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PPBI Pacific Premier Bancorp

Filed: 6 Aug 21, 5:04pm
0001028918ppbi:SingleFamilyResidentialMemberppbi:RetailLoansPortfolioSegmentMemberppbi:FICOScoreLessthan580Member2020-12-31

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
FORM 10-Q 
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from _______ to _______ 
Commission File Number 0-22193
 ppbi-20210630_g1.jpg
(Exact name of registrant as specified in its charter) 
Delaware33-0743196
(State or other jurisdiction of incorporation or organization)(I.R.S Employer Identification No.)
 
17901 Von Karman Avenue, Suite 1200, Irvine, California 92614
(Address of principal executive offices and zip code)
(949) 864-8000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act).
Large accelerated filerAccelerated filerNon-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per sharePPBINASDAQ Global Select Market
The number of shares outstanding of the registrant’s common stock as of July 30, 2021 was 94,649,518.



PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED JUNE 30, 2021
2


PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in thousands, except par value and share data)June 30,
2021
December 31,
2020
ASSETS
Cash and due from banks$208,829 $135,429 
Interest-bearing deposits with financial institutions423,059 745,337 
Cash and cash equivalents631,888 880,766 
Interest-bearing time deposits with financial institutions2,708 2,845 
Investments held-to-maturity, at amortized cost (fair value of $19,820 and $25,013 as of June 30, 2021 and December 31, 2020, respectively)18,933 23,732 
Investment securities available-for-sale, at fair value4,487,447 3,931,115 
FHLB, FRB, and other stock, at cost117,738 117,055 
Loans held for sale, at lower of cost or fair value4,714 601 
Loans held for investment13,594,598 13,236,433 
Allowance for credit losses(232,774)(268,018)
Loans held for investment, net13,361,824 12,968,415 
Accrued interest receivable67,529 74,574 
Premises and equipment73,821 78,884 
Deferred income taxes, net81,741 89,056 
Bank owned life insurance444,645 292,564 
Intangible assets77,363 85,507 
Goodwill901,312 898,569 
Other assets257,823 292,861 
Total assets$20,529,486 $19,736,544 
LIABILITIES 
Deposit accounts: 
Noninterest-bearing checking$6,768,384 $6,011,106 
Interest-bearing: 
Checking3,103,343 2,913,260 
Money market/savings5,883,672 5,662,969 
Retail certificates of deposit1,259,698 1,471,512 
Wholesale/brokered certificates of deposit155,330 
Total interest-bearing10,246,713 10,203,071 
Total deposits17,015,097 16,214,177 
FHLB advances and other borrowings31,000 
Subordinated debentures476,622 501,511 
Accrued expenses and other liabilities224,348 243,207 
Total liabilities17,716,067 16,989,895 
STOCKHOLDERS’ EQUITY 
Preferred stock, $0.01 par value; 1,000,000 authorized; 0ne issued and outstanding
Common stock, $0.01 par value; 150,000,000 shares authorized at June 30, 2021 and December 31, 2020; 94,656,575 shares and 94,483,136 shares issued and outstanding, respectively.931 931 
Additional paid-in capital2,352,112 2,354,871 
Retained earnings433,852 330,555 
Accumulated other comprehensive income26,524 60,292 
Total stockholders’ equity2,813,419 2,746,649 
Total liabilities and stockholders’ equity$20,529,486 $19,736,544 


Accompanying notes are an integral part of these consolidated financial statements.
3


PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
 Three Months EndedSix Months Ended
 June 30,March 31,June 30,June 30,June 30,
(Dollars in thousands, except share data)20212021202020212020
INTEREST INCOME
Loans$152,365 $155,225 $133,339 $307,590 $246,604 
Investment securities and other interest-earning assets18,327 17,769 10,783 36,096 21,307 
Total interest income170,692 172,994 144,122 343,686 267,911 
INTEREST EXPENSE  
Deposits3,265 4,426 9,655 7,691 20,142 
FHLB advances and other borrowings65 217 65 1,298 
Subordinated debentures6,493 6,851 3,958 13,344 7,004 
Total interest expense9,758 11,342 13,830 21,100 28,444 
Net interest income before provision for credit losses160,934 161,652 130,292 322,586 239,467 
Provision for credit losses(38,476)1,974 160,635 (36,502)186,089 
Net interest income (loss) after provision for credit losses199,410 159,678 (30,343)359,088 53,378 
NONINTEREST INCOME  
Loan servicing income622 458 434 1,080 914 
Service charges on deposit accounts2,222 2,032 1,399 4,254 3,114 
Other service fee income352 473 297 825 608 
Debit card interchange fee income1,099 787 457 1,886 805 
Earnings on bank-owned life insurance2,279 2,233 1,314 4,512 2,650 
Net gain (loss) from sales of loans1,546 361 (2,032)1,907 (1,261)
Net gain (loss) from sales of investment securities5,085 4,046 (21)9,131 7,739 
Trust custodial account fees7,897 7,222 2,397 15,119 2,397 
Escrow and exchange fees1,672 1,526 264 3,198 264 
Other income3,955 4,602 2,389 8,557 4,143 
Total noninterest income26,729 23,740 6,898 50,469 21,373 
NONINTEREST EXPENSE  
Compensation and benefits53,474 52,548 43,011 106,022 77,387 
Premises and occupancy12,240 11,980 9,487 24,220 17,655 
Data processing5,765 5,828 4,465 11,593 7,718 
Other real estate owned operations, net23 
FDIC insurance premiums1,312 1,181 846 2,493 1,213 
Legal and professional services4,186 3,935 3,094 8,121 6,220 
Marketing expense1,490 1,598 1,319 3,088 2,731 
Office expense1,589 1,829 1,533 3,418 2,636 
Loan expense1,165 1,115 823 2,280 1,645 
Deposit expense3,985 3,859 4,958 7,844 9,946 
Merger-related expense39,346 41,070 
Amortization of intangible assets4,001 4,143 4,066 8,144 8,029 
Other expense5,289 4,468 3,013 9,757 6,328 
Total noninterest expense94,496 92,489 115,970 186,985 182,601 
Net income (loss) before income taxes131,643 90,929 (139,415)222,572 (107,850)
Income tax expense (benefit)35,341 22,261 (40,324)57,602 (34,499)
Net income (loss)$96,302 $68,668 $(99,091)$164,970 $(73,351)
EARNINGS (LOSS) PER SHARE  
Basic$1.02 $0.73 $(1.41)$1.74 $(1.14)
Diluted1.01 0.72 (1.41)1.73 (1.14)
WEIGHTED AVERAGE SHARES OUTSTANDING  
Basic93,635,392 93,529,147 70,425,027 93,582,563 64,716,109 
Diluted94,218,028 94,093,644 70,425,027 94,155,740 64,716,109 
Accompanying notes are an integral part of these consolidated financial statements.
4


PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 Three Months EndedSix Months Ended
 June 30,March 31,June 30,June 30,June 30,
(Dollars in thousands)20212021202020212020
Net income (loss)$96,302 $68,668 $(99,091)$164,970 $(73,351)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available-for-sale arising during the period, net of income taxes (1)
45,343 (72,592)13,800 (27,249)42,220 
Reclassification adjustment for net (gain) loss on sales of securities included in net income, net of income taxes (2)
(3,630)(2,889)15 (6,519)(5,519)
Other comprehensive income (loss), net of tax41,713 (75,481)13,815 (33,768)36,701 
Comprehensive income (loss), net of tax$138,015 $(6,813)$(85,276)$131,202 $(36,650)
______________________________
(1) Income tax expense (benefit) on the unrealized gain (loss) on securities was $18.2 million for the three months ended June 30, 2021, $(29.1) million for the three months ended March 31, 2021, $5.5 million for the three months ended June 30, 2020, $(10.9) million for the six months ended June 30, 2021, and $17.0 million for the six months ended June 30, 2020.
(2) Income tax expense (benefit) on the reclassification adjustment for net (gain) loss on sales of securities included in net income was $1.5 million for the three months ended June 30, 2021, $1.2 million for the three months ended March 31, 2021, $(6,000) for the three months ended June 30, 2020, $2.6 million for the six months ended June 30, 2021, and $2.2 million for the six months ended June 30, 2020.


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

5


PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2021
(Unaudited)
(Dollars in thousands, except share data)Common Stock
Shares
Common StockAdditional Paid-in CapitalAccumulated Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
Balance at December 31, 202094,483,136 $931 $2,354,871 $330,555 $60,292 $2,746,649 
Net income— — — 164,970 — 164,970 
Other comprehensive loss— — — — (33,768)(33,768)
Repurchase and retirement of common stock(199,674)(2)(4,977)(1,918)— (6,897)
Cash dividends declared ($0.63 per common share)— — — (59,521)— (59,521)
Dividend equivalents declared ($0.63 per restricted stock unit)— — 234 (234)— 
Share-based compensation expense— — 6,562 — — 6,562 
Issuance of restricted stock, net435,957 (2)— — 
Restricted stock surrendered and canceled(110,027)— (5,308)— — (5,308)
Exercise of stock options47,183 — 732 — — 732 
Balance at June 30, 202194,656,575 $931 $2,352,112 $433,852 $26,524 $2,813,419 

Balance at March 31, 202194,644,415 $931 $2,348,445 $368,911 $(15,189)$2,703,098 
Net income— — — 96,302 — 96,302 
Other comprehensive income— — — — 41,713 41,713 
Cash dividends declared ($0.33 per common share)— — — (31,234)— (31,234)
Dividend equivalents declared ($0.33 per restricted stock unit)— — 127 (127)— 
Share-based compensation expense— — 3,457 — — 3,457 
Issuance of restricted stock, net16,200 — — — — 
Restricted stock surrendered and canceled(9,477)— (29)— — (29)
Exercise of stock options5,437 — 112 — — 112 
Balance at June 30, 202194,656,575 $931 $2,352,112 $433,852 $26,524 $2,813,419 

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






PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2020
(Unaudited)
(Dollars in thousands, except share data)Common Stock
Shares
Common StockAdditional Paid-in CapitalAccumulated Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
Balance at December 31, 201959,506,057 $586 $1,594,434 $396,051 $21,523 $2,012,594 
Net loss— — — (73,351)— (73,351)
Other comprehensive income— — — — 36,701 36,701 
Cash dividends declared ($0.50 per common share)— — — (29,874)— (29,874)
Dividend equivalents declared ($0.50 per restricted stock unit)— — 123 (123)— 
Share-based compensation expense— — 4,848 — — 4,848 
Issuance of restricted stock, net473,509 — — — — 
Issuance of common stock - acquisition34,407,403 344 749,259 749,603 
Restricted stock surrendered and canceled(94,306)— (1,273)— — (1,273)
Exercise of stock options58,239 — 1,024 — — 1,024 
Cumulative effect of the change in accounting principle (1)
— — — (45,625)— (45,625)
Balance at June 30, 202094,350,902 $930 $2,348,415 $247,078 $58,224 $2,654,647 

Balance at March 31, 202059,975,281 $586 $1,596,680 $361,242 $44,409 $2,002,917 
Net loss— — — (99,091)— (99,091)
Other comprehensive income— — — — 13,815 13,815 
Cash dividends declared ($0.25 per common share)— — — (14,992)— (14,992)
Dividend equivalents declared ($0.25 per restricted stock unit)— — 81 (81)— 
Share-based compensation expense— — 2,539 — — 2,539 
Issuance of restricted stock, net23,229 — — — — 
Issuance of common stock - acquisition34,407,403 344 749,259 — — 749,603 
Restricted stock surrendered and canceled(61,367)— (265)— (265)
Exercise of stock options6,356 — 121 — 121 
Balance at June 30, 202094,350,902 $930 $2,348,415 $247,078 $58,224 $2,654,647 
    
______________________________
(1) Related to the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

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

6


PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended
 June 30,June 30,
(Dollars in thousands)20212020
Cash flows from operating activities:  
Net income (loss)$164,970 $(73,351)
Adjustments to net income:  
Depreciation and amortization expense8,081 5,525 
Provision for credit losses(36,502)186,089 
Share-based compensation expense6,562 4,848 
Loss on sales and disposals of premises and equipment71 211 
Loss on sale of or write down of other real estate owned55 
Net amortization on securities11,219 3,739 
Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs(21,409)(9,652)
Gain on sales of investment securities available-for-sale(9,131)(7,739)
Loss on debt extinguishment1,150 
Originations of loans held for sale(20,264)(10,163)
Proceeds from the sales of and principal payments from loans held for sale17,609 13,490 
(Gain) loss on sales of loans(1,907)1,261 
Deferred income tax expense (benefit)20,647 (46,608)
Change in accrued expenses and other liabilities, net(22,500)70,342 
Income from bank owned life insurance, net(3,388)(2,119)
Amortization of intangible assets8,144 8,029 
Change in accrued interest receivable and other assets, net47,069 (46,134)
Net cash provided by operating activities170,421 97,823 
Cash flows from investing activities:  
Net decrease in interest-bearing time deposits with financial institutions137 
Loan originations and payments, net(339,184)(527,053)
Proceeds from loans held for sale previously classified as portfolio loans449 38,246 
Purchase of loans held for investment(66,470)
Proceeds from prepayments and maturities of securities held-to-maturity4,790 5,208 
Purchase of securities available-for-sale(1,331,037)(458,667)
Proceeds from prepayments and maturities of securities available-for-sale273,521 63,985 
Proceeds from sale of securities available-for-sale464,651 339,853 
Proceeds from the sales of premises and equipment13 42 
Proceeds from surrender of bank-owned life insurance1,307 
Purchase of bank-owned life insurance(150,000)
Purchases of premises and equipment(3,102)(1,198)
Change in FHLB, FRB, and other stock, at cost86 (44)
Funding of CRA investments, net(13,603)(7,375)
Change in cash acquired in acquisitions, net937,100 
Net cash (used in) provided by investing activities(1,091,972)323,627 
Cash flows from financing activities:  
Net increase in deposit accounts800,920 1,162,194 
Net change in short-term borrowings(10,000)(681,000)
Repayment of long-term FHLB borrowings(21,503)(5,000)
Proceeds from issuance of subordinated debt, net147,359 
Redemption of junior subordinated debt securities(25,750)
Cash dividends paid(59,521)(29,874)
Repurchase and retirement of common stock(6,897)
Proceeds from exercise of stock options732 1,024 
Restricted stock surrendered and canceled(5,308)(1,273)
Net cash provided by financing activities672,673 593,430 
Net (decrease) increase in cash and cash equivalents(248,878)1,014,880 
Cash and cash equivalents, beginning of period880,766 326,850 
Cash and cash equivalents, end of period$631,888 $1,341,730 
Supplemental cash flow disclosures:  
Interest paid$21,614 $28,057 
Income taxes paid35,211 125 
Noncash investing activities during the period:
Transfers from portfolio loans to loans held for sale42,169 
Recognition of operating lease right-of-use assets(11,118)
Recognition of operating lease liabilities11,118 
Receivable on unsettled security sales6,529 
Due on unsettled security purchases(12,830)(33,960)
Acquisitions (See Note 4):  
Fair value of stock and equity award consideration749,603 
Cash consideration
Fair value of assets acquired8,097,225 
Liabilities assumed7,347,620 
Accompanying notes are an integral part of these consolidated financial statements.
7


PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)

Note 1 - Basis of Presentation
 
The consolidated financial statements include the accounts of Pacific Premier Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiaries, including Pacific Premier Bank (the “Bank”) (collectively, the “Company,” “we,” “our,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation.
 
In the opinion of management, the unaudited consolidated financial statements reflect all normal recurring adjustments and accruals that are necessary for a fair presentation of the statement of financial position and the results of operations for the interim periods presented. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2021. Certain items in the prior year financial statements were reclassified to conform to the current year presentation. Reclassification had no effect on prior year net income or stockholders’ equity.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
 
The Company consolidates voting entities in which the Company has control through voting interests or entities through which the Company has a controlling financial interest in a variable interest entity (“VIE”). The Company evaluates its interests in these entities to determine whether they meet the definition of a VIE and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size, and form of the Company's involvement with the VIE. See Note 16 Variable Interest Entities for additional information.

Effective June 1, 2020, the Corporation completed the acquisition of Opus Bank (“Opus”), a California-chartered state bank headquartered in Irvine, California, for a total consideration of approximately $749.6 million. See further discussion in Note 4 – Acquisitions.



8


Note 2 – Recently Issued Accounting Pronouncements
 
Accounting Standards Adopted in 2021
    
In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. The amendments included in this Update are intended to clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. The guidance in paragraph 310-20-35-33 relates to amortization of premiums on individual callable debt securities and the period over which the premium shall be amortized in relation to the date the security is callable. For public business entities, the amendments in this Update became effective for fiscal years beginning after December 15, 2020, and interim periods within those years. The Company’s adoption of this Update did not have a material impact on its financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this Update clarify the interaction of the accounting for equity securities under Topic 321 and investments under the equity method of accounting in Topic 323, as well as the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments within this Update also clarify that when applying the guidance in paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. The amendments within this Update became effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company’s adoption of this Update did not have a material impact on its financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which includes updates to Topic 740 - Income Taxes. The amendments to this Update include the removal of the following exceptions included in Topic 740:

(1) Exception to the general intra-period tax allocation principle when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);
(2) Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;
(3) Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and
(4) Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The amendments included in this update also require the following:

(1) Requiring that an entity recognize a franchise tax by (i) accounting for the amount based on income under Accounting Standards Codification (“ASC”) 740 and (ii) accounting for any residual amount as a non-income-based tax.
9


(2) Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.
(3) Specifying that an entity is not required to allocate any portion of the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority.
(4) Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.
(5) Making minor Codification improvements for tax benefits related to tax-deductible dividends on employee stock ownership plan shares and investments in qualified affordable housing projects accounted for using the equity method.

The amendments within this Update became effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company’s adoption of this Update did not have a material impact on its financial statements.

Recent Accounting Guidance Not Yet Effective

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), Issuers Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in this Update seek to clarify and reduce diversity in practice when an issuer accounts for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Amendments within this Update should be applied prospectively. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those years. The Company is currently evaluating the impact of this Update on its consolidated financial statements, upon which this accounting guidance is not expected to have a material impact.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The amendments included in this Update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the worldwide transition to new reference rates (commonly referred to as the “discounting transition”).

Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this Update are to the expedients and exceptions in Topic 848 and capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update are effective immediately for all entities that elect to apply the optional guidance in Topic 848.

An entity may elect to apply the amendments in this Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued. The Company is currently evaluating the impact of this Update on its consolidated financial statements, upon which this accounting guidance is not expected to have a material impact.


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

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

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

The Company has created a cross-functional working group to manage the transition away from LIBOR. This working group is comprised of senior leadership and staff from functional areas that include: finance, treasury, lending, loan servicing, enterprise risk management, information technology, legal, and other internal stakeholders integral to the Bank’s transition away from LIBOR. The working group monitors developments related to transition and uncertainty surrounding reference rate reform and guides the Bank’s response. The working group is currently assessing the population of financial instruments that reference LIBOR, confirming our loan documents that reference LIBOR have been appropriately amended, ensuring that our internal systems are prepared for the transition, and managing the transition process with our customers.


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In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The FASB issued this Update to address complexities associated with the accounting for certain financial instruments that possess characteristics of liabilities and equity, and to amend guidance for the derivatives scope exception for contracts in an entity’s own equity in an effort to reduce disparate accounting results for certain economically similar contracts. With respect to convertible instruments, this Update eliminates certain accounting models with the intent to simplify the accounting for convertible instruments and reduce the complexity for preparers and users of an entity’s financial statements. Convertible instruments primarily affected by this Update are those issued with beneficial conversion features or cash conversion features, because the accounting models for those specific features are removed. For contracts in an entity’s own equity, the type of contracts primarily affected by this Update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This Update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. This Update also makes targeted improvements to the disclosures for convertible instruments and earnings per share guidance. Entities may adopt the provisions of this Update using either the modified retrospective method or a fully retrospective method. Under the modified retrospective method, entities are required to apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments in this Update are adopted. Any cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the year of adoption for entities applying the modified retrospective method. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is evaluating the impact of this Update on its financial statements.




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Note 3 – Significant Accounting Policies
 
Our accounting policies are described in Note 1. Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2020 Form 10-K. Select policies have been reiterated below that have a particular affiliation to our interim financial statements.

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

Goodwill and Other Intangible Assets. Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have indefinite useful lives are not amortized, but are tested for impairment at least annually or more frequently if events and circumstances lead management to believe the value of goodwill may be impaired. Impairment testing is performed at the reporting unit level, which is considered the Company level as management has identified the Company is its sole reporting unit as of June 30, 2021. Management’s assessment of goodwill is performed in accordance with ASC 350-20 - Intangibles - Goodwill and Other - Goodwill, which allows the Company to first perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value. However, GAAP also allows the Company, at its option, to unconditionally forego the qualitative assessment and proceed directly to a quantitative assessment. When performing a qualitative assessment of goodwill, should the results of such analysis indicate it is more likely than not the fair value of the Company’s equity is below its carrying value, the Company then performs the quantitative assessment of goodwill to determine the fair value of the reporting unit and compares it to its carrying value. If the fair value of the reporting unit is below its carrying value, the Company would then recognize the amount of impairment as the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to the reporting unit. Impairment losses are recorded as a charge to noninterest expense.

Other intangible assets consist of core deposit intangible (“CDI”) and customer relationship intangible assets arising from whole bank acquisitions, and are amortized on either an accelerated basis, reflecting the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, or on a straight-line amortization method over their estimated useful lives, which range from 6 to 11 years. GAAP also requires that intangible assets other than goodwill be tested for impairment when events and circumstances change, indicating that their carrying value may not be recoverable. For intangible assets other than goodwill, the Company first performs a qualitative assessment to determine if the carrying value of such assets may not be recoverable. A quantitative assessment is followed to determine the amount of impairment in the event the carrying value of such assets are deemed not recoverable. Impairment is measured as the amount by which their carrying value exceeds their estimated fair value.
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Leases. The Company accounts for its leases in accordance with ASC 842, which requires the Company to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased asset. Leases with a term of 12 months or less are accounted for using straight-line expense recognition with no right-of-use asset being recorded for such leases. Other than short-term leases, the Company classifies its leases as either finance leases or operating leases. Leases are classified as finance leases when any of the following are met: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (b) the lease contains an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c) the term of the lease represents a major part of the remaining life of the underlying asset, (d) the present value of the future lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (e) the underling leased asset is expected to have no alternative use to the lessor at the end of the lease term due to its specialized nature. When the Company’s assessment of a lease does not meet the foregoing criteria, and the term of the lease is in excess of 12 months, the lease is classified as an operating lease.    

Liabilities to make lease payments and right-of-use assets are determined based on the total contractual base rents for each lease, discounted at the rate implicit in the lease or at the Company’s estimated incremental borrowing rate if the rate is not implicit in the lease. The Company measures future base rents based on the minimum payments specified in the lease agreement, giving consideration for periodic contractual rent increases which are based on an escalation rate or a specified index. When future rent payments are based on an index, the Company uses the index rate observed at the time of lease commencement to measure future lease payments. Liabilities to make lease payments are accounted for using the interest method, which are reduced by periodic rent payments, net of interest accretion. Right-of-use assets for finance leases are amortized on a straight-line basis over the term of the lease, while right-of-use assets for operating leases are amortized over the term of the lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion on the related liability to make lease payments. Expense recognition for finance leases is representative of the sum of periodic amortization of the associated right-of-use asset as well as the periodic interest accretion on the liability to make lease payments. Expense recognition for operating leases is recorded on a straight-line basis. As of June 30, 2021, all of the Company’s leases were classified as either operating leases or short-term leases.

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

Securities. The Company has established written guidelines and objectives for its investing activities. At the time of purchase, management designates the security as either held-to-maturity, available-for-sale, or held for trading based on the Company’s investment objectives, operational needs, and intent. The investments are monitored to ensure that those activities are consistent with the established guidelines and objectives.
 
Securities Held-to-Maturity. Investments in debt securities that management has the positive intent and ability to hold to maturity are reported at cost and adjusted for periodic principal payments and the amortization of premiums and accretion of discounts, which are recognized in interest income using the interest method over the period of time remaining to investment’s maturity. 

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

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

Allowance for Credit Losses on Investment Securities. The ACL on investment securities is determined for both the held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with ASC 326. The ACL for held-to-maturity investment securities is recorded at the time of purchase or acquisition, representing the Company’s best estimate of current expected future credit losses as of the date for the consolidated statements of financial condition. The ACL for held-to-maturity investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. For investment securities where the Company has reason to believe the credit loss exposure is remote, such as those guaranteed by the U.S. government or other government enterprises, a zero credit loss assumption is applied. For available-for-sale investment securities, the Company performs a quarterly qualitative evaluation of securities in an unrealized loss position to determine if, for those investments in an unrealized loss position, the decline in fair value is credit related or non-credit related. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer, (iii) downgrades in credit ratings, (iv) payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments, and (vi) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads. If it is determined that the unrealized loss can be attributed to credit loss, the Company records the amount of credit loss through a charge to provision for credit losses in current period earnings. However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If it is likely the Company will be required to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings. Unrealized losses deemed non-credit related are recorded, net of tax, through accumulated other comprehensive income.
    
The Company determines expected credit losses on available-for-sale and held-to-maturity securities through a discounted cash flow approach, using the security’s effective interest rate. However, as previously mentioned, the measurement of credit losses on available-for-sale securities only occurs when, through the Company’s qualitative assessment, it is determined all or a portion of the unrealized loss is deemed to be credit related. The Company’s discounted cash flow approach incorporates assumptions about the collectability of future cash flows. The amount of credit loss is measured as the amount by which the security’s amortized cost exceeds the present value of expected future cash flows. Credit losses on available-for-sale securities are measured on an individual basis. The Company does not measure credit losses on an investment’s accrued interest receivable, but rather promptly reverses from current period earnings the amount of accrued interest that is no longer deemed collectible. Accrued interest receivable for investment securities is included in accrued interest receivable balances in the consolidated statements of financial condition.


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Loans Held for Investment. Loans held for investment are loans the Company has the ability and intent to hold until their maturity. These loans are carried at amortized cost, including discounts and premiums on purchased and acquired loans, and net deferred loan origination fees and costs. Purchase discounts and premiums and net deferred loan origination fees and costs on loans are accreted or amortized as an adjustment of yield, using the interest method, over the expected lives of the loans. Income recognition of deferred loan fees, deferred loan costs, discounts and premiums is discontinued for loans that are placed on nonaccrual. Any remaining discounts, premiums, deferred loan fees or costs, and prepayment fees associated with loan payoffs prior to contractual maturity are included in loan interest income in the period of payoff. Loan commitment fees received to originate or purchase a loan are deferred and, if the commitment is exercised, recognized over the life of the loan using the interest method as an adjustment of yield or, if the commitment expires unexercised, recognized as income upon expiration of the commitment. 

The Company accrues interest on loans using the interest method and only if deemed collectible. Loans for which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of interest on loans is discontinued when principal or interest is past due 90 days or more based on the contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to collection of principal and or interest. When loans are placed on nonaccrual status, previously accrued and uncollected interest is promptly reversed against current period interest income, and as such an ACL for accrued interest receivable is not established. Interest income generally is not recognized on nonaccrual loans unless the likelihood of further loss is remote. Interest payments received on nonaccrual loans are applied as a reduction to the loan principal balance. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to all principal and interest.

Allowance for Credit Losses on Loans. The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination or acquisition. The ACL is maintained at a level deemed appropriate by management to provide for current expected future credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company measures the ACL on commercial real estate loans and commercial loans using a discounted cash flow approach, and a historical loss rate methodology is used to determine the ACL on retail loans. The Company’s discounted cash flow methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the probability of default and loss given default model with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows ultimately reflect assumptions made concerning net credit losses over the life of a loan. The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon. Management leverages economic projections from a reputable and independent third party to inform and provide its reasonable and supportable economic forecasts. Other internal and external indicators of economic forecasts may also be considered by management when developing the forecast metrics. The Company’s ACL model reverts to long-term average loss rates for purposes of estimating cash flows beyond a period deemed reasonable and supportable. The Company forecasts probability of default and loss given default based on economic forecast scenarios over a two-year time horizon before reverting to long-term average loss rates over a period of three years. The duration of the forecast horizon, the period over which forecasts revert to long-term averages, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s probability of default and loss given default, which can drive changes in the determination of the ACL.


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Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL term loans represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows expected to be collected. The ACL for credit facilities is determined by discounting estimates for cash flows not expected to be collected. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the Company’s policy to charge-off loan balances at the time they have been deemed uncollectible. Please also see Note 7 - Allowance for Credit Losses, of these consolidated financial statements for additional discussion concerning the Company’s ACL methodology, including discussion concerning economic forecasts used in the determination of the ACL.

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

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

Although management uses the best information available to derive estimates necessary to measure an appropriate level of ACL, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that may extend beyond the Company’s control. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process. Such agencies may require the Company to recognize additions to the ACL based on judgments different from those of management.

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


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

Investor Loans Secured by Real Estate:

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

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

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

Business Loans Secured by Real Estate:

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

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

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Small Business Administration (“SBA”) - We are approved to originate loans under the SBA’s Preferred Lenders Program (“PLP”). The PLP lending status affords us a higher level of delegated credit autonomy, translating to a significantly shorter turnaround time from application to funding, which is critical to our marketing efforts. We originate loans nationwide under the SBA’s 7(a), SBAExpress, International Trade, and 504(a) loan programs, in conformity with SBA underwriting and documentation standards. SBA loans are similar to commercial business loans, but have additional credit enhancement provided by the U.S. Small Business Administration, for up to 85% of the loan amount for loans up to $150,000 and 75% of the loan amount for loans of more than $150,000. However, as part of the Consolidated Appropriations Act of 2021, the credit enhancement provided by the SBA under the 7(a) program was temporarily increased to 90% through September 30, 2021. The Company originates SBA loans with the intent to sell the guaranteed portion into the secondary market on a quarterly basis. Certain loans classified as SBA are secured by commercial real estate property. SBA loans secured by hotels are included in the segment investor loans secured by real estate, and SBA loans secured by all other forms of real estate are included in the business loans secured by real estate segment. All other SBA loans are included in the commercial loans segment below, and are secured by business assets.

Commercial Loans:

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

Retail Loans:

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

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


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

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

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

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

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In connection with the Opus acquisition on June 1, 2020, the Company acquired PCD loans with an aggregate fair value of approximately $841.2 million, and recorded an ACL of approximately $21.2 million, which was added to the amortized cost of the loans on the date of acquisition.

Other Real Estate Owned (“OREO”). Real estate properties acquired through, or in lieu of, loan foreclosure are recorded at fair value, less cost to sell, with any excess of the loan’s amortized cost balance over the fair value of the property recorded as a charge against the ACL. The Company obtains an appraisal and/or market valuation on all other real estate owned at the time of possession. After foreclosure, valuations are periodically performed by management. Any subsequent declines in fair value are recorded as a charge to non-interest expense in current period earnings with a corresponding write-down to the asset. All legal fees and direct costs, including foreclosure and other related costs, are expensed as incurred.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.



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Note 4 – Acquisitions

Acquisition of Opus

Effective as of June 1, 2020, the Corporation completed the acquisition of Opus, a California-chartered state bank headquartered in Irvine, California, pursuant to a definitive agreement dated as of January 31, 2020. At closing, Opus had $8.32 billion in total assets, $5.94 billion in gross loans, and $6.91 billion in total deposits and operated 46 banking offices located throughout California, Washington, Oregon, and Arizona. As a result of the Opus acquisition, the Corporation acquired specialty lines of business, including trust and escrow services.

Prior to the Opus acquisition, PENSCO Trust Company LLC, a Colorado-chartered non-depository trust company (“PENSCO”), operated as an indirect, wholly-owned subsidiary of Opus and served as a custodian for self-directed individual retirement accounts (“IRA”), the funds of which account owners used for self-directed investments in various alternative asset classes. Immediately following the Opus acquisition, PENSCO merged with and into the Bank and operates its custodial business under the name of Pacific Premier Trust, as a division of the Bank. As of May 31, 2020, PENSCO had approximately $14.48 billion of custodial assets and approximately 44,000 client accounts.

Prior to the Opus acquisition, Commerce Escrow operated as a division of Opus, offering commercial escrow services and facilitating tax-deferred commercial exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). Following the acquisition of Opus, Commerce Escrow operates as a division of the Bank, which created synergies with the Company’s existing escrow deposit business.

The acquisition of Opus expanded the Company’s presence in major metropolitan markets with greater operational scale, diversifies business lines, banking products and services, as well as deposit base and clients by adding a new channel of stable, low-cost deposits and fee income from Opus’s trust and escrow businesses, improves revenue, and accelerates the Company’s ability to invest in technology solutions and increase efficiencies.

Pursuant to the terms of the merger agreement, the consideration paid to Opus shareholders consisted of whole shares of the Corporation’s common stock and cash in lieu of fractional shares of the Corporation’s common stock. Upon consummation of the transaction, (i) each share of Opus common stock issued and outstanding immediately prior to the effective time of the acquisition was canceled and exchanged for the right to receive 0.900 shares of the Corporation’s common stock, with cash to be paid in lieu of fractional shares at a rate of $19.31 per share, and (ii) each share of Opus Series A non-cumulative, non-voting preferred stock issued and outstanding immediately prior to the effective time of the acquisition was converted into and canceled in exchange for the right to receive that number of shares of the Corporation’s common stock equal to the product of (X) the number of shares of Opus common stock into which such share of Opus preferred stock was convertible in connection with, and as a result of, the acquisition, and (Y) 0.900, in each case, plus cash in lieu of fractional shares of the Corporation’s common stock.

The Corporation issued 34,407,403 shares, net of 165,136 shares for tax withholding from Opus equity award holders, of the Corporation’s common stock valued at $21.62 per share, which was the closing price of the Corporation’s common stock on May 29, 2020, the last trading day prior to the consummation of the acquisition, and paid cash in lieu of fractional shares. The Corporation assumed Opus’s warrants and options, which represented the issuance of up to approximately 406,778 and 9,538 additional shares of the Corporation’s common stock, valued at approximately $1.8 million and $46,000, respectively, and issued substitute restricted stock units in an aggregate amount of $328,000. The value of the total transaction consideration paid amounted to approximately $749.6 million. The Opus warrants assumed by the Corporation expired unexercised as of September 30, 2020 and no longer remain outstanding. The Opus options assumed by the Corporation were fully exercised during the third quarter of 2020.

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(Dollars in thousands)May 29, 2020
Merger consideration
Value of stock consideration paid to shareholders$747,458 
Cash paid in lieu of fractional shares
Value of restricted stock awards328 
Value of options and warrants (1)
1,817 
Total merger consideration$749,605 
______________________________
(1) The Opus warrants assumed by the Corporation expired unexercised on September 30, 2020 and no longer remain outstanding. The Opus options assumed by the Corporation were fully exercised during the third quarter of 2020.

Core deposit intangible of $16.1 million, customer relationship intangible of $3.2 million, and goodwill of $93.0 million were recognized as a result of the acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed of Opus as of June 1, 2020 under the acquisition method of accounting, net of purchase accounting adjustments:

(Dollars in thousands)June 1, 2020
Net identifiable assets acquired, at fair value
Assets acquired
Cash and cash equivalents$937,102 
Interest bearing time deposits with financial institutions137 
Investment securities829,891 
Loans5,809,451 
Allowance for credit losses(21,242)
Premises and equipment22,121 
Intangible assets19,267 
Deferred tax assets43,395 
Other assets369,169 
Total assets acquired$8,009,291 
Liabilities assumed
Deposits$6,915,990 
FHLB advances and other borrowings213,491 
Subordinated debt138,653 
Other liabilities84,542 
Total liabilities assumed7,352,676 
Total fair value of net identifiable assets656,615 
Total merger consideration749,605 
Goodwill recognized$92,990 


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The Company accounted for this transaction under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed and consideration exchanged to be recorded at their respective estimated fair values at the date of acquisition. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition, and other future events that are highly subjective in nature and subject to refinement for up to one year after the closing date of acquisition as additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. Since the acquisition, the Company has made a net adjustment of $146,000 related to loans, deferred tax assets, other assets, and other liabilities. In May 2021, the Company finalized its fair values analysis of the acquired assets and assumed liabilities associated with this acquisition.

The Company determined the fair value of loans, intangible assets, investment securities, real property, leases, deposits, and borrowings with the assistance of third-party valuations.

Loans

Opus’s loan portfolio was recorded at fair value at the date of acquisition. A valuation of Opus’s loan portfolio was performed by a third party as of the acquisition date in accordance with ASC 820 to assess the fair value of the loan portfolio, considering adjustments for interest rate risk, required equity return, servicing, credit, and liquidity risk. The loan portfolio was segmented into two groups: non-PCD loans and PCD loans. The non-PCD loans were pooled based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status. The PCD loans were valued at the loan level with similar characteristics noted above. The fair value was calculated using a discounted cash flow analysis. The discount rate utilized to analyze fair value considered the cost of funds rate, capital charge, servicing costs, and liquidity premium, mostly based on industry standards.

At the acquisition date, non-PCD loans and PCD loans had a fair value of $4.94 billion and $841.2 million, respectively, and a contractual balance of $5.05 billion and $896.5 million, respectively. In accordance with GAAP, there was no carryover of the allowance for credit losses that had been previously recorded by Opus. The Company recorded an ACL of $75.9 million through an increase to the provision for credit losses. The initial ACL for PCD loans of $21.2 million was established through an adjustment to the acquired loan balance and goodwill.

Core deposit intangible

The CDI on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates and maintenance costs, and costs of alternative funding using the discounted cash flow approach. The core deposit intangibles represent the costs saved by the Company between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base.

Customer relationship intangible

PENSCO operated as the legal trustee for its clients to provide recurring trust services over the life of client’s trust, and as a custodian for certain accounts that do not qualify as individual retirement accounts pursuant to the Internal Revenue Code. PENSCO could separately identify each of its customer relationships through the trustee agreement between each customer and PENSCO, as well as account-level specific information, and has a history and pattern of conducting business with them as their legal trustee. In the event that PENSCO (or its successor trust division within the Bank) were to merge, reorganize, get acquired, or change its name, the surviving entity will become the trustee or custodian of the IRAs provided that the surviving entity is authorized to serve in that capacity pursuant to the Internal Revenue Code. Accordingly, such PENSCO client relationships met the contractual or other legal rights criterion for identification as a recognizable intangible asset separate from goodwill. The fair value of the customer relationship intangible asset was determined through the use of an excess earnings model associated with the expected fee income associated with underlying client relationships.
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Fixed maturity deposits

In determining the fair value of certificates of deposit, the cash flows of the contractual interest payments during the specific period of the certificates of deposit and scheduled principal payout were discounted to present value at market-based interest rates.

FHLB advances

The fair value of fixed rate Federal Home Loan Bank of San Francisco (“FHLB”) advances was determined using a discounted cash flow approach. The cash flows of the advances were projected based on scheduled payments of the fixed rate advances, factoring in prepayment fees. The cash flows were then discounted to present value using the FHLB rates as of May 29, 2020.

Subordinated debt

The fair value of subordinated debt was determined by using a discounted cash flow method using a market participant discount rate for similar instruments.

The Company incurred $5,000 of expenses in connection with the Opus acquisition during the six months ended June 30, 2021 compared with $39.3 million during the three months ended June 30, 2020. Merger-related expenses are included in noninterest expense in the Company's consolidated statements of income.

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three and six months ended June 30, 2020 as if Opus had been acquired on January 1, 2020. This unaudited pro forma information combines the historical results of Opus with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented, and the differences could be significant.
Three Months EndedSix Months Ended
(Dollar in thousands, except per share data)June 30, 2020June 30, 2020
Net interest and other income$203,240 $375,984 
Net loss(62,479)(119,931)
Basic loss per share(0.67)(1.29)
Diluted loss per share(0.67)(1.29)
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Note 5 – Investment Securities
 
The amortized cost and estimated fair value of securities were as follows:
 June 30, 2021
(Dollars in thousands)Amortized
 Cost
Gross Unrealized
Gain
Gross Unrealized
Loss
Estimated
Fair Value
Investment securities available-for-sale:    
U.S. Treasury$109,847 $2,008 $(47)$111,808 
Agency554,342 6,335 (5,510)555,167 
Corporate355,101 5,957 (2,676)358,382 
Municipal bonds1,348,346 36,296 (5,169)1,379,473 
Collateralized mortgage obligations617,596 287 (3,145)614,738 
Mortgage-backed securities1,465,117 11,216 (8,454)1,467,879 
Total investment securities available-for-sale4,450,349 62,099 (25,001)4,487,447 
Investment securities held-to-maturity:
Mortgage-backed securities17,378 887 18,265 
Other1,555 1,555 
Total investment securities held-to-maturity18,933 887 19,820 
Total investment securities$4,469,282 $62,986 $(25,001)$4,507,267 
 December 31, 2020
(Dollars in thousands)Amortized
Cost
Gross Unrealized
Gain
Gross Unrealized
Loss
Estimated
Fair Value
Investment securities available-for-sale:    
U.S. Treasury$30,153 $2,380 $$32,533 
Agency666,702 24,292 (608)690,386 
Corporate412,223 3,591 (506)415,308 
Municipal bonds1,412,012 37,260 (3,253)1,446,019 
Collateralized mortgage obligations513,259 819 (712)513,366 
Mortgage-backed securities812,384 21,662 (543)833,503 
Total investment securities available-for-sale3,846,733 90,004 (5,622)3,931,115 
Investment securities held-to-maturity:
Mortgage-backed securities22,124 1,281 23,405 
Other1,608 1,608 
Total investment securities held-to-maturity23,732 1,281 25,013 
Total investment securities$3,870,465 $91,285 $(5,622)$3,956,128 
Investment securities with carrying values of $134.6 million and $147.3 million as of June 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, other borrowings, and for other purposes as required or permitted by law.

At June 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
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Unrealized Gains and Losses

Unrealized gains and losses on investment securities available-for-sale are recognized in stockholders’ equity as accumulated other comprehensive income or loss. At June 30, 2021, the Company had accumulated other comprehensive income of $37.1 million, or $26.5 million net of tax, compared to an accumulated other comprehensive income of $84.4 million, or $60.3 million net of tax, at December 31, 2020.
    
The table below shows the number, fair value, and gross unrealized holding losses of the Company’s investment securities by investment category and length of time that the securities have been in a continuous loss position.
 June 30, 2021
 Less than 12 Months12 Months or LongerTotal
(Dollars in thousands)NumberFair
Value
Gross
Unrealized
Losses
NumberFair
Value
Gross
Unrealized
Losses
NumberFair
Value
Gross
Unrealized
Losses
Investment securities available-for-sale:
U.S. Treasury$38,568 $(47)$$$38,568 $(47)
Agency24 358,145 (5,244)9,355 (266)33 367,500 (5,510)
Corporate11 91,496 (2,676)11 91,496 (2,676)
Municipal bonds68 375,132 (5,169)68 375,132 (5,169)
Collateralized mortgage obligations35 373,224 (3,145)351 36 373,575 (3,145)
Mortgage-backed securities.68 838,125 (8,454)68 838,125 (8,454)
Total investment securities available-for-sale208 $2,074,690 $(24,735)10 $9,706 $(266)218 $2,084,396 $(25,001)

 December 31, 2020
 Less than 12 Months12 Months or LongerTotal
(Dollars in thousands)NumberFair
Value
Gross
Unrealized
Losses
NumberFair
Value
Gross
Unrealized
Losses
NumberFair
Value
Gross
Unrealized
Losses
Investment securities available-for-sale:
Agency$74,194 $(307)$10,434 $(301)13 $84,628 $(608)
Corporate71,226 (506)71,226 (506)
Municipal bonds56 312,894 (3,253)56 312,894 (3,253)
Collateralized mortgage obligations21 215,603 (710)431 (2)22 216,034 (712)
Mortgage-backed securities16 139,071 (543)16 139,071 (543)
Total investment securities available-for-sale106 $812,988 $(5,319)10 $10,865 $(303)116 $823,853 $(5,622)



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Allowance for Credit Losses on Investment Securities

The Company reviews individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is deemed credit related or due to other factors such as changes in interest rates and general market conditions. An ACL on available-for-sale investment securities is recorded when the fair value of the investment is below its amortized cost and the decline in fair value has been deemed to be credit related through the Company’s qualitative assessment. Non-credit related declines in fair value of available-for-sale investment securities, which may be attributed to changes in interest rates and other market related factors, are not recorded through an ACL. Such declines are recorded as an adjustment to accumulated other comprehensive income, net of tax. In the event the Company is required to sell or has the intent to sell an available-for-sale security that has experienced a decline in fair value below its amortized cost, the Company writes the amortized cost of the security down to fair value in the current period.

Credit losses on held-to-maturity investment securities are recorded at the time of purchase or acquisition and when the Company has designated securities as held-to-maturity. Credit losses on held-to-maturity investment securities are representative of current expected credit losses that may be incurred over the life of the investment.

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

During the second quarter of 2020, the Company acquired $829.9 million of available-for-sale securities in connection with the acquisition of Opus. Such securities were evaluated and it was determined that there were 0 investment securities classified as purchase credit deteriorated upon acquisition and, as a result, 0 allowance for credit losses was recorded.

The Company has 0 ACL for held-to maturity investment securities as of June 30, 2021 and December 31, 2020 because the likelihood of non-repayment is remote. The Company has 0 ACL for available-for-sale or investment securities June 30, 2021 and December 31, 2020. As of June 30, 2021, the Company has not recorded credit losses on certain available-for-sale securities that were in an unrealized loss position due to the high quality of the investments, with investment grade ratings, and many of them are issued by U.S. government agencies. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. The Company performed a qualitative assessment of these investments as of June 30, 2021, and does not believe the declines in fair value are credit related. There was 0 provision for credit losses recognized for available-for-sale or held-to-maturity investment securities investment securities during the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, and the six months ended June 30, 2021 and June 30, 2020.

At June 30, 2021 and December 31, 2020, there were 0 available-for-sale or held-to-maturity securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At June 30, 2021 and December 31, 2020, there were 0 securities purchased with deterioration in credit quality since their origination. At June 30, 2021 and December 31, 2020, there were 0 collateral dependent available-for-sale or held-to-maturity securities.

    
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The following table summarizes the Company’s investment securities portfolio by Moody’s external rating equivalent and by vintage as of June 30, 2021:
Vintage
(Dollars in thousands)20212020201920182017PriorTotal
Investment securities available-for-sale:
U.S. Treasury
Aaa - Aa3$33,148 $26,266 $20,481 $21,408 $10,505 $$111,808 
Agency
Aaa - Aa39,572 349,992 55,601 83,752 56,250 555,167 
Corporate debt
A1 - A358,502 60,573 119,075 
Baa1 - Baa336,553 100,494 70,721 17,925 13,614 239,307 
Municipal bonds
Aaa - Aa340,975 907,667 297,852 32,830 60,376 36,124 1,375,824 
A1 - A32,309 2,309 
Baa1 - Baa31,340 1,340 
Collateralized mortgage obligations
Aaa - Aa3142,912 232,492 91,915 20,786 14,443 112,190 614,738 
Mortgage-backed securities
Aaa - Aa3834,439 437,746 96,261 12,600 40,338 46,495 1,467,879 
Total investment securities available-for-sale1,097,599 2,113,159 632,831 171,376 143,587 328,895 4,487,447 
Investment securities held-to-maturity:
Mortgage-backed securities
Aaa - Aa35,029 4,481 7,868 17,378 
Other
Baa1 - Baa3608 947 1,555 
Total investment securities held-to-maturity5,637 4,481 8,815 18,933 
Total investment securities$1,097,599 $2,113,159 $632,831 $177,013 $148,068 $337,710 $4,506,380 
        
Realized Gains and Losses

During the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, the Company recognized gross gains on sales of available-for-sale securities in the amount of $10.0 million, $4.2 million, and $1.3 million, respectively. During the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, the Company recognized gross losses on sales of available-for-sale securities in the amount of $5.0 million, $191,000, and $1.3 million, respectively. The Company had net proceeds from the sales of available-for-sale securities of $285.3 million, $179.4 million, and $191.1 million, of which $6.5 million were receivables on unsettled securities sales, during the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively.

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

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Contractual maturities

The amortized cost and estimated fair value of investment securities at June 30, 2021, by contractual maturity, are shown in the table below.
Due in One Year
or Less
Due after One Year
through Five Years
Due after Five Years
through Ten Years
Due after
Ten Years
Total
(Dollars in thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Investment securities available-for-sale:          
U.S. Treasury$$$30,135 $31,913 $79,712 $79,895 $$$109,847 $111,808 
Agency312,054 314,952 184,783 184,414 57,505 55,801 554,342 555,167 
Corporate54,024 54,074 9,670 9,714 291,407 294,594 355,101 358,382 
Municipal bonds12,830 12,830 4,619 4,918 77,533 80,607 1,253,364 1,281,118 1,348,346 1,379,473 
Collateralized mortgage obligations26,394 26,357 229,519 226,997 361,683 361,384 617,596 614,738 
Mortgage-backed securities2,121 2,252 479,885 486,001 983,111 979,626 1,465,117 1,467,879 
Total investment securities available-for-sale66,854 66,904 384,993 390,106 1,342,839 1,352,508 2,655,663 2,677,929 4,450,349 4,487,447 
Investment securities held-to-maturity:
Mortgage-backed securities17,378 18,265 17,378 18,265 
Other1,555 1,555 1,555 1,555 
Total investment securities held-to-maturity18,933 19,820 18,933 19,820 
Total investment securities$66,854 $66,904 $384,993 $390,106 $1,342,839 $1,352,508 $2,674,596 $2,697,749 $4,469,282 $4,507,267 


FHLB, FRB, and Other Stock

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

The Company periodically evaluates its investments in FHLB, FRB, and other stock for impairment, including their capital adequacy and overall financial condition. NaN impairment losses have been recorded through June 30, 2021.


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Note 6 – Loans Held for Investment
 
The Company’s loan portfolio is segmented according to loans that share similar attributes and risk characteristics.

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

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

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

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


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The following table presents the composition of the loan portfolio for the periods indicated:
June 30,December 31,
(Dollars in thousands)20212020
Investor loans secured by real estate
CRE non-owner-occupied$2,810,233 $2,675,085 
Multifamily5,539,464 5,171,356 
Construction and land297,728 321,993 
SBA secured by real estate53,003 57,331 
Total investor loans secured by real estate8,700,428 8,225,765 
Business loans secured by real estate
CRE owner-occupied2,089,300 2,114,050 
Franchise real estate secured358,120 347,932 
SBA secured by real estate72,923 79,595 
Total business loans secured by real estate2,520,343 2,541,577 
Commercial loans
Commercial and industrial1,795,144 1,768,834 
Franchise non-real estate secured401,315 444,797 
SBA non-real estate secured13,900 15,957 
Total commercial loans2,210,359 2,229,588 
Retail loans
Single family residential157,228 232,574 
Consumer6,240 6,929 
Total retail loans163,468 239,503 
Gross loans held for investment (1)
13,594,598 13,236,433 
Allowance for credit losses for loans held for investment(232,774)(268,018)
Loans held for investment, net$13,361,824 $12,968,415 
Total unfunded loan commitments$2,345,364 $1,947,250 
Loans held for sale, at lower of cost or fair value$4,714 $601 
______________________________
(1) Includes unaccreted fair value net purchase discounts of $94.4 million and $113.8 million as of June 30, 2021 and December 31, 2020, respectively.


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Loans Serviced for Others and Loan Securitization

The Company generally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company records a servicing asset at fair value within its other assets category. Servicing assets are subsequently measured using the amortization method and amortized to noninterest income. Servicing assets are evaluated for impairment based on the fair value of the assets as compared to carrying amount. At June 30, 2021 and December 31, 2020, the servicing asset totaled $4.4 million and $5.3 million, respectively, and was included in other assets in the Company’s consolidated statement of financial condition. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At June 30, 2021 and December 31, 2020, the Company determined that no valuation allowance was necessary.
    
Opus entered into securitization sales on December 23, 2016 with the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The transaction involved the sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored transaction. One class of Freddie Mac guaranteed structured pass-through certificates was issued and purchased entirely by Opus. In connection with the Opus acquisition, the Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and reimbursement obligations. Servicing responsibilities on loan sales generally include obligations to collect and remit payments of principal and interest, provide foreclosure services, manage payments of taxes and insurance premiums, and otherwise administer the underlying loans. In connection with the securitization transaction, Freddie Mac was designated as the master servicer and appointed the Company to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with the exception of the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are separately designated to the special servicer, a third-party institution that is independent of the master servicer and the Company. The master servicer has the right to terminate the Company in its role as sub-servicer and direct such responsibilities accordingly.

General representations and warranties associated with loan sales and securitization sales require the Company to uphold various assertions that pertain to the underlying loans at the time of the transaction, including, but not limited to, compliance with relevant laws and regulations, absence of fraud, enforcement of liens, no environmental damages, and maintenance of relevant environmental insurance. Such representations and warranties are limited to those that do not meet the quality represented at the transaction date and do not pertain to a decline in value or future payment defaults. In circumstances where the Company breaches its representations and warranties, the Company would generally be required to cure such instances through a repurchase or substitution of the subject
loan(s).

To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the Company is obligated to reimburse Freddie Mac for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date of December 23, 2016. The liability recorded for Company’s exposure to the reimbursement agreement with Freddie Mac was $448,000 as of June 30, 2021 and December 31, 2020.

Loans sold and serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balance of loans and participations serviced for others were $618.3 million at June 30, 2021 and $686.0 million at December 31, 2020. Included within the balances were loans transferred through securitization with Freddie Mac of $94.6 million and SBA participations serviced for others of $387.8 million at June 30, 2021, and loans transferred through securitization with Freddie Mac of $99.4 million and SBA participations serviced for others of $421.7 million at December 31, 2020.


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Concentration of Credit Risk
 
As of June 30, 2021, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located predominately in California. The Company’s loan portfolio contains concentrations of credit in multifamily, CRE non-owner-occupied, CRE owner-occupied, and C&I business loans. The Bank maintains policies approved by the Bank’s Board of Directors (the “Bank Board”) that address these concentrations and diversifies its loan portfolio through loan originations, purchases, and sales to meet approved concentration levels.

Under applicable laws and regulations, the Bank may not make secured loans to one borrower in excess of 25% of the Bank’s unimpaired capital plus surplus and likewise in excess of 15% of the Bank’s unimpaired capital plus surplus for unsecured loans. These loans-to-one borrower limitations result in a dollar limitation of $833.2 million for secured loans and $500.0 million for unsecured loans at June 30, 2021. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At June 30, 2021, the Bank’s largest aggregate outstanding balance of loans to one borrower was $177.6 million secured by multifamily properties.
 
Credit Quality and Credit Risk Management
 
The Company’s credit quality and credit risk are controlled in 2 areas. The first is the loan origination process, wherein the Bank underwrites credit and chooses which types and levels of risk it is willing to accept. The Company maintains a credit policy which addresses many related topics, sets forth maximum tolerances for key elements of loan risk, and indicates appropriate protocols for identifying and analyzing these risk elements. The policy sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio-wide basis. The credit policy is reviewed annually by the Bank Board. The Bank’s underwriters ensure all key risk factors are analyzed, with most underwriting including a global cash flow analysis of the prospective borrowers. 
    
The second area is in the ongoing oversight of the loan portfolio, where existing credit risk is measured and monitored, and where performance issues are dealt with in a timely and appropriate fashion. Credit risk is monitored and managed within the loan portfolio by the Company’s portfolio managers based on both the credit policy and a credit and portfolio review policy. This latter policy requires a program of financial data collection and analysis, thorough loan reviews, property and/or business inspections, monitoring of portfolio concentrations and trends, and incorporation of current business and economic conditions. The portfolio managers also monitor asset-based lines of credit, loan covenants, and other conditions associated with the Company’s business loans as a means to help identify potential credit risk. Most individual loans, excluding the homogeneous loan portfolio, are reviewed at least annually, including the assignment or confirmation of a risk grade
 
Risk grades are based on a 6-grade Pass scale, along with Special Mention, Substandard, Doubtful, and Loss classifications, as such classifications are defined by the regulatory agencies. The assignment of risk grades allows the Company to, among other things, identify the risk associated with each credit in the portfolio and to provide a basis for estimating credit losses inherent in the portfolio. Risk grades are reviewed regularly with the Company’s Credit and Portfolio Review Committee, and the portfolio management and risk grading process is
reviewed on an ongoing basis by an independent loan review function, as well as by regulatory agencies during scheduled examinations.
 
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The following provides brief definitions for risk grades assigned to loans in the portfolio:
 
Pass classifications represent assets with a level of credit quality, in which no well-defined deficiency or weakness exists.
Special Mention assets do not currently expose the Bank to a sufficient risk to warrant classification in one of the adverse categories, but possess correctable deficiencies or potential weaknesses deserving management’s close attention.
Substandard assets are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. These assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. OREO acquired from foreclosure is also classified as Substandard.
Doubtful credits have all the weaknesses inherent in Substandard credits, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss assets are those that are considered uncollectible and of such little value that their continuance as assets is not warranted. Amounts classified as loss are promptly charged off.

The Bank’s portfolio managers also manage loan performance risks, collections, workouts, bankruptcies, and foreclosures. A special department, whose portfolio managers have professional expertise in these areas, typically handles or advises on these types of matters. Loan performance risks are mitigated by our portfolio managers acting promptly and assertively to address problem credits when they are identified. Collection efforts commence immediately upon non-payment, and the portfolio managers seek to promptly determine the appropriate steps to minimize the Company’s risk of loss. When foreclosure will maximize the Company’s recovery for a non-performing loan, the portfolio managers will take appropriate action to initiate the foreclosure process.
 
When a loan is graded as special mention, substandard, or doubtful, the Company obtains an updated valuation of the underlying collateral. If, through the Company’s credit risk management process, it is determined the ultimate repayment of a loan will come from the foreclosure upon and ultimate sale of the underlying collateral, the loan is deemed collateral dependent and evaluated individually to determine an appropriate ACL for the loan. The ACL for such loans is measured as the amount by which the fair value of the underlying collateral, less estimated costs to sell, is less than the amortized cost of the loan. The Company typically continues to obtain or confirm updated valuations of underlying collateral for special mention and classified loans on an annual or biennial basis in order to have the most current indication of fair value of the underlying collateral securing the loan. Additionally, once a loan is identified as collateral dependent, due to the likelihood of foreclosure, and repayment of the loan is expected to come from the eventual sale of the underlying collateral, an analysis of the underlying collateral is performed at least quarterly. Changes in the estimated fair value of the collateral are reflected in the lifetime ACL for the loan. Balances deemed to be uncollectable are promptly charged-off.

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The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of June 30, 2021:
Term Loans by Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
Pass$301,013 $267,646 $477,241 $488,498 $272,907 $923,821 $9,980 $$2,741,106 
Special mention16,356 3,395 17,581 37,332 
Substandard25,834 5,424 537 31,795 
Multifamily
Pass1,027,783 984,120 1,514,852 707,270 570,526 727,578 1,643 5,533,772 
Special mention1,745 2,073 3,818 
Substandard544 559 771 1,874 
Construction and land
Pass36,740 97,789 93,185 35,334 8,765 25,915 297,728 
SBA secured by real estate
Pass500 7,391 10,116 12,155 11,116 41,278 
Special mention3,038 750 3,788 
Substandard1,171 2,361 2,239 2,166 7,937 
Total investor loans secured by real estate1,365,536 1,350,055 2,137,775 1,249,591 870,189 1,715,122 12,160 8,700,428 
Business loans secured by real estate
CRE owner-occupied
Pass276,707 281,668 355,162 269,806 278,179 596,013 3,053 2,060,588 
Special mention6,086 1,741 3,043 10,870 
Substandard6,151 5,873 5,818 17,842 
Franchise real estate secured
Pass59,536 44,384 71,812 54,679 79,691 47,140 357,242 
Special mention878 878 
SBA secured by real estate
Pass2,502 3,423 7,562 11,398 12,676 27,290 64,851 
Special mention150 150 
Substandard1,336 2,160 4,426 7,922 
Total loans secured by business real estate338,745 330,353 440,622 345,111 381,622 680,837 3,053 2,520,343 
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Term Loans by Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
June 30, 2021
Commercial loans
Commercial and industrial
Pass158,312 114,467 243,248 136,513 189,735 95,416 805,860 1,852 1,745,403 
Special mention231 13,558 13,789 
Substandard1,940 1,231 3,334 33 2,365 27,049 35,952 
Franchise non-real estate secured
Pass56,892 26,322 133,288 76,113 35,506 45,833 1,512 375,466 
Substandard2,293 4,559 17,749 1,248 25,849 
SBA non-real estate secured
Pass153 413 2,167 1,469 3,557 4,060 11,819 
Substandard80 345 258 721 677 2,081 
Total commercial loans215,357 143,142 382,538 222,333 246,838 149,643 848,656 1,852 2,210,359 
Retail loans
Single family residential
Pass13,312 6,771 2,524 2,271 8,789 101,020 22,487 157,174 
Substandard54 54 
Consumer loans
Pass44 39 63 23 19 3,012 2,996 6,196 
Substandard37 44 
Total retail loans13,356 6,810 2,594 2,294 8,808 104,123 25,483 163,468 
Totals gross loans$1,932,994 $1,830,360 $2,963,529 $1,819,329 $1,507,457 $2,649,725 $889,352 $1,852 $13,594,598 



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The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of December 31, 2020:
Term Loans by Vintage
(Dollars in thousands)20202019201820172016PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied
Pass$265,901 $541,994 $440,351 $287,580 $279,238 $791,477 $11,114 $$2,617,655 
Special mention6,669 437 2,516 29,738 39,360 
Substandard9,732 2,045 516 5,218 559 18,070 
Multifamily
Pass1,027,644 1,677,716 899,123 665,939 354,859 531,287 420 5,156,988 
Special mention1,758 2,630 8,649 13,037 
Substandard559 772 1,331 
Construction and land
Pass57,309 144,759 73,313 18,625 20,531 6,672 784 321,993 
SBA secured by real estate
Pass8,306 9,029 13,418 6,305 7,696 44,754 
Special mention496 1,032 1,159 1,000 373 306 4,366 
Substandard1,220 2,959 1,091 400 2,541 8,211 
Total investor loans secured by real estate1,351,350 2,386,517 1,437,278 988,649 674,159 1,374,935 12,877 8,225,765 
Business loans secured by real estate
CRE owner-occupied
Pass293,324 409,758 332,672 327,475 225,098 469,704 14,268 246 2,072,545 
Special mention2,190 15,917 3,802 4,153 201 26,263 
Substandard3,636 4,214 1,169 5,973 250 15,242 
Franchise real estate secured
Pass44,413 81,438 66,241 96,999 24,673 27,020 340,784 
Special mention878 1,650 2,652 5,180 
Substandard1,968 1,968 
SBA secured by real estate
Pass3,253 7,637 12,608 16,058 8,488 23,624 71,668 
Special mention1,200 137 1,337 
Substandard184 1,987 1,376 3,043 6,590 
Total loans secured by business real estate344,058 516,400 422,995 446,733 267,062 529,565 14,518 246 2,541,577 
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Term Loans by Vintage
(Dollars in thousands)20202019201820172016PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2020
Commercial loans
Commercial and industrial
Pass127,082 260,368 159,001 210,163 51,800 82,291 801,752 9,315 1,701,772 
Special mention735 2,331 185 1,320 243 17,890 37 22,741 
Substandard3,310 2,737 610 1,333 2,446 32,858 1,027 44,321 
Franchise non-real estate secured
Pass27,607 164,025 94,494 46,174 40,829 27,745 1,361 502 402,737 
Special mention7,267 2,037 230 480 2,321 12,335 
Substandard6,690 3,706 18,425 700 204 29,725 
SBA non-real estate secured
Pass407 2,257 1,558 2,674 610 4,449 259 12,214 
Special mention1,574 1,574 
Substandard83 357 282 340 400 707 2,169 
Total commercial loans155,831 444,000 266,221 280,317 97,412 120,099 854,568 11,140 2,229,588 
Retail loans
Single family residential
Pass10,794 7,714 13,982 14,039 33,968 124,248 27,172 231,917 
Substandard657 657 
Consumer loans
Pass52 112 37 25 3,145 3,508 6,881 
Substandard41 48 
Total retail loans10,846 7,833 14,019 14,064 33,970 128,091 30,680 239,503 
Totals gross loans$1,862,085 $3,354,750 $2,140,513 $1,729,763 $1,072,603 $2,152,690 $912,643 $11,386 $13,236,433 



39


The following tables stratify loans held for investment by delinquencies in the Company’s loan portfolio at the dates indicated:
Days Past Due
(Dollars in thousands)Current30-5960-8990+Total
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied$2,799,890 $$$10,343 $2,810,233 
Multifamily5,539,464 5,539,464 
Construction and land297,728 297,728 
SBA secured by real estate52,563 440 53,003 
Total investor loans secured by real estate8,689,645 10,783 8,700,428 
Business loans secured by real estate
CRE owner-occupied2,084,284 5,016 2,089,300 
Franchise real estate secured358,120 358,120 
SBA secured by real estate72,473 450 72,923 
Total business loans secured by real estate2,514,877 5,466 2,520,343 
Commercial loans
Commercial and industrial1,792,913 29 83 2,119 1,795,144 
Franchise non-real estate secured401,315 401,315 
SBA not secured by real estate13,223 677 13,900 
Total commercial loans2,207,451 29 83 2,796 2,210,359 
Retail loans
Single family residential157,050 178 157,228 
Consumer loans6,240 6,240 
Total retail loans163,290 178 163,468 
Totals$13,575,263 $207 $83 $19,045 $13,594,598 
40


  Days Past Due 
(Dollars in thousands)Current30-5960-8990+Total Gross Loans
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied$2,674,328 $$$757 $2,675,085 
Multifamily5,171,355 5,171,356 
Construction and land321,993 321,993 
SBA secured by real estate56,074 1,257 57,331 
Total investor loans secured by real estate8,223,750 2,014 8,225,765 
Business loans secured by real estate
CRE owner-occupied2,108,746 5,304 2,114,050 
Franchise real estate secured347,932 347,932 
SBA secured by real estate78,036 486 1,073 79,595 
Total business loans secured by real estate2,534,714 486 6,377 2,541,577 
Commercial loans
Commercial and industrial1,765,451 428 57 2,898 1,768,834 
Franchise non-real estate secured444,797 444,797 
SBA not secured by real estate14,912 338 707 15,957 
Total commercial loans2,225,160 766 57 3,605 2,229,588 
Retail loans
Single family residential232,559 15 232,574 
Consumer loans6,928 6,929 
Total retail loans239,487 16 239,503 
Totals$13,223,111 $1,269 $57 $11,996 $13,236,433 

Individually Evaluated Loans

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

As of June 30, 2021, $34.4 million of loans were individually evaluated with no ACL attributed to such loans. At June 30, 2021, $13.1 million of individually evaluated loans were evaluated using a discounted cash flow approach and $21.3 million of individually evaluated loans were evaluated based on the underlying value of the collateral.


41


As of December 31, 2020, $29.2 million of loans were individually evaluated, and the ACL attributed to such loans totaled $126,000. At December 31, 2020, $15.2 million of individually evaluated loans were evaluated using a discounted cash flow approach and $14.0 million of individually evaluated loans were evaluated based on the underlying value of the collateral.

The Company had individually evaluated loans on nonaccrual status of $34.4 million and $29.2 million at June 30, 2021 and December 31, 2020, respectively.

Troubled Debt Restructurings

We sometimes modify or restructure loans when the borrower is experiencing financial difficulties by making a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest only payments, and, in limited cases, concessions to the outstanding loan balances. These loans are classified as TDRs. TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows. A workout plan between us and the borrower is designed to provide a bridge for borrower cash flow shortfalls in the near term. In most cases, the Company initially places TDRs on nonaccrual status, and they may return to accrual status when the loans are brought current, have performed in accordance with the contractual restructured terms for a period of at least six months, and the ultimate collectability of the total contractual restructured principal and interest payments are no longer in doubt. At June 30, 2021, there were $17.8 million loans classified as TDRs, compared with 0 TDR loans as of December 31, 2020. During the three and six months ended June 30, 2021, there were 6 loans totaling $17.8 million modified as TDRs, which are comprised of 3 CRE owner-occupied loans and 1 C&I loan totaling $5.3 million belonging to one borrower relationship with the terms modified due to bankruptcy, and 2 franchise non-real estate secured loans totaling $12.6 million belonging to another borrower relationship with the terms modified for payment deferral. During the three and six months ended June 30, 2021, the 3 CRE owner-occupied loans and 1 C&I loan classified as TDRs were in payment default and all TDRs were on nonaccrual status as of June 30, 2021. During the three and six months ended June 30, 2020, there were 0 TDRs that experienced payment defaults after modifications within the previous 12 months.

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


42


For COVID-19 related loan modifications in the form of payment deferrals, the delinquency status will not advance and loans that were accruing at the time that the relief is provided will generally not be placed on nonaccrual status during the deferral period. Interest income will continue to be recognized over the contractual life of the loan. However, the Company, through its credit portfolio management activities, has continued to monitor facts and circumstances associated with the underlying credit quality of loans modified under the provisions of the CARES Act in an effort to identify any loans where the accrual of interest during the modification period is no longer appropriate. In such cases, the Company ceases the accrual of interest and all previously accrued and uncollected interest is promptly reversed against current period interest income. At June 30, 2021, there was 1 single family residential loan for $819,000 classified as a COVID-19 modification under Section 4013 of the CARES Act. Additionally, as of June 30, 2021, there were no loans in-process for potential modification. At December 31, 2020, 52 loans totaling $79.5 million, or 0.60% of loans held for investment, remained within their COVID-19 modification period.

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

The Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield.

Acquired loans classified as PCD are recorded at an initial amortized cost, which is comprised of the purchase price of the loans (or initial fair value) and the initial ACL determined for the loans, which is added to the purchase price of the loans, and any resulting discount or premium related to factors other than credit. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income by adjusting the related ACL.

Nonaccrual Loans

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

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


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The following tables provide a summary of nonaccrual loans as of the dates indicated:
Nonaccrual Loans (1)
(Dollars in thousands)Collateral Dependent LoansACLNon-Collateral Dependent LoansACLTotal Nonaccrual LoansNonaccrual Loans with No ACL
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied$12,296 $$$$12,296 $12,296 
SBA secured by real estate440 440 440 
Total investor loans secured by real estate12,736 12,736 12,736 
Business loans secured by real estate
CRE owner-occupied5,016 5,016 5,016 
SBA secured by real estate692 692 692 
Total business loans secured by real estate5,708 5,708 5,708 
Commercial loans
Commercial and industrial2,118 552 2,670 2,670 
Franchise non-real estate secured12,584 12,584 12,584 
SBA non-real estate secured677 677 677 
Total commercial loans2,795 13,136 15,931 15,931 
Retail loans
Single family residential12 12 12 
Total retail loans12 12 12 
Total nonaccrual loans$21,251 $$13,136 $$34,387 $34,387 
______________________________
(1) The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent; otherwise, the ACL for collateral dependent nonaccrual loans is determined based on the estimated fair value of the underlying collateral.


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Nonaccrual Loans (1)
(Dollars in thousands)Collateral Dependent LoansACLNon-Collateral Dependent LoansACLTotal Nonaccrual LoansNonaccrual Loans with No ACL
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied$2,792 $$$$2,792 $2,792 
SBA secured by real estate1,257 1,257 1,257 
Total investor loans secured by real estate4,049 4,049 4,049 
Business loans secured by real estate
CRE owner-occupied6,083 6,083 6,083 
SBA secured by real estate1,143 1,143 1,143 
Total business loans secured by real estate7,226 7,226 7,226 
Commercial loans
Commercial and industrial2,040 1,934 126 3,974 2,733 
Franchise non-real estate secured13,238 13,238 13,238 
SBA non-real estate secured707 707 707 
Total commercial loans2,747 15,172 126 17,919 16,678 
Retail loans
Single family residential15 15 15 
Total retail loans15 15 15 
Total nonaccrual loans$14,037 $$15,172 $126 $29,209 $27,968 
______________________________
(1) The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent; otherwise, the ACL for collateral dependent nonaccrual loans is determined based on the estimated fair value of the underlying collateral.

Residential Real Estate Loans In Process of Foreclosure

The Company had 0 consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of June 30, 2021 or December 31, 2020.
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Collateral Dependent Loans

Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

The following tables summarize collateral dependent loans by collateral type as of the dates indicated:
June 30, 2021
(Dollars in thousands)Office PropertiesIndustrial PropertiesRetail PropertiesLand PropertiesHotel PropertiesResidential PropertiesBusiness AssetsTotal
Investor loan secured by real estate
CRE non-owner-occupied$$$2,490 $$9,806 $$$12,296 
SBA secured by real estate440 440 
Total investor loans secured by real estate2,490 10,246 12,736 
Business loans secured by real estate
CRE owner-occupied5,016 5,016 
SBA secured by real estate178 451 63 692 
Total business loans secured by real estate178 451 5,016 63 5,708 
Commercial loans
Commercial and industrial248 240 1,630 2,118 
SBA non-real estate secured677 677 
Total commercial loans248 240 2,307 2,795 
Retail loans
Single family residential12 12 
Total retail loans12 12 
Total collateral dependent loans$178 $451 $2,490 $5,264 $10,246 $315 $2,307 $21,251 
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December 31, 2020
(Dollars in thousands)Office PropertiesIndustrial PropertiesRetail PropertiesLand PropertiesHotel PropertiesResidential PropertiesBusiness AssetsTotal
Investor loan secured by real estate
CRE non-owner-occupied$$$2,594 $$198 $$$2,792 
SBA secured by real estate1,257 1,257 
Total investor loans secured by real estate2,594 1,455 4,049 
Business loans secured by real estate
CRE owner-occupied779 5,304 6,083 
SBA secured by real estate288 757 98 1,143 
Total business loans secured by real estate288 1,536 5,304 98 7,226 
Commercial loans
Commercial and industrial2,040 2,040 
SBA non-real estate secured707 707 
Total commercial loans2,747 2,747 
Retail loans
Single family residential15 15 
Total retail loans15 15 
Total collateral dependent loans$288 $1,536 $2,594 $5,304 $1,455 $113 $2,747 $14,037 


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Note 7 – Allowance for Credit Losses
 
The Company accounts for credit losses on loans and unfunded loan commitments in accordance with ASC 326 - Financial Instruments - Credit Losses, to determine the ACL. ASC 326 requires the Company to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses a discounted cash flow model when determining estimates for the ACL for commercial real estate loans and commercial loans, which comprise the majority of the loan portfolio, and uses a historical loss rate model for retail loans. The Company also utilizes proxy loan data in its ACL model where the Company’s own historical data is not sufficiently available.

The discounted cash flow model is applied on an instrument-by-instrument basis, and for loans with similar risk characteristics, to derive estimates for the lifetime ACL for each loan. The discounted cash flow methodology relies on several significant components essential to the development of estimates for future cash flows on loans and unfunded commitments. These components consist of: (i) the estimated probability of default, (ii) the estimated loss given default, which represents the estimated severity of the loss when a loan is in default, (iii) estimates for prepayment activity on loans, and (iv) the estimated exposure to the Company at default (“EAD”). These components are also heavily influenced by changes in economic forecasts employed in the model over a reasonable and supportable period. The Company’s ACL methodology for unfunded loan commitments also includes assumptions concerning the probability an unfunded commitment will be drawn upon by the borrower. These assumptions are based on the Company’s historical experience.

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

Probability of Default

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


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

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

Loss Given Default

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

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

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


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Forecasts

GAAP requires the Company to develop reasonable and supportable forecasts of future conditions, and estimate how those forecasts are expected to impact a borrower’s ability to satisfy their obligation to the Bank and the ultimate collectability of future cash flows over the life of the loan. The Company uses economic scenarios from an independent third party, Moody’s Analytics, in its estimation of a borrower’s ability to repay a loan in future periods. These scenarios are based on past events, current conditions, and the likelihood of future events occurring. These scenarios typically are comprised of: (1) a base-case scenario, (2) an upside scenario, representing slightly better economic conditions than currently experienced, and (3) a downside scenario, representing recessionary conditions. Management periodically evaluates economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in the Company’s ACL model. The economic scenarios chosen for the model, the extent to which more than one scenario is used, and the weights that are assigned to them, are based on the Company’s estimate of the probability of each scenario occurring, which is based in part on analysis performed by an independent third-party. Economic scenarios chosen, as well as the assumptions within those scenarios, and whether to use a probability-weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events such as the ongoing COVID-19 pandemic. The Company recognizes the non-linearity of credit losses relative to economic performance and thus the Company believes consideration of, and if appropriate under the circumstances, use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. This approach is based on certain assumptions. The first assumption is that no single forecast of the economy, however detailed or complex, is completely accurate over a reasonable forecast time-frame, and is subject to revisions over time. By considering multiple scenario outcomes and assigning reasonable probability weightings to them, some of the uncertainty associated with a single scenario approach, the Company believes, is mitigated.

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

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

The Company derives the economic forecasts it uses in its ACL model from Moody's Analytics that has a large team of economists, database managers, and operational engineers with a long history of producing monthly economic forecasts. The forecasts produced by this third-party have been widely used by banks, credit unions, government agencies, and real estate developers. These economic forecasts cover all states and metropolitan areas in the Unites States, and reflect changes in economic variables such as: GDP growth, interest rates, employment rates, changes in wages, retail sales, industrial production, metrics associated with the single-family and multifamily housing markets, vacancy rates, changes in equity market prices, and energy markets.


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It is important to note that the Company’s ACL model relies on multiple economic variables, which are used under several economic scenarios. Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the model, the Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL.

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

Base-case Scenario:

CRE price index experiences a slowing annualized rate of decline throughout 2021 from approximately -13% in early 2021 to approximately -4% by the end of 2021. This scenario assumes the index returns to growth in 2022 and 2023. This scenario also assumes the CRE price index returns to moderate levels of growth beginning in the first quarter of 2022, with the annualized rate of growth increasing from 2% in early 2022 to 10% by the end of 2022. Under this scenario, the CRE price index is anticipated to increase approximately 8-9% on an annualized basis in 2023.
U.S. real GDP experiences growth within a range of 6-7% on an annualized basis throughout 2021. This scenario also assumes decelerating growth in real GDP throughout 2022, from the levels estimated for 2021. Growth in real GDP for 2022 under this scenario decelerates from approximately 5% annualized in early 2022 to approximately 2% annualized by the end of 2022. This scenario assumes real GDP growth increases to approximately 2-3% in 2023.
U.S. unemployment declining from approximately 6% in early 2021 to approximately 4.5% by the end of 2021. This scenario also assumes unemployment continues to decline in 2022 from approximately 4% in early 2022 to approximately 3.5% by the end of 2022. This scenario assumes the rate of unemployment holds constant at approximately 3.5% throughout 2023.

Upside Scenario:

CRE price index experiences declines throughout 2021, with the estimated annualized rate of decline slowing from approximately -13% in early 2021 to approximately -1% by the end of 2021. This scenario also assumes the CRE price index returns growth in 2022, with the annualized rate of growth increasing from 7% in early 2022 to 12% by the end of 2022. Under this scenario, the CRE price index is anticipated to experience a decelerating annualized rate of increase from approximately 9% in early 2023 to approximately 7% by the end of 2023.
U.S. real GDP experiences accelerating growth within a range of 6-10% on an annualized basis throughout 2021. This scenario also assumes decelerating growth in real GDP throughout 2022, from the levels estimated for 2021. Growth in real GDP for 2022 under this scenario decelerates from approximately 8% annualized in early 2022 to approximately 0% annualized by the end of 2022. This scenario assumes real GDP growth increases to approximately 1-2% in 2023.
U.S. unemployment declining from approximately 6.2% in early 2021 to approximately 4.0% by the end of 2021. This scenario also assumes unemployment of approximately 3% throughout all of 2022. This scenario assumes the rate of unemployment holds constant at approximately 3% throughout 2023.


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Downside Scenario:

CRE price index experiences accelerating annualized rates of decline throughout 2021. Annualized declines of approximately -13% in early 2021 and accelerating to approximately -20% by the end of 2021. The CRE price index is estimated to experience decelerating declines throughout 2022, with the annualized rate of decline slowing from approximately -24% in early 2022 to approximately -2% by the end of 2022. Under this scenario, the CRE price index is anticipated to experience accelerating annualized growth of approximately 7% in early 2023 to approximately 20% by the end of 2023.
U.S. real GDP experiences growth of approximately 6% to 10% in the first half of 2021, followed by a decrease of -3% for the remainder of 2021. This scenario also assumes a return to modest annualized growth in real GDP by the second quarter of 2022, with growth of approximately 2-3% for the remainder of 2022. This scenario assumes real GDP fluctuates within a range of approximately 2-4% throughout 2023.
U.S. unemployment increases throughout 2021 from approximately 6% in early 2021 to approximately 8% by the end of 2021. This scenario also assumes unemployment remains elevated in 2022 at approximately 9%. This scenario assumes a decline in unemployment throughout 2023, from approximately 8% in early 2023 to approximately 7% at the end of 2023.

Qualitative Adjustments

The Company recognizes that historical information used as the basis for determining future expected credit losses may not always, by themselves, provide a sufficient basis for determining future expected credit losses. The Company, therefore, periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL. As of June 30, 2021, qualitative adjustments included in the ACL totaled $8.0 million. These adjustments primarily relate to continued uncertainty concerning the strength of the economic recovery and how it may impact certain classes of loans in the loan portfolio. Management determined through additional review that the uneven recovery and continued government interventions, are potentially underestimating the impact the ongoing COVID-19 pandemic may have on certain segments and classes of the loan portfolio, such as loans within the SBA, franchise, C&I, and construction classifications. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.


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

Three Months Ended June 30, 2021
(Dollars in thousands) Beginning ACL Balance Charge-offs RecoveriesProvision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied$45,545 $$$1,567 $47,112 
Multifamily79,815 (20,756)59,059 
Construction and land13,263 (3,715)9,548 
SBA secured by real estate5,141 (460)4,681 
Business loans secured by real estate
CRE owner-occupied41,594 15 (5,862)35,747 
Franchise real estate secured10,876 560 11,436 
SBA secured by real estate6,451 80 (214)6,317 
Commercial loans
Commercial and industrial43,373 (3,290)2,098 (2,302)39,879 
Franchise non-real estate secured18,903 (1,590)17,313 
SBA non-real estate secured890 (162)730 
Retail loans
Single family residential822 (153)670 
Consumer loans326 (44)282 
Totals$266,999 $(3,290)$2,196 $(33,131)$232,774 



Six Months Ended June 30, 2021
(Dollars in thousands)Beginning ACL BalanceCharge-offsRecoveriesProvision for Credit LossesEnding
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied$49,176 $(154)$$(1,910)$47,112 
Multifamily62,534 (3,475)59,059 
Construction and land12,435 (2,887)9,548 
SBA secured by real estate5,159 (265)(213)4,681 
Business loans secured by real estate
CRE owner-occupied50,517 30 (14,800)35,747 
Franchise real estate secured11,451 (15)11,436 
SBA secured by real estate6,567 (98)80 (232)6,317 
Commercial loans
Commercial and industrial46,964 (4,569)2,699 (5,215)39,879 
Franchise non-real estate secured20,525 (156)(3,056)17,313 
SBA non-real estate secured995 (269)730 
Retail loans
Single family residential1,204 (535)670 
Consumer loans491 (209)282 
Totals$268,018 $(5,242)$2,814 $(32,816)$232,774 

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Three Months Ended June 30, 2020
(Dollars in thousands) Beginning ACL Balance Initial ACL Recorded for PCD Loans Charge-offs RecoveriesProvision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied$15,896 $3,025 $$$44,086 $63,007 
Multifamily14,722 8,710 40,079 63,511 
Construction and land9,222 2,051 7,531 18,804 
SBA secured by real estate935 (554)1,629 2,010 
Business loans secured by real estate
CRE owner-occupied26,793 3,766 11 17,643 48,213 
Franchise real estate secured7,503 5,557 13,060 
SBA secured by real estate4,044 235 86 4,368 
Commercial loans
Commercial and industrial15,742 2,325 (2,286)21 26,165 41,967 
Franchise non-real estate secured16,616 (1,227)6,287 21,676 
SBA non-real estate secured516 924 (556)(2)(282)600 
Retail loans
Single family residential1,137 206 (62)197 1,479 
Consumer loans2,296 1,279 3,576 
Totals$115,422 $21,242 $(4,685)$35 $150,257 $282,271 



Six Months Ended June 30, 2020
(Dollars in thousands)
 Beginning ACL Balance (1)
 Adoption of ASC 326 Initial ACL Recorded for PCD Loans Charge-offs RecoveriesProvision for Credit Losses Ending
ACL Balance
Investor loans secured by real estate
CRE non-owner occupied$1,899 $8,423 $3,025 $(387)$$50,047 $63,007 
Multifamily729 9,174 8,710 44,898 63,511 
Construction and land4,484 (124)2,051 12,393 18,804 
SBA secured by real estate1,915 (1,401)(554)2,050 2,010 
Business loans secured by real estate
CRE owner-occupied2,781 20,166 3,766 23 21,477 48,213 
Franchise real estate secured592 5,199 7,269 13,060 
SBA secured by real estate2,119 2,207 235 (315)74 48 4,368 
Commercial loans
Commercial and industrial13,857 87 2,325 (2,776)26 28,448 41,967 
Franchise non-real estate secured5,816 9,214 (1,227)7,873 21,676 
SBA non-real estate secured445 218 924 (792)(197)600 
Retail loans
Single family residential655 541 206 (62)138 1,479 
Consumer loans406 1,982 (8)1,195 3,576 
Totals$35,698 $55,686 $21,242 $(6,121)$127 $175,639 $282,271 
______________________________
(1) Beginning ACL balance represents the ALLL accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date.


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

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

Allowance for Credit Losses for Off-Balance Sheet Commitments

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

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

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


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The following tables present PD bands for commercial real estate and commercial loan segments of the loan portfolio as of the dates indicated.

Commercial Real Estate and Commercial Term Loans by PD and Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00%$301,013 $239,654 $425,062 $440,854 $210,727 $884,807 $4,652 $$2,506,769 
>5.00% - 10.00%23,774 25,621 17,921 20,269 47,036 5,328 139,949 
Greater than 10%4,218 68,748 33,118 41,911 14,983 537 163,515 
Multifamily
0% - 5.00%1,004,852 934,432 1,478,289 684,846 558,666 713,963 1,643 5,376,691 
>5.00% - 10.00%22,931 49,688 27,569 15,354 7,226 122,768 
Greater than 10%10,739 9,687 12,419 7,160 40,005 
Construction and Land
0% - 5.00%17,062 78,153 21,725 370 8,321 4,651 130,282 
>5.00% - 10.00%18,948 16,774 7,211 42,933 
Greater than 10%730 2,862 64,249 34,964 444 21,264 124,513 
SBA secured by real estate
0% - 5.00%500 8,460 12,477 17,432 13,694 52,563 
>5.00% - 10.00%
Greater than 10%102 338 440 
Total investor loans secured by real estate1,365,536 1,350,055 2,137,775 1,249,591 870,189 1,715,122 12,160 8,700,428 
Business loans secured by real estate
CRE owner-occupied
0% - 5.00%276,707 281,668 347,620 262,455 269,367 558,473 3,052 1,999,342 
>5.00% - 10.00%13,628 9,092 11,854 37,540 72,115 
Greater than 10%6,151 5,874 5,818 17,843 
Franchise real estate secured
0% - 5.00%59,007 36,149 71,812 50,663 78,597 43,345 339,573 
>5.00% - 10.00%239 7,558 4,016 1,094 3,795 16,702 
Greater than 10%290 1,555 1,845 
SBA secured by real estate
0% - 5.00%2,502 3,423 7,492 9,903 10,132 18,318 51,770 
>5.00% - 10.00%70 1,495 2,532 8,972 13,069 
Greater than 10%1,336 2,172 4,576 8,084 
Total business loans secured by real estate338,745 330,353 440,622 345,111 381,622 680,837 3,053 2,520,343 
56


Commercial Real Estate and Commercial Term Loans by PD and Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
June 30, 2021
Commercial loans
Commercial and industrial
0% - 5.00%135,825 105,221 232,476 102,539 155,592 84,339 626,121 1,852 1,443,965 
>5.00% - 10.00%22,487 6,242 10,701 18,922 33,612 7,924 162,253 262,141 
Greater than 10%4,944 1,533 18,386 564 5,518 58,093 89,038 
Franchise non-real estate secured
0% - 5.00%56,293 20,482 94,203 67,224 30,596 24,823 293,621 
>5.00% - 10.00%599 5,840 39,085 8,783 4,910 19,921 151 79,289 
Greater than 10%2,293 4,665 17,749 2,337 1,361 28,405 
SBA not secured by real estate
0% - 5.00%153 413 2,167 990 1,159 3,385 8,267 
>5.00% - 10.00%479 2,398 657 3,534 
Greater than 10%80 345 258 739 677 2,099 
Total commercial loans$215,357 $143,142 $382,538 $222,333 $246,838 $149,643 $848,656 $1,852 $2,210,359 

Commercial Real Estate and Commercial Term Loans by PD and Vintage
(Dollars in thousands)20202019201820172016PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied
0% - 5.00%$261,885 $491,522 $431,791 $266,942 $254,527 $763,101 $11,114 $$2,480,882 
>5.00% - 10.00%4,016 34,360 5,794 10,558 16,961 33,734 105,423 
Greater than 10%25,844 11,480 10,517 10,782 29,598 559 88,780 
Multifamily
0% - 5.00%950,089 1,610,011 878,233 634,268 349,549 516,452 4,938,602 
>5.00% - 10.00%38,892 59,500 12,181 19,751 10,917 13,606 154,847 
Greater than 10%38,663 9,963 11,339 12,479 3,814 1,229 420 77,907 
Construction and land
0% - 5.00%55,785 40,860 4,604 11,238 6,412 784 119,683 
>5.00% - 10.00%1,123 41,046 9,197 3,601 260 55,227 
Greater than 10%401 62,853 59,512 3,786 20,531 147,083 
SBA secured by real estate
0% - 5.00%496 10,400 12,558 14,497 7,078 10,032 55,061 
>5.00% - 10.00%1,012 1,012 
Greater than 10%158 589 511 1,258 
Total investor loans secured by real estate1,351,350 2,386,517 1,437,278 988,649 674,159 1,374,935 12,877 8,225,765 
57


Commercial Real Estate and Commercial Term Loans by PD and Vintage
(Dollars in thousands)20202019201820172016PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2020
Business loans secured by real estate
CRE owner-occupied
0% - 5.00%286,745 367,269 274,512 295,809 202,282 422,614 10,393 246 1,859,870 
>5.00% - 10.00%8,769 42,310 60,222 28,421 23,875 44,855 3,875 212,327 
Greater than 10%16,096 5,376 7,459 4,263 8,409 250 41,853 
Franchise real estate secured
0% - 5.00%37,262 79,926 65,619 96,672 19,046 22,927 321,452 
>5.00% - 10.00%7,587 1,650 3,274 327 5,627 4,093 22,558 
Greater than 10%442 1,512 1,968 3,922 
SBA secured by real estate
0% - 5.00%3,253 7,637 11,840 15,069 5,707 18,742 62,248 
>5.00% - 10.00%768 989 2,780 4,882 9,419 
Greater than 10%1,384 1,987 1,514 3,043 7,928 
Total business loans secured by real estate344,058 516,400 422,995 446,733 267,062 529,565 14,518 246 2,541,577 
Commercial loans
Commercial and industrial
0% - 5.00%70,233 205,395 99,178 193,046 36,957 62,682 394,124 5,051 1,066,666 
>5.00% - 10.00%49,883 50,743 35,813 13,427 12,922 13,948 322,123 2,469 501,328 
Greater than 10%7,701 7,540 29,078 4,485 4,574 8,350 136,253 2,859 200,840 
Franchise non-real estate secured
0% - 5.00%21,409 145,392 88,171 38,010 21,956 23,479 502 338,919 
>5.00% - 10.00%6,198 15,754 5,454 8,164 18,415 3,626 57,611 
Greater than 10%16,836 6,612 18,655 1,638 3,165 1,361 48,267 
SBA not secured by real estate
0% - 5.00%407 2,257 910 1,078 441 2,782 7,875 
>5.00% - 10.00%648 1,596 169 1,652 259 4,324 
Greater than 10%83 357 1,856 340 415 707 3,758 
Total commercial loans$155,831 $444,000 $266,221 $280,317 $97,412 $120,099 $854,568 $11,140 $2,229,588 
58


A significant driver in the ACL for loans in the investor real estate secured and business real estate secured segments is estimated loan to value (“LTV”). The following tables summarize the amortized cost of loans in these segments by current estimated LTV and by year of origination as of the dates indicated:
Term Loans by LTV and Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
June 30, 2021
Investor loans secured by real estate
CRE non-owner-occupied
55% and below$174,343 $134,995 $204,770 $225,932 $137,797 $661,868 $9,980 $1,549,685 
>55-65%84,362 107,085 208,558 105,364 122,170 243,022 537 871,098 
>65-75%42,308 25,566 86,042 147,915 8,567 40,446 350,844 
Greater than 75%20,061 12,682 4,373 1,490 38,606 
Multifamily
55% and below118,036 219,481 336,820 243,793 222,718 334,898 1,643 1,477,389 
>55-65%466,963 391,606 673,685 329,299 191,548 265,604 2,318,705 
>65-75%441,401 373,033 489,754 126,306 154,960 119,559 1,705,013 
Greater than 75%1,383 16,338 10,489 1,859 8,288 38,357 
Construction and land
55% and below36,740 97,789 73,845 17,816 8,765 25,915 260,870 
>55-65%11,429 9,471 20,900 
>65-75%7,911 8,047 15,958 
Greater than 75%
SBA secured by real estate
55% and below102 641 831 2,303 3,877 
>55-65%2,414 1,965 3,816 2,872 11,067 
>65-75%3,879 4,624 3,924 5,832 18,259 
Greater than 75%500 2,167 5,247 8,861 3,025 19,800 
Total investor loans secured by real estate1,365,536 1,350,055 2,137,775 1,249,591 870,189 1,715,122 12,160 8,700,428 
Business loan secured by real estate
CRE owner-occupied
55% and below142,863 90,967 145,590 120,707 160,886 409,810 3,053 1,073,876 
>55-65%58,545 64,476 71,835 87,271 90,387 118,717 491,231 
>65-75%53,750 78,611 131,250 63,894 24,207 53,691 405,403 
Greater than 75%21,549 47,614 12,573 5,826 11,615 19,613 118,790 
Franchise real estate secured
55% and below8,599 23,887 9,141 17,024 15,341 22,162 96,154 
>55-65%27,170 2,644 11,147 10,886 10,729 9,804 72,380 
>65-75%13,812 16,857 40,716 10,181 14,597 13,947 110,110 
Greater than 75%9,955 1,874 10,808 16,588 39,024 1,227 79,476 
SBA secured by real estate
55% and below1,642 591 1,595 1,033 5,196 16,875 26,932 
>55-65%37 1,596 511 1,733 994 7,723 12,594 
>65-75%643 329 3,120 5,416 4,008 3,244 16,760 
Greater than 75%180 907 2,336 4,552 4,638 4,024 16,637 
Total business loans secured by real estate$338,745 $330,353 $440,622 $345,111 $381,622 $680,837 $3,053 $$2,520,343 
59



Term Loans by LTV and Vintage
(Dollars in thousands)20202019201820172016PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2020
Investor loans secured by real estate
CRE non-owner-occupied
55% and below$138,007 $229,272 $182,385 $136,355 $189,848 $588,230 $11,114 $$1,475,211 
>55-65%101,434 217,210 92,015 130,024 78,470 204,161 559 823,873 
>65-75%26,460 102,494 169,878 18,876 13,952 29,506 361,166 
Greater than 75%2,750 4,787 2,762 4,536 14,835 
Multifamily
55% and below218,833 345,519 294,464 233,997 84,530 269,906 1,447,249 
>55-65%381,737 731,408 381,282 215,170 152,066 189,151 420 2,051,234 
>65-75%427,074 583,078 215,389 215,452 127,684 66,457 1,635,134 
Greater than 75%19,469 10,618 1,879 5,773 37,739 
Construction and land
55% and below57,309 105,308 36,068 18,625 20,531 6,672 784 245,297 
>55-65%36,113 23,770 59,883 
>65-75%3,338 13,475 16,813 
Greater than 75%
SBA secured by real estate
55% and below2,066 649 673 317 778 4,483 
>55-65%2,427 1,639 4,008 879 4,354 13,307 
>65-75%3,897 3,882 3,482 4,519 1,884 17,664 
Greater than 75%496 2,168 6,977 7,346 1,363 3,527 21,877 
Total investor loans secured by real estate1,351,350 2,386,517 1,437,278 988,649 674,159 1,374,935 12,877 8,225,765 
Business loan secured by real estate
CRE owner-occupied
55% and below96,803 160,605 157,868 179,791 131,795 328,188 14,518 246 1,069,814 
>55-65%72,044 91,028 98,176 94,712 65,120 90,548 511,628 
>65-75%71,692 152,920 79,106 43,832 31,303 31,493 410,346 
Greater than 75%54,975 21,122 4,960 13,354 2,202 25,649 122,262 
Franchise real estate secured
55% and below20,801 10,470 13,864 20,956 9,189 16,213 91,493 
>55-65%2,689 9,955 16,001 19,102 6,855 2,333 56,935 
>65-75%19,349 51,719 23,258 9,153 10,597 7,236 121,312 
Greater than 75%2,452 10,944 15,770 47,788 1,238 78,192 
SBA secured by real estate
55% and below1,825 1,626 5,332 5,495 3,615 13,582 31,475 
>55-65%246 513 1,795 1,094 3,586 5,448 12,682 
>65-75%264 3,142 1,515 3,968 1,586 4,043 14,518 
Greater than 75%918 2,356 5,350 7,488 1,214 3,594 20,920 
Total business loans secured by real estate$344,058 $516,400 $422,995 $446,733 $267,062 $529,565 $14,518 $246 $2,541,577 
60


The following tables present the FICO bands, at origination, for the retail segment of the loan portfolio as of the dates indicated:
Term Loans by FICO and Vintage
(Dollars in thousands)20212020201920182017PriorRevolvingRevolving Converted to Term During the PeriodTotal
June 30, 2021
Retail loans
Single family residential
Greater than 740$13,312 $6,771 $2,524 $2,236 $4,215 $64,829 $16,092 $109,979 
>680 - 74035 4,090 11,222 5,524 20,871 
>580 - 680484 9,425 837 10,746 
Less than 58015,598 34 15,632 
Consumer loans
Greater than 74044 39 40 18 16 2,526 1,269 3,952 
>680 - 74020 449 1,651