LOANS & ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Sep. 30, 2023

The Company categorizes the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other. For further detail of the segments of the Company’s loan portfolio, refer to Note 1—“Organizations and Summary of Significant Accounting Policies” within the 2023 Form 10-K.

The following table sets forth the composition of the loan portfolio as of the dates indicated:


(Dollars in thousands)	September 30, 2023		June 30, 2023
Single Family - Mortgage & Warehouse	$	4,313,906	$	4,173,833
Multifamily and Commercial Mortgage	2,961,981		3,082,225
Commercial Real Estate	6,168,626		6,199,818
Commercial & Industrial - Non-RE	3,208,969		2,639,650
Auto & Consumer	506,011		546,264
Other	2,438		10,236
Total gross loans and leases	17,161,931		16,652,026
Allowance for credit losses - loans	(170,870)		(166,680)
Unaccreted premiums (discounts) and loan fees	(36,020)		(28,618)
Total net loans and leases	$	16,955,041	$	16,456,728

Accrued interest receivable on loans held for investments totaled $90.8 million and $77.9 million as of September 30, 2023 and June 30, 2023, respectively.

At September 30, 2023 and June 30, 2023, the Company has pledged certain loans totaling $5,172.6 million and $5,128.4 million, respectively, to the Federal Home Loan Bank (“FHLB”) and $3,642.6 million and $3,689.5 million, respectively, to the Federal Reserve Bank of San Francisco (“FRBSF”).

The following table presents the components of the provision for credit losses:


	For the Three Months Ended
	September 30,
(Dollars in thousands)		2023		2022
Provision for credit losses - loans		$	5,750	$	8,750
Provision for credit losses - unfunded lending commitments		1,250		—
Total provision for credit losses		$	7,000	$	8,750

The following tables summarize activity in the allowance for credit losses - loans by portfolio segment for the periods indicated.


	For the Three Months Ended September 30, 2023
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Balance at July 1, 2023	$	17,503	$	16,848	$	72,755	$	46,347	$	13,212	$	15	$	166,680

Provision (benefit) for credit losses - loans	(10)		(974)		(1,400)		8,245		(105)		(6)		5,750

Charge-offs	(80)		—		—		—		(2,281)		—		(2,361)
Recoveries	13		—		—		—		788		—		801
Balance at September 30, 2023	$	17,426	$	15,874	$	71,355	$	54,592	$	11,614	$	9	$	170,870


	For the Three Months Ended September 30, 2022
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Balance at July 1, 2022	$	19,670	$	14,655	$	69,339	$	30,808	$	14,114	$	31	$	148,617

Provision (benefit) for credit losses - loans	(1,642)		(6)		4,437		3,557		2,405		(1)		8,750
Charge-offs	(4)		—		—		—		(2,362)		—		(2,366)
Recoveries	15		—		—		18		438		—		471
Balance at September 30, 2022	$	18,039	$	14,649	$	73,776	$	34,383	$	14,595	$	30	$	155,472

For the three months ended September 30, 2023, the allowance for credit losses for loans increased primarily due to net loan growth, mainly in the Commercial & Industrial - Non-RE portfolio, and a shift in weighting towards the more adverse forecast scenarios reflecting uncertainty in the economic environment.

Loan products within each portfolio contain varying collateral types which impact the estimate of the loss given default utilized in the calculation of the allowance. For further discussion of the model method of estimating expected lifetime credit losses to Note 1—“Organizations and Summary of Significant Accounting Policies” within the 2023 Form 10-K.

The following tables present a summary of the activity in the allowance for credit losses for off-balance sheet lending commitments for the periods indicated:


	Three Months Ended September 30,
(Dollars in thousands)	2023		2022
BALANCE—beginning June 30	$	10,473	$	10,973
Provision for credit losses - unfunded lending commitments	1,250		—
BALANCE—end September 30	$	11,723	$	10,973

The increase in the allowance for off-balance sheet lending commitments at September 30, 2023 compared to June 30, 2023, was primarily driven by an increase in the amount of Commercial & Industrial - Non-RE unfunded commitments.

The following table presents loan-to-value (“LTV”) for the Company’s real estate loans outstanding as of September 30, 2023:


	Total Real Estate Loans		Single Family - Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate
Weighted-Average LTV	48.9	%	57.3	%	53.6	%	40.7	%
Median LTV	54.0	%	56.9	%	50.0	%	41.6	%

The Company’s effective weighted-average LTV was 48.7% for real estate loans originated during the three months ended September 30, 2023.

Credit Quality Disclosures. The following tables provide the composition of loans that are performing and nonaccrual by portfolio segment as of the dates indicated:


	September 30, 2023
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Performing	$	4,277,324	$	2,923,154	$	6,142,524	$	3,205,980	$	503,625	$	2,398	$	17,055,005
Nonaccrual	$	36,582	$	38,827	$	26,102	$	2,989	$	2,386	$	40	$	106,926
Total	$	4,313,906	$	2,961,981	$	6,168,626	$	3,208,969	$	506,011	$	2,438	$	17,161,931
Non accrual loans to total loans													0.62		%

	June 30, 2023
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Performing	$	4,143,119	$	3,047,122	$	6,184,966	$	2,636,661	$	544,807	$	8,191	$	16,564,866
Nonaccrual	30,714		35,103		14,852		2,989		1,457		2,045		87,160
Total	$	4,173,833	$	3,082,225	$	6,199,818	$	2,639,650	$	546,264	$	10,236	$	16,652,026
Non accrual loans to total loans													0.52		%

There were no nonaccrual loans without an allowance for credit losses as of September 30, 2023 and June 30, 2023. There was no interest income recognized on nonaccrual loans in the three months ended September 30, 2023 and 2022.

Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. The Company analyzes loans individually by classifying the loans based on credit risk. The Company uses the following definitions for risk ratings.

Pass. Loans classified as pass are well protected by the current net worth and paying capacity of the obligor or by the fair value of any underlying collateral, less cost to acquire and sell in a timely manner.

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The Company reviews and grades loans following a continuous review process, featuring coverage of all loan types and business lines at least quarterly. Continuous reviewing provides more effective risk monitoring because it immediately tests for potential impacts caused by changes in personnel, policy, products or underwriting standards.

The following tables presents the composition of loans by portfolio segment, fiscal year of origination and credit quality indicator, and the amount of gross charge-offs for the three months ended September 30, 2023:


	September 30, 2023
	Loans Held for Investment Origination Year												Revolving Loans		Total
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior
Single Family-Mortgage & Warehouse
Pass	$	209,544	$	673,266	$	1,306,937	$	514,928	$	313,863	$	848,948	$	295,078	$	4,162,564
Special Mention	—		19,368		18,998		6,468		11,028		36,745		—		92,607
Substandard	—		—		8,965		4,590		14,345		30,835		—		58,735
Doubtful	—		—		—		—		—		—		—		—
Total	209,544		692,634		1,334,900		525,986		339,236		916,528		295,078		4,313,906
Gross charge-offs	—		—		—		—		—		80		—		80
Multifamily and Commercial Mortgage
Pass	9,328		478,469		974,390		479,725		299,551		597,311		—		2,838,774
Special Mention	—		10,719		—		2,000		1,358		—		—		14,077
Substandard	—		—		13,618		17,707		35,019		42,786		—		109,130
Doubtful	—		—		—		—		—		—		—		—
Total	9,328		489,188		988,008		499,432		335,928		640,097		—		2,961,981
Gross charge-offs	—		—		—		—		—		—		—		—
Commercial Real Estate
Pass	501,339		1,867,923		2,113,338		563,541		20,737		62,928		840,449		5,970,255
Special Mention	—		—		45,130		—		7,871		15,887		—		68,888
Substandard	—		—		45,242		38,902		15,000		30,339		—		129,483
Doubtful	—		—		—		—		—		—		—		—
Total	501,339		1,867,923		2,203,710		602,443		43,608		109,154		840,449		6,168,626
Gross charge-offs	—		—		—		—		—		—		—		—
Commercial & Industrial - Non-RE
Pass	248,136		416,819		287,067		28,675		9,041		5,866		2,129,452		3,125,056
Special Mention	—		6,806		35,430		—		10,986		—		12,046		65,268
Substandard	—		—		14,624		1,032		—		2,989		—		18,645
Doubtful	—		—		—		—		—		—		—		—
Total	248,136		423,625		337,121		29,707		20,027		8,855		2,141,498		3,208,969
Gross charge-offs	—		—		—		—		—		—		—		—
Auto & Consumer
Pass	10,130		148,607		234,996		62,579		21,381		24,704		—		502,397
Special Mention	—		338		576		69		26		58		—		1,067
Substandard	—		579		1,191		385		153		239		—		2,547
Doubtful	—		—		—		—		—		—		—		—
Total	10,130		149,524		236,763		63,033		21,560		25,001		—		506,011
Gross charge-offs	—		711		1,093		378		73		26		—		2,281
Other
Pass	905		—		—		1,190		—		303		—		2,398
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		40		—		—		—		40
Doubtful	—		—		—		—		—		—		—		—
Total	905		—		—		1,230		—		303		—		2,438
Gross charge-offs	—		—		—		—		—		—		—		—
Total
Pass	979,382		3,585,084		4,916,728		1,650,638		664,573		1,540,060		3,264,979		16,601,444
Special Mention	—		37,231		100,134		8,537		31,269		52,690		12,046		241,907
Substandard	—		579		83,640		62,656		64,517		107,188		—		318,580
Doubtful	—		—		—		—		—		—		—		—
Total	$	979,382	$	3,622,894	$	5,100,502	$	1,721,831	$	760,359	$	1,699,938	$	3,277,025	$	17,161,931
As a % of total gross loans	5.71%		21.11%		29.72%		10.03%		4.43%		9.91%		19.09%		100.0%
Total gross charge-offs	$	—	$	711	$	1,093	$	378	$	73	$	106	$	—	$	2,361


	June 30, 2023
	Loans Held for Investment Origination Year												Revolving Loans		Total
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior
Single Family-Mortgage & Warehouse
Pass	$	730,498	$	1,346,804	$	522,873	$	324,458	$	255,547	$	639,401	$	243,175	$	4,062,756
Special Mention	—		7,280		7,026		8,303		12,942		18,244		6,614		60,409
Substandard	—		5,188		4,686		14,384		2,024		24,386		—		50,668
Doubtful	—		—		—		—		—		—		—		—
Total	730,498		1,359,272		534,585		347,145		270,513		682,031		249,789		4,173,833
Multifamily and Commercial Mortgage
Pass	558,787		975,186		498,744		314,383		224,592		404,222		—		2,975,914
Special Mention	—		9,691		4,636		1,360		7,705		—		—		23,392
Substandard	—		3,145		5,686		38,857		6,181		29,050		—		82,919
Doubtful	—		—		—		—		—		—		—		—
Total	558,787		988,022		509,066		354,600		238,478		433,272		—		3,082,225
Commercial Real Estate
Pass	1,867,476		2,323,095		631,500		87,059		117,928		—		960,024		5,987,082
Special Mention	29,000		43,427		—		8,457		800		15,062				96,746
Substandard	—		29,200		37,951		18,500		15,487		14,852		—		115,990
Doubtful	—		—		—		—		—		—		—		—
Total	1,896,476		2,395,722		669,451		114,016		134,215		29,914		960,024		6,199,818
Commercial & Industrial - Non-RE
Pass	488,120		358,214		29,777		14,794		2,098		—		1,707,619		2,600,622
Special Mention	—		8,221		—		11,413		—		—		600		20,234
Substandard	—		17,762		1,032		—		—		—		—		18,794
Doubtful	—		—		—		—		—		—		—		—
Total	488,120		384,197		30,809		26,207		2,098		—		1,708,219		2,639,650
Auto & Consumer
Pass	161,831		256,154		70,223		24,906		19,897		9,929		—		542,940
Special Mention	423		632		453		60		14		6		—		1,588
Substandard	350		785		233		133		162		73		—		1,736
Doubtful	—		—		—		—		—		—		—		—
Total	162,604		257,571		70,909		25,099		20,073		10,008		—		546,264
Other
Pass	5,721		—		1,306		—		—		1,164		—		8,191
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		2,000		45		—		—		—		—		2,045
Doubtful	—		—		—		—		—		—		—		—
Total	5,721		2,000		1,351		—		—		1,164		—		10,236
Total
Pass	3,812,433		5,259,453		1,754,423		765,600		620,062		1,054,716		2,910,818		16,177,505
Special Mention	29,423		69,251		12,115		29,593		21,461		33,312		7,214		202,369
Substandard	350		58,080		49,633		71,874		23,854		68,361		—		272,152
Doubtful	—		—		—		—		—		—		—		—
Total	$	3,842,206	$	5,386,784	$	1,816,171	$	867,067	$	665,377	$	1,156,389	$	2,918,032	$	16,652,026
As a % of total gross loans	23.07%		32.35%		10.91%		5.21%		4.00%		6.94%		17.52%		100.0%

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses and evaluates credit quality based on the aging status of its loans. Certain short-term loans do not have a fixed maturity date and are treated as delinquent if not paid in full 90 days after the origination date.

The following tables provide the aging of loans by portfolio segment as of the dates indicated:


	September 30, 2023
(Dollars in thousands)	Current			30-59 Days			60-89 Days			90+ Days			Total
Single Family-Mortgage & Warehouse	$	4,227,936		$	26,362		$	11,118		$	48,490		$	4,313,906
Multifamily and Commercial Mortgage	2,921,752			6,307			—			33,922			2,961,981
Commercial Real Estate	6,126,237			800			—			41,589			6,168,626
Commercial & Industrial - Non-RE	3,208,969			—			—			—			3,208,969
Auto & Consumer	498,370			4,815			1,289			1,537			506,011
Other	2,227			211			—			—			2,438
Total	$	16,985,491		$	38,495		$	12,407		$	125,538		$	17,161,931
As a % of total gross loans	98.98		%	0.22		%	0.07		%	0.73		%	100.00		%


	June 30, 2023
(Dollars in thousands)	Current			30-59 Days			60-89 Days			90+ Days			Total
Single Family-Mortgage & Warehouse	$	4,102,150		$	20,832		$	7,971		$	42,880		$	4,173,833
Multifamily and Commercial Mortgage	3,048,217			2,705			1,124			30,179			3,082,225
Commercial Real Estate	6,173,716			11,250			—			14,852			6,199,818
Commercial & Industrial - Non-RE	2,639,650			—			—			—			2,639,650
Auto & Consumer	537,181			6,529			1,707			847			546,264
Other	8,024			68			1			2,143			10,236
Total	$	16,508,938		$	41,384		$	10,803		$	90,901		$	16,652,026
As a % of total gross loans	99.14		%	0.25		%	0.06		%	0.55		%	100.00		%

Loans reaching 90+ days past due are generally placed on non-accrual. As of September 30, 2023 and June 30, 2023, there were loans of $29.8 million and $14.1 million, respectively, over 90 days past due and still accruing interest as the Company expects to collect the principal and interest amounts due.

Single family mortgage loans in process of foreclosure were $18.0 million and $17.7 million as of September 30, 2023 and June 30, 2023, respectively.

Loan Modifications to Borrowers Experiencing Financial Difficulty. The Company may grant certain modifications of loans to borrowers experiencing financial difficulty, which effective July 1, 2023, are reported as financial difficulty modifications (“FDMs”). The Company’s modification programs provide various modifications to borrowers experiencing financial difficulty which may include interest rate reductions, term extensions, payment delays and/or principal forgiveness. There were no FDMs during the three months ended September 30, 2023.

Prior to adoption of ASU 2022-02, the Company accounted for certain modifications as troubled debt restructurings (“TDRs”). Approximately 1.77% of our nonaccrual loans were considered TDRs at June 30, 2023. Borrowers that made timely payments after TDRs were considered non-performing for at least six months. Generally, after six months of timely payments, those TDRs were reclassified from the nonaccrual loan category to the performing loan category and any previously deferred interest income was recognized. The Company had no TDRs classified as performing loans at June 30, 2023.