| 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 outstanding as of September 30, 2022 and December 31, 2021: ($ in thousands) September 30, 2022 December 31, 2021 Commercial: C&I (1) $ 15,625,072 $ 14,150,608 CRE: CRE 13,573,157 12,155,047 Multifamily residential 4,559,302 3,675,605 Construction and land 556,894 346,486 Total CRE 18,689,353 16,177,138 Total commercial 34,314,425 30,327,746 Consumer: Residential mortgage: Single-family residential 10,855,345 9,093,702 HELOCs 2,184,924 2,144,821 Total residential mortgage 13,040,269 11,238,523 Other consumer 87,561 127,512 Total consumer 13,127,830 11,366,035 Total loans held-for-investment (2) $ 47,442,255 $ 41,693,781 Allowance for loan losses (582,517) (541,579) Loans held-for-investment, net (2) $ 46,859,738 $ 41,152,202 (1) Includes Paycheck Protection Program loans of $110.9 million and $534.2 million as of September 30, 2022 and December 31, 2021, respectively. (2) Includes $(60.3) million and $(50.7) million of net deferred loan fees and net unamortized premiums as of September 30, 2022 and December 31, 2021, respectively. L oans held-for-investment accrued interest receivable was $165.5 million and $107.4 million as of September 30, 2022 and December 31, 2021, respectively, and was included in Other assets on the Consolidated Balance Sheet. The interest income reversed was insignificant for the three and nine months ended September 30, 2022 and 2021. 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 2021 Form 10-K. The Company’s FRBSF and FHLB borrowings are primarily secured by loans held-for-investment. Loans held-for-investment totaling $25.01 billion and $27.67 billion, respectively, were pledged to secure borrowings and provide additional borrowing capacity as of September 30, 2022 and December 31, 2021. Credit Quality Indicators All loans are subject to the Company’s credit review and monitoring process. For the commercial loan 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 the consumer loan portfolio, payment performance or delinquency is typically the driving indicator for risk ratings. The Company utilizes internal credit risk ratings to assign each individual loan a risk rating of 1 through 10: • Pass — loans risk rated 1 through 5 are assigned an internal risk rating category of “Pass.” Loans risk rated 1 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. • Special mention — loans assigned a risk rating of 6 have potential weaknesses that warrant closer attention by management; these are assigned an internal risk rating category of “Special Mention.” • Substandard — loans assigned a risk rating of 7 or 8 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.” • Doubtful — loans assigned a risk rating of 9 have insufficient sources of repayment and a high probability of loss; these are assigned an internal risk rating category of “Doubtful.” • Loss — loans assigned a risk rating of 10 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.” Loan 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 by loan portfolio segments, internal risk ratings and vintage year as of September 30, 2022 and December 31, 2021. The vintage year is the year of origination, renewal or major modification. Revolving loans that are converted to term loans presented in the tables below are excluded from term loans by vintage year columns. ($ in thousands) September 30, 2022 Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term Loans (1) Total 2022 2021 2020 2019 2018 Prior Commercial: C&I: Pass $ 2,620,973 $ 2,422,523 $ 683,312 $ 414,503 $ 158,867 $ 118,118 $ 8,796,933 $ 28,332 $ 15,243,561 Criticized (accrual) 38,538 51,206 62,356 45,068 21,776 17,115 97,464 — 333,523 Criticized (nonaccrual) 16,039 3,250 11,174 — 5,622 11,903 — — 47,988 Total C&I 2,675,550 2,476,979 756,842 459,571 186,265 147,136 8,894,397 28,332 15,625,072 CRE: Pass 3,431,039 2,447,553 1,640,819 1,856,673 1,505,134 2,098,417 149,902 14,425 13,143,962 Criticized (accrual) 1,324 111,024 124,132 38,478 91,981 33,005 1,455 16,761 418,160 Criticized (nonaccrual) — 4,126 — — — 6,909 — — 11,035 Subtotal CRE 3,432,363 2,562,703 1,764,951 1,895,151 1,597,115 2,138,331 151,357 31,186 13,573,157 Multifamily residential: Pass 1,365,406 933,013 659,063 555,270 364,552 635,396 10,417 — 4,523,117 Criticized (accrual) — — — 711 — 35,300 — — 36,011 Criticized (nonaccrual) — — — — — 174 — — 174 Subtotal multifamily residential 1,365,406 933,013 659,063 555,981 364,552 670,870 10,417 — 4,559,302 Construction and land: Pass 151,429 254,059 61,231 60,919 2,784 233 — — 530,655 Criticized (accrual) — — 4,477 — 21,762 — — — 26,239 Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 151,429 254,059 65,708 60,919 24,546 233 — — 556,894 Total CRE 4,949,198 3,749,775 2,489,722 2,512,051 1,986,213 2,809,434 161,774 31,186 18,689,353 Total commercial 7,624,748 6,226,754 3,246,564 2,971,622 2,172,478 2,956,570 9,056,171 59,518 34,314,425 Consumer: Residential mortgage: Single-family residential: Pass (2) 2,989,092 2,487,082 1,824,666 1,134,087 841,743 1,559,127 — — 10,835,797 Criticized (accrual) 142 1,568 394 1,784 2,888 1,247 — — 8,023 Criticized (nonaccrual) (2) — — 203 2,327 3,639 5,356 — — 11,525 Subtotal single-family residential mortgage 2,989,234 2,488,650 1,825,263 1,138,198 848,270 1,565,730 — — 10,855,345 HELOCs: Pass — 1,735 2,278 1,778 748 9,683 2,012,190 144,021 2,172,433 Criticized (accrual) — — — — — 774 230 919 1,923 Criticized (nonaccrual) — — 2,910 — 1,017 3,011 300 3,330 10,568 Subtotal HELOCs — 1,735 5,188 1,778 1,765 13,468 2,012,720 148,270 2,184,924 Total residential mortgage 2,989,234 2,490,385 1,830,451 1,139,976 850,035 1,579,198 2,012,720 148,270 13,040,269 Other consumer: Pass 15,613 57 5,259 — — 15,170 51,425 — 87,524 Criticized (accrual) — — — — — — — — — Criticized (nonaccrual) — — — — — — 37 — 37 Total other consumer 15,613 57 5,259 — — 15,170 51,462 — 87,561 Total consumer 3,004,847 2,490,442 1,835,710 1,139,976 850,035 1,594,368 2,064,182 148,270 13,127,830 Total by Risk Rating: Pass 10,573,552 8,546,022 4,876,628 4,023,230 2,873,828 4,436,144 11,020,867 186,778 46,537,049 Criticized (accrual) 40,004 163,798 191,359 86,041 138,407 87,441 99,149 17,680 823,879 Criticized (nonaccrual) 16,039 7,376 14,287 2,327 10,278 27,353 337 3,330 81,327 Total $ 10,629,595 $ 8,717,196 $ 5,082,274 $ 4,111,598 $ 3,022,513 $ 4,550,938 $ 11,120,353 $ 207,788 $ 47,442,255 ($ in thousands) December 31, 2021 Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term Loans (1) Total 2021 2020 2019 2018 2017 Prior Commercial: C&I: Pass $ 3,911,722 $ 1,133,085 $ 629,007 $ 187,195 $ 132,392 $ 225,326 $ 7,383,485 $ 28,842 $ 13,631,054 Criticized (accrual) 85,036 117,357 72,277 51,553 15,136 4,005 115,167 — 460,531 Criticized (nonaccrual) 29,456 2,792 513 517 9,301 16,444 — — 59,023 Total C&I 4,026,214 1,253,234 701,797 239,265 156,829 245,775 7,498,652 28,842 14,150,608 CRE: Pass 2,792,193 2,090,503 2,230,520 1,863,481 1,120,682 1,727,862 128,668 6,389 11,960,298 Criticized (accrual) 71,055 3,200 9,176 21,077 24,851 55,892 — — 185,251 Criticized (nonaccrual) 4,350 — — — 4,752 396 — — 9,498 Subtotal CRE 2,867,598 2,093,703 2,239,696 1,884,558 1,150,285 1,784,150 128,668 6,389 12,155,047 Multifamily residential: Pass 1,026,295 726,772 688,453 419,319 308,087 424,947 20,524 — 3,614,397 Criticized (accrual) — — 721 22,344 7,033 30,666 — — 60,764 Criticized (nonaccrual) — — — — — 444 — — 444 Subtotal multifamily residential 1,026,295 726,772 689,174 441,663 315,120 456,057 20,524 — 3,675,605 Construction and land: Pass 122,983 103,743 90,544 3,412 — 391 — — 321,073 Criticized (accrual) 3,355 — — 22,058 — — — — 25,413 Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 126,338 103,743 90,544 25,470 — 391 — — 346,486 Total CRE 4,020,231 2,924,218 3,019,414 2,351,691 1,465,405 2,240,598 149,192 6,389 16,177,138 Total commercial 8,046,445 4,177,452 3,721,211 2,590,956 1,622,234 2,486,373 7,647,844 35,231 30,327,746 Consumer: Residential mortgage: Single-family residential: Pass (2) 2,616,958 2,108,370 1,375,929 1,079,030 763,351 1,127,516 — — 9,071,154 Criticized (accrual) — — 458 2,813 1,899 3,212 — — 8,382 Criticized (nonaccrual) (2) — — 1,751 3,889 4,295 4,231 — — 14,166 Subtotal single-family residential mortgage 2,616,958 2,108,370 1,378,138 1,085,732 769,545 1,134,959 — — 9,093,702 HELOCs: Pass 648 3,277 4,644 1,347 3,268 11,215 1,913,478 197,414 2,135,291 Criticized (accrual) — — — — — 371 7 708 1,086 Criticized (nonaccrual) — — 52 188 3,543 973 — 3,688 8,444 Subtotal HELOCs 648 3,277 4,696 1,535 6,811 12,559 1,913,485 201,810 2,144,821 Subtotal residential mortgage 2,617,606 2,111,647 1,382,834 1,087,267 776,356 1,147,518 1,913,485 201,810 11,238,523 Other consumer: Pass 16,831 5,258 — — 1,741 52,147 51,481 — 127,458 Criticized (accrual) 2 — — — — — — — 2 Criticized (nonaccrual) — — — — — — 52 — 52 Total other consumer 16,833 5,258 — — 1,741 52,147 51,533 — 127,512 Total consumer 2,634,439 2,116,905 1,382,834 1,087,267 778,097 1,199,665 1,965,018 201,810 11,366,035 Total by Risk Rating: Pass 10,487,630 6,171,008 5,019,097 3,553,784 2,329,521 3,569,404 9,497,636 232,645 40,860,725 Criticized (accrual) 159,448 120,557 82,632 119,845 48,919 94,146 115,174 708 741,429 Criticized (nonaccrual) 33,806 2,792 2,316 4,594 21,891 22,488 52 3,688 91,627 Total $ 10,680,884 $ 6,294,357 $ 5,104,045 $ 3,678,223 $ 2,400,331 $ 3,686,038 $ 9,612,862 $ 237,041 $ 41,693,781 (1) $0 and $26.4 million of total commercial loans, primarily comprised of CRE revolving loans, converted to term loans during the three and nine months ended September 30, 2022, respectively. In comparison, $1.5 million and $6.5 million of total commercial loans, primarily comprised of CRE revolving loans, converted to term loans during the three and nine months ended September 30, 2021, respectively. $375 thousand of total consumer loans, comprised of HELOCs, were converted to term loans during the three and nine months ended September 30, 2022. In comparison, $4.1 million and $62.7 million of total consumer loans, comprised of HELOCs, were converted to term loans during the three and nine months ended September 30, 2021, respectively. (2) As of September 30, 2022 and December 31, 2021, $1.2 million and $1.6 million, respectively, of nonaccrual loans whose payments are guaranteed by the Federal Housing Administration were classified with a “Pass” rating. Nonaccrual and Past Due Loans Loans that are 90 or more days past due are generally placed on nonaccrual status unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. The following tables present the aging analysis of total loans held-for-investment as of September 30, 2022 and December 31, 2021: ($ in thousands) September 30, 2022 Current Accruing Accruing Total Total Total Commercial: C&I $ 15,556,124 $ 20,877 $ 83 $ 20,960 $ 47,988 $ 15,625,072 CRE: CRE 13,561,499 489 134 623 11,035 13,573,157 Multifamily residential 4,558,333 795 — 795 174 4,559,302 Construction and land 556,894 — — — — 556,894 Total CRE 18,676,726 1,284 134 1,418 11,209 18,689,353 Total commercial 34,232,850 22,161 217 22,378 59,197 34,314,425 Consumer: Residential mortgage: Single-family residential 10,820,365 13,914 8,325 22,239 12,741 10,855,345 HELOCs 2,169,440 2,992 1,924 4,916 10,568 2,184,924 Total residential mortgage 12,989,805 16,906 10,249 27,155 23,309 13,040,269 Other consumer 87,444 43 37 80 37 87,561 Total consumer 13,077,249 16,949 10,286 27,235 23,346 13,127,830 Total $ 47,310,099 $ 39,110 $ 10,503 $ 49,613 $ 82,543 $ 47,442,255 ($ in thousands) December 31, 2021 Current Accruing Accruing Total Total Total Commercial: C&I $ 14,080,516 $ 6,983 $ 4,086 $ 11,069 $ 59,023 $ 14,150,608 CRE: CRE 12,141,827 3,722 — 3,722 9,498 12,155,047 Multifamily residential 3,669,819 5,320 22 5,342 444 3,675,605 Construction and land 346,486 — — — — 346,486 Total CRE 16,158,132 9,042 22 9,064 9,942 16,177,138 Total commercial 30,238,648 16,025 4,108 20,133 68,965 30,327,746 Consumer: Residential mortgage: Single-family residential 9,059,222 10,191 8,569 18,760 15,720 9,093,702 HELOCs 2,130,523 4,776 1,078 5,854 8,444 2,144,821 Total residential mortgage 11,189,745 14,967 9,647 24,614 24,164 11,238,523 Other consumer 127,352 99 9 108 52 127,512 Total consumer 11,317,097 15,066 9,656 24,722 24,216 11,366,035 Total $ 41,555,745 $ 31,091 $ 13,764 $ 44,855 $ 93,181 $ 41,693,781 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, 2022 and December 31, 2021. Nonaccrual loans may not have an allowance for credit losses if the loan balances are well-secured by the collateral value and there is no loss expectation. ($ in thousands) September 30, 2022 December 31, 2021 Commercial: C&I $ 4,368 $ 22,967 CRE 10,725 9,102 Total commercial 15,093 32,069 Consumer: Single-family residential 2,909 5,785 HELOCs 7,609 5,033 Total consumer 10,518 10,818 Total nonaccrual loans with no related allowance for loan losses $ 25,611 $ 42,887 Foreclosed Assets The Company acquires assets from borrowers through loan restructurings, workouts, and foreclosures. Assets acquired may include real properties (e.g., residential real estate, land, and buildings) and commercial and personal properties. The Company recognizes foreclosed assets upon receiving assets in satisfaction of a loan (e.g., taking legal title or physical possession). Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had no foreclosed assets as of September 30, 2022, compared with $10.3 million as of December 31, 2021. 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 an active or suspended foreclosure process was $7.6 million and $7.3 million as of September 30, 2022 and December 31, 2021, respectively. Troubled Debt Restructurings TDRs are individually evaluated, and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulties. A TDR is a modification of the terms of a loan when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not have otherwise considered. The COVID-related modifications that occurred between March 1, 2020 and January 1, 2022, were generally not classified as TDRs due to the relief under the Coronavirus Aid, Relief, and Economic Security Act, as amended by the Consolidated Appropriations Act, 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), and therefore are not included in the discussion below. See Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Troubled Debt Restructurings to the Consolidated Financial Statements in the Company’s 2021 Form 10-K for additional information. The following tables present the additions to TDRs for the three and nine months ended September 30, 2022 and 2021: ($ in thousands) Loans Modified as TDRs During the Three Months Ended September 30, 2022 2021 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 1 $ 499 $ 496 $ 98 7 $ 26,248 $ 27,111 $ 5,688 CRE: Multifamily residential — — — — 1 1,101 1,118 — Total CRE — — — — 1 1,101 1,118 — Total commercial 1 499 496 98 8 27,349 28,229 5,688 Consumer: Residential mortgage: HELOCs 1 62 69 2 — — — — Total residential mortgage 1 62 69 2 — — — — Total consumer 1 62 69 2 — — — — Total 2 $ 561 $ 565 $ 100 8 $ 27,349 $ 28,229 $ 5,688 ($ in thousands) Loans Modified as TDRs During the Nine Months Ended September 30, 2022 2021 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 4 $ 30,633 $ 17,802 $ 16,729 11 $ 46,144 $ 45,954 $ 7,662 CRE: Multifamily residential — — — — 1 1,101 1,118 — Total CRE — — — — 1 1,101 1,118 — Total commercial 4 30,633 17,802 16,729 12 47,245 47,072 7,662 Consumer: Residential mortgage: HELOCs 1 62 69 2 — — — — Total residential mortgage 1 62 69 2 — — — — Total consumer 1 62 69 2 — — — — Total 5 $ 30,695 $ 17,871 $ 16,731 12 $ 47,245 $ 47,072 $ 7,662 (1) Includes subsequent payments after modification and reflects the balance as of September 30, 2022 and 2021. (2) Includes charge-offs and specific reserves recorded since the modification date. The following tables present the TDR post-modification outstanding balances by the primary modification type for the three and nine months ended September 30, 2022 and 2021: ($ in thousands) Modification Type During the Three Months Ended September 30, 2022 2021 Principal (1) Interest Rate Reduction Other Total Principal (1) Interest Rate Reduction Other Total Commercial: C&I $ 496 $ — $ — $ 496 $ 27,111 $ — $ — $ 27,111 CRE: Multifamily residential — — — — 1,118 — — 1,118 Total CRE — — — 1,118 — — 1,118 Total commercial 496 — — 496 28,229 — — 28,229 Consumer: Residential mortgage: HELOCs 69 — — 69 — — — — Total residential mortgage 69 — — 69 — — — — Total consumer 69 — — 69 — — — — Total $ 565 $ — $ — $ 565 $ 28,229 $ — $ — $ 28,229 ($ in thousands) Modification Type During the Nine Months Ended September 30, 2022 2021 Principal (1) Interest Rate Reduction Other (2) Total Principal (1) Interest Rate Reduction Other Total Commercial: C&I $ 9,609 $ — $ 8,193 $ 17,802 $ 28,780 $ 17,174 $ — $ 45,954 CRE: Multifamily residential — — — — 1,118 — — 1,118 Total CRE — — — — 1,118 — — 1,118 Total commercial 9,609 — 8,193 17,802 29,898 17,174 — 47,072 Consumer: Residential mortgage: HELOCs 69 — — 69 — — — — Total residential mortgage 69 — — 69 — — — — Total consumer 69 — — 69 — — — — Total $ 9,678 $ — $ 8,193 $ 17,871 $ 29,898 $ 17,174 $ — $ 47,072 (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) Includes increase in new commitment. After a loan is modified as 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 information on loans that entered into default during the three and nine months ended September 30, 2022 and 2021, that were modified 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, 2022 2021 2022 2021 Number of Recorded Number of Recorded Number of Recorded Number of Recorded Commercial: C&I — $ — — $ — 2 $ 13,901 1 $ 11,431 CRE: Multifamily residential — — — — 1 1,008 — — Total CRE — — — — 1 1,008 — — Total commercial — — — — 3 14,909 1 11,431 Total — $ — — $ — 3 $ 14,909 1 $ 11,431 As of September 30, 2022 and December 31, 2021, the remaining commitments to lend to borrowers whose terms of their outstanding owed balances were modified as TDRs were $6.4 million and $5.0 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 Company’s allowance for credit losses, which includes both the allowance for loan losses and the allowance for unfunded credit commitments, is calculated with the objective of maintaining a reserve sufficient to absorb losses inherent in our credit portfolios. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses, and periodic evaluation of the loan portfolio, lending-related commitments, and other relevant factors. 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 that share risk characteristics with other similar exposures are collectively evaluated. The collectively evaluated loans include performing 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 Company applies quantitative methods to estimate loan losses by considering 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, which 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, combined with 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 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. There were no changes to the overall model methodology. For the three and nine months ended September 30, 2022, there were no changes to the reasonable and supportable forecast period and reversion to the historical loss experience method. 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, size and spread at origination, and risk rating Volatility Index and BBB yield to 10-year U.S. Treasury spread 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 (1) (1) Macroeconomic variables are included in the qualitative estimate. Allowance for Loan Losses for the Commercial Loan Portfolio The Company’s C&I 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 11 quarters, thereafter immediately reverting to the historical average loss rate, expressed through the loan-level lifetime loss rate. To generate estimates of expected loss at the loan level for CRE, multifamily residential, and construction and land loans, projected probabilities of default (“PDs”) and loss given defaults (“LGDs”) are applied to the estimated exposure at default, considering the term and payment structure of the loan. The forecast of future economic conditions returns to long-run historical economic trends within 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. To estimate the life of a loan for the single-family residential and HELOC portfolios, 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 and associates; — the effect of other external factors such as the regulatory and legal environments, or 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, 2022, collateral-dependent commercial and consumer loans totaled $36.4 million and $13.6 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $37.0 million and $14.0 million, respectively, as of December 31, 2021. The Company's collateral-dependent loans were secured by real estate. As of both September 30, 2022 and December 31, 2021, the collateral value of the properties securing the collateral-dependent loans, net of selling costs, exceeded the recorded value of the loans. The following tables summarize the activities in the allowance for loan losses by portfolio segments for the three and nine months ended September 30, 2022 and 2021: ($ in thousands) Three Months Ended September 30, 2022 Commercial Consumer Total C&I CRE Residential Mortgage Other CRE Multifamily Construction Single- HELOCs Allowance for loan losses, beginning of period $ 363,282 $ 140,245 $ 26,552 $ 6,682 $ 21,840 $ 3,220 $ 1,449 $ 563,270 Provision for credit losses on loans (a) 9,575 5,299 5,047 817 6,182 99 255 27,274 Gross charge-offs (6,894) (288) (5,938) — (775) — (10) (13,905) Gross recoveries 7,172 45 19 7 16 5 — 7,264 Total net recoveries (charge-offs) 278 (243) (5,919) 7 (759) 5 (10) (6,641) Foreign currency translation adjustment (1,386) — — — — — — (1,386) Allowance for loan losses, end of period $ 371,749 $ 145,301 $ 25,680 $ 7,506 $ 27,263 $ 3,324 $ 1,694 $ 582,517 ($ 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) (23,364) 2,129 (2,660) 9,058 2,537 435 130 (11,735) 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 (71) — — — — — — (71) Allowance for loan losses, end of period $ 342,142 $ 150,049 $ 19,917 $ 22,294 $ 18,292 $ 3,392 $ 4,318 $ 560,404 ($ in thousands) Nine Months Ended September 30, 2022 Commercial Consumer Total C&I CRE Residential Mortgage Other CRE Multifamily Construction Single- HELOCs Allowance for loan losses, beginning of period $ 338,252 $ 150,940 $ 14,400 |
