UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~June~~September 30, 2022


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

For the transition period from to

Commission file number 001-35522

BANC OF CALIFORNIA, INC.

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of

incorporation or organization)

04-3639825

(IRS Employer Identification No.)

3 MacArthur Place, Santa Ana, California

(Address of principal executive offices)

92707

(Zip Code)

(855) 361-2262

(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 (Section 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 Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒

Table of ~~Contents~~Contents

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BANC

New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of ~~August~~November 4, 2022,, the registrant had outstanding ~~59,502,549~~59,681,760 shares of voting common stock and 477,321 shares of Class B non-voting common stock.

Table of ~~Contents~~Contents

BANC OF CALIFORNIA, INC.

FORM 10-Q QUARTERLY REPORT

~~June~~September 30, 2022

Table of Contents


		Page

Part I – Financial Information		4

Item 1 –	Financial Statements	4

	Consolidated Statements of Financial Condition	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Stockholders' Equity	7
	Consolidated Statements of Cash Flows	9
	Notes to Consolidated Financial Statements	10

Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4648

Item 3 –	Quantitative and Qualitative Disclosures About Market Risk	7879

Item 4 –	Controls and Procedures	8182

Part II – Other Information		8283

Item 1 –	Legal Proceedings	8283

Item 1A –	Risk Factors	8283

Item 2 –	Unregistered Sales of Equity Securities and Use of Proceeds	8283

Item 3 –	Defaults Upon Senior Securities	8283

Item 4 –	Mine Safety Disclosures	8283

Item 5 –	Other Information	8283

Item 6 –	Exhibits	8384

Signatures		8485

Table of ~~Contents~~Contents

Forward-Looking Statements -

When used in this report and in documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the “Safe-Harbor” provisions of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements. These statements may relate to future financial performance, strategic plans or objectives, revenue, expense or earnings projections, or other financial items of Banc of California, Inc. and its affiliates (“BANC,” the “Company”, “we”, “us” or “our”). By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following:

i.the continuing effects of the COVID-19 pandemic and steps taken by governmental and other authorities to contain, mitigate and combat the pandemic on our business, operations, financial performance and prospects;

ii.the costs and effects of litigation, including legal fees and other expenses, settlements and judgments;

iii.the risk that we will not be successful in the implementation of our capital utilization strategy, new lines of business, new products and services, or other strategic initiatives;

iv.risks that the Company’s merger and acquisition transactions may disrupt current plans and operations and lead to difficulties in customer and employee retention, risks that the costs, fees, expenses and charges related to these transactions could be significantly higher than anticipated and risks that the expected revenues, cost savings, synergies, and other benefits of these transactions might not be realized to the extent anticipated, within the anticipated timetables, or at ~~all;~~all and, in the case of our recent acquisition of Deepstack Technologies, LLC ("Deepstack"), reputational risk, regulatory risk and potential adverse reactions of the Company's or Deepstack's customers, supplier, vendors, employees or other business partners;

v.the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, and the operational risk of lending activities, including but not limited to, the effectiveness of our underwriting practices and the risk of fraud, any of which may lead to increased loan delinquencies, losses, and nonperforming assets in our loan portfolio, and may result in our allowance for credit losses not being adequate and require us to materially increase our credit loss reserves;

vi.the quality and composition of our securities portfolio;

vii.changes in general economic conditions, either nationally or in our market areas, including any impact of supply chain disruptions, or changes in financial markets, and the risk of recession;

viii.changes in the interest rate environment and levels of general interest rates, including the recent and anticipated increases by the FRB in its benchmark rate, the impacts of inflation, the relative differences between short- and long-term interest rates, deposit interest rates, and their impact on our net interest margin, tangible book value, and the cost of funding sources;

ix.fluctuations in the demand for loans, and fluctuations in commercial and residential real estate values in our market area;

x.our ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund our activities;

xi.results of examinations by regulatory authorities of the Company and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, restrict our ability to invest in certain assets, increase our allowance for credit losses, result in write-downs of asset values, increase our capital levels, affect our ability to borrow funds or maintain or increase deposits, or impose fines, penalties or sanctions, any of which could adversely affect our liquidity and earnings;

xii.legislative or regulatory changes that adversely affect our business, including, without limitation, changes in tax laws and policies, changes in privacy laws, and changes in regulatory capital or other rules, and the availability of resources to address or respond to such changes;

xiii.our ability to control operating costs and expenses;

xiv.staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;

xv.the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses;

xvi.errors in estimates of the fair values of certain of our assets and liabilities, which may result in significant changes in valuation;

xvii.uncertainty regarding the expected discontinuation of the London Interbank Offered Rate (“LIBOR”) and the use of alternative reference rates;

xviii.failures or security breaches with respect to the network, applications, vendors and computer systems on which we depend, including but not limited to, due to cybersecurity threats;

xix.our ability to attract and retain key members of our senior management team;

xx.increased competitive pressures among financial services companies;

xxi.changes in consumer spending, borrowing and saving habits;

xxii.the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business;

xxiii.the ability of key third-party providers to perform their obligations to us;

xxiv.changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board or their application to our business, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting standards;

xxv.continuing impact of the Financial Accounting Standards Board’s credit loss accounting standard, referred to as Current Expected Credit Loss, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and provide for the expected credit losses as allowances for loan losses;

xxvi.share price volatility and reputational risks, related to, among other things, speculative trading and certain traders shorting our common stock and attempting to generate negative publicity about us;

xxvii.our ability to obtain regulatory approvals or non-objection to take various capital actions, including the payment of dividends by us or our bank subsidiary, or repurchases of our common stock; and

xxviii.other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this report and from time to time in other documents that we file with or furnish to the SEC, including, without limitation, the risks described under “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Table of ~~Contents~~Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except share and per share data)

(Unaudited)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	43,736	$	41,729	Cash and due from banks	$	69,358	$	41,729
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	199,328		186,394		Interest-earning deposits in financial institutions	186,700		186,394
Total cash and cash equivalents	Total cash and cash equivalents	243,064		228,123		Total cash and cash equivalents	256,058		228,123

Securities held-to-maturity, at amortized cost (fair value of $285,672 at June 30, 2022)		329,272		—
Securities held-to-maturity, at amortized cost (fair value of $263,352 at September 30, 2022)						Securities held-to-maturity, at amortized cost (fair value of $263,352 at September 30, 2022)	328,757		—
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value	865,435		1,315,703		Securities available-for-sale, at fair value	847,565		1,315,703

Loans receivable	Loans receivable	7,451,264		7,251,480		Loans receivable	7,289,320		7,251,480
Allowance for loan losses	Allowance for loan losses	(93,793)		(92,584)		Allowance for loan losses	(92,444)		(92,584)
Loans receivable, net	Loans receivable, net	7,357,471		7,158,896		Loans receivable, net	7,196,876		7,158,896
Federal Home Loan Bank and other bank stock, at cost	Federal Home Loan Bank and other bank stock, at cost	51,489		44,632		Federal Home Loan Bank and other bank stock, at cost	54,428		44,632

Premises and equipment, net	Premises and equipment, net	108,523		112,868		Premises and equipment, net	107,728		112,868
Bank owned life insurance	Bank owned life insurance	125,326		123,720		Bank owned life insurance	126,199		123,720
Operating lease right-of-use assets	Operating lease right-of-use assets	32,632		35,442		Operating lease right-of-use assets	30,321		35,442
Investments in alternative energy partnerships, net	Investments in alternative energy partnerships, net	23,531		25,888		Investments in alternative energy partnerships, net	22,401		25,888
Deferred income taxes, net	Deferred income taxes, net	54,455		50,774		Deferred income taxes, net	56,376		50,774
Income tax receivable	Income tax receivable	4,563		7,952		Income tax receivable	3,430		7,952
Goodwill	Goodwill	95,127		94,301		Goodwill	114,312		94,301
Other intangible assets, net		4,677		6,411
Other intangibles						Other intangibles	8,081		6,411

Other assets	Other assets	206,548		189,033		Other assets	216,046		189,033
Total assets	Total assets	$	9,502,113	$	9,393,743	Total assets	$	9,368,578	$	9,393,743
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing deposits	Noninterest-bearing deposits	$	2,826,599	$	2,788,196	Noninterest-bearing deposits	$	2,943,585	$	2,788,196
Interest-bearing deposits	Interest-bearing deposits	4,732,084		4,651,239		Interest-bearing deposits	4,336,800		4,651,239
Total deposits	Total deposits	7,558,683		7,439,435		Total deposits	7,280,385		7,439,435
Federal Home Loan Bank advances, net	Federal Home Loan Bank advances, net	511,695		476,059		Federal Home Loan Bank advances, net	727,021		476,059

Other borrowings	Other borrowings	98,000		25,000		Other borrowings	10,000		25,000
Long-term debt, net	Long-term debt, net	274,587		274,386		Long-term debt, net	274,746		274,386
Reserve for loss on repurchased loans	Reserve for loss on repurchased loans	3,222		4,348		Reserve for loss on repurchased loans	3,006		4,348

Operating lease liabilities	Operating lease liabilities	37,500		40,675		Operating lease liabilities	34,937		40,675

Accrued expenses and other liabilities	Accrued expenses and other liabilities	69,296		68,550		Accrued expenses and other liabilities	86,493		68,550
Total liabilities	Total liabilities	8,552,983		8,328,453		Total liabilities	8,416,588		8,328,453
Commitments and contingent liabilities	Commitments and contingent liabilities	0		0		Commitments and contingent liabilities
Preferred stock	Preferred stock	—		94,956		Preferred stock	—		94,956
Common stock, $0.01 par value per share, 446,863,844 shares authorized; 64,725,426 shares issued and 59,985,736 shares outstanding at June 30, 2022; 64,599,170 shares issued and 62,188,206 shares outstanding at December 31, 2021		647		646
Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 477,321 shares issued and outstanding at June 30, 2022 and at December 31, 2021		5		5
Common stock, $0.01 par value per share, 446,863,844 shares authorized; 65,159,580 shares issued and 59,679,558 shares outstanding at September 30, 2022; 64,599,170 shares issued and 62,188,206 shares outstanding at December 31, 2021						Common stock, $0.01 par value per share, 446,863,844 shares authorized; 65,159,580 shares issued and 59,679,558 shares outstanding at September 30, 2022; 64,599,170 shares issued and 62,188,206 shares outstanding at December 31, 2021	652		646
Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 477,321 shares issued and outstanding at September 30, 2022 and December 31, 2021						Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 477,321 shares issued and outstanding at September 30, 2022 and December 31, 2021	5		5
Additional paid-in capital	Additional paid-in capital	856,079		854,873		Additional paid-in capital	864,806		854,873
Retained earnings	Retained earnings	210,471		147,894		Retained earnings	231,084		147,894
Treasury stock, at cost (4,739,690 and 2,410,964 shares at June 30, 2022 and December 31, 2021)		(84,013)		(40,827)
Treasury stock, at cost (5,480,022 and 2,410,964 shares at September 30, 2022 and December 31, 2021)						Treasury stock, at cost (5,480,022 and 2,410,964 shares at September 30, 2022 and December 31, 2021)	(96,978)		(40,827)
Accumulated other comprehensive (loss) income, net	Accumulated other comprehensive (loss) income, net	(34,059)		7,743		Accumulated other comprehensive (loss) income, net	(47,579)		7,743
Total stockholders’ equity	Total stockholders’ equity	949,130		1,065,290		Total stockholders’ equity	951,990		1,065,290
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	9,502,113	$	9,393,743	Total liabilities and stockholders’ equity	$	9,368,578	$	9,393,743

See accompanying notes to consolidated financial statements (unaudited)

Table of ~~Contents~~Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)


		Three Months Ended						Six Months Ended June 30,					Three Months Ended						Nine Months Ended September 30,
		June 30, 2022		March 31, 2022		June 30, 2021		2022		2021			September 30, 2022		June 30, 2022		September 30, 2021		2022		2021
Interest and dividend income	Interest and dividend income											Interest and dividend income
Loans, including fees	Loans, including fees	$	78,895	$	76,234	$	61,900	$	155,129	$	123,245	Loans, including fees	$	83,699	$	78,895	$	63,837	$	238,828	$	187,082
Securities	Securities	8,124		7,309		6,986		15,433		13,487		Securities	10,189		8,124		7,167		25,622		20,654
Other interest-earning assets	Other interest-earning assets	1,399		726		791		2,125		1,563		Other interest-earning assets	2,085		1,399		787		4,210		2,350
Total interest and dividend income	Total interest and dividend income	88,418		84,269		69,677		172,687		138,295		Total interest and dividend income	95,973		88,418		71,791		268,660		210,086
Interest expense	Interest expense											Interest expense
Deposits	Deposits	3,180		1,388		3,543		4,568		7,829		Deposits	8,987		3,180		2,412		13,555		10,241
Federal Home Loan Bank advances	Federal Home Loan Bank advances	3,114		2,953		2,944		6,067		6,056		Federal Home Loan Bank advances	3,558		3,114		2,990		9,625		9,046

Long-term debt and other interest-bearing liabilities	Long-term debt and other interest-bearing liabilities	3,825		3,487		3,343		7,312		6,647		Long-term debt and other interest-bearing liabilities	4,020		3,825		3,413		11,332		10,060
Total interest expense	Total interest expense	10,119		7,828		9,830		17,947		20,532		Total interest expense	16,565		10,119		8,815		34,512		29,347
Net interest income	Net interest income	78,299		76,441		59,847		154,740		117,763		Net interest income	79,408		78,299		62,976		234,148		180,739
(Reversal of) provision for credit losses	(Reversal of) provision for credit losses	—		(31,542)		(2,154)		(31,542)		(3,261)		(Reversal of) provision for credit losses	—		—		(1,147)		(31,542)		(4,408)
Net interest income after (reversal of) provision for credit losses	Net interest income after (reversal of) provision for credit losses	78,299		107,983		62,001		186,282		121,024		Net interest income after (reversal of) provision for credit losses	79,408		78,299		64,123		265,690		185,147
Noninterest income	Noninterest income											Noninterest income
Customer service fees	Customer service fees	2,578		2,434		1,990		5,012		3,748		Customer service fees	2,462		2,578		1,900		7,474		5,648
Loan servicing income	Loan servicing income	109		212		38		321		306		Loan servicing income	636		109		170		957		476

Income from bank owned life insurance	Income from bank owned life insurance	810		796		690		1,606		1,362		Income from bank owned life insurance	873		810		715		2,479		2,077

Net gain on sale of securities available-for-sale	Net gain on sale of securities available-for-sale	—		16		—		16		—		Net gain on sale of securities available-for-sale	—		—		—		16		—

Other income	Other income	3,689		2,452		725		6,141		2,836		Other income	1,710		3,689		2,734		7,851		5,570
Total noninterest income	Total noninterest income	7,186		5,910		3,443		13,096		8,252		Total noninterest income	5,681		7,186		5,519		18,777		13,771
Noninterest expense	Noninterest expense											Noninterest expense
Salaries and employee benefits	Salaries and employee benefits	28,264		28,987		25,042		57,251		50,761		Salaries and employee benefits	27,997		28,264		24,786		85,248		75,547

Occupancy and equipment	Occupancy and equipment	7,876		7,855		7,277		15,731		14,473		Occupancy and equipment	8,649		7,876		7,124		24,380		21,597
Professional fees	Professional fees	4,107		2,907		1,749		7,014		5,771		Professional fees	4,507		4,107		892		11,521		6,663

Data processing	Data processing	1,782		1,828		1,621		3,610		3,276		Data processing	1,699		1,782		1,646		5,309		4,922

Regulatory assessments	Regulatory assessments	1,021		775		769		1,796		1,543		Regulatory assessments	925		1,021		812		2,721		2,355
Loss (gain) on investments in alternative energy partnerships	Loss (gain) on investments in alternative energy partnerships	1,043		158		(829)		1,201		2,801		Loss (gain) on investments in alternative energy partnerships	504		1,043		(1,785)		1,705		1,016
Reversal of provision for loan repurchases		(490)		(471)		(99)		(961)		(231)
Amortization of intangible assets		313		441		282		754		564
(Reversal of) provision for loss on repurchased loans												(Reversal of) provision for loss on repurchased loans	(26)		(490)		(42)		(987)		(273)
Amortization of other intangibles												Amortization of other intangibles	396		313		282		1,150		846

Merger-related costs		—		—		700		—		1,400
Acquisition, integration and transaction costs												Acquisition, integration and transaction costs	2,080		—		1,000		2,080		2,400

All other expense		4,696		4,116		3,320		8,812		6,637
Other expense												Other expense	4,231		4,696		3,096		13,043		9,733
Total noninterest expense	Total noninterest expense	48,612		46,596		39,832		95,208		86,995		Total noninterest expense	50,962		48,612		37,811		146,170		124,806
Income from operations before income taxes	Income from operations before income taxes	36,873		67,297		25,612		104,170		42,281		Income from operations before income taxes	34,127		36,873		31,831		138,297		74,112
Income tax expense	Income tax expense	10,161		18,785		6,562		28,946		8,856		Income tax expense	9,931		10,161		8,661		38,877		17,517

Net income	Net income	26,712		48,512		19,050		75,224		33,425		Net income	24,196		26,712		23,170		99,420		56,595
Preferred stock dividends	Preferred stock dividends	—		1,420		1,727		1,420		4,868		Preferred stock dividends	—		—		1,727		1,420		6,595
Income allocated to participating securities	Income allocated to participating securities	—		—		—		—		122		Income allocated to participating securities	—		—		—		—		160

Impact of preferred stock redemption	Impact of preferred stock redemption	—		3,747		—		3,747		3,347		Impact of preferred stock redemption	—		—		—		3,747		3,347
Net income available to common stockholders	Net income available to common stockholders	$	26,712	$	43,345	$	17,323	$	70,057	$	25,088	Net income available to common stockholders	$	24,196	$	26,712	$	21,443	$	94,253	$	46,493
Earnings per common share:	Earnings per common share:											Earnings per common share:

Basic	Basic	$	0.44	$	0.69	$	0.34	$	1.13	$	0.50	Basic	$	0.40	$	0.44	$	0.42	$	1.54	$	0.92

Diluted	Diluted	$	0.43	$	0.69	$	0.34	$	1.13	$	0.49	Diluted	$	0.40	$	0.43	$	0.42	$	1.53	$	0.91
Earnings per class B common share:	Earnings per class B common share:											Earnings per class B common share:

Basic	Basic	$	0.44	$	0.69	$	0.34	$	1.13	$	0.50	Basic	$	0.40	$	0.44	$	0.42	$	1.54	$	0.92

Diluted	Diluted	$	0.44	$	0.69	$	0.34	$	1.13	$	0.50	Diluted	$	0.40	$	0.44	$	0.42	$	1.54	$	0.92

See accompanying notes to consolidated financial statements (unaudited)

Table of ~~Contents~~Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)


		Three Months Ended						Six Months Ended June 30,					Three Months Ended						Nine Months Ended September 30,
		June 30, 2022		March 31, 2022		June 30, 2021		2022		2021			September 30, 2022		June 30, 2022		September 30, 2021		2022		2021
Net income	Net income	$	26,712	$	48,512	$	19,050	$	75,224	$	33,425	Net income	$	24,196	$	26,712	$	23,170	$	99,420	$	56,595
Other comprehensive (loss)/income, net of tax:
Other comprehensive (loss) income, net of tax:												Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities:	Unrealized (loss) gain on available-for-sale securities:											Unrealized (loss) gain on available-for-sale securities:
Unrealized (loss) gain arising during the period	Unrealized (loss) gain arising during the period	(15,113)		(26,913)		9,555		(42,026)		6,994		Unrealized (loss) gain arising during the period	(13,715)		(15,113)		(3,792)		(55,741)		3,202

Reclassification adjustment for gain included in net income	Reclassification adjustment for gain included in net income	—		(11)		—		(11)		—		Reclassification adjustment for gain included in net income	—		—		—		(11)		—
Total change in unrealized (loss) gain on available-for-sale securities	Total change in unrealized (loss) gain on available-for-sale securities	(15,113)		(26,924)		9,555		(42,037)		6,994		Total change in unrealized (loss) gain on available-for-sale securities	(13,715)		(15,113)		(3,792)		(55,752)		3,202

Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	226		9		—		235		—		Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	195		226		—		430		—
Total other comprehensive (loss)/income		(14,887)		(26,915)		9,555		(41,802)		6,994
Total other comprehensive (loss) income												Total other comprehensive (loss) income	(13,520)		(14,887)		(3,792)		(55,322)		3,202
Comprehensive income	Comprehensive income	$	11,825	$	21,597	$	28,605	$	33,422	$	40,419	Comprehensive income	$	10,676	$	11,825	$	19,378	$	44,098	$	59,797

See accompanying notes to consolidated financial statements (unaudited)

Table of ~~Contents~~Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share and per share data)

(Unaudited)


		Preferred Stock			Common Stock					Additional Paid-in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity			Preferred Stock		Common Stock				Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
				Voting			Class B Non-Voting									Voting					Class B Non-Voting
Three Months Ended June 30, 2022
Balance at March 31, 2022		$	—		$	646		$	5	$	855,198	$	187,457	$	(45,125)		$	(19,172)	$	979,009
Three Months Ended September 30, 2022																					Three Months Ended September 30, 2022
Balance at June 30, 2022																					Balance at June 30, 2022	$	—	$	647	$	5	$	856,079	$	210,471	$	(84,013)	$	(34,059)	$	949,130

Comprehensive income:	Comprehensive income:																				Comprehensive income:
Net income	Net income	—			—			—		—		26,712		—			—		26,712		Net income	—		—		—		—		24,196		—		—		24,196
Other comprehensive loss, net	Other comprehensive loss, net	—			—			—		—		—		—			(14,887)		(14,887)		Other comprehensive loss, net	—		—		—		—		—		—		(13,520)		(13,520)
Issuance of common stock	Issuance of common stock	—			1			—		(1)		—		—			—		—		Issuance of common stock	—		5		—		7,195		—		—		—		7,200

Purchase of 2,113,176 shares of treasury stock		—			—			—		—		—		(38,888)			—		(38,888)
Purchase of 740,332 shares of treasury stock																					Purchase of 740,332 shares of treasury stock	—		—		—		—		—		(12,965)		—		(12,965)

Share-based compensation expense	Share-based compensation expense	—			—			—		1,482		—		—			—		1,482		Share-based compensation expense	—		—		—		1,715		—		—		—		1,715

Restricted stock surrendered due to employee tax liability	Restricted stock surrendered due to employee tax liability	—			—			—		(600)		—		—			—		(600)		Restricted stock surrendered due to employee tax liability	—		—		—		(183)		—		—		—		(183)

Shares purchased under the Dividend Reinvestment Plan	Shares purchased under the Dividend Reinvestment Plan	—			—			—		—		(30)		—			—		(30)		Shares purchased under the Dividend Reinvestment Plan	—		—		—		—		(20)		—		—		(20)

Dividends declared ($0.06 per common share)	Dividends declared ($0.06 per common share)	—			—			—		—		(3,668)		—			—		(3,668)		Dividends declared ($0.06 per common share)	—		—		—		—		(3,563)		—		—		(3,563)
Preferred stock dividends	Preferred stock dividends	—			—			—		—		—		—			—		—		Preferred stock dividends	—		—		—		—		—		—		—		—
Balance at June 30, 2022		$	—		$	647		$	5	$	856,079	$	210,471	$	(84,013)		$	(34,059)	$	949,130
Balance at September 30, 2022																					Balance at September 30, 2022	$	—	$	652	$	5	$	864,806	$	231,084	$	(96,978)	$	(47,579)	$	951,990

Three Months Ended June 30, 2021
Balance at March 31, 2021		$	94,956		$	526		$	5	$	629,844	$	115,004	$	(40,827)		$	5,185	$	804,693
Three Months Ended September 30, 2021																					Three Months Ended September 30, 2021
Balance at June 30, 2021																					Balance at June 30, 2021	$	94,956	$	527	$	5	$	630,654	$	129,307	$	(40,827)	$	14,740	$	829,362

Comprehensive income:	Comprehensive income:																				Comprehensive income:
Net income	Net income	—			—			—		—		19,050		—			—		19,050		Net income	—		—		—		—		23,170		—		—		23,170
Other comprehensive gain, net		—			—			—		—		—		—			9,555		9,555
Other comprehensive loss, net																					Other comprehensive loss, net	—		—		—		—		—		—		(3,792)		(3,792)
Issuance of common stock	Issuance of common stock	—			1			—		(1)		—		—			—		—		Issuance of common stock	—		—		—		—		—		—		—		—

Share-based compensation expense	Share-based compensation expense	—			—			—		1,338		—		—			—		1,338		Share-based compensation expense	—		—		—		1,106		—		—		—		1,106
Restricted stock surrendered due to employee tax liability	Restricted stock surrendered due to employee tax liability	—			—			—		(527)		—		—			—		(527)		Restricted stock surrendered due to employee tax liability	—		—		—		(278)		—		—		—		(278)

Shares purchased under the Dividend Reinvestment Plan	Shares purchased under the Dividend Reinvestment Plan	—			—			—		—		(30)		—			—		(30)		Shares purchased under the Dividend Reinvestment Plan	—		—		—		30		(30)		—		—		—

Dividends declared ($0.06 per common share)	Dividends declared ($0.06 per common share)	—			—			—		—		(2,990)		—			—		(2,990)		Dividends declared ($0.06 per common share)	—		—		—		—		(3,038)		—		—		(3,038)
Preferred stock dividends	Preferred stock dividends	—			—			—		—		(1,727)		—			—		(1,727)		Preferred stock dividends	—		—		—		—		(1,727)		—		—		(1,727)
Balance at June 30, 2021		$	94,956		$	527		$	5	$	630,654	$	129,307	$	(40,827)		$	14,740	$	829,362
Balance at September 30, 2021																					Balance at September 30, 2021	$	94,956	$	527	$	5	$	631,512	$	147,682	$	(40,827)	$	10,948	$	844,803

See accompanying notes to consolidated financial statements (unaudited)

Table of ~~Contents~~Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY, continued

(Amounts in thousands)

(Unaudited)


		Preferred Stock			Common Stock					Additional Paid-in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity			Preferred Stock		Common Stock				Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
				Voting			Class B Non-Voting									Voting					Class B Non-Voting
Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022																					Nine Months Ended September 30, 2022
Balance at December 31, 2021	Balance at December 31, 2021	$	94,956		$	646		$	5	$	854,873	$	147,894	$	(40,827)		$	7,743	$	1,065,290	Balance at December 31, 2021	$	94,956	$	646	$	5	$	854,873	$	147,894	$	(40,827)	$	7,743	$	1,065,290

Comprehensive income:	Comprehensive income:																				Comprehensive income:
Net income	Net income	—			—			—		—		75,224		—			—		75,224		Net income	—		—		—		—		99,420		—		—		99,420
Other comprehensive loss, net	Other comprehensive loss, net	—			—			—		—		—		—			(41,802)		(41,802)		Other comprehensive loss, net	—		—		—		—		—		—		(55,322)		(55,322)
Issuance of common stock	Issuance of common stock	—			1			—		(1)		—		—			—		—		Issuance of common stock	—		6		—		7,194		—		—		—		7,200

Redemption of preferred stock	Redemption of preferred stock	(94,956)			—			—		—		(3,747)		—			—		(98,703)		Redemption of preferred stock	(94,956)		—		—		—		(3,747)		—		—		(98,703)

Purchase of 2,328,726 shares of treasury stock		—			—			—		—		—		(43,186)			—		(43,186)
Purchase of 3,069,058 shares of treasury stock																					Purchase of 3,069,058 shares of treasury stock	—		—		—		—		—		(56,151)		—		(56,151)

Share-based compensation expense	Share-based compensation expense	—			—			—		2,767		—		—			—		2,767		Share-based compensation expense	—		—		—		4,482		—		—		—		4,482

Restricted stock surrendered due to employee tax liability	Restricted stock surrendered due to employee tax liability	—			—			—		(1,560)		—		—			—		(1,560)		Restricted stock surrendered due to employee tax liability	—		—		—		(1,743)		—		—		—		(1,743)

Shares purchased under the Dividend Reinvestment Plan	Shares purchased under the Dividend Reinvestment Plan	—			—			—		—		(60)		—			—		(60)		Shares purchased under the Dividend Reinvestment Plan	—		—		—		—		(80)		—		—		(80)

Dividends declared ($0.12 per common share)		—			—			—		—		(7,420)		—			—		(7,420)
Dividends declared ($0.18 per common share)																					Dividends declared ($0.18 per common share)	—		—		—		—		(10,983)		—		—		(10,983)
Preferred stock dividends	Preferred stock dividends	—			—			—		—		(1,420)		—			—		(1,420)		Preferred stock dividends	—		—		—		—		(1,420)		—		—		(1,420)
Balance at June 30, 2022		$	—		$	647		$	5	$	856,079	$	210,471	$	(84,013)		$	(34,059)	$	949,130
Balance at September 30, 2022																					Balance at September 30, 2022	$	—	$	652	$	5	$	864,806	$	231,084	$	(96,978)	$	(47,579)	$	951,990

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021																					Nine Months Ended September 30, 2021
Balance at December 31, 2020	Balance at December 31, 2020	$	184,878		$	522		$	5	$	634,704	$	110,179	$	(40,827)		$	7,746	$	897,207	Balance at December 31, 2020	$	184,878	$	522	$	5	$	634,704	$	110,179	$	(40,827)	$	7,746	$	897,207

Comprehensive loss:	Comprehensive loss:																				Comprehensive loss:
Net loss	Net loss	—			—			—		—		33,425		—			—		33,425		Net loss	—		—		—		—		56,595		—		—		56,595
Other comprehensive income, net	Other comprehensive income, net	—			—			—		—		—		—			6,994		6,994		Other comprehensive income, net	—		—		—		—		—		—		3,202		3,202
Issuance of common stock	Issuance of common stock	—			2			—		(2)		—		—			—		—		Issuance of common stock	—		2		—		(2)		—		—		—		—

Redemption of preferred stock	Redemption of preferred stock	(89,922)			—			—		—		(3,347)		—			—		(93,269)		Redemption of preferred stock	(89,922)		—		—		—		(3,347)		—		—		(93,269)

Exercise of stock options	Exercise of stock options	—			—			—		300		—		—			—		300		Exercise of stock options	—		—		—		300		—		—		—		300
Exercise of stock appreciation rights	Exercise of stock appreciation rights	—			3			—		(5,375)		—		—			—		(5,372)		Exercise of stock appreciation rights	—		3		—		(5,375)		—		—		—		(5,372)

Share-based compensation expense	Share-based compensation expense	—			—			—		2,882		—		—			—		2,882		Share-based compensation expense	—		—		—		3,988		—		—		—		3,988
Restricted stock surrendered due to employee tax liability	Restricted stock surrendered due to employee tax liability	—			—			—		(1,855)		—		—			—		(1,855)		Restricted stock surrendered due to employee tax liability	—		—		—		(2,133)		—		—		—		(2,133)

Shares purchased under the Dividend Reinvestment Plan	Shares purchased under the Dividend Reinvestment Plan	—			—			—		—		(59)		—			—		(59)		Shares purchased under the Dividend Reinvestment Plan	—		—		—		30		(89)		—		—		(59)

Dividends declared ($0.12 per common share)		—			—			—		—		(6,023)		—			—		(6,023)
Dividends declared ($0.18 per common share)																					Dividends declared ($0.18 per common share)	—		—		—		—		(9,061)		—		—		(9,061)
Preferred stock dividends	Preferred stock dividends	—			—			—		—		(4,868)		—			—		(4,868)		Preferred stock dividends	—		—		—		—		(6,595)		—		—		(6,595)
Balance at June 30, 2021		$	94,956		$	527		$	5	$	630,654	$	129,307	$	(40,827)		$	14,740	$	829,362
Balance at September 30, 2021																					Balance at September 30, 2021	$	94,956	$	527	$	5	$	631,512	$	147,682	$	(40,827)	$	10,948	$	844,803

See accompanying notes to consolidated financial statements (unaudited)

Table of ~~Contents~~Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	75,224	$	33,425	Net income	$	99,420	$	56,595
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities					Adjustments to reconcile net income to net cash provided by operating activities
Reversal of provision for credit losses	Reversal of provision for credit losses	(31,542)		(3,261)		Reversal of provision for credit losses	(31,542)		(4,408)

Reversal of provision for loan repurchases	Reversal of provision for loan repurchases	(961)		(231)		Reversal of provision for loan repurchases	(987)		(273)
Depreciation on premises and equipment	Depreciation on premises and equipment	7,920		7,741		Depreciation on premises and equipment	11,883		11,414
Amortization of intangible assets		754		564
Amortization of other intangibles						Amortization of other intangibles	1,150		846
Amortization of debt issuance costs	Amortization of debt issuance costs	837		812		Amortization of debt issuance costs	1,322		1,283
Net amortization of premium on securities	Net amortization of premium on securities	587		774		Net amortization of premium on securities	834		1,184

Net accretion of deferred loan costs and fees		(81)		(1,983)
Net amortization of premiums on purchased loans		652		1,434

Net amortization (accretion) of deferred loan costs (fees) and purchased premiums (discounts)						Net amortization (accretion) of deferred loan costs (fees) and purchased premiums (discounts)	520		(1,063)

Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	975		(1,963)		Deferred income tax expense (benefit)	(1,547)		(3,476)
Bank owned life insurance income	Bank owned life insurance income	(1,606)		(1,362)		Bank owned life insurance income	(2,479)		(2,077)
Share-based compensation expense	Share-based compensation expense	2,767		2,882		Share-based compensation expense	4,482		3,988
Income from interest rate swaps	Income from interest rate swaps	(185)		(200)		Income from interest rate swaps	(224)		(240)
Loss on investments in alternative energy partnerships and affordable housing investments	Loss on investments in alternative energy partnerships and affordable housing investments	3,456		4,864		Loss on investments in alternative energy partnerships and affordable housing investments	5,432		4,130

Fair value adjustment for loans held-for-sale		—		(20)

Net gain on sale of securities available-for-sale	Net gain on sale of securities available-for-sale	(16)		—		Net gain on sale of securities available-for-sale	(16)		—

Gain on sale-leaseback of branch	Gain on sale-leaseback of branch	(771)		—		Gain on sale-leaseback of branch	(771)		(841)
Loss on disposal of property and equipment		8		—

Repurchase of mortgage loans	Repurchase of mortgage loans	(1,262)		(1,433)		Repurchase of mortgage loans	(1,592)		(1,852)

Proceeds from sales of and principal collected on other loans held-for-sale		—		13

Change in accrued interest receivable and other assets	Change in accrued interest receivable and other assets	26,514		(3,246)		Change in accrued interest receivable and other assets	29,662		4,910

Change in accrued interest payable and other liabilities	Change in accrued interest payable and other liabilities	(8,122)		25,279		Change in accrued interest payable and other liabilities	(5,040)		5,579
Net cash provided by operating activities	Net cash provided by operating activities	75,148		64,089		Net cash provided by operating activities	110,507		75,699

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	17,645		—		Proceeds from sales of securities available-for-sale	17,645		—
Proceeds from maturities and calls of securities available-for-sale	Proceeds from maturities and calls of securities available-for-sale	38,500		100,230		Proceeds from maturities and calls of securities available-for-sale	38,500		120,230
Purchases of securities available-for-sale	Purchases of securities available-for-sale	(15,000)		(226,813)		Purchases of securities available-for-sale	(27,500)		(226,813)
Proceeds from principal repayments of securities held-to-maturity and available-for-sale	Proceeds from principal repayments of securities held-to-maturity and available-for-sale	20,495		14,000		Proceeds from principal repayments of securities held-to-maturity and available-for-sale	32,119		22,499

Net cash used in acquisitions						Net cash used in acquisitions	(10,332)		—
Loan originations and principal collections, net	Loan originations and principal collections, net	474,252		274,971		Loan originations and principal collections, net	808,144		281,951
Purchases of loans	Purchases of loans	(641,556)		(366,000)		Purchases of loans	(814,302)		(615,359)
Redemption of Federal Home Loan Bank stock	Redemption of Federal Home Loan Bank stock	—		436		Redemption of Federal Home Loan Bank stock	—		436
Purchases of Federal Home Loan Bank and other bank stock	Purchases of Federal Home Loan Bank and other bank stock	(6,857)		(499)		Purchases of Federal Home Loan Bank and other bank stock	(9,796)		(534)

Proceeds from sale of other real estate owned						Proceeds from sale of other real estate owned	—		3,618
Purchase of mortgage servicing rights	Purchase of mortgage servicing rights	(20,563)		—		Purchase of mortgage servicing rights	(20,441)		—

Purchases of premises and equipment	Purchases of premises and equipment	(1,381)		(1,718)		Purchases of premises and equipment	(2,556)		(2,256)
Proceeds from sale-leaseback of branch	Proceeds from sale-leaseback of branch	2,400		—		Proceeds from sale-leaseback of branch	2,400		3,913
Payments of capital lease obligations	Payments of capital lease obligations	—		(69)		Payments of capital lease obligations	—		(103)
Funding of equity investments	Funding of equity investments	(3,950)		(1,879)		Funding of equity investments	(4,878)		(6,320)
Decrease in investments in alternative energy partnerships	Decrease in investments in alternative energy partnerships	1,156		1,108		Decrease in investments in alternative energy partnerships	1,782		1,765
Net cash (used in) provided by investing activities		(134,859)		(206,233)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	10,785		(416,973)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits		119,248		120,744
Net (decrease) increase in deposits						Net (decrease) increase in deposits	(159,050)		457,425
Net increase (decrease) in short-term Federal Home Loan Bank advances	Net increase (decrease) in short-term Federal Home Loan Bank advances	35,000		(50,000)		Net increase (decrease) in short-term Federal Home Loan Bank advances	50,000		(135,000)

Proceeds from Federal Home Loan Bank long-term advances						Proceeds from Federal Home Loan Bank long-term advances	200,000		—

Net increase in other borrowings		73,000		125,000
Net (decrease) increase in other borrowings						Net (decrease) increase in other borrowings	(15,000)		100,000

Redemption of preferred stock	Redemption of preferred stock	(98,703)		(93,269)		Redemption of preferred stock	(98,703)		(93,269)

Purchase of treasury stock	Purchase of treasury stock	(43,186)		—		Purchase of treasury stock	(56,151)		—
Proceeds from exercise of stock options	Proceeds from exercise of stock options	—		300		Proceeds from exercise of stock options	—		300

Purchase of stock surrendered to pay tax liability	Purchase of stock surrendered to pay tax liability	(1,560)		(7,227)		Purchase of stock surrendered to pay tax liability	(1,743)		(7,505)

Dividends paid on preferred stock	Dividends paid on preferred stock	(1,727)		(4,868)		Dividends paid on preferred stock	(1,727)		(6,595)
Dividends paid on common stock	Dividends paid on common stock	(7,420)		(6,023)		Dividends paid on common stock	(10,983)		(9,061)
Net cash provided by financing activities		74,652		84,657
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(93,357)		306,295
Net change in cash and cash equivalents	Net change in cash and cash equivalents	14,941		(57,487)		Net change in cash and cash equivalents	27,935		(34,979)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	228,123		220,819		Cash and cash equivalents at beginning of period	228,123		220,819
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	243,064	$	163,332	Cash and cash equivalents at end of period	$	256,058	$	185,840

Supplemental cash flow information	Supplemental cash flow information					Supplemental cash flow information
Interest paid on deposits and borrowed funds	Interest paid on deposits and borrowed funds	16,574		19,996		Interest paid on deposits and borrowed funds	28,904		25,133
Income taxes paid	Income taxes paid	9,692		8,932		Income taxes paid	14,792		11,975

Supplemental disclosure of non-cash activities	Supplemental disclosure of non-cash activities					Supplemental disclosure of non-cash activities
Transfer from loans to other real estate owned, net	Transfer from loans to other real estate owned, net	—		3,253		Transfer from loans to other real estate owned, net	—		3,253

Reclassification of securities available-for-sale to held-to-maturity	Reclassification of securities available-for-sale to held-to-maturity	329,416		—		Reclassification of securities available-for-sale to held-to-maturity	329,416		—

Equipment acquired under capital leases	Equipment acquired under capital leases	—		256		Equipment acquired under capital leases	—		256
Operating lease right-of-use assets recognized	Operating lease right-of-use assets recognized	1,253		3,883		Operating lease right-of-use assets recognized	1,253		14,172
Operating lease liabilities recognized	Operating lease liabilities recognized	1,253		3,883		Operating lease liabilities recognized	1,253		14,172

Commitments to fund low income housing tax credit investments	Commitments to fund low income housing tax credit investments	7,000		—		Commitments to fund low income housing tax credit investments	12,000		—
Goodwill adjustments for purchase accounting	Goodwill adjustments for purchase accounting	826		—		Goodwill adjustments for purchase accounting	1,821		—
Receivable on unsettled securities sales						Receivable on unsettled securities sales	—		40,500
Due on unsettled securities purchases						Due on unsettled securities purchases	—		25,000

See accompanying notes to consolidated financial statements (unaudited)

Table of ~~Contents~~Contents

BANC OF CALIFORNIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~June~~September 30, 2022

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Banc of California, Inc. (collectively, with its consolidated subsidiaries, the Company, we, us, and our) is a financial holding company under the Bank Holding Company Act of 1956, as amended, headquartered in Santa Ana, California and incorporated under the laws of Maryland. Banc of California, Inc. is subject to regulation by the Board of Governors of the Federal Reserve System (“FRB”) and its wholly-owned subsidiary, Banc of California, National Association (the “Bank”), operates under a national bank charter issued by the Office of the Comptroller of the Currency (“OCC”), the Bank's primary regulator. The Bank is a member of the Federal Home Loan Bank (“FHLB”) system, and maintains insurance on deposit accounts with the Federal Deposit Insurance Corporation (“FDIC”).

The Bank offers a variety of financial services to meet the banking and financial needs of the communities it serves, with operations conducted through 3129 full-service branches located throughout Southern California as of ~~June~~September 30, 2022.

Basis of Presentation: The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2021 filed by us with the SEC. The December 31, 2021 consolidated statements of financial condition presented herein have been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. Certain prior period amounts have been reclassified to conform to current period ~~presentation, including reclassification~~presentation. In the consolidated statement of ~~(i)~~financial condition, we reclassified loans held for sale to other assets and in the consolidated ~~statement~~statements of ~~financial condition, (ii)~~operations, we reclassified: (i) the fair value adjustment for loans held-for-sale to other income, ~~(iii)~~(ii) the income or loss from equity investments to other income, and ~~(iv)~~(iii) advertising and promotion to ~~all~~ other ~~expense in the accompanying consolidated statements of operations.~~expense.

In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. The results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Principles of Consolidation: The accompanying unaudited consolidated financial statements include the accounts of the Company and its consolidated subsidiaries as of ~~June~~September 30, 2022 and December 31, 2021 and for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. Significant intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its then wholly-owned subsidiaries.

Significant Accounting Policies: The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. We have not made any ~~significant~~ changes in our ~~critical~~significant accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC, except for the accounting for securities held-to-maturity and mortgage servicing rights, as described below.

Securities Held-to-Maturity. Securities held-to-maturity consist of debt securities that the Company has the positive intent and ability to hold to maturity. These securities are recorded at cost, adjusted for the amortization of premiums or accretion of discounts. Premiums and discounts are amortized or accreted over the life of the security as an adjustment to its yield using the interest method. Transfers of debt securities into the held-to-maturity portfolio are accounted for at fair value. The unrealized gain or loss at the date of transfer is recognized as part of the amortized cost of the transferred security. This amount, along with the unrealized gain or loss included in accumulated other comprehensive income, is amortized or accreted over the life of the security as an adjustment to its yield using the interest method.

Securities held-to-maturity are analyzed for credit losses under ASC 326,Financial Instruments - Credit Losses, which requires the Company to determine whether any impairment exists as of the reporting date and, as applicable, whether that impairment is due to credit deterioration. An allowance for credit losses would be established for losses on held-to-maturity debt securities due to credit deterioration and would be recorded as a component of the provision for credit losses. Accrued interest is excluded from our expected credit loss estimates. Held-to-maturity debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held-to-maturity debt securities are placed on nonaccrual status, unpaid interest recognized as interest income is reversed.

~~Table of Contents~~

Mortgage Servicing ~~Rights:~~Rights. Mortgage servicing rights ("MSRs") give the Company the contractual rights to receive service fees in exchange for performing loan servicing functions on behalf of investors who have an ownership interest in the mortgage loan

Table of Contents

balances. Purchased mortgage servicing rights are recorded at the purchase price at the time of acquisition, which approximates the fair value of such assets. Subsequent to acquisition, MSRs are accounted for under the amortization method and are then amortized over the period of estimated net servicing income (level yield method) generated from servicing the loans. MSRs are evaluated quarterly for impairment by estimating the fair value of the MSRs and comparing that value to their amortized cost. Impairment, if any, is recognized in a valuation allowance to the extent the fair value is less than the carrying amount of the MSRs. Subsequent increases in the fair value of impaired MSRs are recognized only up to the amount of the previously recognized valuation allowance. The estimated fair value of the MSRs is obtained through independent third party valuations based on an analysis of future cash flows, incorporating key assumptions including discount rates, prepayment speeds and interest rates that we believe are consistent with the assumptions used by other similar market participants in valuing MSRs.

We purchased $22.8 million of SFR mortgage servicing rights during the second quarter of 2022. The unpaid principal balance of the loans underlying these purchased servicing rights is approximately $1.73 billion at June 30, 2022. We do not have an ownership interest in the mortgage loan balances therefore those loans are not included in our consolidated statements of financial condition.

Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and disclosures provided, and actual results could differ. The allowance for credit losses (“ACL”) (which includes the allowance for loan losses (“ALL”) and the reserve for unfunded loan commitments), provision for credit losses, loan repurchase reserve, realization of deferred tax assets, valuation of goodwill and other ~~intangible assets,~~intangibles, valuation of investments in alternative energy partnerships, and the fair value measurement of financial instruments are particularly complex and require judgment which may have a material effect on the consolidated financial statements.

Recent Accounting Guidance: In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2016-13. ASU 2022-02 is not expected to have a material effect on our consolidated financial statements.

Business ~~Combination:~~Combinations:

Deepstack Acquisition. On September 15, 2022, we completed the acquisition of the assets of Global Payroll Gateway, Inc. and its wholly owned subsidiary, Deepstack Technologies, LLC (collectively, "Deepstack") for $24 million in total consideration. The purchase is accounted for as a business combination under U.S. GAAP and assets purchased and liabilities assumed were recorded at their respective acquisition date estimated fair values. During the measurement period (not to exceed one year from the acquisition date), the fair value of assets acquired and liabilities assumed are subject to adjustment if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. As the Company is still in the process of reviewing the fair value methodology and assumptions used in the valuation of identifiable intangible assets, the fair values of these intangibles are considered provisional.

Deepstack's results of operations have been included in the Company's results beginning September 15, 2022. Transaction costs related to the acquisition were $2.1 million for the period ended September 30, 2022.

The fair value amounts of identified assets acquired and liabilities assumed as part of the Deepstack acquisition are as follows:

Table of Contents


($ in thousands)	Book Value		Fair Value Adjustments		Fair Value
Assets acquired:
Cash and cash equivalents	$	4,068	$	—	$	4,068
Other intangibles	—		3,800		3,800
Other assets	1,385		—		1,385
Total assets acquired	$	5,453	$	3,800	$	9,253

Liabilities assumed:
Accounts payable	$	3,443	$	—	$	3,443

Total liabilities assumed	3,443		—		3,443
Excess of assets acquired over liabilities assumed	$	2,010	$	3,800	$	5,810
Total consideration					24,000
Goodwill					$	18,190

Total consideration of $24 million includes cash consideration paid of $14.4 million, common stock issued of $7.2 million and additional cash consideration of $2.4 million expected to be paid 18 months after the acquisition date.

The acquisition of Deepstack resulted in the recognition of $2.8 million in developed technology and $1.0 million in other intangibles, including trademarks, client relationships and non-compete agreements. Goodwill in the amount of $18.2 million was also recognized and represents the strategic, operational and financial benefits expected from integrating the payment processing solutions and technology of Deepstack into our operations.

Pacific Mercantile Bancorp Acquisition.On October 18, 2021, we completed our merger with Pacific Mercantile Bancorp (“PMB”), pursuant to which PMB merged with and into the Company, with the Company as the surviving corporation. PMB was the bank holding company of the wholly-owned subsidiary Pacific Mercantile Bank, a California state chartered commercial bank headquartered in Costa Mesa, California ~~and~~which operated 7seven banking offices, including 3three full service branches, located throughout Southern California.

Under the terms and conditions of the merger, each outstanding share of PMB common stock, aggregating 23,713,417 shares, was converted into the right to receive 0.5 (the "Exchange Ratio") of a share of the Company's common stock. In addition, at the effective time of the merger, the Company paid $3.2 million in cash for all outstanding PMB share-based awards, including outstanding shares subject to unvested restricted stock awards. In the merger, the Company issued 11,856,713 shares of common stock with an estimated fair value of $222.2 million based upon the $18.74 closing price of the Company's common stock on October 18, 2021. Together with the cash consideration, this resulted in an aggregate purchase price of $225.4 million. The operating results of PMB have been included since the date of acquisition and consequently, may impact the comparison of the financial results for the periods presented.

Goodwill in the amount of ~~$58.0~~$59.0 million was recognized and represents the synergies and economies of scale expected

from combining the operations of PMB with ours. Refer to Note 2 - Business Combinations in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC and Note 5 - Goodwill and Other Intangibles for further information.

NOTE 2 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair Value Hierarchy

~~Table of Contents~~

ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:

•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Table of Contents

•Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Assets and Liabilities Measured on a Recurring Basis

Securities Available-for-Sale: The fair values of securities available-for-sale are generally determined by quoted market prices in active markets, if available (Level 1). If quoted market prices are not available, we primarily employ independent pricing services that utilize pricing models to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and respective terms and conditions for debt instruments (Level 2). We adhere to established processes to monitor the pricing services' assumptions and challenge the valuations that appear unusual or unexpected. Multiple quotes or prices may be obtained in this process and we determine which fair value is most appropriate based on market information and analysis. Quotes obtained through this process are generally non-binding. We follow established procedures to ensure that assets and liabilities are properly classified in the fair value hierarchy. Level 2 securities include SBA loan pool securities, U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities, non-agency residential mortgage-backed securities, non-agency commercial mortgage-backed securities, collateralized loan obligations, and corporate debt securities. When a market is illiquid or there is a lack of transparency around the inputs to valuation, including at least one unobservable input, the securities are classified as Level 3 and reliance is placed upon internally developed models and management's judgment and evaluation for valuation.

Derivative Assets and Liabilities:

Interest Rate Swaps. We offer interest rate swap products to certain loan clients to allow them to hedge the risk of rising interest rates on their variable rate loans. We originate a variable rate loan and enter into a variable-to-fixed interest rate swap with the client. We also enter into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow us to originate a variable rate loan while providing a contract for fixed interest payments for the client. The net cash flow for us is equal to the interest income received from a variable rate loan originated with the client plus a fee. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2.

Foreign Exchange Contracts.

We offer short-term foreign exchange contracts to customers to purchase and/or sell foreign currencies at set rates in the future. These products allow customers to hedge the foreign exchange rate risk of their deposits and loans denominated in foreign currencies. In conjunction with these products, we also enter into offsetting back-to-back contracts with institutional counterparties to hedge our foreign exchange rate risk. These back-to-back contracts are intended to offset each other and allow us to offer our customers foreign exchange products. The fair value of both of these offsetting asset and liability instruments is based on the change in the underlying foreign exchange rate. We are subject to counterparty risk in the event our customers or institutional counterparties default under these contracts. Given the short-term nature of the contracts, the counterparties’ credit risks are considered nominal and typically result in no adjustments to the valuation of the short-term foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of these contracts is classified as Level 2.

1213

Table of ~~Contents~~Contents

The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:


				Fair Value Measurement Level									Fair Value Measurement Level
($ in thousands)	($ in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		($ in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2022
September 30, 2022										September 30, 2022
Assets	Assets									Assets
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
SBA loan pools securities	SBA loan pools securities	$	13,062	$	—	$	13,062	$	—	SBA loan pools securities	$	12,106	$	—	$	12,106	$	—
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	11,365		—		11,365		—		U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	10,696		—		10,696		—
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	154,053		—		154,053		—		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	141,157		—		141,157		—

Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	45,481		—		45,481		—		Non-agency residential mortgage-backed securities	41,514		—		41,514		—

Collateralized loan obligations	Collateralized loan obligations	478,203		—		478,203		—		Collateralized loan obligations	472,676		—		472,676		—
Corporate debt securities	Corporate debt securities	163,271		—		163,271		—		Corporate debt securities	169,416		—		169,416		—

Derivative assets:	Derivative assets:									Derivative assets:

Interest rate swaps (1)	Interest rate swaps (1)	1,074		—		1,074		—		Interest rate swaps (1)	2,295		—		2,295		—
Foreign exchange contracts (1)	Foreign exchange contracts (1)	186		—		186		—		Foreign exchange contracts (1)	382		—		382		—
Liabilities	Liabilities									Liabilities
Derivative liabilities:	Derivative liabilities:									Derivative liabilities:

Interest rate swaps (2)	Interest rate swaps (2)	1,082		—		1,082		—		Interest rate swaps (2)	2,251		—		2,251		—

Foreign exchange contracts (2)	Foreign exchange contracts (2)	168		—		168		—		Foreign exchange contracts (2)	377		—		377		—

December 31, 2021	December 31, 2021									December 31, 2021
Assets	Assets									Assets
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
SBA loan pools securities	SBA loan pools securities	$	14,591	$	—	$	14,591	$	—	SBA loan pools securities	$	14,591	$	—	$	14,591	$	—
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	191,969		—		191,969		—		U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	191,969		—		191,969		—
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	241,541		—		241,541		—		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	241,541		—		241,541		—
Municipal securities	Municipal securities	119,015		—		119,015		—		Municipal securities	119,015		—		119,015		—
Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	56,025		—		56,025		—		Non-agency residential mortgage-backed securities	56,025		—		56,025		—

Collateralized loan obligations	Collateralized loan obligations	518,964		—		518,964		—		Collateralized loan obligations	518,964		—		518,964		—
Corporate debt securities	Corporate debt securities	173,598		—		173,598		—		Corporate debt securities	173,598		—		173,598		—

Derivative assets:	Derivative assets:									Derivative assets:

Interest rate swaps (1)	Interest rate swaps (1)	3,390		—		3,390		—		Interest rate swaps (1)	3,390		—		3,390		—
Foreign exchange contracts (1)	Foreign exchange contracts (1)	175		—		175		—		Foreign exchange contracts (1)	175		—		175		—
Liabilities	Liabilities									Liabilities
Derivative liabilities:	Derivative liabilities:									Derivative liabilities:

Interest rate swaps (2)	Interest rate swaps (2)	3,594		—		3,594		—		Interest rate swaps (2)	3,594		—		3,594		—
Foreign exchange contracts (2)	Foreign exchange contracts (2)	146		—		146		—		Foreign exchange contracts (2)	146		—		146		—

(1)Included in other assets in the ~~Consolidated Statements~~consolidated statements of ~~Financial Condition.~~financial condition.

(2)Included in accrued expenses and other liabilities in the ~~Consolidated Statements~~consolidated statements of ~~Financial Condition.~~financial condition.

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

1314

Table of ~~Contents~~Contents

Assets and Liabilities Measured on a Non-Recurring Basis

Individually Evaluated Loans: The fair value of individually evaluated loans with specific allocations of the ACL based on collateral values is generally based on recent real estate appraisals and automated valuation models (“AVMs”). These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers for differences between the comparable sales and income data available. Such adjustments are typically deemed significant unobservable inputs used for determining fair value and result in a Level 3 classification.

The following table presents our financial assets and liabilities measured at fair value on a non-recurring basis as of the dates indicated:


				Fair Value Measurement Level									Fair Value Measurement Level
($ in thousands)	($ in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		($ in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2022
September 30, 2022										September 30, 2022
Assets	Assets									Assets

Collateral dependent loans:	Collateral dependent loans:									Collateral dependent loans:
Single family residential mortgage	Single family residential mortgage	$	3,600	$	—	$	—	$	3,600	Single family residential mortgage	$	3,735	$	—	$	—	$	3,735
Commercial and industrial	Commercial and industrial	10,903		—		—		10,903		Commercial and industrial	8,646		—		—		8,646

SBA	SBA	4,029		—		—		4,029		SBA	3,922		—		—		3,922

December 31, 2021	December 31, 2021									December 31, 2021
Assets	Assets									Assets
Collateral dependent loans:	Collateral dependent loans:									Collateral dependent loans:

Commercial and industrial	Commercial and industrial	$	12,272	$	—	$	—	$	12,272	Commercial and industrial	$	12,272	$	—	$	—	$	12,272
SBA	SBA	3,886		—		—		3,886		SBA	3,886		—		—		3,886

The following table presents the gains (losses) recognized on assets measured at fair value on a non-recurring basis for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021
Collateral dependent loans:	Collateral dependent loans:									Collateral dependent loans:
Single family residential mortgage	Single family residential mortgage	$	(1)	$	(211)	$	(340)	$	(211)	Single family residential mortgage	$	135	$	—	$	(205)	$	(211)
Commercial and industrial	Commercial and industrial	(564)		20		(1,198)		38		Commercial and industrial	(441)		—		(1,639)		38
SBA	SBA	(198)		(376)		(172)		(509)		SBA	(35)		(1,377)		(207)		(1,886)
Other consumer	Other consumer	(216)		—		(243)		—		Other consumer	—		—		(243)		—
Commercial real estate	Commercial real estate	—		(140)		—		(140)		Commercial real estate	—		2		—		(138)

1415

Table of ~~Contents~~Contents

Estimated Fair Values of Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities as of the dates indicated:


		Carrying Amount			Fair Value Measurement Level												Carrying Amount			Fair Value Measurement Level
($ in thousands)	($ in thousands)			Level 1			Level 2			Level 3			Total	($ in thousands)					Level 1			Level 2			Level 3			Total
June 30, 2022
September 30, 2022																September 30, 2022
Financial assets	Financial assets															Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	243,064		$	243,064		$	—		$	—		$	243,064	Cash and cash equivalents	$	256,058		$	256,058		$	—		$	—		$	256,058

Securities held-to-maturity	Securities held-to-maturity	329,272			—			285,672			—			285,672		Securities held-to-maturity	328,757			—			263,352			—			263,352
Securities available-for-sale	Securities available-for-sale	865,435			—			865,435			—			865,435		Securities available-for-sale	847,565			—			847,565			—			847,565
Federal Home Loan Bank and other bank stock	Federal Home Loan Bank and other bank stock	51,489			—			51,489			—			51,489		Federal Home Loan Bank and other bank stock	54,428			—			54,428			—			54,428

Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	7,357,471			—			—			6,980,780			6,980,780		Loans receivable, net of allowance for credit losses	7,196,876			—			—			6,701,627			6,701,627
Accrued interest receivable	Accrued interest receivable	32,750			32,750			—			—			32,750		Accrued interest receivable	35,635			35,635			—			—			35,635
Derivative assets	Derivative assets	1,260			—			1,260			—			1,260		Derivative assets	2,677			—			2,677			—			2,677
Financial liabilities	Financial liabilities															Financial liabilities
Deposits	Deposits	7,558,683			6,809,378			743,027			—			7,552,405		Deposits	7,280,385			6,343,446			924,503			—			7,267,949
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	511,695			—			506,061			—			506,061		Advances from Federal Home Loan Bank	727,021			—			702,890			—			702,890

Other borrowings	Other borrowings	98,000			—			98,017			—			98,017		Other borrowings	10,000			—			10,025			—			10,025
Long-term debt	Long-term debt	274,587			—			269,763			—			269,763		Long-term debt	274,746			—			272,371			—			272,371
Derivative liabilities	Derivative liabilities	1,250			—			1,250			—			1,250		Derivative liabilities	2,628			—			2,628			—			2,628
Accrued interest payable	Accrued interest payable	4,082			4,082			—			—			4,082		Accrued interest payable	7,832			7,832			—			—			7,832

December 31, 2021	December 31, 2021															December 31, 2021
Financial assets	Financial assets															Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	228,123		$	228,123		$	—		$	—		$	228,123	Cash and cash equivalents	$	228,123		$	228,123		$	—		$	—		$	228,123

Securities available-for-sale	Securities available-for-sale	1,315,703			—			1,315,703			—			1,315,703		Securities available-for-sale	1,315,703			—			1,315,703			—			1,315,703

Federal Home Loan Bank and other bank stock	Federal Home Loan Bank and other bank stock	44,632			—			44,632			—			44,632		Federal Home Loan Bank and other bank stock	44,632			—			44,632			—			44,632

Loans receivable, net of allowance for credit losses	Loans receivable, net of allowance for credit losses	7,158,896			—			—			7,150,703			7,150,703		Loans receivable, net of allowance for credit losses	7,158,896			—			—			7,150,703			7,150,703
Accrued interest receivable	Accrued interest receivable	30,991			30,991			—			—			30,991		Accrued interest receivable	30,991			30,991			—			—			30,991
Derivative assets	Derivative assets	3,565			—			3,565			—			3,565		Derivative assets	3,565			—			3,565			—			3,565
Financial liabilities	Financial liabilities															Financial liabilities
Deposits	Deposits	7,439,435			6,932,717			506,711			—			7,439,428		Deposits	7,439,435			6,932,717			506,711			—			7,439,428
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	476,059			—			500,323			—			500,323		Advances from Federal Home Loan Bank	476,059			—			500,323			—			500,323
Other borrowings	Other borrowings	25,000			—			25,000			—			25,000		Other borrowings	25,000			—			25,000			—			25,000
Long-term debt	Long-term debt	274,386			—			294,404			—			294,404		Long-term debt	274,386			—			294,404			—			294,404
Derivative liabilities	Derivative liabilities	3,740			—			3,740			—			3,740		Derivative liabilities	3,740			—			3,740			—			3,740
Accrued interest payable	Accrued interest payable	3,546			3,546			—			—			3,546		Accrued interest payable	3,546			3,546			—			—			3,546

1516

Table of ~~Contents~~Contents

NOTE 3 – INVESTMENT SECURITIES

The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated:


($ in thousands)	($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2022
September 30, 2022										September 30, 2022
Securities held-to-maturity:	Securities held-to-maturity:									Securities held-to-maturity:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	153,621	$	—	$	(18,334)	$	135,287	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	153,127	$	—	$	(29,178)	$	123,949
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	61,447		—		(8,051)		53,396		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	61,426		—		(11,950)		49,476
Municipal securities	Municipal securities	114,204		—		(17,215)		96,989		Municipal securities	114,204		—		(24,277)		89,927

Total securities held-to-maturity	Total securities held-to-maturity	$	329,272	$	—	$	(43,600)	$	285,672	Total securities held-to-maturity	$	328,757	$	—	$	(65,405)	$	263,352
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
SBA loan pool securities	SBA loan pool securities	$	13,085	$	—	$	(23)	$	13,062	SBA loan pool securities	$	12,156	$	4	$	(54)	$	12,106
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	12,051		—		(686)		11,365		U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	12,012		—		(1,316)		10,696
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	160,657		258		(6,862)		154,053		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	151,582		—		(10,425)		141,157

Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	53,122		—		(7,641)		45,481		Non-agency residential mortgage-backed securities	52,076		—		(10,562)		41,514

Collateralized loan obligations	Collateralized loan obligations	492,775		—		(14,572)		478,203		Collateralized loan obligations	492,775		—		(20,099)		472,676
Corporate debt securities	Corporate debt securities	165,266		973		(2,968)		163,271		Corporate debt securities	177,774		12		(8,370)		169,416
Total securities available-for-sale	Total securities available-for-sale	$	896,956	$	1,231	$	(32,752)	$	865,435	Total securities available-for-sale	$	898,375	$	16	$	(50,826)	$	847,565
December 31, 2021	December 31, 2021									December 31, 2021

Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
SBA loan pool securities	SBA loan pool securities	$	14,679	$	—	$	(88)	$	14,591	SBA loan pool securities	$	14,679	$	—	$	(88)	$	14,591
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	190,382		2,898		(1,311)		191,969		U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	190,382		2,898		(1,311)		191,969
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	242,458		1,171		(2,088)		241,541		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	242,458		1,171		(2,088)		241,541
Municipal securities	Municipal securities	117,913		2,641		(1,539)		119,015		Municipal securities	117,913		2,641		(1,539)		119,015
Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	56,014		11		—		56,025		Non-agency residential mortgage-backed securities	56,014		11		—		56,025

Collateralized loan obligations	Collateralized loan obligations	521,275		—		(2,311)		518,964		Collateralized loan obligations	521,275		—		(2,311)		518,964
Corporate debt securities	Corporate debt securities	162,002		11,603		(7)		173,598		Corporate debt securities	162,002		11,603		(7)		173,598
Total securities available-for-sale	Total securities available-for-sale	$	1,304,723	$	18,324	$	(7,344)	$	1,315,703	Total securities available-for-sale	$	1,304,723	$	18,324	$	(7,344)	$	1,315,703

During the first quarter of 2022, certain longer-duration fixed-rate mortgage-backed securities and municipal securities with an amortized cost basis of $346.0 million were transferred from the available-for-sale portfolio to the held-to-maturity portfolio. At the time of the transfer, the securities had an unrealized gross loss of $16.6 million, which ~~along with the related unrealized loss in accumulated other comprehensive income,~~ is ~~being~~subsequently amortized into interest income as a yield adjustment over the remaining ~~term~~life of the securities. The unrealized losses remaining in accumulated other comprehensive income are also accreted into interest income in a consistent manner. As a result, there is no impact on the consolidated statements of operations.

At ~~June~~September 30, 2022, our investment securities portfolio consisted of agency securities, municipal securities, mortgage-backed securities, collateralized loan obligations, ~~(“CLOs”),~~ and corporate debt securities. The expected maturities of these types of securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

There was no allowance for credit losses for debt securities held-to-maturity and available-for sale as of ~~June~~September 30, 2022 and December 31, 2021. ~~The Company does~~We do not consider unrealized losses on these securities to be attributable to credit-related factors, as the unrealized losses have occurred as a result of changes in non-credit related factors such as interest rates, market spreads, and market conditions subsequent to purchase.

Table of Contents

Accrued interest receivable on debt securities held-to-maturity and available-for-sale totaled ~~$5.5~~$8.2 million and $4.7 million at ~~June~~September 30, 2022 and December 31, 2021, and is included within other assets in the accompanying consolidated statements of financial condition.

At ~~June~~September 30, 2022 and December 31, 2021, there were no holdings of any one issuer, other than U.S. government agency and sponsored enterprises, in an amount greater than 10 percent of our stockholders’ equity.

Pledged Securities

16Investment securities with carrying values of $123.1 million and $8.9 million as of September 30, 2022 and December 31, 2021 were pledged to the Federal Reserve Discount Window ("FRB Discount Window"). Investments securities with carrying values of $214.6 million and zero as of September 30, 2022 and December 31, 2021 were pledged to secure FHLB advances.

~~Table of Contents~~

Securities Available-for-Sale

The following table presents proceeds from sales and calls of securities available-for-sale and the associated gross gains and losses realized through earnings upon the sales and calls of securities available-for-sale for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021
Gross realized gains	Gross realized gains	$	—	$	—	$	209	$	—	Gross realized gains	$	—	$	—	$	209	$	—
Gross realized losses	Gross realized losses	—		—		(193)		—		Gross realized losses	—		—		(193)		—
Net realized gains on sales and calls	Net realized gains on sales and calls	$	—	$	—	$	16	$	—	Net realized gains on sales and calls	$	—	$	—	$	16	$	—
Proceeds from sales and calls	Proceeds from sales and calls	$	38,500	$	100,230	$	56,145	$	100,230	Proceeds from sales and calls	$	—	$	20,000	$	56,145	$	120,230

Table of Contents

The following table summarizes the investment securities available-for-sale with unrealized losses by security type and length of time in a continuous, unrealized loss position as of the dates indicated:


		Less Than 12 Months				12 Months or Longer				Total					Less Than 12 Months				12 Months or Longer				Total
($ in thousands)	($ in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		($ in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
June 30, 2022
September 30, 2022														September 30, 2022

Securities available-for-sale:	Securities available-for-sale:													Securities available-for-sale:
SBA loan pool securities	SBA loan pool securities	$	—	$	—	$	13,062	$	(23)	$	13,062	$	(23)	SBA loan pool securities	$	—	$	—	$	9,474	$	(54)	$	9,474	$	(54)
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	11,365		(686)		—		—		11,365		(686)		U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	10,696		(1,316)		—		—		10,696		(1,316)
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	86,032		(4,126)		21,159		(2,736)		107,191		(6,862)		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	110,864		(4,705)		30,293		(5,720)		141,157		(10,425)

Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	45,481		(7,641)		—		—		45,481		(7,641)		Non-agency residential mortgage-backed securities	41,514		(10,562)		—		—		41,514		(10,562)

Collateralized loan obligations	Collateralized loan obligations	218,486		(6,514)		240,717		(8,058)		459,203		(14,572)		Collateralized loan obligations	233,975		(10,025)		238,702		(10,074)		472,677		(20,099)
Corporate debt securities	Corporate debt securities	88,532��		(2,968)		—		—		88,532		(2,968)		Corporate debt securities	166,497		(8,370)		—		—		166,497		(8,370)
Total securities available-for-sale	Total securities available-for-sale	$	449,896	$	(21,935)	$	274,938	$	(10,817)	$	724,834	$	(32,752)	Total securities available-for-sale	$	563,546	$	(34,978)	$	278,469	$	(15,848)	$	842,015	$	(50,826)

December 31, 2021	December 31, 2021													December 31, 2021

Securities available-for-sale:	Securities available-for-sale:													Securities available-for-sale:
SBA loan pool securities	SBA loan pool securities	$	—	$	—	$	14,591	$	(88)	$	14,591	$	(88)	SBA loan pool securities	$	—	$	—	$	14,591	$	(88)	$	14,591	$	(88)
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	67,588		(1,311)		—		—		67,588		(1,311)		U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	67,588		(1,311)		—		—		67,588		(1,311)
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	85,290		(1,184)		17,754		(904)		103,044		(2,088)		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	85,290		(1,184)		17,754		(904)		103,044		(2,088)
Municipal securities	Municipal securities	44,748		(919)		10,762		(620)		55,510		(1,539)		Municipal securities	44,748		(919)		10,762		(620)		55,510		(1,539)

Collateralized loan obligations	Collateralized loan obligations	81,962		(38)		253,002		(2,273)		334,964		(2,311)		Collateralized loan obligations	81,962		(38)		253,002		(2,273)		334,964		(2,311)
Corporate debt securities	Corporate debt securities	4,993		(7)		—		—		4,993		(7)		Corporate debt securities	4,993		(7)		—		—		4,993		(7)
Total securities available-for-sale	Total securities available-for-sale	$	284,581	$	(3,459)	$	296,109	$	(3,885)	$	580,690	$	(7,344)	Total securities available-for-sale	$	284,581	$	(3,459)	$	296,109	$	(3,885)	$	580,690	$	(7,344)

At ~~June~~September 30, 2022, our securities available-for-sale portfolio consisted of 7982 securities, of which 6380 securities were in an unrealized loss position. At December 31, 2021, our securities available-for-sale portfolio consisted of 119 securities, of which 46 securities were in an unrealized loss position.

During the three and nine months ended September 30, 2022 and 2021, there was no provision for credit losses related to securities available-for-sale. We monitor our securities portfolio to ensure it has adequate credit support. We consider the lowest credit rating for identification of credit impairment for collateralized loan obligations and other securities. The decline in fair value of our securities since acquisition was attributable to a combination of changes in interest rates and general volatility in the credit

~~Table of Contents~~

market conditions in response to the economic uncertainty caused by many factors, including but not limited to, the global pandemic, rising inflation and conflict between Russia and Ukraine. We do not currently intend to sell any of the securities in an unrealized loss position and further believe, it is more likely than not, that we will not be required to sell these securities before their anticipated recovery. As of ~~June~~September 30, 2022, all of our collateralized loan obligations investment securities in an unrealized loss position received an investment grade credit rating.

~~During the three and six months ended June 30, 2022 and 2021, there was no provision for credit losses related to securities held-to-maturity or available-for-sale.~~

Table of Contents

The following table presents the amortized cost and fair value of the investment securities portfolio, based on the earlier of contractual maturity dates or next repricing date, as of ~~June~~September 30, 2022:


		Held-to-Maturity				Available-for-Sale					Held-to-Maturity				Available-for-Sale
($ in thousands)	($ in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		($ in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity:
Earlier of maturity or next repricing date:										Earlier of maturity or next repricing date:
Within one year	Within one year	$	—	$	—	$	592,364	$	577,867	Within one year	$	—	$	—	$	585,237	$	564,436
One to five years	One to five years	—		—		162,240		159,271		One to five years	—		—		173,721		164,704
Five to ten years	Five to ten years	19,351		17,134		65,645		60,513		Five to ten years	28,705		24,157		64,851		56,549
Greater than ten years	Greater than ten years	309,921		268,538		76,707		67,784		Greater than ten years	300,052		239,195		74,566		61,876
Total	Total	$	329,272	$	285,672	$	896,956	$	865,435	Total	$	328,757	$	263,352	$	898,375	$	847,565

Contractual maturities may not reflect the actual maturities of the investments. The average lives for mortgage-backed securities and collateralized mortgage obligations likely will be ~~faster~~shorter than their contractual maturities due to prepayments and amortization.

~~Pledged Securities~~

Investment securities with carrying values of $123.2 million and $8.9 million as of June 30, 2022 and December 31,2021 were pledged to the FRB Discount Window. Investments securities with carrying value of $205.5 million and zero as of June 30, 2022 and December 31, 2021 were pledged to secure FHLB advances.

1820

Table of ~~Contents~~Contents

Securities Held-to-Maturity

The following table presents the fair value and weighted average yields or tax-equivalent yields using amortized cost of the securities held-to-maturity portfolio as of ~~June~~September 30, 2022, based on the earlier of contractual maturity dates or next repricing dates:


		One year or less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total					One year or less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
($ in thousands)	($ in thousands)	Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		($ in thousands)	Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield
Securities held-to-maturity:	Securities held-to-maturity:																					Securities held-to-maturity:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	—	—	%	$	—	—	%	$	—	—	%	$	135,287	2.69	%	$	135,287	2.69	%	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	—	—	%	$	—	—	%	$	7,960	2.52	%	$	115,989	2.70	%	$	123,949	2.69	%
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	—		—	%	—		—	%	—		—	%	53,396		2.64	%	53,396		2.64	%	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	—		—	%	—		—	%	—		—	%	49,476		2.64	%	49,476		2.64	%
Municipal securities(1)	Municipal securities(1)	—		—	%	—		—	%	17,134		2.19	%	79,855		2.71	%	96,989		2.62	%	Municipal securities(1)	—		—	%	—		—	%	16,197		2.19	%	73,730		2.71	%	89,927		2.62	%

Total securities held-to-maturity	Total securities held-to-maturity	$	—	—	%	$	—	—	%	$	17,134	2.19	%	$	268,538	2.68	%	$	285,672	2.66	%	Total securities held-to-maturity	$	—	—	%	$	—	—	%	$	24,157	2.29	%	$	239,195	2.69	%	$	263,352	2.65	%

(1) Computed on a tax-equivalent basis.

The following table presents the fair value and weighted average yields using amortized cost of the securities available-for-sale portfolio as of ~~June~~September 30, 2022, based on the earlier of contractual maturity dates or next repricing dates:


		One year or less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total					One year or less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
($ in thousands)	($ in thousands)	Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		($ in thousands)	Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield
Securities available-for-sale:	Securities available-for-sale:																					Securities available-for-sale:
SBA loan pool securities	SBA loan pool securities	$	13,062	1.06	%	$	—	—	%	$	—	—	%	$	—	—	%	$	13,062	1.06	%	SBA loan pool securities	$	12,106	1.82	%	$	—	—	%	$	—	—	%	$	—	—	%	$	12,106	1.82	%
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	—		—	%	—		—	%	11,365		2.23	%	—		—	%	11,365		2.23	%	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	—		—	%	—		—	%	10,696		2.23	%	—		—	%	10,696		2.23	%
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	86,602		1.73	%	9,630		2.24	%	35,518		1.55	%	22,303		1.81	%	154,053		1.73	%	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	79,654		3.16	%	8,138		2.72	%	33,003		1.92	%	20,362		1.83	%	141,157		2.61	%

Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	45,481		2.51	%	45,481		2.51	%	Non-agency residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	41,514		2.50	%	41,514		2.50	%

Collateralized loan obligations	Collateralized loan obligations	478,203		2.70	%	—		—	%	—		—	%	—		—	%	478,203		2.70	%	Collateralized loan obligations	472,676		4.23	%	—		—	%	—		—	%	—		—	%	472,676		4.23	%
Corporate debt securities	Corporate debt securities	—		—	%	149,641		4.71	%	13,630		5.73	%	—		—	%	163,271		4.80	%	Corporate debt securities	—		—	%	156,566		4.82	%	12,850		5.73	%	—		—	%	169,416		4.89	%
Total securities available-for-sale	Total securities available-for-sale	$	577,867	2.52	%	$	159,271	4.56	%	$	60,513	2.52	%	$	67,784	2.29	%	$	865,435	2.87	%	Total securities available-for-sale	$	564,436	4.03	%	$	164,704	4.71	%	$	56,549	2.76	%	$	61,876	2.30	%	$	847,565	3.93	%

1921

Table of ~~Contents~~Contents

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table presents the balances in our loan portfolio as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022		December 31, 2021		($ in thousands)	September 30, 2022		December 31, 2021

Commercial:	Commercial:					Commercial:
Commercial and industrial(1)	Commercial and industrial(1)	$	2,433,464	$	2,668,984	Commercial and industrial(1)	$	1,993,416	$	2,668,984
Commercial real estate	Commercial real estate	1,204,414		1,311,105		Commercial real estate	1,240,927		1,311,105
Multifamily	Multifamily	1,572,308		1,361,054		Multifamily	1,698,455		1,361,054
SBA(2)	SBA(2)	92,235		205,548		SBA(2)	85,674		205,548
Construction	Construction	228,341		181,841		Construction	236,495		181,841

Consumer:	Consumer:					Consumer:
Single family residential mortgage	Single family residential mortgage	1,832,279		1,420,023		Single family residential mortgage	1,947,652		1,420,023

Other consumer	Other consumer	88,223		102,925		Other consumer	86,701		102,925
Total loans	Total loans	$	7,451,264	$	7,251,480	Total loans	$	7,289,320	$	7,251,480

Allowance for loan losses	Allowance for loan losses	(93,793)		(92,584)		Allowance for loan losses	(92,444)		(92,584)
Loans receivable, net	Loans receivable, net	$	7,357,471	$	7,158,896	Loans receivable, net	$	7,196,876	$	7,158,896

(1)Includes warehouse lending balances of ~~$1.16 billion~~$766.4 million and $1.60 billion at ~~June~~September 30, 2022 and December 31, 2021.

(2)Includes 7939 PPP loans totaling ~~$28.4~~$20.0 million at ~~June~~September 30, 2022 and 397 PPP loans totaling $123.1 million at December 31, 2021.

The following table presents the balances of total loans as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022		December 31, 2021		($ in thousands)	September 30, 2022		December 31, 2021
Unpaid principal balance	Unpaid principal balance	$	7,436,887	$	7,245,952	Unpaid principal balance	$	7,282,235	$	7,245,952
Unamortized net premiums	Unamortized net premiums	25,960		18,005		Unamortized net premiums	18,592		18,005
Unamortized net deferred (fees) costs	Unamortized net deferred (fees) costs	(902)		819		Unamortized net deferred (fees) costs	(1,558)		819
Unamortized SBA PPP fees	Unamortized SBA PPP fees	(21)		(831)		Unamortized SBA PPP fees	—		(831)
Fair value adjustment(1)	Fair value adjustment(1)	(10,660)		(12,465)		Fair value adjustment(1)	(9,949)		(12,465)
Total loans	Total loans	$	7,451,264	$	7,251,480	Total loans	$	7,289,320	$	7,251,480

(1)At ~~June~~September 30, ~~2022.~~2022, includes ~~$9.0~~$8.5 million related to the PMB Acquisition, of which ~~$4.3~~$4.4 million related to PCD loans. At December 31, 2021, includes $10.6 million related to the PMB Acquisition, of which $3.9 million related to PCD loans.

Credit Quality Indicators

We categorize loans into risk categories based on relevant information about the ability of borrowers to repay their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We perform a historical loss analysis that is combined with a comprehensive loan to value analysis to analyze the associated risks in the current loan portfolio. We analyze loans individually and grade each loan for credit risk. This analysis includes all loans delinquent over 60 days and non-homogeneous loans such as commercial and commercial real estate loans. We use the following definitions for credit risk ratings:

Pass: Loans classified as pass are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weakness as defined under “Special Mention”, “Substandard” or “Doubtful.”

Special Mention: Loans risk rated as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of our credit position at some future date.

Substandard: Loans risk rated as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or a weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

2022

Table of ~~Contents~~Contents

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, 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.

2123

Table of ~~Contents~~Contents

The following table presents the risk categories for total loans by class of loans and origination year as of ~~June~~September 30, 2022:


		Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
($ in thousands)	($ in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term		Total		($ in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term		Total
June 30, 2022
September 30, 2022																				September 30, 2022

Commercial:	Commercial:																			Commercial:
Commercial and industrial	Commercial and industrial																			Commercial and industrial
Pass	Pass	$	151,151	$	217,900	$	69,281	$	74,539	$	82,341	$	181,285	$	1,528,413	$	11,741	$	2,316,651	Pass	$	213,799	$	216,306	$	66,038	$	56,701	$	79,436	$	177,540	$	1,083,367	$	7,499	$	1,900,686
Special mention	Special mention	3,367		5,373		30		516		1,877		18,566		13,160		2,516		45,405		Special mention	—		4,551		28		513		1,104		13,533		13,457		527		33,713
Substandard	Substandard	—		1,265		4,586		14,162		12,377		3,207		35,359		452		71,408		Substandard	3,195		951		4,190		11,364		7,565		3,131		27,486		1,135		59,017
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Commercial and industrial	Commercial and industrial	154,518		224,538		73,897		89,217		96,595		203,058		1,576,932		14,709		2,433,464		Commercial and industrial	216,994		221,808		70,256		68,578		88,105		194,204		1,124,310		9,161		1,993,416
Commercial real estate	Commercial real estate																			Commercial real estate
Pass	Pass	188,712		385,057		61,027		118,169		161,165		271,356		1,167		66		1,186,719		Pass	286,672		372,760		60,834		113,342		156,635		233,793		1,162		63		1,225,261
Special mention	Special mention	—		—		—		—		1,909		1,770		—		—		3,679		Special mention	—		—		—		—		—		1,757		—		—		1,757
Substandard	Substandard	—		—		—		—		4,188		8,936		892		—		14,016		Substandard	—		—		—		—		4,131		8,868		910		—		13,909
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Commercial real estate	Commercial real estate	188,712		385,057		61,027		118,169		167,262		282,062		2,059		66		1,204,414		Commercial real estate	286,672		372,760		60,834		113,342		160,766		244,418		2,072		63		1,240,927
Multifamily	Multifamily																			Multifamily
Pass	Pass	424,820		405,151		158,545		263,048		116,158		160,374		9,384		—		1,537,480		Pass	601,460		396,785		155,134		253,799		110,372		139,996		3		9,352		1,666,901
Special mention	Special mention	—		—		4,968		—		11,165		—		—		—		16,133		Special mention	—		—		3,000		—		11,118		—		—		—		14,118
Substandard	Substandard	—		—		—		—		—		18,695		—		—		18,695		Substandard	—		—		—		—		—		17,436		—		—		17,436
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Multifamily	Multifamily	424,820		405,151		163,513		263,048		127,323		179,069		9,384		—		1,572,308		Multifamily	601,460		396,785		158,134		253,799		121,490		157,432		3		9,352		1,698,455
SBA	SBA																			SBA
Pass	Pass	5,310		32,808		9,532		2,453		1,276		23,115		628		156		75,278		Pass	10,479		25,948		7,870		2,419		1,240		20,750		604		137		69,447
Special mention	Special mention	—		—		—		3,909		219		1,091		—		2		5,221		Special mention	—		1		—		3,878		210		558		—		1		4,648
Substandard	Substandard	—		—		338		190		385		9,361		666		796		11,736		Substandard	—		(1)		329		198		385		9,210		665		793		11,579
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
SBA	SBA	5,310		32,808		9,870		6,552		1,880		33,567		1,294		954		92,235		SBA	10,479		25,948		8,199		6,495		1,835		30,518		1,269		931		85,674

2224

Table of ~~Contents~~Contents


Construction	Construction																			Construction
Pass	Pass	52,355		86,325		30,183		10,288		15,223		25,446		(26)		—		219,794		Pass	71,529		89,985		28,997		6,937		13,609		25,438		—		—		236,495
Special mention	Special mention	—		—		—		—		—		8,547		—		—		8,547		Special mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		—		—		Substandard	—		—		—		—		—		—		—		—		—
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Construction	Construction	52,355		86,325		30,183		10,288		15,223		33,993		(26)		—		228,341		Construction	71,529		89,985		28,997		6,937		13,609		25,438		—		—		236,495
Consumer:	Consumer:																			Consumer:
Single family residential mortgage	Single family residential mortgage																			Single family residential mortgage
Pass	Pass	473,398		815,560		77,676		50,930		102,538		290,831		6,135		—		1,817,068		Pass	637,863		800,100		74,354		48,736		100,450		264,151		5,895		—		1,931,549
Special mention	Special mention	651		222		—		670		902		3,547		—		226		6,218		Special mention	626		221		2,175		1,541		897		1,728		—		223		7,411
Substandard	Substandard	—		—		—		339		6,091		2,563		—		—		8,993		Substandard	—		—		—		—		5,554		3,138		—		—		8,692
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Single family residential mortgage	Single family residential mortgage	474,049		815,782		77,676		51,939		109,531		296,941		6,135		226		1,832,279		Single family residential mortgage	638,489		800,321		76,529		50,277		106,901		269,017		5,895		223		1,947,652
Other consumer	Other consumer																			Other consumer
Pass	Pass	12,734		19,886		10,469		6,538��		3,843		19,725		12,893		1,639		87,727		Pass	17,692		17,777		9,578		5,969		3,646		17,770		10,958		2,925		86,315
Special mention	Special mention	—		—		—		3		—		21		63		58		145		Special mention	—		—		—		3		—		21		62		56		142
Substandard	Substandard	—		—		59		—		73		35		—		184		351		Substandard	—		—		59		—		70		34		81		—		244
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Other consumer	Other consumer	12,734		19,886		10,528		6,541		3,916		19,781		12,956		1,881		88,223		Other consumer	17,692		17,777		9,637		5,972		3,716		17,825		11,101		2,981		86,701

Total loans	Total loans	$	1,312,498	$	1,969,547	$	426,694	$	545,754	$	521,730	$	1,048,471	$	1,608,734	$	17,836	$	7,451,264	Total loans	$	1,843,315	$	1,925,384	$	412,586	$	505,400	$	496,422	$	938,852	$	1,144,650	$	22,711	$	7,289,320

Total loans	Total loans																			Total loans
Pass	Pass	$	1,308,480	$	1,962,687	$	416,713	$	525,965	$	482,544	$	972,132	$	1,558,594	$	13,602	$	7,240,717	Pass	$	1,839,494	$	1,919,661	$	402,805	$	487,903	$	465,388	$	879,438	$	1,101,989	$	19,976	$	7,116,654
Special mention	Special mention	4,018		5,595		4,998		5,098		16,072		33,542		13,223		2,802		85,348		Special mention	626		4,773		5,203		5,935		13,329		17,597		13,519		807		61,789
Substandard	Substandard	—		1,265		4,983		14,691		23,114		42,797		36,917		1,432		125,199		Substandard	3,195		950		4,578		11,562		17,705		41,817		29,142		1,928		110,877
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total loans	Total loans	$	1,312,498	$	1,969,547	$	426,694	$	545,754	$	521,730	$	1,048,471	$	1,608,734	$	17,836	$	7,451,264	Total loans	$	1,843,315	$	1,925,384	$	412,586	$	505,400	$	496,422	$	938,852	$	1,144,650	$	22,711	$	7,289,320

2325

Table of ~~Contents~~Contents

The following table presents the risk categories for total loans by class of loans and origination year as of December 31, 2021:


	Term Loans Amortized Cost Basis by Origination Year
($ in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term		Total
December 31, 2021
















Commercial:
Commercial and industrial
Pass	$	254,218	$	81,177	$	71,950	$	78,461	$	56,439	$	110,490	$	1,888,126	$	9,679	$	2,550,540
Special mention	1,206		5,971		13,721		835		7,272		9,846		20,460		6,348		65,659
Substandard	2		241		17,853		11,378		3,374		117		17,429		2,391		52,785
Doubtful	—		—		—		—		—		—		—		—		—
Commercial and industrial	255,426		87,389		103,524		90,674		67,085		120,453		1,926,015		18,418		2,668,984
Commercial real estate
Pass	465,524		82,759		140,108		192,263		85,755		317,941		8,416		71		1,292,837
Special mention	—		—		—		1,925		—		2,920		—		—		4,845
Substandard	—		—		506		—		—		9,084		3,833		—		13,423
Doubtful	—		—		—		—		—		—		—		—		—
Commercial real estate	465,524		82,759		140,614		194,188		85,755		329,945		12,249		71		1,311,105
Multifamily
Pass	410,958		208,396		315,119		157,640		61,457		158,464		4		—		1,312,038
Special mention	—		1,988		—		11,261		—		33,065		—		—		46,314
Substandard	—		—		—		—		—		2,702		—		—		2,702
Doubtful	—		—		—		—		—		—		—		—		—
Multifamily	410,958		210,384		315,119		168,901		61,457		194,231		4		—		1,361,054
SBA
Pass	106,749		23,972		8,049		1,957		10,836		28,495		928		143		181,129
Special mention	—		1,586		3,618		236		—		596		—		4		6,040
Substandard	—		5,888		—		390		3,358		7,245		599		899		18,379
Doubtful	—		—		—		—		—		—		—		—		—
SBA	106,749		31,446		11,667		2,583		14,194		36,336		1,527		1,046		205,548

2426

Table of ~~Contents~~Contents


Construction
Pass	67,074		32,995		29,038		17,139		25,485		—		—		—		171,731
Special mention	—		—		—		1,607		—		8,503		—		—		10,110
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Construction	67,074		32,995		29,038		18,746		25,485		8,503		—		—		181,841
Consumer:
Single family residential mortgage
Pass	713,844		96,339		67,075		140,329		88,123		277,247		12,828		—		1,395,785
Special mention	—		1,644		339		910		692		6,838		—		—		10,423
Substandard	—		—		—		11,005		975		1,601		—		234		13,815
Doubtful	—		—		—		—		—		—		—		—		—
Single family residential mortgage	713,844		97,983		67,414		152,244		89,790		285,686		12,828		234		1,420,023
Other consumer
Pass	26,179		13,556		8,891		5,265		9,038		15,951		21,327		2,331		102,538
Special mention	—		—		4		—		—		25		63		—		92
Substandard	—		61		14		148		46		26		—		—		295
Doubtful	—		—		—		—		—		—		—		—		—
Other consumer	26,179		13,617		8,909		5,413		9,084		16,002		21,390		2,331		102,925


Total loans	$	2,045,754	$	556,573	$	676,285	$	632,749	$	352,850	$	991,156	$	1,974,013	$	22,100	$	7,251,480

Total loans
Pass	$	2,044,546	$	539,194	$	640,230	$	593,054	$	337,133	$	908,588	$	1,931,629	$	12,224	$	7,006,598
Special mention	1,206		11,189		17,682		16,774		7,964		61,793		20,523		6,352		143,483
Substandard	2		6,190		18,373		22,921		7,753		20,775		21,861		3,524		101,399
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	2,045,754	$	556,573	$	676,285	$	632,749	$	352,850	$	991,156	$	1,974,013	$	22,100	$	7,251,480

2527

Table of ~~Contents~~Contents

Past Due Loans

The following table presents the aging of the recorded investment in past due loans, excluding accrued interest receivable (which is not considered to be material), by class of loans as of the dates indicated:


($ in thousands)	($ in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total		($ in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
June 30, 2022
September 30, 2022														September 30, 2022
Commercial:	Commercial:													Commercial:
Commercial and industrial	Commercial and industrial	3,433		2,567		7,204		13,204		2,420,260		2,433,464		Commercial and industrial	2,269		5,670		577		8,516		1,984,900		1,993,416
Commercial real estate	Commercial real estate	893		—		—		893		1,203,521		1,204,414		Commercial real estate	—		—		910		910		1,240,017		1,240,927
Multifamily	Multifamily	—		—		—		—		1,572,308		1,572,308		Multifamily	63		—		—		63		1,698,392		1,698,455
SBA	SBA	4,766		115		10,087		14,968		77,267		92,235		SBA	1,205		128		10,168		11,501		74,173		85,674
Construction	Construction	—		—		—		—		228,341		228,341		Construction	—		—		—		—		236,495		236,495

Consumer:	Consumer:													Consumer:
Single family residential mortgage	Single family residential mortgage	23,226		2,848		6,430		32,504		1,799,775		1,832,279		Single family residential mortgage	26,593		2,707		7,107		36,407		1,911,245		1,947,652
Other consumer	Other consumer	437		—		184		621		87,602		88,223		Other consumer	59		—		81		140		86,561		86,701
Total	Total	$	32,755	$	5,530	$	23,905	$	62,190	$	7,389,074	$	7,451,264	Total	$	30,189	$	8,505	$	18,843	$	57,537	$	7,231,783	$	7,289,320

December 31, 2021	December 31, 2021													December 31, 2021
Commercial:	Commercial:													Commercial:
Commercial and industrial	Commercial and industrial	9,342		1,351		9,503		20,196		2,648,788		2,668,984		Commercial and industrial	9,342		1,351		9,503		20,196		2,648,788		2,668,984
Commercial real estate	Commercial real estate	—		—		—		—		1,311,105		1,311,105		Commercial real estate	—		—		—		—		1,311,105		1,311,105
Multifamily	Multifamily	786		—		—		786		1,360,268		1,361,054		Multifamily	786		—		—		786		1,360,268		1,361,054
SBA	SBA	987		2,360		15,941		19,288		186,260		205,548		SBA	987		2,360		15,941		19,288		186,260		205,548
Construction	Construction	—		—		—		—		181,841		181,841		Construction	—		—		—		—		181,841		181,841

Consumer:	Consumer:													Consumer:
Single family residential mortgage	Single family residential mortgage	24,867		—		7,076		31,943		1,388,080		1,420,023		Single family residential mortgage	24,867		—		7,076		31,943		1,388,080		1,420,023
Other consumer	Other consumer	449		—		89		538		102,387		102,925		Other consumer	449		—		89		538		102,387		102,925
Total	Total	$	36,431	$	3,711	$	32,609	$	72,751	$	7,178,729	$	7,251,480	Total	$	36,431	$	3,711	$	32,609	$	72,751	$	7,178,729	$	7,251,480

Nonaccrual Loans

The following table presents nonaccrual loans as of the dates indicated:


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Total Nonaccrual Loans		Nonaccrual Loans with no ACL		Total Nonaccrual Loans		Nonaccrual Loans with no ACL		($ in thousands)	Total Nonaccrual Loans		Nonaccrual Loans with no ACL		Total Nonaccrual Loans		Nonaccrual Loans with no ACL
Nonaccrual loans	Nonaccrual loans									Nonaccrual loans
Commercial:	Commercial:									Commercial:
Commercial and industrial	Commercial and industrial	$	25,380	$	6,413	$	28,594	$	9,137	Commercial and industrial	$	23,155	$	6,945	$	28,594	$	9,137
Commercial real estate	Commercial real estate	893		893		—		—		Commercial real estate	910		910		—		—

SBA	SBA	10,537		5,163		16,653		11,443		SBA	10,414		5,158		16,653		11,443

Consumer:	Consumer:									Consumer:
Single family residential mortgage	Single family residential mortgage	7,341		3,412		7,076		7,076		Single family residential mortgage	8,010		4,081		7,076		7,076

Other consumer	Other consumer	292		292		235		235		Other consumer	185		185		235		235
Total nonaccrual loans	Total nonaccrual loans	$	44,443	$	16,173	$	52,558	$	27,891	Total nonaccrual loans	$	42,674	$	17,279	$	52,558	$	27,891

Table of Contents

At ~~June~~September 30, 2022 and December 31, 2021, there were no loans that were past due 90 days or more and still accruing.

~~Table of Contents~~

Other Real Estate Owned, Net and Loans in Process of Foreclosure

At ~~June~~September 30, 2022 and December 31, 2021, there was no other real estate owned. At ~~June~~September 30, 2022, there were 4four consumer mortgage loans totaling ~~$4.5~~$4.9 million secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction. There were no consumer mortgage loans secured by residential real estate properties in foreclosure at December 31, 2021.

Allowance for Credit Losses

The ACL methodology uses a nationally recognized, third-party model that includes many assumptions based on historical and peer loss data, current loan portfolio risk profile including risk ratings, and economic forecasts including macroeconomic variables ~~(MEVs)~~ released by the model provider during ~~June~~September 2022. The published forecasts consider the FRB's monetary policy, labor market constraints, rising inflation, higher oil prices ~~ongoing supply chain issues~~ and the military conflict between Russia and Ukraine, among other factors.

The ACL also incorporates qualitative factors to account for certain loan portfolio characteristics that are not taken into consideration by the third-party model including underlying strengths and weaknesses in various segments of the loan portfolio. As is the case with all estimates, the ACL is expected to be impacted in future periods by economic volatility, changing economic forecasts, underlying model assumptions, and asset quality metrics, all of which may be better than or worse than current estimates.

The ACL process involves subjective and complex judgments as well as adjustments for numerous factors including those described in the federal banking agencies' joint interagency policy statement on ALL, which include underwriting experience and collateral value changes, among others.

The reserve for unfunded loan commitments is established to cover the current expected credit losses for the estimated level of funding of these loan commitments, except for unconditionally cancellable commitments for which no reserve is required under ASC 326. At ~~June~~September 30, 2022 and December 31, 2021, the reserve for unfunded loan commitments was ~~$5.9~~$6.4 million and $5.6 million, respectively, and was included in accrued expenses and other liabilities on the consolidated statements of financial condition.

The following table presents a summary of activity in the ACL for the periods indicated:


		Three Months Ended June 30,												Three Months Ended September 30,
($ in thousands)	($ in thousands)	2022						2021							($ in thousands)	2022						2021
		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses				Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	Balance at beginning of period	$	93,226	$	5,405	$	98,631	$	79,353	$	3,360	$	82,713		Balance at beginning of period	$	93,793	$	5,905	$	99,698	$	75,885	$	3,814	$	79,699

Charge-offs	Charge-offs	(494)		—		(494)		(886)		—		(886)			Charge-offs	(912)		—		(912)		(327)		—		(327)
Recoveries	Recoveries	1,561		—		1,561		26		—		26			Recoveries	63		—		63		532		—		532
Net recoveries (charge-offs)		1,067		—		1,067		(860)		—		(860)
Net (charge-offs) recoveries															Net (charge-offs) recoveries	(849)		—		(849)		205		—		205

(Reversal of) provision for credit losses	(Reversal of) provision for credit losses	(500)		500		—		(2,608)		454		(2,154)			(Reversal of) provision for credit losses	(500)		500		—		(2,566)		1,419		(1,147)
Balance at end of period	Balance at end of period	$	93,793	$	5,905	$	99,698	$	75,885	$	3,814	$	79,699		Balance at end of period	$	92,444	$	6,405	$	98,849	$	73,524	$	5,233	$	78,757

2729

Table of ~~Contents~~Contents


		Six Months Ended June 30,												Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022						2021							($ in thousands)	2022						2021
		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses				Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	Balance at beginning of period	$	92,584	$	5,605	$	98,189	$	81,030	$	3,183	$	84,213		Balance at beginning of period	$	92,584	$	5,605	$	98,189	$	81,030	$	3,183	$	84,213

Charge-offs	Charge-offs	(725)		—		(725)		(1,451)		—		(1,451)			Charge-offs	(1,637)		—		(1,637)		(1,778)		—		(1,778)
Recoveries	Recoveries	33,776		—		33,776		198		—		198			Recoveries	33,839		—		33,839		730		—		730
Net charge-offs	Net charge-offs	33,051		—		33,051		(1,253)		—		(1,253)			Net charge-offs	32,202		—		32,202		(1,048)		—		(1,048)

(Reversal of) provision for credit losses	(Reversal of) provision for credit losses	(31,842)		300		(31,542)		(3,892)		631		(3,261)			(Reversal of) provision for credit losses	(32,342)		800		(31,542)		(6,458)		2,050		(4,408)
Balance at end of period	Balance at end of period	$	93,793	$	5,905	$	99,698	$	75,885	$	3,814	$	79,699		Balance at end of period	$	92,444	$	6,405	$	98,849	$	73,524	$	5,233	$	78,757

During the ~~six~~nine months ended ~~June~~September 30, 2022, total recoveries included $31.3 million related to a recovery from the settlement of a loan previously charged-off in 2019. This recovery resulted in a reversal of provision for credit losses during the same period.

2830

Table of ~~Contents~~Contents

Accrued interest receivable on loans receivable, net totaled ~~$26.6~~$26.7 million and $25.8 million at ~~June~~September 30, 2022 and December 31, 2021, and is included within other assets in the accompanying consolidated statements of financial condition. Accrued interest receivable is excluded from the ~~estimate~~allowance of ~~expected~~ credit losses.

The following table presents the activity and balance in the ALL ~~and the recorded investment, excluding accrued interest, in loans~~ as of or for the three and ~~six~~nine months ended ~~June~~September 30, 2022:


($ in thousands)	($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Single Family Residential Mortgage		Other Consumer		Total		($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Single Family Residential Mortgage		Other Consumer		Total
ALL:	ALL:																	ALL:
Three Months Ended June 30, 2022:
Balance at March 31, 2022		$	39,967	$	16,490	$	15,337	$	3,041	$	6,268	$	11,029	$	1,094	$	93,226
Three Months Ended September 30, 2022:																		Three Months Ended September 30, 2022:
Balance at June 30, 2022																		Balance at June 30, 2022	$	41,413	$	15,742	$	15,678	$	3,033	$	4,255	$	12,805	$	867	$	93,793

Charge-offs	Charge-offs	(138)		—		—		(139)		—		—		(217)		(494)		Charge-offs	(867)		—		—		(45)		—		—		—		(912)
Recoveries	Recoveries	1,400		—		—		3		—		154		4		1,561		Recoveries	48		3		—		1		—		1		10		63
Net recoveries (charge-offs)		1,262		—		—		(136)		—		154		(213)		1,067
Net (charge-offs) recoveries																		Net (charge-offs) recoveries	(819)		3		—		(44)		—		1		10		(849)

Provision for (reversal of) credit losses - loans		184		(748)		341		128		(2,013)		1,622		(14)		(500)
Balance at June 30, 2022		$	41,413	$	15,742	$	15,678	$	3,033	$	4,255	$	12,805	$	867	$	93,793
(Reversal of) provision for credit losses - loans																		(Reversal of) provision for credit losses - loans	(1,769)		1,091		275		(29)		1,168		(959)		(277)		(500)
Balance at September 30, 2022																		Balance at September 30, 2022	$	38,825	$	16,836	$	15,953	$	2,960	$	5,423	$	11,847	$	600	$	92,444

Six Months Ended June 30, 2022:
Nine Months Ended September 30, 2022:																		Nine Months Ended September 30, 2022:
Balance at December 31, 2021	Balance at December 31, 2021	$	33,557	$	21,727	$	17,893	$	3,017	$	5,622	$	9,608	$	1,160	$	92,584	Balance at December 31, 2021	$	33,557	$	21,727	$	17,893	$	3,017	$	5,622	$	9,608	$	1,160	$	92,584

Charge-offs	Charge-offs	(320)		—		—		(152)		—		(10)		(243)		(725)		Charge-offs	(1,187)		—		—		(197)		—		(10)		(243)		(1,637)
Recoveries	Recoveries	32,817		—		—		761		—		192		6		33,776		Recoveries	32,865		3		—		762		—		193		16		33,839
Net recoveries (charge-offs)	Net recoveries (charge-offs)	32,497		—		—		609		—		182		(237)		33,051		Net recoveries (charge-offs)	31,678		3		—		565		—		183		(227)		32,202

Provision for (reversal of) credit losses - loans		(24,641)		(5,985)		(2,215)		(593)		(1,367)		3,015		(56)		(31,842)
Balance at June 30, 2022		$	41,413	$	15,742	$	15,678	$	3,033	$	4,255	$	12,805	$	867	$	93,793
(Reversal of) provision for credit losses - loans																		(Reversal of) provision for credit losses - loans	(26,410)		(4,894)		(1,940)		(622)		(199)		2,056		(333)		(32,342)
Balance at September 30, 2022																		Balance at September 30, 2022	$	38,825	$	16,836	$	15,953	$	2,960	$	5,423	$	11,847	$	600	$	92,444

2931

Table of ~~Contents~~Contents


($ in thousands)	($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Single Family Residential Mortgage		Other Consumer		Total		($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Single Family Residential Mortgage		Other Consumer		Total
ALL:	ALL:																	ALL:
Three Months Ended June 30, 2021:
Balance at March 31, 2021		$	19,703	$	17,100	$	23,884	$	3,451	$	5,552	$	9,161	$	502	$	79,353
Three Months Ended September 30, 2021:																		Three Months Ended September 30, 2021:
Balance at June 30, 2021																		Balance at June 30, 2021	$	20,156	$	16,424	$	21,403	$	3,696	$	4,734	$	9,108	$	364	$	75,885

Charge-offs	Charge-offs	(500)		—		—		(386)		—		—		—		(886)		Charge-offs	(115)		(138)		—		(74)		—		—		—		(327)
Recoveries	Recoveries	23		—		—		3		—		—		—		26		Recoveries	484		—		—		1		—		46		1		532
Net (charge-offs) recoveries		(477)		—		—		(383)		—		—		—		(860)
Net recoveries (charge-offs)																		Net recoveries (charge-offs)	369		(138)		—		(73)		—		46		1		205

(Reversal of) provision for credit losses - loans	(Reversal of) provision for credit losses - loans	930		(676)		(2,481)		628		(818)		(53)		(138)		(2,608)		(Reversal of) provision for credit losses - loans	(270)		(269)		(2,678)		1,112		(616)		150		5		(2,566)
Balance at June 30, 2021		$	20,156	$	16,424	$	21,403	$	3,696	$	4,734	$	9,108	$	364	$	75,885
Balance at September 30, 2021																		Balance at September 30, 2021	$	20,255	$	16,017	$	18,725	$	4,735	$	4,118	$	9,304	$	370	$	73,524

Six Months Ended June 30, 2021:
Nine Months Ended September 30, 2021:																		Nine Months Ended September 30, 2021:
Balance at December 31, 2020	Balance at December 31, 2020	$	20,608	$	19,074	$	22,512	$	3,145	$	5,849	$	9,191	$	651	$	81,030	Balance at December 31, 2020	$	20,608	$	19,074	$	22,512	$	3,145	$	5,849	$	9,191	$	651	$	81,030

Charge-offs	Charge-offs	(1,065)		—		—		(386)		—		—		—		(1,451)		Charge-offs	(1,180)		(138)		—		(460)		—		—		—		(1,778)
Recoveries	Recoveries	68		—		—		129		—		—		1		198		Recoveries	552		—		—		130		—		46		2		730
Net (charge-offs) recoveries	Net (charge-offs) recoveries	(997)		—		—		(257)		—		—		1		(1,253)		Net (charge-offs) recoveries	(628)		(138)		—		(330)		—		46		2		(1,048)

Provision for (reversal of) credit losses - loans	Provision for (reversal of) credit losses - loans	545		(2,650)		(1,109)		808		(1,115)		(83)		(288)		(3,892)		Provision for (reversal of) credit losses - loans	275		(2,919)		(3,787)		1,920		(1,731)		67		(283)		(6,458)
Balance at June 30, 2021		$	20,156	$	16,424	$	21,403	$	3,696	$	4,734	$	9,108	$	364	$	75,885
Balance at September 30, 2021																		Balance at September 30, 2021	$	20,255	$	16,017	$	18,725	$	4,735	$	4,118	$	9,304	$	370	$	73,524

3032

Table of ~~Contents~~Contents

Collateral Dependent Loans

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are evaluated individually and the ~~ACL~~ALL is determined based on the amount by which amortized costs exceed the estimated fair value of the collateral, adjusted for estimated selling costs.

Collateral dependent loans consisted of the following as of the dates indicated:


		June 30, 2022											September 30, 2022
		Real Estate											Real Estate
($ in thousands)	($ in thousands)	Commercial		Residential		Business Assets		Automobile		Total		($ in thousands)	Commercial		Residential		Business Assets		Automobile		Total
Commercial:	Commercial:											Commercial:
Commercial and industrial	Commercial and industrial	$	12,349	$	—	$	4,316	$	—	$	16,665	Commercial and industrial	$	—	$	—	$	20,367	$	—	$	20,367
Commercial real estate	Commercial real estate	893		—		—		—		893		Commercial real estate	910		—		—		—		910

SBA	SBA	98		4,710		5,729		—		10,537		SBA	93		4,605		5,717		—		10,415

Consumer:	Consumer:											Consumer:
Single family residential mortgage	Single family residential mortgage	—		8,789		—		—		8,789		Single family residential mortgage	—		9,331		—		—		9,331
Other consumer	Other consumer	—		184		—		111		295		Other consumer	—		81		—		104		185
Total loans	Total loans	$	13,340	$	13,683	$	10,045	$	111	$	37,179	Total loans	$	1,003	$	14,017	$	26,084	$	104	$	41,208


	December 31, 2021
	Real Estate
($ in thousands)	Commercial		Residential		Business Assets		Automobile		Total
Commercial:
Commercial and industrial	$	13,518	$	37	$	4,776	$	—	$	18,331


SBA	689		4,458		11,511		—		16,658


Consumer:
Single family residential mortgage	—		14,012		—		—		14,012
Other consumer	—		—		—		235		235
Total loans	$	14,207	$	18,507	$	16,287	$	235	$	49,236

Troubled Debt Restructurings

TDR loans consisted of the following as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022		December 31, 2021		($ in thousands)	September 30, 2022		December 31, 2021

Commercial:	Commercial:					Commercial:
Commercial and industrial	Commercial and industrial	$	19,778	$	5,241	Commercial and industrial	$	24,810	$	5,241
Commercial real estate	Commercial real estate	4,187		4,243		Commercial real estate	4,130		4,243
SBA	SBA	522		265		SBA	529		265
Consumer:	Consumer:					Consumer:
Single family residential mortgage	Single family residential mortgage	1,448		6,935		Single family residential mortgage	1,321		6,935

Total		$	25,935	$	16,684
Total loans						Total loans	$	30,790	$	16,684

We had commitments to lend to customers with outstanding loans that were classified as TDRs of ~~$769~~$270 thousand and $63 thousand at ~~June~~September 30, 2022 and December 31, 2021. Accruing TDRs were ~~$10.9~~$11.3 million and nonaccrual TDRs were ~~$15.0~~$19.5 million at ~~June~~September 30, 2022, compared to accruing TDRs of $12.5 million and nonaccrual TDRs of $4.1 million at December 31, 2021. The increase in TDRs during the ~~six~~nine months ended ~~June~~September 30, 2022 was due mostly to the modification of ~~a non-performing PCD~~two commercial and industrial loan ~~acquired in the PMB acquisition.~~relationships.

3133

Table of ~~Contents~~Contents

The following table summarizes the pre-modification and post-modification balances of the new TDRs for the periods indicated:


		Three Months Ended					Six Months Ended						Three Months Ended					Nine Months Ended
($ in thousands)	($ in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		($ in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
June 30, 2022
September 30, 2022												September 30, 2022
Commercial:	Commercial:											Commercial:
Commercial and industrial(1)	Commercial and industrial(1)	—	$	—	$	—	1	$	12,840	$	12,840	Commercial and industrial(1)	3	$	7,500	$	7,500	4	$	20,340	$	20,340
SBA	SBA	2	833		833		2	833		833		SBA	—	—		—		2	833		833

Total	Total	2	$	833	$	833	3	$	13,673	$	13,673	Total	3	$	7,500	$	7,500	6	$	21,173	$	21,173

June 30, 2021
September 30, 2021												September 30, 2021

Consumer:	Consumer:											Consumer:
Single family residential mortgage(1)	Single family residential mortgage(1)	—	$	—	$	—	1	$	1,800	$	1,800	Single family residential mortgage(1)	—	$	—	$	—	1	$	1,800	$	1,800
Total	Total	—	$	—	$	—	1	$	1,800	$	1,800	Total	—	$	—	$	—	1	$	1,800	$	1,800

(1) Modifications during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 consisted of extensions of ~~maturity.~~maturity and/or changes to payment schedules.

We consider a TDR to be in payment default once it becomes 30 days or more past due following a modification. During the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, there were no loans that were modified as a TDR during the past 12 months that had subsequent payment defaults.

Purchases, Sales, and Transfers

From time to time, we purchase and sell loans in the secondary market. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, we purchased loans aggregating ~~$277.2~~$172.7 million and ~~$641.5~~$814.3 million. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, we purchased loans aggregating ~~$233.1~~$249.4 million and ~~$366.0~~$615.4 million.

There were no loans transferred from held for investment to loans held-for-sale and there were no sales of loans for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

Non-Traditional Mortgage Loans (“NTM”)

NTM loans are included in our SFR mortgage portfolio and are comprised of interest only loans and Green Loans. As of ~~June~~September 30, 2022 and December 31, 2021, the NTM loans totaled ~~$841.1~~$870.0 million, or ~~11.3%~~11.9% of total loans, and $635.3 million, or 8.8% of total loans, respectively.

We no longer originate SFR loans, however we have and may continue to purchase pools of loans that include NTM loans such as interest only loans with maturities of up to 40 years and flexible initial repricing dates, ranging from 1 to 10 years, and periodic repricing dates through the life of the loan. Interest only loans are primarily SFR first mortgage loans that generally have a 30 to 40-year term at the time of origination and include payment features that allow interest only payments in initial periods before converting to a fully amortizing loan. At ~~June~~September 30, 2022 and December 31, 2021, interest only loans totaled ~~$833.6~~$863.2 million and $613.3 million. Green Loans are SFR first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. Green Loans are generally interest only for a 15-year term with a balloon payment due at maturity. At ~~June~~September 30, 2022 and December 31, 2021, Green Loans totaled ~~$7.4~~$6.8 million and $21.9 million.

At ~~June~~September 30, 2022 and December 31, 2021, nonperforming NTM loans totaled zero and $4.0 million.

Non-Traditional Mortgage Performance Indicators

Our risk management policy and credit monitoring include reviewing delinquency, FICO scores, and LTV ratios on the NTM loan portfolio. We also continuously monitor market conditions for our geographic lending areas. We have determined that the most significant performance indicators for NTM first lien loans are LTV ratios and for Green Loans are FICO scores. At ~~June~~September 30, 2022, our NTM first lien portfolio had a weighted average LTV of approximately ~~60%~~59%.

3234

Table of ~~Contents~~Contents

NOTE 5 – GOODWILL AND OTHER ~~INTANGIBLE ASSETS, NET~~INTANGIBLES

Goodwill

Goodwill represents the excess consideration paid for net assets acquired in a business combination over their fair values. At ~~June~~September 30, 2022 and December 31, 2021, we had goodwill of ~~$95.1~~$114.3 million and $94.3 million.

The following table presents changes in the carrying amount of goodwill for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	2022		2021		2022		2021
Goodwill, beginning of period	$	95,127	$	37,144	$	94,301	$	37,144
Goodwill from business combination	18,190		—		18,190		—
Goodwill adjustments for purchase accounting	995		—		1,821		—


Goodwill, end of period	$	114,312	$	37,144	$	114,312	$	37,144
Accumulated impairment losses at end of period	$	2,100	$	2,100	$	2,100	$	2,100

The acquisition of Deepstack resulted in the recognition of $18.2 million in goodwill. We also adjusted goodwill as a result of updates to the initial fair value of core deposit intangibles and finalization of income tax returns related to the PMB acquisition during the three and nine months ended September 30, 2022. During the measurement period (not to exceed one year from the acquisition date), the fair value of assets acquired and liabilities assumed are subject to adjustment if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability.

We evaluate goodwill for impairment as of October 1st each year, and more frequently if events or circumstances indicate that there may be impairment. We completed our most recent annual goodwill impairment test as of October 1, 2021 and determined that no goodwill impairment existed.

~~The following table presents changes in~~ During the ~~carrying amount~~three and nine months ended September 30, 2022, there were no events or circumstances that indicated an interim impairment test of goodwill ~~for~~was necessary.

Other Intangibles

Other intangibles are comprised of the ~~periods indicated:~~

Three Months Ended
June 30, Six Months Ended
June 30,
($ in thousands) 2022 2021 2022 2021
Goodwill, beginning of period $ 95,127 $ 37,144 $ 94,301 $ 37,144
Goodwill adjustments for purchase accounting — — 826 —
Goodwill, end of period $ 95,127 $ 37,144 $ 95,127 $ 37,144
Accumulated impairment losses at end of period $ 2,100 $ 2,100 $ 2,100 $ 2,100

~~During the six months ended June~~following at September 30, 2022 ~~goodwill was adjusted for fair value~~ and ~~deferred tax adjustments related to the PMB acquisition.~~December 31, 2021:

~~Core deposit~~


($ in thousands)	September 30, 2022		December 31, 2021
Core deposit intangibles	$	4,281	$	6,411
Developed technology	2,800		—



Other intangibles	1,000		—
Total other intangibles	$	8,081	$	6,411

Other intangibles are amortized over their estimated useful lives ~~of ten years~~ and reviewed for impairment at least quarterly. As of ~~June~~September 30, 2022, the weighted average remaining amortization period for core deposit intangibles was approximately ~~7.6~~6.8 years. Amortization periods for developed technology and other intangibles acquired in the Deepstack acquisition have useful lives ranging from 3 to 10 years.

Table of Contents

The following table presents changes in the carrying amount of ~~intangible assets, net~~other intangibles for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021
Core deposit intangibles:
Other intangibles:										Other intangibles:
Balance, beginning of period	Balance, beginning of period	$	34,978	$	30,904	$	35,958	$	30,904	Balance, beginning of period	$	34,978	$	30,904	$	35,958	$	30,904

Core deposit intangible adjustments for purchase accounting		—		—		(980)		—
Other intangibles from business combination										Other intangibles from business combination	3,800		—		3,800		—
Purchase accounting adjustments										Purchase accounting adjustments	—		—		(980)		—
Balance, end of period	Balance, end of period	34,978		30,904		34,978		30,904		Balance, end of period	38,778		30,904		38,778		30,904
Accumulated amortization:	Accumulated amortization:									Accumulated amortization:
Balance, beginning of period	Balance, beginning of period	29,988		28,553		29,547		28,271		Balance, beginning of period	30,301		28,835		29,547		28,271
Amortization of intangible assets		313		282		754		564
Amortization of other intangibles										Amortization of other intangibles	396		282		1,150		846
Balance, end of period	Balance, end of period	30,301		28,835		30,301		28,835		Balance, end of period	30,697		29,117		30,697		29,117
Intangible assets, net		$	4,677	$	2,069	$	4,677	$	2,069
Other intangibles										Other intangibles	$	8,081	$	1,787	$	8,081	$	1,787

The following table presents estimated future amortization expense of ~~intangible assets, net~~other intangibles as of ~~June~~September 30, 2022:


($ in thousands)	($ in thousands)	Remainder of 2022		2023		2024		2025		2026		2027 and After		Total		($ in thousands)	Remainder of 2022		2023		2024		2025		2026		2027 and After		Total
Estimated future amortization expense	Estimated future amortization expense	$	745	$	1,092	$	719	$	420	$	373	$	1,328	$	4,677	Estimated future amortization expense	$	526	$	1,799	$	1,425	$	1,110	$	1,013	$	2,208	$	8,081

~~Table of Contents~~

NOTE 6 – FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

FHLB Advances

The following table presents advances from the FHLB as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022			December 31, 2021			($ in thousands)	September 30, 2022			December 31, 2021
Fixed rate:	Fixed rate:							Fixed rate:
Outstanding balance (1)	Outstanding balance (1)	$	411,000		$	411,000		Outstanding balance (1)	$	611,000		$	411,000
Interest rates ranging from	Interest rates ranging from	0.64		%	0.64		%	Interest rates ranging from	0.64		%	0.64		%
Interest rates ranging to	Interest rates ranging to	3.32		%	3.32		%	Interest rates ranging to	3.70		%	3.32		%
Weighted average interest rate	Weighted average interest rate	2.53		%	2.53		%	Weighted average interest rate	2.91		%	2.53		%
Variable rate:	Variable rate:							Variable rate:
Outstanding balance	Outstanding balance	$	105,000		$	70,000		Outstanding balance	$	120,000		$	70,000
Weighted average interest rate	Weighted average interest rate	1.64		%	0.20		%	Weighted average interest rate	3.18		%	0.20		%

(1)Excludes ~~$4.3~~$4.0 million and $4.9 million of unamortized debt issuance costs at ~~June~~September 30, 2022 and December 31, 2021.

Each advance is payable at its maturity date. Advances paid early are subject to a prepayment penalty. As of ~~June~~September 30, 2022, FHLB advances included ~~$105.0~~$120.0 million in overnight borrowings with a weighted average interest rate of ~~1.64%~~3.18% and ~~$411.0~~$611.0 million in term advances with a weighted average life of ~~3.5~~3.7 years and a weighted average interest rate of ~~2.53%~~2.91%.

~~Investments securities with carrying value of $205.5 million as of June 30, 2022 were pledged to secure~~ FHLB ~~advances. The Bank’s~~ advances ~~from the FHLB~~ are ~~also~~ collateralized by a blanket lien on all real estate loans. ~~Our~~As of September 30, 2022, our secured borrowing capacity with the FHLB totaled ~~$1.76~~$2.23 billion, of which the Bank was eligible to borrow an additional ~~$985.4 million at June 30, 2022~~$1.21 billion based on qualifying loans with an aggregate unpaid principal balance of ~~$2.38~~$3.20 billion as of that date. As of September 30, 2022, the Bank also has additional borrowing capacity with the FHLB of $164.0 million, of which the Bank was eligible to borrow an additional $44.0 million based on investment securities pledged with a carrying value of $214.6 million.

The Bank’s investment in capital stock of the FHLB of San Francisco totaled $20.2 million and $17.3 million at ~~June~~September 30, 2022 and December 31, 2021.

Table of Contents

FRB Borrowings

At ~~June~~September 30, 2022, the Bank had borrowing capacity with the Federal Reserve Bank of San Francisco (the “Federal Reserve”) of ~~$789.0~~$733.5 million, including the secured borrowing capacity through the ~~Federal Reserve~~FRB Discount Window and Borrower-in-Custody ("BIC") program. At June 30, 2022, the Bank has pledged certain qualifying loans with an unpaid principal balance of $1.01 billion and securities with a carrying value of $123.2 million as collateral for these lines of credit. Borrowings under the BIC program are overnight advances with interest chargeable at the discount window (“primary credit”) borrowing rate.

At September 30, 2022, the Bank has pledged certain qualifying loans with an unpaid principal balance of $975.5 million and securities with a carrying value of $123.1 million as collateral for these lines of credit.

There were no secured borrowings from the FRB Discount Window and no borrowings under the BIC program for the three and nine months ended September 30, 2022. There were no borrowings from the Federal Reserve at ~~June~~September 30, 2022 and December 31, ~~2021~~

~~There were no borrowings under this arrangement for the three and six months ended June 30, 2022 and~~ 2021.

The Bank’s investment in capital stock of the Federal Reserve totaled $34.2 million and $27.3 million at ~~June~~September 30, 2022 and December 31, 2021.

Other Borrowings

The Bank maintained available unsecured federal funds lines with 5five correspondent banks totaling $210.0 million, with no outstanding borrowings at ~~June~~September 30, 2022. The Bank also has the ability to access unsecured overnight borrowings from various financial institutions through the American Financial Exchange platform ("AFX"). The availability of such unsecured borrowings fluctuates regularly and are subject to the counterparties discretion and totaled $445.0 million and $441.0 million at ~~June~~September 30, 2022 and December 31, 2021. Borrowings under the AFX totaled ~~$85.0 million~~zero and $25.0 million at ~~June~~September 30, 2022 and December 31, 2021.

In December 2021, the holding company entered into a $50.0 million revolving line of credit, which matures on December 19, 2022. There were ~~$13.0~~$10.0 million and zero in borrowings under this line of credit at ~~June~~September 30, 2022 and December 31, 2021. At ~~June~~September 30, 2022, we were in compliance with all covenants under our revolving line of credit.

~~Table of Contents~~

The Bank also maintained repurchase agreements and had no outstanding securities sold under agreements to repurchase at ~~June~~September 30, 2022 and December 31, 2021. Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and the pledging of additional investment securities.

NOTE 7 – LONG-TERM DEBT

The following table presents our long-term debt as of the dates indicated:


				June 30, 2022				December 31, 2021							September 30, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Interest Rate	Maturity Date	Par Value		Unamortized Debt Issuance Cost and Discount		Par Value		Unamortized Debt Issuance Cost and Discount		($ in thousands)	Interest Rate	Maturity Date	Par Value		Unamortized Debt Issuance Cost and Discount		Par Value		Unamortized Debt Issuance Cost and Discount
Senior notes	Senior notes	5.25%	4/15/2025	$	175,000	$	(910)	$	175,000	$	(1,014)	Senior notes	5.25%	4/15/2025	$	175,000	$	(816)	$	175,000	$	(1,014)
Subordinated notes	Subordinated notes	4.375%	10/30/2030	85,000		(2,030)		85,000		(2,127)		Subordinated notes	4.375%	10/30/2030	85,000		(1,965)		85,000		(2,127)
PMB Statutory Trust III, junior subordinated debentures	PMB Statutory Trust III, junior subordinated debentures	Libor + 3.40%	9/26/2032	7,217		—		7,217		—		PMB Statutory Trust III, junior subordinated debentures	Libor + 3.40%	9/26/2032	7,217		—		7,217		—
PMB Capital Trust III, junior subordinated debentures	PMB Capital Trust III, junior subordinated debentures	Libor + 2.00%	10/8/2034	10,310		—		10,310		—		PMB Capital Trust III, junior subordinated debentures	Libor + 2.00%	10/8/2034	10,310		—		10,310		—
Total	Total			$	277,527	$	(2,940)	$	277,527	$	(3,141)	Total			$	277,527	$	(2,781)	$	277,527	$	(3,141)

At ~~June~~September 30, 2022, we were in compliance with all covenants under our long-term debt agreements.

NOTE 8 – INCOME TAXES

For the three and ~~six~~nine months ended ~~June~~September 30, 2022, income tax expense was ~~$10.2~~$9.9 million and ~~$28.9~~$38.9 million, resulting in an effective tax rate of ~~27.6%~~29.1% and ~~27.8%~~28.1%. For the three and ~~six~~nine months ended ~~June~~September 30, 2021, income tax expense was ~~$6.6~~$8.7 million and ~~$8.9~~$17.5 million, resulting in an effective tax rate of ~~25.6%~~27.2% and ~~20.9%~~23.6%. The effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and for the three months ended ~~June~~September 30, 2021, differs from the combined federal

Table of Contents

and state statutory rate for the consolidated company of 28.9% due primarily to various permanent tax differences, tax credits and other discrete tax items that impact our effective tax rate. For the ~~six~~nine months ended ~~June~~September 30, 2021, the effective tax rate differs from the 28.9% combined federal and state statutory rate due primarily to the net tax benefit of ~~$2.6~~$2.5 million from share-based awards, including the exercise of all previously issued outstanding stock appreciation rights in the first quarter of 2021 in addition to the various permanent tax differences, tax credits and other discrete tax items that impact our effective tax rate.

We account 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 our assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management will continue to evaluate both positive and negative evidence on a quarterly basis, including considering the four possible sources of future taxable income, such as future reversal of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback year(s), and future tax planning strategies. Based on this analysis, management determined, it was more likely than not, that all of the deferred tax assets would be realized; therefore, no valuation allowance was provided against the net deferred tax assets of ~~$54.5~~$56.4 million and $50.8 million at ~~June~~September 30, 2022 and December 31, 2021.

ASC 740-10-25 relates to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10-25 prescribes a threshold and a measurement process for recognizing in the financial statements a tax position taken or expected to be taken in a tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We had unrecognized tax benefits of ~~$955 thousand and~~ $925 thousand at ~~June~~both September 30, 2022 and December 31, ~~2021, respectively.~~2021. We do not believe that the unrecognized tax benefits will change materially in the next twelve months. As of ~~June~~September 30, 2022, the total unrecognized tax benefit that, if recognized, would impact the effective tax rate was ~~$725~~$699 thousand.

At ~~June~~September 30, 2022 and December 31, 2021, we had no accrued interest or penalties. In the event we are assessed interest and/or penalties by federal or state tax authorities, such amounts will be classified in the consolidated financial statements as income tax expense.

~~Table of Contents~~

We are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. We are no longer subject to examination by U.S. federal taxing authorities for years before 2018. The statute of limitations for the assessment of California franchise taxes has expired for tax years before 2017 (other state income and franchise tax statutes of limitations vary by state).

NOTE 9 – DERIVATIVE INSTRUMENTS

We use derivative instruments and other risk management techniques to reduce our exposure to adverse fluctuations in interest rates and foreign currency exchange rates in accordance with our risk management policies and to certain loan clients to allow them to hedge the risk of rising interest rates on their variable rate loans.

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, changes in fair value of interest rate swaps on loans and foreign exchange contracts were gains of ~~$82~~$38 thousand and ~~$185~~$224 thousand and were included in other income on the consolidated statements of operations. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, changes in fair value of interest rate swaps on loans and foreign exchange contracts were losses of ~~$71~~$41 thousand and gains of ~~$200~~$240 thousand.

The following table presents the notional amount and fair value of our derivative instruments ~~included in the consolidated statements of financial condition~~ as of the dates indicated.


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Notional Amount		Fair Value(1)		Notional Amount		Fair Value(1)		($ in thousands)	Notional Amount		Fair Value(1)		Notional Amount		Fair Value(1)
Derivative assets:	Derivative assets:									Derivative assets:

Interest rate swaps on loans	Interest rate swaps on loans	$	34,702	$	1,074	$	58,834	$	3,390	Interest rate swaps on loans	$	34,199	$	2,295	$	58,834	$	3,390
Foreign exchange contracts	Foreign exchange contracts	5,511		186		4,725		175		Foreign exchange contracts	4,629		382		4,725		175
Total	Total	$	40,213	$	1,260	$	63,559	$	3,565	Total	$	38,828	$	2,677	$	63,559	$	3,565
Derivative liabilities:	Derivative liabilities:									Derivative liabilities:

Interest rate swaps on loans	Interest rate swaps on loans	$	34,702	$	1,082	$	58,834	3,594		Interest rate swaps on loans	$	34,199	$	2,251	$	58,834	3,594

Foreign exchange contracts	Foreign exchange contracts	5,511		168		4,725		146		Foreign exchange contracts	4,629		377		4,725		146
Total	Total	$	40,213	$	1,250	$	63,559	$	3,740	Total	$	38,828	$	2,628	$	63,559	$	3,740

Table of Contents

(1)The fair value of interest rate swaps on loans and foreign exchange contracts are included in other assets and accrued expenses and other liabilities, respectively, in the accompanying consolidated statements of financial condition.

We have entered into agreements with counterparty financial institutions, which include master netting agreements that provide for the net settlement of all contracts with a single counterparty in the event of default. We elect, however, to account for all derivatives with counterparty institutions on a gross basis.

NOTE 10 – EMPLOYEE STOCK COMPENSATION

On May 31, 2018, our stockholders approved the Company's 2018 Omnibus Stock Incentive Plan (“2018 Omnibus Plan”). The 2018 Omnibus Plan provides that the maximum number of shares available for awards is 4,417,882. As of ~~June~~September 30, 2022, ~~2,169,018~~2,149,934 shares were available for future awards.

Stock-based Compensation Expense

The following table presents total stock-based compensation expense and the related tax benefits for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021

Restricted stock awards and units	Restricted stock awards and units	$	1,482	$	1,338	$	2,767	$	2,882	Restricted stock awards and units	$	1,715	$	1,106	$	4,482	$	3,988

Related tax benefits	Related tax benefits	$	428	$	394	$	799	$	849	Related tax benefits	$	495	$	326	$	1,295	$	1,175

~~Table of Contents~~

Total stock-based compensation expense represents the cost of time-based and performance-based stock units and awards. At ~~June~~September 30, 2022, unrecognized compensation expense related to restricted stock awards and restricted stock units totaled ~~$14.2~~$13.0 million and will be recognized over a weighted average remaining period of ~~3.0~~2.8 years.

Restricted Stock Awards and Restricted Stock Units

We have granted restricted stock awards and restricted stock units to certain employees, officers, and directors. The restricted stock awards and units are ~~valued at the closing price of our stock~~measured based on ~~the measurement date.~~grant-date fair value. The restricted stock awards and units fully vest after a specified period (generally ranging from one to five years) of continued service from the date of grant plus, in some cases, the satisfaction of performance conditions. These performance targets include conditions relating to our profitability, stock price and regulatory standing. The actual amounts of stock released upon vesting will be determined by the Compensation Committee of our Board of Directors upon the Committee's certification of the satisfaction of the target level of performance. We recognize an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted stock, generally upon vesting or, in the case of restricted stock units, when settled.

The following table presents unvested restricted stock awards and restricted stock units activity for the three and ~~six~~nine months ended ~~June~~September 30, 2022:


		Three Months Ended June 30, 2022			Six Months Ended June 30, 2022				Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
		Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares	Weighted Average Grant Date Fair Value Per Share			Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period	Outstanding at beginning of period	784,791	$	18.08	649,010	$	17.17	Outstanding at beginning of period	1,403,060	$	14.77	649,010	$	17.17
Granted (1)	Granted (1)	750,615	$	11.52	1,021,182	$	13.65	Granted (1)	29,935	$	13.88	1,051,117	$	13.66
Vested (2)	Vested (2)	(122,738)	$	15.66	(239,319)	$	16.34	Vested (2)	(29,983)	$	15.20	(269,302)	$	16.21
Forfeited (3)	Forfeited (3)	(9,608)	$	19.31	(27,813)	$	17.28	Forfeited (3)	(10,919)	$	18.83	(38,732)	$	17.72
Outstanding at end of period	Outstanding at end of period	1,403,060	$	14.77	1,403,060	$	14.77	Outstanding at end of period	1,392,093	$	14.71	1,392,093	$	14.71

(1)There were ~~695,567~~17,759 and ~~764,692~~782,451 performance-based shares/units included in shares granted for the three and ~~six~~nine months ended ~~June~~September 30, 2022.

(2)There were ~~24,783~~17,657 and ~~24,783~~42,440 performance-based shares/units included in vested shares for the three and ~~six~~nine months ended ~~June~~September 30, 2022.

Table of Contents

(3)The number of forfeited shares included aggregate performance-based shares/units of zero and 9,428 for the three and ~~six~~nine months ended ~~June~~September 30, 2022.

Stock Options

There were no stock options granted during the three and ~~six~~nine months ended ~~June~~September 30, 2022. There were no unvested stock options as of ~~June~~September 30, 2022 and December 31, 2021. The following tables represents stock option activity for the three and nine months ended ~~June~~September 30, 2022:

Three Months Ended June 30, 2022
($ in thousands, except per share data) Number of Shares Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contract Term Aggregated Intrinsic Value
Outstanding at beginning of period 14,904 $ 13.05
Exercised — $ —
Outstanding at end of period 14,904 $ 13.05 2.8 years $ 68
Exercisable at end of period 14,904 $ 13.05 2.8 years $ 68

~~Table of Contents~~


	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
($ in thousands, except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregate Intrinsic Value
Outstanding at beginning of period	14,904	$	13.05	14,904	$	13.05


Exercised	—	$	—	—	$	—


Outstanding at end of period	14,904	$	13.05	14,904	$	13.05	2.5 years	$	44
Exercisable at end of period	14,904	$	13.05	14,904	$	13.05	2.5 years	$	44

~~The following table represents stock option activity for the six months ended June 30, 2022:~~

Six Months Ended June 30, 2022
($ in thousands, except per share data) Number of Shares Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contract Term Aggregated Intrinsic Value
Outstanding at beginning of period 14,904 $ 13.05
Exercised — $ —
Outstanding at end of period 14,904 $ 13.05 2.8 years $ 68
Exercisable at end of period 14,904 $ 13.05 2.8 years $ 68

Stock Appreciation Rights

In the first quarter of 2021, all of our then outstanding stock appreciation rights (“SARs”) were fully exercised resulting in the issuance of 305,772 shares of voting common stock. In connection with the exercise of the SARs, we recognized a tax benefit of $2.1 million (refer to Note 8 - Income Taxes) during the ~~six~~nine months ended ~~June~~September 30, 2021. There are no further outstanding SARs.

NOTE 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

We are authorized to issue 50,000,000 shares of preferred stock with par value of $0.01 per share. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but generally have no voting rights. All of our outstanding shares of preferred stock had a $1,000 per share liquidation preference.

The following table presents our total outstanding preferred stock as of the dates indicated:


		June 30, 2022					December 31, 2021						September 30, 2022					December 31, 2021
($ in thousands)	($ in thousands)	Shares Outstanding	Liquidation Preference		Carrying Value		Shares Outstanding	Liquidation Preference		Carrying Value		($ in thousands)	Shares Outstanding	Liquidation Preference		Carrying Value		Shares Outstanding	Liquidation Preference		Carrying Value

Series E 7.00% non-cumulative perpetual	Series E 7.00% non-cumulative perpetual	—	—		—		98,702	98,702		94,956		Series E 7.00% non-cumulative perpetual	—	—		—		98,702	98,702		94,956
Total	Total	—	$	—	$	—	98,702	$	98,702	$	94,956	Total	—	$	—	$	—	98,702	$	98,702	$	94,956

Table of Contents

The following table summarizes redemptions and repurchases of these depositary shares for the periods indicated:

Three Months Ended
June 30, Six Months Ended
June 30,
($ in thousands) 2022 2021 2022 2021
Series D Preferred Stock:
Depositary shares repurchased — — — 3,730,767
Preferred Stock retired (shares) — — — 93,269
Consideration paid $ — $ — $ — $ 93,269
Carrying value — — — 89,922
Impact of preferred stock redemption $ — $ — $ — $ 3,347
Series E Preferred Stock:
Depositary shares repurchased — — 3,948,080 —
Preferred Stock retired (shares) — — 98,702 —
Consideration paid $ — $ — $ 98,703 $ —
Carrying value — — 94,956 —
Impact of preferred stock redemption $ — $ — $ 3,747 $ —

~~Table of Contents~~


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	2022		2021		2022		2021
Series D Preferred Stock:
Depositary shares repurchased	—		—		—		3,730,767
Preferred Stock retired (shares)	—		—		—		93,269

Consideration paid	$	—	$	—	$	—	$	93,269
Carrying value	—		—		—		89,922
Impact of preferred stock redemption	$	—	$	—	$	—	$	3,347

Series E Preferred Stock:
Depositary shares repurchased	—		—		3,948,080		—
Preferred Stock retired (shares)	—		—		98,702		—

Consideration paid	$	—	$	—	$	98,703	$	—
Carrying value	—		—		94,956		—
Impact of preferred stock redemption	$	—	$	—	$	3,747	$	—

During the first quarter of 2022, we redeemed all of our outstanding Series E Depositary Shares, resulting in an after-tax charge of $3.7 million in the accompanying consolidated statements of operations. During the first quarter of 2021, we redeemed all of our outstanding Series D Depositary Shares, resulting in an after-tax charge of $3.3 million in the accompanying consolidated statements of operations.

Stock Repurchase Program

On March 15, 2022, we announced our Board of Directors authorized the repurchase of up to $75 million of our common stock. The repurchase authorization expires in March 2023. Purchases may be made in open-market transactions, in block transactions on or off an exchange, in privately negotiated transactions or by other means as determined by our management and in accordance with the regulations of the SEC. The timing of purchases and the number of shares repurchased under the program will depend on a variety of factors including price, trading volume, corporate and regulatory requirements and market ~~conditions~~conditions.

During the three months ended ~~June~~September 30, 2022, common stock repurchased under the program totaled ~~2,113,176~~740,332 shares at a weighted average price of ~~$18.38.~~$17.49. During the ~~six~~nine months ended ~~June~~September 30, 2022, common stock repurchased under the program totaled ~~2,328,726~~3,069,058 shares at a weighted average price of ~~$18.52.~~$18.28. As of ~~June~~September 30, 2022, the Company had ~~$31.9~~$18.9 million remaining under the current stock repurchase authorization.

Change in Accumulated Other Comprehensive (Loss) Income ("AOCI")

Our AOCI includes unrealized gain (loss) on securities available-for-sale. Changes to AOCI are presented net of the tax effect as a component of stockholders' equity. Reclassifications from AOCI occur when a security is sold, called or matures and are recorded on the consolidated statements of operations either as a gain or loss. During the quarter ended March 31, 2022, we transferred certain ~~AFS~~ debt securities available-for-sale to ~~HTM.~~held-to-maturity. The unrealized loss on such securities at the time of transfer continues to be reported in AOCI and is amortized over the remaining life of the security as a yield adjustment. The following table presents changes to AOCI for the periods indicated:

Three Months Ended
June 30, Six Months Ended
June 30,
($ in thousands) 2022 2021 2022 2021
Balance at beginning of period $ (19,172) $ 5,185 $ 7,743 $ 7,746
Unrealized loss on securities available-for-sale:
Unrealized loss arising during the period (21,016) 13,550 (59,103) 9,912
Reclassification adjustment from other comprehensive income — — (16) —
Total unrealized loss on securities available-for-sale (21,016) 13,550 (59,119) 9,912
Amortization of unrealized loss of available-for-sale securities transferred to held-to-maturity 246 — 333 —
Tax effect of current period changes 5,883 (3,995) 16,984 (2,918)
Total changes, net of taxes (14,887) 9,555 (41,802) 6,994
Balance at end of period $ (34,059) $ 14,740 $ (34,059) $ 14,740

Table of Contents


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	2022		2021		2022		2021
Balance at beginning of period	$	(34,059)	$	14,740	$	7,743	$	7,746
Unrealized loss on securities available-for-sale:
Unrealized loss arising during the period	(19,289)		(5,377)		(78,392)		4,535

Reclassification adjustment from other comprehensive income	—		—		(16)		—

Total unrealized loss on securities available-for-sale	(19,289)		(5,377)		(78,408)		4,535
Amortization of unrealized loss of available-for-sale securities transferred to held-to-maturity	275		—		608		—
Tax effect of current period changes	5,494		1,585		22,478		(1,333)
Total changes, net of taxes	(13,520)		(3,792)		(55,322)		3,202

Balance at end of period	$	(47,579)	$	10,948	$	(47,579)	$	10,948

NOTE 12 – VARIABLE INTEREST ENTITIES

We hold ownership interests in alternative energy partnerships and qualified affordable housing partnerships and have a variable interest in a multifamily securitization trust. We evaluate our interests in these entities to determine whether they meet the definition of a variable interest entity ("VIE") and whether we are 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 we hold could potentially be significant to the VIE, we consider both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. We have determined that our interests in these entities meet the definition of variable interests; however none of the VIE's meet the criteria for consolidation.

~~Table of Contents~~

Unconsolidated VIEs

Multifamily Securitization

During the third quarter of 2019, we transferred $573.5 million of multifamily loans, through a two-step process, to a third-party depositor which placed the multifamily loans into a third-party trust (a VIE) that issued structured pass-through certificates to investors. The transfer of these loans was accounted for as a sale for financial reporting purposes, in accordance with ASC 860. We determined that we are not the primary beneficiary of this VIE as we do not have the power to direct the activities that will have the most significant economic impact on the entity, therefore we do not consolidate the securitization trust. Our continuing involvement in this securitization is limited to customary obligations associated with the securitization of loans, including the obligation to cure, repurchase, or substitute loans in the event of a material breach in representations. Additionally, we have the obligation to guarantee credit losses up to 12% of the aggregate unpaid principal balances at cut-off date of the securitization. This obligation is supported by a $68.8 million letter of credit between the Freddie Mac and the FHLB.

The maximum loss exposure that would be absorbed by us in the event that all of the assets in the securitization trust are deemed worthless is $68.8 million, which represents the aforementioned obligation to guarantee credit losses up to 12%. We believe that the loss exposure on the multifamily securitization is reduced by both loan-to-value ratios of the underlying collateral balances and the overcollateralization that exists within the securitization trust. At ~~June~~September 30, 2022, we have a $2.0 million repurchase reserve related to this VIE.

Alternative Energy Partnerships

We invested in certain alternative energy partnerships (limited liability companies) formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits (energy tax credits). These entities were formed to invest in newly established residential and commercial solar leases and power purchase agreements. As a result of our investments, we have the right to certain investment tax credits and tax depreciation benefits (recognized on the flow through income statement method in accordance with ASC 740), and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers for a fixed period of time. While our interest in the alternative energy partnerships meets the definition of a VIE in accordance with ASC 810, we have determined that we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of the entities including operational and credit risk management activities. As we are not the primary beneficiary, we did not consolidate the entities.

Table of Contents

We use the Hypothetical Liquidation at Book Value ("HLBV") method to account for our investments in energy tax projects as an equity investment under ASC 970-323-25-17. Under the HLBV method, an equity method investor determines its share of an investee's net earnings by comparing its claim on the investee's book value at the beginning and end of the period, assuming the investee were to liquidate all assets at their U.S. GAAP amounts and distribute the resulting cash to creditors and investors under their respective priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses from the equity investment for the period. To account for the tax credits earned on investments in alternative energy partnerships, we use the flow-through income statement method. Under this method, the tax credits are recognized as a reduction to income tax expense and the initial book-tax differences in the basis of the investments are recognized as additional tax expense in the year they are earned. Investments in alternative energy partnerships totaled ~~$23.5~~$22.4 million and $25.9 million at ~~June~~September 30, 2022 and December 31, 2021.

The following table presents information regarding activity in our alternative energy partnerships for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021
Fundings		$	—	$	—	$	—	$	—

Cash distribution from investment	Cash distribution from investment	582		570		1,156		1,108		Cash distribution from investment	$	626	$	657	$	1,782	$	1,765

(Loss) gain on investments in alternative energy partnerships	(Loss) gain on investments in alternative energy partnerships	(1,043)		829		(1,201)		(2,801)		(Loss) gain on investments in alternative energy partnerships	(504)		1,785		(1,705)		(1,016)
Income tax credits recognized		—		—		—		—
Tax expense (benefit) recognized from HLBV application		(301)		228		(347)		(770)

Tax (benefit) expense recognized from HLBV application										Tax (benefit) expense recognized from HLBV application	(146)		491		(493)		(280)

~~Table~~There were no fundings of ~~Contents~~

alternative energy partnership or related income tax credits recognized for the three and nine months ended September 30, 2022 and 2021.

The following table represents the carrying value of the associated unconsolidated assets and liabilities and the associated maximum loss exposure for alternative energy partnerships as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022		December 31, 2021		($ in thousands)	September 30, 2022		December 31, 2021
Cash	Cash	$	2,367	$	4,227	Cash	$	4,082	$	4,227
Equipment, net of depreciation	Equipment, net of depreciation	242,097		246,421		Equipment, net of depreciation	239,727		246,421
Other assets	Other assets	9,311		9,098		Other assets	9,841		9,098
Total unconsolidated assets	Total unconsolidated assets	$	253,775	$	259,746	Total unconsolidated assets	$	253,650	$	259,746
Total unconsolidated liabilities	Total unconsolidated liabilities	$	9,292	$	12,129	Total unconsolidated liabilities	$	9,020	$	12,129

Maximum loss exposure	Maximum loss exposure	$	23,531	$	25,888	Maximum loss exposure	$	22,401	$	25,888

The maximum loss exposure that would be absorbed by us in the event that all of the assets in alternative energy partnerships are deemed worthless is ~~$23.5~~$22.4 million, which is our recorded investment amount at ~~June~~September 30, 2022.

We believe that the loss exposure on our investments is reduced considering our return on our investment is provided not only by the cash flows of the underlying client leases and power purchase agreements, but also through the significant tax benefits, including the federal tax credit carryover that resulted from the investments. In addition, our exposure is further limited as the arrangements include a transition manager to support any transition of the solar company sponsor, whose role includes that of the servicer and operation and maintenance provider, in the event the sponsor would be required to be removed from its responsibilities (e.g., bankruptcy, breach of contract, etc.).

Capital Trusts - Trust Preferred Securities

In connection with our merger with PMB, we acquired investments in 2two grantor trusts. These grantor trusts were originally formed to sell and issue trust preferred securities to institutional investors (Refer to Note 7 - Long-term Debt). We are not the primary beneficiary, and consequently, these grantor trusts are not consolidated in the consolidated financial statements. At ~~June~~September 30, 2022 and December 31, 2021, our investment in these grantor trusts, which is included in other assets in the consolidated statements of financial condition, totaled $527 thousand.

Table of Contents

Qualified Affordable Housing Partnerships - Low Income Housing Tax Credits

We invest in limited partnerships that operate qualified affordable housing projects that qualify for low income housing tax credits (“LIHTC”). The returns on these investments are generated primarily through allocated Federal tax credits and other tax benefits. In addition, LIHTC investments contribute to our compliance with the Community Reinvestment Act. These limited partnerships are considered to be VIEs, because either (i) they do not have sufficient equity investment at risk or (ii) the limited partners with equity at risk do not have substantive kick-out rights through voting rights or substantive participating rights over the general partner. As a limited partner, we are not the primary beneficiary because the general partner has the ability to direct the activities of the VIEs that most significantly impact their economic performance. As a result, we do not consolidate these partnerships.

The following table presents information regarding balances in LIHTC investments for the periods indicated:


($ in thousands)	($ in thousands)	June 30, 2022		December 31, 2021		($ in thousands)	September 30, 2022		December 31, 2021
Ending balance(1)	Ending balance(1)	$	44,006	$	38,982	Ending balance(1)	$	46,944	$	38,982
Aggregate funding commitment	Aggregate funding commitment	67,961		61,278		Aggregate funding commitment	72,967		61,278
Total amount funded	Total amount funded	53,038		51,014		Total amount funded	54,166		51,014
Unfunded commitment	Unfunded commitment	14,923		10,264		Unfunded commitment	18,801		10,264
Maximum loss exposure	Maximum loss exposure	44,006		38,982		Maximum loss exposure	46,944		38,982

(1)Included in other assets in the accompanying Consolidated Statements of Financial Condition.

~~Table of Contents~~

The following table presents information regarding activity in our LIHTC investments for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021
Fundings	Fundings	$	919	$	1,161	$	2,024	$	2,164	Fundings	$	1,128	$	3,563	$	3,152	$	5,727
Proportional amortization recognized	Proportional amortization recognized	1,027		881		2,573		2,063		Proportional amortization recognized	1,350		1,051		3,727		3,114
Income tax credits recognized	Income tax credits recognized	1,163		1,158		2,536		2,311		Income tax credits recognized	1,298		1,155		3,834		3,466

NOTE 13 – EARNINGS PER COMMON SHARE

The following table presents computations of basic and diluted earnings per common share ("EPS") for the three and ~~six~~nine months ended ~~June~~September 30, 2022:


		Three Months Ended June 30, 2022				Six Months Ended June 30, 2022					Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
($ in thousands except per share data)	($ in thousands except per share data)	Common Stock		Class B Common Stock			Common Stock		Class B Common Stock			($ in thousands except per share data)	Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Net income	Net income	$	26,504	$	208		$	74,645	$	579		Net income	$	24,004	$	192	$	98,646	$	774

Less: preferred stock dividends	Less: preferred stock dividends	—		—			(1,409)		(11)			Less: preferred stock dividends	—		—		(1,409)		(11)
Less: preferred stock redemption	Less: preferred stock redemption	—		—			(3,718)		(29)			Less: preferred stock redemption	—		—		(3,718)		(29)

Net income allocated to common stockholders	Net income allocated to common stockholders	$	26,504	$	208		$	69,518	$	539		Net income allocated to common stockholders	$	24,004	$	192	$	93,519	$	734

Weighted average common shares outstanding	Weighted average common shares outstanding	60,873,481		477,321			61,497,261		477,321			Weighted average common shares outstanding	59,567,082		477,321		60,846,798		477,321
Dilutive effects of restricted shares/units	Dilutive effects of restricted shares/units	245,571		—			269,093		—			Dilutive effects of restricted shares/units	444,321		—		331,389		—

Dilutive effects of stock options	Dilutive effects of stock options	4,242		—			4,701		—			Dilutive effects of stock options	3,736		—		4,392		—

Average shares and dilutive common shares	Average shares and dilutive common shares	61,123,294		477,321			61,771,055		477,321			Average shares and dilutive common shares	60,015,139		477,321		61,182,579		477,321

Basic earnings per common share	Basic earnings per common share	$	0.44	$	0.44		$	1.13	$	1.13		Basic earnings per common share	$	0.40	$	0.40	$	1.54	$	1.54

Diluted earnings per common share	Diluted earnings per common share	$	0.43	$	0.44		$	1.13	$	1.13		Diluted earnings per common share	$	0.40	$	0.40	$	1.53	$	1.54

Table of Contents

For the three and ~~six~~nine months ended ~~June~~September 30, 2022, there were ~~354,484~~157,049 and ~~806~~3,391 anti-dilutive restricted shares/units and no anti-dilutive stock options that were excluded from computing diluted earnings per common share.

~~Table of Contents~~

The following table presents computations of basic and diluted EPS for the three and ~~six~~nine months ended ~~June~~September 30, 2021:


		Three Months Ended June 30, 2021				Six Months Ended June 30, 2021					Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
($ in thousands except per share data)	($ in thousands except per share data)	Common Stock		Class B Common Stock			Common Stock		Class B Common Stock			($ in thousands except per share data)	Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Net income	Net income	$	18,870	$	180		$	33,109	$	316		Net income	$	22,953	$	217	$	56,061	$	534
Less: income allocated to participating securities	Less: income allocated to participating securities	—		—			(121)		(1)			Less: income allocated to participating securities	—		—		(158)		(2)

Less: preferred stock dividends	Less: preferred stock dividends	(1,711)		(16)			(4,822)		(46)			Less: preferred stock dividends	(1,711)		(16)		(6,533)		(62)
Less: preferred stock redemption	Less: preferred stock redemption	—		—			(3,315)		(32)			Less: preferred stock redemption	—		—		(3,315)		(32)

Net income allocated to common stockholders	Net income allocated to common stockholders	$	17,159	$	164		$	24,851	$	237		Net income allocated to common stockholders	$	21,242	$	201	$	46,055	$	438

Weighted average common shares outstanding	Weighted average common shares outstanding	50,172,865		477,321			50,024,048		477,321			Weighted average common shares outstanding	50,239,359		477,321		50,096,607		477,321
Dilutive effects of stock units	Dilutive effects of stock units	238,008		—			302,848		—			Dilutive effects of stock units	188,850		—		242,803		—

Dilutive effects of stock options	Dilutive effects of stock options	4,008		—			6,068		—			Dilutive effects of stock options	3,787		—		5,241		—

Average shares and dilutive common shares	Average shares and dilutive common shares	50,414,881		477,321			50,332,964		477,321			Average shares and dilutive common shares	50,431,996		477,321		50,344,651		477,321

Basic earnings per common share	Basic earnings per common share	$	0.34	$	0.34		$	0.50	$	0.50		Basic earnings per common share	$	0.42	$	0.42	$	0.92	$	0.92

Diluted earnings per common share	Diluted earnings per common share	$	0.34	$	0.34		$	0.49	$	0.50		Diluted earnings per common share	$	0.42	$	0.42	$	0.91	$	0.92

For the three and ~~six~~nine months ended ~~June~~September 30, 2021, there were ~~218,829~~206,035 and ~~134,037~~194,615 anti-dilutive restricted shares/units and no anti-dilutive stock options that were excluded from computing diluted earnings per common share.

During the first quarter of 2021, all of the Company's outstanding stock appreciation rights (SARs) were exercised resulting in the net issuance of 305,772 shares of voting common stock. Prior to this exercise, the SARs were considered participating securities and income was allocated to the respective holder and not part of income (loss) available to common stockholders. After the exercise of all of the Company's outstanding SARs, there are no longer any participating securities outstanding and the net shares issued in settlement of such SARs are included in the computation of average common shares for both basic and diluted earnings per share.

NOTE 14 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as unfunded loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met prior to their expiration dates. Commitments may expire without being used. Risk of credit loss exists up to the face amount of these instruments. The same credit policies are used to make such commitments as are used for originating loans, including obtaining collateral at exercise of the commitment.

The following table presents the contractual amount of financial instruments with off-balance-sheet risk as of the periods indicated:


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		($ in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to extend credit	Commitments to extend credit	$	48,805	$	185,478	$	37,107	$	136,921	Commitments to extend credit	$	67,786	$	209,519	$	37,107	$	136,921
Unused lines of credit	Unused lines of credit	4,454		1,995,891		6,894		1,699,933		Unused lines of credit	6,377		2,082,929		6,894		1,699,933
Letters of credit	Letters of credit	2,825		7,299		2,553		5,617		Letters of credit	2,579		7,088		2,553		5,617

Other Commitments

At ~~June~~September 30, 2022, we had unfunded commitments of ~~$14.9~~$18.8 million, $9.4 million, and ~~$7.9~~$12.1 million for LIHTC investments, Small Business Investment Company ("SBIC") investments, and other investments, respectively.

4345

Table of ~~Contents~~Contents

NOTE 15 – REVENUE RECOGNITION

The following table presents noninterest income, segregated by revenue streams, in-scope and out-of-scope of Topic 606 - Revenue From Contracts With Customers, for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021
Noninterest income	Noninterest income									Noninterest income
In scope of Topic 606	In scope of Topic 606									In scope of Topic 606
Deposit service fees	Deposit service fees	$	1,627	$	825	$	3,281	$	1,635	Deposit service fees	$	1,486	$	913	$	4,767	$	2,548
Debit card fees	Debit card fees	542		496		995		883		Debit card fees	472		451		1,467		1,333

Other	Other	137		102		296		181		Other	240		146		536		327
Noninterest income (in-scope of Topic 606)	Noninterest income (in-scope of Topic 606)	2,306		1,423		4,572		2,699		Noninterest income (in-scope of Topic 606)	2,198		1,510		6,770		4,208
Noninterest income (out-of-scope of Topic 606)	Noninterest income (out-of-scope of Topic 606)	4,880		2,020		8,524		5,553		Noninterest income (out-of-scope of Topic 606)	3,483		4,009		12,007		9,563
Total noninterest income	Total noninterest income	$	7,186	$	3,443	$	13,096	$	8,252	Total noninterest income	$	5,681	$	5,519	$	18,777	$	13,771

We do not typically enter into long-term revenue contracts with clients and as of ~~June~~September 30, 2022 and December 31, 2021, we did not have any significant contract balances within the scope of Topic 606. As of ~~June~~September 30, 2022, we did not capitalize any revenue contract acquisition costs.

Sale-leaseback ~~Transaction:~~Transactions

In January 2022, we completed a sale-leaseback transaction for ~~1 of our branch locations. We sold the branch for~~ $2.4 million and recognized a gain of $771 ~~thousand~~thousand. In September 2021, we also completed a sale-leaseback transaction in which iswe sold a branch building for $4.2 million and recognized a gain of $841 thousand. Gains related to sale-leaseback are included in other income in the accompanying consolidated statements of operations.

NOTE 16 – RELATED-PARTY TRANSACTIONS

Certain of our executive officers and directors, and their related interests, are customers of, or have had transactions with the Bank in the ordinary course of business, including deposits, loans and other financial services related transactions. From time to time, the Bank may make loans to executive officers and directors, and their related interests, in the ordinary course of business and on substantially the same terms and conditions, including interest rates and collateral, as those of comparable transactions with non-insiders prevailing at the time, in accordance with the Bank’s underwriting guidelines, and do not involve more than the normal risk of collectability or present other unfavorable features. As of ~~June~~September 30, 2022, no related party loans were categorized as nonaccrual, past due, restructured or potential problem loans.

Transactions with Related Parties

The Company and the Bank have engaged in transactions described below with the Company’s current or former directors, executive officers, and beneficial owners of more than five percent of the outstanding shares of the Company’s voting common stock and certain persons related to them.

As previously disclosed, the Company’s Board of Directors has authorized and directed the Company to provide indemnification, advancement and/or reimbursement for the costs of separate independent counsel retained by any then-current officer or director, in their individual capacity, with respect to matters related to (i) an investigation by the Special Committee of the Company’s Board of Directors in late 2016, (ii) a formal order of investigation issued by the SEC on January 4, 2017 (since resolved), and (iii) any civil or administrative proceedings against the Company as well as officers and directors currently or previously associated with the Company (collectively, the “Indemnified Matters”).

Indemnification costs were paid or reimbursed by the Company or its insurance carriers onon behalf of certain current directors in connection with the Indemnified Matters, in an aggregate amount less than $120 thousand and ~~$208~~$244 thousand for the three and ~~six~~nine months ended ~~June~~September 30, 2022. Indemnification costs were paid or reimbursed by the Company or its insurance carriers on behalf of certain current directors in connection with the Indemnified Matters in aggregate ~~amount of $156~~amounts $244 thousand and $400 thousand for the three and ~~six~~nine months ended ~~June~~September 30, 2021.

4446

Table of ~~Contents~~Contents

NOTE 17 – LITIGATION

From time to time, we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. In accordance with applicable accounting guidance, we establish an accrued liability when those matters present loss contingencies that are both probable and estimable.

While the ultimate liability with respect to legal actions cannot be determined at this time, we believe that damages, if any, and other amounts relating to pending matters are not likely to be material to the consolidated financial statements.

NOTE 18 – SUBSEQUENT EVENTS

We have evaluated events from the date of the consolidated financial statements on ~~June~~September 30, 2022 through the issuance of these consolidated financial statements included in this Quarterly Report on Form 10-Q.

Subsequent to ~~June~~September 30, 2022, we repurchased ~~485,282~~1,044,009 shares of common stock at a weighted average price of ~~$18.07,~~$16.58, or ~~$8.8~~$17.3 million. Since the announcement of the stock repurchase program on March 15, 2022, we have repurchased a total of ~~2,813,978~~4,113,067 shares of common stock at a weighted average price of ~~$18.45~~$17.85 per share, or ~~$51.9~~$73.4 million.

There have been no other subsequent events that occurred during such period that would require disclosure in this report or would be required to be recognized in the consolidated financial statements as of ~~June~~September 30, 2022.

4547

Table of ~~Contents~~Contents

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2022. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the quarterly period ended ~~June~~September 30, 2022.

Executive Overview

We are focused on providing core banking products and services, including customized and innovative banking and lending solutions designed to cater to the unique needs of California's diverse businesses, entrepreneurs and communities through our 3129 full service branches in Orange, Los Angeles, San Diego, and Santa Barbara Counties. Through our over ~~670~~684 dedicated professionals, we are committed to servicing and building enduring relationships by providing a higher standard of banking. We offer a variety of financial products and services designed around our target clients in order to serve their banking and financial needs. We also acquired Deepstack Technologies to be able to offer full stack payment processing solutions and become the hub of the financial services ecosystem for our clients. We continue to grow average loans and earning assets, improve our deposit mix, ~~reduce~~manage our cost of ~~deposits,~~funds, and maintain disciplined expense control. Strong loan production helped to offset runoff in certain legacy areas of our portfolio. Our loan pipeline is steadily building which is expected to support continued loan and earning asset growth through the year, assuming improving economic trends continue.

On October 18, 2021, we consummated our merger with Pacific Mercantile Bancorp (PMB). Through these efforts, we continue to transform our franchise into a relationship-focused community bank, maintaining our credit quality and serving businesses, entrepreneurs and individuals within our footprint.

Financial Highlights

For the ~~second~~third quarter of 2022, net income and net income available to common stockholders was ~~$26.7~~$24.2 million, or ~~$0.43~~$0.40 per diluted common share. This compares to net income of ~~$48.5~~$26.7 million and net income available to common stockholders of ~~$43.3~~$26.7 million, or ~~$0.69~~$0.43 per diluted common share, for the ~~first~~second quarter of 2022 and net income of ~~$19.1~~$23.2 million and net income available to common stockholders of ~~$17.3~~$21.4 million, or ~~$0.34~~$0.42 per diluted common share, for the ~~second~~third quarter of 2021. ~~The first quarter of 2022 net~~Net income available to common stockholders ~~included a $31.3~~includes pre-tax transaction costs of $2.1 million ~~pre-tax recovery from the settlement of a previously charged-off loan and a $3.7 million after-tax charge~~ related to the ~~redemption~~Deepstack acquisition for the third quarter of ~~Series E Preferred Stock.~~2022 and $1.0 million related to the PMB acquisition for the third quarter of 2021. The operating results of PMB ~~have been~~are included ~~since the~~from its October 18, 2021 acquisition date, ~~of acquisition in the fourth quarter of 2021~~ and consequently, may impact the comparison of the financial results for the periods presented.

~~Financial results for the second~~Third quarter of 2022 ~~included:~~highlights:

•Acquisition of Deepstack completed on September 15, 2022

•Adjusted diluted EPS of ~~$0.45~~$0.44

•Return on average assets of ~~1.15%, compared to 2.09% in the prior quarter~~1.02%

•Adjusted return on average assets of 1.13%

•Pre-tax pre-provision return on average assets of ~~1.58%, up from 1.54% in the prior quarter~~1.44%

•Adjusted pre-tax pre-provision return on average assets of 1.59%

•Net interest margin of 3.58%~~, an increase of 7 basis points from the prior quarter~~

•~~Average noninterest-bearing~~Noninterest-bearing deposits increased $117.0 million or 17% annualized to represent 40% of ~~38%, flat with the prior~~total quarter

•~~Book value per common share of $15.70, up from $15.65 in the prior quarter~~

•~~Tangible common equity per common share of $14.05, flat with the prior quarter~~ end deposits

•Average cost of total deposits of ~~0.17%, an increase of 9 basis points from the prior quarter~~0.47%

•Allowance for credit losses at ~~1.34%~~1.36% of total loans and ~~224%~~232% of non-performing loans, up from ~~1.32%~~1.34% and ~~181%~~224% in the prior quarter

•Repurchased ~~$38.9~~$13.0 million of ~~common~~common stock during the quarter and ~~$51.9~~$73.4 million cumulatively this year through ~~July~~ 20November 4, 2022

~~COVID-19 Operational Update~~

~~The markets in which we operate are impacted by continuing uncertainty about~~Acquisition of Deepstack Technologies

On September 15, 2022, the pace and strength of reopening and recovering from the COVID-19 pandemic. Despite the challenges created by the pandemic, we continue to execute on our strategic initiatives and the transformation of our balance sheet. All of our branches have been reopened, including those branches in overlapping areas we temporarily closed at the beginningCompany completed its acquisition of the ~~pandemic~~assets of Deepstack for $24 million in total consideration. Deepstack is a differentiated software-led and e-commerce payments platform that provides clients with payment solutions, including merchant processing, payments acceptance and disbursements, tokenization, virtual accounts, fraud protection tools, chargeback management, and reconciliation and reporting services. Deepstack advances Banc of California's goal to ~~ensure an adequate balance between employee~~be the hub of the financial services ecosystem for clients while creating another driver of profitable long-term growth and ~~client safety and business continuity~~franchise value including:

•Scalable, meaningful fee-based income

•New clients in verticals attractive to ~~meet our clients' banking needs. We have adopted a hybrid workplace environment, allowing many~~Banc of ~~our employees outside~~California

•New source of our branches the flexibility to continue to work remotely. We encourage our employees to get vaccinated and we continue to monitor all federal, state, and local laws to ensure we are in compliance with the latest health orders.noninterest-bearing deposits

4648

Table of ~~Contents~~Contents

~~As of June 30, 2022, we have helped businesses through the funding of $411 million in PPP loans~~The Deepstack acquisition is accounted for as a business combination under U.S. GAAP and continue to support our clients as we work with them through the forgiveness process. Prior to acquisition, PMB originated $390 million in PPP loans. At June 30, 2022, outstanding PPP loans totaled $28.4 million, net of fees, of which $6.1 million related to round one and $22.3 million related to round twoinitial estimates of the ~~SBA program.~~

~~Borrower Payment Relief Efforts~~

~~We have been committed to supporting our customers during this period~~fair value of ~~economic uncertainty. We actively engaged with our borrowers seeking payment relief~~identifiable intangible assets and ~~waived certain fees for impacted clients. One method we deployed was to offer forbearance and deferments to qualified clients. For single-family residential mortgage loans,~~goodwill acquired are reflected in the forbearance period was initially 90 days in length and was patterned after the HUD guidelines where applicable. With respect to our non-SFR loan portfolio, the forbearance and deferment periods were also initially 90 days in length and were permitted to be extended. For those commercial borrowers that demonstrated a continuing need for a deferral, we generally obtained credit enhancements suchCompany's balance sheet as ~~additional collateral, personal guarantees, and/or reserve requirements in order to grant an additional deferral period. As~~ of ~~June~~September 30, ~~2022, we no longer offer COVID-related deferments or forbearances, and we do not have any deferments or forbearances outstanding.~~

~~For a discussion of the risk factors related to COVID-19, please refer to Part II, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.~~2022.

CRITICAL ACCOUNTING ESTIMATES

We follow accounting and reporting policies and procedures that conform, in all material respects, to GAAP and to practices generally applicable to the financial services industry, the most significant of which are described in Note 1 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make judgments and accounting estimates that affect the amounts reported for assets, liabilities, revenues and expenses on the Consolidated Financial Statements and accompanying notes, and amounts disclosed as contingent assets and liabilities. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

Accounting estimates are necessary in the application of certain accounting policies and procedures that are particularly susceptible to significant change. Critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties, and could potentially result in materially different results under different assumptions and conditions. Management has identified our most critical accounting policies and accounting estimates as: investment securities, allowance for credit losses, business combinations, valuation of acquired loans, goodwill and deferred income taxes. See Note 1 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Unuadited) included in Item 1 for a description of these policies.

Investment Securities. Held-to-maturity debt securities are carried at amortized cost and available-for-sale debt securities are carried at fair value. These securities are analyzed for credit deterioration under ASC 326, which requires the Company to determine whether impairment exists as of the reporting date and whether that impairment is due to credit deterioration. An allowance for credit losses would be established for losses on held-to-maturity and available-for-sale debt securities due to credit losses and would be reported as a component of provision for credit losses.

~~Table of Contents~~

The valuation of investment securities considers observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and respective terms and conditions for debt instruments. We employ procedures to monitor the pricing service's assumptions and establish processes to challenge the pricing service's valuations that appear unusual or unexpected. Multiple quotes or prices may be obtained in this process and we determine which fair value is most appropriate based on market information and analysis. Quotes obtained through this process are generally non-binding. We follow established procedures to ensure that assets and liabilities are properly classified in the fair value hierarchy. All securities available-for-sale were classified as Level 2 at ~~June~~September 30, 2022 and December 31, 2021. When a market is illiquid or there is a lack of transparency around the inputs to valuation, including at least one unobservable input, the securities are classified as Level 3 and reliance is placed upon internally developed models and management's judgment and evaluation for valuation. We had no securities available-for-sale classified as Level 3 at ~~June~~September 30, 2022 and December 31, 2021.

The estimates used to determine the fair values of investment securities can be complex and require judgment. These critical estimates are difficult to predict and may result in credit losses in future periods if actual results materially differ from the estimated assumptions utilized in our valuation of these assets.

Allowance for Credit Losses (“ACL”). The ACL is estimated on a quarterly basis and represents management’s estimate of current expected credit losses (“CECL”) in our loan portfolio. The ACL estimate is based on the accounting standard commonly known as CECL. Under the CECL method, pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. Collective loss estimates are determined by applying loss factors, designed to estimate current expected credit losses, to amortized cost balances over the remaining life of the collectively evaluated portfolio. The allowance for loan losses includes qualitative adjustments to bring the allowance to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including those described in the federal banking agencies' joint interagency policy statement on ALL. These factors include, among others, inherent imprecision in forecasting economic variables, including determining the depth and duration of economic cycles and their impact to relevant economic variables; qualitative adjustments based on our evaluation of different forecast scenarios and known recent events impacting relevant economic variables; data factors that address the risk that certain model inputs may not reflect all available information including (i) risk factors that have not been fully addressed in internal risk ratings, (ii) changes in lending policies and procedures, (iii) changes in the level and quality of experience held by lending management, (iv) imprecision in the risk rating system and (v) limitations in data available for certain loan portfolios. The ACL process also includes challenging and calibrating the model and model results against observed information, trends and events within the loan portfolio, among others. The ACL and provision for credit losses include amounts and changes from both the allowance for loan losses and the reserve for unfunded commitments.

Table of Contents

Business Combinations. Business combinations are accounted for using the acquisition method of accounting under ASC Topic 805 - Business Combinations. Under the acquisition method, the Company measures the identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination at fair value on acquisition date. Goodwill is generally determined as the excess of the fair value of the consideration transferred, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

We allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The fair values of other intangibles are determined utilizing information available near the acquisition date based on expectations and assumptions that are deemed reasonable by management. The estimates used to determine the fair values of assets and liabilities acquired in a business combination can be complex and require ~~judgment.~~ judgment, as such we typically engage third-party valuation specialists for significant items.

For example, we generally value core deposit intangible assets using a discounted cash flow approach, which require a number of critical estimates that include, but are not limited to, future expected cash flows from depositor relationships, expected "decay" rates, and the determination of discount rates. We used the multi-period excess earnings method to value developed technology, the foregone cash flow method to value client relationships, and the relief from royalty method to value trademarks. Non-compete agreements are estimated using a with and without scenario where cash flows are projected through the term of the non-compete agreement assuming the agreement is in place and compared to cash flows assuming it is not in place. In valuing these intangibles, we made forward looking assumptions regarding expected future revenues and expenses to develop the underlying forecasts, applied contributory asset charges, discount rates, useful lives and other estimates. These critical estimates are difficult to predict and may result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our initial valuation of net assets and liabilities acquired.

Goodwill. Goodwill represents the excess purchase price of businesses acquired over the fair value of the identifiable net assets acquired. Goodwill is not subject to amortization and is evaluated for impairment at least annually, normally during the fourth fiscal quarter, or more frequently in the interim if events occur or circumstances change indicating impairment may have occurred. The determination of whether impairment has occurred is based on an assessment of several factors, including, but not limited to, operating results, business plans, economic projections, anticipated future cash flows, and current market data. Any impairment identified as part of this testing is recognized through a charge to noninterest expense.

The assessment of impairment discussed above incorporate inherent uncertainties, including projected operating results and future market conditions, which are often difficult to predict and may result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts.

Acquired Loans. At acquisition date, loans are evaluated to determine whether they meet the criteria of a purchased credit-deteriorated (“PCD”) loan. PCD loans are loans that in management's judgement have experienced more than insignificant deterioration in credit quality since origination. Factors that indicate a loan may have experienced more than insignificant credit deterioration include delinquency, downgrades in credit rating, non-accrual status, and other negative factors identified by

~~Table of Contents~~

management at the time of initial assessment. PCD loans are initially recorded at fair value, with the resulting non-credit discount or premium being amortized or accreted into interest income using the interest method. In addition to the fair value adjustment, at the date of acquisition, an ACL is established with a corresponding increase to the overall acquired loan balance. This initial ACL is determined using the Company's current expected credit losses methodology.

Acquired loans that are not considered PCD loans (“non-PCD loans”) are also recognized at fair value at the acquisition date, with the resulting credit and non-credit discount or premium being amortized or accreted into interest income using the interest method. In addition to the fair value adjustment, at the time of acquisition, the Company establishes an initial ACL for acquired non-PCD loans through a charge to the provision for credit losses. This initial ACL is determined using the Company's current expected credit losses methodology.

Subsequent to acquisition date, the ACL for both PCD and non-PCD loans is determined using the same methodology to determine current expected credit losses that is applied to all other loans.

The estimates used to determine the fair values of non-PCD and PCD acquired loans can be complex and require significant judgment regarding items such as default rates, timing and amount of future cash flows, prepayment rates and other factors. These critical estimates are difficult to predict and may result in provisions for credit losses in future periods if actual losses materially differ from the estimated assumptions utilized in our initial valuation of acquired loans.

Deferred Taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating loss and tax credit carryforwards. Accounting guidance requires that companies assess whether a valuation allowance should be established against the deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,

Table of Contents

it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management will continue to evaluate both positive and negative evidence on a quarterly basis, including considering the four possible sources of future taxable income, such as future reversal of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback year(s), and future tax planning strategies.

Although we believe our assessments of the realizability of deferred income taxes are reasonable, no assurance can be given that their realizability will not be different from that which is reflected in our net deferred tax asset balance.

Tax positions that are uncertain but meet a more-likely-than-not recognition threshold are initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position meets the more likely than not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management's judgment.

We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.

Recent Accounting Pronouncements Not Yet Adopted

Our recent accounting pronouncements not yet adopted are described in Note 1 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and in Note 1 Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

4951

Table of ~~Contents~~Contents

Non-GAAP Financial Measures

Under Item 10(e) of SEC Regulation S-K, public companies disclosing financial measures in filings with the SEC that are not calculated in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a presentation of the most directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as a statement of the reasons why the company's management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the company's financial condition and results of operations and, to the extent material, a statement of the additional purposes, if any, for which the company's management uses the non-GAAP financial measure.

Tangible assets, tangible equity, tangible common equity, tangible equity to tangible assets, tangible common equity to tangible assets, tangible common equity per common share, return on average tangible common equity, adjusted noninterest expense, adjusted noninterest expense to average total assets, pre-tax pre-provision (PTPP) income, adjusted PTPP income, PTPP income (loss) ROAA, adjusted PTPP income ROAA, efficiency ratio, adjusted efficiency ratio, adjusted net income, adjusted net income available to common stockholders, adjusted diluted earnings per share (EPS) and adjusted return on average assets (ROAA) constitute supplemental financial information determined by methods other than in accordance with GAAP. These non-GAAP measures are used by management in its analysis of the Company's performance.

Tangible assets and tangible equity are calculated by subtracting goodwill and other ~~intangible assets~~intangibles from total assets and total equity. Tangible common equity is calculated by subtracting preferred stock from tangible equity. Return on average tangible common equity is computed by dividing net income (loss) available to common stockholders, after adjustment for amortization of ~~intangible assets,~~other intangibles, by average tangible common equity. Banking regulators also exclude goodwill and other ~~intangible assets~~intangibles from stockholders' equity when assessing the capital adequacy of a financial institution.

PTPP income is calculated by adding net interest income and noninterest income (total revenue) and subtracting noninterest expense. Adjusted PTPP income is calculated by adding total revenue and subtracting adjusted noninterest expense. PTPP income ROAA is computed by dividing annualized PTPP income by average assets. Adjusted PTPP income ROAA is computed by dividing annualized adjusted PTPP income by average assets. Efficiency ratio is computed by dividing noninterest expense by total revenue. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by total revenue.

Adjusted net income is calculated by adjusting net income for tax-effected noninterest expense adjustments and the tax impact from the exercise of stock appreciation rights for the periods indicated. Adjusted ROAA is computed by dividing annualized adjusted net income by average assets. Adjusted net income available to common stockholders is computed by removing the impact of preferred stock redemptions from adjusted net income. Adjusted diluted earnings per share is computed by dividing adjusted net income available to common stockholders by the weighted average diluted common shares outstanding.

Management believes the presentation of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the financial results and operating performance of the Company. This disclosure should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

The following tables provide reconciliations of the non-GAAP measures with financial measures defined by GAAP.

5052

Table of ~~Contents~~Contents


(Dollars in thousands, except per share data) (Unaudited)	(Dollars in thousands, except per share data) (Unaudited)	June 30, 2022			December 31, 2021			(Dollars in thousands, except per share data) (Unaudited)	September 30, 2022			December 31, 2021
Tangible common equity, and tangible common equity to tangible assets ratio	Tangible common equity, and tangible common equity to tangible assets ratio							Tangible common equity, and tangible common equity to tangible assets ratio
Total assets	Total assets	$	9,502,113		$	9,393,743		Total assets	$	9,368,578		$	9,393,743
Less goodwill	Less goodwill	(95,127)			(94,301)			Less goodwill	(114,312)			(94,301)
Less other intangible assets		(4,677)			(6,411)
Less other intangibles								Less other intangibles	(8,081)			(6,411)
Tangible assets(1)	Tangible assets(1)	$	9,402,309		$	9,293,031		Tangible assets(1)	$	9,246,185		$	9,293,031

Total stockholders' equity	Total stockholders' equity	$	949,130		$	1,065,290		Total stockholders' equity	$	951,990		$	1,065,290
Less preferred stock	Less preferred stock	—			(94,956)			Less preferred stock	—			(94,956)
Total common stockholders' equity	Total common stockholders' equity	$	949,130		$	970,334		Total common stockholders' equity	$	951,990		$	970,334

Total stockholders' equity	Total stockholders' equity	$	949,130		$	1,065,290		Total stockholders' equity	$	951,990		$	1,065,290
Less goodwill	Less goodwill	(95,127)			(94,301)			Less goodwill	(114,312)			(94,301)
Less other intangible assets		(4,677)			(6,411)
Less other intangibles								Less other intangibles	(8,081)			(6,411)
Tangible equity(1)	Tangible equity(1)	849,326			964,578			Tangible equity(1)	829,597			964,578
Less preferred stock	Less preferred stock	—			(94,956)			Less preferred stock	—			(94,956)
Tangible common equity(1)	Tangible common equity(1)	$	849,326		$	869,622		Tangible common equity(1)	$	829,597		$	869,622

Total stockholders' equity to total assets	Total stockholders' equity to total assets	9.99		%	11.34		%	Total stockholders' equity to total assets	10.16		%	11.34		%
Tangible equity to tangible assets(1)	Tangible equity to tangible assets(1)	9.03		%	10.38		%	Tangible equity to tangible assets(1)	8.97		%	10.38		%
Tangible common equity to tangible assets(1)	Tangible common equity to tangible assets(1)	9.03		%	9.36		%	Tangible common equity to tangible assets(1)	8.97		%	9.36		%

Common shares outstanding	Common shares outstanding	59,985,736			62,188,206			Common shares outstanding	59,679,558			62,188,206
Class B non-voting non-convertible common shares outstanding	Class B non-voting non-convertible common shares outstanding	477,321			477,321			Class B non-voting non-convertible common shares outstanding	477,321			477,321
Total common shares outstanding	Total common shares outstanding	60,463,057			62,665,527			Total common shares outstanding	60,156,879			62,665,527

Book value per common share	Book value per common share	$	15.70		$	15.48		Book value per common share	$	15.83		$	15.48
Tangible common equity per common share(1)	Tangible common equity per common share(1)	$	14.05		$	13.88		Tangible common equity per common share(1)	$	13.79		$	13.88

(1)Non-GAAP measure.

5153

Table of ~~Contents~~Contents


		Three Months Ended						Six Months Ended June 30,				Three Months Ended											Nine Months Ended September 30,
(Dollars in thousands) (Unaudited)	(Dollars in thousands) (Unaudited)	June 30, 2022			March 31, 2022				June 30, 2021				2022			2021			(Dollars in thousands) (Unaudited)	September 30, 2022			June 30, 2022			September 30, 2021			2022			2021
Return on tangible common equity	Return on tangible common equity																		Return on tangible common equity
Average total stockholders' equity	Average total stockholders' equity	$	969,885		$	1,049,912			$	814,973			$	1,009,677		$	851,371		Average total stockholders' equity	$	960,806		$	969,885		$	847,941		$	993,208		$	850,215
Less average preferred stock	Less average preferred stock	—			(75,965)				(94,956)				(37,773)			(129,733)			Less average preferred stock	—			—			(94,956)			(25,043)			(118,013)
Average total common stockholders' equity	Average total common stockholders' equity	969,885			973,947				720,017				971,904			721,638			Average total common stockholders' equity	960,806			969,885			752,985			968,165			732,202
Less average goodwill	Less average goodwill	(95,127)			(94,307)				(37,144)				(94,719)			(37,144)			Less average goodwill	(98,916)			(95,127)			(37,144)			(96,133)			(37,144)
Less average other intangible assets		(4,869)			(6,224)				(2,224)				(5,543)			(2,370)
Less average other intangibles																			Less average other intangibles	(4,570)			(4,869)			(1,941)			(5,216)			(2,226)
Average tangible common equity(1)	Average tangible common equity(1)	$	869,889		$	873,416			$	680,649			$	871,642		$	682,124		Average tangible common equity(1)	$	857,320		$	869,889		$	713,900		$	866,816		$	692,832

Net income available to common stockholders	Net income available to common stockholders	$	26,712		$	43,345			$	17,323			$	70,057		$	25,088		Net income available to common stockholders	$	24,196		$	26,712		$	21,443		$	94,253		$	46,493
Add amortization of intangible assets		313			441				282				754			564
Add amortization of other intangibles																			Add amortization of other intangibles	396			313			282			1,150			846

Less tax effect on amortization of intangible assets(2)		(66)			(93)				(59)				(158)			(118)
Less tax effect on amortization of other intangibles(2)																			Less tax effect on amortization of other intangibles(2)	(83)			(66)			(59)			(242)			(178)
Net income available to common stockholders(1)	Net income available to common stockholders(1)	$	26,959		$	43,693			$	17,546			$	70,653		$	25,534		Net income available to common stockholders(1)	$	24,509		$	26,959		$	21,666		$	95,161		$	47,161

Return on average equity	Return on average equity	11.05		%	18.74		%		9.38		%		15.02		%	7.92		%	Return on average equity	9.99		%	11.05		%	10.84		%	13.38		%	8.90		%
Return on average tangible common equity(1)	Return on average tangible common equity(1)	12.43		%	20.29		%		10.34		%		16.35		%	7.55		%	Return on average tangible common equity(1)	11.34		%	12.43		%	12.04		%	14.68		%	9.10		%

(1)Non-GAAP measure.

(2)Adjustments shown net of a statutory Federal tax rate of 21%.


		Three Months Ended						Six Months Ended June 30,				Three Months Ended											Nine Months Ended September 30,
(Dollars in thousands) (Unaudited)	(Dollars in thousands) (Unaudited)	June 30, 2022			March 31, 2022				June 30, 2021				2022			2021			(Dollars in thousands) (Unaudited)	September 30, 2022			June 30, 2022			September 30, 2021			2022			2021
Adjusted noninterest expense	Adjusted noninterest expense																		Adjusted noninterest expense

Total noninterest expense	Total noninterest expense	$	48,612		$	46,596			$	39,832			$	95,208		$	86,995		Total noninterest expense	$	50,962		$	48,612		$	37,811		$	146,170		$	124,806
Noninterest expense adjustments:	Noninterest expense adjustments:																		Noninterest expense adjustments:

Professional recoveries (fees)		(455)			106				1,284				(349)			563
Merger-related costs		—			—				(700)				—			(1,400)
Professional (fees) recoveries																			Professional (fees) recoveries	(1,017)			(455)			2,152			(1,366)			2,715
Acquisition, integration and transaction costs																			Acquisition, integration and transaction costs	(2,080)			—			(1,000)			(2,080)			(2,400)

Noninterest expense adjustments before (loss) gain in alternative energy partnership investments	Noninterest expense adjustments before (loss) gain in alternative energy partnership investments	(455)			106				584				(349)			(837)			Noninterest expense adjustments before (loss) gain in alternative energy partnership investments	(3,097)			(455)			1,152			(3,446)			315
(Loss) gain in alternative energy partnership investments	(Loss) gain in alternative energy partnership investments	(1,043)			(158)				829				(1,201)			(2,801)			(Loss) gain in alternative energy partnership investments	(504)			(1,043)			1,785			(1,705)			(1,016)
Total noninterest expense adjustments	Total noninterest expense adjustments	(1,498)			(52)				1,413				(1,550)			(3,638)			Total noninterest expense adjustments	(3,601)			(1,498)			2,937			(5,151)			(701)
Adjusted noninterest expense(1)	Adjusted noninterest expense(1)	$	47,114		$	46,544			$	41,245			$	93,658		$	83,357		Adjusted noninterest expense(1)	$	47,361		$	47,114		$	40,748		$	141,019		$	124,105

Average assets	Average assets	$	9,342,696		$	9,392,305			$	7,827,006			$	9,367,364		$	7,843,885		Average assets	$	9,408,740		$	9,342,696		$	8,141,613		$	9,381,307		$	7,944,218
Noninterest expense to average total assets	Noninterest expense to average total assets	2.09		%	2.01		%		2.04		%		2.05		%	2.24		%	Noninterest expense to average total assets	2.15		%	2.09		%	1.84		%	2.08		%	2.10		%
Adjusted noninterest expense to average total assets(1)	Adjusted noninterest expense to average total assets(1)	2.02		%	2.01		%		2.11		%		2.02		%	2.14		%	Adjusted noninterest expense to average total assets(1)	2.00		%	2.02		%	1.99		%	2.01		%	2.09		%

(1)Non-GAAP measure.

5254

Table of ~~Contents~~Contents


		Three Months Ended						Six Months Ended June 30,				Three Months Ended											Nine Months Ended September 30,
(Dollars in thousands) (Unaudited)	(Dollars in thousands) (Unaudited)	June 30, 2022			March 31, 2022				June 30, 2021				2022			2021			(Dollars in thousands) (Unaudited)	September 30, 2022			June 30, 2022			September 30, 2021			2022			2021
Adjusted pre-tax pre-provision income	Adjusted pre-tax pre-provision income																		Adjusted pre-tax pre-provision income
Net interest income	Net interest income	$	78,299		$	76,441			$	59,847			$	154,740		$	117,763		Net interest income	$	79,408		$	78,299		$	62,976		$	234,148		$	180,739
Noninterest income	Noninterest income	7,186			5,910				3,443				13,096			8,252			Noninterest income	5,681			7,186			5,519			18,777			13,771
Total revenue	Total revenue	85,485			82,351				63,290				167,836			126,015			Total revenue	85,089			85,485			68,495			252,925			194,510
Noninterest expense	Noninterest expense	48,612			46,596				39,832				95,208			86,995			Noninterest expense	50,962			48,612			37,811			146,170			124,806
Pre-tax pre-provision income(1)	Pre-tax pre-provision income(1)	$	36,873		$	35,755			$	23,458			$	72,628		$	39,020		Pre-tax pre-provision income(1)	$	34,127		$	36,873		$	30,684		$	106,755		$	69,704

Total revenue	Total revenue	$	85,485		$	82,351			$	63,290			$	167,836		$	126,015		Total revenue	$	85,089		$	85,485		$	68,495		$	252,925		$	194,510

Noninterest expense	Noninterest expense	48,612			46,596				39,832				95,208			86,995			Noninterest expense	50,962			48,612			37,811			146,170			124,806
Total noninterest expense adjustments	Total noninterest expense adjustments	(1,498)			(52)				1,413				(1,550)			(3,638)			Total noninterest expense adjustments	(3,601)			(1,498)			2,937			(5,151)			(701)
Adjusted noninterest expense(1)	Adjusted noninterest expense(1)	47,114			46,544				41,245				93,658			83,357			Adjusted noninterest expense(1)	47,361			47,114			40,748			141,019			124,105
Adjusted pre-tax pre-provision income(1)	Adjusted pre-tax pre-provision income(1)	$	38,371		$	35,807			$	22,045			$	74,178		$	42,658		Adjusted pre-tax pre-provision income(1)	$	37,728		$	38,371		$	27,747		$	111,906		$	70,405

Average assets	Average assets	$	9,342,696		$	9,392,305			$	7,827,006			$	9,367,364		$	7,843,885		Average assets	$	9,408,740		$	9,342,696		$	8,141,613		$	9,381,307		$	7,944,218
Pre-tax pre-provision income ROAA(1)	Pre-tax pre-provision income ROAA(1)	1.58		%	1.54		%		1.20		%		1.56		%	1.00		%	Pre-tax pre-provision income ROAA(1)	1.44		%	1.58		%	1.50		%	1.52		%	1.17		%
Adjusted pre-tax pre-provision income ROAA(1)	Adjusted pre-tax pre-provision income ROAA(1)	1.65		%	1.55		%		1.13		%		1.60		%	1.10		%	Adjusted pre-tax pre-provision income ROAA(1)	1.59		%	1.65		%	1.35		%	1.59		%	1.18		%
Efficiency ratio(1)	Efficiency ratio(1)	56.87		%	56.58		%		62.94		%		56.73		%	69.04		%	Efficiency ratio(1)	59.89		%	56.87		%	55.20		%	57.79		%	64.16		%
Adjusted efficiency ratio(1)	Adjusted efficiency ratio(1)	55.11		%	56.52		%		65.17		%		55.80		%	66.15		%	Adjusted efficiency ratio(1)	55.66		%	55.11		%	59.49		%	55.76		%	63.80		%

(1)Non-GAAP measure.


		Three Months Ended						Six Months Ended June 30,				Three Months Ended											Nine Months Ended September 30,
		June 30, 2022			March 31, 2022				June 30, 2021				2022			2021				September 30, 2022			June 30, 2022			September 30, 2021			2022			2021
Adjusted net income	Adjusted net income																		Adjusted net income
Net income(1)	Net income(1)	$	26,712		$	48,512			$	19,050			$	75,224		$	33,425		Net income(1)	$	24,196		$	26,712		$	23,170		$	99,420		$	56,595
Adjustments:	Adjustments:																		Adjustments:

Noninterest expense adjustments	Noninterest expense adjustments	1,498			52				(1,413)				1,550			3,638			Noninterest expense adjustments	3,601			1,498			(2,937)			5,151			701

Tax impact of adjustments above(2)	Tax impact of adjustments above(2)	(443)			(15)				418				(458)			(1,076)			Tax impact of adjustments above(2)	(1,065)			(443)			868			(1,523)			(207)
Tax impact from exercise of stock appreciation rights	Tax impact from exercise of stock appreciation rights	—			—				—				—			(2,093)			Tax impact from exercise of stock appreciation rights	—			—			—			—			(2,093)
Adjustments to net income	Adjustments to net income	1,055			37				(995)				1,092			469			Adjustments to net income	2,536			1,055			(2,069)			3,628			(1,599)
Adjusted net income(3)	Adjusted net income(3)	$	27,767		$	48,549			$	18,055			$	76,316		$	33,894		Adjusted net income(3)	$	26,732		$	27,767		$	21,101		$	103,048		$	54,996

Average assets	Average assets	$	9,342,696		$	9,392,305			$	7,827,006			$	9,367,364		$	7,843,885		Average assets	$	9,408,740		$	9,342,696		$	8,141,613		$	9,381,307		$	7,944,218
ROAA	ROAA	1.15		%	2.09		%		0.98		%		1.62		%	0.86		%	ROAA	1.02		%	1.15		%	1.13		%	1.42		%	0.95		%
Adjusted ROAA(3)	Adjusted ROAA(3)	1.19		%	2.10		%		0.93		%		1.64		%	0.87		%	Adjusted ROAA(3)	1.13		%	1.19		%	1.03		%	1.47		%	0.93		%

Adjusted net income available to common stockholders	Adjusted net income available to common stockholders																		Adjusted net income available to common stockholders
Net income available to common stockholders	Net income available to common stockholders	$	26,712		$	43,345			$	17,323			$	70,057		$	25,088		Net income available to common stockholders	$	24,196		$	26,712		$	21,443		$	94,253		$	46,493
Adjustments to net income	Adjustments to net income	1,055			37				(995)				1,092			469			Adjustments to net income	2,536			1,055			(2,069)			3,628			(1,599)
Adjustments for impact of preferred stock redemption	Adjustments for impact of preferred stock redemption	—			3,747				—				3,747			3,347			Adjustments for impact of preferred stock redemption	—			—			—			3,747			3,347
Adjusted net income available to common stockholders(3)	Adjusted net income available to common stockholders(3)	$	27,767		$	47,129			$	16,328			$	74,896		$	28,904		Adjusted net income available to common stockholders(3)	$	26,732		$	27,767		$	19,374		$	101,628		$	48,241

Average diluted common shares	Average diluted common shares	61,600,615			62,906,003				50,892,202				62,248,376			50,810,285			Average diluted common shares	60,492,460			61,600,615			50,909,317			61,659,900			50,821,972
Diluted EPS	Diluted EPS	$	0.43		$	0.69			$	0.34			$	1.13		$	0.49		Diluted EPS	$	0.40		$	0.43		$	0.42		$	1.53		$	0.91
Adjusted diluted EPS(3)(4)	Adjusted diluted EPS(3)(4)	$	0.45		$	0.75			$	0.32			$	1.20		$	0.57		Adjusted diluted EPS(3)(4)	$	0.44		$	0.45		$	0.38		$	1.65		$	0.95

(1)Net income for the ~~three~~nine months ended ~~March 31, 2022 and six months ended June~~September 30, 2022 includes a $31.3 million pre-tax reversal of credit losses due to the recovery from the settlement of a previously charged-off loan; there is no similar recovery in any of the other periods presented. The Bank previously recognized a $35.1 million charge-off for this loan during the third quarter of 2019.

(2)Tax impact of adjustments shown at an effective tax rate of 29.6%.

(3)Non-GAAP measure.

~~Table of Contents~~

(4)Represents adjusted net income available to common stockholders divided by average diluted common shares.

5455

Table of ~~Contents~~Contents

RESULTS OF OPERATIONS

Net Interest Income

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates for the three months ended September 30, 2022, June 30, 2022 ~~March 31, 2022~~ and ~~June~~September 30, 2021:


		Three Months Ended																						Three Months Ended
		June 30, 2022							March 31, 2022							June 30, 2021								September 30, 2022							June 30, 2022							September 30, 2021
($ in thousands)	($ in thousands)	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/Cost		($ in thousands)	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/Cost
Interest-earning assets:	Interest-earning assets:																						Interest-earning assets:
Total loans(1)(2)	Total loans(1)(2)	$	7,269,655		$	78,895	4.35	%	$	7,262,774		$	76,234	4.26	%	$	5,771,415		$	61,900	4.30	%	Total loans(1)(2)	$	7,313,519		$	83,699	4.54	%	$	7,269,655		$	78,895	4.35	%	$	6,059,330		$	63,837	4.18	%
Securities	Securities	1,216,612			8,124		2.68	%	1,292,079			7,309		2.29	%	1,308,230			6,986		2.14	%	Securities	1,194,942			10,189		3.38	%	1,216,612			8,124		2.68	%	1,347,317			7,167		2.11	%
Other interest-earning assets (3)	Other interest-earning assets (3)	295,715			1,399		1.90	%	265,339			726		1.11	%	258,915			791		1.23	%	Other interest-earning assets (3)	292,819			2,085		2.82	%	295,715			1,399		1.90	%	222,274			787		1.40	%
Total interest-earning assets	Total interest-earning assets	8,781,982			88,418		4.04	%	8,820,192			84,269		3.87	%	7,338,560			69,677		3.81	%	Total interest-earning assets	8,801,280			95,973		4.33	%	8,781,982			88,418		4.04	%	7,628,921			71,791		3.73	%
Allowance for loan losses	Allowance for loan losses	(94,217)							(92,618)							(79,103)							Allowance for loan losses	(93,517)							(94,217)							(76,028)
BOLI and noninterest-earning assets (4)	BOLI and noninterest-earning assets (4)	654,931							664,731							567,549							BOLI and noninterest-earning assets (4)	700,977							654,931							588,720
Total assets	Total assets	$	9,342,696						$	9,392,305						$	7,827,006						Total assets	$	9,408,740						$	9,342,696						$	8,141,613
Interest-bearing liabilities:	Interest-bearing liabilities:																						Interest-bearing liabilities:
Interest-bearing checking	Interest-bearing checking	$	2,363,233		1,457		0.25	%	$	2,409,262		641		0.11	%	$	2,182,419		679		0.12	%	Interest-bearing checking	$	2,285,071		3,880		0.67	%	$	2,363,233		1,457		0.25	%	$	2,280,429		632		0.11	%

Savings and money market	Savings and money market	1,598,663			860		0.22	%	1,673,244			510		0.12	%	1,638,105			2,244		0.55	%	Savings and money market	1,536,438			2,236		0.58	%	1,598,663			860		0.22	%	1,583,791			1,350		0.34	%
Certificates of deposit	Certificates of deposit	631,415			863		0.55	%	508,244			237		0.19	%	633,101			620		0.39	%	Certificates of deposit	832,506			2,871		1.37	%	631,415			863		0.55	%	571,822			430		0.30	%
Total interest-bearing deposits	Total interest-bearing deposits	4,593,311			3,180		0.28	%	4,590,750			1,388		0.12	%	4,453,625			3,543		0.32	%	Total interest-bearing deposits	4,654,015			8,987		0.77	%	4,593,311			3,180		0.28	%	4,436,042			2,412		0.22	%
FHLB advances	FHLB advances	485,629			3,114		2.57	%	459,749			2,953		2.60	%	418,111			2,944		2.82	%	FHLB advances	482,842			3,558		2.92	%	485,629			3,114		2.57	%	435,984			2,990		2.72	%

Other borrowings	Other borrowings	117,688			325		1.11	%	116,495			55		0.19	%	17,920			4		0.09	%	Other borrowings	70,431			412		2.32	%	117,688			325		1.11	%	126,352			34		0.11	%
Long-term debt	Long-term debt	274,515			3,500		5.11	%	274,417			3,432		5.07	%	256,492			3,339		5.22	%	Long-term debt	274,665			3,608		5.21	%	274,515			3,500		5.11	%	256,634			3,379		5.22	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,471,143			10,119		0.74	%	5,441,411			7,828		0.58	%	5,146,148			9,830		0.77	%	Total interest-bearing liabilities	5,481,953			16,565		1.20	%	5,471,143			10,119		0.74	%	5,255,012			8,815		0.67	%
Noninterest-bearing deposits	Noninterest-bearing deposits	2,804,877							2,795,633							1,767,711							Noninterest-bearing deposits	2,855,220							2,804,877							1,939,912
Noninterest-bearing liabilities	Noninterest-bearing liabilities	96,791							105,349							98,174							Noninterest-bearing liabilities	110,761							96,791							98,748
Total liabilities	Total liabilities	8,372,811							8,342,393							7,012,033							Total liabilities	8,447,934							8,372,811							7,293,672
Total stockholders’ equity	Total stockholders’ equity	969,885							1,049,912							814,973							Total stockholders’ equity	960,806							969,885							847,941
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	9,342,696						$	9,392,305						$	7,827,006						Total liabilities and stockholders’ equity	$	9,408,740						$	9,342,696						$	8,141,613
Net interest income/spread	Net interest income/spread				$	78,299	3.30	%				$	76,441	3.29	%				$	59,847	3.04	%	Net interest income/spread				$	79,408	3.13	%				$	78,299	3.30	%				$	62,976	3.06	%
Net interest margin (5)	Net interest margin (5)						3.58	%						3.51	%						3.27	%	Net interest margin (5)						3.58	%						3.58	%						3.28	%

Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities	161		%					162		%					143		%					Ratio of interest-earning assets to interest-bearing liabilities	161		%					161		%					145		%
Total deposits(6)	Total deposits(6)	7,398,188			3,180		0.17	%	7,386,383			1,388		0.08	%	6,221,336			3,543		0.23	%	Total deposits(6)	7,509,235			8,987		0.47	%	7,398,188			3,180		0.17	%	6,375,954			2,412		0.15	%
Total funding (7)	Total funding (7)	8,276,020			10,119		0.49	%	8,237,044			7,828		0.39	%	6,913,859			9,830		0.57	%	Total funding (7)	8,337,173			16,565		0.79	%	8,276,020			10,119		0.49	%	7,194,924			8,815		0.49	%

(1)Includes average loans held for sale of $4.2 million, $3.6 million ~~$3.4 million~~ and ~~$2.0~~$3.0 million for the three months ended September 30, 2022, June 30, 2022 ~~March 31, 2022~~ and ~~June~~September 30, 2021, respectively, which are included in other assets in the accompanying consolidated statements of financial condition.

5556

Table of ~~Contents~~Contents

(2)Total loans are net of deferred fees, related direct costs, premiums and ~~discounts.~~discounts, but exclude the allowance for credit losses. Nonaccrual loans are included in the average balance. Interest income includes net (amortization) accretion of deferred loan (costs) fees and purchased (premiums) discounts of ~~$610~~$51 thousand ~~$1.1 million~~, $(155) thousand and ~~$1.0 million and net amortization of premium on purchased loans of $363~~$514 thousand ~~$(1.0) million and $(1.0) million~~ for the three months ended September 30, 2022, June 30, 2022 ~~March 31, 2022~~ and ~~June~~September 30, 2021, respectively.

(3)Includes average balance of FHLB, FRB and other bank stock at cost and average time deposits with other financial institutions.

(4)Includes average balance of bank-owned life insurance of $125.6 million, $124.8 million ~~$124.0 million~~ and ~~$112.7~~$113.4 million for the three months ended September 30, 2022, June 30, 2022 ~~March 31, 2022~~ and ~~June~~September 30, 2021, respectively.

(5)Annualized net interest income divided by average interest-earning assets.

(6)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of total deposits is calculated as annualized total interest expense on deposits divided by average total deposits.

(7)Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~March 31,~~June 30, 2022

Net interest income increased ~~$1.9~~$1.1 million to ~~$78.3~~$79.4 million for the ~~second~~third quarter due to higher average balances and yield on ~~interest-earning~~interest-earning assets, partially offset by ~~lower average interest-earning assets and~~ higher average ~~interest-bearing liabilities~~ balances and ~~costs.~~costs on interest-bearing liabilities.

The net interest margin ~~increased 7 basis points to~~remained unchanged at 3.58% for the ~~second~~third quarter as the average interest-earning assets yield increased 1729 basis points and the cost of average total funding increased 1030 basis ~~points.~~points while average interest-bearing assets remain relatively unchanged. The yield on average interest-earning assets increased to 4.33% for the third quarter from 4.04% for the second quarter ~~from 3.87% for the first quarter~~ due to the mix of interest-earning assets and higher yields on loans, securities and other interest-earning assets. The overall loan ~~and securities. The average~~ yield ~~on loans~~ increased 919 basis points to ~~4.35%~~4.54% during the ~~second~~third quarter as a result of the portfolio mix and the impact of higher market interest rates. The loan yields include the impact of prepayment penalty fees, the net reversal or recapture of nonaccrual loan interest and accelerated discount accretion on the early payoff of purchased loans; these items increased the overall loan yield by 6 basis points in the third quarter, compared to 10 basis points in the prior quarter.

The average cost of funds increased 30 basis points to 0.79% for the third quarter from 0.49% for the second quarter. This increase was driven by the higher cost of average interest-bearing liabilities, which increased 46 basis points to 1.20% for the third quarter from 0.74% for the second quarter. The cost of average interest-bearing deposits increased 49 basis points to 0.77% for the third quarter from 0.28% for the second quarter while the cost of average FHLB advances increased 35 basis points to 2.92% for the third quarter from 2.57% for the second quarter. These increases in the costs of funds were mostly a result of higher market interest rates.

Average noninterest-bearing deposits were $50.3 million higher in the third quarter compared to the second quarter while average deposits were $111.0 million higher for the linked quarters. Average noninterest-bearing deposits represented 38% of total average deposits for both the third quarter and the second quarter. The cost of total average deposits increased 30 basis points to 0.47% for the third quarter. The spot rate of total deposits was 0.56% at the end of the third quarter.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Net interest income for the third quarter of 2022 increased $16.4 million to $79.4 million compared to $63.0 million for the same 2021 period. Net interest income was positively impacted by higher average interest-earning assets, a higher yield on such assets, and improved funding mix, partially offset by higher average interest-bearing liabilities and higher funding costs. The 2022 operating results include the impact of acquiring PMB in the fourth quarter of 2021.

The net interest margin increased 30 basis points to 3.58% for the third quarter of 2022 as the average interest-earning assets yield increased 60 basis points and the average cost of total funding increased 30 basis points. The average yield on interest-earning assets increased to 4.33% for the third quarter of 2022 from 3.73% for the same 2021 period due to the mix of interest-earning assets and higher yields on securities and other interest-earning assets as a result of higher market interest rates. The average Federal funds rate was 2.18% for the third quarter of 2022 compared to 0.09% for the same 2021 period. Average loans increased by $1.25 billion from ongoing loan growth, including loans from the acquisition of PMB. The average yield on loans increased 36 basis points to 4.54% for the third quarter of 2022, compared to 4.18% for the

Table of Contents

same 2021 period. The loan yield includes the impact of prepayment penalty fees, the net reversal or recapture of nonaccrual loan interest, accelerated discount accretion on the early payoff of purchased loans, and accelerated fees from PPP loan forgiveness; these items increased the loan yield by 106 basis points in ~~both~~ the ~~second quarter and prior quarter.~~

The average cost of funds increased 10 basis points to 0.49% for the second quarter from 0.39% for the first quarter. This increase was driven by the higher average cost of interest-bearing deposits. Average noninterest-bearing deposits represented 38% of total average deposits for both the second quarter and the first quarter. Average noninterest-bearing deposits were $9.2 million higher in the second quarter compared to the first quarter while average deposits were $11.8 million higher for the linked quarters. Average Federal Home Loan Bank (FHLB) advances and other borrowings increased $27.1 million. The average cost of interest-bearing liabilities increased 16 basis points to 0.74% for the second quarter from 0.58% for the first quarter due to higher cost of interest-bearing deposits. The average cost of interest-bearing deposits increased 16 basis points to 0.28% for the second quarter from 0.12% for the first quarter. The average cost of total deposits increased 9 basis points to 0.17% for the second quarter due mostly to higher market interest rates. The spot rate of total deposits was 0.21% at the end of the second quarter.

~~Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021~~

~~Net interest income for the second quarter of 2022 increased~~ $18.5 million to $78.3 million from $59.8 million for the same 2021 period. Net interest income was positively impacted by a higher average interest-earning assets, a higher yield on such assets, and improved funding costs, offset by higher average interest-bearing liabilities. The 2022 operating results include the impact of acquiring PMB in the fourth quarter of 2021.

The net interest margin increased 31 basis points to 3.58% for the second quarter of 2022 as the average interest-earning assets yield increased 23 basis points and the average cost of total funding decreased 8 basis points. The average yield on interest-earning assets increased to 4.04% for the second quarter of 2022 from 3.81% for the same 2021 period due to the mix of interest-earning assets and higher yields on securities and other interest-earning assets as a result of higher market interest rates. The average Federal funds rate was 0.77% for the secondthird quarter of 2022 compared to 0.07% for the same 2021 period. Average loans increased by $1.50 billion from ongoing loan growth, including the loans from the acquisition of PMB. The average yield on loans increased 5 basis points to 4.35% for the second quarter of 2022, compared to 4.30% for the same 2021 period. ~~The loan yield includes the impact of prepayment penalty fees, the net reversal or recapture of nonaccrual loan interest, accelerated~~

~~Table of Contents~~

~~discount accretion on the early payoff of purchased loans, and accelerated fees from PPP loan forgiveness; these items increased the loan yield by~~ ~~10 basis points in the second quarter of 2022 compared to 18~~11 basis points for same 2021 period.

The average cost of funds ~~decreased 8~~increased 30 basis points to ~~0.49%~~0.79% for the ~~second~~third quarter of 2022, from ~~0.57%~~0.49% for the same 2021 period. This ~~decrease~~increase was driven by the ~~lower~~higher cost of average interest-bearing liabilities impacted by higher market rates. The average cost of interest-bearing liabilities ~~due~~increased 53 basis points to 1.20% for the third quarter of 2022 from 0.67% for the same 2021 period, partially offset by an improved funding mix, including higher average noninterest-bearing deposits as a result of the PMB acquisition and growth from ongoing business development efforts. Average noninterest-bearing deposits represented 38% of total average deposits for the ~~second~~third quarter of 2022, compared to ~~28%~~30% for the same 2021 period. Average noninterest-bearing deposits were $1.04 billion higher in the second quarter of 2022, compared to same 2021 period, while average deposits were $1.18 billion higher. Average FHLB advances and other borrowings increased $167.3 million due mostly to higher overnight borrowings, offset by lower term advances. The average cost of interest-bearing liabilities decreased 3 basis points to 0.74% for the second quarter of 2022 from 0.77% for the same 2021 period due to the funding mix including the impact of including deposits from the PMB acquisition. The average cost of interest-bearing deposits ~~declined 4~~increased 55 basis points to ~~0.28%~~0.77% for the ~~second~~third quarter of 2022 from ~~0.32%~~0.22% for the same 2021 period while the average cost of total deposits ~~decreased 6~~increased 32 basis points to ~~0.17%~~0.47% for the ~~second~~third quarter of 2022, compared to ~~0.23%~~0.15% for the same 2021 period. Average FHLB advances and other borrowings decreased $9.1 million due mostly to lower overnight borrowings, offset by higher term advances.

5758

Table of ~~Contents~~Contents

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Six Months Ended June 30,															Nine Months Ended September 30,
		2022							2021								2022							2021
($ in thousands)	($ in thousands)	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/Cost		($ in thousands)	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/Cost
Interest-earning assets:	Interest-earning assets:															Interest-earning assets:
Total loans (1)(2)	Total loans (1)(2)	$	7,266,234		$	155,129	4.31	%	$	5,777,693		$	123,245	4.30	%	Total loans (1)(2)	$	7,282,169		$	238,828	4.38	%	$	5,872,604		$	187,082	4.26	%
Securities	Securities	1,254,137			15,433		2.48	%	1,272,383			13,487		2.14	%	Securities	1,234,188			25,622		2.78	%	1,297,636			20,654		2.13	%
Other interest-earning assets (3)	Other interest-earning assets (3)	280,611			2,125		1.53	%	297,465			1,563		1.06	%	Other interest-earning assets (3)	284,725			4,210		1.98	%	272,126			2,350		1.15	%
Total interest-earning assets	Total interest-earning assets	8,800,982			172,687		3.96	%	7,347,541			138,295		3.80	%	Total interest-earning assets	8,801,082			268,660		4.08	%	7,442,366			210,086		3.77	%
Allowance for loan losses	Allowance for loan losses	(93,422)							(80,102)							Allowance for loan losses	(93,454)							(78,729)
BOLI and noninterest-earning assets (4)	BOLI and noninterest-earning assets (4)	659,804							576,446							BOLI and noninterest-earning assets (4)	673,679							580,581
Total assets	Total assets	$	9,367,364						$	7,843,885						Total assets	$	9,381,307						$	7,944,218
Interest-bearing liabilities:	Interest-bearing liabilities:															Interest-bearing liabilities:
Interest-bearing checking	Interest-bearing checking	$	2,386,120		2,097		0.18	%	$	2,161,483		1,581		0.15	%	Interest-bearing checking	$	2,352,067		5,978		0.34	%	$	2,201,568		2,212		0.13	%

Savings and money market	Savings and money market	1,635,747			1,371		0.17	%	1,646,269			4,634		0.57	%	Savings and money market	1,602,280			3,606		0.30	%	1,625,214			5,985		0.49	%
Certificates of deposit	Certificates of deposit	570,170			1,100		0.39	%	676,400			1,614		0.48	%	Certificates of deposit	658,576			3,971		0.81	%	641,157			2,044		0.43	%
Total interest-bearing deposits	Total interest-bearing deposits	4,592,037			4,568		0.20	%	4,484,152			7,829		0.35	%	Total interest-bearing deposits	4,612,923			13,555		0.39	%	4,467,939			10,241		0.31	%
FHLB advances	FHLB advances	472,760			6,067		2.59	%	432,286			6,056		2.83	%	FHLB advances	476,158			9,625		2.70	%	433,532			9,046		2.79	%

Other borrowings	Other borrowings	117,095			379		0.65	%	11,061			6		0.11	%	Other borrowings	101,369			792		1.04	%	49,914			40		0.11	%
Long-term debt	Long-term debt	274,466			6,933		5.09	%	256,427			6,641		5.22	%	Long-term debt	274,533			10,540		5.13	%	256,497			10,020		5.22	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,456,358			17,947		0.66	%	5,183,926			20,532		0.80	%	Total interest-bearing liabilities	5,464,983			34,512		0.84	%	5,207,882			29,347		0.75	%
Noninterest-bearing deposits	Noninterest-bearing deposits	2,800,281							1,710,930							Noninterest-bearing deposits	2,818,795							1,788,096
Noninterest-bearing liabilities	Noninterest-bearing liabilities	101,048							97,658							Noninterest-bearing liabilities	104,321							98,025
Total liabilities	Total liabilities	8,357,687							6,992,514							Total liabilities	8,388,099							7,094,003
Total stockholders’ equity	Total stockholders’ equity	1,009,677							851,371							Total stockholders’ equity	993,208							850,215
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	9,367,364						$	7,843,885						Total liabilities and stockholders’ equity	$	9,381,307						$	7,944,218
Net interest income/spread	Net interest income/spread				$	154,740	3.30	%				$	117,763	3.00	%	Net interest income/spread				$	234,148	3.24	%				$	180,739	3.02	%
Net interest margin (5)	Net interest margin (5)						3.55	%						3.23	%	Net interest margin (5)						3.56	%						3.25	%

Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities	161		%					142		%					Ratio of interest-earning assets to interest-bearing liabilities	161		%					143		%
Total deposits(6)	Total deposits(6)	7,392,318			4,568		0.12	%	6,195,082			7,829		0.25	%	Total deposits(6)	7,431,718			13,555		0.24	%	6,256,035			10,241		0.22	%
Total funding (7)	Total funding (7)	8,256,639			17,947		0.44	%	6,894,856			20,532		0.60	%	Total funding (7)	8,283,778			34,512		0.56	%	6,995,978			29,347		0.56	%

(1)Includes average loans held for sale of ~~$3.5~~$3.8 million and ~~$1.7~~$2.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, ~~respectively,~~ which are included in other assets in the accompanying consolidated statements of financial condition.

~~Table of Contents~~

(2)Total loans are net of deferred fees, related direct costs, premiums and discounts, but exclude the allowance for credit losses. Nonaccrual loans are included in the average balance. ~~Net~~Interest income includes net (amortization) accretion ~~(amortization)~~ of deferred loan (costs) fees ~~(costs)~~and purchased (premiums) discounts of ~~$1.7 million and $2.4 million and (amortization) accretion of (premium) discount on purchased loans of $(591)~~$(520) thousand and ~~$(1.4)~~$1.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, are included in interest income.

(3)Includes average balance of FHLB, FRB and other bank stock at cost and average time deposits with other financial institutions.

(4)Includes average balance of bank-owned life insurance of ~~$124.4~~$124.8 million and ~~$112.4~~$112.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

(5)Annualized net interest income divided by average interest-earning assets.

Table of Contents

~~Six~~Nine Months Ended ~~June~~September 30, 2022 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2021

Net interest income increased ~~$37.0~~$53.4 million to ~~$154.7~~$234.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 due to higher average balances and yield on interest-earning assets, partially offset by higher average balances and ~~lower~~ costs of interest-bearing liabilities.

The net interest margin increased 3231 basis points to ~~3.55%~~3.56% as the average earning-assets yield increased 1631 basis points and the average cost of total funding ~~decreased 16 basis points.~~remained unchanged between periods. The yield on average interest-earning assets increased to ~~3.96%~~4.08% for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~3.80%~~3.77% for 2021 due mostly to the mix of interest-earning assets and higher market interest rates. Average loans represented 83% of average earnings assets in 2022 compared to 79% for the same period in 2021. Average loans increased by ~~$1.49~~$1.41 billion from ongoing loan growth ~~including~~and the impact of the acquisition of PMB in the fourth quarter of 2021. The yield on average loans for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~4.31%~~4.38% compared to ~~4.30%~~4.26% for the same period in 2021. The yield on average investment securities and other interest-earning assets increased 3465 basis points and 4783 basis points, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021.

The average cost of funds ~~decreased 16~~was 0.56% for both the nine months ended September 30, 2022 and 2021 despite a rising rate environment during the current year. The cost of average interest-bearing liabilities increased 9 basis points to ~~0.44%~~0.84% for the ~~six~~nine months ended ~~June~~September 30, 2022 ~~from 0.60% for 2021. This decrease was driven by~~compared to the ~~lower average~~same period in 2021 and included an 8 basis points increase in the cost of average interest-bearing deposits to 0.39%. The increase in the cost of average interest-bearing liabilities ~~and~~was offset by the overall improved funding mix, including higher average noninterest-bearing deposits as a result of growth from business development efforts and the impact of the acquisition of ~~PMB and continuous business development efforts.~~ PMB.

Average noninterest-bearing deposits represented 38% of total average deposits for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~28%~~29% for the same period in 2021. Average noninterest-bearing deposits were ~~$1.09~~$1.03 billion higher ~~during~~for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021 while average total deposits were ~~$1.20~~$1.18 billion higher. ~~Average FHLB advances and other borrowings increased $146.5 million due mostly to higher overnight borrowings offset by lower term advances.~~ The average cost of ~~interest-bearing liabilities decreased 14~~total deposits increased 2 basis points to ~~0.66%~~0.24% for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. This included a 15 basis points decline in the average cost of interest-bearing deposits to 0.20% for the six months ended June 30, 2022 compared to 0.35% for the same period in 2021. The average cost of total deposits decreased 13 basis points to 0.12% for the six months ended June 30, 2022.

~~Table of Contents~~

Rate/Volume Analysis

The following table presents the changes in interest income and interest expense for the major components of interest-earning assets and interest-bearing liabilities. The information provided presents the changes attributable to: (i) changes in volume multiplied by the prior rate; and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.


		Three Months Ended June 30, 2022 vs. 2021						Six Months Ended June 30, 2022 vs. 2021												Three Months Ended September 30, 2022 vs. 2021			Nine Months Ended September 30, 2022 vs. 2021
			Increase (Decrease) Due to					Net Increase (Decrease)		Increase (Decrease) Due to						Net Increase (Decrease)						Increase (Decrease) Due to		Net Increase (Decrease)			Increase (Decrease) Due to								Net Increase (Decrease)
($ In thousands)	($ In thousands)			Volume			Rate					Volume			Rate			($ In thousands)					Volume			Net Increase (Decrease)					Volume						Net Increase (Decrease)
Interest and dividend income:	Interest and dividend income:																				Interest and dividend income:
Total loans	Total loans				$	16,267		$	728	$	16,995		$	31,598		$	286	$	31,884		Total loans			$	14,021				$	5,841			$	19,862			$	46,083			$	5,663			$	51,746
Securities	Securities				(518)			1,656		1,138			(194)			2,140		1,946			Securities			(887)			3,909				3,022				(1,052)				6,020				4,968
Other interest-earning assets	Other interest-earning assets				123			485		608			(93)			655		562			Other interest-earning assets			309			989				1,298				114				1,746				1,860
Total interest and dividend income	Total interest and dividend income				$	15,872		$	2,869	$	18,741		$	31,311		$	3,081	$	34,392		Total interest and dividend income			$	13,443		$	10,739			$	24,182			$	45,145			$	13,429			$	58,574
Interest expense:	Interest expense:																				Interest expense:
Interest-bearing checking	Interest-bearing checking				$	55		$	723	$	778		$	177		$	339	$	516		Interest-bearing checking			$	1		$	3,247			$	3,248			$	161			$	3,605			$	3,766

Savings and money market	Savings and money market				(411)			(973)		(1,384)			(756)			(2,507)		(3,263)			Savings and money market			(192)			1,078				886				(918)				(1,461)				(2,379)
Certificates of deposit	Certificates of deposit				(2)			245		243			(234)			(280)		(514)			Certificates of deposit			277			2,164				2,441				56				1,871				1,927
FHLB advances	FHLB advances				447			(277)		170			545			(534)		11			FHLB advances			335			233				568				869				(290)				579

Other borrowings	Other borrowings				104			217		321			246			127		373			Other borrowings			(23)			401				378				79				673				752
Long-term debt	Long-term debt				227			(66)		161			460			(168)		292			Long-term debt			234			(5)				229				694				(174)				520
Total interest expense	Total interest expense				420			(131)		289			438			(3,023)		(2,585)			Total interest expense			632			7,118				7,750				941				4,224				5,165
Net interest income	Net interest income				$	15,452		$	3,000	$	18,452		$	30,873		$	6,104	$	36,977		Net interest income			$	12,811		$	3,621			$	16,432			$	44,204			$	9,205			$	53,409

Table of Contents

Provision for Credit Losses

The provision for credit losses is charged to operations to adjust the allowance for credit losses to the level required to cover current expected credit losses in our loan portfolio and unfunded commitments. The following table presents the components of our provision for credit losses:

Three Months Ended Six Months Ended June 30,
($ in thousands) June 30,
2022 March 31,
2022 June 30,
2021 2022 2021
(Reversal of) provision for loan losses $ (500) $ (31,342) $ (2,608) $ (31,842) $ (3,892)
(Reversal of) provision for credit losses - unfunded loan commitments 500 (200) 454 300 631
Total (reversal of) provision for credit losses $ — $ (31,542) $ (2,154) $ (31,542) $ (3,261)


	Three Months Ended						Nine Months Ended September 30,
($ in thousands)	September 30, 2022		June 30, 2022		September 30, 2021		2022		2021
(Reversal of) provision for loan losses	$	(500)	$	(500)	$	(2,566)	$	(32,342)	$	(6,458)
Provision for (reversal of) credit losses - unfunded loan commitments	500		500		1,419		800		2,050

Total (reversal of) provision for credit losses	$	—	$	—	$	(1,147)	$	(31,542)	$	(4,408)

Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~March 31,~~June 30, 2022

There was no provision for credit losses for both the third quarter and the second quarter ~~compared to~~ as the benefits of the continuing favorable credit quality performance in the loan portfolio combined with a ~~reversal of $31.5 million for~~decrease in total loan balances offset the ~~first quarter. The first quarter reversal of credit losses included $31.3 million~~estimated allowance resulting from changes in the portfolio mix and our reasonable and supportable forecast, primarily related to ~~a recovery~~the economic outlook from the ~~settlement of a loan previously charged-off in 2019.~~FRB's actions to control inflation.

Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~June~~September 30, 2021

There was no provision for credit losses for the ~~second~~third quarter of 2022, compared to a reversal of ~~$2.2~~$1.1 million for the same 2021 period. The ~~second quarter~~ reversal of credit losses in the ~~second~~third quarter of 2021 was ~~due~~driven primarily toby improvements in the economic forecasts with the rollout of the COVID-19 vaccines and continued improvement in credit metrics of the Bank. This was partially offset by loan growth experienced in the quarter resulting in higher balances.

~~Table of Contents~~

~~key macro-economic forecast variables, such as employment and gross domestic product, and consideration of credit quality metric.~~

~~Six~~Nine Months Ended ~~June~~September 30, 2022 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2021

During the ~~six~~nine months ended ~~June~~September 30, 2022, the provision for credit losses was a reversal of $31.5 million, compared to a reversal of ~~$3.3~~$4.4 million during 2021. The higher reversal of credit losses for the ~~six~~nine months ended ~~June~~September 30, 2022 was due to ~~the~~a $31.3 million recovery from the settlement of a loan previously charged-off in 2019.

See further discussion in ~~"Allowance~~"Allowance for Credit Losses."

Noninterest Income

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


		Three Months Ended						Six Months Ended June 30,					Three Months Ended						Nine Months Ended September 30,
($ in thousands)	($ in thousands)	June 30, 2022		March 31, 2022		June 30, 2021		2022		2021		($ in thousands)	September 30, 2022		June 30, 2022		September 30, 2021		2022		2021
Customer service fees	Customer service fees	$	2,578	$	2,434	$	1,990	$	5,012	$	3,748	Customer service fees	$	2,462	$	2,578	$	1,900	$	7,474	$	5,648
Loan servicing income	Loan servicing income	109		212		38		321		306		Loan servicing income	636		109		170		957		476
Income from bank owned life insurance	Income from bank owned life insurance	810		796		690		1,606		1,362		Income from bank owned life insurance	873		810		715		2,479		2,077

Net gain on sale of securities available-for-sale	Net gain on sale of securities available-for-sale	—		16		—		16		—		Net gain on sale of securities available-for-sale	—		—		—		16		—

Other income	Other income	3,689		2,452		725		6,141		2,836		Other income	1,710		3,689		2,734		7,851		5,570
Total noninterest income	Total noninterest income	$	7,186	$	5,910	$	3,443	$	13,096	$	8,252	Total noninterest income	$	5,681	$	7,186	$	5,519	$	18,777	$	13,771

Table of Contents

Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~March 31,~~June 30, 2022

Noninterest income ~~increased $1.3~~decreased $1.5 million to ~~$7.2~~$5.7 million for the ~~second~~third quarter ~~of 2022~~ compared to the prior quarter primarily due to lower other income of $2.0 million, offset by higher loan servicing income of $527 thousand. Other income decreased due mostly to ~~higher other income. All other income increased $1.2 million due to higher income~~lower gains from equity investments of $2.1 million, partially offset by a fair value write-down of $455 thousand recorded on loans held for sale and the first quarter including a $771 thousand gain related to a sale-leaseback transaction; there were no sale-leaseback transactions in the second quarter. Gains or losses from equity investmentswhich are recorded based on the most recent information available from the investee and ~~fluctuate~~fluctuates based on their underlying performance. The higher loan servicing income related to the purchase of loan servicing rights at the end of the second quarter of 2022, with an underlying loan servicing portfolio of $1.7 billion and a remaining asset value of $22.0 million at September 30, 2022.

Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~June~~September 30, 2021

Noninterest income for the ~~second~~third quarter of 2022 increased ~~$3.7 million~~$162 thousand to ~~$7.2~~$5.7 million compared to the same 2021 ~~period.~~period due to higher customer service fees and loan servicing income, offset by lower other income. The ~~increase in noninterest income was due mostly to an~~$562 thousand increase in customer services fees ~~and other income~~was due mostly to higher deposit activity fees of $602 thousand attributed to higher average deposit balances and reflected a full quarter of activity from the acquisition of PMB. The ~~$588~~$466 thousand increase in ~~customer services fees was due mostly~~loan servicing income related to ~~higher average deposit balances.~~the purchase of loan servicing rights in the second quarter of 2022. The ~~$3.0~~$1.0 million ~~increase~~decrease in other income was due mostly to ~~higher~~the 2021 period including a $841 thousand gain related to a sale-leaseback transaction; there was no similar income ~~from equity investments~~in the third quarter of ~~$2.9 million.~~2022.

~~Six~~Nine Months Ended ~~June~~September 30, 2022 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2021

Noninterest income for the ~~six~~nine months ended ~~June~~September 30, 2022 increased ~~$4.8~~$5.0 million to ~~$13.1~~$18.8 million compared to ~~the same 2021 period.~~2021. The increase ~~in noninterest income reflected~~for most categories are a result of including PMB's operations for a full ~~six~~nine months ~~of activity from the acquisition of PMB and was mainly due~~in 2022 compared to ~~higher customer service fees, income from bank-owned life insurance, and all other income.~~2021. Customer services fees increased ~~$1.3~~$1.8 million due mostly to higher deposit activity fees of ~~$1.8~~$2.4 million attributed to higher average deposit balances, partially offset by lower loan fees of ~~$594~~$657 thousand. Loan servicing income increased $481 thousand. due mostly to the acquisition of servicing rights during the second quarter of 2022. Income from bank-owned life insurance increased ~~$244~~$402 thousand due to higher average ~~balances from PMB.~~balances. The ~~$3.3~~$2.3 million increase in ~~all~~ other income is due mostly to higher income from equity investments of ~~$2.4~~$2.8 million, ~~and~~partially offset by a ~~$771~~$773 thousand ~~gain related to a sale-leaseback transaction during~~decrease in the ~~first quarter~~change in fair value of ~~2022.~~loans held for sale between periods.

~~Table of Contents~~

Noninterest Expense

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


		Three Months Ended						Six Months Ended June 30,					Three Months Ended						Nine Months Ended September 30,
($ in thousands)	($ in thousands)	June 30, 2022		March 31, 2022		June 30, 2021		2022		2021		($ in thousands)	September 30, 2022		June 30, 2022		September 30, 2021		2022		2021
Salaries and employee benefits	Salaries and employee benefits	$	28,264	$	28,987	$	25,042	$	57,251	$	50,761	Salaries and employee benefits	$	27,997	$	28,264	$	24,786	$	85,248	$	75,547

Occupancy and equipment	Occupancy and equipment	7,876		7,855		7,277		15,731		14,473		Occupancy and equipment	8,649		7,876		7,124		24,380		21,597
Professional fees	Professional fees	4,107		2,907		1,749		7,014		5,771		Professional fees	4,507		4,107		892		11,521		6,663

Data processing	Data processing	1,782		1,828		1,621		3,610		3,276		Data processing	1,699		1,782		1,646		5,309		4,922

Regulatory assessments	Regulatory assessments	1,021		775		769		1,796		1,543		Regulatory assessments	925		1,021		812		2,721		2,355
Reversal of provision for loan repurchases	Reversal of provision for loan repurchases	(490)		(471)		(99)		(961)		(231)		Reversal of provision for loan repurchases	(26)		(490)		(42)		(987)		(273)
Amortization of intangible assets		313		441		282		754		564
Amortization of other intangibles												Amortization of other intangibles	396		313		282		1,150		846

Merger-related costs		—		—		700		—		1,400
Acquisition, integration and transaction costs												Acquisition, integration and transaction costs	2,080		—		1,000		2,080		2,400

All other expense		4,696		4,116		3,320		8,812		6,637
Other expense												Other expense	4,231		4,696		3,096		13,043		9,733
Noninterest expense before loss (gain) on investments in alternative energy partnerships	Noninterest expense before loss (gain) on investments in alternative energy partnerships	47,569		46,438		40,661		94,007		84,194		Noninterest expense before loss (gain) on investments in alternative energy partnerships	50,458		47,569		39,596		144,465		123,790
Loss (gain) on investments in alternative energy partnerships	Loss (gain) on investments in alternative energy partnerships	1,043		158		(829)		1,201		2,801		Loss (gain) on investments in alternative energy partnerships	504		1,043		(1,785)		1,705		1,016
Total noninterest expense	Total noninterest expense	$	48,612	$	46,596	$	39,832	$	95,208	$	86,995	Total noninterest expense	$	50,962	$	48,612	$	37,811	$	146,170	$	124,806

Table of Contents

Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~March 31,~~June 30, 2022

Noninterest expense increased ~~$2.0~~$2.4 million to ~~$48.6~~$51.0 million for the ~~second~~third quarter compared to the ~~prior~~second quarter. The increase was due ~~mostly~~mostly to (i) acquisition, integration and transaction costs of $2.1 million related to the Deepstack acquisition, (ii) higher occupancy and equipment expense of $773 thousand including an early lease termination charge of $285 thousand, (iii) higher professional fees of ~~$1.2 million, related mainly~~$400 thousand, due mostly to ~~higher~~a $562 thousand increase in indemnified legal fees (net of insurance recoveries), and ~~(ii) higher~~(iv) lower reversal of provision for loan repurchases of $464 thousand. These increases were offset by lower net loss in alternative energy partnership investments of ~~$885~~$539 thousand and lower other expenses of $465 thousand. ~~These increases were offset by a decrease in salaries and employee benefits of $723 thousand attributed to higher payroll-related items typical of the first quarter.~~ Professional fees included net indemnified legal expenses of $1.0 million in the third quarter compared to net indemnified legal expenses of $455 thousand in the second ~~quarter compared to net recoveries of $106 thousand during the first~~ quarter.

Total operating costs, defined as noninterest expense adjusted for certain expense items (refer to section Non-GAAP Measures), increased ~~$570~~$247 thousand to $47.4 million for the third quarter compared to $47.1 million for the ~~second quarter compared to $46.5 million for the~~ prior ~~quarter.~~quarter. This increase ~~was~~is due mostly to ~~the combination of~~ (i) higher ~~professional fees~~occupancy and equipment expense of ~~$639~~$773 thousand ~~related to business initiatives,~~and (ii) ~~higher all~~lower reversal of provision for loan repurchase reserves of $464 thousand, offset by a decrease in other expenses of ~~$580~~$990 thousand, ~~related mostly to loan-related expenses,~~including lower salary and ~~(iii) lower salaries~~employee benefits, professional fees and ~~benefits of $723 thousand due to the higher payroll-related items typical of the first quarter.~~other expenses.

Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~June~~September 30, 2021

Noninterest expense was ~~$48.6~~$51.0 million for the ~~second~~third quarter of 2022, an increase of ~~$8.8~~$13.2 million from ~~$39.8~~$37.8 million for the comparable 2021 period due mostly to including PMB's operations since the date of acquisition. The increase included (i) higher professional fees of $3.6 million, due mostly to net indemnified legal costs of $1.0 million for the third quarter of 2022 compared to net recoveries of $2.2 million during 2021, (ii) higher salaries and employee benefits of $3.2 million due to a higher number of employees, ~~(ii) higher occupancy and equipment of $599 thousand, due to additional facilities,~~ (iii) ~~higher professional fees of $2.4 million, due mostly to higher legal fees, net of insurance recoveries (iv)~~ higher loss on investments in alternative energy partnerships of ~~$1.9~~$2.3 million, (iv) higher occupancy and equipment of $1.5 million, due to additional facilities, (v) higher acquisition, integration and transaction costs of $1.1 million, and ~~(iv)~~(vi) higher ~~all~~ other expense of ~~$1.4~~$1.1 million. ~~These increases were offset by lower merger-related costs of $700 thousand resulting from completion of~~Other expense for the ~~PMB acquisition and system conversion in the fourth~~third quarter of ~~2021.~~2021 included a gain on sale of other real estate owned of $365 thousand; there was no sale of other real estate owned for the same period in 2022.

~~Six~~Nine Months Ended ~~June~~September 30, 2022 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2021

Noninterest expense for the ~~six~~nine months ended ~~June~~September 30, 2022 increased ~~$8.2~~$21.4 million to ~~$95.2~~$146.2 million compared to ~~the prior year due mostly to including PMB's operations since the date of acquisition.~~2021. The increase was primarily due to: (i) higher salaries and employee benefits of ~~$6.5~~$9.7 million ~~(ii) higher~~and occupancy and equipment expense of ~~$1.3~~$2.8 million ~~(iii)~~due to the increases in personnel and facilities from the acquisition of PMB, (ii) higher professional fees of ~~$1.2~~$4.9 million, due mostly to a ~~$1.9~~$4.3 million increase in indemnified legal fees ~~net~~(net of insurance ~~recoveries, offset by a $619 thousand decrease in~~recoveries), (iii) higher other ~~professional fees~~expense of $3.3 million due to including the operations of PMB since the date of acquisition and (iv) higher ~~all other expenses~~loss in alternative energy partnership investments of ~~$2.2 million.~~$689 thousand. These increases were partially offset by: (i) higher reversal of loan repurchase reserves of ~~$730~~$714 thousand and (ii) lower ~~merger-related~~acquisition, integration and transaction costs of ~~$1.4 million and (iii) lower loss in alternative energy partnership investments of $1.6 million.~~$320 thousand.

~~Table of Contents~~

Income Tax Expense

For the three months ended September 30, 2022, June 30, 2022 ~~March 31, 2022~~ and ~~June~~September 30, 2021, income tax expense was $9.9 million, $10.2 million, ~~$18.8 million,~~ and ~~$6.6~~$8.7 million, resulting in an effective tax rate of ~~27.6%~~29.1%, ~~27.9%~~27.6% and ~~25.6%~~27.2%, respectively. The effective tax rate for the full year 2022 is ~~expected~~estimated to be ~~similar to the effective income tax rate for the second quarter.~~28%.

Income tax expense totaled ~~$28.9~~$38.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022, representing an effective tax rate of ~~27.8%~~28.1%, compared to ~~$8.9~~$17.5 million and an effective tax rate of ~~20.9%~~23.6% for 2021. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2022 was higher than the comparable 2021 period due mostly to the first quarter of 2021 including a net tax benefit of $2.1 million resulting from the exercise of all previously issued outstanding stock appreciation rights.

For additional information, see Note 8 to Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

FINANCIAL CONDITION

Investment Securities

The primary goal of our investment securities portfolio is to provide a relatively stable source of interest income while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk, and interest rate risk. Certain investment securities provide a source of liquidity as collateral for FHLB advances, ~~Federal Reserve~~FRB Discount Window capacity, repurchase agreements, and certain public deposits.

~~Investment Securities Held-to-Maturity~~

Securities held-to-maturity totaled $329.3 million at June 30, 2022 and included $215.1 million in agency securities and $114.2 million in municipal securities. During the first quarter of 2022, we transferred certain longer-duration fixed-rate mortgage-backed securities and municipal securities from the available-for-sale portfolio to the held-to-maturity portfolio to lower the adverse impact rising interest rates may have on the fair value of such securities. At the time of the transfer, the securities had an unrealized gross loss of $16.6 million, which along with the related unrealized loss in accumulated other comprehensive income, is amortized into interest income as a yield adjustment over the remaining term of the securities. As a result, there is no impact on the consolidated statements of operations.

~~The following table presents the amortized cost and fair value of investment securities held-to-maturity as of the dates indicated:~~

June 30, 2022 December 31, 2021
($ in thousands) Amortized Cost Fair Value Unrealized Gain (Loss) Amortized Cost Fair Value Unrealized Gain (Loss)
Securities held-to-maturity:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities $ 153,621 $ 135,287 $ (18,334) $ — $ — $ —
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations 61,447 53,396 (8,051) — — —
Municipal securities 114,204 96,989 (17,215) — — —
Total securities held-to-maturity $ 329,272 $ 285,672 $ (43,600) $ — $ — $ —

Table of ~~Contents~~Contents

Investment Securities Available-for-Sale

The following table presents the amortized cost and fair value of the investment securities available for sale portfolio and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income as of the dates indicated:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
($ in thousands)	($ in thousands)	Amortized Cost		Fair Value		Unrealized Gain (Loss)		Amortized Cost		Fair Value		Unrealized Gain (Loss)		($ in thousands)	Amortized Cost		Fair Value		Unrealized Gain (Loss)		Amortized Cost		Fair Value		Unrealized Gain (Loss)
Securities available-for-sale:	Securities available-for-sale:													Securities available-for-sale:
SBA loan pool securities	SBA loan pool securities	$	13,085	$	13,062	$	(23)	$	14,679	$	14,591	$	(88)	SBA loan pool securities	$	12,156	$	12,106	$	(50)	$	14,679	$	14,591	$	(88)
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	12,051		11,365		(686)		190,382		191,969		1,587		U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	12,012		10,696		(1,316)		190,382		191,969		1,587
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	160,657		154,053		(6,604)		242,458		241,541		(917)		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	151,582		141,157		(10,425)		242,458		241,541		(917)
Municipal securities	Municipal securities	—		—		—		117,913		119,015		1,102		Municipal securities	—		—		—		117,913		119,015		1,102
Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	53,122		45,481		(7,641)		56,014		56,025		11		Non-agency residential mortgage-backed securities	52,076		41,514		(10,562)		56,014		56,025		11

Collateralized loan obligations	Collateralized loan obligations	492,775		478,203		(14,572)		521,275		518,964		(2,311)		Collateralized loan obligations	492,775		472,676		(20,099)		521,275		518,964		(2,311)
Corporate debt securities	Corporate debt securities	165,266		163,271		(1,995)		162,002		173,598		11,596		Corporate debt securities	177,774		169,416		(8,358)		162,002		173,598		11,596
Total securities available-for-sale	Total securities available-for-sale	$	896,956	$	865,435	$	(31,521)	$	1,304,723	$	1,315,703	$	10,980	Total securities available-for-sale	$	898,375	$	847,565	$	(50,810)	$	1,304,723	$	1,315,703	$	10,980

Securities available-for-sale were ~~$865.4~~$847.6 million at ~~June~~September 30, 2022, a decrease of ~~$450.3~~$468.1 million, or ~~34.2%~~35.6%, from $1.32 billion at December 31, 2021. The decrease was mainly due to the ~~aforementioned~~ transfer of certain securities to the held-to-maturity portfolio as described further below, principal payments of $31.1 million, collateralized loan obligation (CLO) payoffs of $28.5 ~~million, principal payments of $20.2~~ million, sales of $17.6 million and higher unrealized net losses of ~~$42.5~~$61.8 million, offset by purchases of ~~$5.0~~$17.5 million.

Net unrealized losses on securities available-for-sale were ~~$31.5~~$50.8 million at ~~June~~September 30, 2022, compared to a net unrealized gain of $11.0 million at December 31, 2021. The net unrealized gain or loss on securities available-for-sale, net of tax, is reflected in accumulated other comprehensive ~~income.~~income (loss). Increases in longer term market interest rates resulted in higher net unrealized losses in our securities portfolio and stockholders’ equity. As market interest rates increase, bond prices tend to fall and, consequently, the fair value of our securities may also decrease. To this end, we may have further net unrealized losses on our securities classified as available–for-sale, which would negatively affect our total and tangible stockholders’ equity.

CLOs totaled ~~$478.2~~$472.7 million and $519.0 million and were all AAA and AA rated at ~~June~~September 30, 2022 and December 31, 2021. We perform due diligence and ongoing credit quality review of our CLO holdings, which includes monitoring performance factors such as external credit ratings, collateralization levels, collateral concentration levels, and other performance factors.

We did not record credit impairment for any investment securities for the three and ~~six~~nine months ended ~~June~~September 30, 2022 or 2021. We monitor our securities portfolio to ensure it has adequate credit support and we consider the lowest credit rating for identification of potential credit impairment. As of ~~June~~September 30, 2022, we believe there was no credit impairment and we did not have the current intent to sell securities with a fair value below amortized cost at ~~June~~September 30, 2022, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. As of ~~June~~September 30, 2022, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and credit market conditions.

Table of Contents

Investment Securities Held-to-Maturity

Securities held-to-maturity totaled $328.8 million at September 30, 2022 and included $214.6 million in agency securities and $114.2 million in municipal securities. During the first quarter of 2022, we transferred certain longer-duration fixed-rate mortgage-backed securities and municipal securities from the available-for-sale portfolio to the held-to-maturity portfolio to lower the adverse impact rising interest rates may have on the fair value of such securities. At the time of the transfer, the securities had an unrealized gross loss of $16.6 million, which is subsequently amortized into interest income as a yield adjustment over the remaining life of the securities. The unrealized losses remaining in accumulated other comprehensive income are also accreted into interest income in a consistent manner. As a result, there is no impact on the consolidated statements of operations.

The following table presents the amortized cost and fair value of investment securities held-to-maturity as of the dates indicated:


	September 30, 2022						December 31, 2021
($ in thousands)	Amortized Cost		Fair Value		Unrealized Gain (Loss)		Amortized Cost		Fair Value		Unrealized Gain (Loss)
Securities held-to-maturity:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	153,127	$	123,949	$	(29,178)	$	—	$	—	$	—
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	61,426		49,476		(11,950)		—		—		—
Municipal securities	114,204		89,927		(24,277)		—		—		—



Total securities held-to-maturity	$	328,757	$	263,352	$	(65,405)	$	—	$	—	$	—

Table of ~~Contents~~Contents

The following table presents the fair values and weighted average yields or tax-equivalent yields using amortized cost of the securities held-to-maturity portfolio as of ~~June~~September 30, 2022, based on the earlier of contractual maturity dates or next repricing dates:


		One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total					One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
($ in thousands)	($ in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		($ in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield
Securities held-to-maturity:	Securities held-to-maturity:																					Securities held-to-maturity:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	—	—	%	$	—	—	%	$	—	—	%	$	135,287	2.69	%	$	135,287	2.69	%	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	—	—	%	$	—	—	%	$	7,960	2.52	%	$	115,989	2.70	%	$	123,949	2.69	%
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	—		—	%	—		—	%	—		—	%	53,396		2.64	%	53,396		2.64	%	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	—		—	%	—		—	%	—		—	%	49,476		2.64	%	49,476		2.64	%
Municipal securities(1)	Municipal securities(1)	—		—	%	—		—	%	17,134		2.19	%	79,855		2.71	%	96,989		2.62	%	Municipal securities(1)	—		—	%	—		—	%	16,197		2.19	%	73,730		2.71	%	89,927		2.62	%

Total securities held-to-maturity	Total securities held-to-maturity	$	—	—	%	$	—	—	%	$	17,134	2.19	%	$	268,538	2.68	%	$	285,672	2.66	%	Total securities held-to-maturity	$	—	—	%	$	—	—	%	$	24,157	2.29	%	$	239,195	2.69	%	$	263,352	2.65	%

(1) Computed on a tax-equivalent basis.

The following table presents the fair values and weighted average yields using amortized cost of the securities available-for-sale portfolio as of ~~June~~September 30, 2022, based on the earlier of contractual maturity dates or next repricing dates:


		One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total					One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
($ in thousands)	($ in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		($ in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield
Securities available-for-sale:	Securities available-for-sale:																					Securities available-for-sale:
SBA loan pools securities	SBA loan pools securities	$	13,062	1.06	%	$	—	—	%	$	—	—	%	$	—	—	%	$	13,062	1.06	%	SBA loan pools securities	$	12,106	1.82	%	$	—	—	%	$	—	—	%	$	—	—	%	$	12,106	1.82	%
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	—		—	%	—		—	%	11,365		2.23	%	—		—	%	11,365		2.23	%	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	—		—	%	—		—	%	10,696		2.23	%	—		—	%	10,696		2.23	%
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	86,602		1.73	%	9,630		2.24	%	35,518		1.55	%	22,303		1.81	%	154,053		1.73	%	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	79,654		3.16	%	8,138		2.72	%	33,003		1.92	%	20,362		1.83	%	141,157		2.61	%

Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	45,481		2.51	%	45,481		2.51	%	Non-agency residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	41,514		2.50	%	41,514		2.50	%

Collateralized loan obligations	Collateralized loan obligations	478,203		2.70	%	—		—	%	—		—	%	—		—	%	478,203		2.70	%	Collateralized loan obligations	472,676		4.23	%	—		—	%	—		—	%	—		—	%	472,676		4.23	%
Corporate debt securities	Corporate debt securities	—		—	%	149,641		4.71	%	13,630		5.73	%	—		—	%	163,271		4.80	%	Corporate debt securities	—		—	%	156,566		4.82	%	12,850		5.73	%	—		—	%	169,416		4.89	%
Total securities available-for-sale	Total securities available-for-sale	$	577,867	2.52	%	$	159,271	4.56	%	$	60,513	2.52	%	$	67,784	2.29	%	$	865,435	2.87	%	Total securities available-for-sale	$	564,436	4.03	%	$	164,704	4.71	%	$	56,549	2.76	%	$	61,876	2.30	%	$	847,565	3.93	%

6566

Table of ~~Contents~~Contents

Loans Receivable, Net

The following table presents the composition of our loan and lease portfolio as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022		December 31, 2021		Amount Change		Percentage Change		($ in thousands)	September 30, 2022		December 31, 2021		Amount Change		Percentage Change
Commercial:	Commercial:									Commercial:
Commercial and industrial(1)	Commercial and industrial(1)	$	2,433,464	$	2,668,984	$	(235,520)	(8.8)	%	Commercial and industrial(1)	$	1,993,416	$	2,668,984	$	(675,568)	(25.3)	%
Commercial real estate	Commercial real estate	1,204,414		1,311,105		(106,691)		(8.1)	%	Commercial real estate	1,240,927		1,311,105		(70,178)		(5.4)	%
Multifamily	Multifamily	1,572,308		1,361,054		211,254		15.5	%	Multifamily	1,698,455		1,361,054		337,401		24.8	%
SBA(2)	SBA(2)	92,235		205,548		(113,313)		(55.1)	%	SBA(2)	85,674		205,548		(119,874)		(58.3)	%
Construction	Construction	228,341		181,841		46,500		25.6	%	Construction	236,495		181,841		54,654		30.1	%

Total commercial loans	Total commercial loans	5,530,762		5,728,532		(197,770)		(3.5)	%	Total commercial loans	5,254,967		5,728,532		(473,565)		(8.3)	%
Consumer:	Consumer:									Consumer:
Single family residential mortgage	Single family residential mortgage	1,832,279		1,420,023		412,256		29.0	%	Single family residential mortgage	1,947,652		1,420,023		527,629		37.2	%

Other consumer	Other consumer	88,223		102,925		(14,702)		(14.3)	%	Other consumer	86,701		102,925		(16,224)		(15.8)	%
Total consumer loans	Total consumer loans	1,920,502		1,522,948		397,554		26.1	%	Total consumer loans	2,034,353		1,522,948		511,405		33.6	%
Total loans(3)	Total loans(3)	7,451,264		7,251,480		199,784		2.8	%	Total loans(3)	7,289,320		7,251,480		37,840		0.5	%
Allowance for loan losses	Allowance for loan losses	(93,793)		(92,584)		(1,209)		1.3	%	Allowance for loan losses	(92,444)		(92,584)		140		(0.2)	%
Total loans receivable, net	Total loans receivable, net	$	7,357,471	$	7,158,896	$	198,575	2.8	%	Total loans receivable, net	$	7,196,876	$	7,158,896	$	37,980	0.5	%

(1)Includes warehouse lending balances of ~~$1.16 billion~~$766.4 million and $1.60 billion at ~~June~~September 30, 2022 and December 31, 2021.

(2)Includes 7939 PPP loans totaling ~~$28.4~~$20.0 million, net of unamortized loan fees totaling ~~$10~~$4 thousand at ~~June~~September 30, 2022 and 397 PPP loans totaling $123.1 million, net of unamortized loan fees totaling $772 thousand at December 31, 2021.

(3)Total loans include net deferred loan origination costs (fees), purchased premiums (discounts), and fair value allocations of premiums (discounts) totaling ~~$14.4~~$7.1 million and $5.5 million at ~~June~~September 30, 2022 and December 31, 2021.

Gross loans increased ~~$199.8~~$37.8 million to ~~$7.45~~$7.3 billion from December 31, 2021 due to loan fundings of ~~$2.18~~$3.0 billion, including single-family residential purchases of ~~$641.5 million.~~$814.3 million, partially offset by a decrease in warehouse lending balances of $836.1 million, PPP loans payoffs of $103.1 million and other paydown and payoff activity. During the first quarter of 2022, $150.1 million of owner-occupied commercial real estate loans acquired in the PMB acquisition were moved to the other commercial and industrial category from the commercial real estate category. SBA loans decreased by ~~$113.3~~$119.9 million due mostly from the SBA processing forgiveness requests. At ~~June~~September 30, 2022, SBA loans included ~~$28.4~~$20.0 million of PPP loans, compared to $123.1 million at December 31, 2021.

Total commercial loans, excluding ~~PPP loans and~~ warehouse lending, increased ~~$256.2~~$362.6 million, or ~~25.1%~~6.6% on an annualized basis during the ~~second quarter.~~nine months ended September 30, 2022.

We continue to focus the real estate loan portfolio toward relationship-based multifamily, bridge, light infill construction, and commercial real estate loans. As of ~~June~~September 30, 2022, loans secured by residential real estate (single-family, multifamily, single-family construction, warehouse lending credit ~~facilities and commercial real estate)~~facilities) represent approximately ~~66%~~64% of our total loans outstanding.

Credit Quality Indicators

6667

Table of ~~Contents~~Contents

The following table presents the risk categories for total loans by class of loans as of ~~June~~September 30, 2022 and December 31, 2021:


($ in thousands)	($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2022
September 30, 2022												September 30, 2022
Commercial:	Commercial:											Commercial:
Commercial and industrial	Commercial and industrial	$	2,316,651	$	45,405	$	71,408	$	—	$	2,433,464	Commercial and industrial	$	1,900,686	$	33,713	$	59,017	$	—	$	1,993,416
Commercial real estate	Commercial real estate	1,186,719		3,679		14,016		—		1,204,414		Commercial real estate	1,225,261		1,757		13,909		—		1,240,927
Multifamily	Multifamily	1,537,480		16,133		18,695		—		1,572,308		Multifamily	1,666,901		14,118		17,436		—		1,698,455
SBA	SBA	75,278		5,221		11,736		—		92,235		SBA	69,447		4,648		11,579		—		85,674
Construction	Construction	219,794		8,547		—		—		228,341		Construction	236,495		—		—		—		236,495

Consumer:	Consumer:											Consumer:
Single family residential mortgage	Single family residential mortgage	1,817,068		6,218		8,993		—		1,832,279		Single family residential mortgage	1,931,549		7,411		8,692		—		1,947,652
Other consumer	Other consumer	87,727		145		351		—		88,223		Other consumer	86,315		142		244		—		86,701
Total	Total	$	7,240,717	$	85,348	$	125,199	$	—	$	7,451,264	Total	$	7,116,654	$	61,789	$	110,877	$	—	$	7,289,320


($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2021
Commercial:
Commercial and industrial	$	2,550,540	$	65,659	$	52,785	$	—	$	2,668,984
Commercial real estate	1,292,837		4,845		13,423		—		1,311,105
Multifamily	1,312,038		46,314		2,702		—		1,361,054
SBA	181,129		6,040		18,379		—		205,548
Construction	171,731		10,110		—		—		181,841

Consumer:
Single family residential mortgage	1,395,785		10,423		13,815		—		1,420,023
Other consumer	102,538		92		295		—		102,925
Total	$	7,006,598	$	143,483	$	101,399	$	—	$	7,251,480

Loans risk rated special mention decreased ~~$58.1~~$81.7 million to ~~$85.3~~$61.8 million at ~~June~~September 30, 2022 compared to $143.5 million at December 31, 2021 due mostly to activity within ~~the~~ commercial and industrial and multifamily ~~loans that included~~loans. Special mention payoffs ~~of $25.5~~totaled $40.7 million and there was a net migration out of special mention of ~~$27.7~~$41.9 million. Loans risk rated substandard increased ~~$23.8~~$9.5 million to ~~$125.2~~$110.9 million at ~~June~~September 30, 2022 compared to $101.4 million at December 31, 2021 due mostly to ~~the addition~~additions of ~~one multifamily loan for $17.5~~$52.7 million, partially offset by payoffs of $28.4 million and ~~three commercial and industrial relationships~~upgrades of ~~$19.6~~$12.3 million. There were no loans risk rated doubtful at ~~June~~September 30, 2022 and December 31, 2021.

6768

Table of ~~Contents~~Contents

~~The commercial and industrial ("C&I") portfolio has limited exposure to certain business sectors undergoing severe stress as a result of the pandemic.~~ The C&I industry concentrations in dollars and as a percentage of total outstanding C&I loan balances are summarized below:


		June 30, 2022					September 30, 2022
($ in thousands)	($ in thousands)	Amount		% of Portfolio		($ in thousands)	Amount		% of Portfolio
C&I Portfolio by Industry	C&I Portfolio by Industry					C&I Portfolio by Industry
Finance and Insurance - Warehouse Lending	Finance and Insurance - Warehouse Lending	$	1,160,157	48	%	Finance and Insurance - Warehouse Lending	$	766,362	38	%
Real Estate and Rental Leasing	Real Estate and Rental Leasing	245,013		10	%	Real Estate and Rental Leasing	190,308		10	%
Finance and Insurance - Other	Finance and Insurance - Other	161,287		7	%	Finance and Insurance - Other	124,676		6	%
Manufacturing	Manufacturing	120,619		5	%	Manufacturing	119,448		6	%
Healthcare	Healthcare	92,321		4	%	Healthcare	98,319		5	%
Television / Motion Pictures						Television / Motion Pictures	70,803		4	%
Arts, Entertainment & Recreation	Arts, Entertainment & Recreation	67,369		3	%	Arts, Entertainment & Recreation	70,134		4	%
Television / Motion Pictures		65,522		3	%
Gas Stations	Gas Stations	62,347		3	%	Gas Stations	59,712		3	%
Other Retail Trade	Other Retail Trade	56,132		2	%	Other Retail Trade	58,817		3	%
Construction	Construction	46,795		2	%	Construction	46,430		2	%
Wholesale Trade						Wholesale Trade	41,913		2	%
Professional Services	Professional Services	45,217		2	%	Professional Services	41,262		2	%
Wholesale Trade		43,901		2	%
Management of Companies and Enterprises	Management of Companies and Enterprises	37,561		2	%	Management of Companies and Enterprises	36,383		2	%
Educational Services						Educational Services	35,877		2	%
Food Services	Food Services	36,593		2	%	Food Services	31,247		2	%
Educational Services		34,473		1	%
Transportation	Transportation	18,551		1	%	Transportation	20,013		1	%
Accommodations	Accommodations	8,922		—	%	Accommodations	8,822		—	%
All Other		130,684		5	%
Other						Other	172,890		9	%
Total	Total	$	2,433,464	100	%	Total	$	1,993,416	100	%

Non-Traditional Mortgage Portfolio ("NTM")

NTM loans are included in our SFR mortgage portfolio and are comprised of interest only loans and Green Loans. While we no longer originate SFR loans, we have and may continue to purchase pools of loans that include NTM loans with maturities of up to 40 years and flexible initial repricing dates, ranging from 1 to 10 years, and periodic repricing dates through the life of the loan.

As of ~~June~~September 30, 2022 and December 31, 2021, the NTM loans totaled ~~$841.1~~$870.0 million, or ~~11.3%~~11.9% of total loans, and $635.3 million, or 8.8% of total loans, respectively. Interest only loans are primarily SFR first mortgage loans that generally have a 30 to 40-year term at the time of origination and include payment features that allow interest only payments in initial periods before converting to a fully amortizing loan. At ~~June~~September 30, 2022 and December 31, 2021, interest only loans totaled ~~$833.6~~$863.2 million and $613.3 million. Green Loans are SFR first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. Green Loans are generally interest only for a 15-year term with a balloon payment due at maturity. At ~~June~~September 30, 2022 and December 31, 2021, Green Loans totaled ~~$7.4~~$6.8 million and $21.9 million.

The total NTM portfolio increased by ~~$205.8~~$234.8 million, or ~~32.4%~~37.0% during the ~~six~~nine months ended ~~June~~September 30, 2022. The increase was ~~primarily~~ due to loan purchases, offset by principal paydowns and payoffs.

At ~~June~~September 30, 2022 and December 31, 2021, nonperforming NTM loans totaled zero and $4.0 million.

Non-Traditional Mortgage Performance Indicators

Our risk management policy and credit monitoring include reviewing delinquency, FICO scores, and LTV ratios on the NTM loan portfolio. We also ~~regularly~~continually monitor market conditions for our geographic lending areas. We have determined that the most significant performance indicators for NTM first lien loans are LTV ratios and for Green Loans are FICO scores. At ~~June~~September 30, 2022, our NTM first lien portfolio had a weighted average LTV of approximately ~~60%~~59%. ~~At June 30, 2022, $3.5 million or 50% of our $7.0 million Green Loans first lien portfolio had FICO scores of 700 or greater.~~

6869

Table of ~~Contents~~Contents

Nonperforming Assets

The following table presents a summary of total nonperforming assets, excluding loans held-for-sale, as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022			December 31, 2021			Amount Change		Percentage Change		($ in thousands)	September 30, 2022			December 31, 2021			Amount Change		Percentage Change
Loans past due 90 days or more still on accrual	Loans past due 90 days or more still on accrual	$	—		$	—		$	—	—	%	Loans past due 90 days or more still on accrual	$	—		$	—		$	—	—	%
Nonaccrual loans	Nonaccrual loans	44,443			52,558			(8,115)		(15.4)	%	Nonaccrual loans	42,674			52,558			(9,884)		(18.8)	%
Total nonperforming loans	Total nonperforming loans	44,443			52,558			(8,115)		(15.4)	%	Total nonperforming loans	42,674			52,558			(9,884)		(18.8)	%
Other real estate owned	Other real estate owned	—			—			—		—	%	Other real estate owned	—			—			—		—	%
Total nonperforming assets	Total nonperforming assets	$	44,443		$	52,558		$	(8,115)	(15.4)	%	Total nonperforming assets	$	42,674		$	52,558		$	(9,884)	(18.8)	%
Performing restructured loans (1)	Performing restructured loans (1)	$	10,946		$	12,538		$	(1,592)	(12.7)	%	Performing restructured loans (1)	$	11,252		$	12,538		$	(1,286)	(10.3)	%
Nonaccrual loans to total loans	Nonaccrual loans to total loans	0.60		%	0.72		%					Nonaccrual loans to total loans	0.59		%	0.72		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.60		%	0.72		%					Nonperforming loans to total loans	0.59		%	0.72		%
Total nonperforming assets to total assets	Total nonperforming assets to total assets	0.47		%	0.56		%					Total nonperforming assets to total assets	0.46		%	0.56		%
ALL to nonperforming loans	ALL to nonperforming loans	211.04		%	176.16		%					ALL to nonperforming loans	216.63		%	176.16		%
ACL to nonperforming loans	ACL to nonperforming loans	224.33		%	186.82		%					ACL to nonperforming loans	231.64		%	186.82		%

(1) Excluded from nonperforming loans

Loans are generally placed on nonaccrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection. Past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where we believe the borrower will eventually overcome those circumstances and repay the loan in full.

Additional interest income of approximately ~~$694~~$818 thousand and ~~$1.3~~$2.2 million would have been recorded during the three and ~~six~~nine months ended ~~June~~September 30, 2022, had these loans been paid in accordance with their original terms throughout the periods indicated.

Non-performing loans decreased ~~$8.1~~$9.9 million to ~~$44.4~~$42.7 million as of ~~June~~September 30, 2022, of which ~~$18.4~~$17.9 million, or ~~41%~~42%, relates to loans in a current payment status. The decrease was due mostly to ~~$11.1~~$20.4 million in payoffs, paydowns, and charge-offs and $6.7 million in loans returning to accrual status, offset by additions of ~~$9.7~~$17.2 million. Of the ~~$9.7~~$17.2 million of loans placed on non-accrual status, ~~$7.2~~$9.1 million, related to SFR loans.

At June 30, 2022, non-performing loans included (i) a $12.4 million commercial and industrial loan acquired in the PMB acquisition, (ii) SBA loans totaling $10.5 million, of which $8.6 million is guaranteed, (iii) SFR loans totaling $7.3 million, and (iv) other commercial loans of $13.9 million.

Troubled Debt Restructurings

Loans that we modify or restructure where the debtor is experiencing financial difficulties and makes a concession to the borrower in a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a note split with principal forgiveness are classified as troubled debt restructurings (“TDRs”). TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition. A workout plan between a borrower and us is designed to provide a bridge for the cash flow shortfalls in the near term. If the borrower works through the near term issues, in most cases, the original contractual terms of the loan will be reinstated.

At each ~~June~~September 30, 2022 and December 31, 2021, we had 21 and 18 loans classified as TDRs, with an aggregate balance of ~~$25.9~~$30.8 million and $16.7 million. When a loan becomes a TDR, we cease accruing interest, and classify it as nonaccrual until the borrower demonstrates that the loan is again performing. The increase in TDRs during the ~~six~~nine months ended ~~June~~September 30, 2022 was due mostly to ~~modifying~~ the ~~$12.4 million non-performing~~modification of two commercial and industrial loan relationships acquired in the PMB ~~acquisition, offset by paydowns and payoffs.~~acquisition.

At ~~June~~September 30, 2022, of the 1821 loans classified as TDRs, 10 loans totaling ~~$10.9~~$11.3 million were making payments according to their modified terms and were less than 90 days delinquent under the modified terms and, as such, were on accruing status. At December 31, 2021, of the 18 loans classified as TDRs, 11 loans totaling $12.5 million were making payments according to their modified terms and were less than 90 days delinquent under the modified terms and, as such, were on accruing status.

Table of ~~Contents~~Contents

Allowance for Credit Losses (ACL)

The ACL methodology uses a nationally recognized, third-party model that includes many assumptions based on historical and peer loss data, current loan portfolio risk profile including risk ratings, and economic forecasts including MEVs released by the model provider during ~~June~~September 2022. The published forecasts consider the FRB's monetary policy, labor market constraints, rising inflation, higher oil prices ~~ongoing supply chain issues~~ and the military conflict between Russia and Ukraine, among other factors.

The ACL, which includes the reserve for unfunded loan commitments, totaled ~~$99.7~~$98.8 million, or ~~1.34%~~1.36% of total loans, at ~~June~~September 30, 2022, compared to $98.2 million, or 1.35% of total loans, at December 31, 2021. The ~~$1.5 million~~$660 thousand increase in the ACL was due primarily ~~to: (i) growth in the loan portfolio, including unfunded commitments, and (ii)~~to higher specific reserves of ~~$1.2 million. Changes~~$657 thousand. During the nine months ended September 30, 2022, changes in portfolio mix and improved credit quality, in addition to net recoveries of ~~$1.8 million~~,$860 thousand, offset the reserves needed due to growth. The $31.3 million recovery in the first quarter of 2022 from the settlement of a loan previously charged-off in 2019 also resulted in a reversal of provision for credit losses and therefore had no net impact on the ACL. The ACL coverage of non-performing loans was ~~224%~~232% at ~~June~~September 30, 2022 compared to 187% at December 31, 2021.

The reserve for unfunded loan commitments was established to cover the current expected credit losses for the estimated level of funding of these loan commitments, except for unconditionally cancellable commitments for which no reserve is required.

The following table provides a summary of components of the allowance for credit losses and related ratios as of the dates indicated:


($ in thousands)	($ in thousands)	June 30, 2022			December 31, 2021			($ in thousands)	September 30, 2022			December 31, 2021

Allowance for credit losses:	Allowance for credit losses:							Allowance for credit losses:
Allowance for loan losses (ALL)	Allowance for loan losses (ALL)	$	93,793		$	92,584		Allowance for loan losses (ALL)	$	92,444		$	92,584
Reserve for unfunded loan commitments	Reserve for unfunded loan commitments	5,905			5,605			Reserve for unfunded loan commitments	6,405			5,605
Total allowance for credit losses (ACL)	Total allowance for credit losses (ACL)	$	99,698		$	98,189		Total allowance for credit losses (ACL)	$	98,849		$	98,189

ALL to total loans	ALL to total loans	1.26		%	1.28		%	ALL to total loans	1.27		%	1.28		%
ACL to total loans	ACL to total loans	1.34		%	1.35		%	ACL to total loans	1.36		%	1.35		%
ACL to total loans, excluding PPP loans	ACL to total loans, excluding PPP loans	1.34		%	1.39		%	ACL to total loans, excluding PPP loans	1.36		%	1.38		%

The following tables provide summaries of activity in the allowance for credit losses for the periods indicated:


		Three Months Ended June 30,												Three Months Ended September 30,
($ in thousands)	($ in thousands)	2022						2021							($ in thousands)	2022						2021
		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses				Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	Balance at beginning of period	$	93,226	$	5,405	$	98,631	$	79,353	$	3,360	$	82,713		Balance at beginning of period	$	93,793	$	5,905	$	99,698	$	75,885	$	3,814	$	79,699

Loans charged off	Loans charged off	(494)		—		(494)		(886)		—		(886)			Loans charged off	(912)		—		(912)		(327)		—		(327)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	1,561		—		1,561		26		—		26			Recoveries of loans previously charged off	63		—		63		532		—		532
Net recoveries (charge-offs)		1,067		—		1,067		(860)		—		(860)
Net (charge-offs) recoveries															Net (charge-offs) recoveries	(849)		—		(849)		205		—		205

(Reversal of) provision for credit losses	(Reversal of) provision for credit losses	(500)		500		—		(2,608)		454		(2,154)			(Reversal of) provision for credit losses	(500)		500		—		(2,566)		1,419		(1,147)
Balance at end of period	Balance at end of period	$	93,793	$	5,905	$	99,698	$	75,885	$	3,814	$	79,699		Balance at end of period	$	92,444	$	6,405	$	98,849	$	73,524	$	5,233	$	78,757

7071

Table of ~~Contents~~Contents


		Six Months Ended June 30,												Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022						2021							($ in thousands)	2022						2021
		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses				Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	Balance at beginning of period	$	92,584	$	5,605	$	98,189	$	81,030	$	3,183	$	84,213		Balance at beginning of period	$	92,584	$	5,605	$	98,189	$	81,030	$	3,183	$	84,213

Loans charged off	Loans charged off	(725)		—		(725)		(1,451)		—		(1,451)			Loans charged off	(1,637)		—		(1,637)		(1,778)		—		(1,778)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	33,776		—		33,776		198		—		198			Recoveries of loans previously charged off	33,839		—		33,839		730		—		730
Net charge-offs		33,051		—		33,051		(1,253)		—		(1,253)
Net recoveries (charge-offs)															Net recoveries (charge-offs)	32,202		—		32,202		(1,048)		—		(1,048)

(Reversal of) provision for credit losses	(Reversal of) provision for credit losses	(31,842)		300		(31,542)		(3,892)		631		(3,261)			(Reversal of) provision for credit losses	(32,342)		800		(31,542)		(6,458)		2,050		(4,408)
Balance at end of period	Balance at end of period	$	93,793	$	5,905	$	99,698	$	75,885	$	3,814	$	79,699		Balance at end of period	$	92,444	$	6,405	$	98,849	$	73,524	$	5,233	$	78,757

The following table presents a summary of net (charge-offs) recoveries and the annualized ratio of net charge-offs to average loans by loan class for the periods indicated:


		Three Months Ended June 30,													Three Months Ended September 30,
($ in thousands)	($ in thousands)	2022						2021						($ in thousands)	2022						2021
		Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Recovery Ratio		Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Recovery Ratio			Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Recovery Ratio		Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Recovery Ratio
Commercial:	Commercial:													Commercial:
Commercial and industrial	Commercial and industrial	$	1,262	$	2,457,281	0.21	%	$	(477)	$	1,884,793	(0.10)	%	Commercial and industrial	$	(819)	$	2,101,671	(0.15)	%	$	369	$	2,147,163	0.07	%
Commercial real estate	Commercial real estate	—		1,213,438		—	%	—		878,252		—	%	Commercial real estate	3		1,263,520		—	%	(138)		916,548		(0.06)	%
Multifamily	Multifamily	—		1,457,185		—	%	—		1,272,841		—	%	Multifamily	—		1,644,458		—	%	—		1,325,892		—	%
SBA	SBA	(136)		70,225		(0.77)	%	(383)		269,718		(0.57)	%	SBA	(44)		49,840		(0.35)	%	(73)		175,209		(0.17)	%
Construction	Construction	—		219,029		—	%	—		162,391		—	%	Construction	—		234,794		—	%	—		137,522		—	%

Consumer:	Consumer:													Consumer:
Single family residential mortgage	Single family residential mortgage	154		1,755,719		0.04	%	—		1,277,552		—	%	Single family residential mortgage	1		1,927,694		—	%	46		1,331,876		0.01	%
Other consumer	Other consumer	(213)		93,160		(0.91)	%	—		23,881		—	%	Other consumer	10		87,335		0.05	%	1		22,164		0.02	%
Total loans	Total loans	$	1,067	$	7,266,037	0.06	%	$	(860)	$	5,769,428	(0.06)	%	Total loans	$	(849)	$	7,309,312	(0.05)	%	$	205	$	6,056,374	0.01	%

Net ~~recoveries~~charge-offs were ~~$1.1 million~~$849 thousand during the ~~second~~third quarter of 2022, compared to net ~~charge-offs~~recoveries of ~~$860~~$205 thousand during the comparable 2021 period. The increase in net ~~recoveries~~charge-offs between periods was mainly due to net ~~recoveries~~charge-offs within the commercial and industrial portfolio.

7172

Table of ~~Contents~~Contents


		Six Months Ended June 30,													Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022						2021						($ in thousands)	2022						2021
		Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Receovery Ratio		Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Receovery Ratio			Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Recovery Ratio		Net (Charge-offs) Recoveries		Average Loans		Annualized (Charge-off) Recovery Ratio
Commercial:	Commercial:													Commercial:
Commercial and industrial	Commercial and industrial	$	32,497	$	2,544,351	2.55	%	$	(997)	$	1,916,788	(0.10)	%	Commercial and industrial	$	31,678	$	2,395,169	1.76	%	$	(628)	$	1,994,424	(0.04)	%
Commercial real estate	Commercial real estate	—		1,267,891		—	%	—		873,589		—	%	Commercial real estate	3		1,266,418		—	%	(138)		888,066		(0.02)	%
Multifamily	Multifamily	—		1,398,452		—	%	—		1,277,812		—	%	Multifamily	—		1,481,355		—	%	—		1,294,015		—	%
SBA	SBA	609		93,062		1.31	%	(257)		271,029		(0.19)	%	SBA	565		78,497		0.96	%	(330)		238,738		(0.18)	%
Construction	Construction	—		203,996		—	%	—		166,571		—	%	Construction	—		214,375		—	%	—		156,781		—	%
Lease financing		—		—		—	%	—		—		—	%

Consumer:	Consumer:													Consumer:
Single family residential mortgage	Single family residential mortgage	182		1,659,633		0.02	%	—		1,244,015		—	%	Single family residential mortgage	183		1,749,968		0.01	%	46		1,273,624		—	%
Other consumer	Other consumer	(237)		95,326		(0.50)	%	1		26,188		0.01	%	Other consumer	(227)		92,633		(0.33)	%	2		24,832		0.01	%
Total loans	Total loans	$	33,051	$	7,262,711	0.91	%	$	(1,253)	$	5,775,992	(0.04)	%	Total loans	$	32,202	$	7,278,415	0.59	%	$	(1,048)	$	5,870,480	(0.02)	%

Net recoveries were ~~$33.1~~$32.2 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to net charge-offs of ~~$1.3~~$1.0 million during the comparable 2021 period. The increase in net recoveries between periods was mainly due to a $31.3 million recovery from the settlement of a loan previously charged-off in 2019.

The following table provides a summary of the allocation of the allowance for loan losses by loan category as well as loans receivable for each category as of the dates indicated:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
($ in thousands)	($ in thousands)	Allowance for Loan Losses		Loans Receivable		% of Loans in Category to Total Loans		Allowance for Loan Losses		Loans Receivable		% of Loans in Category to Total Loans		($ in thousands)	Allowance for Loan Losses		Loans Receivable		% of Loans in Category to Total Loans		Allowance for Loan Losses		Loans Receivable		% of Loans in Category to Total Loans
Commercial:	Commercial:													Commercial:
Commercial and industrial	Commercial and industrial	$	41,413	$	2,433,464	32.6	%	$	33,557	$	2,668,984	36.8	%	Commercial and industrial	$	38,825	$	1,993,416	27.4	%	$	33,557	$	2,668,984	36.8	%
Commercial real estate	Commercial real estate	15,742		1,204,414		16.2	%	21,727		1,311,105		18.1	%	Commercial real estate	16,836		1,240,927		17.0	%	21,727		1,311,105		18.1	%
Multifamily	Multifamily	15,678		1,572,308		21.1	%	17,893		1,361,054		18.8	%	Multifamily	15,953		1,698,455		23.3	%	17,893		1,361,054		18.8	%
SBA	SBA	3,033		92,235		1.2	%	3,017		205,548		2.8	%	SBA	2,960		85,674		1.2	%	3,017		205,548		2.8	%
Construction	Construction	4,255		228,341		3.1	%	5,622		181,841		2.5	%	Construction	5,423		236,495		3.2	%	5,622		181,841		2.5	%

Consumer:	Consumer:													Consumer:
Single family residential mortgage	Single family residential mortgage	12,805		1,832,279		24.6	%	9,608		1,420,023		19.6	%	Single family residential mortgage	11,847		1,947,652		26.7	%	9,608		1,420,023		19.6	%
Other consumer	Other consumer	867		88,223		1.2	%	1,160		102,925		1.4	%	Other consumer	600		86,701		1.2	%	1,160		102,925		1.4	%

Total	Total	$	93,793	$	7,451,264	100.0	%	$	92,584	$	7,251,480	100.0	%	Total	$	92,444	$	7,289,320	100.0	%	$	92,584	$	7,251,480	100.0	%

Servicing Rights

We have retained servicing rights from certain sales of SFR mortgage loans and SBA loans. ~~In the second quarter of 2022, we~~We also purchased mortgage servicing rights from unrelated third parties. Purchased mortgage servicing rights are recorded at the purchase price at the time of acquisition, which approximates the fair value. Subsequent to acquisition, we account for these servicing rights using the amortization method. We utilize a subservicer to service the loans underlying the purchased mortgage servicing rights.

Mortgage servicing rights totaled ~~$24.0~~$23.3 million and $1.3 million at ~~June~~September 30, 2022 and December 31, ~~2021.~~2021, which are included in other assets in the accompanying consolidated balance sheets. We purchased $22.8 million of SFR mortgage servicing rights during the second quarter of 2022. The unpaid principal balance of the loans underlying these purchased servicing rights is approximately ~~$1.73~~$1.70 billion at ~~June~~September 30, 2022 and these loans are not included in our consolidated statements of financial condition.

7273

Table of ~~Contents~~Contents

During the three and nine months ended September 30, 2022, we recognized loan servicing income of $636 thousand and $957 thousand. During the three and nine months ended September 30, 2021, we recognized loan servicing income of $170 thousand and $476 thousand.

Alternative Energy Partnerships

We invest in certain alternative energy partnerships (limited liability companies) formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits (energy tax credits) and other tax benefits. The investment helps promote the development of renewable energy sources and help lower the cost of housing for residents by lowering homeowners’ monthly utility costs.

As our respective investments in these entities are more than minor, we have significant influence, but not control, over the investee’s activities that most significantly impact its economic performance. As a result, we are required to apply the equity method of accounting, which generally prescribes applying the percentage ownership interest to the investee’s GAAP net income in order to determine the investor’s earnings or losses in a given period. However, because the liquidation rights, tax credit allocations and other benefits to investors can change upon the occurrence of specified events, application of the equity method based on the underlying ownership percentages would not accurately represent our investment. As a result, we apply the Hypothetical Liquidation at Book Value (“HLBV”) method of the equity method of accounting.

The HLBV method is a balance sheet approach whereby a calculation is prepared at each balance sheet date to estimate the amount that we would receive if the equity investment entity were to liquidate all of its assets (as valued in accordance with GAAP) and distribute that cash to the investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses from the equity investment for the period.

The following table presents the activity related to our investment in alternative energy partnerships for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	($ in thousands)	2022		2021		2022		2021		($ in thousands)	2022		2021		2022		2021
Balance at beginning of period	Balance at beginning of period	$	25,156	$	23,809	$	25,888	$	27,977	Balance at beginning of period	$	23,531	$	24,068	$	25,888	$	27,977

Cash distribution from investments	Cash distribution from investments	(582)		(570)		(1,156)		(1,108)		Cash distribution from investments	(626)		(657)		(1,782)		(1,765)
Gain (loss) on investments using HLBV method	Gain (loss) on investments using HLBV method	(1,043)		829		(1,201)		(2,801)		Gain (loss) on investments using HLBV method	(504)		1,785		(1,705)		(1,016)
Balance at end of period	Balance at end of period	$	23,531	$	24,068	$	23,531	$	24,068	Balance at end of period	$	22,401	$	25,196	$	22,401	$	25,196
Unfunded equity commitments at end of period	Unfunded equity commitments at end of period	$	—	$	—	$	—	$	—	Unfunded equity commitments at end of period	$	—	$	—	$	—	$	—

Our most recent investment in alternative energy partnerships totaling $3.6 million occurred in March 2020.

During the three months ended ~~June~~September 30, 2022 and 2021, we recognized net losses on investment of ~~$1.0 million~~$504 thousand and net gains of ~~$829 thousand.~~$1.8 million. During the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, we recognized net losses on investment of ~~$1.2~~$1.7 million and ~~$2.8 million.~~$1.0 million, respectively. From an income tax benefits perspective, we recognized no investment tax credits during these periods; however, we recorded income tax (benefit) expense related to these investments of ~~$(301)~~$(146) thousand and ~~$228~~$491 thousand for the three months ended ~~June~~September 30, 2022 and 2021 and ~~$(347)~~$(493) thousand and ~~$(770)~~$(280) thousand for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

For additional information, see Note 12 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

Table of Contents

Deposits

The following table shows the composition of deposits by type as of the dates indicated:


		June 30, 2022				December 31, 2021							September 30, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Amount		% of Total Deposits		Amount		% of Total Deposits		Amount Change		($ in thousands)	Amount		% of Total Deposits		Amount		% of Total Deposits		Amount Change
Noninterest-bearing deposits	Noninterest-bearing deposits	$	2,826,599	37.4	%	$	2,788,196	37.5	%	$	38,403	Noninterest-bearing deposits	$	2,943,585	40.4	%	$	2,788,196	37.5	%	$	155,389
Interest-bearing demand deposits	Interest-bearing demand deposits	2,359,857		31.2	%	2,393,386		32.2	%	(33,529)		Interest-bearing demand deposits	1,921,816		26.4	%	2,393,386		32.2	%	(471,570)

Savings and money market accounts	Savings and money market accounts	1,622,922		21.4	%	1,751,135		23.5	%	(128,213)		Savings and money market accounts	1,478,045		20.2	%	1,751,135		23.5	%	(273,090)
Certificates of deposit of $250,000 or less	Certificates of deposit of $250,000 or less	374,117		4.9	%	285,768		3.8	%	88,349		Certificates of deposit of $250,000 or less	536,861		7.4	%	285,768		3.8	%	251,093

Certificates of deposit of more than $250,000	Certificates of deposit of more than $250,000	375,188		5.0	%	220,950		3.0	%	154,238		Certificates of deposit of more than $250,000	400,078		5.5	%	220,950		3.0	%	179,128
Total deposits	Total deposits	$	7,558,683	100.0	%	$	7,439,435	100.0	%	$	119,248	Total deposits	$	7,280,385	100.0	%	$	7,439,435	100.0	%	$	(159,050)

~~Table of Contents~~

Total deposits were ~~$7.6~~$7.3 billion at ~~June~~September 30, 2022, ~~an increase~~a decrease of ~~$119.2~~$159.1 million, or ~~1.6%~~2.1%, from $7.4 billion at December 31, 2021 due mostly to ~~higher certificates of~~lower interest-bearing demand deposits of ~~$242.6~~$471.6 million and ~~noninterest-bearing checking balances of $38.4 million, offset by~~ lower savings and money market balances of ~~$128.2~~$273.1 million, partially offset by higher certificates of deposits of $430.2 million and ~~interest-bearing demand deposits~~noninterest-bearing checking balances of ~~$33.5~~$155.4 million. Noninterest-bearing deposits totaled ~~$2.83~~$2.94 billion and represented ~~37.4%~~40.4% of total deposits at ~~June~~September 30, 2022 compared to $2.79 billion and 37.5% at December 31, 2021.

Brokered deposits were ~~$133.6~~$332.4 million and $10.0 million at ~~June~~September 30, ~~2022. There were no brokered deposits at~~2022 and December 31, 2021. During the nine months ended September 30, 2022, certain higher-costing deposits were strategically replaced with longer term fixed rate advances and other wholesale certificates of deposit.

The following table presents the scheduled maturities of certificates of deposit as of ~~June~~September 30, 2022:


($ in thousands)	($ in thousands)	Three Months or Less		Over Three Months Through Six Months		Over Six Months Through Twelve Months		Over One Year		Total		($ in thousands)	Three Months or Less		Over Three Months Through Six Months		Over Six Months Through Twelve Months		Over One Year		Total
Certificates of deposit of $250,000 or less	Certificates of deposit of $250,000 or less	$	138,342	$	63,080	$	49,114	$	123,581	$	374,117	Certificates of deposit of $250,000 or less	$	182,878	$	44,398	$	130,955	$	178,630	$	536,861
Certificates of deposit of more than $250,000	Certificates of deposit of more than $250,000	153,956		173,398		30,652		17,182		375,188		Certificates of deposit of more than $250,000	203,039		147,897		17,531		31,611		400,078
Total certificates of deposit	Total certificates of deposit	$	292,298	$	236,478	$	79,766	$	140,763	$	749,305	Total certificates of deposit	$	385,917	$	192,295	$	148,486	$	210,241	$	936,939

Borrowings

FHLB Advances.We utilize FHLB advances to leverage our capital base, to provide funds for lending and investing activities, as a source of liquidity, and to enhance interest rate risk management. ~~We also maintain additional borrowing availabilities from Federal Reserve Discount Window and unsecured federal funds lines of credit.~~

During the ~~six~~nine months ended ~~June~~September 30, 2022, FHLB advances increased ~~$35.6~~$251.0 million, or ~~7.5%~~52.7%, to ~~$511.7~~$727.0 million, net of unamortized debt issuance costs of ~~$4.3~~$4.0 million, as of ~~June~~September 30, 2022, due to an increase in overnight borrowings of ~~$35.0~~$50.0 million and term advances of $200.0 million.

At ~~June~~September 30, 2022, FHLB advances included ~~$105.0~~$120.0 million in overnight borrowings and ~~$411.0~~$611.0 million in term advances with a weighted average life of ~~3.5~~3.7 years and weighted average interest rate of ~~2.53%~~2.91%.

~~We did not utilize repurchase agreements~~FHLB advances are collateralized by a blanket lien on all real estate loans. Our secured borrowing capacity with the FHLB totaled $2.23 billion, of which the Bank was eligible to borrow an additional $1.21 billion at ~~June~~September 30, 2022 orbased on qualifying loans with an aggregate unpaid principal balance of $3.20 billion as of that date. As of September 30, 2022, the Bank also has additional borrowing capacity with the FHLB of $164.0 million, of which the Bank was eligible to borrow an additional $44.0 million based on investment securities pledged with a carrying value of $214.6 million.

FRB Borrowings.We maintain additional borrowing availabilities from the FRB Discount Window and BIC program.

At September 30, 2022, the Bank had borrowing capacity with the Federal Reserve Bank of San Francisco (the “Federal Reserve”) of $733.5 million, including the secured borrowing capacity through the FRB Discount Window and Borrower-in-Custody ("BIC") program. Borrowings under the BIC program are overnight advances with interest chargeable at the discount window (“primary credit”) borrowing rate.

Table of Contents

Other Borrowings.The Bank maintains available unsecured federal funds lines with five correspondent banks totaling $210.0 million, with no outstanding borrowings at ~~June~~September 30, 2022.

The Bank also has the ability to perform unsecured overnight borrowing from various financial institutions through ~~the American Financial Exchange platform ("AFX").~~AFX. The availability of such unsecured borrowings fluctuates regularly, is subject to the counterparties discretion and totaled $445.0 million and $441.0 million at ~~June~~September 30, 2022 and December 31, 2021. Borrowings under the AFX totaled ~~$85.0 million~~zero and $25.0 million at ~~June~~September 30, 2022 and December 31, 2021.

The holding company maintains a $50.0 million revolving line of credit, which matures on December 19, 2022. We have the option to select paying interest using either (i) Prime Rate or (ii) LIBOR + 1.75%. The line of credit is also subject to an unused commitment fee of 0.40% per annum. Borrowings under the line of credit totaled ~~$13.0~~$10.0 million and zero at ~~June~~September 30, 2022 and December 31, 2021. The line of credit is subject to certain operational and financial covenants and we were in compliance with these covenants at ~~June~~September 30, 2022.

The Bank also maintained repurchase agreements and had no outstanding securities sold under agreements to repurchase at September 30, 2022 and December 31, 2021. Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and the pledging of additional investment securities.

For additional information, see Note 6 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

Long-term Debt

The following table presents our long-term debt as of the dates indicated:

~~Table of Contents~~


				June 30, 2022				December 31, 2021							September 30, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Interest Rate	Maturity Date	Par Value		Unamortized Debt Issuance Cost and Discount		Par Value		Unamortized Debt Issuance Cost and Discount		($ in thousands)	Interest Rate	Maturity Date	Par Value		Unamortized Debt Issuance Cost and Discount		Par Value		Unamortized Debt Issuance Cost and Discount
Senior notes	Senior notes	5.25%	4/15/2025	$	175,000	$	(910)	$	175,000	$	(1,014)	Senior notes	5.25%	4/15/2025	$	175,000	$	(816)	$	175,000	$	(1,014)
Subordinated notes	Subordinated notes	4.375%	10/30/2030	85,000		(2,030)		85,000		(2,127)		Subordinated notes	4.375%	10/30/2030	85,000		(1,965)		85,000		(2,127)
PMB Statutory Trust III, junior subordinated debentures	PMB Statutory Trust III, junior subordinated debentures	Libor + 3.40%	9/26/2032	7,217		—		7,217		—		PMB Statutory Trust III, junior subordinated debentures	Libor + 3.40%	9/26/2032	7,217		—		7,217		—
PMB Capital Trust III, junior subordinated debentures	PMB Capital Trust III, junior subordinated debentures	Libor + 2.00%	10/8/2034	10,310		—		10,310		—		PMB Capital Trust III, junior subordinated debentures	Libor + 2.00%	10/8/2034	10,310		—		10,310		—
Total	Total			$	277,527	$	(2,940)	$	277,527	$	(3,141)	Total			$	277,527	$	(2,781)	$	277,527	$	(3,141)

At ~~June~~September 30, 2022, we were in compliance with all covenants under our long-term debt agreements.

Liquidity Management

We are required to maintain sufficient liquidity to ensure a safe and sound operation. Liquidity may increase or decrease depending upon availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including both expected and unexpected cash flow needs such as funding loan commitments, potential deposit outflows and dividend payments. Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained.

~~As a result~~ We also monitor our liquidity requirements in light of ~~current economic conditions, including government stimulus in response to the pandemic, we have participated~~rising interest rate trends, changes in the ~~elevated levels~~economy and scheduled maturity and interest rate sensitivity of ~~liquidity in the marketplace. A portion~~our investment and loan portfolio and deposits.

Table of the additional liquidity is viewed as short-term as it is expected to be used by clients in the near term and, accordingly, we have maintained higher levels of liquid assets. We have observed reductions in average line usage due to the levels of liquidity in the marketplace. We expect to see higher line utilization as liquidity moderates to historical levels.Contents

Banc of California, N.A.

The Bank's liquidity, represented by cash and cash equivalents and securities available-for-sale, is a product of its operating, investing, and financing activities. The Bank's primary sources of funds are deposits, payments and maturities of outstanding loans and investment securities; sales of loans, investment securities, and other short-term investments; and funds provided from operations. While scheduled payments ~~from the amortization~~and maturity of loans, ~~and~~ investment securities and ~~maturing investment securities and~~other short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.

The Bank also generates cash through secured and unsecured secondary sources of funds. The Bank maintains pre-established secured lines of credit with the FHLB and the FRB as secondary sources of liquidity to provide funds for ~~its~~ lending and investment activities and to enhance ~~its~~ interest rate risk and liquidity risk management. At ~~June~~September 30, 2022, we had available unused secured borrowing capacities of ~~$985.4 million~~$1.21 billion from the FHLB and ~~$789.0~~$733.5 million through the ~~Federal Reserve Bank's~~FRB Discount Window and ~~Borrower-in-Custody (“BIC”)~~BIC programs. At ~~June~~September 30, 2022 and December 31, 2021, FHLB advances totaled ~~$511.7~~$727.0 million and $476.1 million, net of unamortized debt issuance costs of ~~$4.3~~$4.0 million and $4.9 million. At ~~June~~September 30, 2022, the Bank had pledged certain qualifying loans with an unpaid principal balance of ~~$2.38~~$3.20 billion and securities with a carrying value of ~~$205.5~~$214.6 million.

Borrowings under the BIC program are overnight advances with interest chargeable at the discount window (“primary credit”) borrowing rate. There were no borrowings under the FRB's Discount Window and BIC programs at ~~June~~September 30, 2022 and December 31, 2021. At ~~June~~September 30, 2022, the Bank had pledged certain qualifying loans with an unpaid principal balance of ~~$1.01 billion~~$975.5 million and securities with a carrying value of ~~$123.2~~$123.1 million as collateral for these FRB programs. The Bank may also utilize securities sold under repurchase agreements to leverage its capital base and while it maintains repurchase agreements, there were none outstanding at ~~June~~September 30, 2022 and December 31, 2021. Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and ~~our pledging~~would require the Bank to pledge additional investment securities. The Bank had unpledged securities available-for-sale ~~aggregating $846.5~~of $819.3 million at ~~June~~September 30, 2022.

~~Table of Contents~~

In addition, the Bank has additional sources of secondary liquidity through pre-established unsecured fed funds lines with correspondent banks, pre-approved unsecured overnight borrowing lines with various financial institutions through the AFX platform, and ~~our~~its ability to obtain brokered deposits. The availability of unsecured borrowings through the AFX platform fluctuates regularly and is subject to the counterparties' discretion and totaled $445.0 million at June 30, 2022. Borrowings under the AFX platform totaled $85.0 million and $25.0 million at June 30, 2022 and December 31, 2021. At ~~June~~September 30, 2022, the Bank had $210.0 million in pre-established unsecured federal funds lines of credit with correspondent banks. There were no borrowings with these correspondent banks at ~~June~~September 30, 2022 and December 31, 2021. The availability of unsecured borrowings through the AFX platform fluctuates regularly and is subject to the counterparties' discretion and totaled $445.0 million at September 30, 2022. Borrowings under the AFX platform totaled zero and $25.0 million at September 30, 2022 and December 31, 2021. The brokered deposits outstanding at September 30, 2022 and December 31, 2021 totaled $332.4 million and $10.0 million.

Banc of California, Inc.

The primary sources of funds for Banc of California, Inc., on a stand-alone holding company basis, are dividends and intercompany tax payments from the Bank, outside borrowing, and its ability to raise capital and issue debt securities. Dividends from the Bank are largely dependent upon the Bank's earnings and are subject to restrictions under certain regulations that limit its ability to transfer funds to the holding company. OCC regulations impose various restrictions on the ability of a bank to make capital distributions, which include dividends, stock redemptions or repurchases, and certain other items. Generally, a well-capitalized bank may make capital distributions during any calendar year equal to up to 100 percent of year-to-date net income plus retained net income for the two preceding years without prior OCC approval. However, any dividend paid by the Bank would be limited by the need to maintain its well-capitalized status plus the capital buffer in order to avoid additional dividend restrictions (Refer to Capital - Dividend Restrictions below for additional information). Currently, the Bank does not have sufficient dividend-paying capacity to declare and pay such dividends to the holding company without obtaining prior approval from the OCC under the applicable regulations. During the ~~six~~nine months ended ~~June~~September 30, 2022, ~~there were $66.0~~the Bank paid $91.0 million of dividends ~~paid by the Bank~~ to Banc of California, Inc. At ~~June~~September 30, 2022, Banc of California, Inc. had ~~$25.0~~$23.1 million in cash, all of which was on deposit at the Bank.

In December 2021, the holding company entered into a $50.0 million revolving line of credit. The line of credit matures on December 19, 2022. We have the option to pay interest using either (i) Prime Rate or (ii) LIBOR + 1.75%. The line of credit is also subject to an unused commitment fee of 0.40% per annum. At September 30, 2022, there were $10.0 million in borrowings under this line of credit.

On March 15, 2022, we announced that our Board of Directors authorized the repurchase of up to $75 million of our common stock. The repurchase authorization expires in March 2023. During the three months ended ~~June~~September 30, 2022, common stock repurchased under the program totaled ~~2,113,176~~740,332 shares at a weighted average price of ~~$18.38.~~$17.49. During the ~~six~~nine months ended ~~June~~September 30, 2022, common stock repurchased under the program totaled ~~2,328,726~~3,069,058 shares at a weighted average price of ~~$18.52.~~$18.28. As of ~~June~~September 30, 2022, the Company had ~~$31.9~~$18.9 million remaining under the current stock repurchase authorization.

Table of Contents

On March 15, 2022 we redeemed all outstanding Series E Preferred Stock, and the corresponding depositary shares, each representing a 1/40th interest in a share of the Series E Preferred Stock. The redemption price for the Series E Preferred Stock was $1,000 per share (equivalent to $25 per Series E Depositary Share). Upon redemption, the Series E Preferred Stock and the Series E Depositary Shares were no longer outstanding and all rights with respect to such stock and depositary shares ceased and terminated, except the right to payment of the redemption price. Also upon redemption, the Series E Depositary Shares were delisted from trading on the New York Stock Exchange. The $3.7 million difference between the consideration paid and the $95.0 million aggregate carrying value of the Series E Preferred Stock was reclassified to retained earnings and resulted in a decrease to net income allocated to common stockholders

On a consolidated basis, cash and cash equivalents totaled ~~$243.1~~$256.1 million, or ~~2.6%~~2.7% of total assets at ~~June~~September 30, 2022. This compared to $228.1 million, or 2.4% of total assets, at December 31, 2021. The ~~$14.9~~$27.9 million increase was due mainly to (i) net income of ~~$75.2~~$99.4 million generated during the year, (ii) a ~~$108.0~~$235.0 million increase in FHLB advances and other borrowings, ~~(iii) a $119.2 million increase in deposits,~~ and ~~(iv)~~(iii) net investment securities inflows of ~~$61.6~~$60.8 million from repayments, net of securities purchases, offset by (iv) a $159.1 million decrease in deposits, (v) net loan outflows of ~~$167.3~~$6.2 million from originations net of repayments and loan purchases, ~~(v)~~(vi) the redemption of Series E Preferred Stock of $98.7 million, ~~(vi)~~(vii) payments of common and preferred dividends of ~~$9.1~~$12.7 million, ,(viii) net cash used to acquire Deepstack of $10.3 million, and ~~(vii)~~(viii) repurchases of common stock of ~~$43.2~~$56.2 million.

In December 2021, the holding company entered into a $50.0 million revolving line of credit. The line of credit matures on December 19, 2022. We have the option to pay interest using either (i) Prime Rate or (ii) LIBOR + 1.75%. The line of credit is also subject to an unused commitment fee of 0.40% per annum. At June 30, 2022, there were $13.0 million in borrowings under this line of credit.

We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as of ~~June~~September 30, 2022. However, in light of the ongoing COVID-19 pandemic, we cannot predict at this time the extent to which the pandemic may negatively affect our business, financial condition, liquidity, capital and results of operations.

~~Table of Contents~~

Commitments and Contractual Obligations

The following table presents our commitments and contractual obligations as of ~~June~~September 30, 2022:


		Commitments and Contractual Obligations											Commitments and Contractual Obligations
($ in thousands)	($ in thousands)	Total Amount Committed		Within One Year		More Than One Year Through Three Years		More Than Three Years Through Five Years		Over Five Years		($ in thousands)	Total Amount Committed		Within One Year		More Than One Year Through Three Years		More Than Three Years Through Five Years		Over Five Years
Commitments to extend credit	Commitments to extend credit	$	234,283	$	19,617	$	162,078	$	21,965	$	30,623	Commitments to extend credit	$	277,305	$	19,960	$	174,037	$	34,444	$	48,864
Unused lines of credit	Unused lines of credit	2,000,345		1,720,837		195,198		45,945		38,365		Unused lines of credit	2,089,306		1,778,491		203,832		76,771		30,212
Standby letters of credit	Standby letters of credit	10,124		9,294		—		830		—		Standby letters of credit	9,667		8,771		—		896		—
Total commitments	Total commitments	$	2,244,752	$	1,749,748	$	357,276	$	68,740	$	68,988	Total commitments	$	2,376,278	$	1,807,222	$	377,869	$	112,111	$	79,076
FHLB advances	FHLB advances	$	516,000	$	105,000	$	291,000	$	120,000	$	—	FHLB advances	$	731,000	$	120,000	$	291,000	$	320,000	$	—

Other borrowings	Other borrowings	98,000		98,000		—		—		—		Other borrowings	10,000		10,000		—		—		—
Long-term debt	Long-term debt	277,527		—		175,000		—		102,527		Long-term debt	277,527		—		175,000		—		102,527
Operating and capital lease obligations	Operating and capital lease obligations	38,517		9,005		16,037		9,570		3,905		Operating and capital lease obligations	35,870		8,486		15,328		8,789		3,267
Certificates of deposit	Certificates of deposit	749,305		608,542		138,261		2,502		—		Certificates of deposit	936,939		726,698		207,301		2,940		—
Total contractual obligations	Total contractual obligations	$	1,679,349	$	820,547	$	620,298	$	132,072	$	106,432	Total contractual obligations	$	1,991,336	$	865,184	$	688,629	$	331,729	$	105,794

At ~~June~~September 30, 2022, we had unfunded commitments of ~~$14.9~~$18.8 million, $9.4 million, and ~~$7.9~~$12.1 million for LIHTC investments, SBIC investments, and other investments, respectively.

Capital

In order to maintain adequate levels of capital, we continuously assess projected sources and uses of capital to support projected asset growth, operating needs and credit risk. We consider, among other things, earnings generated from operations and access to capital from financial markets. In addition, we perform capital stress tests on an annual basis to assess the impact of adverse changes in the economy on our capital base. During the first half of 2022, increases in market interest rates resulted in higher net unrealized losses in our securities portfolio and stockholders’ equity. As market interest rates increase, bond prices tend to fall and, consequently, the fair value of our securities may also decrease. To this end, we may have further net unrealized losses on our securities classified as available–for-sale, which would negatively affect our total and tangible stockholders’ equity.

Regulatory Capital

The Company and the Bank are subject to the regulatory capital adequacy guidelines that are established by the ~~Federal~~federal banking regulators. Inclusive of the capital conservation buffer, the common equity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital ratio minimums are 7.0%, 8.5% and 10.5%, respectively.

7778

Table of ~~Contents~~Contents

The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:


						Minimum Capital Requirements				Minimum Required to Be Well-Capitalized Under Prompt Corrective Action Provisions									Minimum Capital Requirements				Minimum Required to Be Well-Capitalized Under Prompt Corrective Action Provisions
($ in thousands)	($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2022
September 30, 2022														September 30, 2022
Banc of California, Inc.	Banc of California, Inc.													Banc of California, Inc.
Total risk-based capital	Total risk-based capital	$	1,080,107	13.69	%	$	631,119	8.00	%	N/A		N/A		Total risk-based capital	$	1,076,881	13.86	%	$	621,640	8.00	%	N/A		N/A
Tier 1 risk-based capital	Tier 1 risk-based capital	890,341		11.29	%	473,339		6.00	%	N/A		N/A		Tier 1 risk-based capital	887,899		11.43	%	466,230		6.00	%	N/A		N/A
Common equity tier 1 capital	Common equity tier 1 capital	890,341		11.29	%	355,005		4.50	%	N/A		N/A		Common equity tier 1 capital	887,899		11.43	%	349,673		4.50	%	N/A		N/A
Tier 1 leverage	Tier 1 leverage	890,341		9.58	%	371,732		4.00	%	N/A		N/A		Tier 1 leverage	887,899		9.52	%	373,127		4.00	%	N/A		N/A
Banc of California, NA	Banc of California, NA													Banc of California, NA
Total risk-based capital	Total risk-based capital	$	1,225,571	15.54	%	$	630,958	8.00	%	$	788,697	10.00	%	Total risk-based capital	$	1,218,318	15.70	%	$	620,972	8.00	%	$	776,215	10.00	%
Tier 1 risk-based capital	Tier 1 risk-based capital	1,136,569		14.41	%	473,218		6.00	%	630,958		8.00	%	Tier 1 risk-based capital	1,129,898		14.56	%	465,729		6.00	%	620,972		8.00	%
Common equity tier 1 capital	Common equity tier 1 capital	1,136,569		14.41	%	354,914		4.50	%	512,653		6.50	%	Common equity tier 1 capital	1,129,898		14.56	%	349,297		4.50	%	504,539		6.50	%
Tier 1 leverage	Tier 1 leverage	1,136,569		12.27	%	370,667		4.00	%	463,334		5.00	%	Tier 1 leverage	1,129,898		12.12	%	372,965		4.00	%	466,206		5.00	%
December 31, 2021	December 31, 2021													December 31, 2021
Banc of California, Inc.	Banc of California, Inc.													Banc of California, Inc.
Total risk-based capital	Total risk-based capital	$	1,140,480	14.98	%	$	609,062	8.00	%	N/A		N/A		Total risk-based capital	$	1,140,480	14.98	%	$	609,062	8.00	%	N/A		N/A
Tier 1 risk-based capital	Tier 1 risk-based capital	955,747		12.55	%	456,796		6.00	%	N/A		N/A		Tier 1 risk-based capital	955,747		12.55	%	456,796		6.00	%	N/A		N/A
Common equity tier 1 capital	Common equity tier 1 capital	860,841		11.31	%	342,597		4.50	%	N/A		N/A		Common equity tier 1 capital	860,841		11.31	%	342,597		4.50	%	N/A		N/A
Tier 1 leverage	Tier 1 leverage	955,747		10.37	%	368,610		4.00	%	N/A		N/A		Tier 1 leverage	955,747		10.37	%	368,610		4.00	%	N/A		N/A
Banc of California, NA	Banc of California, NA													Banc of California, NA
Total risk-based capital	Total risk-based capital	$	1,195,050	15.71	%	$	608,740	8.00	%	$	760,925	10.00	%	Total risk-based capital	$	1,195,050	15.71	%	$	608,740	8.00	%	$	760,925	10.00	%
Tier 1 risk-based capital	Tier 1 risk-based capital	1,110,767		14.60	%	456,555		6.00	%	608,740		8.00	%	Tier 1 risk-based capital	1,110,767		14.60	%	456,555		6.00	%	608,740		8.00	%
Common equity tier 1 capital	Common equity tier 1 capital	1,110,767		14.60	%	342,416		4.50	%	494,601		6.50	%	Common equity tier 1 capital	1,110,767		14.60	%	342,416		4.50	%	494,601		6.50	%
Tier 1 leverage	Tier 1 leverage	1,110,767		12.06	%	368,306		4.00	%	460,382		5.00	%	Tier 1 leverage	1,110,767		12.06	%	368,306		4.00	%	460,382		5.00	%

Dividend Restrictions

Payment of dividends by the Company are subject to guidance provided by the Federal Reserve. That guidance provides that bank holding companies that plan to pay dividends that exceed net earnings for a given period should first consult with the Federal Reserve. To the extent future quarterly dividends exceed quarterly net earnings, payment of dividends in respect of the Company’s common stock will be subject to prior consultation and non-objection from the Federal Reserve.

Our principal source of funds for dividend payments is dividends received from the Bank. Federal banking laws and regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, in the case of the Bank, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. Accordingly, any dividend granted by the Bank would be limited by the need to maintain its well capitalized status plus the capital buffer in order to avoid additional dividend restrictions. As described above, any near term dividend by the Bank will require OCC approval. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Bank paid ~~$50.0~~$25.0 million and ~~$66.0~~$91.0 million in dividends to Banc of California, Inc.

During ~~both~~ the three and ~~six~~nine months ended ~~June~~September 30, 2022, we declared and paid dividends on our common stock of $0.06 and ~~$0.12~~$0.18 per share totaling ~~$3.7~~$3.6 million and ~~$7.4 million in~~$11.0 million. In addition, prior to ~~dividends on~~the redemption of our preferred stock, ~~totaling zero and~~we paid $1.7 ~~million.~~million in related dividends during the first quarter of 2022.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities.

7879

Table of ~~Contents~~Contents

The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we have established asset/liability committees to monitor our interest rate risk. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and/or prepayments, and their sensitivity to actual or potential changes in market interest rates.

We maintain both a management asset/liability committee (“Management ALCO”), comprised of select members of senior management, and a joint asset/liability committee of the Boards of Directors of the Company and the Bank (“Board ALCO”, together with Management ALCO, “ALCOs”). In order to manage the risk of potential adverse effects of material and prolonged or volatile changes in interest rates on our results of operations, we have adopted asset/liability management policies to align maturities and repricing terms of interest-earning assets to interest-bearing liabilities. The asset/liability management policies establish guidelines for the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs, while management monitors adherence to those guidelines with oversight by the ALCOs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk, and profitability goals. The ALCOs meet no less than quarterly to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to our net present value of equity analysis.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we evaluate various strategies including:

•Originating and purchasing adjustable rate mortgage loans,

•Selling longer duration fixed or hybrid mortgage loans,

•Originating shorter-term consumer loans,

•Managing the duration of investment securities,

•Managing our deposits to establish stable deposit relationships,

•Using FHLB advances and/or certain derivatives such as swaps to align maturities and repricing terms, and

•Managing the percentage of fixed rate loans in our portfolio.

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCOs may decide to increase our interest rate risk position within the asset/liability tolerance set forth by our Board of Directors.

As part of its procedures, the ALCOs regularly review interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity.

Interest Rate Sensitivity of Economic Value of Equity and Net Interest Income

Interest rate risk results from our banking activities and is the primary market risk for us. Interest rate risk is caused by the following factors:

•Repricing risk - timing differences in the repricing and maturity of interest-earning assets and interest-bearing liabilities;

•Option risk - changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans and depositors’ ability to redeem certificates of deposit before maturity;

•Yield curve risk - changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and

•Basis risk - changes in spread relationships between different yield curves, such as U.S. Treasuries, U.S. Prime Rate and London Interbank Offered Rate.

Since our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Management of our interest rate risk is overseen by the Board ALCO. Board ALCO delegates the day to day management of interest rate risk to the Management ALCO. Management ALCO ensures that the Bank is following the appropriate and current regulatory guidance in the formulation and implementation of our interest rate risk program. Board ALCO reviews the results of our interest rate risk modeling quarterly to ensure that we have appropriately measured our interest rate risk, mitigated our exposures appropriately

7980

Table of ~~Contents~~Contents

and any residual risk is acceptable. In addition to our annual review of our asset liability management policy, our Board of Directors periodically reviews the interest rate risk policy limits.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic repricing characteristics of our assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve (“Rate Shock”). We then evaluate the simulation results using two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled utilizing various assumptions for assets, liabilities, and derivatives.

EVE measures the period end ~~market~~present value of assets minus the ~~market~~present value of liabilities. Asset liability management uses this value to measure the changes in the economic value of the ~~Bank~~Company under various interest rate scenarios. In some ways, the economic value approach provides a broader scope than net income volatility approach since it captures all anticipated cash flows.

The balance sheet is considered “asset sensitive” when an increase in short-term interest rates is expected to expand our net interest margin, as rates earned on our interest-earning assets reprice higher at a pace faster than rates paid on our interest-bearing liabilities. Conversely, the balance sheet is considered “liability sensitive” when an increase in short-term interest rates is expected to compress our net interest margin, as rates paid on our interest-bearing liabilities reprice higher at a pace faster than rates earned on our interest-earning assets.

At ~~June~~September 30, 2022, our interest rate risk profile reflects an “asset sensitive” position. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, as well as the shape of the yield curve, actual results may vary from those predicted by our model.

The following table presents the projected change in the ~~Bank’s~~Company’s economic value of equity at ~~June~~September 30, 2022 and net interest income over the next twelve months, that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change:


		Change in Interest Rates in Basis Points (bps) (1)													Change in Interest Rates in Basis Points (bps) (1)
($ in thousands)	($ in thousands)	Economic Value of Equity						Net Interest Income						($ in thousands)	Economic Value of Equity						Net Interest Income
		Amount		Amount Change		Percentage Change		Amount		Amount Change		Percentage Change			Amount		Amount Change		Percentage Change		Amount		Amount Change		Percentage Change
June 30, 2022
September 30, 2022														September 30, 2022
+200 bps	+200 bps	$	1,724,973	$	53,059	3.2	%	$	355,783	$	7,186	2.1	%	+200 bps	$	1,772,075	$	27,038	1.5	%	$	349,999	$	12,316	3.6	%
+100 bps	+100 bps	1,702,549		30,635		1.8	%	352,079		3,482		1.0	%	+100 bps	1,755,262		10,225		0.6	%	343,782		6,099		1.8	%
0 bps	0 bps	1,671,914						348,597						0 bps	1,745,037						337,683
-100 bps	-100 bps	1,592,289		(79,625)		(4.8)	%	324,877		(23,720)		(6.8)	%	-100 bps	1,692,534		(52,503)		(3.0)	%	327,249		(10,434)		(3.1)	%
-200 bps	-200 bps	1,478,120		(193,794)		(11.6)	%	306,040		(42,557)		(12.2)	%	-200 bps	1,613,524		(131,513)		(7.5)	%	313,558		(24,125)		(7.1)	%

(1)Assumes an instantaneous uniform change in interest rates at all maturities and no rate shock has a rate lower than zero percent.

We believe we are well positioned to benefit from the current cycle of rising interest rates. Due to the transformation of the franchise to our relationship-based banking model, with higher percentages of noninterest-bearing deposits and variable rate commercial loans, our one year gap ratio, which compares the percentage of earning assets that are scheduled to mature or reprice within one year to the percentage of rate sensitive term liabilities that are scheduled to mature or reprice within one year, has increased since December 31, 2019. At ~~June~~September 30, 2022, our one year gap ratio stood at ~~30%~~24%. While this is only one measure of asset sensitivity, we expect to see some expansion in our net interest margin as short-term rates increase.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest

Table of Contents

rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.

~~Table of Contents~~

Interest rate risk is the most significant market risk affecting us. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not ~~arise~~directly impact us in the normal course of our business activities and operations.

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Act) as of ~~June~~September 30, 2022 was carried out under the supervision and with the participation of the Company’s Principal Executive Officer, Principal Financial Officer and other members of the Company’s senior management. The Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of ~~June~~September 30, 2022, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company’s management (including the Principal Executive Officer and Principal Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the three months ended ~~June~~September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

8182

Table of ~~Contents~~Contents

PART II — OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

From time to time we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations.

ITEM 1A - RISK FACTORS

There have been no material changes to the risk factors that appeared under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities


		Purchase of Equity Securities by the Issuer							Purchase of Equity Securities by the Issuer
($ in thousands, except per share data)	($ in thousands, except per share data)	Total Number of Shares	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan		($ in thousands, except per share data)	Total Number of Shares	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan
Common Stock:	Common Stock:							Common Stock:
From April 1, 2022 to April 30, 2022		1,137,491	$	18.68	1,108,657	$	50,000
From May 1, 2022 to May 31, 2022		401,522	$	18.72	400,683	$	42,500
From June 1, 2022 to June 30, 2022		606,407	$	17.62	603,836	$	31,861
From July 1, 2022 to July 31, 2022								From July 1, 2022 to July 31, 2022	485,252	$	18.07	485,252	$	23,091
From August 1, 2022 to August 31, 2022								From August 1, 2022 to August 31, 2022	5,350	$	18.03	—	$	23,091
From September 1, 2022 to September 30, 2022								From September 1, 2022 to September 30, 2022	260,097	$	16.40	255,080	$	18,911
Total	Total	2,145,420	$	18.39	2,113,176			Total	750,699	$	17.50	740,332

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, purchases of shares of common stock related to shares purchased under our stock repurchase program and shares surrendered by employees in order to pay employee tax liabilities associated with vested awards under our employee stock benefit plans.

On March 15, 2022, we announced a repurchase program of up to $75 million of our common stock. The repurchase authorization expires in March 2023. Purchases may be made in open-market transactions, in block transactions on or off an exchange, in privately negotiated transactions or by other means as determined by our management and in accordance with the regulations of the SEC. The timing of purchases and the number of shares repurchased under the program will depend on a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable

ITEM 5 - OTHER INFORMATION

None

8283

Table of ~~Contents~~Contents

ITEM 6 - EXHIBITS





3.1			Second Articles of Restatement of the charter of the Registrant (Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 5, 2018 and incorporated herein by reference.)
3.2			Fifth Amended and Restated Bylaws of the Registrant (Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 30, 2017 and incorporated herein by reference.)










~~10.1~~			~~Form of Supplemental Performance Unit Agreement under the 2018 Omnibus Plan~~
31.1			Rule 13a-14(a) Certification (Principal Executive Officer)
31.2			Rule 13a-14(a) Certification (Principal Financial Officer)
32.0			Rule 13a-14(b) and 18 U.S.C. 1350 Certification
101.0			The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2022 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Financial Condition; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

8384

Table of ~~Contents~~Contents

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.


		BANC OF CALIFORNIA, INC.

Date:	~~August 8,~~November 7, 2022	/s/ Jared Wolff
		Jared Wolff
		President/Chief Executive Officer (Principal Executive Officer)

Date:	~~August 8,~~November 7, 2022	/s/ Lynn M. Hopkins
		Lynn M. Hopkins
		Executive Vice President/Chief Financial Officer (Principal Financial Officer)





Date:	~~August 8,~~November 7, 2022	/s/ Diana Hanson
		Diana Hanson
		Senior Vice President/Chief Accounting Officer (Principal Accounting Officer)

8485