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Pacific Premier Bancorp
PPBI
#4399
Rank
$2.37 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$24.49
Share price
0.00%
Change (1 day)
5.42%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Pacific Premier Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2025 Q1

Pacific Premier Bancorp - 10-Q quarterly report FY2025 Q1


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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
FORM 10-Q
(Mark One)
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
OR 
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from _______ to _______ 
Commission File Number 0-22193
 image0a03.jpg
(Exact name of registrant as specified in its charter) 
Delaware33-0743196
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
17901 Von Karman Avenue, Suite 1200, Irvine, California 92614
(Address of principal executive offices and zip code)
(949) 864-8000
(Registrant’s telephone number, including area code)

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per sharePPBINASDAQ Global Select Market
The number of shares outstanding of the registrant’s common stock as of April 25, 2025 was 97,058,541.


PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED MARCH 31, 2025

Item 1 - Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
3
Consolidated Statements of Income (Unaudited)
4
Consolidated Statements of Comprehensive Income (Unaudited)
5
Consolidated Statements of Stockholders’ Equity (Unaudited)
6
Consolidated Statements of Cash Flows (Unaudited)
7
Notes to Consolidated Financial Statements (Unaudited)
8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
47
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
90
Item 4 - Controls and Procedures
92
93
Item 1 - Legal Proceedings
93
Item 1A - Risk Factors
93
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
96
Item 3 - Defaults Upon Senior Securities
97
Item 4 - Mine Safety Disclosures
97
Item 5 - Other Information
97
Item 6 - Exhibits
98
99
2

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in thousands, except par value and share data)
March 31,
2025		December 31,
2024
ASSETS
Cash and due from banks$149,537 $117,955 
Interest-bearing deposits with financial institutions618,657 491,375 
Cash and cash equivalents768,194 609,330 
Interest-bearing time deposits with financial institutions1,253 1,246 
Investments securities held-to-maturity, at amortized cost, net of allowance for credit losses of $97 and $110 (fair value of $1,410,612 and $1,428,077) at March 31, 2025 and December 31, 2024, respectively
1,700,117 1,711,804 
Investment securities available-for-sale, at fair value1,758,340 1,683,215 
FHLB, FRB, and other stock97,729 97,539 
Loans held for sale, at lower of cost or fair value— 2,315 
Loans held for investment12,022,978 12,039,741 
Allowance for credit losses(174,967)(178,186)
Loans held for investment, net11,848,011 11,861,555 
Accrued interest receivable69,210 67,953 
Premises and equipment, net46,765 48,580 
Deferred income taxes, net94,083 100,295 
Bank owned life insurance487,180 484,952 
Intangible assets29,628 32,194 
Goodwill901,312 901,312 
Other assets283,761 301,295 
Total assets$18,085,583 $17,903,585 
LIABILITIES 
Deposit accounts: 
Noninterest-bearing checking$4,827,093 $4,617,013 
Interest-bearing: 
Checking2,859,411 2,898,810 
Money market/savings4,914,248 4,837,929 
Retail certificates of deposit1,765,235 1,809,818 
Wholesale/brokered certificates of deposit300,245 300,132 
Total interest-bearing9,839,139 9,846,689 
Total deposits14,666,232 14,463,702 
Subordinated debentures272,579 272,449 
Accrued expenses and other liabilities179,683 211,691 
Total liabilities15,118,494 14,947,842 
STOCKHOLDERS’ EQUITY 
Preferred stock, $0.01 par value; 1,000,000 authorized; no shares issued and outstanding
— — 
Common stock, $0.01 par value; 150,000,000 shares authorized at March 31, 2025 and December 31, 2024; 97,069,001 shares and 96,441,667 shares issued and outstanding, respectively
946 942 
Additional paid-in capital2,394,834 2,395,339 
Retained earnings639,321 635,268 
Accumulated other comprehensive loss(68,012)(75,806)
Total stockholders’ equity2,967,089 2,955,743 
Total liabilities and stockholders’ equity$18,085,583 $17,903,585 
Accompanying notes are an integral part of these consolidated financial statements.
3

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three Months Ended
 March 31,March 31,
(Dollars in thousands, except share data)
20252024
INTEREST INCOME
Loans$148,530 $172,975 
Investment securities and other interest-earning assets38,805 40,456 
Total interest income187,335 213,431 
INTEREST EXPENSE
Deposits59,573 59,506 
FHLB advances and other borrowings2 4,237 
Subordinated debentures4,393 4,561 
Total interest expense63,968 68,304 
Net interest income before provision for credit losses123,367 145,127 
Provision for credit losses(3,718)3,852 
Net interest income after provision for credit losses127,085 141,275 
NONINTEREST INCOME
Loan servicing income447 529 
Service charges on deposit accounts2,629 2,688 
Other service fee income289 336 
Debit card interchange fee income834 765 
Earnings on bank owned life insurance5,772 4,159 
Net gain from sales of loans90 — 
Trust custodial account fees10,307 10,642 
Escrow and exchange fees672 696 
Other income
425 5,959 
Total noninterest income21,465 25,774 
NONINTEREST EXPENSE
Compensation and benefits52,812 54,130 
Premises and occupancy9,716 10,807 
Data processing7,976 7,511 
Other real estate owned operations, net— 46 
FDIC insurance premiums1,996 2,629 
Legal and professional services4,861 4,143 
Marketing expense936 1,558 
Office expense1,099 1,093 
Loan expense781 770 
Deposit expense12,896 12,665 
Amortization of intangible assets2,566 2,836 
Other expense4,653 4,445 
Total noninterest expense100,292 102,633 
Net income before income taxes48,258 64,416 
Income tax expense12,237 17,391 
Net income$36,021 $47,025 
EARNINGS PER SHARE
Basic$0.37 $0.49 
Diluted0.37 0.49 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic94,764,879 94,350,259 
Diluted94,820,132 94,477,355 

Accompanying notes are an integral part of these consolidated financial statements.
4

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended
 March 31,March 31,
(Dollars in thousands)20252024
Net income$36,021 $47,025 
Other comprehensive income, net of tax:
Unrealized gain on securities available-for-sale, net of income taxes (1)
5,317 1,390 
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity, net of income taxes (2)
2,477 2,519 
Other comprehensive income, net of tax
7,794 3,909 
Comprehensive income, net of tax
$43,815 $50,934 
______________________________
(1) Income tax expense of the unrealized gain on securities was $2.1 million and $547,000 for the three months ended March 31, 2025 and 2024, respectively.
(2) Income tax expense on the amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity included in net income was $1.0 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively.

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

5

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
(Unaudited)

(Dollars in thousands, except share data)Common Stock
Shares		Common StockAdditional Paid-in CapitalAccumulated Retained
Earnings		Accumulated Other Comprehensive LossTotal Stockholders’ Equity
Balance at December 31, 202496,441,667 $942 $2,395,339 $635,268 $(75,806)$2,955,743 
Net income— — — 36,021 — 36,021 
Other comprehensive income— — — — 7,794 7,794 
Cash dividends declared ($0.33 per common share)
— — — (31,821)— (31,821)
Dividend equivalents declared ($0.33 per restricted stock unit)
— — 147 (147)— — 
Share-based compensation expense— — 4,216 — — 4,216 
Issuance of restricted stock, net854,050 4 (4)— — — 
Restricted stock surrendered and canceled(229,716)— (4,910)— — (4,910)
Exercise of stock options3,000 — 46 — — 46 
Balance at March 31, 202597,069,001 $946 $2,394,834 $639,321 $(68,012)$2,967,089 
Balance at December 31, 202395,860,092 $938 $2,377,131 $604,137 $(99,625)$2,882,581 
Net income— — — 47,025 — 47,025 
Other comprehensive income— — — — 3,909 3,909 
Cash dividends declared ($0.33 per common share)
— — — (31,635)— (31,635)
Dividend equivalents declared ($0.33 per restricted stock unit)
— — 122 (122)— — 
Share-based compensation expense— — 5,450 — — 5,450 
Issuance of restricted stock, net786,501 3 (3)— — — 
Restricted stock surrendered and canceled(196,887)— (4,691)— — (4,691)
Exercise of stock options10,260 — 162 — — 162 
Balance at March 31, 202496,459,966 $941 $2,378,171 $619,405 $(95,716)$2,902,801 

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


6

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended
 March 31,March 31,
(Dollars in thousands)20252024
Cash flows from operating activities:  
Net income$36,021 $47,025 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization expense2,974 3,085 
Provision for credit losses(3,718)3,852 
Share-based compensation expense4,216 5,450 
Loss on sales and disposals of premises and equipment51 5 
Net (accretion) of discounts/premium on securities(810)(3,623)
Net (accretion) of discounts/premiums for acquired loans and deferred loan fees/costs(1,914)(3,176)
(Gain) on debt extinguishment— (5,067)
(Gain) on sales of loans(90)— 
Deferred income tax expense3,154 650 
Income from bank owned life insurance, net(5,024)(3,461)
Amortization of intangible assets2,566 2,836 
Origination of loans held for sale, net of principal payments received5 — 
Proceeds from the sales of loans held for sale2,522 — 
Net change in accrued expenses and other liabilities(30,570)(24,240)
Net change in accrued interest receivable and other assets12,275 33,610 
Net cash provided by operating activities21,658 56,946 
Cash flows from investing activities:  
Net (increase) in interest-bearing time deposits with financial institutions(7)— 
Loan payments and (originations), net260,199 238,258 
Proceeds from sales of loans classified as loans held for investment773 32,675 
Purchase of loans held for investment(238,272)— 
Proceeds from prepayments and maturities of securities held-to-maturity12,880 10,339 
Purchase of securities available-for-sale(220,913)(170,226)
Proceeds from prepayments and maturities of securities available-for-sale156,269 164,079 
Proceeds from the sales of premises and equipment— 2 
Proceeds from surrender of bank owned life insurance2,799 236 
Purchase of premises and equipment(1,210)(1,205)
Net change in FHLB, FRB, and other stock(153)2,034 
Funding of Community Reinvestment Act (“CRA”) investments, net(1,004)(1,898)
Net cash (used in) provided by investing activities(28,639)274,294 
Cash flows from financing activities:  
Net change in deposit accounts$202,530 $192,202 
Repayments of long-term borrowings— (394,933)
Cash dividends paid(31,821)(31,635)
Proceeds from exercise of stock options46 162 
Restricted stock surrendered and canceled(4,910)(4,691)
Net cash provided by (used in) financing activities165,845 (238,895)
Net change in cash and cash equivalents158,864 92,345 
Cash and cash equivalents, beginning of period609,330 936,473 
Cash and cash equivalents, end of period$768,194 $1,028,818 
Supplemental cash flow disclosures:  
Interest paid$66,589 $73,075 
Income taxes paid (refunded), net40 (3,656)
Noncash investing activities during the period:
Transfers from loans held for investment to loans held for sale735 32,675 
Recognition of operating lease right-of-use assets(178)(1,714)
Recognition of operating lease liabilities355 1,701 


Accompanying notes are an integral part of these consolidated financial statements.
7

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)

Note 1 – Basis of Presentation
 
The consolidated financial statements include the accounts of Pacific Premier Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiaries, including Pacific Premier Bank, National Association, (the “Bank”) (collectively, the “Company,” “we,” “our,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation.
 
In the opinion of management, the unaudited consolidated financial statements reflect all normal recurring adjustments and accruals that are necessary for a fair presentation of the statement of financial position and the results of operations for the interim periods presented. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2025.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”).
 
The Company consolidates voting entities in which the Company has control through voting interests or entities through which the Company has a controlling financial interest in a variable interest entity (“VIE”). The Company evaluates its interests in these entities to determine whether they meet the definition of a VIE and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size, and form of the Company's involvement with the VIE. See Note 13 – Variable Interest Entities for additional information.


8

Note 2 – Recently Issued Accounting Pronouncements
 
Recent Accounting Guidance Not Yet Effective

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). This Update addresses requests from financial statement users for more detailed information concerning a public business entity’s expenses, such as those related to purchases of inventory, employee compensation costs, depreciation, amortization, and depletion costs. The incremental disclosures are intended to assist financial statement users by providing a better understanding of an entity’s expenses and to enable investors to better assess an entity’s current and future performance. This Update also requires entities to disclose the total amount of selling expenses and to provide the entity’s definition of what constitutes “selling expenses” in annual financial statement disclosures. Further, this Update requires a qualitative description of the amounts remaining in relevant expense captions that have not been separately disaggregated. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The amendments in this Update may be applied either prospectively or retrospectively. The Company is currently evaluating the impact of this Update.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The amendments in this Update address investor requests for more transparency and decision usefulness about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid. The amendments in this Update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company has evaluated the provisions of this Update and does not believe they will have a material impact on the Company’s consolidated financial statements.


Note 3 – Significant Accounting Policies

Our accounting policies are described in Note 1 - Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2024 Form 10-K. As of March 31, 2025, there were no significant changes to accounting policies from those disclosed in our audited consolidated financial statements included in our 2024 Form 10-K.

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

9

Note 4 – Investment Securities
 
The amortized cost and estimated fair value of available-for-sale (“AFS”) investment securities were as follows:
(Dollars in thousands)Amortized
 Cost		Gross Unrealized
Gain		Gross Unrealized
Loss		Estimated
Fair Value
AFS investment securities:
March 31, 2025    
U.S. Treasury$1,265,561 $1,870 $(322)$1,267,109 
Agency1,061 — (30)1,031 
Corporate383,212 346 (10,985)372,573 
Collateralized mortgage obligations118,269 4 (646)117,627 
Total AFS investment securities$1,768,103 $2,220 $(11,983)$1,758,340 
December 31, 2024
U.S. Treasury$1,166,474 $2,192 $(2,581)$1,166,085 
Agency1,148 — (40)1,108 
Corporate408,256 421 (16,419)392,258 
Collateralized mortgage obligations124,502 4 (742)123,764 
Total AFS investment securities$1,700,380 $2,617 $(19,782)$1,683,215 

The carrying amount and estimated fair value of held-to-maturity (“HTM”) investment securities were as follows:
(Dollars in thousands)Amortized
 Cost		Allowance for Credit LossesNet Carrying AmountGross Unrecognized
Gain		Gross Unrecognized
Loss		Estimated
Fair Value
HTM investment securities:
March 31, 2025
Municipal bonds$1,143,400 $(97)$1,143,303 $— $(256,006)$887,297 
Collateralized mortgage obligations302,958 — 302,958 5,394 (6,504)301,848 
Mortgage-backed securities237,717 — 237,717 173 (32,562)205,328 
Other16,139 — 16,139 — — 16,139 
Total HTM investment securities$1,700,214 $(97)$1,700,117 $5,567 $(295,072)$1,410,612 
December 31, 2024
Municipal bonds$1,144,862 $(110)$1,144,752 $— $(242,298)$902,454 
Collateralized mortgage obligations309,653 — 309,653 3,886 (8,718)304,821 
Mortgage-backed securities241,223 — 241,223 67 (36,664)204,626 
Other16,176 — 16,176 — — 16,176 
Total HTM investment securities$1,711,914 $(110)$1,711,804 $3,953 $(287,680)$1,428,077 

Investment securities with carrying values of $3.12 billion and $3.16 billion as of March 31, 2025 and December 31, 2024, respectively, were pledged to other borrowings, secure public deposits, and for other purposes as required or permitted by law, of which $2.93 billion and $2.97 billion as of March 31, 2025 and December 31, 2024, respectively, were pledged to the Federal Reserve's discount window to increase the Company’s access to funding and provide liquidity.
10

Unrealized Gains and Losses

Unrealized gains and losses on AFS investment securities, net of tax, are recognized in stockholders’ equity as accumulated other comprehensive income or loss, net of tax. At March 31, 2025, the Company had a net unrealized loss on AFS investment securities of $9.8 million, or $7.0 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of $17.2 million, or $12.3 million net of tax in accumulated other comprehensive loss, at December 31, 2024.

For investment securities transferred from AFS to HTM, the net after-tax unrealized gains and losses at the date of transfer continue to be reported in stockholders’ equity as accumulated other comprehensive loss and are amortized over the remaining lives of the securities with an offsetting entry to interest income as an adjustment of yield in a manner consistent with the amortization of a premium or discount. At March 31, 2025, the unrealized loss on investment securities transferred from AFS to HTM was $85.0 million, or $61.0 million net of tax. At December 31, 2024, the unrealized loss on investment securities transferred from AFS to HTM was $88.4 million, or $63.5 million net of tax.
    
The table below summarizes the number, fair value, and gross unrealized holding losses of the Company’s AFS investment securities in an unrealized loss position for which an allowance for credit losses (the “ACL”) has not been recorded as of the dates indicated, aggregated by investment category and length of time in a continuous loss position.
 Less than 12 Months12 Months or LongerTotal
(Dollars in thousands)NumberFair
Value		Gross
Unrealized
Losses		NumberFair
Value		Gross
Unrealized
Losses		NumberFair
Value		Gross
Unrealized
Losses
AFS investment securities:
March 31, 2025
U.S. Treasury18 $446,313 $(322)— $— $— 18 $446,313 $(322)
Agency— — — 4 1,031 (30)4 1,031 (30)
Corporate2 10,049 (2)24 222,668 (10,983)26 232,717 (10,985)
Collateralized mortgage obligations2 9,396 (20)23 104,519 (626)25 113,915 (646)
Total AFS investment securities22 $465,758 $(344)51 $328,218 $(11,639)73 $793,976 $(11,983)
December 31, 2024
U.S. Treasury21 $519,211 $(2,581)— $— $— 21 $519,211 $(2,581)
Agency— — — 4 1,108 (40)4 1,108 (40)
Corporate1 9,007 (4)25 227,250 (16,415)26 236,257 (16,419)
Collateralized mortgage obligations2 11,161 (37)23 108,783 (705)25 119,944 (742)
Total AFS investment securities24 $539,379 $(2,622)52 $337,141 $(17,160)76 $876,520 $(19,782)

Allowance for Credit Losses on Investment Securities

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

11

The ACL for HTM investment securities is estimated on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Credit losses on HTM investment securities are representative of the amount needed to reduce the amortized cost basis to reflect the net amount expected to be collected.

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

For additional information concerning the ACL on investment securities, refer to Note 1 - Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2024 Form 10-K

The Company had no ACL for AFS investment securities at March 31, 2025 and December 31, 2024. The Company performed a qualitative assessment of these investments as of March 31, 2025 and determined that unrealized losses during the first quarter of 2025 were the result of general market conditions, including changes in interest rates, and does not believe the declines in fair value were credit related. As of March 31, 2025, the Company had not recorded credit losses on AFS securities that were in an unrealized loss position due to the high credit quality of the investments, with investment grade ratings, and many of them issued by U.S. government agencies. As of March 31, 2025, 79% of our AFS securities were U.S. Treasury, U.S. government agency, and U.S. government-sponsored enterprise securities. The fair value of corporate bank debt securities continued to improve during the three months ended March 31, 2025 as the spreads on the bank debt continued to tighten with overall signs of stability in the banking industry and interest rate movement during the period. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. It is more likely than not that the Company will not be required to sell AFS securities prior to their anticipated recoveries, and at this time the Company does not intend to sell these securities. There was no provision for credit losses recognized for AFS investment securities during the three months ended March 31, 2025 and 2024.

At March 31, 2025 and December 31, 2024, the Company had an ACL of $97,000 and $110,000, respectively, for HTM investment securities classified as municipal bonds. The following table presents a rollforward by major security type of the ACL on the Company's HTM debt securities as of and for the periods indicated:
(Dollars in thousands)Beginning ACL Balance
Provision for Credit Losses
Ending ACL Balance
Three Months Ended March 31, 2025
HTM investment securities:
Municipal bonds$110 $(13)$97 

Three Months Ended March 31, 2024
HTM investment securities:
Municipal bonds$126 $(11)$115 

At March 31, 2025 and December 31, 2024, there were no AFS or HTM securities on nonaccrual status. At March 31, 2025 and December 31, 2024, there were no securities purchased with deterioration in credit quality since their origination.

12

Contractual Maturities

The amortized cost and estimated fair value of investment securities at March 31, 2025, by contractual maturity, are shown in the table below.
Due in One Year
or Less		Due after One Year
through Five Years		Due after Five Years
through Ten Years		Due after
Ten Years		Total
(Dollars in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
AFS investment securities:          
U.S. Treasury$918,891 $920,062 $346,670 $347,047 $— $— $— $— $1,265,561 $1,267,109 
Agency— — 640 623 — — 421 408 1,061 1,031 
Corporate— — 215,273 214,216 167,939 158,357 — — 383,212 372,573 
Collateralized mortgage obligations3,859 3,848 53,196 52,971 25,776 25,656 35,438 35,152 118,269 117,627 
Total AFS investment securities922,750 923,910 615,779 614,857 193,715 184,013 35,859 35,560 1,768,103 1,758,340 
HTM investment securities:
Municipal bonds— — 38,830 36,970 42,344 37,935 1,062,226 812,392 1,143,400 887,297 
Collateralized mortgage obligations— — 33 33 — — 302,925 301,815 302,958 301,848 
Mortgage-backed securities— — 2,947 3,015 6,039 6,097 228,731 196,216 237,717 205,328 
Other— — — — — — 16,139 16,139 16,139 16,139 
Total HTM investment securities— — 41,810 40,018 48,383 44,032 1,610,021 1,326,562 1,700,214 1,410,612 
Total investment securities$922,750 $923,910 $657,589 $654,875 $242,098 $228,045 $1,645,880 $1,362,122 $3,468,317 $3,168,952 

Note 5 – Loans Held for Investment
 
The Company’s loan portfolio is segmented according to loans that share similar attributes and risk characteristics.

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

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

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

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


13

The following table presents the composition of the loan portfolio for the periods indicated:
March 31,December 31,
(Dollars in thousands)20252024
Investor loans secured by real estate
CRE non-owner-occupied$2,111,115 $2,131,112 
Multifamily5,307,484 5,326,009 
Construction and land302,730 379,143 
SBA secured by real estate27,571 28,777 
Total investor loans secured by real estate7,748,900 7,865,041 
Business loans secured by real estate
CRE owner-occupied1,962,531 1,995,144 
Franchise real estate secured238,870 255,694 
SBA secured by real estate42,227 43,978 
Total business loans secured by real estate2,243,628 2,294,816 
Commercial loans
Commercial and industrial1,609,225 1,486,340 
Franchise non-real estate secured194,454 213,357 
SBA non-real estate secured7,546 8,086 
Total commercial loans1,811,225 1,707,783 
Retail loans
Single family residential230,262 186,739 
Consumer1,964 1,804 
Total retail loans232,226 188,543 
Loans held for investment before basis adjustment (1)
12,035,979 12,056,183 
Basis adjustment associated with fair value hedge (2)
(13,001)(16,442)
Loans held for investment12,022,978 12,039,741 
Allowance for credit losses for loans held for investment(174,967)(178,186)
Loans held for investment, net$11,848,011 $11,861,555 
Total unfunded loan commitments$1,453,174 $1,532,623 
Loans held for sale, at lower of cost or fair value$— $2,315 
______________________________
(1) Includes unamortized net purchase premiums of $11.6 million and $9.1 million, net deferred origination costs of $850,000 and $1.1 million, and unaccreted fair value net purchase discounts of $31.3 million and $33.2 million as of March 31, 2025 and December 31, 2024, respectively.
(2) Represents the basis adjustment associated with the application of hedge accounting on certain loans. The basis adjustment will be allocated to the amortized cost of associated loans within the closed portfolio if the hedge is discontinued. Refer to Note 11 – Derivative Instruments for additional information.

The Company generally originates SBA loans with the intent to sell the guaranteed portion of the loans prior to maturity and, therefore, designates them as held for sale. From time to time, the Company may purchase or sell other types of loans or participation interests in order to manage concentrations, maximize interest income, change risk profiles, improve returns, and generate liquidity.
14

Loans Serviced for Others and Loan Securitization

The Company generally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company initially records servicing assets at fair value within its other assets category. Servicing assets are subsequently measured using the amortization method and amortized to noninterest income. At March 31, 2025 and December 31, 2024, the servicing assets totaled $828,000 and $1.0 million, respectively, and were included in other assets on the Company’s consolidated statements of financial condition. Servicing assets are evaluated for impairment based upon the fair value of the servicing rights as compared to the carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At March 31, 2025 and December 31, 2024, the Company determined that no valuation allowance was necessary.
    
In connection with the acquisition of Opus Bank (“Opus”), the Company acquired Federal Home Loan Mortgage Corporation (“Freddie Mac”) guaranteed structured pass-through certificates, which were issued as a result of Opus’s securitization sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored transaction in December 2016. The Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and reimbursement obligations. Servicing responsibilities on loan sales generally include obligations to collect and remit payments of principal and interest, provide foreclosure services, manage payments of taxes and insurance premiums, and otherwise administer the underlying loans. In connection with the securitization transaction, Freddie Mac was designated as the master servicer and appointed the Company to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with the exception of the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are separately designated to the special servicer, a third-party institution that is independent of the master servicer and the Company. The master servicer has the right to terminate the Company in its role as sub-servicer and direct such responsibilities accordingly.

To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the Company is obligated to reimburse Freddie Mac for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date of December 23, 2016. The liability recorded for the Company’s exposure to the reimbursement agreement with Freddie Mac was $274,000 as of March 31, 2025 and December 31, 2024.

Loans sold and serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of loans and participations serviced for others were $289.5 million at March 31, 2025 and $307.3 million at December 31, 2024, respectively. Included in those totals are multifamily loans transferred through securitization with Freddie Mac of $35.2 million and $37.4 million at March 31, 2025 and December 31, 2024, respectively, and SBA participations serviced for others totaling $198.6 million and $212.5 million at March 31, 2025 and December 31, 2024, respectively.

15

Concentration of Credit Risk
 
As of March 31, 2025, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located principally in California. The Company’s loan portfolio contains concentrations of credit in multifamily, CRE non-owner-occupied, CRE owner-occupied, and C&I business loans. The Bank maintains policies approved by the Bank’s Board of Directors (the “Bank Board”) that address these concentrations and diversifies its loan portfolio through loan originations, purchases, and sales to meet approved concentration levels.

During the fourth quarter of 2024, the Bank converted to a national banking association, and as such all loans and extensions of credit made by the Bank are subject to the legal lending limits for national banks. Under applicable laws and regulations, the Bank may not make loans to one borrower in excess of 15% of the Bank’s capital and surplus, plus an additional 10% of the Bank’s capital and surplus, if the amount that exceeds the Bank’s 15% general limit is fully secured by readily marketable collateral. At March 31, 2025, these loans-to-one borrower limitations result in a dollar limitation of $372.2 million for the 15% general limit and a maximum dollar limitation of $620.4 million for the 25% combined limit. In order to manage concentration risk, the Bank maintains an internal lending limit well below these statutory maximums. At March 31, 2025, the Bank’s largest aggregate outstanding balance of loans to one borrower was $161.3 million comprised of multifamily loans.
 
Credit Quality and Credit Risk Management
 
The Company’s credit quality and credit risk is managed in two distinct areas. The first is the loan origination process, wherein the Bank underwrites credit and chooses which types and levels of risk it is willing to accept. The Company maintains a credit policy which addresses many related topics, sets forth maximum tolerances for key elements of loan risk, and indicates appropriate protocols for identifying and analyzing these risk elements. The policy sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio-wide basis. The credit policy is reviewed at least annually by the Bank Board. The Bank’s underwriters ensure all key risk factors are analyzed, with most underwriting including a global cash flow analysis of the prospective borrowers. 
    
The second area is in the ongoing oversight of the loan portfolio, where existing credit risk is measured and monitored, and where performance issues are dealt with in a timely and appropriate fashion. Credit risk is monitored and managed within the loan portfolio by the Company’s portfolio managers based on both the credit policy and a credit and portfolio review policy. This latter policy requires a program of financial data collection and analysis, thorough loan reviews, property and/or business inspections, monitoring of portfolio concentrations and trends, and consideration of current business and economic conditions. The portfolio managers also monitor asset-based lines of credit, loan covenants, and other conditions associated with the Company’s business loans as a means to help identify potential credit risk. Most individual loans, excluding the homogeneous loan portfolio, are reviewed at least annually, including the assignment or confirmation of a risk grade.
 
Risk grades are based on a six-grade Pass scale, along with Special Mention, Substandard, Doubtful, and Loss classifications, as such classifications are defined by the federal banking regulatory agencies. The assignment of risk grades allows the Company to, among other things, identify the risk associated with each credit in the portfolio and to provide a basis for estimating credit losses inherent in the portfolio. Risk grades are reviewed regularly with the Company’s Credit and Portfolio Review Committee, and the portfolio management and risk grading process is reviewed on an ongoing basis by both an independent loan review function and periodic internal audits, as well as by regulatory agencies during scheduled examinations.
 
16

The following provides brief definitions for risk grades assigned to loans in the portfolio:
 
•Pass assets carry an acceptable level of credit quality that contains no well-defined deficiencies or weaknesses.
•Special Mention assets do not currently expose the Bank to a sufficient risk to warrant classification in one of the adverse categories, but possess correctable deficiencies or potential weaknesses deserving management’s close attention.
•Substandard assets are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. These assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Other real estate owned (“OREO”) acquired through foreclosure are also classified as substandard assets.
•Doubtful credits have all the weaknesses inherent in substandard credits, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
•Loss assets are those that are considered uncollectible and of such little value that their continuance as assets is not warranted. Amounts classified as loss are promptly charged off.

The Bank’s portfolio managers also manage loan performance risks, collections, workouts, bankruptcies, and foreclosures. A special assets department, whose portfolio managers have professional expertise in these areas, typically handles or advises on these types of matters. Loan performance risks are mitigated by our portfolio managers acting promptly and assertively to address problem credits when they are identified. Collection efforts commence immediately upon non-payment, and the portfolio managers seek to promptly determine the appropriate steps to minimize the Company’s risk of loss. When foreclosure will maximize the Company’s recovery for a non-performing loan, the portfolio managers will take appropriate action to initiate the foreclosure process.
 
When a loan is graded as special mention, substandard, or doubtful, the Company obtains an updated valuation of the underlying collateral. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate properties, and cash. The Company typically continues to obtain or confirm updated valuations of underlying collateral for special mention and classified loans on an annual or biennial basis, in accordance with our credit policy, in order to have the most current indication of fair value of the underlying collateral securing the loan. If the loan no longer possesses risk characteristics similar to other loans of a similar type in the loan portfolio, then the loan is individually evaluated to determine an appropriate ACL for the loan. If, through the Company’s credit risk management process, it is determined the ultimate repayment of a loan will come from the foreclosure upon and ultimate sale of the underlying collateral, the loan is deemed collateral dependent. If an individually evaluated loan is not considered collateral dependent, the associated ACL is determined through the use of a discounted cash flow analysis.



17

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as well as the gross charge-offs on a year-to-date basis by year of origination as of March 31, 2025:
Term Loans by Vintage
(Dollars in thousands)20252024202320222021PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2025
Investor loans secured by real estate
CRE non-owner-occupied
Pass$51,579 $57,120 $30,239 $445,007 $489,094 $1,004,268 $— $— $2,077,307 
Special mention— — — — — 6,886 — — 6,886 
Substandard— 13,343 — 11,169 — 2,410 — — 26,922 
Multifamily
Pass117,620 114,544 165,830 1,127,275 1,878,556 1,889,395 — — 5,293,220 
Special mention— 209 — — 2,698 11,357 — — 14,264 
Construction and land
Pass12,528 87,226 47,115 120,880 16,901 2,721 — — 287,371 
Special mention5,518 — — 9,438 403 — — — 15,359 
SBA secured by real estate
Pass— — — 6,351 132 16,755 — — 23,238 
Substandard— — — — — 4,333 — — 4,333 
Total investor loans secured by real estate187,245 272,442 243,184 1,720,120 2,387,784 2,938,125 — — 7,748,900 
Year-to-date gross charge-offs
— — — — — — — — — 
Business loans secured by real estate
CRE owner-occupied
Pass32,601 49,695 18,982 464,164 559,667 727,955 — — 1,853,064 
Special mention— — — 34,235 23,872 19,531 — — 77,638 
Substandard— — — — 825 31,004 — — 31,829 
Franchise real estate secured
Pass2,646 2,488 8,436 36,629 88,271 85,876 — — 224,346 
Special mention— — — — 4,975 8,013 — — 12,988 
Substandard— — — — — 1,536 — — 1,536 
SBA secured by real estate
Pass— 711 107 9,373 6,490 21,563 41 — 38,285 
Substandard— — — — 310 3,632 — — 3,942 
Total loans secured by business real estate35,247 52,894 27,525 544,401 684,410 899,110 41 — 2,243,628 
Year-to-date gross charge-offs
— — — — — — — — — 
Commercial loans
Commercial and industrial
Pass200,093 406,615 32,252 117,300 125,042 232,977 466,420 546 1,581,245 
Special mention— 802 387 — — 143 8,919 — 10,251 
Substandard— 81 350 8,953 2,153 505 2,193 609 14,844 
Doubtful
— — — 2,885 — — — — 2,885 
Franchise non-real estate secured
Pass$55 $1,248 $5,989 $55,019 $72,147 $58,202 $— $— $192,660 
Special mention— — — — 184 — — — 184 
Substandard— 1,128 — — — 482 — — 1,610 
18

Term Loans by Vintage
(Dollars in thousands)20252024202320222021PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2025
SBA non-real estate secured
Pass— 936 243 3,016 316 1,885 — — 6,396 
Substandard— — — 962 — 188 — — 1,150 
Total commercial loans200,148 410,810 39,221 188,135 199,842 294,382 477,532 1,155 1,811,225 
Year-to-date gross charge-offs
— 233 55 — — — 170 — 458 
Retail loans
Single family residential
Pass42,996 114,630 10 — — 35,442 37,050 — 230,128 
Substandard— — — — — 134 — — 134 
Consumer loans
Pass44 97 — — — 356 1,467 — 1,964 
Total retail loans43,040 114,727 10 — — 35,932 38,517 — 232,226 
Year-to-date gross charge-offs
— 2 1 — — 7 — — 10 
Loans held for investment before basis adjustment (1)
$465,680 $850,873 $309,940 $2,452,656 $3,272,036 $4,167,549 $516,090 $1,155 $12,035,979 
Total Year-to-date gross charge-offs
$— $235 $56 $— $— $7 $170 $— $468 
______________________________
(1) Excludes the basis adjustment of $13.0 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of December 31, 2024:
Term Loans by Vintage
(Dollars in thousands)20242023202220212020PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2024
Investor loans secured by real estate
CRE non-owner-occupied
Pass$61,326 $30,284 $448,638 $491,594 $160,984 $900,867 $— $— $2,093,693 
Special mention— — — 2,918 — 1,531 — — 4,449 
Substandard13,563 — 11,167 — 5,740 2,500 — — 32,970 
Multifamily
Pass120,793 168,040 1,136,648 1,931,238 669,154 1,272,416 — — 5,298,289 
Special mention— — — 2,053 14,052 11,615 — — 27,720 
Construction and land
Pass79,235 47,024 216,604 21,063 2,224 3,185 — — 369,335 
Special mention— — 9,398 410 — — — — 9,808 
SBA secured by real estate
Pass$— $— $6,366 $— $493 $17,189 $— $— $24,048 
Substandard— — — 131 — 4,598 — — 4,729 
Total investor loans secured by real estate274,917 245,348 1,828,821 2,449,407 852,647 2,213,901 — — 7,865,041 
Year-to-date gross charge-offs
$2,304 $— $28 $29 $11,539 $1,651 $— $— $15,551 
19

Term Loans by Vintage
(Dollars in thousands)20242023202220212020PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2024
Business loans secured by real estate
CRE owner-occupied
Pass54,983 20,800 505,611 578,642 209,526 546,759 — — 1,916,321 
Special mention— — 2,663 24,673 1,884 9,169 — — 38,389 
Substandard— — — 832 — 39,602 — — 40,434 
Franchise real estate secured
Pass2,501 9,622 36,991 98,416 15,397 78,083 — — 241,010 
Special mention— — — 5,027 8,102 1,555 — — 14,684 
SBA secured by real estate
Pass741 108 9,699 7,007 1,205 22,101 — — 40,861 
Substandard— — — — — 3,117 — — 3,117 
Total loans secured by business real estate58,225 30,530 554,964 714,597 236,114 700,386 — — 2,294,816 
Year-to-date gross charge-offs
— 93 3,345 581 1,152 1,024 — — 6,195 
Commercial loans
Commercial and industrial
Pass436,794 34,576 122,900 130,428 32,337 210,544 484,411 3,926 1,455,916 
Special mention533 407 — — 160 — 11,408 330 12,838 
Substandard— 842 9,192 2,439 3 540 1,685 — 14,701 
Doubtful and loss— — 2,885 — — — — — 2,885 
Franchise non-real estate secured
Pass1,325 6,770 56,825 77,541 8,907 54,069 — — 205,437 
Special mention— — — 190 — 512 — — 702 
Substandard1,142 — — — — 6,076 — — 7,218 
SBA non-real estate secured
Pass944 248 4,176 322 — 2,201 — — 7,891 
Substandard— — — — 125 70 — — 195 
Total commercial loans440,738 42,843 195,978 210,920 41,532 274,012 497,504 4,256 1,707,783 
Year-to-date gross charge-offs
— 470 370 290 41 234 2,539 — 3,944 
Retail loans
Single family residential
Pass116,317 10 — — 158 35,923 34,331 — 186,739 
Consumer loans
Pass104 — — — 1 374 1,325 — 1,804 
Total retail loans116,421 10 — — 159 36,297 35,656 — 188,543 
Year-to-date gross charge-offs
$10 $2 $7 $1 $— $876 $— $— $896 
Loans held for investment before basis adjustment (1)
$890,301 $318,731 $2,579,763 $3,374,924 $1,130,452 $3,224,596 $533,160 $4,256 $12,056,183 
Total Year-to-date gross charge-offs
$2,314 $565 $3,750 $901 $12,732 $3,785 $2,539 $— $26,586 
______________________________
(1) Excludes the basis adjustment of $16.4 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.
20

The following tables stratify the loans held for investment portfolio by delinquency as of the periods indicated:
Days Past Due(2)
(Dollars in thousands)Current30-5960-8990+Total
March 31, 2025
Investor loans secured by real estate
CRE non-owner-occupied$2,111,115 $— $— $— $2,111,115 
Multifamily5,307,484 — — — 5,307,484 
Construction and land302,730 — — — 302,730 
SBA secured by real estate27,571 — — — 27,571 
Total investor loans secured by real estate7,748,900 — — — 7,748,900 
Business loans secured by real estate
CRE owner-occupied1,962,531 — — — 1,962,531 
Franchise real estate secured238,870 — — — 238,870 
SBA secured by real estate42,227 — — — 42,227 
Total business loans secured by real estate2,243,628 — — — 2,243,628 
Commercial loans
Commercial and industrial1,607,618 36 330 1,241 1,609,225 
Franchise non-real estate secured194,432 — 22 — 194,454 
SBA not secured by real estate7,481 — — 65 7,546 
Total commercial loans1,809,531 36 352 1,306 1,811,225 
Retail loans
Single family residential229,864 264 — 134 230,262 
Consumer loans1,964 — — — 1,964 
Total retail loans231,828 264 — 134 232,226 
Loans held for investment before basis adjustment (1)
$12,033,887 $300 $352 $1,440 $12,035,979 
December 31, 2024
Investor loans secured by real estate
CRE non-owner-occupied$2,131,112 $— $— $— $2,131,112 
Multifamily5,326,009 — — — 5,326,009 
Construction and land379,143 — — — 379,143 
SBA secured by real estate28,777 — — — 28,777 
Total investor loans secured by real estate7,865,041 — — — 7,865,041 
Business loans secured by real estate
CRE owner-occupied1,995,144 — — — 1,995,144 
Franchise real estate secured255,694 — — — 255,694 
SBA secured by real estate43,978 — — — 43,978 
Total business loans secured by real estate2,294,816 — — — 2,294,816 
Commercial loans
Commercial and industrial1,483,926 824 349 1,241 1,486,340 
Franchise non-real estate secured213,357 — — — 213,357 
SBA not secured by real estate8,017 49 — 20 8,086 
Total commercial loans1,705,300 873 349 1,261 1,707,783 
Retail loans
Single family residential186,603 136 — — 186,739 
Consumer loans1,804 — — — 1,804 
Total retail loans188,407 136 — — 188,543 
Loans held for investment before basis adjustment (1)
$12,053,564 $1,009 $349 $1,261 $12,056,183 
______________________________
(1) Excludes the basis adjustment of $13.0 million and $16.4 million to the carrying amount of certain loans included in fair value hedging relationships as of March 31, 2025 and December 31, 2024, respectively. Refer to Note 11 – Derivative Instruments for additional information.
(2) Nonaccrual loans are included in this aging analysis based on the loan’s past due status.

21

Individually Evaluated Loans

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

As of March 31, 2025, $27.7 million of loans were individually evaluated with a $484,000 ACL attributed to such loans. At March 31, 2025, $17.0 million of individually evaluated loans were evaluated based on the underlying value of the collateral, and $10.7 million were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at March 31, 2025.

As of December 31, 2024, $28.0 million of loans were individually evaluated with no ACL attributed to such loans. At December 31, 2024, $17.1 million of the individually evaluated loans were evaluated based on the underlying value of the collateral, and $10.9 million were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at December 31, 2024.

Purchased Credit Deteriorated Loans
 
The Company analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated (“PCD”) loans. Please see Note 1 - Description of Business and Summary of Significant Accounting Policies of our audited consolidated financial statements included in our 2024 Form 10-K for more information concerning the accounting for PCD loans. The Company had PCD loans of $262.5 million and $275.4 million at March 31, 2025 and December 31, 2024, respectively.

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


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Nonaccrual Loans

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

The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest regardless of the length of past due status. However, when such loans are well-secured and in the process of collection, the Company may continue with the accrual of interest. The Company had loans on nonaccrual status of $27.7 million at March 31, 2025 and $28.0 million at December 31, 2024.

The Company did not record income from the receipt of cash payments related to nonaccruing loans during the three months ended March 31, 2025 and 2024. The Company had no loans 90 days or more past due and still accruing at March 31, 2025 and December 31, 2024.

The following tables provide a summary of nonaccrual loans as of the dates indicated:
Nonaccrual Loans (1)
Collateral Dependent LoansNon-Collateral Dependent LoansTotal Nonaccrual LoansNonaccrual Loans with No ACL
(Dollars in thousands)BalanceACLBalanceACL
March 31, 2025
Investor loans secured by real estate
CRE non-owner-occupied$15,117 $— $— $— $15,117 $15,117 
SBA secured by real estate394 — — — 394 394 
Total investor loans secured by real estate15,511 — — — 15,511 15,511 
Commercial loans
Commercial and industrial1,241 484 10,742 — 11,983 11,083 
SBA non-real estate secured65 — — — 65 65 
Total commercial loans1,306 484 10,742 — 12,048 11,148 
Retail loans
Single family residential134 — — — 134 134 
Total retail loans134 — — — 134 134 
Total nonaccrual loans$16,951 $484 $10,742 $— $27,693 $26,793 
December 31, 2024
Investor loans secured by real estate
CRE non-owner-occupied$15,423 $— $— $— $15,423 $15,423 
SBA secured by real estate409 — — — 409 409 
Total investor loans secured by real estate15,832 — — — 15,832 15,832 
Commercial loans
Commercial and industrial1,241 — 10,938 — 12,179 12,179 
SBA non-real estate secured20 — — — 20 20 
Total commercial loans1,261 — 10,938 — 12,199 12,199 
Total nonaccrual loans$17,093 $— $10,938 $— $28,031 $28,031 
______________________________
(1) The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent; otherwise, the ACL for collateral dependent nonaccrual loans is determined based on the estimated fair value of the underlying collateral.

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Residential Real Estate Loans In Process of Foreclosure

The Company had no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of March 31, 2025 and December 31, 2024.

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

MLTBs were $13.3 million at March 31, 2025 and $13.6 million at December 31, 2024.

There were no loans modified as an MLTB during the three months ended March 31, 2025 and March 31, 2024.

During the three months ended March 31, 2025 and 2024, there were no MLTBs that had a payment default and had been modified within the 12 months preceding the payment default (90 days or more past due).

The following table depicts the performance of the loans that were modified in the past 12 months as of the dates indicated:
Days Past Due
(Dollars in thousands)Current30-5960-8990+Total
March 31, 2025
Investor loans secured by real estate
CRE non-owner-occupied
$13,343 $— $— $— $13,343 
Total investor loans secured by real estate$13,343 $— $— $— $13,343 
March 31, 2024
Commercial loans
Commercial and industrial$12,161 $— $— $— $12,161 
Total commercial loans$12,161 $— $— $— $12,161 

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Collateral Dependent Loans

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

The following tables summarize collateral dependent loans by collateral type as of the dates indicated:
(Dollars in thousands)Office PropertiesHotel PropertiesResidential PropertiesOther CRE PropertiesBusiness AssetsTotal
March 31, 2025
Investor loan secured by real estate
CRE non-owner-occupied$13,343 $— $— $1,774 $— $15,117 
SBA secured by real estate— 394 — — — 394 
Total investor loans secured by real estate13,343 394 — 1,774 — 15,511 
Commercial loans
Commercial and industrial— — — — 1,241 1,241 
SBA non-real estate secured— — — — 65 65 
Total commercial loans— — — — 1,306 1,306 
Retail loans
Single family residential— — 134 — — 134 
Total retail loans— — 134 — — 134 
Total collateral dependent loans$13,343 $394 $134 $1,774 $1,306 $16,951 

December 31, 2024
Investor loan secured by real estate
CRE non-owner-occupied$13,563 $— $— $1,860 $— $15,423 
SBA secured by real estate— 409 — — — 409 
Total investor loans secured by real estate13,563 409 — 1,860 — 15,832 
Commercial loans
Commercial and industrial— — — — 1,241 1,241 
SBA non-real estate secured— — — — 20 20 
Total commercial loans— — — — 1,261 1,261 
Total collateral dependent loans$13,563 $409 $— $1,860 $1,261 $17,093 
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Note 6 – Allowance for Credit Losses
 
The Company maintains an ACL for loans and unfunded loan commitments in accordance with ASC 326 - Financial Instruments - Credit Losses. ASC 326 requires the Company to initially recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. Determining the ACL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the Company’s ACL model. The Company uses a discounted cash flow model when determining estimates for the ACL for commercial real estate loans and commercial loans, which comprise the majority of the loan portfolio, and uses a historical loss rate model for retail loans. The Company also utilizes proxy loan data in its ACL model where the Company’s own historical data is not sufficiently available.

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

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

Probability of Default

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


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

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

Loss Given Default

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

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

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


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Economic Forecasts

In order to develop reasonable and supportable forecasts of future conditions, the Company estimates how those forecasts are expected to impact a borrower’s ability to satisfy their obligation to the Bank and the ultimate collectability of future cash flows over the life of a loan. The Company uses macroeconomic scenarios from an independent third party, which are based on past events, current conditions, and the likelihood of future events occurring. These scenarios are typically comprised of: a base-case scenario, an upside scenario, representing slightly better economic conditions than currently experienced and, a downside scenario, representing recessionary conditions. Management evaluates appropriateness of economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in the Company’s ACL model. The economic scenarios chosen for the model, the extent to which more than one scenario is used, and the weights that are assigned to them, are based on the likelihood that the economy would perform better than each scenario, which is based in part on analysis performed by an independent third party. Economic scenarios chosen, as well as the assumptions within those scenarios, and whether to use a probability-weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events. The Company’s ACL model at March 31, 2025 includes assumptions concerning the interest rate environment, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.

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

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

Qualitative Adjustments

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


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

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

Three Months Ended March 31, 2025
(Dollars in thousands) Beginning ACL Balance  Charge-offs  Recoveries Provision for Credit Losses
 Ending ACL Balance
Investor loans secured by real estate
CRE non-owner-occupied
$26,408 $— $— $458 $26,866 
Multifamily53,305 — — (1,930)51,375 
Construction and land5,230 — — (1,453)3,777 
SBA secured by real estate1,722 — 30 (74)1,678 
Business loans secured by real estate
CRE owner-occupied31,794 — — (1,273)30,521 
Franchise real estate secured5,836 — — (1,173)4,663 
SBA secured by real estate3,831 — — 33 3,864 
Commercial loans
Commercial and industrial37,603 (458)775 3,982 41,902 
Franchise non-real estate secured10,794 — — (2,717)8,077 
SBA non-real estate secured359 — 6 96 461 
Retail loans
Single family residential1,193 — — 487 1,680 
Consumer loans111 (10)— 2 103 
Totals$178,186 $(468)$811 $(3,562)$174,967 

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Three Months Ended March 31, 2024
(Dollars in thousands)Beginning ACL BalanceCharge-offsRecoveriesProvision for Credit LossesEnding
ACL Balance
Investor loans secured by real estate
CRE non-owner-occupied
$31,030 $(927)$— $678 $30,781 
Multifamily56,312 — 5 2,094 58,411 
Construction and land9,314 — — (1,143)8,171 
SBA secured by real estate2,182 (253)— 255 2,184 
Business loans secured by real estate
CRE owner-occupied28,787 (4,452)63 4,362 28,760 
Franchise real estate secured7,499 (212)— (29)7,258 
SBA secured by real estate4,427 — 1 (140)4,288 
Commercial loans
Commercial and industrial36,692 (585)39 961 37,107 
Franchise non-real estate secured15,131 (100)— (711)14,320 
SBA non-real estate secured458 — 2 35 495 
Retail loans
Single family residential505 — — (63)442 
Consumer loans134 — — (11)123 
Totals$192,471 $(6,529)$110 $6,288 $192,340 


The decrease in the ACL for loans held for investment during the three months ended March 31, 2025 of $3.2 million was reflective of a reversal of provision for credit losses of $3.6 million and net recoveries of $343,000.

During the three months ended March 31, 2025, the reversal of provision for credit losses was principally driven by provision reversals in the investor and business loans secured by real estate segments, partially offset by provisions for credit losses in the commercial and retail loans segments. The reversal of provision for credit losses in the investor loans secured by real estate segment was primarily attributed to a decline in loan balances for multifamily and construction and land loans. The reversal of provision for credit losses in the business loans secured by real estate segment can largely be attributed to a decline in loan balances for CRE owner-occupied loans and franchise real estate secured loans. The provision for credit losses in the commercial loans segment is largely attributed to new originations and purchases of commercial and industrial loans. The provision for commercial and industrial loans was partially offset by a provision reversal associated with franchise non-real estate secured loans, which was attributed to a decrease in loan balances coupled with slightly favorable changes in economic forecasts associated with those loans. The Company also recorded a provision for credit losses for retail loans during the first quarter, which was attributed to the purchase of jumbo single family residential loans with high credit quality. GAAP requires the Company to establish an ACL for purchased loans at the time of purchase.

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The decrease in the ACL for loans held for investment during the three months ended March 31, 2024 of $131,000 was reflective of $6.4 million in net charge-offs, partially offset by $6.3 million in provision for credit losses principally driven by provisions for investor and business loans secured by real estate segments. The provision for credit losses in the investor loans secured by real estate segment was primarily driven by changes in economic forecasts, partially offset by declines in loan balances for CRE non-owner-occupied, multifamily, and SBA secured by real estate loans. The reversal of provision for credit losses for construction and land loans in this segment was attributed to changes in loan composition, including the payoff of certain loans with higher loss ratios. The provision for credit losses in the business loans secured by real estate segment was largely attributed to CRE owner-occupied loans driven by the impact of changes in economic forecasts and changes in asset quality, partially offset by a decrease in balances for these loans within this segment. The provision for credit losses for commercial loans is primarily associated with commercial and industrial loans and the impact of changes in economic forecasts and asset quality, partially offset by a decrease in balances. Provisions for credit losses for these loans were partially offset by a reversal of provision for credit losses for franchise non-real estate secured loans, which can be attributed to a decrease in balances. The reversal of provision for credit losses for retail loans can largely be attributed to changes in economic forecasts and a slight decrease in balances.

Charge-offs during the three months ended March 31, 2024 were largely due to $5.7 million in charge-offs associated with the sale of special mention and substandard CRE and franchise loans during the first quarter of 2024.

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an ACL for off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. The following table summarizes the activities in the ACL for off-balance sheet commitments for the periods indicated:
Three Months Ended
March 31,March 31,
(Dollars in thousands)20252024
Beginning ACL balance$17,906 $19,264 
Provision for credit losses on off-balance sheet commitments(143)(2,425)
Ending ACL balance$17,763 $16,839 

The allowance for off-balance sheet commitments was $17.8 million at March 31, 2025, relatively unchanged from $17.9 million at December 31, 2024. During the three months ended March 31, 2025, the provision reversal for off-balance sheet commitments was largely attributable to the impact of changes in economic forecasts, partially offset by changes in the mix of unfunded commitments between various loan segments.

During the three months ended March 31, 2024, the provision reversal for off-balance sheet commitments of $2.4 million was largely attributable to a decline in the balance of unfunded commitments as well as qualitative adjustments during the quarter.

Note 7 – Goodwill and Other Intangible Assets

The Company had goodwill of $901.3 million at March 31, 2025 and December 31, 2024. The Company did not record any adjustments to goodwill during the three months ended March 31, 2025 and March 31, 2024.

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

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Other intangible assets with definite lives were $29.6 million at March 31, 2025, consisting of $28.0 million in core deposit intangibles and $1.7 million in customer relationship intangibles. At December 31, 2024, other intangibles assets were $32.2 million, consisting of $30.5 million in core deposit intangibles and $1.7 million in customer relationship intangibles. The following table summarizes the change in the balances of core deposit and customer relationship intangible assets, and the related accumulated amortization for the periods indicated below:
Three Months Ended
March 31,March 31,
(Dollars in thousands)20252024
Gross amount of intangible assets:
Beginning balance$145,212 $145,212 
Additions due to acquisitions— — 
Ending balance145,212 145,212 
Accumulated amortization:
Beginning balance(113,018)(101,927)
Amortization(2,566)(2,836)
Ending balance(115,584)(104,763)
Net intangible assets$29,628 $40,449 

The Company amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case of customer relationship intangibles. The amortization periods typically range from six to eleven years. The estimated aggregate amortization expense related to our core deposit and customer relationship intangible assets for each of the next five years succeeding December 31, 2024, in order from the present, is $10.0 million, $8.9 million, $7.2 million, $4.0 million, and $1.5 million. The Company’s core deposit and customer relationship intangibles are evaluated annually for impairment or more frequently if events and circumstances lead management to believe their value may not be recoverable. The Company is unaware of any events and/or circumstances that would indicate the value of customer relationship intangible assets are impaired as of March 31, 2025.

Note 8 – Subordinated Debentures

As of March 31, 2025, the Company had two series of subordinated notes with an aggregate carrying value of $272.6 million with a weighted interest rate of 6.21%, compared to $272.4 million with a weighted interest rate of 6.30% at December 31, 2024. The increase of $130,000 was due to the amortization of debt issuance costs.

The following table summarizes our outstanding subordinated debentures as of the dates indicated:
 Carrying Value
(Dollars in thousands)Stated MaturityCurrent Interest RateCurrent Principal BalanceMarch 31, 2025December 31, 2024
Subordinated notes
Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month term SOFR +2.762% thereafter
May 15, 20297.085 %125,000 123,960 123,896 
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month term SOFR +5.17% thereafter
June 15, 20305.375 %150,000 148,619 148,553 
Total subordinated debentures$275,000 $272,579 $272,449 
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In connection with the various issuances of subordinated notes, the Corporation obtained ratings from Kroll Bond Rating Agency (“KBRA”). KBRA assigned investment grade ratings of BBB+ and BBB for the Corporation’s senior unsecured debt and subordinated debt, respectively, and a deposit and senior unsecured debt rating of A- and subordinated debt of BBB+ for the Bank. The Corporation’s and Bank’s ratings were reaffirmed in May 2024 by KBRA.

For additional information on the Company’s subordinated debentures, see “Note 13 — Subordinated Debentures” to the audited consolidated financial statements in the Company’s 2024 Form 10-K. 

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

Note 9 – Earnings Per Share
 
The Company’s restricted stock awards contain non-forfeitable rights to dividends and therefore are considered participating securities. The Company calculates basic and diluted earnings per common share using the two-class method.

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

33

The following tables set forth the Corporation’s earnings per share calculations for the periods indicated:
 Three Months Ended
(Dollars in thousands, except per share data)March 31, 2025March 31, 2024
Basic
Net income $36,021 $47,025 
Less: dividends and undistributed earnings allocated to participating securities(650)(779)
Net income allocated to common stockholders$35,371 $46,246 
Weighted average common shares outstanding94,764,879 94,350,259 
Basic earnings per common share$0.37 $0.49 
Diluted
Net income allocated to common stockholders$35,371 $46,246 
Weighted average common shares outstanding94,764,879 94,350,259 
Dilutive effect of share-based compensation55,253 127,096 
Weighted average diluted common shares94,820,132 94,477,355 
Diluted earnings per common share$0.37 $0.49 

Shares or stock options are excluded from the computations of diluted earnings per share when their inclusion have an anti-dilutive effect. The dilutive impact of these securities could be included in future computations of diluted earnings per share if the market price of the common stock increases. For the three months ended March 31, 2025 and 2024, there were no potential common shares that were anti-dilutive.
34

Note 10 – Fair Value of Financial Instruments
 
The fair value of an asset or liability is the exchange price that would be received to sell that asset or paid to transfer that liability (exit price) in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 825 - Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including both those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis and a non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value are discussed below.

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

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

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

Level 3 - Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models, and similar techniques.
 
Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

35

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

Equity Securities With Readily Determinable Fair Values – The Company’s equity securities with readily determinable fair values consist of investments in public companies and qualify for CRA purposes. The fair value is based on the closing price on nationally recognized securities exchanges at the end of each period and classified as Level 1 of the fair value hierarchy.
    
Interest Rate Swaps – The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certain fixed-rate loans. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a market standard discounted cash flow approach. The Company incorporates credit value adjustments on derivatives to properly reflect the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The Company has determined that the observable nature of the majority of inputs used in deriving the fair value of these derivative contracts fall within Level 2 of the fair value hierarchy, and the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the valuation of interest rate swaps is classified as Level 2 of the fair value hierarchy.

Foreign Exchange Contracts – The Company enters into foreign exchange contracts to accommodate the business needs of its customers. The Company also enters into offsetting contracts with institutional counterparties to mitigate the Company’s foreign exchange exposure with its customers, or enters into bilateral collateral and master netting agreements with certain customer counterparties to manage its credit exposure. The Company measures the fair value of foreign exchange contracts based on quoted prices for identical instruments in active markets, a Level 1 measurement.
36

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis at the dates indicated:
March 31, 2025
 Fair Value Measurement Using Total Fair Value
(Dollars in thousands)Level 1Level 2Level 3
Financial assets
AFS investment securities:    
U.S. Treasury$— $1,267,109 $— $1,267,109 
Agency— 1,031 — 1,031 
Corporate— 372,573 — 372,573 
Collateralized mortgage obligations— 117,627 — 117,627 
Total AFS investment securities$— $1,758,340 $— $1,758,340 
Equity securities$821 $— $— $821 
Derivative assets:
Foreign exchange contracts$4 $— $— $4 
Interest rate swaps (1)
— 4,578 — 4,578 
Total derivative assets$4 $4,578 $— $4,582 
Financial liabilities
Derivative liabilities:
Interest rate swaps$— $9,486 $— $9,486 
Total derivative liabilities$— $9,486 $— $9,486 

December 31, 2024
 Fair Value Measurement UsingTotal Fair Value
(Dollars in thousands)Level 1Level 2Level 3
Financial assets
AFS investment securities:    
U.S. Treasury$— $1,166,085 $— $1,166,085 
Agency— 1,108 — 1,108 
Corporate— 392,258 — 392,258 
Collateralized mortgage obligations— 123,764 — 123,764 
Total AFS investment securities$— $1,683,215 $— $1,683,215 
Equity securities
$784 $— $— $784 
Derivative assets:
Foreign exchange contracts$6 $— $— $6 
Interest rate swaps (1)
— 5,638 — 5,638 
Total derivative assets$6 $5,638 $— $5,644 
Financial liabilities
Derivative liabilities:
Interest rate swaps$— $11,152 $— $11,152 
Total derivative liabilities$— $11,152 $— $11,152 
______________________________
(1) Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable. See Note 11 – Derivative Instruments for additional information.


37

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

At March 31, 2025, the Company’s individually evaluated collateral dependent loans were evaluated based on the fair value of their underlying collateral based upon the most recent appraisals available to management. The Company completed partial charge-offs on certain individually evaluated loans based on recent real estate or property appraisals and recorded the related reserves where applicable during the three months ended March 31, 2025.     

The following table presents our assets measured at fair value on a nonrecurring basis at the dates indicated.
(Dollars in thousands)Fair Value Measurement UsingTotal
Fair Value
March 31, 2025Level 1Level 2Level 3
Financial assets   
Collateral dependent loans$— $— $757 $757 
Total assets$— $— $757 $757 
December 31, 2024
Financial assets    
Collateral dependent loans$— $— $13,563 $13,563 
Total assets$— $— $13,563 $13,563 
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The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a nonrecurring basis at the dates indicated.
  Range
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input(s)MinMaxWeighted Average
March 31, 2025
Commercial loans
Commercial and industrial$757 Fair value of collateralCost to sell1.73%1.73%1.73%
Total individually evaluated loans757 
Total assets$757 
December 31, 2024
Investor loans secured by real estate
CRE non-owner-occupied$13,563 Fair value of collateralCost to sell10.00%10.00%10.00%
Total individually evaluated loans13,563 
Total assets
$13,563 

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Fair Values of Financial Instruments
    
The fair value estimates presented herein are based on pertinent information available to management as of the dates indicated, representing an exit price.
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Estimated
Fair Value
March 31, 2025
Assets     
Cash and cash equivalents$768,194 $768,194 $— $— $768,194 
Interest-bearing time deposits with financial institutions1,253 1,253 — — 1,253 
HTM investment securities1,700,117 — 1,410,612 — 1,410,612 
AFS investment securities1,758,340 — 1,758,340 — 1,758,340 
Equity securities821 821 — — 821 
Loans held for investment, net12,022,978 — — 11,592,097 11,592,097 
Derivative assets (1)
4,582 4 4,578 — 4,582 
Accrued interest receivable69,210 — 69,210 — 69,210 
Liabilities     
Deposit accounts$14,666,232 $— $14,677,632 $— $14,677,632 
Subordinated debentures272,579 — 271,346 — 271,346 
Derivative liabilities (1)
9,486 — 9,486 — 9,486 
Accrued interest payable8,975 — 8,975 — 8,975 

December 31, 2024
Assets     
Cash and cash equivalents$609,330 $609,330 $— $— $609,330 
Interest-bearing time deposits with financial institutions1,246 1,246 — — 1,246 
HTM investment securities1,711,804 — 1,428,077 — 1,428,077 
AFS investment securities1,683,215 — 1,683,215 — 1,683,215 
Equity securities
784 784 — — 784 
Loans held for sale2,315 — 2,425 — 2,425 
Loans held for investment, net12,039,741 — — 11,575,603 11,575,603 
Derivative assets (1)
5,644 6 5,638 — 5,644 
Accrued interest receivable67,953 — 67,953 — 67,953 
Liabilities     
Deposit accounts$14,463,702 $— $14,478,071 $— $14,478,071 
Subordinated debentures272,449 — 267,258 — 267,258 
Derivative liabilities (1)
11,152 — 11,152 — 11,152 
Accrued interest payable11,589 — 11,589 — 11,589 
______________________________
(1) Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable. See Note 11 – Derivative Instruments for additional information.

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Note 11 – Derivative Instruments

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

Derivatives Designated as Hedging Instruments

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

During 2024, as part of its interest rate risk management, the Company voluntarily discontinued portfolio layer method fair value hedges with an aggregate notional amount of $450.0 million associated with closed pools of fixed rate loans. When a portfolio layer method fair value hedge is discontinued, the hedged item is no longer adjusted for changes in the fair value of the hedged risk, also referred to as the basis adjustment. The basis adjustment, as of the date the fair value hedge is discontinued, is allocated on a proportionate basis to the remaining loans that previously comprised the closed pool. The basis adjustment is subsequently amortized or accreted into interest income using the interest method over the remaining lives of the individual loans. Cash flows on derivatives designated as hedging instruments are classified in the statement of cash flows the same as the cash flows of the assets being hedged. At March 31, 2025 and December 31, 2024, interest rate swaps with an aggregate notional amount of $300.0 million and $300.0 million, respectively, were designated as fair value hedges.

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

Line Item in the Statement of Financial Position in Which the Hedged Item is IncludedCarrying Amount of the Hedged Assets
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets(2)
(Dollars in thousands)March 31, 2025December 31, 2024March 31, 2025December 31, 2024
Loans held for investment (1)
$286,999 $283,558 $(12,399)$(15,815)
Total$286,999 $283,558 $(12,399)$(15,815)
______________________________
(1) These amounts were included in the amortized cost basis of closed portfolios of loans held for investment used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At March 31, 2025 and December 31, 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $968.4 million and $990.6 million, respectively, the cumulative basis adjustments associated with these hedging relationships was $(13.0) million and $(16.4) million, respectively, and the amounts of the designated hedged items were $300.0 million and $300.0 million, respectively.
(2) At March 31, 2025 and December 31, 2024, the balance included $602,000 and $628,000, respectively, hedging adjustment on discontinued hedging relationships.

Derivatives Not Designated as Hedging Instruments

Interest Rate Swap Contracts – From time to time, the Company enters into interest rate swap agreements with certain borrowers to assist them in mitigating their interest rate risk exposure associated with the loans they have with the Company. At the same time, the Company enters into identical offsetting interest rate swap agreements with another financial institution to mitigate the Company’s interest rate risk exposure associated with the swap agreements it enters into with its borrowers. The Company has over-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms. The fair values of these agreements are determined through a third-party valuation model used by the Company’s swap advisory firm, which uses observable market data such as interest rates, prices of Eurodollar futures contracts, and market swap rates. The fair values of these swaps are recorded as components of other assets and other liabilities in the Company’s consolidated statement of financial condition. Changes in the fair value of these swaps, which occur due to changes in interest rates, are recorded in the Company’s statement of income as a component of noninterest income.
    
Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, generally contain a greater degree of credit risk and liquidity risk than centrally-cleared contracts, which have standardized terms. Although changes in the fair value of swap agreements between the Company and borrowers and the Company and other financial institutions offset each other, changes in the credit risk of these counterparties may result in a difference in the fair value of the swap agreements. Offsetting over-the-counter swap agreements the Company has with other financial institutions are collateralized with cash, and swap agreements with borrowers are secured by the collateral arrangements for the underlying loans these borrowers have with the Company. All interest rate swap agreements entered into by the Company are free-standing derivatives and are not designated as hedging instruments.

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

The net increases or decreases in derivatives not designated as hedging instruments are included in “Net change in accrued interest receivable and other assets” and “Net change in accrued expenses and other liabilities” within the statement of cash flows.

The following tables summarize the Company's derivative instruments included in “other assets” and “other liabilities” in the consolidated statements of financial condition as of the dates indicated:
March 31, 2025
Derivative AssetsDerivative Liabilities
(Dollars in thousands)NotionalFair ValueNotionalFair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts$300,000 $13,610 $— $— 
Total derivative designated as hedging instruments300,000 13,610 — — 
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts135 4 112 — 
Interest rate swaps contracts92,180 9,307 92,180 9,312 
Total derivative not designated as hedging instruments92,315 9,311 92,292 9,312 
Total derivatives$392,315 22,921 $92,292 9,312 
Netting adjustments - cleared positions (1)
18,339 (174)
Total derivatives in the Statement of Financial Condition$4,582 $9,486 
December 31, 2024
Derivative AssetsDerivative Liabilities
(Dollars in thousands)NotionalFair ValueNotionalFair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts$300,000 $17,108 $— $— 
Total derivative designated as hedging instruments300,000 17,108 — — 
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts361 6 — — 
Interest rate swaps contracts93,732 11,047 93,732 11,052 
Total derivative not designated as hedging instruments94,093 11,053 93,732 11,052 
Total derivatives$394,093 $28,161 $93,732 $11,052 
Netting adjustments - cleared positions (1)
22,517 (100)
Total derivatives in the Statement of Financial Condition$5,644 $11,152 
______________________________
(1) Netting adjustments represents the variation margin payments that are considered legal settlements of derivative exposure and applied to net the fair value of the respective derivative contracts in accordance with the applicable accounting guidance on the settle-to-market rule for cleared derivatives.

The following table presents the effect of fair value hedge accounting on the consolidated statements of income:
Three Months Ended
(Dollars in thousands)Location of Gain (Loss) Recognized in Income on Derivative InstrumentsMarch 31, 2025March 31, 2024
Gain (loss) on fair value hedging relationships:
Hedged itemsInterest Income$3,440 $(2,773)
Derivatives designated as hedging instrumentsInterest Income(877)10,016 
The following table summarizes the effect of the derivatives not designated as hedging instruments in the consolidated statements of income.
(Dollars in thousands)Three Months Ended
Derivatives Not Designated as Hedging Instruments:Location of Gain (Loss) Recognized in Income on Derivative InstrumentsMarch 31, 2025March 31, 2024
Foreign exchange contractsOther income$225 $145 
Interest rate productsOther income— 2 
Total$225 $147 
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Note 12 – Balance Sheet Offsetting

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

Financial instruments that are eligible for offset in the consolidated statements of financial condition as of the periods indicated are presented below:
Gross Amounts Recognized (1)
Gross Amounts Offset in the Consolidated Statements of Financial ConditionNet Amounts Presented in the Consolidated Statements of Financial ConditionGross Amounts Not Offset in the Consolidated
Statements of Financial Condition		Net Amount
(Dollars in thousands)
Financial Instruments (2)
Cash Collateral (3)
March 31, 2025
Derivative assets:
Interest rate swaps$4,578 $— $4,578 $— $(3,880)$698 
Total$4,578 $— $4,578 $— $(3,880)$698 
Derivative liabilities:
Interest rate swaps$9,486 $— $9,486 $— $— $9,486 
Total$9,486 $— $9,486 $— $— $9,486 
December 31, 2024
Derivative assets:
Interest rate swaps$5,638 $— $5,638 $— $(4,230)$1,408 
Total$5,638 $— $5,638 $— $(4,230)$1,408 
Derivative liabilities:
Interest rate swaps$11,152 $— $11,152 $— $— $11,152 
Total$11,152 $— $11,152 $— $— $11,152 
______________________________
(1) Represents amounts after the application of variation margin payments as settlements with central counterparties, where applicable.
(2) Represents the fair value of securities pledged with counterparty bank.
(3) Represents cash collateral received from or pledged with counterparty bank. Amounts are limited to the derivative asset or liability balance and, accordingly, do not include excess collateral, if any, received or pledged.

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Note 13 – Variable Interest Entities

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

As of March 31, 2025 and December 31, 2024, the Company determined it was not the primary beneficiary of the VIEs and did not consolidate its interests in VIEs. The following table provides a summary of the carrying amount of assets and liabilities in the Company’s consolidated statements of financial condition and maximum exposure to loss as of March 31, 2025 and December 31, 2024 that relate to variable interests in non-consolidated VIEs.

March 31, 2025December 31, 2024
(Dollars in thousands)Maximum LossAssetsLiabilitiesMaximum LossAssetsLiabilities
Multifamily loan securitization:
Investment securities (1)
$35,152 $35,152 $— $37,300 $37,300 $— 
Reimbursement obligation (2)
35,210 — 274 37,354 — 274 
Affordable housing partnership:
Other investments (3)
48,547 81,478 — 50,511 85,335 — 
Unfunded equity commitments (2)
— — 32,931 — — 34,824 
Total$118,909 $116,630 $33,205 $125,165 $122,635 $35,098 
______________________________
(1) Included in investment securities AFS on the consolidated statement of financial condition.
(2) Included in accrued expenses and other liabilities on the consolidated statement of financial condition.
(3) Included in other assets on the consolidated statement of financial condition.

Multifamily Loan Securitization

With respect to the securitization transaction with Freddie Mac discussed in Note 5 – Loans Held for Investment, the Company’s variable interests reside with the underlying Freddie Mac-issued guaranteed, structured pass-through certificates that were held as AFS investment securities at fair value as of March 31, 2025. Additionally, the Company has variable interests through a reimbursement agreement executed by Freddie Mac that obligates the Company to reimburse Freddie Mac for any defaulted contractual principal and interest payments identified after the ultimate resolution of the defaulted loans. Such reimbursement obligations are not to exceed 10% of the original principal amount of the loans comprising the securitization pool.

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


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We believe that our maximum exposure to loss as a result of our involvement with the VIE associated with the securitization is the carrying value of the investment securities issued by Freddie Mac and purchased by the Company. Additionally, our maximum exposure to loss under the reimbursement agreement executed with Freddie Mac is 10% of the original principal amount of the loans comprising the securitization pool, or $50.9 million. As the total outstanding principal amount of the underlying loans decreased below the aforementioned reimbursement threshold, the maximum exposure declined to the total outstanding principal amount of the underlying loans of $35.2 million at March 31, 2025 and $37.4 million at December 31, 2024. Based upon our analysis of quantitative and qualitative data over the underlying loans included in the securitization pool, as of March 31, 2025 and December 31, 2024, our reserve for estimated losses with respect to the reimbursement obligation was $274,000.

Investments in Qualified Affordable Housing Partnerships

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

The Company’s maximum exposure to loss, exclusive of any potential realization of tax credits, is equal to the commitments invested, adjusted for amortization. The amount of unfunded commitments was included in the investments recognized as assets with a corresponding liability. The preceding table summarizes the amount of tax credit investments held as assets, the amount of unfunded commitments recognized as liabilities, and the maximum exposure to loss as of March 31, 2025 and December 31, 2024, respectively. See Note 14 – Tax Equity Investments for additional information on equity investments that generate LIHTC and other income tax benefits for the Company.


Note 14 – Tax Equity Investments

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

The Company typically accounts for tax equity investments using the proportional amortization method, if certain criteria are met. The election to account for tax equity investments using the proportional amortization method is done so on a tax credit program-by-tax credit program basis. Under the proportional amortization method, the Company amortizes the initial cost of the investment, which is inclusive of any commitments to make future equity contributions, in proportion to the income tax credits and other income tax benefits that are allocated to the Company over the period of the investment. The net benefits of these investments, which are comprised of income tax credits and operating loss income tax benefits, net of investment amortization, are recognized in the income statement as a component of income tax expense. At March 31, 2025 and December 31, 2024, the carrying value of these investments was $81.5 million and $85.3 million, respectively, and are included in other assets in the consolidated statements of financial position.

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As of March 31, 2025, the Company’s unfunded commitments associated with tax equity investments, which are comprised of investments in affordable housing partnerships, were estimated to be paid as follows:
(Dollars in thousands)Amount
Year Ending December 31,
2025$16,081 
202612,039 
20271,236 
2028652 
2029299 
Thereafter2,624 
Total unfunded commitments$32,931 

The following table presents income tax credits and other income tax benefits, as well as amortization expense, associated with investments in qualified affordable housing partnerships where the proportional amortization method of accounting has been applied for the periods indicated.
Three Months Ended
March 31,March 31,
(Dollars in thousands)20252024
Tax credit and other tax benefits recognized (1)
$4,726 $4,217 
Amortization of investments (1)
3,857 3,475 
______________________________
(1) Amounts for income tax credits and other income tax benefits, as well as amortization of investments, are included in income tax expense in the consolidated statements of income, and net change in accrued interest receivable and other assets on the consolidated statements of cash flows, for the periods presented above.

There was no non-income-tax-related activity associated with tax equity investments recorded outside of income tax expense for the three months ended March 31, 2025 and March 31, 2024. There were no impairment losses recorded on tax equity investments during the three months ended March 31, 2025 and 2024.

Note 15 – Segment Reporting

The Company has identified two operating segments: Commercial and Specialty Banking and Pacific Premier Trust. Only Commercial and Specialty Banking meets the quantitative thresholds under GAAP for disclosure and Pacific Premier Trust’s activities are largely complementary to the broader suite of financial products and services the Company offers its banking clients. The Company has concluded that it is managed on a consolidated basis as one reportable segment, and the measure of profit and loss is net income.

The Company primarily conducts commercial and specialty banking activities with operations in the Western Region of the United States, with branches in Arizona, California, Nevada, Oregon, and Washington. Our commercial and specialty banking operations comprise the majority of our business activities and largely consist of making commercial and commercial real estate loans tailored to small and middle market businesses, including the owners and employees of those businesses, as well as accepting deposits in the markets we serve. Revenues generated from these activities largely consist of interest income on loans and investment securities, net of interest paid on deposits and borrowed funds, as well as fee income generated from the various banking services we offer our clients. As part of the Company’s broader suite of financial products and services, the Company offers commercial escrow and exchange services through our Commerce Escrow division, as well as custodial and maintenance services for clients with self-directed IRA accounts under our Pacific Premier Trust division. Revenues generated from these activities consist of fee income. The Company’s business activities are collectively managed and monitored by the chief operating decision maker (“CODM”) in assessing performance and making decisions about the allocation of resources.

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The Company’s CODM is a role shared by two executive officers, the Chairman, Chief Executive Officer, and President of the Company, as well as the President and Chief Operating Officer of the Bank. The CODM regularly monitors the performance of the Company through the use of internally derived reporting packages, which contain financial metrics of profit/loss, including net income, which is the measure of segment profit and loss, as well as other key performance indicators. The CODM uses such information to assess performance of the Company and make decisions that impact revenues, such as the levels and types of lending and the yields earned, as well as the acceptance of various types of deposits and the rates paid. The CODM also uses such information to monitor levels of noninterest income earned from the various services provided to the Company’s clients, and to monitor the level of expenses incurred associated with the various aspects of the Company’s business that support our clients, generate revenues, and are associated with the overall administration of the Company’s operations. Further, internal financial information is also used by the CODM to monitor credit quality and credit loss expense, and to make decisions concerning risk exposures in the Company’s loan portfolio.

Please refer to the consolidated statements of income for information concerning revenues, expenses, and the measure of segment profit and loss, which is net income. The consolidated statements of income also provide the categories of significant expenses regularly provided to the CODM. In addition, segment assets are reported in the consolidated statements of financial condition.

Note 16 – Subsequent Events

Quarterly Cash Dividend

On April 22, 2025, the Corporation’s Board of Directors declared a cash dividend of $0.33 per share, payable on May 12, 2025 to stockholders of record as of May 5, 2025.

Proposed Merger with Columbia Banking System, Inc.

On April 23, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Columbia Banking System, Inc., a Washington corporation (“Columbia”), and Balboa Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger (the “Surviving Corporation”), and immediately following the Merger, the Surviving Corporation will merge with and into Columbia (the “Second Step Merger”, and together with the Merger, the “Mergers”), with Columbia continuing as the surviving entity in the Second Step Merger. Promptly following the Second Step Merger, the Bank will merge with and into Columbia’s wholly owned bank subsidiary, Umpqua Bank (the “Bank Merger”), with Umpqua Bank as the surviving bank in the Bank Merger. The Merger Agreement was unanimously approved and adopted by the board of directors of each of Columbia, Pacific Premier, and Merger Sub.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock outstanding immediately prior to the Effective Time, other than certain shares held by Columbia, the Company or Merger Sub, will be converted into the right to receive 0.9150 of a share of common stock, no par value per share, of Columbia. Holders of the Company’s common stock will receive cash in lieu of fractional shares.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING STATEMENTS

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

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

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

•The strength of the United States (“U.S.”) economy in general and the strength of the local economies in which we conduct operations;
•Adverse developments in the banking industry, for example the high-profile bank failures in 2023, and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;
•The effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);
•Interest rate, liquidity, economic, market, credit, operational, and inflation risks associated with our business, including the speed and predictability of changes in these risks;
•Our ability to attract and retain deposits and to access other sources of liquidity, particularly in a higher interest rate environment, and the quality and composition of our deposits;
•Business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the labor market, ineffective management of the U.S. Federal budget or debt, fluctuations in the real estate market, or turbulence or uncertainty in domestic or foreign financial markets;
•The effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;
•The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;
•Possible impairment charges to goodwill, including any impairment that may result from increased volatility in our stock price;
•The impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies;
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•Compliance risks, including any increased costs of monitoring, testing, and maintaining compliance with complex laws and regulations;
•The effectiveness of our risk management framework and quantitative models;
•The effect of changes in accounting policies and practices or accounting standards, as may be adopted from time to time by bank regulatory agencies, the Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board (“PCAOB”), the Financial Accounting Standards Board (“FASB”), or other accounting standards setters;
•Possible credit-related impairments of securities held by us;
•Changes in the level of our nonperforming assets and charge-offs;
•The impact of governmental efforts to restructure or modify the U.S. financial regulatory system;
•The impact of changes in Federal Deposit Insurance Corporation (the “FDIC”) insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments;
•Changes in consumer spending, borrowing, and savings habits;
•The effects of concentrations in our loan portfolio, including commercial real estate, and the risks of geographic and industry concentrations;
•The possibility that we may reduce or discontinue the payments of dividends on our common stock;
•The possibility that we may discontinue, reduce, or otherwise limit the level of repurchases of our common stock we may make from time to time pursuant to our stock repurchase program;
•Changes in the financial performance and/or condition of our borrowers;
•Changes in the competitive environment among financial and bank holding companies and other financial service providers;
•Geopolitical conditions, including acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, including the war between Russia and Ukraine and conflicts in the Middle East, all of which could impact business and economic conditions in the U.S. and abroad;
•Tariffs, trade policies, and related tensions, which could impact our clients, specific industry sectors and/or broader economic conditions and financial market;
•Public health crises and pandemics and their effects on the economic and business environments in which we operate, including on our credit quality and business operations, as well as the impact on general economic and financial market conditions;
•Cybersecurity threats and the cost of defending against them;
•Uncertainty around, and disruption from, new and emerging technologies, including the adoption and utilization of artificial intelligence (“AI”) and generative AI;
•Climate change, including the enhanced regulatory, compliance, credit, and reputational risks and costs;
•Natural disasters, earthquakes, fires, and severe weather;
•Unanticipated regulatory, legal, or judicial proceedings;
•The possibility that the Company’s pending merger with Columbia Banking System, Inc., a Washington corporation (“Columbia”) does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;
•The possibility that the benefits from the merger with Columbia may not be fully realized or may take longer to realize than expected;
•Disruptions to the Company’s business as a result of the announcement and pendency of the merger with Columbia;
•The possibility that the merger with Columbia may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and
•Our ability to manage the risks involved in the foregoing.
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    If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking information and statements to reflect actual results or changes in the factors affecting the forward-looking information and statements. For information on the factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”) in addition to Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q and other reports as filed with the SEC.
 
Forward-looking information and statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties disclosed in our filings with the SEC, all of which are accessible on the SEC’s website at http://www.sec.gov.
 
GENERAL
 
Management’s discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to the Company’s financial condition, results of operations, liquidity, and capital resources. This discussion should be read in conjunction with our 2024 Form 10-K, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The results for the three months ended March 31, 2025 are not necessarily indicative of the results expected for the year ending December 31, 2025.
 
The Corporation, a California-based bank holding company, was incorporated in 1997 in the state of Delaware and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”). Our wholly owned subsidiary, Pacific Premier Bank, is a national banking association chartered under the laws of the United States, and is thereby subject to the supervision, periodic examination, and regulation by the Office of the Comptroller of the Currency (the “OCC”). The OCC holds primary supervisory and regulatory authority over the operations of the Bank. The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund. The FDIC also has certain supervisory authority and powers over the Bank as well as all other FDIC insured institutions. Additionally, the Bank is a member of the Federal Home Loan Bank of San Francisco (“FHLB”), which is a member of the Federal Home Loan Bank System. As a bank holding company, the Corporation is subject to regulation and supervision by the Federal Reserve and the Federal Reserve Bank of San Francisco (“FRB”). The Federal Reserve may conduct examinations of bank holding companies, including the Corporation, and its subsidiaries.
 
Our corporate headquarters is located in Irvine, California. At March 31, 2025, we primarily conducted business throughout the Western Region of the United States from our 58 full-service depository branches located in Arizona, California, Nevada, Oregon, and Washington.

Our business strategy is centered on leveraging our high-touch relationship banking model, our broad range of banking products and service offerings, and our investment in technology to drive profitable, risk-adjusted growth, and generate operational efficiencies. Throughout our history, we have accomplished our growth objectives through a two-pronged approach of organic growth and strategic acquisitions.

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In support of our organic and strategic growth strategy, we focus on attracting deposits from small- and middle-market businesses, corporations, including the owners and employees of those businesses, professionals, real estate investors/operators, non-profit organizations, and consumers. We invest those deposits, together with funds generated from operations and borrowings, primarily in commercial loans and various types of commercial real estate loans. The Company expects to fund substantially all of the loans that it originates or purchases through deposits, FHLB advances and other borrowings, and internally generated funds. Through our branches and our website, www.ppbi.com, we offer a variety of banking products and services within our targeted markets in the Western United States such as: various types of deposit accounts, digital banking, treasury management services, online bill payment, and a wide array of loan products, including commercial business loans, lines of credit, Small Business Administration (“SBA”) loans, commercial real estate (“CRE”) loans, agribusiness loans, quick-service restaurant franchise lending, home equity lines of credit, and construction loans throughout the Western U.S. in major metropolitan markets within Arizona, California, Nevada, Oregon, and Washington. We also have developed nationwide specialty banking products and service offerings for homeowners’ associations (“HOA”) and HOA management companies, as well as experienced owner-operator franchisees in the QSR industry. Our specialty products and services offerings include commercial escrow and exchange services through our Commerce Escrow division, which provides a variety of real-property and non-real property escrow services, including the facilitation of Section 1031 of the Internal Revenue Code. In addition, our Pacific Premier Trust division provides individual retirement account (“IRA”) custodial and maintenance services and serves as a custodian for self-directed IRAs holding various asset classes.

The Company generates the majority of its revenues from interest income on loans that it originates and purchases, and income from investments in securities. The Company also provides its clients with financial products and services, which generate noninterest income such as service charges on customer accounts, trust custodial account fees, and escrow and exchange fees. The Company’s revenues are partially offset by interest expense paid on deposits and borrowings, the provision for credit losses, and noninterest expenses, such as operating expenses. The Company’s operating expenses primarily consist of employee compensation and benefit expenses, premises and occupancy expenses, data processing expenses, deposit expenses, and other general expenses. The Company’s results of operations are also affected by prevailing economic conditions, competition, acquisitions, government policies, and other actions of regulatory agencies.

RECENT DEVELOPMENTS
    
On April 23, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Columbia, and Balboa Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger (the “Surviving Corporation”), and immediately following the Merger, the Surviving Corporation will merge with and into Columbia (the “Second Step Merger”, and together with the Merger, the “Mergers”), with Columbia continuing as the surviving entity in the Second Step Merger. Promptly following the Second Step Merger, the Bank will merge with and into Columbia’s wholly owned bank subsidiary, Umpqua Bank (the “Bank Merger”), with Umpqua Bank as the surviving bank in the Bank Merger. The Merger Agreement was unanimously approved and adopted by the board of directors of each of Columbia, Pacific Premier, and Merger Sub.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock outstanding immediately prior to the Effective Time, other than certain shares held by Columbia, the Company or Merger Sub, will be converted into the right to receive 0.9150 of a share of common stock, no par value per share, of Columbia. Holders of the Company’s common stock will receive cash in lieu of fractional shares.

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CRITICAL ACCOUNTING POLICIES
 
Management has established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Certain accounting policies require management to make estimates and assumptions that involve a significant level of estimation uncertainty and are reasonably likely to have a material impact on the carrying value of certain assets and liabilities as well as the Company’s results of operations, which management considers to be critical accounting policies. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of the Company’s assets and liabilities as well as the Company’s results of operations in future reporting periods. The Company’s critical accounting policies consist of the allowance for credit losses on loans and off-balance sheet commitments, as well as goodwill. Please see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2024 Form 10-K for additional discussion concerning these critical accounting policies. Also, our significant accounting policies are described in Note 1. Description of Business and Summary of Significant Accounting Policies to the audited consolidated financial statements in our 2024 Form 10-K.

NON-GAAP MEASURES

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

For periods presented below, return on average assets (“ROAA”) excluding the FDIC special assessment is a non-GAAP financial measure derived from GAAP based amounts. We calculate this figure by excluding the FDIC special assessment and the related tax impact from net income. Management believes that the exclusion of such nonrecurring items from this financial measure provides useful information to gain an understanding of the operating results of our core business and a better comparison of financial performance.
 Three Months Ended
 March 31,December 31,March 31,
(Dollars in thousands)202520242024
Net income
$36,021 $33,893 $47,025 
Add: FDIC special assessment25 (33)523 
Less: tax adjustment (1)
7 (9)148 
Adjusted net income for average assets$36,039 $33,869 $47,400 
Average assets$18,086,988 $18,155,738 $19,034,396 
ROAA (annualized)0.80 %0.75 %0.99 %
Adjusted ROAA (annualized)0.80 %0.75 %1.00 %
______________________________
(1) Adjusted by statutory tax rate.

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For periods presented below, return on average tangible common equity (“ROATCE”) is a non-GAAP financial measure derived from GAAP-based amounts. We calculate this figure by excluding amortization of intangible assets expense from net income and excluding the average intangible assets and average goodwill from the average stockholders' equity during the periods indicated. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business. The adjusted net income, adjusted return on average equity (“ROAE”), and adjusted ROATCE further exclude the nonrecurring items to provide a better comparison to the financial results of prior periods.
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202520242024
Net income$36,021 $33,893 $47,025 
Add: amortization of intangible assets expense
2,566 2,730 2,836 
Less: tax adjustment (1)
723 769 801 
Net income for average tangible common equity37,864 35,854 49,060 
Add: FDIC special assessment25 (33)523 
Less: tax adjustment (1)
7 (9)148 
Adjusted net income for average tangible common equity$37,882 $35,830 $49,435 
Average stockholders’ equity$2,956,846 $2,942,122 $2,895,949 
Less: average intangible assets31,168 33,813 42,134 
Less: average goodwill901,312 901,312 901,312 
Average tangible common equity$2,024,366 $2,006,997 $1,952,503 
ROAE (annualized)4.87 %4.61 %6.50 %
Adjusted ROAE (annualized)4.88 %4.60 %6.55 %
ROATCE (annualized)7.48 %7.15 %10.05 %
Adjusted ROATCE (annualized)7.49 %7.14 %10.13 %
______________________________
(1) Amortization of intangible assets expense adjusted by statutory tax rate.

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

 March 31,December 31,
(Dollars in thousands)20252024
Total stockholders’ equity$2,967,089 $2,955,743 
Less: intangible assets930,940 933,506 
Tangible common equity$2,036,149 $2,022,237 
Total assets$18,085,583 $17,903,585 
Less: intangible assets930,940 933,506 
Tangible assets$17,154,643 $16,970,079 
Tangible common equity ratio11.87 %11.92 %
Common shares issued and outstanding97,069,00196,441,667
Book value per share$30.57 $30.65 
Less: intangible book value per share9.59 9.68 
Tangible book value per share$20.98 $20.97 
    
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Efficiency ratio is a non-GAAP financial measure derived from GAAP-based amounts. This figure represents the ratio of noninterest expense, less amortization of intangible assets and other real estate owned operations, where applicable, to the sum of net interest income before provision for credit losses and total noninterest income less net gain from debt extinguishment. The adjusted efficiency ratio further excludes the FDIC special assessment to provide a better comparison to the financial results of prior periods. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202520242024
Total noninterest expense$100,292 $100,686 $102,633 
Less: amortization of intangible assets2,566 2,730 2,836 
Less: other real estate owned operations, net— (3)46 
Adjusted noninterest expense97,726 97,959 99,751 
Less: FDIC special assessment25 (33)523 
Adjusted noninterest expense excluding FDIC special assessment$97,701 $97,992 $99,228 
Net interest income before provision for credit losses$123,367 $124,532 $145,127 
Add: total noninterest income
21,465 19,975 25,774 
Less: net gain from debt extinguishment— — 5,067 
Adjusted revenue$144,832 $144,507 $165,834 
Efficiency ratio67.5 %67.8 %60.2 %
Adjusted efficiency ratio excluding FDIC special assessment67.5 %67.8 %59.8 %

Pre-provision net revenue is a non-GAAP financial measure derived from GAAP-based amounts. We calculate the pre-provision net revenue by excluding income tax and provision for credit losses from net income. The adjusted pre-provision net income further excludes the FDIC special assessment to provide a better comparison of financial performance. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business and a better comparison to the financial results of prior periods.
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202520242024
Interest income$187,335 $195,457 $213,431 
Interest expense63,968 70,925 68,304 
Net interest income123,367 124,532 145,127 
Noninterest income
21,465 19,975 25,774 
Revenue
144,832 144,507 170,901 
Noninterest expense100,292 100,686 102,633 
Pre-provision net revenue
44,540 43,821 68,268 
Add: FDIC special assessment25 (33)523 
Adjusted pre-provision net revenue$44,565 $43,788 $68,791 
Pre-provision net revenue (annualized)
$178,160 $175,284 $273,072 
Adjusted pre-provision net revenue (annualized)$178,260 $175,152 $275,164 

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Cost of non-maturity deposits is a non-GAAP financial measure derived from GAAP-based amounts. Cost of non-maturity deposits is calculated as the ratio of non-maturity deposit interest expense to average non-maturity deposits. We calculate non-maturity deposit interest expense by excluding interest expense for all certificates of deposit from total deposit expense, and we calculate average non-maturity deposits by excluding all certificates of deposit from total deposits. Management believes the cost of non-maturity deposits is a useful measure to assess the Company's deposit base, including its potential volatility.
Three Months Ended
March 31,December 31,March 31,
(Dollars in thousands)202520242024
Total deposits interest expense$59,573 $66,355 $59,506 
Less: certificates of deposit interest expense18,512 22,287 19,075 
Less: brokered certificates of deposit interest expense3,789 3,869 6,669 
Non-maturity deposit expense$37,272 $40,199 $33,762 
Total average deposits$14,635,422 $14,708,306 $15,055,747 
Less: average certificates of deposit1,780,043 1,916,788 1,727,728 
Less: average brokered certificates of deposit300,424 300,065 568,872 
Average non-maturity deposits$12,554,955 $12,491,453 $12,759,147 
Cost of non-maturity deposits1.20 %1.28 %1.06 %
55

RESULTS OF OPERATIONS

The following table presents the components of results of operations, share data, and performance ratios for the periods indicated:
 Three Months Ended
March 31,December 31,March 31,
(Dollar in thousands, except per share data)202520242024
Operating data
Interest income$187,335 $195,457 $213,431 
Interest expense63,968 70,925 68,304 
Net interest income123,367 124,532 145,127 
Provision for credit losses(3,718)(814)3,852 
Net interest income after provision for credit losses127,085 125,346 141,275 
Net gain from sales of loans
90 93 — 
Other noninterest income
21,375 19,882 25,774 
Noninterest expense100,292 100,686 102,633 
Net income before income taxes
48,258 44,635 64,416 
Income tax expense12,237 10,742 17,391 
Net income
$36,021 $33,893 $47,025 
Pre-provision net revenue (1)
$44,540 $43,821 $68,268 
Share data
Earnings per share:
Basic$0.37 $0.35 $0.49 
Diluted0.37 0.35 0.49 
Common equity dividends declared per share0.33 0.33 0.33 
Dividend payout ratio (2)
88.41 %93.91 %67.33 %
Book value per share (basic)
$30.57 $30.65 $30.09 
Tangible book value per share (1)
20.98 20.97 20.33 
Performance ratios
ROAA (3)
0.80 %0.75 %0.99 %
Adjusted ROAA (1)(3)
0.80 0.75 1.00 
ROAE (3)
4.87 4.61 6.50 
Adjusted ROAE (1)(3)
4.88 4.60 6.55 
ROATCE (1)(3)
7.48 7.15 10.05 
Adjusted ROATCE (1)(3)
7.49 7.14 10.13 
Net interest margin3.06 3.02 3.39 
Cost of deposits1.65 1.79 1.59 
Average equity to average assets16.35 16.20 15.21 
Efficiency ratio (1)
67.5 67.8 60.2 
Adjusted efficiency ratio (1)
67.5 67.8 59.8 
______________________________
(1) Reconciliations of the non-GAAP measures are set forth in the Non-GAAP measures section of Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q.
(2) Dividend payout ratio is defined as common equity dividends declared per share divided by basic earnings per share.
(3) Ratio is annualized.

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Net income for the first quarter of 2025 was $36.0 million, or $0.37 per diluted share, compared to $33.9 million, or $0.35 per diluted share, for the fourth quarter of 2024. The increase was primarily due to a $2.9 million decrease in the provision for credit losses, a $1.5 million increase in noninterest income, and a $394,000 decrease in noninterest expense, partially offset by a $1.5 million increase in income tax expense and a $1.2 million decrease in net interest income.

Net income for the first quarter of 2025 was $36.0 million, or $0.37 per diluted share, compared to $47.0 million, or $0.49 per diluted share, for the first quarter of 2024. The decrease was primarily due to a $21.8 million decrease in net interest income and a $4.3 million decrease in noninterest income, partially offset by a $7.6 million decrease in the provision for credit losses, a $5.2 million decrease in income tax expense, and a $2.3 million decrease in noninterest expense.

For the first quarter of 2025, the Company’s ROAA was 0.80%, ROAE was 4.87%, and ROATCE was 7.48%, compared to 0.75%, 4.61%, and 7.15%, respectively, for the fourth quarter of 2024, and 0.99%, 6.50%, and 10.05%, respectively, for the first quarter of 2024. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Net interest income totaled $123.4 million in the first quarter of 2025, a decrease of $1.2 million, or 0.9%, from the fourth quarter of 2024. The decrease in net interest income was primarily attributable to lower average interest-earning cash and investment securities balances and yields, two fewer days of interest, and lower income from fair value hedges. The decrease was partially offset by a favorable earning asset remix with $243.4 million of average loan growth, a lower cost of funds, and lower average interest-bearing liabilities.

The net interest margin for the first quarter of 2025 increased 4 basis points to 3.06%, from 3.02% in the prior quarter, primarily due to lower cost of funds.

Net interest income for the first quarter of 2025 decreased $21.8 million, or 15.0%, compared to the first quarter of 2024. The decrease was attributable to lower average interest-earning asset balances and yields, partially offset by lower average interest-bearing liabilities balances.
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The following table presents the net interest margin, average balances calculated based on daily average, interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities, and the average yield/rate by asset and liability component for the periods indicated:
 Average Balance Sheet
Three Months Ended
March 31, 2025December 31, 2024March 31, 2024
(Dollars in thousands)Average
Balance		InterestAverage
Yield/Cost		Average
Balance		InterestAverage
Yield/Cost		Average
Balance		InterestAverage
Yield/Cost
Assets
Interest-earning assets:         
Cash and cash equivalents$882,266 $8,279 3.81 %$1,128,587 $12,000 4.23 %$1,140,909 $13,638 4.81 %
Investment securities3,483,680 30,526 3.51 %3,524,467 32,182 3.65 %2,948,170 26,818 3.64 %
Loans receivable, net (1)(2)
11,981,726 148,530 5.03 %11,738,332 151,275 5.13 %13,149,038 172,975 5.29 %
Total interest-earning assets16,347,672 187,335 4.65 %16,391,386 195,457 4.74 %17,238,117 213,431 4.98 %
Noninterest-earning assets1,739,316 1,764,352 1,796,279 
Total assets$18,086,988 $18,155,738 $19,034,396 
Liabilities and equity
Interest-bearing deposits:
Interest checking$2,880,017 $10,669 1.50 %$2,878,840 $11,776 1.63 %$2,838,332 $9,903 1.40 %
Money market4,705,209 26,358 2.27 %4,623,754 28,169 2.42 %4,636,141 23,632 2.05 %
Savings258,789 245 0.38 %258,717 254 0.39 %287,735 227 0.32 %
Retail certificates of deposit1,780,043 18,512 4.22 %1,916,788 22,287 4.63 %1,727,728 19,075 4.44 %
Wholesale/brokered certificates of deposit300,424 3,789 5.11 %300,065 3,869 5.13 %568,872 6,669 4.72 %
Total interest-bearing deposits9,924,482 59,573 2.43 %9,978,164 66,355 2.65 %10,058,808 59,506 2.38 %
FHLB advances and other borrowings211 2 3.84 %359 5 5.54 %518,879 4,237 3.28 %
Subordinated debentures272,528 4,393 6.45 %272,391 4,565 6.62 %331,932 4,561 5.50 %
Total borrowings272,739 4,395 6.44 %272,750 4,570 6.62 %850,811 8,798 4.15 %
Total interest-bearing liabilities10,197,221 63,968 2.54 %10,250,914 70,925 2.75 %10,909,619 68,304 2.52 %
Noninterest-bearing deposits4,710,940 4,730,142 4,996,939 
Other liabilities221,981 232,560 231,889 
Total liabilities15,130,142 15,213,616 16,138,447 
Stockholders’ equity2,956,846 2,942,122 2,895,949 
Total liabilities and equity$18,086,988 $18,155,738 $19,034,396 
Net interest income$123,367 $124,532 $145,127 
Net interest margin (3)
3.06 %3.02 %3.39 %
Cost of deposits (4)
1.65 %1.79 %1.59 %
Cost of funds (5)
1.74 %1.88 %1.73 %
Cost of non-maturity deposits (6)
1.20 %1.28 %1.06 %
Ratio of interest-earning assets to interest-bearing liabilities160.31 %159.90 %158.01 %
______________________________
(1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums, and the basis adjustment of certain loans included in fair value hedging relationships, where applicable.
(2) Interest income includes fair value net discount accretion of $1.9 million, $2.7 million, and $2.1 million for the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively.
(3) Represents annualized net interest income divided by average interest-earning assets.
(4) Represents annualized interest expense on deposits divided by the sum of average interest-bearing deposits and noninterest-bearing deposits.
(5) Represents annualized total interest expense divided by the sum of average total interest-bearing liabilities and noninterest-bearing deposits.
(6) Reconciliation of the “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.


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Changes in our net interest income are a function of changes in volume and rates of interest-earning assets and interest-bearing liabilities. Changes in net interest income that are not a function of changes in volume and rates of interest-earning assets and interest-bearing liabilities are allocated proportionately to the change due to volume and the change due to rate. The following tables present the impact that the volume and rate changes have had on our net interest income for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, we have provided information on changes to our net interest income with respect to:
 
•Changes in volume (changes in volume multiplied by prior rate);
•Changes in interest rates (changes in interest rates multiplied by prior volume and includes the recognition of discounts/premiums and deferred fees/costs); and
•The net change or the combined impact of volume and rate changes allocated proportionately to changes in volume and changes in interest rates.
Three Months Ended March 31, 2025
Compared to
Three Months Ended December 31, 2024
Increase (Decrease) Due to
(Dollars in thousands)VolumeRateNet
Interest-earning assets   
Cash and cash equivalents$(2,557)$(1,164)$(3,721)
Investment securities(369)(1,287)(1,656)
Loans receivable, net1,598 (4,343)(2,745)
Total interest-earning assets(1,328)(6,794)(8,122)
Interest-bearing liabilities   
Interest checking7 (1,114)(1,107)
Money market707 (2,518)(1,811)
Savings— (9)(9)
Retail certificates of deposit(1,689)(2,086)(3,775)
Wholesale/brokered certificates of deposit59 (139)(80)
FHLB advances and other borrowings(3)— (3)
Subordinated debentures3 (175)(172)
Total interest-bearing liabilities(916)(6,041)(6,957)
Decrease in net interest income$(412)$(753)$(1,165)
59

Three Months Ended March 31, 2025
Compared to
Three Months Ended March 31, 2024
Increase (Decrease) Due to
(Dollars in thousands)VolumeRateNet
Interest-earning assets   
Cash and cash equivalents$(2,799)$(2,560)$(5,359)
Investment securities4,648 (940)3,708 
Loans receivable, net(15,659)(8,786)(24,445)
Total interest-earning assets(13,810)(12,286)(26,096)
Interest-bearing liabilities   
Interest checking132 634 766 
Money market330 2,396 2,726 
Savings(17)35 18 
Retail certificates of deposit855 (1,418)(563)
Wholesale/brokered certificates of deposit(3,511)631 (2,880)
FHLB advances and other borrowings(5,109)874 (4,235)
Subordinated debentures(886)718 (168)
Total interest-bearing liabilities(8,206)3,870 (4,336)
Decrease in net interest income
$(5,604)$(16,156)$(21,760)

Provision for Credit Losses

For the first quarter of 2025, the Company recorded a total reversal of provision for credit losses of $3.7 million, consisting of a $3.6 million reversal of provision expense for loans held for investment, a $143,000 reversal of provision expense for unfunded commitments, and a $13,000 reversal of provision expense for HTM securities. During the fourth quarter of 2024, the Company recorded an $814,000 reversal of provision expense for credit losses, consisting of a $1.6 million reversal of provision expense for loans held for investment, an $812,000 provision expense for unfunded commitments, and a $6,000 provision expense for HTM securities. For the first quarter of 2024, the Company recorded a total provision for credit losses of $3.9 million, consisting of a $6.3 million provision for credit losses for loans held for investment, a $2.4 million reversal of provision expense for unfunded commitments, and a $11,000 reversal of provision expense for credit losses for HTM securities.

The reversal of provision expense for loans held for investment during the first quarter of 2025 was principally driven by provision reversals in the investor and business loans secured by real estate segments, partially offset by provisions for credit losses in the commercial and retail loans segments. The reversal of provision for credit losses in the investor loans secured by real estate segment was primarily attributed to a decline in loan balances for multifamily and construction and land loans. The reversal of provision for credit losses in the business loan secured by real estate segment can largely be attributed to a decrease in loan balances for CRE owner-occupied loans and franchise real estate secured loans. The provision for credit losses in the commercial loans segment is largely attributed to new originations and purchases of commercial and industrial loans. The provision for commercial and industrial loans was partially offset by a provision reversal associated with franchise non-real estate secured loans, which was attributed to a decrease in loan balances coupled with slightly favorable changes in economic forecasts for those loans. The Company also recorded a provision for credit losses for retail loans during the first quarter, which was attributed to the purchase of jumbo single family residential loans with high credit quality. GAAP requires the Company to establish an ACL for purchased loans at the time of purchase.

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The reversal of provision for credit losses for off-balance sheet commitments during the first quarter of 2025 was largely attributable to the impact of changes in economic forecasts, partially offset by changes in the mix of unfunded commitments between various loan segments. The reversal of provision for credit losses for HTM securities during the first quarter of 2025 was due to the changes in economic forecasts and their impact on HTM securities classified as municipal bonds.

For the fourth quarter of 2024, the reversal of provision for credit losses for loans held for investment was principally driven by a reversal of provision for credit losses in investor loans secured by real estate segment. The provision reversal in this segment was largely associated with a reversal of provision for multifamily loans, which can be attributed to portfolio changes such as lower loan balances, decreased duration, and improvements in underlying asset quality, as well as changes in economic forecasts. A reversal of provision for credit losses for construction and land loans also contributed to the overall provision reversal for loans within this segment. The provision reversal for construction and land loans during the fourth quarter was attributed in large part to a decrease in loan balances, as well as qualitative adjustments associated with the changes in economic forecasts during the quarter. The provision reversal for CRE non-owner occupied and SBA loans secured by real estate within this segment can be attributed to lower loan balances as well as qualitative adjustments associated with the underlying asset quality for these loans. The provision for credit losses for loans in the business loans secured by real estate segment is largely associated with changes in economic forecasts, as well as changes in asset quality, partially offset by a decrease in loan balances. The provision for credit losses for loans in the commercial loans and retail loans segments was attributed in large part to provisions for commercial and industrial and single family residential loans, stemming from loan purchases the Company made in the fourth quarter of 2024, whereby GAAP requires the establishment of an ACL at the time of purchase.

The provision for credit losses for off-balance sheet commitments for the fourth quarter of 2024 was attributable, in large part, to changes in economic forecasts as well as an increase in unfunded commitments. The provision for credit losses for HTM securities was due to the changes in economic forecasts and their impact on HTM securities classified as municipal bonds.

For the first quarter of 2024, the provision for credit losses for loans held for investment was principally driven by provisions for credit losses in the investor and business loans secured by real estate segments. The provision for credit losses in the investor loans secured by real estate segment was primarily driven by changes in economic forecasts, partially offset by declines in loan balances for CRE non-owner-occupied, multifamily and SBA secured by real estate loans. The reversal of provision for credit losses for construction and land loans in this segment was attributed to changes in loan composition, including the payoff of certain loans with higher loss ratios. The provision for credit losses in the business loans secured by real estate segment was largely attributed to CRE owner-occupied loans driven by the impact of changes in economic forecasts and changes in asset quality, partially offset by a decrease in balances for these loans. The provision for credit losses for commercial loans is primarily associated with commercial and industrial loans and the impact of changes in economic forecasts and asset quality, partially offset by a decrease in balances. Provisions for credit losses for these loans were partially offset by a reversal of provision for credit losses for franchise non-real estate secured loans, which can be attributed to a decrease in balances. The reversal of provision for credit losses for retail loans can largely be attributed to changes in economic forecasts and a slight decrease in balances. The reversal of provision for credit losses for off-balance sheet commitments during the first quarter of 2024 was attributable to a decline in the balance of unfunded commitments as well as qualitative adjustments during the quarter. The reversal of provision for credit losses for HTM investment securities during the first quarter of 2024 was due to the changes in economic forecasts on HTM investment securities classified as municipal bonds during the quarter.


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Three Months EndedVariance From
March 31,December 31,March 31,December 31, 2024March 31, 2024
(Dollars in thousands)202520242024$%$%
Provision for credit losses
Provision for loan losses$(3,562)$(1,632)$6,288 $(1,930)118.3 %$(9,850)(156.6)%
Provision for unfunded commitments(143)812 (2,425)(955)(117.6)%2,282 (94.1)%
Provision for HTM securities(13)6 (11)(19)(316.7)%(2)18.2 %
Total provision for credit losses$(3,718)$(814)$3,852 $(2,904)356.8 %$(7,570)(196.5)%

Noninterest Income

The following table presents the components of noninterest income for the periods indicated:
 Three Months EndedVariance From
 March 31,December 31,March 31,December 31, 2024March 31, 2024
(Dollars in thousands)202520242024$%$%
Noninterest income
Loan servicing income$447 $520 $529 $(73)(14.0)%$(82)(15.5)%
Service charges on deposit accounts2,629 2,766 2,688 (137)(5.0)%(59)(2.2)%
Other service fee income289 285 336 4 1.4 %(47)(14.0)%
Debit card interchange fee income834 886 765 (52)(5.9)%69 9.0 %
Earnings on bank owned life insurance5,772 4,382 4,159 1,390 31.7 %1,613 38.8 %
Net gain from sales of loans
90 93 — (3)(3.2)%90 100.0 %
Trust custodial account fees10,307 8,714 10,642 1,593 18.3 %(335)(3.1)%
Escrow and exchange fees672 768 696 (96)(12.5)%(24)(3.4)%
Other income
425 1,561 5,959 (1,136)(72.8)%(5,534)(92.9)%
Total noninterest income
$21,465 $19,975 $25,774 $1,490 7.5 %$(4,309)(16.7)%

Noninterest income for the first quarter of 2025 was $21.5 million, an increase of $1.5 million from the fourth quarter of 2024. The increase was primarily due to a $1.6 million increase in trust custodial account fees related to annual tax fees earned during the current quarter and a non-recurring $1.4 million increase in earnings on bank owned life insurance (“BOLI”), partially offset by a $1.1 million decrease in other income largely attributable to $1.0 million lower Community Reinvestment Act (“CRA”) investment income.

Noninterest income for the first quarter of 2025 decreased $4.3 million compared to the first quarter of 2024. The decrease was primarily due to the $5.1 million gain on debt extinguishment resulting from an early redemption of a $200.0 million FHLB term advance during the first quarter of 2024, partially offset by a $1.6 million increase in earnings on BOLI.



62

Noninterest Expense

The following table presents the components of noninterest expense for the periods indicated:
 Three Months EndedVariance From
 March 31,December 31,March 31,December 31, 2024March 31, 2024
(Dollars in thousands)202520242024$%$%
Noninterest expense
Compensation and benefits$52,812 $50,387 $54,130 $2,425 4.8 %$(1,318)(2.4)%
Premises and occupancy9,716 10,194 10,807 (478)(4.7)%(1,091)(10.1)%
Data processing7,976 7,754 7,511 222 2.9 %465 6.2 %
Other real estate owned operations, net— (3)46 3 100.0 %(46)(100.0)%
FDIC insurance premiums1,996 1,950 2,629 46 2.4 %(633)(24.1)%
Legal and professional services4,861 9,041 4,143 (4,180)(46.2)%718 17.3 %
Marketing expense936 931 1,558 5 0.5 %(622)(39.9)%
Office expense1,099 1,128 1,093 (29)(2.6)%6 0.5 %
Loan expense781 556 770 225 40.5 %11 1.4 %
Deposit expense12,896 11,689 12,665 1,207 10.3 %231 1.8 %
Amortization of intangible assets2,566 2,730 2,836 (164)(6.0)%(270)(9.5)%
Other expense4,653 4,329 4,445 324 7.5 %208 4.7 %
Total noninterest expense$100,292 $100,686 $102,633 $(394)(0.4)%$(2,341)(2.3)%

Noninterest expense totaled $100.3 million for the first quarter of 2025, a decrease of $394,000 compared to the fourth quarter of 2024. The decrease was primarily due to a $4.2 million decrease in legal and professional services, driven by the prior quarter's $3.5 million insurance claim receivable reversal, partially offset by a $2.4 million increase in compensation and benefits expenses, primarily related to higher payroll taxes and employee benefits, as well as a $1.2 million increase in deposit expense, driven by higher deposit administration service fees due to higher cap rates and the seasonal growth in HOA deposits.

The Bank pays third-party management companies, which function as vendors for the Bank, to provide certain property administrative services related to the servicing of the HOA deposit accounts. These administrative service fees are reported as deposit costs within noninterest expense and are based primarily upon the number of HOA accounts managed by these companies, with cap rates based on the size and composition of the deposit relationships.

Noninterest expense for the first quarter of 2025 decreased by $2.3 million compared to the first quarter of 2024. The decrease was primarily due to a $1.3 million decrease in compensation and benefits, a $1.1 million decrease in premises and occupancy due primarily to lower rent expense, and a $633,000 decrease in FDIC insurance premiums, partially offset by a $718,000 increase in legal and professional services.

The Company’s efficiency ratio was 67.5% for the first quarter of 2025, compared to 67.8% for the fourth quarter of 2024, and 60.2% for the first quarter of 2024. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Income Taxes

For the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, income tax expense was $12.2 million, $10.7 million, and $17.4 million, respectively, and the effective income tax rate was 25.4%, 24.1%, and 27.0%, respectively. Our effective tax rate for the three months ended March 31, 2025 differs from the 21% federal statutory rate due to the impact of state taxes as well as various permanent tax differences, including tax-exempt income from municipal securities and loans, BOLI income, tax benefits associated with low-income
63

housing tax credit investments, Section 162(m) limitation on the deduction of executive compensation, and the exercise of stock options and vesting of other stock-based compensation.

The total amount of unrecognized tax benefits was $380,000 at March 31, 2025 and December 31, 2024, and was comprised of unrecognized tax benefits related to the Opus acquisition in 2020. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate was $149,000 at March 31, 2025 and December 31, 2024. It is reasonably possible that $380,000 of the Company's unrecognized tax benefits may be recognized within the next 12 months due to a lapse of the statute of limitations.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company has accrued $111,000 and $99,000 for such interest at March 31, 2025 and December 31, 2024, respectively. No amounts for penalties were accrued.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as income and franchise tax in multiple state jurisdictions. The statute of limitations related to the consolidated Federal income tax returns is closed for all tax years up to and including 2020. The expirations of the statutes of limitations related to the various state income and franchise tax returns vary by state.

The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and the tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that a valuation allowance for deferred tax assets was not required as of March 31, 2025 and December 31, 2024.

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FINANCIAL CONDITION
 
At March 31, 2025, assets totaled $18.09 billion, an increase of $182.0 million, or 1.0%, from $17.90 billion at December 31, 2024. The increase was primarily due to a $158.9 million increase in cash and cash equivalents and a $63.4 million increase in investment securities, partially offset by a $19.1 million decrease in total loans.

Total liabilities were $15.12 billion at March 31, 2025, compared to $14.95 billion at December 31, 2024. The increase of $170.7 million, or 1.1%, from December 31, 2024 was primarily due to an increase of $202.5 million in deposits.

Total stockholders’ equity was $2.97 billion as of March 31, 2025, an increase of $11.3 million from $2.96 billion at December 31, 2024. The increase was primarily due to $36.0 million of net income and $7.8 million of other comprehensive income, partially offset by $31.8 million in cash dividends.

Since the fourth quarter of 2024, we took steps to increase loan originations and supplemented our new loan production with select loan purchases and participations as well as reinvested excess liquidity into shorter-term U.S. Treasury securities. Improved loan originations also led to expanded depository relationships. Prudent credit risk management continues to remain our priority. The continuation of positive asset quality trends from the second half of 2024 into the first quarter of 2025, coupled with the strength of our capital position, provides us with optionality and flexibility in terms of balance sheet management and position us well to navigate and address potential challenges that may arise from economic uncertainties.

Our book value per share decreased to $30.57 at March 31, 2025 from $30.65 at December 31, 2024. At March 31, 2025, the Company’s tangible common equity to tangible assets ratio was 11.87%, a decrease from 11.92% at December 31, 2024. The decrease was primarily driven by dividends paid and higher tangible assets, partially offset by net income and other comprehensive income. Our tangible book value per share was $20.98, compared to $20.97 at December 31, 2024. For additional details, see “Non-GAAP measures” presented under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

65

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

We primarily use our investment portfolio for liquidity purposes, capital preservation, and to support our interest rate risk management strategies. Our investment securities portfolio amounted to $3.46 billion at March 31, 2025, an increase of $63.4 million, or 1.9%, from $3.40 billion at December 31, 2024. The increase was the result of $220.9 million in purchases of AFS U.S. Treasury securities, and an improvement of $7.4 million in AFS investment securities mark-to-market unrealized loss, partially offset by $164.9 million in principal payments, amortization and accretion, and redemptions. The Company did not sell any investment securities during the three months ended March 31, 2025.

In general, the purchase of investment securities is primarily related to investing excess liquidity from our banking operations. During the three months ended March 31, 2025, we have maintained a meaningful portion of the AFS securities portfolio in highly-liquid, shorter term securities. This strategy enhances our interest rate sensitivity profile to the current rate environment and provides us with the flexibility to quickly redeploy these funds into higher-yielding assets as opportunities arise. The effective duration of the AFS securities portfolio was 0.8 years and 0.9 years at March 31, 2025 and December 31, 2024, respectively. The effective duration of the total AFS and HTM securities portfolio was 4.5 years and 4.7 years at March 31, 2025 and December 31, 2024, respectively.

At March 31, 2025, AFS and HTM investment securities were $1.76 billion and $1.70 billion, respectively, compared to $1.68 billion and $1.71 billion, respectively, at December 31, 2024.

The ACL on investment securities is determined for both the AFS and HTM classifications of the investment portfolio in accordance with ASC 326 and evaluated on a quarterly basis. As of March 31, 2025 and December 31, 2024, the Company had an ACL of $97,000 and $110,000, respectively, for municipal bonds classified as HTM investment securities. The Company had no ACL for AFS investment securities at March 31, 2025 and December 31, 2024. For additional information, refer to Note 4 – Investment Securities to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q.

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The following table sets forth the fair value of AFS and the amortized cost of HTM investment securities as well as the weighted average yields on our investment securities portfolio by contractual maturity as of the date indicated. Weighted average yields are an arithmetic computation of income within each maturity range based on the amortized costs of securities, not on a tax-equivalent basis.
 March 31, 2025
One Year
or Less		More than One
to Five Years		More than Five Years
to Ten Years		More than
Ten Years		Total
(Dollars in thousands)AmountWeighted
Average
Yield		AmountWeighted
Average
Yield		AmountWeighted
Average
Yield		AmountWeighted
Average
Yield		AmountWeighted
Average
Yield
AFS investment securities:          
U.S. Treasury$920,062 4.54 %$347,047 4.03 %$— — %$— — %$1,267,109 4.40 %
Agency— — %623 5.67 %— — %408 6.87 %1,031 6.15 %
Corporate— — %214,216 5.22 %158,357 3.54 %— — %372,573 4.49 %
Collateralized mortgage obligations3,848 4.98 %52,971 4.86 %25,656 4.85 %35,152 6.22 %117,627 5.27 %
Total AFS investment securities923,910 4.55 %614,857 4.52 %184,013 3.73 %35,560 6.22 %1,758,340 4.48 %
HTM investment securities:          
Municipal bonds$— — %$38,830 1.45 %$42,344 1.82 %$1,062,226 2.05 %$1,143,400 2.02 %
Collateralized mortgage obligations— — %33 4.68 %— — %302,925 4.01 %302,958 4.01 %
Mortgage-backed securities— — %2,947 5.25 %6,039 4.79 %228,731 2.24 %237,717 2.34 %
Other— — %— — %— — %16,139 2.86 %16,139 2.86 %
Total HTM investment securities$— — %$41,810 1.72 %$48,383 2.19 %$1,610,021 2.46 %$1,700,214 2.43 %
Total securities$923,910 4.55 %$656,667 4.34 %$232,396 3.41 %$1,645,581 2.54 %$3,458,554 3.47 %
    
The following table presents the fair value of AFS and the amortized cost of HTM investment securities portfolios by Moody’s credit ratings at March 31, 2025.

(Dollars in thousands)U.S. TreasuryAgencyCorporate DebtMunicipal BondsCollateralized Mortgage ObligationsMortgage-backed SecuritiesOtherTotal%
Aaa - Aa3$1,267,109 $1,031 $— $1,143,400 $420,585 $237,717 $— $3,069,842 88.8 %
A1 - A3— — 169,667 — — — — 169,667 4.9 %
Baa1 - Baa3— — 202,906 — — — 16,139 219,045 6.3 %
Total$1,267,109 $1,031 $372,573 $1,143,400 $420,585 $237,717 $16,139 $3,458,554 100.0 %

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

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Loans

Loans held for investment totaled $12.02 billion at March 31, 2025, a decrease of $16.8 million, or 0.1%, from $12.04 billion at December 31, 2024. The decrease was primarily the result of lower loan purchases and a decrease in credit line draws, partially offset by slower prepayments and maturities and higher new loan production and fundings during the first three months of 2025. Since December 31, 2024, investor loans secured by real estate decreased $116.1 million, business loans secured by real estate decreased $51.2 million, commercial loans increased $103.4 million, and retail loans increased $43.7 million. The commercial line average utilization rate increased moderately from an average rate of 32.3% for the fourth quarter of 2024 to 33.2% for the first quarter of 2025. Since the fourth quarter of 2024 and continuing into the first quarter of 2025, we took strategic steps, including pricing adjustments as well as building and deepening relationships with new and existing customers, to positively impact new loan originations and loan retention, particularly in multifamily, C&I, CRE, and construction loans. In addition to organic loan growth, we purchased $195.7 million in commercial and industrial loans and $43.0 million in single family residential loans.

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at March 31, 2025 was 4.80%, compared to 4.78% at December 31, 2024. The increase was primarily attributable to higher-yielding new loan fundings and loan purchases, which exceeded the rates of loan prepayments and payoffs.

Loans held for sale primarily represents the guaranteed portion of SBA loans, which the Bank originates for sale. At March 31, 2025, the Bank had no loans held for sale, compared to $2.3 million at December 31, 2024.

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The following table sets forth the composition of our loan portfolio in dollar amounts and as a percentage of the portfolio, and gives the weighted average interest rate by loan category at the dates indicated: 
 March 31, 2025December 31, 2024
(Dollars in thousands)AmountPercent
of Total		Weighted
Average
Interest Rate		AmountPercent
of Total		Weighted
Average
Interest Rate
Investor loans secured by real estate      
CRE non-owner-occupied$2,111,115 17.6 %4.80 %$2,131,112 17.7 %4.80 %
Multifamily5,307,484 44.1 %4.12 %5,326,009 44.2 %4.05 %
Construction and land302,730 2.5 %8.07 %379,143 3.1 %8.17 %
SBA secured by real estate27,571 0.2 %8.34 %28,777 0.2 %8.73 %
Total investor loans secured by real estate7,748,900 64.4 %4.48 %7,865,041 65.2 %4.47 %
Business loans secured by real estate
CRE owner-occupied1,962,531 16.3 %4.43 %1,995,144 16.6 %4.42 %
Franchise real estate secured238,870 2.0 %4.93 %255,694 2.1 %4.85 %
SBA secured by real estate42,227 0.4 %8.10 %43,978 0.4 %8.51 %
Total business loans secured by real estate2,243,628 18.7 %4.56 %2,294,816 19.1 %4.54 %
Commercial loans
Commercial and industrial1,609,225 13.4 %6.36 %1,486,340 12.3 %6.44 %
Franchise non-real estate secured194,454 1.6 %5.21 %213,357 1.8 %5.17 %
SBA non-real estate secured7,546 0.1 %9.01 %8,086 0.1 %9.50 %
Total commercial loans1,811,225 15.1 %6.25 %1,707,783 14.2 %6.30 %
Retail loans
Single family residential230,262 1.9 %6.84 %186,739 1.6 %6.87 %
Consumer1,964 — %9.20 %1,804 — %9.44 %
Total retail loans232,226 1.9 %6.86 %188,543 1.6 %6.90 %
Loans held for investment before basis adjustment (1)
12,035,979 100.1 %4.80 %12,056,183 100.1 %4.78 %
Basis adjustment associated with fair value hedge (2)
(13,001)(0.1)%(16,442)(0.1)%
Loans held for investment12,022,978 100.0 %12,039,741 100.0 %
Allowance for credit losses for loans held for investment(174,967)(178,186)
Loans held for investment, net$11,848,011 $11,861,555 
Total unfunded loan commitments$1,453,174 $1,532,623 
Loans held for sale, at lower of cost or fair value$— $2,315 
______________________________
(1) Includes unamortized net purchase premiums of $11.6 million and $9.1 million, net deferred origination costs of $850,000 and $1.1 million, and unaccreted fair value net purchase discounts of $31.3 million and $33.2 million as of March 31, 2025 and December 31, 2024, respectively.
(2) Represents the basis adjustment associated with the application of hedge accounting on certain loans. The basis adjustment will be allocated to the amortized cost of associated loans within the closed portfolio if the hedge is discontinued. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.


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We also have a granular and geographically diverse set of lending relationships. In the tables below, we show the segmentation and geographic dispersion of certain loan portfolios as of March 31, 2025 and December 31, 2024.

CRE Non-Owner-Occupied. CRE non-owner-occupied loans totaled $2.11 billion at March 31, 2025 and $2.13 billion at December 31, 2024. We originate loans that are secured by investor owned CRE, such as retail centers, small office locations, light industrial buildings, and mixed-use commercial properties located in our primary market areas. We believe this loan portfolio is a well-balanced portfolio by geography and by property type as presented below:
March 31, 2025December 31, 2024
(Dollars in thousands)Amount%Amount%
By Property Type
Hotel and Motel$294,077 14 %$273,897 13 %
Industrial262,719 12 %265,437 12 %
Office546,152 26 %556,351 26 %
Retail645,345 31 %658,238 31 %
Other362,822 17 %377,189 18 %
Total CRE non-owner-occupied$2,111,115 100 %$2,131,112 100 %

By Geography(1)
California:
Los Angeles$546,197 26 %$550,187 26 %
Orange306,218 15 %306,388 14 %
Riverside113,023 5 %117,482 6 %
San Bernardino48,921 2 %48,301 2 %
San Diego144,539 7 %146,102 7 %
San Luis Obispo162,814 8 %166,996 8 %
Santa Barbara60,352 3 %62,915 3 %
Ventura15,353 1 %21,224 1 %
Other CA197,805 9 %186,529 9 %
Arizona151,322 7 %156,464 7 %
Nevada121,140 6 %120,493 6 %
Washington67,425 3 %70,571 3 %
Other States176,006 8 %177,460 8 %
Total CRE non-owner-occupied$2,111,115 100 %$2,131,112 100 %
______________________________
(1) Based on location of primary real property collateral. All California information is by respective county.


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Multifamily. Multifamily loans totaled $5.31 billion at March 31, 2025 and $5.33 billion at December 31, 2024. We originate loans secured by multifamily residential properties (five units and greater) located in our primary market areas. These lending relationships consist of seasoned owners of multifamily properties with extensive operating experience. The loans are stratified by number of units and physical location below:

March 31, 2025December 31, 2024
(Dollars in thousands)Amount%Amount%
By Number of Units
10 or fewer units$1,050,058 20 %$1,018,112 19 %
11-25 units1,542,850 29 %1,562,806 29 %
26-50 units1,032,821 19 %1,033,483 20 %
51-100 units1,011,446 19 %1,031,461 19 %
101+ units670,309 13 %680,147 13 %
Total Multifamily$5,307,484 100 %$5,326,009 100 %

By Geography(1)
California:
Los Angeles$2,060,789 39 %$2,070,683 39 %
Orange188,501 3 %191,818 3 %
Riverside110,568 2 %104,877 2 %
San Bernardino137,306 3 %135,016 2 %
San Diego344,842 6 %343,632 6 %
San Luis Obispo22,905 — %23,112 1 %
Santa Barbara37,851 1 %38,055 1 %
Ventura39,620 1 %39,967 1 %
Other CA642,039 12 %657,237 12 %
Arizona417,442 8 %419,761 8 %
Nevada168,769 3 %149,943 3 %
Washington626,747 12 %635,171 12 %
Other States510,105 10 %516,737 10 %
Total Multifamily$5,307,484 100 %$5,326,009 100 %
______________________________
(1) Based on location of primary real property collateral. All California information is by respective county.


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CRE Owner-Occupied. CRE owner-occupied loans totaled $1.96 billion at March 31, 2025 and $2.00 billion at December 31, 2024. We originate business loans secured by owner-occupied CRE, such as light industrial buildings, mixed-use commercial properties, and small office locations for professional services located in our primary market areas. These loans are underwritten and analyzed based on each business’s cash flows. We believe this portfolio is well-diversified by industry, with a geography covering California and the Western U.S.:

March 31, 2025December 31, 2024
(Dollars in thousands)Amount%Amount%
By Industry(1)
Accommodation and Food Services$104,755 5 %$108,194 5 %
Administrative and Support65,605 3 %61,419 3 %
Agriculture89,728 5 %91,119 4 %
Construction135,339 7 %134,580 7 %
Educational Services154,386 8 %156,161 8 %
Entertainment67,220 3 %68,939 3 %
Financial Services36,583 2 %36,936 2 %
Health Care297,796 15 %293,535 15 %
Manufacturing209,821 11 %216,204 11 %
Other Services206,521 10 %222,140 11 %
Professional Services89,826 5 %93,082 5 %
Real Estate92,523 5 %92,678 5 %
Retail Trade172,552 9 %180,564 9 %
Transport and Warehouse38,669 2 %39,118 2 %
Wholesale Trade172,430 9 %171,372 9 %
Other28,777 1 %29,103 1 %
Total CRE owner-occupied$1,962,531 100 %$1,995,144 100 %

By Geography(2)
California:
Los Angeles$624,839 32 %$628,759 32 %
Orange189,730 10 %190,254 10 %
Riverside323,528 16 %325,295 16 %
San Bernardino176,323 9 %180,647 9 %
San Diego121,308 6 %122,555 6 %
San Luis Obispo82,171 4 %82,597 4 %
Santa Barbara107,843 6 %107,251 5 %
Ventura42,174 2 %42,617 2 %
Other CA121,345 6 %127,515 7 %
Arizona56,874 3 %57,865 3 %
Nevada37,292 2 %46,000 2 %
Washington18,280 1 %18,527 1 %
Other States60,824 3 %65,262 3 %
Total CRE owner-occupied$1,962,531 100 %$1,995,144 100 %
______________________________
(1) Distribution by North American Industry Classification System (NAICS)
(2) Based on location of primary real property collateral. All California information is by respective county.

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Commercial & Industrial. C&I loans totaled $1.61 billion at March 31, 2025 and $1.49 billion at December 31, 2024. We originate C&I loans secured by various business assets, including inventory, receivables, machinery, and equipment. Loan types include revolving lines of credit, term loans, seasonal loans, and loans secured by liquid collateral such as cash deposits or marketable securities. These loans are underwritten and analyzed based on each business’s cash flows. During the first quarter of 2025, we also complemented our organic loan origination with strategic loan purchases and participations of $195.7 million in C&I loans. This portfolio includes loans to small and middle market businesses by industry and by geography as shown below:
March 31, 2025December 31, 2024
(Dollars in thousands)Amount%Amount%
By Industry(1)
Accommodation and Food Services$100,061 6 %$56,791 4 %
Administrative60,411 4 %58,184 4 %
Agriculture30,865 2 %26,893 2 %
Construction139,354 9 %141,109 9 %
Educational Services29,309 2 %29,145 2 %
Entertainment70,402 4 %62,637 4 %
Financial Services62,613 4 %82,553 6 %
Health Care52,809 3 %55,665 4 %
Information15,654 1 %21,312 1 %
Manufacturing384,311 24 %315,118 21 %
Other Services103,285 6 %115,523 8 %
Professional Services73,657 5 %80,248 5 %
Public Administration152,511 9 %156,010 11 %
Real Estate107,468 7 %109,742 7 %
Retail Trade42,220 3 %37,529 3 %
Transport and Warehouse71,829 4 %70,244 5 %
Wholesale Trade101,986 6 %62,019 4 %
Other10,480 1 %5,618 — %
Total Commercial and industrial$1,609,225 100 %$1,486,340 100 %
By Geography(2)
California:
Los Angeles$246,178 15 %$252,632 17 %
Orange205,757 13 %226,331 15 %
Riverside65,831 4 %72,770 5 %
San Bernardino53,560 3 %51,960 4 %
San Diego97,813 6 %95,473 6 %
San Luis Obispo34,142 2 %37,517 3 %
Santa Barbara14,916 1 %19,671 1 %
Ventura24,550 2 %21,005 1 %
Other CA134,374 8 %135,608 9 %
Arizona11,967 1 %10,630 1 %
Nevada18,804 1 %21,989 2 %
Washington42,200 3 %48,771 3 %
Other States659,133 41 %491,983 33 %
Total Commercial and industrial$1,609,225 100 %$1,486,340 100 %
______________________________
(1) Distribution by North American Industry Classification System (NAICS)
(2) Based on location of primary real property collateral if available, otherwise borrower address is used. All California information is by respective county.
(3) Other states is primarily comprised of loans purchased and participated outside our primary geographic footprint. As of March 31, 2025, Pennsylvania and Illinois represented $90.4 million, or 6%, and $84.4 million, or 5%, of total C&I loans, respectively, and no other state exceeded 4% of total C&I loans. As of December 31, 2024, Pennsylvania represented $79.5 million, or 5%, and $59.7 million, or 4%, of total C&I loans, respectively, and no other state exceeded 4% of total C&I loans.
73

Delinquent Loans 

When a borrower fails to make required payments on a loan and does not cure the delinquency within 30 days, we normally will develop a plan with the borrower to remediate the problem or initiate proceedings to pursue our remedies under the loan documents. For loans secured by real estate, we provide the required notices to the borrower and make any required filings, and commence foreclosure proceedings if necessary. If the loan is not reinstated within the time permitted by law, we may sell the property at a foreclosure sale. At these foreclosure sales, we generally acquire title to the property. At March 31, 2025, loans delinquent 30 or more days as a percentage of total loans held for investment was 0.02%, unchanged from 0.02% at December 31, 2024.

The following table sets forth delinquencies in the Company’s loan portfolio as of the dates indicated:
 30 - 59 Days60 - 89 Days90 Days or MoreTotal
(Dollars in thousands)# of
Loans
Loan Balance
# of
Loans
Loan Balance
# of
Loans
Loan Balance
# of
Loans
Loan Balance
At March 31, 2025        
Commercial loans
Commercial and industrial4 $36 4 $330 2 $1,241 10 $1,607 
Franchise non-real estate secured— — 1 22 — — 1 22 
SBA non-real estate secured— — — — 2 65 2 65 
Total commercial loans4 36 5 352 4 1,306 13 1,694 
Retail loans
Single family residential1 264 — — 1 134 2 398 
Total retail loans1 264 — — 1 134 2 398 
Total5 $300 5 $352 5 $1,440 15 $2,092 
Delinquent loans to loans held for investment — % 0.01 % 0.01 %0.02 %

At December 31, 2024
Commercial loans
Commercial and industrial5 $824 3 $349 2 $1,241 10 $2,414 
SBA non-real estate secured2 49 — — 1 20 3 69 
Total commercial loans7 873 3 349 3 1,261 13 2,483 
Retail loans
Single family residential1 136 — — — — 1 136 
Total retail loans1 136 — — — — 1 136 
Total8 $1,009 3 $349 3 $1,261 14 $2,619 
Delinquent loans to loans held for investment0.01 %— %0.01 %0.02 %

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Modified Loans to Troubled Borrowers

A modified loan to troubled borrowers (“MLTB”) arises from a modification made to a loan in response to a borrower’s financial difficulty in order to alleviate temporary impairments in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following:

•Principal forgiveness
•Interest rate reduction
•Other-than-insignificant payment delay
•Term extension
•Any combination of the above

See Note 1 - Description of Business and Summary of Significant Accounting Policies of our audited consolidated financial statements included in our 2024 Form 10-K for additional discussion on MLTBs.

As of March 31, 2025, the Company had one MLTB of $13.3 million, the modification of which involved a combination of other-than-insignificant payment delay and a term extension. During the three months ended March 31, 2025, there were no MLTBs that had a payment default and had been modified within the 12 months preceding the payment default.

As of March 31, 2024, the Company had two syndicated C&I participation MLTBs totaling $12.2 million, the modifications of which involved other-than-insignificant payment delays. During the three months ended March 31, 2024, there were no MLTBs that had a payment default and had been modified within the 12 months preceding the payment default.

Credit Quality

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

Classified loans totaled $89.2 million, or 0.74% of loans held for investment, at March 31, 2025, compared to $106.2 million, or 0.88% of loans held for investment, at December 31, 2024. The decrease was primarily driven by the decline in classified CRE and franchise non-real estate loans during the first three months of 2025.

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The following tables stratify the loan portfolio by the Company’s internal risk grading as of the dates indicated:
Credit Risk Grades
(Dollars in thousands)PassSpecial
Mention		SubstandardDoubtfulTotal Gross
Loans
March 31, 2025
Investor loans secured by real estate    
CRE non-owner-occupied$2,077,307 $6,886 $26,922 $— $2,111,115 
Multifamily5,293,220 14,264 — — 5,307,484 
Construction and land287,371 15,359 — — 302,730 
SBA secured by real estate23,238 — 4,333 — 27,571 
Total investor loans secured by real estate7,681,136 36,509 31,255 — 7,748,900 
Business loans secured by real estate
CRE owner-occupied1,853,064 77,638 31,829 — 1,962,531 
Franchise real estate secured224,346 12,988 1,536 — 238,870 
SBA secured by real estate38,285 — 3,942 — 42,227 
Total business loans secured by real estate2,115,695 90,626 37,307 — 2,243,628 
Commercial loans
Commercial and industrial1,581,245 10,251 14,844 2,885 1,609,225 
Franchise non-real estate secured192,660 184 1,610 — 194,454 
SBA non-real estate secured6,396 — 1,150 — 7,546 
Total commercial loans1,780,301 10,435 17,604 2,885 1,811,225 
Retail loans
Single family residential230,128 — 134 — 230,262 
Consumer loans1,964 — — — 1,964 
Total retail loans232,092 — 134 — 232,226 
Loans held for investment before basis adjustment (1)
$11,809,224 $137,570 $86,300 $2,885 $12,035,979 
December 31, 2024
Investor loans secured by real estate    
CRE non-owner-occupied$2,093,693 $4,449 $32,970 $— $2,131,112 
Multifamily5,298,289 27,720 — — 5,326,009 
Construction and land369,335 9,808 — — 379,143 
SBA secured by real estate24,048 — 4,729 — 28,777 
Total investor loans secured by real estate7,785,365 41,977 37,699 — 7,865,041 
Business loans secured by real estate
CRE owner-occupied1,916,321 38,389 40,434 — 1,995,144 
Franchise real estate secured241,010 14,684 — — 255,694 
SBA secured by real estate40,861 — 3,117 — 43,978 
Total business loans secured by real estate2,198,192 53,073 43,551 — 2,294,816 
Commercial loans
Commercial and industrial1,455,916 12,838 14,701 2,885 1,486,340 
Franchise non-real estate secured205,437 702 7,218 — 213,357 
SBA non-real estate secured7,891 — 195 — 8,086 
Total commercial loans1,669,244 13,540 22,114 2,885 1,707,783 
Retail loans
Single family residential186,739 — — — 186,739 
Consumer loans1,804 — — — 1,804 
Total retail loans188,543 — — — 188,543 
Loans held for investment before basis adjustment (1)
$11,841,344 $108,590 $103,364 $2,885 $12,056,183 
______________________________
(1) Excludes the basis adjustment of $13.0 million and $16.4 million to the carrying amount of certain loans included in fair value hedging relationships at March 31, 2025 and December 31, 2024. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.


76

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

Nonperforming assets decreased by $1.2 million to $27.7 million, or 0.15% of total assets, at March 31, 2025, compared to $28.9 million, or 0.16% of total assets, at December 31, 2024. The decrease in nonperforming assets from the prior year-end was primarily attributed to the sale of a single nonperforming loan held for sale of $825,000 included in nonperforming assets at December 31, 2024.

At March 31, 2025, nonperforming loans totaled $27.7 million, or 0.23% of loans held for investment, relatively unchanged from $28.0 million, or 0.23% of loans held for investment, at December 31, 2024.

The Company reported no OREO at March 31, 2025 and December 31, 2024.

The Company had no loans 90 days or more past due and still accruing at March 31, 2025 and December 31, 2024.

The following table sets forth the composition of nonperforming assets at the dates indicated:
(Dollars in thousands)March 31, 2025December 31, 2024
Nonperforming assets
Investor loans secured by real estate
CRE non-owner-occupied$15,117 $15,423 
SBA secured by real estate394 409 
Total investor loans secured by real estate15,511 15,832 
Commercial loans
Commercial and industrial11,983 12,179 
SBA non-real estate secured65 20 
Total commercial loans12,048 12,199 
Retail loans
Single family residential134 — 
Total retail loans134 — 
Total nonperforming loans held for investment
27,693 28,031 
Nonperforming loans held for sale
— 825 
Total nonperforming assets
$27,693 $28,856 
Allowance for credit losses$174,967 $178,186 
Allowance for credit losses as a percent of total nonperforming loans632 %636 %
Nonperforming loans as a percent of loans held for investment0.23 %0.23 %
Nonperforming assets as a percent of total assets0.15 %0.16 %
MLTBs included in nonperforming loans$13,343 $13,563 
77

Allowance for Credit Losses

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

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

The Company’s ACL includes assumptions concerning current and future economic conditions using reasonable and supportable forecasts from an independent third party. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. Management periodically evaluates economic scenarios used in the Company’s ACL model, and thus the scenarios as well as the assumptions within those scenarios, and whether to use a weighted multiple scenario approach, can vary from one period to the next based on changes in current and expected economic conditions, and due to the occurrence of specific events. As of March 31, 2025, the Company’s ACL model used three weighted scenarios representing a base-case scenario, an upside scenario, and a downside scenario. The use of three weighted scenarios at March 31, 2025 is consistent with the approach used in the Company’s ACL model at December 31, 2024. The Company’s ACL model at March 31, 2025 includes assumptions concerning the interest rate environment, general uncertainty concerning future economic conditions, and the potential for future recessionary conditions. The Company has identified certain economic variables that have significant influence in the Company’s model for determining the ACL. These key economic variables include forecasted changes in the U.S. unemployment rate, U.S. real GDP growth, CRE prices, and interest rates.

The Company considers the need for qualitative adjustments to the ACL on a quarterly basis. Qualitative adjustments may be related to and include, but not be limited to, factors such as (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization-specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL. Qualitative adjustments at March 31, 2025 served to increase or decrease the level of allocated ACL to these segments of the loan portfolio: investor loans secured by real estate and retail loans.
78

The following charts quantify the factors attributing to the changes in the ACL on loans held for investment for the three months ended March 31, 2025 and March 31, 2024:

ACL change attributions ($ in millions)

52585259

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

At March 31, 2025 and 2024, the Company believes the ACL was adequate to cover current expected credit losses in the loan portfolio. However, no assurance can be given that we will not, in any particular period, sustain credit losses that exceed the amount reserved, or that subsequent evaluation of our loan portfolio, in light of prevailing factors, including economic conditions that may adversely affect our market area or other circumstances, will not require significant increases in the ACL. In addition, regulatory agencies, as an integral part of their examination process, periodically review our ACL and may require us to recognize changes to the ACL based on judgments different from those of management. Should any of the factors considered by management in evaluating the appropriate level of the ACL change, including the size and composition of the loan portfolio, the credit quality of the loan portfolio, as well as forecasts of future economic conditions, the Company’s estimate of current expected credit losses could also significantly change and affect the level of future provisions for credit losses.
79

The following table sets forth the Company’s ACL, its corresponding percentage of the loan category balance, and the percent of loan balance to total loans held for investment in each of the loan categories listed as of the dates indicated:
 March 31, 2025December 31, 2024
(Dollars in thousands)Amount
Allowance as a % of Segment
% of
Total Loans
Amount
Allowance as a % of Segment
% of
Total Loans
Investor loans secured by real estate      
CRE non-owner-occupied$26,866 1.27 %17.6 %$26,408 1.24 %17.7 %
Multifamily51,375 0.97 %44.1 %53,305 1.00 %44.2 %
Construction and land3,777 1.25 %2.5 %5,230 1.38 %3.1 %
SBA secured by real estate1,678 6.09 %0.2 %1,722 5.98 %0.2 %
Total investor loans secured by real estate83,696 1.08 %64.4 %86,665 1.10 %65.2 %
Business loans secured by real estate
CRE owner-occupied30,521 1.56 %16.3 %31,794 1.59 %16.6 %
Franchise real estate secured4,663 1.95 %2.0 %5,836 2.28 %2.1 %
SBA secured by real estate3,864 9.15 %0.4 %3,831 8.71 %0.4 %
Total business loans secured by real estate39,048 1.74 %18.7 %41,461 1.81 %19.1 %
Commercial loans
Commercial and industrial41,902 2.60 %13.4 %37,603 2.53 %12.3 %
Franchise non-real estate secured8,077 4.15 %1.6 %10,794 5.06 %1.8 %
SBA non-real estate secured461 6.11 %0.1 %359 4.44 %0.1 %
Total commercial loans50,440 2.78 %15.1 %48,756 2.85 %14.2 %
Retail loans
Single family residential1,680 0.73 %1.9 %1,193 0.64 %1.6 %
Consumer loans103 5.24 %— %111 6.15 %— %
Total retail loans1,783 0.77 %1.9 %1,304 0.69 %1.6 %
Total (1)
$174,967 1.46 %100.0 %$178,186 1.48 %100.0 %
______________________________
(1) Total loans utilized in the calculation of the ratio of ACL to total loans held for investment includes $13.0 million and $16.4 million of the basis adjustment of certain loans used in fair value hedging relationships as of March 31, 2025 and December 31, 2024, respectively. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

At March 31, 2025, the ratio of ACL to loans held for investment was 1.46%, a decrease from 1.48% at December 31, 2024. Our unamortized fair value discount on the loans acquired totaled $31.3 million, or 0.26% of total loans held for investment, at March 31, 2025, compared to $33.2 million, or 0.28% of total loans held for investment, at December 31, 2024.


80

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

At and for Three Months Ended
March 31, 2025December 31, 2024March 31, 2024
(Dollars in thousands)Net Charge-offs (Recoveries)Average Loan BalancePercentageNet Charge-offs (Recoveries)Average Loan BalancePercentageNet Charge-offs (Recoveries)Average Loan BalancePercentage
Investor loans secured by real estate
CRE non-owner-occupied$— $2,108,856 —%$2,360 $2,169,514 0.11%$927 $2,357,553 0.04%
Multifamily— 5,296,062 —%— 5,344,608 —%(5)5,609,799 —%
Construction and land— 379,080 —%— 428,471 —%— 479,812 —%
SBA secured by real estate(30)29,061 (0.10)%182 30,634 0.59%253 35,911 0.70%
Total investor loans secured by real estate(30)7,813,059 —%2,542 7,973,227 0.03%1,175 8,483,075 0.01%
Business loans secured by real estate
CRE owner-occupied— 1,975,525 —%379 2,010,879 0.02%4,389 2,182,460 0.20%
Franchise real estate secured— 247,323 —%— 259,092 —%212 300,828 0.07%
SBA secured by real estate— 44,420 —%(3)43,811 (0.01)%(1)49,807 —%
Total business loans secured by real estate— 2,267,268 —%376 2,313,782 0.02%4,600 2,533,095 0.18%
Commercial loans
Commercial and industrial(317)1,513,333 (0.02)%612 1,141,803 0.05%546 1,769,879 0.03%
Franchise non-real estate secured— 205,390 —%(2,109)227,890 (0.93)%100 308,832 0.03%
SBA non-real estate secured(6)7,770 (0.08)%(1)9,066 (0.01)%(2)10,865 (0.02)%
Total commercial loans(323)1,726,493 (0.02)%(1,498)1,378,759 (0.11)%644 2,089,576 0.03%
Retail loans
Single family residential— 188,344 —%— 87,837 —%— 72,084 —%
Consumer10 1,848 0.54%10 1,551 0.64%— 2,107 —%
Total retail loans10 190,192 0.01%10 89,388 0.01%— 74,191 —%
Total (1)
$(343)$11,981,674 —%$1,430 $11,738,236 0.01%$6,419 $13,149,038 0.05%
Allowance for credit losses to loans held for investment1.46%1.48%1.48%
Nonperforming loans to loans held for investment0.23%0.23%0.49%
Allowance for credit losses to nonperforming loans632%636%301%
______________________________
(1) Average loan balance includes $15.3 million, $16.9 million, and $30.9 million of average basis adjustment of certain loans included in fair value hedging relationships for the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively. Refer to Note 11 – Derivative Instruments to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.




81

Deposits 

At March 31, 2025, total deposits were $14.67 billion, an increase of $202.5 million, or 1.4%, from $14.46 billion at December 31, 2024. The increase was primarily driven by increases of $210.1 million in noninterest-bearing checking and $76.3 million in money market and savings, partially offset by decreases of $44.6 million in retail certificates of deposit and $39.4 million in interest-bearing checking.

At March 31, 2025, non-maturity deposits totaled $12.60 billion, or 85.9% of total deposits, an increase of $247.0 million, or 2.0%, from December 31, 2024. The increase was primarily in seasonal deposit growth within our HOA business and branch-based deposits. Our non-maturity deposits reflect our well-diversified and relationship-focused business model that has resulted in noninterest-bearing checking deposits representing 32.9% of total deposits as of March 31, 2025.

At March 31, 2025, maturity deposits totaled $2.07 billion, a decrease of $44.5 million, or 2.1%, from December 31, 2024. The decrease was primarily driven by a decrease of $44.6 million in retail certificates of deposit.

The total end-of-period weighted average rate of deposits at March 31, 2025 was 1.61%, a decrease from 1.72% at December 31, 2024, principally driven by pricing actions across all deposit categories. At March 31, 2025, the end-of-period weighted average rate of non-maturity deposits was 1.19%, compared to 1.24% at December 31, 2024.

As of March 31, 2025, the Bank counted one client, a property management holding company, with deposits of $791.3 million, or 5.4% of total deposits, and 10,733 total deposit accounts. No other individual depositor represented more than 1.4% of our total deposits, and our top 50 depositors represented 12.8% of our total deposits.

Our ratio of loans held for investment to deposits was 82.0% and 83.3% at March 31, 2025 and December 31, 2024, respectively.

The following table sets forth the distribution of the Company’s deposit accounts at the dates indicated and the weighted average interest rates as of the last day of each period for each category of deposits presented:
 March 31, 2025December 31, 2024
(Dollars in thousands)Balance% of Total DepositsWeighted Average RateBalance% of Total DepositsWeighted Average Rate
Noninterest-bearing checking$4,827,093 32.9 %— %$4,617,013 31.9 %— %
Interest-bearing deposits:
Interest-bearing checking2,859,411 19.5 %1.48 %2,898,810 20.0 %1.58 %
Money market4,658,367 31.8 %2.30 %4,577,646 31.7 %2.34 %
Savings255,881 1.7 %0.35 %260,283 1.8 %0.37 %
Total non-maturity deposits12,600,752 85.9 %1.19 %12,353,752 85.4 %1.24 %
Time deposit accounts:
Less than 1.00%29,445 0.2 %0.34 %29,299 0.2 %0.39 %
1.00 - 1.9918,407 0.1 %1.90 %17,609 0.1 %1.86 %
2.00 - 2.9918,481 0.1 %2.67 %14,814 0.1 %2.67 %
3.00 - 3.99932,138 6.4 %3.83 %311,972 2.2 %3.81 %
4.00 - 4.99857,293 5.8 %4.51 %1,386,196 9.7 %4.65 %
5.00 and greater209,716 1.5 %5.03 %350,060 2.4 %5.07 %
Total time deposit accounts2,065,480 14.1 %4.16 %2,109,950 14.7 %4.50 %
Total deposits$14,666,232 100.0 %1.61 %$14,463,702 100.0 %1.72 %
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     The following table sets forth the estimated deposits exceeding the FDIC insurance limit:
(Dollars in thousands)March 31, 2025December 31, 2024
Uninsured deposits$5,837,762 $5,781,072 

The Bank is a member of the IntraFi Network (“IntraFi”), which offers deposit placement services, including both the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Service (“ICS”) programs, that qualify large deposits for FDIC insurance. These reciprocal deposit structures offer protection to depositors by fully insuring deposits with other network banks.

At March 31, 2025, the Company’s FDIC-insured deposits as a percentage of total deposits was 60%. Insured and collateralized deposits comprised 65% of total deposits at March 31, 2025, which includes federally-insured deposits, $686.5 million of collateralized municipal and tribal deposits, and $45.0 million of privately insured deposits. At December 31, 2024, the Company’s FDIC-insured deposits as a percentage of total deposits was 60%. Insured and collateralized deposits comprised 66% of total deposits at December 31, 2024, which includes federally-insured deposits, $765.6 million of collateralized municipal and tribal deposits, and $45.0 million of privately insured deposits.

The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $429.5 million at March 31, 2025 and $439.8 million at December 31, 2024. The following table sets forth the maturity distribution of the estimated uninsured time deposits:

(Dollars in thousands)March 31, 2025December 31, 2024
3 months or less$218,037 $283,029 
Over 3 months through 6 months131,631 92,215 
Over 6 months through 12 months77,576 60,205 
Over 12 months2,272 4,380 
Total$429,516 $439,829 


Borrowings 

At March 31, 2025, total borrowings amounted to $272.6 million, an increase of $130,000 from $272.4 million at December 31, 2024. Total borrowings at March 31, 2025 were solely comprised of $272.6 million of subordinated debentures. The slight increase in borrowings at March 31, 2025 as compared to December 31, 2024 was due to the amortization of the subordinated debt issuance cost. At March 31, 2025, total borrowings represented 1.5% of total assets and had an end-of-period weighted average rate of 6.21%, compared with 1.5% of total assets and an end-of-period weighted average rate of 6.30% at December 31, 2024. 

At March 31, 2025, total subordinated debentures were comprised of the following:
 
•Subordinated notes of $125.0 million at 7.085% fixed-to-floating rate due May 15, 2029 (the “Notes II”) with a carrying value of $124.0 million, net of unamortized debt issuance cost of $1.0 million. Interest is payable semiannually at a floating rate equal to three-month term SOFR, plus a spread of 2.762% per annum, payable quarterly in arrears; and
•Subordinated notes of $150.0 million at 5.375% fixed-to-floating rate due June 15, 2030 (the “Notes III”) with a carrying value of $148.6 million, net of unamortized debt issuance cost of $1.4 million. Interest on the Notes III accrue at a rate equal to 5.375% per annum from and including June 15, 2020 to, but excluding, June 15, 2025, payable semiannually in arrears. From and including June 15, 2025 to, but excluding, June 15, 2030 or the earlier redemption date, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month term SOFR, plus a spread of 517 basis points, payable quarterly in arrears.
83

For additional information about the subordinated debentures, see Note 8 – Subordinated Debentures to the Notes to the consolidated financial statements in this Quarterly Report on Form 10-Q.
    
The following table sets forth certain information regarding the Company’s borrowed funds as of and during the periods indicated: 
 March 31, 2025December 31, 2024
(Dollars in thousands)BalanceWeighted
Average Rate		BalanceWeighted
Average Rate
FHLB advances$— — %$— — %
Subordinated debentures272,579 6.21 %272,449 6.30 %
Total borrowings$272,579 6.21 %$272,449 6.30 %
Weighted average cost of borrowings during the quarter6.44 % 6.62 % 
Borrowings as a percent of total assets1.5 % 1.5 % 

As of March 31, 2025, our unused borrowing capacity was $9.20 billion, which consisted of available lines of credit with FHLB and other correspondent banks as well as access through the Federal Reserve Bank's discount window. During the three months ended March 31, 2025, we did not utilize the Federal Reserve Bank's discount window.

The Company maintains additional sources of liquidity at the Corporation level. Our Corporation maintains a $25.0 million line of credit with U.S. Bank and had no outstanding balance against it at March 31, 2025 and December 31, 2024.

84

CAPITAL RESOURCES AND LIQUIDITY

Liquidity Management

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

In addition to the interest payments on loans and investments as well as fees collected on the services we provide, our primary sources of funds generated during the first three months of 2025 were from:
 
•Principal payments on loans held for investment of $339.9 million;
•Deposit growth of $202.5 million; and
•Proceeds of $169.1 million from the sales, payments, or maturities of securities.

We used these funds to:
 
•Purchase loans held for investment of $238.3 million;
•Purchase investment securities of $220.9 million;
•Originate loans held for investment of $207.3 million; and
•Return capital to shareholders through $31.8 million in dividends.

Our most liquid assets are comprised of unrestricted cash, short-term investments, and unpledged AFS investment securities. The levels of these assets are dependent on our operating, lending, and investing activities during any given period. We endeavor to take a prudent, proactive approach to liquidity management, as evidenced by our balance-sheet-oriented initiatives from 2023 to the first quarter of 2025. At March 31, 2025, cash and cash equivalents totaled $768.2 million. If additional liquidity is needed or otherwise desired as part of our liquidity management strategy, we have additional sources of liquidity that can be accessed, including FHLB advances, federal funds lines, the Federal Reserve Board’s lending programs, brokered deposits, as well as loan and investment securities sales. As of March 31, 2025, the Bank had secured borrowing capacity with the FHLB allowing us to borrow up to 35% of the Bank’s total assets equating to a credit line of $6.27 billion, of which $5.08 billion remained available for borrowing based on collateral pledged of $7.19 billion at market value in qualifying loans, and no FHLB borrowings outstanding. We also had a $3.73 billion line with the FRB discount window secured by investment securities and unsecured lines of credit aggregating to $390.0 million with other correspondent banks from which to purchase federal funds. Our unused borrowing capacity was $9.20 billion, and the combined readily available liquidity with cash and cash equivalents of $768.2 million, interest-bearing time deposits with financial institutions of $1.3 million, as well as short-term, unpledged, AFS U.S. Treasury securities of $148.4 million, totaled approximately $10.11 billion, with a coverage ratio of 198.1% to uninsured and uncollateralized deposits.

We believe our level of liquid assets is sufficient to meet current anticipated funding needs. As part of our daily monitoring, we calculate a liquidity ratio by dividing the sum of cash balances plus unpledged AFS securities by total deposits, excluding time deposits maturing one year or more, plus FHLB advances maturing within one year. As of March 31, 2025, our liquidity ratio was 17.2%, which is above the Company’s minimum policy requirement of 10.0%. The Company regularly monitors liquidity, models liquidity stress scenarios to ensure that adequate liquidity is available, and has contingency funding plans in place, which are reviewed and tested on a regular, recurring basis.

85

A substantial portion of our loans are funded by our deposits. At March 31, 2025, the Company’s loan-to-deposit ratio was 82.0% compared to 83.3% at December 31, 2024. The Bank’s participation in IntraFi’s CDARS and ICS programs provides our depositors with full deposit insurance coverage of excess balances, while the Bank receives reciprocal deposits from other FDIC-insured banks, and helps enhance the Bank’s funding stability by retaining the full amount of the deposits on our balance sheet. To the extent that our deposit growth is not sufficient to satisfy our ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, or make investments, we may access funds through our FHLB borrowing arrangement, FRB discount window, unsecured lines of credit, or other sources.

The Bank maintains liquidity guidelines in the Company’s Liquidity Policy that permits the purchase of brokered deposit funds, in an amount not to exceed 15% of total deposits or 12% of total assets, as a secondary source for funding. At March 31, 2025, we had $300.3 million in brokered deposits, which constituted 2.05% of total deposits and 1.66% of total assets at that date.

The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation’s primary sources of liquidity are dividends from the Bank. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Corporation. Management believes that such restrictions will not have a material impact on the ability of the Corporation to meet its ongoing cash obligations. During the three months ended March 31, 2025, the Bank did not pay any dividends to the Corporation.

The Corporation maintains a line of credit of $25.0 million with U.S. Bank that will expire on September 24, 2025. The Corporation anticipates renewing the line of credit upon expiration. This line of credit provides an additional source of liquidity at the Corporation level. At March 31, 2025, the Corporation had no outstanding balances against this line.

During the first quarter of 2025, the Corporation declared a quarterly dividend payment of $0.33 per share. On April 22, 2025, the Company's Board of Directors declared a $0.33 per share dividend, payable on May 12, 2025 to stockholders of record as of May 5, 2025. The Corporation’s Board of Directors periodically reviews whether to declare or pay cash dividends, taking into account, among other things, general business conditions, the Company’s financial results, future prospects, capital requirements, legal and regulatory restrictions, and such other factors as the Corporation’s Board of Directors may deem relevant. Due to the pending Merger, the Company is
restricted from paying quarterly cash dividends in excess of the current level.

On January 11, 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock, representing approximately 5% of the Company’s issued and outstanding shares of common stock and approximately $150 million of common stock as of December 31, 2020 based on the closing price of the Company’s common stock on December 31, 2020. During the three months ended March 31, 2025, the Company did not repurchase any shares of common stock. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information. The stock
repurchase program is currently suspended due to the announced Merger.

Material Cash Requirement

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

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

 March 31, 2025
(Dollars in thousands)Less than 1 yearMore than 1 yearTotal
Subordinated debentures$— $272,579 $272,579 
Certificates of deposit2,039,162 26,318 2,065,480 
Operating leases14,824 44,979 59,803 
Affordable housing partnerships commitment20,461 12,470 32,931 
Total contractual cash obligations$2,074,447 $356,346 $2,430,793 

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

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

 March 31, 2025
(Dollars in thousands)Less than 1 yearMore than 1 yearTotal
Loan commitments to extend credit$821,584 $584,452 $1,406,036 
Standby letters of credit47,138 — 47,138 
Total$868,722 $584,452 $1,453,174 

Since many commitments to extend credit are expected to expire, the total commitment amounts do not necessarily represent future cash requirements. For further information, see Note 15 - Off-Balance Sheet Arrangements, Commitments, and Contingencies to the Notes to the audited consolidated financial statements in the Company’s 2024 Form 10-K. 

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

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

Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III,” implemented a requirement for all banking organizations to maintain a capital conservation buffer of 2.5% above the minimum risk-based capital requirements, which fully phased in by January 1, 2019. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. At March 31, 2025, the Company and Bank are in compliance with the capital conservation buffer requirement and exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of the fully phased-in capital conservation buffer, of 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as “well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations.

The Company implemented the current expected credit losses (“CECL”) model commencing January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. Effective January 1, 2025, this cumulative difference of CECL at the end of the second year of the transition period was fully phased into regulatory capital.

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


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As defined in applicable regulations and set forth in the table below, the Corporation and the Bank continue to exceed the regulatory capital minimum requirements, and the Bank continues to exceed the “well capitalized” standards and the required conservation buffer at the dates indicated:
ActualMinimum Required for Capital Adequacy Purposes Inclusive of Capital Conservation BufferMinimum Required
For Well Capitalized Requirement
March 31, 2025
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio12.30%4.00%N/A
Common equity tier 1 capital ratio16.99%7.00%N/A
Tier 1 capital ratio16.99%8.50%N/A
Total capital ratio20.23%10.50%N/A
Pacific Premier Bank
Tier 1 leverage ratio13.62%4.00%5.00%
Common equity tier 1 capital ratio18.81%7.00%6.50%
Tier 1 capital ratio18.81%8.50%8.00%
Total capital ratio20.07%10.50%10.00%
December 31, 2024
Pacific Premier Bancorp, Inc. Consolidated
Tier 1 leverage ratio12.31%4.00%N/A
Common equity tier 1 capital ratio17.05%7.00%N/A
Tier 1 capital ratio17.05%8.50%N/A
Total capital ratio20.28%10.50%N/A
Pacific Premier Bank
Tier 1 leverage ratio13.41%4.00%5.00%
Common equity tier 1 capital ratio18.57%7.00%6.50%
Tier 1 capital ratio18.57%8.50%8.00%
Total capital ratio19.82%10.50%10.00%

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Item 3.  Quantitative and Qualitative Disclosure about Market Risk
 
Asset/Liability Management and Market Risk

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

Interest Rate Risk Management

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

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

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


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The following table shows the projected NII and net interest margin of the Company at March 31, 2025 and December 31, 2024, assuming instantaneous parallel interest rate shifts in the first month of the following quarter:
(Dollars in thousands)Earnings at RiskProjected Net Interest Margin
Change in Rates (Basis Points)$ Amount$ Change% ChangeRate %
March 31, 2025
+300558,664 16,540 3.1 3.42 
+200556,854 14,730 2.7 3.40 
+100550,875 8,751 1.6 3.37 
Static542,124 — — 3.31 
-100532,377 (9,747)(1.8)3.26 
-200519,755 (22,369)(4.1)3.18 
-300508,101 (34,023)(6.3)3.11 
December 31, 2024
+300551,991 9,065 1.7 3.42 
+200552,383 9,457 1.7 3.42 
+100548,931 6,005 1.1 3.40 
Static542,926 — — 3.36 
-100535,000 (7,926)(1.5)3.31 
-200524,599 (18,327)(3.4)3.25 
-300514,981 (27,945)(5.1)3.19 

The following table shows the EVE and projected change in the EVE of the Company at March 31, 2025 and December 31, 2024, assuming instantaneous parallel interest rate shifts in the first month of the following quarter: 
(Dollars in thousands)Economic Value of Equity EVE as % of market value of portfolio assets
Change in Rates (Basis Points)$ Amount$ Change% ChangeEVE Ratio
March 31, 2025
+3002,715,140 (391,379)(12.6)18.18 
+2002,920,828 (185,691)(6.0)19.04 
+1003,100,016 (6,503)(0.2)19.67 
Static3,106,519 — — 19.20 
-1003,035,707 (70,812)(2.3)18.28 
-2002,889,864 (216,655)(7.0)16.97 
-3002,669,728 (436,791)(14.1)15.31 
December 31, 2024
+3002,737,167 (431,287)(13.6)18.52 
+2002,948,727 (219,727)(6.9)19.43 
+1003,141,508 (26,946)(0.9)20.16 
Static3,168,454 — — 19.80 
-1003,116,700 (51,754)(1.6)18.99 
-2002,987,732 (180,722)(5.7)17.76 
-3002,782,136 (386,318)(12.2)16.16 

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

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

Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
 
Changes in Internal Controls over Financial Reporting
 
There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION
 
Item 1.  Legal Proceedings

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

Item 1A.  Risk Factors
    
The section titled Risk Factors in Part I, Item 1A of our 2024 Form 10-K included a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), prospects, or the value of or return on an investment in the Company. The information presented below provides an update to, and should be read in conjunction with the risk factors and other information contained in Item 1A of our 2024 Form 10-K.

As a result of the Company entering into the Merger Agreement with Columbia, certain risk factors have been identified:

The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.

The Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the Merger. Those conditions include, among other things: (i) approval by each of the Company’s stockholders and Columbia shareholders of certain matters relating to the Merger at each company’s respective special meeting; (ii) the receipt of required regulatory approvals, including the approval of the Federal Reserve, the FDIC, and the Oregon Department of Consumer and Business Services, Division of Financial Regulation; and (iii) the absence of any order, injunction, decree or other law preventing or making illegal the completion of the Merger, the Bank Merger or any of the other transactions contemplated by the Merger Agreement. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (a) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, (b) the performance in all material respects by the other party of its obligations under the Merger Agreement and (c) the receipt by each party of an opinion from its counsel to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986.

These conditions to the closing of the Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may not be completed. In addition, the parties can mutually decide to terminate the Merger Agreement at any time, before or after the requisite shareholder and stockholder approvals, or the Company or Columbia may unilaterally elect to terminate the Merger Agreement in certain other circumstances.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

Before the Merger and the Bank Merger may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve, the FDIC, the Oregon Department of Consumer and Business Services, Division of Financial Regulation, and other regulatory authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political, or community group inquiries, investigations, or opposition; or changes in legislation or the political environment generally.

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The approvals that are granted may impose terms and conditions, limitations, obligations, or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the Merger Agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations, or restrictions and that such conditions, limitations, obligations, or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the Merger or otherwise reducing the anticipated benefits of the Merger if the Merger was consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations, or restrictions will not result in the delay or abandonment of the Merger. Additionally, the completion of the Merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the Merger Agreement.

In addition, despite the parties’ commitments to using their reasonable best efforts to comply with conditions imposed by regulators, under the terms of the Merger Agreement, neither the Company nor Columbia, nor any of their respective subsidiaries, is permitted (without the written consent of the other party), to take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the required permits, consents, approvals and authorizations of governmental entities that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the Merger and the Bank Merger.

Failure to complete the Merger could negatively impact the Company.

If the Merger is not completed for any reason, including as a result of the Company’s stockholders or Columbia shareholders failing to approve certain matters in connection with the Merger at each company’s respective special meeting, there may be various adverse consequences and the Company may experience negative reactions from the financial markets and from its customers and employees. For example, the Company’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Also, the Company has devoted significant internal resources to the pursuit of the Merger and the expected benefit of those resource allocations would be lost if the Merger is not completed. Additionally, if the Merger Agreement is terminated, the market price of the Company’s common stock could decline to the extent that current market prices reflect a market assumption that the Merger will be beneficial and will be completed. The Company also could be subject to litigation related to any failure to complete the Merger or to proceedings commenced against the Company to perform its obligations under the Merger Agreement. If the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a termination fee of $75 million to Columbia.

94

Combining the two companies may be more difficult, costly, or time consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.

The Company and Columbia have operated and, until the completion of the Merger, will continue to operate independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses of the Company and Columbia in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors, and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees could adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on the Company’s financial results and the value of its common stock. If the Company experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause the Company or Columbia to lose customers or cause customers to remove their accounts from the Company or Columbia and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of the Company and Columbia during this transition period and for an undetermined period after completion of the Merger on the combined company. In addition, the actual cost savings of the Merger could be less than anticipated.

The combined company may be unable to retain the Company and/or Columbia personnel successfully after the Merger is completed.

The success of the Merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by the Company or Columbia. It is possible that these employees may decide not to remain with the Company or Columbia, as applicable, while the Merger is pending or with the combined company after the Merger is consummated. If the Company and Columbia are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, the Company and Columbia could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the Merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer. The Company and Columbia also may not be able to locate or retain suitable replacements for any key employees who leave either company.

The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending that could adversely affect our business and operations.

Uncertainty about the effect of the Merger on employees, customers and other persons the Company has a business relationship with may have an adverse effect on the Company’s business, operations, and stock price. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with the Company to seek to change existing business relationships. Retention of certain employees by the Company may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles with the Company. These retention challenges could require the Company to incur additional expenses in order to retain key employees. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company, the Company’s business could be harmed. In addition, subject to certain exceptions, each of the Company and Columbia has agreed to operate its business in the ordinary course prior to closing in all material respects and to refrain from taking certain actions. The Company may delay or abandon projects and other business decisions could be deferred during the pendency of the Merger.
95

The Company will incur substantial expenses related to the Merger.

Both the Company and Columbia will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. These costs include legal, financial advisory, accounting, consulting, and other advisory fees, retention, severance, and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs, closing, integration and other related costs. Some of these costs are payable by the Company regardless of whether or not the Merger is completed.

Stockholder litigation related to the Merger could prevent or delay the completion of the Merger, result in the payment of damages or otherwise negatively impact the business and operations of the Company.

Stockholders may bring claims in connection with the proposed Merger and, among other remedies, may seek damages or an injunction preventing the Merger from closing. If any plaintiff were successful in obtaining an injunction prohibiting the Company or Columbia from completing the Merger or any other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Merger and could result in costs to the Company, including costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the Merger. Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of the Company.

The Merger Agreement limits the Company’s ability to pursue acquisition proposals.

The Merger Agreement prohibits the Company from initiating, soliciting, knowingly encouraging or knowingly facilitating certain third‑party acquisition proposals. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing such an acquisition.

The other risk factors that could affect the Company’s financial condition or operating results remain unchanged from those previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
On January 11, 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock. The stock repurchase program may be limited or terminated at any time without notice. During the first quarter of 2025, the Company did not repurchase any shares of common stock. The stock repurchase program is currently suspended due to the announced Merger.

The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the first quarter of 2025.
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2025 to January 31, 2025— $— — 4,245,056 
February 1, 2025 to February 28, 2025— — — 4,245,056 
March 1, 2025 to March 31, 2025— — — 4,245,056 
Total— — 
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Item 3.  Defaults Upon Senior Securities
 
None.
 
Item 4.  Mine Safety Disclosures
 
Not applicable.
 
Item 5.  Other Information
 
Rule 10b5-1 Trading Plans

During the quarter ended March 31, 2025, no officer or director of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the Company’s common stock that is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 CFR § 229.408(c).
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Item 6.  Exhibits
Exhibit 2.1
Exhibit 3.1
Exhibit 3.2
Exhibit 4.1
Exhibit 4.2Long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the SEC upon request.
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32
Exhibit 101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Exhibit 101.SCHInline XBRL Taxonomy Extension Schema Document
Exhibit 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEFInline XBRL Taxonomy Extension Definitions Linkbase Document
Exhibit 101.LABInline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104
The cover page of Pacific Premier Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline XBRL (contained in Exhibit 101)
(1) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on April 25, 2025.
(2) Incorporated by reference from the Registrant’s Form 8-K filed with the SEC on May 15, 2018.

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

PACIFIC PREMIER BANCORP, INC.,
Date:May 2, 2025By:/s/ Steven R. Gardner
 Steven R. Gardner
  Chairman, Chief Executive Officer, and President
  (Principal Executive Officer)
   
Date:May 2, 2025By:/s/ Ronald J. Nicolas, Jr.
 Ronald J. Nicolas, Jr.
  Senior Executive Vice President and Chief Financial Officer
  (Principal Financial Officer)

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