Loans Receivable and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2023

Loans and Leases Receivable Disclosure [Abstract]

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, 2023 and December 31, 2022:

($ in thousands)	September 30, 2023		December 31, 2022
Commercial:
C&I	$	15,864,042	$	15,711,095
CRE:
CRE	14,667,378		13,857,870
Multifamily residential	4,900,097		4,573,068
Construction and land	798,190		638,420
Total CRE	20,365,665		19,069,358
Total commercial	36,229,707		34,780,453
Consumer:
Residential mortgage:
Single-family residential	12,836,558		11,223,027
HELOCs	1,776,665		2,122,655
Total residential mortgage	14,613,223		13,345,682
Other consumer	64,254		76,295
Total consumer	14,677,477		13,421,977
Total loans held-for-investment (1)	$	50,907,184	$	48,202,430
Allowance for loan losses	(655,523)		(595,645)
Loans held-for-investment, net (1)	$	50,251,661	$	47,606,785

(1)Includes $72.0 million and $70.4 million comprising unamortized deferred and unearned fees, net of premiums as of September 30, 2023 and December 31, 2022, respectively.

Accrued interest receivable on loans held-for-investment was $249.3 million and $208.4 million as of September 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 nine months ended September 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 $35.18 billion and $28.30 billion, respectively, were pledged to secure borrowings and provide additional borrowing capacity as of September 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.

	September 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	$	1,858,749	$	1,942,241	$	1,470,818	$	354,650	$	259,342	$	164,149	$	9,254,852	$	20,248	$	15,325,049
Criticized (accrual)	88,542		110,918		91,272		45,069		25,603		23,640		104,802		—		489,846
Criticized (nonaccrual)	2,084		10,480		13		8,694		6,134		21,709		33		—		49,147
Total C&I	1,949,375		2,063,639		1,562,103		408,413		291,079		209,498		9,359,687		20,248		15,864,042
YTD gross write-offs (2)	350		28		161		15		6,606		1,684		—		—		8,844
CRE:
Pass	2,066,361		4,080,810		2,259,761		1,396,114		1,649,168		2,722,697		101,811		63,050		14,339,772
Criticized (accrual)	36,899		14,717		20,307		100,871		24,544		129,658		—		—		326,996
Criticized (nonaccrual)	—		—		—		—		451		159		—		—		610
Subtotal CRE	2,103,260		4,095,527		2,280,068		1,496,985		1,674,163		2,852,514		101,811		63,050		14,667,378
YTD gross write-offs (2)	—		—		—		—		—		119		—		—		119
Multifamily residential:
Pass	478,895		1,495,620		814,391		620,117		503,791		893,282		7,658		1,288		4,815,042
Criticized (accrual)	—		—		53,555		—		696		26,124		—		—		80,375
Criticized (nonaccrual)	—		—		—		—		—		4,680		—		—		4,680
Subtotal multifamily residential	478,895		1,495,620		867,946		620,117		504,487		924,086		7,658		1,288		4,900,097
Construction and land:
Pass	151,175		354,415		222,474		37,732		812		5,475		14,966		—		787,049
Criticized (nonaccrual)	—		—		—		—		—		11,141		—		—		11,141
Subtotal construction and land	151,175		354,415		222,474		37,732		812		16,616		14,966		—		798,190
YTD gross write-offs	—		—		—		—		—		10,413		—		—		10,413
Total CRE	2,733,330		5,945,562		3,370,488		2,154,834		2,179,462		3,793,216		124,435		64,338		20,365,665
YTD gross write-offs (2)	—		—		—		—		—		10,532		—		—		10,532
Total commercial	$	4,682,705	$	8,009,201	$	4,932,591	$	2,563,247	$	2,470,541	$	4,002,714	$	9,484,122	$	84,586	$	36,229,707
YTD total commercial gross write-offs (2)	$	350	$	28	$	161	$	15	$	6,606	$	12,216	$	—	$	—	$	19,376

	September 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 (3)	$	2,400,448	$	3,390,708	$	2,321,209	$	1,633,316	$	1,010,859	$	2,040,678	$	—	$	—	$	12,797,218
Criticized (accrual)	844		1,983		844		1,499		964		9,060		—		—		15,194
Criticized (nonaccrual) (3)	1,916		2,866		4,702		2,696		2,868		9,098		—		—		24,146
Subtotal single-family residential mortgage	2,403,208		3,395,557		2,326,755		1,637,511		1,014,691		2,058,836		—		—		12,836,558
HELOCs:
Pass	182		1,828		5,736		4,318		1,963		13,821		1,611,319		118,088		1,757,255
Criticized (accrual)	741		401		62		—		353		1,649		2,039		963		6,208
Criticized (nonaccrual)	—		517		—		1,359		68		5,396		1,751		4,111		13,202
Subtotal HELOCs	923		2,746		5,798		5,677		2,384		20,866		1,615,109		123,162		1,776,665
YTD gross write-offs (2)	—		—		—		—		—		41		—		6		47
Total residential mortgage	2,404,131		3,398,303		2,332,553		1,643,188		1,017,075		2,079,702		1,615,109		123,162		14,613,223
YTD gross write-offs (2)	—		—		—		—		—		41		—		6		47
Other consumer:
Pass	3,555		18,138		135		—		—		12,315		29,971		—		64,114
Criticized (accrual)	4		—		—		—		—		—		—		—		4
Criticized (nonaccrual)	—		—		—		—		—		—		136		—		136
Total other consumer	3,559		18,138		135		—		—		12,315		30,107		—		64,254
Total consumer	$	2,407,690	$	3,416,441	$	2,332,688	$	1,643,188	$	1,017,075	$	2,092,017	$	1,645,216	$	123,162	$	14,677,477
YTD total consumer gross write-offs (2)	$	—	$	—	$	—	$	—	$	—	$	41	$	—	$	6	$	47
Total loans held-for-investment:
Pass	$	6,959,365	$	11,283,760	$	7,094,524	$	4,046,247	$	3,425,935	$	5,852,417	$	11,020,577	$	202,674	$	49,885,499
Criticized (accrual)	127,030		128,019		166,040		147,439		52,160		190,131		106,841		963		918,623
Criticized (nonaccrual)	4,000		13,863		4,715		12,749		9,521		52,183		1,920		4,111		103,062
Total	$	7,090,395	$	11,425,642	$	7,265,279	$	4,206,435	$	3,487,616	$	6,094,731	$	11,129,338	$	207,748	$	50,907,184
YTD total loans held-for-investment gross write-offs (2)	$	350	$	28	$	161	$	15	$	6,606	$	12,257	$	—	$	6	$	19,423

	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 (3)	$	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) (3)	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)$11.2 million and $24.6 million of total commercial loans, primarily comprised of CRE revolving loans, converted to term loans during the three and nine months ended September 30, 2023, respectively. In comparison, $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. $20.6 million and $27.7 million of total consumer loans, comprised of HELOCs, were converted to term loans during three and nine months ended September 30, 2023, respectively. In comparison, $375 thousand of total consumer loans, comprised of HELOCs, converted to term loans during both the three and nine months ended September 30, 2022.

(2)Excludes gross write-offs associated with loans the Company sold or settled.

(3)As of September 30, 2023 and December 31, 2022, $638 thousand and $818 thousand, respectively, of nonaccrual loans whose payments were 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 loans held-for-investment as of September 30, 2023 and December 31, 2022:

	September 30, 2023
($ in thousands)	Current Accruing Loans		Accruing Loans 30-59 Days Past Due		Accruing Loans 60-89 Days Past Due		Total Accruing Past Due Loans		Total Nonaccrual Loans		Total Loans
Commercial:
C&I	$	15,781,468	$	33,195	$	232	$	33,427	$	49,147	$	15,864,042
CRE:
CRE	14,664,230		2,015		523		2,538		610		14,667,378
Multifamily residential	4,894,334		1,083		—		1,083		4,680		4,900,097
Construction and land	787,049		—		—		—		11,141		798,190
Total CRE	20,345,613		3,098		523		3,621		16,431		20,365,665
Total commercial	36,127,081		36,293		755		37,048		65,578		36,229,707
Consumer:
Residential mortgage:
Single-family residential	12,771,661		24,141		15,972		40,113		24,784		12,836,558
HELOCs	1,746,841		10,416		6,206		16,622		13,202		1,776,665
Total residential mortgage	14,518,502		34,557		22,178		56,735		37,986		14,613,223
Other consumer	63,992		109		17		126		136		64,254
Total consumer	14,582,494		34,666		22,195		56,861		38,122		14,677,477
Total	$	50,709,575	$	70,959	$	22,950	$	93,909	$	103,700	$	50,907,184

	December 31, 2022
($ in thousands)	Current Accruing Loans		Accruing Loans 30-59 Days Past Due		Accruing Loans 60-89 Days Past Due		Total Accruing Past Due Loans		Total Nonaccrual Loans		Total Loans
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 September 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)	September 30, 2023		December 31, 2022
Commercial:
C&I	$	29,336	$	11,398
CRE	—		22,944
Multifamily residential	4,235		—
Construction and land	11,141		—
Total commercial	44,712		34,342
Consumer:
Single-family residential	6,681		2,998
HELOCs	8,483		7,245
Total consumer	15,164		10,243
Total nonaccrual loans with no related allowance for loan losses	$	59,876	$	44,585

Foreclosed Assets

The Company acquires assets from borrowers through loan restructurings, workouts, or 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, 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 the consumer real estate loans that were in an active or suspended foreclosure process was $9.9 million and $7.5 million as of September 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 nine months ended September 30, 2023 by loan class and modification type:

	Three Months Ended September 30, 2023
	Modification Type
($ in thousands)	Term Extension		Payment Delay		Combination: Term Extension/ Payment Delay		Combination: Rate Reduction/ Term Extension		Combination: Rate Reduction/ Payment Delay		Total		Modification as a % of Loan Class
Commercial:
C&I	$	1,682	$	11,603	$	—	$	—	$	—	$	13,285	0.08	%
CRE:
CRE	13,469		—		—		—		—		13,469		0.07	%
Total commercial	15,151		11,603		—		—		—		26,754
Consumer:
Residential mortgage:
Single-family residential:	—		2,944		1,260		—		—		4,204		0.03	%
HELOCs	—		—		334		—		183		517		0.03	%
Total consumer	—		2,944		1,594		—		183		4,721
Total	$	15,151	$	14,547	$	1,594	$	—	$	183	$	31,475

	Nine Months Ended September 30, 2023
	Modification Type
($ in thousands)	Term Extension		Payment Delay		Combination: Term Extension/ Payment Delay		Combination: Rate Reduction/ Term Extension		Combination: Rate Reduction/ Payment Delay		Total		Modification as a % of Loan Class
Commercial:
C&I	$	44,120	$	20,793	$	—	$	—	$	—	$	64,913	0.41	%
CRE:
CRE	13,979		—		—		32,724		—		46,703		0.23	%
Total commercial	58,099		20,793		—		32,724		—		111,616
Consumer:
Residential mortgage:
Single-family residential:	—		7,276		1,809		—		—		9,085		0.07	%
HELOCs	—		741		1,053		—		183		1,977		0.11	%
Total consumer	—		8,017		2,862		—		183		11,062
Total	$	58,099	$	28,810	$	2,862	$	32,724	$	183	$	122,678

The following tables present the financial effects of the loan modifications for the three and nine months ended September 30, 2023 by loan class and modification type:

	Financial Effects of Loan Modifications
	Three Months Ended September 30, 2023
($ in thousands)	Principal Forgiveness		Weighted-Average Interest Rate Reduction		Weighted-Average Term Extension (in years)	Weighted-Average Payment Delay (in years)
Commercial:
C&I	$	26	—	%	3.00	1.54
CRE	—		—	%	1.08	—
Consumer:
Single-family residential	—		—	%	10.00	0.96
HELOCs	—		0.50	%	16.68	0.71
Total	$	26

	Financial Effects of Loan Modifications
	Nine months ended September 30, 2023
($ in thousands)	Principal Forgiveness			Weighted-Average Interest Rate Reduction			Weighted-Average Term Extension (in years)	Weighted-Average Payment Delay (in years)
Commercial:
C&I	$	371	(1)	—	%	(1)	1.41	1.15
CRE	—			3.00	%		2.09	—
Consumer:
Single-family residential	—			—	%		9.91	0.95
HELOCs	—			0.50	%		15.36	0.52
Total	$	371

(1)Comprised of C&I loans modified during the nine months ended September 30, 2023 where the interest rate is waived in addition to principal forgiveness. No recorded investment was outstanding as of September 30, 2023.

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 nine months ended September 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 September 30, 2023 since the adoption of ASU 2022-02 on January 1, 2023.

	Payment Performance as of September 30, 2023
($ in thousands)	Current		30 - 89 Days Past Due		90+ Days Past Due		Total
Commercial:
C&I	$	58,481	$	—	$	6,432	$	64,913
CRE:
CRE	46,703		—		—		46,703
Total commercial	105,184		—		6,432		111,616
Consumer:
Residential mortgage:
Single-family residential	7,430		1,190		465		9,085
HELOCs	1,236		741		—		1,977
Total consumer	8,666		1,931		465		11,062
Total	$	113,850	$	1,931	$	6,897	$	122,678

As of September 30, 2023, commitments to lend additional funds to borrowers whose loans were modified were $5.8 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 nine months ended September 30, 2022:

	Loans Modified as TDRs
	Three Months Ended September 30, 2022							Nine Months Ended September 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	1	$	499	$	496	$	98	4	$	30,633	$	17,802	$	16,729
Total commercial	1	499		496		98		4	30,633		17,802		16,729
Consumer:
Residential mortgage:
HELOCs	1	62		69		2		1	62		69		2
Total residential mortgage	1	62		69		2		1	62		69		2
Total consumer	1	62		69		2		1	62		69		2
Total	2	$	561	$	565	$	100	5	$	30,695	$	17,871	$	16,731

(1)Includes subsequent payments after modification and reflects the balance as of September 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 nine months ended September 30, 2022:

	Modification Type
	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
($ in thousands)	Principal		Other		Total		Principal (1)		Other (2)		Total
Commercial:
C&I	$	496	$	—	$	496	$	9,609	$	8,193	$	17,802
Total commercial	496		—		496		9,609		8,193		17,802
Consumer:
Residential mortgage:
HELOCs	69		—		69		69		—		69
Total residential mortgage	69		—		69		69		—		69
Total consumer	69		—		69		69		—		69
Total	$	565	$	—	$	565	$	9,678	$	8,193	$	17,871

(1)Includes principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.

(2)Includes increase in new commitments.

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 nine months ended September 30, 2022 that were modified as TDRs during the 12 months preceding payment default:

	Loan Modified as TDRs that Subsequently Defaulted
	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
($ in thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial:
C&I	—	$	—	2	$	13,901
CRE:
Multifamily residential	—	—		1	1,008
Total CRE	—	—		1	1,008
Total commercial	—	—		3	14,909
Total	—	$	—	3	$	14,909

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 the loans extends beyond the reasonable and supportable forecast period, the Company will consider historical experience or long-run macroeconomic trends over the remaining life of the loans to estimate the allowance for loan losses.

There were no changes to the reasonable and supportable forecast period, except to the C&I segment, and no changes to the reversion to the historical loss experience method for the three and nine months ended September 30, 2023 and 2022. The reasonable and supportable forecast period for the C&I segment changed from 11 quarters to eight quarters due to model redevelopment during the third quarter of 2023.

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 percentage, size at origination, delinquency status, sector and risk rating	Unemployment rate, Gross Domestic Product (“GDP”), and Two-Ten treasury spread (1)
CRE, Multifamily residential, and Construction and land	Delinquency status, maturity date, collateral value, property type, and geographic location	Unemployment rate, 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 (2)

(1)Macroeconomic variables were updated due to model redevelopment.

(2)Macroeconomic variables are included in the qualitative estimate.

Quantitative Component — 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 eight 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.

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.

Quantitative Component — 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 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 September 30, 2023, collateral-dependent commercial and consumer loans totaled $18.1 million and $15.2 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 September 30, 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 and nine months ended September 30, 2023 and 2022:

		Three Months Ended September 30, 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, beginning of period		$	375,333	$	168,505	$	22,938	$	11,325	$	51,513	$	4,526	$	1,260	$	635,400
Provision for (reversal of) credit losses on loans	(a)	13,006		12,952		772		8,302		3,353		(705)		456		38,136
Gross charge-offs		(7,074)		(3,466)		—		(10,413)		—		(41)		(13)		(21,007)
Gross recoveries		2,279		49		452		2		64		15		—		2,861
Total net (charge-offs) recoveries		(4,795)		(3,417)		452		(10,411)		64		(26)		(13)		(18,146)
Foreign currency translation adjustment		133		—		—		—		—		—		—		133
Allowance for loan losses, end of period		$	383,677	$	178,040	$	24,162	$	9,216	$	54,930	$	3,795	$	1,703	$	655,523

		Three Months Ended September 30, 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		$	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

		Nine Months Ended September 30, 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, beginning of period		377,383		150,201		23,379		9,109		35,565		4,476		1,560		601,673
Provision for (reversal of) credit losses on loans	(a)	17,587		33,313		303		10,507		19,296		(569)		244		80,681
Gross charge-offs		(16,309)		(5,838)		—		(10,413)		—		(138)		(101)		(32,799)
Gross recoveries		5,555		364		480		13		69		26		—		6,507
Total net (charge-offs) recoveries		(10,754)		(5,474)		480		(10,400)		69		(112)		(101)		(26,292)
Foreign currency translation adjustment		(539)		—		—		—		—		—		—		(539)
Allowance for loan losses, end of period		$	383,677	$	178,040	$	24,162	$	9,216	$	54,930	$	3,795	$	1,703	$	655,523

		Nine Months Ended September 30, 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)	37,867		(5,013)		16,680		(8,027)		10,569		59		(140)		51,995
Gross charge-offs		(18,322)		(1,357)		(5,947)		—		(775)		(193)		(90)		(26,684)
Gross recoveries		16,688		731		547		65		309		23		—		18,363
Total net (charge-offs) recoveries		(1,634)		(626)		(5,400)		65		(466)		(170)		(90)		(8,321)
Foreign currency translation adjustment		(2,736)		—		—		—		—		—		—		(2,736)
Allowance for loan losses, end of period		$	371,749	$	145,301	$	25,680	$	7,506	$	27,263	$	3,324	$	1,694	$	582,517

In addition to the allowance for loan losses, the Company maintains an allowance for unfunded credit commitments. The Company has three general areas for which it provides the allowance for unfunded credit commitments: (1) recourse obligations for loans sold, (2) letters of credit, and (3) unfunded lending commitments. The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. See Note 11 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q for additional information related to unfunded credit commitments. The following table summarizes the activities in the allowance for unfunded credit commitments for the three and nine months ended September 30, 2023 and 2022:

		Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)		2023		2022		2023		2022
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period		$	29,728	$	24,304	$	26,264	$	27,514
Provision for (reversal of) credit losses on unfunded credit commitments	(b)	3,864		(274)		7,319		(3,495)
Foreign currency translation adjustment		(3)		11		6		22
Allowance for unfunded credit commitments, end of period		$	33,589	$	24,041	$	33,589	$	24,041
Provision for credit losses	(a) + (b)	$	42,000	$	27,000	$	88,000	$	48,500

The allowance for credit losses was $689.1 million as of September 30, 2023, an increase of $67.2 million, compared with $621.9 million as of December 31, 2022. The increase in the allowance for credit losses was primarily driven by net loan growth and economic forecasts that reflect continued caution given persistent high inflation, the high interest rate environment and the CRE market outlook.

The Company considers multiple economic scenarios to develop the estimate of the allowance for loan losses. The scenarios may consist of a baseline forecast representing management's view of the most likely outcome; downside and upside scenarios that reflect possible worsening or improving economic conditions, respectively. The Company assigned the same weightings to its baseline, upside and downside scenarios as of September 30, 2023 and December 31, 2022. Management remains cautious regarding the economic outlook, given the high level of inflation, high interest rates, recent strain to the financial system, concerns on global oil prices, and ongoing global conflicts. The 2023 full year U.S. baseline GDP growth forecast as of September 30, 2023, has improved, compared with that as of December 31, 2022. However the 2024 full year U.S. baseline GDP growth forecast remained at 1.4%, compared with 2.0% forecasted as of December 31, 2022, as interest-sensitive spending weakens amid the elevated interest rate environment. The 2023 full year U.S. unemployment rate is forecasted to be at 3.7%, which improved from that forecasted as of December 31, 2022. Compared with the baseline scenario, the downside scenario assumes a recession in the fourth quarter of 2023 due to a combination of increasing supply shortages, geopolitical tensions, high inflation, and high interest rates. The upside scenario assumes the economy experiences full employment in the near-term, and stable financial markets boosting consumer confidence.

Loan Transfers, Sales and Purchases

The Company’s primary business focus is on directly originated loans. The Company also purchases loans and participates in loan financing with other banks. In the normal course of business, the Company also provides other financial institutions with the ability to participate in commercial loans that it originates, by selling loans to such institutions. Purchased loans may be transferred from held-for-investment to held-for-sale, and write-downs to allowance for loan losses are recorded, when appropriate. The following tables provide information on the carrying value of loans transferred, sold and purchased for the held-for-investment portfolio, during the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30, 2023
	Commercial						Consumer
			CRE				Residential Mortgage
($ in thousands)	C&I		CRE		Construction and Land		Single-Family Residential		Total
Loans transferred from held-for-investment to held-for-sale (1)	$	201,299	$	25,890	$	—	$	—	$	227,189
Sales (2)(3)	$	199,511	$	29,357	$	—	$	—	$	228,868
Purchases (4)	$	19,588	$	—	$	—	$	140,771	$	160,359

	Three Months Ended September 30, 2022
	Commercial						Consumer
			CRE				Residential Mortgage
($ in thousands)	C&I		CRE		Multifamily Residential		Single-Family Residential		Total
Loans transferred from held-for-investment to held-for-sale (1)	$	59,069	$	33,616	$	14,500	$	5,178	$	112,363
Sales (2)(3)	$	87,597	$	33,616	$	—	$	5,952	$	127,165
Purchases (4)	$	56,507	$	—	$	—	$	1,155	$	57,662

	Nine Months Ended September 30, 2023
	Commercial						Consumer
			CRE				Residential Mortgage
($ in thousands)	C&I		CRE		Construction and Land		Single-Family Residential		Total
Loans transferred from held-for-investment to held-for-sale (1)	$	469,571	$	29,490	$	8,154	$	—	$	507,215
Sales (2)(3)	$	491,178	$	32,957	$	8,154	$	—	$	532,289
Purchases (4)	$	80,550	$	—	$	—	$	351,880	$	432,430

	Nine Months Ended September 30, 2022
	Commercial						Consumer
			CRE				Residential Mortgage
($ in thousands)	C&I		CRE		Multifamily Residential		Single-Family Residential		Total
Loans transferred from held-for-investment to held-for-sale (1)	$	378,841	$	65,250	$	14,500	$	5,178	$	463,769
Loans transferred from held-for-sale to held-for-investment	$	—	$	—	$	—	$	631	$	631
Sales (2)(3)	$	375,100	$	65,250	$	—	$	6,403	$	446,753
Purchases (4)	$	361,169	$	—	$	—	$	238,253	$	599,422

(1)Includes write-downs of $3.6 million and $4.2 million to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the three and nine months ended September 30, 2023, respectively, and $8.7 million and $8.9 million for the three and nine months ended September 30, 2022, respectively.

(2)Includes originated loans sold of $204.1 million and $407.3 million for the three and nine months ended September 30, 2023, respectively, and $86.2 million and $253.9 million for the three and nine months ended September 30, 2022, respectively. Originated loans sold consisted primarily of C&I loans for each of the three and nine months ended September 30, 2023, and C&I and CRE loans for each of the three and nine months ended September 30, 2022.

(3)Includes $24.7 million and $125.0 million of purchased loans sold in the secondary market for the three and nine months ended September 30, 2023, respectively, and $40.9 million and $192.9 million for the three and nine months ended September 30, 2022, respectively.

(4)C&I loan purchases were comprised primarily of syndicated C&I term loans.