Pacific Premier Bancorp 10Q 2024 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

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

For the transition period from _______ to _______

Commission File Number 0-22193

(Exact name of registrant as specified in its charter)


Delaware			33-0743196
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

17901 Von Karman Avenue, Suite 1200, Irvine, California 92614

(Address of principal executive offices and zip code)

(949) 864-8000

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. (See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

PPBI

NASDAQ Global Select Market

The number of shares outstanding of the registrant’s common stock as of October 22, 2024 was 96,440,625.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED SEPTEMBER 30, 2024


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Statements of Financial Condition (Unaudited)			3

Consolidated Statements of Income (Unaudited)			4

Consolidated Statements of Comprehensive Income (Unaudited)			5

Consolidated Statements of Stockholders’ Equity (Unaudited)			6

Consolidated Statements of Cash Flows (Unaudited)			8

Notes to Consolidated Financial Statements (Unaudited)			9

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			57

Item 3 - Quantitative and Qualitative Disclosures About Market Risk			106

Item 4 - Controls and Procedures			108

PART II - OTHER INFORMATION			109

Item 1 - Legal Proceedings			109

Item 1A - Risk Factors			109

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

Item 3 - Defaults Upon Senior Securities			109

Item 4 - Mine Safety Disclosures			109

Item 5 - Other Information			109

Item 6 - Exhibits			110

SIGNATURE			111

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


(Dollars in thousands, except par value and share data)	September 30, 2024		December 31, 2023
ASSETS
Cash and due from banks	$	160,305	$	146,696
Interest-bearing deposits with financial institutions	821,944		789,777
Cash and cash equivalents	982,249		936,473
Interest-bearing time deposits with financial institutions	1,246		995
Investments securities held-to-maturity, at amortized cost, net of allowance for credit losses of $104 and $126 (fair value of $1,482,042 and $1,485,506) at September 30, 2024 and December 31, 2023, respectively	1,713,575		1,729,541
Investment securities available-for-sale, at fair value	1,316,546		1,140,071
FHLB, FRB, and other stock	97,336		99,225

Loans held for investment	12,035,097		13,289,020
Allowance for credit losses	(181,248)		(192,471)
Loans held for investment, net	11,853,849		13,096,549
Accrued interest receivable	64,803		68,516
Other real estate owned	—		248
Premises and equipment, net	49,807		56,676
Deferred income taxes, net	104,564		113,580
Bank owned life insurance	481,309		471,178
Intangible assets	34,924		43,285
Goodwill	901,312		901,312
Other assets	308,123		368,996
Total assets	$	17,909,643	$	19,026,645

LIABILITIES
Deposit accounts:
Noninterest-bearing checking	$	4,639,077	$	4,932,817
Interest-bearing:
Checking	2,763,353		2,899,621
Money market/savings	4,805,516		4,868,442
Retail certificates of deposit	1,972,962		1,684,560
Wholesale/brokered certificates of deposit	300,019		610,186
Total interest-bearing	9,841,850		10,062,809
Total deposits	14,480,927		14,995,626
FHLB advances and other borrowings	—		600,000
Subordinated debentures	272,320		331,842

Accrued expenses and other liabilities	212,459		216,596
Total liabilities	14,965,706		16,144,064
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 1,000,000 authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 150,000,000 shares authorized at September 30, 2024 and December 31, 2023; 96,462,767 shares and 95,860,092 shares issued and outstanding, respectively	942		938
Additional paid-in capital	2,389,767		2,377,131
Retained earnings	633,350		604,137
Accumulated other comprehensive loss	(80,122)		(99,625)
Total stockholders’ equity	2,943,937		2,882,581
Total liabilities and stockholders’ equity	$	17,909,643	$	19,026,645

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands, except share data)	2024		2023		2024		2023
INTEREST INCOME
Loans	$	163,409	$	177,032	$	503,931	$	540,842
Investment securities and other interest-earning assets	42,217		47,030		123,180		129,951
Total interest income	205,626		224,062		627,111		670,793
INTEREST EXPENSE
Deposits	67,898		62,718		191,633		156,532
FHLB advances and other borrowings	1,511		7,235		8,078		22,328
Subordinated debentures	5,319		4,561		14,981		13,683
Total interest expense	74,728		74,514		214,692		192,543
Net interest income before provision for credit losses	130,898		149,548		412,419		478,250
Provision for credit losses	486		3,918		5,603		8,433
Net interest income after provision for credit losses	130,412		145,630		406,816		469,817
NONINTEREST INCOME
Loan servicing income	525		533		1,564		1,599
Service charges on deposit accounts	2,711		2,673		8,109		7,972
Other service fee income	306		280		951		891
Debit card interchange fee income	876		924		2,566		2,641
Earnings on bank owned life insurance	4,335		3,579		12,712		10,440
Net gain from sales of loans	47		45		112		419
Net gain from sales of investment securities	—		—		—		138



Trust custodial account fees	8,813		9,356		28,405		29,741
Escrow and exchange fees	673		938		2,071		2,920
Other income	581		223		6,373		3,515
Total noninterest income	18,867		18,551		62,863		60,276
NONINTEREST EXPENSE
Compensation and benefits	53,400		54,068		160,670		161,785
Premises and occupancy	10,899		11,382		32,186		34,739
Data processing	7,777		7,517		23,042		22,270
Other real estate owned operations, net	1		(4)		47		112
FDIC insurance premiums	1,922		2,324		6,424		7,106
Legal and professional services	4,980		4,243		10,201		14,460
Marketing expense	860		1,635		4,142		5,352
Office expense	1,046		1,079		3,216		3,591
Loan expense	734		476		2,344		1,689
Deposit expense	12,474		10,811		37,428		28,441

Amortization of intangible assets	2,762		3,055		8,361		9,281
Other expense	4,790		5,599		13,784		15,355
Total noninterest expense	101,645		102,185		301,845		304,181
Net income before income taxes	47,634		61,996		167,834		225,912
Income tax expense	11,655		15,966		42,925		59,684
Net income	$	35,979	$	46,030	$	124,909	$	166,228
EARNINGS PER SHARE
Basic	$	0.37	$	0.48	$	1.30	$	1.74
Diluted	0.37		0.48		1.30		1.74
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	94,650,096		94,189,844		94,543,243		94,072,463
Diluted	94,775,927		94,283,008		94,652,583		94,214,846

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2024		2023		2024		2023
Net income	$	35,979	$	46,030	$	124,909	$	166,228
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available-for-sale, net of income taxes (1)	7,350		(15,684)		11,723		5,166
Reclassification adjustment for net gain on sales of securities included in net income, net of income taxes (2)	—		—		—		(99)
Net unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (3)	—		—		—		(36,076)
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (4)	2,661		2,522		7,780		7,627
Other comprehensive income (loss), net of tax	10,011		(13,162)		19,503		(23,382)
Comprehensive income, net of tax	$	45,990	$	32,868	$	144,412	$	142,846

______________________________

(1) Income tax expense (benefit) of the unrealized gain (loss) on securities was $2.9 million and $(6.2) million for the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $2.0 million for the nine months ended September 30, 2024 and 2023, respectively.

(2) Income tax expense on the reclassification adjustment for net gain on sales of securities included in net income was zero for the three months ended September 30, 2024 and 2023, respectively, and zero and $39,000 for the nine months ended September 30, 2024 and 2023, respectively.

(3) Income tax (benefit) expense on the unrealized loss on securities transferred from available-for-sale to held-to-maturity was zero for the three months ended September 30, 2024 and 2023, respectively, and zero and $(14.3) million for the nine months ended September 30, 2024 and 2023, respectively.

(4) Income tax expense on the amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity included in net income was $1.0 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively, and $3.1 million and $3.0 million for the nine months ended September 30, 2024 and 2023, respectively.

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2024

(Unaudited)


(Dollars in thousands, except share data)	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance at December 31, 2023	95,860,092	$	938	$	2,377,131	$	604,137	$	(99,625)	$	2,882,581
Net income	—	—		—		124,909		—		124,909
Other comprehensive income	—	—		—		—		19,503		19,503
Cash dividends declared ($0.99 per common share)	—	—		—		(95,280)		—		(95,280)
Dividend equivalents declared ($0.99 per restricted stock unit)	—	—		416		(416)		—		—
Share-based compensation expense	—	—		16,368		—		—		16,368
Issuance of restricted stock, net	819,501	3		(3)		—		—		—
Restricted stock surrendered and canceled	(267,448)	—		(4,933)		—		—		(4,933)
Exercise of stock options	50,622	1		788		—		—		789
Balance at September 30, 2024	96,462,767	$	942	$	2,389,767	$	633,350	$	(80,122)	$	2,943,937


Balance at June 30, 2024	96,434,047	$	941	$	2,383,615	$	629,341	$	(90,133)	$	2,923,764
Net income	—	—		—		35,979		—		35,979
Other comprehensive income	—	—		—		—		10,011		10,011
Cash dividends declared ($0.33 per common share)	—	—		—		(31,822)		—		(31,822)
Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		148		(148)		—		—
Share-based compensation expense	—	—		5,484		—		—		5,484
Issuance of restricted stock, net	13,500	—		—		—		—		—
Restricted stock surrendered and canceled	(23,976)	—		(81)		—		—		(81)
Exercise of stock options	39,196	1		601		—		—		602
Balance at September 30, 2024	96,462,767	$	942	$	2,389,767	$	633,350	$	(80,122)	$	2,943,937

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2023

(Unaudited)


(Dollars in thousands, except share data)	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance at December 31, 2022	95,021,760	$	933	$	2,362,663	$	700,040	$	(265,247)	$	2,798,389
Net income	—	—		—		166,228		—		166,228
Other comprehensive loss	—	—		—		—		(23,382)		(23,382)

Cash dividends declared ($0.99 per common share)	—	—		—		(94,616)		—		(94,616)
Dividend equivalents declared ($0.99 per restricted stock unit)	—	—		367		(367)		—		—
Share-based compensation expense	—	—		14,622		—		—		14,622
Issuance of restricted stock, net	1,085,234	4		(4)		—		—		—
Restricted stock surrendered and canceled	(221,617)	—		(5,953)		—		—		(5,953)
Exercise of stock options	15,470	—		246		—		—		246
Balance at September 30, 2023	95,900,847	$	937	$	2,371,941	$	771,285	$	(288,629)	$	2,855,534



Balance at June 30, 2023	95,906,217	$	937	$	2,366,639	$	757,025	$	(275,467)	$	2,849,134
Net income	—	—		—		46,030		—		46,030
Other comprehensive loss	—	—		—		—		(13,162)		(13,162)

Cash dividends declared ($0.33 per common share)	—	—		—		(31,647)		—		(31,647)
Dividend equivalents declared ($0.33 per restricted stock unit)	—	—		123		(123)		—		—
Share-based compensation expense	—	—		5,350		—		—		5,350
Issuance of restricted stock, net	11,161	—		—		—		—		—
Restricted stock surrendered and canceled	(16,531)	—		(171)		—		—		(171)
Exercise of stock options	—	—		—		—		—		—
Balance at September 30, 2023	95,900,847	$	937	$	2,371,941	$	771,285	$	(288,629)	$	2,855,534

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 30,		September 30,
(Dollars in thousands)	2024		2023
Cash flows from operating activities:
Net income	$	124,909	$	166,228
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	9,044		10,617
Provision for credit losses	5,603		8,433
Share-based compensation expense	16,368		14,622
Loss on sales and disposals of premises and equipment	12		131
Loss (gain) on sale or write down of other real estate owned	28		(106)
Net (accretion) amortization of discounts/premium on securities	(9,280)		11,244
Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs	(9,873)		(11,573)
(Gain) on sale of investment securities available-for-sale	—		(138)
(Gain) on debt extinguishment	(5,270)		—
(Gain) on sales of loans	(112)		(419)
Deferred income tax expense	1,335		677
Income from bank owned life insurance, net	(10,591)		(8,453)
Amortization of intangible assets	8,361		9,281
Origination of loans held for sale, net of principal payments received	(1,793)		(1,370)
Proceeds from the sales of loans held for sale	2,255		2,085
Net change in accrued expenses and other liabilities	(26,434)		78,202
Net change in accrued interest receivable and other assets	81,337		(10,970)
Net cash provided by operating activities	185,899		268,491
Cash flows from investing activities:
Net (increase) decrease in interest-bearing time deposits with financial institutions	(251)		492
Proceeds from sales of other real estate owned	209		3,307
Loan (originations) and payments, net	1,200,165		1,330,911
Proceeds from sales of loans classified as loans held for investment	58,325		84,472

Purchase of securities held-to-maturity	(14,734)		(21,357)
Proceeds from prepayments and maturities of securities held-to-maturity	34,783		35,748
Purchase of securities available-for-sale	(711,841)		(224,347)
Proceeds from prepayments and maturities of securities available-for-sale	567,761		198,433
Proceeds from sales of securities available-for-sale	—		304,320
Proceeds from the sales of premises and equipment	2		3
Proceeds from surrender of bank owned life insurance	463		272
Purchase of premises and equipment	(2,189)		(5,604)
Net change in FHLB, FRB, and other stock	1,867		1,784
Funding of Community Reinvestment Act (“CRA”) investments, net	(5,830)		(32,621)
Net cash provided by investing activities	1,128,730		1,675,813
Cash flows from financing activities:
Net change in deposit accounts	$	(514,699)	$	(1,344,954)
Net change in short-term borrowings	—		(200,000)

Repayments of long-term borrowings	(594,730)		—

Repayments of subordinated debentures	(60,000)		—
Cash dividends paid	(95,280)		(94,616)

Proceeds from exercise of stock options	789		246
Restricted stock surrendered and canceled	(4,933)		(5,953)
Net cash used in financing activities	(1,268,853)		(1,645,277)
Net increase in cash and cash equivalents	45,776		299,027
Cash and cash equivalents, beginning of period	936,473		1,101,249
Cash and cash equivalents, end of period	$	982,249	$	1,400,276

Supplemental cash flow disclosures:
Interest paid	$	219,960	$	177,393
Income taxes (refunded) paid, net	(16,135)		1,610
Noncash investing activities during the period:
Transfers from loans held for investment to loans held for sale	58,675		84,993
Loans held for sale transfer to loans held for investment	—		2,227
Other real estate owned transferred from loans held for investment	—		7,336
Transfers of investment securities from available-for-sale to held-to-maturity	—		360,347
Transfers of CRA investment securities from FHLB, FRB, and other stock to other assets	—		12,601
Recognition of operating lease right-of-use assets	(22,099)		(4,259)
Recognition of operating lease liabilities	23,604		4,336
Receivable on unsettled security payments	8		—

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

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024

(Unaudited)

Note 1 – Basis of Presentation

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

In the opinion of management, the unaudited consolidated financial statements reflect all normal recurring adjustments and accruals that are necessary for a fair presentation of the statement of financial position and the results of operations for the interim periods presented. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2024.

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, 2023 (the “2023 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 13 – Variable Interest Entities for additional information.

Note 2 – Recently Issued Accounting Pronouncements

Accounting Standards Adopted in 2024

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) 2023-02, Investments - Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. The amendments in this Update allow the option for an entity to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving income tax credits or other income tax benefits, if certain conditions are met. Prior to this Update, the application of the proportional amortization method of accounting was limited to investments in low income housing tax credit structures. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the statements of income, that is income tax expense. Under this Update, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this Update require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this Update, low income housing tax credit investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this Update specifies that tax equity investments accounted for using the equity method must apply the impairment guidance in Subtopic 323-10 - Investments - Equity Method and Joint Ventures - Overall. This Update also clarifies that for low income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321 - Investments - Equity Securities. The amendments in this Update also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations. The provisions of this Update became effective for the Company for interim and annual periods beginning January 1, 2024. Refer to Note 14 – Tax Equity Investments for additional information. The adoption of this Update did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Guidance Not Yet Effective

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The FASB issued this Update to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this Update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid. The amendments in this Update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this Update on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segments. The amendments in this Update improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. Amendments in this Update include: a requirement that a public entity provide all annual disclosures about a reportable segment’s profit or loss in its interim period disclosures, disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), disclosure of amounts for other segment items by reportable segment and a description of its composition, clarification that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit or loss, requires that a public entity disclose the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss, and requires that a public entity that has a single reportable segment provide all the disclosures required by this Update as well as all existing disclosures required in Topic 280. The amendments in this Update are effective for the Company beginning with its 2024 annual financial statement disclosures for the year ended December 31, 2024, and for all interim and annual periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of this Update.

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 2023 Form 10-K. As of September 30, 2024, there were no significant changes to accounting policies from those disclosed in our audited consolidated financial statements included in our 2023 Form 10-K.

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

Note 4 – Investment Securities

The amortized cost and estimated fair value of available-for-sale (“AFS”) investment securities were as follows:



(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
AFS investment securities:
September 30, 2024
U.S. Treasury	$	767,202	$	4,149	$	—	$	771,351
Agency	1,207		—		(42)		1,165
Corporate	428,311		265		(23,168)		405,408

Collateralized mortgage obligations	139,456		7		(841)		138,622

Total AFS investment securities	$	1,336,176	$	4,421	$	(24,051)	$	1,316,546





December 31, 2023
U.S. Treasury	$	538,899	$	381	$	(24)	$	539,256
Agency	1,941		—		(73)		1,868
Corporate	481,499		52		(35,208)		446,343

Collateralized mortgage obligations	153,701		—		(1,097)		152,604

Total AFS investment securities	$	1,176,040	$	433	$	(36,402)	$	1,140,071

The carrying amount and estimated fair value of held-to-maturity (“HTM”) investment securities were as follows:



(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrecognized Gain		Gross Unrecognized Loss		Estimated Fair Value
HTM investment securities:
September 30, 2024

Municipal bonds	$	1,145,201	$	(104)	$	1,145,097	$	272	$	(204,482)	$	940,887
Collateralized mortgage obligations	316,550		—		316,550		1,532		(2,595)		315,487
Mortgage-backed securities	235,729		—		235,729		671		(26,931)		209,469
Other	16,199		—		16,199		—		—		16,199
Total HTM investment securities	$	1,713,679	$	(104)	$	1,713,575	$	2,475	$	(234,008)	$	1,482,042





December 31, 2023
Municipal bonds	$	1,146,244	$	(126)	$	1,146,118	$	819	$	(206,361)	$	940,576
Collateralized mortgage obligations	334,997		—		334,997		1,565		(9,570)		326,992
Mortgage-backed securities	232,157		—		232,157		310		(30,798)		201,669
Other	16,269		—		16,269		—		—		16,269
Total HTM investment securities	$	1,729,667	$	(126)	$	1,729,541	$	2,694	$	(246,729)	$	1,485,506

The Company reassesses classification of certain investments as part of the ongoing review of the investment securities portfolio. During the nine months ended September 30, 2024, there were no transfers of AFS securities to HTM securities.

During the nine months ended September 30, 2023, the Company transferred $410.7 million of AFS collateralized mortgage obligations to HTM securities. The Company intends and has the ability to hold the securities transferred to maturity. The transfer of these securities was accounted for at fair value on the transfer date. The collateralized mortgage obligations had a net carrying amount of $360.3 million with a pre-tax unrealized loss of $50.4 million, which are accreted into interest income as yield adjustments through earnings over the remaining term of the securities. The amortization of the related net after-tax unrealized losses reported in accumulated other comprehensive loss offsets the effect on interest income for the accretion of the unrealized losses associated with the transferred securities. No gains or losses were recorded at the time of transfer.

Investment securities with carrying values of $2.72 billion and $2.80 billion as of September 30, 2024 and December 31, 2023, respectively, were pledged to other borrowings, secure public deposits, and for other purposes as required or permitted by law, of which $2.53 billion and $1.41 billion as of September 30, 2024 and December 31, 2023, respectively, were pledged to the Federal Reserve's discount window to increase the Company’s access to funding and provide liquidity.

Unrealized Gains and Losses

Unrealized gains and losses on AFS investment securities, net of tax, are recognized in stockholders’ equity as accumulated other comprehensive income or loss. At September 30, 2024, the Company had a net unrealized loss on AFS investment securities of $19.6 million, or $14.0 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of $36.0 million, or $25.8 million net of tax in accumulated other comprehensive loss, at December 31, 2023.

For investment securities transferred from AFS to HTM, the net after-tax unrealized gains and losses at the date of transfer continue to be reported in stockholders’ equity as accumulated other comprehensive loss and are amortized over the remaining lives of the securities with an offsetting entry to interest income as an adjustment of yield in a manner consistent with the amortization of a premium or discount, with an offsetting entry to interest income for the accretion of the unrealized loss associated with the transferred securities. At September 30, 2024, the unrealized loss on investment securities transferred from AFS to HTM was $92.1 million, or $66.1 million net of tax. At December 31, 2023, the unrealized loss on investment securities transferred from AFS to HTM was $102.9 million, or $73.9 million net of tax.

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


	September 30, 2024
	Less than 12 Months					12 Months or Longer					Total
(Dollars in thousands)	Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses
AFS investment securities:

Agency	—	$	—	$	—	4	$	1,165	$	(42)	4	$	1,165	$	(42)
Corporate	3	26,523		(50)		34	301,666		(23,118)		37	328,189		(23,168)

Collateralized mortgage obligations	1	7,326		(18)		24	122,396		(823)		25	129,722		(841)

Total AFS investment securities	4	$	33,849	$	(68)	62	$	425,227	$	(23,983)	66	$	459,076	$	(24,051)


	December 31, 2023
	Less than 12 Months					12 Months or Longer					Total
(Dollars in thousands)	Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses		Number	Fair Value		Gross Unrealized Losses
AFS investment securities:
U.S. Treasury	4	$	98,622	$	(24)	—	$	—	$	—	4	$	98,622	$	(24)
Agency	—	—		—		4	1,868		(73)		4	1,868		(73)
Corporate	1	4,989		(3)		47	431,353		(35,205)		48	436,342		(35,208)

Collateralized mortgage obligations	—	—		—		28	152,604		(1,097)		28	152,604		(1,097)

Total AFS investment securities	5	$	103,611	$	(27)	79	$	585,825	$	(36,375)	84	$	689,436	$	(36,402)

Allowance for Credit Losses on Investment Securities

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

The ACL for HTM investment securities is estimated 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. Credit losses on HTM investment securities are representative of the amount needed to reduce the amortized cost basis to reflect the net amount expected to be collected.

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

For additional information concerning the ACL on investment securities, refer to Note 1 - Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2023 Form 10-K.

At September 30, 2024 and December 31, 2023, the Company had an ACL of $104,000 and $126,000, respectively, for HTM investment securities classified as municipal bonds. The following table presents a rollforward by major security type of the ACL on the Company's HTM debt securities as of and for the periods indicated:


(Dollars in thousands)	Beginning ACL Balance		Provision for Credit Losses		Ending ACL Balance









Three Months Ended September 30, 2024
HTM investment securities:
Municipal bonds	$	129	$	(25)	$	104


Three Months Ended September 30, 2023









HTM investment securities:
Municipal bonds	$	113	$	15	$	128


(Dollars in thousands)	Beginning ACL Balance		Provision for Credit Losses		Ending ACL Balance









Nine Months Ended September 30, 2024
HTM investment securities:
Municipal bonds	$	126	$	(22)	$	104


Nine Months Ended September 30, 2023









HTM investment securities:
Municipal bonds	$	43	$	85	$	128

The Company had no ACL for AFS investment securities at September 30, 2024 and December 31, 2023. The Company performed a qualitative assessment of these investments as of September 30, 2024 and determined that unrealized losses during the third quarter of 2024 were the result of general market conditions, including changes in interest rates, and does not believe the declines in fair value were credit related. As of September 30, 2024, the Company had not recorded credit losses on AFS securities that were in an unrealized loss position due to the high credit quality of the investments, with investment grade ratings, and many of them issued by U.S. government agencies. As of September 30, 2024, 69% of our AFS securities were U.S. Treasury, U.S. government agency, and U.S. government-sponsored enterprise securities. The fair value of Corporate bank debt securities continued to improve during the nine months ended September 30, 2024 as the spreads on the bank debt continued to tighten with overall signs of stability in the banking industry and interest rate movement during the period. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. It is more likely than not that the Company will not be required to sell the securities prior to their anticipated recoveries, and at this time the Company does not intend to sell these securities. There was no provision for credit losses recognized for AFS investment securities during the nine months ended September 30, 2024 and 2023.

At September 30, 2024 and December 31, 2023, there were no AFS or HTM securities on nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At September 30, 2024 and December 31, 2023, there were no securities purchased with deterioration in credit quality since their origination.

Realized Gains and Losses

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


	Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2024		2023		2024		2023
Amortized cost of AFS investment securities sold	$	—	$	—	$	—	$	304,182

Gross realized gains	$	—	$	—	$	—	$	986
Gross realized (losses)	—		—		—		(848)
Net realized gains on sales of AFS investment securities	$	—	$	—	$	—	$	138

Contractual Maturities

The amortized cost and estimated fair value of investment securities at September 30, 2024, 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
AFS investment securities:
U.S. Treasury	$	618,639	$	620,804	$	148,563	$	150,547	$	—	$	—	$	—	$	—	$	767,202	$	771,351
Agency	—		—		776		752		—		—		431		413		1,207		1,165
Corporate	20,002		19,996		203,372		202,551		204,937		182,861		—		—		428,311		405,408

Collateralized mortgage obligations	—		—		54,957		54,731		41,870		41,625		42,629		42,266		139,456		138,622

Total AFS investment securities	638,641		640,800		407,668		408,581		246,807		224,486		43,060		42,679		1,336,176		1,316,546
HTM investment securities:

Municipal bonds	—		—		38,612		36,884		43,308		39,551		1,063,281		864,452		1,145,201		940,887
Collateralized mortgage obligations	—		—		57		57		—		—		316,493		315,430		316,550		315,487
Mortgage-backed securities	—		—		2,938		3,025		6,059		6,277		226,732		200,167		235,729		209,469
Other	—		—		—		—		—		—		16,199		16,199		16,199		16,199
Total HTM investment securities	—		—		41,607		39,966		49,367		45,828		1,622,705		1,396,248		1,713,679		1,482,042
Total investment securities	$	638,641	$	640,800	$	449,275	$	448,547	$	296,174	$	270,314	$	1,665,765	$	1,438,927	$	3,049,855	$	2,798,588

Note 5 – Loans Held for Investment

The Company’s loan portfolio is segmented according to loans that share similar attributes and risk characteristics.

Investor loans secured by real estate includes commercial real estate (“CRE”) non-owner-occupied, multifamily, construction, and land, as well as Small Business Administration (“SBA”) loans secured by investor real estate, which are loans collateralized by hotel/motel real property.

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

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

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

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


	September 30,		December 31,
(Dollars in thousands)	2024		2023
Investor loans secured by real estate
CRE non-owner-occupied	$	2,202,268	$	2,421,772
Multifamily	5,388,847		5,645,310
Construction and land	445,146		472,544
SBA secured by real estate	32,228		36,400
Total investor loans secured by real estate	8,068,489		8,576,026
Business loans secured by real estate
CRE owner-occupied	2,038,583		2,191,334
Franchise real estate secured	264,696		304,514
SBA secured by real estate	43,943		50,741
Total business loans secured by real estate	2,347,222		2,546,589
Commercial loans
Commercial and industrial	1,316,517		1,790,608
Franchise non-real estate secured	237,702		319,721
SBA non-real estate secured	8,407		10,926
Total commercial loans	1,562,626		2,121,255
Retail loans
Single family residential	71,552		72,752
Consumer	1,361		1,949
Total retail loans	72,913		74,701
Loans held for investment before basis adjustment (1)	12,051,250		13,318,571
Basis adjustment associated with fair value hedge (2)	(16,153)		(29,551)
Loans held for investment	12,035,097		13,289,020
Allowance for credit losses for loans held for investment	(181,248)		(192,471)
Loans held for investment, net	$	11,853,849	$	13,096,549

Total unfunded loan commitments	$	1,377,190	$	1,703,470
Loans held for sale, at lower of cost or fair value	$	—	$	—

______________________________

(1) Includes net deferred origination costs (fees) of $1.5 million and $(74,000), and unaccreted fair value net purchase discounts of $35.9 million and $43.3 million as of September 30, 2024 and December 31, 2023, respectively.

(2) Represents the basis adjustment associated with the application of hedge accounting on certain loans. The basis adjustment will be allocated to the amortized cost of associated loans within the closed portfolio if the hedge is discontinued. Refer to Note 11 – Derivative Instruments for additional information.

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

Loans Serviced for Others and Loan Securitization

The Company generally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company initially records a servicing asset at fair value within its other assets category. Servicing assets are subsequently measured using the amortization method and amortized to noninterest income. At September 30, 2024 and December 31, 2023, the servicing assets totaled $1.1 million and $1.6 million, respectively, and were included in other assets in the Company’s consolidated statements of financial condition. Servicing assets are evaluated for impairment based upon the fair value of the servicing rights as compared to carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At September 30, 2024 and December 31, 2023, the Company determined that no valuation allowance was necessary.

In connection with the acquisition of Opus Bank (“Opus”), the Company acquired Federal Home Loan Mortgage Corporation (“Freddie Mac”) guaranteed structured pass-through certificates, which were issued as a result of Opus’s securitization sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored transaction in December 2016. The Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and reimbursement obligations. Servicing responsibilities on loan sales generally include obligations to collect and remit payments of principal and interest, provide foreclosure services, manage payments of taxes and insurance premiums, and otherwise administer the underlying loans. In connection with the securitization transaction, Freddie Mac was designated as the master servicer and appointed the Company to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with the exception of the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are separately designated to the special servicer, a third-party institution that is independent of the master servicer and the Company. The master servicer has the right to terminate the Company in its role as sub-servicer and direct such responsibilities accordingly.

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 $345,000 as of September 30, 2024 and December 31, 2023.

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 was $325.0 million at September 30, 2024 and $373.8 million at December 31, 2023, respectively. Included in those totals are multifamily loans transferred through securitization with Freddie Mac of $42.3 million and $48.0 million at September 30, 2024 and December 31, 2023, respectively, and SBA participations serviced for others of $221.0 million and $258.1 million at September 30, 2024 and December 31, 2023, respectively.

Concentration of Credit Risk

As of September 30, 2024, 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 $835.5 million for secured loans and $501.3 million for unsecured loans at September 30, 2024. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At September 30, 2024, the Bank’s largest aggregate outstanding balance of loans to one borrower was $169.6 million comprised of C&I asset-based lines of credit.

Credit Quality and Credit Risk Management

The Company’s credit quality and credit risk are controlled in two distinct areas. The first is the loan origination process, wherein the Bank underwrites credit and chooses which types and levels of risk it is willing to accept. The Company maintains a credit policy which addresses many related topics, sets forth maximum tolerances for key elements of loan risk, and indicates appropriate protocols for identifying and analyzing these risk elements. The policy sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio-wide basis. The credit policy is reviewed at least 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 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 six-grade Pass scale, along with Special Mention, Substandard, Doubtful, and Loss classifications, and such classifications are defined by the federal banking regulatory agencies. The assignment of risk grades allows the Company to, among other things, identify the risk associated with each credit in the portfolio and to provide a basis for estimating credit losses inherent in the portfolio. Risk grades are reviewed regularly with the Company’s Credit and Portfolio Review Committee, and the portfolio management and risk grading process is reviewed on an ongoing basis by both an independent loan review function and periodic internal audits, as well as by regulatory agencies during scheduled examinations.

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

•Pass assets carry an acceptable level of credit quality that contains no well-defined deficiencies or weaknesses.

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

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

•Doubtful assets have all the weaknesses inherent in substandard assets, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

•Loss assets are those that are considered uncollectible and of such little value that their continuance as assets is not warranted. Amounts classified as loss are promptly charged off.

The Bank’s portfolio managers also manage loan performance risks, collections, workouts, bankruptcies, and foreclosures. A special department, whose portfolio managers have professional expertise in these areas, typically handles or advises on these types of matters. Loan performance risks are mitigated by our portfolio managers acting promptly and assertively to address problem credits when they are identified. Collection efforts commence immediately upon non-payment, and the portfolio managers seek to promptly determine the appropriate steps to minimize the Company’s risk of loss. When foreclosure will maximize the Company’s recovery for a non-performing loan, the portfolio managers will take appropriate action to initiate the foreclosure process.

When a loan is graded as special mention, substandard, or doubtful, the Company obtains an updated valuation of the underlying collateral. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate properties, and/or cash. 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 accordance with our credit policy, in order to have the most current indication of fair value of the underlying collateral securing the loan. If the loan no longer possesses risk characteristics similar to other loans of a similar type in the loan portfolio, then the loan is evaluated individually to determine an appropriate ACL for the loan. 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. If an individually evaluated loan is not considered collateral dependent, the associated ACL is determined through the use of a discounted cash flow analysis.

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as well as the gross charge-offs on a year-to-date basis by year of origination as of September 30, 2024:


	Term Loans by Vintage
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving		Revolving Converted to Term During the Period		Total
September 30, 2024
Investor loans secured by real estate
CRE non-owner-occupied
Pass	$	50,743	$	31,134	$	449,405	$	503,642	$	164,952	$	963,283	$	—	$	—	$	2,163,159
Special mention	—		—		—		—		—		2,471		—		—		2,471
Substandard	16,089		—		11,549		—		5,784		3,216		—		—		36,638

Multifamily
Pass	14,921		171,585		1,163,753		1,954,025		679,920		1,369,933		—		—		5,354,137
Special mention	—		—		—		3,098		18,949		12,663		—		—		34,710


Construction and land
Pass	18,613		67,378		282,353		71,328		2,219		3,255		—		—		445,146



SBA secured by real estate
Pass	—		—		6,399		—		494		18,008		—		—		24,901
Special mention	—		—		—		—		—		1,125		—		—		1,125
Substandard	—		—		—		131		—		6,071		—		—		6,202

Total investor loans secured by real estate	100,366		270,097		1,913,459		2,532,224		872,318		2,380,025		—		—		8,068,489
Year-to-date gross charge-offs	—		—		—		29		11,539		1,333		—		—		12,901
Business loans secured by real estate
CRE owner-occupied
Pass	30,052		20,963		525,968		615,978		214,189		579,769		—		—		1,986,919
Special mention	—		—		1,235		—		—		15,936		918		—		18,089
Substandard	—		—		—		—		—		33,575		—		—		33,575

Franchise real estate secured
Pass	1,205		9,693		40,846		104,623		23,827		81,432		—		—		261,626
Special mention	—		—		—		—		—		1,560		—		—		1,560
Substandard	—		—		—		—		—		1,510		—		—		1,510

SBA secured by real estate
Pass	243		110		9,744		7,052		1,209		22,415		—		—		40,773

Substandard	—		—		—		—		—		3,170		—		—		3,170

Total loans secured by business real estate	31,500		30,766		577,793		727,653		239,225		739,367		918		—		2,347,222
Year-to-date gross charge-offs	—		93		3,345		581		1,152		645		—		—		5,816
Commercial loans
Commercial and industrial
Pass	37,384		39,403		128,947		136,119		33,882		224,276		671,901		3,942		1,275,854
Special mention	816		628		—		45		177		7		10,378		342		12,393
Substandard	—		1,139		9,235		4,335		340		872		9,464		—		25,385
Doubtful	—		—		2,885		—		—		—		—		—		2,885


	Term Loans by Vintage
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving		Revolving Converted to Term During the Period		Total
September 30, 2024
Franchise non-real estate secured
Pass	$	11	$	6,982	$	58,598	$	82,272	$	9,274	$	69,601	$	—	$	—	$	226,738
Special mention	—		—		—		—		—		557		—		—		557
Substandard	—		—		1,190		—		—		9,217		—		—		10,407

SBA non-real estate secured
Pass	307		361		4,261		327		—		2,439		—		—		7,695

Substandard	—		—		500		—		130		82		—		—		712






Total commercial loans	38,518		48,513		205,616		223,098		43,803		307,051		691,743		4,284		1,562,626
Year-to-date gross charge-offs	—		466		212		182		41		22		1,975		—		2,898
Retail loans
Single family residential
Pass	—		11		—		—		160		40,477		30,904		—		71,552



Consumer loans
Pass	57		—		—		2		2		391		909		—		1,361



Total retail loans	57		11		—		2		162		40,868		31,813		—		72,913
Year-to-date gross charge-offs	5		1		7		1		—		869		—		—		883
Loans held for investment before basis adjustment (1)	$	170,441	$	349,387	$	2,696,868	$	3,482,977	$	1,155,508	$	3,467,311	$	724,474	$	4,284	$	12,051,250
Total Year-to-date gross charge-offs	$	5	$	560	$	3,564	$	793	$	12,732	$	2,869	$	1,975	$	—	$	22,498

______________________________

(1) Excludes the basis adjustment of $16.2 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of December 31, 2023:


	Term Loans by Vintage
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied
Pass	$	71,452	$	482,045	$	549,828	$	192,399	$	315,139	$	795,856	$	—	$	—	$	2,406,719
Special mention	—		3,811		2,530		—		—		625		—		—		6,966
Substandard	—		412		—		—		—		7,675		—		—		8,087

Multifamily
Pass	179,055		1,184,329		2,008,126		725,123		822,411		714,638		—		—		5,633,682
Special mention	—		—		—		—		—		11,628		—		—		11,628


Construction and land
Pass	59,993		309,677		94,845		2,223		2,368		3,438		—		—		472,544



SBA secured by real estate
Pass	$	—	$	6,478	$	—	$	493	$	4,804	$	16,496	$	—	$	—	$	28,271

Substandard	—		—		131		—		536		7,462		—		—		8,129

Total investor loans secured by real estate	310,500		1,986,752		2,655,460		920,238		1,145,258		1,557,818		—		—		8,576,026


	Term Loans by Vintage
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Revolving Converted to Term During the Period		Total
December 31, 2023
Year-to-date gross charge-offs	$	—	$	—	$	217	$	—	$	1,582	$	3,653	$	—	$	—	$	5,452
Business loans secured by real estate
CRE owner-occupied
Pass	19,014		543,413		660,967		224,333		211,283		458,975		—		—		2,117,985
Special mention	—		16,535		—		476		4,775		11,775		919		—		34,480
Substandard	—		15,539		2,162		5,505		3,873		11,790		—		—		38,869

Franchise real estate secured
Pass	10,580		39,239		124,424		25,697		15,731		72,342		—		—		288,013
Special mention	1,758		3,603		1,903		—		795		1,615		—		—		9,674
Substandard	—		3,964		—		—		2,571		292		—		—		6,827

SBA secured by real estate
Pass	113		9,334		7,634		1,979		4,109		22,417		—		—		45,586
Special mention	—		536		—		—		—		83		—		—		619
Substandard	—		—		—		—		—		4,536		—		—		4,536

Total loans secured by business real estate	31,465		632,163		797,090		257,990		243,137		583,825		919		—		2,546,589
Year-to-date gross charge-offs	—		—		318		191		—		1,861		—		—		2,370
Commercial loans
Commercial and industrial
Pass	46,765		172,987		160,275		40,988		110,526		146,310		966,733		6,518		1,651,102
Special mention	239		23,242		12,270		367		16		2,139		42,570		407		81,250
Substandard	425		8,052		2,689		588		173		1,138		26,462		14,187		53,714
Doubtful and loss	—		—		—		—		—		—		—		4,542		4,542
Franchise non-real estate secured
Pass	6,801		74,441		112,112		16,355		34,770		53,957		—		753		299,189
Special mention	433		845		1,633		—		627		692		—		—		4,230
Substandard	—		1,646		322		2,324		10,451		1,559		—		—		16,302

SBA non-real estate secured
Pass	1,075		4,485		343		113		1,464		2,490		—		—		9,970

Substandard	—		527		—		141		53		235		—		—		956

Total commercial loans	55,738		286,225		289,644		60,876		158,080		208,520		1,035,765		26,407		2,121,255
Year-to-date gross charge-offs	132		3,053		62		5		362		37		6,387		503		10,541
Retail loans
Single family residential
Pass	20		—		—		167		—		44,104		28,461		—		72,752



Consumer loans
Pass	—		—		3		9		5		788		1,144		—		1,949



Total retail loans	20		—		3		176		5		44,892		29,605		—		74,701
Year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	983	$	3	$	—	$	986
Loans held for investment before basis adjustment (1)	$	397,723	$	2,905,140	$	3,742,197	$	1,239,280	$	1,546,480	$	2,395,055	$	1,066,289	$	26,407	$	13,318,571
Total Year-to-date gross charge-offs	$	132	$	3,053	$	597	$	196	$	1,944	$	6,534	$	6,390	$	503	$	19,349

______________________________

(1) Excludes the basis adjustment of $29.6 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

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


			Days Past Due(2)
(Dollars in thousands)	Current		30-59		60-89		90+		Total
September 30, 2024
Investor loans secured by real estate
CRE non-owner-occupied	$	2,201,885	$	—	$	—	$	383	$	2,202,268
Multifamily	5,388,847		—		—		—		5,388,847
Construction and land	445,146		—		—		—		445,146
SBA secured by real estate	30,926		1,115		—		187		32,228
Total investor loans secured by real estate	8,066,804		1,115		—		570		8,068,489
Business loans secured by real estate
CRE owner-occupied	2,034,009		—		—		4,574		2,038,583
Franchise real estate secured	264,696		—		—		—		264,696
SBA secured by real estate	43,943		—		—		—		43,943
Total business loans secured by real estate	2,342,648		—		—		4,574		2,347,222
Commercial loans
Commercial and industrial	1,313,441		893		715		1,468		1,316,517
Franchise non-real estate secured	237,702		—		—		—		237,702
SBA not secured by real estate	7,876		—		—		531		8,407
Total commercial loans	1,559,019		893		715		1,999		1,562,626
Retail loans
Single family residential	71,552		—		—		—		71,552
Consumer loans	1,361		—		—		—		1,361
Total retail loans	72,913		—		—		—		72,913
Loans held for investment before basis adjustment (1)	$	12,041,384	$	2,008	$	715	$	7,143	$	12,051,250




December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied	$	2,421,360	$	—	$	—	$	412	$	2,421,772
Multifamily	5,645,310		—		—		—		5,645,310
Construction and land	472,544		—		—		—		472,544
SBA secured by real estate	35,980		—		—		420		36,400
Total investor loans secured by real estate	8,575,194		—		—		832		8,576,026
Business loans secured by real estate
CRE owner-occupied	2,186,679		—		—		4,655		2,191,334
Franchise real estate secured	304,222		292		—		—		304,514
SBA secured by real estate	50,604		137		—		—		50,741
Total business loans secured by real estate	2,541,505		429		—		4,655		2,546,589
Commercial loans
Commercial and industrial	1,788,855		228		1,294		231		1,790,608
Franchise non-real estate secured	318,162		1,559		—		—		319,721
SBA not secured by real estate	10,119		249		—		558		10,926
Total commercial loans	2,117,136		2,036		1,294		789		2,121,255
Retail loans
Single family residential	72,733		19		—		—		72,752
Consumer loans	1,949		—		—		—		1,949
Total retail loans	74,682		19		—		—		74,701
Loans held for investment before basis adjustment (1)	$	13,308,517	$	2,484	$	1,294	$	6,276	$	13,318,571

______________________________

(1) Excludes the basis adjustment of $16.2 million and $29.6 million to the carrying amount of certain loans included in fair value hedging relationships as of September 30, 2024 and December 31, 2023, respectively. Refer to Note 11 – Derivative Instruments for additional information.

(2) Nonaccrual loans are included in this aging analysis based on the loan’s past due status.

Individually Evaluated Loans

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

As of September 30, 2024, $39.1 million of loans were individually evaluated with a $752,000 ACL attributed to such loans. At September 30, 2024, $28.1 million of individually evaluated loans were evaluated based on the underlying value of the collateral, and $10.9 million were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at September 30, 2024.

As of December 31, 2023, $24.8 million of loans were individually evaluated with no ACL attributed to such loans. At December 31, 2023, $12.2 million of individually evaluated loans were evaluated based on the underlying value of the collateral, and $12.6 million were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at December 31, 2023.

The increase in individually evaluated loans during the nine months ended September 30, 2024 was primarily driven by a single, diversified commercial banking relationship with CRE non-owner-occupied loans totaling $18.0 million as of September 30, 2024.

Purchased Credit Deteriorated Loans

The Company analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated (“PCD”) loans. Please see Note 1 - Description of Business and Summary of Significant Accounting Policies of our audited consolidated financial statements included in our 2023 Form 10-K for more information concerning the accounting for PCD loans. The Company had PCD loans of $296.1 million and $359.3 million at September 30, 2024 and December 31, 2023, respectively.

Acquired loans classified as PCD are recorded at an initial amortized cost, which is comprised of the purchase price of the loans (or initial fair value) and the initial ACL determined for the loans, which is added to the purchase price, as well as any resulting discount or premium related to factors other than credit. The Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield. Subsequent to acquisition, the ACL for PCD loans is measured in accordance with the Company’s ACL methodology. Please also see Note 6 – Allowance for Credit Losses for more information concerning the Company’s ACL methodology.

Nonaccrual Loans

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

The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest regardless of the length of past due status. However, when such loans are well-secured and in the process of collection, the Company may continue with the accrual of interest. The Company had loans on nonaccrual status of $39.1 million at September 30, 2024 and $24.8 million at December 31, 2023. The increase in nonaccrual loans at September 30, 2024 was primarily the result of a single, diversified commercial banking relationship with CRE non-owner occupied loans totaling $18.0 million, which were current as of September 30, 2024.

The Company did not record income from the receipt of cash payments related to nonaccruing loans during the three and nine months ended September 30, 2024 and 2023. The Company had no loans 90 days or more past due and still accruing at September 30, 2024 and December 31, 2023.

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


	Nonaccrual Loans (1)
	Collateral Dependent Loans				Non-Collateral Dependent Loans				Total Nonaccrual Loans		Nonaccrual Loans with No ACL
(Dollars in thousands)	Balance		ACL		Balance		ACL
September 30, 2024
Investor loans secured by real estate
CRE non-owner-occupied	$	19,042	$	—	$	—	$	—	$	19,042	$	19,042


SBA secured by real estate	1,725		559		—		—		1,725		610
Total investor loans secured by real estate	20,767		559		—		—		20,767		19,652
Business loans secured by real estate
CRE owner-occupied	4,574		—		—		—		4,574		4,574


Total business loans secured by real estate	4,574		—		—		—		4,574		4,574
Commercial loans
Commercial and industrial	2,274		193		10,938		—		13,212		13,019

SBA non-real estate secured	531		—		—		—		531		531
Total commercial loans	2,805		193		10,938		—		13,743		13,550




Total nonaccrual loans	$	28,146	$	752	$	10,938	$	—	$	39,084	$	37,776



	Nonaccrual Loans (1)
(Dollars in thousands)	Collateral Dependent Loans		ACL		Non-Collateral Dependent Loans		ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied	$	412	$	—	$	—	$	—	$	412	$	412


SBA secured by real estate	1,205		—		—		—		1,205		1,205
Total investor loans secured by real estate	1,617		—		—		—		1,617		1,617
Business loans secured by real estate
CRE owner-occupied	8,666		—		—		—		8,666		8,666


Total business loans secured by real estate	8,666		—		—		—		8,666		8,666
Commercial loans
Commercial and industrial	1,381		—		12,595		—		13,976		13,976

SBA non-real estate secured	558		—		—		—		558		558
Total commercial loans	1,939		—		12,595		—		14,534		14,534




Total nonaccrual loans	$	12,222	$	—	$	12,595	$	—	$	24,817	$	24,817

______________________________

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

Residential Real Estate Loans In Process of Foreclosure

The Company had no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of September 30, 2024 and December 31, 2023.

Modified Loans to Troubled Borrowers

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. The Company also refers to these loans as modified loans to troubled borrowers (“MLTB”). An MLTB arises from a modification made to a loan in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or any combination of the foregoing. The ACL for an MLTB is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for an MLTB is determined through individual evaluation.

MLTBs were $16.1 million at September 30, 2024 and $12.6 million at December 31, 2023.

There were no loans modified as an MLTB during the three months ended September 30, 2024, compared to two syndicated C&I participation MLTBs during the three months ended September 30, 2023.

The following table shows the amortized cost of the MLTBs by class and type of modification, as well as the percentage of the loans modified to the total class of loans at and during the three months ended September 30, 2023:


		Three Months Ended September 30, 2023
	Other-than-Insignificant Payment Delay
(Dollars in thousands)		Balance		Percent of Total Class of Loans











Commercial loans
Commercial and industrial		$	13,021	0.82	%


Total commercial loans		$	13,021


		Nine Months Ended September 30, 2024
	Combination of Other-than-Insignificant Payment Delay and Term Extension
(Dollars in thousands)		Balance		Percent of Total Class of Loans
Investor loans secured by real estate
CRE non-owner-occupied		$	16,089	0.73	%



Total investor loans secured by real estate		$	16,089


		Nine Months Ended September 30, 2023
	Other-than-Insignificant Payment Delay
(Dollars in thousands)		Balance		Percent of Total Class of Loans











Commercial loans
Commercial and industrial		$	13,021	0.82	%


Total commercial loans		$	13,021

The following table describes the financial effect of the loan modification made for the borrower experiencing financial difficulty during the nine months ended September 30, 2024:

Combination of

Other-than-Insignificant Payment Delay and

Term Extension

Investor loans secured by real estate

CRE non-owner-occupied

Consolidated 3 loans with varying maturities into a single loan that extended the weighted average maturity by 6 months and 2 years of interest only payments

The following table describes the financial effect of the loan modification made for the borrower experiencing financial difficulty during the three and nine months ended September 30, 2023:

Other-than-Insignificant Payment Delay

Commercial loans

Commercial and industrial

1 year of interest-only payments

During the three and nine months ended September 30, 2024 and 2023, there were no MLTBs that had a payment default and had been modified within the 12 months preceding the payment default (90 days or more past due).

The following table depicts the performance of the loans that were modified in the past 12 months as of the dates indicated:


			Days Past Due
(Dollars in thousands)	Current		30-59		60-89		90+		Total
September 30, 2024
Investor loans secured by real estate
CRE non-owner-occupied	$	16,089	$	—	$	—	$	—	$	16,089



Total investor loans secured by real estate	$	16,089	$	—	$	—	$	—	$	16,089




September 30, 2023











Commercial loans
Commercial and industrial	$	13,021	$	—	$	—	$	—	$	13,021


Total commercial loans	$	13,021	$	—	$	—	$	—	$	13,021

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 eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL. The ACL for each loan 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. Additionally, due to the likelihood of foreclosure and that repayment of the loan is expected to come from the eventual sale of the underlying collateral, management analyzes the underlying collateral at least quarterly, with changes in the estimated fair value of the collateral and/or estimated costs to sell reflected in the lifetime ACL for the loan and balances deemed uncollectible are promptly charged-off. In cases where the loan is well-secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

The following tables summarize collateral dependent loans by collateral type as of the dates indicated:



(Dollars in thousands)	Office Properties		Retail Properties		Land Properties		Hotel Properties		Other CRE Properties		Business Assets		Total
September 30, 2024
Investor loan secured by real estate
CRE non-owner-occupied	$	16,089	$	1,005	$	—	$	—	$	1,948	$	—	$	19,042


SBA secured by real estate	—		—		—		1,725		—		—		1,725
Total investor loans secured by real estate	16,089		1,005		—		1,725		1,948		—		20,767
Business loans secured by real estate
CRE owner-occupied	—		—		4,574		—		—		—		4,574


Total business loans secured by real estate	—		—		4,574		—		—		—		4,574
Commercial loans
Commercial and industrial	—		—		227		—		—		2,047		2,274

SBA non-real estate secured	—		—		—		—		—		531		531
Total commercial loans	—		—		227		—		—		2,578		2,805




Total collateral dependent loans	$	16,089	$	1,005	$	4,801	$	1,725	$	1,948	$	2,578	$	28,146




December 31, 2023
Investor loan secured by real estate
CRE non-owner-occupied	$	—	$	412	$	—	$	—	$	—	$	—	$	412


SBA secured by real estate	—		—		—		1,205		—		—		1,205
Total investor loans secured by real estate	—		412		—		1,205		—		—		1,617
Business loans secured by real estate
CRE owner-occupied	4,011		—		4,655		—		—		—		8,666


Total business loans secured by real estate	4,011		—		4,655		—		—		—		8,666
Commercial loans
Commercial and industrial	—		—		231		—		—		1,150		1,381

SBA non-real estate secured	—		—		—		—		—		558		558
Total commercial loans	—		—		231		—		—		1,708		1,939




Total collateral dependent loans	$	4,011	$	412	$	4,886	$	1,205	$	—	$	1,708	$	12,222

Note 6 – Allowance for Credit Losses

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

The discounted cash flow model is applied on an instrument-by-instrument basis, and for loans with similar risk characteristics, to derive estimates for the lifetime ACL for each loan. The discounted cash flow methodology relies on several significant components essential to the development of estimates for future cash flows on loans and unfunded loan commitments. These components consist of: (i) the estimated probability of default (“PD”), (ii) the estimated loss given default (“LGD”), which represents the estimated severity of the loss when a loan is in default, (iii) estimates for prepayment activity on loans, and (iv) the estimated exposure to the Company at default (“EAD”). The PD and LGD are heavily influenced by changes in economic forecasts and key variables employed in the model as well as our portfolio performance and composition 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 CRE and commercial loans uses internally derived estimates for prepayments in determining the amount and timing of future contractual cash flows expected to be collected. The estimate of future cash flows also incorporates estimates for contractual amounts the Company believes may not be collected, which are based on assumptions for PD, LGD, and EAD. The EAD is 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, or discounts, and deferred fees and costs associated with an originated loan. The Company has made an accounting policy election to adjust the effective interest rate to take into consideration the effects of estimated prepayments. The ACL for loans is determined by measuring the amount by which a loan’s amortized cost exceeds its discounted cash flows expected to be collected. The ACL for credit facilities is determined by discounting estimates for cash flows not expected to be collected.

Probability of Default

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

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

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

Loss Given Default

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

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

Historical Loss Rates for Retail Loans

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

Economic Forecasts

In order to develop reasonable and supportable forecasts of future conditions, the Company estimates how those forecasts are expected to impact a borrower’s ability to satisfy their obligation to the Bank and the ultimate collectability of future cash flows over the life of a loan. The Company uses macroeconomic scenarios from an independent third party, which are based on past events, current conditions, and the likelihood of future events occurring. These scenarios are typically comprised of: a base-case scenario, an upside scenario, representing slightly better economic conditions than currently experienced and, a downside scenario, representing recessionary conditions. Management evaluates appropriateness of economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in the Company’s ACL model. The economic scenarios chosen for the model, the extent to which more than one scenario is used, and the weights that are assigned to them, are based on the likelihood that the economy would perform better than each scenario, which is based in part on analysis performed by an independent third party. Economic scenarios chosen, as well as the assumptions within those scenarios, and whether to use a probability-weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events. The Company’s ACL model at September 30, 2024 includes assumptions concerning the interest rate environment, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.

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

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

Qualitative Adjustments

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

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

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


	Three Months Ended September 30, 2024
(Dollars in thousands)	Beginning ACL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
Investor loans secured by real estate
CRE non-owner-occupied	$	29,738	$	—	$	—	$	(464)	$	29,274
Multifamily	57,298		—		—		8,667		65,965
Construction and land	10,804		—		—		180		10,984
SBA secured by real estate	2,142		—		—		457		2,599
Business loans secured by real estate
CRE owner-occupied	28,531		(1,152)		—		580		27,959
Franchise real estate secured	6,794		—		—		(1,680)		5,114
SBA secured by real estate	4,134		—		—		(490)		3,644
Commercial loans
Commercial and industrial	32,257		(1,239)		2		(6,038)		24,982
Franchise non-real estate secured	11,130		—		125		(1,357)		9,898
SBA non-real estate secured	482		—		5		(139)		348
Retail loans
Single family residential	399		—		—		(11)		388
Consumer loans	94		(48)		1		46		93
Totals	$	183,803	$	(2,439)	$	133	$	(249)	$	181,248


	Nine Months Ended September 30, 2024

(Dollars in thousands)	Beginning ACL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance

Investor loans secured by real estate
CRE non-owner occupied	$	31,030	$	(5,123)	$	1,500	$	1,867	$	29,274
Multifamily	56,312		(7,372)		5		17,020		65,965
Construction and land	9,314		—		—		1,670		10,984
SBA secured by real estate	2,182		(406)		86		737		2,599
Business loans secured by real estate
CRE owner-occupied	28,787		(5,604)		184		4,592		27,959
Franchise real estate secured	7,499		(212)		—		(2,173)		5,114
SBA secured by real estate	4,427		—		2		(785)		3,644
Commercial loans
Commercial and industrial	36,692		(2,792)		189		(9,107)		24,982
Franchise non-real estate secured	15,131		(100)		1,500		(6,633)		9,898
SBA non-real estate secured	458		(6)		10		(114)		348
Retail loans
Single family residential	505		—		3		(120)		388
Consumer loans	134		(883)		1		841		93
Totals	$	192,471	$	(22,498)	$	3,480	$	7,795	$	181,248


	Three Months Ended September 30, 2023
(Dollars in thousands)	Beginning ACL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
Investor loans secured by real estate
CRE non-owner-occupied	$	31,545	$	—	$	51	$	(13)	$	31,583
Multifamily	55,648		—		—		(427)		55,221
Construction and land	7,707		—		—		799		8,506
SBA secured by real estate	2,331		(108)		—		(24)		2,199
Business loans secured by real estate
CRE owner-occupied	28,515		—		12		559		29,086
Franchise real estate secured	6,855		—		—		711		7,566
SBA secured by real estate	4,511		—		128		(77)		4,562
Commercial loans
Commercial and industrial	39,586		(7,386)		565		(268)		32,497
Franchise non-real estate secured	14,642		—		50		1,087		15,779
SBA non-real estate secured	399		(67)		3		137		472
Retail loans
Single family residential	455		—		—		36		491
Consumer loans	139		—		—		(3)		136
Totals	$	192,333	$	(7,561)	$	809	$	2,517	$	188,098


	Nine Months Ended September 30, 2023
(Dollars in thousands)	Beginning ACL Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending ACL Balance
Investor loans secured by real estate
CRE non-owner-occupied	$	33,692	$	(2,657)	$	66	$	482	$	31,583
Multifamily	56,334		(290)		1		(824)		55,221
Construction and land	7,114		—		—		1,392		8,506
SBA secured by real estate	2,592		(108)		—		(285)		2,199
Business loans secured by real estate
CRE owner-occupied	32,340		(2,370)		36		(920)		29,086
Franchise real estate secured	7,019		—		—		547		7,566
SBA secured by real estate	4,348		—		208		6		4,562
Commercial loans
Commercial and industrial	35,169		(8,734)		945		5,117		32,497
Franchise non-real estate secured	16,029		—		150		(400)		15,779
SBA non-real estate secured	441		(67)		68		30		472
Retail loans
Single family residential	352		(90)		1		228		491
Consumer loans	221		(895)		35		775		136
Totals	$	195,651	$	(15,211)	$	1,510	$	6,148	$	188,098

The decrease in the ACL for loans held for investment during the three months ended September 30, 2024 of $2.6 million was reflective of $2.3 million in net charge-offs, and a $249,000 reversal of provision for credit losses. During the nine months ended September 30, 2024, the ACL for loans held for investment decreased $11.2 million, which was reflective of $19.0 million in net charge-offs, partially offset by $7.8 million in provision for credit losses.

During the three months ended September 30, 2024, the reversal of provision for credit losses was principally driven by declines in the balances of commercial loans and business loans secured by real estate. The reversal of provision for credit losses in these segments was partially offset by provision for credit losses in the investor loans secured by real estate segment, driven in large part by changes associated with economic forecasts and, partially offset by a decline in balances for loans within this segment.

During the nine months ended September 30, 2024, the provision for credit losses was attributed in large part to the impact of changes in economic forecasts and the associated impact on investor loans secured by real estate, with the largest impact attributed to multifamily loans and CRE non-owner-occupied loans, as well as business loans secured by real estate. The provision for credit losses for loans within these segments attributable to the impact from changes in economic forecasts was partially offset by declines in the balances of those loans and changes in asset quality for investor loans secured by real estate. The provision for credit losses in these segments was partially offset by a reversal of provision for credit losses in the commercial loans segment, which was principally driven by declines in the balances for those loans.

Charge-offs during the three months ended September 30, 2024 were largely due to a $1.2 million charge-off associated with the sale of one CRE owner-occupied loan, as well as charge-offs of various other C&I and consumer loans. In addition to the charge-offs recorded during the third quarter of 2024, charge-offs for the nine months ended September 30, 2024 were largely attributed to $11.5 million in charge-offs related to the sale of a substandard multifamily loan and a substandard non-owner-occupied CRE loan during the second quarter of 2024, as well as $5.7 million in charge-offs associated with the sale of various special mention and substandard CRE and franchise loans during the first quarter of 2024.

The decrease in the ACL for loans held for investment during the three months ended September 30, 2023 of $4.2 million was reflective of $6.8 million in net charge-offs, partially offset by $2.5 million in provision for credit losses. The provision for credit losses during the three months ended September 30, 2023 was largely attributed to changes in economic forecasts, partially offset by a decrease in the balance of loans held for investment across various segments in the loan portfolio.

For the nine months ended September 30, 2023, the ACL decreased $7.6 million. The decline in the ACL during this period was reflective of $13.7 million in net charge-offs, partially offset by $6.1 million in provision for credit losses. The provision for credit losses during the nine months ended September 30, 2023 was largely attributed to changes in economic forecasts, as well as changes in asset quality, partially offset by a decrease in loans held for investment across various segments in the loan portfolio.

Charge-offs during the three months ended September 30, 2023 were largely attributed to one C&I lending relationship that already had a specific reserve as well as two syndicated C&I loans to one lending relationship that were modified with a partial charge-off. Charge-offs during the nine months ended September 30, 2023 were largely attributed to two C&I lending relationships, one CRE non-owner-occupied lending relationship, and one CRE owner-occupied lending relationship.

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an ACL for off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. The allowance for off-balance sheet commitments was $17.1 million at September 30, 2024, an increase of $760,000 from $16.3 million at June 30, 2024, and a decrease of $2.2 million from December 31, 2023. During the three months ended September 30, 2024, the provision expense for off-balance sheet commitments was largely attributable to slightly higher loss rates for C&I loans, partially offset by a decrease in the balance of unfunded commitments during the quarter. The provision reversal for off-balance sheet commitments during the nine months ended September 30, 2024 was attributed largely to overall lower levels of unfunded commitments during the period.

During the three months ended September 30, 2023, the provision expense for off-balance sheet commitments of $1.4 million was attributable, in large part, to changes in economic forecasts, partially offset by a decline in the balance of unfunded commitments. The provision expense during the nine months ended September 30, 2023 was largely attributed to economic forecasts, partially offset by changes in the mix of unfunded commitments between various loan segments, and a decrease in the balance of unfunded commitments.

The following table summarizes the activities in the ACL for off-balance sheet commitments for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2024		2023		2024		2023
Beginning ACL balance	$	16,334	$	24,455	$	19,264	$	23,641
Provision for credit losses on off-balance sheet commitments	760		1,386		(2,170)		2,200
Ending ACL balance	$	17,094	$	25,841	$	17,094	$	25,841

Note 7 – Goodwill and Other Intangible Assets

The Company had goodwill of $901.3 million at September 30, 2024 and December 31, 2023. The Company did not record any adjustments to goodwill during the three months ended September 30, 2024 and September 30, 2023.

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

Other intangible assets with definite lives were $34.9 million at September 30, 2024, consisting of $33.1 million in core deposit intangibles and $1.8 million in customer relationship intangibles. At December 31, 2023, other intangibles assets were $43.3 million, consisting of $41.2 million in core deposit intangibles and $2.1 million in customer relationship intangibles. The following table summarizes the change in the balances of core deposit and customer relationship intangible assets, and the related accumulated amortization for the periods indicated below:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2024		2023		2024		2023
Gross amount of intangible assets:
Beginning balance	$	145,212	$	145,212	$	145,212	$	145,212
Additions due to acquisitions	—		—		—		—
Ending balance	145,212		145,212		145,212		145,212
Accumulated amortization:
Beginning balance	(107,526)		(95,850)		(101,927)		(89,624)
Amortization	(2,762)		(3,055)		(8,361)		(9,281)
Ending balance	(110,288)		(98,905)		(110,288)		(98,905)
Net intangible assets	$	34,924	$	46,307	$	34,924	$	46,307

The Company amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case of customer relationship intangibles. The amortization periods typically range from six to eleven years. The estimated aggregate amortization expense related to our core deposit and customer relationship intangible assets for each of the next five years succeeding December 31, 2023, in order from the present, is $11.1 million, $10.0 million, $8.9 million, $7.2 million, and $4.0 million. The Company’s core deposit and customer relationship intangibles are evaluated annually for impairment or more frequently if events and circumstances lead management to believe their value may not be recoverable. The Company is unaware of any events and/or circumstances that would indicate the value of customer relationship intangible assets are impaired as of September 30, 2024.

Note 8 – Subordinated Debentures

As of September 30, 2024, the Company had two subordinated notes with an aggregate carrying value of $272.3 million with a weighted interest rate of 6.58%, compared to $331.8 million with a weighted interest rate of 5.31% at December 31, 2023. The decrease of $59.5 million was primarily due to the maturity of $60.0 million of subordinated notes on September 3, 2024, partially offset by the amortization of debt issuance costs.

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


						Carrying Value
(Dollars in thousands)	Stated Maturity	Current Interest Rate		Current Principal Balance		September 30, 2024		December 31, 2023
Subordinated notes
Subordinated notes due 2024, 5.75% per annum	September 3, 2024	—	%	$	—	$	—	$	59,910
Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month term SOFR +2.762% thereafter	May 15, 2029	7.880	%	125,000		123,832		123,641
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month term SOFR +5.17% thereafter	June 15, 2030	5.375	%	150,000		148,488		148,291
Total subordinated debentures				$	275,000	$	272,320	$	331,842

Upon the cessation of LIBOR on June 30, 2023, the LIBOR-based benchmark rate after May 15, 2024 for our subordinated notes due 2029 transitioned to 3-month term SOFR as successor base rate plus the relevant spread adjustment.

In connection with the various issuances of subordinated notes, the Corporation obtained ratings from Kroll Bond Rating Agency (“KBRA”). KBRA assigned investment grade ratings of BBB+ and BBB for the Corporation’s senior unsecured debt and subordinated debt, respectively, and a deposit and senior unsecured debt rating of A- and subordinated debt of BBB+ for the Bank. The Corporation’s and Bank’s ratings were reaffirmed in May 2024 by KBRA.

For additional information on the Company’s subordinated debentures, see “Note 13 — Subordinated Debentures” to the audited consolidated financial statements in the Company’s 2023 Form 10-K.

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

Note 9 – Earnings Per Share

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

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

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


	Three Months Ended
(Dollars in thousands, except per share data)	September 30, 2024		September 30, 2023
Basic
Net income	$	35,979	$	46,030
Less: dividends and undistributed earnings allocated to participating securities	(667)		(823)
Net income allocated to common stockholders	$	35,312	$	45,207

Weighted average common shares outstanding	94,650,096		94,189,844
Basic earnings per common share	$	0.37	$	0.48

Diluted
Net income allocated to common stockholders	$	35,312	$	45,207

Weighted average common shares outstanding	94,650,096		94,189,844
Dilutive effect of share-based compensation	125,831		93,164

Weighted average diluted common shares	94,775,927		94,283,008
Diluted earnings per common share	$	0.37	$	0.48


	Nine Months Ended
(Dollars in thousands, except per share data)	September 30, 2024		September 30, 2023
Basic
Net income	$	124,909	$	166,228

Less: dividends and undistributed earnings allocated to participating securities	(2,241)		(2,674)
Net income allocated to common stockholders	$	122,668	$	163,554

Weighted average common shares outstanding	94,543,243		94,072,463
Basic earnings per common share	$	1.30	$	1.74

Diluted
Net income allocated to common stockholders	$	122,668	$	163,554

Weighted average common shares outstanding	94,543,243		94,072,463
Dilutive effect of share-based compensation	109,340		142,383

Weighted average diluted common shares	94,652,583		94,214,846
Diluted earnings per common share	$	1.30	$	1.74

Shares or stock options are excluded from the computations of diluted earnings per share when their inclusion have an anti-dilutive effect. The dilutive impact of these securities could be included in future computations of diluted earnings per share if the market price of the common stock increases. For the three months ended September 30, 2024 and 2023, there were no potential common shares that were anti-dilutive. For the nine months ended September 30, 2024 and 2023, there were 43,610 and 48,808 weighted average common shares that were anti-dilutive.

Note 10 – Fair Value of Financial Instruments

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

In accordance with ASC Topic 820 - Fair Value Measurement, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, volatilities, etc.), or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market.

Level 3 - Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models, and similar techniques.

Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management maximizes the use of observable inputs and attempts to minimize the use of unobservable inputs when determining fair value measurements. Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following is a description of both the general and specific valuation methodologies used for certain instruments measured at fair value, as well as the general classification of these instruments pursuant to the fair value hierarchy.

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

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

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

Equity Warrant Assets – The Company acquired equity warrant assets as a result of the acquisition of Opus. The warrants provide the Bank the right to purchase a specific number of equity shares of the underlying company’s equity at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815 - Derivatives and Hedging. The fair value of equity warrant assets is determined using a Black-Scholes option pricing model and are classified as Level 3 within the fair value hierarchy due to the extent of unobservable inputs. The key assumptions used in determining the fair value include the exercise price of the warrants, valuation of the underlying entity's outstanding stock, expected term, risk-free interest rate, marketability discount for private company warrants, and price volatility. During 2023, the equity warrant assets were either settled or written off as the warrants were determined to not be exercisable until the underlying company’s fair market value is greater than the value established in the warrant agreement.

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

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


	September 30, 2024
	Fair Value Measurement Using						Total Fair Value
(Dollars in thousands)	Level 1		Level 2		Level 3
Financial assets
AFS investment securities:
U.S. Treasury	$	—	$	771,351	$	—	$	771,351
Agency	—		1,165		—		1,165
Corporate	—		405,408		—		405,408

Collateralized mortgage obligations	—		138,622		—		138,622

Total AFS investment securities	$	—	$	1,316,546	$	—	$	1,316,546


Equity securities	$	737	$	—	$	—	$	737

Derivative assets:
Foreign exchange contracts	$	3	$	—	$	—	$	3
Interest rate swaps (1)	—		4,199		—		4,199

Total derivative assets	$	3	$	4,199	$	—	$	4,202



Financial liabilities
Derivative liabilities:
Foreign exchange	$	2	$	—	$	—	$	2
Interest rate swaps	—		8,380		—		8,380
Total derivative liabilities	$	2	$	8,380	$	—	$	8,382

______________________________

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


	December 31, 2023
	Fair Value Measurement Using						Total Fair Value
(Dollars in thousands)	Level 1		Level 2		Level 3
Financial assets
AFS investment securities:
U.S. Treasury	$	—	$	539,256	$	—	$	539,256
Agency	—		1,868		—		1,868
Corporate	—		446,343		—		446,343

Collateralized mortgage obligations	—		152,604		—		152,604

Total AFS investment securities	$	—	$	1,140,071	$	—	$	1,140,071

Equity securities	$	759	$	—	$	—	$	759

Derivative assets:
Foreign exchange contracts	$	1	$	—	$	—	$	1
Interest rate swaps (1)	—		5,643		—		5,643

Total derivative assets	$	1	$	5,643	$	—	$	5,644

Financial liabilities
Derivative liabilities:
Foreign exchange	$	10	$	—	$	—	$	10
Interest rate swaps	—		10,705		—		10,705
Total derivative liabilities	$	10	$	10,705	$	—	$	10,715

______________________________

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


	Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2024		2023		2024		2023
Beginning balance	$	—	$	407	$	—	$	1,894
Change in fair value (1)	—		(16)		—		(41)
Net exercise	—		—		—		(1,462)
Ending balance	$	—	$	391	$	—	$	391

______________________________

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

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

At September 30, 2024, the Company’s individually evaluated collateral dependent loans were evaluated based on the fair value of their underlying collateral based upon the most recent appraisals available to management. The Company completed partial charge-offs on certain individually evaluated loans based on recent real estate or property appraisals and recorded the related reserves where applicable during the nine months ended September 30, 2024.

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



(Dollars in thousands)	Fair Value Measurement Using						Total Fair Value
September 30, 2024	Level 1		Level 2		Level 3
Financial assets
Collateral dependent loans	$	—	$	—	$	557	$	557

Total assets	$	—	$	—	$	557	$	557



December 31, 2023
Financial assets
Collateral dependent loans	$	—	$	—	$	1,569	$	1,569
Other real estate owned	—		—		248		248
Total assets	$	—	$	—	$	1,817	$	1,817

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

Range

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Min

Max

Weighted Average

September 30, 2024

Investor loans secured by real estate

SBA secured by real estate (1)

557

Fair value of collateral

Cost to sell

10.00%

Total individually evaluated loans

557

Total assets

557




December 31, 2023
Investor loans secured by real estate



SBA secured by real estate (1)	$	419	Fair value of collateral	Cost to sell	10.00%	10.00%	10.00%






Commercial loans
Commercial and industrial	1,150		Fair value of collateral	Cost to sell	7.00%	7.00%	7.00%







Total individually evaluated loans	1,569
Other real estate owned	248		Fair value of property	Cost to sell	10.00%	10.00%	10.00%
Total assets	$	1,817

______________________________

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

Fair Values of Financial Instruments

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


(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
September 30, 2024
Assets
Cash and cash equivalents	$	982,249	$	982,249	$	—	$	—	$	982,249
Interest-bearing time deposits with financial institutions	1,246		1,246		—		—		1,246
HTM investment securities	1,713,575		—		1,482,042		—		1,482,042
AFS investment securities	1,316,546		—		1,316,546		—		1,316,546
Equity securities	737		737		—		—		737

Loans held for investment, net	12,035,097		—		—		11,567,236		11,567,236
Derivative assets (1)	4,202		3		4,199		—		4,202

Accrued interest receivable	64,803		—		64,803		—		64,803

Liabilities
Deposit accounts	$	14,480,927	$	—	$	14,498,492	$	—	$	14,498,492


Subordinated debentures	272,320		—		267,936		—		267,936
Derivative liabilities (1)	8,382		2		8,380		—		8,382
Accrued interest payable	13,404		—		13,404		—		13,404


December 31, 2023
Assets
Cash and cash equivalents	$	936,473	$	936,473	$	—	$	—	$	936,473
Interest-bearing time deposits with financial institutions	995		995		—		—		995
HTM investment securities	1,729,541		—		1,485,506		—		1,485,506
AFS investment securities	1,140,071		—		1,140,071		—		1,140,071
Equity securities	759		759		—		—		759

Loans held for investment, net	13,289,020		—		—		12,562,323		12,562,323
Derivative assets (1)	5,644		1		5,643		—		5,644
Accrued interest receivable	68,516		—		68,516		—		68,516

Liabilities
Deposit accounts	$	14,995,626	$	—	$	15,003,769	$	—	$	15,003,769
FHLB advances	600,000		—		592,480		—		592,480

Subordinated debentures	331,842		—		320,687		—		320,687
Derivative liabilities (1)	10,715		10		10,705		—		10,715
Accrued interest payable	18,671		—		18,671		—		18,671

______________________________

Note 11 – Derivative Instruments

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

Derivatives Designated as Hedging Instruments

Fair Value Hedges – The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. The Company entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans, primarily multifamily and commercial real estate loans, to manage its exposure to changes in fair value on these instruments attributable to changes in the designated SOFR benchmark interest rate. These interest rate swaps are designated as fair value hedges using the portfolio layer method. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk, are recognized consistent with the classification of the hedged item in interest income in the Company’s consolidated statements of income.

During the three months ended September 30, 2024, as part of its interest rate risk management, the Company voluntarily discontinued portfolio layer method fair value hedges with an aggregate notional amount of $450.0 million associated with closed pools of fixed rate loans. In addition, a portfolio layer method fair value hedge with a notional amount of $100.0 million matured during the three months ended September 30, 2024. When a portfolio layer method fair value hedge is discontinued, the hedged item is no longer adjusted for changes in the fair value of the hedged risk, also referred to as the basis adjustment. The basis adjustment, as of the date the fair value hedge is discontinued, is allocated on a proportionate basis to the remaining loans that previously comprised the closed pool. The basis adjustment is subsequently amortized or accreted into interest income using the interest method over the remaining lives of the individual loans. At September 30, 2024 and December 31, 2023, interest rate swaps with an aggregate notional amount of $800.0 million and $1.35 billion respectively, were designated as fair value hedges.

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


Line Item in the Statement of Financial Position in Which the Hedged Item is Included	Carrying Amount of the Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(Dollars in thousands)	September 30, 2024		December 31, 2023		September 30, 2024			December 31, 2023
Loans held for investment (1)	$	783,847	$	1,320,449	$	(15,499)	(2)	$	(29,551)
Total	$	783,847	$	1,320,449	$	(15,499)		$	(29,551)

______________________________

(1) These amounts were included in the amortized cost basis of closed portfolios of loans held for investment used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At September 30, 2024 and December 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $2.04 billion and $3.25 billion, respectively, the cumulative basis adjustments associated with these hedging relationships was $(15.5) million and $(29.6) million, respectively, and the amounts of the designated hedged items were $800.0 million and $1.35 billion, respectively.

(2) At September 30, 2024, the balance included $654,000 hedging adjustment on discontinued hedging relationships.

Derivatives Not Designated as Hedging Instruments

Interest Rate Swap Contracts – From time to time, the Company enters into interest rate swap agreements with certain borrowers to assist them in mitigating their interest rate risk exposure associated with the loans they have with the Company. At the same time, the Company enters into identical offsetting interest rate swap agreements with another financial institution to mitigate the Company’s interest rate risk exposure associated with the swap agreements it enters into with its borrowers. The Company has over-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms. The fair values of these agreements are determined through a third-party valuation model used by the Company’s swap advisory firm, which uses observable market data such as interest rates, prices of Eurodollar futures contracts, and market swap rates. The fair values of these swaps are recorded as components of other assets and other liabilities in the Company’s consolidated statement of financial condition. Changes in the fair value of these swaps, which occur due to changes in interest rates, are recorded in the Company’s statement of income as a component of noninterest income. Upon the cessation of LIBOR on June 30, 2023, our LIBOR-indexed interest rate swap contracts transitioned to SOFR as successor rate for both valuations and settlements.

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

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

Equity Warrant Assets – The Company acquired equity warrant assets as a result of the acquisition of Opus. The warrants provide the Bank the right to purchase a specific number of equity shares of the underlying company’s equity at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815. Changes in the fair value of the warrants are recognized as a component of noninterest income with a corresponding offset within other assets. The total fair value of the warrants held in private companies was zero in other assets as of September 30, 2024 and December 31, 2023. During 2023, the equity warrant assets were either settled or written off as the warrants were determined to not be exercisable until the underlying company’s fair market value is greater than the value established in the warrant agreement.

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


	September 30, 2024
	Derivative Assets				Derivative Liabilities
(Dollars in thousands)	Notional		Fair Value		Notional		Fair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts	$	500,000	$	17,239	$	300,000	$	67
Total derivative designated as hedging instruments	500,000		17,239		300,000		67
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	81		3		287		2
Interest rate swaps contracts	95,268		8,215		95,268		8,225
Total derivative not designated as hedging instruments	95,349		8,218		95,555		8,227
Total derivatives	$	595,349	25,457		$	395,555	8,294

Netting adjustments - cleared positions (1)			21,255				(88)
Total derivatives in the Statement of Financial Condition			$	4,202			$	8,382


	December 31, 2023
	Derivative Assets				Derivative Liabilities
(Dollars in thousands)	Notional		Fair Value		Notional		Fair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts	$	600,000	$	34,541	$	750,000	$	3,184
Total derivative designated as hedging instruments	600,000		34,541		750,000		3,184
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	19		1		410		10
Interest rate swaps contracts	103,954		10,397		103,954		10,409

Total derivative not designated as hedging instruments	103,973		10,398		104,364		10,419
Total derivatives	$	703,973	$	44,939	$	854,364	$	13,603

Netting adjustments - cleared positions (1)			39,295				2,888
Total derivatives in the Statement of Financial Condition			$	5,644			$	10,715

______________________________

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

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



		Three Months Ended				Nine Months Ended
(Dollars in thousands)	Location of Gain (Loss) Recognized in Income on Derivative Instruments	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023



Gain (loss) on fair value hedging relationships:
Hedged items	Interest Income	$	12,048	$	4,300	$	13,398	$	13,096
Derivatives designated as hedging instruments	Interest Income	(5,123)		6,268		8,068		15,578

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


(Dollars in thousands)		Three Months Ended				Nine Months Ended
Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivative Instruments	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Foreign exchange contracts	Other income	$	181	$	205	$	533	$	688
Interest rate products	Other income	(1)		(9)		2		(9)
Equity warrants	Other income	—		(16)		—		(802)
Total		$	180	$	180	$	535	$	(123)

Note 12 – Balance Sheet Offsetting

Derivative financial instruments may be eligible for offset in the consolidated statements of financial condition, such as those subject to enforceable master netting arrangements or a similar agreement. Under these agreements, the Company has the right to net settle multiple contracts with the same counterparty. The Company offers an interest rate swap product to qualified customers, which are then paired with derivative contracts the Company enters into with a counterparty bank. While derivative contracts entered into with counterparty banks may be subject to enforceable master netting agreements, derivative contracts with customers may not be subject to enforceable master netting arrangements. With regard to derivative contracts not centrally cleared through a clearinghouse, regulations require collateral to be posted by the party with a net liability position. Parties to a centrally cleared over-the-counter derivative exchange daily payments that reflect the daily change in the value of the derivative. These payments are commonly referred to as variation margin and are treated as settlements of derivative exposure rather than as collateral. The gross amounts of derivative assets and liabilities for derivative contracts cleared through certain central clearing parties are reported at the fair value of the respective derivative contracts net of the variation margin payments, where applicable.

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


	Gross Amounts Recognized (1)		Gross Amounts Offset in the Consolidated Statements of Financial Condition		Net Amounts Presented in the Consolidated Statements of Financial Condition		Gross Amounts Not Offset in the Consolidated Statements of Financial Condition				Net Amount
(Dollars in thousands)							Financial Instruments (2)		Cash Collateral (3)
September 30, 2024
Derivative assets:
Interest rate swaps	$	4,199	$	—	$	4,199	$	—	$	(3,530)	$	669
Total	$	4,199	$	—	$	4,199	$	—	$	(3,530)	$	669

Derivative liabilities:
Interest rate swaps	$	8,380	$	—	$	8,380	$	—	$	—	$	8,380
Total	$	8,380	$	—	$	8,380	$	—	$	—	$	8,380





December 31, 2023
Derivative assets:
Interest rate swaps	$	5,643	$	—	$	5,643	$	—	$	(4,610)	$	1,033
Total	$	5,643	$	—	$	5,643	$	—	$	(4,610)	$	1,033

Derivative liabilities:
Interest rate swaps	$	10,705	$	—	$	10,705	$	—	$	—	$	10,705
Total	$	10,705	$	—	$	10,705	$	—	$	—	$	10,705

______________________________

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

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

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

Note 13 – Variable Interest Entities

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

As of September 30, 2024 and December 31, 2023, the Company determined it was not the primary beneficiary of the VIEs and did not consolidate its interests in VIEs. The following table provides a summary of the carrying amount of assets and liabilities in the Company’s consolidated statements of financial condition and maximum exposure to loss as of September 30, 2024 and December 31, 2023 that relate to variable interests in non-consolidated VIEs.


	September 30, 2024						December 31, 2023
(Dollars in thousands)	Maximum Loss		Assets		Liabilities		Maximum Loss		Assets		Liabilities
Multifamily loan securitization:
Investment securities (1)	$	42,266	$	42,266	$	—	$	48,204	$	48,204	$	—
Reimbursement obligation (2)	42,305		—		345		47,994		—		345
Affordable housing partnership:
Other investments (3)	49,944		83,339		—		57,016		89,085		—
Unfunded equity commitments (2)	—		—		33,395		—		—		32,070

Total	$	134,515	$	125,605	$	33,740	$	153,214	$	137,289	$	32,415

______________________________

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

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

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

Multifamily Loan Securitization

With respect to the securitization transaction with Freddie Mac discussed in Note 5 – Loans Held for Investment, the Company’s variable interests reside with the underlying Freddie Mac-issued guaranteed, structured pass-through certificates that were held as AFS investment securities at fair value as of September 30, 2024. Additionally, the Company has variable interests through a reimbursement agreement executed by Freddie Mac that obligates the Company to reimburse Freddie Mac for any defaulted contractual principal and interest payments identified after the ultimate resolution of the defaulted loans. Such reimbursement obligations are not to exceed 10% of the original principal amount of the loans comprising the securitization pool.

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

We believe that our maximum exposure to loss as a result of our involvement with the VIE associated with the securitization is the carrying value of the investment securities issued by Freddie Mac and purchased by the Company. Additionally, our maximum exposure to loss under the reimbursement agreement executed with Freddie Mac is 10% of the original principal amount of the loans comprising the securitization pool, or $50.9 million. However, as the total outstanding principal amount of the underlying loans decreased below the aforementioned threshold, the maximum exposure declined to the total outstanding principal amount of the underlying loans of $42.3 million at September 30, 2024 and $48.0 million at December 31, 2023. Based upon our analysis of quantitative and qualitative data over the underlying loans included in the securitization pool, as of September 30, 2024 and December 31, 2023, our reserve for estimated losses with respect to the reimbursement obligation was $345,000.

Investments in Qualified Affordable Housing Partnerships

The Company has variable interests through its affordable housing partnership investments. These investments are fundamentally designed to provide a return through the generation of income tax credits and other income tax benefits. The Company has evaluated its involvement with the low-income housing projects and determined it does not have the ability to exercise significant influence over or participate in the decision-making activities related to the management of the projects, and therefore, is not the primary beneficiary, and does not consolidate these interests.

The Company’s maximum exposure to loss, exclusive of any potential realization of tax credits, is equal to the commitments invested, adjusted for amortization. The amount of unfunded commitments was included in the investments recognized as assets with a corresponding liability. The preceding table summarizes the amount of tax credit investments held as assets, the amount of unfunded commitments recognized as liabilities, and the maximum exposure to loss as of September 30, 2024 and December 31, 2023, respectively.

Note 14 – Tax Equity Investments

The Company makes investments in the equity of certain limited partnerships or limited liability companies that typically qualify for credit under the Community Reinvestment Act. Certain of these equity investments are associated with affordable housing projects that generate LIHTC and other income tax benefits for the Company.

The Company typically accounts for tax equity investments using the proportional amortization method, if certain criteria are met. The election to account for tax equity investments using the proportional amortization method is done so on a tax credit program-by-tax credit program basis. Under the proportional amortization method, the Company amortizes the initial cost of the investment, which is inclusive of any commitments to make future equity contributions, in proportion to the income tax credits and other income tax benefits that are allocated to the Company over the period of the investment. The net benefits of these investments, which are comprised of income tax credits and operating loss income tax benefits, net of investment amortization, are recognized in the income statement as a component of income tax expense. At September 30, 2024 and December 31, 2023, the carrying value of these investments was $83.3 million and $88.8 million, respectively, and are included in other assets in the consolidated statements of financial position.

As of September 30, 2024, the Company’s unfunded commitments associated with tax equity investments, which are comprised of investments in affordable housing partnerships, were estimated to be paid as follows:


(Dollars in thousands)	Amount
Year Ending December 31,
2024	$	3,885
2025	14,727
2026	11,027
2027	720
2028	469
Thereafter	2,567
Total unfunded commitments	$	33,395

The following table presents income tax credits and other income tax benefits, as well as amortization expense, associated with investments in qualified affordable housing partnerships where the proportional amortization method of accounting has been applied for the periods indicated.


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2024		2023		2024		2023
Tax credit and other tax benefits recognized (1)	$	4,309	$	4,189	$	12,743	$	11,746
Amortization of investments (1)	3,546		3,360		$	10,496	$	9,464

______________________________

(1) Amounts for income tax credits and other income tax benefits, as well as amortization of investments, are included in income tax expense in the consolidated statements of income, and net change in accrued interest receivable and other assets on the consolidated statements of cash flows, for the periods presented above.

There was no non-income-tax-related activity associated with tax equity investments recorded outside of income tax expense for the three months ended September 30, 2024. During the nine months ended September 30, 2024, non-income-tax-related income of $371,000 associated with a tax equity investment was included in other income in the consolidated statements of income as well as net change in accrued interest receivable and other assets on the consolidated statements of cash flows. There was no non-income-tax-related activity associated with tax equity investments recorded outside of income tax expense for the three and nine months ended September 30, 2023. There were no impairment losses recorded on tax equity investments during the three and nine months ended September 30, 2024 and 2023.

Note 15 – Subsequent Events

Quarterly Cash Dividend

On October 22, 2024, the Corporation’s Board of Directors declared a cash dividend of $0.33 per share, payable on November 12, 2024 to stockholders of record as of November 4, 2024.

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

FORWARD-LOOKING STATEMENTS

All references to “we,” “us,” “our,” “Pacific Premier,” or the “Company” mean Pacific Premier Bancorp, Inc. and our consolidated subsidiaries, including Pacific Premier Bank, our primary operating subsidiary. All references to the “Bank” refer to Pacific Premier Bank. All references to the “Corporation” refer to Pacific Premier Bancorp, Inc.

This Quarterly Report on Form 10-Q contains information and statements that are considered “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of our beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” or words or phrases of similar meaning.

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

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

•The strength of the United States (“U.S.”) economy in general and the strength of the local economies in which we conduct operations;

•Adverse developments in the banking industry and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;

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

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

•Our ability to attract and retain deposits and to access other sources of liquidity, particularly in a rising or high interest rate environment, and the quality and composition of our deposits;

•Business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the tight labor market, ineffective management of the U.S. Federal budget or debt, or turbulence or uncertainty in domestic or foreign financial markets;

•The effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;

•The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

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

•The impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies;

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

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

•The effect of changes in accounting policies and practices or accounting standards, as may be adopted from time to time by bank regulatory agencies, the Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board (“PCAOB”), the Financial Accounting Standards Board (“FASB”), or other accounting standards setters;

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

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

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

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

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

•The effects of concentrations in our loan portfolio, including commercial real estate, and the risks of geographic and industry concentrations;

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

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

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

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

•Geopolitical conditions, including acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, including the war between Russia and Ukraine, Israel and Hamas, and overall tensions in the Middle East, and trade tensions, all of which could impact business and economic conditions in the U.S. and abroad;

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

•Cybersecurity threats and the cost of defending against them;

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

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

•Unanticipated regulatory, legal, or judicial proceedings; and

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

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking information and statements to reflect actual results or changes in the factors affecting the forward-looking information and statements. For information on the factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) in addition to Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q and other reports as filed with the SEC.

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

GENERAL

Management’s discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to the Company’s financial condition, results of operations, liquidity, and capital resources. This discussion should be read in conjunction with our 2023 Form 10-K, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.

The Corporation is a California-based bank holding company incorporated in 1997 in the state of Delaware and registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”). Our wholly owned subsidiary, Pacific Premier Bank, is a California state-chartered commercial bank. The Bank was founded in 1983 as a state-chartered thrift and subsequently converted to a federally-chartered thrift in 1991. The Bank converted to a California-chartered commercial bank and became a member of the Federal Reserve System in March 2007. The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund. The Bank is also a member of the Federal Home Loan Bank of San Francisco (“FHLB”), which is a member of the Federal Home Loan Bank System. As a bank holding company, the Corporation is subject to regulation and supervision by the Federal Reserve and the Federal Reserve Bank of San Francisco (“FRB”). The Federal Reserve may conduct examinations of bank holding companies, such as the Corporation, and its subsidiaries. The Corporation is also a bank holding company within the meaning of the California Financial Code. As such, the Corporation and its subsidiaries are subject to the supervision and examination by, and may be required to file reports with, the California Department of Financial Protection and Innovation (“DFPI”).

Our corporate headquarters is located in Irvine, California. At September 30, 2024, we primarily conducted business throughout the Western Region of the United States from our 58 full-service depository branches located in California, Washington, Oregon, Arizona, and Nevada.

In support of our organic and strategic growth strategy we have developed a variety of banking products and services within our targeted markets in the Western U.S. tailored to small- and middle-market businesses, corporations, including the owners and employees of those businesses, professionals, entrepreneurs, real estate investors, and non-profit organizations, as well as consumers in the communities we serve. Through our branches and our website, www.ppbi.com, we provide a wide array of banking products and services such as: various types of deposit accounts, digital banking, treasury management services, online bill payment, and a wide array of loan products, including commercial business loans, lines of credit, Small Business Administration (“SBA”) loans, commercial real estate (“CRE”) loans, agribusiness loans, quick-service restaurant franchise lending, home equity lines of credit, and construction loans throughout the Western U.S. in major metropolitan markets within Arizona, California, Nevada, Oregon, and Washington. We also offer enhanced nationwide specialty banking products and services for Homeowners’ Associations (“HOA”) and HOA management companies, as well as experienced owner-operator franchisees in the QSR industry. Our specialty products and services offerings include commercial escrow and exchange services through our Commerce Escrow division, which provides a variety of real-property and non-real property escrow services, including the facilitation of Section 1031 of the Internal Revenue Code, as well as custodial services through our Pacific Premier Trust division for clients with alternative assets held in qualified self-directed IRA accounts, including investments in private equity, real estate, notes, cash, and other non-exchange traded assets.

The Bank funds its lending and investment activities with retail and commercial deposits obtained through its branches, advances from the FHLB, lines of credit, and wholesale and brokered certificates of deposit.

Our principal source of income is the net spread between interest earned on loans and investments and the interest costs associated with deposits and borrowings used to finance the loan and investment portfolios. Additionally, the Bank generates fee income from loan and investment sales, and various products and services offered to depository, loan, escrow, and IRA custodial clients.

CRITICAL ACCOUNTING POLICIES

Management has established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Certain accounting policies require management to make estimates and assumptions that involve a significant level of estimation uncertainty and are reasonably likely to have a material impact on the carrying value of certain assets and liabilities as well as the Company’s results of operations, which management considers to be critical accounting policies. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of the Company’s assets and liabilities as well as the Company’s results of operations in future reporting periods. The Company’s critical accounting policies consist of the allowance for credit losses on loans and off-balance sheet commitments, as well as goodwill. Please see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2023 Form 10-K for additional discussion concerning these critical accounting policies. Also, our significant accounting policies are described in Note 1. Description of Business and Summary of Significant Accounting Policies to the audited consolidated financial statements in our 2023 Form 10-K.

NON-GAAP MEASURES

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

For periods presented below, return on average assets (“ROAA”) excluding the FDIC special assessment is a non-GAAP financial measure derived from GAAP based amounts. We calculate this figure by excluding the FDIC special assessment and the related tax impact from net income. Management believes that the exclusion of such nonrecurring items from this financial measure provides useful information to gain an understanding of the operating results of our core business and a better comparison of financial performance.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2024			2024			2023			2024			2023
Net income	$	35,979		$	41,905		$	46,030		$	124,909		$	166,228

Add: FDIC special assessment	(68)			(161)			—			294			—

Less: tax adjustment (1)	(19)			(45)			—			84			—
Adjusted net income for average assets	$	35,930		$	41,789		$	46,030		$	125,119		$	166,228

Average assets	$	18,242,413		$	18,595,683		$	20,805,787		$	18,622,771		$	21,179,669

ROAA (annualized)	0.79		%	0.90		%	0.88		%	0.89		%	1.05		%
Adjusted ROAA (annualized)	0.79		%	0.90		%	0.88		%	0.90		%	1.05		%

______________________________

(1) Adjusted by statutory tax rate.

For periods presented below, return on average tangible common equity (“ROATCE”) is a non-GAAP financial measure derived from GAAP-based amounts. We calculate this figure by excluding amortization of intangible assets expense from net income and excluding the average intangible assets and average goodwill from the average stockholders' equity during the periods indicated. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business. The adjusted net income, adjusted return on average equity (“ROAE”), and adjusted ROATCE further exclude the nonrecurring items to provide a better comparison to the financial results of prior periods.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2024			2024			2023			2024			2023
Net income	$	35,979		$	41,905		$	46,030		$	124,909		$	166,228
Plus: amortization of intangible assets expense	2,762			2,763			3,055			8,361			9,281
Less: tax adjustment (1)	781			781			868			2,363			2,638
Net income for average tangible common equity	37,960			43,887			48,217			130,907			172,871

Add: FDIC special assessment	(68)			(161)			—			294			—

Less: tax adjustment (1)	(19)			(45)			—			84			—
Adjusted net income for average tangible common equity	$	37,911		$	43,771		$	48,217		$	131,117		$	172,871


Average stockholders’ equity	$	2,929,160		$	2,908,015		$	2,861,965		$	2,911,107		$	2,842,718
Less: average intangible assets	36,570			39,338			48,150			39,337			51,191
Less: average goodwill	901,312			901,312			901,312			901,312			901,312
Average tangible common equity	$	1,991,278		$	1,967,365		$	1,912,503		$	1,970,458		$	1,890,215



ROAE (annualized)	4.91		%	5.76		%	6.43		%	5.72		%	7.80		%
Adjusted ROAE (annualized)	4.91		%	5.75		%	6.43		%	5.73		%	7.80		%
ROATCE (annualized)	7.63		%	8.92		%	10.08		%	8.86		%	12.19		%
Adjusted ROATCE (annualized)	7.62		%	8.90		%	10.08		%	8.87		%	12.19		%

______________________________

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

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


	September 30,			December 31,
(Dollars in thousands)	2024			2023
Total stockholders’ equity	$	2,943,937		$	2,882,581
Less: intangible assets	936,236			944,597
Tangible common equity	$	2,007,701		$	1,937,984

Total assets	$	17,909,643		$	19,026,645
Less: intangible assets	936,236			944,597
Tangible assets	$	16,973,407		$	18,082,048

Tangible common equity ratio	11.83		%	10.72		%

Common shares issued and outstanding	96,462,767			95,860,092

Book value per share	$	30.52		$	30.07
Less: intangible book value per share	9.71			9.85
Tangible book value per share	$	20.81		$	20.22

Efficiency ratio is a non-GAAP financial measure derived from GAAP-based amounts. This figure represents the ratio of noninterest expense, less amortization of intangible assets and other real estate owned operations, where applicable, to the sum of net interest income before provision for credit losses and total noninterest income less gain from investment securities, (loss) gain from other real estate owned, and gain from debt extinguishment. The adjusted efficiency ratio further excludes the FDIC special assessment to provide a better comparison to the financial results of prior periods. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2024			2024			2023			2024			2023
Total noninterest expense	$	101,645		$	97,567		$	102,185		$	301,845		$	304,181
Less: amortization of intangible assets	2,762			2,763			3,055			8,361			9,281

Less: other real estate owned operations, net	1			—			(4)			47			112
Adjusted noninterest expense	98,882			94,804			99,134			$	293,437		$	294,788
Less: FDIC special assessment	(68)			(161)			—			294			—
Adjusted noninterest expense excluding FDIC special assessment	$	98,950		$	94,965		$	99,134		$	293,143		$	294,788

Net interest income before provision for credit losses	$	130,898		$	136,394		$	149,548		$	412,419		$	478,250
Add: total noninterest income	18,867			18,222			18,551			62,863			60,276
Less: net gain from sales of investment securities	—			—			—			—			138

Less: net (loss) gain from other real estate owned	—			(28)			—			(28)			106
Less: net gain from debt extinguishment	203			—			—			5,270			—

Adjusted revenue	$	149,562		$	154,644		$	168,099		$	470,040		$	538,282

Efficiency ratio	66.1		%	61.3		%	59.0		%	62.4		%	54.8		%
Adjusted efficiency ratio excluding FDIC special assessment	66.2		%	61.4		%	59.0		%	62.4		%	54.8		%

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


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2024			2024			2023			2024			2023
Interest income	$	205,626		$	208,054		$	224,062		$	627,111		$	670,793
Interest expense	74,728			71,660			74,514			214,692			192,543
Net interest income	130,898			136,394			149,548			412,419			478,250
Noninterest income	18,867			18,222			18,551			62,863			60,276
Revenue	149,765			154,616			168,099			475,282			538,526
Noninterest expense	101,645			97,567			102,185			301,845			304,181

Pre-provision net revenue	48,120			57,049			65,914			173,437			234,345

Add: FDIC special assessment	(68)			(161)			—			294			—
Adjusted pre-provision net revenue	$	48,052		$	56,888		$	65,914		$	173,731		$	234,345

Pre-provision net revenue (annualized)	$	192,480		$	228,196		$	263,656		$	231,249		$	312,460
Adjusted pre-provision net revenue (annualized)	$	192,208		$	227,552		$	263,656		$	231,641		$	312,460

Average assets	$	18,242,413		$	18,595,683		$	20,805,787		$	18,622,771		$	21,179,669

Pre-provision net revenue to average assets	0.26		%	0.31		%	0.32		%	0.93		%	1.11		%
Pre-provision net revenue to average assets (annualized)	1.06		%	1.23		%	1.27		%	1.24		%	1.48		%
Adjusted pre-provision net revenue on average assets	0.26		%	0.31		%	0.32		%	0.93		%	1.11		%
Adjusted pre-provision net revenue on average assets (annualized)	1.05		%	1.22		%	1.27		%	1.24		%	1.48		%

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


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2024			2024			2023			2024			2023
Total deposits interest expense	$	67,898		$	64,229		$	62,718		$	191,633		$	156,532
Less: certificates of deposit interest expense	23,202			21,115			13,398			63,392			31,479
Less: brokered certificates of deposit interest expense	5,484			6,506			19,174			18,659			51,099
Non-maturity deposit expense	$	39,212		$	36,608		$	30,146		$	109,582		$	73,954

Total average deposits	$	14,655,478		$	14,941,573		$	16,543,917		$	14,883,431		$	16,912,012
Less: average certificates of deposit	1,944,685			1,830,516			1,439,531			1,834,712			1,311,737
Less: average brokered certificates of deposit	448,820			542,699			1,611,726			519,870			1,608,442
Average non-maturity deposits	$	12,261,973		$	12,568,358		$	13,492,660		$	12,528,849		$	13,991,833

Cost of non-maturity deposits	1.27		%	1.17		%	0.89		%	1.17		%	0.71		%

RESULTS OF OPERATIONS

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


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(Dollar in thousands, except per share data)	2024			2024			2023			2024			2023
Operating data
Interest income	$	205,626		$	208,054		$	224,062		$	627,111		$	670,793
Interest expense	74,728			71,660			74,514			214,692			192,543
Net interest income	130,898			136,394			149,548			412,419			478,250
Provision for credit losses	486			1,265			3,918			5,603			8,433
Net interest income after provision for credit losses	130,412			135,129			145,630			406,816			469,817
Net gain from sales of loans	47			65			45			112			419
Other noninterest income	18,820			18,157			18,506			62,751			59,857
Noninterest expense	101,645			97,567			102,185			301,845			304,181
Net income before income taxes	47,634			55,784			61,996			167,834			225,912
Income tax expense	11,655			13,879			15,966			42,925			59,684
Net income	$	35,979		$	41,905		$	46,030		$	124,909		$	166,228
Pre-provision net revenue (1)	$	48,120		$	57,049		$	65,914		$	173,437		$	234,345
Share data
Earnings per share:
Basic	$	0.37		$	0.43		$	0.48		$	1.30		$	1.74

Diluted	0.37			0.43			0.48			1.30			1.74

Common equity dividends declared per share	0.33			0.33			0.33			0.99			0.99
Dividend payout ratio (2)	88.45		%	75.94		%	68.76		%	76.30		%	56.94		%
Book value per share	$	30.52		$	30.32		$	29.78		$	30.52		$	29.78
Tangible book value per share (1)	20.81			20.58			19.89			20.81			19.89
Performance ratios
ROAA (3)	0.79		%	0.90		%	0.88		%	0.89		%	1.05		%
Adjusted ROAA (1)(3)	0.79			0.90			0.88			0.90			1.05
ROAE (3)	4.91			5.76			6.43			5.72			7.80
Adjusted ROAE (1)(3)	4.91			5.75			6.43			5.73			7.80
ROATCE (1)(3)	7.63			8.92			10.08			8.86			12.19
Adjusted ROATCE (1)(3)	7.62			8.90			10.08			8.87			12.19

Pre-provision net revenue on average assets (1)(3)	1.06			1.23			1.27			1.24			1.48
Adjusted pre-provision net revenue on average assets (1)(3)	1.05			1.22			1.27			1.24			1.48
Net interest margin	3.16			3.26			3.12			3.27			3.30
Cost of deposits	1.84			1.73			1.50			1.72			1.24
Average equity to average assets	16.06			15.64			13.76			15.63			13.42
Efficiency ratio (1)	66.1			61.3			59.0			62.4			54.8
Adjusted efficiency ratio excluding FDIC special assessment (1)	66.2			61.4			59.0			62.4			54.8

______________________________

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

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

(3) Ratio is annualized.

In the third quarter of 2024, we reported net income of $36.0 million, or $0.37 per diluted share, compared to net income of $41.9 million, or $0.43 per diluted share, for the second quarter of 2024. The decrease in net income was primarily due to a $5.5 million decrease in net interest income and a $4.1 million increase in noninterest expense, partially offset by a $2.2 million decrease in income tax expense, a $779,000 decrease in the provision for credit losses, and a $645,000 increase in noninterest income.

Net income of $36.0 million, or $0.37 per diluted share, for the third quarter of 2024 compared to net income for the third quarter of 2023 of $46.0 million, or $0.48 per diluted share. The decrease in net income was primarily due to an $18.7 million decrease in net interest income, partially offset by a $4.3 million decrease in income tax expense, a $3.4 million decrease in the provision for credit losses, a $540,000 decrease in noninterest expense, and a $316,000 increase in noninterest income.

For the third quarter of 2024, the Company’s ROAA was 0.79%, ROAE was 4.91%, and ROATCE was 7.63%, compared to 0.90%, 5.76%, and 8.92%, respectively, for the second quarter of 2024, and 0.88%, 6.43%, and 10.08%, respectively, for the third quarter of 2023. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For the nine months ended September 30, 2024, we reported net income of $124.9 million, or $1.30 per diluted share, compared to net income of $166.2 million, or $1.74 per diluted share, for the nine months ended September 30, 2023. The decrease in net income of $41.3 million was mostly due to a $65.8 million decrease in net interest income, partially offset by a $16.8 million decrease in income tax expense, a $2.8 million decrease in the provision for credit losses, a $2.6 million increase in noninterest income, and a $2.3 million decrease in noninterest expense.

For the nine months ended September 30, 2024, the Company’s ROAA was 0.89%, ROAE was 5.72%, and ROATCE was 8.86%, compared to 1.05%, 7.80%, and 12.19%, respectively for the nine months ended September 30, 2023. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Net Interest Income

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

Net interest income totaled $130.9 million in the third quarter of 2024, a decrease of $5.5 million, or 4.0%, from the second quarter of 2024. The decrease was primarily attributable to lower average loan balances and a higher cost of funds as borrowers continued deploying excess cash reserves to pay down and pay off higher-yielding commercial loan balances.

The net interest margin for the third quarter of 2024 decreased 10 basis points to 3.16%, from 3.26% in the prior quarter. The decrease was primarily due to a higher cost of funds as the cost of deposits increased 11 basis points from the second quarter of 2024.

Net interest income for the third quarter of 2024 decreased $18.7 million, or 12.5%, compared to the third quarter of 2023. The decrease was attributable to lower average interest-earning asset balances and a higher cost of funds, partially offset by lower average interest-bearing liabilities balances and higher yields on average interest-earning assets, all the result of the prolonged higher interest rate environment in the past twelve months and the Company's balance sheet management strategies to prioritize capital accumulation.

For the nine months ended 2024, net interest income decreased $65.8 million, or 13.8%, compared to the nine months ended 2023. The decrease was driven by a decrease in average interest-earning assets of $2.54 billion and a higher cost of funds, partially offset by higher average interest-earning assets yields, primarily attributable to the benefit from the securities repositioning to higher-yielding available-for-sale (“AFS”) Treasury securities during the fourth quarter of 2023, and lower average interest-bearing liabilities balances of $1.35 billion.

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


	Average Balance Sheet
	Three Months Ended
	September 30, 2024						June 30, 2024						September 30, 2023
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	1,098,455	$	13,346	4.83	%	$	1,134,736	$	13,666	4.84	%	$	1,695,508	$	21,196	4.96	%
Investment securities	3,145,214		28,871		3.67	%	2,964,909		26,841		3.62	%	3,828,766		25,834		2.70	%
Loans receivable, net (1)(2)	12,247,435		163,409		5.31	%	12,724,545		167,547		5.30	%	13,475,194		177,032		5.21	%
Total interest-earning assets	16,491,104		205,626		4.96	%	16,824,190		208,054		4.97	%	18,999,468		224,062		4.68	%
Noninterest-earning assets	1,751,309						1,771,493						1,806,319
Total assets	$	18,242,413					$	18,595,683					$	20,805,787
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	2,707,440	$	10,848	1.59	%	$	2,747,972	$	10,177	1.49	%	$	2,649,203	$	10,849	1.62	%
Money market	4,607,486		28,118		2.43	%	4,724,572		26,207		2.23	%	4,512,740		19,182		1.69	%
Savings	263,570		246		0.37	%	271,812		224		0.33	%	329,684		115		0.14	%
Retail certificates of deposit	1,944,685		23,202		4.75	%	1,830,516		21,115		4.64	%	1,439,531		13,398		3.69	%
Wholesale/brokered certificates of deposit	448,820		5,484		4.86	%	542,699		6,506		4.82	%	1,611,726		19,174		4.72	%
Total interest-bearing deposits	9,972,001		67,898		2.71	%	10,117,571		64,229		2.55	%	10,542,884		62,718		2.36	%
FHLB advances and other borrowings	128,413		1,511		4.68	%	200,154		2,330		4.68	%	800,049		7,235		3.59	%
Subordinated debentures	313,990		5,319		6.70	%	332,097		5,101		6.14	%	331,607		4,561		5.50	%
Total borrowings	442,403		6,830		6.12	%	532,251		7,431		5.59	%	1,131,656		11,796		4.15	%
Total interest-bearing liabilities	10,414,404		74,728		2.85	%	10,649,822		71,660		2.71	%	11,674,540		74,514		2.53	%
Noninterest-bearing deposits	4,683,477						4,824,002						6,001,033
Other liabilities	215,372						213,844						268,249
Total liabilities	15,313,253						15,687,668						17,943,822
Stockholders’ equity	2,929,160						2,908,015						2,861,965
Total liabilities and equity	$	18,242,413					$	18,595,683					$	20,805,787
Net interest income			$	130,898					$	136,394					$	149,548

Net interest margin (3)					3.16	%					3.26	%					3.12	%
Cost of deposits (4)					1.84	%					1.73	%					1.50	%
Cost of funds (5)					1.97	%					1.86	%					1.67	%
Cost of non-maturity deposits (6)					1.27	%					1.17	%					0.89	%
Ratio of interest-earning assets to interest-bearing liabilities					158.35	%					157.98	%					162.74	%

______________________________

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

(2) Interest income includes net discount accretion of $2.6 million, $2.3 million, and $2.2 million for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively.

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

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

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

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



	Average Balance Sheet
	Nine Months Ended
	September 30, 2024						September 30, 2023
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Cash and cash equivalents	$	1,124,604	$	40,650	4.83	%	$	1,489,404	$	51,390	4.61	%
Investment securities	3,019,890		82,530		3.64	%	3,972,437		78,561		2.64	%
Loans receivable, net (1)(2)	12,705,329		503,931		5.30	%	13,929,002		540,842		5.19	%
Total interest-earning assets	16,849,823		627,111		4.97	%	19,390,843		670,793		4.63	%
Noninterest-earning assets	1,772,948						1,788,826
Total assets	$	18,622,771					$	21,179,669
Liabilities and equity
Interest-bearing deposits:
Interest checking	$	2,764,373	$	30,928	1.49	%	$	2,800,181	$	25,350	1.21	%
Money market	4,655,889		77,957		2.24	%	4,714,727		47,879		1.36	%
Savings	274,333		697		0.34	%	377,928		725		0.26	%
Retail certificates of deposit	1,834,712		63,392		4.62	%	1,311,737		31,479		3.21	%
Wholesale/brokered certificates of deposit	519,870		18,659		4.79	%	1,608,442		51,099		4.25	%
Total interest-bearing deposits	10,049,177		191,633		2.55	%	10,813,015		156,532		1.94	%
FHLB advances and other borrowings	281,919		8,078		3.83	%	861,940		22,328		3.46	%
Subordinated debentures	325,963		14,981		6.10	%	331,452		13,683		5.50	%
Total borrowings	607,882		23,059		5.05	%	1,193,392		36,011		4.03	%
Total interest-bearing liabilities	10,657,059		214,692		2.69	%	12,006,407		192,543		2.14	%
Noninterest-bearing deposits	4,834,254						6,098,997
Other liabilities	220,351						231,547
Total liabilities	15,711,664						18,336,951
Stockholders’ equity	2,911,107						2,842,718
Total liabilities and equity	$	18,622,771					$	21,179,669
Net interest income			$	412,419					$	478,250

Net interest margin (3)					3.27	%					3.30	%
Cost of deposits (4)					1.72	%					1.24	%
Cost of funds (5)					1.85	%					1.42	%
Cost of non-maturity deposits (6)					1.17	%					0.71	%
Ratio of interest-earning assets to interest-bearing liabilities					158.11	%					161.50	%

_____________________________

(2) Interest income includes net discount accretion of $7.0 million and $7.6 million for the nine months ended September 30, 2024 and 2023, respectively.

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

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

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

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

Changes in our net interest income are a function of changes in volume and rates of interest-earning assets and interest-bearing liabilities. Changes in net interest income that are not a function of changes in volume and rates of interest-earning assets and interest-bearing liabilities are allocated proportionately to the change due to volume and the change due to rate. The following tables present the impact that the volume and rate changes have had on our net interest income for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, we have provided information on changes to our net interest income with respect to:

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

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

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


	Three Months Ended September 30, 2024
	Compared to
	Three Months Ended June 30, 2024
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(294)	$	(26)	$	(320)
Investment securities	1,651		379		2,030
Loans receivable, net	(4,415)		277		(4,138)
Total interest-earning assets	(3,058)		630		(2,428)
Interest-bearing liabilities
Interest checking	(179)		850		671
Money market	(747)		2,658		1,911
Savings	(8)		30		22
Retail certificates of deposit	1,523		564		2,087
Wholesale/brokered certificates of deposit	(1,073)		51		(1,022)
FHLB advances and other borrowings	(819)		—		(819)
Subordinated debentures	(326)		544		218
Total interest-bearing liabilities	(1,629)		4,697		3,068
Decrease in net interest income	$	(1,429)	$	(4,067)	$	(5,496)


	Three Months Ended September 30, 2024
	Compared to
	Three Months Ended September 30, 2023
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(7,308)	$	(542)	$	(7,850)
Investment securities	(2,982)		6,019		3,037
Loans receivable, net	(17,059)		3,436		(13,623)
Total interest-earning assets	(27,349)		8,913		(18,436)
Interest-bearing liabilities
Interest checking	221		(222)		(1)
Money market	408		8,528		8,936
Savings	(17)		148		131
Retail certificates of deposit	5,405		4,399		9,804
Wholesale/brokered certificates of deposit	(14,280)		590		(13,690)
FHLB advances and other borrowings	(8,986)		3,262		(5,724)
Subordinated debentures	(238)		996		758
Total interest-bearing liabilities	(17,487)		17,701		214
Decrease in net interest income	$	(9,862)	$	(8,788)	$	(18,650)



	Nine Months Ended September 30, 2024
	Compared to
	Nine Months Ended September 30, 2023
	Increase (Decrease) Due to
(Dollars in thousands)	Volume		Rate		Net
Interest-earning assets
Cash and cash equivalents	$	(13,269)	$	2,529	$	(10,740)
Investment securities	(6,684)		10,653		3,969
Loans receivable, net	(48,171)		11,260		(36,911)
Total interest-earning assets	(68,124)		24,442		(43,682)
Interest-bearing liabilities
Interest checking	(321)		5,899		5,578
Money market	(591)		30,669		30,078
Savings	(231)		203		(28)
Retail certificates of deposit	15,219		16,694		31,913
Wholesale/brokered certificates of deposit	(40,039)		7,599		(32,440)
FHLB advances and other borrowings	(16,896)		2,646		(14,250)
Subordinated debentures	(192)		1,490		1,298
Total interest-bearing liabilities	(43,051)		65,200		22,149
Decrease in net interest income	$	(25,073)	$	(40,758)	$	(65,831)

Provision for Credit Losses

For the third quarter of 2024, the Company recorded a total provision for credit losses of $486,000, consisting of a $249,000 reversal of provision expense for loans held for investment, a $760,000 provision for credit losses for unfunded commitments, and a $25,000 reversal of provision expense for HTM securities. During the second quarter of 2024, the Company recorded a total provision for credit losses of $1.3 million, consisting of a $1.8 million provision for credit losses for loans held for investment, a $505,000 reversal of provision expense for unfunded commitments, and a $14,000 provision for credit losses for HTM securities. For the third quarter of 2023, the Company recorded a total provision for credit losses of $3.9 million, consisting of a $2.5 million provision for credit losses for loans held for investment, a $1.4 million provision for credit losses for unfunded commitments, and a $15,000 provision for credit losses for HTM securities.

The reversal of provision expense for loans held for investment during the third quarter of 2024 was principally driven by a reversal of provision for credit losses for commercial loans and business loans secured by real estate, offset by provision for credit losses for investor loans secured by real estate. The reversal of provision expense for commercial loans totaled $7.5 million, and was largely due to declines in the balances of C&I loans, as well as changes associated with economic forecasts for loans within this segment. The reversal of provision expense for business loans secured by real estate loans totaled $1.6 million, driven by a decline in the loan balances within this segment. The provision for credit losses for investor loans secured by real estate totaled $8.8 million, and was primarily attributed to changes in economic forecasts for multifamily loans within this segment, partially offset by declines in balances of multifamily and other loans within this segment.

The provision for credit losses for off-balance sheet commitments during the third quarter of 2024 was attributable, in large part, to changes in economic forecasts for C&I loans, partially offset by a decrease in the balance of unfunded commitments. The reversal of provision expense for HTM securities during the third quarter of 2024 was due to the changes in economic forecasts and their impact on HTM securities classified as municipal bonds.

For the second quarter of 2024, the provision for credit losses for loans held for investment was principally driven by a $10.6 million provision for credit losses for investor loans secured by real estate. The provision for credit losses for loans in this segment was largely due to changes associated with economic forecasts and the impact on multifamily loans, partially offset by improved asset quality for loans in this segment, as well as the impact of loan duration for construction loans. The reversal of provision for credit losses for commercial loan losses totaled $8.6 million, and can be attributed largely to the declines in the balances of franchise non-real estate secured and C&I loans. The reversal of provision expense for unfunded commitments for the second quarter of 2024 was attributable, in large part, to changes in economic forecasts, partially offset by a slight increase in unfunded commitments. The provision for credit losses for HTM securities was due to the changes in economic forecasts and their impact on HTM securities classified as municipal bonds.

For the third quarter of 2023, the provision for credit losses for loans held for investment was principally driven by provision for credit losses in the business loans secured by real estate and commercial loans segments. The provision for credit losses for business loans secured by real estate loan losses totaled $1.2 million, and was largely attributed to changes in economic forecasts and asset quality, partially offset by declines in the balances of loans within this segment. The provision for credit losses for commercial loans totaled $955,000, and was due to changes in economic forecasts and asset quality, partially offset by declines in the balances of loans within this segment, primarily C&I loans. The provision for credit losses for off-balance sheet commitments was attributable, in large part, to changes in economic forecasts, offset by lower unfunded commitments during the quarter. The provision for credit losses for HTM securities was due to the changes in economic forecasts and their impact on HTM securities classified as municipal bonds.


	Three Months Ended						Variance From
	September 30,		June 30,		September 30,		June 30, 2024				September 30, 2023
(Dollars in thousands)	2024		2024		2023		$		%		$		%
Provision for credit losses
Provision for loan losses	$	(249)	$	1,756	$	2,517	$	(2,005)	(114.2)	%	$	(2,766)	(109.9)	%
Provision for unfunded commitments	760		(505)		1,386		1,265		(250.5)	%	(626)		(45.2)	%

Provision for HTM securities	(25)		14		15		(39)		(278.6)	%	(40)		(266.7)	%
Total provision for credit losses	$	486	$	1,265	$	3,918	$	(779)	(61.6)	%	$	(3,432)	(87.6)	%

For the first nine months of 2024, the Company recorded a total provision for credit losses of $5.6 million, consisting of a $7.8 million provision for credit losses for loans held for investment, a $2.2 million reversal of provision for credit losses for unfunded commitments, and a $22,000 reversal of provision for credit losses for HTM securities. For the first nine months of 2023, the total provision for credit losses was $8.4 million, which consisted of a $6.1 million provision for credit losses for loans held for investment, a $2.2 million provision for credit losses for unfunded commitments, and a $85,000 provision for credit losses for HTM securities.

The provision for credit losses for loans held for investment during the first nine months of 2024 was principally driven by a $21.3 million provision for credit losses in the investor loans secured by real estate segment. The provision for credit losses in this segment was largely due to changes in economic forecasts and the associated impact on multifamily loans, partially offset by lower balances for loans within this segment. The provision for credit losses for business loans secured by real estate totaled $1.6 million and was principally driven by changes in economic forecasts and asset quality, partially offset by a decline in balances for loans within this segment. The reversal of provision for credit losses for commercial loans totaled $15.9 million, and was primarily due to the declines in the balances of C&I loans and franchise non-real estate secured loans, partially offset by changes in economic forecasts for loans within this segments.

The reversal of provision expense for unfunded commitments during the first nine months of 2024 was principally due to lower levels of unfunded commitments during 2024. The reversal of provision expense for HTM securities was due to changes in economic forecasts and the impact on HTM securities classified as municipal bonds.

The provision for credit losses for loans held for investment during the first nine months of 2023 was principally driven by a provision for credit losses for commercial loans which totaled $4.7 million. The provision for credit losses for loans in this segment can be attributed in large part to changes in economic forecasts and asset quality associated with C&I loans, partially offset by declines in the balances of these loans. The provision for credit losses for unfunded commitments was due to changes in economic forecasts and asset quality, partially offset by lower unfunded commitments.



	Nine Months Ended		Variance From
	September 30,	September 30,	September 30, 2023
(Dollars in thousands)	2024	2023	$	%
Provision for credit losses
Provision for loans losses	7,795	6,148	1,647	26.8	%
Provision for unfunded commitments	(2,170)	2,200	(4,370)	(198.6)	%
Provision for held-to-maturity securities	(22)	85	(107)	(125.9)	%

Total provision for credit losses	5,603	8,433	(2,830)	(33.6)	%

Noninterest Income

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


	Three Months Ended						Variance From
	September 30,		June 30,		September 30,		June 30, 2024				September 30, 2023
(Dollars in thousands)	2024		2024		2023		$		%		$		%
Noninterest income
Loan servicing income	$	525	$	510	$	533	$	15	2.9	%	$	(8)	(1.5)	%
Service charges on deposit accounts	2,711		2,710		2,673		1		—	%	38		1.4	%
Other service fee income	306		309		280		(3)		(1.0)	%	26		9.3	%
Debit card interchange fee income	876		925		924		(49)		(5.3)	%	(48)		(5.2)	%
Earnings on bank owned life insurance	4,335		4,218		3,579		117		2.8	%	756		21.1	%
Net gain from sales of loans	47		65		45		(18)		(27.7)	%	2		4.4	%




Trust custodial account fees	8,813		8,950		9,356		(137)		(1.5)	%	(543)		(5.8)	%
Escrow and exchange fees	673		702		938		(29)		(4.1)	%	(265)		(28.3)	%
Other income (loss)	581		(167)		223		748		447.9	%	358		160.5	%
Total noninterest income	$	18,867	$	18,222	$	18,551	$	645	3.5	%	$	316	1.7	%


	Nine Months Ended				Variance From
	September 30,		September 30,		September 30, 2023
(Dollars in thousands)	2024		2023		$		%
Noninterest income
Loan servicing income	$	1,564	$	1,599	$	(35)	(2.2)	%
Service charges on deposit accounts	8,109		7,972		137		1.7	%
Other service fee income	951		891		60		6.7	%
Debit card interchange fee income	2,566		2,641		(75)		(2.8)	%
Earnings on bank owned life insurance	12,712		10,440		2,272		21.8	%
Net gain from sales of loans	112		419		(307)		(73.3)	%
Net gain from sales of investment securities	—		138		(138)		(100.0)	%



Trust custodial account fees	28,405		29,741		(1,336)		(4.5)	%
Escrow and exchange fees	2,071		2,920		(849)		(29.1)	%
Other income	6,373		3,515		2,858		81.3	%
Total noninterest income	$	62,863	$	60,276	$	2,587	4.3	%

Noninterest income for the third quarter of 2024 was $18.9 million, an increase of $645,000 from the second quarter of 2024. The increase was primarily due to a $748,000 increase in other income largely attributable to a $1.0 million decrease in Community Reinvestment Act ("CRA") investment loss and a $203,000 gain on debt extinguishment resulting from an early redemption of a $200.0 million FHLB term advance.

Noninterest income for the third quarter of 2024 increased $316,000 compared to the third quarter of 2023. The increase was primarily due to a $756,000 increase in earnings on bank owned life insurance (“BOLI”), partially offset by a $543,000 decrease in trust custodial account fees.

For the nine months ended September 30, 2024, noninterest income totaled $62.9 million, an increase from $60.3 million for the nine months ended 2023. The increase was primarily related to the $5.3 million gain on debt extinguishment resulting from the early redemption of two $200.0 million FHLB term advances and $2.3 million higher earnings from BOLI, partially offset by $2.4 million decrease in other income, a $1.3 million decrease in trust custodial account fees, and an $849,000 decrease in escrow and exchange fees.

Noninterest Expense

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


	Three Months Ended						Variance From
	September 30,		June 30,		September 30,		June 30, 2024				September 30, 2023
(Dollars in thousands)	2024		2024		2023		$		%		$		%
Noninterest expense
Compensation and benefits	$	53,400	$	53,140	$	54,068	$	260	0.5	%	$	(668)	(1.2)	%
Premises and occupancy	10,899		10,480		11,382		419		4.0	%	(483)		(4.2)	%
Data processing	7,777		7,754		7,517		23		0.3	%	260		3.5	%
Other real estate owned operations, net	1		—		(4)		1		100.0	%	5		125.0	%
FDIC insurance premiums	1,922		1,873		2,324		49		2.6	%	(402)		(17.3)	%
Legal and professional services	4,980		1,078		4,243		3,902		362.0	%	737		17.4	%
Marketing expense	860		1,724		1,635		(864)		(50.1)	%	(775)		(47.4)	%
Office expense	1,046		1,077		1,079		(31)		(2.9)	%	(33)		(3.1)	%
Loan expense	734		840		476		(106)		(12.6)	%	258		54.2	%
Deposit expense	12,474		12,289		10,811		185		1.5	%	1,663		15.4	%

Amortization of intangible assets	2,762		2,763		3,055		(1)		—	%	(293)		(9.6)	%
Other expense	4,790		4,549		5,599		241		5.3	%	(809)		(14.4)	%
Total noninterest expense	$	101,645	$	97,567	$	102,185	$	4,078	4.2	%	$	(540)	(0.5)	%



	Nine Months Ended				Variance From
	September 30,		September 30,		September 30, 2023
(Dollars in thousands)	2024		2023		$		%
Noninterest expense
Compensation and benefits	$	160,670	$	161,785	$	(1,115)	(0.7)	%
Premises and occupancy	32,186		34,739		(2,553)		(7.3)	%
Data processing	23,042		22,270		772		3.5	%
Other real estate owned operations, net	47		112		(65)		(58.0)	%
FDIC insurance premiums	6,424		7,106		(682)		(9.6)	%
Legal and professional services	10,201		14,460		(4,259)		(29.5)	%
Marketing expense	4,142		5,352		(1,210)		(22.6)	%
Office expense	3,216		3,591		(375)		(10.4)	%
Loan expense	2,344		1,689		655		38.8	%
Deposit expense	37,428		28,441		8,987		31.6	%

Amortization of intangible assets	8,361		9,281		(920)		(9.9)	%
Other expense	13,784		15,355		(1,571)		(10.2)	%
Total noninterest expense	$	301,845	$	304,181	$	(2,336)	(0.8)	%

Noninterest expense totaled $101.6 million for the third quarter of 2024, an increase of $4.1 million compared to the second quarter of 2024. The increase was primarily due to a $3.9 million increase in legal and professional services expense, driven by the prior quarter's $4.0 million insurance claim receivable that decreased the expense during the period.

Noninterest expense for the third quarter of 2024 decreased by $540,000 compared to the third quarter of 2023. The decrease was primarily due to an $809,000 decrease in other expense, due to lower charitable contributions, a $775,000 decrease in marketing expense, a $668,000 decrease in compensation and benefits, and a $483,000 decrease in premises and occupancy expense, partially offset by a $1.7 million increase in deposit expense and a $737,000 increase in legal and professional services expense.

Noninterest expense totaled $301.8 million for the nine months ended 2024, a decrease of $2.3 million, compared to the first nine months ended 2023. The decrease was driven primarily by a $4.3 million decrease in legal and professional services expense, driven by a $4.0 million insurance claim receivable, a $2.6 million decrease in premises and occupancy expense, a $1.6 million decrease in other expense, a $1.2 million decrease in marketing expense, a $1.1 million decrease in compensation and benefits, and a $920,000 decrease in amortization of intangible assets, partially offset by a $9.0 million increase in deposit expense predominately driven by higher deposit administration service fees to HOA customers. The Bank pays third-party management companies, which operate as a vendor for the Bank, to provide certain property administrative services related to the servicing of the HOA deposit accounts. This administrative service fee is reported as deposit costs in noninterest expense and is based primarily upon the number of HOA accounts for which a management company provides administrative services, with caps based on the size and composition of the service deposit relationships.

The Company’s efficiency ratio was 66.1% for the third quarter of 2024, compared to 61.3% for the second quarter of 2024, and 59.0% for the third quarter of 2023. The Company’s efficiency ratio was 62.4% for the first nine months ended 2024, compared to 54.8% for the first nine months ended 2023. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Income Taxes

For the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, income tax expense was $11.7 million, $13.9 million, and $16.0 million, respectively, and the effective income tax rate was 24.5%, 24.9%, and 25.8%, respectively. For the nine months ended September 30, 2024 and 2023, income tax expense was $42.9 million and $59.7 million, respectively, and the effective income tax rate was 25.6% and 26.4%, respectively. Our effective tax rate for the three and nine months ended September 30, 2024 differs from the 21% federal statutory rate due to the impact of state taxes as well as various permanent tax differences, including tax-exempt income from municipal securities and loans, BOLI income, tax benefits associated with low-income housing tax credit investments, Section 162(m) limitation on the deduction of executive compensation, and the exercise of stock options and vesting of other stock-based compensation.

The total amount of unrecognized tax benefits was $1.4 million at September 30, 2024 and December 31, 2023, and was comprised of unrecognized tax benefits related to the Opus acquisition in 2020. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate was $563,000 at September 30, 2024 and December 31, 2023. It is reasonably possible that $1.1 million of the Company's unrecognized tax benefits may be recognized within the next 12 months due to a lapse of the statute of limitations.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company has accrued $298,000 and $200,000 for such interest at September 30, 2024 and December 31, 2023, respectively. No amounts for penalties were accrued.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as income and franchise tax in multiple state jurisdictions. The statute of limitations related to the consolidated Federal income tax returns is closed for all tax years up to and including 2019. The expirations of the statutes of limitations related to the various state income and franchise tax returns vary by state.

The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and the tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that a valuation allowance for deferred tax assets was not required as of September 30, 2024 and December 31, 2023.

FINANCIAL CONDITION

At September 30, 2024, assets totaled $17.91 billion, a decrease of $1.12 billion, or 5.9%, from $19.03 billion at December 31, 2023. The decrease was primarily due to a $1.25 billion decrease in total loans, partially offset by a $160.5 million increase in investment securities and a $45.8 million increase in cash and cash equivalents.

Total liabilities were $14.97 billion at September 30, 2024, compared to $16.14 billion at December 31, 2023. The decrease of $1.18 billion, or 7.3%, from December 31, 2023 was primarily due to decreases of $659.5 million in total borrowings and $514.7 million in deposits.

Total stockholders’ equity was $2.94 billion as of September 30, 2024, an increase of $61.4 million from $2.88 billion at December 31, 2023. The increase was primarily due to $124.9 million of net income and $19.5 million of other comprehensive income, partially offset by $95.3 million in cash dividends.

Throughout the first nine months of 2024, we continued to prioritize capital accumulation over balance sheet growth in light of the ongoing macroeconomic uncertainty. As a result of our prudent and proactive capital, liquidity, and credit risk management, coupled with our ability to opportunistically deploy liquidity generated from the securities portfolio repositioning during the fourth quarter of 2023, we were able to reduce FHLB term borrowings and higher-costing brokered deposits while maintaining liquidity levels. During the first nine months of 2024, we did not utilize the Federal Reserve's discount window or the Bank Term Funding Program, which expired on March 11, 2024. The strength of our capital position provides us with greater optionality and flexibility in terms of balance sheet management.

Our book value per share increased to $30.52 at September 30, 2024 from $30.07 at December 31, 2023. At September 30, 2024, the Company’s tangible common equity to tangible assets ratio was 11.83%, an increase from 10.72% at December 31, 2023. Our tangible book value per share was $20.81, compared to $20.22 at December 31, 2023. The increases in tangible common equity ratio and tangible book value per share at September 30, 2024 from the prior year-end were primarily driven by net income, partially offset by dividends paid. The decrease in tangible assets also contributed to the increase in tangible common equity ratio. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Loans

Loans held for investment totaled $12.04 billion at September 30, 2024, a decrease of $1.25 billion, or 9.4%, from $13.29 billion at December 31, 2023. The decrease was a result of lower loan originations due to our continued disciplined approach around credit risk management and loan pricing along with softer loan demand, particularly in our C&I, CRE, and multifamily loans, a decrease in credit line draws, loan maturities and prepayments, and loan sales during the first nine months of 2024. Since December 31, 2023, commercial loans decreased $558.6 million, investor loans secured by real estate decreased $507.5 million, business loans secured by real estate decreased $199.4 million, and retail loans decreased $1.8 million. While total commercial loans decreased during the third quarter of 2024, the commercial line average utilization rate increased from an average rate of 37.5% for the fourth quarter of 2023 to 39.9% for the third quarter of 2024. The decline in loans from prior year-end reflects the strategic actions we have taken to maintain a disciplined approach to our loan production and pricing, as well as prudent credit underwriting standards, in order to manage our balance sheet and capital position, as well as a lower level of loan demand.

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at September 30, 2024 was 4.82%, compared to 4.87% at December 31, 2023. The decrease was largely the result of customers paying down and paying off higher-rate loans, as well as the repricing of loans, primarily in C&I, subsequent to the Federal Reserve's 0.50% decrease in the Fed Funds rate in September 2024.

We had no loans held for sale at September 30, 2024 and December 31, 2023.

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


	September 30, 2024						December 31, 2023
(Dollars in thousands)	Amount		Percent of Total		Weighted Average Interest Rate		Amount		Percent of Total		Weighted Average Interest Rate
Investor loans secured by real estate
CRE non-owner-occupied	$	2,202,268	18.3	%	4.85	%	$	2,421,772	18.2	%	4.72	%
Multifamily	5,388,847		44.8	%	4.05	%	5,645,310		42.5	%	3.97	%
Construction and land	445,146		3.7	%	8.71	%	472,544		3.5	%	9.08	%
SBA secured by real estate	32,228		0.2	%	9.23	%	36,400		0.3	%	9.37	%
Total investor loans secured by real estate	8,068,489		67.0	%	4.54	%	8,576,026		64.5	%	4.49	%
Business loans secured by real estate
CRE owner-occupied	2,038,583		16.9	%	4.41	%	2,191,334		16.5	%	4.36	%
Franchise real estate secured	264,696		2.2	%	4.81	%	304,514		2.3	%	4.77	%
SBA secured by real estate	43,943		0.4	%	8.89	%	50,741		0.4	%	9.02	%
Total business loans secured by real estate	2,347,222		19.5	%	4.54	%	2,546,589		19.2	%	4.50	%
Commercial loans
Commercial and industrial	1,316,517		10.9	%	6.76	%	1,790,608		13.5	%	7.07	%
Franchise non-real estate secured	237,702		2.0	%	5.12	%	319,721		2.4	%	5.01	%
SBA non-real estate secured	8,407		0.1	%	9.90	%	10,926		0.1	%	9.90	%
Total commercial loans	1,562,626		13.0	%	6.53	%	2,121,255		16.0	%	6.78	%
Retail loans
Single family residential	71,552		0.6	%	7.63	%	72,752		0.5	%	7.01	%
Consumer	1,361		—	%	9.91	%	1,949		—	%	6.66	%
Total retail loans	72,913		0.6	%	7.67	%	74,701		0.5	%	7.00	%
Loans held for investment before basis adjustment (1)	12,051,250		100.1	%	4.82	%	13,318,571		100.2	%	4.87	%
Basis adjustment associated with fair value hedge (2)	(16,153)		(0.1)	%			(29,551)		(0.2)	%
Loans held for investment	12,035,097		100.0	%			13,289,020		100.0	%
Allowance for credit losses for loans held for investment	(181,248)						(192,471)
Loans held for investment, net	$	11,853,849					$	13,096,549

Total unfunded loan commitments	$	1,377,190					$	1,703,470
Loans held for sale, at lower of cost or fair value	$	—					$	—

______________________________

We also have a granular and geographically diverse set of lending relationships. In the tables below, we show the segmentation and geographic dispersion of certain loan portfolios as of September 30, 2024 and December 31, 2023.

CRE Non-Owner-Occupied. CRE non-owner-occupied loans totaled $2.20 billion at September 30, 2024 and $2.42 billion at December 31, 2023. We originate loans that are secured by investor owned CRE, such as retail centers, small office locations, light industrial buildings, and mixed-use commercial properties located in our primary market areas. We believe this loan portfolio is a well-balanced portfolio by geography and by property type as presented below:


	September 30, 2024				December 31, 2023
(Dollars in thousands)	Amount		%		Amount		%
By Property Type
Hotel and Motel	$	277,117	12	%	$	285,906	12	%
Industrial	281,391		13	%	306,811		13	%
Office	574,294		26	%	621,857		26	%
Retail	674,496		31	%	809,716		33	%
Other	394,970		18	%	397,482		16	%
Total CRE non-owner-occupied	$	2,202,268	100	%	$	2,421,772	100	%




By Geography(1)
California:
Los Angeles	$	565,743	26	%	$	632,267	26	%
Orange	314,046		14	%	344,667		14	%
Riverside	118,805		5	%	133,520		5	%
San Bernardino	51,387		2	%	67,483		3	%
San Diego	149,216		7	%	170,847		7	%
San Luis Obispo	175,239		8	%	179,740		7	%
Santa Barbara	66,316		3	%	71,779		3	%
Ventura	20,704		1	%	21,201		1	%
Other CA	191,721		9	%	209,259		9	%
Arizona	158,720		7	%	168,312		7	%
Nevada	121,193		6	%	140,103		6	%
Washington	82,520		4	%	89,101		4	%
Other States	186,658		8	%	193,493		8	%
Total CRE non-owner-occupied	$	2,202,268	100	%	$	2,421,772	100	%

______________________________

(1) Based on location of primary real property collateral. All California information is by respective county.

Multifamily. Multifamily loans totaled $5.39 billion at September 30, 2024 and $5.65 billion at December 31, 2023. We originate loans secured by multifamily residential properties (five units and greater) located in our primary market areas. These lending relationships consist of seasoned owners of multifamily properties with extensive operating experience. The loans are stratified by number of units and physical location below:


	September 30, 2024				December 31, 2023
(Dollars in thousands)	Amount		%		Amount		%
By Number of Units
10 or fewer units	$	1,023,865	19	%	$	1,079,854	19	%
11-25 units	1,568,087		29	%	1,606,326		29	%
26-50 units	1,043,570		19	%	1,097,250		19	%
51-100 units	1,052,907		20	%	1,090,924		19	%
101+ units	700,418		13	%	770,956		14	%
Total Multifamily	$	5,388,847	100	%	$	5,645,310	100	%




By Geography(1)
California:
Los Angeles	$	2,087,529	39	%	$	2,154,693	38	%
Orange	192,413		4	%	196,622		4	%
Riverside	108,594		2	%	111,809		2	%
San Bernardino	136,492		2	%	138,455		2	%
San Diego	345,121		6	%	359,556		6	%
San Luis Obispo	22,740		1	%	25,225		1	%
Santa Barbara	39,096		1	%	43,499		1	%
Ventura	40,084		1	%	40,361		1	%
Other CA	672,635		12	%	715,844		13	%
Arizona	423,540		8	%	437,613		8	%
Nevada	150,228		3	%	158,237		3	%
Washington	650,386		12	%	689,144		12	%
Other States	519,989		9	%	574,252		9	%
Total Multifamily	$	5,388,847	100	%	$	5,645,310	100	%

______________________________

(1) Based on location of primary real property collateral. All California information is by respective county.

CRE Owner-Occupied. CRE owner-occupied loans totaled $2.04 billion at September 30, 2024 and $2.19 billion at December 31, 2023. We originate business loans secured by owner-occupied CRE, such as light industrial buildings, mixed-use commercial properties, and small office locations for professional services located in our primary market areas. These loans are underwritten and analyzed based on each business’s cash flows. This portfolio is well-diversified by industry, with a geography covering California and the Western U.S.:


	September 30, 2024				December 31, 2023
(Dollars in thousands)	Amount		%		Amount		%
By Industry(1)
Accommodation and Food Services	$	117,826	6	%	$	143,398	6	%
Administrative and Support	61,645		3	%	62,286		3	%
Agriculture	99,407		5	%	101,344		5	%
Construction	142,602		7	%	149,821		7	%
Educational Services	157,871		8	%	171,858		8	%
Entertainment	69,837		3	%	72,801		3	%
Financial Services	36,943		2	%	37,938		2	%
Health Care	287,364		14	%	292,813		13	%
Manufacturing	219,944		11	%	237,147		11	%
Other Services	226,662		11	%	233,625		11	%
Professional Services	93,936		5	%	101,027		5	%
Real Estate	91,494		4	%	132,824		6	%
Retail Trade	199,396		10	%	209,609		9	%
Transport and Warehouse	39,536		2	%	41,445		2	%
Wholesale Trade	164,001		8	%	173,371		8	%
Other	30,119		1	%	30,027		1	%
Total CRE owner-occupied	$	2,038,583	100	%	$	2,191,334	100	%




By Geography(2)
California:
Los Angeles	$	632,903	31	%	$	684,079	31	%
Orange	193,900		10	%	222,742		10	%
Riverside	340,537		17	%	350,277		16	%
San Bernardino	187,288		9	%	192,695		9	%
San Diego	126,787		6	%	134,120		6	%
San Luis Obispo	92,376		5	%	99,441		5	%
Santa Barbara	109,070		5	%	114,758		5	%
Ventura	43,694		2	%	55,101		3	%
Other CA	131,536		6	%	137,428		6	%
Arizona	54,267		3	%	58,872		3	%
Nevada	47,486		2	%	48,713		2	%
Washington	18,346		1	%	19,950		1	%
Other States	60,393		3	%	73,158		3	%
Total CRE owner-occupied	$	2,038,583	100	%	$	2,191,334	100	%

______________________________

(1) Distribution by North American Industry Classification System (NAICS)

(2) Based on location of primary real property collateral. All California information is by respective county.

Commercial & Industrial. C&I loans totaled $1.32 billion at September 30, 2024 and $1.79 billion at December 31, 2023. We originate C&I loans secured by various business assets, including inventory, receivables, 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. These loans are underwritten and analyzed based on each business’s cash flows. This portfolio includes loans to small and middle market businesses by industry and by geography as shown below:


	September 30, 2024				December 31, 2023
(Dollars in thousands)	Amount		%		Amount		%
By Industry(1)
Administrative	$	10,649	1	%	$	55,663	3	%
Agriculture	14,907		1	%	48,766		3	%
Construction	193,213		15	%	372,965		21	%
Educational Services	29,334		2	%	32,909		2	%
Entertainment	29,495		2	%	31,486		2	%
Financial Services	219,196		17	%	328,856		18	%
Health Care	55,801		4	%	57,428		3	%
Information	26,939		2	%	39,008		2	%
Manufacturing	175,905		13	%	176,248		10	%
Other Services	108,520		8	%	126,731		7	%
Professional Services	83,755		7	%	85,928		5	%
Public Administration	161,894		12	%	174,378		10	%
Real Estate	117,848		9	%	149,835		8	%
Transport and Warehouse	22,118		2	%	28,651		2	%
Wholesale Trade	27,533		2	%	37,547		2	%
Other	39,410		3	%	44,209		2	%
Total Commercial and industrial	$	1,316,517	100	%	$	1,790,608	100	%




By Geography(2)
California:
Los Angeles	$	415,450	32	%	$	624,418	35	%
Orange	243,973		18	%	263,012		15	%
Riverside	85,028		6	%	123,920		7	%
San Bernardino	54,819		4	%	65,121		4	%
San Diego	98,714		7	%	126,541		7	%
San Luis Obispo	40,058		3	%	59,314		3	%
Santa Barbara	18,885		1	%	35,556		2	%
Ventura	20,646		2	%	38,463		2	%
Other CA	128,265		10	%	164,069		9	%
Arizona	12,181		1	%	47,610		3	%
Nevada	20,196		2	%	22,530		1	%
Washington	51,479		4	%	59,187		3	%
Other States	126,823		10	%	160,867		9	%
Total Commercial and industrial	$	1,316,517	100	%	$	1,790,608	100	%

______________________________

(1) Distribution by North American Industry Classification System (NAICS)

(2) Based on location of primary real property collateral if available, otherwise borrower address is used. All California information is by respective county.

Delinquent Loans

When a borrower fails to make required payments on a loan and does not cure the delinquency within 30 days, we normally initiate proceedings to pursue our remedies under the loan documents. For loans secured by real estate, we provide the required notices to the borrower and make any required filings, and commence foreclosure proceedings if necessary. If the loan is not reinstated within the time permitted by law, we may sell the property at a foreclosure sale. At these foreclosure sales, we generally acquire title to the property. At September 30, 2024, loans delinquent 30 or more days as a percentage of total loans held for investment was 0.08%, unchanged from 0.08% at December 31, 2023.

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


	30 - 59 Days				60 - 89 Days				90 Days or More				Total
(Dollars in thousands)	# of Loans	Loan Balance			# of Loans	Loan Balance			# of Loans	Loan Balance			# of Loans	Loan Balance
At September 30, 2024
Investor loans secured by real estate
CRE non-owner-occupied	—	$	—		—	$	—		1	$	383		1	$	383


SBA secured by real estate	1	1,115			—	—			1	187			2	1,302
Total investor loans secured by real estate	1	1,115			—	—			2	570			3	1,685
Business loans secured by real estate
CRE owner-occupied	—	—			—	—			3	4,574			3	4,574


Total business loans secured by real estate	—	—			—	—			3	4,574			3	4,574
Commercial loans
Commercial and industrial	7	893			7	715			3	1,468			17	3,076

SBA non-real estate secured	—	—			—	—			2	531			2	531
Total commercial loans	7	893			7	715			5	1,999			19	3,607




Total	8	$	2,008		7	$	715		10	$	7,143		25	$	9,866
Delinquent loans to loans held for investment		0.02		%		—		%		0.06		%		0.08		%


	30 - 59 Days				60 - 89 Days				90 Days or More				Total
(Dollars in thousands)	# of Loans	Loan Balance			# of Loans	Loan Balance			# of Loans	Loan Balance			# of Loans	Loan Balance
At December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied	—	$	—		—	$	—		1	$	412		1	$	412


SBA secured by real estate	—	—			—	—			1	420			1	420
Total investor loans secured by real estate	—	—			—	—			2	832			2	832
Business loans secured by real estate
CRE owner-occupied	—	—			—	—			3	4,655			3	4,655
Franchise real estate secured	1	292			—	—			—	—			1	292
SBA secured by real estate	1	137			—	—			—	—			1	137
Total business loans secured by real estate	2	429			—	—			3	4,655			5	5,084
Commercial loans
Commercial and industrial	7	228			9	1,294			1	231			17	1,753
Franchise non-real estate secured	7	1,559			—	—			—	—			7	1,559
SBA non-real estate secured	1	249			—	—			2	558			3	807
Total commercial loans	15	2,036			9	1,294			3	789			27	4,119
Retail loans
Single family residential	1	19			—	—			—	—			1	19

Total retail loans	1	19			—	—			—	—			1	19
Total	18	$	2,484		9	$	1,294		8	$	6,276		35	$	10,054
Delinquent loans to loans held for investment		0.02		%		0.01		%		0.05		%		0.08		%

Modified Loans to Troubled Borrowers

On January 1, 2023, the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty, which the Company also refers to as modified loans to troubled borrowers (“MLTB”). An MLTB arises from a modification made to a loan in response to a borrower’s financial difficulty in order to alleviate temporary impairments in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following:

•Principal forgiveness

•Interest rate reduction

•Other-than-insignificant payment delay

•Term extension

•Any combination of the above

See Note 1 - Description of Business and Summary of Significant Accounting Policies of our audited consolidated financial statements included in our 2023 Form 10-K for additional discussion on MLTBs.

As of September 30, 2024, the Company had one MLTB of $16.1 million, the modification of which involved a combination of other-than-insignificant payment delay and a term extension. During the three and nine months ended September 30, 2024, there were no MLTBs that had a payment default and had been modified within the 12 months preceding the payment default.

As of September 30, 2023, the Company had two syndicated C&I participation MLTBs totaling $13.0 million, the modifications of which involved other-than-insignificant payment delays. During the three and nine months ended September 30, 2023, there were no MLTBs that had a payment default and had been modified within the 12 months preceding the payment default.

Credit Quality

We separate our loans by type, and we segregate the loans into various risk grade categories of “Pass,” “Special Mention,” “Substandard,” “Doubtful,” or “Loss.” Classified loans consist of those with a credit risk rating of substandard, doubtful, or loss. For additional information on the Company’s credit quality and credit risk grades, see Note 5 – Loans Held for Investment to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q.

Classified loans totaled $120.5 million, or 1.00% of loans held for investment, at September 30, 2024, compared with $142.0 million, or 1.07% of loans held for investment, at December 31, 2023. The decrease was primarily driven by the payoff of two commercial banking relationships with loans in C&I and CRE owner-occupied categories, totaling $40.0 million, during the first nine months of 2024.

The following tables stratify the loan portfolio by the Company’s internal risk grading as of the dates indicated:


	Credit Risk Grades
(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total Gross Loans
September 30, 2024
Investor loans secured by real estate
CRE non-owner-occupied	$	2,163,159	$	2,471	$	36,638	$	—	$	2,202,268
Multifamily	5,354,137		34,710		—		—		5,388,847
Construction and land	445,146		—		—		—		445,146
SBA secured by real estate	24,901		1,125		6,202		—		32,228
Total investor loans secured by real estate	7,987,343		38,306		42,840		—		8,068,489
Business loans secured by real estate
CRE owner-occupied	1,986,919		18,089		33,575		—		2,038,583
Franchise real estate secured	261,626		1,560		1,510		—		264,696
SBA secured by real estate	40,773		—		3,170		—		43,943
Total business loans secured by real estate	2,289,318		19,649		38,255		—		2,347,222
Commercial loans
Commercial and industrial	1,275,854		12,393		25,385		2,885		1,316,517
Franchise non-real estate secured	226,738		557		10,407		—		237,702
SBA non-real estate secured	7,695		—		712		—		8,407
Total commercial loans	1,510,287		12,950		36,504		2,885		1,562,626
Retail loans
Single family residential	71,552		—		—		—		71,552
Consumer loans	1,361		—		—		—		1,361
Total retail loans	72,913		—		—		—		72,913
Loans held for investment before basis adjustment (1)	$	11,859,861	$	70,905	$	117,599	$	2,885	$	12,051,250




December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied	$	2,406,719	$	6,966	$	8,087	$	—	$	2,421,772
Multifamily	5,633,682		11,628		—		—		5,645,310
Construction and land	472,544		—		—		—		472,544
SBA secured by real estate	28,271		—		8,129		—		36,400
Total investor loans secured by real estate	8,541,216		18,594		16,216		—		8,576,026
Business loans secured by real estate
CRE owner-occupied	2,117,985		34,480		38,869		—		2,191,334
Franchise real estate secured	288,013		9,674		6,827		—		304,514
SBA secured by real estate	45,586		619		4,536		—		50,741
Total business loans secured by real estate	2,451,584		44,773		50,232		—		2,546,589
Commercial loans
Commercial and industrial	1,651,102		81,250		53,714		4,542		1,790,608
Franchise non-real estate secured	299,189		4,230		16,302		—		319,721
SBA non-real estate secured	9,970		—		956		—		10,926
Total commercial loans	1,960,261		85,480		70,972		4,542		2,121,255
Retail loans
Single family residential	72,752		—		—		—		72,752
Consumer loans	1,949		—		—		—		1,949
Total retail loans	74,701		—		—		—		74,701
Loans held for investment before basis adjustment (1)	$	13,027,762	$	148,847	$	137,420	$	4,542	$	13,318,571

______________________________

(1) Excludes the basis adjustment of $16.2 million and $29.6 million to the carrying amount of certain loans included in fair value hedging relationships at September 30, 2024 and December 31, 2023. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

Nonperforming Assets

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

Nonperforming assets increased by $14.0 million to $39.1 million, or 0.22% of total assets, at September 30, 2024, compared to $25.1 million, or 0.13% of total assets, at December 31, 2023. The increase in nonperforming assets at September 30, 2024, was primarily the result of a single, diversified commercial banking relationship with CRE non-owner-occupied loans, totaling $18.0 million, which were current as of September 30, 2024.

At September 30, 2024, nonperforming loans totaled $39.1 million, or 0.32% of loans held for investment, an increase from $24.8 million, or 0.19% of loans held for investment, at December 31, 2023.

At September 30, 2024, the Company had no OREO, compared to $248,000 at December 31, 2023.

The Company had no loans 90 days or more past due and still accruing at September 30, 2024 and December 31, 2023.

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


(Dollars in thousands)	September 30, 2024			December 31, 2023
Nonperforming assets
Investor loans secured by real estate
CRE non-owner-occupied	$	19,042		$	412


SBA secured by real estate	1,725			1,205
Total investor loans secured by real estate	20,767			1,617
Business loans secured by real estate
CRE owner-occupied	4,574			8,666


Total business loans secured by real estate	4,574			8,666
Commercial loans
Commercial and industrial	13,212			13,976

SBA non-real estate secured	531			558
Total commercial loans	13,743			14,534




Total nonperforming loans	39,084			24,817
Other real estate owned	—			248

Total	$	39,084		$	25,065

Allowance for credit losses	$	181,248		$	192,471
Allowance for credit losses as a percent of total nonperforming loans	464		%	776		%
Nonperforming loans as a percent of loans held for investment	0.32		%	0.19		%
Nonperforming assets as a percent of total assets	0.22		%	0.13		%
MLTBs included in nonperforming loans	$	16,089		$	12,595

Allowance for Credit Losses

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

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

The Company’s ACL includes assumptions concerning current and future economic conditions using reasonable and supportable forecasts from an independent third party. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. Management evaluates economic scenarios used in the Company’s ACL model, and thus the scenarios as well as the assumptions within those scenarios, and whether to use a weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events. As of September 30, 2024, the Company’s ACL model used three weighted scenarios representing a base-case scenario, an upside scenario, and a downside scenario. The use of three weighted scenarios at September 30, 2024 is consistent with the approach used in the Company’s ACL model at June 30, 2024. The Company’s ACL model at September 30, 2024 includes assumptions concerning the interest rate environment, general uncertainty concerning future economic conditions, and the potential for future recessionary conditions. The Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL. These key economic variables include forecasted changes in the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and interest rates.

The Company considers the need for qualitative adjustments to the ACL on a quarterly basis. Qualitative adjustments may be related to and include, but not be limited to, factors such as (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization-specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL. Qualitative adjustments served to increase or decrease the level of allocated ACL to these segments of the loan portfolio: investor loans secured by real estate, business loans secured by real estate, and commercial loans.

The following charts quantify the factors attributing to the changes in the ACL on loans held for investment for the three and nine months ended September 30, 2024 and September 30, 2023:

ACL change attributions ($ in millions) (1)

______________________________

(1) Certain factors attributing to the changes in the ACL for 2023 have been reclassified to conform to the 2024 presentation.

For additional information on the provision for credit losses and ACL on loans and ACL for off-balance sheet commitments related to unfunded loans and lines of credit, refer to “Provision for Credit Losses” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 6 – Allowance for Credit Losses to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q.

At September 30, 2024, the Company believes the ACL was adequate to cover current expected credit losses in the loan portfolio. However, no assurance can be given that we will not, in any particular period, sustain credit losses that exceed the amount reserved, or that subsequent evaluation of our loan portfolio, in light of prevailing factors, including economic conditions that may adversely affect our market area or other circumstances, will not require significant increases in the ACL. In addition, regulatory agencies, as an integral part of their examination process, periodically review our ACL and may require us to recognize changes to the ACL based on judgments different from those of management. Should any of the factors considered by management in evaluating the appropriate level of the ACL change, including the size and composition of the loan portfolio, the credit quality of the loan portfolio, as well as forecasts of future economic conditions, the Company’s estimate of current expected credit losses could also significantly change and affect the level of future provisions for credit losses.

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


	September 30, 2024						December 31, 2023
(Dollars in thousands)	Amount		Allowance as a % of Segment		% of Total Loans		Amount		Allowance as a % of Segment		% of Total Loans
Investor loans secured by real estate
CRE non-owner-occupied	$	29,274	1.33	%	18.3	%	$	31,030	1.28	%	18.2	%
Multifamily	65,965		1.22	%	44.8	%	56,312		1.00	%	42.5	%
Construction and land	10,984		2.47	%	3.7	%	9,314		1.97	%	3.5	%
SBA secured by real estate	2,599		8.06	%	0.2	%	2,182		5.99	%	0.3	%
Total investor loans secured by real estate	108,822		1.35	%	67.0	%	98,838		1.15	%	64.5	%
Business loans secured by real estate
CRE owner-occupied	27,959		1.37	%	16.9	%	28,787		1.31	%	16.5	%
Franchise real estate secured	5,114		1.93	%	2.2	%	7,499		2.46	%	2.3	%
SBA secured by real estate	3,644		8.29	%	0.4	%	4,427		8.72	%	0.4	%
Total business loans secured by real estate	36,717		1.56	%	19.5	%	40,713		1.60	%	19.2	%
Commercial loans
Commercial and industrial	24,982		1.90	%	10.9	%	36,692		2.05	%	13.5	%
Franchise non-real estate secured	9,898		4.16	%	2.0	%	15,131		4.73	%	2.4	%
SBA non-real estate secured	348		4.14	%	0.1	%	458		4.19	%	0.1	%
Total commercial loans	35,228		2.25	%	13.0	%	52,281		2.46	%	16.0	%
Retail loans
Single family residential	388		0.54	%	0.6	%	505		0.69	%	0.5	%
Consumer loans	93		6.83	%	—	%	134		6.88	%	—	%
Total retail loans	481		0.66	%	0.6	%	639		0.86	%	0.5	%
Total (1)	$	181,248	1.51	%	100.0	%	$	192,471	1.45	%	100.0	%

______________________________

(1) Total loans utilized in the calculation of the ratio of ACL to total loans held for investment includes $16.2 million and $29.6 million as of September 30, 2024 and December 31, 2023, respectively, of the basis adjustment of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

At September 30, 2024, the ratio of ACL to loans held for investment was 1.51%, an increase from 1.45% at December 31, 2023. Our unamortized fair value discount on the loans acquired totaled $35.9 million, or 0.30% of total loans held for investment, at September 30, 2024, compared to $43.3 million, or 0.33% of total loans held for investment, at December 31, 2023.

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


	Three Months Ended
	September 30, 2024					June 30, 2024					September 30, 2023
(Dollars in thousands)	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage
Investor loans secured by real estate
CRE non-owner-occupied	$	—	$	2,224,013	—%	$	2,696	$	2,280,616	0.12%	$	(51)	$	2,547,595	—%
Multifamily	—		5,436,252		—%	7,372		5,515,912		0.13%	—		5,751,877		—%
Construction and land	—		455,822		—%	—		461,060		—%	—		424,498		—%
SBA secured by real estate	—		32,625		—%	67		34,110		0.20%	108		38,473		0.28%
Total investor loans secured by real estate	—		8,148,712		—%	10,135		8,291,698		0.12%	57		8,762,443		—%
Business loans secured by real estate
CRE owner-occupied	1,152		2,060,034		0.06%	(121)		2,117,338		(0.01)%	(12)		2,247,742		—%
Franchise real estate secured	—		268,252		—%	—		282,684		—%	—		314,310		—%
SBA secured by real estate	—		45,095		—%	(1)		47,365		—%	(128)		55,115		(0.23)%
Total business loans secured by real estate	1,152		2,373,381		0.05%	(122)		2,447,387		—%	(140)		2,617,167		(0.01)%
Commercial loans
Commercial and industrial	1,237		1,421,824		0.09%	820		1,655,962		0.05%	6,821		1,720,368		0.40%
Franchise non-real estate secured	(125)		244,294		(0.05)%	(1,375)		278,143		(0.49)%	(50)		341,418		(0.01)%
SBA non-real estate secured	(5)		9,812		(0.05)%	3		11,218		0.03%	64		11,841		0.54%
Total commercial loans	1,107		1,675,930		0.07%	(552)		1,945,323		(0.03)%	6,835		2,073,627		0.33%
Retail loans
Single family residential	—		71,454		—%	(3)		70,633		—%	—		70,679		—%
Consumer	47		1,307		3.60%	835		2,270		36.78%	—		2,123		—%
Total retail loans	47		72,761		0.06%	832		72,903		1.14%	—		72,802		—%
Total (1)	$	2,306	$	12,247,432	0.02%	$	10,293	$	12,724,401	0.08%	$	6,752	$	13,475,128	0.05%

Allowance for credit losses to loans held for investment					1.51%					1.47%					1.42%
Nonperforming loans to loans held for investment					0.32%					0.42%					0.19%
Allowance for credit losses to nonperforming loans					464%					353%					739%

______________________________

(1) Average loan balance includes $23.4 million, $32.9 million, and $50.9 million of average basis adjustment of certain loans included in fair value hedging relationships for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.




	For the Nine Months Ended
	September 30, 2024					September 30, 2023
(Dollars in thousands)	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage	Net Charge-offs (Recoveries)		Average Loan Balance		Percentage
Investor loans secured by real estate
CRE non-owner-occupied	$	3,623	$	2,287,163	0.16%	$	2,591	$	2,593,463	0.10%
Multifamily	7,367		5,520,346		0.13%	289		5,877,859		—%
Construction and land	—		465,529		—%	—		425,005		—%
SBA secured by real estate	320		34,210		0.94%	108		39,560		0.27%
Total investor loans secured by real estate	11,310		8,307,248		0.14%	2,988		8,935,887		0.03%
Business loans secured by real estate
CRE owner-occupied	5,420		2,119,725		0.26%	2,334		2,310,584		0.10%
Franchise real estate secured	212		283,864		0.07%	—		344,588		—%
SBA secured by real estate	(2)		47,414		—%	(208)		58,506		(0.36)%
Total business loans secured by real estate	5,630		2,451,003		0.23%	2,126		2,713,678		0.08%
Commercial loans
Commercial and industrial	2,603		1,615,180		0.16%	7,789		1,876,199		0.42%
Franchise non-real estate secured	(1,400)		276,970		(0.51)%	(150)		370,829		(0.04)%
SBA non-real estate secured	(4)		10,629		(0.04)%	(1)		11,580		(0.01)%

Total commercial loans	1,199		1,902,779		0.06%	7,638		2,258,608		0.34%
Retail loans
Single family residential	(3)		71,391		—%	89		71,183		0.13%
Consumer	882		1,893		46.59%	860		2,829		30.40%
Total retail loans	879		73,284		1.20%	949		74,012		1.28%
Total (1)	$	19,018	$	12,705,281	0.15%	$	13,701	$	13,928,641	0.10%

______________________________

(1) Average loan balance includes $29.0 million and $53.5 million of average basis adjustment of certain loans included in fair value hedging relationships for the nine months ended September 30, 2024 and 2023, respectively. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

Investment Securities

Our investment policy, as established by our Asset Liability Committee, is established to provide and maintain liquidity, capital preservation, complement our lending activities, support our interest rate risk management strategies and tax planning, and generate a favorable return on investments without incurring undue interest rate and credit risks. Specifically, our investment policy generally limits our investments to U.S. government securities, federal agency-backed securities, U.S. government-sponsored enterprise (“GSE”) guaranteed mortgage-backed securities (“MBS”), which are guaranteed by Fannie Mae (“FNMA”), Freddie Mac (“FHLMC”), Federal Farm Credit Banks (“FFCB”), or Ginnie Mae (“GNMA”), U.S. Treasury securities, municipal bonds, and corporate bonds, specifically bank debt notes. The Bank has designated all investment securities as AFS or HTM. AFS securities are carried at fair value, with unrealized gains or losses, net of tax, on these securities recognized in stockholders’ equity as accumulated other comprehensive income or loss. HTM securities are carried at amortized cost, net of ACL.

We primarily use our investment portfolio for liquidity purposes, capital preservation, and to support our interest rate risk management strategies. Our investment securities portfolio amounted to $3.03 billion at September 30, 2024, an increase of $160.5 million, or 5.6%, from $2.87 billion at December 31, 2023. The increase was the result of $726.6 million in purchases, primarily of AFS U.S. Treasury securities, and a $16.3 million in mark-to-market unrealized loss improvement on AFS securities, partially offset by $582.4 million in principal payments, amortization and accretion, and redemptions. The Company did not sell any investment securities during the nine months ended September 30, 2024. In general, the purchase of investment securities is primarily related to investing excess liquidity from our banking operations. During the nine months ended September 30, 2024, we have maintained a meaningful portion of the AFS securities portfolio in highly-liquid, shorter term securities. This strategy enhances our interest rate sensitivity profile to the current rate environment and provides us with the flexibility to quickly redeploy these funds into higher-yielding assets or slightly longer duration securities as opportunities arise. The effective duration of AFS securities portfolio was 0.6 years and 0.7 years at September 30, 2024 and December 31, 2023, respectively. The effective duration of total AFS and HTM securities portfolio was 4.8 years and 5.5 years at September 30, 2024 and December 31, 2023, respectively.

At September 30, 2024, AFS and HTM investment securities were $1.32 billion and $1.71 billion, respectively, compared to $1.14 billion and $1.73 billion, respectively, at December 31, 2023.

The ACL on investment securities is determined for both the AFS and HTM classifications of the investment portfolio in accordance with ASC 326 and evaluated on a quarterly basis. As of September 30, 2024 and December 31, 2023, the Company had an ACL of $104,000 and $126,000, respectively, for HTM investment securities classified as municipal bonds. The Company had no ACL for AFS investment securities at September 30, 2024 and December 31, 2023. For additional information, refer to Note 4 – Investment Securities to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q.

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


	September 30, 2024
	One Year or Less				More than One to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
(Dollars in thousands)	Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield		Amount		Weighted Average Yield
AFS investment securities:
U.S. Treasury	$	620,804	5.11	%	$	150,547	4.99	%	$	—	—	%	$	—	—	%	$	771,351	5.08	%
Agency	—		—	%	752		5.44	%	—		—	%	413		(5.08)	%	1,165		1.69	%
Corporate	19,996		5.27	%	202,551		5.40	%	182,861		3.55	%	—		—	%	405,408		4.51	%

Collateralized mortgage obligations	—		—	%	54,731		5.70	%	41,625		5.63	%	42,266		6.45	%	138,622		5.91	%

Total AFS investment securities	640,800		5.11	%	408,581		5.29	%	224,486		3.94	%	42,679		6.34	%	1,316,546		4.98	%
HTM investment securities:

Municipal bonds	$	—	—	%	$	38,612	1.46	%	$	43,308	1.91	%	$	1,063,281	2.06	%	$	1,145,201	2.03	%
Collateralized mortgage obligations	—		—	%	57		5.72	%	—		—	%	316,493		4.13	%	316,550		4.13	%
Mortgage-backed securities	—		—	%	2,938		5.27	%	6,059		4.79	%	226,732		2.09	%	235,729		2.20	%
Other	—		—	%	—		—	%	—		—	%	16,199		2.85	%	16,199		2.85	%
Total HTM investment securities	$	—	—	%	$	41,607	1.73	%	$	49,367	2.26	%	$	1,622,705	2.47	%	$	1,713,679	2.45	%
Total securities	$	640,800	5.11	%	$	450,188	4.96	%	$	273,853	3.63	%	$	1,665,384	2.57	%	$	3,030,225	3.55	%

The following table presents the fair value of AFS and the amortized cost of HTM investment securities portfolios by Moody’s credit ratings at September 30, 2024.


(Dollars in thousands)	U.S. Treasury		Agency		Corporate Debt		Municipal Bonds		Collateralized Mortgage Obligations		Mortgage-backed Securities		Other		Total		%
Aaa - Aa3	$	771,351	$	1,165	$	19,996	$	1,145,201	$	455,172	$	235,729	$	—	$	2,628,614	86.7	%
A1 - A3	—		—		194,162		—		—		—		—		194,162		6.4	%
Baa1 - Baa3	—		—		191,250		—		—		—		16,199		207,449		6.9	%
Total	$	771,351	$	1,165	$	405,408	$	1,145,201	$	455,172	$	235,729	$	16,199	$	3,030,225	100.0	%

All of the municipal bond securities in our portfolio have an underlying rating of investment grade, with the majority insured by the largest bond insurance companies to bring each of these securities to a Moody’s A rating or better. The Company has predominantly purchased general obligation bonds that are risk-weighted at 20% for regulatory capital purposes. The Company reduces its exposure to any single adverse event by holding securities from geographically diversified municipalities. We continue to monitor the quality of our investment securities portfolio in accordance with current financial conditions and economic environment.

Deposits

At September 30, 2024, deposits totaled $14.48 billion, a decrease of $514.7 million, or 3.4%, from $15.00 billion at December 31, 2023. The decrease was largely driven by decreases of $310.2 million in brokered certificates of deposit, $293.7 million in noninterest-bearing checking, $136.3 million in interest-bearing checking, and $62.9 million in money market and savings, partially offset by an increase of $288.4 million in retail certificates of deposit.

At September 30, 2024, non-maturity deposits totaled $12.21 billion, or 84.3% of total deposits, a decrease of $492.9 million, or 3.9%, from December 31, 2023. The decrease was attributable to clients utilizing their deposit balances to prepay or pay down loans, reduced funding needs, as well as redeploying funds into higher-yielding alternatives due to elevated benchmark interest rates. Our non-maturity deposits reflect our well-diversified and relationship-focused business model that has resulted in noninterest-bearing checking deposits representing 32.0% of total deposits as of September 30, 2024.

At September 30, 2024, maturity deposits totaled $2.27 billion, a decrease of $21.8 million, or 0.9%, from December 31, 2023. The decrease was primarily driven by a reduction of $310.2 million in brokered certificates of deposit, partially offset by an increase of $288.4 million in retail certificates of deposit.

The total end-of-period weighted average rate of deposits at September 30, 2024 was 1.80%, an increase from 1.55% at December 31, 2023, principally driven by higher pricing across all deposit categories and a greater mix of maturity deposits. At September 30, 2024, the end-of-period weighted average rate of non-maturity deposits was 1.26%, compared to 1.04% at December 31, 2023.

As of September 30, 2024, the Bank counted one client, a property management holding company, with deposits of $704.8 million, or 4.9% of total deposits, and 10,845 total deposit accounts. No other individual depositor represented more than 1.3% of our total deposits, and our top 50 depositors represented 11.8% of our total deposits.

Our ratio of loans held for investment to deposits was 83.1% and 88.6% at September 30, 2024 and December 31, 2023, respectively.

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


	September 30, 2024						December 31, 2023
(Dollars in thousands)	Balance		% of Total Deposits		Weighted Average Rate		Balance		% of Total Deposits		Weighted Average Rate
Noninterest-bearing checking	$	4,639,077	32.0	%	—	%	$	4,932,817	32.9	%	—	%
Interest-bearing deposits:
Interest-bearing checking	2,763,353		19.1	%	1.55	%	2,899,621		19.3	%	1.38	%
Money market	4,547,006		31.4	%	2.41	%	4,572,693		30.5	%	2.00	%
Savings	258,510		1.8	%	0.40	%	295,749		2.0	%	0.29	%
Total non-maturity deposits	12,207,946		84.3	%	1.26	%	12,700,880		84.7	%	1.04	%
Time deposit accounts:
Less than 1.00%	29,901		0.2	%	0.25	%	90,480		0.6	%	0.14	%
1.00 - 1.99	18,239		0.1	%	1.83	%	20,505		0.1	%	1.76	%
2.00 - 2.99	15,490		0.1	%	2.59	%	20,191		0.1	%	2.63	%
3.00 - 3.99	106,702		0.7	%	3.76	%	361,060		2.4	%	3.52	%
4.00 - 4.99	1,459,312		10.1	%	4.79	%	1,084,443		7.3	%	4.49	%
5.00 and greater	643,337		4.5	%	5.11	%	718,067		4.8	%	5.26	%
Total time deposit accounts	2,272,981		15.7	%	4.73	%	2,294,746		15.3	%	4.37	%

Total deposits	$	14,480,927	100.0	%	1.80	%	$	14,995,626	100.0	%	1.55	%

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


(Dollars in thousands)	September 30, 2024		December 31, 2023
Uninsured deposits	$	5,763,200	$	5,976,621

The Bank is a member of the IntraFi Network (“IntraFi”), which allows banking customers to access FDIC insurance protection on deposits that exceed the FDIC insurance limit while receiving reciprocal deposits from other FDIC-insured banks. These reciprocal deposits acquired by the Bank through IntraFi, including both the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Service (“ICS”) programs, offer protection to depositors by fully insuring deposits with other network banks.

At September 30, 2024, the Company’s FDIC-insured deposits as a percentage of total deposits was 60%. Insured and collateralized deposits comprised 66% of total deposits at September 30, 2024, which includes federally-insured deposits, $787.9 million of collateralized municipal and tribal deposits, and $45.0 million of privately insured deposits. At December 31, 2023, the Company’s FDIC-insured deposits as a percentage of total deposits was 60%. Insured and collateralized deposits comprised 66% of total deposits at December 31, 2023, which includes federally-insured deposits, $732.6 million of collateralized municipal and tribal deposits, and $70.0 million of privately insured deposits.

The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $611.0 million at September 30, 2024 and $534.8 million at December 31, 2023. The following table sets forth the maturity distribution of the estimated uninsured time deposits:


(Dollars in thousands)	September 30, 2024		December 31, 2023
3 months or less	$	391,677	$	236,117
Over 3 months through 6 months	148,056		219,430
Over 6 months through 12 months	62,104		72,756
Over 12 months	9,185		6,532
Total	$	611,022	$	534,835

Borrowings

At September 30, 2024, total borrowings amounted to $272.3 million, a decrease of $659.5 million, or 70.8%, from $931.8 million at December 31, 2023. Total borrowings at September 30, 2024 were comprised of $272.3 million of subordinated debentures. The decrease in borrowings at September 30, 2024 as compared to December 31, 2023 was primarily due to the decreases of $600.0 million in FHLB term advances, resulting from $400.0 million in advance redemptions and one $200.0 million advance maturity as well as the maturity of $60.0 million of subordinated notes, partially offset by the amortization of the subordinated debt issuance cost. At September 30, 2024, total borrowings represented 1.5% of total assets and had an end-of-period weighted average rate of 6.58%, compared with 4.9% of total assets and an end-of-period weighted average rate of 3.93% at December 31, 2023.

At September 30, 2024, total subordinated debentures were comprised of the following:

•Subordinated notes of $125.0 million at 7.880% fixed-to-floating rate due May 15, 2029 (the “Notes II”) and a carrying value of $123.8 million, net of unamortized debt issuance cost of $1.2 million. Interest is payable semiannually at a floating rate equal to three-month term SOFR, plus a spread of 2.762% per annum, payable quarterly in arrears; and

•Subordinated notes of $150.0 million at 5.375% fixed-to-floating rate due June 15, 2030 (the “Notes III”) and a carrying value of $148.5 million, net of unamortized debt issuance cost of $1.5 million. Interest on the Notes III accrue at a rate equal to 5.375% per annum from and including June 15, 2020 to, but excluding, June 15, 2025, payable semiannually in arrears. From and including June 15, 2025 to, but excluding, June 15, 2030 or the earlier redemption date, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month term SOFR, plus a spread of 517 basis points, payable quarterly in arrears.

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

The following table sets forth certain information regarding the Company’s borrowed funds as of and during the periods indicated:


	September 30, 2024					December 31, 2023
(Dollars in thousands)	Balance			Weighted Average Rate		Balance			Weighted Average Rate
FHLB advances	$	—		—	%	$	600,000		3.17	%

Subordinated debentures	272,320			6.58	%	331,842			5.31	%
Total borrowings	$	272,320		6.58	%	$	931,842		3.93	%

Weighted average cost of borrowings during the quarter	6.12		%			4.01		%
Borrowings as a percent of total assets	1.5		%			4.9		%

As of September 30, 2024, our unused borrowing capacity was $8.83 billion, which consisted of available lines of credit with FHLB and other correspondent banks as well as access through the Federal Reserve Bank's discount window. As a result of our proactive liquidity management, we were able to reduce FHLB borrowings by $600.0 million during the nine months ended September 30, 2024, and we did not utilize the Federal Reserve Bank's discount window or the Bank Term Funding Program, which expired on March 11, 2024.

The Company maintains additional sources of liquidity at the Corporation level. Our Corporation maintains a $25.0 million line of credit with U.S. Bank and had no outstanding balance against it at September 30, 2024 and December 31, 2023.

100

CAPITAL RESOURCES AND LIQUIDITY

Liquidity Management

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

In addition to the interest payments on loans and investments as well as fees collected on the services we provide, our primary sources of funds generated during the first nine months of 2024 were from:

•Principal payments on loans held for investment of $915.8 million;

•Proceeds of $602.5 million from the sales, payments, or maturities of securities; and

•Proceeds of $58.3 million from the sales of loans classified as loans held for investment.

We used these funds to:

•Purchase investment securities of $726.6 million;

•Decrease FHLB borrowings of $600.0 million;

•Decrease deposits of $514.7 million;

•Originate loans held for investment of $110.3 million;

•Return capital to shareholders through $95.3 million in dividends; and

•Pay off matured subordinated debentures of $60.0 million.

Our most liquid assets are comprised of unrestricted cash, short-term investments, and unpledged AFS investment securities. The levels of these assets are dependent on our operating, lending, and investing activities during any given period. We endeavor to take a prudent, proactive approach to liquidity management, as evidenced by our balance-sheet-oriented initiatives throughout 2023 and 2024. At September 30, 2024, cash and cash equivalents totaled $982.2 million. If additional liquidity is needed or otherwise desired as part of our liquidity management strategy, we have additional sources of liquidity that can be accessed, including FHLB advances, federal funds lines, the Federal Reserve Board’s lending programs, brokered deposits, as well as loan and investment securities sales. As of September 30, 2024, the Bank had secured borrowing capacity with the FHLB allowing us to borrow up to 35% of the Bank’s total assets equating to a credit line of $6.41 billion, of which $4.97 billion remained available for borrowing, based on collateral pledged of $7.29 billion at market value in qualifying loans, and no FHLB borrowings outstanding. We also had a $3.46 billion line with the FRB discount window secured by investment securities and unsecured lines of credit aggregating to $390.0 million with other correspondent banks from which to purchase federal funds. Our unused borrowing capacity was $8.83 billion, and the combined readily available liquidity with cash and cash equivalents of $982.2 million, interest-bearing time deposits with financial institutions of $1.2 million, as well as short-term, unpledged, AFS U.S. Treasury securities of $148.7 million, totaled approximately $9.96 billion, with a coverage ratio of 202.0% to uninsured and uncollateralized deposits.

We believe our level of liquid assets is sufficient to meet current anticipated funding needs. As part of our daily monitoring, we calculate a liquidity ratio by dividing the sum of cash balances plus unpledged AFS securities by total deposits, excluding time deposits maturing one year or more, plus FHLB advances maturing within one year. As of September 30, 2024, our liquidity ratio was 16.0%, which is above the Company’s minimum policy requirement of 10.0%. The Company regularly monitors liquidity, models liquidity stress scenarios to ensure that adequate liquidity is available, and has contingency funding plans in place, which are reviewed and tested on a regular, recurring basis.

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A substantial portion of our loans are funded by our deposits. The Bank’s participation in IntraFi’s CDARS and ICS programs provides our depositors with full deposit insurance coverage of excess balances, while the Bank receives reciprocal deposits from other FDIC-insured banks, and helps enhance the Bank’s funding stability by retaining the full amount of the deposits on our balance sheet. To the extent that our deposit growth is not sufficient to satisfy our ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, or make investments, we may access funds through our FHLB borrowing arrangement, FRB discount window, unsecured lines of credit, or other sources.

The Bank maintains liquidity guidelines in the Company’s Liquidity Policy that permits the purchase of brokered deposit funds, in an amount not to exceed 15% of total deposits or 12% of total assets, as a secondary source for funding. At September 30, 2024, we had $300.0 million in brokered deposits, which constituted 2.07% of total deposits and 1.68% of total assets at that date.

The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation’s primary sources of liquidity are dividends from the Bank. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Corporation. Management believes that such restrictions will not have a material impact on the ability of the Corporation to meet its ongoing cash obligations. During the nine months ended September 30, 2024, the Bank paid $155.3 million in dividends to the Corporation.

The Corporation maintains a line of credit of $25.0 million with U.S. Bank that will expire on September 24, 2025. The Corporation anticipates renewing the line of credit upon expiration. This line of credit provides an additional source of liquidity at the Corporation level. At September 30, 2024, the Corporation had no outstanding balances against this line.

During each of the first three quarters of 2024, the Corporation declared a quarterly dividend payment of $0.33 per share. On October 22, 2024, the Company's Board of Directors declared a $0.33 per share dividend, payable on November 12, 2024 to stockholders of record as of November 4, 2024. The Corporation’s Board of Directors periodically reviews whether to declare or pay cash dividends, taking into account, among other things, general business conditions, the Company’s financial results, future prospects, capital requirements, legal and regulatory restrictions, and such other factors as the Corporation’s Board of Directors may deem relevant.

On January 11, 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock, representing approximately 5% of the Company’s issued and outstanding shares of common stock and approximately $150 million of common stock as of December 31, 2020 based on the closing price of the Company’s common stock on December 31, 2020. During the nine months ended September 30, 2024, the Company did not repurchase any shares of common stock. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

Material Cash Requirement

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

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


	September 30, 2024
(Dollars in thousands)	Less than 1 year		More than 1 year		Total


Subordinated debentures	$	—	$	272,320	$	272,320
Certificates of deposit	2,111,860		161,121		2,272,981
Operating leases	15,393		52,219		67,612
Affordable housing partnerships commitment	14,696		18,699		33,395
Total contractual cash obligations	$	2,141,949	$	504,359	$	2,646,308

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

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


	September 30, 2024
(Dollars in thousands)	Less than 1 year		More than 1 year		Total
Loan commitments to extend credit	$	907,258	$	426,905	$	1,334,163
Standby letters of credit	43,027		—		43,027
Total	$	950,285	$	426,905	$	1,377,190

Since many commitments to extend credit are expected to expire, the total commitment amounts do not necessarily represent future cash requirements. For further information, see Note 15 - Off-Balance Sheet Arrangements, Commitments, and Contingencies to the Notes to the audited consolidated financial statements in the Company’s 2023 Form 10-K.

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Regulatory Capital Compliance

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

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

Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III,” implemented a requirement for all banking organizations to maintain a capital conservation buffer of 2.5% above the minimum risk-based capital requirements, which fully phased in by January 1, 2019. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. At September 30, 2024, the Company and Bank are in compliance with the capital conservation buffer requirement and exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of the fully phased-in capital conservation buffer, of 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as “well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations. The regulatory capital ratios of the Company and Bank further strengthened at September 30, 2024 compared to the capital ratios at December 31, 2023.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of the CECL accounting standard. Additionally, in March 2020, the U.S. Federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years. The cumulative difference at the end of the second year of the transition period is then phased into regulatory capital at 25% per year over a three-year transition period. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. This cumulative difference at the end of 2021 will be phased in regulatory capital over the three-year period from January 1, 2022 through December 31, 2024.

For regulatory capital purposes, the Corporation’s subordinated debt is included in Tier 2 capital, the eligible amount of which is phased out by 20% of the original amount at the beginning of each of the last five years before maturity. See Note 8 – Subordinated Debentures to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

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


	Actual	Minimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation Buffer	Minimum Required For Well Capitalized Requirement
September 30, 2024
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	12.19%	4.00%	N/A
Common equity tier 1 capital ratio	16.83%	7.00%	N/A
Tier 1 capital ratio	16.83%	8.50%	N/A
Total capital ratio	20.05%	10.50%	N/A

Pacific Premier Bank
Tier 1 leverage ratio	13.45%	4.00%	5.00%
Common equity tier 1 capital ratio	18.56%	7.00%	6.50%
Tier 1 capital ratio	18.56%	8.50%	8.00%
Total capital ratio	19.81%	10.50%	10.00%


December 31, 2023
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio	11.03%	4.00%	N/A
Common equity tier 1 capital ratio	14.32%	7.00%	N/A
Tier 1 capital ratio	14.32%	8.50%	N/A
Total capital ratio	17.29%	10.50%	N/A

Pacific Premier Bank
Tier 1 leverage ratio	12.43%	4.00%	5.00%
Common equity tier 1 capital ratio	16.13%	7.00%	6.50%
Tier 1 capital ratio	16.13%	8.50%	8.00%
Total capital ratio	17.23%	10.50%	10.00%

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

Asset/Liability Management and Market Risk

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

Interest Rate Risk Management

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

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

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

106

The following table shows the projected NII and net interest margin of the Company at September 30, 2024 and December 31, 2023, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


September 30, 2024
(Dollars in thousands)
	Earnings at Risk			Projected Net Interest Margin
Change in Rates (Basis Points)	$ Amount	$ Change	% Change	Rate %
300	552,946	30,608	5.9	3.42
200	545,048	22,710	4.3	3.37
100	534,313	11,974	2.3	3.31
Static	522,339	—	—	3.23
-100	505,659	(16,680)	(3.2)	3.13
-200	485,076	(37,262)	(7.1)	3.00
-300	465,771	(56,568)	(10.8)	2.88


December 31, 2023
(Dollars in thousands)
	Earnings at Risk			Projected Net Interest Margin
Change in Rates (Basis Points)	$ Amount	$ Change	% Change	Rate %
300	667,387	40,063	6.4	3.69
200	656,958	29,634	4.7	3.63
100	643,837	16,513	2.6	3.56
Static	627,324	—	—	3.47
-100	601,798	(25,526)	(4.1)	3.33
-200	569,355	(57,969)	(9.2)	3.15
-300	534,151	(93,173)	(14.9)	2.95

The following table shows the EVE and projected change in the EVE of the Company at September 30, 2024 and December 31, 2023, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:


September 30, 2024
(Dollars in thousands)
	Economic Value of Equity			EVE as % of market value of portfolio assets
Change in Rates (Basis Points)	$ Amount	$ Change	% Change	EVE Ratio
300	3,045,139	(255,991)	(7.8)	20.10
200	3,193,225	(107,905)	(3.3)	20.54
100	3,284,230	(16,899)	(0.5)	20.60
Static	3,301,130	—	—	20.20
-100	3,186,479	(114,651)	(3.5)	19.02
-200	2,967,970	(333,160)	(10.1)	17.31
-300	2,663,402	(637,727)	(19.3)	15.19

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December 31, 2023
(Dollars in thousands)
	Economic Value of Equity			EVE as % of market value of portfolio assets
Change in Rates (Basis Points)	$ Amount	$ Change	% Change	EVE Ratio
300	2,918,718	(236,315)	(7.5)	17.70
200	3,073,927	(81,106)	(2.6)	18.11
100	3,155,901	868	—	18.05
Static	3,155,033	—	—	17.51
-100	3,022,479	(132,554)	(4.2)	16.28
-200	2,785,592	(369,441)	(11.7)	14.57
-300	2,445,055	(709,978)	(22.5)	12.42

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

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The section titled Risk Factors in Part I, Item 1A of our 2023 Form 10-K included a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), prospects, or the value of or return on an investment in the Company. There are no material changes to our risk factors as previously described under Item 1A of our 2023 Form 10-K.

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

On January 11, 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock. The stock repurchase program may be limited or terminated at any time without notice. During the third quarter of 2024, the Company did not repurchase any shares of common stock.

The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the third quarter of 2024.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2024 to July 31, 2024	—	$	—	—	4,245,056
August 1, 2024 to August 31, 2024	—	—		—	4,245,056
September 1, 2024 to September 30, 2024	—	—		—	4,245,056
Total	—			—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Rule 10b5-1 Trading Plans

During the quarter ended September 30, 2024, no officer or director of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the Company’s common stock that is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 CFR § 229.408(c).

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Item 6. Exhibits


Exhibit 3.1						Second Amended and Restated Certificate of Incorporation of Pacific Premier Bancorp, Inc. (1)
Exhibit 3.2						Amended and Restated Bylaws of Pacific Premier Bancorp, Inc. (1)
Exhibit 4.1						Specimen Stock Certificate of Pacific Premier Bancorp, Inc. (2)
Exhibit 4.2						Long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the SEC upon request.
Exhibit 31.1						Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended
Exhibit 31.2						Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended
Exhibit 32						Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Exhibit 101.SCH						Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF						Inline XBRL Taxonomy Extension Definitions Linkbase Document
Exhibit 101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104						The cover page of Pacific Premier Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL (contained in Exhibit 101)


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

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SIGNATURES

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


		PACIFIC PREMIER BANCORP, INC.,

Date:	October 29, 2024	By:	/s/ Steven R. Gardner
			Steven R. Gardner
			Chairman, Chief Executive Officer, and President
			(Principal Executive Officer)

Date:	October 29, 2024	By:	/s/ Ronald J. Nicolas, Jr.
			Ronald J. Nicolas, Jr.
			Senior Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

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Pacific Premier Bancorp (PPBI) 10-Q2024 Q3 Quarterly report

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