| Loans Receivable and Allowance for Credit Losses | Loans Receivable and Allowance for Credit Losses The following table presents the composition of the Company’s loans held-for-investment as of September 30, 2021 and December 31, 2020: ($ in thousands) September 30, 2021 December 31, 2020 Commercial: C&I (1) $ 13,831,649 $ 13,631,726 CRE: CRE 11,818,065 11,174,611 Multifamily residential 3,340,378 3,033,998 Construction and land 376,921 599,692 Total CRE 15,535,364 14,808,301 Total commercial 29,367,013 28,440,027 Consumer: Residential mortgage: Single-family residential 9,021,801 8,185,953 HELOCs 1,963,622 1,601,716 Total residential mortgage 10,985,423 9,787,669 Other consumer 129,269 163,259 Total consumer 11,114,692 9,950,928 Total loans held-for-investment (2) $ 40,481,705 $ 38,390,955 Allowance for loan losses (560,404) (619,983) Loans held-for-investment, net (2) $ 39,921,301 $ 37,770,972 (1) Includes Paycheck Protection Program (“PPP”) loans of $807.3 million and $1.57 billion as of September 30, 2021 and December 31, 2020, respectively. (2) Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(54.3) million and $(58.8) million as of September 30, 2021 and December 31, 2020, respectively. Net origination fees related to PPP loans were $(13.5) million and $(12.7) million as of September 30, 2021 and December 31, 2020, respectively. L oans held-for-investment accrued interest receivable was $102.7 million and $107.5 million as of September 30, 2021 and December 31, 2020, respectively, and is presented in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy on accrued interest receivable related to loans held-for-investment, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K. Loans totaling $24.55 billion and $23.26 billion as of September 30, 2021 and December 31, 2020, respectively, were pledged to secure borrowings and provide additional borrowing capacity from the FRBSF and the FHLB. Credit Quality Indicators All loans are subject to the Company’s credit review and monitoring process. For the commercial portfolio, loans are risk rated based on an analysis of the borrower’s current payment performance or delinquency, repayment sources, financial and liquidity factors, including industry and geographic considerations. For a majority of the consumer portfolio, payment performance or delinquency is the driving indicator for the risk ratings. The Company utilizes internal credit risk ratings to assign each individual loan a risk rating of one through ten. Loans risk rated one through five are assigned an internal risk rating category of “Pass.” Loans risk rated one are typically loans fully secured by cash. Pass loans have sufficient sources of repayment to repay the loan in full, in accordance with all terms and conditions. Loans assigned a risk rating of six have potential weaknesses that warrant closer attention by management; these are assigned an internal risk rating category of “Special Mention.” Loans assigned a risk rating of seven or eight have well-defined weaknesses that may jeopardize the full and timely repayment of the loan; these are assigned an internal risk rating category of “Substandard.” Loans assigned a risk rating of nine have insufficient sources of repayment and a high probability of loss; these are assigned an internal risk rating category of “Doubtful.” Loans assigned a risk rating of ten are uncollectible and of such little value that they are no longer considered bankable assets; these are assigned an internal risk rating category of “Loss.” Exposures categorized as criticized consist of special mention, substandard, doubtful and loss categories. The Company reviews the internal risk ratings of its loan portfolio on a regular basis, and adjusts the ratings based on changes in the borrowers’ financial status and the collectability of the loans. The following tables summarize the Company’s loans held-for-investment as of September 30, 2021 and December 31, 2020, presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification. ($ in thousands) September 30, 2021 Term Loans Revolving Loans Revolving Loans Converted to Term Loans Amortized Cost Basis Total Amortized Cost Basis by Origination Year 2021 2020 2019 2018 2017 Prior Commercial: C&I: Pass $ 3,136,513 $ 1,454,547 $ 787,238 $ 279,254 $ 175,669 $ 244,616 $ 7,069,657 $ 29,053 $ 13,176,547 Criticized (accrual) 75,943 168,029 110,500 13,700 1,475 4,489 183,809 — 557,945 Criticized (nonaccrual) 5,171 338 17,889 20,148 12,538 1,356 39,717 — 97,157 Total C&I 3,217,627 1,622,914 915,627 313,102 189,682 250,461 7,293,183 29,053 13,831,649 CRE: CRE: Pass 1,956,957 2,181,275 2,288,701 1,965,724 1,181,060 1,869,183 148,077 6,427 11,597,404 Criticized (accrual) 77,286 8,095 9,206 31,093 25,136 55,609 — — 206,425 Criticized (nonaccrual) 4,425 — — 4,648 4,752 411 — — 14,236 Subtotal CRE 2,038,668 2,189,370 2,297,907 2,001,465 1,210,948 1,925,203 148,077 6,427 11,818,065 Multifamily residential: Pass 611,439 752,178 692,580 432,959 316,412 451,180 19,420 — 3,276,168 Criticized (accrual) — — 725 23,512 7,121 31,729 — — 63,087 Criticized (nonaccrual) — — — — — 1,123 — — 1,123 Subtotal multifamily residential 611,439 752,178 693,305 456,471 323,533 484,032 19,420 — 3,340,378 Construction and land: Pass 102,619 99,857 111,607 16,986 — 1,252 — — 332,321 Criticized (accrual) 3,398 — — 22,156 — 19,046 — — 44,600 Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 106,017 99,857 111,607 39,142 — 20,298 — — 376,921 Total CRE 2,756,124 3,041,405 3,102,819 2,497,078 1,534,481 2,429,533 167,497 6,427 15,535,364 Total commercial 5,973,751 4,664,319 4,018,446 2,810,180 1,724,163 2,679,994 7,460,680 35,480 29,367,013 Consumer: Residential mortgage: Single-family residential: Pass (1) 2,131,943 2,214,125 1,465,612 1,169,483 825,120 1,203,031 — — 9,009,314 Criticized (accrual) — — 374 490 1,633 1,214 — — 3,711 Criticized (nonaccrual) (1) — 397 2,178 1,712 1,168 3,321 — — 8,776 Subtotal single-family residential 2,131,943 2,214,522 1,468,164 1,171,685 827,921 1,207,566 — — 9,021,801 HELOCs: Pass 20 1,799 258 1,295 3,343 12,578 1,710,540 223,057 1,952,890 Criticized (accrual) 7 — — 200 — 222 2 1,570 2,001 Criticized (nonaccrual) — — 151 188 3,523 1,579 — 3,290 8,731 Subtotal HELOCs 27 1,799 409 1,683 6,866 14,379 1,710,542 227,917 1,963,622 Total residential mortgage 2,131,970 2,216,321 1,468,573 1,173,368 834,787 1,221,945 1,710,542 227,917 10,985,423 Other consumer: Pass 16,737 5,382 — — 1,741 51,529 51,389 — 126,778 Criticized (accrual) — — — — — — — — — Criticized (nonaccrual) — — — — 2,491 — — — 2,491 Total other consumer 16,737 5,382 — — 4,232 51,529 51,389 — 129,269 Total consumer 2,148,707 2,221,703 1,468,573 1,173,368 839,019 1,273,474 1,761,931 227,917 11,114,692 Total $ 8,122,458 $ 6,886,022 $ 5,487,019 $ 3,983,548 $ 2,563,182 $ 3,953,468 $ 9,222,611 $ 263,397 $ 40,481,705 ($ in thousands) December 31, 2020 Term Loans Revolving Loans Revolving Loans Converted to Term Loans Amortized Cost Basis Total Amortized Cost Basis by Origination Year 2020 2019 2018 2017 2016 Prior Commercial: C&I: Pass $ 3,912,147 $ 1,477,740 $ 483,725 $ 245,594 $ 69,482 $ 245,615 $ 6,431,003 $ 29,487 $ 12,894,793 Criticized (accrual) 120,183 74,601 56,785 19,426 1,487 5,872 324,640 — 602,994 Criticized (nonaccrual) 2,125 25,267 22,240 18,787 4,964 1,592 58,964 — 133,939 Total C&I 4,034,455 1,577,608 562,750 283,807 75,933 253,079 6,814,607 29,487 13,631,726 CRE: CRE: Pass 2,296,649 2,402,136 2,310,748 1,328,251 732,694 1,529,681 173,267 19,064 10,792,490 Criticized (accrual) 47,459 63,654 43,447 98,259 2,094 80,662 — — 335,575 Criticized (nonaccrual) — — 42,067 1,115 — 3,364 — — 46,546 Subtotal CRE 2,344,108 2,465,790 2,396,262 1,427,625 734,788 1,613,707 173,267 19,064 11,174,611 Multifamily residential: Pass 783,671 783,589 479,959 411,945 181,213 348,751 5,895 — 2,995,023 Criticized (accrual) — 735 22,330 6,101 264 5,877 — — 35,307 Criticized (nonaccrual) — — 1,475 — — 2,193 — — 3,668 Subtotal multifamily residential 783,671 784,324 503,764 418,046 181,477 356,821 5,895 — 3,033,998 Construction and land: Pass 224,924 172,707 156,712 — 20,897 1,028 — — 576,268 Criticized (accrual) 3,524 — — — — 19,900 — — 23,424 Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 228,448 172,707 156,712 — 20,897 20,928 — — 599,692 Total CRE 3,356,227 3,422,821 3,056,738 1,845,671 937,162 1,991,456 179,162 19,064 14,808,301 Total commercial 7,390,682 5,000,429 3,619,488 2,129,478 1,013,095 2,244,535 6,993,769 48,551 28,440,027 Consumer: Residential mortgage: Single-family residential: Pass (1) 2,385,853 1,813,200 1,501,660 1,021,707 523,170 921,714 — — 8,167,304 Criticized (accrual) — 1,429 — — 119 1,034 — — 2,582 Criticized (nonaccrual) (1) — 226 812 1,789 1,994 11,246 — — 16,067 Subtotal single-family residential 2,385,853 1,814,855 1,502,472 1,023,496 525,283 933,994 — — 8,185,953 HELOCs: Pass 1,131 880 2,879 5,363 8,433 13,475 1,328,919 225,810 1,586,890 Criticized (accrual) — — 200 — 996 — 1,328 606 3,130 Criticized (nonaccrual) — 151 285 4,617 164 1,962 — 4,517 11,696 Subtotal HELOCs 1,131 1,031 3,364 9,980 9,593 15,437 1,330,247 230,933 1,601,716 Total residential mortgage 2,386,984 1,815,886 1,505,836 1,033,476 534,876 949,431 1,330,247 230,933 9,787,669 Other consumer: Pass 9,531 — — 1,830 — 83,255 66,136 — 160,752 Criticized (accrual) 16 — — — — — — — 16 Criticized (nonaccrual) — — — 2,491 — — — — 2,491 Total other consumer 9,547 — — 4,321 — 83,255 66,136 — 163,259 Total consumer 2,396,531 1,815,886 1,505,836 1,037,797 534,876 1,032,686 1,396,383 230,933 9,950,928 Total $ 9,787,213 $ 6,816,315 $ 5,125,324 $ 3,167,275 $ 1,547,971 $ 3,277,221 $ 8,390,152 $ 279,484 $ 38,390,955 (1) As of September 30, 2021 and December 31, 2020, $647 thousand and $747 thousand of nonaccrual loans whose payments were guaranteed by the Federal Housing Administration, respectively, were classified with a “Pass” rating. Revolving loans converted to term loans presented in the table above are excluded from the term loans by vintage year columns. During the three and nine months ended September 30, 2021, HELOCs totaling $4.1 million and $62.7 million, respectively, were converted to term loans. In comparison, during the three and nine months ended September 30, 2020, HELOCs totaling $59.8 million and $118.2 million, respectively, were converted to term loans. During the three and nine months ended September 30, 2021, one C&I revolving loan of $82 thousand was converted to a term loan. In comparison, during the three and nine months ended September 30, 2020, one C&I revolving loan of $250 thousand was converted to a term loan. One CRE revolving loan of $1.4 million was converted to a term loan during the three months ended September 30, 2021. Three CRE revolving loans totaling $6.4 million were converted to term loans during the nine months ended September 30, 2021. In comparison, there were no conversions of CRE revolving loans to term loans during both the three and nine months ended September 30, 2020. Nonaccrual and Past Due Loans Loans that are 90 or more days past due are generally placed on nonaccrual status, unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. Payment deferral activities instituted in response to the COVID-19 pandemic could delay the recognition of delinquencies for customers who otherwise would have moved into nonaccrual status. The following tables present the aging analysis of total loans held-for-investment as of September 30, 2021 and December 31, 2020: ($ in thousands) September 30, 2021 Current Accruing Loans (1) Accruing Accruing Total Total Total Commercial: C&I $ 13,717,788 $ 6,597 $ 10,107 $ 16,704 $ 97,157 $ 13,831,649 CRE: CRE 11,803,236 438 155 593 14,236 11,818,065 Multifamily residential 3,337,341 1,914 — 1,914 1,123 3,340,378 Construction and land 376,921 — — — — 376,921 Total CRE 15,517,498 2,352 155 2,507 15,359 15,535,364 Total commercial 29,235,286 8,949 10,262 19,211 112,516 29,367,013 Consumer: Residential mortgage: Single-family residential 8,995,226 13,442 3,711 17,153 9,422 9,021,801 HELOCs 1,950,594 2,298 1,999 4,297 8,731 1,963,622 Total residential mortgage 10,945,820 15,740 5,710 21,450 18,153 10,985,423 Other consumer 126,594 180 4 184 2,491 129,269 Total consumer 11,072,414 15,920 5,714 21,634 20,644 11,114,692 Total $ 40,307,700 $ 24,869 $ 15,976 $ 40,845 $ 133,160 $ 40,481,705 ($ in thousands) December 31, 2020 Current Accruing Loans (1) Accruing Accruing Total Total Total Commercial: C&I $ 13,488,070 $ 8,993 $ 724 $ 9,717 $ 133,939 $ 13,631,726 CRE: CRE 11,127,690 375 — 375 46,546 11,174,611 Multifamily residential 3,028,512 1,818 — 1,818 3,668 3,033,998 Construction and land 579,792 19,900 — 19,900 — 599,692 Total CRE 14,735,994 22,093 — 22,093 50,214 14,808,301 Total commercial 28,224,064 31,086 724 31,810 184,153 28,440,027 Consumer: Residential mortgage: Single-family residential 8,156,645 9,911 2,583 12,494 16,814 8,185,953 HELOCs 1,583,968 2,922 3,130 6,052 11,696 1,601,716 Total residential mortgage 9,740,613 12,833 5,713 18,546 28,510 9,787,669 Other consumer 160,534 217 17 234 2,491 163,259 Total consumer 9,901,147 13,050 5,730 18,780 31,001 9,950,928 Total $ 38,125,211 $ 44,136 $ 6,454 $ 50,590 $ 215,154 $ 38,390,955 (1) As of September 30, 2021 and December 31, 2020, loans in payment deferral programs offered in response to the COVID-19 pandemic that are performing according to their modified terms are generally not considered delinquent, and are included in the “Current Accruing Loans” column. The following table presents the amortized cost of loans on nonaccrual status for which there was no related allowance for loan losses as of both September 30, 2021 and December 31, 2020. Nonaccrual loans may not have an allowance for credit losses if the loss expectation is zero because the loan balances are supported by the collateral value. ($ in thousands) September 30, 2021 December 31, 2020 Commercial: C&I $ 15,270 $ 62,040 CRE: CRE 13,826 45,537 Multifamily residential — 2,519 Total CRE 13,826 48,056 Total commercial 29,096 110,096 Consumer: Residential mortgage: Single-family residential 1,534 6,013 HELOCs 5,608 8,076 Total residential mortgage 7,142 14,089 Other consumer — 2,491 Total consumer 7,142 16,580 Total nonaccrual loans with no related allowance for loan losses $ 36,238 $ 126,676 Foreclosed Assets Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had $39.5 million in foreclosed assets as of September 30, 2021, compared with $19.7 million as of December 31, 2020. The Company commences the foreclosure process on consumer mortgage loans after a borrower becomes more than 120 days delinquent in accordance with the Consumer Financial Protection Bureau guidelines. The carrying value of consumer real estate loans that were in the process of active or suspended foreclosure was $8.7 million and $4.1 million as of September 30, 2021 and December 31, 2020, respectively. The Company suspended certain mortgage foreclosure activities in connection with its actions to support its customers during the COVID-19 pandemic. In addition, certain other foreclosures are awaiting for the end of government-mandated foreclosure moratoriums in certain states. Troubled Debt Restructurings Troubled debt restructurings (“TDRs”) are individually evaluated, and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulties. A TDR is a modification of the terms of a loan when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not have otherwise considered. Since March 2020, the Company has implemented various commercial and consumer loan modification programs to provide its borrowers relief from the economic impacts of the COVID-19 pandemic. These COVID-related modifications are generally not classified as TDRs due to the relief under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), and therefore are not included in the discussion below. Assistance provided in response to the COVID-19 pandemic could delay the recognition of delinquencies, nonaccrual status, and net charge-offs for those borrowers who would have otherwise moved into past due or nonaccrual status. See Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K. The following tables present the additions to TDRs for the three and nine months ended September 30, 2021 and 2020: ($ in thousands) Loans Modified as TDRs During the Three Months Ended September 30, 2021 2020 Number Pre- Post- Modification Outstanding Recorded Investment (1) Financial Impact (2) Number Pre- Post- Modification Outstanding Recorded Investment (1) Financial Impact (2) Commercial: C&I 7 $ 26,248 $ 27,111 $ 5,688 6 $ 43,378 $ 35,568 $ 12,108 CRE: CRE — — — — 2 21,429 21,242 21 Multifamily residential 1 1,101 1,118 — 1 1,220 1,226 — Total CRE 1 1,101 1,118 — 3 22,649 22,468 21 Total commercial 8 27,349 28,229 5,688 9 66,027 58,036 12,129 Total 8 $ 27,349 $ 28,229 $ 5,688 9 $ 66,027 $ 58,036 $ 12,129 ($ in thousands) Loans Modified as TDRs During the Nine Months Ended September 30, 2021 2020 Number Pre- Post- Modification Outstanding Recorded Investment (1) Financial Impact (2) Number Pre- Post- Modification Outstanding Recorded Investment (1) Financial Impact (2) Commercial: C&I 11 $ 46,144 $ 45,954 $ 7,662 11 $ 93,235 $ 79,713 $ 12,507 CRE: CRE — — — — 2 21,429 21,242 21 Multifamily residential 1 1,101 1,118 — 1 1,220 1,226 — Total CRE 1 1,101 1,118 — 3 22,649 22,468 21 Total commercial 12 47,245 47,072 7,662 14 115,884 102,181 12,528 Total 12 $ 47,245 $ 47,072 $ 7,662 14 $ 115,884 $ 102,181 $ 12,528 (1) Includes subsequent payments after modification and reflects the balance as of September 30, 2021 and 2020. (2) Includes charge-offs and specific reserves recorded since the modification date. The following tables present the TDR post-modification outstanding balances for the three and nine months ended September 30, 2021 and 2020 by modification type: ($ in thousands) Modification Type During the Three Months Ended September 30, 2021 2020 Principal (1) Principal Interest Interest Rate Reduction Total Principal (1) Principal and Interest (2) Interest Interest Rate Reduction Total Commercial: C&I $ 27,111 $ — $ — $ — $ 27,111 $ 19,025 $ — $ 16,543 $ — $ 35,568 CRE: CRE — — — — — 21,242 — — — 21,242 Multifamily residential 1,118 — — — 1,118 1,226 — — — 1,226 Total CRE 1,118 — — 1,118 22,468 — — — 22,468 Total commercial 28,229 — — — 28,229 41,493 — 16,543 — 58,036 Total $ 28,229 $ — $ — $ — $ 28,229 $ 41,493 $ — $ 16,543 $ — $ 58,036 ($ in thousands) Modification Type During the Nine Months Ended September 30, 2021 2020 Principal (1) Principal Interest Interest Rate Reduction Total Principal (1) Principal and Interest (2) Interest Interest Rate Reduction Total Commercial: C&I $ 28,780 $ — $ — $ 17,174 $ 45,954 $ 36,043 $ 10,819 $ 32,851 $ — $ 79,713 CRE: CRE — — — — — 21,242 — — — 21,242 Multifamily residential 1,118 — — — 1,118 1,226 — — — 1,226 Total CRE 1,118 — — — 1,118 22,468 — — — 22,468 Total commercial 29,898 — — 17,174 47,072 58,511 10,819 32,851 — 102,181 Total $ 29,898 $ — $ — $ 17,174 $ 47,072 $ 58,511 $ 10,819 $ 32,851 $ — $ 102,181 (1) Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only. (2) Include principal and interest deferments or reductions. After a loan is modified as a TDR, the Company continues to monitor its performance under its most recent restructured terms. A TDR may become delinquent and result in payment default (generally 90 days past due) subsequent to restructuring. The following table presents the information on loans that entered into payment default during the three and nine months ended September 30, 2021 and 2020 that were modified in as TDRs during the 12 months preceding payment default: ($ in thousands) Loans Modified as TDRs that Subsequently Defaulted Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Loan Count Recorded Loan Count Recorded Loan Count Recorded Loan Count Recorded Commercial: C&I — $ — — $ — 1 $ 11,431 1 $ 16,309 Total — $ — — $ — 1 $ 11,431 1 $ 16,309 As of September 30, 2021 and December 31, 2020, the remaining commitments to lend additional funds to borrowers whose terms of their outstanding owed balances were modified as TDRs was $6.8 million and $3.0 million, respectively. Allowance for Credit Losses The Company has an allowance framework under ASU 2016-13 for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The allowance for credit losses is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred fees and costs, and escrow advances. Subsequent changes in expected credit losses are recognized in net income as a provision for, or a reversal of, credit loss expense. The allowance for credit losses estimation involves procedures to consider the unique risk characteristics of the portfolio segments. The majority of the Company’s credit exposures share risk characteristics with other similar exposures and are collectively evaluated. The collectively evaluated loans cover performing risk-rated loans and unfunded credit commitments. If an exposure does not share risk characteristics with other exposures, the Company generally estimates expected credit losses on an individual basis. These individually assessed loans include TDR and nonaccrual loans. Allowance for Collectively Evaluated Loans The allowance for collectively evaluated loans consists of a quantitative component that assesses the different risk factors considered in our models and a qualitative component that considers risk factors external to the models. Each of these components are described below. • Quantitative Component — The allowance for loan losses is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio, and an economic outlook over the life of the loan. The Company incorporates forward-looking information using macroeconomic scenarios applied over the forecasted life of the loans. The forward-looking information is limited to the reasonable and supportable period. These macroeconomic scenarios include variables that are considered key drivers of increases and decreases in credit losses. The Company utilizes a probability-weighted, multiple-scenario forecast approach. These scenarios may consist of a base forecast representing management's view of the most likely outcome, and downside or upside scenarios reflecting possible worsening or improving economic conditions. The quantitative models incorporate a probability-weighted calculation of these macroeconomic scenarios over a reasonable and supportable forecast period. If the life of the loans extends beyond the reasonable and supportable forecast period, the Company will consider historical experience or long-run macroeconomic trends over the remaining lives of the loans to estimate the allowance for loan losses. For both the three and nine months ended September 30, 2021 and 2020, there were no changes to the reasonable and supportable forecast period, except to the C&I segment, which changed from eight to 11 quarters, and no changes to the reversion to historical loss experience method. The change in the reasonable and supportable period for the C&I segment was due to model enhancement, including updates to certain macroeconomic variable inputs. There was no change to the overall model methodology. The following table provides key credit risk characteristics and macroeconomic variables that the Company uses to estimate the expected credit losses by portfolio segment: Portfolio Segment Risk Characteristics Macroeconomic Variables C&I Age (1) , size and spread at origination, and internal risk rating Volatility Index (“VIX”) and BBB yield to 10-year U.S. Treasury spread (“BBB Spread”) (1) CRE, Multifamily residential, and Construction and land Delinquency status, maturity date, collateral value, property type, and geographic location Unemployment rate, Gross Domestic Product (“GDP”), and U.S. Treasury rates Single-family residential and HELOCs FICO score, delinquency status, maturity date, collateral value, and geographic location Unemployment rate, GDP, and home price index Other consumer Historical loss experience Immaterial (2) (1) Due to model enhancements, risk characteristic related to “time-to-maturity” was changed to “age”; while macroeconomic variables related to “unemployment rate and two- and ten-year U.S. Treasury spread” were changed to “VIX and BBB Spread” during the three months ended September 30, 2021. (2) Macroeconomic variables are included in the qualitative estimate. Allowance for Loan Losses for the Commercial Loan Portfolio The Company’s C&I loan lifetime loss rate model estimates credit losses by estimating a loss rate expected over the life of a loan. This loss rate is applied to the amortized cost basis, excluding accrued interest receivable, to determine expected credit losses. The lifetime loss rate model’s reasonable and supportable period spans eleven quarters, thereafter immediately reverting to the historical average loss rate, expressed through the loan-level lifetime loss rate. For CRE, multifamily residential, and construction and land loans, projected probability of defaults (“PDs”) and loss given defaults (“LGDs”) are applied to the estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss at the loan level. The forecast of future economic conditions returns to long-run historical economic trends after the reasonable and supportable period. In order to estimate the life of a loan under both models, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience. Allowance for Loan Losses for the Consumer Loan Portfolio For single-family residential and HELOC loans, projected PDs and LGDs are applied to the estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss at the loan level. The forecast of future economic conditions returns to long-run historical economic trends after the reasonable and supportable period. In order to estimate the life of a loan for the single-family residential and HELOC portfolio, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience. For other consumer loans, the Company uses a loss rate approach. • Qualitative Component — The Company also considers the following qualitative factors in the determination of the collectively evaluated allowance, if these factors have not already been captured by the quantitative model. Such qualitative factors may include, but are not limited to: – Loan growth trends; – The volume and severity of past due financial assets, and the volume and severity of adversely classified financial assets; – The Company’s lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices; – Knowledge of a borrower’s operations; – The quality of the Company’s credit review system; – The experience, ability and depth of the Company’s management, lending associates and other relevant associates; – The effect of other external factors such as the regulatory and legal environments and changes in technology; – Actual and expected changes in international, national, regional, and local economic and business conditions in which the Company operates; and – Risk factors in certain industry sectors not captured by the quantitative models. The magnitude of the impact of these factors on the Company’s qualitative assessment of the allowance for credit losses changes from period to period according to changes made by management in its assessment of these factors. The extent to which these factors change may be dependent on whether they are already reflected in quantitative loss estimates during the current period and the extent to which changes in these factors diverge from period to period. While the Company’s allowance methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between expected and actual outcomes. The Company may hold additional qualitative reserves that are designed to provide coverage for losses attributable to such risk. Allowance for Individually Evaluated Loans When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual or TDR loans, the Company estimates the allowance for loan losses on an individual loan basis. The allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and their fair value. For loans evaluated individually, the Company uses one of three different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; (2) the present value of expected future cash flows; and (3) the loan's observable market price. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral less costs to sell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of future cash flows or the observable market value of the loan. • Collateral-Dependent Loans — The allowance of a collateral-dependent loan is limited to the difference between the recorded value and fair value of the collateral less cost of disposal or sale. As of September 30, 2021, collateral-dependent commercial and consumer loans totaled $45.4 million and $10.4 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $97.2 million and $17.3 million, respectively, as of December 31, 2020. The Company's commercial collateral-dependent loans were secured by real estate or other collateral. The Company's consumer collateral-dependent loans were all residential mortgage loans, secured by the underlying real estate. As of both September 30, 2021 and December 31, 2020, the collateral value of the properties securing each of these collateral-dependent loans, net of selling costs, exceeded the recorded value of the individual loans. The following tables summarize the activity in the allowance for loan losses by portfolio segments for the three and nine months ended September 30, 2021 and 2020: ($ in thousands) Three Months Ended September 30, 2021 Commercial Consumer Total C&I CRE Residential Mortgage Other CRE Multifamily Construction Single- HELOCs Allowance for loan losses, beginning of period $ 362,528 $ 161,962 $ 21,925 $ 15,643 $ 16,530 $ 2,938 $ 4,198 $ 585,724 (Reversal of) provision for credit losses on loans (a) (23,365) 2,129 (2,660) 9,058 2,537 435 130 (11,736) Gross charge-offs (1,154) (14,229) — (2,674) (912) — (10) (18,979) Gross recoveries 4,203 187 652 267 137 19 — 5,465 Total net recoveries (charge-offs) 3,049 (14,042) 652 (2,407) (775) 19 (10) (13,514) Foreign currency translation adjustment (70) — — — — — — (70) Al |
