LOANS AND ALLOWANCE FOR CREDIT LOSSES | LOANS AND ALLOWANCE FOR CREDIT LOSSES The following table presents the balances in our loan portfolio as of the dates indicated: ($ in thousands) June 30, December 31, Commercial: Commercial and industrial (1) $ 2,433,464 $ 2,668,984 Commercial real estate 1,204,414 1,311,105 Multifamily 1,572,308 1,361,054 SBA (2) 92,235 205,548 Construction 228,341 181,841 Consumer: Single family residential mortgage 1,832,279 1,420,023 Other consumer 88,223 102,925 Total loans $ 7,451,264 $ 7,251,480 Allowance for loan losses (93,793) (92,584) Loans receivable, net $ 7,357,471 $ 7,158,896 (1) Includes warehouse lending balances of $1.16 billion and $1.60 billion at June 30, 2022 and December 31, 2021. (2) Includes 79 PPP loans totaling $28.4 million at June 30, 2022 and 397 PPP loans totaling $123.1 million at December 31, 2021. The following table presents the balances of total loans as of the dates indicated: ($ in thousands) June 30, December 31, Unpaid principal balance $ 7,436,887 $ 7,245,952 Unamortized net premiums 25,960 18,005 Unamortized net deferred (fees) costs (902) 819 Unamortized SBA PPP fees (21) (831) Fair value adjustment (1) (10,660) (12,465) Total loans $ 7,451,264 $ 7,251,480 (1) At June 30, 2022. includes $9.0 million related to the PMB Acquisition, of which $4.3 million related to PCD loans. At December 31, 2021, includes $10.6 million related to the PMB Acquisition, of which $3.9 million related to PCD loans. 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 June 30, 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 Total June 30, 2022 Commercial: Commercial and industrial Pass $ 151,151 $ 217,900 $ 69,281 $ 74,539 $ 82,341 $ 181,285 $ 1,528,413 $ 11,741 $ 2,316,651 Special mention 3,367 5,373 30 516 1,877 18,566 13,160 2,516 45,405 Substandard — 1,265 4,586 14,162 12,377 3,207 35,359 452 71,408 Doubtful — — — — — — — — — Commercial and industrial 154,518 224,538 73,897 89,217 96,595 203,058 1,576,932 14,709 2,433,464 Commercial real estate Pass 188,712 385,057 61,027 118,169 161,165 271,356 1,167 66 1,186,719 Special mention — — — — 1,909 1,770 — — 3,679 Substandard — — — — 4,188 8,936 892 — 14,016 Doubtful — — — — — — — — — Commercial real estate 188,712 385,057 61,027 118,169 167,262 282,062 2,059 66 1,204,414 Multifamily Pass 424,820 405,151 158,545 263,048 116,158 160,374 9,384 — 1,537,480 Special mention — — 4,968 — 11,165 — — — 16,133 Substandard — — — — — 18,695 — — 18,695 Doubtful — — — — — — — — — Multifamily 424,820 405,151 163,513 263,048 127,323 179,069 9,384 — 1,572,308 SBA Pass 5,310 32,808 9,532 2,453 1,276 23,115 628 156 75,278 Special mention — — — 3,909 219 1,091 — 2 5,221 Substandard — — 338 190 385 9,361 666 796 11,736 Doubtful — — — — — — — — — SBA 5,310 32,808 9,870 6,552 1,880 33,567 1,294 954 92,235 Construction Pass 52,355 86,325 30,183 10,288 15,223 25,446 (26) — 219,794 Special mention — — — — — 8,547 — — 8,547 Substandard — — — — — — — — — Doubtful — — — — — — — — — Construction 52,355 86,325 30,183 10,288 15,223 33,993 (26) — 228,341 Consumer: Single family residential mortgage Pass 473,398 815,560 77,676 50,930 102,538 290,831 6,135 — 1,817,068 Special mention 651 222 — 670 902 3,547 — 226 6,218 Substandard — — — 339 6,091 2,563 — — 8,993 Doubtful — — — — — — — — — Single family residential mortgage 474,049 815,782 77,676 51,939 109,531 296,941 6,135 226 1,832,279 Other consumer Pass 12,734 19,886 10,469 6,538 3,843 19,725 12,893 1,639 87,727 Special mention — — — 3 — 21 63 58 145 Substandard — — 59 — 73 35 — 184 351 Doubtful — — — — — — — — — Other consumer 12,734 19,886 10,528 6,541 3,916 19,781 12,956 1,881 88,223 Total loans $ 1,312,498 $ 1,969,547 $ 426,694 $ 545,754 $ 521,730 $ 1,048,471 $ 1,608,734 $ 17,836 $ 7,451,264 Total loans Pass $ 1,308,480 $ 1,962,687 $ 416,713 $ 525,965 $ 482,544 $ 972,132 $ 1,558,594 $ 13,602 $ 7,240,717 Special mention 4,018 5,595 4,998 5,098 16,072 33,542 13,223 2,802 85,348 Substandard — 1,265 4,983 14,691 23,114 42,797 36,917 1,432 125,199 Doubtful — — — — — — — — — Total loans $ 1,312,498 $ 1,969,547 $ 426,694 $ 545,754 $ 521,730 $ 1,048,471 $ 1,608,734 $ 17,836 $ 7,451,264 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 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 June 30, 2022 Commercial: Commercial and industrial 3,433 2,567 7,204 13,204 2,420,260 2,433,464 Commercial real estate 893 — — 893 1,203,521 1,204,414 Multifamily — — — — 1,572,308 1,572,308 SBA 4,766 115 10,087 14,968 77,267 92,235 Construction — — — — 228,341 228,341 Consumer: Single family residential mortgage 23,226 2,848 6,430 32,504 1,799,775 1,832,279 Other consumer 437 — 184 621 87,602 88,223 Total $ 32,755 $ 5,530 $ 23,905 $ 62,190 $ 7,389,074 $ 7,451,264 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: June 30, 2022 December 31, 2021 ($ in thousands) Total Nonaccrual Loans with no ACL Total Nonaccrual Loans with no ACL Nonaccrual loans Commercial: Commercial and industrial $ 25,380 $ 6,413 $ 28,594 $ 9,137 Commercial real estate 893 893 — — SBA 10,537 5,163 16,653 11,443 Consumer: Single family residential mortgage 7,341 3,412 7,076 7,076 Other consumer 292 292 235 235 Total nonaccrual loans $ 44,443 $ 16,173 $ 52,558 $ 27,891 At June 30, 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 June 30, 2022 and December 31, 2021, there was no other real estate owned. At June 30, 2022, there were four consumer mortgage loans totaling $4.5 million secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction. There were no consumer mortgage loans secured by residential real estate properties in foreclosure at December 31, 2021. 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 June 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. 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 June 30, 2022 and December 31, 2021, the reserve for unfunded loan commitments was $5.9 million and $5.6 million, respectively, and was included in accrued expenses and other liabilities on the consolidated statements of financial condition. The following table presents a summary of activity in the ACL for the periods indicated: Three Months Ended June 30, ($ in thousands) 2022 2021 Allowance Reserve for Unfunded Loan Commitments Allowance Allowance Reserve for Unfunded Loan Commitments Allowance Balance at beginning of period $ 93,226 $ 5,405 $ 98,631 $ 79,353 $ 3,360 $ 82,713 Charge-offs (494) — (494) (886) — (886) Recoveries 1,561 — 1,561 26 — 26 Net recoveries (charge-offs) 1,067 — 1,067 (860) — (860) (Reversal of) provision for credit losses (500) 500 — (2,608) 454 (2,154) Balance at end of period $ 93,793 $ 5,905 $ 99,698 $ 75,885 $ 3,814 $ 79,699 Six Months Ended June 30, ($ in thousands) 2022 2021 Allowance Reserve for Unfunded Loan Commitments Allowance Allowance Reserve for Unfunded Loan Commitments Allowance Balance at beginning of period $ 92,584 $ 5,605 $ 98,189 $ 81,030 $ 3,183 $ 84,213 Charge-offs (725) — (725) (1,451) — (1,451) Recoveries 33,776 — 33,776 198 — 198 Net charge-offs 33,051 — 33,051 (1,253) — (1,253) (Reversal of) provision for credit losses (31,842) 300 (31,542) (3,892) 631 (3,261) Balance at end of period $ 93,793 $ 5,905 $ 99,698 $ 75,885 $ 3,814 $ 79,699 During the six months ended June 30, 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 $26.6 million and $25.8 million at June 30, 2022 and December 31, 2021, and is included within other assets in the accompanying consolidated statements of financial condition. Accrued interest receivable is excluded from the estimate of expected credit losses. The following table presents the activity and balance in the ALL and the recorded investment, excluding accrued interest, in loans as of or for the three and six months ended June 30, 2022: ($ in thousands) Commercial and Industrial Commercial Real Estate Multifamily SBA Construction Single Family Residential Mortgage Other Consumer Total ALL: Three Months Ended June 30, 2022: Balance at March 31, 2022 $ 39,967 $ 16,490 $ 15,337 $ 3,041 $ 6,268 $ 11,029 $ 1,094 $ 93,226 Charge-offs (138) — — (139) — — (217) (494) Recoveries 1,400 — — 3 — 154 4 1,561 Net recoveries (charge-offs) 1,262 — — (136) — 154 (213) 1,067 Provision for (reversal of) credit losses - loans 184 (748) 341 128 (2,013) 1,622 (14) (500) Balance at June 30, 2022 $ 41,413 $ 15,742 $ 15,678 $ 3,033 $ 4,255 $ 12,805 $ 867 $ 93,793 Six Months Ended June 30, 2022: Balance at December 31, 2021 $ 33,557 $ 21,727 $ 17,893 $ 3,017 $ 5,622 $ 9,608 $ 1,160 $ 92,584 Charge-offs (320) — — (152) — (10) (243) (725) Recoveries 32,817 — — 761 — 192 6 33,776 Net recoveries (charge-offs) 32,497 — — 609 — 182 (237) 33,051 Provision for (reversal of) credit losses - loans (24,641) (5,985) (2,215) (593) (1,367) 3,015 (56) (31,842) Balance at June 30, 2022 $ 41,413 $ 15,742 $ 15,678 $ 3,033 $ 4,255 $ 12,805 $ 867 $ 93,793 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 and six months ended June 30, 2021: ($ in thousands) Commercial and Industrial Commercial Real Estate Multifamily SBA Construction Single Family Residential Mortgage Other Consumer Total ALL: Three Months Ended June 30, 2021: Balance at March 31, 2021 $ 19,703 $ 17,100 $ 23,884 $ 3,451 $ 5,552 $ 9,161 $ 502 $ 79,353 Charge-offs (500) — — (386) — — — (886) Recoveries 23 — — 3 — — — 26 Net (charge-offs) recoveries (477) — — (383) — — — (860) (Reversal of) provision for credit losses - loans 930 (676) (2,481) 628 (818) (53) (138) (2,608) Balance at June 30, 2021 $ 20,156 $ 16,424 $ 21,403 $ 3,696 $ 4,734 $ 9,108 $ 364 $ 75,885 Six Months Ended June 30, 2021: Balance at December 31, 2020 $ 20,608 $ 19,074 $ 22,512 $ 3,145 $ 5,849 $ 9,191 $ 651 $ 81,030 Charge-offs (1,065) — — (386) — — — (1,451) Recoveries 68 — — 129 — — 1 198 Net (charge-offs) recoveries (997) — — (257) — — 1 (1,253) Provision for (reversal of) credit losses - loans 545 (2,650) (1,109) 808 (1,115) (83) (288) (3,892) Balance at June 30, 2021 $ 20,156 $ 16,424 $ 21,403 $ 3,696 $ 4,734 $ 9,108 $ 364 $ 75,885 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: June 30, 2022 Real Estate ($ in thousands) Commercial Residential Business Assets Automobile Total Commercial: Commercial and industrial $ 12,349 $ — $ 4,316 $ — $ 16,665 Commercial real estate 893 — — — 893 SBA 98 4,710 5,729 — 10,537 Consumer: Single family residential mortgage — 8,789 — — 8,789 Other consumer — 184 — 111 295 Total loans $ 13,340 $ 13,683 $ 10,045 $ 111 $ 37,179 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) June 30, December 31, Commercial: Commercial and industrial $ 19,778 $ 5,241 Commercial real estate 4,187 4,243 SBA 522 265 Consumer: Single family residential mortgage 1,448 6,935 Total $ 25,935 $ 16,684 We had commitments to lend to customers with outstanding loans that were classified as TDRs of $769 thousand and $63 thousand at June 30, 2022 and December 31, 2021. Accruing TDRs were $10.9 million and nonaccrual TDRs were $15.0 million at June 30, 2022, compared to accruing TDRs of $12.5 million and nonaccrual TDRs of $4.1 million at December 31, 2021. The increase in TDRs during the six months ended June 30, 2022 was due mostly to the modification of a non-performing PCD loan acquired in the PMB acquisition. The following table summarizes the pre-modification and post-modification balances of the new TDRs for the periods indicated: Three Months Ended Six Months Ended ($ in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment June 30, 2022 Commercial: Commercial and industrial (1) — $ — $ — 1 $ 12,840 $ 12,840 SBA 2 833 833 2 833 833 Total 2 $ 833 $ 833 3 $ 13,673 $ 13,673 June 30, 2021 Consumer: Single family residential mortgage (1) — $ — $ — 1 $ 1,800 $ 1,800 Total — $ — $ — 1 $ 1,800 $ 1,800 (1) Modifications during the three and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2022, we purchased loans aggregating $277.2 million and $641.5 million. During the three and six months ended June 30, 2021, we purchased loans aggregating $233.1 million and $366.0 million. There were no loans transferred from held for investment to loans held-for-sale and there were no sales of loans for the three and six months ended June 30, 2022 and 2021. Non-Traditional Mortgage Loans (“NTM”) NTM loans are included in our SFR mortgage portfolio and are comprised of interest only loans and Green Loans. As of June 30, 2022 and December 31, 2021, the NTM loans totaled $841.1 million, or 11.3% of total loans, and $635.3 million, or 8.8% of total loans, respectively. 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 June 30, 2022 and December 31, 2021, interest only loans totaled $833.6 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 June 30, 2022 and December 31, 2021, Green Loans totaled $7.4 million and $21.9 million. At June 30, 2022 and December 31, 2021, nonperforming NTM loans totaled zero and $4.0 million. Non-Traditional Mortgage Performance Indicators |