| 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 June 30, 2023 and December 31, 2022: ($ in thousands) June 30, 2023 December 31, 2022 Commercial: C&I $ 15,670,084 $ 15,711,095 CRE: CRE 14,373,385 13,857,870 Multifamily residential 4,764,180 4,573,068 Construction and land 781,068 638,420 Total CRE 19,918,633 19,069,358 Total commercial 35,588,717 34,780,453 Consumer: Residential mortgage: Single-family residential 12,308,613 11,223,027 HELOCs 1,862,928 2,122,655 Total residential mortgage 14,171,541 13,345,682 Other consumer 68,106 76,295 Total consumer 14,239,647 13,421,977 Total loans held-for-investment (1) $ 49,828,364 $ 48,202,430 Allowance for loan losses (635,400) (595,645) Loans held-for-investment, net (1) $ 49,192,964 $ 47,606,785 (1) Includes $74.0 million and $70.4 million comprising unamortized deferred and unearned fees, net of premiums as of June 30, 2023 and December 31, 2022, respectively. Accrued interest receivable on loans held-for-investment was $229.7 million and $208.4 million as of June 30, 2023 and December 31, 2022, respectively, and was included in Other assets on the Consolidated Balance Sheet. The interest income reversed was insignificant for both the three and six months ended June 30, 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 also has loans held-for-sale. For the Company’s accounting policy on loans held-for-sale, refer to Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Sale to the Consolidated Financial Statements in 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 $34.19 billion and $28.30 billion, respectively, were pledged to secure borrowings and provide additional borrowing capacity as of June 30, 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 year-to-date 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. June 30, 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 $ 1,427,799 $ 2,285,112 $ 1,610,248 $ 415,562 $ 267,164 $ 217,673 $ 9,016,889 $ 20,345 $ 15,260,792 Criticized (accrual) 18,452 93,118 81,361 26,033 26,027 22,837 79,585 — 347,413 Criticized (nonaccrual) 2,657 22,800 1,773 8,987 7,798 12,697 5,167 — 61,879 Total C&I 1,448,908 2,401,030 1,693,382 450,582 300,989 253,207 9,101,641 20,345 15,670,084 YTD gross write-offs (3) 185 1,996 95 15 4,930 1,683 — — 8,904 CRE: Pass 1,358,049 4,119,439 2,323,453 1,481,659 1,689,335 2,936,955 111,043 53,747 14,073,680 Criticized (accrual) 36,966 2,757 23,746 68,936 37,981 111,969 1,455 — 283,810 Criticized (nonaccrual) — 171 15,099 — 460 165 — — 15,895 Subtotal CRE 1,395,015 4,122,367 2,362,298 1,550,595 1,727,776 3,049,089 112,498 53,747 14,373,385 YTD gross write-offs — — 2,253 — — 119 — — 2,372 Multifamily residential: Pass 289,218 1,497,280 875,986 625,489 507,401 926,253 9,425 1,295 4,732,347 Criticized (accrual) — — — — 700 26,430 — — 27,130 Criticized (nonaccrual) — — — — — 4,703 — — 4,703 Subtotal multifamily residential 289,218 1,497,280 875,986 625,489 508,101 957,386 9,425 1,295 4,764,180 Construction and land: Pass 85,733 355,949 259,113 34,103 816 2,986 14,952 — 753,652 Criticized (accrual) 5,865 — — — — 21,551 — — 27,416 Subtotal construction and land 91,598 355,949 259,113 34,103 816 24,537 14,952 — 781,068 Total CRE 1,775,831 5,975,596 3,497,397 2,210,187 2,236,693 4,031,012 136,875 55,042 19,918,633 YTD gross write-offs — — 2,253 — — 119 — — 2,372 Total commercial $ 3,224,739 $ 8,376,626 $ 5,190,779 $ 2,660,769 $ 2,537,682 $ 4,284,219 $ 9,238,516 $ 75,387 $ 35,588,717 YTD total commercial gross write-offs (3) $ 185 $ 1,996 $ 2,348 $ 15 $ 4,930 $ 1,802 $ — $ — $ 11,276 June 30, 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) $ 1,585,454 $ 3,445,517 $ 2,369,777 $ 1,680,587 $ 1,044,089 $ 2,152,061 $ — $ — $ 12,277,485 Criticized (accrual) 547 574 934 1,708 471 5,647 — — 9,881 Criticized (nonaccrual) (2) 1,470 138 1,103 2,432 3,581 12,523 — — 21,247 Subtotal single-family residential mortgage 1,587,471 3,446,229 2,371,814 1,684,727 1,048,141 2,170,231 — — 12,308,613 HELOCs: Pass 978 751 1,793 6,004 2,033 12,007 1,711,411 115,557 1,850,534 Criticized (accrual) — 801 208 — — — 232 102 1,343 Criticized (nonaccrual) — — 223 835 — 5,022 704 4,267 11,051 Subtotal HELOCs 978 1,552 2,224 6,839 2,033 17,029 1,712,347 119,926 1,862,928 YTD gross write-offs (3) — — — — — — — 6 6 Total residential mortgage 1,588,449 3,447,781 2,374,038 1,691,566 1,050,174 2,187,260 1,712,347 119,926 14,171,541 YTD gross write-offs (3) — — — — — — — 6 6 Other consumer: Pass 885 16,824 136 5,356 — 11,810 33,071 — 68,082 Criticized (nonaccrual) — — — — — — 24 — 24 Total other consumer 885 16,824 136 5,356 — 11,810 33,095 — 68,106 YTD gross write-offs — — — — — — 88 — 88 Total consumer $ 1,589,334 $ 3,464,605 $ 2,374,174 $ 1,696,922 $ 1,050,174 $ 2,199,070 $ 1,745,442 $ 119,926 $ 14,239,647 YTD total consumer gross write-offs (3) $ — $ — $ — $ — $ — $ — $ 88 $ 6 $ 94 Total loans held-for-investment: Pass $ 4,748,116 $ 11,720,872 $ 7,440,506 $ 4,248,760 $ 3,510,838 $ 6,259,745 $ 10,896,791 $ 190,944 $ 49,016,572 Criticized (accrual) 61,830 97,250 106,249 96,677 65,179 188,434 81,272 102 696,993 Criticized (nonaccrual) 4,127 23,109 18,198 12,254 11,839 35,110 5,895 4,267 114,799 Total $ 4,814,073 $ 11,841,231 $ 7,564,953 $ 4,357,691 $ 3,587,856 $ 6,483,289 $ 10,983,958 $ 195,313 $ 49,828,364 YTD total loans held-for-investment gross write-offs (3) $ 185 $ 1,996 $ 2,348 $ 15 $ 4,930 $ 1,802 $ 88 $ 6 $ 11,370 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 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 Total 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) $1.4 million and $13.5 million of total commercial loans, primarily comprised of CRE revolving loans converted to term loans during the three and six months ended June 30, 2023, respectively. In comparison, $26.4 million of total commercial loans, comprised of CRE revolving loans converted to term loans during both the three and six months ended June 30, 2022. $9.7 million and $14.5 million of total consumer loans, comprised of HELOCs were converted to term loans during three and six months ended June 30, 2023, respectively. In comparison, there were no consumer loans converted to term loans during the three and six months ended June 30, 2022. (2) As of June 30, 2023 and December 31, 2022, $734 thousand and $818 thousand, respectively, of nonaccrual loans whose payments are guaranteed by the Federal Housing Administration were classified with a “Pass” rating. (3) Excludes gross write-offs associated with loans the Company sold or settled. Nonaccrual and Past Due Loans Loans that are 90 or more days past due are generally placed on nonaccrual status unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. The following tables present the aging analysis of loans held-for-investment as of June 30, 2023 and December 31, 2022: June 30, 2023 ($ in thousands) Current Accruing Accruing Total Total Total Commercial: C&I $ 15,602,567 $ 3,247 $ 2,391 $ 5,638 $ 61,879 $ 15,670,084 CRE: CRE 14,342,301 15,189 — 15,189 15,895 14,373,385 Multifamily residential 4,758,515 962 — 962 4,703 4,764,180 Construction and land 759,516 21,552 — 21,552 — 781,068 Total CRE 19,860,332 37,703 — 37,703 20,598 19,918,633 Total commercial 35,462,899 40,950 2,391 43,341 82,477 35,588,717 Consumer: Residential mortgage: Single-family residential 12,254,680 21,752 10,200 31,952 21,981 12,308,613 HELOCs 1,840,064 10,471 1,342 11,813 11,051 1,862,928 Total residential mortgage 14,094,744 32,223 11,542 43,765 33,032 14,171,541 Other consumer 67,099 142 841 983 24 68,106 Total consumer 14,161,843 32,365 12,383 44,748 33,056 14,239,647 Total $ 49,624,742 $ 73,315 $ 14,774 $ 88,089 $ 115,533 $ 49,828,364 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 June 30, 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) June 30, 2023 December 31, 2022 Commercial: C&I $ 27,690 $ 11,398 CRE 15,100 22,944 Multifamily residential 4,235 — Total commercial 47,025 34,342 Consumer: Single-family residential 6,077 2,998 HELOCs 5,076 7,245 Total consumer 11,153 10,243 Total nonaccrual loans with no related allowance for loan losses $ 58,178 $ 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 no foreclosed assets as of June 30, 2023, compared with $270 thousand as of 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 $7.1 million and $7.5 million as of June 30, 2023 and December 31, 2022, respectively. Loan Modifications to Borrowers Experiencing Financial Difficulty Effective January 1, 2023, the Company adopted ASU 2022-02, which in part eliminated the accounting for TDR and enhanced disclosures requirements for loan modifications to borrowers experiencing financial difficulty. 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. As part of the Company’s loss mitigation efforts, the Company may agree to modify the contractual terms of a loan to assist borrowers experiencing financial difficulty. The Company negotiates loan modifications on a case-by-case basis to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. The Company considers various factors to identify borrowers experiencing financial difficulty. The primary factor for consumer borrowers is delinquency status. For commercial loan borrowers, these factors include credit risk ratings, the probability of loan risk rating downgrades, and overall risk profile changes. The modification may include, but is not limited to, payment deferrals, interest rate reductions, term extensions, principal forgiveness, or a combination of such modifications. Commercial loan borrowers that require immaterial modifications such as insignificant interest rate changes, short-term extensions (90 days or less) from the original maturity date, or temporary waivers or extensions of financial covenants which would not constitute material credit actions are generally not considered to be experiencing financial difficulty and are not included in the disclosure. Insignificant payment deferrals (three months or less in the last 12 months) are also not included in the disclosure. The following tables present the amortized cost of loans that were modified during the three and six months ended June 30, 2023 by loan class and modification type: Three Months Ended June 30, 2023 Modification Type ($ in thousands) Term Extension Payment Delay Combo- Term Extension/ Payment Delay Combo- Rate Reduction/ Term Extension Combo- Principal Forgiveness Rate Reduction/ Term Extension Total Modification as a % of Loan Class Commercial: C&I $ 13,475 $ 12,788 $ — $ — $ 298 $ 26,561 0.17 % CRE: CRE — — — 32,791 — 32,791 0.16 % Total commercial 13,475 12,788 — 32,791 298 59,352 Consumer: Residential mortgage: Single-family residential: — 5,085 551 — — 5,636 0.05 % HELOCs — 978 — — — 978 0.05 % Total consumer — 6,063 551 — — 6,614 Total $ 13,475 $ 18,851 $ 551 $ 32,791 $ 298 $ 65,966 Six Months Ended June 30, 2023 Modification Type ($ in thousands) Term Extension Payment Delay Combo- Term Extension/ Payment Delay Combo- Rate Reduction/ Term Extension Combo- Principal Forgiveness Rate Reduction/ Term Extension Total Modification as a % of Loan Class Commercial: C&I $ 33,098 $ 26,799 $ — $ — $ 298 $ 60,195 0.38 % CRE: CRE 526 — — 32,791 — 33,317 0.17 % Total commercial 33,624 26,799 — 32,791 298 93,512 Consumer: Residential mortgage: Single-family residential: — 5,085 551 — — 5,636 0.05 % HELOCs — 978 726 — — 1,704 0.09 % Total consumer — 6,063 1,277 — — 7,340 Total $ 33,624 $ 32,862 $ 1,277 $ 32,791 $ 298 $ 100,852 The following tables present the financial effects of the loan modifications for the three and six months ended June 30, 2023 by loan class and modification type: Financial Effects of Loan Modifications Three Months Ended June 30, 2023 ($ in thousands) Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension Weighted-Average Payment Delay Commercial: C&I $ 345 (1) 8.50 % (1) 1.71 0.63 CRE — 3.00 % 2.50 — Consumer: Single-family residential — — 9.70 0.89 HELOCs — — — 0.64 Total $ 345 Financial Effects of Loan Modifications Six months ended June 30, 2023 ($ in thousands) Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension Weighted-Average Payment Delay Commercial: C&I $ 345 (1) 8.50 % (1) 1.47 0.82 CRE — 3.00 % 2.49 — Consumer: Single-family residential — — 9.70 0.89 HELOCs — — 14.75 0.51 Total $ 345 (1) Comprised of a C&I loan modified during the three and six months ended June 30, 2023 where the interest is waived in addition to principal forgiveness. 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 modifications which subsequently defaulted during the three and six months ended June 30, 2023. The Company closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of loans that were modified as of June 30, 2023 since the adoption of ASU 2022-02 on January 1, 2023. Payment Performance as of June 30, 2023 ($ in thousands) Current 30 - 89 Days Past Due 90+ Days Past Due Total Commercial: C&I $ 48,206 $ 7,000 $ 4,989 $ 60,195 CRE: CRE 33,317 — — 33,317 Total commercial 81,523 7,000 4,989 93,512 Consumer: Residential mortgage: Single-family residential 5,045 591 — 5,636 HELOCs 1,704 — — 1,704 Total consumer 6,749 591 — 7,340 Total $ 88,272 $ 7,591 $ 4,989 $ 100,852 As of June 30, 2023, commitments to lend additional funds to borrowers whose loans were modified were $15.1 million. Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02 Prior to the adoption of ASU 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. ASU 2022-02 eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. The following table presents the additions to TDRs for the three and six months ended June 30, 2022: Loans Modified as TDRs Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 ($ in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) Commercial: C&I 2 $ 12,955 $ 12,245 $ 2,111 3 $ 30,134 $ 21,428 $ 10,157 Total 2 $ 12,955 $ 12,245 $ 2,111 3 $ 30,134 $ 21,428 $ 10,157 (1) Includes subsequent payments after modification and reflects the balance as of June 30, 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 and six months ended June 30, 2022: Modification Type Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 ($ in thousands) Principal Other (1) Total Principal (2) Other (1) Total Commercial: C&I $ — $ 12,245 $ 12,245 $ 9,183 $ 12,245 $ 21,428 Total $ — $ 12,245 $ 12,245 $ 9,183 $ 12,245 $ 21,428 (1) Includes increase in new commitment. (2) 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 and six months ended June 30, 2022 that were modified as TDRs during the 12 months preceding payment default: Loan Modified as TDRs that Subsequently Defaulted Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 ($ in thousands) Number of Loans Recorded Investment Number of Loans Recorded Investment Commercial: C&I 1 $ 1,055 2 $ 4,305 Total 1 $ 1,055 2 $ 4,305 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 and six months ended June 30, 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 loan 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 Eval |
