Pacific Premier Bancorp, Inc. Announces Third Quarter 2020 Results

Company Release - 10/27/2020 6:00 AM ET

Increases Quarterly Cash Dividend by 12% to $0.28 Per Share

Third Quarter 2020 Summary

  • Net income of $66.6 million, or $0.70 per diluted share
  • Return on average assets of 1.31%, return on average equity of 9.90%, and return on average tangible common equity of 16.44%
  • Net interest margin of 3.54% and core net interest margin of 3.23%
  • Cost of deposits of 0.20% in the third quarter, compared with 0.32% in the prior quarter
  • Non-maturity deposits of $14.6 billion, or 89.5% of total deposits
  • Noninterest bearing deposits represent 36.1% of total deposits
  • Nonperforming assets represent 0.14% of total assets
  • Converted Opus Bank's operating system and consolidated 20 branches in early October

IRVINE, Calif.--(BUSINESS WIRE)-- Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company” or “Pacific Premier”), the holding company of Pacific Premier Bank (the “Bank”), reported net income of $66.6 million, or $0.70 per diluted share, for the third quarter of 2020, compared with a net loss of $99.1 million, or $1.41 per diluted share, for the second quarter of 2020 and net income of $41.4 million, or $0.69 per diluted share, for the third quarter of 2019. Financial results for the third quarter of 2020 reflected the Company's return to profitability after increasing its credit loss reserves in the first half of the year. These reserve increases were primarily due to the adverse impact of the COVID-19 pandemic on economic forecasts utilized by the Company in its current expected credit losses (“CECL”) model and the initial establishment of the Day 1 reserves required by CECL methodology in conjunction with the closing of the Opus Bank (“Opus”) acquisition during the second quarter of 2020.

Total assets were $19.84 billion at September 30, 2020, compared with $20.52 billion at June 30, 2020, and $11.81 billion at September 30, 2019. A reconciliation of the non-U.S. GAAP measure of ROATCE to the U.S. GAAP measure of common stockholders' equity is set forth at the end of this press release.

Steven R. Gardner, Chairman, President and Chief Executive Officer of the Company, commented, “We delivered solid financial results during the third quarter as we continued to execute well on our strategic priorities, including managing through the COVID-19 crisis, integrating the Opus Bank team, and enhancing our ability to drive franchise value. Pre-provision net revenue increased to $98 million, up 61% from the prior quarter, excluding merger-related expenses, and our efficiency ratio improved to 47%, which reflects our increased operating leverage, earnings power, and the sale of $1.13 billion of SBA PPP loans.

“Since the closing of the Opus Bank acquisition on June 1, 2020, we have successfully executed on our approach to integrating the two teams. In early October, we converted Opus’ core operating system and consolidated 20 branches. We have realized the estimated cost savings of 25% of Opus' pre-merger noninterest expenses and expect to achieve fully phased in cost savings by the end of this year. Our loan pipeline has grown during the quarter and we expect stronger production going forward. Our team is focused on driving new business opportunities and expanding existing relationships to grow deposits, loans, and fee income.

“While the COVID-19 pandemic is far from over, we are seeing encouraging trends in asset quality. Of the nearly $2.3 billion in temporary loan modifications we granted to clients earlier this year, the majority have resumed payments and 1.8% of total loans are currently subject to modifications. We believe the strength of our asset quality during an unprecedented economic downturn reflects the resilience of our clients’ businesses, our conservative underwriting standards, and our proactive approach to credit risk management."

Mr. Gardner concluded, “Given our strong capital position, our results of operations during the third quarter, and our current expectations regarding our future financial performance, I am pleased to announce that the Board of Directors has approved an increase in our common stock dividend to $0.28 per share. We believe we are well positioned to manage through the ongoing economic uncertainty, and that we have the ability to pursue additional strategic transactions to further enhance the value of our franchise should a compelling opportunity present itself.”

FINANCIAL HIGHLIGHTS

 

 

Three Months Ended

 

 

September 30,

 

June 30,

 

September 30,

 

 

2020

 

2020

 

2019

Financial Highlights

 

(Dollars in thousands, except per share data)

Net income (loss)

 

$

66,566

 

 

$

(99,091

)

 

$

41,375

 

Diluted earnings (loss) per share

 

0.70

 

 

(1.41

)

 

0.69

 

Pre-provision net revenue (1)

 

$

97,713

 

 

$

60,566

 

 

$

58,425

 

Return on average assets

 

1.31

%

 

(2.61

)%

 

1.44

%

Return on average equity

 

9.90

 

 

(17.76

)

 

8.32

 

Return on average tangible common equity (1)

 

16.44

 

 

(29.40

)

 

16.27

 

Pre-provision net revenue on average assets (1)

 

1.92

 

 

1.60

 

 

2.04

 

Net interest margin

 

3.54

 

 

3.79

 

 

4.36

 

Core net interest margin (1)

 

3.23

 

 

3.59

 

 

4.12

 

Cost of deposits

 

0.20

 

 

0.32

 

 

0.71

 

Efficiency ratio (2)

 

47.4

 

 

52.9

 

 

50.9

 

Total assets

 

$

19,844,240

 

 

$

20,517,074

 

 

$

11,811,497

 

Total deposits

 

16,330,807

 

 

16,976,693

 

 

8,859,288

 

Non-maturity deposits as a percent of total deposits

 

89.5

%

 

88.7

%

 

84.8

%

Book value per share

 

$

28.48

 

 

$

28.14

 

 

$

33.50

 

Tangible book value per share (1)

 

18.01

 

 

17.58

 

 

18.41

 

Total risk-based capital ratio

 

16.00

%

 

15.69

%

 

13.40

%

________________

(1)

A reconciliation of the non-U.S. GAAP measures of pre-provision net revenue, return on average tangible common equity, pre-provision net revenue on average assets, core net interest margin, and tangible book value per share to the U.S. GAAP measures of net income, common stockholders' equity, and book value are set forth at the end of this press release.

(2)

Represents the ratio of noninterest expense less other real estate owned operations, amortization of intangible assets, and merger-related expense to the sum of net interest income before provision for credit losses and total noninterest income, less gains/(loss) on sale of securities, gain/(loss) from other real estate owned, and gain/(loss) from debt extinguishment.

 

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $166.5 million in the third quarter of 2020, an increase of $36.3 million, or 27.8%, from the second quarter of 2020. The increase in net interest income reflected higher average interest-earning assets of $4.88 billion, related to the full quarter's impact of the Opus acquisition, compared with the second quarter of 2020, as well as increased investment securities purchases, higher accretion income, and a lower cost of funds driven by a lower cost of deposits.

The net interest margin for the third quarter of 2020 was 3.54%, compared with 3.79% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income of $12.2 million, compared to $5.8 million in the prior quarter, certificates of deposit mark-to-market amortization, and other one-time adjustments, decreased 36 basis points to 3.23%, compared to 3.59% in the prior quarter. Excluding the Small Business Administration's Paycheck Protection Program (“PPP”) loan portfolio, our core net interest margin decreased 39 basis points to 3.26%, compared to 3.65% in the prior quarter. The decrease was primarily attributable to the shift in interest-earning asset mix and lower loan and investment yields, partially offset by a lower cost of deposits. The lower interest-earning asset yield was driven primarily by the full quarter's impact of the Opus loan portfolio added in June that had lower yields, and the deployment of excess liquidity into lower yielding investment securities. The lower cost of funds was driven principally by lower rates paid on deposits.

Net interest income for the third quarter of 2020 increased $54.2 million, or 48.3%, compared to the third quarter of 2019. The increase was attributable to an increase in average interest-earning assets of $8.48 billion, which primarily resulted from the acquisition of Opus in the second quarter of 2020 and organic loan growth, as well as a higher average investment securities balance and a lower cost of funds, partially offset by lower average loan and investment yields and a higher average balance of deposits.

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCES AND YIELD DATA

 

 

 

 

 

Three Months Ended

 

 

September 30, 2020

 

June 30, 2020

 

September 30, 2019

 

 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Cost

 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Cost

 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Cost

Assets

(Dollars in thousands)

Cash and cash equivalents

$

1,388,897

$

305

0.09

%

$

796,761

$

215

0.11

%

$

188,693

$

403

0.85

%

Investment securities

3,283,840

14,231

1.73

 

1,792,432

10,568

2.36

 

1,311,649

9,227

2.81

 

Loans receivable, net (1) (2)

14,034,868

167,455

4.75

 

11,242,721

133,339

4.77

 

8,728,536

122,974

5.59

 

Total interest-earning assets

$

18,707,605

$

181,991

3.87

 

$

13,831,914

$

144,122

4.19

 

$

10,228,878

$

132,604

5.14

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

$

10,703,431

$

8,509

0.32

 

$

7,317,675

$

9,655

0.53

 

$

5,343,043

$

15,878

1.18

 

Borrowings

542,437

6,936

5.09

 

431,181

4,175

3.89

 

436,979

4,391

3.99

 

Total interest-bearing liabilities

$

11,245,868

$

15,445

0.55

 

$

7,748,856

$

13,830

0.72

 

$

5,780,022

$

20,269

1.39

 

Noninterest-bearing deposits

$

5,877,619

 

 

$

4,970,812

 

 

$

3,533,797

 

 

Net interest income

 

$

166,546

 

 

$

130,292

 

 

$

112,335

 

Net interest margin (3)

 

 

3.54

 

 

 

3.79

 

 

 

4.36

 

Cost of deposits

 

 

0.20

 

 

 

0.32

 

 

 

0.71

 

Cost of funds (4)

 

 

0.36

 

 

 

0.44

 

 

 

0.86

 

Ratio of interest-earning assets to interest-bearing liabilities

166.35

 

 

 

178.50

 

 

 

176.97

 

________________

(1)

Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

(2)

Interest income includes net discount accretion of $12.2 million, $5.8 million, and $6.0 million, respectively.

(3)

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

(4)

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

 

Provision for Credit Losses

Provision for credit losses for the third quarter of 2020 was $4.2 million, a decrease of $156.4 million from the second quarter of 2020 and an increase of $2.6 million from the third quarter of 2019. The decrease from the second quarter of 2020 reflected improved economic conditions, lower loans held for investment, and the impact of Day 1 provision for credit losses associated with the acquisition of Opus during the second quarter of 2020. The credit loss reserve during the second quarter of 2020 resulted from unfavorable changes in economic forecasts employed in the Bank's CECL model and an $84.4 million Day 1 provision for credit losses resulting from the acquisition of Opus in June of 2020. The Company recognized a recapture of $492,000 of the provision for unfunded commitments in the third quarter of 2020, primarily due to lower outstanding unfunded commitments, compared with a provision of $10.4 million in the second quarter of 2020, $8.6 million of which represented the Day 1 provision related to the unfunded commitments from the Opus acquisition, and a $197,000 provision for unfunded commitments in the third quarter of 2019.

 

 

Three Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2020

2020

2019

Provision for Credit Losses

(Dollars in thousands)

Provision for loan losses

$

4,702

 

$

150,257

$

1,365

Provision for unfunded commitments

(492

)

10,378

197

Total provision for credit losses

$

4,210

 

$

160,635

$

1,562

 

Noninterest Income

Noninterest income for the third quarter of 2020 was $26.8 million, an increase of $19.9 million from the second quarter of 2020. The increase was primarily due to a $11.6 million increase in net gain from the sales of loans, a $4.6 million increase in custodial account fees from a full quarter's impact of Pacific Premier Trust acquired in the Opus acquisition, a $1.2 million increase in net gain from sales of investment securities, as well as a $956,000 increase in earnings on bank-owned life insurance (“BOLI”), primarily due to additional BOLI from Opus. In addition, other income increased $687,000, primarily due to an $877,000 increase in escrow and exchange fee income attributable to the Commerce Escrow division acquired in the Opus acquisition.

During the third quarter of 2020, the Bank sold $1.16 billion of Small Business Administration (“SBA”) loans, primarily PPP loans, for a net gain of $19.0 million and sold $96.2 million of other loans for a net loss of $9.4 million, compared with sales of $15.4 million of other loans for a net loss of $2.0 million during the prior quarter.

Noninterest income for the third quarter of 2020 increased $15.3 million, or 134.1%, compared to the third quarter of 2019. The increase was primarily related to a $7.2 million increase in net gain from the sales of loans, the addition of $7.0 million of custodial account fees following the Opus acquisition, a $2.1 million increase in other income primarily due to a $1.1 million increase of escrow and exchange fee income following the Opus acquisition, and a $1.4 million increase in earnings on BOLI, partially offset by a $3.1 million decrease in net gain from sales of investment securities.

The increase in net gain from sales of loans for the third quarter of 2020 compared to the same period last year was primarily due to the sales of $1.16 billion of SBA, primarily PPP loans, for a net gain of $19.0 million and the sale of $96.2 million of other loans for a net loss of $9.4 million, compared with sales of $26.3 million of SBA loans for a net gain of $2.3 million and $684,000 of other loans for a net gain of $8,000 during the third quarter of 2019.

 

 

Three Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2020

 

2020

 

2019

Noninterest Income

(Dollars in thousands)

Loan servicing fees

$

481

$

434

 

$

546

Service charges on deposit accounts

1,593

1,399

 

1,440

Other service fee income

487

297

 

360

Debit card interchange fee income

944

457

 

421

Earnings on BOLI

2,270

1,314

 

861

Net gain (loss) from sales of loans

9,542

(2,032

)

2,313

Net gain (loss) from sales of investment securities

1,141

(21

)

4,261

Custodial account fees

6,960

2,397

 

Other income

3,340

2,653

 

1,228

Total noninterest income

$

26,758

$

6,898

 

$

11,430

 

Noninterest Expense

Noninterest expense totaled $98.6 million for the third quarter of 2020, a decrease of $17.4 million, or 15.0%, compared to the second quarter of 2020, primarily due to the decrease of $36.4 million in merger expense related to the Opus acquisition. Excluding merger-related expense, noninterest expense totaled $95.6 million, an increase of $19.0 million, or 24.8%, compared to the second quarter of 2020 driven primarily by a $8.0 million increase in compensation and benefits, a $2.9 million increase in premises and occupancy, a $2.3 million increase in data processing, and a $2.0 million increase in legal, audit and professional expense, all of which was primarily the result of the full quarter's impact of operations, personnel, and branches retained with the acquisition of Opus.

Noninterest expense increased by $33.2 million, or 50.9%, compared to the third quarter of 2019. The increase was primarily due to a $3.0 million merger-related expense related to the Opus acquisition, a $15.5 million increase in compensation and benefits, a $4.8 million increase in premises and occupancy, a $3.7 million increase in data processing, a $2.1 million increase in legal, audit and professional expense, and a $1.3 million increase in deposit expense as a result of the addition of operations, personnel, and branches retained with the acquisition of Opus.

 

 

Three Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2020

 

2020

 

2019

Noninterest Expense

(Dollars in thousands)

Compensation and benefits

$

51,021

 

$

43,011

$

35,543

 

Premises and occupancy

12,373

 

9,487

7,593

 

Data processing

6,783

 

4,465

3,094

 

Other real estate owned operations, net

(17

)

9

64

 

FDIC insurance premiums

1,145

 

846

(10

)

Legal, audit and professional expense

5,108

 

3,094

3,058

 

Marketing expense

1,718

 

1,319

1,767

 

Office, telecommunications and postage expense

2,389

 

1,533

1,200

 

Loan expense

802

 

823

1,137

 

Deposit expense

4,728

 

4,958

3,478

 

Merger-related expense

2,988

 

39,346

(4

)

Amortization of intangible assets

4,538

 

4,066

4,281

 

Other expense

5,003

 

3,013

4,135

 

Total noninterest expense

$

98,579

 

$

115,970

$

65,336

 

 

Income Tax

For the third quarter of 2020, our income tax expense totaled $23.9 million, resulting in an effective tax rate of 26.5%, compared with an income tax benefit of $40.3 million and an effective tax rate of 28.9% for the second quarter of 2020, and an income tax expense of $15.5 million and an effective tax rate of 27.2% for the third quarter of 2019. The decrease in effective tax rate for the third quarter of 2020 was primarily due to permanent tax benefits which reduced the tax rate for the third quarter, while the same benefits increased the pre-tax loss rate in the second quarter. The income tax benefit from the second quarter of 2020 was the result of the significant pre-tax loss driven by the provision for credit losses and our merger-related costs associated with the Opus acquisition.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $13.45 billion at September 30, 2020, a decrease of $1.63 billion, or 10.8%, from June 30, 2020, and an increase of $4.69 billion, or 53.6%, from September 30, 2019. The decrease from June 30, 2020 was driven by the $1.26 billion sale of loans, primarily SBA PPP loans, as well as higher loan prepayments and payoffs, and lower line utilization rates in the third quarter of 2020. The increase from September 30, 2019 was primarily due to the acquisition of Opus, which added $5.94 billion in gross loans, or $5.81 billion of loans held for investment after purchase accounting adjustments at the time of acquisition.

During the third quarter of 2020, the Bank generated $360.0 million of new loan commitments and funded $280.8 million of new loans, compared with $1.21 billion in new loan commitments and $1.19 billion in new funded loans for the second quarter of 2020, which primarily consisted of SBA PPP loans of $1.13 billion, and $536.9 million in new loan commitments and $356.6 million in new funded loans for the third quarter of 2019. The year-over-year decrease in new loans funded was primarily the result of a slowdown in loan demand. Business line utilization rates decreased to 33.9% at the end of the third quarter of 2020, compared with 37.9% at the end of the second quarter of 2020 and 40.3% at the end of third quarter of 2019.

At September 30, 2020, the ratio of loans held for investment to total deposits was 82.4%, compared with 88.8% and 98.9% at June 30, 2020 and September 30, 2019, respectively.

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

 

September 30,

June 30,

September 30,

 

2020

2020

2019

 

(Dollars in thousands)

Investor loans secured by real estate

 

 

 

Commercial real estate (“CRE”) non-owner-occupied

$

2,707,930

 

$

2,783,692

 

$

2,052,118

 

Multifamily

5,142,069

 

5,225,557

 

1,610,643

 

Construction and land

337,872

 

357,426

 

507,114

 

SBA secured by real estate (1)

57,610

 

59,482

 

68,689

 

Total investor loans secured by real estate

8,245,481

 

8,426,157

 

4,238,564

 

Business loans secured by real estate (2)

 

 

 

CRE owner-occupied

2,119,788

 

2,170,154

 

1,847,443

 

Franchise real estate secured

359,329

 

364,647

 

344,954

 

SBA secured by real estate (3)

84,126

 

85,542

 

91,101

 

Total business loans secured by real estate

2,563,243

 

2,620,343

 

2,283,498

 

Commercial loans (4)

 

 

 

Commercial and industrial

1,820,995

 

2,051,313

 

1,353,793

 

Franchise non-real estate secured

515,980

 

523,755

 

549,711

 

SBA non-real estate secured

16,748

 

21,057

 

17,891

 

SBA PPP

 

1,128,780

 

 

Total commercial loans

2,353,723

 

3,724,905

 

1,921,395

 

Retail loans

 

 

 

Single family residential (5)

243,359

 

265,170

 

273,416

 

Consumer

45,034

 

46,309

 

40,603

 

Total retail loans

288,393

 

311,479

 

314,019

 

Gross loans held for investment (6)

13,450,840

 

15,082,884

 

8,757,476

 

Allowance for credit losses for loans held for investment (7)

(282,503

)

(282,271

)

(35,000

)

Loans held for investment, net

$

13,168,337

 

$

14,800,613

 

$

8,722,476

 

 

 

 

 

Loans held for sale, at lower of cost or fair value

$

1,032

 

$

1,007

 

$

7,092

 

________________

(1)

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

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

(6)

Includes unaccreted fair value net purchase discounts of $126.3 million, $144.5 million, and $46.8 million as of September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

(7)

The allowance for credit losses as of December 31, 2019 was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

 

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at September 30, 2020 was 4.34%, compared to 4.12% at June 30, 2020 and 5.00% at September 30, 2019. Excluding the SBA PPP loans, which had a coupon rate of 1%, the end-of-period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2020 was 4.46%. The quarter-over-quarter and year-over-year decreases reflect the impact of lower rates on new originations as well as the repricing of loans as a result of the Board of Governors of the Federal Reserve System's (the "Federal Reserve Board") federal funds rate decreases in March 2020.

The following table presents the composition of new organic loan commitments originated during the quarters indicated:

 

September 30,

 

June 30,

 

September 30,

 

2020

 

2020

 

2019

 

(Dollars in thousands)

Investor loans secured by real estate

 

 

 

CRE non-owner-occupied

$

40,518

$

11,811

$

90,464

Multifamily

182,575

24,425

41,289

Construction and land

37,087

6,210

60,924

SBA secured by real estate (1)

14,302

Total investor loans secured by real estate

260,180

42,446

206,979

Business loans secured by real estate (2)

 

 

 

CRE owner-occupied

30,594

17,594

84,450

Franchise real estate secured

39,205

SBA secured by real estate (3)

799

1,204

9,655

Total business loans secured by real estate

31,393

18,798

133,310

Commercial loans (4)

 

 

 

Commercial and industrial

56,959

23,782

136,735

Franchise non-real estate secured

9,665

51,813

SBA non-real estate secured

315

539

SBA PPP

1,124,485

Total commercial loans

66,624

1,148,582

189,087

Retail loans

 

 

 

Single family residential (5)

2,137

6,110

Consumer

1,825

195

1,463

Total retail loans

1,825

2,332

7,573

Total loan commitments

$

360,022

$

1,212,158

$

536,949

________________

(1)

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

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

 

The weighted average interest rate on new loan production was 3.61% in the third quarter of 2020 compared with 1.21% in the second quarter of 2020 and 5.28% in the third quarter of 2019. Excluding the SBA PPP loans, the weighted average interest rate on new loan production during the second quarter of 2020 was 3.97%.

Asset Quality and Allowance for Credit Losses

Effective January 1, 2020, the Company adopted the new CECL accounting standard, which replaces the incurred loss methodology. At September 30, 2020, our allowance for credit losses (“ACL”) on loans held for investment was $282.5 million, a slight increase of $232,000 from June 30, 2020 and an increase of $247.5 million from September 30, 2019, and continues to reflect the impact of the COVID-19 pandemic and resulting uncertainty in the macroeconomic environment. The increase from the second quarter of 2020 was associated with the ongoing uncertainties of the economic forecast and changes in asset quality, offset by lower loans held for investment during the third quarter of 2020. The increase from the third quarter of 2019 was primarily due to the cumulative-effect Day 1 adjustment of $55.7 million from the adoption of the CECL model, the provision for loan losses of $180.3 million from the acquisition of Opus as well as the unfavorable changes in economic forecasts employed in the Bank's CECL model related to the COVID-19 pandemic during the first three quarters of 2020.

During the third quarter of 2020, the Company incurred $4.5 million of net charge-offs, compared to $4.7 million and $1.4 million during the second quarter of 2020 and the third quarter of 2019, respectively.

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

 

Three Months Ended September 30, 2020

 

Beginning
ACL Balance

 

Charge-offs

 

Recoveries

 

Provision for
Credit Losses

 

Ending
ACL Balance

 

(Dollars in thousands)

Investor loans secured by real estate

 

 

 

 

 

CRE non-owner occupied

$

63,007

$

(443

)

$

$

(8,459

)

$

54,105

Multifamily

63,511

 

3,825

 

67,336

Construction and land