SECURITIES

3 Months Ended

Mar. 31, 2022

SECURITIES

SECURITIES

NOTE 4: SECURITIES

The following table provides a summary of the Company’s securities AFS portfolio as of:


		Amortized			Gross Unrealized						Allowance for			Estimated
(dollars in thousands)		Cost			Gains			Losses			Credit Losses			Fair Value
March 31, 2022:
Collateralized mortgage obligations		$	11,761		$	—		$	(577)		$	—		$	11,184
Agency mortgage-backed securities			10,376			8			(306)			—			10,078
Municipal bonds			50,737			21			(2,244)			—			48,514
SBA securities			25,692			1			(21)			—			25,672
Beneficial interests in FHLMC securitization			20,631			334			—			(10,743)			10,222
Corporate bonds			153,451			1,105			(2,793)			—			151,763
U.S. Treasury			897			—			(43)			—			854
Total		$	273,545		$	1,469		$	(5,984)		$	(10,743)		$	258,287

December 31, 2021:
Collateralized mortgage obligations		$	13,862		$	—		$	(37)		$	—		$	13,825
Agency mortgage-backed securities			928,546			6,563			(6,120)			—			928,989
Municipal bonds			52,052			94			—			—			52,146
SBA securities			27,970			2			—			—			27,972
Beneficial interests in FHLMC securitization			21,606			373			—			(10,399)			11,580
Corporate bonds			154,027			2,441			(92)			—			156,376
U.S. Treasury			499			—			(9)			—			490
Total		$	1,198,562		$	9,473		$	(6,258)		$	(10,399)		$	1,191,378

As of March 31, 2022, US Treasury securities of $0.9 million included in the table above are pledged as collateral to the State of California to meet regulatory requirements related to the Bank’s trust operations, $216.3 million of agency mortgage-backed securities are pledged as collateral as support for the Bank’s obligations under loan sales and securitizations agreements entered into from 2018 and 2021, and $163.9 million of SBA securities are pledged as collateral for repurchase agreements obtained from the TGRF acquisition.

The following table provides a summary of the Company’s securities HTM portfolio as of:


		Amortized			Gross Unrecognized						Allowance for			Estimated
(dollars in thousands)		Cost			Gains			Losses			Credit Losses			Fair Value
March 31, 2022:
Agency mortgage-backed securities		$	920,408		$	—		$	(39,657)		$	—		$	880,751
Total		$	920,408		$	—		$	(39,657)		$	—		$	880,751

There were no securities HTM as of December 31, 2021.

The Company reassessed classification of certain securities AFS and effective January 1, 2022, the Company transferred $917 million in securities AFS to securities HTM. The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income. The related unrealized gain (or loss) of $0.6 million included in other comprehensive income remained in other comprehensive income to be amortized, with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. Subsequent to transfer, the ACL on these securities was evaluated under the accounting policy for securities HTM.

We monitor the credit quality of these securities by evaluating various quantitative attributes. The credit quality indicators the Company monitors include, but are not limited to, credit ratings of individual securities and the credit rating of government sponsored enterprises that guarantee the securities. Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is, those with ratings similar to BBB-/Baa3 or above, as defined by NRSROs, are generally considered by the rating agencies and market participants to be low credit risk. As of March 31, 2022, all of the Company’s securities were either investment grade or were issued by a U.S. government agency or a U.S. government sponsored enterprise with an investment grade rating.

The table below indicates, as of March 31, 2022 and December 31, 2021, the gross unrealized losses and fair values of our investments AFS, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


		Securities with Unrealized Loss at March 31, 2022
		Less than 12 months						12 months or more						Total
		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
(dollars in thousands)		Value			Loss			Value			Loss			Value			Loss
Collateralized mortgage obligations		$	11,182		$	(577)		$	—		$	—		$	11,182		$	(577)
Agency mortgage-backed securities			8,577			(306)			—			—			8,577			(306)
Municipal bonds			47,446			(2,244)			—			—			47,446			(2,244)
SBA securities			23,038			(21)			—			—			23,038			(21)
Corporate bonds			93,155			(2,793)			—			—			93,155			(2,793)
U.S. Treasury			854			(43)			—			—			854			(43)
Total temporarily impaired securities		$	184,252		$	(5,984)		$	—		$	—		$	184,252		$	(5,984)


		Securities with Unrealized Loss at December 31, 2021
		Less than 12 months						12 months or more						Total
		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
(dollars in thousands)		Value			Loss			Value			Loss			Value			Loss
Collateralized mortgage obligations		$	12,971		$	(37)		$	—		$	—		$	12,971		$	(37)
Agency mortgage-backed securities			434,973			(5,051)			36,136			(1,069)			471,109			(6,120)
Corporate bonds			47,880			(92)			—			—			47,880			(92)
U.S. Treasury			491			(9)			—			—			491			(9)
Total temporarily impaired securities		$	496,315		$	(5,189)		$	36,136		$	(1,069)		$	532,451		$	(6,258)

The table below indicates, as of March 31, 2022, the gross unrealized losses and fair values of our investments HTM, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


		Securities with Unrecognized Loss at March 31, 2022
		Less than 12 months						12 months or more						Total
		Fair			Unrecognized			Fair			Unrecognized			Fair			Unrecognized
(dollars in thousands)		Value			Loss			Value			Loss			Value			Loss
Agency mortgage-backed securities		$	844,511		$	(37,873)		$	36,240		$	(1,784)		$	880,751		$	(39,657)
Total temporarily impaired securities		$	844,511		$	(37,873)		$	36,240		$	(1,784)		$	880,751		$	(39,657)

There were no securities HTM as of December 31, 2021.

Unrealized losses in agency mortgage backed securities, beneficial interests in FHLMC securitizations, and other securities have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell, it is not more likely than not that management would be required to sell the securities prior to their anticipated

recovery, and the decline in fair value is largely due to changes in discount rates and assumptions regarding future interest rates. The fair value is expected to recover as the bonds approach maturity.

The following is a rollforward of the Bank’s allowance for credit losses related to investments for the following periods:


(dollars in thousands)			Total

Three Months Ended March 31, 2022:
Beginning balance		$	10,399
Provision for credit losses			344
Balance: March 31, 2022		$	10,743

Three Months Ended March 31, 2021:
Beginning balance		$	7,245
Provision for credit losses			1,633
Balance: March 31, 2021		$	8,878

Due to a change in expected cash flows of interest only strip securities, $0.3 million and $1.6 million in allowances were taken in the three months ended March 31, 2022 and 2021, respectively. The allowances were included as a charge in provision for credit losses on the consolidated income statement.

The ACL on investment securities is determined for both held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with ASC 326, and is evaluated on a quarterly basis. The ACL for held-to-maturity investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Under ASC 326-20, for investment securities where the Company has reason to believe the credit loss exposure is remote, such as those guaranteed by the U.S. government or government sponsored entities, a zero loss expectation is applied and a company is not required to estimate and recognize an ACL.

For securities AFS in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the security amortized cost basis is written down to fair value through income. If neither criteria is met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security, and (v) the ability of the issuer of the security to make scheduled principal and interest payments. If, after considering these factors, the present value of expected cash flows to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The scheduled maturities of securities AFS and the related weighted average yields were as follows for the periods indicated:


		Less than			1 Through			5 Through			After
(dollars in thousands)		1 Year			5 years			10 Years			10 Years			Total
March 31, 2022
Amortized Cost:
Collateralized mortgage obligations		$	—		$	319		$	742		$	10,700		$	11,761
Agency mortgage-backed securities			—			4,545			4,123			1,708			10,376
Municipal bonds			—			1,630			37,565			11,542			50,737
SBA securities			39			1,326			2,610			21,717			25,692
Beneficial interests in FHLMC securitization			—			11,125			—			9,506			20,631
Corporate bonds			9,526			10,019			128,371			5,535			153,451
U.S. Treasury			—			897			—			—			897
Total		$	9,565		$	29,861		$	173,411		$	60,708		$	273,545
Weighted average yield			1.06	%		1.99	%		3.34	%		1.90	%		2.80	%
Estimated Fair Value:
Collateralized mortgage obligations		$	—		$	319		$	703		$	10,162		$	11,184
Agency mortgage-backed securities			—			4,431			3,984			1,663			10,078
Municipal bonds			—			1,645			36,217			10,652			48,514
SBA securities			39			1,323			2,607			21,703			25,672
Beneficial interests in FHLMC securitization			—			11,125			—			9,840			20,965
Corporate bonds			9,519			9,748			127,257			5,239			151,763
U.S. Treasury			—			854			—			—			854
Total		$	9,558		$	29,445		$	170,768		$	59,259		$	269,030


		Less than			1 Through			5 Through			After
(dollars in thousands)		1 Year			5 years			10 Years			10 Years			Total
December 31, 2021
Amortized Cost:
Collateralized mortgage obligations		$	—		$	710		$	802		$	12,350		$	13,862
Agency mortgage-backed securities			—			4,990			24,568			898,988			928,546
Municipal bonds			—			1,625			38,853			11,574			52,052
SBA securities			70			1,613			2,952			23,335			27,970
Beneficial interests in FHLMC securitization			—			11,902			—			9,704			21,606
Corporate bonds			9,534			10,519			128,438			5,536			154,027
U.S. Treasury			—			499			—			—			499
Total		$	9,604		$	31,858		$	195,613		$	961,487		$	1,198,562
Weighted average yield			(2.28)	%		2.06	%		3.03	%		1.63	%		1.84	%
Estimated Fair Value:
Collateralized mortgage obligations		$	—		$	710		$	799		$	12,316		$	13,825
Agency mortgage-backed securities			—			5,082			25,056			898,851			928,989
Municipal bonds			—			1,704			38,865			11,577			52,146
SBA securities			70			1,613			2,953			23,336			27,972
Beneficial interests in FHLMC securitization			—			11,902			—			10,077			21,979
Corporate bonds			9,529			10,499			130,754			5,594			156,376
U.S. Treasury			—			490			—			—			490
Total		$	9,599		$	32,000		$	198,427		$	961,751		$	1,201,777

The following is a summary of scheduled maturities of securities HTM and the related weighted average yields as of:


		Less than			1 Through			5 Through			After
(dollars in thousands)		1 Year			5 years			10 Years			10 Years			Total
March 31, 2022
Amortized Cost:
Agency mortgage-backed securities		$	—		$	—		$	18,793		$	901,615		$	920,408
Total		$	—		$	—		$	18,793		$	901,615		$	920,408
Weighted average yield			—	%		—	%		0.82	%		1.77	%		1.75	%

Estimated Fair Value:
Agency mortgage-backed securities		$	—		$	—		$	17,934		$	862,817		$	880,751
Total		$	—		$	—		$	17,934		$	862,817		$	880,751

There were no securities HTM as of December 31, 2021.