UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)




ý☒						Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020


☐		~~For the quarterly period ended September 30, 2017~~ or

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	~~For the transition period from__________ to __________~~

For the transition period from__________ to __________

Commission file number: 001-32550

WESTERN ALLIANCE BANCORPORATION

(Exact name of registrant as specified in its charter)



~~Delaware~~

	~~88-0365922~~
Delaware		88-0365922
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One E. Washington Street, Suite 1400 ~~Phoenix, AZ~~

Phoenix

Arizona

85004

(Address of principal executive offices)

(Zip Code)

(602) 389-3500

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 Par Value

WAL

New York Stock Exchange

6.25% Subordinated Debentures due 2056

WALA

New York Stock Exchange

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. YesýNo¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files).YesýNo¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

☐

~~Large~~Non accelerated filer

ý☐

~~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 Rule 12b-2 of the Exchange Act).Yes¨☐Noý☒

As of October ~~20, 2017,~~26, 2020, Western Alliance Bancorporation had ~~105,490,079~~100,829,164 shares of common stock outstanding.

Table of Contents

INDEX

Table of Contents

PART I

GLOSSARY OF ENTITIES AND TERMS

The acronyms and abbreviations identified below are used in various sections of this Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 2 and the Consolidated Financial Statements and the Notes to Unaudited Consolidated Financial Statements in Item I1 of this Form 10-Q.



ENTITIES / DIVISIONS:
~~AAB~~ABA			~~Alliance Association Bank~~		~~HFF~~	~~Hotel Franchise Finance~~
~~ABA~~	Alliance Bank of Arizona	~~LVSP~~HOA Services		Homeowner Associations Services
BON			Bank of Nevada		LVSP		Las Vegas Sunset Properties
~~BON~~Bridge			Bridge Bank ~~of Nevada~~		TPB		Torrey Pines Bank
~~Bridge~~Company			~~Bridge Bank~~Western Alliance Bancorporation and subsidiaries		WA PWI		Western Alliance Public Welfare Investments, LLC
~~Company~~CSI			~~Western Alliance Bancorporation and subsidiaries~~CS Insurance Company		WAB or Bank		Western Alliance Bank
FIB			First Independent Bank		WABT		Western Alliance Business Trust
~~HOA Services~~HFF			~~Homeowner Associations Services~~Hotel Franchise Finance		WAL or Parent		Western Alliance Bancorporation
TERMS:
AFS			Available-for-Sale		~~HFS~~HELOC		~~Held for Sale~~Home Equity Line of Credit
ALCO			Asset and Liability Management Committee		~~HTM~~HFI		~~Held-to-Maturity~~Held for Investment
AOCI			Accumulated Other Comprehensive Income		~~ICS~~HTM		Held-to-Maturity
APIC			Additional paid in capital		ICS		Insured Cash Sweep Service
ASC			Accounting Standards Codification		IRC		Internal Revenue Code
ASU			Accounting Standards Update		ISDA		International Swaps and Derivatives Association
~~BOD~~Basel III			Banking Supervision's December 2010 final capital framework		LGD		Loss Given Default
BOD			Board of Directors		LIBOR		London Interbank Offered Rate
~~CDARS~~BSA			Bank Secrecy Act		LIHTC		Low-Income Housing Tax Credit
CARES Act			Coronavirus Aid, Relief and Economic Security Act		MBS		Mortgage-Backed Securities
CDARS			Certificate Deposit Account Registry Service		~~LIHTC~~MSLP		~~Low-Income Housing Tax Credit~~Main Street Lending Program
CDO			Collateralized Debt Obligation		~~MBS~~NBL		~~Mortgage-Backed Securities~~National Business Lines
CECL			Current Expected Credit Losses		~~NBL~~NOL		~~National Business Lines~~Net Operating Loss
CEO			Chief Executive Officer		~~NOL~~NPV		Net ~~Operating Loss~~Present Value
CFO			Chief Financial Officer		~~NPV~~OCI		~~Net Present Value~~
~~CRA~~	~~Community Reinvestment Act~~	~~NUBILs~~	~~Net Unrealized Built In Losses~~
~~CRE~~	~~Commercial Real Estate~~	~~OCI~~	Other Comprehensive Income
~~EPS~~COVID-19			~~Earnings per share~~Coronavirus Disease 2019		OREO		Other Real Estate Owned
~~EVE~~CRA			Community Reinvestment Act		OTTI		Other-than-Temporary Impairment
CRE			Commercial Real Estate		PCI		Purchased Credit Impaired
EAD			Exposure at Default		PD		Probability of Default
EPS			Earnings per share		PPNR		Pre-Provision Net Revenue
EVE			Economic Value of Equity		~~OTTI~~PPP		~~Other-than-Temporary Impairment~~Paycheck Protection Program
Exchange Act			Securities Exchange Act of 1934, as amended		~~PCI~~PPPFA		~~Purchased Credit Impaired~~Paycheck Protection Program Flexibility Act
FASB			Financial Accounting Standards Board		~~SBA~~REIT		~~Small Business Administration~~Real Estate Investment Trust
FDIC			Federal Deposit Insurance Corporation		~~SBIC~~ROU		Right of use
FHLB			Federal Home Loan Bank		SBA		Small Business Administration
FHLMC			Federal Home Loan Mortgage Corporation		SBIC		Small Business Investment Company
~~FHLB~~FinCEN			~~Federal Home Loan Bank~~Financial Crimes Enforcement Network		SEC		Securities and Exchange Commission
~~FRB~~FNMA			Federal ~~Reserve Bank~~National Mortgage Association		SERP		Supplemental Executive Retirement Plan
~~FVO~~FOMC			Federal Open Market Committee		SOFR		Secured Overnight Financing Rate
FRB			Federal Reserve Bank		SR		Supervision and Regulation Letters
FVO			Fair Value Option		TDR		Troubled Debt Restructuring
GAAP			U.S. Generally Accepted Accounting Principles		TEB		Tax Equivalent Basis
~~GSE~~GNMA			Government National Mortgage Association		TSR		Total Shareholder Return
GSE			Government-Sponsored Enterprise		XBRL		eXtensible Business Reporting Language
~~HFI~~	~~Held for Investment~~


~~Item 1.~~	~~Financial Statements~~

Table of Contents

Item 1.Financial Statements

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


								September 30, 2020		December 31, 2019
	September 30, 2017			December 31, 2016				(Unaudited)
	(Unaudited)
	(in thousands, except shares and per share amounts)							(in thousands, except shares and per share amounts)
Assets:							Assets:
Cash and due from banks	$	131,130		$	168,066		Cash and due from banks	$	163,893	$	185,977

Interest-bearing deposits in other financial institutions	519,224			116,425			Interest-bearing deposits in other financial institutions	1,254,842		248,619
Cash and cash equivalents	650,354			284,491
Money market investments	175			—
Investment securities - measured at fair value; amortized cost of $0 at September 30, 2017 and $1,055 at December 31, 2016	—			1,053
Investment securities - AFS, at fair value; amortized cost of $3,551,770 at September 30, 2017 and $2,633,298 at December 31, 2016	3,552,844			2,609,380
Investment securities - HTM, at amortized cost; fair value of $160,582 at September 30, 2017 and $91,966 at December 31, 2016	154,920			92,079

Cash, cash equivalents, and restricted cash							Cash, cash equivalents, and restricted cash	1,418,735		434,596

Investment securities - AFS, at fair value; amortized cost of $3,876,586 at September 30, 2020 and $3,317,928 at December 31, 2019							Investment securities - AFS, at fair value; amortized cost of $3,876,586 at September 30, 2020 and $3,317,928 at December 31, 2019	3,975,225		3,346,310
Investment securities - HTM, at amortized cost; fair value of $548,140 at September 30, 2020 and $516,261 at December 31, 2019							Investment securities - HTM, at amortized cost; fair value of $548,140 at September 30, 2020 and $516,261 at December 31, 2019	504,477		485,107
Less: allowance for credit losses							Less: allowance for credit losses	(5,964)		0
Net HTM investment securities							Net HTM investment securities	498,513		485,107
Investment securities - equity							Investment securities - equity	160,561		138,701
Investments in restricted stock, at cost	65,680			65,249			Investments in restricted stock, at cost	66,843		66,509
Loans - HFS	16,347			18,909			Loans - HFS	20,764		21,803
Loans - HFI, net	14,505,689			13,189,527
Loans, net of deferred loan fees and costs							Loans, net of deferred loan fees and costs	25,993,254		21,101,493
Less: allowance for credit losses	(136,421		)	(124,704		)	Less: allowance for credit losses	(310,560)		(167,797)
Net loans held for investment	14,369,268			13,064,823			Net loans held for investment	25,682,694		20,933,696
Premises and equipment, net	120,063			119,833			Premises and equipment, net	128,256		125,838
Other assets acquired through foreclosure, net	28,992			47,815
Operating lease right of use asset							Operating lease right of use asset	71,393		72,558
Bank owned life insurance	166,798			164,510			Bank owned life insurance	175,478		174,046
Goodwill	289,895			289,967
Other intangible assets, net	11,262			12,927
Goodwill and intangible assets, net							Goodwill and intangible assets, net	298,987		297,608
Deferred tax assets, net	83,772			95,194			Deferred tax assets, net	46,645		18,025
Investments in LIHTC and renewable energy							Investments in LIHTC and renewable energy	414,305		409,365

Other assets	411,851			334,612			Other assets	377,107		297,786
Total assets	$	19,922,221		$	17,200,842		Total assets	$	33,335,506	$	26,821,948
Liabilities:							Liabilities:
Deposits:							Deposits:
Non-interest-bearing demand	$	7,608,671		$	5,632,926		Non-interest-bearing demand	$	13,013,014	$	8,537,905
Interest-bearing	9,296,112			8,916,937			Interest-bearing	15,830,382		14,258,588
Total deposits	16,904,783			14,549,863			Total deposits	28,843,396		22,796,493
Customer repurchase agreements	26,066			41,728			Customer repurchase agreements	19,688		16,675

Other borrowings	—			80,000			Other borrowings	10,000		0
Qualifying debt, net	372,851			367,937
Qualifying debt							Qualifying debt	618,772		393,563
Operating lease liability							Operating lease liability	78,613		78,112
Other liabilities	472,894			269,785			Other liabilities	540,991		520,357
Total liabilities	17,776,594			15,309,313			Total liabilities	30,111,460		23,805,200
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 11)							Commitments and contingencies (Note 11)
Stockholders’ equity:							Stockholders’ equity:
Common stock - par value $0.0001; 200,000,000 authorized; 107,060,702 shares issued at September 30, 2017 and 106,371,093 at December 31, 2016	10			10
Treasury stock, at cost (1,567,203 shares at September 30, 2017 and 1,300,232 shares at December 31, 2016)	(40,004		)	(26,362		)
Common stock - par value $0.0001; 200,000,000 authorized; 102,993,777 shares issued at September 30, 2020 and 104,527,544 at December 31, 2019							Common stock - par value $0.0001; 200,000,000 authorized; 102,993,777 shares issued at September 30, 2020 and 104,527,544 at December 31, 2019	10		10
Treasury stock, at cost (2,168,437 shares at September 30, 2020 and 2,003,873 shares at December 31, 2019)							Treasury stock, at cost (2,168,437 shares at September 30, 2020 and 2,003,873 shares at December 31, 2019)	(71,098)		(62,728)
Additional paid in capital	1,418,835			1,400,140			Additional paid in capital	1,383,537		1,374,141
Accumulated other comprehensive income (loss)	8,164			(4,695		)
Accumulated other comprehensive income							Accumulated other comprehensive income	78,585		25,008
Retained earnings	758,622			522,436			Retained earnings	1,833,012		1,680,317
Total stockholders’ equity	2,145,627			1,891,529			Total stockholders’ equity	3,224,046		3,016,748
Total liabilities and stockholders’ equity	$	19,922,221		$	17,200,842		Total liabilities and stockholders’ equity	$	33,335,506	$	26,821,948

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Interest income:
Loans, including fees	$	276,623	$	278,932	$	843,085	$	808,099
Investment securities	26,323		28,928		79,778		84,929
Dividends	1,397		1,289		4,305		4,452
Other	500		6,459		3,129		12,144
Total interest income	304,843		315,608		930,297		909,624
Interest expense:
Deposits	12,215		43,354		59,736		121,030
Other borrowings	5		34		75		1,344
Qualifying debt	7,872		5,785		17,833		17,898
Other	13		13		495		913
Total interest expense	20,105		49,186		78,139		141,185
Net interest income	284,738		266,422		852,158		768,439
Provision for credit losses	14,661		3,803		157,837		15,303
Net interest income after provision for credit losses	270,077		262,619		694,321		753,136
Non-interest income:
Service charges and fees	5,913		5,888		17,447		17,121
Card income	1,873		1,729		4,768		5,195
Foreign currency income	1,755		1,321		4,242		3,564
Income from bank owned life insurance	1,345		979		8,977		2,938
Income from equity investments	1,186		3,742		6,263		6,619
Lending related income and gains on sale of loans, net	705		539		2,072		1,343
Gain on sales of investment securities, net	0		3,152		230		3,152
Fair value gain (loss) adjustments on assets measured at fair value, net	5,882		222		(986)		4,628


Other income	1,947		1,869		3,972		4,509
Total non-interest income	20,606		19,441		46,985		49,069
Non-interest expense:
Salaries and employee benefits	78,757		70,978		220,455		205,328
Legal, professional, and directors' fees	10,034		8,248		31,105		26,885
Occupancy	9,426		8,263		25,752		24,251
Data processing	8,864		7,095		26,044		20,563
Deposit costs	3,246		11,537		14,098		24,930
Insurance	3,064		3,071		9,506		8,691
Loan and repossessed asset expenses	1,771		1,953		5,280		5,419
Business development	950		1,443		4,062		4,972
Marketing	848		842		2,621		2,640
Card expense	505		548		1,631		1,892
Intangible amortization	373		387		1,120		1,161
Net loss (gain) on sales / valuations of repossessed and other assets	123		3,379		(1,335)		2,856


Other expense	6,131		8,408		19,033		22,691
Total non-interest expense	124,092		126,152		359,372		352,279
Income before provision for income taxes	166,591		155,908		381,934		449,926
Income tax expense	30,822		28,533		68,929		78,819
Net income	$	135,769	$	127,375	$	313,005	$	371,107

Table of Contents

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands, except per share amounts)
Interest income:
Loans, including fees $ 191,096
$ 167,914
$ 547,306
$ 467,715
Investment securities 22,152
13,797
58,010
37,278
Dividends 2,005
2,209
6,154
6,217
Other 2,583
830
5,584
1,885
Total interest income 217,836
184,750
617,054
513,095
Interest expense:
Deposits 11,449
8,072
29,506
21,993
Qualifying debt 4,708
4,048
13,539
8,746
Other borrowings 84
68
333
366
Other 12
15
41
46
Total interest expense 16,253
12,203
43,419
31,151
Net interest income 201,583
172,547
573,635
481,944
Provision for credit losses 5,000
2,000
12,250
7,000
Net interest income after provision for credit losses 196,583
170,547
561,385
474,944
Non-interest income:
Service charges and fees 5,248
4,916
15,189
13,958
Card income 1,344
1,381
4,146
3,844
Income from bank owned life insurance 975
899
2,896
2,858
Income from equity investments 950
1,208
2,933
1,610
Foreign currency income 756
888
2,630
2,672
Lending related income and gains (losses) on sale of loans, net 97
708
746
4,509
Gain (loss) on sales of investment securities, net 319
—
907
1,001
Other income 599
683
1,834
1,923
Total non-interest income 10,288
10,683
31,281
32,375
Non-interest expense:
Salaries and employee benefits 52,730
49,542
156,596
139,108
Occupancy 7,507
6,856
21,328
20,359
Legal, professional, and directors' fees 6,038
5,691
23,324
17,010
Data processing 4,524
5,266
14,163
15,028
Insurance 3,538
3,144
10,355
9,430
Deposit costs 2,904
1,363
6,778
3,121
Loan and repossessed asset expenses 1,263
788
3,639
2,522
Card expense 801
252
2,187
1,376
Marketing 776
678
2,628
2,432
Intangible amortization 489
697
1,666
2,091
Net loss (gain) on sales / valuations of repossessed and other assets 266
(146 ) (46 ) (91 )
Acquisition / restructure expense —
2,729
—
6,391
Other expense 8,278
8,147
22,510
23,527
Total non-interest expense 89,114
85,007
265,128
242,304
Income before provision for income taxes 117,757
96,223
327,538
265,015
Income tax expense 34,899
29,171
91,352
75,017
Net income $ 82,858
$ 67,052
$ 236,186
$ 189,998

Earnings per share
Basic $ 0.80
$ 0.65
$ 2.27
$ 1.85
Diluted 0.79
0.64
2.25
1.84
Weighted average number of shares outstanding:
Basic 104,221
103,768
104,124
102,791
Diluted 104,942
104,564
104,941
103,532


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Earnings per share:
Basic	$	1.36	$	1.25	$	3.12	$	3.60
Diluted	1.36		1.24		3.11		3.59
Weighted average number of common shares outstanding:
Basic	99,850		102,041		100,322		103,024
Diluted	100,059		102,451		100,574		103,468
Dividends declared per common share	$	0.25	$	0.25	$	0.75	$	0.25

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Net income $ 82,858
$ 67,052
$ 236,186
$ 189,998
Other comprehensive income (loss), net:
Unrealized gain (loss) on AFS securities, net of tax effect of $(689), $4,671, $(9,894), and $(7,837), respectively 1,116
(7,415 ) 15,947
16,316
Unrealized gain (loss) on SERP, net of tax effect of $(71), $(4), $(93), and $(10)
114
6
150
18
Unrealized gain (loss) on junior subordinated debt, net of tax effect of $(394), $1,779, $1,649, and $895 641
(2,825 ) (2,677 ) (1,491 )
Realized (gain) loss on sale of AFS securities included in income, net of tax effect of $122, $0, $346 and $290, respectively (197 ) —
(561 ) (711 )
Net other comprehensive income (loss) 1,674
(10,234 ) 12,859
14,132
Comprehensive income $ 84,532
$ 56,818
$ 249,045
$ 204,130


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net income	$	135,769	$	127,375	$	313,005	$	371,107
Other comprehensive income, net:
Unrealized gain on AFS securities, net of tax effect of $(2,520), $(3,592), $(17,310), $(25,523), respectively	7,592		11,014		53,176		78,314
Unrealized (loss) on SERP, net of tax effect of $1, $6, $94, $18, respectively	(3)		(18)		(296)		(53)
Unrealized (loss) gain on junior subordinated debt, net of tax effect of $874, $(196)$, $(285), $2,173, respectively	(2,681)		598		871		(6,664)
Realized (gain) on sale of AFS securities included in income, net of tax effect of $0, $776, $56, $776, respectively	0		(2,376)		(174)		(2,376)
Net other comprehensive income	4,908		9,218		53,577		69,221
Comprehensive income	$	140,677	$	136,593	$	366,582	$	440,328

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Three Months Ended September 30,
	Common Stock			Additional Paid in Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
	(in thousands)
Balance, June 30, 2019	103,654	$	10	$	1,372,037	$	(61,134)	$	26,381	$	1,513,970	$	2,851,264
Net income	—	—		—		—		—		127,375		127,375
Exercise of stock options	1	—		19		—		—		—		19
Restricted stock, performance stock units, and other grants, net	17	—		6,060		—		—		—		6,060
Restricted stock surrendered (1)	(33)	—		—		(1,531)		—		—		(1,531)
Stock repurchase	(1,000)	—		(9,925)		—		—		(33,733)		(43,658)
Dividends paid	—	—		—		—		—		(25,684)		(25,684)
Other comprehensive income, net	—	—		—		—		9,218		—		9,218
Balance, September 30, 2019	102,639	$	10	$	1,368,191	$	(62,665)	$	35,599	$	1,581,928	$	2,923,063

Balance, June 30, 2020	100,849	$	10	$	1,376,859	$	(70,583)	$	73,677	$	1,722,451	$	3,102,414
Net income	—	—		—		—		—		135,769		135,769
Exercise of stock options	2	—		73		—		—		—		73
Restricted stock, performance stock unit, and other grants, net	(12)	—		6,605		—		—		—		6,605
Restricted stock surrendered (1)	(14)	—		—		(515)		—		—		(515)

Dividends paid	—	—		—		—		—		(25,208)		(25,208)
Other comprehensive income, net	—	—		—		—		4,908		—		4,908
Balance, September 30, 2020	100,825	$	10	$	1,383,537	$	(71,098)	$	78,585	$	1,833,012	$	3,224,046

	Nine Months Ended September 30,
	Common Stock			Additional Paid in Capital		Treasury Stock		Accumulated Other Comprehensive (Loss) Income		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
	(in thousands)
Balance, December 31, 2018	104,949	$	10	$	1,417,724	$	(53,083)	$	(33,622)	$	1,282,705	$	2,613,734
Net income	—	—		—		—		—		371,107		371,107
Exercise of stock options	2	—		55		—		—		—		55
Restricted stock, performance stock unit, and other grants, net	631	—		19,783		—		—		—		19,783
Restricted stock surrendered (1)	(209)	—		—		(9,582)		—		—		(9,582)
Stock repurchase	(2,734)	—		(69,371)		—		—		(46,200)		(115,571)
Dividends paid	—	—		—		—		—		(25,684)		(25,684)
Other comprehensive income, net	—	—		—		—		69,221		—		69,221
Balance, September 30, 2019	102,639	$	10	$	1,368,191	$	(62,665)	$	35,599	$	1,581,928	$	2,923,063

Balance, December 31, 2019	102,524	$	10	$	1,374,141	$	(62,728)	$	25,008	$	1,680,317	$	3,016,748
Balance, January 1, 2020 (2)	102,524	10		1,374,141		(62,728)		25,008		1,655,370		2,991,801
Net income	—	—		—		—		—		313,005		313,005
Exercise of stock options	9	—		170		—		—		—		170
Restricted stock, performance stock units, and other grants, net	523	—		21,560		—		—		—		21,560
Restricted stock surrendered (1)	(165)	—		—		(8,370)		—		—		(8,370)
Stock repurchase	(2,066)	—		(12,334)		—		—		(59,335)		(71,669)
Dividends paid	—	—		—		—		—		(76,028)		(76,028)
Other comprehensive income, net	—	—		—		—		53,577		—		53,577
Balance, September 30, 2020	100,825	$	10	$	1,383,537	$	(71,098)	$	78,585	$	1,833,012	$	3,224,046

Common Stock Additional Paid in Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity
Shares Amount
(in thousands)
Balance, December 31, 2015 103,087
$ 10
$ 1,323,473
$ (16,879 ) $ 22,260
$ 262,638
$ 1,591,502
Net income —
—
—
—
—
189,998
189,998
Exercise of stock options 62
—
755
—
—
—
755
Restricted stock, performance stock units, and other grants 673
—
14,513
—
—
—
14,513
Restricted stock surrendered (1) (301 ) —
—
(9,331 ) —
—
(9,331 )
Issuance of common stock under ATM offering, net of offering costs 1,550
—
55,785
—
—
55,785
Other comprehensive income, net —
—
—
—
14,132
—
14,132
Balance, September 30, 2016 105,071
$ 10
$ 1,394,526
$ (26,210 ) $ 36,392
$ 452,636
$ 1,857,354

Balance, December 31, 2016 105,071
$ 10
$ 1,400,140
$ (26,362 ) $ (4,695 ) $ 522,436
$ 1,891,529
Net income —
—
—
—
—
236,186
236,186
Exercise of stock options 36
—
786
—
—
—
786
Restricted stock, performance stock unit, and other grants 653
—
17,909
—
—
—
17,909
Restricted stock surrendered (1) (267 ) —
—
(13,642 ) —
—
(13,642 )
Other comprehensive income, net —
—
—
—
12,859
—
12,859
Balance, September 30, 2017 105,493
$ 10
$ 1,418,835
$ (40,004 ) $ 8,164
$ 758,622
$ 2,145,627
(1)Share amounts represent Treasury Shares, see "Note 1. Summary of Significant Accounting Policies" for further discussion.


~~(1)~~	~~Share amounts represent Treasury Shares, see Note 1. Summary of Significant Accounting Policies for further discussion.~~

(2)As adjusted for adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The cumulative effect of adoption of this guidance at January 1, 2020 resulted in a decrease to retained earnings of $24.9 million due to an increase in the allowance for credit losses. See "Note 1. Summary of Significant Accounting Policies for further discussion."

See accompanying Notes to Unaudited Consolidated Financial Statements.

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WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2020		2019
	(in thousands)
Cash flows from operating activities:
Net income	$	313,005	$	371,107
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses	157,837		15,303
Depreciation and amortization	17,122		14,904
Stock-based compensation	21,560		19,783

Deferred income taxes	(37,414)		5,757
Amortization of net premiums for investment securities	19,015		11,031

Amortization of tax credit investments	34,244		33,551
Amortization of operating lease right of use asset	8,874		7,704

Amortization of net deferred loan fees and net purchase premiums	(34,085)		(31,838)
Income from bank owned life insurance	(3,370)		(2,938)

(Gains) / Losses on:
Sales of investment securities	(230)		(3,152)
Assets measured at fair value, net	986		(4,628)
Sale of loans	0		530

BOLI	(5,607)		0
Sales / valuations of repossessed and other assets, net	(1,335)		2,856
Changes in other assets and liabilities, net	(40,486)		94,535





Net cash provided by operating activities	$	450,116	$	534,505
Cash flows from investing activities:



Investment securities - AFS
Purchases	$	(1,720,604)	$	(746,445)
Principal pay downs and maturities	1,014,380		453,307
Proceeds from sales	156,629		150,377
Investment securities - HTM
Purchases	(106,772)		(100,460)
Principal pay downs and maturities	16,894		18,206
Proceeds from sales	0		10,000
Equity securities carried at fair value
Purchases	(31,075)		(10,662)
Redemption of principal (reinvestment of dividends)	7,003		4,535
Purchase of investment tax credits	(103,365)		(88,074)
Proceeds from (purchase of) SBIC investments	1,463		(5,298)
Purchase of money market investments, net	0		7
Proceeds from bank owned life insurance, net	6,011		0
Purchase of restricted stock	(334)		(244)
Net increase in loans	(4,806,138)		(2,445,769)
Purchase of premises, equipment, and other assets, net	(33,103)		(15,282)
Proceeds from sale of other real estate owned and repossessed assets, net	7,073		628

Net cash used in investing activities	$	(5,591,938)	$	(2,775,174)

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Nine Months Ended September 30,
2017 2016
(in thousands)
Cash flows from operating activities:
Net income $ 236,186
$ 189,998
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses 12,250
7,000
Depreciation and amortization 9,956
9,272
Stock-based compensation 17,909
15,039
Excess tax benefit of stock-based compensation (5,170 ) (4,064 )
Deferred income taxes 3,371
4,191
Amortization of net premiums for investment securities 14,926
9,659
Accretion of fair market value adjustments on loans acquired from business combinations (20,994 ) (22,278 )
Accretion and amortization of fair market value adjustments on other assets and liabilities acquired from business combinations 1,898
2,323
Income from bank owned life insurance (2,896 ) (2,858 )
(Gains) / Losses on:
Sales of investment securities (907 ) (1,001 )
Sale of loans 117
(2,258 )
Other assets acquired through foreclosure, net (233 ) 304
Valuation adjustments of other repossessed assets, net 120
(127 )
Sale of premises, equipment, and other assets, net 67
(268 )
Changes in, net of acquisitions:
Other assets 11,696
20,498
Other liabilities (7,213 ) (10,948 )
Net cash provided by operating activities $ 271,083
$ 214,482
Cash flows from investing activities:
Investment securities - measured at fair value
Principal pay downs and maturities $ —
$ 256
Proceeds from sales 994
—
Investment securities - AFS
Purchases (1,361,908 ) (1,017,250 )
Principal pay downs and maturities 370,231
323,426
Proceeds from sales 87,853
34,304
Investment securities - HTM
Purchases (62,489 ) (52,607 )
Purchase of investment tax credits (19,916 ) (23,672 )
(Purchase) sale of money market investments, net (175 ) (126 )
Proceeds from bank owned life insurance 607
1,710
(Purchase) liquidation of restricted stock (430 ) (6,902 )
Loan fundings and principal collections, net (1,179,494 ) (551,931 )
Purchase of premises, equipment, and other assets, net (7,644 ) (9,324 )
Proceeds from sale of other real estate owned and repossessed assets, net 20,748
6,034
Cash and cash equivalents (used) acquired in acquisitions, net —
(1,272,187 )
Net cash used in investing activities $ (2,151,623 ) $ (2,568,269 )

Nine Months Ended September 30,
2017 2016
(in thousands)
Cash flows from financing activities:
Net increase (decrease) in deposits $ 2,354,920
$ 2,412,537
Proceeds from issuance of subordinated debt —
169,268
Net (decrease) increase in borrowings (95,661 ) (143,784 )
Proceeds from exercise of common stock options 786
755
Purchases of treasury stock (13,642 ) (9,331 )
Proceeds from issuance of stock in offerings, net —
55,785
Net cash provided by financing activities $ 2,246,403
$ 2,485,230
Net increase (decrease) in cash and cash equivalents 365,863
131,443
Cash and cash equivalents at beginning of period 284,491
224,640
Cash and cash equivalents at end of period $ 650,354
$ 356,083
Supplemental disclosure:
Cash paid (returned) during the period for:
Interest $ 47,815
$ 35,056
Income taxes 79,522
46,863
Non-cash investing and financing activities during the period for:
Transfers to other assets acquired through foreclosure, net 1,812
11,888
Unfunded commitments originated (47,217 ) 12,366
Changes in unrealized gain (loss) on AFS securities, net of tax 15,386
15,605
Changes in unrealized (loss) gain on junior subordinated debt, net of tax (2,677 ) (1,491 )
Non-cash assets acquired in acquisition —
1,284,557
Non-cash liabilities acquired in acquisition —
12,559


	Nine Months Ended September 30,
	2020		2019
	(in thousands)

Cash flows from financing activities:
Net increase in deposits	$	6,046,903	$	3,263,367
Net proceeds from issuance of subordinated debt	221,942		0
Net increase (decrease) in borrowings	13,013		(498,429)

Proceeds from exercise of common stock options	170		55
Cash paid for tax withholding on vested restricted stock	(8,370)		(9,582)

Common stock repurchases	(71,669)		(115,571)


Cash dividends paid on common stock	(76,028)		(25,684)

Net cash provided by financing activities	$	6,125,961	$	2,614,156
Net increase in cash, cash equivalents, and restricted cash	984,139		373,487
Cash, cash equivalents, and restricted cash at beginning of period	434,596		498,572
Cash, cash equivalents, and restricted cash at end of period	$	1,418,735	$	872,059
Supplemental disclosure:
Cash paid (received) during the period for:
Interest	$	87,134	$	144,680
Income taxes, net of refunds	37,069		(26,228)

See accompanying Notes to Unaudited Consolidated Financial Statements.

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WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operation

WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of deposit, lending, treasury management, international banking, and online banking products and services through its wholly-owned banking subsidiary, WAB.

WAB operates the following full-service banking divisions: ABA, BON, FIB, Bridge, and TPB. The Company also serves business customers through a national platform of specialized financial services including AAB, Corporate Finance, Equity Fund Resources, HFF, Life Sciences Group, Mortgage Warehouse Lending, Public and Nonprofit Finance, Renewable Resource Group, Resort Finance, and Technology Finance.services. In addition, the Company has ~~one~~2 non-bank ~~subsidiary,~~subsidiaries: LVSP, which ~~holds~~held and ~~manages~~managed certain ~~non-performing loans~~OREO properties, and ~~OREO.~~CSI, a captive insurance company formed and licensed under the laws of the State of Arizona and established as part of the Company's overall enterprise risk management strategy.

Basis of presentation

The accounting and reporting policies of the Company are in accordance with GAAP and conform to practices within the financial services industry. The accounts of the Company and its consolidated subsidiaries are included in the Consolidated Financial Statements.

Recent accounting pronouncements

Convertible Debt and Derivatives and Hedging

In August 2020, the FASB issued guidance within ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update affect entities that issue convertible instruments and/or contracts indexed to and potentially settled in an entity’s own equity. The new ASU simplifies the convertible accounting framework through elimination of the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments to Subtopics 470 and 815 are effective for interim and annual reporting periods beginning after December 15, 2021 and are not expected to have a material impact on the Company’s Consolidated Financial Statements.

Income Taxes

In December 2019, the FASB issued guidance within ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are intended to reduce the cost and complexity of applying ASC 740. The amendments that are applicable to the Company address: 1) franchise and other taxes partially based on income; 2) step-up in basis of goodwill in a business combination; 3) allocation of tax expense in separate entity financial statements; and 4) interim recognition of enactment of tax laws or rate changes. The amendments to Topic 740 are effective for interim and annual reporting periods beginning after December 15, 2020 and are not expected to have a material impact on the Company’s Consolidated Financial Statements.

Recently adopted accounting guidance

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance within ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The new standard significantly changes the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to an expected loss model. The amendments in ASU 2016-13 to Topic 326, Financial Instruments - Credit Losses, require that an organization measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosures, including qualitative and quantitative disclosures that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on AFS debt securities and purchased financial assets with credit deterioration.

The Company adopted the amendments within ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company's financial results for reporting periods

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beginning after January 1, 2020 are presented in accordance with ASC 326, while prior-period amounts continue to be reported in accordance with legacy GAAP. The Company recorded a cumulative effect adjustment to retained earnings, which resulted in a total decrease to retained earnings of $24.9 million as of January 1, 2020. This adjustment was due primarily to expected total losses under the new model in the Company's loan portfolio and, to a lesser extent, its off-balance sheet credit exposures.

The Company applied the prospective transition approach for loans purchased with credit deterioration that were previously classified as purchased credit impaired and previously accounted for under ASC 310-30. In accordance with the new standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. As of January 1, 2020, the amortized cost basis of the PCD loans was adjusted to reflect an allowance for credit losses of $3.3 million. The remaining noncredit discount (based on the adjusted amortized cost basis) related to PCD loans of $1.1 million will be accreted into interest income at the loan's effective interest rate as of January 1, 2020. The Company has elected not to maintain its pools of loans accounted for under ASC 310-30.

The Company applied the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date. The effective interest rate on these debt securities was not changed. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received.

The following table summarizes the estimated allowance for credit losses related to financial assets and off-balance sheet credit exposures and the corresponding impacts on the deferred tax asset and retained earnings upon adoption of ASC 326:


	January 1, 2020
	Pre-ASC 326 Adoption		Post-ASC 326 Adoption		Impact of ASC 326 Adoption
	(in thousands)
Assets:
Allowance for credit losses on HTM securities	$	0	$	2,646	$	2,646
Allowance for credit losses on loans	167,797		186,925		19,128
Deferred tax asset	18,025		26,675		8,650
Liabilities:
Off-balance sheet credit exposures	$	8,955	$	24,044	$	15,089
Equity:
Retained earnings	$	1,680,317	$	1,655,370	$	(24,947)

Management has elected to take advantage of the capital relief option that delays the estimated impact of the adoption of ASC 326 on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.

In April 2019, the FASB issued guidance within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in ASU 2019-04 clarify or correct the guidance in these Topics. With respect to Topic 326, ASU 2019-04 addresses a number of issues as it relates to the CECL standard including consideration of accrued interest, recoveries, variable-rate financial instruments, prepayments, and extension and renewal options, among other things, in the measurement of expected credit losses. The amendments to Topic 326 were adopted concurrently with ASU 2016-13 and did not have a significant impact on the Company’s Consolidated Financial Statements. With respect to Topic 815, Derivatives and Hedging, ASU 2019-04 clarifies issues related to partial-term hedges, hedged debt securities, and transitioning from a quantitative method of assessing hedge effectiveness to a more simplified method. The Company does not have partial-term hedges or any hedged debt securities and the transition issues discussed in the ASU 2019-04 are not applicable to the Company. Accordingly, the amendments to Topic 815 did not have an impact on the Company's Consolidated Financial Statements. With respect to Topic 825, Financial Instruments, on recognizing and measuring financial instruments, ASU 2019-04 addresses: 1) the scope of the guidance; 2) the requirement for remeasurement under ASC 820 when using the measurement alternative for equity securities without readily determinable fair values; 3) certain disclosure requirements; and 4) which equity securities have to be remeasured at historical exchange rates. The amendments to Topic 825 were effective January 1, 2020 and did not have a material impact on the Company’s Consolidated Financial Statements.

In May 2019, the FASB issued guidance within ASU 2019-05, Financial Instruments - Credit Losses, to provide entities with an option to irrevocably elect the fair value option for eligible financial assets measured at amortized cost. The election is to be applied on an instrument-by-instrument basis upon adoption of Topic 326 and is not available for either AFS or HTM debt securities. The amendments in ASU 2019-05 should be applied on a modified-retrospective basis through a cumulative-effect

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adjustment to the opening balance of retained earnings as of the date that an entity adopts the amendments in ASU 2016-13. The Company did not elect this fair value option as part of its adoption of ASU 2016-13 on January 1, 2020.

In November 2019, the FASB issued guidance within ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in ASU 2019-11 clarify or address specific issues about certain aspects of the amendments in ASU 2016-13. These issues include measurement and reporting requirements related to: 1) the allowance for credit losses for purchased assets with credit deterioration; 2) prepayment assumptions on existing troubled debt restructurings; 3) extension of disclosure relief for accrued interest receivable balances; and 4) expected credit losses on collateralized financial assets. The adoption of ASU 2019-11 is concurrent with ASU 2016-13 and, adoption of these amendments on January 1, 2020, did not have a significant impact on the Company's Consolidated Financial Statements.

Fair Value Measurements

In August 2018, the FASB issued guidance within ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments within ASU 2018-13 remove, modify, and supplement the disclosure requirements for fair value measurements. Disclosure requirements that were removed include: 1) the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; 2) the policy for timing of transfers between levels; and 3) the valuation processes for Level 3 fair value measurements. The amendments clarify that the measurement uncertainty disclosure is intended to communicate information about the uncertainty in measurement as of the reporting date. Additional disclosure requirements include: 1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and 2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. With the exception of the above additional disclosure requirements, which will be applied prospectively, all other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments in this ASU did not have a significant impact on the Company's Consolidated Financial Statements.

Internal-Use Software

In August 2018, the FASB issued guidance within ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments in this Update require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments in this Update also require that the capitalized implementation costs of a hosting arrangement that is a service contract be expensed over the term of the hosting arrangement. Presentation requirements include: 1) expense related to the capitalized implementation costs should be presented in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement; 2) payments for capitalized implementation costs in the statement of cash flows should be classified in the same manner as payments made for fees associated with the hosting element; and 3) capitalized implementation costs in the statement of financial position should be presented in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The adoption of this guidance did not have a significant impact on the Company's Consolidated Financial Statements.

Reference Rate Reform

In March 2020, the FASB issued guidance within ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the scheduled discontinuation of LIBOR on December 31, 2021. The amendments in this Update provide optional guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform.

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under this Topic for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging- Embedded Derivatives; and 4) for other Topics or Industry Subtopics in the Codification, the amendments in this Update also include a general principle that permits an entity to consider

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contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. An entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.

The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022.

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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management's estimates and judgments are ongoing and are based on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from those estimates and assumptions used in the Consolidated Financial Statements and related notes. Material estimates that are ~~particularly~~ susceptible to significant changes in the near term, particularly to the extent that economic conditions worsen or persist longer than expected in an adverse state, relate toto: the determination of the allowance for credit losses; ~~estimated cash flows related to PCI loans; fair value determinations related to acquisitions and~~ certain assets and liabilities carried at fair value; and accounting for income taxes.

Principles of consolidation

As of September 30, ~~2017,~~2020, WAL has ~~ten~~the following significant wholly-owned subsidiaries: WAB ~~LVSP,~~ and ~~eight~~8 unconsolidated subsidiaries used as business trusts in connection with the issuance of trust-preferred securities.

The Bank has the following significant wholly-owned subsidiaries: WABT, which holds certain investment securities, municipal and nonprofit loans, and leases; WA PWI, ~~LLC,~~ which holds interests in certain limited partnerships invested primarily in low income housing tax credits and small business investment corporations; Helios Prime, which holds interests in certain limited partnerships invested in renewable energy projects; and BW Real Estate, Inc., which operates as a real estate investment trust and holds certain of WAB's real estate loans and related securities.

The Company does not have any other significant entities that should be ~~considered for consolidation.~~consolidated. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain amounts reported in prior periods may have been reclassified in the Consolidated Financial Statements to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.

Interim financial information

The accompanying Unaudited Consolidated Financial Statements as of and for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 have been prepared in condensed format and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company's audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2019.

The information furnished in these interim statements reflects all adjustments ~~which~~that are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company's audited Consolidated Financial Statements.

~~Business combinations~~

~~Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805,~~ ~~Business Combinations.~~ Under the acquisition method, the acquiring entity in a business combination recognizes all of the acquired assets and assumed liabilities at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including identified intangible assets, exceeds the purchase price, a bargain purchase gain is recognized. Changes to estimated fair values from a business combination are recognized as an adjustment to goodwill during the measurement period and are recognized in the proper reporting period in which the adjustment amounts are determined. Results of operations of an acquired business are included in the Consolidated Income Statement from the date of acquisition. Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred.

Investment securities

Investment securities include debt and equity securities. Debt securities may be classified as HTM, AFS, or ~~measured at fair value.~~trading. The appropriate classification is initially decided at the time of purchase. Securities classified as HTM are those debt securities that the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or general economic conditions. ~~These securities are carried at amortized cost.~~ The sale of aan HTM security within three months of its maturity date or after the majority of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure.

Securities classified as AFS or trading securities measured at fair value are reported as an asset in the Consolidated Balance Sheet at their estimated fair value. As the fair value of AFS securities changes, the changes are reported net of income tax as an element of OCI, except for other-than-temporarily-impaired securities. When AFS securities are sold, the unrealized gain or loss is reclassified from OCI to non-interest income. The changes in the fair values of trading securities are reported in non-interest income. Securities classified as AFS are ~~both equity and debt~~ securities that the Company intends to hold for an indefinite period of time, but not necessarily to

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maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.

HTM securities are carried at amortized cost. AFS securities are carried at their estimated fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. When AFS debt securities are sold, the unrealized gains or losses are reclassified from OCI to non-interest income. Trading securities are carried at their estimated fair value, with changes in fair value reported in earnings as part of non-interest income.

Equity securities are carried at their estimated fair value, with changes in fair value reported in earnings as part of non-interest income.

Interest income is recognized based on the coupon rate and ~~increased by accretion of discounts earned or decreased by~~includes the amortization of purchase premiums ~~paid~~and the accretion of purchase discounts. Premiums and discounts on investment securities are generally amortized or accreted over the contractual life of the security ~~adjusted for prepayment estimates,~~ using the interest method. For the Company's mortgage-backed securities, amortization or accretion of premiums or discounts are adjusted for anticipated prepayments. Gains and losses on the sale of investment securities are recorded on the trade date and determined using the specific identification method.

~~In estimating whether there~~A debt security is placed on nonaccrual status at the time its principal or interest payments become 90 days past due. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

Allowance for credit losses on investment securities

On January 1, 2020, the Company adopted the amendments within ASU 2016-13, which replaces the legacy US GAAP OTTI model with a credit loss model. For discussion of the former OTTI methodology, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The credit loss model under ASC 326-20, applicable to HTM debt securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased. The Company measures expected credit losses on its HTM debt securities on a collective basis by major security type. The Company's HTM securities portfolio consists of low income housing tax-exempt bonds, which share similar risk characteristics with the Company's CRE, non-owner occupied or construction and land loan pools, given the similarity in underlying assets or collateral. Accordingly, expected credit losses on HTM securities are ~~any~~estimated using the same models and approaches as these loan pools, which utilize risk parameters (probability of default, loss given default, and exposure at default) in the measurement of expected credit losses. The historical data used to estimate probability of default and severity of loss in the event of default is derived or obtained from internal and external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical losses. Accrued interest receivable on the HTM securities, which is included in other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses.

The credit loss model under ASC 326-30, applicable to AFS debt securities, requires recognition of credit losses through an allowance account, but retains the concept from the OTTI model that credit losses ~~management considers~~are recognized once securities become impaired. For AFS debt securities, a decline in fair value due to credit loss results in recognition of an allowance for credit losses. Impairment may result from credit deterioration of the ~~1) length~~issuer or collateral underlying the security. The assessment of ~~time and~~determining if a decline in fair value resulted from a credit loss is performed at the individual security level. Among other factors, the Company considers: 1) the extent to which the fair value ~~has been~~is less than the amortized ~~cost;~~cost basis; 2) the financial condition and near term prospects of the issuer, including consideration of relevant financial metrics or ratios of the issuer; 3) ~~impact~~any adverse conditions related to an industry or geographic area of an issuer; 4) any changes ~~in market interest rates; and 4) intent and ability~~to the rating of the security by a rating agency; and 5) any past due principal or interest payments from the issuer. If an assessment of the above factors indicates that a credit loss exists, the Company records an allowance for credit losses for the excess of the amortized cost basis over the present value of cash flows expected to ~~retain its investment for a period of time sufficient~~be collected, limited to ~~allow for any anticipated recovery in~~the amount that the security's fair value ~~and whether it~~ is ~~not more likely~~less than ~~not the Company would be required to sell the security.~~

Declines in the fair value of individual AFS debt securities that are deemed to be other-than-temporary are reflected in earnings when identified. The fair value of the debt security then becomes the new cost basis. For individual debt securities where the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost ~~basis,~~basis. Subsequent changes in the ~~other-than-temporary decline in fair value of the debt security related to 1)~~allowance for credit losses are recorded as a provision for (or reversal of) credit loss ~~is recognized in earnings; and 2) interest rate, market, or other factors is recognized in other comprehensive income or loss.~~

For individual debt securities where the Company either intends to sell the security or more likely than not will not recover all of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the security's cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interestexpense. Interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is ~~recognized. Interest~~recognized in earnings. Any interest received after ~~accruals have~~the security has been ~~suspended~~placed on nonaccrual status is recognized on a cash basis. Accrued interest receivable on AFS securities, which is included in other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses.

For each AFS security in an unrealized loss position, the Company also considers: 1) its intent to retain the security until anticipated recovery of the security's fair value; and 2) whether it is more-likely-than not that the Company would be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security is written down to its fair value and the write-down is charged against the allowance for credit losses with any incremental impairment recorded in earnings.

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Writeoffs are made through reversal of the allowance for credit losses and direct writeoff of the amortized cost basis of the AFS security. The Company considers the following events to be indicators that a writeoff should be taken: 1) bankruptcy of the issuer; 2) significant adverse event(s) affecting the issuer in which it is improbable for the issuer to make its remaining payments on the security; and 3) significant loss of value of the underlying collateral behind a security. Recoveries on debt securities, if any, are recorded in the period received.

Restricted stock

WAB is a member of the Federal Reserve System and, as part of its membership, is required to maintain stock in the FRB in a specified ratio to its capital. In addition, WAB is a member of the FHLB system and, accordingly, maintains an investment in capital stock of the FHLB based on the borrowing capacity used. ~~The Bank also maintains an investment in its primary correspondent bank. All of these~~These investments are considered equity securities with no actively traded market. Therefore, the shares are considered restricted investment securities. These investments are carried at cost, which is equal to the value at which they may be redeemed. The dividend income received from the stock is reported in interest income. The Company conducts a periodic review and evaluation of its restricted stock to determine if any impairment exists. No impairment has been recorded to date.

Loans held for sale

Loans held for sale consist of ~~SBA~~ loans that the Company originates (or acquires) and intends to sell. These loans are carried at the lower of aggregate cost or fair value. Fair value is determined based on quoted fair market values or, when not available, ~~market data for similar assets, expected~~discounted cash flows ~~and~~or appraisals of underlying collateral or the credit quality of the borrower. ~~Gains and losses on the sale of loans are recognized pursuant to ASC 860,~~ ~~Transfers and Servicing~~. Interest income of these loans is accrued daily and loan origination fees and costs are deferred and included in the cost basis of the loan. The Company issues various representations and warranties associated with these loan sales. The Company has not experienced any losses as a result of these representations and warranties.

Loans held for investment

~~The Company generally holds loans for investment and~~Loans that management has the intent and ability to hold ~~loans~~for the foreseeable future or until ~~their maturity. Therefore, they~~maturity or payoff are reported at ~~book value. Net loans are stated at~~amortized cost. Amortized cost is the amount of unpaid principal, adjusted for unamortized net deferred fees and costs, ~~purchase accounting fair value adjustments,~~premiums and ~~an allowance for credit losses.~~discounts, and writeoffs. In addition, the ~~book value~~amortized cost of loans ~~that are~~ subject to a fair value hedge isare adjusted for changes in value attributable to the effective portion of the hedged benchmark interest rate risk.

The Company may also purchase loans or acquire loans through a business combination. ~~These acquired~~At the purchase or acquisition date, loans are ~~recorded at estimated fair value on the date of purchase, which is comprised of unpaid principal adjusted for estimated credit losses and interest rate fair value adjustments. Loans are~~ evaluated ~~individually at the acquisition date~~ to determine if there has been more than insignificant credit deterioration since origination. ~~Such loans may then be aggregated and accounted for~~Loans that have experienced more than insignificant credit deterioration since origination are referred to as PCD loans. In its evaluation of whether a ~~pool of loans based on common characteristics. When~~loan has experienced more than insignificant deterioration in credit quality since origination, the Company acquires such loans, the yield that may be accreted (accretable yield) is limited to the excess of the Company’s estimate of undiscounted cash flows expected to be collected over the Company’s initial investment in the loan. The excess of contractual cash flows over the cash flows expected to be collected may not be recognized as an adjustment to yield, loss, or a valuation allowance. Subsequent increases in cash flows expected to be collected generally are recognized prospectively through adjustment of the loan’s yield over the remaining life. Subsequent decreases to cash flows expected to be collected are recognized as impairment.takes into consideration loan grades, loan-to-values greater than policy limits, past due and nonaccrual status, and TDR loans. The Company may ~~not carry over~~also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or ~~create a valuation allowance in~~band, probability of default levels, number of times past due, and standard deviations corresponding to FICO score or band. The initial estimate of credit losses on PCD loans is added to the purchase price on the acquisition date to establish the initial ~~accounting~~amortized cost basis of the loan; accordingly, the initial recognition of expected credit losses has no impact on net income. When the initial measurement of expected credit losses on PCD loans are calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool. Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan. Subsequent changes to the allowance for credit losses on PCD loans ~~acquired under these circumstances.~~are recorded through the provision for credit losses. For purchased loans that are not deemed ~~impaired at~~to have experienced more than insignificant credit deterioration since origination, any discounts or premiums included in the ~~acquisition date, fair value adjustments attributable to both credit and interest rates~~purchase price are accreted (or amortized) over the contractual life of the individual loan. For additional information, see "Note 3. Loans, Leases and Allowance for Credit Losses" of these Notes to Unaudited Consolidated Financial Statements.

~~Loan~~In applying the effective yield method to loans, the Company generally applies the contractual method whereby loan fees collected for the origination of loans less direct loan origination costs (net of deferred loan fees), as well as premiums and discounts and certain purchase accounting adjustments, are amortized over the contractual life of the loan through interest income. If ~~the~~a loan has scheduled payments, the amortization of the net deferred loan fee is calculated using the interest method over the contractual life of the loan. If ~~the~~a loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan commitment. Commitment fees based on a percentage of a customer’s unused line of credit and fees related to standby letters of credit are recognized over the commitment period. When loans are repaid, any remaining unamortized balances of premiums, discounts, or net deferred fees are recognized as interest income.

~~Non-accrual loans:~~Conversely, with respect to loans originated under the PPP, the Company incorporates projected prepayments in calculating effective yield. As a result, net deferred fees are accreted into interest income faster than would be the case when applying the contractual method based upon the timing and amount of estimated forgiven loan balances. The Company expects that a

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majority of PPP loans will qualify for forgiveness under the SBA program, based on requested loan amounts largely representing qualifying expenses at the time of application.

Nonaccrual loans

When a borrower discontinues making payments as contractually required by the note, the Company must determine whether it is appropriate to continue to accrue interest. The Company ceases accruing interest income when the loan has become delinquent by more than 90 days or when management determines that the full repayment of principal and

collection of interest according to contractual terms is no longer likely. Past due status is based on the contractual terms of the loan. The Company may decide to continue to accrue interest on certain loans more than 90 days delinquent if the loans are well secured by collateral and in the process of collection.

For all loan types, when a loan is placed on ~~non-accrual~~nonaccrual status, all interest accrued but uncollected is reversed against interest income in the period in which the status is changed, and the Company makes a loan-level decision to apply either the cash basis or cost recovery method. The Company ~~recognizes~~may recognize income on a cash basis when a payment is received and only for those ~~non-accrual~~nonaccrual loans for which the collection of the remaining principal balance is not in doubt. Under the cost recovery method, subsequent payments received from the customer are applied to principal and generally no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required.

~~Impaired loans:~~ ~~A loan is identified as impaired~~ Loans are returned to accrual status when ~~it is no longer probable that interest and principal will be collected according to the contractual terms~~all of the ~~original loan agreement. Generally, impaired loans are classified as non-accrual. However, in certain instances, impaired loans may continue on an accrual basis, if full repayment of all~~ principal and interest ~~is expected~~amounts contractually due are brought current and ~~the loan is both well secured and in the process of collection. Impaired loans~~future payments are ~~measured for reserve requirements in accordance with ASC 310,~~ ~~Receivables,~~ based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral less applicable disposition costs if the loan is collateral dependent. The amount of an impairment reserve, if any, and any subsequent changes are recorded as a provision for credit losses. Losses are recorded as a charge-off when losses are confirmed. In addition to management's internal loan review process, regulators may from time to time direct the Company to modify loan grades, loan impairment calculations, or loan impairment methodology.reasonably assured.

Troubled Debt Restructured Loans:

A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The evaluation is performed under the Company's internal underwriting policy. The loan terms that ~~have been~~may be modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. A TDR loan ~~is also considered impaired. A TDR loan~~ may be returned to accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a reasonable period of time (generally six months), and the ultimate collectability of the total contractual restructured principal and interest is no longer in doubt. ~~However, such loans continue to be considered impaired.~~ Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.

The CARES Act, signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.

Credit quality indicators

Loans are regularly reviewed to assess credit quality indicators and to determine appropriate loan classification and grading in accordance with applicable bank regulations. The Company’s risk rating methodology assigns risk ratings ranging from 1 to 9, where a higher rating represents higher risk. The Company differentiates its loan segments based on shared risk characteristics for which expected credit loss is measured on a pool basis.

The nine risk rating categories can be generally described by the following groupings for loans:

"Pass" (grades 1 through 5): TheCompany has five pass risk ratings, which represent a level of credit quality that ranges from no well-defined deficiency or weakness to some noted weakness; however, the risk of default on any loan classified as pass is expected to be remote. The five pass risk ratings are described below:

Minimal risk. These consist of loans that are fully secured either with cash held in a deposit account at the Bank or by readily marketable securities with an acceptable margin based on the type of security pledged.

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Low risk. These consist of loans with a high investment grade rating equivalent.

Modest risk. These consist of loans where the credit facility greatly exceeds all policy requirements or with policy exceptions that are appropriately mitigated. A secondary source of repayment is verified and considered sustainable. Collateral coverage on these loans is sufficient to fully cover the debt as a tertiary source of repayment. Debt of the borrower is low relative to borrower’s financial strength and ability to pay.

Average risk. These consist of loans where the credit facility meets or exceeds all policy requirements or with policy exceptions that are appropriately mitigated. A secondary source of repayment is available to service the debt. Collateral coverage is more than adequate to cover the debt. The borrower exhibits acceptable cash flow and moderate leverage.

Acceptable risk. These consist of loans with an acceptable primary source of repayment, but a less than preferable secondary source of repayment. Cash flow is adequate to service debt, but there is minimal excess cash flow. Leverage is moderate or high.

"Special mention"(grade 6): Generally these are assets that possess potential weaknesses that warrant management's close attention. These loans may involve borrowers with adverse financial trends, higher debt-to-equity ratios, or weaker liquidity positions, but not to the degree of being considered a “problem loan” where risk of loss may be apparent. Loans in this category are usually performing as agreed, although there may be non-compliance with financial covenants.

"Substandard" (grade 7): These assets are characterized by well-defined credit weaknesses and carry the distinct possibility that the Company will sustain some loss if such weakness or deficiency is not corrected. All loans 90 days or more past due and all loans on nonaccrual status are considered at least "Substandard," unless extraordinary circumstances would suggest otherwise.

"Doubtful"(grade 8): These assets have all the weaknesses inherent in those classified as "Substandard" with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable, but because of certain known factors that may work to the advantage and strengthening of the asset (for example, capital injection, perfecting liens on additional collateral and refinancing plans), classification as an estimated loss is deferred until a more precise status may be determined. Due to the high probability of loss, loans classified as "Doubtful" are placed on nonaccrual status.

"Loss"(grade 9): These assets are considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.

Allowance for credit losses on loans

On January 1, 2020, the Company adopted the amendments within ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets carried at amortized cost from an incurred loss model to an expected loss model. The discussion below reflects the current expected credit loss model methodology. For discussion of the former incurred loss model methodology, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Credit risk is inherent in the business of extending loans and leases to borrowers ~~for which~~and is continuously monitored by management and reflected within the ~~Company must maintain an adequate~~ allowance for credit ~~losses.~~losses for loans. The allowance for credit losses is ~~established through a provision~~an estimate of life-of-loan losses for ~~credit losses recorded to expense. Loans are charged against~~ the Company's loans held for investment. The allowance for credit losses ~~when management believes~~is a valuation account that is deducted from the ~~contractual principal or~~amortized cost basis of a loan to present the net amount expected to be collected on the loan. Accrued interest ~~will~~receivable on loans, which is included in other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses. Expected recoveries of amounts previously written off and expected to be written off are included in the valuation account and may not exceed the aggregate of amounts previously written off and expected to be collected. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount believed adequate to absorb estimated probable losses on existing loans that may become uncollectable, based on evaluation of the collectability of loans and prior credit loss experience, together with other factors.written off. The Company formally re-evaluates and establishes the appropriate level of the allowance for credit losses on a quarterly basis.

~~The allowance consists of specific and general components. The specific allowance applies to impaired loans. For impaired collateral dependent loans,~~Determining the reserve is calculated based on the collateral value, net of estimated disposition costs. Generally, the Company obtains independent collateral valuation analysis for each loan every twelve months. Loans not collateral dependent are evaluated based on the expected future cash flows discounted at the original contractual interest rate.

~~The general allowance covers all non-impaired loans and incorporates several quantitative and qualitative factors, which are used for all~~appropriateness of the ~~Company's portfolio segments. Quantitative factors include company-specific, ten-year historical net charge-offs stratified~~allowance is complex and requires judgment by ~~loans with similar characteristics. Qualitative factors include: 1) levels~~management about the effect of and trends in delinquencies and impaired loans; 2) levels of and trends in charge-offs and recoveries; 3) trends in volume and terms of loans; 4) changes in underwriting standards or lending policies; 5) experience, ability, depth of lending staff; 6) national and local economic trends and conditions; 7) changes in credit concentrations; 8) out-of-market exposures; 9) changes in quality of loan review system; and 10) changes in the value of underlying collateral.

~~Due to the credit concentration~~matters that are inherently uncertain. In future periods, evaluations of the ~~Company's~~overall loan portfolio or particular segments of the loan portfolio, in ~~real estate secured loans,~~light of the ~~value of collateral is heavily dependent on real estate values~~factors and forecasts then prevailing, may result in ~~Arizona, Nevada, and California. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are~~ significant changes in ~~economic or other conditions. In addition, regulators, as an integral part of their examination processes, periodically review~~ the ~~Bank's~~ allowance for credit losses and ~~may require~~credit loss expense in those future periods. The allowance level is influenced by loan volumes, mix, loan performance metrics, asset quality characteristics, delinquency status, historical credit loss experience, and the ~~Bank~~inputs and assumptions in economic forecasts, such as macroeconomic inputs, length of reasonable and supportable forecast periods, and reversion methods. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans and; second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

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Loans that do not share risk characteristics with other loans

Loans that do not share risk characteristics with other loans are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. These loans consist of loans with unique features or loans that no longer share risk characteristics with other pooled loans. The process for determining whether a loan should be evaluated on an individual basis begins with determination of credit rating. All loans graded substandard or worse and all PCD loans, irrespective of credit rating, are specifically reviewed for loss potential and, when deemed appropriate, are assigned a reserve based on an individual evaluation. For these loans, the allowance is based primarily on the fair value of the underlying collateral, utilizing independent third-party appraisals.

Loans that share similar risk characteristics with other loans

In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan segments. The Company's primary portfolio segments have changed due to ~~make additions~~adoption of the amendments within ASU 2016-13 to align with the methodology applied in estimating the allowance for credit losses under CECL. Loans are designated into loan segments based on loans pooled by product types, business lines, and similar risk characteristics or areas of risk concentration.

In determining the allowance for credit losses, the Company derives an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters (probability of default, loss given default, and exposure at default), which are derived from various vendor models, internally-developed statistical models, or non-statistical estimation approaches. Probability of default is projected in these models or estimation approaches using multiple economic scenarios, whose outcomes are weighted based on the Company's economic outlook and were developed to incorporate relevant information about past events, current conditions, and reasonable and supportable forecasts. With the exception of the Company's residential loan segment, the Company's PD models share a common definition of default, which include loans that are 90 days past due, on nonaccrual status, have a writeoff, or obligor bankruptcy. Input reversion is used for all loan segment models, except for the commercial and industrial and CRE, owner-occupied loan segments. Output reversion is used for the commercial and industrial and CRE, owner-occupied segments by incorporating, after the forecast period, a one-year linear reversion to the ~~allowance based on their judgment about information~~

~~available~~long-term reversion rate in year three through the remaining life of the loans within the respective segments. LGDs are typically derived from the Company's historical loss experience. However, for the residential, warehouse lending, and municipal and nonprofit loan segments, where the Company has either zero (or near zero) losses, or has a limited loss history through the last economic downturn, certain non-modeled methodologies are employed. Factors utilized in calculating average LGD vary for each loan segment and are further described below. Exposure at default refers to ~~them~~the Company's exposure to loss at the time of ~~their examination. Management regularly reviews~~borrower default and is calculated using an amortization schedule based on contractual loan terms, adjusted for a prepayment rate assumption. For most of the Company's loan segments, prepayment rate assumptions are based on a non-modeled approach that calculates the number of loans that were prepaid in full during the period divided by the total number of loans outstanding at the beginning of the period. Prepayment trends are sensitive to interest rates and the macroeconomic environment. Fixed rate loans are more influenced by interest rates, whereas variable rate loans are more influenced by the macroeconomic environment. After the quantitative expected loss estimates are calculated, management then adjusts these estimates to incorporate considerations of current trends and conditions that are not captured in the quantitative loss estimates, through the use of qualitative and/or environmental factors.

The following provides credit quality indicators and risk elements most relevant in monitoring and measuring the allowance for credit losses for each of the loan portfolio segments identified:

Commercial and industrial

The commercial and industrial portfolio segment is comprised of commercial loans that are not collateralized by real estate. The source of repayment of these loans is generally expected to be the income that is generated from the business. The models used to estimate expected credit losses for this loan segment include a combination of a vendor model and an internally-developed model. These models incorporate both market level and company-specific factors such as financial statement variables, adjusted for the current stage of the credit cycle and for the Company's loan performance data such as delinquency, utilization, maturity, and size of the loan commitment under specific macroeconomic scenarios to produce a probability of default. Macroeconomic variables include the Dow Jones Index, credit spread between the BBB Bond Yield and 10-Year Treasury Bond Yield, unemployment rate, and CBOE VIX Index quarterly high. LGD and the prepayment rate assumption for EAD for this loan segment are driven by unemployment levels.

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Commercial real estate, owner-occupied

The CRE, owner-occupied portfolio segment is comprised of commercial loans that are collateralized by real estate, where the primary source of repayment is the business that occupies the property. These loans are typically entered into for the purpose of providing real estate finance or improvement. The primary source of repayment of these loans is the income generated by the business and where rental or sale of the property may provide secondary support for the loan. These loans are sensitive to general economic conditions as well as the market valuation of CRE properties. The probability of default estimate for this loan segment is modeled using the same model as the commercial and industrial loan segment. LGD for this loan segment is driven by property appreciation and the prepayment rate assumption for EAD is driven by unemployment levels.

Commercial real estate, non-owner occupied

The CRE, non-owner occupied segment is comprised of loans that are collateralized by real estate, where the owner is not the primary tenant. These loans are typically entered into for the purpose of financing or the improvement of commercial investment properties. The primary source of repayment of these loans are the rents paid by tenants and where the sale of the property may provide secondary support for the loan. These loans are sensitive to the market valuation of CRE properties, rental rates, and general economic conditions. The vendor model used to estimate expected credit losses for this loan segment projects probabilities of default and exposure at default based on multiple macroeconomic scenarios by modeling how macroeconomic conditions affect the commercial real estate market. Real estate market factors utilized in this model include vacancy rate, rental growth rate, net operating income growth rate, and commercial property price changes for each specific property type. The model then incorporates loan and property-level characteristics including debt coverage, leverage, collateral size, seasoning, and property type. LGD for this loan segment is derived from a non-modeled approach that is driven by property appreciation and the prepayment rate assumption for EAD is driven by the property appreciation for fixed rate loans and unemployment levels for variable rate loans.

Residential

The residential loan portfolio segment is comprised of loans collateralized primarily by first liens on 1-4 residential family properties and home equity lines of credit that are collateralized by either first liens or junior liens on residential properties. The primary source of repayment of these loans is the value of the property and the capacity of the owner to make payments on the loan. Unemployment rates and the market valuation of residential properties will impact the ultimate repayment of these loans. The residential mortgage loan model is a vendor model that projects probability of default, loss given default severity, prepayment rate, and exposure at default to calculate expected losses. The model is intended to capture the borrower's payment behavior during the lifetime of the residential loan by incorporating loan level characteristics such as loan type, coupon, age, loan-to-value, and credit score and economic conditions such as Home Price Index, interest rate, and unemployment rate. A default event for residential loans is defined as 60 days or more past due, with property appreciation as the driver for LGD results. The prepayment rate assumption for exposure at default for residential loans is based on industry prepayment history.

Probability of default for HELOCs is derived from an internally-developed model that projects PD by incorporating loan level information such as FICO score, lien position, balloon payments, and macroeconomic conditions such as property appreciation. LGD for this loan segment is driven by property appreciation and lien position. Exposure at default for HELOCs is calculated based on utilization rate assumptions using a non-modeled approach and incorporates management judgment.

Construction and land development

The construction and land portfolio segment is comprised of loans collateralized by land or real estate, which are entered into for the purpose of real estate development. The primary source of repayment of loans is the eventual sale or refinance of the completed project and where claims on the property provide secondary support for the loan. These loans are impacted by the market valuation of CRE and residential properties and general economic conditions that have a higher sensitivity to real estate markets compared to other real estate loans. Default risk of a property is driven by loan-specific drivers, including loan-to-value, maturity, origination date, and the metropolitan statistical area ("MSA") in which the property is located, among other items. The variables used in the internally-developed model include loan level drivers such as origination loan-to-value, loan maturity, and macroeconomic drivers such as property appreciation, MSA level unemployment rate, and national GDP growth. LGD for this loan segment is driven by property appreciation. The prepayment rate assumption for EAD is driven by the property appreciation for fixed rate loans and unemployment levels for variable rate loans.

Warehouse lending

The warehouse lending portfolio segment consists of loans that have a monitored borrowing base to mortgage companies and similar lenders. These loans are collateralized by real estate notes and mortgages or mortgage servicing rights and the borrowing base of these loans is tightly monitored and controlled by the Company. The primary support for the loan takes the

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form of pledged collateral, with secondary support provided by the capacity of the financial institution. The collateral-driven nature of these loans distinguish them from traditional commercial and industrial loans. These loans are impacted by interest rate shocks, residential lending rates, prepayment assumptions, and ~~formulae used in determining the allowance and makes adjustments if required to reflect the current risk profile~~general real estate stress. As a result of the ~~portfolio.~~unique loan characteristics, limited historical default and loss experience, and the collateral nature of this loan portfolio segment, the Company uses a non-modeled approach to estimate expected credit losses, leveraging grade information, grade migration history, and management judgment.

Municipal and nonprofit

The municipal and nonprofit portfolio segment consists of loans to local governments, government-operated utilities, special assessment districts, hospitals, schools and other nonprofits. These loans are generally, but not exclusively, entered into for the purpose of financing real estate investment or for refinancing existing debt. Loans are supported by taxes or utility fees, and in some cases tax liens on real estate, operating revenue of the institution, or other collateral support the loans. Unemployment rates and the market valuation of residential properties have an effect on the tax revenues supporting these loans; however, these loans tend to be less cyclical in comparison to similar commercial loans as these loans rely on diversified tax bases. The Company uses a non-modeled approach to estimate expected credit losses, leveraging grade information and historical municipal default rates.

Other

This portfolio consists of those loans not already captured in one of the aforementioned loan portfolio segments, which include, but may not be limited to, overdraft lines for treasury services, credit cards, consumer loans not collateralized by real estate, and small business loans collateralized by residential real estate. The consumer and small business loans are supported by the capacity of the borrower and the valuation of any collateral. General economic factors such as unemployment will have an effect on these loans. The Company uses a non-modeled approach to estimate expected credit losses, leveraging average historical default rates. LGD for this loan segment is driven by unemployment levels and lien position. The prepayment rate assumption for EAD is driven by the BBB corporate spread for fixed rate loans and unemployment levels for variable rate loans.

Off-balance sheet credit exposures, including unfunded loan commitments

The Company maintains a separate allowance for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, financial guarantees, and letters of credit, which is classified in other liabilities on the Consolidated Balance Sheet. The allowance for credit losses on off-balance sheet credit exposures is adjusted through increases or decreases to the provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, an estimate of exposure at default that is derived from utilization rate assumptions using a non-modeled approach, and PD and LGD estimates that are derived from the same models and approaches for the Company's other loan portfolio segments described above as these unfunded commitments share similar risk characteristics with these loan portfolio segments. No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

Leases (lessee)

At inception, contracts are evaluated to determine whether the contract constitutes a lease agreement. For contracts that are determined to be an operating lease, a corresponding ROU asset and operating lease liability are recorded in separate line items on the Consolidated Balance Sheet. A ROU asset represents the Company’s right to use an underlying asset during the lease term and a lease liability represents the Company’s commitment to make contractually obligated lease payments. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease and are based on the present value of lease payments over the lease term. The measurement of the operating lease ROU asset includes any lease payments made and is reduced by lease incentives that are paid or are payable to the Company. Variable lease payments that depend on an index or rate such as the Consumer Price Index are included in lease payments based on the rate in effect at the commencement date of the lease. Lease payments are recognized on a straight-line basis as part of occupancy expense over the lease term.

As the rate implicit in the lease is not readily determinable, the Company's incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable FHLB collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s Consolidated Balance Sheet, but rather, lease expense is recognized over the lease term on a straight-line basis. The Company’s lease agreements may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the options will be exercised.

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In addition to the package of practical expedients, the Company also elected the practical expedient that allows lessees to make an accounting policy election to not separate non-lease components from the associated lease component, and instead account for them all together as part of the applicable lease component. This practical expedient can be elected separately for each underlying class of asset. The majority of the Company’s non-lease components such as common area maintenance, parking, and taxes are variable, and are expensed as incurred. Variable payment amounts are determined in arrears by the landlord depending on actual costs incurred.

Goodwill and other intangible assets

The Company records as goodwill the excess of the purchase price in a business combination over the fair value of the identifiable net assets acquired in accordance with applicable guidance. The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable. The Company can first elect to assess, through qualitative factors, whether it is more likely than not that goodwill is impaired. If the qualitative assessment indicates potential impairment, a quantitative impairment test is necessary. If, based on the ~~Company will proceed with~~quantitative test, a ~~two-step process. The first step tests~~reporting unit's carrying amount exceeds its fair value, a goodwill impairment charge for ~~impairment, while the second step, if necessary, measures the impairment. The resulting impairment amount, if any,~~this difference is ~~charged~~recorded to current period earnings as non-interest expense.

The Company’s intangible assets consist primarily of core deposit intangible assets that are amortized over periods ranging from 5five to 10 years. The Company considers the remaining useful lives of its core deposit intangible assets each reporting period, as required by ASC 350, Intangibles—Goodwill and Other, to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible asset’s remaining useful life has changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company ~~has~~did not ~~revised~~revise its estimates of the useful lives of its core deposit intangibles during the three and nine months ended September 30, ~~2017 and 2016.~~

~~Other assets acquired through foreclosure~~

~~Other assets acquired through foreclosure consist primarily of properties acquired as a result of,~~2020 or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly leased) are classified as OREO and other repossessed property and are initially reported at fair value of the asset less estimated selling costs. Subsequent adjustments are based on the lower of carrying value or fair value less estimated costs to sell the property. Costs related to the development or improvement of the assets are capitalized and costs related to holding the assets are charged to non-interest expense. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances.2019.

Treasury ~~Shares~~shares

The Company separately presents treasury shares, which represent shares surrendered to the Company equal in value to the statutory payroll tax withholding obligations arising from the vesting of employee restricted stock awards. Treasury shares are carried at cost.

Common stock repurchases

On December 11, 2018, the Company adopted its common stock repurchase program, pursuant to which the Company was authorized to repurchase up to $250.0 million of its shares of common stock through December 31, 2019. The program was renewed through December 2020, authorizing the Company to repurchase up to an additional $250.0 million of its outstanding common stock. All shares repurchased under the plan are retired upon settlement. The Company has elected to allocate the excess of the repurchase price over the par value of its common stock between APIC and retained earnings, with the portion allocated to APIC limited to the amount of APIC that was recorded at the time that the shares were initially issued, which is calculated on a last-in, first-out basis.

Derivative financial instruments

The Company uses ~~interest-rate~~interest rate swaps to mitigate interest-rate risk associated with changes to 1) the fair value of certain fixed-rate financial instruments (fair value hedges) ~~and 2) certain cash flows related to future interest payments on variable rate financial instruments (cash flow hedges)~~.

The Company recognizes derivatives as assets or liabilities inon the Consolidated Balance Sheet at their fair value in accordance with ASC 815, Derivatives and Hedging. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. ~~On the date the derivative contract is entered into, the Company designates the derivative as a fair value hedge or cash flow hedge.~~ Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk, are considered fair value hedges. ~~Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.~~

Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in ~~current-period~~current period earnings. For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the change in fair value of a cash flow hedge is recognized immediately in non-interest income in the Consolidated Income Statement. Under both the fair value and cash flow hedge scenarios, changesChanges in the fair value of derivatives not considered to be highly effective in hedging the change in fair value ~~or the expected cash flows~~ of the hedged item are recognized in earnings as non-interest income during the period of the change.

The Company documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction ~~at the time~~after the derivative contract is

executed. ~~Both at~~At inception, ~~and at least quarterly thereafter,~~ the Company ~~assesses~~performs a quantitative assessment to determine whether the derivatives used in hedging transactions are highly effective (as defined in the guidance) in offsetting changes in ~~either~~ the fair value ~~or cash flows~~ of the hedged item. Retroactive effectiveness is assessed, as well as the continued expectation that the hedge will remain effective prospectively.

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After the initial quantitative assessment is performed, on a quarterly basis, the Company performs a qualitative hedge effectiveness assessment. This assessment takes into consideration any adverse developments related to the counterparty's risk of default and any negative events or circumstances that affect the factors that originally enabled the Company to assess that it could reasonably support, qualitatively, an expectation that the hedging relationship was and will continue to be highly effective. The Company discontinues hedge accounting prospectively when it is determined that a hedge is no longer highly effective. When hedge accounting is discontinued on a fair value hedge that no longer qualifies as an effective hedge, the derivative instrument continues to be reported at fair value inon the Consolidated Balance Sheet, but the carrying amount of the hedged item is no longer adjusted for future changes in fair value. The adjustment to the carrying amount of the hedged item that existed at the date hedge accounting is discontinued is amortized over the remaining life of the hedged item into earnings.

Derivative instruments that are not designated as hedges, so called free-standing derivatives, are reported inon the Consolidated Balance Sheet at fair value and the changes in fair value are recognized in earnings as non-interest income during the period of change.

The Company may in the normal course of business purchase a financial instrument or originate a loan that contains an embedded derivative instrument. Upon purchasing the instrument or originating the loan, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value. However, in cases where the host contract is measured at fair value, with changes in fair value reported in current earnings, or the Company is unable to reliably identify and measure an embedded derivative for separation from its host contract, the entire contract is carried inon the Consolidated Balance Sheet at fair value and is not designated as a hedging instrument.

Off-balance sheet instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instrument arrangements consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the Consolidated Financial Statements when they are funded. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the Consolidated Balance Sheet. Losses could be experienced when the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and, in certain instances, may be unconditionally cancelable. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.

The Company also has off-balance sheet arrangements related to its derivative instruments. Derivative instruments are recognized in the Consolidated Financial Statements at fair value and their notional values are carried off-balance sheet. See "Note 8. Derivatives and Hedging Activities" of these Notes to Unaudited Consolidated Financial Statements for further discussion.

Fair values of financial instruments

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. ASC 820, Fair Value Measurement, establishes a framework for measuring fair value and a three-level valuation hierarchy for disclosure of fair value measurement, and also sets forth disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The Company uses various valuation approaches, including market, income, and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would consider in pricing the

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asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, 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.

The availability of observable inputs varies based on the nature of the specific financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair value is a market-based measure considered from the perspective of a market participant who may purchase the asset or assume the liability, rather than an entity-specific measure. When market assumptions are available, ASC 820 requires that the Company make assumptions regarding the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.

ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.

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. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2020 and December 31, 2019. The estimated fair value amounts for September 30, 2020 and December 31, 2019 have been measured as of period-end, and have not been re-evaluated or updated for purposes of these Unaudited Consolidated Financial Statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at period-end.

The information in "Note 12. Fair Value Accounting" of these Notes to Unaudited Consolidated Financial Statements should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.

Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be meaningful.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash, cash equivalents, and restricted cash

The carrying amounts reported on the Consolidated Balance Sheet for cash and due from banks approximate their fair value.

Money market investments

The carrying amounts reported on the Consolidated Balance Sheet for money market investments approximate their fair value.

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Investment securities

The fair values of CRA investments, exchange-listed preferred stock, trust preferred securities, and certain corporate debt securities are based on quoted market prices and are categorized as Level 1 in the fair value hierarchy.

The fair values of debt securities are primarily determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, for example, yield curves, credit ratings, and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy. For a small subset of securities, other pricing sources are used, including observed prices on publicly traded securities and dealer quotes.

Restricted stock

WAB is a member of the Federal Reserve System and the FHLB and, accordingly, maintains investments in the capital stock of the FRB and the FHLB. These investments are carried at cost since no ready market exists for them, and they have no quoted market value. The Company conducts a periodic review and evaluation of its restricted stock to determine if any impairment exists. The fair values of these investments have been categorized as Level 2 in the fair value hierarchy.

Loans

The fair value of loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality and adjustments that the Company believes a market participant would consider in determining fair value based on a third-party independent valuation. As a result, the fair value for loans is categorized as Level 2 in the fair value hierarchy, excluding collateral dependent and impaired loans, which are categorized as Level 3.

Accrued interest receivable and payable

The carrying amounts reported on the Consolidated Balance Sheet for accrued interest receivable and payable approximate their fair values.

Derivative financial instruments

All derivatives are recognized on the Consolidated Balance Sheets at their fair value. The fair value for derivatives is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters. As a result, the fair values have been categorized as Level 2 in the fair value hierarchy.

Deposits

The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (that is, their carrying amount) as these deposits do not have a contractual term. The carrying amount for variable rate deposit accounts approximates their fair value. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on these deposits. The fair value measurement of the deposit liabilities is categorized as Level 2 in the fair value hierarchy.

FHLB advances and customer repurchase agreements

The fair values of the Company’s borrowings are estimated using discounted cash flow analyses, based on the market rates for similar types of borrowing arrangements. The FHLB advances and customer repurchase agreements have been categorized as Level 2 in the fair value hierarchy due to their short durations.

Subordinated debt

The fair value of subordinated debt is based on the market rate for the respective subordinated debt security. Subordinated debt has been categorized as Level 2 in the fair value hierarchy.

Junior subordinated debt

Junior subordinated debt is valued based on a discounted cash flow model which uses as inputs Treasury Bond rates and the 'BB' and 'BBB' rated financial indexes. Junior subordinated debt has been categorized as Level 3 in the fair value hierarchy.

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Off-balance sheet instruments

The fair value of the Company’s off-balance sheet instruments (lending commitments and letters of credit) is based on quoted fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, and the counterparties’ credit standing.

Income taxes

The Company is subject to income taxes in the United States and files a consolidated federal income tax return with all of its subsidiaries, with the exception of BW Real Estate, Inc. Deferred income taxes are recorded to reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their income tax bases using enacted tax rates that are expected to be in effect when the taxes are actually paid or recovered. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Net deferred tax assets are recorded to the extent that these assets will more-likely-than-not be realized. In making these determinations, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, tax planning strategies, projected future taxable income, and recent operating results. If it is determined that deferred income tax assets to be realized in the future are in excess of their net recorded amount, an adjustment to the valuation allowance will be recorded, which will reduce the Company's provision for income taxes.

A tax benefit from an unrecognized tax benefit may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including related appeals or litigation, based on technical merits. Income tax benefits must meet a more-likely-than-not recognition threshold at the effective date to be recognized.

Interest and penalties related to unrecognized tax benefits are recognized as part of the provision for income taxes in the Consolidated Income Statement. Accrued interest and penalties are included in the related tax liability line with other liabilities inon the Consolidated Balance Sheet. See "Note ~~11.~~10. Income Taxes" of these Notes to Unaudited Consolidated Financial Statements for further discussion on income taxes.

~~Off-balance sheet instruments~~Non-interest income

~~In the ordinary course~~Non-interest income includes service charges and fees, income from equity investments, card income, foreign currency income, income from bank owned life insurance, lending related income, net gain or loss on sales of business, the Company has entered into off-balance sheet financial instrument arrangements consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the Consolidated Financial Statements when they are funded. They involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Consolidated Balance Sheet. Losses would be experienced when the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration datesinvestment securities, net fair value gain or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthinessloss adjustments on ~~a case-by-case~~

basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets ~~used as loan collateral.~~

As with outstanding loans, the Company applies qualitative factors and utilization rates to its off-balance sheet obligations in determining an estimate of losses inherent in these contractual obligations. The estimate for credit losses on off-balance sheet instruments is included in other liabilities and the charge to income that establishes this liability is included in non-interest expense.

~~The Company also has off-balance sheet arrangements related to its derivative instruments. Derivative instruments are recognized in the Consolidated Financial Statements~~measured at fair value, and ~~their notional values~~other income. Service charges and fees consist of fees earned from performance of account analysis, general account services, and other deposit account services. These fees are ~~carried off-balance sheet.~~recognized as the related services are provided in accordance with ASC 606, Revenue from Contracts with Customers. Income from equity investments includes gains on equity warrant assets, SBIC equity income, and success fees. Card income includes fees earned from customer use of debit and credit cards, interchange income from merchants, and international charges. Card income is generally within the scope of ASC 310, Receivables; however, certain processing transactions for merchants, such as interchange fees, are within the scope of ASC 606. Foreign currency income represents fees earned on the differential between purchases and sales of foreign currency on behalf of the Company’s clients. Income from bank owned life insurance is accounted for in accordance with ASC 325, Investments - Other. Lending related income includes fees earned from gains or losses on the sale of loans, SBA income, and letter of credit fees. Gains and losses on the sale of loans and SBA income are recognized pursuant to ASC 860, Transfers and Servicing. Net unrealized gains or losses on assets measured at fair value represent fair value changes in equity securities and are accounted for in accordance with ASC 321, Investments - Equity Securities. Fees related to standby letters of credit are accounted for in accordance with ASC 440, Commitments. Other income includes operating lease income, which is recognized on a straight-line basis over the lease term in accordance with ASC 842, Leases. Net gain or loss on sales/valuations of repossessed and other assets is presented as a component of non-interest expense, but may also be presented as a component of non-interest income in the event that a net gain is recognized. Net gain or loss on sales of repossessed and other assets are accounted for in accordance with ASC 610, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. See "Note ~~9. Derivatives and Hedging Activities"~~14. Revenue from Contracts with Customers" of these Notes to Unaudited Consolidated Financial Statements for further ~~discussion.~~

~~Fair values of financial instruments~~

~~The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. ASC 820,~~ ~~Fair Value Measurement~~, establishes a framework for measuring fair value and a three-level valuation hierarchy for disclosure of fair value measurement, as well as enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputsdetails related to the valuation of an asset or liability as of the measurement date. The Company uses various valuation approaches, including market, income, and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputsnature and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would consider in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, 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.

Fair value is a market-based measure considered from the perspective of a market participant who may purchase the asset or assume the liability rather than an entity-specific measure. When market assumptions are available, ASC 820 requires the Company to make assumptions regarding the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.

~~ASC 825,~~ ~~Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.~~

September 30, 2017 and 2016. The estimated fair value amounts for September 30, 2017 and 2016 have been measured as of period-end, and have not been re-evaluated or updated for purposes of these Consolidated Financial Statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at period-end.

The information in "Note 13. Fair Value Accounting" in these Notes to Unaudited Consolidated Financial Statements should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.

~~The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:~~

~~Cash and cash equivalents~~

~~The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks approximate their fair value.~~

~~Money market investments~~

~~The carrying amounts reported in the Consolidated Balance Sheets for money market investments approximate their fair value.~~

~~Investment securities~~

~~The fair values of CRA investments, exchange-listed preferred stock, and certain corporate debt securities are based on quoted market prices and are categorized as Level 1 in the fair value hierarchy.~~

The fair values of other investment securities were determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, for example, yield curves, credit ratings, and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy.

During the year ended December 31, 2016, the Company's CDO securities were transferred from Level 3 to Level 2 as a result of an increase in the availability and reliability of the observable inputs utilized in the securities' fair value measurement. Previously, quoted prices and quoted prices for similar assets were not available. Therefore, the Company would engage a third party to estimate the future cash flows and discount rate using third party quotes adjusted based on assumptions a market participant would assume necessary for each specific security, which resulted in fair values for these securities being categorized as Level 3 in the fair value hierarchy.

~~Restricted stock~~

WAB is a member of the Federal Reserve System and the FHLB and, accordingly, maintains investments in the capital stock of the FRB and the FHLB. WAB also maintains an investment in its primary correspondent bank. These investments are carried at cost since no ready market exists for them, and they have no quoted market value. The Company conducts a periodic review and evaluation of its restricted stock to determine if any impairment exists. The fair values of these investments have been categorized as Level 2 in the fair value hierarchy.

~~Loans~~

The fair value of loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality and adjustments that the Company believes a market participant would consider in determining fair value based on a third party independent valuation. As a result, the fair value for loans is categorized as Level 2 in the fair value hierarchy, excluding impaired loans which are categorized as Level 3.

~~Accrued interest receivable and payable~~

~~The carrying amounts reported in the Consolidated Balance Sheets for accrued interest receivable and payable approximate their fair value.~~

~~Derivative financial instruments~~

All derivatives are recognized in the Consolidated Balance Sheets at their fair value. The fair value for derivatives is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters. As a result, the fair values have been categorized as Level 2 in the fair value hierarchy.

~~Deposits~~

The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (that is, their carrying amount), which the Company believes a market participant would consider in determining fair value. The carrying amount for variable-rate deposit accounts approximates their fair value. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on these deposits. The fair value measurement of the deposit liabilities is categorized as Level 2 in the fair value hierarchy.

~~FHLB advances and customer repurchase agreements~~

~~Subordinated debt~~

~~The fair value of subordinated debt is based on the market rate for the respective subordinated debt security. Subordinated debt has been categorized as Level 3 in the fair value hierarchy.~~

~~Junior subordinated debt~~

Junior subordinated debt is valued based on a discounted cash flow model which uses as inputs Treasury Bond rates and the 'BB' rated financial index. Junior subordinated debt has been categorized as Level 3 in the fair value hierarchy.

~~Off-balance sheet instruments~~

The fair value of the Company’s off-balance sheet instruments (lending commitments and standby letters of credit) is based on quoted fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, and the counterparties’ credit standing.

~~Recent accounting pronouncements~~

~~In May 2014, the FASB issued guidance within ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~. The amendments in ASU 2014-09 to Topic 606, Revenue from Contracts with Customers, creates a common revenue standard and clarifies the principles for recognizing revenue that can be applied consistently across various transactions, industries, and capital markets. The amendments in the ASU clarify that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As part of that principle, the entity should identify the contract(s) with the customer, identify the performance obligation(s) of the contract, determine the transaction price, allocate that transaction price to the performance obligation(s) of the contract, and then recognize revenue when or as the entity satisfies the performance obligation(s). In August 2015, the FASB issued ASU 2015-14, ~~Revenue from Contracts with Customers - Deferral of the Effective Date~~, which deferred the original effective date of ASU No. 2014-09 by one year. Accordingly, the amendments in ASU No. 2014-09 will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that annual reporting period. The amendments will be applied through the election of one of two retrospective methods. Substantially all of the Company's revenue is generated from interest income related to loans and investment securities, which are not within the scope of this guidance. The contracts that are within the scope of this guidance include service charges and fees on deposit accounts and warrant related income. The Company has completed its review of contracts and other agreements that are within the scope of this guidance and did not identify any material changes to the timing of revenue recognition. The Company will adopt the amendments beginning January 1, 2018 through use of the modified retrospective transition method and expects to expand its qualitative and quantitative disclosures ofrecognition for non-interest income revenue ~~recognition upon adoption.~~

~~In January 2016, the FASB issued guidance within ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~. The amendments in ASU 2016-01 to Subtopic 825-10, Financial Instruments, contain the following elements: 1) requires equity investments to be measured at fair value with changes in fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; 4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 5) requires an entity to present separately in OCI the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; 6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or accompanying notes to the financial statements; 7) clarifies that the entity should evaluate the need for a valuation allowance on a deferred tax asset related to AFS securities in combination with the entity's other deferred tax assets. The amendments are effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Except for the early application of the amendment noted in item 5) above, which the Company elected to early adopt effective January 1, 2015 as discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, early adoption of the amendments in this Update is not permitted. As discussed in item 1) above, changes in the fair value of the Company's equity investments, which consist of preferred stock of $96.1 million at September 30, 2017, will be recognized in net income, rather than in AOCI. As a result, there may be greater volatility in earnings each reporting period related to fair value changes. However, as preferred stock is less than 3% of the Company's total AFS portfolio, the adoption of this amendment and the other amendments in this guidance are not expected to have a material impact on the Company's Consolidated Financial Statements.

~~In February 2016, the FASB issued guidance within ASU 2016-02,~~ ~~Leases~~. The amendments in ASU 2016-02 to Topic 842, Leases, require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Management is in the early stages of its implementation assessment, which includes identifying the population of the Company's leases that arestreams within the scope of the new ~~guidance, gathering all key lease data, and considering new lease software options that will facilitate application~~standard.

Table of ~~the new accounting requirements.~~Contents

~~In June 2016, the FASB issued guidance within ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~. The amendments in ASU 2016-13 to Topic 326, Financial Instruments - Credit Losses, require that an organization measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosures, including qualitative and quantitative disclosures that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on AFS debt securities and purchased financial assets with credit deterioration. The amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Management has formed a Steering Committee and established an implementation team made up of subject matter experts across different functions within the Company, including Finance, Risk, Credit, and IT, that will facilitate all phases of planning and implementation of the new guidance. The team is working with certain external consultants and is in the final stages of completing its gap assessment. The team has also evaluated numerous modeling packages and has made preliminary decisions on various model approaches. Further, the team is also in the process of evaluating its control framework to identify risks resulting from new processes, judgments, and data.

~~In August 2016, the FASB issued guidance within ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments.~~ The amendments in ASU 2016-15 to Topic 230, Statement of Cash Flows, provide guidance on eight specific cash flow classification issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; 6) distributions received from equity method investments; 7) beneficial interest in securitization transactions; and 8) separately identifiable cash flows and the application of the predominance principle. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. However, an entity is required to adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The adoption of this guidance is not expected to have a significant impact on the Company's Consolidated Statement of Cash Flows.

~~In January 2017, the FASB issued guidance within ASU 2017-01,~~ ~~Clarifying the Definition of a Business~~. The amendments in ASU 2017-01 to Topic 805, Business Combinations, clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or

businesses. The amendments in this Update should be applied prospectively and are effective for annual periods beginning after December 31, 2017, including interim periods within those periods. The adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

~~In January 2017, the FASB issued guidance within ASU 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~. The amendments in ASU 2017-04 to Topic 350, Intangibles - Goodwill and Other, modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Accordingly, the amendments eliminate Step 2 from the goodwill impairment test because goodwill impairment will no longer be determined by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this Update should be applied on a prospective basis and are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

~~In February 2017, the FASB issued guidance within ASU 2017-05,~~ ~~Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~. The amendments in ASU 2017-05 to Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets, clarify the scope of Subtopic 610-20 and add guidance for partial sales of nonfinancial assets, including partial sales of real estate. Under current GAAP, there are several different accounting models to evaluate whether the transfer of certain assets qualify for sale treatment. The new standard reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. An entity may elect to apply the amendments in this Update either retrospectively to each period presented in the financial statements or, retrospectively with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

~~In March 2017, the FASB issued guidance within ASU 2017-08,~~ ~~Premium Amortization on Purchased Callable Debt Securities~~. The amendments in ASU 2017-08 to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date, which more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this Update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

~~In May 2017, the FASB issued guidance within ASU 2017-09,~~ ~~Scope of Modification Accounting~~. The amendments in ASU 2017-09 to Topic 718, Compensation - Stock Compensation, provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following conditions are met: the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The amendments in this Update are effective for annual periods, and interim periods within those annual periods, beginning after December 31, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

~~In August 2017, the FASB issued guidance within ASU 2017-12,~~ ~~Targeted Improvements to Accounting for Hedging Activities~~. The amendments in ASU 2017-12 to Topic 815, Derivatives and Hedging, is intended to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance also amends the presentation and disclosure requirements and changes how companies assess effectiveness. Under the new guidance, public companies will have until the end of the first quarter in which a hedge is designated to perform an initial assessment of a hedge's effectiveness. After initial qualification, the new

guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim period within those fiscal years. Early adoption is permitted in any interim period after issuance of the Update. Management is in the process of evaluating the effects that the standard is expected to have on the Company's Consolidated Financial Statements and related disclosures.

~~Recently adopted accounting guidance~~

~~In November 2015, the FASB issued guidance within ASU 2015-17,~~ ~~Income Taxes~~. The amendments in ASU 2015-17 to Topic 740, Income Taxes, changes the presentation of deferred income tax liabilities and assets, from previously bifurcated current and noncurrent, to a single noncurrent amount on the classified statement of financial position. The amendment was effective for the annual period ending after December 15, 2016, and for and interim periods within those annual periods. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.

~~In March 2016, the FASB issued guidance within ASU 2016-05,~~ ~~Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships~~. The amendments in ASU 2016-05 to Topic 815, Derivatives and Hedging, clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendments in this Update were effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.

2. INVESTMENT SECURITIES

The carrying amounts and fair values of investment securities at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized as follows:


	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
	(in thousands)
Held-to-maturity
Tax-exempt	$	504,477	$	43,663	$	0	$	548,140

Available-for-sale debt securities
CDO	$	50	$	8,126	$	0	$	8,176
Commercial MBS issued by GSEs	91,769		3,888		0		95,657
Corporate debt securities	193,798		1,081		(8,270)		186,609
Municipal securities	22,006		271		(118)		22,159

Private label residential MBS	1,245,217		19,874		(854)		1,264,237
Residential MBS issued by GSEs	1,329,773		32,314		(531)		1,361,556
Tax-exempt	961,373		51,117		(1,467)		1,011,023
Trust preferred securities	32,000		0		(6,792)		25,208

U.S. treasury securities	600		0		0		600
Total AFS debt securities	$	3,876,586	$	116,671	$	(18,032)	$	3,975,225

Equity securities
CRA investments	$	53,190	$	355	$	0	$	53,545
Preferred stock	104,974		3,976		(1,934)		107,016
Total equity securities	$	158,164	$	4,331	$	(1,934)	$	160,561


	September 30, 2017										December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
	(in thousands)										(in thousands)
Held-to-maturity										Held-to-maturity
Tax-exempt	$	154,920	$	5,791	$	(129	)	$	160,582	Tax-exempt	$	485,107	$	31,303	$	(149)	$	516,261

Available-for-sale
Available-for-sale debt securities										Available-for-sale debt securities
CDO	$	50	$	15,503	$	—		$	15,553	CDO	$	50	$	10,092	$	0	$	10,142
Commercial MBS issued by GSEs	116,910		55		(3,171		)	113,794		Commercial MBS issued by GSEs	95,062		366		(1,175)		94,253
Corporate debt securities	105,047		404		(1,437		)	104,014		Corporate debt securities	105,015		112		(5,166)		99,961
CRA investments	50,997		—		(349		)	50,648
Preferred stock	91,926		4,174		—			96,100
Municipal securities										Municipal securities	7,494		279		0		7,773

Private label residential MBS	800,171		2,090		(4,646		)	797,615		Private label residential MBS	1,129,985		3,572		(4,330)		1,129,227
Residential MBS issued by GSEs	1,831,411		3,484		(15,889		)	1,819,006		Residential MBS issued by GSEs	1,406,594		9,283		(3,817)		1,412,060
Tax-exempt	456,762		10,796		(4,785		)	462,773		Tax-exempt	530,729		24,548		(422)		554,855
Trust preferred securities	32,000		—		(2,792		)	29,208		Trust preferred securities	32,000		0		(4,960)		27,040
U.S. government sponsored agency securities	64,000		—		(2,364		)	61,636		U.S. government sponsored agency securities	10,000		0		0		10,000
U.S. treasury securities	2,496		3		(2		)	2,497		U.S. treasury securities	999		0		0		999
Total AFS securities	$	3,551,770	$	36,509	$	(35,435	)	$	3,552,844
Total AFS debt securities										Total AFS debt securities	$	3,317,928	$	48,252	$	(19,870)	$	3,346,310

Equity securities										Equity securities
CRA investments										CRA investments	$	52,805	$	0	$	(301)	$	52,504
Preferred stock										Preferred stock	82,514		3,881		(198)		86,197
Total equity securities										Total equity securities	$	135,319	$	3,881	$	(499)	$	138,701

December 31, 2016
Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value
(in thousands)
Held-to-maturity
Tax-exempt $ 92,079
$ 433
$ (546 ) $ 91,966

Available-for-sale
CDO $ 50
$ 13,440
$ —
$ 13,490
Commercial MBS issued by GSEs 121,742
—
(3,950 ) 117,792
Corporate debt securities 65,058
371
(1,285 ) 64,144
CRA investments 37,627
—
(514 ) 37,113
Preferred stock 96,071
833
(2,242 ) 94,662
Private label residential MBS 440,272
182
(6,769 ) 433,685
Residential MBS issued by GSEs 1,369,289
3,046
(17,130 ) 1,355,205
Tax-exempt 409,693
8,477
(9,937 ) 408,233
Trust preferred securities 32,000
—
(5,468 ) 26,532
U.S. government sponsored agency securities 59,000
—
(2,978 ) 56,022
U.S. treasury securities 2,496
6
—
2,502
Total AFS securities $ 2,633,298
$ 26,355
$ (50,273 ) $ 2,609,380

Securities measured at fair value
Residential MBS issued by GSEs $ 1,053

~~During the nine months ended~~Securities with carrying amounts of approximately $830.4 million and $962.5 million at September 30, 2017, the Company sold all of its investment securities measured at fair value. No significant gain or loss was recognized upon sale of these securities. For additional information on the fair value changes of securities measured at fair value, see the trading securities table in "Note 13. Fair Value Accounting" of these Notes to Unaudited Consolidated Financial Statements.

The Company conducts an OTTI analysis on a quarterly basis. The initial indication of OTTI for both debt and equity securities is a decline in the market value below the amount recorded for an investment, and taking into account the severity and duration of the decline. Another potential indication of OTTI is a downgrade below investment grade. In determining whether an impairment is OTTI, the Company considers the length of time and the extent to which the market value has been below cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For marketable equity securities, the Company also considers the issuer’s financial condition, capital strength, and near-term prospects.

For debt securities, for the purpose of an OTTI analysis, the Company also considers the cause of the price decline (general level of interest rates, credit spreads, and industry and issuer-specific factors), the issuer’s financial condition, near-term prospects, and current ability to make future payments in a timely manner, as well as the issuer’s ability to service debt, and any change in agencies’ ratings at the evaluation date from the acquisition date and any likely imminent action.

The Company has reviewed securities for which there is an unrealized loss in accordance with its accounting policy for OTTI described above and determined that there are no impairment charges for the three and nine months ended September 30, 2017 and 2016. The Company does not consider any securities to be other-than-temporarily impaired as of September 30, 20172020 and December 31, ~~2016. No assurance can be made that OTTI will not occur in future periods.~~

~~Information pertaining to securities with gross unrealized losses at September 30, 2017 and December 31, 2016, aggregated~~2019, respectively, were pledged for various purposes as required or permitted by ~~investment category and length of time that individual securities have been in a continuous loss position follows:~~ law.

Table of Contents

September 30, 2017
Less Than Twelve Months More Than Twelve Months Total
Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value
(in thousands)
Held-to-maturity
Tax-exempt $ 129
$ 9,471
$ —
$ —
$ 129
$ 9,471
Available-for-sale
Commercial MBS issued by GSEs $ 796
$ 35,545
$ 2,375
$ 76,349
$ 3,171
$ 111,894
Corporate debt securities 1,437
78,563
—
—
1,437
78,563
CRA investments 349
50,648
—
—
349
50,648
Private label residential MBS 2,295
327,580
2,351
134,429
4,646
462,009
Residential MBS issued by GSEs 11,994
1,005,130
3,895
184,589
15,889
1,189,719
Tax-exempt 1,121
120,904
3,664
68,248
4,785
189,152
Trust preferred securities —
—
2,792
29,208
2,792
29,208
U.S. government sponsored agency securities 1,624
42,376
740
14,260
2,364
56,636
U.S. treasury securities 2
1,502
—
—
2
1,502
Total AFS securities $ 19,618
$ 1,662,248
$ 15,817
$ 507,083
$ 35,435
$ 2,169,331

December 31, 2016
Less Than Twelve Months More Than Twelve Months Total
Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value
(in thousands)
Held-to-maturity
Tax-exempt $ 546
$ 30,364
$ —
$ —
$ 546
$ 30,364
Available-for-sale
Commercial MBS issued by GSEs $ 3,950
$ 117,792
$ —
$ —
$ 3,950
$ 117,792
Corporate debt securities 1,285
38,716
—
—
1,285
38,716
CRA investments 514
37,113
—
—
514
37,113
Preferred stock 2,188
63,151
54
1,471
2,242
64,622
Private label residential MBS 6,170
377,638
599
16,969
6,769
394,607
Residential MBS issued by GSEs 16,990
950,480
140
5,326
17,130
955,806
Tax-exempt 9,937
148,780
—
—
9,937
148,780
Trust preferred securities —
—
5,468
26,532
5,468
26,532
U.S. government sponsored agency securities 2,978
56,022
—
—
2,978
56,022
Total AFS securities $ 44,012
$ 1,789,692
$ 6,261
$ 50,298
$ 50,273
$ 1,839,990

~~At September 30, 2017 and December 31, 2016,~~The following tables summarize the ~~Company’s unrealized losses relate primarily to market interest rate increases since the securities' original purchase date. The total number of~~Company's AFS debt securities in an unrealized loss position at September 30, ~~2017 is 248, compared to 244 at~~2020 and December 31, ~~2016. In analyzing an issuer’s financial condition, management considers whether the securities are issued~~2019, aggregated by ~~the federal government or its agencies, whether downgrades by bond rating agencies have occurred,~~major security type and ~~industry analysis reports. Since material downgrades have not occurred and management does not intend to sell the debt~~length of time in a continuous unrealized loss position:


	September 30, 2020
	Less Than Twelve Months				More Than Twelve Months				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(in thousands)


Available-for-sale debt securities

Corporate debt securities	$	70	$	31,528	$	8,200	$	91,800	$	8,270	$	123,328
Municipal securities	118		9,384		0		0		118		9,384
Private label residential MBS	851		131,620		3		2,435		854		134,055
Residential MBS issued by GSEs	522		134,180		9		1,193		531		135,373
Tax-exempt	1,467		121,031		0		0		1,467		121,031
Trust preferred securities	0		0		6,792		25,208		6,792		25,208


Total AFS securities	$	3,028	$	427,743	$	15,004	$	120,636	$	18,032	$	548,379


	December 31, 2019
	Less Than Twelve Months				More Than Twelve Months				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(in thousands)
Held-to-maturity
Tax-exempt	$	149	$	24,325	$	0	$	0	$	149	$	24,325
Available-for-sale debt securities
Commercial MBS issued by GSEs	$	85	$	9,035	$	1,090	$	54,604	$	1,175	$	63,639
Corporate debt securities	0		0		5,166		94,834		5,166		94,834

Private label residential MBS	1,776		337,285		2,554		258,791		4,330		596,076
Residential MBS issued by GSEs	1,740		385,643		2,077		150,419		3,817		536,062
Tax-exempt	422		67,150		0		0		422		67,150
Trust preferred securities	0		0		4,960		27,040		4,960		27,040


Total AFS securities	$	4,023	$	799,113	$	15,847	$	585,688	$	19,870	$	1,384,801

The total number of AFS securities in an unrealized loss position at September 30, 2020 is 73, compared to 158 at December 31, 2019.

On January 1, 2020, the Company adopted the amendments within ASU 2016-13, which replaces the legacy US GAAP OTTI model with a credit loss model. The credit loss model under ASC 326-30, applicable to AFS debt securities, requires recognition of credit losses through an allowance account, but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. For a detailed discussion of the impact of adoption of ASU 2016-13 and information related to investment securities, including accounting policies and methodologies used to estimate the allowance for credit losses on securities, see "Note 1. Summary of Significant Accounting Policies."

Residential MBS issued by GSEs held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As 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 recovery, no credit losses have been recognized on these securities during the three and nine months ended September 30, 2020.

Qualitative factors used in the ~~foreseeable future, none~~Company's credit loss assessment of its securities that are not guaranteed by the U.S. government included consideration of any adverse conditions related to a specific security, industry, or geographic region of its securities, any credit ratings below investment grade, the payment structure of the ~~securities described~~security and the likelihood of the issuer to be able to make payments that increase in the ~~above table~~future, and failure of the issuer to make any scheduled principal or interest payments. For the Company's corporate debt, municipal, and tax-exempt securities, the Company also considered various metrics of the issuer including days of cash on hand, the ratio of long-term debt to total assets, the net change in ~~this paragraph are deemed~~cash between reporting periods, and consideration of any breach in covenant requirements. For the Company's private label residential MBS, the Company also considered metrics such as securitization risk weight factor, current credit support, whether there were any mortgage principal

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losses resulting from defaults in payments on the underlying mortgage collateral, and the credit default rate over the last twelve months.

As of September 30, 2020, no credit losses on the Company's corporate debt, municipal, and tax-exempt securities have been recognized. The Company's corporate debt and tax-exempt securities continue to be ~~OTTI.~~

~~The trust preferred securities have yields based on floating rate LIBOR, which are~~ highly ~~correlated~~rated, issuers continue to ~~the federal funds rate. The low rate environment has had a negative effect on the market value of these securities, however, as the federal funds rate has increased since December 31, 2016,~~make timely principal and interest payments, and the unrealized losses on these security portfolios primarily relate to changes in interest rates and other market conditions that are not considered to be credit-related issues. The Company is continuing to receive timely principal and interest payments on its municipal securities and the majority of these issuers have ~~decreased.~~revenues pledged for payment of debt service prior to payment of other types of expenses. Further, 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 these securities prior to their anticipated recovery.

The Company's private label residential MBS are non-agency collateralized mortgage obligations and primarily carry investment grade credit ratings as of September 30, 2020. These securities are secured by pools of residential mortgage loans. Credit losses have not been recognized on these securities as of September 30, 2020 as principal and interest payments on these securities continue to be made on a timely basis, credit support for these securities is considered adequate, and as 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 these securities prior to their anticipated recovery.

The Company's trust preferred securities are investment grade and the issuer continues to make timely principal and interest payments.

Based on the qualitative factors discussed above, no allowance for credit losses for the Company's AFS debt securities has been recognized as of September 30, 2020.

The credit loss model under ASC 326-20, applicable to HTM debt securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased. The following tables present a rollforward by major security type of the allowance for credit losses for the Company's HTM debt securities:


	Three Months Ended September 30, 2020
	Balance,		Provision for (Reversal of) Credit Losses		Writeoffs		Recoveries		Balance,
	June 30, 2020								September 30, 2020
	(in thousands)
Held-to-maturity debt securities
Tax-exempt	$	7,649	$	(1,685)	$	0	$	0	$	5,964


	Nine Months Ended September 30, 2020
	Balance,		Provision for (Reversal of) Credit Losses		Writeoffs		Recoveries		Balance,
	January 1, 2020								September 30, 2020
	(in thousands)
Held-to-maturity debt securities
Tax-exempt	$	2,646	$	3,318	$	0	$	0	$	5,964

Accrued interest receivable on HTM securities totaled $1.8 million at September 30, 2020 and is excluded from the estimate of credit losses.

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The following tables summarize the carrying amount of the Company’s investment ratings position as of September 30, 2020 and December 31, 2019, which are updated quarterly and used to monitor the credit quality of the Company's securities:


	September 30, 2020
	AAA		Split-rated AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Unrated		Totals
	(in thousands)
Held-to-maturity
Tax-exempt	$	0	$	0	$	0	$	0	$	0	$	0	$	504,477	$	504,477

Available-for-sale debt securities
CDO	$	0	$	0	$	0	$	0	$	0	$	8,176	$	0	$	8,176
Commercial MBS issued by GSEs	0		95,657		0		0		0		0		0		95,657
Corporate debt securities	0		0		0		45,800		122,579		18,230		0		186,609
Municipal securities	0		0		12,143		0		2,630		0		7,386		22,159
Private label residential MBS	1,235,170		0		27,682		91		347		947		0		1,264,237
Residential MBS issued by GSEs	0		1,361,556		0		0		0		0		0		1,361,556
Tax-exempt	43,328		56,725		447,629		431,459		0		0		31,882		1,011,023
Trust preferred securities	0		0		0		0		25,208		0		0		25,208

U.S. treasury securities	0		600		0		0		0		0		0		600
Total AFS securities (1)	$	1,278,498	$	1,514,538	$	487,454	$	477,350	$	150,764	$	27,353	$	39,268	$	3,975,225

Equity securities
CRA investments	$	0	$	27,795	$	0	$	0	$	0	$	0	$	25,750	$	53,545
Preferred stock	0		0		0		0		68,945		37,135		936		107,016
Total equity securities (1)	$	0	$	27,795	$	0	$	0	$	68,945	$	37,135	$	26,686	$	160,561

(1)Where ratings differ, the Company uses an average of the available ratings by major credit agencies.


	December 31, 2019
	AAA		Split-rated AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Unrated		Totals
	(in thousands)
Held-to-maturity
Tax-exempt	$	0	$	0	$	0	$	0	$	0	$	0	$	485,107	$	485,107

Available-for-sale debt securities
CDO	$	0	$	0	$	0	$	0	$	0	$	10,142	$	0	$	10,142
Commercial MBS issued by GSEs	0		94,253		0		0		0		0		0		94,253
Corporate debt securities	0		0		0		66,530		33,431		0		0		99,961
Municipal securities	0		0		0		0		0		0		7,773		7,773
Private label residential MBS	1,096,909		0		30,675		181		288		1,174		0		1,129,227
Residential MBS issued by GSEs	0		1,412,060		0		0		0		0		0		1,412,060
Tax-exempt	52,610		2,856		327,657		171,732		0		0		0		554,855
Trust preferred securities	0		0		0		0		27,040		0		0		27,040
U.S. government sponsored agency securities	0		10,000		0		0		0		0		0		10,000
U.S. treasury securities	0		999		0		0		0		0		0		999
Total AFS securities (1)	$	1,149,519	$	1,520,168	$	358,332	$	238,443	$	60,759	$	11,316	$	7,773	$	3,346,310

Equity securities
CRA investments	$	0	$	25,375	$	0	$	0	$	0	$	0	$	27,129	$	52,504
Preferred stock	0		0		0		0		82,851		2,105		1,241		86,197
Total equity securities (1)	$	0	$	25,375	$	0	$	0	$	82,851	$	2,105	$	28,370	$	138,701

(1)Where ratings differ, the Company uses an average of the available ratings by major credit agencies.

A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. As of September 30, 2020, there were no investment securities that were past due. In addition, the Company does not have a significant amount of investment securities on nonaccrual status or securities that are considered to be collateral-dependent as of September 30, 2020.

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The amortized cost and fair value of the Company's debt securities as of September 30, ~~2017,~~2020, by contractual maturities, are shown below. MBS are shown separately as individual MBS are comprised of pools of loans with varying maturities. Therefore, these securities are listed separately in the maturity summary.

September 30, 2017
Amortized Cost Estimated Fair Value
(in thousands)
Held-to-maturity
After one year through five years $ 100
$ 101
After five years through ten years 15,116
15,503
After ten years 139,704
144,978
Total HTM securities $ 154,920
$ 160,582

Available-for-sale
Due in one year or less $ 50,997
$ 50,648
After one year through five years 74,409
77,268
After five years through ten years 289,847
292,086
After ten years 388,025
402,427
Mortgage-backed securities 2,748,492
2,730,415
Total AFS securities $ 3,551,770
$ 3,552,844

~~The following tables summarize the carrying amount of the Company’s investment ratings position as of September 30, 2017 and December 31, 2016:~~

September 30, 2017
AAA Split-rated AAA/AA+ AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Unrated Totals
(in thousands)
Held-to-maturity
Tax-exempt $ —
$ —
$ —
$ —
$ —
$ —
$ 154,920
$ 154,920

Available-for-sale
CDO $ —
$ —
$ —
$ —
$ —
$ 15,553
$ —
$ 15,553
Commercial MBS issued by GSEs —
113,794
—
—
—
—
—
113,794
Corporate debt securities —
—
—
74,819
29,195
—
—
104,014
CRA investments —
25,381
—
—
—
—
25,267
50,648
Preferred stock —
—
—
10,575
66,193
4,315
15,017
96,100
Private label residential MBS 736,937
—
56,171
1,509
1,025
1,973
—
797,615
Residential MBS issued by GSEs —
1,819,006
—
—
—
—
—
1,819,006
Tax-exempt 63,991
25,264
224,235
147,407
—
—
1,876
462,773
Trust preferred securities —
—
—
—
29,208
—
—
29,208
U.S. government sponsored agency securities —
61,636
—
—
—
—
—
61,636
U.S. treasury securities —
2,497
—
—
—
—
—
2,497
Total AFS securities (1) $ 800,928
$ 2,047,578
$ 280,406
$ 234,310
$ 125,621
$ 21,841
$ 42,160
$ 3,552,844


~~(1)~~	~~Where ratings differ, the Company uses an average of the available ratings by S&P, Moody’s, and/or Fitch.~~

December 31, 2016
AAA Split-rated AAA/AA+ AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Unrated Totals
(in thousands)
Held-to-maturity
Tax-exempt $ —
$ —
$ —
$ —
$ —
$ —
$ 92,079
$ 92,079
Available-for-sale
CDO $ —
$ —
$ —
$ —
$ —
$ 13,490
$ —
$ 13,490
Commercial MBS issued by GSEs —
117,792
—
—
—
—
—
117,792
Corporate debt securities —
—
5,429
38,715
20,000
—
—
64,144
CRA investments —
—
—
—
—
—
37,113
37,113
Preferred stock —
—
—
—
64,486
14,658
15,518
94,662
Private label residential MBS 399,013
—
29,921
2,117
2,634
—
—
433,685
Residential MBS issued by GSEs —
1,355,205
—
—
—
—
—
1,355,205
Tax-exempt 80,862
—
268,249
59,122
—
—
—
408,233
Trust preferred securities —
—
—
—
26,532
—
—
26,532
U.S. government sponsored agency securities —
56,022
—
—
—
—
—
56,022
U.S. treasury securities —
2,502
—
—
—
—
—
2,502
Total AFS securities (1) $ 479,875
$ 1,531,521
$ 303,599
$ 99,954
$ 113,652
$ 28,148
$ 52,631
$ 2,609,380

Securities measured at fair value
Residential MBS issued by GSEs $ —
$ 1,053
$ —
$ —
$ —
$ —
$ —
$ 1,053


~~(1)~~	~~Where ratings differ, the Company uses an average of the available ratings by S&P, Moody’s, and/or Fitch.~~

Securities with carrying amounts of approximately $975.1 million and $763.0 million at September 30, 2017 and December 31, 2016, respectively, were pledged for various purposes as required or permitted by law.


	September 30, 2020
	Amortized Cost		Estimated Fair Value
	(in thousands)
Held-to-maturity
Due in one year or less	$	7,330	$	7,336
After one year through five years	17,135		17,628

After ten years	480,012		523,176
Total HTM securities	$	504,477	$	548,140

Available-for-sale
Due in one year or less	$	600	$	600
After one year through five years	9,024		9,047
After five years through ten years	229,899		223,844
After ten years	970,304		1,020,284
Mortgage-backed securities	2,666,759		2,721,450
Total AFS securities	$	3,876,586	$	3,975,225

The following table presents gross gains and losses on sales of investment securities:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Available-for-sale securities
Gross gains	$	0	$	3,152	$	405	$	3,152
Gross losses	0		0		(175)		0
Net gains (losses) on AFS securities	$	0	$	3,152	$	230	$	3,152

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Gross gains $ 468
$ —
$ 1,181
$ 2,057
Gross losses (149 ) —
(274 ) (1,056 )
Net gains (losses) on sales of investment securities $ 319
$ —
$ 907
$ 1,001

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3. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES

On January 1, 2020, the Company adopted the amendments within ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Accordingly, the Company's financial results for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 while prior period amounts have not been adjusted and continue to be reported in accordance with legacy GAAP. For a detailed discussion of the impact of adoption of ASU 2016-13 and information related to loans and credit quality, including accounting policies and methodologies used to estimate the allowance for credit losses on loans, see "Note 1. Summary of Significant Accounting Policies."

The Company's primary portfolio segments have changed to align with the methodology applied in estimating the allowance for credit losses under CECL. In addition, as the concept of impaired loans does not exist under CECL, disclosures that related solely to impaired loans have been removed.

The composition of the ~~Company’s~~Company's held for investment loan portfolio is as follows:


	September 30, 2020
	(in thousands)
Commercial and industrial
Tech & Innovation	$	2,277,889
Other commercial and industrial	5,993,712
CRE - owner occupied	1,970,163
CRE - non-owner occupied
Hotel Franchise Finance	1,942,886
Other CRE - non-owned occupied	3,433,932
Residential	2,330,064
Construction and land development	2,267,922
Warehouse lending	3,926,852
Municipal & nonprofit	1,686,690
Other	163,144
Total loans HFI	25,993,254
Allowance for credit losses	(310,560)
Total loans HFI, net of allowance	$	25,682,694

September 30, 2017 December 31, 2016
(in thousands)
Commercial and industrial $ 6,661,152
$ 5,755,021
Commercial real estate - non-owner occupied 3,628,415
3,543,956
Commercial real estate - owner occupied 2,042,262
2,013,276
Construction and land development 1,671,552
1,478,114
Residential real estate 376,716
259,432
Commercial leases 74,850
100,765
Consumer 50,742
38,963
Loans, net 14,505,689
13,189,527
Allowance for credit losses (136,421 ) (124,704 )
Total loans HFI $ 14,369,268
$ 13,064,823


	December 31, 2019
	(in thousands)
Commercial and industrial	$	9,382,043
Commercial real estate - non-owner occupied	5,245,634
Commercial real estate - owner occupied	2,316,913
Construction and land development	1,952,156
Residential real estate	2,147,664
Consumer	57,083
Loans, net of deferred loan fees and costs	21,101,493
Allowance for credit losses	(167,797)
Total loans HFI	$	20,933,696

Loans that are held for investment are stated at the amount of unpaid principal, adjusted for net deferred fees and costs, premiums and discounts on acquired and purchased loans, and an allowance for credit losses. Net deferred loan fees of $81.4 million and ~~costs~~$47.7 million reduced the carrying value of loans as of September 30, ~~2017~~2020 and December 31, ~~2016 total $21.6~~2019, respectively. Net unamortized purchase premiums on acquired and purchased loans of $22.1 million and ~~$22.3~~$19.6 million ~~respectively, which is a reduction in~~increased the carrying value of ~~loans. Net unamortized purchase discounts on secondary market loan purchases total $8.4 million and $5.2 million~~loans as of September 30, ~~2017~~2020 and December 31, 2016, respectively. Total loans held for investment are also net of interest rate and credit marks on acquired loans, which are a net reduction in the carrying value of loans. Interest rate marks were $17.0 million and $22.2 million as of September 30, 2017 and December 31, 2016, respectively. Credit marks were $32.8 million and $47.3 million as of September 30, 2017 and December 31, 2016,2019, respectively.

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company ~~has $16.3~~also had $20.8 million and ~~$18.9~~$21.8 million of HFS loans, respectively.

~~The following table presents~~

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Nonaccrual and Past Due Loans

Loans are placed on nonaccrual status when management determines that the full repayment of principal and collection of interest according to contractual ~~aging of~~terms is no longer likely, generally when the ~~recorded investment in~~loan becomes 90 days or more past ~~due loans held for investment by class of loans:~~

September 30, 2017
Current 30-59 Days
Past Due 60-89 Days
Past Due Over 90 Days
Past Due Total
Past Due Total
(in thousands)
Commercial real estate
Owner occupied $ 2,039,314
$ 1,687
$ —
$ 1,261
$ 2,948
$ 2,042,262
Non-owner occupied 3,431,099
—
—
585
585
3,431,684
Multi-family 196,731
—
—
—
—
196,731
Commercial and industrial
Commercial 6,657,204
1,066
162
2,720
3,948
6,661,152
Leases 74,850
—
—
—
—
74,850
Construction and land development
Construction 1,136,205
2,230
—
—
2,230
1,138,435
Land 533,117
—
—
—
—
533,117
Residential real estate 370,733
—
—
5,983
5,983
376,716
Consumer 50,553
7
27
155
189
50,742
Total loans $ 14,489,806
$ 4,990
$ 189
$ 10,704
$ 15,883
$ 14,505,689

December 31, 2016
Current 30-59 Days
Past Due 60-89 Days
Past Due Over 90 Days
Past Due Total
Past Due Total
(in thousands)
Commercial real estate
Owner occupied $ 2,009,728
$ 71
$ —
$ 3,477
$ 3,548
$ 2,013,276
Non-owner occupied 3,339,121
672
2
—
674
3,339,795
Multi-family 204,161
—
—
—
—
204,161
Commercial and industrial
Commercial 5,747,368
549
584
6,520
7,653
5,755,021
Leases 100,761
—
—
4
4
100,765
Construction and land development
Construction 973,242
—
—
—
—
973,242
Land 503,588
—
—
1,284
1,284
504,872
Residential real estate 249,726
4,333
281
5,092
9,706
259,432
Consumer 38,765
26
2
170
198
38,963
Total loans $ 13,166,460
$ 5,651
$ 869
$ 16,547
$ 23,067
$ 13,189,527
due.

The following ~~table presents~~tables present nonperforming loan balances by loan portfolio segment:


	September 30, 2020
	Nonaccrual with No Allowance for Credit Loss		Nonaccrual with an Allowance for Credit Loss		Total Nonaccrual		Loans Past Due 90 Days or More and Still Accruing
	(in thousands)
Commercial and industrial
Tech & Innovation	$	18,725	$	0	$	18,725	$	0
Other commercial and industrial	26,997		4,614		31,611		16,866
CRE - owner occupied	38,567		0		38,567		0
CRE - non-owner occupied
Hotel Franchise Finance	0		0		0		11,263
Other CRE - non-owned occupied	18,404		10,667		29,071		0
Residential	5,388		0		5,388		0
Construction and land development	0		192		192		0
Warehouse lending	0		0		0		0
Municipal & nonprofit	0		1,952		1,952		0
Other	158		45		203		0
Total	$	108,239	$	17,470	$	125,709	$	28,129

In addition, the ~~recorded investment in non-accrual~~Company also has HFS loans ~~and loans past due ninety days or more and still accruing interest by class~~totaling $20.8 million that are on nonaccrual status as of ~~loans:~~ September 30, 2020.


	December 31, 2019
		Non-accrual loans					Loans past due 90 days or more and still accruing
			Current			Past Due/ Delinquent			Total Non-accrual
				(in thousands)
Commercial and industrial				$	19,080		$	5,421	$	24,501	$	0
Commercial real estate
Owner occupied				4,418			124		4,542		0
Non-owner occupied				7,265			11,913		19,178		0
Multi-family				0			0		0		0
Construction and land development
Construction				2,147			0		2,147		0
Land				0			0		0		0
Residential real estate				1,231			4,369		5,600		0
Consumer				0			0		0		0
Total				$	34,141		$	21,827	$	55,968	$	0

September 30, 2017 December 31, 2016
Non-accrual loans Loans past due 90 days or more and still accruing Non-accrual loans Loans past due 90 days or more and still accruing
Current Past Due/
Delinquent Total
Non-accrual Current Past Due/
Delinquent Total
Non-accrual
(in thousands)
Commercial real estate
Owner occupied $ 5,102
$ 1,261
$ 6,363
$ —
$ 5,084
$ 3,264
$ 8,348
$ 285
Non-owner occupied —
—
—
—
8,317
1
8,318
—
Multi-family —
—
—
—
—
—
—
—
Commercial and industrial
Commercial 38,875
2,677
41,552
44
10,893
6,043
16,936
775
Leases 15
—
15
—
28
3
31
—
Construction and land development
Construction —
—
—
—
—
—
—
—
Land 887
—
887
—
—
1,284
1,284
—
Residential real estate 39
5,983
6,022
—
99
5,093
5,192
—
Consumer —
155
155
—
—
163
163
7
Total $ 44,918
$ 10,076
$ 54,994
$ 44
$ 24,421
$ 15,851
$ 40,272
$ 1,067

The reduction in interest income associated with loans on ~~non-accrual~~nonaccrual status was approximately ~~$0.7~~$1.7 million and ~~$0.6~~$0.7 million for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and~~$1.8~~ $4.1 million and $1.5 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as Special Mention, Substandard, Doubtful, and Loss. Substandard loans include those characterized by well-defined weaknesses and carry the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful, or risk rated nine, have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The final rating of Loss covers loans considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that warrant management’s close attention, are deemed to be Special Mention. Risk ratings are updated, at a minimum, quarterly.

~~The following tables present gross loans by risk rating:~~

September 30, 2017
Pass Special Mention Substandard Doubtful Loss Total
(in thousands)
Commercial real estate
Owner occupied $ 1,951,070
$ 40,730
$ 48,847
$ 1,615
$ —
$ 2,042,262
Non-owner occupied 3,372,861
42,619
16,204
—
—
3,431,684
Multi-family 196,731
—
—
—
—
196,731
Commercial and industrial
Commercial 6,474,756
100,449
62,585
23,362
—
6,661,152
Leases 73,128
—
1,722
—
—
74,850
Construction and land development
Construction 1,116,667
9,496
12,272
—
—
1,138,435
Land 526,473
4,637
2,007
—
—
533,117
Residential real estate 368,722
1,350
6,644
—
—
376,716
Consumer 50,505
80
157
—
—
50,742
Total $ 14,130,913
$ 199,361
$ 150,438
$ 24,977
$ —
$ 14,505,689

September 30, 2017
Pass Special Mention Substandard Doubtful Loss Total
(in thousands)
Current (up to 29 days past due) $ 14,129,815
$ 197,067
$ 137,947
$ 24,977
$ —
$ 14,489,806
Past due 30 - 59 days 946
2,257
1,787
—
—
4,990
Past due 60 - 89 days 152
37
—
—
—
189
Past due 90 days or more —
—
10,704
—
—
10,704
Total $ 14,130,913
$ 199,361
$ 150,438
$ 24,977
$ —
$ 14,505,689

~~Included in the $25.0 million balance~~Table of loans rated Doubtful as of September 30, 2017, is one loan with a net balance of $23.4 million that was sold subsequent to quarter-end. For additional information related to the loan sale, see page 35 of these Notes to Unaudited Consolidated Financial Statements.Contents

December 31, 2016
Pass Special Mention Substandard Doubtful Loss Total
(in thousands)
Commercial real estate
Owner occupied $ 1,935,322
$ 53,634
$ 22,090
$ 2,230
$ —
$ 2,013,276
Non-owner occupied 3,278,090
22,972
38,733
—
—
3,339,795
Multi-family 203,964
197
—
—
—
204,161
Commercial and industrial
Commercial 5,621,448
70,011
58,562
5,000
—
5,755,021
Leases 100,737
—
28
—
—
100,765
Construction and land development
Construction 961,290
—
11,952
—
—
973,242
Land 501,569
337
2,966
—
—
504,872
Residential real estate 252,304
929
6,199
—
—
259,432
Consumer 38,698
64
201
—
—
38,963
Total $ 12,893,422
$ 148,144
$ 140,731
$ 7,230
$ —
$ 13,189,527

December 31, 2016
Pass Special Mention Substandard Doubtful Loss Total
(in thousands)
Current (up to 29 days past due) $ 12,887,308
$ 147,838
$ 124,084
$ 7,230
$ —
$ 13,166,460
Past due 30 - 59 days 5,433
96
122
—
—
5,651
Past due 60 - 89 days 410
210
249
—
—
869
Past due 90 days or more 271
—
16,276
—
—
16,547
Total $ 12,893,422
$ 148,144
$ 140,731
$ 7,230
$ —
$ 13,189,527

~~The table below reflects the recorded investment in loans classified as impaired:~~

September 30, 2017 December 31, 2016
(in thousands)
Impaired loans with a specific valuation allowance under ASC 310 (1) $ 8,773
$ 10,909
Impaired loans without a specific valuation allowance under ASC 310 (2) 112,583
88,300
Total impaired loans $ 121,356
$ 99,209
Valuation allowance related to impaired loans (3) $ (4,394 ) $ (4,239 )


~~(1)~~	~~Includes TDR loans of $2.1 million and $2.5 million at September 30, 2017 and December 31, 2016, respectively.~~


~~(2)~~	~~Includes TDR loans of $47.8 million and $58.3 million at September 30, 2017 and December 31, 2016, respectively.~~


~~(3)~~	~~Includes valuation allowance related to TDR loans of $1.3 million and $0.6 million at September 30, 2017 and December 31, 2016, respectively.~~

~~The following table presents impaired loans by class:~~

September 30, 2017 December 31, 2016
(in thousands)
Commercial real estate
Owner occupied $ 16,937
$ 20,748
Non-owner occupied 19,010
25,524
Multi-family —
—
Commercial and industrial
Commercial 57,581
21,107
Leases 336
355
Construction and land development
Construction —
—
Land 11,503
14,838
Residential real estate 15,794
16,391
Consumer 195
246
Total $ 121,356
$ 99,209

A valuation allowance is established for an impaired loan when the fair value of the loan is less than the recorded investment. In certain cases, portions of impaired loans are charged-off to realizable value instead of establishing a valuation allowance and are included, when applicable, in the table above as “Impaired loans without a specific valuation allowance under ASC 310.” However, before concluding that an impaired loan needs no associated valuation allowance, an assessment is made to consider all available and relevant information for the method used to evaluate impairment and the type of loan being assessed. The valuation allowance disclosed above is included in the allowance for credit losses reported in the Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016.

The following table presents ~~the average investment in impaired loans and income recognized on impaired loans:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Average investment in impaired loans $ 108,033
$ 106,357
$ 106,456
$ 112,901
Interest income recognized on impaired loans 1,040
959
3,075
3,122
Interest recognized on non-accrual loans, cash basis 694
245
1,372
642

~~The following table presents the average investment in impaired~~an aging analysis of past due loans by loan ~~class:~~ portfolio segment:


	September 30, 2020
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 days Past Due		Total Past Due		Total
	(in thousands)
Commercial and industrial
Tech & Innovation	$	2,277,889	$	0	$	0	$	0	$	0	$	2,277,889
Other commercial and industrial	5,969,739		4,617		2,490		16,866		23,973		5,993,712
CRE - owner occupied	1,970,163		0		0		0		0		1,970,163
CRE - non-owner occupied
Hotel Franchise Finance	1,931,623		0		0		11,263		11,263		1,942,886
Other CRE - non-owned occupied	3,433,932		0		0		0		0		3,433,932
Residential	2,319,530		10,325		209		0		10,534		2,330,064
Construction and land development	2,261,348		6,574		0		0		6,574		2,267,922
Warehouse lending	3,926,852		0		0		0		0		3,926,852
Municipal & nonprofit	1,686,690		0		0		0		0		1,686,690
Other	163,101		38		5		0		43		163,144
Total loans	$	25,940,867	$	21,554	$	2,704	$	28,129	$	52,387	$	25,993,254


	December 31, 2019
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 days Past Due		Total Past Due		Total
	(in thousands)
Commercial and industrial	$	9,376,377	$	2,501	$	637	$	2,528	$	5,666	$	9,382,043
Commercial real estate
Owner occupied	2,316,165		624		0		124		748		2,316,913
Non-owner occupied	5,007,644		4,661		0		11,913		16,574		5,024,218
Multi-family	221,416		0		0		0		0		221,416
Construction and land development
Construction	1,176,908		0		0		0		0		1,176,908
Land	775,248		0		0		0		0		775,248
Residential real estate	2,134,346		7,627		1,721		3,970		13,318		2,147,664
Consumer	57,083		0		0		0		0		57,083
Total loans	$	21,065,187	$	15,413	$	2,358	$	18,535	$	36,306	$	21,101,493

Table of Contents

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Commercial real estate
Owner occupied $ 17,779
$ 17,155
$ 20,136
$ 19,323
Non-owner occupied 20,789
29,978
22,446
31,635
Multi-family —
—
—
—
Commercial and industrial
Commercial 39,736
25,662
33,009
27,221
Leases 338
331
349
904
Construction and land development
Construction —
—
—
—
Land 12,503
16,699
13,297
17,632
Residential real estate 16,692
16,272
17,011
15,890
Consumer 196
260
208
296
Total $ 108,033
$ 106,357
$ 106,456
$ 112,901
Credit Quality Indicators

The ~~average investment~~Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The risk rating categories are described in ~~TDR loans was $52.0 million and $63.9 million for the three months ended~~"Note 1. Summary of Significant Accounting Policies." The following tables present risk ratings as of September 30, ~~2017 and 2016, respectively, and $56.6 million and $71.4 million for the nine months ended September 30, 2017 and 2016, respectively.~~

~~The following table presents interest income on impaired loans by class:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Commercial real estate
Owner occupied $ 166
$ 211
$ 530
$ 753
Non-owner occupied 279
285
798
936
Multi-family —
—
—
—
Commercial and industrial
Commercial 303
90
777
319
Leases 4
4
11
40
Construction and land development
Construction —
—
—
—
Land 163
240
551
686
Residential real estate 124
128
406
384
Consumer 1
1
2
4
Total $ 1,040
$ 959
$ 3,075
$ 3,122

~~The Company is not committed to lend significant additional funds on these impaired loans.~~

~~The following table summarizes nonperforming assets:~~

September 30, 2017 December 31, 2016
(in thousands)
Non-accrual loans (1) $ 54,994
$ 40,272
Loans past due 90 days or more on accrual status (2) 44
1,067
Accruing troubled debt restructured loans 40,922
53,637
Total nonperforming loans 95,960
94,976
Other assets acquired through foreclosure, net 28,992
47,815
Total nonperforming assets $ 124,952
$ 142,791


~~(1)~~	~~Includes non-accrual TDR loans of $8.9 million and $7.1 million at September 30, 2017 and December 31, 2016, respectively.~~


~~(2)~~	~~Includes less than $0.1 million from loans acquired with deteriorated credit quality at each of the periods ended September 30, 2017 and December 31, 2016.~~

~~Loans Acquired with Deteriorated Credit Quality~~

~~Changes in the accretable yield for loans acquired with deteriorated credit quality are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Balance, at beginning of period $ 14,247
$ 15,863
$ 15,177
$ 15,925
Additions due to acquisition —
—
—
4,301
Reclassifications from non-accretable to accretable yield (1) —
119
2,086
119
Accretion to interest income (690 ) (901 ) (2,374 ) (2,570 )
Reversal of fair value adjustments upon disposition of loans (2,199 ) (578 ) (3,531 ) (3,272 )
Balance, at end of period $ 11,358
$ 14,503
$ 11,358
$ 14,503


~~(1)~~	~~The primary drivers of reclassification from non-accretable to accretable yield resulted from changes in estimated cash flows.~~

~~Allowance for Credit Losses~~

~~The following table summarizes the changes in the allowance for credit losses by portfolio type:~~

Three Months Ended September 30,
Construction and Land Development Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer Total
(in thousands)
2017
Beginning Balance $ 20,852
$ 28,593
$ 4,838
$ 76,734
$ 794
$ 131,811
Charge-offs —
175
—
2,921
61
3,157
Recoveries (226 ) (1,781 ) (108 ) (619 ) (33 ) (2,767 )
Provision (619 ) (1,474 ) (141 ) 7,192
42
5,000
Ending Balance $ 20,459
$ 28,725
$ 4,805
$ 81,624
$ 808
$ 136,421
2016
Beginning Balance $ 21,386
$ 24,867
$ 4,546
$ 70,547
$ 758
$ 122,104
Charge-offs —
72
79
2,558
—
2,709
Recoveries (302 ) (521 ) (179 ) (466 ) (21 ) (1,489 )
Provision (347 ) (450 ) (513 ) 3,406
(96 ) 2,000
Ending Balance $ 21,341
$ 24,866
$ 4,133
$ 71,861
$ 683
$ 122,884

Nine Months Ended September 30,
Construction and Land Development Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer Total
(in thousands)
2017
Beginning Balance $ 21,175
$ 25,673
$ 3,851
$ 73,333
$ 672
$ 124,704
Charge-offs —
1,994
447
6,166
103
8,710
Recoveries (1,011 ) (2,719 ) (1,659 ) (2,705 ) (83 ) (8,177 )
Provision (1,727 ) 2,327
(258 ) 11,752
156
12,250
Ending Balance $ 20,459
$ 28,725
$ 4,805
$ 81,624
$ 808
$ 136,421
2016
Beginning Balance $ 18,976
$ 23,160
$ 5,278
$ 71,181
$ 473
$ 119,068
Charge-offs —
726
105
11,210
120
12,161
Recoveries (455 ) (4,956 ) (589 ) (2,846 ) (131 ) (8,977 )
Provision 1,910
(2,524 ) (1,629 ) 9,044
199
7,000
Ending Balance $ 21,341
$ 24,866
$ 4,133
$ 71,861
$ 683
$ 122,884

~~The following table presents impairment method information related to loans and allowance for credit losses~~2020 by loan portfolio segment:


	Term Loan Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
September 30, 2020	2020		2019		2018		2017		2016		Prior
	(in thousands)








Tech & Innovation
Pass	$	524,508	$	315,900	$	132,566	$	1,459	$	1,898	$	0	$	1,236,377	$	2,212,708
Special mention	3,499		8,957		2,651		0		0		0		0		15,107
Substandard	32,412		2,006		0		0		0		0		15,656		50,074
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	560,419	$	326,863	$	135,217	$	1,459	$	1,898	$	0	$	1,252,033	$	2,277,889

Other commercial and industrial
Pass	$	2,067,599	$	920,820	$	469,602	$	289,894	$	113,199	$	123,061	$	1,735,701	$	5,719,876
Special mention	129		51,516		32,172		36,017		6,130		15,885		43,378		185,227
Substandard	18,169		8,420		3,465		31,349		9,876		1,001		16,102		88,382
Doubtful	0		0		0		177		0		0		0		177
Loss	0		50		0		0		0		0		0		50
Total	$	2,085,897	$	980,806	$	505,239	$	357,437	$	129,205	$	139,947	$	1,795,181	$	5,993,712

CRE - owner occupied
Pass	$	173,784	$	327,618	$	322,396	$	423,987	$	167,304	$	376,175	$	74,887	$	1,866,151
Special mention	877		11,412		4,411		17,306		3,309		10,658		0		47,973
Substandard	2,237		7,573		4,926		10,483		6,311		22,460		2,049		56,039
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	176,898	$	346,603	$	331,733	$	451,776	$	176,924	$	409,293	$	76,936	$	1,970,163









Hotel Franchise Finance
Pass	$	156,816	$	754,537	$	464,842	$	140,424	$	0	$	96,306	$	162,567	$	1,775,492
Special mention	0		32,643		55,798		27,389		0		23,914		0		139,744
Substandard	0		0		0		12,774		2,129		12,747		0		27,650
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	156,816	$	787,180	$	520,640	$	180,587	$	2,129	$	132,967	$	162,567	$	1,942,886

Other CRE - non-owned occupied
Pass	$	648,330	$	961,315	$	663,375	$	431,032	$	182,475	$	232,800	$	211,671	$	3,330,998
Special mention	0		13,217		7,031		5,458		4,257		7,288		0		37,251
Substandard	8,350		26,454		0		12,432		6,652		11,795		0		65,683
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	656,680	$	1,000,986	$	670,406	$	448,922	$	193,384	$	251,883	$	211,671	$	3,433,932

Table of Contents

Commercial Real Estate-Owner Occupied Commercial Real Estate-Non-Owner Occupied Commercial and Industrial Residential Real Estate Construction and Land Development Commercial Leases Consumer Total Loans
(in thousands)
Loans as of September 30, 2017:
Recorded Investment:
Impaired loans with an allowance recorded $ —
$ —
$ 8,773
$ —
$ —
$ —
$ —
$ 8,773
Impaired loans with no allowance recorded 16,936
19,010
48,807
15,794
11,503
336
197
112,583
Total loans individually evaluated for impairment 16,936
19,010
57,580
15,794
11,503
336
197
121,356
Loans collectively evaluated for impairment 2,014,282
3,496,683
6,603,572
360,315
1,660,049
74,514
50,545
14,259,960
Loans acquired with deteriorated credit quality 11,044
112,722
—
607
—
—
—
124,373
Total recorded investment $ 2,042,262
$ 3,628,415
$ 6,661,152
$ 376,716
$ 1,671,552
$ 74,850
$ 50,742
$ 14,505,689
Unpaid Principal Balance
Impaired loans with an allowance recorded $ —
$ —
$ 8,977
$ —
$ —
$ —
$ —
$ 8,977
Impaired loans with no allowance recorded 23,966
27,418
80,622
25,017
28,369
1,539
10,813
197,744
Total loans individually evaluated for impairment 23,966
27,418
89,599
25,017
28,369
1,539
10,813
206,721
Loans collectively evaluated for impairment 2,014,282
3,496,683
6,603,572
360,315
1,660,049
74,514
50,545
14,259,960
Loans acquired with deteriorated credit quality 14,378
139,473
4,812
725
—
—
—
159,388
Total unpaid principal balance $ 2,052,626
$ 3,663,574
$ 6,697,983
$ 386,057
$ 1,688,418
$ 76,053
$ 61,358
$ 14,626,069
Related Allowance for Credit Losses
Impaired loans with an allowance recorded $ —
$ —
$ 4,394
$ —
$ —
$ —
$ —
$ 4,394
Impaired loans with no allowance recorded —
—
—
—
—
—
—
—
Total loans individually evaluated for impairment —
—
4,394
—
—
—
—
4,394
Loans collectively evaluated for impairment 12,865
14,172
77,228
4,805
20,459
—
808
130,337
Loans acquired with deteriorated credit quality —
1,688
2
—
—
—
—
1,690
Total allowance for credit losses $ 12,865
$ 15,860
$ 81,624
$ 4,805
$ 20,459
$ —
$ 808
$ 136,421


	Term Loan Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
September 30, 2020	2020		2019		2018		2017		2016		Prior
	(in thousands)
Residential
Pass	$	524,852	$	1,018,264	$	472,941	$	121,970	$	91,138	$	50,087	$	45,392	$	2,324,644
Special mention	0		0		0		0		0		0		0		0
Substandard	0		2,169		1,327		1,134		15		517		258		5,420
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	524,852	$	1,020,433	$	474,268	$	123,104	$	91,153	$	50,604	$	45,650	$	2,330,064

Construction and land development
Pass	$	492,218	$	777,114	$	422,749	$	21,028	$	1,403	$	14,953	$	496,079	$	2,225,544
Special mention	1,463		0		36,476		0		0		0		4,247		42,186
Substandard	0		0		192		0		0		0		0		192
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	493,681	$	777,114	$	459,417	$	21,028	$	1,403	$	14,953	$	500,326	$	2,267,922

Warehouse lending
Pass	$	155,588	$	48,455	$	990	$	1,640	$	78	$	0	$	3,720,101	$	3,926,852
Special mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	155,588	$	48,455	$	990	$	1,640	$	78	$	0	$	3,720,101	$	3,926,852

Municipal & nonprofit
Pass	$	137,047	$	170,963	$	76,133	$	232,816	$	129,957	$	927,762	$	3,535	$	1,678,213
Special mention	0		4,194		2,331		0		0		0		0		6,525
Substandard	0		0		0		1,952		0		0		0		1,952
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	137,047	$	175,157	$	78,464	$	234,768	$	129,957	$	927,762	$	3,535	$	1,686,690

Other
Pass	$	17,738	$	16,175	$	14,671	$	6,909	$	2,177	$	71,880	$	30,133	$	159,683
Special mention	961		0		97		1,691		0		42		35		2,826
Substandard	0		135		189		0		97		196		18		635
Doubtful	0		0		0		0		0		0		0		0
Loss	0		0		0		0		0		0		0		0
Total	$	18,699	$	16,310	$	14,957	$	8,600	$	2,274	$	72,118	$	30,186	$	163,144

Total by Risk Category
Pass	$	4,898,480	$	5,311,161	$	3,040,265	$	1,671,159	$	689,629	$	1,893,024	$	7,716,443	$	25,220,161
Special mention	6,929		121,939		140,967		87,861		13,696		57,787		47,660		476,839
Substandard	61,168		46,757		10,099		70,124		25,080		48,716		34,083		296,027
Doubtful	0		0		0		177		0		0		0		177
Loss	0		50		0		0		0		0		0		50
Total	$	4,966,577	$	5,479,907	$	3,191,331	$	1,829,321	$	728,405	$	1,999,527	$	7,798,186	$	25,993,254

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Commercial Real Estate-Owner Occupied Commercial Real Estate-Non-Owner Occupied Commercial and Industrial Residential Real Estate Construction and Land Development Commercial Leases Consumer Total Loans
(in thousands)
Loans as of December 31, 2016:
Recorded Investment:
Impaired loans with an allowance recorded $ 3,125
$ —
$ 7,766
$ —
$ —
$ —
$ 18
$ 10,909
Impaired loans with no allowance recorded 17,624
25,524
13,340
16,391
14,838
355
228
88,300
Total loans individually evaluated for impairment 20,749
25,524
21,106
16,391
14,838
355
246
99,209
Loans collectively evaluated for impairment 1,981,176
3,383,585
5,733,915
242,409
1,443,952
100,410
38,717
12,924,164
Loans acquired with deteriorated credit quality 11,351
134,847
—
632
19,324
—
—
166,154
Total recorded investment $ 2,013,276
$ 3,543,956
$ 5,755,021
$ 259,432
$ 1,478,114
$ 100,765
$ 38,963
$ 13,189,527
Unpaid Principal Balance
Impaired loans with an allowance recorded $ 3,125
$ —
$ 8,019
$ —
$ —
$ —
$ 18
$ 11,162
Impaired loans with no allowance recorded 26,336
33,632
43,176
26,225
33,487
507
1,358
164,721
Total loans individually evaluated for impairment 29,461
33,632
51,195
26,225
33,487
507
1,376
175,883
Loans collectively evaluated for impairment 1,981,176
3,383,585
5,733,915
242,409
1,443,952
100,410
38,717
12,924,164
Loans acquired with deteriorated credit quality 14,878
165,275
925
738
19,858
—
—
201,674
Total unpaid principal balance $ 2,025,515
$ 3,582,492
$ 5,786,035
$ 269,372
$ 1,497,297
$ 100,917
$ 40,093
$ 13,301,721
Related Allowance for Credit Losses
Impaired loans with an allowance recorded $ 937
$ —
$ 3,301
$ —
$ —
$ —
$ 1
$ 4,239
Impaired loans with no allowance recorded —
—
—
—
—
—
—
—
Total loans individually evaluated for impairment 937
—
3,301
—
—
—
1
4,239
Loans collectively evaluated for impairment 11,403
12,646
69,673
3,851
20,398
—
671
118,642
Loans acquired with deteriorated credit quality —
687
359
—
777
—
—
1,823
Total allowance for credit losses $ 12,340
$ 13,333
$ 73,333
$ 3,851
$ 21,175
$ —
$ 672
$ 124,704


	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Commercial and industrial	$	9,265,823	$	65,893	$	49,878	$	449	$	0	$	9,382,043
Commercial real estate
Owner occupied	2,265,566		9,579		41,768		0		0		2,316,913
Non-owner occupied	4,913,007		64,161		47,050		0		0		5,024,218
Multi-family	221,416		0		0		0		0		221,416
Construction and land development
Construction	1,157,169		17,592		2,147		0		0		1,176,908
Land	773,868		1,380		0		0		0		775,248
Residential real estate	2,141,336		366		5,962		0		0		2,147,664
Consumer	57,073		10		0		0		0		57,083
Total	$	20,795,258	$	158,981	$	146,805	$	449	$	0	$	21,101,493


	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Current (up to 29 days past due)	$	20,785,118	$	158,907	$	120,897	$	265	$	0	$	21,065,187
Past due 30 - 59 days	8,263		58		7,092		0		0		15,413
Past due 60 - 89 days	1,481		16		861		0		0		2,358
Past due 90 days or more	396		0		17,955		184		0		18,535
Total	$	20,795,258	$	158,981	$	146,805	$	449	$	0	$	21,101,493

Troubled Debt Restructurings

A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. The majority of the Company's modifications are extensions in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued interest. ~~A TDR loan is also considered impaired.~~ Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.

As of September 30, 2020, the Company's TDR loans totaled $60.8 million. During the three months ended September 30, ~~2017,~~2020, the Company had ~~two~~20 new TDR loans with a recorded investment of ~~$1.9~~$25.0 million. During the nine months ended September 30, ~~2017,~~2020, the Company had ~~three~~22 new TDR ~~loan~~loans with a recorded investment of ~~$6.8~~$35.7 million.The Company has $2.7 million allowance allocated to these loans as of September 30, 2020 and has committed to lend additional amounts totaling $4.2 million.

The following table presents TDR loans for the periods presented:


	September 30, 2020
	Number of Loans	Recorded Investment
	(dollars in thousands)
Commercial and industrial
Tech & Innovation	3	$	12,111
Other commercial and industrial	16	30,270
CRE - owner occupied	3	2,335
CRE - non-owner occupied
Hotel Franchise Finance	2	5,746
Other CRE - non-owned occupied	3	10,295





Total	27	$	60,757

Table of Contents

During the three months ended September 30, 2019, the Company had 3 new TDR loans with a recorded investment of $11.8 million. During the nine months ended September 30, 2019, the Company had 7 new TDR loans with a recorded investment of $40.7 million. No principal amounts were forgiven and there were no waived fees or other expenses resulting from ~~the TDR. The Company did not have any new~~these TDR loans.

As of December 31, 2019, commitments outstanding on TDR loans ~~during the three and nine months ended September 30, 2016.~~

During the three months ended September 30, 2017, there was one CRE, owner occupied TDR loan with a net recorded investment of $0.1 million for which there was a payment default. During the nine months ended September 30, 2017, there were three TDR loans with a net recorded investment of $0.5 million for which there was a payment default. During the three months ended September 30, 2016, there were no TDR loans for which there was a payment default. During the nine months ended September 30, 2016, there were two TDR loans with a net recorded investment of $5.7 million for which there was a payment default.totaled $0.2 million.

A TDR loan is deemed to have a payment default when it becomes past due 90 days under the modified terms, goes on ~~non-accrual,~~nonaccrual status, or is restructured again. Payment defaults, along with other qualitative indicators, are considered by management in the determination of the allowance for credit losses.

At During the three months ended September 30, ~~2017~~2020, there was 1 CRE, owner occupied loan with a recorded investment of $0.8 million for which there was a payment default within 12 months following the modification. During the nine months ended September 30, 2020, there were 2 CRE, owner occupied loans with a recorded investment of $1.5 million for which there was a payment default within 12 months following the modification. There was no increase to the allowance for credit losses or a writeoff that resulted from these TDR redefaults during the nine months ended September 30, 2020. During the three months ended September 30, 2019, there were 0 TDR loans for which there was a payment default. During the nine months ended September 30, 2019, there were 2 TDR loans with a recorded investment of $0.4 million for which there was a payment default.

The terms of certain other loans were modified during the three and nine months ended September 30, 2020 that did not meet the definition of a TDR. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties prior to the pandemic or a delay in a payment that was considered to be insignificant.

Collateral-Dependent Loans

The following table presents the amortized cost basis of collateral-dependent loans as of September 30, 2020:


	September 30, 2020
	Real Estate Collateral		Other Collateral		Total
	(in thousands)
Commercial and industrial
Tech & Innovation	$	0	$	49,921	$	49,921
Other commercial and industrial	0		70,407		70,407
CRE - owner occupied	44,213		0		44,213
CRE - non-owner occupied
Hotel Franchise Finance	27,649		0		27,649
Other CRE - non-owned occupied	61,403		0		61,403
Residential	758		0		758
Construction and land development	0		0		0
Warehouse lending	0		0		0
Municipal & nonprofit	0		0		0
Other	0		429		429
Total	$	134,023	$	120,757	$	254,780

The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether because of a general deterioration or some other reason during the period ended September 30, 2020.

Table of Contents

Allowance for Credit Losses

Management considers the level of allowance for credit losses to be a reasonable and supportable estimate of expected credit losses inherent within the Company's loans held for investment portfolio as of September 30, 2020. In addition to the allowance for credit losses on funded loan balances, the Company maintains a separate allowance for credit losses related to off-balance sheet credit exposures, including unfunded loan commitments, and this amount is included in other liabilities on the consolidated balance sheets. The Company's allowance for credit losses on unfunded loan commitments totaled $44.4 million and $9.0 million as of September 30, 2020 and December 31, ~~2016 there were no~~2019, respectively.

The below tables reflect the activity in the allowance for credit losses for loans held for investment by loan ~~commitments outstanding~~portfolio segment:


	Three Months Ended September 30, 2020
	Balance,		Provision for (Reversal of) Credit Losses		Writeoffs		Recoveries		Balance,
	June 30, 2020								September 30, 2020
	(1)								(1)
	(in thousands)
Commercial and industrial
Tech & Innovation	$	54,559	$	(9,359)	$	6,364	$	0	$	38,836
Other commercial and industrial	109,930		(621)		748		(192)		108,753
CRE - owner occupied	15,587		3,897		83		(5)		19,406
CRE - non-owner occupied
Hotel Franchise Finance	35,864		2,163		0		0		38,027
Other CRE - non-owned occupied	32,672		9,196		1,246		0		40,622
Residential	1,725		16		307		(355)		1,789
Construction and land development	35,792		2,983		0		(6)		38,781
Warehouse lending	743		95		0		0		838
Municipal & nonprofit	17,128		768		0		0		17,896
Other	6,550		(934)		25		(21)		5,612
Total	$	310,550	$	8,204	$	8,773	$	(579)	$	310,560

(1)Includes an estimate of future recoveries.


	Nine Months Ended September 30, 2020
	Balance,		Provision for (Reversal of) Credit Losses		Writeoffs		Recoveries		Balance,
	January 1, 2020								September 30, 2020
	(1)								(1)
	(in thousands)
Commercial and industrial
Tech & Innovation	$	22,394	$	25,556	$	9,114	$	0	$	38,836
Other commercial and industrial	95,784		13,653		2,684		(2,000)		108,753
CRE - owner occupied	10,420		9,100		126		(12)		19,406
CRE - non-owner occupied
Hotel Franchise Finance	14,104		23,923		0		0		38,027
Other CRE - non-owned occupied	10,503		30,684		2,131		(1,566)		40,622
Residential	3,814		(2,103)		307		(385)		1,789
Construction and land development	6,218		32,540		0		(23)		38,781
Warehouse lending	246		592		0		0		838
Municipal & nonprofit	17,397		499		0		0		17,896
Other	6,045		(314)		231		(112)		5,612
Total	$	186,925	$	134,130	$	14,593	$	(4,098)	$	310,560

(1)Includes an estimate of future recoveries.

Accrued interest receivable on ~~TDR loans.~~loans totaled $120.1 million at September 30, 2020 and is excluded from the estimate of credit losses.

Table of Contents


	Three Months Ended September 30, 2019
	June 30, 2019		Charge-offs		Recoveries		Provision for (Reversal of) Credit Losses		September 30, 2019
	(in thousands)
Construction and land development	$	26,091	$	0	$	(17)	$	1,210	$	27,318
Commercial real estate	41,258		139		(8)		4,817		45,944
Residential real estate	12,606		9		(131)		804		13,532
Commercial and industrial	79,635		1,950		(2,549)		(2,815)		77,419
Consumer	819		1		(6)		(16)		808
Total	$	160,409	$	2,099	$	(2,711)	$	4,000	$	165,021


	Nine Months Ended September 30, 2019
	December 31, 2018		Charge-offs		Recoveries		Provision for (Reversal of) Credit Losses		September 30, 2019
	(in thousands)
Construction and land development	$	22,513	$	141	$	(81)	$	4,865	$	27,318
Commercial real estate	34,829		139		(900)		10,354		45,944
Residential real estate	11,276		594		(251)		2,599		13,532
Commercial and industrial	83,118		6,092		(3,521)		(3,128)		77,419
Consumer	981		2		(19)		(190)		808
Total	$	152,717	$	6,968	$	(4,772)	$	14,500	$	165,021

The following tables disaggregate the Company's allowance for credit losses and loan balance by measurement methodology:


	September 30, 2020
	Loans						Allowance
	Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total		Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total
	(in thousands)
Commercial and industrial
Tech & Innovation	$	2,227,995	$	49,894	$	2,277,889	$	38,836	$	0	$	38,836
Other commercial and industrial	5,906,731		86,981		5,993,712		102,011		6,742		108,753
CRE - owner occupied	1,912,127		58,036		1,970,163		19,406		0		19,406
CRE - non-owner occupied
Hotel Franchise Finance	1,885,451		57,435		1,942,886		35,312		2,715		38,027
Other CRE - non-owned occupied	3,355,259		78,673		3,433,932		40,518		104		40,622
Residential	2,324,676		5,388		2,330,064		1,789		0		1,789
Construction and land development	2,267,922		0		2,267,922		38,781		0		38,781
Warehouse lending	3,926,852		0		3,926,852		838		0		838
Municipal & nonprofit	1,684,738		1,952		1,686,690		17,454		442		17,896
Other	162,518		626		163,144		5,569		43		5,612
Total	$	25,654,269	$	338,985	$	25,993,254	$	300,514	$	10,046	$	310,560

Table of Contents


	Commercial Real Estate-Owner Occupied		Commercial Real Estate-Non-Owner Occupied		Commercial and Industrial		Residential Real Estate		Construction and Land Development		Consumer		Total Loans
	(in thousands)
Loans as of December 31, 2019:
Recorded Investment
Impaired loans with an allowance recorded	$	0	$	11,913	$	6,919	$	0	$	2,147	$	0	$	20,979
Impaired loans with no allowance recorded	17,736		23,625		42,065		5,600		6,274		24		95,324
Total loans individually evaluated for impairment	17,736		35,538		48,984		5,600		8,421		24		116,303
Loans collectively evaluated for impairment	2,296,342		5,159,921		9,333,059		2,142,045		1,943,735		57,059		20,932,161
Loans acquired with deteriorated credit quality	2,835		50,175		0		19		0		0		53,029
Total recorded investment	$	2,316,913	$	5,245,634	$	9,382,043	$	2,147,664	$	1,952,156	$	57,083	$	21,101,493
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	0	$	11,949	$	9,844	$	0	$	2,262	$	0	24,055
Impaired loans with no allowance recorded	18,681		24,738		43,848		5,708		6,413		52		99,440
Total loans individually evaluated for impairment	18,681		36,687		53,692		5,708		8,675		52		123,495
Loans collectively evaluated for impairment	2,297,168		5,177,477		9,312,100		2,113,893		1,963,116		57,383		20,921,137
Loans acquired with deteriorated credit quality	3,577		60,191		0		72		0		0		63,840
Total unpaid principal balance	$	2,319,426	$	5,274,355	$	9,365,792	$	2,119,673	$	1,971,791	$	57,435	$	21,108,472
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	0	$	1,219	$	1,050	$	0	$	507	$	0	$	2,776
Impaired loans with no allowance recorded	0		0		0		0		0		0		0
Total loans individually evaluated for impairment	0		1,219		1,050		0		507		0		2,776
Loans collectively evaluated for impairment	13,842		32,114		81,252		13,714		23,387		614		164,923
Loans acquired with deteriorated credit quality	0		98		0		0		0		0		98
Total allowance for credit losses	$	13,842	$	33,431	$	82,302	$	13,714	$	23,894	$	614	$	167,797

Loan Purchases and Sales

~~For~~The following table presents loan purchases by portfolio segment during the three ~~months ended September 30, 2017~~ and ~~2016, secondary market loan purchases totaled $216.8 million and $163.7 million, respectively. For the~~ nine months ended September 30, ~~2017 and 2016, secondary market loan purchases totaled $666.8 million and $262.0 million, respectively. For 2017, these~~2020:


	Three		Nine
	Months Ended		Months Ended
	September 30, 2020		September 30, 2020
	(in thousands)
Commercial and industrial	$	271,085	$	663,171






Residential	243,311		919,509

Warehouse lending	0		99,446
Municipal & nonprofit	0		1,594

Total	$	514,396	$	1,683,720

There were 0 loans purchased ~~loans consisted of $520.4 million of commercial and industrial loans and $146.4 million of residential real estate loans. For 2016, these purchased loans consisted of commercial and industrial loans.~~

~~During~~with more-than-insignificant deterioration in credit quality during the three ~~months ended September 30, 2017, the Company sold commercial~~ and ~~industrial loans with a carrying value of $41.3 million and did not recognize a significant net gain or loss on the sales. During the~~ nine months ended September 30, ~~2017,~~2020. There were no significant loan sales during the ~~Company sold loans, which consisted primarily~~three and nine months ended September 30, 2020.

Table of ~~commercial~~Contents

The following table presents loan purchases and ~~industrial loans, with a carrying value of $50.5 million~~sales by class during the three and nine months ended September 30, 2019.


	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	Purchases		Sales		Purchases		Sales
	(in thousands)				(in thousands)
Commercial and industrial	$	260,621	$	14,238	$	787,286	$	49,068
Commercial real estate - non-owner occupied	19,177		0		49,211		0

Construction and land development	608		0		34,490		0
Residential real estate	428,665		0		959,190		0
Total	$	709,071	$	14,238	$	1,830,177	$	49,068

The Company recognized a net loss of less than $0.1 ~~million. During~~million and $0.5 million on loan sales during the three and nine months ended September 30, ~~2016, the Company sold loans, which consisted primarily~~2019, respectively.

Table of ~~CRE and commercial and industrial loans, with a carrying value of $37.1 million and recognized a net gain of $2.1 million.~~Contents

During the three months ended September 30, 2017, the Company recognized a charge-off of $1.4 million related to one non-accrual loan with a net balance of $23.4 million at quarter-end, which is also included in the $25.0 million balance of loans rated Doubtful as of September 30, 2017, as shown in the risk rating tables on page 28. Subsequent to September 30, 2017, the Company sold this loan and did not incur an additional loss on the sale.

4. OTHER ~~ASSETS ACQUIRED THROUGH FORECLOSURE~~

~~The following table represents the changes in other assets acquired through foreclosure:~~

Three Months Ended September 30, 2017
Gross Balance Valuation Allowance Net Balance
(in thousands)
Balance, beginning of period $ 35,037
$ (4,049 ) $ 30,988
Transfers to other assets acquired through foreclosure, net 430
—
430
Proceeds from sale of other real estate owned and repossessed assets, net (2,491 ) 330
(2,161 )
Valuation adjustments, net —
(343 ) (343 )
Gains (losses), net (1) 78
—
78
Balance, end of period $ 33,054
$ (4,062 ) $ 28,992

Three Months Ended September 30, 2016
Balance, beginning of period $ 56,467
$ (6,623 ) $ 49,844
Transfers to other assets acquired through foreclosure, net 1,162
—
1,162
Proceeds from sale of other real estate owned and repossessed assets, net (1,260 ) 32
(1,228 )
Valuation adjustments, net —
(184 ) (184 )
Gains (losses), net (1) 25
—
25
Balance, end of period $ 56,394
$ (6,775 ) $ 49,619

Nine Months Ended September 30, 2017
Gross Balance Valuation Allowance Net Balance
(in thousands)
Balance, beginning of period $ 54,138
$ (6,323 ) $ 47,815
Transfers to other assets acquired through foreclosure, net 1,812
—
1,812
Proceeds from sale of other real estate owned and repossessed assets, net (23,129 ) 2,381
(20,748 )
Valuation adjustments, net —
(120 ) (120 )
(Losses) gains, net (1) 233
—
233
Balance, end of period $ 33,054
$ (4,062 ) $ 28,992

Nine Months Ended September 30, 2016
Balance, beginning of period $ 52,984
$ (9,042 ) $ 43,942
Transfers to other assets acquired through foreclosure, net 11,888
—
11,888
Proceeds from sale of other real estate owned and repossessed assets, net (8,174 ) 2,140
(6,034 )
Valuation adjustments, net —
127
127
(Losses) gains, net (1) (304 ) —
(304 )
Balance, end of period $ 56,394
$ (6,775 ) $ 49,619


~~(1)~~	There were zero net gains related to initial transfers to other assets during the three months ended September 30, 2017 and 2016 and $0.1 million and zero net gains related to initial transfers to other assets during the nine months ended September 30, 2017 and 2016, respectively.

At September 30, 2017 and 2016, the majority of the Company’s repossessed assets consisted of properties located in Nevada. The Company held 20 properties at September 30, 2017, compared to 31 at December 31, 2016, and 33 at September 30, 2016.

~~5. OTHER~~ BORROWINGS

The following table summarizes the Company’s borrowings as of September 30, ~~2017~~2020 and December 31, ~~2016:~~2019:


	September 30, 2017		December 31, 2016			September 30, 2020		December 31, 2019
	(in thousands)					(in thousands)
Short-Term:					Short-Term:

Federal funds purchased					Federal funds purchased	$	0	$	0
FHLB advances	$	—	$	80,000	FHLB advances	10,000		0

Total short-term borrowings	$	—	$	80,000	Total short-term borrowings	$	10,000	$	0

The Company maintains ~~other~~federal fund lines of credit ~~with correspondent banks~~ totaling ~~$167.5 million,~~$2.4 billion as of September 30, 2020, which ~~$22.5 million is secured by pledged securities and has a floating interest~~have rates comparable to the federal funds effective rate ~~of one-month or three-month LIBOR~~ plus ~~1.50%. The remaining $145.0 million is unsecured and has a floating interest rate of one-month LIBOR plus 3.25%~~0.10% to 0.20%. As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were no0 outstanding balances on the Company's federal fund lines of credit.

The Company also maintains secured lines of credit with the FHLB and the FRB. The Company’s borrowing capacity is determined based on collateral pledged, generally consisting of investment securities and loans, at the time of the borrowing. The Company has a PPP lending facility with the FRB that allows the Company to pledge loans originated under the PPP in return for dollar for dollar funding from the FRB, which would provide up to $1.8 billion in additional credit. The amount of available credit under the PPP lending facility will decline each period as these loans are paid down. At September 30, ~~2017,~~2020, the Company had no ~~short-term borrowings. At December 31, 2016, short-term FHLB advances~~amounts outstanding under its line of ~~$80.0~~credit or its PPP lending facility with the FRB and had $10.0 million ~~had a weighted average interest rate~~in borrowings under its lines of ~~0.55%.~~

credit with the FHLB. As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had additional available credit with the FHLB of approximately ~~$2.29~~$4.4 billion and ~~$2.15~~$4.5 billion, respectively, and with the FRB of approximately ~~$1.16~~$2.4 billion and ~~$997.0~~$1.1 billion, respectively.

Other short-term borrowing sources available to the Company include customer repurchase agreements, which totaled $19.7 million and $16.7 million at September 30, 2020 and December 31, 2019, respectively. The weighted average rate on customer repurchase agreements was 0.18% and 0.15% as of September 30, 2020 and December 31, 2019, respectively.

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5. QUALIFYING DEBT

Subordinated Debt

The ~~Company has~~Company's subordinated debt consists of three separate issuances. The Parent issued $175.0 million of subordinated debentures ~~with a maturity date~~in June 2016, which were recorded net of issuance costs of $5.5 million, and mature July 1, 2056. Beginning on or after July 1, 2021, the Company may redeem the debentures, in whole or in part, at their principal amount plus any accrued and unpaid interest. The ~~subordinated debt was recorded net of issuance costs of $5.5 million. The~~ debentures have a fixed interest rate of 6.25% per annum.

In June 2015, WAB ~~has~~issued $150.0 million of subordinated debt, which was recorded net of debt issuance costs of $1.8 million, and matures July 15, 2025. The subordinated debt ~~has~~is redeemable by WAB, in whole or in part, on or after July 15, 2020 and on every interest payment date thereafter, for a price equal to the principal amount plus accrued and unpaid interest. The subordinated debt had a fixed interest rate of 5.00% through June 30, 2020, ~~and~~which then ~~converts~~converted to a variable rate of 3.20% plus three-month LIBOR through maturity. Subsequent to September 30, 2020, WAB redeemed $75 million of this subordinated debt issuance.

In May 2020, WAB issued $225.0 million of subordinated debt, which was recorded net of debt issuance costs of $3.1 million, and matures June 1, 2030. The subordinated debt is redeemable by WAB, in whole or in part, on or after June 1, 2025 and on every interest payment date thereafter, at a redemption price equal to the principal amount plus accrued and unpaid interest. The subordinated debt has a fixed interest rate of 5.25% through June 1, 2025 and then converts to a floating rate per annum equal to the three-month SOFR plus 512 basis points for each quarterly interest period during the floating rate period.

To hedge the interest rate risk on the Company's 2015 and 2016 subordinated debt issuances, the Company entered into fair value interest rate hedges with receive fixed/pay ~~variable/receive fixed~~variable swaps.

The carrying value of all subordinated debt issuances, which includes the ~~effective portion~~fair value of the related hedges, totals ~~$306.1~~$545.3 million and ~~$305.8~~$319.2 million at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

Junior Subordinated Debt

The Company has formed or acquired through acquisition ~~eight~~8 statutory business trusts, which exist for the exclusive purpose of issuing Cumulative Trust Preferred Securities.

With the exception of debt issued by Bridge Capital Trust I and Bridge Capital Trust II, junior subordinated debt is recorded at fair value at each reporting date due to the FVO election made by the Company under ASC 825. The Company did not make the FVO election for the junior subordinated debt acquired as part of the Bridge acquisition. Accordingly, the carrying value of these trusts does not reflect the current fair value of the debt and includes a fair market value adjustment established at acquisition that is being accreted over the remaining life of the trusts.

The carrying value of junior subordinated debt was ~~$66.7~~$73.5 million and ~~$62.2~~$74.4 million atas of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

The weighted average interest rate of all junior subordinated debt as of September 30, ~~2017~~2020 was ~~3.67%~~2.57%, which is three-month LIBOR plus the contractual spread of 2.34%, compared to a weighted average interest rate of ~~3.34%~~4.25% at December 31, ~~2016.~~2019.

In the event of certain changes or amendments to regulatory requirements or federal tax rules, the debt is redeemable in whole. The obligations under these instruments are fully and unconditionally guaranteed by the Company and rank subordinate and junior in right of payment to all other liabilities of the Company. Based on guidance issued by the FRB, the Company's securities continue to qualify as Tier 1 Capital.

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6. STOCKHOLDERS' EQUITY

Stock-Based Compensation

Restricted Stock Awards

Restricted stock awards granted to employees ~~in 2017 and 2016~~ generally vest over a ~~three-year~~3-year period. Stock grants made to non-employee WAL directors ~~during 2017 became~~in 2020 were fully vested ~~at June 30, 2017.~~on July 1, 2020. The Company estimates the compensation cost for stock grants based upon the grant date fair value. Stock compensation ~~cost~~expense is recognized on a straight-line basis over the requisite service period for the entire award. The aggregate grant date fair value for the restricted stock awards granted during the three and nine months ended September 30, ~~2017~~2020 was ~~$2.7 million~~0 and ~~$18.9~~$22.3 million, respectively. Stock compensation expense related to restricted stock awards ~~and stock options~~ granted to employees are included in Salaries and employee benefits in the Consolidated Income Statement. For restricted stock awards granted to WAL directors, ~~the~~ related stock compensation expense is included in Legal, professional, and directors' ~~fees in the Consolidated Income Statement.~~fees. For the three and nine months ended September 30, ~~2017,~~2020, the Company recognized ~~$2.7~~$4.5 million and ~~$11.3~~$15.3 million ~~and~~ in stock-based compensation expense related to ~~all restricted~~these stock ~~award~~ grants, compared to ~~$2.7~~$4.0 million and ~~$10.2~~$13.7 million for the three and nine months ended September 30, ~~2016, respectively.~~2019.

In addition, the Company ~~grants~~previously granted shares of restricted stock to certain members of executive management that ~~have~~had both performance and service conditions that affect vesting. ~~The performance condition is based on achieving an EPS target over a one-year performance period. During~~There were no such grants made during the three and nine months ended September 30, 2020 and 2019, however expense is still being recognized for a grant made in 2017 ~~the Company granted 104,455 shares of these restricted stock awards to new members of executive management. The grant date fair value of these awards was $5.2 million.~~with a four-year vesting period. For the three and nine months ended September 30, ~~2017,~~2020, the Company recognized ~~$0.8~~$0.3 million and ~~$1.6~~$0.9 million ~~respectively,~~ in stock-based compensation expense related to these performance-based restricted stock grants, compared to ~~$0.3~~$0.5 million and ~~$0.8~~$1.5 million for the three and nine months ended September 30, ~~2016, respectively.~~2019.

Performance Stock Units

The Company grants performance stock units to members of its executive management ~~committee performance stock units~~ that do not vest unless the Company achieves a specified cumulative EPS target and a TSR performance measure over a three-year performance period. The number of shares issued will vary based on the cumulative EPS target and relative TSR performance factor that is achieved. The Company estimates the cost of performance stock units based upon the grant date fair value and expected vesting percentage over the three-year performance period. For the three and nine months ended September 30, ~~2017,~~2020, the Company recognized ~~$1.9~~$1.8 million and ~~$4.5~~$5.3 million ~~respectively,~~ in stock-based compensation expense related to these performance stock units, compared to ~~$1.2~~$1.6 million and ~~$3.5~~$4.5 million for the three and nine months ended September 30, ~~2016, respectively.~~2019.

The three-year performance period for the ~~2014~~2017 grant ended on December 31, ~~2016,~~2019, and the Company's cumulative EPS and TSR performance measure for the performance period exceeded the level required for a maximum award under the terms of the grant. As a result, 136,334 shares became fully vested and was distributed to executive management ~~committee members were entitled to the maximum award of 206,050 shares, which was paid out~~ in the first quarter of ~~2017.~~2020.

~~Treasury Shares~~Common Stock Repurchase

The Company's common stock repurchase program was renewed through December 2020, authorizing the Company to repurchase up to $250.0 million of its outstanding common stock. Effective April 17, 2020, the Company temporarily suspended its stock repurchase program. Prior to this decision and pursuant to the repurchase plan, the Company repurchased 2,066,479 shares of its common stock at a weighted average price of $34.65 for a total payment of $71.7 million. During the three and nine months ended September 30, ~~2017,~~2019, the Company repurchased 1,000,000 and 2,733,603 shares of its common stock at a weighted average price of $43.63 and $42.25 for a total payment of $43.7 million and $115.6 million, respectively.

Cash Dividend

During the three and nine months ended September 30, 2020, the Company declared and paid a quarterly cash dividend of $0.25 per share, for a total dividend payment to shareholders of $25.2 million and $76.0 million, respectively. During the three and nine months ended September 30, 2019, the Company declared and paid one quarterly cash dividend of $0.25 per share of common stock, totaling $25.7 million.

Treasury Shares

Treasury share purchases represent shares surrendered to the Company equal in value to the statutory payroll tax withholding obligations arising from the vesting of employee restricted stock awards. During the three and nine months ended September 30, 2020, the Company purchased treasury shares of ~~64,705~~14,398 and ~~266,883, respectively,~~164,564 at a weighted average price of ~~$51.82~~$35.73 and ~~$51.10~~$50.86 per share, respectively. During the three and nine months ended September 30, ~~2016,~~2019, the Company purchased treasury shares of ~~8,328~~33,031 and ~~301,495, respectively,~~209,183 at a weighted average price of ~~$34.30~~$46.33 and ~~$30.95~~$45.78 per share, respectively.

7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated other comprehensive income ~~(loss)~~ by component, net of tax, for the periods indicated:

Three Months Ended September 30,
Unrealized holding gains (losses) on AFS Unrealized holding gains (losses) on SERP Unrealized holding gains (losses) on junior subordinated debt Impairment loss on securities Total
(in thousands)
Balance, June 30, 2017 $ (449 ) $ 157
$ 6,638
$ 144
$ 6,490
Other comprehensive income (loss) before reclassifications 1,116
114
641
—
1,871
Amounts reclassified from accumulated other comprehensive income (197 ) —
—
—
(197 )
Net current-period other comprehensive income (loss) 919
114
641
—
1,674
Balance, September 30, 2017 $ 470
$ 271
$ 7,279
$ 144
$ 8,164

Balance, June 30, 2016 $ 33,013
$ 102
$ 13,367
$ 144
$ 46,626
Other comprehensive (loss) income before reclassifications (7,415 ) 6
(2,825 ) —
(10,234 )
Amounts reclassified from accumulated other comprehensive income —
—
—
—
—
Net current-period other comprehensive (loss) income (7,415 ) 6
(2,825 ) —
(10,234 )
Balance, September 30, 2016 $ 25,598
$ 108
$ 10,542
$ 144
$ 36,392

Nine Months Ended September 30,
Unrealized holding gains (losses) on AFS Unrealized holding gains (losses) on SERP Unrealized holding gains (losses) on junior subordinated debt Impairment loss on securities Total
(in thousands)
Balance, December 31, 2016 $ (14,916 ) $ 121
$ 9,956
$ 144
$ (4,695 )
Other comprehensive income (loss) before reclassifications 15,947
150
(2,677 )
13,420
Amounts reclassified from accumulated other comprehensive income (561 ) —
—
—
(561 )
Net current-period other comprehensive income (loss) 15,386
150
(2,677 ) —
12,859
Balance, September 30, 2017 $ 470
$ 271
$ 7,279
$ 144
$ 8,164

Balance, December 31, 2015 $ 9,993
$ 90
$ 12,033
$ 144
$ 22,260
Other comprehensive income (loss) before reclassifications 16,316
18
(1,491 ) —
14,843
Amounts reclassified from accumulated other comprehensive income (711 ) —
—
—
(711 )
Net current-period other comprehensive income (loss) 15,605
18
(1,491 ) —
14,132
Balance, September 30, 2016 $ 25,598
$ 108
$ 10,542
$ 144
$ 36,392


	Three Months Ended September 30,
	Unrealized holding gains (losses) on AFS		Unrealized holding gains (losses) on SERP		Unrealized holding gains (losses) on junior subordinated debt		Impairment loss on securities		Total
	(in thousands)
Balance, June 30, 2020	$	66,809	$	(313)	$	7,181	$	0	$	73,677
Other comprehensive income (loss) before reclassifications	7,592		(3)		(2,681)		0		4,908
Amounts reclassified from AOCI	0		0		0		0		0
Net current-period other comprehensive income (loss)	7,592		(3)		(2,681)		0		4,908
Balance, September 30, 2020	$	74,401	$	(316)	$	4,500	$	0	$	78,585

Balance, June 30, 2019	$	19,709	$	357	$	6,171	$	144	$	26,381
Other comprehensive income (loss) before reclassifications	11,014		(18)		598		0		11,594
Amounts reclassified from AOCI	(2,232)		0		0		(144)		(2,376)
Net current-period other comprehensive income (loss)	8,782		(18)		598		(144)		9,218
Balance, September 30, 2019	$	28,491	$	339	$	6,769	$	0	$	35,599

	Nine Months Ended September 30,
	Unrealized holding gains (losses) on AFS		Unrealized holding gains (losses) on SERP		Unrealized holding gains (losses) on junior subordinated debt		Impairment loss on securities		Total
	(in thousands)
Balance, December 31, 2019	$	21,399	$	(20)	$	3,629	$	0	$	25,008
Other comprehensive income (loss) before reclassifications	53,176		(296)		871		0		53,751
Amounts reclassified from AOCI	(174)		0		0		0		(174)
Net current-period other comprehensive income (loss)	53,002		(296)		871		0		53,577
Balance, September 30, 2020	$	74,401	$	(316)	$	4,500	$	0	$	78,585

Balance, December 31, 2018	$	(47,591)	$	392	$	13,433	$	144	$	(33,622)
Other comprehensive income (loss) before reclassifications	78,314		(53)		(6,664)		0		71,597
Amounts reclassified from AOCI	(2,232)		0		0		(144)		(2,376)
Net current-period other comprehensive income (loss)	76,082		(53)		(6,664)		(144)		69,221
Balance, September 30, 2019	$	28,491	$	339	$	6,769	$	0	$	35,599

The following table presents reclassifications out of accumulated other comprehensive income:


	Three Months Ended September 30,				Nine Months Ended September 30,
Income Statement Classification	2020		2019		2020		2019
	(in thousands)
Gain (loss) on sales of investment securities, net	$	0	$	3,152	$	230	$	3,152
Income tax (expense) benefit	0		(776)		(56)		(776)
Net of tax	$	0	$	2,376	$	174	$	2,376

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Three Months Ended September 30, Nine Months Ended September 30,
Income Statement Classification 2017 2016 2017 2016
(in thousands)
Gain (loss) on sales of investment securities, net $ 319
$ —
$ 907
$ 1,001
Income tax (expense) benefit (122 ) —
(346 ) (290 )
Net of tax $ 197
$ —
$ 561
$ 711

9.8. DERIVATIVES AND HEDGING ACTIVITIES

The Company is a party to various derivative instruments. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require a small or no initial investment, and allow for the net settlement of positions. A derivative’s notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. A derivative’s underlying variable is a specified interest rate, security price, commodity price, foreign exchange rate, index, or other variable. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the fair value of the derivative contract.

The primary type of derivatives that the Company uses are interest rate swaps. Generally, these instruments are used to help manage the Company's exposure to interest rate risk and meet client financing and hedging needs.

Derivatives are recorded at fair value inon the Consolidated Balance Sheets, after taking into account the effects of bilateral collateral and master netting agreements. These agreements allow the Company to settle all derivative contracts held with the same counterparty on a net basis, and to offset net derivative positions with related cash collateral, where applicable.

As of September 30, ~~2017,~~2020, December 31, ~~2016,~~2019, and September 30, ~~2016,~~2019, the Company does not have any ~~significant~~ outstanding cash flow ~~hedges or free-standing derivatives.~~hedges.

Derivatives Designated in Hedge Relationships

The Company utilizes derivatives that have been designated as part of a hedge relationship in accordance with the applicable accounting guidance to minimize the exposure to changes in benchmark interest rates and volatility of net interest income and EVE to interest rate fluctuations. The primary derivative instruments used to manage interest rate risk are interest rate swaps, which convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) from either a fixed rate to ~~another interest~~a floating rate, ~~index.~~or from a floating rate to a fixed rate.

The Company has entered into pay fixed/receive variable interest rate swaps designated as fair value hedges of certain fixed rate loans. As a result, the Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts.

The Company has also entered into receive fixed/pay ~~variable/receive fixed~~variable interest rate swaps, designated as fair value hedges on its fixed rate 2015 and 2016 subordinated debt offerings. As a result, the Company is paying a floating rate of three-month LIBOR plus 3.16% and is receiving semi-annual fixed payments of 5.00% to match the payments on the $150.0 million subordinated debt. For the fair value hedge on the ~~Company's~~Parent's $175.0 million subordinated debentures issued on June 16, 2016, the Company is paying a floating rate of three-month LIBOR plus 3.25% and is receiving quarterly fixed payments of 6.25% to match the payments on the debt.

Derivatives Not Designated in Hedge Relationships

Management also enters into certain foreign exchange derivative contracts and back-to-back interest rate swaps which are not designated as accounting hedges. Foreign exchange derivative contracts include spot, forward, forward window, and swap contracts. The purpose of these derivative contracts is to mitigate foreign currency risk on transactions entered into, or on behalf of customers. Contracts with customers, along with the related derivative trades that the Company places, are both remeasured at fair value, and are referred to as economic hedges since they economically offset the Company's exposure. The Company's back-to-back interest rate swaps are used to manage long-term interest rate risk.

Fair Value Hedges

As of September 30, 2020 and December 31, 2019, the following amounts are reflected on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:


	September 30, 2020				December 31, 2019
	Carrying Value of Hedged Assets/(Liabilities)		Cumulative Fair Value Hedging Adjustment (1)		Carrying Value of Hedged Assets/(Liabilities)		Cumulative Fair Value Hedging Adjustment (1)
	(in thousands)
Loans - HFI, net of deferred loan fees and costs	$	596,505	$	92,352	$	578,063	$	53,292
Qualifying debt	(323,386)		(3,417)		(319,197)		401

(1)Included in the carrying value of the hedged assets/(liabilities).

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For the Company's derivative instruments that are designated and qualify as a fair value hedge, the effective portion is recorded as a basis adjustment to the hedged asset or liability, and the ineffective portion is recorded in non-interest income.

Fair Values, Volume of Activity, and Gain/Loss Information Related to Derivative Instruments

The following table summarizes the fair values of the Company's derivative instruments on a gross and net basis as of September 30, ~~2017,~~2020, December 31, ~~2016,~~2019, and September 30, ~~2016.~~2019. The change in the notional amounts of these derivatives from September 30, ~~2016~~2019 to September 30, ~~2017~~2020 indicates the volume of the Company's derivative transaction activity during these periods. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow the Company to settle all derivative contracts with the same counterparty on a net basis and to offset the net derivative position with the related collateral. Where master netting agreements are not in effect or are not enforceable under bankruptcy laws, the Company does not adjust those derivative amounts with counterparties. The fair value of derivative contracts, after taking into account the effects of master netting agreements, is included in other assets or other liabilities inon the Consolidated Balance Sheets, as indicated in the following table:


	September 30, 2020						December 31, 2019						September 30, 2019
			Fair Value						Fair Value						Fair Value
	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
	(in thousands)
Derivatives designated as hedging instruments:
Fair value hedges
Interest rate swaps	$	692,348	$	3,417	$	92,352	$	862,952	$	1,778	$	55,471	$	865,321	$	0	$	63,970
Total	692,348		3,417		92,352		862,952		1,778		55,471		865,321		0		63,970
Netting adjustments (1)	0		0		0		0		21		21		0		0		0
Net	$	692,348	$	3,417	$	92,352	$	862,952	$	1,757	$	55,450	$	865,321	$	0	$	63,970

Derivatives not designated as hedging instruments:
Foreign currency contracts	$	38,922	$	460	$	401	$	6,711	$	44	$	18	$	15,329	$	191	$	127
Interest rate swaps	3,517		242		242		2,932		81		81		2,932		124		124
Total	$	42,439	$	702	$	643	$	9,643	$	125	$	99	$	18,261	$	315	$	251

September 30, 2017 December 31, 2016 September 30, 2016
Fair Value Fair Value Fair Value
Notional
Amount Derivative Assets Derivative Liabilities Notional
Amount Derivative Assets Derivative Liabilities Notional
Amount Derivative Assets Derivative Liabilities
(in thousands)
Derivatives designated as hedging instruments:
Fair value hedges
Interest rate swaps $ 1,016,694
$ 1,656
$ 59,346
$ 993,485
$ 4,220
$ 65,749
$ 988,337
$ 4,350
$ 100,067
Total 1,016,694
1,656
59,346
993,485
4,220
65,749
988,337
4,350
100,067
Netting adjustments (1) —
1,588
1,588
—
1,869
1,869
—
—
—
Net derivatives in the balance sheet $ 1,016,694
$ 68
$ 57,758
$ 993,485
$ 2,351
$ 63,880
$ 988,337
$ 4,350
$ 100,067


~~(1)~~	(1)Netting adjustments represent the amounts recorded to convert ~~the Company's derivative balances from a gross basis to a net basis in accordance with the applicable accounting guidance.~~

~~Fair value hedges~~

~~An assessment of effectiveness is performed at initiation of a hedge and on a quarterly basis thereafter. All of~~ the Company's ~~fair value hedges remained “highly effective” as of September 30, 2017, December 31, 2016, and September 30, 2016.~~

~~The following table summarizes~~derivative balances from a gross basis to a net basis in accordance with the ~~gains (losses) on fair value hedges for the three and nine months ended September 30, 2017 and 2016, all of which are recorded in non-interest income.~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Hedge of Fixed Rate Loans (1)

Gain (loss) on "pay fixed" swap $ 4,437
$ 7,225
$ 3,820
$ (35,087 )
(Loss) gain on receive fixed rate loans (4,423 ) (7,206 ) (3,780 ) 35,113
Net ineffectiveness $ 14
$ 19
$ 40
$ 26
Hedge of Fixed Rate Subordinated Debt Issuances (1)

(Loss) gain on "receive fixed" swap $ (1,767 ) $ (3,793 ) $ 19
$ 395
Gain (loss) on subordinated debt 1,767
3,793
(19 ) (395 )
Net ineffectiveness $ —
$ —
$ —
$ —

~~(1)~~

The fair value of derivatives contracts are carried as other assets and other liabilities in the Consolidated Balance Sheets. The effective portion of hedging gains (losses) is recorded as basis adjustments to the underlying hedged asset or liability. Gains and losses on both the hedging derivative and hedged item are recorded through non-interest income with a resulting net income impact for the amount of ineffectiveness.

applicable accounting guidance.

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of credit risk. This risk is measured as the expected ~~positive~~ replacement value of the contracts. Management ~~generally~~ enters into bilateral collateral and master netting agreements that provide for the net settlement of all contracts with the same counterparty. Additionally, management monitors counterparty credit risk exposure on each contract to determine appropriate limits on the Company's total credit exposure across all product ~~types.~~types, which may require the Company to post collateral to counterparties when these contracts are in a net liability position and conversely, for counterparties to post collateral to the Company when these contracts are in a net asset position. In general, the Company has a zero credit threshold with regard to derivative exposure with counterparties. Management reviews the Company's collateral positions on a daily basis and exchanges collateral with counterparties in accordance with standard ISDA documentation and other related agreements. The Company generally posts or holds collateral in the form of cash deposits or highly rated securities issued by the U.S. Treasury or government-sponsored enterprises, such as GNMA, FNMA, and FHLMC. The total collateral ~~netted against~~pledged by the Company to counterparties exceeded its net derivative liabilities ~~totaled $59.3 million at~~as of September 30, ~~2017, $65.7 million at~~2020, December 31, ~~2016,~~2019, and ~~$100.1 million at~~ September 30, ~~2016.~~2019, resulting in excess collateral postings of $14.6 million, $29.2 million and $31.0 million, respectively.

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The following table summarizes the Company's largest exposure to an individual counterparty at the dates indicated:


	September 30, 2020		December 31, 2019		September 30, 2019
	(in thousands)
Largest gross exposure (derivative asset) to an individual counterparty	$	3,417	$	1,757	$	0
Collateral posted by this counterparty	0		1,610		0
Derivative liability with this counterparty	0		0		0
Collateral pledged to this counterparty	0		0		0
Net exposure after netting adjustments and collateral	$	3,417	$	147	$	0

September 30, 2017 December 31, 2016 September 30, 2016
(in thousands)
Largest gross exposure (derivative asset) to an individual counterparty $ 945
$ 2,351
$ 4,159
Collateral posted by this counterparty —
1,691
4,131
Derivative liability with this counterparty 44,053
—
—
Collateral pledged to this counterparty 65,051
—
—
Net exposure after netting adjustments and collateral $ —
$ 660
$ 28

~~Credit Risk Contingent Features~~

Management has entered into certain derivative contracts that require the Company to post collateral to the counterparties when these contracts are in a net liability position. Conversely, the counterparties may be required to post collateral when these contracts are in a net asset position. The amount of collateral to be posted is based on the amount of the net liability and exposure thresholds. As of September 30, 2017, December 31, 2016, and September 30, 2016 the aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting provisions) held by the Company that were in a net liability position totaled $57.8 million, $63.9 million, and $100.1 million, respectively. As of September 30, 2017, the Company was in an over-collateralized net position of $25.1 million after considering $84.4 million of collateral held in the form of cash and securities. As of December 31, 2016 and September 30, 2016, the Company was in an over-collateralized position of $24.3 million and $23.1 million, respectively.

~~10.~~9. EARNINGS PER SHARE

Diluted EPS is based on the weighted average outstanding common shares during each period, including common stock equivalents. Basic EPS is based on the weighted average outstanding common shares during the period.

The following table presents the calculation of basic and diluted EPS:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016			2020		2019		2020		2019
	(in thousands, except per share amounts)									(in thousands, except per share amounts)
Weighted average shares - basic	104,221		103,768		104,124		102,791		Weighted average shares - basic	99,850		102,041		100,322		103,024
Dilutive effect of stock awards	721		796		817		741		Dilutive effect of stock awards	209		410		252		444
Weighted average shares - diluted	104,942		104,564		104,941		103,532		Weighted average shares - diluted	100,059		102,451		100,574		103,468
Net income	$	82,858	$	67,052	$	236,186	$	189,998	Net income	$	135,769	$	127,375	$	313,005	$	371,107
Earnings per share - basic	0.80		0.65		2.27		1.85		Earnings per share - basic	1.36		1.25		3.12		3.60
Earnings per share - diluted	0.79		0.64		2.25		1.84		Earnings per share - diluted	1.36		1.24		3.11		3.59

The Company had no0 anti-dilutive stock options outstanding at each of the periods ended September 30, ~~2017~~2020 and ~~2016.~~2019.

~~11.~~

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10. INCOME TAXES

The Company's effective tax rate was ~~29.64%~~18.50% and ~~30.32%~~18.30% for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, the Company's effective tax rate was ~~27.89%~~18.05% and ~~28.31%~~17.52%, respectively. The increase in the effective tax rate from the three and nine months ended September 30, 2019 is due primarily to tax expense associated with a surrender of bank owned life insurance, detriments from vested stock compensation and increased state tax accruals, partially offset by increases in forecasted tax-exempt income and investment tax credits in 2020.

As of September 30, ~~2017,~~2020, the net deferred tax asset was ~~$83.8~~$46.6 million, ~~a decrease~~an increase of ~~$11.4~~$28.6 million from December 31, ~~2016.~~2019. This overall ~~decrease~~increase in the net deferred tax asset was primarily the result of ~~increases~~an increase in the ~~fair market value of~~allowance for credit losses under the new CECL accounting guidance, which upon adoption on January 1, 2020, increased the deferred tax asset by $8.7 million. Expected tax credit carryovers which were not fully offset by additional unrealized gains on AFS securities ~~and~~also contributed to the ~~overall increase in accrued deferred loan costs.~~increase. For a detailed discussion of the impact of adoption of CECL, see "Note 1. Summary of Significant Accounting Policies."

Although realization is not assured, the Company believes that the realization of the recognized deferred tax asset of ~~$83.8~~$46.6 million at September 30, ~~2017~~2020 is more-likely-than-not based on expectations as to future taxable income and based on available tax planning strategies ~~within the meaning of ASC 740,~~ ~~Income Taxes~~, that could be implemented if necessary to prevent a carryover from expiring.

At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had no0 deferred tax valuation allowance.

~~The~~As of September 30, 2020, the Company’s gross federal NOL carryovers after current year-to-date utilization, all of which are subject to limitations under Section 382 of the IRC, totaled approximately $44.6 million for which a deferred tax asset ~~related to~~of $5.2 million has been recorded, reflecting the expected benefit of these remaining federal ~~and~~NOL carryovers. The Company also has varying gross amounts of state NOL carryovers, ~~outstanding at each~~with the most significant in Arizona. The gross Arizona NOL carryovers totaled approximately $0.7 million. A deferred tax asset balance of ~~the periods ended~~$0.1 million as of September 30, ~~2017~~2020 has been recorded to reflect the expected benefit of all remaining state NOL carryovers.

LIHTC and December 31, 2016 available to reduce the tax liability in future years totaled $8.8 million and $9.0 million, respectively. These tax benefits relate entirely to federal NOL carryovers (subject to an annual limitation imposed by IRC Section 382). The Company’s ability to use federal NOL carryovers, as well as its ability to use certain future tax deductions called NUBILs associated with the Company's acquisitions is subject to annual limitations. In management’s opinion, it is more-likely-than-not that the results of future operations will generate sufficient taxable income to realize all of the deferred tax benefits related to these NOL carryovers and NUBILs.

~~Investments in LIHTC~~renewable energy projects

The Company ~~invests~~holds ownership interests in ~~LIHTC funds~~limited partnerships and limited liability companies that invest in affordable housing and renewable energy projects. These investments are designed to generate a return primarily through the realization of federal tax ~~credits.~~credits and deductions. The limited liability entities are considered to be VIEs; however, as a limited partner, the Company is not the primary beneficiary and is not required to consolidate these entities.

Investments in LIHTC and ~~unfunded~~renewable energy total $414.3 million and $409.4 million as of September 30, 2020 and December 31, 2019, respectively. Unfunded LIHTC and renewable energy obligations are included as part of other ~~assets and other~~ liabilities ~~respectively, in~~on the Consolidated Balance Sheets and total ~~$252.9~~$161.5 million and ~~$149.4~~$191.0 million ~~respectively,~~ as of September 30, ~~2017, compared to $187.4 million~~2020 and ~~$84.4 million as of~~ December 31, ~~2016.~~2019, respectively. For the three months ended September 30, ~~2017~~2020 and ~~2016, $6.8~~2019, $14.5 million and ~~$5.5~~$13.0 million, respectively, of amortization related to LIHTC investments was recognized as a component of income tax expense. For the nine months ended September 30, ~~2017~~2020 and ~~2016, $19.5~~2019, $34.2 million and ~~$13.7~~$33.6 million, respectively, of amortization related to LIHTC investments was recognized as a component of income tax ~~expense, respectively.~~expense.

~~12.~~11. COMMITMENTS AND CONTINGENCIES

Unfunded Commitments and Letters of Credit

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and ~~standby~~ letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized inon the Consolidated Balance Sheets.

Lines of credit are obligations to lend money to a borrower. Credit risk arises when the borrower's current financial condition may indicate less ability to pay than when the commitment was originally made. In the case of ~~standby~~ letters of credit, the risk arises from the potential failure of the customer to perform according to the terms of a contract. In such a situation, the third party might draw on the ~~standby~~ letter of credit to pay for completion of the contract and the Company would look to its customer to repay these funds with interest. To minimize the risk, the Company uses the same credit policies in making commitments and conditional obligations as it would for a loan to that customer.

~~Standby letters~~Letters of credit and financial guarantees are commitments issued by the Company to guarantee the performance of a customer to a third party in borrowing arrangements. The Company generally has recourse to recover from the customer any amounts paid under the guarantees. Typically, letters of credit issued have expiration dates within one year.

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A summary of the contractual amounts for unfunded commitments and letters of credit are as follows:


						September 30, 2020		December 31, 2019
	September 30, 2017		December 31, 2016			(in thousands)
	(in thousands)
Commitments to extend credit, including unsecured loan commitments of $322,991 at September 30, 2017 and $360,840 at December 31, 2016	$	5,378,255	$	4,428,495
Commitments to extend credit, including unsecured loan commitments of $1,046,504 at September 30, 2020 and $895,175 at December 31, 2019					Commitments to extend credit, including unsecured loan commitments of $1,046,504 at September 30, 2020 and $895,175 at December 31, 2019	$	8,379,196	$	8,348,421
Credit card commitments and financial guarantees	140,728		115,536		Credit card commitments and financial guarantees	283,703		302,909
Standby letters of credit, including unsecured letters of credit of $11,383 at September 30, 2017 and $6,431 at December 31, 2016	129,489		78,576
Letters of credit, including unsecured letters of credit of $9,513 at September 30, 2020 and $5,850 at December 31, 2019					Letters of credit, including unsecured letters of credit of $9,513 at September 30, 2020 and $5,850 at December 31, 2019	156,170		175,778
Total	$	5,648,472	$	4,622,607	Total	$	8,819,069	$	8,827,108

Commitments to extend credit are agreements to lend to a customer provided that there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.

The Company has exposure to credit losses from unfunded commitments and letters of credit. As funds have not been disbursed on these commitments, they are not reported as loans outstanding. Credit losses related to these commitments are included in other liabilities as a separate loss contingency and are not included in the allowance for credit losses reported in "Note 3. Loans, Leases and Allowance for Credit Losses" of these Unaudited Consolidated Financial Statements. This loss contingency for unfunded loan commitments and letters of credit was ~~$5.6~~$44.4 millionand ~~$7.0~~$9.0 million as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. Changes to this liability are adjusted through ~~non-interest expense.~~the provision for credit losses in the Consolidated Income Statement. In addition, upon adoption of ASU 2016-13 on January 1, 2020, the Company recorded an increase of $15.1 million to this liability, which was recorded as an adjustment to retained earnings, net of tax.

Concentrations of Lending Activities

The Company’s lending activities are driven in large part by the customers served in the market areas where the Company has branch offices in the states of Arizona, Nevada, and California. Despite the geographic concentration of lending activities, the Company does not have a single external customer from which it derives 10% or more of its revenues. The Company monitors concentrations within four broad categories: geography, industry, product, and collateral. The Company's loan portfolio includes significant credit exposure to the CRE market. As of each of the periods ended September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, CRE related loans accounted for approximately ~~51%~~38% and ~~53%~~45% of total loans, respectively. Substantially all of these loans are secured by first liens with an initial ~~loan to value~~loan-to-value ratio of generally not more than 75%. Approximately ~~36%~~29% and 31% of these CRE loans, excluding construction and land loans, were owner-occupied at ~~each of the periods ended~~ September 30, ~~2017~~2020 and December 31, ~~2016.~~2019, respectively.

Contingencies

The Company is involved in various lawsuits of a routine nature that are being handled and defended in the ordinary course of the Company’s business. Expenses are being incurred in connection with these lawsuits, but in the opinion of management, based in part on consultation with outside legal counsel, the resolution of these lawsuits and associated defense costs will not have a material impact on the Company’s financial position, results of operations, or cash flows.

Lease Commitments

The Company has operating leases ~~the majority of~~under which it leases its ~~office locations~~branch offices, corporate headquarters, other offices, and ~~many of these leases contain multiple renewal options~~data facility centers. Operating lease costs totaled $3.9 million and ~~provisions for increased rents. Total rent expense of $2.8~~$10.9 million ~~for each of~~during the three ~~months ended September 30, 2017~~ and ~~2016 was included in occupancy expense. For the~~ nine months ended September 30, ~~2017 and 2016, total rent expense was $8.2~~2020, respectively, compared to $3.2 million and ~~$8.1~~$9.5 million for the three and nine months ended September 30, 2019, respectively. Other lease costs, which include common area maintenance, parking, and taxes, and were included as part of occupancy expense, totaled $1.0 million and $2.9 million during the three and nine months ended September 30, 2020, respectively, compared to $1.0 million and $3.0 million for the three and nine months ended September 30, 2019, respectively.

~~13.~~

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12. FAIR VALUE ACCOUNTING

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability 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 825 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure 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 under ASC 825 are described in "Note 1. Summary of Significant Accounting Policies" of these Notes to Unaudited Consolidated Financial Statements.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon ~~internally developed~~internally-developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. ~~Transfers between levels in the fair value hierarchy are recognized as of the end of the month following the event or change in circumstances that caused the transfer.~~

Under ASC 825, the Company elected the FVO treatment for junior subordinated debt ~~held~~issued by WAL. This election is irrevocable and results in the recognition of unrealized gains and losses on these items at each reporting date. ~~Due to the Company's election to early adopt an element of ASU 2016-01, effective January 1, 2015, these~~These unrealized gains and losses are recognized as part of other comprehensive income rather than earnings. The Company did not elect FVO treatment for the junior subordinated debt assumed in the Bridge Capital Holdings ~~acquisition in 2015.~~

All securities for which the fair value measurement option had been elected are included in a separate line item in the Consolidated Balance Sheets as securities measured at fair value. During the nine months ended September 30, 2017, the Company sold all of its investment securities measured at fair value. No significant gain or loss was recognized upon sale of these securities.

acquisition.

For the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, unrealized gains and losses from fair value changes on ~~securities and~~ junior subordinated debt were as follows:

Changes in Fair Values for Items Measured at Fair Value
Pursuant to Election of the Fair Value Option
Unrealized Gain/(Loss) on Assets and Liabilities Measured at Fair Value, Net Interest Income on Securities Interest Expense on Junior Subordinated Debt Total Changes Included in Current-Period Earnings Total Changes Included in OCI
(in thousands)
Three Months Ended September 30, 2017
Securities measured at fair value $ —
$ —
$ —
$ —
$ —
Junior subordinated debt 1,035
—
(835 ) (835 ) 641
Total $ 1,035
$ —
$ (835 ) $ (835 ) $ 641
Nine Months Ended September 30, 2017
Securities measured at fair value $ —
$ 9
$ —
$ 9
$ —
Junior subordinated debt (4,327 ) —
(2,376 ) (2,376 ) (2,677 )
Total $ (4,327 ) $ 9
$ (2,376 ) $ (2,367 ) $ (2,677 )
Three Months Ended September 30, 2016
Securities measured at fair value $ (12 ) $ 11
$ —
$ (1 ) $ —
Junior subordinated debt (4,604 ) —
(702 ) (625 ) (2,825 )
Total $ (4,616 ) $ 11
$ (702 ) $ (626 ) $ (2,825 )
Nine Months Ended September 30, 2016
Securities measured at fair value $ (18 ) $ 33
$ —
$ 15
$ —
Junior subordinated debt (2,386 ) —
(2,075 ) (1,843 ) (1,491 )
Total $ (2,404 ) $ 33
$ (2,075 ) $ (1,828 ) $ (1,491 )

Interest income on securities measured at fair value is accounted for similarly to those classified as AFS. Any premiums or discounts are recognized in interest income over the term of the securities. Interest expense on junior subordinated debt is also determined under a constant yield calculation.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Unrealized (losses)/gains	$	(3,555)	$	794	$	1,156	$	(8,837)
Changes included in OCI, net of tax	(2,681)		598		871		(6,664)

Fair value on a recurring basis

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

~~Securities measured at fair value:~~ ~~All of the Company’s securities measured at fair value, which consist of MBS, are reported at fair value utilizing Level 2 inputs in the same manner as described below for AFS securities.~~

AFS securities: ~~Preferred stock, CRA investments, and certain corporate debt securities~~ Securities classified as AFS are reported at fair value utilizing Level 1 ~~inputs. Other securities classified as AFS are reported at fair value utilizing~~and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include quoted prices in active markets, dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.

~~Historically, the Company has estimated the~~Equity securities: Preferred stock and CRA investments are reported at fair value ~~of its CDO securities~~primarily utilizing Level 3 inputs, which include pricing indications from comparable securities. During the year ended December 31, 2016, these securities were transferred from Level 3 to Level 2 as a result of an increase in the availability and reliability of the observable inputs utilized in the securities' fair value measurement.1 inputs.

Independent pricing service: The Company's independent pricing service provides pricing information on the majority of the Company's Level 1 and Level 2 AFS securities. For a small subset of securities, other pricing sources are used, including observed prices on publicly traded securities and dealer quotes. Management independently evaluates the fair value measurements received from the Company's ~~third party~~third-party pricing service through multiple review steps. First, management reviews what has transpired in the marketplace with respect to interest rates, credit spreads, volatility, and mortgage rates, among other things, and develops an expectation of changes to the securities' valuations from the previous quarter. Then, management ~~obtains~~selects a sample of investment securities and compares the values provided by its primary third-party pricing service to the market values obtained from ~~additional sources. The~~secondary sources, including other pricing ~~service provides~~services and safekeeping statements, and

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evaluates those with notable variances. In instances where there are discrepancies in pricing from various sources and management with observable market data including interest rate curves and mortgage prepayment speed grids, as well as dealer quote sheets, new bond offering sheets, and historical trade documentation. Management reviews the assumptions and decides whether they are reasonable. Managementexpectations, management may ~~compare interest rates, credit spreads, and prepayments speeds used as part of the assumptions to those that management believes are reasonable. Management may~~manually price securities using ~~the provided assumptions~~currently observed market data to determine whether they can develop similar prices ~~on like~~

~~securities.~~or may utilize bid information from broker dealers. Any remaining discrepancies between management’s review and the prices provided by the vendor are discussed with the vendor ~~and~~and/or the Company’s other valuation advisors. Lastly, management selects a sample of investment securities and compares the values provided by its primary third party pricing service to the market values obtained from secondary sources and evaluates those with notable variances.

Interest rate swaps: Interest rate swaps are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations to value its interest rate swaps.

Junior subordinated debt: The Company estimates the fair value of its junior subordinated debt using a discounted cash flow model which incorporates the effect of the Company’s own credit risk in the fair value of the liabilities (Level 3). The Company’s cash flow assumptions are based on contractual cash flows as the Company anticipates that it will pay the debt according to its contractual terms.

As of September 30, 2017, the Company estimates the discount rate at 5.42%, which represents an implied credit spread of 4.09% plus three-month LIBOR (1.33%). As of December 31, 2016, the Company estimated the discount rate at 5.66%, which was a 4.66% credit spread plus three-month LIBOR (1.00%).

The fair value of assets and liabilities measured at fair value on a recurring basis was determined using the following inputs as of the periods presented:


	Fair Value Measurements at the End of the Reporting Period Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in thousands)
September 30, 2020
Assets:




Available-for-sale debt securities
CDO	$	0	$	8,176	$	0	$	8,176
Commercial MBS issued by GSEs	0		95,657		0		95,657
Corporate debt securities	0		186,609		0		186,609
Municipal securities	0		22,159		0		22,159
Private label residential MBS	0		1,264,237		0		1,264,237
Residential MBS issued by GSEs	0		1,361,556		0		1,361,556
Tax-exempt	0		1,011,023		0		1,011,023
Trust preferred securities	25,208		0		0		25,208

U.S. treasury securities	0		600		0		600
Total AFS debt securities	$	25,208	$	3,950,017	$	0	$	3,975,225
Equity securities
CRA investments	$	27,795	$	25,750	$	0	$	53,545
Preferred stock	107,016		0		0		107,016
Total equity securities	$	134,811	$	25,750	$	0	$	160,561
Loans - HFS	$	0	$	20,764	$	0	$	20,764
Derivative assets (1)	0		4,119		0		4,119
Liabilities:
Junior subordinated debt (2)	$	0	$	0	$	60,529	$	60,529
Derivative liabilities (1)	0		92,995		0		92,995

(1)Derivative assets and liabilities relate primarily to interest rate swaps, see "Note 8. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $92,352 and the net carrying value of subordinated debt is increased by $3,417 as of September 30, 2020 for the effective portion of the hedge, which relates to the fair value of the hedges put in place to mitigate against fluctuations in interest rates.

(2)Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.

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Fair Value Measurements at the End of the Reporting Period Using:
Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Fair Value
(in thousands)
September 30, 2017
Assets:
Available-for-sale
CDO $ —
$ 15,553
$ —
$ 15,553
Commercial MBS issued by GSEs —
113,794
—
113,794
Corporate debt securities —
104,014
—
104,014
CRA investments 50,648
—
—
50,648
Preferred stock 96,100
—
—
96,100
Private label residential MBS —
797,615
—
797,615
Residential MBS issued by GSEs —
1,819,006
—
1,819,006
Tax-exempt —
462,773
—
462,773
Trust preferred securities —
29,208
—
29,208
U.S. government sponsored agency securities —
61,636
—
61,636
U.S. treasury securities —
2,497
—
2,497
Total AFS securities $ 146,748
$ 3,406,096
$ —
$ 3,552,844
Loans - HFS $ —
$ 16,347
$ —
$ 16,347
Derivative assets (1) —
1,656
—
1,656
Liabilities:
Junior subordinated debt (2) $ —
$ —
$ 54,737
$ 54,737
Derivative liabilities (1) —
59,346
—
59,346


~~(1)~~	Derivative assets and liabilities relate to interest rate swaps, see "Note 9. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $44,721 and the net carrying value of subordinated debt is decreased by $12,307 as of September 30, 2017, which relates to the effective portion of the hedges put in place to mitigate against fluctuations in interest rates.


~~(2)~~	~~Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.~~


	Fair Value Measurements at the End of the Reporting Period Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in thousands)
December 31, 2019
Assets:




Available-for-sale debt securities
CDO	$	0	$	10,142	$	0	$	10,142
Commercial MBS issued by GSEs	0		94,253		0		94,253
Corporate debt securities	5,127		94,834		0		99,961
Municipal securities	0		7,773		0		7,773
Private label residential MBS	0		1,129,227		0		1,129,227
Residential MBS issued by GSEs	0		1,412,060		0		1,412,060
Tax-exempt	0		554,855		0		554,855
Trust preferred securities	27,040		0		0		27,040
U.S. government sponsored agency securities	0		10,000		0		10,000
U.S. treasury securities	0		999		0		999
Total AFS debt securities	$	32,167	$	3,314,143	$	0	$	3,346,310
Equity securities
CRA investments	$	52,504	$	0	$	0	$	52,504
Preferred stock	86,197		0		0		86,197
Total equity securities	$	138,701	$	0	$	0	$	138,701
Loans - HFS	$	0	$	21,803	$	0	$	21,803
Derivative assets (1)	0		1,903		0		1,903
Liabilities:
Junior subordinated debt (2)	$	0	$	0	$	61,685	$	61,685
Derivative liabilities (1)	0		55,570		0		55,570

(1)Derivative assets and liabilities relate primarily to interest rate swaps, see "Note 8. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $53,292 and the net carrying value of subordinated debt is decreased by $401 as of December 31, 2019 for the effective portion of the hedge, which relates to the fair value of the hedges put in place to mitigate against fluctuations in interest rates.

(2)Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.

Fair Value Measurements at the End of the Reporting Period Using:

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Fair
Value
(in thousands)
December 31, 2016
Assets:
Measured at fair value
Residential MBS issued by GSEs $ —
$ 1,053
$ —
$ 1,053
Available-for-sale
CDO —
13,490
—
13,490
Commercial MBS issued by GSEs —
117,792
—
117,792
Corporate debt securities 20,000
44,144
—
64,144
CRA investments 37,113
—
—
37,113
Preferred stock 94,662
—
—
94,662
Private label residential MBS —
433,685
—
433,685
Residential MBS issued by GSEs —
1,355,205
—
1,355,205
Tax-exempt —
408,233
—
408,233
Trust preferred securities —
26,532
—
26,532
U.S. government sponsored agency securities —
56,022
—
56,022
U.S. treasury securities —
2,502
—
2,502
Total AFS securities $ 151,775
$ 2,457,605
$ —
$ 2,609,380
Loans - HFS $ —
$ 18,909
$ —
$ 18,909
Derivative assets (1) —
4,220
—
4,220
Liabilities:
Junior subordinated debt (2) $ —
$ —
$ 50,410
$ 50,410
Derivative liabilities (1) —
65,749
—
65,749


~~(1)~~	Derivative assets and liabilities relate to interest rate swaps, see "Note 9. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $48,161 and the net carrying value of subordinated debt is decreased by $12,325 as of December 31, 2016, which relates to the effective portion of the hedges put in place to mitigate against fluctuations in interest rates.


~~(2)~~	~~Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.~~

For the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, the change in Level 3 ~~assets and~~ liabilities measured at fair value on a recurring basis was as follows:

Junior Subordinated Debt
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Beginning balance $ 55,772
$ 44,710
$ 50,410
$ 46,928
Transfers into Level 3 —
—
—
—
Total gains (losses) for the period
Included in other comprehensive income (1,035 ) 4,604
4,327
2,386
Ending balance $ 54,737
$ 49,314
$ 54,737
$ 49,314


	Junior Subordinated Debt
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Beginning balance	$	(56,974)	$	(58,315)	$	(61,685)	$	(48,684)
Change in fair value (1)	(3,555)		794		1,156		(8,837)
Ending balance	$	(60,529)	$	(57,521)	$	(60,529)	$	(57,521)

CDO Securities
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Beginning balance $ —
$ 10,183
$ —
$ 10,060
Transfers into Level 3 —
—
—
—
Total gains (losses) for the period
Included in other comprehensive income —
369
—
492
Ending balance $ —
$ 10,552
$ —
$ 10,552

~~The Company transferred all CDO securities from Level 3~~(1)Unrealized gains/(losses) attributable to Level 2 during the year ended December 31, 2016 as a result of an increase in the availability and reliability of the observable inputs utilized in the securities' fair value measurement. The Company recognized this transfer between levels on October 31, 2016, in accordance with its policy to recognize transfers between levelschanges in the fair value ~~hierarchy~~of junior subordinated debt are recorded as part of OCI, net of tax, and totaled $(2.7) million and $0.6 million for three months ended September 30, 2020 and 2019, respectively, and $0.9 million and $(6.7) million for the ~~end~~nine months ended September 30, 2020 and 2019, respectively.

Table of ~~the month following the event or change in circumstance that caused the transfer.~~Contents

For Level 3 ~~assets and~~ liabilities measured at fair value on a recurring basis as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the significant unobservable inputs used in the fair value measurements were as follows:

September 30, 2020

Valuation Technique

Significant Unobservable Inputs

Input Value

(in thousands)

Junior subordinated debt

60,529

Discounted cash flow

Implied credit rating of the Company

3.65

September 30, 2017 Valuation Technique Significant Unobservable Inputs Input Value
(in thousands)
Junior subordinated debt $ 54,737
Discounted cash flow Implied credit rating of the Company 5.42 %

December 31, 2016 Valuation Technique Significant Unobservable Inputs Input Value
(in thousands)
Junior subordinated debt $ 50,410
Discounted cash flow Implied credit rating of the Company 5.66 %

December 31, 2019

Valuation Technique

Significant Unobservable Inputs

Input Value

(in thousands)

Junior subordinated debt

61,685

Discounted cash flow

Implied credit rating of the Company

5.09

The significant unobservable inputs used in the fair value measurement of the Company’s junior subordinated debt as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 was the implied credit risk for the ~~Company,~~Company. As of September 30, 2020, the implied credit risk spread was calculated as the difference between the ~~20-year~~average of the 15-year 'BB' and 'BBB' rated financial indexes over the corresponding swap index. As of December 31, 2019, the implied credit risk spread was calculated as the difference between the 15-year 'BB' rated financial index over the corresponding swap index.

As of September 30, 2020, the Company estimates the discount rate at 3.65%, which represents an implied credit spread of 3.42% plus three-month LIBOR (0.23%). As of December 31, 2019, the Company estimated the discount rate at 5.09%, which was a 3.18% credit spread plus three-month LIBOR (1.91%).

Table of Contents

Fair value on a nonrecurring basis

Certain assets are measured at fair value on a nonrecurring basis. That is, the assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of ~~impairment)~~credit deterioration). The following table presents such assets carried on the ~~balance sheet~~Consolidated Balance Sheet by caption and by level within the ASC 825 hierarchy:

Fair Value Measurements at the End of the Reporting Period Using
Total
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Active Markets for Similar Assets
(Level 2)

Unobservable Inputs
(Level 3)
(in thousands)
As of September 30, 2017:
Impaired loans with specific valuation allowance $ 4,379
$ —
$ —
$ 4,379
Impaired loans without specific valuation allowance (1) 70,170
—
—
70,170
Other assets acquired through foreclosure 28,992
—
—
28,992
As of December 31, 2016:
Impaired loans with specific valuation allowance $ 6,670
$ —
$ —
$ 6,670
Impaired loans without specific valuation allowance (1) 60,738
—
—
60,738
Other assets acquired through foreclosure 47,815
—
—
47,815


~~(1)~~	~~Net of loan balances with charge-offs of $42.4 million and $27.6 million as of September 30, 2017 and December 31, 2016, respectively.~~


	Fair Value Measurements at the End of the Reporting Period Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)
	(in thousands)
As of September 30, 2020:
Loans	$	245,219	$	0	$	0	$	245,219

Other assets acquired through foreclosure	8,591		0		0		8,591
As of December 31, 2019:
Loans	$	110,272	$	0	$	0	$	110,272

Other assets acquired through foreclosure	13,850		0		0		13,850

For Level 3 assets measured at fair value on a nonrecurring basis as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the significant unobservable inputs used in the fair value measurements were as follows:

September 30, 2020

Valuation Technique(s)

Significant Unobservable Inputs

Range

(in thousands)

Loans

245,219

Collateral method

Third party appraisal

Costs to sell

4.0% to 10.0%

Discounted cash flow method

Discount rate

Contractual loan rate

4.0% to 7.0%

Other assets acquired through foreclosure

8,591

Collateral method

Third party appraisal

Costs to sell

4.0% to 10.0%

September 30, 2017 Valuation Technique(s) Significant Unobservable Inputs Range
(in thousands)
Impaired loans $ 74,549
Collateral method Third party appraisal or valuation Costs to sell 4.0% to 10.0%
Discounted cash flow method Discount rate Contractual loan rate 4.0% to 7.0%
Scheduled cash collections Probability of default 0% to 20.0%
Proceeds from non-real estate collateral Loss given default 0% to 70.0%
Other assets acquired through foreclosure 28,992
Collateral method Third party appraisal Costs to sell 4.0% to 10.0%

December 31, 2019

Valuation Technique(s)

Significant Unobservable Inputs

Range

(in thousands)

Loans

110,272

Collateral method

Third party appraisal

Costs to sell

4.0% to 10.0%

Discounted cash flow method

Discount rate

Contractual loan rate

4.0% to 7.0%

Scheduled cash collections

Probability of default

0% to 20.0%

Proceeds from non-real estate collateral

Loss given default

0% to 70.0%

Other assets acquired through foreclosure

13,850

Collateral method

Third party appraisal

Costs to sell

4.0% to 10.0%

December 31, 2016 Valuation Technique(s) Significant Unobservable Inputs Range
(in thousands)
Impaired loans $ 67,408
Collateral method Third party appraisal Costs to sell 4.0% to 10.0%
Discounted cash flow method Discount rate Contractual loan rate 4.0% to 7.0%
Scheduled cash collections Probability of default
0% to 20.0%
Proceeds from non-real estate collateral Loss given default 0% to 70.0%
Other assets acquired through foreclosure 47,815
Collateral method Third party appraisal Costs to sell 4.0% to 10.0%

~~Impaired loans:~~Loans: Loans measured at fair value on a nonrecurring basis include collateral dependent loans held for investment. The specific reserves for ~~collateral dependent impaired~~these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. In addition, when adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable and the fair value measurement is categorized as a Level 3 measurement. Internal discounted cash flow analyses are also utilized to estimate the fair value of ~~impaired~~these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity.

Total Level 3 ~~impaired~~collateral dependent loans had an estimated fair value of ~~$74.5~~$245.2 million and ~~$67.4~~$110.3 million at September 30, ~~2017~~2020 and December 31, ~~2016, respectively. Impaired loans with a specific valuation allowance had a gross estimated fair value~~2019, respectively, net of ~~$8.8 million and $10.9 million at September 30, 2017 and December 31, 2016, respectively, which was reduced by~~ a specific valuation allowance of ~~$4.4~~$9.6 million and ~~$4.2~~$2.8 million at September 30, 2020 and December 31, 2019, respectively.

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Other assets acquired through foreclosure: Other assets acquired through foreclosure consist of properties acquired as a result of, or in-lieu-of, foreclosure. These assets are initially reported at the fair value determined by independent appraisals using appraised value less estimated cost to sell. Such properties are generally re-appraised every twelve months. There is risk for subsequent volatility. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense.

Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. When significant adjustments are based on unobservable inputs, such as when a current appraised value is not available or management determines the fair value of the collateral is further impaired below the

appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement. The Company had ~~$29.0~~$8.6 million and ~~$47.8~~$13.9 million of such assets at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

~~Credit vs. non-credit losses~~

~~Under the provisions~~Fair Value of ~~ASC 320,~~ ~~Investments-Debt and Equity Securities~~, OTTI is separated into the amount of total impairment related to the credit loss and the amount of the total impairment related to all other factors. The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in OCI.

~~For the three and nine months ended September 30, 2017 and 2016, the Company determined that no securities experienced credit losses.~~

~~There is no OTTI balance recognized in comprehensive income as of September 30, 2017 and 2016.~~

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~Financial Instruments

The estimated fair value of the Company’s financial instruments is as follows:


	September 30, 2020
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:

Investment securities:
HTM	$	504,477	$	0	$	548,140	$	0	$	548,140
AFS	3,975,225		25,208		3,950,017		0		3,975,225
Equity	160,561		134,811		25,750		0		160,561
Derivative assets	4,119		0		4,119		0		4,119
Loans, net	25,703,458		0		0		26,107,177		26,107,177
Accrued interest receivable	140,827		0		140,827		0		140,827
Financial liabilities:
Deposits	$	28,843,396	$	0	$	28,850,576	$	0	$	28,850,576
Customer repurchase agreements	19,688		0		19,688		0		19,688

Qualifying debt	618,772		0		566,308		72,628		638,936
Derivative liabilities	92,995		0		92,995		0		92,995
Accrued interest payable	15,666		0		15,666		0		15,666


	December 31, 2019
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Investment securities:
HTM	$	485,107	$	0	$	516,261	$	0	$	516,261
AFS	3,346,310		32,167		3,314,143		0		3,346,310
Equity securities	138,701		138,701		0		0		138,701

Derivative assets	1,903		0		1,903		0		1,903
Loans, net	20,955,499		0		0		21,256,462		21,256,462
Accrued interest receivable	108,694		0		108,694		0		108,694
Financial liabilities:
Deposits	$	22,796,493	$	0	$	22,813,265	$	0	$	22,813,265
Customer repurchase agreements	16,675		0		16,675		0		16,675


Qualifying debt	393,563		0		332,635		74,155		406,790
Derivative liabilities	55,570		0		55,570		0		55,570
Accrued interest payable	24,661		0		24,661		0		24,661

September 30, 2017
Carrying Amount Fair Value
Level 1 Level 2 Level 3 Total
(in thousands)
Financial assets:
Investment securities:
HTM $ 154,920
$ —
$ 160,582
$ —
$ 160,582
AFS 3,552,844
146,748
3,406,096
—
3,552,844
Derivative assets 1,656
—
1,656
—
1,656
Loans, net 14,385,615
—
13,999,391
74,549
14,073,940
Accrued interest receivable 72,374
—
72,374
—
72,374
Financial liabilities:
Deposits $ 16,904,783
$ —
$ 16,911,392
$ —
$ 16,911,392
Customer repurchase agreements 26,066
—
26,066
—
26,066
Qualifying debt 372,851
—
—
399,855
399,855
Derivative liabilities 59,346
—
59,346
—
59,346
Accrued interest payable 10,958
—
10,958
—
10,958

Table of Contents

December 31, 2016
Carrying Amount Fair Value
Level 1 Level 2 Level 3 Total
(in thousands)
Financial assets:
Investment securities:
HTM $ 92,079
$ —
$ 91,966
$ —
$ 91,966
AFS 2,609,380
151,775
2,457,605
—
2,609,380
Trading 1,053
—
1,053
—
1,053
Derivative assets 4,220
—
4,220
—
4,220
Loans, net 13,083,732
—
12,736,336
67,408
12,803,744
Accrued interest receivable 70,320
—
70,320
—
70,320
Financial liabilities:
Deposits $ 14,549,863
$ —
$ 14,553,931
$ —
$ 14,553,931
Customer repurchase agreements 41,728
—
41,728
—
41,728
FHLB advances 80,000
—
80,000
—
80,000
Qualifying debt 367,937
—
—
375,626
375,626
Derivative liabilities 65,749
—
65,749
—
65,749
Accrued interest payable 15,354
—
15,354
—
15,354

Interest rate risk

The Company assumes interest rate risk (the risk to the Company’s earnings and capital from changes in interest rate levels) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments, as well as its future net interest income, will change when interest rate levels change and that change may be either favorable or unfavorable to the Company.

Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the Company's change in EVE and net interest income resulting from hypothetical changes in interest rates. If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the BOD, the BOD may direct management to adjust the asset and liability mix to bring interest rate risk within BOD-approved limits.

WAB has an ALCO charged with managing interest rate risk within the BOD-approved limits. Limits are structured to ~~prohibit~~preclude an interest rate risk profile that does not conform to both management and BOD risk ~~tolerances.~~tolerances without ALCO approval. There is also ALCO reporting at the Parent level for reviewing interest rate risk for the Company, which gets reported to the BOD and its Finance and Investment Committee.

Fair value of commitments

The estimated fair value of standby letters of credit outstanding at September 30, ~~2017~~2020 and December 31, ~~2016 is insignificant.~~2019 approximates zero as there have been no significant changes in borrower creditworthiness. Loan commitments on which the committed interest rates are less than the current market rate are ~~also~~ insignificant at September 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

~~14.~~

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13. SEGMENTS

The Company's reportable segments are aggregated based primarily on geographic location, services offered, and markets served. The Company's regional segments, which include Arizona, Nevada, Southern California, and Northern California, provide full service banking and related services to their respective markets. The operations from the regional segments correspond to the following banking divisions: ABA in Arizona, BON and FIB in Nevada, TPB in Southern California, and Bridge in Northern California.

The Company's NBL segments provide specialized banking services to niche markets. The Company's NBL reportable segments include HOA Services, Public & Nonprofit Finance, Technology & Innovation, HFF, and Other NBLs. These NBLs are managed centrally and are broader in geographic scope than the Company's other segments, though still predominately located within the Company's core market areas. The HOA Services NBL corresponds to the AAB division. The operations of Public and Nonprofit Finance are combined into one reportable segment. The Technology & Innovation NBL includes the operations of Equity Fund Resources, Life Sciences Group, Renewable Resource Group, and Technology Finance. The HFF NBL includes the hotel franchise loan portfolio acquired from GE Capital US Holdings, Inc. on April 20, 2016. The Other NBLs segment consists of Corporate Finance, Mortgage Warehouse Lending, and Resort Finance.

The Corporate & Other segment consists of corporate-related items, income and expense items not allocated to the Company's other reportable segments, and inter-segment eliminations.

The Company's segment reporting process begins with the assignment of all loan and deposit accounts directly to the segments where these products are originated and/or serviced. Equity capital is assigned to each segment based on the risk profile of their assets and liabilities. With the exception of goodwill, which is assigned a 100% weighting, equity capital allocations ranged from 0% to 12% during the year, with a funds credit provided for the use of this equity as a funding source. Any excess or deficient equity not allocated to segments based on risk is assigned to the Corporate & Other segment.

Net interest income, provision for credit losses, and non-interest expense amounts are recorded in their respective segment to the extent that the amounts are directly attributable to those segments. Net interest income is recorded in each segment on a TEB with a corresponding increase in income tax expense, which is eliminated in the Corporate & Other segment.

Further, net interest income of a reportable segment includes a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Using this funds transfer pricing methodology, liquidity is transferred between users and providers. A net user of funds has lending/investing in excess of deposits/borrowings and a net provider of funds has deposits/borrowings in excess of lending/investing. A segment that is a user of funds is charged for the use of funds, while a provider of funds is credited through funds transfer pricing, which is determined based on the average life of the assets or liabilities in the portfolio. Residual funds transfer pricing mismatches are allocable to the Corporate & Other segment and presented as part of net interest income.

The net income amount for each reportable segment is further derived by the use of expense allocations. Certain expenses not directly attributable to a specific segment are allocated across all segments based on key metrics, such as number of employees, average loan balances, and average deposit balances. These types of expenses include information technology, operations, human resources, finance, risk management, credit administration, legal, and marketing.

Income taxes are applied to each segment based on the effective tax rate for the geographic location of the segment. Any difference in the corporate tax rate and the aggregate effective tax rates in the segments are adjusted in the Corporate & Other segment.

Table of Contents

The following is a summary of operating segment information for the periods indicated:


			Regional Segments
Balance Sheet:	Consolidated Company		Arizona		Nevada		Southern California		Northern California
At September 30, 2020	(in millions)
Assets:
Cash, cash equivalents, and investment securities	$	6,119.8	$	1.5	$	8.8	$	1.8	$	2.3
Loans, net of deferred loan fees and costs	26,014.0		4,388.1		2,612.2		2,376.7		1,785.8
Less: allowance for credit losses	(310.5)		(57.0)		(36.4)		(31.5)		(19.3)
Total loans	25,703.5		4,331.1		2,575.8		2,345.2		1,766.5
Other assets acquired through foreclosure, net	8.6		0		8.5		0		0
Goodwill and other intangible assets, net	299.0		0		23.2		0		153.9
Other assets	1,204.6		47.8		60.1		16.2		20.1
Total assets	$	33,335.5	$	4,380.4	$	2,676.4	$	2,363.2	$	1,942.8
Liabilities:
Deposits	$	28,843.4	$	8,541.5	$	4,733.9	$	3,502.0	$	2,741.1
Borrowings and qualifying debt	628.8		0		0		0		0
Other liabilities	639.3		28.7		18.8		8.6		20.0
Total liabilities	30,111.5		8,570.2		4,752.7		3,510.6		2,761.1
Allocated equity:	3,224.0		576.4		343.7		281.2		361.5
Total liabilities and stockholders' equity	$	33,335.5	$	9,146.6	$	5,096.4	$	3,791.8	$	3,122.6
Excess funds provided (used)	0		4,766.2		2,420.0		1,428.6		1,179.8


Income Statement:



Three Months Ended September 30, 2020	(in thousands)
Net interest income	$	284,738	$	83,492	$	46,625	$	35,656	$	28,353
Provision for (recovery of) credit losses	14,661		9,830		8,548		5,213		1,856
Net interest income after provision for credit losses	270,077		73,662		38,077		30,443		26,497
Non-interest income	20,606		1,771		2,391		1,186		2,381
Non-interest expense	(124,092)		(17,644)		(15,800)		(14,020)		(12,885)
Income (loss) before income taxes	166,591		57,789		24,668		17,609		15,993
Income tax expense (benefit)	30,822		14,447		5,180		4,930		4,478
Net income	$	135,769	$	43,342	$	19,488	$	12,679	$	11,515


Nine Months Ended September 30, 2020	(in thousands)
Net interest income	$	852,158	$	229,701	$	139,328	$	104,348	$	85,345
Provision for (recovery of) credit losses	157,837		46,623		25,015		23,750		12,680
Net interest income after provision for credit losses	694,321		183,078		114,313		80,598		72,665
Non-interest income	46,985		4,943		7,355		3,269		6,450
Non-interest expense	(359,372)		(58,674)		(44,414)		(43,216)		(38,460)
Income (loss) before income taxes	381,934		129,347		77,254		40,651		40,655
Income tax expense (benefit)	68,929		32,207		16,164		11,241		11,340
Net income	$	313,005	$	97,140	$	61,090	$	29,410	$	29,315

Table of Contents


				Regional Segments													National Business Lines
Balance Sheet:	Consolidated Company			Arizona			Nevada			Southern California			Northern California			Balance Sheet:	HOA Services		Public & Nonprofit Finance		Technology & Innovation		Hotel Franchise Finance		Other NBLs		Corporate & Other
At September 30, 2017	(in millions)
At September 30, 2020																At September 30, 2020
Assets:																Assets:	(in millions)
Cash, cash equivalents, and investment securities	$	4,424.0		$	1.9		$	7.7		$	1.9		$	1.7		Cash, cash equivalents, and investment securities	$	0	$	0	$	0	$	0	$	26.6	$	6,078.8
Loans, net of deferred loan fees and costs	14,521.9			3,131.2			1,685.6			1,873.5			1,260.7			Loans, net of deferred loan fees and costs	280.0		1,686.7		2,329.3		2,099.3		8,451.8		4.1
Less: allowance for credit losses	(136.4		)	(30.7		)	(16.8		)	(20.4		)	(12.6		)	Less: allowance for credit losses	(2.3)		(17.9)		(41.5)		(40.7)		(63.9)		0
Total loans	14,385.5			3,100.5			1,668.8			1,853.1			1,248.1			Total loans	277.7		1,668.8		2,287.8		2,058.6		8,387.9		4.1
Other assets acquired through foreclosure, net	29.0			2.3			13.7			—			0.2			Other assets acquired through foreclosure, net	0		0		0		0		0.1		0
Goodwill and other intangible assets, net	301.2			—			23.2			—			156.8			Goodwill and other intangible assets, net	0		0		119.3		0.1		2.5		0
Other assets	782.5			45.8			58.4			13.9			17.4			Other assets	5.4		11.9		9.2		33.4		110.3		890.2
Total assets	$	19,922.2		$	3,150.5		$	1,771.8		$	1,868.9		$	1,424.2		Total assets	$	283.1	$	1,680.7	$	2,416.3	$	2,092.1	$	8,527.4	$	6,973.1
Liabilities:																Liabilities:
Deposits	$	16,904.8		$	5,198.1		$	3,950.5		$	2,512.2		$	1,535.6		Deposits	$	3,697.9	$	0	$	4,646.4	$	0	$	61.4	$	919.2
Borrowings and qualifying debt	372.9			—			—			—			—			Borrowings and qualifying debt	0		0		0		0		0		628.8
Other liabilities	498.9			13.4			23.3			3.6			11.1			Other liabilities	(2.7)		91.8		5.4		0.9		56.8		411.0
Total liabilities	17,776.6			5,211.5			3,973.8			2,515.8			1,546.7			Total liabilities	3,695.2		91.8		4,651.8		0.9		118.2		1,959.0
Allocated equity:	2,145.6			390.4			251.5			216.6			299.2			Allocated equity:	104.9		130.3		397.5		167.5		673.2		187.8
Total liabilities and stockholders' equity	$	19,922.2		$	5,601.9		$	4,225.3		$	2,732.4		$	1,845.9		Total liabilities and stockholders' equity	$	3,800.1	$	222.1	$	5,049.3	$	168.4	$	791.4	$	2,146.8
Excess funds provided (used)	—			2,451.4			2,453.5			863.5			421.7			Excess funds provided (used)	3,517.0		(1,458.6)		2,633.0		(1,923.7)		(7,736.0)		(4,826.3)


Income Statement:



Three Months Ended September 30, 2020	(in thousands)
Net interest income	$	22,184	$	2,800	$	48,013	$	12,536	$	46,582	$	(41,503)
Provision for (recovery of) credit losses	(138)		781		(9,048)		2,200		(2,706)		(1,875)
Net interest income after provision for credit losses	22,322		2,019		57,061		10,336		49,288		(39,628)
Non-interest income	134		0		3,126		0		2,924		6,693
Non-interest expense	(9,896)		(1,724)		(11,530)		(2,596)		(12,335)		(25,662)
Income (loss) before income taxes	12,560		295		48,657		7,740		39,877		(58,597)
Income tax expense (benefit)	2,889		68		11,191		1,780		9,172		(23,313)
Net income	$	9,671	$	227	$	37,466	$	5,960	$	30,705	$	(35,284)


Nine Months Ended September 30, 2020	(in thousands)
Net interest income	$	67,740	$	6,351	$	137,436	$	39,442	$	128,096	$	(85,629)
Provision for (recovery of) credit losses	(2,198)		553		25,471		27,530		(4,737)		3,150
Net interest income after provision for credit losses	69,938		5,798		111,965		11,912		132,833		(88,779)
Non-interest income	350		0		9,247		0		4,108		11,263
Non-interest expense	(29,965)		(5,114)		(36,188)		(7,353)		(35,674)		(60,314)
Income (loss) before income taxes	40,323		684		85,024		4,559		101,267		(137,830)
Income tax expense (benefit)	9,361		380		19,461		893		23,083		(55,201)
Net income	$	30,962	$	304	$	65,563	$	3,666	$	78,184	$	(82,629)

Table of Contents

Income Statement:
Three Months Ended September 30, 2017: (in thousands)
Net interest income (expense) $ 201,583
$ 52,637
$ 36,310
$ 26,811
$ 21,932
Provision for credit losses 5,000
(289 ) (2,044 ) (58 ) 3,144
Net interest income (expense) after provision for credit losses 196,583
52,926
38,354
26,869
18,788
Non-interest income 10,288
1,265
2,354
971
1,796
Non-interest expense (89,114 ) (18,844 ) (14,748 ) (12,340 ) (11,317 )
Income (loss) before income taxes 117,757
35,347
25,960
15,500
9,267
Income tax expense (benefit) 34,899
13,857
9,086
6,517
3,897
Net income (loss) $ 82,858
$ 21,490
$ 16,874
$ 8,983
$ 5,370


			Regional Segments
Balance Sheet:	Consolidated Company		Arizona		Nevada		Southern California		Northern California
At December 31, 2019	(in millions)
Assets:
Cash, cash equivalents, and investment securities	$	4,471.2	$	1.8	$	9.0	$	2.3	$	2.2
Loans, net of deferred loan fees and costs	21,123.3		3,847.9		2,252.5		2,253.9		1,311.2
Less: allowance for credit losses	(167.8)		(31.6)		(18.0)		(18.3)		(9.7)
Total loans	20,955.5		3,816.3		2,234.5		2,235.6		1,301.5
Other assets acquired through foreclosure, net	13.9		0		13.0		0.9		0
Goodwill and other intangible assets, net	297.6		0		23.2		0		154.6
Other assets	1,083.7		48.6		59.4		15.0		19.8
Total assets	$	26,821.9	$	3,866.7	$	2,339.1	$	2,253.8	$	1,478.1
Liabilities:
Deposits	$	22,796.5	$	5,384.7	$	4,350.1	$	2,585.3	$	2,373.6
Borrowings and qualifying debt	393.6		0		0		0		0
Other liabilities	615.1		17.8		11.9		1.2		15.9
Total liabilities	23,805.2		5,402.5		4,362.0		2,586.5		2,389.5
Allocated equity:	3,016.7		453.6		301.0		253.3		312.5
Total liabilities and stockholders' equity	$	26,821.9	$	5,856.1	$	4,663.0	$	2,839.8	$	2,702.0
Excess funds provided (used)	0		1,989.4		2,323.9		586.0		1,223.9


Income Statement:



Three Months Ended September 30, 2019	(in thousands)
Net interest income	$	266,422	$	68,828	$	40,565	$	33,630	$	23,504
Provision for (recovery of) credit losses	3,803		103		(62)		(189)		218
Net interest income (expense) after provision for credit losses	262,619		68,725		40,627		33,819		23,286
Non-interest income	19,441		1,821		2,677		1,079		1,917
Non-interest expense	(126,152)		(27,241)		(15,211)		(15,185)		(12,379)
Income (loss) before income taxes	155,908		43,305		28,093		19,713		12,824
Income tax expense (benefit)	28,533		10,826		5,899		5,520		3,591
Net income	$	127,375	$	32,479	$	22,194	$	14,193	$	9,233


Nine Months Ended September 30, 2019	(in thousands)
Net interest income	$	768,439	$	183,772	$	119,191	$	95,751	$	70,533
Provision for (recovery of) credit losses	15,303		1,705		166		611		(653)
Net interest income (expense) after provision for credit losses	753,136		182,067		119,025		95,140		71,186
Non-interest income	49,069		5,050		7,926		3,054		6,299
Non-interest expense	(352,279)		(72,183)		(45,099)		(44,890)		(38,419)
Income (loss) before income taxes	449,926		114,934		81,852		53,304		39,066
Income tax expense (benefit)	78,819		28,733		17,189		14,925		10,939
Net income	$	371,107	$	86,201	$	64,663	$	38,379	$	28,127

Table of Contents

Nine Months Ended September 30, 2017: (in thousands)
Net interest income (expense) $ 573,635
$ 145,839
$ 108,028
$ 81,087
$ 63,686
Provision for (recovery of) credit losses 12,250
109
(5,378 ) (20 ) 4,238
Net interest income (expense) after provision for credit losses 561,385
145,730
113,406
81,107
59,448
Non-interest income 31,281
3,567
6,800
2,602
5,839
Non-interest expense (265,128 ) (55,388 ) (45,733 ) (38,063 ) (36,188 )
Income (loss) before income taxes 327,538
93,909
74,473
45,646
29,099
Income tax expense (benefit) 91,352
36,831
26,066
19,194
12,236
Net income (loss) $ 236,186
$ 57,078
$ 48,407
$ 26,452
$ 16,863


	National Business Lines
Balance Sheet:	HOA Services		Public & Nonprofit Finance		Technology & Innovation		Hotel Franchise Finance		Other NBLs		Corporate & Other
At December 31, 2019
Assets:	(in millions)
Cash, cash equivalents, and investment securities	$	0	$	0	$	0	$	0	$	10.1	$	4,445.8
Loans, net of deferred loan fees and costs	237.2		1,635.6		1,552.0		1,930.8		6,098.7		3.5
Less: allowance for credit losses	(2.0)		(13.7)		(12.6)		(12.6)		(49.3)		0
Total loans	235.2		1,621.9		1,539.4		1,918.2		6,049.4		3.5
Other assets acquired through foreclosure, net	0		0		0		0		0		0
Goodwill and other intangible assets, net	0		0		119.7		0.1		0		0
Other assets	1.2		18.3		7.3		8.8		64.3		841.0
Total assets	$	236.4	$	1,640.2	$	1,666.4	$	1,927.1	$	6,123.8	$	5,290.3
Liabilities:
Deposits	$	3,210.1	$	0.1	$	3,771.5	$	0	$	36.9	$	1,084.2
Borrowings and qualifying debt	0		0		0		0		0		393.6
Other liabilities	1.8		52.9		0.1		0		2.8		510.7
Total liabilities	3,211.9		53.0		3,771.6		0		39.7		1,988.5
Allocated equity:	84.5		131.6		317.5		158.5		494.3		509.9
Total liabilities and stockholders' equity	$	3,296.4	$	184.6	$	4,089.1	$	158.5	$	534.0	$	2,498.4
Excess funds provided (used)	3,060.0		(1,455.6)		2,422.7		(1,768.6)		(5,589.8)		(2,791.9)


Income Statement:



Three Months Ended September 30, 2019	(in thousands)
Net interest income (expense)	$	21,974	$	3,394	$	33,932	$	12,845	$	32,935	$	(5,185)
Provision for (recovery of) credit losses	60		(191)		895		1,956		1,210		(197)
Net interest income (expense) after provision for credit losses	21,914		3,585		33,037		10,889		31,725		(4,988)
Non-interest income	84		0		5,422		0		1,708		4,733
Non-interest expense	(9,769)		(1,845)		(12,068)		(2,197)		(11,320)		(18,937)
Income (loss) before income taxes	12,229		1,740		26,391		8,692		22,113		(19,192)
Income tax expense (benefit)	2,813		400		6,070		1,999		5,086		(13,671)
Net income	$	9,416	$	1,340	$	20,321	$	6,693	$	17,027	$	(5,521)


Nine Months Ended September 30, 2019	(in thousands)
Net interest income	$	64,520	$	10,278	$	91,871	$	39,279	$	88,212	$	5,032
Provision for (recovery of) credit losses	27		(136)		2,635		3,587		6,558		803
Net interest income (expense) after provision for credit losses	64,493		10,414		89,236		35,692		81,654		4,229
Non-interest income	268		0		10,946		0		3,915		11,611
Non-interest expense	(27,777)		(5,683)		(33,971)		(6,757)		(31,729)		(45,771)
Income (loss) before income taxes	36,984		4,731		66,211		28,935		53,840		(29,931)
Income tax expense (benefit)	8,506		1,088		15,229		6,655		12,383		(36,828)
Net income	$	28,478	$	3,643	$	50,982	$	22,280	$	41,457	$	6,897

National Business Lines
Balance Sheet: HOA
Services Public & Nonprofit Finance Technology & Innovation Hotel Franchise Finance Other NBLs Corporate & Other
At September 30, 2017
Assets: (in millions)
Cash, cash equivalents, and investment securities $ —
$ —
$ —
$ —
$ —
$ 4,410.8
Loans, net of deferred loan fees and costs 157.3
1,574.5
1,049.2
1,272.5
2,513.0
4.4
Less: allowance for credit losses (1.6 ) (16.1 ) (9.9 ) (2.7 ) (25.5 ) (0.1 )
Total loans 155.7
1,558.4
1,039.3
1,269.8
2,487.5
4.3
Other assets acquired through foreclosure, net —
—
—
—
—
12.8
Goodwill and other intangible assets, net —
—
121.1
0.1
—
—
Other assets 0.4
12.2
5.3
5.2
10.1
613.8
Total assets $ 156.1
$ 1,570.6
$ 1,165.7
$ 1,275.1
$ 2,497.6
$ 5,041.7
Liabilities:
Deposits $ 2,153.3
$ —
$ 1,459.5
$ —
$ —
$ 95.6
Borrowings and qualifying debt —
—
—
—
—
372.9
Other liabilities 1.1
46.4
0.7
0.4
136.1
262.8
Total liabilities 2,154.4
46.4
1,460.2
0.4
136.1
731.3
Allocated equity: 57.4
126.0
234.6
104.3
207.2
258.4
Total liabilities and stockholders' equity $ 2,211.8
$ 172.4
$ 1,694.8
$ 104.7
$ 343.3
$ 989.7
Excess funds provided (used) 2,055.7
(1,398.2 ) 529.1
(1,170.4 ) (2,154.3 ) (4,052.0 )

Table of Contents

Income Statement:
Three Months Ended September 30, 2017: (in thousands)
Net interest income (expense) $ 13,746
$ 7,269
$ 20,415
$ 15,346
$ 16,933
$ (9,816 )
Provision for credit losses 40
91
(83 ) 1,116
4,416
(1,333 )
Net interest income (expense) after provision for credit losses 13,706
7,178
20,498
14,230
12,517
(8,483 )
Non-interest income 136
15
1,855
—
379
1,517
Non-interest expense (7,011 ) (1,871 ) (8,824 ) (1,905 ) (5,286 ) (6,968 )
Income (loss) before income taxes 6,831
5,322
13,529
12,325
7,610
(13,934 )
Income tax expense (benefit) 2,562
1,028
5,075
4,622
2,853
(14,598 )
Net income (loss) $ 4,269
$ 4,294
$ 8,454
$ 7,703
$ 4,757
$ 664
14. REVENUE FROM CONTRACTS WITH CUSTOMERS

Nine Months Ended September 30, 2017: (in thousands)
Net interest income (expense) $ 40,275
$ 21,242
$ 59,610
$ 42,337
$ 46,380
$ (34,849 )
Provision for (recovery of) credit losses 332
796
816
2,924
10,265
(1,832 )
Net interest income (expense) after provision for credit losses 39,943
20,446
58,794
39,413
36,115
(33,017 )
Non-interest income 417
40
5,689
—
1,632
4,695
Non-interest expense (21,416 ) (6,107 ) (26,685 ) (7,949 ) (14,573 ) (13,026 )
Income (loss) before income taxes 18,944
14,379
37,798
31,464
23,174
(41,348 )
Income tax expense (benefit) 7,104
4,424
14,175
11,799
8,690
(49,167 )
Net income (loss) $ 11,840
$ 9,955
$ 23,623
$ 19,665
$ 14,484
$ 7,819

Regional Segments
Balance Sheet: Consolidated Company Arizona Nevada Southern California Northern California
At December 31, 2016 (in millions)
Assets:
Cash, cash equivalents, and investment securities $ 3,052.3
$ 1.9
$ 10.1
$ 2.1
$ 1.9
Loans, net of deferred loan fees and costs 13,208.5
2,955.9
1,725.5
1,766.8
1,095.4
Less: allowance for credit losses (124.7 ) (30.1 ) (18.5 ) (19.4 ) (8.8 )
Total loans 13,083.8
2,925.8
1,707.0
1,747.4
1,086.6
Other assets acquired through foreclosure, net 47.8
6.2
18.0
—
0.3
Goodwill and other intangible assets, net 302.9
—
23.7
—
157.5
Other assets 714.0
42.9
58.8
14.5
14.3
Total assets $ 17,200.8
$ 2,976.8
$ 1,817.6
$ 1,764.0
$ 1,260.6
Liabilities:
Deposits $ 14,549.8
$ 3,843.4
$ 3,731.5
$ 2,382.6
$ 1,543.6
Borrowings and qualifying debt 447.9
—
—
—
—
Other liabilities 311.6
12.8
28.3
12.9
12.4
Total liabilities 15,309.3
3,856.2
3,759.8
2,395.5
1,556.0
Allocated equity: 1,891.5
346.6
250.7
201.6
283.7
Total liabilities and stockholders' equity $ 17,200.8
$ 4,202.8
$ 4,010.5
$ 2,597.1
$ 1,839.7
Excess funds provided (used) —
1,226.0
2,192.9
833.1
579.1

Income Statement:
Three Months Ended September 30, 2016: (in thousands)
Net interest income (expense) $ 172,547
$ 45,531
$ 35,977
$ 26,488
$ 22,181
Provision for (recovery of) credit losses 2,000
2,399
(1,009 ) (105 ) 144
Net interest income (expense) after provision for credit losses 170,547
43,132
36,986
26,593
22,037
Non-interest income 10,683
1,180
2,264
686
2,916
Non-interest expense (85,007 ) (16,084 ) (14,801 ) (11,532 ) (12,706 )
Income (loss) before income taxes 96,223
28,228
24,449
15,747
12,247
Income tax expense (benefit) 29,171
11,074
8,557
6,621
5,150
Net income (loss) $ 67,052
$ 17,154
$ 15,892
$ 9,126
$ 7,097

Nine Months Ended September 30, 2016: (in thousands)
Net interest income (expense) $ 481,944
$ 125,191
$ 102,016
$ 76,719
$ 67,272
Provision for (recovery of) credit losses 7,000
10,875
(3,526 ) 145
2,112
Net interest income (expense) after provision for credit losses 474,944
114,316
105,542
76,574
65,160
Non-interest income 32,375
5,749
6,420
1,907
7,858
Non-interest expense (242,304 ) (45,090 ) (44,371 ) (33,401 ) (40,154 )
Income (loss) before income taxes 265,015
74,975
67,591
45,080
32,864
Income tax expense (benefit) 75,017
29,413
23,657
18,956
13,819
Net income (loss) $ 189,998
$ 45,562
$ 43,934
$ 26,124
$ 19,045

National Business Lines
Balance Sheet: HOA
Services Public & Nonprofit Finance Technology & Innovation Hotel Franchise Finance Other NBLs Corporate & Other
At December 31, 2016
Assets: (in millions)
Cash, cash equivalents, and investment securities $ —
$ —
$ —
$ —
$ —
$ 3,036.3
Loans, net of deferred loan fees and costs 116.8
1,454.3
1,011.4
1,292.1
1,776.9
13.4
Less: allowance for credit losses (1.3 ) (15.6 ) (10.6 ) (0.8 ) (19.0 ) (0.6 )
Total loans 115.5
1,438.7
1,000.8
1,291.3
1,757.9
12.8
Other assets acquired through foreclosure, net —
—
—
—
—
23.3
Goodwill and other intangible assets, net —
—
121.5
0.2
—
—
Other assets 0.3
15.6
7.2
5.3
11.1
544.0
Total assets $ 115.8
$ 1,454.3
$ 1,129.5
$ 1,296.8
$ 1,769.0
$ 3,616.4
Liabilities:
Deposits $ 1,890.3
$ —
$ 1,038.2
$ —
$ —
$ 120.2
Borrowings and qualifying debt —
—
—
—
—
447.9
Other liabilities 0.7
50.5
2.0
1.4
17.5
173.1
Total liabilities 1,891.0
50.5
1,040.2
1.4
17.5
741.2
Allocated equity: 65.6
117.1
224.1
107.1
145.5
149.5
Total liabilities and stockholders' equity $ 1,956.6
$ 167.6
$ 1,264.3
$ 108.5
$ 163.0
$ 890.7
Excess funds provided (used) 1,840.8
(1,286.7 ) 134.8
(1,188.3 ) (1,606.0 ) (2,725.7 )

Income Statement:
Three Months Ended September 30, 2016: (in thousands)
Net interest income (expense) $ 11,312
$ 5,012
$ 18,143
$ 13,370
$ 12,060
$ (17,527 )
Provision for (recovery of) credit losses 72
(315 ) (557 ) —
1,372
(1)
Net interest income (expense) after provision for credit losses 11,240
5,327
18,700
13,370
10,688
(17,526 )
Non-interest income 125
19
1,871
—
728
894
Non-interest expense (6,062 ) (1,974 ) (8,837 ) (3,207 ) (3,972 ) (5,832 )
Income (loss) before income taxes 5,303
3,372
11,734
10,163
7,444
(22,464 )
Income tax expense (benefit) 1,989
1,265
4,400
3,811
2,791
(16,487 )
Net income (loss) $ 3,314
$ 2,107
$ 7,334
$ 6,352
$ 4,653
$ (5,977 )

Nine Months Ended September 30, 2016: (in thousands)
Net interest income (expense) $ 29,853
$ 15,259
$ 51,083
$ 25,438
$ 35,220
$ (46,107 )
Provision for (recovery of) credit losses 160
(509 ) (2,336 ) —
3,309
(3,230 )
Net interest income (expense) after provision for credit losses 29,693
15,768
53,419
25,438
31,911
(42,877 )
Non-interest income 340
22
4,623
—
1,598
3,858
Non-interest expense (17,423 ) (5,927 ) (23,177 ) (5,764 ) (11,007 ) (15,990 )
Income (loss) before income taxes 12,610
9,863
34,865
19,674
22,502
(55,009 )
Income tax expense (benefit) 4,729
3,699
13,074
7,378
8,438
(48,146 )
Net income (loss) $ 7,881
$ 6,164
$ 21,791
$ 12,296
$ 14,064
$ (6,863 )

~~15. MERGERS, ACQUISITIONS AND DISPOSITIONS~~

~~Acquisition of GE Capital US Holdings, Inc. Loan Portfolio~~

On April 20, 2016, WAB completed its acquisition of GE Capital US Holdings, Inc.'s domestic select-service hotel franchise finance loan portfolio, paying cash of $1.27 billion. The acquisition was undertaken, in part, to expand the Company's national reach and diversify the Company's loan portfolio.

Effective April 20, 2016, the results of the acquired loan portfolio are reflected in the Company's HFF NBL operating segment. There were no acquisition / restructure expenses related to the acquisition recognized during the three and nine months ended September 30, 2017. For the three and nine months ended September 30, 2016, acquisition / restructure expenses related to the acquisition totaled $1.7 million and $3.6 million, respectively. The transaction was accounted for under the acquisition method of accounting in accordanceASC 606, Revenue from Contracts with ASC 805. Assets purchased and liabilities assumed were recorded at their respective acquisition date estimated fair values. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. During the six months ended June 30, 2017, the Company recognized measurement period adjustments totaling $0.1 million for tax related items. The measurement period for the HFF acquisition ended on April 20, 2017. Therefore, the fair values of these assets acquired and liabilities assumed were considered final effective April 20, 2017.

~~The recognized amounts of identifiable assets acquired and liabilities assumed, at their as adjusted acquisition date fair values, are as follows:~~

April 20, 2016
(in thousands)
Assets:
Loans $ 1,280,997
Other assets 3,632
Total assets $ 1,284,629
Liabilities:
Other liabilities $ 12,559
Total liabilities 12,559
Net assets acquired $ 1,272,070
Consideration paid
Cash $ 1,272,187
Goodwill $ 117

The following table presents pro forma information as if the acquisition was completed on January 1, 2015. The pro forma information includes adjustments for interest income on loans acquired and excludes acquisition / restructure expense. The pro forma information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates.

Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
(in thousands, except per share amounts)
Interest income $ 180,335
$ 523,962
Non-interest income 10,683
32,375
Net income 65,349
194,095
Earnings per share - basic 0.63
1.89
Earnings per share - diluted 0.62
1.87

~~16. RELATED PARTY TRANSACTIONS~~

~~Principal stockholders, directors, and executive officers of the Company, their immediate family members, and companies they control or own more than a 10% interest in, are considered~~Customers, requires revenue to be ~~related parties. In~~recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. ASC 606 applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. The majority of the Company’s revenue streams including interest income, credit and debit card fees, income from equity investments including warrants and SBIC equity income, income from bank owned life insurance, foreign currency income, lending related income, and gains and losses on sales of investment securities are outside the scope of ASC 606. Revenue streams including service charges and fees, interchange fees on credit and debit cards, and success fees are within the scope of ASC 606.

Disaggregation of Revenue

The following table represents a disaggregation of revenue from contracts with customers for the periods indicated along with the reportable segment for each revenue category:


			Regional Segments
	Consolidated Company		Arizona		Nevada		Southern California		Northern California
Three Months Ended September 30, 2020	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	5,913	$	1,188	$	1,826	$	889	$	930
Debit and credit card interchange (1)	1,597		426		306		167		686
Success fees (2)	38		0		0		0		0
Other income	69		8		6		(1)		18
Total revenue from contracts with customers	$	7,617	$	1,622	$	2,138	$	1,055	$	1,634
Revenues outside the scope of ASC 606 (3)	12,989		149		253		131		747
Total non-interest income	$	20,606	$	1,771	$	2,391	$	1,186	$	2,381


			Regional Segments
	Consolidated Company		Arizona		Nevada		Southern California		Northern California
Nine Months Ended September 30, 2020	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	17,447	$	3,525	$	5,572	$	2,466	$	2,863
Debit and credit card interchange (1)	3,942		990		770		401		1,754
Success fees (2)	423		0		0		0		144
Other income	231		20		15		(6)		59
Total revenue from contracts with customers	$	22,043	$	4,535	$	6,357	$	2,861	$	4,820
Revenues outside the scope of ASC 606 (3)	24,942		408		998		408		1,630
Total non-interest income	$	46,985	$	4,943	$	7,355	$	3,269	$	6,450

(1)Included as part of Card income in the Consolidated Income Statement.

(2)Included as part of Income from equity investments in the Consolidated Income Statement.

(3)Amounts are accounted for under separate guidance. Refer to discussion of revenue sources not subject to ASC 606 under the Non-interest income section in "Note 1. Summary of Significant Accounting Policies."

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	National Business Lines
	HOA Services		Public & Nonprofit Finance		Technology & Innovation		Hotel Franchise Finance		Other NBLs		Corporate & Other
Three Months Ended September 30, 2020	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	114	$	0	$	963	$	0	$	3	$	0
Debit and credit card interchange (1)	12		0		0		0		0		0
Success fees (2)	0		0		38		0		0		0
Other income	2		0		0		0		35		1
Total revenue from contracts with customers	$	128	$	0	$	1,001	$	0	$	38	$	1
Revenues outside the scope of ASC 606 (3)	6		0		2,125		0		2,886		6,692
Total non-interest income	$	134	$	0	$	3,126	$	0	$	2,924	$	6,693


	National Business Lines
	HOA Services		Public & Nonprofit Finance		Technology & Innovation		Hotel Franchise Finance		Other NBLs		Corporate & Other
Nine Months Ended September 30, 2020	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	308	$	0	$	2,707	$	0	$	6	$	0
Debit and credit card interchange (1)	27		0		0		0		0		0
Success fees (2)	0		0		279		0		0		0
Other income	4		0		0		0		125		14
Total revenue from contracts with customers	$	339	$	0	$	2,986	$	0	$	131	$	14
Revenues outside the scope of ASC 606 (3)	11		0		6,261		0		3,977		11,249
Total non-interest income	$	350	$	0	$	9,247	$	0	$	4,108	$	11,263

(1)Included as part of Card income in the Consolidated Income Statement.

(2)Included as part of Income from equity investments in the Consolidated Income Statement.

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			Regional Segments
	Consolidated Company		Arizona		Nevada		Southern California		Northern California
Three Months Ended September 30, 2019	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	5,888	$	1,226	$	2,036	$	770	$	965
Debit and credit card interchange (1)	1,977		451		440		229		845
Success fees (2)	605		0		0		0		0
Other income	80		8		14		4		19
Total revenue from contracts with customers	$	8,550	$	1,685	$	2,490	$	1,003	$	1,829
Revenues outside the scope of ASC 606 (3)	10,891		136		187		76		88
Total non-interest income	$	19,441	$	1,821	$	2,677	$	1,079	$	1,917


			Regional Segments
	Consolidated Company		Arizona		Nevada		Southern California		Northern California
Nine Months Ended September 30, 2019	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	17,121	$	3,525	$	5,980	$	2,218	$	2,821
Debit and credit card interchange (1)	5,830		1,125		1,200		596		2,878
Success fees (2)	1,125		0		0		0		0
Other income	187		8		8		6		43
Total revenue from contracts with customers	$	24,263	$	4,658	$	7,188	$	2,820	$	5,742
Revenues outside the scope of ASC 606 (3)	24,806		392		738		234		557
Total non-interest income	$	49,069	$	5,050	$	7,926	$	3,054	$	6,299


	National Business Lines
	HOA Services		Public & Nonprofit Finance		Technology & Innovation		Hotel Franchise Finance		Other NBLs		Corporate & Other
Three Months Ended September 30, 2019	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	77	$	0	$	813	$	0	$	1	$	0
Debit and credit card interchange (1)	12		0		0		0		0		0
Success fees (2)	0		0		605		0		0		0
Other income	(3)		0		0		0		35		3
Total revenue from contracts with customers	$	86	$	0	$	1,418	$	0	$	36	$	3
Revenues outside the scope of ASC 606 (3)	(2)		0		4,004		0		1,672		4,730
Total non-interest income	$	84	$	0	$	5,422	$	0	$	1,708	$	4,733


	National Business Lines
	HOA Services		Public & Nonprofit Finance		Technology & Innovation		Hotel Franchise Finance		Other NBLs		Corporate & Other
Nine Months Ended September 30, 2019	(in thousands)
Revenue from contracts with customers:
Service charges and fees	$	241	$	0	$	2,333	$	0	$	3	$	0
Debit and credit card interchange (1)	31		0		0		0		0		0
Success fees (2)	0		0		1,125		0		0		0
Other income	2		0		4		0		109		7
Total revenue from contracts with customers	$	274	$	0	$	3,462	$	0	$	112	$	7
Revenues outside the scope of ASC 606 (3)	(6)		0		7,484		0		3,803		11,604
Total non-interest income	$	268	$	0	$	10,946	$	0	$	3,915	$	11,611

(1)Included as part of Card income in the Consolidated Income Statement.

(2)Included as part of Income from equity investments in the Consolidated Income Statement.

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Performance Obligations

Many of the services the Company ~~engages~~performs for its customers are ongoing, and either party may cancel at any time. The fees for these contracts are dependent upon various underlying factors, such as customer deposit balances, and as such may be considered variable. The Company’s performance obligations for these services are satisfied as the services are rendered and payment is collected on a monthly, quarterly, or semi-annual basis. Other contracts with customers are for services to be provided at a point in ~~various related party transactions, including extending credit~~time, and ~~bank service transactions. All related party transactions~~fees are ~~subject to review~~recognized at the time such services are rendered. The Company had no material unsatisfied performance obligations as of September 30, 2020. The revenue streams within the scope of ASC 606 are described in further detail below.

Service Charges and ~~approval pursuant~~Fees

The Company performs deposit account services for its customers, which include analysis and treasury management services, use of safe deposit boxes, check upcharges, and other ancillary services. The depository arrangements the Company holds with its customers are considered day-to-day contracts with ongoing renewals and optional purchases, and as such, the contract duration does not extend beyond the services performed. Due to the ~~Company's Related Party Transactions policy.~~

~~On April 1, 2017,~~short-term nature of such contracts, the Company ~~hired an executive officer who was previously the Managing Partner of an external consulting firm that~~generally recognizes revenue for deposit related fees as services are rendered. From time to time, the Company ~~actively uses~~may waive certain fees for ~~risk management services. Prior~~its customers. The Company considers historical experience when recognizing revenue from contracts with customers, and may reduce the transaction price to ~~joining~~account for fee waivers or refunds.

Debit and Credit Card Interchange

When a credit or debit card issued by the Company is used to purchase goods or services from a merchant, the ~~executive officer sold his interest~~Company earns an interchange fee. The Company considers the merchant its customer in ~~this external consulting firm~~these transactions as the Company provides the merchant with the service of enabling the cardholder to purchase the merchant’s goods or services with increased convenience, and ~~was paid~~it enables the merchants to transact with a ~~combination~~class of customer that may not have access to sufficient funds at the time of purchase. The Company acts as an agent to the payment network by providing nightly settlement services between the network and the merchant. This transmission of data and funds represents the Company’s performance obligation and is performed nightly. As the payment network is in direct control of setting the rates and the Company is acting as an agent, the interchange fee is recorded net of expenses as the services are provided.

Success Fees

Success fees are one-time fees detailed as part of certain loan agreements and are earned immediately upon occurrence of a triggering event. Examples of triggering events include: a borrower obtaining its next round of funding, an acquisition, or completion of a public offering. Success fees are variable consideration as the transaction price can vary and is contingent on the occurrence or non-occurrence of a future event. As the consideration is highly susceptible to factors outside of the Company’s influence and uncertainty about the amount of consideration is not expected to be resolved for an extended period of time, the variable consideration is constrained and is not recognized until the achievement of the triggering event.

Principal versus Agent Considerations

When more than one party is involved in providing goods or services to a customer, ASC 606 requires the Company to determine whether it is the principal or an agent in these transactions by evaluating the nature of its promise to the customer. An entity is a principal and therefore records revenue on a gross basis, if it controls a promised good or service before transferring that good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services. The Company most commonly acts as a principal and records revenue on a gross basis, except in certain circumstances. As an example, revenues earned from interchange fees, in which the Company acts as an agent, are recorded as non-interest income, net of the related expenses paid to the principal.

Contract Balances

The timing of revenue recognition may differ from the timing of cash ~~and a $1.0 million note that will be paid~~settlements or invoicing to customers. The Company records contract liabilities, or deferred revenue, when payments from customers are received or due in ~~equal installments ending in 2019. Expenses to this external consulting firm as well as sponsorships, donations and other~~advance of providing services to ~~related parties totaled less than $3.0~~customers. The Company generally receives payments for its services during the period or at the time services are provided, therefore, does not have material contract liability balances at period-end. The Company records contract assets or receivables when revenue is recognized prior to receipt of cash from the customer. Accounts receivable totals $1.5 million ~~during~~and $1.6 million at each of the ~~nine months~~periods ended September 30, ~~2017~~2020 and ~~2016.~~December 31, 2019, respectively, and are presented in Other assets on the Consolidated Balance Sheets.

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~~Item 2.~~	~~Management's Discussions and Analysis of Financial Condition and Results of Operations.~~

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

This discussion is designed to provide insight into management's assessment of significant trends related to the Company's consolidated financial condition, results of operations, liquidity, capital resources, and interest rate sensitivity. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 and the interim Unaudited Consolidated Financial Statements and Notes to Unaudited Consolidated Financial Statements hereto and financial information appearing elsewhere in this report. Unless the context requires otherwise, the terms "Company," "we," and "our" refer to Western Alliance Bancorporation and its wholly-owned subsidiaries on a consolidated basis.

Forward-Looking Information

Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017~~2020 are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements that are related to or are dependent on estimates or assumptions relating to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts.

The forward-looking statements contained in this Form 10-Q reflect the Company's current views about future events and financial performance and involve certain risks, uncertainties, assumptions, and changes in circumstances that may cause the Company's actual results to differ significantly from historical results and those expressed in any forward-looking statement, including those risks discussed under the heading “Risk Factors” in this Form 10-Q. Risks and uncertainties include those set forth in the Company's filings with the SEC and the following factors that could cause actual results to differ materially from those presented: 1) the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto, including legislative or regulatory changes such as the CARES Act; 2) other financial market and economic conditions adversely effecting financial performance; 2)3) dependency on real estate and events that negatively impact the real ~~estate; 3)~~estate market; 4) high concentration of commercial real estate and commercial and industrial loans; 4)5) actual credit losses may exceed expected losses in the loan portfolio; 5)6) recent changes to FASB accounting standards, including the impact to the Company's allowance and provision for credit losses and capital levels under the new CECL accounting standard; 7) results of any tax audit findings, challenges to the Company's tax positions, or adverse changes or interpretations of tax laws; 8) the geographic concentrations of the Company's assets increase the risks related to local economic conditions; 6)9) exposure of financial instruments to certain market risks may increase the volatility of earnings and AOCI; 7)10) dependence on low-cost deposits; 8)11) ability to borrow from the FHLB or the FRB; 9)12) perpetration of fraud; ~~10)~~13) information security breaches; ~~11)~~14) reliance on third parties to provide key components of the Company's infrastructure; ~~12)~~15) a change in the Company's creditworthiness; ~~13)~~16) the Company's ability to implement and improve its controls and processes to keep pace with its growth; ~~14)~~17) expansion strategies may not be successful; ~~15)~~18) risks associated with new lines of businesses or new products and services within existing lines of business; 19) the Company's ability to compete in a highly competitive market; ~~16)~~20) the Company's ability to recruit and retain qualified employees and implement adequate succession planning to mitigate the loss of key members of its senior management team; ~~17)~~21) inadequate or ineffective risk management practices and internal controls and procedures; ~~18) risks associated with new lines of businesses or new products and services within existing lines of business; 19)~~22) the Company's ability to adapt to technological change; ~~20)~~23) exposure to natural and man-made disasters in markets that the Company operates; ~~21)~~24) risk of operating in a highly regulated industry and the Company's ability to remain in compliance; ~~22)~~25) failure to comply with state and federal banking agency laws and regulations; ~~23)~~26) uncertainty about the future of LIBOR, changes in interest rates, and increased rate competition; ~~24)~~27) exposure to environmental liabilities related to the properties to which the Company acquires title; and ~~25)~~28) risks related to ownership and price of the Company's common stock.

For more information regarding risks that may cause the Company's actual results to differ materially from any forward-looking statements, see “Risk Factors” in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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Recent Developments: COVID-19 and the CARES Act

The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets. The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Many states, including Arizona, where we are headquartered, and California and Nevada, in which we have significant operations, declared states of emergency. These states, like many others, continue to be significantly impacted by the pandemic.

In response to the COVID-19 pandemic, the CARES Act was signed into law by President Trump on March 27, 2020. The CARES Act provides for approximately $2.2 trillion in emergency economic relief measures including, among other things, loan programs for small and mid-sized businesses and other economic relief for impacted businesses and industries, including financial institutions. Separately, and also in response to COVID-19, the Federal Reserve’s FOMC has set the federal funds target rate - i.e., the interest rate at which depository institutions such as the Bank lend reserve balances to other depository institutions overnight on an uncollateralized basis - to a historic low. On March 16, 2020, the FOMC set the federal funds target rate at 0 to 0.25 percent.

In addition to the general impact of the COVID-19 pandemic, certain provisions of the CARES Act and other recent legislative and regulatory relief efforts are expected to have a material impact on our operations, which are further discussed below.

Financial position and results of operations

The Company's financial position and results of operations as of and for the three and nine months ended September 30, 2020 have been significantly impacted by the COVID-19 pandemic. The worsening of forecasted economic conditions from December 31, 2019 to September 30, 2020 attributable to the pandemic contributed to the $14.7 million and $157.8 million provision for credit losses recognized during the three and nine months ended September 30, 2020, respectively, under the new CECL accounting standard adopted by the Company on January 1, 2020. While the Company has not to date experienced significant writeoffs related to the COVID-19 pandemic, the continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to affect the Company’s estimate of its allowance for credit losses and resulting provision for credit losses. To the extent the impact of the pandemic is prolonged and economic conditions continue to worsen or persist longer than forecast, such estimates may be insufficient and may change significantly in the future. The Company’s interest income also may be negatively impacted in future periods as we continue to work with our affected borrowers to defer payments, interest and fees. Additionally, net interest margin may be reduced generally as a result of the low rate environment. These uncertainties and the economic environment will continue to affect earnings, slow growth, and may result in deterioration of asset quality in the Company's loan and investment portfolios.

The below table details the Company's exposure to borrowers in industries generally considered to be the most impacted by the COVID-19 pandemic:


	September 30, 2020
	Business Segment(s)	Loan Balance		Percent of Total Loan Portfolio
		(dollars in millions)
Industry (1):
Hotel	HFF	$	2,099.3	8.1	%
Investor dependent	Tech & Innovation	1,335.0		5.1
Retail (2)	Regional segments	674.0		2.6
Gaming	Nevada segment	510.2		2.0
Total		$	4,618.5	17.8	%

(1)Balances capture credit exposures in the business segments that manage the significant majority of industry relationships.

(2)Consists of real estate secured loan amounts that have significant retail dependency.

While the Company has not experienced disproportionate impacts among its business segments to date, borrowers in the industries detailed in the table above could have greater sensitivity to the economic downturn with potentially longer recovery periods than other business lines.

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Lending operations and accommodations to borrowers

The CARES Act created a new guaranteed, unsecured loan program under the SBA, called the Payroll Protection Program, or the PPP, which the Bank participates in, to fund operational costs of eligible businesses, organizations and self-employed persons during the pandemic period. The SBA has used funds authorized for the PPP to guarantee 100% of the amounts loaned under the PPP by lenders to eligible small businesses, nonprofits, veterans' organizations, and tribal businesses. One of the notable features of the PPP is that borrowers are eligible for loan forgiveness if borrowers maintain their staff and payroll and if loan amounts are used to cover eligible expenses, such as payroll, mortgage interest, rents and utilities payments. These loans have a two-year term and will earn interest at a rate of 1%. The Company assisted our customers with applications for resources through the program and approved over 4,700 applications. As of September 30, 2020, the outstanding balance of loans originated under the PPP totaled $1.7 billion.

The CARES Act permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 and is intended to provide interpretive guidance as to conditions that would constitute a short-term modification that would not meet the definition of a TDR. This includes the following (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration, and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The Company is applying this guidance to qualifying loan modifications. As of September 30, 2020, the Company has outstanding modifications meeting these conditions on loans with a net balance of $1.5 billion as of September 30, 2020. Further, residential mortgage loans in forbearance have a net balance of $127.3 million as of September 30, 2020.

The MSLP supports lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The MSLP operates through five facilities: the Main Street New Loan Facility, the Main Street Priority Loan Facility, the Main Street Expanded Loan Facility, the Nonprofit Organization New Loan Facility, and the Nonprofit Organization Expanded Loan Facility. The Federal Reserve Bank of Boston maintains the legal forms and agreements for eligible borrowers and eligible lenders to participate in the MSLP, and continues to refine the MSLP’s operational infrastructure and facilities. The Bank has registered as a lender under the MSLP and continues to monitor developments related thereto.

Capital and liquidity

While the Company has sufficient capital and does not anticipate any need for additional liquidity in response to the uncertainty regarding the severity and duration of the COVID-19 pandemic, the Company has taken several actions to ensure the strength of its capital and liquidity position. These actions include issuance of $225 million in subordinated debt at our bank subsidiary in May 2020, establishing a Federal Reserve lending facility in connection with funding loans to small and medium-sized businesses, and temporarily suspending stock repurchases since mid-April. In addition, the Company is also in a position to pledge additional collateral to increase its borrowing capacity with the FRB, if necessary. Further, management has elected to take advantage of the capital relief option that delays the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.

Asset valuation

While the Company’s stock price has experienced volatility and periodic declines in value during the pandemic, management does not consider this decline to be a triggering event that would indicate that an interim goodwill impairment test was necessary as of September 30, 2020. Continued and sustained declines in the Company's stock price and/or other credit related impacts could give rise to triggering events in the future that could result in a write-down in the value of our goodwill, which could have a material adverse impact on our results of operations.

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Our processes, controls and business continuity plan

The Company has focused first on ensuring the well-being of our people, customers, and communities. Preventive health measures were put in place, which included establishing social distancing precautions for all employees in the office and customers visiting branches, preventive cleaning at offices and branches, and elimination of business related travel. The Company has continued returning employees to the office subject to applicable health and safety procedures in accordance with guidance from the CDC and local authorities, including regular symptom checks, requiring face cloth coverings, increasing physical space between employees, monitoring the number of employees in the workplace, and requiring employees with COVID-19 related symptoms or exposure to quarantine away from the office.

The Company has also concentrated on implementing additional business continuity measures that include establishing a cross-functional COVID-19 team, monitoring potential business interruptions, making improvements to our remote working technology, and conducting regular discussions with our technology vendors. We have not experienced significant disruption to our business as we have been able to facilitate remote work for our employees and have online tools in place for our customers. We believe that we are positioned to continue these business continuity measures for the foreseeable future; however, no assurances can be provided as these circumstances may change depending on the duration of the pandemic.

Included at the end of this section are updates to the Supervision and Regulation discussion disclosed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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Financial Overview and Highlights

WAB operates the following full-service banking divisions: ABA, BON and FIB, Bridge, and TPB. The Company also serves business customers through a national platform of specialized financial services including AAB, Corporate Finance, Equity Fund Resources, HFF, Life Sciences Group, Mortgage Warehouse Lending, Public and Nonprofit Finance, Renewable Resource Group, Resort Finance, and Technology Finance.services.

Financial ~~Result~~Results Highlights for the Third Quarter of ~~2017~~2020

•Net income of ~~$82.9~~$135.8 million, compared to ~~$67.1~~$127.4 million for the third quarter ~~2016~~2019

•Diluted earnings per share of ~~$0.79,~~$1.36, compared to ~~$0.64~~$1.24 per share for the third quarter ~~2016~~2019

•Total loans of ~~$14.52~~$26.0 billion, up ~~$1.31~~$984.6 million from June 30, 2020, and $4.9 billion from December 31, ~~2016~~

2019

•Total deposits of ~~$16.90~~$28.8 billion, up ~~$2.35~~$1.3 billion from June 30, 2020, and $6.0 billion from December 31, ~~2016~~

2019

•Net interest margin of ~~4.65%~~3.71%, compared to ~~4.55%~~4.41% in the third quarter ~~2016~~2019


•	•Net ~~operating~~ revenue ~~of $211.5 million constituting year-over-year growth of 15.5% or $28.3 million, and an increase in operating non-interest expenses of 7.8% or $6.4 million for the third quarter 2016~~¹


•	~~Operating PPNR of $122.7 million, up 21.7% from $100.8 million in the third quarter 2016~~¹

~~Efficiency ratio~~ of ~~40.0%~~$305.3 million, an increase of 6.8%, or $19.5 million, compared to the third quarter 2019, with non-interest expense decrease of 1.6%, or $2.1 million, compared to the third quarter 2019

•PPNR of $181.3 million, up 13.5% from $159.7 million in the third quarter ~~2017, compared to 44.3%~~20191

•Efficiency ratio of 39.7% in the third quarter ~~2016~~2020, compared to 43.2% in the third quarter 20191


•	~~Operating efficiency ratio of 40.0% in the third quarter 2017, compared to 43.0% in the third quarter 2016~~¹

•Nonperforming assets ~~decreased~~(nonaccrual loans and repossessed assets) increased to ~~0.42%~~0.47% of total assets, from ~~0.53%~~0.25% at September 30, ~~2016~~2019

•Annualized net loan charge-offs to average loans outstanding of ~~0.01%~~0.13%, compared to ~~0.04%~~net loan recoveries to average loans outstanding of 0.01% for the third quarter ~~2016~~2019


•	~~Tangible common equity ratio of 9.4%, compared to 9.3% at September 30, 2016~~¹

•Tangible common equity ratio of 8.9%, compared to 10.1% at September 30, 20191

•Stockholders' equity of ~~$2.15~~$3.2 billion, an increase of ~~$288.2~~$121.6 million from ~~September~~June 30, ~~2016~~2020 and $207.3 million from December 31, 2019

•Book value per common share of ~~$20.34~~,$31.98, an increase of ~~15.0%~~12.3% from ~~$17.68~~$28.48 at September 30, ~~2016~~2019

•Tangible book value per share, net of tax, of $29.03, an increase of $3.43 from $25.60 at September 30, 20191


•	~~Tangible book value per share, net of tax, of $17.53, an increase of 18.1% from $14.84 at September 30, 2016~~¹

The impact to the Company from these items, and others of both a positive and negative nature, are discussed in more detail below as they pertain to the Company’s overall comparative performance for the three and nine months ended September 30, ~~2017.~~2020.

1 See Non-GAAP Financial Measures section beginning on page ~~62.~~74.

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As a bank holding company, management focuses on key ratios in evaluating the Company's financial condition and results of operations.

Results of Operations and Financial Condition

A summary of the Company's results of operations, financial condition, and selected metrics are included in the following tables:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands, except per share amounts)
Net income	$	135,769		$	127,375		$	313,005		$	371,107
Earnings per share - basic	1.36			1.25			3.12			3.60
Earnings per share - diluted	1.36			1.24			3.11			3.59
Return on average assets	1.66		%	1.94		%	1.38		%	2.03		%
Return on average tangible common equity (1)	18.73			19.41			14.90			19.86
Net interest margin	3.71			4.41			4.03			4.56

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands, except per share amounts)
Net income $ 82,858
$ 67,052
$ 236,186
$ 189,998
Earnings per share - basic 0.80
0.65
2.27
1.85
Earnings per share - diluted 0.79
0.64
2.25
1.84
Net interest margin 4.65 % 4.55 % 4.63 % 4.58 %
Return on average assets 1.71
1.58
1.70
1.61
Return on average tangible common equity (1) 18.18
17.50
18.15
17.74


~~(1)~~	~~See Non-GAAP Financial Measures section beginning on page 62.~~

(1) See Non-GAAP Financial Measures section beginning on page 74.


	September 30, 2017		December 31, 2016			September 30, 2020		December 31, 2019
	(in thousands)					(in thousands)
Total assets	$	19,922,221	$	17,200,842	Total assets	$	33,335,506	$	26,821,948
Loans, net of deferred loan fees and costs	14,522,036		13,208,436
Total loans, net of deferred loan fees and costs					Total loans, net of deferred loan fees and costs	26,014,018		21,123,296
Total deposits	16,904,783		14,549,863		Total deposits	28,843,396		22,796,493

Asset Quality

For all banks and bank holding companies, asset quality plays a significant role in the overall financial condition of the institution and results of operations. The Company measures asset quality in terms of ~~non-accrual~~nonaccrual loans as a percentage of gross loans and net charge-offs as a percentage of average loans. Net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans. The following table summarizes the Company's key asset quality metrics:


	September 30, 2020			December 31, 2019
	(dollars in thousands)
Non-accrual loans (1)	$	146,472		$	55,968
Non-performing assets	212,384			98,174
Non-accrual loans to gross loans	0.56		%	0.27		%
Net charge-offs to average loans outstanding (2)	0.13			0.02

September 30, 2017 December 31, 2016
(in thousands)
Non-accrual loans $ 54,994
$ 40,272
Non-performing assets 124,952
142,791
Non-accrual loans to gross loans 0.38 % 0.31 %
Net charge-offs (recoveries) to average loans (1) 0.01
0.02
(1)Includes non-accrual HFS loans of $20.8 million and zero at September 30, 2020 and December 31, 2019, respectively.


~~(1)~~	~~Annualized for the three months ended September 30, 2017. Actual year-to-date for the year ended December 31, 2016.~~

(2)Annualized on an actual/actual basis for the three months ended September 30, 2020. Actual year-to-date for the year ended December 31, 2019.

Asset and Deposit Growth

The Company’s assets and liabilities are comprised primarily of loans and deposits. Therefore, the ability to originate new loans and attract new deposits is fundamental to the Company’s growth.

Total assets increased to ~~$19.92~~$33.3 billion at September 30, ~~2017~~2020 from ~~$17.20~~$26.8 billion at December 31, ~~2016.~~2019. The increase in total assets of ~~$2.72~~$6.5 billion, or ~~15.8%~~24.3%, relates primarily to ~~organic~~ loan ~~growth of $1.31 billion and an increase in cash and cash equivalents and investment securities of $1.37 billion resulting from increased deposits.~~growth. Total ~~loans, including HFS~~ loans increased by ~~$1.31~~$4.9 billion, or ~~9.9%~~23.2%, to ~~$14.52~~$26.0 billion as of September 30, ~~2017,~~2020, compared to ~~$13.21~~$21.1 billion as of December 31, ~~2016.~~ 2019. The increase in loans from December 31, 2019, which includes $1.7 billion in PPP loans, was driven by commercial and industrial loans of $4.3 billion, with smaller increases in construction and land development, residential real estate, and CRE, non-owner occupied loans of $348.3 million, $239.5 million, and $161.8 million, respectively. These increases were partially offset by a decrease in CRE, owner occupied loans of $103.4 million.

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Total deposits increased ~~$2.35~~$6.0 billion, or ~~16.2%~~26.5%, to ~~$16.90~~$28.8 billion as of September 30, ~~2017~~2020 from ~~$14.55~~$22.8 billion as of December 31, ~~2016.~~2019. The increase in deposits from December 31, 2019 was driven by an increase of $4.5 billion in non-interest bearing demand deposits, $1.5 billion in savings and money market accounts, and interest bearing demand deposits of $793.8 million. These increases were offset in part by a decrease in certificates of deposit of $676.1 million.

RESULTS OF OPERATIONS

The following table sets forth a summary financial overview for the comparable periods:


	Three Months ended September 30,				Increase			Nine Months Ended September 30,				Increase				Three Months Ended September 30,				Increase		Nine Months Ended September 30,				Increase
	2017		2016		(Decrease)			2017		2016		(Decrease)				2020		2019		(Decrease)		2020		2019		(Decrease)
	(in thousands, except per share amounts)															(in thousands, except per share amounts)
Consolidated Income Statement Data:	Consolidated Income Statement Data:														Consolidated Income Statement Data:
Interest income	$	217,836	$	184,750	$	33,086		$	617,054	$	513,095	$	103,959		Interest income	$	304,843	$	315,608	$	(10,765)	$	930,297	$	909,624	$	20,673
Interest expense	16,253		12,203		4,050			43,419		31,151		12,268			Interest expense	20,105		49,186		(29,081)		78,139		141,185		(63,046)
Net interest income	201,583		172,547		29,036			573,635		481,944		91,691			Net interest income	284,738		266,422		18,316		852,158		768,439		83,719
Provision for credit losses	5,000		2,000		3,000			12,250		7,000		5,250			Provision for credit losses	14,661		3,803		10,858		157,837		15,303		142,534
Net interest income after provision for credit losses	196,583		170,547		26,036			561,385		474,944		86,441			Net interest income after provision for credit losses	270,077		262,619		7,458		694,321		753,136		(58,815)
Non-interest income	10,288		10,683		(395		)	31,281		32,375		(1,094		)	Non-interest income	20,606		19,441		1,165		46,985		49,069		(2,084)
Non-interest expense	89,114		85,007		4,107			265,128		242,304		22,824			Non-interest expense	124,092		126,152		(2,060)		359,372		352,279		7,093
Income before income taxes	117,757		96,223		21,534			327,538		265,015		62,523
Income before provision for income taxes															Income before provision for income taxes	166,591		155,908		10,683		381,934		449,926		(67,992)
Income tax expense	34,899		29,171		5,728			91,352		75,017		16,335			Income tax expense	30,822		28,533		2,289		68,929		78,819		(9,890)
Net income	$	82,858	$	67,052	$	15,806		$	236,186	$	189,998	$	46,188		Net income	$	135,769	$	127,375	$	8,394	$	313,005	$	371,107	$	(58,102)
Earnings per share - basic	$	0.80	$	0.65	$	0.15		$	2.27	$	1.85	$	0.42		Earnings per share - basic	$	1.36	$	1.25	$	0.11	$	3.12	$	3.60	$	(0.48)
Earnings per share - diluted	$	0.79	$	0.64	$	0.15		$	2.25	$	1.84	$	0.41		Earnings per share - diluted	$	1.36	$	1.24	$	0.12	$	3.11	$	3.59	$	(0.47)

Non-GAAP Financial Measures

The following discussion and analysis contains financial information determined by methods other than those prescribed by GAAP. The Company's management uses these non-GAAP financial measures in their analysis of the Company's performance. These measurements typically adjust GAAP performance measures to exclude the effects of certain significant activities or transactions that, in management's opinion, do not reflect recurring period-to-period comparisons of the Company's performance. Management believes presentation of these non-GAAP financial measures provides useful supplemental information that is essential to a complete understanding of the operating results of the ~~Company's core businesses.~~Company. Since the presentation of these non-GAAP performance measures and their impact differ between companies, these non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

~~Operating~~ Pre-Provision Net Revenue

~~Operating~~ PPNR is defined by the Federal Reserve in SR 14-3, which requires companies subject to the rule to project PPNR over the planning horizon for each of the economic scenarios defined annually by the regulators. Banking regulations define PPNR as net interest income plus non-interest income less non-interest expense. Management ~~has further adjusted this metric to exclude any non-recurring or non-operational elements of non-interest income or non-interest expense, which are outlined in the table below. Management feels~~believes that this is an important metric as it illustrates the underlying performance of the Company, it enables investors and others to assess the Company's ability to generate capital to cover credit losses through the credit cycle, and provides consistent reporting with a key metric used by bank regulatory agencies.

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The following table shows the components of ~~operating~~ PPNR for the three and nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Total non-interest income	$	20,606	$	19,441	$	46,985	$	49,069
Net interest income	284,738		266,422		852,158		768,439
Net revenue	$	305,344	$	285,863	$	899,143	$	817,508
Total non-interest expense	124,092		$	126,152	359,372		352,279
Pre-provision net revenue	$	181,252	$	159,711	$	539,771	$	465,229
Less:
Provision for credit losses	14,661		3,803		157,837		15,303
Income tax expense	30,822		28,533		68,929		78,819
Net income	$	135,769	$	127,375	$	313,005	$	371,107

Efficiency Ratio

The following table shows the components used in the calculation of the efficiency ratio, which management uses as a metric for assessing cost efficiency:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(dollars in thousands)
Total non-interest expense	$	124,092		$	126,152		$	359,372		$	352,279
Divided by:
Total net interest income	284,738			266,422			852,158			768,439
Plus:
Tax equivalent interest adjustment	7,188			6,423			20,638			18,736
Total non-interest income	20,606			19,441			46,985			49,069
	$	312,532		$	292,286		$	919,781		$	836,244
Efficiency ratio - tax equivalent basis	39.7		%	43.2		%	39.1		%	42.1		%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Total non-interest income $ 10,288
$ 10,683
$ 31,281
$ 32,375
Less:
Gain (loss) on sales of investment securities, net (1) 319
—
907
1,001
Unrealized gains (losses) on assets and liabilities measured at fair value, net (1) 14
7
39
8
Total operating non-interest income 9,955
10,676
30,335
31,366
Plus: net interest income 201,583
172,547
573,635
481,944
Net operating revenue $ 211,538
$ 183,223
$ 603,970
$ 513,310
Total non-interest expense $ 89,114
$ 85,007
$ 265,128
$ 242,304
Less:
Net loss (gain) on sales / valuations of repossessed and other assets (1) 266
(146 ) (46 ) (91 )
Acquisition / restructure expense (1) —
2,729
—
6,391
Total operating non-interest expense $ 88,848
$ 82,424
$ 265,174
$ 236,004
Operating pre-provision net revenue (2) $ 122,690
$ 100,799
$ 338,796
$ 277,306
Plus:
Non-operating revenue adjustments 333
7
946
1,009
Less:
Provision for credit losses 5,000
2,000
12,250
7,000
Non-operating expense adjustments 266
2,583
(46 ) 6,300
Income before provision for income taxes 117,757
96,223
327,538
265,015
Income tax expense 34,899
29,171
91,352
75,017
Net income $ 82,858
$ 67,052
$ 236,186
$ 189,998

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~~(1)~~	~~The operating PPNR non-GAAP performance metric is adjusted to exclude the effects of this non-operational item.~~


~~(2)~~	~~There were no adjustments made for non-recurring items during the three and nine months ended September 30, 2017 and 2016.~~

Tangible Common Equity

The following table presents financial measures related to tangible common equity. Tangible common equity represents total stockholders' equity, less identifiable intangible assets and goodwill. Management believes that tangible common equity financial measures are useful in evaluating the Company's capital strength, financial condition, and ability to manage potential losses. In addition, management believes that these measures improve comparability to other institutions that have not engaged in acquisitions that resulted in recorded goodwill and other intangible assets.

September 30, 2017 December 31, 2016
(dollars and shares in thousands)
Total stockholders' equity $ 2,145,627
$ 1,891,529
Less: goodwill and intangible assets 301,157
302,894
Total tangible stockholders' equity 1,844,470
1,588,635
Plus: deferred tax - attributed to intangible assets 4,341
4,949
Total tangible common equity, net of tax $ 1,848,811
$ 1,593,584

Total assets $ 19,922,221
$ 17,200,842
Less: goodwill and intangible assets, net 301,157
302,894
Tangible assets 19,621,064
16,897,948
Plus: deferred tax - attributed to intangible assets 4,341
4,949
Total tangible assets, net of tax $ 19,625,405
$ 16,902,897

Tangible equity ratio 9.4 % 9.4 %
Tangible common equity ratio 9.4
9.4
Common shares outstanding 105,493
105,071
Book value per share $ 20.34
$ 18.00
Tangible book value per share, net of tax 17.53
15.17

~~Operating Efficiency Ratio~~

~~The following table shows the components used in the calculation of the operating efficiency ratio, which management uses as a metric for assessing cost efficiency:~~


	September 30, 2020			December 31, 2019
	(dollars and shares in thousands)
Total stockholders' equity	$	3,224,046		$	3,016,748
Less: goodwill and intangible assets	298,987			297,608
Total tangible stockholders' equity	2,925,059			2,719,140
Plus: deferred tax - attributed to intangible assets	1,689			1,921
Total tangible common equity, net of tax	$	2,926,748		$	2,721,061

Total assets	$	33,335,506		$	26,821,948
Less: goodwill and intangible assets, net	298,987			297,608
Tangible assets	33,036,519			26,524,340
Plus: deferred tax - attributed to intangible assets	1,689			1,921
Total tangible assets, net of tax	$	33,038,208		$	26,526,261

Tangible common equity ratio	8.9		%	10.3		%
Common shares outstanding	100,825			102,524
Book value per share	$	31.98		$	29.42
Tangible book value per share, net of tax	29.03			26.54

Three Months ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(dollars in thousands)
Total non-interest expense $ 89,114
$ 85,007
$ 265,128
$ 242,304
Non-operating expense adjustments (266 ) (2,583 ) 46
(6,300 )
Total operating non-interest expense $ 88,848
$ 82,424
$ 265,174
$ 236,004

Divided by:
Total net interest income $ 201,583
$ 172,547
$ 573,635
$ 481,944
Plus:
Tax equivalent interest adjustment 10,837
8,599
30,966
25,738
Non-interest income 10,288
10,683
31,281
32,375
Net revenue - TEB $ 222,708
$ 191,829
$ 635,882
$ 540,057
Non-operating revenue adjustments (333 ) (7 ) (946 ) (1,009 )
Net operating revenue - TEB $ 222,375
$ 191,822
$ 634,936
$ 539,048

Efficiency ratio - TEB 40.0 % 44.3 % 41.7 % 44.9 %
Operating efficiency ratio - TEB 40.0
43.0
41.8
43.8

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Regulatory Capital

The following table presents certain financial measures related to regulatory capital under Basel III, which includes ~~Common Equity Tier~~common equity tier 1 and total capital. The FRB and other banking regulators use ~~Common Equity Tier~~common equity tier 1 and total capital as a basis for assessing a bank's capital adequacy; therefore, management believes it is useful to assess financial condition and capital adequacy using this same basis. Specifically, the total capital ratio takes into consideration the risk levels of assets and off-balance sheet financial instruments. In addition, management believes that the classified assets to ~~Common Equity Tier~~common equity tier 1 plus allowance measure is an important regulatory metric for assessing asset quality.

As permitted by the regulatory capital rules, the Company elected to delay the estimated impact of CECL on its regulatory capital over a five-year transition period ending December 31, 2024. As a result, capital ratios and amounts as of September 30, 2020 exclude the impact of the increased allowance for credit losses related to the adoption of ASC 326.


	September 30, 2020			December 31, 2019
	(dollars in thousands)
Common equity tier 1:
Common equity	$	3,285,991		$	3,016,748
Less:
Non-qualifying goodwill and intangibles	297,298			295,607

Disallowed deferred tax asset	165			2,243
AOCI related adjustments	74,084			21,379
Unrealized gain on changes in fair value liabilities	4,501			3,629
Common equity tier 1	$	2,909,943		$	2,693,890
Divided by: Risk-weighted assets	$	29,079,735		$	25,390,142
Common equity tier 1 ratio	10.0		%	10.6		%

Common equity tier 1	$	2,909,943		$	2,693,890

Plus: Trust preferred securities	81,500			81,500

Less:
Disallowed deferred tax asset	—			—
Unrealized gain on changes in fair value liabilities	—			—
Tier 1 capital	$	2,991,443		$	2,775,390
Divided by: Tangible average assets	$	32,190,510		$	26,110,275
Tier 1 leverage ratio	9.3		%	10.6		%

Total capital:
Tier 1 capital	$	2,991,443		$	2,775,390
Plus:
Subordinated debt	515,329			305,732
Adjusted allowances for credit losses	287,647			176,752
Less: Tier 2 qualifying capital deductions	—			—
Tier 2 capital	$	802,976		$	482,484

Total capital	$	3,794,419		$	3,257,874
Total capital ratio	13.0		%	12.8		%

Classified assets to tier 1 capital plus allowance:
Classified assets	$	325,659		$	171,246

Divided by: Tier 1 capital	2,991,443			2,775,390
Plus: Adjusted allowances for credit losses	287,647			176,752
Total Tier 1 capital plus adjusted allowances for credit losses	$	3,279,090		$	2,952,142
Classified assets to tier 1 capital plus allowance (1)	9.9		%	5.8		%

(1)Upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the allowance for credit losses has been modified to also include amounts related to unfunded loan commitments and investment securities. Prior period amounts have been restated to conform to current presentation.

September 30, 2017 December 31, 2016
(dollars in thousands)
Common Equity Tier 1:
Common Equity $ 2,145,627
$ 1,891,529
Less:
Non-qualifying goodwill and intangibles 295,431
294,754
Disallowed deferred tax asset 2
1,400
AOCI related adjustments 886
(13,460 )
Unrealized gain on changes in fair value liabilities 8,566
8,118
Common Equity Tier 1 $ 1,840,742
$ 1,600,717
Divided by: Risk-weighted assets $ 17,759,902
$ 15,980,092
Common Equity Tier 1 ratio 10.4 % 10.0 %

Common Equity Tier 1 $ 1,840,742
$ 1,600,717
Plus:
Trust preferred securities 81,500
81,500
Less:
Disallowed deferred tax asset —
934
Unrealized gain on changes in fair value liabilities 2,142
5,412
Tier 1 capital $ 1,920,100
$ 1,675,871
Divided by: Tangible average assets $ 19,082,108
$ 16,868,674
Tier 1 leverage ratio 10.1 % 9.9 %

Total Capital:
Tier 1 capital $ 1,920,100
$ 1,675,871
Plus:
Subordinated debt 299,316
299,927
Qualifying allowance for credit losses 136,421
124,704
Other 5,595
6,978
Less: Tier 2 qualifying capital deductions —
—
Tier 2 capital $ 441,332
$ 431,609

Total capital $ 2,361,432
$ 2,107,480

Total capital ratio 13.3 % 13.2 %

Classified assets to Tier 1 capital plus allowance for credit losses:
Classified assets $ 221,803
$ 211,782
Divided by:
Tier 1 capital 1,920,100
1,675,871
Plus: Allowance for credit losses 136,421
124,704
Total Tier 1 capital plus allowance for credit losses $ 2,056,521
$ 1,800,575

Classified assets to Tier 1 capital plus allowance 10.8 % 11.8 %

Table of Contents

Net Interest Margin

The net interest margin is reported on a TEB. A tax equivalent adjustment is added to reflect interest earned on certain securities and loans that are exempt from federal and state income tax. The following tables set forth the average balances, interest income, interest expense, and average yield (on a fully TEB) for the periods indicated:


	Three Months Ended September 30,
	2020						2019
	Average Balance		Interest		Average Yield / Cost		Average Balance		Interest		Average Yield / Cost
	(dollars in thousands)
Interest earning assets
Loans:
Commercial and industrial	$	12,687,865	$	130,041	4.17	%	$	8,423,017	$	118,332	5.72	%
CRE - non-owner-occupied	5,393,133		63,813		4.72		4,722,176		69,421		5.85
CRE - owner-occupied	2,232,653		26,645		4.85		2,259,576		30,099		5.38
Construction and land development	2,209,340		32,293		5.83		2,226,289		39,177		7.00
Residential real estate	2,395,956		23,358		3.88		1,701,599		20,913		4.88
Consumer	38,524		473		4.88		69,519		990		5.65
Loans held for sale	20,290		—		—		237		—		—
Total loans (1), (2), (3)	24,977,761		276,623		4.47		19,402,413		278,932		5.79
Securities:
Securities - taxable	2,811,615		14,769		2.09		3,073,116		20,575		2.66
Securities - tax-exempt	1,556,431		12,634		4.07		1,062,087		9,085		4.30
Total securities (1)	4,368,046		27,403		2.79		4,135,203		29,660		3.08
Other	1,926,386		817		0.17		1,009,926		7,016		2.76
Total interest earning assets	31,272,193		304,843		3.97		24,547,542		315,608		5.20
Non-interest earning assets
Cash and due from banks	163,812						346,833
Allowance for credit losses	(325,039)						(162,629)
Bank owned life insurance	174,998						172,447
Other assets	1,237,441						1,094,205
Total assets	$	32,523,405					$	25,998,398
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts	$	3,636,299	$	1,463	0.16	%	$	2,488,581	$	5,061	0.81	%
Savings and money market accounts	10,170,085		5,661		0.22		8,456,531		26,608		1.25
Certificates of deposit	1,845,479		5,091		1.10		2,250,362		11,685		2.06
Total interest-bearing deposits	15,651,863		12,215		0.31		13,195,474		43,354		1.30
Short-term borrowings	35,996		18		0.20		17,495		47		1.07

Qualifying debt	616,218		7,872		5.08		387,799		5,785		5.92
Total interest-bearing liabilities	16,304,077		20,105		0.49		13,600,768		49,186		1.43
Interest cost of funding earning assets					0.26						0.79
Non-interest-bearing liabilities
Non-interest-bearing demand deposits	12,422,208						8,916,568
Other liabilities	617,006						579,624
Stockholders’ equity	3,180,114						2,901,438
Total liabilities and stockholders' equity	$	32,523,405					$	25,998,398
Net interest income and margin (4)			$	284,738	3.71	%			$	266,422	4.41	%

(1)Yields on loans and securities have been adjusted to a TEB. The taxable-equivalent adjustment was $7.2 million and $6.4 million for the three months ended September 30, 2020 and 2019, respectively.

(2)Included in the yield computation are net loan fees of $18.2 million and $13.4 million for the three months ended September 30, 2020 and 2019, respectively.

(3)Includes non-accrual loans.

(4)Net interest margin is computed by dividing net interest income by total average earning assets, annualized on an actual/actual basis.

Table of Contents

Three Months Ended September 30,
2017 2016
Average
Balance Interest Average
Yield / Cost Average
Balance Interest Average
Yield / Cost
(dollars in thousands)
Interest-earning assets
Loans:
Commercial and industrial $ 6,328,474
$ 80,616
5.59 % $ 5,503,071
$ 65,448
5.24 %
Commercial real estate 5,627,931
79,488
5.65
5,655,038
78,328
5.54
Construction and land development 1,633,378
25,898
6.34
1,338,216
19,793
5.92
Residential real estate 351,517
4,151
4.72
281,379
3,557
5.06
Consumer 52,168
729
5.59
39,985
474
4.74
Loans held for sale 16,503
214
5.19
21,933
314
5.73
Total loans (1), (2), (3) 14,009,971
191,096
5.68
12,839,622
167,914
5.44
Securities:
Securities - taxable 2,778,404
17,399
2.50
1,895,457
10,438
2.20
Securities - tax-exempt 657,064
6,185
5.61
511,855
4,998
5.46
Total securities (1) 3,435,468
23,584
3.10
2,407,312
15,436
2.90
Other 845,852
3,156
1.49
684,689
1,400
0.82
Total interest-earning assets 18,291,291
217,836
5.00
15,931,623
184,750
4.85
Non-interest earning assets
Cash and due from banks 132,285
146,114

Allowance for credit losses (133,555 ) (123,551 )
Bank owned life insurance 166,430
163,990

Other assets 930,752
834,848

Total assets $ 19,387,203
$ 16,953,024

Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,476,506
$ 1,066
0.29 % $ 1,286,063
$ 612
0.19 %
Savings and money market accounts 6,282,405
7,135
0.45
6,129,262
5,314
0.35
Time certificates of deposit 1,585,690
3,248
0.82
1,637,284
2,146
0.52
Total interest-bearing deposits 9,344,601
11,449
0.49
9,052,609
8,072
0.36
Short-term borrowings 31,671
96
1.21
39,055
83
0.85
Qualifying debt 375,276
4,708
5.02
369,076
4,048
4.39
Total interest-bearing liabilities 9,751,548
16,253
0.67
9,460,740
12,203
0.52
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 7,174,532
5,363,716

Other liabilities 336,939
292,268

Stockholders’ equity 2,124,184
1,836,300

Total liabilities and stockholders' equity $ 19,387,203
$ 16,953,024

Net interest income and margin (4) $ 201,583
4.65 % $ 172,547
4.55 %


~~(1)~~	~~Yields on loans and securities have been adjusted to a TEB. The taxable-equivalent adjustment was $10.8 million and $8.6 million for the three months ended September 30, 2017 and 2016, respectively.~~


~~(2)~~	Included in the yield computation are net loan fees of $9.4 million and accretion on acquired loans of $7.5 million for the three months ended September 30, 2017, compared to $7.2 million and $8.8 million for the three months ended September 30, 2016, respectively.


~~(3)~~	~~Includes non-accrual loans.~~


~~(4)~~	~~Net interest margin is computed by dividing net interest income by total average earning assets.~~


	Nine Months Ended September 30,
	2020						2019
	Average Balance		Interest		Average Yield / Cost		Average Balance		Interest		Average Yield / Cost
	(dollars in thousands)
Interest earning assets
Loans:
Commercial and industrial	$	11,556,578	$	396,578	4.69	%	$	7,955,590	$	340,808	5.88	%
CRE - non-owner occupied	5,325,633		198,335		4.99		4,468,371		199,372		5.98
CRE - owner occupied	2,262,428		83,353		5.02		2,279,886		90,113		5.39
Construction and land development	2,114,957		95,451		6.05		2,210,205		118,687		7.20
Residential real estate	2,294,876		67,122		3.91		1,535,964		56,275		4.90
Consumer	49,164		1,922		5.22		64,490		2,844		5.90
Loans held for sale	21,259		324		2.04		80		—		—
Total loans (1), (2), (3)	23,624,895		843,085		4.83		18,514,586		808,099		5.92
Securities:
Securities - taxable	2,826,004		48,271		2.28		2,865,596		60,641		2.83
Securities - tax-exempt	1,376,648		34,753		4.25		979,677		27,053		4.62
Total securities (1)	4,202,652		83,024		2.93		3,845,273		87,694		3.29
Other	1,136,169		4,188		0.49		700,698		13,831		2.64
Total interest earning assets	28,963,716		930,297		4.39		23,060,557		909,624		5.38
Non-interest earning assets
Cash and due from banks	173,909						225,907
Allowance for credit losses	(263,207)						(157,809)
Bank owned life insurance	178,660						171,470
Other assets	1,206,162						1,098,583
Total assets	$	30,259,240					$	24,398,708
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts	$	3,410,882	$	7,530	0.29	%	$	2,511,860	$	16,194	0.86	%
Savings and money market accounts	9,546,249		28,875		0.40		7,854,914		73,283		1.25
Certificates of deposit	2,113,020		23,331		1.47		2,114,659		31,553		1.99
Total interest-bearing deposits	15,070,151		59,736		0.53		12,481,433		121,030		1.30
Short-term borrowings	150,118		570		0.51		129,382		2,257		2.33

Qualifying debt	500,522		17,833		4.76		376,154		17,898		6.36
Total interest-bearing liabilities	15,720,791		78,139		0.66		12,986,969		141,185		1.45
Interest cost of funding earning assets					0.36						0.82
Non-interest-bearing liabilities
Non-interest-bearing demand deposits	10,813,205						8,118,791
Other liabilities	622,889						495,597
Stockholders’ equity	3,102,355						2,797,351
Total liabilities and stockholders' equity	$	30,259,240					$	24,398,708
Net interest income and margin (4)			$	852,158	4.03	%			$	768,439	4.56	%

(1)Yields on loans and securities have been adjusted to a TEB. The taxable-equivalent adjustment was $20.6 million and $18.7 million for the nine months ended September 30, 2020 and 2019, respectively.

(2)Included in the yield computation are net loan fees of $61.5 million and $37.9 million for the nine months ended September 30, 2020 and 2019, respectively.

(3)Includes non-accrual loans.

(4)Net interest margin is computed by dividing net interest income by total average earning assets, annualized on an actual/actual basis.

Table of Contents

Nine Months Ended September 30,
2017 2016
Average
Balance Interest Average
Yield / Cost Average
Balance Interest Average
Yield / Cost
(dollars in thousands)
Interest-earning assets
Loans:
Commercial and industrial $ 6,047,623
$ 224,876
5.45 % $ 5,343,468
$ 189,994
5.24 %
Commercial real estate 5,595,998
236,067
5.62
5,088,465
208,634
5.47
Construction and land development 1,583,707
72,965
6.14
1,266,257
56,382
5.94
Residential real estate 315,488
11,125
4.70
297,520
10,449
4.68
Consumer 45,164
1,617
4.77
34,847
1,268
4.85
Loans held for sale 17,502
656
5.00
22,942
988
5.74
Total loans (1), (2), (3) 13,605,482
547,306
5.58
12,053,499
467,715
5.39
Securities:
Securities - taxable 2,445,846
44,684
2.44
1,671,368
28,290
2.26
Securities - tax-exempt 629,968
17,643
5.55
478,861
13,525
5.38
Total securities (1) 3,075,814
62,327
3.07
2,150,229
41,815
2.95
Other 745,049
7,421
1.33
567,010
3,565
0.84
Total interest-earning assets 17,426,345
617,054
4.96
14,770,738
513,095
4.86
Non-interest earning assets
Cash and due from banks 138,395
140,367

Allowance for credit losses (129,782 ) (121,825 )
Bank owned life insurance 165,692
163,491

Other assets 917,089
830,057

Total assets $ 18,517,739
$ 15,782,828

Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,468,163
$ 2,858
0.26 % $ 1,191,055
$ 1,571
0.18 %
Savings and money market accounts 6,169,860
18,277
0.39
5,768,179
14,326
0.33
Time certificates of deposit 1,549,212
8,371
0.72
1,651,926
6,096
0.49
Total interest-bearing deposits 9,187,235
29,506
0.43
8,611,160
21,993
0.34
Short-term borrowings 58,749
374
0.85
81,491
412
0.67
Qualifying debt 370,795
13,539
4.87
265,720
8,746
4.39
Total interest-bearing liabilities 9,616,779
43,419
0.60
8,958,371
31,151
0.46
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 6,548,351
4,830,762

Other liabilities 315,453
261,278

Stockholders’ equity 2,037,156
1,732,417

Total liabilities and stockholders' equity $ 18,517,739
$ 15,782,828

Net interest income and margin (4) $ 573,635
4.63 % $ 481,944
4.58 %


~~(1)~~	~~Yields on loans and securities have been adjusted to a TEB. The taxable-equivalent adjustment was $31.0 million and $25.7 million for the nine months ended September 30, 2017 and 2016, respectively.~~


~~(2)~~	Included in the yield computation are net loan fees of $26.0 million and accretion on acquired loans of $21.0 million for the nine months ended September 30, 2017, compared to $20.3 million and $22.3 million for the nine months ended September 30, 2016, respectively.


~~(3)~~	~~Includes non-accrual loans.~~


~~(4)~~	~~Net interest margin is computed by dividing net interest income by total average earning assets.~~


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020 versus 2019						2020 versus 2019
	Increase (Decrease) Due to Changes in (1)						Increase (Decrease) Due to Changes in (1)
	Volume		Rate		Total		Volume		Rate		Total
	(in thousands)
Interest income:
Loans:
Commercial and industrial	$	43,711	$	(32,002)	$	11,709	$	123,572	$	(67,802)	$	55,770
CRE - non-owner occupied	7,939		(13,547)		(5,608)		31,926		(32,963)		(1,037)
CRE - owner-occupied	(321)		(3,133)		(3,454)		(643)		(6,117)		(6,760)
Construction and land development	(248)		(6,636)		(6,884)		(4,299)		(18,937)		(23,236)
Residential real estate	6,769		(4,324)		2,445		22,197		(11,350)		10,847
Consumer	(381)		(136)		(517)		(599)		(323)		(922)
Loans held for sale	—		—		—		323		1		324
Total loans	57,469		(59,778)		(2,309)		172,477		(137,491)		34,986
Securities:
Securities - taxable	(1,374)		(4,432)		(5,806)		(676)		(11,694)		(12,370)
Securities - tax-exempt	4,013		(464)		3,549		10,021		(2,321)		7,700
Total securities	2,639		(4,896)		(2,257)		9,345		(14,015)		(4,670)
Other	389		(6,588)		(6,199)		1,605		(11,248)		(9,643)
Total interest income	60,497		(71,262)		(10,765)		183,427		(162,754)		20,673

Interest expense:
Interest-bearing transaction accounts	$	462	$	(4,060)	$	(3,598)	$	1,985	$	(10,649)	$	(8,664)
Savings and money market	954		(21,901)		(20,947)		5,116		(49,524)		(44,408)
Certificates of deposit	(1,117)		(5,477)		(6,594)		(18)		(8,204)		(8,222)
Short-term borrowings	9		(38)		(29)		79		(1,766)		(1,687)

Qualifying debt	2,918		(831)		2,087		4,431		(4,496)		(65)
Total interest expense	3,226		(32,307)		(29,081)		11,593		(74,639)		(63,046)

Net increase	$	57,271	$	(38,955)	$	18,316	$	171,834	$	(88,115)	$	83,719

Three Months Ended September 30, Nine Months Ended September 30,
2017 versus 2016 2017 versus 2016
Increase (Decrease) Due to Changes in (1) Increase (Decrease) Due to Changes in (1)
Volume Rate Total Volume Rate Total
(in thousands)
Interest income:
Loans:
Commercial and industrial $ 10,514
$ 4,654
$ 15,168
$ 26,183
$ 8,699
$ 34,882
Commercial real estate (383 ) 1,543
1,160
21,410
6,023
27,433
Construction and land development 4,680
1,425
6,105
14,626
1,957
16,583
Residential real estate 828
(234 ) 594
634
42
676
Consumer 170
85
255
369
(20 ) 349
Loans held for sale (70 ) (30 ) (100 ) (204 ) (128 ) (332 )
Total loans 15,739
7,443
23,182
63,018
16,573
79,591
Securities:
Securities - taxable 5,529
1,431
6,960
14,150
2,244
16,394
Securities - tax-exempt 1,367
(180 ) 1,187
4,232
(114 ) 4,118
Total securities 6,896
1,251
8,147
18,382
2,130
20,512
Other 601
1,155
1,756
1,773
2,083
3,856
Total interest income 23,236
9,849
33,085
83,173
20,786
103,959

Interest expense:
Interest bearing transaction accounts $ 137
$ 317
$ 454
$ 539
$ 748
$ 1,287
Savings and money market 174
1,647
1,821
1,190
2,761
3,951
Time certificates of deposit (106 ) 1,208
1,102
(555 ) 2,830
2,275
Short-term borrowings (22 ) 35
13
(145 ) 107
(38 )
Qualifying debt 78
582
660
3,837
956
4,793
Total interest expense 261
3,789
4,050
4,866
7,402
12,268

Net increase $ 22,975
$ 6,060
$ 29,035
$ 78,307
$ 13,384
$ 91,691
(1)Changes attributable to both volume and rate are designated as volume changes.


~~(1)~~	~~Changes due to both volume and rate have been allocated to volume changes.~~

Comparison of interest income, interest expense and net interest margin

The Company's primary source of revenue is interest income. For the three months ended September 30, ~~2017,~~2020, interest income was ~~$217.8~~$304.8 million, ~~an increase~~a decrease of ~~$33.1~~$10.8 million, or ~~17.9%~~3.4%, compared to ~~$184.8~~$315.6 million for the three months ended September 30, ~~2016.~~2019. This decrease was primarily the result of a decrease in other interest income from interest bearing cash accounts and federal funds sold of $6.2 million. Also contributing to the decrease in total interest income were net declines in interest income from loans and investment securities, each totaling $2.3 million. The decline in interest rates from September 30, 2019 outweighed the increases in the related average asset balances, resulting in a decrease in total interest income.

For the nine months ended September 30, 2020, interest income was $930.3 million, an increase of $20.7 million, or 2.3%, compared to $909.6 million for the nine months ended September 30, 2019. This increase was primarily the result of a ~~$1.17~~$5.1 billion increase in the average loan balance, which ~~together with~~offset the effect of the rising rate environment, drove a $23.2 million increase in loan interest income for the three months ended September 30, 2017. Interest income from investment securities increased by $8.1 million for the comparable period primarily due to an increase in the average investment balance of $1.03 billion from September 30, 2016 as well as an increasedecline in interest rates and mix. Average yield on interest earning assets increased to 5.00% for the three months ended September 30, 2017, compared to 4.85% for the same period in 2016, which was primarily the result of increased yields on loans and investment securities, attributable to the rising interest rate environment.

For the nine months ended September 30, 2017, interest income was $617.1 million, an increase of $104.0 million, or 20.3%, compared to $513.1 million for the nine months ended September 30, 2016. This increase was primarily the result of a $1.55 billion increase in the average loan balance which, together with the effect of the rising rate environment, drove a ~~$79.6~~$35.0 million increase in loan interest income for the nine months ended September 30, ~~2017. Interest~~2020. This increase was offset in part by decreases in other interest income of $9.6 million and interest income from investment securities ~~increased by $20.5~~of $4.7 million for the comparable period ~~primarily~~ due to ~~an increase in~~ the ~~average investment balance~~lower interest rate environment.

Table of $925.6 million from September 30, 2016 as well an increase in interest rates. Average yield on interest earning assets increased to 4.96% for the nine months ended September 30, 2017, compared to 4.86% for the same period in 2016, which was primarily the result of increased yields on loans and investment securities resulting from rising interest rates during the nine months ended September 30, 2017.Contents

For the three months ended September 30, ~~2017,~~2020, interest expense was ~~$16.3~~$20.1 million, a decrease of $29.1 million, or 59.1%, compared to ~~$12.2~~$49.2 million for the three months ended September 30, ~~2016.~~2019. Interest expense on deposits ~~increased $3.4~~decreased $31.1 million for the same period despite an increase in average interest-bearing deposits of $2.5 billion as ~~average interest-~~

~~bearing deposits increased $292.0 million, which is~~the Company benefited from repricing efforts in a 13lower rate environment, resulting in a 99 basis point ~~increase~~reduction in average cost of interest-bearing deposits.

For the nine months ended September 30, 2020, interest ~~bearing deposits.~~expense was $78.1 million, a decrease of $63.0 million, or 44.7%, compared to $141.2 million for the nine months ended September 30, 2019. Interest expense on ~~qualifying debt increased by $0.7~~deposits decreased $61.3 million for the same period despite an increase in average interest-bearing deposits of $2.6 billion, resulting in a 77 basis point reduction in average cost of interest-bearing deposits.

For the three months ended September 30, 2020, net interest income was $284.7 million, an increase of $18.3 million, or 6.9%, compared to $266.4 million for the three months ended September 30, ~~2017~~2019. The increase in net interest income reflects a $6.7 billion increase in average interest-earning assets, partially offset by an increase of $2.7 billion in average interest-bearing liabilities. The decrease in net interest margin of 70 basis points to 3.71% is largely the result of excess liquidity from deposit growth that has outpaced loan growth as well as a decrease in loan yields due to a lower rate environment and lower yields on PPP loans primarily driven by changes in prepayment assumptions that reduced net deferred loan fee accretion on PPP loans during the three months ended September 30, 2020. These decreases to net interest margin were offset by lower deposit and funding costs for the three months ended September 30, 2020 compared to the same period in 2016. The increase is attributable to an increase in the Company's interest payments on its pay variable/receive fixed interest rate swaps. These swaps hedge the Company's subordinated debt offerings and the payments are tied to three-month LIBOR, which has increased since September 30, 2016.2019.

For the nine months ended September 30, ~~2017,~~2020, net interest ~~expense~~income was ~~$43.4~~$852.2 million, an increase of $83.7 million, or 10.9%, compared to ~~$31.2~~$768.4 million for the nine months ended September 30, 2016. Interest expense on deposits increased $7.5 million for the same period as average interest-bearing deposits increased $576.1 million, which is a 9 basis point increase in average cost of interest bearing deposits. Interest expense on qualifying debt increased by $4.8 million as a result of a $105.1 million increase in average qualifying debt for the nine months ended September 30, 2017 compared to the same period in 2016, as well as an increase in the Company's interest payments on its pay variable/receive fixed interest rate swaps.

~~For the three months ended September 30, 2017, net interest income was $201.6 million, compared to $172.5 million for the three months ended September 30, 2016.~~2019. The increase in net interest income reflects a ~~$2.36~~$5.9 billion increase in average interest-earning assets, partially offset by ~~a $290.8 million~~an increase of $2.7 billion in average interest-bearing liabilities. The ~~increase~~decrease in net interest margin of 1053 basis points to 4.03% is the result of ~~an increase in average yield on loans~~excess liquidity and ~~securities due to the rising interest~~a lower rate environment ~~partially offset by higher deposit and funding costs.~~

~~For~~as explained in the nine months ended September 30, 2017, net interest income was $573.6 million, compared to $481.9 million for the nine months ended September 30, 2016. The increase in net interest income reflects a $2.66 billion increase in average interest-earning assets, offset by a $658.4 million increase in average interest-bearing liabilities. The increase in net interest margin of 5 basis points compared to the same period in 2016 is also the result of an increase in average yield on loans and securities due to the rising interest rate environment, partially offset by higher deposit and funding costs.above paragraphs.

Provision for Credit Losses

The provision for credit losses in each period is reflected as a reduction in earnings for that ~~period.~~period and, upon the adoption of CECL, includes amounts related to funded loans, unfunded loan commitments, and investment securities. The provision is equal to the amount required to maintain the allowance for credit losses at a level that is adequate to absorb ~~probable~~estimated lifetime credit losses inherent in the loan ~~portfolio.~~and investment securities portfolios. For the three months ended September 30, 2017, the provision for credit losses was $5.0 million compared to $2.0 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the provision for credit losses was $12.3 million, compared to $7.0 million for the nine months ended September 30, 2016. The provision increase was primarily due to organic growth in total loans of $532.0 million~~and $1.31 billion during~~ the three and nine months ended September 30, ~~2017.~~2020, the provision for credit losses was $14.7 million and $157.8 million, compared to $3.8 million and $15.3 million for the three and nine months ended September 30, 2019, respectively. The ~~Company defines its organic~~significant increase in the provision for credit losses from the three and nine months ended September 30, 2019 is primarily related to the current economic environment and estimating expected credit losses under the new CECL accounting standard. This standard changes the methodology for estimating credit losses on financial instruments from an incurred loss model to an expected total loss model. This results in the recognition of expected losses over the life of loans and HTM investment securities at the time that the loan is originated or the security is purchased, rather than after a loss has been incurred, which results in an acceleration in the timing of loss recognition. Further, as ~~those loans that have not been acquired~~the Company's CECL models incorporate historical experience, current conditions, and reasonable and supportable forecasts in ~~a transaction accounted for as a business combination. The Company may establish~~measuring expected credit losses, the worsening of economic assumptions due to the ongoing pandemic has also contributed to an ~~additional allowance~~elevated provision for credit losses for ~~PCI loans through provision for credit losses when impairment is determined as a result of lower than expected cash flows. As of~~the nine months ended September 30, ~~2017 and December 31, 2016, the allowance for credit losses on PCI loans was $1.7 million and $1.8 million, respectively.~~2020.

Table of Contents

Non-interest Income

The following table presents a summary of non-interest income for the periods presented:


	Three Months ended September 30,							Nine Months Ended September 30,								Three Months Ended September 30,						Nine Months Ended September 30,
	2017		2016		Increase (Decrease)			2017		2016		Increase (Decrease)				2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
	(in thousands)															(in thousands)
Service charges and fees	$	5,248	$	4,916	$	332		$	15,189	$	13,958	$	1,231		Service charges and fees	$	5,913	$	5,888	$	25	$	17,447	$	17,121	$	326
Card income	1,344		1,381		(37		)	4,146		3,844		302			Card income	1,873		1,729		144		4,768		5,195		(427)
Foreign currency income															Foreign currency income	1,755		1,321		434		4,242		3,564		678
Income from bank owned life insurance	975		899		76			2,896		2,858		38			Income from bank owned life insurance	1,345		979		366		8,977		2,938		6,039
Income from equity investments	950		1,208		(258		)	2,933		1,610		1,323			Income from equity investments	1,186		3,742		(2,556)		6,263		6,619		(356)
Foreign currency income	756		888		(132		)	2,630		2,672		(42		)
Lending related income and gains (losses) on sale of loans, net	97		708		(611		)	746		4,509		(3,763		)
Gain (loss) on sales of investment securities, net	319		—		319			907		1,001		(94		)
Lending related income and gains on sale of loans, net															Lending related income and gains on sale of loans, net	705		539		166		2,072		1,343		729
Gain on sales of investment securities, net															Gain on sales of investment securities, net	—		3,152		(3,152)		230		3,152		(2,922)
Fair value gain (loss) adjustments on assets measured at fair value, net															Fair value gain (loss) adjustments on assets measured at fair value, net	5,882		222		5,660		(986)		4,628		(5,614)

Other income	599		683		(84		)	1,834		1,923		(89		)	Other income	1,947		1,869		78		3,972		4,509		(537)
Total non-interest income	$	10,288	$	10,683	$	(395	)	$	31,281	$	32,375	$	(1,094	)	Total non-interest income	$	20,606	$	19,441	$	1,165	$	46,985	$	49,069	$	(2,084)

Total non-interest income for the three months ended September 30, ~~2017~~2020 compared to the same period in ~~2016, decreased~~2019 increased by ~~$0.4 million, or 3.7%.~~$1.2 million. The ~~decrease~~most significant increase in non-interest income relates to the net fair value gain adjustment on assets measured at fair value of $5.9 million for the three months ended September 30, 2020, compared to $0.2 million for the same period in 2019. This change is predominantly related to increases in the value of equity securities, primarily preferred stock of other financial institutions. Offsetting this increase is a decrease in the net gain on sales of investment securities and income from equity investments. During the three months ended September 30, 2019, the Company sold investment securities as part of a portfolio balancing initiative and recognized a net gain on sale of $3.2 million, which did not recur during the current period. Income from equity investments decreased $2.6 million due ~~primarily~~ to a decrease in ~~lending related~~warrant income ~~resulting~~ from ~~decreased SBA income.~~the three months ended September 30, 2019.

Total non-interest income for the nine months ended September 30, ~~2017~~2020 compared to the same period in ~~2016,~~2019 decreased by ~~$1.1 million, or 3.4%.~~$2.1 million. The most significant decrease in non-interest income ~~is due primarily~~of $5.6 million relates to a ~~decrease in lending related income. Lending related income decreased $1.4 million as a result of decreased SBA income and total non-recurring~~ net ~~gains on sale of loans was $1.9 million for~~fair value loss adjustment incurred during the nine months ended September 30, ~~2016, compared~~2020. As mentioned above, this change is predominantly related to ~~less than $0.1~~valuation declines on preferred stock investments. In addition, there was a $3.2 million ~~for~~gain on security sales recognized during the nine months ended September 30, ~~2017.~~2019 that did not recur in the current period. These decreases were offset in part by an increase in income from bank owned life insurance of $6.0 million primarily attributable to a one-time enhancement fee of $5.6 million from the surrender and replacement of certain policies, which was intended to offset the increase in tax expense related to the surrender.

Table of Contents

Non-interest Expense

The following table presents a summary of non-interest expense for the periods presented:


	Three Months ended September 30,								Nine Months Ended September 30,										Three Months Ended September 30,						Nine Months Ended September 30,
	2017		2016			Increase (Decrease)			2017			2016			Increase (Decrease)				2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
	(in thousands)																		(in thousands)
Salaries and employee benefits	$	52,730	$	49,542		$	3,188		$	156,596		$	139,108		$	17,488		Salaries and employee benefits	$	78,757	$	70,978	$	7,779	$	220,455	$	205,328	$	15,127
Legal, professional, and directors' fees																		Legal, professional, and directors' fees	10,034		8,248		1,786		31,105		26,885		4,220
Occupancy	7,507		6,856			651			21,328			20,359			969			Occupancy	9,426		8,263		1,163		25,752		24,251		1,501
Legal, professional, and directors' fees	6,038		5,691			347			23,324			17,010			6,314
Data processing	4,524		5,266			(742		)	14,163			15,028			(865		)	Data processing	8,864		7,095		1,769		26,044		20,563		5,481
Deposit costs																		Deposit costs	3,246		11,537		(8,291)		14,098		24,930		(10,832)
Insurance	3,538		3,144			394			10,355			9,430			925			Insurance	3,064		3,071		(7)		9,506		8,691		815
Deposit costs	2,904		1,363			1,541			6,778			3,121			3,657
Loan and repossessed asset expenses	1,263		788			475			3,639			2,522			1,117			Loan and repossessed asset expenses	1,771		1,953		(182)		5,280		5,419		(139)
Business development																		Business development	950		1,443		(493)		4,062		4,972		(910)
Marketing																		Marketing	848		842		6		2,621		2,640		(19)
Card expense	801		252			549			2,187			1,376			811			Card expense	505		548		(43)		1,631		1,892		(261)
Marketing	776		678			98			2,628			2,432			196
Intangible amortization	489		697			(208		)	1,666			2,091			(425		)	Intangible amortization	373		387		(14)		1,120		1,161		(41)
Net loss (gain) on sales / valuations of repossessed and other assets	266		(146		)	412			(46		)	(91		)	45			Net loss (gain) on sales / valuations of repossessed and other assets	123		3,379		(3,256)		(1,335)		2,856		(4,191)
Acquisition / restructure expense	—		2,729			(2,729		)	—			6,391			(6,391		)

Other expense	8,278		8,147			131			22,510			23,527			(1,017		)	Other expense	6,131		8,408		(2,277)		19,033		22,691		(3,658)
Total non-interest expense	$	89,114	$	85,007		$	4,107		$	265,128		$	242,304		$	22,824		Total non-interest expense	$	124,092	$	126,152	$	(2,060)	$	359,372	$	352,279	$	7,093

Total non-interest expense for the three months ended September 30, ~~2017,~~2020 decreased $2.1 million compared to the same period in ~~2016, increased $4.1 million, or 4.8%.~~2019. This ~~increase~~change primarily relates to ~~salaries and employee benefits and~~ deposit ~~costs. Salaries and employee benefits have increased as the Company continues to build out its infrastructure to support its continued growth. Deposits costs consist~~cost decreases of ~~fees to Promontory and others for reciprocal deposits as well as earnings credits on select non-interest bearing deposits. The increase in deposit costs~~$8.3 million for the three months ended September 30, ~~2017,~~2020 compared to the same period in ~~2016~~2019, primarily ~~relates~~due to ~~an increase~~a decline in deposit earnings credits paid to account ~~holders. These increases were offset by~~holders in a ~~$2.7~~lower rate environment. In addition, there was a $3.1 million loss due to an OREO property impairment from the three months ended September 30, 2019 and a $2.3 million decrease in ~~acquisition / restructure~~other expense ~~related to the HFF acquisition~~from decreased travel and ~~restructure costs for the system conversion that occurred~~entertainment and charitable contribution expenses incurred in the ~~fourth quarter~~three months ended September 30, 2020 as a result of ~~2016.~~COVID-19. These decreases were offset in part by an increase in salaries and employee benefits, occupancy expense, data processing, and legal, professional and director fees, which have increased as the Company supports its continued growth.

Total non-interest expense for the nine months ended September 30, ~~2017,~~2020 compared to the same period in ~~2016,~~2019 increased ~~$22.8 million, or 9.4%.~~$7.1 million. This increase primarily relates to salaries and employee benefits, ~~legal, professional, and directors' fees, and deposit costs. The increase in salaries and employee benefits~~data processing, and legal, professional and directors' fees, which have increased as the Company supports its continued growth. These increases were offset in part by a decrease in deposit costs of $10.8 million for the nine months ended September 30, ~~2017~~2020 compared to the same period in ~~2016 is the result of the Company's continued growth. Full-time equivalent employees increased 10.1% from 1,520 at September 30, 2016, compared~~2019, primarily due to ~~1,673 at September 30, 2017. The increase in deposit costs for the nine months ended September 30, 2017, compared to the same period in 2016 also relates to an increase~~a decline in deposit earnings credits paid to account ~~holders. These increases were offset by~~holders in a ~~$6.4~~lower rate environment. In addition, there was a $3.1 loss due to OREO property impairment in the prior year and a $1.5 million gain on the sale of an OREO property in the current year. There was also a $3.7 million decrease in ~~acquisition / restructure expense.~~

~~Income Taxes~~

~~The effective tax rate for~~other expenses from decreased travel, entertainment and charitable contribution expenses incurred in the nine months ended September 30, ~~2017~~2020 as a result of COVID-19.

Income Taxes

The Company's effective tax rate was ~~27.89%, compared to 28.31%~~18.50% and 18.30% for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, ~~2016.~~2020 and 2019, the Company's effective tax rate was 18.05% and 17.52%, respectively. The increase in the effective tax rate from the three and nine months ended September 30, 2019 is due primarily to tax expense associated with a surrender of bank owned life insurance, detriments from vested stock compensation and increased state tax accruals, partially offset by increases in forecasted tax-exempt income and investment tax credits in 2020.

Table of Contents

Business Segment Results

The Company's reportable segments are aggregated primarily based on geographic location, services offered, and markets served. The Company's regional segments, which include Arizona, Nevada, Southern California, and Northern California, provide full service banking and related services to their respective markets. The Company's NBL segments, which include HOA Services, Public & Nonprofit Finance, Technology & Innovation, HFF, and Other NBLs, provide specialized banking services to niche markets. These NBLs are managed centrally and are broader in geographic scope than the Company's other segments, though still predominately located within the Company's core market areas. The Corporate & Other segment consists of corporate-related items, income and expense items not allocated to the Company's other reportable segments, and inter-segment eliminations.

The following tables present selected operating segment information for the periods presented:


			Regional Segments
	Consolidated Company		Arizona		Nevada		Southern California		Northern California
At September 30, 2020	(in millions)
Loans, net of deferred loan fees and costs	$	26,014.0	$	4,388.1	$	2,612.2	$	2,376.7	$	1,785.8
Deposits	28,843.4		8,541.5		4,733.9		3,502.0		2,741.1

At December 31, 2019
Loans, net of deferred loan fees and costs	$	21,123.3	$	3,847.9	$	2,252.5	$	2,253.9	$	1,311.2
Deposits	22,796.5		5,384.7		4,350.1		2,585.3		2,373.6


	(in thousands)
Three Months Ended September 30, 2020
Pre-tax income	$	166,591	$	57,789	$	24,668	$	17,609	$	15,993

Nine Months Ended September 30, 2020
Pre-tax income	$	381,934	$	129,347	$	77,254	$	40,651	$	40,655

Three Months Ended September 30, 2019
Pre-tax income	$	155,908	$	43,305	$	28,093	$	19,713	$	12,824

Nine Months Ended September 30, 2019
Pre-tax income	$	449,926	$	114,934	$	81,852	$	53,304	$	39,066

Table of Contents


												National Business Lines
			Regional Segments									HOA Services		Public & Nonprofit Finance		Technology & Innovation		Hotel Franchise Finance		Other NBLs		Corporate & Other
	Consolidated Company		Arizona		Nevada		Southern California		Northern California
At September 30, 2017	(in millions)
At September 30, 2020											At September 30, 2020	(in millions)
Loans, net of deferred loan fees and costs	$	14,521.9	$	3,131.2	$	1,685.6	$	1,873.5	$	1,260.7	Loans, net of deferred loan fees and costs	$	280.0	$	1,686.7	$	2,329.3	$	2,099.3	$	8,451.8	$	4.1
Deposits	16,904.8		5,198.1		3,950.5		2,512.2		1,535.6		Deposits	3,697.9		—		4,646.4		—		61.4		919.2

At December 31, 2016
At December 31, 2019											At December 31, 2019
Loans, net of deferred loan fees and costs	$	13,208.5	$	2,955.9	$	1,725.5	$	1,766.8	$	1,095.4	Loans, net of deferred loan fees and costs	$	237.2	$	1,635.6	$	1,552.0	$	1,930.8	$	6,098.7	$	3.5
Deposits	14,549.8		3,843.4		3,731.5		2,382.6		1,543.6		Deposits	3,210.1		0.1		3,771.5		—		36.9		1,084.2


	(in thousands)
Three Months Ended September 30, 2020
Pre-tax income	$	12,560	$	295	$	48,657	$	7,740	$	39,877	$	(58,597)

Nine Months Ended September 30, 2020
Pre-tax income	$	40,323	$	684	$	85,024	$	4,559	$	101,267	$	(137,830)

Three Months Ended September 30, 2019
Pre-tax income	$	12,229	$	1,740	$	26,391	$	8,692	$	22,113	$	(19,192)

Nine Months Ended September 30, 2019
Pre-tax income	$	36,984	$	4,731	$	66,211	$	28,935	$	53,840	$	(29,931)

(in thousands)
Three Months Ended September 30, 2017:
Income (loss) before income taxes $ 117,757
$ 35,347
$ 25,960
$ 15,500
$ 9,267

Nine Months Ended September 30, 2017:
Income (loss) before income taxes $ 327,538
$ 93,909
$ 74,473
$ 45,646
$ 29,099

Three Months Ended September 30, 2016:
Income (loss) before income taxes $ 96,223
$ 28,228
$ 24,449
$ 15,747
$ 12,247

Nine Months Ended September 30, 2016:
Income (loss) before income taxes $ 265,015
$ 74,975
$ 67,591
$ 45,080
$ 32,864

National Business Lines
HOA
Services Public & Nonprofit Finance Technology & Innovation Hotel Franchise Finance Other NBLs Corporate & Other
At September 30, 2017 (in millions)
Loans, net of deferred loan fees and costs $ 157.3
$ 1,574.5
$ 1,049.2
$ 1,272.5
$ 2,513.0
$ 4.4
Deposits 2,153.3
—
1,459.5
—
—
95.6

At December 31, 2016
Loans, net of deferred loan fees and costs $ 116.8
$ 1,454.3
$ 1,011.4
$ 1,292.1
$ 1,776.9
$ 13.4
Deposits 1,890.3
—
1,038.2
—
—
120.2
Table of Contents

(in thousands)
Three Months Ended September 30, 2017:
Income (loss) before income taxes $ 6,831
$ 5,322
$ 13,529
$ 12,325
$ 7,610
$ (13,934 )

Nine Months Ended September 30, 2017:
Income (loss) before income taxes $ 18,944
$ 14,379
$ 37,798
$ 31,464
$ 23,174
$ (41,348 )

Three Months Ended September 30, 2016:
Income (loss) before income taxes $ 5,303
$ 3,372
$ 11,734
$ 10,163
$ 7,444
$ (22,464 )

Nine Months Ended September 30, 2016:
Income (loss) before income taxes $ 12,610
$ 9,863
$ 34,865
$ 19,674
$ 22,502
$ (55,009 )

BALANCE SHEET ANALYSIS

Total assets increased ~~$2.72~~$6.5 billion, or ~~15.8%~~24.3%, to ~~$19.92~~$33.3 billion at September 30, ~~2017,~~2020, compared to ~~$17.20~~$26.8 billion at December 31, ~~2016.~~2019. The increase in total assets relates primarily to organic loan ~~growth and an increase in cash and cash equivalents and investment securities resulting from increased deposits.~~growth. Loans increased ~~$1.31~~$4.9 billion, or ~~9.9%~~23.2%, to ~~$14.52~~$26.0 billion at September 30, ~~2017,~~2020, compared to ~~$13.21~~$21.1 billion at December 31, ~~2016.~~2019. The increase in loans from December 31, 2019, which includes $1.7 billion in PPP loans, was driven by commercial and industrial loans of $4.3 billion, with smaller increases in construction and land development loans of $348.3 million, residential real estate loans of $239.5 million, and CRE, non-owner occupied loans of $161.8 million. These increases were partially offset by a decrease in CRE, owner occupied loans of $103.4 million.

Total liabilities increased ~~$2.47~~$6.3 billion, or ~~16.1%~~26.5%, to ~~$17.78~~$30.1 billion at September 30, ~~2017,~~2020, compared to ~~$15.31~~$23.8 billion at December 31, ~~2016.~~2019. The increase in liabilities is due primarily to an increase in total deposits of ~~$2.35~~$6.0 billion, or ~~16.2%~~26.5%, to ~~$16.90~~$28.8 billion. The increase in deposits from December 31, 2019 was driven by increases of $4.5 billion ~~all~~in non-interest bearing demand deposits, $1.5 billion in savings and money market accounts, and $793.8 million in interest bearing demand deposits, offset in part by a decrease of ~~which is attributable~~$676.1 million in certificates of deposit. In addition, qualifying debt increased by $225.2 million due to ~~organic deposit growth.~~the issuance of $225.0 million of subordinated debt, recorded net of issue costs, in May 2020.

Total stockholders’ equity increased by ~~$254.1~~$207.3 million, or ~~13.4%~~6.9%, to ~~$2.15~~$3.2 billion at September 30, ~~2017, compared to $1.89 billion at~~2020 from December 31, ~~2016.~~2019. The increase in stockholders' equity ~~relates~~is primarily toa function of net income, ~~for~~partially offset by share repurchases and dividends to shareholders as well as the ~~nine months ended September 30, 2017 and an increase in the fair value~~adoption impact of ~~the Company's AFS portfolio, which is recognized as part of AOCI.~~CECL.

Investment securities

~~Investment~~Debt securities are classified at the time of acquisition as either HTM, AFS, or ~~measured at fair value~~trading based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. HTM securities are carried at amortized cost, adjusted for amortization of premiums or accretion of discounts. AFS securities are securities that may be sold prior to maturity based upon asset/liability management decisions. Investment securities classified as AFS are carried at fair value. Unrealized gains or losses on AFS debt securities are recorded as part of AOCI in stockholders’ ~~equity.~~equity, net of tax. Amortization of premiums or accretion of discounts on MBS is periodically adjusted for estimated prepayments. ~~Investment~~Trading securities ~~measured at fair value~~ are reported at fair value, with unrealized gains and losses included in current period earnings.

The Company's investment securities portfolio is utilized as collateral for borrowings, required collateral for public deposits and customer repurchase agreements, and to manage liquidity, capital, and interest rate risk.

The following table summarizes the carrying value of the investment securities portfolio for each of the periods below:


	September 30, 2020		December 31, 2019
	(in thousands)
Debt securities
CDO	$	8,176	$	10,142
Commercial MBS issued by GSEs	95,657		94,253
Corporate debt securities	186,609		99,961
Municipal securities	22,159		7,773

Private label residential MBS	1,264,237		1,129,227
Residential MBS issued by GSEs	1,361,556		1,412,060
Tax-exempt	1,515,500		1,039,962
Trust preferred securities	25,208		27,040
U.S. government sponsored agency securities	—		10,000
U.S. treasury securities	600		999
Total debt securities	$	4,479,702	$	3,831,417

Equity securities
CRA investments	$	53,545	$	52,504
Preferred stock	107,016		86,197
Total equity securities	$	160,561	$	138,701

September 30, 2017 December 31, 2016
(in thousands)
CDO $ 15,553
$ 13,490
Commercial MBS issued by GSEs 113,794
117,792
Corporate debt securities 104,014
64,144
CRA investments 50,648
37,113
Preferred stock 96,100
94,662
Private label residential MBS 797,615
433,685
Residential MBS issued by GSEs 1,819,006
1,356,258
Tax-exempt 617,693
500,312
Trust preferred securities 29,208
26,532
U.S. government sponsored agency securities 61,636
56,022
U.S. treasury securities 2,497
2,502
Total investment securities $ 3,707,764
$ 2,702,512

Table of Contents

Loans

The table below summarizes the distribution of the Company’s held for investment loan portfolio:


	September 30, 2020
	(in thousands)
Commercial and industrial
Tech & Innovation	$	2,277,889
Other commercial and industrial	5,993,712
CRE - owner occupied	1,970,163
CRE - non-owner occupied
Hotel Franchise Finance	1,942,886
Other CRE - non-owned occupied	3,433,932
Residential	2,330,064
Construction and land development	2,267,922
Warehouse lending	3,926,852
Municipal & nonprofit	1,686,690
Other	163,144
Total loans HFI	25,993,254
Allowance for credit losses	(310,560)
Total loans HFI, net of allowance	$	25,682,694


		December 31, 2019
	(in thousands)
Commercial and industrial		$	9,382,043
Commercial real estate - non-owner occupied		5,245,634
Commercial real estate - owner occupied		2,316,913
Construction and land development		1,952,156
Residential real estate		2,147,664
Consumer		57,083
Loans, net of deferred loan fees and costs		21,101,493
Allowance for credit losses		(167,797)
Total loans HFI		$	20,933,696

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company ~~has $16.3~~also had $20.8 million and ~~$18.9~~$21.8 million of HFS loans, respectively.

Concentrations of Lending Activities

The Company monitors concentrations within four broad categories: geography, industry, product, ~~collateral, geography,~~ and ~~industry.~~collateral. The Company’s loan portfolio includes significant credit exposure to the CRE market. As of each of the periods ended September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, CRE related loans accounted for approximately ~~51%~~38% and ~~53%~~45% of total loans, respectively. Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. Approximately ~~36%~~29% and 31% of these CRE loans, excluding construction and land loans, were owner-occupied at ~~each of the periods ended~~ September 30, ~~2017~~2020 and December 31, ~~2016.~~2019, respectively.

~~Impaired loans~~

Table of Contents

A loan is identified as impaired when it is no longer probable that interest and principal will be collected according to the contractual terms of the original loan agreement. Generally, impaired loans are classified as non-accrual. However, in certain instances, impaired loans may continue on an accrual basis if full repayment of all principal and interest is expected and the loan is both well-secured and in the process of collection. Impaired loans are measured for reserve requirements in accordance with ASC 310 based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral less applicable disposition costs if the loan is collateral dependent. The amount of an impairment reserve, if any, and any subsequent changes are charged against the allowance for credit losses.

~~In addition to the Company's own internal loan review process, regulators may from time to time direct the Company to modify loan grades, loan impairment calculations, or loan impairment methodology.~~Non-performing Assets

Total non-performing loans increased by ~~$1.0~~$119.5 million ~~or 1.0%,~~ at September 30, ~~2017~~2020 to ~~$96.0~~$203.8 million from ~~$95.0~~$84.3 million at December 31, ~~2016.~~ 2019.


	September 30, 2020			December 31, 2019
	(dollars in thousands)
Total nonaccrual loans (1)	$	146,472		$	55,968
Loans past due 90 days or more on accrual status	28,129			—
Accruing troubled debt restructured loans	29,192			28,356
Total nonperforming loans	$	203,793		$	84,324


Other assets acquired through foreclosure, net	$	8,591		$	13,850
Nonaccrual HFI and HFS loans to funded HFI loans	0.56		%	0.27		%
Nonaccrual HFI loans to funded HFI loans	0.48		%	0.27		%
Loans past due 90 days or more on accrual status to funded HFI loans	0.11		%	—

September 30, 2017 December 31, 2016
(dollars in thousands)
Non-accrual loans (1) $ 54,994
$ 40,272
Loans past due 90 days or more on accrual status (2) 44
1,067
Accruing troubled debt restructured loans 40,922
53,637
Total nonperforming loans, excluding loans acquired with deteriorated credit quality 95,960
94,976
Other impaired loans 25,396
4,233
Total impaired loans $ 121,356
$ 99,209
Other assets acquired through foreclosure, net $ 28,992
$ 47,815
Non-accrual loans to gross loans held for investment 0.38 % 0.31 %
Loans past due 90 days or more on accrual status to gross loans held for investment 0.00
0.01


~~(1)~~	(1)Includes ~~non-accrual TDR loans of $8.9 million and $7.1 million at September 30, 2017 and December 31, 2016, respectively.~~


~~(2)~~	~~Includes less than $0.1 million from loans acquired with deteriorated credit quality at each of the periods ended September 30, 2017 and December 31, 2016.~~

~~Interest income received on~~ non-accrual TDR loans ~~was $0.7~~of $31.6 million and ~~$0.2~~$10.6 million ~~for the three months ended~~at September 30, ~~2017~~2020 and ~~2016~~December 31, 2019, respectively, and ~~$1.4~~non-accrual HFS loans of $20.8 million and ~~$0.6 million for the nine months ended~~zero at September 30, ~~2017~~2020 and ~~2016,~~December 31, 2019, respectively.

Interest income that would have been recorded under the original terms of non-accrual loans was ~~$0.7~~$1.7 million and ~~$0.6~~$0.7 million for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019, respectively, and ~~$1.8~~$4.1 million and $1.5 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

The composition of ~~non-accrual~~nonaccrual HFI loans by loan type and by segment were as follows:


	September 30, 2020
	Nonaccrual Balance		Percent of Nonaccrual Balance		Percent of Total HFI Loans
	(dollars in thousands)
Commercial and industrial
Tech & Innovation	$	18,725	14.89	%	0.07	%
Other commercial and industrial	31,611		25.15		0.12
CRE - owner occupied	38,567		30.68		0.15
CRE - non-owner occupied
Hotel Franchise Finance	—		—		—
Other CRE - non-owned occupied	29,071		23.13		0.11
Residential	5,388		4.29		0.02
Construction and land development	192		0.15		0.00
Warehouse lending	—		—		—
Municipal & nonprofit	1,952		1.55		0.01
Other	203		0.16		0.00
Total non-accrual loans	$	125,709	100.00	%	0.48	%


	December 31, 2019
			Nonaccrual Balance		Percent of Nonaccrual Balance		Percent of Total HFI Loans
		(dollars in thousands)
Commercial and industrial			$	24,501	43.77	%	0.12	%
Commercial real estate			23,720		42.38		0.11
Construction and land development			2,147		3.84		0.01
Residential real estate			5,600		10.01		0.03
Consumer			—		—		—
Total non-accrual loans			$	55,968	100.00	%	0.27	%

Table of Contents

September 30, 2017 December 31, 2016
Non-accrual
Balance Percent of Non-Accrual Balance Percent of
Total HFI
Loans Non-accrual
Balance Percent of Non-Accrual Balance Percent of
Total HFI
Loans
(dollars in thousands)
Commercial and industrial $ 41,567
75.58 % 0.29 % $ 16,967
42.13 % 0.13 %
Commercial real estate 6,363
11.58
0.04
16,666
41.39
0.13
Construction and land development 887
1.61
0.01
1,284
3.19
0.01
Residential real estate 6,022
10.95
0.04
5,192
12.89
0.04
Consumer 155
0.28
0.00
163
0.40
0.00
Total non-accrual loans $ 54,994
100.00 % 0.38 % $ 40,272
100.00 % 0.31 %


	September 30, 2017				December 31, 2016					September 30, 2020				December 31, 2019
	Nonaccrual Loans		Percent of Segment's Total HFI Loans		Nonaccrual Loans		Percent of Segment's Total HFI Loans			Nonaccrual Loans		Percent of Segment's Total HFI Loans		Nonaccrual Loans		Percent of Segment's Total HFI Loans
	(dollars in thousands)									(dollars in thousands)
Arizona	$	6,416	0.20	%	$	10,424	0.35	%	Arizona	$	46,246	1.05	%	$	29,062	0.76	%
Nevada	4,089		0.24		10,407		0.60		Nevada	4,588		0.18		8,001		0.36
Southern California	5,735		0.31		2,891		0.16		Southern California	24,797		1.04		1,759		0.08
Northern California	10,550		0.84		4,408		0.41		Northern California	24,346		1.36		5,193		0.40
HOA Services									HOA Services	72		0.03		—		—
Public & Nonprofit Finance									Public & Nonprofit Finance	1,952		0.12		2,147		0.13
Technology and Innovation	4,687		0.45		8,813		0.87		Technology and Innovation	18,725		0.80		5,867		0.38

Other NBLs	23,516		0.94		166		0.01		Other NBLs	4,983		0.06		3,939		0.06
Corporate & Other	1		0.02		3,163		23.22

Total non-accrual loans	$	54,994	0.38	%	$	40,272	0.31	%	Total non-accrual loans	$	125,709	0.48	%	$	55,968	0.27	%

Troubled Debt Restructured Loans

A TDR loan is a loan ~~that is granted a concession,~~on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the ~~lender~~Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. The majority of the Company's modifications are extensions ~~deferrals, renewals, and rewrites. A~~in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued interest. Consistent with regulatory guidance, a TDR ~~loan is also considered impaired. Generally, a~~ loan that is subsequently modified ~~at an effective market rate of interest is no longer disclosed~~in another restructuring agreement but has shown sustained performance and classification as a TDR, ~~in years subsequent to~~will be removed from TDR status provided that the ~~restructuring if it is performing based on~~modified terms were market-based at the ~~terms specified by the restructuring agreement. However, such loans continue to be considered impaired.~~

Astime of September 30, 2017 and December 31, 2016, the aggregate amount of loans classified as impaired was $121.4 million and $99.2 million, respectively, a net increase of 22.3%. The total specific allowance for credit losses related to these loans was $4.4 million and $4.2 million at September 30, 2017 and December 31, 2016, respectively. The Company had $40.9 million and $53.6 million in loans classified as accruing restructured loans at September 30, 2017 and December 31, 2016, respectively.

~~Impaired loans by segment at September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017 December 31, 2016
(in thousands)
Arizona $ 15,349
$ 19,180
Nevada 47,239
48,348
Southern California 6,061
2,888
Northern California 10,380
4,024
Technology & Innovation 18,028
8,461
Other NBLs 23,516
163
Corporate & Other 783
16,145
Total impaired loans $ 121,356
$ 99,209

~~The following tables present a breakdown of total impaired loans and the related specific reserves for the periods indicated:~~

September 30, 2017
Impaired
Balance Percent of Impaired Balance Percent of
Total HFI Loans Reserve
Balance Percent of Reserve Balance Percent of
Total Allowance
(dollars in thousands)
Commercial and industrial $ 57,917
47.73 % 0.40 % $ 4,394
100.00 % 3.22 %
Commercial real estate 35,947
29.62
0.25
—
—
—
Construction and land development 11,503
9.48
0.08
—
—
—
Residential real estate 15,794
13.01
0.11
—
—
—
Consumer 195
0.16
0.00
—
—
—
Total impaired loans $ 121,356
100.00 % 0.84 % $ 4,394
100.00 % 3.22 %

December 31, 2016
Impaired
Balance Percent of Impaired Balance Percent of
Total HFI Loans Reserve
Balance Percent of Reserve Balance Percent of
Total Allowance
(dollars in thousands)
Commercial and industrial $ 21,462
21.63 % 0.16 % $ 3,301
77.88 % 2.65 %
Commercial real estate 46,272
46.64
0.36
937
22.10
0.75
Construction and land development 14,838
14.96
0.11
—
—
—
Residential real estate 16,391
16.52
0.12
—
—
—
Consumer 246
0.25
0.00
1
0.02
0.00
Total impaired loans $ 99,209
100.00 % 0.75 % $ 4,239
100.00 % 3.40 %

modification.

Allowance for Credit Losses

The following table summarizes the activity in the Company's allowance for credit losses for the period indicated:


	Three Months Ended September 30, 2020
	Balance,		Provision for (Reversal of) Credit Losses		Writeoffs		Recoveries		Balance,
	June 30, 2020								September 30, 2020
	(1)								(1)
	(in thousands)
Commercial and industrial
Tech & Innovation	$	54,559	$	(9,359)	$	6,364	$	—	$	38,836
Other commercial and industrial	109,930		(621)		748		(192)		108,753
CRE - owner occupied	15,587		3,897		83		(5)		19,406
CRE - non-owner occupied
Hotel Franchise Finance	35,864		2,163		—		—		38,027
Other CRE - non-owned occupied	32,672		9,196		1,246		—		40,622
Residential	1,725		16		307		(355)		1,789
Construction and land development	35,792		2,983		—		(6)		38,781
Warehouse lending	743		95		—		—		838
Municipal & nonprofit	17,128		768		—		—		17,896
Other	6,550		(934)		25		(21)		5,612
Total	$	310,550	$	8,204	$	8,773	$	(579)	$	310,560


Net charge-offs to average loans outstanding	0.13	%
Allowance for credit losses to funded HFI loans	1.19

(1)Includes an estimate of future recoveries.

Table of Contents

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(dollars in thousands)
Allowance for credit losses:
Balance at beginning of period $ 131,811
$ 122,104
$ 124,704
$ 119,068
Provision charged to operating expense:
Commercial and industrial 7,192
3,406
11,752
9,044
Commercial real estate (1,474 ) (450 ) 2,327
(2,524 )
Construction and land development (619 ) (347 ) (1,727 ) 1,910
Residential real estate (141 ) (513 ) (258 ) (1,629 )
Consumer 42
(96 ) 156
199
Total Provision 5,000
2,000
12,250
7,000
Recoveries of loans previously charged-off:
Commercial and industrial (619 ) (466 ) (2,705 ) (2,846 )
Commercial real estate (1,781 ) (521 ) (2,719 ) (4,956 )
Construction and land development (226 ) (302 ) (1,011 ) (455 )
Residential real estate (108 ) (179 ) (1,659 ) (589 )
Consumer (33 ) (21 ) (83 ) (131 )
Total recoveries (2,767 ) (1,489 ) (8,177 ) (8,977 )
Loans charged-off:
Commercial and industrial 2,921
2,558
6,166
11,210
Commercial real estate 175
72
1,994
726
Construction and land development —
—
—
—
Residential real estate —
79
447
105
Consumer 61
—
103
120
Total charged-off 3,157
2,709
8,710
12,161
Net charge-offs (recoveries) 390
1,220
533
3,184
Balance at end of period $ 136,421
$ 122,884
$ 136,421
$ 122,884
Net charge-offs (recoveries) to average loans outstanding - annualized 0.01 % 0.04 % 0.01 % 0.04 %
Allowance for credit losses to gross loans 0.94
0.94

Allowance for credit losses to gross organic loans 1.06
1.13


	Nine Months Ended September 30, 2020
	Balance,		Provision for (Reversal of) Credit Losses		Writeoffs		Recoveries		Balance,
	January 1, 2020								September 30, 2020
	(1)								(1)
	(in thousands)
Commercial and industrial
Tech & Innovation	$	22,394	$	25,556	$	9,114	$	—	$	38,836
Other commercial and industrial	95,784		13,653		2,684		(2,000)		108,753
CRE - owner occupied	10,420		9,100		126		(12)		19,406
CRE - non-owner occupied
Hotel Franchise Finance	14,104		23,923		—		—		38,027
Other CRE - non-owned occupied	10,503		30,684		2,131		(1,566)		40,622
Residential	3,814		(2,103)		307		(385)		1,789
Construction and land development	6,218		32,540		—		(23)		38,781
Warehouse lending	246		592		—		—		838
Municipal & nonprofit	17,397		499		—		—		17,896
Other	6,045		(314)		231		(112)		5,612
Total	$	186,925	$	134,130	$	14,593	$	(4,098)	$	310,560

Net charge-offs to average loans outstanding

0.16

(1)Includes an estimate of future recoveries.


	Three Months Ended September 30, 2019
	Balance,		Charge-offs		Recoveries		Provision for (Reversal of) Credit Losses		Balance,
	June 30, 2019								September 30, 2019
	(in thousands)
Construction and land development	$	26,091	$	—	$	(17)	$	1,210	$	27,318
Commercial real estate	41,258		139		(8)		4,817		45,944
Residential real estate	12,606		9		(131)		804		13,532
Commercial and industrial	79,635		1,950		(2,549)		(2,815)		77,419
Consumer	819		1		(6)		(16)		808
Total	$	160,409	$	2,099	$	(2,711)	$	4,000	$	165,021






























Net recoveries to average loans outstanding	(0.01)	%
Allowance for credit losses to funded HFI loans	0.91


	Nine Months Ended September 30, 2019
	Balance,		Charge-offs		Recoveries		Provision for (Reversal of) Credit Losses		Balance,
	December 31, 2018								September 30, 2019
	(in thousands)
Construction and land development	$	22,513	$	141	$	(81)	$	4,865	$	27,318
Commercial real estate	34,829		139		(900)		10,354		45,944
Residential real estate	11,276		594		(251)		2,599		13,532
Commercial and industrial	83,118		6,092		(3,521)		(3,128)		77,419
Consumer	981		2		(19)		(190)		808
Total	$	152,717	$	6,968	$	(4,772)	$	14,500	$	165,021

Net charge-offs to average loans outstanding

0.02

Table of Contents

The following table summarizes the allocation of the allowance for credit losses by loan type. ~~However, the allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.~~


	September 30, 2020
	Allowance for credit losses		Percent of total allowance for credit losses		Percent of loan type to total HFI loans
	(dollars in thousands)
Commercial and industrial
Tech & Innovation	$	38,836	12.5	%	8.8	%
Other commercial and industrial	108,753		35.0		23.1
CRE - owner occupied	19,406		6.2		7.6
CRE - non-owner occupied
Hotel Franchise Finance	38,027		12.2		7.5
Other CRE - non-owned occupied	40,622		13.1		13.2
Residential	1,789		0.6		9.0
Construction and land development	38,781		12.5		8.7
Warehouse lending	838		0.3		15.1
Municipal & nonprofit	17,896		5.8		6.5
Other	5,612		1.8		0.6
Total	$	310,560	100.0	%	100.0	%

Commercial and Industrial Commercial Real Estate Construction and Land Development Residential Real Estate Consumer Total
(dollars in thousands)
September 30, 2017
Allowance for Credit Losses $ 81,624
$ 28,725
$ 20,459
$ 4,805
$ 808
$ 136,421
Percent of Total Allowance for Credit Losses 59.8 % 21.1 % 15.0 % 3.5 % 0.6 % 100.0 %
Percent of Gross Loans to Total Gross HFI Loans 46.4
39.1
11.5
2.6
0.4
100.0
December 31, 2016
Allowance for Credit Losses $ 73,333
$ 25,673
$ 21,175
$ 3,851
$ 672
$ 124,704
Percent of Total Allowance for Credit Losses 58.8 % 20.6 % 17.0 % 3.1 % 0.5 % 100.0 %
Percent of Gross Loans to Total Gross HFI Loans 44.3
42.1
11.3
2.0
0.3
100.0


	December 31, 2019
	Allowance for credit losses		Percent of total allowance for credit losses		Percent of loan type to total HFI loans
	(dollars in thousands)
Commercial and industrial	$	82,302	49.0	%	44.5	%
Commercial Real Estate	47,273		28.2		35.8
Construction and Land Development	23,894		14.2		9.2
Residential Real Estate	13,714		8.2		10.2
Consumer	614		0.4		0.3
Total	$	167,797	100.0	%	100.0	%

Problem Loans

The Company classifies loans consistent with federal banking regulations using a nine category grading system. These loan grades are described in further detail in "Item 1. Business” of the Company's Annual Report for the year ended December 31, ~~2016.~~2019. The following table presents information regarding potential and actual problem loans, consisting of loans graded Special Mention, Substandard, Doubtful, and Loss, but still ~~performing, and excluding acquired loans:~~performing:


	September 30, 2020
	Number of Loans	Loan Balance		Percent of Loan Balance		Percent of Total HFI Loans
	(dollars in thousands)
Commercial and industrial
Tech & Innovation	28	$	14,929	3.36	%	0.06	%
Other commercial and industrial	71	186,478		41.97		0.72
CRE - owner occupied	30	44,247		9.96		0.17
CRE - non-owner occupied
Hotel Franchise Finance	9	115,831		26.08		0.45
Other CRE - non-owned occupied	12	30,940		6.97		0.12
Residential	1	32		0.01		—
Construction and land development	8	42,378		9.54		0.16
Warehouse lending	—	—		—		—
Municipal & nonprofit	3	6,525		1.47		0.03
Other	14	2,835		0.64		0.01
Total	176	$	444,195	100.00	%	1.72	%

September 30, 2017
Number of Loans Loan Balance Percent of Loan Balance Percent of Total HFI Loan Balance
(dollars in thousands)
Commercial and industrial 156
$ 126,258
47.57 % 0.87 %
Commercial real estate 53
110,043
41.45
0.76
Construction and land development 9
27,525
10.37
0.19
Residential real estate 4
1,548
0.58
0.01
Consumer 4
82
0.03
0.00
Total 226
$ 265,456
100.00 % 1.83 %

December 31, 2016
Number of Loans Loan Balance Percent of Loan Balance Percent of Total HFI Loan Balance
(dollars in thousands)
Commercial and industrial 96
$ 92,019
51.65 % 0.70 %
Commercial real estate 41
71,900
40.36
0.55
Construction and land development 7
12,297
6.90
0.09
Residential real estate 9
1,831
1.03
0.01
Consumer 9
103
0.06
0.00
Total 162
$ 178,150
100.00 % 1.35 %

Table of Contents

Based on discussions with regulatory authorities, we expect that credit rating guidelines for technology loans may involve broader parameters for classification as Special Mention, which could result in increased levels of Special Mention loans in this category than reported historically. However, such classification changes should not affect the ultimate collectability of such loans, nor result in higher levels on non-performing assets.


	December 31, 2019
	Number of Loans	Loan Balance		Percent of Loan Balance		Percent of Total HFI Loans
	(dollars in thousands)
Commercial and industrial	73	$	96,464	43.06	%	0.46	%
Commercial real estate	37	107,839		48.14		0.51
Construction and land development	10	18,971		8.47		0.09
Residential real estate	3	727		0.33		0.00
Consumer	1	10		0.00		0.00
Total	124	$	224,011	100.00	%	1.06	%

~~Other Assets Acquired Through Foreclosure~~

~~The following table represents the changes in other assets acquired through foreclosure:~~


~~(1)~~	There were zero net gains related to initial transfers to other assets during the three months ended September 30, 2017 and 2016 and $0.1 million and zero net gains related to initial transfers to other assets during the nine months ended September 30, 2017 and 2016, respectively.

Other assets acquired through foreclosure consist primarily of properties acquired as a result of, or in-lieu-of, foreclosure. OREO and other repossessed property are reported at the lower of carrying value or fair value less estimated costs to sell the property. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. The Company has $29.0 million, $47.8 million $49.6 million of such assets at September 30, 2017, December 31, 2016, and September 30, 2016, respectively.

~~At September 30, 2017, the Company held 20 OREO properties, compared to 31 at December 31, 2016, and 33 at September 30, 2016.~~

Goodwill and Other Intangible Assets

Goodwill represents the excess consideration paid for net assets acquired in a business combination over their fair value. Goodwill and other intangible assets acquired in a business combination that are determined to have an indefinite useful life are not subject to amortization, but are subsequently evaluated for impairment at least annually. The Company has goodwill ~~of $289.9 million~~ and intangible assets totaling ~~$11.3~~$299.0 million at September 30, ~~2017,~~2020, which have been allocated to the Nevada, Northern California, Technology & Innovation, and HFF operating segments.

The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable. During the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, there were no events or circumstances that indicated an interim impairment test of goodwill or other intangible assets was necessary.

Deferred Tax Assets

At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had no deferred tax valuation allowance.

Deposits

Deposits are the primary source for funding the Company's asset growth. Total deposits increased to ~~$16.90~~$28.8 billion at September 30, ~~2017,~~2020, from ~~$14.55~~$22.8 billion at December 31, ~~2016,~~2019, an increase of ~~$2.35~~$6.0 billion, or ~~16.2%~~26.5%. The increase in deposits is largely attributable to ~~organic deposit growth. Non-interest-bearing~~an increase in non-interest bearing demand deposits ~~increased by $1.98~~of $4.5 billion, ~~from December 31, 2016. Savings~~and increases of $1.5 billion in savings and money market accounts and $793.8 million in interest bearing demand deposits, ~~increased $179.3 million from December 31, 2016.~~partially offset by a decrease in certificates of deposit of $676.1 million.

WAB is a participant in the Promontory Interfinancial Network, a network that offers deposit placement services such as CDARS and ICS, which offer products that qualify large deposits for FDIC insurance. At September 30, 2017, the Company has $409.1 million of CDARS deposits and $587.2 million of ICS deposits, compared to $413.9 million of CDARS deposits and $607.5 million of ICS deposits at December 31, 2016. At September 30, 20172020 and December 31, ~~2016,~~2019, the Company also has ~~$84.3~~$914.9 million and ~~$136.2 million,~~$1.1 billion, respectively, of wholesale brokered deposits. In addition, ~~non-interest bearing~~ deposits for which the Company provides account holders with earnings credits and referral fees totaled ~~$2.35~~$3.6 billion and ~~$1.10~~$3.1 billion at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The Company incurred $2.9 million and ~~$1.4~~$11.2 million in deposit related costs during the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~During~~The Company incurred $13.0 million and $24.0 million in deposit related costs during the nine months ended September 30, ~~2017~~2020 and ~~2016, the Company incurred $6.8 million and $3.1 million, respectively, in deposit related costs.~~2019, respectively.

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The average balances and weighted average rates paid on deposits are presented below:


	Three Months Ended September 30,
	2020				2019
	Average Balance		Rate		Average Balance		Rate
	(dollars in thousands)
Interest-bearing transaction accounts	$	3,636,299	0.16	%	$	2,488,581	0.81	%
Savings and money market accounts	10,170,085		0.22		8,456,531		1.25
Certificates of deposit	1,845,479		1.10		2,250,362		2.06
Total interest-bearing deposits	15,651,863		0.31		13,195,474		1.30
Non-interest-bearing demand deposits	12,422,208		—		8,916,568		—
Total deposits	$	28,074,071	0.17	%	$	22,112,042	0.78	%


	Three Months ended September 30,									Nine Months Ended September 30,
	2017				2016					2020				2019
	Average Balance		Rate		Average Balance		Rate			Average Balance		Rate		Average Balance		Rate
	(dollars in thousands)									(dollars in thousands)
Interest-bearing transaction accounts	$	1,476,506	0.29	%	$	1,286,063	0.19	%	Interest-bearing transaction accounts	$	3,410,882	0.29	%	$	2,511,860	0.86	%
Savings and money market accounts	6,282,405		0.45		6,129,262		0.35		Savings and money market accounts	9,546,249		0.40		7,854,914		1.25
Time certificates of deposit	1,585,690		0.82		1,637,284		0.52
Certificates of deposit									Certificates of deposit	2,113,020		1.47		2,114,659		1.99
Total interest-bearing deposits	9,344,601		0.49		9,052,609		0.36		Total interest-bearing deposits	15,070,151		0.53		12,481,433		1.30
Non-interest-bearing demand deposits	7,174,533		—		5,363,716		—		Non-interest-bearing demand deposits	10,813,205		—		8,118,791		—
Total deposits	$	16,519,134	0.28	%	$	14,416,325	0.22	%	Total deposits	$	25,883,356	0.31	%	$	20,600,224	0.79	%

	Nine Months Ended September 30,
	2017				2016
	Average Balance		Rate		Average Balance		Rate
	(dollars in thousands)
Interest-bearing transaction accounts	$	1,468,163	0.26	%	$	1,191,055	0.18	%
Savings and money market accounts	6,169,860		0.39		5,768,179		0.33
Time certificates of deposit	1,549,212		0.72		1,651,926		0.49
Total interest-bearing deposits	9,187,235		0.43		8,611,160		0.34
Non-interest-bearing demand deposits	6,548,351		—		4,830,762		—
Total deposits	$	15,735,586	0.25	%	$	13,441,922	0.22	%

Other Borrowings

The Company from time to time utilizes short-term borrowed funds to support short-term liquidity needs generally created by increased loan demand. The majority of these short-term borrowed funds consist of advances from the FHLB and customer repurchase agreements. The Company’s borrowing capacity with the FHLB is determined based on collateral pledged, generally consisting of securities and loans. In addition, the Company has borrowing capacity from other sources, collateralized by securities, including securities sold under agreements to repurchase, which are reflected at the amount of cash received in connection with the transaction, and may require additional collateral based on the fair value of the underlying securities. At September 30, ~~2017,~~2020, total short-term borrowed funds consist of FHLB advances of $10.0 million and customer repurchase agreements of ~~$26.1~~$19.7 million. At December 31, ~~2016,~~2019, total short-term borrowed funds consisted of customer repurchase agreements of ~~$41.7 million and FHLB advances of $80.0~~$16.7 million.

~~As of September 30, 2017 and December 31, 2016, the Company did not have any borrowings classified as long-term.~~

Qualifying Debt

Qualifying debt consists of subordinated debt and junior subordinated debt, inclusive of issuance costs and fair market value adjustments. At September 30, ~~2017,~~2020, the carrying value of qualifying debt was ~~$372.9~~$618.8 million, compared to ~~$367.9~~$393.6 million at December 31, ~~2016.~~2019. The increase in qualifying debt from December 31, 2019 is due to issuance of $225.0 million of subordinated debt, recorded net of issuance costs, in May 2020.

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Capital Resources

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could trigger certain mandatory or discretionary actions that, if undertaken, could have a direct material effect on the Company’s business and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items (discussed in "Note ~~12.~~11. Commitments and Contingencies" to the Unaudited Consolidated Financial Statements) as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In March 2020, the federal bank regulatory authorities issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital ~~framework~~relative to regulatory capital determined under ~~Basel III became effective for~~ the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. The Company has elected the five-year CECL transition option in connection with its adoption of CECL on January 1, ~~2015. Under~~2020. As a result, capital ratios and amounts as of September 30, 2020 exclude the ~~Basel III final rules, minimum requirements have~~impact of the increased allowance for ~~both~~credit losses related to the ~~quantity and quality~~adoption of capital held by the Company. A new capital conservation buffer, comprised of Common Equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer began being phased in on January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility requirements for regulatory capital instruments have been implemented under the final rules and the final rules also revise the definitions and calculations of Tier 1 capital, total capital, and risk-weighted assets.ASC 326.

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company and the Bank exceeded the capital levels necessary to be classified as well-capitalized, as defined by the banking agencies. The actual capital amounts and ratios for the Company and the Bank are presented in the following tables as of the periods indicated:


	Total Capital		Tier 1 Capital		Risk-Weighted Assets		Tangible Average Assets		Total Capital Ratio		Tier 1 Capital Ratio		Tier 1 Leverage Ratio		Common Equity Tier 1
	(dollars in thousands)
September 30, 2020
WAL	$	3,794,419	$	2,991,443	$	29,079,735	$	32,190,510	13.0	%	10.3	%	9.3	%	10.0	%
WAB	3,555,485		2,925,840		29,102,161		32,211,409		12.2		10.1		9.1		10.1
Well-capitalized ratios									10.0		8.0		5.0		6.5
Minimum capital ratios									8.0		6.0		4.0		4.5

December 31, 2019
WAL	$	3,257,874	$	2,775,390	$	25,390,142	$	26,110,275	12.8	%	10.9	%	10.6	%	10.6	%
WAB	3,030,301		2,703,549		25,452,261		26,134,431		11.9		10.6		10.3		10.6
Well-capitalized ratios									10.0		8.0		5.0		6.5
Minimum capital ratios									8.0		6.0		4.0		4.5

Total Capital Tier 1 Capital Risk-Weighted Assets Tangible Average Assets Total Capital Ratio Tier 1 Capital Ratio Tier 1 Leverage Ratio Common Equity
Tier 1
(dollars in thousands)
September 30, 2017
WAL $ 2,361,432
$ 1,920,100
$ 17,759,902
$ 19,082,108
13.3 % 10.8 % 10.1 % 10.4 %
WAB 2,233,065
1,941,099
17,691,901
18,985,885
12.6
11.0
10.2
11.0
Well-capitalized ratios 10.0
8.0
5.0
6.5
Minimum capital ratios 8.0
6.0
4.0
4.5

December 31, 2016
WAL $ 2,107,480
$ 1,675,871
$ 15,980,092
$ 16,868,674
13.2 % 10.5 % 9.9 % 10.0 %
WAB 2,001,081
1,720,072
15,888,346
16,764,327
12.6
10.8
10.3
10.8
Well-capitalized ratios 10.0
8.0
5.0
6.5
Minimum capital ratios 8.0
6.0
4.0
4.5

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Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. The critical accounting policies upon which the Company's financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are included in the discussion entitled "Critical Accounting Policies" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2019, and all amendments thereto, as filed with the SEC.

During the first quarter of 2020, the Company adopted the ASUs related to credit losses, which include ASU 2016-13, Measurement of Credit Losses on Financial Instruments, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, ASU 2019-05, Financial Instruments - Credit Losses, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The new standards significantly change the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to an expected loss model. The amendments in ASU 2016-13 require that an organization measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance for credit losses and credit loss expense in those future periods. The allowance level is influenced by loan volumes, loan asset quality ratings, delinquency status, historical credit loss experience, loan performance characteristics, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. Changes to the assumptions in the model in future periods could have a material impact on the Company's Consolidated Financial Statements. See "Note 1. Summary of Significant Accounting Policies" for a detailed discussion of the Company's methodologies for estimating expected credit losses.

There were no other material changes to the critical accounting policies disclosed in the Company's Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2019.

Liquidity

Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in the Company's business operations or unanticipated ~~events.~~events, including the ongoing COVID-19 pandemic.

The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors, and regulators. The Company's liquidity, represented by cash and amounts due from banks, federal funds sold, and non-pledged marketable securities, is a result of the Company's operating, investing, and financing activities and related cash flows. In order to ensure funds are available when necessary, on at least a quarterly basis, the Company projects the amount of funds that will be required over a ~~twelve month~~twelve-month period and it also strives to maintain relationships with a diversified customer base. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets.

While the Company does not anticipate any need for additional liquidity, in response to the uncertainty regarding the severity and duration of the COVID-19 pandemic, the Company has taken several actions to ensure the strength of its liquidity position. These actions include establishing a $1.8 billion Federal Reserve lending facility in connection with funding loans to small and medium-sized businesses and suspending stock repurchases effective as of April 17, 2020. In addition, the Company is also in a position to pledge additional collateral to increase its borrowing capacity with the FRB, if necessary.

The following table presents the available and outstanding balances ofon the Company's lines of credit:


	September 30, 2020
	Available Balance		Outstanding Balance
	(in millions)
Unsecured fed funds credit lines at correspondent banks	$	2,402.0	$	—

September 30, 2017
Available
Balance Outstanding Balance
(in millions)
Unsecured fed funds credit lines at correspondent banks $ 100.0
$ —
Other lines with correspondent banks:
Secured other lines with correspondent banks 22.5
—
Unsecured other lines with correspondent banks 45.0
—
Total other lines with correspondent banks $ 167.5
$ —

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In addition to lines of credit, the Company has borrowing capacity with the FHLB and FRB from pledged loans and securities. The borrowing capacity, outstanding borrowings, and available credit as of September 30, ~~2017~~2020 are presented in the following table:

September 30, 2017
(in millions)
FHLB:
Borrowing capacity $ 2,633.6
Outstanding borrowings —
Letters of credit 343.0
Total available credit $ 2,290.6

FRB:
Borrowing capacity $ 1,155.7
Outstanding borrowings —
Total available credit $ 1,155.7


	September 30, 2020
	(in millions)
FHLB:
Borrowing capacity	$	4,412.9
Outstanding borrowings	10.0
Letters of credit	21.0
Total available credit	$	4,381.9

FRB:
Borrowing capacity	$	2,414.9
Outstanding borrowings	—
Total available credit	$	2,414.9

The Company has a formal liquidity policy and, in the opinion of management, its liquid assets are considered adequate to meet cash flow needs for loan funding and deposit cash withdrawals for the next 90-120 days. At September 30, ~~2017,~~2020, there was ~~$3.08~~$4.6 billion in liquid assets, comprised of ~~$650.5 million~~$1.4 billion in cash and cash equivalents and ~~money market investments and $2.43~~$3.1 billion in unpledged marketable securities. At December 31, ~~2016,~~2019, the Company maintained ~~$2.00~~$2.9 billion in liquid assets,

comprised of ~~$284.5~~$434.6 million of cash and cash equivalents and ~~money market investments, and $1.72~~$2.5 billion of unpledged marketable securities.

The Parent maintains liquidity that would be sufficient to fund its operations and certain non-bank affiliate operations for an extended period should funding from normal sources be disrupted. Since deposits are taken by WAB and not by the Parent, Parent liquidity is not dependent on the Bank's deposit balances. In the Company's analysis of Parent liquidity, it is assumed that the Parent is unable to generate funds from additional debt or equity issuances, receives no dividend income from subsidiaries and does not pay dividends to stockholders, while continuing to make ~~nondiscretionary~~non-discretionary payments needed to maintain operations and repayment of contractual principal and interest payments owed by the Parent and affiliated companies. Under this scenario, the amount of time the Parent and its non-bank subsidiary can operate and meet all obligations before the current liquid assets are exhausted is considered as part of the Parent liquidity analysis. Management believes the Parent maintains adequate liquidity capacity to operate without additional funding from new sources for over twelve months.

WAB maintains sufficient funding capacity to address large increases in funding requirements, such as deposit outflows. This capacity is comprised of liquidity derived from a reduction in asset levels and various secured funding sources. On a long-term basis, the Company’s liquidity will be met by changing the relative distribution of its asset portfolios (for example, by reducing investment or loan volumes, or selling or encumbering assets). Further, the Company can increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from correspondent banks, the FHLB of San Francisco, and the FRB. At September 30, ~~2017,~~2020, the Company's long-term liquidity needs primarily relate to funds required to support loan originations, commitments, and deposit withdrawals, which can be met by cash flows from investment payments and maturities, and investment sales, if necessary.

The Company’s liquidity is comprised of three primary classifications: 1) cash flows provided by operating activities; 2) cash flows used in investing activities; and 3) cash flows provided by financing activities. Net cash provided by or used in operating activities consists primarily of net income, adjusted for changes in certain other asset and liability accounts and certain non-cash income and expense items, such as the provision for credit losses, investment and other amortization and depreciation. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, net cash provided by operating activities was ~~$271.1~~$450.1 million and ~~$214.5~~$534.5 million, respectively.

The Company's primary investing activities are the origination of real estate and commercial loans, the collection of repayments of these loans, and the purchase and sale of securities. The Company's net cash provided by and used in investing activities has been primarily influenced by its loan and securities activities. The net increase in loans for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 was ~~$1.18~~$4.8 billion and ~~$551.9 million,~~$2.4 billion, respectively. There was a net increase in investment securities for the nine months ended September 30, ~~2017~~2020 and 2019 of ~~$965.3~~$663.5 million ~~compared to a net increase of $711.9~~and $221.1 million, ~~for the nine months ended September 30, 2016.~~respectively.

Net cash provided by financing activities has been impacted significantly by increased deposit levels. During the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, net deposits increased ~~$2.35~~$6.0 billion and ~~$2.41~~$3.3 billion, respectively.

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Fluctuations in core deposit levels may increase the Company's need for liquidity as certificates of deposit mature or are withdrawn before maturity, and as non-maturity deposits, such as checking and savings account balances, are withdrawn. Additionally, the Company is exposed to the risk that customers with large deposit balances will withdraw all or a portion of such deposits, due in part to the FDIC limitations on the amount of insurance coverage provided to depositors. To mitigate the uninsured deposit risk, the Company participates in the CDARS and ICS programs, which allow an individual customer to invest up to $50.0 million and ~~$110.0~~$150.0 million, respectively, through one participating financial institution or, a combined total of ~~$150.0~~$200.0 million per individual customer, with the entire amount being covered by FDIC insurance. As of September 30, ~~2017,~~2020, the Company has ~~$409.1~~$449.3 million of CDARS and ~~$587.2 million~~$1.1 billion of ICS deposits.

As of September 30, ~~2017,~~2020, the Company has ~~$84.3~~$914.9 million of wholesale brokered deposits outstanding. Brokered deposits are generally considered to be deposits that have been received from a third party who is engaged in the business of placing deposits on behalf of others. A traditional deposit broker will direct deposits to the banking institution offering the highest interest rate available. Federal banking laws and regulations place restrictions on depository institutions regarding brokered deposits because of the general concern that these deposits are not relationship based and are at a greater risk of being withdrawn and placed on deposit at another institution offering a higher interest rate, thus posing liquidity risk for institutions that gather brokered deposits in significant amounts. There were also $260.2 million and $571.9 million of additional deposits as of September 30, 2017 and December 31, 2016, respectively, that the Company considers core deposits, but which are classified as brokered deposits for regulatory reporting purposes.

Federal and state banking regulations place certain restrictions on dividends paid. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the bank. Dividends paid by WAB to the Parent would be prohibited if the effect thereof would cause the ~~bank’s~~Bank’s capital to be reduced below applicable minimum capital requirements.

During the three ~~months ended September 30, 2017, the Parent contributed $1.3 million to WAB~~ and ~~WAB and LVSP paid dividends to the Parent of $10.0 million and $4.8 million, respectively. During the~~ nine months ended September 30, ~~2017, the Parent contributed $11.3 million to WAB and WAB and LVSP paid dividends to the Parent of $40.0 million and $27.3 million, respectively. Subsequent to September 30, 2017,~~2020, WAB paid dividends to the Parent of ~~$30.0~~$15.0 million and $145.0 million, respectively. Subsequent to September 30, 2020, WAB paid dividends to the Parent of $15.0 million.

Recent accounting pronouncements

See "Note 1. Summary of Significant Accounting Policies," of the Notes to Unaudited Consolidated Financial Statements contained in Item 1. Financial Statements for information on recent and recently adopted accounting pronouncements and their expected impact, if any, on the Company's ~~consolidated~~Consolidated Financial Statements.

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Supervision and Regulation

The following information is intended to update, and should be read in conjunction with, the information contained under the caption “Supervision and Regulation” in the Company’s Annual Report on Form 10-K and the supplemental disclosure related thereto contained under the same caption in the Company’s Form 10-Q for the quarter ended June 30, 2020.

CARES Act

On March 27, 2020, the CARES Act was passed by Congress and signed into law by the President. The CARES Act provided approximately $2.2 trillion in direct economic relief in response to the public health and economic impacts of COVID-19. Many of the CARES Act’s programs are, and remain, dependent upon the direct involvement of U.S. financial ~~statements.~~institutions like the Company and the Bank. These programs have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve, and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including new bills comparable in scope to the CARES Act, prior to the end of 2020.

Set forth below is a brief overview of select provisions of the CARES Act and other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Company and its subsidiaries, including the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Future legislation and/or amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the Company. Such legislation and related regulations and supervisory guidance will be implemented over time and will remain subject to review by Congress and the implementing regulations issued by federal regulatory authorities. The Company continues to assess the impact of the CARES Act, the potential impact of new COVID-19 legislation, and other statutes, regulations, and supervisory guidance related to the COVID-19 pandemic.


~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk.~~

Paycheck Protection Program. The CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. On June 5, 2020, the President signed the PPPFA into law, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of the COVID-19 pandemic, the President signed additional legislation authorizing the SBA to resume accepting PPP applications on July 6, 2020 and extending the PPP application deadline to August 8, 2020. It is anticipated that additional revisions to the SBA’s interim final rules on forgiveness and loan review procedures, including potential Congressional legislation on those issues, will be forthcoming to address these and related changes. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.

Troubled Debt Restructuring and Loan Modifications for Affected Borrowers. The CARES Act permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 emergency declaration, and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so.

Federal Reserve Programs and Other Recent Initiatives

Main Street Lending Program. The CARES Act encouraged the Federal Reserve, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities. On April 9, 2020, the Federal Reserve proposed the creation of the MSLP to implement certain of these recommendations. On June 15, 2020, the Federal Reserve Bank of Boston opened the MSLP for lender registration. The MSLP supports lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The MSLP operates through five facilities: the Main Street New Loan Facility, the Main Street Priority Loan Facility, the Main Street Expanded Loan Facility, the Nonprofit Organization New Loan Facility, and the Nonprofit Organization Expanded Loan Facility. The Federal Reserve Bank of Boston maintains the legal forms and agreements for eligible borrowers and eligible lenders to participate in the MSLP, and continues to refine the MSLP’s operational infrastructure and facilities. The Bank has registered as a lender under the MSLP and continues to monitor developments related thereto.

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Temporary Regulatory Capital Relief related to Impact of CECL. Concurrent with enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule in late March 2020 that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. Subsequently, on August 26, 2020, the federal banking agencies issued a final rule that allows institutions that adopt the CECL accounting standard in 2020 to mitigate CECL’s estimated effects on regulatory capital for two years. The CECL final rule is substantially similar to the interim final rule issued in March 2020 in connection with other CARES Act related regulatory relief. The final rule gives eligible institutions the option to mitigate the estimated capital effects of CECL for two years, followed by a three-year transition period. The Company has elected this capital relief option.

Supervisory Developments. On June 25, 2020, the Federal Reserve announced that it would take several actions to ensure large banks remain resilient despite the ongoing economic impact of COVID-19. Specifically, in the third quarter, the Federal Reserve will require large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. The Company and the Bank continue to monitor these developments, as well as other evolving supervisory responses to the COVID-19 pandemic, to assess what effect (if any) they will have, but do not anticipate any material impact at this time.

Modification of the Volcker Rule. Also on June 25, 2020, the Federal Reserve - along with the Commodity Futures Trading Commission, FDIC, the Office of the Comptroller of the Currency, and the SEC - issued a final rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds (“covered funds”). The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring or having certain relationships with a hedge fund or private equity fund. The final rule modifies three areas of the Volcker Rule by: (1) streamlining the covered funds portion of the rule; (2) addressing the extraterritorial treatment of certain foreign funds; and (3) permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address. The new rule became effective October 1, 2020. The Company and the Bank do not anticipate any material impact at this time from the new rule.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's market risk arises primarily from interest rate risk inherent in its lending, investing, and deposit taking activities. To that end, management actively monitors and manages the Company's interest rate risk exposure. The Company generally manages its interest rate sensitivity by evaluating re-pricing opportunities on its earning assets to those on its funding liabilities.

Management uses various asset/liability strategies to manage the re-pricing characteristics of the Company's assets and liabilities, all of which are designed to ensure that exposure to interest rate fluctuations is limited to within the Company's guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits and management of the deployment of its securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.

Interest rate risk is addressed by ~~the~~ ALCO, which includes members of executive management, finance, and operations. ALCO monitors interest rate risk by analyzing the potential impact on the net EVE and net interest income from potential changes in interest rates and considers the impact of alternative strategies or changes in balance sheet structure. The Company manages its balance sheet in part to maintain the potential impact on EVE and net interest income within acceptable ranges despite changes in interest rates.

The Company's exposure to interest rate risk is reviewed at least quarterly by ~~the~~ ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine its change in both EVE and net interest income in the event of hypothetical changes in interest rates. If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the BOD, the BOD may direct management to adjust the asset and liability mix to bring interest rate risk within Board-approved limits.

Net Interest Income Simulation. In order to measure interest rate risk at September 30, ~~2017~~,2020, the Company ~~uses~~used a simulation model to project changes in net interest income that result from forecasted changes in interest rates. This analysis calculates the difference between a baseline net interest income forecast using current yield curves that do not take into consideration any future anticipated rate hikes, compared to forecasted net income resulting from an immediate parallel shift in rates upward or downward, along with other scenarios directed by ALCO. The income simulation model includes various assumptions regarding ~~the~~ re-pricing relationships for each of the Company's products. Many of the Company's assets are floating rate loans, which are assumed to re-price immediately and, proportional to the change in market rates, depending on their contracted index, including the impact of caps or floors. Some loans and investments contain contractual prepayment features (embedded options) and, accordingly, the simulation model incorporates prepayment assumptions. The Company's non-term deposit products re-price ~~more slowly, usually changing less than~~concurrently with interest rate changes taken by the ~~change in market rates and at the Company's discretion.~~Federal Open Market Committee.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that could impact the Company's results, including changes by management to mitigate interest rate changes or secondary factors, such as changes to the Company's credit risk profile as interest rates change.

Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment speeds that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the modeled assumptions may have significant effects on the Company's actual net interest income.

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This simulation model assesses the changes in net interest income that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest ~~rates over a twelve-month period.~~rates. At September 30, ~~2017, the Company's~~2020, our net interest income exposure for the next twelve months related to these hypothetical changes in market interest rates was within ~~the Company's~~our current guidelines.

Sensitivity of Net Interest Income


	Parallel Shift Rate Scenario (change in basis points from Base)
	Down 100			Base		Up 100			Up 200
	(in thousands)
Interest Income	$	1,143,728		$	1,173,944	$	1,298,005		$	1,461,979
Interest Expense	44,820			68,285		136,442			204,790
Net Interest Income	$	1,098,908		$	1,105,659	$	1,161,563		$	1,257,189
% Change	(0.6)		%			5.1		%	13.7		%


	Interest Rate Scenario (change in basis points from Base)																		Interest Rate Ramp Scenario (change in basis points from Base)
	Down 100			Base		Up 100			Up 200			Up 300			Up 400				Down 100			Base		Up 100			Up 200
	(in thousands)																		(in thousands)
Interest Income	$	806,455		$	895,261	$	993,820		$	1,094,621		$	1,195,793		$	1,296,928		Interest Income	$	1,149,818		$	1,173,944	$	1,230,788		$	1,296,622
Interest Expense	28,879			63,102		105,026			146,956			188,893			230,834			Interest Expense	54,229			68,285		83,030			97,032
Net Interest Income	777,576			832,159		888,794			947,665			1,006,900			1,066,094			Net Interest Income	$	1,095,589		$	1,105,659	$	1,147,758		$	1,199,590
% Change	(6.6		)%			6.8		%	13.9		%	21.0		%	28.1		%	% Change	(0.9)		%			3.8		%	8.5		%

Economic Value of Equity. The Company measures the impact of market interest rate changes on the NPV of estimated cash flows from its assets, liabilities, and off-balance sheet items, defined as EVE, using a simulation model. This simulation model assesses the changes in the market value of interest rate sensitive financial instruments that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates.

At September 30, ~~2017~~,2020, the Company's EVE exposure related to these hypothetical changes in market interest rates was within the Company's current guidelines. The following table shows the Company's projected change in EVE for this set of rate shocks at September 30, ~~2017~~:2020:

Economic Value of Equity


	Interest Rate Scenario (change in basis points from Base)																		Interest Rate Scenario (change in basis points from Base)
	Down 100			Base		Up 100			Up 200			Up 300			Up 400				Down 100			Base		Up 100			Up 200			Up 300			Up 400
	(in thousands)																		(in thousands)
Assets	$	20,185,079		$	19,903,285	$	19,533,794		$	19,161,200		$	18,808,224		$	18,453,308		Assets	$	34,477,744		$	34,013,005	$	33,462,593		$	32,884,102		$	32,493,211		$	31,942,018
Liabilities	17,032,980			16,639,702		16,309,588			16,029,809			15,790,292			15,584,116			Liabilities	30,084,298			29,052,741		28,125,021			27,230,099			26,343,698			25,540,101
Net Present Value	3,152,099			3,263,583		3,224,206			3,131,391			3,017,932			2,869,192			Net Present Value	$	4,393,446		$	4,960,264	$	5,337,572		$	5,654,003		$	6,149,513		$	6,401,917
% Change	(3.4		)%			(1.2		)%	(4.1		)%	(7.5		)%	(12.1		)%	% Change	(11.4)		%			7.6		%	14.0		%	24.0		%	29.1		%

The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, asset prepayments, and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. Actual amounts may differ from the projections set forth above should market conditions vary from the underlying assumptions.

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Derivative Contracts. In the normal course of business, the Company uses derivative instruments to meet the needs of its customers and manage exposure to fluctuations in interest rates. The following table summarizes the aggregate notional amounts, market values, and terms of the Company’s derivative positions as of September 30, ~~2017~~2020 and December 31, ~~2016 :~~2019:

Outstanding Derivatives Positions



September 30, 2020					December 31, 2019
Notional		Net Value		Weighted Average Term (Years)	Notional		Net Value		Weighted Average Term (Years)
(dollars in thousands)
$	734,787	$	(88,876)	18.0	$	872,595	$	(53,667)	16.1

102

September 30, 2017 December 31, 2016
Notional Net Value Weighted Average Term (Years) Notional Net Value Weighted Average Term (Years)
(dollars in thousands)
$ 1,016,694
$ (57,690 ) 17.6
$ 993,485
$ (61,529 ) 18.2

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Item 4.Controls and Procedures.


~~Item 4.~~	~~Controls and Procedures.~~

Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the CEO and CFO have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Additionally, the Company's disclosure controls and procedures were also effective in ensuring that information required to be disclosed by the Company in the reports it files or is subject to under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting during the quarter ended September 30, ~~2017,~~2020, which have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings.~~

Item 1.Legal Proceedings.

There are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. There are no material proceedings known to the Company to be contemplated by any governmental authority. From time to time, the Company is involved in a variety of litigation matters in the ordinary course of its business and anticipates that it will become involved in new litigation matters in the future.

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~~Item 1A.~~	~~Risk Factors.~~

~~There have not been any material changes to~~Item 1A.Risk Factors.

Item 1A. Risk Factors of the ~~risk factors previously disclosed in the Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019 includes a discussion of the material risks and uncertainties that could adversely affect our business and impact our results of operations or financial condition. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in the Annual Report on Form 10-K.

The COVID-19 pandemic and resulting adverse economic conditions have adversely impacted our business and results and could have a more material adverse impact on our business, financial condition and results of operations.

Although the Bank has continued operating, the COVID-19 pandemic has caused disruptions to our business and could cause material disruptions to our business and operations in the future. Impacts to our business have included the transition of a significant portion of our workforce to home locations, increases in costs due to additional health and safety precautions implemented at our branches, and an increase in draws on unfunded loan commitments and requests for forbearance and loan modifications. To the extent that commercial and social restrictions remain in place or increase, our expenses, delinquencies, foreclosures and credit losses may materially increase. In addition, the unprecedented nature of COVID-19 related disruptions heighten the inherent uncertainty of forecasting future economic conditions and their impact on our loan portfolio, and therefore increases the risk that the assumptions, judgments and estimates used to determine the appropriate allowance for future credit losses may prove to be incorrect, resulting in actual credit losses that exceed the Company’s recorded allowance.

Unfavorable economic conditions also may make it more difficult for us to maintain deposit levels and loan origination volume and to obtain additional financing. Furthermore, such conditions have and may continue to adversely impact accounting estimates that we use to determine our allowance and provision for credit losses. Such conditions also could impact the value of assets we carry on our balance sheet such as goodwill, and cause the value of collateral associated with our existing loans to decline. Further, certain debt and equity instruments may experience significant fluctuations in value due to market disruption, widening of credit spreads, and governmental purchase intervention.

In addition, in March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, in part as a result of the pandemic. Sudden or unexpectedly large changes in interest rates could impact our ability to effectively manage our interest rate risk and could result in maturity imbalances in our assets and liabilities. A prolonged period of very low interest rates or an increase in interest rates that affects our borrowers' ability to repay loans could reduce our net interest income and have a material adverse impact on our cash flows.

While we have taken and are continuing to take actions to protect the safety and well-being of our employees and customers, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employee's ability to perform their jobs or provide customer support and service. The continued or renewed spread of COVID-19 could negatively impact the availability of key personnel necessary to conduct our business, the business and operations of our third-party service providers who perform critical services for our business, or the businesses of many of our customers and borrowers. A sizable percentage of our workforce has returned to working in our office buildings, and it is possible that one or more members of our senior management or other key employees contracts the virus and is unable to perform their essential duties. At the same time, many of our employees and employees of companies we do business with continue to work remotely as a result of the pandemic, and the risk of cyber-attacks, breaches or similar events, whether through our systems or those of third parties on which we rely, therefore has increased.

Among the factors outside our control that are likely to affect the impact the COVID-19 pandemic will ultimately have on our business are:

•the pandemic’s course and severity;

•the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, consumer spending and real estate market values;

•political, legal and regulatory actions and policies in response to the pandemic, including the effects of restrictions on commerce and banking, such as moratoria and other suspensions of collections, foreclosures, and related obligations;

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

•the timing, magnitude and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity;

•the timing and availability of direct and indirect governmental support for various financial assets, including mortgage loans;

•the potential long-term impact on the tourism and hospitality industries, which could affect our hotel franchise finance business and portfolio;

•the long-term effect of the economic downturn on our intangible assets such as our deferred tax asset and goodwill;

•potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties;

•the ability of our employees and our third-party vendors to work effectively during the course of the pandemic;

•potential longer-term shifts toward mobile banking, telecommuting and telecommerce; and

•geographic variation in the severity and duration of the COVID-19 pandemic, including in states in which we operate physically such as Arizona, California and Nevada;

The ongoing COVID-19 pandemic has resulted in severe volatility in the financial markets and meaningfully lower stock prices for many companies, including our common stock. Depending on the extent and duration of the COVID-19 pandemic, the price of our common stock may continue to experience volatility and declines.

The Company is a participating lender in the PPP, a loan program administered through the SBA, that was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the amounts loaned under the PPP. Certain ambiguities in the laws, rules and guidance regarding the requirements and operation of the PPP may expose the Company to risks relating to noncompliance with the PPP. For instance, other financial institutions have experienced litigation related to their policies and procedures for accepting and processing applications for the PPP. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations. In addition, the Company may be exposed to credit risk on a PPP loan if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded or serviced. In such a case, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any related loss from the Company.

We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on us. However, if the pandemic continues to spread or otherwise results in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations and cash flows, as well as our regulatory capital and liquidity ratios, could be materially adversely affected.

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

Issuer Purchases of Equity Securities

The following table provides information about the Company's purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act for the periods ~~indicated.~~indicated:


	Total Number of Shares Purchased (1)(2)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
July 2020	13,158	$	36.16	—	$	178,392,414
August 2020	—	—		—	178,392,414
September 2020	1,240	31.21		—	178,392,414
Total	14,398	$	35.85	—	$	178,392,414

(1) Shares purchased during the period outside of the publicly announced repurchase program were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.

(2) The Company's common stock repurchase program was renewed through December 2020, authorizing the Company to repurchase up to $250.0 million of its outstanding common stock. Due to the COVID-19 pandemic, effective as of April 17, 2020, the Company has temporarily suspended its stock repurchases.

105

(a) (b) ( c) (d)

Total Number of Shares Purchased ⁽¹⁾
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ⁽²⁾
7/1/2017 through 7/31/2017 7,850
$ 50.14
—
—
8/1/2017 through 8/31/2017 188
50.37
—
—
9/1/2017 through 9/30/2017 56,667
52.06
—
—
Total 64,705
$ 51.82
—
—

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Item 5.Other Information

Not applicable.

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Item 6.Exhibits

EXHIBITS


~~(1)~~3.1			~~All shares purchased during the period were transferred~~			Amended and Restated Certificate of Incorporation, effective as of May 19, 2015 (incorporated by reference to ~~the Company from employees in satisfaction~~Exhibit 3.1 of ~~minimum tax withholding obligations associated~~Western Alliance's Form 10-K filed with the ~~vesting of restricted stock awards during the period.~~


~~(2)~~	~~The Company has not announced a repurchase plan relating to its common stock.~~

SEC on March 1, 2019.


~~Item 5.~~	~~Other Information~~

~~Not applicable.~~


~~Item 6.~~	~~Exhibits~~

~~EXHIBITS~~



~~3.1~~3.2		Amended and Restated Bylaws of Western Alliance, effective as of May 19, 2015 (incorporated by reference to Exhibit 3.2 of Western Alliance's Form 8-K filed with the SEC on May 22, 2015).

3.3		Articles of Conversion, as filed with the Nevada Secretary of State on May 29, 2014 (incorporated by reference to Exhibit 3.1 of Western Alliance’s Form 8-K filed with the SEC on June 3, 2014).

~~3.2~~3.4		Certificate of Conversion, as filed with the Delaware Secretary of State on May 29, 2014 (incorporated by reference to Exhibit 3.2 of Western Alliance’s Form 8-K filed with the SEC on June 3, 2014).

~~3.3~~31.1*		Certificate of Incorporation, as filed with the Delaware Secretary of State on May 29, 2014 (incorporated by reference to Exhibit 3.3 of Western Alliance’s Form 8-K filed with the SEC on June 3, 2014).

~~3.4~~	Certificate of Amendment of Certificate of Incorporation of Western Alliance, effective as of May 19, 2015 (incorporated by reference to Exhibit 3.1 of Western Alliance's Form 8-K filed with the SEC on May 22, 2015).

~~3.5~~	~~Amended and Restated Bylaws of Western Alliance, effective as of May 19, 2015 (incorporated by reference to Exhibit 3.2 of Western Alliance's Form 8-K filed with the SEC on May 22, 2015).~~

~~4.1~~	~~Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Western Alliance’s Form 8-K filed with the SEC on June 3, 2014).~~

~~4.2~~	~~Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.3 of Western Alliance's Form S-3 filed with the SEC on May 7, 2015).~~

~~4.3~~	~~Form of 5.00% Fixed to Floating Rate Subordinated Bank Note due July 15, 2025 (incorporated by reference to Exhibit 4.1 of Western Alliance's Form 8-K filed with the SEC on July 2, 2015).~~

~~4.4~~	Subordinated Debt Indenture, dated June 16, 2016, between Western Alliance and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Western Alliance's Form 8-K filed with the SEC on June 16, 2016).

~~4.5~~	First Supplemental Indenture (including Form of Debenture) dated June 16, 2016 between Western Alliance and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Western Alliance's Form 8-K filed with the SEC on June 16, 2016).

~~4.6~~	~~Form of Global Debenture dated June 16, 2016 (incorporated by reference to Exhibit 4.3 of Western Alliance's Form 8-K filed with the SEC on June 16, 2016).~~

31.1*	CEO Certification Pursuant Rule 13a-14(a)/15d-14(a).

31.2*		CFO Certification Pursuant Rule 13a-14(a)/15d-14(a).

32**		CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002.

101.INS*101		~~XBRL Instance Document.~~Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) the Consolidated Income Statements for the three months ended September 30, 2020 and September 30, 2019 and nine months ended September 30, 2020 and 2019, (iii) the Consolidated Statements of Comprehensive Income for the three months ended September 30, 2020 and September 30, 2019 and nine months ended September 30, 2020 and 2019, (iv) the Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2020 and September 30, 2019 and the nine months September 30, 2020 and 2019, (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (vi) the Notes to unaudited Consolidated Financial Statements. (Pursuant to Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.) (Filed herewith).

101.SCH*104		The cover page of Western Alliance Bancorporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, formatted in Inline XBRL ~~Taxonomy Extension Schema Document.~~

101.DEF*	~~XBRL Taxonomy Extension Definition Linkbase Document.~~

101.CAL*	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~

101.LAB*	~~XBRL Taxonomy Extension Label Linkbase Document.~~

101.PRE*	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~(contained in Exhibit 101).

* Filed herewith.


**	** Furnished herewith.

± Management contract or compensatory arrangement.

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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.

WESTERN ALLIANCE BANCORPORATION

October 30, 2020

~~WESTERN ALLIANCE BANCORPORATION~~By:

/s/ Kenneth A. Vecchione

Kenneth A. Vecchione

~~October 27, 2017~~

~~By:~~

~~/s/ Robert Sarver~~

~~Robert Sarver~~

~~Chairman of the Board~~President and

Chief Executive Officer

October ~~27, 2017~~30, 2020

By:

/s/ Dale Gibbons

Dale Gibbons

~~Executive~~ Vice ~~President~~Chairman and

Chief Financial Officer

October ~~27, 2017~~30, 2020

By:

/s/ J. Kelly Ardrey Jr.

J. Kelly Ardrey Jr.

~~Senior Vice President and~~

Chief Accounting Officer

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		Page
PART I. FINANCIAL INFORMATION

Item 1.	Glossary of Entities and Terms	3
~~Item 1.~~	Financial Statements (Unaudited)
	Consolidated Balance Sheets	4
	Consolidated Income Statements	5
	Consolidated Statements of Comprehensive Income	67
	Consolidated Statements of Stockholders’ Equity	78
	Consolidated Statements of Cash Flows	89
	Notes to Unaudited Consolidated Financial Statements	1011
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	5968
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	86100
Item 4.	Controls and Procedures	88103

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	88103
Item 1A.	Risk Factors	88104
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	105
Item 5.	Other Information	88106
Item 6.	Exhibits	89107

SIGNATURES		90108



	Three Months Ended September 30, 2017
	Gross Balance			Valuation Allowance			Net Balance
	(in thousands)
Balance, beginning of period	$	35,037		$	(4,049	)	$	30,988
Transfers to other assets acquired through foreclosure, net	430			—			430
Proceeds from sale of other real estate owned and repossessed assets, net	(2,491		)	330			(2,161		)
Valuation adjustments, net	—			(343		)	(343		)
Gains (losses), net (1)	78			—			78
Balance, end of period	$	33,054		$	(4,062	)	$	28,992

	Three Months Ended September 30, 2016
Balance, beginning of period	$	56,467		$	(6,623	)	$	49,844
Transfers to other assets acquired through foreclosure, net	1,162			—			1,162
Proceeds from sale of other real estate owned and repossessed assets, net	(1,260		)	32			(1,228		)
Valuation adjustments, net	—			(184		)	(184		)
Gains (losses), net (1)	25			—			25
Balance, end of period	$	56,394		$	(6,775	)	$	49,619



	Nine Months Ended September 30, 2017
	Gross Balance			Valuation Allowance			Net Balance
	(in thousands)
Balance, beginning of period	$	54,138		$	(6,323	)	$	47,815
Transfers to other assets acquired through foreclosure, net	1,812			—			1,812
Proceeds from sale of other real estate owned and repossessed assets, net	(23,129		)	2,381			(20,748		)
Valuation adjustments, net	—			(120		)	(120		)
(Losses) gains, net (1)	233			—			233
Balance, end of period	$	33,054		$	(4,062	)	$	28,992

	Nine Months Ended September 30, 2016
Balance, beginning of period	$	52,984		$	(9,042	)	$	43,942
Transfers to other assets acquired through foreclosure, net	11,888			—			11,888
Proceeds from sale of other real estate owned and repossessed assets, net	(8,174		)	2,140			(6,034		)
Valuation adjustments, net	—			127			127
(Losses) gains, net (1)	(304		)	—			(304		)
Balance, end of period	$	56,394		$	(6,775	)	$	49,619



	September 30, 2017						December 31, 2016						September 30, 2016
			Fair Value						Fair Value						Fair Value
	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
	(in thousands)
Derivatives designated as hedging instruments:
Fair value hedges
Interest rate swaps	$	1,016,694	$	1,656	$	59,346	$	993,485	$	4,220	$	65,749	$	988,337	$	4,350	$	100,067
Total	1,016,694		1,656		59,346		993,485		4,220		65,749		988,337		4,350		100,067
Netting adjustments (1)	—		1,588		1,588		—		1,869		1,869		—		—		—
Net derivatives in the balance sheet	$	1,016,694	$	68	$	57,758	$	993,485	$	2,351	$	63,880	$	988,337	$	4,350	$	100,067



	Changes in Fair Values for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
	Unrealized Gain/(Loss) on Assets and Liabilities Measured at Fair Value, Net			Interest Income on Securities		Interest Expense on Junior Subordinated Debt			Total Changes Included in Current-Period Earnings			Total Changes Included in OCI
	(in thousands)
Three Months Ended September 30, 2017
Securities measured at fair value	$	—		$	—	$	—		$	—		$	—
Junior subordinated debt	1,035			—		(835		)	(835		)	641
Total	$	1,035		$	—	$	(835	)	$	(835	)	$	641
Nine Months Ended September 30, 2017
Securities measured at fair value	$	—		$	9	$	—		$	9		$	—
Junior subordinated debt	(4,327		)	—		(2,376		)	(2,376		)	(2,677		)
Total	$	(4,327	)	$	9	$	(2,376	)	$	(2,367	)	$	(2,677	)
Three Months Ended September 30, 2016
Securities measured at fair value	$	(12	)	$	11	$	—		$	(1	)	$	—
Junior subordinated debt	(4,604		)	—		(702		)	(625		)	(2,825		)
Total	$	(4,616	)	$	11	$	(702	)	$	(626	)	$	(2,825	)
Nine Months Ended September 30, 2016
Securities measured at fair value	$	(18	)	$	33	$	—		$	15		$	—
Junior subordinated debt	(2,386		)	—		(2,075		)	(1,843		)	(1,491		)
Total	$	(2,404	)	$	33	$	(2,075	)	$	(1,828	)	$	(1,491	)



	CDO Securities
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)
Beginning balance	$	—	$	10,183	$	—	$	10,060
Transfers into Level 3	—		—		—		—
Total gains (losses) for the period
Included in other comprehensive income	—		369		—		492
Ending balance	$	—	$	10,552	$	—	$	10,552



Income Statement:
Three Months Ended September 30, 2017:	(in thousands)
Net interest income (expense)	$	201,583		$	52,637		$	36,310		$	26,811		$	21,932
Provision for credit losses	5,000			(289		)	(2,044		)	(58		)	3,144
Net interest income (expense) after provision for credit losses	196,583			52,926			38,354			26,869			18,788
Non-interest income	10,288			1,265			2,354			971			1,796
Non-interest expense	(89,114		)	(18,844		)	(14,748		)	(12,340		)	(11,317		)
Income (loss) before income taxes	117,757			35,347			25,960			15,500			9,267
Income tax expense (benefit)	34,899			13,857			9,086			6,517			3,897
Net income (loss)	$	82,858		$	21,490		$	16,874		$	8,983		$	5,370



Nine Months Ended September 30, 2017:	(in thousands)
Net interest income (expense)	$	573,635		$	145,839		$	108,028		$	81,087		$	63,686
Provision for (recovery of) credit losses	12,250			109			(5,378		)	(20		)	4,238
Net interest income (expense) after provision for credit losses	561,385			145,730			113,406			81,107			59,448
Non-interest income	31,281			3,567			6,800			2,602			5,839
Non-interest expense	(265,128		)	(55,388		)	(45,733		)	(38,063		)	(36,188		)
Income (loss) before income taxes	327,538			93,909			74,473			45,646			29,099
Income tax expense (benefit)	91,352			36,831			26,066			19,194			12,236
Net income (loss)	$	236,186		$	57,078		$	48,407		$	26,452		$	16,863



Income Statement:
Three Months Ended September 30, 2016:	(in thousands)
Net interest income (expense)	$	172,547		$	45,531		$	35,977		$	26,488		$	22,181
Provision for (recovery of) credit losses	2,000			2,399			(1,009		)	(105		)	144
Net interest income (expense) after provision for credit losses	170,547			43,132			36,986			26,593			22,037
Non-interest income	10,683			1,180			2,264			686			2,916
Non-interest expense	(85,007		)	(16,084		)	(14,801		)	(11,532		)	(12,706		)
Income (loss) before income taxes	96,223			28,228			24,449			15,747			12,247
Income tax expense (benefit)	29,171			11,074			8,557			6,621			5,150
Net income (loss)	$	67,052		$	17,154		$	15,892		$	9,126		$	7,097



Nine Months Ended September 30, 2016:	(in thousands)
Net interest income (expense)	$	481,944		$	125,191		$	102,016		$	76,719		$	67,272
Provision for (recovery of) credit losses	7,000			10,875			(3,526		)	145			2,112
Net interest income (expense) after provision for credit losses	474,944			114,316			105,542			76,574			65,160
Non-interest income	32,375			5,749			6,420			1,907			7,858
Non-interest expense	(242,304		)	(45,090		)	(44,371		)	(33,401		)	(40,154		)
Income (loss) before income taxes	265,015			74,975			67,591			45,080			32,864
Income tax expense (benefit)	75,017			29,413			23,657			18,956			13,819
Net income (loss)	$	189,998		$	45,562		$	43,934		$	26,124		$	19,045



	April 20, 2016
	(in thousands)
Assets:
Loans	$	1,280,997
Other assets	3,632
Total assets	$	1,284,629
Liabilities:
Other liabilities	$	12,559
Total liabilities	12,559
Net assets acquired	$	1,272,070
Consideration paid
Cash	$	1,272,187
Goodwill	$	117



	Three Months Ended September 30,									Nine Months Ended September 30,
	2017 versus 2016									2017 versus 2016
	Increase (Decrease) Due to Changes in (1)									Increase (Decrease) Due to Changes in (1)
	Volume			Rate			Total			Volume			Rate			Total
										(in thousands)
Interest income:
Loans:
Commercial and industrial	$	10,514		$	4,654		$	15,168		$	26,183		$	8,699		$	34,882
Commercial real estate	(383		)	1,543			1,160			21,410			6,023			27,433
Construction and land development	4,680			1,425			6,105			14,626			1,957			16,583
Residential real estate	828			(234		)	594			634			42			676
Consumer	170			85			255			369			(20		)	349
Loans held for sale	(70		)	(30		)	(100		)	(204		)	(128		)	(332		)
Total loans	15,739			7,443			23,182			63,018			16,573			79,591
Securities:
Securities - taxable	5,529			1,431			6,960			14,150			2,244			16,394
Securities - tax-exempt	1,367			(180		)	1,187			4,232			(114		)	4,118
Total securities	6,896			1,251			8,147			18,382			2,130			20,512
Other	601			1,155			1,756			1,773			2,083			3,856
Total interest income	23,236			9,849			33,085			83,173			20,786			103,959

Interest expense:
Interest bearing transaction accounts	$	137		$	317		$	454		$	539		$	748		$	1,287
Savings and money market	174			1,647			1,821			1,190			2,761			3,951
Time certificates of deposit	(106		)	1,208			1,102			(555		)	2,830			2,275
Short-term borrowings	(22		)	35			13			(145		)	107			(38		)
Qualifying debt	78			582			660			3,837			956			4,793
Total interest expense	261			3,789			4,050			4,866			7,402			12,268

Net increase	$	22,975		$	6,060		$	29,035		$	78,307		$	13,384		$	91,691



	September 30, 2017						December 31, 2016
	Non-accrual Balance		Percent of Non-Accrual Balance		Percent of Total HFI Loans		Non-accrual Balance		Percent of Non-Accrual Balance		Percent of Total HFI Loans
	(dollars in thousands)
Commercial and industrial	$	41,567	75.58	%	0.29	%	$	16,967	42.13	%	0.13	%
Commercial real estate	6,363		11.58		0.04		16,666		41.39		0.13
Construction and land development	887		1.61		0.01		1,284		3.19		0.01
Residential real estate	6,022		10.95		0.04		5,192		12.89		0.04
Consumer	155		0.28		0.00		163		0.40		0.00
Total non-accrual loans	$	54,994	100.00	%	0.38	%	$	40,272	100.00	%	0.31	%



	September 30, 2017
	Impaired Balance		Percent of Impaired Balance		Percent of Total HFI Loans		Reserve Balance		Percent of Reserve Balance		Percent of Total Allowance
	(dollars in thousands)
Commercial and industrial	$	57,917	47.73	%	0.40	%	$	4,394	100.00	%	3.22	%
Commercial real estate	35,947		29.62		0.25		—		—		—
Construction and land development	11,503		9.48		0.08		—		—		—
Residential real estate	15,794		13.01		0.11		—		—		—
Consumer	195		0.16		0.00		—		—		—
Total impaired loans	$	121,356	100.00	%	0.84	%	$	4,394	100.00	%	3.22	%



	(a)	(b)		( c)	(d)
	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ⁽²⁾
7/1/2017 through 7/31/2017	7,850	$	50.14	—	—
8/1/2017 through 8/31/2017	188	50.37		—	—
9/1/2017 through 9/30/2017	56,667	52.06		—	—
Total	64,705	$	51.82	—	—