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Loans Held for Investment
 3 Months Ended
Mar. 31, 2024
Receivables [Abstract]  
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)20242023
Investor loans secured by real estate
CRE non-owner-occupied$2,309,252 $2,421,772 
Multifamily5,558,966 5,645,310 
Construction and land486,734 472,544 
SBA secured by real estate35,206 36,400 
Total investor loans secured by real estate8,390,158 8,576,026 
Business loans secured by real estate
CRE owner-occupied2,149,362 2,191,334 
Franchise real estate secured294,938 304,514 
SBA secured by real estate48,426 50,741 
Total business loans secured by real estate2,492,726 2,546,589 
Commercial loans
Commercial and industrial1,774,487 1,790,608 
Franchise non-real estate secured301,895 319,721 
SBA non-real estate secured10,946 10,926 
Total commercial loans2,087,328 2,121,255 
Retail loans
Single family residential72,353 72,752 
Consumer1,830 1,949 
Total retail loans74,183 74,701 
Loans held for investment before basis adjustment (1)
13,044,395 13,318,571 
Basis adjustment associated with fair value hedge (2)
(32,324)(29,551)
Loans held for investment13,012,071 13,289,020 
Allowance for credit losses for loans held for investment(192,340)(192,471)
Loans held for investment, net$12,819,731 $13,096,549 
Total unfunded loan commitments$1,459,515 $1,703,470 
Loans held for sale, at lower of cost or fair value$— $— 
______________________________
(1) Includes net deferred origination costs (fees) of $797,000 and $(74,000), and unaccreted fair value net purchase discounts of $41.2 million and $43.3 million as of March 31, 2024 and December 31, 2023, 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 generally 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, 2024 and December 31, 2023, the servicing assets totaled $1.4 million and $1.6 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, 2024 and December 31, 2023, 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 $345,000 as of March 31, 2024 and December 31, 2023.

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 was $359.8 million at March 31, 2024 and $373.8 million at December 31, 2023, respectively. Included in those totals are multifamily loans transferred through securitization with Freddie Mac of $47.6 million and $48.0 million at March 31, 2024 and December 31, 2023, respectively, and SBA participations serviced for others of $246.1 million and $258.1 million at March 31, 2024 and December 31, 2023, respectively.
Concentration of Credit Risk
 
As of March 31, 2024, 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 $840.7 million for secured loans and $504.4 million for unsecured loans at March 31, 2024. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At March 31, 2024, the Bank’s largest aggregate outstanding balance of loans to one borrower was $319.3 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 at least 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 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, and 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 both 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. Other real estate owned (“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, 2024:
Term Loans by Vintage
(Dollars in thousands)20242023202220212020PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2024
Investor loans secured by real estate
CRE non-owner-occupied
Pass$25,930 $39,449 $456,670 $530,041 $174,446 $1,044,831 $— $— $2,271,367 
Special mention— — 4,190 2,509 — — — — 6,699 
Substandard— — 2,785 — 16,209 12,192 — — 31,186 
Multifamily
Pass2,332 183,941 1,172,758 1,965,579 708,447 1,478,920 — — 5,511,977 
Special mention— — — 18,303 — 11,576 — — 29,879 
Substandard— — — 4,603 12,507 — — — 17,110 
Construction and land
Pass7,234 62,758 319,264 91,445 2,226 3,376 — — 486,303 
Special mention— — — 431 — — — — 431 
SBA secured by real estate
Pass— — 6,451 — 493 20,541 — — 27,485 
Substandard— — — 131 — 7,590 — — 7,721 
Total investor loans secured by real estate35,496 286,148 1,962,118 2,613,042 914,328 2,579,026 — — 8,390,158 
Current period gross charge-offs— — — — — 1,180 — — 1,180 
Business loans secured by real estate
CRE owner-occupied
Pass9,310 21,215 541,542 615,237 217,548 651,272 — — 2,056,124 
Special mention— — 6,349 36,625 472 4,863 918 — 49,227 
Substandard— — 9,815 — 9,455 24,741 — — 44,011 
Franchise real estate secured
Pass1,225 10,497 41,473 120,949 25,369 88,080 — — 287,593 
Special mention— — — — — 1,597 — — 1,597 
Substandard— — 3,929 — — 1,819 — — 5,748 
SBA secured by real estate
Pass— 112 9,827 7,350 1,949 24,669 — — 43,907 
Special mention— — — — — 82 — — 82 
Substandard— — — — — 4,437 — — 4,437 
Total loans secured by business real estate10,535 31,824 612,935 780,161 254,793 801,560 918 — 2,492,726 
Current period gross charge-offs— 93 3,345 581 — 645 — — 4,664 
Commercial loans
Commercial and industrial
Pass6,427 49,636 156,868 148,942 38,675 244,163 975,215 825 1,620,751 
Special mention— 1,027 22,364 13,948 335 2,162 34,604 1,312 75,752 
Substandard— 14,289 8,052 2,735 406 1,248 47,145 — 73,875 
Doubtful
— — 4,109 — — — — — 4,109 
Term Loans by Vintage
(Dollars in thousands)20242023202220212020PriorRevolvingRevolving Converted to Term During the PeriodTotal
March 31, 2024
Franchise non-real estate secured
Pass$69 $7,789 $72,481 $107,807 $15,807 $81,601 $— $— $285,554 
Special mention— — — — — 648 — — 648 
Substandard— — 1,600 306 2,189 11,598 — — 15,693 
SBA non-real estate secured
Pass— 1,582 4,415 338 111 3,701 — — 10,147 
Substandard— — 515 — 138 146 — — 799 
Total commercial loans6,496 74,323 270,404 274,076 57,661 345,267 1,056,964 2,137 2,087,328 
Current period gross charge-offs— 49 — 126 29 16 465 — 685 
Retail loans
Single family residential
Pass— 20 — — 165 43,288 28,880 — 72,353 
Consumer loans
Pass— — — 2 8 425 1,395 — 1,830 
Total retail loans— 20 — 2 173 43,713 30,275 — 74,183 
Current period gross charge-offs— — — — — — — — — 
Loans held for investment before basis adjustment (1)
$52,527 $392,315 $2,845,457 $3,667,281 $1,226,955 $3,769,566 $1,088,157 $2,137 $13,044,395 
Total current period gross charge-offs$— $142 $3,345 $707 $29 $1,841 $465 $— $6,529 
______________________________
(1) Excludes the basis adjustment of $32.3 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, 2023:
Term Loans by Vintage
(Dollars in thousands)20232022202120202019PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied
Pass$71,452 $482,045 $549,828 $192,399 $315,139 $795,856 $— $— $2,406,719 
Special mention— 3,811 2,530 — — 625 — — 6,966 
Substandard— 412 — — — 7,675 — — 8,087 
Multifamily
Pass179,055 1,184,329 2,008,126 725,123 822,411 714,638 — — 5,633,682 
Special mention— — — — — 11,628 — — 11,628 
Construction and land
Pass59,993 309,677 94,845 2,223 2,368 3,438 — — 472,544 
SBA secured by real estate
Pass$— $6,478 $— $493 $4,804 $16,496 $— $— $28,271 
Substandard— — 131 — 536 7,462 — — 8,129 
Total investor loans secured by real estate310,500 1,986,752 2,655,460 920,238 1,145,258 1,557,818 — — 8,576,026 
Term Loans by Vintage
(Dollars in thousands)20232022202120202019PriorRevolvingRevolving Converted to Term During the PeriodTotal
December 31, 2023
Current period gross charge-offs$— $— $217 $— $1,582 $3,653 $— $— $5,452 
Business loans secured by real estate
CRE owner-occupied
Pass19,014 543,413 660,967 224,333 211,283 458,975 — — 2,117,985 
Special mention— 16,535 — 476 4,775 11,775 919 — 34,480 
Substandard— 15,539 2,162 5,505 3,873 11,790 — — 38,869 
Franchise real estate secured
Pass10,580 39,239 124,424 25,697 15,731 72,342 — — 288,013 
Special mention1,758 3,603 1,903 — 795 1,615 — — 9,674 
Substandard— 3,964 — — 2,571 292 — — 6,827 
SBA secured by real estate
Pass113 9,334 7,634 1,979 4,109 22,417 — — 45,586 
Special mention— 536 — — — 83 — — 619 
Substandard— — — — — 4,536 — — 4,536 
Total loans secured by business real estate31,465 632,163 797,090 257,990 243,137 583,825 919 — 2,546,589 
Current period gross charge-offs— — 318 191 — 1,861 — — 2,370 
Commercial loans
Commercial and industrial
Pass46,765 172,987 160,275 40,988 110,526 146,310 966,733 6,518 1,651,102 
Special mention239 23,242 12,270 367 16 2,139 42,570 407 81,250 
Substandard425 8,052 2,689 588 173 1,138 26,462 14,187 53,714 
Doubtful and loss— — — — — — — 4,542 4,542 
Franchise non-real estate secured
Pass6,801 74,441 112,112 16,355 34,770 53,957 — 753 299,189 
Special mention433 845 1,633 — 627 692 — — 4,230 
Substandard— 1,646 322 2,324 10,451 1,559 — — 16,302 
SBA non-real estate secured
Pass1,075 4,485 343 113 1,464 2,490 — — 9,970 
Substandard— 527 — 141 53 235 — — 956 
Total commercial loans55,738 286,225 289,644 60,876 158,080 208,520 1,035,765 26,407 2,121,255 
Current period gross charge-offs132 3,053 62 5 362 37 6,387 503 10,541 
Retail loans
Single family residential
Pass20 — — 167 — 44,104 28,461 — 72,752 
Consumer loans
Pass— — 3 9 5 788 1,144 — 1,949 
Total retail loans20 — 3 176 5 44,892 29,605 — 74,701 
Current period gross charge-offs$— $— $— $— $— $983 $3 $— $986 
Loans held for investment before basis adjustment (1)$397,723 $2,905,140 $3,742,197 $1,239,280 $1,546,480 $2,395,055 $1,066,289 $26,407 $13,318,571 
Total current period gross charge-offs$132 $3,053 $597 $196 $1,944 $6,534 $6,390 $503 $19,349 
______________________________
(1) Excludes the basis adjustment of $29.6 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(2)
(Dollars in thousands)Current30-5960-8990+Total
March 31, 2024
Investor loans secured by real estate
CRE non-owner-occupied$2,308,852 $— $— $400 $2,309,252 
Multifamily5,558,966 — — — 5,558,966 
Construction and land486,734 — — — 486,734 
SBA secured by real estate34,409 — 381 416 35,206 
Total investor loans secured by real estate8,388,961 — 381 816 8,390,158 
Business loans secured by real estate
CRE owner-occupied2,144,734 — — 4,628 2,149,362 
Franchise real estate secured294,646 — — 292 294,938 
SBA secured by real estate48,426 — — — 48,426 
Total business loans secured by real estate2,487,806 — — 4,920 2,492,726 
Commercial loans
Commercial and industrial1,770,803 1,729 575 1,380 1,774,487 
Franchise non-real estate secured300,336 — — 1,559 301,895 
SBA not secured by real estate10,146 254 — 546 10,946 
Total commercial loans2,081,285 1,983 575 3,485 2,087,328 
Retail loans
Single family residential72,335 — 18 — 72,353 
Consumer loans1,830 — — — 1,830 
Total retail loans74,165 — 18 — 74,183 
Loans held for investment before basis adjustment (1)
$13,032,217 $1,983 $974 $9,221 $13,044,395 

December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied$2,421,360 $— $— $412 $2,421,772 
Multifamily5,645,310 — — — 5,645,310 
Construction and land472,544 — — — 472,544 
SBA secured by real estate35,980 — — 420 36,400 
Total investor loans secured by real estate8,575,194 — — 832 8,576,026 
Business loans secured by real estate
CRE owner-occupied2,186,679 — — 4,655 2,191,334 
Franchise real estate secured304,222 292 — — 304,514 
SBA secured by real estate50,604 137 — — 50,741 
Total business loans secured by real estate2,541,505 429 — 4,655 2,546,589 
Commercial loans
Commercial and industrial1,788,855 228 1,294 231 1,790,608 
Franchise non-real estate secured318,162 1,559 — — 319,721 
SBA not secured by real estate10,119 249 — 558 10,926 
Total commercial loans2,117,136 2,036 1,294 789 2,121,255 
Retail loans
Single family residential72,733 19 — — 72,752 
Consumer loans1,949 — — — 1,949 
Total retail loans74,682 19 — — 74,701 
Loans held for investment before basis adjustment (1)
$13,308,517 $2,484 $1,294 $6,276 $13,318,571 
______________________________
(1) Excludes the basis adjustment of $32.3 million and $29.6 million to the carrying amount of certain loans included in fair value hedging relationships as of March 31, 2024 and December 31, 2023, respectively. Refer to Note 11 – Derivative Instruments for additional information.
(2) Nonaccrual loans are included in this aging analysis based on the loan’s past due status.
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, 2024, $63.8 million of loans were individually evaluated with $4.5 million ACL attributed to such loans. At March 31, 2024, $39.8 million of individually evaluated loans were evaluated based on the underlying value of the collateral and $24.0 million were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at March 31, 2024.

As of December 31, 2023, $24.8 million of loans were individually evaluated with no ACL attributed to such loans. At December 31, 2023, $12.2 million of individually evaluated loans were evaluated based on the underlying value of the collateral and $12.6 million were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at December 31, 2023.

The increase in individually evaluated loans during the first quarter of 2024 was primarily driven by a single, diversified commercial banking relationship with loans in CRE non-owner-occupied, CRE owner-occupied, and C&I categories, totaling $37.6 million, as well as a single lending relationship with loans in franchise non-real estate secured and franchise real estate categories, totaling $1.9 million as of March 31, 2024.

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 (“PCD”) loans. Please see Note 1 - Description of Business and Summary of Significant Accounting Policies of our audited consolidated financial statements included in our 2023 Form 10-K for more information concerning the accounting for PCD loans. The Company had PCD loans of $347.0 million and $359.3 million at March 31, 2024 and December 31, 2023, 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 regardless of the length of past due status. 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 $63.8 million at March 31, 2024 and $24.8 million at December 31, 2023. The increase in nonaccrual loans at March 31, 2024 was primarily the result of a single, diversified commercial banking relationship with loans in CRE non-owner occupied, CRE owner-occupied, and C&I categories, totaling $37.6 million, all of which were current, as well as a single lending relationship with loans in franchise non-real estate secured and franchise real estate categories, totaling $1.9 million, as of March 31, 2024.

The Company did not record income from the receipt of cash payments related to nonaccruing loans during the three months ended March 31, 2024 and 2023. The Company had no loans 90 days or more past due and still accruing at March 31, 2024 and December 31, 2023.

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, 2024
Investor loans secured by real estate
CRE non-owner-occupied$24,008 $2,657 $— $— $24,008 $17,499 
SBA secured by real estate1,258 — — — 1,258 1,258 
Total investor loans secured by real estate25,266 2,657 — — 25,266 18,757 
Business loans secured by real estate
CRE owner-occupied12,602 — — — 12,602 12,602 
Franchise real estate secured— — 292 43 292 — 
Total business loans secured by real estate12,602 — 292 43 12,894 12,602 
Commercial loans
Commercial and industrial1,380 — 22,161 1,521 23,541 13,541 
Franchise non-real estate secured— — 1,559 231 1,559 — 
SBA non-real estate secured546 — — — 546 546 
Total commercial loans1,926 — 23,720 1,752 25,646 14,087 
Total nonaccrual loans$39,794 $2,657 $24,012 $1,795 $63,806 $45,446 
December 31, 2023
Investor loans secured by real estate
CRE non-owner-occupied$412 $— $— $— $412 $412 
SBA secured by real estate1,205 — — — 1,205 1,205 
Total investor loans secured by real estate1,617 — — — 1,617 1,617 
Business loans secured by real estate
CRE owner-occupied8,666 — — — 8,666 8,666 
Total business loans secured by real estate8,666 — — — 8,666 8,666 
Commercial loans
Commercial and industrial1,381 — 12,595 — 13,976 13,976 
SBA non-real estate secured558 — — — 558 558 
Total commercial loans1,939 — 12,595 — 14,534 14,534 
Total nonaccrual loans$12,222 $— $12,595 $— $24,817 $24,817 
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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, 2024 and December 31, 2023.
Modified Loans to Troubled Borrowers
    
On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, 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 (“MLTB”). An 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 an 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 an MLTB is determined through individual evaluation.

Loans modified to borrowers experiencing financial difficulty were $12.2 million at March 31, 2024 and $12.6 million at December 31, 2023.

There were no loan modifications to borrowers experiencing financial difficulty during the three months ended March 31, 2024. There was one CRE owner-occupied loan to a troubled borrower modified during the first quarter of 2023 with an amortized cost of $851,000 as of March 31, 2023.

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 the total class of loans at and during the three months ended March 31, 2023:
Three Months Ended
March 31, 2023
Term Extension
(Dollars in thousands)Balance
Percent of Total Class of Loans
Business loans secured by real estate
CRE owner-occupied$851 0.04 %
Total business loans secured by real estate$851 

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


During the three months ended March 31, 2024 and 2023, there were no MLTBs that had a payment default and had been modified within the 12 months preceding the payment default (90 days or more past due).
The following table depicts the performance of the MLTBs as of the dates indicated:
Days Past Due
(Dollars in thousands)Current30-5960-8990+Total
March 31, 2024
Commercial loans
Commercial and industrial$12,161 $— $— $— $12,161 
Total commercial loans$12,161 $— $— $— $12,161 
March 31, 2023
Business loans secured by real estate
CRE owner-occupied$851 $— $— $— $851 
Total business loans secured by real estate$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, 2024
Investor loan secured by real estate
CRE non-owner-occupied$19,102 $2,385 $400 $— $— $— $2,121 $— $24,008 
SBA secured by real estate— — — — 1,258 — — — 1,258 
Total investor loans secured by real estate19,102 2,385 400 — 1,258 — 2,121 — 25,266 
Business loans secured by real estate
CRE owner-occupied7,974 — — 4,628 — — — — 12,602 
SBA secured by real estate— — — — — — — — — 
Total business loans secured by real estate7,974 — — 4,628 — — — — 12,602 
Commercial loans
Commercial and industrial— — — 230 — — — 1,150 1,380 
SBA non-real estate secured— — — — — — — 546 546 
Total commercial loans— — — 230 — — — 1,696 1,926 
Total collateral dependent loans$27,076 $2,385 $400 $4,858 $1,258 $— $2,121 $1,696 $39,794 
December 31, 2023
Investor loan secured by real estate
CRE non-owner-occupied$— $— $412 $— $— $— $— $— $412 
SBA secured by real estate— — — — 1,205 — — — 1,205 
Total investor loans secured by real estate— — 412 — 1,205 — — — 1,617 
Business loans secured by real estate
CRE owner-occupied4,011 — — 4,655 — — — — 8,666 
Total business loans secured by real estate4,011 — — 4,655 — — — — 8,666 
Commercial loans
Commercial and industrial— — — 231 — — — 1,150 1,381 
SBA non-real estate secured— — — — — — — 558 558 
Total commercial loans— — — 231 — — — 1,708 1,939 
Total collateral dependent loans$4,011 $— $412 $4,886 $1,205 $— $— $1,708 $12,222