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Loans Held for Investment
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
Loans Held for Investment Loans Held for Investment
 
The Company’s loan portfolio is segmented according to loans that share similar attributes and risk characteristics.

Investor loans secured by real estate includes commercial real estate (“CRE”), non-owner-occupied, multifamily, construction, and land, as well as Small Business Administration (“SBA”) loans secured by investor real estate, which are loans collateralized by hotel/motel real property.

Business loans secured by real estate are loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment. This loan portfolio includes CRE owner-occupied, franchise loans secured by real estate, and SBA loans secured by real estate, which are collateralized by real property other than hotel/motel real property.

Commercial loans are loans to businesses where the operating cash flow of the business is the primary source of repayment. This loan portfolio includes commercial and industrial (“C&I”), franchise loans non-real estate secured, and SBA loans non-real estate secured.

Retail loans include single family residential and consumer loans. Single family residential includes home equity lines of credit, as well as second trust deeds.
The following table presents the composition of the loan portfolio for the periods indicated:
March 31,December 31,
(Dollars in thousands)20232022
Investor loans secured by real estate
CRE non-owner-occupied$2,590,824 $2,660,321 
Multifamily5,955,239 6,112,026 
Construction and land420,079 399,034 
SBA secured by real estate40,669 42,135 
Total investor loans secured by real estate9,006,811 9,213,516 
Business loans secured by real estate
CRE owner-occupied2,342,175 2,432,163 
Franchise real estate secured371,902 378,057 
SBA secured by real estate60,527 61,368 
Total business loans secured by real estate2,774,604 2,871,588 
Commercial loans
Commercial and industrial1,967,128 2,160,948 
Franchise non-real estate secured388,722 404,791 
SBA non-real estate secured10,437 11,100 
Total commercial loans2,366,287 2,576,839 
Retail loans
Single family residential70,913 72,997 
Consumer3,174 3,284 
Total retail loans74,087 76,281 
Loans held for investment before basis adjustment (1)
14,221,789 14,738,224 
Basis adjustment associated with fair value hedge (2)
(50,005)(61,926)
Loans held for investment14,171,784 14,676,298 
Allowance for credit losses for loans held for investment(195,388)(195,651)
Loans held for investment, net$13,976,396 $14,480,647 
Total unfunded loan commitments$2,413,169 $2,489,203 
Loans held for sale, at lower of cost or fair value1,247 2,643 
______________________________
(1) Includes net deferred origination fees of $745,000 and $1.9 million, and unaccreted fair value net purchase discounts of $52.2 million and $54.8 million as of March 31, 2023 and December 31, 2022, respectively.
(2) Represents the basis adjustment associated with the application of hedge accounting on certain loans. Refer to Note 11 – Derivative Instruments for additional information.

The Company originates SBA loans with the intent to sell the guaranteed portion of the loans prior to maturity and, therefore, designates them as held for sale. From time to time, the Company may purchase or sell other types of loans in order to manage concentrations, maximize interest income, change risk profiles, improve returns, and generate liquidity.
Loans Serviced for Others and Loan Securitization

The Company generally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company initially records a servicing asset at fair value within its other assets category. Servicing assets are subsequently measured using the amortization method and amortized to noninterest income. At March 31, 2023 and December 31, 2022, the servicing asset totaled $2.6 million and $3.0 million, respectively, and were included in other assets in the Company’s consolidated statement of financial condition. Servicing assets are evaluated for impairment based upon the fair value of the servicing rights as compared to carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At March 31, 2023 and December 31, 2022, the Company determined that no valuation allowance was necessary.
    
In connection with the acquisition of Opus Bank (“Opus”), the Company acquired Federal Home Loan Mortgage Corporation (“Freddie Mac”) guaranteed structured pass-through certificates, which were issued as a result of Opus’s securitization sale of $509 million in originated multifamily loans through a Freddie Mac-sponsored transaction in December 2016. The Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and reimbursement obligations. Servicing responsibilities on loan sales generally include obligations to collect and remit payments of principal and interest, provide foreclosure services, manage payments of taxes and insurance premiums, and otherwise administer the underlying loans. In connection with the securitization transaction, Freddie Mac was designated as the master servicer and appointed the Company to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with the exception of the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are separately designated to the special servicer, a third-party institution that is independent of the master servicer and the Company. The master servicer has the right to terminate the Company in its role as sub-servicer and direct such responsibilities accordingly.

To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the Company is obligated to reimburse Freddie Mac for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date of December 23, 2016. The liability recorded for Company’s exposure to the reimbursement agreement with Freddie Mac was $334,000 as of March 31, 2023 and December 31, 2022.

Loans sold and serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balance of loans and participations serviced for others were $444.4 million at March 31, 2023 and $463.4 million at December 31, 2022, respectively. Included in those totals are multifamily loans transferred through securitization with Freddie Mac of $53.7 million and $54.2 million at March 31, 2023 and December 31, 2022, respectively, and SBA participations serviced for others of $303.9 million and $315.3 million at March 31, 2023 and December 31, 2022, respectively.
Concentration of Credit Risk
 
As of March 31, 2023, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located predominately in California. The Company’s loan portfolio contains concentrations of credit in multifamily, CRE non-owner-occupied, CRE owner-occupied, and C&I business loans. The Bank maintains policies approved by the Bank’s Board of Directors (the “Bank Board”) that address these concentrations and diversifies its loan portfolio through loan originations, purchases, and sales to meet approved concentration levels.

Under applicable laws and regulations, the Bank may not make secured loans to one borrower in excess of 25% of the Bank’s unimpaired capital plus surplus, and likewise in excess of 15% of the Bank’s unimpaired capital plus surplus for unsecured loans. These loans-to-one borrower limitations result in a dollar limitation of $836.5 million for secured loans and $501.9 million for unsecured loans at March 31, 2023. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At March 31, 2023, the Bank’s largest aggregate outstanding balance of loans to one borrower was $171.2 million secured by multifamily properties.
 
Credit Quality and Credit Risk Management
 
The Company’s credit quality and credit risk are controlled in two distinct areas. The first is the loan origination process, wherein the Bank underwrites credit and chooses which types and levels of risk it is willing to accept. The Company maintains a credit policy which addresses many related topics, sets forth maximum tolerances for key elements of loan risk, and indicates appropriate protocols for identifying and analyzing these risk elements. The policy sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio-wide basis. The credit policy is reviewed annually by the Bank Board. The Bank’s underwriters ensure all key risk factors are analyzed, with most underwriting including a global cash flow analysis of the prospective borrowers. 
    
The second area is in the ongoing oversight of the loan portfolio, where existing credit risk is measured and monitored, and where performance issues are dealt with in a timely and appropriate fashion. Credit risk is monitored and managed within the loan portfolio by the Company’s portfolio managers based on both the credit policy and a credit and portfolio review policy. This latter policy requires a program of financial data collection and analysis, thorough loan reviews, property and/or business inspections, monitoring of portfolio concentrations and trends, and incorporation of current business and economic conditions. The portfolio managers also monitor asset-based lines of credit, loan covenants, and other conditions associated with the Company’s business loans as a means to help identify potential credit risk. Most individual loans, excluding the homogeneous loan portfolio, are reviewed at least annually, including the assignment or confirmation of a risk grade.
 
Risk grades are based on a six-grade Pass scale, along with Special Mention, Substandard, Doubtful, and Loss classifications, as such classifications are defined by the federal banking regulatory agencies. The assignment of risk grades allows the Company to, among other things, identify the risk associated with each credit in the portfolio and to provide a basis for estimating credit losses inherent in the portfolio. Risk grades are reviewed regularly with the Company’s Credit and Portfolio Review Committee, and the portfolio management and risk grading process is reviewed on an ongoing basis by an independent loan review function and periodic internal audits, as well as by regulatory agencies during scheduled examinations.
 
The following provides brief definitions for risk grades assigned to loans in the portfolio:
 
•Pass assets carry an acceptable level of credit quality that contains no well-defined deficiencies or weaknesses.
•Special Mention assets do not currently expose the Bank to a sufficient risk to warrant classification in one of the adverse categories, but possess correctable deficiencies or potential weaknesses deserving management’s close attention.
•Substandard assets are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. These assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. OREO acquired through foreclosure is also classified as substandard.
•Doubtful assets have all the weaknesses inherent in substandard assets, 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.
•Loss assets are those that are considered uncollectible and of such little value that their continuance as assets is not warranted. Amounts classified as loss are promptly charged off.

The Bank’s portfolio managers also manage loan performance risks, collections, workouts, bankruptcies, and foreclosures. A special department, whose portfolio managers have professional expertise in these areas, typically handles or advises on these types of matters. Loan performance risks are mitigated by our portfolio managers acting promptly and assertively to address problem credits when they are identified. Collection efforts commence immediately upon non-payment, and the portfolio managers seek to promptly determine the appropriate steps to minimize the Company’s risk of loss. When foreclosure will maximize the Company’s recovery for a non-performing loan, the portfolio managers will take appropriate action to initiate the foreclosure process.
 
When a loan is graded as special mention, substandard, or doubtful, the Company obtains an updated valuation of the underlying collateral. Collateral generally consists of accounts receivable, inventory, fixed assets, real estate properties, and/or cash. If, through the Company’s credit risk management process, it is determined the ultimate repayment of a loan will come from the foreclosure upon and ultimate sale of the underlying collateral, the loan is deemed collateral dependent and evaluated individually to determine an appropriate ACL for the loan. The ACL for such loans is measured as the amount by which the fair value of the underlying collateral, less estimated costs to sell, is less than the amortized cost of the loan. The Company typically continues to obtain or confirm updated valuations of underlying collateral for special mention and classified loans on an annual or biennial basis in order to have the most current indication of fair value of the underlying collateral securing the loan. Additionally, once a loan is identified as collateral dependent, due to the likelihood of foreclosure, and repayment of the loan is expected to come from the eventual sale of the underlying collateral, an analysis of the underlying collateral is performed at least quarterly. Changes in the estimated fair value of the collateral are reflected in the lifetime ACL for the loan. Balances deemed to be uncollectable are promptly charged-off. However, if a loan is not considered collateral dependent and management determines that the loan no longer possesses risk characteristics similar to other loans in the loan portfolio, the loan is individually evaluated, and the associated ACL is determined through the use of a discounted cash flow analysis.
The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as well as the gross charge-offs on a year-to-date basis by year of origination as of March 31, 2023:
Term Loans by Vintage
(Dollars in thousands)20232022202120202019PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied
Pass$10,306 $526,084 $604,909 $199,161 $318,943 $913,142 $— $— $2,572,545 
Special mention— — — — — 5,104 — — 5,104 
Substandard— 450 — — — 12,725 — — 13,175 
Multifamily
Pass11,931 1,216,585 2,158,819 778,678 885,448 886,728 — — 5,938,189 
Special mention— — — — 12,604 — — — 12,604 
Substandard— — 985 — 2,723 738 — — 4,446 
Construction and land
Pass24,682 213,034 153,359 16,609 4,876 6,077 1,442 — 420,079 
SBA secured by real estate
Pass— 6,546 130 493 5,363 19,211 — — 31,743 
Substandard— — — — — 8,926 — — 8,926 
Total investor loans secured by real estate46,919 1,962,699 2,918,202 994,941 1,229,957 1,852,651 1,442 — 9,006,811 
Current period gross charge-offs— — 217 — — 66 — — 283 
Business loans secured by real estate
CRE owner-occupied
Pass8,779 579,514 689,292 234,096 233,804 512,531 5,795 — 2,263,811 
Special mention— 3,920 2,836 — — 11,623 — — 18,379 
Substandard— 11,078 1,007 11,339 — 36,561 — — 59,985 
Franchise real estate secured
Pass8,551 45,691 125,282 33,145 40,580 85,108 — — 338,357 
Special mention729 7,766 17,015 — 836 — — — 26,346 
Substandard— 958 — — 5,941 300 — — 7,199 
SBA secured by real estate
Pass116 10,724 8,168 2,131 5,648 28,285 — — 55,072 
Special mention— — — — — 195 — — 195 
Substandard— — — — — 5,260 — — 5,260 
Total loans secured by business real estate18,175 659,651 843,600 280,711 286,809 679,863 5,795 — 2,774,604 
Current period gross charge-offs— — 318 — — 1,845 — — 2,163 
Term Loans by Vintage
(Dollars in thousands)20232022202120202019PriorRevolvingRevolving Converted to Term During the PeriodTotal
Commercial loans
Commercial and industrial
Pass23,116 274,813 251,865 54,249 150,173 188,547 942,518 334 1,885,615 
Special mention— 1,804 1,626 — 595 1,501 24,140 — 29,666 
Substandard— 15,900 3,294 746 4 1,255 30,648 — 51,847 
Franchise non-real estate secured
Pass5,573 93,172 121,323 17,959 43,011 67,423 777 — 349,238 
Special mention— 2,699 15,876 — 12,142 — — — 30,717 
Substandard— 1,683 369 2,783 2,103 1,829 — — 8,767 
SBA non-real estate secured
Pass18 3,386 357 270 1,597 3,341 — — 8,969 
Substandard— 572 — — 127 769 — — 1,468 
Total commercial loans28,707 394,029 394,710 76,007 209,752 264,665 998,083 334 2,366,287 
Current period gross charge-offs— 177 48 5 289 30 574 — 1,123 
Retail loans
Single family residential
Pass$— $— $— $174 $— $47,453 $23,282 $— $70,909 
Substandard— — — — — 4 — — 4 
Consumer loans
Pass— — 3 14 10 914 2,233 — 3,174 
Total retail loans— — 3 188 10 48,371 25,515 — 74,087 
Current period gross charge-offs— — — — — 93 2 — 95 
Loans held for investment before basis adjustment (1)
$93,801 $3,016,379 $4,156,515 $1,351,847 $1,726,528 $2,845,550 $1,030,835 $334 $14,221,789 
Total current period gross charge-offs— 177 583 5 289 2,034 576 — 3,664 
______________________________
(1) Excludes the basis adjustment of $50.0 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of December 31, 2022:
Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied
Pass$523,895 $607,153 $208,760 $347,889 $308,317 $651,593 $— $— $2,647,607 
Special mention— — — — 7,487 — — — 7,487 
Substandard— — — — 194 4,570 — 463 5,227 
Multifamily
Pass1,230,359 2,187,255 786,436 889,737 263,241 732,808 — — 6,089,836 
Special mention— — — 12,667 — — — — 12,667 
Substandard— 6,057 — 2,723 — 743 — — 9,523 
Term Loans by Vintage
(Dollars in thousands)20222021202020192018PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2022
Construction and land
Pass187,567 154,231 38,760 9,615 1,843 7,018 — — 399,034 
SBA secured by real estate
Pass6,571 130 493 5,407 7,361 13,199 — — 33,161 
Substandard— — — — 2,416 6,558 — — 8,974 
Total investor loans secured by real estate1,948,392 2,954,826 1,034,449 1,268,038 590,859 1,416,489 — 463 9,213,516 
Business loans secured by real estate
CRE owner-occupied
Pass593,826 718,223 242,125 240,772 114,581 448,531 5,661 — $2,363,719 
Special mention334 1,015 — — 675 327 — — 2,351 
Substandard10,838 2,541 11,970 2,403 4,676 33,665 — — 66,093 
Franchise real estate secured
Pass54,654 131,541 33,513 44,229 32,815 55,893 — — 352,645 
Special mention4,891 13,145 — — — — — — 18,036 
Substandard980 — — 6,092 — 304 — — 7,376 
SBA secured by real estate
Pass10,993 6,978 2,329 5,710 4,440 25,415 — — 55,865 
Special mention— — — — — 118 — — 118 
Substandard— — — — 1,354 4,031 — — 5,385 
Total loans secured by business real estate676,516 873,443 289,937 299,206 158,541 568,284 5,661 — 2,871,588 
Commercial loans
Commercial and industrial
Pass282,131 262,044 55,659 155,310 78,684 121,918 1,134,568 3,412 2,093,726 
Special mention15,105 3,567 798 — 1,864 41 9,898 — 31,273 
Substandard2,590 80 — 3,867 562 1,029 27,680 141 35,949 
Franchise non-real estate secured
Pass102,542 128,030 18,486 46,027 28,664 43,486 778 — 368,013 
Special mention1,372 14,382 — 11,829 — — — — 27,583 
Substandard1,757 385 2,852 2,256 1,637 308 — — 9,195 
SBA non-real estate secured
Pass3,444 435 276 1,638 633 3,124 — — 9,550 
Special mention— — — — — — — — — 
Substandard— — — 130 224 606 — 590 1,550 
Total commercial loans408,941 408,923 78,071 221,057 112,268 170,512 1,172,924 4,143 2,576,839 
Retail loans
Single family residential
Pass— — 176 — 22 49,729 23,065 — 72,992 
Substandard— — — — — 5 — — 5 
Consumer loans
Pass— 6 17 11 — 969 2,254 — 3,257 
Substandard— — — — — 27 — — 27 
Total retail loans— 6 193 11 22 50,730 25,319 — 76,281 
Loans held for investment$3,033,849 $4,237,198 $1,402,650 $1,788,312 $861,690 $2,206,015 $1,203,904 $4,606 $14,738,224 
______________________________
(1) Excludes the basis adjustment of $61.9 million to the carrying amount of certain loans included in fair value hedging relationships. Refer to Note 11 – Derivative Instruments for additional information.
The following tables stratify the loans held for investment portfolio by delinquency as of the periods indicated:
Days Past Due
(Dollars in thousands)Current30-5960-8990+Total
March 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied$2,585,273 $6 $1,129 $4,416 $2,590,824 
Multifamily5,951,531 — — 3,708 5,955,239 
Construction and land420,079 — — — 420,079 
SBA secured by real estate40,669 — — — 40,669 
Total investor loans secured by real estate8,997,552 6 1,129 8,124 9,006,811 
Business loans secured by real estate
CRE owner-occupied2,337,413 — — 4,762 2,342,175 
Franchise real estate secured371,902 — — — 371,902 
SBA secured by real estate59,029 308 — 1,190 60,527 
Total business loans secured by real estate2,768,344 308 — 5,952 2,774,604 
Commercial loans
Commercial and industrial1,962,376 447 69 4,236 1,967,128 
Franchise non-real estate secured388,722 — — — 388,722 
SBA not secured by real estate9,865 — — 572 10,437 
Total commercial loans2,360,963 447 69 4,808 2,366,287 
Retail loans
Single family residential70,913 — — — 70,913 
Consumer loans3,174 — — — 3,174 
Total retail loans74,087 — — — 74,087 
Loans held for investment before basis adjustment (1)
$14,200,946 $761 $1,198 $18,884 $14,221,789 

December 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied$2,655,892 $— $— $4,429 $2,660,321 
Multifamily6,103,246 2,723 — 6,057 6,112,026 
Construction and land399,034 — — — 399,034 
SBA secured by real estate42,135 — — — 42,135 
Total investor loans secured by real estate9,200,307 2,723 — 10,486 9,213,516 
Business loans secured by real estate
CRE owner-occupied2,424,174 1,434 — 6,555 2,432,163 
Franchise real estate secured370,984 7,073 — — 378,057 
SBA secured by real estate60,177 — 104 1,087 61,368 
Total business loans secured by real estate2,855,335 8,507 104 7,642 2,871,588 
Commercial loans
Commercial and industrial2,152,302 4,657 81 3,908 2,160,948 
Franchise non-real estate secured401,199 3,592 — — 404,791 
SBA not secured by real estate10,511 — — 589 11,100 
Total commercial loans2,564,012 8,249 81 4,497 2,576,839 
Retail loans
Single family residential71,940 1,057 — — 72,997 
Consumer loans3,282 2 — — 3,284 
Total retail loans75,222 1,059 — — 76,281 
Loans held for investment before basis adjustment (1)
$14,694,876 $20,538 $185 $22,625 $14,738,224 
______________________________
(1) Excludes the basis adjustment of $50.0 million and $61.9 million to the carrying amount of certain loans included in fair value hedging relationships as of March 31, 2023 and December 31, 2022, respectively. Refer to Note 11 – Derivative Instruments for additional information.
Individually Evaluated Loans

The Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified loans made to borrowers experiencing financial difficulty, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. Changes in the ACL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

As of March 31, 2023, $24.9 million of loans were individually evaluated with $4.0 million ACL attributed to such loans. At March 31, 2023, all individually evaluated loans were evaluated based on the underlying value of the collateral and none were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at March 31, 2023.

As of December 31, 2022, $30.9 million of loans were individually evaluated, and the ACL attributed to such loans totaled $1.7 million. At December 31, 2022, all individually evaluated loans were evaluated based on the underlying value of the collateral and none were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at December 31, 2022.

Purchased Credit Deteriorated Loans
 
The Company analyzed acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated loans. Please see Note 1 - Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2022 Form 10-K for more information concerning the accounting for purchased credit deterioration (“PCD”) loans. The Company had PCD loans of $413.0 million and $422.7 million at March 31, 2023 and December 31, 2022, respectively.

Acquired loans classified as PCD are recorded at an initial amortized cost, which is comprised of the purchase price of the loans (or initial fair value) and the initial ACL determined for the loans, which is added to the purchase price, as well as any resulting discount or premium related to factors other than credit. The Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield. Subsequent to acquisition, the ACL for PCD loans is measured in accordance with the Company’s ACL methodology. Please also see Note 6 – Allowance for Credit Losses for more information concerning the Company’s ACL methodology.

Nonaccrual Loans

When loans are placed on nonaccrual status, previously accrued but unpaid interest is reversed from current period earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is remote, the Company may recognize interest on a cash basis. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least three months of sustained repayment performance since the loan was placed on nonaccrual.
The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. However, when such loans are well secured and in the process of collection, the Company may continue with the accrual of interest. The Company had loans on nonaccrual status of $24.9 million at March 31, 2023 and $30.9 million at December 31, 2022. The Company did not record income from the receipt of cash payments related to nonaccruing loans during the three months ended March 31, 2023 and March 31, 2022. The Company had no loans 90 days or more past due and still accruing at March 31, 2023 and December 31, 2022, respectively.

The following tables provide a summary of nonaccrual loans as of the dates indicated:
Nonaccrual Loans (1)
Collateral Dependent LoansNon-Collateral Dependent LoansTotal Nonaccrual LoansNonaccrual Loans with No ACL
(Dollars in thousands)BalanceACLBalanceACL
March 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied$5,545 $— $— $— $5,545 $5,545 
Multifamily3,708 — — — 3,708 3,708 
SBA secured by real estate519 — — — 519 519 
Total investor loans secured by real estate9,772 — — — 9,772 9,772 
Business loans secured by real estate
CRE owner-occupied9,102 — — — 9,102 9,102 
SBA secured by real estate1,190 — — — 1,190 1,190 
Total business loans secured by real estate10,292 — — — 10,292 10,292 
Commercial loans
Commercial and industrial4,236 3,999 — — 4,236 237 
SBA non-real estate secured572 — — — 572 572 
Total commercial loans4,808 3,999 — — 4,808 809 
Total nonaccrual loans$24,872 $3,999 $— $— $24,872 $20,873 

December 31, 2022
Investor loans secured by real estate
CRE non-owner-occupied$4,429 $— $— $— $4,429 $4,429 
Multifamily8,780 — — — 8,780 8,780 
SBA secured by real estate533 — — — 533 533 
Total investor loans secured by real estate13,742 — — — 13,742 13,742 
Business loans secured by real estate
CRE owner-occupied11,475 1,742 — — 11,475 9,733 
SBA secured by real estate1,191 — — — 1,191 1,191 
Total business loans secured by real estate12,666 1,742 — — 12,666 10,924 
Commercial loans
Commercial and industrial3,908 — — — 3,908 3,908 
SBA non-real estate secured589 — — — 589 589 
Total commercial loans4,497 — — — 4,497 4,497 
Total nonaccrual loans$30,905 $1,742 $— $— $30,905 $29,163 
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(1) The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent; otherwise, the ACL for collateral dependent nonaccrual loans is determined based on the estimated fair value of the underlying collateral.

Residential Real Estate Loans In Process of Foreclosure

The Company had no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of March 31, 2023 or December 31, 2022.
Troubled Debt Restructurings

Prior to the Company’s adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) - Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, the Company, in infrequent situations would modify or restructure loans when the borrower was experiencing financial difficulties by making a concession to the borrower. Such concessions typically were in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest-only payments, and, in very few cases, reductions to the outstanding loan balances. These modifications were classified as TDRs and were made for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows. A workout plan between us and the borrower was designed to provide a bridge for borrower cash flow shortfalls in the near term. In most cases, the Company initially placed TDRs on nonaccrual status, and they could be returned to accrual status when the loans were brought current, performed in accordance with the restructured contractual terms for a period of at least six months, and the ultimate collectability of the total contractual restructured principal and interest payments were no longer in doubt. ASU 2022-02 eliminated the concept of TDRs in current GAAP, and therefore, beginning January 1, 2023, the Company no longer reports loans modified as TDRs except for those loans modified and reported as TDRs in prior period financial information under previous GAAP.

At December 31, 2022, there were five loans totaling $16.1 million modified as TDRs, consisting of three CRE owner-occupied loans and one C&I loan totaling $5.1 million belonging to one borrower relationship with the terms modified due to bankruptcy, and one franchise non-real estate secured loans totaling $11.0 million belonging to another borrower relationship with the terms modified for payment deferral. During the three months ended March 31, 2022, the three CRE owner-occupied loans and one C&I loan classified as TDRs experienced payment default after modification within the previous 12 months and were in payment default. All TDRs were on nonaccrual status as of March 31, 2022.
Modified Loans to Troubled Borrowers
    
On January 1, 2023, the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. The Company also refers to these loans as modified loans to troubled borrowers. A MLTB arises from a modification made to a loan in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or any combination of the foregoing. The ACL for a MLTB is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for a MLTB is determined through individual evaluation.

During the three months ended March 31, 2023, there was one CRE owner-occupied MLTB.

The following table shows the amortized cost of the MLTB by class and type of modification, as well as the percentage of the loan modified to total loans in each class at and during the period indicated:
For the Three Months Ended March 31, 2023
Term Extension
(Dollars in thousands)BalancePercent of Total Class of Loans
Business loans secured by real estate
CRE owner-occupied$851 0.04 %
Total business loans secured by real estate851 
The following table describes the financial effect of the loan modification made for the borrower experiencing financial difficulty during the three months ended March 31, 2023:
Term Extension
Business loans secured by real estate
CRE owner-occupied
Extended term by 4 months
The following table depicts the performance of the MLTB under ASU 2022-02 in the last three months as of the date indicated:
Days Past Due
(Dollars in thousands)Current30-5960-8990+Total
March 31, 2023
Business loans secured by real estate
CRE owner-occupied$851 $— $— $— $851 
Total business loans secured by real estate851 — — — 851 
Total$851 $— $— $— $851 
Collateral Dependent Loans

Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

The following tables summarize collateral dependent loans by collateral type as of the dates indicated:
(Dollars in thousands)Office PropertiesIndustrial PropertiesRetail PropertiesLand PropertiesHotel PropertiesMultifamily PropertiesOther CRE PropertiesBusiness AssetsTotal
March 31, 2023
Investor loan secured by real estate
CRE non-owner-occupied$1,129 $— $450 $— $— $— $3,966 $— $5,545 
Multifamily— — — — — 3,708 — — 3,708 
SBA secured by real estate— — — — 519 — — — 519 
Total investor loans secured by real estate1,129 — 450 — 519 3,708 3,966 — 9,772 
Business loans secured by real estate
CRE owner-occupied4,341 — — 4,761 — — — — 9,102 
SBA secured by real estate104 1,086 — — — — — — 1,190 
Total business loans secured by real estate4,445 1,086 — 4,761 — — — — 10,292 
Commercial loans
Commercial and industrial— — — 237 — — — 3,999 4,236 
SBA non-real estate secured— — — — — — — 572 572 
Total commercial loans— — — 237 — — — 4,571 4,808 
Total collateral dependent loans$5,574 $1,086 $450 $4,998 $519 $3,708 $3,966 $4,571 $24,872 
(Dollars in thousands)Office PropertiesIndustrial PropertiesRetail PropertiesLand PropertiesHotel PropertiesMultifamily PropertiesOther CRE PropertiesBusiness AssetsTotal
December 31, 2022
Investor loan secured by real estate
CRE non-owner-occupied$— $— $463 $— $— $— $3,966 $— $4,429 
Multifamily— — — — — 8,780 — — 8,780 
SBA secured by real estate— — — — 533 — — — 533 
Total investor loans secured by real estate— — 463 — 533 8,780 3,966 — 13,742 
Business loans secured by real estate
CRE owner-occupied4,417 — — 4,813 — — 2,245 — 11,475 
SBA secured by real estate104 1,087 — — — — — — 1,191 
Total business loans secured by real estate4,521 1,087 — 4,813 — — 2,245 — 12,666 
Commercial loans
Commercial and industrial— — — 238 — — 490 3,180 3,908 
SBA non-real estate secured— — — — — — — 589 589 
Total commercial loans— — — 238 — — 490 3,769 4,497 
Total collateral dependent loans$4,521 $1,087 $463 $5,051 $533 $8,780 $6,701 $3,769 $30,905