher yielding alternatives.

The Company considers core deposits to be total deposits excluding all certificates of deposit and all brokered ~~deposits as core~~ deposits. At ~~June 30, 2022,~~March 31, 2023, core deposits totaled ~~$16.63~~$14.21 billion, or ~~91.9%~~82.6% of total deposits, ~~an increase~~a decrease of ~~$574.2~~$639.5 million, or ~~3.58%~~4.3%, from December 31, ~~2021.~~2022. The ~~increase~~decrease compared to the prior ~~year end~~year-end was ~~primarily due~~attributable mostly to the ~~increases~~Bank's treasury and branch-based deposits as well as Pacific Premier Trust deposits. The effort to manage the increase in ~~interest-bearing checking~~our deposit costs, competition for deposits, and reduced funding needs all contributed to the core deposit decline in the rapidly rising rate environment. Our core deposits reflect our well-diversified and relationship-focused business model that has resulted in 36.1% of noninterest-bearing checking ~~partially offset by the decrease in money market/savings.~~

~~Non-maturity~~ deposits ~~totaled $16.63 billion, or 92.0%~~as a percent of total deposits anas of March 31, 2023. As of March 31, 2023, no individual depositor represented more than 1.6% of our total deposits, and our top 50 depositors represented 10.8% of our total deposits. Given the rising interest rate environment, for the near term, it is likely that the deposit costs will continue to increase ~~of $571.7 million, or 3.6%, from December 31, 2021.~~and the deposit pricing impact may lead to deposit balance fluctuations.

The total end-of-period weighted average rate of deposits at ~~June 30, 2022~~March 31, 2023 was ~~0.13%~~1.15%, an increase from ~~0.04%~~0.79% at December 31, ~~2021,~~2022, principally driven by ~~the addition of brokered~~higher pricing across all deposit categories. While incorporating time deposits ~~as part~~into our funding mix will increase our deposit costs in the near term, we believe that locking in this longer-term funding ahead of ~~our~~the Federal Reserve’s anticipated additional interest rate ~~risk management strategy.~~increases will provide more funding flexibility and help us control our overall funding costs going forward. The total end-of-period weighted average rate of core deposits at ~~June 30, 2022~~March 31, 2023 was ~~0.06%~~0.61%, compared to ~~0.03%~~0.43% at December 31, ~~2021.~~2022.

Our ratio of loans held for investment to deposits was ~~83.2%~~82.4% and ~~83.5%~~84.6% at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

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


		June 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Balance		% of Total Deposits		Weighted Average Rate		Balance		% of Total Deposits		Weighted Average Rate		(Dollars in thousands)	Balance		% of Total Deposits		Weighted Average Rate		Balance		% of Total Deposits		Weighted Average Rate
Core deposits
Noninterest-bearing checking	Noninterest-bearing checking	$	6,934,318	38.4	%	—	%	$	6,757,259	39.5	%	—	%	Noninterest-bearing checking	$	6,209,104	36.1	%	—	%	$	6,306,825	36.4	%	—	%
Interest-bearing checking	Interest-bearing checking	4,149,432		22.9	%	0.12	%	3,493,331		20.4	%	0.02	%	Interest-bearing checking	2,871,812		16.7	%	0.98	%	3,119,850		18.0	%	0.63	%
Money market	Money market	5,104,384		28.2	%	0.09	%	5,381,615		31.4	%	0.07	%	Money market	4,758,267		27.6	%	1.18	%	4,945,989		28.5	%	0.85	%
Savings	Savings	437,846		2.4	%	0.02	%	419,558		2.5	%	0.02	%	Savings	370,560		2.2	%	0.10	%	476,588		2.7	%	0.49	%
Total core deposits	Total core deposits	16,625,980		91.9	%	0.06	%	16,051,763		93.8	%	0.03	%	Total core deposits	14,209,743		82.6	%	0.61	%	14,849,252		85.6	%	0.43	%

Brokered money market	Brokered money market	3,000		—	%	0.03	%	5,553		—	%	0.06	%	Brokered money market	30		—	%	0.05	%	30		—	%	0.05	%
Time deposit accounts:	Time deposit accounts:													Time deposit accounts:
Less than 1.00%	Less than 1.00%	700,695		3.9	%	0.18	%	1,012,473		5.9	%	0.18	%	Less than 1.00%	287,237		1.7	%	0.18	%	398,777		2.3	%	0.15	%
1.00 - 1.99	1.00 - 1.99	543,953		3.0	%	1.53	%	39,322		0.3	%	1.49	%	1.00 - 1.99	49,941		0.3	%	1.47	%	193,529		1.1	%	1.78	%
2.00 - 2.99	2.00 - 2.99	210,985		1.2	%	2.20	%	6,296		—	%	2.23	%	2.00 - 2.99	381,412		2.2	%	2.45	%	431,042		2.5	%	2.47	%
3.00 - 3.99	3.00 - 3.99	—		—	%	—	%	182		—	%	3.45	%	3.00 - 3.99	545,731		3.2	%	3.47	%	645,228		3.7	%	3.44	%
4.00 - 4.99	4.00 - 4.99	—		—	%	—	%	—		—	%	—	%	4.00 - 4.99	1,225,716		7.1	%	4.41	%	834,543		4.8	%	4.42	%
5.00 and greater	5.00 and greater	—		—	%	—	%	—		—	%	—	%	5.00 and greater	508,000		2.9	%	5.22	%	—		—	%	—	%
Total time deposit accounts	Total time deposit accounts	1,455,633		8.1	%	0.98	%	1,058,273		6.2	%	0.24	%	Total time deposit accounts	2,998,037		17.4	%	3.67	%	2,503,119		14.4	%	2.95	%
Total non-core deposits	Total non-core deposits	1,458,633		8.1	%	0.98	%	1,063,826		6.2	%	0.24	%	Total non-core deposits	2,998,067		17.4	%	3.67	%	2,503,149		14.4	%	2.95	%
Total deposits	Total deposits	$	18,084,613	100.0	%	0.13	%	$	17,115,589	100.0	%	0.04	%	Total deposits	$	17,207,810	100.0	%	1.15	%	$	17,352,401	100.0	%	0.79	%

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


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	March 31, 2023		December 31, 2022
Uninsured deposits	Uninsured deposits	$	6,691,045	$	6,220,802	Uninsured deposits	$	6,680,247	$	5,756,162

Insured and collateralized deposits comprised 65% of total deposits at March 31, 2023. This includes federally-insured deposits, $605.5 million of collateralized municipal and tribal deposits, and $70.0 million of privately insured deposits.

The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is ~~$248.4~~$420.7 million at ~~June 30, 2022~~March 31, 2023 and ~~$357.1~~$382.0 million at December 31, ~~2021.~~2022. The following table sets forth the maturity distribution of the estimated uninsured time deposits:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	March 31, 2023		December 31, 2022
3 months or less	3 months or less	$	156,176	$	297,595	3 months or less	$	187,634	$	199,742
Over 3 months through 6 months	Over 3 months through 6 months	65,706		28,187		Over 3 months through 6 months	99,824		109,659
Over 6 months through 12 months	Over 6 months through 12 months	21,311		23,051		Over 6 months through 12 months	83,679		50,707
Over 12 months	Over 12 months	5,235		8,287		Over 12 months	49,557		21,903
Total	Total	$	248,428	$	357,120	Total	$	420,694	$	382,011

Borrowings. At ~~June 30, 2022,~~March 31, 2023, total borrowings amounted to ~~$930.9 million, an increase~~$1.13 billion, a decrease of ~~$42.3~~$199.8 million, or ~~4.8%~~15.0%, from ~~$888.6 million~~$1.33 billion at December 31, ~~2021.~~2022. Total borrowings at ~~June 30, 2022~~March 31, 2023 were comprised of ~~$600.0~~$800.0 million of FHLB term advances and ~~$330.9~~$331.4 million of subordinated debentures. The ~~increase~~decrease in borrowings at ~~June 30, 2022~~March 31, 2023 as compared to December 31, ~~2021~~2022 was primarily due to ~~an increase~~the maturity of ~~$600.0~~$200.0 million in FHLB term advances during the first quarter of 2023, partially offset by ~~a $550.0 million decrease in FHLB overnight advances and an $8.0 million decrease in other short-term borrowings.~~the amortization of the subordinated debt issuance cost. At ~~June 30, 2022,~~March 31, 2023, total borrowings represented ~~4.2%~~5.3% of total assets and had an end-of-period weighted average rate of ~~3.27%~~4.09%, compared with ~~4.2%~~6.1% of total assets and an end-of-period weighted average rate of ~~2.12%~~3.72% at December 31, ~~2021.~~2022.

At ~~June 30, 2022,~~March 31, 2023, total subordinated debentures were comprised of the following:

•Subordinated notes of $60.0 million at a fixed rate of 5.75% due September 3, 2024 (the “Notes I”) and a carrying value of ~~$59.7~~$59.8 million, net of unamortized debt issuance cost of ~~$269,000.~~$179,000. Interest is payable semiannually at 5.75% per annum;

•Subordinated notes of $125.0 million at 4.875% fixed-to-floating rate due May 15, 2029 (the “Notes II”) and a carrying value of ~~$123.3~~$123.5 million, net of unamortized debt issuance cost of ~~$1.7~~$1.6 million. Interest is payable semiannually at an initial fixed rate of 4.875% per annum. From and including May 15, 2024, but excluding the maturity date or the date of earlier redemption, the Notes II will bear interest at a floating rate equal to three-month LIBOR plus a spread of 2.50% per annum, payable quarterly in arrears; and

•Subordinated notes of $150.0 million at 5.375% fixed-to-floating rate due June 15, 2030 (the “Notes III”) and a carrying value of ~~$147.9~~$148.1 million, net of unamortized debt issuance cost of ~~$2.1~~$1.9 million. Interest on the Notes III accrue at a rate equal to 5.375% per annum from and including June 15, 2020 to, but excluding, June 15, 2025, payable semiannually in arrears. From and including June 15, 2025 to, but excluding, June 15, 2030 or the earlier redemption date, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month term SOFR, plus a spread of 517 basis points, payable quarterly in arrears.

For additional information about the subordinated debentures, see Note 8 – Subordinated Debentures to the ~~Consolidated Financial Statements~~consolidated financial statements in this Quarterly Report on Form 10-Q.

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


		June 30, 2022					December 31, 2021						March 31, 2023					December 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Balance			Weighted Average Rate		Balance			Weighted Average Rate		(Dollars in thousands)	Balance			Weighted Average Rate		Balance			Weighted Average Rate
FHLB advances	FHLB advances	$	600,000		2.15	%	$	550,000		0.20	%	FHLB advances	$	800,000		3.59	%	$	1,000,000		3.19	%
Other borrowings		—			—	%	8,000			2.15	%

Subordinated debentures	Subordinated debentures	330,886			5.32	%	330,567			5.33	%	Subordinated debentures	331,364			5.31	%	331,204			5.32	%
Total borrowings	Total borrowings	$	930,886		3.27	%	$	888,567		2.12	%	Total borrowings	$	1,131,364		4.09	%	$	1,331,204		3.72	%

Weighted average cost of borrowings during the quarter	Weighted average cost of borrowings during the quarter	3.34		%			4.59		%			Weighted average cost of borrowings during the quarter	3.83		%			3.62		%
Borrowings as a percent of total assets	Borrowings as a percent of total assets	4.2		%			4.2		%			Borrowings as a percent of total assets	5.3		%			6.1		%

As of March 31, 2023, our unused borrowing capacity was $8.55 billion, which consisted of available lines of credit with FHLB and other correspondent banks as well as access through the Federal Reserve Bank's discount window and the new Bank Term Funding Program. As a result of our proactive liquidity management, we were able to reduce FHLB borrowings by $200 million during the first quarter of 2023, and did not need to utilize either the Federal Reserve Bank's discount window or the Bank Term Funding Program.

The Company maintains additional sources of liquidity at the Corporation level. Our Corporation maintains a $25.0 million line of credit with U.S. Bank and had no outstanding balance against it at March 31, 2023 and December 31, 2022.

~~100~~86

Stockholders’ Equity. Total stockholders’ equity was ~~$2.76~~$2.83 billion as of ~~June 30, 2022,~~March 31, 2023, a ~~$131.1~~$32.8 million ~~decrease~~increase from ~~$2.89~~$2.80 billion at December 31, ~~2021.~~2022. The ~~current quarter’s decrease~~increase in stockholders’ equity was primarily due to ~~$207.2~~$62.6 million inof net income and $2.5 million of other comprehensive ~~loss from the impact of higher interest rates on our AFS securities portfolio, and $62.5~~income, partially offset by $31.4 million in cash ~~dividends, partially offset by $136.7 million net income.~~dividends.

Our book value per share ~~decreased~~increased to ~~$29.01~~$29.58 at ~~June 30, 2022~~March 31, 2023 from ~~$30.58~~$29.45 at December 31, ~~2021.~~2022. At ~~June 30, 2022,~~March 31, 2023, the Company’s tangible common equity to tangible assets ratio was ~~8.52%~~9.20%, ~~a decrease~~an increase from ~~9.52%~~8.88% at December 31, ~~2021.~~2022. Our tangible book value per share was ~~$18.86,~~$19.61, compared to ~~$20.29~~$19.38 at December 31, ~~2021 .~~2022. The ~~decreases~~increases in ~~the ratio of~~ tangible common equity ~~to tangible assets~~ratio and tangible book value per share at ~~June 30, 2022~~March 31, 2023 from the prior ~~quarter~~year-end were primarily driven by ~~the~~net income and other comprehensive ~~loss from~~income, partially offset by dividends paid during the ~~impact of higher interest rates on our AFS securities portfolio.~~three months ended March 31, 2023. The decrease in tangible assets also contributed to the increase in tangible common equity ratio. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAPITAL RESOURCES AND LIQUIDITY

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

In addition to the interest payments on loans and investments as well as fees collected on the services we provide, our primary sources of funds generated during the first ~~six~~three months of ~~2022~~2023 were from:

•Principal payments on loans held for investment of ~~$1.55 billion;~~$402.0 million; and

•Proceeds of ~~$900.9~~$359.6 million from the sale, payments, or maturity of securities;

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

•~~Increased FHLB borrowings of $50.0 million.~~

We used these funds to:

•Purchase AFS securities of $224.3 million;

•Decrease FHLB borrowings of $200.0 million;

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

•~~Purchase AFS securities of $583.3~~$65.3 million; and

•Return capital to shareholders through ~~$62.5~~$31.4 million in ~~dividends; and~~

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

Our most liquid assets are unrestricted cash, short-term investments, and ~~short-term investments.~~unpledged AFS investments securities. The levels of these assets are dependent on our operating, lending, and investing activities during any given period. ~~Our~~We endeavor to take a prudent, proactive approach to liquidity ~~position is continuously monitored~~management, as evidenced by our balance-sheet-oriented initiatives throughout 2022 and ~~adjustments are made to~~ the ~~balance between sources and uses~~first quarter of ~~funds as deemed appropriate.~~2023. At ~~June 30, 2022,~~March 31, 2023, cash and cash equivalents totaled ~~$972.8 million, and the market value of our investment securities AFS totaled $2.68~~$1.42 billion. If additional ~~funds are~~liquidity is needed or otherwise desired as part of our liquidity management strategy, we have additional sources of liquidity that can be accessed, including FHLB advances, federal fund lines, the Federal Reserve Board’s lending programs, brokered deposits, as well as loan and investment securities sales. As of ~~June 30, 2022,~~March 31, 2023, the ~~maximum amount we could borrow through the~~Bank had secured borrowing capacity with FHLB ~~was $8.65~~of $6.40 billion, of which ~~$5.68~~$4.85 billion was remaining available for borrowing, based on collateral pledged of ~~$8.87~~$8.27 billion at carrying value in ~~real estate~~qualifying loans. At ~~June 30, 2022,~~March 31, 2023, we had ~~$600.0~~$800.0 million in FHLB term borrowings. At ~~June 30, 2022,~~March 31, 2023, we also had a ~~$214,390~~$1.22 billion line with the FRB discount window secured by investment securities, ~~as well as~~a $2.09 billion line with the FRB’s Bank Term Funding Program, unsecured lines of credit aggregating to ~~$330.0~~$395.0 million with other correspondent banks from which to purchase federal ~~funds.~~funds, and AFS investment securities with the aggregate market value of $2.11 billion. At March 31, 2023, our unused borrowing capacity was $8.55 billion and the combined readily available liquidity with cash and cash equivalents of $1.42 billion was approximately $10 billion, with a coverage ratio of 166% to uninsured and uncollateralized deposits.

We believe our level of liquid assets is sufficient to meet current anticipated funding needs. As of ~~June 30, 2022,~~March 31, 2023, our liquidity ratio was ~~19.3%~~21.0%, which is above the Company’s minimum policy requirement of 10.0%. The Company regularly monitors liquidity, models liquidity stress scenarios to ensure that adequate liquidity is available, and has contingency funding plans in place, which are reviewed and tested on a regular, recurring basis.

~~101~~

To the extent that ~~2022~~2023 deposit growth is not sufficient to satisfy our ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, or make investments, we may access funds through our FHLB borrowing arrangement, FRB discount window and Bank Term Funding Program, unsecured lines of credit, or other sources.

The Bank maintains liquidity guidelines in the Company’s Liquidity Policy that permits the purchase of brokered deposit funds, in an amount not to exceed ~~10%~~15% of total deposits or 8%12% of total assets, as a secondary source for funding. At ~~June 30, 2022,~~March 31, 2023, we had ~~$602.7 million~~$1.74 billion in brokered deposits, which constituted ~~3.33%~~10.12% of total deposits and ~~2.74%~~8.15% of total assets at that date. During ~~the second quarter of 2022,~~three months ended March 31, 2023, the Bank added approximately ~~$600.0~~$324.3 million in brokered certificates of deposit asand $170.7 million in retail certificates of deposit, which are part of the interest rate risk management strategy to bolster our liquidity position and provide greater balance sheet flexibility.

The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation’s primary sources of liquidity are dividends from the Bank. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Corporation. Management believes that such restrictions will not have a material impact on the ability of the Corporation to meet its ongoing cash obligations. During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, the Bank paid ~~$62.5~~$36.4 million in dividends to the Corporation.

The Corporation maintains a line of credit of $25.0 million with U.S. Bank that will expire on September ~~27, 2022.~~26, 2023. The Corporation anticipates renewing the line of credit upon expiration. This line of credit provides an additional source of liquidity at the Corporation level. At ~~June 30, 2022,~~March 31, 2023, the Corporation had no outstanding balances against this line.

During the first ~~and second~~ quarter of ~~2022,~~2023, the Corporation declared a quarterly dividend payment of $0.33 per share. On ~~July 19, 2022,~~April 24, 2023, the Company's Board of Directors declared a $0.33 per share dividend, payable on ~~August 12, 2022~~May 15, 2023 to stockholders of record as of ~~July 1, 2022.~~May 8, 2023. The Corporation’s Board of Directors periodically reviews whether to declare or pay cash dividends, taking into account, among other things, general business conditions, the Company’s financial results, future prospects, capital requirements, legal and regulatory restrictions, and such other factors as the Corporation’s Board of Directors may deem relevant.

On January 11, 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock, representing approximately 5% of the Company’s issued and outstanding shares of common stock and approximately $150 million of common stock as of December 31, 2020 based on the closing price of the Company’s common stock on December 31, 2020. During the ~~first half of 2022,~~three months ended March 31, 2023, the Company did not repurchase any shares of common stock. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

Our material cash requirements may include funding existing loan commitments, funding equity investments and affordable housing partnerships for LIHTC, withdrawal/maturity of existing deposits, repayment of borrowings, operating lease payments, and expenditures necessary to maintain current operations.

The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and to meet required capital needs. The following schedule summarizes maturities and principal payments due on our contractual obligations, excluding accrued interest:

~~102~~


		June 30, 2022							March 31, 2023
(Dollars in thousands)	(Dollars in thousands)	Less than 1 year		More than 1 year		Total		(Dollars in thousands)	Less than 1 year		More than 1 year		Total

FHLB advances and other borrowings	FHLB advances and other borrowings	$	200,000	$	400,000	$	600,000	FHLB advances and other borrowings	$	200,000	$	600,000	$	800,000
Subordinated debentures	Subordinated debentures	—		330,886		330,886		Subordinated debentures	—		331,364		331,364
Certificates of deposit	Certificates of deposit	1,308,180		147,453		1,455,633		Certificates of deposit	2,447,884		550,153		2,998,037
Operating leases	Operating leases	19,759		52,804		72,563		Operating leases	19,673		43,727		63,400
Affordable housing partnerships commitment	Affordable housing partnerships commitment	5,851		10,915		16,766		Affordable housing partnerships commitment	10,306		4,908		15,214
Total contractual cash obligations	Total contractual cash obligations	$	1,533,790	$	942,058	$	2,475,848	Total contractual cash obligations	$	2,677,863	$	1,530,152	$	4,208,015

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

In the ordinary course of business, we enter into various transactions to meet the financing needs of our customers which, in accordance with GAAP, are not included in our consolidated balance sheets. These transactions include off-balance sheet commitments, including commitments to extend credit and standby letters of credit, and commitments to fund investments that qualify for CRA credit. The following table presents a summary of the Company’s commitments to extend credit by expiration period:


		June 30, 2022							March 31, 2023
(Dollars in thousands)	(Dollars in thousands)	Less than 1 year		More than 1 year		Total		(Dollars in thousands)	Less than 1 year		More than 1 year		Total
Loan commitments to extend credit	Loan commitments to extend credit	$	1,406,887	$	1,422,559	$	2,829,446	Loan commitments to extend credit	$	1,152,240	$	1,215,173	$	2,367,413
Standby letters of credit	Standby letters of credit	43,488		—		43,488		Standby letters of credit	45,756		—		45,756
Total	Total	$	1,450,375	$	1,422,559	$	2,872,934	Total	$	1,197,996	$	1,215,173	$	2,413,169

Since many commitments to extend credit are expected to expire, the total commitment amounts do not necessarily represent future cash requirements. For further information, see Note 15 - Off-Balance Sheet Arrangements, Commitments, and Contingencies, to the consolidated financial statements of the Company’s ~~2021~~2022 Form 10-K.

~~103~~89

Regulatory Capital Compliance

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

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

Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III,” became effective for the Company and the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions. Beginning January 1, 2016, Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer of 2.5% above the minimum risk-based capital requirements, which fully phased in by January 1, 2019, in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. ~~The capital conservation buffer fully phased in at 2.50% by January 1, 2019.~~ At ~~June 30, 2022,~~March 31, 2023, the Company and Bank are in compliance with the capital conservation buffer requirement and exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of the fully phased-in capital conservation buffer, of 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as ~~“well-capitalized”~~“well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations. The regulatory capital ratios of the Company and Bank further strengthened at March 31, 2023 compared to the capital ratios at December 31, 2022.

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

For regulatory capital purposes, the Corporation’s subordinated debt is included in Tier 2 ~~capital.~~capital, the eligible amount of which is phased out by 20% of the original amount at the beginning of each of the last five year before maturity. See Note 8 – Subordinated Debentures for additional information.

~~104~~90

As defined in applicable regulations and set forth in the table below, the Corporation and the Bank continue to exceed the regulatory capital minimum requirements, and the Bank continues to exceed the “well capitalized” standards and the required conservation buffer at the dates indicated:

Actual Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer Minimum Required
For Well Capitalized Requirement
June 30, 2022
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio 9.90% 4.00% N/A
Common equity tier 1 capital ratio 11.91% 7.00% N/A
Tier 1 capital ratio 11.91% 8.50% N/A
Total capital ratio 14.41% 10.50% N/A
Pacific Premier Bank
Tier 1 leverage ratio 11.41% 4.00% 5.00%
Common equity tier 1 capital ratio 13.72% 7.00% 6.50%
Tier 1 capital ratio 13.72% 8.50% 8.00%
Total capital ratio 14.54% 10.50% 10.00%
Actual Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer Minimum Required
For Well Capitalized Requirement
December 31, 2021
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio 10.08% 4.00% N/A
Common equity tier 1 capital ratio 12.11% 7.00% N/A
Tier 1 capital ratio 12.11% 8.50% N/A
Total capital ratio 14.62% 10.50% N/A
Pacific Premier Bank
Tier 1 leverage ratio 11.62% 4.00% 5.00%
Common equity tier 1 capital ratio 13.96% 7.00% 6.50%
Tier 1 capital ratio 13.96% 8.50% 8.00%
Total capital ratio 14.70% 10.50% 10.00%


	Actual	Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer	Minimum Required For Well Capitalized Requirement
March 31, 2023
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	10.41%	4.00%	N/A
Common equity tier 1 capital ratio	13.54%	7.00%	N/A
Tier 1 capital ratio	13.54%	8.50%	N/A
Total capital ratio	16.33%	10.50%	N/A

Pacific Premier Bank
Tier 1 leverage ratio	11.93%	4.00%	5.00%
Common equity tier 1 capital ratio	15.52%	7.00%	6.50%
Tier 1 capital ratio	15.52%	8.50%	8.00%
Total capital ratio	16.55%	10.50%	10.00%


December 31, 2022
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	10.29%	4.00%	N/A
Common equity tier 1 capital ratio	12.99%	7.00%	N/A
Tier 1 capital ratio	12.99%	8.50%	N/A
Total capital ratio	15.53%	10.50%	N/A

Pacific Premier Bank
Tier 1 leverage ratio	11.80%	4.00%	5.00%
Common equity tier 1 capital ratio	14.89%	7.00%	6.50%
Tier 1 capital ratio	14.89%	8.50%	8.00%
Total capital ratio	15.74%	10.50%	10.00%

~~105~~91

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Asset/Liability Management and Market Risk

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

Interest Rate Risk Management

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

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

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

~~106~~92

The following table shows the projected NII and net interest margin of the Company at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


June 30, 2022
March 31, 2023								March 31, 2023
(Dollars in thousands)	(Dollars in thousands)							(Dollars in thousands)
		Earnings at Risk				Projected Net Interest Margin			Earnings at Risk			Projected Net Interest Margin
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change		Rate %		Change in Rates (Basis Points)	$ Amount	$ Change	% Change	Rate %
300								300	769,633	57,132	8.0	3.94
200	200	773,388	34,387	4.7	%	3.89	%	200	753,676	41,175	5.8	3.85
100	100	757,377	18,376	2.5	%	3.81	%	100	735,366	22,865	3.2	3.76
Static	Static	739,001	—	—	%	3.72	%	Static	712,501	—	—	3.64
-100	-100	714,925	(24,076)	(3.3)	%	3.60	%	-100	674,400	(38,101)	(5.3)	3.45
-200	-200	678,134	(60,867)	(8.2)	%	3.41	%	-200	628,331	(84,170)	(11.8)	3.21
-300								-300	576,874	(135,627)	(19.0)	2.95


December 31, 2021
December 31, 2022								December 31, 2022
(Dollars in thousands)	(Dollars in thousands)							(Dollars in thousands)
		Earnings at Risk				Projected Net Interest Margin			Earnings at Risk			Projected Net Interest Margin
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change		Rate %		Change in Rates (Basis Points)	$ Amount	$ Change	% Change	Rate %
200	200	683,485	19,799	3.0	%	3.60	%	200	787,390	32,342	4.3	4.03
100	100	672,776	9,090	1.4	%	3.55	%	100	772,657	17,609	2.3	3.95
Static	Static	663,686	—	—	%	3.50	%	Static	755,048	—	—	3.86
-100	-100	641,475	(22,211)	(3.3)	%	3.38	%	-100	727,456	(27,592)	(3.7)	3.72
-200	-200	608,007	(55,679)	(8.4)	%	3.21	%	-200	681,562	(73,486)	(9.7)	3.49

The following table shows the EVE and projected change in the EVE of the Company at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


June 30, 2022
March 31, 2023								March 31, 2023
(Dollars in thousands)	(Dollars in thousands)							(Dollars in thousands)
		Economic Value of Equity				EVE as % of market value of portfolio assets			Economic Value of Equity			EVE as % of market value of portfolio assets
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change		EVE Ratio		Change in Rates (Basis Points)	$ Amount	$ Change	% Change	EVE Ratio
300								300	3,645,168	44,763	1.2	19.81
200	200	3,294,382	240,437	7.9	%	17.34	%	200	3,694,042	93,637	2.6	19.46
100	100	3,197,305	143,360	4.7	%	16.34	%	100	3,679,064	78,659	2.2	18.78
Static	Static	3,053,945	—	—	%	15.15	%	Static	3,600,405	—	—	17.79
-100	-100	2,846,308	(207,637)	(6.8)	%	13.72	%	-100	3,457,934	(142,471)	(4.0)	16.55
-200	-200	2,440,478	(613,467)	(20.1)	%	11.44	%	-200	3,243,854	(356,551)	(9.9)	15.04
-300								-300	2,955,944	(644,461)	(17.9)	13.27

~~107~~93


December 31, 2021
December 31, 2022								December 31, 2022
(Dollars in thousands)	(Dollars in thousands)							(Dollars in thousands)
		Economic Value of Equity				EVE as % of market value of portfolio assets			Economic Value of Equity			EVE as % of market value of portfolio assets
Change in Rates (Basis Points)	Change in Rates (Basis Points)	$ Amount	$ Change	% Change		EVE Ratio		Change in Rates (Basis Points)	$ Amount	$ Change	% Change	EVE Ratio
200	200	3,146,242	169,608	5.7	%	16.75	%	200	3,910,396	9,655	0.2	20.39
100	100	3,088,311	111,677	3.8	%	15.90	%	100	3,949,678	48,937	1.3	19.95
Static	Static	2,976,634	—	—	%	14.82	%	Static	3,900,741	—	—	19.09
-100	-100	2,774,297	(202,337)	(6.8)	%	13.37	%	-100	3,770,385	(130,356)	(3.3)	17.88
-200	-200	2,349,722	(626,912)	(21.1)	%	10.99	%	-200	3,554,253	(346,488)	(8.9)	16.34

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

The Company has minimal direct market risk from foreign exchange and no exposure from commodities.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended ~~June 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~108~~94

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in legal proceedings occurring in the ordinary course of business. Management believes that none of the legal proceedings occurring in the ordinary course of business, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.

Item 1A. Risk Factors

The section titled Risk Factors in Part I, Item 1A of our ~~2021~~2022 Form 10-K included a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Company. ~~There are no material changes~~The information presented below provides an update to, ~~our~~and should be read in conjunction with, the risk factors ~~as previously described under Item 1A of~~and other information contained in our ~~2021~~2022 Form 10-K.

Adverse developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system and could have a material effect on the Company’s operations and/or stock price.

The recent high-profile bank failures of Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact our liquidity, cost of funding, loan funding capacity, net interest margin, capital, and results of operations. In connection with high-profile bank failures, uncertainty and concern has been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly. In addition, the banking operating environment and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially our results of operations.

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

On January 11, 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock. The stock repurchase program may be limited or terminated at any time without notice. During the ~~second~~first quarter of ~~2022,~~2023, the Company did not repurchase any shares of common stock.

The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the ~~second~~first quarter of ~~2022.~~2023.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
~~April~~January 1, ~~2022~~2023 to ~~April 30, 2022~~January 31, 2023	—	$	—	—	4,245,056
~~May~~February 1, ~~2022~~2023 to ~~May 31, 2022~~February 28, 2023	—	—		—	4,245,056
~~June~~March 1, ~~2022~~2023 to ~~June 30, 2022~~March 31, 2023	—	—		—	4,245,056
Total	—			—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~109~~96

Item 6. Exhibits


Exhibit 2.1						Agreement and Plan of Reorganization, dated as of January 31, 2020 by and between Pacific Premier Bancorp, Inc., Pacific Premier Bank and Opus Bank (1)
Exhibit 3.1						Second Amended and Restated Certificate of Incorporation of Pacific Premier Bancorp, Inc. (2)
Exhibit 3.2						Amended and Restated Bylaws of Pacific Premier Bancorp, Inc. (2)
Exhibit 4.1						Specimen Stock Certificate of Pacific Premier Bancorp, Inc. (3)
Exhibit 4.2						Long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the SEC upon request.
~~Exhibit 10.1~~						~~Pacific Premier Bancorp, Inc. Amended and Restated 2022 Long-Term Incentive Plan (4)~~
Exhibit 31.1						Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended
Exhibit 31.2						Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended
Exhibit 32						Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Exhibit 101.SCH						Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF						Inline XBRL Taxonomy Extension Definitions Linkbase Document
Exhibit 101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104						The cover page of Pacific Premier Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2022,~~March 31, 2023, formatted in Inline XBRL (contained in Exhibit 101)

(1) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on February 6, 2020.
(2) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on May 15, 2018.
(3) Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (Registration No. 333-20497) filed with the SEC on January 27, 1997.
~~(4) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on May 24, 2022.~~

~~110~~97

SIGNATURES

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


		PACIFIC PREMIER BANCORP, INC.,

Date:	~~August 5, 2022~~April 28, 2023	By:	/s/ Steven R. Gardner
			Steven R. Gardner
			Chairman, Chief Executive Officer, and President
			(Principal Executive Officer)

Date:	~~August 5, 2022~~April 28, 2023	By:	/s/ Ronald J. Nicolas, Jr.
			Ronald J. Nicolas, Jr.
			Senior Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

~~111~~98


(Dollars in thousands, except par value and share data)	June 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	133,732	$	83,150
Interest-bearing deposits with financial institutions	839,066		221,553
Cash and cash equivalents	972,798		304,703
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 $109 and $22 (fair value of $1,156,501 and $384,423) at June 30, 2022 and December 31, 2021, respectively	1,390,682		381,674
Investment securities available-for-sale, at fair value	2,679,070		4,273,864
FHLB, FRB, and other stock, at cost	118,636		117,538
Loans held for sale, at lower of cost or fair value	2,957		10,869
Loans held for investment	15,047,608		14,295,897
Allowance for credit losses	(196,075)		(197,752)
Loans held for investment, net	14,851,533		14,098,145
Accrued interest receivable	66,898		65,728

Premises and equipment	68,435		71,908
Deferred income taxes, net	163,767		87,344
Bank owned life insurance	454,593		449,353
Intangible assets	62,500		69,571
Goodwill	901,312		901,312
Other assets	258,522		260,204
Total assets	$	21,993,919	$	21,094,429

LIABILITIES
Deposit accounts:
Noninterest-bearing checking	$	6,934,318	$	6,757,259
Interest-bearing:
Checking	4,149,432		3,493,331
Money market/savings	5,545,230		5,806,726
Retail certificates of deposit	855,966		1,058,273
Wholesale/brokered certificates of deposit	599,667		—
Total interest-bearing	11,150,295		10,358,330
Total deposits	18,084,613		17,115,589
FHLB advances and other borrowings	600,000		558,000
Subordinated debentures	330,886		330,567

Accrued expenses and other liabilities	223,201		203,962
Total liabilities	19,238,700		18,208,118
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding	—		—
Common stock, $0.01 par value; 150,000,000 shares authorized at June 30, 2022 and December 31, 2021; 94,976,605 shares and 94,389,543 shares issued and outstanding, respectively	933		929
Additional paid-in capital	2,353,361		2,351,294
Retained earnings	615,943		541,950
Accumulated other comprehensive loss	(215,018)		(7,862)
Total stockholders’ equity	2,755,219		2,886,311
Total liabilities and stockholders’ equity	$	21,993,919	$	21,094,429



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


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

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


	At December 31, 2021
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Assets
Cash and cash equivalents	$	304,703	$	304,703	$	—	$	—	$	304,703
Interest-bearing time deposits with financial institutions	2,216		2,216		—		—		2,216
Investment securities held-to-maturity	381,674		—		384,423		—		384,423
Investment securities available-for-sale	4,273,864		—		4,273,864		—		4,273,864
Loans held for sale	10,869		—		11,959		—		11,959
Loans held for investment, net	14,295,897		—		—		14,392,684		14,392,684
Derivative assets	11,989		—		10,100		1,889		11,989
Accrued interest receivable	65,728		65,728		—		—		65,728

Liabilities
Deposit accounts	$	17,115,589	$	16,057,316	$	1,058,822	$	—	$	17,116,138
FHLB advances	550,000		—		550,093		—		550,093
Other borrowings	8,000		��		8,000		—		8,000
Subordinated debentures	330,567		—		350,359		—		350,359
Derivative liabilities	5,263		—		5,263		—		5,263
Accrued interest payable	2,366		2,366		—		—		2,366



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

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

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