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LOANS AND ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Mar. 31, 2022

The following table presents the balances in our loan portfolio as of the dates indicated:


($ in thousands)	March 31, 2022		December 31, 2021

Commercial:
Commercial and industrial(1)	$	2,799,457	$	2,668,984
Commercial real estate	1,163,381		1,311,105
Multifamily	1,397,761		1,361,054
SBA(2)	133,116		205,548
Construction	225,153		181,841

Consumer:
Single family residential mortgage	1,637,307		1,420,023


Other consumer	95,398		102,925
Total loans	$	7,451,573	$	7,251,480

Allowance for loan losses	(93,226)		(92,584)
Loans receivable, net	$	7,358,347	$	7,158,896

(1)Includes warehouse lending balances of $1.57 billion and $1.60 billion at March 31, 2022 and December 31, 2021.

(2)Includes 226 PPP loans totaling $58.3 million, net of unamortized loan fees totaling $203 thousand at March 31, 2022 and 397 PPP loans totaling $123.1 million, net of unamortized loan fees totaling $772 thousand at December 31, 2021.

The following table presents the balances of total loans as of the dates indicated:


($ in thousands)	March 31, 2022		December 31, 2021
Unpaid principal balance	$	7,436,856	$	7,245,952
Unamortized net premiums	25,696		18,005
Unamortized net deferred costs	832		819
Unamortized SBA PPP fees	(234)		(831)
Fair value adjustment(1)	(11,577)		(12,465)
Total loans	$	7,451,573	$	7,251,480

(1)Includes $9.6 million related to the PMB Acquisition, of which $4.3 million related to PCD loans at March 31, 2022. Includes $10.6 million related to the PMB Acquisition, of which $3.9 million related to PCD loans at December 31, 2021.

Credit Quality Indicators

We categorize loans into risk categories based on relevant information about the ability of borrowers to repay their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We perform a historical loss analysis that is combined with a comprehensive loan to value analysis to analyze the associated risks in the current loan portfolio. We analyze loans individually and grade each loan for credit risk. This analysis includes all loans delinquent over 60 days and non-homogeneous loans such as commercial and commercial real estate loans. We use the following definitions for credit risk ratings:

Pass: Loans classified as pass are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weakness as defined under “Special Mention”, “Substandard” or “Doubtful.”

Special Mention: Loans risk rated 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 loans or of our credit position at some future date.

Substandard: Loans risk rated 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 a weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that we 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 following table presents the risk categories for total loans by class of loans and origination year as of March 31, 2022:


	Term Loans Amortized Cost Basis by Origination Year
($ in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term		Total
March 31, 2022
















Commercial:
Commercial and industrial
Pass	$	57,130	$	300,020	$	74,250	$	75,320	$	81,579	$	203,069	$	1,865,584	$	10,573	$	2,667,525
Special mention	—		1,070		4,224		13,801		2,517		19,082		35,140		798		76,632
Substandard	—		—		1,637		15,278		10,330		3,856		21,819		2,380		55,300
Doubtful	—		—		—		—		—		—		—		—		—
Commercial and industrial	57,130		301,090		80,111		104,399		94,426		226,007		1,922,543		13,751		2,799,457
Commercial real estate
Pass	90,570		386,465		66,308		131,716		165,035		296,892		6,587		68		1,143,641
Special mention	—		—		—		—		7,532		1,782		—		—		9,314
Substandard	—		—		—		503		—		9,007		916		—		10,426
Doubtful	—		—		—		—		—		—		—		—		—
Commercial real estate	90,570		386,465		66,308		132,219		172,567		307,681		7,503		68		1,163,381
Multifamily
Pass	141,872		410,193		169,678		283,990		129,384		213,799		4		—		1,348,920
Special mention	—		—		1,978		—		11,212		32,969		—		—		46,159
Substandard	—		—		—		—		—		2,682		—		—		2,682
Doubtful	—		—		—		—		—		—		—		—		—
Multifamily	141,872		410,193		171,656		283,990		140,596		249,450		4		—		1,397,761
SBA
Pass	—		55,111		13,474		7,407		1,481		32,976		856		174		111,479
Special mention	—		—		—		4,143		227		582		70		4		5,026
Substandard	—		—		4,725		—		389		10,064		598		835		16,611
Doubtful	—		—		—		—		—		—		—		—		—
SBA	—		55,111		18,199		11,550		2,097		43,622		1,524		1,013		133,116


Construction
Pass	33,862		80,317		31,154		26,873		17,365		25,428		—		—		214,999
Special mention	—		—		—		—		1,607		8,547		—		—		10,154
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Construction	33,862		80,317		31,154		26,873		18,972		33,975		—		—		225,153
Consumer:
Single family residential mortgage
Pass	210,294		823,638		79,427		57,423		112,118		331,774		5,881		—		1,620,555
Special mention	—		224		1,635		—		905		1,752		—		—		4,516
Substandard	—		—		—		339		9,092		2,575		—		230		12,236
Doubtful	—		—		—		—		—		—		—		—		—
Single family residential mortgage	210,294		823,862		81,062		57,762		122,115		336,101		5,881		230		1,637,307
Other consumer
Pass	6,304		23,390		11,590		7,609		4,429		22,094		17,594		1,720		94,730
Special mention	—		—		—		3		—		24		63		—		90
Substandard	—		—		192		14		144		41		—		187		578
Doubtful	—		—		—		—		—		—		—		—		—
Other consumer	6,304		23,390		11,782		7,626		4,573		22,159		17,657		1,907		95,398


Total loans	$	540,032	$	2,080,428	$	460,272	$	624,419	$	555,346	$	1,218,995	$	1,955,112	$	16,969	$	7,451,573

Total loans
Pass	$	540,032	$	2,079,134	$	445,881	$	590,338	$	511,391	$	1,126,032	$	1,896,506	$	12,535	$	7,201,849
Special mention	—		1,294		7,837		17,947		24,000		64,738		35,273		802		151,891
Substandard	—		—		6,554		16,134		19,955		28,225		23,333		3,632		97,833
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	540,032	$	2,080,428	$	460,272	$	624,419	$	555,346	$	1,218,995	$	1,955,112	$	16,969	$	7,451,573

The following table presents the risk categories for total loans by class of loans and origination year as of December 31, 2021:


	Term Loans Amortized Cost Basis by Origination Year
($ in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term		Total
December 31, 2021
















Commercial:
Commercial and industrial
Pass	$	254,218	$	81,177	$	71,950	$	78,461	$	56,439	$	110,490	$	1,888,126	$	9,679	$	2,550,540
Special mention	1,206		5,971		13,721		835		7,272		9,846		20,460		6,348		65,659
Substandard	2		241		17,853		11,378		3,374		117		17,429		2,391		52,785
Doubtful	—		—		—		—		—		—		—		—		—
Commercial and industrial	255,426		87,389		103,524		90,674		67,085		120,453		1,926,015		18,418		2,668,984
Commercial real estate
Pass	465,524		82,759		140,108		192,263		85,755		317,941		8,416		71		1,292,837
Special mention	—		—		—		1,925		—		2,920		—		—		4,845
Substandard	—		—		506		—		—		9,084		3,833		—		13,423
Doubtful	—		—		—		—		—		—		—		—		—
Commercial real estate	465,524		82,759		140,614		194,188		85,755		329,945		12,249		71		1,311,105
Multifamily
Pass	410,958		208,396		315,119		157,640		61,457		158,464		4		—		1,312,038
Special mention	—		1,988		—		11,261		—		33,065		—		—		46,314
Substandard	—		—		—		—		—		2,702		—		—		2,702
Doubtful	—		—		—		—		—		—		—		—		—
Multifamily	410,958		210,384		315,119		168,901		61,457		194,231		4		—		1,361,054
SBA
Pass	106,749		23,972		8,049		1,957		10,836		28,495		928		143		181,129
Special mention	—		1,586		3,618		236		—		596		—		4		6,040
Substandard	—		5,888		—		390		3,358		7,245		599		899		18,379
Doubtful	—		—		—		—		—		—		—		—		—
SBA	106,749		31,446		11,667		2,583		14,194		36,336		1,527		1,046		205,548


Construction
Pass	67,074		32,995		29,038		17,139		25,485		—		—		—		171,731
Special mention	—		—		—		1,607		—		8,503		—		—		10,110
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Construction	67,074		32,995		29,038		18,746		25,485		8,503		—		—		181,841
Consumer:
Single family residential mortgage
Pass	713,844		96,339		67,075		140,329		88,123		277,247		12,828		—		1,395,785
Special mention	—		1,644		339		910		692		6,838		—		—		10,423
Substandard	—		—		—		11,005		975		1,601		—		234		13,815
Doubtful	—		—		—		—		—		—		—		—		—
Single family residential mortgage	713,844		97,983		67,414		152,244		89,790		285,686		12,828		234		1,420,023
Other consumer
Pass	26,179		13,556		8,891		5,265		9,038		15,951		21,327		2,331		102,538
Special mention	—		—		4		—		—		25		63		—		92
Substandard	—		61		14		148		46		26		—		—		295
Doubtful	—		—		—		—		—		—		—		—		—
Other consumer	26,179		13,617		8,909		5,413		9,084		16,002		21,390		2,331		102,925


Total loans	$	2,045,754	$	556,573	$	676,285	$	632,749	$	352,850	$	991,156	$	1,974,013	$	22,100	$	7,251,480

Total loans
Pass	$	2,044,546	$	539,194	$	640,230	$	593,054	$	337,133	$	908,588	$	1,931,629	$	12,224	$	7,006,598
Special mention	1,206		11,189		17,682		16,774		7,964		61,793		20,523		6,352		143,483
Substandard	2		6,190		18,373		22,921		7,753		20,775		21,861		3,524		101,399
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	2,045,754	$	556,573	$	676,285	$	632,749	$	352,850	$	991,156	$	1,974,013	$	22,100	$	7,251,480

Past Due Loans

The following table presents the aging of the recorded investment in past due loans, excluding accrued interest receivable (which is not considered to be material), by class of loans as of the dates indicated:


($ in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
March 31, 2022
Commercial:
Commercial and industrial	1,255		3,157		8,770		13,182		2,786,275		2,799,457
Commercial real estate	—		—		916		916		1,162,465		1,163,381
Multifamily	781		—		—		781		1,396,980		1,397,761
SBA	198		—		14,748		14,946		118,170		133,116
Construction	—		—		—		—		225,153		225,153

Consumer:
Single family residential mortgage	19,970		967		9,431		30,368		1,606,939		1,637,307
Other consumer	593		146		65		804		94,594		95,398
Total	$	22,797	$	4,270	$	33,930	$	60,997	$	7,390,576	$	7,451,573

December 31, 2021
Commercial:
Commercial and industrial	9,342		1,351		9,503		20,196		2,648,788		2,668,984
Commercial real estate	—		—		—		—		1,311,105		1,311,105
Multifamily	786		—		—		786		1,360,268		1,361,054
SBA	987		2,360		15,941		19,288		186,260		205,548
Construction	—		—		—		—		181,841		181,841

Consumer:
Single family residential mortgage	24,867		—		7,076		31,943		1,388,080		1,420,023
Other consumer	449		—		89		538		102,387		102,925
Total	$	36,431	$	3,711	$	32,609	$	72,751	$	7,178,729	$	7,251,480

Nonaccrual Loans

The following table presents nonaccrual loans as of the dates indicated:


	March 31, 2022				December 31, 2021
($ in thousands)	Total Nonaccrual Loans		Nonaccrual Loans with no ACL		Total Nonaccrual Loans		Nonaccrual Loans with no ACL
Nonaccrual loans
Commercial:
Commercial and industrial	$	27,368	$	8,154	$	28,594	$	9,137
Commercial real estate	916		916		—		—

SBA	15,381		10,201		16,653		11,443


Consumer:
Single family residential mortgage	10,345		6,416		7,076		7,076


Other consumer	519		504		235		235
Total nonaccrual loans	$	54,529	$	26,191	$	52,558	$	27,891

At March 31, 2022 and December 31, 2021, there were no loans that were past due 90 days or more and still accruing.

Other Real Estate Owned, Net and Loans in Process of Foreclosure

At March 31, 2022 and December 31, 2021, there was no other real estate owned. At March 31, 2022 and December 31, 2021, there was one and no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

Allowance for Credit Losses

The ACL methodology uses a nationally recognized, third-party model that includes many assumptions based on historical and peer loss data, current loan portfolio risk profile including risk ratings, and economic forecasts including macroeconomic variables (MEVs) released by the model provider during March 2022. The published forecasts consider rising inflation, higher oil prices, ongoing supply chain issues and the military conflict between Russia and Ukraine, among other factors, and while they reflect a less optimistic view of the economy as compared to the December 2021 forecasts, certain MEVs used in the model during the current quarter, such as California employment and the CRE price index, reflect improvements. Nonetheless, the ultimate pace of economic recovery remains uncertain and accordingly, the economic assumptions used in the model and the resulting ACL level and provision consider both the positive assumptions and potential uncertainties.

The ACL also incorporates qualitative factors to account for certain loan portfolio characteristics that are not taken into consideration by the third-party model including underlying strengths and weaknesses in various segments of the loan portfolio. As is the case with all estimates, the ACL is expected to be impacted in future periods by economic volatility, changing economic forecasts, underlying model assumptions, and asset quality metrics, all of which may be better than or worse than current estimates.

The ACL process involves subjective and complex judgments as well as adjustments for numerous factors including those described in the federal banking agencies' joint interagency policy statement on ALL, which include underwriting experience and collateral value changes, among others.

The reserve for unfunded loan commitments is established to cover the current expected credit losses for the estimated level of funding of these loan commitments, except for unconditionally cancellable commitments for which no reserve is required under ASC 326. At March 31, 2022 and December 31, 2021, the reserve for unfunded loan commitments was $5.4 million and $5.6 million, respectively, and was included in accrued expenses and other liabilities on the consolidated statements of financial condition.

The following table presents a summary of activity in the ACL for the periods indicated:


	Three Months Ended March 31,
($ in thousands)	2022						2021
	Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	$	92,584	$	5,605	$	98,189	$	81,030	$	3,183	$	84,213

Loans charged off	(231)		—		(231)		(565)		—		(565)
Recoveries of loans previously charged off	32,215		—		32,215		172		—		172
Net recoveries (charge-offs)	31,984		—		31,984		(393)		—		(393)

(Reversal of) provision for credit losses	(31,342)		(200)		(31,542)		(1,284)		177		(1,107)
Balance at end of period	$	93,226	$	5,405	$	98,631	$	79,353	$	3,360	$	82,713

During the three months ended March 31, 2022, total recoveries included $31.3 million related to a recovery from the settlement of a loan previously charged-off in 2019. This recovery resulted in a reversal of provision for credit losses during the same period.

Accrued interest receivable on loans receivable, net totaled $27.5 million and $25.8 million at March 31, 2022 and December 31, 2021, and is included within other assets in the accompanying consolidated statements of financial condition. Accrued interest receivable is excluded from the estimate of expected credit losses.

The following table presents the activity and balance in the ALL and the recorded investment, excluding accrued interest, in loans as of or for the three months ended March 31, 2022:


($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Single Family Residential Mortgage		Other Consumer		Total
ALL:
Three Months Ended March 31, 2022:
Balance at December 31, 2021	$	33,557	$	21,727	$	17,893	$	3,017	$	5,622	$	9,608	$	1,160	$	92,584

Charge-offs	(182)		—		—		(13)		—		(10)		(26)		(231)
Recoveries	31,417		—		—		758		—		38		2		32,215
Net recoveries (charge-offs)	31,235		—		—		745		—		28		(24)		31,984

(Reversal of) provision for credit losses - loans	(24,825)		(5,237)		(2,556)		(721)		646		1,393		(42)		(31,342)
Balance at March 31, 2022	$	39,967	$	16,490	$	15,337	$	3,041	$	6,268	$	11,029	$	1,094	$	93,226

The following table presents the activity and balance in the ALL and the recorded investment, excluding accrued interest, in loans as of or for the three months ended March 31, 2021:


($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Single Family Residential Mortgage		Other Consumer		Total
ALL:
Three Months Ended March 31, 2021:
Balance at December 31, 2020	$	20,608	$	19,074	$	22,512	$	3,145	$	5,849	$	9,191	$	651	$	81,030

Charge-offs	(565)		—		—		—		—		—		—		(565)
Recoveries	45		—		—		126		—		—		1		172
Net (charge-offs) recoveries	(520)		—		—		126		—		—		1		(393)

(Reversal of) provision for credit losses - loans	(385)		(1,974)		1,372		180		(297)		(30)		(150)		(1,284)
Balance at March 31, 2021	$	19,703	$	17,100	$	23,884	$	3,451	$	5,552	$	9,161	$	502	$	79,353

Collateral Dependent Loans

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are evaluated individually and the ACL is determined based on the amount by which amortized costs exceed the estimated fair value of the collateral, adjusted for estimated selling costs.

Collateral dependent loans consisted of the following as of the dates indicated:


	March 31, 2022
	Real Estate
($ in thousands)	Commercial		Residential		Business Assets		Automobile		Total
Commercial:
Commercial and industrial	$	14,439	$	14	$	4,499	—		$	18,952
Commercial real estate	5,160		—		—		—		5,160

SBA	658		4,582		10,144		—		15,384


Consumer:
Single family residential mortgage	—		15,464		—		—		15,464
Other consumer	—		187		—		332		519
Total loans	$	20,257	$	20,247	$	14,643	$	332	$	55,479


	December 31, 2021
	Real Estate
($ in thousands)	Commercial		Residential		Business Assets		Automobile		Total
Commercial:
Commercial and industrial	$	13,518	$	37	$	4,776	$	—	$	18,331


SBA	689		4,458		11,511		—		16,658


Consumer:
Single family residential mortgage	—		14,012		—		—		14,012
Other consumer	—		—		—		235		235
Total loans	$	14,207	$	18,507	$	16,287	$	235	$	49,236

Troubled Debt Restructurings

TDR loans consisted of the following as of the dates indicated:


($ in thousands)	March 31, 2022		December 31, 2021

Commercial:
Commercial and industrial	$	20,281	$	5,241
Commercial real estate	4,244		4,243
SBA	265		265
Consumer:
Single family residential mortgage	5,119		6,935



Total	$	29,909	$	16,684

We had commitments to lend to customers with outstanding loans that were classified as TDRs of $664 thousand and $63 thousand at March 31, 2022 and December 31, 2021. Accruing TDRs were $14.9 million and nonaccrual TDRs were $15.1 million at March 31, 2022, compared to accruing TDRs of $12.5 million and nonaccrual TDRs of $4.1 million at December 31, 2021. The increase in TDRs during the three months ended March 31, 2022 was due to the modification of a non-performing PCD loan acquired in the PMB acquisition.

The following table summarizes the pre-modification and post-modification balances of the new TDRs for the periods indicated:



	Three Months Ended
($ in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
March 31, 2022
Commercial:
Commercial and industrial(1)	1	$	12,840	$	12,840






March 31, 2021



Consumer:
Single family residential mortgage(1)	1	$	1,800	$	1,800

(1) Modifications during the three months ended March 31, 2022 and 2021 consisted of extensions of maturity.

We consider a TDR to be in payment default once it becomes 30 days or more past due following a modification. During the three months ended March 31, 2022 and 2021, there were no loans that were modified as a TDR during the past 12 months that had subsequent payment defaults.

Purchases, Sales, and Transfers

From time to time, we purchase and sell loans in the secondary market. During the three months ended March 31, 2022, we purchased loans aggregating $364.4 million. During the three months ended March 31, 2021, we purchased loans aggregating $132.9 million.

There were no loans transferred from (to) loans held-for-sale and there were no sales of loans for the three months ended March 31, 2022 and 2021.

Non-Traditional Mortgage Loans (“NTM”)

As of March 31, 2022 and December 31, 2021, the NTM loans totaled $717.6 million, or 9.6% of total loans, and $635.3 million, or 8.8% of total loans, respectively. NTM loans are included in our SFR mortgage portfolio and are comprised of interest only loans and Green Loans.

We no longer originate SFR loans, however we have and may continue to purchase pools of loans that include NTM loans such as interest only loans with maturities of up to 40 years and flexible initial repricing dates, ranging from 1 to 10 years, and periodic repricing dates through the life of the loan. Interest only loans are primarily SFR first mortgage loans that generally have a 30 to 40-year term at the time of origination and include payment features that allow interest only payments in initial periods before converting to a fully amortizing loan. At March 31, 2022 and December 31, 2021, interest only loans totaled $706.9 million and $613.3 million. Green Loans are SFR first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. Green Loans are generally interest only for a 15-year term with a balloon payment due at maturity. At March 31, 2022 and December 31, 2021, Green Loans totaled $10.2 million and $21.5 million.

At March 31, 2022 and December 31, 2021, nonperforming NTM loans totaled zero and $4.0 million.

Non-Traditional Mortgage Performance Indicators

Our risk management policy and credit monitoring include reviewing delinquency, FICO scores, and LTV ratios on the NTM loan portfolio. We also continuously monitor market conditions for our geographic lending areas. We have determined that the most significant performance indicators for NTM first lien loans are LTV ratios and for Green Loans are FICO scores. At March 31, 2022, all of our $717.6 million NTM first lien portfolio had LTVs of 80% or less. At March 31, 2022, $6.4 million or 63% of our $10.2 million Green Loans first lien portfolio had FICO scores of 700 or greater.