| Loans Receivable and Allowance for Credit Losses | Loans Receivable and Allowance for Credit LossesLoans Receivable and Allowance for Credit Losses The following table presents the composition of the Company’s loans held-for-investment outstanding as of March 31, 2023 and December 31, 2022: ($ in thousands) March 31, 2023 December 31, 2022 Commercial: C&I $ 15,641,840 $ 15,711,095 CRE: CRE 14,019,136 13,857,870 Multifamily residential 4,682,280 4,573,068 Construction and land 731,394 638,420 Total CRE 19,432,810 19,069,358 Total commercial 35,074,650 34,780,453 Consumer: Residential mortgage: Single-family residential 11,786,998 11,223,027 HELOCs 1,988,881 2,122,655 Total residential mortgage 13,775,879 13,345,682 Other consumer 67,519 76,295 Total consumer 13,843,398 13,421,977 Total loans held-for-investment (1) $ 48,918,048 $ 48,202,430 Allowance for loan losses (619,893) (595,645) Loans held-for-investment, net (1) $ 48,298,155 $ 47,606,785 (1) Includes $(75.4) million and $(70.4) million of net deferred loan fees and net unamortized premiums as of March 31, 2023 and December 31, 2022, respectively. L oans held-for-investment accrued interest receivable was $221.6 million and $208.4 million as of March 31, 2023 and December 31, 2022, respectively, and was included in Other assets on the Consolidated Balance Sheet. The interest income reversed was insignificant for the three months ended March 31, 2023 and 2022. 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 — Loans Held-for-Investment to the Consolidated Financial Statements of the Company’s 2022 Form 10-K. The Company’s FRBSF and FHLB borrowings are primarily secured by loans held-for-investment. Loans held-for-investment totaling $34.17 billion and $28.30 billion, respectively, were pledged to secure borrowings and provide additional borrowing capacity as of March 31, 2023 and December 31, 2022. 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 and current-period gross write-offs by loan portfolio segments, internal risk ratings and vintage year as of the periods presented. The vintage year is the year of loan 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. March 31, 2023 Term Loans by Origination Year ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans (1) Total Commercial: C&I: Pass $ 674,825 $ 2,578,285 $ 1,783,684 $ 521,410 $ 333,681 $ 253,687 $ 9,060,947 $ 20,446 $ 15,226,965 Criticized (accrual) 2 76,947 90,595 30,558 33,825 9,511 129,690 — 371,128 Criticized (nonaccrual) 300 18,197 1,773 10,335 — 13,142 — — 43,747 Total C&I 675,127 2,673,429 1,876,052 562,303 367,506 276,340 9,190,637 20,446 15,641,840 YTD gross write-offs (3) 185 68 72 — — 1,553 — — 1,878 CRE: Pass 468,751 4,143,097 2,386,362 1,470,520 1,724,371 3,216,726 163,308 54,385 13,627,520 Criticized (accrual) — — 53,948 155,649 55,225 106,071 1,455 — 372,348 Criticized (nonaccrual) — 171 18,692 — — 405 — — 19,268 Subtotal CRE 468,751 4,143,268 2,459,002 1,626,169 1,779,596 3,323,202 164,763 54,385 14,019,136 YTD gross write-offs — — — — — 6 — — 6 Multifamily residential: Pass 159,286 1,498,094 882,113 633,118 515,423 951,669 9,253 1,301 4,650,257 Criticized (accrual) — — — — 704 31,160 — — 31,864 Criticized (nonaccrual) — — — — — 159 — — 159 Subtotal multifamily residential 159,286 1,498,094 882,113 633,118 516,127 982,988 9,253 1,301 4,682,280 Construction and land: Pass 47,883 329,458 268,980 34,007 1,245 3,011 12,087 — 696,671 Criticized (accrual) — 13,151 — — — 21,572 — — 34,723 Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 47,883 342,609 268,980 34,007 1,245 24,583 12,087 — 731,394 Total CRE 675,920 5,983,971 3,610,095 2,293,294 2,296,968 4,330,773 186,103 55,686 19,432,810 YTD gross write-offs — — — — — 6 — — 6 Total commercial $ 1,351,047 $ 8,657,400 $ 5,486,147 $ 2,855,597 $ 2,664,474 $ 4,607,113 $ 9,376,740 $ 76,132 $ 35,074,650 YTD total commercial gross write-offs (3) $ 185 $ 68 $ 72 $ — $ — $ 1,559 $ — $ — $ 1,884 March 31, 2023 Term Loans by Origination Year ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans (1) Total Consumer: Residential mortgage: Single-family residential: Pass (2) $ 789,902 $ 3,504,956 $ 2,414,724 $ 1,728,663 $ 1,075,516 $ 2,246,626 $ — $ — $ 11,760,387 Criticized (accrual) — — 629 733 2,436 3,100 — — 6,898 Criticized (nonaccrual) (2) — 142 676 1,006 3,240 14,649 — — 19,713 Subtotal single-family residential mortgage 789,902 3,505,098 2,416,029 1,730,402 1,081,192 2,264,375 — — 11,786,998 HELOCs: Pass — 1,683 1,183 4,240 2,351 10,592 1,835,459 119,520 1,975,028 Criticized (accrual) — — 223 655 — 2,905 488 537 4,808 Criticized (nonaccrual) — — 6 183 69 4,965 191 3,631 9,045 Subtotal HELOCs — 1,683 1,412 5,078 2,420 18,462 1,836,138 123,688 1,988,881 Total residential mortgage 789,902 3,506,781 2,417,441 1,735,480 1,083,612 2,282,837 1,836,138 123,688 13,775,879 Other consumer: Pass 889 16,824 137 5,356 — 7,229 36,715 — 67,150 Criticized (accrual) 3 — — — — — — — 3 Criticized (nonaccrual) — — — — — — 366 — 366 Total other consumer 892 16,824 137 5,356 — 7,229 37,081 — 67,519 YTD gross write-offs — — — — — — 40 — 40 Total consumer $ 790,794 $ 3,523,605 $ 2,417,578 $ 1,740,836 $ 1,083,612 $ 2,290,066 $ 1,873,219 $ 123,688 $ 13,843,398 YTD total consumer gross write-offs (3) $ — $ — $ — $ — $ — $ — $ 40 $ — $ 40 Total loans held-for-investment: Pass $ 2,141,536 $ 12,072,397 $ 7,737,183 $ 4,397,314 $ 3,652,587 $ 6,689,540 $ 11,117,769 $ 195,652 $ 48,003,978 Criticized (accrual) 5 90,098 145,395 187,595 92,190 174,319 131,633 537 821,772 Criticized (nonaccrual) 300 18,510 21,147 11,524 3,309 33,320 557 3,631 92,298 Total $ 2,141,841 $ 12,181,005 $ 7,903,725 $ 4,596,433 $ 3,748,086 $ 6,897,179 $ 11,249,959 $ 199,820 $ 48,918,048 YTD total loans held-for-investment gross write-offs (3) $ 185 $ 68 $ 72 $ — $ — $ 1,559 $ 40 $ — $ 1,924 December 31, 2022 Term Loans by Origination Year ($ in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Revolving Loans Converted to Term Loans (1) Total Commercial: C&I: Pass $ 2,831,834 $ 2,053,215 $ 623,026 $ 392,013 $ 143,970 $ 97,605 $ 9,177,401 $ 20,548 $ 15,339,612 Criticized (accrual) 72,210 34,296 48,761 34,221 20,646 12,933 97,988 — 321,055 Criticized (nonaccrual) 18,722 4,797 10,733 243 5,618 10,315 — — 50,428 Total C&I 2,922,766 2,092,308 682,520 426,477 170,234 120,853 9,275,389 20,548 15,711,095 CRE: Pass 4,178,780 2,404,634 1,505,150 1,771,679 1,471,710 1,909,925 165,653 22,009 13,429,540 Criticized (accrual) 3,518 60,573 159,424 40,095 91,132 32,173 1,455 16,716 405,086 Criticized (nonaccrual) — 19,044 — — — 4,200 — — 23,244 Subtotal CRE 4,182,298 2,484,251 1,664,574 1,811,774 1,562,842 1,946,298 167,108 38,725 13,857,870 Multifamily residential: Pass 1,500,289 892,598 641,677 519,614 350,044 625,293 11,325 — 4,540,840 Criticized (accrual) — — — 707 4,276 27,076 — — 32,059 Criticized (nonaccrual) — — — — — 169 — — 169 Subtotal multifamily residential 1,500,289 892,598 641,677 520,321 354,320 652,538 11,325 — 4,573,068 Construction and land: Pass 288,394 276,839 31,804 3,104 2,805 231 9,073 — 612,250 Criticized (accrual) 4,504 — — — 21,666 — — — 26,170 Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 292,898 276,839 31,804 3,104 24,471 231 9,073 — 638,420 Total CRE 5,975,485 3,653,688 2,338,055 2,335,199 1,941,633 2,599,067 187,506 38,725 19,069,358 Total commercial $ 8,898,251 $ 5,745,996 $ 3,020,575 $ 2,761,676 $ 2,111,867 $ 2,719,920 $ 9,462,895 $ 59,273 $ 34,780,453 Consumer: Residential mortgage: Single-family residential: Pass (2) $ 3,548,894 $ 2,453,717 $ 1,775,696 $ 1,101,965 $ 817,164 $ 1,500,359 $ — $ — $ 11,197,795 Criticized (accrual) — 1,275 785 1,463 4,352 3,935 — — 11,810 Criticized (nonaccrual) (2) 141 — 204 3,202 1,721 8,154 — — 13,422 Subtotal single-family residential mortgage 3,549,035 2,454,992 1,776,685 1,106,630 823,237 1,512,448 — — 11,223,027 HELOCs: Pass 520 3,583 7,336 3,203 525 8,960 1,958,692 127,401 2,110,220 Criticized (accrual) — 6 — — — — 4 1,079 1,089 Criticized (nonaccrual) — — 483 231 1,017 4,844 1,001 3,770 11,346 Subtotal HELOCs 520 3,589 7,819 3,434 1,542 13,804 1,959,697 132,250 2,122,655 Subtotal residential mortgage 3,549,555 2,458,581 1,784,504 1,110,064 824,779 1,526,252 1,959,697 132,250 13,345,682 Other consumer: Pass 17,088 137 5,356 — — 15,808 37,804 — 76,193 Criticized (accrual) 3 — — — — — — — 3 Criticized (nonaccrual) — — — — — — 99 — 99 Total other consumer 17,091 137 5,356 — — 15,808 37,903 — 76,295 Total consumer $ 3,566,646 $ 2,458,718 $ 1,789,860 $ 1,110,064 $ 824,779 $ 1,542,060 $ 1,997,600 $ 132,250 $ 13,421,977 Total by Risk Rating: Pass $ 12,365,799 $ 8,084,723 $ 4,590,045 $ 3,791,578 $ 2,786,218 $ 4,158,181 $ 11,359,948 $ 169,958 $ 47,306,450 Criticized (accrual) 80,235 96,150 208,970 76,486 142,072 76,117 99,447 17,795 797,272 Criticized (nonaccrual) 18,863 23,841 11,420 3,676 8,356 27,682 1,100 3,770 98,708 Total $ 12,464,897 $ 8,204,714 $ 4,810,435 $ 3,871,740 $ 2,936,646 $ 4,261,980 $ 11,460,495 $ 191,523 $ 48,202,430 (1) $12.2 million of total commercial loans, primarily comprised of CRE revolving loans and $5.1 million of total consumer loans, comprised of HELOC revolving loans converted to term loans during the three months ended March 31, 2023. In comparison, no commercial or consumer loans were converted to term loans during the three months ended March 31, 2022. (2) As of March 31, 2023 and December 31, 2022, $827 thousand and $818 thousand, respectively, of nonaccrual loans whose payments are guaranteed by the Federal Housing Administration were classified with a “Pass” rating. (3) Excludes current-period gross write-offs associated with loans the Company sold or settled. Nonaccrual and Past Due Loans Loans that are 90 or more days past due are generally placed on nonaccrual status unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. The following tables present the aging analysis of loans held-for-investment as of March 31, 2023 and December 31, 2022: March 31, 2023 ($ in thousands) Current Accruing Accruing Total Total Total Commercial: C&I $ 15,589,505 $ 4,758 $ 3,830 $ 8,588 $ 43,747 $ 15,641,840 CRE: CRE 13,998,080 1,304 484 1,788 19,268 14,019,136 Multifamily residential 4,681,411 391 319 710 159 4,682,280 Construction and land 723,240 — 8,154 8,154 — 731,394 Total CRE 19,402,731 1,695 8,957 10,652 19,427 19,432,810 Total commercial 34,992,236 6,453 12,787 19,240 63,174 35,074,650 Consumer: Residential mortgage: Single-family residential 11,740,953 17,964 7,541 25,505 20,540 11,786,998 HELOCs 1,969,546 5,485 4,805 10,290 9,045 1,988,881 Total residential mortgage 13,710,499 23,449 12,346 35,795 29,585 13,775,879 Other consumer 67,008 89 56 145 366 67,519 Total consumer 13,777,507 23,538 12,402 35,940 29,951 13,843,398 Total $ 48,769,743 $ 29,991 $ 25,189 $ 55,180 $ 93,125 $ 48,918,048 December 31, 2022 ($ in thousands) Current Accruing Accruing Total Total Total Commercial: C&I $ 15,651,312 $ 6,482 $ 2,873 $ 9,355 $ 50,428 $ 15,711,095 CRE: CRE 13,820,441 14,185 — 14,185 23,244 13,857,870 Multifamily residential 4,571,899 678 322 1,000 169 4,573,068 Construction and land 638,420 — — — — 638,420 Total CRE 19,030,760 14,863 322 15,185 23,413 19,069,358 Total commercial 34,682,072 21,345 3,195 24,540 73,841 34,780,453 Consumer: Residential mortgage: Single-family residential 11,183,134 13,523 12,130 25,653 14,240 11,223,027 HELOCs 2,102,523 7,700 1,086 8,786 11,346 2,122,655 Total residential mortgage 13,285,657 21,223 13,216 34,439 25,586 13,345,682 Other consumer 73,004 109 3,083 3,192 99 76,295 Total consumer 13,358,661 21,332 16,299 37,631 25,685 13,421,977 Total $ 48,040,733 $ 42,677 $ 19,494 $ 62,171 $ 99,526 $ 48,202,430 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 March 31, 2023 and December 31, 2022. 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) March 31, 2023 December 31, 2022 Commercial: C&I $ 16,227 $ 11,398 CRE 18,693 22,944 Total commercial 34,920 34,342 Consumer: Single-family residential 7,206 2,998 HELOCs 5,050 7,245 Total consumer 12,256 10,243 Total nonaccrual loans with no related allowance for loan losses $ 47,176 $ 44,585 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 $270 thousand of foreclosed assets as of both March 31, 2023 and December 31, 2022. The Company commences the foreclosure process on consumer mortgage loans after a borrower becomes more than 120 days delinquent in accordance with the CFPB guidelines. The carrying value of consumer real estate loans that were in an active or suspended foreclosure process was $8.4 million and $7.5 million as of March 31, 2023 and December 31, 2022, respectively. Loan Modifications to Borrowers Experiencing Financial Difficulty As part of the Company’s loss mitigation efforts, the Company may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty. In addition to loan modifications, the Company also provides other loss mitigation options to assist borrowers who are experiencing financial difficulties. The Company offers restructurings mainly in the form of payment deferrals and term extensions. Upon the adoption of ASU 2022-02, which was effective as of January 1, 2023, the Company applies the loan refinancing and restructuring guidance provided in ASU 310-20 to determine whether a modification made to a borrower results in a new loan or a continuation of an existing loan. See Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies — Significant Accounting Policies Update — Loan Modifications to the Consolidated Financial Statements in this Form 10-Q for additional information. The disclosures below provide information on loan modifications to borrowers experiencing financial difficulty. Loans that were both modified and paid off or charged-off during the period, resulting in an amortized cost balance of zero at the end of each period, were excluded from the disclosures below. The following table presents the amortized cost of modified loans and the financial effects of the modifications for the three months ended March 31, 2023 by loan class and modification type: For the Three Months Ended March 31, 2023 Modification Type Financial Effects of ($ in thousands) Term Extension Payment Delay Total Modification as a % of Loan Class Weighted-Average Term Extension Weighted-Average Payment Delay Commercial: C&I $ 19,974 $ 14,364 $ 34,338 0.22 % 0.9 years 1.0 year CRE: CRE 543 — 543 0.00 % 2.0 years Total commercial 20,517 14,364 34,881 Consumer: Residential mortgage: HELOCs 738 — 738 0.04 % 14.8 years Total consumer 738 — 738 Total $ 21,255 $ 14,364 $ 35,619 The Company tracks the performance of modified loans. A modified loan may become delinquent and may result in a payment default (generally 90 days past due) subsequent to modification. There were no loans that received a modification during the three months ended March 31, 2023 that subsequently defaulted. The following table presents the performance of loans that were modified during the three months ended March 31, 2023. Payment Performance as of March 31, 2023 ($ in thousands) Current 30 - 89 Days 90+ Days Total Commercial: C&I $ 27,393 $ 6,945 $ — $ 34,338 CRE: CRE 543 — — 543 Total commercial 27,936 6,945 — 34,881 Consumer: Residential mortgage: HELOCs 738 — — 738 Total consumer 738 — — 738 Total $ 28,674 $ 6,945 $ — $ 35,619 As of March 31, 2023, there were no additional commitments to lend to borrowers whose loans were modified. Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02 Prior to the adoption of ASU 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. ASU 2022-02 eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. The following table presents the additions to TDRs for the three months ended March 31, 2022: Loans Modified as TDRs During the three months ended March 31, 2022 ($ in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) Commercial: C&I 1 $ 17,179 $ 9,224 $ 7,545 Total 1 $ 17,179 $ 9,224 $ 7,545 (1) Includes subsequent payments after modification and reflects the balance as of March 31, 2022. (2) Includes charge-offs since the modification date. The following table presents the TDR post-modification outstanding balances by the primary modification type for the three months ended March 31, 2022: Modification Type ($ in thousands) Principal (1) Total Commercial: C&I $ 9,224 $ 9,224 Total $ 9,224 $ 9,224 (1) Includes principal deferments that modify the terms of the loan from principal and interest payments to interest payments only. 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 information on loans that entered into default during the three months ended March 31, 2022 that were modified as TDRs during the 12 months preceding payment default: Loans Modified as TDRs that Subsequently Defaulted During the Three Months Ended March 31, 2022 ($ in thousands) Number of Loans Recorded Investment Commercial: C&I 1 $ 3,250 Total 1 $ 3,250 As of December 31, 2022, the remaining lending commitments to borrowers whose terms of their outstanding owed balances were modified as TDRs was $16.2 million. Allowance for Credit Losses The Company has a current expected credit losses framework 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. 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 or the reasonable and supportable forecast period and reversion to the historical loss experience method for the three months ended March 31, 2023 and 2022. 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 Loss rate approach 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 the 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 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; or (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 March 31, 2023, collateral-dependent commercial and consumer loans totaled $18.7 million and $12.3 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $47.4 million and $13.4 million, respectively, as of December 31, 2022. The collateral-dependent loans decreased from December 31, 2022, predominantly driven by the adoption of ASU 2022-02 related to the elimination of TDR guidance. The Company's collateral-dependent loans were secured by real estate. As of both March 31, 2023 and December 31, 2022, the collateral value of the properties securing the collateral-dependent loans, net of selling costs, exceeded the recorded value of the loans. The following tables summarize the activity in the allowance for loan losses by portfolio segments for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential HELOCs Other Consumer Total Allowance for loan losses, December 31, 2022 $ 371,700 $ 149,864 $ 23,373 $ 9,109 $ 35,564 $ 4,475 $ 1,560 $ 595,645 Impact of ASU 2022-02 adoption 5,683 337 6 — 1 1 — 6,028 Allowance for loan losses, January 1, 2023 377,383 150,201 23,379 9,109 35,565 4,476 1,560 601,673 (Reversal of) provision for credit losses on loans (a) (678) 4,676 1,135 210 12,442 580 155 18,520 Gross charge-offs (1,900) (6) — — — (91) (40) (2,037) Gross recoveries 1,211 196 12 3 — 6 — 1,428 Total net (charge-offs) recoveries (689) 190 12 3 — (85) (40) (609) Foreign currency translation adjustment 309 — — — — — — 309 Allowance for loan losses, end of period $ 376,325 $ 155,067 $ 24,526 $ 9,322 $ 48,007 $ 4,971 $ 1,675 $ 619,893 Three Months Ended March 31, 2022 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential HELOCs Other Consumer Total Allowance for loan losses, beginning of period $ 338,252 $ 150,940 $ 14,400 $ 15,468 $ 17,160 $ 3,435 $ 1,924 $ 541,579 Provision for (reversal of) credit losses on loans (a) 9,262 (3,493) 9,657 (4,506) 926 299 107 12,252 Gross charge-offs (11,188) (398) (1) — — — (46) (11,633) Gross recoveries 3,002 55 120 54 124 14 — 3,369 Total net (charge-offs) recoveries (8,186) (343) 119 54 124 14 (46) (8,264) Foreign currency translation adjustment 118 — — — — — — 118 Allowance for loan losses, end of period $ 339,446 $ 147,104 $ 24,176 $ 11,016 $ 18,210 $ 3,748 $ 1,985 $ 545,685 The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losse |
